SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 2014
KCG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE |
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000-54991 |
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38-3898306 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No. |
545 Washington Boulevard, Jersey City, NJ 07310
(Address of principal executive offices) (Zip Code)
(201) 222-9400
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
KCG Holdings, Inc.
Current Report on Form 8-K
Item 2.02
Results of Operations and Financial Condition.
See Item 9.01
Item 7.01 Regulation FD Disclosure.
The following
information is furnished under Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure, and Item 9.01 Financial Statements and Exhibits. This information,
including Exhibits 99.1 and 99.2, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On
October 30, 2014, KCG Holdings, Inc. (the Company or KCG) issued a press release announcing its earnings for the third quarter of 2014. The press release did not include certain financial statements, related footnotes
and certain other financial information relating to the Company that will be filed with the Securities and Exchange Commission as part of the Companys Quarterly Report on Form 10-Q. A copy of the press release is attached hereto as Exhibit
99.1. Executives from KCG will review the earnings via teleconference and live audio webcast at 9:00 a.m. Eastern time on October 30, 2014. A copy of a visual presentation that will be a part of that review is attached as Exhibit 99.2. All of
the attached exhibits are incorporated by reference into this Current Report on Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) |
Financial Statements of Businesses Acquired |
Not Applicable
(b) |
Pro Forma Financial Information |
Not Applicable
(c) |
Shell Company Transactions |
Not Applicable
Exhibit 99.1 - Press Release of KCG Holdings, Inc. issued on October 30, 2014.
Exhibit 99.2 - KCG Holdings, Inc. Earnings Presentation, dated October 30, 2014.
SIGNATURE
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
undersigneds duly authorized signatory.
Dated: October 30, 2014
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KCG HOLDINGS, INC. |
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By: |
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/s/ John McCarthy |
Name: |
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John McCarthy |
Title: |
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General Counsel and Corporate Secretary |
EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Press Release of KCG Holdings, Inc. issued on October 30, 2014. |
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99.2 |
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KCG Holdings, Inc. Earnings Presentation, dated October 30, 2014. |
KCG ANNOUNCES THIRD QUARTER 2014 RESULTS
KCG reported a GAAP net loss of $9.6 million; pre-tax loss from
continuing operations of $15.2 million includes a net benefit of $4.3 million
unrelated to core operations
KCG repurchased 3.6 million shares for approximately $42.1 million during the quarter
JERSEY CITY, New Jersey October 30, 2014 KCG Holdings, Inc. (NYSE: KCG) today reported a GAAP net loss of $9.6 million, or $0.09 per
share, for the third quarter of 2014.
The third quarter 2014 GAAP net loss from continuing operations was $9.4 million, or a loss of $0.09 per share. The
third quarter pre-tax loss from continuing operations was $15.2 million which includes a $15.1 million net gain related to the Companys strategic investment in tradeMONSTER Group, Inc. (tradeMONSTER), which combined with
OptionsHouse LLC (OptionsHouse), $10.5 million in compensation related to a reduction in workforce and other employee separations and a $0.3 million lease loss accrual. Excluding these items, on a non-GAAP basis, third quarter 2014 loss
from continuing operations before income taxes was $19.5 million. A reconciliation of GAAP to non-GAAP results is included in Exhibit 4.
KCG was formed
July 1, 2013 as a result of the merger between Knight Capital Group, Inc. and GETCO Holding Company, LLC. Financial results for the periods prior to the third quarter of 2013 contained herein solely represent the results of GETCO Holding
Company, LLC as the accounting acquirer.
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Select Financial Results |
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($ in thousands, except EPS) |
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From Continuing Operations |
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3Q14 |
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2Q14 |
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3Q13 |
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Revenues |
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272,302 |
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314,133 |
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469,338 |
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Trading revenues, net |
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150,865 |
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206,780 |
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230,471 |
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Commissions and fees |
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102,663 |
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104,776 |
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109,079 |
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Gain on investment in Knight Capital Group, Inc. |
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127,972 |
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GAAP pre-tax (loss) income |
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(15,235 |
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14,507 |
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121,373 |
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GAAP EPS |
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(0.09 |
) |
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0.08 |
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1.99 |
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Non-GAAP pre-tax (loss) income* |
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(19,518 |
) |
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21,512 |
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19,047 |
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* |
See Exhibit 4 for a reconciliation of GAAP to non-GAAP results. |
Third Quarter Highlights
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Grew market share of consolidated U.S. equity share volume executed by KCG market making from the second quarter |
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Increased algorithmic trading volumes and net revenues from institutional clients for the second consecutive quarter |
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Announced the sale of KCGs futures commission merchant (FCM) |
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Repurchased 3.6 million shares for $42.1 million |
Daniel Coleman, Chief Executive Officer of KCG, said,
KCGs financial results for the third quarter of 2014 were impacted by the subdued market environment in U.S. equities. In particular, the muted retail trading activity and single-digit realized volatility within a heightened competitive
environment cut into Market Making segment results. Consecutive quarters in a market cycle trough reaffirm the importance of reducing the cost structure while diversifying in select asset classes in ways that are scalable and non-capital intensive.
During the quarter, KCG continued to carry out our strategic plan, pursue opportunities to unlock additional value and return capital to stockholders.
In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest.
The interest amount charged to each of the segments is based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability, which has no
impact to the consolidated results, is reported prospectively and, therefore, is not reflected in the financial results for any period prior to January 1, 2014.
Market Making
The Market Making segment encompasses
direct-to-client and non-client, exchange-based market making across multiple asset classes and is an active participant in all major cash, options and futures markets in the U.S., Europe and Asia. During the third quarter of 2014, the segment
generated total revenues of $166.6 million and a pre-tax loss of $8.0 million, which included a debt interest charge of $6.1 million. The results also included compensation related to a reduction in workforce and other employee separations of $2.8
million. Excluding this item, Market Making generated a pre-tax loss of $5.2 million in the third quarter.
In the second quarter of 2014, the segment
generated total revenues of $218.4 million and pre-tax income of $36.0 million, which included a debt interest charge of $5.9 million. In the third quarter of 2013, the segment reported total revenues of $240.1 million and pre-tax income of $47.9
million.
During the third quarter of 2014, results from U.S. equity market making were adversely affected by the decline in retail trading activity,
heightened competition for retail order flow and challenging market conditions late in the quarter. According to SEC Rule 605 data, average daily U.S. equity share volume handled by the leading market makers was 11 percent below the quarterly
average over the past five years while price improvement on retail orders rose approximately 7.5 percent market-wide from the second quarter of 2014 and 27.5 percent from the third quarter of 2013. Results from non-U.S. equity market making were
largely static quarter over quarter amid mixed market conditions in European and Asian equities, fixed income, currencies and commodities.
