March 7, 2013

FXCM Inc. Announces Fourth Quarter 2012 and Full Year 2012 Results

Releases February 2013 Monthly Operating Metrics

Fourth Quarter Highlights:

  • 2012 fourth quarter U.S. GAAP revenues of $108.1 million, down 1% versus the same period in 2011
  • U.S. GAAP net income of $3.0 million or $0.11 per fully diluted share
  • Adjusted Pro Forma EBITDA of $29.8 million, up 13% versus the same period in 2011
  • Adjusted Pro Forma net income of $9.7 million or $0.13 per fully exchanged, fully diluted share
  • Customer equity of $1,190.8 million, up 14% from same period in 2011
  • Active accounts of 170,930, up 5% from the same period in 2011
  • Declared a quarterly dividend of $0.06 per share of Class A common stock

Full-Year Highlights:

  • Full year U.S. GAAP revenues of $417.3 million, up 0.4% compared to 2011
  • U.S. GAAP net income of $9.0 million or $0.37 per fully diluted share
  • Adjusted Pro Forma EBITDA of $112.9 million, up 1% compared to 2011
  • Adjusted Pro Forma net income of $42.6 million or $0.58 per fully exchanged, fully diluted share
  • Paid dividends of $0.24 per share of Class A common stock
  • Completed the acquisition of 50.1% of Lucid Markets, a leading non-bank market maker and electronic trader in institutional foreign exchange

February 2013 Monthly Metrics Highlights:

  • Record retail customer trading volume of $17.9 billion per day
  • $359 billion in total retail customer trading volume — fourth highest in FXCM history

NEW YORK--(BUSINESS WIRE)-- FXCM Inc. (NYSE: FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced revenues for the quarter ended December 31, 2012 of $108.1 million, compared to $108.7 million for the quarter ended December 31, 2011, a decrease of 1%. U.S. GAAP net income was $3.0 million or $0.11 per fully diluted Class A share for the fourth quarter 2012, compared to $3.2 million or $0.21 per fully diluted Class A share for the fourth quarter 2011, a decrease of 7% and 48%, respectively. This decrease is primarily due to $1.8 million or $0.12 per fully diluted share in deferred tax benefits recognized by FXCM's Japanese subsidiary in the fourth quarter 2011 U.S. GAAP results.

Under U.S. GAAP, revenues for the year ended December 31, 2012 increased 0.4% to $417.3 million, compared to $415.6 million for the corresponding period in 2011. U.S. GAAP net income for the year ended December 31, 2012 was $9.0 million, or $0.37 cents per fully diluted Class A share versus $12.7 million or $0.77 cents per fully diluted Class A share, a decrease of 30% and 52% respectively.

Adjusted Pro Forma EBITDA for the fourth quarter 2012 was $29.8 million, compared to $26.4 million for the fourth quarter 2011, an increase of 13%. Adjusted Pro Forma Net Income was $9.7 million or $0.13 per fully exchanged, fully diluted share for the fourth quarter 2012, compared to $20.7 million or $0.28 per fully exchanged, fully diluted share for the fourth quarter 2011, a decrease of 53% and 54%, respectively. This decrease is primarily due to $8.2 million or $0.11 per fully exchanged, fully diluted share in deferred tax benefits recognized by FXCM's Japanese subsidiary in the fourth quarter 2011 adjusted Pro Forma results.

Adjusted Pro Forma EBITDA for the year ended December 31, 2012 was $112.9 million, compared to $111.9 million, for the corresponding period in 2011, an increase of 1%. Adjusted Pro Forma Net Income for the year ended December 31, 2012 was $42.6 million, or $0.58 per share on a fully exchanged, fully diluted basis, compared to $67.2 million, or $0.90 per share on a fully exchanged, fully diluted basis, for the corresponding period in 2011, a decrease of 37% and 36% 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 turned in a solid fourth quarter even though volatility in global FX markets hit multi-year lows," said Drew Niv, Chief Executive Officer of FXCM. "Despite the subdued trading environment we saw for the entire year in 2012, we are pleased to have positioned our business so that we were still able to generate $102.1 million in after-tax cash flow from operations," Niv continued. "With over $13 trillion in currencies traded at FXCM in 2012, we have built FXCM today into one of the largest FX players in the world."

