| OCTOBER 22, 2008 |
| Knight Capital Group Announces Earnings of $0.40 Per Diluted Share for the Third Quarter 2008 |
Global Markets more than doubled pre-tax income to $88.3 million in the third quarter 2008, up from $32.2 million in the third quarter 2007, in one of the strongest quarterly performances in our history Global Markets revenues in the third quarter 2008 increased 40% year-over-year to $269.0 million as commissions and fees rose 15% to $151.2 million and net trading revenues grew 103% to $116.8 million Asset Management's third quarter 2008 pre-tax loss of $7.7 million driven by continued turmoil in the global capital markets compared to a pre-tax loss of $8.3 million in the third quarter 2007 JERSEY CITY, N.J., Oct. 22 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE) today reported earnings of $36.3 million, or $0.40 per diluted share, and pre-tax income of $61.8 million for the third quarter of 2008, which included minority interest expense of $1.7 million related to Deephaven. For the third quarter of 2007, the company reported earnings of $16.4 million, or $0.17 per diluted share, and pre-tax income of $27.8 million, which included a pre-tax gain of $13.0 million, or approximately $0.08 per diluted share, related to the transfer and sale of equity interests in Direct Edge ECN. Excluding the gain from the equity transactions, pre-tax income for the third quarter of 2007 would have been $14.8 million, or $0.09 per diluted share. Revenues for the third quarter of 2008 were $269.9 million, compared to $205.0 million for the third quarter of 2007. "In the third quarter of 2008, Knight achieved exceptional performance amid a series of extraordinary events that gripped the global capital markets," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "On a consolidated basis, we grew year-over-year revenues and pre-tax earnings while increasing pre-tax margins to 23 percent from 14 percent in the third quarter of 2007. In Global Markets, we again turned in one of the strongest quarterly performances in our history driven by increasing order flow across both electronic and voice channels in our hybrid market model and heightened market volatility. In Asset Management, Deephaven's fund performance and assets under management suffered as conditions continued to worsen for alternative investment managers."
------- -------
Q3 2008 Q3 2007
------- -------
Revenues ($ thousands) 269,895 204,959
Net income ($ thousands) 36,295 16,445
Diluted EPS ($) 0.40 0.17
Average daily U.S. equity dollar value traded
($ billions) 20.0 14.0
Average daily U.S. equity trades (thousands) 2,581.6 1,407.7
Nasdaq and Listed equity shares traded (billions) 52.1 29.7
OTC Bulletin Board and Pink Sheet shares traded
(billions) 264.8 185.8
Average revenue capture per U.S. equity dollar value
traded (bps) 1.5 1.3
Average month-end balance of assets under management
($ millions) 2,912.2 4,105.7
Quarterly fund return to investors* -10.0% -1.8%
* Quarterly fund return represents the blended quarterly return across
all assets under management in the Deephaven funds.
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YTD 2008 YTD 2007
-------- --------
Revenues ($ thousands) 718,031 648,032
Net income ($ thousands) 98,209 72,677
Diluted EPS ($) 1.07 0.71
Average daily U.S. equity dollar value traded
($ billions) 18.0 11.2
Average daily U.S. equity trades (thousands) 2,066.0 1,220.3
Nasdaq and Listed equity shares traded (billions) 120.6 79.3
OTC Bulletin Board and Pink Sheet shares traded
(billions) 636.0 637.9
Average revenue capture per U.S. equity dollar value
traded (bps) 1.4 1.6
Average month-end balance of assets under management
($ millions) 3,298.2 4,049.2
Year-to-date fund return to investors* -14.8% 5.3%
* Year-to-date fund return represents the blended return across all
assets under management in the Deephaven funds.
