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GAIN Capital Holdings, Inc. (NYSE:GCAP)

Q4 2013 Results Earnings Conference Call

February 27, 2014 8:30 AM ET

Executives

Glenn Stevens - Chief Executive Officer

Jason Emerson - Chief Financial Officer

Analysts

Daniel Fannon - Jefferies

Rich Repetto - Sandler O'Neill

John Dunn - Sidoti & Company

Patrick O'Shaughnessy - Raymond James

Operator

Good morning. And welcome to the GAIN Capital Fourth Quarter and Full Year 2013 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions)

During this conference call, management will make forward looking statements to assist you in understand its expectations for future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially and I refer you to the company’s press release of February 27, 2014, and the company’s most recent 10-Q and 10-K SEC filings for discussions of those risks.

In addition, statements during this call including statements related to market conditions and the integration of global futures of Forex, and based on management’s views as of today and it’s anticipated that future developments may cause these views to change.

Please consider the information presented in the slide. The company may at some point elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so.

I will now turn the call over to GAIN’s CEO, Glenn Stevens to discuss the fourth quarter and full year 2013 results.

Glenn Stevens

Thanks, Operator, and good morning to all who have joined our call today. Welcome you to GAIN Capital’s full year and fourth quarter financial results conference call. I’d like to take you through some of the highlights, go through some of the specific metrics that came out of our fourth quarter and for our full year 2013. I’ll then turn it over to our CFO, Jason Emerson to go through some more in-depth detail and then touch on some of the strategic developments and business highlights that we think would give some background and some color to GAIN’s full year and fourth quarter.

So first on the full year highlights, one of our primary objective was to continue to grow the company and have consolidation and acquisition be part of that strategy, and 2013 gave out the successful acquisition of GFT that significantly increased GAIN’s product offering and scale, and most importantly, the operating synergies that we model into that acquisition are absolutely on track and some case ahead of schedule.

We continue to diversify our revenue with commission-based business representing north of 22% of total revenue. It’s important to note that it’s up 3% only two years ago, so the progress there has been excellent.

Higher customer trading metric as a result of more favorable market conditions drove some good results for us for the quarter and for the year, and specifically for 2013, our EPS on a GAAP basis is $0.79 and $0.85 on an adjusted basis for EPS.

Overall, flipping to the next page for the some specific highlights, Q4 of ’13 and also full year 2013. For the full year, net revenue was $266.4 million, adjusted EBITDA was $61 million, net income of $31.3 million and EPS of $0.79 on adjusted basis, excluding some one-time and non-recurring charges related to acquisition was $0.85.

For the fourth quarter, net revenue was $83 million, adjusted EBITDA of $13.7 million, net income of $4.3 million and adjusted EBITDA basis or adjusted EPS basis of $0.13. Again, we are happy to present continued positive numbers for the fourth quarter and also for the full year.

In terms of the full year quarterly operating results, for the full year retail volume was $1.8 trillion, up 38%, with average daily volume of about $6.9 billion, institutional volume and another standout success story of $4 trillion, up over 100%, GTX volume was just under $4 trillion or $3.8 and that’s up 96%, our Futures DARTs were $13,785 and client assets approaching $740 million, up 66% over the previous period in ’12.

In fourth quarter retail volume was $508 billion, again, a clearly positive results over the same period in 2012, that’s up 70%, institutional volume up over 100%, GTX volume up over 80%, Futures DARTs up 15% and funded accounts of 56%, factoring into the acquisition as well.

So, it’s important that to note that, some of this is driven by our ability to position the company, take advantage of improving market condition. We made that pretty clear in some of our 2012 discussions, if people remember all the way back then and even in early 2013.

It’s important to note that in 2013, overall conditions did improve, they did not go into a relatively strong period, if you look back on the next page showing kind of the five-year snapshot of where market volatility has been, you can see that we have improved over the diligence of ’12, but we have not got back even into the normalized levels of the last five years or even three years or two years.

So I think that we are looking to illustrate that in a partial recovery if you will, GAIN was able to be position probably to take advantage of that, so customer, as customer engagement increases, we were able to see the results on the operating leverage that the business presents and we’re able to see that in the financial metrics as well.

So the breakdown of business into the sectors that we normally like. So just -- here are some color, the first and largest driver of our success is retail over the counter. So there you could see that year-over-year client engagement have increased with volume being up over 38% over 12 funded accounts over 133,000.

Our partner business now represents nearly 60% of retail trading volume compared to 40% in ‘12. The pipeline is real active for those partners that continue to establish the leadership position for new entrants on the partnership side that want to come into this market.

One of the key drivers of the GFT acquisition for us was ramping up the product offering. As mentioned in the past, we went from a few hundreds. It’s now over 12,000. So having small products like that, just gives our clients more opportunity to trade in different types of market.

So often times, market volatility will rise as a tide but in some cases, it’s pockets of volatility. So it might be metals, it might be energies, it might be emerging market currency focus, what have you. But in different cases, if you could have a fairly wide swath of products to offer then its great win when overall market conditions improve.

But by having that broad spectrum of products, even if you get a pocket or two or three of higher volatility or higher improved conditions, you can get customers that offering. And so it’s been a step function for us to be able to engage at a much higher level in terms of the number of products we offer. In terms of client assets, as we said we have retail client assets that are just under $600 million as of December 31, 2013.