FXCM Inc. today also announced certain key operating metrics for February 2013 for its retail and institutional foreign exchange business. Monthly activities included:

February 2013 Operating Metrics

Retail Trading Metrics

  • Retail customer trading volume(1) of $359 billion in February 2013, 1% lower than January 2013 and 3% higher than February 2012.
  • Average retail customer trading volume per day of $17.9 billion in February 2013, 8% higher than January 2013 and 8% higher than February 2012.
  • An average of 460,761 retail client trades per day in February 2013, 6% higher than January 2013 and 16% higher than February 2012.
  • Tradable accounts(2) of 190,891 as of February 28, 2013, an increase of 1,784 or 1% from January 2013, and a decrease of 6,875 or 3% from February 2012.

Institutional Trading Metrics

  • Institutional customer trading volume(1) of $132 billion in February 2013, 14% higher than January 2013 and 4% higher than February 2012.
  • Average institutional trading volume per day of $6.6 billion in February 2013, 25% higher than January 2013 and 8% higher than February 2012.
  • An average of 17,888 institutional client trades per day in February 2013, 13% higher than January 2013 and 39% lower than February 2012.

Drew Niv, FXCM's Chief Executive Officer, commenting on February metrics said "2013 has so far been a very different year than 2012, with two of our best months of volume ever in January and February."

We achieved these results despite only a relatively modest improvement in currency volatility historically speaking," Niv added. "This is in large part a result of FXCM having grown client equity to $1.2 billion, over 4 times higher than just four years ago."

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 U.S. dollars.

(2) A Tradable Account is an account with sufficient funds to place a trade in accordance with FXCM trading policies.

       

Consolidated U.S. GAAP Results

 

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

Three Months Ended December 31,   Twelve Months Ended December 31,

2012

 

2011

 

% Change

2012

 

2011

% Change

 
Total net revenues $ 108,094 $ 108,685 -1 % $ 417,315 $ 415,578 0.42 %
 
Referring broker fees 17,720 20,579 -14 % 76,585 92,832 -18 %
Compensation and benefits 24,604 26,424 -7 % 105,779 95,086 11 %
Other expenses 39,016 34,720 12 % 147,951 138,010 7 %
 
Depreciation, amortization and interest expense 13,077 5,852 123 % 39,536 20,053 97 %
 
Income before income taxes   13,677   21,110 -35 %   47,464   69,597 -32 %
 
Income tax provision 4,130 61 6670 % 8,986 10,816 -17 %
 
Net Income   9,547   21,049 -55 %   38,478   58,781 -35 %
 
Net income attributable to non-controlling interest in FXCM Holdings, LLC 5,413 17,822 -70 % 23,131 46,045

-50

%
 
Net income attributable to non-controlling interest in Lucid Markets Trading Limited 1,136 - 0 % 6,389 - 0 %
       
Net Income Attributable to FXCM Inc. $ 2,998 $ 3,227 -7 % $ 8,958 $ 12,736 -30 %
 
Net Income (in thousands) $ 2,998 $ 3,227 -7 % $ 8,958 $ 12,736 -30 %
 
Net Income per Class A Share
Basic and Diluted $ 0.11 $ 0.21 -48 % $ 0.37 $ 0.77 -52 %
 
Average Class A shares outstanding   27,750   15,291 81 %   24,086   16,567 45 %
 
                           

Consolidated Adjusted Pro Forma Results

 

Unaudited

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 December 31, Three Months Ended December 31, Twelve Months Ended December 31, Twelve Months Ended December 31,

