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ITG Reports Second Quarter 2015 Results

GAAP Loss Driven by Reserve for Probable SEC Settlement

Asia Pacific Posts Record Revenues and Earnings

Declares Quarterly Dividend of $0.07 per share


NEW YORK, Aug. 03, 2015 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), an independent execution broker and research provider, today reported results for the quarter ended June 30, 2015.

Second quarter 2015 highlights included:

  • GAAP net loss of $10.2 million, or $0.30 per diluted share compared to GAAP net income of $12.9 million, or $0.35 per diluted share for the second quarter of 2014. The GAAP net loss for the second quarter of 2015 includes a reserve for a probable settlement with the SEC and related legal and other fees totaling $22.6 million pre-tax and $21.6 million after taxes, or $0.62 per diluted share.

  • As previously announced, the probable SEC settlement relates to customer disclosures, Form ATS regulatory filings and customer information controls relating to a proprietary trading pilot operated by ITG subsidiary AlterNet for 16 months in 2010 through mid-2011, which included (a) crossing against sell-side clients in POSIT and (b) violations of ITG policy and procedures by a former employee.  These violations principally involved information breaches for a period of several months in 2010 regarding sell-side parent orders flowing into ITG’s algorithms and executions by all customers in non-POSIT markets that were not otherwise available to ITG clients.

  • Adjusted net income of $11.4 million, or $0.32 per diluted share.  There were no adjustments to earnings in the second quarter of 2014.

  • Revenues of $140.5 million, compared to revenues of $138.5 million in the second quarter of 2014, including record revenues in Asia Pacific.

  • GAAP expenses of $149.4 million and adjusted expenses of $126.8 million, compared to GAAP expenses of $121.8 million in the second quarter of 2014. 

  • Average daily trading volume in the U.S. of 183 million shares versus 149 million shares in the second quarter of 2014. POSIT® average daily U.S. volume was 93 million shares compared to 67 million shares in the second quarter of 2014. Total average daily volume traded through POSIT Alert® was 15 million shares, consistent with the second quarter of 2014.

  • In Europe, average daily value traded in POSIT was $1.3 billion, compared with $1.0 billion in the second quarter of 2014. Total average daily value traded through POSIT Alert dipped 6% in the second quarter of 2015 compared with the prior-year period.

  • The repurchase of 280,000 shares of common stock under ITG’s authorized share repurchase program for a total of $8.1 million. Repurchases since the first quarter of 2010 have totaled $213.6 million for a total of 14.2 million shares, resulting in a decrease in shares outstanding, net of issuances, of 22%. 


Regional Segment Results

Starting with the first quarter of 2015, ITG changed its segment measures and is now presenting regional segment results excluding the impact of Corporate activity. Corporate activity reduced GAAP net income by $24.5 million in the second quarter of 2015, including the after-tax impact of the reserve for a probable SEC settlement and related fees noted above of $21.6 million. Corporate activity reduced net income by $3.3 million in the second quarter of 2014. Corporate activity includes investment income 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 and certain non-operating items.  Previously, the majority of these costs were presented in the U.S. segment.

ITG's North American revenues were $92.2 million in the second quarter of 2015 compared to $95.1 million in the second quarter of 2014. ITG reported net income of $6.3 million in North America in the second quarter of 2015, down from $8.3 million in the second quarter of 2014. U.S. revenues were $75.5 million, down 2% from the second quarter of 2014 while Canada revenues were down 6% to $16.7 million in the second quarter of 2015 due to currency translation.  The overall revenue capture rate per share in the U.S. was $0.0042, down from $0.0045 in the first quarter of 2015 and down from $0.0050 in the second quarter of 2014. The decline in the overall average rate was due in large part to the impact of increased trading activity from sell-side clients. 

ITG’s Europe and Asia Pacific revenues were $48.1 million in the second quarter of 2015 compared to $43.1 million in the second quarter of 2014. European revenues were $33.6 million, up 8% from the second quarter of 2014 while Asia Pacific revenues were a record $14.5 million, up 20% from the second quarter of 2014. ITG’s Europe and Asia Pacific operations reported net income of $8.0 million in the second quarter of 2015 nearly unchanged from the second quarter of 2014. 

“We are pleased with the progress of our international business during the second quarter, as evidenced by the record revenues and profitability in our Asia Pacific operations,” said ITG Chair Maureen O’Hara.  “In the U.S., we look forward to finalizing the SEC settlement so we can put this matter behind us.  We are focused on restoring the confidence of all of our clients and delivering world-class execution and trading solutions.”

