| JANUARY 18, 2007 |
| Knight Capital Group Announces GAAP Earnings of $0.45 Per Diluted Share for Fourth Quarter 2006 |
Global Markets achieved sixth straight profitable quarter with pre-tax operating earnings of $25.3 million in the fourth quarter of 2006 Asset Management reported pre-tax operating earnings of $27.4 million in the fourth quarter of 2006 driven by exceptional performance Pre-tax operating earnings from the Global Markets and Asset Management business segments increased 226% to $233.6 million in 2006 from $71.6 million in 2005 Total GAAP earnings also included $0.09 per diluted share in gains from the sale of the remaining investments in the International Securities Exchange, Inc.; and a non-recurring tax benefit of $0.03 per diluted share JERSEY CITY, N.J., Jan. 18 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported GAAP earnings of $47.4 million, or $0.45 per diluted share, and pre-tax operating earnings of $71.6 million for the fourth quarter of 2006. For the fourth quarter of 2006, the GAAP earnings of $0.45 per diluted share include $0.09 per diluted share in gains 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. For the fourth quarter of 2005, the company reported GAAP earnings of $41.9 million, or $0.41 per diluted share, and pre-tax operating earnings of $67.5 million. The GAAP earnings of $0.41 per diluted share in the fourth quarter of 2005 included $0.25 cents per diluted share in gains from the sale of strategic investments in shares of the ISE and The Nasdaq Stock Market, Inc. (Nasdaq), $0.03 per diluted share in regulatory charges and a non- recurring tax benefit of $0.03 per diluted share. Excluding these three items, earnings for the fourth quarter of 2005 were $0.16 per diluted share. Revenues for the fourth quarter of 2006 were $260.1 million, compared to $201.3 million for the fourth quarter of 2005. "Knight had a standout 2006, with both our Global Markets and Asset Management business segments participating in year-over-year expansion and contributing a combined $233.6 million in pre-tax operating earnings," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. "In the fourth quarter of 2005, Knight was still in the beginning stages of its efforts to automate the vast majority of our broker-dealer order flow. Now we've delivered six consecutive quarters of consistent results. We've refined our quantitative trading algorithms over the year, increasing efficiencies and improving execution quality. Annual revenues from our Global Markets and Asset Management business segments increased nearly 58% to $884.6 million from 2005, with both recently acquired and established businesses contributing to strong results. We invested in the Knight brand, which met the dual purpose of explaining our extensive products and services to the marketplace while energizing our employees. At the same time, Deephaven effectively executed on its multi-pronged growth and diversification strategy. We thank our clients, who continued to show their confidence in Knight's offerings and appreciation for our service, and our employees for their dedication."
Q4 2006 Q4 2005
Revenues ($) 260,124,658 201,296,633
Net income ($) 47,413,784 41,871,215
Diluted EPS ($) 0.45 0.41
U.S. equity dollar value traded
(in $ millions) 497,153 498,022
U.S. equity trades executed (in thousands) 58,680 52,289
Average daily U.S. equity trades
(in thousands) 939 830
Nasdaq and Listed equity shares traded
(in millions) 21,991 26,140
OTC Bulletin Board and Pink Sheet shares
traded (in millions) 160,589 137,246
Average revenue capture per U.S. equity
dollar value traded (bps) 2.0 1.8
Average month-end balance of assets under
management (in $ millions) 4,183.9 3,047.9
Quarterly fund return to investors* 7.1% 1.9%
* Quarterly fund return represents the blended quarterly return across
all assets under management in the Deephaven funds
YTD 2006 YTD 2005
Revenues ($) 951,209,611 634,623,085
Net income ($) 158,345,634 66,360,905
Diluted EPS ($) 1.49 0.62
U.S. equity dollar value traded
(in $ millions) 2,033,574 1,882,164
U.S. equity trades executed (in thousands) 225,512 204,069
Average daily U.S. equity trades
(in thousands) 902 810
Nasdaq and Listed equity shares traded
(in millions) 94,348 106,311
OTC Bulletin Board and Pink Sheet shares
traded (in millions) 1,063,089 718,785
Average revenue capture per U.S. equity
dollar value traded (bps) 2.1 1.8
Average month-end balance of assets under
management (in $ millions) 3,420.4 3,291.1
Annual fund return to investors* 22.8% 7.2%
* Annual fund return represents the blended return across all assets
under management in the Deephaven funds
