Knight Capital Group Announces Break-Even Results on a Consolidated Basis for the Third Quarter 2010

Oct 20, 2010, 06:00 ET from Knight Capital Group, Inc.

JERSEY CITY, N.J., Oct. 20 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported consolidated earnings of $203,000, or $0.00 per diluted share, for the third quarter of 2010, which included a pre-tax restructuring charge for severance and related costs of $16.7 million, equivalent to a loss of $0.11 per diluted share.

For the third quarter of 2009, the company reported consolidated earnings of $29.2 million, or $0.31 per diluted share. The company reported earnings from continuing operations of $30.5 million, or $0.32 per diluted share, and a loss from discontinued operations, net of tax, of $1.3 million, or $0.01 loss per diluted share, for the third quarter of 2009.

Revenues from continuing operations for the third quarter of 2010 were $239.5 million, compared to $299.9 million from continuing operations for the third quarter of 2009.

"In the third quarter of 2010, Knight's results were impacted by poor market conditions," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "While consolidated revenues year-to-date were strong, pre-tax earnings during the quarter declined in comparison to the same period a year ago. In response to the challenging environment, we conducted a strategic review across the firm and recorded a restructuring charge for severance and related costs in connection with changes to rationalize our cost structure. In addition, Knight completed the acquisition of Urban Financial Group on July 1, 2010."

"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 fixed income sales, trading and research, Knight BondPoint and Hotspot FX. Corporate includes strategic investments primarily in financial services-related ventures, corporate overhead expenses and all other expenses that are not attributable to the Equities and FICC segments. "Discontinued operations" primarily comprises the company's former Asset Management segment, which closed the sale of substantially all of its assets and was replaced as the investment adviser for the Deephaven funds on March 31, 2009.






Q3 2010


Q3 2009





Revenues ($ thousands)

239,509


299,930

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

68


30,479

Income (loss) from discontinued operations, net of tax ($ thousands)

135


(1,253)

Net income ($ thousands)

203


29,226

Diluted EPS from continuing operations ($)

0.00


0.32

Diluted EPS from discontinued operations ($)

0.00


(0.01)

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

23.6


24.2

Average daily U.S. equity trades (thousands)

3,421.7


3,947.2

Nasdaq and Listed equity shares traded (billions)

60.2


89.9

OTC Bulletin Board and Pink Sheet shares traded (billions)

422.6


755.5

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

0.9


1.2

Average daily Knight Direct equity shares (millions)

143.4


76.0

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

32.5


24.2






YTD 2010


YTD 2009





Revenues ($ thousands)

890,022


859,151

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

82,621


108,318

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

(215)


(34,228)

Net income ($ thousands)

82,406


74,090

Diluted EPS from continuing operations ($)

0.88


1.16

Diluted EPS from discontinued operations ($)

0.00


(0.37)

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

27.2


22.4

Average daily U.S. equity trades (thousands)

3,817.0


3,994.6

Nasdaq and Listed equity shares traded (billions)

214.9


269.3

OTC Bulletin Board and Pink Sheet shares traded (billions)

1,658.0


1,462.5

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

1.1


1.4

Average daily Knight Direct equity shares (millions)

140.0


63.9

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

35.1


20.3







Equities

During the third quarter of 2010, the Equities segment generated total revenues of $176.2 million and pre-tax income of $25.5 million, which included a restructuring charge of $3.1 million. In the third quarter of 2009, Equities reported total revenues of $216.9 million and pre-tax income of $44.3 million. Equities had pre-tax margins of 14% in the third quarter of 2010, compared to pre-tax margins of 20% in the third quarter of 2009.

"In Equities, Knight reported respectable results in light of the performance of the overall U.S. equity market," said Mr. Joyce. "Despite decreasing volumes and volatility as the quarter progressed, Knight maintained industry-leading market share of retail order flow as well as the number one rankings in shares traded across Listed, NASDAQ, Bulletin Boards and ETFs among securities firms. Contributions from algorithmic principal trading models and ETFs grew year-over-year. Knight's execution management system Knight Direct recorded an increase in average daily share volume of 88.6 percent compared to the third quarter of 2009. In addition, Knight's commission management team was ranked number one in client service in a survey of North American buy-side firms."

