Apr, 29 2014
GFI Group Inc. Announces First Quarter Results; Declares Quarterly Cash Dividend Tue, 29 Apr 2014 16:15:12

(Results relate to the first quarter 2014 and comparisons are versus the first quarter 2013, unless otherwise stated)

NEW YORK, April 29, 2014 /PRNewswire/ — GFI Group Inc. (NYSE: GFIG), a leading intermediary and provider of trading technologies and support services to the global OTC and listed markets, reported today its financial results for the first quarter ended March 31, 2014.

Highlights of Results

Three months ended

March 31,

$ in millions

2014

2013

Total revenues

$

240.7

 

$

244.4

 

Net revenues

202.4

 

201.5

 

Brokerage revenues

173.1

 

176.6

 

Software, analytics and market data revenue

25.8

 

22.2

 

Compensation ratio (1)

68.1

%

68.6

%

Non-compensation ratio (1)

27.8

%

26.8

%

Non-GAAP net income (1)

$

6.2

 

$

7.2

 

Cash earnings (1)

26.3

 

27.2

 

 

(1)

 

Item represents a non-GAAP financial measure; see discussion below, as well as a reconciliation to GAAP

in the financial tables attached to this release.

Colin Heffron, Chief Executive Officer commented:  “We are pleased with our first quarter results that show we are successfully transforming and strengthening GFI’s core execution business by providing end-to-end trading solutions.  These solutions include multiple trade execution protocols with connectivity to customers, clearinghouses, data repositories and post-trade service providers in multiple asset classes. We believe that our proprietary trading technology and comprehensive customer and service networks have increased GFI’s market share in key fixed income and foreign exchange markets, as well as provided expense flexibility to alleviate higher overall technology and regulatory compliance costs. We will continue to focus on providing our customers with sophisticated trading technology and wide ranging support services to fortify and grow our market share, revenue base and profits.

“GFI’s non-GAAP net revenues grew 1.1% in the first quarter of 2014, as software, analytics and market data revenues increased 16.3% and brokerage revenues declined 2.0%. GFI’s Trayport and FENICS businesses continued to expand by leveraging their customer base and adding new products and services.  Trayport’s revenues grew 19.1% on a U.S. dollar basis in the first quarter.   

“Our electronic matching protocol remains a key part of GFI’s overall electronic strategy. Matching sessions continued to provide a growing revenue source in fixed income products globally. In the Americas and EMEA, matching session revenues in the first quarter represented approximately 52% and 18% of fixed income product revenues, compared to 29% and 8% in the prior year, respectively.  In fixed income products globally, matching session revenues approximately tripled in derivatives and more than doubled in cash products, year over year.  We expect that GFI’s electronic matching session revenues will continue to grow in both fixed income and foreign exchange markets globally.

“We remain focused on reducing GFI’s overall compensation ratio and are pleased with the lower, more performance-based compensation arrangements implemented over the past two years.  GFI’s non-GAAP compensation rate improved versus the prior year period despite increased technology and regulatory compliance costs. We expect to see considerable operating leverage when higher volumes return to the global markets.

“Mandatory trading on Swap Execution Facilities (“SEFs”) in fixed income and interest rate derivative products will largely be implemented in the second quarter of 2014. We expect that market participation and volumes will improve, as users become more familiar trading on SEF platforms. 

“GFI’s preliminary April total revenues are tracking down approximately 8% year over year. GFI’s brokerage business continues to face ongoing regulatory changes and generally low volatility and interest rate environments globally.

“GFI’s first quarter cash earnings were $0.20 per diluted share, or approximately $26.3 million. We are pleased to declare a quarterly cash dividend to GFI shareholders of $0.05 per share.”

GAAP Results: First Quarter 2014

Net revenues were $202.4 million, compared to $201.5 million in the prior year. Net income was $4.0 million, or $0.03 per diluted share, compared with net income of $4.7 million, or $0.04 per diluted share. Compensation and employee benefits expense was 68.0% of net revenues, flat to the prior year quarter. Non-compensation expenses were $59.2 million, or 29.3% of net revenues, compared to $64.4 million, or 32.0% of net revenues in the prior year. 

Non-GAAP Results: First Quarter 2014

Revenues

Net revenues were $202.1 million as compared to $199.8 million.

