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Press release from PR Newswire

Knight Capital Group Announces Consolidated Earnings of $0.19 Per Diluted Share for the Second Quarter 2011

Wednesday, July 20, 2011

Knight Capital Group Announces Consolidated Earnings of $0.19 Per Diluted Share for the Second Quarter 201106:00 EDT Wednesday, July 20, 2011Equities generated second quarter 2011 revenues of $236.4 million, compared to second quarter 2010 revenues of $305.0 million, due to significantly lower overall U.S. equity volumes and market volatility Fixed Income, Currencies and Commodities (FICC) second quarter 2011 revenues grew 46% to $88.4 million from second quarter 2010 revenues of $60.4 million, driven by reverse mortgage origination and HMBS securitization, institutional foreign exchange and capital marketsJERSEY CITY, N.J., July 20, 2011 /PRNewswire/ -- Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported consolidated earnings of $17.6 million, or $0.19 per diluted share, for the second quarter of 2011.For the second quarter of 2010, the company reported consolidated earnings of $54.4 million, or $0.58 per diluted share.Revenues from continuing operations for the second quarter of 2011 were $326.0 million, compared to $366.3 million from continuing operations for the second quarter of 2010."Knight recorded positive earnings in the second quarter of 2011 as we worked to make the best of a challenging environment," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "The financial results were driven by electronic and cash market making as well as institutional electronic trading. Also making a strong contribution was Knight subsidiary Urban Financial Group which is cementing its position as a leading provider of reverse mortgages and HMBS securities in a growing market segment. In addition, the capital markets team is making an impact by leveraging Knight's distribution strength to institutional clients.""Continuing operations" includes the company's Equities, FICC and Corporate operating segments. Equities includes all global equities market making and institutional sales and trading, including Knight Direct and Knight Link, as well as Astor Asset Management. FICC includes all global trade execution services in fixed income, foreign exchange and commodities, including fixed income sales, trading and research, Knight BondPoint and Hotspot FX, as well as Urban Financial Group. Corporate includes strategic investments primarily in financial services-related ventures, corporate overhead expenses and all other expenses that are not attributable to the Equities and FICC segments. "Discontinued operations" primarily comprises the company's former Deephaven subsidiary.Q2 2011Q2 2010Revenues ($ thousands)325,982366,274Income from continuing operations, net of tax ($ thousands)17,75054,435Net income ($ thousands)17,57254,391Diluted EPS from continuing operations ($)0.190.58Average daily U.S. equity dollar value traded ($ billions)26.931.5Average daily U.S. equity trades (thousands)3,765.64,335.5Nasdaq and Listed equity shares traded (billions)55.583.0OTC Bulletin Board and Pink Sheet shares traded (billions)263.2682.1Average revenue capture per U.S. equity dollar value traded (bps)1.151.28Average daily Knight Direct equity shares (millions)162.2164.3Average daily Hotspot FX notional dollar value traded ($ billions) 63.040.2YTD 2011YTD 2010Revenues ($ thousands)665,758650,513Income from continuing operations, net of tax ($ thousands)48,38382,553Net income ($ thousands)48,06482,203Diluted EPS from continuing operations ($)0.510.88Average daily U.S. equity dollar value traded ($ billions)27.929.1Average daily U.S. equity trades (thousands)3,832.54,021.0Nasdaq and Listed equity shares traded (billions)119.4154.7OTC Bulletin Board and Pink Sheet shares traded (billions)587.11,235.4Average revenue capture per U.S. equity dollar value traded (bps)1.191.20Average daily Knight Direct equity shares (millions)163.7138.2Average daily Hotspot FX notional dollar value traded ($ billions) 59.136.5EquitiesDuring the second quarter of 2011, the Equities segment generated total revenues of $236.4 million and pre-tax income of $32.9 million. In the second quarter of 2010, Equities reported total revenues of $305.0 million and pre-tax income of $111.3 