Year-to-Date Results

For the first six months of 2015, revenues were $290.2 million, GAAP net income was $6.5 million, or $0.18 per diluted share, and adjusted net income was $28.1 million, or $0.80 per diluted share. For the first six months of 2014, revenues were $276.1 million and GAAP net income was $26.5 million, or $0.72 per diluted share.  There were no adjustments to earnings in the first six months of 2014. 

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.

Quarterly Dividend

For the third quarter of 2015, the Board of Directors declared a quarterly cash dividend of $0.07 per share. The dividend is payable on September 10, 2015, to shareholders of record on August 21, 2015.

Conference Call

A conference call to discuss the firm's results will be held at 8:30am ET on August 4, 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 10069526.  The replay will be available starting approximately one hour after the completion of the conference call.

About ITG

ITG is an independent execution broker and research provider 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 2014 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 increased regulatory scrutiny, the ultimate resolution of the SEC’s AlterNet investigation and any customer or shareholder actions resulting from the matter or the underlying circumstances, 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 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  
Condensed Consolidated Statements of Operations (unaudited)  
(In thousands, except per share amounts)  
           
    Three Months Ended
June 30,
  Six Months Ended
June 30,
 
      2015       2014   2015   2014  
Revenues:                    
Commissions and fees   $ 110,860       $ 106,453   $ 229,786   $ 214,877  
Recurring     26,447       24,975   53,379   50,552  
Other     3,187       7,038   7,056   10,646  
Total revenues     140,494       138,466   290,221   276,075  
                     
Expenses:                    
Compensation and employee benefits     53,899       52,720   111,307   103,897  
Transaction processing     25,187       20,109   49,760   40,605  
Occupancy and equipment     14,470       14,985   28,842   30,063  
Telecommunications and data processing services     13,011       12,655   25,783   25,352  
Other general and administrative     42,408       20,715   60,165   39,820  
Interest expense     468       594   973   1,230  
Total expenses     149,443       121,778   276,830   240,967  
(Loss) income before income tax expense     (8,949 )     16,688   13,391   35,108  
Income tax expense     1,261       3,762   6,868   8,562  
Net (loss) income   $ (10,210 )     $ 12,926   $ 6,523   $ 26,546  
                     
(Loss) income per share:                    
Basic   $ (0.30 )     $ 0.36   $ 0.19   $ 0.74  
Diluted   $ (0.30 )     $ 0.35   $ 0.18   $ 0.72  
                     
Basic weighted average number of common shares outstanding     34,076       35,720   34,172   35,900  
Diluted weighted average number of common shares outstanding     34,076       36,641   35,329   36,933  

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES  
Supplemental Financial Data (unaudited)  
(In thousands)  
           
    Three Months Ended
June 30,
  Six Months Ended
June 30,
 
    2015   2014   2015   2014  
Revenues by Geographic Region:                  
U.S. Operations   $ 75,473   $ 77,267   $ 155,927   $ 152,873  
Canadian Operations   16,703   17,794   35,616   37,012  
European Operations   33,575   31,064   70,180   63,854  
Asia Pacific Operations   14,514   12,063   28,036   21,760  
Corporate   229   278   462   576  
Total Revenues   $ 140,494   $ 138,466   $ 290,221   $ 276,075  

 

    Three Months Ended
June 30,
  Six Months Ended
June 30,
 
    2015   2014   2015   2014  
Revenues by Product Group:                  
Electronic Brokerage   $ 75,048   $ 73,193   $ 155,502   $ 146,076  
Research, Sales and Trading   30,379   30,311   62,892   59,556  
Platforms   23,550   23,333   48,623   47,066  
Analytics   11,288   11,351   22,742   22,801  
Corporate (non-product)   229   278   462   576  
Total Revenues   $ 140,494   $ 138,466   $ 290,221   $ 276,075  

 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(In thousands, except share amounts)
   
