|APRIL 18, 2007|
|Knight Capital Group Announces GAAP Earnings From Continuing Operations of $0.32 Per Diluted Share for First Quarter 2007|
Asset Management Reported Pre-Tax Operating Earnings of $18.9 Million in the First Quarter of 2007 With Above-Average Blended Returns and Resilient Assets Under Management
JERSEY CITY, N.J., April 18, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported GAAP earnings from continuing operations of $33.2 million, or $0.32 per diluted share, for the first quarter of 2007. Including a loss from discontinued operations of $1.3 million, net of tax, or $0.01 per diluted share, GAAP earnings were $0.31 per diluted share for the first quarter of 2007. This loss from discontinued operations is due to a regulatory charge related to Knight Financial Products LLC, the options market-making business that Knight sold to Citigroup in 2004.
For the first quarter of 2006, the company reported GAAP earnings of $49.1 million, or $0.47 per diluted share, and pre-tax earnings from continuing operations of $82.0 million. The GAAP earnings of $0.47 per diluted share in the first quarter of 2006 included a pre-tax charge of $8.0 million relating to the costs associated with excess real estate capacity in Jersey City, N.J. Excluding this item, pre-tax earnings from continuing operations for the first quarter of 2006 were $90.0 million, or $0.52 per diluted share.
"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, which included subsidiary Knight Financial Products LLC, the sale of which was completed to Citigroup at the close of business on December 9, 2004.
Revenues for the first quarter of 2007 were $241.7 million, compared to $277.2 million for the first quarter of 2006.
"Knight had a strong first quarter," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. "The overall trading environment was marked by a slight decrease in retail investing during the first three months, but the trend was offset by the presence of professional traders driving more volume. Compared to the fourth quarter, our Global Markets results improved with stronger electronic trading and an increase in total institutional commissions. Global Markets revenues increased 11% over fourth quarter, and pre-tax margins exceeded our target of 20% with consistent performance across the board. Asset Management was a stellar contributor to our total results in the first quarter as Deephaven successfully navigated through a manager transition at one of its funds while delivering attractive returns. Of particular note was the resilience of Deephaven's assets under management which reached approximately $3.9 billion as of April 1, 2007."
Q1 2007 Q1 2006 Revenues ($) 241,651,663 277,194,444 Net income from continuing operations ($) 33,185,712 49,132,041 Loss from discontinued operations, net of tax ($) (1,332,818) - Net income ($) 31,852,894 49,132,041 Diluted EPS from continuing operations ($) 0.32 0.47 Diluted EPS from discontinued operations ($) (0.01) - Diluted EPS ($) 0.31 0.47 U.S. equity dollar value traded (in $ millions) 562,500 559,672 U.S. equity trades executed (in thousands) 66,892 61,019 Average daily U.S. equity trades (in thousands) 1,097 984 Nasdaq and Listed equity shares traded (in millions) 23,761 27,861 OTC Bulletin Board and Pink Sheet shares traded (in millions) 218,826 373,676 Average revenue capture per U.S. equity dollar value traded (bps) 2.0 2.3 Average month-end balance of assets under management (in $ millions) 4,071.5 2,946.2 Quarterly fund return to investors* 4.9% 8.5% * Quarterly fund return represents the blended quarterly return across all assets under management.
During the first quarter of 2007, the Global Markets business segment generated total revenues of $172.6 million, compared to $188.7 million in the first quarter of 2006. In the first quarter of 2007, the Global Markets business segment reported pre-tax operating earnings from continuing operations of $36.1 million, compared to pre-tax operating earnings from continuing operations of $56.5 million in the first quarter of 2006.
"Knight's broker-dealer business turned in a solid performance during the first quarter while delivering some of the finest best execution stats in the securities industry," Mr. Joyce said. "Even though retail investor activity drifted lower in March as measured by daily average revenue trades, Knight's broker-dealer business added several new sell-side clients who are using our trading software to their benefit. At the same time, the institutional business continued its year-over-year gain in market share. Knight Direct, our DMA product with multi-asset class capabilities, was rolled out to the majority of our existing DMA clients, positioning the platform for solid growth through the balance of this year."
Knight promoted James P. Smyth, 51, to Executive Vice President, as approved by the Board of Directors at its regular meeting on April 17, 2007. Mr. Smyth, who is responsible for Knight's broker-dealer operations, had been a Senior Managing Director. Since his appointment as head of the broker-dealer business in June 2005, Mr. Smyth has directed Knight's increase in automation and the refinement of the company's hybrid cash and electronic trading operation. He joined Knight in September 2002 as Senior Vice President, Institutional Soft Dollars, after a 24-year career with Merrill Lynch & Co.
