KCG Announces Consolidated Earnings Of $0.08 Per Diluted Share For The Second Quarter Of 2014

JERSEY CITY, N.J., Aug. 1, 2014 /PRNewswire/ -- KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $8.9 million, or $0.08 per diluted share, for the second quarter of 2014.

Net income for the second quarter of 2014 included income from continuing operations, net of tax, of $9.0 million, or $0.08 per diluted share. Pre-tax income from continuing operations for the quarter of $14.5 million included $3.1 million in compensation related to a reduction in workforce, a $2.0 million write down of capitalized debt costs related to the principal repayment of debt, and lease loss accruals of $1.9 million. Excluding these items, pre-tax income from continuing operations for the second quarter was $21.5 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.

Second Quarter Highlights

• Posted strong revenue capture per U.S. equity dollar value traded in market making despite the deterioration in market conditions
• Modest market share gains in market making, agency execution and trading venues
• Added quantitative-based trading strategy and analysis to the client offering
• Combined the primary U.K. broker dealers into KCG Europe Limited
• Completed a $50 million principal repayment on the Company's $535 million first lien term loan and terminated the facility ahead of its December 5, 2017 maturity date
• Repurchased 4.5 million shares for approximately $52.9 million under the Company's initial $150 million stock repurchase program

Daniel Coleman, Chief Executive Officer of KCG, said, "During the second quarter, KCG made further progress in strengthening the firm's operations, technology and finances. We grew market share in an environment marked by contracting trade volumes and declining volatility across asset classes. We made further headway in rationalizing the client offering as well as reducing headcount from select teams and support functions. In addition, we reached our target debt level and began to return capital to stockholders through share repurchases."

He added, "While KCG is still in a period of transformation, our financial standing is considerably improved. In the first full year of operation, KCG released $200 million in excess capital from the integration of the predecessor firms and sale of assets. Amid the demands of integration, we generated over $185 million in free cash flow from operating income since the merger close and reduced corporate debt by $793 million."

Starting 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 determined 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 has no impact to the consolidated results, will only be reported prospectively and, therefore, will not be 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. and Europe. During 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 first quarter of 2014, the segment reported total revenues of $277.3 million and pre-tax income of $76.0 million, which included a debt interest charge of $7.2 million.

The decline in segment revenues was primarily due to a 13 percent decrease in consolidated U.S. equity share volume quarter on quarter and an approximate 20 percent decrease market wide in retail U.S. equity share volume. In addition, realized volatility for the S&P 500 averaged just 9.2 during the quarter. Nonetheless, KCG recorded strong revenue capture and grew market share of both consolidated and retail volume during the quarter. Revenues from market making in global equities, fixed income, currencies and commodities were impacted by broad declines in market volumes and related volatility benchmarks.

Select Trade Statistics: U.S. Equity Market Making

Global Execution Services

The Global Execution Services segment comprises agency execution services and trading venues. During 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. In the first quarter of 2014, the segment reported total revenues of $87.2 million and pre-tax income of $2.0 million, which included a debt interest charge of $2.4 million.

The segment revenues largely withstood the deterioration in market conditions due to the more effective alignment of institutional equities sales and improved performance of the global ETF team. KCG algorithmic services gained market share in both U.S and European equities quarter on quarter. KCG BondPoint continued to steadily gain market share in corporate and municipal bonds.

Select Trade Statistics: Agency Execution and Trading Venues

Corporate and Other

The Corporate and Other segment includes strategic investments and corporate overhead expenses. During 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 segment's pre-tax loss for the second quarter was $17.9 million. In the first quarter of 2014, the segment recorded total revenues of $19.1 million and a pre-tax loss of $18.7 million. Included in the results was revenue of $9.6 million resulting from the merger of BATS and Direct Edge, a $7.6 million write down of capitalized debt costs related to the principal repayment of debt and a lease loss accrual. Excluding these items, the Corporate and Other segment's pre-tax loss for the first quarter was $20.8 million.

Financial Condition

As of June 30, 2014, KCG had approximately $600.9 million in cash and cash equivalents. Total outstanding debt was approximately $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 $12.66 per share and tangible book value of $11.04 per share.

KCG's headcount at June 30, 2014 was 1,207 full-time employees as compared to 1,230 full-time employees at March 31, 2014.

During the second quarter of 2014, KCG repurchased 4.5 million shares for approximately $52.9 million under the Company's initial $150.0 million stock repurchase program. As of June 30, 2014, KCG had approximately $97.1 million 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 second quarter 2014 financial results starting at 9:00 a.m. Eastern Time today, August 1, 2014. To access the call, dial 888-778-8861 (domestic) or 913-312-1450 (international) and enter passcode 7106907. 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 (domestic) or 719-457-0820 (international) and entering passcode 7106907.

Additional information for investors, including a presentation of the second 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 June 30, 2014, March 31, 2014 and June 30, 2013 and for the six months ended June 30, 2014 and 2013. KCG believes the presentations provide a meaningful summary of results of operations for each of the three and six 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 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 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 Knight's broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight's capital structure and business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG's reverse mortgage origination and securitization business and the departure of the managers of KCG's 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) 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; (vii) KCG's ability to keep up with technological changes; (viii) KCG's 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 KCG's ability to maintain and expand market share. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in KCG's reports with the SEC, including, without limitation, those detailed under "Risk Factors" in KCG's Annual Report on Form 10-K for the year-ended December 31, 2013, under "Certain Factors Affecting Results of Operations" in KCG's Quarterly Report on Form 10-Q for the period ended March 31, 2014, and other reports or documents KCG files with, or furnishes to, the SEC from time to time.

SOURCE KCG Holdings, Inc.