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GAIN Capital Holdings (NYSE:GCAP)
Q1 2019 Earnings Call
April 25, 2019 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and welcome to the GAIN Capital first-quarter 2019 earnings conference call. Today's conference is being recorded. And at this time, I'd like to turn the conference call over to the GAIN investor relations representative, Lauren Scott. Ma'am, please go ahead.

Lauren Scott -- Investor Relations Representative

Thank you, operator. Good afternoon, and thank you to everyone for joining us for our first-quarter 2019 earnings call. Speaking today will be GAIN Capital CEO Glenn Stevens and CFO Nigel Rose. Today's commentary will be accompanied by our earnings slide deck, which can be accessed via webcast on our IR website.

Following their remarks, we will open the call to questions. During this call, we may make forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially. I refer you to the company's investor relations website to access the press release and the filings with the SEC for discussions of those risks.

In addition, statements during this call, including statements related to market conditions, changes in regulation, operating performance and financial performance, are based on management's views as of today. And it is anticipated that future developments may cause these views to change. Please consider the information presented in this 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'd now like to turn the call over to Glenn.

Glenn Stevens -- Chief Executive Officer

Thanks, Lauren, and thanks to all of you for joining us today. First, I'd like to discuss the exceptionally challenging market conditions we saw during the first quarter. This negatively impacted our results as we observed a lack of any major catalysts that normally create volatility and trading opportunities for our customers. Many of the events that were previously drivers of volatility remained sidelined, including no movement related to Brexit, all major interest rates staying in a neutral stance, and stable equity markets.

As you can see in the charts in our earnings deck, this quarter was marked by unusually tight, range-bound markets, with the CVIX down at five-year low, well below the 18-year average and even below our average over the past few years. Also, our most frequently traded product, the euro/dollar, traded in the narrowest quarterly range on record, leading to lower client volumes and revenue capture for the quarter. While short-term market events may impact our quarterly results, we remain focused on the long term, and we are working every day to optimize our business through our growth initiatives. Looking at a snapshot of the quarter, these challenging conditions led to soft results with net revenue down 61% year over year to 38.4 million.

This revenue shortfall translated into a net loss of 28.4 million in the first quarter. However, one of the key highlights during the quarter which show us that our underlying fundamentals remained strong was direct new account growth of 38% year over year and 27% quarter over quarter. In addition, trailing three-month direct active accounts and client equity increased. Now while RPM was down for the quarter, when you look at a longer trailing 12-month time frame, as we always preferred to do, RPM was in line with historical averages at 104.

Our operating metrics continue to show positive signs for future organic growth. Despite a difficult macro environment, we delivered direct new account growth as a result of our increased marketing investment. We are pleased with the trajectory over the last few quarters and feel it will grow even further as market conditions improve. We continue to feel well-positioned to maximize the value of our new customers when market conditions return to more normal levels.

Key metrics that we use to evaluate marketing performance include, one, our cost for new account. After three quarters of increased spending levels, we have remained efficient with our costs, tracking below our target cost per new account. No. 2, breakeven points.

The time line to convert each cohort into a profitable client remains on track, with Q1 results in line with expectations despite market conditions. And three, our internal rate of return. We tracked our expected return based on our customer acquisition costs against our expected three-year lifetime value of a customer. And based on the most recent IRRs, we believe this continues to be the best use of our capital.

There is also the benefit of the long tail of revenue that comes from our customers. As we've shared in the past, a healthy percentage of our revenue comes from long-tenured clients. In Q1, 56% of revenues came from clients with tenure of more than three years. As such, we expect the newly acquired customers will deliver revenue well beyond our ROI benchmark, which, as I mentioned, is based on a three-year lifetime value.

All that said, there continues to be a level of flexibility within our total marketing spend. Q2 marketing spend is currently expected to return to levels seen in Q4. However, we can adjust up or down as warranted by marketing opportunities. Over the past year, we spoke about the AI-driven hedging model we developed and deployed.

Given the challenging market conditions this quarter, I want to emphasize that despite our low RPM results, our improved AI-driven model helped modulate the revenue capture decline. Consequently, despite the CVIX at its lowest level since 2014 and close to its 2007 low, coupled with the euro/dollar in record narrow quarterly ranges, our AI-driven hedging model continued to outperform our old model. In Q1, we saw a reduction in the standard deviation of daily P&L by 28%, and we more than doubled our Sharpe ratio compared to that old model. RPM for the trailing 12 months ended this quarter was 104, exactly in line with the trailing 12-month RPM in the prior-year period.

