Exhibit 99.1
INSTINET GROUP ANNOUNCES THIRD QUARTER 2004 RESULTS
NEW YORK, October 26, 2004 – Instinet Group Incorporated (Nasdaq: INGP) today announced net income of $7.7 million or $0.02 per share for the third quarter of 2004 compared to net income of $4.0 million or $0.01 per share for the third quarter of 2003 and $8.4 million or $0.03 per share for the second quarter of 2004. Excluding a $4.0 million investment gain, pro forma operating income for the third quarter of 2004 was $3.6 million, or $0.01 per share compared to a pro forma operating income of $2.8 million or $0.01 per share for the third quarter of 2003 and pro forma operating income of $8.4 million, or $0.03 per share for the second quarter of 2004.1
Edward J. Nicoll, Chief Executive Officer of Instinet Group, commented, “In the third quarter of 2004, we continued to face difficult market conditions, yet our business segments, Instinet and INET, remained well positioned to take advantage of recent trends in the equity markets. Instinet’s agency-only business is committed to delivering pure, low-cost solutions to help buy-side institutions meet their global trading needs while never capitalizing on the customer’s trading information. INET assures customers the speed, certainty of execution and fairness only available from a fully electronic market.”
Financial Performance
Instinet Group
Revenues
Total consolidated revenues for Instinet Group, net of interest, were $261 million for the third quarter of 2004, down 4% from the third quarter of 2003 and down 7% from the second quarter 2004.
Expenses
Total expenses for the third quarter of 2004 were $251 million, down 6% from the third quarter of 2003 and down 5% from the second quarter of 2004.
Cost of revenues was $151 million, 4% lower than the second quarter of 2004 primarily due to decreased transaction volumes.
Direct expenses were $103 million for the third quarter of 2004, down 9% from the second quarter of 2004.
| | • | Compensation and benefits expense was $46 million in the third quarter of 2004 down 17% from the previous quarter primarily due to lower variable compensation, associated with lower profitability and lower revenues, and lower benefits expense. The prior quarter also included a non-recurring $4 million severance charge. |
| | • | Communications and equipment expense was $19 million, up 11% from the previous quarter, primarily due to higher client communication and market data expenses. |
| 1 | The comparative quarters include other items, see table titled “Reconciliation of Pro Forma Operating Results for 3Q04” |
| | • | Depreciation and amortization expense was $13 million, down 19% from the previous quarter which included a $2 million write off of fixed assets. |
| | • | Other expense was $5 million, up $2 million from the previous quarter, primarily due to higher legal-related expenses and sales and consumption based taxes. |
At September 30, 2004, Instinet Group had net cash (cash and cash equivalents and securities owned less short-term borrowings) of approximately $818 million, up $43 million from $775 million at December 31, 2003. At September 30, 2004 total assets were approximately $1.7 billion and shareholders’ equity was approximately $1.0 billion. There were approximately 334 million shares of common stock outstanding. Instinet Group employed 1,081 persons on September 30, 2004, compared to 1,090 on June 30, 2004. Our headcount at September 30, 2004 included 893 employees from Instinet, 83 employees from INET and 105 employees from Instinet Group.
Business Segments2
Instinet, The Unconflicted Institutional Broker
| | • | Instinet reported net income before income taxes of $1 million for the third quarter of 2004, compared to a net loss of $3 million in the second quarter of 2004. |
| | • | Total revenues, net of interest, were $161 million, 7% lower than the second quarter of 2004, primarily due to lower U.S and non-U.S equity market volumes. |
| | • | Instinet’s customers traded an average of 95 million U.S. shares a day in the third quarter of 2004 down 7% from 102 million shares a day during the second quarter of 2004. Average daily consideration in non-U.S. equities for the third quarter of 2004 was $678 million, a 24% decrease from the second quarter of 2004. |
| | • | Cost of revenues as a percentage of total transaction fees was 47% in both the third and second quarters of 2004. |
| | • | Gross margin of $87 million for the third quarter of 2004, was $6 million, or 6%, lower than the second quarter of 2004. |
| | • | Direct expenses of $86 million for the third quarter of 2004 were down $10 million, or 10% from the second quarter of 2004. |
| 2 | See also table titled “Statements of Operations – Segments” on our website atwww.investor.instinetgroup.com under the headings “Investor Relations". |
INET, The Electronic Marketplace
| | • | INET reported net income before income taxes of $5 million for the third quarter of 2004, down $6 million, or 54% from the second quarter of 2004. |
| | • | Total revenues, net of interest, were $104 million, 6% lower than the previous quarter primarily due to lower U.S. market volumes and market data revenue in the third quarter of 2004 compared to the previous quarter. |
| | • | INET reported NASDAQ-listed average matched equity share volume of 401 million shares per day in the third quarter of 2004, down 7% from the previous quarter. INET’s share of the total market in NASDAQ-listed equity trading was 26.0% in the third quarter of 2004, up from 25.0% in the previous quarter. |
| | • | INET reported U.S. exchange-listed average matched equity share volume of 72 million shares per day in the third quarter of 2004, up 1% from the previous quarter. INET’s share of the total market in U.S. listed equity trading was 3.9% in the third quarter of 2004, up from 3.4% in the previous quarter. |
| | • | Cost of revenues as a percentage of total transaction fees was 79% in the third quarter of 2004 compared to 74% in the second quarter of 2004. |
| | • | Gross margin was $23 million for the third quarter of 2004, 23% lower than the previous quarter. |
| | • | Direct expenses of $18 million for the third quarter of 2004 were down $1 million or 4% from the second quarter of 2004. |
Webcast
Instinet Group will webcast a conference call to discuss its third quarter results at 11:00 a.m. New York time on October 26th athttp://www.investor.instinetgroup.com. A replay will be available at the same address following the call.