During the first quarter of 2007, the Asset Management business segment, Deephaven Capital Management, generated $60.7 million in asset management fees, compared to $70.5 million in the same period a year ago. In the first quarter of 2007, Asset Management reported pre-tax operating earnings from continuing operations of $18.9 million, compared to pre-tax operating earnings from continuing operations of $26.8 million in the first quarter of 2006. Asset Management had approximately $3.9 billion under management at April 1, 2007, up from $3.1 billion under management at April 1, 2006.
"Colin Smith and the Deephaven management team did an outstanding job during the first quarter," Mr. Joyce said. "Deephaven's ability to maintain a significant level of assets under management and attract new money during a transition in management is a testament to newly appointed global event-driven portfolio manager Andy Greenberg and to the hard work of the funds' client relationship professionals. Deephaven also turned in another great quarterly performance, with blended returns once again well above the market neutral average. The funds experienced strong performance across the portfolio, and the multi-strategy fund continued to benefit from allocation trends in the public pension and fund of funds arena. With the transition behind it, Deephaven can focus on extending its 12-year track record of success."
In the first quarter of 2007, the Corporate segment reported a pre-tax operating loss from continuing operations of $339,000, compared to pre-tax operating earnings from continuing operations of $6.7 million in the first quarter of 2006.
The company's corporate investment in the Deephaven funds earned $8.0 million pre-tax during the first quarter of 2007, down from $19.0 million pre- tax during the first quarter of 2006, reflecting the lower returns on a lower average corporate investment balance in the Deephaven Funds. As of March 31, 2007, the company had $159.2 million in cash and cash equivalents and a $195.4 million corporate investment in funds managed by Deephaven.
The company had $967.8 million in stockholders' equity as of March 31, 2007, equivalent to a book value of approximately $9.28 per diluted share.
During the first quarter of 2007, the company repurchased 2.7 million shares for approximately $45.4 million under the company's $495 million stock repurchase program. To date, the company has repurchased 44.4 million shares for $412.4 million. The company has $83 million available to repurchase under the current program. The company cautions that there are no assurances that any further repurchases may actually occur.
"Knight remains focused on driving growth in revenues while maintaining a healthy pre-tax margin rate," Mr. Joyce said. "We are confident that Deephaven is well positioned in the alternative investment industry to execute against aggressive goals for expansion and growth. At the same time, our equity volumes, scope of securities traded and high execution quality should keep Knight's Global Markets business in an industry-leading position serving both buy-side and sell-side firms as the marketplace evolves. With a premium on technology, execution quality and the ability to access fragmented liquidity, Knight is more important to our clients than ever. We have executed strategically in building our virtual exchange, and now we are in the optimization stage of making all of the varied parts work together efficiently for Knight clients."
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 first quarter 2007 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, April 18, 2007. To access Knight's earnings conference call, please dial 800.811.7286 for domestic callers or 913.981.4902 for international callers. When prompted, provide the passcode, which is 1088546. 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 March 2007 on its website before the start of trading today.
Knight Capital Group, Inc. (Nasdaq: NITE) is a leading financial services firm that provides voice and electronic access to the capital markets across multiple asset classes for buy-side, sell-side and corporate clients, and asset management for institutions and private clients. Our Global Markets business offers superior execution quality through natural liquidity, capital facilitation and trading technology, with comprehensive products and services that support the capital formation process. 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. 