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

 
Total Revenues $ 108,094 $ 105,371 3 % $ 108,094 $ 105,371 3 % $ 417,315 $ 412,264 1 % $ 417,315 $ 412,264 1 %
 
Referring broker fees 17,720 20,579 -14 % 17,720 20,579 -14 % 76,585 92,832 -18 % 76,585 92,832 -18 %
Compensation and benefits 21,591 23,681 -9 % 19,814 23,415 -15 % 84,304 85,817 -2 % 81,266 85,555 -5 %
Other expenses   39,016   34,720   12 %   39,016   34,720 12 %   143,525   121,748 18 %   143,525   121,748 18 %
 
EBITDA   29,767   26,391   13 %   31,544   26,657 18 %   112,901   111,867 1 %   115,939   112,129 3 %
 
Depreciation, amortization and interest expense 13,077 5,852 123 % 1,065 - 39,536 20,053 97 % 2,763 -
 
Income before income taxes   16,690   20,539   -19 %   30,479   26,657 14 %   73,365   91,814 -20 %   113,176   112,129 1 %
 
Income tax provision 5,900 (161 ) -3765 % 8,036 12,745 -37 % 24,389 24,660 -1 % 23,380 32,570 -28 %
 
Net Income   10,790   20,700   -48 %   22,443   13,912 61 %   48,976   67,154 -27 %   89,796   79,559 13 %
 
Net income attributable to non-controlling interest in FXCM Holdings, LLC - - 0 % - - 0 % - - 0 % - - 0 %
 
Net income attributable to non-controlling interest in Lucid Markets Trading Limited 1,136 - 0 % 3,964 - 0 % 6,389 - 0 % 10,723 - 0 %
               
Net Income Attributable to FXCM Inc. $ 9,654 $ 20,700   -53 % $ 18,479 $ 13,912 33 % $ 42,587 $ 67,154 -37 % $ 79,073 $ 79,559 -1 %
 
Pro forma fully exchanged, fully diluted shares outstanding 74,935 73,272 2 % 74,935 73,272 2 % 73,896 74,548 -1 % 73,896 74,548 -1 %
 
Earnings Per Share $ 0.13 $ 0.28   -54 % $ 0.25 $ 0.19 32 % $ 0.58 $ 0.90 -36 % $ 1.07 $ 1.07 0 %
 
               

Selected Operating Metrics

 
(Unaudited) (Unaudited)
Three Months Ended December 31, Twelve Months Ended December 31,

2012

2011

% Change

2012

2011

% Change

 
Total trading volume ($ in billions) $ 886 $ 972 -9 % $ 3,601 $ 3,775 -5 %
 
Total institutional trading volume ($ in billions) $ 223 $ 429 -49 % $ 1,179 $ 1,171 1 %
 
Total active accounts 170,930 163,094 5 % 170,930 163,094 5 %
 
Trading days in period 64 65 -2 % 259 260 0 %
 
Daily average trades 366,015 423,413 -14 % 364,417 381,030 -4 %
 
Daily average trades per active account 2.1 2.7 -23 % 2.1 2.5 -16 %
 
Retail trading revenue per million traded $ 95 $ 98 -3 % $ 94 $ 96 -2 %
 
Total customer equity ($ in millions) $ 1,190.8 $ 1,047.0 14 % $ 1,190.8 $ 1,047.0 14 %
 

Non-GAAP Financial Measures

Adjusted Pro Forma EBITDA, Adjusted Pro Forma Net Income and Adjusted Pro Forma 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 April 1, 2013 to Class A stockholders of record at the close of business on March 19, 2013.

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 17412832.

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.