About Instinet Group
Instinet Group, through affiliates, is the largest global electronic agency securities broker and has been providing investors with electronic trading solutions and execution services for more than 30 years. We operate our two major businesses through Instinet, LLC, The Unconflicted Institutional Broker, and INET ATS, Inc., The Electronic Marketplace.
| | • | Instinet, The Unconflicted Institutional Broker, gives its customers the opportunity to use its sales-trading expertise and advanced technology tools to interact with global securities markets, improve trading performance and lower overall transaction costs. Through Instinet’s electronic platforms, customers can access other U.S. trading venues, including NASDAQ and the NYSE, and almost 30 securities markets throughout the world. Instinet acts solely as an agent for its customers, including institutional investors, such as mutual funds, pension funds, insurance companies and hedge funds. Lynch, Jones & Ryan, Instinet Group’s commission recapture subsidiary, and Instinet Clearing Services, Inc., Instinet Group’s clearing broker, are also a part of Instinet. |
| | • | INET, The Electronic Marketplace, represents the consolidation of the order flow of the former Instinet ECN and former Island ECN, providing its U.S. broker-dealer customers one of the largest liquidity pools in NASDAQ-listed securities. |
# # #
This press release is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
©2004 Instinet Group Incorporated and its affiliated companies. All rights reserved. INSTINET and INET are service marks in the United States. Instinet Group Incorporated is part of the Reuters family of companies. Instinet, LLC (branded Instinet, The Unconflicted Institutional Broker), member NASD/SIPC; Inet ATS, Inc. (branded INET), member NASD/NSX/SIPC; Lynch, Jones & Ryan, Inc., member NASD/SIPC; and Instinet Clearing Services, Inc., member NASD/SIPC, are subsidiaries of Instinet Group Incorporated.
This news release may be deemed to include forward-looking statements relating to Instinet Group. Certain important factors that could cause actual results to differ materially from those disclosed in such forward-looking statements are included in Instinet Group’s Annual Report on Form 10-K for the fiscal year ended December 31,2003, and other documents filed with the SEC and available on the Company’s website atwww.investor.instinetgroup.com.
Instinet Group Incorporated
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| | | Nine Months Ended
| |
| | | Sept 30, | | | June 30, | | | Sept 30, | | | September 30, | |
| | | 2004
| | | 2004
| | | 2003
| | | 2004
| | | 2003
| |
Revenue | | | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 257,713 | | | $ | 276,600 | | | $ | 268,210 | | | $ | 844,229 | | | $ | 799,343 | |
| | | | | |
Interest income | | | 3,934 | | | | 4,250 | | | | 4,931 | | | | 12,604 | | | | 17,929 | |
Interest expense | | | (756 | ) | | | (806 | ) | | | (1,237 | ) | | | (2,624 | ) | | | (5,454 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Interest income, net | | | 3,178 | | | | 3,444 | | | | 3,694 | | | | 9,980 | | | | 12,475 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total revenues, net | | | 260,891 | | | | 280,044 | | | | 271,904 | | | | 854,209 | | | | 811,818 | |
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Cost of Revenues | | | | | | | | | | | | | | | | | | | | |
Soft dollar and commission recapture | | | 50,044 | | | | 53,103 | | | | 54,894 | | | | 163,247 | | | | 153,556 | |
Broker-dealer rebates | | | 59,859 | | | | 62,388 | | | | 53,552 | | | | 190,394 | | | | 162,602 | |
Brokerage, clearing and exchange fees | | | 41,257 | | | | 42,321 | | | | 35,553 | | | | 127,982 | | | | 103,024 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total cost of revenues | | | 151,160 | | | | 157,812 | | | | 143,999 | | | | 481,623 | | | | 419,182 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Gross margin | | | 109,731 | | | | 122,232 | | | | 127,905 | | | | 372,586 | | | | 392,636 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Direct Expenses | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 46,460 | | | | 55,844 | | | | 51,450 | | | | 161,837 | | | | 176,183 | |
Communications and equipment | | | 18,894 | | | | 16,950 | | | | 24,917 | | | | 57,486 | | | | 87,254 | |
Depreciation and amortization | | | 12,912 | | | | 15,855 | | | | 22,408 | | | | 43,804 | | | | 70,016 | |
Occupancy | | | 9,170 | | | | 9,260 | | | | 12,567 | | | | 27,737 | | | | 42,200 | |
Professional fees | | | 7,406 | | | | 8,172 | | | | 5,739 | | | | 20,595 | | | | 19,305 | |
Marketing and business development | | | 3,522 | | | | 5,302 | | | | 2,958 | | | | 12,146 | | | | 9,219 | |
Other | | | 5,085 | | | | 2,830 | | | | 4,491 | | | | 10,791 | | | | 16,541 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total direct expenses | | | 103,449 | | | | 114,213 | | | | 124,530 | | | | 334,396 | | | | 420,718 | |
| | |
|
|
| |
|
|
| |
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|
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|
|
| |
|
|
|
