FXCM Q4 Earnings Rise 19% with Full Year Results Down 5% YoY

Listed currency derivatives broker, FXCM, has reported corporate earnings for the last quarter of 2014, and full year earnings. The broker saw an increase of 19% in revenues in the last quarter, with 5% declines in full year results. U.S. GAAP revenues reached $134.7 million during the fourth quarter, showing an uptake of 19% from figures reported a year earlier, and 16% higher than those reported a quarter earlier. However, with 2014 being a bleak year for financial markets, the broker-dealer saw U.S. GAAP revenues for the year ended December 2014 reach $463.8 million, 5% lower than the $489.6 million reported for the same period a year earlier.

The results fall in line with market trends and expectations as the second half of 2014 saw a rise in trading activity on the back of key events triggering market Volatility . Nonetheless, 2014 was classified as a miserable 12-month period with overall volatility at record lows thus impacting the performance of sell-side participants. Also, retail revenue per million dollars traded was $69 versus the $70 guidance from early January which itself was below initial expectations of $75 to $80.

In addition to the financial statement, FXCM provide more details of their performance following the Swiss franc volatility which are highlighted below.

Fourth Quarter Earnings

• U.S. GAAP revenues of $134.7 million, compared to $113.3 million for the quarter ended December 31, 2013, an increase of 19%.
• U.S. GAAP net income attributable to FXCM Inc. was $15.8 million for the fourth quarter 2014 or $0.35 per fully diluted share, compared to U.S. GAAP net income of $3.0 million or $0.08 per fully diluted share for the fourth quarter 2013.
• Adjusted EBITDA for the fourth quarter 2014 was $40.8 million, compared to $26.8 million for the fourth quarter 2013, an increase of 53%.
• Net income on an adjusted basis was $16.1 million or $0.20 per fully diluted, fully exchanged share for the fourth quarter 2014, compared to net income on an adjusted basis of $7.3 million or $0.10 per fully diluted, fully exchanged share for the fourth quarter 2013, an increase of 120% and 100% respectively.

Full Year Results

• U.S. GAAP revenues were $463.8 million, compared to $489.6 million for the twelve months ended December 31, 2013, a decrease of 5%.
• U.S. GAAP net income attributable to FXCM Inc. was $17.2 million for the twelve months ended December 31, 2014 or $0.39 per fully diluted share, compared to
• U.S. GAAP net income of $14.8 million or $0.44 per fully diluted share for the twelve months ended December 31, 2013, an increase of 16% and decrease of 11% respectively.
• Adjusted EBITDA for the twelve months ended December 31, 2014 was $107.3 million, compared to $158.0 million for the twelve months ended December 31, 2013, a decrease of 32%.
• Net income on an adjusted basis was $28.2 million or $0.35 per fully diluted, fully exchanged share for the twelve months ended December 31, 2014, compared to $57.8 million or $0.76 per fully diluted, fully exchanged share for the twelve months ended December 31, 2013, a decrease of 51% and 54% respectively.

Among the earnings metrics, the broker also reported its monthly metrics for the month of February which dropped significantly by 41%.

FXCM & SNB Crisis

In the latest operating metrics, the broker also noted a change in the amount of negative balances it held as a result of the 15th of January SNB crisis, which caused shockwaves in the global financial market place.

Initially, the broker reported losses of $225 million which put the firm in temporary difficulty, until it was bailed out by Leucadia for a $300 million loan. The firm revised the negative balances figure to $276 million and stated that it had paid back $12 million of the loan, additionally, it plans to divest certain divisions of its business that are not part of its core offering. However, in their investor presentation it was shown that among assets up for sale are FXCM Hong Kong and Japan, and its institutional ECN, FastMatch, are on the agenda. Both FXCM Hong Kong (which caters to China) and FastMatch are growth units for FXCM.

Earnings Review

During the last quarter of the year, the broker saw traders rapidly increase the number of transactions executed, the daily average trades spiked 56% to 590,572 in Q4 2014. In addition, the total value of client monies increased 12% topping $1.33 billion. However, the tough operating conditions resulted in the broker reporting lower earnings per trade, its retail trading revenue per million traded dropped 26% in the last quarter and 7% for the full year, compared to 2013 figures.

Furthermore, the broker reported an increase in trading and prime brokerage costs. The increase comes as no surprise to market participants as 2014 saw a number of FX prime brokers call it quits thus putting price pressures on other providers. Clearing and transaction fees have risen by $1-2 per million in the institutional FX markets. The recent Swiss franc issue has added to the misery FXPBs face with changes in leverage, collateral amounts and trading fees taking shape.

FXCM’s Q4 data also shows that the broker benefits significantly from the post-summer boost in volatility on the back of the ECB’s QE and geopolitical tension in Russia and the Middle East. Its marketing and advertising spend dropped from $7.2 million to $4 million during the quarter, thus reinforcing the notion of increased trading volumes per client during heightened uncertainty.

Although the advertising spends were lower, the broker saw an uptake in its affiliate and introducing broker (IB) fees, with $24.2 million being paid out, an increase of 23% YoY in Q4 2013, the book paid out $19.7 million in IB fees.

Forex Magnates' analyst will be providing a detailed review of the earnings data.