Edward J. Nicoll, Chief Executive Officer of Instinet Group, commented, "In the third quarter of 2004, we continued to face difficult market conditions, yet our business segments, Instinet and INET, remained well positioned to take advantage of recent trends in the equity markets. Instinet's agency-only business is committed to delivering pure, low-cost solutions to help buy-side institutions meet their global trading needs while never capitalizing on the customer's trading information. INET assures customers the speed, certainty of execution and fairness only available from a fully electronic market."
Financial Performance
Instinet Group
Revenues
Total consolidated revenues for Instinet Group, net of interest, were $261 million for the third quarter of 2004, down 4% from the third quarter of 2003 and down 7% from the second quarter 2004.
Expenses
Total expenses for the third quarter of 2004 were $251 million, down 6% from the third quarter of 2003 and down 5% from the second quarter of 2004.
Cost of revenues was $151 million, 4% lower than the second quarter of 2004 primarily due to decreased transaction volumes.
Direct expenses were $103 million for the third quarter of 2004, down 9% from the second quarter of 2004
- Compensation and benefits expense was $46 million in the third quarter of 2004 down 17% from the previous quarter primarily due to lower variable compensation, associated with lower profitability and lower revenues, and lower benefits expense. The prior quarter also included a non-recurring $4 million severance charge.
- Communications and equipment expense was $19 million, up 11% from the previous quarter, primarily due to higher client communication and market data expenses.
- Depreciation and amortization expense was $13 million, down 19% from the previous quarter which included a $2 million write off of fixed assets.
- Other expense was $5 million, up $2 million from the previous quarter, primarily due to higher legal-related expenses and sales and consumption based taxes.
At September 30, 2004, Instinet Group had net cash (cash and cash equivalents and securities owned less short-term borrowings) of approximately $818 million, up $43 million from $775 million at December 31, 2003. At September 30, 2004 total assets were approximately $1.7 billion and shareholders' equity was approximately $1.0 billion. There were approximately 334 million shares of common stock outstanding. Instinet Group employed 1,081 persons on September 30, 2004, compared to 1,090 on June 30, 2004. Our headcount at September 30, 2004 included 893 employees from Instinet, 83 employees from INET and 105 employees from Instinet Group.
Business Segments(2)
Instinet, The Unconflicted Institutional Broker
- Instinet reported net income before income taxes of $1 million for the third quarter of 2004, compared to a net loss of $3 million in the second quarter of 2004.
- Total revenues, net of interest, were $161 million, 7% lower than the second quarter of 2004, primarily due to lower U.S. and non-U.S. equity market volumes.
- Instinet's customers traded an average of 95 million U.S. shares a day in the third quarter of 2004, down 7% from 102 million shares a day during the second quarter of 2004. Average daily consideration in non-U.S. equities for the third quarter of 2004 was $678 million, a 24% decrease from the second quarter of 2004.
- Cost of revenues as a percentage of total transaction fees was 47% in both the third and second quarters of 2004.
- Gross margin of $87 million for the third quarter of 2004, was $6 million, or 6%, lower than the second quarter of 2004.
- Direct expenses of $86 million for the third quarter of 2004 were down $10 million, or 10% from the second quarter of 2004.
(1)The comparative quarters include other items, see table titled "Reconciliation of Pro Forma Operating Results for 3Q04"
(2)See also table titled "Statements of Operations - Segments" on our website at www.investor.instinetgroup.com under the headings "Investor Relations".
INET, The Electronic Marketplace
- INET reported net income before income taxes of $5 million for the third quarter of 2004, down $6 million, or 54% from the second quarter of 2004.
- Total revenues, net of interest, were $104 million, 6% lower than the previous quarter primarily due to lower U.S. market volumes and market data revenue in the third quarter of 2004 compared to the previous quarter.
- INET reported NASDAQ-listed average matched equity share volume of 401 million shares per day in the third quarter of 2004, down 7% from the previous quarter. INET's share of the total market in NASDAQ-listed equity trading was 26.0% in the third quarter of 2004, up from 25.0% in the previous quarter.
- INET reported U.S. exchange-listed average matched equity share volume of 72 million shares per day in the third quarter of 2004, up 1% from the previous quarter. INET's share of the total market in U.S. listed equity trading was 3.9% in the third quarter of 2004, up from 3.4% in the previous quarter.
- Cost of revenues as a percentage of total transaction fees was 79% in the third quarter of 2004 compared to 74% in the second quarter of 2004.
- Gross margin was $23 million for the third quarter of 2004, 23% lower than the previous quarter.
- Direct expenses of $18 million for the third quarter of 2004 were down $1 million or 4% from the second quarter of 2004.
Webcast
Instinet Group will webcast a conference call to discuss its third quarter results at 11:00 a.m. New York time on October 26th at http://www.investor.instinetgroup.com. A replay will be available at the same address following the call.
Click here to view the Consolidated Statements of Operations
