FXCM Inc. Announces Second Quarter 2014 Results

Releases July 2014 Operating Metrics - Record Month of Institutional Volume

Second Quarter 2014 Highlights:

  • U.S. GAAP revenues of $97.9 million, down 30% versus the same period in 2013
  • U.S. GAAP net loss attributable to FXCM Inc. of $3.1 million or $(0.08) per fully diluted share down 130% and 125% respectively versus the same period in 2013
  • Adjusted Pro Forma EBITDA of $13.4 million, down 75% versus the same period in 2013
  • Adjusted Pro Forma net loss of $1.5 million or $(0.02) per fully exchanged, diluted share down 107% and 106% respectively versus the same period in 2013
  • Strong growth in client equity of $1.31 billion - up 10% year-to-date and up 5% from March 31, 2014

July 2014 Operating Metrics Highlights:

  • Retail customer trading volume of $263 billion, 32% lower than July 2013
  • Institutional customer trading volume of $262 billion, 42% higher than July 2013 and a record for FXCM

NEW YORK--()--FXCM Inc. (NYSE:FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced for the quarter ended June 30, 2014, U.S. GAAP revenues of $97.9 million, compared to $140.1 million for the quarter ended June 30, 2013, a decrease of 30%. U.S. GAAP net loss attributable to FXCM Inc. was $3.1 million for the Second Quarter 2014 or $(0.08) per diluted share, compared to U.S. GAAP net income of $10.1 million or $0.32 per diluted share for the Second Quarter 2013, a decrease of 130% and 125% respectively.

For the six months ended June 30, 2014, U.S. GAAP revenues were $212.9 million, compared to $263.0 million for the six months ended June 30, 2013, a decrease of 19%. U.S. GAAP net loss attributable to FXCM Inc. was $1.0 million for the six months ended June 30, 2014 or $(0.03) per diluted share, compared to U.S. GAAP net income of $17.0 million or $0.55 per diluted share for the six months ended June 30, 2013, a decrease of 106% and 105% respectively.

“In the second quarter of 2014, volatility in the currency markets hit all-time lows with FXCM seeing retail customer volumes the lowest they have been in years,” said Drew Niv, Chief Executive Officer. “However, despite the difficult trading conditions, we continue to gain market share and had another strong quarter of growth in customer equity, in part reflecting our strong brand and competitive position. Since year-end 2013, we have grown customer equity by $121 million or 10% and believe we are well positioned for when market conditions improve.”

Adjusted Pro Forma EBITDA for the Second Quarter 2014 was $13.4 million, compared to $54.5 million for the Second Quarter 2013, a decrease of 75%. Adjusted Pro Forma Net Loss was $1.5 million or $(0.02) per share for the Second Quarter 2014, compared to Adjusted Pro Forma Net Income of $23.3 million or $0.31 per diluted, fully exchanged share for the Second Quarter 2013, a decrease of 107% and 106% respectively.

Adjusted Pro Forma EBITDA for the six months ended June 30, 2014 was $38.0 million, compared to $98.3 million for the six months ended June 30, 2013, a decrease of 61%. Adjusted Pro Forma Net Income was $3.7 million or $0.05 per share for the six months ended June 30, 2014, compared to $40.8 million or $0.54 per diluted, fully exchanged share for the six months ended June 30, 2013, a decrease of 91% and 91% respectively.

Adjusted Pro Forma results assume the 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 certain equity based compensation expense granted at the time of FXCM's initial public offering in December 2010.

FXCM Inc. today announced certain key operating metrics for July 2014 for its retail and institutional foreign exchange businesses. Monthly activities included:

July 2014 Operating Metrics

Retail Trading Metrics

  • Retail customer trading volume(1) of $263 billion in July 2014, 4% higher than June 2014 and 32% lower than July 2013.
  • Average retail customer trading volume(1) per day of $11.4 billion in July 2014, 6% lower than June 2014 and 33% lower than July 2013.
  • An average of 345,589 retail client trades per day in July 2014, 1% lower than June 2014 and 24% lower than July 2013.
  • Tradeable accounts(2) of 201,794 as of July 30, 2014, an decrease of 6,571, or 3%, from June 2014, and an increase of 7,275,or 4%, from July 2013.

