BGC(US:BGC)2024-05-09 20:20PART I—FINANCIAL INFORMATION Glossary of Terms, Abbreviations and Acronyms This section provides definitions for key terms, abbreviations, and acronyms used throughout the report, covering entities, financial instruments, regulatory bodies, and internal company terminology to ensure clarity and understanding of the document's content - Key defined terms include BGC Group (the public holding company post-Corporate Conversion), Cantor (Cantor Fitzgerald, L.P.), Corporate Conversion (the reorganization into a Full C-Corporation effective July 1, 2023), and Fenics (BGC's group of electronic brands)505178 - The glossary defines various senior notes issued by both BGC Partners and BGC Group, detailing their respective interest rates and maturity dates, and clarifies the relationship between them following the Exchange Offer5054 - FMX (Fenics Markets Exchange, LLC) is defined as the entity holding BGC's fully electronic U.S. treasuries and futures business, with FMX Equity Partners being the group of banks that invested in FMX in April 20246081 SPECIAL NOTE ON FORWARD-LOOKING INFORMATION This section cautions readers that the report contains forward-looking statements based on current expectations, which are subject to various risks and uncertainties. It lists numerous factors that could cause actual results to differ materially, including macroeconomic conditions, market volatility, regulatory changes, and competition - The company identifies forward-looking statements with words like "may," "will," "should," "expects," and similar expressions136 - Key risk factors that could affect future results include macroeconomic challenges (wars, inflation, interest rates), market volatility, ability to access capital markets, and the successful development of new products like Fenics platforms136 - Other significant risks include relationships and transactions with Cantor, integration of acquired businesses, international market risks, extensive regulation, and dependence on key employees106 ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for BGC Group, Inc. as of March 31, 2024, and for the three-month period then ended. It includes the statements of financial condition, operations, comprehensive income, cash flows, and changes in equity, along with detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Statements of Financial Condition The company's total assets increased to $4.38 billion as of March 31, 2024, from $3.18 billion at December 31, 2023, primarily driven by a significant rise in receivables from broker-dealers. Total liabilities also grew to $3.45 billion from $2.28 billion, largely due to increased payables to broker-dealers and new short-term borrowings from related parties. Total equity saw a slight increase to $924.9 million Condensed Consolidated Statements of Financial Condition (in thousands) | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $566,791 | $655,641 | | Receivables from broker-dealers, clearing organizations, customers and related broker-dealers | $1,517,757 | $350,036 | | Goodwill | $506,548 | $506,344 | | Total assets | $4,375,652 | $3,175,937 | | Liabilities | | | | Short-term borrowings from related parties | $275,000 | $— | | Payables to broker-dealers, clearing organizations, customers and related broker-dealers | $1,339,095 | $202,266 | | Notes payable and other borrowings | $944,961 | $1,183,506 | | Total liabilities | $3,450,781 | $2,277,781 | | Total equity | $924,871 | $898,156 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, total revenues increased to $578.6 million from $532.9 million in the prior-year period, driven by higher commissions. Total expenses also rose to $548.1 million from $500.0 million, primarily due to increased compensation. A significant increase in 'Other income' to $38.8 million led to a substantial rise in consolidated net income to $49.0 million, compared to $21.2 million in Q1 2023. Fully diluted EPS was $0.10, up from $0.05 Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total revenues | $578,614 | $532,867 | | Commissions | $415,172 | $377,288 | | Principal transactions | $112,849 | $114,929 | | Total expenses | $548,068 | $499,963 | | Total compensation and employee benefits | $386,923 | $348,587 | | Interest expense | $20,136 | $15,742 | | Total other income (losses), net | $40,552 | $327 | | Income (loss) from operations before income taxes | $71,098 | $33,231 | | Consolidated net income (loss) | $49,041 | $21,170 | | Net income (loss) available to common stockholders | $49,210 | $18,978 | | Fully diluted earnings (loss) per share | $0.10 | $0.05 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies and methodologies applied in the financial statements. It covers key areas such as the company's corporate conversion, acquisitions, stock transactions, financial instruments, related party transactions, debt structure, compensation, contingencies, and segment information, offering deeper insight into the figures presented in the primary financial statements - On