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BGC Partners posts Q4 profit

24 February 2010  |  1811 views  |  0 Source: BGC Partners

BGC Partners (NASDAQ: BGCP) ("BGC Partners" or "the Company"), a leading global intermediary to the wholesale financial markets, today reported its financial results for the fourth quarter and full year ended December 31, 2009[1].

Fourth Quarter Financial Summary

  • Pre-tax distributable earnings[2] increased by 103.1 percent to $23.0 million or $0.11 per fully diluted share in the fourth quarter of 2009, compared with $11.3 million or $0.06 per fully diluted share in the year-earlier quarter.
  • Post-tax distributable earnings increased by 84.8 percent to $14.8 million or $0.07 per fully diluted share in the fourth quarter of 2009, compared with $8.0 million or $0.04 per fully diluted share in the fourth quarter of 2008.
  • Fourth quarter 2009 revenues as used to calculate distributable earnings increased by 4.2 percent to $299.8 million compared with $287.6 million in the year-earlier period.
  • The Company's revenues for the fourth quarter of 2009 as calculated in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") increased by 4.0 percent to $296.8 million, compared with $285.5 million in the fourth quarter of 2008.
  • GAAP income (loss) from continuing operations before income taxes and non-controlling interest in subsidiaries was $13.5 million in the fourth quarter of 2009, compared with ($0.7) million in the year-earlier period.
  • GAAP net income (loss) for fully diluted shares was $3.4 million or $0.02 per share in the fourth quarter of 2009, compared with ($0.0) million or ($0.00) per share in the year-earlier period.
  • BGC Partners' Board of Directors declared a quarterly cash dividend of $0.06 per share payable on March 22, 2010 to Class A and Class B common stockholders of record as of March 8, 2010.

"As stability returned to the markets towards the end of 2009, BGC's strategy of hiring and acquiring accretively, while investing in industry-leading technology, enabled the Company to exceed our previous outlook and to successfully deliver top- and bottom-line growth," said Howard W. Lutnick, Chairman and Chief Executive Officer of BGC Partners, Inc. "In the fourth quarter of 200er of BGC Partners, Inc. "In the fourth quarter of 2009, the Company generated double-digit revenue increases in Rates, Equities and Other Asset Classes[3], and in overall fully electronic trading, while our pre-tax and post-tax distributable earnings increased significantly, all when compared to the fourth quarter of 2008."

"During the fourth quarter of 2009, revenues from BGC's fully electronic Credit and Foreign Exchange businesses continued to gain significant momentum globally, and our fully electronic Rates businesses grew by double digits year-on-year," said Shaun D. Lynn, President of BGC Partners, Inc. "Overall, BGC's quarterly revenues related to fully electronic trading increased sequentially for the third quarter in a row, and were up by 38 percent year-over-year.

"BGC's continued investment of over $100 million per year in technology, and our unique partnership structure enable us to attract and retain some of the industry's most experienced and talented brokers and salespeople," Mr. Lynn continued. "Front-office headcount as of December 31, 2009 was up 18 percent compared to the end of 2008."

Mr. Lutnick concluded: "Because of the strong increase in our front office staff, substantial technology investment, and more favorable market conditions, we expect record quarterly revenues in the first quarter of 2010, and for our quarterly top-line growth to be between 19 and 26 percent year-over-year. We believe we have laid a strong foundation for growth to continue as the year progresses."

Full Year Financial Summary

  • Pre-tax distributable earnings were $115.2 million or $0.55 per fully diluted share for full year 2009, compared with $138.0 million or $0.73 per fully diluted share in 2008.
  • Post-tax distributable earnings were $82.3 million or $0.39 per fully diluted share in 2009, compared with $105.0 million or $0.55 per fully diluted share in 2008.
  • 2009 distributable earnings revenues were $1,171.0 million compared with $1,236.0 million in 2008.
  • 2009 GAAP revenues were $1,162.3 million, compared with $1,228.9 million in 2008.
  • GAAP income from continuing operations before income taxes and non-controlling interest in subsidiaries was $64.5 million in 2009, compared with $9.8 million in 2008.
  • GAAP net income (loss) for fully diluted shares was $50.7 million or $0.24 per share in 2009, compared with ($29.7) million or ($0.28) per share in 2008.

Fourth Quarter Revenues
For the fourth quarter of 2009, BGC Partners' GAAP revenues were $296.8 million versus $285.5 million in the fourth quarter of 2008. Revenues used to calculate distributable earnings were $299.8 million, compared with the prior year quarter's $287.6 million. Fourth quarter 2009 GAAP revenues were reduced by $2.9 million due to BGC Partners' pro rata share of losses on equity investments, while fourth quarter 2008 GAAP revenues were reduced by $2.1 million due to pro rata losses on the same equity investments. These items were not included in distributable earnings revenues.

