ITG Reports Third Quarter 2015 Results

NEW YORK, Nov. 05, 2015 (GLOBE NEWSWIRE) — ITG (NYSE:ITG), an independent execution broker and research provider, today reported results for the quarter ended September 30, 2015.

Third quarter 2015 highlights included:

  • GAAP net income of $2.7 million, or $0.08 per diluted share compared to GAAP net income of $11.4 million, or $0.32 per diluted share for the third quarter of 2014. GAAP net income for the third quarter of 2015 includes legal and other fees related to the August 2015 final SEC settlement of $2.6 million pre-tax and $1.5 million after taxes, or $0.04 per diluted share.    
  • Adjusted net income of $4.2 million, or $0.12 per diluted share, excluding the fees related to the SEC settlement. Both GAAP net income and adjusted net income in the third quarter of 2015 include a net reduction to compensation expense related to the reversal of stock and cash compensation associated with the management changes announced in August totaling $2.1 million pre-tax and $1.2 million after taxes, or $0.03 per diluted share. There were no non-GAAP adjustments to earnings in the third quarter of 2014, however there was a net tax benefit of $2.4 million, or $0.07 per diluted share, from resolving a multi-year contingency in the U.S.
  • Revenues of $120.4 million, compared to revenues of $134.8 million in the third quarter of 2014.
  • Expenses of $117.2 million compared to expenses of $122.7 million in the third quarter of 2014. Adjusted expenses, net of the legal and other fees related to the SEC settlement, were $114.7 million. 
  • Average daily trading volume in the U.S. of 152 million shares versus 147 million shares in the third quarter of 2014. POSIT® average daily U.S. volume was 67 million shares compared to 72 million shares in the third quarter of 2014. Total average daily volume traded through POSIT Alert® was 9 million shares, compared to 14 million shares in the third quarter of 2014.
  • In Europe, average daily value traded in POSIT was $1.2 billion, compared with $1.0 billion in the third quarter of 2014. Total average daily value traded through POSIT Alert declined 21% in the third quarter of 2015 compared with the prior-year period.
  • The repurchase of 460,000 shares of common stock under ITG’s authorized share repurchase program for a total of $7.2 million. Repurchases since the first quarter of 2010 have totaled $220.7 million for a total of 14.7 million shares, resulting in a decrease in shares outstanding, net of issuances, by more than 23%. 

“Over the course of the quarter, we worked to address the concerns of our clients and to return to normal business conditions. I am proud of what everyone at ITG accomplished,” said ITG interim CEO Jarrett Lilien. “While much work remains to be done, we are pleased with our progress, particularly the renewed momentum in POSIT Alert and the stability of our Platforms and Analytics businesses, and we are looking forward to pursuing a path of growth in 2016.” 

Maureen O’Hara, Chair of ITG’s Board of Directors, commented, “We are pleased that Frank Troise, a proven leader in our industry, will join us as our new CEO. ITG’s Board and management team are all looking forward to working with him and welcoming him when he comes on board in January.”


Regional Segment Results

ITG’s North American revenues were $80.9 million in the third quarter of 2015 compared to $90.1 million in the third quarter of 2014. ITG reported net income of $2.4 million in North America in the third quarter of 2015, down from $7.9 million in the third quarter of 2014. U.S. revenues were $66.0 million, down 9% from the third quarter of 2014 while Canada revenues were down 16% to $14.9 million in the third quarter of 2015, including the impact of currency translation. The overall revenue capture rate per share in the U.S. was $0.0040, down from $0.0042 in the second quarter of 2015 and down from $0.0046 in the third quarter of 2014. The decline in the overall average rate was due in large part to the impact of a higher percentage of trading activity from sell-side clients. 

ITG’s Europe and Asia Pacific revenues were $39.3 million in the third quarter of 2015 compared to $44.2 million in the third quarter of 2014, including the impact of currency translation. European revenues were $28.9 million, down 9% from the third quarter of 2014 while Asia Pacific revenues were $10.4 million, down 17% from the third quarter of 2014. ITG’s Europe and Asia Pacific operations reported net income of $3.6 million in the third quarter of 2015 compared to $6.8 million in the third quarter of 2014. 

Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2015, including the after-tax impact of legal and other fees of $1.5 million related to the August 2015 final SEC settlement and the after-tax reduction to compensation associated with the management changes announced in August of $1.2 million. Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2014. Corporate activity includes investment income as well as costs not associated with operating ITG’s regional and product group business lines including, among others, the costs of being a public company, intangible amortization, interest expense, the costs of maintaining a global transfer pricing structure and certain non-operating items. Prior to the first quarter of 2015, the majority of these costs were presented in the U.S. segment.


