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Investment Technology Group Reports Third Quarter 2011 Results


Earnings Rise on Strong Volumes and Expense Management
Continued Growth in International Profitability

NEW YORK, Nov. 3, 2011 /PRNewswire via COMTEX/ -- Investment Technology Group, Inc. (NYSE: ITG), a leading agency research broker and financial technology firm, today reported results for the quarter ended September 30, 2011.

Third quarter 2011 highlights included:

  • GAAP net income of $10.5 million, or $0.25 per diluted share, compared to GAAP net income of $6.2 million, or $0.14 per diluted share for the third quarter of 2010.
  • Revenues of $149.4 million compared to $130.4 million in the third quarter of 2010.
  • Expenses of $132.2 million compared to $119.0 million in the third quarter of 2010. Third quarter 2011 expenses included $10.7 million of costs from ITG Investment Research and an increase from the third quarter of 2010 of $5.4 million in variable transaction processing costs. There were no costs from ITG Investment Research in the third quarter of 2010 due to the timing of the acquisitions.
  • Average daily trading volume in the U.S. of 210.1 million shares, up 30% from the third quarter of 2010. POSIT® average daily U.S. volume was a record 96.6 million shares, up 57% from the third quarter of 2010.
  • Record activity in POSIT Europe with average daily value crossed of $278.3 million, a 150% increase over the third quarter of 2010.
  • Record Asia Pacific revenues of $11.1 million, an increase of 37% over the third quarter of 2010, and the expansion of POSIT Marketplace® into Japanese equities. POSIT Marketplace is now available in 26 markets worldwide.
  • The repurchase of 950,000 shares of common stock under the Company's authorized share repurchase program for a total of $10.4 million. As announced on October 17, 2011, ITG's Board of Directors recently increased the Company's share repurchase authorization by 4 million shares.

ITG's U.S. revenues were $98.0 million in the third quarter of 2011, compared to U.S. revenues of $88.1 million in the third quarter of 2010. ITG's U.S. operations generated net income of $7.0 million in the third quarter of 2011, compared to net income of $7.2 million in the third quarter of 2010.

ITG's International revenues were $51.4 million in the third quarter of 2011, compared to $42.3 million in the third quarter of 2010. ITG's International operations earned net income of $3.5 million in the third quarter of 2011, compared to a net loss of $1.0 million in the third quarter of 2010.

"Strong global trading volumes, together with our ongoing efforts to reduce the cost base of our business drove significant improvement in our profitability, demonstrating the considerable operating leverage in our business," said Bob Gasser, ITG's Chief Executive Officer and President. "With volumes from our core institutional client base continuing to lag, we have benefited from the expansion of our client base through our execution and research offerings and the deployment of our products and services globally."

Year-to-Date Results

For the nine months ended September 30, 2011, revenues were $442.1 million, GAAP net loss was $176.1 million, or $4.29 per diluted share, and adjusted net income was $25.9 million, or $0.62 per diluted share. For the nine months ended September 30, 2010, revenues were $432.4 million, GAAP net income was $22.2 million, or $0.51 per diluted share, and adjusted net income was $33.4 million, or $0.77 per diluted share.

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.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss third quarter results. Those wishing to listen to the call should dial 1-866-713-8567 (1-617-597-5326 outside the US) and enter the passcode 55834260 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 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 (1-617-801-6888 outside the US) and entering the passcode 39481098. 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® 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. Certain of these factors are noted throughout ITG's 2010 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, potential impairment charges related to goodwill and other long-lived assets, 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 corpcomm@itg.com


INVESTMENT TECHNOLOGY GROUP, INC.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)




Three Months Ended
September 30,


Nine Months Ended
September 30,




2011


2010


2011


2010


Revenues:










Commissions and fees


$

117,648


$

105,948


$

348,174


$

358,366


Recurring


28,548


21,912


82,283


66,644


Other


3,223


2,536


11,657


7,398


Total revenues


149,419


130,396


442,114


432,408












Expenses:










Compensation and employee benefits


54,109


50,627


167,266


158,678


Transaction processing


24,840


19,401


70,970


63,641


Occupancy and equipment


14,904


14,423


44,909


44,589


Telecommunications and data processing services


14,559


12,759


44,500


39,365


Other general and administrative


23,181


21,652


68,103


71,737


Goodwill impairment


--


--


225,035


5,375


Restructuring charges


--


--


17,678


2,250


Acquisition related costs


--


--


2,523


--


Interest expense


636


158


1,400


588


Total expenses


132,229


119,020


642,384


386,223


Income (loss) before income tax expense (benefit)


17,190


11,376


(200,270)


