Knight Capital Group Announces Earnings from Continuing Operations of $0.52 Per Diluted Share and Consolidated Earnings of $0.39

Global Markets reported second quarter 2009 revenues of $310.1 million, a 67% increase from second quarter 2008 revenues of $185.6 million, driven by quantitative equity trading, global institutional fixed income and U.S. institutional equities sales and trading Global Markets reported second quarter 2009 pre-tax GAAP income of $92.9 million, a 44% increase from second quarter 2008 pre-tax GAAP income of $64.4 million, and achieved pre-tax margins of 30% despite ongoing investments in new talent, geographic and asset class expansion, and infrastructure In Discontinued Operations, Asset Management recorded additional pre-tax wind-down costs of $19 million in the second quarter 2009 JERSEY CITY, N.J., July 22 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (NASDAQ:NITE) today reported earnings from continuing operations of $48.0 million, or $0.52 per diluted share, and a loss from discontinued operations, net of tax, of $12.5 million, or $0.13 loss per diluted share. On a consolidated basis, the company reported earnings of $35.5 million, or $0.39 per diluted share, for the second quarter of 2009. During the second quarter 2009, Knight recorded a pre-tax benefit of $13.1 million related to an adjustment of a previously recognized lease loss with respect to the company's headquarters at 545 Washington Boulevard in Jersey City, New Jersey. The benefit reflects management's decision to build out and occupy the space based on expected growth. Excluding the $13.1 million lease loss benefit during the second quarter of 2009, pre-tax earnings from continuing operations were $67.8 million. For the second quarter of 2008, the company reported earnings from continuing operations of $34.3 million, or $0.37 per diluted share, and a loss from discontinued operations, net of tax, of $4.8 million, or $0.05 loss per diluted share. On a consolidated basis, the company reported earnings of $29.4 million, or $0.32 per diluted share for the second quarter of 2008. Revenues from continuing operations for the second quarter of 2009 were $313.9 million, compared to $189.8 million from continuing operations for the second quarter of 2008. "Knight's strong financial results in the second quarter were due to further market share gains in equities and the continued execution of our multi-asset class strategy, especially the expansion in fixed income," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Equity trade volumes and revenues from both institutional and broker-dealer clients rose in an industry environment marked by increasing competition and downward pressure on margins. In institutional fixed income, Knight added products, talent and new clients. During the second quarter, we made additional investments in Europe and the Asia-Pacific region to drive future growth." "Continuing operations" includes the company's Global Markets and Corporate operating segments. Amounts reported as "Discontinued operations" include the company's Asset Management segment, which, on March 31, 2009, closed the sale of substantially all of Deephaven's assets to affiliates of Stark & Roth, Inc. As of that date, Deephaven was replaced as the investment adviser for the Deephaven funds and the company exited from the Asset Management business. Q2 2009 Q2 2008 ------- ------- Revenues ($ thousands) 313,867 189,792 Income from continuing operations, net of tax ($ thousands) 47,958 34,255 Loss from discontinued operations, net of tax ($ thousands) (12,460) (4,844) Net income ($ thousands) 35,498 29,411 Diluted EPS from continuing operations ($) 0.52 0.37 Diluted EPS from discontinued operations ($) (0.13) (0.05) Average daily U.S. equity dollar value traded ($ billions) 23.1 17.3 Average daily U.S. equity trades (thousands) 4,190.2 1,850.2 Nasdaq and Listed equity shares traded (billions) 100.0 34.8 OTC Bulletin Board and Pink Sheet shares traded (billions) 447.8 206.1 Average revenue capture per U.S. equity dollar value traded (bps) 1.5 1.3 -------- -------- YTD 2009 YTD 2008 -------- -------- Revenues ($ thousands) 559,221 383,770 Income from continuing operations, net of tax ($ thousands) 77,840 69,352 Loss from discontinued operations, net of tax ($ thousands) (32,975) (7,438) Net income ($ thousands) 44,865 61,914 Diluted EPS from continuing operations ($) 0.85 0.75 Diluted EPS from discontinued operations ($) (0.36) (0.08) Average daily U.S. equity dollar value traded ($ billions) 21.5 17.0 Average daily U.S. equity trades (thousands) 4,019.1 1,804.1 Nasdaq and Listed equity shares traded (billions) 179.3 68.4 OTC Bulletin Board and Pink