Institutional Trading Metrics

  • Institutional customer trading volume(1) of $262 billion in July 2014, 16% higher than June 2014 and 42% higher than July 2013.
  • Average institutional trading volume(1) per day of $11.4 billion in July 2014, 6% higher than June 2014 and 43% higher than July 2013.
  • An average of 45,223 institutional client trades per day in July 2014, 17% lower than June 2014 and 2% higher than July 2013.

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 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.

Condensed Consolidated U.S. GAAP and Adjusted Pro Forma Results

               
Unaudited Unaudited

U.S. GAAP (thousands, except per
share amounts)

 

U.S. GAAP (thousands, except per
share amounts)

Three Months Ended June 30, Six Months Ended June 30,
2014 2013 % Change 2014 2013 % Change
 
Total net revenues $ 97,927 $ 140,133 -30 % $ 212,935 $ 262,997 -19 %
 
Compensation and benefits 28,821 26,587 8 % 58,711 50,120 17 %
Allocation of net income to Lucid members for services provided   2,315     15,004   -85 %   5,288     15,004   -65 %
Total compensation and benefits 31,136 41,591 -25 % 63,999 65,124 -2 %
Referring broker fees 16,495 22,422 -26 % 35,617 43,772 -19 %
Other expenses 42,756 38,306 12 % 85,746 74,421 15 %
Loss on equity method investments, net 224 397 -44 % 534 545 -2 %
Depreciation and amortization 13,122 12,481 5 % 25,752 24,455 5 %
Interest on borrowings   3,096     1,290   140 %   6,093     2,107   189 %
(Loss) Income before income taxes (8,902 ) 23,646 -138 % (4,806 ) 52,573 -109 %
Income tax (benefit) provision   (747 )   6,390   -112 %   504     14,349   -96 %
Net (Loss) Income (8,155 ) 17,256 -147 % (5,310 ) 38,224 -114 %
Net (loss) income attributable to non-controlling interest in FXCM Holdings, LLC (2,209 ) 14,093 -116 % 218 24,323 -99 %
Net loss attributable to other non-controlling interests (2,868 ) (6,961 ) -59 % (4,527 ) (3,083 ) 47 %
       
Net (Loss) Income Attributable to FXCM Inc. $ (3,078 ) $ 10,124   -130 % $ (1,001 ) $ 16,984   -106 %
 
Weighted average Class A shares outstanding - Basic   40,287     30,695   31 %   37,793     29,589   28 %
Weighted average Class A shares outstanding - Diluted   40,287     31,829   27 %   37,793     30,759   23 %
 
Net (Loss) Income per Class A Share
Basic $ (0.08 ) $ 0.33   -123 % $ (0.03 ) $ 0.57   -105 %
Net (Loss) Income per Class A Share
Diluted $ (0.08 ) $ 0.32   -125 % $ (0.03 ) $ 0.55   -105 %

 

 
Unaudited

Unaudited

Adjusted Pro Forma (thousands,
except per share amounts)

 

Adjusted Pro Forma (thousands,
except per share amounts)

Three Months Ended June 30, Six Months Ended June 30,
2014 2013 % Change 2014 2013 % Change
 
Total Net Revenues $ 97,927 $ 140,133 -30 % $ 209,263 $ 262,997 -20 %
 
Compensation and benefits 26,589 24,529 8 % 54,305 45,999 18 %
Allocation of net income to Lucid members for services provided   -     -   -   -     -  
Total compensation and benefits 26,589 24,529 8 % 54,305 45,999 18 %
Referring broker fees 16,495 22,422 -26 % 35,617 43,772 -19 %
Loss on equity method investments, net 224 397 -44 % 534 545 -2 %
Other expenses   41,212     38,306   8 %   80,796     74,421   9 %
 
