Exhibit 99.1
KNIGHT CAPITAL GROUP ANNOUNCES GAAP EARNINGS OF $0.47 PER DILUTED SHARE FOR FIRST QUARTER 2006
First quarter 2006 total revenues of $276.5 million were double the revenues generated in first quarter of 2005
Asset Management pre-tax operating earnings of $26.8 million in the first quarter of 2006 equaled the segment’s pre-tax operating earnings for the full year of 2005
Global Markets’ performance was solid for the third consecutive quarter, with the segment earning $56.5 million in pre-tax operating income during the first quarter after breaking even in the first quarter of last year
Board of Directors approved $150 million increase in the company’s share repurchase program
JERSEY CITY, New Jersey (April 19, 2006) – Knight Capital Group, Inc. (Nasdaq: NITE) today reported GAAP earnings of $49.1 million, or $0.47 per diluted share, for the first quarter of 2006. For the first quarter of 2006, the Company recorded charges of $4.7 million, net of tax, or $0.05 per diluted share, relating to the costs associated with excess real estate capacity in Jersey City, N.J. Excluding this charge, first quarter 2006 operating earnings from continuing operations were $53.8 million, or $0.52 per diluted share.
“Continuing operations” include the company’s two operating business segments, Global Markets and Asset Management. Continuing operations also include a Corporate segment, encompassing corporate investments and overhead expenses. Amounts reported as “discontinued operations” include the company’s former Derivative Markets business segment, the sale of which was completed to Citigroup at the close of business on December 9, 2004.
Revenues for the first quarter of 2006 were $276.5 million, compared to $137.6 million for the first quarter of 2005.
“Knight employees’ intense and concerted efforts over the last year implementing the strategic changes to our business model made our outstanding performance in the first quarter of 2006 possible,” said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. “Increasing automation in our broker-dealer operations since mid-2005 led directly to consistent, solid results for three consecutive quarters. However, it was in the market environment of the first quarter of 2006 where we saw the real success and potential of our efforts. By establishing greater operating efficiencies, we have addressed the issues that affect us in the down markets and are prepared to weather downturns and capitalize on the upside.”
| | | | | | |
| | | Q1 2006 | | | Q1 2005 | |
Revenues ($) | | 276,455,820 | | | 137,556,870 | |
Net income from continuing operations ($) | | 49,132,041 | | | 6,019,979 | |
Loss from discontinued operations, net of tax ($) | | — | | | (265,927 | ) |
Net income ($) | | 49,132,041 | | | 5,754,052 | |
Diluted EPS ($) | | 0.47 | | | 0.05 | |
U.S. equity dollar value traded (in $ millions) | | 559,672 | | | 470,676 | |
U.S. equity trades executed (in thousands) | | 61,019 | | | 52,849 | |
Average daily U.S. equity trades (in thousands) | | 984 | | | 866 | |
Nasdaq and Listed equity shares traded (in millions) | | 27,861 | | | 29,099 | |
OTC Bulletin Board and Pink Sheet shares traded (in millions) | | 373,676 | | | 295,799 | |
Average revenue capture per U.S. equity dollar value traded (bps) | | 2.3 | | | 1.7 | |
Average month-end balance of assets under management (in $ millions) | | 2,946.2 | | | 3,478.9 | |
Quarterly fund return to investors* | | 8.5 | % | | 0.8 | % |
| * | Quarterly fund return represents the blended quarterly return across all assets under management in the Deephaven funds |
“Knight’s Global Markets businesses were very profitable across the board in the first quarter,” Mr. Joyce said. “The broker-dealer business turned in its third solid quarter in a row and its best performance since decimalization. Our increasingly automated process both improved earnings and helped us maintain our industry-leading execution quality. Revenues from our institutional business are up more than 20% from the fourth quarter, due to a combination of deeper account penetration and increased market activity. Client interest is building around new offerings like technical research and direct market access, as well as in our newly acquired spot foreign exchange trading capabilities. Meanwhile, our Asset Management business segment earned as much in the first quarter of 2006 as it did in all of 2005.”
