INVESTMENT TECHNOLOGY GROUP 
By NEW YORK, Jan. 31, 2013 /PRNewswire/ -- ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2012.
(Logo: http://photos.prnewswire.com/prnh/20120123/NY39237LOGO )
Fourth quarter 2012 highlights included:
-- A GAAP net loss of $6.5 million, or $0.17 per diluted share compared to
a GAAP net loss of $3.7 million, or $0.09 per diluted share for the
fourth quarter of 2011. The GAAP net loss for the fourth quarter of
2012 included (i) charges associated with a cost reduction plan focused
on headcount, market data and general and administrative expenses of
$9.5 million, or $0.17 per diluted share after taxes and (ii) duplicate
rent charges associated with the build-out of ITG's new headquarters of
$1.4 million, or $0.02 per diluted share after taxes. The GAAP net loss
for the fourth quarter of 2011 included (i) a restructuring charge
related to lease consolidations and employee separation costs of $6.8
million, or $0.10 per diluted share after taxes and (ii) a non-cash
impairment charge attributable to a minority investment of $4.3 million,
or $0.06 per diluted share after taxes.
-- Adjusted net income of $0.6 million, or $0.02 per diluted share,
compared to adjusted net income in the fourth quarter of 2011 of $2.7
million, or $0.07 per diluted share.
-- Revenues of $121.5 million, compared to revenues of $129.9 million in
the fourth quarter of 2011.
-- Expenses of $130.1 million compared to expenses of $136.3 million in the
fourth quarter of 2011.
-- Adjusted expenses of $119.2 million compared to adjusted expenses of
$125.2 million in the fourth quarter of 2011.
-- Average daily trading volume in the U.S. of 181 million shares, nearly
unchanged from the fourth quarter of 2011. POSIT(®) average daily U.S.
volume was 85 million shares compared to 86 million shares in the fourth
quarter of 2011. Total combined NYSE and NASDAQ average daily trading
volume was down 14% in the fourth quarter of 2012 compared with the
prior-year period.
-- In Europe, the total number of clients trading European equities through
ITG rose to an all-time high. Average daily value traded in POSIT was
$364 million, up 16% from the fourth quarter of 2011. POSIT now
represents more than 11% of total European dark trading.
-- The repurchase of 700,000 shares of common stock under ITG's authorized
share repurchase program for a total of $5.9 million. Repurchases since
the first quarter of 2010 have totaled $112.7 million for 8.6 million
shares, resulting in a decrease in shares outstanding, net of new
issuances, of nearly 15%.
Revenues from U.S. operations were $77.1 million in the fourth quarter of 2012 compared to $83.1 million in the fourth quarter of 2011. ITG's U.S. operations posted a GAAP net loss of $5.8 million and an adjusted net loss of $1.1 million in the fourth quarter of 2012, compared to a GAAP net loss of $6.4 million and adjusted net income of $0.3 million in the fourth quarter of 2011. Sell-side client volume represented 52% of total U.S. volumes, up from 51% in the third quarter of 2012. The overall revenue capture rate per share in the U.S. was $0.0043, down from $0.0044 in the third quarter of 2012.
ITG's International revenues were $44.4 million in the fourth quarter of 2012 compared to $46.8 million in the fourth quarter of 2011. ITG's International operations posted a GAAP net loss of $0.7 million and adjusted net income of $1.7 million in the fourth quarter of 2012, compared to GAAP net income of $2.7 million and adjusted net income of $2.4 million in the fourth quarter of 2011.
"The challenging environment for institutional equity volumes continued into the fourth quarter with market volumes at or near multi-year lows," said Bob Gasser, ITG's Chief Executive Officer and President. "Despite these headwinds, we improved our competitive position and also maintained operating profitability due in large part to our focus on controlling costs. The recent cost reduction measures we took should allow us to improve profitability and we expect to maintain our expense discipline even if institutional volumes improve in 2013."
Year-to-Date Results
For the full year 2012, revenues were $504.4 million, GAAP net loss was $247.9 million, or $6.45 per diluted share, and adjusted net income was $8.2 million, or $0.21 per diluted share. For the full year 2011, revenues were $572.0 million, GAAP net loss was $179.8 million, or $4.42 per diluted share, and adjusted net income was $28.6 million, or $0.69 per diluted share.
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.
