ITG Reports Second Quarter 2013 Results

Europe and Asia Pacific Post Stronger Revenues, Average U.S. Revenue Capture Increases

Aug 01, 2013, 08:00 ET from ITG

NEW YORK, Aug. 1, 2013 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended June 30, 2013.

Second quarter 2013 highlights included:

  • GAAP net income of $5.1 million, or $0.13 per diluted share compared to a GAAP net loss of $247.1 million, or $6.40 per diluted share for the second quarter of 2012.  GAAP net income for the second quarter of 2013 included (i) duplicate rent and office closing charges associated with the move to ITG's new headquarters of $5.1 million, or $0.08 per diluted share after taxes; (ii) charges related to the closing of ITG's Israel development center of $1.6 million, as well as tax charges associated with anticipated capital withdrawals from Israel, together totaling $0.08 per diluted share after taxes; and (iii) accrual reversals related to prior restructurings of $1.6 million, which resulted in an increase of $0.02 per diluted share after taxes.  The GAAP net loss for the second quarter of 2012 included a non-cash impairment charge for the balance of ITG's goodwill of $274.3 million, or $6.45 per diluted share after taxes. 
  • Adjusted net income of $10.3 million, or $0.27 per diluted share, marking the highest adjusted earnings per share since the second quarter of 2010.  Adjusted net income for the second quarter of 2012 was $1.9 million, or $0.05 per diluted share.
  • Revenues of $139.3 million, compared to revenues of $126.9 million in the second quarter of 2012.
  • GAAP expenses of $128.5 million, compared to expenses of $397.5 million in the second quarter of 2012.  Adjusted expenses, net of the charges related to the headquarters move and the restructurings were $123.5 million in the second quarter of 2013.  Adjusted expenses, net of goodwill impairment charges, were $123.2 million in the second quarter of 2012.
  • Average daily trading volume in the U.S. of 179 million shares, down from 183 million in the second quarter of 2012.  POSIT® average daily U.S. volume was 75 million shares compared to 90 million shares in the second quarter of 2012.  Total average daily volume traded through POSIT Alert® rose 41% compared with the second quarter of 2012.
  • In Europe, average daily value traded in POSIT was $674 million, compared with $377 million in the second quarter of 2012.  Total average daily value traded through POSIT Alert rose 336% in the second quarter of 2013 compared with the prior-year period. 
  • The repurchase of 675,000 shares of common stock under ITG's authorized share repurchase program for a total of $9.0 million.  Repurchases since the first quarter of 2010 have totaled $130.6 million for a total of 10 million shares, resulting in a decrease in shares outstanding, net of issuances, of 16%. 

Revenues from U.S. operations were $84.6 million in the second quarter of 2013 compared to $81.9 million in the second quarter of 2012.  ITG's U.S. operations posted GAAP net income of $2.2 million and adjusted net income of $4.5 million in the second quarter of 2013, compared to a GAAP net loss of $220.9 million and adjusted net income of $0.4 million in the second quarter of 2012.  Sell-side client volume represented 49% of total U.S. volumes, unchanged from the first quarter of 2013.  The overall revenue capture rate per share in the U.S. rose to $0.0048, up from $0.0046 in the first quarter of 2013.  This marks the highest average U.S. revenue capture since the second quarter of 2011.

ITG's International revenues were $54.7 million in the second quarter of 2013 compared to $45.0 million in the second quarter of 2012.  European revenues rose 41% compared to the second quarter of 2012, while Asia Pacific revenues were a record $12.8 million, a 39% increase over the second quarter of 2012. Canadian revenues were down 1% versus the second quarter of 2012 as local trading volumes were flat compared to the same period.  ITG's International operations posted GAAP net income of $2.9 million and adjusted net income of $5.8 million in the second quarter of 2013, compared to a GAAP net loss of $26.2 million and adjusted net income of $1.5 million in the second quarter of 2012.

