|OCTOBER 13, 1999|
|Knight/Trimark Group Reports 49% Growth In Quarterly Revenues and 66% Growth In Quarterly Earnings Over Third Quarter 1998|
Market Volatility and Retail Trading Volumes Decline from Record Second Quarter 1999 Levels
JERSEY CITY, N.J., Oct. 13 /PRNewswire/ -- Knight/Trimark Group, Inc. (Nasdaq: NITE) today reported results for the third quarter ended September 30, 1999. Knight/Trimark Group is the leading market maker in both Nasdaq securities and the over-the-counter market for New York Stock Exchange- and American Stock Exchange-listed securities.
Third Quarter 1999 vs. Third Quarter 1998
-- 49% growth in revenues -- 94% growth in trades executed
-- 66% growth in net income (1) -- 88% growth in shares traded
First Nine Months 1999 vs. First Nine Months 1998
-- 130% growth in revenues -- 124% growth in trades executed
-- 229% growth in net income (1) -- 109% growth in shares traded
Third Third First Nine First Nine Quarter Quarter Months Months 1999 1998 1999 1998 Revenues ($) 137,580,128 92,375,746 544,291,450 236,493,943 Net income (1) ($) 21,842,393 13,157,193 109,444,032 33,244,318 Diluted EPS ($) .19 .13 .95 .36 Trades executed 20,438,294 10,509,894 60,578,292 27,097,928 Average daily trades 319,348 164,217 322,225 144,138 Shares traded (in thousands) 17,800,637 9,471,296 55,063,558 26,354,778
Revenues for the third quarter of 1999 rose 49% to $137.6 million, compared to $92.4 million for the third quarter of 1998. Net income(1) for the third quarter of 1999 totaled $21.8 million, or $0.19 per share on a diluted basis, a 66% increase from $13.2 million, or $0.13 per share on a diluted basis for the same period a year ago. Return on equity for the third quarter and first nine months of 1999, stated on an annualized basis, was 23% and 45%, respectively. Net income was also affected by lower state and local income taxes, which reduced the Company's effective tax rate to 37% for the third quarter of 1999.
"Knight's third-quarter results represented the third best quarter in the Company's four year history with a year-over-year earnings per share increase of 46% to $0.19. We implemented key initiatives in enhancing our execution standards, revenue stream diversification and brand identity," said Knight/Trimark President and Chief Executive Officer Kenneth D. Pasternak. "The combination of these initiatives and traditional third quarter seasonal trends were exacerbated by lighter retail volume and reduced overall market volatility than the first half of 1999. The confluence of these factors resulted in reduced sequential earnings from the second quarter."
Revenues and net income for the third quarter of 1999 decreased 39% and 57%, respectively, from the second quarter of 1999. Trades executed and shares traded for the third quarter of 1999 decreased 5% and 17%, respectively, from the second quarter of 1999. The Company maintained pre-tax margins of 25% in the third quarters of 1999 and 1998. Third quarter revenues from the Company's institutional business totaled $37 million, and represented 28% of the Company's third quarter trading revenues, up from 13% of total trading revenues in the third quarter 1998.
"We saw a strong, positive customer response to improvements in Knight's industry leading execution criteria, such as our midpoint single price opening program for Nasdaq securities and our automatic price improvement program on all S&P 500 securities. Providing bottom-line benefits to the individual investor, our innovative execution programs will continue to differentiate Knight from the competition and enable us to expand our market share," continued Pasternak. "We plan to accelerate the diversification of our revenue stream through opportunities in options and international market making. Our 18.92 percent equity stake in EASDAQ, the pan-European exchange, was a strong step in furthering our international strategy."
"The third quarter was testament to the efficiency of our business model, as evidenced by our maintenance of 25% pre-tax margins. We continuously review our operating model to identify potential areas for achieving increased operating efficiency. For example, Knight will realize a reduction in trade processing expenses as a result of our clearance agreement with Merrill Lynch."
"As the market moves to a decimal system and spreads on trades continue to narrow, scale is fast-becoming a critical success factor. In fact, we expect this change to drive a rationalization of the market making industry," continued Pasternak. "Knight anticipated this shift, and continues to invest in the practices and technologies that enabled us to execute over 55 billion shares in U.S. equity securities to date in 1999, a volume second only to Nasdaq and the NYSE. Future changes in market structure, including the increased use of electronic platforms, will undoubtedly benefit Knight/Trimark. In the long term, we anticipate year-over-year increases in volumes and earnings in excess of 30%."
The AutEx Group ("AutEx")(2) ranked Knight Securities as the largest market maker in Nasdaq/OTC securities for September 1999 with a 14.55% total market share. This represents a 35% increase in market share from September 1998 when Knight achieved a 10.76% total market share, and a 17% decrease in market share from June 1999. Knight attributes this decline in AutEx market share from June 1999 primarily to decreased volumes in the OTC Bulletin Board ("OTCBB") market, a market where Knight maintained a 24% to 27% market share throughout 1999. While Knight maintained its market share in this market throughout 1999, third quarter share volumes in the OTCBB market as a whole declined 34% from second quarter levels due to declines in retail trading volumes. Additionally, in September 1999, AutEx ranked Knight/Trimark number four in listed securities volume with a 5.76% total market share.
