![]() KCG Holdings, Inc. (NYSE: KCG) Barclays Global Financial Services Conference September 10, 2014 Exhibit 99.1 |
![]() Safe Harbor Certain statements contained herein may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. 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 KCG’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is made. 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: (i) the strategic business combination (the “Mergers”) of Knight Capital Group, Inc. (“Knight”) and GETCO Holding Company, LLC (“GETCO”), including, among other things, (a) difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the August 1, 2012 technology issue that resulted in Knight’s broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight’s business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG’s reverse mortgage origination and securitization business and the departure of the managers of KCG’s listed derivatives group; (iv) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, the scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (v) past or future changes to organizational structure and management; (vi) KCG’s ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG’s customers and potential customers; (vii) KCG’s ability to keep up with technological changes; (viii) KCG’s ability to effectively identify and manage market risk, operational and technology risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (ix) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; and (x) the effects of increased competition and KCG’s ability to maintain and expand market share. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in KCG’s reports with the SEC, including, without limitation, those detailed under “Risk Factors” in KCG’s Annual Report on Form 10-K for the year-ended December 31, 2013, under “Certain Factors Affecting Results of Operations” in KCG’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, and other reports or documents KCG files with, or furnishes to, the SEC from time to time. For additional disclosures, please see https://www.kcg.com/legal/global-disclosures. |
![]() Investment Rationale 1. A better model for the emerging competitive landscape – agile, scalable, pure-play, execution-only, non-bank 2. A developer of advanced technologies driving the shift in trading from analog to digital across asset classes 3. Additional integration-related synergies yet to be realized 4. Prospects for multiyear organic growth direct from core capabilities 5. Long-term growth opportunities from the implementation of regulations instituted in response to the global financial crisis of 2008 1 |
![]() KCG helps retail and institutional investors efficiently deploy capital in the secondary market. The KCG Model Trading Venues Agency Execution Market Making Direct-to-client and non-client, exchange-based market making Agency-based trading on behalf of clients Agency-based trading between principals to transactions 2 A leading, independent global securities firm specializing in trading Develops and applies advanced technologies to market making, agency execution and trading venues in multiple asset classes Consistently delivers executions to sell- and buy- side clients that drive trading performance Contributes to better price discovery, deeper liquidity, tighter spreads and lower costs for all market participants |
![]() 3Q14 Intra-Quarter Updates Market conditions remain weak across asset classes Avg. daily consolidated U.S. equity volume of 5.5 billion QTD through August (-8.5% QoQ) and “retail” SEC Rule 605 shares traded of approximately 673 million (-2.5% QoQ) Avg. realized volatility for the S&P 500 of 9.3 QTD through August (9.2 in 2Q14) KCG actions to further reconfigure the client offering Announced the sale of futures commission merchant (FCM) KCG Futures Completed the integration of GETMatched ATS in the U.S. into other products Discontinued corporate access services to concentrate on the execution only institutional market Aggressive capital return to KCG stockholders continues Repurchased approximately 2.9 million shares from the close of 2Q14 to the publication of the Quarterly Report on Form 10-Q New direction provided on regulatory initiatives Public comment period on SEC pilot program to widen tick sizes for stocks of smaller companies Additional SEC initiatives on U.S. equity market structure to focus on stability, fairness and transparency as well as eliminating broker conflicts 3 † The number of shares outstanding of KCG Class A Common Stock was 118.1 million including restricted stock units at August 7, 2014 compared to 121.1 million including RSUs at June 30, 2014. † |
![]() The Market Making Segment Market Making revenue distribution 1H14 U.S. equities Non-U.S. equities Direct-to-client market making A leading direct-to-client market maker serving the sell side globally in an expanding number of asset classes A scale operation with competition based on client relationships, market coverage, speed, fill rates and execution quality Currently offer liquidity in U.S. equities, listed U.S. options, European equities, U.S. Treasuries and FX (beta testing) Non-client, exchange-based market making A provider of best prices for buy and sell orders on market centers Active globally in select asset classes that are largely electronic, fairly liquid and centrally cleared Anticipated future growth from the modernization of markets for global equities, fixed income, currencies and commodities 4 Sources: KCG, VistaOne Solutions, BATS Global Markets ADV overall "retail" SEC Rule 605-eligible shares traded KCG market making ADV of "retail" SEC Rule 605-eligible shares traded ADV consolidated U.S. equity shares traded KCG market making ADV of exchange-listed shares traded KCG market making’s presence in the U.S. equity market |
