BGC Partners (BGCP) Tops Q4 EPS by 4c

BGC Partners (NASDAQ: BGCP) reported Q4 EPS of $0.23, $0.04 better than the analyst estimate of $0.19. Revenue for the quarter came in at $692 million versus the consensus estimate of $690.4 million.

• Post-tax distributable earnings per share: $0.20
• GAAP net income (loss) per fully diluted share: $0.24

Management Comments

“BGC’s fourth quarter post-tax distributable earnings grew by more than 26 percent year-over-year to $76.7 million, while our revenues increased by 34 percent to $692 million,” said Howard W. Lutnick, Chairman and Chief Executive Officer of BGC. “This marks our sixth consecutive quarter of record profits. This strong performance was driven by the addition of GFI, the ongoing success of Newmark Grubb Knight Frank,[3] our Real Estate Services company, and the 112 percent year-on-year revenue increase generated by our high margin fully electronic FENICS[4] business. BGC’s record results came despite the stronger U.S. dollar reducing our reported Financial Services revenues by $18 million and $91 million during the fourth quarter and full year 2015, respectively.

“In January of this year, we closed the back-end merger with GFI. The combination dramatically increases the scale and scope of the Company, and we expect the resulting improvement in BGC's economics to produce tremendous value for our investors. The total purchase consideration for all shares of GFI purchased by BGC was approximately $750 million.[5]

“In December, we sold Trayport to Intercontinental Exchange, Inc. for approximately 2.5 million ICE common shares issued with respect to the $650 million purchase price.[6] We have sold over 80 percent of these shares to date, and the expected cash tax rate related to the purchase price is 10 percent or less.

“The proceeds from the Trayport sale contributed to our more than $1 billion of balance sheet liquidity as of the end of the year. In addition to our strong current liquidity position, we expect to receive over $730 million in additional Nasdaq stock over time, which is not yet reflected on our balance sheet.[7] This means that we have over $1.7 billion of dry powder available to us to drive substantial returns for our investors. We expect to use our considerable financial resources to repay debt, profitably hire, make accretive acquisitions, pay dividends, and/or repurchase shares and units of BGC, all while maintaining or improving our investment grade rating.

“BGC’s Adjusted EBITDA increased by more than 250 percent in 2015 to $876 million, aided by the gain on sale of Trayport and by our strong revenue growth. We expect to have strong Adjusted EBITDA and distributable earnings margins going forward as we increase the profitability of GFI, continue to grow revenues from our highly profitable FENICS business, and benefit from the strength of NGKF.

Mr. Lutnick concluded: “I am happy to report that our board declared a 14 cent qualified dividend for the fourth quarter, which is consistent with the prior three quarters, and represents an increase of 16.7 percent year-over-year. At yesterday’s closing stock price, this translates into a 6.6 percent annualized yield.”

Shaun D. Lynn, President of BGC, said: “The acquisition of GFI drove the Company’s 51 percent year-over-year improvement in quarterly Financial Services revenues. The integration of GFI into BGC continues to progress smoothly. We are happy to report that we have already met our target of reducing Financial Services annualized expenses by at least $50 million by the first quarter of 2016. We had previously expected a minimum of $40 million in further annualized cost savings by the first quarter of 2017, for a total of at least $90 million in annual savings. We now anticipate achieving a minimum of $100 million in annual savings by the end of 2016. [8] The improvement to our pre-tax profitability we expect to achieve with the $100 million in annualized cost savings will be at least 25 percent higher than the full year revenues of Trayport.[9] In addition, we expect our results to further improve as we invest the net proceeds from the $650 million Trayport sale.

“Our quarterly pre-tax distributable earnings increased by 25 percent in Financial Services year-on-year, driven by higher overall revenue and by the ongoing strength of FENICS. FENICS increased its quarterly top line by over 112 percent to $59 million, while its pre-tax distributable earnings grew by 66 percent to $25 million, all compared with a year earlier. These outstanding results were driven primarily by the addition of GFI as well as by the strong organic growth generated by our market data and software solutions products. On an annualized basis, our pre-tax distributable earnings for FENICS are more than the annualized revenues of eSpeed,[10] which we sold in 2013 for over $1.2 billion. FENICS continued to have strong momentum in the first quarter 2016, as revenues for these high margin offerings more than doubled year-on-year for the first 24 trading days of 2016.”

Mr. Lynn concluded: “Regulations, capital requirements, and customer demand continue to drive the market towards increased electronic trading. This, combined with the success we are having in attracting new customers to FENICS, converting voice and hybrid products to fully electronic trading, and growing the fees generated by our market data, software solutions, and post-trade products, make us confident that we will continue to drive further business onto FENICS over time.”

Barry M. Gosin, Chief Executive Officer of Newmark Grubb Knight Frank, added: “NGKF once again had a very strong year, as our pre-tax distributable earnings grew by approximately 50 percent to $139 million, while revenues for distributable earnings increased by approximately 38 percent to just over $1 billion. This robust improvement was largely a result of a more than 115 percent jump in revenues from higher margin real estate capital markets brokerage, a 25 percent increase in leasing and other services revenues, and 15 percent growth from largely recurring management services fees.

“Our full year revenue and earnings growth in Real Estate services outpaced the results of our publicly traded competitors[11] and relevant industry metrics by wide margins. This impressive outperformance was driven in part by the acquisitions of Apartment Realty Advisors ("ARA,") Cornish & Carey, Computerized Facility Integration, and Excess Space. In addition, NGKF generated strong organic growth as we continued to add dozens of high profile and talented brokers and other professionals, won new business, and were aided by solid commercial real estate market fundamentals. Given our strong momentum, we expect NGKF to generate top-line growth of approximately 20 percent for year 2016.”

Outlook

• BGC anticipates first quarter of 2016 distributable earnings revenues to increase by between approximately 13 percent and 21 percent and to be between $635 million to $680 million, compared with $563.9 million a year earlier.
• BGC expects first quarter of 2016 pre-tax distributable earnings to increase by between approximately 6 percent and 26 percent and to be in the range of $80 million to $95 million, versus $75.2 million a year earlier.
• BGC expects full year 2016 Real Estate services distributable earnings revenues to increase by approximately 20 percent to $1.2 billion, compared with $1 billion in 2015.
• BGC anticipates its effective tax rate for distributable earnings to remain approximately 15 percent for the year

For earnings history and earnings-related data on BGC Partners (BGCP) click here.

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