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ITG Reports Fourth Quarter 2015 Results

NEW YORK, Feb. 04, 2016 (GLOBE NEWSWIRE) -- ITG (NYSE:ITG), a leading independent broker and financial technology provider, today reported results for the quarter ended December 31, 2015.

Fourth quarter 2015 highlights included:

  • GAAP net income of $82.3 million, or $2.40 per diluted share compared to GAAP net income of $13.0 million, or $0.36 per diluted share for the fourth quarter of 2014. GAAP net income for the fourth quarter of 2015 includes (i) a gain from the sale of the energy research business of $91.3 million after taxes, or $2.66 per diluted share; and (ii) a tax charge of $6.5 million, or $0.19 per diluted share, to amend the capital structure of ITG’s operations outside North America.

  • An adjusted net loss of $2.5 million, or $0.07 per share excluding the gain on the sale of the energy research business and the tax charge. There were no non-GAAP adjustments to earnings in the fourth quarter of 2014.

  • Revenues of $224.2 million, compared to revenues of $149.0 million in the fourth quarter of 2014. Adjusted revenues, excluding the gain on the sale of the energy research business, were $116.5 million.

  • Expenses of $119.5 million compared to expenses of $131.2 million in the fourth quarter of 2014.

  • Average daily trading volume in the U.S. of 125 million shares versus 190 million shares in the fourth quarter of 2014. POSIT® average daily U.S. volume was 49 million shares compared to 90 million shares in the fourth quarter of 2014. Total average daily U.S. volume traded through POSIT Alert® was 8 million shares, compared to 16 million in the fourth quarter of 2014.

  • In Europe, average daily value traded in POSIT was $1.24 billion, compared with $946 million in the fourth quarter of 2014. Total average daily value traded through POSIT Alert in Europe declined 9% in the fourth quarter of 2015 compared with the prior-year period.

  • The repurchase of 561,000 shares of common stock for a total of $10.3 million under ITG’s authorized share repurchase program. Repurchases since the first quarter of 2010 have totaled $231.0 million for a total of 15.3 million shares, resulting in a decrease in shares outstanding, net of issuances, by more than 24%.

Regional Segment Results

ITG's North American revenues were $75.8 million in the fourth quarter of 2015 compared to $104.1 million in the fourth quarter of 2014. ITG reported a net loss of $2.0 million in North America in the fourth quarter of 2015, compared to net income of $9.5 million in the fourth quarter of 2014. U.S. revenues were $63.3 million, down from $81.4 million in the fourth quarter of 2014, while Canada revenues were $12.5 million, down from $22.8 million in the fourth quarter of 2014, including the impact of currency translation. The overall revenue capture rate per share in the U.S. was $0.0044, up from $0.0040 in the third quarter of 2015 and unchanged from the fourth quarter of 2014.

ITG’s Europe and Asia Pacific revenues were $40.4 million in the fourth quarter of 2015 compared to $44.6 million in the fourth quarter of 2014, including the impact of currency translation. European revenues were $30.7 million, down from $31.9 million in the fourth quarter of 2014 while Asia Pacific revenues were $9.8 million, down from $12.6 million in the fourth quarter of 2014. ITG’s Europe and Asia Pacific operations reported net income of $2.5 million in the fourth quarter of 2015 compared to $5.7 million in the fourth quarter of 2014.

Corporate activity increased GAAP net income by $81.8 million in the fourth quarter of 2015, including the after-tax impact of the gain on the sale of the energy research business and the tax charge to amend the capital structure outside of North America. Corporate activity reduced net income by $2.3 million in the fourth quarter of 2014. Corporate activity includes investment income and non-operating gains, as well as costs not associated with operating ITG's regional and product group business lines including, among others, the costs of being a public company, intangible amortization, interest expense, the costs of maintaining a global transfer pricing structure and certain non-operating items. Prior to the first quarter of 2015, the majority of these costs were presented in the U.S. segment.

Full Year Results

For the full year 2015, revenues were $634.8 million and adjusted revenues were $527.1 million. GAAP net income for the full year 2015 was $91.6 million, or $2.63 per diluted share, and adjusted net income was $29.8 million, or $0.86 per diluted share. For the full year 2014, revenues were $559.8 million and net income was $50.9 million, or $1.40 per diluted share. There were no non-GAAP adjustments to earnings in full year 2014.

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

“With the fourth quarter behind us and the energy sale closed, ITG is well positioned and well capitalized for a path of growth,” said ITG Chief Executive Officer and President Frank Troise. “After just three weeks back at the firm, I truly believe that ITG’s best days are ahead. We will build on our expertise in brokerage, measurement and financial technology to deliver innovative solutions and world-class service to our clients.”

