Provides Additional Information with Respect to Its Cash Position and Dividend Policy
BGC Partners, (“BGC Partners” or “BGC” or the “Company”), a leading global brokerage and financial technology company, provided an update on its operations, financial results, and other relevant financial information.
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Management Comments
Howard W. Lutnick, Chairman and Chief Executive Officer of BGC said: “In these unprecedented and difficult times, all of us at BGC Partners wish to express sympathy for all who have been experiencing the pain and stress of this global health and financial crisis.
“I have never been more proud of our team, who have come together and worked with extraordinary dedication from remote locations, all while facing enormous uncertainty. Our employees across the firm are focused on serving our clients throughout these most difficult circumstances. It is because of our people that we continue to operate effectively.
“Our clients are also operating under incredibly challenging conditions. We are working closer than ever with our clients’ employees, traders, salespeople, technology professionals, and operational staff in order to maintain their connectivity to our platforms, and to help them access critical global market liquidity. We will continue to adapt as conditions change.”
Shaun D. Lynn, President of BGC, added: “We are inspired by the selfless dedication of the health care workers and first responders during this escalating public health crisis. Their commitment to others, while compromising their own safety, serves as an example for all of us to work together to support one another. As we have in the past, everyone at BGC is doing all that they can to meet the challenges that we all are facing while continuing to serve our clients to the best of our abilities.
“We want to thank our management and staff members who have worked tirelessly over these past several weeks in order to maintain BGC’s operations. We also want to thank our clients around the world for their support.”
Updated Outlook
Due to the enormous effort on the part of its employees and clients, BGC believes that it is likely to perform better than it had expected when it provided its previous outlook. March has been highly volatile, with significant volumes across numerous global instruments. The Company’s initial outlook was contained in BGC’s financial results press release issued on February 6, 2020, which can be found at http://ir.bgcpartners.com. BGC expects to release its first quarter financial results before market open on May 5, 2020. Details will be posted well before the call.
Cash Position and Drawdown
The Company believes that its balance sheet and liquidity remain strong. Nonetheless, BGC has drawn down an aggregate of $230 million from its revolving credit facility since December 31, 2019, for a total of $300 million outstanding. The Company increased this borrowing in order to preserve financial flexibility given current uncertainty in the global markets resulting from the COVID-19 pandemic. BGC notes that it has no meaningful debt maturities due until 2021. The proceeds from the revolving credit facility may be used for general corporate purposes.
Future Dividends
Given the ongoing macroeconomic uncertainty, after consultations with its Board of Directors, BGC expects to reduce its quarterly dividend to one cent per common share. This will allow management to prioritize near-term financial flexibility and bolster its financial position in these uncertain times. The Board of Directors intends to review the Company’s quarterly cash dividend policy as developments warrant at a future time. Additionally, BGC Holdings, L.P. also expects to reduce its distributions of income from the operations of BGC’s businesses to its partners.
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 “Adjusted Earnings before noncontrolling interests and taxes”, which is used interchangeably with “pre-tax Adjusted Earnings”; “Post-tax Adjusted Earnings to fully diluted shareholders”, which is used interchangeably with “post-tax Adjusted Earnings”; “Adjusted EBITDA”; and “Liquidity”. The definitions of these terms are below.
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Adjusted Earnings Defined
BGC uses non-GAAP financial measures, including “Adjusted Earnings before noncontrolling interests and taxes” and “Post-tax Adjusted Earnings to fully diluted shareholders”, which are supplemental measures of operating results 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.
As compared with “Income (loss) from continuing operations before income taxes” and “Net income (loss) from continuing operations for fully diluted shares”, both 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. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary results of BGC. Adjusted Earnings is calculated by taking the most comparable GAAP measures and adjusting for certain items with respect to compensation expenses, non-compensation expenses, and other income, as discussed below.
Calculations of Compensation Adjustments for Adjusted Earnings and Adjusted EBITDA
Treatment of Equity-Based Compensation Line Item for Adjusted Earnings and Adjusted EBITDA
The Company’s Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP charges included in the line item “Equity-based compensation and allocations of net income to limited partnership units and FPUs” (or “equity-based compensation” for purposes of defining the Company’s non-GAAP results) as recorded on the Company’s GAAP Consolidated Statements of Operations and GAAP Consolidated Statements of Cash Flows. These GAAP equity-based compensation charges reflect the following items:
- Charges with respect to grants of exchangeability, which 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.
- Charges with respect to preferred units. 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 or redeemed in connection with the grant of shares of common stock at ratios designed to cover any withholding taxes expected to be paid. 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.
- GAAP equity-based compensation charges with respect to the grant of an offsetting amount of common stock or partnership units with capital accounts in connection with the redemption of non-exchangeable units, including PSUs and LPUs.
- Charges related to amortization of RSUs and limited partnership units.
- Charges related to grants of equity awards, including common stock or partnership units with capital accounts.
- 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.
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