Contractual settlement | | | — | | | | (7,250 | ) | | | — | | | | (7,250 | ) | | | — | |
Investments | | | (4,031 | ) | | | — | | | | 667 | | | | (8,705 | ) | | | 19,504 | |
Insurance recovery | | | — | | | | — | | | | (2,989 | ) | | | (5,116 | ) | | | (7,989 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total expenses | | | 250,578 | | | | 264,775 | | | | 266,207 | | | | 794,948 | | | | 851,415 | |
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|
|
| |
|
|
| |
|
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|
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|
|
|
Income (loss) from operations before income taxes | | | 10,313 | | | | 15,269 | | | | 5,697 | | | | 59,261 | | | | (39,597 | ) |
Income tax provision (benefit) | | | 2,656 | | | | 6,827 | | | | 1,652 | | | | 24,348 | | | | (4,123 | ) |
| | |
|
|
| |
|
|
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|
|
| |
|
|
| |
|
|
|
Net income (loss) | | $ | 7,657 | | | $ | 8,442 | | | $ | 4,045 | | | $ | 34,913 | | | $ | (35,474 | ) |
| | |
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|
EARNINGS (LOSS) PER SHARE | | | | | | | | | | | | | | | | | | | | |
| | |
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|
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|
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|
|
| |
|
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Basic EPS | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.11 | | | $ | (0.11 | ) |
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|
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|
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|
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Diluted EPS | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.10 | | | $ | (0.11 | ) |
| | |
|
|
| |
|
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Weighted average shares outstanding - basic | | | 333,575 | | | | 332,282 | | | | 330,893 | | | | 332,375 | | | | 330,833 | |
Weighted average shares outstanding - diluted | | | 335,474 | | | | 335,119 | | | | 332,289 | | | | 334,359 | | | | 330,833 | |
Page 1 of 7
Instinet Group Incorporated
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| |
| | | Sep 30,
2004
| | | Jun 30,
2004
| | | Mar 31,
2004
| | | Dec 31,
2003
| | | Sep 30,
2003
| | | Jun 30,
2003
| | | Mar 31,
2003
| |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 257,713 | | | $ | 276,600 | | | $ | 309,916 | | | $ | 279,708 | | | $ | 268,210 | | | $ | 275,909 | | | $ | 255,224 | |
| | | | | | | |
Interest income | | | 3,934 | | | | 4,250 | | | | 4,420 | | | | 5,899 | | | | 4,931 | | | | 6,651 | | | | 6,347 | |
Interest expense | | | (756 | ) | | | (806 | ) | | | (1,062 | ) | | | (2,283 | ) | | | (1,237 | ) | | | (2,106 | ) | | | (2,111 | ) |
| | |
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|
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| |
|
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|
Interest income, net | | | 3,178 | | | | 3,444 | | | | 3,358 | | | | 3,616 | | | | 3,694 | | | | 4,545 | | | | 4,236 | |
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|
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|
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|
| |
|
|
|
Total revenues, net | | | 260,891 | | | | 280,044 | | | | 313,274 | | | | 283,324 | | | | 271,904 | | | | 280,454 | | | | 259,460 | |
| | |
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|
|
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|
| |
|
|
| |
|
|
| |
|
|
|
Cost of Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Soft dollar and commission recapture | | | 50,044 | | | | 53,103 | | | | 60,100 | | | | 58,817 | | | | 54,894 | | | | 49,604 | | | | 49,058 | |
Broker-dealer rebates | | | 59,859 | | | | 62,388 | | | | 68,147 | | | | 54,507 | | | | 53,552 | | | | 58,630 | | | | 50,420 | |
Brokerage, clearing and exchange fees | | | 41,257 | | | | 42,321 | | | | 44,404 | | | | 37,275 | | | | 35,553 | | | | 33,446 | | | | 34,025 | |
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| |
|
|
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|
|
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|
| |
|
|
| |
|
|
| |
|
|
|
Total cost of revenues | | | 151,160 | | | | 157,812 | | | | 172,651 | | | | 150,599 | | | | 143,999 | | | | 141,680 | | | | 133,503 | |
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Gross margin | | | 109,731 | | | | 122,232 | | | | 140,623 | | | | 132,725 | | | | 127,905 | | | | 138,774 | | | | 125,957 | |
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|
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|
|
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Direct Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 46,460 | | | | 55,844 | | | | 59,533 | | | | 51,079 | | | | 51,450 | | | | 60,749 | | | | 63,984 | |
Communications and equipment | | | 18,894 | | | | 16,950 | | | | 21,642 | | | | 20,890 | | | | 24,917 | | | | 31,617 | | | | 30,720 | |
Depreciation and amortization | | | 12,912 | | | | 15,855 | | | | 15,037 | | | | 18,500 | | | | 22,408 | | | | 23,534 | | | | 24,074 | |
