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Safe Harbor
This presentation 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 FXCMs current views with respect to, among other things, its operations and financial performance. 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 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 as such factors may be updated from time to time in FXCM Inc.s most recent Annual Report on Form 10-K, FXCM Inc.s quarterly reports on Form 10-Q and other SEC filings, which are accessible on the SECs website at sec.gov. FXCM undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Non-GAAP Financial Measures: This presentation presents certain non-GAAP financial measures. These measures should not be considered in isolation from, or as a substitute for, measures prepared in accordance with generally accepted accounting principles. See the appendix to this presentation for reconciliations of these nonGAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP.
$15.0 million reserve established for longstanding regulatory matter in UK relating to trade execution practices prior to August 2010
Retail revenue per million: $89 / million, consistent with recent results Another strong quarter of cash generation 9 month cash flow from operating activities
now 138% of cash flow for full year 2012
Cash flows from operating activities of $45.8 million in Q3/13 YTD 2013 cash flows from operating activities of $140.8 million versus $53.4 million for the same period 2012
$422 million cash balance at 9/30/13 vs. $103 million of capital requirements $155 million available under undrawn credit facility
(1) Adjusted Pro Forma EBITDA and Adjusted Pro Forma EPS are non-GAAP financial measures that excludes certain items; reconciliations of these measures to the most directly comparable GAAP measures are available in the appendix to this presentation. * Definitions of certain operating metrics are available in the appendix to this presentation.
Market Environment
CVIX(1) EURUSD Avg. Daily Range(2)
21 19 17 15 13 11 9 7 2009
2010
2011
2012
2013
Q3/13 trading conditions muted CVIX finished at lows not seen since Q4/12 Daily high/low ranges in many major pairs took sharp turn downwards Eurodollar at multi-year lows in volatility
(1) (2)
Retail FX
Retail ADV 18 17 16
US Billions
Retail $ / Million
17.7 16.5
$120 $100
14.8
$94
$99 $90
$95 $88
$90
$89
Q3 2013
DARTs
600,000 500,000 400,000 300,000 200,000 100,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 378,837 367,051 345,790 366,015 438,063 516,960 417,845
1,200 1,000 800 600 400 200 490 Q1 2012 128 95 272
476 Q1 2013
ROW
519 Q2 2013
Definitions of certain operating metrics are available in the appendix to this presentation.
Institutional FX
Institutional Volume (Billions)
$700 $600 $500 $400 $300 $200 $100 $Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 $156 $223 $373 $558 $576 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $Q3 2012 Q4 2012 Q1 2013 EBITDA Q2 2013 Q3 2013 Revenues $15.9 $22.2 $16.0 $10.9 $23.0 $16.2 $18.0 $17.6 $12.7
Lucid comparables/primary venues where Lucid trades all had significant declines sequentially Q3/13 vs. Q2/13: ICAP (34%) CME (23%) Reuters (19%) Lucid also tends to outperform in high volatility periods and underperform in low volatility periods
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(1) Adjusted pro forma EBITDA for Lucid further excluding the $781K /quarter in amortization of the value of liquidity restrictions put on the FXCM Class A common shares issuable to the Lucid sellers recorded under US GAAP as compensation expense.
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Oct-13
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Oct-13
$315B in retail monthly trading volume 11% higher than September 2013 but 3% lower than Q3/13 average
$13.7B in retail ADV 1% higher than September 2013 but 7% lower than Q3/13 average
Institutional Monthly Trading Volume $192 $186 $124 $74 $52
$200
US Billions
$8.7 $7.7
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Oct-13
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Oct-13
Retail DARTs of 379,280 1% lower than September 2013 and 9% lower than Q3/13 average
$176B in institutional monthly volume 3% lower than September 2013 and 8% lower than Q3/13 average
$7.7B in institutional ADV 10% lower than September 2013 and 11% lower than Q3/13 average 7
M&A Update
Concluded three transactions during Third Quarter 2013: 50.1% of Faros Trading Assumption of Alpari US accounts Together with Lucid principals, acquired a note in Infinium Capital Markets LLC FXCM has proven track record as disciplined acquirer Four major acquisitions since 2010 at attractive prices and accretion rates ODL (UK) FXCM Japan (Japan) Foreland (Japan) Lucid (UK) Low volatility conditions should propel M&A
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Cost Discipline
Compensation and benefits Advertising and marketing Communication and technology Trading costs, prime brokerage and clearing fees General and administrative
Three Months Ended 6/30/2013 3/31/2013 $ 24,529 $ 21,471 6,157 7,351 9,765 8,355 8,961 7,938 13,423 12,471 $ 62,835 $ 57,586
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* On an Adjusted Pro Forma basis; see attached reconciliation of non-GAAP financial measures and a reconciliation of Adjusted Pro Forma income to U.S. GAAP results. Certain totals may not foot due to rounding.