Conference Call
ITG has scheduled a conference call today at 11:00 am ET to discuss fourth quarter results. Those wishing to listen to the call should dial 1-866-314-4865 (1-617-213-8050 outside the U.S.) and enter the passcode 13105195 at least 10 minutes prior to the start of the call to ensure connection. The webcast and accompanying slideshow presentation can be downloaded from 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 1-888-286-8010 (1-617-801-6888 outside the U.S.) and entering the passcode 64828941. The replay will be available starting approximately two hours 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 2011 Annual Report on Form 10-K, and its Form 10-Qs and include, but are not limited to, general economic, business, credit and financial market conditions, 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, changes in tax policy or accounting rules, the actions of both current and potential new competitors, changes in commission pricing, the volatility of our stock price, 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, our ability to attract and retain talented employees and our ability to achieve cost savings from our cost reduction plans. 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 Operations (unaudited)
(In thousands, except per share amounts)
Three Months Ended Year Ended Ended
December 31, December 31,
------------ ------------
2012 2011 2012 2011
---- ---- ---- ----
Revenues:
Commissions and fees $91,034 $97,627 $380,976 $445,801
Recurring 27,594 28,636 109,767 110,919
Other 2,906 3,660 13,693 15,317
----- ----- ------ ------
Total revenues 121,534 129,923 504,436 572,037
------- ------- ------- -------
Expenses:
Compensation and employee benefits 47,100 52,041 196,362 219,307
Transaction processing 19,965 20,632 81,173 91,602
Occupancy and equipment 16,892 15,282 62,637 60,191
Telecommunications and data 15,037 13,960 59,850 58,460
processing services
Other general and administrative 21,049 22,705 88,543 90,808
Restructuring charges 9,499 6,754 9,499 24,432
Goodwill and other asset impairment - 4,282 274,285 229,317
Acquisition related costs - - - 2,523
Interest expense 562 625 2,542 2,025
--- --- ----- -----
Total expenses 130,104 136,281 774,891 778,665
------- ------- ------- -------
Loss before income tax benefit (8,570) (6,358) (270,455) (206,628)
Income tax benefit (2,117) (2,686) (22,596) (26,839)
------ ------ ------- -------
Net loss $(6,453) $(3,672) $(247,859) $(179,789)
Loss per share:
Basic $(0.17) $(0.09) $(6.45) $(4.42)
Diluted $(0.17) $(0.09) $(6.45) $(4.42)
Basic weighted average number of 37,709 39,624 38,418 40,691
common shares outstanding
Diluted weighted average number of 37,709 39,624 38,418 40,691
common shares outstanding
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share amounts)
December 31,
------------
2012 2011
---- ----
Assets
Cash and cash equivalents $245,875 $284,188
Cash restricted or segregated under
regulations and other 61,117 71,496
Deposits with clearing organizations 29,149 25,538
Securities owned, at fair value 10,086 5,277
Receivables from brokers, dealers and
clearing organizations 1,107,119 871,315
Receivables from customers 546,825 472,509
Premises and equipment, net 54,989 43,023
Capitalized software, net 43,994 51,258
Goodwill - 274,292
Other intangibles, net 35,227 39,594
Income taxes receivable 7,460 6,838
Deferred taxes 39,155 16,493
Other assets 15,763 16,248
------ ------
Total assets $2,196,759 $2,178,069
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $165,062 $181,224
Short-term bank loans 22,154 1,606
Payables to brokers, dealers and
clearing organizations 1,337,459 1,079,773
Payables to customers 226,892 207,738
Securities sold, not yet purchased, at
fair value 5,249 438
Income taxes payable 10,608 11,460
Deferred taxes 293 719
Term debt 19,272 23,997
------ ------
Total liabilities 1,786,989 1,506,955
========= =========
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;
52,037,011 and 520 519
51,899,229 shares issued at December
31, 2012 and 2011, respectively
Additional paid-in capital 245,002 249,469
Retained earnings 405,485 653,344
Common stock held in treasury, at
cost; 14,677,872 and 12,679,948
shares at (253,111) (240,559)
December 31, 2012 and 2011,
respectively
Accumulated other comprehensive income
(net of tax) 11,874 8,341
------ -----
Total stockholders' equity 409,770 671,114
------- -------
Total liabilities and stockholders'
equity $2,196,759 $2,178,069
========== ==========
INVESTMENT TECHNOLOGY GROUP, INC.
Reconciliation of US 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 expenses and adjusted net income and related per share amounts are non-GAAP 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. These measures should be viewed in addition to, and not in lieu of, ITG's reported results under GAAP.
