GFI Group Inc. (Nasdaq: GFIG), an inter-dealer brokerage, market data and analytical software provider for global cash and derivative markets, today announced financial results for the fourth quarter and year ended December 31, 2005.
Total revenues for the 2005 fourth quarter increased 33% to $140.3 million compared with the fourth quarter of 2004. Excluding the effect of the foreign exchange collars as discussed below, total non-GAAP revenues increased 34% to $141.1 million versus the 2004 fourth quarter.
The increase in fourth quarter revenues reflected a 37% increase in brokerage transaction revenues compared with the fourth quarter of 2004, with continued strong growth in all product categories. Each of the Company's three geographic regions also demonstrated strong revenue growth over the 2004 fourth quarter.
A major factor in the Company's performance was the continued increase in the number of its brokerage personnel, which reached a total of 777 at December 31, 2005. That represents a net increase of 217 brokerage employees from the end of the fourth quarter of 2004 and 113 more than the third quarter of 2005.
Net income for the fourth quarter of 2005 was $11.4 million, or $0.40 per diluted share under GAAP and $12.9 million, or $0.45 per diluted share on a non-GAAP basis. These amounts include a benefit from accounting adjustments related to software development costs affecting all quarters in 2005 as more fully described below, and equivalent to $0.04 per diluted share on a GAAP basis and $0.03 per diluted share on a non-GAAP basis. There was no effect on full year 2005 net income or earnings per share from these accounting adjustments.
For the year ended December 31, 2005, GAAP total revenues increased 39% to $533.6 million and net income rose 108% to $48.1 million or $1.74 per diluted share compared with 2004. Non-GAAP total revenues for 2005 rose 37% to $527.7 million and non-GAAP net income increased 91% to $49.3 million or $1.78 per diluted share.
Michael Gooch, Chairman and Chief Executive Officer of GFI, commented: "Our strong fourth quarter capped a year of substantial growth for GFI. We successfully exceeded our revenue growth forecast of approximately 30% for the quarter. Fourth quarter revenues were better than expected due to robust trading in credit derivatives, which was enhanced both by the strong European customer response to the latest version of CreditMatch, our electronic trading platform for credit derivatives, and by specific credit events. Trading in equities was also better than expected, aided both by high volumes in many of the world's equity markets and by the strong performance of brokerage professionals added in the fourth quarter who now comprise our Paris office.
"Our ability to attract highly qualified brokerage personnel is a key driver of our growth. The addition of brokerage personnel in the fourth quarter contributed to the 39% increase in our total brokerage headcount for the year.
"This brokerage personnel increase and the launch of CreditMatch 5.5 combined with the strategic addition of sector desks including those in corporate bonds and interest rate derivatives and the full quarter contribution of Starsupply Petroleum enabled us to achieve strong growth in each of our product categories and geographic regions in the fourth quarter and for the full year.
"Based on our progress in 2005 and strong performance in a range of products and locations in January and February, we currently expect our brokerage revenues for the 2006 first quarter to exceed those of the first quarter of 2005 by 40% or more."
For the fourth quarter of 2005, GFI reported total revenues of $140.3 million, an increase of 33%, compared with $105.1 million in the fourth quarter of 2004. Excluding the $0.8 million of other loss due to the foreign exchange collars as described below under "Non-GAAP Financial Measures," total fourth quarter 2005 non-GAAP revenues increased 34% over the fourth quarter of 2004 to $141.1 million.
Contributing to the total revenue growth compared with the 2004 fourth quarter were increases in each of the Company's brokerage product categories, with revenues for credit products up 53%, financial products up 17%, equity products up 38% and commodity products up 31%. Fourth quarter 2005 commodity product revenues included the contribution of Starsupply Petroleum. The Company acquired substantially all of the operating assets of Starsupply on September 15, 2005. Revenues from analytics and data products in the 2005 fourth quarter were $3.4 million, a 9% decrease from the corresponding period of 2004.
By geographic region, fourth quarter 2005 brokerage revenues increased 42% in North America, 23% in Europe and 105% in Asia Pacific over the fourth quarter of 2004.
