GAIN Capital Reports First Quarter 2016 Results 

gain-capital

GAIN Capital Holdings, Inc. (“GAIN”) (NYSE: GCAP), has issued a press release to announce financial results for the first quarter of 2016.

Net revenue for the quarter was$115.6 million, up from $93.0 million in the first quarter of 2015, and adjusted EBITDA was $31.7 million, up from $19.8 million in the first quarter of 2015.  GAIN’s financial highlights for the three months ended March 31, 2016 are included in the chart below.

Three Months EndedMarch 31,
2016 2015(2)
Net Revenue $ 115.6 $ 93.0
Operating Expenses (83.8) (73.2)
Adjusted EBITDA(1) $ 31.7 $ 19.8
Adjusted EBITDA Margin %(1) 27% 21%
Net Income $ 8.4 $ 5.5
Adjusted Net Income(1) $ 16.9 $ 10.8
GAAP EPS $ 0.17 $ 0.11
Adjusted EPS(1) $ 0.35 $ 0.24

“Our performance this quarter reflects the strength of GAIN’s business and operating model and demonstrates the earnings power of the company. For the trailing twelve months ended March 31, 2016, GAIN delivered over$92 million of adjusted EBITDA,” commented Glenn Stevens, CEO of GAIN Capital.  “The first quarter of 2016 represents the third consecutive quarter that GAIN has delivered more than $20 million of adjusted EBITDA,” continued Mr. Stevens.  “Our financial results highlight our ability to capture synergies from acquisitions and reduce our overall costs. Operating margins should continue to improve as we deliver approximately $45 millionin run-rate cost synergies by Q4 2016 from the City Index integration and focus on overall cost reductions,” concluded Mr. Stevens.

________________________________________
1See below for reconciliation of non-GAAP financial measures.
2As restated for 2015.  See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

Retail Segment
In the first quarter of 2016, GAIN’s retail segment generated net revenue of $96.7 million and adjusted EBITDA of $36.3 million, reflecting a margin of 38%.

For the trailing twelve months ended March 31, 2016, the retail segment generated net revenue of $374.9 million and adjusted EBITDA of $107.6 million, reflecting a margin of 29%.

Average daily retail trading volume was $13.5 billion in the first quarter of 2016, down 5% from $14.2 billion in the first quarter of 2015.

Institutional Segment
In the first quarter of 2016, GAIN’s institutional segment generated net revenue of $7.1 million and adjusted EBITDA of $1.5 million, reflecting a margin of 21%.

For the trailing twelve months ended March 31, 2016, the institutional segment generated net revenue of $32.0 million and adjusted EBITDA of $8.0 million, reflecting a margin of 25%.

Average daily trading volume on the ECN and for the Swap Dealer was $8.3 billion and $2.9 billion, respectively, in the first quarter of 2016.

Futures Segment
In the first quarter of 2016, GAIN’s futures segment generated net revenue of $12.2 million and adjusted EBITDA of $1.0 million, reflecting a margin of 8%.

For the trailing twelve months ended March 31, 2016, the futures segment generated net revenue of $46.5 million and adjusted EBITDA of $3.6 million, reflecting a margin of 8%.

Average daily futures contracts were 38,275 in the first quarter of 2016.

Capital Return and Dividend
In the first quarter, GAIN repurchased approximately 500,000 shares at an average price of $7.05.  This represents the third consecutive quarter of increased share repurchases. GAIN also repurchased $1.85 millionof principal amount of its 4.125% convertible note due December 2018.

GAIN’s Board of Directors declared a quarterly cash dividend of $0.05 per share of the Company’s common stock.  The dividend is payable on June 20, 2016 to shareholders of record as of the close of business June 13, 2016.

April Operating Metrics

Retail Metrics

  • OTC average daily volume1 of $12.2 billion, an increase of 5.0% from March 2016 and a decrease of 30.2% from April 2015.
  • OTC trading volume1 of $255.8 billion, a decrease of 4.1% from March 2016 and 33.4% from April 2015.
  • Active OTC accounts2 of 140,286, an increase of 2.7% from March 2016 and a decrease of 4.4% from April 2015.

