TradeStation Group, Inc. (Nasdaq:TRAD) today reported 2010 third
quarter net revenues of $29.6 million, net income of $3.1 million,
and earnings per share (diluted) of 8 cents, compared to 2009 third
quarter net revenues of $32.4 million, net income of $3.7 million,
and earnings per share (diluted) of 9 cents. Included in 2010 third
quarter net income are $2.4 million in non-recurring net federal,
state and local tax benefits, as well as $426,000 of after-tax
"mark-to-market" net losses, primarily from TradeStation
Securities' investment in the Chicago Board Options Exchange
(CBOE). Excluding the non-recurring tax benefits and
"mark-to-market" losses, the company would have had 2010 third
quarter net revenues of $30.3 million, net income of $1.1 million,
and earnings per share (diluted) of 3 cents.1 Management believes
that excluding the non-recurring tax benefits and "mark-to-market"
losses provides investors with a better view of the results of the
company's operations.
Brokerage commissions and fees for the 2010 third quarter were
$26.0 million, as compared to 2009 third quarter brokerage
commissions and fees of $28.6 million. Brokerage commissions and
fees are the largest component of the company's net revenues.
"During a very difficult quarter, when market volatility,
especially intra-day market volatility, decreased, we continued to
generate net income and add new accounts," said David Fleischman,
the company's Chief Financial Officer. "We continue to believe
that TradeStation's strength and positioning speak well to our
chances of developing significant market share in the active trader
space over the next several years."
1The following table reconciles
net income, as reported, to net income excluding the after tax
effect of tax benefits, net, and net losses on marketable
securities for the three months ended September 30,
2010. |
|
|
|
|
|
|
Amount (in
thousands) |
Earnings per Share
(diluted) |
|
|
|
Net income, as reported |
$3,056 |
$0.08 |
|
|
|
Net federal, state and local tax benefits
* |
(2,410) |
(0.06) |
|
|
|
Net losses on marketable securities * |
426 |
0.01 |
|
|
|
Net income, excluding the effect of federal,
state and local tax benefits, net and losses on
marketable securities, net |
$1,072 |
$0.03 |
|
|
|
* After taxes |
|
|
TradeStation Reports DARTs and Record Total
Accounts
For the 2010 third quarter, TradeStation experienced the
following year-over-year daily trading results with respect to
equities, futures and forex accounts:
|
Q3 10 |
|
|
Q3 09 |
|
|
% Decrease |
Daily Average Revenue Trades |
75,746 |
|
|
79,577 |
|
|
5% |
The company also published today, in a separate announcement,
its DARTs, Total Client Assets, Average Equities Client Credit
Balances and Average Equities Client Margin Balances for the month
of September 2010.
TradeStation had 47,434 active brokerage accounts at September
30, 2010, a 4.1% increase from September 30, 2009.
TradeStation's Average Client Trades 404 Times per Year
and Has an Average Account Balance of $71,000 for Equities and
$22,000 for Futures
TradeStation's brokerage client account metrics are among the
best in the industry. TradeStation brokerage clients
generated the following client account metrics in the 2010 third
quarter:
Client Trading Activity |
|
Annualized average revenue per account |
$2,288 |
Annualized trades per account |
404 |
|
|
Client Account
Assets |
|
Average assets per account (Equities) |
$71,000 |
Average assets per account (Futures) |
$22,000 |
Company Purchases 583,079 Shares under Stock Buy-Back
Plan
In the 2010 third quarter, the company purchased 583,079 shares
of its common stock pursuant to its stock buy-back plan (which
terminates in mid-November 2010) for a total purchase price of
$3.75 million. Since buying under the plan began November 13,
2006, through September 30, 2010 the company has purchased
6,751,486 shares for a total purchase price of $58.1 million.
Under the stock buy-back plan, the company is authorized, over a
4-year period, to purchase up to $60 million of its common
stock using available and unrestricted cash in the open market or
through privately-negotiated transactions pursuant to one or more
Rule 10b5-1 plans or programs. Pursuant to the plan, up to
$1,250,000 of company cash per month during each month of the
4-year period (i.e., up to $15 million per 12-month period and
up to $60 million for the 4-year period) has been authorized
to be used to purchase company shares at prevailing prices, subject
to compliance with applicable securities laws, rules and
regulations, including Rules 10b5-1 and 10b-18. The buy-back
plan does not obligate the company to acquire any specific number
of shares in any period, and may be modified, suspended, extended
or discontinued at any time without prior notice.
Company Provides 2010 Fourth Quarter Business
Outlook
TradeStation today also published its 2010 Fourth Quarter
Business Outlook.
