ITG Reports Fourth Quarter 2016 Results
Fourth Quarter 2016 Highlights
- GAAP net income of
$5.7 million , or$0.17 per diluted share compared to GAAP net income of$82.3 million , or$2.40 per diluted share for the fourth quarter of 2015. - GAAP results for the fourth quarter of 2016 include (i) a charge of
$3.6 million pre-tax, or$0.09 per share after taxes, representing the amount by which the finalSEC settlement related to discontinued activity involving pre-released American Depositary Receipts (ADRs) exceeded the reserve established in the third quarter of 2016, as well as legal fees related to this matter, (ii) a restructuring charge of$5.3 million pre-tax, or$0.10 per share after taxes, related to management delayering and the elimination of certain positions, (iii) a pre-tax charge of$0.6 million , or$0.02 per share after taxes, for the amount expensed for upfront awards granted to ITG’s CEO. These charges were offset by an after-tax gain of$7.3 million , or$0.22 per share, related to a reduction in tax reserves from resolving a multi-year contingency in the U.S. - GAAP net income for the fourth quarter of 2015 includes (i) a pre-tax gain from the sale of the energy research operations of
$107.7 million , or$2.66 per share after-tax; and (ii) a tax charge of$6.5 million , or$0.19 per share, to amend the capital structure of ITG’s operations outsideNorth America . - Adjusted net income of
$5.3 million , or$0.16 per diluted share, compared to an adjusted net loss of$2.5 million , or$0.07 per diluted share in the fourth quarter of 2015, in each case excluding the charges and gains listed above. Adjusted net income (as well as GAAP net income) for the fourth quarter of 2016 includes a reduction in compensation expenses of$2.4 million , or$0.05 per share after taxes, related to an increase in the proportion of deferred equity in ITG’s full-year 2016 compensation plan for better alignment with long-term growth objectives. - Revenues of
$119.6 million , compared to revenues of$224.2 million and adjusted revenues of$116.5 million in the fourth quarter of 2015. Adjusted revenues for the fourth quarter of 2015 exclude the pre-tax gain on the sale of the energy research operations. - Expenses of
$121.7 million and adjusted expenses of$112.3 million compared to expenses of$119.5 million in the fourth quarter of 2015. Adjusted expenses for the fourth quarter of 2016 exclude the charges listed above. - Average daily trading volume in the U.S. was 145 million shares versus 125 million shares in the fourth quarter of 2015. POSIT® average daily U.S. volume was 58 million shares compared to 49 million shares in the fourth quarter of 2015. Total average daily U.S. volume traded through POSIT Alert® was 16 million shares, compared to 8 million shares in the fourth quarter of 2015.
- In
Europe , average daily value traded in POSIT was$1.1 billion compared to$1.2 billion in the fourth quarter of 2015, including the effects of currency translation. Total average daily value traded through POSIT Alert inEurope increased 60% compared to the fourth quarter of 2015.
Commenting on the results, ITG President and Chief Executive Officer,
Fourth Quarter Regional Segment Results
North American revenues were
ITG reported net income of
U.S. revenues in the fourth quarter of 2016 were
ITG reported net income for its
European revenues were
Corporate activity reduced GAAP net income by
Corporate activity increased GAAP net income by
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, costs of being a public company, intangible amortization, interest expense, costs of maintaining a global transfer pricing structure, foreign exchange gains and losses and certain non-operating items.
Full Year Results
For the full year 2016, revenues were
For the full year 2015, revenues were
Non-GAAP Financial Measures
To supplement our financial information presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), management uses certain “non-GAAP financial measures” as such term is defined in Regulation G promulgated by the
Adjusted revenues, adjusted expenses, adjusted pre-tax income (loss), adjusted income tax expense (benefit), adjusted net income (loss) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), together with related per share amounts, are non-GAAP performance measures that we believe are useful to assist investors in gaining an understanding of the trends and operating results for our core business. These measures should be viewed in addition to, and not in lieu of, results reported under GAAP.
Reconciliations of adjusted revenues, adjusted expenses, adjusted pre-tax income (loss), adjusted income tax expense (benefit), adjusted net income (loss) and adjusted EBITDA to revenues, expenses, income (loss) before income tax expense (benefit), income tax expense (benefit) and net income (loss) and related per share amounts as determined in accordance with GAAP for the three months and full year ended December 31, 2016 and December 31, 2015, respectively, are provided in the accompanying supplemental tables at the end of this release.