In terms of commission-based business, we wanted to highlight there that the commission-based business as powered by revenue diversification strategy continues to gain traction. Commission-based business delivered $60.8 million revenue -- of revenue in fiscal year 2013. That represents 22% of the total revenue.

Again you have to compare that to previous periods and that number was small single digits. And so part of the story here is to look at our business and say the retail over the counter business in FX drives the top line number with the most impact.

But it’s important that we continue to grow multiple drivers of top line and resulting EBITDA with enlarging the pipe at the same time. So it’s not a replacement story. It’s a growth story and it’s -- but it’s also a diversification story. We have complementing -- or complementary revenue stream.

On GTX, our premier ECN platform continues to gain loyal followers, market share. If you look at the quarterly average daily volume -- of a compounded 14% since kind of a middle of 2011 that got a consistent story of bringing in new participants, bringing in new supporters and liquidity providers and makers and takers on that platform and knock on what has been a one-way door so far with people coming in and being really happy with the service and really happy with the technology. And so we continue to expand the base of users every quarter. We add material participants on that platform.

The Sales Trader business is something that we added as part of the GFT acquisition, kind of, fits into that niche somewhere between the largest institutions on our ECN but above the retail traders and so that sales trader business as part of the GFT represented an 18% growth in accounts since we closed the GFT transaction last September in ‘13.

So we are happy to slow that business in as part of an integration story but also grow it since we took it. And I think the similar story shows up in futures where we purchase the unit from Schwab little over a year and half ago. And we’ve seen that overall business continue to increase to about 23% year-over-year in client asset improvement. And we do actually see some further opportunities in that market as that’s still quite a fragmented retail industry and retail futures industry.

Next page, just for some specific on our results as Jason is going to take over that on the fourth quarter and financial results.

Jason Emerson

Great. Thank you, Glenn. I am now going to take you through the results for the fourth quarter and full year in a little more detail. As Glenn noted earlier, net revenue of $83 million during the quarter reflects a combination of our organic and acquisition-based strategy. A retail OTC revenue of $61 million for the quarter is up nearly three times compared to the fourth quarter of 2012, driven by account growth, successful completion of the GFT acquisition as well as improved trading conditions.

Revenue of $23 million for the commission-based businesses for the quarter was also up nearly three times compared to the fourth quarter of 2012. This growth is the direct result of the GTX business more than doubling the addition of the sales trader business from the GFT acquisition and a 26% increase in revenue from our exchange-based futures business.

Total revenue of $266.4 million for 2013 is up 76% compared to 2012 reflecting our successful organic and acquisition-related initiatives to grow both our core retail OTC business as well as expand our commission-based offers. The fourth quarter was somewhat noisy with a variety of deal-related expenses and other non-recurring items.

For the quarter, adjusted EBITDA was $13.7 million with the margin of 16%. The adjusted EBITDA figure excludes restructuring and acquisition-related expenses of $3.4 million in non-recurring items including a $2 million gain on extinguishment of the note payable entered into in connection with the acquisition of GFT at a discount as well as the $450,000 write-down of our original $500,000 investment in capital.

For 2013, we delivered $61 million of adjusted EBITDA with margin of 23% driven by revenue that grew 76% while total expenses were up only 48% reflecting our ability to deliver operating leverage. Net income was $4.3 million or $0.10 per diluted share for the quarter and $31.3 million or $0.79 per diluted share for 2013.

Adjusted net income for restructuring and acquisition related as well as non-recurring items, we get a figure of $5.5 million and $0.13 per diluted share for the quarter and $33.8 million or $0.85 per diluted share for 2013. In addition to the adjustments noted earlier, adjusted net income excludes $1.2 million in amortization expense for accelerating the retirement of a trading platform following the acquisition of GFT, which we expect to be complete early in second quarter.

As you would expect, this combination of organic growth ended the GFT acquisition has changed the complexion of our expense base. During the fourth quarter, we saw an overall increase in total expenses due primarily to having a first four quarter of GFT operations under our belt.

We have a dedicated effort throughout the firm to achieve our goal of $35 million to $45 million in expense synergies against the pre-acquisition cost base of GAIN and GFT by the end of 2014. The increase in trading expense during the quarter reflects the change in our retail OTC business mix following the GFT acquisition.

As Glenn noted earlier, we now derive a higher proportion of our revenue from the indirect channel which increases our referral fees. In addition, the strong growth of our institutional business resulted in higher sales commissions which represented within the trading expense line item.

For the year, trading expense is up due to a combination of higher institutional volumes, the addition of GFT in the fourth quarter as well as having a full year of the exchange-based futures business compared with only four months for the same period in 2012. Compensation of benefits expense of $22.1 million is up from the same time last year due primarily to the addition of GFT personnel during the quarter.

Excluding the impact of GFT personnel, compensation expense for the quarter is up less than 10% compared to the same period in 2012 and up only 4% from last quarter. Our head count reductions took place at the end of October with several personnel placed on transition plans that ended early 2014 as a result we will see the benefit of personnel reductions realized by the end of first quarter of this year.

Due to these actions, we took a restructuring charge of $1.2 million during the quarter. Year-over-year compensation expense of $67.1 million is up 41% compared to 2012 with margin of 25% which is down from 30% for the same time last year. Excluding the impact of the GFT acquisition, compensation expense is up only 15%, largely due to higher variable compensation arising from a significant increase in revenue and profitability as well as having a full year of operations from our exchange-based futures business.

