UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule TO
Tender Offer Statement under Section 14(d)(1) or 13(e)(1)
Of the Securities Exchange Act of 1934
KCG Holdings,
Inc.
(Name of Subject Company (Issuer) and Filing Person (Offeror))
Class A Common Stock, par value $0.01 per share
(Title of Class of Securities)
48244B 100
(CUSIP
Number of Class of Securities)
John McCarthy, Esq.
KCG
Holdings, Inc.
545 Washington Boulevard
Jersey City, New Jersey 07310
(201) 222-9400
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
with a copy
to:
Robert W. Reeder, Esq.
Jared M. Fishman, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New
York, New York 10004
(212) 558-4000
(Name, address and telephone number of person authorized to receive notices and communications on behalf of the filing persons)
CALCULATION OF FILING FEE
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Transaction Valuation* |
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Amount of Filing Fee* |
$N/A |
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$N/A |
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* |
Pursuant to General Instruction D to Schedule TO, no filing fee is required for pre-commencement communications. |
¨ |
Check the box if any part of the fee is offset as provided by Rule 011(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: Not Applicable |
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Filing Party: Not Applicable |
Form or Registration No.: Not Applicable |
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Date Filed: Not Applicable |
x |
Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. |
Check the appropriate boxes below to designate any transactions to which the statement relates:
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¨ |
third-party tender offer subject to Rule 14d1. |
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x |
issuer tender offer subject to Rule 13e4. |
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going-private transaction subject to Rule 13e3. |
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amendment to Schedule 13D under Rule 13d2. |
Check the following box if the filing is a
final amendment reporting the results of the tender offer: ¨
If applicable,
check the appropriate box(es) below to designate the appropriate rule provision(s) relied upon:
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Rule 13e4(i) (Cross-Border Issuer Tender Offer) |
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Rule 14d1(d) (Cross-Border Third-Party Tender Offer) |
On May 1, 2015, KCG Holdings, Inc., a Delaware corporation (KCG or the
Company), issued a press release announcing that it plans to launch a modified Dutch auction tender offer to repurchase for cash up to $330 million of outstanding shares of its Class A Common Stock, par value $0.01 per share (the
Shares). A copy of the press release is included as Exhibit 99.1 to this Schedule TO. Executives from KCG will review the announcements contained in the press release via teleconference and live audio webcast at 9:00 a.m. Eastern time on
May 1, 2015. A copy of a visual presentation that will be a part of that review is included as Exhibit 99.2 to this Schedule TO.
The
tender offer described in Exhibits 99.1 and 99.2 has not yet commenced. The press release and earnings presentation included as Exhibits 99.1 and 99.2 are for informational purposes only, are not a recommendation to buy or sell Shares, and do not
constitute an offer to buy or the solicitation to sell Shares. The tender offer will be made only pursuant to the Offer to Purchase, Letter of Transmittal and related materials that KCG expects to file Monday, May 4th with the Securities and
Exchange Commission. Stockholders should read carefully the Offer to Purchase, Letter of Transmittal and related materials because they contain important information, including the various terms of, and conditions to, the tender offer. Once the
tender offer is commenced, stockholders will be able to obtain a free copy of the tender offer statement on Schedule TO, the Offer to Purchase, Letter of Transmittal and other documents that KCG will be filing with the Securities and Exchange
Commission at the Commissions website at www.sec.gov or the investor information section of KCGs website at www.kcg.com.
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Exhibit Number |
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Description |
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99.1 |
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Press Release, dated May 1, 2015. |
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99.2 |
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KCG Holdings, Inc. Earnings Presentation, dated May 1, 2015. |
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and
correct.
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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 |
Date: May 1, 2015
EXHIBIT INDEX
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Exhibit Number |
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Description |
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99.1 |
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Press Release, dated May 1, 2015. |
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99.2 |
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KCG Holdings, Inc. Earnings Presentation, dated May 1, 2015. |
Exhibit 99.1
KCG ANNOUNCES CONSOLIDATED EARNINGS OF $2.19
PER DILUTED SHARE FOR THE FIRST QUARTER OF 2015
From first quarter 2015 results and the sale of KCG Hotspot,
KCGs tangible book value rises to $13.86 per share, book value increases
to $15.10 per share, and stockholders equity rises to $1.78 billion
KCG announces plans to launch a modified Dutch auction tender offer
for up to $330 million of its common stock
JERSEY CITY, New Jersey May 1, 2015 KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $249.3 million, or $2.19
per diluted share, for the first quarter of 2015.
Included in these results is a pre-tax gain of $373.8 million from the sale of KCG Hotspot net of
professional fees and compensation costs related to the sale. Excluding these items, on a non-GAAP basis, first quarter 2015 pre-tax income from continuing operations was $32.4 million. A reconciliation of GAAP to non-GAAP results is included in
Exhibit 4.