Occupancy | | | 9,170 | | | | 9,260 | | | | 9,307 | | | | 12,122 | | | | 12,567 | | | | 13,175 | | | | 16,458 | |
Professional fees | | | 7,406 | | | | 8,172 | | | | 5,017 | | | | 8,611 | | | | 5,739 | | | | 7,228 | | | | 6,338 | |
Marketing and business development | | | 3,522 | | | | 5,302 | | | | 3,322 | | | | 7,483 | | | | 2,958 | | | | 3,480 | | | | 2,781 | |
Other | | | 5,085 | | | | 2,830 | | | | 2,876 | | | | 2,300 | | | | 4,491 | | | | 6,301 | | | | 5,749 | |
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|
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|
|
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|
|
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|
|
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|
|
| |
|
|
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Total direct expenses | | | 103,449 | | | | 114,213 | | | | 116,734 | | | | 120,985 | | | | 124,530 | | | | 146,084 | | | | 150,104 | |
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|
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|
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Restructuring | | | — | | | | — | | | | — | | | | 59,497 | | | | — | | | | — | | | | — | |
Goodwill and intangible asset impairment | | | — | | | | — | | | | — | | | | 21,668 | | | | — | | | | — | | | | — | |
Contractual settlement | | | — | | | | (7,250 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Investments | | | (4,031 | ) | | | — | | | | (4,674 | ) | | | (10,268 | ) | | | 667 | | | | (2,841 | ) | | | 21,678 | |
Insurance recovery | | | — | | | | — | | | | (5,116 | ) | | | (2,492 | ) | | | (2,989 | ) | | | — | | | | (5,000 | ) |
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|
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|
|
| |
|
|
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|
|
| |
|
|
| |
|
|
|
Total expenses | | | 250,578 | | | | 264,775 | | | | 279,595 | | | | 339,989 | | | | 266,207 | | | | 284,923 | | | | 300,285 | |
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|
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|
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|
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|
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Income (loss) from operations before income taxes | | | 10,313 | | | | 15,269 | | | | 33,679 | | | | (56,665 | ) | | | 5,697 | | | | (4,469 | ) | | | (40,825 | ) |
Income tax provision (benefit) | | | 2,656 | | | | 6,827 | | | | 14,865 | | | | (18,331 | ) | | | 1,652 | | | | 732 | | | | (6,507 | ) |
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Net income (loss) | | $ | 7,657 | | | $ | 8,442 | | | $ | 18,814 | | | $ | (38,334 | ) | | $ | 4,045 | | | $ | (5,201 | ) | | $ | (34,318 | ) |
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Earnings (loss) per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic EPS | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.06 | | | $ | (0.12 | ) | | $ | 0.01 | | | $ | (0.02 | ) | | $ | (0.10 | ) |
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Diluted EPS | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.06 | | | $ | (0.12 | ) | | $ | 0.01 | | | $ | (0.02 | ) | | $ | (0.10 | ) |
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Page 2 of 7
Instinet Group Incorporated
Operating Data
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| |
| | | Sep 30,
2004
| | | Jun 30,
2004
| | | Mar 31,
2004
| | | Dec 31,
2003
| | | Sep 30,
2003
| | | Jun 30,
2003
| | | Mar 31,
2003
| |
U.S. Market | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade Days | | | 64 | | | | 62 | | | | 62 | | | | 64 | | | | 64 | | | | 63 | | | | 61 | |
Average daily NASDAQ-listed equity share volume (millions) | | | 1,542 | | | | 1,735 | | | | 2,030 | | | | 1,757 | | | | 1,730 | | | | 1,788 | | | | 1,459 | |
Average daily U.S. exchange-listed equity share volume (millions) | | | 1,853 | | | | 2,072 | | | | 2,262 | | | | 1,920 | | | | 1,884 | | | | 2,012 | | | | 1,894 | |
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Average daily U.S. equity share volume (millions) | | | 3,395 | | | | 3,807 | | | | 4,292 | | | | 3,677 | | | | 3,614 | | | | 3,800 | | | | 3,353 | |
| | | | | | | |
Total U.S. equity share volume (millions) | | | 217,305 | | | | 236,023 | | | | 266,109 | | | | 235,306 | | | | 231,311 | | | | 239,387 | | | | 204,545 | |
| | | | | | | |
Instinet, the Unconflicted Institutional Broker | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A. U.S. Equities1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Our total average daily volume (million shares) | | | 95 | | | | 102 | | | | 112 | | | | 108 | | | | 99 | | | | 96 | | | | 90 | |
Our share of total market | | | 2.8 | % | | | 2.7 | % | | | 2.6 | % | | | 2.9 | % | | | 2.7 | % | | | 2.5 | % | | | 2.7 | % |
| | | | | | | |
Our average daily volume (million shares) - Institutional and Crossing | | | 70 | | | | 78 | | | | 90 | | | | 84 | | | | 78 | | | | 79 | | | | 76 | |
Average amount charged to client per share (cents per share)2 - Institutional and Crossing | | | 1.53 | | | | 1.50 | | | | 1.50 | | | | 1.47 | | | | 1.52 | | | | 1.57 | | | | 1.52 | |
| | | | | | | |
