ITG Reports Second Quarter 2013 Results Europe and Asia Pacific Post Stronger Revenues, Average U.S. Revenue Capture Increases

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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