Year-over-year gains in brokerage revenues from Rates and Equities and Other Asset Classes as well as the acquisition of Liquidez were partially offset by declines in brokerage revenues from Credit and Foreign Exchange. The Company also recognized lower fees from related parties due to a reduction in expenses related to services provided to Cantor following the eSpeed merger partially offset by an increase in fees from ELX.

Brokerage revenues for both GAAP and distributable earnings increased by 5.3 percent to $273.5 million, compared with $259.8 million in the prior year quarter. For the fourth quarter of 2009, Rates revenues were $136.6 million, Credit revenues were $70.4 million, Equities and Other Asset Classes revenues were $38.7 million, and Foreign Exchange revenues were $27.8 million. In comparison, for the fourth quarter of 2008, Rates revenues were $116.4 million, Credit revenues were $83.3 million, Equities and Other Asset Classes revenues were $29.2 million, and Foreign Exchange revenues were $30.9 million.

The Company's voice/hybrid and fully electronic Rates businesses both generated double digit percentage year-over-year growth in the December quarter, driven primarily by strong fixed income issuance over the preceding year. Overall, BGC Partners' Rates revenues increased by 17.4 percent in the fourth quarter of 2009 compared to the year-earlier period. Quarterly revenues from Equities and Other Asset Classes increased by 32.5 percent year-over-year, driven primarily by solid growth globally from the Company's equity-related products as well as strength in energy and commodity products.

Credit revenues decreased year-on-year, mainly due to an industry-wide decline in corporate bond and credit derivative revenues. Foreign Exchange revenues declined when compared with the year-ago quarter due primarily to lower industry-wide volumes, particularly for emerging markets FX options. These declines were partially offset by triple-digit percentage year-over-year growth in revenues from the fully electronic trading of Credit and Foreign Exchange products.

In the fourth quarter of 2009, Rates represented 45.6 percent of total distributable earnings revenues, Credit 23.5 percent, Equities and Other Asset Classes 12.9 percent, and Foreign Exchange 9.3 percent. In comparison, for the fourth quarter of 2008, Rates represented 40.5 percent of total distributable earnings revenues, Credit 29.0 percent, Equities and Other Asset Classes 10.2 percent, and Foreign Exchange 10.7 percent.

Fourth quarter of 2009 revenues related to fully electronic trading[4] increased by 38.2 percent to $27.7 million, which represented 9.2 percent of total distributable earnings revenues. This compares to $20.1 million or 7.0 percent of total distributable earnings revenues in the prior year period. This improvement was driven by significant increases in fully electronic trading revenues in spot foreign exchange, foreign exchange options, and credit default swaps, as well as by a strong increase in fully electronic revenues from the trading of U.S. Treasuries, Canadian sovereigns, and European government bonds, all when compared to the fourth quarter of 2008.

Fourth Quarter Expenses
Total GAAP expenses decreased slightly to $283.4 million in the fourth quarter of 2009 compared with $286.2 million in the prior year period. Total expenses on a distributable earnings basis were roughly flat at $276.8 million compared with $276.2 million in the fourth quarter of 2008.

On a distributable earnings basis, the Company's compensation and employee benefits were $184.3 million or 61.5 percent of revenue in the fourth quarter of 2009. In comparison, these figures were $181.7 million and 63.2 percent, respectively, in the year-earlier period.

The difference between fourth quarter 2009 compensation and employee benefits as calculated for GAAP and distributable earnings was due to $2.8 million in non-cash, non-dilutive charges related to compensation expense for restricted stock units and REUs granted pre-merger, $0.2 million in expenses related to dividend equivalents to holders of restricted stock units, partially offset by $0.1 million credit related to non-cash, non-dilutive compensation expenses related to the activation of exchangeability of founding partner interests granted pre-merger. The difference between fourth quarter 2008 compensation and employee benefits as calculated for GAAP and distributable earnings was a $6.0 million non-cash, non-dilutive charge related to compensation expense for restricted stock units and REUs granted pre-merger, a $2.4 million charge for non-cash, non-dilutive compensation expenses related to the activation of exchangeability of founding partner interests granted pre-merger, and $0.2 million in expenses related to dividend equivalents to holders of restricted stock units.