The company's 2010 Fourth Quarter Business Outlook estimated
ranges are as follows:
2010 FOURTH QUARTER
BUSINESS OUTLOOK (In Millions, Except Per Share
Data) |
|
|
|
|
2010 Fourth
Quarter |
NET REVENUES |
$30.0 to $32.0 |
|
|
EARNINGS PER SHARE (Diluted) |
$0.02 to $0.04 |
The company's 2010 fourth quarter estimated ranges are based on
numerous assumptions, including: basing the midpoints of the
ranges on average daily revenue per account for each asset class
(equities, futures, forex) at approximately the same level as
average daily revenue per account over the 9-month period ended
September 30, 2010, adjusted for seasonality, plus a stub period in
October 2010 (the period used and the formula and criteria applied
often vary with each Business Outlook based upon management's
judgment each period concerning the best assumptions to use); U.S.
Treasury Bill and Treasury Note yields the company receives
remaining constant at current levels throughout the remainder of
the 2010 year; no unrealized gain or loss on TradeStation
Securities' investment in the CBOE or its U.S. Treasury portfolio
in the 2010 fourth quarter; anticipated growth, attrition and
trading activity of active trader equities, futures and forex
accounts, and the proportions in trading activity among those asset
classes (each of which have different profit margin structures);
the timing of expenses relating to the company's growth initiatives
as compared to the timing of anticipated benefits from those
initiatives; and numerous other assumptions concerning the
company's business and industry, market conditions, and various
decisions, acts or failures to act both within and outside of the
company's control. All assumptions, expectations and beliefs
relating to the Business Outlook are forward-looking in nature and
actual results may differ materially from those estimated,
including, but not limited to, as a result of, or as indicated by,
the issues, uncertainties and risk factors set forth and referenced
above and below. In particular, to the extent market
volatility and/or market volumes move to significantly higher or
lower levels, net account growth increases, slows or decreases, the
U.S. Treasury Bill and/or Treasury Note rates of interest are
different than what has been assumed, and/or economic or financial
market conditions persist or worsen, or improve sooner or to a
higher degree than expected, or the company is subject to material
"mark-to-market" adjustments (up or down) on its investment in the
CBOE or its U.S. treasury securities holdings, the results
estimated in the Business Outlook will likely be materially
different than actual results.
Conference Call/Webcast
At 11:00, a.m., Eastern Time, today, members of TradeStation
Group senior management will conduct an analyst conference call to
discuss the company's 2010 third quarter results and its 2010
Fourth Quarter Business Outlook. All company
shareholders and the public are invited to listen. The telephone
conference will be broadcast live via the Internet at
www.TradeStation.com. The live webcast will be accompanied by
slides of graphs and charts. A rebroadcast of the call will be
accessible for approximately 90 days.
About TradeStation Group, Inc.
TradeStation Group, Inc. (Nasdaq:TRAD), through its principal
operating subsidiary, TradeStation Securities, Inc., offers the
TradeStation platform to the active trader and certain
institutional trader markets. TradeStation is an electronic trading
platform that offers state-of-the-art electronic order execution
and enables clients to design, test, optimize, monitor and automate
their own custom Equities, Options, Futures and Forex trading
strategies.
TradeStation Securities, Inc. (Member NYSE, FINRA, SIPC, DTCC,
OCC & NFA) is a licensed securities broker-dealer and a
registered futures commission merchant, and also a member of the
Boston Options Exchange, Chicago Board Options Exchange, Chicago
Stock Exchange, International Securities Exchange and NASDAQ OMX.
Its TradeStation Prime Services division, based in New York,
seeks to provide prime brokerage services to small and mid-sized
hedge funds and other firms. The company's technology subsidiary,
TradeStation Technologies, Inc., develops and offers strategy
trading software tools and subscription services. Its
London-based subsidiary, TradeStation Europe Limited, an
FSA-authorized brokerage firm, introduces UK and other European
accounts to TradeStation Securities.
Forward-Looking Statements – Issues, Uncertainties and
Risk Factors
This press release, including the 2010 Fourth Quarter Business
Outlook estimated ranges contained in this press release, and
today's earnings conference call, contain statements and estimates
that are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
When used in this press release, or the conference call, the words
"anticipate(s)," "anticipated," "anticipation," "assume(s),"
"assumption(s)," "become(s)," "belief(s)," "believe(s),"
"believed," "could," "designed," "estimate," "estimates,"
"estimated," "expect(s)," "expected," "expectation(s)," "going
forward," "future," "hopeful," "hopefully," "hope(s)," "intend(s),"
"intended," "look forward," "may," "might," "opportunity,"
"opportunities," "outlook(s)," "pending," "plan(s)," "planned,"
"potential," "scheduled," "shall," "should," "think(s)," "to be,"
"upcoming," "well-positioned," "will," "wish," "would," and similar
expressions, if and to the extent used, are intended to identify
forward-looking statements. All forward-looking statements are
based largely on current expectations and beliefs concerning future
events that are subject to substantial risks and uncertainties.
