March 6, 2014

FXCM Inc. Announces Fourth Quarter 2013 and Full Year 2013 Results

Record 2013 Revenues and EBITDA

Releases February 2014 Monthly Operating Metrics

Full-Year 2013 Highlights:

  • Full year U.S. GAAP revenues of $489.6 million, up 17% compared to 2012 and a record for FXCM
  • U.S. GAAP net income of $14.8 million or $0.44 per fully diluted share, up 66% and 19%, respectively, versus the same period in 2012
  • Adjusted Pro Forma EBITDA of $158.0 million, up 40% compared to 2012 and a record for FXCM
  • Adjusted Pro Forma net income of $57.8 million or $0.76 per fully exchanged, fully diluted share, up 36% and 31%, respectively, versus the same period in 2012
  • Retail trading volume of $4.1 trillion, up 13% from 2012, a record for FXCM
  • Institutional trading volume of $2.0 trillion, up 72% from 2012, a record for FXCM

Fourth Quarter 2013 Highlights:

  • 2013 fourth quarter U.S. GAAP revenues of $113.3 million, up 5% versus the same period in 2012
  • U.S. GAAP net income of $3.0 million or $0.08 per fully diluted share, down 1% and 27% versus the same period in 2012, respectively
  • 2013 fourth quarter Adjusted Pro Forma Revenues of $107.6 million, down 0.5% versus the same period in 2012
  • Adjusted Pro Forma EBITDA of $26.8 million, down 10% versus the same period in 2012
  • Adjusted Pro Forma net income of $7.3 million or $0.10 per fully exchanged, fully diluted share, down 24% and 23%, respectively, versus the same period in 2012
  • Active accounts of 183,679, up 7% from the same period in 2012
  • Declared a quarterly dividend of $0.06 per share of Class A common stock

February 2014 Monthly Metrics Highlights:

  • Retail average daily volume of $15.2 billion per day, down 2% from January 2014
  • Retail customer trading volume of $305 billion, down 11% from January 2014
  • Institutional average daily volume of $8.1 billion per day, down 4% from January 2014
  • Institutional customer trading volume of $162 billion, down 12% from January 2014

NEW YORK--(BUSINESS WIRE)-- FXCM Inc. (NYSE:FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced revenues under U.S. GAAP for the quarter ended December 31, 2013 of $113.3 million, compared to $108.1 million for the quarter ended December 31, 2012, an increase of 5%. U.S. GAAP net income was $2.97 million or $0.08 per fully diluted Class A share for the fourth quarter 2013, compared to $3.00 million or $0.11 per fully diluted Class A share for the fourth quarter 2012, a decrease of 1% and 27%, respectively.

Under U.S. GAAP, revenues for the year ended December 31, 2013 increased 17% to $489.6 million, compared to $417.3 million for the corresponding period in 2012. U.S. GAAP net income for the year ended December 31, 2013 was $14.8 million, or $0.44 cents per fully diluted Class A share versus $9.0 million or $0.37 cents per fully diluted Class A share, an increase of 66% and 19%, respectively.

Adjusted Pro Forma revenues for the fourth quarter 2013 were $107.6 million, compared to $108.1 million for the fourth quarter 2012, a decrease of 0.5%. Adjusted Pro Forma EBITDA for the fourth quarter 2013 was $26.8 million, compared to $29.8 million for the fourth quarter 2012, a decrease of 10%. Adjusted Pro Forma Net Income was $7.3 million or $0.10 per fully exchanged, fully diluted share for the fourth quarter 2013, compared to $9.7 million or $0.13 per fully exchanged, fully diluted share for the fourth quarter 2012, a decrease of 24% and 23%, respectively.

Adjusted Pro Forma EBITDA for the year ended December 31, 2013 was $158.0 million, compared to $112.9 million, for the corresponding period in 2012, an increase of 40%. Adjusted Pro Forma Net Income for the year ended December 31, 2013 was $57.8 million, or $0.76 per share on a fully exchanged, fully diluted basis, compared to $42.6 million, or $0.58 per share on a fully exchanged, fully diluted basis, for the corresponding period in 2012, an increase of 36% and 31%, 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 charges and equity based compensation expense granted at the time of FXCM's initial public offering in December 2010.