Global Markets During the third quarter of 2008, Global Markets generated total revenues of $269.0 million, compared to $192.7 million in the third quarter of 2007. In the third quarter of 2008, Global Markets reported pre-tax earnings of $88.3 million, compared to pre-tax earnings of $32.2 million in the third quarter of 2007. Global Markets pre-tax margins of 33% in the third quarter of 2008 exceeded pre-tax margins of 17% in the third quarter of 2007. "In Global Markets, we recorded pre-tax margins greater than 30 percent for the fourth consecutive quarter," said Mr. Joyce. "Our equity trade volumes were robust due to deep, in-house liquidity across the market and the reliability, efficiency and scalability of our trading technology infrastructure. During the third quarter, we increased trade capacity to 20 million trades per day. The flexibility of Knight's hybrid market model continues to provide tremendous value to buy- and sell-side clients who turn to us for market access and insights to meet their trading objectives. Our results reflect the positive impact of our diversification and expansion strategies across clients, products, services, order flow, asset classes and geographies." Asset Management During the third quarter of 2008, the Asset Management segment, Deephaven Capital Management, generated $9.2 million in asset management fees, compared to negative net asset management fees of $1.2 million in the same period a year ago. The negative net asset management fees of $1.2 million during the third quarter of 2007 reflected a reduction of incentive fees due to the quarterly fund returns, offset by positive asset-based management fees. In the third quarter of 2008, Deephaven reported a pre-tax loss of $7.7 million, compared to a pre-tax loss of $8.3 million in the third quarter of 2007. The third quarter of 2008 pre-tax loss included minority interest expense of $1.7 million relating to the third quarter's accrual for the one-year minimum distribution to the Deephaven managers pursuant to the Limited Liability Agreement for Deephaven Capital Management Holdings LLC. Asset Management had approximately $2.7 billion under management at October 1, 2008, compared with approximately $4.4 billion under management at October 1, 2007. "During the third quarter, Deephaven's fund performance and assets under management suffered as uncertainty and fear in the global capital markets led to further declines in market indexes and sent investors in search of safe havens," said Mr. Joyce. "In the end, Deephaven's blended fund performance declined along with that of benchmark funds. Assets under management fell due to negative fund performance and redemptions. As with most alternative investment managers, Deephaven has significant redemption risk as investors consider reallocating assets into more liquid investments given the current market conditions. In light of the current environment, Deephaven will continue to consider all alternatives to protect its investors." Corporate In the third quarter of 2008, the Corporate segment reported pre-tax loss of $18.8 million, compared to pre-tax income of $3.9 million in the third quarter of 2007. Pre-tax income of $3.9 million in the prior year's third quarter included a pre-tax gain of $13.0 million, or approximately $0.08 per diluted share, related to the transfer and sale of equity interests in the holding company of Direct Edge ECN. Pursuant to SEC guidance, of the $13.0 million pre-tax gain, $8.8 million is reported as Non-operating gain from subsidiary stock issuance, and $4.2 million is included in Investment (loss) income and other, net on the Consolidated Statements of Operations. The company's corporate investment in the Deephaven funds incurred a pre-tax loss of $8.5 million during the third quarter of 2008, compared to a pre-tax loss of $1.3 million during the third quarter of 2007. As of September 30, 2008, the company had $296.1 million in cash and cash equivalents as well as a $63.3 million corporate investment in funds managed by Deephaven. "In a period of historic turmoil in the global capital markets and transformation on Wall Street, Knight produced exceptional results by providing clients with superior and customized service," said Mr. Joyce. "In Global Markets, our financial performance included growing contributions from existing market access and trading offerings as well as new high-velocity algorithmic trading models. The composition of our volumes illustrates our evolution into an all-market trade execution firm for global equities, while broadening access for clients across