NYFIX, a leader in technology solutions for the financial marketplace, announced today its divisional revenues for 2005 by quarter and for the full year, an update on previously announced accounting restatements and divisional revenues for the first quarter of 2006.
In late 2005, NYFIX re-aligned its business into four operating divisions: FIX Network, Order Management Systems (OMS), Transaction Services and Order Book Management Systems (OBMS). The results of these divisions will be separately disclosed in the Company's periodic filings with the SEC.
The FIX Network Division provides software to enable global financial institutions to utilize the industry established Financial Information Exchange Protocol for messaging, monitoring and processing transaction information. The FIX Network segment also provides network connectivity between institutional investors, broker-dealers and exchanges.
The Transaction Services segment is comprised of three U.S. registered broker-dealer subsidiaries: NYFIX Millennium, NYFIX Transaction Services and NYFIX Clearing. NYFIX Millennium, an alternative trading system registered under SEC Regulation ATS, provides anonymous matching and routing of U.S. equity securities. NYFIX Transaction Services provides direct electronic market access and algorithmic trading products.
NYFIX Clearing clears trades on behalf of NYFIX Millennium and NYFIX Transaction Services and operates a matched-book stock borrow/stock loan business.
The OMS segment provides software applications for desktop and wireless handheld management of New York Stock Exchange and Nasdaq listed trading activities. The OMS desktop platform provides clients with access to the Company's connectivity and transaction services.
The OBMS segment specializes in electronic trading solutions for the global derivatives market and offers order management workstations and exchange interfaces. Historical results have been recast to reflect the performance of these divisions in prior periods.
First Quarter 2005
Revenues for the first quarter 2005 were $23.8 million, an increase of 38% over the $17.2 million of restated revenues for the same period in 2004
Second Quarter 2005
Revenues for the second quarter 2005 were $23.9 million, an increase of 33% over the $18.0 million of restated revenues for the same period in 2004.
Third Quarter 2005
Revenues for the third quarter 2005 were $24.4 million, an increase of 25% over the $19.5 million of restated revenues for the same period in 2004.
Fourth Quarter 2005
Revenues for the fourth quarter 2005 were $25.5 million, an increase of 27% over the $20.1 million of restated revenues for the same period in 2004.
Full Year 2005
As previously reported, revenues for the full year 2005 were $97.6 million, an increase of 30% over the $74.8 million of restated revenues for the full year 2004.
Network Connections and Millennium Matched Volume
As previously reported, NYFIX had some 4,150 institutional buy-side connections to its NYFIX Network at December 31, 2005, an increase of 73% over the approximately 2,400 institutional buy-side connections at December 31, 2004.
As previously reported, the average daily matched volume in the NYFIX Millennium alternative trading system was 14.0 million shares for the fourth quarter 2005, an increase of 97% over the average daily matched volume of 7.1 million shares during the fourth quarter 2004. The average number of symbols matched daily was 577 for the fourth quarter 2005, compared to 202 for the fourth quarter 2004. For full year 2005, the average daily matched volume in NYFIX Millennium was 11.6 million shares, an increase of 68% over the average daily matched volume of 6.9 million shares during the full year 2004. The average number of symbols matched daily was 420 for the full year 2005, compared to 200 for full year 2004. Included in the volume and symbol figures noted above are conditional orders that are executed against pass-through orders and other conditional orders, and third-market trades crossed by clients and reported by NYFIX to Nasdaq.
As previously announced, NYFIX will restate previously reported results for other issues in addition to stock option and warrant compensation. These issues were identified during an overall internal accounting review by management and the ongoing re-audit of financial statements for 2004 and 2003 by Friedman, LLP, the independent registered public accounting firm appointed by the Company's Audit Committee in November 2005, and include the following (all amounts unaudited):
- $4.0 million, net, in additional pre-tax charges associated with the 2002 acquisition of an initial interest in Renaissance Trading Technologies, LLC (Renaissance) and the 2003 acquisition of the remaining interest in Renaissance not previously held by the Company. Gross charges of $2.5 million and $2.0 million for the years ended December 31, 2003 and 2002 are offset by reductions to amortization expense for an intangible asset left at cost of $0.1 million, $0.3 million and $0.2 million, respectively, for the first quarter 2005 and the full years 2004 and 2003.
