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ITG Reports Fourth Quarter 2014 Results

Earnings Growth Driven by Improved Profitability in North America

Full-Year 2014 Return on Average Equity Over 12%

NEW YORK, Jan. 29, 2015 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2014.

Fourth quarter 2014 highlights included:

  • Net income of $13.0 million, or $0.36 per diluted share compared to net income of $9.7 million, or $0.26 per diluted share for the fourth quarter of 2013. Net income for the fourth quarter of 2014 included the impact of employee termination charges of $2.1 million, or $0.04 per diluted share after-tax, including $1.6 million in the U.S. and $0.5 million in Asia Pacific related to cost reduction measures. 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.
     
  • Revenues of $149.0 million, compared to revenues of $131.9 million in the fourth quarter of 2013.
     
  • Expenses of $131.2 million, compared to expenses of $121.3 million in the fourth quarter of 2013. 
     
  • Average daily trading volume in the U.S. of 190 million shares versus 148 million shares in the fourth quarter of 2013. POSIT® average daily U.S. volume was 90 million shares compared to 63 million shares in the fourth quarter of 2013. Total average daily volume traded through POSIT Alert® was 16 million shares compared to 14 million in the fourth quarter of 2013.
     
  • In Europe, average daily value traded in POSIT was $946 million, compared with $731 million in the fourth quarter of 2013. Total average daily value traded through POSIT Alert rose 53% in the fourth quarter of 2014 compared with the prior-year period.
     
  • An annualized return on average equity of 12.5%, compared with 9.3% in the fourth quarter of 2013. For the full year 2014, return on average equity was 12.2% compared to 7.6% for the full year 2013. 
     
  • The repurchase of 637,000 shares of common stock under ITG's authorized share repurchase program for a total of $12.0 million. Repurchases since the first quarter of 2010 have totaled $189.0 million for a total of 13.3 million shares, resulting in a decrease in shares outstanding, net of issuances, of almost 22%. 

Revenues from U.S. operations were $81.4 million in the fourth quarter of 2014 compared to $75.3 million in the fourth quarter of 2013. ITG's U.S. operations reported net income of $3.0 million in the fourth quarter of 2014, up from $0.5 million in the fourth quarter of 2013. The overall revenue capture rate per share in the U.S. was $0.0044, down from $0.0047 in the fourth quarter of 2013. The decline in the overall average rate was due in large part to an increase in trading activity from lower-rate quantitative clients as well as a decline in the average commission rate paid by sell-side clients. 

ITG's International revenues were $67.6 million in the fourth quarter of 2014 compared to $56.6 million in the fourth quarter of 2013. European revenues were $32.0 million, up 21% from the fourth quarter of 2013. Canadian revenues were a record $22.9 million, up 22% versus the fourth quarter of 2013 while Asia Pacific revenues were $12.7 million, up 11% from the fourth quarter of 2013. ITG's International operations reported net income of $10.0 million in the fourth quarter of 2014 versus net income of $9.2 million in the fourth quarter of 2013. 

"In the fourth quarter, our North American results demonstrated the operating leverage we have built into our business as market volumes rebounded.  We also saw solid performance in both Europe and Asia Pacific," said Bob Gasser, ITG's Chief Executive Officer and President. "The insights gained since our product group formation in 2012 are providing opportunities for greater efficiencies as we strive continuously to improve our operating model to grow profitability. This positions us well for the global trading environment and provides the flexibility to expand our model across asset classes," added Mr. Gasser.     

Full Year Results

For the full year 2014, revenues were $559.8 million and net income was $50.9 million, or $1.40 per diluted share. 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. Full year 2014 net income increased 64% versus 2013 net income and 37% versus 2013 adjusted net income. 

The discussion of results 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 GAAP results.

Conference Call

A conference call to discuss the firm's results will be held at 11:00 am ET on January 29, 2015. 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 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 10058246. 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 2013 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 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 and regulatory scrutiny, 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 successfully integrate acquired companies and our ability to attract and retain talented employees. 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,
  2014 2013 2014 2013
Revenues:        
Commissions and fees  $ 118,395  $ 98,365  $ 436,172  $ 408,619
Recurring 26,790 26,788 103,794 104,172
Other 3,781 6,747 19,848 18,010
Total revenues 148,966 131,900 559,814 530,801
         
Expenses:        
Compensation and employee benefits 59,453 50,839 215,758 201,254
Transaction processing 24,234 19,971 86,400 83,792
Occupancy and equipment 14,811 15,940 59,811 69,022
Telecommunications and data processing services 12,893 13,142 51,187 53,607
Other general and administrative 19,248 20,544 79,349 77,431
Restructuring charges  (75)
Interest expense 526 821 2,322 2,715
Total expenses 131,165 121,257 494,827 487,746
Income before income tax expense 17,801 10,643 64,987 43,055
Income tax expense 4,820 981 14,095 11,970
Net income  $ 12,981  $ 9,662  $ 50,892  $ 31,085
         
Income per share:        
Basic  $ 0.38  $ 0.27  $ 1.44  $ 0.84
Diluted  $ 0.36  $ 0.26  $ 1.40  $ 0.82
         
Basic weighted average number of common shares outstanding 34,521 36,287 35,349 36,788
Diluted weighted average number of common shares outstanding 35,640 37,685 36,365 38,114
         
 
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Supplemental Financial Data (unaudited)
(In thousands)
         
