FXCM Inc. Announces Third Quarter 2012 Results
Releases October 2012 Operating Metrics
Third Quarter 2012 Highlights:
| · | Revenues of $115.0 million, up 5% versus the same period in 2011 |
| · | US GAAP net income $4.5 million or $0.17 per fully diluted share |
| · | Adjusted Pro Forma EBITDA of $37.2 million, up 18% versus the same period in 2011 |
| · | Adjusted Pro Forma net income of $12.5 million or $0.17 per fully diluted share |
| · | Record customer equity of $1,278 million, up 54% from same period in 2011 and up 22% from December 2011 |
| · | Retail revenue per million of $99/million |
NEW YORK, NY – November 8, 2012 – FXCM Inc. (NYSE: FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced for the quarter ended September 30, 2012, revenues under US GAAP of $115.0 million, compared to $109.0 million for the quarter ended September 30, 2011, an increase of 5%. Adjusted Pro Forma EBITDA for the Third Quarter 2012 was $37.2 million, compared to $31.4 million for the Third Quarter 2011, an increase of 18%. Adjusted Pro Forma Net Income was $12.5 million for the Third Quarter 2012, compared to $17.1 million for the Third Quarter 2011, a decrease of 27%. Adjusted Pro Forma Cash Net Income was $22.9 for the Third Quarter 2012, compared to $27.4 million for the Third Quarter 2011, a decrease of 16%. Adjusted Pro Forma fully diluted earnings per share for the Third Quarter 2012 was $0.17 on a fully exchanged, fully diluted basis compared to $0.23 for the Third Quarter 2011, a decrease of 26%. Adjusted Pro Forma fully diluted cash earnings per share for the Third Quarter 2012 was $0.31 on a fully exchanged, fully diluted basis compared to $0.37 for the Third Quarter 2011, a decrease of 16%. U.S. GAAP net income was $4.5 million for the Third Quarter 2012, compared to $3.4 million for the Third Quarter 2011, an increase of 33%. U.S. GAAP earnings per share for the Third Quarter 2012 was $0.17 per fully diluted Class A share, compared to $0.21 per fully diluted Class A share for the Third Quarter 2011, a decrease of 19%.
“FXCM turned in a solid quarter despite the continued low volatility of the global FX markets and subdued trading environment,” said Drew Niv, Chief Executive Officer. “In addition, our cash generation in the quarter was particularly strong and we earned $37.2 million in EBITDA and $0.31 in cash earnings per share.”
Adjusted Pro Forma results assumethe conversion and exchange of all FXCM Holdings, LLC Units into FXCM Inc. Class A common stock, resulting in the elimination of the non-controlling interest and the corresponding adjustment to the entity’s tax provision. In addition, Adjusted Pro Forma results eliminate certain non-recurring charges and equity based compensation expense regarding a grant of stock options at the time of FXCM’s initial public offering (“IPO”) in December 2010.
Adjusted Pro Forma Cash results further adjusts Adjusted Pro Forma results to eliminate certain non-cash items, including the further elimination of equity based compensation expense unrelated to the IPO as well as depreciation and amortization. In addition, Adjusted Pro Forma Cash results adjusts the tax provision of Adjusted Pro Forma results to reflect only the provision for taxes expected to be paid in the following twelve months.
FXCM Inc. today announced that it has received additional commitments from a group of banks and has increased its credit facility to $155 million. In addition, certain of the terms of the credit facility were modified to among other things provide additional flexibility regarding financing and investment initiatives.
“We are pleased with being able to increase the size of our credit facility,” said Niv, “We now have seven banks in the facility and received a great deal of demand as we sought to increase its size. The increased size of the facility will allow us to conduct our current initiatives on a larger scale.”
FXCM Inc. today announced certain key operating metrics for October 2012 for its retail and institutional foreign exchange business. Monthly activities included:
October 2012 Operating Metrics
Retail Trading Metrics
| · | Retail customer trading volume(1)of $324 billion in October 2012, 7% higher than September 2012 and 5% lower than October 2011. |
| · | Average retail customer trading volume(1)per day of $14.1 billion in October 2012, 7% lower than September 2012 and 13% lower than October 2011. |
| · | An average of 341,293 retail client trades per day in October 2012, 6% lower than September 2012 and 26% lower than October 2011. |
| · | Tradable accounts(2) of 203,714 as of October 31, 2012, an increase of 1,320, or 1% from September 2012, and an increase of 12,139,or 6%, from October 2011. |
Institutional Trading Metrics
| · | Institutional customer trading volume(1) of $53 billion in October 2012, 16% higher than September 2012 and 69% lower than October 2011. |
| · | Average institutional trading volume(1)per day of $2.3 billion in October 2012, flat with September 2012 and 72% lower than October 2011. |
| · | An average of 5,850 institutional client trades per day in October 2012, 3% higher than September 2012 and 86% lower than October 2011. |
“FXCM showed continued progress in October despite the low volatility in the FX markets,” stated Niv. “In addition, we look forward to our organic initiatives for growth such as our recently launched product to attract smaller clients as well as the migration of our institutional customers to our in-house platform which we believe will become more material in the near future.”
More information, including historical results for each of the above metrics, can be found on the investor relations page of the Company's corporate website, www.fxcm.com.
