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Investment Technology Group Reports First Quarter 2011 Results

EPS Improves Sequentially to $0.23 on Higher U.S. Trading Volumes

NEW YORK, May 5, 2011 /PRNewswire via COMTEX/ -- Investment Technology Group, Inc. (NYSE: ITG), a leading agency research broker and financial technology firm, today announced results for the quarter ended March 31, 2011.

First quarter 2011 financial highlights included:

  • Net income of $9.5 million, or $0.23 per diluted share, compared to net income of $8.4 million, or $0.19 per diluted share, and adjusted net income of $11.9 million, or $0.27 per diluted share, for the first quarter of 2010. On a sequential basis, net income for the first quarter was higher than the $1.8 million of net income, or $0.04 per diluted share, and the $4.7 million of adjusted net income, or $0.11 per diluted share, earned during the fourth quarter of 2010.
  • Revenues of $150.1 million, 2% higher than the $146.7 million generated during the first quarter of 2010 and 8% higher than the $138.3 million generated during the fourth quarter of 2010.
  • Expenses of $132.9 million compared to expenses of $131.2 million and adjusted expenses of $125.2 million in the first quarter of 2010. First quarter 2011 expenses included $7.5 million of costs from ITG Investment Research and an increase from the first quarter of 2010 of $1.9 million from foreign currency translations.
  • Average daily trading volume in the U.S. of 192 million shares, up 7% from the first quarter of 2010 and up 12% from the fourth quarter of 2010.
  • The repurchase of 674,500 shares of common stock under the Company's authorized share repurchase program for a total of $12.6 million.

"During the first quarter, ITG expanded its research platform, established new trading relationships with research accounts and increased its U.S. trading volumes, despite an 8% decline in average daily U.S. market volumes compared to the first quarter of 2010," said Bob Gasser, ITG's Chief Executive Officer and President. "We continue to focus on delivering best-in-class execution and research services to our clients while still managing costs and returning cash to stockholders in the form of share buybacks."

ITG's U.S. revenues were $100.5 million in the first quarter of 2011 and U.S. net income was $7.8 million. In the first quarter of 2010, U.S. revenues were $99.9 million, U.S. net income was $7.8 million and adjusted U.S. net income was $11.3 million.

ITG's non-U.S. revenues were $49.6 million in the first quarter of 2011, a 6% increase over $46.8 million in the first quarter of 2010. Non-U.S. operations posted net income of $1.7 million in the first quarter of 2011, compared to net income of $0.6 million in the first quarter of 2010.

The discussion above includes adjusted net income, related per share amounts and 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 U.S. GAAP results.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss first quarter results. Those wishing to listen to the call should dial 1-800-295-3991 (1-617-614-3924 outside the US) and enter the passcode 57046110 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 website 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 (1-617-801-6888 outside the US) and entering the passcode 68335749. The replay will be available starting approximately two hours after the completion of the conference call.

About ITG

Investment Technology Group, Inc. is an independent agency research broker that partners with asset managers globally to improve performance throughout the investment process. A leader in electronic trading since launching the POSIT® crossing network in 1987, ITG takes a consultative approach in delivering the highest quality institutional liquidity, execution services, analytical tools, and proprietary research insights grounded in data. Asset managers rely on ITG's independence, experience, and intellectual capital to help mitigate risk, improve performance, and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe, and the Asia Pacific region. For more information on ITG, please visit http://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. These factors are noted throughout ITG's 2010 Annual Report, on its Form 10-K, and on its Form 10-Qs and include, but are not limited to, the actions of both current and potential new competitors, fluctuations in market trading volumes, financial market volatility, changes in commission pricing, potential impairment charges related to goodwill and other long-lived assets, evolving industry regulations, errors or malfunctions in our systems or technology, rapid changes in technology, cash flows into or redemptions from equity funds, effects of inflation, 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 companies we have acquired, changes in tax policy or accounting rules, fluctuations in foreign exchange rates, adverse changes or volatility in interest rates, our ability to attract and retain talented employees, as well as general economic, business, credit and financial market conditions, internationally or nationally. 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.

ITG Media/Investor Contact:

J.T. Farley (212) 444-6259

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)



Three Months Ended

March 31,




2011


2010


Revenues:






Commissions and fees


$

118,676


$

121,918


Recurring


27,221


21,971


Other


4,181


2,801


Total revenues


150,078


146,690








Expenses:






Compensation and employee benefits


57,478


53,464


Transaction processing


23,026


20,659


Occupancy and equipment


14,942


15,197


Telecommunications and data processing services


15,071


13,635


Other general and administrative


22,160


28,070


Interest expense


270


224


Total expenses


132,947


131,249


Income before income tax expense


17,131


15,441


Income tax expense


7,582


7,009


Net income


$

9,549


$

8,432








Earnings per share:






Basic


$

0.23


$

0.19


Diluted


$

0.23


$

0.19








Basic weighted average number of common shares outstanding


41,435


43,827


Diluted weighted average number of common shares outstanding


42,180


44,415



INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)



March 31,

2011


December 31,

2010




(unaudited)




