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 2006 | 2005 | 2004 | 2003 Archipelago Announces Second Quarter 2005 Results CHICAGO, July 25 /PRNewswire-FirstCall/ -- Archipelago Holdings, Inc. (PCX: AX), owner and operator of the Archipelago Exchange(R) (ArcaEx(R)), the nation's first totally open, all-electronic stock exchange, reported net income of $3.0 million, or $0.06 per diluted share, for the second quarter of 2005, down from the $13.2 million net income, or $0.28 per diluted share, reported in the first quarter of 2005. During the second quarter of 2005, Archipelago incurred $8.4 million of expenses in conjunction with its announced merger with the New York Stock Exchange (NYSE). Excluding these expenses, diluted earnings per share would have been $0.17. A full reconciliation of this item is included in the attached table entitled "Reconciliation of non-GAAP financial measures to GAAP measures." "The significant event of this quarter was undoubtedly our announced merger with the NYSE which has received a positive response from investors, as evidenced in our share price," commented Jerry Putnam, Chairman and CEO of Archipelago. "The related merger expenses along with high discretionary advertising spending, as we continued to focus on building our brand with corporate issuers, were key factors in our net income decline for the quarter."
Second Quarter Financial Highlights
-- Total revenues for the second quarter of 2005 were $127.8 million as
compared to $133.7 million for the first quarter of 2005 and $128.9
million for the second quarter of 2004.
-- Gross margins were $54.4 million for the second quarter of 2005 as
compared to $55.2 million in the first quarter of 2005 and $47.8
million in the second quarter of 2004. As a percentage of total
revenues, gross margins increased to 42.6% for the second quarter of
2005 from 41.3% for the first quarter of 2005 and 37.1% for the second
quarter of 2004.
-- Indirect expenses increased to $50.6 million for the second quarter of
2005 from $34.2 million for the first quarter of 2005 and $30.7 million
for the second quarter of 2004. In addition to the $8.4 million of NYSE
merger expenses, our results for the second quarter of 2005 included
$10.2 million of discretionary marketing expenses for continued
building of our brand, a $7.1 million and $7.5 million increase from
the first quarter of 2005 and the second quarter of 2004, respectively.
-- As of June 30, 2005, Archipelago had $207.0 million of cash and cash
equivalents and no long-term debt obligations.
Second Quarter Volume Highlights
-- Total U.S. market volumes decreased to 258.6 billion shares for the
second quarter of 2005 from 262.8 billion shares for the first quarter
of 2005. Clients executed 35.6 billion shares, or 13.8% of total U.S.
equity securities, on ArcaEx during the second quarter of 2005 compared
to 35.8 billion shares, or 13.6 %, for the first quarter of 2005 and
33.6 billion, or 14.0%, for the second quarter a year ago.
-- ArcaEx market share decreased to 23.1% in Nasdaq-listed stocks from
23.5% for the first quarter of 2005 and 25.5% for the second quarter in
2004.
-- ArcaEx market share increased to 3.3% in NYSE-listed stocks from 2.5%
for the first quarter of 2005 and 1.5% for the second quarter in 2004.
ArcaEx market share increased to 29.7% in AMEX-listed stocks from 25.5%
for the first quarter of 2005 and 22.2% for the second quarter of 2004.
-- ArcaEx ETF volume grew to 6.2 billion shares, up from 4.9 billion
shares for the first quarter of 2005 and 3.8 billion for the second
quarter of 2004.
-- The internal match rate rose to 88.9% on ArcaEx compared to an internal
match rate of 88.4% for the first quarter of 2005 and 86.3% for the
second quarter a year ago.
Second Quarter Business Highlights
-- The NYSE and Archipelago announced that they had entered into a
definitive merger agreement that will lead to the creation of NYSE
Group, Inc.
-- ArcaEx began opening for trading at 4:00 AM Eastern Time for all U.S.
listed and OTC stocks, following Securities and Exchange Commission
approval.
-- American Dairy, Inc., and Zero Air Pollution(R) listed exclusively on
ArcaEx, a facility of the Pacific Exchange.