For the fourth quarter of 2009, GAAP non-compensation expenses declined by 3.7 percent to $92.4 million, and on a distributable earnings basis they declined by 2.2 percent to $92.5 million. These figures represented 31.1 percent of GAAP revenues and 30.8 percent of distributable earnings revenues, respectively. For the fourth quarter of 2008, non-compensation expenses were $96.0 million or 33.6 percent of revenues on a GAAP basis and $94.5 million or 32.9 percent on a distributable earnings basis.

The difference between non-compensation expenses in the fourth quarter of 2009 as calculated for GAAP and distributable earnings is primarily a $0.1 million credit related to the Company's previous assumption of the liability of a September 11, 2001 workers' compensation policy. The difference between other expenses in the fourth quarter of 2008 as calculated for GAAP and distributable earnings was $1.4 million in non-cash asset impairment charges.

Fourth Quarter Income
The Company recorded GAAP income from continuing operations before income taxes and non-controlling interest in subsidiaries of $13.5 million, GAAP net income for fully diluted shares of $3.4 million, and GAAP net income per fully diluted share of $0.02 in the fourth quarter of 2009. This compares to ($0.7) million, ($0.0) million, and ($0.00), respectively, in the fourth quarter of 2008.

In the fourth quarter of 2009, BGC Partners' pre-tax distributable earnings were $23.0 million or $0.11 per fully diluted share, compared with $11.3 million or $0.06 per fully diluted share in the fourth quarter of 2008. The Company's pre-tax distributable earnings margin was 7.7 percent in the fourth quarter of 2009 versus 3.9 percent in the prior year period.

BGC Partners recorded post-tax distributable earnings of $14.8 million or $0.07 per fully diluted share in the fourth quarter of 2009 compared with $8.0 million or $0.04 per fully diluted share in the fourth quarter of 2008. The Company's post-tax distributable earnings margin was 5.0 percent in the fourth quarter of 2009 versus 2.8 percent in the prior year quarter.

In the fourth quarter of 2009, the effective tax rate for distributable earnings was 29.4 percent compared with 22.1 percent a year earlier. The Company had a fully diluted weighted average share count of 217.7 million for the fourth quarter of 2009, compared with 189.1 million in the year earlier period. As of December 31, 2009, BGC Partners had a fully diluted share count of 218.7 million.

Full Year Revenues
For the full year 2009, BGC Partners' GAAP revenues were $1,162.3 million versus $1,228.9 million in 2008. Revenues used to calculate distributable earnings were $1,171.0 million, compared with $1,236.0 million in 2008. GAAP revenues were reduced by $8.7 million in 2009 due to BGC Partners' pro rata share of losses on equity investments, while 2008 GAAP revenues were reduced by $7.1 million due to pro rata losses on the same equity investments. These items were not included in distributable earnings revenues.

Year-over-year gains in brokerage revenues from Credit and Equities and Other Asset Classes as well as from the acquisition of Liquidez were offset primarily by declines in brokerage revenues from Foreign Exchange and Rates. In addition, the Company recognized lower fees from related parties due to a reduction in expenses related to services provided to Cantor following the eSpeed merger, partially offset by higher fees from ELX.

Brokerage revenues for both GAAP and distributable earnings were $1,073.6 million in 2009, compared with $1,118.6 million in 2008. For 2009, Rates revenues were $524.9 million, Credit revenues were $331.4 million, Equities and Other Asset Classes revenues were $122.5 million, and Foreign Exchange revenues were $94.8 million. In comparison, for 2008, Rates revenues were $554.1 million, Credit revenues were $307.5 million, Equities and Other Asset Classes revenues were $116.2 million, and Foreign Exchange revenues were $140.9 million.

Credit revenues improved by 7.8 percent year-on-year, driven primarily by the continued growth of the Company's corporate bond desks and in fully electronic credit derivatives trading versus 2008. Equities and Other Asset Classes revenues grew by 5.5 percent versus 2009 primarily as a result of strength in European equity-related products. Foreign Exchange and Rates revenues declined when compared with 2008 due primarily to lower industry-wide volumes, particularly for emerging markets FX options. This was partially offset by year-over-year growth in Foreign Exchange e-broking revenues.

In 2009 Rates represented 44.8 percent of total distributable earnings revenues, Credit 28.3 percent, Equities and Other Asset Classes 10.5 percent, and Foreign Exchange 8.1 percent. By comparison, in 2008 Rates represented 44.8 percent of total distributable earnings revenues, Credit 24.9 percent, Equities and Other Asset Classes 9.4 percent, and Foreign Exchange 11.4 percent.

