NEW YORK, March 28, 2019 /PRNewswire/ -- BGC Partners, Inc.
(NASDAQ: BGCP) ("BGC Partners" or "BGC" or "the Company"), a
leading global brokerage and financial technology company, today
announced that it has updated its outlook for the quarter ending
March 31, 2019. As a reminder, the
outlook reflects the continuing operations of BGC and excludes the
results of its former subsidiary Newmark Group, Inc. (NASDAQ: NMRK)
("Newmark"), as all the shares of Newmark held by the Company were
spun off (the "Spin-Off" or "Distribution") to stockholders of BGC
on November 30, 2018.1,
2
Updated Outlook
BGC's revenues and pre-tax Adjusted
Earnings for the first quarter of 2019 are now expected to be
around the midpoint of the range of its previously stated guidance.
This outlook was contained in BGC's financial results press release
issued on February 14, 2019, which
can be found at http://ir.bgcpartners.com.
Non-GAAP Financial Measures
This document contains
non-GAAP financial measures that differ from the most directly
comparable measures calculated and presented in accordance with
Generally Accepted Accounting Principles in the United States ("GAAP"). Non-GAAP financial
measures used by the Company include "pre-tax Adjusted Earnings"
"post-tax Adjusted Earnings", and "Adjusted EBITDA". These terms
are defined later in this document. Adjusted Earnings and Adjusted
EBITDA exclude charges with respect to equity-based compensation.
Whenever GAAP charges with respect to grants of exchangeability are
discussed by the Company, such charges reflect the right of holders
of limited partnership units with no capital accounts, such as LPUs
and PSUs, to exchange these units into shares of common stock, or
into partnership units with capital accounts, such as HDUs, as well
as cash paid with respect to taxes withheld or expected to be owed
by the unit holder upon such exchange.
The withholding taxes related to the exchange of certain
non-exchangeable units without a capital account into either common
shares or units with a capital account may be funded by the
redemption of preferred units such as PPSUs. Any preferred units
would not be included in the Company's fully diluted share count
because they cannot be made exchangeable into shares of common
stock and are entitled only to a fixed distribution. Preferred
units are granted in connection with the grant of certain limited
partnership units that may be granted exchangeability at ratios
designed to cover any withholding taxes expected to be paid by the
unit holder upon exchange. This is an alternative to the common
practice among public companies of issuing the gross amount of
shares to employees, subject to cashless withholding of shares, to
pay applicable withholding taxes.
Adjusted Earnings and Adjusted EBITDA exclude GAAP charges with
respect to the grant of an offsetting amount of common stock in
connection with the redemption non-exchangeable units, including
PSUs and LPUs. Such charges are economically similar to grants of
exchangeability and reflect the value of the common stock issued.
These charges are non-dilutive, as the units had been included when
issued for diluted earnings per share calculations.
In addition, Adjusted Earnings and Adjusted EBITDA exclude GAAP
charges with respect to allocations of net income to limited
partnership units and FPUs. Such allocations represent the pro-rata
portion of post-tax GAAP earnings available to such unit holders.
These units are in the fully diluted share count and may be made
exchangeable into shares of common stock or, when applicable, into
partnership units with capital accounts that may be made
exchangeable into common shares. When such units are exchanged into
common shares, unit holders become entitled to cash dividends
rather than cash distributions. The Company views such allocations
as intellectually similar to dividends on common shares. Because
dividends paid on common shares are not an expense under GAAP,
management believes similar allocations of income to unit holders
should also be excluded when analyzing the Company's results on a
fully diluted share basis with respect to Adjusted Earnings and
Adjusted EBITDA.
Adjusted Earnings calculations also exclude certain unusual,
one-time, non-ordinary or non-recurring items, if any, including
certain gains and charges with respect to acquisitions,
dispositions, or resolutions of litigation. These items are
excluded from Adjusted Earnings because the Company views excluding
such items as a better reflection of the ongoing operations of
BGC.
Adjusted Earnings Defined
BGC Partners uses non-GAAP
financial measures including, but not limited to, "pre-tax Adjusted
Earnings" and "post-tax Adjusted Earnings", which are supplemental
measures of operating results that are used by management to
evaluate the financial performance of the Company and its
consolidated subsidiaries. BGC believes that Adjusted Earnings best
reflect the operating earnings generated by the Company on a
consolidated basis and are the earnings which management considers
when managing its business. The following definitions have been
updated to reflect only BGC's continuing operations, which excludes
the impact of the Company's former subsidiary, Newmark Group,
Inc.
