|JANUARY 16, 2008|
|Knight Capital Group Announces Earnings of $0.52 Per Diluted Share for Fourth Quarter of 2007|
Global Markets generated fourth quarter revenues of $220.9 million, driven by electronic access and trading services, a 42% increase from fourth quarter 2006 revenues of $155.4 million Pre-tax earnings from Global Markets increased 214% to $79.4 million in the fourth quarter 2007 from $25.3 million in the fourth quarter 2006; Pre-tax margins rose to 36% in the fourth quarter 2007 from 16% in the fourth quarter 2006 Asset Management recorded fourth quarter 2007 pre-tax loss of $426,000 amid continuing weakness in broader financial markets; For 2007, Deephaven achieved blended fund performance of 6.8% In 2007, Global Markets revenues of $751.4 million and pre-tax earnings of $180.4 million are the highest annual totals since 2000JERSEY CITY, N.J., Jan 16, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported earnings of $49.6 million, or $0.52 per diluted share, and pre-tax income of $78.9 million for the fourth quarter of 2007. The results include a non-recurring tax benefit of $0.02 per diluted share. Excluding this item, earnings for the fourth quarter of 2007 were $0.50 per diluted share.
For the fourth quarter of 2006, the company reported earnings of $47.4 million, or $0.45 per diluted share, and pre-tax income of $71.6 million. The results included a $0.09 per diluted share gain from the sale of the remaining strategic investment in shares of the International Securities Exchange, Inc. (ISE) and a non-recurring tax benefit of $0.03 per diluted share. Excluding these two items, earnings for the fourth quarter of 2006 were $0.33 per diluted share.
Revenues for the fourth quarter of 2007 were $257.3 million, compared to $261.5 million for the fourth quarter of 2006.
"I am extremely proud of the results we achieved in the fourth quarter of 2007," said Thomas M. Joyce, Chairman and CEO, Knight Capital Group. "In Global Markets, Knight witnessed a powerful confluence of events in the markets that favored our hybrid market model. First, the volatility that began over the summer months continued into the fourth quarter. Second, our clients continued to show preference for Knight as a trade execution destination which was reflected in sustained high trading volumes. In Asset Management, Deephaven rebounded from its first down quarter in two and a half years to post positive blended fund returns for this quarter. On a consolidated basis, Knight achieved 31 percent pre-tax margins. Finally, our employees simply outdid themselves to provide clients with high quality transactions and improving returns in an uncertain market environment."
Q4 2007 Q4 2006 Revenues (in $ thousands) 257,337 261,452 Pre-tax margin 31% 27% Net income (in $ thousands) 49,563 47,414 Diluted EPS ($) 0.52 0.45 U.S. equity dollar value traded (in $ millions) 1,088,001 497,153 U.S. equity trades executed (in thousands) 105,273 58,680 Average daily U.S. equity trades (in thousands) 1,671 939 Nasdaq and Listed equity shares traded (in millions) 34,271 21,991 OTC Bulletin Board and Pink Sheet shares traded (in millions) 183,942 160,589 Average revenue capture per U.S. equity dollar value traded (bps) 1.6 2.0 Average month-end balance of assets under management (in $ millions) 4,202.9 4,183.9 Quarterly fund return to investors* 1.4% 7.1% * Quarterly fund return represents the blended quarterly return across all assets under management in the Deephaven funds YTD 2007 YTD 2006 Revenues (in $ thousands) 905,324 956,289 Pre-tax margin 22% 27% Net income (in $ thousands) 122,240 158,346 Diluted EPS ($) 1.21 1.49 U.S. equity dollar value traded (in $ millions) 3,178,626 2,033,574 U.S. equity trades executed (in thousands) 332,864 225,512 Average daily U.S. equity trades (in thousands) 1,334 902 Nasdaq and Listed equity shares traded (in millions) 113,599 94,348 OTC Bulletin Board and Pink Sheet shares traded (in millions) 821,827 1,063,089 Average revenue capture per U.S. equity dollar value traded (bps) 1.6 2.1 Average month-end balance of assets under management (in $ millions) 4,087.8 3,420.4 Annual fund return to investors* 6.8% 22.8% * Annual fund return represents the blended return across all assets under management in the Deephaven funds
During the fourth quarter of 2007, Global Markets generated total revenues of $220.9 million, compared to $155.4 million in the fourth quarter of 2006. In the fourth quarter of 2007, Global Markets reported pre-tax income of $79.4 million, compared to pre-tax income of $25.3 million in the fourth quarter of 2006.
