Knight Capital Group Announces GAAP Earnings of $0.24 Per Diluted Share for Second Quarter 2007

Global Markets segment generated second quarter pre-tax earnings of $32.7 million and achieved pre-tax margins of 20% in a mixed trading environment



JERSEY CITY, N.J., July 18  /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (NASDAQ:NITE) today reported GAAP earnings from continuing operations of $24.4 million, or $0.24 per diluted share, for the second quarter of 2007. Pre-tax earnings from continuing operations for this period were $39.9 million.

For the second quarter of 2006, the company reported GAAP earnings from continuing operations of $30.3 million, or $0.29 per diluted share, and pre-tax earnings from continuing operations of $50.8 million. Excluding a pre-tax gain of $7.1 million, or approximately $0.04 per diluted share, related to the sale of a part of the company's equity ownership in the International Securities Exchange, Inc., earnings from continuing operations for the second quarter of 2006 would have been $25.9 million, or $0.25 per diluted share.

"Continuing operations" include the company's two operating business segments, Global Markets and Asset Management. Continuing operations also include a Corporate segment, encompassing corporate investments and overhead expenses. Amounts reported as "discontinued operations" include the company's former Derivative Markets business segment, which included the subsidiary Knight Financial Products LLC, the sale of which was completed to Citigroup at the close of business on December 9, 2004.

Revenues for the second quarter of 2007 were $201.4 million, compared to $206.0 million for the second quarter of 2006.

Global Markets

During the second quarter of 2007, the Global Markets business segment generated total revenues of $165.3 million, compared to $183.4 million in the second quarter of 2006. In the second quarter of 2007, the Global Markets business segment reported pre-tax earnings of $32.7 million, compared to pre- tax earnings of $49.0 million in the second quarter of 2006.

"Knight's Global Markets segment held steady in a mixed second quarter trading environment characterized by one-way price directionality and unremarkable volumes," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Capital Group. "With intense focus, our broker-dealer business set out to increase and source new liquidity. We have successfully added sell-side clients whose trading 'exhaust,' or order flow that would otherwise go to exchanges and ECNs, serves as an alternative liquidity source. Their interest in our trading software to more efficiently execute these orders has garnered more sell-side order flow that not only feeds Knight's virtual exchange with more volume, but introduces liquidity that's different from our established equity businesses. Equity volumes also increased during the quarter on the Direct Edge ECN, and foreign exchange and fixed income volumes increased on our Hotspot and ValuBond electronic platforms, respectively. Knight's institutional business has performed consistently quarter over quarter and year over year. Our sales traders continue to win business based on their relationships and service."

                                                Q2 2007           Q2 2006

  Revenues ($)                               201,397,011       205,950,333
  Net income from continuing operations ($)   24,378,236        30,339,584
  Diluted EPS ($)                                   0.24              0.29
  U.S. equity dollar value traded (in
   $ millions)                                   650,636           566,224
  U.S. equity trades executed (in thousands)      72,720            59,222
  Average daily U.S. equity trades (in
   thousands)                                      1,154               940
  Nasdaq and Listed equity shares traded
   (in millions)                                  25,819            25,671
  OTC Bulletin Board and Pink Sheet shares
   traded (in millions)                          233,281           304,994
  Average revenue capture per U.S. equity
   dollar value traded (bps)                         1.6               2.1
  Average month-end balance of assets under
   management (in $ millions)                    3,970.0           3,074.6
  Quarterly fund return to investors*               2.0%              0.7%

  * Quarterly fund return represents the blended quarterly return across
    all assets under management in the Deephaven funds


