Virtu KCG Holdings LLC - FORM 8-K - EX-99.2

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8-K - FORM 8-K - Virtu KCG Holdings LLC	d811294d8k.htm
EX-99.1 - EX-99.1 - Virtu KCG Holdings LLC	d811294dex991.htm

KCG Holdings, Inc. (NYSE: KCG)

Quarter

2014

Earnings

Presentation

October 30, 2014

Exhibit 99.2

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 business as well as actions taken in response thereto and consequences thereof; (iii) 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, alternative trading systems,

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, under “Certain Factors Affecting Results of Operations” in KCG’s

Quarterly Report on Form 10-Q for the period ended June 30, 2014, 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.

3rd Quarter 2014 Summary

Financial results affected by the market environment in U.S. equities and heightened

competition for retail order flow

Modest growth in market share of consolidated U.S. equity share volume executed by

KCG market making from the second quarter

Increased algorithmic trading U.S. equity share volume and net revenues from

institutional clients for the second consecutive quarter

Announced the sale of the futures commission merchant (FCM)

Realized a gain from the firm’s strategic investment in tradeMONSTER, which combined

with OptionsHouse during the quarter

Began to explore strategic options for KCG Hotspot

Repurchased 3.6 million shares for $42.1 million

KCG Financial Results

Pre-Tax Earnings (Loss) from Continuing Operations By Business Segment

(in thousands)

(unaudited)

For the three months ended

September 30, 2013

June 30, 2014

September 30, 2014

Market Making

Revenues

$ 240,110

$ 218,446

$ 166,620

Expenses

192,257

182,442

174,653

Pre-tax earnings (loss)

47,853

36,004

(8,033)

Global Execution Services

Revenues

91,366

85,903

79,218

Expenses

107,720

85,167

80,882

Pre-tax earnings (loss)

(16,354)

736

(1,664)

Corporate and Other

Revenues

137,862

9,784

26,464

Expenses

47,988

32,017

32,002

Pre-tax earnings (loss)

89,874

(22,233)

(5,538)

Consolidated

Revenues

469,338

314,133

272,302

Expenses

347,965

299,626

287,537

Pre-tax earnings (loss)

$ 121,373

$ 14,507

$ (15,235)

Notes:

3rd quarter 2013 results include a gain of $128.0 million on GETCO’s investment in Knight as well as expenses of $25.6 million related

to the merger, integration and a reduction in workforce

2nd quarter 2014 results include expenses of $7.0 million related to the integration, a reduction in workforce and debt reduction

3rd quarter 2014 results include $15.1 million net gain related to the Company’s strategic investment in tradeMONSTER, which

combined with OptionsHouse, as well as expenses of $10.8 million related to a reduction in workforce and other separations as

well as a lease loss accrual

Market Conditions

Sources:

BATS

Global

Markets,

VistaOne

Solutions,

Thomson

Reuters,

OCC,

CSI,

Bloomberg,

Reuters,

EBS,

SIFMA,

TRACE,

MSRB;

3Q14

SEC

Rule

605

U.S.

equity

volume

includes

estimate of September 2014 data based on public and proprietary information

Average daily consolidated U.S. equity share volume

Average daily consolidated U.S. equity dollar volume

Average realized volatility for the S&P 500

Market conditions in U.S. equities

Avg. daily volume in select securities markets

3Q13

2Q14

3Q14

Consolidated U.S. equity share volume

5.8 bn

6.1 bn

5.7 bn

730.2 mn

690.2 mn

675.6 mn

ETF share volume

650.0 mn

638.7 mn

666.6 mn

Consolidated U.S. equity dollar volume

$207.8 bn

$242.8 bn

$236.1 bn

U.S. equity futures contracts

2.7 mn

2.8 mn

2.9 mn

U.S. options contracts

15.0 mn

15.8 mn

16.3 mn

European equity notional value traded (USD)

$906.2 bn

$1,080.2 bn

$1,019.8 bn

Asian equity share volume

7.9 bn

6.1 bn

6.2 bn

FX notional value traded (USD) among reporting venues

$228.7 bn

$206.6 bn

$237.9 bn

U.S. Treasury notional volume

$521.1 bn

$487.5 bn

$489.4 bn

U.S. corporate bond notional volume

$16.5 bn

$20.2 bn

$18.7 bn

Transactions under 250 bonds

13,578

12, 372

11,024

7.3

10.0

9.1

13.3

8.3

5.9

10.8

7.9

9.6

Continued weakness in the global equities markets

Mixed market conditions in FICC

Consolidated U.S. equity share volume declined 5.5%

from 2Q14; Lowest quarterly total since 1Q07

Pan European equity notional value traded declined

5.6% from 2Q14

Asian equity share volume across developed markets

declined 1.2% from 2Q14

In fixed income, U.S. treasury notional volume rose

0.4% from 2Q14 while U.S. corporate bond notional

volume declined 7.4%

FX notional value traded among reporting venues rose

15.2%

Certain exchange-based commodity volumes as a group

were up slightly from 2Q14

8,000

$400,000

6,000

$300,000

4,000

$200,000

2,000

$100,000

Jul

–

Aug –

Sep

Apr –

May –

Jun Jul –

Aug –

Sep

3Q13

2Q14

3Q14

“Retail”

