ITG Reports Third Quarter 2013 Results
Earnings Driven by Strong European Revenue and Continued Expense Discipline
NEW YORK, Oct. 31, 2013 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended September 30, 2013.
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Third quarter 2013 highlights included:
- Net income of $7.7 million, or $0.20 per diluted share compared to net income of $0.2 million, or $0.01 per diluted share for the third quarter of 2012.
- Revenues of $127.6 million, compared to revenues of $119.6 million in the third quarter of 2012.
- Expenses of $116.9 million, compared to expenses of $119.4 million in the third quarter of 2012.
- Average daily trading volume in the U.S. of 155 million shares versus 172 million in the third quarter of 2012. POSIT® average daily U.S. volume was 66 million shares compared to 81 million shares in the third quarter of 2012. Total average daily volume traded through POSIT Alert® rose approximately 20% compared with the third quarter of 2012.
- In Europe, average daily value traded in POSIT was $652 million, compared with $317 million in the third quarter of 2012. Total average daily value traded through POSIT Alert rose more than 250% in the third quarter of 2013 compared with the prior-year period.
- The repurchase of 370,000 shares of common stock under ITG's authorized share repurchase program for a total of $6.1 million. Repurchases since the first quarter of 2010 have totaled $136.7 million for a total of 10.4 million shares, resulting in a decrease in shares outstanding, net of issuances, of 17%.
Revenues from U.S. operations were $76.8 million in the third quarter of 2013 compared to $77.8 million in the third quarter of 2012. ITG's U.S. operations reported net income of $2.8 million in the third quarter of 2013, compared to net income of $1.2 million in the third quarter of 2012. Sell-side client volume represented 51% of total U.S. volumes, up from 49% in the second quarter of 2013. Despite the higher percentage of sell-side volume, the overall revenue capture rate per share in the U.S. rose to $0.0049, from $0.0048 in the second quarter of 2013. This marks the highest average U.S. revenue capture since the second quarter of 2011.
ITG's International revenues were $50.7 million in the third quarter of 2013 compared to $41.8 million in the third quarter of 2012. European revenues rose to $22.7 million, up 53% from the third quarter of 2012, while Asia Pacific revenues were $10.5 million, up 13% over the third quarter of 2012. Canadian revenues were $17.6 million, down 1% versus the third quarter of 2012. ITG's International operations reported net income of $4.9 million in the third quarter of 2013 compared to a net loss of $1.0 million in the third quarter of 2012.
"Strong European revenues boosted by continued market share gains helped offset weaker market volumes in the U.S.," said Bob Gasser, ITG's Chief Executive Officer and President. "Our global product offerings continued to stimulate healthy cross-border flows while our premium Investment Research and Alert offerings helped improve our revenue capture. The firm's expense discipline also remains a top priority."
Year-to-Date Results
For the first nine months of 2013, revenues were $398.9 million, GAAP net income was $21.4 million, or $0.56 per diluted share, and adjusted net income was $27.4 million, or $0.72 per diluted share. 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.