Marketing expense for the quarter is up 12% versus the third quarter, as we invested in regional growth efforts as well as taking on the GFT brand for transition period, before we fully combine it with a FOREX.com brand later this year. Overall, marketing expense came in 17% lower versus 2012, through a combination of efforts to increase efficiency as well as targeting higher return regions.

Other expenses of $19.1 million were up during the quarter, reflecting primarily the addition of GFT. Excluding the impact of GFT, non-recurring items and purchase price amortization, expenses were up only a 11% from last quarter and up $6.8 million for all of 2013 relative to same time last year, reflecting a combination of investment in technologies supporting our institutional business and increase in banking fees related to our increased OTC volumes and a full year of expenses related to exchange-based futures business.

We maintain our focus on managing expenses aligned to our strategic initiatives as well as delivering on the $35 million to $45 million in expense synergies related to the GFT acquisition by the end of 2014. Last thing on the bottom right, year-to-date retail trading revenue per million increased slightly to $110 per million, consistent with levels we’ve seen over the last 12 to 15 months.

Turning to Slide 10, Gain will distribute its quarterly dividend of $0.05 per share on March 20th for holders of record as of March 17th. We also continue to buyback shares. During the quarter, we bought back 612,000 shares, concurrent with the issuance of the convertible as well as another 100,000 shares throughout the quarter.

I will now hand the call back to Glenn for some final comments.

Glenn Stevens

Thanks, Jason. So we guided some of the financial metrics that came out of our business operations as well as improved conditions we’ve guided. Opportunity, we have in front of us with completing the integration of GFT acquisition.

I wanted to touch a little bit on our M&A strategy going forward because it’s important to note that although, the GFT acquisition was the largest one that Gain has made to date because it does contribute a long string of successes that we’ve had in terms of being an active acquirer and a consolidator in the space. And it’s important to note that that’s part of our growth strategy going forward.

So, we have maintained significant capital levels to fund additional opportunities that arise. We’ve capped the capital market for a successful convertible bond offering in the last quarter. We have some dry powder in other sources as well, so it’s more importantly even than the resources available, it is the bandwidth and the operational expertise available and we have an internal team that has battled, tested frankly in getting these integrations done successfully. And so the early indication on GFT is that our preparation and our focus on getting the deal done successfully has borne fruit.

Now, as Jason mentioned, we take on a whole bunch of expenses, we take on a whole bunch of people, we take on a whole bunch of products, we have challenges and again, we are coming out and saying that things have gone as expected in some cases, better than expected and so it’s puts us in a position to continue with M&A as part of our growth strategy as a complement to our organic growth.

And that M&A now spreads across several types of businesses, whether it’s a complement to our institutional business, a compliment to our futures business or compliment to our retail OTC business. So, now when we evaluate opportunities, it’s a broader opportunity set that we are able to have deals brought to us, we will go out and seek them ourselves. So we are excited about staying active in that prospect. So overall, we do expect to announce additional transactions over the coming months. So we will keep you posted on those developments.

In terms of our focus for 2014, we spend most of the call talking about lot of highlights and progress in 2013. In terms of 2014, we want to continue to track and nail down the $35 million to $45 million of the expense base reductions for combining the two companies.

We want to continue to grow our commission base business. We feel like that’s a very natural progression to our retail over-the-counter business. We want to continue to expand the market share of our GTX offering. I think we absolutely have some magic in the bottle on that platform and we expect to be a major player in that space.

We are expecting some additional progress on our SEF Registration that we’ve previously mentioned and we are essentially trying to come out of that market with some unique technology, proprietary technology and be able to build, grow that business again, looking at this space where we have commissions driving upside, that is a -- from a futures business, a margin challenged business. So it is something that we have to continue to add scale.

You’ve heard us use the word consolidation. Acquisitions, that leads to scale, whether it’s retail FX, whether it’s institutional ECN type business and whether it’s commission based futures. Scale fits well with all of these, so that is absolutely part of our underlying mantra to make sure we build towards that, not scale for the sake of size but scale for the sake of operating leverage potential in an improved market conditions. And also the opportunity to rein some more cost out when you form another businesses and other people.

So we will continue with the strategic M&A, we will continue to rollout the GFT platform across all our offerings and I guess, some of the closing remarks. I want to mention that 2013 was not a snapback opportunity in terms of market conditions. They improved but they haven’t improved to a level that I really wouldn’t argue as kind of a baseline and I think that our ’13 results show our ability to generate material EBITDA and profit levels, even when the trading conditions haven’t improved to a point of saying that they are really good.

I also think that as we look at our commission business and we look at our GTX business, we are illustrating our ability to diversify our revenue streams and lastly, being a successful acquirer is a skill developed over time. We are not new to that game and we are excited about continuing to show our prowess in that respect. So overall, we are happy with our fourth quarter of ’13, we are happy with the full year results. We are keenly focused on building on that positive momentum for quarters going forward. And I will leave it at that.

We’ll turn it over to Question-and-Answer Session, and we thank you for joining the call today.

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Daniel Fannon from Jefferies. Please go ahead.

Daniel Fannon - Jefferies

Good morning, guys.

Glenn Stevens

Good morning, Dan.

Jason Emerson

Good morning.

Daniel Fannon - Jefferies

I guess, first on the GFT deal, it seems like you guys are pretty confident of where you are in the integration process. I just wanted to get a sense of it and I apologize if I missed it, after $35 million to $45 million, where are you now in terms of exiting 2013? And then also thinking about from a modeling perspective, where we should see the remainder of the expense synergies coming out of which line items?

