Gain Capital just posted disappointing results for fourth quarter 2012 and for the whole 2012 year. It doesn't come as a surprise that 2012 was a bad year for Gain, it was a bad year for most of other brokers: Saxo today reported significant drop in activity in 2012 when comparing to 2011. Industry flagship FXCM however reported better than expected results, still missing estimates, but faring much better than others as its 2012 income was almost 6 times more than Saxo's and Gain's combined. FXCM's shares today were finally back to IPO levels.
Gain Capital was down in double digits on most metrics as retail volume fell almost 20% due to low volatility experienced in 2012 by most brokers. Retail revenues were down 27% however at least institutional volumes were up 134% driving revenue by 250%. Institutional business is however still a fragment of Gain's retail one. Clients assets, mainly due to acquisitions, were up by 50%.
Luckily for all brokers 2013 brought fresh air of volatility to the markets as January and February volumes peaked for most brokers. If this volatility continues we will probably see companies like Gain and Saxo going back to displaying healthy results while brokers like FXCM and GMO will keep growing and strengthening their leading market positions at the expense of less ambitious players.
GAIN Capital Reports 2012 Fourth Quarter & Full Year Results
Effective execution of diversification strategy puts Company in strong position for growth; Multi-year low in market volatility in the fourth quarter impacted retail results; initial 2013 results indicate renewed retail client engagement
For full year 2012:
- Acquisitions and organic growth drove 44% increase in client assets to $446.3 million
- Net income of $2.6 million; $0.07 per diluted share
- Adjusted net income of $5.5 million; $0.14 per diluted share
- Adjusted EBITDA of $11.1 million
BEDMINSTER, N.J., March 12, 2013 /PRNewswire/ -- GAIN Capital Holdings, Inc. ("GAIN") (NYSE: GCAP), a leading global provider of Online Trading services, reported its results for the fourth quarter and full year 2012.
"In 2012, we made significant progress in our diversification strategy through both organic initiatives and targeted acquisitions," said Glenn Stevens, CEO of GAIN Capital. "Notable achievements include the growth of our institutional platform, GTX, which more than tripled its revenue year-on-year, as well as the purchase and successful integration of futures broker Open E Cry (OEC), which helped drive a 44% increase in client assets to $446 million at year end. In our core retail OTC business, we expanded our product offering to include more than 450 CFD and FX markets, from 70 in 2011, and launched new international services. Our full year 2012 performance demonstrated our ability to operate profitably in spite of weak market conditions that limited retail client engagement throughout most of the year."
"In December 2012, we successfully completed the acquisition of the U.S. business of GFT Forex , and in early 2013 we acquired the U.S. business of FX Solutions, illustrating that GAIN has become a partner of choice for M&A transactions, with a reputation as a fair counterparty with proven integration skills."
"These initiatives and acquisitions have positioned GAIN to capitalize on improved market conditions in 2013. While remaining low by historical levels, FX volatility rose the first two months of the year, and we are seeing a sequential growth across our business lines. As we move through 2013, our focus is to offer market-leading technology and service in our retail OTC business, scale up our institutional and futures offering and seek out additional acquisition opportunities to further scale our business," Mr. Stevens concluded.
Retail business
For the full year 2012, GAIN's retail OTC business generated revenue of $127.5 million, compared with $175.9 million in 2011. Total retail trading volume was $1.3 trillion, compared with $1.6 trillion in 2011. Significant developments for the year included the launch of TRADE, a platform giving access to more than 450 CFD and FX markets, as well as new services for the German and Canadian markets, and the acquisition of the U.S. business of GFT Forex.
"The full year 2012 saw volatility measures drop to multi-year lows, with short upticks of volatility interrupting an overall downward trend. During the year, we took measures to grow our retail business in terms of products, geographic footprint and client assets, while cutting $20.8 million in costs related to the retail business," Glenn Stevens commented. "With higher levels of volatility in the first months of 2013, we believe these factors, combined with our global brand recognition, position us well to profitably re-engage retail traders."
For the fourth quarter, GAIN reported retail trading revenue of $22.9 million, compared with $29.8 million a year earlier, while retail OTC volume fell to $298.8 billion, from $366.4 billion in the fourth quarter of 2011.
Institutional and futures businesses
For the full year 2012, GAIN's institutional business generated revenue of $15.6 million, compared with $4.4 million in 2011. Total institutional volume for the year was $2.0 trillion, compared with $853.9 billion a year earlier. Notable developments for the year included the expansion of our execution desk and the appointment of Joseph Wald to lead the institutional business.
"This was a landmark year for our GTX institutional business, which rapidly gained traction among key institutional customers, including banks, hedge funds and high frequency traders, even as many of our competitors saw declining volumes," said Glenn Stevens. "With our new leadership structure in place, we are confident that GTX is poised to enter a new phase of growth, reaching new clients with an expanded product offering."
