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 2006 | 2005 | 2004 | 2003 Archipelago Announces Third Quarter 2004 Results CHICAGO, Oct 25, 2004 /PRNewswire-FirstCall via COMTEX/ -- Archipelago Holdings, Inc. (PCX: AX), owner and operator of the Archipelago Exchange(SM) (ArcaEx(R)), the nation's first totally open, all-electronic stock exchange, reported net income attributable to common stockholders of $7.5 million, or $0.17 per diluted share, for the third quarter of 2004. During the third quarter of 2004, Archipelago recorded two non-recurring items (a non-cash deemed dividend and an income tax benefit) in conjunction with the conversion to a "C" Corporation and the initial public offering of its common stock. Excluding these non-recurring items, diluted earnings per share would have been $0.21. A full reconciliation of these non-recurring items is included in the table entitled "Reconciliation of non-GAAP financial measures to GAAP measures." Total revenues for the third quarter of 2004 were $127.1 million as compared to $126.9 million for the third quarter of 2003. Jerry Putnam, Chairman and CEO of Archipelago commented, "Even as third quarter market wide share volumes decreased from those in the second quarter, Archipelago revenues remained steady from quarter to quarter due to the continued market share growth experienced by ArcaEx. The ability to organically grow this market share is a testament to the benefits our trading platform provides to the investment community and our ability to meet the changing demands of the market place with enhanced features and functionality."
Third Quarter Financial Highlights
* Pre-tax income increased to $15.8 million for the third quarter of
2004, a $9.3 million improvement for the comparable period in 2003.
* The third quarter 2004 results included two non-recurring items. A
$(9.6) million non-cash deemed dividend for the value of additional
shares of common stock issued to General Atlantic Partners in
connection with Archipelago's initial public offering. In addition,
Archipelago's income tax provision was a $1.3 million benefit primarily
as a result of Archipelago's conversion from a Delaware limited
liability company to a Delaware corporation on August 11, 2004.
* Cost of revenues declined $10.8 million, or 12.3%, to $76.7 million for
the third quarter of 2004 from $87.5 million for the same period in
2003. As a percentage of total revenues, cost of revenues declined to
60.3% in the third quarter of 2004 from 68.9% in the third quarter of
2003.
* Gross margins increased to $50.4 million for the third quarter of 2004
from $39.4 million for the third quarter of 2003, an increase of $11.0
million, or 27.9%. As a percentage of total revenues, gross margin
increased to 39.7% for the third quarter of 2004 from 37.1% for the
second quarter of 2004 and 31.1% for the third quarter of 2003.
* Liquidity payments increased slightly to $47.5 million, or 37.3% of
total revenues in the third quarter of 2004 from $42.8 million, or
33.7% of total revenues in the third quarter of 2003.
* Clearance, brokerage and other transaction expenses declined to $8.9
million, or 7.0% of total revenues in the third quarter of 2004 from
$16.0 million, or 12.6% of total revenues in the third quarter of 2003.
* Indirect expenses increased to $35.6 million for the third quarter of
2004 from $33.2 million in the third quarter of 2003. Included in the
third quarter 2004 results was a $5.8 million expense related to
ArcaEx's recently launched sales and marketing campaign aimed at
corporate America. Included in the third quarter 2003 results was a
$4.6 million incremental depreciation expense for the early retirement
of certain assets.
* As of September 30, 2004, Archipelago had $172.9 million of cash and
cash equivalents and no long-term debt obligations.
Third Quarter Volume Information
* Total U.S. market volumes declined to 220.8 billion shares for the
third quarter of 2004 from 235.8 billion shares for the same period a
year ago. Clients executed 32.8 billion shares or 14.9% of total U.S.
equity securities on ArcaEx during the third quarter of 2004 compared
to 31.8 billion shares or 13.5% a year ago.
* ArcaEx market share increased to 26.6% in Nasdaq-listed stocks from
25.5% in the second quarter of 2004 and 25.6% from the third quarter in
2003.
* ArcaEx market share increased to 1.8% in NYSE-listed stocks from 1.5%
in the second quarter of 2004 and 1.1% from the third quarter in 2003.