And we have no reason to believe that this quarter's performance will materially impact our long-term forecast. We are pleased with our progress to date, and we'll continue to apply this model to a broader range of our products in our portfolio. As we discussed on our year-end call, the key to unlocking further value for our shareholders over the long term is through accelerated organic growth. Our commitment to our three-year strategic plan remains intact, focusing on the following key areas.

First, leveraging our powerful brand assets in FOREX.com and GAIN Capital, along with increased marketing investment to compete on a global scale and grow market share by targeting two distinct customer segments: experienced active traders and retail traders. Second, innovating the trading experience for our customers, delivering best-in-class trading platforms, decision support tools and delivering new ways and products for our customers to trade. And lastly, our strong focus on premium clients. This will be achieved through our brand strategy and the development of product and services tailored for experienced traders and enhanced relationship management.

These growth pillars will help us grow top line revenue and, when paired with a prudent cost structure and investments, will enable us to drive long-term earnings accretion. Our 2021 operating and financial targets remain intact as we continue to execute against our strategic initiatives to get us there. With that, I will turn it over to Nigel for a deeper review of our first-quarter results. Nigel?

Nigel Rose -- Chief Financial Officer

Thanks, Glenn. The following figures reflect results from our continuing operations. In the first quarter of 2019, net revenue decreased 61% year over year to $38.4 million, as compared to $98.4 million in Q1 of 2018. GAAP net loss was $28.4 million, resulting in GAAP loss per share of $0.76, as compared to a Q1 2018 net income of 11.9 million and GAAP earnings per share of $0.25.

Adjusted net loss was also 28.4 million, and adjusted EPS, a loss of $0.76, as compared to adjusted net income of 11.6 million and an adjusted EPS profit of $0.26 in Q1 of last year. Adjusted EBITDA was negative 23.5 million, compared to positive adjusted EBITDA of 31.8 million last year. Turning to our retail segment, the first quarter experienced extremely low volatility, which, coupled with a strong comparative period, left average daily volume down 38% at 7.7 billion, as compared to 12.4 billion the prior year. As Glenn mentioned earlier, not only did we see near-record lows in volatility but also the tightest trading range on record for our most frequently traded product, euro/dollar.

In addition, historically, when we have seen one asset class underperform, we have benefited from the portfolio effect of our diverse product offering. However, this quarter, our indices and commodities products were also below their trailing 12-month performance levels. The collective effect resulted in revenue capture of $50 per $1 million, although our trading 12-month RPM remains in line with historic levels of $104, exactly the same as the 12 months to March 2018. The combined impact of low volume, poor revenue capture and a strong comparative period resulted in a 67% year-over-year decrease in retail revenue to $28.2 million dollars.

In terms of operating costs, staff costs reduced by 16% year over year to $13 million, while referral fees also decreased both on an absolute and per-volume basis. Taking a look now at our futures business. Average daily contracts decreased 19% to 28,795 as compared to the prior-year period due to a combination of the low volatility this quarter and the strong comparative period. As a result, revenues were $9.4 million for the quarter, down from $11.5 million in Q1 2018.

Despite the declining revenue, profit held up, with margins improving slightly to 11%, and we continue to see potential for further margin improvement for this segment should interest rates increase any further. Before turning to look at liquidity, I wanted to provide some updates to our previous guidance on overheads and tax. Last quarter, we mentioned that overheads were likely to range between $190 million to $200 million over the next three years. Whilst that remains our expectation for 2019, we now expect overheads will be at the lower end of that range.

Similarly, while we expect our longer-term tax rate to remain between 27% to 28%, as a result of the first quarter's results, we believe the rate for 2019 will be between 17% to 19% with the first quarter having been 17.6%. With the start of a new financial year, we've decided to amend the presentation of our liquidity to directly align with a cash and cash equivalents figure shown on the balance sheet. We have done this for several reasons, including feedback received leading to concerns over potential confusion regarding available cash from our previous measure of total liquidity, which included items such as undrawn revolver facilities and cash at brokers. To hopefully ensure clarity, we believe it is preferable to reference the cash reported on our balance sheet and how that has moved period over period.

As at the end of the quarter, GAIN had total cash and cash equivalents of $218 million, compared to 279 million at the end of last year. There is a schedule included within the appendix, which shows our liquidity under the new definition for each of the last four quarters and how it has moved during those periods. We have ample liquidity for corporate development opportunities and have completed 11 transactions since our IPO in 2010. We continue to be well-positioned to pursue selective transactions that provide geographic or product expansion should they arise.