This operating data is preliminary and subject to revision and should not be taken as an indication of the financial performance of FXCM Inc. FXCM undertakes no obligation to publicly update or review previously reported operating data. Any updates to previously reported operating data will be reflected in the historical operating data that can be found on the Investor Relations page of the Company’s corporate website, www.fxcm.com.
(1) Volume that FXCM customers traded in the period is translated into US dollars.
(2) A Tradeable Account is an account with sufficient funds to place a trade in accordance with FXCM trading policies.
Consolidated Adjusted Pro Forma and U.S. GAAP Results
| Adjusted Pro Forma (thousands except per share amounts) | Adjusted Pro Forma Cash (thousands except per share amounts) | Adjusted Pro Forma (thousands except per share amounts) | Adjusted Pro Forma Cash (thousands except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||||||||||||||||||||||||||||||||
| Total Revenues | $ | 114,948 | $ | 108,975 | 5 | % | $ | 114,948 | $ | 108,975 | 5 | % | $ | 309,221 | $ | 306,893 | 1 | % | $ | 309,221 | $ | 306,893 | 1 | % | ||||||||||||||||||||||||
| Referring broker fees | 18,708 | 25,720 | -27 | % | 18,708 | 25,720 | -27 | % | 58,865 | 72,253 | -19 | % | 58,865 | 72,253 | -19 | % | ||||||||||||||||||||||||||||||||
| Compensation and benefits | 21,778 | 20,835 | 5 | % | 20,640 | 20,743 | 0 | % | 62,717 | 62,142 | 1 | % | 60,872 | 62,050 | -2 | % | ||||||||||||||||||||||||||||||||
| Other expenses | 37,270 | 30,995 | 20 | % | 37,270 | 30,995 | 20 | % | 104,509 | 87,028 | 20 | % | 104,509 | 87,028 | 20 | % | ||||||||||||||||||||||||||||||||
| EBITDA | 37,192 | 31,425 | 18 | % | 38,330 | 31,517 | 22 | % | 83,130 | 85,470 | -3 | % | 84,975 | 85,562 | -1 | % | ||||||||||||||||||||||||||||||||
| Depreciation, amortization and interest expense | 12,875 | 5,367 | 140 | % | 1,158 | - | 26,459 | 14,201 | 86 | % | 1,698 | - | ||||||||||||||||||||||||||||||||||||
| Income before income taxes | 24,317 | 26,058 | -7 | % | 37,172 | 31,517 | 18 | % | 56,671 | 71,269 | -20 | % | 83,277 | 85,562 | -3 | % | ||||||||||||||||||||||||||||||||
| Income tax provision | 7,397 | 8,932 | -17 | % | 7,167 | 4,102 | 75 | % | 18,489 | 24,820 | -26 | % | 9,536 | 12,999 | -27 | % | ||||||||||||||||||||||||||||||||
| Net Income | 16,920 | 17,126 | -1 | % | 30,005 | 27,415 | 9 | % | 38,182 | 46,449 | -18 | % | 73,741 | 72,563 | 2 | % | ||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 4,381 | - | 0 | % | 7,063 | - | 0 | % | 5,254 | - | 0 | % | 8,244 | - | 0 | % | ||||||||||||||||||||||||||||||||
| Net Income Attributable to FXCM Inc. | $ | 12,539 | $ | 17,126 | -27 | % | $ | 22,942 | $ | 27,415 | -16 | % | $ | 32,928 | $ | 46,449 | -29 | % | $ | 65,497 | $ | 72,563 | -10 | % | ||||||||||||||||||||||||
| Pro forma fully exchanged, fully diluted shares outstanding | 75,103 | 74,449 | 1 | % | 75,103 | 74,449 | 1 | % | 73,548 | 74,978 | -2 | % | 73,548 | 74,978 | -2 | % | ||||||||||||||||||||||||||||||||
| Earnings Per Share | $ | 0.17 | $ | 0.23 | -26 | % | $ | 0.31 | $ | 0.37 | -16 | % | $ | 0.45 | $ | 0.62 | -27 | % | $ | 0.89 | $ | 0.97 | -8 | % | ||||||||||||||||||||||||
| Unaudited U.S. GAAP (thousands except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 114,948 | $ | 108,975 | 5 | % | $ | 309,221 | $ | 306,893 | 1 | % | ||||||||||||||||||||||||||||||||||||
| Referring broker fees | 18,708 | 25,720 | -27 | % | 58,865 | 72,253 | -19 | % | ||||||||||||||||||||||||||||||||||||||||
| Compensation and benefits | 24,156 | 22,955 | 5 | % | 81,175 | 68,662 | 18 | % | ||||||||||||||||||||||||||||||||||||||||
| Other expenses | 37,771 | 31,257 | 21 | % | 108,935 | 103,290 | 5 | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation, amortization and interest expense | 12,875 | 5,367 | 140 | % | 26,459 | 14,201 | 86 | % | ||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 21,438 | 23,676 | -9 | % | 33,787 | 48,487 | -30 | % | ||||||||||||||||||||||||||||||||||||||||
| Income tax provision | 3,598 | 8,136 | -56 | % | 4,856 | 10,756 | -55 | % | ||||||||||||||||||||||||||||||||||||||||
| Net Income | 17,840 | 15,540 | 15 | % | 28,931 | 37,731 | -23 | % | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 13,327 | 12,142 | 10 | % | 22,971 | 28,222 | -19 | % | ||||||||||||||||||||||||||||||||||||||||
| Net Income Attributable to FXCM Inc. | $ | 4,513 | $ | 3,398 | 33 | % | $ | 5,960 | $ | 9,509 | -37 | % | ||||||||||||||||||||||||||||||||||||
| Net Income (in thousands) | $ | 4,513 | $ | 3,398 | 33 | % | $ | 5,960 | $ | 9,509 | -37 | % | ||||||||||||||||||||||||||||||||||||
| Net Income per Class A Share | ||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and Diluted | $ | 0.17 | $ | 0.21 | -19 | % | $ | 0.27 | $ | 0.56 | -53 | % | ||||||||||||||||||||||||||||||||||||
| Average Class A shares outstanding | 26,913 | 16,468 | 63 | % | 22,416 | 16,997 | 32 | % | ||||||||||||||||||||||||||||||||||||||||