EBITDA   13,407     54,479   -75 %   38,011     98,260   -61 %
 
Depreciation and amortization 13,122 12,481 5 % 25,752 24,455 5 %
Interest on borrowings   3,096     1,290   140 %   6,093     2,107   189 %
(Loss) Income before income taxes (2,811 ) 40,708 -107 % 6,166 71,698 -91 %
Income tax (benefit) provision   (724 )   9,365   -108 %   1,454     18,960   -92 %
Net (Loss) Income (2,087 ) 31,343 -107 % 4,712 52,738 -91 %
Net income attributable to non-controlling interest in FXCM Holdings, LLC - - - - -
Net (loss) income attributable to other non-controlling interests (553 ) 8,043 -107 % 1,051 11,921 -91 %
       
Net (Loss) Income Attributable to FXCM Inc. $ (1,534 ) $ 23,300   -107 % $ 3,661   $ 40,817   -91 %
 
Pro forma fully exchanged, fully diluted weighted average shares outstanding   76,169     75,715   1 %   78,139     75,750   3 %
 
(Loss) Earnings Per Share $ (0.02 ) $ 0.31   -106 % $ 0.05   $ 0.54   -91 %
 

Selected Operating Metrics

               
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 % Change 2014 2013 % Change
 
Total retail trading volume ($ in billions) $ 769 $ 1,152 -33 % $ 1,706 $ 2,193 -22 %
 
Total institutional trading volume ($ in billions) $ 596 $ 558 7 % $ 1,142 $ 931 23 %
 
Total active accounts 178,536 182,225 -2 % 178,536 182,225 -2 %
 
Trading days in period 65 65 0 % 128 128 0 %
 
Daily average trades 348,825 516,960 -33 % 380,860 478,129 -20 %
 
Daily average trades per active account 2.0 2.8 -30 % 2.1 2.6 -19 %
 
Retail trading revenue per million traded $ 96 $ 90 7 % $ 92 $ 89 3 %
 
Total customer equity ($ in millions) $ 1,312.3 $ 1,171.5 12 % $ 1,312.3 $ 1,171.5 12 %
 

Non-GAAP Financial Measures

Adjusted Pro Forma EBITDA, Adjusted Pro Forma Net Income and Adjusted Pro Forma Net Income per 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 October 1, 2014 to Class A stockholders of record at the close of business on September 5, 2014.

Conference Call

As previously announced, the Company will host a conference call to discuss the results at 4:45 p.m. (EDT). This conference call will be available to domestic participants by dialing 877.445.4603 and 443.295.9270 for international participants. The conference ID number is 78733735.

A live audio webcast, a copy of FXCM's earnings release, and presentation slides for this conference call will 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.

Visit www.fxcm.com and follow us on Twitter @FXCM, Facebook FXCM, Google+ FXCM or YouTube FXCM.

About FXCM Inc.

FXCM Inc. (NYSE:FXCM) is a leading 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.

ANNEX I

Schedule    

Page
Number

 
U.S. GAAP Results
Unaudited U.S. GAAP Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 A-1
Unaudited U.S. GAAP Condensed Consolidated Statements of Financial Condition As of June 30, 2014 and December 31, 2013 A-2
 
Adjusted Pro Forma Results A-3
Unaudited Adjusted Pro Forma and U.S. GAAP Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 A-4
Reconciliation of non-GAAP Measures to nearest U.S. GAAP Results A-5
Reconciliation of EBITDA to U.S. GAAP Net Income A-6
 
FXCM Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
           
Three Months Ended June 30, Six Months Ended June 30,
2014   2013 2014   2013
Revenues
Retail trading revenue $ 73,736 $ 104,068 $ 156,396 $ 195,322
Institutional trading revenue   21,787     31,792     47,937     59,348  
Trading revenue 95,523 135,860 204,333 254,670
 
Interest income 693 670 1,256 1,349
Brokerage interest expense   (164 )   (69 )   (260 )   (124 )
Net interest income 529 601 996 1,225
 
Other income   1,875     3,672     7,606     7,102  
Total net revenues   97,927     140,133     212,935     262,997  
 