-- On July 20, 2005, Barclay's Global Investors announced their plans to
transfer the listing of 20 iShares(R) exchange traded products to
ArcaEx.
To supplement Archipelago's consolidated financial statements prepared in accordance with United States generally accepted accounting principles (GAAP) and to better reflect period-over-period comparisons, Archipelago uses non- GAAP financial measures of operating performance. A non-GAAP financial measure is a numerical measure of 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 GAAP financial results but are provided to present the effects of direct costs recorded by Archipelago in connection with its announced merger with the NYSE and to improve overall understanding of the company's current financial performance and its prospects for the future. Specifically, Archipelago 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, management uses these measures for reviewing financial results and evaluating financial performance. Important Acquisition Information with Respect to Archipelago's Merger with the NYSE In connection with the proposed merger of Archipelago and the NYSE, the parties filed a registration statement on Form S-4 with the Securities and Exchange Commission ("SEC") on July 21, 2005, containing a preliminary joint proxy statement/prospectus regarding the proposed transaction. The registration statement has not yet become effective. The parties will file other relevant documents concerning the proposed transaction with the SEC. Such final documents, however, are not currently available. ARCHIPELAGO'S SHAREHOLDERS AND MEMBERS OF THE NYSE ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED BY THE PARTIES WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Archipelago's shareholders and members of the NYSE are able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Archipelago and the NYSE, at the SEC's website (http://www.sec.gov) as they are filed with the SEC. Copies of the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Archipelago, Attention: Investor Relations, at 100 S. Wacker Drive, Suite 1800, Chicago, Illinois 60606 or calling (888) 514-7284. Archipelago, NYSE and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Archipelago stockholders in respect of the proposed transaction. Information regarding Archipelago's directors and executive officers is available in Archipelago's proxy statement for its 2005 annual meeting of stockholders, dated March 31, 2005. Additional information regarding the interests of such potential participants are included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available. This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. 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: general economic and business conditions, industry trends, competitive conditions, regulatory developments as well as other risks or factors identified in the Company's filings with the Securities Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 which is available on the Company's website at http://www.archipelago.com. You should not place undue reliance on forward- looking statements, which speak only as of the date of this press release. Except for any obligation to disclose material information under the Federal securities laws, Archipelago undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this press release.
Contacts:
Archipelago Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six months ended June 30,
2005 2004
Cash flows from operating activities
Net income $16,201 $39,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,891 15,438
Amortization of other intangible
assets 813 814
Provision for doubtful accounts (100) (500)
Deferred taxes 1,365 -
Stock-based compensation 1,281 76
Tax benefit from stock option
exercises 793 -
Changes in operating assets and
liabilities:
Accounts receivable 13,146 1,523
Other assets (1,907) (2,700)
Accounts payable and accrued
expenses (4,043) 25,863
Net cash provided by operating
activities 37,440 79,814
Cash flows from investing activities
Additions to fixed assets (8,509) (13,864)
Net cash used in investing activities (8,509) (13,864)
Cash flows from financing activities
Principal payments under capital lease
obligations (1,021) (1,266)
Proceeds from exercises of stock
options 1,246 -
Direct costs of initial public offering (5,274)
Repayment of note payable - (4,429)
Net cash provided by (used in)
financing activities 225 (10,969)
Net increase in cash and cash
equivalents 29,156 54,981
Cash and cash equivalents at beginning
of period 177,878 111,815
Cash and cash equivalents at end of
period $207,034 $166,796
Archipelago Holdings, Inc.
