Nov 07, 2007 11:42 AM
BGC updates preliminary 3Q 2007 results
BGC and eSpeed revise 2008 Outlook upward for the Combined Company
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NEW YORK--(BUSINESS WIRE)--Nov. 7, 2007-- eSpeed, Inc. (NASDAQ: ESPD), a leading developer of electronic marketplaces and related trading technology for the global capital markets, today reported results for the third quarter ended September 30, 2007.
eSpeed's Third Quarter Results Summary
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3Q2007 3Q2006
Actual Actual
--------------------------------------------------========= =========
GAAP Revenues $40.4 MM $38.1 MM
----------------------------------------------------------- ---------
Non-GAAP Operating Revenues $40.2 MM $38.1 MM
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GAAP Net Income (Loss) Per Diluted Share ($0.12) ($0.01)
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Non-GAAP Net Operating Income (Loss) Per Diluted
Share $ 0.01 $ 0.02
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BGC's Preliminary Third Quarter Results Summary(1)
BGC announced the following financial highlights related to its preliminary results for the third quarter of 2007:
* BGC's third quarter 2007 pre-tax profits were approximately $32.4 million versus a pre-tax loss of $34.3 million in the third quarter of 2006;
* BGC's third quarter 2007 revenues increased by 41 percent year-over-year to approximately $272 million;
* BGC's third quarter 2007 revenue in Rates increased year-over-year by approximately 38 percent;
* BGC's third quarter 2007 Credit revenues were up by approximately 50 percent year-over-year; and
* BGC's third quarter 2007 Foreign Exchange revenues increased by approximately 59 percent year-over-year.
Howard W. Lutnick, Chairman, Chief Executive Officer and President of eSpeed, who will become Chairman and co-Chief Executive Officer of the combined company upon the completion of eSpeed's proposed merger with BGC, stated: "The tremendous growth in profitability for BGC clearly demonstrates the strength of its business model and its highly scalable platform, and also underscores the compelling strategic rationale of combining eSpeed with BGC."
eSpeed's Third Quarter Earnings
eSpeed reported a net loss of $6.0 million, or $0.12 per diluted share, for the third quarter of 2007 based on Generally Accepted Accounting Principles ("GAAP"). To reflect earnings generated from the Company's operations, eSpeed also reported non-GAAP net operating income of $0.6 million, or $0.01 per diluted share. The difference between non-GAAP net operating income and GAAP net loss for the quarter was primarily due to $4.9 million in patent litigation costs, $1.0 million in direct expenses associated with the proposed combination with BGC, $0.3 million in charitable contributions related to eSpeed's September 11, 2007 Charity Day, and $0.4 million in losses from Aqua, in which eSpeed has an equity stake and into which it contributed its previous Equities Direct Access business after the close of the quarter. All of these differences were net of tax.
In comparison, eSpeed reported a GAAP net loss of $0.5 million, or $0.01 per diluted share, for the third quarter of 2006. eSpeed also reported non-GAAP net operating income of $1.2 million, or $0.02 per diluted share. The difference between non-GAAP net operating income and the GAAP net loss for the quarter was primarily due to $1.3 million in acquisition-related costs, $0.5 million in patent litigation costs, a $0.2 million charitable contribution to the Cantor Fitzgerald Relief Fund, and a $0.1 million expense related to a tax settlement, partially offset by a payment of $0.5 million related to a litigation settlement. All of these differences were net of tax.
eSpeed's Third Quarter Revenues
eSpeed reported GAAP revenues of $40.4 million and non-GAAP operating revenues of $40.2 million for the third quarter of 2007. The difference between GAAP and non-GAAP revenues for the third quarter of 2007 reflected Equities Direct Access revenues of $0.2 million.
eSpeed's total GAAP and non-GAAP operating revenues for the third quarter of 2006 were $38.1 million.
Fully electronic revenues were $16.3 million dollars in the third quarter of 2007, compared with $16.8 million dollars in the third quarter of 2006. Excluding $1.9 million in revenues related to the Wagner patent and recorded as part of "Fully electronic transactions with unrelated parties", revenues from eSpeed's fully electronic business were up 10.2 percent from $14.8 million in the third quarter of 2006. Revenues from software solutions were $11.8 million in the quarter compared with $11.4 million in the year ago period. Excluding Wagner-related payments of $2.5 million in the third quarter 2006, and recorded as "Software Solutions and licensing fees from unrelated parties", software solutions revenues increased by 32.6 percent from $8.9 million in the third quarter of 2006. The Wagner patent expired in February of 2007.
Hybrid voice- and screen-assisted revenues totaled $9.6 million in the third quarter of 2007, up 27.1 percent compared with $7.5 million in the third quarter of 2006. eSpeed's non-GAAP pre-tax operating margin was 2.4 percent in the third quarter of 2007.
See "Non-GAAP Financial Measures" below for a detailed description of the Company's non-GAAP financial measures.
Items Impacting GAAP Revenues and Income
The year-over-year growth in quarterly GAAP revenues was due primarily to increases in hybrid screen- and voice-assisted revenues from BGC, partially offset by the loss of revenue related to the Wagner patent. The lost $2.0 million in net income from the Wagner patent, along with acquisition-related expenses and a $3.5 million reserve for the recent patent decision were the primary contributors to eSpeed's wider GAAP net loss in the third quarter of 2007.
eSpeed's Cash Flow and Cash
eSpeed generated cash flow from operations of $9.9 million during the third quarter of 2007, compared with $20.8 million during the third quarter of 2006.
