ITG Reports Fourth Quarter 2012 Results

Thu Jan 31, 2013 8:00am EST

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Continued Expense Discipline Helps Maintain Operating Profitability
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:

1During 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. 2In 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. 3During 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. 4In 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. 5In 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. 6During 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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