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Select Financial Results |
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($ in thousands, except EPS) |
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From Continuing Operations |
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1Q15 |
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4Q14 |
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1Q14 |
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Revenues |
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696,156 |
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346,139 |
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383,657 |
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Non-GAAP revenues* |
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311,130 |
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344,023 |
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374,013 |
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Trading revenues, net |
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208,795 |
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221,415 |
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258,297 |
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Commissions and fees |
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99,961 |
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117,326 |
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112,257 |
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GAAP pre-tax income |
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406,128 |
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26,531 |
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59,384 |
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GAAP EPS |
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2.19 |
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0.23 |
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0.31 |
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Non-GAAP pre-tax income* |
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32,427 |
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30,532 |
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57,563 |
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* |
See Exhibit 4 for a reconciliation of GAAP to non-GAAP results. |
First Quarter Highlights
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Market making grew the percentage of consolidated U.S. equity share and dollar volume on both a quarter over quarter and year over year basis |
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KCG BondPoint grew trade volumes across Corporates, Municipals and CDs on both a quarter over quarter and year over year basis |
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Completed the sale of KCG Hotspot to BATS Global Markets, Inc. |
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Raised $500 million in 6.875% Senior Secured Notes due in 2020, repaid $117 million in Convertible Notes upon maturity in March 2015, and, subsequent to the quarter, redeemed $305 million in 8.250% Senior Secured Notes
due in 2018 |
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Subsequent to the quarter, announced plans to launch a modified Dutch auction tender offer for up to $330 million of its common stock as part of an expanded share repurchase program |
During the first quarter, we accomplished a great deal. On the cost front, weve relentlessly focused on operating expenses. On the client
front, we continue to develop strategic relationships. In addition, we closed the sale of KCG Hotspot to BATS and initiated a process to rationalize our long-term debt. Weve done all this while continuing to build out and optimize our trading
businesses to position them for future revenue growth, said CEO Daniel Coleman. Notwithstanding all of this, we believe we can do more. We can support our firms ability to grow with regard to improving returns on equity and
optimizing our capital structure. To that end, we announced a planned $330 million tender offer at a range of $13.50 to $14.00 per share. The offer is a premium to current and historical prices our shares have traded at since the merger. We
believe this is an appropriate recognition of our stockholders patience as we have worked through the integration and we believe this is the right use of capital as we invest in our future as a new breed of independent securities
firm.
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 2015, the
segment generated total revenues of $224.5 million and pre-tax income of $39.3 million.
During the first quarter of 2015, consolidated U.S equity share
and dollar volume posted modest declines quarter over quarter despite the continued rise of leading market indexes. Retail investors remained engaged as evidenced by the sustained average daily SEC Rule 605 share volume and net flows into stocks
during the quarter. Market volumes for fixed income, currencies and commodities during the quarter were mixed, punctuated by heightened trading activity from macro events.
Mr. Coleman commented, KCGs market making results reflect lower consolidated U.S. equity market volumes compared to the previous quarter and
similar levels of realized volatility. Anecdotally, we saw improvement in market making in European equities to European clients, offset by a more difficult quarter in U.S. options. During the quarter, KCG continued to make progress building
out direct-to-client market making in FX across regions.
In the fourth quarter of 2014, the segment generated total revenues of $238.7 million and
pre-tax income of $42.7 million. In the first quarter of 2014, the segment generated total revenues of $277.3 million and pre-tax income of $76.0 million.
Select Trade Statistics: U.S. Equity Market Making
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1Q15 |
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4Q14 |
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1Q14 |
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Average daily dollar volume traded ($ millions) |
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31,025 |
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31,621 |
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27,321 |
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Average daily trades (thousands) |
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3,947 |
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4,036 |
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3,958 |
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Average daily shares traded (millions) |
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5,048 |
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5,241 |
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14,907 |
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NYSE and NASDAQ shares traded |
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933 |
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933 |
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862 |
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OTC Bulletin Board and OTC Market shares traded |
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4,115 |
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4,308 |
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14,045 |
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Average revenue capture per U.S. equity dollar value traded (bps) |
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0.92 |
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0.93 |
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1.26 |
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Global Execution Services
The Global Execution Services segment comprises agency execution services and trading venues. During the first quarter of 2015, the segment generated total
revenues of $464.3 million and pre-tax income of $381.1 million. Excluding the gain on the sale of KCG Hotspot and related professional and compensation expenses, the segment generated total revenues of $79.2 million and pre-tax income of $7.2
million.
During the first quarter of 2015, KCGs algorithmic trading continued to add leading institutions as clients. The ETF trading team posted a
strong quarter by developing existing clients and converting additional prospects. KCG BondPoint generated record average daily par value traded with growth in volumes of Corporates, Municipals and CDs.
Mr. Coleman commented, We believe algorithmic trading is a real, emerging strength at KCG. The product development process blends the firms
deep intellectual capital with our advanced technologies. Client orders benefit from access to KCGs naturally occurring liquidity from retail and institutional clients. We continue to focus on growing our business with buyside clients.
During the first quarter, 10 asset management clients began using KCG algorithms, and we onboarded an additional 16 new asset management clients. The decline in volume quarter over quarter reflects a decrease in low margin order routing flow, which
had a minimal impact on revenues.
As previously announced, during the quarter, KCG completed the sale of KCG Hotspot to BATS Global Markets. First
quarter 2015 financial results for the Global Execution Services segment includes contributions from KCG Hotspot encompassing 50 trading days until the completion of the sale on March 13, 2015.
In the fourth quarter of 2014, the segment generated total revenues of $93.4 million and pre-tax income of $10.0 million. Excluding a gain of $2.1
million from the sale of KCGs futures commodity merchant (FCM), the segment generated total revenues of $91.3 million and pre-tax income for the quarter of $7.9 million. In the first quarter of 2014, the segment generated total revenues
of $87.2 million and pre-tax income of $2.0 million.
Select Trade Statistics: Agency Execution and Trading Venues
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1Q15 |
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4Q14 |
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1Q14 |
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Average daily KCG algorithmic trading and order routing U.S. equities shares traded (millions) |
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299.0 |
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334.3 |
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281.0 |
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Average daily KCG BondPoint fixed income par value traded ($ millions) |
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145.8 |
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130.8 |
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144.2 |
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Average daily KCG Hotspot notional foreign exchange dollar value traded ($ billions)* |
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31.1 |
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31.6 |
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32.2 |
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* |
Represents KCG Hotspot ADV from January 1, 2015 to March 12, 2015. |
Corporate and Other
The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the first quarter of 2015, the segment generated total
revenues of $7.3 million and pre-tax loss of $14.3 million.
