Welcome, I'm Peter Quick, Chairman of the Board of Directors of the Company. Will the meeting please come to order? As you're aware we’re contracting a Virtual Annual Meeting of shareholders this year. An audio feed from this meeting is being webcast. This webcast incorporates stockholder validation capabilities, which means that any stockholder in vote in real time during the meeting until the polls are closed, and any stockholder can also submit questions while the meeting is in progress. The polls to vote online are now open.
Let me take this opportunity to welcome all of those present to this Annual Meeting of Stockholders of Gain Capital Holdings Inc.
With that said, I’d like to begin by introducing the Company's directors. Thomas Bevilacqua, Mark Galant, Christopher Sugden, Susanne Lyons, Joseph Schenk, and Christopher Calhoun. I’d also like to introduce members of our Senior Management Team including Glenn Stevens, the CEO and President; Daryl Carlough, Interim Chief Financial Officer and Treasurer; Samantha Roady, Chief Marketing Officer; Diego Rotsztain, our General Counsel and Corporate Secretary; Jeff Scott, our Chief Commercial Officer and Muhammad Rasoul, our Chief Product Officer.
I would also like to introduce to you Patrick Shelley and [Jessica Spits Eden] of Deloitte & Touche LLP an independent registered public accounting firm who will be available to answer any appropriate questions at the end of the meeting.
Before proceeding to the meeting to the business of this meeting, for a certain legal and technical matters, which we most dispose in order to make certain that we're conducting a duly authorized meeting. Following the formal part of today's meeting, we will have a question-and-answer session during, which we will answer questions submitted by stockholder via website.
I’d now like to turn the meeting over to Glenn Stevens who will conduct the formal meeting. Glenn?
Thank you, Peter. The company has designated Jim Raitt on behalf of American Elections Services LLC, to in serve as the Inspector of Election and Mr. Raitt has executed a customary oath. I have also received an affidavit from our transfer agent certifying that the notice of the Annual Meeting and proxy statement were sent to all stockholders of record as of April 22, 2013.
This affidavit and the oath of the Inspector of Election are available for inspection by any stockholder at the Company’s headquarters. In addition a list of the record holders of our common stock as of the close of business on April 22, 2013 is available for inspection on the website for this meeting.
We will pause a moment, while Inspector of Election makes his final tabulation of stockholders present in person or by proxy.
I’m ready sir.
Please kindly submit your report to the number of shares of common stock of the company represented at the meeting either in proxy or in person.
Thank you. You are represented at this meeting either in person by proxy 24,078,168 shares of the common stocks out of this whole number 35,575,655 shares of common stock issue an outstanding is entitled to vote at this meeting. Each share of common stock is entitled to vote at this meeting of which an aggregate of 24,078,168 are represent in person or represent by proxy.
Thank you. The report of the Inspector of Election indicates that there are present at the meeting in person or represented by proxy the holders of the majority of the total numbers of shares of stock of the company outstanding and entitled to vote at the meeting. There is therefore a quorum present and the meeting duly convened and open for business.
The polls remain open and we’ll stay open until I announce that propose or close. If you’ve already mailed in your proxy card or voted over the Internet or by phone, there is no need to vote now, because your proxy will be voted in the manner you have directed. However any stockholders who have submitted the proxy or wish to revote their proxy or change their vote may do so by following the introduction in a website.
The first matter to be voted on is the election of two Class III Directors to serve until the 2016 Annual Meeting of Stockholders or until their respected successes they have been duly elected and qualified. As has been previously announced, one of our Class III Directors to their mind as informed us that she will not be standing the election for the Board. And at this point, I’d like to take this opportunity to thank her very much for years of valuable service to the company.
The nominees for election as Class III Directors are Joseph Schenk and Christopher Calhoun. No other persons have been nominated under the procedures required by our bylaws and explained in the proxy statement. The matter is now called to a vote.
The second matter to be voted on is the ratification of the selection of Deloitte & Touche as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2013. This matter is now called to a vote.