The Company also reports free cash flow, which it defines as cash from operations less net cash used in investing activities, including capital expenditures. eSpeed's free cash flow was ($5.1) million for the third quarter of 2007, compared with $12.9 million in the prior year period.
Excluding related party receivables and payables, free cash flow was ($3.9) million for the third quarter of 2007, compared with $7.6 million for the third quarter of 2006.
The above cash flow measures were negatively impacted in the quarter primarily by a wider net loss and increased capital expenditures mainly related to the opening of an additional data center.
As of September 30, 2007, eSpeed's cash and cash equivalents were $103.5 million. eSpeed's short-term assets as of September 30, 2007 also included $2.4 million in marketable securities and an $80 million secured loan receivable.(2) In comparison, as of December 31, 2006, eSpeed's cash and cash equivalents were $187.8 million.
Third Quarter Notional Volume and Transactions on the eSpeed System
Total volume on the eSpeed system in the third quarter of 2007 consisted of 3.1 million transactions with a notional value of $33.0 trillion, up 50.4 percent and 33.7 percent, respectively, from the 2.1 million transactions with a notional value of $24.7 trillion in the year-earlier period.
Fully electronic volume on the eSpeed system, excluding new products, was $12.7 trillion for the third quarter of 2007, up 35.3 percent from $9.4 trillion in the third quarter of 2006. Hybrid volume from BGC transacted on the eSpeed network, or the combined total of voice-assisted and screen-assisted volume, was $19.3 trillion for the third quarter of 2007, an increase of 36.9 percent from $14.1 trillion in the third quarter of 2006. Fully electronic volume on the eSpeed system for new products, which the Company defines as foreign exchange, interest rate swaps, futures, credit default swaps, and repurchase agreements, was $990 billion for the third quarter of 2007, down 16.0 percent from the $1.2 trillion reported in the third quarter of 2006 primarily due to a decrease in notional futures volume, partially offset by an increase in fully electronic credit default swap volume.
Preliminary BGC Results
For the third quarter of 2007, BGC's preliminary revenues were approximately $272 million, up 41% compared to the prior year quarter's $193 million. BGC recorded pre-tax profits of approximately $32.4 million compared to a pre-tax loss of $34.3 million in the prior-year period.
Continued high levels of global securities and derivatives volume and volatility led to strong organic growth in BGC's three largest asset class categories. BGC's revenues in Rates increased by approximately 38 percent, Credit by approximately 50 percent, and Foreign Exchange by approximately 59 percent, all compared to the third quarter of 2006. Revenues from Other Asset Classes increased by approximately 312 percent in the third quarter of 2007 compared to the year-ago quarter due primarily to the November 2006 acquisition of Aurel Leven.
For the third quarter of 2007, Rates represented 51 percent of BGC's revenues; Credit represented 21 percent; and Foreign Exchange represented 14 percent.
Outlook for BGC and eSpeed Combined(3)
BGC's revenues are expected to be at least $950 million in 2007, up at least 26 percent from $753.7 million in 2006. BGC's profits are expected to exceed $100 million in 2007. The Combined Company is expected to generate revenues of more than $1,050 million in 2007, up at least 23 percent from $853.6 million in 2006.
For 2008, the Combined Company's projected revenues are expected to increase by more than 12 percent and to exceed $1,175 million. The Combined Company expects to have 2008 net income before taxes for fully diluted shares (approximately 186 million shares) of at least $160 million or more than a 60 percent increase over 2007.
"Given BGC's strong results across our geographic and product categories, we remain confident that the Combined Company will experience significant revenue and profit growth in 2008," said Lee M. Amaitis, Chairman and Chief Executive Officer of BGC and Vice Chairman of eSpeed, who will become co-Chief Executive Officer of BGC Partners Inc. after the completion of the planned merger. "We expect to make further gains in broker productivity in Rates, Credit, and Foreign Exchange, as we continue to use BGC's strong relationships and eSpeed's world-class technology to provide outstanding service and execution to the word's largest banks, investments banks, broker dealers, and trading firms."
2008 Combined Company compensation expenses before BGC partnership profit distribution are expected to be between 55 and 60 percent of total revenue, while non-compensation expense is expected to be in the range of 27 to 32 percent of total revenue.
The Combined Company expects to have an effective tax rate of approximately 28 percent in 2008, compared to the previous outlook of 27 percent, due to the increase in expected pre-tax income for 2008, which will allow for faster utilization of net operating loss carry forwards. The Combined Company expects to have an effective tax rate of approximately 32.5 percent for 2009 and thereafter. For 2008, this means that the Combined Company expects to have after-tax income in excess of $116 million available to fully diluted shares.
The above outlook includes the elimination of revenues related to inter-company transactions of approximately $57 million in 2007 and $61 million in 2008, because of amounts that have historically been associated with inter-company revenue sharing transactions that will cease subsequent to the consummation of the proposed merger.
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(1) The non-GAAP results for BGC reflect the effects of the full
formation and final separation from Cantor and exclude any costs
which may be associated with the formation, separation and merger
(including, without limitation, redemption of partnership
interests) as well as any one time (i) compensation and (ii)
other accounting charges associated with transactions to
facilitate repayment of loans to executive officers,
exchangeability of BGC Holdings units and other structuring
features of the formation, separation and merger. For comparison
purposes, please see the results for "Pro Forma BGC Partners
Stand-Alone" as contained in eSpeed's special merger proxy filed
with SEC and dated November 6, 2007.
