Business context and reporting period
The supplied filing is BGC Partners, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, filed May 10, 2017. This differs from the request metadata naming BGC Group, Inc.; verify the intended registrant. BGC operates Financial Services brokerage and technology businesses and Newmark commercial Real Estate Services.
Financial results and liquidity
- Revenue: $707.4 million, up 10.4% from $640.7 million. Brokerage revenue rose 11.5% to $632.9 million.
- Profit: Pretax income was $28.8 million versus $19.4 million; consolidated net income was $22.1 million versus $14.6 million. Net income available to common stockholders was $18.2 million versus $12.5 million. Basic and diluted EPS were $0.06 versus $0.05.
- Margins: Pretax margin was approximately 4.1% versus 3.0%; common-stockholder net income margin was approximately 2.6% versus 2.0%.
- Cash flow: Operating cash flow was $109.1 million, versus cash used of $200.5 million a year earlier. Investing used $70.7 million and financing used $113.5 million. Cash and cash equivalents ended at $428.9 million.
- Liquidity: Company-defined liquidity was $534.0 million at March 31, down from $756.9 million at year-end 2016. Management attributed the decrease primarily to acquisitions, annual bonuses, unit/share redemptions and repurchases, working capital, taxes, and investment in hires.
- Debt and balance sheet: Notes payable and collateralized borrowings had a carrying value of $963.4 million; total liabilities were $3.72 billion and total assets were $4.91 billion. Long-term ratings were BBB- with stable outlooks from Fitch and S&P.
- Dividends: The quarter’s declared and paid dividend was $0.16 per share. On May 2, the board declared a $0.18 dividend payable June 5, 2017.
Material changes versus the prior comparable period
- Revenue growth was led by Real Estate Services, up 20.3% to $258.0 million, and Financial Services, up 5.6% to $441.2 million. Segment pretax income rose to $21.4 million in Real Estate Services and $91.9 million in Financial Services.
- Brokerage gains included rates revenue up 13.5%, real estate capital markets up 26.8%, and leasing and other services up 20.8%. Equities, insurance, and other asset classes rose 56.5%, largely reflecting Sunrise Brokers and Besso acquisitions.
- Offsets included lower credit revenue (3.6%), foreign exchange (3.0%), and energy and commodities (17.5%). Data, software and post-trade revenue declined 6.1%.
- Total expenses increased 10.6% to $684.6 million. Compensation and employee benefits rose $27.2 million, while partnership allocations and exchangeability charges rose $30.3 million to $63.2 million.
- Other income improved to $5.9 million from a $2.0 million loss, including marketable-security mark-to-market and acquisition-related adjustments. Prior-year other revenues included Hurricane Sandy insurance recoveries.
Outlook, commentary, risks, and unusual items
- Management expressed confidence in growth from acquisitions, hiring, electronic brokerage, and Newmark, but gave no specific consolidated revenue, earnings, or EPS guidance in the supplied filing text. It expects to use resources for debt repayment, hiring, acquisitions, dividends, and repurchases while seeking to maintain or improve its investment-grade rating.
- FENICS net revenue increased 4.8% to $59.3 million for the quarter. Management cited stronger fully electronic rates activity and expects continued growth as more voice and hybrid desks move to electronic execution.
- The company had confidentially submitted a draft registration statement for a proposed IPO of Newmark, with a possible later pro rata distribution of shares to BGC stockholders; timing and offering terms were undetermined.
- On April 21, 2017, BGC entered a $150 million revolving facility with a Cantor affiliate and lent the full amount to that affiliate at 4.24%; it funded the loan with a $150 million draw on its bank revolver at 2.99%. This is a material subsequent related-party financing transaction.
- Key exposures include transaction-volume and market volatility, regulation and capital requirements, counterparty and settlement risk, foreign exchange, marketable-security values, technology/cybersecurity and operational disruptions, litigation, and acquisition integration. Management reported pending legal matters but could not estimate losses beyond accruals; it did not expect the matters, taken together, to materially adversely affect the financial statements.
- Acquisitions during the quarter had approximately $80.2 million of total fair-value consideration, including contingent consideration, and generated approximately $44.5 million of goodwill. The company reported $52.7 million of contingent consideration liabilities.
Important facts for investors to verify
- Confirm the registrant identity: the filing is for BGC Partners, Inc., not the BGC Group, Inc. named in the request.
- Assess the sustainability of earnings growth after acquisition effects, compensation and partnership-allocation costs, and volatile market-related income.
- Reconcile the $534.0 million company-defined liquidity measure with restricted cash, securities lent, working-capital settlement balances, and the funding of the subsequent $150 million affiliate loan.
- Review debt maturities, interest costs, refinancing needs, and the effect of the post-quarter revolver draw and related-party loan.
- Evaluate dilution and governance implications of equity sales, exchangeable partnership interests, Cantor’s voting control, and the proposed Newmark IPO/separation.