In the fourth quarter of 2014, the segment generated total revenues of $14.0 million and a
pre-tax loss of $26.1 million. Excluding net lease loss accruals of $6.1 million, the pre-tax loss for the quarter was $20.0 million. In the first quarter of 2014, the segment generated total revenues of $19.1 million and a pre-tax loss of
$18.7 million. Excluding revenue of $9.6 million from the merger of BATS and Direct Edge and a write down of $7.6 million in capitalized debt costs and net lease loss benefit of $0.1 million, the pre-tax loss for the quarter was $20.8 million.
Financial Condition
As of March 31, 2015, KCG
had $990.5 million in cash and cash equivalents. Total outstanding debt was $799.8 million (See Debt below). The Company had $1.78 billion in stockholders equity, equivalent to a book value of $15.10 per share and tangible book value of $13.86
per share based on total shares outstanding of 118.1 million, including restricted stock units.
KCGs headcount at March 31, 2015 was
1,038 full-time employees as compared to 1,093 full-time employees at December 31, 2014, which included 40 full-time employees of KCG Hotspot.
During the first quarter of 2015, KCG did not repurchase any shares of KCG Class A Common Stock.
Debt
On March 13, 2015, KCG provided 30 days
notice that it would call its 8.250% $305.0 million Senior Secured Notes due 2018 (8.250% Notes), effective April 13, 2015. KCG funded $330.2 million, an amount sufficient to redeem the outstanding aggregate principal amount of the
8.250% Notes plus accrued interest, a make whole premium and other costs into an escrow account. As the 8.250% Notes were redeemed in April, the $305.0 million remained on the Consolidated Statement of Financial Condition as of March 31, 2015.
The charges for the make-whole premium of $16.5 million and the acceleration of capitalized debt costs of $8.8 million will be recorded in the second quarter of 2015. In addition, upon maturity on March 16, 2015, KCG repaid all of its
outstanding $117.3 million aggregate principal amount of 3.50% Cash Convertible Senior Subordinated Notes.
Modified Dutch Auction Tender Offer
Subsequent to the first quarter of 2015, on April 2, 2015, KCGs board of directors authorized an expanded share repurchase program of up to
$400 million of KCG common stock and warrants (including the $55 million of remaining capacity under the previously authorized repurchase program). As part of this authority, KCG expects to commence, on May 4, 2015, a modified Dutch
auction tender offer that will remain open for at least 20 business days. Under the proposed terms of the tender offer, stockholders will have the opportunity to sell stock to KCG at a specified price per share not less than $13.50 and not
greater than $14.00. Upon expiration of the tender offer, and based on the number of shares tendered and the prices specified by the tendering stockholders, KCG will determine the lowest price within the range that will allow it to repurchase up to
$330 million of KCGs Class A common stock (or all Shares properly tendered and not properly withdrawn if the tender offer is not fully subscribed). All shares purchased by KCG in the tender offer will be purchased at the same price. If
the aggregate purchase price for shares tendered at or below the specified purchase price exceeds $330 million, allocations will be made on a pro rata basis from stockholders tendering at or below the purchase price, except as otherwise
specified in the Offer to Purchase. The tender offer range represents a premium of 5 percent to 9 percent above the closing price of KCGs common stock on the New York Stock Exchange of $12.84 on April 30, 2015. Assuming the offer is fully
subscribed, KCG will
repurchase a minimum of 23.6 million shares, or 22 percent of its total shares outstanding excluding restricted stock units (RSUs) as of April 29, 2015. Assuming the tender offer is
fully subscribed, approximately $70 million in authority will remain in the share repurchase program.
Additional Information Regarding the Tender
Offer
The tender offer described in this press release has not yet commenced. This press release is for informational purposes only, is not a
recommendation to buy or sell KCG common stock, and does not constitute an offer to buy or the solicitation to sell shares of KCG common stock. The tender offer will be made only pursuant to the Offer to Purchase, Letter of Transmittal and related
materials that KCG expects to file Monday, May 4th with the Securities and Exchange Commission. Stockholders should read carefully the Offer to Purchase, Letter of Transmittal and related
materials because they contain important information, including the various terms of, and conditions to, the tender offer. Once the tender offer is commenced, stockholders will be able to obtain a free copy of the tender offer statement on Schedule
TO, the Offer to Purchase, Letter of Transmittal and other documents that KCG will be filing with the Securities and Exchange Commission at the Commissions website at www.sec.gov or the investor information section of KCGs website at
www.kcg.com.
Conference Call
KCG will hold a
conference call to discuss first quarter 2015 financial results starting at 9:00 a.m. Eastern Time today, May 1, 2015. To access the call, dial 888-820-9418 (domestic) or 913-312-0399 (international) and enter passcode 2590902. In addition, the
call will be webcast at http://www.media-server.com/m/acs/60eea8e00b3e41855fa9a4e355bdce2f. 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=7898269&passcode=7898269 and entering passcode 7898269.
