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ITG Reports Fourth Quarter 2013 Results

Record European Revenues Drive Earnings Growth

Full-year Profitability Up Sharply on International Growth and Improved Operating Efficiency

NEW YORK, Jan. 30, 2014 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2013.

Fourth quarter 2013 highlights included:

- Net income of $9.7 million, or $0.26 per diluted share compared to a net loss of $6.5 million, or $0.17 per diluted share and adjusted net income of $0.6 million, or $0.02 per diluted share for the fourth quarter of 2012. Net income for the fourth quarter of 2013 included a $0.9 million income tax benefit, or $0.02 per diluted share, from resolving a contingency in the U.K. The reserve related to this income tax contingency was not excluded from adjusted results when it was previously established.

- Revenues of $131.9 million, compared to revenues of $121.5 million in the fourth quarter of 2012.

- Expenses of $121.3 million, compared to expenses of $130.1 million and adjusted expenses of $119.2 million in the fourth quarter of 2012.

- Average daily trading volume in the U.S. of 148 million shares versus 181 million shares in the fourth quarter of 2012. POSIT® average daily U.S. volume was 63 million shares compared to 85 million shares in the fourth quarter of 2012. Total average daily volume traded through POSIT Alert® rose approximately 3% compared with the fourth quarter of 2012.

- In Europe, average daily value traded in POSIT was $731 million, compared with $364 million in the fourth quarter of 2012. Total average daily value traded through POSIT Alert rose more than 300% in the fourth quarter of 2013 compared with the prior-year period.

- The repurchase of 212,000 shares of common stock under ITG's authorized share repurchase program for a total of $4.2 million. Repurchases since the first quarter of 2010 have totaled $140.8 million for a total of 10.6 million shares, resulting in a decrease in shares outstanding, net of issuances, of more than 17%.

Revenues from U.S. operations were $75.3 million in the fourth quarter of 2013 compared to $77.1 million in the fourth quarter of 2012. ITG's U.S. operations reported net income of $0.5 million in the fourth quarter of 2013, compared to a net loss of $5.8 million and an adjusted net loss of $1.1 million in the fourth quarter of 2012. Sell-side client volume represented 53% of total U.S. volumes, up from 51% in the third quarter of 2013 and 52% in the fourth quarter of 2012. The overall revenue capture rate per share in the U.S. fell to $0.0047 from $0.0049 in the third quarter of 2013, but was up from $0.0043 in the fourth quarter of 2012.

ITG's International revenues were $56.6 million in the fourth quarter of 2013 compared to $44.5 million in the fourth quarter of 2012. European revenues rose to a record $26.4 million, up 57% from the fourth quarter of 2012, while Asia Pacific revenues were $11.4 million, up 19% over the fourth quarter of 2012. Canadian revenues were $18.8 million, up 4% versus the fourth quarter of 2012. ITG's International operations reported net income of $9.2 million in the fourth quarter of 2013 compared to a net loss of $0.7 million and adjusted net income of $1.7 million in the fourth quarter of 2012.

Full Year Results

For the full year 2013, revenues were $530.8 million, net income was $31.1 million, or $0.82 per diluted share, and adjusted net income was $37.1 million, or $0.97 per diluted share. For the full year 2012, revenues were $504.4 million, net loss was $247.9 million, or $6.45 per diluted share, and adjusted net income was $8.2 million, or $0.21 per diluted share.

"A record European performance and improved revenues in our Canadian and Asia Pacific operations more than offset weaker U.S. volumes during the fourth quarter," said Bob Gasser, ITG's Chief Executive Officer and President. "In 2013 we reaped the benefits of targeted investments in international capabilities, particularly the rollout of global POSIT Alert. In addition, our focus on improving the performance of our product groups led to significant reductions in infrastructure costs. These efforts paid off, resulting in a 350% increase in our 2013 adjusted net income as compared to 2012. Given all of the measures we have taken over the past few years, we believe we are well positioned globally for the current market environment."

