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8-K - 8-K - INVESTMENT TECHNOLOGY GROUP, INC.a15-3379_18k.htm

Exhibit 99.1

 

ITG Reports Fourth Quarter 2014 Results

 

Earnings Growth Driven by Improved Profitability in North America

 

Full-Year 2014 Return on Average Equity Over 12%

 

NEW YORK, January 29, 2015 — ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2014.

 

Fourth quarter 2014 highlights included:

 

·                  Net income of $13.0 million, or $0.36 per diluted share compared to net income of $9.7 million, or $0.26 per diluted share for the fourth quarter of 2013. Net income for the fourth quarter of 2014 included the impact of employee termination charges of $2.1 million, or $0.04 per diluted share after-tax, including $1.6 million in the U.S. and $0.5 million in Asia Pacific related to cost reduction measures.  Net income for the fourth quarter of 2013 included a $0.9 million income tax benefit, or $0.02 per diluted share, from resolving a contingency in the U.K.

 

·                  Revenues of $149.0 million, compared to revenues of $131.9 million in the fourth quarter of 2013.

 

·                  Expenses of $131.2 million, compared to expenses of $121.3 million in the fourth quarter of 2013.

 

·                  Average daily trading volume in the U.S. of 190 million shares versus 148 million shares in the fourth quarter of 2013.  POSIT® average daily U.S. volume was 90 million shares compared to 63 million shares in the fourth quarter of 2013.  Total average daily volume traded through POSIT Alert® was 16 million shares compared to 14 million in the fourth quarter of 2013.

 

·                  In Europe, average daily value traded in POSIT was $946 million, compared with $731 million in the fourth quarter of 2013.  Total average daily value traded through POSIT Alert rose 53% in the fourth quarter of 2014 compared with the prior-year period.

 

·                  An annualized return on average equity of 12.5%, compared with 9.3% in the fourth quarter of 2013. For the full year 2014, return on average equity was 12.2% compared to 7.6% for the full year 2013.

 



 

·                  The repurchase of 637,000 shares of common stock under ITG’s authorized share repurchase program for a total of $12.0 million.  Repurchases since the first quarter of 2010 have totaled $189.0 million for a total of 13.3 million shares, resulting in a decrease in shares outstanding, net of issuances, of almost 22%.

 

Revenues from U.S. operations were $81.4 million in the fourth quarter of 2014 compared to $75.3 million in the fourth quarter of 2013.  ITG’s U.S. operations reported net income of $3.0 million in the fourth quarter of 2014, up from $0.5 million in the fourth quarter of 2013. The overall revenue capture rate per share in the U.S. was $0.0044, down from $0.0047 in the fourth quarter of 2013.  The decline in the overall average rate was due in large part to an increase in trading activity from lower-rate quantitative clients as well as a decline in the average commission rate paid by sell-side clients.

 

ITG’s International revenues were $67.6 million in the fourth quarter of 2014 compared to $56.6 million in the fourth quarter of 2013.  European revenues were $32.0 million, up 21% from the fourth quarter of 2013.  Canadian revenues were a record $22.9 million, up 22% versus the fourth quarter of 2013 while Asia Pacific revenues were $12.7 million, up 11% from the fourth quarter of 2013. ITG’s International operations reported net income of $10.0 million in the fourth quarter of 2014 versus net income of $9.2 million in the fourth quarter of 2013.

 

“In the fourth quarter, our North American results demonstrated the operating leverage we have built into our business as market volumes rebounded.  We also saw solid performance in both Europe and Asia Pacific,” said Bob Gasser, ITG’s Chief Executive Officer and President.  “The insights gained since our product group formation in 2012 are providing opportunities for greater efficiencies as we strive continuously to improve our operating model to grow profitability.  This positions us well for the global trading environment and provides the flexibility to expand our model across asset classes,” added Mr. Gasser.

 

Full Year Results

 

For the full year 2014, revenues were $559.8 million and net income was $50.9 million, or $1.40 per diluted share.  For the full year 2013, revenues were $530.8 million, net income was $31.1 million, or $0.82 per diluted share, and adjusted net income was $37.1 million, or $0.97 per diluted share.  Full year 2014 net income increased 64% versus 2013 net income and 37% versus 2013 adjusted net income.

