FXCM reports healthy Q1 financials, but weighed down by Leucadia interest expense

Retail forex broker FXCM Inc (NYSE:FXCM) has reported its Q1 financials, with relatively healthy Revenues of $71.5 million (up 9% QoQ) and EBITDA of $10.3 million.

However the interest on the loan from Leucadia made last January, carrying fairly high punitive rates of interest in the high teens, is weighing heavily on FXCM’s bottom line results. Interest expense in the quarter amounted to $20.6 million – double FXCM’s EBITDA earnings.

FXCM’s financials are actually a bit of a tough read nowadays. since the loan from Leucadia is a complicated one requiring quarterly adjustments, depending on the perceived change in ‘value’ to be ultimately received by Leucadia. Although in real terms the loan was relatively quiet in Q1 – just $8 million was repaid on it in the quarter – FXCM reported a $111 million (!!) ‘gain’ on the loan, due to somewhat convoluted accounting requirements.

Our advice for FXCM-watchers is to ignore those Leucadia loan gains/losses, and just focus on Revenues, EBITDA, and actual interest expense paid during the quarter. Using that basic method, it looks like FXCM is doing OK and making money in its operations, but those operations aren’t even enough to cover FXCM’s interest expense.

FXCM’s debt to Leucadia stood at $193 million at quarter-end, meaning that FXCM’s sky-high interest costs are likely to continue for the time being. FXCM doesn’t really have the cash flow from operations to repay the loan, even though FXCM’s trading volumes seem to be strong in both its retail and institutional segments.

FXCM Q1 metrics

More on FXCM’s Q1 results can be seen here.

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