| JULY 19, 2006 |
| Knight Capital Group Announces GAAP Earnings of $0.29 Per Diluted Share for Second Quarter 2006 |
JERSEY CITY, N.J., July 19 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported GAAP earnings of $30.3 million, or $0.29 per diluted share, and pre-tax operating earnings of $51.2 million for the second quarter of 2006. For the second quarter of 2005, the company reported a GAAP loss of $5.6 million, or $0.05 per diluted share, and a pre-tax operating loss of $2.5 million. Revenues for the second quarter of 2006 were $204.6 million, compared to $111.7 million for the second quarter of 2005. "Continuing operations" include the company's two operating business segments, Global Markets and Asset Management. Continuing operations also include a Corporate segment, encompassing corporate investments and overhead expenses. Amounts reported as "discontinued operations" include the company's former Derivative Markets business segment, the sale of which was completed to Citigroup in December 2004. "Knight has now completed four consecutive quarters of strong financial results, reflecting the critical changes to our business model that we began implementing one year ago," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. "All of Knight's Global Markets businesses -- including broker-dealer, institutional sales, direct market access and foreign exchange trading -- performed well in the second quarter. Our broker-dealer business was once again the largest contributor to quarterly earnings in mixed market conditions. Second quarter 2006 revenues from our Global Markets segment were 85% higher than in the second quarter of 2005. Our Asset Management segment ended the quarter with positive blended returns despite a difficult market environment for many of its underlying strategies. Deephaven's blended returns for the first six months of 2006 are greater than its returns for the full year 2005."
Q2 2006 Q2 2005
Revenues ($) 204,621,217 111,673,073
Net income (loss) ($) 30,339,584 (5,615,938)
Diluted EPS ($) 0.29 (0.05)
U.S. equity dollar value traded
(in $ millions) 566,224 445,808
U.S. equity trades executed
(in thousands) 59,222 48,150
Average daily U.S. equity trades
(in thousands) 940 752
Nasdaq and Listed equity shares
traded (in millions) 25,671 25,363
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 304,994 154,050
Average revenue capture per U.S.
equity dollar value traded (bps) 2.1 1.5
Average month-end balance of assets
under management (in $ millions) 3,074.6 3,268.5
Quarterly fund return to investors* 0.7% -1.3%
* Quarterly fund return represents the blended quarterly return across all assets under management in the Deephaven funds
YTD 2006 YTD 2005
Revenues ($) 481,077,030 249,229,944
Net income from continuing operations ($) 79,471,625 403,995
Loss from discontinued operations,
net of tax ($) - (265,927)
Net income ($) 79,471,625 138,068
Diluted EPS ($) 0.75 -
U.S. equity dollar value traded
(in $ millions) 1,125,896 916,483
U.S. equity trades executed
(in thousands) 120,241 100,999
Average daily U.S. equity trades (in
thousands) 962 808
Nasdaq and Listed equity shares
traded (in millions) 53,532 54,462
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 678,670 449,849
Average revenue capture per U.S.
equity dollar value traded (bps) 2.2 1.6
Average month-end balance of assets
under management (in $ millions) 3,009.2 3,375.3
Year-to-date fund return to
investors* 9.2% -0.2%
* Year-to-date fund return represents the blended return across all assets under management in the Deephaven funds "Knight is a more diverse company than it was 12 months ago with three newly acquired fee-based businesses and a fourth acquisition agreement announced July 10," Mr. Joyce said. "While market activity may take a hiatus during the typical summer doldrums, we will continue our efforts to integrate, cross-sell and grow these latest additions to our product offering. We have broadened our electronic access capabilities, such as direct market access through Direct Trading Institutional and ECN trading through Direct Edge ECN. We've also expanded our offering to include more asset classes, with foreign exchange capabilities through Hotspot and, soon, fixed income through ValuBond. "Knight's recent history of making appropriately sized, targeted acquisitions is part of our continued growth and capital management strategies," Mr. Joyce added. "During the second quarter, the company bought back more than $23 million of its own stock and acquired Hotspot for $77.5 million. Knight also is investing in its own brand. We have launched a campaign aimed at narrowing the gap between perception in the marketplace and the reality of the firm's evolution. We are excited to take our message to a broad audience, establishing Knight as a leading financial services firm with a wide range of customized trade execution products and services across multiple asset classes." Global Markets During the second quarter of 2006, the Global Markets business segment generated total revenues of $182.1 million, compared to $98.5 million in the second quarter of 2005. In the second quarter of 2006, the Global Markets business segment