ITG Reports Third Quarter 2012 Results Steady Rate Capture and Expense Discipline Offset by Global Volume Weakness

NEW YORK, Nov. 1, 2012 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120123/NY39237LOGO )

Third quarter 2012 highlights included:

  • Net income of $0.2 million, or $0.01 per diluted share compared to net income of $10.5 million, or $0.25 per diluted share for the third quarter of 2011.  Net income for the third quarter of 2012 included a $1.3 million income tax benefit, or $0.03 per diluted share, from resolving a contingency in the U.S.  The reserves related to this income tax contingency were not excluded from adjusted results when they were established in previous reporting periods.

  • Revenues of $119.6 million, compared to $149.4 million in the third quarter of 2011.

  • Expenses of $119.4 million compared to expenses of $132.2 million in the third quarter of 2011.

  • Average daily trading volume in the U.S. of 172.3 million shares, down 18% from the third quarter of 2011.  POSIT® average daily U.S. volume was 81.3 million shares, down 16% from the third quarter of 2011.  Total combined NYSE and NASDAQ average daily trading volume was down 27% in the third quarter of 2012 compared with the prior year period.  In Europe, average daily value traded in POSIT was $317 million, up 19% from the third quarter of 2011.

  • The repurchase of 500,000 shares of common stock under ITG's authorized share repurchase program for a total of $4.4 million.  Repurchases since the first quarter of 2010 have totaled $106.8 million for 7.9 million shares, resulting in a decrease in shares outstanding, net of new issuances, of more than 13%. 

Revenues from U.S. operations were $77.8 million in the third quarter of 2012 compared to $98.0 million in the third quarter of 2011.  ITG's U.S. operations posted net income of $1.2 million in the third quarter of 2012, compared to net income of $6.9 million in the third quarter of 2011.  Sell-side client volume represented 51% of total U.S. volumes, up from 50% in the second quarter of 2012. The overall revenue capture rate per share in the U.S. was $0.0044, unchanged since the fourth quarter of 2011.  

ITG's International revenues were $41.8 million in the third quarter of 2012 compared to $51.4 million in the third quarter of 2011.  ITG's International operations posted a net loss of $1.0 million in the third quarter of 2012, compared to net income of $3.6 million in the third quarter of 2011.

"We faced very trying conditions in the third quarter, with lower market volumes in the U.S. and in all our international regions," said Bob Gasser, ITG's Chief Executive Officer and President.  "Despite that, we managed to maintain our U.S. average rate per share, even as the overall percentage of sell-side volume increased slightly, and we continue to focus on controlling expenses in this environment."

Year-to-Date Results

For the first nine months of 2012, revenues were $382.9 million, GAAP net loss was $241.4 million, or $6.24 per diluted share, and adjusted net income was $7.6 million, or $0.19 per diluted share.  For the first nine months of 2011, revenues were $442.1 million, GAAP net loss was $176.1 million, or $4.29 per diluted share, and adjusted net income was $25.9 million, or $0.62 per diluted share.

The discussion of year-to-date results above includes adjusted net income and related per share 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 third quarter results.  Those wishing to listen to the call should dial 1-800-215-2410 (1-617-597-5410 outside the U.S.) and enter the passcode 79076050 at least 10 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 1-888-286-8010 (1-617-801-6888 outside the U.S.) and entering the passcode 24355464.  The replay will be available starting approximately two hours 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 2011 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, 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 and our ability to attract and retain talented employees. 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

Condensed Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)




Three Months Ended
September 30,


Nine Months Ended
September 30,




2012


2011


2012


2011


Revenues:










Commissions and fees


$

89,795


$

117,648


$

289,942


$

348,174


Recurring


26,707


28,548


82,173


82,283


Other


3,115


3,223


10,787


11,657


Total revenues


119,617


149,419


382,902


442,114












Expenses:










Compensation and employee benefits


47,135


54,109


149,262


167,266


Transaction processing


19,336


24,840


61,208


70,970


Occupancy and equipment


16,033


14,904


45,745


44,909


Telecommunications and data processing

   services


15,034


14,559


44,813


44,500


Other general and administrative


21,220


23,181


67,494


68,103


Goodwill impairment




274,285


225,035


Restructuring charges





17,678


Acquisition related costs





2,523


Interest expense


678


636


1,980


1,400


Total expenses


119,436


132,229


644,787


642,384


Income (loss) before income tax (benefit)

   expense


181


17,190


(261,885)


(200,270)


Income tax (benefit) expense


(51)