We also remain committed to actively returning capital to shareholders, including through dividend payments and share buybacks. As such, our quarterly dividend of $0.06 will be paid on the 28th of June. It is worth noting that, on an annual basis, our dividend of $0.24 is yielding an approximate 4% return based on the company's share price on March 31st, which presents a unique investment opportunity for shareholders looking for consistent attractive distributions. Share buybacks continue to be a strong focus, particularly as we feel our shares remain undervalued.

And during the first quarter, we repurchased almost 633,000 shares at an average share price of $6.62, equivalent to $4.2 million. That leaves approximately $44 million available for additional repurchases during 2019 as at quarter end. We thank you for listening, and I'm now happy to take questions. Operator? 

Questions and Answers:

Operator

[Operator instructions] And our first question today comes from Kyle Voigt from KBW. Please go ahead with your question.

Kyle Voigt -- KBW -- Analyst

Hi, and good evening. So I think the stock is now trading at tangible book value and has traded at below tangible book at points in the quarter. Is that something that you look at and consider when deciding the pace of buying back shares?

And then part two of that question, you've just given the loss in the quarter, and it looks like 61 million in total cash outflow in 1Q. Can you just talk about the capital return, your thoughts on capital return more broadly vs.maintaining a strong liquidity buffer on the balance sheet?

Glenn Stevens -- Chief Executive Officer

Sure, Kyle. So I'll take the first piece. And yes, we do pay attention to intangibles book and various measures of kind of the relative pricing of the stock. And of course, given some of the challenges with a relatively small float and relatively small volume on a daily basis, we try to take that into consideration as well.

But yes, we do have some flexibility in our buybacks, and we've exhibited such in previous quarters where it's not a static number. First of all, we've been consistently buying and actually been consistently buying at higher levels over the last four to six quarters. And we do take all that in consideration as we're deploying capital for that purpose. So I guess the easy answer is to say it's very much on our radar.

And you know, at the end of each quarter, when we show our efforts to buy back, we do use a 10b5 plan to be able to do that. So it's not something that we change on the fly. But when we do get the opportunity to adjust that, we do so accordingly.

Nigel Rose -- Chief Financial Officer

And Kyle, on your cash question, so there's a schedule within the appendix, Slide 19, the 60 million, yes, it has come down by 60 million, but I think it's important to understand the moving parts and as much as negative EBITDA, capital expenditure, tax and interest, dividend and buybacks, absolutely is cash outflow. But also within there is some moving parts to do with our receivables from brokers. So as positions come on, we have to place more cash at brokers as part of our hedging. In the quarter, I think that went up by about $14 million.

In the last two quarters, it's gone up nearer to $40 million. So still our cash is already just not in our bank account. It's covering our hedge positions. But I think that's a promising sign, a good lead indicator that positions have been building.

We've got more cash at brokers to reflect that, and we believe that should translate to future revenues.

Kyle Voigt -- KBW -- Analyst

OK. And then one more question for me. I guess just last quarter, I think you spoke about the regulatory headwinds as being relatively modest. And you've kind of got a slide deck last quarter.

I guess can you provide an update on those -- some of the regulatory developments in Europe and maybe help us just aggregate the weakness in the quarter that we've seen from a volume standpoint between the regulatory headwind they might be facing vs. obviously the low volatility environment?

Glenn Stevens -- Chief Executive Officer

Yes. So for us, consistent with, you know, kind of good news, bad news is that consistent with our guidance and feedback or notes from the past, the European regulatory changes, namely ESMA, that came out August of last year, the impact was muted for us, which is a good thing. Also a good thing is that it's -- even though it's -- it's something that's relatively permanent and that we don't expect that's going to change again. Again, that doesn't really -- hasn't factored into our plans going forward.

Now in terms of being able to point to that for the current-quarter weakness, the bad news is we can't. But the good news is that the items that I tried to outline in our commentary was that we consider them temporary and fleeting and such that if you look at a bunch of drivers, as I mentioned, in terms of things that would drive -- normally drive volatility, disparity between interest rate approaches by different monetary authorities globally or economic changes or the sporadic items like a Brexit move, all of those lined up to have pretty constricting drivers of our -- of trading opportunities for our customers. And when they're forced to the sidelines, they say, look, there really isn't much going on. For example, our most traded product, the euro/dollar, traded in the $0.04 range for the whole quarter.

