Virtu KCG Holdings LLC - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - FORM 8-K - Virtu KCG Holdings LLC	d596541d8k.htm

KCG Holdings, Inc. (NYSE: KCG)

Barclays Global Financial Services Conference

September 11, 2013

Exhibit 99.1

2013 KCG Proprietary and Confidential

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 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. We undertake no obligation to publicly update any forward-looking statement, whether written or

oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. 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 combination 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; (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 pending sale of KCG’s reverse mortgage origination and securitization business and the departure of the

managers of KCG’s listed derivatives group; (iv) the ability of KCG's broker-dealer subsidiary to recover all or a portion of the damages that are

attributable to the manner in which NASDAQ OMX handled the Facebook IPO; (v) changes in market structure, legislative, regulatory or

financial reporting rules, including the continuing legislative and regulatory scrutiny of high-frequency trading; (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 risk, legal risk, liquidity risk, reputational risk, counterparty

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 and Knight's reports with the SEC, including, without limitation, those detailed under "Certain Factors Affecting Results of

Operations” in KCG’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, under "Risk Factors" in Knight's Annual Report on

Form 10-K for the year-ended December 31, 2012 and the Current Report on Form 8-K filed by KCG on August 9, 2013, and in 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.

2013 KCG Proprietary and Confidential

KCG: Key Investment Highlights

An established leader in

the fiercely competitive, highly regulated and

technologically advanced U.S. equity market

Diversified revenues from principal and agency trading across asset classes and

regions

Well positioned to compete amid the gradual shift from analog to

digital

trading across the global securities markets

Meaningful expected synergies and strong cash generation

Currently trading at a discount to tangible book value

2013 KCG Proprietary and Confidential

KCG At-A-Glance

An independent, pure-play securities

firm formed by the merger between

GETCO and Knight.

KCG engages in market making and

trading to increase efficiencies for

investors deploying capital across the

markets.

The firm works to create more

efficient, resilient markets by applying

advanced technologies to trading

across asset classes and regions.

Inception of trading on July 5

Shares outstanding of 121 million

Trading range of $8.11 to $12.14

Pro forma TBV of $10.87 as of June 30

3Q13 earnings to be released on October

2013 KCG Proprietary and Confidential

Strategic Rationale

Maximize advantages available to non-banks in securities trading

Leverage combined infrastructure, intellectual capital and liquidity to drive

innovation, scale and performance

Create meaningful synergies:

Generate balanced revenues over time from principal and agency trading

across asset classes and regions

Combine technology operations

Eliminate back office redundancies

Rationalize the platform by consolidating broker dealers and integrating self-clearing

functions

Optimize economics from trading on exchanges and ATS’s

2013 KCG Proprietary and Confidential

KCG Structure

Market Making –

Make markets in

global equities, commodities, fixed income,

futures, options and foreign exchange.

Global Execution Services –

Act

primarily as an agency broker and

operator of trading venues across

global equities, foreign exchange, fixed

income, futures and options.

Corporate and Other –

Strategic investments

in financial services-related ventures, interest

income and corporate overhead expenses

Market

Making

Global

Execution

Services

Corporate

and Other

2013 KCG Proprietary and Confidential

Market Making

Direct market making on behalf of clients

as well as providing market making

liquidity on exchanges, ECNs and other

venues.

Primary offerings:

Client Direct and Exchange Based

Market Making

The retail market leader in executing

Rule 605-eligible U.S. equity orders

A leading DMM at the NYSE

Knight Link

Rapid, off-exchange order execution

GETDirect

Market making on electronic fixed income

platforms

†

Source: Thomson Reuters Transaction Analytics

KCG Retail U.S. Exchange-Listed Volume

and Market Share†

KCG Avg. Execution Quality of

U.S. Exchange-Listed Stocks†

2013 KCG Proprietary and Confidential

Execution Services

A range of execution-only trading

services, designed to provide access to

liquidity, preserve anonymity and

minimize market impact.

