Knight Capital Group Announces Consolidated Earnings of $0.43 Per Diluted Share for the Fourth Quarter 2011
JERSEY CITY, New Jersey, January 19, 2012 /PRNewswire/ --
Fourth quarter 2011 consolidated revenues rose 32% to $341.3 million and pre-tax earnings increased 395% to $63.1 million compared to the fourth quarter 2010
Market Making grew fourth quarter 2011 revenues 69% to $187.4 million and pre-tax earnings 181% to $84.4 million compared to the fourth quarter 2010, despite a decline in retail trading activity year over year
During the fourth quarter 2011, Knight repurchased 2.0 million shares
Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported consolidated earnings of $40.2 million, or $0.43 per diluted share, for the fourth quarter of 2011. The results included a tax benefit of $1.7 million, or $0.02 per diluted share.
For the fourth quarter of 2010, the company reported consolidated earnings of $9.2 million, or $0.10 per diluted share. The results included a tax benefit of $2.1 million, or $0.02 per diluted share.
Revenues from continuing operations for the fourth quarter of 2011 were $341.3 million, compared to $259.0 million from continuing operations for the fourth quarter of 2010.
"In the fourth quarter of 2011, Knight produced strong financial results," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Consolidated revenues and pre-tax earnings rose considerably year over year despite a decline in market conditions as the quarter progressed. Market Making performed exceptionally well and again demonstrated the ability to adapt to the trading environment and deliver results. While the fourth quarter was not without its challenges, the contribution from Electronic Execution Services increased and we worked to improve profitability across products and services."
"Continuing operations" includes the company's Market Making, Institutional Sales and Trading, Electronic Execution Services, and Corporate and Other segments. Market Making consists of all global market making across equities, fixed income, foreign exchange and options as well as the company's activities as a Designated Market Maker at the NYSE. Institutional Sales and Trading includes full-service institutional research, sales and trading as well as equity and debt capital markets, reverse mortgage origination and securitization, and asset management. Electronic Execution Services includes Knight Direct, Hotspot FX and Knight BondPoint. Corporate and Other includes strategic investments primarily in financial services-related ventures, clearing and settlement activity, corporate overhead expenses and all other income and expenses that are not attributable to the other reporting segments.
Q4 2011 Q4 2010
Revenues ($ thousands) 341,327 259,033
Net income ($ thousands) 40,238 9,232
Diluted EPS ($) 0.43 0.10
Average daily U.S. equity dollar value traded ($
billions) 27.3 24.7
Average daily U.S. equity trades (thousands) 4,156.4 3,474.1
Nasdaq and Listed equity shares traded (billions) 60.8 60.5
OTC Bulletin Board and Pink Sheet shares traded
(billions) 121.2 330.9
Average revenue capture per U.S. equity dollar
value traded (bps) 1.42 1.05
Average daily Knight Direct equity shares
(millions) 210.5 174.9
Average daily Hotspot FX notional dollar value
traded ($ billions) 53.9 42.0
YTD 2011 YTD 2010
Revenues ($ thousands) 1,404,527 1,149,056
Net income ($ thousands) 115,237 91,638
Diluted EPS ($) 1.21 0.97
Average daily U.S. equity dollar value traded ($
billions) 29.3 26.6
Average daily U.S. equity trades (thousands) 4,151.2 3,730.4
Nasdaq and Listed equity shares traded (billions) 249.9 275.3
OTC Bulletin Board and Pink Sheet shares traded
(billions) 885.1 1,988.9
Average revenue capture per U.S. equity dollar
value traded (bps) 1.27 1.10
Average daily Knight Direct equity shares
(millions) 183.7 148.8
Average daily Hotspot FX notional dollar value
traded ($ billions) 59.1 36.9
"In 2011, Knight recorded its sixth straight year of approximately $1 in earnings per share," said Mr. Joyce. "For the full year, we maintained the number-one rankings in shares traded across NYSE- and NASDAQ-listed stocks, ETFs and OTC Bulletin Boards among all securities firms. In addition, Knight increased average daily U.S. equity dollar volume traded by 11 percent. At the same time, we undertook a restructuring to cut underperforming areas and efforts to refine the client offering continue."