Mr. Joyce continued, “Knight has delivered on our promises of a year ago. We introduced significant improvements to the broker-dealer business and grew the institutional business, where our unbundled offering resonates with clients as more market participants call for greater transparency on trade execution fees and commissions. We made prudent acquisitions to expand our offering, and we will continue to innovate as we provide our clients with more choices for market access across asset classes.”
Global Markets
During the first quarter of 2006, the Global Markets business segment generated total revenues of $187.9 million, compared to $108.0 million in the first quarter of 2005. In the first quarter of 2006, the Global Markets business segment reported pre-tax operating earnings of $56.5 million, compared to a pre-tax operating loss of $700,000 in the first quarter of 2005.
Effective April 1, 2006, Knight completed its acquisition of Hotspot FX, Inc., a privately held firm, in an all-cash deal for $77.5 million. Hotspot provides institutions and dealers with spot foreign exchange execution through an advanced, fully electronic platform. The results of the Hotspot division will be included within the Global Markets business segment beginning with the second quarter of 2006.
Asset Management
During the first quarter of 2006, the Asset Management business segment, Deephaven Capital Management, generated $70.5 million in asset management fees, compared to $17.9 million in the same period a year ago. In the first quarter of 2006, the Asset Management business segment reported
pre-tax operating earnings of $26.8 million, compared to pre-tax operating earnings of $5.1 million in the first quarter of 2005. Asset Management had approximately $3.0 billion under management at March 31, 2006, down from the $3.5 billion under management at March 31, 2005, but consistent with assets under management at December 31, 2005.
On February 9, 2006, the company filed an SEC Report on Form 8-K to disclose that Deephaven had submitted an offer of settlement to the staff of the Securities and Exchange Commission (“SEC” or “Commission”), which the staff has agreed to recommend to the Commission, to resolve a previously disclosed investigation concerning trading activity associated with certain Private Investments in Public Equities (“PIPEs”). The company has recorded total charges relating to this matter of $5.7 million pre-tax, including $2.0 million in the second quarter of 2005 and $3.7 million in the fourth quarter of 2005. The offer of settlement is subject to final approval by the SEC.
Corporate
In the first quarter of 2006, the Corporate segment reported pre-tax operating income of $6.7 million, compared to pre-tax operating income of $5.9 million in the first quarter of 2005. Included in the first quarter 2005 results is a pre-tax gain of $9.6 million related to the sale of a part of the company’s original equity ownership in the International Securities Exchange.
The company’s corporate investment in the Deephaven funds earned $19.0 million pre-tax during the first quarter of 2006, compared to a small pre-tax loss of $172,000 during the first quarter of 2005. As of March 31, 2006, the company had $209.8 million in cash and cash equivalents and a $278.0 million corporate investment in funds managed by Deephaven.
The company had $885.9 million in stockholders’ equity as of March 31, 2006, equivalent to a book value of approximately $8.51 per diluted share.
During the first quarter of 2006, the company did not repurchase any additional shares under its $345 million stock repurchase program. To date, the company has repurchased 37.6 million shares for $295.9 million. At its April 18, 2006 meeting, the Board of Directors authorized a $150 million increase in the size of its repurchase program to $495 million from $345 million. The company cautions that there are no assurances that any further repurchases may actually occur.
* * *
Copies of this earnings release and other information on the company can be obtained at the company’s website, www.knight.com. The company will conduct its first quarter 2006 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, April 19, 2006. To access Knight’s earnings conference call, please dial 800.500.0311 for domestic callers or 719.457.2698 for international callers. When prompted, provide the passcode, which is 1525848. 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 March 2006 on its website before the start of trading today.