Operating Expenses
 
Compensation and benefits 28,821 26,587 58,711 50,120
Allocation of net income to Lucid members for services provided   2,315     15,004     5,288     15,004  
Total compensation and benefits 31,136 41,591 63,999 65,124
Referring broker fees 16,495 22,422 35,617 43,772
Advertising and marketing 7,084 6,157 13,581 13,508
Communication and technology 12,031 9,765 24,250 18,120
Trading costs, prime brokerage and clearing fees 8,030 8,961 16,236 16,899
General and administrative 15,611 13,423 31,679 25,894
Depreciation and amortization   13,122     12,481     25,752     24,455  
Total operating expenses 103,509 114,800 211,114 207,772
Total operating (loss) income (5,582 ) 25,333 1,821 55,225
Other Expense
Loss on equity method investments, net 224 397 534 545
Interest on borrowings   3,096     1,290     6,093     2,107  
(Loss) Income before income taxes (8,902 ) 23,646 (4,806 ) 52,573
Income tax (benefit) provision   (747 )   6,390     504     14,349  
Net (loss) income (8,155 ) 17,256 (5,310 ) 38,224

Net (loss) income attributable to non-controlling interest in FXCM Holdings, LLC

(2,209 ) 14,093 218 24,323

Net loss attributable to other non-controlling interests

  (2,868 )   (6,961 )   (4,527 )   (3,083 )
Net (loss) income attributable to FXCM Inc. $ (3,078 ) $ 10,124   $ (1,001 ) $ 16,984  
 
Weighted average Class A shares outstanding - Basic   40,287     30,695     37,793     29,589  
Weighted average Class A shares outstanding - Diluted   40,287     31,829     37,793     30,759  
 
Net (Loss) Income per Class A Share
Basic $ (0.08 ) $ 0.33   $ (0.03 ) $ 0.57  
Diluted $ (0.08 ) $ 0.32   $ (0.03 ) $ 0.55  
 

A-1

 
FXCM Inc.
Condensed Consolidated Statements of Financial Condition
As of June 30, 2014 and December 31, 2013
(Amounts in thousands except share data)
           
(Unaudited)
June 30, December 31,
  2014 2013
 
Assets
 
Current assets
Cash and cash equivalents $ 348,763 $ 365,245
Cash and cash equivalents, held for customers 1,312,270 1,190,880
Trading securities 614 -
Due from brokers 24,357 5,450
Accounts receivables, net 13,170 9,953
Deferred tax asset 7,850 11,910
Notes receivable - 5,992
Tax receivable   9,756     3,861  
Total current assets 1,716,780 1,593,291
 
Deferred tax asset 171,266 166,576
Office, communication and computer equipment, net 50,654 49,165
Goodwill 328,891 307,936
Other intangible assets, net 69,269 76,713
Notes receivable 9,608 5,950
Other assets   29,482     24,316  
Total assets $ 2,375,950   $ 2,223,947  
 
Liabilities and Equity
 
Current liabilities
Customer account liabilities $ 1,312,270 $ 1,190,880
Accounts payable and accrued expenses 56,944 69,697
Credit agreement 25,000 -
Notes payable 7,460 9,800
Due to brokers 15,699 8,652
Securities sold, not yet purchased 3,435 -
Deferred tax liability 88 -
Due to related parties pursuant to tax receivable agreement   14,880     18,588  
Total current liabilities 1,435,776 1,297,617
Deferred tax liability 3,439 3,687
Due to related parties pursuant to tax receivable agreement 137,157 131,670
Senior convertible notes 148,900 146,303
Other liabilities   5,957     9,289  
Total liabilities   1,731,229     1,588,566  
 
Commitments and Contingencies
 
Stockholders' Equity
Class A common stock, par value $0.01 per share; 459 447
3,000,000,000 shares authorized, 45,909,957 and 44,664,884 shares issued
and outstanding as of June 30, 2014 and December 31, 2013, respectively
Class B common stock, par value $0.01 per share; 1 1
1,000,000 shares authorized, 38 and 41 shares issued and outstanding
as of June 30, 2014 and December 31, 2013, respectively
Additional paid-in capital 256,508 245,426
Retained earnings 9,849 16,352
Accumulated other comprehensive loss   (2,817 )   (5,344 )
Total stockholders' equity, FXCM Inc. 264,000 256,882
Non-controlling interests   380,721     378,499  
Total stockholders' equity   644,721     635,381  
Total liabilities and stockholders' equity $ 2,375,950   $ 2,223,947  
 