This concludes the formal business items on the agenda for this meeting. The polls are now closed. Will inspector, please tabulate the vote.
Ladies and gentlemen, the report of the Inspector indicates that the following numbers of vote cast by the holders of common stock has been voted with the respect to proposal won the election of two Class II Directors, Joseph Schenk has received 15,447,352 votes in favor, the against votes were 1,793810, the abstain was 1,666,002 shares, with regard to Christopher Calhoun the votes for were 15,823,343, the against votes were 1,417,819 the abstain were 1,666,002 with regard to proposal to of the ratification of the selection of the independent registered public accounting firm the for votes were 24,066,837, the against votes were 10,731 the abstain were 600 in that regard return to all the voting.
Thank you. The report of the Inspector of Election therefore indicates that. One, each of Joseph Schenk and Christopher Calhoun have been duly elected as Class III Directors of the company to serve until the 2016 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified.
And two the proposal to ratify the appointment of the Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2013 has been approved. Will the Inspector of Election please execute his certificate as to the total number of votes cast on each of the matters considered at this meeting, and if there are no objections I will direct that the certificate be filed with the minutes of the meeting. As there is no further business to come before this meeting, I will now adjourn the formal part of this meeting.
Next, I’d like to share some financial and operating information regarding the company. For those online, these will be displayed on your screen in the form of a deck. In that deck, the first page is an overview of our global markets for active traders. According to our business plan, we ultimately offer our product to three brands; in these three silos, its FOREX.com, its GTX and its OEC.
The first brand and our primary source of revenue and primary focus in the business is FOREX.com, it’s a retail OTC business focused on self directed traders trading in 180 different countries with access now over 450 FX in CFT products. On the institutional brand GTX, it’s a state of the art ECN that the cornerstone of a business complemented by 24 hour specialty execution services, clients there will be various hedge funds and institutions located globally. On the future side, we provide proprietary trading platform and innovative online features with both retail and institutional traders using our proprietary OEC trader platform.
All three of these products are able to access direct customers or they are indirect, which is FOREX, all the brands comprised the full universe of products that Gain offers to its customers. To delve in over a little further on the next page the breakout retailer TC, we are a geographically diversified business, about 40% of our volumes comes from indirect channel partners as I mentioned, these will be through introducing brokers, white labels or various liquidity deals. We offer over 450 products covering FX and CFTs, commodities, metals, energy, ags, indices and rates. We do expect this range to significantly expand with the acquisition closing of GFT, which we’ll go into later in this deck, but that will bring us to north of 12,000 products, also adding binaries, spread bet and FX options.
On the next page, as relative to the retail market coming out of a very challenging year in 2012, we are working to seeing improving market conditions. Across the board we've seen increased volumes, increased levels of engagement with customers, higher levels of activity, but most important you can classify our existing conditions as better and not good and by that I mean if you look at our graph that goes back about six to seven years.
You can see that even with a recent improvement in Q1 of 2013 we are still at historically low levels when it comes to indicators like daily average trading ranges, overall volatility and just general interest in the FOREX trading market, and so we consider that very much asymmetric positive looking forward, considering that we've seen an improvement and we are still historically at much lower level than what we have been over the last five to 10 years. Additional upside potential with volatility bouncing off these lower levels will only bring the opportunities for significant upsides for our business.
On the next page the GTX business we’d like to quote a growing FOREX in the institutional FX business and ultimately we’ve seen gains quarter-over-quarter, month-over-month and material participants in our trading venue at every stage that can be money center banks, that can be global macro, hedge funds that can be financial institutions of varying size and locations.
We’ve been able to bring innovative products; we’ve been able to bring specialized liquidity an overall level of service that’s competitive with anybody on a global scale. The results of that are showing up in the quarterly revenue, an average daily volume which if you look at the graph on this page here above trending in the right direction. Ultimately this overall market has improved from 2012 to 2013, but the Gains inside of GTX has outstripped the overall macro gains and our take away is that’s an indication of our ability to grab market share from other providers in the space.