* * *
About Knight
Knight Capital Group, Inc. (Nasdaq: NITE) is a leading financial services firm that provides comprehensive trade execution solutions and asset management services. Our Asset Management business, Deephaven Capital Management, is a global multi-strategy alternative investment manager focused on delivering attractive risk-adjusted returns with low correlation to the broader markets for institutions and private clients. Our Global Markets business provides a broad range of customized trade execution products and services across multiple asset classes for broker-dealers, institutions and issuer companies. We continually apply knowledge and innovation to the trading and asset management processes to build lasting client partnerships through consistent performance and superior client service. More information about Knight can be found at www.knight.com.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the Company’s results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management believes provides useful information to investors. Within this press release, the Company has disclosed its pre-tax operating income (loss) amounts for certain reporting periods before charges, writedowns, lease loss accruals and discontinued operations to assist the reader in understanding the impact of these charges, writedowns, lease loss accruals and discontinued operations on the Company’s financial results, thereby facilitating more useful period-to-period comparisons of the Company’s businesses.
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management. 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. 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; however, readers should carefully review reports or documents the Company files from time to time with the Securities and Exchange Commission including, without limitation, the risks and uncertainties detailed under the headings “Certain Factors Affecting Results of Operations” and “Risks Affecting our Business” in the Company’s Annual Report on Form 10-K.
CONTACTS
| | | | |
| Margaret Wyrwas | | Kara Fitzsimmons | | Greta Morley |
| Senior Managing Director, | | Vice President, | | Vice President, |
| Corporate Communications | | Corporate Communications | | Marketing Communications |
| & Investor Relations | | 201-356-1523 or | | & Public Relations |
| 201-557-6954 or | | kfitzsimmons@knight.com | | 201-557-6948 or |
| mwyrwas@knight.com | | | | gmorley@knight.com |
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | |
| | | For the three months ended March 31, | |
| | | 2006 | | 2005 | |
Revenues | | | | | | | |
Commissions and fees | | $ | 98,862,709 | | $ | 70,116,011 | |
Net trading revenue | | | 80,039,151 | | | 37,421,828 | |
Asset management fees | | | 70,511,043 | | | 17,880,667 | |
Interest and dividends, net | | | 3,313,976 | | | 2,339,800 | |
Investment income and other | | | 23,728,941 | | | 9,798,564 | |
| | | | | | | |
Total revenues | | | 276,455,820 | | | 137,556,870 | |
| | | | | | | |
Transaction-based expenses | | | | | | | |
Execution and clearance fees | | | 28,924,406 | | | 23,546,783 | |
Soft dollar and commission recapture expense | | | 17,707,700 | | | 15,484,575 | |
Payments for order flow and ECN rebates | | | 9,873,398 | | | 7,404,075 | |
| | | | | | | |
Total transaction-based expenses | | | 56,505,504 | | | 46,435,433 | |
| | | | | | | |
Revenues, net of transaction-based expenses | | | 219,950,316 | | | 91,121,437 | |
| | |
Other direct expenses | | | | | | | |
Employee compensation and benefits | | | 99,556,170 | | | 56,857,441 | |
Communications and data processing | | | 7,638,143 | | | 7,813,959 | |
Professional fees | | | 6,383,123 | | | 3,776,416 | |
Depreciation and amortization | | | 4,407,695 | | | 4,302,413 | |
Occupancy and equipment rentals | | | 3,352,487 | | | 4,122,656 | |
Business development | | | 2,122,317 | | | 1,293,336 | |
Writedown of assets and lease loss accrual | | | 7,997,434 | | | — | |
Other | | | 6,448,370 | | | 2,653,746 | |
| | | | | | | |
Total other direct expenses | | | 137,905,739 | | | 80,819,967 | |
| | | | | | | |
Income from continuing operations before income taxes | | | 82,044,577 | | | 10,301,470 | |