                                               YTD 2007          YTD 2006

  Revenues ($)                               443,048,674       483,144,770
  Net income from continuing operations ($)   57,563,948        79,471,625
  Loss from discontinued operations, net of
   tax ($)                                    (1,332,818)                -
  Net income ($)                              56,231,130        79,471,625
  Diluted EPS ($)                                   0.54              0.75
  U.S. equity dollar value traded (in
   $ millions)                                 1,213,135         1,125,896
  U.S. equity trades executed (in thousands)     139,611           120,241
  Average daily U.S. equity trades (in
   thousands)                                      1,126               962
  Nasdaq and Listed equity shares traded
   (in millions)                                  49,580            53,532
  OTC Bulletin Board and Pink Sheet shares
   traded (in millions)                          452,107           678,670
  Average revenue capture per U.S. equity
   dollar value traded (bps)                         1.8               2.2
  Average month-end balance of assets under
   management (in $ millions)                    4,020.9           3,009.2
  Year-to-date fund return to investors*            7.0%              9.2%

  * Year-to-date fund return represents the blended return across all
    assets under management in the Deephaven funds



The company announced today in a separate press release that Citadel Derivatives Group LLC, an affiliate of Citadel Investment Group, L.L.C., has agreed to purchase a minority equity interest in Direct Edge ECN, a wholly owned subsidiary of Knight.

Asset Management

During the second quarter of 2007, the Asset Management business segment, Deephaven Capital Management, generated $29.1 million in asset management fees, compared to $14.1 million in the same period a year ago. In the second quarter of 2007, Asset Management reported pre-tax earnings of $6.3 million, compared to pre-tax earnings of $2.3 million in the second quarter of 2006. Asset Management had approximately $4.2 billion under management at July 1, 2007, up from $3.1 billion under management at July 1, 2006.

"Deephaven Capital Management gained further traction in the second quarter by continuing to deliver attractive risk-adjusted rates of return and growing assets under management," Mr. Joyce said. "Performance was positive across nearly all of the diverse geographic regions in which Deephaven invests and the investment strategies it employs. Outstanding performance history over more than a decade continues to attract new clients and assets. We are bullish on the significant opportunities Deephaven has to build its business."

Corporate

In the second quarter of 2007, the Corporate segment reported pre-tax earnings of $0.9 million, compared to a pre-tax loss of $0.5 million in the second quarter of 2006. Included in the results for the second quarter of 2006 was a pre-tax gain of $7.1 million, or approximately $0.04 per diluted share, related to the sale of a part of the company's equity ownership in the International Securities Exchange, Inc.

The company's corporate investment in the Deephaven funds earned $6.3 million pre-tax during the second quarter of 2007, compared to a pre-tax gain of $0.9 million during the second quarter of 2006. As of June 30, 2007, the company had $125.6 million in cash and cash equivalents and a $200.8 million corporate investment in funds managed by Deephaven.

The company had $965.0 million in stockholders' equity as of June 30, 2007, equivalent to a book value of approximately $9.41 per diluted share.

During the second quarter of 2007, the company repurchased 2.9 million shares for approximately $47.9 million under the company's $495 million stock repurchase program. To date, the company has repurchased 47 million shares for $460 million. The company announced today in a separate press release that its Board of Directors has authorized the repurchase of up to an additional $505 million of the company's outstanding common shares. The company has $540 million available to repurchase shares under the revised program. The company cautions that there are no assurances that any further repurchases may actually occur.

"By achieving a steady revenue stream and keeping costs in line, Knight once again this quarter reached its profit margin goal of 20% within Global Markets," Mr. Joyce said. "We also demonstrated our commitment to building shareholder value by buying back Knight stock throughout the second quarter, and that commitment continues with the $505 million extension of our repurchase program announced today. With Knight's businesses exhibiting strength and our attention to our capital structure, we are well-positioned to deliver value for our shareholders."

* * *

Copies of this earnings release and other information on the company can be obtained at the company's website, http://www.knight.com/. The company will conduct its second quarter 2007 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, July 18, 2007. To access Knight's earnings conference call, please dial 800.802.2266 for domestic callers or 913.312.1270 for international callers. When prompted, provide the passcode, which is 3438543. The conference call will be webcast live at 9:00 a.m. EDT for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for June 2007 on its website before the start of trading today at http://www.knight.com/ourLiquidity/volumeStatistics.asp.