Mr. Coleman commented, A number of factors coalesced to pressure revenues and revenue capture in U.S. equities during the quarter. The seasonally
slow July and August were followed by an active yet difficult September. The elevated levels of price improvement put added pressure on revenue capture. Nonetheless, we grew market share of consolidated U.S. equity share volume during the quarter
and made important progress in certain other strategic asset classes.
Select Trade Statistics: U.S. Equity Market Making
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3Q14 |
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2Q14 |
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3Q13 |
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Average daily dollar volume traded ($ millions) |
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24,726 |
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25,143 |
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25,365 |
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Average daily trades (thousands) |
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3,326 |
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3,620 |
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3,809 |
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Average daily shares traded (millions) |
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5,787 |
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10,820 |
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4,148 |
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NYSE and NASDAQ shares traded |
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727 |
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758 |
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805 |
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OTC Bulletin Board and OTC Market shares traded |
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5,060 |
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10,061 |
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3,343 |
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Average revenue capture per U.S. equity dollar value traded (bps) |
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0.75 |
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1.07 |
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1.01 |
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Global Execution Services
The Global Execution Services segment comprises agency execution services and trading venues. During the third quarter of 2014, the segment generated total
revenues of $79.2 million and a pre-tax loss of $1.7 million, which included a debt interest charge of $1.6 million. The results also included compensation related to a reduction in workforce and other employee separations of $3.6 million. Excluding
this item, Global Execution Services generated pre-tax income of $1.9 million in the third quarter.
In the second quarter of 2014, the segment generated
total revenues of $85.9 million and pre-tax income of $0.7 million, which included a debt interest charge of $1.8 million. The results also included compensation related to a reduction in workforce of $1.9 million. Excluding this item, Global
Execution Services generated pre-tax income of $2.6 million in the second quarter of 2014. In the third quarter of 2013, the segment reported total revenues of $91.4 million and a pre-tax loss of $16.4 million, which included $15.1 million in
compensation charges related to a reduction in workforce. Excluding this item, Global Execution Services generated a pre-tax loss of $1.2 million in the third quarter of 2013.
During the third quarter of 2014, results were impacted by the quarter over quarter declines in market volumes of U.S. and European equities, offset in part
by additional progress in algorithmic trading as well as a rise in market volumes of foreign exchange and ETFs. In algorithmic trading, the contributions from institutional clients grew for the second consecutive quarter to 24 percent of U.S. equity
share volume and 63 percent of net revenues for the unit. KCG Hotspot benefitted from a 15 percent quarter over quarter rise in overall notional foreign exchange dollar volume among reporting venues. KCGs U.S. ETF trading team continued to
build momentum amid an approximate 5 percent quarter over quarter increase in overall ETF share volume.
Mr. Coleman commented, We have made
steady progress to date in algorithmic trading. In the first half of the year, we introduced a new algorithm employing a market makers approach and made several, targeted new hires. As a result of all the efforts, weve onboarded 50 new
institutional clients through the third quarter. We continue to beta test new intuitive algorithms that leverage KCGs intellectual capital and technology to add to the product portfolio.
As KCG continues to evaluate how best to realize untapped value throughout the company, KCG has begun to explore strategic options for KCG Hotspot, with the
goal of executing on opportunities if it creates additional value for our stockholders, clients and employees. KCG has not made a decision to enter into any transaction at this time, and there can be no assurance that KCG will enter into such a
transaction in the future.
Select Trade Statistics: Agency Execution and Trading Venues
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3Q14 |
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2Q14 |
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3Q13 |
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Average daily KCG algorithmic trading and order routing U.S. equities shares traded (millions) |
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248.2 |
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265.3 |
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269.7 |
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Average daily KCG Hotspot notional foreign exchange dollar value traded ($ billions) |
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30.3 |
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26.2 |
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28.4 |
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Average daily KCG BondPoint fixed income par value traded ($ millions) |
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126.0 |
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133.7 |
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129.1 |
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KCG electronic execution average daily U.S. equities share volume includes U.S. exchange listed shares traded by
algorithmic trading and order routing.
Corporate and Other
The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the third quarter of 2014, the segment recorded total
revenues of $26.5 million and a pre-tax loss of $5.5 million. Included in the results was a net gain of $15.1 million related to KCGs investment in tradeMONSTER, in conjunction with tradeMONSTERs combination with OptionsHouse in the
third quarter, compensation related to a reduction in workforce and other employee separations of $4.2 million and a lease loss accrual of $0.3 million. Excluding these items, the Corporate and Other segments pre-tax loss for the third quarter
was $16.2 million.
In the second quarter of 2014, the segment recorded total revenues of $9.8 million and a pre-tax loss of $22.2 million. Included in
the results was a $2.0 million writedown of capitalized debt costs related to the principal repayment of debt, $0.8 million in compensation related to a reduction in workforce, and a lease loss accrual of $1.5 million. Excluding these items, the
Corporate and Other segments pre-tax loss for the second quarter was $17.9 million. In the third quarter of 2013, the segment recorded total revenues of $137.9 million and pre-tax income of $89.9 million. Included in the results was revenue of
$128.0 million resulting from the gain on investment in Knight Capital Group, Inc. as well as professional and other fees related to the Mergers and August 1st technology issue of $7.3
million and lease loss accruals of $0.8 million. Excluding these items, the Corporate and Other segments pre-tax loss for the third quarter of 2013 was $30.0 million.
Financial Condition
As of September 30, 2014, KCG
had $540.5 million in cash and cash equivalents. Total outstanding debt was $422.3 million, of which $117.3 million is due in March 2015. The Company had $1.5 billion in stockholders equity equivalent to a book value of $12.68 per share and
tangible book value of $11.05 per share based on total shares outstanding of 117.2 million, including restricted stock units.
KCGs headcount
at September 30, 2014 was 1,153 full-time employees as compared to 1,207 full-time employees at June 30, 2014. Approximately 45 full-time employees will be affected by the announced sale of KCGs futures commission merchant (FCM),
which is expected to close in the fourth quarter of 2014.
During the third quarter of 2014, KCG repurchased 3.6 million shares for approximately
$42.1 million under the Companys initial $150.0 million stock repurchase program. As of September 30, 2014, KCG had approximately $55.0 million of remaining capacity available to repurchase additional shares under the program. The Company
cautions that there are no assurances that any further repurchases may actually occur.