Year-to-Date Results

For the first nine months of 2015, revenues were $410.6 million, GAAP net income was $9.2 million, or $0.26 per diluted share, and adjusted net income was $32.3 million, or $0.92 per diluted share. For the first nine months of 2014, revenues were $410.8 million and GAAP net income was $37.9 million, or $1.04 per diluted share. There were no adjustments to earnings in the first nine months of 2014. 

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.


Quarterly Dividend

For the fourth quarter of 2015, the Board of Directors declared a quarterly cash dividend of $0.07 per share. The dividend is payable on December 11, 2015, to shareholders of record on November 20, 2015.


Conference Call

A conference call to discuss the firm’s results will be held at 11:00 am ET on November 5, 2015. 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 will be available on 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 10073487. The replay will be available starting approximately one hour after the completion of the conference call.

About ITG

ITG is an independent execution broker and research provider 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 2014 Annual Report on Form 10-K, and its Form 10-Qs (as amended, if applicable) 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 and increased regulatory scrutiny, customers’ reactions to the settlement in August 2015 with the Securities and Exchange Commission, the outcome of contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, changes in tax policy or accounting rules, the actions of both current and potential new competitors, changes in commission pricing, 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.

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,
 
    2015   2014   2015   2014  
Revenues:                  
Commissions and fees   $ 89,934   $ 102,900   $ 319,720   $ 317,777  
Recurring   26,659   26,452   80,038   77,004  
Other   3,816   5,421   10,872   16,067  
Total revenues   120,409   134,773   410,630   410,848  
                   
Expenses:                  
Compensation and employee benefits   46,305   52,408   157,612   156,305  
Transaction processing   21,621   21,561   71,381   62,166  
Occupancy and equipment   14,229   14,937   43,071   45,000  
Telecommunications and data processing services   12,779   12,942   38,562   38,294  
Other general and administrative   21,856   20,281   82,021   60,101  
Interest expense   429   566   1,402   1,796  
Total expenses   117,219   122,695   394,049   363,662  
Income before income tax expense   3,190   12,078   16,581   47,186  
Income tax expense   480   713   7,348   9,275  
Net income   $ 2,710   $ 11,365   $ 9,233   $ 37,911  
                   
Income per share:                  
Basic   $ 0.08   $ 0.32   $ 0.27   $ 1.06  
Diluted   $ 0.08   $ 0.32   $ 0.26   $ 1.04  
                   
Basic weighted average number of common shares outstanding   33,859   35,093   34,066   35,628  
Diluted weighted average number of common shares outstanding   34,547   36,026   34,976   36,599  

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Supplemental Financial Data (unaudited)
(In thousands)
 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2015   2014   2015   2014
Revenues by Geographic Region:                
U.S. Operations   $ 66,039   $ 72,315   $ 221,967   $ 225,188
Canadian Operations   14,899   17,830   50,516   54,842
European Operations   28,899   31,635   99,079   95,489
Asia Pacific Operations   10,351   12,535   38,385   34,295
Corporate (non-product)   221   458   683   1,034
  Total Revenues   $ 120,409   $ 134,773   $ 410,630   $ 410,848
                       
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2015   2014   2015   2014
Revenues by Product Group:                
Electronic Brokerage   $ 59,418   $ 68,663   $ 214,920   $ 214,740
Research, Sales and Trading   26,316   30,470   89,208   90,026
Platforms   22,837   23,570   71,460   70,636
Analytics   11,617   11,612   34,359   34,413
Corporate (non-product)   221   458   683   1,033
  Total Revenues   $ 120,409   $ 134,773   $ 410,630   $ 410,848

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES  
Condensed Consolidated Statements of Financial Condition  
(In thousands, except share amounts)  
   