Our average daily volume (million shares) - Institutional Correspondents | | | 25 | | | | 24 | | | | 22 | | | | 24 | | | | 21 | | | | 17 | | | | 14 | |
Average amount charged to client per share (cents per share)2 - Institutional Correspondents | | | 0.06 | | | | 0.08 | | | | 0.11 | | | | 0.09 | | | | 0.11 | | | | 0.09 | | | | 0.05 | |
| | | | | | | |
B. Non-US Equities3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our average daily consideration (millions) | | $ | 678 | | | $ | 896 | | | $ | 932 | | | $ | 609 | | | $ | 649 | | | $ | 666 | | | $ | 783 | |
Average basis points charged to client per consideration traded | | | 5.4 | | | | 5.1 | | | | 5.3 | | | | 5.9 | | | | 6.2 | | | | 5.7 | | | | 5.1 | |
| | | | | | | |
INET, the Electronic Marketplace | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A. Our Matched Average Daily Volume4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Our NASDAQ-listed equity share volume (million shares) | | | 401 | | | | 433 | | | | 508 | | | | 414 | | | | 413 | | | | 465 | | | | 402 | |
Our share of total market | | | 26.0 | % | | | 25.0 | % | | | 25.0 | % | | | 23.6 | % | | | 23.8 | % | | | 26.0 | % | | | 27.5 | % |
| | | | | | | |
Our U.S. exchange-listed equity share volume (million shares) | | | 72 | | | | 71 | | | | 62 | | | | 52 | | | | 47 | | | | 52 | | | | 56 | |
Our share of total market | | | 3.9 | % | | | 3.4 | % | | | 2.8 | % | | | 2.7 | % | | | 2.5 | % | | | 2.6 | % | | | 3.0 | % |
| | | | | | | |
Our total U.S. equity share volume (million shares) | | | 472 | | | | 504 | | | | 570 | | | | 466 | | | | 460 | | | | 517 | | | | 458 | |
Our share of total market | | | 13.9 | % | | | 13.2 | % | | | 13.3 | % | | | 12.7 | % | | | 12.7 | % | | | 13.6 | % | | | 13.6 | % |
| | | | | | | |
B. Our Routed Average Daily Volume (million shares)5 | | | 115 | | | | 115 | | | | 91 | | | | 65 | | | | 30 | | | | 28 | | | | 21 | |
| | | | | | | |
Headcount6 | | | 1,081 | | | | 1,090 | | | | 1,126 | | | | 1,210 | | | | 1,259 | | | | 1,311 | | | | 1,428 | |
| 1 | Instinet average daily U.S. equity share volume is counted as the sum of our customers’ share volume per side related to a trade. For example a matched trade where one customer buys 100 shares and the other sells 100 shares is counted as 200 shares; if the buy or sell order were routed out, we would count 100 shares on the customer side. |
| | Institutional and Crossing comprise of certain U.S. buy-side clients, all of the clients of Lynch, Jones & Ryan and our international business. They include fund managers, pension plans, hedge funds and other clients. Crossing includes order flow from both buy-side and sell-side clients who execute though our after hours cross. Institutional Correspondents represent our direct market access U.S. buy-side clients. |
| 2 | The amount charged per share is the average cents per share charged net of soft dollar and commission recapture expenses. |
| 3 | Commissions on international transactions are presented as basis points (one hundred of one percent) of the total value (consideration) of the transaction. |
| 4 | In computing our U.S. share volume for INET in either NASDAQ-listed or U.S. exchange-listed equities, we count the customer share volume on one side of the matched trade. Matched volume reflects transactions where the buyer and seller are matched on INET. |
| | For example, where a customer sells 100 shares to another customer as a matched trade, we count 100 shares. INET share volume includes transactions sent to it by Instinet, the Institutional Broker and prior quarters have been recalculated to include this volume. |
| | In computing our total market share, our numerator share volume is counted as described above for each market where we disclose a market share statistic. The denominator for NASDAQ market share is total NASDAQ share volume as published by NASDAQ. For U.S. exchange-listed market share, the denominator is the total share volume of U.S. listed markets obtained from a widely recognized market data vendor. Listed markets include the New York Stock Exchange, American Stock Exchange, Boston Stock Exchange, Philadelphia Stock Exchange, National Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange. Historical amounts may be restated due to updates of volume information from these sources. |
| 5 | Routed volume reflects transactions where the trade was not matched on INET. |
| 6 | Instinet Group headcount is as of the end of the reporting period. |
Page 3 of 7
Instinet Group Incorporated
Statements of Operations - Instinet, the Unconflicted Institutional Broker Segment Trend
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| |
| | | Sep 30,
2004
| | | Jun 30,
2004
| | | Mar 31,
2004
| | | Dec 31,
2003
| | | Sep 30,
2003
| | | Jun 30,
2003
| | | Mar 31,
2003
| |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction fee | | $ | 152,641 | | | $ | 162,905 | | | $ | 185,412 | | | $ | 174,153 | | | $ | 165,903 | | | $ | 161,996 | | | $ | 154,527 | |