In the fourth quarter, the institutional business reported revenue of $3.4 million, compared with $1.3 million in the fourth quarter of 2011. Institutional volume for the quarter was $538.4 billion, compared with $386.4 billion a year earlier. Our institutional business's results in the fourth quarter of 2011 included high-volume customers acquired from Deutsche Bank earlier in the year.
OEC, GAIN's exchange-traded futures business which was acquired in August 2011, reported revenue of $4.4 million for the fourth quarter, with daily average revenue trades of 13,000 during the quarter.
"OEC is already making a significant contribution to GAIN's overall revenue, highlighting the potential of the futures market," said Glenn Stevens. "We will continue to scale OEC in 2013, boosting margins and exploiting synergies with our retail OTC offerings."
Full Year Metrics
(Comparisons below are referenced to 2011)
- Net revenue of $151.4 million, compared to $181.5 million
- Net income of $2.6 million, compared to $15.7 million
- Adjusted EBITDA* of $11.1 million, compared to $36.6 million
- Adjusted net income* of $5.5 million, compared to $21.7 million
- Diluted EPS of $0.07, compared to $0.40
- Adjusted diluted EPS* of $0.14, compared to $0.56
- Total retail trading volume of $1.3 trillion, compared to $1.6 trillion
- Total institutional trading volume of $2.0 trillion, compared to $853.9 billion
- Total retail client assets of $446.3 million, compared with $310.4 million.
- (*See below for reconciliation of non-GAAP financial measures)
Fourth Quarter Metrics
- (Comparisons below are referenced to 4Q11)
- Net revenue of $32.4 million, compared to $31.6 million
- Net (loss) of $(3.8) million, compared to $(3.3) million
- Adjusted EBITDA* of $(5.0) million, compared to $(3.1) million
- Adjusted net (loss)* of $(3.3) million, compared to $(1.6) million
- Diluted EPS of $(0.11), compared to $(0.10)
- Adjusted diluted EPS* of $(0.09), compared to $(0.05)
- Total retail trading volume of $298.8 billion, compared to $366.4 billion
- Total institutional trading volume of $538.4 billion, compared to $386.4 billion
- Daily average revenue trades of approximately 13,000 in our futures business
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| Three Months Ended | Three Months Ended | Twelve Months Ended | Twelve Months Ended | |
|---|---|---|---|---|
| 31-Dec-12 | 31-Dec-11 | 31-Dec-12 | 31-Dec-11 | |
| REVENUE: | ||||
| Trading revenue | $22.9 | $29.8 | $127.5 | $175.9 |
| Commission revenue | $7.8 | $1.4 | $21.4 | $4.6 |
| Other revenue | $1.6 | $0.4 | $2.3 | $1.8 |
| Total non-interest revenue | $32.3 | $31.6 | $151.2 | $182.3 |
| Interest revenue | $0.2 | $0.3 | $0.6 | $0.6 |
| Interest expense | ($0.1) | ($0.3) | ($0.4) | ($1.4) |
| Total net interest revenue / (expense) | $0.1 | $0.2 | ($0.8) | |
| Net revenue | $32.4 | $31.6 | $151.4 | $181.5 |
| EXPENSES: | ||||
| Employee compensation and benefits | $12.0 | $11.5 | $47.5 | $46.4 |
| Selling and marketing | $6.9 | $8.2 | $27.0 | $36.2 |
| Trading expenses and commissions | $11.2 | $7.5 | $38.0 | $33.0 |
| General and administrative | $5.1 | $5.5 | $20.1 | $21.8 |
| Depreciation and amortization | $1.7 | $1.0 | $4.9 | $3.9 |
| Purchased intangible amortization | $0.7 | $2.5 | $4.1 | $8.9 |
| Communications and technology | $2.1 | $2.0 | $7.7 | $7.1 |
| Bad debt provision | $0.1 | $0.1 | $0.4 | $0.9 |
| Restructuring(1) | $0.6 | |||
| Total | $39.8 | $38.3 | $150.3 | $158.2 |
| Income / (loss) before tax expense | ($7.4) | ($6.7) | $1.1 | $23.3 |
| Income tax expense / (benefit) | ($3.6) | ($3.4) | ($1.5) | $7.6 |
| Net income / (loss) | ($3.8) | ($3.3) | $2.6 | $15.7 |
| Earnings / (loss) per common share: | ||||
| Basic | ($0.1) | ($0.1) | $0.08 | $0.46 |
| Diluted | ($0.1) | ($0.1) | $0.07 | $0.40 |
| Weighted average common shares outstanding | ||||
| used in computing earnings per common share: | ||||
| Basic | $35,081,311.0 | $34,205,991.0 | $34,940,800.0 | $34,286,840.0 |
| Diluted | $35,081,311.0 | $34,205,991.0 | $37,880,208.0 | $38,981,792.0 |