That's the tightest we've seen literally ever since the euro was launched, by the way, and particularly lower than kind of average. So it wasn't even a blip. It was really low. Now before somebody says, well, is that the new normal, the reality is if you look back at even three, four, five years' worth of activity, you know, we do have seen pockets of low volatility.

In this particular case, it was extreme because you had low vol and FX, the lowest vol in our most predominant product, coupled with similarly lower vol in our other portfolio products, like equities, metals, energy. I mean so it all kind of stacked up to push customers to the sideline. And if we have a weakness as a company, it's that it's not new that we're vol-dependent. In extremely quiet markets, we're going to struggle.

And this was an extreme for us in terms of a quiet market. And so it stacked up across the board that way. The good news, though, is that if we were dependent on -- if we were dependent on ESMA-related activity, then that's not something that will come back. And so, you know, the industry suffered as a whole, but at least, the bulk of our setback or challenges are what we would consider part of market cycles and temporary.

And if there's any mean regression across the board in any of these products or in any of the approaches to volatility, we'll do just fine. Unlike some of the people who are ESMA-dependent and say, well, maybe they'll change their mind. That's not something we're depending on. So I think we would divorce those two and say the ESMA stuff-related is the same for us, which is why we didn't actually put kind of repeated guidance to say the ESMA changes are what they are.

They were very muted for us. They remain very muted for us and -- but it doesn't really change our outlook. The market environment for us was very challenging, and no, we don't expect it to remain so because there hasn't been a change to our customer profile or market or business model that we think is lasting.

Kyle Voigt -- KBW -- Analyst

Thanks.

Glenn Stevens -- Chief Executive Officer

Sure.

Operator

Our next question comes from Rich Repetto from Sandler O'Neill. Please go ahead with your question.

Rich Repetto -- Sandler O'Neill -- Analyst

Yes. Good evening, Glenn. Good evening, Nigel.

Nigel Rose -- Chief Financial Officer

Hi, Rich.

Rich Repetto -- Sandler O'Neill -- Analyst

I guess my typical question is, you know, no doubt market conditions were very unfriendly. But if you look at -- in April so far, it's even worse. If you look at Hotspot and CME FX futures, they're down about 20%. The CVIX is down again in April to date.

So I guess can you comment on condition so far? Is it -- do they sort of reflect the performance in April, as well?

Glenn Stevens -- Chief Executive Officer

So we -- a couple of things. You know, we're obviously only a few weeks into the quarter. But the reality is that in some cases, we've started to see some evidence of, you know, mean regression, if you will, to some of the trends and some of the more normal RPM capture. Our RPM capture for Q1 was particularly low, was quite the outlier.

It wasn't quite Black Swan, but it was certainly out on the tails for what we've witnessed over the last three to five years. It doesn't make it impossible but certainly makes it pretty unlikely. And so to that end, no, we haven't seen a continuation of that particularly low environment, although you're right. We didn't see a switch back to say, oh, good, more normal markets are showing.

So I guess we would say that we're seeing some evidence of more normal activity and some more normal RPM capture, but you know, we're three weeks into the quarter.

Rich Repetto -- Sandler O'Neill -- Analyst

And then I guess the question would be then what's driving the normal RPM if the hedging was working effectively but just in tough market conditions in the first quarter than what hedges -- what normalized the RPM and -- when market conditions are -- you know, if you look at the numbers there, the only thing I don't have is the euro/dollar spread, but the CVIX and volumes have been down.

Glenn Stevens -- Chief Executive Officer

Correct. So again, you know, we've had this conversation in the past, where the silver bullet isn't just CVIX and VIX. It's also kind of the complexion of it. And so when we look at the trading ranges, when we look at movements, when you look -- so for example, as we said with the portfolio effect, you'll see currencies do one thing.

But you might get some trading opportunities in metals or in energy or in the indices or in other -- in single-stock equities that we offer outside the U.S. And so in this case, part of -- I suspect part of the drivers for a more normal RPM environment are such things like -- you know, we saw -- we've seen some movement in oil. We've seen some lack of this -- of the super tight range. It doesn't mean necessarily mathematical vol changes for euro and some other currency pairs, but we have seen some trading in it.