The discussion of 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 1-877-317-6789 (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 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 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering conference number 10035397. The replay will be available starting approximately one hour 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 2012 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, 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, 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 |
Nine Months Ended |
||||||||||||
| 2013 |
2012 |
2013 |
2012 |
||||||||||
| Revenues: |
|||||||||||||
| Commissions and fees |
$ |
98,378 |
$ |
89,795 |
$ |
310,254 |
$ |
289,942 |
|||||
| Recurring |
25,761 |
26,707 |
77,384 |
82,173 |
|||||||||
| Other |
3,419 |
3,115 |
11,263 |
10,787 |
|||||||||
| Total revenues |
127,558 |
119,617 |
398,901 |
382,902 |
|||||||||
| Expenses: |
|||||||||||||
| Compensation and employee benefits |
49,664 |
47,135 |
150,415 |
149,262 |
|||||||||
| Transaction processing |
19,790 |
19,336 |
63,821 |
61,208 |
|||||||||
| Occupancy and equipment |
15,821 |
16,033 |
53,082 |
45,745 |
|||||||||
| Telecommunications and data processing services |
12,649 |
15,034 |
40,465 |
44,813 |
|||||||||
| Other general and administrative |
18,351 |
21,220 |
56,887 |
67,494 |
|||||||||
| Goodwill impairment |
— |
— |
— |
274,285 |
|||||||||
| Restructuring charges |
— |
— |
(75) |
— |
|||||||||
| Interest expense |
593 |
678 |
1,894 |
1,980 |
|||||||||
| Total expenses |
116,868 |
119,436 |
366,489 |
644,787 |
|||||||||
| Income (loss) before income tax benefit |
10,690 |
181 |
32,412 |
(261,885) |
|||||||||
| Income tax expense (benefit) |
2,975 |
(51) |
10,989 |
(20,479) |
|||||||||
| Net income (loss) |
$ |
7,715 |
$ |
232 |
$ |
21,423 |
$ |
(241,406) |
|||||
| Income (loss) per share: |
|||||||||||||
| Basic |
$ |
0.21 |
$ |
0.01 |
$ |
0.58 |
$ |
(6.24) |
|||||
| Diluted |
$ |
0.20 |
$ |
0.01 |
$ |
0.56 |
$ |
(6.24) |
|||||
| Basic weighted average number of common shares outstanding |
36,544 |
38,301 |
36,956 |
38,672 |
|||||||||
| Diluted weighted average number of common shares outstanding |
37,781 |
39,252 |
38,214 |
38,672 |
|||||||||
| INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Supplemental Financial Data (unaudited) (In thousands) |
||||||||||||||||
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2013 |
2012 |
2013 |
2012 |
|||||||||||||
| Revenues by Geographic Region: |
||||||||||||||||
| U.S. Operations |
$ |
76,843 |
$ |
77,801 |
$ |
242,687 |
$ |
244,305 |
||||||||
| Canadian Operations |
17,575 |
17,727 |
56,224 |
58,877 |
||||||||||||
| European Operations |
22,663 |
14,793 |
65,407 |
50,412 |
||||||||||||
| Asia Pacific Operations |
10,477 |
9,296 |
34,583 |
29,308 |
||||||||||||
| Total Revenues |
$ |
127,558 |
$ |
119,617 |
$ |
398,901 |
$ |
382,902 |
||||||||
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2013 |
2012 |
2013 |
2012 |
|||||||||||||
| Revenues by Product Group: |
||||||||||||||||
| Electronic Brokerage |
$ |
66,234 |
$ |
57,654 |
$ |
210,597 |
$ |
192,539 |
||||||||
| Research Sales and Trading |
26,683 |
25,792 |
80,236 |
79,023 |
||||||||||||
| Trading Platforms |
23,151 |
24,188 |
72,845 |
75,672 |
||||||||||||
| Analytics |
11,177 |
11,696 |
34,447 |
34,651 |
||||||||||||
| Corporate (non-product) |
313 |
287 |
776 |
1,017 |
||||||||||||
| Total Revenues |
$ |
127,558 |
$ |
119,617 |
$ |
398,901 |
$ |
382,902 |
||||||||
| INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (In thousands, except share amounts) |
|||||||
| September 30, |
December 31, |
||||||
| Assets |
|||||||
| Cash and cash equivalents |
$ |
261,567 |
$ |
245,875 |
|||
| Cash restricted or segregated under regulations and other |
70,275 |
61,117 |
|||||
| Deposits with clearing organizations |
32,476 |
29,149 |
|||||
| Securities owned, at fair value |
12,197 |
10,086 |
|||||
| Receivables from brokers, dealers and clearing organizations |
1,644,884 |
1,107,119 |
|||||
| Receivables from customers |
942,250 |
546,825 |
|||||
| Premises and equipment, net |
67,845 |
54,989 |
|||||
| Capitalized software, net |
39,418 |
43,994 |
|||||
| Other intangibles, net |