As compared with "income (loss) from continuing operations
before income taxes" and "net income (loss) from continuing
operations per fully diluted share", all prepared in accordance
with GAAP, Adjusted Earnings calculations primarily exclude certain
non-cash items and other expenses that generally do not involve the
receipt or outlay of cash by the Company and/or which do not dilute
existing stockholders, as described below. In addition, Adjusted
Earnings calculations exclude certain gains and charges that
management believes do not best reflect the ordinary results of
BGC.
Adjustments Made to Calculate Pre-Tax Adjusted
Earnings
BGC defines pre-tax Adjusted Earnings as GAAP
income (loss) from continuing operations before income taxes and
noncontrolling interest in subsidiaries, excluding items such
as:
- Non-cash GAAP asset impairment charges, if any;
- Allocations of net income to limited partnership units and
FPUs;
- Non-cash GAAP charges related to the amortization of
intangibles with respect to acquisitions;
- GAAP charges relating to grants of exchangeability of
partnership units with no capital accounts into shares of common
stock or into partnership units with capital accounts, and, in
conjunction with the exchange of such units, the redemption of
preferred units;
- GAAP charges with respect to the grant of an offsetting amount
of common stock in connection with the redemption of certain units;
and
- Unusual, one-time, non-ordinary, or non-recurring items.
Virtually all of BGC's key executives and producers have equity
or partnership stakes in the Company and its subsidiaries and
generally receive deferred equity or limited partnership units as
part of their compensation. A significant percentage of BGC's fully
diluted shares are owned by its executives, partners and employees.
The Company issues limited partnership units as well as other forms
of equity-based compensation, including grants of
exchangeability into shares of common stock, to provide
liquidity to its employees, to align the interests of its employees
and management with those of common stockholders, to help motivate
and retain key employees, and to encourage a collaborative culture
that drives cross-selling and revenue growth.
When the Company issues limited partnership units, the shares of
common stock into which the units can be ultimately exchanged are
included in BGC's fully diluted share count for Adjusted Earnings
at the beginning of the subsequent quarter after the date of grant
because the unit holder could be granted the ability to exchange
their units into shares of common stock in the future. Generally,
units other than preferred units are expected to be paid a pro-rata
distribution based on BGC's calculation of Adjusted Earnings per
fully diluted share. Charges with respect to grants of
exchangeability reflect the value of the shares of common stock
into which the unit is exchangeable when the unit holder is granted
exchangeability not previously expensed in accordance with GAAP.
The amount of charges relating to grants of exchangeability the
Company uses to calculate pre-tax Adjusted Earnings on a quarterly
basis is based upon the Company's estimate of expected grants of
exchangeability to limited partnership units and other compensatory
grants of equity during the annual period, as described further
below under "Adjustments Made to Calculate Post-Tax Adjusted
Earnings".
Adjustments Made to Calculate Post-Tax Adjusted
Earnings
Although Adjusted Earnings are calculated on a
pre-tax basis, BGC also reports post-tax Adjusted Earnings. The
Company defines post-tax Adjusted Earnings as pre-tax Adjusted
Earnings reduced by the non-GAAP tax provision described below and
Adjusted Earnings attributable to noncontrolling interest in
subsidiaries.
The Company calculates its tax provision for post-tax Adjusted
Earnings using an annual estimate similar to how it accounts for
its income tax provision under GAAP. To calculate the quarterly tax
provision under GAAP, BGC estimates its full fiscal year GAAP
income (loss) from continuing operations before income taxes and
noncontrolling interests in subsidiaries and the expected
inclusions and deductions for income tax purposes, including
expected grants of exchangeability and other compensatory grants of
equity during the annual period. The resulting annualized tax rate
is applied to BGC's quarterly GAAP income (loss) from continuing
operations before income taxes and noncontrolling interests in
subsidiaries. At the end of the annual period, the Company updates
its estimate to reflect the actual tax amounts owed for the
period.
To determine the non-GAAP tax provision, BGC first adjusts
pre-tax Adjusted Earnings by recognizing any, and only, amounts for
which a tax deduction applies under applicable law. The amounts
include charges with respect to grants of exchangeability and other
compensatory grants of equity, certain charges related to employee
loan forgiveness, certain net operating loss carryforwards when
taken for statutory purposes, certain charges related to tax
goodwill amortization, and deductions with respect to any
charitable contributions. These adjustments may also reflect timing
and measurement differences, including treatment of employee loans,
changes in the value of units between the dates of grants of
exchangeability and the date of actual unit exchange, variations in
the value of certain deferred tax assets, and liabilities and the
different timing of permitted deductions for tax under GAAP and
statutory tax requirements.
