Global Markets generated third quarter pre-tax income of $32.2
million in choppy trading environment compared to pre-tax income of
$27.5 million in the third quarter of 2006 JERSEY CITY, N.J., Oct.
17 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc.
(NASDAQ:NITE) today reported GAAP earnings of $16.4 million, or
$0.17 per diluted share, and pre-tax income of $27.8 million for
the third quarter of 2007. The results include a pre-tax gain of
$13.0 million, or approximately $0.08 per diluted share, related to
the sale of equity interests in Direct Edge. Excluding the gain
from the equity transactions, pre-tax income for the third quarter
of 2007 would have been $14.8 million, or $0.09 per diluted share.
For the third quarter of 2006, the company reported GAAP earnings
of $31.5 million, or $0.30 per diluted share, and pre-tax income of
$52.1 million. The results included a pre-tax gain of $7.2 million,
or approximately $0.04 per diluted share, related to the sale of a
portion of the company's equity ownership in the International
Securities Exchange, Inc. Excluding the gain from the sale, pre-tax
income for the third quarter of 2006 would have been $44.9 million,
or $0.26 per diluted share. Revenues for the third quarter of 2007
were $204.9 million, compared to $211.7 million for the third
quarter of 2006. "The third quarter of 2007 produced many
noteworthy developments at Knight," said Thomas M. Joyce, Chairman
and CEO of Knight Capital Group. "Knight secured a $140 million
credit facility, the first in its history, to facilitate different
paths of capital management designed to enhance our competitive
advantage. Our strategic investment in Direct Edge and ongoing work
to build up this asset led to a number of key milestones including
record volumes, the installation of a new management team and the
sale of equity interests to both Citadel and Goldman Sachs. Despite
turmoil in the broader financial markets, Deephaven increased
assets under management. Finally, underscoring our confidence in
Knight's prospects for long-term growth, we continued to repurchase
shares, buying 5.4 million shares for $76.5 million this quarter,
with $463 million remaining in the $1 billion buyback program." Q3
2007 Q3 2006 Revenues ($) 204,938,188 211,692,001 Net income ($)
16,444,284 31,460,221 Diluted EPS ($) 0.17 0.30 U.S. equity dollar
value traded (in $ millions) 877,490 410,525 U.S. equity trades
executed (in thousands) 87,980 46,591 Average daily U.S. equity
trades (in thousands) 1,408 745 Nasdaq and Listed equity shares
traded (in millions) 29,749 18,824 OTC Bulletin Board and Pink
Sheet shares traded (in millions) 185,778 223,830 Average revenue
capture per U.S. equity dollar value traded (bps) 1.3 2.2 Average
month-end balance of assets under management (in $ millions)
4,121.7 3,479.5 Quarterly fund return to investors* -1.8% 4.9% *
Quarterly fund return represents the blended quarterly return
across all assets under management in the Deephaven funds YTD 2007
YTD 2006 Revenues ($) 647,986,861 694,836,772 Net income ($)
72,675,414 110,931,850 Diluted EPS ($) 0.71 1.05 U.S. equity dollar
value traded (in $ millions) 2,090,626 1,536,421 U.S. equity trades
executed (in thousands) 227,591 166,832 Average daily U.S. equity
trades (in thousands) 1,220 890 Nasdaq and Listed equity shares
traded (in millions) 79,329 72,357 OTC Bulletin Board and Pink
Sheet shares traded (in millions) 637,885 902,500 Average revenue
capture per U.S. equity dollar value traded (bps) 1.6 2.2 Average
month-end balance of assets under management (in $ millions)
4,054.6 3,165.9 Year-to-date fund return to investors* 5.3% 14.6% *
Year-to-date fund return represents the blended return across all
assets under management in the Deephaven funds Global Markets
During the third quarter of 2007, Global Markets generated total
revenues of $192.7 million, compared to $147.3 million in the third
quarter of 2006. In the third quarter of 2007, Global Markets
reported pre-tax income of $32.2 million, compared to pre-tax
income of $27.5 million in the third quarter of 2006. "In a choppy
trading environment, Global Markets delivered average daily U.S.
equity volume of 1.4 million trades and average daily dollar value
traded of $14.0 billion for the third quarter of 2007, the highest
totals for each in Knight's history," Mr. Joyce said. "The
increased trading revenue and commission income validate Knight's
efforts to enhance our electronic and voice offerings to provide
clients with multiple access points across asset classes. This
summer, when quant funds were forced to re-engineer their models,
institutional clients quickly turned to our sales traders for
market insights in making critical adjustments to their portfolios.