* ArcaEx market share increased to 26.2% in AMEX-listed stocks from 22.2%
in the second quarter of 2004 and 13.9% from the third quarter in 2003.
* The internal match rate rose to 87.1% on ArcaEx compared to an internal
match rate of 86.3% in the second quarter of 2004 and 82.2% in the
third quarter a year ago.
Third Quarter Business Highlights
* Archipelago Holdings, Inc. commenced its initial public offering of its
common stock on August 12, 2004 and completed the offering on August
19, 2004 after the underwriters exercised their over-allotment option.
Trading commenced on ArcaEx with a single-priced Dutch auction where
all investors could see and participate in price formation.
* In connection with pending litigation relating to Nasdaq's claims that
Archipelago has improperly used the "Nasdaq" and "QQQ" trademarks in
its advertising activities without entering into a license agreement,
the court in the Southern District of New York granted Archipelago's
motion to dismiss the Nasdaq Stock Market, Inc.'s common-law claims
(but not Nasdaq's Lanham Act claims) and ruled that ArcaEx has the
right to facilitate trading of the Nasdaq-100 Tracking stock, QQQ; and,
that Nasdaq had no rights in the QQQ that would permit Nasdaq to
restrict trading by ArcaEx through imposing a licensing regime.
* The Circuit Court of Cook County, Illinois, dismissed with prejudice
all claims against Archipelago Holdings, Inc., f/k/a Archipelago
Holdings, LLC, and Archipelago Exchange, LLC (ArcaEx), in a lawsuit
filed by Lewis Borsellino and I.M. Acquisitions, LLC on March 23, 2004.
* Archipelago constructed a new website (http://www.archipelago.com)
where investors, issuers, traders, and other industry watchers can
access a broad, highly detailed range of ArcaEx-, market-wide and
client-specific data. The data is primarily made available via the
centerpiece of the new site: ArcaVision, a product that introduces a
new level of real-time and historical information to meet the needs of
this diverse audience.
* In September 2004, ArcaEx launched its first brand recognition
advertising campaign targeted at corporate America.
To supplement Archipelago Holdings' consolidated financial statements prepared in accordance with United States generally accepted accounting principles (GAAP) and to better reflect year-over-year comparisons, Archipelago Holdings uses non-GAAP financial measures of operating performance. A non-GAAP financial measure is a numerical measure of the Company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure, calculated and presented in accordance with GAAP. Non-GAAP financial measures do not replace and are not superior to the presentation of Archipelago Holdings' GAAP financial results but are provided to present the effects of one-time items recorded by Archipelago Holdings in connection with its initial public offering and reorganization from a Delaware limited liability company into a Delaware corporation and to improve overall understanding of the company's current financial performance and its prospects for the future. Specifically, Archipelago Holdings believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, Archipelago Holdings' management uses these measures for reviewing financial results and evaluating financial performance. About Archipelago Archipelago Holdings, Inc. (PCX: AX) owns and operates the Archipelago Exchange (ArcaEx). ArcaEx is the first totally open all-electronic stock market in the United States. Through its alliance with the Pacific Exchange, Inc., Archipelago operates ArcaEx as the exclusive equities trading facility of PCX Equities, Inc. Through ArcaEx, Archipelago customers can trade over 8,000 equity securities, including securities listed on the New York Stock Exchange(R), Nasdaq(R), American Stock Exchange(R) and Pacific Exchange(R). ArcaEx is regulated by the Pacific Exchange. The Archipelago ECN, a precursor to ArcaEx, was one of the four original ECNs, formed in December 1996 with Townsend Analytics. Certain statements in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on Archipelago's current expectations and involve risks and uncertainties that could cause Archipelago's actual results to differ materially from those set forth in the statements. There can be no assurance that such expectations will prove to be correct. Factors that could cause Archipelago's results to differ materially from current expectations include without limitation: general economic and business conditions, industry trends, competitive conditions, regulatory developments as well as other risks identified in Archipelago's Prospectus, dated August 12, 2004, filed with the Securities and Exchange Commission, which is available on Archipelago's website. This press release is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Contacts:
Archipelago Holdings, Inc.