(2) On July 26, 2007, eSpeed entered into a Secured Promissory Note
and Pledge Agreement (the "Secured Loan") with Cantor in which
eSpeed agreed to lend to Cantor up to $100 million (the "Secured
Loan Amount") on a secured basis from time to time. The Secured
Loan is guaranteed by a pledge of eSpeed Class A or Class B
Common Stock owned by Cantor equal to 125% of the outstanding
Secured Loan Amount, as determined on a next day basis. The
Secured Loan bears interest at the market rate for equity
repurchase agreements plus 0.25% and is payable on demand. The
Secured Loan was approved by eSpeed's Audit Committee. At
September 30, 2007, the outstanding balance of the Secured Loan
was $80 million.
(3) The non-GAAP outlook for the combined company and for BGC reflects
the effects of the full formation and final separation from
Cantor and excludes any costs which may be associated with the
formation, separation and merger (including, without limitation,
redemption of partnership interests) as well as any one time (i)
compensation and (ii) other accounting charges associated with
transactions to facilitate repayment of loans to executive
officers, exchangeability of BGC Holdings units and other
structuring features of the formation, separation and merger. For
comparison purposes, please see the results for "Pro Forma BGC
Partners Stand-Alone" as contained in eSpeed's special merger
proxy filed with SEC and dated November 6, 2007.
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Third Quarter 2007 Conference Call for Analysts and Investors eSpeed will host a conference call on Thursday, November 8, 2007 at 8:30 A.M. EST, to discuss the above results. To listen to the call via audio webcast, please visit www.espeed.com. Please note: listeners must have a Real Media or Windows Media plug in and headphones or speakers to listen to the webcast. About eSpeed, Inc. eSpeed, Inc. (NASDAQ: ESPD) is a leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to the most liquid, efficient and neutral financial markets in the world. eSpeed operates multiple buyer, multiple seller real-time electronic marketplaces for the global capital markets, including the world's largest government bond markets and other fixed income and foreign exchange marketplaces. eSpeed's suite of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial products over eSpeed's global private network or via the Internet. eSpeed's neutral platform, reliable network, straight-through processing and superior products make it the trusted source for electronic trading at the world's largest fixed income and foreign exchange trading firms and major exchanges. To learn more, please visit www.espeed.com. On May 29, 2007, eSpeed announced that it had entered into an Agreement and Plan of Merger, dated as of May 29, 2007 with BGC Partners, Inc. ("BGC Partners"); Cantor Fitzgerald, L.P. ("Cantor"); BGC Partners, L.P., a Delaware limited partnership; BGC Global Holdings, L.P., a Cayman Islands exempted limited partnership; and BGC Holdings, L.P., a Delaware limited partnership pursuant to which eSpeed will acquire BGC Partners through a merger of BGC Partners with and into eSpeed. For more information, see eSpeed's Report on Form 8-K dated May 29, 2007, and its preliminary proxy statement dated November 6, 2007, as well is its definitive proxy statement when it becomes available. About BGC BGC is a leading inter-dealer broker, providing integrated voice and electronic execution and other brokerage services to banks, brokerage houses and investment banks for a broad range of global financial products including fixed income securities, foreign exchange, equity derivatives, credit derivatives, futures, structured products and other instruments. This is complemented by market data products for selected financial instruments. Named after fixed income trading innovator B. Gerald Cantor, BGC has offices in London, New York, Copenhagen, Istanbul, Nyon, Paris, Mexico City, Toronto, Hong Kong, Seoul, Singapore, Sydney, Tokyo, Beijing (representative office). To learn more, please visit www.bgcpartners.com. Important Information In connection with the proposed Merger, the Company filed a preliminary proxy statement on November 6, 2007, and intends to file a definitive proxy statement and related materials with the U.S. Securities and Exchange Commission (the "SEC") for the meeting of stockholders to vote on the proposed Merger. BECAUSE THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION, HOLDERS OF THE COMPANY'S COMMON STOCK ARE URGED TO READ THEM CAREFULLY, IF AND WHEN THEY BECOME AVAILABLE. The preliminary proxy statement and related materials are, and the definitive proxy statement, when it becomes available, will be available for free (along with any other documents and reports filed by the Company with the SEC) at the SEC's website, www.sec.gov, and at the Company's website, www.espeed.com. Participant Information The Company and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the Company's stockholders in connection with the proposed Merger. Certain information regarding the participants and their interests in the solicitation are set forth in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2006, which was filed with the SEC on August 23, 2007, and is set forth in the preliminary proxy statement filed with the SEC on November 6, 2007, and will be set forth in its definitive proxy statement when it becomes available for the Company's meeting of stockholders to vote on the proposed Merger. Stockholders may obtain additional information regarding the proposed Merger by reading the preliminary proxy statement and the