"FXCM delivered strong results in 2013 with revenue growth of 16% and EBITDA growth of 40%" said Drew Niv, Chief Executive Officer of FXCM. "We delivered 40% net EBITDA margin, a solid improvement from the 34% we delivered in 2012" Niv continued.

"While the latter half of 2013 was a more muted trading environment, we expect a number of our organic initiatives to bear fruit in 2014 even if trading conditions do not pick up," Niv added.

Subsequent to year end, FXCM, through affiliates, acquired certain assets and liabilities of Infinium Capital Holdings LLC and certain of its affiliates (collectively, "Infinium"), an electronic market maker in the commodities and foreign exchange trading sectors. The purchase price included approximately $11.9 million owed by Infinium to FXCM pursuant to certain senior secured notes issued by Infinium. The acquisition is intended to broaden FXCM's subsidiary Lucid Markets Trading Limited ("Lucid") into a broader array of financial instruments and provide more robust connectivity to various financial exchanges. FXCM shall hold a 50.1% interest and the principals of Lucid will hold a 49.9% interest in the new venture.

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

February 2014 Operating Metrics

Retail Trading Metrics

  • Retail customer trading volume(1) of $305 billion in February 2014, 11% lower than January 2014 and 15% lower than February 2013.
  • Average retail customer trading volume per day of $15.2 billion in February 2014, 2% lower than January 2014 and 15% lower than February 2013.
  • An average of 401,674 retail client trades per day in February 2014, 2% lower than January 2014 and 13% lower than February 2013.
  • Tradable accounts(2) of 190,722 as of February 28, 2014, an increase of 1,112 or 1% from January 2014, and a decrease of 169 or less than 1% from February 2013.

Institutional Trading Metrics

  • Institutional customer trading volume(1) of $162 billion in February 2014, 12% lower than January 2014 and 23% higher than February 2013.
  • Average institutional trading volume per day of $8.1 billion in February 2014, 4% lower than January 2014 and 23% higher than February 2013.
  • An average of 35,047 institutional client trades per day in February 2014, 8% lower than January 2014 and 96% higher than February 2013.

Drew Niv, FXCM's Chief Executive Officer, commenting on February metrics, said, "Both January and February of this year have seen better trading conditions in the currency markets than the last half of 2013. It shall be interesting to see how the year unfolds with the Federal Reserve pulling back from bond purchases and with the recent volatility in the emerging markets."

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.

 

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

 
    Unaudited
Adjusted Pro Forma (thousands except per share amounts)     Adjusted Pro Forma (thousands except per share amounts)
Three Months Ended December 31, Twelve Months Ended December 31,

2013

   

2012

   

% Change

2013

   

2012

   

% Change

 
Total Revenues

$

107,593

$

108,094

-0.5 %

 

$

417,315

16 %
 

Compensation and benefits

23,988 21,591 11 % 93,181 84,304 11 %

Allocation of net income to Lucid members for services provided

  -     - -   -     - -
Total compensation and benefits 23,988 21,591 93,181 84,304
Referring broker fees 19,750 17,720 11 % 84,231 76,585 10 %
Loss on equity method investments, net 24 - 0 % 752 - 0 %
Other expenses   37,080     39,016 -5 %   147,675     143,525 3 %
EBITDA   26,751     29,767 -10 %   157,999     112,901 40 %
 
Depreciation and amortization 12,971 12,012 8 % 50,275 36,773 37 %
Interest on borrowings   2,697     1,065 153 %   7,673     2,763 0 %
Income before income taxes 11,083 16,690 -34 % 100,051 73,365 36 %
 
Income tax provision   1,711     5,900 -71 %   25,807     24,389 6 %
 
Net Income   9,372     10,790 -13 %   74,244     48,976 52 %
 
Net income attributable to non-controlling interest in FXCM Holdings, LLC - - - - - -
 