Glenn Stevens

So we haven’t provided guidance in terms of, kind of a monthly or quarterly scorecards as to how we are progressing. Let me break it down this way. We also got to the fact that we said within kind of one year or four quarters of the acquisition, which was essentially at the beginning of Q4, end of -- except for the last few days of September. So essentially, the end of the Q3, beginning Q4 of 2013. We also got the opportunity.

We said that we expect to create run rate synergies of between $35 million and $45 million. We’ve stayed consistent with that messaging because as we model out each attribution of cost savings or synergy, then we would provide update if we would deviate to that. So the first clear message you should have, let’s say, over the year, that’s on track.

The other thing I would mention is that it’s not linear. So on some cases, it’s not going to be those 12 months divided, $40 million middle divided by 12 months and it’s X per million. It does have some ebb and flow, however not being cued. It’s trending towards earlier loaded than back loaded. So we don’t expect the synergies to overall win. I have the run rate get to that 45 -- $40 million lower by day 364. So I think ultimately a couple of situations for example on the marketing side.

When we came out or when GFT came out in 2012, they were spending $15 million or so on marketing. We took that number down not to zero because there are some remnant properties that we want to be able to leverage, but that number comes down by 70% or so. And so that happens over three to six months. Then, you have on the comp and ben side, we had a reduction force of about 90 odd heads, but it was paced out. Two-thirds of them were released in last quarter, fourth quarter of ’13 and then the remaining people stayed on for varying periods of transition, might be three months, might be six months.

So, I guess, what I am getting at is in some cases we’ve already identified the synergy and booked it. So for example, we’ve already combined the office staff in London, in Tokyo, in Singapore, in Sydney. And so, you have some lease payments that you terminated early. You have some opportunities, the things have to roll off from a service provider or technology provider contract. But when we’ve made that decision and those people for example have been communicated to, all those bodies have already been moved into the same office. That’s why we’re very confident sitting here and say okay, the schedule is on track or actually ahead of track.

But in terms of the actual numbers, when they hit, I would say that if your modeling goes, it’s not linear, it’s trending towards the earlier part of the whole year. But mostly importantly to say, if you look out in the future years achieving that, achieving that $40 million middle of, I would $40 million middle and say 35, 45 same thing. But ultimately we fully expect to achieve that run rate increase or improvement by the end of this year.

Daniel Fannon - Jefferies

And then, I guess, it would be helpful then, what -- how should we think about the core gain expense growth rate just on a normal basis as you kind of invest in and look at the business?

Glenn Stevens

So fair question. The mix change requires some investments in people, nothing materially crazy on OpEx or CapEx, but I would say that if you look at the -- some of the revenue mix with Sales Traders coming in, some of the commissions on that level might be higher than we’ve seen in the past on some of the retail business scaling, but we’ve factored that in, because it’s variable in nature. And so, that’s a good thing, it’s not a fixed cost increase. But I would say that that’s probably the only change in terms of gains makeup. I don’t know if you want to add anything, Jason?

Jason Emerson

I guess the other item is, given the business mix, trading expenses right now, referral fees are within trading expense, so you’ll see that as you saw in Q4 continue at those similar levels.

Daniel Fannon - Jefferies

Okay. And then, just lastly, on the M&A front, I guess, can you talk about the competitive nature for potential deals there can maybe some contacts around the size and of potential transactions that you’re looking at, now that your GFT was bigger than you’ve done before. Does that allow you to go up larger as you go through this integration or is there something right now you’re looking more at smaller kind of tuck-in type deals? Thanks.

Glenn Stevens

I think the answer is both and we have a very active pipeline and very active communication network. We have been investing in our ability to evaluate these companies, and frankly, even on our own side investing in us being on the right side of compliance and legal and infrastructure and kind of across the board. That does put in a positive life.

So when you’re entertaining a conversation with a potential acquisition target or partner or JV coming in as we had kind of taken the high road and being pretty steady for some time now, I would that does open us up, but those partners that are concerned about reputational risk for those partners that see us as a diversified platform, it puts us in a good position to initiative and continue that conversation. I think, also, we are establishing ourselves as a good player in this market.

And so as I mentioned a little bit earlier, not all the deals have to be seeked or sort out by us. They also brought to us as well. So, it’s a combination. So in that light, no, I wouldn’t say that GFT -- if anything, GFT has emboldened us to be more comfortable with larger deals. Our history in the past was for smaller deals. And it’s actually proven out our model to be able to equip and integrate and plan for and execute on bigger deals. But I would say in this case, if you look at the snapshot today of our pipeline, we have a full kind of corp. dev meeting weekly that has an active database that we go through and kind of a bit of a signs that we’ve tried to evaluate opportunities and move them up or down the curve that makes them more interesting or less interesting kind of an attractive in these spaces.

But ultimately I see those now, including deals that are of the size or even larger than GFT and deals that are smaller than that obviously and also deals that tuck-in which we do try to look for a strategic fit first and price second. What, I mean, by that is, we’re not out as a vulture to try to pick something off, we are out first to say how do we round out our product offering, how do we do better in a geography, how do we do better with a customer segment that maybe we are not doing the best we can with now. And so Sales Trade is a great example.