Clearing revenue | | | 5,981 | | | | 6,731 | | | | 10,390 | | | | 8,272 | | | | 7,329 | | | | 6,295 | | | | 5,270 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total transaction fees | | | 158,622 | | | | 169,636 | | | | 195,802 | | | | 182,425 | | | | 173,232 | | | | 168,291 | | | | 159,797 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Interest income, net | | | 2,776 | | | | 3,001 | | | | 3,143 | | | | 3,095 | | | | 3,586 | | | | 4,419 | | | | 4,127 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total revenues, net | | | 161,398 | | | | 172,637 | | | | 198,945 | | | | 185,520 | | | | 176,818 | | | | 172,710 | | | | 163,924 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Cost of Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Soft dollar and commission recapture | | | 50,044 | | | | 53,103 | | | | 60,100 | | | | 58,817 | | | | 54,894 | | | | 49,604 | | | | 49,058 | |
Brokerage, clearing and exchange fees | | | 24,319 | | | | 26,825 | | | | 28,645 | | | | 24,624 | | | | 27,568 | | | | 26,311 | | | | 26,153 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total cost of revenues | | | 74,363 | | | | 79,928 | | | | 88,745 | | | | 83,441 | | | | 82,462 | | | | 75,915 | | | | 75,211 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Gross margin | | | 87,035 | | | | 92,709 | | | | 110,200 | | | | 102,079 | | | | 94,356 | | | | 96,795 | | | | 88,713 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Direct Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 38,936 | | | | 47,647 | | | | 45,141 | | | | 42,092 | | | | 39,516 | | | | 39,466 | | | | 47,227 | |
Communications and equipment | | | 16,958 | | | | 14,957 | | | | 16,531 | | | | 14,678 | | | | 19,536 | | | | 27,373 | | | | 26,137 | |
Depreciation and amortization | | | 10,051 | | | | 13,206 | | | | 12,040 | | | | 13,347 | | | | 13,530 | | | | 13,998 | | | | 14,891 | |
Occupancy | | | 5,741 | | | | 7,862 | | | | 8,206 | | | | 6,360 | | | | 6,838 | | | | 6,830 | | | | 7,538 | |
Professional fees | | | 5,215 | | | | 4,925 | | | | 3,016 | | | | 5,410 | | | | 3,066 | | | | 4,683 | | | | 3,819 | |
Marketing and business development | | | 3,304 | | | | 3,068 | | | | 2,789 | | | | 6,973 | | | | 1,528 | | | | 1,480 | | | | 1,791 | |
Other | | | 4,105 | | | | 2,799 | | | | 2,405 | | | | 3,755 | | | | 2,223 | | | | 2,456 | | | | 3,832 | |
Technology service company charges | | | (5,573 | ) | | | (6,664 | ) | | | (8,146 | ) | | | (7,973 | ) | | | (7,491 | ) | | | (8,834 | ) | | | (8,833 | ) |
Corporate overhead charges | | | 7,122 | | | | 8,058 | | | | 10,474 | | | | 10,672 | | | | 14,012 | | | | 21,340 | | | | 19,074 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total direct expenses | | | 85,859 | | | | 95,858 | | | | 92,456 | | | | 95,314 | | | | 92,758 | | | | 108,792 | | | | 115,476 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total expenses | | | 160,222 | | | | 175,786 | | | | 181,201 | | | | 178,755 | | | | 175,220 | | | | 184,707 | | | | 190,687 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net income (loss) before income taxes | | $ | 1,176 | | | $ | (3,149 | ) | | $ | 17,744 | | | $ | 6,765 | | | $ | 1,598 | | | $ | (11,997 | ) | | $ | (26,763 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
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|
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|
|
| |
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|
Page 4 of 7
Instinet Group Incorporated
Statements of Operations - INET, the Electronic Marketplace Segment Trend
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
|
| | | Sep 30,
2004
| | | Jun 30,
2004
| | | Mar 31,
2004
| | | Dec 31,
2003
| | | Sep 30,
2003
| | Jun 30,
2003
| | Mar 31,
2003
|
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 104,057 | | | $ | 111,059 | | | $ | 119,799 | | | $ | 101,668 | | | $ | 99,278 | | $ | 111,736 | | $ | 98,607 |
| | | | | | | |
Interest income, net | | | 402 | | | | 443 | | | | 215 | | | | 521 | | | | 108 | | | 126 | | | 109 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Total revenues, net | | | 104,459 | | | | 111,502 | | | | 120,014 | | | | 102,189 | | | | 99,386 | | | 111,862 | | | 98,716 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Cost of Revenues | | | | | | | | | | | | | | | | | | | | | | | | | |
Broker-dealer rebates | | | 59,859 | | | | 62,388 | | | | 68,147 | | | | 54,507 | | | | 53,552 | | | 58,630 | | | 50,420 |
Brokerage, clearing and exchange fees | | | 21,904 | | | | 19,591 | | | | 21,444 | | | | 17,036 | | | | 12,285 | | | 11,253 | | | 11,052 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Total cost of revenues | | | 81,763 | | | | 81,979 | | | | 89,591 | | | | 71,543 | | | | 65,837 | | | 69,883 | | | 61,472 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Gross margin | | | 22,696 | | | | 29,523 | | | | 30,423 | | | | 30,646 | | | | 33,549 | | | 41,979 | | | 37,244 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Direct Expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 3,590 | | | | 3,072 | | | | 3,808 | | | | 4,660 | | | | 4,024 | | | 3,565 | | | 4,334 |
Communications and equipment | | | 1,418 | | | | 1,501 | | | | 4,343 | | | | 5,349 | | | | 4,453 | | | 3,419 | | | 3,611 |