The discussion of results above includes adjusted net income and related per share amounts, in addition to adjusted expense 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 fourth 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 10039386. 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.

         
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)
         
  Three Months Ended Year Ended Ended
  December 31, December 31,
  2013 2012 2013 2012
Revenues:        
Commissions and fees $ 98,365 $ 91,034 $ 408,619 $ 380,976
Recurring 26,788 27,594 104,172 109,767
Other 6,747 2,906 18,010 13,693
Total revenues 131,900 121,534 530,801 504,436
         
Expenses:        
Compensation and employee benefits 50,839 47,100 201,254 196,362
Transaction processing 19,971 19,965 83,792 81,173
Occupancy and equipment 15,940 16,892 69,022 62,637
Telecommunications and data processing services 13,142 15,037 53,607 59,850
Other general and administrative 20,544 21,049 77,431 88,543
Restructuring charges 9,499 (75) 9,499
Goodwill and other asset impairment 274,285
Interest expense 821 562 2,715 2,542
Total expenses 121,257 130,104 487,746 774,891
Income (loss) before income tax expense (benefit) 10,643 (8,570) 43,055 (270,455)
Income tax expense (benefit) 981 (2,117) 11,970 (22,596)
Net income (loss) $ 9,662 $ (6,453) $ 31,085 $ (247,859)
         
Income (loss) per share:        
Basic $ 0.27 $ (0.17) $ 0.84 $ (6.45)
Diluted $ 0.26 $ (0.17) $ 0.82 $ (6.45)
         
Basic weighted average number of common shares outstanding 36,287 37,709 36,788 38,418
Diluted weighted average number of common shares outstanding 37,685 37,709 38,114 38,418
         
         
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Supplemental Financial Data (unaudited)
(In thousands)
         
  Three Months Ended Year Ended
  December 31, December 31,
  2013 2012 2013 2012
Revenues by Geographic Region:        
U.S. Operations $ 75,349 $ 77,074 $ 318,036 $ 321,379
Canadian Operations 18,770 18,036 74,994 76,913
European Operations 26,384 16,854 91,791 67,266
Asia Pacific Operations 11,397 9,570 45,980 38,878
Total Revenues $ 131,900 $ 121,534 $ 530,801 $ 504,436
         
  Three Months Ended Year Ended
  December 31, December 31,
  2013 2012 2013 2012
Revenues by Product Group:        
Electronic Brokerage $ 69,233 $ 58,344 $ 279,830 $ 250,882
Research Sales and Trading 27,147 27,404 107,383 106,427
Platforms 23,282 23,662 96,127 99,334
Analytics 11,557 11,856 46,004 46,508
Corporate (non-product) 681 268 1,457 1,285
Total Revenues $ 131,900 $ 121,534 $ 530,801 $ 504,436
         

 

   
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (unaudited)
(In thousands, except share amounts)
   
  December 31,
  2013 2012
Assets    
Cash and cash equivalents $ 261,897 $ 245,875
Cash restricted or segregated under regulations and other 71,202 61,117
Deposits with clearing organizations 74,771 29,149
Securities owned, at fair value 7,436 10,086
Receivables from brokers, dealers and clearing organizations 1,018,342 1,107,119
Receivables from customers 591,004 546,825
Premises and equipment, net 66,171 54,989
Capitalized software, net 37,892 43,994
Other intangibles, net 31,201 35,227
Income taxes receivable 54 7,460
Deferred taxes 33,193 39,155
Other assets 15,787 15,763
Total assets $ 2,208,950 $ 2,196,759
Liabilities and Stockholders' Equity    
Liabilities:    
Accounts payable and accrued expenses $ 175,931 $ 165,062
Short-term bank loans 73,539 22,154
Payables to brokers, dealers and clearing organizations 1,025,268 1,337,459
Payables to customers 469,264 226,892
Securities sold, not yet purchased, at fair value 2,953 5,249
Income taxes payable 13,868 10,608
Deferred taxes 363 293
Term debt 30,332 19,272
Total liabilities 1,791,518 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 December 31, 2013 and 2012, respectively 522 520
Additional paid-in capital 240,057 245,002
Retained earnings 436,570 405,485
Common stock held in treasury, at cost; 16,005,500 and 14,677,872 shares at December 31, 2013 and 2012, respectively (268,253) (253,111)
Accumulated other comprehensive income (net of tax) 8,536 11,874
Total stockholders' equity 417,432 409,770
Total liabilities and stockholders' equity $ 2,208,950 $ 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 items. 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):