We didn’t have that middle sector, we had the ECN growing, the retail established and that presented itself. So I think what we do there is, whether it’s in futures or whether it’s in content or whether it’s in mobile capability or whether it’s just another sizeable player in our traditional retail space, those all make the great. We started to give you an encompassing answer, but ultimately, I think, actually we’ve honed our skills to evaluate these deals and so they’re all on the table now.

Daniel Fannon - Jefferies

Great. Thank you.

Glenn Stevens

You bet.

Operator

Our next question is from Rich Repetto from Sandler O'Neill. Please go ahead sir.

Rich Repetto - Sandler O'Neill

Good morning, Glenn. I guess, the first question is on GFT, can you go through what the revenue and EBITDA contribution in that quarter was in 4Q?

Glenn Stevens

Yeah, I mean, we have that broken out, I believe, for the quarter.

Jason Emerson

For GFT.

Glenn Stevens

Yeah, for GFT.

Jason Emerson

GFT’s revenue is approximately $24 million for the quarter and had a negative EBITDA for the quarter of approximately $3 million.

Rich Repetto - Sandler O'Neill

Okay.

Jason Emerson

I would just complement that answer. If we look at GFT year-over-year, GFT’s revenue for 2012 was approximately $99 million. The revenue for 2013 came in higher than that level driven by a combination of core retail business as well as Sales Trader business growth.

Rich Repetto - Sandler O'Neill

Okay.

Jason Emerson

And the loss that we just go through Ks $31 million, they came in with clearly a much lower loss in 2013.

Rich Repetto - Sandler O'Neill

Got it. Thank you, Jason. And then, I guess, you talked a lot about the trading expenses and commissions, and how would you model that, it doesn’t look now it’s purely tied towards retailer but would you look -- I think it was 43% of retail revenue, 32% of your non-interest revenue, how would you sort of guide people as a model sort of transforms a bit here?

Jason Emerson

Yeah. As it’s currently disclose, trading expense does include a lot of items in terms of guidance ranges, in terms of margins between 27% and 31% of heading on business levels. And so that’s how I would model that at this point. We are evaluating, how we enhance disclosure around referral fees and so on, so more to come on that front.

Glenn Stevens

Yeah. So, I guess, just to add to that Rich, there is a little bit more granularity coming out in the next quarter, just because to your point, trading seems to kind of lumps a lot in there and so we are trying to break that out, its a little bit easier but the stat that just Jason gave you, look back on to what Q4 in ’13 look like.

Rich Repetto - Sandler O'Neill

And you are saying, 27% to 31% of non-interest revenue or total revenue -- net revenue or what?

Jason Emerson

Of net revenue.

Rich Repetto - Sandler O'Neill

Okay. All Right. And then I guess, Glenn, so strong rate per million in the quarter and I am just trying to understand, it wasn’t great volatility and then you are seeing some -- not only a little color on how you got there, I think we are calculating 121 for the fourth quarter and then sort of the trends in the first quarter, given all is the emerging market bought currency volatility in late January or early February.

Glenn Stevens

So, I guess the comments on that as I have already seen in the past that we always considered the output of revenue per million as one factor of our overall ideas of what trading conditions or our market condition and volatility is one thing. But for example, if you look at the -- you mentioned emergency market currencies. So for example, that's a product that is fairly narrow in terms of customers that want to be able to trade that even the product they are able to offer. So if dollar turkey is moving, dollar RMB is moving, the Argentine peso is moving, the excess in general to customers is not as broad based as when the Euro moves or when dollar yen breaks outs of the range.

In addition, the benefit of having a wider product offering also means that we get a mix shift, whether it’s into equity indices or the whole CFD business that we have been counting as part of the GFT acquisition and broadening our product. So, I guess, so I will go back and say it cuts both ways. But if you look at fourth quarter and say gees, it didn’t seem like that was that volatile and your RPM is pretty good, true. But you have a lot of products that are factoring into that. Now, you have a lot of customers segments, a lot of products that factor into it.

Same thing to Q1, we say, damn, gold move or dollar turkey moves and nat gas move but can you take that and want to be able to interpret that. So, all I am trying to say is that everyone of these periods, whether it’s a quarter or even a year, there are lot of drivers that provide market conditions improvement. And the point I was trying to make is that in ’13, the market conditions improved but not dramatically. And I think it was important for us to demonstrate that we didn’t need a dramatic improvement over 2012 to be able to do some descent results. And I am sticking to that story to say that generally speaking in an improved environment, we will do better but on any given short period, we don’t want to just say hey, RPM is going to come from this because the civics move, again these are all kind of combination of factors.

Rich Repetto - Sandler O'Neill

Let me try one more connect this, I guess. The civics is -- now, we are down to 7, 7.5, below 7.5, so we are approaching like you show in your chart, 3Q and 4Q 2012 levels. And I guess my question, would you characterize the overall trading environment as fair, improved or deteriorated, I guess?

Glenn Stevens

So, I guess a couple of things there. I mean, I think that if you look -- you said improved or worsening of relative to what. Relative to Q4 of 2012 that was a real bulge, it was across the board, right. In any markets, equity fixed income, FX, what have you. There wasn’t really a lot of excitement to sell to customers at any level, whether institutional, usually is a retail product. So, I wouldn’t say that we are there. I would say that yeah, on one measure, the civics has not carry through some of the positive momentum we saw in December and January, has not carried through where they will be floppy market.