    September 30,
2015
  December 31,
2014
 
    (unaudited)      
Assets          
Cash and cash equivalents   $ 166,605   $ 275,210  
Cash restricted or segregated under regulations and other   35,067   38,080  
Deposits with clearing organizations   96,242   72,527  
Securities owned, at fair value   7,941   12,073  
Receivables from brokers, dealers and clearing organizations   1,131,187   644,614  
Receivables from customers   64,095   107,935  
Premises and equipment, net   52,991   60,306  
Capitalized software, net   39,351   38,333  
Goodwill   12,349   12,803  
Intangibles, net   29,180   31,595  
Income taxes receivable   923   105  
Deferred taxes   33,976   37,209  
Other assets   23,910   20,059  
Total assets   $ 1,693,817   $ 1,350,849  
Liabilities and Stockholders’ Equity          
Liabilities:          
Accounts payable and accrued expenses   $ 161,252   $ 199,211  
Short-term bank loans   65,013   78,360  
Payables to brokers, dealers and clearing organizations   1,009,867   600,041  
Payables to customers   50,279   11,132  
Securities sold, not yet purchased, at fair value   4,851   8,253  
Income taxes payable   7,729   19,772  
Deferred taxes     703  
Term debt   10,414   17,781  
Total liabilities   1,309,405   935,253  
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; 52,300,885 and 52,229,962 shares issued at September 30, 2015 and December 31, 2014, respectively   523   522  
Additional paid-in capital   238,379   240,135  
Retained earnings   491,729   487,462  
Common stock held in treasury, at cost; 18,718,888 and 18,000,756 shares at September 30, 2015 and December 31, 2014, respectively   (327,892 ) (306,629 )
Accumulated other comprehensive income (net of tax)   (18,327 ) (5,894 )
Total stockholders’ equity   384,412   415,596  
Total liabilities and stockholders’ equity   $ 1,693,817   $ 1,350,849  


INVESTMENT TECHNOLOGY GROUP, INC.
Reconciliation of US GAAP Results to Adjusted Results
(In thousands, except per share amounts)

In evaluating ITG’s financial performance, management reviews results from operations, which excludes non-operating items. Adjusted net income, and related per share amounts, adjusted expenses, adjusted pre-tax income, adjusted income tax expense, and adjusted  earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP performance measures that the Company believes 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.

    Three Months
Ended
September 30, 2015
  Nine Months
 Ended
September 30, 2015
 
Total revenues   $ 120,409   $ 410,630  
           
Total expenses   117,219   394,049  
Less:          
SEC settlement and related costs (1)   (2,551 ) (25,198 )
Adjusted expenses   114,668   368,851  
           
Income before income tax expense   3,190   16,581  
Effect of adjustments   2,551   25,198  
Adjusted pre-tax income   5,741   41,779  
           
Income tax expense   480   7,348  
Tax effect of adjustments (1)   1,080   2,157  
Adjusted income tax expense   1,560   9,505  
           
Net income   2,710   9,233  
Net effect of adjustments   1,471   23,041  
Adjusted net income   $ 4,181   $ 32,274  
           
Diluted earnings per share 

 

  $ 0.08   $ 0.26  
Net effect of adjustments   0.04   0.66  
Adjusted diluted earnings per share   $ 0.12   $ 0.92  
 

Notes:

(1)  In August 2015, the Company reached a final settlement with the SEC to pay an aggregate amount of $20.3 million. In the third quarter of 2015, the Company incurred $2.6 million in legal and related costs to finalize the settlement order. In the second quarter of 2015, the Company reserved $20.3 million for the settlement and incurred $2.3 million in legal and other related costs associated with this matter.

Reconciliation of Adjusted Earnings  
Before Interest, Taxes, Depreciation, and Amortization  
(In thousands)  
   
                   
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
    2015   2014   2015   2014    
                             
Net Income (1)(2)   $   2,710     $   11,365     $   9,233     $   37,911      
Impact of adjustments, after-tax       1,471           –         23,041              
Adjusted net income       4,181         11,365         32,274         37,911      
                             
Deduct:                            
Investment income        (215 )       (279 )       (658 )       (838 )    
                                 
Add Back:                                
Interest expense       429         566         1,402         1,796      
Provision for income taxes       480         713         7,348         9,275      
  Tax effect of adjustments       1,080                 2,157              
  Depreciation and Amortization       11,050         12,024         33,324         37,889      
Adjusted earnings before interest, taxes,  depreciation, and amortization   $   17,005     $   24,389     $   75,847     $   86,033      
                             

Notes:

 (1)  Net income includes pre-tax charges for non-cash stock-based compensation of $2.7 million and $3.6 million for the three months ended September 30, 2015 and 2014, respectively.

(2)  Net income includes pre-tax charges for non-cash stock-based compensation of $12.2 million and $11.1 million for the nine months ended September 30, 2015 and 2014, respectively.

CONTACT: ITG Media/Investor Contact:
J.T. Farley
1-212-444-6259
corpcomm@itg.com

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