Consolidated Statements of Financial Condition
(In thousands)
June 30, December 31,
2005 2004
(unaudited)
Assets
Current assets:
Cash and cash equivalents $207,034 $177,878
Accounts receivable, net 60,080 73,126
Total current assets 267,114 251,004
Fixed assets, net 48,113 49,495
Goodwill 131,865 131,865
Other intangible assets, net 91,356 92,169
Deferred tax asset, net 474 1,839
Other assets 9,983 8,076
Total assets $548,905 $534,448
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued
expenses $67,987 $72,030
Capital lease obligations 524 1,545
Total liabilities 68,511 73,575
Stockholders' equity
Common stock 472 471
Additional paid-in capital 460,508 451,625
Unearned stock-based
compensation (5,583) (19)
Retained earnings 24,997 8,796
Total stockholders'
equity 480,394 460,873
Total liabilities and stockholders'
equity $548,905 $534,448
Archipelago Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three months ended
June 30, March 31, June 30,
2005 2005 2004
Revenues
Transaction fees $111,805 $118,726 $116,291
Market data fees 15,863 14,850 12,448
Listing fees 123 118 117
Total revenues 127,791 133,694 128,856
Cost of revenues
Liquidity payments 50,482 51,938 48,251
Routing charges 17,255 18,841 22,032
Clearance, brokerage and
other transaction expenses 5,651 7,666 10,759
Total cost of revenues 73,388 78,445 81,042
Gross margin 54,403 55,249 47,814
Gross margin as a % of total revenues 42.6% 41.3% 37.1%
Indirect expenses
Employee compensation and benefits 13,527 12,504 10,831
Depreciation and amortization 5,283 5,421 5,520
Communications 5,768 5,509 4,631
Marketing and promotion 10,197 3,075 2,736
Legal and professional 2,524 3,133 3,573
NYSE merger costs 8,432 - -
Occupancy 1,343 1,444 1,010
General and administrative 3,527 3,088 2,385
Total indirect expenses 50,601 34,174 30,686
Operating income 3,802 21,075 17,128
Interest and other, net 1,344 866 193
Income before income tax provision 5,146 21,941 17,321
Income tax provision 2,110 8,776 -
Net income $3,036 $13,165 $17,321
Per share data:
Basic earnings per share $0.06 $0.28 $0.48
Diluted earnings per share $0.06 $0.28 $0.42
Basic weighted average shares
outstanding 47,227 47,142 36,169 (a)
Diluted weighted average shares
outstanding 48,171 47,799 40,939 (a)
Archipelago Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Six months ended
June 30, June 30,
2005 2004
Revenues
Transaction fees $230,531 $251,292
Market data fees 30,713 24,172
Listing fees 241 206
Total revenues 261,485 275,670
Cost of revenues
Liquidity payments 102,420 101,455
Routing charges 36,096 48,512
Clearance, brokerage and
other transaction expenses 13,317 23,425
Total cost of revenues 151,833 173,392
Gross margin 109,652 102,278
Gross margin as a % of total revenues 41.9% 37.1%
Indirect expenses
Employee compensation and benefits 26,031 21,164
Depreciation and amortization 10,704 16,252
Communications 11,277 9,160
Marketing and promotion 13,272 4,482
Legal and professional 5,657 5,876
NYSE merger costs 8,432 -
Occupancy 2,787 1,986
General and administrative 6,615 4,319
Total indirect expenses 84,775 63,239
Operating income 24,877 39,039
Interest and other, net 2,210 261
Income before income tax provision 27,087 39,300
Income tax provision 10,886 -
Net income $16,201 $39,300
Per share data:
Basic earnings per share $0.34 $1.09
Diluted earnings per share $0.34 $0.96
Basic weighted average shares
outstanding 47,185 36,169 (a)
Diluted weighted average shares
outstanding 47,966 40,943 (a)
(a) Adjusted to reflect our reorganization from a Delaware limited
liability company to a Delaware corporation on August 11, 2004.
Archipelago Holdings, Inc.
