PRESS RELEASE

<<Back

Investment Technology Group Reports Fourth Quarter 2010 Results

PDF Version PDF format


Strong International Performance Provides Offset to Challenging U.S. Trading Environment
$150 Million Credit Facility Established for Clearing Operations

NEW YORK, Feb. 3, 2011 /PRNewswire via COMTEX/ -- Investment Technology Group, Inc. (NYSE: ITG), a leading agency research broker and financial technology firm, today announced that for the fourth quarter ended December 31, 2010, it earned net income of $1.8 million, or $0.04 per diluted share. Adjusted net income for the fourth quarter of 2010, excluding one-time items related to the Majestic Research acquisition and office closings, was $4.7 million, or $0.11 per diluted share. For the fourth quarter of 2009, ITG incurred a net loss of $7.8 million, or $0.18 per diluted share. Excluding restructuring charges, adjusted net income for the fourth quarter of 2009 was $8.6 million, or $0.19 per diluted share. ITG's revenues for the fourth quarter of 2010 were $138.3 million compared to $151.0 million for the fourth quarter of 2009.

Included in adjusted net income for the fourth quarter of 2010 were after-tax expenses of $2.5 million, or $0.06 per diluted share, in employee separation costs and contingency reserves for certain general taxes. Adjusted net income for the fourth quarter of 2009 included after-tax expenses of $3.5 million, or $0.08 per diluted share, for employee separation costs unrelated to the restructuring plan.

The results of ITG's U.S. operations during the fourth quarter of 2010 were negatively impacted by an almost 10% year-over-year drop in U.S. market volumes. Revenues from U.S. operations were $89.5 million in the fourth quarter of 2010, down 13% from $103.4 million in the fourth quarter of 2009. U.S. operations incurred a net loss of $1.1 million in the fourth quarter of 2010, compared to a net loss of $1.6 million in the fourth quarter of 2009. Excluding one time items, adjusted net income from U.S. operations in the fourth quarter of 2010 was $2.3 million, compared to adjusted net income of $11.5 million in the fourth quarter of 2009.

ITG's non-U.S. revenues were $48.8 million in the fourth quarter of 2010, a 3% increase over $47.6 million in the fourth quarter of 2009 and a 15% increase over $42.3 million in the third quarter of 2010. Non-U.S. operations posted net income of $2.9 million in the fourth quarter of 2010, compared to a net loss of $6.2 million in the fourth quarter of 2009. Excluding restructuring charges and offsets, adjusted net income for non-U.S. operations was $2.4 million in the fourth quarter of 2010 compared to an adjusted net loss of $2.9 million in the fourth quarter of 2009.

"Continued low levels of trading activity by domestic long-only institutional investors negatively impacted our client mix, pressuring our revenue capture in the fourth quarter," said Bob Gasser, ITG's Chief Executive Officer and President. "Despite these headwinds, we made progress with the integration of ITG Investment Research, increased the profitability of our non-U.S. business segments and continued to return cash to stockholders in the form of share buybacks."

During the fourth quarter of 2010, ITG repurchased 737,000 shares of its common stock under its authorized share repurchase program at an average price of $15.48, bringing total repurchases for 2010 to 3.2 million shares. ITG also made the final $11.2 million installment on its term loan, paying off the remainder of its long-term debt.

ITG today also announced that it has established a $150 million, three-year credit facility to backstop its clearing operations. "This credit line, coupled with ITG's strong balance sheet and cash flow generation, provides us with increased financial flexibility and confidence in our ability to invest strategically in our business and to increase stockholder value through continued repurchases," said Steve Vigliotti, ITG's Chief Financial Officer.

Year to Date results

For the full year 2010, revenues were $570.8 million compared to $633.1 million in 2009. Net income was $24.0 million, or $0.55 per diluted share, in 2010 compared to $42.8 million, or $0.97 per diluted share, in 2009. Adjusted net income was $38.1 million and adjusted diluted earnings per share were $0.88 in 2010 versus adjusted net income of $59.2 million and adjusted diluted earnings per share of $1.34 for the full year 2009.