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 March 31, 2015, December 31, 2014 and March 31, 2014. 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 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, sale of KCGs futures commission merchant and the sale of KCG Hotspot; (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; (x) the effects of increased competition
and KCGs ability to maintain and expand market share; and (xi) the commencement and completion of the proposed tender offer. 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, 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 |
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Communications & Marketing |
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Investor Relations |
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312-931-2299 |
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201-356-1529 |
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media@kcg.com |
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jmairs@kcg.com |
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Exhibit 1
KCG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
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For the three months ended |
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March 31, 2015 |
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December 31, 2014 |
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March 31, 2014 |
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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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$ |
208,795 |
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$ |
221,415 |
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|
$ |
258,297 |
|
Commissions and fees |
|
|
99,961 |
|
|
|
117,326 |
|
|
|
112,257 |
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Interest, net |
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(23 |
) |
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|
(177 |
) |
|
|
948 |
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Investment income and other, net |
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387,423 |
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|
|
7,575 |
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|
|
12,155 |
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|
|
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|
|
|
|
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Total revenues |
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696,156 |
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|
|
346,139 |
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|
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383,657 |
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Expenses |
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|
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Employee compensation and benefits |
|
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106,718 |
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|
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116,214 |
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122,319 |
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Execution and clearance fees |
|
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68,473 |
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82,377 |
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75,501 |
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Communications and data processing |
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33,764 |
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36,945 |
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36,796 |
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Depreciation and amortization |
|
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20,615 |
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21,224 |
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20,103 |
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Payments for order flow |
|
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15,221 |
|
|
|
14,698 |
|
|
|
22,032 |
|
Professional fees |
|
|
11,181 |
|
|
|
5,695 |
|
|
|
5,402 |
|
Debt interest expense |
|
|
8,463 |
|
|
|
7,721 |
|
|
|
9,524 |
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Collateralized financing interest |
|
|
8,456 |
|
|
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7,973 |
|
|
|
6,162 |
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Occupancy and equipment rentals |
|
|
7,340 |
|
|
|
8,514 |
|
|
|
8,285 |
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Business development |
|
|
1,857 |
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|
|
2,308 |
|
|
|
1,683 |
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Lease loss accrual, net |
|
|
132 |
|
|
|
6,117 |
|
|
|
266 |
|
Writedown of capitalized debt costs |
|
|
|
|
|
|
|
|
|
|
7,557 |
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Other |
|
|
7,808 |
|
|
|
9,822 |
|
|
|
8,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total expenses |
|
|
290,028 |
|
|
|
319,608 |
|
|
|
324,273 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
406,128 |
|
|
|
26,531 |
|
|
|
59,384 |
|
Income tax expense |
|
|
156,827 |
|
|
|
562 |
|
|
|
22,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
249,301 |
|
|
|
25,969 |
|
|
|
36,917 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
165 |
|
|
|
(1,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
249,301 |
|
|
$ |
26,134 |
|
|
$ |
35,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations |
|
$ |
2.25 |
|
|
$ |
0.24 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations |
|
$ |
2.19 |
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.25 |
|
|
$ |
0.24 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.19 |
|
|
$ |
0.23 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic earnings (loss) per share |
|
|
110,782 |
|
|
|
109,654 |
|
|
|
115,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of diluted earnings (loss) per share |
|
|
113,615 |
|
|
|
112,224 |
|
|
|
117,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 2
KCG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
990,542 |
|
|
$ |
578,768 |
|
Cash and cash equivalents segregated under federal and other regulations |
|
|
3,000 |
|
|
|
3,361 |
|
Funds held in escrow |
|
|
330,163 |
|
|
|
|
|
Financial instruments owned, at fair value: |
|
|
|
|
|
|
|
|
Equities |
|
|
2,366,225 |
|
|
|
2,479,910 |
|
Listed options |
|
|
87,412 |
|
|
|
144,586 |
|
Debt securities |
|
|
187,314 |
|
|
|
82,815 |
|
Other financial instruments |
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
Total financial instruments owned, at fair value |
|
|
2,640,951 |
|
|
|
2,707,371 |
|
Collateralized agreements: |
|
|
|
|
|
|
|
|
Securities borrowed |
|
|
1,685,850 |
|
|
|
1,632,062 |
|
Receivable from brokers, dealers and clearing organizations |
|
|
822,248 |
|
|
|
1,188,833 |
|
Fixed assets and leasehold improvements, less accumulated depreciation and amortization |
|
|
129,171 |
|
|
|
134,051 |
|
Investments |
|
|
105,624 |
|
|
|
100,726 |
|
Goodwill and Intangible assets, less accumulated amortization |
|
|
146,539 |
|
|
|
152,594 |
|
Deferred tax asset, net |
|
|
164,298 |
|
|
|
154,759 |
|
Assets of business held for sale |
|
|
|
|
|
|
40,484 |
|
Other assets |
|
|
217,408 |
|
|
|
137,645 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,235,794 |
|
|
$ |
6,830,654 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value: |
|
|
|
|
|
|
|
|
Equities |
|
$ |
1,950,860 |
|
|
$ |
2,069,342 |
|
Listed options |
|
|
78,427 |
|
|
|
115,362 |
|
Debt securities |
|
|
112,763 |
|
|
|
101,003 |
|
Other financial instruments |
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial instruments sold, not yet purchased, at fair value |
|
|
2,142,284 |
|
|
|
2,285,707 |
|
Collateralized financings: |
|
|
|
|
|
|
|
|
Securities loaned |
|
|
792,887 |
|
|
|
707,744 |
|
Financial instruments sold under agreements to repurchase |
|
|
905,567 |
|
|
|
933,576 |
|
|
|
|
|
|
|
|
|
|
Total collateralized financings |
|
|
1,698,454 |
|
|
|
1,641,320 |
|
Payable to brokers, dealers and clearing organizations |
|
|
442,586 |
|
|
|
676,089 |
|
Payable to customers |
|
|
12,126 |
|
|
|
22,110 |
|
Accrued compensation expense |
|
|
41,831 |
|
|
|
114,559 |
|
Accrued expenses and other liabilities |
|
|
161,850 |
|
|
|
136,977 |
|
Income taxes payable |
|
|
148,481 |
|
|
|
|
|
Capital lease obligations |
|
|
5,080 |
|
|
|
6,700 |
|
Liabilities of business held for sale |
|
|
|
|
|
|
2,356 |
|
Debt |
|
|
799,847 |
|
|
|
422,259 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,452,539 |
|
|
|
5,308,077 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Class A Common Stock |
|
|
1,296 |
|
|
|
1,275 |
|
Additional paid-in capital |
|
|
1,391,368 |
|
|
|
1,369,298 |
|
Retained earnings |
|
|
522,081 |
|
|
|
272,780 |
|
Treasury stock, at cost |
|
|
(133,188 |
) |
|
|
(122,909 |
) |
Accumulated other comprehensive income |
|
|
1,698 |
|
|
|
2,133 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,783,255 |
|
|
|
1,522,577 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
7,235,794 |
|
|
$ |
6,830,654 |
|
|
|
|
|
|
|
|
|
|
Exhibit 3
KCG HOLDINGS, INC.
