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Penson Worldwide, Inc. Reports Results for Third Quarter Ended September 30, 2010

^{Published on 2010-11-02 07:16:08 - Market Wire}
 

DALLAS--([ BUSINESS WIRE ])--Penson Worldwide, Inc. (NASDAQ: PNSN) today reported a net loss of $9.4 million, or ($0.33) per share, for the third quarter ended September 30, 2010, which included a pre-tax severance charge of $2.2 million, equal to ($0.05) per share net of tax.

"Similar to other companies involved in trading and related services, Pensona™s results in the third quarter were impacted by poor market conditions"

Third quarter net revenues totaled $69.8 million, reflecting $12.2 million from the former Ridge Clearing correspondents (whose contracts were acquired June 25, 2010) and a $13.0 million decline in Pensona™s other businesses as compared to the second quarter ended June 30, 2010. This decline was primarily due to a 22% reduction in non-interest revenues, in line with industry average daily trading volumes, which were off more than 27% in equities and more than 21% in options compared to the second quarter.

Since the end of the third quarter, industry activity has improved and Pensona™s volumes have begun to rebound, with average daily trades for the Company up 19% in equities and 26% in options in October as compared to September.

Third quarter expenses totaled $84.8 million, reflecting $11.4 million related to the Ridge business (including amortization and interest on related long-term debt), the above mentioned severance, and a $1.5 million decline in all other expenses (excluding Ridge and non-recurring items in both periods) as compared to the second quarter. This decline reflects $0.9 million in savings from reduced headcount and discretionary aothera expenses.

Third quarter expenses included $8.1 million of non-cash items that had a $5.1 million net after tax effect.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and stock-based compensation, which also excludes non-recurring expenses) was $3.0 million in the third quarter and $26.5 million for the nine months ended September 30, 2010.

CEO Comment

aSimilar to other companies involved in trading and related services, Pensona™s results in the third quarter were impacted by poor market conditions,a said Philip A. Pendergraft, Chief Executive Officer. aNearly the entire decline in volume was confined to our US equities and options clearing and execution businesses, excluding the Ridge correspondents, whose volumes held up well.

aWhile we are disappointed in our results, we made good progress towards key objectives during the quarter, including integration of the Ridge correspondents and cost reduction initiatives. As we look forward to the fourth quarter, wea™re pleased to see the rebound in volumes in October. Wea™re also pleased by our progress toward converting to the Broadridge technology platform, the first phase of which, in Canada, is scheduled for year end.a

Additional Third Quarter 2010 Analysis (on a sequential quarter basis)

• Non-interest revenues declined 7%, to $51.8 million. This reflects the addition of $8.3 million from the Ridge business and a $12.4 million decline from other businesses.
• Net interest revenues increased 18%, to $18.0 million. This reflects the addition of $3.4 million from the Ridge business and $700,000 decline from other businesses.
• Interest expense increased approximately $1.9 million, reflecting increased debt primarily associated with capital raised in May to support the Ridge correspondents and the $20.6 million Ridge seller note.
• Interest earning average daily balances increased 12%, or $737.2 million, primarily reflecting the full quarter effect from Ridge correspondent customer balances.
• Penson had 386 revenue-generating correspondents at September 30, 2010, compared to 385 at June 30, 2010. Penson securities clearing operations added two, for a total of 329. Penson Futures reduced its count by one, for a total of 57. As of September 30, 2010, there was a apipelinea of 36 new correspondents, which are signed but not yet contributing to revenues.
• There were 28.3 million weighted average common shares outstanding (basic and diluted) for the third quarter as compared to 25.8 million for the second quarter. The increase was due to 2.5 million shares issued to Broadridge Financial Solutions, Inc. (NYSE: BR) as part of the purchase price to acquire the Ridge business.
• Based on the size and composition of Pensona™s interest-earning and interest-paying average balances for the third quarter, the Company estimates that each 25 basis point increase in the federal funds rate would benefit net interest revenue by approximately $1.1 million per quarter.