"The fourth quarter was the best from a revenue standpoint for Global Markets in my tenure at Knight," Mr. Joyce said. "The continued hard work developing our electronic and voice trade execution services, coupled with Knight's maturation into an all-market U.S. equity trade execution destination, allowed us to grow and diversify our client base. As the volatility fluctuated throughout the fourth quarter, we gained market share while maintaining high quality trade execution standards. Diversification, both from a revenue and client perspective, better prepared us to withstand continued softness in areas such as Bulletin Boards and Pink Sheets. The results are even more remarkable in that Global Markets achieved pre-tax margins of 36 percent for the fourth quarter of 2007."
At the close of business on January 14, 2008, Knight completed the acquisition of EdgeTrade Inc., a leading agency-only trade execution and algorithmic software firm. EdgeTrade's algorithms, including smart order execution, benchmark and participation strategies, are now available on its broker-neutral trading platform Knight Direct EMS(TM).
During the fourth quarter of 2007, the Asset Management business segment, Deephaven Capital Management, generated $28.2 million in asset management fees, compared to $78.8 million in the same period a year ago. In the fourth quarter of 2007, Deephaven reported a pre-tax operating loss of $426,000, compared to pre-tax operating earnings of $27.4 million in the fourth quarter of 2006. Deephaven had approximately $3.9 billion under management at December 31, 2007, down from the $4.2 billion under management at December 31, 2006. Deephaven had approximately $4.0 billion under management at January 1, 2008.
As noted in its Form 8-K filing on August 27, 2007, the company, at its sole discretion, made the determination that if a Deephaven fund with a six- month performance period incurs losses in the performance period ending December 31, 2007, Deephaven will return all or a portion of the incentive allocation fees collected from investors in that fund for the six-month performance period ended June 30, 2007. As a result, Deephaven repaid approximately $19 million in fees in the fourth quarter of 2007.
"In Asset Management, continued uncertainty in the credit markets resulted in weaker Deephaven fund performance during the fourth quarter," Mr. Joyce said. "The Event Fund, for example, was affected by more stringent lending standards and a subsequent lack of deal activity. That being said, Deephaven funds performed comparably to their benchmark indexes. Over the course of the year, Deephaven continued to execute in terms of diversifying the fund offering, adding new fund investors and attracting talent."
On January 10, 2008, Deephaven Managing Partners, LLC, an entity owned and controlled by three senior managers of Deephaven Capital Management, gave notice to the company that it is exercising its option to obtain a 49% interest in a new limited liability company to which the company's interests in Deephaven would be contributed. For more information, please refer to Knight's SEC Form 8-K which was furnished on January 11, 2008.
In the fourth quarter of 2007, the Corporate segment reported a pre-tax loss of $41,000, compared to pre-tax earnings of $18.9 million in the fourth quarter of 2006. Included in the fourth quarter 2006 results is a pre-tax gain of $15.8 million, or approximately $0.09 per diluted share, from the sale of the company's remaining equity ownership in the ISE.
The company's corporate investment in the Deephaven funds earned $4.9 million pre-tax during the fourth quarter of 2007, down from $9.5 million pre- tax during the fourth quarter of 2006. As of December 31, 2007, the company had $222.4 million in cash and cash equivalents and an $83.7 million corporate investment in funds managed by Deephaven.
During the fourth quarter of 2007, the company redeemed a total of $120.0 million of its investment in the Deephaven funds, of which $85.0 million is included as a Receivable from Deephaven sponsored funds on the Consolidated Statement of Financial Condition at December 31, 2007.