Depreciation and amortization | | | 2,518 | | | | 2,411 | | | | 2,583 | | | | 4,027 | | | | 7,014 | | | 7,160 | | | 7,382 |
Occupancy | | | 503 | | | | 384 | | | | 569 | | | | 1,819 | | | | 1,203 | | | 1,225 | | | 1,818 |
Professional fees | | | 383 | | | | 603 | | | | 277 | | | | 899 | | | | 704 | | | 228 | | | 374 |
Marketing and business development | | | 206 | | | | 1,346 | | | | 722 | | | | 226 | | | | 39 | | | 42 | | | 43 |
Other | | | (715 | ) | | | (502 | ) | | | (123 | ) | | | (2,854 | ) | | | 1,747 | | | 3,630 | | | 1,368 |
Technology service company charges | | | 5,573 | | | | 6,664 | | | | 8,146 | | | | 7,973 | | | | 7,491 | | | 8,834 | | | 8,833 |
Corporate overhead charges | | | 4,114 | | | | 2,876 | | | | 3,953 | | | | 3,572 | | | | 5,097 | | | 9,189 | | | 6,865 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Total direct expenses | | | 17,590 | | | | 18,355 | | | | 24,278 | | | | 25,671 | | | | 31,772 | | | 37,292 | | | 34,628 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Total expenses | | | 99,353 | | | | 100,334 | | | | 113,869 | | | | 97,214 | | | | 97,609 | | | 107,175 | | | 96,100 |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
Net income before income taxes | | $ | 5,106 | | | $ | 11,168 | | | $ | 6,145 | | | $ | 4,975 | | | $ | 1,777 | | $ | 4,687 | | $ | 2,616 |
| | |
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Page 5 of 7
Instinet Group Incorporated
Statement of Operations - Segments 1
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2004
| |
| | | Instinet
| | | INET
| | | Eliminations
| | | Corporate
| | | Total
| |
Revenue | | | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 158,622 | | | $ | 104,057 | | | $ | (4,966 | ) | | | — | | | $ | 257,713 | |
Interest income, net | | | 2,776 | | | | 402 | | | | — | | | | — | | | | 3,178 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total revenue, net | | | 161,398 | | | | 104,459 | | | | (4,966 | ) | | | — | | | | 260,891 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Cost of revenues | | | | | | | | | | | | | | | | | | | | |
Soft dollar and commission recapture | | | 50,044 | | | | — | | | | — | | | | — | | | | 50,044 | |
Broker-dealer rebates | | | — | | | | 59,859 | | | | — | | | | — | | | | 59,859 | |
Brokerage, clearing and exchange fees | | | 24,319 | | | | 21,904 | | | | (4,966 | ) | | | — | | | | 41,257 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total cost of revenues | | | 74,363 | | | | 81,763 | | | | (4,966 | ) | | | — | | | | 151,160 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Gross margin | | | 87,035 | | | | 22,696 | | | | — | | | | — | | | | 109,731 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Direct Expenses | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 38,936 | | | | 3,590 | | | | — | | | | 3,934 | | | | 46,460 | |
Communications and equipment | | | 16,958 | | | | 1,418 | | | | — | | | | 518 | | | | 18,894 | |
Depreciation and amoritization | | | 10,051 | | | | 2,518 | | | | — | | | | 343 | | | | 12,912 | |
Occupancy | | | 5,741 | | | | 503 | | | | — | | | | 2,926 | | | | 9,170 | |
Professional fees | | | 5,215 | | | | 383 | | | | — | | | | 1,808 | | | | 7,406 | |
Marketing and business development | | | 3,304 | | | | 206 | | | | — | | | | 12 | | | | 3,522 | |
Other | | | 4,105 | | | | (715 | ) | | | — | | | | 1,695 | | | | 5,085 | |
Technology service company charges | | | (5,573 | ) | | | 5,573 | | | | — | | | | — | | | | — | |
Corporate overhead charges | | | 7,122 | | | | 4,114 | | | | — | | | | (11,236 | ) | | | — | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total direct expenses | | | 85,859 | | | | 17,590 | | | | — | | | | — | | | | 103,449 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Investments | | | — | | | | — | | | | — | | | | (4,031 | ) | | | (4,031 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total expenses | | | 160,222 | | | | 99,353 | | | | (4,966 | ) | | | (4,031 | ) | | | 250,578 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net income before income taxes | | $ | 1,176 | | | $ | 5,106 | | | $ | — | | | $ | 4,031 | | | $ | 10,313 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| 1 | See also table titled “Statements of Operations - Segments” on our website atwww.investor.instinetgroup.com under the heading “Investor Relations” for historical data. |
Page 6 of 7
Instinet Group Incorporated
Reconciliation of Pro Forma Operating Results for 3Q04
(In thousands, except per share amounts)
(Unaudited)
In evaluating our financial performance and results of operations, management reviews certain financial measures that are not in accordance with generally accepted accounting standards in the United States (“non-GAAP”). Non-GAAP measurements do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. Management uses non-GAAP financial measures in evaluating our operating performance. In light of the use by management of these non-GAAP measurements to assess our operational performance, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. These non-GAAP financial measures should be considered in the context with our GAAP results. A reconciliation of our non-GAAP measurements are provided below.