We also continued to diversify our product mix as order flow from
alternative liquidity providers boosted listed volumes while demand
for OTC Bulletin Boards faded due to diminished investor
confidence. In the end, excluding the financial results of Direct
Edge, Global Markets achieved pre-tax profit margins of 21 percent
for the third quarter." As of the close of business on September
28, 2007, Knight completed the sale of equity interests in Direct
Edge to Citadel Derivatives Group LLC, an affiliate of Citadel
Investment Group, L.L.C., and The Goldman Sachs Group, Inc. As a
result of these transactions, Knight's equity interest in Direct
Edge was reduced to less than 50 percent and Direct Edge is no
longer a consolidated subsidiary of Knight for financial reporting
purposes. Knight's remaining investment balance is included within
Strategic investments on the Consolidated Statements of Financial
Condition at September 30, 2007. All future results related to
Knight's investment in Direct Edge will be included with Knight's
other strategic investments within the Corporate segment. If Direct
Edge had not been a consolidated subsidiary of Knight during the
third quarter of 2007, Global Markets would have generated total
revenues of $164.2 million, pre-tax income of $33.9 million and
pre-tax margins of 21 percent. Asset Management During the third
quarter of 2007, Asset Management, comprising Deephaven Capital
Management, generated negative net asset management fees of $1.2
million, which consisted of $12.2 million of negative net incentive
fees due to the quarterly fund returns, offset by $11.0 million of
asset-based management fees. This compares to positive asset
management fees of $50.5 million in the same period a year ago. In
the third quarter of 2007, Deephaven reported a pre-tax loss of
$8.3 million, compared to pre-tax income of $18.4 million in the
third quarter of 2006. Deephaven had approximately $4.2 billion
under management at September 30, 2007, up from $3.8 billion at the
close of the third quarter a year ago. Deephaven had approximately
$4.4 billion under management at October 1, 2007. "While the
blended performance of the Deephaven funds was down for the third
quarter, Deephaven had no direct exposure to the subprime market
and largely avoided the cascading negative returns witnessed in the
broader financial markets," Mr. Joyce said. "Within this unsettled
environment, Deephaven was able to grow assets under management due
to its historical fund performance and a strong management team.
Deephaven's blended return through the third quarter of 5.3 percent
exceeds the 5.1 percent return of the benchmark HFRI Equity Market
Neutral Index." As noted in its Form 8-K filing on August 27, 2007,
the company, at its sole discretion, made the determination that if
a Deephaven fund with a six- month performance period incurs losses
in the performance period ending December 31, 2007, Deephaven will
return all or a portion of the incentive allocation fees collected
from investors in that fund for the six-month performance period
ended June 30, 2007. Deephaven recorded gross negative incentive
fees of $15.4 million within Accrued expenses and other liabilities
on the Consolidated Statements of Financial Condition at September
30, 2007 that may be repaid to investors at the end of the 2007
fiscal year, depending on fund performance in the fourth quarter of
2007. Corporate In the third quarter of 2007, the Corporate segment
reported pre-tax income of $3.9 million, which included a pre-tax
gain of $13.0 million, or approximately $0.08 per diluted share,
related to the sale of equity interests in Direct Edge. Pursuant to
SEC guidance, of the $13.0 million pre-tax gain, $8.8 million is
reported as Non-operating gain from subsidiary stock issuance, and
$4.2 million is included in Investment income and other, net on the
Consolidated Statements of Operations. In the third quarter of
2006, the Corporate segment reported pre-tax income of $6.2
million, which included a pre-tax gain of $7.2 million, or
approximately $0.04 per diluted share, related to the sale of a
portion of the company's equity ownership in the International
Securities Exchange, Inc. The company's corporate investment in the
Deephaven funds incurred a pre-tax loss of $1.3 million during the
third quarter of 2007, compared to a pre-tax gain of $4.8 million
during the third quarter of 2006. As of September 30, 2007, the
company had $143.2 million in cash and cash equivalents and a
$199.6 million corporate investment in funds managed by Deephaven.
On October 3, 2007, Knight entered into a three-year $140 million
credit agreement with TD Banknorth, N.A. and Wachovia Bank, N.A.,
National Association, as co-syndication agents, JPMorgan Chase
Bank, N.A., as administrative agent, and a consortium of banks and
other financial institutions. The credit agreement includes a
three-year delayed-draw senior secured term loan facility of $70
million and a three-year senior secured revolving facility of $70
million. The proceeds of the credit facilities may be used to
finance share repurchases by Knight and for general corporate
purposes. "Global Markets performed exceptionally well and, moving
forward, we remain focused on adding new liquidity sources,
augmenting our electronic and voice offerings and cross-selling
products and services to our clients," Mr. Joyce said. "Deephaven
deftly navigated the market turmoil and continued to deliver on
2007 goals of growing assets under management and developing the
European and Asian teams. The recently secured $140 million credit
facility will give us added flexibility to continue the share
repurchase program as well as the search for strategic acquisitions
that allow us to grow the client base and diversify our offerings."
