GAIN Capital Reports Third Quarter 2015 Results

Three Months Ended
September 30

Nine Months Ended
September 30,

% Change

2015

2014

2015

2014

Q3

9 Months

Net revenue

$

127.9

$

103.7

$

332.4

$

254.8

%

30

%

Operating Expenses

98.1

75.4

273.6

215.9

30

%

27

%

Adjusted EBITDA^([2])

$

29.8

$

28.3

$

58.8

$

38.9

5

%

51

%

Adjusted EBITDA Margin %⁽²⁾

23

%

27

%

18

%

15

%

(4 pts)

3 pts

Net Income

$

7.8

$

15.3

$

7.4

$

14.0

(49)

%

(47)

%

GAAP EPS

$

0.19

$

0.33

$

0.13

$

0.30

(42)

%

(57)

%

Adjusted EPS⁽²⁾

$

0.31

$

0.37

$

0.55

$

0.40

(16)

%

38

%

Cash EPS⁽²⁾

$

0.43

$

0.43

$

0.77

$

0.58

—

33

%

Condensed Consolidated Statements of Operations

In millions except share data

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

REVENUE:

Retail revenue

$

118.8

$

90.4

$

300.4

$

223.1

Institutional revenue

8.3

8.5

26.7

25.7

Other revenue⁽¹⁾

0.8

4.5

5.2

5.2

Total non-interest revenue

127.9

103.4

332.3

254.0

Interest revenue

0.2

0.4

0.9

1.1

Interest expense

0.2

0.1

0.8

0.3

Total net interest revenue

—

0.3

0.1

0.8

Net revenue

127.9

103.7

332.4

254.8

OPERATING EXPENSES:

Employee compensation and benefits

29.1

25.5

81.7

71.4

Selling and marketing

7.4

4.8

20.4

16.1

Referral fees

28.6

24.7

84.7

65.9

Trading expenses

8.8

6.0

24.1

20.1

General and administrative

16.8

9.1

40.2

28.1

Depreciation and amortization

2.9

1.7

7.6

5.8

Purchased intangible amortization

4.3

2.3

10.7

4.8

Communications and technology

5.6

3.8

14.2

11.6

Bad debt provision

1.8

1.5

6.3

2.7

Acquisition expenses

0.1

0.9

2.7

1.5

Restructuring expenses

—

0.4

1.9

1.0

Integration expenses

10.7

—

23.1

1.7

Total operating expenses

116.1

80.7

317.6

230.7

Operating profit

11.8

23.0

14.8

24.1

Interest on long term borrowings

2.6

1.5

6.6

4.4

Income before income tax expense/(benefit)

9.2

21.5

8.2

19.7

Income tax expense/(benefit)

0.8

5.4

(0.5)

4.7

Net Income

$

8.4

$

16.1

$

8.7

$

15.0

Net income attributable to non-controlling interests

$

0.6

$

0.8

$

1.3

$

1.0

NET INCOME APPLICABLE TO GAIN
CAPITAL HOLDINGS, INC.

$

7.8

$

15.3

$

7.4

$

14.0

Earnings per common share⁽²⁾:

Basic

$

0.19

$

0.35

$

0.13

$

0.32

Diluted

$

0.19

$

0.33

$

0.13

$

0.30

Weighted averages common shares outstanding used
in computing earnings per share:

Basic

49,147,102

41,038,782

47,163,132

40,243,330

Diluted

49,891,101

43,523,862

48,028,752

43,054,959

_________________________

¹ Includes $4.5 million adjustment to fair value of contingent consideration for the nine months ended September 30, 2015.

² Adjusted for the impact of the GAA/TT put option.

Condensed Consolidated Balance Sheet

In millions

(unaudited)

September 30,

December 31,

2015

2014

ASSETS:

Cash and cash equivalents

$

186.7

$

139.4

Cash and securities held for customers

986.4

759.6

Receivables from brokers

119.2

134.9

Prepaid assets

9.6

2.5

Property and equipment - net of accumulated depreciation

29.2

18.8

Intangible assets, net

101.5

60.8

Goodwill

44.8

34.6

Other assets

50.4

35.3

          Total assets

$

1,527.8

$

1,185.9

LIABILITIES AND SHAREHOLDERS' EQUITY:

Payables to customers

986.4

759.6

Accrued compensation & benefits

9.1

16.9

Accrued expenses and other liabilities

51.1

64.4

Income tax payable

17.2

1.5

Senior convertible notes

120.9

68.4

          Total liabilities

$

1,184.7

$

910.8

          Non-controlling interest

11.7

10.2

       Shareholders' Equity

$

331.4

$

264.9

          Total liabilities and shareholders' equity

$

1,527.8

$

1,185.9

(*) 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 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 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

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Net income applicable to Gain
Capital Holdings Inc.