We're not getting any relief yet on on some of the Brexit-driven trades. We're not getting any relief on some of the interest rate trades for indices. But we are seeing some activity in some other pockets where we didn't see at all. Again, if you look back at the way markets lined up in Q1 between metals, particularly gold, and oil and equities and currencies across the board, they really all lined up on the sidelines.

And we're seeing some movement around that. And as we've said before, it doesn't take much. We don't need full rock and roll vol. Even if you look back at the vol chart we showed, you can see there's an 18-year average, which for '16 and '17, we were below, and 2018 showed that even when we were below that 18-year average, we were able to produce some pretty decent EBITDA results.

The spike in Q1 was kind of below that but not low. So we put that chart up for a reason because you can see the long-term chart, then you see this little kind of spike down and then another mini-trend. We're not sitting here needing to get back to the even normal. We kind of need just to get back to the softer levels.

Particularly look in those last few years, from kind of a mid-'15 through Q1, you can see that we -- that was a channel with the '18 year on the high. We busted even below that for Q1. That's not the case so far.

Rich Repetto -- Sandler O'Neill -- Analyst

OK. And maybe just one last quick one. But just briefly, the marketing seems like it's continuing to work, you know. Could you just comment on, you know, a little bit more color on the success of the marketing spend? And the results seem still positive.

Glenn Stevens -- Chief Executive Officer

Yes, you know, and that's something that's encouraging to us because, at least, it's an harbinger of opportunity forward, being able to, you know -- we're at -- you go back and look at the chart that shows new direct accounts. Interestingly enough, you have this environment that isn't exactly creating an impetus for customers to want to open and trade and yet kind of commensurate or correlated with our continued higher investment. We've had the highest number of new direct accounts that we can recall. I mean we showed a chart going back to Q1 '17, so you got two and a half years going back, but we haven't been in this realm of new direct accounts opening.

So in terms of -- and even from a kind of active perspective and assets perspective, those numbers are all pointing up. And so we have been measuring the effectiveness of the marketing spend on multiple levels. And we put out the slide that shows ROI, that shows payback time, that shows just good, old-fashioned new accounts and new assets, and all those look good. Now getting those new customers to trade usually is easier than it is to get your existing customers to trade because the new customer is open because they have an idea they want to trade.

So you try to make that opening process or that journey as frictionless as possible, and you get them to open, and they start trading. The older ones, which are a good, solid group of customers for us, as we've showed north of 50% have a tenure over three years, look, the challenging part there is that arguably, if you say, you should trade, they say, why, what am I missing? Because they're already on board. The good news, though, is that when markets do show any return to life, they get on board, coupled with the new guys who are getting on board. For now, it's -- we're working through the analysis, but it's the newer customers that are doing the activities, the older customers that aren't, which isn't surprising, though, because that bigger group of older customers are waiting for something interesting.

Rich Repetto -- Sandler O'Neill -- Analyst

Great. Thanks for the comments, Glenn.

Glenn Stevens -- Chief Executive Officer

Thanks, Rich.

Operator

Our next question comes from Dan Fannon from Jefferies & Company. Please go ahead with your question.

Dan Fannon -- Jefferies and Company -- Analyst

Thanks. So just given the kind of changes in the cost structure and now the spending and marketing, can you talk about kind of what the breakeven kind of levels are we should think about for the business given the big loss we saw this past quarter? Obviously, it sounds like April is a little better but not back to where we've been. So how do we think about kind of the breakeven level here?

Glenn Stevens -- Chief Executive Officer

So breakeven level from -- I mean if you mean breakeven level from an RPM driver or -- sorry, just to just to kind of clarify what you're asking for.

Dan Fannon -- Jefferies and Company -- Analyst

Yes. I mean the inputs to revenue, right? I mean RPM and volume, I guess where you -- or what in kind of the -- and what that would mean for the expense base. So kind of thinking about what the expense base is on a fixed -- and with the elevated marketing spend and then what we need to see in terms of minimum level of revenues to kind of get to -- back to breakeven.

Glenn Stevens -- Chief Executive Officer

OK. So a couple of things. You're right. The combination of RPM and volume can -- you know, it's the combination of two that matters.

You can have a modest RPM with spikes in volume or vice versa or both good or both poor, like we saw in Q1. But the other lever for us to pull is on the expense side. And I think we're -- you know, as I tried to reference a little bit in the deck is we're acutely conscious of being responsible and say, where can we adjust our expense base? When we came into this year, we made revenue assumptions based on our model, based on just what you said, RPM expectations, volume expectations. The one thing I'll point out is if you look back over kind of a trailing 12 months, we're at 104.

