ITG Reports Third Quarter 2012 Results

Steady Rate Capture and Expense Discipline Offset by Global Volume Weakness

News provided by

ITG

Nov 01, 2012, 08:01 ET

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
[email protected]

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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