reported pre-tax operating earnings of $49.5 million, compared to a pre-tax operating loss of $1.8 million in the second quarter of 2005. Effective April 1, 2006, Knight completed its acquisition of Hotspot FX, Inc. in an all-cash deal for $77.5 million. Hotspot provides institutions and dealers with spot foreign exchange execution through an advanced, fully electronic platform. The results of the Hotspot division have been included within the Global Markets business segment in the second quarter of 2006. On July 10, 2006, the Company announced that it has agreed to acquire ValuBond, Inc., a privately held firm that provides electronic access and trade execution products for the fixed income market, in an all-cash deal for $18.2 million. The close of the transaction is subject to receipt of appropriate regulatory approvals and is expected to be completed within six months. Asset Management During the second quarter of 2006, the Asset Management business segment, Deephaven Capital Management, generated $14.1 million in asset management fees, compared to $8.0 million in the same period a year ago. In the second quarter of 2006, Asset Management reported pre-tax operating earnings of $2.3 million, compared to a pre-tax operating loss of $0.9 million in the second quarter of 2005. Asset Management had approximately $3.1 billion under management at June 30, 2006, down from the $3.4 billion under management at June 30, 2005. Corporate In the second quarter of 2006, the Corporate segment reported a pre-tax operating loss of $0.5 million, compared to pre-tax operating income of $0.2 million in the second quarter of 2005. Included in the second quarter 2006 results is a pre-tax gain of $7.1 million, or approximately $0.04 per diluted share, related to the sale of a part of the company's equity ownership in the International Securities Exchange, Inc. During the second quarter of 2005, the company recognized a pre-tax gain of $8.1 million, or approximately $0.05 per diluted share, relating to its investments in The Nasdaq Stock Market, Inc. The company's corporate investment in the Deephaven funds earned $0.9 million pre-tax during the second quarter of 2006, compared to a pre-tax loss of $2.9 million during the second quarter of 2005. As of June 30, 2006, the company had $182.9 million in cash and cash equivalents and a $228.9 million corporate investment in funds managed by Deephaven. The company had $912.4 million in stockholders' equity as of June 30, 2006, equivalent to a book value of approximately $8.66 per diluted share. During the second quarter of 2006, the company repurchased 1.4 million shares for approximately $23.4 million under the company's $495 million stock repurchase program. To date, the company has repurchased 39 million shares for $319 million. The company cautions that there are no assurances that any further repurchases may actually occur. Copies of this earnings release and other information on the company can be obtained at the company's website, www.knight.com. The company will conduct its second quarter 2006 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, July 19, 2006. To access Knight's earnings conference call, please dial (800) 458-9009 for domestic callers or (719) 457-2623 for international callers. When prompted, provide the passcode, which is 6480870. 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 2006 on its website before the start of trading today. About Knight Knight Capital Group, Inc. (Nasdaq: NITE) is a leading financial services firm that provides comprehensive trade execution solutions and asset management services. 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 for institutions and private clients. Our Global Markets business provides a broad range of customized trade execution products and services across multiple asset classes for broker-dealers, institutions and issuer companies. We continually apply knowledge and innovation to the trading and asset management processes to build lasting client partnerships through consistent performance and superior client service. More information about Knight can be found at www.knight.com. Presentation of Information in this Press Release In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management believes provides useful information to investors. Within this press release, the Company has disclosed its pre-tax operating income (loss) and its operating expenses for certain reporting periods before charges, writedowns and lease loss accruals to assist the reader in understanding the impact of these charges, writedowns and lease loss accruals on the Company's financial results, thereby facilitating more useful period- to-period comparisons of the Company's businesses. 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 based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management. 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. 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; however, readers should carefully review reports or documents the Company files from time to time with the Securities and Exchange Commission including, without limitation, 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.