So in terms of guidance, we've provided to say, hey, here's what we think drives our model on RPM. It's at 104, and that's with Q1 in it. So that still hasn't like, you know, diverted too much from where we were in terms of that. That said, volumes are lower than where we expected because we expected a less-than-placid market that we have now.

So we've gone back and looked and say, OK, on the expense side, what can we do? We looked at it two ways. We looked at one set of expense as our outward spend, which would be our marketing spend, and we've provided some guidance there. And we're tweaking that from quarter to quarter to try to be opportunistic when the market's right. And maybe save some dry powder when we can without mortgaging the future.

And the hard part about that one, Dan, is that if you're getting the results from new customers that I was talking to on the previous call with with Rich, is that if you're getting the results from the new customers, you don't actually want to shy away. They may not be converting into revenue and that expense may look ill-timed, but if it looks like you're attracting the customers for future opportunity, you should keep doing it. On the other cost bucket, which is a bigger -- the bigger number, that's on the opex, if you will. And on the opex or the overhead that Nigel would refer to, those are levers we're trying to see if we can pull, both short term and medium term, to try to rightsize it because, let's face it, we dug ourselves a hole for revenue in the first part.

We're not just going to stick with our plans on the expense side to leave them where they are. I don't know if --

Nigel Rose -- Chief Financial Officer

Yes, just to add that, Glenn. Dan, if you look at the trailing 12-month numbers we've got there to the point on the 104 we have in the quarter, so the EBITDA across the group will be 30 million on a trailing 12-month basis with an RPM of 104 and an ADV of nine. So clearly, our intention is that the ADV of nine will grow as those new accounts go on to trade and as we continue to put new accounts, bringing new accounts into the business. And so in terms of breakeven, I think we have to be seeing a meaningful lower RPM than the trailing 12 months for a meaningful period of time before we would start to have any sort of concerns around that aspect.

Glenn Stevens -- Chief Executive Officer

And I guess if I summarize it, it would be a collection of course corrections over the course that are driven by what we're seeing in revenue opportunity and new customer opportunity, not course change, like, oh, that's 180 or that's even 90 left or right. These are incremental changes that we're able to make in a good way to both our commercial spend or marketing spend and also to our operating expense. Now in that respect, we made a bunch of assumptions about investing in growth. We outlined that when we gave our fourth-quarter future-looking three-year plan, and those -- we haven't adjusted our plans for '20 and '21.

But we are conscious of, hey, what can we do as we monitor this? Because again, ultimately, one thing is to not just hope. We're not doing that. No. 2, we're not going to turn around an older correct and say, gee, this is the new norm.

Markets will no longer trade anymore. So I think, you know, it's one quarter. It's a 12-quarter plan. And so that's the idea, is to be conscious of it and react to it but not overreact to it.

Dan Fannon -- Jefferies and Company -- Analyst

Got it. That's helpful. And then in terms of the capital, I mean based on the valuation of the stock and where things are, it seems like that's probably the best use. But I guess I just want to get a layout of kind of M&A and how much time you're spending on that, if that's a use of capital, as we think about over the next kind of 12 to 24 months, that's realistic.

Glenn Stevens -- Chief Executive Officer

You know, it's a good point because by one measure, particularly where we're trading around, you know, tangible book and such and even intangible book, you have to sit there, and you don't want to blindly say, well, gee, that seems silly not to just do that. Because you're right, without doubt, there will be opportunities on the M&A front that would require us to have some liquidity. So on the one hand, you might have somebody who's watching this saying, how are you not putting every single dollar into buying every share back you possibly can? Well, the other potential for capital, if you go back and look how successful our purchase of FXCM's U.S. assets were or some other deals we've had in the past, that's because we were Johnny-on-the-spot, being liquid and being available.

And so it is a balance. And I think that, I've said this in the past, that sometimes, when we have these stark downturns, it does create opportunities. And I still believe that. So we're trying to be -- we're trying to be judicious about balancing both.

Dan Fannon -- Jefferies and Company -- Analyst

Got it. And then just a quick one on the tax rate. Nigel, is that for the remainder of this -- the quarter -- for the remainder of the year or for the full-year tax rate?

Nigel Rose -- Chief Financial Officer

Yes. The way that works, Dan, is we'll look at our actual results. We'll forecast the rest of the year and, based on that, have a tax rate for the full year that we will then apply to each quarter. So the full year rate of 16 -- or 17% to 19% is what we're estimating.