million. Equities had pre-tax margins of 14% in the second quarter of 2011, compared to pre-tax margins of 36% in the second quarter of 2010."In Equities, during the second quarter, Knight's financial results were impacted by a 30 percent decrease in overall U.S. equity market volumes and considerably lower volatility year over year," said Mr. Joyce. "Nevertheless, Knight maintained industry-leading market share in retail trade volumes. We further expanded options market making. Despite a decline in institutional trade volumes, Knight Direct average daily share volume nearly matched the second quarter of 2010. Equity capital markets continued to gain traction."FICCDuring the second quarter of 2011, the FICC segment generated total revenues of $88.4 million and pre-tax income of $13.9 million. In the second quarter of 2010, FICC reported total revenues of $60.4 million and pre-tax income of $0.9 million. FICC had pre-tax margins of 16% in the second quarter of 2011, compared to pre-tax margins of 1% in the second quarter of 2010."In FICC, during the second quarter, Knight improved profitability despite lower overall U.S. corporate bond volumes and narrower spreads year over year," said Mr. Joyce. "Institutional fixed income worked to further reduce expenses while selectively increasing sales and product coverage. Urban increased reverse mortgage origination as well as HMBS issuance and is poised to gain further market share. Debt capital markets made a solid contribution. Knight BondPoint continued to gain market share. In foreign exchange, Hotspot FX increased average daily notional dollar value traded by 57 percent compared to the second quarter of 2010."CorporateIn the second quarter of 2011, the Corporate segment reported a pre-tax loss of $17.4 million compared to a pre-tax loss of $21.0 million in the second quarter of 2010."During the second quarter of 2011, Knight generated returns from core market making and institutional electronic trading," said Mr. Joyce. "We continue to believe we are well positioned to benefit when retail and institutional activity levels pick up again. Nevertheless, we are evaluating market conditions, the competitive environment and secular trends to make the necessary adjustments that best position the firm moving forward."Headcount at June 30, 2011 was 1,465 full-time employees, as compared to 1,207 full-time employees at June 30, 2010.As of June 30, 2011, the company had $470.6 million in cash and cash equivalents. The company had $1.4 billion in stockholders' equity as of June 30, 2011, equivalent to a book value of $15.05 per diluted share. The company had a book value of $13.96 per diluted share as of June 30, 2010.During the second quarter of 2011, Knight entered into a $100 million three-year term loan credit agreement, the proceeds from which will be used for general corporate purposes. In addition, Knight will act as a guarantor for a $200 million one-year revolving credit agreement for subsidiaries Knight Capital Americas, L.P. and Knight Execution & Clearing Services LLC. The proceeds of the revolving facility may be used to meet short-term liquidity needs arising from clearing and settlement activity.During the second quarter of 2011, the company did not repurchase any shares under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 71.7 million shares for $817.4 million. The company has approximately $182.6 million available 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 second quarter 2011 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, July 20, 2011. To access Knight's earnings conference call, please dial 888-378-0319 for domestic callers or 719-325-2342 for international callers. When prompted, please enter passcode 5831542. A replay of the second quarter 2011 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 5831542. 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 June 2011 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today.About KnightKnight 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 and the costs, risks related to the performance of Knight's Electronic Trading Group, the integration, performance and operation of businesses recently acquired or developed organically, or that may be acquired or developed organically in the future. 