PR Newswire/Les Echos/ Knight Capital Group Announces Earnings From Continuing Operations Of $0.03 Per Diluted Share For The First Quarter 2013 Continuing operations generated first quarter 2013 revenues of $285.2 million and pre-tax earnings of $17.9 million Results from continuing operations included $9.3 million in professional fees related to the announced merger and August 1st technology issue as well as $8.9 million in compensation expenses related to a reduction in workforce JERSEY CITY, N.J., May 1, 2013 -- Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported a GAAP consolidated loss of $9.4 million, or $0.03 per diluted share, for the first quarter of 2013. The first quarter 2013 GAAP net loss includes net income from continuing operations of $11.0 million, or $0.03 per diluted share, as well as a net loss from discontinued operations of $20.4 million, or a loss of $0.06 per diluted share. Included in the net income from continuing operations are professional fees related to the announced merger and August 1st technology issue and compensation expenses related to a reduction in workforce. Excluding these expenses, on a non-GAAP basis, the first quarter 2013 net income from continuing operations was $22.3 million, or $0.06 per diluted share. A reconciliation of GAAP to non-GAAP results is included below. For the first quarter of 2012, the company reported GAAP consolidated earnings of $33.1 million, or $0.36 per diluted share. Revenues from continuing operations for the first quarter of 2013 were $285.2 million, compared to $302.5 million for the first quarter of 2012. At March 31, 2013, the company had $439.2 million in cash and cash equivalents. The company had $1.5 billion in stockholders' equity as of March 31, 2013, equivalent to a book value of $3.96 per share. The company had $1.5 billion in stockholders' equity as of December 31, 2012, equivalent to a book value of $4.07 per share (which included preferred shares on an as-converted basis). Tangible book value as of March 31, 2013 was $3.25 per share as compared to $3.30 at December 31, 2012 (which included preferred shares on an as-converted basis). "In the first quarter of 2013, Knight's teams proved determined and our core competencies resilient," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Knight's comeback from the August 1st technology issue remains impressive. During the first quarter, revenues from continuing operations were strong despite a decline in consolidated U.S. equity volume year over year and the lowest quarterly market volatility in more than five years. Knight combined the full service and electronic institutional equities sales teams, announced the sale of institutional fixed income, and merged the Institutional Sales and Trading and Electronic Execution Services reporting segments. At the same time, the firm was engaged in planning for the announced merger with GETCO." In the first quarter of 2013, to better reflect the company's client offering, changes in senior management, the combination of the institutional equities sales teams and how the businesses are managed, the company changed its reporting segments from (i) Market Making, (ii) Institutional Sales and Trading, (iii) Electronic Execution Services, and (iv) Corporate and Other to (i) Market Making, (ii) Global Execution Services and (iii) Corporate and Other. Market Making consists of all global market making including Knight Link and the company's activities as a Designated Market Maker at the NYSE. Global Execution Services includes Knight Direct, equity sales and trading, Knight Hotspot FX, Knight BondPoint, futures, reverse mortgage origination and securitization and asset management. Corporate and Other includes strategic investments primarily in financial services-related ventures, clearing and settlement activity, corporate overhead expenses and all other expenses that are not attributable to the other reporting segments. During the first quarter of 2013, the company agreed to sell institutional fixed income sales and trading to Stifel, Nicolaus & Company, Inc. As a result, these businesses are considered to be held for sale and the results of operations have been reported as discontinued operations. Discontinued operations also include the company's correspondent clearing business, which the company announced that it was closing in the first quarter of 2013. Q1 2013 Q1 2012 Revenues ($ thousands) 285,156 302,472 Income from continuing operations, net of tax ($ thousands) 11,014 31,220 (Loss) income from discontinued operations, net of tax ($ thousands) (20,371) 1,886 Net (loss) income ($ thousands) (9,357) 33,106 Diluted EPS from continuing operations - GAAP basis ($) 0.03 0.34 Diluted EPS from discontinued operations - GAAP basis ($) (0.06) 0.02 Diluted EPS - GAAP basis($) (0.03) 0.36 Diluted EPS from continuing operations - Non-GAAP basis($)* 0.06 0.34 U.S. equity Market Making statistics: Average daily dollar value traded ($ billions) 22.2 21.9 Average daily trades (thousands) 2,973.3 3,334.6 Nasdaq and Listed shares traded (billions) 43.0 47.3 FINRA OTC Bulletin Board and Other shares traded (billions) 183.1 171.2 Average revenue capture per U.S. equity dollar value traded (bps) 1.00 0.99 Average daily Knight Direct equity shares (millions) (U.S. exchange listed shares) 184.6 182.7 Average daily Knight Hotspot FX notional dollar value traded ($ billions)** 27.8 27.8 * A reconcilation of GAAP to non-GAAP results is included below ** In the second quarter of 2012, Knight modified the reporting of Knight Hotspot FX notional dollar value traded volume to count one side of the transaction. The company previously counted total client volume to include both sides of the transaction. The company posts Knight Hotspot FX volume statistics each month to its web site, which has been updated to show one-sided volume statistics dating back to the beginning of 2011. Market Making During the first quarter of 2013, the Market Making segment generated total revenues of $150.7 million and pre-tax income of $36.6 million. In the first quarter of 2012, Market Making reported total revenues of $152.2 million and pre-tax income of $45.1 million. Market Making had pre-tax margins of 24 percent in the first quarter of 2013 compared to pre-tax margins of 30 percent in the first quarter of 2012. The results were impacted by a decrease in our volumes, increases in payments for order flow, as well as the 26% decrease in volatility as measured by the VIX. "In the Market Making segment, Knight continued to execute," said Mr. Joyce. "Knight maintained a decisive lead in market share of retail U.S. equity volume, which helped offset a year-over-year decline in retail trading activity. In aggregate, Knight's average daily U.S. equity dollar value traded and market share of consolidated U.S. equity notional value traded increased slightly compared to a year ago. Nevertheless, financial results were impacted by the subdued volatility and trading expenses." Global Execution Services During the first quarter of 2013, the Global Execution Services segment generated total revenues of $122.4 million and pre-tax income of $10.7 million. In the first quarter of 2012, Global Execution Services generated total revenues of $140.3 million and pre-tax income of $23.8 million. Global Execution Services had pre-tax margins of 9 percent in the first quarter of 2013 compared to pre-tax margins of 17 percent in the first quarter of 2012. The results were impacted by a decline in client volumes as compared to the first quarter of 2012 as well as $4.4 million in additional compensation expense related to workforce reductions associated with the combination of the full service and electronic institutional equities sales teams. These decreases were partially offset by increased earnings from Urban. "In the Global Execution Services segment, Knight performed well amid the reconfiguring of assets and resources," said Mr. Joyce. "Knight received diverse contributions from the electronic trading products and sales and trading teams. Urban made a strong contribution from origination and securitization activities. Financial results from continuing operations for the segment, it's worth noting, included additional expenses primarily related to the consolidation of institutional equities sales." Corporate and Other During the first quarter of 2013, the Corporate and Other segment reported a pre-tax loss of $29.4 million, which included $9.3 million in professional fees related to the announced merger and the August 1st technology issue as well as $4.3 million in additional compensation costs related to the workforce reductions. In the first quarter of 2012, the Corporate and Other segment reported a pre-tax loss of $17.9 million. "Despite all the activities in the first quarter, Knight's attention never wavered from our clients," said Mr. Joyce. "The pending merger with GETCO is continuing on track. Upon the close, the combined firm will enjoy a leading position in the U.S. equities market as well as a decided edge in understanding the potential for all securities markets to better serve participants." Headcount at March 31, 2013 was 1,269 full-time employees, which excludes employees affected by the announced sale of institutional fixed income, compared to 1,418 full-time employees at March 31, 2012. The decrease in headcount year over year is primarily due to a reduction in workforce completed during the first quarter. During the first quarter of 2013, the company did not repurchase any shares under the company's existing stock repurchase program. To date, the company has repurchased 76.7 million share s for $879.1 million. The company has approximately $120.9 million of availability to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur. Non-GAAP Financial Presentations The company believes that certain non-GAAP financial presentations, when taken into consideration