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Investment Technology Group Reports Second Quarter 2007 Results

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Reports Record Operating Results for Non-US Operations


NEW YORK, Aug 02, 2007 (BUSINESS WIRE) -- Investment Technology Group, Inc. (NYSE: ITG), a leading provider of technology-based trading services and transaction research, today announced that for the second quarter ended June 30, 2007, ITG's total revenues were $175.7 million, compared to total revenues of $153.6 million for the second quarter of 2006. ITG's net income was $27.2 million, compared to net income of $27.9 million in the second quarter of 2006, when ITG had a one-time after-tax gain of $3.2 million. Earnings were $0.60 per diluted share, versus earnings of $0.63 per diluted share including the aforementioned one-time gain in the second quarter of last year.

Excluding the impact of non-recurring items in last year's results related to the sale of our Canadian joint venture, KTG Technologies Corp., second quarter 2007 pro forma operating revenues of $175.7 million increased by 19 percent from second quarter 2006 pro forma operating revenues of $148.1 million. ITG's pro forma operating income was $27.2 million, up 11 percent from pro forma operating net income of $24.6 million in the second quarter of 2006. In the second quarter of 2007, pro forma operating earnings per share of $0.60 increased seven percent versus pro forma operating earnings of $0.56 per diluted share in the second quarter of last year. Pro forma pre-tax operating margins in the second quarter of 2007 were 26.5 percent, down from 28.2 percent in the second quarter of 2006.

"In the second quarter of 2007, ITG maintained steady US domestic volumes despite a quarter characterized by a volatile equity market," said Bob Gasser, ITG's Chief Executive Officer and President. "We began realizing benefits from our self-clearing initiative, and announced the addition of multi-asset class capabilities with the acquisition of RedSky."

ITG's non-U.S. operating revenues were a record $42.2 million in the second quarter of 2007, 50 percent higher than revenues of $28.2 million in the second quarter of 2006. Excluding the impact of non-recurring items in last year's second quarter results, international pre-tax income increased 161 percent in the second quarter of 2007 to $5.8 million.

"ITG's growth continued in the second quarter, due in part to the record performance of our non-US businesses, where our momentum with clients is building due to our expanded product suite," said Mr. Gasser. "We have added products in Canada, Europe and Asia as we move forward with our globalization strategy."

Year to Date Results

For the six months ended June 30, 2007, revenues increased 15 percent from the prior year period to $344.6 million, net income decreased four percent to $51.9 million and diluted earnings per share decreased six percent to $1.16. Excluding non-recurring items in 2006, pro forma operating revenues increased 20 percent, pro forma net operating income increased 13 percent and pro forma diluted earnings per share increased 10 percent.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss second quarter results. Those wishing to listen to the call should dial 1-866-831-6272 and enter the pass code 39020316 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 web site 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 1-888-286-8010 and entering the pass code 47858783. The replay will be available starting approximately two hours after the completion of the conference call.

About Investment Technology Group

Investment Technology Group, Inc. (NYSE:ITG), is a specialized agency brokerage and technology firm that partners with clients globally to provide innovative solutions spanning the entire investment process. A pioneer in electronic trading, ITG has a unique approach that combines pre-trade analysis, order management, trade execution, and post-trade evaluation to provide clients with continuous improvements in trading and cost efficiency. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that reflect management's expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors include the company's ability to achieve expected future levels of sales; the actions of both current and potential new competitors; rapid changes in technology; financial market volatility; general economic conditions in the United States and elsewhere; evolving industry regulation; cash flows into or redemption from equity funds; effects of inflation; customer trading patterns; and new products and services. These and other risks are described in greater detail in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other documents filed with the Securities and Exchange Commission and available on the company's web site.