definitive proxy statement and the related materials relating to the proposed Merger when they become available. Non-GAAP Financial Measures To supplement eSpeed's consolidated financial statements presented in accordance with GAAP and to better reflect the Company's quarter-over-quarter and comparative year-over-year operating performance, eSpeed uses non-GAAP financial measures of revenues, net income and earnings per share, which are adjusted to exclude certain expenses and gains. In addition, the Company provides a computation of free cash flow. These non-GAAP financial measurements do not replace the presentation of eSpeed's GAAP financial results but are provided to improve overall understanding of the Company's current financial performance and its prospects for the future. Specifically, eSpeed believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to the Company's financial condition and results from operations. In addition, eSpeed's management uses these measures for reviewing the Company's financial results and evaluating eSpeed's financial performance. For the third quarter of 2007, the difference between GAAP net loss and non-GAAP net operating income was approximately $6.6 million, net of tax, while the difference between GAAP revenues and non-GAAP operating revenues was approximately $0.2 million. eSpeed considers "non-GAAP net operating income" to be after-tax income generated from the Company's continuing operations excluding certain non-recurring or non-core items such as, but not limited to, asset impairments, litigation judgments, costs or settlements, restructuring charges, costs related to potential acquisitions, charitable contributions, insurance proceeds, business partner securities, gains or losses on investments and similar events. eSpeed considers "non-GAAP operating revenues" to be net revenue excluding these same items. The amortization of patent costs and associated licensing fees (including those made in settlement of litigation) from such patents are generally treated as operating items. Material judgments or settlement amounts paid or received and impairments to all or a portion of such assets are generally treated as non-operating items. Management does not provide guidance of GAAP net income because certain items identified as excluded from non-GAAP net operating income are difficult to forecast. Discussion of Forward-Looking Statements The information in this release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. The actual results of eSpeed, BGC or the combined company in the merger ("we", "our" or the "combined company") and the outcome and timing of certain events may differ significantly from the expectations discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy for eSpeed, BGC and/or the combined company include, but are not limited to, the combined company's relationship with Cantor and its affiliates and any related conflicts of interests, competition for and retention of brokers and other managers and key employees, pricing and commissions and market position with respect to any of our products, and that of the combined company's respective competitors, the effect of industry concentration and consolidation, and market conditions, including trading volume and volatility, as well as economic or geopolitical conditions or uncertainties. Results may also be impacted by the extensive regulation of our respective businesses and risks relating to compliance matters, as well as factors related to specific transactions or series of transactions, including credit, performance and unmatched principal risk as well as counterparty failure. Factors may also include the costs and expenses of developing, maintaining and protecting intellectual property, including judgments or settlements paid or received in connection with intellectual property or employment or other litigation and their related costs, and certain financial risks, including the possibility of future losses and negative cash flow from operations, risks of obtaining financing and risks of the resulting leverage, as well as interest and currency rate fluctuations. Discrepancies may also result from such factors as the ability to enter new markets or develop new products, trading desks, marketplaces or services and to induce customers to use these products, trading desks, marketplaces or services, to secure and maintain market share, to enter into marketing and strategic alliances, and other transactions, including acquisitions, dispositions, reorganizations, partnering opportunities, and joint ventures, and the integration of any completed transactions, to hire new personnel, to expand the use of technology for screen-assisted, voice-assisted and fully electronic trading and to effectively manage any growth that may be achieved. Results are also subject to risks relating to the proposed merger and separation of the BGC businesses and the relationship between the various entities, financial reporting, accounting and internal control factors, including identification of any material weaknesses in our internal controls, our ability to prepare historical and pro forma financial statements and reports in a timely manner, and other factors, including those that are discussed under "Risk Factors" in each of eSpeed's Annual Report on Form 10-K/A for the year ended December 31, 2006, which was filed with the SEC on August 23, 2007 and BGC's Registration Statement on Form S-1 filed with the SEC on February 8, 2007 (Registration No. 333-140531) to the extent applicable. We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or developments. eSpeed, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