Net income attributable to other non-controlling interests 2,057 1,136 81 % 16,444 6,389 157 %
       
Net Income Attributable to FXCM Inc. $ 7,315   $ 9,654 -24 % $ 57,800   $ 42,587 36 %
 
Pro forma fully exchanged, fully diluted weighted average shares outstanding   76,887     74,935 3 %   76,361     73,896 3 %
 
Earnings Per Share $ 0.10   $ 0.13 -23 % $ 0.76   $ 0.58 31 %
 
 
Unaudited U.S. GAAP (thousands except per share amounts)
Three Months Ended December 31, Twelve Months Ended December 31,

2013

2012

% Change

2013

2012

% Change

 
Total net revenues $ 113,343

$

108,094

5 %

 

$ 417,315 17 %
 
Compensation and benefits 26,541 24,604 8 % 105,470 105,779 0 %
Allocation of net income to Lucid members for services provided   3,290     - 0 %   21,290     - 0 %
Total compensation and benefits 29,831 24,604 21 % 126,760 105,779 20 %
Referring broker fees 19,750 17,720 11 % 84,231 76,585 10 %
Other expenses 38,988 39,016 0 % 164,583 147,951 11 %
Loss on equity method investments, net 24 - 752 - 0 %
 
EBITDA   24,750     26,754 -7 %   113,262     87,000 30 %
 
Depreciation and amortization 16,425 12,012 37 % 53,729 36,773 46 %
Interest on borrowings   2,697     1,065 153 %   7,673     2,763 178 %
Income before income taxes   5,628     13,677 -59 %   51,860     47,464 9 %
 
Income tax provision 231 4,130 -94 % 17,024 8,986 89 %
 
Net Income   5,397     9,547 -43 %   34,836     38,478 -9 %
 
Net income attributable to non-controlling interest in FXCM Holdings, LLC 3,660 5,413 -32 % 24,850 23,131 7 %
 
Net income attributable to other non-controlling interests (1,233 ) 1,136 -209 % (4,846 ) 6,389 -176 %
 
       
Net Income Attributable to FXCM Inc. $ 2,970   $ 2,998 -1 % $ 14,832   $ 8,958 66 %
 
Weighted average Class A shares outstanding - Basic   38,085     27,750 37 %   32,789     24,086 36 %
 
Weighted average Class A shares outstanding - Diluted   39,055     27,750 41 %   33,957     24,086 41 %
 
Net income per Class A share - Basic
$ 0.08   $ 0.11 -27 % $ 0.45   $ 0.37 22 %
 
Net income per Class A share -Diluted $ 0.08   $ 0.11 -27 % $ 0.44   $ 0.37 19 %
 
 

Selected Operating Metrics

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

2013

   

2012

   

% Change

2013

   

2012

   

% Change

 
Total retail trading volume ($ in billions) $ 895 $ 886 1 % $ 4,068 $ 3,601 13 %
 
Total institutional trading volume ($ in billions) $ 515 $ 223 131 % $ 2,022 $ 1,179 72 %
 
Total active accounts 183,679 170,930 7 % 183,679 170,930 7 %
 
Trading days in period 64 64 0 % 258 259 -0.4 %
 
Daily average trades 378,316 366,015 3 % 437,947 364,417 20 %
 
Daily average trades per active account 2.1 2.1 0 % 2.4 2.1 14 %
 
Retail trading revenue per million traded $ 93 $ 95 -2 % $ 90 $ 94 -4 %
 
Total customer equity ($ in millions) $ 1,190.9 $ 1,190.8 0.01 % $ 1,190.9 $ 1,190.8 0.01 %
 

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, 2014 to Class A stockholders of record at the close of business on March 21, 2014.

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 877.445.4603 and 443.295.9270 for international participants. The conference ID number is 4828386.

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 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.

