ITG Investment Technology Grp., Inc.

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 SUBSIDIARIESConsolidated 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 SUBSIDIARIESSupplemental 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 SUBSIDIARIESConsolidated 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 revenues	116,474				527,104
Total expenses	119,528				513,577
Less:
SEC settlement and related costs (2)	—				(25,198			)
Adjusted expenses	119,528				488,379
Income before income tax expense	104,645				121,226
Effect of adjustments (1)(2)	(107,699		)		(82,501			)
Adjusted pre-tax (loss) income	(3,054		)		38,725
Income tax expense	22,308				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 income	82,337				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