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Investment Technology Group : ITG Reports Fourth Quarter 2012 Results

01/31/2013 | 08:05am US/Eastern
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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

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