SEC Rule 605 U.S. equity share volume*

Results negatively affected by depressed retail

trading activity, heightened competition and

challenging market conditions late in the quarter

Contributions from non-U.S. equities and FICC

largely static from 2Q14

The Market Making Segment

U.S. equities

Non-U.S. equities

3Q14 Market Making revenue distribution

Sources: KCG, SEC, VistaOne Solutions; * 3Q14 SEC Rule 605 share

volume includes an estimate of September 2014 data based on public and proprietary information. Average revenue capture per

U.S. equity dollar value traded represents revenue in basis points for every single dollar in value of U.S. equities traded within the Market Making segment. For example, in the third quarter of 2014,

KCG market making recorded revenues from U.S. equities of approximately $118.4 million on total dollar volume during the quarter

of $1.57 trillion which amounts to average revenue capture of 0.75

basis points.

Avg. daily SEC Rule 605 U.S. equity volume was 11%

below the quarterly average for the past 5 years

Heightened competition for retail order flow drove a

7.5% increase in price improvement from 2Q14

GETDirect grew avg. daily U.S. Treasury notional

volume 15% from 2Q14

$25.4 bn

$25.1 bn

$24.7 bn

1.01

0.75

0.50

0.75

1.00

1.25

1.50

$15.0

$17.5

$20.0

$22.5

$25.0

$27.5

$30.0

3Q13

2Q14

3Q14

KCG avg. daily dollar volume and revenue

capture per U.S. equity dollar value traded

Avg. revenue capture per dollar value traded

730 mn

690 mn

676 mn*

8.8

9.2

9.4

100

200

300

400

500

600

700

800

900

1,000

3Q13

2Q14

3Q14

Retail trading activity and realized volatility

Avg. daily SEC Rule 605 U.S equity share volume (all market makers)

Avg. realized volatility for the S&P 500

71%

29%

1.07

Avg. daily dollar volume

The Global Execution Services Segment

In agency execution, algorithmic trading increased

contributions from institutional clients for the

second consecutive quarter

Among trading venues, maintained and grew

market share

Sources: KCG, BATS Global Markets, Reuters, EBS, TRACE, MSRB

Avg. daily bond transactions

KCG BondPoint avg. daily par value traded

Pct. (%) of interdealer corporate bond transactions under 250 bonds

Pct. (%) of interdealer muni bond transactions under 250 bonds

129.1

133.7

126.0

Percentage of volume from institutional clients rose to

24% from 21% in 2Q14 and from 20% in 1Q14

Percentage of net revenues from institutional clients

rose to 63% from 57% in 2Q14 and from 54% in 1Q14

KCG Hotspot accounted for 12.7% of all volume among

institutional spot FX reporting venues

KCG BondPoint accounted for 18.9% of all interdealer

corporate bond transactions under 250 bonds

Avg. daily notional spot FX dollar volume

Avg. daily U.S. equity share volume

17.4%

18.6%

18.9%

129.1

4.6%

133.7

6.4%

126.0

6.1%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

175

200

225

250

275

300

3Q13

2Q14

3Q14

4.68%

4.38%

4.34%

KCG algorithmic trading and order routing

Pct. (%) of consolidated U.S. equity volume

270 mn

265 mn

248 mn

150

$160

20%

$120

15%

$80

10%

$40

3Q13 2Q14

3Q14

28.4

$26.2 bn

$30.3 bn

12.68%

12.74%

10%

11%

12%

13%

14%

15%

16%

3Q13

2Q14

3Q14

12.44%

KCG Hotspot

Pct. (%) of spot FX volume among reporting venues

Consolidated Expenses

Compensation and benefits

Communications and data processing

Depreciation and amortization

Debt interest expense

Professional fees

Occupancy and equipment rentals

Business development

Other

Consolidated expenses totaled $180 million

compared to $195 million in 2Q14, excluding

transaction-based expenses and non-recurring

charges disclosed in Reg G reconciliations

The $15.6 million decline in “Employee

compensation

and

benefits”

from

2Q14

attributable to lower headcount and a decrease

in accruals for bonus pools

The $2.7 million decline in “Payments for

order flow”

driven by decrease in retail trading

activity and lessened demand for payment

The $0.5 million increase in “Occupancy and

equipment rentals”

due to a deployment of

new technology assets

†

See addendum for a reconciliation of GAAP to non-GAAP financial results.

