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Investment Technology Group Reports Third Quarter 2007 Results

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NEW YORK--(BUSINESS WIRE)--Investment Technology Group, Inc. (NYSE: ITG - News), a leading provider of technology-based trading services and transaction research, today announced that for the third quarter ended September 30, 2007, ITG's total revenues were $189.8 million, up 30 percent from total revenues of $146.6 million for the third quarter of 2006. ITG's net income was $29.2 million, a 35 percent increase compared to net income of $21.6 million in the third quarter of 2006. Earnings were $0.65 per diluted share, versus earnings of $0.49 per diluted share in the third quarter of last year, an increase of 33 percent. Pre-tax operating margins in the third quarter of 2007 were 26 percent.

ITG had an excellent third quarter in a volatile market environment, said Bob Gasser, ITG's Chief Executive Officer and President. Our continued focus on cross selling our comprehensive suite domestically while globalizing our existing product line resulted in significant growth across the firm.

ITG's non-US revenues were a record $48.3 million in the third quarter of 2007, 68 percent higher than revenues of $28.8 million in the third quarter of 2006. Excluding the impact of non-recurring items in last year's third quarter results, international pre-tax income increased from $1.4 million in the third quarter of 2006 to $5.8 million in the third quarter of 2007.

We saw continued momentum in ITG's non-US business in the third quarter, with Europe, Asia Pacific and Canada reporting record revenues, said Mr. Gasser. ITG is well positioned to benefit from the continued growth of electronic trading globally.

Year to Date Results

For the nine months ended September 30, 2007, revenues increased 20 percent from the prior year period to $534.4 million, net income increased seven percent to $81.1 million and diluted earnings per share increased five percent to $1.81. Excluding non-recurring items in 2006, pro forma operating revenues increased 23 percent, pro forma operating net income increased 19 percent and pro forma diluted operating earnings per share increased 18 percent.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss third quarter results. Those wishing to listen to the call should dial 1-866-356-3377 and enter the pass code 58255161 at least 10 minutes prior to the start of the call to ensure connection. The conference call and webcast will also be accessible through ITG's web site at http://www.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-888-286-8010 and entering the pass code 96837676. The replay will be available starting approximately two hours after the completion of the conference call.

About Investment Technology Group

Investment Technology Group, Inc. (NYSE:ITG - News), is a specialized agency brokerage and technology firm that partners with clients globally to provide innovative solutions spanning the entire investment process. A pioneer in electronic trading, ITG has a unique approach that combines pre-trade analysis, order management, trade execution, and post-trade evaluation to provide clients with continuous improvements in trading and cost efficiency. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that reflect management's expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors include the company's ability to achieve expected future levels of sales; the actions of both current and potential new competitors; rapid changes in technology; financial market volatility; general economic conditions in the United States and elsewhere; evolving industry regulation; cash flows into or redemption from equity funds; effects of inflation; customer trading patterns; and new products and services. These and other risks are described in greater detail in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other documents filed with the Securities and Exchange Commission and available on the company's web site.

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

   

Three Months Ended

September 30,

Nine Months Ended

September 30,

  2007     2006   2007     2006
Revenues:
Commissions $ 161,192 $ 121,787 $ 453,308 $ 365,269
Recurring 21,122 19,067 61,255 54,937
Other   7,521   5,712   19,851   26,161
Total revenues   189,835   146,566   534,414   446,367
 
Expenses:
Compensation and employee benefits 62,806 53,005 180,951 155,731
Transaction processing 29,188 20,391 78,844 57,972
Occupancy and equipment 11,913 9,655 34,353 27,724
Telecommunications and data processing services 10,937 8,006 29,971 22,603
Other general and administrative 23,053 16,797 64,012 46,052
Interest expense   2,579   3,098   8,028   9,278
Total expenses   140,476   110,952   396,159   319,360
Income before income tax expense 49,359 35,614 138,255 127,007
Income tax expense   20,179   14,005   57,154   51,139
Net income $ 29,180 $ 21,609 $ 81,101 $ 75,868
 