Sheet shares traded (billions) 707.0 371.2 Average revenue capture per U.S. equity dollar value traded (bps) 1.5 1.4 Global Markets During the second quarter of 2009, Global Markets generated total revenues of $310.1 million, compared to $185.6 million in the second quarter of 2008. In the second quarter of 2009, Global Markets reported pre-tax income of $92.9 million, compared to pre-tax income of $64.4 million in the second quarter of 2008. Global Markets had pre-tax margins of 30% in the second quarter of 2009, compared to pre-tax margins of 35% in the second quarter of 2008. Excluding the lease loss benefit of $13.1 million in the second quarter of 2009, Global Markets reported pre-tax income of $79.8 million and a pre-tax margin of 26%. "In Global Markets, quantitative equity trading, the institutional sales and trading teams covering fixed income and equities, as well as the increasing usage of Knight's electronic trade execution services helped to fuel the increase in total revenues," said Mr. Joyce. "We reported a 32 percent increase in U.S. equity dollar value traded during a period of concentrated trading activity in low-priced stocks. Despite ongoing investments to grow and diversify revenues and an increase in execution and clearing costs, we achieved pre-tax operating margins of 26 percent, which exceeded management's goal of 20 percent across market cycles. We remain committed to providing the highest levels of client service across the electronic and voice services in our hybrid market model." Corporate In the second quarter of 2009, the Corporate segment reported a pre-tax loss of $12.0 million, compared to a pre-tax loss of $7.2 million in the second quarter of 2008. The company's corporate investment in the Deephaven funds recognized a pre-tax gain of $0.9 million during the second quarter of 2009, compared to a pre-tax gain of $2.0 million during the second quarter of 2008. Headcount from continuing operations at the end of June 30, 2009 was 1,046 full-time employees, as compared to 793 full-time employees at the end of June 30, 2008, reflecting personnel additions from acquisitions and new products throughout the year. "At Knight, our growing global, multi-asset class client offering is the foundation of our strong financial performance," said Mr. Joyce. "The market share gains are evidence of deepening existing client relationships and adding new clients. In Europe, we continue to invest in our hybrid market model featuring complementary electronic and voice trade execution services. And in the Asia-Pacific region, the institutional sales and trading teams continue to build relationships in equities and fixed income." As of June 30, 2009, the company had $363.9 million in cash and cash equivalents as well as a $28.6 million corporate investment in funds formerly managed by Deephaven. The company had $1.1 billion in stockholders' equity as of June 30, 2009, equivalent to a book value of $11.97 per diluted share. The company had a book value of $10.42 per diluted share as of June 30, 2008. During the second quarter of 2009, the company did not repurchase any shares under its $1.0 billion stock repurchase program. To date, the company has repurchased 67.1 million shares for $750.4 million. The company has approximately $249.6 million available to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur. Discontinued Operations In the second quarter of 2009, discontinued operations reported a pre-tax loss of $18.8 million, or $12.5 million, net of tax, which relates to the wind-down of the Asset Management segment. In the second quarter of 2008, discontinued operations reported a pre-tax loss of $7.9 million, or $4.8 million, net of tax. Deephaven was designated a discontinued operation for financial reporting purposes as of the close of business on March 31, 2009. 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 second quarter 2009 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, July 22, 2009. To access Knight's earnings conference call, please dial 888-503-8171 for domestic callers or 719-325-2394 for international callers. When prompted, please enter passcode 9864718. A replay of the second quarter 2009 earnings conference call will be available by dialing 888-203-1112 for domestic callers or 719-457-0820 for international callers. When prompted, enter passcode 9864718. 