| OCTOBER 18, 2006 |
| Knight Capital Group Announces GAAP Earnings of $0.30 Per Diluted Share for Third Quarter 2006 |
Despite lower market volumes, the Global Markets segment was solid with $27.5
million in pre-tax operating earnings in the third quarter of 2006 JERSEY CITY, N.J., Oct. 18 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported GAAP earnings of $31.5 million, or $0.30 per diluted share, and pre-tax operating earnings of $52.1 million for the third quarter of 2006. For the third quarter of 2005, the company reported GAAP earnings of $24.4 million, or $0.23 per diluted share, and pre-tax earnings from continuing operations of $40.1 million. Results for the third quarter of 2005 include a pre-tax charge of $5.5 million relating to the costs associated with excess real estate capacity in Jersey City. Excluding this charge, third quarter 2005 pre-tax operating earnings from continuing operations were $45.6 million. Revenues for the third quarter of 2006 were $210.0 million, compared to $184.1 million for the third quarter of 2005. "Continuing operations" include the company's two operating business segments, Global Markets and Asset Management. Continuing operations also include a Corporate segment, encompassing corporate investments and overhead expenses. Amounts reported as "discontinued operations" include the company's former Derivative Markets business segment, the sale of which was completed to Citigroup at the close of business in December 2004. "In a seasonally slow market environment, Knight had another great quarter," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. "Clients have responded enthusiastically to our new and enhanced fee-based businesses designed to leverage Knight as a liquidity center. Our recently added electronic products -- like our direct market access, ECN and electronic foreign exchange offerings -- are providing clients with new choices. The acquisition of ValuBond, our electronic fixed income platform announced in July and closed just after the third quarter's end, is just the latest addition. New clients came on board in all of our Global Markets businesses, and we achieved greater account penetration through cross-selling and an intense focus on client service. Similarly, our Asset Management business outperformed its peers and increased assets under management over 20% since the second quarter with inflows from both new and existing clients."
Q3 2006 Q3 2005
Revenues ($) 210,007,921 184,096,509
Net income from continuing operations ($) 31,460,221 23,963,640
Income from discontinued operations,
net of tax ($) - 387,934
Net income ($) 31,460,221 24,351,574
Diluted EPS ($) 0.30 0.23
U.S. equity dollar value traded
(in $ millions) 410,525 467,658
U.S. equity trades executed
(in thousands) 46,591 50,780
Average daily U.S. equity trades
(in thousands) 745 793
Nasdaq and Listed equity shares traded
(in millions) 18,824 25,710
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 223,830 131,690
Average revenue capture per U.S.
equity dollar value traded (bps) 2.2 2.0
Average month-end balance of assets
under management (in $ millions) 3,479.5 3,374.6
Quarterly fund return to investors* 4.9% 5.5%
* Quarterly fund return represents the blended quarterly return across
all assets under management in the Deephaven funds
YTD 2006 YTD 2005
Revenues ($) 691,084,953 433,326,452
Net income from continuing operations ($) 110,931,850 24,367,681
Income from discontinued operations,
net of tax ($) - 122,007
Net income ($) 110,931,850 24,489,688
Diluted EPS ($) 1.05 0.23
U.S. equity dollar value traded
(in $ millions) 1,536,421 1,384,141
U.S. equity trades executed
(in thousands) 166,832 151,780
Average daily U.S. equity trades
(in thousands) 890 803
Nasdaq and Listed equity shares traded
(in millions) 72,357 80,172
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 902,500 581,539
Average revenue capture per U.S.