  Three Months Ended Year Ended
  December 31, December 31,
  2014 2013 2014 2013
Revenues by Geographic Region:        
U.S. Operations  $ 81,402  $ 75,349  $ 306,933  $ 318,036
Canadian Operations 22,899 18,770 78,093 74,994
European Operations 31,958 26,384 127,563 91,791
Asia Pacific Operations 12,707 11,397 47,225 45,980
Total Revenues  $ 148,966  $ 131,900  $ 559,814  $ 530,801
         
         
  Three Months Ended Year Ended
  December 31, December 31,
  2014 2013 2014 2013
Revenues by Product Group:        
Electronic Brokerage  $ 79,789  $ 69,233  $ 294,529  $ 279,830
Research, Sales and Trading 32,016 27,147 122,042 107,383
Platforms 25,290 23,282 95,926 96,127
Analytics 11,599 11,557 46,012 46,004
Corporate (non-product) 272 681 1,305 1,457
Total Revenues  $ 148,966  $ 131,900  $ 559,814  $ 530,801
 
 
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share amounts)
     
  December 31,
  2014 2013
  (unaudited)  
Assets    
Cash and cash equivalents   $ 275,210  $ 261,897
Cash restricted or segregated under regulations and other  69,738 71,202
Deposits with clearing organizations  36,424 74,771
Securities owned, at fair value  12,073 7,436
Receivables from brokers, dealers and clearing organizations  646,330 866,271
Receivables from customers  107,935 72,660
Premises and equipment, net  60,306 66,171
Capitalized software, net  38,333 37,892
Goodwill, net  12,803
Intangibles, net  31,595 31,201
Income taxes receivable  105 54
Deferred taxes  37,209 34,130
Other assets  22,788 15,787
Total assets   $ 1,350,849  $ 1,539,472
     
Liabilities and Stockholders' Equity    
Liabilities:    
Accounts payable and accrued expenses   $ 199,211  $ 175,931
Short-term bank loans  78,360 73,539
Payables to brokers, dealers and clearing organizations  600,041 575,943
Payables to customers  11,132 248,174
Securities sold, not yet purchased, at fair value 8,253 2,953
Income taxes payable  19,772 14,805
Deferred taxes 703 363
Term debt  17,781 30,332
Total liabilities  935,253 1,122,040
     
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; 52,229,962 and 52,158,374 shares issued at December 31, 2014 and 2013, respectively  522 522
Additional paid-in capital  240,135 240,057
Retained earnings  487,462 436,570
Common stock held in treasury, at cost; 18,000,756 and 16,005,500 shares at December 31, 2014 and 2013, respectively  (306,629) (268,253)
Accumulated other comprehensive income (net of tax)  (5,894) 8,536
Total stockholders' equity  415,596 417,432
Total liabilities and stockholders' equity   $ 1,350,849  $ 1,539,472
 
Certain reclassifications to the prior year balances for receivables from brokers, dealers and clearing organizations, receivables from customers, payables to brokers, dealers and clearing organizations and payables to customers have been made to conform to the current period presentation to reflect the Company's agent capacity for executing transactions on behalf of clients in the Europe and Asia-Pacific regions.

INVESTMENT TECHNOLOGY GROUP, INC.
Non-GAAP Financial Measures

In evaluating ITG's financial performance, management reviews results from operations which excludes non-operating items. Adjusted net income, and related per share amounts, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP performance measures, but the Company believes 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. 

Reconciliation of US GAAP Results to Adjusted Results
(In thousands, except share amounts)
 
  Year Ended
December 31,
2013
  (unaudited)
   
Total revenues $ 530,801
   
Total expenses 487,746
Less:  
Restructuring charges (1) 75
Duplicate rent charges (2) (2,568)
Office move (3) (3,910)
Adjusted operating expenses 481,343
   
Income before income tax expense 43,055
Effect of adjustment 6,403
Adjusted pre-tax operating income 49,458
   
Income tax expense 11,970
Tax effect of adjustment (4) 405
Adjusted operating income tax expense 12,375
   
Net income 31,085
Net effect of adjustment 5,998
Adjusted operating net income $ 37,083
   
Diluted income per share $ 0.82
Net effect of adjustment 0.15
Adjusted diluted operating earnings per share $ 0.97
 
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. 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. 
(2)  During 2013, ITG continued 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)  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.
 
 
Reconciliation of Adjusted Earnings 
Before Interest, Taxes, Depreciation, and Amortization
(In thousands)
         
  Three Months Ended Year Ended
  December 31, December 31,
  2014 2013 2014 2013
         
Net Income (1)(2)  $ 12,981  $ 9,662  $ 50,892  $ 31,085
Impact of adjustments, after-tax --  -- -- 5,998
Adjusted net income 12,981 9,662 50,892 37,083
         
Deduct:        
Investment income (265) (287) (1,104) (997)
         
Add Back:        
Interest expense 526 822 2,322 2,715
Provision for income taxes 4,820 981 14,095 11,970
Tax effect of adjustments -- -- -- 405
Depreciation and Amortization 11,495 13,324 49,384 53,606
Adjusted earnings before interest, taxes, depreciation, and amortization   $ 29,557  $ 24,502  $ 115,589  $ 104,782
 
Notes:
(1)   Net income includes pre-tax charges for stock-based compensation of $6.3 million and $5.8 million for the three months ended December 31, 2014 and 2013, respectively.
(2)  Net income includes pre-tax charges for stock-based compensation of $18.9 million and $20.9 million for the year ended December 31, 2014 and 2013, respectively.
CONTACT: ITG Media/Investor Contact:
         J.T. Farley
         1-212-444-6259
         corpcomm@itg.com

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