SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended June 30,
2009
|
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For the transition period
from
to
|
Commission
file number: 001-02292
NYFIX,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
06-1344888
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
|
|
100
Wall Street
|
10005
|
New
York, New York
|
(Zip
code)
|
(Address
of principal executive offices)
|
|
(646)
525-3000
(Registrant’s
telephone number, including area code)
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes
x
No
¨
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files)
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated Filer
¨
|
Accelerated filer
x
|
Non-accelerated
filer
¨
|
Smaller
reporting
company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
There
were 39,318,320 shares of our common stock outstanding on August 6,
2009.
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Unaudited
Financial Statements
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2009 and December 31,
2008
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2009 and 2008
|
5
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity and
Comprehensive Loss for the Six Months Ended June 30, 2009
|
6
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2009 and 2008
|
7
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
|
|
|
Item
4.
|
Controls
and Procedures
|
30
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
31
|
|
|
|
Item
1A.
|
Risk
Factors
|
31
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
32
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
32
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
32
|
|
|
|
Item
5.
|
Other
Information
|
32
|
|
|
|
Item
6.
|
Exhibits
|
33
|
|
|
|
|
Signatures
|
34
|
When we
use the terms “NYFIX”, the “Company”, “we”, “us” and “our”, we mean NYFIX, Inc.
and its consolidated subsidiaries.
Forward
Looking Statements
This
quarterly report on Form 10-Q contains statements that constitute
“forward-looking statements” within the meaning of the safe harbor provisions of
The Private Securities Litigation Reform Act of 1995. In some cases,
you can identify these statements by forward-looking words such as “may,”
“might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “potential” or “continue,” and the negative of these
terms and other comparable terminology. These forward-looking
statements, which are subject to known and unknown risks, uncertainties and
assumptions about us, may include projections of our future financial
performance based on our growth strategies and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events. There are important
factors that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking
statements. In particular, you should consider the numerous risks and
uncertainties described under Part I Item 1A. - Risk Factors in our Annual
Report on Form 10-K for the fiscal year December 31, 2008 (“2008 Form 10-K”) and
Part II Item 1A. - Risk Factors in our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009.
These
risks and uncertainties are not exhaustive. Other sections of the
2008 Form 10-K and of this report describe additional factors that could
adversely impact our business and financial performance. Moreover, we operate in
a very competitive and rapidly changing environment. New risks and
uncertainties emerge from time to time, and it is not possible to predict all
risks and uncertainties, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements.
Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy or completeness of any of these forward-looking
statements. You should not rely upon forward-looking statements as
guarantees of future events. We disclaim any duty to update any of
these forward-looking statements after the filing of this report to conform our
prior statements to actual results or revised expectations and we do not intend
to do so, and these forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the filing of this
report.
Forward-looking
statements include, but are not limited to, statements about:
|
·
|
the
impact of current market conditions on the financial stability of our
clients including consolidations and
closures;
|
|
·
|
our
expectations with respect to securities markets and general economic
conditions;
|
|
·
|
the
impact of regulation and regulatory
actions;
|
|
·
|
the
effects of current, pending and future
legislation;
|
|
·
|
actions
and initiatives by both current and future
competitors;
|
|
·
|
our
business’ competitive position;
|
|
·
|
our
ability to keep up with rapid technological
change;
|
|
·
|
the
impact of recording a significant impairment charge due to the fact that
we have not been profitable;
|
|
·
|
our
business’ possible or assumed future results of operations and cash
flows;
|
|
·
|
potential
growth opportunities available to our
business;
|
|
·
|
our
ability to achieve and maintain effective internal control over financial
reporting in accordance with Securities and Exchange Commission (“SEC”)
rules promulgated under Section 404 of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”); and
|
|
·
|
the
likelihood of success and impact of
litigation.
|
We
expressly qualify in their entirety all forward-looking statements attributable
to us or any person acting on our behalf by the cautionary statements contained
or referred to in this section.
PART
I - FINANCIAL INFORMATION
Item
1. Unaudited Financial Statements
NYFIX,
Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(in
thousands, except share and per share amounts)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
51,654
|
|
|
$
|
55,966
|
|
Accounts
receivable, less allowances of $982 and $1,142,
respectively
|
|
|
13,472
|
|
|
|
14,120
|
|
Clearing
assets
|
|
|
614,146
|
|
|
|
400,638
|
|
Prepaid
expenses and other current assets
|
|
|
2,563
|
|
|
|
3,702
|
|
Total
current assets
|
|
|
681,835
|
|
|
|
474,426
|
|
Property
and equipment, net of accumulated depreciation and amortization of $31,951
and $28,963, respectively
|
|
|
18,926
|
|
|
|
20,508
|
|
Capitalized
software costs, net of accumulated amortization of $13,241 and $17,710,
respectively
|
|
|
9,477
|
|
|
|
8,701
|
|
Goodwill
|
|
|
47,385
|
|
|
|
47,170
|
|
Acquired
intangible assets, net of accumulated amortization of $12,275 and $11,787,
respectively
|
|
|
7,522
|
|
|
|
7,422
|
|
Other
assets, net
|
|
|
516
|
|
|
|
564
|
|
Total
assets
|
|
$
|
765,661
|
|
|
$
|
558,791
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
16,770
|
|
|
$
|
21,656
|
|
Clearing
liabilities
|
|
|
611,174
|
|
|
|
399,927
|
|
Current
portion of capital lease obligations
|
|
|
1,361
|
|
|
|
1,358
|
|
Convertible
notes
|
|
|
9,985
|
|
|
|
9,971
|
|
Current
portion of other long-term liabilities
|
|
|
860
|
|
|
|
1,014
|
|
Deferred
revenue
|
|
|
7,929
|
|
|
|
5,271
|
|
Total
current liabilities
|
|
|
648,079
|
|
|
|
439,197
|
|
Long-term
portion of capital lease obligations
|
|
|
1,221
|
|
|
|
1,469
|
|
Other
long-term liabilities
|
|
|
1,068
|
|
|
|
1,021
|
|
Total
liabilities
|
|
|
650,368
|
|
|
|
441,687
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value; 5,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series
A, none issued
|
|
|
-
|
|
|
|
-
|
|
Series
B Voting Convertible, 1,500,000 shares issued and outstanding; liquidation
preference of $75,000 at June 30, 2009
|
|
|
62,092
|
|
|
|
62,092
|
|
Series
C Non-Voting Convertible, none issued
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.001 par value; 100,000,000 shares authorized; 40,228,303 and
39,510,917 shares issued, respectively
|
|
|
274,267
|
|
|
|
271,319
|
|
Accumulated
deficit
|
|
|
(206,050
|
)
|
|
|
(200,012
|
)
|
Treasury
stock, 923,108 shares, at cost
|
|
|
(12,600
|
)
|
|
|
(12,600
|
)
|
Accumulated
other comprehensive loss
|
|
|
(2,416
|
)
|
|
|
(3,695
|
)
|
Total
stockholders' equity
|
|
|
115,293
|
|
|
|
117,104
|
|
Total
liabilities and stockholders' equity
|
|
$
|
765,661
|
|
|
$
|
558,791
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NYFIX,
Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations (Unaudited)
(in
thousands, except per share amounts)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
and maintenance
|
|
$
|
18,488
|
|
|
$
|
17,507
|
|
|
$
|
36,168
|
|
|
$
|
35,025
|
|
Transaction
|
|
|
7,459
|
|
|
|
10,831
|
|
|
|
15,205
|
|
|
|
24,099
|
|
Product
sales and services
|
|
|
616
|
|
|
|
284
|
|
|
|
1,102
|
|
|
|
905
|
|
Total
revenue
|
|
|
26,563
|
|
|
|
28,622
|
|
|
|
52,475
|
|
|
|
60,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
and maintenance
|
|
|
7,322
|
|
|
|
7,821
|
|
|
|
14,473
|
|
|
|
15,472
|
|
Transaction
|
|
|
7,479
|
|
|
|
5,642
|
|
|
|
14,080
|
|
|
|
12,054
|
|
Product
sales and services
|
|
|
17
|
|
|
|
87
|
|
|
|
57
|
|
|
|
168
|
|
Total
cost of revenue
|
|
|
14,818
|
|
|
|
13,550
|
|
|
|
28,610
|
|
|
|
27,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
11,745
|
|
|
|
15,072
|
|
|
|
23,865
|
|
|
|
32,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
14,266
|
|
|
|
20,224
|
|
|
|
28,694
|
|
|
|
40,620
|
|
Restructuring
charge
|
|
|
748
|
|
|
|
374
|
|
|
|
748
|
|
|
|
216
|
|
Depreciation
and amortization
|
|
|
381
|
|
|
|
494
|
|
|
|
797
|
|
|
|
941
|
|
Integration
charges
|
|
|
-
|
|
|
|
596
|
|
|
|
-
|
|
|
|
596
|
|
SEC
investigation, restatement and related expenses
|
|
|
-
|
|
|
|
131
|
|
|
|
(634
|
)
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,650
|
)
|
|
|
(6,747
|
)
|
|
|
(5,740
|
)
|
|
|
(10,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(227
|
)
|
|
|
(155
|
)
|
|
|
(426
|
)
|
|
|
(366
|
)
|
Investment
income
|
|
|
39
|
|
|
|
230
|
|
|
|
128
|
|
|
|
776
|
|
Loss
before income tax provision
|
|
|
(3,838
|
)
|
|
|
(6,672
|
)
|
|
|
(6,038
|
)
|
|
|
(9,896
|
)
|
Income
tax provision
|
|
|
-
|
|
|
|
127
|
|
|
|
-
|
|
|
|
255
|
|
Net
loss
|
|
|
(3,838
|
)
|
|
|
(6,799
|
)
|
|
|
(6,038
|
)
|
|
|
(10,151
|
)
|
Accumulated
preferred dividends
|
|
|
(166
|
)
|
|
|
(827
|
)
|
|
|
(457
|
)
|
|
|
(1,969
|
)
|
Loss
applicable to common stockholders
|
|
$
|
(4,004
|
)
|
|
$
|
(7,626
|
)
|
|
$
|
(6,495
|
)
|
|
$
|
(12,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.32
|
)
|
Basic
and diluted weighted average common shares outstanding
|
|
|
38,727
|
|
|
|
37,472
|
|
|
|
38,675
|
|
|
|
37,392
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NYFIX,
Inc. and Subsidiaries
Condensed
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Loss
(Unaudited)
For
the Six Months Ended June 30, 2009
(in
thousands, except share amounts)
|
|
Series
B Voting Convertible
preferred
stock issued
|
|
|
Preferred
stock
dividend
|
|
|
Common stock issued
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Accumulated
other
comprehensive
|
|
|
Total
stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
distributable
|
|
|
Shares
|
|
|
Amount
|
|
|
deficit
|
|
|
stock
|
|
|
loss
|
|
|
equity
|
|
Balance
December 31, 2008
|
|
|
1,500,000
|
|
|
$
|
62,092
|
|
|
$
|
-
|
|
|
|
39,510,917
|
|
|
$
|
271,319
|
|
|
$
|
(200,012
|
)
|
|
$
|
(12,600
|
)
|
|
$
|
(3,695
|
)
|
|
$
|
117,104
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,038
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,038
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,279
|
|
|
|
1,279
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,759
|
)
|
Issuance
of common stock for restricted stock units settled in
shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
192,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Declaration
of preferred stock dividend
|
|
|
|
|
|
|
|
|
|
|
457
|
|
|
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued in payment of preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
(457
|
)
|
|
|
525,000
|
|
|
|
457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contingent
conversion price adjustment related to convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,935
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,935
|
|
Balance
June 30, 2009
|
|
|
1,500,000
|
|
|
$
|
62,092
|
|
|
$
|
-
|
|
|
|
40,228,303
|
|
|
$
|
274,267
|
|
|
$
|
(206,050
|
)
|
|
$
|
(12,600
|
)
|
|
$
|
(2,416
|
)
|
|
$
|
115,293
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NYFIX,
Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(in
thousands)
|
|
Six Months Ended June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,038
|
)
|
|
$
|
(10,151
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,534
|
|
|
|
4,929
|
|
Restructuring
charge
|
|
|
748
|
|
|
|
216
|
|
Integration
charges
|
|
|
-
|
|
|
|
502
|
|
Stock-based
compensation expense
|
|
|
2,935
|
|
|
|
4,788
|
|
Amortization
of debt discounts and premiums
|
|
|
27
|
|
|
|
29
|
|
Deferred
income taxes
|
|
|
-
|
|
|
|
97
|
|
Provision
for (recovery of) doubtful accounts
|
|
|
474
|
|
|
|
(56
|
)
|
Other,
net
|
|
|
13
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
364
|
|
|
|
1,890
|
|
Prepaid
expenses and other assets
|
|
|
1,281
|
|
|
|
1,669
|
|
Clearing
assets
|
|
|
(212,719
|
)
|
|
|
(54,547
|
)
|
Deferred
revenue
|
|
|
2,564
|
|
|
|
(158
|
)
|
Accounts
payable, accrued expenses and other liabilities
|
|
|
(5,732
|
)
|
|
|
(2,709
|
)
|
Clearing
liabilities
|
|
|
210,569
|
|
|
|
49,429
|
|
Net
cash provided by (used in) operating activities
|
|
|
20
|
|
|
|
(4,072
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures for property and equipment
|
|
|
(1,369
|
)
|
|
|
(3,978
|
)
|
Capitalization
of software costs
|
|
|
(2,449
|
)
|
|
|
(2,805
|
)
|
Tax
benefit attributable to goodwill
|
|
|
-
|
|
|
|
158
|
|
Payment
for acquisition of minority interests
|
|
|
-
|
|
|
|
(7,042
|
)
|
Payment
for acquisition, net of cash received
|
|
|
-
|
|
|
|
(6,946
|
)
|
Proceeds
from sale of discontinued operations, net
|
|
|
-
|
|
|
|
2,066
|
|
Net
cash used in investing activities
|
|
|
(3,818
|
)
|
|
|
(18,547
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Principal
payments under capital lease obligations
|
|
|
(666
|
)
|
|
|
(626
|
)
|
Purchases
of treasury shares
|
|
|
-
|
|
|
|
(71
|
)
|
Other,
net
|
|
|
(167
|
)
|
|
|
(130
|
)
|
Net
cash used in financing activities
|
|
|
(833
|
)
|
|
|
(827
|
)
|
Effect
of exchange rate changes on cash
|
|
|
319
|
|
|
|
(33
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(4,312
|
)
|
|
|
(23,479
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
55,966
|
|
|
|
75,657
|
|
Cash
and cash equivalents, end of period
|
|
$
|
51,654
|
|
|
$
|
52,178
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Notes
to Condensed Consolidated Financial Statements (Unaudited)
1.
