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ITG Reports First Quarter 2016 Results    

Market Share Recovery Continues Across Operating Regions

NEW YORK, May 05, 2016 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), a leading independent broker and financial technology provider, today reported results for the quarter ended March 31, 2016.

First quarter 2016 highlights included:

  • GAAP net loss of $2.5 million, or $0.08 per diluted share compared to GAAP net income of $16.7 million, or $0.47 per diluted share for the first quarter of 2015. GAAP results for the first quarter of 2016 include (i) the amount expensed during the first quarter of 2016 of $2.8 million pre-tax, or $0.08 per diluted share after taxes, for upfront cash and stock awards granted to ITG’s new CEO; and (ii) charges of $2.8 million pre-tax, or $0.05 per diluted share after taxes, in reserves and associated legal fees related to the arbitration with ITG’s former CEO.

  • Adjusted net income of $1.8 million, or $0.05 per share, excluding the charges related to the upfront compensation expense for ITG's new CEO and the arbitration. There were no non-GAAP adjustments to earnings in the first quarter of 2015.

  • Revenues of $124.7 million, compared to revenues of $149.7 million in the first quarter of 2015.

  • GAAP expenses of $128.3 million and adjusted expenses of $122.7 million compared to GAAP expenses of $127.4 million in the first quarter of 2015.

  • Average daily trading volume in the U.S. of 162 million shares versus 125 million shares in the fourth quarter of 2015 and 191 million shares in the first quarter of 2015. POSIT® average daily U.S. volume was 65 million shares compared to 49 million shares in the fourth quarter of 2015 and 93 million shares in the first quarter of 2015. Total average daily U.S. volume traded through POSIT Alert® was 13 million shares, compared to 8 million shares in the fourth quarter of 2015 and 17 million shares in the first quarter of 2015.

  • In Europe, average daily value traded in POSIT was $1.37 billion, up from $1.24 billion in the fourth quarter of 2015 and $1.30 billion in the first quarter of 2015. Total average daily value traded through POSIT Alert in Europe was down 2% compared to the fourth quarter of 2015 and down 23% compared to the first quarter of 2015.

  • The repurchase of 588,000 shares of common stock for a total of $9.6 million under ITG’s authorized share repurchase program. Repurchases since the first quarter of 2010 have totaled $240.7 million for a total of 15.9 million shares, resulting in a decrease in shares outstanding, net of issuances, by more than 24%. 

Commenting on the results, ITG Chief Executive Officer and President, Frank Troise, said, “We are regaining business momentum, as shown by the sequential revenue improvements in all four of our operating regions, although work still needs to be done to engage more deeply with our clients. As we conclude our end-to-end business review in the coming months we will look to make targeted investments to establish our place as the best-in-class provider of execution, liquidity, workflow and measurement solutions to the institutional trading community.”

Regional Segment Results

ITG's North American revenues were $82.4 million in the first quarter of 2016 compared to $75.8 million in the fourth quarter of 2015 and $99.4 million in the first quarter of 2015. ITG reported net income of $3.2 million in North America in the first quarter of 2016, compared to a net loss of $2.0 million in the fourth quarter of 2015 and net income of $8.9 million in the first quarter of 2015. U.S. revenues were $66.3 million, up from $63.3 million in the fourth quarter of 2015 and down from $80.5 million in the first quarter of 2015, including the impact of the sale of the energy research business in the fourth quarter of 2015. Canada revenues were $16.1 million, up from $12.5 million in the fourth quarter of 2015 but down from $18.9 million in the first quarter of 2015, including the impact of currency translation.

ITG’s Europe and Asia Pacific revenues were $41.9 million in the first quarter of 2016 compared to $40.4 million in the fourth quarter of 2015 and $50.1 million in the first quarter of 2015, including the impact of currency translation. European revenues were $31.1 million, up from $30.7 million in the fourth quarter of 2015 and down from $36.6 million in the first quarter of 2015. Asia Pacific revenues were $10.8 million, up from $9.8 million in the fourth quarter of 2015 but down from $13.5 million in the first quarter of 2015. ITG’s Europe and Asia Pacific operations reported net income of $4.1 million in the first quarter of 2016 compared to $2.5 million in the fourth quarter of 2015 and $10.5 million in the first quarter of 2015. 