$

7.8

$

15.3

$

7.4

$

14.0

Add Back, net of tax:

Acquisition expense

0.1

0.7

2.0

1.1

Restructuring

—

0.3

1.4

0.8

Integration

7.7

—

17.1

1.3

Adjustment to fair value of
contingent consideration

—

—

(3.3)

—

Bad debt related to SNB event in
January of 2015

—

—

1.9

—

Adjusted net income

$

15.6

$

16.3

$

26.5

$

17.2

Basic

$

0.32

$

0.40

$

0.56

$

0.43

Diluted

$

0.31

$

0.37

$

0.55

$

0.40

Weighted averages common shares
outstanding used in computing
earnings per common share

Basic

49,147,102

41,038,782

47,163,132

40,243,330

Diluted

49,891,101

43,523,862

48,028,752

43,054,959

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

Cash net income is a non-GAAP financial measure and represents our net income excluding depreciation and amortization, integration related expenses, purchased intangible amortization, adjustment to fair value of contingent consideration and non-cash interest expense. 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 cash net income assists investors in evaluating our operating performance. However, because cash 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 Cash Net Income and Cash EPS

In millions, except per share data

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2015

2014

Net income applicable to Gain
Capital Holdings Inc.

$

7.8

$

15.3

$

7.4

$

14.0

Add Back, net of tax:

Depreciation and amortization

2.1

1.3

5.7

4.4

Integration

7.7

—

17.1

1.3

Purchased intangible amortization

3.1

1.7

7.9

3.7

Adjustment to fair value of contingent
consideration

—

—

(3.3)

—

Non-cash interest expense

0.8

0.5

2.1

1.4

Cash net income

$            21.5

$            18.8

$            36.9

$            24.8

Basic

$

0.44

$

0.46

$

0.78

$

0.62

Diluted

$

0.43

$

0.43

$

0.77

$

0.58

Weighted averages common shares
outstanding used in computing
earnings per common share

Basic

49,147,102

41,038,782

47,163,132

40,243,330

Diluted

49,891,101

43,523,862

48,028,752

43,054,959

Reconciliation of GAAP Net Income to Adjusted EBITDA

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

In millions

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Net revenue

$

127.9

$

103.7

$

332.4

$

254.8

Net income applicable to Gain Capital Holdings Inc.

7.8

15.3

7.4

14.0

Net income margin %

6%

15%

2%

6%

Net income

7.8

15.3

7.4

14.0

Depreciation and amortization

2.9

1.7

7.6

5.8

Purchased intangible amortization

4.3

2.3

10.7

4.8

Interest expense

2.6

1.5

6.6

4.4

Income tax expense

0.8

5.4

(0.5)

4.7

Acquisition expense

0.1

0.9

2.7

1.5

Restructuring

—

0.4

1.9

1.0

Integration

10.7

—

23.1

1.7

Acquisition contingent consideration adjustment

—

—

(4.5)

—

Bad debt related to SNB event in January of 2015

—

—

2.5

—

Net income attributable to non-controlling interest

0.6

0.8

1.3

1.0

Adjusted EBITDA

$

29.8

$

28.3

$

58.8

$

38.9

Adjusted  EBITDA Margin

23%

27%

18%

(*) Reconciliation of GAAP Revenue and Net Income to Pro Forma Revenue and Adjusted EBITDA

Pro forma revenue and pro forma adjusted EBITDA are non-GAAP financial measures that represent the simple addition of our revenue and adjusted EBITDA as if our acquisitions of City Index, Galvan, GAA and TT had occurred on 1 January 2014. We believe this enables year over year comparisons to our current financial results. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying results and trends. However, because pro forma revenue and pro forma adjusted EBITDA are not measures of financial performance calculated in accordance with GAAP, such measures 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 revenue and net income.