But again, our retail FX revenue, now coming more like 80%, as it is coming from where that number used to be 95% or so and so we are trying to look broader. So, I appreciate the reference to civics but as I said, we are actually trying to look across the board down and say, hey, how we are doing on institutional side, how we are doing on the industry business, how we are doing in metals and stuff and things like that? So as we continue to broaden our business base, for example, we are in the 25% range accounts from the U.S, were tightly focused on retail floor. And that leads to 75% outside the U.S. which is trading on a much wider spectrum of products.

So overall answer is you are right, not just the civics, general frowziness is not there in this Q1 where we go wow, what a fun, exciting market, we haven’t seen interest rates break out. I think everybody thought that we are finally done and [John] and crew were going to come in and really make things royal, that hasn’t happened. The equity markets have continued to kind of trade back and forth in the last couple of weeks or months. So we are not in an environment that I’d consider strong or trading conditions but we are not there either.

Rich Repetto - Sandler O'Neill

Okay. All right.

Glenn Stevens

2012, is what I’m saying. So, I guess my answer to your question is yes, we would have loved to carry through some momentum and see a much more interesting trading market, which we are not getting. But I guess, what I am trying to say is that and I know civics is a proxy that’s often used for the engagement levels in currencies. But number one, we have to think beyond currencies now as a provider and number two even with the civics be wary of saying that, like I said, dollar turkey was moving around a lot but the opposite will happen. You can have the emerging market be quite and you can have some descant moves in euro and yen, and that can drive client engagement because today, they are paying attention to Google and Apple moving around, not some small companies that are off the radar.

Rich Repetto - Sandler O'Neill

Got it. Thanks very much.

Glenn Stevens

You bet.

Operator

(Operator Instructions) Our next question is from John Dunn from Sidoti & Company. Please go ahead sir.

John Dunn - Sidoti & Company

Good morning, guys.

Glenn Stevens

Good morning, John.

Jason Emerson

Good morning.

John Dunn - Sidoti & Company

All right. You talked about opportunities for consolidation in futures. Can you sort of talk about what the landscape of that industry looks like in terms of size and players and how fragmented it is?

Glenn Stevens

It’s interesting, John because that market really shows the full range of large established market players, to point like an R.J. O’Brien who established themselves as a big provider to partners, introducing brokers and referrals and things like that and then there is a lot of mon and pop shops that has 5, 10 people in it with $10 million of revenue that have just peak out of living very year. And so, I think we see both sides of that. My feeling is that adding value was very difficult, when they were two extremely dominant players in the market. So, harking back to unfortunately one or two dearly words now, Refco and MF Global, but the reality is that when they had their future business and they were dominating that whole landscape, I would argue, it wouldn’t be a strategically decent opportunity for gain to dabble in there. Because it’ still like those two companies had such a strong command over what an industry look like.

Well, making lemonade out of lemon, they’re both gone. And so the landscape in my mind hasn’t reorganized yet. And so, I feel like for us to fold in some of these products, look at the U.S. which other than retail forex doesn’t have that other set of products like CFDs that you’re able to offer every place else but the US. And so, if we’re going to continue to be a global provider of these non-U.S. equity based products, then we have to have a complement to retail FX in the U.S. and so futures make sense.

Now it’s a tough market because the margins aren’t there with all the exchange based stuff and the CMB having a stronger hold on how tickets were processed and all that. So it does craft for some scale, it does craft for some integration and cutting cost out of it. And so, that’s the reason why it’s on our radar. We made a foray into that space when we bought all we see from Schwab about a year and half ago. And that was only supposed to be a first step, it wasn’t supposed to be the end step.

And so for us, even though that business has grown modestly in terms of metrics, the number of customers and assets, it needs some compliments. And so, that’s why other future firms are on our radar. I will say it’s not likely for us to make a big bang move in the future space in terms of a really large player.

So, I guess, if you look at the learning curve quickly and you look at how we moved up the food chain on the FX piece and make the small acquisitions, tucked them in, bought on assets or did small deals and then got comfortable and we’re able to do a large deal at GFT, probably not a terrible parallel to draw in the futures side to say, hey, let’s do some deals so we can establish our comfort and our knowledge base.

And then maybe down the road if there is a big bang opportunity or a large opportunity, we consider it. But I think it’s fair to say that if you dissected our Corp Dev pipeline right now, they are smaller one and they are retail focused in nature because we think that complements what we already have as an offering.

John Dunn - Sidoti & Company

Got you. And then, can you just talk a little bit, how GTX might be taking share for some of the big guys given the headlines going on there?

Glenn Stevens

So not to pray on that what makes for good news copy and there is a lot of chat about things going on the bank side in term of this space, for us we wanted to bring to the market a alternative technology offering that frankly added value. And the entrench players like an EBS or like some of the single bank platform, I think had a bit of a steady state going on where they had a solid product, they had a very strong incumbency using them. We need to be somewhat disruptive.

I think we’re establishing that fact. We didn’t come in with (inaudible). I would argue that we’re little bit late to begin back in 2011, when we said let’s bring this entrench to market. But being late is okay as long as it’s better. And I think we’re showing that now. So yeah, I would probably characterize what’s going on the bank side as a potential tailwind for us frankly, because if we’re able to establish the fact that as an alternative platform, that’s unbelievably transparent and flexible and fair, then I think, yeah, it only is a benefit or positive for us.

So I’m not looking to pray on a negative situation, but if we had to characterize it, I would say that those put us in a good light as an alternative with some of those single bank platforms or some of the entrenched accumbency that may have to hit some headwinds.

