5 - mf q111 presentation[1]
TRANSCRIPT
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First Quarter 2011 Results
August 5, 2010
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Safe Harbor
Statements contained in this presentation that are not based on current or historical fact are forward-looking in
nature. Such forward-looking statements are based on current plans, estimates and expectations and are made
pursuant to the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on known
and unknown risks, assumptions, uncertainties and other factors. The Company's actual results, performance, or
achievements may differ materially from any future results, performance, or achievements expressed or implied
b such forward-lookin statements. The Com an undertakes no obli ation to ublicl u date or revise an
forward-looking statement. For a discussion of some of the important factors that could cause the issuers results
to differ from those expressed in, and implied by, the following forward-looking statements, please refer to our
SEC filings, in particular, the Risk Factors section thereof.
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AgendaAgenda
Jon Corzine, Chairman and CEO First Quarter 2011 financial results
Early results of tactical review
Strategic vision forward
Randy MacDonald, CFO Income Statement
Net revenue breakdown
Revenue streams and macro drivers
Key financial metrics
Liquidity and capital structure
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Improving Financial Performance
$272$240
$289 $67
EBITDA (1) ($ millions)Net Revenues ($ millions)
Y/Y change: 6%Q/Q change: 20% Y/Y change: 116%
$31
($8)
GAAP EPS
1Q10 4Q10 1Q11 1Q10 4Q10 1Q11
Fully Diluted EPS (1)
June JuneMarch JuneJune March
$0.05
$0.16
Y/Y change: 220%
($0.27)
$0.01
($0.17)
1Q10 4Q10 1Q11
($0.78)
1Q10 4Q10 1Q11
June JuneMarch June JuneMarch
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(1) Presented on an adjusted basis. See schedules in appendix for reconciliation.
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Initial Actions Drive Early Results
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Potential Benefits of Financial Reform
MF GlobalCompetitors Market Impact
Premium on clearing and post-trade
services
Levels competitive landscape
- Commodities, equities and some fixed income
Limits risk taking
Creates push out of certain tradingactivities
Increases capital costs
Increased
transparency
Lower systemic risk
Potential increase of exchange-tradedvolume
Opportunity in underserved middle market
Increases pricing transparency
Fragments client base
Key: Regulatorsimplementation ofreform
Basel III- Likely to require banks to deleverage
Drivers
Volcker rule- Banks can invest only 3% Tier 1 capital- Limits bank capital committing opportunities
Swaps push out- Commodities, equities, high yield/ABS/CDS in separately capitalized
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Centralized clearing- Most OTC products to be moved to exchange and/or cleared
- Non-cleared OTC products to be margined
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Net Revenue Increases Across All Revenue Streams
4Q10 1Q11
($ millions)
$120
$160$132.7
$142.4
$87.4
$40
$80 $54.1
$43.1$47.7
$0
Commissionsbased(1) PrincipalTransactions&Related
Interest(2)
NetIntfromClientFunds(2)
Commodities
FX
Retail
Equities
Duration
Avg. Client Balances
666
. Yield
Securities Lending
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(1) Net of sales commission expense(2) 4Q10 balances reflect reclassification of dividends from interest income andexpense to principal transactions.
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First Quarter 2011 Net Revenue Breakdown
(4)
For three months ended June 30, 2010
Income
Statement Total Commissions
Principal
Transactions &
Related Interest
Net Interest
from Client
Funds (1)
($ in millions) A B C D
1. Interest Income 114.2$
2. Interest Expense (45.4)
3. Net Interest 68.8 18.0$ 50.8$
4. Principal Transactions 66.3 69.4 (3.1)
5. Commissions 376.6 376.6$
6. xecut on an ear ng ees 175.2 175.2
7. 201.4 201.4
8. Sales Commission (59.0) (59.0)
9. Other Income 11.9
10. 289.4$ 142.4$ 87.4$ 47.7$
11. Volumes 524.7 524.7
12. Average Assets Client Funds and Corporate Cash ($bn) 13,319$
13. Yield 0.27$ 1.42%
14. Average Balances - Fixed Income and Stock Borrow Loan ($bn) 31,549$15. Yield from Fixed Income and Stock Borrow Loan 0.29%
(1) Client funds yield includes customer payables and company capital
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Key Financial Metrics Reflect Cost Rationalization Efforts
62.5% 64.0%
52.5%
Estimated Annualized Savings - $60m to $75m Compensation as a Percentage of Net Revenue (1)
Cost Savings 1Q11Actual
1Q11Est.
