Multinational retail FX and electronic trading giant GAIN Capital Holdings Inc has today announced financial results for the third quarter ended September 30, 2014.
Third Quarter Results
After a net loss of 5.2% in the second quarter of this year, GAIN Capital has turned its fortunes around considerably, with net revenue up to $103.7 million, a gargantuan 39% higher than the $69.7 million reported in the second quarter of this year, which subsequently caused the company’s stock to take a tumble just days later.
Compared to the same period one year ago, net revenue accelerated rapidly from the doldrums of the first six months of this year, causing the third quarter of this year’s results to be 71% higher than the $60.8 million in the third quarter of 2013, a period in which GAIN Capital still kept in the green, but in which profit took a 17% downturn.
Net income for the third quarter of this year amounted to $15.3 million, or $0.33 per diluted share, compared to net income of $5.6 million, or $0.14 per diluted share for the same period last year, and adjusted EBITDA* was $27.5 million, compared to adjusted EBITDA of $12.1 million in quarter 3 of 2013.
Retail OTC trading volume of rose 53% to $605.4 billion $394.8 billion, whilst institutional trading volume passed the trillion dollar mark, with a result of $1.2 trillion, up 31% from $0.9 trillion in the same period last year.
During this period, GAIN Capital achieved an Average Daily Volume in Futures Contracts of 26,736, up 39% from 19,204 in the third quarter of last year, and was in custody of a total amount of retail client assets of $849.7 million, up 24% from $684.1 million in the third quarter of last year.
“Results for the third quarter highlight our ability to execute on our strategy to grow the firm through organic efforts and acquisitions. During the quarter, we continued to expand our retail OTC business across products and geographies, while also significantly growing our commission-based businesses, which together allowed us to more than double our net income and adjusted EBITDA when compared with the year-ago quarter.”
“I am particularly pleased that our commission-based businesses delivered revenue of $35.0 million, which almost tripled from a year ago, and represented 34% of the total net revenue for the quarter, compared with 21% in the third quarter of 2013,” said Mr. Stevens, CEO of GAIN Capital. “This growth in revenue combined with our focus on reducing fixed expenses through the continued achievement of GFT expense synergies and additional expense-reduction initiatives, allowed us to significantly expand our operating margins for the quarter,” continued Mr. Stevens.
“Looking ahead, we believe we are in an excellent position to continue to grow our business and compete effectively in our industry. In particular, our growing global client base, the rich diversity of products we offer and our demonstrated expertise in executing and successfully integrating targeted acquisitions provide an attractive platform to consolidate our strong market position,” Mr. Stevens concluded.
On October 31, 2014, GAIN announced that it agreed to acquire City Index, a leading provider of online trading in Contracts-for-Difference (CFDs), UK spread betting and foreign exchange, for a purchase price of $118 million1, or a net purchase price of $82 million, including $36 million in cash on City Index’s balance sheet.
“The acquisition of City Index is an important step in our expansion strategy, enhancing our scale and further diversifying our product mix, while adding brands and technology that will be important advantages as we pursue further growth. We look forward to completing the transaction, building on our experience with the acquisition of GFT, where we have succeeded in realizing significant synergies while maintaining continuity for clients,” added Mr. Stevens.
1The estimated total transaction value is based on the closing price of GAIN Capital common stock on October 30, 2014. The purchase price for accounting purposes will be determined upon the closing of the acquisition and will depend on GAIN Capital’s stock price at that time.
Retail OTC Business
In the third quarter of 2014, GAIN’s retail OTC trading business generated revenue of $64.0 million, up 26% from $50.9 million in the third quarter of 2013, predominately due to the improvement in currency and equity volatility during the quarter. GAIN closed on its acquisition of Galvan Research during the quarter, which will be leveraged to provide additional products and services to retail OTC clients. Galvan generated revenue of $2.3 million in the third quarter of 2014, which is classified under commission revenue.
GAIN continued to achieve growth in key retail OTC operating metrics during the quarter. Retail OTC trading volume was $605.4 billion, up 53% from $394.8 billion in the third quarter of 2013. Efforts to expand trading of non-FX products continued, with 27% of retail OTC trading volume in the quarter coming from non-FX, primarily CFDs in equities, indices and commodities, up from 13% in the same quarter a year ago.
Retail OTC funded accounts and assets grew 2% and 15% from the year-ago quarter to 120,778 and $641.3 million, respectively.
Institutional Businesses
GAIN’s institutional businesses delivered significant growth, principally through increases in new accounts and trading volumes. In the third quarter of 2014, GAIN’s institutional businesses generated total revenue of $22.7 million, up 224% from $7.0 million in the third quarter of 2013.
Total institutional trading volume was $1.2 trillion, up 31% from $901.3 billion a year earlier. Trading volume on the GTX platform was $1.1 trillion, up 22% from $889.7 billion a year earlier.
Futures
The exchange-traded futures business generated revenue of $10.0 million in the third quarter of 2014, up 75% from $5.7 million in the same period in 2013. Average daily futures contracts reached 26,736 in the third quarter, up 39% from 19,204 in the third quarter of 2013, principally due to the acquisition of a majority interest in the GAA/Top Third businesses, coupled with growth of the legacy business.
Dividend
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 December 22, 2014 to shareholders of record as of the close of business December 12, 2014.
For the full announcement from GAIN Capital, click here.