Selected Operating Metrics
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||||||||||||||
| Total trading volume ($ in billions) | $ | 861 | $ | 1,042 | -17 | % | $ | 2,715 | $ | 2,802 | -3 | % | ||||||||||||
| Total institutional trading volume ($ in billions) | $ | 156 | $ | 309 | -50 | % | $ | 956 | $ | 742 | 29 | % | ||||||||||||
| Total active accounts | 171,274 | 156,053 | 10 | % | 171,274 | 156,053 | 10 | % | ||||||||||||||||
| Trading days in period | 65 | 66 | -2 | % | 195 | 195 | 0 | % | ||||||||||||||||
| Daily average trades | 345,790 | 438,599 | -21 | % | 363,893 | 366,902 | -1 | % | ||||||||||||||||
| Daily average trades per active account | 2.0 | 2.8 | -29 | % | 2.2 | 2.5 | -12 | % | ||||||||||||||||
| Retail trading revenue per million traded | $ | 99 | $ | 93 | 6 | % | $ | 94 | $ | 96 | -2 | % | ||||||||||||
| Total customer equity ($ in millions) | $ | 1,278.4 | $ | 828.2 | 54 | % | $ | 1,278.4 | $ | 828.2 | 54 | % | ||||||||||||
Non-GAAP Financial Measures
Adjusted Pro Forma EBITDA, Adjusted Pro Forma Net Income, Adjusted Pro Forma Cash Net Income, Adjusted Pro Forma Net Income per fully diluted share and Adjusted Pro Forma Cash Net Income per fully diluted share are non-GAAP financial measures. These measures do not represent and should not be considered as a substitute for net income, net income attributable to FXCM Inc. or net income per Class A share or as a substitute for cash flow from operating activities, each as determined in accordance with GAAP, and our calculations of these measures may not be comparable to similarly entitled measures reported by other companies. See “Adjusted Pro Forma Results” beginning on A-3 of this release for additional information regarding these non-GAAP financial measures and for reconciliations of such measure to the most directly comparable measures calculated in accordance with GAAP.
Declaration of Quarterly Dividend
The company also announced today that its board of directors has declared a quarterly dividend of $0.06 per share on its outstanding Class A common stock. The dividend is payable on December 31st, 2012 to Class A stockholders of record at the close of business on December 19th, 2012.
Share Repurchase Program
FXCM Inc. today announced that its board of directors increased its share repurchase program from $50 million to $80 million of its Class A common stock and/or FXCM Holdings, LLC units. Under this program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. This leaves approximately $51.5 million under the plan for future purchases, given the shares the company has already acquired to date.
Conference Call
As previously announced, FXCM Inc. will host a conference call to discuss its results at 8:15 a.m. (EST) today. This conference call will be available to domestic participants by dialing 877.303.9132 and 408.337.0136 for international participants. The conference ID number is 51391814.
A live, audio webcast, a copy of FXCM's earnings release, and a presentation and replay of this conference call will also be available at http://ir.fxcm.com/.
Disclosure Regarding Forward-Looking Statements
In addition to historical information, this earnings release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect FXCM Inc.’s current views with respect to, among other things, its operations and financial performance for the future. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,”“expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. FXCM Inc. believes these factors include but are not limited to evolving legal and regulatory requirements of the FX industry, the limited operating history of the FX industry, risks related to the protection of its proprietary technology, risks related to its dependence on FX market makers, market conditions and those other risks described under “Risk Factors” in FXCM Inc.’s Annual Report on Form 10-K and other SEC filings, which are accessible on the SEC website at sec.gov.
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this presentation and in our SEC filings. FXCM Inc. undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
About FXCM Inc.
FXCM Inc. (NYSE: FXCM) is a global online provider of foreign exchange, or FX, trading and related services to retail and institutional customers world-wide.
At the heart of FXCM's client offering is No Dealing Desk FX trading. Clients benefit from FXCM's large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. FXCM's U.K. subsidiary, Forex Capital Markets Limited, offers Contract for Difference (“CFD”) products with no re-quote trading and allows clients to trade oil, gold, silver and stock indices along with FX on one platform. In addition, FXCM offers educational courses on FX trading and provides free news and market research through DailyFX.com.
Trading foreign exchange and CFDs on margin carries a high level of risk, and may not be suitable for all. Read full disclaimer.
