KCG announces consolidated earnings of $0.05 per diluted share for 1Q2017 

KCG accepts proposal from Virtu Financial, INC. to acquire all outstanding shares of KCG’s Class A common stock for $20 per share – A 46 percent premium to unaffected price

KCG Holdings, Inc. (NYSE: KCG) announced that it has reached a definitive agreement for Virtu Financial, Inc. (NASDAQ: VIRT) to acquire all outstanding shares of KCG’s Class A Common Stock for $20.00 per share in cash. The price represents a premium of 46 percent over KCG’s closing share price of $13.73 on March 14, 2017, prior to news reports of the proposal.

Charles Haldeman, Non-Executive Chairman of the Board of Directors, said “After a thorough evaluation, KCG’s Board of Directors concluded that the proposal from Virtu provides compelling value for KCG’s stockholders. Further, the combination of Virtu and KCG will create a true industry leader with greater diversification and scale.”

Goldman, Sachs & Co. is serving as the financial advisor and Sullivan & Cromwell LLP is providing legal advice to KCG.

Additionally, KCG reported consolidated earnings of $3.2 million, or $0.05 per diluted share, for the first quarter of 2017. Consolidated earnings includes an income tax benefit of approximately $3.5 million associated with stock-based compensation awards. Included in the first quarter pre-tax loss of $0.4 million is a pre-tax gain of $4.8 million from the sale of all remaining shares of Bats Global Markets, Inc. (“Bats”) owned by KCG.

First Quarter Highlights

• KCG Market Making increased market share of retail SEC Rule 605 U.S. equity share volume 5.5 percent year over year
• KCG BondPoint set a new quarterly record for average daily fixed income par value traded with a 38.5 percent rise year over year
• During the quarter, KCG repurchased 0.9 million shares for $13.3 million under the stock repurchase program

Daniel Coleman, Chief Executive Officer of KCG, said, “The first quarter of 2017 was marked by historic low market volatility. Realized intraday volatility for the S&P 500 posted the lowest quarterly average in 55 years while U.S. equity market volumes and bid-ask spreads contracted from a year ago. Despite all of this, retail investors provided a pocket of strength in the U.S. equity and bond markets.”

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 2017, the segment generated total revenues of $174.7 million and pre-tax income of $18.0 million.

In the first quarter of 2017, the U.S. equity market remained uncharacteristically calm. For the quarter, realized intraday volatility for the S&P 500 averaged 5.7 basis points, average daily consolidated U.S. equity dollar volume declined 11.7 percent year over year and the average weighted spread for Russell 3000 stocks tightened more than one full basis point from a year ago. Retail investors were the exception to the broader market. For the quarter, average daily gross SEC Rule 605 U.S. equity dollar volume rose 12.0 percent year over year, retail investors committed an estimated $59.5 billion in net inflows to U.S. equities and average daily over-the-counter (OTC) trades rose 54.4 percent from a year ago.

Mr. Coleman commented, “KCG market share gains among retail brokers helped offset the poor overall market conditions. For the quarter, KCG’s revenue capture per U.S. equity dollar value traded returned to more normal levels, despite the pressures from market volatility, volumes and spreads.”

In the fourth quarter of 2016, the segment generated total revenues of $168.3 million and a pre-tax loss of $8.5 million.

In the first quarter of 2016, the segment generated total revenues of $258.9 million and pre-tax income of $75.5 million. Included in first quarter revenues was a $2.9 million gain from the sale of assets related to retail U.S. options market making.

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 first quarter of 2017, the segment generated total revenues of $70.8 million and pre-tax income of $2.0 million.

In the first quarter of 2017, the uncertain macroeconomic outlook muted institutional trading activity. The decline in consolidated U.S. equity share volume year over year included a decrease in U.S. ETF share volume of 20.7 percent and drop in aggregate dark pool U.S. equity share volume of approximately 25.5 percent. As in equities, retail investors were active in bonds. Average daily corporate and municipal bond transactions under 250 bonds rose 17.6 percent and 14.9 percent, respectively, year over year.

Mr. Coleman commented, “Institutional investors were measured given the array of concerns in the markets. Meanwhile, retail investors drove the record quarter for KCG BondPoint as volumes of corporate and municipals bonds in retail-size lots continued to build.”

In the fourth quarter of 2016, the segment generated total revenues of $75.5 million and pre-tax income of $4.5 million.

In the first quarter of 2016, the segment generated total revenues of $76.4 million and pre-tax income of $6.3 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 first quarter of 2017, the segment generated total revenues of $10.0 million and a pre-tax loss of $20.4 million. Included in first quarter revenues are pre-tax gains totaling $4.8 million from the sale of Bats shares.

In the fourth quarter of 2016, the segment generated total revenues of $336.7 million and pre-tax income of $313.9 million. Included in fourth quarter revenues are pre-tax gains totaling $331.0 million from the sale of Bats shares.

In the first quarter of 2016, the segment generated total revenues of $10.1 million and a pre-tax loss of $21.8 million. Included in first quarter revenues are a $3.7 million gain from KCG’s repurchase of a portion of its 6.875 percent Senior Secured Notes and a $2.8 million net gain primarily related to a distribution from an investment.

Financial Condition
As of March 31, 2017, KCG had $669.9 million in cash and cash equivalents and total outstanding debt of $455.2 million. KCG had $1.35 billion in stockholders’ equity, equivalent to a book value of $20.21 per share and tangible book value of $18.61 per share based on total shares outstanding of 66.7 million, including restricted stock units.

During the first quarter of 2017, KCG repurchased 0.9 million shares for approximately $13.3 million under the Company’s stock repurchase program.

KCG’s headcount was 923 full-time employees at March 31, 2017, compared to 952 at December 31, 2016.

Due to the announced merger with Virtu Financial, LLC, KCG will not host a conference call on the first quarter of 2017.

Source: KCG