itg_Current_Folio_8K

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): May 2, 2018

 

INVESTMENT TECHNOLOGY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

Delaware

 

001-32722

 

 

95-2848406

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

 

(IRS Employer
Identification No.)

 

 

 

 

 

One Liberty Plaza, 165 Broadway
New York, New York

 

10006

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (212) 588-4000

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 


 

 

Item 2.02 Results of Operations and Financial Condition.

 

On May 2, 2018, the Company issued a press release announcing financial results for the quarter ended March 31, 2018.  A copy of this press release is attached hereto as Exhibit 99.1.

 

The information contained in this Item 2.02 and in the accompanying exhibit shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this Item 2.02, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1Press release issued by Investment Technology Group, Inc. on May 2, 2018.

2


 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

INVESTMENT TECHNOLOGY GROUP, INC.

 

 

 

 

 

 

Date:    May 2, 2018

By:

/s/ Steven R. Vigliotti

 

 

Steven R. Vigliotti

 

 

Chief Financial Officer and Chief Administrative Officer and Duly Authorized Signatory of Registrant

 

 

 

 

 

3


itg_Ex99_1

Exhibit 99.1

 

ITG Software Solutions, Inc.png

 

ITG Reports First Quarter 2018 Results

Europe and Asia Pacific Operations Set New Revenue and Profitability Records

 

NEW YORK, May 2, 2018 – ITG (NYSE: ITG), a leading independent agency broker and financial technology provider, today reported results for the quarter ended March 31, 2018.

First Quarter 2018 Highlights

-

GAAP net income of $4.4 million, or $0.13 per diluted share, and adjusted net income of $9.7 million, or $0.28 per diluted share. This compares to GAAP net income of $5.3 million, or $0.16 per diluted share for the first quarter of 2017. There were no non-GAAP adjustments to results for the first quarter of 2017.

-

GAAP results for the first quarter of 2018 include (i) a restructuring charge of $7.2 million, or $0.21 per diluted share after taxes, related to the elimination of certain positions in the U.S. operation, partially offset by (ii) an after-tax gain of $1.9 million, or $0.06 per diluted share, related to a reduction in tax reserves from resolving a multi-year contingency in the U.S.

-

Revenues of $131.5 million, compared to revenues of $120.8 million in the first quarter of 2017. Revenues for the first quarter of 2018 were reduced on a net basis by $3.4 million following an accounting rule change implemented in January 2018, which defers the recognition of certain commission revenues until later in the year and accelerates certain software license fee revenues (see discussion below, “Accounting Rule Change”).

-

GAAP expenses of $125.6 million and adjusted expenses of $118.4 million compared to GAAP expenses of $117.0 million in the first quarter of 2017. Adjusted expenses for the first quarter of 2018 exclude the restructuring charge listed above.


 

Picture 3

-

GAAP pre-tax net income of $5.9 million and adjusted pre-tax income of $13.1 million, compared to GAAP pre-tax income of $3.8 million in the first quarter of 2017.

-

Average daily trading volume in the U.S. was 137 million shares versus 151 million shares in the first quarter of 2017. POSIT® average daily U.S. volume was 53 million shares compared to 63 million shares in the first quarter of 2017.

-

Total average daily U.S. volume traded through POSIT Alert® was 14 million shares in the first quarter of 2018 and 15 million shares in the first quarter of 2017. 

-

In Europe, average daily value traded in POSIT was $1.1 billion compared to $1.1 billion in the first quarter of 2017, including the effects of currency translation. Total average daily value traded through POSIT Alert in Europe rose 55% compared to the first quarter of 2017.

-

Repurchases of approximately 180,000 shares of common stock at an average price of $19.80 per share, for a total of $3.6 million under ITG’s authorized share repurchase program. Repurchases since the first quarter of 2010 have totaled 17.7 million shares for $274 million, resulting in a decrease in shares outstanding, net of issuances, of approximately 25%. 