Institutional Metrics

  • ECN average daily volume1 of $7.8 billion, an increase of 5.7% from March 2016 and 1.7% from April 2015.
  • ECN volume1 of $163.2 billion, a decrease of 3.5% from March 2016 and 2.9% from April 2015.
  • Swap Dealer average daily volume1 of $3.3 billion, an increase of 18.6% from March 2016 and 0.3% from April 2015.
  • Swap Dealer volume1 of $69.7 billion, an increase of 8.3% from March 2016 and a decrease of 4.3% from April 2015.

Futures Metrics

  • Futures average daily contracts of 36,488, an increase of 2.6% from March 2016 and 12.3% from April 2015.
  • Futures contracts of 766,254, a decrease of 2.1% from March 2016 and an increase of 12.3% from April 2015.
  • Active futures accounts2 of 8,931, an increase of 0.5% from March 2016 and 3.5% from April 2015.

 

 __________________________________________
1US dollar equivalent of notional amounts traded.
 2Accounts that executed a transaction during the last 12 months.

 

Condensed Consolidated Statements of Income
In millions except share data
(unaudited)
Three Months Ended
March 31,
2016 2015(1)
REVENUE:
Retail revenue $ 95.0 $ 72.9
Institutional revenue 6.7 9.9
Futures revenue 12.0 11.5
Other revenue 1.6 (1.4)
Total non-interest revenue 115.3 93.0
Interest revenue 0.3 0.3
Interest expense 0.1 0.3
Total net interest revenue 0.2
Net revenue $ 115.6 $ 93.0
OPERATING EXPENSES:
Employee compensation and benefits $ 26.4 $ 22.1
Selling and marketing 6.4 4.6
Referral fees 20.7 26.6
Trading expenses 8.4 7.0
General and administrative 16.0 9.4
Depreciation and amortization 3.2 2.0
Purchased intangible amortization 3.9 2.2
Communications and technology 5.3 2.8
Bad debt provision 0.6 3.3
Restructuring expenses 0.8
Integration expenses 0.8 0.1
Legal settlement 9.4
Total operating expenses 101.9 79.9
Operating profit 13.7 13.1
Interest on long term borrowings 2.6 1.5
Income before income tax expense/(benefit) 11.1 11.6
Income tax (benefit)/expense 2.3 5.7
Net income 8.7 $ 5.8
Net income attributable to non-controlling interests 0.3 $ 0.3
NET INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC. $ 8.4 $ 5.5
Earnings per common share:
Basic $ 0.17 $ 0.11
Diluted $ 0.17 $ 0.11
Weighted averages common shares outstanding used in computing earnings
per share:
Basic 48,622,816 43,206,628
Diluted 48,983,880 44,150,505
______________________________________
1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

 

Condensed Consolidated Balance Sheet
In millions
(unaudited)
March 31, December 31,
2016 2015(1)
ASSETS:
Cash and cash equivalents $ 189.7 $ 171.9
Cash and securities held for customers 876.0 920.6
Receivables from brokers 120.0 121.2
Prepaid assets 6.1 7.8
Property and equipment – net of accumulated depreciation 32.3 30.4
Intangible assets, net of accumulated amortization 86.0 91.5
Goodwill 33.7 34.0
Other assets 53.1 47.2
          Total assets $ 1,396.9 $ 1,424.6
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Payables to customers 876.0 920.6
Accrued compensation & benefits 8.9 12.4
Accrued expenses and other liabilities 66.2 51.6
Income tax payable 5.8 1.1
Convertible senior notes 121.2 121.7
          Total liabilities $ 1,078.1 $ 1,107.4
Redeemable non-controlling interests 11.3 11.0
Shareholders’ equity $ 307.5 $ 306.1
          Total liabilities and shareholders’ equity $ 1,396.9 $ 1,424.6
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1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

