ITG Reports Third Quarter 2013 Results Earnings Driven by Strong European Revenue and Continued Expense Discipline

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.

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

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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