Commenting on the results, ITG President and Chief Executive Officer, Frank Troise, said, “Our continued growth in revenues and adjusted pre-tax net income, driven by new profitability records in Europe and Asia Pacific, demonstrate the progress we are making in executing on our Strategic Operating Plan. We are also committed to maintaining expense discipline across our enterprise, and we took measures this quarter to reduce our annual expenses by $10 million, including $8.5 million in savings in our U.S. operations. We are focused on achieving profitability in the U.S. in the coming quarters.”

 

 


 

Picture 3

First Quarter Regional Segment Results

In the first quarter of 2018, the Company changed the way it measures the profitability of its regional segments to reflect the global nature of its business operations. Certain expenses that are incurred in the U.S. on behalf of the entire Company are now being allocated to the international segments. For comparability purposes, the Company has restated previously reported segment results for first quarter 2017 resulting in a decrease in U.S. expenses of $2.7 million and increases in expenses in Canada, Europe and Asia Pacific of $0.7 million, $1.3 million and $0.7 million, respectively. The regional results in this release for the first quarter of 2017 reflect these restatements.

 

North American revenues were $66.5 million in the first quarter of 2018 as compared to $69.9 million in the first quarter of 2017.

ITG reported net income of $1.0 million in North America in the first quarter of 2018 compared to net income of $0.2 million in the first quarter of 2017. 

U.S. revenues in the first quarter of 2018 were $48.5 million, compared to $53.4 million in the first quarter of 2017. U.S. revenues were reduced in the first quarter of 2018 by $1.6 million due to the Accounting Rule Change described below. Canada revenues in the first quarter of 2018 were $18.0 million, compared to $16.5 million in the first quarter of 2017.

Europe and Asia Pacific revenues were $64.4 million in the first quarter of 2018, up from $50.7 million in the first quarter of 2017.

ITG reported net income for its Europe and Asia Pacific operations of $14.5 million in the first quarter of 2018, up from $9.1 million in the first quarter of 2017.

 

European revenues were a record $44.8 million in the first quarter of 2018, up from $36.7 million in the first quarter of 2017.


 

Picture 3

Asia Pacific revenues were a record $19.6 million in the first quarter of 2018, up from $13.9 million in the first quarter of 2017.

Corporate activity reduced GAAP net income by $11.2 million in the first quarter of 2018, including the impacts of the restructuring charge and the reduction in U.S. tax reserves. Corporate activity reduced GAAP net income by $4.0 million in the first quarter of 2017.

 

Corporate activity includes investment income and non-operating revenues and gains, as well as costs not associated with operating the businesses within ITG's regional segments 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 expenses.

Accounting Rule Change

 

Beginning in January 2018, ITG implemented a new accounting rule and is recognizing global commission revenues attributed to analytics products under bundled arrangements over the course of the annual service period. This change resulted in the deferral of $3.8 million of commission revenues in the first quarter of 2018. It is expected to result in an additional deferral of approximately $2 million in the second quarter of 2018. These deferrals are expected to be offset by increased recognition of bundled commission revenues in the second half of 2018. The new accounting rule also accelerated the recognition of software license fees, increasing revenues by $0.4 million in the first quarter of 2018.

 

Conference Call on 1Q18 Results

An investor conference call to discuss ITG’s results will be held today at 8:00 am ET. Those wishing to listen to the call should dial 1-844-881-0134  (1-412-317-6722 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 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.) 


 

Picture 3

and entering replay number 10118325. The replay will be available starting approximately one hour after the completion of the conference call.

 

About ITG

 

Investment Technology Group (NYSE: ITG) is a global financial technology company that helps leading brokers and asset managers improve returns for investors around the world. We empower traders to reduce the end-to-end cost of implementing investments via liquidity, execution, analytics and workflow technology solutions. ITG has offices in Asia Pacific, Europe and North America and offers execution services in more than 50 countries. Please visit www.itg.com for more information. 

 

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 SEC. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with GAAP. Management believes the presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations, and therefore a more complete understanding of factors affecting our business than GAAP measures alone. In addition, management believes the presentation of these matters is useful to investors for period-to-period comparison of results as the items may reflect certain unique and/or non-operating items such as acquisitions, divestitures, restructuring charges, write-offs and impairments, charges associated with litigation or regulatory matters together with related expenses or items outside of management’s control.

