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Knight Capital: Kcg Announces Consolidated Earnings Of $0.41 Per Diluted SHARE FOR THE FIRST QUARTER OF 2016

The following excerpt is from the company's SEC filing.

KCG reports consolidated revenues of $345.4 million

and pre-tax earnings of $60.0 million for the quarter

KCG increases book value to $16.42 per share and

tangible book value to $15.30 per share

KCGs Board of Directors authorizes expanded share repurchase program

of up to $200 million of KCG common stock and warrants

JERSEY CITY, New Jersey April 21, 2016 KCG Holdings, Inc. (NYSE: KCG)

today reported consolidated earnings of $37.2 million, or $0.41 per diluted share, for the first quarter of 2016. Included in these results is $9.5 million of other income primarily related to sales of certain assets and gains on repurchases of the companys debt.

Select Financial Results

($ in thousands, except EPS)

GAAP Revenues

345,424

264,036

696,156

Non-GAAP revenues*

247,509

311,130

Trading revenues, net

223,938

145,959

208,795

Commissions and fees

106,101

94,315

99,961

GAAP pre-tax income (loss)

59,965

(4,471

406,128

GAAP EPS

Non-GAAP pre-tax income (loss)*

(4,845

32,427

Effective January 1, 2016, KCG will no longer adjust GAAP results for writedowns, investment gains and losses and similar items. See Exhibit 4 for a reconciliation of GAAP to non-GAAP results for pre-2016 periods.

First Quarter Highlights

KCG U.S. equity market making grew revenues 22 percent year over year

KCG Institutional Equities grew average daily U.S. equity share volume 17 percent year over year

KCG BondPoint set a new quarterly record for average daily fixed income par value traded with growth of 32 percent year over year

KCG announced an agreement to sell its NYSE Designated Market Maker (DMM) and completed the sales of assets related to retail U.S. options market making

KCG repurchased 1.8 million shares of KCG Class A Common Stock for $20.5 million, $1.0 million in warrants and $35.0 million par value of its 6.875 percent Senior Secured Notes for $31.2 million

Daniel Coleman, Chief Executive Officer of KCG, said, KCG generated strong financial results in the first quarter of 2016 as a result of the market conditions in U.S. equities, increased penetration of strategic clients and the performance of KCGs trading models. KCG U.S. equity market making posted strong revenues from client and exchange-based activities. We took further action to streamline and simplify KCG by exiting certain businesses following a strategic review. In addition, we utilized free cash to repurchase shares, warrants and debt as opportunities arose. Subsequent to the first quarter, we monetized a portion of our stake in Bats Global Markets, which added to free cash available for deployment.

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 first quarter of 2016, the segment generated total revenues of $258.9 million and pre-tax income of $75.5 million. Included in first quarter revenues is a $2.9 million gain from the sale of assets related to retail U.S. options market making.

In the first quarter of 2016, the market selloff to start the year contributed to a 7 percent rise in consolidated U.S. equity dollar volume, a widening of spreads and higher realized volatility for the S&P 500 year-over-year. In addition, the market produced seasonally strong retail trading activity and a 31 percent increase in U.S. equity futures contracts. Outside of U.S. equities, results were affected by the rise in market volumes of U.S. Treasuries and Asian equities year-over-year, offset in part by the declines in market volumes of European equities and foreign exchange as well as the continued deterioration in prices of commodities. For the quarter, revenues for the Market Making segment rose 15.3 percent year over year.

Mr. Coleman commented, Despite the difficulties presented by the market selloff in the first half of January and heightened competition for retail order flow, market making in U.S. equities generated a substantial contribution to KCGs first quarter results. We continued to focus on strategic clients as well as develop the pipeline of new strategies and enhance currently deployed models. The results from global equities and FICC rebounded from the previous quarter. KCG Acknowledge FI more than doubled client market making volume in U.S. Treasuries year over year. In Asia, trading during the quarter was led by Japan and Singapore.

In the fourth quarter of 2015, the segment generated total revenues of $168.2 million and a pre-tax loss of $5.1 million. Excluding charges related to asset writedowns of $14.2 million, the segment generated non-GAAP pre-tax income of $9.1 million.