A-2

 

Adjusted Pro Forma 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. 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 as well as costs associated with the acquisition of V3 Markets, LLC. Given the nature of these expenses, they are not viewed by management as expenses incurred in the ordinary course of business and management believes it is useful to provide the effects of eliminating these expenses.
  3. Lucid Minority Interest/Compensation Expense. Our reported U.S. GAAP results reflect the portion of the 49.9% of Lucid earnings allocated among the non-controlling members of Lucid based on services provided as a component of compensation expense under "Allocation of Net Income to Lucid Members for Services Provided." Adjustments have been made to the Adjusted Pro Forma Earnings to reclassify this allocation of Lucid's earnings attributable to non-controlling members to "Net income (loss) attributable to other non-controlling interests." The Company's management believes that this reclassification provides a more meaningful view of the Company's operating expenses and the Company's economic arrangement with Lucid's non-controlling members. This adjustment has no impact on net income as reported by FXCM Inc.
  4. Acquisition Costs/Income. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain acquisition related costs/income. Given the nature of these items, they are not viewed by management as expenses/income incurred in the ordinary course of business and management believes it is useful to provide the effects of eliminating these items.
  5. Regulatory Costs. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain costs (including client reimbursements) associated with ongoing discussions and settling certain regulatory matters. Given the nature of these expenses they are not viewed by management as expenses incurred in the ordinary course of business and management believes it is useful to provide the effects of eliminating these expenses.
  6. 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. 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. In addition, the Adjusted Pro Forma income tax provision reflects the tax effect of any adjusted pro forma adjustments.

A-3

FXCM Inc.  
Adjusted Pro Forma Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                         
Three Months Ended June 30,
2014 2013
As   Adjusted As Adjusted
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
Revenues
 
Retail trading revenue $ 73,736 $ - $ 73,736 $ 104,068 $ - $ 104,068
Institutional trading revenue   21,787     -     21,787     31,792     -     31,792  
Trading revenue 95,523 - 95,523 135,860 - 135,860
 
Interest income 693 - 693 670 - 670
Brokerage interest expense   (164 )   -     (164 )   (69 )   -     (69 )
Net interest income 529 - 529 601 - 601
 
 
Other income   1,875     -     1,875     3,672     -     3,672  
 
Total net revenues   97,927     -     97,927     140,133     -     140,133  
 
Operating Expenses
 
Compensation and benefits 28,821 (2,232 )

(2)

 

26,589 26,587 (2,058 )

(2)

 

24,529
Allocation of net income to Lucid members for services provided   2,315     (2,315 )

(4)

 

  -     15,004     (15,004 )

(4)

 

  -  
Total compensation and benefits 31,136 (4,547 ) 26,589 41,591 (17,062 ) 24,529
Referring broker fees 16,495 - 16,495 22,422 - 22,422
Advertising and marketing 7,084 - 7,084 6,157 - 6,157
Communication and technology 12,031 - 12,031 9,765 - 9,765
Trading costs, prime brokerage and clearing fees 8,030 - 8,030 8,961 - 8,961
General and administrative 15,611 (1,544 )

(6)

 

14,067 13,423 - 13,423
Depreciation and amortization 13,122 - 13,122 12,481 - 12,481
           
Total operating expenses   103,509     (6,091 )   97,418     114,800     (17,062 )   97,738  
 
Total operating (loss) income (5,582 ) 6,091 509 25,333 17,062 42,395
 
Loss on equity method investments, net 224 - 224 397 - 397
Interest on borrowings   3,096     -     3,096     1,290     -     1,290  
 
(Loss) Income before income taxes (8,902 ) 6,091 (2,811 ) 23,646 17,062 40,708
Income tax (benefit) provision   (747 )   23  

(8)

 

  (724 )   6,390     2,975  

(8)

 

