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KCG ANNOUNCES FIRST QUARTER 2016 RESULTS

April 21, 2016 7:01 AM EDT


KCG ANNOUNCES CONSOLIDATED EARNINGS OF $0.41 PER DILUTED SHARE FOR THE FIRST QUARTER OF 2016

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

KCG's 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 company's debt.

Select Financial Results ($ in thousands, except EPS)
  1Q16   4Q15   1Q15
GAAP Revenues 345,424   264,036   696,156
Non-GAAP revenues* 345,424   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 0.41   (0.03)   2.19
Non-GAAP pre-tax income (loss)* 59,965   (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 KCG's 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 KCG's 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

  1Q16   4Q15   1Q15
Average daily dollar volume traded ($ millions) 30,888   28,842   31,025
Average daily trades (thousands) 4,236   3,667   3,947
Average daily shares traded (millions) 4,816   4,698   5,048
  NYSE and NASDAQ shares traded 1,109   922   933
  OTC Bulletin Board and OTC Market shares traded 3,707   3,775   4,115
Average revenue capture per U.S. equity dollar value traded (bps) 1.13   0.77   0.92

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. KCG's 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

  1Q16   4Q15   1Q15
Average daily KCG Institutional Equities U.S. equities shares traded (millions) (1) 271.8   238.4   231.4
Average daily KCG BondPoint fixed income par value
traded ($ millions)
192.4   150.7   145.8
  1. 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 KCG's 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.

KCG's 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, KCG's ownership stake in Bats was reduced to approximately 13.7 percent.

On April 20, 2016, KCG's 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 company's 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=5948540&passcode=5948540  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 KCG's industry, management's 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 KCG's organizational structure and management; (v) KCG's ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG's customers and potential customers; (vi) KCG's ability to keep up with technological changes; (vii) KCG's 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 KCG's ability to maintain and expand market share; (x) the announced plan to relocate KCG's global headquarters from Jersey City, NJ to New York, NY; and (xi) KCG's 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 KCG's reports with the U.S. Securities and Exchange Commission ("SEC"), including those detailed in "Risk Factors" in Part I, Item 1A of KCG's 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 "Management's 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 KCG's 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
[email protected] [email protected]

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)
Revenues                    
Trading revenues, net  $ 223,938      $ 145,959      $ 208,795
Commissions and fees   106,101       94,315       99,961
Interest, net   117       (429)       (23)
Investment income and other, net   15,268       24,191       387,423
Total revenues   345,424       264,036       696,156
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   9,492       10,025       9,397
Collateralized financing interest   9,163       8,746       8,456
Occupancy and equipment rentals   8,990       7,842       7,340
Professional fees   6,057       5,774       11,181
Business development   1,119       1,751       1,857
Writedown of assets and other real estate related charges     -       16,154       132
Other   9,201       8,235       6,874
Total expenses   285,459       268,507       290,028
Income (loss) before income taxes   59,965       (4,471)       406,128
Income tax expense (benefit)   22,800       (1,500)       156,827
Net income (loss)  $ 37,165      $ (2,971)      $ 249,301
Basic earnings (loss) per share  $ 0.42      $ (0.03)      $ 2.25
Diluted earnings (loss) per share  $ 0.41      $ (0.03)      $ 2.19
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       89,184       113,615

KCG HOLDINGS, INC.     Exhibit 2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION      
(In thousands)          
(Unaudited)          
  March 31, 2016   December 31, 2015
ASSETS          
Cash and cash equivalents  $ 647,070    $ 581,313
Cash and cash equivalents segregated under federal and other regulations   3,000     3,000
Financial instruments owned, at fair value:          
Equities   2,350,324     2,129,208
Listed options   11,801     178,360
Debt securities   174,222     136,387
Other financial instruments   204     445
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:          
Equities  $ 1,743,843    $ 1,856,171
Listed options   9,635     151,893
Debt securities   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
Debt   451,864     484,989
Total liabilities   4,712,124     4,596,437
Equity          
Class A Common Stock   1,090     1,060
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   285     350
Total equity   1,484,174     1,444,098
Total liabilities and equity  $ 6,196,298    $ 6,040,535

KCG HOLDINGS, INC.                 Exhibit 3
PRE-TAX EARNINGS (LOSS) BY BUSINESS SEGMENT            
(In thousands)                  
(Unaudited)                  
    For the three months ended 
    March 31, 2016   December 31, 2015   March 31, 2015
Market Making                  
Revenues   $ 258,918   $ 168,227    $ 224,548
Expenses     183,429     173,359     185,208
Pre-tax earnings (loss)     75,489     (5,132)     39,340
                   
Global Execution Services                  
Revenues     76,394     70,221     464,266
Expenses     70,133     71,336     83,208
Pre-tax earnings (loss)     6,261     (1,115)     381,058
                   
Corporate and Other                  
Revenues     10,112     25,588     7,342
Expenses     31,897     23,812     21,612
Pre-tax (loss) earnings     (21,785)     1,776     (14,270)
                   
Consolidated                  
Revenues     345,424     264,036     696,156
Expenses     285,459     268,507     290,028
Pre-tax earnings (loss)   $ 59,965   $ (4,471)    $ 406,128

KCG HOLDINGS, INC.                       Exhibit 4
Regulation G Reconciliation of Non-GAAP financial measures*                        
(In thousands)                        
(Unaudited)                        
Three months ended December 31, 2015   Market Making   Global Execution Services   Corporate and Other   Consolidated
Reconciliation of GAAP Revenues  to Non-GAAP Revenues:                         
GAAP Revenues   $   168,227    $   70,221    $   25,588    $   264,036
Gain on sales of investments       -       -       (19,751)       (19,751)
Writedowns of investments       -       -       3,224       3,224
Non- GAAP Revenues   $   168,227    $   70,221    $   9,061    $   247,509
                         
Three months ended December 31, 2015   Market Making   Global Execution Services   Corporate and Other   Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:                         
GAAP (Loss) income before income taxes   $   (5,132)   $   (1,115)   $   1,776   $   (4,471)
Gain on sales of investments       -       -       (19,751)       (19,751)
Writedowns of investments       -       -       3,224       3,224
Writedown of goodwill and intangible assets       14,016       907       1,014       15,937
Writedown of assets       216       -       -       216
Non GAAP Income (loss) before income taxes   $   9,100   $   (208)   $   (13,737)   $   (4,845)
                         
Three months ended March 31, 2015   Market Making   Global Execution Services   Corporate and Other   Consolidated
Reconciliation of GAAP Revenues  to Non-GAAP Revenues:                         
GAAP Revenues   $ 224,548   $ 464,266   $ 7,342   $ 696,156
Gain on sale of KCG Hotspot       -       (385,026)       -     (385,026)
Non- GAAP Revenues   $ 224,548   $ 79,240   $ 7,342   $ 311,130
                         
Three months ended March 31, 2015   Market Making   Global Execution Services   Corporate and Other   Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:                         
GAAP Income (loss) before income taxes   $ 39,340   $ 381,058   $ (14,270)   $ 406,128
Gain on sale of KCG Hotspot       -       (385,026)       -     (385,026)
Professional fees related to the sale of KCG Hotspot       -       6,736       -     6,736
Compensation expense related to the sale of KCG Hotspot       -       4,457       -     4,457
Lease loss accrual, net       -       -     132     132
Non-GAAP Income (loss) before income taxes   $ 39,340   $ 7,225   $ (14,138)   $ 32,427
                         
* Totals may not add due to rounding.                        




This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: KCG Holdings, Inc. via Globenewswire

HUG#2005341


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