Primary offerings:

Institutional sales trading

KCG EMS

Knight Direct

GETAlpha

†

Sources: KCG, BATS Global Markets, Thomson Reuters Autex

100

120

140

160

180

200

220

240

260

280

300

3.5%

4.1%

2012

1H13

KCG EMS / Algorithmic U.S. Equity Volume

and % of Consolidated Tape†

Access to deep, unique liquidity

and trading expertise

Broker-neutral execution management

system

Execution algorithms

2013 KCG Proprietary and Confidential

Venues

Robust platforms for electronic

trading connecting an array of market

participants to generate liquidity and

efficiencies.

Primary offerings:

KCG Hotspot

KCG BondPoint

Knight Match

GETMatched

†

Sources: KCG, Thomson Reuters, EBS, TRACE

Institutional spot FX ECN

Fixed income ECN

ATS ranked # 6 in Rosenblatt’s Dark

Liquidity Tracker in 1H13

ATS ranked # 11 in Rosenblatt’s Dark

Liquidity Tracker in 1H13

9.55%

10.27%

2012

1H13

KCG Hotspot Volume

and % of Spot FX Volume†

$124.1

$136.4

100

125

150

175

2012

1H13

KCG BondPoint Retail Fixed Income Volume†

2013 KCG Proprietary and Confidential

Global Revenue Distribution

The Americas:

84%

Europe:

12%

Asia:

Based on YTD revenues as of June 30, 2013, excluding Urban Financial Group

2013 KCG Proprietary and Confidential

Pro Forma Adjusted Revenue and Expense Trends

(in $ thousands)

Full Year 2012

First Half 2013

Revenues

1,496,359

769,520

Expenses

(% of revenues)

Employee compensation and benefits

543,679

36%

274,031

36%

Execution and clearance fees

370,790

25%

183,661

24%

Communications and data processing

178,110

12%

86,717

11%

Depreciation and amortization

86,445

39,973

Interest

79,605

39,478

Payments for order flow

66,528

45,209

Professional fees

27,111

9,886

Occupancy and equipment rentals

36,440

17,999

Other

62,583

26,237

Pre-tax income

45,069

46,328

Based on KCG Holdings, Inc. 8-K/A filed September 10, 2013; See Addendum for Reg G chart

2013 KCG Proprietary and Confidential

Pro Forma Balance Sheet

(in $ thousands)

June 30, 2013

Cash and cash equivalents

726,302

Long-term debt

727,133

Stockholders' equity

1,509,247

Debt-to-equity

ratio

†

0.64

Book value

$12.92

Tangible book value

$10.87

†

Debt-to-equity ratio incorporates the effect of the $235 million first

lien term loan due within one year, which is included in accrued

expenses and other liabilities

Tangible book value is calculated by subtracting pro forma goodwill

and intangible assets from equity

Based on KCG Holdings, Inc. 8-K/A filed September 10, 2013

2013 KCG Proprietary and Confidential

Integration Update

Prior to the close:

Post-Closing (In Progress):

GETCO recorded a restructuring expense

Knight recorded a restructuring expense, completed an asset sale, discontinued certain

offerings, and created a reserve for legal proceedings

Execution of liquidity strategy across asset classes

Combination of overlapping businesses and functions

Consolidation of broker dealers

Integration of clearing operations

Closing the sale of Urban Financial Group

2013 KCG Proprietary and Confidential

KCG: Key Investment Highlights

An established leader in

the fiercely competitive, highly regulated and

technologically advanced U.S. equity market

Diversified revenues from principal and agency trading across asset classes and

regions

Well positioned to compete amid the gradual shift from analog to

digital

trading across the global securities markets

Meaningful expected synergies and strong cash generation

Currently trading at a discount to tangible book value

2013 KCG Proprietary and Confidential

Addendum

2013 KCG Proprietary and Confidential

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

Year ended December 31, 2012

GETCO

Knight

Ex-Urban

Other

Adjustments

Debt

Refinancing

Purchase Price

Adjustments

KCG

Pro Forma

(in $ thousands)

