Global Brokerage Inc (NASDAQ:GLBR), parent company of retail forex broker FXCM, released its Q1 results indicating – as expected – a significant decrease in activity, in large part due to the sale of the company’s US clients to Gain Capital Holdings Inc (NYSE:GCAP).
The company’s operating loss of $24.2 million and net loss of $29.9 million was due mainly to a non-cash writeoff of goodwill, in connection with the company’s loan from Leucadia National Corp (NYSE:LUK).
GLBR’s financial results are somewhat difficult to decipher, due to the various writeoffs and accounting valuations which affect the results, and what happened to the company during Q1 – making GLBR’s results not really comparable to previous quarters.
The key issue raised by the Q1 report was (not unexpectedly) held back until the bottom of the report. GLBR stated that the company’s potential delisting from Nasdaq “could lead to an event of default under the terms of our debt arrangements…” which “raises substantial doubt about our ability to continue as a going concern. We are working with financial and legal advisers to explore refinancing alternatives.”
Earlier today, GLBR announced that Ken Grossman will replace Drew Niv as CEO.
An excerpt from the Q1 results release reads as follows:
Global Brokerage, Inc. (NASDAQ:GLBR), today announced for the quarter ended March 31, 2017, U.S. GAAP trading revenue from continuing operations of $45.1 million, compared to $58.9 million for the quarter ended March 31, 2016. U.S. GAAP net loss attributable to Global Brokerage, Inc. from continuing operations was $24.5 million (U.S. GAAP net income from continuing operations includes a $23.9 million goodwill impairment charge) for the quarter ended March 31, 2017, or $3.99 per diluted share, compared to U.S. GAAP net income attributable to Global Brokerage, Inc. from continuing operations of $61.9 million (including a $110.8 million gain on derivative liabilities), or $11.05 per diluted share, for the quarter ended March 31, 2016.
The net gain/loss on derivative liabilities consists of non-cash changes in the value of embedded derivatives associated with the Leucadia Letter and Credit Agreements (as described further below). The Letter Agreement is a component of the financing package provided by Leucadia National Corp. (“Leucadia”). On January 15, 2015, FXCM Group, LLC (“FXCM Group”) customers suffered negative equity balances due to the unprecedented move in the Swiss Franc after the Swiss National Bank (“SNB”) discontinued its peg of the Swiss Franc to the Euro. On January 16, 2015, FXCM Group entered into a financing agreement with Leucadia that permitted FXCM Group’s regulated subsidiaries to meet their regulatory capital requirements and continue normal operations after significant losses were incurred resulting from the events of January 15, 2015.
On September 1, 2016 we completed the restructuring of the financing arrangements with Leucadia (the “Leucadia Restructuring Transaction”). We amended the terms of the Amended and Restated Credit Agreement (the “Credit Agreement”) and replaced the Amended and Restated Letter Agreement (the “Letter Agreement”) with a new Limited Liability Company Agreement.
The Company sold its United States domiciled accounts in February 2017 and withdrew from registration in the United States. Results for the United States operations have been reclassified to discontinued operations for both the current and prior year.
U.S. GAAP trading revenue from discontinued operations for the quarter ended March 31, 2017 was $12.6 million, compared to $17.2 million for the quarter ended March 31, 2016. U.S. GAAP net loss attributable to Global Brokerage, Inc. from discontinued operations was $5.4 million for the quarter ended March 31, 2017, or $0.88 per diluted share, compared to U.S. GAAP net loss attributable to Global Brokerage, Inc. from discontinued operations of $12.2 million, or $2.17 per diluted share, for the quarter ended March 31, 2016.
Adjusted EBITDA from continuing and discontinued operations for the quarter ended March 31, 2017 was $5.6 million, compared to $10.3 million for the quarter ended March 31, 2016.
Adjusted EBITDA is a Non-GAAP financial measure. This measure does not represent and should not be considered as a substitute for net income, net income attributable to Global Brokerage, Inc. or net income per Class A share or as a substitute for cash flow from operating activities, each as determined in accordance with U.S. GAAP, and our calculations of these measures may not be comparable to similarly entitled measures reported by other companies. See “Non-GAAP Financial Measures” beginning on A-3 of this release for additional information regarding these Non-GAAP financial measures and for reconciliations of such measures to the most directly comparable measures calculated in accordance with U.S. GAAP.
On May 2, 2017, the Nasdaq Stock Market notified us that, for the prior 30 consecutive business days, the market value of our publicly held shares does not meet the requirement for continued listing under the Nasdaq Global Select Market listing rules which could lead to our eventual delisting from the Nasdaq Global Select Market, by October 30, 2017 if not rectified. This could lead to an event of default under the terms of our debt arrangements and accordingly we believe that the potential delisting raises substantial doubt about our ability to continue as a going concern. We are working with financial and legal advisers to explore refinancing alternatives.
GLBR’s full Q1 results press release can be seen here.