GAIN CAPITAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(in millions)
For the Three Months Ended March 31,
2016 2015(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8.7 $ 5.8
Adjustments to reconcile net income to cash provided by / (used for)
operating activities
Loss / (Gain) on foreign currency exchange rates 0.2 2.0
Depreciation and amortization 7.1 4.1
Integration Costs 0.2
Deferred taxes (0.2) 0.2
Amortization of deferred financing costs 0.1 0.1
Bad debt provision 0.6 3.3
Convertible senior note discount amortization 1.1 0.6
Stock compensation expense 1.1 1.2
Gain on extinguishment of debt (0.1)
Loss of equity method investment
Changes in operating assets and liabilities: 15.4 (53.4)
Cash provided by / (used for) operating activities 34.1 (36.1)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5.9) (1.2)
Sale of treasury bills
Funding of acquisitions, net of cash acquired (0.1)
Cash used for investing activities (5.9) (1.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contractual payments for acquisition (9.8)
Proceeds from exercise of stock options 0.6 1.6
Purchase of treasury stock (3.6)
Tax benefit from employee stock option exercises 0.2 0.7
Dividend payments (2.4) (2.2)
Distributions to non-controlling interest holders (0.4)
Repurchase of convertible notes (1.7)
Cash (used for) / provided by financing activities (6.9) (10.1)
Effect of exchange rate changes on cash and cash equivalents (3.4) (1.8)
INCREASE IN CASH AND CASH EQUIVALENTS 17.8 (49.3)
CASH AND CASH EQUIVALENTS–Beginning of period 171.9 139.4
CASH AND CASH EQUIVALENTS–End of period 189.7 90.1
______________________________________
1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

(*) Reconciliation of GAAP Net Income to Adjusted Net Income and Adjusted EPS

Adjusted net income is a non-GAAP financial measure and represents our net income excluding restructuring, acquisition and integration related expenses, adjustment to fair value of contingent consideration and other non-recurring items.  This non-GAAP financial measure has certain limitations, including that it does not have a standardized meaning and, therefore, our definition may be different from similar non-GAAP financial measures used by other companies and/or analysts. Thus, it may be more difficult to compare our financial performance to that of other companies. We believe our reporting of adjusted net income assists investors in evaluating our operating performance. However, because adjusted net income is not a measure of financial performance calculated in accordance with GAAP, such measure should be considered in addition to, but not as a substitute for, other measures of our financial performance reported in accordance with GAAP, such as net income.

 

Net Income to Adjusted Net Income and Adjusted EPS
In millions, except per share data
(unaudited)
Three Months Ended
March 31,
2016 2015(1)
Net income applicable to Gain Capital Holdings Inc. $ 8.4 $ 5.5
Income tax 2.3 5.7
Non-controlling interest 0.3 0.3
Pre-tax income $ 11.1 $ 11.6
Adjustments 11.0 2.6
Adjusted Pre-tax income $ 22.1 $ 14.2
Adjusted income tax (4.9) (3.1)
Non-controlling interest (0.3) (0.3)
Adjusted net income $ 16.9 $ 10.8
Adjusted earnings per common share
Basic $ 0.35 $ 0.25
Diluted $ 0.35 $ 0.24
Weighted averages common shares outstanding used in
computing earnings per common share
Basic 48,622,816 43,206,628
Diluted 48,983,880 44,150,505
_______________________________________
1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

(*) Reconciliation of Cash Flows from Operating Activities and Free Cash Flow per Share

The table set forth below provides information regarding our free cash flow generation for the three months ended March 31, 2016 and March 31, 2015. We use this non-GAAP measure to evaluate our business operations and our ability to continue to grow our business, including through acquisitions (amounts in millions):

Three Months Ended March 31,
2016 2015(1)
Cash Flows from Operating Activities $ 34.1 $ (36.1)
Less: Capital Expenditures (5.9) (1.2)
Free Cash Flow $ 28.2 $ (37.3)
Free Cash Flow per Share $ 0.58 $ (0.84)
Diluted Shares Outstanding 48,983,880 44,150,505
_____________________________________
1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

