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8-K - 8-K - INVESTMENT TECHNOLOGY GROUP, INC.a15-22490_18k.htm

Exhibit 99.1

 

ITG Reports Third Quarter 2015 Results

Declares Quarterly Dividend of $0.07 per share

 

NEW YORK, November 5, 2015 — ITG (NYSE: ITG), an independent execution broker and research provider, today reported results for the quarter ended September 30, 2015.

 

Third quarter 2015 highlights included:

 

·                  GAAP net income of $2.7 million, or $0.08 per diluted share compared to GAAP net income of $11.4 million, or $0.32 per diluted share for the third quarter of 2014. GAAP net income for the third quarter of 2015 includes legal and other fees related to the August 2015 final SEC settlement of $2.6 million pre-tax and $1.5 million after taxes, or $0.04 per diluted share.

 

·                  Adjusted net income of $4.2 million, or $0.12 per diluted share, excluding the fees related to the SEC settlement. Both GAAP net income and adjusted net income in the third quarter of 2015 include a net reduction to compensation expense related to the reversal of stock and cash compensation associated with the management changes announced in August totaling $2.1 million pre-tax and $1.2 million after taxes, or $0.03 per diluted share. There were no non-GAAP adjustments to earnings in the third quarter of 2014, however there was 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 $120.4 million, compared to revenues of $134.8 million in the third quarter of 2014.

 

·                  Expenses of $117.2 million compared to expenses of $122.7 million in the third quarter of 2014. Adjusted expenses, net of the legal and other fees related to the SEC settlement, were $114.7 million.

 

·                  Average daily trading volume in the U.S. of 152 million shares versus 147 million shares in the third quarter of 2014. POSIT® average daily U.S. volume was 67 million shares compared to 72 million shares in the third quarter of 2014. Total average daily volume traded through POSIT Alert® was 9 million shares, compared to 14 million shares in the third quarter of 2014.

 



 

·                  In Europe, average daily value traded in POSIT was $1.2 billion, compared with $1.0 billion in the third quarter of 2014. Total average daily value traded through POSIT Alert declined 21% in the third quarter of 2015 compared with the prior-year period.

 

·                  The repurchase of 460,000 shares of common stock under ITG’s authorized share repurchase program for a total of $7.2 million. Repurchases since the first quarter of 2010 have totaled $220.7 million for a total of 14.7 million shares, resulting in a decrease in shares outstanding, net of issuances, by more than 23%.

 

“Over the course of the quarter, we worked to address the concerns of our clients and to return to normal business conditions. I am proud of what everyone at ITG accomplished,” said ITG interim CEO Jarrett Lilien. “While much work remains to be done, we are pleased with our progress, particularly the renewed momentum in POSIT Alert and the stability of our Platforms and Analytics businesses, and we are looking forward to pursuing a path of growth in 2016.”

 

Maureen O’Hara, Chair of ITG’s Board of Directors, commented, “We are pleased that Frank Troise, a proven leader in our industry, will join us as our new CEO. ITG’s Board and management team are all looking forward to working with him and welcoming him when he comes on board in January.”

 

Regional Segment Results

 

ITG’s North American revenues were $80.9 million in the third quarter of 2015 compared to $90.1 million in the third quarter of 2014. ITG reported net income of $2.4 million in North America in the third quarter of 2015, down from $7.9 million in the third quarter of 2014. U.S. revenues were $66.0 million, down 9% from the third quarter of 2014 while Canada revenues were down 16% to $14.9 million in the third quarter of 2015, including the impact of currency translation. The overall revenue capture rate per share in the U.S. was $0.0040, down from $0.0042 in the second quarter of 2015 and down from $0.0046 in the third quarter of 2014. The decline in the overall average rate was due in large part to the impact of a higher percentage of trading activity from sell-side clients.

 

ITG’s Europe and Asia Pacific revenues were $39.3 million in the third quarter of 2015 compared to $44.2 million in the third quarter of 2014, including the impact of currency translation. European revenues were $28.9 million, down 9% from the third quarter of

 



 

2014 while Asia Pacific revenues were $10.4 million, down 17% from the third quarter of 2014. ITG’s Europe and Asia Pacific operations reported net income of $3.6 million in the third quarter of 2015 compared to $6.8 million in the third quarter of 2014.

 

Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2015, including the after-tax impact of legal and other fees of $1.5 million related to the August 2015 final SEC settlement and the after-tax reduction to compensation associated with the management changes announced in August of $1.2 million. Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2014. Corporate activity includes investment income as well as costs not associated with operating ITG’s regional and product group business lines including, among others, the costs of being a public company, intangible amortization, interest expense, the costs of maintaining a global transfer pricing structure and certain non-operating items. Prior to the first quarter of 2015, the majority of these costs were presented in the U.S. segment.

