KCG reports consolidated revenues of $377.0 million for the Third Quarter 

KCG reports consolidated revenues of $377.0 million and pre-tax earnings of $35.4 million for the quarter

KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $21.9 million, or $0.24 per diluted share, for the third quarter of 2015. Included in the $35.4 million of pre-tax income are asset writedowns and other real estate related charges of $34.0 million. Excluding these items, on a non-GAAP basis, third quarter 2015 pre-tax income was $69.4 million. A reconciliation of GAAP to non-GAAP results is included in Exhibit 4.

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

Third Quarter Highlights

• Market making set a new quarterly high for exchange-listed U.S. equity share volume and gained approximately two percentage points in market share of retail SEC Rule 605 U.S. equity share volume from the second quarter 2015
• Average daily algorithmic execution U.S. equity share volume attributable to institutional clients grew quarter over quarter and year over year
• Consolidated legacy direct-to-client market making brands Knight Link (U.S. equities), Get Direct (U.S. Treasuries) and FXMM (currencies) under the KCG Acknowledge brand
• Repurchased 1.2 million shares of KCG Class A Common Stock for $12.2 million
• Non-GAAP pre-tax income rose 76 percent year to date compared to the first nine months of 2014 while total shares outstanding declined by approximately 21 percent

Daniel Coleman, Chief Executive Officer of KCG, said, “KCG generated strong financial results in the third quarter of 2015 amid an upturn in market conditions in the U.S. equity market. The performance was driven by KCG market making in U.S. equities as well as agency-based trading on behalf of institutional clients. The results for the quarter were lowered due to writedowns for the consolidation of current real estate as well as expenses attributable to the corporate relocation. Notwithstanding, we produced significant growth in non-GAAP pre-tax income while continuing to reduce our total shares outstanding.”

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 third quarter of 2015, the segment generated total revenues of $299.8 million and pre-tax income of $85.4 million. Excluding expenses related to asset writedowns of $4.4 million, the segment generated pre-tax income of $89.8 million.

During the third quarter of 2015, consolidated U.S. equity dollar volume and realized volatility for the S&P 500 rose sharply. KCG market making set a new quarterly high for exchange-listed share volume and gained approximately two percentage points in market share of retail SEC Rule 605-eligible U.S. equity share volume in spite of continued strong competition. Spreads in U.S. equities widened during August as a result of the market volatility. The results for the segment were negatively impacted by the modest deterioration in market volumes of Asian and European equities.

Mr. Coleman commented, “The market conditions in U.S. equities drove the performance of KCG direct-to-client and non-client market making. In particular, we witnessed a period of elevated, broad-based, intraday volatility in August, which served as a reminder of the significant operational leverage this firm possesses in active markets. We continue to work to diversify and attain scale in strategic asset classes.”

In the second quarter of 2015, the segment generated total revenues of $192.3 million and pre-tax income of $4.4 million. Excluding expenses related to accelerated stock-based compensation of $19.8 million, the segment generated pre-tax income of $24.2 million.

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 expenses related to a reduction in workforce and other employee separations of $2.8 million, the segment generated a pre-tax loss of $5.2 million.

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 third quarter of 2015, the segment generated total revenues of $69.7 million and a pre-tax loss of $1.1 million.

During the third quarter of 2015, institutional trading activity in U.S. equities increased market-wide. Quarter over quarter, KCG grew algorithmic execution and sales trading volume from institutional clients as well as KCG MatchIt ATS volume.

Mr. Coleman commented, “Algorithmic execution on behalf of clients as well as high-touch sales trading performed well given the heightened institutional trading activity in U.S. equities. Algorithmic execution continued to onboard new institutional clients and generate additive trade volumes and revenues. During the quarter, 13 institutional clients began using KCG algorithms and we onboarded an additional 12 new institutional investors as clients. Algorithmic execution volume from institutional clients rose 7 percent quarter over quarter and 30 percent year over year.”

In the second quarter of 2015, the segment generated total revenues of $63.5 million and a pre-tax loss of $9.9 million. Excluding expenses related to accelerated stock-based compensation of $8.2 million, the segment generated a pre-tax loss of $1.7 million.

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 expenses related to a reduction in workforce and other employee separations of $3.6 million, the segment generated pre-tax income of $1.9 million.

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 third quarter of 2015, the segment generated total revenues of $7.6 million and a pre-tax loss of $49.0 million. Excluding writedown of assets and other real estate related charges of $29.7 million, the segment generated a pre-tax loss of $19.3 million.

In the second quarter of 2015, the segment generated total revenues of $6.0 million and a pre-tax loss of $51.6 million. Excluding expenses related to accelerated stock-based compensation of $0.8 million, a debt make-whole premium of $16.5 million, writedown of capitalized debt costs of $8.5 million, and other real estate related charges of $6.3 million, the segment generated a pre-tax loss of $19.4 million.

In the third quarter of 2014, the segment generated total revenues of $26.5 million and a pre-tax loss of $5.5 million. Excluding a net gain related to the tradeMONSTER combination with OptionsHouse of $15.1 million and expenses related to a reduction in workforce and other employee separations of $4.2 million and a lease loss accrual of $0.3 million, the segment generated a pre-tax loss of $16.2 million.

Financial Condition
As of September 30, 2015, KCG had $628.2 million in cash and cash equivalents. Total outstanding debt was $495.4 million. The Company had $1.48 billion in stockholders’ equity, equivalent to a book value of $15.95 per share and tangible book value of $14.40 per share based on total shares outstanding of 92.5 million, including restricted stock units.

KCG’s headcount was 1,033 full-time employees at September 30, 2015 compared to 1,045 at June 30, 2015.

During the third quarter of 2015, KCG repurchased 1.2 million shares for approximately $12.2 million under the Company’s stock repurchase program.

Source: KCG Holdings