ITG Reports Third Quarter 2013 Results

Earnings Driven by Strong European Revenue and Continued Expense Discipline

31 Oct, 2013, 08:00 ET from ITG

NEW YORK, Oct. 31, 2013 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended September 30, 2013.

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Third quarter 2013 highlights included:

  • Net income of $7.7 million, or $0.20 per diluted share compared to net income of $0.2 million, or $0.01 per diluted share for the third quarter of 2012. 
  • Revenues of $127.6 million, compared to revenues of $119.6 million in the third quarter of 2012.
  • Expenses of $116.9 million, compared to expenses of $119.4 million in the third quarter of 2012. 
  • Average daily trading volume in the U.S. of 155 million shares versus 172 million in the third quarter of 2012.  POSIT® average daily U.S. volume was 66 million shares compared to 81 million shares in the third quarter of 2012.  Total average daily volume traded through POSIT Alert® rose approximately 20% compared with the third quarter of 2012.
  • In Europe, average daily value traded in POSIT was $652 million, compared with $317 million in the third quarter of 2012.  Total average daily value traded through POSIT Alert rose more than 250% in the third quarter of 2013 compared with the prior-year period. 
  • The repurchase of 370,000 shares of common stock under ITG's authorized share repurchase program for a total of $6.1 million.  Repurchases since the first quarter of 2010 have totaled $136.7 million for a total of 10.4 million shares, resulting in a decrease in shares outstanding, net of issuances, of 17%. 

Revenues from U.S. operations were $76.8 million in the third quarter of 2013 compared to $77.8 million in the third quarter of 2012.  ITG's U.S. operations reported net income of $2.8 million in the third quarter of 2013, compared to net income of $1.2 million in the third quarter of 2012.  Sell-side client volume represented 51% of total U.S. volumes, up from 49% in the second quarter of 2013.  Despite the higher percentage of sell-side volume, the overall revenue capture rate per share in the U.S. rose to $0.0049, from $0.0048 in the second quarter of 2013.  This marks the highest average U.S. revenue capture since the second quarter of 2011.

ITG's International revenues were $50.7 million in the third quarter of 2013 compared to $41.8 million in the third quarter of 2012.  European revenues rose to $22.7 million, up 53% from the third quarter of 2012, while Asia Pacific revenues were $10.5 million, up 13% over the third quarter of 2012. Canadian revenues were $17.6 million, down 1% versus the third quarter of 2012.  ITG's International operations reported net income of $4.9 million in the third quarter of 2013 compared to a net loss of $1.0 million in the third quarter of 2012.

"Strong European revenues boosted by continued market share gains helped offset weaker market volumes in the U.S.," said Bob Gasser, ITG's Chief Executive Officer and President.  "Our global product offerings continued to stimulate healthy cross-border flows while our premium Investment Research and Alert offerings helped improve our revenue capture. The firm's expense discipline also remains a top priority."

Year-to-Date Results

For the first nine months of 2013, revenues were $398.9 million, GAAP net income was $21.4 million, or $0.56 per diluted share, and adjusted net income was $27.4 million, or $0.72 per diluted share. 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. 

The discussion of 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 1-877-317-6789 (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 10035397.  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 September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Revenues:

Commissions and fees

$

98,378

$

89,795

$

310,254

$

289,942

Recurring

25,761

26,707

77,384

82,173

Other

3,419

3,115

11,263

10,787

Total revenues

127,558

119,617

398,901

382,902

Expenses:

Compensation and employee benefits

49,664

47,135

150,415

149,262

Transaction processing

19,790

19,336

63,821

61,208

Occupancy and equipment

15,821

16,033

53,082

45,745

Telecommunications and data processing

   services

12,649

15,034

40,465

44,813

Other general and administrative

18,351

21,220

56,887

67,494

Goodwill impairment

274,285

Restructuring charges

(75)

Interest expense

593

678

1,894

1,980

Total expenses

116,868

119,436

366,489

644,787

Income (loss) before income tax benefit

10,690

181

32,412

(261,885)

Income tax expense (benefit)

2,975

(51)

10,989

(20,479)

Net income (loss)

$

7,715

$

232

$

21,423

$

(241,406)