with the corresponding GAAP financial presentations, are important in understanding the company's operating results. Selected financial information is included in the company's nonGAAP financial presentations for the three months ended March 31, 2013. The adjustments incorporate the effects of professional fees related to the announced merger with GETCO and the August 1 st technology issue and compensation expenses related to a reduction in workforce. We believe this presentation provides meaningful information to stockholders and investors as it provides comparability for our results of operations for the three months ended March 31, 2013 with the results for the three months ended March 31, 2012. See schedules below for a full reconciliation of GAAP to non-GAAP financial presentations. Copies of this earnings release and other company information can be obtained on Knight's website, http://www.knight.com. In addition, historical volume statistics are available at http://www.knight.com/ourfirm/volumestats.asp. Due to the announced merger with GETCO LLC, Knight will not host a conference call on the first quarter of 2013. 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 broker-dealers, institutions and corporations. Knight is headquartered in Jersey City, N.J. with a global presence across the Americas, Europe, and the Asia Pacific regions. 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. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "target," "estimate," "continue," "positions," "prospects" or "potential, " by future conditional verbs such as "will," "would," "should," "could" or "may", or by variations of such words or by similar expressions. These "forward-looking statements" are not historical facts and are based on current expectations, estimates and projections about the parties' industry, management 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 August 1, 2012 technology issue at Knight that resulted in Knight sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight's capital structure and business as well as actions taken in response thereto and consequences thereof, costs and risks associated with the Company's sale of its institutional fixed income sales and trading business , risks associated with Knight's ability to recover all or a portion of the damages that are attributable to the manner in which NASDAQ OMX handled the Facebook IPO, risks associated with changes in market structure, legislative, regulatory or financial reporting rules, risks associated with past or future changes to organizational structure and management and the costs, integration, performance and operation of businesses previously 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 Knight's reports with the SEC, including, without limitation, those detailed under "Certain Factors Affecting Results of Operations" and "Risk Factors" in the Company's Annual Report on Form 10-K/A for the year-ended December 31, 2012 and in the other reports or documents Knight or the new Knight/GETCO holding company files with, or furnishes to, the SEC from time to time. In addition to factors previously disclosed in Knight's reports filed with the SEC and those identified elsewhere in this filing, the following factors among others, could cause actual results to differ materially from forward-looking statements or historical performance: ability to obtain regulatory approvals and meet other closing conditions to the mergers, including appro val by Knight and GETCO stockholders, on the expected terms and schedule; delay in closing the mergers; difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits; business disruption following the mergers; the inability to sustain revenue and earnings growth; customer and client actions; and the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures. KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months ended March 31, 2013 2012 (In thousands, except per share amounts) Revenues Commissions and fees $ 125,225 $ 141,295 Net trading revenue 148,838 153,134 Interest, net 6,390 5,611 Investment income and other, net 4,703 2,432 Total revenues 285,156 302,472 Expenses Employee compensation and benefits 107,823 112,269 Execution and clearance fees 50,450 52,330 Payments for order flow 35,093 21,688 Communications and data processing 22,225 20,284 Interest 13,052 13,154 Professional fees 13,030 4,948 Depreciation and amortization 9,709 11,577 Occupancy and equipment rentals 5,398 5,388 Business development 3,973 4,214 Other 6,499 5,522 Total expenses 267,252 251,374 Income from continuing operations before income taxes 17,904 51,098 Income tax expense 6,890 19,878 Income from continuing operations, net of tax 11,014 31,220 (Loss) income from discontinued operations, net of tax (20,371) 1,886 Net (loss) income $ (9,357) $ 33,106 Basic earnings per share from continuing operations $ 0.04 $ 0.35 Diluted earnings per share from continuing operations $ 0.03 $ 0.34 