Market Making
During the fourth quarter of 2011, the Market Making segment generated total revenues of $187.4 million and pre-tax income of $84.4 million. In the fourth quarter of 2010, Market Making reported total revenues of $111.0 million and pre-tax income of $30.0 million. Market Making had pre-tax margins of 45 percent in the fourth quarter of 2011 compared to pre-tax margins of 27 percent in the fourth quarter of 2010.
"In Market Making, Knight grew revenues 69 percent and pre-tax earnings 181 percent year over year," said Mr. Joyce. "Amid lower retail trading activity compared to the fourth quarter of 2010, Market Making maintained industry-leading market share in U.S. equities and drove the rise in average daily dollar volume traded. Near-constant enhancements to trading technologies covering platforms, models and strategies contributed to the increase in revenue capture. During the quarter, we progressed in efforts to grow European equities and U.S. options."
Institutional Sales and Trading
During the fourth quarter of 2011, the Institutional Sales and Trading segment generated total revenues of $103.8 million and pre-tax loss of $17.1 million. In the fourth quarter of 2010, Institutional Sales and Trading reported total revenues of $112.4 million and pre-tax loss of $7.7 million.
"In Institutional Sales and Trading, Knight produced strong revenues and renewed efforts to decrease expenses," said Mr. Joyce. "We generated balanced contributions across products and regions. Further, the institutional equities and fixed income teams instituted a number of measures to increase referrals and cut costs. During the quarter, Urban worked to secure its position among the reverse mortgage industry leaders in lending and issuance."
Electronic Execution Services
During the fourth quarter of 2011, the Electronic Execution Services segment generated total revenues of $40.6 million and pre-tax income of $12.5 million. In the fourth quarter of 2010, Electronic Execution Services reported total revenues of $37.1 million and pre-tax income of $10.7 million. Electronic Execution Services had pre-tax margins of 31 percent in the fourth quarter of 2011 compared to pre-tax margins of 29 percent in the fourth quarter of 2010.
"In Electronic Execution Services, Knight grew revenues nine percent and pre-tax earnings 17 percent year over year," said Mr. Joyce. "The results are due to the respective strengths of the electronic trading products as well as secular trends and, to a lesser extent, market conditions. In comparison to the fourth quarter of 2010, we witnessed growth in average daily volumes of 28 percent at Hotspot FX, 20 percent at Knight Direct and 13 percent at Knight BondPoint."
Corporate and Other
During the fourth quarter of 2011, the Corporate and Other segment reported a pre-tax loss of $16.5 million. In the fourth quarter of 2010, the Corporate segment reported a pre-tax loss of $20.2 million.
"During the fourth quarter of 2011, Knight performed extremely well," said Mr. Joyce. "Relative to the financial sector, I believe Knight's path to improving and sustaining strong financial results is straightforward. We're beginning to realize the benefits of investments in core areas and refocusing on new and innovative trading technologies that allow us to provide clients with consistent, high-quality trade executions and low transaction costs."
Headcount at December 31, 2011 was 1,423 full-time employees, as compared to 1,326 full-time employees at December 31, 2010.
As of December 31, 2011, the company had $467.6 million in cash and cash equivalents. The company had $1.5 billion in stockholders' equity as of December 31, 2011, equivalent to a book value of $15.70 per diluted share. The company had a book value of $14.51 per diluted share as of December 31, 2010.
During the fourth quarter of 2011, the company repurchased 2.0 million shares for $25.0 million under the company's existing stock repurchase program. To date, the company has repurchased 75.2 million shares for $859.5 million. The company has approximately $140.5 million of availability to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur.
* * *
Copies of this earnings release and other company information can be obtained on Knight's website, http://www.knight.com/. The company will conduct its fourth quarter 2011 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, January 19, 2012. To access Knight's earnings conference call, please dial 866-564-7439 for domestic callers or +1-719-457-2618 for international callers. When prompted, please enter passcode 2983341. A replay of the fourth quarter 2011 earnings conference call will be available by dialing 888-203-1112 for domestic callers or +1-719-457-0820 for international callers. When prompted, please enter passcode 2983341. The conference call will be webcast live at 9:00 a.m. ET for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for December 2011 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today.