AnnualizedEst.
Impairment of intangible $ 2m $1m to $2m $5m to $7massets and goodwill
Write-down of up-frontcompensation payments $ 5m $3m to $4m $12m to $18m
Headcount reduction andcompensation targets
$ 10m $2m to $5m $43m to $50m
1Q10 4Q10 1Q11
Non-compensation Expenses(1) Pre-tax Margin and EBITDA Margin(1)
Total $17m $6m to $11m $60m to $75mJune JuneMarch
$93
$114
$9112.9 %11.5 %
23.1 %PretaxMargin
EBITDAMargin
1Q10 4Q10 1Q11
(0.8%)
(15.4%)
(3.3%)
1Q10 4Q10 1Q11
June JuneMarch March June
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(1) Presented on an adjusted basis.
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Improved Capital Structure
($ and shares in millions)
Proforma Jun
30, 2010 (1)Jun 30, 2010 Mar 31, 2010
1Q11
Rate
1Q11
ExpenseMaturity
Revolver 442.5$ 442.5$ 442.5$ 2.3% (4) 3.0 (2) June 2014 (3)
Senior Convertible Notes, par 195.7 205.0 205.0 9.0% 4.6 June 2013
Total Debt 638.2$ 647.5$ 647.5$
Interest expense 7.6Amortization of debt issuance costs 1.5
Accretion of debt discount 0.4
Interest on borrowings 9.5$
Preferred Stock
Series A 96.2$ 96.2$ 96.2$ 10.7% 4.0$ Perpetual
Series B 34.4 128.0 128.0 9.75% 3.7 Perpetual
Equity 1,378.5 1,331.7 1,141.4
, . , . , .
Dividend expense 7.7$
Total Capital 2,147.3$ 2,203.4$ 2,013.1$
Debt/EBITDA 2.4 2.4 8.6
(1) Proforma includes impact of tender offer to exchange convertible debt and preferred stock(2) Expense includes facility fees.(3) Revolving credit facility was amended in June 2010 extending $690m to June 15, 2014, while $511m retains the existing facility maturity of June 15, 2012.(4) LIBOR + 200. Changes to a weighted blended rate of LIBOR + 243 after amendment.
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Tangible Book Value Remains at a Premium
1,400
1,600
22 994
(53)
(2)
($ millions)
TangibleBook value:
$8.65
ProformaTangible
Book value:$8.00
TangibleBook value:
$8.46
1,000
1,200
174
Cash Flow Savings:
Senior Notes Interest (after tax) 0.5$
600
800
1,068
1,242 1,264 1,2671,361
1308 1,312
.
Savings to net income 11.2$
P/E 10
Value To Shareholder 111.7$
Value Per Share 0.68$
200
400
0Tangible
Book Value3/31/10
Net CashFrom Equity
Raise
Change inNet Equity
TangibleBook Value
6/30/10
Exchangeof Senior
Notes
Exchangeof Series BPref Stock
CashPremium
Expenses IPO RSUVesting
ProformaBook Value
6/30/10
123.5 25.9 149.4 0.9 10.5 3.3 164.1Basic Shares Outstanding
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. _ . . _ _ .n m ons
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Strong Liquidity Position
($ in millions) Total
Required
Capital
Excess
Capital Free Cash Non-Cash
Regulated entities 1,819$ 1,308$ 512$ N/A N/A
Non-regulated entities 379 302 77Total Capital 2,198 1,308 512 302 77
Uses and Sources (Proforma):
as use n exc ange or conver e no es
and preferred stock (including expenses) (55) (55)
Preferred dividends (8) (8)
Total Capital after Uses (Proforma) 2,135 1,308 512 239 77
n rawn revo ver
Non-segregated client payables and collateral 1,524
Total Available Liquidity (Proforma) 512$ 2,521$
,
March 31, 2010 Available Liquidity
,
$3,025
(1) Revolving credit facility w as amended in June 2010 extending $690m to June 15, 2014, while $511m retains the existing fac ility maturity of June 15, 2012.
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Appendices
This section of the page should be blank except when footnotes are present.