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

 

ANNEX I

 
Schedule     Page Number
       
U.S. GAAP Results      
Unaudited U.S. GAAP Consolidated Statements of Operations for the Three Months and Twelve Months Ended December 31, 2013 and 2012     A-1
Unaudited U.S. GAAP Consolidated Statements of Financial Condition as of December 31, 2013 and December 31, 2012     A-2
       
Adjusted Pro Forma Results     A-3
Unaudited Adjusted Pro Forma and U.S. GAAP Consolidated Statements of Operations for the Three Months Ended December 31, 2013 and 2012     A-5
Unaudited Adjusted Pro Forma and U.S. GAAP Consolidated Statements of Operations for the Twelve Months Ended December 31, 2013 and 2012     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 December 31,     Twelve Months Ended December 31,
  2013         2012     2013         2012  
Revenues
 
Retail trading revenue $ 82,989 $ 83,852 $ 365,285 $ 339,685
Institutional trading revenue   21,790     19,125     103,994     62,033  
Trading revenue 104,779 102,977 469,279 401,718
 
Interest income 728 661 2,614 3,571
Brokerage interest expense   (71 )   (42 )   (258 )   (277 )
Net interest income 657 619 2,356 3,294
 
Other income   7,907     4,498     17,953     12,303  
 
Total net revenues   113,343     108,094     489,588     417,315  
 
Operating Expenses
 
Compensation and benefits 26,541 24,604 105,470 105,779
Allocation of income to Lucid members for services provided   3,290     -     21,290     -  
Total compensation and benefits 29,831 24,604 126,760 105,779
Referring broker fees 19,750 17,720 84,231 76,585
Advertising and marketing 7,278 7,594 27,091 30,860
Communication and technology 10,210 10,522 38,441 37,113
Trading costs, prime brokerage and clearing fees 7,113 6,748 30,821 16,935
General and administrative 14,387 14,152 68,230 63,043
Depreciation and amortization 16,425 12,012 53,729 36,773
       
 
Total operating expenses   104,994     93,352     429,303     367,088  
 
Total operating income 8,349 14,742 60,285 50,227
 
Other Expense
 
Loss on equity method investments, net 24 - 752 -
Interest on borrowings   2,697     1,065     7,673     2,763  
 
Income before income taxes 5,628 13,677 51,860 47,464
Income tax provision   231     4,130     17,024     8,986  
Net income 5,397 9,547 34,836 38,478
Net income attributable to non-controlling interest in FXCM Holdings, LLC 3,660 5,413 24,850 23,131
Net income (loss) attributable to other non-controlling interests   (1,233 )   1,136     (4,846 )   6,389  
Net income attributable to FXCM, Inc. $ 2,970   $ 2,998   $ 14,832   $ 8,958  
 
 
       
Net Income $ 2,970   $ 2,998   $ 14,832   $ 8,958  
 
Weighted average Class A shares outstanding - Basic   38,085     27,750     32,789     24,086  
 
Weighted average Class A shares outstanding - Diluted   39,055     27,750     33,957     24,086  
 
Net Income per Class A Share
Basic $ 0.08   $ 0.11   $ 0.45   $ 0.37  
Diluted $ 0.08   $ 0.11   $ 0.44   $ 0.37  
 

A-1

 
FXCM Inc.    
Consolidated Statements of Financial Condition
As of December 31, 2013 and December 31, 2012
(Amounts in thousands except for share data)
(Unaudited)    
December 31, December 31,
    2013     2012  
 
Assets
 
Current assets
Cash and cash equivalents $ 365,245 $ 272,332
Cash and cash equivalents, held for customers 1,190,880 1,190,762
Due from brokers 5,450 8,040
Accounts receivables, net 9,953 6,336
Deferred tax asset 11,910 10,598
Notes receivable 5,992
Tax receivable   3,861     6,003  
Total current assets 1,593,291 1,494,071
 
Deferred tax asset 166,576 117,221
Office, communication and computer equipment, net 49,165 50,316
Intangible assets and goodwill, net 384,649 383,446
Notes receivable 5,950 -
Other assets   24,316     20,116  
Total assets $ 2,223,947   $ 2,065,170  
 