Income tax expense | | | 32,912,536 | | | 4,281,491 | |
| | | | | | | |
Net income from continuing operations | | | 49,132,041 | | | 6,019,979 | |
Loss from discontinued operations, net of tax | | | — | | | (265,927 | ) |
| | | | | | | |
Net income | | $ | 49,132,041 | | $ | 5,754,052 | |
| | | | | | | |
Basic earnings per share from continuing operations | | $ | 0.49 | | $ | 0.06 | |
| | | | | | | |
Diluted earnings per share from continuing operations | | $ | 0.47 | | $ | 0.05 | |
| | | | | | | |
Basic and diluted earnings per share from discontinued operations | | $ | — | | $ | — | |
| | | | | | | |
Basic earnings per share | | $ | 0.49 | | $ | 0.05 | |
| | | | | | | |
Diluted earnings per share | | $ | 0.47 | | $ | 0.05 | |
| | | | | | | |
Shares used in computation of basic earnings per share | | | 100,422,995 | | | 108,858,845 | |
| | | | | | | |
Shares used in computation of diluted earnings per share | | | 104,129,560 | | | 112,409,158 | |
| | | | | | | |
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
| | | | | | | | |
| | | March 31, 2006 | | | December 31, 2005 | |
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 209,788,170 | | | $ | 230,591,067 | |
Securities owned, held at clearing brokers, at market value | | | 521,627,396 | | | | 380,366,778 | |
Receivable from brokers and dealers | | | 373,697,872 | | | | 229,828,734 | |
Investment in Deephaven sponsored funds | | | 277,997,650 | | | | 281,656,753 | |
Fixed assets and leasehold improvements at cost, less accumulated depreciation and amortization | | | 66,790,659 | | | | 67,656,533 | |
Strategic investments | | | 45,144,858 | | | | 31,896,425 | |
Goodwill | | | 49,182,880 | | | | 47,682,880 | |
Intangible assets, less accumulated amortization | | | 29,038,309 | | | | 29,773,442 | |
Other assets | | | 151,728,350 | | | | 116,563,732 | |
| | | | | | | | |
Total assets | | $ | 1,724,996,144 | | | $ | 1,416,016,344 | |
| | | | | | | | |
LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | | | |
Liabilities | | | | | | | | |
Securities sold, not yet purchased, at market value | | $ | 505,315,801 | | | $ | 345,457,499 | |
Payable to brokers and dealers | | | 121,810,022 | | | | 35,102,415 | |
Accrued compensation expense | | | 98,081,170 | | | | 117,763,834 | |
Accrued expenses and other liabilities | | | 113,866,013 | | | | 94,244,447 | |
| | | | | | | | |
Total liabilities | | | 839,073,006 | | | | 592,568,195 | |
| | | | | | | | |
Stockholders’ equity | | | | | | | | |
Class A common stock | | | 1,408,278 | | | | 1,397,457 | |
Additional paid-in-capital | | | 486,828,791 | | | | 473,945,690 | |
Retained earnings | | | 702,645,732 | | | | 653,513,691 | |
Treasury stock, at cost | | | (297,194,792 | ) | | | (294,652,742 | ) |
Accumulated other comprehensive income, net of tax | | | 16,558,690 | | | | 10,350,387 | |
Unamortized stock-based compensation | | | (24,323,561 | ) | | | (21,106,334 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 885,923,138 | | | | 823,448,149 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,724,996,144 | | | $ | 1,416,016,344 | |
| | | | | | | | |
KNIGHT CAPITAL GROUP, INC.
PRE-TAX OPERATING EARNINGS BY BUSINESS SEGMENT*
Amounts in millions
(Unaudited)
| | | | | | | |
| | | For the three months ended | |
| | | March 31, 2006 | | March 31, 2005 | |
Global Markets | | | | | | | |
Revenues | | $ | 187.9 | | $ | 108.0 | |
Operating Expenses | | | 131.4 | | | 108.7 | |
| | | | | | | |
Pre-Tax Operating Earnings | | | 56.5 | | | (0.7 | ) |
| | | | | | | |
Asset Management | | | | | | | |
Revenues | | | 70.9 | | | 18.1 | |
Operating Expenses | | | 44.1 | | | 13.0 | |
| | | | | | | |
Pre-Tax Operating Earnings | | | 26.8 | | | 5.1 | |
| | | | | | | |
Corporate | | | | | | | |
Revenues | | | 17.7 | | | 11.5 | |
Operating Expenses | | | 11.0 | | | 5.6 | |
| | | | | | | |
Pre-Tax Operating Earnings | | | 6.7 | | | 5.9 | |
| | | | | | | |
Consolidated | | | | | | | |
Revenues | | | 276.5 | | | 137.6 | |
Operating Expenses | | | 186.5 | | | 127.3 | |
| | | | | | | |
Pre-Tax Operating Earnings | | $ | 90.0 | | $ | 10.3 | |
| | | | | | | |
| * | Totals may not add due to rounding. |
KNIGHT CAPITAL GROUP, INC.