(in thousands, except per share data)
September 30, December 31,
2007 2006
--------------------------
(Unaudited) Restated
Assets
Cash and cash equivalents $ 11,141 $ 21,838
Reverse repurchase agreements with related
parties 92,326 166,009
--------------------------
Total cash and cash equivalents 103,467 187,847
Marketable securities 2,393 -
Secured loan receivable from related party 80,000 -
Fixed assets, net 60,680 57,443
Investments 8,700 7,780
Goodwill 12,184 12,184
Other intangible assets, net 5,984 6,949
Receivable from related parties 14,325 7,145
Other assets 13,862 13,725
--------------------------
Total assets $ 301,595 $ 293,073
==========================
Liabilities and Stockholders' Equity
Current liabilities:
Payable to related parties 9,457 7,751
Accounts payable and accrued liabilities 40,907 24,129
--------------------------
Total current liabilities 50,364 31,880
Deferred income 7,069 8,114
--------------------------
Total liabilities 57,433 39,994
--------------------------
Stockholders' Equity:
Class A common stock, par value $0.01 per
share; 200,000 shares authorized; 36,459
and 36,407 shares issued and 29,957 and
36,407 shares outstanding at September 30,
2007 and December 31, 2006, respectively 365 364
Class B common stock, par value $0.01 per
share; 100,000 shares authorized; 20,498
shares issued at September 30, 2007 and
December 31, 2006, respectively 205 205
Additional paid-in capital 302,555 299,682
Treasury stock, at cost; 6,502 and 6,488
shares of Class A common stock at
September 30, 2007 and December 31, 2006
respectively (62,597) (62,597)
Accumulated other comprehensive loss (88) -
Retained earnings 3,722 15,425
--------------------------
Total stockholders' equity 244,162 253,079
--------------------------
Total liabilities and stockholders'
equity $ 301,595 $ 293,073
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eSpeed, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH GAAP (unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2007 2006 2007 2006
----------- -------- ----------- --------
(Unaudited) Restated (Unaudited) Restated
Revenues:
Transaction revenues
Fully electronic
transactions with related
parties $16,150 $14,598 $ 48,311 $ 45,983
Fully electronic
transactions with
unrelated parties 171 2,154 1,978 4,793
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Total fully
electronic
transactions 16,321 16,752 50,289 50,776
Voice-assisted brokerage
transactions with related
parties 7,214 6,125 20,993 20,028
Screen-assisted open outcry
transactions with related
parties 2,349 1,398 6,151 4,262
----------- -------- ----------- --------
Total transaction
revenues 25,884 24,275 77,433 75,066
----------- -------- ----------- --------
Software Solutions fees
from related parties 9,257 7,444 26,947 22,893
Software Solutions and
licensing fees from
unrelated parties 2,716 3,914 9,057 11,285
Insurance recovery - - - 3,500
Interest income 2,527 2,470 7,537 6,925
----------- -------- ----------- --------
Total revenues 40,384 38,103 120,974 119,669
----------- -------- ----------- --------
Expenses:
Compensation and employee
benefits 16,022 13,616 45,235 39,846
Amortization of software
development costs and other
intangible assets 4,800 5,691 15,171 18,078
Other occupancy and
equipment 8,510 8,130 26,916 28,409
Professional and consulting
fees 6,050 2,639 13,056 6,774
Loss contingency 3,500 - 3,500
Impairment of long lived
assets - - 4,010 -
Communications and client
networks 2,224 2,088 6,511 6,115
Marketing 244 145 700 742
Administrative fees to
related parties 3,345 2,616 10,330 9,713
Amortization of business
partner and non-employee
securities - - - 19
Acquisition related costs 1,598 2,026 5,305 2,026
Other expenses 3,372 1,888 8,244 5,848
----------- -------- ----------- --------
Total operating expenses 49,665 38,839 138,978 117,570
----------- -------- ----------- --------
----------- -------- ----------- --------
(Loss) income before income
taxes (9,281) (736) (18,004) 2,099
----------- -------- ----------- --------
Income tax (benefit)
provision (3,276) (210) (6,510) 885
----------- -------- ----------- --------
Net (loss) income $(6,005) $ (526) $(11,494) $ 1,214
=========== ======== =========== ========
Per share data:
Basic earnings per share $ (0.12) $ (0.01) $ (0.23) $ 0.02
=========== ======== =========== ========
Diluted earnings per share $ (0.12) $ (0.01) $ (0.23) $ 0.02
=========== ======== =========== ========
Basic weighted average
shares of common stock
outstanding 50,455 50,176 50,442 50,243
=========== ======== =========== ========
Diluted weighted average
shares of common stock
outstanding 50,455 50,176 50,442 51,206
=========== ======== =========== ========
eSpeed, Inc. and Subsidiaries
NON-GAAP CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2007 2006 2007 2006
----------- -------- ----------- ---------
(Unaudited) Restated (Unaudited) Restated
Revenues:
Transaction revenues
Fully electronic
transactions with
related parties $16,150 $14,598 $ 48,311 $ 45,983
Fully electronic
transactions with
unrelated parties 171 2,154 1,978 4,793
----------- -------- ----------- ---------
Total fully
electronic
transactions 16,321 16,752 50,289 50,776
Voice-assisted
brokerage transactions
with related parties 7,214 6,125 20,993 20,028
Screen-assisted open
outcry transactions
with related parties 2,349 1,398 6,151 4,262
----------- -------- ----------- ---------
Total transaction
revenues 25,884 24,275 77,433 75,066
----------- -------- ----------- ---------
Software Solutions fees
from related parties 9,257 7,444 26,947 22,893
Software Solutions and
licensing fees from