 

ANNEX I

     
Schedule  

Page
Number

     
U.S. GAAP Results    
Unaudited U.S. GAAP Consolidated Statements of Operations for the Three and Twelve Months Ended December 31, 2012 and 2011   A-1
Unaudited U.S. GAAP Consolidated Statements of Financial Condition As of December 31, 2012 and December 31, 2011   A-2
     
Adjusted Pro Forma and Adjusted Pro Forma Cash Results    
Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Three Months Ended December 31, 2012 and 2011   A-5
Unaudited Adjusted Pro Forma, Adjusted Pro Forma Cash and U.S. GAAP Consolidated Statements of Operations for the Twelve Months Ended December 31, 2012 and 2011   A-6
Reconciliation of EBITDA to Unaudited U.S. GAAP Net Income   A-7
 
           
FXCM Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)

(Unaudited)

Three Months Ended December 31, Twelve Months Ended December 31,
  2012     2011     2012     2011  
Revenues
 
Retail trading revenue $ 83,852 $ 95,540 $ 339,685 $ 363,774
Institutional trading revenue   19,125     7,088     62,033     28,908  
Trading revenue 102,977 102,628 401,718 392,682
 
Interest income 661 807 3,571 3,644
Brokerage interest expense   (42 )   (103 )   (277 )   (329 )
Net interest income 619 704 3,294 3,315
 
Other income   4,498     5,353     12,303     19,581  
 
Total net revenues   108,094     108,685     417,315     415,578  
 
Operating Expenses
 
Referring broker fees 17,720 20,579 76,585 92,832
Compensation and benefits 24,604 26,424 105,779 95,086
Advertising and marketing 7,594 10,522 30,860 34,897
Communication and technology 10,522 8,310 37,113 31,869
Trading costs, prime brokerage and clearing fees 6,748 1,683 16,935 8,167
General and administrative 14,152 14,205 63,043 63,077
Depreciation and amortization 12,012 5,852 36,773 20,053
       
 
Total operating expenses   93,352     87,575     367,088     345,981  
 
Operating income 14,742 21,110 50,227 69,597
 
Other Expense
Interest on borrowings   1,065     -     2,763     -  
 
Income before income taxes 13,677 21,110 47,464 69,597
Income tax provision   4,130     61     8,986     10,816  
Net income 9,547 21,049 38,478 58,781
Net income attributable to non-controlling interest in FXCM Holdings, LLC 5,413 17,822 23,131 46,045
Net income attributable to non-controlling interest in Lucid Markets Trading Limited   1,136     -     6,389     -  
Net income attributable to FXCM, Inc. $ 2,998   $ 3,227   $ 8,958   $ 12,736  
 
 
       
Net Income $ 2,998   $ 3,227   $ 8,958   $ 12,736  
 
Net Income per Class A Share
Basic and Diluted $ 0.11   $ 0.21   $ 0.37   $ 0.77  
 
Weighted average Class A shares outstanding   27,750     15,291     24,086     16,567  
 

A-1

 
 

FXCM Inc.

Consolidated Statements of Financial Condition

As of December 31, 2012 and December 31, 2011

(Amounts in thousands except for share data)

(Unaudited)

 
            December 31,       December 31,
  2012 2011
 
Assets
 
Current assets
Cash and cash equivalents $ 272,332 $ 184,721
Cash and cash equivalents, held for customers 1,190,762 1,046,983
Due from brokers 8,040 1,311
Accounts receivables, net 5,485 17,004
Deferred tax asset 10,598 6,982
Tax receivable   6,003     2,016
Total current assets 1,493,220 1,259,017
 
Deferred tax asset 117,221 88,556
Office, communication and computer equipment, net 50,316 39,686
Intangible assets and goodwill, net 383,446 80,656
Other assets   20,967     19,218
Total assets $ 2,065,170   $ 1,487,133
 
Liabilities and Equity
 
Current liabilities
Customer account liabilities $ 1,190,762 $ 1,046,983
Accounts payable and accrued expenses 65,431 56,723
Credit agreement 85,000 -
Notes payable 22,867
Due to brokers 14,494 13,495
Deferred tax liability 7,100 2,241
Due to related parties pursuant to tax receivable agreement   4,979     3,575
Total current liabilities 1,390,633 1,123,017
 