Brokerage revenues were $173.1 million compared to $176.6 million.  Revenues from fixed income products were up 10.7%, while revenue from financial, commodity and equity products were down 0.7%, 11.1% and 9.6%, respectively. By geographic region, brokerage revenues increased 3.6% and 3.7% in EMEA and Asia-Pacific, respectively, and declined 10.8% in the Americas.

Revenues from trading software, analytics and market data products were $25.8 million, up 16.3% from $22.2 million in the prior year.

Expenses

Our compensation and employee benefit expenses were $137.7 million, or 68.1% of net revenues, compared with $137.0 million, or 68.6% in first quarter 2013.  Non-compensation expenses were $56.1 million, or 27.8% of net revenues, compared with $53.5 million, or 26.8% in the prior year.

Earnings

GFI’s net income was $6.2 million, or $0.05 per diluted share, compared with $7.2 million, or $0.06 per diluted share.

The effective non-GAAP tax rate for the first quarter of 2014 was estimated at 20.0% as compared to 36.0% for full-year 2013. The decrease in effective tax rate was primarily driven by valuation reserves recorded in 2013 against deferred tax assets relating to certain previous years’ operating losses.

Dividend Declaration

The Board of Directors of GFI has declared a quarterly cash dividend of $0.05 per share payable on May 30, 2014 to shareholders of record as of May 16, 2014.

Non-GAAP Financial Measures

To supplement GFI’s unaudited financial statements presented in accordance with GAAP, the Company uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies.  In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by GFI include non-GAAP total revenues, non-GAAP net revenues, non-GAAP provision for or benefit from income taxes, non-GAAP net income, non-GAAP diluted earnings per share, cash earnings and cash earnings per share.  These non-GAAP financial measures currently exclude from the Company’s statement of income amortization of acquired intangibles and certain other items that management views as non-operating, non-recurring or non-cash as detailed in the reconciliation included in the financial tables attached to this release.

In addition, GFI may consider whether other significant non-operating, non-recurring or non-cash items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.  The non-GAAP financial measures also take into account estimated adjustments to income tax expense with respect to the excluded items.

GFI believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company’s performance by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. GFI’s management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company’s operating results, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the Company’s performance to prior periods.

In addition to the reasons stated above, which are generally applicable to each of the items GFI excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude amortization of acquired intangibles because when analyzing the operating performance of an acquired business, GFI’s management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity, as compared to the purchase price paid) without taking into consideration any charges for allocations made for accounting purposes. Further, because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets, when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of acquired intangible assets on its financial results. GFI believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.

A reconciliation of these non-GAAP financial measures to GAAP is included in the financial tables attached to this release.

Conference Call

GFI has scheduled an investor conference call to discuss its first quarter results at 8:30 a.m. (Eastern Time) on Wednesday, April 30, 2014. Those wishing to listen to the live conference call via telephone should dial 1-877-870-4263 in North America and +1-412-317-0790 outside of North America, and ask for “GFI”.

A live audio web cast of the conference call will be available on the Investor Relations section of GFI’s Website. For web cast registration information, please visit: http://www.gfigroup.com. Following the conference call, an archived recording will be available.

Supplementary Financial Information

GFI has posted details of its historical monthly brokerage revenues on the Investor Relations page of its web site under the heading Supplementary Financial Information. The Company currently plans to post this information quarterly in conjunction with its announcement of earnings, but does not undertake a responsibility to continue to provide or update such information.

About GFI Group Inc.

GFI Group Inc. (NYSE: GFIG) is a leading intermediary in the global OTC and Listed markets offering an array of sophisticated trading technologies and products to a broad range of financial market participants.  More than 2,500 institutional clients benefit from GFI’s know-how and experience in operating electronic and hybrid markets for cash and derivative products across multiple asset classes, including fixed income, interest rates, foreign exchange, equities, energy and commodities.  GFI’s brands include Trayport®, a leading provider of trading solutions for energy markets worldwide and FENICS ®, a market leader in FX options software.  

Founded in 1987 and headquartered in New York, GFI employs over 2,000 people globally, with additional offices in London, Paris, Brussels, Nyon, Dublin, Madrid, Sugar Land (TX), Hong Kong, Tel Aviv, Dubai, Manila, Seoul, Tokyo, Singapore, Sydney, Cape Town, Santiago, Bogota, Buenos Aires, Lima and Mexico City.