- $1.6 million, net, in additional pre-tax charges associated with the 2002 acquisition of an initial interest in EuroLink Network, Inc. (EuroLink) and the 2004 acquisition of the remaining interest in EuroLink not previously held by the Company. Of this amount, $0.1 million, $0.7 million and $0.8 million, respectively, relate to the years ended December 31, 2004, 2003 and 2002.
- $2.0 million pre-tax reversal of revenue recorded in 2001 with respect to transactions with an entity operated by substantially the same principals as EuroLink prior to the Company's initial investment in EuroLink in 2002.
- $0.9 million pre-tax net reversal of revenue recorded by the London branch office of the Company's NYFIX Overseas subsidiary related to the timing of delivery of product and service periods covered. Of this net amount, $0.1 million is an increase to revenues for the first quarter 2005, $0.4 million is a decrease to revenues for the full year 2004, $0.1 million is an increase to revenues for 2003 and $0.7 million is a decrease to revenues for the year ended December 31, 2002.
- $0.2 million pre-tax charge in the first quarter of 2005 related to the Company's $7.5 million convertible note for the amortization of the debt discount established for embedded derivatives and the fair value adjustments on those embedded derivatives.
- The Company has established a valuation allowance for deferred tax assets effective December 31, 2000. The Company had not previously reserved for deferred tax assets until the third quarter of 2004. As a result of this restatement, tax benefits of $3.7 million previously recorded through additional-paid-in capital and on acquisitions have been reversed and therefore have not been reserved for through operations. In addition, primarily because of the additional expense recorded for the losses incurred by Renaissance, a net deferred tax liability recorded through operations has been reduced by $1.2 million.
NYFIX previously only recorded a portion of the operating losses of Renaissance and EuroLink based on the percentage voting interest it held in these entities under the equity method. Since NYFIX provided substantially all of the funding for these entities through its investments and through loans and advances, historical results have been restated to absorb 100% of these operating losses. Prior to making its investment in EuroLink in March 2002, NYFIX previously recorded $2.0 million of revenue in 2001 for transactions with IMX Group, LLC ("IMX"). IMX had minimal assets other than cash from a $0.5 million loan from NYFIX and was operated by substantially all of the same principals who later operated EuroLink. The $2.0 million liability on the books of IMX was transferred to EuroLink in March 2002 and was paid to NYFIX out of the $4.0 million investment made by NYFIX in EuroLink in March 2002.
Unaudited Revenues for First Quarter 2006
Revenues for the first quarter 2006 were $25.4 million, an increase of 7% over the $23.8 million of restated revenues for the first quarter 2005.
Separately, Nyfix today announced it has entered into a definitive agreement with certain clients of a large, Boston-based institutional investor for the purchase of common shares of the Company. The offering will raise gross proceeds of $12.6 million before expenses. The Company is issuing shares of its common stock to pay placement agent fees of 6% of the gross proceeds. The closing of the transaction is expected to occur on July 5, 2006.
Under the terms of the agreement, NYFIX will sell 2.713 million shares of common stock at a price of $4.65 per share, which represents a discount of approximately 3% to the closing price of NYFIX common stock on June 29, 2006. The shares will be issued in a private placement transaction under Regulation D of the Securities of Act of 1933.
The shares of common stock sold in the private placement have not been registered under the Securities Act of 1933, as amended, or state securities laws and may not be offered or sold in the United States without a registration with the Securities and Exchange Commission (SEC) or an applicable exemption from the registration requirements. NYFIX has agreed to file a registration statement with the SEC covering the resale of the shares of common stock issued in the private placement once NYFIX becomes current in its reporting obligations under the Exchange Act.
The proceeds from the transaction will be used for general corporate purposes, including ongoing working capital needs, investments in technological infrastructure and increasing the capital in the Company's regulated broker-dealer subsidiaries.