                  INVESTMENT TECHNOLOGY GROUP, INC.
            Consolidated Statements of Income (unaudited)
               (In thousands, except per share amounts)

                                Three Months Ended  Six Months Ended
                                     June 30,            June 30,
                                ------------------  ------------------
                                  2007      2006      2007      2006
                                --------  --------  --------  --------
Revenues:
  Commissions                   $148,603  $125,904  $292,116  $243,482
  Recurring                       20,951    18,206    40,133    35,870
  Other                            6,097     9,449    12,330    20,449
                                --------  --------  --------  --------
   Total revenues                175,651   153,559   344,579   299,801
                                --------  --------  --------  --------

Expenses:
  Compensation and employee
   benefits                       59,630    50,749   118,145   102,726
  Transaction processing          24,330    19,738    49,656    37,581
  Occupancy and equipment         11,220     9,586    22,440    18,069
  Telecommunications and data
   processing services             9,900     7,702    19,034    14,597
  Other general and
   administrative                 21,353    15,347    40,959    29,255
  Interest expense                 2,664     3,157     5,449     6,180
                                --------  --------  --------  --------
   Total expenses                129,097   106,279   255,683   208,408
                                --------  --------  --------  --------
Income before income tax
 expense                          46,554    47,280    88,896    91,393
Income tax expense                19,343    19,428    36,975    37,134
                                --------  --------  --------  --------
Net income                      $ 27,211  $ 27,852  $ 51,921  $ 54,259
                                ========  ========  ========  ========

Earnings per share:
Basic                           $   0.61  $   0.64  $   1.17  $   1.26
                                ========  ========  ========  ========
Diluted                         $   0.60  $   0.63  $   1.16  $   1.23
                                ========  ========  ========  ========

Basic weighted average number
 of common shares outstanding     44,338    43,304    44,207    43,153
Diluted weighted average
 number of common shares
 outstanding                      45,047    44,265    44,940    44,034

                  INVESTMENT TECHNOLOGY GROUP, INC.
            Consolidated Statements of Financial Condition
                 (In thousands, except share amounts)

                                               June 30,   December 31,
                                                 2007       2006 (1)
                                             ------------ ------------
                                             (unaudited)
Assets
Cash and cash equivalents                    $   296,339  $   321,298
Cash restricted or segregated under
 regulations and other                            27,612       13,610
Securities owned, at fair value                   14,436        6,540
Receivables from brokers, dealers and
 clearing organizations                          679,702      196,227
Receivables from customers                       916,417      393,833
Investments                                        7,163        9,299
Premises and equipment, net                       38,952       34,740
Capitalized software, net                         43,122       32,203
Goodwill                                         406,410      405,754
Other intangibles, net                            28,195       29,366
Deferred taxes                                     2,277        7,426
Other assets                                      10,702       12,016
                                             ------------ ------------
Total assets                                 $ 2,471,327  $ 1,462,312
                                             ============ ============

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses        $   159,030  $   152,049
Short-term bank loans                             74,000           --
Payables to brokers, dealers and clearing
 organizations                                   509,376      118,251
Payables to customers                            868,137      414,794
Securities sold, not yet purchased, at fair
 value                                            13,338          137
Income taxes payable                              15,123        8,147
Deferred taxes                                     2,783           --
Long term debt                                   146,700      160,900
                                             ------------ ------------
  Total liabilities                            1,788,487      854,278
                                             ------------ ------------

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; 51,472,053 and
 51,443,560 shares issued at June 30, 2007
 and December 31, 2006, respectively and
 44,378,364 and 43,809,993 shares
 outstanding at June 30, 2007 and December
 31, 2006, respectively                              515          514
Additional paid-in capital                       206,350      198,419
Retained earnings                                592,491      540,570
Common stock held in treasury, at cost;
 7,093,689 and 7,633,567 shares at June 30,
 2007 and December 31, 2006, respectively       (133,977)    (144,173)
Accumulated other comprehensive income (net
 of tax)                                          17,461       12,704
                                             ------------ ------------
  Total stockholders' equity                     682,840      608,034
                                             ------------ ------------
Total liabilities and stockholders' equity   $ 2,471,327  $ 1,462,312
                                             ============ ============

(1) Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation, as a result of ITG Inc. commencing self-clearing of equity trades in May 2007. Receivables previously included in receivables from brokers, dealers and others are now divided among the following two accounts: (i) receivables from brokers, dealers and clearing organizations and (ii) receivables from customers. Similarly, payables previously included in payables to brokers, dealers and others are now divided among the following two accounts: (i) payables to brokers, dealers and clearing organizations and (ii) payables to customers. Additionally, certain payables to brokers for clearance and execution costs previously included in accounts payable and accrued expense were reclassified to payables to brokers, dealers and clearing organizations.

