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ITG Reports Third Quarter 2014 Results

Strong European Performance and Profitability in Asia Pacific Offset Challenging North American Volumes

NEW YORK, Nov. 3, 2014 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), an independent execution and research broker, today reported results for the quarter ended September 30, 2014.

Third quarter 2014 highlights included:

  • Net income of $11.4 million, or $0.32 per diluted share compared to net income of $7.7 million, or $0.20 per diluted share for the third quarter of 2013. Net income for the third quarter of 2014 includes a net tax benefit of $2.4 million, or $0.07 per diluted share, from resolving a multi-year contingency in the U.S.
     
  • Revenues of $134.8 million, compared to revenues of $127.6 million in the third quarter of 2013.
     
  • Expenses of $122.7 million, compared to expenses of $116.9 million in the third quarter of 2013. 
     
  • Average daily trading volume in the U.S. of 146.7 million shares versus 154.6 million shares in the third quarter of 2013. POSIT® average daily U.S. volume was 71.5 million shares compared to 66.4 million shares in the third quarter of 2013. Total average daily volume traded through POSIT Alert® was 14.3 million shares compared to 16.1 million in the third quarter of 2013.
     
  • In Europe, average daily value traded in POSIT was $951 million, compared with $652 million in the third quarter of 2013. Total average daily value traded through POSIT Alert rose more than 100% in the third quarter of 2014 compared with the prior-year period.
     
  • An annualized return on average equity of 10.8%, compared with 7.6% in the third quarter of 2013. On a year-to-date basis, annualized return on average equity is 12.1% compared to 6.9% for the nine months ended September 30, 2013. 
     
  • The repurchase of 520,000 shares of common stock under ITG's authorized share repurchase program for a total of $9.1 million. Repurchases since the first quarter of 2010 have totaled $177.0 million for a total of 12.6 million shares, resulting in a decrease in shares outstanding, net of issuances, of more than 20%. 

Revenues from U.S. operations were $72.5 million in the third quarter of 2014 compared to $76.8 million in the third quarter of 2013. ITG's U.S. operations reported net income of $2.8 million in the third quarter of 2014, flat as compared to net income in the third quarter of 2013. The overall revenue capture rate per share in the U.S. was $0.0046, down from $0.0049 in the third quarter of 2013. While the average rate from buy-side clients remains strong, the decline in the overall average rate was due in large part to an increase in the percentage of volume from sell-side clients. 

ITG's International revenues were $62.2 million in the third quarter of 2014 compared to $50.7 million in the third quarter of 2013. European revenues were $31.7 million, up 40% from the third quarter of 2013. Canadian revenues were $17.9 million, up 2% versus the third quarter of 2013 while Asia Pacific revenues were $12.6 million, up 20% from the third quarter of 2013. ITG's International operations reported net income of $8.5 million in the third quarter of 2014 versus net income of $4.9 million in the third quarter of 2013, an increase of 73%.

"Strong international performance continues to be a crucial driver of our overall profitability," said Bob Gasser, ITG's Chief Executive Officer and President. "We believe our geographic diversification and the ongoing expansion into new asset classes will enable us to deliver improved shareholder returns in the years ahead," added Mr. Gasser.     

Year-to-Date Results

For the first nine months of 2014, revenues were $410.8 million and net income was $37.9 million, or $1.04 per diluted share. For the first nine months of 2013, revenues were $398.9 million, net income was $21.4 million, or $0.56 per diluted share, and adjusted net income was $27.4 million, or $0.72 per diluted share. 

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 November 3, 2014. 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 10053483. 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
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
         
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2014 2013 2014 2013
Revenues:        
Commissions and fees  $ 102,900  $ 98,378  $ 317,777  $ 310,254
Recurring 26,452 25,761 77,004 77,384
Other 5,421 3,419 16,067 11,263
Total revenues 134,773 127,558 410,848 398,901
         
Expenses:        
Compensation and employee benefits  52,408 49,664 156,305 150,415
Transaction processing 21,561 19,790 62,166 63,821
Occupancy and equipment 14,937 15,821 45,000 53,082
Telecommunications and data processing services 12,942 12,649 38,294 40,465
Other general and administrative 20,281 18,351 60,101 56,887
Restructuring charges  (75)
Interest expense 566 593 1,796 1,894
Total expenses 122,695 116,868 363,662 366,489
Income before income tax expense 12,078 10,690 47,186 32,412
Income tax expense 713 2,975 9,275 10,989
Net income  $ 11,365  $ 7,715  $ 37,911  $ 21,423
         
Income per share:        
Basic  $ 0.32  $ 0.21  $ 1.06  $ 0.58
Diluted  $ 0.32  $ 0.20  $ 1.04  $ 0.56
         
Basic weighted average number of common shares outstanding 35,093 36,544 35,628 36,956
Diluted weighted average number of common shares outstanding 36,026 37,781 36,599 38,214
 
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Supplemental Financial Data (unaudited)
(In thousands)
         