 

Year-to-Date Results

 

For the first nine months of 2015, revenues were $410.6 million, GAAP net income was $9.2 million, or $0.26 per diluted share, and adjusted net income was $32.3 million, or $0.92 per diluted share. For the first nine months of 2014, revenues were $410.8 million and GAAP net income was $37.9 million, or $1.04 per diluted share. There were no adjustments to earnings in the first nine months of 2014.

 

The discussion of results above includes adjusted net income and related per share amounts, in addition to 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 GAAP results.

 

Quarterly Dividend

 

For the fourth quarter of 2015, the Board of Directors declared a quarterly cash dividend of $0.07 per share. The dividend is payable on December 11, 2015, to shareholders of record on November 20, 2015.

 

Conference Call

 

A conference call to discuss the firm’s results will be held at 11:00 am ET on November 5, 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 10073487. The replay will be available starting approximately one hour after the completion of the conference call.

 

ABOUT ITG

 

ITG is an independent execution broker and research provider 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 2014 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 increased regulatory scrutiny, customers’ reactions to the settlement in August 2015 with the Securities and Exchange Commission, the outcome of contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, 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

Condensed Consolidated Statements of Operations (unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

Commissions and fees

 

$

89,934

 

$

102,900

 

$

319,720

 

$

317,777

 

Recurring

 

26,659

 

26,452

 

80,038

 

77,004

 

Other

 

3,816

 

5,421

 

10,872

 

16,067

 

Total revenues

 

120,409

 

134,773

 

410,630

 

410,848

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

46,305

 

52,408

 

157,612

 

156,305

 

Transaction processing

 

21,621

 

21,561

 

71,381

 

62,166

 

Occupancy and equipment

 

14,229

 

14,937

 

43,071

 

45,000

 

Telecommunications and data processing services

 

12,779

 

12,942

 

38,562

 

38,294

 

Other general and administrative

 

21,856

 

20,281

 

82,021

 

60,101

 

Interest expense

 

429

 

566

 

1,402

 

1,796

 

Total expenses

 

117,219

 

122,695

 

394,049

 

363,662

 

Income before income tax expense

 

3,190

 

12,078

 

16,581

 

47,186

 

Income tax expense

 

480

 

713

 

7,348

 

9,275

 

Net income

 

$

2,710

 

$

11,365

 

$

9,233

 

$

37,911

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

$

0.32

 

$

0.27

 

$

1.06

 

Diluted

 

$

0.08

 

$

0.32

 

$

0.26

 

$

1.04

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

33,859

 

35,093

 

34,066

 

35,628

 

Diluted weighted average number of common shares outstanding

 

34,547

 

36,026

 

34,976

 

36,599

 

 



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data (unaudited)

(In thousands)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues by Geographic Region:

 

 

 

 

 

 

 

 

 

U.S. Operations

 

$

66,039

 

$

72,315

 

$

221,967

 

$

225,188

 

Canadian Operations

 

14,899

 

17,830

 

50,516

 

54,842

 

European Operations

 

28,899

 

31,635

 

99,079

 

95,489

 

Asia Pacific Operations

 

10,351

 

12,535

 

38,385

 

34,295

 

Corporate (non-product)

 

221

 

458

 

683

 

1,034

 

Total Revenues

 

$

120,409

 

$

134,773

 

$

410,630

 

$

410,848

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues by Product Group:

 

 

 

 

 

 

 

 

 

Electronic Brokerage

 

$

59,418

 

$

68,663

 

$

214,920

 

$

214,740

 

Research, Sales and Trading

 

26,316

 

30,470

 

89,208

 

90,026

 

Platforms

 

22,837

 

23,570

 

71,460

 

70,636

 

Analytics

 

11,617

 

11,612

 

34,359

 

34,413

 

Corporate (non-product)

 

221

 

458

 

683

 

1,033

 

Total Revenues

 

$

120,409

 

$

134,773

 

$

410,630

 

$

410,848

 

 



 

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)

 

 

 

September 30,
2015

 

December 31,
2014

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

166,605

 

$

275,210

 

Cash restricted or segregated under regulations and other

 

35,067

 

38,080

 

Deposits with clearing organizations

 

96,242

 

72,527

 

Securities owned, at fair value

 

7,941

 

12,073

 

Receivables from brokers, dealers and clearing organizations

 

1,131,187

 

644,614

 

Receivables from customers

 

64,095

 

107,935

 

Premises and equipment, net

 

52,991

 

60,306

 

Capitalized software, net

 

39,351

 

38,333

 

Goodwill

 

12,349

 

12,803

 

Intangibles, net

 

29,180

 

31,595

 

Income taxes receivable

 

923

 

105

 

Deferred taxes

 

33,976

 

37,209

 

Other assets

 