Liabilities and Equity
 
Current liabilities
Customer account liabilities $ 1,190,880 $ 1,190,762
Accounts payable and accrued expenses 69,697 52,635
Credit agreement - 85,000
Notes payable 9,800 22,867
Due to brokers 8,652 14,494
Deferred tax liability - 7,100
Due to related parties pursuant to tax receivable agreement   18,588     13,569  
Total current liabilities 1,297,617 1,386,427
 
Deferred tax liability 3,687 12,351
Due to related parties pursuant to tax receivable agreement 131,670 87,271
Senior convertible notes 146,303 -
Other liabilities   9,289     4,206  
Total liabilities   1,588,566     1,490,255  
 
Commitments and Contingencies
 
Stockholders' equity
Class A common stock, par value $0.01 per share; 447 347
3,000,000,000 shares authorized, 44,664,884 and 34,683,599 shares issued
and outstanding as of December 31, 2013 and December 31, 2012, respectively
Class B common stock, par value $0.01 per share; 1 1
1,000,000 shares authorized, 41 and 43 shares issued
and outstanding as of December 31, 2013 and December 31, 2012, respectively
Additional paid-in-capital 245,426 171,390
Retained earnings 16,352 11,122
Accumulated other comprehensive income   (5,344 )   (1,301 )
Total stockholders' equity, FXCM Inc. 256,882 181,559
Non-controlling interests 378,499 393,356
Total stockholders' equity   635,381     574,915  
Total liabilities and stockholders' equity $ 2,223,947   $ 2,065,170  
 

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. The Company's management 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 renegotiation or termination of certain employment contracts that held profit sharing interests in the performance of the Company's business units. 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 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 historical trade execution matters with the Company's regulators. 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. Depreciation. Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate certain impairment charges recorded as a component of depreciation. Given the nature of these charges 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 charges.
 

A-3

 
      7.     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 (including Tax Receivable Agreement adjustments recorded to Other Income) 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-4

 
FXCM Inc.    
Adjusted Pro Forma Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited )
Three Months Ended December 31,
2013       2012  
 
As         Adjusted

As

        Adjusted

Reported

Adjustments

Pro Forma

Reported

Adjustments

Pro Forma

Revenues
 
Retail trading revenue $ 82,989 - $ 82,989 $ 83,852 - $ 83,852
Institutional trading revenue   21,790     -     21,790     19,125     -     19,125  
Trading revenue 104,779 - 104,779 102,977 - 102,977
 
Interest income 728 - 728 661 - 661
Brokerage interest expense   (71 )   -     (71 )   (42 )   -     (42 )
Net interest income 657 - 657 619 - 619
 
Other operating income   7,907     (5,750 )

(5

)

  2,157     4,498     -     4,498  
 
Total net revenues   113,343     (5,750 )   107,593     108,094     -     108,094  
 
Operating Expenses
 
Compensation and benefits 26,541 (2,553 )

(1

)

23,988 24,604 (3,013 )

(2

)

21,591
Allocation of net income to Lucid members for services provided   3,290     (3,290 )

(6

)

  -     -     -     -  
Total compensation and benefits 29,831 (5,843 ) 23,988 24,604 (3,013 ) 21,591
Referring broker fees 19,750 - 19,750 17,720 - 17,720
Advertising and marketing 7,278 - 7,278 7,594 - 7,594
Communication and technology 10,210 - 10,210 10,522 - 10,522
Trading costs, prime brokerage and clearing fees 7,113 - 7,113 6,748 - 6,748
General and administrative 14,387 (1,908 )

(7

)

12,479 14,152 - 14,152
Depreciation and amortization 16,425 (3,454 )

(8

)

12,971 12,012 - 12,012
           
Total operating expenses   104,994     (11,205 )   93,789     93,352     (3,013 )   90,339  
.
Total operating income 8,349 5,455 13,804 14,742 3,013 17,755
 
Loss on equity method investments, net 24 - 24 - - -
Interest on borrowings   2,697     -     2,697     1,065     -     1,065  
 
Income before income taxes 5,628 5,455 11,083 13,677 3,013 16,690
Income tax provision   231     1,480  

(3

)

  1,711     4,130     1,770  

(3

)