 



 

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 January 29, 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 10058246.  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.

 

ITG Media/Investor Contact:

J.T. Farley

1-212-444-6259

corpcomm@itg.com

 



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended
December 31,

 

Year Ended Ended
December 31,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

Commissions and fees

 

$

118,395

 

$

98,365

 

$

436,172

 

$

408,619

 

Recurring

 

26,790

 

26,788

 

103,794

 

104,172

 

Other

 

3,781

 

6,747

 

19,848

 

18,010

 

Total revenues

 

148,966

 

131,900

 

559,814

 

530,801

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

59,453

 

50,839

 

215,758

 

201,254

 

Transaction processing

 

24,234

 

19,971

 

86,400

 

83,792

 

Occupancy and equipment

 

14,811

 

15,940

 

59,811

 

69,022

 

Telecommunications and data processing services

 

12,893

 

13,142

 

51,187

 

53,607

 

Other general and administrative

 

19,248

 

20,544

 

79,349

 

77,431

 

Restructuring charges

 

 

 

 

(75

)

Interest expense

 

526

 

821

 

2,322

 

2,715

 

Total expenses

 

131,165

 

121,257

 

494,827

 

487,746

 

Income before income tax expense

 

17,801

 

10,643

 

64,987

 

43,055

 

Income tax expense

 

4,820

 

981

 

14,095

 

11,970

 

Net income

 

$

12,981

 

$

9,662

 

$

50,892

 

$

31,085

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

$

0.27

 

$

1.44

 

$

0.84

 

Diluted

 

$

0.36

 

$

0.26

 

$

1.40

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

34,521

 

36,287

 

35,349

 

36,788

 

Diluted weighted average number of common shares outstanding

 

35,640

 

37,685

 

36,365

 

38,114

 

 



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data (unaudited)

(In thousands)

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues by Geographic Region:

 

 

 

 

 

 

 

 

 

U.S. Operations

 

$

81,402

 

$

75,349

 

$

306,933

 

$

318,036

 

Canadian Operations

 

22,899

 

18,770

 

78,093

 

74,994

 

European Operations

 

31,958

 

26,384

 

127,563

 

91,791

 

Asia Pacific Operations

 

12,707

 

11,397

 

47,225

 

45,980

 

Total Revenues

 

$

148,966

 

$

131,900

 

$

559,814

 

$

530,801

 

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues by Product Group:

 

 

 

 

 

 

 

 

 

Electronic Brokerage

 

$

79,789

 

$

69,233

 

$

294,529

 

$

279,830

 

Research, Sales and Trading

 

32,016

 

27,147

 

122,042

 

107,383

 

Platforms

 

25,290

 

23,282

 

95,926

 

96,127

 

Analytics

 

11,599

 

11,557

 

46,012

 

46,004

 

Corporate (non-product)

 

272

 

681

 

1,305

 

1,457

 

Total Revenues

 

$

148,966

 

$

131,900

 

$

559,814

 

$

530,801

 

 



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)

 

 

 

December 31,

 

 

 

2014

 

2013

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

275,210

 

$

261,897

 

Cash restricted or segregated under regulations and other

 

69,738

 

71,202

 

Deposits with clearing organizations

 

36,424

 

74,771

 

Securities owned, at fair value

 

12,073

 

7,436

 

Receivables from brokers, dealers and clearing organizations

 

646,330

 

866,271

 

Receivables from customers

 

107,935

 

72,660

 

Premises and equipment, net

 

60,306

 

66,171

 

Capitalized software, net

 

38,333

 

37,892

 

Goodwill, net

 

12,803

 

 

Intangibles, net

 

31,595

 

31,201

 

Income taxes receivable

 

105

 

54

 

Deferred taxes

 

37,209

 

34,130

 

Other assets

 

22,788

 

15,787

 

Total assets

 

$

1,350,849

 

$

1,539,472

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

199,211

 

$

175,931

 

Short-term bank loans

 

78,360

 

73,539

 

Payables to brokers, dealers and clearing organizations

 

600,041

 

575,943

 

Payables to customers

 

11,132

 

248,174

 

Securities sold, not yet purchased, at fair value

 

