GFI Group Inc. Announces Second Quarter Results

NEW YORK, July 31, 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 three and six months ended June 30, 2014.

On Wednesday, July 30^th, GFI Group, Inc. (“GFI”) announced an agreement to sell its Trayport and FENICS businesses to CME Group Inc. (“CME”) in a two-step transaction.  First, CME will acquire all the outstanding common stock of GFI for $4.55 per share in CME Class A common stock. Immediately following the acquisition of GFI Group, a private consortium of GFI management led by Executive Chairman Michael Gooch, CEO Colin Heffron and Managing Director Nick Brown, will acquire GFI’s wholesale brokerage business from CME for $165 million in cash and the assumption, at closing, of approximately $63 million in unvested deferred compensation and other liabilities. 

After the completion of the transaction, the wholesale brokerage business, including the Kyte Group, will continue as a private company with its management and operations largely unchanged.  The transaction is expected to close in early 2015, subject to GFI shareholder and regulatory approvals.

Regarding GFI’s financial results, Colin Heffron, Chief Executive Officer, commented: “In the second quarter revenues from our software, analytics and market data businesses increased 17.4% due to strong growth from Trayport. However, GFI’s brokerage business continued to be impacted by a number of cyclical and structural headwinds including muted volatility across asset classes, low interest rates, higher capital requirements and ongoing regulatory changes. As a result, non-GAAP brokerage and net revenues declined 10.6% and 6.8%, respectively.  

“Matching session revenues continue to grow and remain a key focus of our electronic trading strategy in fixed income and foreign exchange products. Matching session revenues grew 49% year over year in cash bond products globally. In the Americas and EMEA, fixed income matching session revenues represented approximately 49% and 17% of total fixed income product revenues, respectively.

“Difficult trading conditions and less favorable foreign currency translation in Europe masked progress in the compensation expense area. However, broker compensation as a percentage of brokerage revenues decreased despite a significant decline in brokerage revenues. Further, our continued discipline with regards to sign-on and retention bonus payments led to an improvement in expense of $2.2 million in 2014. We expect considerable operating leverage if higher volumes return to the global markets. 

“GFI’s preliminary July total revenues are tracking down approximately 3.5% year over year.

“GFI’s second quarter cash earnings were $19.2 million, or $0.15 per diluted share.

“Given the pending transaction with CME Group, the dividend has been suspended at this time.”

GAAP Results: Second Quarter 2014

Net revenues were $186.3 million, compared to $198.4 million in the prior year.  Net loss was $97.8 million, or ($0.78) per diluted share, compared with net income of $6.7 million, or $0.05 per diluted share. Compensation and employee benefits expense was 69.8% of net revenues, versus 67.8% in the prior year quarter.  Non-compensation expenses were $185.3 million, or 99.4% of net revenues, compared to $56.2 million, or 28.3%, in the prior year quarter.  GAAP non-compensation expenses in the second quarter of 2014 include a $121.6 million non-cash pre-tax goodwill impairment charge related to the wholesale brokerage reporting units and Kyte. 

Non-GAAP Results: Second Quarter 2014

Revenues

Net revenues were $184.0 million as compared to $197.3 million in the second quarter of 2013.

Brokerage revenues were $155.6 million compared to $174.0 million in the prior year quarter.  Revenues from fixed income, financial, commodity and equity products were down 9.7%, 14.3%, 1.3% and 17.4%, respectively.  By geographic region, brokerage revenues increased 4.3% in EMEA, but declined 24.0% and 20.3% in the Americas and Asia-Pacific, respectively.

Revenues from trading software, analytics and market data products were $25.6 million, up 17.4% from $21.8 million in the prior year.

Expenses

Our compensation and employee benefits expense was $127.7 million, or 69.4% of net revenues, compared with $134.6 million, or 68.2%, in second quarter of 2013.  Non-compensation expenses were $58.0 million, or 31.5% of net revenues, compared with $53.6 million, or 27.2%, in the prior year.

Earnings

GFI’s net income was $1.3 million, or $0.01 per diluted share, compared with $7.1 million, or $0.06 per diluted share, in the prior year second quarter.

The effective non-GAAP year to date tax rate was estimated at a negative 22.1% as compared to 36.0% for full-year 2013. The negative 2014 tax rate was a result of regional shifts in taxable incomes.

GAAP Results: Six Months ended June 30, 2014

Net revenues were $388.8 million for the six months ended June 30, 2014 compared with $399.9 million in the same period of 2013.  Net loss was $93.8 million, or ($0.76) per diluted share for 2014, compared with $11.4 million net income, or $0.09 per diluted share, in 2013. The compensation and employee benefits ratio in 2014 was 68.9% of net revenues versus 67.9% in 2013.  Non-compensation expenses for the six months ended June 30, 2014 were $244.5 million, or 62.9% of net revenues, compared with $120.6 million, or 30.2%, in the same period of 2013. Non-compensation expenses in the six months ended June 30, 2014 include a $121.6 million non-cash pre-tax goodwill impairment charge. 

Non-GAAP Results: Six Months ended June 30, 2014

Net revenues for the six months ended June 30, 2014 were $386.1 million compared to $397.1 million in the same period of 2013. Net income was $7.5 million, or $0.06 per diluted share, for the six months ended June 30, 2014, compared with $14.3 million, or $0.11 per diluted share, in 2013. 

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 second quarter results at 8:30 a.m. (Eastern Time) on Friday, August 1, 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: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger, dated as of July 30, 2014, by and among the Company, CME Group Inc. (“CME”), Commodore Acquisition Corp. and Commodore Acquisition LLC (the “Merger Agreement”), (2) the failure to consummate the merger with CME for reasons including without limitation that the conditions to the merger are not satisfied or waived, the failure to obtain the required stockholder approval, or the failure to receive necessary governmental or regulatory approvals required to complete the transactions contemplated by the Merger Agreement, (3) unexpected costs, charges or expenses resulting from the transactions contemplated by the Merger Agreement, (4) the possible disruption that may be caused by the transactions contemplated by the Merger Agreement to the business and operations of the Company and its relationships with customers, employees and other third parties, (5) economic, political and market factors affecting trading volumes; (6) securities prices or demand for the Company’s brokerage services; (7) competition from current and new competitors; (8) the Company’s ability to attract and retain key personnel, including highly-qualified brokerage personnel; (9) the Company’s ability to identify and develop new products and markets; (10) changes in laws and regulations governing the Company’s business and operations or permissible activities; (11) the Company’s ability to manage its international operations; (12) financial difficulties experienced by the Company’s customers or key participants in the markets in which the Company focuses its brokerage services; (13) the Company’s ability to keep up with technological changes; (14) uncertainties relating to litigation and (15) 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.

SOURCE GFI Group Inc.