ITG Reports Fourth Quarter 2012 Results

Continued Expense Discipline Helps Maintain Operating Profitability

News provided by

ITG

Jan 31, 2013, 08:00 ET

NEW YORK, Jan. 31, 2013 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2012.

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

Fourth quarter 2012 highlights included:

  • A GAAP net loss of $6.5 million, or $0.17 per diluted share compared to a GAAP net loss of $3.7 million, or $0.09 per diluted share for the fourth quarter of 2011.  The GAAP net loss for the fourth quarter of 2012 included (i) charges associated with a cost reduction plan focused on headcount, market data and general and administrative expenses of $9.5 million, or $0.17 per diluted share after taxes and (ii) duplicate rent charges associated with the build-out of ITG's new headquarters of $1.4 million, or $0.02 per diluted share after taxes.  The GAAP net loss for the fourth quarter of 2011 included (i) a restructuring charge related to lease consolidations and employee separation costs of $6.8 million, or $0.10 per diluted share after taxes and (ii) a non-cash impairment charge attributable to a minority investment of $4.3 million, or $0.06 per diluted share after taxes. 
  • Adjusted net income of $0.6 million, or $0.02 per diluted share, compared to adjusted net income in the fourth quarter of 2011 of $2.7 million, or $0.07 per diluted share. 
  • Revenues of $121.5 million, compared to revenues of $129.9 million in the fourth quarter of 2011.
  • Expenses of $130.1 million compared to expenses of $136.3 million in the fourth quarter of 2011.
  • Adjusted expenses of $119.2 million compared to adjusted expenses of $125.2 million in the fourth quarter of 2011.
  • Average daily trading volume in the U.S. of 181 million shares, nearly unchanged from the fourth quarter of 2011.  POSIT® average daily U.S. volume was 85 million shares compared to 86 million shares in the fourth quarter of 2011.  Total combined NYSE and NASDAQ average daily trading volume was down 14% in the fourth quarter of 2012 compared with the prior-year period.
  • In Europe, the total number of clients trading European equities through ITG rose to an all-time high.  Average daily value traded in POSIT was $364 million, up 16% from the fourth quarter of 2011.  POSIT now represents more than 11% of total European dark trading.
  • The repurchase of 700,000 shares of common stock under ITG's authorized share repurchase program for a total of $5.9 million.  Repurchases since the first quarter of 2010 have totaled $112.7 million for 8.6 million shares, resulting in a decrease in shares outstanding, net of new issuances, of nearly 15%. 

Revenues from U.S. operations were $77.1 million in the fourth quarter of 2012 compared to $83.1 million in the fourth quarter of 2011.  ITG's U.S. operations posted a GAAP net loss of $5.8 million and an adjusted net loss of $1.1 million in the fourth quarter of 2012, compared to a GAAP net loss of $6.4 million and adjusted net income of $0.3 million in the fourth quarter of 2011.  Sell-side client volume represented 52% of total U.S. volumes, up from 51% in the third quarter of 2012.  The overall revenue capture rate per share in the U.S. was $0.0043, down from $0.0044 in the third quarter of 2012.  

ITG's International revenues were $44.4 million in the fourth quarter of 2012 compared to $46.8 million in the fourth quarter of 2011.  ITG's International operations posted a GAAP net loss of $0.7 million and adjusted net income of $1.7 million in the fourth quarter of 2012, compared to GAAP net income of $2.7 million and adjusted net income of $2.4 million in the fourth quarter of 2011.

"The challenging environment for institutional equity volumes continued into the fourth quarter with market volumes at or near multi-year lows," said Bob Gasser, ITG's Chief Executive Officer and President.  "Despite these headwinds, we improved our competitive position and also maintained operating profitability due in large part to our focus on controlling costs. The recent cost reduction measures we took should allow us to improve profitability and we expect to maintain our expense discipline even if institutional volumes improve in 2013."