After application of these adjustments, the result is the
Company's taxable income for its pre-tax Adjusted Earnings, to
which BGC then applies the statutory tax rates to determine its
non-GAAP tax provision. BGC's effective tax rate on pre-tax
Adjusted Earnings is equal to the amount of its non-GAAP tax
provision divided by the amount of pre-tax Adjusted Earnings.
Generally, the most significant factor affecting this non-GAAP
tax provision is the amount of charges relating to the grants of
exchangeability and other compensatory grants of equity. Because
the charges relating to the grants of exchangeability and other
compensatory grants of equity are deductible in accordance with
applicable tax laws, increases in exchangeability and such grants
have the effect of lowering the Company's non-GAAP effective tax
rate and thereby increasing its post-tax Adjusted Earnings.
Management uses Adjusted Earnings in part to help it evaluate,
among other things, the overall performance of the Company's
business, to make decisions with respect to the Company's
operations, and to determine the amount of dividends payable to
common stockholders and distributions payable to holders of limited
partnership units.
BGC incurs income tax expenses based on the location, legal
structure and jurisdictional taxing authorities of each of its
subsidiaries. Certain of the Company's entities are taxed as U.S.
partnerships and are subject to the Unincorporated Business Tax
("UBT") in New York City. Any U.S.
federal and state income tax liability or benefit related to the
partnership income or loss, with the exception of UBT, rests with
the unit holders rather than with the partnership entity. The
Company's consolidated financial statements include U.S. federal,
state and local income taxes on the Company's allocable share of
the U.S. results of operations. Outside of the U.S., BGC operates
principally through subsidiary corporations subject to local income
taxes. For these reasons, taxes for Adjusted Earnings are expected
to be presented to show the tax provision the consolidated Company
would expect to pay if 100 percent of earnings were taxed at global
corporate rates.
Calculations of Post-Tax Adjusted Earnings per
Share
BGC's post-tax Adjusted Earnings per share
calculations assume either that:
- The fully diluted share count includes the shares related to
any dilutive instruments, but excludes the associated expense, net
of tax, when the impact would be dilutive; or
- The fully diluted share count excludes the shares related to
these instruments, but includes the associated expense, net of
tax.
The share count for Adjusted Earnings excludes certain shares
and share equivalents expected to be issued in future periods but
not yet eligible to receive dividends and/or distributions. Each
quarter, the dividend payable to BGC's stockholders, if any, is
expected to be determined by the Company's Board of Directors with
reference to a number of factors, including post-tax Adjusted
Earnings per share. BGC may also pay a pro-rata distribution of net
income to limited partnership units, as well as to Cantor for its
noncontrolling interest. The amount of this net income, and
therefore of these payments per unit, would be determined using the
above definition of post-tax Adjusted Earnings per share on a
pre-tax basis.
The declaration, payment, timing and amount of any future
dividends payable by the Company will be at the discretion of its
Board of Directors.
Other Matters with Respect to Adjusted Earnings
The
term "Adjusted Earnings" should not be considered in isolation or
as an alternative to GAAP net income (loss). The Company views
Adjusted Earnings as a metric that is not indicative of liquidity
or the cash available to fund its operations, but rather as a
performance measure. Pre- and post-tax Adjusted Earnings, as well
as related measures, are not intended to replace the Company's
presentation of its GAAP financial results. However, management
believes that these measures help provide investors with a clearer
understanding of BGC's financial performance and offer useful
information to both management and investors regarding certain
financial and business trends related to the Company's financial
condition and results of operations. Management believes that the
GAAP and Adjusted Earnings measures of financial performance should
be considered together.
BGC anticipates providing forward-looking guidance for GAAP
revenues and for certain non-GAAP measures from time to time.