Conference Call

A conference call to discuss the firm's results will be held at 11:00 am ET on February 4, 2016. Those wishing to listen to the call should dial 1-877-317-6789 (1-412-317-6789 outside the U.S.) at least 15 minutes prior to the start of the call to ensure connection. The webcast and accompanying slideshow presentation will be available on ITG’s website at investor.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering conference number 10078784. The replay will be available starting approximately one hour after the completion of the conference call.

About ITG

ITG is an independent broker and financial technology provider that partners with global portfolio managers and traders to provide unique data-driven insights throughout the investment process. From investment decision through settlement, ITG helps clients understand market trends, improve performance, mitigate risk and navigate increasingly complex markets. ITG is headquartered in New York with offices in North America, Europe, and Asia Pacific. For more information, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements that reflect management’s expectations for the future. A variety of important factors could cause results to differ materially from such statements. Certain of these factors are noted throughout ITG’s 2014 Annual Report on Form 10-K, and its Form 10-Qs (as amended, if applicable) and include, but are not limited to, general economic, business, credit and financial market conditions, both internationally and nationally, financial market volatility, fluctuations in market trading volumes, effects of inflation, adverse changes or volatility in interest rates, fluctuations in foreign exchange rates, evolving industry regulations and increased regulatory scrutiny, customers’ reactions to the settlement in August 2015 with the Securities and Exchange Commission, the outcome of contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, changes in tax policy or accounting rules, the actions of both current and potential new competitors, changes in commission pricing, rapid changes in technology, errors or malfunctions in our systems or technology, cash flows into or redemptions from equity mutual funds, ability to meet liquidity requirements related to the clearing of our customers’ trades, customer trading patterns, the success of our products and service offerings, our ability to continue to innovate and meet the demands of our customers for new or enhanced products, our ability to successfully integrate acquired companies and our ability to attract and retain talented employees. The forward-looking statements included herein represent ITG’s views as of the date of this release. ITG undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law.

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)

Three Months Ended
December 31,
Year Ended
December 31,
2015 2014 2015 2014
Revenues:
Commissions and fees $85,959 $118,395 $405,679 $436,172
Recurring 27,146 26,790 107,184 103,794
Other 111,068 3,781 121,940 19,848
Total revenues 224,173 148,966 634,803 559,814
Expenses:
Compensation and employee benefits 51,711 59,453 209,323 215,758
Transaction processing 20,111 24,234 91,492 86,400
Occupancy and equipment 14,424 14,811 57,495 59,811
Telecommunications and data processing services 12,961 12,893 51,523 51,187
Other general and administrative 19,894 19,248 101,915 79,349
Interest expense 427 526 1,829 2,322
Total expenses 119,528 131,165 513,577 494,827
Income before income tax expense 104,645 17,801 121,226 64,987
Income tax expense 22,308 4,820 29,656 14,095
Net income $82,337 $12,981 $91,570 $50,892
Income per share:
Basic $2.46 $0.38 $2.70 $1.44
Diluted $2.40 $0.36 $2.63 $1.40
Basic weighted average number of common shares outstanding 33,433 34,521 33,907 35,349
Diluted weighted average number of common shares outstanding 34,359 35,640 34,815 36,365



INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Supplemental Financial Data (unaudited)
(In thousands)

Three Months Ended
December 31,
Year Ended
December 31,
2015 2014 2015 2014
Revenues by Geographic Region:
U.S. Operations $63,263 $81,352 $285,230 $306,540
Canadian Operations 12,512 22,791 63,028 77,633
European Operations 30,650 31,921 129,729 127,410
Asia Pacific Operations 9,794 12,631 48,179 46,926
Corporate (non-product) 107,954 271 108,637 1,305
Total Revenues $224,173 $148,966 $634,803 $559,814


Three Months Ended
December 31,
Year Ended
December 31,
2015 2014 2015 2014
Revenues by Product Group:
Electronic Brokerage $53,898 $79,790 $268,818 $294,529
Research, Sales and Trading 28,132 32,016 117,340 122,042
Platforms 22,657 25,290 94,117 95,926
Analytics 11,532 11,599 45,891 46,012
Corporate (non-product) 107,954 271 108,637 1,305
Total Revenues $224,173 $148,966 $634,803 $559,814


INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share amounts)