In the fourth quarter of 2007, the company borrowed $70.0 million under its existing $140.0 million credit facility. The proceeds were used to finance share repurchases and other general corporate purposes.
"We are energized by our accomplishments of 2007 and, looking ahead, expect to see growth in several areas," Mr. Joyce said. "In Global Markets, we'll continue to invest in trade execution services that increase efficiencies and allow us to improve client service. Expansion in Europe will accelerate as recent successes and changing market conditions present new opportunities. In Asset Management, Deephaven will continue to develop new investment strategies, particularly in Asia. Finally, we expect volatility to remain high in 2008 as the credit market turmoil continues and the election year builds to a resolution."
The company had $885.4 million in stockholders' equity as of December 31, 2007, equivalent to a book value of $9.35 per diluted share. The company had a book value of $9.06 per diluted share as of December 31, 2006.
During the fourth quarter of 2007, the company repurchased 6.7 million shares for approximately $89.4 million under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 59.2 million shares for $626.2 million. The company has $373.8 million available to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur.
Copies of this earnings release and other company information can be obtained on Knight's website, http://www.knight.com. The company will conduct its fourth quarter of 2007 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Standard Time (EST) today, January 16, 2008. To access Knight's earnings conference call, please dial 877.741.4251 for domestic callers or 719.325.4820 for international callers. When prompted, provide the passcode, which is 5059041. The conference call will be webcast live at 9:00 a.m. EST for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for December 2007 on its website before the start of trading today at http://www.knight.com/ourliquidity/volumestatistics.asp.
Knight Capital Group, Inc. (Nasdaq: NITE) is a leading financial services firm that provides electronic and voice access to the capital markets across multiple asset classes for buy-side, sell-side and corporate clients, and asset management for institutions and private clients. Our Global Markets business offers superior execution quality through natural liquidity, capital facilitation and trading technology, with comprehensive products and services that support the capital formation process. Our Asset Management business, Deephaven Capital Management, is a global multi-strategy alternative investment manager focused on delivering attractive risk-adjusted returns with low correlation to the broader markets. More information about Knight can be found at www.knight.com.
Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with the costs, integration, performance and operation of the business acquired by the Company. Since such statements involve risks and uncertainties, the actual results and performance of the Company may turn out to be materially different from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties detailed under the headings "Certain Factors Affecting Results of Operations" and "Risks Affecting our Business" in the Company's Annual Report on Form 10-K and under the heading "Risk Factors" in the Company's Form 10-Q's for the quarterly periods ended June 30, 2007 and September 30, 2007, respectively, and in other reports or documents the Company files from time to time with the Securities and Exchange Commission.
KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three For the months ended year ended December 31, December 31, 2007 2006 * 2007 2006 * (In thousands, except per share amounts) Revenues Commissions and fees $105,234 $97,851 $447,495 $410,394 Net trading revenue 112,709 52,657 286,199 243,761 Asset management fees, net 28,184 78,765 116,777 213,888 Interest, net 3,766 4,762 17,378 16,027 Non-operating gain from subsidiary stock issuance - - 8,757 - Investment income and other, net 7,444 27,417 28,718 72,219 Total revenues 257,337 261,452 905,324 956,289 Transaction-based expenses Execution and clearance fees 24,605 25,857 120,261 106,908 Soft dollar and commission recapture expense 17,106 15,291 61,367 70,537 