The discussion 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 U.S. GAAP results.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss fourth quarter results. Those wishing to listen to the call should dial 1-866-383-8119 (1-617-597-5344 outside the US) and enter the passcode 37710694 at least 10 minutes prior to the start of the call to ensure connection. The conference call and webcast will also be accessible through ITG's website at http://www.itg.com/. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 888-286-8010 (1-617-801-6888 outside the US) and entering the passcode 73456952. The replay will be available starting approximately two hours after the completion of the conference call.

About ITG

Investment Technology Group, Inc., is an independent agency research broker that partners with asset managers globally to improve performance throughout the investment process. A leader in electronic trading since launching the POSIT(R) crossing network in 1987, ITG takes a consultative approach in delivering the highest quality institutional liquidity, execution services, analytical tools, and proprietary research insights grounded in data. Asset managers rely on ITG's independence, experience, and intellectual capital to help mitigate risk, improve performance, and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe, and the Asia Pacific region. For more information on ITG, please visit http://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. These factors are noted throughout ITG's 2009 Annual Report, on its Form 10-K, and on its Form 10-Qs and include, but are not limited to, the actions of both current and potential new competitors, fluctuations in market trading volumes, financial market volatility, changes in commission pricing, potential impairment charges related to goodwill and other long-lived assets, evolving industry regulations, errors or malfunctions in our systems or technology, rapid changes in technology, cash flows into or redemptions from equity funds, effects of inflation, 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 companies we have acquired, changes in tax policy or accounting rules, fluctuations in foreign exchange rates, adverse changes or volatility in interest rates, our ability to attract and retain talented employees, as well as general economic, business, credit and financial market conditions, internationally or nationally.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

(212) 444-6259

INVESTMENT TECHNOLOGY GROUP,INC.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)




Three Months Ended

December 31,


Year Ended

December 31,




2010


2009


2010


2009


Revenues:










Commissions and fees


$

110,639


$

124,885


$

469,005


$

531,998


Recurring


26,542


22,193


93,186


87,483


Other


1,165


3,921


8,563


13,588


Total revenues


138,346


150,999


570,754


633,069












Expenses:










Compensation and employee benefits


57,208


59,685


215,886


235,518


Transaction processing


21,746


23,568


85,387


95,618


Occupancy and equipment


15,316


15,254


59,905


59,950


Telecommunications and data processing services


14,108


13,497


53,473


54,549


Other general and administrative


22,516


22,323


94,253


83,028


Acquisition related costs


2,409


--


2,409


--


Goodwill impairment


--


--


5,375


--


Restructuring charges


1,812


25,444


4,062


25,444


Interest expense


83


291


671


2,511


Total expenses


135,198


160,062


521,421


556,618


Income (loss) before income tax expense


3,148


(9,063)


49,333


76,451


Income tax (benefit) expense


1,318


(1,270)


25,353


33,617


Net (loss) income


$

1,830


$

(7,793)


$

23,980


$

42,834












Earnings (loss) per share:










Basic


$

0.04


$

(0.18)


$

0.56


$

0.98


Diluted


$

0.04


$

(0.18)


$

0.55


$

0.97












Basic weighted average number of common shares outstanding


41,636


43,716


42,767


43,538


Diluted weighted average number of common shares outstanding


42,538


43,716


43,496


44,018



INVESTMENT TECHNOLOGY GROUP,INC.

Consolidated Statements of Financial Condition

(In thousands, except share amounts)



December31,

2010


December31,

2009








Assets






Cash and cash equivalents


$

317,010


$

330,879


Cash restricted or segregated under regulations and other


68,965


95,787


Deposits with clearing organizations


14,235


14,891


Securities owned, at fair value


25,789


6,768


Receivables from brokers, dealers and clearing organizations


865,251


364,436


Receivables from customers


606,256


298,342


Premises and equipment, net


34,790


41,437


Capitalized software, net


62,507


68,913


Goodwill


468,479


425,301


Other intangibles, net


36,784


27,263


Income taxes receivable


5,561


13,897


Deferred taxes


4,902


2,910


Other assets


20,324


12,279


Total assets


$

2,530,853


$

1,703,103








Liabilities and Stockholders' Equity






Liabilities:






Accounts payable and accrued expenses


$

195,109


$

209,496


Payables to brokers, dealers and clearing organizations


1,139,958


248,664


Payables to customers


272,027


299,200


Securities sold, not yet purchased, at fair value


19,362


31


Income taxes payable


16,215


14,113


Deferred taxes


18,114


16,999


Long term debt


--


46,900


Total liabilities


1,660,785


835,403








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; 51,790,608 and 51,682,153 shares issued at Dec. 31, 2010 and Dec. 31, 2009, respectively


518


517


Additional paid-in capital


246,085


233,374


Retained earnings


833,133


809,153


Common stock held in treasury, at cost; 10,524,757 and 7,891,717 shares at Dec. 31, 2010 and Dec. 31, 2009, respectively


(220,161)


(182,743)


Accumulated other comprehensive income (net of tax)


10,493


7,399


Total stockholders' equity


870,068


867,700


Total liabilities and stockholders' equity


$

2,530,853


$

1,703,103



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 net income and adjusted earnings per share are non-GAAP (generally accepted accounting principles) 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. Adjusted net income and adjusted earnings per share should be viewed in addition to, and not in lieu of, ITG's reported results under U.S. GAAP.

The following is a reconciliation of U.S. GAAP results to adjusted results for the periods presented (in thousands except per share amounts):



Three Months Ended December 31,


Year Ended December 31,


2010

2009


2010

2009


(unaudited)

(unaudited)


(unaudited)


Total revenues

$138,346

$150,999


$570,754

$633,069







Total expenses

135,198

160,062


521,421

556,618

Less:






Acquisition related costs (1)

(2,409)

--


(2,409)

--

Goodwill impairment (2)

--

--


(5,375)

--

Software Write-Off (3)

--

--


(6,091)

--

Restructuring charges (4)(5)(6)

(1,812)

(25,444)


(4,062)

(25,444)

Adjusted operating expenses

130,977

134,618


503,484

531,174







Income (loss) before income tax expense (benefit)

3,148

(9,063)


49,333

76,451

Effect of adjustments

4,221

25,444


17,937

25,444

Adjusted pre-tax operating income

7,369

16,381


67,270

101,895







Income tax expense (benefit)

1,318

(1,270)


25,353

33,617

Tax effect of adjustments

1,315

9,101


3,797

9,101

Adjusted operating income tax expense

2,633

7,831


29,150

42,718







Net income (loss)

1,830

(7,793)


23,980

42,834

Net effect of adjustments

2,906

16,343


14,140

16,343

Adjusted operating net income

$4,736

$8,550


$38,120

$59,177







Diluted earnings (loss) per share

$0.04

$(0.18)


$0.55

$0.97

Net effect of adjustments

0.07

0.37


0.33

0.37

Adjusted diluted operating earnings per share

$0.11

$0.19


$0.88

$1.34



Notes:

(1) During the fourth quarter of 2010, we acquired Majestic Research Corp., a privately held, independent provider of data-driven equity research for the institutional investment community. In connection with the acquisition, we incurred approximately $2.4 million of acquisition related costs, including legal fees and other professional fees, accelerated employee equity awards and severance costs.


(2) In 2010, goodwill with a carrying value of $5.4 million in the Asia Pacific operating segment relating to our Australian operations was deemed impaired and its fair value was determined to be zero, resulting in an impairment charge of $5.4 million.


(3) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote-off $2.4 million of capitalized development initiatives that were not yet deployed. As ITG's product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.


(4) During the fourth quarter 2010, in connection with the integration of Majestic Research Corp., we decided to close our Westchester, NY office and relocate the staff, primarily sales traders and support, to our midtown Manhattan office and incurred a one-time charge of $2.3 million, as reflected in restructuring charges.


(5) In the second quarter of 2010, ITG committed to a restructuring plan in the Asia Pacific operating segment where we closed our on-shore operations in Japan resulting in lowering our operating costs and reducing our capital requirements. Restructuring charges of $2.3 million primarily include employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software.


(6) In the fourth quarter of 2009, we committed to a restructuring plan focused primarily on U.S. operations to position the Company for long-term profitable growth. Restructuring charges of $25.4 million include employee severance arrangements, costs related to the consolidation of leased facilities and write-offs of capitalized software and certain intangible assets due primarily to changes in product priorities.



SOURCE Investment Technology Group, Inc.

Social stream