equity dollar value traded (bps) 2.2 1.7
Average month-end balance of assets
under management (in $ millions) 3,165.9 3,372.2
Year-to-date fund return to
investors* 14.6% 5.2%
* Year-to-date fund return represents the blended return across all
assets under management in the Deephaven funds
Global Markets
During the third quarter of 2006, the Global Markets business segment generated total revenues of $145.6 million, compared to $129.4 million in the third quarter of 2005. In the third quarter of 2006, the Global Markets business segment reported pre-tax operating earnings of $27.5 million, compared to pre-tax operating earnings of $24.6 million in the third quarter of 2005. "Knight's Global Markets performance was solid in a third quarter that was not only seasonally weak, but historically weak," Mr. Joyce said. "Dollar value traded was at its lowest since the third quarter of 2004. In fact, the overall market environment did little to inspire trading, as demonstrated by steep declines in volume on the exchanges. Given these poor trading dynamics, Knight's revenue capture was aided by our automated trading systems. Fee and commission revenues reflected the lower volumes, as expected, but Knight's institutional commission rates remained steady. Our sales traders continue to distinguish Knight from the competition in their commitment and flexibility in working orders on behalf of clients, without the proprietary trading that has become commonplace in the industry." On October 2, 2006, the Company announced the completion of its acquisition of 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 results of ValuBond will be included within the Global Markets segment for the fourth quarter of 2006. Asset Management During the third quarter of 2006, the Asset Management business segment, Deephaven Capital Management, generated $50.5 million in asset management fees, compared to $42.0 million in the same period a year ago. In the third quarter of 2006, Asset Management reported pre-tax operating earnings of $18.4 million, compared to pre-tax operating earnings of $15.7 million in the third quarter of 2005. Asset Management had approximately $3.8 billion under management at September 30, 2006, up from the $3.4 billion under management at September 30, 2005. "Our Asset Management segment had an exceptional third quarter," Mr. Joyce continued. "Deephaven Capital Management's investment managers and analysts successfully uncovered market opportunities, driving a third quarter blended return that reversed flat second quarter performance and was stronger than their market neutral peers. At the same time, new investments in the Deephaven funds boosted assets under management to the $3.8 billion mark. Knight continues to negotiate with Deephaven's management. Their current employment contracts expire on December 31, 2006." Corporate In the third quarter of 2006, the Corporate segment reported pre-tax operating earnings of $6.2 million, compared to pre-tax operating income of $5.3 million in the third quarter of 2005. Included in the third quarter 2006 results is a pre-tax gain of $7.2 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. The company's corporate investment in the Deephaven funds earned $4.8 million pre-tax during the third quarter of 2006, down from $14.6 million pre-tax during the third quarter of 2005, reflecting the impact of the company's planned reduction of its investment. As of September 30, 2006, the company had $186.7 million in cash and cash equivalents and a $203.0 million corporate investment in funds managed by Deephaven. The company had $955.0 million in stockholders' equity as of September 30, 2006, equivalent to a book value of approximately $8.97 per diluted share. During the third quarter of 2006, the company repurchased 585,000 shares for approximately $9.4 million under the company's $495 million stock repurchase program. To date, the company has repurchased 39.6 million shares for $329 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 third quarter 2006 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, October 18, 2006. To access Knight's earnings conference call, please dial 800.500.0311 for domestic callers or 719.457.2698 for international callers. When prompted, provide the passcode, which is 3049760. 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 September 2006 on its website before the start of trading today. On Thursday, November 2, 2006, Knight will provide a live webcast of its annual meeting for Analysts and Institutional Investors. All interested parties can access this event through Knight's website. 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 and its operating expenses for certain reporting periods before charges, writedowns and lease loss accruals and discontinued operations to assist the reader in understanding the impact of these charges, writedowns and lease loss accruals and discontinued operations 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 nine months ended