23,910

 

20,059

 

Total assets

 

$

1,693,817

 

$

1,350,849

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

161,252

 

$

199,211

 

Short-term bank loans

 

65,013

 

78,360

 

Payables to brokers, dealers and clearing organizations

 

1,009,867

 

600,041

 

Payables to customers

 

50,279

 

11,132

 

Securities sold, not yet purchased, at fair value

 

4,851

 

8,253

 

Income taxes payable

 

7,729

 

19,772

 

Deferred taxes

 

 

703

 

Term debt

 

10,414

 

17,781

 

Total liabilities

 

1,309,405

 

935,253

 

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; 52,300,885 and 52,229,962 shares issued at September 30, 2015 and December 31, 2014, respectively

 

523

 

522

 

Additional paid-in capital

 

238,379

 

240,135

 

Retained earnings

 

491,729

 

487,462

 

Common stock held in treasury, at cost; 18,718,888 and 18,000,756 shares at September 30, 2015 and December 31, 2014, respectively

 

(327,892

)

(306,629

)

Accumulated other comprehensive income (net of tax)

 

(18,327

)

(5,894

)

Total stockholders’ equity

 

384,412

 

415,596

 

Total liabilities and stockholders’ equity

 

$

1,693,817

 

$

1,350,849

 

 



 

INVESTMENT TECHNOLOGY GROUP, INC.

Reconciliation of US GAAP Results to Adjusted Results

(In thousands, except per share amounts)

 

In evaluating ITG’s financial performance, management reviews results from operations, which excludes non-operating items. Adjusted net income, and related per share amounts, adjusted expenses, adjusted pre-tax income, adjusted income tax expense, 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.

 

 

 

Three Months
Ended
September 30, 2015

 

Nine Months
Ended
September 30, 2015

 

Total revenues

 

$

120,409

 

$

410,630

 

 

 

 

 

 

 

Total expenses

 

117,219

 

394,049

 

Less:

 

 

 

 

 

SEC settlement and related costs (1)

 

(2,551

)

(25,198

)

Adjusted expenses

 

114,668

 

368,851

 

 

 

 

 

 

 

Income before income tax expense

 

3,190

 

16,581

 

Effect of adjustments

 

2,551

 

25,198

 

Adjusted pre-tax income

 

5,741

 

41,779

 

 

 

 

 

 

 

Income tax expense

 

480

 

7,348

 

Tax effect of adjustments (1)

 

1,080

 

2,157

 

Adjusted income tax expense

 

1,560

 

9,505

 

 

 

 

 

 

 

Net income

 

2,710

 

9,233

 

Net effect of adjustments

 

1,471

 

23,041

 

Adjusted net income

 

$

4,181

 

$

32,274

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.08

 

$

0.26

 

Net effect of adjustments

 

0.04

 

0.66

 

Adjusted diluted earnings per share

 

$

0.12

 

$

0.92

 

 


Notes:

 

(1)         In August 2015, the Company reached a final settlement with the SEC to pay an aggregate amount of $20.3 million. In the third quarter of 2015, the Company incurred $2.6 million in legal and related costs to finalize the settlement order. In the second quarter of 2015, the Company reserved $20.3 million for the settlement and incurred $2.3 million in legal and other related costs associated with this matter.

 



 

Reconciliation of Adjusted Earnings

Before Interest, Taxes, Depreciation, and Amortization

(In thousands)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Income (1)(2)

 

$

2,710

 

$

11,365

 

$

9,233

 

$

37,911

 

Impact of adjustments, after-tax

 

1,471

 

 

23,041

 

 

Adjusted net income

 

4,181

 

11,365

 

32,274

 

37,911

 

 

 

 

 

 

 

 

 

 

 

Deduct:

 

 

 

 

 

 

 

 

 

Investment income

 

(215

)

(279

)

(658

)

(838

)

 

 

 

 

 

 

 

 

 

 

Add Back:

 

 

 

 

 

 

 

 

 

Interest expense

 

429

 

566

 

1,402

 

1,796

 

Provision for income taxes

 

480

 

713

 

7,348

 

9,275

 

Tax effect of adjustments

 

1,080

 

 

2,157

 

 

Depreciation and Amortization

 

11,050

 

12,024

 

33,324

 

37,889

 

Adjusted earnings before interest, taxes, depreciation, and amortization

 

$

17,005

 

$

24,389

 

$

75,847

 

$

86,033

 

 


Notes:

 

(1)   Net income includes pre-tax charges for non-cash stock-based compensation of $2.7 million and $3.6 million for the three months ended September 30, 2015 and 2014, respectively.

(2)   Net income includes pre-tax charges for non-cash stock-based compensation of $12.2 million and $11.1 million for the nine months ended September 30, 2015 and 2014, respectively.

 

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