For full year 2009, revenues related to fully electronic trading[5] increased by 12.5 percent to $95.9 million, which represented 8.2 percent of total distributable earnings revenues. This compares to $85.3 million or 6.9 percent of total distributable earnings revenues in 2008. This improvement was driven principally by significant increases in fully electronic revenues from Foreign Exchange and Credit brokerage, offset by a slight decrease in fully electronic Rates revenues, all when compared to 2008.

Full Year Expenses
For full year 2009, total GAAP expenses decreased by 10.0 percent to $1,097.8 million compared with $1,219.2 million in 2008. Total expenses on a distributable earnings basis decreased by 3.8 percent to $1,055.8 million compared with $1,098.1 million in 2008.

For full year 2009, the Company's compensation and employee benefits were $713.3 million or 60.9 percent of revenue on a distributable earnings basis. In comparison, these figures were $719.6 million and 58.2 percent, respectively, in the previous year.

The difference between 2009 compensation and employee benefits as calculated for GAAP and distributable earnings was due to $12.3 million in non-cash, non-dilutive charges related to compensation expense for restricted stock units and REUs granted pre-merger, and $0.7 million in expenses related to dividend equivalents to holders of restricted stock units partially offset by a $1.2 million credit for non-cash, non-dilutive compensation expenses related to the activation of exchangeability of founding partner interests granted pre-merger. The difference between 2008 compensation and employee benefits as calculated for GAAP and distributable earnings was due to $86.6 million in non-cash, non-dilutive compensation expenses related to the activation of exchangeability of founding partner interests granted pre-merger, $12.8 million in non-cash, non-dilutive charges related to compensation expense for restricted stock units and REUs granted pre-merger, and $0.4 million in expenses related to dividend equivalents to holders of restricted stock units.

In 2009, non-compensation expenses declined year-over-year by 8.3 percent on a GAAP basis to $356.0 million, and by 9.5 percent on a distributable earnings basis to $342.5 million. These figures represented 30.6 percent of GAAP revenues and 29.2 percent of distributable earnings revenues, respectively. In 2008, non-compensation expenses were $388.3 million or 31.6 percent of revenues on a GAAP basis and $378.5 million or 30.6 percent on a distributable earnings basis.

The difference between non-compensation expenses in 2009 as calculated for GAAP and distributable earnings includes a $10.1 million non-cash and non-dilutive donation of equity held personally by partners with respect to BGC's annual charity day. This amount was recorded as an expense, but is expected to be offset by a contribution to additional paid-in capital for GAAP purposes and therefore will have no economic impact on the Company or its balance sheet. Full year 2009 non-compensation expenses for distributable earnings also excluded $3.4 million in other non-cash, non-dilutive, and non-economic GAAP charges relating to the Company assuming the liability of a September 11, 2001 workers' compensation policy during year.

The difference between other expenses in 2008 as calculated for GAAP and distributable earnings included a $6.4 million non-cash, non-dilutive donation of equity held personally by partners with respect to BGC's annual charity day, offset by a contribution to additional paid-in capital, a $2.0 million pro forma adjustments for recapitalization in connection with the eSpeed merger, and a $1.4 million in non-cash asset impairment charges.

Full Year Income
In 2009, the Company recorded GAAP income from continuing operations before income taxes and non-controlling interest in subsidiaries of $64.5 million, GAAP net income for fully diluted shares of $50.7 million, and GAAP net income per fully diluted share of $0.24. This compares to $9.8 million, ($29.7) million, and ($0.28), respectively, in 2008.

For 2009, BGC Partners recorded pre-tax distributable earnings of $115.2 million or $0.55 per fully diluted share, compared with $138.0 million or $0.73 per fully diluted share in 2008. The Company's pre-tax distributable earnings margin was 9.8 percent in 2009 versus 11.2 percent in the prior year.

BGC Partners recorded post-tax distributable earnings of $82.3 million or $0.39 per fully diluted share in 2009 compared with $105.0 million or $0.55 per fully diluted share in 2008. The Company's post-tax distributable earnings margin was 7.0 percent in 2009 versus 8.5 percent in 2008.

For full year 2009, BGC Partners' effective tax rate for distributable earnings was 27.3 percent compared with 21.6 percent in 2008. For both GAAP and distributable earnings purposes, the Company had a fully diluted weighted average share count of 211.0 million for full year 2009. On a GAAP basis, the Company had a fully diluted weighted average share count of 105.8 million for full year 2008. For calculating distributable earnings, the Company had a fully diluted weighted average share count of 188.8 million for full year 2008. As of December 31, 2009, BGC Partners had a fully diluted share count of 218.7 million for both GAAP and distributable earnings.