Reconciliation of pro forma GAAP to pro forma

non-GAAP pre-tax:

Pro forma GAAP income (loss) from continuing

operations before taxes

26,427

(412,890)

(36,005)

7,895

(34,871)

(11,151)

(460,595)

August 1 trading loss, related costs and professional

and other fees related to the merger

4,318

468,792

(7,895)

465,215

Writedown of goodwill and intangible assets

28,733

(1,381)

27,351

Facebook IPO trading losses

35,438

Investment gain

(25,092)

(9,992)

(35,084)

Writedown of strategic investment

1,360

11,384

12,744

Pro forma non-GAAP income (loss) from

continuing operations before income taxes

7,013

121,465

(37,386)

(34,871)

(11,151)

45,069

NOTES: Totals may not add due to rounding

2013 KCG Proprietary and Confidential

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

Six months ended June 30, 2013

GETCO

Knight

Ex-Urban

Other

Adjustments

Debt

Refinancing

Purchase Price

Adjustments

Other¹

KCG

Pro Forma

(in $ thousands)

Reconciliation of pro forma GAAP to pro

forma non-GAAP pre-tax:

Pro forma GAAP income (loss) from continuing

operations before taxes

(76,916)

(3,315)

244

45,026

(8,023)

(5,544)

(48,528)

14,931

22,497

37,428

Professional and other fees related to the mergers

and August 1 technology issue

37,129

31,423

(45,026)

23,526

Additional interest expense

(6,794)

Strategic investments impairments

9,184

Writedown of goodwill related to subsidiary Urban

Financial Group

17,787

(17,787)

Reserve for legal proceedings

10,000

Compensation and other expenses related to

reduction in workforce

8,517

12,995

21,512

Pro forma non-GAAP income (loss) from

continuing operations before income taxes

(7,155)

91,387

(17,543)

(8,023)

(5,544)

(6,794)

46,328

Totals may not add due to rounding

The unaudited pro forma income statements give effect to the mergers as if they had occurred on January 1, 2012. As part of that assumption, $235 million of the first lien term loan is

payable in the first year. Therefore, the six months ended June 30, 2013 does not include interest expense on this portion of the loan. The non-GAAP income (loss) from continuing

operations before income taxes adds back the expected interest expense on the $235 million loan for the six months ended June 30, 2013.

and stock-based comp expense due to the mergers

Accelerated deferred comp, unit

2013 KCG Proprietary and Confidential

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

Year ended December 31, 2012

GETCO

Knight

Ex-Urban

Other

Adjustments

Debt

Refinancing

Purchase Price

Adjustments

KCG

Pro Forma

(in $ thousands)

Reconciliation of pro forma GAAP to pro forma

non-GAAP revenue:

Pro forma GAAP revenue

551,536

590,251

(116,096)

1,025,691

August 1 trading loss, related costs and professional

and other fees related to the merger

457,570

Facebook IPO trading losses

35,438

Investment gain

(25,092)

(9,992)

(35,084)

Writedown of strategic investment

1,360

11,384

12,744

Pro forma non-GAAP revenue

527,804

1,084,651

(116,096)

1,496,359

NOTES: Totals may not add due to rounding

2013 KCG Proprietary and Confidential

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

Six months ended June 30, 2013

GETCO

Knight

Ex-Urban

Other

Adjustments

Debt

Refinancing

Purchase Price

Adjustments

KCG

Pro Forma

(in $ thousands)

Reconciliation of pro forma GAAP to pro forma

non-GAAP revenue:

Pro forma GAAP revenue

230,969

599,690

(70,323)

760,336

Writedown of strategic investment

9,184

Pro forma non-GAAP revenue

240,153

599,690

(70,323)

769,520

NOTES: Totals may not add due to rounding

2013 KCG Proprietary and Confidential

Virtu KCG Holdings LLC - FORM 8-K - EX-99.1 - September 11, 2013

Attached files

Virtu KCG Holdings LLC Reports