* * *
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 buy- and sell-side firms and corporations. Knight is headquartered in Jersey City, N.J. with a global presence across the Americas, Europe, and the Asia Pacific region. For further information about Knight, please visit http://www.knight.com/.
Certain statements contained herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks related to the corporate restructuring in the third quarter 2011, including the ability to recognize anticipated cost savings, the possibility of unexpected costs or expenditures, and the impact of the restructuring on the Company's businesses and results of operations, risks associated with changes in market structure, legislative, regulatory and financial rules changes, risks associated with the Company's changes to its organizational structure and management and the costs, integration, performance and operation of businesses recently 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 the Company's reports with the U.S. Securities and Exchange Commission (SEC), including, without limitation, those detailed under the headings "Certain Factors Affecting Results of Operations" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2010, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should also be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto contained in the Company's Annual Report on Form 10-K for the year-ended December 31, 2010, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended December 31,
2011 2010
(In thousands, except per share amounts)
Revenues
Net trading revenue $ 168,412 $ 96,619
Commissions and fees 164,587 165,901
Interest, net 443 1,240
Investment income (loss) and other,
net 7,885 (4,727)
Total revenues 341,327 259,033
Expenses
Employee compensation and benefits 137,496 133,972
Execution and clearance fees 53,433 41,966
Communications and data processing 21,557 19,287
Payments for order flow 19,238 8,987
Depreciation and amortization 13,519 12,435
Interest 11,827 8,785
Occupancy and equipment rentals 6,558 7,300
Business development 6,490 4,502
Professional fees 5,907 4,701
Restructuring - -
Writedown of assets and lease loss
accrual 700 -
Other 1,455 4,331
Total expenses 278,180 246,266
Income from continuing operations before income taxes 63,147 12,767
Income tax expense 22,883 3,391
Income from continuing operations, net of tax 40,264 9,376
Loss from discontinued operations, net of tax (26) (144)
Net income $ 40,238 $ 9,232
Basic earnings per share from continuing operations $ 0.45 $ 0.10
Diluted earnings per share from continuing operations $ 0.43 $ 0.10
Basic earnings per share $ 0.44 $ 0.10
Diluted earnings per share $ 0.43 $ 0.10
Shares used in computation of basic earnings per share 90,427 91,226
Shares used in computation of diluted earnings per share 93,141 93,735
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the year ended December 31,
2011 2010
(In thousands, except per share amounts)
Revenues
Net trading revenue $ 631,989 $ 489,394
Commissions and fees 749,911 660,527
Interest, net 4,649 2,092
Investment income (loss) and other,
net 17,978 (2,957)
Total revenues 1,404,527 1,149,056
Expenses
Employee compensation and benefits 583,786 546,748
Execution and clearance fees 229,209 176,116
Communications and data processing 87,109 69,597
Payments for order flow 85,269 37,700
Depreciation and amortization 54,000 42,773
Interest 42,068 25,896
Occupancy and equipment rentals 28,084 26,632
Business development 23,360 19,493
Professional fees 21,305 17,463
Restructuring 28,624 16,731
Writedown of assets and lease loss
accrual 2,978 1,032
Other 31,606 18,909
Total expenses 1,217,398 999,090
Income from continuing operations before income taxes 187,129 149,966
Income tax expense 71,488 57,969
Income from continuing operations, net of tax 115,641 91,997
Loss from discontinued operations, net of tax (404) (359)
Net income $ 115,237 $ 91,638
Basic earnings per share from continuing operations $ 1.26 $ 1.02
Diluted earnings per share from continuing operations $ 1.22 $ 0.97
Basic earnings per share $ 1.26 $ 1.02
