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North American retail FX giant GAIN Capital Holdings (NYSE: GCAP) has today announced financial results for the second quarter ended June 30, 2014, as well as having conducted a restatement of the financial information contained in this earnings release reflects the effects of a restatement of the company’s financial statements as of and for the three months ending March 31, 2014 due to a discrepancy as per today’s filing with the Securities and Exchange Commission.
Second Quarter Results
(Comparisons below are referenced to the second quarter of 2013)
Net revenue of $69.7 million, down 5% from $73.1 million
Net loss of $5.2 million, or $(0.13) per diluted share, compared to net income of $17.2 million, or $0.44 per diluted share
Adjusted EBITDA loss of $1.6 million, compared to adjusted EBTIDA of $26.9 million
Retail OTC trading volume of $522.2 billion, up 13% from $462.1 billion
Institutional trading volume of $1.3 trillion, up 27% from $1.1 trillion
Average Daily Futures Contracts of 26,322, up 19% from 22,069
Total retail client assets of $840.0 million, up 76% from $476.8 million
First Half Results
(Comparisons below are referenced to the first half of 2013)
Net revenue of $151.1 million, up 23% from $122.9 million
Net loss of $1.3 million, or $(0.04) per diluted share, compared to net income of $21.4 million, or $0.56 per diluted share
Adjusted EBITDA** and adjusted EBITDA margin** of $10.4 million and 7%, compared to $34.3 million and 28%
Retail OTC trading volume of $1,094.5 billion, up 22% from $899.1 billion
Institutional trading volume of $2.7 trillion, up 38% from $2.0 trillion
Average Daily Futures Contracts of 25,652 up 22% from 21,058
“Currency volatility fell to its lowest level in more than 10 years in the second quarter, which resulted in retail OTC revenue capture that was 30% below our trailing twelve month average. The severe downturn in revenue capture significantly impacted the performance of our retail OTC business and offset substantial growth in our institutional and futures businesses. Despite the poor market conditions, our core operating metrics remained stable across the board, demonstrating our ability to attract and maintain customers and positioning us to benefit when market conditions revert to historical norms,” said Glenn Stevens, CEO of GAIN Capital in a corporate statement today.
“We continue to make investments to grow and diversify our business both organically and through targeted acquisitions. Revenues from our commission-based businesses, which comprise our institutional sales and trading and futures business, more than doubled from a year earlier, reaching $32.4 million in the second quarter 2014 compared to $14.2 million in the prior year period.”
“We have closed four acquisitions in 2014 to date, bolstering our futures business with the addition of brokerages Global Asset Advisors and Top Third Ag Advisors, adding advisory services for our retail OTC business with the acquisition of Galvan Research, and acquiring all of the intellectual property powering our GTX business. We also continue to successfully integrate the GFT business and remain on track to achieve $40 million of yearly run-rate expense savings by the fourth quarter of 2014,” continued Mr. Stevens.
“Looking forward, we remain focused on growing our core operating metrics and executing on our M&A strategy, while also continuing to reduce our fixed cost base. We are excited by several opportunities to expand our customer base through various organic growth initiatives. Our M&A pipeline remains robust and we believe there are several attractive transactions that may be executed in the near-term.”
“And continuing with our long-term focus on expense management, apart from synergy-related expense cuts following the 2013 acquisition of GFT, we are implementing additional cost reduction measures to further rationalize our expense base in light of challenging market conditions,” Mr. Stevens concluded.
Retail OTC Business
In the second quarter of 2014, GAIN’s retail OTC trading business generated revenue of $36.4 million, compared to $57.5 million in the second quarter of 2013, principally as a result of the significant decline in FX volatility during the second quarter.
Amid these challenging market conditions, the Company’s key operating metrics remained broadly stable, demonstrating the Company’s continued success in continuing to execute on the Company’s organic and inorganic growth plans. Total trading volume during the second quarter of 2014 was $522.2 billion, compared to $462.1 billion for the same period in 2013. Retail OTC funded accounts and assets grew 37% and 95% from the year-ago quarter to 120,236 and $671 million, respectively.
Institutional Sales and Trading
In the second quarter of 2014, GAIN’s institutional sales and trading business, comprising the GTX and sales trader businesses, generated total revenue of $23.5 million, compared to $7.8 million for the same period in 2013. In addition, the purchase of all of the intellectual property powering the GTX ECN technology, completed in the second quarter, provides GTX with new opportunities to grow its institutional ECN business over the long term. The sales trader business recorded strong results in the second quarter, buoyed by strong trading volumes across a mix of asset classes, including European equities.
The exchange-traded futures business generated revenue of $8.9 million in the second quarter of 2014, compared to $6.4 million in the same period in 2013. Despite overall lower volumes reported by several major futures exchanges in the second quarter, average daily futures contracts reached 26,322 in the second quarter, an increase of 19% from the year-ago quarter and 5% from the first quarter of 2014.
In addition, the acquisitions of Global Asset Advisors (GAA) and Top Third Ag Advisors (TT) in the first quarter of this year provided the futures business with increased scale, product breadth and additional depth in senior leadership. GAA and TT’s higher margin service offerings contributed to an overall increase in futures revenue per contract, which grew 16% to $5.2 compared to $4.5 in the prior year comparable period.
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 September 19, 2014 to shareholders of record as of the close of business September 12, 2014.