Conference Call
KCG will hold a conference call to discuss third quarter 2014 financial results starting at 9:00 a.m. Eastern Time today, October 30, 2014. To access the
call, dial 888-263-2736 (domestic) or 913-905-3216 (international) and enter passcode 9791821. In addition, the call will be webcast at http://www.media-server.com/m/acs/41fae90442d481b1589c479d3013dbef. Following the
conclusion of the call, a replay will be available by dialing 888-203-1112 in the U.S. or selecting a number based on location outside the U.S. from a list posted at
https://replaynumbers.conferencinghub.com/index.aspx?confid=9791821&passcode=9791821 and entering passcode 9791821.
Additional information for
investors, including a presentation of the third quarter financial results, can be found at http://investors.kcg.com.
Non-GAAP Financial
Presentations
KCG believes that certain non-GAAP financial presentations, when taken into consideration with the corresponding GAAP financial
presentations, are important in understanding operating results. Selected financial information is included in the non-GAAP financial presentations for the three months ended September 30, 2014, June 30, 2014 and September 30,
2013 and for the nine months ended September 30, 2014 and 2013. KCG believes the presentations provide a meaningful summary of results of operations for each of the three and nine month periods. Reconciliations of GAAP to non-GAAP results are
included in the schedules in Exhibit 4.
About KCG
KCG is a leading independent securities firm offering investors and clients a range of services designed to address trading needs across asset classes, product
types and time zones. The firm combines advanced technology with exceptional client service across market making, agency execution and venues. KCG has multiple access points to trade global equities, fixed income, currencies and commodities via
voice or automated execution. www.kcg.com
Certain statements contained herein may constitute forward-looking statements within the
meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words such as believe, expect, anticipate,
intend, target, estimate, continue, positions, prospects or potential, by future conditional verbs such as will, would, should,
could or may, or by variations of such words or by similar expressions. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about KCGs
industry, managements beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is
made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation,
risks associated with: (i) the strategic business combination (the Mergers) of Knight Capital Group, Inc. (Knight) and GETCO Holding Company, LLC (GETCO), including, among other things, (a) difficulties
and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the
August 1, 2012 technology issue that resulted in Knights broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knights business as well as actions taken
in response thereto and consequences thereof; (iii) the sale of KCGs reverse mortgage origination and securitization business and the departure of the managers of KCGs listed derivatives group; (iv) changes in market structure,
legislative, regulatory or financial reporting rules, including the increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, the scrutiny of high frequency trading,
alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (v) past or future changes to organizational structure and
management; (vi) KCGs ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCGs customers and potential customers; (vii) KCGs ability to keep up
with technological changes; (viii) KCGs ability to effectively identify and manage market risk, operational and technology risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory
risk, and compliance risk; (ix) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; and (x) the effects of increased
competition and KCGs ability to maintain and expand market share. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in KCGs reports with the SEC, including, without limitation, those
detailed under Risk Factors in KCGs Annual Report on Form 10-K for the year-ended December 31, 2013, under Certain Factors Affecting Results of Operations in KCGs Quarterly Report on Form 10-Q for the period
ended June 30, 2014, and other reports or documents KCG files with, or furnishes to, the SEC from time to time.
CONTACTS
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Sophie Sohn |
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Jonathan Mairs |
Communications & Marketing |
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Investor Relations |
312-931-2299 |
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201-356-1529 |
media@kcg.com |
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jmairs@kcg.com |
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KCG HOLDINGS, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited) |
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Exhibit 1 |
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For the three months ended |
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September 30, 2014 |
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June 30, 2014 |
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September 30, 2013 |
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(In thousands, except per share amounts) |
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Revenues |
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Trading revenues, net |
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$ |
150,865 |
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$ |
206,780 |
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$ |
230,471 |
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Commissions and fees |
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102,663 |
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104,776 |
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109,079 |
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Interest, net |
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139 |
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(289 |
) |
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(177 |
) |
Investment income and other, net |
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18,635 |
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2,866 |
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129,965 |
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Total revenues |
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272,302 |
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314,133 |
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469,338 |
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Expenses |
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Employee compensation and benefits |
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95,307 |
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103,430 |
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129,631 |
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Execution and clearance fees |
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74,058 |
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73,242 |
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81,023 |
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Communications and data processing |
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38,576 |
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38,279 |
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44,046 |
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Depreciation and amortization |
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20,298 |
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19,823 |
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20,091 |
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Payments for order flow |
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15,377 |
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18,076 |
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16,431 |
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Debt interest expense |
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7,714 |
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7,497 |
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19,350 |
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Occupancy and equipment rentals |
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7,672 |
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8,235 |
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8,898 |
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Collateralized financing interest |
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7,330 |
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6,395 |
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4,520 |
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Professional fees |
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7,161 |
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7,337 |
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9,077 |
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Business development |
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3,163 |