FICC

During the third quarter of 2010, the FICC segment generated total revenues of $59.8 million and pre-tax loss of $12.8 million, which included a restructuring charge of $12.9 million. In the third quarter of 2009, FICC reported total revenues of $78.3 million and pre-tax income of $15.6 million.

"In FICC, Knight worked to address the shifting competitive environment in institutional fixed income," said Mr. Joyce. "Nevertheless, the financial results were impacted by tightening spreads and declining trade volumes, particularly in the U.S. corporate bond market, as well as restructuring charges. We are satisfied with the results from the ABS/MBS, European credit and emerging markets teams. Further, Knight BondPoint increased average daily volumes compared to the third quarter of 2009. Finally, Hotspot FX continued to grow trade volumes in foreign exchange as average daily notional value traded increased 34.6 percent on a year-over-year basis."

Corporate

In the third quarter of 2010, the Corporate segment reported a pre-tax loss of $12.6 million, which included a restructuring charge of $0.7 million, compared to a pre-tax loss of $10.2 million in the third quarter of 2009.

"During the third quarter of 2010, traditional seasonality was exacerbated by deep uncertainty over current economic conditions," said Mr. Joyce. "Regardless, we continued to execute on the growth strategy. The Capital Markets team completed several equity and debt transactions and the self clearing initiative is ahead of schedule. In addition, we announced the acquisition of Astor Asset Management, which was subsequently completed on October 1, 2010."

Headcount at September 30, 2010 was 1,297 full-time employees, as compared to 1,098 full-time employees at September 30, 2009.  The net increase in headcount is primarily attributable to the acquisition of the Urban Financial Group on July 1, 2010.

As of September 30, 2010, the company had $480.9 million in cash and cash equivalents. The company had $1.3 billion in stockholders' equity as of September 30, 2010, equivalent to a book value of $14.43 per diluted share. The company had a book value of $12.55 per diluted share as of September 30, 2009.

During the third quarter of 2010, the company repurchased 1,000,000 shares for approximately $12.8 million under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 70.7 million shares for $804.0 million. The company has approximately $196.0 million of availability to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur.

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 third quarter 2010 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, October 20, 2010. To access Knight's earnings conference call, please dial 800-967-7141 for domestic callers or 719-457-2604 for international callers. When prompted, please enter passcode 4383956. A replay of the third quarter 2010 earnings conference call will be available by dialing 888-203-1112 for domestic callers or 719-457-0820 for international callers. When prompted, please enter passcode 4383956. 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 September 2010 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today.

About Knight

Knight Capital Group (NYSE Euronext: KCG) is a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms, and corporations. Knight is headquartered in Jersey City, N.J. with a growing global presence across the Americas, Europe, and the Asia Pacific region. For further information about Knight, please visit 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 wind-down of the Deephaven 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, 2009, "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the quarter-ended March 31, 2010, 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, 2009, 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

September 30,


For the nine months ended

September 30,





2010



2009



2010



2009




(In thousands, except per share amounts)















Revenues













Commissions and fees

$

157,121


$

177,025


$

494,626


$

503,532


Net trading revenue


79,847



119,595



392,775



354,459


Interest, net


92



(1,050)



853



(2,687)


Investment income and other, net


2,449



4,360



1,768



3,847



Total revenues


239,509



299,930



890,022



859,151















Expenses













Employee compensation and benefits


115,730



139,334



412,775



384,135


Execution and clearance fees


44,167



50,430



134,150



121,953


Communications and data processing


17,180



15,781



50,309



43,850


Depreciation and amortization


11,269



8,777



30,338



25,223


Interest


7,501



713



17,112



2,669


Occupancy and equipment rentals


6,630



5,930



19,332



17,180


Payments for order flow


6,598



17,737



28,712



57,813


Business development


4,451



4,058



14,991



13,497


Professional fees


3,976



3,410



12,762



9,410


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


-



-



1,032



(9,996)


Restructuring


16,731



-



16,731



-


Other


5,163



4,003



14,579



11,739



Total expenses


239,396



250,173



752,823



677,473















Income from continuing operations before income taxes


113



49,757



137,199



181,678

Income tax expense


45



19,278



54,578



73,360

Income from continuing operations, net of tax


68



30,479



82,621



108,318

Income (loss) from discontinued operations, net of tax


135



(1,253)