Forward-looking Statement

Certain matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words “anticipate,” “believe,” “estimate,” “may,” “might,” “intend,” “expect” and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of GFI Group Inc. (the “Company”) and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: economic, political and market factors affecting trading volumes; securities prices or demand for the Company’s brokerage services; competition from current and new competitors; the Company’s ability to attract and retain key personnel, including highly-qualified brokerage personnel; the Company’s ability to identify and develop new products and markets; changes in laws and regulations governing the Company’s business and operations or permissible activities; the Company’s ability to manage its international operations; financial difficulties experienced by the Company’s customers or key participants in the markets in which the Company focuses its brokerage services; the Company’s ability to keep up with technological changes; uncertainties relating to litigation and the Company’s ability to assess and integrate acquisition prospects. Further information about factors that could affect the Company’s financial and other results is included in the Company’s filings with the Securities and Exchange Commission. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

– FINANCIAL TABLES FOLLOW –

GFI Group Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(In thousands except share and per share data)

           
       
   

Three Months Ended

 
   

March 31,

 
   

2014

 

2013

 

Revenues

       
 

Agency commissions 

$       121,415

 

$       126,572

 
 

Principal transactions 

51,689

 

50,065

 
 

 Total brokerage revenues

173,104

 

176,637

 
 

Clearing services revenues

34,164

 

38,064

 
 

Interest income from clearing services

528

 

737

 
 

Equity in net earnings of unconsolidated businesses

2,554

 

3,059

 
 

Software, analytics and market data

25,765

 

22,158

 
 

Other income, net

4,624

 

3,737

 
 

    Total revenues

240,739

 

244,392

 
           

Interest and transaction-based expenses

       
 

Transaction fees on clearing services

32,640

 

36,908

 
 

Transaction fees on brokerage services

5,503

 

5,807

 
 

Interest expense from clearing services

169

 

160

 
 

Total interest and transaction-based expenses

38,312

 

42,875

 
 

Revenues, net of interest and transaction-based expenses

202,427

 

201,517

 
           

Expenses

       
 

Compensation and employee benefits

137,697

 

137,015

 
 

Communications and market data

13,347

 

13,587

 
 

Travel and promotion

7,779

 

8,061

 
 

Rent and occupancy

8,086

 

7,212

 
 

Depreciation and amortization

8,596

 

8,308

 
 

Professional fees

6,171

 

6,727

 
 

Interest on borrowings

7,784

 

7,688

 
 

Other expenses

7,464

 

12,824

 
 

   Total other expenses

196,924

 

201,422

 
           

Income before provision for (benefit from) income taxes

5,503

 

95

 
           

Provision for (benefit from) income taxes

1,094

 

(4,859)

 
           

Net income before attribution to non-controlling stockholders

4,409

 

4,954

 
           

Less: Net income attributable to non-controlling interests

406

 

280

 

GFI’s net income

$           4,003

 

$           4,674

 
           
           

Basic earnings per share 

$             0.03

 

$             0.04

 

Diluted earnings per share

$             0.03

 

$             0.04

 
           

Weighted average shares outstanding – basic

122,362,839

 

115,384,022

 
           

Weighted average shares outstanding – diluted

131,430,701

 

125,552,041

 
           
           
           

GFI Group Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

As a Percentage of Net Revenues

           
           
   

Three Months Ended

 
   

March 31,

 
   

2014

 

2013

 

Revenues

       
 

Agency commissions 

60.0%

 

62.8%

 
 

Principal transactions 

25.5%

 

24.8%

 
 

 Total brokerage revenues

85.5%

 

87.6%

 
 

Clearing services revenues

16.9%

 

18.9%

 
 

Interest income from clearing services

0.2%

 

0.4%

 
 

Equity in net earnings of unconsolidated businesses

1.3%

 

1.5%

 
 

Software, analytics and market data

12.7%

 

11.0%

 
 

Other income, net

2.3%

 

1.9%

 
 

    Total revenues

118.9%

 

121.3%

 
           

Interest and transaction-based expenses

       
 

Transaction fees on clearing services

16.1%

 

18.3%

 
 

Transaction fees on brokerage services

2.7%

 

2.9%

 
 

Interest expense from clearing services

0.1%

 

0.1%

 
 

Total interest and transaction-based expenses

18.9%

 

21.3%

 
 

Revenues, net of interest and transaction-based expenses

100.0%

 