 

Adjusted expenses, adjusted pre-tax income, adjusted income tax expense (benefit), adjusted net income 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 expenses, adjusted pre-tax income, adjusted income tax expense (benefit), adjusted net income and adjusted EBITDA to expenses, income before income tax expense, income tax expense, net income and related per share amounts as determined in accordance with GAAP for the three months ended March 31, 2018, are provided in the accompanying supplemental tables at the end of this release.

 

 

Forward Looking Statements

 

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,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “trend,” “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 2017 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, the outcome of contingencies such as legal proceedings or governmental or regulatory investigations and customer or shareholder reaction to, or further proceedings or sanctions based on, such matters, the volatility of our stock price, changes in tax policy or accounting rules, the ability of the Company to utilize its loss and tax credit carryforwards, 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, operational risks related to misconduct or errors by our employees or entities with which we do business, cash flows into or redemptions from equity mutual funds, ability to meet the capital and liquidity requirements of our securities business and the related clearing of our customers’ trades, customer


 

Picture 3

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.

 

ITG Media/Investor Contact:

J.T. Farley

1-212-444-6259

corpcomm@itg.com 

 

###

 

 


 

Picture 3

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2018

    

2017

 

 

(unaudited)

 

(unaudited)

Revenues:

 

 

  

 

 

  

Commissions and fees

 

$

109,569

 

$

99,880

Recurring

 

 

19,562

 

 

18,950

Other

 

 

2,353

 

 

2,005

Total revenues

 

 

131,484

 

 

120,835

 

 

 

 

 

 

 

Expenses:

 

 

  

 

 

  

Compensation and employee benefits

 

 

45,787

 

 

46,684

Transaction processing

 

 

27,080

 

 

24,856

Occupancy and equipment

 

 

14,775

 

 

15,622

Telecommunications and data processing services

 

 

12,603

 

 

12,027

Restructuring charges

 

 

7,165

 

 

 —

Other general and administrative

 

 

17,691

 

 

17,315

Interest expense

 

 

486

 

 

520

Total expenses

 

 

125,587

 

 

117,024

Income before income tax expense

 

 

5,897

 

 

3,811

Income tax expense (benefit)

 

 

1,520

 

 

(1,491)

Net income

 

$

4,377

 

$

5,302

Income per share:

 

 

  

 

 

  

Basic

 

$

0.13

 

$

0.16

Diluted

 

$

0.13

 

$

0.16

Basic weighted average number of common shares outstanding

 

 

32,890

 

 

32,949

Diluted weighted average number of common shares outstanding

 

 

33,993

 

 

34,130

 


 

Picture 3

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2018

    

2017

 

 

(unaudited)

 

(unaudited)

Revenues by Geographic Region:

 

 

  

 

 

  

U.S. Operations

 

$

48,486

 

$

53,393

Canadian Operations

 

 

18,047

 

 

16,482

European Operations

 

 

44,830

 

 

36,712

Asia Pacific Operations

 

 

19,607

 

 

13,943

Corporate (non-product)

 

 

514

 

 

305

Total Revenues

 

$

131,484

 

$

120,835

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2018

    

2017

 

 

(unaudited)

 

(unaudited)

Revenues by Product Group:

 

 

  

 

 

  

Execution Services

 

$

94,356

 

$

86,287

Workflow Technology

 

 

26,575

 

 

23,100

Analytics

 

 

10,039

 

 

11,143

Corporate (non-product)

 

 

514

 

 

305

Total Revenues

 

$

131,484

 

$

120,835

 


 

Picture 3

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

 

 

(unaudited)

 

 

 

Assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

230,314

 

$

287,452

Cash restricted or segregated under regulations and other

 

 

19,242

 

 

18,599

Deposits with clearing organizations

 

 

71,520

 

 

57,388

Securities owned, at fair value

 

 

1,256

 

 

1,559

Receivables from brokers, dealers and clearing organizations

 

 

190,518

 

 

193,907

Receivables from customers

 

 

118,357

 

 

74,695

Premises and equipment, net

 

 

52,947

 

 

53,960

Capitalized software, net

 

 

40,730

 

 

41,259

Goodwill

 

 