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Client-Driven Balance Sheet
($ in millions) 1Q11 4Q10
Average(1)
Client Balances 13,319$ 13,722$Fixed Income & SBL Balances 31,549 34,218
Receivables 4,100 5,100
Non-Interest Earning Assets 440 435
Total Assets 49,408$ 53,475$
Equity (2) 1,461$ 1,407$
Free Cash (End of Period) 302$ 53$
(1) Calculated as simple average quarter over quarter.
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Fixed Income and Securities Borrow/Loan Yield
($ in millions) 1Q11 4Q10 3Q10 2Q10 1Q10
Average Balances
Securities Borrowed 3,867$ 6,074$ 10,157$ 11,175$ 9,445$
Securities Loaned (1,080) (835) (2,714) (4,551) (5,153)
Securities Owned 6,925 6,027 6,188 7,590 6,762
Securities Sold (4,349) (4,729) (5,099) (3,788) (2,659)
Reverse Repo 18,814 20,575 20,311 19,959 15,612
Repo (28,063) (30,197) (31,859) (30,456) (21,390)
Average Net Balances (1) (3,886) (3,085) (3,016) (71) 2,617
Average of Absolute Balances 31,549$ 34,218$ 38,164$ 38,759$ 30,511$
Principal Transactions Revenue
Fixed Income (4.5)$ (2.5)$ (10.8)$ 4.1$ 8.1$
Securities Lending (3) 25.7 1.0 10.5 4.2 2.4
Total 21.2 (1.5) (0.3) 8.3 10.5
Net Interest Revenue
Fixed Income 17.4 16.6 35.2 35.1 33.4
Securities Lending (3) 0.6 5.9 (8.8) (2.3) 3.9
Total 18.0 22.5 26.4 32.8 37.3
Total Revenue
Fixed Income 12.9 14.1 24.4 39.2 41.5Securities Lending 26.3 6.9 1.7 1.9 6.3
Total 39.2$ 21.0$ 26.1$ 41.1$ 47.8$
Yield (2) 0.29% 0.25% 0.27% 0.42% 0.63%
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(1) Average absolute balances are calculated as adjus ted absolute balances divided by two.
(2)
Yield calculation for 1Q11 does not annualize certain one-time equity or stock borrow/loan transactions.(3) Balances reflect reclassification of dividends from interest income and expense to principal transactions.
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Net Revenue by Geography
Net Revenue, net of Interest and Transaction-
based expenses 1Q11 4Q10 3Q10 2Q10
North America 50% 53% 54% 52%
Europe 36% 30% 34% 35%
Rest of World 14% 17% 12% 13%
Total 100% 100% 100% 100%
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Fourth Quarter 2010 Net Revenue Breakdown
(4)
For three months ended March 31, 2010
Income
Statement Total Commissions
Principal
Transactions &
Related Interest
Net Interest
from Client
Funds (1)
($ in millions) A B C D
1. Interest Income (2) 113.2$
2. Interest Expense (2) (42.8)
3. Net Interest (2) 70.4 22.5$ 48.0$
4. Principal Transactions (2) 26.8 31.6 (4.9)
5. Commissions 347.6 347.6$
6. Execution and Clearing Fees (156.4) (156.4)
7. 191.2 191.2
8. Sales Commission (58.5) (58.5)$
9. Other Income 10.6
. . . . .
11 Volumes 426.0 426.0
12. Average Assets Client Funds and Corporate Cash ($bn) 13,722$
13. Yield (2) 0.31$ 1.26%
14. Average Balances - Fixed Income and Stock Borrow Loan ($bn) 34,218$
15. Yield from Fixed Income and Stock Borrow Loan 0.25%
(1)Client funds yield includes customer payables and company capital
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(2) Balances reflect reclassification of dividends from interest income and expense to principal transactions.
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Adjusted EBITDA
(in millions) 1Q11 4Q10 1Q10
Income / (Loss) Before Taxes 37.2$ (37.0)$ (2.1)$
Depreciation & Amortization 10.5 13.8 13.6
Stock Compensation (excluding IPO awards) 9.5 5.9 9.2
n eres on orrow ngs . . .
Adjusted EBITDA(1)(2)
66.7$ (8.0)$ 31.2$
(2)
(1) Balances have been adjusted for exchange membership gains and losses, IPO-related costs, stock compensation expense
related to IPO awards, impairment of intangible assets and goodwill, broker related loss costs, severance expense, foreign currency
translation movements, accelerated amortization of debt issuance costs, restructuring, write-down of upfront compensation payments,
and U.K. bonus tax.