asset classes. In the months ahead, we will focus on opportunities to build on our strengths such as adding electronic capabilities to our voice presence in Europe as well as establishing a voice presence in Asia." The company had $944.6 million in stockholders' equity as of September 30, 2008, equivalent to a book value of $10.49 per diluted share. The company had a book value of $9.31 per diluted share as of September 30, 2007. During the third quarter of 2008, the company repurchased 5.8 million shares for approximately $89.7 million under the company's $1.0 billion stock repurchase program. To date, the company has repurchased 66.8 million shares for $745.7 million. The company has approximately $254.3 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 third quarter of 2008 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, October 22, 2008. To access Knight's earnings conference call, please dial 877.856.1968 for domestic callers or 719.325.4811 for international callers. When prompted, provide the passcode, which is 6458498. 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 September 2008 on its website before the start of trading today at http://www.knight.com/ourliquidity/volumestatistics.asp. * * * About Knight Knight Capital Group, Inc. (Nasdaq: NITE) is a leading financial services firm that provides electronic and voice access to the capital markets across multiple asset classes for buy-side, sell-side and corporate clients. In Global Markets, we provide market access and trade execution services in nearly every U.S. equity security and a large number of international securities, futures, options, foreign exchange and fixed income. In Asset Management, Knight owns a 51 percent stake in Deephaven Holdings with Deephaven Partners controlling the remaining 49 percent as of February 1, 2008. Deephaven (www.deephavenfunds.com) is a global, multi-strategy alternative investment manager serving institutions and private clients. More information about Knight can be found at 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 the costs, integration, performance and operation of businesses recently acquired, or that may be acquired in the future, by the Company, and risks associated with the unprecedented current market conditions and the resulting volatility, credit tightening and counterparty risk, as well as the negative effect on performance and assets under management in our 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, 2007, 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, 2007, 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 For the nine
months ended months ended
September 30, September 30,
-------------- --------------
2008 2007 2008 2007
---- ---- ---- ----
(In thousands, except per share
amounts)
Revenues
Commissions and fees $151,160 $131,473 $378,537 $342,261
Net trading revenue 116,830 57,660 303,780 173,490
Asset management fees, net 9,238 (1,237) 38,844 88,593
Interest, net 1,543 4,645 7,324 13,657
Non-operating gain from
subsidiary stock issuance - 8,757 - 8,757
Investment (loss)
income and other, net (8,876) 3,661 (10,454) 21,274
------ ----- ------- ------
Total revenues 269,895 204,959 718,031 648,032
------- ------- ------- -------
Transaction-based expenses
Execution and clearance fees 27,062 39,555 76,114 95,656
Soft dollar and commission
recapture expense 18,844 15,256 53,469 44,261
Payments for order flow
and ECN rebates 10,112 18,978 27,338 44,338
------ ------ ------ ------
Total
transaction-based expenses 56,018 73,789 156,921 184,255
------ ------ ------- -------
Revenues, net of
transaction-based expenses 213,877 131,170 561,110 463,777
Other direct expenses
Employee compensation and
benefits 109,244 71,785 279,020 252,715
Communications and
data processing 11,982 9,948 33,865 28,034
Professional fees 3,377 5,281 16,044 13,961
Depreciation and amortization 7,422 5,626 19,347 16,542
Occupancy and equipment rentals 5,602 3,685 14,978 10,690
Business development 4,298 3,532 12,765 11,804
Interest expense 1,476 20 3,425 45
Writedown of assets and
lease loss accrual 2,516 136 644 (1,354)
Other 4,471 3,403 9,764 9,011
----- ----- ----- -----
Total other direct expenses 150,388 103,416 389,852 341,448
------- ------- ------- -------
Income from continuing operations
before income taxes and minority
interest 63,489 27,754 171,258 122,329
Income tax expense 25,511 11,205 68,798 48,215
------ ------ ------ ------
Income from continuing operations
before minority interest 37,978 16,549 102,460 74,114
Minority interest expense 1,683 - 4,251 -
------ ------ ------ ------