For Media:
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications
jklein@fxcm.com
or
For Investors:
Thomas Porac, 646-432-2998
Vice-President, Investor Relations
investorrelations@fxcm.com
ANNEX I
| Schedule | Page Number |
| U.S. GAAP Results | |
| Unaudited U.S. GAAP Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 | A-1 |
| Unaudited U.S. GAAP Consolidated Statements of Financial Condition As of September 30, 2012 and December 31, 2011 | A-2 |
| Adjusted Pro Forma and Adjusted Pro Forma Cash Results | A-3 |
| Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Three Months Ended September 30, 2012 and 2011 | A-5 |
| Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011 | A-6 |
| Reconciliation of EBITDA to U.S. GAAP Net Income | A-7 |
FXCM Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
| Three Months Ended September 30, | NIne Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenues | ||||||||||||||||
| Retail trading revenues | 85,237 | 97,017 | 255,833 | 268,234 | ||||||||||||
| Institutional trading revenues | 25,868 | 7,720 | 42,908 | 21,820 | ||||||||||||
| Trading reveuue | 111,105 | 104,737 | 298,741 | 290,054 | ||||||||||||
| Interest Income | 990 | 963 | 2,910 | 2,837 | ||||||||||||
| Brokerage interest expense | (66 | ) | (93 | ) | (235 | ) | (226 | ) | ||||||||
| Net interest income | 924 | 870 | 2,675 | 2,611 | ||||||||||||
| Other Income | 2,919 | 3,368 | 7,805 | 14,228 | ||||||||||||
| Total net revenues | 114,948 | 108,975 | 309,221 | 306,893 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Referring broker fees | 18,708 | 25,720 | 58,865 | 72,253 | ||||||||||||
| Compensation and benefits | 24,156 | 22,955 | 81,175 | 68,662 | ||||||||||||
| Advertising and marketing | 7,509 | 9,870 | 23,266 | 24,375 | ||||||||||||
| Communication and technology | 9,600 | 8,190 | 26,591 | 23,559 | ||||||||||||
| Trading costs, prime brokerage and clearing fees | 6,981 | 2,095 | 10,187 | 6,484 | ||||||||||||
| General and administrative | 13,681 | 11,102 | 48,891 | 48,872 | ||||||||||||
| Depreciation and amortization | 11,717 | 5,367 | 24,761 | 14,201 | ||||||||||||
| Total operating expenses | 92,352 | 85,299 | 273,736 | 258,406 | ||||||||||||
| Operating income | 22,596 | 23,676 | 35,485 | 48,487 | ||||||||||||
| Other Expense | ||||||||||||||||
| Interest on borrowings | 1,158 | - | 1,698 | - | ||||||||||||
| Income before income taxes | 21,438 | 23,676 | 33,787 | 48,487 | ||||||||||||
| Income tax provision | 3,598 | 8,136 | 4,856 | 10,756 | ||||||||||||
| Net income | 17,840 | 15,540 | 28,931 | 37,731 | ||||||||||||
| Net income attributable to non-controlling interest | 13,327 | 12,142 | 22,971 | 28,222 | ||||||||||||
| Net income attributable to FXCM, Inc. | 4,513 | 3,398 | 5,960 | 9,509 | ||||||||||||
| Net Income (in thousands) | 4,513 | 3,398 | 5,960 | 9,509 | ||||||||||||
| Net Income per Class A Share | ||||||||||||||||
| Basic and Diluted | $ | 0.17 | $ | 0.21 | $ | 0.27 | $ | 0.56 | ||||||||
| Average Class A shares outstanding | 26,913 | 16,468 | 22,416 | 16,997 | ||||||||||||
| A-1 |
FXCM Inc.
Consolidated Statements of Financial Condition
As of September 30, 2012 and December 31, 2011
(Amounts in thousands except for share data)
(Unaudited)
| September 30, | December 31, | ||||||||
| 2012 | 2011 | ||||||||
| Assets | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 260,026 | $ | 184,721 | |||||
| Cash and cash equivalents, held for customers | 1,278,392 | 1,046,983 | |||||||
| Due from brokers | 9,823 | 1,311 | |||||||
| Accounts receivables, net | 16,798 | 17,004 | |||||||
| Deferred tax asset - current | 8,094 | 6,982 | |||||||
| Tax receivable | 3,576 | 2,016 | |||||||
| Total current assets | 1,576,709 | 1,259,017 | |||||||
| Deferred tax asset | 114,069 | 88,556 | |||||||
| Office, communication and computer equipment, net | 49,793 | 39,686 | |||||||
| Intangible assets and goodwill, net | 413,321 | 80,656 | |||||||
| Other assets | 15,746 | 19,218 | |||||||
| Total assets | $ | 2,169,638 | $ | 1,487,133 | |||||
| Liabilities and Equity | |||||||||
| Current liabilities | |||||||||
| Customer account liabilities | $ | 1,278,392 | $ | 1,046,983 | |||||
| Accounts payable and accrued expenses | 77,764 | 56,723 | |||||||
| Credit agreement | 30,000 | - | |||||||
| Note payable | 87,162 | ||||||||
| Due to brokers | 1,100 | 13,495 | |||||||
| Deferred tax liability - current | 7,085 | 2,241 | |||||||
| Due to related parties - pursuant to tax receivable agreement | 4,782 | 3,575 | |||||||
| Total current liabilities | 1,486,285 | 1,123,017 | |||||||
| Deferred tax liability | 18,950 | 7,044 | |||||||
| Due to related parties - pursuant to tax receivable agreement | 84,780 | 63,639 | |||||||
| Total liabilities | 1,590,015 | 1,193,700 | |||||||
| Commitments and Contingencies | |||||||||
| Stockholders' equity | |||||||||
| Class A common stock, par value $0.01 per share; | 342 | 149 | |||||||
| 3,000,000,000 shares authorized, 34,228,927 and 14,899,391 shares issued | |||||||||
| and outstanding as of September 30, 2012 and December 31, 2011, respectively | |||||||||
| Class B common stock, par value $0.01 per share; | 1 | 1 | |||||||