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 from continuing operations 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 ended March 31, 2007 2006 Revenues Commissions and fees $103,859,455 $102,643,011 Net trading revenue 61,637,081 80,039,151 Asset management fees 60,713,955 70,511,043 Interest and dividends, net 4,817,943 3,313,976 Investment income and other 10,623,229 20,687,263 Total revenues 241,651,663 277,194,444 Transaction-based expenses Execution and clearance fees 27,410,486 28,924,406 Soft dollar and commission recapture expense 14,536,648 18,446,324 Payments for order flow and ECN rebates 12,598,965 9,873,398 Total transaction-based expenses 54,546,099 57,244,128 Revenues, net of transaction- based expenses 187,105,564 219,950,316 Other direct expenses Employee compensation and benefits 102,232,892 99,556,170 Communications and data processing 8,699,226 7,638,143 Professional fees 5,489,122 6,383,123 Depreciation and amortization 5,401,780 4,407,695 Business development 3,778,832 2,122,317 Occupancy and equipment rentals 3,455,226 3,352,487 Writedown of assets and lease loss accrual - 7,997,434 Other 3,332,746 6,448,370 Total other direct expenses 132,389,824 137,905,739 Income from continuing operations before income taxes 54,715,740 82,044,577 Income tax expense 21,530,028 32,912,536 Net income from continuing operations 33,185,712 49,132,041 Loss from discontinued operations, net of tax (1,332,818) - Net income $31,852,894 $49,132,041 Basic earnings per share from continuing operations $0.33 $0.49 Diluted earnings per share from continuing operations $0.32 $0.47 Basic and diluted earnings per share from discontinued operations $(0.01) $- Basic earnings per share $0.32 $0.49 Diluted earnings per share $0.31 $0.47 Shares used in computation of basic earnings per share 100,906,063 100,422,995 Shares used in computation of diluted earnings per share 104,334,956 104,129,560 KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) March 31, 2007 December 31, 2006 ASSETS Cash and cash equivalents $159,232,302 $214,759,915 Securities owned, held at clearing brokers, at market value 711,426,136 711,774,643 Receivable from brokers and dealers 351,754,733 372,897,376 Asset management fees receivable 46,927,428 112,204,064 Investment in Deephaven sponsored funds 195,366,563 187,573,291 Fixed assets and leasehold improvements at cost, less accumulated depreciation and amortization 64,276,103 66,449,617 Strategic investments 45,936,798 49,436,605 Goodwill 133,072,889 133,042,889 Intangible assets, less accumulated amortization 62,253,105 63,701,006 Other assets 192,576,738 116,374,310 Total assets $1,962,822,795 $2,028,213,716 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $690,321,227 $693,071,230 Payable to brokers and dealers 53,445,355 47,852,721 Accrued compensation expense 143,068,776 227,846,699 Accrued expenses and other liabilities 108,228,744 96,956,122 Total liabilities 995,064,102 1,065,726,772 Stockholders' equity Class A common stock 1,489,127 1,449,588 Additional paid-in-capital 544,601,895 519,790,132 Retained earnings 843,712,219 811,859,325 Treasury stock, at cost (422,044,548) (370,612,101) Total stockholders' equity 967,758,693 962,486,944 Total liabilities and stockholders' equity $1,962,822,795 $2,028,213,716 KNIGHT CAPITAL GROUP, INC. PRE-TAX OPERATING EARNINGS FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT* Amounts in millions (Unaudited) For the three months ended March 31, 2007 March 31, 2006 Asset Management Revenues $61.2 $70.8 Operating Expenses 42.3 44.1 Pre-Tax Operating Earnings 18.9 26.8 Global Markets Revenues 172.6 188.7 Operating Expenses 136.5 132.1 Pre-Tax Operating Earnings 36.1 56.5 Corporate Revenues 7.8 17.7 Operating Expenses 8.2 11.0 Pre-Tax Operating Earnings (0.3) 6.7 Consolidated Revenues 241.7 277.2 Operating Expenses 186.9 187.2 Pre-Tax Operating Earnings $54.7 $90.0 * 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 March 31, 2007 Asset Manage- Global Cor- ment Markets porate Total Transaction-based expenses $- $54.5 $- $54.5 Other direct expenses 42.3 81.9 8.2 132.4 TOTAL GAAP EXPENSES 42.3 136.5 8.2 186.9 Net impact of adjustments - - - - OPERATING EXPENSES $42.3 $136.5 $8.2 $186.9 For the three months ended March 31, 2006 Asset Manage- Global Cor- ment Markets porate Total Transaction-based expenses $- $57.2 $- $57.2 Other direct expenses 44.1 82.9 11.0 138.0 TOTAL GAAP EXPENSES 44.1 140.1 11.0 195.2 Adjustments: Writedown of assets and lease loss accrual - (8.0) - (8.0) OPERATING EXPENSES $44.1 $132.1 $11.0 $187.2 PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS For the three months ended March 31, 2007 Asset Manage- Global Cor- ment Markets porate Total PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $18.9 $36.1 $(0.3) $54.7 Net impact of adjustments - - - - PRE-TAX OPERATING EARNINGS FROM CONTINUING OPERATIONS $18.9 $36.1 $(0.3) $54.7 For the three months ended March 31, 2006 Asset Manage- Global Cor- ment Markets porate Total PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $26.8 $48.5 $6.7 $82.0 Adjustments: Writedown of assets and lease loss accrual - 8.0 - 8.0 PRE-TAX OPERATING EARNINGS FROM CONTINUING OPERATIONS $26.8 $56.5 $6.7 $90.0 * Totals may not add due to rounding.
SOURCE Knight Capital Group, Inc.
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