Corporate activity reduced GAAP net income by $9.7 million in the first quarter of 2016, including the after-tax impact of the amount expensed during the first quarter of 2016 for the upfront cash and stock awards to ITG’s new CEO, a significant portion of which replaced compensation he forfeited at his former employer, and the reserves and associated legal fees related to the arbitration with ITG’s former CEO. Corporate activity reduced net income by $2.7 million in the first quarter of 2015. Corporate activity includes investment income and non-operating gains, as well as costs not associated with operating ITG's regional and product group business lines including, among others, the costs of being a public company, intangible amortization, interest expense, the costs of maintaining a global transfer pricing structure, foreign exchange gains and losses and certain non-operating items.

The discussion of results above includes adjusted expenses, 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

A conference call to discuss the firm's results will be held at 11:00 am ET on May 5, 2016. Those wishing to listen to the call should dial 1-844-881-0134 (1-412-317-6722 outside the U.S.) at least 15 minutes prior to the start of the call to ensure connection.  The webcast and accompanying slideshow presentation will be available on 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 10084196. The replay will be available starting approximately one hour after the completion of the conference call.

About ITG

ITG is an independent broker and financial technology firm that improves the efficiency and execution quality of institutional trading. ITG helps clients understand market trends, mitigate risk and navigate increasingly complex markets. A leader in electronic trading since launching the POSIT crossing network in 1987, ITG takes a consultative approach in delivering the highest quality execution and liquidity solutions along with analytical tools and research. The firm is headquartered in New York with offices in North America, Europe, and the Asia Pacific region. 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 2015 Annual Report on Form 10-K, and its Form 10-Qs (as amended, if applicable) and include, but are not limited to, general economic, business, credit and financial market conditions, both internationally and domestically, 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 and increased regulatory scrutiny, customers’ reactions to the settlement in August 2015 with the Securities and Exchange Commission, the outcome of contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, changes in tax policy or accounting rules, the actions of both current and potential new competitors, changes in commission pricing, 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 protect our intellectual property, our ability to execute on strategic transactions or initiatives, our ability to attract and retain talented employees, and our ability to pay dividends or repurchase our common stock in the future. 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.

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
 
    Three Months Ended
March 31,
 
    2016   2015  
Revenues:          
Commissions and fees   $ 98,960   $ 118,926  
Recurring   22,195   26,932  
Other   3,513   3,869  
Total revenues   124,668   149,727  
           
Expenses:          
Compensation and employee benefits   52,464   57,408  
Transaction processing   22,834   24,573  
Occupancy and equipment   13,978   14,372  
Telecommunications and data processing services   14,773   12,772  
Other general and administrative   23,722   17,757  
Interest expense   535   505  
Total expenses   128,306   127,387  
(Loss) income before income tax (benefit) expense   (3,638 ) 22,340  
Income tax (benefit) expense   (1,132 ) 5,607  
Net (loss) income   $ (2,506 ) $ 16,733  
           
(Loss) income per share:          
Basic   $ (0.08 ) $ 0.49  
Diluted   $ (0.08 ) $ 0.47  
           
Basic weighted average number of common shares outstanding   33,106   34,268  
Diluted weighted average number of common shares outstanding   33,106   35,451  
           

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Supplemental Financial Data (unaudited)
(In thousands)
 
    Three months ended March 31,  
    2016   2015  
Revenues by Geographic Region:          
U.S Operations   $ 66,329   $ 80,454  
Canadian Operations   16,096   18,913  
European Operations   31,139   36,605  
Asia Pacific Operations   10,757   13,522  
Corporate (non-product)   347   233  
Total Revenues   $ 124,668   $ 149,727  
       
       
    Three months ended March 31,  
    2016   2015  
Revenues by Product Group:          
Electronic Brokerage   $ 64,261   $ 80,454  
Research Sales and Trading   25,532   32,513  
Trading Platforms   23,593   25,073  
Analytics   10,935   11,454  
Corporate (non-product)   347   233  
Total Revenues   $ 124,668   $ 149,727  

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (unaudited)
(In thousands, except share amounts)
 
