Market Overview

ITG Reports Third Quarter 2012 Results

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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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