(In thousands, except per share data) Revenues Retail trading revenues Institutional trading revenues Trading revenue Interest income Brokerage interest expense Net interest income Other operating income Total net revenues Referring broker fees Net revenues Expenses Compensation and benefits Advertising and marketing Communication and technology Trading costs, prime brokerage and clearing fees General and administrative Loss on equity method investments, net
% Change
% Change
$ 86,974 22,856 109,830 537 (63) 474 2,944 113,248 20,709 92,539
$ 85,237 25,868 111,105 990 (66) 924 2,919 114,948 18,708 96,240
$ 282,296 82,204 364,500 1,886 (187) 1,699 10,046 376,245 64,481 311,764
$ 255,833 42,908 298,741 2,910 (235) 2,675 7,805 309,221 58,865 250,356
10% 92% 22% -35% -20% -36% 29% 22% 10% 25%
EBITDA
Net EBITDA M argin
Depreciation and amortization Interest on borrowings Income before income taxes Income tax provision Net income Net income attributable to non-controlling interest in FXCM Holdings, LLC Net income attributable to non-controlling interest in Lucid Markets Trading Limited and Faros Trading LLC Net income attributable to FXCM Inc. Pro Forma fully exchanged, diluted weighted average shares outstanding Adjusted Pro Forma net income per fully exchanged, fully diluted weighted average shares
-44% -23% 2%
174% 53% 3%
$0.13
$0.17
-24%
$0.66
$0.45
47%
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* On an Adjusted Pro Forma basis; see attached reconciliation of non-GAAP financial measures and a reconciliation of Adjusted Pro Forma income to U.S. GAAP results. Certain totals may not foot due to rounding.
Balance Sheet
(In Thousands) Assets Current assets Cash and cash equivalents Cash and cash equivalents, held for customers Other current assets Total current assets Office, communication and computer equipment, net Goodwill and Intangible assets, net Other assets Total assets Liabilities and Equity Current liabilities Customer account liabilities Credit agreement Note payable Other current liabilities Total current liabilities Senior convertible notes Other liabilities Total liabilities Commitments and Contingencies Stockholders' Equity Total stockholders' equity FXCM Inc. Non-controlling interest Total stockholders' equity Total liabilities and stockholders' equity
$ Change
* Under U.S. GAAP. Certain totals may not foot due to rounding. See accompanying notes to the condensed consolidated financial statements that will be filed with our 10-Q on or before November 8, 2013.
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$160 $140 $120 $100 $80 $60 $40 $20 $$33 $79 $90 $102 $84 $62 $46
FXCM Inc. Nine Months Ended September 30, 2013 ($ Millions) After-Tax Cash Flow from Operations $ 140.8 Less: Capital Expenditures 16.8 $ 124.0 Other Sources (Uses): Issuance of Convertible Bond Option Exercises Investments Dividends and member distributions Common Stock Repurchases Convertible Bond Hedge, net Repayment of Credit Facility Repayment of Lucid Note Other Total Other Sources
$ 166.5 21.9 ( 6.9) (17.5) (16.3) (10.5) (85.0) (22.9) ( 3.6) $ 25.7 $ 149.7
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6.5 -
9.3 0.7
20.1 9.5
36.8 23.0
12.0 3.2
12.5 3.3
12.8 3.4
37.3 9.9
Summary
Solid results in muted trading environment Expense discipline With over $422 million in cash and $155 million undrawn on credit facility,
FXCM has the firepower to pursue meaningful acquisitions
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Appendix
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Operating Metrics
Total Customer Trading Volume (dollars in billions) Trading Days in Period Daily Average Trades Daily Average Trades per Active Account (4) Retail Trading Revenue per Million Traded Total Customer Equity (dollars in millions) Customer Trading Volume by Region (dollars in billions) -Asia -EMEA -United States -Rest of World Total
Net account additions represents new accounts funded less accounts closed by our customers. A tradable account represents an account with sufficient funds to place a trade in accordance with firm policies. An active account represents an account that has traded at least once in the previous 12 months. Daily average trades per active account represents the total daily average trades per average active account in the period.