Conference Call on 4Q16 Results
An investor conference call to discuss ITG’s results will be held today at
The webcast and accompanying slideshow presentation will be available at: investor.itg.com. A replay will be available for one week by dialing 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering replay number 10099920. The replay will be accessible approximately one hour after the completion of the conference call.
About ITG
In addition to historical information, this press release may contain "forward-looking" statements that reflect management’s expectations for the future. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” and the negative of these terms and other comparable terminology. 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, political 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, customer or shareholder reaction to the Company’s settlement of the SEC’s inquiry regarding pre-released ADRs or further proceedings or sanctions based on the Company’s discontinued ADR activity, the outcome of other contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, changes in tax policy or accounting rules, the ability of the Company to recognize its deferred tax assets, 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 initiatives or transactions, 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 Condensed Consolidated Statements of Operations (unaudited) (In thousands, except per share amounts) |
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Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Revenues: | ||||||||||||||
Commissions and fees | $ | 99,322 | $ | 85,959 | $ | 376,463 | $ | 405,679 | ||||||
Recurring | 18,696 | 27,146 | 81,916 | 107,184 | ||||||||||
Other | 1,571 | 111,068 | 10,673 | 121,940 | ||||||||||
Total revenues | 119,589 | 224,173 | 469,052 | 634,803 | ||||||||||
Expenses: | ||||||||||||||
Compensation and employee benefits | 42,980 | 51,711 | 188,886 | 209,323 | ||||||||||
Transaction processing | 24,540 | 20,111 | 90,271 | 91,492 | ||||||||||
Occupancy and equipment | 14,296 | 14,424 | 56,189 | 57,495 | ||||||||||
Telecommunications and data processing services | 13,302 | 12,961 | 56,643 | 51,523 | ||||||||||
Restructuring charges | 5,265 | — | 9,620 | — | ||||||||||
Other general and administrative | 20,803 | 19,894 | 108,466 | 101,915 | ||||||||||
Interest expense | 549 | 427 | 2,217 | 1,829 | ||||||||||
Total expenses | 121,735 | 119,528 | 512,292 | 513,577 | ||||||||||
(Loss) income before income tax (benefit) expense | (2,146 | ) | 104,645 | (43,240 | ) | 121,226 | ||||||||
Income tax (benefit) expense | (7,862 | ) | 22,308 | (17,322 | ) | 29,656 | ||||||||
Net income (loss) | $ | 5,716 | $ | 82,337 | $ | (25,918 | ) | $ | 91,570 | |||||
Income (loss) per share: | ||||||||||||||
Basic | $ | 0.18 | $ | 2.46 | $ | (0.79 | ) | $ | 2.70 | |||||
Diluted | $ | 0.17 | $ | 2.40 | $ | (0.79 | ) | $ | 2.63 | |||||
Basic weighted average number of common shares outstanding | 32,607 | 33,433 | 32,906 | 33,907 | ||||||||||
Diluted weighted average number of common shares outstanding | 33,988 | 34,359 | 32,906 | 34,815 |
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Supplemental Financial Data (unaudited) (In thousands) |
||||||||||||
Three Months Ended | Year Ended | |||||||||||
December 31, | December 31, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Revenues by Geographic Region: | ||||||||||||
U.S. Operations | $ | 55,978 | $ | 63,263 | $ | 229,655 | $ | 285,230 | ||||
Canadian Operations | 16,217 | 12,512 | 61,822 | 63,028 | ||||||||
European Operations | 33,709 | 30,650 | 125,945 | 129,729 | ||||||||
Asia Pacific Operations | 13,380 | 9,794 | 47,919 | 48,179 | ||||||||
Corporate (non-product) | 305 | 107,954 | 3,711 | 108,637 | ||||||||
Total Revenues | $ | 119,589 | $ | 224,173 | $ | 469,052 | $ | 634,803 |
Three Months Ended | Year Ended | |||||||||||
December 31, | December 31, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Revenues by Product Group: | ||||||||||||
Execution Services (1) | $ | 84,811 | $ | 82,030 | $ | 328,252 | $ | 386,158 | ||||
Workflow Technology (2) | 23,481 | 22,657 | 92,891 | 94,117 | ||||||||
Analytics | 10,992 | 11,532 | 44,198 | 45,891 | ||||||||
Corporate (non-product) | 305 | 107,954 | 3,711 | 108,637 | ||||||||
Total Revenues | $ | 119,589 | $ | 224,173 | $ | 469,052 | $ | 634,803 |
Notes:
(1) In December 2015, the Company sold its energy research operations and in May 2016 the Company sold its remaining investment research operations, both of which were within the Research Sales and Trading (RS&T) product group. Beginning in the second quarter 2016, the remaining portfolio trading and high-touch execution offerings, previously grouped within RS&T, were combined with the electronic execution and liquidity solutions, previously grouped with the Electronic Brokerage (EB) product group, to form the new Execution Services product group to create an optimal alignment for cross-selling synergies. The entire historic activity of EB and RS&T, including the divested research operations, has been reclassified to the Execution Services product group to conform to the current presentation.