|
Summary
of Significant Accounting Policies
|
Nature
of Operations
NYFIX,
Inc., together with its consolidated subsidiaries, provides electronic trading
services including trade messaging services, trade messaging software and
trading workstations to domestic and international market
participants. In addition, NYFIX’s registered broker-dealer
subsidiaries provide automated trade execution services to institutional
counterparties and operate a matched-book stock borrow/stock loan
business.
The
Company’s headquarters and principal office is located at 100 Wall Street, New
York, NY. The Company also has offices in London, Hong Kong, Tokyo,
Boston, MA and Lyndhurst, NJ. The Company operates redundant data
centers in the northeastern United States, as well as a data center hub in
London.
Basis
of Presentation of Interim Financial Statements
The
accompanying unaudited condensed consolidated financial statements were prepared
by the Company pursuant to the rules and regulations of the SEC and, in the
opinion of management, include all adjustments (consisting of normal recurring
accruals and adjustments necessary for adoption of new accounting standards)
necessary to present fairly the results of the interim periods shown. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) have been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. The
results for the interim periods are not necessarily indicative of results for
the full year. The financial statements contained herein should be
read in conjunction with the consolidated financial statements and notes thereto
included in the 2008 Form 10-K.
The
accompanying unaudited condensed consolidated financial statements include the
accounts of NYFIX, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Significant
Accounting Policies
There
have been no material changes during 2009 in the Company’s significant
accounting policies to those previously disclosed in the 2008 Form
10-K.
2.
|
Equity
Incentive Plans
|
The
Company has stock-based incentive plans under which time-based and
performance-based stock options and restricted stock units (“RSUs”) have been
granted to employees and non-employee members of the Board of Directors.
Generally, these options and RSUs vest over a period of four years and are
forfeited, except in certain circumstances, in the event the employee or
director terminates his or her employment or relationship with the
Company. Stock options expire in ten years from the date of the
grant.
The fair
value of options is estimated using the Black-Scholes option-pricing model which
considers, among other factors, the expected life of the award and the expected
volatility of the Company’s stock price. Although the Black-Scholes
model meets the requirements of Statement of Financial Accounting Standards
(“SFAS”) 123 (revised 2004),
Share-Based Payment
and Staff
Accounting Bulletin No. 107,
Share-Based Payment
, the fair
values generated by the model may not be indicative of the actual fair values of
the Company’s awards, as it does not consider other factors important to those
stock-based compensation awards, such as continued employment, periodic vesting
requirements, and limited transferability.
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
Time-based
Stock Option Awards
A summary
of activity under time-based stock option plans for the six months ended June
30, 2009, follows:
Options
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
(years)
|
|
|
Aggregate
intrinsic
value
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of the year
|
|
|
8,834,714
|
|
|
$
|
5.42
|
|
|
|
|
|
|
|
Granted
|
|
|
137,422
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(547,225
|
)
|
|
$
|
9.27
|
|
|
|
|
|
|
|
Outstanding
at end of the period
|
|
|
8,424,911
|
|
|
$
|
5.10
|
|
|
|
7.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of the period
|
|
|
5,118,574
|
|
|
$
|
5.72
|
|
|
|
7.3
|
|
|
$
|
-
|
|
Time-Based
RSUs
A summary
of activity under time-based RSUs for the six months ended June 30, 2009,
follows:
Restricted
Stock Units
|
|
Shares
|
|
|
Weighted
average
grant
date
fair value
|
|
|
Aggregate
intrinsic value
(in
thousands)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of the year
|
|
|
652,472
|
|
|
$
|
4.23
|
|
|
|
|
Granted
|
|
|
214,048
|
|
|
$
|
0.88
|
|
|
|
|
Settled
with shares
|
|
|
(192,386
|
)
|
|
$
|
4.28
|
|
|
$
|
161
|
|
Cancelled
|
|
|
(47,413
|
)
|
|
$
|
4.35
|
|
|
|
|
|
Outstanding
at end of the period
|
|
|
626,721
|
|
|
$
|
3.09
|
|
|
|
|
|
(1)
Represents the value of NYFIX stock on the date that the restricted stock units
vested.
On grant
date the fair value for these vested awards was $826,000.
Equity
Awards with Performance and Market Conditions
Performance-based
stock options and performance-based RSUs are eligible to be earned (in amounts
ranging from 0% to 100% of the award) in equal pro rata installments over four
one-year performance periods based on the achievement of annual goals for
revenue and operating earnings before interest, taxes, depreciation and
amortization. Any portion of performance-based stock options and
performance-based RSUs not earned in years one through three is eligible to be
earned in year four based on the achievement of goals in year
four. The annual performance goals for 2009 were approved on March
30, 2009.
During
the first quarter of 2009, the Company issued RSUs with a market condition. This
type of RSU is eligible to be earned if the closing price of the Company’s
common stock exceeds established price targets for a period of ten consecutive
business days and if the executive is employed by the Company one year from the
date of grant. These RSUs may be earned in increments of 25% to 100%
if various price targets are met within a four year period. The
Company used a Monte Carlo simulation model to determine the fair value and
derived service period for these awards.
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
A summary
of activity of the Company’s performance-based stock options for the six months
ended June 30, 2009, follows:
Options
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
(years)
|
|
|
Aggregate
intrinsic
value (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of the year
|
|
|
1,728,855
|
|
|
$
|
4.47
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of the period
|
|
|
1,728,855
|
|
|
$
|
4.47
|
|
|
|
8.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of the period
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
A summary
of activity of the Company’s RSUs with performance and market conditions for the
six months ended June 30, 2009, follows:
Restricted
Stock Units
|
|
Shares
|
|
|
Weighted
average
grant
date
fair
value
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of the year
|
|
|
322,917
|
|
|
$
|
4.60
|
|
Granted
|
|
|
734,633
|
|
|
$
|
0.80
|
|
Settled
in shares
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
(12,500
|
)
|
|
$
|
4.60
|
|
Outstanding
at end of the period
|
|
|
1,045,050
|
|
|
$
|
1.93
|
|
Stock-based
Compensation Expense
Stock-based
compensation expense during the three and six months ended June 30, 2009 was
approximately $1.5 million and $2.9 million,
respectively. Stock-based compensation expense during the three and
six months ended June 30, 2008 was approximately $2.0 million and $4.8 million,
respectively.
As of
June 30, 2009, there was $10.0 million of unrecognized compensation costs
related to outstanding awards. The Company expects to recognize these costs over
a weighted average period of 1.1 years.
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
3. Loss
Per Share Applicable to Common Stockholders
The
following table sets forth the computations of loss per share amounts applicable
to common stockholders for the three and six months ended June 30, 2009 and
2008:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
(in
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
loss
|
|
$
|
(3,838
|
)
|
|
$
|
(6,799
|
)
|
|
$
|
(6,038
|
)
|
|
$
|
(10,151
|
)
|
Less:
Accumulated preferred dividends
|
|
|
(166
|
)
|
|
|
(827
|
)
|
|
|
(457
|
)
|
|
|
(1,969
|
)
|
Loss
applicable to common stockholders, basic and diluted
|
|
$
|
(4,004
|
)
|
|
$
|
(7,626
|
)
|
|
$
|
(6,495
|
)
|
|
$
|
(12,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted shares
|
|
|
38,727
|
|
|
|
37,472
|
|
|
|
38,675
|
|
|
|
37,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially
dilutive securities (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
time-based stock options (3)
|
|
|
8,425
|
|
|
|
9,393
|
|
|
|
8,425
|
|
|
|
9,393
|
|
Outstanding
time-based restricted stock units (3)
|
|
|
627
|
|
|
|
708
|
|
|
|
627
|
|
|
|
708
|
|
Warrants
(3)
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
2,250
|
|
Convertible
notes (3)
|
|
|
1,783
|
|
|
|
1,773
|
|
|
|
1,783
|
|
|
|
1,773
|
|
Convertible
preferred stock (2)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
(1)
|
Excludes
nonvested restricted stock and restricted stock
units.
|
|
|
|
|
(2)
|
Excludes
grants with performance and market conditions as the necessary conditions
have not been satisfied.
|
|
|
|
|
(3)
|
The
impact of time-based stock options, time-based restricted stock units,
warrants, the convertible notes and the
convertible
preferred stock on earnings per share is antidilutive in a period of
loss.
|
4.
Other Balance Sheet Information
Accounts
payable and accrued expenses consisted of the following at June 30, 2009 and
December 31, 2008:
|
|
June
30,
|
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Accounts
payable
|
|
$
|
8,133
|
|
|
$
|
11,260
|
|
Compensation
and related
|
|
|
5,291
|
|
|
|
7,737
|
|
Taxes,
other than income and payroll taxes
|
|
|
1,329
|
|
|
|
815
|
|
Other
|
|
|
2,017
|
|
|
|
1,844
|
|
Total
accounts payable and accrued expenses
|
|
$
|
16,770
|
|
|
$
|
21,656
|
|
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
5.