The company had $915.3 million in stockholders' equity as of
September 30, 2007, equivalent to a book value of $9.31 per diluted
share. During the third quarter of 2007, the company repurchased
5.4 million shares for approximately $76.5 million under the
company's $1.0 billion stock repurchase program. As of September
30, 2007, the company has repurchased 52.6 million shares for
$536.8 million. The company has $463 million available to
repurchase shares under the revised program. The company cautions
that there are no assurances that any further repurchases may
actually occur. Copies of this earnings release and other
information on the company can be obtained at the company's
website, http://www.knight.com/. The company will conduct its third
quarter of 2007 earnings conference call for analysts, investors
and the media at 9:00 a.m. Eastern Daylight Time (EDT) today,
October 17, 2007. To access Knight's earnings conference call,
please dial 877.856.1968 for domestic callers or 719.325.4804 for
international callers. When prompted, provide the passcode, which
is 3714731. The conference call will be webcast live at 9:00 a.m.
EDT for all investors and interested parties on Knight's website.
In addition, the company will release its monthly volume statistics
for September 2007 on its website before the start of trading today
at http://www.knight.com/ourliquidity/volumestatistics.asp. Knight
will host its Annual Sell-Side Analyst & Institutional Investor
Meeting on Monday, November 5, 2007. The meeting will be webcast
live for all interested parties starting at 10:30 a.m. Eastern
Time. To access the webcast, go to http://www.knight.com/. About
Knight Knight Capital Group, Inc. (NASDAQ:NITE) is a leading
financial services firm that provides voice and electronic access
to the capital markets across multiple asset classes for buy-side,
sell-side and corporate clients, and asset management for
institutions and private clients. Our Global Markets business
offers superior execution quality through natural liquidity,
capital facilitation and trading technology, with comprehensive
products and services that support the capital formation process.
Our Asset Management business, Deephaven Capital Management, is a
global multi-strategy alternative investment manager focused on
delivering attractive risk-adjusted returns with low correlation to
the broader markets. More information about Knight can be found at
http://www.knight.com/. Certain statements contained herein
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations,
estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management.
Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict.
Since such statements involve risks and uncertainties, the actual
results and performance of the Company may turn out to be
materially different from the results expressed or implied by such
forward-looking statements. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements. Unless otherwise required by law, the Company also
disclaims any obligation to update its view of any such risks or
uncertainties or to announce publicly the result of any revisions
to the forward-looking statements made herein; however, readers
should carefully review reports or documents the Company files from
time to time with the Securities and Exchange Commission including,
without limitation, the risks and uncertainties detailed under the
headings "Risk Factors" and "Certain Factors Affecting Results of
Operations" in the Company's Annual Report on Form 10-K and under
the heading "Risk Factors" in the Company's Form 10-Q for the
quarterly period ended June 30, 2007. Other risk factors include
(i) those associated with the determination made by the Company, at
its sole discretion, that if a Deephaven fund with a six-month
performance period incurs losses in the performance period ending
December 31, 2007, Deephaven will return all or a portion of the
incentive allocation fees collected from investors in that fund for
the six-month performance period ended June 30, 2007, and the
potential adverse impact on the Company's results of operations and
(ii) the risks, limitations, restrictions and uncertainties
associated with the Company's entrance into its new credit facility
with several lenders and the potential incurrence of debt, and
continued availability of borrowings, thereunder. KNIGHT CAPITAL
GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For
the three months ended For the nine months ended September 30,
September 30, 2007 2006 2007 2006 Revenues Commissions and fees
$131,472,737 $97,423,900 $342,261,284 $312,542,065 Net trading
revenue 57,660,458 42,845,803 173,490,179 191,105,022 Asset
management fees, net (1,237,474) 50,535,992 88,592,637 135,122,744
Interest, net 4,624,603 5,175,455 13,611,582 11,264,764
Non-operating gain from subsidiary stock issuance 8,756,678 -
8,756,678 - Investment income and other, net 3,661,186 15,710,851
21,274,501 44,802,177 Total revenues 204,938,188 211,692,001