11,465

 

 

11,054

Intangibles, net

 

 

13,869

 

 

14,040

Income taxes receivable

 

 

873

 

 

3,917

Deferred tax assets

 

 

4,386

 

 

4,902

Other assets

 

 

45,191

 

 

22,124

Total assets

 

$

800,668

 

$

784,856

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Accounts payable and accrued expenses

 

$

171,351

 

$

166,495

Short-term bank loans

 

 

83,414

 

 

101,422

Payables to brokers, dealers and clearing organizations

 

 

132,143

 

 

119,278

Payables to customers

 

 

41,196

 

 

23,568

Securities sold, not yet purchased, at fair value

 

 

 —

 

 

 1

Income taxes payable

 

 

5,377

 

 

6,003

Deferred tax liabilities

 

 

1,741

 

 

1,750

Term debt

 

 

2,509

 

 

3,104

Total liabilities

 

 

437,731

 

 

421,621

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; 52,717,707 and 52,639,823 shares issued at March 31, 2018 and December 31, 2017, respectively

 

 

527

 

 

526

Additional paid-in capital

 

 

242,008

 

 

250,216

Retained earnings

 

 

488,993

 

 

486,957

Common stock held in treasury, at cost; 19,680,039 and 20,038,809 shares at March 31, 2018 and December 31, 2017, respectively

 

 

(348,263)

 

 

(353,067)

Accumulated other comprehensive loss (net of tax)

 

 

(20,328)

 

 

(21,397)

Total stockholders’ equity

 

 

362,937

 

 

363,235

Total liabilities and stockholders’ equity

 

$

800,668

 

$

784,856


 

Picture 3

INVESTMENT TECHNOLOGY GROUP, INC.

Reconciliation of US GAAP Results to Adjusted Results (unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

    

Three Months Ended

 

 

March 31, 2018

Total expenses

 

$

125,587

Less:

 

 

 

Restructuring (1)

 

 

(7,165)

Adjusted expenses

 

$

118,422

 

 

 

 

Income before income tax expense

 

$

5,897

Effect of adjustments

 

 

7,165

Adjusted pre-tax income

 

$

13,062

 

 

 

 

Income tax expense

 

$

1,520

Tax effect of adjustments (1)

 

 

 —

Reduction in tax reserves (2)

 

 

1,862

Adjusted income tax expense (benefit)

 

$

3,382

 

 

 

 

Net income

 

$

4,377

Net effect of adjustments

 

 

5,303

Adjusted net income

 

$

9,680

 

 

 

 

Diluted income per share

 

$

0.13

Net effect of adjustments

 

 

0.15

Adjusted diluted income per share

 

$

0.28


 

Notes:

(1)

During the three months ended March 31, 2018, the Company incurred restructuring charges of $7.2 million related to the elimination of certain positions in the U.S. Due to the full valuation on U.S. deferred tax assets, there is no tax effect on this adjustment.

 

(2)

During the three months ended March 31, 2018, the Company resolved a multi-year tax contingency in the U.S. and reduced tax reserves by $1.9 million.


 

Picture 3

Reconciliation of Adjusted Earnings

Before Interest, Taxes, Depreciation, and Amortization (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2018

    

2017

Net Income (1)

 

$

4,377

 

$

5,302

Impact of adjustments, after-tax

 

 

5,303

 

 

 —

Adjusted net income

 

 

9,680

 

 

5,302

 

 

 

 

 

 

 

Deduct:

 

 

  

 

 

  

Investment income

 

 

(499)

 

 

(281)

 

 

 

 

 

 

 

Add Back:

 

 

 

 

 

 

Interest expense

 

 

486

 

 

520

Income tax expense (benefit)

 

 

1,520

 

 

(1,491)

Reduction to tax reserves

 

 

1,862

 

 

 —

Depreciation and amortization

 

 

11,230

 

 

11,227

Adjusted earnings before interest, taxes, depreciation, and amortization

 

$

24,279

 

$

15,277


Notes:

(1)

Net income includes pre-tax charges for non-cash stock-based compensation of $8.3 million and $5.7 million for the three months ended March 31, 2018 and 2017, respectively.

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