Penson Worldwide, Inc. Reports Results for Fourth Quarter Ended December 31, 2010

DALLAS--([ BUSINESS WIRE ])--Penson Worldwide, Inc. (NASDAQ: PNSN) today reported improved results for the fourth quarter ended December 31, 2010, with net revenues of $80.0 million increasing 15% from the third quarter of 2010 and the net loss declining significantly, to $3.2 million, or ($0.11) per share. Results included $1.8 million in certain non-operating expenses, equal to ($0.04) per share net of tax.

"In addition, Penson Australia achieved profitability, business from the former Ridge correspondents outperformed expectations, and we reduced expenses in key areas. However, we will not be satisfied until we report profitable consolidated results. Based on the fourth quarter, we are headed in the right direction."

aWe are pleased to report that during the fourth quarter, revenues increased by double digit percentages in all categories,a said Philip A. Pendergraft, Chief Executive Officer. aIn addition, Penson Australia achieved profitability, business from the former Ridge correspondents outperformed expectations, and we reduced expenses in key areas. However, we will not be satisfied until we report profitable consolidated results. Based on the fourth quarter, we are headed in the right direction.a

Penson Canada Completes Broadridge Conversion

Penson also announced that as of February 6, 2011, Penson Financial Services Canada, Inc., based in Montreal, had become the first subsidiary to convert its securities processing technology to the Broadridge Financial Solutions, Inc. (NYSE: BR) platform. Penson Financial Services, Inc., based in Dallas, expects to complete the conversion of its correspondents in the third quarter. By moving these subsidiaries to the Broadridge platform, Penson expects to reduce annual costs $7-$10 million and improve overall scalability.

Additional 4Q10 Analysis (on a sequential quarter basis)

Non-interest revenues of $59.8 million increased 15% from the third quarter, with clearing and commission fees up 13%, aothera revenues up 26% and technology revenues up 11%. Growth reflects stronger trading volume in equities, options and futures. This compares to mixed average daily industry volume in the US (equities down 2%, options up 20%, and futures up 4%). Pensona�s performance versus US industry metrics was enhanced by the re-engagement of active traders, and added volume from new correspondents in the US and Australia.
Net interest revenues of $20.2 million increased 12%. Growth primarily reflects an increase of 21%, or $1.4 billion, in interest earning average daily balances, partially offset by a 5 bps decline in interest spread. Pensona�s performance was enhanced by additional assets from new correspondents and the pickup in activity among existing correspondents.
While net revenues increased 15%, total expenses remained virtually level on a reported basis. As a percentage of net revenues, pro-forma compensation expenses, which excludes certain non-operating expenses, declined to 36.0% from 41.6% and were at their lowest level in the last two years, reflecting Pensona�s ongoing cost reduction program.
Fourth quarter expenses included $8.0 million of non-cash items that had a $5.2 million net after tax effect compared to $8.1 million and $5.1 million, respectively, in the third quarter. Fourth quarter non-operating expenses of $1.8 million reflect litigation and bad debt, severance related to headcount reductions, and costs to prepare subsidiaries for their technology conversion.
Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and stock-based compensation, and excluding certain non-operating expenses) was $13.0 million in the fourth quarter compared to $3.7 million in the third quarter, and totaled $40.2 million for the 12 months ended December 31, 2010.

Record Number of Correspondents

Penson had a record 430 revenue-generating correspondents at December 31, 2010, compared to 386 at September 30, 2010. Penson securities clearing operations added a net 42, for a total of 371. This included 34 modestly sized Australian correspondents added in November. Penson Futures added a net 2, for a total of 59. As of December 31, 2010, there was a apipelinea of 30 new correspondents signed but not yet contributing to revenues.

Interest Rate Sensitivity

Based on the size and composition of Pensona�s interest-earning and interest-paying average balances for the fourth quarter of 2010, the Company estimates that each 25 basis point increase in the federal funds rate would benefit net interest revenue by approximately $1.3 million per quarter.

Conference Call

Penson will host a conference call on Friday, February 11, 2011, 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

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 fourth quarter of 2010 of legal expenses to conclude certain outstanding matters in litigation, certain bad debt, costs to prepare subsidiaries for their technology conversion, and severance costs associated with a reduction in staff. We have also reported our results of operations both with and without the effect in the third quarter of 2010 of severance costs associated with a reduction in staff, and costs to prepare subsidiaries for their technology conversion. 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 in the fourth quarter of 2010 of legal expenses to conclude certain outstanding matters in litigation, certain bad debt, costs to prepare subsidiaries for their technology conversion, and severance costs associated with a reduction in staff, and in 2010 of severance costs associated with a reduction in staff, expenses related to the transactions with Broadridge Financial Solutions, Inc., legal expenses to conclude certain outstanding litigation, certain bad debt, and costs to prepare subsidiaries for their technology conversion. 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

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. For more information, please visit: [ http://www.penson.com ].

