Knight Capital Group Announces Consolidated Earnings of $0.44 Per Diluted Share and Earnings From Continuing Operations of $0.45 Per Diluted Share for the Fourth Quarter 2009

Continuing operations generated fourth quarter 2009 revenues of $301.6 million and earnings of $42.5 million, or $0.45 per diluted share, which included a non-recurring tax benefit of $11.6 million, or $0.12 per diluted share

The Equities segment generated fourth quarter 2009 revenues of $232.0 million amid weaker market conditions, compared to fourth quarter 2008 revenues of $263.3 million

The Fixed Income, Currencies and Commodities (FICC) segment generated fourth quarter 2009 revenues of $70.2 million driven primarily by contributions from institutional fixed income as headcount more than doubled, compared to fourth quarter 2008 revenues of $35.2 million

Full-year results included a 24% increase in revenues year over year; Pre-tax margins of 20% from continuing operations impacted by ongoing investments in diversification across clients, order flow, products and services, asset classes and geographies

21 Jan, 2010, 06:00 ET from Knight Capital Group, Inc.

JERSEY CITY, N.J., Jan. 21 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported earnings from continuing operations of $42.5 million, or $0.45 per diluted share, and a loss from discontinued operations, net of tax, of $655,000, or a $0.01 loss per diluted share. On a consolidated basis, the company reported earnings of $41.8 million, or $0.44 per diluted share, for the fourth quarter of 2009. The results include a non-recurring tax benefit of $0.12 per diluted share.

For the fourth quarter of 2008, the company reported earnings from continuing operations of $83.3 million, or $0.93 per diluted share, and a loss from discontinued operations, net of tax, of $3.6 million, or a $0.04 loss per diluted share. On a consolidated basis, the company reported earnings of $79.7 million, or $0.89 per diluted share for the fourth quarter of 2008.

Revenues from continuing operations for the fourth quarter of 2009 were $301.6 million, compared to $314.3 million for the fourth quarter of 2008.

"Knight recorded solid results in the fourth quarter of 2009 despite declining trading activity as the year drew to a close," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "While the intense trading activity and historic market volatility produced outstanding results in the fourth quarter of 2008, revenues declined only four percent on a consolidated basis in the fourth quarter of 2009. Knight separated the Global Markets segment into two new segments, Equities and FICC, to reflect the growth and diversification of the firm over the past year. In Equities, the decrease in revenues was partially offset by market share gains in Listed and NASDAQ securities. In FICC, we continued to build momentum from new clients and increased trade volumes in fixed income and foreign exchange."

"Continuing operations" includes the company's Equities, FICC and Corporate operating segments. Equities includes all global equities market-making and institutional sales and trading, such as Knight Direct and Knight Link. FICC includes all global trade execution services in fixed income, foreign exchange and commodities, such as Knight Libertas, Knight BondPoint and Hotspot FX. Corporate includes strategic investments in financial services-related ventures, corporate overhead expenses and all other expenses that are not attributable to the Equities and FICC segments. Amounts reported as "discontinued operations" primarily include the company's Asset Management segment, which, on March 31, 2009, closed the sale of substantially all of Deephaven's assets to affiliates of Stark & Roth, Inc. As of that date, Deephaven was replaced as the investment adviser for the Deephaven funds and the company exited from the Asset Management business.

Q4 2009

Q4 2008

Revenues ($ thousands)

301,611 

314,275 

Income from continuing operations, net of tax ($ thousands)

42,478 

83,257 

Loss from discontinued operations, net of tax ($ thousands)

(655)

(3,555)

Net income ($ thousands)

41,823 

79,702 

Diluted EPS from continuing operations ($)

0.45 

0.93 

Diluted EPS from discontinued operations ($)

(0.01)

(0.04)

Average daily U.S. equity dollar value traded ($ billions)

24.8 

22.5 

Average daily U.S. equity trades (thousands)

3,635.7 

3,990.3 

Nasdaq and Listed equity shares traded (billions)

73.8 

75.1 

OTC Bulletin Board and Pink Sheet shares traded (billions)

708.1 

166.8 

Average revenue capture per U.S. equity dollar value traded (bps)

1.2 

1.6 

Average daily Knight Direct equity trades (millions)

84.6 

49.7 

Average daily Hotspot FX notional dollar value traded ($ billions)

30.0 

16.1 

YTD 2009

YTD 2008

Revenues ($ thousands)

1,160,762 

938,857 

Income from continuing operations, net of tax ($ thousands)

150,796 

193,710 

Loss from discontinued operations, net of tax ($ thousands)