PRE-TAX EARNINGS (LOSS) FROM
CONTINUING OPERATIONS BY BUSINESS SEGMENT*
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
|
March 31, 2014 |
|
Market Making |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
224,548 |
|
|
$ |
238,740 |
|
|
$ |
277,346 |
|
Expenses |
|
|
185,208 |
|
|
|
196,030 |
|
|
|
201,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
|
39,340 |
|
|
|
42,710 |
|
|
|
76,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Execution Services |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
464,266 |
|
|
|
93,369 |
|
|
|
87,220 |
|
Expenses |
|
|
83,208 |
|
|
|
83,401 |
|
|
|
85,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
|
381,058 |
|
|
|
9,968 |
|
|
|
2,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
7,342 |
|
|
|
14,030 |
|
|
|
19,091 |
|
Expenses |
|
|
21,612 |
|
|
|
40,177 |
|
|
|
37,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss |
|
|
(14,270 |
) |
|
|
(26,147 |
) |
|
|
(18,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
696,156 |
|
|
|
346,139 |
|
|
|
383,657 |
|
Expenses |
|
|
290,028 |
|
|
|
319,608 |
|
|
|
324,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings |
|
$ |
406,128 |
|
|
$ |
26,531 |
|
|
$ |
59,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding. |
Exhibit 4
KCG HOLDINGS, INC.
Regulation G Reconciliation of
Non-GAAP financial measures (Continuing operations)*
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
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) from continuing operations before income taxes |
|
$ |
39,340 |
|
|
$ |
7,225 |
|
|
$ |
(14,138 |
) |
|
$ |
32,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2014 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Revenues to Non-GAAP Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Revenues |
|
$ |
238,740 |
|
|
$ |
93,369 |
|
|
$ |
14,030 |
|
|
$ |
346,139 |
|
Gain on sale of FCM |
|
|
|
|
|
|
(2,116 |
) |
|
|
|
|
|
|
(2,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- GAAP Revenues |
|
$ |
238,740 |
|
|
$ |
91,253 |
|
|
$ |
14,030 |
|
|
$ |
344,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
42,710 |
|
|
$ |
9,968 |
|
|
$ |
(26,147 |
) |
|
$ |
26,531 |
|
Gain on sale of FCM |
|
|
|
|
|
|
(2,116 |
) |
|
|
|
|
|
|
(2,116 |
) |
Lease loss accrual, net |
|
|
|
|
|
|
|
|
|
|
6,117 |
|
|
|
6,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Income (loss) from continuing operations before income taxes |
|
$ |
42,710 |
|
|
$ |
7,852 |
|
|
$ |
(20,030 |
) |
|
$ |
30,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
|
Market Making |
|
|
Global Execution Services |
|
|
Corporate and Other |
|
|
Consolidated |
|
Reconciliation of GAAP Revenues to Non-GAAP Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Revenues |
|
$ |
277,346 |
|
|
$ |
87,220 |
|
|
$ |
19,091 |
|
|
$ |
383,657 |
|
Income resulting from the merger of BATS and Direct Edge, net |
|
|
|
|
|
|
|
|
|
|
(9,644 |
) |
|
|
(9,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- GAAP Revenues |
|
$ |
277,346 |
|
|
$ |
87,220 |
|
|
$ |
9,447 |
|
|
$ |
374,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
76,032 |
|
|
$ |
2,016 |
|
|
$ |
(18,664 |
) |
|
$ |
59,384 |
|
Writedown of capitalized debt costs |
|
|
|
|
|
|
|
|
|
|
7,557 |
|
|
|
7,557 |
|
Income resulting from the merger of BATS and Direct Edge, net |
|
|
|
|
|
|
|
|
|
|
(9,644 |
) |
|
|
(9,644 |
) |
Lease loss accrual, net |
|
|
359 |
|
|
|
|
|
|
|
(93 |
) |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Income (loss) from continuing operations before income taxes |
|
$ |
76,391 |
|
|
$ |
2,016 |
|
|
$ |
(20,844 |
) |
|
$ |
57,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Totals may not add due to rounding |
|
KCG Holdings, Inc. (NYSE: KCG)
1st Quarter 2015 Earnings Presentation
May 1, 2015
Exhibit 99.2 |
|
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 business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG's reverse mortgage
origination and securitization business, sale of KCG's futures commission
merchant and the sale of KCG Hotspot; (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; (x) the effects of increased
competition and KCG's ability to maintain and expand market share; and (xi)
the commencement and completion of the proposed tender offer. 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, 2014, and other reports or documents KCG files with, or
furnishes to, the SEC from time to time.