During the first quarter of 2015, the segment generated total revenues of $224.5 million and pre-tax income of $39.3 million.

Select Trade Statistics: U.S. Equity Market Making

Average daily dollar volume traded ($ millions)

30,888

28,842

31,025

Average daily trades (thousands)

Average daily shares traded (millions)

NYSE and NASDAQ shares traded

OTC Bulletin Board and OTC Market shares traded

Average revenue capture per U.S. equity dollar value traded (bps)

Global Execution Services

The Global Execution Services segment comprises agency execution services and trading venues. During the first quarter of 2016, the segment generated total revenues of $76.4 million and pre-tax income of $6.3 million.

In the first quarter of 2016, institutional trading activity drove the heightened U.S. equity market volumes and volatility to start the year. The deleveraging in January shifted to rebalancing which prolonged the high levels of trading through February. KCG Institutional Equities grew volumes of U.S. equities year over year from algorithmic trading and high touch sales trading in single stocks, ETFs and programs. KCG BondPoint set a new quarterly record for fixed income par value traded, which was attributable to market share gains compounded by increased market volumes of corporate and municipal bonds. The decline in revenues for the Global Execution Services segment year over year is attributable to the sale of KCG Hotspot, which was completed on March 13, 2015.

Mr. Coleman commented, During the first quarter, KCG Algorithmic Trading grew U.S. equity share volume from the 25 largest U.S. asset managers 67 percent year over year. KCGs ETF trading team posted strong results from facilitating standard orders, risk markets for blocks, NAV-based executions, and creations and redemptions. In addition, KCG BondPoint grew trade volumes from a combination of new and existing retail broker clients.

In the fourth quarter of 2015, the segment generated total revenues of $70.2 million and a pre-tax loss of $1.1 million. Excluding a writedown of goodwill of $0.9 million, the segment generated a non-GAAP pre-tax loss of $0.2 million.

In the first quarter of 2015, excluding the gain of $385.0 million on the sale of KCG Hotspot and related professional and compensation expenses totaling $11.2 million, the segment generated non-GAAP total revenues of $79.2 million and pre-tax income of $7.2 million.

Select Trade Statistics: Agency Execution and Trading Venues

Average daily KCG Institutional Equities U.S. equities shares traded (millions) (1)

Average daily KCG BondPoint fixed income par value traded ($ millions)

KCG Institutional Equities average daily U.S. National Market System (NMS) equity share volume represents trading on behalf of clients covering algorithmic trading and high touch sales trading in single stocks, ETFs and programs. In 2016, KCG modified the reporting of trading volumes within the Global Execution Services segment to remove internal volume generated by KCG trading desks and add volume from sales trading. Prior periods have been recast for this new presentation.

Corporate and Other

The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the first quarter of 2016, the segment generated total revenues of $10.1 million and a pre-tax loss of $21.8 million. Included in first quarter revenues are a $3.7 million gain from KCGs repurchase of a portion of its 6.875 percent Senior Secured Notes and a $2.8 million net gain primarily tied to a distribution from an investment.

In the fourth quarter of 2015, the segment generated total revenues of $25.6 million and pre-tax income of $1.8 million. Excluding gains on sales and writedowns of investments of $19.8 million and $3.2 million, respectively and a $1.0 million writedown of an intangible asset, the segment generated a non-GAAP pre-tax loss of $13.7 million.

In the first quarter of 2015, the segment generated total revenues of $7.3 million and a pre-tax loss of $14.3 million.

Financial Condition

As of March 31, 2016, KCG had $647.1 million in cash and cash equivalents. Total outstanding debt was $451.9 million. KCG had $1.48 billion in stockholders equity, equivalent to a book value of $16.42 per share and tangible book value, which includes the value of its assets of businesses held for sale, of $15.30 per share based on total shares outstanding of 90.4 million, including restricted stock units.

During the first quarter of 2016, KCG repurchased 1.8 million shares for approximately $20.5 million, $1.0 million in warrants and $35.0 million par value of its 6.875 percent Senior Secured Notes for $31.2 million.

KCGs headcount was 972 full-time employees at March 31, 2016, compared to 1,006 at December 31, 2015.