Earnings per share:
Basic $ 0.66 $ 0.50 $ 1.84 $ 1.75
Diluted $ 0.65 $ 0.49 $ 1.81 $ 1.72
 
Basic weighted average number of common shares outstanding 44,100 43,436 44,171 43,249
Diluted weighted average number of common shares outstanding 44,813 44,397 44,884 44,178

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)

 

September 30,
2007

December 31,
2006(1)
(unaudited)
Assets
Cash and cash equivalents $ 232,182 $ 321,298
Cash restricted or segregated under regulations and other 34,279 13,610
Securities owned, at fair value 19,225 6,540
Receivables from brokers, dealers and clearing organizations 871,162 196,227
Receivables from customers 1,787,616 393,833
Investments 6,751 9,299
Premises and equipment, net 41,812 34,740
Capitalized software, net 47,447 32,203
Goodwill 419,035 405,754
Other intangibles, net 35,268 29,366
Deferred taxes 1,990 7,426
Other assets   9,505   12,016
Total assets $ 3,506,272 $ 1,462,312
 
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 191,748 $ 152,049
Short-term bank loans 77,900
Payables to brokers, dealers and clearing organizations 685,917 118,251
Payables to customers 1,690,843 414,794
Securities sold, not yet purchased, at fair value 9,126 137
Income taxes payable 16,652 8,147
Deferred taxes 3,185
Long term debt   139,600   160,900
Total liabilities   2,814,971   854,278
 
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; 51,503,221 and
51,443,560 shares issued at September 30, 2007 and December 31, 2006, respectively and 43,735,770 and 43,809,993 shares outstanding at September 30, 2007 and December 31,
2006, respectively
515 514
Additional paid-in capital 209,147 198,419
Retained earnings 621,671 540,570
Common stock held in treasury, at cost; 7,767,451 and 7,633,567 shares at September 30, 2007 and December 31, 2006, respectively (161,713 ) (144,173 )
Accumulated other comprehensive income (net of tax)   21,681   12,704
Total stockholders' equity   691,301   608,034
Total liabilities and stockholders' equity $ 3,506,272 $ 1,462,312
 

(1) Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation, as a result of ITG Inc. commencing self-clearing of equity trades in May 2007. Receivables previously included in receivables from brokers, dealers and others are now divided among the following two accounts: (i) receivables from brokers, dealers and clearing organizations and (ii) receivables from customers. Similarly, payables previously included in payables to brokers, dealers and others are now divided among the following two accounts: (i) payables to brokers, dealers and clearing organizations and (ii) payables to customers. Additionally, certain payables to brokers for clearance and execution costs previously included in accounts payable and accrued expense were reclassified to payables to brokers, dealers and clearing organizations.

INVESTMENT TECHNOLOGY GROUP, INC.

 

Reconciliation of US GAAP Results to Pro Forma Operating Results (unaudited)

 

In evaluating the Company's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Pro forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core businesses. Pro forma earnings per share should be viewed in addition to, and not in lieu of, the Company's reported results under US GAAP.

 

The following is a reconciliation of US GAAP results to pro forma results for the periods presented (in thousands except per share amounts):

 

Three Months Ended

September 30,

 

Nine Months Ended September 30,

  2007     2006   2007   2006  
 
Total revenues

$

189,835

$

146,566

$ 534,414 $ 446,367
Less:
Non-operating revenue (1)       (13,230 )
Pro forma operating revenues   189,835   146,566   534,414 433,137  
 
Total expenses 140,476 110,952 396,159 319,360
Less:
Non-operating expense (2)    

(504

)

(504 )
Pro forma operating expenses   140,476   110,448   396,159 318,856  
 
Income before income tax expense 49,359 35,614 138,255 127,007
Effect of pro forma adjustments     504   (12,726 )
Pro forma operating income before income tax expense   49,359   36,118   138,255 114,281  
 
