KCG Kcg Holdings Class A

JERSEY CITY, N.J., Jan. 30, 2015 /PRNewswire/ -- KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $26.1 million, or $0.23 per diluted share, for the fourth quarter of 2014.

The fourth quarter 2014 GAAP net income from continuing operations was $26.0 million, or $0.23 per diluted share. Included in these results is a net tax benefit of approximately $7 million related to the recognition of state deferred tax assets which primarily relate to state tax net operating losses, and a $1.2 million tax benefit related to federal tax credits. Fourth quarter pre-tax income from continuing operations was $26.5 million and included a $6.1 million lease loss and a $2.1 million gain related to the completion of the sale of KCG's futures commission merchant (FCM). Excluding these items, on a non-GAAP basis, the fourth quarter 2014 income from continuing operations before taxes was $30.5 million. A reconciliation of GAAP to non-GAAP results is included in Exhibit 4.

KCG was formed July 1, 2013 as a result of the merger between Knight Capital Group, Inc. and GETCO Holding Company, LLC. Financial results for the periods prior to the third quarter of 2013 contained herein solely represent the results of GETCO Holding Company, LLC as the accounting acquirer.

* See Exhibit 4 for a reconciliation of GAAP to non-GAAP results.

Fourth Quarter Highlights

• U.S. equity market making grew market share of SEC Rule 605 U.S. equity share volume
• Algorithmic trading and order routing established a new quarterly record for average daily U.S. equity share volume
• Released $45 million in excess capital from the consolidation of U.K. broker dealers
• Completed the sale of KCG's FCM
• Subsequent to the fourth quarter, announced the sale of KCG Hotspot to BATS

Daniel Coleman, Chief Executive Officer of KCG, said, "During the fourth quarter, KCG generated solid financial results due in part to an improved operating environment. The U.S. equity market posted higher average daily share volume, dollar volume and realized volatility on both a sequential and annual basis. Amid the heightened activity, KCG recorded market share gains in U.S. equity market making as well as algorithmic trading and order routing from the third quarter. Also contributing to KCG's results were increased market volumes and volatility in select segments of the global equities, fixed income, currencies and commodities markets. Finally, during the quarter, management completed a strategic review of KCG Hotspot and initiated a sale process which ultimately proved successful."

In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is based on capital limits and requirements. Historically, debt interest was fully included within the Corporate and Other segment. This change in the measurement of segment profitability, which has no impact to the consolidated results, is reported prospectively and, therefore, is not reflected in the financial results for any period prior to January 1, 2014.

Market Making
The Market Making segment encompasses direct-to-client and non-client, exchange-based market making across multiple asset classes and is an active participant in all major cash, options and futures markets in the U.S., Europe and Asia. During the fourth quarter of 2014, the segment generated total revenues of $238.7 million and pre-tax income of $42.7 million, which included a debt interest charge of $5.6 million.

During the fourth quarter of 2014, the favorable market conditions drove heightened activity in direct-to-client and non-client, exchange-based market making across several asset classes. KCG's average daily SEC Rule 605 U.S. equity share volume rose 27.3 percent sequentially due to a rebound in retail trading activity plus steady market share gains amid persistent strong competition. In aggregate, KCG direct-to-client and non-client market making in U.S. equities increased average daily exchange-listed share volume 28.3 percent quarter over quarter. Results from non-U.S. equity market making grew quarter over quarter on improved market conditions in certain classes of global equities, fixed income, currencies and commodities.

In the third quarter of 2014, the segment generated total revenues of $166.6 million and a pre-tax loss of $8.0 million. Excluding compensation related to a reduction in workforce and other employee separations, the pre-tax loss for the quarter was $5.2 million. In the fourth quarter of 2013, the segment reported total revenues of $232.5 million and pre-tax income of $48.0 million. Excluding compensation costs related to a reduction in workforce, the pre-tax earnings for the quarter was $53.2 million.

Mr. Coleman commented, "During the fourth quarter, U.S. equity market volumes picked up with the return of realized volatility to more normative levels over the past five years. KCG's market share gains in direct-to-client U.S. equity market making were largely attributable to additive order flow from longstanding clients. Also, individual investors continued to express confidence in the market by allocating an estimated $27.7 billion in net inflows to U.S. equities during the quarter, which represented the highest quarterly total during 2014. In non-U.S. equity market making, KCG continued to develop strategic asset classes that demonstrate promise."

Select Trade Statistics: U.S. Equity Market Making

Global Execution Services
The Global Execution Services segment comprises agency execution services and trading venues. During the fourth quarter of 2014, the segment generated total revenues of $93.4 million and pre-tax income of $10.0 million, which included a debt interest charge of $1.2 million. The results also included a gain of $2.1 million related to the completion of the sale of the FCM. Excluding this gain, the Global Execution Services segment's pre-tax income for the fourth quarter was $7.9 million.

The results for the fourth quarter of 2014 reflect increased trading activity across numerous addressable markets as well as signs of growth from strategic initiatives. In agency execution, algorithmic trading and order routing established a new quarterly high for average daily U.S. equity share volume. Institutional equity sales trading in the U.S. and Europe made a solid contribution while the ETF trading team continued to successfully cultivate existing clients and onboard new ones. Among KCG's trading venues, KCG Hotspot increased average daily notional FX dollar volume 4.4 percent quarter over quarter while KCG BondPoint grew average daily par value traded by 3.9 percent.