Margaret Nagle, 312-442-7083 (Press)
Patrick Murphy, 312-442-7005 (Investor Relations)
Archipelago Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September June September September
30, 30, 30, 30,
2004 2004 2003 2004 2003
Revenues
Transaction fees $112,738 $116,205 $116,015 $363,816 $307,253
Market data fees 14,285 12,448 10,852 38,457 19,318
Listing fees 118 117 24 324 407
Total revenues 127,141 128,770 126,891 402,597 326,978
Cost of revenues
Liquidity payments 47,504 48,251 42,765 148,959 104,204
Routing charges 20,289 22,032 28,716 68,801 90,486
Clearance, brokerage
and other
transaction
expenses 8,888 10,759 16,008 32,313 52,948
Total cost of revenues 76,681 81,042 87,489 250,073 247,638
Gross margin 50,460 47,728 39,402 152,524 79,340
Gross margin as a % of
total revenues 39.7% 37.1% 31.1% 37.9% 24.3%
Indirect expenses
Employee compensation
and benefits 10,589 10,831 9,972 31,753 29,205
Depreciation and
amortization 4,976 5,520 9,966 21,228 19,509
Communications 5,058 4,631 4,911 14,218 16,470
Marketing and promotion 7,825 2,736 2,391 12,307 5,521
Legal and professional 2,736 3,573 1,449 8,612 6,882
Occupancy 1,211 1,010 1,023 3,197 3,130
General and
administrative 3,215 2,443 3,466 7,771 9,645
Total indirect expenses 35,610 30,744 33,178 99,086 90,362
Operating income (loss) 14,850 16,984 6,224 53,438 (11,022)
Interest and other, net 950 338 269 1,662 388
Income (loss) before
income tax benefit 15,800 17,322 6,493 55,100 (10,634)
Income tax benefit (1,315) - - (1,315) -
Net income (loss) 17,115 17,322 6,493 56,415 (10,634)
Deemed dividend on
convertible preferred
shares (9,619) - - (9,619) -
Net income (loss)
attributable to
common stockholders $7,496 $17,322 $6,493 $46,796 $(10,634)
Per share data:
Basic income (loss)
before income tax
benefit per share $0.38 $0.48 $0.18 $1.45 $(0.29)
Basic income tax benefit
per share 0.03 - - 0.03 -
Basic net income (loss)
per share 0.41 0.48 0.18 1.48 (0.29)
Basic deemed dividend
per share (0.23) - - (0.25) -
Basic net income (loss)
attributable to common
stockholders
per share, GAAP $0.18 $0.48 $0.18 $1.23 $(0.29)
Diluted income (loss)
before income tax
benefit per share $0.36 $0.42 $0.18 $1.33 $(0.29)
Diluted income tax
benefit per share 0.03 - - 0.03 -
Diluted net income
(loss) per share 0.39 0.42 0.18 1.36 (0.29)
Diluted deemed dividend
per share (0.22) - - (0.23) -
Diluted net income
(loss) attributable to
common stockholders
per share, GAAP $0.17 $0.42 $0.18 $1.13 $(0.29)
Basic weighted average
shares outstanding (a) 41,640 36,169 36,169 38,006 36,169
Diluted weighted average
shares outstanding (a) 43,994 40,938 36,188 41,360 36,169
(a) Adjusted to reflect our recapitalization from a Delaware limited
liability company to a Delaware corporation on August 11, 2004.
Archipelago Holdings, Inc.