"Continued positive momentum in our European and Asia Pacific businesses and improved average revenue capture in the U.S. drove significant improvements in profitability during the second quarter," said Bob Gasser, ITG's Chief Executive Officer and President.   "We continue to focus on improving the operating performance of our four business units and increasing client penetration across our four regions. The changes we implemented to our operating model in late 2012 were a key driving force behind our improved margins in the first half of 2013."  

Year-to-Date Results

For the first six months of 2013, revenues were $271.3 million, GAAP net income was $13.7 million, or $0.36 per diluted share, and adjusted net income was $19.7 million, or $0.51 per diluted share. For the first six months of 2012, revenues were $263.3 million, GAAP net loss was $241.6 million, or $6.22 per diluted share, and adjusted net income was $7.3 million, or $0.18 per diluted share. 

The discussion of results above includes adjusted net income and related per share amounts, in addition to adjusted expense amounts, which are non-GAAP financial measures that are described in the attached tables along with a reconciliation of these non-GAAP financial measures to GAAP results.

Conference Call

ITG has scheduled a conference call today at 11:00 am ET to discuss second quarter results.  Those wishing to listen to the call should dial 1-877-317-6789 (1-412-317-6789 outside the U.S.) at least 15 minutes prior to the start of the call to ensure connection.  The webcast and accompanying slideshow presentation can be downloaded from ITG's website at investor.itg.com.  For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering conference number 10031538.  The replay will be available starting approximately one hour after the completion of the conference call.

About ITG

ITG is an independent execution and research broker that partners with global portfolio managers and traders to provide unique data-driven insights throughout the investment process. From investment decision through settlement, ITG helps clients understand market trends, improve performance, mitigate risk and navigate increasingly complex markets. ITG is headquartered in New York with offices in North America, Europe, and Asia Pacific. For more information, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements that reflect management's expectations for the future.  A variety of important factors could cause results to differ materially from such statements.  Certain of these factors are noted throughout ITG's 2012 Annual Report on Form 10-K, and its Form 10-Qs and include, but are not limited to, general economic, business, credit and financial market conditions, both internationally and nationally, financial market volatility, fluctuations in market trading volumes, effects of inflation, adverse changes or volatility in interest rates, fluctuations in foreign exchange rates, evolving industry regulations, changes in tax policy or accounting rules, the actions of both current and potential new competitors, changes in commission pricing, the volatility of our stock price, rapid changes in technology, errors or malfunctions in our systems or technology, cash flows into or redemptions from equity mutual funds, ability to meet liquidity requirements related to the clearing of our customers' trades, customer trading patterns, the success of our products and service offerings, our ability to continue to innovate and meet the demands of our customers for new or enhanced products, our ability to successfully integrate acquired companies, our ability to attract and retain talented employees and our ability to achieve cost savings from our cost reduction plans. The forward-looking statements included herein represent ITG's views as of the date of this release. ITG undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law.

ITG Media/Investor Contact: J.T. Farley 1-212-444-6259 corpcomm@itg.com

 

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)

 

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Revenues:

Commissions and fees

$

108,868

$

94,883

$

211,876

$

200,147

Recurring

26,283

28,034

51,623

55,466

Other

4,142

3,993

7,844

7,672

Total revenues

139,293

126,910

271,343

263,285

Expenses:

Compensation and employee benefits

51,202

49,540

100,751

102,127

Transaction processing

22,499

19,649

44,031

41,872

Occupancy and equipment

20,720

15,063

37,261

29,712

Telecommunications and data processing

   services

13,718

14,712

27,816

29,779

Other general and administrative

19,760

23,597

38,536

46,274

Goodwill impairment

274,285

274,285

Restructuring charges

(75)

(75)

Interest expense

699

624

1,301

1,302

        Total expenses

128,523

397,470

249,621

525,351

Income (loss) before income tax expense (benefit)

10,770

(270,560)

21,722

(262,066)

Income tax expense (benefit)

5,684

(23,464)

8,014

(20,428)

Net income (loss)

$

5,086

$

(247,096)

$

13,708

$

(241,638)

Income (loss) per share:

Basic

$

0.14

$

(6.40)

$

0.37

$

(6.22)

Diluted

$

0.13

$

(6.40)

$

0.36

$

(6.22)

Basic weighted average number of common shares

    outstanding

36,956

38,607

37,166

38,859

Diluted weighted average number of common     shares outstanding

38,000

38,607

38,371

38,859

 

 

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data (unaudited)

(In thousands)

 

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Revenues by Geographic Region:

U.S Operations

$

84,601

$

81,915

$

165,844

$

166,504

Canadian Operations

20,105

20,319

38,649

41,150

European Operations

21,794

15,492

42,744

35,619

Asia Pacific Operations

12,793

9,184

24,106

20,012

   Total Revenues

$

139,293

$

126,910

$

271,343

$

263,285

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Revenues by Product Group:

Electronic Brokerage

$

74,715

$

62,705

$

144,363

$

134,885

Research Sales and Trading

28,140

26,805

53,553

53,231

Trading Platforms

24,595

25,740

49,694

51,484

Analytics

11,600

11,357

23,270

22,955

Corporate (non-product)

243

303

463

730

   Total Revenues

$

139,293

$

126,910

$

271,343

$

263,285

 

 

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)

 

June 30, 2013 (unaudited)

December 31, 2012

Assets

Cash and cash equivalents

$

259,034

$

245,875

Cash restricted or segregated under regulations and other

64,434

61,117

Deposits with clearing organizations

24,219

29,149

Securities owned, at fair value

7,114

10,086

Receivables from brokers, dealers and clearing organizations

1,180,763

1,107,119

Receivables from customers

1,143,322

546,825

Premises and equipment, net

63,728

54,989

Capitalized software, net

41,021

43,994

Other intangibles, net

33,116

35,227

Income taxes receivable

1,121

7,460

Deferred taxes

36,589

39,155

Other assets

20,078

15,763

Total assets

$

2,874,539

$

2,196,759

Liabilities and Stockholders' Equity

Liabilities:

Accounts payable and accrued expenses

$

174,793

$

165,062

Short-term bank loans

30,111

22,154

Payables to brokers, dealers and clearing organizations

1,567,959

1,337,459

Payables to customers

647,953

226,892

Securities sold, not yet purchased, at fair value

2,644

5,249

Income taxes payable

18,585

10,608

Deferred taxes

323

293

Term debt

33,717

19,272

Total liabilities

2,476,085

1,786,989

Commitments and contingencies

Stockholders' Equity:

Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

Common stock, $0.01 par value; 100,000,000 shares authorized; 52,105,402 and 52,037,011 shares issued at June 30, 2013 and December 31, 2012, respectively

521

520

Additional paid-in capital

235,291

245,002

Retained earnings

419,193

405,485

Common stock held in treasury, at cost; 15,524,675 and 14,677,872 shares at June 30, 2013 and December 31, 2012, respectively

(259,725)

(253,111)

Accumulated other comprehensive income (net of tax)

3,174

11,874

Total stockholders' equity

398,454

409,770

Total liabilities and stockholders' equity

$

2,874,539

$

2,196,759

 

 

INVESTMENT TECHNOLOGY GROUP, INC. Reconciliation of US GAAP Results to Adjusted Results

In evaluating ITG's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Adjusted expenses and adjusted net income and related per share amounts are non-GAAP performance measures, but the Company believes that they are useful to assist investors in gaining an understanding of the trends and operating results for ITG's core businesses. These measures should be viewed in addition to, and not in lieu of, ITG's reported results under GAAP.