Global Markets 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 are included within the Global Markets segment for the fourth quarter of 2006. "Knight's considerable efforts in building a virtual exchange put us in an excellent position to capitalize on our successes to date," Mr. Joyce said. "We added fixed income trading through ValuBond in the fourth quarter and continued our integration of foreign exchange trading through Hotspot FX. While many of our recent efforts have focused on these and other electronic access products, our voice access business finished yet another year of client expansion and commission growth. Our pursuit of acquisitions that expand client choice will continue, as will investment in talent to improve the offering we have today. We believe that upcoming regulatory changes, particularly Regulation NMS, will reveal the strengths and weaknesses of market participants, ultimately impacting our clients' trade execution decisions. Knight has the connectivity and intellectual capital to excel and to meet client demands in the quickly changing environment. Knight is in a commanding position to compete and grow our business in 2007." Asset Management During the fourth quarter of 2006, the Asset Management business segment, Deephaven Capital Management, generated $78.8 million in asset management fees, compared to $21.3 million in the same period a year ago. In the fourth quarter of 2006, Asset Management reported pre-tax operating earnings of $27.4 million, compared to pre-tax operating earnings of $6.6 million in the fourth quarter of 2005. Asset Management had approximately $4.2 billion under management at December 31, 2006, up from the $2.9 billion under management at December 31, 2005. During the fourth quarter of 2006, the Knight Board of Directors approved new, long-term employment contracts with three senior managers of Deephaven. The new contracts are for three years, commencing January 1, 2007, and include an automatic option for renewal by the Deephaven managers through 2012 under certain circumstances. The new employment agreements also include a revised profit-sharing structure and an option for Deephaven management to acquire an equity stake in Deephaven. For more information, please see Knight's SEC Form 8-K filed December 22, 2006. "With the signing of long-term employment agreements for Deephaven management before the close of 2006, the funds remain an important contributor to Knight," Mr. Joyce said. "Both fourth quarter and annual returns were very attractive. Deephaven introduced single-strategy funds and explored new strategies in the market neutral fund. Client diversification and asset gathering efforts continued under the leadership of Colin Smith, Deephaven's CEO since 2002, and the funds finished the year with more than $4 billion in assets under management. We believe that the momentum of Deephaven's accomplishments in 2006 and a solid, long-term track record will help ease the transition to new portfolio management for the event-driven team." Corporate In the fourth quarter of 2006, the Corporate segment reported pre-tax operating earnings of $18.9 million, compared to pre-tax operating earnings of $37.9 million in the fourth quarter of 2005. Included in the fourth quarter 2006 results is a pre-tax gain of $15.8 million, or approximately $0.09 per diluted share, related to the sale of the company's remaining equity ownership in the ISE. Included in the fourth quarter 2005 results is a pre-tax gain of $40.4 million, or approximately $0.25 per diluted share, from the sale of strategic investments in shares of the ISE and Nasdaq. The company's corporate investment in the Deephaven funds earned $9.5 million pre-tax during the fourth quarter of 2006, up from $4.8 million pre-tax during the fourth quarter of 2005, reflecting the higher returns during the quarter by the Deephaven funds. As of December 31, 2006, the company had $214.8 million in cash and cash equivalents and a $187.6 million corporate investment in funds managed by Deephaven. The company had $962.5 million in stockholders' equity as of December 31, 2006, equivalent to a book value of approximately $9.06 per diluted share. During the fourth quarter of 2006, the company repurchased 2.1 million shares for approximately $38.2 million under the company's $495 million stock repurchase program. To date, the company has repurchased 41.7 million shares for $366.9 million. The company has $128.1 million available to repurchase under the current program. 