![]() The Global Execution Services Segment Agency execution A leading execution-only broker serving the buy side in global equities Offer algorithmic trading and an order routing as well as access to sales traders for complex trades Anticipated future growth from increasing penetration of KCG algorithms among the leading asset managers Trading venues A developer and operator of marketplaces in strategic asset classes Anticipated future growth from the modernization of markets – in particular FX and fixed income – that remain manual, non- transparent and illiquid A 16.7% stake in global exchange BATS KCG Hotspot % of institutional spot FX notional dollar volume among reporting venues KCG BondPoint % of interdealer corporate bond transactions under 250 bonds KCG BondPoint % of interdealer muni bond transactions under 250 bonds Knight Match ATS % of dark U.S. equity liquidity Sources: KCG, BATS Global Markets, Bloomberg, Reuters, EBS, TRACE, MSRB, Rosenblatt; † KCG’s strategic investment in BATS Global Markets, Inc. is contained in the Corporate and Other segment 5 † |
![]() KCG Risk Management KCG’s risk management framework provides comprehensive controls and processes for ongoing management and monitoring of the major risks associated with the firm's daily business activities. Risk of loss resulting from inadequate or failed internal processes, systems, human error or external events Real-Time Risk Risk of loss resulting from high-speed intra-day activities managed by real-time risk processes and controls Financial or other loss derived through failure, non-performance or underperformance of a counterparty Adverse change in the market value of portfolios and financial instruments caused by a change in market prices, spread, or rates 6 |
![]() Strategic Imperatives 1. Get the integration right. 2. Concentrate on technology-based, scalable, non-capital intensive businesses. 3. Foster KCG’s intellectual capital, technology development and collaborative culture. 4. Strengthen the offering and expand the client network. 5. Focus on generating cash and maintaining a liquid balance sheet. 7 |
![]() Primary Year One Activities 1. Get the integration right. – Integrated direct-to-client and non-client, exchange- based U.S. equity market making – Consolidated institutional U.S. equity sales – Combined overlapping units including algorithmic services, options market making, DMM and LMM – Consolidated broker dealers in the U.S. and U.K. – Reorganized KCG Europe – Consolidated support functions including Technology, Finance, Legal, Compliance, Risk, HR and Facilities 2. Concentrate on technology-based, scalable, non capital-intensive businesses. – Restructured the institutional ETF desk – Sold subsidiary Urban Financial of America 3. Foster KCG’s intellectual capital, technology development and collaborative vulture. – More than 15% of all KCG employees joined since the merger close – Began integrating the legacy technology platforms – Consolidated offices in Chicago and London 4. Strengthen the offering and expand the client network. – Began beta testing direct-to-client market making in FX – Introduced a new algorithm offering institutional clients access to retail order flow – Added quantitative-based trading strategy and analysis to the client offering 5. Focus on generating cash and maintaining a liquid balance sheet. – Generated $186 million in free cash flow from operating income – Released $200 million in trapped excess liquidity – Maintain a liquidity buffer of $350 million to support day-to-day operations – Substantially all financial instruments held as assets and liabilities are Level 1 – Reduced debt by $793 million and lowered the debt-to- tangible equity ratio to 0.32 8 |
![]() Consolidated Financials † See addendum for a reconciliation of GAAP to non-GAAP financial results. Free cash flow represents income from continuing operations less capital expenditures plus non-cash items such as depreciation and amortization, stock-based compensation and non-GAAP adjustments included in the Regulation G tables. Expenses exclude items contained in the Regulation G tables. KCG balance sheet (in $ millions) As of June 30, 2014 Cash and cash equivalents 600.9 Debt 422.3 Stockholders’ equity 1,533.7 — — — Debt-to-tangible equity ratio 0.32 — — — Book value per share $12.66 Tangible book value per share $11.04 Compensation and benefits Communications and data processing Depreciation and amortization Debt interest expense Professional fees Occupancy and equipment rentals Business development Other 9 |
![]() Potential Catalysts Improvement in market conditions across asset classes Growth from organic initiatives already underway Realization of additional integration-related synergies Further clarity on SEC market structure initiatives Continued capital return through share repurchases Long-term secular shifts in trading driven by regulation, technology and competition 10 |
