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Press release from PR Newswire

Knight Capital Group Announces Consolidated Earnings of $0.43 Per Diluted Share for the Fourth Quarter 2011

Thursday, January 19, 2012

Knight Capital Group Announces Consolidated Earnings of $0.43 Per Diluted Share for the Fourth Quarter 201106:00 EST Thursday, January 19, 2012Fourth quarter 2011 consolidated revenues rose 32% to $341.3 million and pre-tax earnings increased 395% to $63.1 million compared to the fourth quarter 2010 Market Making grew fourth quarter 2011 revenues 69% to $187.4 million and pre-tax earnings 181% to $84.4 million compared to the fourth quarter 2010, despite a decline in retail trading activity year over year During the fourth quarter 2011, Knight repurchased 2.0 million sharesJERSEY CITY, N.J., Jan. 19, 2012 /PRNewswire/ -- Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported consolidated earnings of $40.2 million, or $0.43 per diluted share, for the fourth quarter of 2011. The results included a tax benefit of $1.7 million, or $0.02 per diluted share.For the fourth quarter of 2010, the company reported consolidated earnings of $9.2 million, or $0.10 per diluted share. The results included a tax benefit of $2.1 million, or $0.02 per diluted share.Revenues from continuing operations for the fourth quarter of 2011 were $341.3 million, compared to $259.0 million from continuing operations for the fourth quarter of 2010."In the fourth quarter of 2011, Knight produced strong financial results," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Consolidated revenues and pre-tax earnings rose considerably year over year despite a decline in market conditions as the quarter progressed. Market Making performed exceptionally well and again demonstrated the ability to adapt to the trading environment and deliver results. While the fourth quarter was not without its challenges, the contribution from Electronic Execution Services increased and we worked to improve profitability across products and services.""Continuing operations" includes the company's Market Making, Institutional Sales and Trading, Electronic Execution Services, and Corporate and Other segments. Market Making consists of all global market making across equities, fixed income, foreign exchange and options as well as the company's activities as a Designated Market Maker at the NYSE. Institutional Sales and Trading includes full-service institutional research, sales and trading as well as equity and debt capital markets, reverse mortgage origination and securitization, and asset management. Electronic Execution Services includes Knight Direct, Hotspot FX and Knight BondPoint. Corporate and Other includes strategic investments primarily in financial services-related ventures, clearing and settlement activity, corporate overhead expenses and all other income and expenses that are not attributable to the other reporting segments.                  Q4 2011 Q4 2010         Revenues ($ thousands) 341,327 259,033  Net income ($ thousands) 40,238 9,232  Diluted EPS ($) 0.43 0.10  Average daily U.S. equity dollar value traded ($ billions) 27.3 24.7  Average daily U.S. equity trades (thousands) 4,156.4 3,474.1  Nasdaq and Listed equity shares traded (billions) 60.8 60.5  OTC Bulletin Board and Pink Sheet shares traded (billions) 121.2 330.9  Average revenue capture per U.S. equity dollar value traded (bps) 1.42 1.05  Average daily Knight Direct equity shares (millions) 210.5 174.9  Average daily Hotspot FX notional dollar value traded ($ billions)  53.9 42.0           YTD 2011 YTD 2010         Revenues ($ thousands) 1,404,527 1,149,056  Net income ($ thousands) 115,237 91,638  Diluted EPS ($) 1.21 0.97  Average daily U.S. equity dollar value traded ($ billions) 29.3 26.6  Average daily U.S. equity trades (thousands) 4,151.2 3,730.4  Nasdaq and Listed equity shares traded (billions) 249.9 275.3  OTC Bulletin Board and Pink Sheet shares traded (billions) 885.1 1,988.9  Average revenue capture per U.S. equity dollar value traded (bps) 1.27 1.10  Average daily Knight Direct equity shares (millions) 183.7 148.8  Average daily Hotspot FX notional dollar value traded ($ billions)  59.1 36.9                "In 2011, Knight recorded its sixth straight year of approximately $1 in earnings per share," said Mr. Joyce. "For the full year, we maintained the number-one rankings in shares traded across NYSE- and NASDAQ-listed stocks, ETFs and OTC Bulletin Boards among all securities firms. In addition, Knight increased average daily U.S. equity dollar volume traded by 11 percent. At the same time, we undertook a restructuring to cut underperforming areas and efforts to refine the client offering continue."Market MakingDuring the fourth quarter of 2011, the Market Making segment generated total revenues of $187.4 million and pre-tax income of $84.4 million. In the fourth quarter of 2010, Market Making reported total revenues of $111.0 million and pre-tax income of $30.0 million. Market Making had pre-tax margins of 45 percent in the fourth quarter of 2011 compared to pre-tax margins of 27 percent in the fourth quarter of 2010."In Market Making, Knight grew revenues 69 percent and pre-tax earnings 181 percent year over year," said Mr. Joyce. "Amid lower retail trading activity compared to the fourth quarter of 2010, Market Making maintained industry-leading market share in U.S. equities and drove the rise in average daily dollar volume traded. Near-constant enhancements to trading technologies covering platforms, models and strategies contributed