| 1,000,000 shares authorized, 100 shares issued | |||||||||
| and outstanding as of September 30, 2012 and December 31, 2011, respectively | |||||||||
| Additional paid-in-capital | 199,888 | 86,152 | |||||||
| Retained earnings | 10,204 | 8,977 | |||||||
| Accumulated other comprehensive income | 1,168 | 142 | |||||||
| Total stockholders' equity, FXCM Inc. | 211,603 | 95,421 | |||||||
| Non-controlling interest | 368,020 | 198,012 | |||||||
| Total stockholders' equity | 579,623 | 293,433 | |||||||
| Total liabilities and stockholders' equity | $ | 2,169,638 | $ | 1,487,133 | |||||
| A-2 |
Adjusted Pro Forma and Adjusted Pro Forma Cash Results
Throughout the discussion of FXCM Inc.’s results, information is presented on an Adjusted Pro Forma basis, which is a non-generally accepted accounting principles (“non-GAAP”) measure. Adjusted Pro Forma results begin with information prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), adjusted to exclude certain items and reflects the conversion of all units of FXCM Holdings, LLC for shares of Class A common stock of FXCM Inc. FXCM believes that the disclosed Adjusted Pro Forma measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare FXCM’s results across several periods and facilitate an understanding of FXCM’s operating results. The Company uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. The differences between Adjusted Pro Forma and U.S. GAAP results are as follows:
| 1. | Assumed Exchange of Units of FXCM Holdings, LLC for FXCM Inc. Class A Shares. As a result of the exchange of FXCM Holdings units, the non-controlling interest related to these units is converted to controlling interest. The Company’s management believes that it is useful to provide the per-share effect associated with the assumed exchange of all FXCM Holdings units. |
| 2. | Stock Based Compensation Expense. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation relating to the Company’s initial public offering and compensation costs associated with the renegotiation of certain employment contracts. The Company’s management believes it is useful to provide the effects of eliminating these expenses relating to these one-time items. |
| 3. | Acquisition Costs. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain acquisition related costs. The Company’s management believes it is useful to provide the effects of eliminating these expenses. |
| 4. | Regulatory Costs. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain costs associated with a settlement with the Company’s regulators in the United States and the estimated expense associated with reimbursement of clients of regarding trading issues at the Company’s Japanese subsidiary. The Company’s management believes it is useful to provide the effects of eliminating these expenses of a one-time nature. |
| 5. | Income Taxes. Prior to the initial public offering FXCM was organized as a series of limited liability companies and foreign corporations, and even following the initial public offering not all of the Company’s income is subject to corporate-level taxes. As a result, adjustments have been made to the Adjusted Pro Forma earnings to assume that the Company has adopted a conventional corporate tax structure and is taxed as a C corporation in the U.S. at the prevailing corporate rates and the deferred tax assets related to tax benefits for equity-based compensation awards are realized when the stock options are exercised. This assumption is consistent with the assumption that all of FXCM Holdings’ units are exchanged for shares of FXCM Inc. Class A common stock, as discussed in Item 1 above, as the assumed exchange would change the tax structure of the Company. |
| A-3 |
In addition, the Company presents results on an Adjusted Pro Forma Cash basis where Adjusted Pro Forma results are adjusted for certain non-cash items.The Company believes Adjusted Pro Forma Cash presentation may be useful to investors to compare FXCM’s results across several periods and facilitate an understanding of FXCM’s operating results. The Company uses these measures to evaluate its operating performance, as well as the performance of individual employees.The differences between Adjusted Pro Forma Cash and Adjusted Pro Forma results are as follows:
| 1. | Stock Based Compensation Expense. Additional adjustments have been made to Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation and other non-cash compensation granted subsequent to the Company’s initial public offering. The Company’s management believes it is useful to provide the effects of eliminating these non-cash expenses to evaluate the potential impact on the Company’s cash flow. |
| 2. | Depreciation and amortization. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate the depreciation of fixed assets and the amortization of intangible assets. The Company’s management believes it is useful to provide the effects of eliminating these non-cash expenses to evaluate the potential impact on the Company’s cash flow. |