unrelated parties 2,504 3,914 8,242 11,285
Interest income 2,527 2,434 7,537 6,490
----------- -------- ----------- ---------
Total non-GAAP revenues 40,172 38,067 120,159 115,734
----------- -------- ----------- ---------
Expenses:
Compensation and employee
benefits 15,877 13,379 44,723 39,810
Amortization of software
development costs and
other intangibles 4,714 5,691 14,847 16,915
Other occupancy and
equipment 8,336 8,131 26,140 24,503
Administrative fees to
related parties 3,302 2,616 10,080 9,713
Professional and
consulting fees 2,113 1,789 5,380 4,387
Communications and client
networks 2,224 2,088 6,454 6,115
Marketing 244 145 700 742
Other expenses 2,400 2,198 7,075 6,159
----------- -------- ----------- ---------
Total non-GAAP
operating expenses 39,210 36,037 115,399 108,344
----------- -------- ----------- ---------
----------- -------- ----------- ---------
Non-GAAP income before
income taxes 962 2,030 4,760 7,390
----------- -------- ----------- ---------
Non-GAAP provision for
income taxes 365 835 1,805 2,886
----------- -------- ----------- ---------
Non-GAAP net operating
income 597 1,195 2,955 4,504
=========== ======== =========== =========
Non-operating loss:
Charitable contribution
Re: 9/11, net of tax (314) (242) (314) (242)
Amortization of business
partner and non-employee
securities, net of tax - - - (11)
Litigation costs, net of
tax (4,916) (530) (7,183) (1,485)
Loss on investment, net of
tax (376) - (1,044) -
Legal settlement, net of
tax - 458 - 458
Acquisition related costs,
net of tax (996) (1,260) (3,369) (1,260)
Accelerated depreciation,
net of tax - - - (689)
Office relocation cost,
net of tax - - - (2,360)
Tax settlement, net of tax - (147) - 226
Insurance recovery, net of
tax - - - 2,073
Impairment of long lived
assets, net of tax - - (2,539) -
----------- -------- ----------- ---------
Total non-operating
loss (6,602) (1,721) (14,449) (3,290)
----------- -------- ----------- ---------
Net (loss) income $(6,005) $ (526) $(11,494) $ 1,214
=========== ======== =========== =========
Per share data:
Basic non-GAAP income
before income taxes per
share $ 0.02 $ 0.04 $ 0.09 $ 0.14
Basic non-GAAP provision
for income taxes per
share $ 0.01 $ 0.02 $ 0.03 $ 0.06
----------- -------- ----------- ---------
Basic non-GAAP net
operating income per
share $ 0.01 $ 0.02 $ 0.06 $ 0.08
Basic non-operating loss
per share $ (0.13) $ (0.03) $ (0.29) $ (0.06)
----------- -------- ----------- ---------
Basic GAAP earnings per
share $ (0.12) $ (0.01) $ (0.23) $ 0.02
=========== ======== =========== =========
Diluted non-GAAP income
before income taxes per
share $ 0.02 $ 0.04 $ 0.09 $ 0.14
Diluted non-GAAP provision
for income taxes per
share $ 0.01 $ 0.02 $ 0.03 $ 0.06
----------- -------- ----------- ---------
Diluted non-GAAP net
operating income per
share $ 0.01 $ 0.02 $ 0.06 $ 0.08
Diluted non-operating loss
per share $ (0.13) $ (0.03) $ (0.29) $ (0.06)
----------- -------- ----------- ---------
Diluted GAAP earnings per
share $ (0.12) $ (0.01) $ (0.23) $ 0.02
=========== ======== =========== =========
Basic weighted average
shares of common stock
outstanding 50,455 50,176 50,442 50,243
=========== ======== =========== =========
Diluted weighted average
shares of common stock
outstanding 50,455 50,176 50,442 51,206
=========== ======== =========== =========
Additional data:
Non-GAAP pre-tax operating
margin 2.4% 5.3% 4.0% 6.4%
=========== ======== =========== =========
eSpeed, Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2007 2006 2007 2006
----------- --------- ----------- ---------
(Unaudited) Restated (Unaudited) Restated
Cash flows from operating
activities:
Net (loss) income $ (6,005) $ (526) $ (11,494) $ 1,214
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 7,196 8,841 23,559 27,564
Insurance recovery
from related parties - - - (3,500)
Impairment of long
lived assets - - 4,010 -
Equity in net loss of
unconsolidated
investments 308 11 413 (33)
Deferred income tax
expense (3,311) (223) (6,792) (841)
Stock-based
compensation 814 637 2,513 1,719
Tax benefit from
stock-based
compensation - 13 44 106
Excess tax benefits
from stock-based
compensation - (8) (49) (47)
Recognition of
deferred revenue (1,556) (1,008) (3,915) (2,857)
Changes in operating
assets and liabilities:
Receivable from
related parties (3,954) 3,932 (7,180) (744)
Other assets (1,130) 2,657 (1,244) (4,573)
Payable to related
parties 2,791 1,374 1,706 (2,115)
Accounts payable and
accrued expenses 13,607 4,206 23,166 11,732
Deferred income 1,148 877 2,870 2,517
----------- --------- ----------- ---------
Net cash provided by
operating activities 9,908 20,783 27,607 30,142
----------- --------- ----------- ---------
Cash flows (used in)
investing activities:
Secured loan to
related party (80,000) - (80,000) -
Insurance proceeds
from related parties - - - 3,500
Purchase of fixed
assets (9,701) (4,087) (12,944) (8,755)
Purchase of marketable
securities (147) - (2,481) -
Capitalization of
software development
costs (4,548) (3,358) (16,148) (11,658)
Capitalization of
patent defense and
registration costs (566) (436) (1,332) (1,011)
Decrease in restricted
cash - 1,827
Purchase of investment - (750)
----------- --------- ----------- ---------
Net cash used in
investing activities (94,962) (7,881) (111,828) (17,924)
----------- --------- ----------- ---------
Cash flows provided by
(used in) provided by
financing activities:
Repurchase of Class A
common stock - - (373) -
Proceeds from
exercises of stock
options and warrants - 52 165 421
Excess tax benefit
from stock based
compensation - 8 49 47
----------- --------- ----------- ---------
Net cash provided by
(used in) financing