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2006 2005 2006 2005
Revenues
Commissions and
fees $111,146,041 $68,022,217 $213,050,428 $138,138,228
Net trading
revenue 68,220,068 27,051,166 148,259,218 64,472,995
Asset management
fees 14,075,709 8,036,861 84,586,752 25,917,529
Interest and
dividends, net 2,775,335 2,216,039 6,089,307 4,555,840
Investment income
and other 8,404,064 6,346,790 29,091,325 16,145,352
Total revenues 204,621,217 111,673,073 481,077,030 249,229,944
Transaction-based
expenses
Execution and
clearance fees 30,026,355 23,348,038 58,950,758 46,894,821
Soft dollar and
commission
recapture expense 17,355,315 14,649,781 35,063,016 30,134,356
Payments for order
flow and ECN
rebates 12,126,021 3,582,088 21,999,419 10,986,162
Total
transaction-
based expenses 59,507,691 41,579,907 116,013,193 88,015,339
Revenues, net of
transaction-
based expenses 145,113,526 70,093,166 365,063,837 161,214,605
Other direct expenses
Employee
compensation and
benefits 64,615,557 48,193,801 164,171,725 105,051,243
Communications and
data processing 8,403,791 8,151,261 16,041,932 15,965,223
Professional fees 5,092,238 4,550,021 11,475,361 8,331,745
Depreciation and
amortization 5,324,879 3,734,419 9,732,574 8,036,831
Occupancy and
equipment rentals 3,398,114 2,829,725 6,750,599 6,947,116
Business
development 3,134,363 1,707,779 5,256,681 3,001,115
Writedown of
assets and lease
loss accrual 482,269 4,545,895 8,479,703 4,545,895
Regulatory charges
and related
matters - 2,000,000 - 2,000,000
Other 3,896,612 3,425,759 10,344,981 6,079,506
Total other
direct expenses 94,347,823 79,138,660 232,253,556 159,958,674
Income (loss) from
continuing
operations before
income taxes 50,765,703 (9,045,494) 132,810,281 1,255,931
Income tax expense
(benefit) 20,426,119 (3,429,556) 53,338,656 851,936
Net income (loss)
from continuing
operations 30,339,584 (5,615,938) 79,471,625 403,995
Loss from
discontinued
operations, net of
tax - - - (265,927)
Net income (loss) $30,339,584 $(5,615,938) $79,471,625 $138,068
Basic earnings per
share from
continuing
operations $0.30 $(0.05) $0.79 $0.00
Diluted earnings
per share from
continuing
operations $0.29 $(0.05) $0.75 $0.00
Basic and diluted
earnings per share
from discontinued
operations $ - $ - $ - $ -
Basic earnings per
share $0.30 $(0.05) $0.79 $0.00
Diluted earnings
per share $0.29 $(0.05) $0.75 $0.00
Shares used in
computation of
basic earnings per
share 100,739,240 104,335,490 100,822,519 106,584,672
Shares used in
computation of
diluted earnings
per share 105,397,197 104,335,490 105,358,680 109,579,944
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, 2006 December 31, 2005
ASSETS
Cash and cash equivalents $182,852,384 $230,591,067
Securities owned, held at clearing
brokers, at market value 589,260,454 380,366,778
Receivable from brokers and dealers 314,119,738 229,828,734
Investment in Deephaven sponsored
funds 228,892,182 281,656,753
Fixed assets and leasehold
improvements at cost, less
accumulated depreciation and
amortization 68,099,377 67,656,533
Strategic investments 34,451,021 31,896,425
Goodwill 91,365,692 47,682,880
Intangible assets, less accumulated
amortization 62,723,474 29,773,442
Other assets 148,264,082 116,563,732
Total assets $1,720,028,404 $1,416,016,344
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Securities sold, not yet purchased,
at market value $530,558,649 $345,457,499
Payable to brokers and dealers 75,879,418 35,102,415
Accrued compensation expense 120,754,521 117,763,834
Accrued expenses and other
liabilities 80,428,033 94,244,447
Total liabilities 807,620,621 592,568,195
Stockholders' equity
Class A common stock 1,429,370 1,397,457
Additional paid-in-capital 488,507,697 452,839,356
Retained earnings 732,985,316 653,513,691
Treasury stock, at cost (321,466,314) (294,652,742)
Accumulated other comprehensive
income, net of tax 10,951,714 10,350,387
Total stockholders' equity 912,407,783 823,448,149
Total liabilities and
stockholders' equity $1,720,028,404 $1,416,016,344
KNIGHT CAPITAL GROUP, INC.
PRE-TAX OPERATING EARNINGS BY BUSINESS SEGMENT*
Amounts in millions
(Unaudited)
For the three For the six
months ended months ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
Global Markets
Revenues $182.1 $98.5 $370.0 $206.4
Operating Expenses 132.6 100.3 264.0 208.9
Pre-Tax Operating Earnings 49.5 (1.8) 106.0 (2.5)
Asset Management
Revenues 14.2 7.9 85.0 26.0
Operating Expenses 11.9 8.8 56.0 21.8
Pre-Tax Operating Earnings 2.3 (0.9) 29.0 4.2
Corporate
Revenues 8.4 5.3 26.1 16.8
Operating Expenses 8.9 5.1 19.9 10.7
Pre-Tax Operating Earnings (0.5) 0.2 6.2 6.1
Consolidated
Revenues 204.6 111.7 481.1 249.2
Operating Expenses 153.4 114.2 339.8 241.4
Pre-Tax Operating Earnings $51.2 $(2.5) $141.3 $7.8
* Totals may not add due to rounding.