Income from continuing operations 36,295 16,549 98,209 74,114
Loss from discontinued
operations, net of tax - (104) - (1,437)
------ ------- ------ ------
Net income $36,295 $16,445 $98,209 $72,677
======= ======= ======= =======
Basic earnings per share from
continuing operations $0.41 $0.17 $1.10 $0.75
===== ===== ===== =====
Diluted earnings per share from
continuing operations $0.40 $0.17 $1.07 $0.73
===== ===== ===== =====
Basic and diluted earnings per share
from discontinued operations $- $- $- $(0.01)
===== ===== ===== ======
Basic earnings per share $0.41 $0.17 $1.10 $0.74
===== ===== ===== =====
Diluted earnings per share $0.40 $0.17 $1.07 $0.71
===== ===== ===== =====
Shares used in computation of
basic earnings per share 87,612 95,893 89,207 98,809
====== ====== ====== ======
Shares used in computation of
diluted earnings per share 90,076 98,315 92,069 102,081
====== ====== ====== =======
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
------------------ -----------------
September 30, 2008 December 31, 2007
------------------ -----------------
(In thousands)
ASSETS
Cash and cash equivalents $296,119 $222,435
Securities owned, held at
clearing brokers, at fair value 549,923 412,565
Receivable from brokers and dealers 309,199 382,544
Asset management fees receivable 11,532 27,588
Investment in Deephaven sponsored funds 63,272 83,732
Receivable from Deephaven
sponsored funds - 85,000
Fixed assets and leasehold
improvements, at cost, less
accumulated depreciation and
amortization 78,172 62,073
Strategic investments 83,629 73,704
Goodwill 231,791 132,832
Intangible assets, less
accumulated amortization 93,327 57,845
Deferred compensation investments 85,120 85,504
Other assets 145,648 129,991
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Total assets $1,947,732 $1,755,813
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Securities sold, not yet
purchased, at fair value $374,931 $335,280
Payable to brokers and dealers 176,040 117,001
Accrued compensation expense 196,695 228,275
Accrued expenses and other liabilities 110,148 119,879
Long term debt 140,000 70,000
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Total liabilities 997,814 870,435
------- -------
Minority interest 5,276 -
Stockholders' equity
Class A common stock 1,536 1,509
Additional paid-in capital 638,319 587,025
Retained earnings 1,032,307 934,099
Treasury stock, at cost (727,520) (637,255)
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Total stockholders' equity 944,642 885,378
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Total liabilities and
stockholders' equity $1,947,732 $1,755,813
========== ==========
KNIGHT CAPITAL GROUP, INC.
PRE-TAX EARNINGS FROM CONTINUING
OPERATIONS BY BUSINESS SEGMENT*
Amounts in millions
(Unaudited)
For the three For the nine
months ended months ended
September 30, September 30,
-------------- --------------
2008 2007 2008 2007
---- ---- ---- ----
Global Markets
Revenues $269.0 $192.7 $691.4 $530.6
Expenses 180.6 160.5 459.7 429.6
----- ----- ----- -----
Pre-tax earnings 88.3 32.2 231.7 101.0
---- ---- ----- -----
Asset Management
Revenues 8.5 (0.9) 38.2 89.7
Expenses 14.5 7.4 53.7 72.8
---- ---- ---- ----
Pre-tax earnings (6.1) (8.3) (15.5) 16.9
Minority interest expense 1.7 - 4.3 -
---- ---- ---- ----
Pre-tax earnings after minority
interest expense (7.7) (8.3) (19.8) 16.9
---- ---- ----- ----
Corporate
Revenues (7.5) 13.2 (11.5) 27.7
Expenses 11.2 9.3 33.4 23.4
---- --- ---- ----
Pre-tax earnings (18.8) 3.9 (44.9) 4.4
----- --- ----- ---
Consolidated
Revenues 269.9 205.0 718.0 648.0
Expenses 206.4 177.2 546.8 525.7
----- ----- ----- -----
Pre-tax earnings 63.5 27.8 171.3 122.3
Minority interest expense 1.7 - 4.3 -
----- ----- ----- -----
Pre-tax earnings after minority
interest expense $61.8 $27.8 $167.0 $122.3
===== ===== ====== ======
* Totals may not add due to rounding.
SOURCE Knight Capital Group, Inc. |
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The matters described within the Investor Relations section of the Knight Capital Group (the "Company") Web site contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the Company's control, which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed with respect to future periods. These factors include, but are not limited to, the Company's ability to implement its growth strategies, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, intellectual property rights, and other factors detailed in the Company's registration statement and periodic reports filed with the Securities and Exchange.
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