  June 30,
2015
    December 31,
2014
 
Assets (unaudited)  
Cash and cash equivalents $ 211,787     $ 275,210  
Cash restricted or segregated under regulations and other   35,426       38,080  
Deposits with clearing organizations   110,033       72,527  
Securities owned, at fair value   10,612       12,073  
Receivables from brokers, dealers and clearing organizations   1,010,335       644,614  
Receivables from customers   105,551       107,935  
Premises and equipment, net   55,236       60,306  
Capitalized software, net   39,283       38,333  
Goodwill   12,945       12,803  
Intangibles, net   29,985       31,595  
Income taxes receivable   3,642       105  
Deferred taxes   29,419       37,209  
Other assets   24,241       20,059  
Total assets $ 1,678,495     $ 1,350,849  
Liabilities and Stockholders’ Equity    
Liabilities:    
Accounts payable and accrued expenses $ 189,904     $ 199,211  
Short‑term bank loans   81,149       78,360  
Payables to brokers, dealers and clearing organizations   954,103       600,041  
Payables to customers   31,324       11,132  
Securities sold, not yet purchased, at fair value   6,996       8,253  
Income taxes payable   7,525       19,772  
Deferred taxes         703  
Term debt   11,962       17,781  
Total liabilities   1,282,963       935,253  
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; 52,265,654 and 52,229,962 shares issued at June 30, 2015 and December 31, 2014, respectively   523       522  
Additional paid‑in capital   235,766       240,135  
Retained earnings   491,600       487,462  
Common stock held in treasury, at cost; 18,299,591 and 18,000,756 shares at June 30, 2015 and December 31, 2014, respectively   (321,443 )     (306,629 )
Accumulated other comprehensive income (net of tax)   (10,914 )     (5,894 )
Total stockholders’ equity   395,532       415,596  
Total liabilities and stockholders’ equity $ 1,678,495     $ 1,350,849  


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 net income, and related per share amounts, adjusted expenses, and adjusted  earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP performance measures that 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.


           
      Three Months
Ended
June 30, 2015
  Six Months
Ended
June 30, 2015
  Total revenues   $ 140,494     $ 290,221  
           
  Total expenses     149,443       276,830  
  Less:        
  Reserve SEC settlement and related costs (1)     (22,647 )     (22,647 )
  Adjusted expenses     126,796       254,183  
           
  (Loss) income before income tax expense     (8,949 )     13,391  
  Effect of adjustments     22,647       22,647  
  Adjusted pre-tax income     13,698       36,038  
           
  Income tax expense     1,261       6,868  
  Tax effect of adjustments (1)     1,077       1,077  
  Adjusted income tax expense     2,338       7,945  
           
  Net (loss) income     (10,210 )     6,523  
  Net effect of adjustments     21,570       21,570  
  Adjusted net income   $ 11,360     $ 28,093  
           
Diluted (loss) earnings per share     $ (0.30 )   $ 0.18  
  Net effect of adjustments     0.62       0.61  
Adjusted diluted earnings per share     $ 0.32     $ 0.80  

Notes:

(1) In the second quarter of 2015, the Company reserved $20.3 million for a probable settlement with the Securities and Exchange Commission.  In addition, the Company incurred legal and other related costs of $2.3 million.  A tax benefit of $1.1 million was recorded primarily on the legal and other related costs. 


 
 
Reconciliation of Adjusted Earnings
Before Interest, Taxes, Depreciation, and Amortization
(In thousands)
 
                   
    Three Months Ended
June 30,
  Six Months Ended
June 30,
 
    2015   2014   2015   2014    
                             
Net Income (1)(2)   $   (10,210 )   $   12,926     $   6,523     $   26,546      
Impact of adjustments, after-tax       21,570           -         21,570         -      
Adjusted net income       11,360         12,926         28,093         26,546      
                             
Deduct:                            
Investment income        (221 )       (271 )       (443 )       (559 )    
                                 
Add Back:                                
Interest expense       468         594         973         1,230      
Provision for income taxes       1,261         3,762         6,868         8,562      
Tax effect of adjustments       1,077         -         1,077         -      
Depreciation and Amortization       11,112         12,831         22,273         25,865      
Adjusted earnings before interest, taxes, depreciation, and amortization   $   25,057     $   29,842     $   58,841     $   61,644      
                             
Notes:            
(1)  Net income includes pre-tax charges for non-cash stock-based compensation of $4.6 million and $3.7 million for the three months ended June 30, 2015 and 2014, respectively.    
(2)  Net income includes pre-tax charges for non-cash stock-based compensation of $9.5 million and $7.5 million for the six months ended June 30, 2015 and 2014, respectively.    


 

 

 

ITG Media/Investor Contact:
J.T. Farley
1-212-444-6259
corpcomm@itg.com

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