32,159 |
35,227 |
|||||
| Income taxes receivable |
275 |
7,460 |
|||||
| Deferred taxes |
36,061 |
39,155 |
|||||
| Other assets |
17,903 |
15,763 |
|||||
| Total assets |
$ |
3,157,310 |
$ |
2,196,759 |
|||
| Liabilities and Stockholders' Equity |
|||||||
| Liabilities: |
|||||||
| Accounts payable and accrued expenses |
$ |
177,609 |
$ |
165,062 |
|||
| Short-term bank loans |
52,486 |
22,154 |
|||||
| Payables to brokers, dealers and clearing organizations |
1,522,443 |
1,337,459 |
|||||
| Payables to customers |
936,381 |
226,892 |
|||||
| Securities sold, not yet purchased, at fair value |
7,490 |
5,249 |
|||||
| Income taxes payable |
17,450 |
10,608 |
|||||
| Deferred taxes |
343 |
293 |
|||||
| Term debt |
33,319 |
19,272 |
|||||
| Total liabilities |
2,747,521 |
1,786,989 |
|||||
| 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; 52,158,374 and 52,037,011 shares issued at September 30, 2013 and December 31, 2012, respectively |
522 |
520 |
|||||
| Additional paid-in capital |
238,852 |
245,002 |
|||||
| Retained earnings |
426,908 |
405,485 |
|||||
| Common stock held in treasury, at cost; 15,879,299 and 14,677,872 shares at September 30, 2013 and December 31, 2012, respectively |
(265,522) |
(253,111) |
|||||
| Accumulated other comprehensive income (net of tax) |
9,029 |
11,874 |
|||||
| Total stockholders' equity |
409,789 |
409,770 |
|||||
| Total liabilities and stockholders' equity |
$ |
3,157,310 |
$ |
2,196,759 |
|||
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):
| Nine Months Ended Ended September 30, |
|||||||
| 2013 |
2012 |
||||||
| (unaudited) |
(unaudited) |
||||||
| Total revenues |
$ |
398,901 |
$ |
382,902 |
|||
| Total expenses |
366,489 |
644,787 |
|||||
| Less: |
|||||||
| Restructuring charges (1) |
75 |
— |
|||||
| Duplicate rent charges (2) |
(2,568) |
— |
|||||
| Office move (3) |
(3,910) |
— |
|||||
| Goodwill and other asset impairment (4) |
— |
(274,285) |
|||||
| Adjusted operating expenses |
360,086 |
370,502 |
|||||
| Income (loss) before income tax expense (benefit) |
32,412 |
(261,885) |
|||||
| Effect of pro forma adjustment |
6,403 |
274,285 |
|||||
| Adjusted pre-tax operating income |
38,815 |
12,400 |
|||||
| Income tax expense (benefit) |
10,989 |
(20,479) |
|||||
| Tax effect of pro forma adjustment (5) |
405 |
25,322 |
|||||
| Adjusted operating income tax expense |
11,394 |
4,843 |
|||||
| Net income (loss) |
21,423 |
(241,406) |
|||||
| Net effect of pro forma adjustment |
5,998 |
248,963 |
|||||
| Adjusted operating net income |
$ |
27,421 |
$ |
7,557 |
|||
| Diluted earnings (loss) per share |
$ |
0.56 |
$ |
(6.24) |
|||
| Net effect of pro forma adjustment |
0.16 |
6.43 |
|||||
| Adjusted diluted operating earnings per share |
$ |
0.72 |
$ |
0.19 |
|||
| Notes: |
|
| (1) |
In the second quarter of 2013, the Company incurred $1.6 million to implement a restructuring plan to close its technology research and development facility in Israel and migrate that function to an outsourced service provider model effective January 1, 2014. This plan primarily focused on reducing costs by limiting ITG's geographic footprint while maintaining the necessary technological expertise via a consulting arrangement. The Company also reduced previously-recorded 2012 and 2011 restructuring accruals of $1.6 million to reflect the sub-lease of previously-vacated office space and certain legal and other employee-related charges deemed unnecessary. |
| (2) |
During the fourth quarter of 2012, ITG began to build out and ready its new lower Manhattan headquarters while continuing to occupy its then-existing headquarters in midtown Manhattan and as a result incurred duplicate rent charges through June 2013. |
| (3) |
In the second quarter of 2013, ITG moved into its new headquarters and incurred a one-time charge, which includes a reserve for the remaining lease obligation at the previous midtown Manhattan headquarters. |
| (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) |
The restructuring plan referred to in (1) above triggered the recognition of a tax charge of $1.6 million associated with the anticipated withdrawal of capital from Israel. |
SOURCE ITG
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