Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Virtu KCG Holdings LLC | d737454d8k.htm |
 KCG
Holdings, Inc. (NYSE: KCG) Sandler O’Neill Global Exchange &
Brokerage Conference June 4, 2014
Exhibit 99.1 |
 Safe
Harbor 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
capital
structure
and
business
as
well
as
actions
taken
in
response
thereto
and
consequences
thereof;
(iii)
the
costs
and
risks
associated
with
the
sale
of
Knight's
institutional
fixed
income
sales
and
trading
business,
the
sale
of
KCG's
reverse
mortgage
origination
and
securitization
business
and
the
departure
of
the
managers
of
KCG's
listed
derivatives
group;
(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,
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,
and
other
reports
or
documents
KCG
files
with,
or
furnishes
to,
the
SEC
from
time
to
time.
For
additional
disclosures,
please
see
https://www.kcg.com/legal/global-disclosures. |
 Investment Rationale
1.
A better model for the emerging competitive landscape –
agile, scalable,
pure-play, execution-only, non-bank
2.
A developer of advanced technologies driving the shift in trading from analog
to digital across asset classes, creating efficiencies for all market
participants 3.
Additional integration-related revenue and cost synergies yet to be
realized 4.
Prospects for multiyear organic growth directly from core capabilities
5.
Further growth opportunities from the implementation of regulations instituted
in response to the global financial crisis of 2008
1 |
 KCG
helps retail and institutional investors efficiently deploy capital in the
secondary market.
An independent securities firm created in mid-
2013 through the merger of leading market
makers GETCO and Knight
Complementary core capabilities in market
making, agency execution and trading venues
A market leader in U.S. equities and active in
cash, futures and options markets across global
equities, fixed income, currencies and
commodities
A focus on delivering best executions for clients
and providing best prices on public and private
markets
The KCG Model
Direct-to-client and non-client,
exchange-based market making
Agency-based trading
on behalf of clients
Agency-based trading between
principals to transactions
2 |
 The Market Making
Segment Direct-to-client market making
A leading wholesale market maker in U.S. equities
Primary clients include retail brokers, banks and bulge
brackets
Offer immediate, high-quality trade executions across the
U.S. equity market as well as in listed options, European
equities, U.S. Treasuries and FX (beta testing)
Anticipated future growth in European equities by providing
banks with outsourced trade execution
Non-client, exchange-based market making
A provider of best prices for buy and sell orders on
market centers
Active globally in select asset classes that are
largely electronic, fairly liquid and centrally cleared
Anticipated future growth from the modernization of
markets for global equities, fixed income, currencies
and commodities
Sources:
KCG,
VistaOne
Solutions,
OTC
Markets,
Bloomberg;
See
addendum
for
a
reconciliation
of
GAAP
to
non-GAAP
financial
results;
*
Results
for
the
Market
Making
segment
in
1Q14
include
a
debt
interest
charge
of
$7.2
million
which
represents
a
portion
of
aggregate
corporate
debt
interest
that
had
not
been
allocated
to
the
segment
in
previous
quarters
3
Pre-tax margin
Market Making revenue from U.S. equities
Market making revenue from global equities, options,
futures, fixed income, currencies and commodities
Realized volatility for the S&P 500
SEC Rule 605-eligible retail exchange-listed
volume (in millions)
OTC market volume (in billions) |
 The
Global Execution Services Segment Sources:
KCG,
Greenwich
Associates,
McLagan’s,
TABB
Group;
See
addendum
for
a
reconciliation
of
GAAP
to
non-GAAP
financial
results;
*
Results
for
the
Global
Execution
Services
segment
in
1Q14
include
a
debt
interest
charge
of
$2.4
million
which
represents
a
portion
of
aggregate
corporate
debt
interest
that
had
not
been
allocated
to
the
segment
in
previous
quarters;
†
KCG’s
strategic
investment
in
BATS
Global
Markets,
Inc.