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2014 2013 2014 2013
Revenues by Geographic Region:        
U.S. Operations  $ 72,540  $ 76,843  $ 225,531  $ 242,687
Canadian Operations 17,946 17,575 55,194 56,224
European Operations 31,677 22,663 95,605 65,407
Asia Pacific Operations 12,610 10,477 34,518 34,583
Total Revenues  $ 134,773  $ 127,558  $ 410,848  $ 398,901
         
         
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2014 2013 2014 2013
Revenues by Product Group:        
Electronic Brokerage  $ 68,663  $ 66,234  $ 214,740  $ 210,597
Research, Sales and Trading 30,470 26,683 90,026 80,236
Platforms 23,570 23,151 70,636 72,845
Analytics 11,612 11,177 34,413 34,447
Corporate (non-product) 458 313 1,033 776
Total Revenues  $ 134,773  $ 127,558  $ 410,848  $ 398,901
 
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(In thousands, except share amounts)
     
  September 30,
2014
December 31,
2013
  (unaudited)  
Assets    
Cash and cash equivalents  $ 228,461  $ 261,897
Cash restricted or segregated under regulations and other 71,038 71,202
Deposits with clearing organizations 33,635 74,771
Securities owned, at fair value 21,943 7,436
Receivables from brokers, dealers and clearing organizations 2,094,468 1,018,342
Receivables from customers 1,376,047 591,004
Premises and equipment, net 59,484 66,171
Capitalized software, net 38,072 37,892
Goodwill, net 14,332
Intangibles, net 32,700 31,201
Income taxes receivable 539 54
Deferred taxes 30,864 34,130
Other assets 23,411 15,787
Total assets  $ 4,024,994  $ 2,209,887
     
Liabilities and Stockholders' Equity    
Liabilities:    
Accounts payable and accrued expenses  $ 186,145  $ 175,931
Short-term bank loans 89,926 73,539
Payables to brokers, dealers and clearing organizations 1,660,229 1,025,268
Payables to customers 1,611,985 469,264
Securities sold, not yet purchased, at fair value 22,856 2,953
Income taxes payable 14,156 14,805
Deferred taxes 1,141 363
Term debt 20,937 30,332
Total liabilities 3,607,375 1,792,455
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 September 30, 2014 and December 31, 2013, respectively 522 522
Additional paid-in capital 237,561 240,057
Retained earnings 474,481 436,570
Common stock held in treasury, at cost; 17,444,851 and 16,005,500 shares at September 30, 2014 and December 31, 2013, respectively (295,995) (268,253)
Accumulated other comprehensive income (net of tax) 1,050 8,536
Total stockholders' equity 417,619 417,432
Total liabilities and stockholders' equity  $ 4,024,994  $ 2,209,887

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 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.

Reconciliation of US GAAP Results to Adjusted Results
(In thousands, except share amounts)
   
  Nine Months Ended
September 30, 2013
  (unaudited)
  Consolidated
Total revenues   $ 398,901
   
Total expenses 366,489
Less:  
Restructuring charges (1) 75
Duplicate rent charges (2) (2,568)
Office move (3) (3,910)
Adjusted expenses 360,086
   
Income before income tax expense 32,412
Effect of adjustments 6,403
Adjusted pre-tax income 38,815
   
Income tax expense 10,989
Tax effect of adjustments (4) 405
Adjusted income tax expense 11,394
   
Net income 21,423
Net effect of adjustments 5,998
Adjusted net income  $ 27,421
   
Diluted earnings per share  $ 0.56
Net effect of adjustments 0.16
Adjusted diluted earnings per share  $ 0.72
   
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 the fourth quarter of 2012, ITG began the build out of its new lower Manhattan headquarters while continuing to occupy its then-existing headquarters in midtown Manhattan. As a result, ITG incurred duplicate rent charges through June 2013.
(3)  In the second quarter of 2013, ITG moved into its new headquarters and incurred a one-time charge, which included a reserve for the remaining lease obligation at 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 associated with the anticipated withdrawal of capital from the closure of the Israeli facility.
 
Reconciliation of Adjusted Earnings 
Before Interest, Taxes, Depreciation, and Amortization
(In thousands)
         
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2014 2013 2014 2013
         
Net Income (1)(2)  $ 11,365  $ 7,715  $ 37,911  $ 21,423
Impact of adjustments, after-tax --  -- -- 5,998
Adjusted net income 11,365 7,715 37,911 27,421
         
Deduct:        
Investment income (279) (258) (838) (710)
         
Add Back:        
Interest expense 566 593 1,796 1,894
Provision for income taxes 713 2,975 9,275 10,989
Tax effect of adjustments -- -- -- 405
Depreciation and Amortization 12,024 13,383 37,889 40,281
Adjusted earnings before interest, taxes, depreciation, and amortization  $ 24,389  $ 24,408  $ 86,033  $ 80,280
         
Notes:        
(1) Net income includes pre-tax charges for stock-based compensation of $4.2 million and $4.9 million for the three months ended September 30, 2014 and 2013, respectively
(2) Net income includes pre-tax charges for stock-based compensation of $12.5 million and $15.1 million for the nine months ended September 30, 2014 and 2013, respectively
CONTACT: ITG Media/Investor Contact:
         J.T. Farley
         1-212-444-6259
         corpcomm@itg.com

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