July 1, 2023, the company completed its Corporate Conversion to a Full C-Corporation, simplifying its organizational structure. BGC Group, Inc. became the public holding company, and BGC Partners became a wholly owned subsidiary156187 - As part of the Corporate Conversion, non-exchangeable limited partnership units of BGC Holdings were converted into equity awards of BGC Group, including 38.6 million restricted stock awards, 25.3 million RSUs, and $74.0 million of RSU Tax Accounts. No limited partnership units of BGC Holdings remained after the conversion160 - The company did not complete any acquisitions in the three months ended March 31, 2024. In 2023, it acquired Trident, ContiCap, and Open Energy Group for a total consideration of approximately $71.0 million, resulting in goodwill of $18.4 million225229 - During Q1 2024, the company repurchased 11.2 million shares of Class A common stock for $80.0 million at a weighted-average price of $7.11 per share. As of March 31, 2024, $264.6 million remained under its share repurchase authorization212255 - On March 12, 2024, the company borrowed $275.0 million from Cantor under the BGC Credit Agreement and used the proceeds to repay all $240.0 million of borrowings outstanding under its Revolving Credit Agreement286312 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations for the first quarter of 2024. It details the business environment, including the impact of the Corporate Conversion and the FMX investment. The analysis breaks down revenue and expense drivers, discusses liquidity and capital resources, and outlines capital deployment priorities. It also covers the company's organizational structure and critical accounting policies - Total revenues for Q1 2024 increased 8.6% year-over-year to $578.6 million, driven by a 7.3% growth in brokerage revenues, particularly in Energy, Commodities, and Shipping (+32.1%) and Rates (+6.3%)612 - The FMX electronic platform received a $171.7 million investment from FMX Equity Partners in April 2024 for a 25.75% ownership interest, valuing the platform at $666.7 million. FMX Futures Exchange is expected to launch in September 2024571374 - Fenics businesses revenues increased 6.4% to a record $149.3 million in Q1 2024. Fenics Growth Platforms revenue grew 26.2% to $21.9 million, driven by FMX UST, PortfolioMatch, Lucera, and Capitalab574 - The company's liquidity position decreased by $85.7 million to $615.7 million as of March 31, 2024, primarily due to share repurchases ($68.6 million), working capital movements, and investments, partially offset by net borrowings and cash from operations419 - Capital allocation priorities are returning capital to stockholders and investing in business growth. The company repurchased 11.3 million shares in Q1 2024 and declared a quarterly dividend of $0.02 per share459371 Results of Operations For Q1 2024, total revenues grew 8.6% to $578.6 million, driven by a 10.0% increase in commission revenues. Brokerage revenues rose 7.3%, led by strong performance in Energy, Commodities, and Shipping (+32.1%) and Rates (+6.3%). Total expenses increased 9.6%, with compensation expenses up 8.8% and equity-based compensation up 18.1%. A significant gain on investments led to a $40.5 million increase in 'Other income,' boosting pre-tax income to $71.1 million from $33.2 million in the prior year Brokerage Revenues by Product (in thousands) | Product | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Rates | $175,085 | $164,737 | 6.3% | | Energy, Commodities, and Shipping | $118,464 | $89,659 | 32.1% | | FX | $84,023 | $80,158 | 4.8% | | Credit | $87,592 | $89,549 | -2.2% | | Equities | $62,857 | $68,114 | -7.7% | | Total brokerage revenues | $528,021 | $492,217 | 7.3% | - Total compensation and employee benefits increased by $38.3 million (11.0%) to $386.9 million, primarily due to higher commission-based compensation and a $14.7 million increase in equity-based compensation expense354355 - Other income increased by $40.5 million, driven by a $36.6 million unrealized gain from fair value adjustments on investments carried under the measurement alternative385 - The provision for income taxes increased by $10.0 million to $22.1 million, primarily due to higher pre-tax earnings and a change in the geographical mix of earnings386 Liquidity and Capital Resources As of March 31, 2024, the company's liquidity stood at $615.7 million, a decrease from $701.4 million at year-end 2023, mainly due to share repurchases and investments. The company's funding base consists of equity, notes payable, and short-term liabilities. Key financing activities included borrowing $275.0 million under the BGC Credit Agreement to repay $240.0 million on its Revolving Credit Agreement. The company maintains investment-grade credit ratings and has a $50.0 million debt repurchase program authorized Liquidity Analysis (in thousands) | Component | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $566,791 | $655,641 | | Financial instruments owned, at fair value | $48,905 | $45,792 | | Total