Assets






Cash and cash equivalents


$

267,012


$

317,010


Cash restricted or segregated under regulations and other


68,905


68,965


Deposits with clearing organizations


17,389


14,235


Securities owned, at fair value


7,738


25,789


Receivables from brokers, dealers and clearing organizations


1,556,288


865,251


Receivables from customers


705,847


606,256


Premises and equipment, net


35,815


34,790


Capitalized software, net


63,049


62,507


Goodwill


468,610


468,479


Other intangibles, net


35,831


36,784


Income taxes receivable


6,667


5,561


Deferred taxes


2,252


4,902


Other assets


25,136


20,324


Total assets


$

3,260,539


$

2,530,853








Liabilities and Stockholders' Equity






Liabilities:






Accounts payable and accrued expenses


$

146,979


$

195,109


Short-term bank loans



34,207



--


Payables to brokers, dealers and clearing organizations


1,521,040


1,139,958


Payables to customers


645,592


272,027


Securities sold, not yet purchased, at fair value


2,952


19,362


Income taxes payable


8,152


16,215


Deferred taxes


30,218


18,114


Total liabilities


2,389,140


1,660,785








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; 51,835,395 and 51,790,608 shares issued at March 31, 2011 and December 31, 2010, respectively


518


518


Additional paid-in capital


233,723


246,085


Retained earnings


842,682


833,133


Common stock held in treasury, at cost; 10,587,882 and 10,524,757 shares at March 31, 2011 and December 31, 2010, respectively


(219,276)


(220,161)


Accumulated other comprehensive income (net of tax)


13,752


10,493


Total stockholders' equity


871,399


870,068


Total liabilities and stockholders' equity


$

3,260,539


$

2,530,853



INVESTMENT TECHNOLOGY GROUP, INC.

Reconciliation of U.S. GAAP Results to Adjusted Results


In evaluating ITG's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Adjusted net income, adjusted earnings per share and adjusted expenses are non-GAAP (generally accepted accounting principles) performance measures, but the Company believes that they are useful to assist investors in gaining an understanding of the trends and operating results for ITG's core businesses. Adjusted net income, adjusted earnings per share and adjusted expenses should be viewed in addition to, and not in lieu of, ITG's reported results under U.S. GAAP.


The following tables present a reconciliation of U.S. GAAP results to adjusted results for the periods presented (in thousands except per share amounts):



Consolidated

Three Months Ended


March 31,


December 31,


2011

2010


2010


(unaudited)

(unaudited)


(unaudited)

Total revenues

$ 150,078

$ 146,690


$ 138,346






Total expenses

132,947

131,249


135,198

Less:





Acquisition related costs (1)

--

--


(2,409)

Software write-off (2)

--

(6,091)


--

Restructuring charges (3)

--

--


(1,812)

Adjusted expenses

132,947

125,158


130,977






Income before income tax expense

17,131

15,441


3,148

Effect of adjustments

--

6,091


4,221

Adjusted pre-tax operating income

17,131

21,532


7,369






Income tax expense

7,582

7,009


1,318

Tax effect of adjustments

--

2,589


1,318

Adjusted income tax expense

7,582

9,598


2,636






Net income

9,549

8,432


1,830

Net effect of adjustments

--

3,502


2,903

Adjusted net income

$ 9,549

$ 11,934


$ 4,733






Diluted earnings per share

$ 0.23

$ 0.19


$ 0.04

Net effect of adjustments

--

0.08


0.07

Adjusted diluted earnings per share

$ 0.23

$ 0.27


$ 0.11


Notes:

(1) During the fourth quarter of 2010, ITG acquired Majestic Research Corp. ("Majestic"), a privately-held, independent provider of data-driven equity research for the institutional investment community. In connection with the acquisition, ITG incurred approximately $2.4 million of acquisition related costs, including legal fees and other professional fees, accelerated employee equity awards and severance costs.

(2) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote off $2.4 million of capitalized development initiatives that were not yet deployed. As ITG's product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.

(3) During the fourth quarter of 2010, in connection with the integration of Majestic, ITG decided to close its Westchester, NY office and relocate the staff, primarily sales traders and support, to the midtown Manhattan office and incurred a one-time charge of $2.3 million, as reflected in restructuring charges. This charge was partially offset by a gain of $0.4 million in restructuring charges related to historical foreign exchange translation gains following the substantial liquidation of our Japanese subsidiary.



U.S. Region


Three Months Ended March 31,


2011

2010



(unaudited)

(unaudited)


Total revenues

$

100,511

$

99,908






Total expenses

86,961

86,695


Less:




Software write-off (1)

--

(6,091)


Adjusted expenses

86,961

80,604






Income before income tax expense

13,550

13,213


Effect of adjustment

--

6,091


Adjusted pre-tax operating income

13,550

19,304






Income tax expense

5,763

5,406


Tax effect of adjustment

--

2,589


Adjusted income tax expense

5,763

7,995






Net income

7,787

7,807


Net effect of adjustment

--

3,502


Adjusted net income

$

7,787

$

11,309






Diluted earnings per share

$

0.19

$

0.17


Net effect of adjustment

--

0.08


Adjusted diluted earnings per share

$

0.19

$

0.25



Notes:

(1) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote off $2.4 million of capitalized development initiatives that were not yet deployed. As ITG's product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.

SOURCE Investment Technology Group, Inc.

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