For the fourth quarter of 2005, compensation and employee benefit expense was $89.5 million compared with $66.2 million in the fourth quarter of 2004. The increase was primarily attributable to the higher number of brokerage personnel as compared to the corresponding period in 2004 and an increase in performance related brokerage bonuses.
In the 2005 fourth quarter, GFI identified certain software development costs that were expensed as compensation in prior quarters in 2005 rather than capitalized. GFI capitalized these expenses in the 2005 fourth quarter, resulting in a reduction of $2.0 million in compensation expense and an increase of $0.1 million in depreciation and amortization recognized in the quarter. This resulted in a benefit to the 2005 fourth quarter results equivalent to $0.04 per GAAP diluted earnings per share or $0.03 per non-GAAP diluted earnings per share. The adjustments had no effect on the full year 2005 net income or earnings per share.
On a GAAP basis, all other expenses for the 2005 fourth quarter were $32.0 million, an increase of 2% from the fourth quarter of 2004 and representing 22.8% of total GAAP revenues as compared to 30.0% for the same period in 2004. As described below under "Non-GAAP Financial Measures", the most recent quarter included $0.3 million in duplicate rent related to the Company's relocation to larger premises in London. In addition, there were charges related to the London lease termination in the amount of $1.1 million for the 2005 fourth quarter and $2.7 million for the 2004 fourth quarter. Excluding these items, all other non-GAAP expenses for the fourth quarter of 2005 were $30.6 million, or 21.7% of non-GAAP total revenues, compared with 26.7% for the 2004 fourth quarter.
For the fourth quarter of 2005, GFI reported net income of $11.4 million, or $0.40 per diluted share including the aforementioned accounting adjustment compared with $3.4 million or $0.14 per diluted share in the same quarter of the prior year. Excluding all non-operating or non-recurring items as summarized below under "Non-GAAP Financial Measures" but including the accounting adjustment, GFI's fourth quarter 2005 non-GAAP net income was $12.9 million or $0.45 per diluted share compared with non-GAAP net income of $5.9 million or $0.24 per diluted share in the fourth quarter of 2004.
Full Year Results
For the year ended December 31, 2005, GFI's total revenues were $533.6 million and net income was $48.1 million or $1.74 per diluted share under GAAP. This compares with total revenues of $385.0 million and net income of $23.1 million or $0.95 reported under GAAP for 2004. Excluding non-operating or non-recurring items, non-GAAP total revenues for 2005 were $527.7 million and non-GAAP net income was $49.3 million or $1.78 per diluted share. This compares with non-GAAP total revenues of $385.0 million and net income of $25.9 million or $1.06 per diluted share for 2004.
In February, GFI completed the move of the remaining personnel from its premises on Christopher Street in London to its new larger premises. As a result of vacating this premise, GFI will record an accrual for the remaining rent and related charges of approximately $0.8 million in the first quarter of 2006.
On February 24, 2006, GFI entered into an amended and restated credit agreement with its lenders. The new credit agreement is a five-year $135 million credit facility, which replaced an $80 Million credit agreement that would have matured in August 2007. The new credit agreement provides for revolving loans and the issuance of letters of credit. A copy of the Amended and Restated Credit Agreement was filed as an exhibit to a Form 8-K on February 28, 2006.
Separately, GFI Group Inc. announced today that it plans to file a registration statement on Form S-3 with the Securities and Exchange Commission sometime in the second quarter of 2006 for an underwritten public secondary offering of approximately 3.5 million shares of GFI's common stock held by GFI shareholders, as described below. GFI will not receive any proceeds from the sale of these shares.
One of GFI's shareholders, Advent International Corporation, a global private equity firm, has indicated its intention to exercise its right to have GFI register for sale the balance of its shares of GFI common stock, or approximately 2 million shares. Jersey Partners Inc., which is controlled by Michael Gooch, GFI's founder and chief executive officer, plans to sell approximately 1.5 million of the total 13.9 million shares of GFI common stock it currently owns in the offering. The amount and timing of the offering will depend on several factors, including market conditions.Download the document now 42.3 kb (Adobe Acrobat Document)