Deferred tax liability 12,351 7,044
Due to related parties pursuant to tax receivable agreement   87,271     63,639
Total liabilities   1,490,255     1,193,700
 
Commitments and Contingencies
 
Stockholders' equity
Class A common stock, par value $0.01 per share; 347 149
3,000,000,000 shares authorized, 34,683,599 and 14,899,391 shares issued
and outstanding as of December 31, 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 December 31, 2012 and December 31, 2011, respectively
Additional paid-in-capital 171,390 86,152
Retained earnings 11,122 8,977
Accumulated other comprehensive income   (1,301 )   142
Total stockholders' equity, FXCM Inc. 181,559 95,421
Non-controlling interest 393,356 198,012
Total stockholders' equity   574,915     293,433
Total liabilities and stockholders' equity $ 2,065,170   $ 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 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 December 31,
  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 revenue $ 83,852 - $ 83,852 - $ 83,852 $ 95,540 - $ 95,540 - $ 95,540
Institutional trading revenue   19,125     -     19,125     -     19,125     7,088     -     7,088     -     7,088  
Trading revenue 102,977 - 102,977 - 102,977 102,628 - 102,628 - 102,628
 
Interest income 661 - 661 - 661 807 - 807 - 807
Brokerage interest expense   (42 )   -     (42 )   -     (42 )   (103 )   -     (103 )   -     (103 )
Net interest income 619 - 619 - 619 704 - 704 - 704
 
Other income   4,498     -     4,498     -     4,498     5,353     (3,314 )

(8)

  2,039     -     2,039  
-
Total net revenues   108,094     -     108,094     -     108,094     108,685     (3,314 )   105,371     -     105,371  
 
Operating Expenses
 
Referring broker fees 17,720 - 17,720 - 17,720 20,579 - 20,579 - 20,579
Compensation and benefits 24,604 (3,013 )

(1)

21,591 (1,777 )

(4)

19,814 26,424 (2,743 )

(9)

23,681 (266 )

(10)

23,415
Advertising and marketing 7,594 - 7,594 - 7,594 10,522 - 10,522 - 10,522
Communication and technology 10,522 - 10,522 - 10,522 8,310 - 8,310 - 8,310
Trading costs, prime brokerage and clearing fees 6,748 6,748 6,748 1,683 - 1,683 1,683
General and administrative 14,152 - 14,152 - 14,152 14,205 14,205 - 14,205
Depreciation and amortization 12,012 - 12,012 (12,012 )

(5)

- 5,852 5,852 (5,852 )

(5)

-
          -            
Total operating expenses   93,352     (3,013 )   90,339     (13,789 )   76,550     87,575     (2,743 )   84,832     (6,118 )   78,714  
-
Operating income 14,742 3,013 17,755 13,789 31,544 21,110 (571 ) 20,539 6,118 26,657
 
Other expense
Interest on borrowings   1,065     -     1,065     -     1,065     -     -     -     -     -  
 
Income before income taxes 13,677 3,013 16,690 13,789 30,479 21,110 (571 ) 20,539 6,118 26,657
Income tax provision   4,130     1,770  

(2)

  5,900     2,136  

(6)

  8,036     61     (222 )

(2)

  (161 )   12,906  

(6)

  12,745  
Net income 9,547 1,243 10,790 11,653 22,443 21,049 (349 ) 20,700 (6,788 ) 13,912
Net income attributable to non-controlling interest in FXCM Holdings, LLC 5,413

(5,413

)

(3)

- - - 17,822 (17,822 )

(3)

- - -
Net income attributable to non-controlling interest in Lucid Markets Trading Limited   1,136     -     1,136     2,828  

(7)

  3,964     -     -     -     -     -  
Net income attributable to FXCM Inc. $ 2,998   $ 6,656   $ 9,654   $ 8,825   $ 18,479   $ 3,227   $ 17,473   $ 20,700   $ (6,788 ) $ 13,912  
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   74,935  

(11)

  74,935  

(11)

  73,272  

(11)

  73,272  
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.13   $ 0.25   $ 0.28   $ 0.19  
 
(1) Represents the elimination of stock-based compensation associated with the IPO, severance and stock-based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses.
 