Front Office Statistics
Because BGC Partners has been generating a growing percentage of its overall revenue from fully electronic trading, market data, and software solutions, the Company has expanded its front office statistics in order to give investors a more complete picture of its overall sales force productivity. BGC Partners will now include all of its brokerage, market data, and software sales personnel and the revenues generated by them[6] when discussing front office metrics.

Under the expanded methodology, BGC Partners had 1,553 brokers and salespeople as of December 31, 2009, up 6.5 percent compared to 1,458 as of September 30, 2009 and up 17.7 percent from 1,319 as of December 31, 2008. Revenue generated by the average front office employee for the fourth quarter of 2009 was approximately $188,000 compared with approximately $202,000 in the prior year period.

Historically, the Company's average revenue per front office employee has declined for the periods following significant headcount increases. BGC Partners' new brokers and salespeople generally achieve significantly higher productivity levels in their second year with the Company.

Under the prior method of reporting "broker statistics," BGC Partners had 1,521 voice/hybrid brokers as of December 31, 2009, up 6.9 percent compared to 1,423 as of September 30, 2009 and up 18.0 percent from 1,289 as of December 31, 2008. Voice/hybrid brokerage revenue per average voice/hybrid broker for the fourth quarter of 2009 was approximately $170,000 compared with $187,000 in the prior year period.

For the full year 2009, revenue generated by the average front office employee was approximately $799,000 compared with approximately $914,000 in 2008, while voice/hybrid brokerage revenue per average voice/hybrid broker was approximately $730,000 compared with approximately $845,000 in 2008.

Going forward, the Company will only provide overall front-office metrics.

Balance Sheet
As of December 31, 2009, the Company's cash position, which it defines as cash and cash equivalents, cash segregated under regulatory requirements, and reverse repurchase agreements, was $471.5 million; notes payable and collateralized borrowings were $167.6 million; book value per share was $2.46; and total capital, which BGC Partners defines as "redeemable partnership interest", Cantor's "non-controlling interest in subsidiaries", and "total stockholders' equity", was $440.1 million.

In comparison, as of December 31, 2008 the Company's cash position was $361.3 million; notes payable and collateralized borrowings were $150.0 million; book value per share was $2.31; and its total capital was $443.8 million.

The increase in BGC Partners' cash position from December 31, 2008 was due to the normal movement of payables and receivables.

First Quarter 2010 Outlook
The Company expects to generate distributable earnings revenues of between $340 million and $360 million in the first quarter of 2010, an increase of approximately 19 percent to 26 percent compared with $286.1 million in the prior year period.

The Company expects first quarter 2010 pre-tax distributable earnings to be approximately $38 million to $43 million, an increase of between 26 percent and 43 percent when compared with $30.1 million in the first quarter of 2009. BGC Partners expects first quarter 2010 post-tax distributable earnings to be between $27 million and $31 million, versus $22.6 million in the year-earlier quarter.

BGC Partners anticipates its effective tax rate for distributable earnings to be approximately 28 percent for the full year 2010.

Quarterly Dividend and Stock Repurchase
On February 22, 2010, the Company's Board of Directors declared a quarterly cash dividend of $0.06 per share payable on March 22, 2010 to Class A and Class B common stockholders of record as of March 8, 2010.

BGC Partners intends to pay not less than 75 percent of its post-tax distributable earnings per fully diluted share as cash dividends to all common stockholders. The Company's also intends to use the balance of its quarterly post-tax distributable earnings, after distributions to all partnership units and dividend payments to common stockholders, to buy back shares or partnership units. From January 1, 2009 through December 31, 2009, the Company repurchased approximately 4.0 million shares of its Class A common stock for an aggregate purchase price of $7.9 million.

As of December 31, 2009, the Company had approximately $32.4 million remaining from its $100 million repurchase authorization.

[1] Because of BGC Partners' merger with and into eSpeed on April 1, 2008, this release discusses historical financial results on a consolidated basis.

[2] See the sections of this release entitled "Distributable Earnings" and "Reconciliation of GAAP Income to Distributable Earnings" for a definition of this term and how, when and why management uses it.

[3] "Equities and Other Asset Classes" was formerly called simply "Other Asset Classes."

[4] For the fourth quarter of 2009, this includes $21.7 million in the "total brokerage revenues" line item and $6.0 million in the "fees from related party" line item. In the year-earlier period, these figures were $15.5 million and $4.6 million, respectively.

[4] For 2009, this includes $75.4 million in the "total brokerage revenues" line item and $20.6 million in the "fees from related party" line item. In 2008, these figures were $67.1 million and $18.2 million, respectively.

[6] This includes revenues from "total brokerage revenues" and "market data and software solutions", as well as the portion of "fees from related party" related to fully electronic trading.

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