                                  * * *

  About Knight


Knight Capital Group, Inc. (NASDAQ:NITE) is a leading financial services firm that provides voice and electronic access to the capital markets across multiple asset classes for buy-side, sell-side and corporate clients, and asset management for institutions and private clients. Our Global Markets business offers superior execution quality through natural liquidity, capital facilitation and trading technology, with comprehensive products and services that support the capital formation process. Our Asset Management business, Deephaven Capital Management, is a global multi-strategy alternative investment manager focused on delivering attractive risk-adjusted returns with low correlation to the broader markets. More information about Knight can be found at http://www.knight.com/.

Presentation of Information in this Press Release

Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management.  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.  Since such statements involve risks and uncertainties, the actual results and performance of the Company may turn out to be materially different from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.  Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein; however, readers should carefully review reports or documents the Company files from time to time with the Securities and Exchange Commission including, without limitation, the risks and uncertainties detailed under the headings "Certain Factors Affecting Results of Operations" and "Risks Affecting our Business" in the Company's Annual Report on Form 10-K.  Other risk factors include those associated with pursuing the substantially increased repurchase program, including, without limitation, whether or not the Company will complete the share repurchase program during any particular time frame or at all, whether the Company's cash flow from earnings and cash on hand will be sufficient to fund the share repurchase program, the effect of pursuing the program on the Company's balance sheet, the impact of market conditions, trading restrictions and alternative requirements for available cash, and the possibility that pursuing the program will limit the ability of the Company to pursue other opportunities.

  KNIGHT CAPITAL GROUP, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  (Unaudited)

                     For the three months ended   For the six months ended
                              June 30,                    June 30,
                         2007          2006          2007          2006

  Revenues
   Commissions and
    fees             $106,929,092  $112,475,157  $210,788,547  $215,118,168
   Net trading
    revenue            54,192,639    68,220,068   115,829,721   148,259,218
   Asset management
    fees               29,116,156    14,075,709    89,830,111    84,586,752
   Interest, net        4,169,037     2,775,335     8,986,980     6,089,307
   Investment income
    and other           6,990,087     8,404,064    17,613,315    29,091,325
     Total revenues   201,397,011   205,950,333   443,048,674   483,144,770

  Transaction-based
   expenses
   Execution and
    clearance fees     28,690,546    30,026,355    56,101,032    58,950,758
   Soft dollar and
    commission
    recapture
    expense            14,468,448    18,684,431    29,005,096    37,130,756
   Payments for
    order flow and
    ECN rebates        12,761,373    12,126,021    25,360,338    21,999,419
     Total
      transaction-
      based expenses   55,920,367    60,836,807   110,466,466   118,080,933

     Revenues, net
      of trans-
      action-based
      expenses        145,476,644   145,113,526   332,582,208   365,063,837

  Other direct
   expenses
   Employee
    compensation and
    benefits           78,697,298    64,615,557   180,930,190   164,171,725
   Communications
    and data
    processing          9,387,289     8,403,791    18,086,514    16,041,932
   Depreciation and
    amortization        5,513,772     5,324,879    10,915,552     9,732,574
   Professional fees    3,190,973     5,092,238     8,680,095    11,475,361
   Business
    development         4,493,303     3,134,363     8,272,135     5,256,681
   Occupancy and
    equipment
    rentals             3,550,286     3,398,114     7,005,512     6,750,599
   Writedown of
    assets and lease
    loss accrual       (1,490,061)      482,269    (1,490,061)    8,479,703
   Other                2,275,187     3,896,612     5,607,934    10,344,981
     Total other
      direct
      expenses        105,618,047    94,347,823   238,007,871   232,253,556


  Income from
   continuing
   operations before
   income taxes        39,858,597    50,765,703    94,574,337   132,810,281
  Income tax expense   15,480,361    20,426,119    37,010,389    53,338,656

  Net income from
   continuing
   operations          24,378,236    30,339,584    57,563,948    79,471,625

  Loss from
   discontinued
   operations, net
   of tax                       -             -    (1,332,818)            -
  Net income          $24,378,236   $30,339,584   $56,231,130   $79,471,625