647,986,861 694,836,772 Transaction-based expenses Execution and
clearance fees 39,554,992 22,100,471 95,656,024 81,051,228 Soft
dollar and commission recapture expense 15,255,663 18,115,024
44,260,759 55,245,778 Payments for order flow and ECN rebates
18,977,831 9,662,643 44,338,169 31,662,062 Total transaction- based
expenses 73,788,486 49,878,138 184,254,952 167,959,068 Revenues,
net of transaction-based expenses 131,149,702 161,813,863
463,731,909 526,877,704 Other direct expenses Employee compensation
and benefits 71,785,378 82,546,389 252,715,568 246,718,114
Communications and data processing 9,948,024 8,483,788 28,034,538
24,525,721 Depreciation and amortization 5,625,816 5,446,285
16,541,368 15,178,859 Professional fees 5,281,122 3,737,064
13,961,217 15,212,425 Business development 3,532,398 3,371,117
11,804,533 8,627,797 Occupancy and equipment rentals 3,685,289
3,163,697 10,690,801 9,914,296 Writedown of assets and lease loss
accrual 136,058 - (1,354,003) 8,479,703 Other 3,402,995 2,924,751
9,010,928 13,269,731 Total other direct expenses 103,397,080
109,673,091 341,404,950 341,926,646 Income from continuing
operations before income taxes 27,752,622 52,140,772 122,326,959
184,951,058 Income tax expense 11,204,563 20,680,551 48,214,952
74,019,208 Net income from continuing operations 16,548,059
31,460,221 74,112,007 110,931,850 Loss from discontinued
operations, net of tax (103,775) - (1,436,593) - Net income
$16,444,284 $31,460,221 $72,675,414 $110,931,850 Basic earnings per
share from continuing operations $0.17 $0.31 $0.75 $1.10 Diluted
earnings per share from continuing operations $0.17 $0.30 $0.73
$1.05 Basic and diluted earnings per share from discontinued
operations $(0.00) $- $(0.01) $- Basic earnings per share $0.17
$0.31 $0.74 $1.10 Diluted earnings per share $0.17 $0.30 $0.71
$1.05 Shares used in computation of basic earnings per share
95,892,953 102,199,516 98,809,081 101,286,562 Shares used in
computation of diluted earnings per share 98,315,134 106,469,308
102,080,509 105,951,813 "Continuing operations" include the
company's two operating business segments, Global Markets and Asset
Management. Continuing operations also include a Corporate segment,
encompassing corporate investments and overhead expenses. Amounts
reported as "discontinued operations" include the company's former
Derivative Markets business segment, which included the subsidiary
Knight Financial Products LLC, the sale of which was completed to
Citigroup at the close of business on December 9, 2004. KNIGHT
CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) September 30, 2007 December 31, 2006 ASSETS Cash and
cash equivalents $143,175,001 $214,759,915 Securities owned, held
at clearing brokers, at market value 371,372,747 711,774,643
Receivable from brokers and dealers 352,418,637 372,897,376 Asset
management fees receivable 8,016,213 112,204,064 Investment in
Deephaven sponsored funds 199,591,386 187,573,291 Fixed assets and
leasehold improvements at cost, less accumulated depreciation and
amortization 60,982,070 66,449,617 Strategic investments 67,942,437
49,436,605 Goodwill 132,832,435 133,042,889 Intangible assets, less
accumulated amortization 59,352,361 63,701,006 Deferred
compensation investments 85,146,369 31,585,597 Other assets
110,792,067 84,788,713 Total assets $1,591,621,723 $2,028,213,716
LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold,
not yet purchased, at market value $347,540,898 $693,071,230
Payable to brokers and dealers 48,246,799 47,852,721 Accrued
compensation expense 188,204,716 227,846,699 Accrued expenses and
other liabilities 92,281,218 96,956,122 Total liabilities
676,273,631 1,065,726,772 Stockholders' equity Class A common stock
1,505,256 1,449,588 Additional paid-in-capital 576,592,052
519,790,132 Retained earnings 884,534,739 811,859,325 Treasury
stock, at cost (547,283,955) (370,612,101) Total stockholders'
equity 915,348,092 962,486,944 Total liabilities and stockholders'
equity $1,591,621,723 $2,028,213,716 KNIGHT CAPITAL GROUP, INC.
PRE-TAX EARNINGS BY BUSINESS SEGMENT* Amounts in millions
(Unaudited) For the three months ended For the nine months ended
September 30, September 30, September 30, September 30, 2007 2006
2007 2006 Asset Management Revenues $(0.9) $50.8 $89.7 $135.8
Expenses 7.4 32.4 72.8 88.3 Pre-Tax Earnings (8.3) 18.4 16.9 47.5
Global Markets Revenues 192.7 147.3 530.5 519.3 Expenses 160.5
119.8 429.6 394.3 Pre-Tax Earnings 32.2 27.5 101.0 125.0 Corporate
Revenues 13.1 13.6 27.7 39.7 Expenses 9.3 7.4 23.3 27.2 Pre-Tax
Earnings 3.9 6.2 4.4 12.5 Consolidated Revenues 204.9 211.7 648.0
694.8 Expenses 177.2 159.6 525.7 509.9 Pre-Tax Earnings $27.8 $52.1
$122.3 $185.0 * Totals may not add due to rounding. DATASOURCE:
Knight Capital Group, Inc. CONTACT: Margaret Wyrwas, Senior
Managing Director, Corporate Communications & 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, , all of Knight Capital
Group, Inc. Web site: http://www.knight.com/
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