December 31,
2015
December 31,
2014
Assets
Cash and cash equivalents $330,653 $275,210
Cash restricted or segregated under regulations and other 37,852 38,080
Deposits with clearing organizations 70,860 72,527
Securities owned, at fair value 5,598 12,073
Receivables from brokers, dealers and clearing organizations 1,036,777 644,614
Receivables from customers 49,176 107,935
Premises and equipment, net 55,496 60,306
Capitalized software, net 39,379 38,333
Goodwill 11,933 12,803
Intangibles, net 24,611 31,595
Income taxes receivable 128 105
Deferred taxes 23,590 37,209
Other assets 22,969 20,059
Total assets $1,709,022 $1,350,849
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued expenses $169,530 $199,211
Short-term bank loans 81,934 78,360
Payables to brokers, dealers and clearing organizations 960,559 600,041
Payables to customers 9,957 11,132
Securities sold, not yet purchased, at fair value 2,637 8,253
Income taxes payable 17,017 19,772
Deferred taxes 703
Term debt 12,567 17,781
Total liabilities 1,254,201 935,253
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding
Common stock, $0.01 par value; 100,000,000 shares authorized; 52,300,885 and 52,229,962 shares issued at December 31, 2015 and December 31, 2014, respectively 523 522
Additional paid-in capital 239,090 240,135
Retained earnings 571,626 487,462
Common stock held in treasury, at cost; 19,207,419 and 18,000,756 shares at December 31, 2015 and December 31, 2014, respectively (336,923)(306,629)
Accumulated other comprehensive income (net of tax) (19,495)(5,894)
Total stockholders’ equity 454,821 415,596
Total liabilities and stockholders’ equity $1,709,022 $1,350,849


INVESTMENT TECHNOLOGY GROUP, INC.

Non-GAAP Financial Measures

In evaluating ITG’s financial performance, management reviews results from operations, which excludes non-operating items. Adjusted net income, adjusted net loss and related per share amounts, adjusted revenues, adjusted expenses, adjusted pre-tax (loss) income, adjusted income tax (benefit) expense, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP performance measures that the Company believes are useful to assist investors in gaining an understanding of the trends and operating results for ITG’s core businesses. These measures should be viewed in addition to, and not in lieu of, ITG’s reported results under GAAP.

Three Months
Ended
December 31, 2015
Year
Ended
December 31, 2015
Total revenues$224,173 $634,803
Less:
Gain on the sale of energy research business (1)(107,699) (107,699)
Adjusted revenues116,474 527,104
Total expenses119,528 513,577
Less:
SEC settlement and related costs (2) (25,198)
Adjusted expenses119,528 488,379
Income before income tax expense104,645 121,226
Effect of adjustments (1)(2)(107,699) (82,501)
Adjusted pre-tax (loss) income(3,054) 38,725
Income tax expense22,308 29,656
Tax effect of adjustments (1)(2)(16,358) (14,201)
Tax incurred to amend capital structure outside North America (3)(6,526) (6,526)
Adjusted income tax (benefit) expense(576) 8,929
Net income82,337 91,570
Net effect of adjustments(84,815) (61,774)
Adjusted net (loss) income$(2,478)$29,796
Diluted earnings per share$2.40 $2.63
Net effect of adjustments(2.47) (1.77)
Adjusted (loss) per share/earnings per diluted share$(0.07)$0.86


Notes:

(1) In December 2015, the Company completed the sale of the subsidiaries conducting its energy research business to Warburg Pincus, a global private equity firm, for $120.5 million. The pre-tax gain of $107.7 million is net of a working capital adjustment on the closing balance sheet, direct costs related to the sale and the carrying value of the net assets disposed.
(2) In August 2015, the Company reached a final settlement with the Securities and Exchange Commission to pay an aggregate amount of $20.3 million. In the third quarter of 2015, the Company incurred $2.6 million in legal and related costs to finalize the settlement order. In the second quarter of 2015, the Company reserved $20.3 million for the settlement and incurred $2.3 million in legal and other related costs associated with this matter.
(3) In December 2015, the Company amended the capital structure of its holding company outside North America to provide continued flexibility for the movement of capital. This amendment accelerated the U.S. taxation of amounts earned outside of North America resulting in a tax charge of $6.5 million.

Reconciliation of Adjusted Earnings
Before Interest, Taxes, Depreciation, and Amortization
(In thousands)
Three Months Ended
December 31,
Year Ended
December 31,
2015 2014 2015 2014
Net Income (1)(2) $ 82,337 $ 12,981 $ 91,570 $ 50,892
Impact of adjustments, after-tax (84,815) - (61,774) -
Adjusted net (loss) income (2,478) 12,981 29,796 50,892
Deduct:
Investment income (205) (265) (863) (1,104)
Add Back:
Interest expense 427 526 1,829 2,322
Provision for income taxes 22,308 4,820 29,656 14,095
Tax effect of adjustments (22,884) - (20,727) -
Depreciation and Amortization 10,827 11,495 44,151 49,384
Adjusted earnings before interest, taxes, depreciation, and amortization $ 7,995 $ 29,557 $ 83,842 $ 115,589
Notes:
(1) Net income includes pre-tax charges for non-cash stock-based compensation of $4.5 million and $4.3 million for the three months ended December 31, 2015 and 2014, respectively.
(2) Net income includes pre-tax charges for non-cash stock-based compensation of $16.7 million and $15.4 million for the years ended December 31, 2015 and 2014, respectively.



ITG Media/Investor Contact: J.T. Farley 1-212-444-6259 corpcomm@itg.com

Source:Investment Technology Group Inc.