Diluted earnings per share $ 1.21 $ 0.97
Shares used in computation of basic earnings per share 91,490 90,167
Shares used in computation of diluted earnings per share 95,013 94,447
KNIGHT CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, 2011 December 31, 2010
(In thousands)
ASSETS
Cash and cash
equivalents $ 467,633 $ 375,569
Financial instruments
owned, at fair value:
Equities 1,416,090 1,299,052
Listed equity options 280,384 41,840
Debt securities 134,631 77,288
Loan inventory 206,572 146,472
Other financial
instruments 21,483 38,487
Securitized HECM loan
inventory 1,722,631 -
Total financial
instruments owned, at
fair value 3,781,791 1,603,139
Collateralized
agreements:
Securities borrowed 1,494,647 1,361,010
Receivable from
brokers, dealers and
clearing
organizations 623,897 476,159
Fixed assets and
leasehold
improvements,
at cost, less
accumulated
depreciation and
amortization 111,464 117,601
Investments 83,231 81,331
Goodwill 337,843 338,743
Intangible assets,
less accumulated
amortization 92,889 109,784
Other assets 159,556 206,875
Total assets $ 7,152,951 $ 4,670,211
LIABILITIES & EQUITY
Liabilities
Financial instruments
sold, not yet
purchased, at fair
value:
Equities $ 1,369,750 $ 1,164,718
Listed equity options 254,506 40,564
Debt securities 63,073 60,679
Other financial
instruments 34,563 45,363
Total financial
instruments sold, not
yet purchased, at
fair value 1,721,892 1,311,324
Collateralized
financings:
Securities loaned 697,998 527,945
Financial instruments
sold under agreements
to repurchase 420,320 485,184
Liability to GNMA
trusts, at fair value 1,710,627 -
Other secured
financings 59,405 35,583
Payable to brokers,
dealers and clearing
organizations 322,660 337,430
Accrued compensation
expense 188,939 186,451
Accrued expenses and
other liabilities 144,747 114,376
Long-term debt 424,338 311,060
Total liabilities 5,690,926 3,309,353
Equity
Knight Capital Group,
Inc. stockholders'
equity
Class A common stock 1,664 1,628
Additional paid-in
capital 850,837 807,287
Retained earnings 1,433,320 1,317,462
Treasury stock, at
cost (823,023) (765,875)
Accumulated other
comprehensive loss (773) (265)
Total Knight Capital
Group, Inc.
stockholders' equity 1,462,025 1,360,237
Noncontrolling
interests - 621
Total equity 1,462,025 1,360,858
Total liabilities and
equity $ 7,152,951 $ 4,670,211
KNIGHT CAPITAL GROUP,
INC.
PRE-TAX EARNINGS BY BUSINESS
SEGMENT*
Amounts in
millions
(Unaudited)
For the three
months ended For the year ended
December 31, December 31,
2011 2010(1) 2011 2010(1)
Market
Making
Revenues $ 187.4 $ 111.0 $ 704.5 $ 549.1
Expenses (2)
(3) 103.0 81.1 448.4 339.3
Pre-tax
earnings 84.4 30.0 256.1 209.9
Institutional Sales
and Trading
Revenues 103.8 112.4 511.5 457.6
Expenses (2)
(3) 121.0 120.1 555.9 477.1
Pre-tax loss (17.1) (7.7) (44.4) (19.5)
Electronic
Execution Services
Revenues 40.6 37.1 167.9 138.2
Expenses (2)
(3) 28.1 26.4 118.4 100.8
Pre-tax
earnings 12.5 10.7 49.5 37.4
Corporate
and Other
Revenues 9.6 (1.5) 20.6 4.1
Expenses (2)
(3) 26.1 18.7 94.7 82.0
Pre-tax loss (16.5) (20.2) (74.1) (77.9)
Consolidated
Revenues 341.3 259.0 1,404.5 1,149.1
Expenses (2)
(3) 278.2 246.3 1,217.4 999.1
Pre-tax
earnings $ 63.1 $ 12.8 $ 187.1 $ 150.0
* Totals may not add due to rounding.
(1) - Prior period amounts have been recast to conform with
current period segment presentation.
Such recast had no effect on previously reported
Consolidated Pre-tax earnings.
(2) - Included in Expenses for the year ended December 31,
2011 is a Restructuring charge
of $28.6 million which includes $0.5 million for Market
Making, $23.9 million for Institutional Sales and Trading,
$0.4 million for Electronic Execution Services, and $3.8
million for Corporate and Other.
(3) - Included in Expenses for the year ended December 31,
2010 is a Restructuring charge
of $16.7 million which includes $1.6 million for Market
Making, $14.3 million for Institutional Sales and Trading,
$0.1 million for Electronic Execution Services, and $0.7
million for Corporate and Other.
SOURCE Knight Capital Group, Inc.
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