John Dunn - Sidoti & Company

Great. Thank you very much.

Operator

Our next question is from Patrick O'Shaughnessy from Raymond James. Please go ahead.

Patrick O'Shaughnessy - Raymond James

Hey, good morning, guys.

Glenn Stevens

How are you there, Patrick?

Patrick O'Shaughnessy - Raymond James

I’m doing well. So my first question is, I’m just looking at the minimum regulatory capital requirements that you guys talked about on slide 17, I think it is and also get draft about $10 million versus the third quarter. Is that some on the capital synergies that you’re talking about what the GFT deal that you’ve been able to extract out over the last few months?

Jason Emerson

Yes, Patrick, it’s a partial achievement of those capital synergies, again that’s not related to the 35 to 45. We will see additional synergies as we continue the merger of our UK based synergies as well as our U.S. synergy share from regulatory standpoint.

Patrick O'Shaughnessy - Raymond James

Okay. And do you have a sense for how much more you’ve been able to free up in terms of regulatory capital?

Glenn Stevens

Well, we’re always looking to optimize Patrick, so we’re looking at a range of $5 million to $10 million in additional capital synergies.

Patrick O'Shaughnessy - Raymond James

Okay. And then, as you’re looking at and thinking about M&A, how are you thinking about the capital that you have available to do that? So, I guess, you have your cash in your balance sheet, you have your credit facility, which I believe is to have $50 million available under that. How are thinking about this cash versus shares maybe raise more daffodil? How are you basically thinking about how you would use capital for the M&A?

Glenn Stevens

So I think that I mentioned a bit about having some dry powder which you alluded to. We continue to work on keeping our credit facilities updated. In terms of that $50 million that you mentioned, that went away when we did the GFT deal. We’re in the process of replenishing that as we speak. We did, as I mentioned, have a successful convertible offering which like anything else kind of establishes you as a participant in that market.

And so I think, our track record is very set there. I think ultimately, Patrick, we have the ability to tap capital markets. I think the way to do is in conjunction with a tangible deal that makes sense to use it. I think that for able to go back in the market whether it’s primary or once all these sources of capital are available to us now I would argue, because number one, it’s established ourselves, number two, we have a sound business in place by being able to illustrate the integration successfully where we did.

I think when you go back to the market in the future and say, hey, we have this other idea. When you have a track record, it makes a lot easy. When it’s the first time, it’s harder. When it’s not, it’s a time after that we’ve already grease the skids there. So, I guess, I would say, yes. For the smaller type deals, we have sufficient resources at hand today. For the larger deals that are also on our radar now, we will likely be using capital markets for that and our own stock. As a currently, our stock continues to improve, then that’s also add (inaudible).

Patrick O'Shaughnessy - Raymond James

Got you. Thank you for that. And then the second question from me is the Sales Trader. So we assume GTX kind of has the same revenue capture kind of 7 to 8 per million that it had last few quarters. I think that implies something like an 80 per million rev capture for Sales Trader. One, is that kind of broadly correct? And two, is that a kind of a good run rate to think about going forward?

Glenn Stevens

So, I’m not sure how you derived the calc on that when you mentioned it. But number one, that business ranges because of the services provided by the sales trading or it’s the higher touch business. It’s pretty wide array of products offered. So kind of depending on, if it’s a single stock future or if it’s indices or if it’s currencies or if it’s an ATI going through us, so it really kind of varies. I’d say, that you probably, oh, you probably more like in the 50 range, 45, 50 range, you had, you put it in aggregate and say here is it apply there. So from the modeling purposes that’s probably more likely. But I guess, it’s important to know, that’s the product mix and the different types of customers that are serve in that segment is pretty wide. It is one of those wins where mathematically, yeah, I think, if you use $50, you probably, okay, but just keep in mind that it does, it is pretty wide.

Patrick O'Shaughnessy - Raymond James

Okay.

Glenn Stevens

You know what, actually it’s kind of like, some people say on our retail business, hey, your average deposit is $7,000. I don’t know, if we have anybody with the $7,000. We have like 100 people have 2 and 100 people have 20, so the average is 7. But I don’t know how many people are actually there. So in this case, we do have a bit of spray in terms of sales force, because it comes down to the value-add, the product that the customer trades, but in aggregate, I think, that will be reasonable guidance.

Patrick O'Shaughnessy - Raymond James

Okay. Appreciate that. And then lastly from me, as you look at the regulatory landscape right now, is there anything out there that kind of causes you dilution actually and it seems like the FCAs maybe stepping up some there oversight. Certainly they just love you to find against one of your competitors, anything out there that’s really concerning to you right now?

Glenn Stevens

No. I think in one of those situations where you make decisions based on your infrastructure, based on your reports to the market, that’s kind of frankly a level of scale that you can be very aggressive or very conservative and I don’t think, we are on either end of the scale. I would like to think that we’ve optimized our commercial attitude but stay on the right side of those times. We feel no, I don’t, other things keep me up, but most of them go onto 10 years old. So the people want the 10 years old, they nothing to do with regulatory issues we saw.

I am not concerned about that stuff. I think we keep a close eye on it and frankly, we have invested a lot in the infrastructure and the technology, and I think that we have taken an approach that’s more corporative with the regulators versus embedded and so that doesn’t always means that there aren’t things that come up, but I can say when you ask me, hey, what’s perception, my perception is we do try to work very closely to regulators, have an open line of communications and that’s globally, whether its FCA or CFTC or in Japan, what have you.