September 30, September 30,
2006 2005 2006 2005
Revenues
Commissions and
fees $95,739,820 $74,860,136 $308,790,246 $212,998,365
Net trading revenue 42,845,803 52,348,902 191,105,022 116,821,896
Asset management
fees 50,535,992 41,983,284 135,122,744 67,900,813
Interest and
dividends, net 5,175,455 1,763,330 11,264,764 6,319,167
Investment income
and other 15,710,851 13,140,857 44,802,177 29,286,211
Total revenues 210,007,921 184,096,509 691,084,953 433,326,452
Transaction-based
expenses
Execution and
clearance fees 22,100,471 24,584,539 81,051,228 71,479,360
Soft dollar and
commission
recapture expense 16,430,944 15,902,532 51,493,959 46,036,887
Payments for order
flow and ECN rebates 9,662,643 3,857,048 31,662,062 14,843,211
Total transaction-
based expenses 48,194,058 44,344,119 164,207,249 132,359,458
Revenues, net of
transaction-
based expenses 161,813,863 139,752,390 526,877,704 300,966,994
Other direct expenses
Employee
compensation and
benefits 82,546,389 68,267,912 246,718,114 173,319,157
Communications and
data processing 8,483,788 7,969,419 24,525,721 23,934,639
Professional fees 3,737,064 6,056,274 15,212,425 14,388,019
Depreciation and
amortization 5,446,285 4,209,028 15,178,859 12,245,859
Occupancy and
equipment rentals 3,163,697 3,238,952 9,914,296 10,186,066
Business development 3,371,117 1,616,485 8,627,797 4,617,599
Writedown of assets
and lease loss accrual - 5,509,360 8,479,703 10,055,252
Regulatory charges and
related matters - - - 2,000,000
Other 2,924,751 2,784,784 13,269,731 8,864,251
Total other
direct expenses 109,673,091 99,652,214 341,926,646 259,610,842
Income from continuing
operations before
income taxes 52,140,772 40,100,176 184,951,058 41,356,152
Income tax expense 20,680,551 16,136,536 74,019,208 16,988,471
Net income from
continuing operations 31,460,221 23,963,640 110,931,850 24,367,681
Income from
discontinued
operations, net of
tax - 387,934 - 122,007
Net income $31,460,221 $24,351,574 $110,931,850 $24,489,688
Basic earnings per
share from continuing
operations $0.31 $0.24 $1.10 $0.23
Diluted earnings per
share from continuing
operations $0.30 $0.23 $1.05 $0.23
Basic and diluted
earnings per share
from discontinued
operations $ - $ - $ - $ -
Basic earnings per share $0.31 $0.24 $1.10 $0.23
Diluted earnings per
share $0.30 $0.23 $1.05 $0.23
Shares used in
computation of
basic earnings per
share 102,199,516 101,264,048 101,286,562 104,791,642
Shares used in
computation of
diluted earnings
per share 106,469,308 103,724,202 105,951,813 107,955,922
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
2006 2005
ASSETS
Cash and cash equivalents $186,734,507 $230,591,067
Securities owned, held at clearing
brokers, at market value 551,598,006 380,366,778
Receivable from brokers and dealers 410,866,093 229,828,734
Investment in Deephaven sponsored funds 203,008,086 281,656,753
Fixed assets and leasehold improvements
at cost, less accumulated depreciation
and amortization 67,000,963 67,656,533
Strategic investments 38,393,130 31,896,425
Goodwill 118,084,040 47,682,880
Intangible assets, less accumulated
amortization 61,408,907 29,773,442
Other assets 153,029,080 116,563,732
Total assets $1,790,122,812 $1,416,016,344
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Securities sold, not yet purchased,
at market value $524,896,966 $345,457,499
Payable to brokers and dealers 69,314,171 35,102,415
Accrued compensation expense 163,878,236 117,763,834
Accrued expenses and other liabilities 77,030,897 94,244,447
Total liabilities 835,120,270 592,568,195
Stockholders' equity
Class A common stock 1,447,692 1,397,457
Additional paid-in-capital 512,714,027 452,839,356
Retained earnings 764,445,541 653,513,691
Treasury stock, at cost (332,310,837) (294,652,742)
Accumulated other comprehensive
income, net of tax 8,706,119 10,350,387
Total stockholders' equity 955,002,542 823,448,149
Total liabilities and stockholders'
equity $1,790,122,812 $1,416,016,344
KNIGHT CAPITAL GROUP, INC.