| 3. | Income Taxes. Adjustments have been made to the Adjusted Pro Forma Earnings to present the Company’s estimate of tax expense in the next twelve months under the assumptions regarding taxes discussed in the above. The Company’s management believes it is useful to provide the effects of eliminating these expenses to evaluate the potential impact on the Company’s cash flow. |
| A-4 |
FXCM Inc.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 2011 | |||||||||||||||||||||||||||||||||||||||
| Adjusted | Adjusted | |||||||||||||||||||||||||||||||||||||||
| As | Adjusted | Pro Forma | As | Adjusted | Pro Forma | |||||||||||||||||||||||||||||||||||
| Reported | Adjustments | Pro Forma | Adjustments | Cash | Reported | Adjustments | Pro Forma | Adjustments | Cash | |||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||
| Retail trading revenues | $ | 85,237 | - | $ | 85,237 | - | $ | 85,237 | $ | 97,017 | - | $ | 97,017 | - | $ | 97,017 | ||||||||||||||||||||||||
| Institutional trading revenues | 25,868 | - | 25,868 | - | 25,868 | 7,720 | - | 7,720 | - | 7,720 | ||||||||||||||||||||||||||||||
| Trading revenues | 111,105 | - | 111,105 | - | 111,105 | 104,737 | - | 104,737 | - | 104,737 | ||||||||||||||||||||||||||||||
| Interest Income | 990 | - | 990 | - | 990 | 963 | - | 963 | - | 963 | ||||||||||||||||||||||||||||||
| Brokerage interest expense | (66 | ) | - | (66 | ) | - | (66 | ) | (93 | ) | - | (93 | ) | - | (93 | ) | ||||||||||||||||||||||||
| Net interest income | 924 | - | 924 | - | 924 | 870 | - | 870 | - | 870 | ||||||||||||||||||||||||||||||
| Other Income | 2,919 | - | 2,919 | - | 2,919 | 3,368 | - | 3,368 | - | 3,368 | ||||||||||||||||||||||||||||||
| Total net revenues | 114,948 | - | 114,948 | - | 114,948 | 108,975 | - | 108,975 | - | 108,975 | ||||||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||||||
| Referring broker fees | 18,708 | - | 18,708 | - | 18,708 | 25,720 | - | 25,720 | - | 25,720 | ||||||||||||||||||||||||||||||
| Compensation and benefits | 24,156 | (2,378 | )(1) | 21,778 | (1,138 | )(5) | 20,640 | 22,955 | (2,120 | )(9) | 20,835 | (92 | )(11) | 20,743 | ||||||||||||||||||||||||||
| Advertising and marketing | 7,509 | - | 7,509 | - | 7,509 | 9,870 | - | 9,870 | - | 9,870 | ||||||||||||||||||||||||||||||
| Communication and technology | 9,600 | - | 9,600 | - | 9,600 | 8,190 | - | 8,190 | - | 8,190 | ||||||||||||||||||||||||||||||
| Trading costs, prime brokerage and clearing fees | 6,981 | 6,981 | 6,981 | 2,095 | - | 2,095 | 2,095 | |||||||||||||||||||||||||||||||||
| General and administrative | 13,681 | (501 | )(2) | 13,180 | - | 13,180 | 11,102 | (262 | )(10) | 10,840 | - | 10,840 | ||||||||||||||||||||||||||||
| Depreciation and amortization | 11,717 | - | 11,717 | (11,717 | )(6) | - | 5,367 | - | 5,367 | (5,367 | )(6) | - | ||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 92,352 | (2,879 | ) | 89,473 | (12,855 | ) | 76,618 | 85,299 | (2,382 | ) | 82,917 | (5,459 | ) | 77,458 | ||||||||||||||||||||||||||
| Operating income | 22,596 | 2,879 | 25,475 | 12,855 | 38,330 | 23,676 | 2,382 | 26,058 | 5,459 | 31,517 | ||||||||||||||||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||||||||||||||
| Interest on borrowings | 1,158 | - | 1,158 | - | 1,158 | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Income before income taxes | 21,438 | 2,879 | 24,317 | 12,855 | 37,172 | 23,676 | 2,382 | 26,058 | 5,459 | 31,517 | ||||||||||||||||||||||||||||||
| Income tax provision | 3,598 | 3,799 | (3) | 7,397 | (230 | )(7) | 7,167 | 8,136 | 796 | (3) | 8,932 | (4,830 | )(7) | 4,102 | ||||||||||||||||||||||||||
| Net income | 17,840 | (920 | ) | 16,920 | 13,085 | 30,005 | 15,540 | 1,586 | 17,126 | 10,289 | 27,415 | |||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 13,327 | (8,946 | )(4) | 4,381 | 2,682 | (8) | 7,063 | 12,142 | (12,142 | )(4) | - | (12,142 | )(8) | - | ||||||||||||||||||||||||||
| Net income attributable to FXCM Inc. | $ | 4,513 | $ | 8,026 | $ | 12,539 | $ | 10,403 | $ | 22,942 | $ | 3,398 | $ | 13,728 | $ | 17,126 | $ | 22,431 | $ | 27,415 | ||||||||||||||||||||
| Pro Forma fully exchanged, fully diluted weighted average shares outstanding | 75,103 | (12) | 75,103 | (12) | 74,449 | (12) | 74,449 | (12) | ||||||||||||||||||||||||||||||||
| Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding | $ | 0.17 | $ | 0.31 | $ | 0.23 | $ | 0.37 | ||||||||||||||||||||||||||||||||
| (1)Represents the elimination of equity-based compensation associated with the IPO, severance and equity based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses. | |
| (2)Represents the elimination of acquisition-related costs and an adjustment to reflect a reserve established to settle certain trading system matters with the Financial Services Agency of Japan. | |
| (3)Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 30.4% and 34.3% for the three months ended September 30, 2012 and 2011, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company. | |
| (4)Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company. | |
