Wagner patent expiry to hit eSpeed earnings

Wagner patent expiry to hit eSpeed earnings

US electronic bond trading network eSpeed is forecasting a dip in revenue and operating income for the remainder of 2007 following the expiration of the Wagner patent in February of this year.

ESpeed recognised $3.1 million in revenue and $1.5 million in non-GAAP net operating income related to the patent in the first quarter of 2007.

The company has extracted tens of millions of dollars from US futures and options exchanges through its rigorous enforcement of the patent in the law courts. The patent, acquired by eSpeed for $3 million in 2001, described a method of matching bids and offers in electronic futures trading.

In its first quarter results statement released late yesterday, the company reported revenues three per cent lower than in the year-ago period. GAAP net income of $0.9 million stood at $0.02 per diluted share in the first quarter of 2007 vs. $0.04 per diluted share in the first quarter of 2006.

eSpeed's non-GAAP operating revenue increased six per cent and the company's non-GAAP net operating income per diluted share increased to $2 million or $0.04 in the first quarter of 2007 from $0.03 in the prior year's first quarter.

The difference between non-GAAP net operating income and GAAP net income for the quarter occurred primarily due to $0.8 million in patent litigation costs and $0.4 million in losses from the firm's Equities Direct Access business, which is set to become a separate company called Aqua in the second quarter and in which eSpeed will have an equity stake.

The company, which recently rebuffed an offer from interdealer broker Tullett Prebon, is currently under siege from hedge funds demanding a seperation of its business from that of parent company Cantor Fitzgerald.

Howard Lutnick, eSpeed's chairman and CEO, sought to emphasise the positives in the first quarter trading statement.

"eSpeed's fundamental strength was underscored by the year-over-year gains in our U.S. treasury business and by increased screen-assisted revenue as additional BGC desks entered our hybrid pipeline," he says. "In addition, eSpeed's futures products made solid gains. We remain optimistic about our growth prospects for 2008 and beyond based on strong expected returns on the investments the company has made in our portfolio of new products."

Fully electronic revenues were $17.9 million in the first quarter of 2007 compared with $16.7 million for the first quarter of 2006. Revenues from Software Solutions were $12.3 million versus $11.3 million in the year ago period. Voice-assisted and screen-assisted revenues totaled $8.7 million in Q1 2007 compared with $8.7 million in the equivalent period.

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