(34,883)

(15,799)

Net income ($ thousands)

115,913 

177,911 

Diluted EPS from continuing operations ($)

1.60 

2.11 

Diluted EPS from discontinued operations ($)

(0.37)

(0.17)

Average daily U.S. equity dollar value traded ($ billions)

23.0 

19.2 

Average daily U.S. equity trades (thousands)

3,904.5 

2,548.0 

Nasdaq and Listed equity shares traded (billions)

343.1 

195.7 

OTC Bulletin Board and Pink Sheet shares traded (billions)

2,170.7 

802.7 

Average revenue capture per U.S. equity dollar value traded (bps)

1.3 

1.5 

Average daily Knight Direct equity trades (millions)

69.1 

50.6 

Average daily Hotspot FX notional dollar value traded ($ billions)

22.8 

18.4 

"In 2009, Knight successfully increased revenues 24 percent year over year in executing our global growth strategy," said Mr. Joyce. "We extended gains in U.S. equities market share by deepening client relationships and expanding electronic products. Pre-tax margins narrowed due to increased investments across the firm as well as lower volatility, heightened activity in low-priced stocks and higher transaction costs. Knight Libertas added talent globally across research, sales and trading and grew trade volumes across several product areas. We made further investments in Europe and the Asia-Pacific region as well as in developing capital markets, options market-making and self-clearing capabilities. Finally, we closed the Asset Management segment."

Equities

During the fourth quarter of 2009, Equities generated total revenues of $232.0 million, compared to $263.3 million in the fourth quarter of 2008. In the fourth quarter of 2009, Equities reported pre-tax income of $56.7 million, compared to pre-tax income of $121.6 million in the fourth quarter of 2008. Equities had pre-tax margins of 24% in the fourth quarter of 2009, compared to pre-tax margins of 46% in the fourth quarter of 2008.

"In Equities, during the fourth quarter, Knight grew U.S. equity average daily dollar value traded and share volume despite decreased broad market volumes and lower volatility compared to the fourth quarter of 2008," said Mr. Joyce. "The results demonstrate the benefits of the initiatives to diversify revenue sources and our resiliency across market cycles. During the fourth quarter, we gained further market share in trading of Listed and NASDAQ securities. Knight Direct reported record average daily trade volume during the quarter. Knight Link grew average daily share volume and launched in Europe. In addition, we continued to build liquidity in European and Asian equities. Pre-tax margins in Equities declined in comparison to the fourth quarter of 2008 due to investments in new initiatives, weaker market conditions and continued high levels of activity in low-priced stocks."

Fixed Income, Currencies and Commodities

During the fourth quarter of 2009, FICC generated total revenues of $70.2 million, compared to $35.2 million in the fourth quarter of 2008. In the fourth quarter of 2009, FICC reported pre-tax income of $7.2 million, compared to pre-tax income of $5.7 million in the fourth quarter of 2008. FICC had pre-tax margins of 10% in the fourth quarter of 2009, compared to pre-tax margins of 16% in the fourth quarter of 2008.

"In FICC, Knight Libertas, Knight BondPoint and Hotspot FX all achieved growth during the fourth quarter reflected by the increased revenues year over year," said Mr. Joyce. "The aggressive expansion of Knight Libertas is the primary driver of overall revenue growth. During the quarter, Knight Libertas continued to attract talent and add clients while investing in new products. Knight BondPoint benefited from increased efficiencies of scale due to the onboarding of several major clients and enhanced connectivity. In foreign exchange, Hotspot FX reported record average daily volume during the quarter as a result of adding clients and deepening relationships. Pre-tax margins in FICC reflect investments in the growth of Knight Libertas and resulting increase in headcount."

Corporate

In the fourth quarter of 2009, the Corporate segment reported a pre-tax loss of $14.2 million, compared to pre-tax income of $19.5 million in the fourth quarter of 2008.

The company's corporate investment in funds formerly managed by Deephaven recognized a pre-tax loss of $1.7 million during the fourth quarter of 2009, compared to a pre-tax loss of $14.8 million during the fourth quarter of 2008.

During the fourth quarter of 2008, the company recorded a pre-tax gain of $51.6 million, or approximately $0.33 per diluted share, from the partial sale of the company's investment in Direct Edge Holdings. Consequently, of the $51.6 million pre-tax gain, $15.9 million is reported as Non-operating gain from subsidiary stock issuance, and $35.7 million is included in Investment income and other, net on the Consolidated Statements of Operations.