Safe Harbor
For
additional
disclosures,
please
see
https://www.kcg.com/legal/global-disclosures. |
|
1st Quarter 2015 Summary
Solid financial results amid a slight decline in U.S. equity market conditions
quarter over quarter
Market making grew the percentage of consolidated U.S. equity share and dollar
volume on both a quarter over quarter and year over year basis
KCG BondPoint grew trade volumes across Corporates, Municipals and CDs on both a
quarter over quarter and year over year basis
Completed the sale of KCG Hotspot to BATS
Raised $500 million in 6.875% Senior Secured Notes due in 2020, repaid $117
million in Convertible
Notes
upon
maturity
in
March
2015,
and
subsequent
to
the
quarter
redeemed $305 million in 8.250% Senior Secured Notes due in 2018
Subsequent to 1Q15, announced plans to launch a modified Dutch auction tender
offer for up to $330 million of common stock as part of an expanded $400
million share repurchase program
1 |
|
KCG Financial Results
Pre-Tax Earnings (Loss) from Continuing Operations By Business Segment
(in thousands)
(unaudited)
For the three months ended
March 31, 2014
December 31, 2014
March 31, 2015
Market Making
Revenues
$ 277,346
$ 238,740
$ 224,548
Expenses
201,314
196,030
185,208
Pre-tax earnings
76,032
42,710
39,340
Global Execution Services
Revenues
87,220
93,369
464,266
Expenses
85,204
83,401
83,208
Pre-tax earnings
2,016
9,968
381,058
Corporate and Other
Revenues
19,091
14,030
7,342
Expenses
37,755
40,177
21,612
Pre-tax loss
(18,664)
(26,147)
(14,270)
Consolidated
Revenues
383,657
346,139
696,156
Expenses
324,273
319,608
290,028
Pre-tax earnings
$ 59,384
$ 26,531
$ 406,128
Notes:¹
2
1
See addendum for a reconciliation of GAAP to non-GAAP financial
results.
1st quarter 2015 results include a gain of $385.0 million from the sale of KCG
Hotspot as well as expenses of $11.3 million directly related to the
sale plus lease loss accruals
4th quarter 2014 results include a $2.1 million gain from the sale of KCGs
FCM as well as expenses of $6.1 million related to lease loss accruals
1st quarter 2014 results include a gain of $9.6 million from the merger of BATS
and Direct Edge as well as expenses of $7.8 million related to debt
reduction and lease loss accruals |
|
Market Conditions
3
Avg. daily volume in select securities markets
1Q14
4Q14
1Q15
Consolidated U.S. equity share volume
6.9 bn
7.1 bn
6.9 bn
854.2 mn
790.9 mn
795.2 mn
ETF share volume
789.4 mn
1,024.7 mn
1,002.9 mn
Consolidated U.S. equity dollar volume
$275.8 bn
$291.3 bn
$285.6 bn
U.S. equity futures contracts
3.8 mn
3.9 mn
3.5 mn
U.S. options contracts
17.9 mn
17.9 mn
16.3 mn
European equity notional value traded (USD)
$1,197.2 bn
$1,176.4 bn
$1,272.7 bn
Asian equity share volume
7.4 bn
6.1 bn
6.0 bn
U.S. Treasury notional volume
$522.1 bn
$507.4 bn
$531.8 bn
U.S. corporate bond notional volume
$20.8 bn
$19.8 bn
$23.9 bn
Transactions under 250 bonds
13,334
11,747
12,622
FX notional value traded (USD) among reporting venues
$232.2 bn
$271.5 bn
$271.2 bn
Avg. daily consolidated U.S. equity dollar and share volume
declined 2.0% and 2.8%, respectively, quarter over quarter
Market-wide retail trading activity remained fairly strong
relative to previous quarters
Avg. daily European equity notional volume rose 8.0% quarter
over quarter while Asian equity share volume declined 2.6%
In foreign exchange, avg. daily notional value traded among
reporting venues was flat
Approximate decrease in aggregate avg. daily futures volume of
4% and decrease in options volume of 9%
Macro events contributed to volatility among certain energy
commodities
1Q15 market conditions in U.S. equities
17.3
9.7
14.6
8,000
$400,000
6,000
$300,000
4,000
$200,000
2,000
$100,000
January
February
March
1Q15
Average
daily consolidated U.S. equity share volume
Average daily consolidated U.S. equity dollar volume
Average realized volatility for the S&P 500
A slight decline in the U.S. equity market from 4Q14
Mixed market conditions in all other asset classes
Retail
SEC
Rule
605
U.S.
equity
share
volume
1
Sources: BATS Global Markets, VistaOne Solutions, Thomson Reuters, OCC, CSI,
Bloomberg, Reuters, EBS, SIFMA, TRACE, MSRB; 1Q15 SEC Rule 605 U.S. equity share volume includes an
estimate of March 2015 total based on public and proprietary data
1 |
|
The Market Making Segment
Revenues from U.S. equities impacted by decline in
market volumes partially offset by KCG market share
gains
A slight decline in revenues from all other asset
classes
4
1Q15 Market Making revenue distribution²
-20%
-10%
0%
10%
20%
30%
40%
50%
-$100
-$50
$0
$50
$100
$150
$200
$250
1Q14
4Q14
1Q15
Primary drivers of revenues from U.S. equities¹
KCG revenue from U.S. equity market making
Avg. daily SEC Rule 605 U.S equity share volume*
Avg. daily consolidated U.S equity dollar volume
Avg. daily consolidated U.S equity share volume
Avg. realized volatility for the S&P 500
861.9
933.4
933.0
213.2
193.3
192.5
0
200
400
600
800
1,000
1Q14
4Q14
1Q15
KCG retail and total exchange-listed volume
KCG avg. daily SEC Rule 605 U.S equity share volume
78%
22%
U.S. equities
Non-U.S. equities
KCG increased market share of consolidated dollar and share
volume quarter over quarter
KCG market share of SEC Rule 605 share volume roughly flat
quarter over quarter amidst a focus on strategic clients and
persistent strong competition
Results from U.S. Treasuries, commodities and options offset
by European equities
Sources: KCG, SEC, VistaOne Solutions; ¹ 1Q15 SEC Rule
605 share volume includes an estimate of March 2015 total based on public and proprietary data. ²
Revenue from market making in U.S.