Reconciliation of GAAP Revenue and Net Income to Pro Forma Revenue and Adjusted EBITDA

In millions

(unaudited)

Q1 2015

GAIN

CITY

OTHER

TOTAL

Retail

$

84.3

$

36.0

 n/a

$

120.3

Institutional

9.9

—

—

9.9

Operating revenue

94.3

36.0

 n/a

130.3

Other

(1.4)

1.1

 n/a

(0.3)

Net Interest

—

—

 n/a

—

Net revenue

92.9

37.1

 n/a

130.0

Net Income

8.3

(4.0)

 n/a

4.3

Depreciation & amortization

2.0

2.4

—

4.4

Purchased intangible amortization

2.2

3.1

—

5.3

Interest Expense

1.5

—

—

1.5

Income tax expense

2.8

—

—

2.8

Acquisition costs

—

—

—

—

Restructuring

—

0.3

—

0.3

Integration Costs

0.1

—

—

0.1

Bad debt related to SNB event in January 15

2.5

—

—

2.5

Other one-time expenses

—

0.6

—

0.6

Net income attributable to NCI

0.3

—

—

0.3

Adjusted EBITDA

$

19.7

$

2.4

 n/a

$

22.1

Q3 2014

Q4 2014

GAIN

CITY

OTHER

TOTAL

GAIN

CITY

OTHER

TOTAL

Retail

$

90.4

$

33.5

 n/a

$

123.9

$

105.7

43.6

 n/a

$

149.3

Institutional

8.5

—

—

8.5

9.3

—

—

9.3

Operating revenue

98.9

33.5

 n/a

132.4

115.0

43.6

 n/a

158.6

Other

4.5

1.5

 n/a

6.0

(0.3)

—

 n/a

(0.3)

Net Interest

0.3

—

 n/a

0.3

—

—

 n/a

—

Net revenue

103.6

35.1

 n/a

138.7

114.8

43.6

 n/a

158.3

Net Income

15.3

1.8

 n/a

17.2

17.6

3.1

 n/a

20.7

Depreciation & amortization

1.7

2.1

—

3.9

1.3

2.4

—

3.7

Purchased intangible amortization

2.3

2.9

—

5.3

3.1

3.0

—

6.1

Interest Expense

1.5

—

—

1.5

1.8

—

—

1.8

Income tax expense

5.3

—

—

5.3

8.4

—

—

8.4

Acquisition costs

0.9

—

—

0.9

2.0

—

—

2.0

Restructuring

0.4

—

—

0.4

0.2

—

—

0.2

Integration Costs

—

—

—

—

0.7

1.2

—

2.0

Impairment on investment

—

—

—

—

0.1

—

—

0.1

Other one-time expenses

—

(0.4)

—

(0.4)

—

—

—

—

Net income attributable to NCI

0.8

—

—

0.8

0.4

—

—

0.4

Adjusted EBITDA

$

28.3

$

6.5

 n/a

$

34.8

$

35.7

$

9.7

 n/a

$

45.4

Q1 2014

Q2 2014

GAIN

CITY

OTHER

TOTAL

GAIN

CITY

OTHER

TOTAL

Retail

$

72.5

$

27.9

$         5.4

$

105.9

$

60.3

$

22.7

$

2.3

$

85.3

Institutional

8.5

—

—

8.5

8.5

—

—

8.5

Operating revenue

81.0

27.9

5.4

114.3

68.8

22.7

2.3

93.8

Other

0.1

(0.1)

—

—

0.6

(0.2)

—

0.4

Net Interest

0.2

—

(0.2)

—

0.3

—

—

0.3

Net revenue

81.3

27.8

5.2

114.4

69.7

22.6

2.3

94.6

Net Income

3.8

(8.3)

1.3

(3.2)

(5.2)

(9.4)

0.7

(14.0)

Depreciation & amortization

2.2

1.8

0.3

4.3

1.8

1.9

—

3.7

Purchased intangible amortization

1.0

5.1

—

6.1

1.6

2.9

—

4.5

Interest Expense

1.5

—

—

1.5

1.5

—

—

1.5

Income tax expense

1.3

—

—

1.3

(2.0)

—

—

(2.0)

Acquisition costs

0.4

—

—

0.4

0.2

—

—

0.2

Restructuring

0.4

—

—

0.4

0.2

—

—

0.2

Integration Costs

1.5

—

—

1.5

0.3

—

—

0.3

Other one-time expenses

—

2.5

—