Penson Financial Services, Inc. is a member of FINRA, New York Stock Exchange, NYSE Arca Exchange, NYSE Amex Equities, NYSE Amex Options, BATS Exchange, Direct Edge Exchanges (EDGA and EDGX), Chicago Board Options Exchange (CBOE), Chicago Stock Exchange, International Securities Exchange (ISE), NASDAQ OMX BX, NASDAQ OMX PHLX, NASDAQ Stock Market, NASDAQ LIFFE, LLC, National Stock Exchange, Options Clearing Corp. (OCC), Fixed Income Clearing Corp. (FICC), MSRB, National Securities Clearing Corp. (NSCC), DTC, ICMA, Euroclear, and SIPC. 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 holds an Australian Financial Services License and is a Participant of ASX Limited, Australian Clearing House Pty Limited, ASX Settlement and Transfer Corporation Pty Limited. 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 Euronext, NYSE Liffe USA, 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.

Penson Worldwide, Inc.

Condensed Consolidated Statements of Operations
(In thousands, except per share data)

	Three Months Ended					Year Ended
	December 31,					December 31,
		2010			2009		2010			2009
	(unaudited)					(unaudited)
Revenues
Clearing and commission fees	$	42,901		$	34,826	$	153,188		$	145,045
Technology		5,167			5,410		20,419			23,793
Interest, gross		27,105			22,246		90,768			100,219
Other		11,768			19,266		46,242			55,103
Total revenues		86,941			81,748		310,617			324,160
Interest expense from securities operations		6,924			7,328		22,269			34,279
Net revenues		80,017			74,420		288,348			289,881

Expenses
Employee compensation and benefits		29,063			27,780		119,749			113,101
Floor brokerage, exchange and clearance fees		11,395			7,666		40,362			32,385
Communications and data processing		18,935			11,572		60,268			45,442
Occupancy and equipment		8,278			7,385		32,191			29,417
Other expenses		7,746			8,823		34,165			33,356
Interest expense on long-term debt		9,530			4,303		30,829			10,344
		84,947			67,529		317,564			264,045
Income (loss) before income taxes		(4,930	)		6,891		(29,216	)		25,836
Income tax expense (benefit)		(1,726	)		2,550		(9,369	)		9,825
Net income (loss)	$	(3,204	)	$	4,341	$	(19,847	)	$	16,011

Earnings (loss) per share a" basic	$	(0.11	)	$	0.17	$	(0.73	)	$	0.63

Earnings (loss) per share a" diluted	$	(0.11	)	$	0.17	$	(0.73	)	$	0.63

Weighted average common shares outstanding a" basic		28,394			25,491		27,034			25,373
Weighted average common shares outstanding a" diluted		28,394			25,651		27,034			25,591

Penson Worldwide, Inc.

Condensed Consolidated Statements of Financial Condition
(In thousands)

	December 31,		December 31,
	2010		2009
	(unaudited)
ASSETS
Cash and cash equivalents	$	138,614	$	48,643
Cash and securities a" segregated under federal and other regulations		5,407,645		3,605,651
Receivable from broker-dealers and clearing organizations		257,036		225,130
Receivable from customers, net		2,209,373		1,038,796
Receivable from correspondents		129,208		74,992
Securities borrowed		1,050,682		1,271,033
Securities owned, at fair value		201,195		223,480
Deposits with clearing organizations		423,156		433,243
Property and equipment, net		37,743		34,895
Other assets		399,532		295,212
Total assets	$	10,254,184	$	7,251,075

LIABILITIES AND STOCKHOLDERSa� EQUITY
Liabilities
Payable to broker-dealers and clearing organizations	$	128,536	$	336,056
Payable to customers		7,498,626		5,038,338
Payable to correspondents		469,542		249,659
Short-term bank loans		338,110		113,213
Notes payable		259,729		132,769
Securities loaned		1,015,351		898,957
Securities sold, not yet purchased, at fair value		115,916		97,308
Accounts payable, accrued and other liabilities		127,453		85,873
Total liabilities		9,953,263		6,952,173

Stockholders' Equity
Total stockholdersa� equity		300,921		298,902
Total liabilities and stockholdersa� equity	$	10,254,184	$	7,251,075