Headcount from continuing operations at December 31, 2009 was 1,126 full-time employees, as compared to 910 full-time employees at December 31, 2008, reflecting personnel additions related to prior acquisitions, new products, and geographic expansion throughout the year.

"Knight is evolving from a leading U.S. equities trade execution firm into a global capital markets firm," said Mr. Joyce. "The diversification of revenue sources as part of the growth strategy has proven successful. We've demonstrated an ability to compete against the larger firms, electronic trading platforms and boutiques. In 2010, we'll invest in new initiatives for future growth, from building liquidity in equities, fixed income, foreign exchange and options, to expanding our global presence and enhancing our overall capabilities."

As of December 31, 2009, the company had $427.1 million in cash and cash equivalents. The company had $1.2 billion in stockholders' equity as of December 31, 2009, equivalent to a book value of $12.87 per diluted share. The company had a book value of $11.53 per diluted share as of December 31, 2008.

During the fourth quarter of 2009, the company repurchased 1,000,000 shares for approximately $16.8 million under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 68.3 million shares for $770.4 million. The company has approximately $229.6 million of availability to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur.

Discontinued operations

In the fourth quarter of 2009, the company reported a pre-tax loss from discontinued operations of $1.5 million, or $655,000, net of tax, which primarily relates to the wind-down of the Asset Management segment. In the fourth quarter of 2008, the company reported a pre-tax loss from discontinued operations of $5.7 million, or $3.6 million, net of tax. Deephaven was designated a discontinued operation for financial reporting purposes as of the close of business on March 31, 2009.

Copies of this earnings release and other company information can be obtained on Knight's website, http://www.knight.com. The company will conduct its fourth quarter 2009 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, January 21, 2010. To access Knight's earnings conference call, please dial 888-282-4591 for domestic callers or 719-325-2133 for international callers. When prompted, please enter passcode 2442711. A replay of the fourth quarter 2009 earnings conference call will be available by dialing 888-203-1112 for domestic callers or 719-457-0820 for international callers. When prompted, enter passcode 2442711. The conference call will be webcast live at 9:00 a.m. ET for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for December 2009 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today.

About Knight

Knight Capital Group, Inc. (Nasdaq: NITE) is a global capital markets firm that provides market access and trade execution services across multiple asset classes to buy- and sell-side firms. Knight's hybrid market model features complementary electronic and voice trade execution services in global equities and fixed income as well as foreign exchange, futures and options. The firm is consistently ranked as the leading source of off-exchange liquidity in U.S. equities. Knight also provides capital markets services to corporate issuers. Knight is headquartered in Jersey City, NJ with a growing global presence across North America, Europe and the Asia-Pacific region. For more information, please go to www.knight.com.

Certain statements contained herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, 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 including, without limitation, risks associated with changes in market structure, legislative or regulatory rule changes, the costs, integration, performance and operation of businesses recently acquired or developed organically, or that may be acquired in the future, by the Company and risks related to the costs and expenses associated with the Company's exit from the Asset Management business. 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. Readers should carefully review the risks and uncertainties disclosed in the Company's reports with the U.S. Securities and Exchange Commission (SEC), including, without limitation, those detailed under the headings "Certain Factors Affecting Results of Operations" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2008, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should also be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto contained in the Company's Annual Report on Form 10-K for the year-ended December 31, 2008, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.

KNIGHT CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the three months ended December 31,

For the years ended December 31,

2009

2008

2009

2008

(In thousands, except per share amounts)

Revenues

Commissions and fees

$

166,874 

$

153,059 

$

670,406 

$

478,126 

Net trading revenue

132,225 

142,927 

486,684 

446,707 

Interest, net

975 

435 

(1,712)

7,644 

Investment income and other, net

1,537 

17,854 

5,384 

6,380 

Total revenues

301,611 

314,275 

1,160,762 

938,857 

Expenses

Employee compensation and benefits

142,890 

96,797 

527,025 

331,311 

Execution and clearance fees

47,852 

31,288 

169,805 

107,402 

Payments for order flow

13,816 

16,301 

71,629 

43,639 

Communications and data processing

17,221 

13,109 

61,071 

45,359 

Depreciation and amortization

9,145 

7,862 

34,368 

26,535 

Occupancy and equipment rentals

5,997 

5,306 

23,177 

19,642 

Business development

5,310 

5,328 

18,807 

17,279 

Professional fees

3,633 

2,729 

13,043 

14,749 

Interest expense

2,108 

1,590 

4,777 

5,052 

Writedown of assets and lease loss accrual (benefit), net

292 

592 

(9,704)