Reconciliation of GAAP Net Income to Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a non-GAAP financial measure that represents our earnings before interest, taxes, depreciation and amortization, purchased intangible amortization, restructuring, acquisition and integration-related expenses, non-controlling interest, adjustment to fair value of contingent consideration and bad debt expense related to the SNB event in January of 2015. This non-GAAP financial measure has certain limitations, including that it does not have a standardized meaning and, therefore, our definition may be different from similar non-GAAP financial measures used by other companies and/or analysts. Thus, it may be more difficult to compare our financial performance to that of other companies. We believe our reporting of adjusted EBITDA assists investors in evaluating our operating performance. However, because adjusted EBITDA is not a measure of financial performance calculated in accordance with GAAP, such measure should be considered in addition to, but not as a substitute for, other measures of our financial performance reported in accordance with GAAP, such as net income.

Reconciliation of GAAP Net Income to Adjusted EBITDA and Adjusted EBITDA Margin
In millions
(unaudited)
Three Months Ended
March 31,
2016 2015(1)
Net revenue $ 115.6 $ 93.0
Net income applicable to Gain Capital Holdings Inc. 8.4 5.5
Net income margin % 7% 6%
Net income 8.4 5.5
Depreciation and amortization 3.2 2.0
Purchased intangible amortization 3.9 2.2
Interest expense 2.6 1.5
Income tax expense 2.3 5.7
Restructuring 0.8
Integration costs 0.8 0.1
Bad debt related to SNB event in January of 2015 2.5
Legal settlement 9.4
Net income attributable to non-controlling interest 0.3 0.3
Adjusted EBITDA $ 31.7 $ 19.8
Adjusted  EBITDA Margin(2) 27% 21%
______________________________________
1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.
2 Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net revenue.

 

Segment Information:

ASC 280, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision making group, in deciding how to allocate resources and in assessing performance. Reportable segments are defined as an operating segment that either (a) exceeds 10% of revenue, or (b) reported profit or loss in absolute amount exceeds 10% of profit of all operating segments that did not report a loss or (c) exceeds 10% of the combined assets of all operating segments. The Company’s operations relate to global trading services and solutions. Based on the Company’s management strategies, and common production, marketing, development and client coverage teams, the Company has concluded that it operates in three operating segments: Retail Segment, Institutional Segment and Futures Segment.

 

Retail
Three Months Ended
March 31,
2016 2015(1)
Revenue $ 96.7 $ 73.3
Employee Comp & Ben 16.7 12.2
Marketing 6.2 4.2
Referral Fees 16.6 22.6
Other Operating Exp 20.9 11.3
Adjusted EBITDA $ 36.3 $ 23.0
Adjusted Margin % 38% 31%

 

Institutional
Three Months Ended
March 31,
2016 2015(1)
ECN $ 4.8 $ 6.2
Swap Dealer 2.3 3.9
Total Revenue 7.1 10.1
Employee Comp & Ben 3.2 4.0
Other Operating Exp 2.4 2.6
Adjusted EBITDA $ 1.5 $ 3.5
Adjusted Margin % 21% 35%
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1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

 

Futures
Three Months Ended
March 31,
2016 2015(1)
Revenue $ 12.2 $ 11.5
Employee Comp & Ben 3.0 2.5
Marketing 0.2 0.3
Referral Fees 4.1 3.9
Other Operating Exp 4.0 3.6
Adjusted EBITDA $ 1.0 $ 1.2
Adjusted Margin % 8% 10%

 

Corporate and Other
Three Months Ended
March 31,
2016 2015(1)
Revenue $ (0.5) $ (1.9)
Employee Comp & Ben 3.5 3.5
Other Operating Exp 3.0 2.5
Adjusted EBITDA $ (7.0) $ (7.9)
Adjusted Margin % n/a n/a
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1 As restated for 2015. See the Company’s Form 10-Q/A filed on May 3, 2016 for additional information.

Source: Gain Capital

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