equities of $174.7 million in the first quarter of 2015 is a factor, along with
total dollar volume during the quarter of $1.89 trillion that results in average revenue capture of 0.92 basis points. Market
making in non-U.S. equities includes European and Asian equities, fixed
income, currencies and commodities. KCG avg. daily exchange - listed
share volume |
|
Strong Market-Wide Net Retail Inflows in 1Q15
KCGs Individual Investor Gauge represents estimated market-wide
gross and net retail investor flows based on public and proprietary data
derived from monthly SEC Rule 605-eligible volume. Estimated
market-wide
net
retail
inflows
of
$62.8
billion
in
1Q15
an
increase
of
$33.1
billion
from
4Q14
Estimated
market-wide
gross
retail
flows
of
$1.26
trillion
in
1Q15
a
decrease
of
$113
billion
from
4Q14
5
$0
$100,000,000,000
$200,000,000,000
$300,000,000,000
$400,000,000,000
$500,000,000,000
$600,000,000,000
$15,000,000,000
$10,000,000,000
$5,000,000,000
$0
$5,000,000,000
$10,000,000,000
$15,000,000,000
$20,000,000,000
$25,000,000,000
$30,000,000,000
$35,000,000,000
-
-
-
Est. Market-Wide Gross and Net Retail U.S. Equity Flows
Market-Wide Net (Est.)
Market-Wide Gross (Est.) |
|
The Global Execution Services Segment
6
Sources: KCG, BATS Global Markets, TRACE, MSRB, Rosenblatt
Close of sale to BATS
1Q15
4Q14
1Q14
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
$90
$105
$120
$135
$150
$165
18.2%
19.2%
19.5%
5.8%
5.7%
6.3%
1Q14
4Q14
1Q15
Avg. daily fixed income par value traded
Market share of corporate bond transactions under 250 bonds
Market share of muni bond transactions under 250 bonds
3.0
4.0
5.0
6.0
7.0
8.0
281.0
334.3
299.0
1Q14
4Q14
1Q15
200
240
280
320
360
400
Avg. daily algorithmic trading and order routing U.S equity share volume
Avg. daily consolidated U.S. equity share volume
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
1
4
7
10
13
16
19
22
25
28
31
34
37
40
43
46
49
52
55
58
61
65
KCG Hotspot avg. daily notional dollar volume
KCG algorithmic trading and order routing
U.S. equity share volume
Growth of KCG BondPoint
In agency execution, solid results demonstrate
progress with institutional clients
Among trading venues, continued good performance
KCG BondPoint grew market share amid a seasonally strong
first quarter
KCG Hotspot sale completed on March 13th
Knight Match accounted for 3.4% of dark liquidity
Decline in algorithmic trading and order routing driven by
focus on strategic clients and higher margin order flow
Good contributions from sales traders in the U.S. and U.K.
as well as the reconstituted ETF trading team
Trading days |
|
Consolidated Expenses
Compensation and Benefits declined to
$102.3 million as a result of reduced
headcount and lower bonus accruals
Communications and Data Processing
decreased $3.2 million due to reduced market
data and terminal fees, connectivity costs and
maintenance expenses
Occupancy and equipment rentals declined
$1.2 million due to reduced lease operating
expenses and real estate taxes
Other expenses declined $2.0 million in part
due to decreased VAT expenses and regulatory
dues
Among transaction-based expenses not
included in the chart, Execution and
Clearance Fees declined $13.9 million due to
reduced regulatory transaction fees and lower
trade volumes
7
See addendum for a reconciliation of GAAP to non-GAAP financial
results. Compensation and benefits
Communications and data processing
Depreciation and amortization
Debt interest expense
Professional fees
Occupancy and equipment rentals
Business development
Other
$212.8 mn
$208.4 mn
$186.6 mn
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
1Q14
4Q14
1Q15
Consolidated
non-GAAP
quarterly
expenses
|
|
Additional Financials
Consolidated Statements of Financial Condition
(in millions)
(unaudited)
March 31, 2014
December 31, 2014
March 31, 2015
Cash and cash equivalents
$ 651.9
$ 578.8
$ 990.5
Debt
1
472.3
422.3
799.8
Stockholders
equity
1,566.2
1,522.6
1,783.3
Debt-to-tangible
equity
ratio²
0.35
0.31
0.30
Tangible
book
value
per
share³
$10.85
$11.72
$13.86
Book value per share
$12.46
$13.03
$15.10
Shares outstanding including restricted
stock units (in thousands)
125,695
116,860
118,091
8
1
Debt at March 31, 2015 includes the 8.25% $305 million Senior Secured Notes,
which were redeemed subsequent to the quarter close using funds held in escrow.
2
Debt-to-tangible equity ratio at March 31, 2015 excludes the $305
million senior secured notes redeemed subsequent to the quarter close.
4
Tangible book value is calculated by subtracting goodwill and intangible assets
from equity. |
|
Announced Modified Dutch Auction Tender Offer
Subsequent to the first quarter of 2015, KCG announced plans to launch a modified
Dutch auction tender offer to repurchase for cash outstanding KCG Class A
Common Stock for an aggregate purchase price of up to $330 million
Authorization part of an expanded $400 million share repurchase program
The
tender
offer
represents
a
premium
of
5%
to
9%
of
the
closing
price
of
KCG
Class
A
Common
Stock on the NYSE of $12.84 on April 30, 2015
Under the proposed terms:
Expected to commence on May 4, 2015 and remain open for 20 business days
Stockholders may offer to sell stock to KCG at specified prices in the range of
$13.50 to $14.00 per share Upon expiration of the offer, KCG will select
the lowest price in the range that will allow it to repurchase shares
having an aggregate purchase price of up to $330 million (or if the offer is not
fully subscribed, all shares properly tendered and not withdrawn)
All shares
tendered
at
or
below
the
clearing
price
accepted
will
be
repurchased
at
the
same
price,
subject to the
proration and the other terms of the offer
If the aggregate purchase price for shares tendered exceeds the available $330
million, allocations will be made on a pro rata basis from stockholders
tendering at or below the selected purchase price, subject to certain
priorities
Assuming the offer is fully subscribed, KCG will repurchase a minimum of 23.6
million shares, or 22% of total shares outstanding excluding restricted
stock units (RSUs) as of April 29, 2015 9
|
|
Additional Information Regarding the Tender Offer
10
The tender offer described in this presentation has not yet commenced. This
presentation is for informational purposes only, is not a recommendation
to buy or sell KCG common stock, and does not constitute an offer to buy
or the solicitation to sell shares of KCG common
stock.