(2) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 35.4% and (0.8)% for the three months ended December 31, 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 ("Holdings") units for shares of Class A common stock of the Company.
 
(3) 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.
 
(4) Represents the elimination of stock-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. 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"). The Lucid Liquidity Restriction is accounted for as deferred compensation and recognized as expense over the three year period from closing of the Acquisition.
 
(5) Represents the elimination of the depreciation of fixed assets and the amortization of intangible assets.
 
(6) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 26.4% and 47.8% for the three months ended December 31, 2012 and 2011, respectively, which includes U.S. federal current income taxes and assumes the highest statutory rates for current income taxes apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing Holdings unitholders units for shares of Class A common stock of the Company.
 
(7)Represents an adjustment to reflect the Lucid's non-controlling interest amortization expense related to the identified intangible assets associated with the acquisition.
 
(8)Represents the elimination of an amount related to the remeasurement of our tax receivable liability pursuant to a tax receivable agreement. This non-recurring income is attributable to the change in our U.S. federal income tax rate.
 
(9) Represents the elimination of stock-based compensation associated with the IPO.
 
(10) Represents the elimination of stock-based compensation for stock options granted subsequent to the IPO.
 
(11) Fully diluted shares assuming all unitholders had fully exchanged their Holdings 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)

       
Year Ended December 31,
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 revenue $ 339,685 - $ 339,685 - $ 339,685 $ 363,774 - $ 363,774 - $ 363,774
Institutional trading revenue   62,033   -   62,033   -   62,033   28,908   -   28,908   -   28,908
Trading revenue 401,718 - 401,718 - 401,718 392,682 - 392,682 - 392,682
 
Interest income 3,571 - 3,571 - 3,571 3,644 - 3,644 - 3,644
Brokerage interest expense   (277)   -   (277)   -   (277)   (329)   -   (329)   -   (329)
Net interest income 3,294 - 3,294 - 3,294 3,315 - 3,315 - 3,315
 
Other Income   12,303   -   12,303   -   12,303   19,581   (3,314) (9)   16,267   -   16,267
 
Total net revenues   417,315   -   417,315   -   417,315   415,578   (3,314)   412,264   -   412,264
 
Operating Expenses
 
Referring broker fees 76,585 - 76,585 - 76,585 92,832 - 92,832 - 92,832
Compensation and benefits 105,779 (21,475) (1) 84,304 (3,038) (5) 81,266 95,086 (9,269) (10) 85,817 (262) (12) 85,555
Advertising and marketing 30,860 - 30,860 - 30,860 34,897 - 34,897 - 34,897
Communication and technology 37,113 - 37,113 - 37,113 31,869 - 31,869 - 31,869
Trading costs, prime brokerage and clearing fees 16,935 - 16,935 16,935 8,167 - 8,167 8,167
General and administrative 63,043 (4,426) (2) 58,617 - 58,617 63,077 (16,262) (11) 46,815 - 46,815
Depreciation and amortization 36,773 36,773 (36,773) (6) - 20,053 - 20,053 (20,053) (6) -
                   
Total operating expenses   367,088   (25,901)   341,187   (39,811)   301,376   345,981   (25,531)   320,450   (20,315)   300,135
 
Operating income 50,227 25,901 76,128 39,811 115,939 69,597 22,217 91,814 20,315 112,129
 
Other expense
Interest on borrowings   2,763   -   2,763   -   2,763   -   -   -   -   -
 