46,185


Income tax expense (benefit)


6,713


5,166


(24,153)


24,035


Net income (loss)


$

10,477


$

6,210


$

(176,117)


$

22,150












Earnings (loss) per share:










Basic


$

0.26


$

0.15


$

(4.29)


$

0.51


Diluted


$

0.25


$

0.14


$

(4.29)


$

0.51












Basic weighted average number of common shares
outstanding


40,615


42,407


41,051


43,148


Diluted weighted average number of common
shares outstanding


41,271


42,941


41,051


43,776



INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)




September 30,
2011


December 31,
2010




(unaudited)




Assets






Cash and cash equivalents


$

247,471


$

317,010


Cash restricted or segregated under regulations and other


68,181


68,965


Deposits with clearing organizations


40,299


14,235


Securities owned, at fair value


5,890


25,789


Receivables from brokers, dealers and clearing organizations


1,073,994


865,251


Receivables from customers


827,134


606,256


Premises and equipment, net


36,805


34,790


Capitalized software, net


60,129


62,507


Goodwill


274,284


468,479


Other intangibles, net


40,720


36,784


Income taxes receivable


6,148


5,561


Deferred taxes


13,207


4,902


Other assets


23,064


20,324


Total assets


$

2,717,326


$

2,530,853








Liabilities and Stockholders' Equity






Liabilities:






Accounts payable and accrued expenses


$

179,999


$

195,109


Short-term bank loans


63,794


--


Payables to brokers, dealers and clearing organizations


1,119,645


1,139,958


Payables to customers


635,460


272,027


Securities sold, not yet purchased, at fair value


1,395


19,362


Income taxes payable


11,690


16,215


Deferred taxes


343


18,114


Term debt


25,787


--


Total liabilities


2,038,113


1,660,785








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; 51,899,229 and
51,790,608 shares issued at September 30, 2011 and December 31, 2010, respectively


519


518


Additional paid-in capital


247,200


246,085


Retained earnings


657,016


833,133


Common stock held in treasury, at cost; 11,772,062 and 10,524,757 shares at September 30, 2011 and December 31, 2010, respectively


(232,355)


(220,161)


Accumulated other comprehensive income (net of tax)


6,833


10,493


Total stockholders' equity


679,213


870,068


Total liabilities and stockholders' equity


$

2,717,326


$

2,530,853



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 diluted 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 the Company's businesses. These measures should be viewed in addition to, and not in lieu of, the Company'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):


Nine Months Ended September 30,


2011

2010


(unaudited)

(unaudited)

Total revenues

$ 442,114

$ 432,408




Total expenses

642,384

386,223

Less:



Goodwill impairment (1)(2)

(225,035)

(5,375)

Acquisition related costs (3)

(2,523)

--

Software Write-Off (4)

--

(6,091)

Restructuring charges (5)(6)

(17,678)

(2,250)

Adjusted operating expenses

397,148

372,507




(Loss) income before income tax (benefit) expense

(200,270)

46,185

Effect of pro forma adjustment

245,236

13,716

Adjusted pre-tax operating income

44,966

59,901




Income tax (benefit) expense

(24,153)

24,035

Tax effect of pro forma adjustment

43,260

2,482

Adjusted operating income tax expense

19,107

26,517




Net (loss) income

(176,117)

22,150

Net effect of pro forma adjustment

201,976

11,234

Adjusted operating net income

$ 25,859

$ 33,384




Diluted (loss) earnings per share

$ (4.29)

$ 0.51

Net effect of pro forma adjustment

4.91

0.26

Adjusted diluted operating earnings per share

$ 0.62

$ 0.77

Notes:

  1. 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.
  2. In 2010, goodwill with a carrying value of $5.4 million in the Asia Pacific operating segment relating to ITG's Australian operations was deemed impaired and its fair value was determined to be zero, resulting in an impairment charge of $5.4 million.
  3. During the second quarter of 2011, the Company acquired Ross Smith Energy Group Ltd, a Calgary-based independent provider of research on the oil and gas industry. In connection with the acquisition, the Company incurred approximately $2.5 million of acquisition related costs, including legal fees, contract settlement costs and other professional fees.
  4. 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.
  5. In the second quarter of 2011, the Company 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 of $17.7 million, consisting of employee separation and related costs ($17.4 million) and lease consolidation costs ($0.3 million).
  6. In the second quarter of 2010, ITG committed to a restructuring plan in the Asia Pacific operating segment to close its on-shore operations in Japan, resulting in lower operating costs and reduced capital requirements. Restructuring charges primarily include employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software.

SOURCE Investment Technology Group, Inc.

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