Knight/Trimark, headquartered in Jersey City, N.J., is the parent company of Knight Securities and Trimark Securities. Knight Securities makes markets in nearly 7,300 equity securities listed on Nasdaq and on the OTCBB of the National Association of Securities Dealers (NASD). Trimark trades NYSE- and AMEX-listed equity securities over the counter -- the Third Market. As the number one destination for online trade executions, Knight/Trimark is the processing power behind the explosive growth in securities trading via the Internet. The four-year-old company employs more than 580 people worldwide with offices in Jersey City, N.J.; Jericho and Purchase, N.Y.; Chicago, Ill.; Boston, Mass.; and London, England.
Copies of this earnings release and other information on the Company can be obtained via the Internet at http://www.knight-sec.com or toll-free on the Company's investor information line at 1-877-INFO-NITE.
The matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the Company's control, which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed with respect to future periods. These factors include, but are not limited to, the Company's ability to implement its growth strategies, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, intellectual property rights, and other factors detailed in the Company's registration statement and periodic reports filed with the Securities & Exchange Commission.
(1) Net Income for the periods ended September 30, 1998 was adjusted to reflect pro forma income taxes related to the Company's reorganization from a limited liability company to a C corporation in connection with the Company's initial public offering on July 8, 1998. (2) The AutEx group is a widely-recognized industry reporting service that provides daily statistics on trading activity and broker-dealer market-share, as reported by broker-dealers. KNIGHT/TRIMARK GROUP, INC. Consolidated Statements of Income (Unaudited) Three Months Nine Months Ended Sept 30, Ended Sept 30, 1999 1998 1999 1998 Revenues Net trading revenue $129,434,821 $ 89,941,017 $524,423,136 $233,134,057 Commissions and fees 4,721,877 1,372,247 11,687,933 1,486,701 Interest, net 3,423,430 1,062,482 8,180,381 1,873,185 Total revenues 137,580,128 92,375,746 544,291,450 236,493,943 Expenses Employee compensation and benefits 36,969,707 28,335,434 164,428,927 68,132,238 Payments for order flow 31,068,700 20,351,538 98,850,716 56,097,708 Execution and clearance fees 19,708,859 11,984,448 57,472,143 32,358,112 Communications and data processing 4,829,222 2,764,860 12,777,707 7,449,224 Business development 3,341,296 608,679 5,355,986 1,620,996 Occupancy and equipment rentals 2,669,230 1,647,143 6,959,035 4,044,607 Depreciation and amortization 2,416,149 1,520,842 6,549,768 4,160,269 Professional fees 978,324 1,256,418 4,198,553 2,207,458 Interest on Preferred Units -- 36,845 -- 714,904 Other 875,278 786,744 2,536,371 1,385,062 Total expenses 102,856,765 69,292,951 359,129,206 178,170,578 Net income before taxes 34,723,363 23,082,795 185,162,244 58,323,365 Income tax expense 12,880,970 9,259,200 75,718,212 9,259,200 Net income $21,842,393 $13,823,595 $109,444,032 $49,064,165 Basic earnings per share $0.20 $1.00 Diluted earnings per share $0.19 $0.95 Pro forma adjustment:* Net income before taxes $23,082,795 $58,323,365 Pro forma income tax expense 9,925,602 25,079,047 Pro forma net income $13,157,193 $33,244,318 Pro forma basic and diluted earnings per share $0.13 $0.36 Shares used in the Computation of basic earnings per share ** 111,203,800 109,921,171 Shares used in the computation of diluted earnings per share ** 116,350,861 114,843,985 Pro forma shares outstanding for basic and diluted earnings per share *** 102,565,439 91,319,460 * Before its reorganization to a C Corporation on July 13, 1998, the Company, as a limited liability company, was not subject to income taxes. Pro forma income tax expense was computed based on an effective tax rate of 43% for the periods ended September 30, 1998. ** The shares used to calculate basic earnings per share for the periods ended September 30, 1999 reflect the weighted average shares outstanding during the period. The shares used to calculate diluted earnings per share include the effect of dilutive stock options. *** Pro forma shares outstanding for the periods ended September 30, 1998 have been determined as if the Company's reorganization to a C Corporation occurred as of January 1, 1998, but do not include shares issued in connection with the Company's initial public offering on July 13, 1998. KNIGHT/TRIMARK GROUP, INC. Consolidated Statements of Financial Condition (Unaudited) September 30, December 31, 1999 1998 ASSETS Cash and cash equivalents $265,298,079 $117,381,556 Securities owned, at market value 100,822,606 100,476,151 Receivable from clearing brokers 107,738,486 107,503,274 Fixed assets and leasehold improvements at cost, less accumulated depreciation 15,272,283 12,014,991 Goodwill, less accumulated amortization 17,695,978 16,036,859 Income taxes receivable 4,902,306 -- Investments 11,672,934 1,913,000 Other assets 10,752,127 3,534,544 Total assets $534,154,799 $358,860,375 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $86,789,389 $108,909,217 Short-term borrowings -- 10,000,000 Accrued compensation expense 21,442,851 16,529,004 Accrued execution and clearance fees 7,947,576 6,898,095 Accrued payments for order flow 8,862,301 8,672,668 Accounts payable, accrued expenses and other liabilities 9,110,418 5,445,112 Income taxes payable -- 2,285,620 Total liabilities 134,152,535 158,739,716 Stockholders' equity Class A Common Shares 1,113,342 981,244 Class B Common Shares -- 78,854 Additional paid-in capital 259,634,209 169,249,880 Retained earnings 139,254,713 29,810,681 Total stockholders' equity 400,002,264 200,120,659 Total liabilities and stockholders' equity $534,154,799 $358,860,375 SOURCE Knight/Trimark Group, Inc.