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 June 2009 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today. About Knight Knight Capital Group, Inc. (NASDAQ:NITE) is a global capital markets firm that provides market access and trade execution services across multiple asset classes to buy- and sell-side firms. Knight's hybrid market model features complementary electronic and voice trade execution services in global equities and fixed income as well as foreign exchange, futures and options. The firm is consistently ranked as the leading source of off-exchange liquidity in U.S. equities. Knight also provides capital markets services to corporate issuers. Knight is headquartered in Jersey City, NJ with a growing global presence across North America, Europe and the Asia-Pacific region. For more information, please go to 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 associated with the costs, integration, performance and operation of businesses recently acquired, or that may be acquired in the future, by the Company and risks related to the costs and expenses associated with the Company's exit from the Asset Management business. 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. 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, 2008, 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, 2008, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. 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 amounts before lease loss benefits to assist the reader in understanding the impact of these benefits on the Company's financial results, thereby facilitating more useful period-to-period comparisons of the Company's businesses. KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2009 2008 2009 2008 ---- ---- ---- ---- (In thousands, except per share amounts) Revenues Commissions and fees $175,797 $98,452 $326,507 $192,752 Net trading revenue 135,405 85,433 234,865 186,950 Interest, net (1,041) 1,888 (1,638) 5,652 Investment gain (loss) and other, net 3,706 4,019 (513) (1,584) ----- ----- ---- ------ Total revenues 313,867 189,792 559,221 383,770 ------- ------- ------- ------- Expenses Employee compensation and benefits 135,614 67,751 244,801 140,245 Execution and clearance fees 42,432 23,828 71,523 49,052 Payments for order flow 23,047 8,300 40,074 17,226 Communications and data processing 14,281 11,234 28,069 20,700 Depreciation and amortization 8,260 5,955 16,447 11,475 Occupancy and equipment rentals 5,890 5,119 11,251 8,932 Business development 5,093 4,256 9,439 7,867 Professional fees 3,098 4,286 6,000 7,950 Interest expense 974 891 1,955 1,948 Writedown of assets and lease loss accrual, net (10,695) (1,872) (9,996) (1,872) Other 4,981 2,725 7,736 2,994 ----- ----- ----- ----- Total expenses 232,975 132,473 427,299 266,517 ------- ------- ------- ------- Income from continuing operations before income taxes 80,892 57,319 131,922 117,253 Income tax expense 32,934 23,064 54,082 47,901 ------ ------ ------ ------ Income from continuing operations, net of tax 47,958 34,255 77,840 69,352 Loss from discontinued operations, net of tax (12,460) (4,844) (32,975) (7,438) ------- ------ ------- ------ Net income $35,498 $29,411 $44,865 $61,914 ======= ======= ======= ======= Basic earnings per share from continuing operations $0.55 $0.38 $0.89 $0.77 ===== ===== ===== ===== Diluted earnings per share from continuing operations $0.52 $0.37 $0.85 $0.75 ===== ===== ===== ===== Basic earnings per share from discontinued operations $(0.14) $(0.05) $(0.38) $(0.08) ====== ====== ====== ====== Diluted earnings per share from discontinued operations $(0.13) $(0.05) $(0.36) $(0.08) ====== ====== ====== ====== Basic earnings per share $0.41 $0.33 $0.51 $0.69 ===== ===== ===== ===== Diluted earnings per share $0.39 $0.32 $0.49 $0.67 ===== ===== ===== ===== Shares used in computation of basic earnings per share 87,410 90,215 87,162 90,013 ====== ====== ====== ====== Shares used in computation of diluted earnings per share 92,136 92,637 92,089 92,699 ====== ====== ====== ====== KNIGHT CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) ------------- ----------------- June 30, 2009 December 31, 2008 ------------- ----------------- (In thousands) ASSETS Cash and cash equivalents $363,908 $416,957 Securities owned, held at clearing brokers, at fair value 808,223 476,111 Receivable from brokers and dealers 504,267 341,350 Receivable from discontinued operations 37,175 10,851 Investment in Deephaven funds 28,644 47,152 Fixed assets and leasehold improvements, at cost, less accumulated depreciation and amortization 89,624 81,237 Strategic investments 89,277 83,697 Goodwill 232,197 232,197 Intangible assets, less accumulated amortization 82,645 90,477 Deferred compensation investments 44,285 41,637 Assets within discontinued operations 42,007 84,868 Other assets 115,608 118,892 ------- ------- Total assets $2,437,860 $2,025,426 ========== ========== LIABILITIES & EQUITY Liabilities Securities sold, not yet purchased, at fair value $593,150 $385,003 