activities - 60 (159) 468
----------- --------- ----------- ---------
Net (decrease) increase in
cash and cash equivalents (85,054) 12,962 (84,380) 12,686
----------- --------- ----------- ---------
Cash and cash equivalents
at beginning of period 3,624 37,495 21,838 37,070
Reverse repurchase
agreements with related
parties at beginning of
period 184,897 140,666 166,009 141,365
----------- --------- ----------- ---------
Total cash and cash
equivalents at beginning
of period 188,521 178,161 187,847 178,435
----------- --------- ----------- ---------
Cash and cash equivalents
at end of period 11,141 94,149 11,141 94,149
Reverse repurchase
agreements with related
parties at end of period 92,326 96,972 92,326 96,972
----------- --------- ----------- ---------
Total cash and cash
equivalents at end of
period $103,467 $191,121 $ 103,467 $191,121
=========== ========= =========== =========
Supplemental cash
information:
Cash paid for income taxes $ 87 $ 46 $ 122 $ 145
Supplemental disclosure of
non-cash investing
activities:
Contribution of net fixed
assets to related party - - $ (583) -
eSpeed, Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF FREE CASH FLOWS (unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September, 30
-------------------- ---------------------
2007 2006 2007 2006
----------- -------- ----------- ---------
(Unaudited) Restated (Unaudited) Restated
Non-GAAP income before
income taxes $ 962 $ 2,030 $ 4,760 $ 7,390
Depreciation and
amortization $ 7,196 8,841 23,559 27,564
Other non-cash and non-
operating items (10,764) (2,746) (19,793) (10,154)
----------- -------- ----------- ---------
Non-GAAP (loss) income
before income taxes
adjusted for
depreciation,
amortization and other (2,606) 8,125 8,405 2400
----------- -------- ----------- ---------
Provision for income taxes
on non-GAAP operating
income (365) (835) (1,805) (2,886)
Income tax provision on
non-operating income 3,641 1,045 8,315 2,001
Deferred income tax
expense (3,311) (223) (6,792) (841)
Tax benefit from stock-
based compensation - 13 44 106
Income taxes paid 87 46 122 145
----------- -------- ----------- ---------
Increase (decrease) in
current income tax
payable 52 46 (116) (1,475)
Changes in related party
receivable and payable,
net (1,163) 5,306 (5,474) (2,859)
Changes in other operating
assets and liabilities,
net 13,625 7,306 24,792 9,676
----------- -------- ----------- ---------
Net cash provided by
operating activities 9,908 20,783 27,607 30,142
----------- -------- ----------- ---------
Insurance proceeds from
related parties - - - 3,500
Purchase of fixed assets (9,701) (4,087) (12,944) (8,755)
Purchase of marketable
securities (147) - (2,481) -
Capitalization of software
development costs (4,548) (3,358) (16,148) (11,658)
Capitalization of patent
defense and registration
costs (566) (436) (1,332) (1,011)
Purchase of investment - - (750) -
Decrease in restricted
cash - - 1,827 -
----------- -------- ----------- ---------
Free cash flows (5,054) 12,902 (4,221) 12,218
----------- -------- ----------- ---------
Related party receivable
and payable, net 1,163 (5,306) 5,474 6,359
----------- -------- ----------- ---------
Free cash flows, net
of related party
activity $ (3,891) $ 7,596 $ 1,253 $ 18,577
=========== ======== =========== =========
eSpeed, Inc. and Subsidiaries
RECONCILIATION of NON-GAAP FINANCIAL MEASURES TO GAAP (unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2007 2006 2007 2006
----------- -------- ----------- ---------
(Unaudited) Restated (Unaudited) Restated
Revenues $ 40,172 38,067 $120,159 115,734
Insurance recovery (a) - - - 3,500
Tax settlement (b) - - - 399
Legal settlement (d) 36 36
eSpeed Equities (c) 212 - 815 -
----------- -------- ----------- ---------
GAAP revenues $ 40,384 $38,103 $120,974 $119,669
----------- -------- ----------- ---------
Operating expenses $ 39,210 $36,037 $115,399 $108,344
Amortization of business
partner and non-employee
securities (d) - - - 19
Litigation costs (e) 7,436 850 11,176 2,387
Tax settlement (f) - 237 - 36
Legal settlement (700) (700)
Accelerated amortization
(g) - - - 1,162
Office relocation costs
(h) - - - 3,907
Acquisition related costs
(i) 1,598 2,026 5,305 2,026
Impairment of long lived
assets (j) - - 4,010 -
Charitable contribution
Re: 9/11(k) 628 389 628 389
Loss on investment (l) 793 - 2,460 -
----------- -------- ----------- ---------
GAAP expenses $ 49,665 $38,839 $138,978 $117,570
----------- -------- ----------- ---------
Pre-tax operating income $ 962 $ 2,030 $ 4,760 $ 7,390
Sum of reconciling items =
(a) + (b) + (c) - (d) -
(e) - (f) - (g) - (h) -
(i) - (j) - (k) - (l) (10,243) (2,766) (22,764) (5,291)
----------- -------- ----------- ---------
GAAP (loss) income before
income tax provision $ (9,281) $ (736) $(18,004) $ 2,099
----------- -------- ----------- ---------
Non-GAAP provision for
income taxes $ 365 $ 835 $ 1,805 $ 2,886
Income tax benefit on non-
operating income (m) (3,641) (1,045) (8,315) (2,001)
----------- -------- ----------- ---------
GAAP (benefit) provision
for income taxes $ (3,276) $ (210) $ (6,510) $ 885
----------- -------- ----------- ---------
Non-GAAP net operating
income $ 597 $ 1,195 $ 2,955 $ 4,504
Sum of reconciling items =
(a) + (b) + (c) - (d) -
(e) - (f) - (g) - (h) -
(i) - (j) - (k) - (l) -
(m) (6,602) (1,721) (14,449) (3,290)
----------- -------- ----------- ---------
GAAP net (loss) income $ (6,005) $ (526) $(11,494) $ 1,214
----------- -------- ----------- ---------
eSpeed, Inc. and Subsidiaries
Quarterly Market Activity Report
The following table provides certain volume and transaction count
information on the eSpeed system for the periods indicated.