Liquidity | $615,696 | $701,433 | - On April 26, 2024, the company amended and restated its Revolving Credit Agreement, extending the maturity to April 26, 2027, and providing the right to increase the facility up to $475.0 million373398 - The company's 3.750% Senior Notes ($255.5 million BGC Group and $44.5 million BGC Partners) are due on October 1, 2024. The company intends to refinance or use cash/credit facilities to settle the amounts404 - The company maintains investment-grade credit ratings from Fitch (BBB-), S&P (BBB-), Japan Credit Rating Agency (BBB+), and Kroll (BBB), all with a stable outlook421 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to various market risks, including credit, principal transaction, market, operational, foreign currency, and interest rate risks. The company employs policies to manage credit risk through a thorough approval and monitoring process. Market risk from principal transactions is mitigated by strict limits and short holding periods. A 10% strengthening of the U.S. dollar against the euro and pound sterling would negatively impact net income by approximately $27.8 million, while a 1% increase in interest rates would cause a minor decline in net earnings - Credit risk is managed through a credit approval process that includes verification, credit reviews, and setting trading limits. The company primarily faces counterparty risk from matched principal trades and brokerage fee receivables473475 - Market risk from unmatched principal positions is managed with strict risk limits, short holding periods, and hedging. As of March 31, 2024, the company held $48.9 million in financial instruments owned at fair value485 - A 10% strengthening of the U.S. dollar against the euro and pound sterling as of March 31, 2024, would have resulted in an estimated negative impact of $27.8 million on net income487 - A 1% increase in interest rates would have caused a decline of approximately $0.6 million in consolidated net earnings for the quarter ended March 31, 2024488 CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024. Additionally, no changes in internal control over financial reporting occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024489 - There were no material changes to the company's internal control over financial reporting during the first quarter of 2024490 PART II—OTHER INFORMATION LEGAL PROCEEDINGS This section references Note 19 of the financial statements and the MD&A for details on legal proceedings. Key matters include the final decision in favor of the company regarding the 2017 Berkeley Point acquisition, a purported class action by former limited partners alleging breach of contract and antitrust violations, and a shareholder lawsuit challenging the fairness of the Corporate Conversion - On August 10, 2023, a shareholder derivative suit concerning the 2017 acquisition of Berkeley Point was fully and finally decided in favor of the defendants, with the court finding the transaction was entirely fair437 - A class action complaint was filed on March 9, 2023, by former limited partners alleging breach of contract and antitrust violations related to non-compete and forfeiture provisions. The company believes the lawsuit has no merit437 - A shareholder lawsuit was filed on February 16, 2024, against Cantor Fitzgerald, LP and Howard W. Lutnick, asserting the Corporate Conversion was unfair to Class A shareholders. The company is not a party but believes the action lacks merit438 RISK FACTORS The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors were reported since the filing of the 2023 Annual Report on Form 10-K494 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's share repurchase activity for the quarter ended March 31, 2024. A total of 11.25 million shares were repurchased at a weighted-average price of $7.11 per share. As of March 31, 2024, approximately $264.6 million remained available under the company's $400.0 million repurchase authorization Share Repurchases for Q1 2024 (in thousands) | Period | Total Shares Repurchased | Weighted-Average Price per Share | | :--- | :--- | :--- | | January 2024 | 3,609 | $6.95 | | February 2024 | 6,586 | $7.02 | | March 2024 | 1,055 | $8.23 | | Total | 11,250 | $7.11 | - The total number of repurchased shares includes 1.4 million shares withheld to satisfy tax liabilities upon the vesting of restricted stock495 - As of March 31, 2024, approximately $264.6 million remained available for repurchase under the $400.0 million program authorized on July 1, 2023495 OTHER INFORMATION This section reports that no directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter. It also announces that the 2024 Annual Meeting of Stockholders is scheduled for September 18, 2024, and provides the deadline of June 4, 2024, for stockholder proposals - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2024498 - The 2024 Annual Meeting of Stockholders is set for September 18, 2024. The deadline for stockholder proposals to be included in the proxy statement is June 4, 2024500