Operating Data
(unaudited)
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2005 2005 2004 2005 2004
Trading Days 64 61 62 125 124
Total U.S. market volume
(millions of shares)(1) 258,625 262,846 239,972 521,471 508,847
Our total U.S. market volume
(millions of shares)(1) 35,620 35,830 33,595 71,450 71,345
Our share of total U.S.
market volume(1)(2) 13.77% 13.63% 14.00% 13.70% 14.02%
% of handled shares
matched internally(3) 11.08% 10.84% 10.67% 10.96% 10.59%
% of handled shares routed
out(3) 2.69% 2.79% 3.33% 2.74% 3.43%
Total volume of Nasdaq-
listed securities (millions
of shares) 113,955 122,238 108,330 236,193 234,071
Our total volume of Nasdaq-
listed securities (millions
of shares) 26,360 28,768 27,627 55,128 59,866
Our share of total volume of
Nasdaq-listed securities(2) 23.13% 23.53% 25.50% 23.34% 25.58%
% of handled shares
matched internally(3) 18.50% 18.68% 19.30% 18.59% 19.28%
% of handled shares routed
out(3) 4.63% 4.85% 6.20% 4.75% 6.30%
Total volume of NYSE-listed
securities (millions of
shares) 127,745 125,194 112,553 252,939 235,621
Our volume in NYSE-listed
securities (millions of
shares) 4,239 3,126 1,731 7,365 3,703
Our share of total volume of
NYSE-listed securities(2) 3.32% 2.50% 1.54% 2.91% 1.57%
% of handled shares
matched internally(3) 2.54% 1.82% 0.96% 2.18% 0.96%
% of handled shares routed
out(3) 0.78% 0.68% 0.58% 0.73% 0.61%
Total volume of AMEX-listed
securities (millions of
shares) 16,925 15,415 19,090 32,340 39,156
Our volume in AMEX-listed
securities (millions of
shares) 5,021 3,936 4,236 8,957 7,775
Our share of total volume on
AMEX-listed securities(2) 29.67% 25.53% 22.19% 27.70% 19.86%
% of handled shares
matched internally(3) 25.64% 21.98% 19.00% 23.89% 16.69%
% of handled shares routed
out(3) 4.03% 3.55% 3.19% 3.81% 3.17%
Our ETF volume (millions of
shares) 6,215 4,943 3,783 11,158 6,829
Our U.S. equity transaction
volume (thousands of
transactions) 119,588 115,746 99,558 235,334 200,831
Our average U.S. equity
transaction size (shares
per transaction) 298 310 337 304 355
Our average U.S. equity
transactions per day
(thousands of transactions) 1,869 1,897 1,606 1,883 1,620
Our average transaction-
related revenue (per
share)(4) $0.0031 $0.0033 $0.0035 $0.0032 $0.0035
Our average transaction-
related cost of revenue
(per share)(5) $0.0019 $0.0020 $0.0021 $0.0019 $0.0021
Our average transaction-
related gross margin (per
share)(6) $0.0012 $0.0013 $0.0014 $0.0013 $0.0014
% of customer order volume
matched internally(7) 88.9% 88.4% 86.3% 88.7% 85.9%
% of customer order volume
routed out(7) 11.1% 11.6% 13.7% 11.3% 14.1%
(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 $111.8 million, $118.7 million and
$116.3 million for the three months ended June 30, 2005, March 31,
2005 and June 30, 2004, respectively, and $230.5 million and $251.3
million for the six months ended June 30, 2005 and 2004,
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 $67.7 million, $70.8 million and $70.3
million for the three months ended June 30, 2005, March 31, 2005 and
June 30, 2004, respectively, and $138.5 million and $150.0 million
for the six months ended June 30, 2005 and 2004, respectively.
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 and six months ended June 30, 2005
(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.
Three months ended Six months ended
June 30, 2005 June 30, 2005
Income before income tax provision,
GAAP $5,146 $27,087
Add back:
NYSE merger costs 8,432 8,432
Income before income tax provision,
non-GAAP 13,578 35,519
Income tax provision (1) 5,567 14,563
Net income from operations, non-GAAP $8,011 $20,956
Diluted earnings per share, GAAP $0.06 $0.34
Net effect of adjustments 0.11 0.10
Diluted earnings per share, non-GAAP $0.17 $0.44
Diluted weighted average shares
outstanding 48,171 47,966
(1) Using a 41.0% estimated effective tax rate.
SOURCE Archipelago Holdings, Inc. "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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