BGC Partners Updates Its Outlook For The Second Quarter of 2014
BGC Partners, Inc. (NASDAQ: BGCP) ("BGC
Partners," "BGC," or "the Company"), a leading global brokerage company
servicing the financial and real estate markets, today announced that it has
updated its outlook for the second quarter of 2014.
The Company expects its financial results for the quarter ending June 30,
2014 to be around the mid-point of the range of its previously stated
guidance for revenues and earnings. BGC's second quarter outlook was
originally published in a press release dated May 1, 2014 as follows:
Second Quarter 2014 Outlook Compared with Second Quarter 2013 Results
* The Company expected to generate distributable earnings revenues of
between approximately $420 million and $440 million compared with $471.1
million. The year earlier figure was approximately $447 million, excluding
eSpeed.(1) * BGC anticipated pre-tax distributable earnings to be between
approximately $47 million and $55 million versus $53.8 million. The prior
period amount was approximately $40 million, excluding eSpeed.
* The Company expected its effective tax rate for distributable earnings
to be around 15 percent, compared with 14.5 percent.(2)
This guidance did not include any revenues or earnings from the planned
acquisition of Cornish & Carey Commercial, which is expected to close in the
middle of 2014. BGC intends to report its second quarter financial results
before the market open on July 31, 2014. Further details regarding this
announcement and the related conference call will be forthcoming.
Distributable Earnings Defined
BGC Partners uses non-GAAP financial measures including "revenues for
distributable earnings," "pre-tax distributable earnings" and "post-tax
distributable earnings," which are supplemental measures of operating
performance that are used by management to evaluate the financial
performance of the Company and its subsidiaries. BGC Partners believes that
distributable earnings best reflect the operating earnings generated by the
Company on a consolidated basis and are the earnings which management
considers available for distribution to BGC Partners, Inc. and its common
stockholders, as well as to holders of BGC Holdings partnership units during
As compared with "income (loss) from operations before income taxes," "net
income (loss) for fully diluted shares," and "fully diluted earnings (loss)
per share," all prepared in accordance with GAAP, distributable earnings
calculations primarily exclude certain non-cash compensation and other
expenses which generally do not involve the receipt or outlay of cash by the
Company, which do not dilute existing stockholders, and which do not have
economic consequences, as described below. In addition, distributable
earnings calculations exclude certain gains and charges that management
believes do not best reflect the ordinary operating results of BGC.
Revenues for distributable earnings are defined as GAAP revenues excluding
the impact of BGC Partners, Inc.'s non-cash earnings or losses related to
its equity investments, such as in Aqua Securities, L.P. and ELX Futures,
L.P., and its holding company general partner, ELX Futures Holdings LLC.
Revenues for distributable earnings include the collection of receivables
which would have been recognized for GAAP other than for the effect of
acquisition accounting. Revenues for distributable earnings also exclude
certain one-time or unusual gains that are recognized under GAAP, because
the Company does not believe such gains are reflective of its ongoing,
Pre-tax distributable earnings are defined as GAAP income (loss) from
operations before income taxes excluding items that are primarily non-cash,
non-dilutive, and non-economic, such as:
* Non-cash stock-based equity compensation charges for REUs granted or
issued prior to the merger of BGC Partners, Inc. with and into eSpeed, as
well as post-merger non-cash, non-dilutive equity-based compensation related
to partnership unit exchange or conversion.
* Allocations of net income to founding/working partner and other limited
partnership units, including REUs, RPUs, PSUs, LPUs, and PSIs.
* Non-cash asset impairment charges, if any.
Distributable earnings calculations also exclude charges related to
purchases, cancellations or redemptions of partnership interests and certain
unusual, one-time or non-recurring items, if any.
"Compensation and employee benefits" expense for distributable earnings will
also include broker commission payouts relating to the aforementioned
collection of receivables.
BGC's definition of distributable earnings also excludes certain gains and
charges with respect to acquisitions, dispositions, or resolutions of
litigation. This exclusion pertains to the one-time gain related to the
NASDAQ OMX transaction. Management believes that excluding these gains and
charges best reflects the operating performance of BGC. However, because
NASDAQ OMX is expected to pay BGC in an equal amount of stock on a regular
basis for 15 years as part of the transaction, the payments associated with
BGC's receipt of such stock are expected to be included in the Company's
calculation of distributable earnings. To make quarter-to-quarter
comparisons more meaningful, one-quarter of the annual contingent earn-out
amount will be included in the Company's calculation of distributable
earnings each quarter as "other revenues."
Since distributable earnings are calculated on a pre-tax basis, management
intends to also report "post-tax distributable earnings" and "post-tax
distributable earnings per fully diluted share":
* "Post-tax distributable earnings" are defined as pre-tax distributable
earnings adjusted to assume that all pre-tax distributable earnings were
taxed at the same effective rate.
* "Post-tax distributable earnings per fully diluted share" are defined as
post-tax distributable earnings divided by the weighted-average number of
fully diluted shares for the period.
BGC's distributable earnings per share calculations assume either that:
* The fully diluted share count includes the shares related to the dilutive
instruments, such as the Convertible Senior Notes, but excludes the
associated interest expense, net of tax, when the impact would be dilutive;
* The fully diluted share count excludes the shares related to these
instruments, but includes the associated interest expense, net of tax.
Each quarter, the dividend to common stockholders is expected to be
determined by the Company's Board of Directors with reference to post-tax
distributable earnings per fully diluted share. In addition to the
Company's quarterly dividend to common stockholders, BGC Partners expects to
pay a pro-rata distribution of net income to BGC Holdings founding/working
partner and other limited partnership units, including REUs, RPUs, LPUs,
PSUs and PSIs, and to Cantor for its noncontrolling interest. The amount of
all of these payments is expected to be determined using the above
definition of pre-tax distributable earnings per share.
Certain employees who are holders of RSUs are granted pro-rata payments
equivalent to the amount of dividends paid to common stockholders. Under
GAAP, a portion of the dividend equivalents on RSUs is required to be taken
as a compensation charge in the period paid. However, to the extent that
they represent cash payments made from the prior period's distributable
earnings, they do not dilute existing stockholders and are therefore
excluded from the calculation of distributable earnings.
Distributable earnings is not meant to be an exact measure of cash generated
by operations and available for distribution, nor should it be considered in
isolation or as an alternative to cash flow from operations or GAAP net
income (loss). The Company views distributable earnings as a metric that is
not necessarily indicative of liquidity or the cash available to fund its
Pre- and post-tax distributable earnings are not intended to replace the
Company's presentation of GAAP financial results. However, management
believes that they help provide investors with a clearer understanding of
BGC Partners' 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 distributable earnings and the GAAP measures of
financial performance should be considered together.
Management does not anticipate providing an outlook for GAAP "revenues,"
"income (loss) from operations before income taxes," "net income (loss) for
fully diluted shares," and "fully diluted earnings (loss) per share, "
because the items previously identified as excluded from pre-tax
distributable earnings and post-tax distributable earnings are difficult to
forecast. Management will instead provide its outlook only as it relates to
revenues for distributable earnings, pre-tax distributable earnings and
post-tax distributable earnings.
For more information on this topic, please see the tables in the most recent
earnings release entitled "Reconciliation of Revenues Under GAAP and
Distributable Earnings," and "Reconciliation of GAAP Income to Distributable
Earnings" which provide a summary reconciliation between pre- and post-tax
distributable earnings and the corresponding GAAP measures for the Company
in the periods discussed in this document.
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