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2,609 |
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2,644 |
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Writedown of assets and lease loss accrual, net |
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301 |
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1,941 |
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936 |
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Writedown of capitalized debt costs |
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1,995 |
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Other |
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10,580 |
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10,767 |
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11,318 |
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Total expenses |
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287,537 |
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299,626 |
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347,965 |
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(Loss) Income from continuing operations before income taxes |
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(15,235 |
) |
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14,507 |
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121,373 |
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Income tax (benefit) expense |
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(5,796 |
) |
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5,520 |
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(107,190 |
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(Loss) Income from continuing operations, net of tax |
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(9,439 |
) |
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8,987 |
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228,563 |
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Loss from discontinued operations, net of tax |
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(177 |
) |
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(67 |
) |
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(784 |
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Net (loss) Income |
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$ |
(9,616 |
) |
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$ |
8,920 |
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$ |
227,779 |
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Basic (loss) earnings per share from continuing operations |
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$ |
(0.09 |
) |
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$ |
0.08 |
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$ |
2.00 |
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|
|
|
Diluted (loss) earnings per share from continuing operations |
|
$ |
(0.09 |
) |
|
$ |
0.08 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.09 |
) |
|
$ |
0.08 |
|
|
$ |
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
(0.09 |
) |
|
$ |
0.08 |
|
|
$ |
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic (loss) earnings per share |
|
|
110,376 |
|
|
|
114,859 |
|
|
|
114,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of diluted (loss) earnings per share |
|
|
110,376 |
|
|
|
117,601 |
|
|
|
114,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(Unaudited) |
|
Exhibit 1
(Continued) |
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
September 30, 2014 |
|
|
September 30, 2013 |
|
|
|
(In thousands, except per share amounts) |
|
Revenues |
|
|
|
|
|
|
|
|
Trading revenues, net |
|
$ |
615,942 |
|
|
$ |
415,495 |
|
Commissions and fees |
|
|
319,696 |
|
|
|
164,391 |
|
Interest, net |
|
|
798 |
|
|
|
(970 |
) |
Investment income and other, net |
|
|
33,656 |
|
|
|
125,046 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
970,092 |
|
|
|
703,962 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Employee compensation and benefits |
|
|
321,056 |
|
|
|
236,983 |
|
Execution and clearance fees |
|
|
222,801 |
|
|
|
167,931 |
|
Communications and data processing |
|
|
113,651 |
|
|
|
86,040 |
|
Depreciation and amortization |
|
|
60,224 |
|
|
|
36,004 |
|
Payments for order flow |
|
|
55,485 |
|
|
|
17,468 |
|
Debt interest expense |
|
|
24,735 |
|
|
|
21,995 |
|
Occupancy and equipment rentals |
|
|
24,192 |
|
|
|
15,454 |
|
Collateralized financing interest |
|
|
19,887 |
|
|
|
4,520 |
|
Professional fees |
|
|
19,900 |
|
|
|
38,928 |
|
Business development |
|
|
7,455 |
|
|
|
2,686 |
|
Writedown of assets and lease loss accrual, net |
|
|
2,508 |
|
|
|
4,248 |
|
Writedown of capitalized debt costs |
|
|
9,552 |
|
|
|
|
|
Other |
|
|
29,990 |
|
|
|
30,028 |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
911,436 |
|
|
|
662,285 |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
58,656 |
|
|
|
41,677 |
|
Income tax expense (benefit) |
|
|
22,191 |
|
|
|
(101,901 |
) |
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
36,465 |
|
|
|
143,578 |
|
Loss from discontinued operations, net of tax |
|
|
(1,497 |
) |
|
|
(784 |
) |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
34,968 |
|
|
$ |
142,794 |
|
|
|
|
|
|
|
|
|
|
Net loss allocated to preferred and participating units |
|
$ |
|
|
|
$ |
(21,535 |
) |
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
$ |
34,968 |
|
|
$ |
164,329 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations |
|
$ |
0.32 |
|
|
$ |
2.41 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations |
|
$ |
0.31 |
|
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
Basic loss per share from discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Diluted loss per share from discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.31 |
|
|
$ |
2.39 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.30 |
|
|
$ |
2.39 |
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic earnings (loss) per share |
|
|
113,680 |
|
|
|
68,632 |
|
|
|
|
|
|
|
|
|
|
Shares used in computation of diluted earnings (loss) per share |
|
|
117,127 |
|
|
|
68,855 |
|
|
|
|
|
|
|
|
|
|
(1) |
Nine months ended September 30, 2013 includes three months of results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC. |
|
|
|
KCG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) |
|
Exhibit 2 |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
540,457 |
|
|
$ |
674,281 |
|
Cash and cash equivalents segregated under federal and other regulations |
|
|
15,805 |
|
|
|
183,082 |
|
Financial instruments owned, at fair value: |
|
|
|
|
|
|
|
|
Equities |
|
|
2,595,507 |
|
|
|
2,298,785 |
|
Listed options |
|
|
130,931 |
|
|
|
339,798 |
|
Debt securities |
|
|
123,151 |
|
|
|
83,256 |
|
|
|
|
|
|
|
|
|
|
Total financial instruments owned, at fair value |
|
|
2,849,589 |
|
|
|
2,721,839 |
|
Collateralized agreements: |
|
|
|
|
|
|
|
|
Securities borrowed |
|
|
1,711,214 |
|
|
|
1,357,387 |
|
Receivable from brokers, dealers and clearing organizations |
|
|
969,018 |
|
|
|
1,257,251 |
|
Fixed assets and leasehold improvements, less accumulated depreciation and amortization |
|
|
138,892 |
|
|
|
146,668 |
|
Investments |
|
|
101,746 |
|
|
|
125,413 |
|
Goodwill and Intangible assets, less accumulated amortization |
|
|
190,601 |
|
|
|
208,806 |
|
Deferred tax asset, net |
|
|
175,215 |
|
|
|
175,639 |
|
Assets held for sale |
|
|
686,639 |
|
|
|
|
|
Other assets |
|
|
136,070 |
|
|
|
146,638 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,515,246 |
|
|
$ |
6,997,004 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value: |
|
|
|
|
|
|
|
|
Equities |
|
$ |
2,057,849 |
|
|
$ |
1,851,006 |
|
Listed options |
|
|
117,829 |
|
|
|
252,282 |
|
Debt securities |
|
|
186,211 |
|
|
|
57,198 |
|
Other financial instruments |
|
|
636 |
|
|
|
5,014 |
|
|
|
|
|
|
|
|
|
|
Total financial instruments sold, not yet purchased, at fair value |
|
|
2,362,525 |
|
|
|
2,165,500 |
|
Collateralized financings: |
|
|
|
|
|
|
|
|
Securities loaned |
|
|
778,000 |
|
|
|
733,230 |
|
Financial instruments sold under agreements to repurchase |
|
|
867,858 |
|
|
|
640,950 |
|
|
|
|
|
|
|
|
|
|
Total collateralized financings |
|
|
1,645,858 |
|
|
|
1,374,180 |
|
Payable to brokers, dealers and clearing organizations |
|
|
611,426 |
|
|
|
474,108 |
|
Payable to customers |
|
|
61,540 |
|
|
|
481,041 |
|
Accrued compensation expense |
|
|
70,630 |
|
|
|
149,430 |
|
Accrued expenses and other liabilities |
|
|
159,135 |
|
|
|
175,910 |
|
Capital lease obligations |
|
|
7,250 |
|
|
|
10,039 |
|
Liabilities held for sale |
|
|
688,802 |
|
|
|
|
|
Debt |
|
|
422,259 |
|
|
|
657,259 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,029,425 |
|
|
|
5,487,467 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Class A Common Stock |
|
|
1,277 |
|
|
|
1,233 |
|
Additional paid-in capital |
|
|
1,357,613 |
|
|
|
1,306,549 |
|
Retained earnings |
|
|
246,646 |
|
|
|
211,678 |
|
Treasury stock, at cost |
|
|
(121,457 |
) |
|
|
(11,324 |
) |
Accumulated other comprehensive income |
|
|
1,742 |
|
|
|
1,401 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,485,821 |
|
|
|
1,509,537 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
7,515,246 |
|
|
$ |
6,997,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
KCG HOLDINGS, INC.
