KCG announces Fourth Quarter 2015 Results 

KCG announces Consolidated Loss of $0.05 per Diluted Share for the Fourth Quarter of 2015

 

• CG reports consolidated revenues of $262.7 million and pre-tax loss of $7.1 million for the quarter
• KCG increases tangible book value to $14.89 per share and book value to $16.00 per share

KCG Holdings, Inc. (NYSE: KCG) reported a consolidated loss of $4.6 million, or $0.05 per diluted share, for the fourth quarter of 2015. The fourth quarter consolidated loss includes a net tax benefit of approximately $1.3 million or $0.01 per diluted share primarily related to federal tax credits.

KCG also reported a pre-tax loss of $7.1 million. Included in this pre-tax loss are $19.8 million of gains on the sales of investments, $17.4 million of writedowns primarily related to assets of businesses held for sale and $3.2 million of writedowns of investments. Excluding these items, on a non-GAAP basis, fourth quarter 2015 pre-tax loss was $6.2 million.

Fourth Quarter Highlights

• KCG Electronic Trading increased average daily U.S. equity share volume from the 25 largest U.S. asset managers 37 percent year over year
• KCG Acknowledge FI set a new quarterly record for average daily U.S. Treasury notional volume with a 51 percent rise year over year
• KCG BondPoint set a new quarterly record for average daily fixed income par value traded with a 15 percent increase year over year
• KCG completed the sales of investments including Aperture Group, the corporate parent of OptionsHouse
• KCG repurchased 2.3 million shares of KCG Class A Common Stock for $29.4 million and 2.6 million warrants for $4.4 million

Daniel Coleman, Chief Executive Officer of KCG, said, “KCG’s financial results for the fourth quarter of 2015 reflect a more difficult operating environment for market making due largely to macro market events as well as competitive pressures in U.S. equity wholesaling. In the fourth quarter, we made progress in growing KCG Electronic Trading among the largest U.S. asset managers. In addition, we continued to execute on our program of returning excess capital to our stockholders when conditions warrant.”

Full Year 2015

In 2015, KCG continued to build an intermediary firm capable of directly addressing the urgent need for liquidity across the global securities markets through principal and agency-based trading. A renewed focus on strategic clients contributed to a market share gain in retail U.S. equity order flow from brokers as well as increased algorithmic U.S. equity share volume from asset managers year over year. In terms of cost control, KCG reduced non-GAAP, non-transaction-based expenses by $60.2 million or 7.6 percent from a year ago (Exhibit 4). Following a strategic review of assets, the firm sold KCG Hotspot in the first quarter of 2015. The firm allocated a significant portion of available free cash toward capital return, repurchasing 27.0 million shares of KCG Class A Common Stock for $371.7 million, equivalent to approximately 23 percent of all shares outstanding at the beginning of 2015. For the year, KCG increased tangible book value by $3.17 to $14.89 per share and book value by $2.97 to $16.00 per share.

Mr. Coleman commented, “As the year came to a close, KCG initiated a more fundamental reengineering of operations. Preparations are underway to achieve greater efficiencies from the front to the back office. In addition, we’re consolidating corporate headquarters in lower Manhattan to facilitate greater collaboration across teams. In the coming year, we’ll focus on that which we can control in terms of reducing costs, adding scale and continuing the capital return program as we work to achieve a double-digit return on equity in 2017.”

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 2015, the segment generated total revenues of $168.2 million and a pre-tax loss of $6.4 million. Excluding charges related to asset writedowns of $15.5 million, the segment generated non-GAAP pre-tax income of $9.1 million.

During the fourth quarter of 2015, average daily consolidated U.S. equity dollar volume along with U.S. equity futures and options contracts declined year over year. In addition, market-wide gross retail U.S. equity dollar volume decreased an estimated 21.8 percent from a year ago, which negatively affected KCG direct-to-client market making. Despite the operating environment, KCG gained market share of retail order flow from leading U.S. brokers year over year amid continued strong competition. The results for the segment were also affected by the deterioration in market volumes of U.S. Treasuries and foreign exchange from a year ago as well as macro events affecting Asian equities.

Mr. Coleman commented, “The decline in consolidated U.S. equity market volumes and volatility was exacerbated by continuing strong competition, tight spreads and the weakest quarterly gross retail dollar volume in a year and a half. Retail investors pulled money from the U.S. equity market in December and we saw evidence of institutional-size portfolio liquidations late in the quarter. In fixed income market making, KCG Acknowledge FI set a new quarterly record for average daily U.S. Treasury notional volume with a 51 percent rise year over year despite a decline in market volumes.”

In 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 non-GAAP pre-tax income of $89.8 million.

In the fourth quarter of 2014, the segment generated total revenues of $238.7 million and pre-tax income of $42.7 million.

 

Source: KCG – KCG announces Fourth Quarter 2015 Results

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