In the third quarter of 2014, the segment generated total revenues of $79.2 million and a pre-tax loss of $1.7 million. Excluding compensation related to a reduction in workforce and other employee separations, the pre-tax results for the segment was earnings of $1.9 million. In the fourth quarter of 2013, the segment reported total revenues of $84.1 million and a pre-tax loss of $4.5 million. Excluding compensation costs related to the reduction in workforce and asset writedowns, the segment's pre-tax results were earnings of $2.6 million.

Mr. Coleman commented, "Institutional trading activity was especially strong during the fourth quarter, which is reflected in the results from KCG's agency execution services. Algorithmic trading continued to make steady inroads with a number of leading institutions and the ETF trading team is quickly approaching critical mass after a year of rebuilding."

Select Trade Statistics: Agency Execution and Trading Venues

Corporate and Other
The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the fourth quarter of 2014, the segment recorded total revenues of $14.0 million and a pre-tax loss of $26.1 million, which included lease loss expenses of $6.1 million. The Corporate and Other segment's pre-tax loss for the fourth quarter was $20.0 million excluding the lease losses.

In the third quarter of 2014, the segment recorded total revenues of $26.5 million and a pre-tax loss of $5.5 million which included a net gain of $15.1 million related to KCG's investment in tradeMONSTER, in conjunction with tradeMONSTER's combination with OptionsHouse in the third quarter, compensation related to a reduction in workforce and other employee separations of $4.2 million and a lease loss accrual of $0.3 million. In the fourth quarter of 2013, the segment recorded total revenues of $6.8 million and a pre-tax loss of $60.2 million, which included approximately $24.2 million in writeoff of capitalized debt costs related to pay down of debt, asset writedown and lease losses, professional fees associated with the Merger and Knight's August 1, 2012 technology issue and compensation costs related to a reduction in force.

Financial Condition
As of December 31, 2014, KCG had $578.8 million in cash and cash equivalents. Total outstanding debt was $422.3 million, of which $117.3 million is due in March 2015. The Company had $1.5 billion in stockholders' equity, equivalent to a book value of $13.03 per share and tangible book value of $11.72 per share based on total shares outstanding of 116.9 million, including restricted stock units.

KCG's headcount at December 31, 2014 was 1,093 full-time employees as compared to 1,153 full-time employees at September 30, 2014.

During the fourth quarter of 2014, KCG did not repurchase any shares under the Company's $150.0 million stock repurchase program. As of December 31, 2014, KCG had approximately $55.0 million of remaining capacity available to repurchase additional shares under the program. The Company cautions that there are no assurances that any further repurchases may actually occur.

Announced Sale of KCG Hotspot
On January 28, 2015, KCG announced the sale of spot foreign exchange ECN KCG Hotspot to BATS Global Markets. Under the terms of the agreement, KCG will receive $365 million in cash upon the close of the transaction. In addition, the parties have agreed to share certain tax benefits, which could result in further payments to KCG of up to approximately $70 million in the three-year period following the close. Upon the close, the transaction is expected to increase KCG's tangible book value by approximately $2.00 per share. The transaction is expected to be completed in the second quarter of 2015.

Conference Call
KCG will hold a conference call to discuss fourth quarter 2014 financial results starting at 9:00 a.m. Eastern Time today, January 30, 2015. To access the call, dial 888-218-8142 (domestic) or 913-312-0957 (international) and enter passcode 7898269. In addition, the call will be webcast at http://www.media-server.com/m/acs/41fae90442d481b1589c479d3013dbef. Following the conclusion of the call, a replay will be available by 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 fourth quarter financial results, can be found at http://investors.kcg.com.

Non-GAAP Financial Presentations
KCG believes that certain non-GAAP financial presentations, when taken into consideration with the corresponding GAAP financial presentations, are important in understanding operating results. Selected financial information is included in the non-GAAP financial presentations for the three months ended December 31, 2014, September 30, 2014 and December 31, 2013 and for the twelve months ended December 31, 2014 and 2013. KCG believes the presentations provide a meaningful summary of results of operations for each of the three and twelve month periods. Reconciliations of GAAP to non-GAAP results are included in the schedules in Exhibit 4.

About KCG
KCG is a leading independent securities firm offering investors and clients a range of services designed to address trading needs across asset classes, product types and time zones. The firm combines advanced technology with exceptional client service across market making, agency execution and venues. KCG has multiple access points to trade global equities, fixed income, currencies and commodities via voice or automated execution. www.kcg.com

Certain statements contained herein may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "target," "estimate," "continue," "positions," "prospects" or "potential," by future conditional verbs such as "will," "would," "should," "could" or "may," or by variations of such words or by similar expressions. These "forward-looking statements" are not historical facts and are based on current expectations, estimates and projections about KCG's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the strategic business combination (the "Mergers") of Knight Capital Group, Inc. ("Knight") and GETCO Holding Company, LLC ("GETCO"), including, among other things, (a) difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the August 1, 2012 technology issue that resulted in Knight's broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight's 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 agreement to sell 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; and (x) the effects of increased competition and KCG's ability to maintain and expand market share. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in KCG's reports with the SEC, including, without limitation, those detailed under "Risk Factors" in KCG's Annual Report on Form 10-K for the year-ended December 31, 2013, under "Certain Factors Affecting Results of Operations" in KCG's Quarterly Report on Form 10-Q for the period ended September 30, 2014 and other reports or documents KCG files with, or furnishes to, the SEC from time to time.

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SOURCE KCG Holdings, Inc.