  5,900  
Net income 5,397 3,975 9,372 9,547 1,243 10,790
Net income attributable to non-controlling interest in FXCM Holdings, LLC 3,660 (3,660 )

(4

)

- 5,413 (5,413 )

(4

)

-
Net income attributable to other non-controlling interests   (1,233 )   3,290  

(6

)

  2,057     1,136     -     1,136  
Net income attributable to FXCM Inc. $ 2,970   $ 4,345   $ 7,315   $ 2,998   $ 6,656   $ 9,654  
 
 
Diluted weighted average shares outstanding as reported and pro forma fully exchanged, fully diluted weighted average shares outstanding   39,055     76,887  

(9

)

  27,750     74,935  

(9

)

 
Diluted net income per share as reported and adjusted pro forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.08   $ 0.10   $ 0.11   $ 0.13  
 
(1) Represents the elimination of stock-based compensation for stock options granted subsequent to the IPO.
 
(2) 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.
 
(3) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 15.4% and 35.4% for the three months ended December 31, 2013 and 2012, 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 of FXCM Holdings, LLC ("Holdings") Units for shares of Class A common stock of the Company and reflects the tax effect of any pro forma adjustments.
 
(4) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of Holdings Units (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 a $6.9 million benefit recorded to reduce the initial contingent consideration recorded for the Faros acquisition and the elimination of $1.2 million of expense attributable to the remeasurement of Due to related parties pursuant to tax receivable agreement relating to the change in our U.S. federal tax rate.
 
(6) Represents the reclassification of the 49.9% of Lucid's earnings allocated among the non-controlling members of Lucid based on services provided for U.S. GAAP purposes to Net income attributable to other non-controlling interests.
 
(7) Represents an adjustment to eliminate a reserve established relating to a settlement with United Kingdom Financial Conduct Authority ("UK FCA") regarding pre August 2010 trade execution practices.
 
(8) Represents the elimination of an amount related to an impairment adjustment to the carrying value of an electronic foreign exchange options trading platform in the Company's institutional business.
 
(9) Fully diluted weighted average 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,
2013      

2012

 
               
As Adjusted As Adjusted
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
Revenues
 
Retail trading revenue $ 365,285 - $ 365,285 $ 339,685 - $ 339,685
Institutional trading revenue   103,994     -     103,994     62,033     -     62,033  
Trading revenue 469,279 - 469,279 401,718 - 401,718
 
Interest income 2,614 - 2,614 3,571 - 3,571
Brokerage interest expense   (258 )   -     (258 )   (277 )   -     (277 )
Net interest income 2,356 - 2,356 3,294 - 3,294
 
Other operating Income   17,953     (5,750 )

(8

)

  12,203     12,303     -     12,303  
 
Total net revenues   489,588     (5,750 )   483,838     417,315     -     417,315  
 
Operating Expenses
 
Compensation and benefits 105,470 (12,289 )

(1

)

93,181 105,779 (21,475 )

(5

)

84,304
Allocation of income to Lucid members for services provided   21,290     (21,290 )

(2

)

  -     -     -     -  
Total compensation and benefits 126,760 (33,579 ) 93,181 105,779 (21,475 ) 84,304
Referring broker fees 84,231 - 84,231 76,585 - 76,585
Advertising and marketing 27,091 - 27,091 30,860 - 30,860
Communication and technology 38,441 - 38,441 37,113 - 37,113
Trading costs, prime brokerage and clearing fees 30,821 - 30,821 16,935 - 16,935
General and administrative 68,230 (16,908 )

(6

)

51,322 63,043 (4,426 )

(9

)

58,617
Depreciation and amortization 53,729 (3,454 )

(10

)

50,275 36,773 - 36,773
           
Total operating expenses   429,303     (53,941 )   375,362     367,088     (25,901 )   341,187  
 
Total operating income 60,285 48,191 108,476 50,227 25,901 76,128
 
Loss on equity method investments, net 752 - 752 - - -
Interest on borrowings   7,673     -     7,673     2,763     -     2,763  
 