Income tax expense 20,179 14,005 57,154 51,139
Tax effect of pro forma adjustments     151   (4,959 )
Pro forma operating income tax expense   20,179   14,156   57,154 46,180  
 
Net income 29,180 21,609 81,101 75,868
Net effect of pro forma adjustments     353   (7,767 )
Pro forma operating net income

$

29,180

$

21,962

  $ 81,101 $ 68,101  
 
Diluted earnings per share

$

0.65

$

0.49

$ 1.81 $ 1.72
Net effect of pro forma adjustments   0.01   0.18  
Pro forma diluted operating earnings per share

$

0.65

$

0.50

  $ 1.81 $ 1.54  

Notes:

(1) In 2006, non-recurring revenues relate to:

a) our ownership of two memberships on the New York Stock Exchange (NYSE) that as part of their merger with Archipelago Holdings, Inc. (Archipelago) were combined under a new holding company named NYSE Group, Inc. in which each NYSE member received cash and restricted shares of NYSE Group, Inc. common stock. Accordingly, consideration received for our memberships in the first quarter of 2006 consisted of 157,202 restricted shares of NYSE Group, Inc. common stock resulting in gains of approximately $6.9 million in cash and approximately $1.0 million in dividends, which was recorded as dividend income. In the second quarter of 2006, we were able to sell a portion of the shares received and recorded an additional gain of approximately $80,000, and

 

b) our sale in the second quarter of 2006 of our remaining interests in a Canadian joint venture that we entered into in 2004 with IRESS Market Technology Limited (IRESS), to IRESS resulting in a gain of $5.4 million.

 

(2) We recorded a management restructuring charge in our Asia Pacific Region of $0.5 million in the third quarter of 2006.


Contact:Investment Technology Group, Inc.
Investor and Media Relations:
Alicia Curran, 212-444-6130

Source: Investment Technology Group, Inc. NEW YORK, NY, November 1, 2007 - Investment Technology Group, Inc. (NYSE: ITG), a leading provider of technology-based trading services and transaction research, today announced that for the third quarter ended September 30, 2007, ITG's total revenues were $189.8 million, up 30 percent from total revenues of $146.6 million for the third quarter of 2006. ITG's net income was $29.2 million, a 35 percent increase compared to net income of $21.6 million in the third quarter of 2006. Earnings were $0.65 per diluted share, versus earnings of $0.49 per diluted share in the third quarter of last year, an increase of 33 percent. Pre-tax operating margins in the third quarter of 2007 were 26 percent.

"ITG had an excellent third quarter in a volatile market environment," said Bob Gasser, ITG's Chief Executive Officer and President. "Our continued focus on cross selling our comprehensive suite domestically while globalizing our existing product line resulted in significant growth across the firm."

ITG's non-US revenues were a record $48.3 million in the third quarter of 2007, 68 percent higher than revenues of $28.8 million in the third quarter of 2006. Excluding the impact of non-recurring items in last year's third quarter results, international pre-tax income increased from $1.4 million in the third quarter of 2006 to $5.8 million in the third quarter of 2007.

"We saw continued momentum in ITG's non-US business in the third quarter, with Europe, Asia Pacific and Canada reporting record revenues," said Mr. Gasser. "ITG is well positioned to benefit from the continued growth of electronic trading globally."

Year to Date Results

For the nine months ended September 30, 2007, revenues increased 20 percent from the prior year period to $534.4 million, net income increased seven percent to $81.1 million and diluted earnings per share increased five percent to $1.81. Excluding non-recurring items in 2006, pro forma operating revenues increased 23 percent, pro forma operating net income increased 19 percent and pro forma diluted operating earnings per share increased 18 percent.

Conference Call
ITG has scheduled a conference call today at 11:00 a.m. ET to discuss third quarter results. Those wishing to listen to the call should dial 1-866-356-3377 and enter the pass code 58255161 at least 10 minutes prior to the start of the call to ensure connection. The conference call and webcast will also be accessible through ITG's web site at http://www.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-888-286-8010 and entering the pass code 96837676. The replay will be available starting approximately two hours after the completion of the conference call.