Basic (loss) earnings per share from discontinued operations $ (0.08) $ 0.02 Diluted (loss) earnings per share from discontinued operations $ (0.06) $ 0.02 Basic (loss) earnings per share $ (0.04) $ 0.37 Diluted (loss) earnings per share $ (0.03) $ 0.36 Shares used in computation of basic (loss) earnings per share 253,007 89,764 Shares used in computation of diluted (loss) earnings per share 361,053 92,175 KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) March 31, December 31, 2013 2012 (In thousands) ASSETS Cash and cash equivalents $ 439,182 $ 413,926 Cash and securities segregated under federal and other regulations 172,962 166,992 Financial instruments owned, at fair value: Equities 1,538,856 1,463,916 Debt securities 146,518 111,157 Listed equity options 231,044 202,091 Loan inventory 152,349 191,712 Other financial instruments 3,778 237 Securitized HECM loan inventory 4,792,350 4,054,905 Total financial instruments owned, at fair value 6,864,895 6,024,018 Collateralized agreements: Securities borrowed 1,414,794 1,008,720 Receivable from brokers, dealers and clearing organizations 1,107,202 868,805 Fixed assets and leasehold improvements, at cost, less accumulated depreciation and amortization 92,277 94,226 Investments 79,052 78,348 Goodwill 213,900 213,900 Intangible assets, less accumulated amortization 53,234 55,654 Income taxes receivable 122,980 152,576 Assets of business held for sale 145,674 449,509 Other assets 206,628 251,773 Total assets $ 10,912,780 $ 9,778,447 LIABILITIES, CONVERTIBLE PREFERRED STOCK & EQUITY Liabilities Financial instruments sold, not yet purchased, at fair value: Equities $ 1,490,972 $ 1,164,999 Debt securities 56,478 118,991 Listed equity options 179,404 155,942 Other financial instruments - 5,505 Total financial instruments sold, not yet purchased, at fair value 1,726,854 1,445,437 Collateralized financings: Securities loaned 687,012 504,082 Financial instruments sold under agreements to repurchase 555,000 355,000 Other secured financings 104,461 146,330 Liability to GNMA trusts, at fair value 4,742,776 4,002,704 Total collateralized financings 6,089,249 5,008,116 Payable to brokers, dealers and clearing organizations 403,998 378,724 Payable to customers 462,028 388,676 Accrued compensation expense 64,891 141,794 Accrued expenses and other liabilities 201,663 186,746 Liabilities of business held for sale 85,618 357,661 Long-term debt 392,470 388,753 Total liabilities 9,426,771 8,295,907 Convertible Preferred Stock - 229,857 Equity Class A common stock 4,493 2,748 Additional paid-in capital 1,647,895 1,400,317 Retained earnings 701,264 710,621 Treasury stock, at cost (864,437) (858,907) Accumulated other comprehensive loss (3,206) (2,096) Total equity 1,486,009 1,252,683 Total liabilities, convertible preferred stock and equity $ 10,912,780 $ 9,778,447 KNIGHT CAPITAL GROUP, INC. PRE-TAX EARNINGS FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT* (In thousands) (Unaudited) Market Making For the three months ended March 31, 2013 2012 (1) Revenues $ 150,729 $ 152,166 Expenses 114,178 107,035 Pre-tax earnings 36,551 45,131 Global Execution Services Revenues 122,373 140,270 Expenses 111,656 116,425 Pre-tax earnings 10,717 23,845 Corporate and Other Revenues 12,054 10,036 Expenses 41,417 27,914 Pre-tax loss (29,363) (17,878) Consolidated Revenues 285,156 302,472 Expenses 267,252 251,374 Pre-tax earnings $ 17,904 $ 51,098 * Totals may not add due to rounding. (1) - Prior period amounts have been recast to conform with current period segment presentation. KNIGHT CAPITAL GROUP, INC. Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations) (in thousands) Global Three months Execution Corporate ended March 31, 2013 Market Making Services and Other Consolidated Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: GAAP Income (Loss) from continuing operations before income taxes $ 36,551 $ 10,717 $ (29,363) $ 17,904 Prof essional fees related to merger and August 1st technology issue - - 9,252 9,252 Compensation expenses related to reduction in workforce 230 4,410 4,277 8,917 Non GAAP Income (Loss) from continuing operations before income taxes $ 36,781 $ 15,127 $ (15,834) $ 36,073 Three Months Ended March 31, 2013 $ Diluted EPS Reconciliation of GAAP Net Loss to Non - GAAP Net Income : Net loss - GAAP $ (9,357) $ (0.03) Add back: Loss from discontinued operations, net of tax 20,371 0.06 Prof essional fees related to merger and August 1st technology issue, net of tax 5,736 0.02 Compensation expenses related to reduction in workforce, net of tax 5,529 0.02 Net income - Non-GAAP $ 22,279 $ 0.06 Shares used in computation of diluted earnings per share 361,053 * Totals may not add due to rounding SOURCE Knight Capital Group, Inc. 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Knight Capital Group Announces Earnings From Continuing Operations Of $0.03 Per Diluted Share For The First Quarter 2013
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