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, http://www.knight.com. The company will conduct its fourth quarter 2006 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Standard Time (EST) today, January 18, 2007. To access Knight's earnings conference call, please dial 877.704.5381 for domestic callers or 913.312.1295 for international callers. When prompted, provide the passcode, which is 8669874. 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 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 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 http://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 earnings 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 associated with the recent change in management at Deephaven and the potential impact on the Deephaven business and assets under management, and the other 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 For the year
ended December 31, ended December 31,
2006 2005 2006 2005
Revenues
Commissions and
fees $96,524,378 $83,223,402 $405,314,624 $296,221,767
Net trading revenue 52,656,384 48,792,436 243,761,406 165,614,332
Asset management
fees 78,764,774 21,325,765 213,887,518 89,226,578
Interest and
dividends, net 4,762,349 2,699,913 16,027,113 9,019,081
Investment income
and other 27,416,773 45,255,117 72,218,950 74,541,327
Total revenues 260,124,658 201,296,633 951,209,611 634,623,085
Transaction-based
expenses
Execution and
clearance fees 25,856,812 27,947,307 106,908,040 99,426,667
Soft dollar and
commission
recapture expense 13,964,098 17,634,091 65,458,057 63,670,978
Payments for order
flow and ECN
rebates 10,529,298 6,377,074 42,191,360 21,220,284
Total transaction-
based expenses 50,350,208 51,958,472 214,557,457 184,317,929
Revenues, net of
transaction-based
expenses 209,774,450 149,338,161 736,652,154 450,305,156
Other direct expenses
Employee
compensation
and benefits 105,634,944 56,140,363 352,353,058 229,459,520
Communications and
data processing 8,593,757 8,578,291 33,119,478 32,512,930
Professional fees 5,355,787 5,166,504 20,568,212 19,554,523
Depreciation and
amortization 5,462,247 4,108,887 20,641,106 16,354,746
Occupancy and
equipment rentals 3,621,606 3,367,565 13,535,902 13,553,631
Business development 5,714,931 1,801,385 14,342,728 6,418,984
Writedown of assets
and lease loss
accrual - - 8,479,703 10,055,252
Regulatory charges
and related matters - 3,703,428 - 5,703,428
Other 3,831,621 2,676,514 17,101,352 11,540,764
Total other direct
expenses 138,214,893 85,542,937 480,141,539 345,153,778
Income from continuing
operations before
income taxes 71,559,557 63,795,224 256,510,615 105,151,378
Income tax expense 24,145,773 21,924,009 98,164,981 38,912,480
Net income from
continuing operations 47,413,784 41,871,215 158,345,634 66,238,898
Income from
discontinued
operations, net of tax - - - 122,007
Net income $47,413,784 $41,871,215 $158,345,634 $66,360,905
Basic earnings per
share from continuing
operations $0.47 $0.42 $1.56 $0.64
Diluted earnings per
share from continuing
operations $0.45 $0.41 $1.49 $0.62
Basic and diluted
earnings per share
from discontinued
operations $- $- $- $-
Basic earnings per
share $0.47 $0.42 $1.56 $0.64
Diluted earnings per
share $0.45 $0.41 $1.49 $0.62
Shares used in
computation of basic
earnings per share 101,817,659 99,491,802 101,420,428 103,455,791
Shares used in
computation of
diluted earnings per
share 106,188,818 102,663,564 106,242,653 106,881,855
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, December 31,
2006 2005
ASSETS
Cash and cash equivalents $214,759,915 $230,591,067
Securities owned, held at clearing
brokers, at market value 711,774,643 380,366,778
Receivable from brokers and dealers 422,526,630 229,828,734
Investment in Deephaven sponsored funds 187,573,291 281,656,753
Fixed assets and leasehold improvements
at cost, less accumulated depreciation
and amortization 66,449,617 67,656,533
Strategic investments 49,436,605 31,896,425
Goodwill 133,042,889 47,682,880
Intangible assets, less accumulated
amortization 63,701,006 29,773,442
Other assets 228,578,374 116,563,732
Total assets $2,077,842,970 $1,416,016,344
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Securities sold, not yet purchased,
at market value $693,071,230 $345,457,499
Payable to brokers and dealers 97,481,975 35,102,415
Accrued compensation expense 227,846,699 117,763,834
Accrued expenses and other liabilities 96,956,122 94,244,447
Total liabilities 1,115,356,026 592,568,195
Stockholders' equity
Class A common stock 1,449,588 1,397,457
Additional paid-in-capital 519,790,132 452,839,356
Retained earnings 811,859,325 653,513,691
Treasury stock, at cost (370,612,101) (294,652,742)
Accumulated other comprehensive income,
net of tax - 10,350,387
Total stockholders' equity 962,486,944 823,448,149
Total liabilities and stockholders'
equity $2,077,842,970 $1,416,016,344
KNIGHT CAPITAL GROUP, INC.