to the increase in revenue capture. During the quarter, we progressed in efforts to grow European equities and U.S. options."Institutional Sales and TradingDuring the fourth quarter of 2011, the Institutional Sales and Trading segment generated total revenues of $103.8 million and pre-tax loss of $17.1 million. In the fourth quarter of 2010, Institutional Sales and Trading reported total revenues of $112.4 million and pre-tax loss of $7.7 million."In Institutional Sales and Trading, Knight produced strong revenues and renewed efforts to decrease expenses," said Mr. Joyce. "We generated balanced contributions across products and regions. Further, the institutional equities and fixed income teams instituted a number of measures to increase referrals and cut costs. During the quarter, Urban worked to secure its position among the reverse mortgage industry leaders in lending and issuance."Electronic Execution ServicesDuring the fourth quarter of 2011, the Electronic Execution Services segment generated total revenues of $40.6 million and pre-tax income of $12.5 million. In the fourth quarter of 2010, Electronic Execution Services reported total revenues of $37.1 million and pre-tax income of $10.7 million. Electronic Execution Services had pre-tax margins of 31 percent in the fourth quarter of 2011 compared to pre-tax margins of 29 percent in the fourth quarter of 2010."In Electronic Execution Services, Knight grew revenues nine percent and pre-tax earnings 17 percent year over year," said Mr. Joyce. "The results are due to the respective strengths of the electronic trading products as well as secular trends and, to a lesser extent, market conditions. In comparison to the fourth quarter of 2010, we witnessed growth in average daily volumes of 28 percent at Hotspot FX, 20 percent at Knight Direct and 13 percent at Knight BondPoint."Corporate and OtherDuring the fourth quarter of 2011, the Corporate and Other segment reported a pre-tax loss of $16.5 million. In the fourth quarter of 2010, the Corporate segment reported a pre-tax loss of $20.2 million."During the fourth quarter of 2011, Knight performed extremely well," said Mr. Joyce. "Relative to the financial sector, I believe Knight's path to improving and sustaining strong financial results is straightforward. We're beginning to realize the benefits of investments in core areas and refocusing on new and innovative trading technologies that allow us to provide clients with consistent, high-quality trade executions and low transaction costs."Headcount at December 31, 2011 was 1,423 full-time employees, as compared to 1,326 full-time employees at December 31, 2010.As of December 31, 2011, the company had $467.6 million in cash and cash equivalents. The company had $1.5 billion in stockholders' equity as of December 31, 2011, equivalent to a book value of $15.70 per diluted share. The company had a book value of $14.51 per diluted share as of December 31, 2010.During the fourth quarter of 2011, the company repurchased 2.0 million shares for $25.0 million under the company's existing stock repurchase program. To date, the company has repurchased 75.2 million shares for $859.5 million. The company has approximately $140.5 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 fourth quarter 2011 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, January 19, 2012. To access Knight's earnings conference call, please dial 866-564-7439 for domestic callers or 719-457-2618 for international callers. When prompted, please enter passcode 2983341. A replay of the fourth 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 2983341. 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 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 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 related to the corporate restructuring in the third quarter 2011, including the ability to recognize anticipated cost savings, the possibility of unexpected costs or expenditures, and the impact of the restructuring on the Company's businesses and results of operations, risks associated with changes in market structure, legislative, regulatory and financial rules changes, risks associated with the Company's changes to its organizational structure and management and the costs, 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 December 31,   For the year ended December 31,     2011  2010  2011  2010   (In thousands, except per share amounts)              Revenues            Net trading revenue$168,412 $96,619 $631,989 $489,394 Commissions and fees 164,587  165,901  749,911  660,527 Interest, net 443  1,240  4,649  2,092 Investment income (loss) and other, net 7,885  (4,727)  17,978  (2,957)  Total revenues 341,327  259,033  1,404,527  1,149,056              Expenses            Employee compensation and benefits 137,496  133,972  583,786  546,748 Execution and clearance fees 53,433  41,966  229,209  176,116 Communications and data processing 21,557  19,287  87,109  69,597 Payments for order flow 19,238  8,987  85,269  37,700 Depreciation and amortization 13,519  12,435  54,000  42,773 Interest  11,827  8,785  42,068  25,896 Occupancy and equipment rentals 6,558  7,300  28,084  26,632 Business development 6,490  4,502  23,360  19,493 Professional fees 5,907  4,701  21,305  17,463 Restructuring -  -  28,624  16,731 Writedown of assets and lease loss accrual 700  -  2,978  1,032 Other 1,455  4,331  31,606  18,909  Total expenses 278,180  246,266  1,217,398  999,090              Income from continuing operations before income taxes 63,147  12,767  187,129  149,966Income tax