Payments for order flow and ECN rebates 10,226 10,529 54,564 42,191 Total transaction-based expenses 51,937 51,677 236,192 219,636 Revenues, net of transaction- based expenses 205,400 209,775 669,132 736,653 Other direct expenses Employee compensation and benefits 93,761 105,635 346,476 352,353 Communications and data processing 8,922 8,594 36,956 33,120 Depreciation and amortization 5,533 5,462 22,075 20,641 Professional fees 5,399 5,356 19,360 20,568 Business development 4,193 5,715 15,997 14,343 Occupancy and equipment rentals 3,393 3,621 14,083 13,536 Writedown of assets and lease loss accrual (1,116) - (2,470) 8,480 Other 6,407 3,832 15,418 17,101 Total other direct expenses 126,492 138,215 467,895 480,142 Income from continuing operations before income taxes 78,908 71,560 201,237 256,511 Income tax expense 29,345 24,146 77,560 98,165 Net income from continuing operations 49,563 47,414 123,677 158,346 Loss from discontinued operations, net of tax - - (1,437) - Net income $49,563 $47,414 $122,240 $158,346 Basic earnings per share from continuing operations $0.54 $0.47 $1.27 $1.56 Diluted earnings per share from continuing operations $0.52 $0.45 $1.23 $1.49 Basic and diluted earnings per share from discontinued operations $- $- $(0.01) $- Basic earnings per share $0.54 $0.47 $1.26 $1.56 Diluted earnings per share $0.52 $0.45 $1.21 $1.49 Shares used in computation of basic earnings per share 91,828 101,818 97,050 101,420 Shares used in computation of diluted earnings per share 94,722 106,189 100,796 106,243 "Continuing operations" include the company's two operating segments, Global Markets and Asset Management. Continuing operations also include a Corporate segment, encompassing corporate investments and overhead expenses. Amounts reported as "discontinued operations" include the company's former Derivative Markets business segment, which included the subsidiary Knight Financial Products LLC, the sale of which was completed to Citigroup at the close of business on December 9, 2004. * Certain reclassifications have been made to prior years' Consolidated Statements of Operations in order to conform to the current year presentation. Such reclassifications had no effect on previously reported Net income. KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) December 31, December 31, 2007 2006 (In thousands) ASSETS Cash and cash equivalents $222,435 $214,760 Securities owned, held at clearing brokers, at market value 412,565 711,775 Receivable from brokers and dealers 382,786 372,897 Asset management fees receivable 27,588 112,204 Investment in Deephaven sponsored funds 83,732 187,573 Receivable from Deephaven sponsored funds 85,000 - Fixed assets and leasehold improvements at cost, less accumulated depreciation and amortization 62,073 66,450 Strategic investments 73,704 49,437 Goodwill 132,832 133,043 Intangible assets, less accumulated amortization 57,845 63,701 Deferred compensation investments 85,504 31,586 Other assets 127,121 84,789 Total assets $1,753,185 $2,028,215 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $335,280 $693,071 Payable to brokers and dealers 117,243 47,853 Accrued compensation expense 228,275 227,847 Accrued expenses and other liabilities 117,009 96,957 Long term debt 70,000 - Total liabilities 867,807 1,065,728 Stockholders' equity Class A common stock 1,509 1,450 Additional paid-in-capital 587,025 519,790 Retained earnings 934,099 811,859 Treasury stock, at cost (637,255) (370,612) Total stockholders' equity 885,378 962,487 Total liabilities and stockholders' equity $1,753,185 $2,028,215 KNIGHT CAPITAL GROUP, INC. PRE-TAX EARNINGS BY BUSINESS SEGMENT* Amounts in millions (Unaudited) For the three For the months ended year ended December December December December 31, 2007 31, 2006 31, 2007 31, 2006 Asset Management Revenues $28.5 $79.1 $118.2 $214.9 Expenses 28.9 51.7 101.7 140.0 Pre-Tax Earnings (0.4) 27.4 16.5 74.8 Global Markets Revenues 220.9 155.4 751.4 674.8 Expenses 141.5 130.2 571.1 524.5 Pre-Tax Earnings 79.4 25.3 180.4 150.3 Corporate Revenues 7.9 27.0 35.7 66.6 Expenses 8.0 8.0 31.3 35.3 Pre-Tax Earnings - 18.9 4.3 31.4 Consolidated Revenues 257.3 261.5 905.3 956.3 Expenses 178.4 189.9 704.1 699.8 Pre-Tax Earnings $78.9 $71.6 $201.2 $256.5 * Totals may not add due to rounding.
SOURCE Knight Capital Group, Inc.