Consolidated Statements of Financial Condition
(In thousands)
September 30, December 31,
2004 2003
Assets (unaudited)
Current assets:
Cash and cash equivalents $172,856 $111,815
Accounts receivable, net 70,137 77,214
Total current assets 242,993 189,029
Fixed assets, net 49,176 49,753
Goodwill 131,865 129,666
Other intangible assets, net 92,576 93,796
Deferred tax asset, net 3,280 -
Other assets 9,856 3,648
Total assets $529,746 $465,892
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued
expenses $79,427 $104,372
Current portion of note payable
and capital lease obligations 2,043 4,089
Total current liabilities 81,470 108,461
Note payable - 2,593
Capital lease obligations - 1,545
Total liabilities 81,470 112,599
Redeemable convertible preferred
shares - 50,000
Stockholders' equity
Members' equity - 303,293
Common stock 471 -
Additional paid-in capital 451,591 -
Unearned stock-based compensation (57) -
Accumulated deficit (3,729) -
Total stockholders' equity 448,276 303,293
Total liabilities and stockholders'
equity $529,746 $465,892
Archipelago Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine months ended
September 30,
2004 2003
Cash flows from operating activities
Net income (loss) $56,415 $(10,634)
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 20,007 18,831
Amortization of other intangible
assets 1,221 678
Provision for doubtful accounts (500) 6,583
Deferred taxes (3,280) -
Stock-based compensation 114 182
Gain on sale of investment owned - (40)
Changes in operating assets and
liabilities:
Accounts receivable 7,577 (47,813)
Other assets (6,209) 438
Accounts payable and accrued
expenses (24,944) 14,316
Net cash provided by (used in)
operating activities 50,401 (17,459)
Cash flows from investing activities
Additions to fixed assets (19,431) (15,906)
Proceeds from sale of investments - 2,010
Net cash used in investing activities (19,431) (13,896)
Cash flows from financing activities
Proceeds from initial public offering,
net of underwriting discounts 67,646 -
Direct costs of initial public
offering (6,777) -
Cash distribution to former Members (24,613) -
Proceeds from issuance of note payable - 5,681
Repayments of note payable (4,429) (823)
Principal payments under capital lease
obligations (1,756) -
Net cash provided by financing
activities 30,071 4,858
Net increase (decrease) in cash and
cash equivalents 61,041 (26,497)
Cash and cash equivalents at beginning
of period 111,815 48,964
Cash and cash equivalents at end of
period $172,856 $22,467
Archipelago Holdings, Inc.
Operating Data
(unaudited)
Three months ended Nine months ended
September June September September
30, 30, 30, 30,
2004 2004 2003 2004 2003
Trading Days 64 62 64 188 188
Total U.S. market volume
(millions of shares)(1) 220,785 239,970 235,804 730,203 688,489
Our total U.S. market volume
(millions of shares)(1) 32,793 33,595 31,813 104,138 82,845
Our share of total U.S.
market volume(1)(2) 14.85% 14.00% 13.49% 14.26% 12.03%
% of handled shares matched
internally(3) 11.50% 10.67% 9.45% 10.86% 7.83%
% of handled shares routed
out(3) 3.35% 3.33% 4.04% 3.40% 4.20%
Total volume of Nasdaq-listed
securities (millions of
shares) 99,636 108,328 110,672 334,278 311,971
Our total volume of Nasdaq-
listed securities (millions
of shares) 26,460 27,627 28,370 86,326 74,058
Our share of total volume of
Nasdaq-listed securities(2) 26.56% 25.50% 25.63% 25.82% 23.74%
% of handled shares matched
internally(3) 20.31% 19.30% 17.93% 19.55% 15.50%
% of handled shares routed
out(3) 6.25% 6.20% 7.70% 6.27% 8.24%
Total volume of NYSE-listed
securities (millions of
shares) 104,025 112,553 108,819 339,646 331,707
Our volume in NYSE-listed
securities (millions of
shares) 1,843 1,731 1,179 5,547 3,660
Our share of total volume of
NYSE-listed securities(2) 1.77% 1.54% 1.08% 1.63% 1.10%
% of handled shares matched
internally(3) 1.22% 0.96% 0.55% 1.04% 0.49%
% of handled shares routed
out(3) 0.55% 0.58% 0.53% 0.59% 0.61%
Total volume of AMEX-listed
securities (millions of
shares) 17,124 19,090 16,313 56,279 44,811
Our volume in AMEX-listed
securities (millions of
shares) 4,490 4,236 2,264 12,265 5,128
Our share of total volume on
AMEX-listed secutities(2) 26.22% 22.19% 13.88% 21.79% 11.44%
% of handled shares matched
internally(3) 22.74% 19.00% 11.30% 18.53% 8.74%
% of handled shares routed
out(3) 3.48% 3.19% 2.58% 3.26% 2.70%
Our ETF volume (millions of
shares) 4,190 3,783 1,969 11,019 4,380
Our U.S. equity transaction
volume (thousands of
transactions) 103,543 99,558 82,282 304,374 207,516
Our average U.S. equity
transaction size (shares per
transaction) 317 337 387 342 399
Our average U.S. equity
transactions per day
(thousands of transactions) 1,618 1,606 1,286 1,619 1,104
Our average transaction-
related revenue (per
share)(4) $0.0034 $0.0035 $0.0036 $0.0035 $0.0037
Our average transaction-
related cost of revenue (per
share)(5) $0.0021 $0.0021 $0.0022 $0.0021 $0.0024
Our average transaction-
related gross margin (per
share)(6) $0.0013 $0.0014 $0.0014 $0.0014 $0.0013
% of customer order volume
matched internally(7) 87.1% 86.3% 82.2% 86.3% 78.4%
% of customer order volume
routed out(7) 12.9% 13.7% 17.8% 13.7% 21.6%
(1) U.S. market volume is calculated based on the number of shares of
equity securities traded on the NYSE, AMEX and Nasdaq, including
exchange-traded funds, as reported in the consolidated tape. The
"consolidated tape" is the system that continuously provides the last
sale price and volume of securities transactions in listed securities
to the public.