I think that, there is causality here between staying out of the press on those negatives and the efforts that you put in. I mean, I like the thing that the work we put in is driving our ability to make sure we stand on right side of those situations.

Patrick O'Shaughnessy - Raymond James

Got you. Appreciate it. Thank you.

Glenn Stevens

Thank you.

Operator

Our next question is from Brian (inaudible) from Sunbelt. Please go ahead.

Unidentified Analyst

Hi. Good morning, guys.

Glenn Stevens

Good morning, Brian.

Jason Emerson

Good morning, Brian.

Unidentified Analyst

Will you provide revenues and EBITDA for GFT in the quarters this year?

Glenn Stevens

No. I think that teasing them apart, Brian, is not a helpful process, because we are working towards being able to pull the cost out by combining the operations. And as I mentioned, there are certain things that GFT brings to the table in terms of product mix and customer segment and partners and geography, but they are design to fix in an interline basis with what we do.

Unidentified Analyst

Okay.

Glenn Stevens

So, next year should become completely blurred that you don’t know who is coming from what.

Unidentified Analyst

Right. So, if it’s $10 million a quarter in cost savings based on your comments maybe a third of the way there, that would imply roughly $6.5 millionish further cost saves, let say, and if I look GFT, you said, EBITDA was negative $3 million would normalized “EBITDA” will be closer to $3.5 million positive? Is that the way to look at it?

Glenn Stevens

A couple of things, let me take a stay with this and go ahead, Jason.

Jason Emerson

No. I was going to say, that, first of all, in terms of linear aspect of saying, hey, when you calculate the cost, but I mentioned earlier on the call that, it’s not as biggest that has $10 million per quarter. What we have said is that by the end of this year our run rate will be based on where pre-acquisition was, our run rate will be $40 million, $35 million to $45 million lower phased in, right.

In terms of putting that against GFT EBITDA, on the one hand as I mentioned, what we wanted to illustrate there that we bought a business that was in a challenge state in 2012, we took it over in the fourth quarter, our goal here to integrate two businesses, keep the revenue part of it intact and then obviously, the wholly grill, but keep the revenue part of intact and reduce the cost to the point were there and create a business, and we are getting there, we are getting there, because if you just look at fourth quarter alone, where we had some to say about it, the numbers starts to normalized.

And I am not saying that $3 million is something we want to hang around, what I am saying if we compare to the three times that of the previous quarter, previous year, it’s obviously an improvement.

So as an overall operation, I don’t know if you can net a quarterly synergy with the quarterly EBITDA, but I will say that net-net by this year they will be a positive contributor on the revenue side and on the EBITDA side and part of that reason will be because we are taking out synergy. But taking out synergy causes us some gain, causes us some GFT, it’s kind of net number, we are not looking at GSCs. They turn that into a profitable business because that business should be indiscernible as a standalone within six months.

Unidentified Analyst

Okay. Your tax rate in the quarter was 38% relative to a 30% rate for the year. What’s the right sort of normalized tax rate do you think this year?

Jason Emerson

For -- in 2013, we had some one-time items that bumped up our effective tax rate for the full year to 30.5%. For 2014, I would use 28% to 29%. We’re looking to optimize our transfer pricing and tax through our various jurisdictions whereas Glenn mentioned north of 70% of our business is done outside of the U.S. So the right range for this year at this point is 28% to 29% as we made progress on those efforts, we’ll get you more color on that.

Unidentified Analyst

Great.

Glenn Stevens

Brian, (inaudible) to improve that. So I think that Jason is tossing out to save bet but it absolutely is one of our internal focuses to say how do we get that 10% to 20% better than that.

Unidentified Analyst

Great.

Glenn Stevens

But from a (inaudible) we don’t want to get out and ahead of our skews but it’s not something that we’re resting on our laurels to say 28%, 29% is fine. I don’t believe that.

Unidentified Analyst

Okay. And last two questions, what was the average price you paid for the stock you bought back n the quarter and what were the fully diluted share count for Q1?

Jason Emerson

I think that the average price we will disclose, I don’t have it front of me here but we do -- we will disclose that as part of our regular filings. And so we were actively participating throughout the quarter. So I can tell you that. So if you look at the range of the quarter, you’re going to get a reasonable idea of where we participate. The actual figures we will be positing. So you’ll have all that. What was the second part of the question, Brian?

Unidentified Analyst

What’s the fully diluted share count going to be for Q1?

Glenn Stevens

That’s a good question. By the way, it will be in the 10-K, the other stuff.

Unidentified Analyst

Yeah.

Glenn Stevens

So we included part.

Jason Emerson

Yeah. So we have 42.6 right now. It will go up slightly. We’ll get back to you on that.

Unidentified Analyst

Okay. Okay. So 43 let’s say for round numbers.

Jason Emerson

You could round it up to 43, let’s say.

Glenn Stevens

Yeah.

Unidentified Analyst

Okay. Great. All right. Thank you.

Glenn Stevens

You got Brian’s (inaudible).

Jason Emerson

Thanks Brian.

Operator

At this time, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Glenn Stevens

Thanks, Operator. So again thanks everybody for joining today. Hopefully we’re able to give you some color on our progress for Q4 and through 2013 and I do more importantly give some perspective on our opportunities presenting us in ‘14 and are excited about going after those. So thanks for joining and have a good day.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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