ITG Reports Second Quarter 2012 Results

GAAP Results Include Non-cash Goodwill Impairment Charge

News provided by

ITG

Aug 09, 2012, 08:01 ET

NEW YORK, Aug. 9, 2012 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended June 30, 2012.

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

Second quarter 2012 highlights included:

  • A GAAP net loss of $247.1 million, or $6.40 per diluted share compared to a GAAP net loss of $196.1 million, or $4.77 per diluted share in the second quarter of 2011.  The GAAP net loss for the second quarter of 2012 included a non-cash impairment charge for the balance of ITG's goodwill of $274.3 million, or $6.45 per diluted share after taxes.  The GAAP net loss for the second quarter of 2011 included (i) a non-cash goodwill impairment charge attributable to ITG's U.S. business of $225.0 million, or $4.61 per diluted share after taxes; (ii) cost reduction restructuring charges of $17.7 million, or $0.27 per diluted share after taxes; and (iii) charges related to the Ross Smith Energy Group acquisition of $2.5 million, or $0.04 per diluted share after taxes.
  • Adjusted net income of $1.9 million, or $0.05 per diluted share, compared to adjusted net income of $5.8 million, or $0.14 per diluted share in the second quarter of 2011.
  • Revenues of $126.9 million, compared to $142.6 million in the second quarter of 2011.
  • Expenses of $397.5 million compared to expenses of $377.2 million in the second quarter of 2011.
  • Adjusted expenses of $123.2 million compared to adjusted expenses of $132.0 million in the second quarter of 2011.
  • Average daily trading volume in the U.S. of 183 million shares, down 4% from the second quarter of 2011.  POSIT average daily U.S. volume was 89.5 million shares, up 8% from the second quarter of 2011.  In Europe, average daily value traded in POSIT was $377 million, up 79% from the second quarter of 2011.
  • The repurchase of 450,000 shares of common stock under ITG's authorized share repurchase program for a total of $4.1 million.  Repurchases since the first quarter of 2010 have totaled $102.4 million for 7.4 million shares, resulting in a decrease in shares outstanding, net of new issuances, of more than 12%. 

Revenues from U.S. operations were $81.9 million in the second quarter of 2012 compared to $93.9 million in the second quarter of 2011.  ITG's U.S. operations posted a GAAP net loss of $220.9 million in the second quarter of 2012 and adjusted net income of $0.4 million in the second quarter of 2012, compared to a GAAP net loss of $196.3 million and adjusted net income of $3.7 million in the second quarter of 2011.  Sell-side client volume represented 50% of total U.S. volumes, up from 48% in the first quarter of 2012. 

ITG's International revenues were $45.0 million in the second quarter of 2012 compared to $48.7 million in the second quarter of 2011. ITG's International operations posted a GAAP net loss of $26.2 million and adjusted net income of $1.5 million in the second quarter of 2012, compared to GAAP net income of $0.1 million and adjusted net income of $2.1 million in the second quarter of 2011.

"Depressed levels of overall institutional trading activity in the U.S. and lower market turnover in all of our international regions significantly impacted our profitability in the second quarter," said Bob Gasser, ITG's Chief Executive Officer and President.  "Despite the higher percentage of sell-side volume, our overall average U.S. revenue capture has remained steady for the past few quarters, demonstrating the value our products, including research, deliver to our institutional clients.  In the face of these challenging conditions we remain focused on disciplined expense management, improved operating leverage through POSIT® and a continued share buyback program."

Year-to-Date Results

For the first six months of 2012, revenues were $263.3 million, GAAP net loss was $241.6 million, or $6.22 per diluted share, and adjusted net income was $7.3 million, or $0.18 per diluted share. For the first six months of 2011, revenues were $292.7 million, GAAP net loss was $186.6 million, or $4.52 per diluted share, and adjusted net income was $15.4 million, or $0.37 per diluted share.

The discussion above includes adjusted expenses and 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 second quarter results.  Those wishing to listen to the call should dial 1-866-510-0712 (1-617-597-5380 outside the U.S.) and enter the passcode 79292301 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 83527277.  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
June 30,

Six Months Ended
June 30,


2012

2011

2012

2011

Revenues:








Commissions and fees

$

94,883

$

111,850

$

200,147

$

230,526

Recurring

28,034

26,514

55,466

53,735

Other

3,993

4,253

7,672

8,434

Total revenues

126,910

142,617

263,285

292,695










Expenses:








Compensation and employee benefits

49,540

55,679

102,127

113,157

Transaction processing

19,649

23,104

41,872

46,130

Occupancy and equipment

15,063

15,063

29,712

30,005

Telecommunications and data
      processing services

14,712

14,870

29,779

29,941

Other general and administrative

23,597

22,762

46,274

44,922

Goodwill impairment


274,285

225,035

274,285

225,035

Restructuring charges


—

17,678

—

17,678

Acquisition related costs

—

2,523

—

2,523

Interest expense

624

494

1,302

764

Total expenses

397,470

377,208

525,351

510,155

Loss before income tax benefit

(270,560)

(234,591)

(262,066)

(217,460)

Income tax benefit

(23,464)

(38,448)

(20,428)

(30,866)

Net loss

$

(247,096)

$

(196,143)

$

(241,638)

$

(186,594)










Loss per share:








Basic

$

(6.40)