3Q14

2Q14

3Q13

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

$220.3 mn

$194.9 mn

$180.0 mn

Additional Financials

Consolidated Statements of Financial Condition

(in millions)

(unaudited)

September 30, 2013

June 30, 2014

September 30, 2014

Cash and cash equivalents

$ 798.7

$ 600.9

$ 540.5

Debt

957.3

422.3

Stockholders’

equity

1,513.0

1,533.7

1,485.8

-----

Debt-to-tangible equity ratio

0.73

0.32

0.33

Tangible book value per share

$10.63

$11.04

$11.05

Book value per share

$12.34

$12.66

$12.68

Shares outstanding including restricted

stock units (in thousands)

122,588

121,111

117,167

Tangible book value is calculated by subtracting goodwill and intangible assets from equity.

KCG Stockholder Base

A legacy investor in GETCO, General

Atlantic

increased

its

stake

the

combined

firm at the merger close

A legacy investor in Knight, Jefferies

increased its stake in the combined firm in the

year since the merger close

‘Insiders’

is comprised of members of the KCG

Management Committee and Board of

Directors, excluding representatives of General

Atlantic

category,

‘Retail’

includes

retail

investors

as well as current KCG employees and former

management and employees of the predecessor

firms

Estimated

ownership

breakdown

based

latest

available

position

data

and

KCG

outstanding

117.2

million

September

30,

2014.

Analysis

excludes

outstanding

warrants.

24.3%

19.2%

17.1%

15.0%

10.3%

14.1%

General Atlantic

Jefferies

Insiders

Institutional (active)

Index / ETF (passive)

Retail

3 months ended September 30, 2014

Market Making

Global Execution

Services

Corporate and

Other

Consolidated

Reconciliation of GAAP pre-tax to non-GAAP pre-tax:

GAAP loss from continuing operations before income taxes

$ (8,033)

$ (1,664)

$ (5,538)

$ (15,235)

Net gain related to tradeMONSTER combination with OptionsHouse

(15,105)

Compensation related to reduction in workforce and other employee separations

2,786

3,577

4,158

10,521

Writedown of assets and lease loss accrual, net

301

Non-GAAP (loss) income from continuing operations before income taxes

$ (5,247)

$ 1,913

$ (16,184)

$ (19,518)

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

3 months ended June 30, 2014

Market Making

Global Execution

Services

Consolidated

Reconciliation of GAAP pre-tax to non-GAAP pre-tax:

GAAP income (loss) from continuing operations before income taxes

$ 36,004

$ 736

$ (22,233)

$ 14,507

Writedown of capitalized debt costs

1,995

Compensation related to reduction in workforce

383

1,886

800

3,069

Writedown of assets and lease loss accrual, net

452

1,489

1,941

Non-GAAP income (loss) from continuing operations before income taxes

$ 36,839

$ 2,622

$ (17,949)

$ 21,512

Corporate and

Other

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

3 months ended September 30, 2013

Market Making

Global Execution

Services

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)

Compensation and other expenses related to reduction in workforce

2,309

15,132

17,441

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)

$ 19,047

Other

Corporate and

Professional

and

other

fees

Mergers

and

August

technology

issue

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

3 months ended September 30, 2014

GAAP

Adjustments for

non-GAAP presentation

KCG adjusted, normalized

expenses

Reconciliation of GAAP expenses to normalized non-GAAP expenses:

Employee compensation and benefits

95,307

10,521

84,786

Communications and data processing

38,576

Depreciation and amortization

20,298

Debt interest expense

7,714

Professional fees

7,161

Occupancy and equipment rentals

7,672

Business development

3,163

Writedown of assets, lease loss accrual and capitalized debt costs

301

Other

10,580

Total expenses

$ 190,772

$ 10,822

$ 179,950

3 months ended June 30, 2014

GAAP

Adjustments for

non-GAAP presentation

KCG adjusted, normalized

expenses

Reconciliation of GAAP expenses to normalized non-GAAP expenses:

Employee compensation and benefits

103,430

3,069

100,361

Communications and data processing

38,279

Depreciation and amortization

19,823

Debt interest expense

7,497

Professional fees

7,337

Occupancy and equipment rentals

8,235

Business development

2,609

Writedown of assets, lease loss accrual and capitalized debt costs

3,936

Other

10,767

Total expenses

$ 201,913

$ 7,005

$ 194,908

Regulation G Reconciliation of Non-GAAP

Financial Measures (Continuing Operations)

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

Employee compensation and benefits

129,631

17,441

112,190

Communications and data processing

44,046

Depreciation and amortization

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

Business development

2,644

200

2,444

Writedown of assets and lease loss accrual, net

936

Other

11,318

Total expenses

$ 245,991

$ 25,646

$ 220,344

Reconciliation of GAAP expenses to normalized non-GAAP expenses:

Virtu KCG Holdings LLC - FORM 8-K - EX-99.2 - October 30, 2014

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