(215)



(34,228)















Net income

$

203


$

29,226


$

82,406


$

74,090















Basic earnings per share from continuing operations

$

0.00


$

0.34


$

0.92


$

1.22















Diluted earnings per share from continuing operations

$

0.00


$

0.32


$

0.88


$

1.16















Basic earnings per share from discontinued operations

$

0.00


$

(0.01)


$

0.00


$

(0.38)















Diluted earnings per share from discontinued operations

$

0.00


$

(0.01)


$

0.00


$

(0.37)















Basic earnings per share

$

0.00


$

0.33


$

0.92


$

0.83















Diluted earnings per share

$

0.00


$

0.31


$

0.88


$

0.79















Shares used in computation of basic earnings per share


90,405



89,278



89,809



88,919















Shares used in computation of diluted earnings per share


93,278



93,958



94,054



93,532















KNIGHT CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


















September 30, 2010



December 31, 2009





(In thousands)

ASSETS







Cash and cash equivalents

$

480,871


$

427,106


Financial instruments owned, at fair value


1,304,799



926,589


Collateralized agreements:








Securities borrowed


1,639,694



394,417


      Receivable from brokers and dealers


527,614



500,143


       Fixed assets and leasehold improvements,







            at cost, less accumulated depreciation and amortization


114,176



98,696


Investments


86,456



118,619


Goodwill


317,650



265,530


Intangible assets, less accumulated amortization


91,497



93,332


Other assets


245,171



189,592









Total assets

$

4,807,928


$

3,014,024









LIABILITIES & EQUITY






Liabilities







Financial instruments sold, not yet purchased, at fair value

$

1,147,980


$

639,259


        Collateralized financings:








Securities loaned  


1,030,730



550,226



Financial instruments sold under agreements to repurchase


230,000



-



Other secured financings


41,872



-


Payable to brokers and dealers


404,581



155,148


Accrued compensation expense


161,312



205,282


Accrued expenses and other liabilities


136,662



109,987


Credit facility


-



140,000


Long-term debt


307,952



-









Total liabilities


3,461,089



1,799,902









Equity







Knight Capital Group, Inc. stockholders' equity








Class A common stock


1,622



1,586



Additional paid-in capital


794,626



746,778



Retained earnings


1,308,230



1,229,112



Treasury stock, at cost


(758,057)



(763,974)



Accumulated other comprehensive loss


(204)



-


Total Knight Capital Group, Inc. stockholders' equity


1,346,217



1,213,502


Noncontrolling interests


622



620

Total equity


1,346,839



1,214,122









Total liabilities and equity

$

4,807,928


$

3,014,024









KNIGHT CAPITAL GROUP, INC.










PRE-TAX EARNINGS BY BUSINESS SEGMENT*


Amounts in millions












(Unaudited)

























For the three months ended September 30,


For the nine months ended September 30,



2010



2009



2010



2009

Equities












Revenues

$

176.2


$

216.9


$

700.6


$

659.0

Expenses (1)


150.7



172.6



507.2



488.4

Pre-tax earnings


25.5



44.3



193.3



170.6













FICC












Revenues


59.8



78.3



188.0



196.4

Expenses (1)


72.6



62.7



191.8



155.8

Pre-tax earnings


(12.8)



15.6



(3.8)



40.6













Corporate












Revenues


3.5



4.8



1.5



3.7

Expenses (1)


16.2



14.9



53.8



33.2

Pre-tax earnings


(12.6)



(10.2)



(52.3)



(29.5)













Consolidated












Revenues


239.5



299.9



890.0



859.2

Expenses (1)


239.4



250.2



752.8



677.5

Pre-tax earnings

$

0.1


$

49.8


$

137.2


$

181.7













* Totals may not add due to rounding.

(1) - Included in Expenses for the three and nine months ended September 30, 2010 is a Restructuring charge

     of $16.7 million which is comprised of $3.1 million for Equities, $12.9 million for FICC and $0.7 million for Corporate.



SOURCE Knight Capital Group, Inc.



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