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EPS Roll Forward
(in millions, except for per share data)
Pre-tax Income/
(Loss)
Net Income/
(Loss) Shares EPS Shares EPS
1Q11
Basic Fully Diluted
Shares outstanding 179.5
GAAP 16.6$ 0.8$ 130.2 0.01$ 130.2 0.01$Stock compensation expense related to IPO awards 8.6 6.4 0.05 3.3 0.04
Anti-dilutive impact of fully diluted number of shares - 12.2 46.0 0.06
Fully Diluted 25.2 19.4 130.2 0.06 179.5 0.11
Restructuring charges 9.9 6.5 0.05 0.04
Other adjustments (1) 2.1 2.5 0.02 0.01
Adjusted 37.2$ 28.4$ 0.12$ 0.16$
(1) Other adjustments include exchange membership gains, U.K. bonus tax, impairment of goodwill and severance expense.
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Proforma Tangible Book Calculation
($ in millions)
Equity 6/30/10 1,332$
rem ums an expenses pa n exc ange o er
Convertible Senior Notes exchanged 9
Series B Preferred Stock exchanged 94
1,380$
Less: Intangible Assets (68)
Proforma tangible book value 1,312$
Proforma basic shares outstanding 164.1
Proforma tangible book value per share 6/30/10 8.00$
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EPS GAAP Calculation
($ and shares in thousands)
1Q11
Basic earnings per share:
Numerator:
Net income $8,821
Less: Dividends declared for Series A Preferred Stock (4,022)
Dividends declared on Series B Preferred Stock (3,656)
Allocation to participating securities (360)Net income applicable to common shareholders $783
Denominator:
,
Diluted weighted average common stock outstanding 134,000
Basic earnings per share $0.01
Diluted earnings per share $0.01
n cacu at ng ute or t e t ree mont s en e une 30, 2010, 3,803 o
outstanding stock awards are dilutive, while the impact of certain other outstanding
stock awards, Convertible Notes, and Series A and Series B Preferred Stock is anti-
dilutive. The following table presents the potential shares excluded from the computation
of diluted earnings per share because the effect would have been anti-dilutive.
1Q11
Restricted stock units and restricted stock 8,331
Stock options 8,960
9.0% Convertible Notes 19,617
21
,
Series B Non-cumulative Preferred Stock 14,354
Total 63,262
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EPS Adjusted Calculation
($ and shares in thousands)
1Q11
Adjusted Diluted earnings per share:
Adjusted net income 28,404$
Denominator:
Basic weighted average common stock outstanding 130,197Effect for dilutive stock awards 3,325
9.0% Convertible Notes 19,617
Series A Cumulative Preferred Stock 12,000
er es on-cumu a ve re erre oc ,
Total 179,493
Adjusted Diluted earnings per share $0.16
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Proforma Shares Outstanding June 30, 2010
(in millions)
Basic Common Shares Outstanding March 31, 2010 123.5
Shares issued in equity offering 25.9
Basic Common Shares Outstandin June 30, 2010 149.4
Shares issued in exchange offer:
Convertible Senior Notes 0.9Series B Preferred Stock 10.5
Vesting of IPO RSUs 3.3
Total Proforma Basic Shares Outstanding (after Exchange) June 30, 2010 164.1
Series A Preferred Stock 12.0
Series B Preferred Stock 3.9
Convertible Senior Notes 18.7
Total Proforma Fully Diluted Shares Outstanding June 30, 2010 198.7
* For EPS calculation purposes, shares will be weighted based on issuance date.
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Diversified and Balanced Revenue Model
CommissionsFixed Income and
Stock LendingPrincipal
TransactionsInterest Income
(Investment)
MajorDriver
VolumesInterest &Bid/Offer
Spreads
Bid/OfferSpreads
InterestRates/Spreadsand Customer
balances
Products
ExchangeListed
OTC
Cash
Agencies
Treasuries
CorporatesE uities
Metals/Energy
ForeignExchange
InvestmentGrade Agencies
Treasuries
Lon -Term
Interest Rates
Equities
Commodities AssetManagers
Broker
Corporatehedgers
AssetManagers
Retail
Institutional
Clients
Retail
ProfessionalTraders
Assetmanagers
Dealers
Corporations
FinancialInstitutions
nvestment
banksProfessional
Traders
CompanyCapital
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nanc aInstitutions
Corporations
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