|JULY 16, 2008|
|Knight Capital Group Announces Earnings of $0.32 Per Diluted Share for the Second Quarter 2008|
$0.32 EPS in the second quarter 2008 was 33% higher than $0.24 EPS in the second quarter 2007; Consolidated pre-tax margins were 23% in the second quarter 2008, up from 20% in the second quarter 2007
Global Markets revenues increased to $201.3 million in the second quarter 2008 from $165.3 million in the second quarter 2007
Global Markets pre-tax earnings in the second quarter 2008 nearly doubled to $64.4 million from $32.7 million in the second quarter 2007; Pre-tax margins were 32% in the second quarter 2008, up from 20% in the second quarter 2007
Asset Management recorded a pre-tax loss of $7.9 million as second quarter 2008 revenues fell to $14.5 million from $29.4 million in the second quarter 2007
JERSEY CITY, N.J., July 16 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported earnings of $29.4 million, or $0.32 per diluted share, and pre-tax income of $49.4 million, which included a minority interest expense of $1.1 million for the second quarter of 2008.
For the second quarter of 2007, the company reported earnings of $24.4 million, or $0.24 per diluted share, and pre-tax income of $39.9 million.
Revenues for the second quarter of 2008 were $219.1 million, compared to $201.4 million for the second quarter of 2007.
"In the second quarter of 2008, Knight achieved strong results despite a market environment that continued to be very difficult," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "On a consolidated basis, we grew year-over-year pre-tax income and revenues. We also achieved pre-tax margins of 23 percent which exceeded our goal of at least 20 percent pre-tax margins across market cycles. In Global Markets, we recorded solid revenue growth year-over-year due to increasing contributions from electronic market access and trade execution services. In Asset Management, Deephaven's blended fund performance was positive for the second quarter."
Q2 2008 Q2 2007 Revenues ($ thousands) 219,144 201,397 Net income ($ thousands) 29,411 24,380 Diluted EPS ($) 0.32 0.24 U.S. equity dollar value traded ($ billions) 1,104.7 650.6 U.S. equity trades executed (millions) 118.4 72.7 Average daily U.S. equity trades (thousands) 1,850.2 1,154.3 Nasdaq and Listed equity shares traded (billions) 34.8 25.8 OTC Bulletin Board and Pink Sheet shares traded (billions) 206.1 233.3 Average revenue capture per U.S. equity dollar value traded (bps) 1.3 1.6 Average month-end balance of assets under management ($ millions) 3,406.3 3,970.0 Quarterly fund return to investors* 2.8% 2.0%
* Quarterly fund return represents the blended quarterly return across all assets under management in the Deephaven funds.
YTD 2008 YTD 2007 Revenues ($ thousands) 446,188 443,048 Net income ($ thousands) 61,914 56,232 Diluted EPS ($) 0.67 0.54 U.S. equity dollar value traded ($ billions) 2,128.8 1,213.1 U.S. equity trades executed (millions) 225.5 139.6 Average daily U.S. equity trades (thousands) 1,804.1 1,125.9 Nasdaq and Listed equity shares traded (billions) 68.4 49.6 OTC Bulletin Board and Pink Sheet shares traded (billions) 371.2 452.1 Average revenue capture per U.S. equity dollar value traded (bps) 1.4 1.8 Average month-end balance of assets under management ($ millions) 3,491.1 4,020.9 Year-to-date fund return to investors* -5.4% 7.0%
* Year-to-date fund return represents the blended return across all assets under management in the Deephaven funds.
During the second quarter of 2008, Global Markets generated total revenues of $201.3 million, compared to $165.3 million in the second quarter of 2007. In the second quarter of 2008, Global Markets reported pre-tax earnings of $64.4 million, compared to pre-tax earnings of $32.7 million in the second quarter of 2007. Global Markets pre-tax margins of 32% in the second quarter of 2008 exceeded pre-tax margins of 20% in the second quarter of 2007.
"Global Markets turned in another excellent quarter and has now achieved pre-tax margins greater than 30 percent for the past three consecutive quarters," said Mr. Joyce. "Despite broad stock market volumes that were somewhat tepid, both average daily equity trades and average daily dollar value traded during the quarter increased more than 60 percent year-over-year. In terms of executing the Global Markets strategy, the formation of Knight Portfolio Access, establishment of Knight Transition Management and announced acquisition of Libertas Holdings are further evidence of diversifying our offering and expanding fee-based revenues."