Broker-Dealer Operations
Clearing
Assets and Liabilities
Clearing
assets and liabilities consisted of the following at June 30, 2009 and December
31, 2008:
|
|
June
30,
|
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Securities
borrowed
|
|
$
|
603,811
|
|
|
$
|
396,784
|
|
Securities
failed-to-deliver
|
|
|
7,554
|
|
|
|
1,375
|
|
Deposits
with clearing organizations and others
|
|
|
1,519
|
|
|
|
1,502
|
|
Receivables
from clearing organizations and firms
|
|
|
1,262
|
|
|
|
977
|
|
Total
clearing assets
|
|
$
|
614,146
|
|
|
$
|
400,638
|
|
|
|
|
|
|
|
|
|
|
Securities
loaned
|
|
$
|
602,722
|
|
|
$
|
397,269
|
|
Securities
failed-to-receive
|
|
|
7,101
|
|
|
|
1,716
|
|
Payables
to clearing organizations and firms
|
|
|
1,351
|
|
|
|
942
|
|
Total
clearing liabilities
|
|
$
|
611,174
|
|
|
$
|
399,927
|
|
Securities
Lending
The
Company receives collateral under securities borrowed transactions, which it is
allowed by contract or custom to sell or repledge. As of June 30,
2009, securities borrowed with a fair value of $581.6 million were repledged for
securities loaned. The gross amounts of interest earned on cash
provided to counterparties as collateral for securities borrowed and interest
incurred on cash received from counterparties as collateral for securities
loaned and the resulting net amount included in transaction revenue for the
three and six months ended June 30, 2009 and 2008, were as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Interest
earned
|
|
$
|
1,077
|
|
|
$
|
2,061
|
|
|
$
|
2,071
|
|
|
$
|
4,979
|
|
Interest
incurred
|
|
|
(865
|
)
|
|
|
(1,810
|
)
|
|
|
(1,667
|
)
|
|
|
(4,463
|
)
|
Net
|
|
$
|
212
|
|
|
$
|
251
|
|
|
$
|
404
|
|
|
$
|
516
|
|
Regulatory
Net Capital Requirements
U.S. registered broker-dealer
subsidiaries
- NYFIX Securities Corporation (“NYFIX Securities”) and
NYFIX Millennium L.L.C. (“NYFIX Millennium”) are subject to the SEC’s Uniform
Net Capital Rule (15c3-1), which requires the maintenance of minimum regulatory
net capital. NYFIX Securities has elected to use the alternative
method, as permitted by the rule, which requires the maintenance of minimum
regulatory capital (as defined in the rule) equal to the greater of $250,000 or
2% of aggregate debit items arising from customer transactions (as defined in
the rule). NYFIX Securities’ membership in the Depository Trust &
Clearing Corporation (the “DTCC”) requires it to maintain excess regulatory net
capital of $10.0 million. NYFIX Millennium has elected to use the
aggregate indebtedness standard method, which requires that the ratio of
aggregate indebtedness to regulatory net capital (both as defined in the rule)
shall not exceed 15 to 1. The regulatory net capital ratio for NYFIX
Millennium at June 30, 2009 was 0.32 to 1.
U.K. registered subsidiaries
- NYFIX International Ltd. (“NYFIX International”) and FIXCITY, Ltd. (“FIXCITY”)
are registered firms of the Financial Services Authority (“FSA”) in the
U.K. NYFIX International and FIXCITY are required to maintain the greater
of the base capital resources requirement of €730,000 and €50,000, respectively,
or the variable capital resources requirement, which is made up of credit risk,
market risk and fixed overhead (equal to three months average expenditures)
requirements.
At June
30, 2009, the aggregate regulatory net capital/resources of the Company’s
regulated subsidiaries in the U.S. and U.K. were $35.7 million, which was $22.1
million in excess of the Company’s aggregate requirement of $13.6 million
(including the $10 million excess required by DTCC).
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
6. Income
Taxes
The income tax provision differs from
the statutory U.S. federal income tax rate due primarily to a valuation
allowance provided against net deferred tax assets. As described in
the Company’s 2008 Form 10-K, the Company maintains a valuation allowance in
accordance with SFAS No. 109,
Accounting for Income Taxes,
on its net deferred tax assets. Until the Company achieves and
sustains an appropriate level of profitability, it plans to maintain a valuation
allowance on its net deferred tax assets
.
7.
Restructuring Charges
In April
2009, the Company consolidated a portion of the office space in its New York
headquarters and signed an agreement to sublet the office space previously
occupied. The Company recorded a restructuring charge of $0.7 million
in April 2009, which consisted of the fair value of the remaining rent payments
for the office space, net of expected sublease income, plus real estate
commissions, and write-offs of property and equipment.
The
liabilities related to the restructuring charges are included in the current
portion of other long-term liabilities and other long-term
liabilities. The following table summarizes the activity in the
liabilities related to the restructuring charges for the six months ended June
30, 2009:
(in
thousands)
|
|
Lease
costs, net
of
sublease
income
|
|
|
Property
and
equipment
write-offs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2004
restructuring costs
|
|
|
|
|
|
|
|
|
|
Remaining
liability at December 31, 2008
|
|
$
|
454
|
|
|
$
|
-
|
|
|
$
|
454
|
|
Cash
payments
|
|
|
(152
|
)
|
|
|
-
|
|
|
|
(152
|
)
|
Non-cash
charges and other
|
|
|
25
|
|
|
|
-
|
|
|
|
25
|
|
Remaining
liability at June 30, 2009
|
|
|
327
|
|
|
|
-
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charge
|
|
|
521
|
|
|
|
227
|
|
|
|
748
|
|
Cash
payments
|
|
|
(117
|
)
|
|
|
-
|
|
|
|
(117
|
)
|
Non-cash
charges and other
|
|
|
97
|
|
|
|
(227
|
)
|
|
|
(130
|
)
|
Remaining
liability at June 30, 2009
|
|
|
501
|
|
|
|
-
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
restructuring liability at June 30, 2009
|
|
$
|
828
|
|
|
$
|
-
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current
portion
|
|
|
|
(599
|
)
|
|
|
Long-term
portion
|
|
|
$
|
229
|
|
8.
Total Comprehensive Loss
The
components of total comprehensive loss were as follows:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
loss
|
|
$
|
(3,838
|
)
|
|
$
|
(6,799
|
)
|
|
$
|
(6,038
|
)
|
|
$
|
(10,151
|
)
|
Foreign
currency translation adjustment
|
|
|
1,303
|
|
|
|
(183
|
)
|
|
|
1,279
|
|
|
|
(166
|
)
|
Total
comprehensive loss
|
|
$
|
(2,535
|
)
|
|
$
|
(6,982
|
)
|
|
$
|
(4,759
|
)
|
|
$
|
(10,317
|
)
|
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
9. Business
Segment Information
In
accordance with SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information
("SFAS 131"), the Company is reporting
certain information relating to its operating segments. The Company’s
segments are organized into three operating divisions through which the
Company’s chief operating decision makers manage the Company’s business.
These divisions, as described in more detail below, are organized around the
products and services provided to customers and represent the Company’s
reportable segments under SFAS 131.
FIX Division
. The FIX
Division provides messaging channels for institutions that are members of its
trading community for order routing and other value-added
services. The FIX Division also provides software and consultative
services to enable global financial institutions to utilize the industry
established Financial Information Exchange (FIX) Protocol for messaging,
monitoring and processing transaction information. The operating
results of FIXCITY have been included in the FIX Division since April 4, 2008,
the date of acquisition.
Transaction Services
Division
. The Transaction Services Division is currently comprised
of the two U.S. registered broker-dealer subsidiaries, NYFIX Millennium and
NYFIX Securities, together with NYFIX International in the U.K. NYFIX
Millennium, an alternative trading system (“ATS”) registered under SEC
Regulation ATS, provides anonymous matching and routing of U.S. equity
securities. NYFIX Securities provides direct electronic market access and
algorithmic trading products, operates a matched-book stock borrow/stock loan
business and clears trades on behalf of itself and NYFIX
Millennium. NYFIX Millennium and NYFIX Securities also resell certain
products and services offered by the FIX Division and the OMS
Division. Effective January 1, 2009, the results of Euro Millennium
are reported within the Transaction Services Division as the Company determined
that this initiative is no longer in its introductory phase based on second half
2008 growth in executed volumes. During the three and six months
ended June 30, 2008, the Company incurred costs of $2.5 million and $4.7 million
respectively, related to Euro Millennium. These costs are included in
Corporate & Other in the segment information reported below.
Order Management Systems
Division
. The OMS Division provides software applications for
the management of New York Stock Exchange (“NYSE”) and Nasdaq listed trading
activities. These products also enable customers to take advantage of
the broad range of products and services offered by the Company’s other
divisions. The Company does not allocate to the OMS Division any
introductory revenue for business generated by the FIX Division and the
Transaction Services Division from OMS Division clients. The
operating loss for the OMS Division during the three and six months ended June
30, 2008 includes severance related restructuring charges associated with
discontinuing the Fusion OMS product of $0.4 million and $0.7 million,
respectively, as well as additional operating losses of $0.5 million and $0.8
million during the three and six months ended June 30, 2008, respectively,
associated with supporting the Fusion OMS product during the wind-down
phase.
The Company does not currently break
out total assets by reportable segment as there is a high level of shared
utilization between certain reportable segments.
The
following table presents information by reportable segment for the three and six
months ended June 30, 2009 and 2008:
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
(in
thousands)
|
|
FIX
Division
|
|
|
Transaction
Services
Division
(1)
|
|
|
OMS
Division
|
|
|
Corporate
&
Other
(2)
|
|
|
Total
|
|
Three Months Ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
- external customers
|
|
$
|
18,220
|
|
|
$
|
7,519
|
|
|
$
|
824
|
|
|
$
|
-
|
|
|
$
|
26,563
|
|
Revenue
(cost of revenues), net - intersegment
|
|
|
(104
|
)
|
|
|
87
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
Net
revenue
|
|
|
18,116
|
|
|
|
7,606
|
|
|
|
841
|
|
|
|
-
|
|
|
|
26,563
|
|
Operating
income (loss) (3)
|
|
|
4,884
|
|
|
|
(6,692
|
)
|
|
|
(830
|
)
|
|
|
(1,012
|
)
|
|
|
(3,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
- external customers
|
|
$
|
15,830
|
|
|
$
|
11,843
|
|
|
$
|
949
|
|
|
$
|
-
|
|
|
$
|
28,622
|
|
Revenue
(cost of revenues), net - intersegment
|
|
|
805
|
|
|
|
(1,013
|
)
|
|
|
208
|
|
|
|
-
|
|
|
|
-
|
|
Net
revenue
|
|
|
16,635
|
|
|
|
10,830
|
|
|
|
1,157
|
|
|
|
-
|
|
|
|
28,622
|
|
Operating
income (loss) (3)
|
|
|
1,339
|
|
|
|
(1,977
|
)
|
|
|
(2,679
|
)
|
|
|
(3,430
|
)
|
|
|
(6,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
- external customers
|
|
$
|
35,567
|
|
|
$
|
15,328
|
|
|
$
|
1,580
|
|
|
$
|
-
|
|
|
$
|
52,475
|
|
Revenue
(cost of revenues), net - intersegment
|
|
|
(303
|
)
|
|
|
339
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
-
|
|
Net
revenue
|
|
|
35,264
|
|
|
|
15,667
|
|
|
|
1,544
|
|
|
|
-
|
|
|
|
52,475
|
|
Operating
income (loss) (3)
|
|
|
9,009
|
|
|
|
(12,481
|
)
|
|
|
(1,951
|
)
|
|
|
(317
|
)
|
|
|
(5,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
- external customers
|
|
$
|
31,205
|
|
|
$
|
26,213
|
|
|
$
|
2,611
|
|
|
$
|
-
|
|
|
$
|
60,029
|
|
Revenue
(cost of revenues), net - intersegment
|
|
|
1,565
|
|
|
|
(1,990
|
)
|
|
|
425
|
|
|
|
-
|
|
|
|
-
|
|
Net
revenue
|
|
|
32,770
|
|
|
|
24,223
|
|
|
|
3,036
|
|
|
|
-
|
|
|
|
60,029
|
|
Operating
income (loss) (3)
|
|
|
3,525
|
|
|
|
(3,048
|
)
|
|
|
(5,368
|
)
|
|
|
(5,415
|
)
|
|
|
(10,306
|
)
|
(1)
Includes an operating loss for Euro Millennium for the three and six months
ended June 30, 2009 of $2.0 million and $3.9 million, respectively.