That's for the full year. It also applies to the quarter. If Q2 turns out the way we forecast, it will apply to Q2 as well. If Q2 is more profitable, then it's likely to tweak the tax rate.

If it's less profitable, again, it will tweak the tax rate. But based on where we stand now and our estimates, the rate is likely to be between 17% to 19% for the full year.

Dan Fannon -- Jefferies and Company -- Analyst

Got it. Thank you.

Nigel Rose -- Chief Financial Officer

OK.

Glenn Stevens -- Chief Executive Officer

Thanks, Dan.

Operator

And our next question comes from Ken Worthington from J.P. Morgan. Please go ahead with your question.

Ken Worthington -- J.P. Morgan -- Analyst

Hi. Good afternoon. So maybe to follow up on some previous questions being the new guy here, so when looking at rate per million, it seems to me as the outsider that the level goes kind of beyond a bad environment and low vol. And maybe to Rich's point, you're seeing things aren't as bad in April from an RPM perspective, but the drivers from, I guess, our perspective seem like they're even worse in April than they were in 1Q.

So maybe to what extent was there a product or a hedging strategy or a region or a number of days where things just went really wrong and losses mounted? Could -- it just seems hard for, at least me, again, as the outsider, to not think that there weren't some losses somewhere that offset some of the revenues that you would have driven.

Glenn Stevens -- Chief Executive Officer

So a couple of things here. Low, yes; outlier, yes, but actually still within our consideration set. When we model out what could -- how could things lay out in terms of an RPM, you know, we do have examples, particularly in the short term, like 90 days, particularly 90 days, we actually even model rolling quarters that don't go -- calendar quarters that go any kind of 90-day period. And this isn't unprecedented.

It's low but it's not unprecedented. So just in terms of model there, and as I said, you know, you go back to Q1 of '17. That was like 63. I know that's not 50, wherever we are here, but in other words, I'm trying to show that there are those spikes in those instances, which is why every time we ask people to pull the lens back 12 months or more, it's a lot more stable.

As we've mentioned here, even with this quarter in, we're at 12-month of 104. So that's No. 1. In terms of losses going in there, keep in mind it's not so much losses going in there.

More comes back to the opportunity to capture full or part of the spread when you have customers internalizing. So if you're able to effectively make markets in your products, then you have the opportunity to capture a larger part of the spreads. And if there's a lot of two-way trading, right, then that opportunity goes up. This is one of those instances where, as I was mentioning in our portfolio, none of the products showed two-way opportunity.

So it's not so much losses. It's that the lower volume, coupled with lots of high hedging, it's no surprise that in really competitive markets like equity indices and high-volume currency products like the euro/dollar or the Japanese yen, your ability to capture a large part of the spread or big off a spread comes from your ability to have more two-way trading. And when customers don't do that, so you see your volumes and you see the shape of the trading curve in that period, you end up hedging at very small incremental capture of spread. So you end up with these really tight channels, where people trade the narrow ranges, which means everybody's selling on these rallies or buying on these dips.

And what did it do? It had small rallies and small dips almost the whole quarter. Almost all the products did. So we end up in a situation where our spread capture, aka RPM, is low.

And usually, it's a mix, where it will be low in FX, but it was high in equities, or it was high in metals, it was high in energy. And sometimes, we end up with high in a bunch and we have 150. Other time -- and that's also an outlier. It's a more enjoyable outlier to discuss.

But if you go back to Q3 of '18, it was 164. That's is outliery as 50 is on the other side. It just looks better. But what it means is that more often than not, the market's lined up, and our ability to have -- capture a bigger part of the spread occurred.

So it's actually less about losses and really more -- much more about being able to capture a larger part of this bid-offer spread versus a smaller part of the bid-offer spread.

Ken Worthington -- J.P. Morgan -- Analyst

OK. Great. Thank you for that. And then in your deck, on Slide 5, we've got direct new accounts in the three months trailing active accounts.

I know they measure different things. But why aren't we seeing more of the new direct accounts kind of flowing into the trailing three months active account numbers? Like, you know, the direct new accounts probably had the biggest increase we've seen in a couple of years, and it's imperceivable on the three months active account chart. So why is that?

Glenn Stevens -- Chief Executive Officer

Yes. A couple of things. One will be just lower percentages in that the new accounts we brought in against our universe of total accounts. New direct is just a measure of that, so it's easy to see the change in terms of active accounts against the whole pool of accounts.