Management reviews adjusted operating income, in addition to GAAP financial results. This non-GAAP financial measurement excludes non-operating items, which by their nature, management does not consider to be a true reflection of the operating results and financial performance of our business. These non-operating charges are investment gains and losses, charges related to our cost reduction initiatives, contractual settlements, fixed asset write-offs, goodwill impairment, insurance recoveries, and the related tax effects of those items. The following schedule reconciles our pro forma net income (loss) to our GAAP financial results:
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| | | Nine Months Ended
| |
| | | Sept 30, | | | June 30, | | | Sept 30, | | | September 30,
| |
| | | 2004
| | | 2004
| | | 2003
| | | 2004
| | | 2003
| |
Total revenues, net, as reported | | $ | 260,891 | | | $ | 280,044 | | | $ | 271,904 | | | $ | 854,209 | | | $ | 811,818 | |
| | | | | |
Total expenses, as reported | | | 250,578 | | | | 264,775 | | | | 266,207 | | | | 794,948 | | | | 851,415 | |
Severance included in compensation and benefits | | | — | | | | (3,688 | ) | | | (602 | ) | | | (3,688 | ) | | | (17,686 | ) |
Real estate abandonment costs included in occupancy | | | — | | | | — | | | | — | | | | — | | | | (2,333 | ) |
Fixed asset write-off in depreciation and amortization | | | — | | | | (2,018 | ) | | | — | | | | (2,018 | ) | | | — | |
Contractual settlement | | | — | | | | 7,250 | | | | — | | | | 7,250 | | | | — | |
Investments | | | 4,031 | | | | — | | | | (667 | ) | | | 8,705 | | | | (19,504 | ) |
Insurance recovery | | | — | | | | — | | | | 2,989 | | | | 5,116 | | | | 7,989 | |
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Pro forma operating expenses | | | 254,609 | | | | 266,319 | | | | 267,927 | | | | 810,313 | | | | 819,881 | |
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Pro forma income (loss) before income taxes | | | 6,282 | | | | 13,725 | | | | 3,977 | | | | 43,896 | | | | (8,063 | ) |
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Income tax provision (benefit), as reported | | | 2,656 | | | | 6,827 | | | | 1,652 | | | | 24,348 | | | | (4,123 | ) |
Tax effect of pro forma adjustments | | | — | | | | (1,495 | ) | | | (429 | ) | | | (5,803 | ) | | | 1,321 | |
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Pro forma provision for income taxes | | | 2,656 | | | | 5,332 | | | | 1,223 | | | | 18,545 | | | | (2,802 | ) |
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Net income (loss), as reported | | | 7,657 | | | | 8,442 | | | | 4,045 | | | | 34,913 | | | | (35,474 | ) |
Net effect of pro forma adjustments | | | (4,031 | ) | | | (49 | ) | | | (1,291 | ) | | | (9,562 | ) | | | 30,213 | |
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Pro forma net income (loss) | | $ | 3,626 | | | $ | 8,393 | | | $ | 2,754 | | | $ | 25,351 | | | $ | (5,261 | ) |
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Earnings (loss) per share - basic, as reported | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.11 | | | $ | (0.11 | ) |
Net effect of pro forma adjustments | | | (0.01 | ) | | | — | | | | — | | | | (0.03 | ) | | | 0.09 | |
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Pro forma earnings (loss) per share - basic | | $ | 0.01 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.08 | | | $ | (0.02 | ) |
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Earnings (loss) per share - diluted, as reported | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.10 | | | $ | (0.11 | ) |
Net effect of pro forma adjustments | | | (0.01 | ) | | | — | | | | — | | | | (0.03 | ) | | | 0.09 | |
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Pro forma earnings (loss) per share - diluted | | $ | 0.01 | | | $ | 0.03 | | | $ | 0.01 | | | $ | 0.07 | | | $ | (0.02 | ) |
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Weighted average shares outstanding - basic | | | 333,575 | | | | 332,282 | | | | 330,893 | | | | 332,375 | | | | 330,833 | |
Weighted average shares outstanding - diluted | | | 335,474 | | | | 335,119 | | | | 332,289 | | | | 334,359 | | | | 330,833 | |
Page 7 of 7