The third silo title I mentioned was OEC this follows on our acquisition from the Schwab Corporation, the Open E Cry business that we closed back in September of 2012 we’ve continued to build on the base metrics there, which would be customer assets, DART and overall levels of revenue generation.
Customer assets are up 23% since the third quarter of last year, our run rate revenue is circa $20 million now based on Q1 of 2013, we’re approaching 9,000 accounts as of the end of April of 2013 and you can see the DARTs approaching 15,000. We have new initiatives in place to boost both growth and margins, ultimately it’s a scale business for us and we’re happy that the organic growth is kicking in quite nicely, but we want to complement that with other tuck-ins whether they would be complementary acquisitions or other relationships with introducing brokers and institutional services. We recently brought in an additional team from an existing group focused on institutional players and we’re excited about their complementary benefit to OEC’s platform.
Some overall key operating metrics in the next page highlighted the trend in trading volume and client assets, the important takeaway here is to look at the annual trend from 2009 to 2012 and also the quarterly trend year-over-year from Q1 2012 to Q1 2013. If we see both trading volume and client assets they’re trending in the positive way and ultimately they reflect our efforts and they reflect arising tide overall improving market conditions.
The next page on the financial highlights overview shows both the revenue and the EBITDA, improvement particularly quarter-over-quarter from 2012 to 2013, it’s important that you see this demonstrates our ability to put the company in a good position to capitalize on improving market conditions. 2012 by any measure was a challenging year for lot of participants in this market, we maintained our share of voice in the marketing side, we maintained our infrastructure, we maintained our ability to scale as needed, we managed cost I would argue in a very efficient manner to keep us in a good shape and ultimately those efforts are paying off as we continue through 2013 and see improved conditions across the board.
I’d like to point out the EBITDA improvement Q1 over Q2 from 1.3 to 7.5 and also the top line revenue quarter-over-quarter 33.2% to 49.8%. Again, on a annual basis
Quarter-over-quarter those are good indications of our ability to take advantage of a stronger market. However, that said the next page talks about us building a diversified business. Ultimately, we want to make sure that we’ve actually hitch your wagon if you will to various horses, so that when the overall market is rising we do well. But the overall market stagnant or stagnating, we have the opportunity to tap into other markets that may remain building.
So for example building our institutional exposure, building our exposure into products other than retail FX, where they be industries or CFTs or what have you give us just a better chance to take advantage of a broad-based market improvements or if not and there are pockets of activities in metals or Ags or just the institutional space, then we will benefit from that as well.
So if you look at the movement from left to right on the bottom part of slide, where a 2011 revenue had 97% of our revenue being sourced from our traditional core competency retail FX, that number is now 78%. Ultimately, I have talked in the past, about our goal is being somewhere in the 50% range, meaning that 50% would come from retail OTC, FX and 25% would come from non-retail FX and 25% would come from our institutional business or commission-based business. We’re moving towards that at a rapid fashion, not at the expense of our core business going lower, but actually complementing and building it in with other divisional lines in business efforts that makes sense.
So we want to end up growing the total top line, but also the make up of that top line, reflecting a more diversified set of offerings. And the way we look to diversify here is on three levels, one level is by product and we talked a little bit about that already with retail FX complement by institutional FX complemented by whether would be CFTs and other products, and then futures in the U.S.
The other way to diversify that is by customer segment and ultimately there we started out our business and our growth based on a customer segment, which was the sales directed retail user and now we have folded in the institution of the user as well and with the addition of GFT, we’re going go after that kind of middle market with their expert sales side of business, and so we’ll have all three customer segments being addressed with dedicated efforts.
And in the third way is geographically, and so by all those levels, whether it would be product or the customer segment, we also want to be able look at that in different geographies. On the one hand, we want to be well positioned for emerging economies, not necessarily emerging markets, but emerging economies, whether that would be Mainland China, Eastern Europe, certain parts of Latin America. Those are areas of the Middle East, where we want to be well positioned situated and focused.