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Reconciliation of Adjusted Pro Forma Results to U.S. GAAP Quarter Ended September 30, 2013 (000s
except per share amounts, unaudited)
As Reported Revenues Retail trading revenue Institutional trading revenue Trading revenue Interest income Brokerage interest expense Net interest income Other operating income Total net revenues Operating Expenses Compensation and benefits Allocation of net income to Lucid members for services provided Total compensation and benefits Referring broker fees Advertising and marketing Communication and technology Trading costs, prime brokerage and clearing fees General and administrative Depreciation and amortization Total operating expenses Total operating income (loss) Loss on equity method investments, net Interest on borrowings Income (loss) before income taxes Income tax provision Net income (loss) Net income (loss) attributable to non-controlling interest in FXCM Holdings, LLC Net income (loss) attributable to non-controlling interest in Lucid Markets Trading Limited and Faros Trading LLC Net income (loss) attributable to FXCM Inc. Diluted weighted average shares outstanding as reported and pro forma fully exchanged, fully diluted weighted average shares outstanding Diluted net income (loss) per share as reported and adjusted pro forma net income per fully exchanged, fully diluted weighted average shares outstanding 28,809 2,996 31,805 20,709 6,305 10,111 6,809 27,949 12,849 116,537 (3,289) 183 2,869 (6,341) 2,444 (8,785) (3,133) (5,615) (2,996) (8,611) (15,000) (23,611) 23,611 23,611 2,692 20,919 3,133
(1)
Three Months Ended September 30, 2013 Adjustments Adjusted Pro Forma As Reported 2012 Adjustments Adjusted Pro Forma
23,194 23,194 20,709 6,305 10,111 6,809 12,949 12,849 92,926 20,322 183 2,869 17,270
24,156 24,156 18,708 7,509 9,600 6,981 13,681 11,717 92,352 22,596 1,158 21,438 3,598 17,840 8,946
(5)
(2)
(8)
(6)
(3)
5,136 12,134 -
(3)
7,397 16,920 -
(4)
(4)
(530) (5,122)
2,996 14,790
(2)
2,466 9,668
4,381 4,513
8,026
4,381 12,539
34,469
76,374
(7)
26,913
75,103
(7)
(0.15)
0.13
0.17
0.17
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Reconciliation of Adjusted Pro Forma Results to U.S. GAAP Quarter Ended September 30, 2013
(Footnotes)
(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. Represents the reclassification of the portion of the 49.9% of Lucids earnings attributed to non-controlling interest recorded as compensation for U.S. GAAP purposes to Net income attributable to non-controlling interest in Lucid Markets Trading Limited. Represents an adjustment to reflect an effective corporate tax rate of approximately 29.7% and 30.4% for the three months ended September 30, 2013 and 2012, respectively assuming a full exchange of existing unitholders FXCM Holdings, LLC ("Holdings") units for shares of Class A common stock of the Company and the tax effect of any pro forma adjustments.
(2)
(3)
(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 equity-based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses.
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.
(7)
(6)
Fully diluted shares assuming all unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.
Represents an adjustment to reflect a reserve established relating to ongoing discussions with the Financial Conduct Authority (the "FCA") in the United Kingdom ("UK") regarding pre August 2010 trade execution practices.