(2) Previously known as Platforms.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition (In thousands, except share amounts) |
||||||||
December 31, | December 31, | |||||||
2016 | 2015 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 277,977 | $ | 330,653 | ||||
Cash restricted or segregated under regulations and other | 40,353 | 37,852 | ||||||
Deposits with clearing organizations | 62,556 | 70,860 | ||||||
Securities owned, at fair value | 2,557 | 5,598 | ||||||
Receivables from brokers, dealers and clearing organizations | 152,294 | 1,036,777 | ||||||
Receivables from customers | 54,486 | 49,176 | ||||||
Premises and equipment, net | 59,333 | 55,496 | ||||||
Capitalized software, net | 38,606 | 39,379 | ||||||
Goodwill | 10,102 | 11,933 | ||||||
Intangibles, net | 15,390 | 24,611 | ||||||
Income taxes receivable | 873 | 128 | ||||||
Deferred taxes | 38,688 | 23,590 | ||||||
Other assets | 22,070 | 22,969 | ||||||
Total assets | $ | 775,285 | $ | 1,709,022 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 174,343 | $ | 169,530 | ||||
Short-term bank loans | 72,150 | 81,934 | ||||||
Payables to brokers, dealers and clearing organizations | 100,188 | 960,559 | ||||||
Payables to customers | 12,272 | 9,957 | ||||||
Securities sold, not yet purchased, at fair value | 249 | 2,637 | ||||||
Income taxes payable | 4,552 | 17,017 | ||||||
Term debt | 6,367 | 12,567 | ||||||
Total liabilities | 370,121 | 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; 52,456,165 and 52,300,885 shares issued at December 31, 2016 and December 31, 2015, respectively | 525 | 523 | ||||||
Additional paid-in capital | 248,748 | 239,090 | ||||||
Retained earnings | 536,350 | 571,626 | ||||||
Common stock held in treasury, at cost; 19,830,032 and 19,207,419 shares at December 31, 2016 and December 31, 2015, respectively | (346,482 | ) | (336,923 | ) | ||||
Accumulated other comprehensive income (net of tax) | (33,977 | ) | (19,495 | ) | ||||
Total stockholders’ equity | 405,164 | 454,821 | ||||||
Total liabilities and stockholders’ equity | $ | 775,285 | $ | 1,709,022 |
INVESTMENT TECHNOLOGY GROUP, INC. Reconciliation of US GAAP Results to Adjusted Results (In thousands, except per share amounts) |
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Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Total revenues | $ | 119,589 | $ | 224,173 | $ | 469,052 | $ | 634,803 | ||||||||
Less: | ||||||||||||||||
Other revenues - gains (1) | — | — | (2,438 | ) | — | |||||||||||
Gain on the sale of energy research operations (2) | — | (107,699 | ) | — | (107,699 | ) | ||||||||||
Adjusted revenues | 119,589 | 116,474 | 466,614 | 527,104 | ||||||||||||
Total expenses | 121,735 | 119,528 | 512,292 | 513,577 | ||||||||||||
Less: | ||||||||||||||||
ADR settlement and associated costs (3) | (3,628 | ) | — | (27,371 | ) | — | ||||||||||
Restructuring (4) | (5,265 | ) | — | (9,620 | ) | — | ||||||||||
Compensation awards for current CEO (5) | (558 | ) | — | (4,415 | ) | — | ||||||||||
Arbitration case with former CEO and associated costs (6) | — | — | (6,580 | ) | — | |||||||||||
Trading pilot settlement and associated costs (7) | — | — | — | (25,198 | ) | |||||||||||
Gain from currency translation adjustment (8) | — | — | 1,066 | — | ||||||||||||