Actual results may differ materially from the results herein
suggested or suggested in the conference call. Factors that may
cause or contribute to the various potential differences include,
but are not limited to, the following:
- the company's ability (or lack thereof), based upon market
conditions, the level of success of its marketing and product
development and enhancement efforts, product and service quality
and reliability, competition (including both price and
quality-of-offering competition, which are intense) and other
factors (such as rule based trading not growing generally to the
extent the company believes it will), to achieve significant, or
any, net increases in DARTs, brokerage accounts and brokerage
commissions and fees sequentially or year over year (for example:
TradeStation's DARTs and brokerage commissions and fees both
decreased sequentially and year over year in the 2009 third and
fourth quarters and the 2010 first and third quarters, and
decreased year over year in the 2010 second quarter, and these
and other items may decrease sequentially or year over year in
subsequent periods);
- with respect to net new customer accounts in particular, which
fell to the lowest rate of increase in the company's history during
the 2010 third quarter, the company's ability (or lack thereof) to
maintain or increase the rate of quarterly gross account additions
and to control the rate of quarterly account attrition,
particularly in current market and economic conditions, including
unemployment, high volatility and swings in volatility, and if
those conditions worsen and/or are prolonged (net account growth
began substantially to slow in the 2009 third quarter);
- negative or other significant changes in the condition of the
securities and futures markets, and the financial markets and
economy generally (which could cause the company to experience
significantly lower revenues, net income and earnings per share, as
well as reduced market value of its publicly-traded shares of
common stock), or unexpected positive changes (which could have the
opposite effect);
- changes in the combined average volume of the major U.S.
equities and futures exchanges and in market volatility, which tend
to significantly affect customer trading volume at TradeStation
(for example, sharply increased market volatility in May 2010, and
the 2010 second quarter as a whole, as compared to the first
quarter in 2010, likely contributed to the significant increase in
client trading volume in the 2010 second quarter -- and more
recent lower volatility has likely contributed to lower client
trading volume since May 2010);
- changes in U.S. Treasury Note and/or Treasury Bill rates of
interest that are inconsistent with, or different from, the
company's assumption that there will be no increases in 2010, that
is, that those rates will remain at close to zero percent
throughout 2010;
- "mark-to-market" gains or losses on marketable securities that
impact the company's financial results even though they do not
affect the company's operations (for example, "mark-to-market"
gains on marketable securities increased earnings per share by
three cents in the 2010 second quarter and "mark-to-market" losses
decreased earnings per share by one cent in the 2010 third
quarter);
- technical difficulties, outages, errors or failures in the
company's electronic and software products, services and systems
relating to market data, order execution and trade processing and
reporting, and other software or system errors and failures, which
have occurred periodically over the past two years (also, although
the company maintains a redundant back-up system to its order
execution systems, that redundancy is not seamless, which could
materially intensify the negative consequences of any such
difficulties, outages, errors or failures), and the failure or
inability of the company to address the underlying issues or causes
relating to such problems, to adequately correct them and ensure
they do not repeat (particularly as the volume of market data
received from the exchanges, or the volume of the company's client
base's trading volume, requires increased, improved or different
hardware and/or software capacity, technology or company domain
know-how);
- the company's new "TradeStation Prime Services" division
turning out to be less profitable or more costly than expected, or
resulting in unanticipated claims or liabilities against the
company, as a result of (1) unanticipated start-up costs and
expenses that are not offset or exceeded by expected revenues as
and when planned (or at all), (2) the TradeStation trading
platform, and the prime services offering generally, not growing in
appeal to prime services clients to the extent the company believes
they will, (3) the failure of the company to make timely and
quality enhancements to its trading platform, or to offer
alternative platforms, which are believed necessary to attract
prime services clients to use TradeStation to execute and clear
trades, (4) TradeStation's size and balance sheet being
unacceptably small to mid-size and larger prime services clients
(which are part of the market segment the company intends to serve)
and/or (5) the general unpredictability of operating results for a
start-up business division, particularly given TradeStation's lack
of experience in offering prime brokerage services;
- a substantial decrease in the company's available cash should a
large portion of its current available cash be used for
acquisitions or other expansion activities;
- infrastructure, capital or other large expenses, or unforeseen
or unexpected liabilities and claims, the company may face as it
seeks to grow its U.S. active trader market business, and its
institutional (including prime services) and non-U.S. trader market
businesses, including potential acquisition, joint venture,
investment or business combination risks, costs and expenses (such
as start-up costs and expenses, absorption of ongoing losses from