PRE-TAX EARNINGS (LOSS) FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT*
(In thousands) (Unaudited) |
|
Exhibit 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
September 30, 2014 |
|
|
June 30, 2014 |
|
|
September 30, 2013 |
|
Market Making |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
166,620 |
|
|
$ |
218,446 |
|
|
$ |
240,110 |
|
Expenses |
|
|
174,653 |
|
|
|
182,442 |
|
|
|
192,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings |
|
|
(8,033 |
) |
|
|
36,004 |
|
|
|
47,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Execution Services |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
79,218 |
|
|
|
85,903 |
|
|
|
91,366 |
|
Expenses |
|
|
80,882 |
|
|
|
85,167 |
|
|
|
107,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings |
|
|
(1,664 |
) |
|
|
736 |
|
|
|
(16,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
26,464 |
|
|
|
9,784 |
|
|
|
137,862 |
|
Expenses |
|
|
32,002 |
|
|
|
32,017 |
|
|
|
47,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings |
|
|
(5,538 |
) |
|
|
(22,233 |
) |
|
|
89,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
272,302 |
|
|
|
314,133 |
|
|
|
469,338 |
|
Expenses |
|
|
287,537 |
|
|
|
299,626 |
|
|
|
347,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings |
|
$ |
(15,235 |
) |
|
$ |
14,507 |
|
|
$ |
121,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding. |
|
|
|
KCG HOLDINGS, INC.
PRE-TAX EARNINGS (LOSS) FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT*
(In thousands) (Unaudited) |
|
Exhibit 3
(Continued) |
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
September 30, 2014 |
|
|
September 30, 2013 |
|
Market Making |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
662,412 |
|
|
$ |
455,678 |
|
Expenses |
|
|
558,409 |
|
|
|
400,016 |
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
|
104,003 |
|
|
|
55,662 |
|
|
|
|
|
|
|
|
|
|
Global Execution Services |
|
|
|
|
|
|
|
|
Revenues |
|
|
252,341 |
|
|
|
113,700 |
|
Expenses |
|
|
251,253 |
|
|
|
135,002 |
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings (loss) |
|
|
1,088 |
|
|
|
(21,302 |
) |
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
Revenues |
|
|
55,339 |
|
|
|
134,584 |
|
Expenses |
|
|
101,774 |
|
|
|
127,267 |
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings |
|
|
(46,435 |
) |
|
|
7,317 |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
Revenues |
|
|
970,092 |
|
|
|
703,962 |
|
Expenses |
|
|
911,436 |
|
|
|
662,285 |
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
$ |
58,656 |
|
|
$ |
41,677 |
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding. |
Nine months ended September 30, 2013 includes three months of
results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC.
|
|
|
KCG HOLDINGS, INC. Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations)
(in thousands) |
|
Exhibit 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2014 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Loss from continuing operations before income taxes |
|
$ |
(8,033 |
) |
|
$ |
(1,664 |
) |
|
$ |
(5,538 |
) |
|
$ |
(15,235 |
) |
Net gain related to tradeMONSTER combination with OptionsHouse |
|
|
|
|
|
|
|
|
|
|
(15,105 |
) |
|
|
(15,105 |
) |
Compensation related to reduction in workforce and other employee separations |
|
|
2,786 |
|
|
|
3,577 |
|
|
|
4,158 |
|
|
|
10,521 |
|
Writedown of assets and lease loss accrual, net |
|
|
|
|
|
|
|
|
|
|
301 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non GAAP (Loss) Income from continuing operations before income taxes |
|
$ |
(5,247 |
) |
|
$ |
1,913 |
|
|
$ |
(16,184 |
) |
|
$ |
(19,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2014 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
36,004 |
|
|
$ |
736 |
|
|
$ |
(22,233 |
) |
|
$ |
14,507 |
|
Writedown of capitalized debt costs |
|
|
|
|
|
|
|
|
|
|
1,995 |
|
|
|
1,995 |
|
Compensation related to reduction in workforce |
|
|
383 |
|
|
|
1,886 |
|
|
|
800 |
|
|
|
3,069 |
|
Writedown of assets and lease loss accrual, net |
|
|
452 |
|
|
|
|
|
|
|
1,489 |
|
|
|
1,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
36,839 |
|
|
$ |
2,622 |
|
|
$ |
(17,949 |
) |
|
$ |
21,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2013 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
47,853 |
|
|
$ |
(16,354 |
) |
|
$ |
89,874 |
|
|
$ |
121,373 |
|
Gain on investment in Knight Capital Group, Inc. |
|
|
|
|
|
|
|
|
|
|
(127,972 |
) |
|
|
(127,972 |
) |
Compensation and other expenses related to reduction in workforce |
|
|
2,309 |
|
|
|
15,132 |
|
|
|
|
|
|
|
17,441 |
|
Professional and other fees related to Mergers and August 1st technology issue |
|
|
|
|
|
|
|
|
|
|
7,269 |
|
|
|
7,269 |
|
Writedown of assets and lease loss accrual |
|
|
108 |
|
|
|
|
|
|
|
828 |
|
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
50,270 |
|
|
$ |
(1,222 |
) |
|
$ |
(30,001 |
) |
|
$ |
19,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding |
|
|
|
KCG HOLDINGS, INC. Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations)(1)
(in thousands) |
|
Exhibit 4
(Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2014 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
104,003 |
|
|
$ |
1,088 |
|
|
$ |
(46,435 |
) |
|
$ |
58,656 |
|
Net gain related to tradeMONSTER combination with OptionsHouse |
|
|
|
|
|
|
|
|
|
|
(15,105 |
) |
|
|
(15,105 |
) |
Income resulting from the merger of BATS and Direct Edge, net |
|
|
|
|
|
|
|
|
|
|
(9,644 |
) |
|
|
(9,644 |
) |
Compensation related to reduction in workforce and other employee separations |
|
|
3,169 |
|
|
|
5,463 |
|
|
|
4,958 |
|
|
|
13,590 |
|
Writedown of capitalized debt costs |
|
|
|
|
|
|
|
|
|
|
9,552 |
|
|
|
9,552 |
|
Writedown of assets and lease loss accrual, net |
|
|
811 |
|
|
|
|
|
|
|
1,697 |
|
|
|
2,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
107,983 |
|
|
$ |
6,551 |
|
|
$ |
(54,977 |
) |
|
$ |
59,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
55,662 |
|
|
$ |
(21,302 |
) |
|
$ |
7,317 |
|
|
$ |
41,677 |
|
Gain on investment in Knight Capital Group, Inc. |
|
|
|
|
|
|
|
|
|
|
(127,972 |
) |
|
|
(127,972 |
) |
Professional and other fees related to Mergers and August 1st technology issue |
|
|
|
|
|
|
|
|
|
|
44,398 |
|
|
|
44,398 |
|
Compensation and other expenses related to reduction in workforce |
|
|
6,264 |
|
|
|
15,997 |
|
|
|
|
|
|
|
22,261 |
|
Unit based compensation acceleration due to Mergers |
|
|
|
|
|
|
|
|
|
|
22,031 |
|
|
|
22,031 |
|