However, the Company does not anticipate providing an outlook for
other GAAP results. This is because certain GAAP items, which are
excluded from Adjusted Earnings, are difficult to forecast with
precision before the end of each period. The Company therefore
believes that it is not possible to forecast GAAP results or to
quantitatively reconcile GAAP forecasts to non-GAAP forecasts with
sufficient precision unless BGC makes unreasonable efforts. The
items that are difficult to predict on a quarterly basis with
precision and which can have a material impact on the Company's
GAAP results include, but are not limited, to the following:
- Allocations of net income and grants of exchangeability to
limited partnership units, as well as other compensatory grants of
equity, which are determined at the discretion of management
throughout and up to the period-end;
- The impact of certain marketable securities, as well as any
gains or losses related to associated mark-to- market movements
and/or hedging. These items are calculated using period-end closing
prices;
- Non-cash asset impairment charges, which are calculated and
analyzed based on the period-end values of the underlying assets.
These amounts may not be known until after period-end; and
- Acquisitions, dispositions and/or resolutions of litigation,
which are fluid and unpredictable in nature.
For more information regarding Adjusted Earnings, see the
certain sections and tables of this document and/or the Company's
most recent financial results press release in which BGC's non-GAAP
results are reconciled to those under GAAP.
Adjusted EBITDA
BGC also provides an additional
non-GAAP financial performance measure, "Adjusted EBITDA", which it
defines as GAAP "Net income (loss) available to common
stockholders", adjusted to add back the following items:
- Interest expense;
- Fixed asset depreciation and intangible asset
amortization;
- Impairment charges;
- Employee loan amortization and reserves on employee loans;
- Provision (benefit) for income taxes;
- Net income (loss) attributable to noncontrolling interest in
subsidiaries;
- Allocations of net income to limited partnership units and
FPUs;
- GAAP charges relating to grants of exchangeability of
partnership units with no capital accounts into shares of common
stock or into partnership units with capital accounts, and, in
conjunction with the exchange of such units, the redemption of
preferred units;
- GAAP charges with respect to the grant of an offsetting amount
of common stock in connection with the redemption of certain units;
and
- Non-cash earnings or losses related to the Company's equity
investments.
The Company's management believes that its Adjusted EBITDA
measure is useful in evaluating BGC's operating performance because
the calculation of this measure generally eliminates the effects of
financing and income taxes and the accounting effects of capital
spending and acquisitions, which would include impairment charges
of goodwill and intangibles created from acquisitions. Such items
may vary for different companies for reasons unrelated to overall
operating performance. As a result, the Company's management uses
this measure to evaluate operating performance and for other
discretionary purposes. BGC believes that Adjusted EBITDA is useful
to investors to assist them in getting a more complete picture of
the Company's financial results and operations.
Since BGC's Adjusted EBITDA measure is not a recognized
measurement under GAAP, investors should use this measure in
addition to GAAP measures of net income when analyzing BGC's
operating performance. Because not all companies use identical
EBITDA calculations, the Company's presentation of Adjusted EBITDA
may not be comparable to similarly titled measures of other
companies. Furthermore, Adjusted EBITDA is not intended to be a
measure of free cash flow or GAAP cash flow from operations because
the Company's Adjusted EBITDA measure does not consider certain
cash requirements, such as tax and debt service payments.
For more information regarding Adjusted EBITDA, see the certain
sections and tables of this document and/or the Company's most
recent financial results press release in which BGC's non-GAAP
results are reconciled to those under GAAP.
Liquidity Defined
BGC also uses a non-GAAP measure
called "liquidity". The Company considers liquidity to be comprised
of the sum of cash and cash equivalents plus marketable securities
that have not been financed, reverse repurchase agreements, and
securities owned, less securities loaned and repurchase agreements.
BGC considers this an important metric for determining the amount
of cash that is available or that could be readily available to the
Company on short notice.
Simplified Non-GAAP Reporting Beginning in 2019
As a
reminder, as previously announced, beginning with the first quarter
of 2019, the Company has simplified and clarified its definitions
of Adjusted Earnings and Adjusted EBITDA in order to be more
consistent with how many other companies report their non-GAAP
results. The Company's outlook is based on this new
methodology.
Specifically, the Company will no longer add back only grants of
exchangeability to limited partnership units and FPUs and issuance
of common stock. Instead, BGC is adding back all charges relating
to equity-based compensation, as described below. The amount added
back each period is expected to match the line item Equity-based
compensation and allocations of net income to limited partnership
units as recorded on the Company's GAAP statements of cash flows.