(2)
Corporate & Other includes SEC investigation, restatement and other related
expenses/recoveries, corporate restructuring costs/reversals, Euro Millennium
costs, certain transitional costs and other corporate items which are not
allocated to reportable segments.
(3)
Operating income (loss) by segment reflects a significant amount of costs which
are allocated by headcount, usage and other methods, depending on the nature of
the cost.
10. Commitments
and Contingencies
SEC
Investigation
The
Company is the subject of an SEC investigation dating to October
2004. The investigation relates to the Company’s historical stock
option granting practices and related matters. In March and April
2005, the SEC issued subpoenas to a current director and to former officers and
directors of the Company. The SEC has taken testimony from one
current director, at least three former directors and at least one of the
Company’s former employees, as well as from third parties, including the
Company’s former independent registered public accounting firm. The
SEC has also issued subpoenas to at least two current and former directors from
whom it has not asked for testimony. The Company provided more than
800,000 pages of documents to the SEC in relation to this investigation during
the period from January 2006 to April 2007 and believes that it has completed
producing responsive documents. The Company’s last communication with
the SEC regarding this investigation was in June 2007. This matter is
still pending as of June 30, 2009.
Grand
Jury Subpoena
In May
2006, the Company received a grand jury subpoena from the U.S. Attorney for the
Southern District of New York. The subpoena sought documents relating
to the Company’s granting of stock options. With the agreement of the
Assistant U.S. Attorney handling the case, the Company has responded to the
subpoena by producing the documents it produced to the staff of the Division of
Enforcement of the SEC. The U.S. Attorney has also conducted
interviews with at least one current employee and two former employees (one of
whom is a former officer) and with at least one employee of the Company’s former
independent registered public accounting firm. The Company’s last
communication with the U.S. Attorney regarding this investigation was in July
2006. This matter was still pending as of June 30,
2009.
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
Related
Tax Matters
Subsequent
to the sale of NYFIX Overseas in August 2006, GL Trade S.A. (“GL”) forwarded
correspondence from the Inland Revenue relating to NYFIX Overseas’ potential
liability for payroll tax withholdings on prior option exercises by certain
former employees.
As a
result of indemnification provisions agreed to by the Company in connection with
its sale of NYFIX Overseas to GL, the Company determined that it has exposure
due to the fact that former management did not properly withhold employee income
and related payroll taxes related to historical stock option
activity. As a result, the Company has recorded a liability of $1.7
million related to stock option exercises under Pay As You Earn, or PAYE, and
National Insurance Contribution provisions. The Company’s ongoing
indemnity obligation to GL, however, relates solely to those representations and
warranties covering tax matters and employee benefits and terminates upon
expiration of any applicable statutory period of limitation. The
Company’s maximum liability under this ongoing indemnity obligation is $4.5
million.
Based
upon the current information available and the liabilities recognized, the
Company believes the resolution of this tax matter will not have a material
adverse effect on its consolidated financial condition or results of
operations.
NYFIX
Millennium SEC Inquiry
The
Company is the subject of a second SEC investigation dating to October
2004. The investigation relates to the restatement of the Company’s
1999 through 2002 consolidated financial statements filed in May 2004 and
questions the Company’s accounting for the losses incurred by NYFIX
Millennium. In March 2006, the Company announced that the SEC
Enforcement Staff had advised that it was recommending that the SEC close its
inquiry into this matter without any action being taken against the Company or
any individual. The Staff’s recommendation is subject to a formal
approval process within the SEC. Such formal approval is still
pending as of June 30, 2009.
Other
During
the normal course of business, the Company becomes involved in various routine
legal proceedings. The Company believes that it is not presently a
party to any material litigation other than as described above, the outcome of
which could reasonably be expected to have a material adverse effect on its
consolidated financial statements.
During
the three and six months ended June 30, 2008, the Company incurred costs of $0.1
million and $0.3 million, respectively, relating to the stock option
investigation and subpoenas, the grand jury subpoena, related shareholder
derivative litigation that has been settled and the pursuit of insurance
recoveries. These costs included outside counsel and forensic
accountants. These costs do not include any portion of time that the
Company’s employees dedicated to these matters. For the six months ended
June 30, 2009, the Company recorded a net benefit related to these matters of
$0.6 million, reflecting the receipt of insurance proceeds of $0.7 million for
claims submitted under the Company’s prior Director and Officers insurance
policies to recover these costs, partially offset by additional costs of $0.1
million.
Other
than the amount described above for employee-related taxes for stock options,
the Company, in accordance with SFAS No. 5,
Accounting for Contingencies
,
has not recorded any liability with respect to these matters as it is currently
unable to predict the outcomes and reasonably estimate the amounts of loss, if
any. With respect to the SEC investigation of stock option grants and
the grand jury subpoena, the Company could be subject to penalties, fines or
regulatory sanctions or claims by current and former officers, directors or
employees for indemnification of costs or losses they may incur and such
amounts, individually or collectively, could have a material impact on the
Company’s financial condition. In addition, other actions may be
brought against the Company related to the matters described
above.
Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
11.
Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue 5 million shares of preferred
stock. In connection with the private placement of convertible
preferred stock discussed below, 1.5 million shares were designated as Series B
Voting Convertible Preferred Stock and 0.5 million as Series C Non-Voting
Convertible Preferred Stock.
At June
30, 2009 and December 31, 2008, the Company had outstanding 1.5 million shares
of Series B Preferred Stock. Dividends on the Series B Preferred
Stock are payable semiannually in shares of the Company’s common
stock. The number of shares issuable in payment of dividends is
determined at an annual rate of 7% of the $75 million purchase price (or $50 per
share), divided by the conversion price then in effect (currently
$5.00). Dividends on the Series B Preferred Stock are cumulative and
all accumulated but unpaid dividends on the Series B Preferred Stock must be
paid before any cash dividends may be paid to holders of common
stock.
Common
Stock and Treasury Stock
At
December 31, 2008, the Company had outstanding 38,587,809 shares of common
stock, with 923,108 shares held in treasury.
During
the six months ended June 30, 2009, restricted stock units totaling 192,386
shares vested and were settled in shares.
On June
15, 2009, the Board of Directors declared a dividend, payable June 30, 2009, to
holders of Series B Preferred Stock in payment of dividends accumulated from
January 1, 2009 through June 30, 2009; as a result, the Company issued 525,000
shares of common stock, with a fair value of approximately $457,000 based on the
market price of its common stock on the declaration date. These
accumulated dividends were reflected as a charge to loss applicable to common
stockholders in calculating the basic and diluted loss per common share for the
six months ended June 30, 2009.
As a
result of the foregoing activity, at June 30, 2009, the Company had outstanding
39,305,195 shares of common stock, with 923,108 held in
treasury.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion should be read together with the accompanying Condensed
Consolidated Financial Statements and notes thereto.
Overview
We are a
pioneer in electronic trading solutions. The NYFIX Marketplace is a
global community of trading counterparties utilizing innovative services that
optimize the business of trading, including trade messaging services, trade
messaging software and trading workstations. NYFIX Millennium provides the
NYFIX Marketplace with enhanced methods of accessing liquidity. We
also provide value-added informational and analytic services and tools for
measuring execution quality. As a trusted business partner and
service provider to investment managers, mutual fund, pension fund and hedge
fund managers (the “Buy-Side”) and brokerage firms and banks (the “Sell-Side”),
NYFIX enables low touch, low impact market access and transaction
processing.
We
operate businesses that design, produce and sell technology-based products and
services to professional financial services organizations that are engaged in
trading activities including traditional asset management (including the trading
of those assets), proprietary trading, and/or the handling of client orders in
the U.S. and international securities markets.
Many of
our products and services utilize the FIX Protocol which is a messaging standard
developed specifically for real-time electronic exchange of securities trading
information.
We
believe our innovative NYFIX products and services deliver value-added
improvements in speed, quality of execution and cost efficiency by automating
both the work flows at the user work station level and the interactive process
of transmitting and executing orders between the Buy-Side and the Sell-Side, and
through exchanges (e.g., NYSE, NYSE Amex, Nasdaq and other exchanges), the
over-the-counter market (“OTC”), alternate trading systems (“ATSs”) and
electronic communication networks (“ECNs”).
Sources
of Revenue
Our
revenues consist of subscription and maintenance fees, transaction fees, and
product sales and services revenues. As a percentage of our total
revenues during the six months ended June 30, 2009, subscription and maintenance
revenues accounted for 69%, transaction revenue accounted for 29%, and product
sales and services revenue accounted for 2%.
Our
subscription and maintenance revenues principally consist of revenues from
contracts that provide for the use of our systems and our messaging channels,
together with managed services. Subscription and maintenance revenue
rates are fixed based on a contractual period of time. Additional
services, provided under schedules, or addenda to the contracts, have provisions
similar to the original contract. Under the terms of the subscription
contracts and addenda, clients are typically invoiced a flat periodic charge
after initial installation and acceptance. Subscription and maintenance also
includes maintenance contracts for software under separate, renewable
maintenance contracts. Software related maintenance contracts are
generally for a term of one year. Revenue related to these contracts and addenda
is recognized over the term of the contract, addendum, or service period, on a
straight-line basis. We include within our subscription and
maintenance revenue amounts we charge for connectivity to the NYFIX Marketplace
Platform, including telecommunications, installation and maintenance of routers,
network management software, support staff, and other costs related to the
management of connectivity. The connectivity charges are recognized
as the services are provided.
Our
subscription and maintenance revenues are not directly affected by trading
volumes; however, trading volumes do affect the revenues of our clients and this
could affect their future purchases of our technology and
services. Pricing pressures due to competition, failure to maintain
revenues with existing clients and to sign agreements with new clients because
of reductions in their technology spending, consolidation of brokerages and
hedge fund closures could affect our revenues and profitability. Our
costs associated with supporting the subscription and maintenance agreements are
generally fixed and thus a loss of revenue would disproportionately impact
profitability.
Transaction
revenue primarily consists of per-share commissions charged to clients who send
and receive a match and execution in our NYFIX Millennium ATS and clients to
whom we provide execution and smart order routing technology, gateways to access
markets and algorithmic trading ability in: (i) their own name, (ii) a third
party name, or (iii) our name. Revenue for these services is generally
invoiced monthly in arrears or is obtained through the clearing process within
three days of the trade date, and is recognized on a trade date basis, in the
period in which it is earned. Transaction revenue also includes the net
interest spread on our matched book of securities
borrowed/loaned.
Because
commission revenues are earned on a per-transaction basis, such revenues
fluctuate from period to period depending on (i) the volume of securities
traded through our services in the U.S. and the U.K. and (ii) our
commission rates. Commission revenues are primarily generated by
orders delivered to us from direct computer-to-computer links driven by our
clients’ routing technology, our FIXTrader order management system and other
vendors’ products, as well as third party order routing networks and phone
orders from our customers.
We
believe that the factors that most influence our transaction volumes are the
following:
|
·
|
macro
trends in the global equities markets that affect overall institutional
equity trading activity;
|
|
·
|
competitive
pressure, including pricing, created by a proliferation of electronic
execution competitors;
|
|
·
|
potential
changes in the U.S. market
structure;
|
|
·
|
new
regulatory requirements or a failure to comply with existing regulatory
requirements;
|
|
·
|
service
quality and availability;
|
|
·
|
consolidation
of broker-dealers or a decline in the number of hedge funds;
and
|
|
·
|
increased
client demands for bandwidth and speed, requiring reinvestment in hardware
and software.
|
Product
sales and services are primarily comprised of FIX software licenses and
professional services fees. This revenue is recognized when the software is
delivered and accepted by the client and when other contractual obligations,
including installation, if applicable, have been satisfied and collection of the
resulting receivable is reasonably assured.