 

The following are reconciliations of GAAP results to adjusted results for the periods presented (in thousands except per share amounts):

Three Months Ended June 30,

Six Months Ended Ended June 30,

2013

2012

2013

2012

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

139,293

$

126,910

$

271,343

$

263,285

Total expenses

128,523

397,470

249,621

525,351

   Less:

   Restructuring charges (1)

75

75

   Duplicate rent charges (2)

(1,237)

(2,568)

   Office move (3)

(3,910)

(3,910)

   Goodwill and other asset impairment (4)

(274,285)

(274,285)

Adjusted operating expenses

123,451

123,185

243,218

251,066

Income (loss) before income tax expense (benefit)

10,770

(270,560)

21,722

(262,066)

  Effect of pro forma adjustment

5,072

274,285

6,403

274,285

Adjusted pre-tax operating income

15,842

3,725

28,125

12,219

Income tax expense (benefit)

5,684

(23,464)

8,014

(20,428)

   Tax effect of pro forma adjustment (5)

(143)

25,322

405

25,322

Adjusted operating income tax expense

5,541

1,858

8,419

4,894

Net income (loss)

5,086

(247,096)

13,708

(241,638)

    Net effect of pro forma adjustment

5,215

248,963

5,998

248,963

Adjusted operating net income

$

10,301

$

1,867

$

19,706

$

7,325

Diluted earnings (loss) per share

$

0.13

$

(6.40)

$

0.36

$

(6.22)

  Net effect of pro forma adjustment

0.14

6.45

0.15

6.40

Adjusted diluted operating earnings per share

$

0.27

$

0.05

$

0.51

$

0.18

 

 

U.S.

International

Three Months Ended June 30,

Three Months Ended June 30,

2013

2012

2013

2012

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

84,601

$

81,915

$

54,692

$

44,995

Total expenses

80,040

325,824

48,483

71,646

   Less:

   Restructuring charges (1)

1,264

(1,189)

   Duplicate rent charges (2)

(1,237)

   Office move (3)

(3,910)

   Goodwill and other asset impairment (4)

(245,103)

(29,182)

Adjusted operating expenses

76,157

80,721

47,294

42,464

Income (loss) before income tax expense (benefit)

4,561

(243,909)

6,209

(26,651)

  Effect of pro forma adjustment

3,883

245,103

1,189

29,182

Adjusted pre-tax operating income

8,444

1,194

7,398

2,531

Income tax expense (benefit)

2,349

(23,022)

3,335

(442)

   Tax effect of pro forma adjustment (5)

1,616

23,837

(1,759)

1,485

Adjusted operating income tax expense

3,965

815

1,576

1,043

Net income (loss)

2,212

(220,887)

2,874

(26,209)

Net effect of pro forma adjustment

2,267

221,266

2,948

27,697

Adjusted operating net income

$

4,479

$

379

$

5,822

$

1,488

Diluted earnings (loss) per share

$

0.06

$

(5.72)

$

0.07

$

(0.68)

Net effect of pro forma adjustment

0.06

5.73

0.08

0.72

Adjusted diluted operating earnings per share

$

0.12

$

0.01

$

0.15

$

0.04

Notes:

(1)

In the second quarter of 2013, the Company incurred $1.6 million to implement a restructuring plan to close its technology research and development facility in Israel and outsource that function to a third-party service provider effective January 1, 2014.  This plan primarily focused on reducing costs by limiting ITG's geographic footprint while maintaining the necessary technological expertise via a consulting arrangement. The Company also reduced previously-recorded 2012 and 2011 restructuring accruals of $1.6 million to reflect the sub-lease of previously-vacated office space and certain legal and other employee-related charges deemed unnecessary.

(2)

During the fourth quarter of 2012, ITG began to build out and ready its new lower Manhattan headquarters while continuing to occupy its then-existing headquarters in midtown Manhattan and as a result, has since incurred duplicate rent charges through June 2013.

(3)

In the second quarter of 2013, ITG moved into its new headquarters and incurred a one-time charge, which includes a reserve for the remaining lease obligation at the previous midtown Manhattan headquarters. 

(4)

In the second quarter of 2012, goodwill with a carrying value of $274.3 million was deemed impaired and its fair value was determined to be zero, resulting in a full impairment charge.

(5)

The restructuring plan referred to in (1) above triggered the recognition of a tax charge of $1.6 million associated with the anticipated withdrawal of capital from Israel.

SOURCE ITG



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