1,236 

Other

3,587 

2,495 

15,326 

8,969 

Total expenses

251,851 

183,397 

929,324 

621,173 

Other Income

Non-operating gain from subsidiary stock issuance

15,947 

15,947 

Income from continuing operations before income taxes

49,760 

146,825 

231,438 

333,631 

Income tax expense

7,282 

63,568 

80,642 

139,921 

Income from continuing operations, net of tax

42,478 

83,257 

150,796 

193,710 

Loss from discontinued operations, net of tax

(655)

(3,555)

(34,883)

(15,799)

Net income

$

41,823 

$

79,702 

$

115,913 

$

177,911 

Basic earnings per share from continuing operations

$

0.48 

$

0.97 

$

1.69 

$

2.19 

Diluted earnings per share from continuing operations

$

0.45 

$

0.93 

$

1.60 

$

2.11 

Basic earnings per share from discontinued operations

$

(0.01)

$

(0.04)

$

(0.39)

$

(0.18)

Diluted earnings per share from discontinued operations

$

(0.01)

$

(0.04)

$

(0.37)

$

(0.17)

Basic earnings per share

$

0.47 

$

0.93 

$

1.30 

$

2.01 

Diluted earnings per share

$

0.44 

$

0.89 

$

1.23 

$

1.94 

Shares used in computation of basic earnings per share

89,175 

86,025 

89,095 

88,407 

Shares used in computation of diluted earnings per share

94,255 

89,121 

94,504 

91,760 

KNIGHT CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

December 31, 2009

December 31, 2008

(In thousands)

ASSETS

Cash and cash equivalents

$

427,106 

$

416,957 

Securities owned, held at clearing brokers, at fair value

926,589 

476,111 

Securities borrowed

394,417 

11,848 

Receivable from brokers and dealers

500,143 

329,502 

Fixed assets and leasehold improvements, at cost,

  less accumulated depreciation and amortization

98,696 

81,237 

Strategic investments

65,166 

83,697 

Goodwill

265,530 

232,197 

Intangible assets, less accumulated amortization

77,812 

90,477 

Deferred compensation investments

44,626 

41,637 

Assets within discontinued operations

12,455 

84,868 

Other assets

198,906 

176,895 

Total assets

$

3,011,446 

$

2,025,426 

LIABILITIES & EQUITY

Liabilities

Securities sold, not yet purchased, at fair value

$

639,259 

$

385,003 

Securities loaned

550,226 

Payable to brokers and dealers

155,148 

98,138 

Accrued compensation expense

204,936 

171,392 

Accrued expenses and other liabilities

93,858 

132,369 

Liabilities within discontinued operations

14,328 

63,988 

Credit facility

140,000 

140,000 

Total liabilities

1,797,755 

990,890 

Equity

Knight Capital Group, Inc. stockholders' equity

Class A common stock

1,587 

1,544 

Additional paid-in capital

747,770 

648,716 

Retained earnings

1,227,923 

1,112,010 

Treasury stock, at cost

(764,209)

(734,912)

Total Knight Capital Group, Inc. stockholders' equity

1,213,071 

1,027,358 

Noncontrolling interests

620 

7,178 

Total equity

1,213,691 

1,034,536 

Total liabilities and equity

$

3,011,446 

$

2,025,426 

KNIGHT CAPITAL GROUP, INC.

PRE-TAX EARNINGS BY BUSINESS SEGMENT*

Amounts in millions

(Unaudited)

For the three months ended December 31,

For the years ended December 31,

2009

2008

2009

2008

Equities

Revenues

$

232.0 

$

263.3 

$

891.0 

$

851.5 

Expenses

175.3 

141.8 

663.7 

505.0 

Pre-tax earnings

56.7 

121.6 

227.3 

346.4 

Fixed Income, Currencies and Commodities    

Revenues

70.2 

35.2 

266.7 

79.3 

Expenses

63.0 

29.4 

218.8 

67.0 

Pre-tax earnings

7.2 

5.7 

47.8 

12.3 

Corporate

Revenues

(0.7)

15.8 

3.1 

8.1 

Expenses

13.6 

12.2 

46.8 

49.1 

Other income

15.9 

15.9 

Pre-tax earnings

(14.2)

19.5 

(43.7)

(25.1)

Consolidated

Revenues

301.6 

314.3 

1,160.8 

938.9 

Expenses

251.9 

183.4 

929.3 

621.2 

Other income

15.9 

15.9 

Pre-tax earnings

$

49.8 

$

146.8 

$

231.4 

$

333.6 

* Totals may not add due to rounding.

SOURCE Knight Capital Group, Inc.



RELATED LINKS

http://www.knight.com