an acquired entity, professional fees and, in the case of an
acquisition, amortization expense) incurred in the event the
company acquires, joint ventures with, invests in, or combines with
other businesses, or launches additional new divisions (such
potential opportunities are continuously under consideration);
- business interruptions, slowdowns or failures affecting vendors
or vendor services used by the company for clearance, settlement
and back-office systems, whether caused by adverse economic
conditions or other events, which could significantly interrupt,
impair or injure the company's core business operations;
- the potential negative effects on the company's forex
commissions and fees, and forex business and prospects generally,
(1) based on unexpected mistakes, delays and costs in connection
with its planned restructuring of its forex business model, and (2)
a recently enacted CFTC rule imposing a limit on buying power
leverage of 50-to-1 on major foreign currency pairs and 20-to-1 for
other currency pairs and a proposed FINRA rule which would, if
adopted, prohibit broker-dealers and futures commission merchants
from offering buying power higher than a leverage of 4-to-1, each
as compared to the buying power leverage of up to 100-to-1 or
200-to-1 typically offered throughout the world today;
- the potential negative effects on the company's brokerage
commissions and fees of any future rules that may be imposed which
ban short selling or restrict or limit short selling (such as the
new rule adopted by the SEC in February 2010, which limits short
selling on individual stocks whose value has declined ten percent
or more in a single day), as a significant percentage of the firm's
daily client trades on many trading days are short sale
transactions, and its intended "securities lending" operations
depend on short selling, that is, the need of clients to locate and
borrow stock to effect their transactions;
- in general, new or modified regulatory rules or requirements,
or increased or more stringent enforcement and higher fines or
greater sanctions, concerning required liquidity, net capital or
deposits, or the manner in which TradeStation Securities operates
its business and monitors and ensures compliance of its business
operations with applicable laws, rules and regulations, that may be
enacted or imposed in response to the current economic crisis and
recent scandals, and which could materially increase the firm's
cash requirements to conduct its business, require substantial
increases in compliance, legal and/or brokerage operations costs,
result in fines, penalties or sanctions, limit or reduce the firm's
access to, or use of, a significant percentage of its now-available
cash, or otherwise limit the firm's ability to engage fully, and
with as much success, in the services it currently provides and/or
those expanded services that TradeStation Securities is seeking to
provide;
- the frequency and size of, and ability to collect, unsecured
client account debits as a result of volatile market movements and
unstable economic conditions, particularly in concentrated
positions held in client accounts or as a result of other high-risk
positions or circumstances;
- the company's estimated earnings per share (diluted) being
based on assumptions of a certain number of outstanding shares and
an average stock price for particular time periods that turn out to
be inaccurate (if the number of outstanding shares and/or the
average stock price is actually higher than what has been assumed,
there will be more dilution and the actual earnings per share would
be lower, and, if both of those are lower, there will be less
dilution and higher earnings per share) because of new or modified
company share buy-back plans (which the company considers from time
to time and which could be implemented later in 2010) or other
events or factors that can affect the price of the company's shares
or the number of outstanding shares;
- unauthorized intrusion and/or other criminal or fraudulent
activity in customer accounts by persons who unlawfully or
improperly access or use customer accounts (through deceit or
otherwise) and then place orders or other transactions in, or
deposit misappropriated funds in, or improperly withdraw funds
from, those accounts;
- the effect of changes in product mix (how much of customer
trading volume is stocks versus equity options versus futures
versus forex), which can affect the company's revenues, net income
and margins, even if overall volume remains the same;
- the effect of unanticipated increased infrastructure costs that
may be incurred as the company seeks to increase its product
development/information technology headcount and resources (which
the company continues to try to do as quickly as possible) and
grows its brokerage firm operations, adds offices, adds accounts
and introduces and expands existing and new product and service
offerings;
- pending regulatory matters which could result in fines,
sanctions and/or other negative consequences;
- the amount of unexpected legal, consultation and professional
fees (including fees related to pending and future regulatory
matters, lawsuits or other proceedings against the company, or
potential acquisitions, investments, business combinations or
strategic relationships);
- the general variability and unpredictability of operating
results forecast on a quarterly or annual basis; and
- other items, events and unpredictable costs or revenue impact
items or events that may occur, and other issues, risks and
uncertainties indicated from time to time in the company's filings
with the Securities and Exchange Commission, including, but not
limited to, the company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2009, Quarterly Reports on Form 10-Q
for the quarterly periods ended March 31, 2010 and June 30, 2010,
and other SEC filings, and company press releases, conference calls
and public presentations or statements.