expense 22,883  3,391  71,488  57,969Income from continuing operations, net of tax 40,264  9,376  115,641  91,997Loss from discontinued operations, net of tax (26)  (144)  (404)  (359)              Net income$40,238 $9,232 $115,237 $91,638              Basic earnings per share from continuing operations$0.45 $0.10 $1.26 $1.02              Diluted earnings per share from continuing operations$0.43 $0.10 $1.22 $0.97              Basic earnings per share$0.44 $0.10 $1.26 $1.02              Diluted earnings per share$0.43 $0.10 $1.21 $0.97              Shares used in computation of basic earnings per share 90,427  91,226  91,490  90,167              Shares used in computation of diluted earnings per share 93,141  93,735  95,013  94,447                                      KNIGHT CAPITAL GROUP, INC.CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Unaudited)                    December 31, 2011  December 31, 2010     (In thousands)ASSETS        Cash and cash equivalents $467,633 $375,569  Financial instruments owned, at fair value:          Equities  1,416,090  1,299,052    Listed equity options  280,384  41,840    Debt securities  134,631  77,288    Loan inventory  206,572  146,472    Other financial instruments  21,483  38,487    Securitized HECM loan inventory  1,722,631  -  Total financial instruments owned, at fair value  3,781,791  1,603,139  Collateralized agreements:          Securities borrowed  1,494,647  1,361,010  Receivable from brokers, dealers and clearing organizations  623,897  476,159  Fixed assets and leasehold improvements,     at cost, less accumulated depreciation and amortization  111,464  117,601  Investments  83,231  81,331  Goodwill  337,843  338,743  Intangible assets, less accumulated amortization  92,889  109,784  Other assets  159,556  206,875        Total assets $7,152,951 $4,670,211         LIABILITIES & EQUITY       Liabilities        Financial instruments sold, not yet purchased, at fair value:          Equities $1,369,750 $1,164,718    Listed equity options  254,506  40,564    Debt securities  63,073  60,679    Other financial instruments  34,563  45,363  Total financial instruments sold, not yet purchased, at fair value  1,721,892  1,311,324  Collateralized financings:          Securities loaned    697,998  527,945    Financial instruments sold under agreements to repurchase  420,320  485,184    Liability to GNMA trusts, at fair value  1,710,627  -    Other secured financings  59,405  35,583  Payable to brokers, dealers and clearing organizations  322,660  337,430  Accrued compensation expense  188,939  186,451  Accrued expenses and other liabilities  144,747  114,376  Long-term debt   424,338  311,060           Total liabilities  5,690,926  3,309,353                Equity        Knight Capital Group, Inc. stockholders' equity          Class A common stock  1,664  1,628    Additional paid-in capital  850,837  807,287    Retained earnings  1,433,320  1,317,462    Treasury stock, at cost  (823,023)  (765,875)    Accumulated other comprehensive loss   (773)  (265)  Total Knight Capital Group, Inc. stockholders' equity  1,462,025  1,360,237  Noncontrolling interests  -  621Total equity  1,462,025  1,360,858         Total liabilities and equity $7,152,951 $4,670,211                         KNIGHT CAPITAL GROUP, INC.          PRE-TAX EARNINGS BY BUSINESS SEGMENT*        Amounts in millions            (Unaudited)                           For the three months ended December 31, For the year endedDecember 31,   2011  2010 (1)  2011  2010 (1)Market Making            Revenues $187.4 $111.0 $704.5 $549.1Expenses (2) (3)  103.0  81.1  448.4  339.3Pre-tax earnings  84.4  30.0  256.1  209.9             Institutional Sales and Trading           Revenues  103.8  112.4  511.5  457.6Expenses (2) (3)  121.0  120.1  555.9  477.1Pre-tax loss  (17.1)  (7.7)  (44.4)  (19.5)             Electronic Execution Services           Revenues  40.6  37.1  167.9  138.2Expenses (2) (3)  28.1  26.4  118.4  100.8Pre-tax earnings  12.5  10.7  49.5  37.4             Corporate and Other            Revenues  9.6  (1.5)  20.6  4.1Expenses (2) (3)  26.1  18.7  94.7  82.0Pre-tax loss  (16.5)  (20.2)  (74.1)  (77.9)             Consolidated            Revenues  341.3  259.0  1,404.5  1,149.1Expenses (2) (3)  278.2  246.3  1,217.4  999.1Pre-tax earnings $63.1 $12.8 $187.1 $150.0             * Totals may not add due to rounding.         (1) - Prior period amounts have been recast to conform with current period segment presentation.         Such recast had no effect on previously reported Consolidated Pre-tax earnings.(2) - Included in Expenses for the year ended December 31, 2011 is a Restructuring charge        of $28.6 million which includes $0.5 million for Market Making, $23.9 million for Institutional Sales and Trading,         $0.4 million for Electronic Execution Services, and $3.8 million for Corporate and Other.(3) - Included in Expenses for the year ended December 31, 2010 is a Restructuring charge        of $16.7 million which includes $1.6 million for Market Making, $14.3 million for Institutional Sales and Trading,         $0.1 million for Electronic Execution Services, and $0.7 million for Corporate and Other.               SOURCE Knight Capital Group, Inc.For further information: Margaret Wyrwas, Senior Managing Director, Communications, Marketing & Investor Relations, +1-201-557-6954, mwyrwas@knight.com, or Kara Fitzsimmons, Managing Director, Media Relations, +1-201-356-1523, kfitzsimmons@knight.com or Jonathan Mairs, Director, Corporate Communications, +1-201-356-1529, jmairs@knight.com