Cost
of Revenue
Cost of
revenue includes the following:
|
·
|
Data
center operating costs, including salaries, related to equipment,
infrastructure and software supporting operations and the NYFIX
Marketplace;
|
|
·
|
Managed
connectivity costs, including telecommunication and other costs incurred
on behalf of clients, and costs to maintain the data centers, including
depreciation and amortization of assets utilized by the data centers,
which are recognized as either a cost of subscription and maintenance or
cost of transaction revenue, as
appropriate;
|
|
·
|
Fees
paid to third-party technology providers to access and provide services to
their client base;
|
|
·
|
Amortization
expense of acquired intangible assets and capitalized software costs
relating to the applicable revenue
category;
|
|
·
|
Developer
and quality assurance personnel labor for client and product support of
software products;
|
|
·
|
The
cost of leased subscription and service bureau equipment, which is
depreciated over the estimated useful life of the equipment;
and
|
|
·
|
Execution
and clearing costs to access various markets and exchanges and to process
and settle transactions.
|
Recent
Developments
Euro
Millennium
Due to
the growth in matched volumes at the end of 2008, we determined that effective
January 1, 2009, Euro Millennium is no longer in its introductory phase. Based
on this determination, the results for Euro Millennium are being presented as
part of the Transaction Services Division with specific costs included in
transaction cost of revenue and the various SG&A categories.
Restructuring
Charge
In April
2009, we ceased using a portion of the office space in our New York
headquarters, and agreed on terms for a sublease. As a result, in the
second quarter of 2009 we recorded a restructuring charge of $0.7 million
reflecting the fair value of the remaining rent payments for the office space,
net of expected sublease income, plus real estate commissions, and write-offs of
property and equipment. We expect our occupancy and related costs to
decrease by $0.4 million per year as a result of this
agreement.
Results
of Operations for the Three and Six Month Periods Ended June 30, 2009 and
2008
The
following table presents our consolidated results of operations for the periods
indicated. These consolidated results of operations are not
necessarily indicative of the consolidated results of operations that will be
achieved in any future period.
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
(in
thousands, except percentages)
|
|
2009
|
|
|
%
of
revenue
|
|
|
2008
|
|
|
%
of
revenue
|
|
|
2009
|
|
|
%
of
revenue
|
|
|
2008
|
|
|
%
of
revenue
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
and maintena
nce
|
|
$
|
18,488
|
|
|
|
70%
|
|
|
$
|
17,507
|
|
|
|
61%
|
|
|
$
|
36,168
|
|
|
|
69%
|
|
|
$
|
35,025
|
|
|
|
58%
|
|
Transaction
|
|
|
7,459
|
|
|
|
28%
|
|
|
|
10,831
|
|
|
|
38%
|
|
|
|
15,205
|
|
|
|
29%
|
|
|
|
24,099
|
|
|
|
40%
|
|
Product
sales and services
|
|
|
616
|
|
|
|
2%
|
|
|
|
284
|
|
|
|
1%
|
|
|
|
1,102
|
|
|
|
2%
|
|
|
|
905
|
|
|
|
2%
|
|
Total
revenue
|
|
|
26,563
|
|
|
|
100%
|
|
|
|
28,622
|
|
|
|
100%
|
|
|
|
52,475
|
|
|
|
100%
|
|
|
|
60,029
|
|
|
|
100%
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
and maintenance (1)
|
|
|
7,322
|
|
|
|
28%
|
|
|
|
7,821
|
|
|
|
27%
|
|
|
|
14,473
|
|
|
|
28%
|
|
|
|
15,472
|
|
|
|
26%
|
|
Transaction
(1)
|
|
|
7,479
|
|
|
|
28%
|
|
|
|
5,642
|
|
|
|
20%
|
|
|
|
14,080
|
|
|
|
27%
|
|
|
|
12,054
|
|
|
|
20%
|
|
Product
sales and services (1)
|
|
|
17
|
|
|
|
0%
|
|
|
|
87
|
|
|
|
0%
|
|
|
|
57
|
|
|
|
0%
|
|
|
|
168
|
|
|
|
0%
|
|
Total
cost of revenue
|
|
|
14,818
|
|
|
|
56%
|
|
|
|
13,550
|
|
|
|
47%
|
|
|
|
28,610
|
|
|
|
55%
|
|
|
|
27,694
|
|
|
|
46%
|
|
Gross
profit
|
|
|
11,745
|
|
|
|
44%
|
|
|
|
15,072
|
|
|
|
53%
|
|
|
|
23,865
|
|
|
|
45%
|
|
|
|
32,335
|
|
|
|
54%
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative (1)
|
|
|
14,266
|
|
|
|
54%
|
|
|
|
20,224
|
|
|
|
71%
|
|
|
|
28,694
|
|
|
|
55%
|
|
|
|
40,620
|
|
|
|
68%
|
|
Restructuring
charge
|
|
|
748
|
|
|
|
3%
|
|
|
|
374
|
|
|
|
1%
|
|
|
|
748
|
|
|
|
1%
|
|
|
|
216
|
|
|
|
0%
|
|
Depreciation
and amortization
|
|
|
381
|
|
|
|
1%
|
|
|
|
494
|
|
|
|
2%
|
|
|
|
797
|
|
|
|
2%
|
|
|
|
941
|
|
|
|
2%
|
|
Integration
charges
|
|
|
-
|
|
|
|
0%
|
|
|
|
596
|
|
|
|
2%
|
|
|
|
-
|
|
|
|
0%
|
|
|
|
596
|
|
|
|
1%
|
|
SEC
investigation, restatement and related expenses
|
|
|
-
|
|
|
|
0%
|
|
|
|
131
|
|
|
|
0%
|
|
|
|
(634
|
)
|
|
|
-1%
|
|
|
|
268
|
|
|
|
0%
|
|
Loss
from operations
|
|
|
(3,650
|
)
|
|
|
-14%
|
|
|
|
(6,747
|
)
|
|
|
-24%
|
|
|
|
(5,740
|
)
|
|
|
-11%
|
|
|
|
(10,306
|
)
|
|
|
-17%
|
|
Interest
expense
|
|
|
(227
|
)
|
|
|
-1%
|
|
|
|
(155
|
)
|
|
|
-1%
|
|
|
|
(426
|
)
|
|
|
-1%
|
|
|
|
(366
|
)
|
|
|
-1%
|
|
Investment
income
|
|
|
39
|
|
|
|
0%
|
|
|
|
230
|
|
|
|
1%
|
|
|
|
128
|
|
|
|
0%
|
|
|
|
776
|
|
|
|
1%
|
|
Loss
before income tax provision
|
|
|
(3,838
|
)
|
|
|
-14%
|
|
|
|
(6,672
|
)
|
|
|
-23%
|
|
|
|
(6,038
|
)
|
|
|
-12%
|
|
|
|
(9,896
|
)
|
|
|
-16%
|
|
Income
tax provision
|
|
|
-
|
|
|
|
0%
|
|
|
|
127
|
|
|
|
0%
|
|
|
|
-
|
|
|
|
0%
|
|
|
|
255
|
|
|
|
0%
|
|
Net
loss
|
|
|
(3,838
|
)
|
|
|
-14%
|
|
|
|
(6,799
|
)
|
|
|
-24%
|
|
|
|
(6,038
|
)
|
|
|
-12%
|
|
|
|
(10,151
|
)
|
|
|
-17%
|
|
Accumulated
preferred dividends
|
|
|
(166
|
)
|
|
|
-1%
|
|
|
|
(827
|
)
|
|
|
-3%
|
|
|
|
(457
|
)
|
|
|
-1%
|
|
|
|
(1,969
|
)
|
|
|
-3%
|
|
Loss
applicable to common stockholders
|
|
$
|
(4,004
|
)
|
|
|
-15%
|
|
|
$
|
(7,626
|
)
|
|
|
-27%
|
|
|
$
|
(6,495
|
)
|
|
|
-12%
|
|
|
$
|
(12,120
|
)
|
|
|
-20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
sub-totals may not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Stock-based compensation included in the respective line items above
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
and maintenance
|
|
$
|
91
|
|
|
|
|
|
|
$
|
92
|
|
|
|
|
|
|
$
|
184
|
|
|
|
|
|
|
$
|
222
|
|
|
|
|
|
Transaction
|
|
|
59
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
Product
sales and services
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,340
|
|
|
|
|
|
|
|
1,856
|
|
|
|
|
|
|
|
2,636
|
|
|
|
|
|
|
|
4,470
|
|
|
|
|
|
|
|
$
|
1,492
|
|
|
|
|
|
|
$
|
1,988
|
|
|
|
|
|
|
$
|
2,935
|
|
|
|
|
|
|
$
|
4,788
|
|
|
|
|
|
Revenue
The
following table presents our components of revenue:
|
|
Three
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
|
Six
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
(in
thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Subscription
and maintenance
|
|
$
|
18,488
|
|
|
$
|
17,507
|
|
|
$
|
981
|
|
|
|
6%
|
|
|
$
|
36,168
|
|
|
$
|
35,025
|
|
|
$
|
1,143
|
|
|
|
3%
|
|
Transaction
|
|
|
7,459
|
|
|
|
10,831
|
|
|
|
(3,372
|
)
|
|
|
-31%
|
|
|
|
15,205
|
|
|
|
24,099
|
|
|
|
(8,894
|
)
|
|
|
-37%
|
|
Product
sales and services
|
|
|
616
|
|
|
|
284
|
|
|
|
332
|
|
|
|
117%
|
|
|
|
1,102
|
|
|
|
905
|
|
|
|
197
|
|
|
|
22%
|
|
Total
revenue
|
|
$
|
26,563
|
|
|
$
|
28,622
|
|
|
$
|
(2,059
|
)
|
|
|
-7%
|
|
|
$
|
52,475
|
|
|
$
|
60,029
|
|
|
$
|
(7,554
|
)
|
|
|
-13%
|
|
Subscription
and Maintenance
The
increase in subscription and maintenance revenue for the three months ended June
30, 2009, as compared to the three months ended June 30, 2008, reflected the
offsetting effects of an increase in subscriptions (and related managed
services) of messaging channels offered by our FIX Division, and a decrease in
subscriptions (and related managed services) of our OMS Division
products. The growth in messaging channels offered by our FIX
Division was attributable to an increase in the number of Buy-Side to Sell-Side
messaging channels, primarily for order routing, as we continued our efforts to
increase the level of business with Buy-Side institutions. As of June
30, 2009, we had 9,910 billable order routing channels in service, an increase
of 11% over the 8,960 billable order routing channels in service at June 30,
2008, and an increase over the 9,795 channels in service at March 31,
2009. The decline in subscriptions (and related managed services) of
our OMS Division products of $0.3 million, to $0.8 million for the three months
ended June 30, 2009 compared to $1.1 million during the three months ended June
30, 2008, was due primarily to the discontinuation of our Fusion OMS products,
as well as cancellations from other desktop clients.
Subscription
and maintenance revenue related to software licenses was comparable at $1.4
million for both the three months ended June 30, 2009 and 2008.
The
increase in subscription and maintenance revenue for the six months ended June
30, 2009, as compared to the six months ended June 30, 2008, reflected an
increase in subscriptions (and related managed services) of messaging channels
offered by our FIX Division and the impact of the FIXCITY acquisition, partially
offset by a decrease in subscriptions (and related managed services) of our OMS
Division products. The growth in messaging channels offered by our
FIX Division was attributable to an increase in the number of Buy-Side to
Sell-Side messaging channels, primarily for order routing, as we continued our
efforts to increase the level of business with Buy-Side
institutions. FIXCITY, which was acquired in April 2008, contributed
$0.5 million to the $1.1 million increase in subscription and maintenance
revenues during the six months ended June 30, 2009. The decline in
subscriptions (and related managed services) of our OMS Division products of
$1.5 million, to $1.5 million for the six months ended June 30, 2009 compared to
$3.0 million during the six months ended June 30, 2008, was due primarily to the
discontinuation of our Fusion OMS products, as well as cancellations from other
desktop clients. Subscription and maintenance revenue related to
software licenses increased $0.3 million to $3.0 million for the six months
ended June 30, 2009 as compared to $2.7 million for the same period in
2008.