         
  Three Months Ended December 31, Year Ended Ended December 31,
  2013 2012 2013 2012
  (unaudited) (unaudited) (unaudited) (unaudited)
Total revenues $ 131,900 $ 121,534 $ 530,801 $ 504,436
         
Total expenses 121,257 130,104 487,746 774,891
Less:        
Restructuring charges (1) (9,499) 75 (9,499)
Duplicate rent charges (2) (1,378) (2,568) (1,378)
Office move (3) (3,910)
Goodwill and other asset impairment (4) (274,285)
Adjusted operating expenses 121,257 119,227 481,343 489,729
         
Income (loss) before income tax expense (benefit) 10,643 (8,570) 43,055 (270,455)
Effect of adjustment 10,877 6,403 285,162
Adjusted pre-tax operating income 10,643 2,307 49,458 14,707
         
Income tax expense (benefit) 981 (2,117) 11,970 (22,596)
Tax effect of adjustment (5) 3,806 405 29,128
Adjusted operating income tax expense 981 1,689 12,375 6,532
         
Net income (loss) 9,662 (6,453) 31,085 (247,859)
Net effect of adjustment 7,071 5,998 256,034
Adjusted operating net income $ 9,662 $ 618 $ 37,083 $ 8,175
         
Diluted income (loss) per share $ 0.26 $ (0.17) $ 0.82 $ (6.45)
Net effect of adjustment 0.19 0.15 6.66
Adjusted diluted operating earnings per share $ 0.26 $ 0.02 $ 0.97 $ 0.21
         
         
  US Operations International Operations
  Three Months Ended December 31, Three Months Ended December 31,
  2013 2012 2013 2012
  (unaudited) (unaudited) (unaudited) (unaudited)
Total revenues $ 75,349 $ 77,073 $ 56,551 $ 44,461
         
Total expenses 74,441 85,458 46,816 44,646
Less:        
Restructuring charges (1) (3) (6,798) (2,701)
Duplicate rent charges (2) (1,378)
Adjusted operating expenses 74,441 77,282 46,816 41,945
         
Income (loss) before income tax expense (benefit) 908 (8,385) 9,735 (185)
Effect of pro forma adjustment 8,176 2,701
Adjusted pre-tax operating income (loss) 908 (209) 9,735 2,516
         
Income tax expense (benefit) 450 (2,623) 531 506
Tax effect of pro forma adjustment 3,505 301
Adjusted operating income tax expense 450 882 531 807
         
Net income (loss) 458 (5,762) 9,204 (691)
Net effect of pro forma adjustment 4,671 2,400
Adjusted operating net income (loss) $ 458 $ 1,091 $ 9,204 $ 1,709
         
Diluted income (loss) per share $ 0.01 $ (0.15) $ 0.25 $ (0.02)
Net effect of pro forma adjustment 0.12 0.07
Adjusted diluted operating earnings (loss) per share $ 0.01 $ (0.03) $ 0.25 $ 0.05
         
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. During the fourth quarter of 2012, ITG implemented a restructuring plan to reduce operating costs by reducing workforce, market data and other general and administrative costs across ITG's businesses. The charge consisted entirely of employee separation costs.
(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 non-operating charge, which included a reserve for the remaining lease obligation for 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 in the second quarter of 2013 associated with the anticipated withdrawal of capital from Israel.
         
CONTACT: ITG Media/Investor Contact:
         J.T. Farley
         1-212-444-6259
         corpcomm@itg.com
Investment Technology Group Inc.

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