Continued Expense Discipline Helps Maintain Operating Profitability
NEW YORK, January 31, 2013 - ITG (NYSE: ITG), an independent execution and research broker, today reported results for the quarter ended December 31, 2012.
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."
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.
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.
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.
Telecommunications and data processing services 15,037 13,960 59,850 58,460
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
) 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 common shares
outstanding 37,709 39,624 38,418 40,691
Diluted weighted average number of common
shares outstanding 37,709 39,624 38,418 40,691
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition
(In thousands, except share amounts)
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 15,76316,248
Total assets $2,196,759 $2,178,069
Liabilities and Stockholders' Equity
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 1,786,9891,506,955
Commitments and contingencies
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
51,899,229 shares issued at December 31, 2012 and 2011, respectively 520 519
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
December 31, 2012 and 2011, respectively (253,111) (240,559) Accumulated other comprehensive income (net of tax) 11,8748,341
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,
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
(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.