PRE-TAX OPERATING EARNINGS BY BUSINESS SEGMENT*
Amounts in millions
(Unaudited)
For the three months For the year
ended December 31, ended December 31,
2006 2005 2006 2005
Asset Management
Revenues $79.1 $21.5 $214.9 $89.8
Operating Expenses 51.7 14.9 140.0 63.2
Pre-Tax Operating Earnings 27.4 6.6 74.8 26.5
Global Markets
Revenues 154.1 134.8 669.7 470.7
Operating Expenses 128.8 111.8 510.9 425.6
Pre-Tax Operating Earnings 25.3 23.0 158.8 45.1
Corporate
Revenues 27.0 45.0 66.6 74.2
Operating Expenses 8.0 7.1 35.3 24.9
Pre-Tax Operating Earnings 18.9 37.9 31.4 49.3
Consolidated
Revenues 260.1 201.3 951.2 634.6
Operating Expenses 188.6 133.8 686.2 513.7
Pre-Tax Operating Earnings $71.6 $67.5 $265.0 $120.9
* 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)
For the three months ended December 31, 2006
Asset Global
Management Markets Corporate Total
Transaction-based expenses $- $50.4 $- $50.4
Other direct expenses 51.7 78.5 8.0 138.2
TOTAL GAAP EXPENSES 51.7 128.8 8.0 188.6
Net impact of adjustments - - - -
OPERATING EXPENSES $51.7 $128.8 $8.0 $188.6
For the three months ended December 31, 2005
Asset Global
Management Markets Corporate Total
Transaction-based expenses $- $52.0 $- $52.0
Other direct expenses 18.6 59.8 7.1 85.5
TOTAL GAAP EXPENSES 18.6 111.8 7.1 137.5
Adjustments:
Regulatory charges and related
matters (3.7) - - (3.7)
OPERATING EXPENSES $14.9 $111.8 $7.1 $133.8
KNIGHT CAPITAL GROUP, INC.
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the three months ended December 31, 2006
Asset Global
Management Markets Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $27.4 $25.3 $18.9 $71.6
Adjustment:
Net impact of adjustments - - - -
PRE-TAX OPERATING EARNINGS $27.4 $25.3 $18.9 $71.6
For the three months ended December 31, 2005
Asset Global
Management Markets Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $2.9 $23.0 $37.9 $63.8
Adjustments:
Regulatory charges and related
matters 3.7 - - 3.7
PRE-TAX OPERATING EARNINGS $6.6 $23.0 $37.9 $67.5
* 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)
For the year ended December 31, 2006
Asset Global
Management Markets Corporate Total
Transaction-based expenses $- $214.6 $- $214.6
Other direct expenses 140.0 304.8 35.3 480.1
TOTAL GAAP EXPENSES 140.0 519.4 35.3 694.7
Adjustment:
Writedown of assets and lease
loss accrual - (8.5) - (8.5)
OPERATING EXPENSES $140.0 $510.9 $35.3 $686.2
For the year ended December 31, 2005
Asset Global
Management Markets Corporate Total
Transaction-based expenses $- $184.3 $- $184.3
Other direct expenses 69.0 251.3 24.9 345.2
TOTAL GAAP EXPENSES 69.0 435.6 24.9 529.5
Adjustments:
Writedown of assets and lease
loss accrual - (10.0) - (10.0)
Regulatory charges and related
matters (5.7) - - (5.7)
OPERATING EXPENSES $63.2 $425.6 $24.9 $513.7
KNIGHT CAPITAL GROUP, INC.
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS
For the year ended December 31, 2006
Asset Global
Management Markets Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $74.8 $150.3 $31.4 $256.5
Adjustment:
Writedown of assets and lease
loss accrual - 8.5 - 8.5
PRE-TAX OPERATING EARNINGS $74.8 $158.8 $31.4 $265.0
For the year ended December 31, 2005
Asset Global
Management Markets Corporate Total
PRE-TAX GAAP INCOME FROM
CONTINUING OPERATIONS $20.8 $35.1 $49.3 $105.2
Adjustments:
Writedown of assets and lease
loss accrual - 10.0 - 10.0
Regulatory charges and related
matters 5.7 - - 5.7
PRE-TAX OPERATING EARNINGS $26.5 $45.1 $49.3 $120.9
* 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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