100.0%

 
           

Expenses

       
 

Compensation and employee benefits

68.0%

 

68.0%

 
 

Communications and market data

6.6%

 

6.8%

 
 

Travel and promotion

3.8%

 

4.0%

 
 

Rent and occupancy

4.0%

 

3.6%

 
 

Depreciation and amortization

4.3%

 

4.1%

 
 

Professional fees

3.1%

 

3.3%

 
 

Interest on borrowings

3.8%

 

3.8%

 
 

Other expenses

3.7%

 

6.4%

 
 

   Total other expenses

97.3%

 

100.0%

 
           

Income before provision for (benefit from) income taxes

2.7%

 

0.0%

 
           

Provision for (benefit from) income taxes

0.5%

 

-2.4%

 
           

Net income before attribution to non-controlling stockholders

2.2%

 

2.4%

 
           

Less: Net income attributable to non-controlling interests

0.2%

 

0.1%

 

GFI’s net income

2.0%

 

2.3%

 

 

 

 

GFI Group Inc. and Subsidiaries

 

Selected Financial Data (unaudited)

 

(Dollars in thousands except per share data)

                     
                     
         

Three Months Ended

     
         

March 31,

     
         

2014

 

2013

     
                     
 

Brokerage Revenues by Product Categories:

           
   

Fixed Income

   

$          51,735

 

$          46,742

     
   

Financial

   

51,539

 

51,916

     
   

Equity

   

30,043

 

33,216

     
   

Commodity

   

39,787

 

44,763

     
                     
   

   Total brokerage revenues

 

$        173,104

 

$        176,637

     
                     
                     
 

Brokerage Revenues by Geographic Region:

           
   

Americas

   

$          61,336

 

$          68,779

     
   

Europe, Middle East, and Africa

 

92,569

 

89,342

     
   

Asia-Pacific

   

19,199

 

18,516

     
                     
   

   Total brokerage revenues

 

$        173,104

 

$        176,637

     
                     
                     
                     
                     
         

March 31,

 

December 31,

     
         

2014

 

2013

     
                     
 

Consolidated Statement of Financial Condition Data:

           
   

Cash and cash equivalents

 

$        149,044

 

$        174,606

     
   

Cash held at clearing organizations, net of customer cash

72,257

 

52,414

     
   

GFI’s total balance sheet cash

   

221,301

 

227,020

     
   

Balance sheet cash per share

 

1.76

 

1.84

     
                     
   

Total assets (1)

   

1,702,208

 

1,161,542

     
   

Total debt

   

250,000

 

250,000

     
   

Stockholders’ equity

   

408,073

 

407,276

     
                     
                     
 

Selected Statistical Data:

               
   

Brokerage personnel headcount(2) (4)

1,084

 

1,121

     
   

Employees

   

2,080

 

2,087

     
   

Broker productivity for the period(3) (4)

$               160

 

$               127

     
                     
                     
                     
                     
 

(1)

Total assets include receivables from brokers, dealers and clearing organizations of $851.8 million and $295.7 million at March 31, 2014 and December 31, 2013, respectively. These receivables primarily represent securities transactions entered into in connection with our matched principal business which have not settled as of their stated settlement dates, as well as balances with clearing organizations. These receivables are substantially offset by corresponding payables to brokers, dealers and clearing organizations and to clearing customers, for these unsettled transactions.

 
       
 

(2)

Brokerage personnel headcount includes brokers, traders, trainees and clerks.

 
       
 

(3)

Broker productivity is calculated as brokerage revenues divided by average monthly brokerage personnel headcount for the quarter.

     
           
 

(4)

In the quarter ending March 31, 2014, GFI reclassified certain employees that had previously been included in “Brokerage personnel headcount” to back-office support roles.  The impact to broker productivity was immaterial in all periods presented.  