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![]() 3 months ended June 30, 2014 Market Making Global Execution Services Corporate and Other Consolidated Reconciliation of GAAP pre-tax to non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes $ 36,004 $ 736 $ (22,233) $ 14,507 Writedown of capitalized debt costs - - 1,995 1,995 Compensation related to reduction in workforce 383 1,886 800 3,069 Writedown of assets and lease loss accrual, net 452 - 1,489 1,941 Non-GAAP income (loss) from continuing operations before income taxes $ 36,839 $ 2,622 $ (17,949) $ 21,512 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 3 months ended March 31, 2014 Market Making Global Execution Services Corporate and Other Consolidated Reconciliation of GAAP pre-tax to non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes $ 76,032 $ 2,016 $ (18,664) $ 59,384 Writedown of capitalized debt costs - - 7,557 7,557 Income resulting from the merger of BATS and Direct Edge, net - - (9,644) (9,644) Writedown of assets and lease loss accrual, net 359 - (93) 266 Non-GAAP income (loss) from continuing operations before income taxes $ 76,391 $ 2,016 $ (20,844) $ 57,563 11 |
![]() 3 months ended September 30, 2013 Market Making Global Execution Services Corporate and Other Consolidated Reconciliation of GAAP pre-tax to non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes $ 47,853 $ (16,354) $ 89,874 $ 121,373 Gain on investment in Knight Capital Group, Inc. - - (127,972) (127,972) Compensation and other expenses related to reduction in workforce 2,309 15,132 - 17,441 Professional and other fees related to Mergers and August 1 technology issue - - 7,269 7,269 Writedown of assets and lease loss accrual, net 108 - 828 936 Non-GAAP income (loss) from continuing operations before income taxes $ 50,270 $ (1,222) $ (30,001) $ 19,048 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 3 months ended December 31, 2013 Market Making Global Execution Services Corporate and Other Consolidated Reconciliation of GAAP pre-tax to non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes $ 47,951 $ (4,491) $ (60,159) $ (16,699) Compensation and other expenses related to reduction in workforce 5,254 5,447 708 11,409 Professional and other fees related to Mergers and August 1 technology issue - - 2,785 2,785 Writedown of capitalized debt costs - - 13,209 13,209 Gain on strategic asset - - (1,359) (1,359) Writedown of assets and lease loss accrual - 1,681 8,819 10,500 Non-GAAP income (loss) from continuing operations before income taxes $ 53,205 $ 2,637 $ (35,997) $ 19,845 12 st st |
![]() 3 months ended June 30, 2014 GAAP Adjustments for non-GAAP presentation KCG adjusted, normalized expenses Reconciliation of GAAP expenses to normalized non-GAAP expenses: Employee compensation and benefits 103,430 3,069 100,361 Communications and data processing 38,279 - 38,279 Depreciation and amortization 19,823 - 19,823 Debt interest expense 7,497 - 7,497 Professional fees 7,337 - 7,337 Occupancy and equipment rentals 8,235 - 8,235 Business development 2,609 - 2,609 Writedown of assets, lease loss accrual and capitalized debt costs 3,936 3,936 - Other 10,767 - 10,767 Total expenses $ 201,913 $ 7,005 $ 194,908 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 13 |
![]() 3 months ended March 31, 2014 GAAP Adjustments for non-GAAP presentation KCG adjusted, normalized expenses Reconciliation of GAAP expenses to normalized non-GAAP expenses: Employee compensation and benefits 122,319 - 122,319 Communications and data processing 36,796 - 36,796 Depreciation and amortization 20,103 - 20,103 Debt interest expense 9,524 - 9,524 Professional fees 5,402 - 5,402 Occupancy and equipment rentals 8,285 - 8,285 Business development 1,683 - 1,683 Writedown of assets, lease loss accrual and capitalized debt costs 7,823 7,823 - Other 8,643 - 8,643 Total expenses $ 220,578 $ 7,823 $ 212,755 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 14 |
![]() Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 3 months ended December 31, 2013 GAAP Adjustments for non-GAAP presentation KCG adjusted, normalized expenses Reconciliation of GAAP expenses to normalized non-GAAP expenses: Employee compensation and benefits 112,209 11,409 100,800 Communications and data processing 37,512 - 37,512 Depreciation and amortization 19,566 - 19,566 Debt interest expense 12,943 - 12,943 Professional fees 7,734 2,491 5,243 Occupancy and equipment rentals 9,358 - 9,358 Business development 1,923 - 1,923 Writedown of assets, lease loss accrual and capitalized debt costs 23,709 23,709 - Other 13,066 294 12,772 Total expenses $ 238,020 $ 37,903 $ 200,117 15 |
![]() Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 3 months ended September 30, 2013 GAAP Adjustments for non-GAAP presentation KCG adjusted, normalized expenses Reconciliation of GAAP expenses to normalized non-GAAP expenses: Employee compensation and benefits 129,631 17,441 112,190 Communications and data processing 44,046 - 44,046 Depreciation and amortization 20,091 - 20,091 Debt interest expense 19,350 2,982 16,368 Professional fees 9,077 4,087 4,990 Occupancy and equipment rentals 8,898 - 8,898 Business development 2,644 200 2,444 Writedown of assets and lease loss accrual, net 936 936 - Other 11,318 - 11,318 Total expenses $ 245,991 $ 25,647 $ 220,345 16 |
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