Transaction
The
decrease in transaction revenue for the three months ended June 30, 2009 was
attributable to a decrease in commissions on trade executions. Commissions
decreased $3.4 million to $7.2 million during the three months ended June 30,
2009 compared to $10.6 million during three months ended June 30, 2008 due
primarily to a $2.4 million and a $1.0 million decrease in commissions from
Sell-Side and Buy-Side clients, respectively. The decrease from
Sell-Side clients was due to a decrease in matched volumes in NYFIX Millennium
and a decrease in direct market access service, offset in part by an increase in
the use of the NIX algorithmic and smart routing trading products and $1.1
million of revenue from Euro Millennium, which included $0.9 million of
settlement fee revenue. We expect this settlement fee revenue to
decline in the second half of 2009 once we migrate our largest clients to the
SIX X-Clear central counterparty (CCP) clearing solution. The average
daily matched volume in NYFIX Millennium during the three months ended June 30,
2009 was 33.0 million shares, a 31% decrease over the average of 48.1 million
shares matched during the three months ended June 30, 2008, due
primarily
to a
market-wide decrease in traditional Buy-Side institutional trading volumes that
access Millennium through Sell-Side algorithms and due to the increase in
competition from the launch of several new dark pools. This increased
competition is also expected to put additional pressure on our commission
rates. The average daily matched value in Euro Millennium was €81.1
million ($110.8 million) resulting in a 30% increase over the three months ended
March 31, 2009.
The
additional decline in revenue from NYSE DOT direct market access services
(including associated pass-through charges) of $0.6 million was primarily
attributable to the decline in listed order flow being directed to the NYSE DOT
execution system as a result of increased competition from other venues such as
Direct Edge, NASDAQ and BATS. The increase in commission from NIX
algorithmic and smart routing trading products was due to the integration of our
products into other third
party order management
systems giving us the ability to offer our products to a broader client
base.
The
decrease from Buy-Side clients was due in part to the disintermediation of our
direct Buy-Side client base by third-party algorithmic trading solution
providers who offer enhanced technology solutions for certain
clients. Our securities lending business generated net interest
spread on its matched book stock borrow/stock loan portfolio of $0.2 million
during the three month periods ended June 30, 2009 and June 30,
2008.
The
decrease in transaction revenue for the six months ended June 30, 2009 was
attributable to a decrease in commissions on trade executions. Commissions
decreased $8.8 million to $14.8 million during the six months ended June 30,
2009 compared to $23.6 million during six months ended June 30, 2008 due
primarily to a $6.7 million and a $2.1 million decrease in commissions from
Sell-Side and Buy-Side clients, respectively. The decrease from
Sell-Side clients was due to a decrease in matched volumes in NYFIX Millennium,
a decrease in the use of the NIX smart routing trading products and a decrease
in direct market access service, offset in part by an increase in the use of the
NIX algorithmic trading products and $1.8 million of revenue from Euro
Millennium, which included $1.4 million of settlement fee
revenue. The decline in revenue from our smart routing trading
products and from OTC direct market access was primarily attributable to lower
volumes from former Fusion OMS clients. Transaction revenue from
former Fusion OMS clients decreased by $2.2 million during the six months ended
June 30, 2009 as compared to the six months ended June 30, 2008. The
average daily matched volume in NYFIX Millennium during the six months ended
June 30, 2009 was 33.0 million shares, a 32% decrease over the average of 48.8
million shares matched during the six months ended June 30, 2008, due primarily
to a market-wide decrease in traditional Buy-Side institutional trading volumes
that access Millennium through Sell-Side algorithms and due to the increase in
competition from the launch of several new dark pools. The additional
decline in revenue from NYSE DOT direct market access services (including
associated pass-through charges) of $1.1 million was primarily attributable to
our decision to improve our margins by eliminating discounts for these services
below cost for clients who do not generate valuable pass-through matches in
NYFIX Millennium and the decline in listed order flow being directed to the NYSE
DOT execution system as a result of increased competition from other venues such
as Direct Edge, NASDAQ and BATS. The increase in commission from NIX
algorithmic was due to the integration of our products into other third party
order management systems, giving us the ability to offer our products to a
broader client base.
The
decrease from Buy-Side clients was due in part to the disintermediation of our
direct Buy-Side client base by third-party algorithmic trading solution
providers who offer enhanced technology solutions for certain
clients. Our securities lending business generated net interest
spread on its matched book stock borrow/stock loan portfolio of $0.4 million
during the six months ended June 30, 2009 and compared to $0.5 million during
the six months ended June 30, 2008.
Product
Sales and Services
The
increase in product sales and services for the three months ended June 30, 2009
compared to the same period in 2008 was primarily due to an increase in software
license fee revenue. Software license fees for our FIX software
products increased $0.4 million to $0.5 million during the three months ended
June 30, 2009 compared to $0.1 million for the same period in
2008. Professional services revenue decreased $0.1 million to $0.1
million during the three months ended June 30, 2009 as compared to $0.2 million
for the same period in 2008.
The
increase in product sales and services for the six months ended June 30, 2009
compared to the same period in 2008 was primarily due to an increase in software
license fee revenue. Software license fees for our FIX software
products increased $0.4 million to $0.9 million during the six months ended June
30, 2009 compared to $0.5 million for the same period in
2008. Professional services revenue decreased $0.2 million to $0.2
million during the six months ended June 30, 2009 as compared to $0.4 million
for the same period in 2008.
Costs
and Expenses
Cost
of Revenue
The
following table presents our cost of revenue:
|
|
Three
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
|
Six
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
(in
thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Subscription
and maintenance
|
|
$
|
7,322
|
|
|
$
|
7,821
|
|
|
$
|
(499
|
)
|
|
|
-6%
|
|
|
$
|
14,473
|
|
|
$
|
15,472
|
|
|
$
|
(999
|
)
|
|
|
-6%
|
|
Transaction
|
|
|
7,479
|
|
|
|
5,642
|
|
|
|
1,837
|
|
|
|
33%
|
|
|
|
14,080
|
|
|
|
12,054
|
|
|
|
2,026
|
|
|
|
17%
|
|
Product
sales and services
|
|
|
17
|
|
|
|
87
|
|
|
|
(70
|
)
|
|
|
-80%
|
|
|
|
57
|
|
|
|
168
|
|
|
|
(111
|
)
|
|
|
-66%
|
|
Total
cost of revenue
|
|
$
|
14,818
|
|
|
$
|
13,550
|
|
|
$
|
1,268
|
|
|
|
9%
|
|
|
$
|
28,610
|
|
|
$
|
27,694
|
|
|
$
|
916
|
|
|
|
3%
|
|
Subscription
and Maintenance
The
decrease in subscription and maintenance cost of revenue for the three months
ended June 30, 2009 compared to the same period in 2008 was primarily
attributable to a decrease in telecommunication costs of $0.9 million and lower
market data fees of $0.2 million. The decrease in telecommunications
costs was primarily attributable to the consolidation to two major third-party
providers for client circuits. These decreases were slightly offset
by an increase in allocated datacenter costs of $0.2 million and an increase in
amortization of capitalized software costs of $0.1 million and decreases in
various other costs. As a percentage of related revenue, these costs
decreased to 40% for the three months ended June 30, 2009 as compared to 45% for
the three months ended June 30, 2008.
The
decrease in subscription and maintenance cost of revenue for the six months
ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily
attributable to a decrease in telecommunication costs of $1.4 million and lower
market data fees of $0.3 million. The decrease in telecommunications costs
was primarily attributable to the consolidation to two major third-party
providers for client circuits. These decreases were slightly offset
by an increase in allocated datacenter costs of $0.4 million and an increase in
amortization of capitalized software costs of $0.1 million and decreases in
various other costs. As a percentage of related revenue, these costs
decreased to 40% for the six months ended June 30, 2009 as compared to 44% for
the six months ended June 30, 2008.
Transaction
The
increase in transaction cost of revenue for the three months ended June 30, 2009
was primarily attributable to the inclusion of $2.0 million of Euro Millennium
cost of revenue items, an increase in depreciation and amortization costs in the
U.S. of $0.3 million associated with the release of Millennium HPX, an increase
in market data costs of $0.2 million and an increase in communication costs of
$0.1 million, offset by a decrease in execution and clearing costs in the U.S.
of $0.6 million and allocated data center costs of $0.2
million. Included in the $2.0 million of Euro Millennium cost of
revenue items was $0.9 million of clearing costs. We expect Euro
Millennium clearing costs to decline in the second half of 2009 once we migrate
our largest clients to the SIX X-Clear CCP clearing solution. As a
percentage of related revenue, these costs increased to 100% for the three
months ended June 30, 2009, as compared to 52% for the three months ended June
30, 2008.
The
increase in transaction cost of revenue for the six months ended June 30, 2009
was primarily attributable to the inclusion of $3.4 million of Euro Millennium
cost of revenue items, an increase in depreciation costs and allocated labor
costs in the U.S. of $0.4 million and $0.3 million, respectively, associated
with the release of Millennium HPX, an increase in market data costs of $0.2
million, an increase in communication costs of $0.1 million, and an increase in
hardware and software maintenance costs of $0.1 million. These increases
were partially offset by a decrease in execution and clearing costs in the U.S.
of $2.1 million and allocated data center costs of $0.4
million. Included in the $3.4 million of Euro Millennium cost of
revenue items was $1.5 million of clearing costs. During the six months
ended June 30, 2008, transaction cost of revenue was reduced by a clearing fee
rebate received of $0.5 million. As a percentage of related revenue,
these costs increased to 93% for the six months ended June 30, 2009, as compared
to 50% for the six months ended June 30, 2008.
Product
Sales and Services
The $0.1
million decrease in product sales and services cost of revenue for the three and
six months ended June 30, 2009 compared to the same periods in 2008 was
attributable to lower amortization of capitalized software costs.
Selling,
General and Administrative Expenses (SG&A)
The
following table presents the components of our selling, general and
administrative expense:
|
|
Three
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
|
Six
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
(in
thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Compensation
and related
|
|
$
|
8,022
|
|
|
$
|
10,313
|
|
|
$
|
(2,291
|
)
|
|
|
-22%
|
|
|
$
|
16,114
|
|
|
$
|
19,245
|
|
|
$
|
(3,131
|
)
|
|
|
-16%
|
|
Professional
fees (including consulting)
|
|
|
1,557
|
|
|
|
1,692
|
|
|
|
(135
|
)
|
|
|
-8%
|
|
|
|
3,108
|
|
|
|
4,082
|
|
|
|
(974
|
)
|
|
|
-24%
|
|
Stock-based
compensation
|
|
|
1,340
|
|
|
|
1,856
|
|
|
|
(516
|
)
|
|
|
-28%
|
|
|
|
2,636
|
|
|
|
4,470
|
|
|
|
(1,834
|
)
|
|
|
-41%
|
|
Occupancy
and related
|
|
|
945
|
|
|
|
1,161
|
|
|
|
(216
|
)
|
|
|
-19%
|
|
|
|
1,980
|
|
|
|
2,332
|
|
|
|
(352
|
)
|
|
|
-15%
|
|
Marketing,
travel and entertainment
|
|
|
667
|
|
|
|
1,236
|
|
|
|
(569
|
)
|
|
|
-46%
|
|
|
|
1,469
|
|
|
|
2,451
|
|
|
|
(982
|
)
|
|
|
-40%
|
|
General
and other
|
|
|
1,735
|
|
|
|
1,269
|
|
|
|
466
|
|
|
|
37%
|
|
|
|
3,387
|
|
|
|
2,865
|
|
|
|
522
|
|
|
|
18%
|
|
Transitional
rebuilding and remediation
|
|
|
-
|
|
|
|
64
|
|
|
|
(64
|
)
|
|
|
-100%
|
|
|
|
-
|
|
|
|
212
|
|
|
|
(212
|
)
|
|
|
-100%
|
|
Transitional
employment costs
|
|
|
-
|
|
|
|
133
|
|
|
|
(133
|
)
|
|
|
-100%
|
|
|
|
-
|
|
|
|
243
|
|
|
|
(243
|
)
|
|
|
-100%
|
|
Euro
Millennium costs
|
|
|
-
|
|
|
|
2,500
|
|
|
|
(2,500
|
)
|
|
|
-100%
|
|
|
|
-
|
|
|
|
4,720
|
|
|
|
(4,720
|
)
|
|
|
-100%
|
|
Total
SG&A
|
|
$
|
14,266
|
|
|
$
|
20,224
|
|
|
$
|
(5,958
|
)
|
|
|
-29%
|
|
|
$
|
28,694
|
|
|
$
|
40,620
|
|
|
$
|
(11,926
|
)
|
|
|
-29%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of total revenue
|
|
|
54%
|
|
|
|
71%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
|
|
68%
|
|
|
|
|
|
|
|
|
|
The
decrease in compensation and related costs included in SG&A for the three
months ended June 30, 2009
compared to the same
period in 2008
was primarily due to cost savings related to staff
reductions of $1.4 million and the discontinuation of the Fusion OMS product of
$0.3 million. Other decreases relate to a decline in incentive
compensation expense of $0.5 million as a result of lower revenue amounts and a
$0.7 million reduction in employee termination costs. These decreases
were slightly offset by new compensation costs of $0.5 million related to the
inclusion of Euro Millennium costs in operations and various other
increases.