Strategic asset impairment |
|
|
|
|
|
|
|
|
|
|
9,184 |
|
|
|
9,184 |
|
Writedown of assets and lease loss accrual |
|
|
108 |
|
|
|
|
|
|
|
4,525 |
|
|
|
4,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non GAAP Income (Loss) from continuing operations before income taxes |
|
$ |
62,034 |
|
|
$ |
(5,305 |
) |
|
$ |
(40,517 |
) |
|
$ |
16,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding |
(1) |
Nine months ended September 30, 2013 includes three months of results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC. |
|
KCG Holdings, Inc. (NYSE: KCG)
3
Quarter
2014
Earnings
Presentation
October 30, 2014
Exhibit 99.2
rd |
|
Safe Harbor
Certain statements contained herein may constitute forward-looking
statements within the meaning of the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995. Forward-looking statements
are typically identified by words such as believe, expect,
anticipate, intend, target,
estimate, continue, positions, prospects or potential, by future conditional verbs such as will, would,
should, could or may, or by variations of
such words or by similar expressions. These forward-looking statements are not historical facts
and are based on current expectations, estimates and projections about KCGs
industry, managements beliefs and certain assumptions made by
management, many of which, by their nature, are inherently uncertain and beyond
our control. Any forward-looking statement contained herein speaks
only as of the date on which it is made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict including, without limitation, risks
associated with: (i) the strategic business combination (the Mergers)
of Knight Capital Group, Inc. (Knight) and GETCO Holding Company,
LLC (GETCO), including, among other things, (a) difficulties and
delays in integrating the Knight and GETCO businesses or fully realizing cost
savings and other benefits, (b) the inability to sustain revenue and earnings
growth, and (c) customer and client reactions to the Mergers; (ii) the
August 1, 2012 technology issue that resulted in Knights broker-dealer
subsidiary sending numerous erroneous orders in NYSE-listed and NYSE
Arca securities into the market and the impact to Knights business as well
as actions taken in response thereto and consequences thereof; (iii) the
sale of KCGs reverse mortgage origination and securitization business and
the departure of the managers of KCGs listed derivatives group; (iv)
changes in market structure, legislative, regulatory or financial reporting
rules, including the increased focus by regulators, the New York Attorney
General, Congress and the media on market structure issues, and in particular,
the scrutiny of high frequency trading, alternative trading systems,
market fragmentation, colocation, access to market data feeds, and remuneration
arrangements such as payment for order flow and exchange fee structures;
(v) past or future changes to organizational structure and management; (vi) KCGs ability to develop competitive new products and
services in a timely manner and the acceptance of such products and services by
KCGs customers and potential customers; (vii) KCGs ability to
keep up with technological changes; (viii) KCGs ability to effectively
identify and manage market risk, operational and technology risk, legal risk,
liquidity risk, reputational risk, counterparty and credit risk, international
risk, regulatory risk, and compliance risk; (ix) the cost and other effects
of material contingencies, including litigation contingencies, and any adverse
judicial, administrative or arbitral rulings or proceedings; and (x) the
effects of increased competition and KCGs ability to maintain and expand
market share. The list above is not exhaustive. Readers should carefully
review the risks and uncertainties disclosed in KCGs reports with the SEC,
including, without limitation, those detailed under Risk Factors in
KCGs Annual Report on Form 10-K for the year-ended December 31,
2013, under Certain Factors Affecting Results of Operations in KCGs
Quarterly Report on Form 10-Q for the period ended June 30, 2014, and other
reports or documents KCG files with, or furnishes to, the SEC from time to
time. For
additional disclosures, please see https://www.kcg.com/legal/global-disclosures.
|
|
3rd Quarter 2014 Summary
Financial results affected by the market environment in U.S. equities and
heightened competition for retail order flow
Modest growth in market share of consolidated U.S. equity share volume executed
by KCG market making from the second quarter
Increased algorithmic trading U.S. equity share volume and net revenues from
institutional clients for the second consecutive quarter
Announced the sale of the futures commission merchant (FCM)
Realized a gain from the firms strategic investment in tradeMONSTER, which
combined with OptionsHouse during the quarter
Began to explore strategic options for KCG Hotspot
Repurchased 3.6 million shares for $42.1 million
1 |
|
KCG Financial Results
Pre-Tax Earnings (Loss) from Continuing Operations By Business Segment
(in thousands)
(unaudited)
For the three months ended
September 30, 2013
June 30, 2014
September 30, 2014
Market Making
Revenues
$ 240,110
$ 218,446
$ 166,620
Expenses
192,257
182,442
174,653
Pre-tax earnings (loss)
47,853
36,004
(8,033)
Global Execution Services
Revenues
91,366
85,903
79,218
Expenses
107,720
85,167
80,882
Pre-tax earnings (loss)
(16,354)
736
(1,664)
Corporate and Other
Revenues
137,862
9,784
26,464
Expenses
47,988
32,017
32,002
Pre-tax earnings (loss)
89,874
(22,233)
(5,538)
Consolidated
Revenues
469,338
314,133
272,302
Expenses
347,965
299,626
287,537
Pre-tax earnings (loss)
$ 121,373
$ 14,507
$ (15,235)
Notes:
3rd quarter 2013 results include a gain of $128.0 million on GETCOs
investment in Knight as well as expenses of $25.6 million related to the
merger, integration and a reduction in workforce 2nd quarter 2014 results
include expenses of $7.0 million related to the integration, a reduction in workforce and debt reduction
2
3rd quarter 2014 results include $15.1 million net gain related to the
Companys strategic investment in tradeMONSTER, which combined
with OptionsHouse, as well as expenses of $10.8 million related to a reduction in workforce and other separations as
well as a lease loss accrual |
|
Market Conditions
Sources:
BATS
Global
Markets,
VistaOne
Solutions,
Thomson
Reuters,
OCC,
CSI,
Bloomberg,
Reuters,
EBS,
SIFMA,
TRACE,
MSRB;
*
3Q14
SEC
Rule
605
U.S.