  9,365  
Net (loss) income (8,155 ) 6,068 (2,087 ) 17,256 14,087 31,343
Net (loss) income attributable to non-controlling interest in FXCM Holdings, LLC (2,209 ) 2,209

(9)

 

- 14,093 (14,093 )

(9)

 

-
Net (loss) income attributable to other non-controlling interests   (2,868 )   2,315  

(10)

 

  (553 )   (6,961 )   15,004  

(10)

 

  8,043  
Net (loss) income attributable to FXCM Inc. $ (3,078 ) $ 1,544   $ (1,534 ) $ 10,124   $ 13,176   $ 23,300  
 
Diluted weighted average shares outstanding as reported and pro forma fully exchanged, fully diluted weighted average shares outstanding   40,287     76,169  

(11)

 

  31,829     75,715  

(11)

 

 
Diluted net (loss) income per share as reported and adjusted pro forma net (loss) income per fully exchanged, fully diluted weighted average shares outstanding $ (0.08 ) $ (0.02 ) $ 0.32   $ 0.31  
 

(1) Represents the elimination of a $3.7 million benefit recorded to reduce the contingent consideration related to the Faros acquisition.

(2) Represents the elimination of IPO stock-based compensation.

(3) Represents the elimination of $4.1 million of IPO stock-based compensation and $0.3 million of compensation cost related to the V3 Markets, LLC ("V3") acquisition.

(4) Represents the reclassification of the 49.9% of Lucid’s earnings allocated among the non-controlling interests recorded as compensation for U.S. GAAP purposes to Net (loss) income attributable to other non-controlling interests.

(5) Represents the elimination of V3 acquisition costs.

(6) Represents $0.2 million to eliminate costs associated with regulatory settlements and a $1.3 million charge related to a put option payment for Online Courses.

(7) Represents the elimination of $0.7 million of V3 acquisition costs, $2.7 million to eliminate costs associated with regulatory settlements and a $1.3 million charge related to a put option payment for Online Courses.

(8) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 25.8% and 23.0% for the three months ended June 30, 2014 and 2013, respectively, and 23.6% and 26.4% for the six months ended June 30, 2014 and June 30, 2013, 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 ("Holdings") units for shares of Class A common stock of the Company and reflects the tax effect of any proforma adjustments.

(9) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of Holdings (excluding FXCM, Inc.), as if the unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.

(10) Represents the reclassification of the 49.9% of Lucid’s earnings allocated among the non-controlling interests recorded as compensation for U.S. GAAP purposes to Net (loss) income attributable to other non-controlling interests and the impact of other proforma adjustments impacting non-controlling interests.

(11) Diluted shares assuming all unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.

A-4

FXCM Inc.
Reconciliation of Non-GAAP Measures to Nearest U.S. GAAP Results
(In thousands)
(Unaudited )
               
Three Months Ended June 30, Six Months Ended June 30,
2014       2013   2014       2013  
 
GAAP Net (loss) income attributable to FXCM Inc. $ (3,078 ) $ 10,124 $ (1,001 ) $ 16,984
Contingent Consideration - Faros Follow-On Payment - - (3,672 )

(1)

 

-
IPO Stock Options 2,232

(2)

 

2,058

(2)

 

4,134

(2)

 

4,121

(2)

 

V3 Acquisition related costs - - 1,213

(3)

 

-
On-line Courses put option payment 1,297

(8)

 

- 1,297

(8)

 

-
Regulatory fees and fines 247

(4)

 

- 2,712

(4)

 

-
Non-Controlling interest adjustment related to the above adjustments - - (290 ) -
FXCM Holdings Conversion (2,209 )

(6)

 

14,093

(6)

 

218

(6)

 

24,323

(6)

 

Tax adjustments related to the above   (23 )

(5)

 

  (2,975 )

(5)

 

  (950 )

(5)

 

  (4,611 )

(5)

 