Income before income taxes 47,464 25,901 73,365 39,811 113,176 69,597 22,217 91,814 20,315 112,129
Income tax provision   8,986   15,403 (3)   24,389   (1,009) (7)   23,380   10,816   13,844 (3)   24,660   7,910 (7)   32,570
Net income 38,478 10,498 48,976 40,820 89,796 58,781 8,373 67,154 12,405 79,559
Net income attributable to non-controlling interest in FXCM Holdings, LLC 23,131 (23,131) (4) - - - 46,045 (46,045) (4) - - -
Net income attributable to non-controlling interest in Lucid Markets Trading Limited   6,389   -   6,389   4,334 (8)   10,723   -   -   -   -   -
Net income attributable to FXCM Inc. $ 8,958 $ 33,629 $ 42,587 $ 36,486 $ 79,073 $ 12,736 $ 54,418 $ 67,154 $ 12,405 $ 79,559
 
 
Pro Forma fully exchanged, fully diluted weighted average shares outstanding   73,896 (13)   73,896 (13)   74,548 (13)   74,548 (13)
 
Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.58 $ 1.07 $ 0.90 $ 1.07
 
(1) Represents the elimination of stock-based compensation associated with the IPO, severance and stock-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 accrual 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 33.2% and 26.9% for the year ended December 31, 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 ("Holdings") 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 Holdings (excluding FXCM, Inc.), as if the unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.
 
(5)Represents the elimination of stock-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. 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"). 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 20.7% and 29.0% for the year ended December 31, 2012 and 2011, respectively, which includes U.S. federal current income taxes and assumes the highest statutory rates for current income taxes apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing Holdings unitholders 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 an amount related to the remeasurement of our tax receivable liability pursuant to a tax receivable agreement. This non-recurring income is attributable to the change in our U.S. federal income tax rate.

 
(10) Represents the elimination of stock-based compensation associated with the IPO.
 
(11) Represents an adjustment to eliminate an expense relating to a settlement with the National Futures Association and ongoing discussions with the Commodity Futures Trading Commission regarding trade execution activities. Pursuant to an agreement with a subsidiary Holdings, certain founding members of Holdings agreed to reimburse the cost of these matters, up to $16.0 million plus additional amounts as approved by such founding members. Consequently, there was no impact to FXCM Inc.'s net income for the year ended December 31, 2011 as the entire expense was allocated to such funding members. Accordingly $16.3 million of additional capital was provided by the respective founding members.
 

(12) Represents the elimination of stock-based compensation for stock options granted subsequent to the IPO.

 

(13) Fully diluted shares assuming all unitholders had fully exchanged their Holdings 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 December 31, Twelve Months Ended December 31,
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 $ 108,094 $ 105,371 $ 108,094 $ 105,371 $ 108,094 $ 108,685 $ 417,315 $ 412,264 $ 417,315 $ 412,264 $ 417,315 $ 415,578
 
Net income attributable to FXCM Inc. $ 9,654 $ 20,700 $ 18,479 $ 13,912 $ 2,998 $ 3,227 $ 42,587 $ 67,154 $ 79,073 $ 79,559 $ 8,958 $ 12,736
Net income attributable to non-controlling interest in FXCM Holdings, LLC - - - - 5,413 17,822 - - - - 23,131 46,045
Net income attributable to non-controlling interest in Lucid Markets Trading Limited 1,136 - 3,964 - 1,136 - 6,389 - 10,723 - 6,389 -
Provision for income taxes 5,900 (161 ) 8,036 12,745 4,130 61 24,389 24,660 23,380 32,570 8,986 10,816
Depreciation, amortization and interest expense   13,077     5,852       1,065     -     13,077     5,852     39,536     20,053     2,763     -     39,536     20,053
EBITDA $ 29,767   $ 26,391     $ 31,544   $ 26,657   $ 26,754   $ 26,962   $ 112,901   $ 111,867   $ 115,939   $ 112,129   $ 87,000   $ 89,650

 

 

A-7

 

For Investors and Media:
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications and Investor Relations
jklein@fxcm.com

Source: FXCM Inc.

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