The
tender
offer
will
be
made
only
pursuant
to
the
Offer
to
Purchase,
Letter
of
Transmittal
and
related
materials
that
KCG
expects
to
file
Monday,
May
4
th
with
the
Securities and Exchange Commission. Stockholders should read carefully the Offer
to Purchase, Letter of Transmittal and related materials because they
contain important information, including the various terms of, and
conditions to, the tender offer. Once the tender offer is commenced ,
stockholders will be able to obtain a free copy of the tender offer
statement
on
Schedule
TO,
the
Offer
to
Purchase,
Letter
of
Transmittal
and
other
documents that KCG will be filing with the Securities and Exchange Commission at
the Commissions
website
at
www.sec.gov
or
and
the
investor
information
section
of
KCGs
website
at
www.kcg.com. |
|
3
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
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
11 |
|
3
months ended December 31, 2014 Market Making
Global Execution
Services
Corporate and
Other
Consolidated
Reconciliation of GAAP revenues to non-GAAP revenues:
GAAP revenues
$ 238,740
$ 93,369
$ 14,030
$ 346,139
Gain on sale of FCM
-
(2,116)
-
(2,116)
Non-GAAP revenues
$ 238,740
$ 91,253
$ 14,030
$ 344,023
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
12 |
|
3
months ended March 31, 2014 Market Making
Global Execution
Services
Corporate and
Other
Consolidated
Reconciliation of GAAP revenues to non-GAAP revenues:
GAAP revenues
$ 277,346
$ 87,220
$ 19,091
$ 383,657
Income resulting from the merger of BATS and Direct Edge, net
-
-
(9,644)
(9,644)
Non-GAAP revenues
$ 277,346
$ 87,220
$ 9,447
$ 374,013
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
13 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 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) from continuing operations 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 sale of KCG Hotspot
-
6,736
-
6,736
Compensation expense related to sale of KCG Hotspot
-
4,457
-
4,457
Lease loss accrual, net
-
-
132
132
Non-GAAP income (loss) from continuing operations before
income taxes
$ 39,340
$ 7,225
$ 14,138
$ 32,427
14 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended December 31, 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
$ 42,710
$ 9,968
$ (26,147)
$ 26,531
Gain on sale of FCM
-
(2,116)
-
(2,116)
Lease loss accrual, net
-
-
6,117
6,117
Non-GAAP income (loss) from continuing operations before
income taxes
$ 42,710
$ 7,852
$ (20,030)
$ 30,532
15 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
16
3 months ended March 31, 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
$ 76,032
$ 2,016
$ (18,664)
$ 59,384
Writedown of capitalized debt costs
-
-
7,557
7,557
Income resulting from the merger of BATS and Direct Edge, net
-
-
(9,644)
(9,644)
Lease loss accrual, net
359
-
(93)
266
Non-GAAP income (loss) from continuing operations before
income taxes
$ 76,391
$ 2,016
$ (20,844)
$ 57,563 |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended March 31, 2015
GAAP
Adjustments for
non-GAAP presentation
KCG non-GAAP,
normalized expenses
Reconciliation of GAAP expenses to KCG non-GAAP
normalized expenses:
Employee compensation and benefits
106,718
4,457
102,261
Communications and data processing
33,764
-
33,764
Depreciation and amortization
20,615
-
20,615
Debt interest expense
8,463
-
8,463
Professional fees
11,181
6,736
4,445
Occupancy and equipment rentals
7,340
-
7,340
Business development
1,857
-
1,857
Lease loss accrual, net
132
132
-
Other
7,808
-
7,808
Total expenses¹
$ 197,878
$ 11,325
$ 186,553
17
1
Total expenses exclude transaction-based expenses which fluctuate based on
market conditions and client activity. |
|
3
months ended December 31, 2014 GAAP
Adjustments for
non-GAAP presentation
KCG non-GAAP,
normalized expenses
Reconciliation of GAAP expenses to KCG non-GAAP
normalized expenses:
Employee compensation and benefits
116,214
-
116,214
Communications and data processing
36,945
-
36,945
Depreciation and amortization
21,224
-
21,224
Debt interest expense
7,721
-
7,721
Professional fees
5,695
-
5,695
Occupancy and equipment rentals
8,514
-
8,514
Business development
2,308
-
2,308
Lease loss accrual, net
6,117
6,117
-
Other
9,822
-
9,822
Total expenses¹
$ 214,561
$ 6,117
$ 208,444
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
18
1
Total expenses exclude transaction-based expenses which fluctuate based on
market conditions and client activity. |
|
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
19
3 months ended March 31, 2014
GAAP
Adjustments for
non-GAAP presentation
KCG non-GAAP, normalized
expenses
Reconciliation of GAAP expenses to KCG non-GAAP
normalized expenses:
Employee compensation and benefits
122,319
-
122,319
Communications and data processing
36,796
-
36,796
Depreciation and amortization
20,103
-
20,103
Debt interest expense
9,524
-
9,524
Professional fees
5,402
-
5,402
Occupancy and equipment rentals
8,285
-
8,285
Business development
1,683
-
1,683
Lease loss accrual and writedown of capitalized debt costs
7,823
7,823
-
Other
8,643
-
8,643
Total expenses¹
$ 220,578
$ 7,823
$ 212,755
1
Total expenses exclude transaction-based expenses which fluctuate based on
market conditions and client activity. |
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