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, 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, 2010, 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 June 30, For the six months ended June 30, 2011201020112010(In thousands, except per share amounts)RevenuesCommissions and fees $ 195,514$177,992$378,072$337,505Net trading revenue125,808187,964277,596312,928Interest, net2,3061375,406761Investment income (loss) and other, net2,3541814,684(681)Total revenues325,982366,274665,758650,513ExpensesEmployee compensation and benefits140,126158,695289,090297,045Execution and clearance fees58,73747,521112,18689,983Payments for order flow22,33711,08943,04622,114Communications and data processing21,69117,07142,41433,129Depreciation and amortization13,5249,83426,73319,069Interest 9,5407,13719,4209,611Business development7,2506,31210,96110,540Occupancy and equipment rentals7,1466,36114,50012,702Professional fees5,5144,0339,8688,786Writedown of assets and lease loss accrual-1,0329451,032Other10,6636,06117,0579,416Total expenses296,528275,146586,220513,427Income from continuing operations before income taxes29,45491,12879,538137,086Income tax expense11,70436,69331,15554,533Income from continuing operations, net of tax17,75054,43548,38382,553Loss from discontinued operations, net of tax(178)(44)(319)(350)Net income $ 17,572$54,391$48,064$82,203Basic earnings per share from continuing operations $ 0.19$0.61$0.52$0.92Diluted earnings per share from continuing operations $ 0.19$0.58$0.51$0.88Basic earnings per share $ 0.19$0.61$0.52$0.92Diluted earnings per share $ 0.19$0.58$0.51$0.88Shares used in computation of basic earnings per share92,49389,42592,18489,462Shares used in computation of diluted earnings per share94,68293,50894,88493,891KNIGHT CAPITAL GROUP, INC.CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Unaudited)June 30, 2011December 31, 2010(In thousands)ASSETSCash and cash equivalents $ 470,554$375,569Financial instruments owned, at fair value2,690,7301,603,139Collateralized agreements:Securities borrowed 1,631,4391,361,010Receivable from brokers, dealers and clearing organizations683,139476,159Fixed assets and leasehold improvements,              at cost, less accumulated depreciation and amortization120,864117,601Investments101,11481,331Goodwill338,843338,743Intangible assets, less accumulated amortization101,784109,784Other assets247,892206,875Total assets $ 6,386,359$4,670,211LIABILITIES & EQUITY LiabilitiesFinancial instruments sold, not yet purchased, at fair value $ 1,896,634$1,311,324         Collateralized financings:Securities loaned  622,936527,945Financial instruments sold under agreements to repurchase766,259485,184Other secured financings51,98235,583Payable to brokers, dealers and clearing organizations412,301337,430Accrued compensation expense127,439186,451Accrued expenses and other liabilities665,255114,376Long-term debt 417,588311,060Total liabilities4,960,3943,309,353EquityKnight Capital Group, Inc. stockholders' equityClass A common stock1,6641,628Additional paid-in capital837,902807,287Retained earnings1,365,5261,317,462Treasury stock, at cost(779,268)(765,875)Accumulated other comprehensive loss(480)(265)Total Knight Capital Group, Inc. stockholders' equity1,425,3441,360,237Noncontrolling interests621621Total equity1,425,9651,360,858Total liabilities and equity $ 6,386,359$4,670,211KNIGHT CAPITAL GROUP, INC.PRE-TAX EARNINGS BY BUSINESS SEGMENT*Amounts in millions(Unaudited)For the three months ended June 30,For the six months ended June 30,2011201020112010EquitiesRevenues$236.4$305.0$502.4$524.4Expenses203.4193.7404.8356.6Pre-tax earnings32.9111.397.6167.8FICCRevenues88.460.4159.6128.2Expenses74.559.5143.5119.2Pre-tax earnings13.90.916.19.0CorporateRevenues1.20.93.8(2.0)Expenses18.721.938.037.7Pre-tax loss(17.4)(21.0)(34.2)(39.7)ConsolidatedRevenues326.0366.3665.8650.5Expenses296.5275.1586.2513.4Pre-tax earnings$29.5$91.1$79.5$137.1* Totals may not add due to rounding.SOURCE Knight Capital Group, Inc.For further information: Margaret Wyrwas, Senior Managing Director, Communications, Marketing & Investor Relations, +1-201-557-6954 or mwyrwas@knight.com, or Kara Fitzsimmons, Director, Media Relations, +1-201-356-1523 or kfitzsimmons@knight.com, or Jonathan Mairs, Vice President, Corporate Communications, +1-201-356-1529 or jmairs@knight.com