Year-to-Date Results

For the full year 2012, revenues were $504.4 million, GAAP net loss was $247.9 million, or $6.45 per diluted share, and adjusted net income was $8.2 million, or $0.21 per diluted share.  For the full year 2011, revenues were $572.0 million, GAAP net loss was $179.8 million, or $4.42 per diluted share, and adjusted net income was $28.6 million, or $0.69 per diluted share.

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.

Conference Call

ITG has scheduled a conference call today at 11:00 am ET to discuss fourth quarter results.  Those wishing to listen to the call should dial 1-866-314-4865 (1-617-213-8050 outside the U.S.) and enter the passcode 13105195 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 64828941.  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, 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
[email protected]

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)



Three Months Ended
December 31,

Year Ended Ended
December 31,


2012

2011

2012

2011

Revenues:







    Commissions and fees

$  91,034

$  97,627

$  380,976

$  445,801

Recurring

27,594

28,636

109,767

110,919

Other

2,906

3,660

13,693

15,317

Total revenues

121,534

129,923

504,436

572,037









Expenses:







Compensation and employee benefits

47,100

52,041

196,362

219,307

Transaction processing

19,965

20,632

81,173

91,602

Occupancy and equipment

16,892

15,282

62,637

60,191

Telecommunications and data
       processing services

15,037

13,960

59,850

58,460

Other general and administrative

21,049

22,705

88,543

90,808

Restructuring charges


9,499

6,754

9,499

24,432

Goodwill and other asset impairment


—

4,282

274,285

229,317

Acquisition related costs

—

—

—

2,523

Interest expense

562

625

2,542

2,025

Total expenses

130,104

136,281

774,891

778,665

Loss before income tax benefit

(8,570)

(6,358)

(270,455)

(206,628)

Income tax benefit

(2,117)

(2,686)

(22,596)

(26,839)

Net loss

$  (6,453)

$  (3,672)

$  (247,859)

$  (179,789)









Loss per share:







Basic

$  (0.17)

$  (0.09)

$  (6.45)

$  (4.42)

Diluted

$  (0.17)

$  (0.09)

$  (6.45)

$  (4.42)









Basic weighted average number of
  common shares outstanding

37,709

39,624

38,418

40,691

Diluted weighted average number of 
  common shares outstanding

37,709

39,624

38,418

40,691



















INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)



December 31,

2012

2011

Assets


Cash and cash equivalents

$245,875

$284,188

Cash restricted or segregated under regulations and other

61,117

71,496

Deposits with clearing organizations

29,149

25,538

Securities owned, at fair value

10,086

5,277

Receivables from brokers, dealers and clearing organizations

1,107,119

871,315

Receivables from customers

546,825

472,509

Premises and equipment, net

54,989

43,023

Capitalized software, net

43,994

51,258

Goodwill

—

274,292

Other intangibles, net

35,227

39,594

Income taxes receivable

7,460

6,838

Deferred taxes

39,155

16,493

Other assets

15,763

16,248

Total assets

$2,196,759

$2,178,069

Liabilities and Stockholders' Equity


Liabilities:


Accounts payable and accrued expenses

$165,062

$181,224

Short-term bank loans

22,154

1,606

Payables to brokers, dealers and clearing organizations

1,337,459

1,079,773

Payables to customers

226,892

207,738

Securities sold, not yet purchased, at fair value

5,249

438

Income taxes payable

10,608

11,460

Deferred taxes

293

719

Term debt

19,272

23,997

Total liabilities

1,786,989

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 December 31, 2012 and 2011, respectively

520

519

Additional paid-in capital

245,002

249,469

Retained earnings

405,485

653,344

Common stock held in treasury, at cost; 14,677,872 and 12,679,948 shares at
  December 31, 2012 and 2011, respectively

(253,111)

(240,559)

Accumulated other comprehensive income (net of tax)

11,874

8,341

Total stockholders' equity

409,770

671,114

Total liabilities and stockholders' equity

$2,196,759

$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 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):



Three Months Ended December 31,

Year Ended Ended December 31,


2012

2011

2012

2011


(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

121,534

$

129,923

$

504,436

$

572,037








Total expenses

130,104

136,281

774,891

778,665

   Less:





   Restructuring charges (1) (2)

(9,499)

(6,754)

(9,499)

(24,432)

   Duplicate rent charges (3)

(1,378)

—

(1,378)

—

   Goodwill and other asset impairment (4)(5)

—

(4,282)

(274,285)

(229,317)

   Acquisition-related costs (6)

—

—

—

(2,523)

Adjusted operating expenses

119,227

125,245

489,729

522,393








Loss before income tax benefit

(8,570)

(6,358)

(270,455)

(206,628)

  Effect of pro forma adjustment

10,877

11,036

285,162

256,272

Adjusted pre-tax operating income

2,307

4,678

14,707

49,644








Income tax benefit

(2,117)

(2,686)

(22,596)

(26,839)

   Tax effect of pro forma adjustment

3,806

4,636

29,128

47,897

Adjusted operating income tax expense

1,689

1,950

6,532

21,058








Net loss

(6,453)

(3,672)

(247,859)

(179,789)

     Net effect of pro forma adjustment

7,071

6,400

256,034

208,375

Adjusted operating net income

$

618

$

2,728

$

8,175

$

28,586












Diluted loss per share

$

(0.17)

$

(0.09)

$

(6.45)

$

(4.42)

   Net effect of pro forma adjustment

0.19

0.16

6.66

5.11

Adjusted diluted operating earnings per share

$

0.02

$

0.07

$

0.21

$

0.69



















US Operations

Three Months Ended December 31,

International Operations

Three Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

77,073

$

83,119

$

44,461

$

46,804






Total expenses

85,458

94,227

44,646

42,054

   Less:




   Restructuring charges (1) (2)

(6,798)

(7,027)

(2,701)

273

   Duplicate rent charges (3)

(1,378)

—

—

—

   Goodwill and other asset impairment (5)

—

(4,282)

—

—

Adjusted operating expenses

77,282

82,918

41,945

42,327






(Loss) income before income tax benefit

(8,385)

(11,108)

(185)

4,750

  Effect of pro forma adjustment

8,176

11,309

2,701

(273)

Adjusted pre-tax operating (loss) income

(209)

201

2,516

4,477






Income tax (benefit) expense

(2,623)

(4,749)

506

2,063

   Tax effect of pro forma adjustment

3,505

4,636

301

—

Adjusted operating income tax expense

882

(113)

807

2,063






Net (loss) income

(5,762)

(6,359)

(691)

2,687

      Net effect of pro forma adjustment

4,671

6,673

2,400

(273)

Adjusted operating net (loss) income

$

(1,091)

$

314

$

1,709

$

2,414










Diluted loss per share

$

(0.15)

$

(0.16)

$

(0.02)

$

0.07

   Net effect of pro forma adjustment

0.12

0.17

0.07

(0.01)

Adjusted diluted operating (loss) earnings per share

$

(0.03)

$

0.01

$

0.05

$

0.06

















Notes:

  1. During the fourth quarter of 2012, ITG implemented a restructuring plan to reduce operating costs by reducing workforce, market data and other general and administrative costs across ITG's businesses. The charge consisted entirely of employee separation costs.
  2. In 2011, ITG decided to implement a restructuring plan to improve margins and enhance shareholder returns primarily focused on reducing costs in workforce, consulting and infrastructure in the U.S. and Europe. The cost reduction plan resulted in a restructuring charge totaling $24.4 million, including $6.8 million recorded in the fourth quarter and $17.7 million recorded in the second quarter. These costs included employee separation and related costs of $19.2 million and lease consolidation costs of $5.2 million.
  3. During the fourth quarter of 2012, ITG began to build out and ready its new lower Manhattan headquarters while continuing to occupy its existing headquarters in Mid-town Manhattan and as a result, incurred duplicate rent charges.
  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. 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. During the fourth quarter of 2011, ITG determined that the carrying value of its investment in Disclosure Insight, Inc. was fully impaired, resulting in a write-off of $4.3 million.
  6. 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 acquisition-related costs, including legal fees, contract settlement costs and other professional fees.

SOURCE ITG

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