is
contained
in
the
Corporate
and
Other
segment
Agency execution
An institutional, agency-based, execution-only broker in
global equities
Primary clients include mutual funds, hedge funds and
pension funds
Offer self-directed trading through algorithms and an
EMS as well as access to sales traders for complex
trades
Anticipated future growth from increasing usage of KCG
algorithms among the leading asset managers
Trading venues
An operator of multi-asset class marketplaces in
global equities, FX and fixed income
Offer market access, broad coverage, effective price
discovery, liquidity and cost effective trading
Anticipated
future
growth
from
the
modernization
of
markets
–
in
particular
FX
and
fixed
income
–
that
remain
manual,
non-transparent
and
illiquid
A
16.7%
stake
in
global
exchange
BATS
†
4
Pre-tax margin
Global Execution Services revenue
Estimated allocation of projected $11b in
institutional U.S. equity commissions in 2014
Execution only
Research, capital commitment, commission sharing
agreements, commission recapture and other |
 KCG
balance sheet (in $ millions)
As of March 31, 2014
Cash
and
cash
equivalents
651.1
Liquidity
buffer
‡
350.0
Debt
‡‡
472.3
Stockholders’
equity
1,566.2
---
Debt-to-tangible
equity
ratio
0.35
---
Book
value
per
share
$12.46
Tangible
book
value
per
share
$10.85
See
addendum
for
a
reconciliation
of
GAAP
to
non-GAAP
financial
results;
*
Free
cash
flow
represents
income
from
continuing
operations
less
capital
expenditures
plus
non-cash
items
such
as
depreciation
and
amortization,
stock-based
compensation
and
non-GAAP
adjustments
included
in
the
Regulation
G
tables;
Expenses
for
3Q13,
4Q13
and
1Q14
exclude
items
contained
in
the
Regulation
G
tables;
‡
The
liquidity
buffer
is
a
targeted
amount
that
represents
cash
and
other
highly
liquid
instruments
held
within
the
holding
company
and
our
domestic
broker-dealer
to
support
financial
obligations
in
normal
and
strained
funding
environments;
‡‡
Subsequent
to
the
first
quarter
of
2014,
KCG
completed
an
additional
$50
million
principal
repayment
on
the
$535
million
first
lien
term
loan
entered
into
on
July
1,
2013
to
fully
repay
the
loan
and
terminate
the
facility
ahead
of
the
December
5,
2017
maturity
date
Consolidated Financials
5
Compensation and benefits
Communications and data
processing
Depreciation and amortization
Debt interest expense
Professional fees
Occupancy and equipment rentals
Business development
Other
†
An
increase
in
compensation
from
4Q13
to
1Q14
was
driven
by
higher
revenues
and
seasonal
expenses.
Excluding
compensation
and
execution-based
costs,
all
other
expenses
declined
to
$90.4
million
in
1Q14
from
$99.3
million
in
4Q13
and
$108.2
million
in
3Q13. |
 |
 Addendum |
 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)
Writedown
of
assets
and
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
3
months
ended
December
31,
2013
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
$ 47,951
$ (4,491)
$ (60,159)
$ (16,699)
Compensation
and
other
expenses
related
to
reduction
in
workforce
5,254
5,447
708
11,409
Professional
and
other
fees
related
to
Mergers
and
August
1
technology
issue
-
-
2,785
2,785
Writedown
of
capitalized
debt
costs
-
-
13,209
13,209
Gain
on
strategic
asset
-
-
(1,359)
(1,359)
Writedown
of
assets
and
lease
loss
accrual
-
1,681
8,819
10,500
Non-GAAP
income
(loss)
from
continuing
operations
before
income
taxes
$ 53,205
$ 2,637
$ (35,997)
$ 19,845
Regulation
G
Reconciliation
of
Non-GAAP
Financial
Measures
(Continuing
Operations)
st |
 3
months
ended
September
30,
2013
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
$ 47,853
$ (16,354)
$ 89,874
$ 121,373
Gain
on
investment
in
Knight
Capital
Group,
Inc.
-
-
(127,972)
(127,972)
Compensation
and
other
expenses
related
to
reduction
in
workforce
2,309
15,132
-
17,441
Professional
and
other
fees
related
to
Mergers
and
August
1
technology
issue
-
-
7,269
7,269
Writedown
of
assets
and
lease
loss
accrual,
net
108
-
828
936
Non-GAAP
income
(loss)
from
continuing
operations
before
income
taxes
$ 50,270
$ (1,222)
$ (30,001)
$ 19,048
Regulation
G
Reconciliation
of
Non-GAAP
Financial
Measures
(Continuing
Operations)
st |
 3
months ended March 31, 2014 GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Reconciliation of pro forma GAAP expenses to normalized pro forma
non-GAAP 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
Writedown of assets, lease loss accrual and capitalized deal costs
7,823
7,823
-
Other
8,643
-
8,643
Total expenses
$ 220,578
$ 7,823
$ 212,755
Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations) |
 Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended December 31, 2013
GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Reconciliation of pro forma GAAP expenses to normalized pro forma
non-GAAP expenses:
Employee compensation and benefits
112,209
11,409
100,800
Communications and data processing
37,512
-
37,512
Depreciation and amortization
19,566
-
19,566
Debt interest expense
12,943
-
12,943
Professional fees
7,734
2,491
5,243
Occupancy and equipment rentals
9,358
-
9,358
Business development
1,923
-
1,923
Writedown of assets, lease loss accrual and capitalized deal costs
23,709
23,709
-
Other
13,066
294
12,772
Total expenses
$ 238,020
$ 37,903
$ 200,117 |
 Regulation G Reconciliation of Non-GAAP
Financial Measures (Continuing Operations)
3 months ended September 30, 2013
GAAP
Adjustments for
non-GAAP presentation
KCG adjusted, normalized
expenses
Reconciliation of pro forma GAAP expenses to normalized pro forma
non-GAAP expenses:
Employee compensation and benefits
129,631
17,441
112,190
Communications and data processing
44,046
-
44,046
Depreciation and amortization
20,091
-
20,091
Debt interest expense
19,350
2,982
16,368
Professional fees
9,077
4,087
4,990
Occupancy and equipment rentals
8,898
-
8,898
Business development
2,644
200
2,444
Writedown of assets, lease loss accrual and capitalized deal costs
936
936
-
Other
11,318
-
11,318
Total expenses
$ 245,991
$ 25,647
$ 220,345 |
 |