 

 

 

 

GFI Group Inc. and Subsidiaries

 

Reconciliation of GAAP to Non-GAAP Financial Measures (unaudited)

 

(In thousands except share and per share data)

             
         
     

Three Months Ended

 
     

March 31,

 
     

2014

 

2013

 
             
 

GAAP revenues

 

$    240,739

 

$    244,392

 
 

Mark-to-market loss (gain) on forward hedges of future foreign currency revenues

73

 

(969)

 
 

Net gain on available-for-sale investments

 

(383)

 

 
 

Fair value mark-to-market gain on future purchase commitment 

 

 

(744)

 
 

Fair value mark-to-market loss on warrants on investee shares

 

 

22

 
 

Total Non-GAAP Revenues

 

240,429

 

242,701

 
             
 

GAAP interest and transaction-based expenses

 

38,312

 

42,875

 
             
 

Non-GAAP revenues, net of interest and transaction-based expenses

 

202,117

 

199,826

 
             
 

GAAP other expenses

 

196,924

 

201,422

 
 

Amortization of intangibles

 

(2,469)

 

(2,498)

 
 

Writedown of investment in unconsolidated affiliate

 

(611)

 

 
 

Expenses from start-up operations

 

 

(8,413)

 
 

Non-GAAP other expenses

 

193,844

 

190,511

 
             
 

Non-GAAP pre-tax income

 

8,273

 

9,315

 
             
 

Income tax impact on Non-GAAP items

 

561

 

4,067

 
 

Plus: Non-operating adjustment for the recognition of a tax benefit related to interest

income between international affiliates

 

 

2,655

 
 

Non-GAAP provision for income taxes

 

1,655

 

1,863

 
             
 

Less: Net income attributable to non-controlling interests

 

406

 

280

 
             
 

GFI’s Non-GAAP net income

 

$        6,212

 

$        7,172

 
             
 

Non-GAAP diluted net income per share

 

$          0.05

 

$          0.06

 
             
 

Pre-tax adjustments to arrive at cash earnings

         
 

Amortization of RSUs

 

7,355

 

8,142

 
 

Amortization of prepaid sign-on and retention bonuses

 

6,593

 

6,112

 
 

Depreciation and other amortization (excluding intangibles)

 

6,127

 

5,810

 
 

Total pre-tax adjustments to cash earnings

 

20,075

 

20,064

 
             
 

Non-GAAP pre-tax cash earnings from ongoing operations

 

28,348

 

29,379

 
             
 

Non-GAAP provision for income taxes

 

1,655

 

1,863

 
             
 

Less: Net income attributable to non-controlling interests

 

406

 

280

 
             
 

GFI’s Non-GAAP net cash earnings from ongoing operations

 

$      26,287

 

$      27,236

 
             
 

Non-GAAP cash earnings per share

 

$          0.20

 

$          0.22

 
             
 

Weighted average shares outstanding – diluted

 

131,430,701

 

125,552,041

 

 

 

GFI Group Inc.

                     

Adjusted EBITDA

                     
                       

($ in thousands, except share and per share amounts)

1Q13

 

2Q13

 

3Q13

 

4Q13

 

1Q14

 

Last twelve months (LTM)

                       

Net income (loss) per U.S. GAAP before attribution to non-controlling interests

$            4,954

 

$            6,868

 

$                (29)

 

$        (30,865)

 

$            4,409

   
                       

Plus: Net income attributable to non-controlling interests

(280)

 

(177)

 

(432)

 

(37)

 

(406)

   

GFI’s net income (loss)

4,674

 

6,691

 

(461)

 

(30,902)

 

4,003

   
                       

Plus: Extraordinary and other non-recurring pretax items (i.e., non-GAAP adjustments)

9,220

 

1,491

 

3,488

 

22,751

 

2,770

   
                       

Plus: Interest expense

7,848

 

7,262

 

7,755

 

8,002

 

7,953

   
                       

Less: Interest income

(928)

 

(579)

 

(630)

 

(773)

 

(651)

   
                       

Plus: Income tax (benefit) expense

(4,859)

 

719

 

(1,127)

 

2,994

 

1,094

   
                       

Plus: Depreciation and amortization expense (excluding intangibles)

5,810

 

5,863

 

5,981

 

6,001

 

6,127

   
                       

Plus: Amortization of RSUs

8,142

 

7,360

 

6,870

 

6,951

 

7,355

   
                       

Plus: Amortization of prepaid sign-on and retention bonuses

6,112

 

7,278

 

5,938

 

6,038

 

6,593

   
                       

Adjusted EBITDA

$          36,019

 

$          36,085

 

$          27,814

 

$          21,062

 

$          35,244

 

$          120,205

                       

Weighted average shares outstanding – diluted

                   

131,430,701

                       

Adjusted EBITDA per share (pre-tax)

                   

$                 0.91

 

 

 

SOURCE GFI Group Inc.