----------- ----------- ----------- ------------
3Q06 4Q06 1Q07 2Q07
----------- ----------- ----------- ------------
Volume (in billions)
----------------------
Fully Electronic
Volume - Excluding
New Products 9,381 9,813 11,809 10,281
Fully Electronic
Volume - New
Products* 1,179 1,335 1,415 1,066
----------- ----------- ----------- ------------
Total Fully Electronic
Volume 10,560 11,148 13,224 11,347
Voice-Assisted Volume 8,217 7,933 8,884 9,820
Screen-Assisted Volume 5,898 6,111 7,486 7,317
----------- ----------- ----------- ------------
Total Voice/Screen-
Assisted Volume 14,115 14,044 16,370 17,137
----------- ----------- ----------- ------------
Total Volume 24,675 25,192 29,594 28,484
=========== =========== =========== ============
Transaction Count
----------------------
Fully Electronic
Transactions -
Excluding New
Products 1,687,779 1,764,930 2,062,341 1,749,219
Fully Electronic
Transactions - New
Products* 140,539 142,239 144,378 153,673
----------- ----------- ----------- ------------
Total Fully
Electronic
Transactions 1,828,318 1,907,169 2,206,719 1,902,892
Voice-Assisted
Transactions 183,646 177,789 201,250 209,504
Screen-Assisted
Transactions 66,451 62,977 92,496 114,320
----------- ----------- ----------- ------------
Total Voice/Screen-
Assisted Volume 250,097 240,766 293,746 323,824
----------- ----------- ----------- ------------
Total Transactions 2,078,415 2,147,935 2,500,464 2,226,716
=========== =========== =========== ============
Trading Days 63 62 62 64
* New Products defined
as Foreign Exchange,
Interest Rate Swaps,
Repos, Futures, and
Credit Default Swaps.
CBOT Futures volume
calculated based on
per contract notional
value of $200,000 for
the two year contract
and $100,000 for all
others.
Global Interest Rate
Futures Volume (1)
CBOT - US
Treasury
Contracts 126,285,125 129,828,448 161,232,523 171,180,151
CME - Euro
$
Contracts 127,101,116 130,341,959 152,724,717 148,244,973
EUREX -
Bund
Contracts 72,591,730 74,001,534 88,987,126 88,867,284
Fed UST Primary Dealer
Volume (in billions)
(2)
UST Volume 32,171 30,742 34,437 33,100
Average
Daily UST
Volume 511 496 555 517
NYSE - Volume (shares
traded) - in millions
(3) 108,825 114,434 123,765 127,755
Transaction
Value - in
millions 3,941,583 4,316,756 4,943,056 5,339,909
NASDAQ - Volume
(shares traded) - in
millions (4) 116,510 121,477 131,410 134,007
Transaction
Value - in
millions 2,587,538 2,945,401 3,300,788 3,526,949
% Change % Change
----------- -------- --------
3Q07 vs 3Q07 vs
3Q07 2Q07 3Q06
-----------
Volume (in billions)
---------------------------------------
Fully Electronic Volume - Excluding New
Products 12,689 23.4% 35.3%
Fully Electronic Volume - New Products* 990 (7.1%) (16.0%)
----------- -------- --------
Total Fully Electronic Volume 13,679 20.6% 29.5%
Voice-Assisted Volume 10,883 10.8% 32.5%
Screen-Assisted Volume 8,438 15.3% 43.1%
----------- -------- --------
Total Voice/Screen-Assisted Volume 19,321 12.7% 36.9%
----------- -------- --------
Total Volume 33,000 15.9% 33.7%
=========== ======== ========
Transaction Count
---------------------------------------
Fully Electronic Transactions -
Excluding New Products 2,660,756 52.1% 57.6%
Fully Electronic Transactions - New
Products* 128,425 (16.4%) (8.6%)
----------- -------- --------
Total Fully Electronic Transactions 2,789,181 46.6% 52.6%
Voice-Assisted Transactions 216,436 3.3% 17.9%
Screen-Assisted Transactions 119,370 4.4% 79.6%
----------- -------- --------
Total Voice/Screen-Assisted Volume 335,806 3.7% 34.3%
----------- -------- --------
Total Transactions 3,124,987 40.3% 50.4%
=========== ======== ========
Trading Days 63
* New Products defined as Foreign
Exchange, Interest Rate Swaps, Repos,
Futures, and Credit Default Swaps.
CBOT Futures volume calculated based
on per contract notional value of
$200,000 for the two year contract and
$100,000 for all others.
Global Interest Rate Futures Volume (1)
CBOT - US Treasury
Contracts 190,159,708 11.1% 50.6%
CME - Euro $ Contracts 180,358,177 21.7% 41.9%
EUREX - Bund Contracts 91,302,644 2.7% 25.8%
Fed UST Primary Dealer Volume (in
billions) (2)
UST Volume 39,414 19.1% 22.5%
Average Daily UST Volume 626 21.0% 22.5%
NYSE - Volume (shares traded) - in
millions (3) 145,470 13.9% 33.7%
Transaction Value - in
millions 6,015,397 12.6% 52.6%
NASDAQ - Volume (shares traded) - in
millions (4) 136,916 2.2% 17.5%
Transaction Value - in
millions 3,896,657 10.5% 50.6%
Sources(1) Futures Industry Association - Monthly Volume Report -
(www.cbot.com, www.cme.com, www.eurexchange.com)
(2) www.ny.frb.org/pihome/statistics/dealer - Federal Reserve Bank
(3) NYSE - www.nyse.com
(4) NASDAQ - www.marketdata.nasdaq.com
Trading Days
----------------------------------------------------------------------
2007
----------------------------------------------------------------------
Q1 Q2 Q3 Q4
------------------------ ----------------- ------------- ------------
62 64 63 62
2006
----------------------------------------------------------------------
Q1 Q2 Q3 Q4
------------------------ ----------------- ------------- ------------
62 63 63 62
------------------------ ----------------- ------------- ------------
|
CONTACT: eSpeed, Inc.
Media:
Robert Hubbell, 212-294-7820
rhubbell@espeed.com
or
Investors:
Jason McGruder, 212-829-4988
jmcgruder@espeed.com
SOURCE: eSpeed, Inc.