The
decrease in compensation and related costs included in SG&A for the six
months ended June 30, 2009
compared to the same
period in 2008
was primarily due to cost savings related to staff
reductions of $2.6 million and the discontinuation of the Fusion OMS product of
$0.8 million. Other decreases relate to a decline in incentive
compensation of expense $1.0 million as a result of lower revenue amounts and a
$0.6 million reduction in employee termination costs. These decreases
were slightly offset by new compensation costs of $1.0 million related to the
inclusion of Euro Millennium costs in operations, $0.1 million associated with
our FIXCITY subsidiary and various other increases.
Professional
Fees (including consulting)
The
decrease in professional fees incurred for the three and six months ended June
30, 2009 compared to the same periods in 2008 was primarily attributable to a
decrease in consulting costs. Consulting costs decreased $0.7 million
and $1.7 million for the three and six months ended June 30, 2009, respectively,
compared to the same periods in 2008. These decreases in consulting
costs were partly offset by increases in legal and accounting
fees. Legal fees increased $0.3 million and $0.4 million for the
three and six months ended June 30, 2009, respectively, compared to the same
periods in 2008. The 2009 amounts included legal costs incurred in
connection with ensuring ongoing compliance of Euro Millennium with FSA
regulations, supporting our Asian expansion efforts and in connection with our
strategic initiatives.
Stock-based
Compensation
Stock-based
compensation included in SG&A decreased during the three months ended June
30, 2009 compared to the same period in 2008 primarily due to staff
reductions.
Stock-based
compensation included in SG&A decreased during the six months ended June 30,
2009 compared to the same period in 2008 primarily due to the normalization of
the vesting periods related to stock options and restricted stock
units. During the fourth quarter of 2007 significant share-based
awards were granted following the adoption of the 2007 Omnibus Equity
Compensation Plan. Under the plan, awards normally vest over four
years. However, the first vesting period for the initial awards was
approximately five months, resulting in greater than normal expense during the
fourth quarter of 2007 and first quarter of 2008. In addition,
stock-based compensation decreased as a result of staff reductions.
Stock-compensation
expense (including the amount recorded in cost of revenue) is expected to be
approximately $1.5 million per quarter throughout 2009. Stock-based
compensation amounts may vary, however, depending on the fair value of
performance awards when the applicable criteria are established, whether such
performance awards actually vest and whether additional awards are
granted.
Occupancy
and Related
The
decrease in occupancy and related costs for the three and six months ended June
30, 2009, compared to the same periods in 2008 was primarily due to the
consolidation of our office space in our New York headquarters and the closing
of an office in Connecticut as well as a decrease in utility costs.
Marketing,
Travel and Entertainment
The
decrease in marketing, travel and entertainment expenses for the three and six
months ended June 30, 2009 compared to the same period in 2008 was primarily due
to a decrease in general corporate travel. Corporate travel related
expenses decreased $0.4 million to $0.3 million for the three months ended June
30, 2009 compared to $0.7 million for the same period in
2008. Marketing costs decreased $0.1 million to $0.4 million for the
three months ended June 30, 2009 compared to $0.5 million for the same period in
2008 as a result of the timing of industry trade shows. Corporate
travel related expenses decreased $1.0 million to $0.6 million for the six
months ended June 30, 2009 compared to $1.6 million for the same period in
2008. Marketing costs were comparable at $0.8 million and $0.9
million for the six months ended June 30, 2009 and 2008,
respectively.
General
and Other
The
increase in general and other expenses for the three and six months ended June
30, 2009 was primarily attributable to a increase in foreign currency
transaction losses. Foreign currency transactions losses increased
$0.3 million to $0.2 million loss as compared to a $0.1 million gain in the same
period of 2008. Foreign currency transactions losses increased $0.5
million to $0.3 million loss as compared to a $0.2 million gain in the same
period of 2008.
Euro Millennium
Costs
During
the three and six months ended June 30, 2008, we incurred costs of $2.5 million
and $4.7 million, respectively, related to Euro Millennium. These
costs include compensation and related costs, consulting, marketing and travel
related costs. Due to the growth in matched volumes and revenues at
the end of 2008, we determined that, effective January 1, 2009, Euro Millennium
was no longer in its introductory phase and we now report the results of this
initiative within the Transaction Services Division, with specific costs
included in transaction cost of revenue and the various SG&A categories
detailed above.
Other
Operating Expenses
Other
operating expenses consist of the following:
|
|
Three
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
|
Six
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
Restructuring
charge
|
|
$
|
748
|
|
|
$
|
374
|
|
|
$
|
374
|
|
|
$
|
748
|
|
|
$
|
216
|
|
|
$
|
532
|
|
Depreciation
and amortization
|
|
|
381
|
|
|
|
494
|
|
|
|
(113
|
)
|
|
|
797
|
|
|
|
941
|
|
|
|
(144
|
)
|
Integration
charges
|
|
|
-
|
|
|
|
596
|
|
|
|
(596
|
)
|
|
|
-
|
|
|
|
596
|
|
|
|
(596
|
)
|
SEC
investigation, restatement and related expenses
|
|
|
-
|
|
|
|
131
|
|
|
|
(131
|
)
|
|
|
(634
|
)
|
|
|
268
|
|
|
|
(902
|
)
|
Restructuring
Charge
The
restructuring charge for the three and six months ended June 30, 2009 was a
result of the consolidation of office space in our New York
headquarters. This charge reflects the fair value of the remaining
rent payments for the office space we ceased using, net of expected sublease
income under a signed sublease agreement, plus real estate commissions, and
write-offs of property and equipment.
The
restructuring charge for the three
months ended
June 30, 2008 reflects employment costs of $0.4 million related to the
discontinuance of our Fusion OMS product and the continuing transition of our
clients to other platforms. The restructuring charge for the six
months ended June 30, 2008 reflects employment costs of $0.7 million related to
the discontinuance of our Fusion OMS product, offset by a $0.5 million reversal
of amounts previously recorded as restructuring costs as a result of the
termination of our lease and corresponding sublease of office space previously
occupied in Stamford, Connecticut.
Depreciation
and Amortization
The
decrease in the portion of depreciation and amortization included in SG&A
for the three and six months ended June 30, 2009 was due to an increase in the
amount of general overhead capital expenditures that have become fully
depreciated.
Integration
Charges
During
the three and six months ended June 30, 2008, we incurred integration charges
related to the acquisition of FIXCITY in April 2008. These costs
included $0.5 million of non-cash valuation adjustments to capitalized software
replaced by acquired technology and $0.1 million of third party consulting costs
to integrate the acquired technology platform.
SEC
Investigation, Restatement and Other Related Expenses
Since
2005, we have incurred costs relating to the stock option investigation and
subpoenas, a grand jury subpoena related to our stock option grants, related
shareholder derivative litigation which has been settled, related financial
restatements and expenses to resolve related matters, together with the NYFIX
Millennium SEC inquiry, related class action litigation and related financial
restatement. These costs include expenses for outside counsel,
contract attorneys and forensic accountants, other consultants and the cost of
re-auditing previously issued financial statements following the resignation of
our prior independent registered public accounting firm. These costs
do not include any portion of time that our employees have dedicated to these
matters.
In March
2009, we received $0.7 million reimbursement proceeds from one of our insurance
carriers under our previous Directors and Officers insurance policy for fees
incurred in defense of the SEC investigation into our historical stock option
activity, as well as related litigation. These proceeds were in
addition to the $10.1 million received in 2008. The reimbursement proceeds
are reflected as a reduction to SEC investigation, restatement and other related
expenses as the amount recovered was previously expensed in this line
item.
Other
Income (Expense)
Other
income (expense) items are as follows:
|
|
Three
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
|
Six
Months Ended
June
30,
|
|
|
Increase
(Decrease)
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
Interest
expense
|
|
$
|
(227
|
)
|
|
$
|
(155
|
)
|
|
$
|
72
|
|
|
$
|
(426
|
)
|
|
$
|
(366
|
)
|
|
$
|
60
|
|
Investment
income
|
|
|
39
|
|
|
|
230
|
|
|
|
(191
|
)
|
|
|
128
|
|
|
|
776
|
|
|
|
(648
|
)
|
Interest
Expense
Interest
expense was comparable for the three and six months ended June 30, 2009 and the
same period in 2008, representing interest on the two convertible notes totaling
$10 million and capital lease obligations outstanding.
Investment
Income
The
decrease in investment income for the three and six months ended June 30, 2009
compared to the same period in 2008 reflects lower average cash balances
invested and lower interest rates during the period.
Income
Tax Provisi
on
The
income tax provisions for the three and six months ended June 30, 2008 were
solely attributable to the impact of deducting goodwill related to the NYFIX
Millennium acquisition in our tax filings prior to the impairment of this asset
in the fourth quarter of 2008. All other tax effects during the three and six
months ended June 30, 2009 and 2008 have been netted out in our deferred tax
asset valuation reflecting our view that historical pre-tax book income and
historical income for tax purposes are not sufficient to support a conclusion
that the value of our net deferred tax assets are more likely than not to be
realized. Until we achieve and sustain an appropriate level of profitability, we
plan to maintain a valuation allowance on our net deferred tax
assets.
Liquidity
and Capital Resources
We derive
our liquidity and capital resources primarily from operations, issuances of
stock and from long-term borrowings. At June 30, 2009, we had cash
and cash equivalents of $51.7 million, a reduction from our balance at December
31, 2008, principally due to the payment of accrued balances, including
compensation. We believe that resources available at June 30, 2009
will be sufficient to finance our current investing and operational needs, as
well as the net capital requirements of our broker-dealer subsidiaries for at
least the next twelve months, including with respect to repayment of our
convertible notes aggregating $10.0 million due on December 30,
2009. In light of current credit market conditions, however, there
can be no assurance that, should we need to obtain additional financing for any
reason, such financing will be available to us on commercially acceptable terms
or at all.
At June
30, 2009, $37.0 million of our total cash and cash equivalents were held in our
U.S. and U.K. registered broker dealer subsidiaries.
|
|
As
of
|
|
|
|
June
30,
|
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Cash
and cash equivalents
|
|
$
|
51,654
|
|
|
$
|
55,966
|
|
|
|
Six
Months Ended June 30,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Net cash provided by (used in) operating
activities
|
|
$
|
20
|
|
|
$
|
(4,072
|
)
|
Net
cash used in investing activities
|
|
|
(3,818
|
)
|
|
|
(18,547
|
)
|
Net
cash used in financing activities
|
|
|
(833
|
)
|
|
|
(827
|
)
|
Effect of exchange rate changes on cash
|
|
|
319
|
|
|
|
(33
|
)
|
Net
decrease in cash and cash equivalents
|
|
$
|
(4,312
|
)
|
|
$
|
(23,479
|
)
|
Operating
Activities
The
following table sets forth our net loss adjusted for non-cash items, such as
depreciation, amortization, deferred taxes, and stock-based compensation; and
the effect on cash used in operating activities of changes in working capital
and other operating accounts between periods.
|
|
Six
Months Ended June 30,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Net
loss adjusted for non-cash items
|
|
$
|
3,693
|
|
|
$
|
354
|
|
Effect
of changes in working capital and other operating accounts
|
|
|
(3,673
|
)
|
|
|
(4,426
|
)
|
Net
cash provided by (used in) operating activities
|
|
$
|
20
|
|
|
$
|
(4,072
|
)
|
Changes
in working capital and other operating accounts affected cash flows during the
periods primarily as a result of a decrease in the level of accounts payable and
accrued expenses between periods, primarily from the net effect of the payment
of accrued balances at December 31, 2008, including compensation, as well as
increases in net clearing assets.