equity
share
volume
includes
an
estimate of September 2014 data based on public and proprietary information
3
Average daily consolidated U.S. equity share volume
Average daily consolidated U.S. equity dollar volume
Average realized volatility for the S&P 500
Market conditions in U.S. equities
Avg. daily volume in select securities markets
3Q13
2Q14
3Q14
Consolidated U.S. equity share volume
5.8 bn
6.1 bn
5.7 bn
730.2 mn
690.2 mn
675.6 mn
ETF share volume
650.0 mn
638.7 mn
666.6 mn
Consolidated U.S. equity dollar volume
$207.8 bn
$242.8 bn
$236.1 bn
U.S. equity futures contracts
2.7 mn
2.8 mn
2.9 mn
U.S. options contracts
15.0 mn
15.8 mn
16.3 mn
European equity notional value traded (USD)
$906.2 bn
$1,080.2 bn
$1,019.8 bn
Asian equity share volume
7.9 bn
6.1 bn
6.2 bn
FX notional value traded (USD) among reporting venues
$228.7 bn
$206.6 bn
$237.9 bn
U.S. Treasury notional volume
$521.1 bn
$487.5 bn
$489.4 bn
U.S. corporate bond notional volume
$16.5 bn
$20.2 bn
$18.7 bn
Transactions under 250 bonds
13,578
12, 372
11,024
7.3
10.0
9.1
13.3
8.3
5.9
10.8
7.9
9.6
Continued weakness in the global equities markets
Mixed market conditions in FICC
Consolidated U.S. equity share volume declined 5.5%
from 2Q14; Lowest quarterly total since 1Q07
Pan European equity notional value traded declined
5.6% from 2Q14
Asian equity share volume across developed markets
declined 1.2% from 2Q14
In fixed income, U.S. treasury notional volume rose
0.4% from 2Q14 while U.S. corporate bond notional
volume declined 7.4%
FX notional value traded among reporting venues rose
15.2%
Certain exchange-based commodity volumes as a group
were up slightly from 2Q14
8,000
$400,000
6,000
$300,000
4,000
$200,000
2,000
$100,000
Jul
Aug
Sep
Apr
May
Jun
Jul Aug
Sep
3Q13
2Q14
3Q14
Retail
SEC Rule 605 U.S. equity share volume* |
|
Results negatively affected by depressed retail
trading activity, heightened competition and
challenging market conditions late in the quarter
Contributions from non-U.S. equities and FICC
largely static from 2Q14
The Market Making Segment
U.S. equities
Non-U.S. equities
3Q14 Market Making revenue distribution
4
Sources: KCG, SEC, VistaOne Solutions; * 3Q14 SEC Rule 605 share
volume includes an estimate of September 2014 data based on public and
proprietary information. Average revenue capture per U.S. equity dollar
value traded represents revenue in basis points for every single dollar in value of U.S. equities traded within the Market Making segment. For example, in the third quarter of 2014,
KCG market making recorded revenues from U.S. equities of approximately $118.4
million on total dollar volume during the quarter of $1.57 trillion which
amounts to average revenue capture of 0.75 basis points.
Avg. daily SEC Rule 605 U.S. equity volume was 11%
below the quarterly average for the past 5 years
Heightened competition for retail order flow drove a
7.5% increase in price improvement from 2Q14
GETDirect grew avg. daily U.S. Treasury notional
volume 15% from 2Q14
$25.4 bn
$25.1 bn
$24.7 bn
1.01
0.75
0.50
0.75
1.00
1.25
1.50
$15.0
$17.5
$20.0
$22.5
$25.0
$27.5
$30.0
3Q13
2Q14
3Q14
KCG avg. daily dollar volume and revenue
capture per U.S. equity dollar value traded
Avg. revenue capture per dollar value traded
730 mn
690 mn
676 mn*
8.8
9.2
9.4
5
6
7
8
9
10
11
12
13
14
15
0
100
200
300
400
500
600
700
800
900
1,000
3Q13
2Q14
3Q14
Retail trading activity and realized volatility
Avg. daily SEC Rule 605 U.S equity share volume (all market makers)
Avg. realized volatility for the S&P 500
71%
29%
1.07
Avg. daily dollar volume |
|
The Global Execution Services Segment
In agency execution, algorithmic trading increased
contributions from institutional clients for the
second consecutive quarter
Among trading venues, maintained and grew
market share
5
Sources: KCG, BATS Global Markets, Reuters, EBS, TRACE, MSRB
Avg. daily bond transactions
KCG BondPoint avg. daily par value traded
Pct. (%) of interdealer
corporate bond transactions under 250 bonds Pct. (%) of
interdealer muni bond transactions under 250 bonds 129.1
133.7
126.0
-
Percentage of volume from institutional clients rose to
24% from 21% in 2Q14 and from 20% in 1Q14
-
Percentage of net revenues from institutional clients
rose to 63% from 57% in 2Q14 and from 54% in 1Q14
-
KCG Hotspot accounted for 12.7% of all volume among
institutional spot FX reporting venues
-
KCG BondPoint accounted for 18.9% of all interdealer
corporate bond transactions under 250 bonds
Avg. daily notional spot FX dollar volume
Avg. daily U.S. equity share volume
17.4%
18.6%
18.9%
129.1
4.6%
133.7
6.4%
126.0
6.1%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
175
200
225
250
275
300
3Q13
2Q14
3Q14
4.68%
4.38%
4.34%
KCG algorithmic trading and order routing
Pct. (%) of consolidated U.S. equity volume
270 mn
265 mn
248 mn
150
$160
20%
$120
15%
$80
10%
$40
5%
3Q13
2Q14
3Q14
28.4
$26.2 bn
$30.3 bn
12.68%
12.74%
10%
11%
12%
13%
14%
15%
16%
20
24
26
28
30
32
3Q13
2Q14
3Q14
22
12.44%
KCG Hotspot
Pct. (%) of spot FX volume among reporting venues
$
bn |
|
Consolidated Expenses
Compensation and benefits
Communications and data processing
Depreciation and amortization
Debt interest expense
Professional fees
Occupancy and equipment rentals
Business development
Other
Consolidated expenses totaled $180 million
compared to $195 million in 2Q14, excluding
transaction-based expenses and non-recurring
charges disclosed in Reg G reconciliations
The $15.6 million decline in Employee
compensation
and
benefits
from
2Q14
is
attributable to lower headcount and a decrease
in accruals for bonus pools
The $2.7 million decline in Payments for
order flow
driven by decrease in retail trading
activity and lessened demand for payment