Adjusted expenses | 112,284 | 119,528 | 465,372 | 488,379 | ||||||||||||
(Loss) income before income tax (benefit) expense | (2,146 | ) | 104,645 | (43,240 | ) | 121,226 | ||||||||||
Effect of adjustments | 9,451 | (107,699 | ) | 44,482 | (82,501 | ) | ||||||||||
Adjusted pre-tax income (loss) | 7,305 | (3,054 | ) | 1,242 | 38,725 | |||||||||||
Income tax (benefit) expense | (7,862 | ) | 22,308 | (17,322 | ) | 29,656 | ||||||||||
Tax effect of adjustments (1) – (7) | 2,517 | (16,358 | ) | 7,618 | (14,201 | ) | ||||||||||
Adjustment to tax reserves from resolving a multi-year contingency in the U.S. (9) | 7,320 | - | 7,320 | - | ||||||||||||
Tax incurred to amend capital structure outside North America (10) | — | (6,526 | ) | — | (6,526 | ) | ||||||||||
Adjusted income tax expense (benefit) | 1,975 | (576 | ) | (2,384 | ) | 8,929 | ||||||||||
Net income (loss) | $ | 5,716 | $ | 82,337 | $ | (25,918 | ) | $ | 91,570 | |||||||
Net effect of adjustments | (386 | ) | (84,815 | ) | 29,544 | (61,774 | ) | |||||||||
Adjusted net income (loss) | $ | 5,330 | $ | (2,478 | ) | $ | 3,626 | $ | 29,796 | |||||||
Diluted income (loss) per share | $ | 0.17 | $ | 2.40 | $ | (0.79 | ) | $ | 2.63 | |||||||
Net effect of adjustments | (0.01 | ) | (2.47 | ) | 0.90 | (1.77 | ) | |||||||||
Adjusted diluted income (loss) per share | $ | 0.16 | $ | (0.07 | ) | $ | 0.11 | $ | 0.86 |
Notes:
(1) In the second quarter of 2016, the Company received insurance proceeds of
(2) In
(3) In the third quarter of 2016, the Company accrued
(4) During the second quarter of 2016, the Company incurred restructuring charges of
(5) The Company’s current 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 was eligible for a tax deduction.
(6) In the first half of 2016, the Company incurred a charge of
(7) In
(8) In the third quarter of 2016, the Company substantially completed the liquidation of its investment in its
(9) In the fourth quarter of 2016 the Company resolved a multi-year tax contingency in the U.S. and reduced tax reserves by
(10) In
Reconciliation of Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (In thousands) |
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Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net Income (Loss) (1)(2) | $ | 5,716 | $ | 82,337 | $ | (25,918 | ) | $ | 91,570 | |||||||
Impact of adjustments, after-tax | (386 | ) | (84,815 | ) | 29,544 | (61,774 | ) | |||||||||
Adjusted net income (loss) | 5,330 | (2,478 | ) | 3,626 | 29,796 | |||||||||||
Deduct: | ||||||||||||||||
Investment income | (259 | ) | (205 | ) | (1,163 | ) | (863 | ) | ||||||||
Add Back: | ||||||||||||||||
Interest expense | 549 | 427 | 2,217 | 1,829 | ||||||||||||
Income tax (benefit) expense | (7,862 | ) | 22,308 | (17,322 | ) | 29,656 | ||||||||||
Tax effect of adjustments | 9,837 | (22,884 | ) | 14,938 | (20,727 | ) | ||||||||||
Depreciation and Amortization | 11,073 | 10,827 | 43,523 | 44,151 | ||||||||||||
Adjusted earnings before interest, taxes, depreciation, and amortization | $ | 18,668 | $ | 7,995 | $ | 45,819 | $ | 83,842 |
Notes:
(1) Net income includes pre-tax charges for non-cash stock-based compensation of
(2) Net income includes pre-tax charges for non-cash stock-based compensation of
ITG Media/Investor Contact:J.T. Farley 1-212-444-6259 corpcomm@itg.com