NEW YORK – November 12, 2003 - eSpeed, Inc. (NASDAQ:ESPD), a subsidiary of Cantor Fitzgerald and the leading developer of electronic trading technology, today reported results for the third quarter ended September 30, 2003.
For the third quarter 2003, the Company reported fully taxed operating income of $10.8 million, or $0.19 per diluted share. 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 $10.0 million, or $0.17 per diluted share, for the third quarter 2003. The difference between fully taxed operating income and GAAP net income is a $0.4 million charge for a charitable contribution to the Cantor Fitzgerald Relief Fund related to the annual September 11th Charity Day and a $0.4 million non-cash charge for business partner securities. For comparative purposes, eSpeed reported pre-tax operating income of $17.7 million, or $0.31 per diluted share, in the third quarter 2003, a 94 percent increase over the $0.16 per diluted share reported in the third quarter 2002.
eSpeed's total revenues for the third quarter 2003 were $44.3 million, 34 percent higher than revenues of $33.0 million for third quarter 2002. On a sequential basis, total revenues increased 13 percent from $39.1 million reported in the second quarter 2003.
Third quarter 2003 fully electronic revenues increased to $32.3 million, up 42 percent compared to $22.8 million in the third quarter 2002. Total revenues from Software Solutions in the third quarter 2003 were $6.1 million versus $4.8 million in the third quarter 2002, an increase of 27 percent.
Third quarter 2003 pre-tax operating margins grew to 39.9 percent versus 26.8 percent in the third quarter 2002 and 35.5 percent in the second quarter 2003.
Fully electronic volume for the third quarter 2003 was $9.6 trillion, a 23 percent increase over $7.8 trillion for the second quarter 2003. eSpeed's total electronic volume, including fully electronic and voice-assisted transactions, for the third quarter 2003 was $12.4 trillion, up 19 percent from $10.4 trillion in the second quarter 2003. This growth compares to an 8 percent increase in US Treasury volume as reported by the Federal Reserve.
The Company had anticipated Federal Reserve US Treasury average daily volume for the third quarter 2003 in a range of $440 - $460 billion. Actual Federal Reserve US Treasury average daily volume was $478 billion for the third quarter.
Howard W. Lutnick, Chairman, CEO & President of eSpeed, Inc., commented, “Our strong results this quarter were primarily based on our unmatched position as the leading electronic platform in the US Treasury market. eSpeed’s market position dramatically improved as evidenced by both our volume growth outpacing that of the Federal Reserve US Treasury average daily volumes as well as the success and continued traction of our Price Improvement (PI) product enhancement. During the third quarter, we saw increases in both the number of PI users as well as the number of transactions executed using Price Improvement.”
eSpeed’s new product roll-outs remain on schedule. Lee Amaitis, Global Chief Operating Officer of eSpeed commented, "Our foreign exchange product has received excellent customer feedback, and we believe it has the potential to transform the foreign exchange market by increasing efficiency and broadening market participation. We remain on target with the roll-outs of both our mortgage backed securities and interest rate swaps products which will be on traders’ desktops by the end of the year.”
The Company generated free cash flow (excluding related party receivables and payables) of $18.5 million during the third quarter 2003, 40 percent higher than the $13.2 million in the second quarter 2003. Including related party receivables and payables, free cash flow for the quarter was $17.2 million.
As of September 30, 2003, eSpeed's cash and cash equivalents increased to approximately $217 million compared to $199 million as of June 30, 2003.
For the fourth quarter 2003, eSpeed expects average daily Federal Reserve US Treasury volume to be between $425 and $435 billion, down from the previously expected $440 - $460 billion. The Company anticipates that the seasonally slower fourth quarter, specifically due to the Thanksgiving, Christmas and New Year’s holidays and two fewer trading days, will result in comparatively lower average daily volumes. For the fourth quarter 2003, the Company expects to generate operating income in the range of $0.14 - $0.15 per share diluted and after-tax.
The Company maintains its full year 2003 operating income guidance in a range of $0.65 - $0.67 per share diluted and after-tax, which includes actual third quarter results and guidance for the fourth quarter. Full year 2003 guidance is predicated on the expectation that average daily Federal Reserve US Treasury volume will be between $436 and $439 billion.
For the full year 2004, eSpeed expects to generate revenue in excess of $185 million and expects its pre-tax operating margins to exceed 41 percent for the full year. eSpeed anticipates that its incremental margins will exceed 75 percent for the full year 2004. Operating earnings for 2004 are expected to be in a range of $0.80 and $0.84 per share diluted and after-tax. This guidance is based on the Company’s expectations that average daily Federal Reserve US Treasury volume will be between $490 and $510 billion for the full year 2004.
In conclusion, Mr. Lutnick added, "With impressive results so far in 2003, we are well positioned to continue our growth in 2004. We expect 2004 will be characterized by continued US Treasury market issuance with additional US Treasury benchmark issues being added, further traction in our Price Improvement and Contingent Order product enhancements as well as new applications for each of these product enhancements, and a reasonable expectation of traction in our Foreign Exchange, Equities and other new products. We look forward to extending our solid leadership position into 2004 and beyond.”
To supplement eSpeed's consolidated financial statements presented in accordance with GAAP and to better reflect the Company's quarter-over-quarter and comparative first three quarters operating performance, eSpeed uses non-GAAP financial measures of revenues, income before income tax provision, net income and earnings per share, which are adjusted to exclude certain non-operating expenses and gains. In addition, the Company provides a computation of free cash flows. These non-GAAP financial measurements do not replace the presentation of eSpeed's GAAP financial results but are provided to improve overall understanding of the Company's current financial performance and its prospects for the future. Specifically, eSpeed believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to the Company's financial condition and results from operations. In addition, eSpeed's management uses these measures for reviewing the Company's financial results and evaluating eSpeed's financial performance. In the third quarter 2003, the difference between GAAP net income and non-GAAP net operating income was $0.8 million.
eSpeed, a subsidiary of Cantor Fitzgerald, is the leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to the most liquid, efficient and neutral financial markets in the world. eSpeed operates multiple buyer, multiple seller real-time electronic marketplaces for the global capital markets, including the world's largest government bond markets and other fixed income and financial marketplaces. eSpeed's suite 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 the world's largest fixed income and foreign exchange trading firms, major exchanges and leading natural gas and electricity trading firms. To learn more, please visit www.espeed.com.
Consolidated Statements of IncomeStatements 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, filed with the Securities and Exchange Commission.
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