RECONCILIATION OF TOTAL GAAP EXPENSES AND PRE-TAX GAAP INCOME TO
OPERATING EXPENSES AND PRE-TAX OPERATING EARNINGS*
Amounts in millions
(Unaudited)
TOTAL GAAP EXPENSES TO OPERATING EXPENSES
| | | | | | | | | | | | | | |
| | | For the three months ended March 31, 2006 | |
| | | Global Markets | | | Asset
Management | | Corporate | | Total | |
Transaction-based expenses | | $ | 56.5 | | | $ | — | | $ | — | | $ | 56.5 | |
Other direct expenses | | | 82.9 | | | | 44.1 | | | 11.0 | | | 138.0 | |
| | | | | | | | | | | | | | |
TOTAL GAAP EXPENSES | | | 139.4 | | | | 44.1 | | | 11.0 | | | 194.5 | |
Writedown of assets and lease loss accrual | | | (8.0 | ) | | | — | | | — | | | (8.0 | ) |
| | | | | | | | | | | | | | |
OPERATING EXPENSES | | $ | 131.4 | | | $ | 44.1 | | $ | 11.0 | | $ | 186.5 | |
| | | | | | | | | | | | | | |
| |
| | | For the three months ended March 31, 2005 | |
| | | Global Markets | | | Asset Management | | Corporate | | Total | |
Transaction-based expenses | | $ | 46.4 | | | $ | — | | $ | — | | $ | 46.4 | |
Other direct expenses | | | 62.3 | | | | 13.0 | | | 5.6 | | | 80.9 | |
| | | | | | | | | | | | | | |
TOTAL GAAP EXPENSES | | | 108.7 | | | | 13.0 | | | 5.6 | | | 127.3 | |
Net impact of adjustments | | | — | | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
OPERATING EXPENSES | | $ | 108.7 | | | $ | 13.0 | | $ | 5.6 | | $ | 127.3 | |
| | | | | | | | | | | | | | |
| | | | |
PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS | | | | | | | | | | | | | | |
| |
| | | For the three months ended March 31, 2006 | |
| | | Global Markets | | | Asset
Management | | Corporate | | Total | |
PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | $ | 48.5 | | | $ | 26.8 | | $ | 6.7 | | $ | 82.0 | |
| | | | | | | | | | | | | | |
Adjustment: | | | | | | | | | | | | | | |
Writedown of assets and lease loss accrual | | | 8.0 | | | | — | | | — | | | 8.0 | |
| | | | | | | | | | | | | | |
PRE-TAX OPERATING EARNINGS | | $ | 56.5 | | | $ | 26.8 | | $ | 6.7 | | $ | 90.0 | |
| | | | | | | | | | | | | | |
| |
| | | For the three months ended March 31, 2005 | |
| | | Global Markets | | | Asset
Management | | Corporate | | Total | |
PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | $ | (0.7 | ) | | $ | 5.1 | | $ | 5.9 | | $ | 10.3 | |
| | | | | | | | | | | | | | |
Adjustments: | | | | | | | | | | | | | | |
Net impact of adjustments | | | — | | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
PRE-TAX OPERATING EARNINGS | | $ | (0.7 | ) | | $ | 5.1 | | $ | 5.9 | | $ | 10.3 | |
| | | | | | | | | | | | | | |
| * | Totals may not add due to rounding. |