TRADESTATION GROUP, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME |
(Unaudited) |
(in thousands, except
per share data) |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
Brokerage commissions and fees |
$26,031 |
$28,623 |
$83,435 |
$93,422 |
|
|
|
|
|
Interest income |
2,757 |
1,612 |
7,673 |
3,948 |
Brokerage interest expense |
-- |
-- |
-- |
-- |
Net interest income |
2,757 |
1,612 |
7,673 |
3,948 |
|
|
|
|
|
Subscription fees and other |
1,517 |
1,777 |
4,754 |
5,809 |
|
|
|
|
|
Gains (losses) on marketable securities,
net |
(728) |
344 |
4,175 |
344 |
|
|
|
|
|
Net revenues |
29,577 |
32,356 |
100,037 |
103,523 |
|
|
|
|
|
EXPENSES: |
|
|
|
|
Employee compensation and benefits |
11,400 |
10,509 |
34,055 |
31,662 |
Clearing and execution |
6,952 |
7,160 |
22,452 |
23,822 |
Data centers and communications |
3,403 |
2,902 |
10,846 |
8,551 |
Marketing |
1,791 |
1,453 |
5,070 |
5,046 |
Professional services |
1,109 |
754 |
2,545 |
2,514 |
Occupancy and equipment |
805 |
800 |
2,364 |
2,282 |
Depreciation and amortization |
1,317 |
1,062 |
3,330 |
3,306 |
Other |
2,474 |
1,653 |
6,220 |
4,862 |
|
|
|
|
|
Total expenses |
29,251 |
26,293 |
86,882 |
82,045 |
|
|
|
|
|
Income before income taxes |
326 |
6,063 |
13,155 |
21,478 |
|
|
|
|
|
INCOME TAX (BENEFIT) PROVISION |
(2,730) |
2,366 |
2,484 |
8,420 |
|
|
|
|
|
Net income |
$3,056 |
$3,697 |
$10,671 |
$13,058 |
|
|
|
|
|
EARNINGS PER SHARE: |
|
|
|
|
Basic |
$0.08 |
$0.09 |
$0.27 |
$0.31 |
Diluted |
$0.08 |
$0.09 |
$0.26 |
$0.31 |
|
|
|
|
|
WEIGHTED AVERAGE SHARES |
|
|
|
|
OUTSTANDING: |
|
|
|
|
Basic |
39,624 |
41,285 |
40,051 |
41,715 |
Diluted |
39,996 |
41,792 |
40,476 |
42,188 |
TRADESTATION GROUP,
INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(in
thousands) |
|
|
|
|
|
|
|
September 30, |
December 31, |
|
2010 |
2009 |
|
(Unaudited) |
|
ASSETS: |
|
|
|
|
|
Cash and cash equivalents, including
restricted cash of $478 at September 30, 2010 and $717 at
December 31, 2009* |
$52,512 |
$57,405 |
Cash and investments segregated in
compliance with federal regulations |
1,277,768 |
785,208 |
Marketable securities* |
56,678 |
76,342 |
Receivables from brokers, dealers,
clearing organizations and clearing agents |
36,689 |
32,226 |
Receivables from brokerage customers,
net |
53,227 |
45,034 |
Property and equipment, net |
16,711 |
7,578 |
Deferred income taxes, net |
1,780 |
1,276 |
Deposits with clearing
organizations |
35,485 |
38,521 |
Other assets |
4,122 |
5,606 |
|
|
|
Total assets |
$1,534,972 |
$1,049,196 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY: |
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
Payables to brokers, dealers and clearing
organizations |
$198 |
$114 |
Payables to brokerage customers |
1,347,914 |
868,741 |
Accounts payable |
5,340 |
2,627 |
Accrued expenses |
8,210 |
7,206 |
Total liabilities |
1,361,662 |
878,688 |
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
SHAREHOLDERS' EQUITY |
173,310 |
170,508 |
|
|
|
Total liabilities and shareholders'
equity |
$1,534,972 |
$1,049,196 |
*Marketable securities as of September 30,
2010 exclude $4.0 million that was transferred on October 1, 2010
from cash and investments segregated in compliance with federal
regulations. Cash and cash equivalents as of December 31, 2009
include $7.7 million that was transferred on January 4, 2010 to
cash and investments segregated in compliance with federal
regulations. |
CONTACT: David H. Fleischman
Chief Financial Officer
TradeStation Group, Inc.
954-652-7000
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