Subsequent Events

On April 15, 2016, shares of Bats Global Markets, Inc. common stock began trading on the BATS BZX Exchange under ticker symbol BATS. As part of the initial public offering, KCG sold 2.6 million shares for approximately $46 million after commissions and will recognize a pre-tax gain of approximately $33 million in the second quarter of 2016 on this sale. Following the offering, KCGs ownership stake in Bats was reduced to approximately 13.7 percent.

On April 20, 2016, KCGs Board of Directors authorized an expanded share repurchase program of up to $200 million of KCG common stock and warrants (including the remaining capacity under the previously authorized repurchase program), subject to compliance with the covenants contained in the companys debt indenture. Under the program, the company may repurchase shares of common stock or warrants from time to time in open market transactions, accelerated stock buyback programs, tender offers, privately-negotiated transactions or by other means. Repurchases of shares may also be made under a Rule 10b5-1 plan. The timing and amount of repurchase transactions will be based on market conditions, share price, legal requirements and other factors. The program has no expiration date and may be suspended, modified or discontinued at any time without prior notice. There are no assurances that any repurchases of shares of common stock or warrants may actually occur.

Conference Call

KCG will hold a conference call to discuss first quarter 2016 financial results starting at 9:00 a.m. Eastern Time today, April 21, 2016. To access the call, dial 800-344-6698 (domestic) or 785-830-7979 (international) and enter passcode 5948540. In addition, the call will be webcast at http://edge.media-server.com/m/p/kbqkwypj. Following the conclusion of the call, a replay will be available by selecting a number based on country of origin from a list posted at: https://replaynumbers.conferencinghub.com/index.aspx?confid=... and entering passcode 5948540.

Additional information for investors, including a presentation of the first 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 December 31, 2015 and March 31, 2015. KCG believes the presentations provide a meaningful summary of revenues and results of operations for each of the three 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 a range of services designed to address trading needs across asset classes, product types and time zones. The firm combines advanced technology with specialized client service across market making, agency execution and venues and also engages in principal trading via exchange-based market making. KCG has multiple access points to trade global equities, fixed income, options, currencies and commodities via voice or automated execution.

www.kcg.com

Certain statements contained herein and the documents incorporated by reference containing the words believes, intends, expects, anticipates, and words of similar meaning, may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about 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 inability to manage trading strategy performance and sustain revenue and earnings growth; (ii) the sale of KCG Hotspot, including the receipt of additional payments that are subject to certain contingencies; (iii) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by Congress, federal and state regulators, the SROs 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; (iv) past or future changes to KCGs organizational structure and management; (v) 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; (vi) KCGs ability to keep up with technological changes; (vii) KCGs ability to effectively identify and manage market risk, operational and technology risk, cybersecurity risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (viii) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; (ix) the effects of increased competition and KCGs ability to maintain and expand market share; (x) the announced plan to relocate KCGs global headquarters from Jersey City, NJ to New York, NY; and (xi) KCGs ability to complete the sale or disposition of any or all of the assets or businesses that are classified as held for sale. The list above is not exhaustive. Because forward looking statements involve risks and uncertainties, the actual results and performance of KCG may materially differ from the results expressed or implied by such statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, KCG also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties disclosed in KCGs reports with the U.S. Securities and Exchange Commission (SEC), including those detailed in Risk Factors in Part I, Item 1A of KCGs Annual Report on Form10-K for the year ended December 31, 2015, Legal Proceedings in Part I, Item 3, under Certain Factors Affecting Results of Operations in Managements Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, in Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time. This information should be read in conjunction with KCGs Consolidated Financial Statements and the Notes thereto contained in its Annual Report on Form 10-K, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time.

CONTACTS

Sophie Sohn

Jonathan Mairs

Communications & Marketing

Investor Relations

312-931-2299

201-356-1529

media@kcg.com

jmairs@kcg.com

KCG HOLDINGS, INC.