About Investment Technology Group
Investment Technology Group, Inc. (NYSE:ITG), is a specialized agency brokerage and technology firm that partners with clients globally to provide innovative solutions spanning the entire investment process. A pioneer in electronic trading, ITG has a unique approach that combines pre-trade analysis, order management, trade execution, and post-trade evaluation to provide clients with continuous improvements in trading and cost efficiency. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that reflect management's expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors include the company's ability to achieve expected future levels of sales; the actions of both current and potential new competitors; rapid changes in technology; financial market volatility; general economic conditions in the United States and elsewhere; evolving industry regulation; cash flows into or redemption from equity funds; effects of inflation; customer trading patterns; and new products and services. These and other risks are described in greater detail in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other documents filed with the Securities and Exchange Commission and available on the company's web site.

Investor and Media Relations Contact:
Alicia Curran (212) 444-6130

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)
		Three Months Ended
September 30,		Nine Months Ended
September 30,	
		2007		2006		2007		2006	
Revenues:									
Commissions		$	161,192		$	121,787		$	453,308		$	365,269	
Recurring		21,122		19,067		61,255		54,937	
Other		7,521		5,712		19,851		26,161	
Total revenues		189,835		146,566		534,414		446,367	
									
Expenses:									
Compensation and employee benefits		62,806		53,005		180,951		155,731	
Transaction processing		29,188		20,391		78,844		57,972	
Occupancy and equipment		11,913		9,655		34,353		27,724	
Telecommunications and data processing services		10,937		8,006		29,971		22,603	
Other general and administrative		23,053		16,797		64,012		46,052	
Interest expense		2,579		3,098		8,028		9,278	
Total expenses		140,476		110,952		396,159		319,360	
Income before income tax expense		49,359		35,614		138,255		127,007	
Income tax expense		20,179		14,005		57,154		51,139	
Net income		$	29,180		$	21,609		$	81,101		$	75,868	
									
Earnings per share:									
Basic		$	0.66		$	0.50		$	1.84		$	1.75	
Diluted		$	0.65		$	0.49		$	1.81		$	1.72	
									
Basic weighted average number of common shares outstanding		44,100		43,436		44,171		43,249	
Diluted weighted average number of common shares outstanding		44,813		44,397		44,884		44,178	

 
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(In thousands, except share amounts)
		September 30,
2007		December 31,
2006(1)	
		(unaudited)			
Assets					
Cash and cash equivalents		$	232,182		$	321,298	
Cash restricted or segregated under regulations and other		34,279		13,610	
Securities owned, at fair value		19,225		6,540	
Receivables from brokers, dealers and clearing organizations		871,162		196,227	
Receivables from customers		1,787,616		393,833	
Investments		6,751		9,299	
Premises and equipment, net		41,812		34,740	
Capitalized software, net		47,447		32,203	
Goodwill		419,035		405,754	
Other intangibles, net		35,268		29,366	
Deferred taxes		1,990		7,426	
Other assets		9,505		12,016	
Total assets		$	3,506,272		$	1,462,312	
					
Liabilities and Stockholders' Equity					
Liabilities:					
Accounts payable and accrued expenses		$	191,748		$	152,049	
Short-term bank loans		77,900		-	
Payables to brokers, dealers and clearing organizations		685,917		118,251	
Payables to customers		1,690,843		414,794	
Securities sold, not yet purchased, at fair value		9,126		137	
Income taxes payable		16,652		8,147	
Deferred taxes		3,185		-	
Long term debt		139,600		160,900	
Total liabilities		2,814,971		854,278	
					