(2) Our market share is calculated based on the number of shares handled
on the Archipelago system as a percentage of total volume. For
example, if a customer's 10,000 share buy order is matched with
another customer's 10,000 share sell order in our internal liquidity
pool, our handled volume will be 10,000 shares. If the buy or sell
order were routed out, our handled volume would still be 10,000
shares.
(3) Represents our share of the total volume of such securities handled on
ArcaEx that was either matched internally on ArcaEx or routed out to
an external market center.
(4) The per share amount is calculated based on our total revenues derived
from transaction fees of $112.7 million, $116.2 million and $116.0
million for the three months ended September 30, 2004, June 30, 2004
and September 30, 2003, respectively, and $363.8 million and $307.3
million for the nine months ended September 30, 2004 and 2003,
respectively.
(5) The per share amount is calculated based on our cost of revenues
derived from transaction fees, which consist of routing charges and
liquidity payments, of $67.8 million, $70.3 million and $71.5 million
for the three months ended September 30, 2004, June 30, 2004 and
September 30, 2003, respectively, and $217.8 million and $194.7
million for the nine months ended September 30, 2004 and 2003,
respectively, and our total U.S. market volume for the relevant
period. The cost of revenue from transaction fees used in the per
share computation does not include clearance, brokerage and other
transaction expenses.
(6) The per share amount is calculated based on our net revenues received
from transaction fees, and our total U.S. market volume for the
relevant period.
(7) The percentage of customer order volume matched internally is
calculated by dividing the volume of customer orders executed within
our internal liquidity pool (including the volume of both buy orders
and sell orders) by the total volume of customer orders (again
including the volume of both buy orders and sell orders when such
orders are matched internally). The percentage of customer orders
routed out is calculated by dividing the volume of customer orders
routed to other market centers by the total volume of customer orders.
Archipelago Holdings, Inc.
Reconciliation of non-GAAP financial measures to GAAP measures
for the three months ended September 30, 2004
(In thousands, except per share data)
(unaudited)
We use non-GAAP financial measures of operating performance. Non-GAAP
measures do not replace and are not superior to the presentation of our
GAAP financial results but are provided to improve overall understanding
of our current financial performance and our prospects for the future.
Net income attributable to common
stockholders, GAAP $7,496
Add back:
Deemed dividend on convertible
preferred shares 9,619
Income tax benefit (1,315)
Less:
Income tax provision (1) (6,557)
Net income from operations, non-GAAP $9,243
Diluted earnings per share, GAAP $0.17
Net effect of adjustments 0.04
Diluted earnings per share, non-GAAP $0.21
(1) Calculated as follows:
Income before income
tax provision $15,800
Times:
41.5% effective tax
rate $6,557
SOURCE Archipelago Holdings, Inc. Press, Margaret Nagle, +1-312-442-7083, or Investor Relations, Patrick Murphy, 312-442-7005, both of Archipelago Holdings, Inc. http://www.archipelago.com "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Archipelago Holdings, Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year. |
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