KNIGHT CAPITAL GROUP, INC.
RECONCILIATION OF TOTAL GAAP EXPENSES AND PRE-TAX GAAP INCOME TO
OPERATING EXPENSES AND PRE-TAX OPERATING EARNINGS*
Amounts in millions
(Unaudited)
TOTAL GAAP EXPENSES TO OPERATING EXPENSES
For the three months ended June 30, 2006
Global Asset
Markets Management Corporate Total
Transaction-based expenses $59.5 $ - $ - $59.5
Other direct expenses 73.5 11.9 8.9 94.3
TOTAL GAAP EXPENSES 133.0 11.9 8.9 153.9
Adjustment:
Writedown of assets and
lease loss accrual** (0.5) - - (0.5)
OPERATING EXPENSES $132.6 $11.9 $8.9 $153.4
For the three months ended June 30, 2005
Global Asset
Markets Management Corporate Total
Transaction-based expenses $41.6 $ - $ - $41.6
Other direct expenses 63.2 10.8 5.1 79.2
TOTAL GAAP EXPENSES 104.8 10.8 5.1 120.7
Adjustments:
Writedown of assets and
lease loss accrual (4.5) - - (4.5)
Regulatory charges and
related matters - (2.0) - (2.0)
OPERATING EXPENSES $100.3 $8.8 $5.1 $114.2
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the three months ended June 30, 2006
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME (LOSS) FROM
CONTINUING OPERATIONS $49.0 $2.3 $(0.5) $50.8
Adjustment:
Writedown of assets and
lease loss accrual** 0.5 - - 0.5
PRE-TAX OPERATING EARNINGS $49.5 $2.3 $(0.5) $51.2
For the three months ended June 30, 2005
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP (LOSS) INCOME FROM
CONTINUING
OPERATIONS $(6.3) $(2.9) $0.2 $(9.0)
Adjustments:
Writedown of assets and lease
loss accrual 4.5 - - 4.5
Regulatory charges and
related matters - 2.0 - 2.0
PRE-TAX OPERATING EARNINGS $(1.8) $(0.9) $0.2 $(2.5)
* Totals may not add due to rounding.
** For the three months ended June 30, 2006, the company recorded a pre-
tax charge of $0.5 million relating to the costs associated with
writedowns of assets and lease loss accruals in connection with the
acquisition of Hotspot.
KNIGHT CAPITAL GROUP, INC.
RECONCILIATION OF TOTAL GAAP EXPENSES AND PRE-TAX GAAP INCOME TO
OPERATING EXPENSES AND PRE-TAX OPERATING EARNINGS*
Amounts in millions
(Unaudited)
TOTAL GAAP EXPENSES TO OPERATING EXPENSES
For the six months ended June 30, 2006
Global Asset
Markets Management Corporate Total
Transaction-based expenses $116.0 $ - $ - $116.0
Other direct expenses 156.4 56.0 19.9 232.3
TOTAL GAAP EXPENSES 272.4 56.0 19.9 348.3
Adjustment:
Writedown of assets and
lease loss accrual (8.5) - - (8.5)
OPERATING EXPENSES $264.0 $56.0 $19.9 $339.8
For the six months ended June 30, 2005
Global Asset
Markets Management Corporate Total
Transaction-based expenses $88.0 $ - $ - $88.0
Other direct expenses 125.4 23.8 10.7 160.0
TOTAL GAAP EXPENSES 213.4 23.8 10.7 248.0
Adjustments:
Writedown of assets and
lease loss accrual (4.5) - - (4.5)
Regulatory charges and
related matters - (2.0) - (2.0)
OPERATING EXPENSES $208.9 $21.8 $10.7 $241.4
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the six months ended June 30, 2006
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $97.5 $29.0 $6.2 $132.8
Adjustment:
Writedown of assets and
lease loss accrual 8.5 - - 8.5
PRE-TAX OPERATING EARNINGS $106.0 $29.0 $6.2 $141.3
For the six months ended June 30, 2005
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP (LOSS) INCOME
FROM CONTINUING OPERATIONS $(7.0) $2.2 $6.1 $1.3
Adjustments:
Writedown of assets and
lease loss accrual 4.5 - - 4.5
Regulatory charges and
related matters - 2.0 - 2.0
PRE-TAX OPERATING EARNINGS $(2.5) $4.2 $6.1 $7.8
* Totals may not add due to rounding.
SOURCE Knight Capital Group, Inc. |
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The matters described within the Investor Relations section of the Knight Capital Group (the "Company") Web site 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 and Exchange.
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