And in other cases in a mature market like the Northern American seen or certain parts of Western Europe, we want to grab market share where we can with a broader product offering or being able to penetrate all three customers segments as I mentioned. So to takeaway there as you build the diversified business, but you do that by looking at your customer segments, your product mix and your geographical mix.
So one last item just in terms of where we are in terms of how we execute our business, there is been a fair amount of chatter about agency versus principal and I think our opinion is summed up by using the words of red herring, because it’s important to realize that all of our competitors derive significant revenue from market making.
All other retail OTC firms, we imply a hybrid execution model, no firm is a 100% back-to-back or 100% principal. Ultimately, the benefit of the principal execution gives them upwards of a 30% lower transaction cost and approved execution speed and quality. We’ve been leader in execution stats. We’ve been a leader in transparency and all of that is because we do believe that ultimately the best service to the client will give us the best chance to have a dominating market share.
Ultimately, there are quite a few very well established large players in this space that mimic the model that we use in executing business for our customers, and so we stand behind ultimately what is the best for the customer will end up being in the best situation from a pure community, a regulatory community, and a stakeholder community.
I get to the segway into our GFT acquisition; I want to remind people on the next slide about being an active acquirer in a rapidly consolidating industry. This is not our first foray into a material transaction, we have a history of being an active participant in the M&A, our corporate efforts are well documented and they’re well honed at this point, we’ve learned from trial and error, we’ve learned from adding expertise, and we've learned from using outside help when necessary.
So just an indication of some of the things that we've done there is a timeline below there, which you can see is broken out guess what between building our capacity or building our capabilities in customer segments, in geographies or in product mix, when it comes to geographies, we've made acquisitions in Japan, we've made acquisitions in different parts of the world that makes sense.
When it comes to products, we’ll make acquisitions like an Open E Cry which is futures or when it comes to a customer segment, we’ll try to go after those types of customers that make sense from a complementary fit and we bought Deutsche Bank retail business that was offering us kind of a higher volume starting more sophisticated client base with larger deposit, when we bought FX Solutions U.S. based retail customer account, it made clear economic sense that we could service those customers at a cheaper rate than their former owner did, and so it made sense to pull that into our operation.
And now with the GFT acquisition, it's our largest acquisition to date, but ultimately we see this as a natural progression for all deals we've been doing over the last seven or eight years.
So that brings us to the GFT acquisition. The biggest takeaway there, it’s ultimately this is an accretive deal for us. It designed to give us better margins, higher top line, significantly higher EBITDA and actual numbers and strategically it increases scale and it broadens our product offering.
Now we signed the agreement back in April and we expect to close in early Q3 and so the process of integration is going along extremely well, the cultural fit between the two companies is solid, so that we didn’t have to create a lame-duck scenario where we sit around waiting for the legal close.
We have pretty much 36 hours after we signed has been able to start the March towards a very seamless and productive integration. There has been lots of GFT people in Gain offices and lots of Gain people in GFT offices and so far the mutual respect and the mutual response has been fantastic.
And we’re well on our way to integrating the two operations in the sets of people on both sides. And ultimately for this to work properly that smooth and accelerated type of integration will payoff in a numbers. So on one hand it does get Gain some scale. I want to highlight that our pro forma 2013 run rate revenue would be around $330 million, our run rate EBITDA would be north of $75 million with pro forma client assets around $650 million.
All those numbers positioned Gain very well amongst the global leaders and all three of those metrics and then the underpinnings of that is that our product offering as I mentioned earlier goes from our current 450 products to over 12,500 products and in terms of types of products we’re adding a much more robust offering of CFTs, binary options, spread betting, FX options and that joins us with our exchange credit futures and options as well.