Penson Worldwide, Inc.
Supplemental Data

				Three Months Ended																Year Ended
					December 31,			March 31,			June 30,			September 30,			December 31,			December 31,
(in thousands)						2009			2010			2010			2010			2010			2010

Interest revenue

		Interest on asset based balances			$	17,998		$	16,990		$	16,829		$	19,635		$	23,776		$	77,230
		Interest on conduit borrows				4,234			3,659			2,932			2,021			2,074			10,686
		Money market				14			(59	)		317			1,339			1,255			2,852
			Total interest revenue			22,246			20,590			20,078			22,995			27,105			90,768

Interest expense

		Interest expense on liability based balances				4,342			3,149			2,780			3,609			5,495			15,033
		Interest on conduit loans				2,986			2,318			2,074			1,415			1,429			7,236
			Total interest expense			7,328			5,467			4,854			5,024			6,924			22,269

Net interest revenue					$	14,918		$	15,123		$	15,224		$	17,971		$	20,181		$	68,499

Average daily balance ⁽¹⁾

		Interest earning average daily balance			$	5,833,439		$	5,842,117		$	6,012,500		$	6,749,660		$	8,136,860		$	6,685,284
		Interest paying average daily balance				5,244,733			5,343,046			5,565,131			6,132,368			7,381,684			6,105,557

		Conduit borrow				528,583			628,684			615,696			583,871			545,523			593,444
		Conduit loan				526,548			626,605			613,485			582,624			548,027			592,685

Average interest rate on balances ⁽¹⁾

		Interest earning average daily balance				1.23	%		1.16	%		1.12	%		1.16	%		1.17	%		1.16	%
		Interest paying average daily balance				0.33	%		0.24	%		0.20	%		0.24	%		0.30	%		0.25	%
			Spread			0.90	%		0.92	%		0.92	%		0.92	%		0.87	%		0.91	%

		Conduit borrow				3.20	%		2.33	%		1.90	%		1.38	%		1.52	%		1.80	%
		Conduit loan				2.27	%		1.48	%		1.35	%		0.97	%		1.04	%		1.22	%
			Spread			0.93	%		0.85	%		0.55	%		0.41	%		0.48	%		0.58	%

(1) Excludes money market revenues and balances. Money market balances are not recorded on the PWI balance sheet.

Fed rate
	Average					0.25	%		0.25	%		0.25	%		0.25	%		0.25	%		0.25	%
	Ending					0.25	%		0.25	%		0.25	%		0.25	%		0.25	%		0.25	%

Penson Worldwide, Inc.

Non-GAAP Disclosure
(Unaudited)
(In thousands, except per share data)

	Three Months			Year
	Ended			Ended
	December 31,			December 31,
	2010			2010

Net revenues, GAAP basis	$	80,017		$	288,348

Net loss, GAAP basis	$	(3,204	)	$	(19,847	)
Non-GAAP adjustments, net of tax:
Broadridge transaction costs		-			2,462
Litigation and bad debt		647			1,741
Severance costs		178			4,181
Conversion costs		339			811
Net loss, as adjusted	$	(2,040	)	$	(10,652	)

Loss per share a" basic, GAAP basis	$	(0.11	)	$	(0.73	)
Loss per share a" basic, as adjusted	$	(0.07	)	$	(0.39	)

Loss per share a" diluted, GAAP basis	$	(0.11	)	$	(0.73	)
Loss per share a" diluted, as adjusted	$	(0.07	)	$	(0.39	)

Weighted average common shares outstanding a" basic		28,394			27,034
Weighted average common shares outstanding a" diluted		28,394			27,034
Weighted average common shares outstanding a" diluted, as adjusted		28,394			27,034

Penson Worldwide, Inc.

Reconciliation of net loss to EBITDAS
(Unaudited)
(In thousands)

	Three Months			Year
	Ended			Ended
	December 31,			December 31,
	2010			2010

Net loss	$	(3,204	)	$	(19,847	)
Income tax benefit		(1,726	)		(9,369	)
Depreciation		4,694			17,542
Amortization		1,043			3,247
Interest expense on long-term debt :
Cash interest expense		8,107			25,164
Noncash interest expense		1,423			5,665
Stock-based compensation		878			4,986
EBITDAS (1)		11,215			27,388
Broadridge transaction costs		-			3,029
Litigation and bad debt		995			2,564
Severance costs		274			5,991
Conversion costs		521			1,194
Adjusted EBITDA	$	13,005		$	40,166


(1) Defined as earnings before interest, income taxes, depreciation, amortization and stock-based compensation.

Contributing Sources

Market Wire

N@N

Penson Worldwide, Inc. Reports Results for Fourth Quarter Ended December 31, 2010