Revenue For Fourth Quarter Increases 17%
Net Operating Margins Expand Over 1,200 Basis Points To 28.1%
NEW YORK - February 10, 2003 - eSpeed, Inc. (NASDAQ:ESPD), a subsidiary of Cantor Fitzgerald and the leading developer of electronic trading technology, today reported unaudited results for the fourth quarter and full year ended December 31, 2002.
Earnings
The Company recorded net operating income of $9.2 million, or $0.17 per share, in the fourth quarter 2002, which was more than double the net operating income of $4.5 million, or $0.08 per share, reported in the fourth quarter 2001. eSpeed reports net operating income in order to reflect earnings generated from the Company's operations.
In accordance with Generally Accepted Accounting Principles (GAAP), eSpeed reported net income of $8.8 million, or $0.16 per share, for the fourth quarter 2002, compared to $7.8 million, or $0.14 per share for the fourth quarter 2001. In the fourth quarter of 2002, the differences between operating income and GAAP net income were a $1.2 million credit on the reversal of the remaining portion of the Company's September 11th reserve, a $1.0 million non-cash write down of eSpeed's investment in TradeSpark to its current carrying value and a $0.7 million non-cash charge related to business partner warrants. Comparatively, in the fourth quarter of 2001, GAAP net income included a $2.7 million insurance gain and a one-time receipt of $1.2 million, both related to the events of September 11th, as well as other non-cash charges of $0.6 million.
For the full year ended December 31, 2002, the Company reported net income from operations of $31.4 million, or $0.57 per share, compared to a net loss from operations of $2.6 million or ($0.05) per share for the same period last year. On a GAAP basis, the Company reported net income of $42 million, or $0.76 per share for the full year 2002, compared to a net loss of $18.3 million, or ($0.34) per share for the full year 2001. The Company's full-year 2002 operating results exclude non-operating income of $10.5 million, including a $1.2 million credit on the reversal of the remaining portion of the Company's September 11th reserve, a $1.0 million non-cash write down of eSpeed's investment in TradeSpark, a $12.8 million gain on business interruption insurance proceeds related to September 11th, a $0.5 million charitable contribution for September 11th to the Cantor Fitzgerald Relief Fund and $2.1 million in non-cash business partner warrants charges. In 2001, operating results excluded non-operating charges of $15.7 million, including a $14.5 million provision related to September 11th, a $2.7 million gain on insurance and a one-time receipt of $1.2 million, both related to September 11th, $3.8 million loss on unconsolidated investments and $1.2 million in non-cash business partner warrant charges.
Revenue
eSpeed's total revenue for the fourth quarter 2002 was $32.8 million, an increase of 17 percent versus $28.1 million in the fourth quarter 2001. Fourth quarter 2002 fully electronic revenue was $22.4 million, up 27 percent compared to $17.7 million in the fourth quarter 2001.
Total revenue from Software Solutions in the fourth quarter 2002 was $5.5 million versus $4.1 million in the fourth quarter 2001, an increase of 34 percent. Software Solutions fees from unrelated parties more than tripled to $2.1 million in the fourth quarter 2002, from $0.6 million in the fourth quarter 2001. Software Solutions fees from related parties in the fourth quarter 2002 were $3.5 million, unchanged from the fourth quarter 2001.
eSpeed's revenue for the twelve months ended December 31, 2002 increased 3 percent to $126.4 million, versus $122.3 million in 2001. Fully electronic revenue grew 17 percent year-over-year to $88.0 million, compared to fully electronic revenue of $75.4 million for the full year 2001. Total revenue from Software Solutions decreased 3 percent to $17.7 million for the full year 2002 versus the comparable period last year. Revenue in 2001 included significant pre-September 11th voice transaction revenue and Software Solutions fees from Cantor Fitzgerald.
Commenting on today's announcement, Howard W. Lutnick, Chairman, CEO and President of eSpeed said, "Our strong performance in the fourth quarter and full year 2002 is a testament to the strength of the eSpeed team and honors the memory of those we lost on September 11th. eSpeed has surpassed all expectations regarding its profitability and profit margins for 2002. Each of our product lines performed well and we are looking forward to continued growth as we enter 2003."
Volume & Transactions
Fully electronic volume for the fourth quarter 2002 reached $6.8 trillion, a 31 percent increase versus the fourth quarter 2001, where fully electronic volume stood at $5.2 trillion. eSpeed's total electronic volume (fully electronic and voice-assisted) for the fourth quarter 2002 was $9.3 trillion, up 29 percent from $7.2 trillion in the fourth quarter 2001. Total transaction count for the fourth quarter 2002 was 1.2 million transactions, an increase of 34 percent over the fourth quarter 2001.
Lee Amaitis, Global Chief Operating Officer of eSpeed, commented, "During the fourth quarter, which included the seasonality of slow holiday trading, eSpeed outperformed Federal Reserve quarterly US Treasury volumes, with total electronic volume up 29 percent, compared to the US Treasury volume's increase of approximately 16 percent year over year. Also, on a sequential basis, Federal Reserve statistics reported US Treasury volumes were down 6 percent while eSpeed total electronic volume was down only 4 percent from the third quarter. eSpeed's performance in spite of the markets in the last quarter shows the strength of our multiple growth drivers, which helped us exceed our estimates."