Broker-Dealer
Operations
Clearing
assets reflect amounts on hand to support our ability to settle the transactions
of NYFIX Millennium, NYFIX Securities and NYFIX International, such as
receivables from clearing organizations and firms and deposits with clearing
organizations and firms, as well as balances to support our matched-book stock
borrow/stock loan business. Our matched-book balances include
offsetting stock borrowed and stock loaned and offsetting securities
failed-to-deliver and securities failed-to-receive. At June 30, 2009,
the net balance for clearing assets and clearing liabilities was a receivable of
$3.0 million.
Securities
borrowed and securities loaned are recorded at the amount of cash collateral
provided for securities borrowed transactions and received for securities loaned
transactions, plus accrued interest. We monitor the market value of
securities borrowed and loaned on a daily basis with additional collateral
obtained or refunded as necessary. At June 30, 2009, clearing assets
include stock borrows of $603.8 million and clearing liabilities include stock
loans of $602.7 million.
NYFIX
Millennium and NYFIX Securities are U.S. registered broker-dealers required to
maintain levels of regulatory net capital under Rule 15c3-1 of the Exchange
Act. NYFIX Securities’ DTCC membership, used to self-clear securities
transactions, requires it to maintain $10 million in excess of its required net
capital. NYFIX International and FIXCITY are registered firms with
the FSA, required to maintain the greater of the base capital resources
requirement of €730,000 and €50,000, respectively, or the variable capital
resources requirement, which is made up of credit risk, market risk and fixed
overhead (equal to three months average expenditures)
requirements. At June 30, 2009, the aggregate regulatory net
capital/resources of our regulated subsidiaries in the U.S. and U.K. were $35.7
million, $22.1 million in excess of our aggregate requirement of $13.6 million
(including the $10 million excess required by DTCC).
When Euro
Millennium initiated trading activities in March 2008, the minimum financial
resources requirement for NYFIX International increased to approximately
€730,000. To satisfy this requirement, $1.5 million of subordinated
debt issued to NYFIX, Inc. by NYFIX International was converted into equity
capital in March 2008. In addition, in March and October 2008 and
February 2009, we infused an additional $1.5 million, $1.5 million and $3.0
million, respectively, of equity capital into NYFIX International to provide
further regulatory capital resources to meet daily regulatory requirements and
to allow for further business expansion.
In May
2009, we infused an additional $2.5 million and $0.3 million of equity capital
into NYFIX Millennium and FIXCITY, respectively, to provide further regulatory
capital resources to meet daily regulatory requirements.
Investing
Activities
Investments
in current technology to maintain our infrastructure and to enhance our products
remain an important requirement for our available cash resources.
Net cash
used in investing activities for the six months ended June 30, 2009 was $3.8
million. This consisted of capital expenditures for property and
equipment, principally for data center equipment and software, of $1.4 million,
and capitalized software costs of $2.4 million.
Net cash
used in investing activities for the six months ended June 30, 2008 was $18.5
million. This consisted of capital expenditures for property and
equipment, principally for data center equipment and software, of $4.0 million,
capitalized software development costs of $2.8 million, $7.0 million in
payments to the former
minority owners of NYFIX Millennium to acquire their interests and $6.9 million
for the acquisition of FIXCITY, net of cash acquired. These payments
were partially offset by $2.1 million received from GL in payment of an earn out
related to the sale of NYFIX Overseas in August 2006,
net of amounts paid
to the NYFIX Overseas management team
.
Financing
Activities
Our
financing activities primarily consist of long-term debt issued for working
capital purposes, capital lease obligations used for datacenter equipment and
software purchases, and issuances of capital stock for general corporate
purposes and business development activities.
At June 30, 2009, we had
short-term debt and capital lease obligations outstanding aggregating $12.6
million (including long term portions).
At June
30, 2009, we had outstanding two convertible notes aggregating $10.0 million
with substantially similar terms to the same lender. The convertible
notes incur interest at a rate of 5% per year and are due in December
2009. At June 30, 2009, the price at which the lender could convert
the convertible notes into shares of our common stock was $5.61 per
share.
Net cash
used in financing activities for the six months ended June 30, 2009 and 2008 was
$0.8 million, consisting primarily of principal payments under capital lease
obligations.
Commitments
and Contingencies
There are
ongoing SEC and United States Attorney’s Office investigations into our
accounting for stock option grants and an SEC investigation into our accounting
for the losses incurred by NYFIX Millennium. We are currently unable
to predict the outcomes and reasonably estimate the amounts of loss, if any,
with respect to these matters. With respect to certain of these
matters, we could be subject to penalties, fines or regulatory sanctions or
claims by current and former officers, directors or employees for
indemnification of costs or losses they may incur and such amounts, individually
or collectively, could have a material impact on our financial condition. In
addition, other actions may be brought against us related to these
matters.
See Note
10 to the Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q and Note 9 to our Consolidated Financial Statements in our
2008 Form 10-K for a description of our commitments and
contingencies.
Seasonality
and Inflation
We
believe that our operations have not been significantly affected by seasonality
or inflation.
Off-balance
Sheet Arrangements
We have
no material off-balance sheet arrangements, as defined under SEC rules, other
than those related to the contingent obligations under the convertible notes as
described above and under the terms of our Series B Preferred Stock as described
in our 2008 Form 10-K.
Critical Accounting Policies and
Estimates
The
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate
our estimates, including our allowance for doubtful accounts, long-lived
tangible and intangible assets, income taxes, and contingencies and
litigation. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions. In our 2008 10-K, we identified
and disclosed critical accounting policies, which included revenue recognition,
allowance for doubtful accounts, property and equipment, acquisitions and
goodwill, capitalized software costs, long-lived assets, income taxes,
contingencies and stock-based compensation. These critical accounting
policies affect significant judgments and estimates used in the preparation of
our financial statements. We reviewed our policies in conjunction
with the preparation of this report and have determined that those critical
policies remain and have not changed since December 31, 2008.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
There
have been no material changes in our exposure to market risk during the three
months ended June 30, 2009, from those described in Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, included in our
2008 Form 10-K.
Item
4. Controls and Procedures
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures, as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as of June 30, 2009. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective at the reasonable assurance
level as of June 30, 2009.
There
were no changes in our internal control over financial reporting during the
three months ended June 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II — OTHER INFORMATION
Item
1. Legal Proceedings
Except as
described below, there have been no material changes during the three months
ended June 30, 2009, with respect to the legal proceedings described in Part I,
Item 3, Legal Proceedings, included in our 2008 Form 10-K.
We were
named as a nominal defendant in Federal and state shareholder derivative actions
against us and several of our current and former officers and directors,
asserting, among other things, claims under the federal securities laws,
corporate waste, fraud and breach of fiduciary duty against all the individual
defendants based on claimed backdating of stock option grants to these
individuals between 1997 and 2003. In addition, certain stockholders made
formal inquiries regarding alleged violations of Section 16(b) of the Exchange
Act based on the same facts alleged in these actions.
On
February 25, 2009, we entered into a global settlement agreement relating to the
derivative litigation matters for historical stock option granting
practices. The agreement required that we adopt certain corporate
governance practices and provides for a payment of $1.3 million in legal fees to
plaintiffs’ counsel that was paid directly by our insurance
carrier. The motion received final court approval on June 4, 2009,
and is no longer subject to appeal.
Item
1A. Risk Factors
Except as
described below, there have been no material changes during the three months
ended June 30, 2009 with respect to the Risk Factors described in Part I, Item
1A, Risk Factors, included in our 2008 Form 10-K.
We
are the subject of several administrative proceedings relating to our granting
of stock options to certain of our employees, officers and directors. We are
unable to predict the outcome of these proceedings and can give no assurances
that the outcome of these proceedings will not have a material impact on us or
that other proceedings will not be initiated.
We were
named as a nominal defendant in Federal and state shareholder derivative actions
against us and several of our current and former officers and directors,
asserting, among other things, claims under the federal securities laws,
corporate waste, fraud and breach of fiduciary duty against all the individual
defendants based on claimed backdating of stock option grants to these
individuals between 1997 and 2003. In addition, certain stockholders made
formal inquiries regarding alleged violations of Section 16(b) of the Exchange
Act based on the same facts alleged in these actions.
On
February 25, 2009, we entered into a global settlement agreement relating to the
derivative litigation matters for historical stock option granting
practices. The agreement required that we adopt certain corporate
governance practices and provided for a payment of $1.3 million in legal fees to
plaintiffs’ counsel that was paid directly by our insurance
carrier. The motion received final court approval on June 4, 2009,
and is no longer subject to appeal.
The SEC’s
investigation regarding our granting of stock options and the grand jury
subpoena from the U.S. Attorney for the Southern District of New York, however,
are still pending against us, although a significant period of time has passed
since we were last contacted regarding such proceedings. We are
unable to predict the outcome of these proceedings and can give no assurances
that the outcome of these proceedings will not have a material impact on us or
that other proceedings will not be initiated.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Not
applicable.
Item
3. Defaults Upon Senior Securities
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders
We
held our 2009 Annual Meeting of Stockholders on June 15, 2009. At the meeting,
our stockholders voted on the following two proposals and cast their votes as
follows:
Proposal
1: To elect (by holders of Common Stock only) the following nominees as
directors:
Nominee
|
|
For
|
|
|
Withheld
|
|
P.
Howard Edelstein
|
|
29,932,375
|
|
|
5,479,833
|
|
Lon
Gorman
|
|
29,938,835
|
|
|
5,473,373
|
|
Mitchel
A. Lenson
|
|
28,752,865
|
|
|
6,659,343
|
|
Michael
J. Passarella
|
|
28,753,101
|
|
|
6,659,107
|
|
Richard
Y. Roberts
|
|
30,016,617
|
|
|
5,395,591
|
|
Thomas
C. Wajnert
|
|
28,725,781
|
|
|
6,686,427
|
|
Two of
our directors, Cary J. Davis and William H. Janeway, were elected by holders of
our Series B Preferred Stock (the “Series B Directors”) on June 15, 2009.
The Series B Directors were not elected by holders of our Common Stock at
our Annual Meeting.
Proposal
2: To ratify the appointment of Friedman LLP (“Friedman”) as our independent
registered public accounting firm for the fiscal year ending December 31,
2009:
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
Common
Stock
|
|
35,000,877
|
|
|
139,158
|
|
|
272,173
|
|
Series
B Preferred
Stock
|
|
1,500,000
(or
15,000,000
votes)
|
|
|
0
|
|
|
0
|
|
Please
see our Proxy Statement filed with the SEC on April 28, 2009 in connection with
the Annual Meeting for a complete description of the matters voted
upon.
Item
5. Other Information
Not
applicable.
Item
6. Exhibits
Exhibit
No.
|
|
Description
of Exhibit
|
|
|
|
*31.1
|
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
*31.2
|
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
*32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
NYFIX, INC.
|
|
|
|
|
August
10, 2009
|
/s/ P. Howard
Edelstein
|
|
|
P.
Howard Edelstein
|
|
|
President
and
Chief Executive
Officer
|
|
|
August
10, 2009
|
/s/ Steven R.
Vigliotti
|
|
|
Steven
R. Vigliotti
|
|
|
Chief
Financial Officer
|
|
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