During the second quarter of 2008, the Asset Management segment, Deephaven Capital Management, generated $14.4 million in asset management fees, compared to $29.1 million in the same period a year ago. In the second quarter of 2008, Deephaven reported a pre-tax loss of $7.9 million, compared to pre-tax earnings of $6.3 million in the second quarter of 2007. The second quarter 2008 pre-tax loss included a $1.1 million minority interest expense relating to the second quarter's accrual for the one-year minimum distribution to the Deephaven managers pursuant to the Limited Liability Agreement for Deephaven Capital Management LLC, which Knight filed with its Form 8-K on February 8, 2008.
Asset Management had approximately $3.3 billion under management at July 1, 2008, compared with $4.2 billion under management at July 1, 2007.
"During the second quarter, Deephaven fund performance improved measurably after a difficult first quarter," said Mr. Joyce. "Still, Deephaven's blended fund performance is negative year-to-date, affected to a certain extent by the difficult credit markets and steady, broad-based declines in the U.S. equity markets. During the second quarter, Deephaven also continued to reduce positions in the Event Fund and return funds to investors according to plan."
In the second quarter of 2008, the Corporate segment reported a pre-tax loss of $7.2 million, compared to pre-tax income of $0.9 million in the second quarter of 2007.
The company's corporate investment in the Deephaven funds earned $2.0 million pre-tax income during the second quarter of 2008, down from $6.3 million pre-tax income during the second quarter of 2007. As of June 30, 2008, the company had $332.7 million in cash and cash equivalents as well as a $76.5 million corporate investment in funds managed by Deephaven.
In the second quarter of 2008, the company borrowed the remaining $70.0 million under its existing $140.0 million credit facility. The proceeds will be used to finance share repurchases and other general corporate purposes.
"In the second half of 2008, we will make additional investments in Europe and Asia to position the firm for future growth opportunities," said Mr. Joyce. "Global Markets is expanding products and services, building pools of liquidity across asset classes, adding clients and growing revenues. A top priority moving forward is to bring our hybrid market model for accessing the global capital markets and trading across asset classes to our clients in new geographies."
The company had $964.9 million in stockholders' equity as of June 30, 2008, equivalent to a book value of $10.42 per diluted share. The company had a book value of $9.41 per diluted share as of June 30, 2007.
During the second quarter of 2008, the company repurchased 400,900 shares for approximately $7.1 million under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 61.0 million shares for $656.0 million. The company has approximately $344.0 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 second quarter of 2008 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, July 16, 2008. To access Knight's earnings conference call, please dial 877.718.5106 for domestic callers or 719.325.4749 for international callers. When prompted, provide the passcode, which is 8940869. The conference call will be webcast live at 9:00 a.m. EDT for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for June 2008 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. In Global Markets, we provide market access and trade execution services in nearly every U.S. equity security and a large number of international securities, futures, options, foreign exchange and fixed income. In Asset Management, Knight owns a 51 percent stake in Deephaven Holdings with Deephaven Partners controlling the remaining 49 percent as of February 1, 2008. Deephaven (www.deephavenfunds.com) is a global, multi-strategy alternative investment manager serving institutions and private clients. More information about Knight can be found at www.knight.com.
Certain statements contained herein may 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 businesses recently acquired, or that may be acquired in the future, 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 disclosed in the Company's reports with the U.S. Securities and Exchange Commission (SEC), including, without limitation, those detailed under the headings "Certain Factors Affecting Results of Operations" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2007, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should also be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto contained in the Company's Annual Report on Form 10-K for the year-ended December 31, 2007, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.
KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months For the six months ended June 30, ended June 30, 2008 2007 2008 2007 (In thousands, except per share amounts) Revenues Commissions and fees $ 114,192 $ 106,929 $ 227,378 $ 210,788 Net trading revenue 85,433 54,193 186,950 115,830 Asset management fees, net 14,420 29,116 29,606 89,830 Interest, net 1,076 4,169 3,832 8,987 Investment income (loss) and other, net 4,023 6,990 (1,578) 17,613 Total revenues 219,144 201,397 446,188 443,048 Transaction-based expenses Execution and clearance fees 23,828 28,691 49,052 56,101 Soft dollar and commission recapture expense 15,740 14,468 34,626 29,005 Payments for order flow and ECN rebates 8,300 12,761 17,226 25,360 Total transaction-based expenses 47,868 55,920 100,904 110,466 Revenues, net of transaction-based expenses 171,276 145,477 345,284 332,582 Other direct expenses Employee compensation and benefits 83,353 78,697 169,776 180,930 Communications and data processing 11,755 9,387 21,883 18,086 Professional fees 7,581 3,191 12,667 8,680 Depreciation and amortization 6,179 5,514 11,925 10,916 Occupancy and equipment rentals 5,364 3,550 9,376 7,005 Business development 4,553 4,493 8,467 8,272 Writedown of assets and lease loss accrual (1,872) (1,490) (1,872) (1,490) Other 3,871 2,275 5,293 5,608 Total other direct expenses 120,784 105,617 237,515 238,007 Income from continuing operations before income taxes and minority interest 50,492 39,860 107,769 94,575 Income tax expense 19,967 15,480 43,287 37,010 Income from continuing operations before minority interest 30,525 24,380 64,482 57,565 Minority interest expense 1,114 - 2,568 - Income from continuing operations 29,411 24,380 61,914 57,565 Loss from discontinued operations, net of tax - - - (1,333) Net income $ 29,411 $ 24,380 $ 61,914 $ 56,232 Basic earnings per share from continuing operations $ 0.33 $ 0.24 $ 0.69 $ 0.57 Diluted earnings per share from continuing operations $ 0.32 $ 0.24 $ 0.67 $ 0.56 Basic and diluted earnings per share from discontinued operations $ - $ - $ - $ (0.01) Basic earnings per share $ 0.33 $ 0.24 $ 0.69 $ 0.56 Diluted earnings per share $ 0.32 $ 0.24 $ 0.67 $ 0.54 Shares used in computation of basic earnings per share 90,215 99,683 90,013 100,291 Shares used in computation of diluted earnings per share 92,637 102,524 92,699 103,540 KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) June 30, 2008 December 31, 2007 (In thousands) ASSETS Cash and cash equivalents $ 332,686 $ 222,435 Securities owned, held at clearing brokers, at fair value 612,821 412,565 Receivable from brokers and dealers 227,709 382,544 Asset management fees receivable 10,613 27,588 Investment in Deephaven sponsored funds 76,454 83,732 Receivable from Deephaven sponsored funds - 85,000 Fixed assets and leasehold improvements, at cost, less accumulated depreciation and amortization 66,327 62,073 Strategic investments 84,052 73,704 Goodwill 184,240 132,832 Intangible assets, less accumulated amortization 72,519 57,845 Deferred compensation investments 102,123 85,504 Other assets 168,973 129,991 Total assets $ 1,938,517 $ 1,755,813 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at fair value $ 407,373 $ 335,280 Payable to brokers and dealers 134,131 117,001 Accrued compensation expense 173,056 228,275 Accrued expenses and other liabilities 115,500 119,879 Long term debt 140,000 70,000 Total liabilities 970,060 870,435 Minority interest 3,592 - Stockholders' equity Class A common stock 1,533 1,509 Additional paid-in-capital 620,852 587,025 Retained earnings 996,013 934,099 Treasury stock, at cost (653,533) (637,255) Total stockholders' equity 964,865 885,378 Total liabilities and stockholders' equity $ 1,938,517 $ 1,755,813 KNIGHT CAPITAL GROUP, INC. PRE-TAX EARNINGS FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT* Amounts in millions (Unaudited) For the three months ended For the six months ended June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007 Global Markets Revenues $ 201.3 $ 165.3 $ 422.4 $ 337.8 Expenses 136.9 132.6 279.0 269.0 Pre-tax earnings 64.4 32.7 143.4 68.8 Asset Management Revenues 14.5 29.4 29.7 90.6 Expenses 21.3 23.1 39.2 65.4 Pre-tax earnings (6.8) 6.3 (9.5) 25.2 Minority interest expense 1.1 - 2.6 - Pre-tax earnings after minority interest expense (7.9) 6.3 (12.1) 25.2 Corporate Revenues 3.3 6.8 (5.9) 14.6 Expenses 10.5 5.9 20.2 14.1 Pre-tax earnings (7.2) 0.9 (26.1) 0.5 Consolidated Revenues 219.1 201.4 446.2 443.0 Expenses 168.7 161.5 338.4 348.5 Pre-tax earnings 50.5 39.9 107.8 94.6 Minority interest expense 1.1 - 2.6 - Pre-tax earnings after minority interest expense $ 49.4 $ 39.9 $ 105.2 $ 94.6 * Totals may not add due to rounding.
SOURCE: Knight Capital Group, Inc.