Cash and Equivalents
As of December 31, 2002, eSpeed had cash and cash equivalents of $188 million, a decrease from $194 million at the end of the third quarter 2002. The change in cash was due primarily to ordinary year-end compensation payments and a scheduled payment to ETS, the former owner of the Wagner patent.
Recent Highlights
eSpeed Offers World's Largest Combined Electronic Cash and Futures Market Through Agreement With Chicago Board of Trade: In December of 2002 eSpeed entered into an agreement with the Chicago Board of Trade (CBOT), the world's oldest and third-largest derivatives marketplace to distribute the exchange's US Treasury products through the eSpeed system, providing customers with the ability to trade both cash and futures in one neutral, fully electronic, real-time marketplace. CBOT's electronic futures markets will appear side by side with eSpeed's leading cash marketplaces for government securities and agencies, and will be available to eSpeed customers globally through eSpeed's new SuperQuad release.
Software Enhancements and Product Extensions: eSpeed recently introduced two significant software enhancements, SuperQuads and Price Improvement. SuperQuads is a new screen configuration that allows for the introduction of additional markets and products on eSpeed. Price Improvement creates additional trading opportunities for current clients and allows eSpeed to share in the revenues generated by those improved trading executions. Specifically, these enhancements will enable our clients to engage in the electronic trading of U.S. Agencies, Off-The-Runs, Spread and Basis Trading of U.S. Treasuries and expanded trading in European Government Bonds in the first half of 2003. With regard to our agreement with the Chicago Board of Trade, SuperQuads will enable eSpeed to route CBOT's Treasury futures over its existing network and will offer front end integration to clients, positioning eSpeed to gain significant traction in this new market segment. The rollout of electronic trading in Euro and Dollar Denominated Interest Rate Swaps, and Foreign Exchange Spot, Forwards and Options will occur in the second half of 2003.
Lee Amaitis continued, "Our rollout of SuperQuads in the fourth quarter will help us extend our product lines and continue to expand our margins. In addition, the timing of our Price Improvement software rollout in early January 2003 allowed us to introduce this product into strong post-holiday trading volumes. eSpeed expects electronic trading in US Agencies, Off-The-Runs, Spread and Basis Trading of US Treasuries, and expanded European Government bond trading to assist the Company's results in the second half of 2003. Electronic trading of Interest Rate Swaps in the US and Europe, and of Foreign Exchange Spot, Forwards and Options should begin showing significant impact on eSpeed's results in the first half of 2004."
Former Thomson ILX Founder Bernard A. Weinstein Joins eSpeed to Drive Expansion of Software Solutions: Bernard Weinstein, the founder and Chief Executive of ILX Systems, a subsidiary of The Thomson Corporation and the world's largest provider of market data systems and execution processing, will lead the expansion of eSpeed's Software Solutions Division, which leverages eSpeed's massive global infrastructure, portfolio of intellectual property and electronic trading expertise to allow customers to build electronic marketplaces and exchanges, enable real-time auctions, enhance debt issuance and customize trading interfaces.
Outlook for 2003
For the full year 2003, eSpeed expects to generate revenue in excess of $145.0 million. The Company had net operating margins of 25 percent in 2002, and expects its margins to expand approximately 500 basis points to 30 percent for the full year 2003. eSpeed expects its incremental margins to exceed 60 percent for the full year 2003.
Based on current shares outstanding, net operating earnings per share on a pretax basis for 2003 are expected to exceed $0.80. For the first quarter of 2003, net operating earnings per share are expected to be in the range of $0.18 to $0.19. This guidance is premised on an estimate of Federal Reserve US Treasury volume growth of approximately 5 to 7 percent in 2003.
In conclusion, Mr. Lutnick added: "Our proprietary software and our portfolio of intellectual properties distinguish eSpeed as the clear innovator and market leader in transforming the non-equity capital markets from voice to electronic trading. With the successful deployment of our software enhancements, we are positioned to grow in these huge and expanding markets into 2003 and beyond."
About eSpeed, Inc.
eSpeed Inc., a subsidiary of Cantor Fitzgerald, is the leader in developing and deploying business to business electronic marketplaces and related electronic trading technology that offers traders access to the most liquid, efficient and neutral marketplaces in the world. eSpeed operates multiple buyer/multiple seller real-time electronic marketplaces, including the world's largest government bond markets and other fixed income marketplaces. eSpeed's portfolio of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial and non-financial products over eSpeed's global private network or via the Internet. eSpeed's neutral platform, reliable network, straight-through processing and superior products make it the trusted source for electronic trading at more than 700 of the world's largest financial and energy institutions. To learn more, please visit www.espeed.com.
Statements contained in this Press Release, which are not historical facts, are forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to: the effects of the attacks on the World Trade Center, market volatility, the limited operating history of eSpeed, Inc., and its ability to enter into marketing and strategic alliances, to effectively manage its growth, to expand the use of its electronic systems and to induce clients to use its marketplaces and services, and other factors that are discussed in eSpeed's Annual Report on Form 10-K, as amended filed with the Securities and Exchange Commission.
CONSOLIDATED STATEMENTS OF OPERATIONSMedia:
Karina Byrne or Sandra Moreno
The Global Consulting Group
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Investors:
Abbe Goldstein or Avi Sharon
The Global Consulting Group
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