Conference Call

Penson will host a conference call on Tuesday, November 2, 2010, at 10:00 AM Eastern Time (9:00 AM Central Time) to discuss this news release and other related subjects. The call will be accessible live via a webcast on the Penson Investor Relations section of [ www.penson.com ] along with supporting materials. A webcast replay will be available shortly thereafter. Access the webcast link in advance to download any necessary software.

Non-GAAP Financial Measures

From time to time, the Company uses certain non-GAAP measures of financial performance to supplement the unaudited financial statements presented in accordance with GAAP. The Company presents non-GAAP measures when we believe that the additional information is useful and meaningful to investors. Non-GAAP measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP.

We have reported our results of operations both with and without the effect in the third quarter of 2010 for severance costs associated with a reduction in staff. We have also reported our results of operations both with and without the effect in the second quarter of 2010 for severance costs associated with a reduction in staff, expenses related to the transactions with Broadridge Financial Solutions, Inc., and legal expenses to conclude certain outstanding litigation. We believe that, given the nature of these items, it is useful to state what our results of operations would have been without them so that investors can see underlying trends in our business.

EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) is considered a non-GAAP financial measure as defined by SEC Regulation G. The Company considers EBITDAS an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDAS eliminates the non-cash effect of tangible asset depreciation and amortization, intangible asset amortization and stock-based compensation. The Company also considers aAdjusted EBITDAa (another non-GAAP financial measure as defined by SEC Regulation G) an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. aAdjusted EBITDAa eliminates the effect of in the third quarter of 2010 for severance costs associated with a reduction in staff, and for the first nine months of 2010 for severance costs associated with a reduction in staff, expenses related to the transactions with Broadridge Financial Solutions, Inc., and legal expenses to conclude certain outstanding litigation. EBITDAS and aAdjusted EBITDAa should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

About Penson Worldwide: [ www.penson.com ]

The Penson Worldwide group of companies provides execution, clearing, custody, settlement and technology infrastructure products and services to financial services firms and others servicing the global financial services industry. The Penson Worldwide group of companies includes Penson Financial Services, Inc., Penson Financial Services Canada Inc., Penson Financial Services Ltd., Nexa Technologies, Inc., Penson Futures, Penson Asia Limited, and Penson Financial Services Australia Pty Ltd, among other companies. Headquartered in Dallas, Texas, Penson has served the clearing needs of the global financial services industry since 1995. Penson Worldwide - Building the Best Clearing and Execution Services Firm in the World.

Penson Financial Services, Inc. is a member of the New York Stock Exchange, NYSE Alternext, Chicago Stock Exchange, FINRA, the Chicago Board Options Exchange (CBOE), OneChicago, the International Securities Exchange (ISE), the NYSE Arca Exchange, the Options Clearing Corp (OCC), the MSRB, NSCC, ICMA, DTC, Euroclear, SIPC and is a participant of the Boston Options Exchange (BOX). Penson Financial Services Canada Inc. is a participating organization with the Toronto Stock Exchange, the Montreal Exchange, the CNQ Exchange and the TSX Venture Exchange, is regulated by the Investment Industry Regulatory Organization of Canada, is a member of the CIPF, CDCC and CDS and subscribes to various Canadian Alternative Trading Systems. Penson Financial Services Ltd. is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Penson Financial Services Australia Pty Ltd is a member of the ASX Group, which operates the Australian Stock Exchange and the Sydney Futures Exchange. Penson Futures is a registered Futures Commission Merchant and clearing member at the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, Kansas City Board of Trade, Minneapolis Board of Trade, NYSE Liffe, and ICE Futures.

Forward-Looking Statements

Statements contained in this news release that are not based on current or historical fact are forward-looking in nature. Such forward-looking statements are based on current plans, estimates and expectations. Forward-looking statements are based on known and unknown risks, assumptions, uncertainties and other factors. Actual results, performance, or achievements may differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Penson undertakes no obligation to publicly update or revise any forward-looking statement.