Exhibit 1

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the three months ended

March 31, 2016

December 31, 2015

March 31, 2015

(In thousands, except per share amounts)

Interest, net

Investment income and other, net

15,268

24,191

387,423

Total revenues

Expenses

Employee compensation and benefits

97,586

67,823

106,718

Execution and clearance fees

73,634

66,613

68,473

Communications and data processing

35,657

36,003

33,764

Depreciation and amortization

21,905

25,077

20,615

Payments for order flow

12,655

14,464

15,221

Debt interest expense

10,025

Collateralized financing interest

Occupancy and equipment rentals

Professional fees

11,181

Business development

Writedown of assets and other real estate related charges

16,154

Total expenses

285,459

268,507

290,028

Income (loss) before income taxes

Income tax expense (benefit)

22,800

(1,500

156,827

Net income (loss)

37,165

(2,971

249,301

Basic earnings (loss) per share

Diluted earnings (loss) per share

Shares used in computation of basic earnings (loss) per share

88,458

89,184

110,782

Shares used in computation of diluted earnings (loss) per share

89,605

113,615

Exhibit 2

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands)

ASSETS

Cash and cash equivalents

647,070

581,313

Cash and cash equivalents segregated under federal and other regulations

Financial instruments owned, at fair value:

2,350,324

2,129,208

Listed options

11,801

178,360

Debt securities

174,222

136,387

Other financial instruments

Total financial instruments owned, at fair value

2,536,551

2,444,400

Collateralized agreements:

Securities borrowed

1,681,886

1,636,284

Receivable from brokers, dealers and clearing organizations

656,081

681,211

Fixed assets and leasehold improvements, less accumulated depreciation and amortization

93,190

94,858

Investments

98,138

98,943

Goodwill and Intangible assets, less accumulated amortization

101,277

100,471

Deferred tax asset, net

151,196

151,225

Assets of businesses held for sale

24,444

25,999

Other assets

203,465

222,831

Total assets

6,196,298

6,040,535

LIABILITIES & EQUITY

Liabilities

Financial instruments sold, not yet purchased, at fair value:

1,743,843

1,856,171

151,893

301,984

105,340

Total financial instruments sold, not yet purchased, at fair value

2,055,462

2,113,404

Collateralized financings:

Securities loaned

527,358

463,377

Financial instruments sold under agreements to repurchase

909,304

954,902

Total collateralized financings

1,436,662

1,418,279

Payable to brokers, dealers and clearing organizations

574,660

273,805

Payable to customers

11,640

17,387

Accrued compensation expense

55,053

154,547

Accrued expenses and other liabilities

126,783

134,026

451,864

484,989

Total liabilities

4,712,124

4,596,437

Additional paid-in capital

1,470,284

1,436,671

Retained earnings

229,285

192,120

Treasury stock, at cost

(216,770

(186,103

Accumulated other comprehensive income

Total equity

1,484,174

1,444,098

Total liabilities and equity

Exhibit 3

PRE-TAX EARNINGS (LOSS) BY BUSINESS SEGMENT*

258,918

168,227

224,548

183,429

173,359

185,208

Pre-tax earnings (loss)

75,489

(5,132

39,340

76,394

70,221

464,266

70,133

71,336

83,208

(1,115

381,058

10,112

25,588

31,897

23,812

21,612

Pre-tax (loss) earnings

(21,785

(14,270

Totals may not add due to rounding.

Regulation G Reconciliation of Non-GAAP financial measures*

Three months ended December 31, 2015

Market Making

Global Execution

Corporate and Other

Reconciliation of GAAP Revenues to Non-GAAP Revenues:

Gain on sales of investments

(19,751

Writedowns of investments

Non- GAAP Revenues

Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:

GAAP (Loss) income before income taxes

Writedown of goodwill and intangible assets

14,016

15,937

Non GAAP Income (loss) before income taxes

(13,737

Three months ended March 31, 2015

Gain on sale of KCG Hotspot

(385,026

79,240

Professional fees related to the sale of KCG Hotspot

Compensation expense related to the sale of KCG Hotspot

Lease loss accrual, net

Non-GAAP Income (loss) before income taxes

(14,138

* Totals may not add due to rounding.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Knight Capital Group releases salary data. CEO sees compensation fall -29% - April 1, 2016
Knight Capital: Soliciting Material Pursuant To Section 240.14A-12 KCG HOLDINGS, INC. - April 1, 2016
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