Income (loss) per share:

Basic

$

0.21

$

0.01

$

0.58

$

(6.24)

Diluted

$

0.20

$

0.01

$

0.56

$

(6.24)

Basic weighted average number of 

   common shares outstanding

36,544

38,301

36,956

38,672

Diluted weighted average number of

   common shares outstanding

37,781

39,252

38,214

38,672

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data (unaudited)

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Revenues by Geographic Region:

U.S. Operations

$

76,843

$

77,801

$

242,687

$

244,305

Canadian Operations

17,575

17,727

56,224

58,877

European Operations

22,663

14,793

65,407

50,412

Asia Pacific Operations

10,477

9,296

34,583

29,308

   Total Revenues

$

127,558

$

119,617

$

398,901

$

382,902

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Revenues by Product Group:

Electronic Brokerage

$

66,234

$

57,654

$

210,597

$

192,539

Research Sales and Trading

26,683

25,792

80,236

79,023

Trading Platforms

23,151

24,188

72,845

75,672

Analytics

11,177

11,696

34,447

34,651

Corporate (non-product)

313

287

776

1,017

   Total Revenues

$

127,558

$

119,617

$

398,901

$

382,902

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)

September 30, 2013 (unaudited)

December 31, 2012

Assets

Cash and cash equivalents

$

261,567

$

245,875

Cash restricted or segregated under regulations and other

70,275

61,117

Deposits with clearing organizations

32,476

29,149

Securities owned, at fair value

12,197

10,086

Receivables from brokers, dealers and clearing organizations

1,644,884

1,107,119

Receivables from customers

942,250

546,825

Premises and equipment, net

67,845

54,989

Capitalized software, net

39,418

43,994

Other intangibles, net

32,159

35,227

Income taxes receivable

275

7,460

Deferred taxes

36,061

39,155

Other assets

17,903

15,763

Total assets

$

3,157,310

$

2,196,759

Liabilities and Stockholders' Equity

Liabilities:

Accounts payable and accrued expenses

$

177,609

$

165,062

Short-term bank loans

52,486

22,154

Payables to brokers, dealers and clearing organizations

1,522,443

1,337,459

Payables to customers

936,381

226,892

Securities sold, not yet purchased, at fair value

7,490

5,249

Income taxes payable

17,450

10,608

Deferred taxes

343

293

Term debt

33,319

19,272

Total liabilities

2,747,521

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; 52,158,374 and

   52,037,011 shares issued at September 30, 2013 and December 31, 2012,

   respectively

522

520

Additional paid-in capital

238,852

245,002

Retained earnings

426,908

405,485

Common stock held in treasury, at cost; 15,879,299 and 14,677,872 shares at

   September 30, 2013 and December 31, 2012, respectively

(265,522)

(253,111)

Accumulated other comprehensive income (net of tax)

9,029

11,874

Total stockholders' equity

409,789

409,770

Total liabilities and stockholders' equity

$

3,157,310

$

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):

 

Nine Months Ended Ended September 30,

2013

2012

(unaudited)

(unaudited)

Total revenues

$

398,901

$

382,902

Total expenses

366,489

644,787

   Less:

   Restructuring charges (1)

75

   Duplicate rent charges (2)

(2,568)

   Office move (3)

(3,910)

   Goodwill and other asset impairment (4)

(274,285)

Adjusted operating expenses

360,086

370,502

Income (loss) before income tax expense (benefit)

32,412

(261,885)

  Effect of pro forma adjustment

6,403

274,285

Adjusted pre-tax operating income

38,815

12,400

Income tax expense (benefit)

10,989

(20,479)

   Tax effect of pro forma adjustment (5)

405

25,322

Adjusted operating income tax expense

11,394

4,843

Net income (loss)

21,423

(241,406)

    Net effect of pro forma adjustment

5,998

248,963

Adjusted operating net income

$

27,421

$

7,557

Diluted earnings (loss) per share

$

0.56

$

(6.24)

  Net effect of pro forma adjustment

0.16

6.43

Adjusted diluted operating earnings per share

$

0.72

$

0.19

 

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 migrate that function to an outsourced service provider model 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 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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