| (5)Represents the elimination of equity-based compensation granted subsequent to the IPO and of compensation costs associated with the recognition of deferred compensation in connection with the Lucid Market Trading ("Lucid") which was acquired by the Company on June 18, 2012 (the "Acquisition") . Pursuant to the terms of the Acquisition, the Company issued shares of FXCM Inc. Class A common stock to the Lucid sellers subject to certain liquidity restrictions (the " Lucid Liquidity Restriction"). In accordance with Accounting Standards Codification, Topic 718, Compensation — Stock Compensation (“ASC 718”), the fair value of the Lucid Liquidity Restriction is accounted for as deferred compensation and recognized as expense over the three year period from closing of the Acquisition. | |
| (6)Represents the elimination of the depreciation of fixed assets and the amortization of intangible assets. | |
| (7)Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 19.3% and 13.0.% for the three months ended September 30, 2012 and 2011, respectively, which includes U.S. federal cash taxes and assumes the highest statutory rates for cash taxes apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company. | |
| (8)Represents an adjustment to reflect the Lucid's non-controlling interest amortization expense related to the identified intangible assets associated with the Acquisition. | |
| (9)Represents the elimination of equity-based compensation associated with the IPO. | |
| (10)Represents an adjustment to reflect a reserve established relating to a settlement with the National Futures Association (the "NFA") and ongoing discussions with the Commodity Futures Trading Commission (the "CFTC") regarding trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings, ("Holdings") certain founding members of Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.'s net income for the three months ended September 30, 2011 as the entire expense was allocated to such funding members. In July 2011, $16.00 million of additional capital was provided by the respective founding members. | |
| (11)Represents the elimination of equity-based compensation granted subsequent to the IPO. | |
| (12)Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company. | |
| A-5 |
FXCM Inc.
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
| NIne Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2011 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted | Adjusted | |||||||||||||||||||||||||||||||||||||||||
| As | Adjusted | Pro Forma | As | Adjusted | Pro Forma | |||||||||||||||||||||||||||||||||||||
| Reported | Adjustments | Pro Forma | Adjustments | Cash | Reported | Adjustments | Pro Forma | Adjustments | Cash | |||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||||
| Retail trading revenues | $ | 255,833 | - | $ | 255,833 | - | $ | 255,833 | $ | 268,234 | - | $ | 268,234 | - | $ | 268,234 | ||||||||||||||||||||||||||
| Institutional trading revenues | 42,908 | - | 42,908 | - | 42,908 | 21,820 | - | 21,820 | - | 21,820 | ||||||||||||||||||||||||||||||||
| Trading reveuues | 298,741 | - | 298,741 | - | 298,741 | 290,054 | - | 290,054 | - | 290,054 | ||||||||||||||||||||||||||||||||
| Interest Income | 2,910 | - | 2,910 | - | 2,910 | 2,837 | - | 2,837 | - | 2,837 | ||||||||||||||||||||||||||||||||
| Brokerage interest expense | (235 | ) | - | (235 | ) | - | (235 | ) | (226 | ) | - | (226 | ) | - | (226 | ) | ||||||||||||||||||||||||||
| Net interest income | 2,675 | - | 2,675 | - | 2,675 | 2,611 | - | 2,611 | - | 2,611 | ||||||||||||||||||||||||||||||||
| Other Income | 7,805 | - | 7,805 | - | 7,805 | 14,228 | - | 14,228 | - | 14,228 | ||||||||||||||||||||||||||||||||
| Total net revenues | 309,221 | - | 309,221 | - | 309,221 | 306,893 | - | 306,893 | - | 306,893 | ||||||||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||||||||
| Referring broker fees | 58,865 | - | 58,865 | - | 58,865 | 72,253 | - | 72,253 | - | 72,253 | ||||||||||||||||||||||||||||||||
| Compensation and benefits | 81,175 | (18,458 | )(1) | 62,717 | (1,845 | )(5) | 60,872 | 68,662 | (6,520 | )(9) | 62,142 | (92 | )(11) | 62,050 | ||||||||||||||||||||||||||||
| Advertising and marketing | 23,266 | - | 23,266 | - | 23,266 | 24,375 | - | 24,375 | - | 24,375 | ||||||||||||||||||||||||||||||||
| Communication and technology | 26,591 | - | 26,591 | - | 26,591 | 23,559 | - | 23,559 | - | 23,559 | ||||||||||||||||||||||||||||||||
| Trading costs, prime brokerage and clearing fees | 10,187 | - | 10,187 | 10,187 | 6,484 | - | 6,484 | 6,484 | ||||||||||||||||||||||||||||||||||
| General and administrative | 48,891 | (4,426 | )(2) | 44,465 | - | 44,465 | 48,872 | (16,262 | )(10) | 32,610 | - | 32,610 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 24,761 | 24,761 | (24,761 | )(6) | - | 14,201 | - | 14,201 | (14,201 | )(6) | - | |||||||||||||||||||||||||||||||
| Total operating expenses | 273,736 | (22,884 | ) | 250,852 | (26,606 | ) | 224,246 | 258,406 | (22,782 | ) | 235,624 | (14,293 | ) | 221,331 | ||||||||||||||||||||||||||||
| Operating income | 35,485 | 22,884 | 58,369 | 26,606 | 84,975 | 48,487 | 22,782 | 71,269 | 14,293 | 85,562 | ||||||||||||||||||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||||||||||||||||
| Interest on borrowings | 1,698 | - | 1,698 | - | 1,698 | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Income before income taxes | 33,787 | 22,884 | 56,671 | 26,606 | 83,277 | 48,487 | 22,782 | 71,269 | 14,293 | 85,562 | ||||||||||||||||||||||||||||||||