PRE-TAX OPERATING EARNINGS BY BUSINESS SEGMENT*
Amounts in millions
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
Global Markets
Revenues $145.6 $129.4 $515.6 $335.9
Operating Expenses 118.1 104.8 382.1 313.8
Pre-Tax Operating
Earnings 27.5 24.6 133.5 22.1
Asset Management
Revenues 50.8 42.3 135.8 68.3
Operating Expenses 32.4 26.5 88.3 48.3
Pre-Tax Operating
Earnings 18.4 15.7 47.5 20.0
Corporate
Revenues 13.6 12.4 39.7 29.2
Operating Expenses 7.4 7.1 27.2 17.8
Pre-Tax Operating
Earnings 6.2 5.3 12.5 11.3
Consolidated
Revenues 210.0 184.1 691.1 433.3
Operating Expenses 157.9 138.5 497.7 379.9
Pre-Tax Operating
Earnings $52.1 $45.6 $193.4 $53.4
* 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
September 30, 2006
Global Asset
Markets Management Corporate Total
Transaction-based expenses $48.2 $ - $ - $48.2
Other direct expenses 69.9 32.4 7.4 109.7
TOTAL GAAP EXPENSES 118.1 32.4 7.4 157.9
Net impact of adjustments - - - -
OPERATING EXPENSES $118.1 $32.4 $7.4 $157.9
For the three months ended
September 30, 2005
Global Asset
Markets Management Corporate Total
Transaction-based expenses $44.3 $ - $ - $44.3
Other direct expenses 66.0 26.5 7.1 99.7
TOTAL GAAP EXPENSES 110.3 26.5 7.1 144.0
Adjustments:
Writedown of assets and
lease loss accrual (5.5) - - (5.5)
OPERATING EXPENSES $104.8 $26.5 $7.1 $138.5
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the three months ended
September 30, 2006
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $27.5 $18.4 $6.2 $52.1
Adjustment:
Net impact of adjustments - - - -
PRE-TAX OPERATING EARNINGS $27.5 $18.4 $6.2 $52.1
For the three months ended
September 30, 2005
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $19.1 $15.7 $5.3 $40.1
Adjustments:
Writedown of assets and
lease loss accrual 5.5 - - 5.5
PRE-TAX OPERATING EARNINGS $24.6 $15.7 $5.3 $45.6
* 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 nine months ended
September 30, 2006
Global Asset
Markets Management Corporate Total
Transaction-based expenses $164.2 $ - $ - $164.2
Other direct expenses 226.4 88.3 27.2 341.9
TOTAL GAAP EXPENSES 390.6 88.3 27.2 506.1
Adjustment:
Writedown of assets and
lease loss accrual (8.5) - - (8.5)
OPERATING EXPENSES $382.1 $88.3 $27.2 $497.7
For the nine months ended
September 30, 2005
Global Asset
Markets Management Corporate Total
Transaction-based expenses $132.4 $ - $ - $132.4
Other direct expenses 191.4 50.4 17.8 259.6
TOTAL GAAP EXPENSES 323.8 50.4 17.8 392.0
Adjustments:
Writedown of assets and
lease loss accrual (10.0) - - (10.0)
Regulatory charges and
related matters - (2.0) - (2.0)
OPERATING EXPENSES $313.8 $48.3 $17.8 $379.9
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the nine months ended
September 30, 2006
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $125.0 $47.5 $12.5 $185.0
Adjustment:
Writedown of assets and
lease loss accrual 8.5 - - 8.5
PRE-TAX OPERATING EARNINGS $133.5 $47.5 $12.5 $193.4
For the nine months ended
September 30, 2005
Global Asset
Markets Management Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $12.1 $17.9 $11.3 $41.4
Adjustments:
Writedown of assets and
lease loss accrual 10.0 - - 10.0
Regulatory charges and
related matters - 2.0 - 2.0
PRE-TAX OPERATING EARNINGS $22.1 $20.0 $11.3 $53.4
* 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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