Non GAAP Adjusted Proforma Net (Loss) Income $ (1,534 ) $ 23,300 $ 3,661 $ 40,817
All other stock compensation 1,256 1,232 2,566 2,398
Amortization of intangibles 7,387 6,969 14,368 13,996
Amortization of debt discount 1,302 390 2,597 390
Non-Controlling interest adjustment related to the above adjustments (3,358 ) (3,029 ) (6,642 ) (6,058 )
Tax adjustments related to the above   (1,596 )

(5)

 

  (1,189 )

(5)

 

  (2,415 )

(5)

 

  (2,579 )

(5)

 

Non GAAP Adjusted Proforma Net Income excluding other stock compensation and amortization $ 3,457   $ 27,673   $ 14,135   $ 48,964  
 
GAAP Weighted average Class A shares outstanding - Diluted 40,287 31,829 37,793 30,759
FXCM Holdings Conversion   35,882  

(7)

 

  43,886  

(7)

 

  40,346  

(7)

 

  44,991  

(7)

 

Non GAAP Weighted average Proforma shares outstanding - Diluted   76,169     75,715     78,139     75,750  
 
GAAP Net (Loss) Income per Class A Share -Diluted $ (0.08 ) $ 0.32   $ (0.03 ) $ 0.55  
Non GAAP Adjusted Proforma Net (Loss) Income per Proforma Share - Diluted $ (0.02 ) $ 0.31   $ 0.05   $ 0.54  
Non GAAP Adjusted Proforma Net Income excluding other stock compensation and amortization per Proforma Share - Diluted $ 0.05   $ 0.37   $ 0.18   $ 0.65  
 

(1) Represents the elimination of a $3.7 million benefit recorded to reduce the contingent consideration related to the Faros acquisition.

(2) Represents the elimination of stock-based compensation associated with the IPO.

(3) Represents the elimination of V3 acquisition costs.

(4) Represents the net expense relating to pre-August 2010 trade execution practices and other regulatory fees and fines.

(5) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 25.8% and 23.0% for the three months ended June 30, 2014 and 2013, respectively, and 23.6% and 26.4% for the six months ended June 30, 2014 and June 30, 2013, 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 ("Holdings") units for shares of Class A common stock of the Company and reflects the tax effect of any proforma adjustments.

(6) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of Holdings (excluding FXCM, Inc.), as if the unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.

(7) Diluted shares assuming all unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.

(8) Represents $1.3 million charge related to a put option payment for Online Courses.

A-5

FXCM Inc.
Reconciliation of EBITDA to Net Income
(In thousands)
(Unaudited )
               
Three Months Ended June 30, Six Months Ended June 30,
Adjusted Pro Forma       U.S. GAAP Adjusted Pro Forma       U.S. GAAP
2014   2013 2014   2013 2014   2013 2014   2013
 
Net Revenues $ 97,927 $ 140,133 $ 97,927 $ 140,133 $ 209,263 $ 262,997 $ 212,935 $ 262,997
 
Net (loss) income attributable to FXCM Inc. $ (1,534 ) $ 23,300 $ (3,078 ) $ 10,124 $ 3,661 $ 40,817 $ (1,001 ) $ 16,984
Net (loss) income attributable to non-controlling interest in FXCM Holdings, LLC - - (2,209 ) 14,093 - - 218 24,323
Net (loss) income attributable to other non-controlling interests (553 ) 8,043 (2,868 ) (6,961 ) 1,051 11,921 (4,527 ) (3,083 )
(Benefit) Provision for income taxes (724 ) 9,365 (747 ) 6,390 1,454 18,960 504 14,349
Depreciation and amortization 13,122 12,481 13,122 12,481 25,752 24,455 25,752 24,455
Interest on borrowings   3,096     1,290   3,096     1,290     6,093   2,107   6,093     2,107  
EBITDA $ 13,407   $ 54,479 $ 7,316   $ 37,417  

 

$ 38,011 $ 98,260 $ 27,039   $ 79,135  
 

A-6

 

Contacts

FXCM Inc.
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications and Investor Relations
jklein@fxcm.com

Release Summary

FXCM announces Q2 2014 earnings results and releases July 2014 operating metrics where Institutional Volume saw a record month

Contacts

FXCM Inc.
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications and Investor Relations
jklein@fxcm.com