The diversification of revenue stream continues, because we’ll have expanded very significant material partner business, those relationships that have been very happy to be doing business with GFT and we hope we’ll only be even happier to do business with the combined entity as we bring our strength, but keep everything that was positive intact from GFT's perspective, so our partner business is very important to us.
The institutional revenue stream that I mentioned is GFT's Sales Trader business and we’re excited about that, because it focuses on a customer segment that I would argument probably book end it around, we have been able to make great strides on the retail piece for a longtime having a leading brand, lots of education, lots of ramp up for those smaller clients, our two or 18 month success on our institutional business has been great and so the innovative technology and the group dedicated towards serving those clients has succeeded beyond expectations and so that's good, but there is that middle section that I would argue, we didn't dedicate resources towards and so GFT having already established itself as a leader there is a perfect fit in between the other end of the spectrum, where I think we prevailed.
So the commission-based business right now, on a pro forma basis would be 22% of our revenues, so again it kind of pushes towards that revenue stream diversification that I referenced and the complimentary technology and product functionality again these are synergies in a very positive fashion. Also they are on the good old fashion operating expense synergies, which we’re estimating in the $35 million to $45 million range.
There are opportunities for duplication here, as you look at some of the places that GFT is located as our gain, there is space overlap, people overlap, product overlap, what have you, so we’re able to renegotiate vendor arrangement to renegotiate or kinds of situation that will put us in a more profitable position. Regulatory capital synergies exist as well and ultimately we are planning to have this deal be modestly accretive for the second half of 2013 and significantly accretive far 2014 earnings.
To just put some hard numbers around this next page has some pro forma financials and metrics. We laid this out pretty simply, there is Gain standalone, GFT standalone, and PF pro forma gain, which would have the entities combined, for 2012 you can see the scale there, more importantly looking forward, look at 2013, we’ll use 2013 Q1 as a bit of an indication and that gives you an idea of what the scale is in terms of some revenue and EBITDA and things like that. And ultimately as I said it puts us in a very much of a leadership position and it does open the doors for future consolidation and for opportunities that the companies individually may not have had and they will combined.
The next slide just refer to some of these same metrics in a pictorial sense and again I think the take away ought to be how nicely the GFT business fits in Gain and how nicely the scale will grow on a complementary basis. However, its going to give us the opportunity to green synergies in very short order, the good news is that although a good portion of these synergies will be realized in 2014 there is a very material amount that can be realized in 2013, some of these things that include marketing numbers in certain distinctive vendor overlaps, we are going to be able to go after on day one and so not all this is a long lead time for actually seen a result.
So ultimately in our conclusion, we have managed to grow some key metrics in terms of customer assets and active customers and net new customers as some people have been following our monthly metric announcement, I'll remind people that we converted over to a monthly release of metric last month. Our next set of metrics kind of coming out on schedule in the next couple of days, and so I urge people to look out for that, we continue to provide additional transparency to our stakeholder and perspective stakeholder group. And so any follow up there you can reach out to our IR firm, what have you, but ultimately we want to be able to get people an indication of the health of the business, we have emerged and it’s a quite strong position coming out of 2012, which I would characterize is quite the challenging year.
Although we were able to make positive contributions from a EBITDA net income perspective of 2013 is shaping up in a much more positive sense, and so we want people to learn more about the company, follow our progress, and as I said we keep our eyes and ears open for continued M&A consolidation, but in the meantime, we want to be able to keep up the momentum we’ve created, but the integration process the teams on both sides have been working very diligently and to date very productively, so we are excited about the having the official close to that, but ultimately that’s a legal close, the actual combination is well on its way, and we hope to be able to start posting the yields from that very soon.
So with that if there are no further questions, we can address any other appropriate questions that have been submitted. Other than that if you want to ask questions you can do so now following direction on the website.
At this point, I haven’t seen any additional questions posted to our website. And so I will use this opportunity to conclude the meeting. I thank everyone for participating. The meeting is now adjourned.
[No Q&A session for this event]
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