Penson Worldwide Q1 net income rises

Source: Penson Worldwide

Penson Worldwide, (NASDAQ: PNSN), a leading provider of execution, clearing, settlement and custody and technology products and services to the securities industry, today announced increased revenues and earnings for the first quarter ended March 31, 2007.

"2007 is off to a good start," said Philip A. Pendergraft, Chief Executive Officer. "Net income increased by nearly 60% versus the year ago quarter, and earnings per diluted share from continuing operations increased 13%, to $0.27, from $0.24, on 42% more shares outstanding. The increase in shares reflects our May 2006 IPO and first quarter 2007 share payments for the Schonfeld, GHCO and CCS clearing acquisitions. Total revenues increased 23%, to a record $85.0 million compared to $69.1 million in the March 2006 quarter, with clearing revenues and gross interest revenues up 10% and 26%, respectively.

"As we discussed during our last earnings call, we expected operating earnings in the first quarter to be comparable with those of the fourth quarter, and they were. This quarter, we have focused largely on the conversion of the Schonfeld correspondents and on the integration of GHCO. Both of these have now been substantially and successfully completed. As we had also discussed, income and diluted earnings per share calculations were affected by a higher tax rate and the greater number of shares outstanding for the March 2007 quarter versus the December 2006 quarter.

"Looking ahead, we expect to benefit from increased trading volume from the Schonfeld correspondents. We also see opportunities to expand our futures business significantly, building on the GHCO platform. In addition, our U.S. clearing broker, Penson Financial Services, Inc., recently became one of two firms approved by NASD to offer 'portfolio margining,' which should further enhance growth of our asset based businesses."

Analysis of First Quarter 2007 Results (All comparisons are to the corresponding year-ago period unless otherwise indicated).

Total revenues calculated to reflect net interest income grew 21%, to $56.7 million from $46.7 million in the corresponding prior year quarter.

Revenue from clearing operations increased 10% to $21.6 million, reflecting an increased number of correspondents, greater volume per correspondent, and higher market activity. Correspondent totals increased 4% on a net basis, to 236 at the end of March 2007, from 228 at the end of March 2006. The March 2007 count includes three Schonfeld correspondents that were converted by the end of the quarter.

Gross interest revenue increased 26%, to $48.2 million, reflecting greater assets, higher rates and the favorable impact from the IPO capital. Revenue from average daily interest earning asset based balances increased 30%, to $30.2 million from $23.2 million, with the balances increasing 18%, to $2.53 billion from $2.15 billion. Yield was 4.77% and spread was 2.11% compared to 4.33% and to 1.81%, respectively, a year ago.

Gross interest revenue also benefited from a 21% increase, equaling $16.5 million, up from $13.6 million, due to increases in average daily interest earning balances in the Conduit external stock loan business. Average daily balances increased 15%, to $1.42 billion from $1.24 billion, with yield at 4.67% and spread at 0.40%, compared to 4.38% and 0.47%, respectively, a year ago.

Technology revenues increased 8%, to $3.0 million, primarily as a result of increases in recurring revenues. Other revenue expanded 44%, to $12.1 million, due to increases in trading revenues in equities and foreign exchange, bond and futures commissions, and equity and option execution fees.

Operating margin expanded to 13.4% from 10.1%, as expenses grew more slowly than revenues, reflecting the benefits of scale and operating leverage and continued improvement in Penson's UK and Technology operations, partially offset by the cost of converting the Schonfeld correspondents. Interest expense on short-term debt amounted to $28.3 million compared to $22.4 million, primarily due to both higher interest paying balances and rates. Interest expense on long term debt declined to $0.5 million, from $1.2 million, reflecting lower average debt balances as a portion of the IPO proceeds were used in 2006 to pay down long term borrowings.

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