Payable to brokers and dealers 290,414 98,138 Accrued compensation expense 134,128 171,392 Accrued expenses and other liabilities 106,113 132,369 Liabilities within discontinued operations 70,821 63,988 Long term debt 140,000 140,000 ------- ------- Total liabilities 1,334,626 990,890 --------- ------- Equity Knight Capital Group, Inc. stockholders' equity Class A common stock 1,579 1,544 Additional paid-in capital 684,588 648,716 Retained earnings 1,156,875 1,112,010 Treasury stock, at cost (740,450) (734,912) -------- -------- Total Knight Capital Group, Inc. stockholders' equity 1,102,592 1,027,358 Noncontrolling interest 642 7,178 --- ----- Total equity 1,103,234 1,034,536 --------- --------- Total liabilities and equity $2,437,860 $2,025,426 ========== ========== KNIGHT CAPITAL GROUP, INC. PRE-TAX OPERATING EARNINGS BY BUSINESS SEGMENT* Amounts in millions (Unaudited) For the three For the six months ended months ended June 30, June 30, ------------- ------------- 2009 2008 2009 2008 ---- ---- ---- ---- Global Markets Revenues $310.1 $185.6 $560.5 $387.7 Operating expenses 230.3 123.0 413.7 246.2 ----- ----- ----- ----- Pre-tax operating earnings 79.8 62.6 146.8 141.5 ---- ---- ----- ----- Corporate Revenues 3.7 4.2 (1.3) (4.0) Operating expenses 15.7 11.4 26.7 22.2 ---- ---- ---- ---- Pre-tax operating earnings (12.0) (7.2) (28.0) (26.1) ----- ---- ----- ----- Consolidated Revenues 313.9 189.8 559.2 383.8 Operating expenses 246.0 134.3 440.4 268.4 ----- ----- ----- ----- Pre-tax operating earnings $67.8 $55.4 $118.9 $115.4 ===== ===== ====== ====== * 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 June 30, 2009 ---------------------------------------- Global Markets Corporate Total -------------- --------- ----- TOTAL GAAP EXPENSES $217.3 $15.7 $233.0 Adjustment: Lease loss benefit 13.1 - 13.1 ---- ----- ---- OPERATING EXPENSES $230.3 $15.7 $246.0 ------ ----- ------ For the three months ended June 30, 2008 ---------------------------------------- Global Markets Corporate Total -------------- --------- ----- TOTAL GAAP EXPENSES $121.1 $11.4 $132.5 Adjustments: Lease loss benefit 1.9 - 1.9 --- ----- --- OPERATING EXPENSES $123.0 $11.4 $134.3 ------ ----- ------ PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS For the three months ended June 30, 2009 ---------------------------------------- Global Markets Corporate Total -------------- --------- ----- PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $92.9 $(12.0) $80.9 Adjustment: Lease loss benefit (13.1) - (13.1) ----- ------ ----- PRE-TAX OPERATING EARNINGS $79.8 $(12.0) $67.8 ----- ------ ----- For the three months ended June 30, 2008 ---------------------------------------- Global Markets Corporate Total -------------- --------- ----- PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $64.4 $(7.2) $57.3 Adjustments: Lease loss benefit (1.9) - (1.9) ---- ----- ---- PRE-TAX OPERATING EARNINGS $62.6 $(7.2) $55.4 ----- ----- ----- * 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 six months ended June 30, 2009 -------------------------------------- Global Markets Corporate Total -------------- --------- ----- TOTAL GAAP EXPENSES $400.6 $26.7 $427.3 Adjustment: Lease loss benefit 13.1 - 13.1 ---- ----- ---- OPERATING EXPENSES $413.7 $26.7 $440.4 ------ ----- ------ For the six months ended June 30, 2008 -------------------------------------- Global Markets Corporate Total -------------- --------- ----- TOTAL GAAP EXPENSES $244.3 $22.2 $266.5 Adjustments: Lease loss benefit 1.9 - 1.9 --- ----- --- OPERATING EXPENSES $246.2 $22.2 $268.4 ------ ----- ------ PRE-TAX GAAP INCOME TO PRE-TAX OPERATING EARNINGS For the six months ended June 30, 2009 -------------------------------------- Global Markets Corporate Total -------------- --------- ----- PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $159.9 $(28.0) $131.9 Adjustment: Lease loss benefit (13.1) - (13.1) ----- ------ ----- PRE-TAX OPERATING EARNINGS $146.8 $(28.0) $118.9 ------ ------ ------ For the six months ended June 30, 2008 -------------------------------------- Global Markets Corporate Total -------------- --------- ----- PRE-TAX GAAP INCOME FROM CONTINUING OPERATIONS $143.4 $(26.1) $117.3 Adjustments: Lease loss benefit (1.9) - (1.9) ---- ------ ---- PRE-TAX OPERATING EARNINGS $141.5 $(26.1) $115.4 ------ ------ ------ * Totals may not add due to rounding. DATASOURCE: Knight Capital Group, Inc. CONTACT: Margaret Wyrwas, Senior Managing Director, Communications, Marketing & Investor Relations, +1-201-557-6954, , or Kara Fitzsimmons, Director, Media Relations, +1-201-356-1523, , or Jonathan Mairs, Vice President, Corporate Communications, +1-201-356-1529 or Web Site: http://www.knight.com/