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; 51,503,221 and
51,443,560 shares issued at September 30, 2007 and December 31, 2006, respectively and 43,735,770 and 43,809,993 shares outstanding at September 30, 2007 and December 31,
2006, respectively		515		514	
Additional paid-in capital		209,147		198,419	
Retained earnings		621,671		540,570	
Common stock held in treasury, at cost; 7,767,451 and 7,633,567 shares at September 30, 2007 and December 31, 2006, respectively		(161,713	)	(144,173	)
Accumulated other comprehensive income (net of tax)		21,681		12,704	
Total stockholders' equity		691,301		608,034	
Total liabilities and stockholders' equity		$	3,506,272		$	1,462,312	
 (1) Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation, as a result of ITG Inc. commencing self-clearing of equity trades in May 2007.  Receivables previously included in receivables from brokers, dealers and others are now divided among the following two accounts: (i) receivables from brokers, dealers and clearing organizations and (ii) receivables from customers.  Similarly, payables previously included in payables to brokers, dealers and others are now divided among the following two accounts: (i) payables to brokers, dealers and clearing organizations and (ii) payables to customers.  Additionally, certain payables to brokers for clearance and execution costs previously included in accounts payable and accrued expense were reclassified to payables to brokers, dealers and clearing organizations.
 
INVESTMENT TECHNOLOGY GROUP, INC.
Reconciliation of US GAAP Results to Pro Forma Operating Results (unaudited)

In evaluating the Company's financial performance, management reviews results from operations which excludes non-operating or one-time charges.  Pro forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core businesses. Pro forma earnings per share should be viewed in addition to, and not in lieu of, the Company's reported results under US GAAP. 

The following is a reconciliation of US GAAP results to pro forma results for the periods presented (in thousands except per share amounts):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006		2007	2006
					
Total revenues 	$	189,835	$	146,566		$	534,414	$	446,367
   Less:					
   Non-operating revenue (1)	-			-		-	(13,230)
Pro forma operating revenues 			189,835	146,566		534,414	433,137
					
Total expenses	140,476	110,952		396,159	319,360
   Less:					
   Non-operating expense (2) 	-			(504)		-	(504)
Pro forma operating expenses			140,476	110,448		396,159	318,856
					
Income before income tax expense			49,359	35,614		138,255	127,007
  Effect of pro forma adjustments 	-	504		-	(12,726)
Pro forma operating income before income tax expense	49,359	36,118		138,255	114,281
					
Income tax expense			20,179	14,005		57,154	51,139
   Tax effect of pro forma adjustments			-	151				-	(4,959)
Pro forma operating income tax expense			20,179	14,156		57,154	46,180
					
Net income	29,180	21,609		81,101	75,868
    Net effect of pro forma adjustments	-	353		-	(7,767)
Pro forma operating net income	$	29,180	$	21,962		$	81,101	$	68,101
					
Diluted earnings per share	$	0.65	$	0.49		$	1.81	$	1.72
  Net effect of pro forma adjustments	-	0.01		-	0.18
Pro forma diluted operating earnings per share	$	0.65	$	0.50		$	1.81	$	1.54
Notes:

(1)  In 2006, non-recurring revenues relate to:
a)  our ownership of two memberships on the New York Stock Exchange ("NYSE") that  as part of their merger with Archipelago Holdings, Inc. ("Archipelago") were combined under a new holding company named NYSE Group, Inc. in which each NYSE member received cash and restricted shares of NYSE Group, Inc. common stock.  Accordingly, consideration received for our memberships in the first quarter of 2006 consisted of 157,202 restricted shares of NYSE Group, Inc. common stock resulting in gains of approximately $6.9 million in cash and approximately $1.0 million in dividends, which was recorded as dividend income.  In the second quarter of 2006, we were able to sell a portion of the shares received and recorded an additional gain of approximately $80,000, and

b)	our sale in the second quarter of 2006 of our remaining interests in a Canadian joint venture that we entered into in 2004 with IRESS Market Technology Limited ("IRESS"), to IRESS resulting in a gain of $5.4 million.  
(2)  We recorded a management restructuring charge in our Asia Pacific Region of $0.5 million in the third quarter of 2006.
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