  Basic earnings per
   share from
   continuing
   operations               $0.24         $0.30         $0.57         $0.79

  Diluted earnings
   per share from
   continuing
   operations               $0.24         $0.29         $0.56         $0.75

  Basic and diluted
   earnings per
   share from
   discontinued
   operations                  $-            $-        $(0.01)           $-

  Basic earnings per
   share                    $0.24         $0.30         $0.56         $0.79

  Diluted earnings
   per share                $0.24         $0.29         $0.54         $0.75

  Shares used in
   computation of
   basic earnings
   per share           99,683,315   100,739,240   100,291,311   100,822,519

  Shares used in
   computation of
   diluted earnings
   per share          102,523,827   105,397,197   103,540,053   105,358,680



  KNIGHT CAPITAL GROUP, INC.
  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  (Unaudited)

                                           June 30, 2007  December 31, 2006
  ASSETS
    Cash and cash equivalents               $125,552,681      $214,759,915
    Securities owned, held at clearing
     brokers, at market value                440,385,042       711,774,643
    Receivable from brokers and dealers      410,815,715       372,897,376
    Asset management fees receivable          58,240,104       112,204,064
    Investment in Deephaven sponsored
     funds                                   200,750,859       187,573,291
    Fixed assets and leasehold
     improvements at cost, less
     accumulated depreciation and
     amortization                             64,426,641        66,449,617
    Strategic investments                     48,211,877        49,436,605
    Goodwill                                 133,072,889       133,042,889
    Intangible assets, less accumulated
     amortization                             60,805,204        63,701,006
    Other assets                             216,599,858       116,374,310

      Total assets                        $1,758,860,870    $2,028,213,716

  LIABILITIES & STOCKHOLDERS' EQUITY
  Liabilities
    Securities sold, not yet purchased,
     at market value                        $416,625,320      $693,071,230
    Payable to brokers and dealers           120,525,119        47,852,721
    Accrued compensation expense             169,803,152       227,846,699
    Accrued expenses and other
     liabilities                              86,881,567        96,956,122

      Total liabilities                      793,835,158     1,065,726,772

  Stockholders' equity
    Class A common stock                       1,502,023         1,449,588
    Additional paid-in-capital               566,088,994       519,790,132
    Retained earnings                        868,090,455       811,859,325
    Treasury stock, at cost                 (470,655,760)     (370,612,101)

      Total stockholders' equity             965,025,712       962,486,944

      Total liabilities and stockholders'
       equity                             $1,758,860,870    $2,028,213,716



  KNIGHT CAPITAL GROUP, INC.
  PRE-TAX EARNINGS BY BUSINESS SEGMENT*
  Amounts in millions
  (Unaudited)
                                          For the three       For the six
                                           months ended      months ended
                                        June 30, June 30, June 30,  June 30,
                                          2007     2006     2007      2006
  Asset Management
  Revenues                                $29.4    $14.2    $90.6     $85.0
  Expenses                                 23.1     11.9     65.4      56.0
  Pre-Tax Earnings                          6.3      2.3     25.2      29.0

  Global Markets
  Revenues                                165.3    183.4    337.8     372.0
  Expenses                                132.6    134.4    269.0     274.5
  Pre-Tax Earnings                         32.7     49.0     68.8      97.5

  Corporate
  Revenues                                  6.8      8.4     14.6      26.1
  Expenses                                  5.9      8.9     14.1      19.9
  Pre-Tax Earnings                          0.9     (0.5)     0.5       6.2

  Consolidated
  Revenues                                201.4    206.0    443.0     483.1
  Expenses                                161.5    155.2    348.5     350.3
  Pre-Tax Earnings                        $39.9    $50.8    $94.6    $132.8

  * Totals may not add due to rounding.


DATASOURCE: Knight Capital Group, Inc.



CONTACT:  Margaret Wyrwas, Senior Managing Director, Corporate

Communications & Investor Relations, [phone], , or

Kara Fitzsimmons, Vice President, Corporate Communications, [phone],

 



Web site:  http://www.knight.com/ 

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