$

(4.77)

$

(6.22)

$

(4.52)

Diluted

$

(6.40)

$

(4.77)

$

(6.22)

$

(4.52)










Basic weighted average number of common shares
outstanding

38,607

41,112

38,859

41,272

Diluted weighted average number of common
shares outstanding

38,607

41,112

38,859

41,272

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition




June 30,
2012

December 31,
2011


(unaudited)


Assets




Cash and cash equivalents


$

228,828

$

284,188

Cash restricted or segregated under regulations and other


65,718

71,496

Deposits with clearing organizations


25,583

25,538

Securities owned, at fair value


5,763

5,277

Receivables from brokers, dealers and clearing organizations


944,125

871,315

Receivables from customers


589,334

472,509

Premises and equipment, net

42,590

43,023

Capitalized software, net


47,691

51,258

Goodwill


—

274,292

Other intangibles, net


37,844

39,594

Income taxes receivable


6,919

6,838

Deferred taxes


34,534

16,493

Other assets


20,452

16,248

Total assets


$

2,049,381

$

2,178,069






Liabilities and Stockholders' Equity




Liabilities:




Accounts payable and accrued expenses


$

148,069

$

181,224

Short-term bank loans


8,415

1,606

Payables to brokers, dealers and clearing organizations


1,004,906

1,079,773

Payables to customers


440,396

207,738

Securities sold, not yet purchased, at fair value


1,757

438

Income taxes payable


8,659

11,460

Deferred taxes


382

719

Term debt


22,375

23,997

Total liabilities


1,634,959

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; 51,961,710 and 51,899,229 shares issued at June 30, 2012 and December 31, 2011, respectively


520

519

Additional paid-in capital


239,575

249,469

Retained earnings


411,706

653,344

Common stock held in treasury, at cost; 13,595,310 and 12,679,948 shares at June 30, 2012 and December 31, 2011, respectively


(245,572)

(240,559)

Accumulated other comprehensive income (net of tax)


8,193

8,341

Total stockholders' equity


414,422

671,114

Total liabilities and stockholders' equity


$

2,049,381

$

2,178,069
INVESTMENT TECHNOLOGY GROUP, INC. Reconciliation of U.S. 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 is a reconciliation of GAAP results to adjusted results for the periods presented (in thousands except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

126,910

$

142,617

$

263,285

$

292,695






Total expenses

397,470

377,208

525,351

510,155

   Less:




   Goodwill impairment (1)(2)

(274,285)

(225,035)

(274,285)

(225,035)

   Acquisition related costs (3)

—

(2,523)

—

(2,523)

   Restructuring charges (4)

—

(17,678)

—

(17,678)

Adjusted operating expenses

123,185

131,972

251,066

264,919






Loss before income tax benefit

(270,560)

(234,591)

(262,066)

(217,460)

  Effect of adjustments

274,285

245,236

274,285

245,236

Adjusted pre-tax operating
  income

3,725

10,645

12,219

27,776






Income tax benefit

(23,464)

(38,448)

(20,428)

(30,866)

   Tax effect of adjustments

25,322

43,260

25,322

43,260

Adjusted operating income tax expense

1,858

4,812

4,894

12,394






Net loss

(247,096)

(196,143)

(241,638)

(186,594)

    Net effect of adjustments

248,963

201,976

248,963

201,976

Adjusted operating net income

$

1,867

$

5,833

$

7,325

$

15,382










Diluted loss per share

$

(6.40)

$

(4.77)

$

(6.22)

$

(4.52)

Net effect of adjustments

6.45

4.91

6.40

4.89

Adjusted diluted operating
  earnings per share

$

0.05

$

0.14

$

0.18

$

0.37


















U.S.


International

Three Months Ended June 30,

Three Months Ended June 30,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Total revenues

$

81,915

$

93,893

$

44,995

$

48,724







Total expenses

325,824

330,143

71,646

47,065

   Less:





   Goodwill impairment (1)(2)

(245,103)

(225,035)

(29,182)

—

   Acquisition related costs (3)

—

(2,523)

—

—

   Restructuring charges (4)

—

(15,444)

—

(2,234)

Adjusted operating expenses

80,721

87,141

42,464

44,831







Loss before income tax benefit

(243,909)

(236,250)

(26,651)

1,659

  Effect of adjustments

245,103

243,002

29,182

2,234

Adjusted pre-tax operating
  income

1,194

6,752

2,531

3,893







Income tax benefit

(23,022)

(39,966)

(442)

1,518

   Tax effect of adjustments

23,837

43,041

1,485

219

Adjusted operating income tax expense

815

3,075

1,043

1,737







Net loss

(220,887)

(196,284)

(26,209)

141

    Net effect of adjustments

221,266

199,961

27,697

2,015

Adjusted operating net income

$

379

$

3,677

$

1,488

$

2,156











Diluted loss per share

$

(5.72)

$

(4.77)

$

(0.68)

$

—

    Net effect of adjustments

5.73

4.86

0.72

0.05

Adjusted diluted operating
  earnings per share

$

0.01

$

0.09

$

0.04

$

0.05







Notes:

  1. In the second quarter of 2012, goodwill with a carrying value of $274.3 million was deemed fully impaired.
  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 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.
  4. During the second quarter of 2011, ITG implemented a restructuring plan 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.

SOURCE ITG

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