The $0.5 million increase in Occupancy and
equipment rentals
due to a deployment of
new technology assets
6
See addendum for a reconciliation of GAAP to non-GAAP financial
results. 3Q14
2Q14
3Q13
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
$220.3 mn
$194.9 mn
$180.0 mn |
|
Additional Financials
Consolidated Statements of Financial Condition
(in millions)
(unaudited)
September 30, 2013
June 30, 2014
September 30, 2014
Cash and cash equivalents
$ 798.7
$ 600.9
$ 540.5
Debt
957.3
422.3
422.3
Stockholders
equity
1,513.0
1,533.7
1,485.8
-----
Debt-to-tangible equity ratio
0.73
0.32
0.33
Tangible book value per share
$10.63
$11.04
$11.05
Book value per share
$12.34
$12.66
$12.68
Shares outstanding including restricted
stock units (in thousands)
122,588
121,111
117,167
Tangible book value is calculated by subtracting goodwill and intangible assets
from equity. 7 |
|
KCG Stockholder Base
A legacy investor in GETCO, General
Atlantic
increased
its
stake
in
the
combined
firm at the merger close
A legacy investor in Knight, Jefferies
increased its stake in the combined firm in the
year since the merger close
Insiders
is comprised of members of the KCG
Management Committee and Board of
Directors, excluding representatives of General
Atlantic
As
a
category,
Retail
includes
retail
investors
as well as current KCG employees and former
management and employees of the predecessor
firms
Estimated
ownership
breakdown
based
on
latest
available
position
data
and
KCG
shares
outstanding
of
117.2
million
at
September
30,
2014.
Analysis
excludes
outstanding
warrants.
8
24.3%
19.2%
17.1%
15.0%
10.3%
14.1%
General Atlantic
Jefferies
Insiders
Institutional (active)
Index / ETF (passive)
Retail |
|
3
months ended September 30, 2014 Market Making
Global Execution
Services
Corporate and
Other
Consolidated
Reconciliation of GAAP pre-tax to non-GAAP pre-tax:
GAAP loss from continuing operations before income taxes
$ (8,033)
$ (1,664)
$ (5,538)
$ (15,235)
Net gain related to tradeMONSTER combination with OptionsHouse
-
-
(15,105)
(15,105)
Compensation related to reduction in workforce and other employee
separations 2,786
3,577
4,158
10,521
Writedown of assets and lease loss accrual, net
-
-
301
301
Non-GAAP (loss) income from continuing operations before income taxes
$ (5,247)
$ 1,913
$ (16,184)
$ (19,518)
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
10 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended June 30, 2014
Market Making
Global Execution
Services
Consolidated
Reconciliation of GAAP pre-tax to non-GAAP pre-tax:
GAAP income (loss) from continuing operations before income taxes
$ 36,004
$ 736
$ (22,233)
$ 14,507
Writedown of capitalized debt costs
-
-
1,995
1,995
Compensation related to reduction in workforce
383
1,886
800
3,069
Writedown of assets and lease loss accrual, net
452
-
1,489
1,941
Non-GAAP income (loss) from continuing operations before income taxes
$ 36,839
$ 2,622
$ (17,949)
$ 21,512
11
Corporate and
Other |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
12
3 months ended September 30, 2013
Market Making
Global Execution
Services
Consolidated
Reconciliation of GAAP pre-tax to non-GAAP pre-tax:
GAAP income (loss) from continuing operations before income taxes
$ 47,853
$ (16,354)
$ 89,874
$ 121,373
Gain on investment in Knight Capital Group, Inc.
-
-
(127,972)
(127,972)
Compensation and other expenses related to reduction in workforce
2,309
15,132
-
17,441
-
-
7,269
7,269
Writedown of assets and lease loss accrual, net
108
-
828
936
Non-GAAP income (loss) from continuing operations before income taxes
$ 50,270
$ (1,222)
$ (30,001)
$ 19,047
Other
Corporate and
Professional
and
other
fees
related
to
Mergers
and
August
1
st
technology
issue |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended September 30, 2014
GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Reconciliation of GAAP expenses to normalized non-GAAP expenses:
Employee compensation and benefits
95,307
10,521
84,786
Communications and data processing
38,576
-
38,576
Depreciation and amortization
20,298
-
20,298
Debt interest expense
7,714
-
7,714
Professional fees
7,161
-
7,161
Occupancy and equipment rentals
7,672
-
7,672
Business development
3,163
-
3,163
Writedown of assets, lease loss accrual and capitalized debt costs
301
301
-
Other
10,580
-
10,580
Total expenses
$ 190,772
$ 10,822
$ 179,950
13 |
|
3
months ended June 30, 2014 GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Reconciliation of GAAP expenses to normalized non-GAAP expenses:
Employee compensation and benefits
103,430
3,069
100,361
Communications and data processing
38,279
-
38,279
Depreciation and amortization
19,823
-
19,823
Debt interest expense
7,497
-
7,497
Professional fees
7,337
-
7,337
Occupancy and equipment rentals
8,235
-
8,235
Business development
2,609
-
2,609
Writedown of assets, lease loss accrual and capitalized debt costs
3,936
3,936
-
Other
10,767
-
10,767
Total expenses
$ 201,913
$ 7,005
$ 194,908
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
14 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
15
3 months ended September 30, 2013
GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Employee compensation and benefits
129,631
17,441
112,190
Communications and data processing
44,046
-
44,046
Depreciation and amortization
20,091
-
20,091
Debt interest expense
19,350
2,982
16,368
Professional fees
9,077
4,087
4,990
Occupancy and equipment rentals
8,898
-
8,898
Business development
2,644
200
2,444
Writedown of assets and lease loss accrual, net
936
936
-
Other
11,318
-
11,318
Total expenses
$ 245,991
$ 25,646
$ 220,344
Reconciliation of GAAP expenses to normalized non-GAAP expenses:
|
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