               
  March 31, 2016
    December 31, 2015
Assets              
Cash and cash equivalents $ 274,388     $ 330,653  
Cash restricted or segregated under regulations and other   38,104       37,852  
Deposits with clearing organizations   79,618       70,860  
Securities owned, at fair value   6,157       5,598  
Receivables from brokers, dealers and clearing organizations   974,433       1,036,777  
Receivables from customers   70,151       49,176  
Premises and equipment, net   54,511       55,496  
Capitalized software, net   39,837       39,379  
Goodwill, net   11,563       11,933  
Intangibles, net   23,980       24,611  
Income taxes receivable   3,865       128  
Deferred taxes   13,954       23,590  
Other assets   26,662       22,969  
Total assets $ 1,617,223     $ 1,709,022  
Liabilities and Stockholders’ Equity              
Liabilities:    
Accounts payable and accrued expenses $ 150,982     $ 169,530  
Short‑term bank loans   81,820       81,934  
Payables to brokers, dealers and clearing organizations   897,523       960,559  
Payables to customers   21,026       9,957  
Securities sold, not yet purchased, at fair value   4,019       2,637  
Income taxes payable   5,762       17,017  
Deferred taxes          
Term debt   11,102       12,567  
Total liabilities   1,172,234       1,254,201  
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; 52,360,184 and 52,300,885 shares issued at March 31, 2016 and December 31, 2015, respectively   524       523  
Additional paid‑in capital   230,678       239,090  
Retained earnings   566,750       571,626  
Common stock held in treasury, at cost; 19,156,215 and 19,207,419 shares at March 31, 2016 and December 31, 2015, respectively   (335,287 )     (336,923 )
Accumulated other comprehensive loss (net of tax)   (17,676 )     (19,495 )
Total stockholders’ equity   444,989       454,821  
Total liabilities and stockholders’ equity $ 1,617,223     $ 1,709,022  
               

INVESTMENT TECHNOLOGY GROUP, INC.
Non-GAAP Financial Measures
(In thousands, except per share amounts)

In evaluating ITG’s financial performance, management reviews results from operations, which excludes certain unique or non-operating items. Adjusted net income and related per share amounts, adjusted expenses, adjusted pre-tax income, adjusted income tax expense, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP performance measures that the Company believes provides investors with greater transparency and supplemental data relating to our financial condition and results of operation, and therefore a more complete understanding of factors affecting our business than U.S. GAAP measures alone. These measures should be viewed in addition to, and not in lieu of, ITG’s reported results under GAAP.

    Three Months
Ended
March 31, 2016
 
Total expenses   $ 128,306    
Less:      
CEO compensation (1)     2,797    
Contingencies for legal proceedings (2)     2,812    
Adjusted expenses     122,697    
       
Loss before income tax benefit     (3,638 )  
Effect of adjustments     5,609    
Adjusted pre-tax income     1,971    
       
Income tax benefit     (1,132 )  
Tax effect of adjustments (1)(2)     1,262    
Adjusted income tax expense     130    
       
Net loss     (2,506 )  
Net effect of adjustments     4,347    
Adjusted net income   $ 1,841    
       
Diluted loss per share   $ (0.08 )  
Net effect of adjustments     0.13    
Adjusted earnings per diluted share   $ 0.05    
           
Notes:
(1) The Company’s new Chief Executive Officer was granted cash and stock awards upon the commencement of his employment in January 2016, a significant portion of which replaced awards he forfeited at his former employer. Due to U.S. tax regulations, only a small portion of the amount expensed for these awards during the three months ended March 31, 2016 was eligible for a tax deduction. 
(2) During the three months ended March 31, 2016, the Company established a reserve of $2.5 million in accordance with ASC 450, Contingencies, for the pending arbitration case with the Company’s former Chief Executive Officer and incurred legal fees related to this matter of $0.3 million.
 



Reconciliation of Adjusted Earnings
Before Interest, Taxes, Depreciation, and Amortization
(In thousands) 
 
           
    Three Months Ended
March 31,
 
    2016   2015  
               
Net (Loss) Income (1)   $ (2,506 ) $ 16,733    
Impact of adjustments, after-tax     4,347        
Adjusted net income     1,841     16,733    
Deduct:              
Investment income      (307   (222 )  
                 
Add Back:                
Interest expense     535     505    
Provision for income taxes     (1,132 )   5,607    
Tax effect of adjustments     1,262        
Depreciation and Amortization     10,781     11,161    
Adjusted earnings before interest, taxes, depreciation, and amortization   $ 12,980   $ 33,784    
               
Notes: 
(1) Net income includes pre-tax charges for non-cash stock-based compensation of $6.6 million (including $1.3 million for the upfront stock awards to the new Chief Executive Officer) and $4.9 million for the three months ended March 31, 2016 and 2015, respectively.
 
ITG Media/Investor Contact:
J.T. Farley
1-212-444-6259
corpcomm@itg.com

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