Penson Worldwide, Inc. (NASDAQ: PNSN), a leading provider of execution, clearing, custody, settlement and technology products and services to the securities industry, today announced record quarterly revenues and profits for the three months ended June 30, 2006, its first report since the Company's May 2006 IPO.
- Income from continuing operations amounted to $5.6 million, or $0.25 per diluted share, compared to a loss of $1.3 million, or ($0.08) per share, in the same quarter last year, an improvement of $6.9 million. A lower tax rate for the June 2006 quarter, primarily due to the release of a valuation reserve, contributed $0.01 to per share results and is expected to add an equivalent amount in each of the two next quarters.
- Total revenues increased 87%, to $70.3 million compared to $37.6 million in the same quarter last year.
- Revenues year over year increased 42% in clearing operations, 109% in gross interest, 63% in technology and 156% in other revenue.
- Net interest revenue increased 79%, to $17.7 million compared to $9.9 million in the second quarter last year.
"We're very pleased with the results for our first quarter as a publicly traded company," said Philip A. Pendergraft, Chief Executive Officer of Penson. "Revenue growth was driven primarily by more correspondents and increased transaction volume, as well as higher interest earning and money market balances. Our earnings growth also shows the benefit of operating leverage in our clearing businesses, and continued improvements in our Technology and UK operations."
For the six months ended June 30, 2006, revenues increased 86% to $139.4 million compared to $75.1 million in the same period last year. Income from continuing operations grew to $9.9 million, or $0.48 per diluted share, compared to a loss of $0.9 million, or ($0.06) per share, in the same period last year, an improvement of $10.8 million.
Analysis of Second Quarter 2006 Results
Revenue from clearing operations increased 42% to $19.6 million, compared to the same quarter last year. Key factors included:
- A 44% increase in the number of correspondents to 230, from 160, reflecting both organic growth and the acquisition of CCS, whose clients transferred to Penson in the fourth quarter of last year.
- A 21% growth in equity market volumes compared to volumes in the second quarter of last year, which positively impacted customer volumes.
Gross interest revenue grew 109%, to $38.9 million, compared to the same quarter last year, primarily due to:
- A 48% increase, to $25.0 million from $16.9 million in the same quarter last year, from average daily interest earning balances (excluding Conduit). These balances increased 24%, to $2.0 billion from $1.6 billion in the June 2005 quarter, yielding 5.06% compared to 4.26% in the same quarter last year. Net interest margin (NIM) in this business was 2.51%, compared to 1.36% in the same quarter last year.
- The addition of $11.2 million from the Conduit stock lending business, which commenced in the third quarter last year. During the June 2006 quarter, Conduit had average interest earning balances of $985.7 million, yielding 4.54% and generating NIM of 0.40%. These average balances were lower than expected, in part due to an industry wide stock lending slowdown.
Technology revenues increased 63%, to $2.8 million for the quarter compared to the second quarter last year, primarily as a result of increases in both recurring and development revenues. Other revenue expanded 156%, to $9.0 million, primarily due to an increase in trading revenues in equities and foreign exchange, higher bond commissions in Canada, and higher equity and option execution fees in the U.S. and Canada.
Operating expenses grew more slowly than revenues, resulting in a profit margin of 12% in the June 2006 quarter, compared to a negative margin of 5% in the June 2005 quarter. Expenses for the June 2006 quarter included:
- A 71% reduction in the combined loss from Technology and UK operations, to $1.4 million versus $4.9 million in the same quarter last year.
- Interest expense of $21.2 million (including $6.9 million from the new Conduit business) compared with $8.7 million a year ago, primarily due to both higher interest earning balances and rates. Interest expense declined as proceeds from Penson’s recent IPO contributed to a reduction in average interest paying balances to $2.7 billion compared with $2.9 billion in the March 2006 quarter.
Commenting on the June 2006 quarter, Daniel P. Son, President of Penson, noted, "Our strategy of providing access to multiple markets and multiple asset classes in a cost efficient manner is paying off. We expect growth to continue as we add more services and broaden our technology, enabling institutional and retail traders to conduct virtually any kind of market transaction."» Download the document now 37.5 kb (Adobe Acrobat Document)