6,713


(20,479)


(24,153)


Net income (loss)


$

232


$

10,477


$

(241,406)


$

(176,117)












Earnings (loss) per share:










Basic


$

0.01


$

0.26


$

(6.24)


$

(4.29)


Diluted


$

0.01


$

0.25


$

(6.24)


$

(4.29)












Basic weighted average number of common

   shares outstanding


38,301


40,615


38,672


41,051


Diluted weighted average number of common

   shares outstanding


39,252


41,271


38,672


41,051



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)




September  30,
2012


December 31,
2011




(unaudited)




Assets






Cash and cash equivalents


$

262,890


$

284,188


Cash restricted or segregated under regulations and other


66,176


71,496


Deposits with clearing organizations


23,461


25,538


Securities owned, at fair value


8,718


5,277


Receivables from brokers, dealers and clearing organizations


1,290,402


871,315


Receivables from customers


543,936


472,509


Premises and equipment, net


42,718


43,023


Capitalized software, net


45,994


51,258


Goodwill



274,292


Other intangibles, net


36,536


39,594


Income taxes receivable


9,658


6,838


Deferred taxes


36,156


16,493


Other assets


17,951


16,248


Total assets


$

2,384,596


$

2,178,069








Liabilities and Stockholders' Equity






Liabilities:






Accounts payable and accrued expenses


$

152,564


$

181,224


Short-term bank loans


15,439


1,606


Payables to brokers, dealers and clearing organizations


1,159,725


1,079,773


Payables to customers


601,042


207,738


Securities sold, not yet purchased, at fair value


4,730


438


Income taxes payable


11,509


11,460


Deferred taxes


368


719


Term debt


20,571


23,997


Total liabilities


1,965,948


1,506,955








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;

   52,037,011 and 51,899,229 shares issued at September 30, 2012 and

   December 31, 2011, respectively


520


519


Additional paid-in capital


243,913


249,469


Retained earnings


411,938


653,344


Common stock held in treasury, at cost; 14,078,344 and 12,679,948 shares

   at September 30, 2012 and December 31, 2011, respectively


(249,555)


(240,559)


Accumulated other comprehensive income (net of tax)


11,832


8,341


Total stockholders' equity


418,648


671,114


Total liabilities and stockholders' equity


$

2,384,596


$

2,178,069



 

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 together with 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 is a reconciliation of GAAP results to adjusted results for the periods presented (in

thousands except per share amounts):





Nine Months Ended September 30,




2012

2011




(unaudited)

(unaudited)

Total revenues


$

382,902

$

442,114






Total expenses


644,787

642,384


Less:





Goodwill and other asset impairment (1)(2)


(274,285)

(225,035)


Restructuring charges (3)


(17,678)


Acquisition related costs (4)


(2,523)

Adjusted operating expenses


370,502

397,148






Loss before income tax benefit


(261,885)

(200,270)


Effect of pro forma adjustment


274,285

245,236

Adjusted pre-tax operating income


12,400

44,966






Income tax benefit


(20,479)

(24,153)


Tax effect of pro forma adjustment


25,322

43,260

Adjusted operating income tax expense


4,843

19,107






Net loss


(241,406)

(176,117)


Net effect of pro forma adjustment


248,963

201,976

Adjusted operating net income


$

7,557

$

25,859






Diluted loss per share


$

(6.24)

$

(4.29)


Net effect of pro forma adjustment


6.43

4.91

Adjusted diluted operating earnings per share


$

0.19

$

0.62

 

Notes:

(1)

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 impairment charges of $245.1 million, $28.5 million and $0.7 million in the U.S,


European and Asia Pacific operating segments, respectively.

(2)

In the second quarter of 2011, goodwill with a carrying value of $470.1 million in the U.S. operating segment was deemed


impaired and its fair value was determined to be $245.1 million, resulting in an impairment charge of $225.0 million.

(3)

During the second quarter of 2011, ITG decided to implement a restructuring plan to improve margins and enhance


shareholder returns primarily focused on reducing costs in the workforce. The cost reduction plan resulted in a


restructuring charge totaling $17.7 million. These costs included employee separation and related costs of $17.4 million


and lease consolidation costs of $0.3 million.

(4)

During the second quarter of 2011, ITG acquired Ross Smith Energy Group Ltd., a Calgary-based independent provider of


research on the oil and gas industry. In connection with the acquisition, ITG incurred approximately $2.5 million of


acquisition related costs, including legal fees, contract settlement costs and other professional fees.

 

SOURCE ITG



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