| Income tax provision | 4,856 | 13,633 | (3) | 18,489 | (8,953 | )(7) | 9,536 | 10,756 | 14,064 | (3) | 24,820 | (11,821 | )(7) | 12,999 | ||||||||||||||||||||||||||||
| Net income | 28,931 | 9,251 | 38,182 | 35,559 | 73,741 | 37,731 | 8,718 | 46,449 | 26,114 | 72,563 | ||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 22,971 | (17,717 | )(4) | 5,254 | 2,990 | (8) | 8,244 | 28,222 | (28,222 | )(4) | - | (28,222 | )(8) | - | ||||||||||||||||||||||||||||
| Net income attributable to FXCM Inc. | $ | 5,960 | $ | 26,968 | $ | 32,928 | $ | 32,569 | $ | 65,497 | $ | 9,509 | $ | 36,940 | $ | 46,449 | $ | 54,336 | $ | 72,563 | ||||||||||||||||||||||
| Pro Forma fully exchanged, fully diluted weighted average shares outstanding | 73,548 | (12) | 73,548 | (12) | 74,978 | (12) | 74,978 | (12) | ||||||||||||||||||||||||||||||||||
| Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding | $ | 0.45 | $ | 0.89 | $ | 0.62 | $ | 0.97 | ||||||||||||||||||||||||||||||||||
| (1)Represents the elimination of equity-based compensation associated with the IPO, severance and equity based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses. |
| (2)Represents the elimination of acquisition-related costs and an adjustment to reflect a reserve established to settle certain trading system matters with the Financial Services Agency of Japan. |
| (3)Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 32.6% and 34.8% for the three months ended September 30, 2012 and 2011, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company. |
| (4)Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company. |
| (5)Represents the elimination of equity-based compensation granted subsequent to the IPO and of compensation costs associated with the recognition of deferred compensation in connection with the Lucid Market Trading ("Lucid") which was acquired by the Company on June 18, 2012 (the "Acquisition") . Pursuant to the terms of the Acquisition, the Company issued shares of FXCM Inc. Class A common stock to the Lucid sellers subject to certain liquidity restrictions (the " Lucid Liquidity Restriction"). In accordance with Accounting Standards Codification, Topic 718, Compensation — Stock Compensation (“ASC 718”), the fair value of the Lucid Liquidity Restriction is accounted for as deferred compensation and recognized as expense over the three year period from closing of the Acquisition. |
| (6)Represents the elimination of the depreciation of fixed assets and the amortization of intangible assets. |
| (7)Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 11.5% and 15.2% for the three months ended September 30, 2012 and 2011, respectively, which includes U.S. federal cash taxes and assumes the highest statutory rates for cash taxes apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company. |
| (8)Represents an adjustment to reflect the Lucid's non-controlling interest amortization expense related to the identified intangible assets associated with the Acquisition. |
| (9)Represents the elimination of equity-based compensation associated with the IPO. |
| (10)Represents an adjustment to reflect a reserve established relating to a settlement with the National Futures Association (the "NFA") and ongoing discussions with the Commodity Futures Trading Commission (the "CFTC") regarding trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings, ("Holdings") certain founding members of Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.'s net income for the three months ended September 30, 2011 as the entire expense was allocated to such funding members. In July 2011, $16.00 million of additional capital was provided by the respective founding members. |
| (11)Represents the elimination of equity-based compensation granted subsequent to the IPO. |
| (12)Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company. |
| A-6 |
FXCM Inc.
Reconciliation of EBITDA to Net Income
(In thousands)
(Unaudited )
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| Adjusted Pro Forma | Adjusted Pro Forma Cash | U.S. GAAP | Adjusted Pro Forma | Adjusted Pro Forma Cash | U.S. GAAP | |||||||||||||||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||
| Revenues | 114,948 | 108,975 | 114,948 | 108,975 | 114,948 | 108,975 | 309,221 | 306,893 | 309,221 | 306,893 | 309,221 | 306,893 | ||||||||||||||||||||||||
| Net income attributable to FXCM Inc. | 12,539 | 17,126 | 22,942 | 27,415 | 4,513 | 3,398 | 32,928 | 46,449 | 65,497 | 72,563 | 5,960 | 9,509 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 4,381 | - | 7,063 | - | 13,327 | 12,142 | 5,254 | - | 8,244 | - | 22,971 | 28,222 | ||||||||||||||||||||||||
| Provision for income taxes | 7,397 | 8,932 | 7,167 | 4,102 | 3,598 | 8,136 | 18,489 | 24,820 | 9,536 | 12,999 | 4,856 | 10,756 | ||||||||||||||||||||||||
| Depreciation, amortization and interest expense | 12,875 | 5,367 | 1,158 | - | 12,875 | 5,367 | 26,459 | 14,201 | 1,698 | - | 26,459 | 14,201 | ||||||||||||||||||||||||
| EBITDA | 37,192 | 31,425 | 38,330 | 31,517 | 34,313 | 29,043 | 83,130 | 85,470 | 84,975 | 85,562 | 60,246 | 62,688 | ||||||||||||||||||||||||
| A-7 |