(8)
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Reconciliation of Adjusted Pro Forma Results to U.S. GAAP 9 Months Ended September 30, 2013
(000s except per share amounts, unaudited)
2013 As Reported Revenues Retail trading revenue Institutional trading revenue Trading revenue Interest income Brokerage interest expense Net interest income Other operating income Total net revenues Operating Expenses Compensation and benefits Allocation of net income to Lucid members for services provided Total compensation and benefits Referring broker fees Advertising and marketing Communication and technology Trading costs, prime brokerage and clearing fees General and administrative Depreciation and amortization Total operating expenses Total operating income Loss on equity method investments, net Interest on borrowings Income before income taxes Income tax provision Net income Net income attributable to non-controlling interest in FXCM Holdings, LLC Net income (loss) attributable to non-controlling interest in Lucid Markets Trading Limited and Faros Trading LLC Net income attributable to FXCM Inc. 78,929 18,000 96,929 64,481 19,813 28,231 23,708 53,843 37,304 324,309 51,936 728 4,976 46,232 16,793 29,439 21,190 (9,736) (18,000) (27,736) (15,000) (42,736) 42,736 42,736 7,303 35,433 (21,190)
(3) (1)
Nine Months Ended September 30, 2012 Adjusted Pro Forma As Reported Adjusted Pro Forma
Adjustments
Adjustments
69,193 69,193 64,481 19,813 28,231 23,708 38,843 37,304 281,573 94,672 728 4,976 88,968 24,096 64,872 -
81,175 81,175 58,865 23,266 26,591 10,187 48,891 24,761 273,736 35,485 1,698 33,787 4,856 28,931 17,717
(5)
(2)
(8)
(6)
(3)
18,489 38,182 -
(4)
(4)
(3,613) $ 11,862
18,000 38,623
(2)
14,387 50,485
5,254 5,960
26,968
5,254 32,928
Diluted weighted average shares outstanding as reported and pro forma fully exchanged, fully diluted weighted average shares outstanding
32,009
75,952
(7)
22,416
73,548
(7)
Diluted net income per share as reported and adjusted pro forma net income per fully exchanged, fully diluted weighted average shares outstanding
0.37
0.66
0.27
0.45
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Reconciliation of Adjusted Pro Forma Results to U.S. GAAP 9 Months Ended September 30, 2013
(Footnotes)
(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. Represents the reclassification of the portion of the 49.9% of Lucids earnings attributed to non-controlling interest recorded as compensation for U.S. GAAP purposes to Net income attributable to non-controlling interest in Lucid Markets Trading Limited. Represents an adjustment to reflect an effective corporate tax rate of approximately 27.1% and 32.6% for the nine months ended September 30, 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. 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.
(2)
(3)
(4)
(5)
Represents the elimination of equity-based compensation associated with the IPO, severance and equity-based compensation in connection with the renegotiation of certain employment contracts in the Company's institutional and retail businesses.
(6)
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. Fully diluted shares assuming all unitholders had fully exchanged their Holdings units for shares of Class A common stock of the Company.
(7)
(8)
Represents an adjustment to reflect a reserve established relating to ongoing discussions with the FCA in the UK regarding pre August 2010 trade execution practices.
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Reconciliation of EBITDA to U.S. GAAP Net Income 3 and 9 Months Ended September 30, 2013 (000s except
per share amounts, unaudited)
Three Months Ended Septem ber 30, Adjusted Pro Form a 2013 2012 2013 U.S. GAAP 2012
Nine Months Ended Septem ber 30, Adjusted Pro Form a 2013 2012 U.S. GAAP 2013 2012
Revenues Net income (loss) attributable to FXCM Inc. Net income (loss) attributable to noncontrolling interest in FXCM Holdings, LLC Net income (loss) attributable to noncontrolling interest in Lucid Markets Trading Limited and Faros Trading LLC Provision for income taxes Depreciation and amortization Interest on borrowings EBITDA
$ $
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As of 9/30/13: FXCM Inc. had 43,886,834 Class A shares outstanding FXCM Inc. owns 53.5% of FXCM Holdings LLC With non-FXCM Inc. FXCM Holdings Units exchangeable 1-1 into FXCM Class A shares, there are effectively 82,177,455 shares outstanding At $19.75 closing price on 9/30/13 would imply a market capitalization of $1.62 billion
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