The following are reconciliations of GAAP results to adjusted results for the periods presented (in thousands except per share amounts):
Three Months Ended December 31, Year Ended Ended December 31,
------------------------------- -----------------------------
2012 2011 2012 2011
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
Total revenues $121,534 $129,923 $504,436 $572,037
Total expenses 130,104 136,281 774,891 778,665
Less:
Restructuring charges (1) (2) (9,499) (6,754) (9,499) (24,432)
Duplicate rent charges (3) (1,378) - (1,378) -
Goodwill and other asset impairment (4)(5) - (4,282) (274,285) (229,317)
Acquisition-related costs (6) - - - (2,523)
Adjusted operating expenses 119,227 125,245 489,729 522,393
------------------ ------- -------
Loss before income tax benefit (8,570) (6,358) (270,455) (206,628)
Effect of pro forma adjustment 10,877 11,036 285,162 256,272
------------------ ------ -------
Adjusted pre-tax operating income 2,307 4,678 14,707 49,644
------------------ ----- ------
Income tax benefit (2,117) (2,686) (22,596) (26,839)
Tax effect of pro forma adjustment 3,806 4,636 29,128 47,897
------------------ ----- ------
Adjusted operating income tax expense 1,689 1,950 6,532 21,058
------------------ ----- -----
Net loss (6,453) (3,672) (247,859) (179,789)
Net effect of pro forma adjustment 7,071 6,400 256,034 208,375
------------------ ----- -------
Adjusted operating net income $618 $2,728 $8,175 $28,586
-------- ---- ------
Diluted loss per share $(0.17) $(0.09) $(6.45) $(4.42)
-------- ------ ------
Net effect of pro forma adjustment 0.19 0.16 6.66 5.11
------------------ ---- ----
Adjusted diluted operating earnings per share $0.02 $0.07 $0.21 $0.69
-------- ----- -----
US Operations International Operations
Three Months Ended December 31, Three Months Ended December 31,
------------------------------- -------------------------------
2012 2011 2012 2011
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
Total revenues $77,073 $83,119 $44,461 $46,804
Total expenses 85,458 94,227 44,646 42,054
Less:
Restructuring charges (1) (2) (6,798) (7,027) (2,701) 273
Duplicate rent charges (3) (1,378) - - -
Goodwill and other asset impairment (5) - (4,282) - -
Adjusted operating expenses 77,282 82,918 41,945 42,327
(Loss) income before income tax benefit (8,385) (11,108) (185) 4,750
Effect of pro forma adjustment 8,176 11,309 2,701 (273)
----- ------ ----- ----
Adjusted pre-tax operating (loss) income (209) 201 2,516 4,477
---- --- ----- -----
Income tax (benefit) expense (2,623) (4,749) 506 2,063
Tax effect of pro forma adjustment 3,505 4,636 301 -
Adjusted operating income tax expense 882 (113) 807 2,063
Net (loss) income (5,762) (6,359) (691) 2,687
Net effect of pro forma adjustment 4,671 6,673 2,400 (273)
----- ----- ----- ----
Adjusted operating net (loss) income $(1,091) $314 $1,709 $2,414
------- ---- ------ ------
Diluted loss per share $(0.15) $(0.16) $(0.02) $0.07
------ ------ -----
Net effect of pro forma adjustment 0.12 0.17 0.07 (0.01)
---- ---- ---- -----
Adjusted diluted operating (loss) earnings per share $(0.03) $0.01 $0.05 $0.06
------ ----- ----- -----
Notes:
1. During the fourth quarter of 2012, ITG implemented a restructuring plan
to reduce operating costs by reducing workforce, market data and other
general and administrative costs across ITG's businesses. The charge
consisted entirely of employee separation costs.
2. In 2011, ITG decided to implement a restructuring plan to improve margins
and enhance shareholder returns primarily focused on reducing costs in
workforce, consulting and infrastructure in the U.S. and Europe. The cost
reduction plan resulted in a restructuring charge totaling $24.4 million,
including $6.8 million recorded in the fourth quarter and $17.7 million
recorded in the second quarter. These costs included employee separation
and related costs of $19.2 million and lease consolidation costs of $5.2
million.
3. During the fourth quarter of 2012, ITG began to build out and ready its
new lower Manhattan headquarters while continuing to occupy its existing
headquarters in Mid-town Manhattan and as a result, incurred duplicate
rent charges.
4. In the second quarter of 2012, goodwill with a carrying value of $274.3
million was deemed impaired and its fair value was determined to be zero,
resulting in a full impairment charge.
5. In the second quarter of 2011, goodwill with a carrying value of $470.1
million in the U.S. operating segment was deemed impaired and its fair
value was determined to be $245.1 million, resulting in an impairment
charge of $225.0 million. During the fourth quarter of 2011, ITG
determined that the carrying value of its investment in Disclosure
Insight, Inc. was fully impaired, resulting in a write-off of $4.3
million.
6. During the second quarter of 2011, ITG acquired Ross Smith Energy Group
Ltd., a Calgary-based independent provider of research on the oil and gas
industry. In connection with the acquisition, ITG incurred
acquisition-related costs, including legal fees, contract settlement
costs and other professional fees.
SOURCE ITG