8,253

 

2,953

 

Income taxes payable

 

19,772

 

14,805

 

Deferred taxes

 

703

 

363

 

Term debt

 

17,781

 

30,332

 

Total liabilities

 

935,253

 

1,122,040

 

 

 

 

 

 

 

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 December 31, 2014 and 2013, respectively

 

522

 

522

 

Additional paid-in capital

 

240,135

 

240,057

 

Retained earnings

 

487,462

 

436,570

 

Common stock held in treasury, at cost; 18,000,756 and 16,005,500 shares at December 31, 2014 and 2013, respectively

 

(306,629

)

(268,253

)

Accumulated other comprehensive income (net of tax)

 

(5,894

)

8,536

 

Total stockholders’ equity

 

415,596

 

417,432

 

Total liabilities and stockholders’ equity

 

$

1,350,849

 

$

1,539,472

 

 

Certain reclassifications to the prior year balances for receivables from brokers, dealers and clearing organizations, receivables from customers, payables to brokers, dealers and clearing organizations and payables to customers have been made to conform to the current period presentation to reflect the Company’s agent capacity for executing transactions on behalf of clients in the Europe and Asia-Pacific regions.

 



 

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, but 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)

 

 

 

Year Ended
December 31,
2013

 

 

 

(unaudited)

 

Total revenues

 

$

530,801

 

 

 

 

 

Total expenses

 

487,746

 

Less:

 

 

 

Restructuring charges (1) 

 

75

 

Duplicate rent charges (2)

 

(2,568

)

Office move (3)

 

(3,910

)

Adjusted operating expenses

 

481,343

 

 

 

 

 

Income before income tax expense

 

43,055

 

Effect of adjustment

 

6,403

 

Adjusted pre-tax operating income

 

49,458

 

 

 

 

 

Income tax expense

 

11,970

 

Tax effect of adjustment (4)

 

405

 

Adjusted operating income tax expense

 

12,375

 

 

 

 

 

Net income

 

31,085

 

Net effect of adjustment

 

5,998

 

Adjusted operating net income

 

$

37,083

 

 

 

 

 

Diluted income per share

 

$

0.82

 

Net effect of adjustment

 

0.15

 

Adjusted diluted operating earnings per share

 

$

0.97

 

 



 


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 2013, ITG continued to build out and ready its new lower Manhattan headquarters while continuing to occupy its then-existing headquarters in midtown Manhattan and as a result incurred duplicate rent charges through June 2013.

(3)         In the second quarter of 2013, ITG moved into its new headquarters and incurred a non-operating charge, which included a reserve for the remaining lease obligation for 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 in the second quarter of 2013 associated with the anticipated withdrawal of capital from Israel.

 

Reconciliation of Adjusted Earnings

Before Interest, Taxes, Depreciation, and Amortization

(In thousands)

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net Income (1)(2)

 

$

12,981

 

$

9,662

 

$

50,892

 

$

31,085

 

Impact of adjustments, after-tax

 

 

 

 

5,998

 

Adjusted net income

 

12,981

 

9,662

 

50,892

 

37,083

 

 

 

 

 

 

 

 

 

 

 

Deduct:

 

 

 

 

 

 

 

 

 

Investment income

 

(265

)

(287

)

(1,104

)

(997

)

 

 

 

 

 

 

 

 

 

 

Add Back:

 

 

 

 

 

 

 

 

 

Interest expense

 

526

 

822

 

2,322

 

2,715

 

Provision for income taxes

 

4,820

 

981

 

14,095

 

11,970

 

Tax effect of adjustments

 

 

 

 

405

 

Depreciation and Amortization

 

11,495

 

13,324

 

49,384

 

53,606

 

Adjusted earnings before interest, taxes, depreciation, and amortization

 

$

29,557

 

$

24,502

 

$

115,589

 

$

104,782

 

 


Notes:

(1)   Net income includes pre-tax charges for stock-based compensation of $6.3 million and $5.8 million for the three months ended December 31, 2014 and 2013, respectively.

(2)   Net income includes pre-tax charges for stock-based compensation of $18.9 million and $20.9 million for the year ended December 31, 2014 and 2013, respectively.

 

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