Edward J. Nicoll, Chief Executive Officer of Instinet Group, commented, "We had a good second quarter considering weaker U.S. and European equity markets and our business again returned a profit. Instinet, the Unconflicted Institutional Broker, added to its Pure Block Trading Solution by introducing its Intra-Day Cross (IDX) during the quarter while INET, the electronic marketplace, maintained its 25% market share. Despite weak market conditions and a competitive environment, Instinet Group continues to be profitable while we serve our clients in the lowest cost and most efficient way possible while at the same time maintaining our focus on their interests."
Financial Performance
Instinet Group
Revenues
Total consolidated revenues for Instinet Group, net of interest, were $280 million for the second quarter of 2004, level with second quarter of 2003 and down 11% from the first quarter 2004.
Expenses
Total expenses for the second quarter of 2004 were $265 million, down 7% from the second quarter of 2003 and down 5% from the first quarter of 2004.
Cost of revenues were $158 million, 9% lower than the first quarter of 2004 primarily due to decreased transaction volumes. Cost of revenues as a percentage of total revenues, net increased to 56% from 55% in the previous quarter primarily due to increased routed share transaction volume at INET, our electronic marketplace.
Direct expenses were $114 million for the second quarter of 2004, down 2% from the first quarter of 2004.
- Compensation and benefits expense was $56 million in the second quarter of 2004 down 6% from the previous quarter primarily due to lower variable compensation associated with lower profitability and lower revenues and a decline in our employee base, offset by a $4 million increase in severance expense. -
- Communications and equipment expense was $17 million, down 22% from the previous quarter, primarily due to lower client communication and equipment costs.
- Depreciation and amortization expense was $16 million, up 5% from the previous quarter primarily due to a $2 million write-off of fixed assets.
- Professional fees were $8 million, up $3 million from the previous quarter primarily due to higher consultant and legal fees.
John F. Fay, Chief Financial Officer of Instinet Group, commented, "Instinet Group posted lower earnings compared to its first quarter primarily due to weaker market volumes. Despite an extremely competitive marketplace, our second quarter income marks our second consecutive profitable quarter and the realization of our past restructuring efforts."
Business Segments2
Instinet, the Unconflicted Institutional Broker
- Instinet reported a net loss before income taxes of $3 million for the second quarter of 2004, compared to net income of $18 million from the first quarter of 2004.
- Instinet's customers traded an average of 102 million shares a day in the second quarter of 2004 down 9% from 112 million shares a day during the first quarter of 2004. Average daily consideration in non-U.S. equities for the second quarter of 2004 was $896 million, a 4% decrease from the first quarter of 2004.
- Total revenues, net of interest, were $173 million for the second quarter of 2004, down 13% compared to the first quarter of 2004, primarily due to weaker U.S and non-U.S equity market volumes.
- Cost of revenues as a percentage of total transaction fees were 47% in the second quarter of 2004 compared to 45% in the first quarter of 2004.
- Gross margin of $93 million for the second quarter of 2004 was $17 million, or 16%, lower than the first quarter of 2004.
- Direct expenses of $96 million for the second quarter of 2004 were up 4% from the first quarter of 2004.
- Instinet launched its U.S. securities Intra-Day Cross (IDX), which offers automatic matching of orders at a specified price. IDX complements our existing block trading solutions - Continuous Block Crossing (CBX) and End of Day Cross (EDX).
- Last week Instinet announced the creation of an independent research partnership named "Instinet Research Partners." Beginning with four non-traditional independent research firms, this network of firms uses primary research techniques to provide institutional investors with objective analysis and insight on various companies and sectors. Each partner covers a separate sector, and Instinet will exclusively offer its reports to its institutional clients.
- INET reported net income before income taxes of $11 million for the second quarter of 2004, up $5 million, or 82% from the first quarter of 2004.
- INET reported a NASDAQ-listed equity share volume of 433 million shares per day in the second quarter of 2004, down 15% from the previous quarter. INET's share of the total market in NASDAQ-listed equity trading was 25.0% in the second quarter of 2004, consistent with the previous quarter.
- Total revenues, net of interest, were $112 million, 7% lower than the previous quarter primarily due to lower overall average daily matched volumes in the second quarter of 2004 compared to the first quarter of 2004.
- Cost of revenues as a percentage of total transaction fees were 74% in the second quarter of 2004 compared to 75% in the first quarter of 2004.
- Gross margin was $30 million for the second quarter of 2004, 3% lower than the previous quarter.
- Direct expenses of $18 million for the second quarter of 2004 were down $6 million or 24% from the first quarter of 2004.
2 See also table titled "Statements of Operations - Segments" on our website at www.investor.instinetgroup.com under the headings "Investor Relations
Click here to download financial tables.