This GAAP line item includes:
- GAAP charges relating to grants of exchangeability of
partnership units with no capital accounts into shares of common
stock or into partnership units with capital accounts, and, in
conjunction with the exchange of such units, the redemption of
preferred units;
- GAAP charges related to amortization of RSUs and limited
partnership units as well as to grants of equity awards;
- GAAP charges with respect to the grant of an offsetting amount
of common stock in connection with the redemption of certain units;
and
- GAAP allocations of net income to limited partnership units and
FPUs.
All share equivalents that are part of the Company's
equity-based compensation program, including RSUs, REUs, PSUs,
LPUs, HDUs, and other units that may be made exchangeable into
common stock, have always been included in the fully diluted share
count when issued. The Company expects to periodically provide an
annual outlook for the growth of its fully diluted share count
expected as a result of its ongoing equity-based and partnership
compensation program.
The Company also plans to no longer exclude GAAP charges with
respect to employee loan amortization and reserves on employee
loans when calculating Adjusted EBITDA. Going forward, the
Company's reported Adjusted EBITDA for 2017 and 2018 will no longer
exclude such GAAP charges.
These changes in non-GAAP presentation will be implemented for
the first time when the Company reports its results for the three
months ended March 31, 2019. The
Company has recast its historical non-GAAP financial presentation
for 2018 and 2017 consistent with this new definition in Excel
tables on its investor relations website at ir.bgcpartners.com.
About BGC Partners, Inc.
BGC Partners is a leading
global brokerage and financial technology company. BGC's Financial
Services offerings include fixed income securities, interest rate
swaps, foreign exchange, equities, equity derivatives, credit
derivatives, commodities, futures, and structured products. BGC
provides a wide range of services, including trade execution,
broker-dealer services, clearing, trade compression, post trade,
information, and other services to a broad range of financial and
non-financial institutions. Through brands including Fenics, BGC
Trader, Capitalab, Lucera, and Fenics Market Data, BGC offers
financial technology solutions, market data, and analytics related
to numerous financial instruments and markets. BGC, BGC Trader,
GFI, Fenics, Fenics Market Data, Capitalab, and Lucera are
trademarks/service marks and/or registered trademarks/service marks
of BGC Partners, Inc. and/or its affiliates.
BGC's customers include many of the world's largest banks,
broker-dealers, investment banks, trading firms, hedge funds,
governments, corporations, and investment firms. BGC's Class A
common stock trades on the NASDAQ Global Select Market under the
ticker symbol "BGCP". BGC Partners is led by Chairman and Chief
Executive Officer Howard W. Lutnick.
For more information, please visit http://www.bgcpartners.com. You
can also follow BGC at https://twitter.com/bgcpartners,
https://www.linkedin.com/company/bgc-partners and/or
http://ir.bgcpartners.com/Investors/default.aspx.
Discussion of Forward-Looking Statements about
BGC
Statements in this document regarding BGC or BGC's
non-GAAP financial measures that are not historical facts are
"forward-looking statements" that involve risks and uncertainties,
which could cause actual results to differ from those contained in
the forward-looking statements. Except as required by law, BGC
undertakes no obligation to update any forward-looking statements.
For a discussion of additional risks and uncertainties, which could
cause actual results to differ from those contained in the
forward-looking statements, see BGC's Securities and Exchange
Commission filings, including, but not limited to, the risk factors
set forth in these filings and any updates to such risk factors
contained in subsequent Forms 10-K, Forms 10-Q or Forms 8-K.
Media Contact:
Karen
Laureano-Rikardsen
+1 212-829-4975
Investor Contacts:
Ujjal Basu
Roy or Jason McGruder
+1 212-610-2426
1 This includes the shares of Newmark Class A
and Class B common stock owned by BGC, as well as the shares of
Newmark common stock into which the limited partnership units of
Newmark Holdings, L.P. and Newmark Partners, L.P. owned by BGC were
exchanged prior to and in connection with the Spin-Off. For more
information, see the press release titled "BGC Partners Announces
Completion of Spin-Off of Newmark" dated November 30, 2018, and the related filing on Form
8-K filed before market open on December
6, 2018.
2 The financial results from continuing operations of BGC do
not present a distinct corporate segment and are generally
comparable to the stand-alone results for BGC Partners excluding
Newmark Group, referred to as "post-spin BGC" in previous
documents. Post-spin BGC represented what BGC financial results
would have been had the spin-off of Newmark occurred prior to the
Distribution date of November 30,
2018. Post-spin BGC can also be defined as the results for
BGC's Financial Services segment plus its pro-rata portion of
corporate items.
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