Income before income taxes 51,860 48,191 100,051 47,464 25,901 73,365
Income tax provision   17,024     8,783  

(3

)

  25,807     8,986     15,403  

(3

)

  24,389  
Net income 34,836 39,408 74,244 38,478 10,498 48,976
Net income attributable to non-controlling interest in FXCM Holdings, LLC 24,850 (24,850 )

(4

)

- 23,131 (23,131 )

(4

)

-
Net income (loss) attributable to other non-controlling interests   (4,846 )   21,290  

(2

)

  16,444     6,389     -     6,389  
Net income attributable to FXCM Inc. $ 14,832   $ 42,968   $ 57,800   $ 8,958   $ 33,629   $ 42,587  
 
 
Diluted weighted average shares outstanding as reported and pro forma fully exchanged, fully diluted weighted average shares outstanding   33,957     76,361  

(7

)

  24,086     73,896  

(7

)

 
 
Diluted net income per share as reported and adjusted pro forma net income per fully exchanged, fully diluted weighted average shares outstanding $ 0.44   $ 0.76   $ 0.37   $ 0.58  
 
(1) Represents the elimination of equity-based compensation associated with the IPO and a charge incurred in connection with the termination of an employment contract in the Company's retail business.
 

(2) Represents the reclassification of the portion of the 49.9% of Lucid's earnings attributed to non-controlling interest recorded as compensation for U.S. GAAP purposes to Net income attributable to other non-controlling interests.

 
(3) Represents an adjustment to reflect an effective corporate tax rate of approximately 25.8% and 33.2% for the years ended December 31, 2013 and 2012, respectively assuming a full exchange of existing Unitholders Holdings Units for shares of Class A common stock of the Company and the tax effect of any pro forma adjustments.
 
(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 equity-based compensation associated with the IPO, severance and stock-based compensation in connection with the renegotiation and the termination of certain employment contracts in the Company's institutional and retail businesses.

 
(6) Represents an adjustment to eliminate a reserve established relating to a settlement with UK FCA regarding pre August 2010 trade execution practices.
 
(7) Fully diluted shares assuming all unitholders had fully exchanged their Holdings Units for shares of Class A common stock of the Company.
 
(8) Represents the elimination of a $6.9 million benefit recorded to reduce the initial contingent consideration recorded for the Faros acquisition and the elimination of $1.2 million of expense attributable to the remeasurement of Due to related parties pursuant to tax receivable agreement relating to the change in our U.S. federal tax rate.
 
(9) Represents the elimination of certain acquisition-related costs and the elimination of costs (including client reimbursements) associated with settling historical trade execution issues with the Financial Services Agency of Japan.
 
(10) Represents the elimination of an amount related to an impairment adjustment to the carrying value of an electronic foreign exchange options trading platform in the Company's institutional business.
 

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     U.S. GAAP Adjusted Pro Forma     U.S. GAAP

2013

   

2012

2013

   

2012

2013

   

2012

2013

   

2012

 
Revenues $ 107,593

$

108,094

$

113,343

$

108,094

$

483,838

$

417,315

$

489,588

$

417,315

 
Net income attributable to FXCM Inc. $ 7,315 $ 9,654 $ 2,970 $ 2,998 $ 57,800 $ 42,587 $ 14,832 $ 8,958
Net income attributable to non-controlling interest in FXCM Holdings, LLC - - 3,660 5,413 - - 24,850 23,131
Net income (loss) attributable to other non-controlling interests 2,057 1,136 (1,233 ) 1,136 16,444 6,389 (4,846 ) 6,389
Provision for income taxes 1,711 5,900 231 4,130 25,807 24,389 17,024 8,986
Depreciation and amortization 12,971 12,012 16,425 12,012 50,275 36,773 53,729 36,773
Interest expense   2,697   1,065   2,697     1,065   7,673   2,763   7,673     2,763
EBITDA $ 26,751 $ 29,767 $ 24,750  

$

26,754

$

157,999

$

112,901

$

113,262

 

$

87,000

 

A-7

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

Source: FXCM Inc.

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