It's only a few months that we've seen this explosive growth of direct new accounts, so part of it is that -- two things. Part of it is that they're not being able to have the tail wag the dog yet because the tail is not big enough. And the other part that I mentioned is that there's a disproportionate amount of activity that comes with new accounts because when they open up, they want to trade. And the older accounts are harder to activate in quiet markets.

What's interesting is that we'll see that even in quiet markets, when somebody opens up a new account, they'll trade like that. I'll use the example of our kind of high-net-worth customers. They'll often drive, as you might expect, a disproportionate amount of our volumes and revenue opportunities. And a lot of them are on the sidelines.

You know, they had positions. They left them on and watched the market and vs. their -- over their last -- let's say, somebody who's a two-year-plus customer with us, who we have an eight-quarter track record with, this is one of the lowest quarters on volume that they came out with. So we'll see that vol.

We'll see them not be engaged. Whereas new customers, as I said, they'll normally come in and do some trading. Now the question whether they start to ebb and flow to kind of the old customer group will depend on what the market looks like. But I do suspect that as we continue to bring in new customers, all of those new customers will be active because that's why they opened.

Then whether they stay active is more market. Now all that said, I don't want to be passive in this. We have redoubled our efforts to what we call lifestyle -- life cycle marketing, which isn't actually marketing for new acquisition, which we've obviously spent a lot of time and effort on in the last six to nine months. We're trying to spend more time now and resources on trying to replace that group of customers who are quiet and and say, hey, how do we reengage you? What can we do for you decision support tools? What can we do for some now factors to get involved? And then there is another piece that's a little bit of a residual from the ESMA ranks kind of pre Q3.

We did have a bunch of smaller customers who would qualify as active who are no longer active because we had to reclass them. And basically, they didn't produce a lot of revenue, but they were in the ranks of active. And when ESMA changed those rules, those customers would have come out of the count. We can't really show that, but they get offset by that.

So you look at the new accounts coming in now. That replaces new active accounts. And if you go back in the trailing three, one of the kind of, let's say, offsetting situation, not to revenue so much but to active numbers, was a lot of those small retail accounts in Europe that are no longer active because they're no longer on our books.

Ken Worthington -- J.P. Morgan -- Analyst

OK. I think it's fair enough. And just maybe a slight follow-up. In the new direct accounts, you mentioned that they're opening accounts, therefore they want to trade.

Is it fair to say that maybe like 90% or 95% of the new direct accounts in any given quarter are active in the quarter on which they open an account? Is it something like that?

Glenn Stevens -- Chief Executive Officer

That's a good stat. I would have to check that accuracy. That sounds a little high to me. And I would say because some of it is environment-dependent, meaning that when things are moving, then the number definitely does that.

When things are quiet, I think it depends what time frame we're talking about. When you say in the quarter, yes, you're probably right. But it can be shorter time than that or maybe even a little bit over the quarter if the markets are really quiet. We do try to create a journey such that someone can open and trade very quickly because arguably, some of these things are impulse purchases, meaning that they have an idea, they want to get involved.

And I don't think there's that many people, for example -- I'll give you a scenario. There's not that many people that open up, you know, equity brokerage accounts on the discount side here and not trade in the beginning. They may go dormant, but in the beginning, the whole point is, hey, I want to do this. I just saw a commercial, and I want to go do this.

So they get driven to open. You make the journey really easy. They open and they do a trade. What happens after that kind of depends on market conditions, their success rate and their relationship with their broker, which is the stuff I was talking about.

The other side of it, though, is that if you slowed down their ability to open and trade, then, you know, any kind of friction slows it down. So I'm not so sure I'd sign up for the 90% as a blanket statement. But I think over time, absolutely. In terms of doing that math, some of it's gonna be environment-driven.

Ken Worthington -- J.P. Morgan -- Analyst

OK. Thanks very much.

Glenn Stevens -- Chief Executive Officer

You got it, Ken.

Operator

[Operator signoff]

Duration: 47 minutes

Call Participants:

Lauren Scott -- Investor Relations Representative

Glenn Stevens -- Chief Executive Officer

Nigel Rose -- Chief Financial Officer

Kyle Voigt -- KBW -- Analyst

Rich Repetto -- Sandler O'Neill -- Analyst

Dan Fannon -- Jefferies and Company -- Analyst

Ken Worthington -- J.P. Morgan -- Analyst

More GCAP analysis

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