INVESTMENT TECHNOLOGY GROUP, INC.

Reconciliation of US GAAP Results to Pro Forma Operating Results (unaudited)

In evaluating the Company's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Pro forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core businesses. Pro forma earnings per share should be viewed in addition to, and not in lieu of, the Company's reported results under US GAAP.

The following is a reconciliation of US GAAP results to pro forma results for the periods presented (in thousands except per share amounts):

                                Three Months Ended  Six Months Ended
                                     June 30,            June 30,
                                ------------------  ------------------
                                  2007      2006      2007      2006
                                --------  --------  --------  --------

Total revenues                  $175,651  $153,559  $344,579  $299,801
   Less:
   Non-recurring revenue (1)          --   (5,453)        --  (13,230)
                                --------  --------  --------  --------
Pro forma operating revenues     175,651   148,106   344,579   286,571
                                --------  --------  --------  --------

Total expenses                   129,097   106,279   255,683   208,408

Income before income tax
 expense                          46,554    47,280    88,896    91,393
   Effect of pro forma
    adjustments                       --   (5,453)        --  (13,230)
                                --------  --------  --------  --------
Pro forma operating income
 before income tax expense        46,554    41,827    88,896    78,163
                                --------  --------  --------  --------

Income tax expense                19,343    19,428    36,975    37,134
   Tax effect of pro forma
    adjustments                       --   (2,219)        --   (5,111)
                                --------  --------  --------  --------
Pro forma operating income tax
 expense                          19,343    17,209    36,975    32,023
                                --------  --------  --------  --------

Net income                        27,211    27,852    51,921    54,259
   Net effect of pro forma
    adjustments                       --   (3,234)        --   (8,119)
                                --------  --------  --------  --------
Pro forma operating net income  $ 27,211  $ 24,618  $ 51,921  $ 46,140
                                --------  --------  --------  --------

Diluted earnings per share      $   0.60 $    0.63  $   1.16  $   1.23
   Net effect of pro forma
    adjustments                       --    (0.07)        --    (0.18)
                                          --------  --------  --------
Pro forma diluted operating
 earnings per share             $   0.60 $    0.56  $   1.16  $   1.05
                                ======== =========  ========  ========


Notes:
(1) In 2006, non-recurring revenues relate to:

       a) our ownership of two memberships on the New York Stock
          Exchange ("NYSE") that as part of their merger with
          Archipelago Holdings, Inc. ("Archipelago") were combined
          under a new holding company named NYSE Group, Inc. in which
          each NYSE member received compensation consisting of cash
          and restricted shares of NYSE Group, Inc. common stock.
          Accordingly, consideration received for our memberships in
          First Quarter 2006 consisted of 157,202 restricted shares of
          NYSE Group, Inc. common stock resulting in gains of
          approximately $6.9 million in cash and approximately $1.0
          million in dividends, which was recorded as dividend income.
          In Second Quarter 2006, we were able to sell a portion of
          the shares received and recorded an additional gain of
          approximately $80,000, and

       b) our sale in Second Quarter 2006 of our remaining interests
          in a Canadian joint venture that we entered into in 2004
          with IRESS Market Technology Limited ("IRESS"), to IRESS
          resulting in a gain of $5.4 million.

SOURCE: Investment Technology Group, Inc.

Investment Technology Group, Inc.
Investor and Media Relations:
Alicia Curran, 212-444-6130

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