ITG (NYSE:ITG), a leading independent broker and financial technology provider, today reported results for the quarter ended December 31, 2016.
Fourth Quarter 2016 Highlights
- GAAP net income of $5.7 million, or $0.17 per diluted share compared to GAAP net income of $82.3 million, or $2.40 per diluted share for the fourth quarter of 2015.
- GAAP results for the fourth quarter of 2016 include (i) a charge of $3.6 million pre-tax, or $0.09 per share after taxes, representing the amount by which the final SEC settlement related to discontinued activity involving pre-released American Depositary Receipts (ADRs) exceeded the reserve established in the third quarter of 2016, as well as legal fees related to this matter, (ii) a restructuring charge of $5.3 million pre-tax, or $0.10 per share after taxes, related to management delayering and the elimination of certain positions, (iii) a pre-tax charge of $0.6 million, or $0.02 per share after taxes, for the amount expensed for upfront awards granted to ITG’s CEO. These charges were offset by an after-tax gain of $7.3 million, or $0.22 per share, related to a reduction in tax reserves from resolving a multi-year contingency in the U.S.
- GAAP net income for the fourth quarter of 2015 includes (i) a pre-tax gain from the sale of the energy research operations of $107.7 million, or $2.66 per share after-tax; and (ii) a tax charge of $6.5 million, or $0.19 per share, to amend the capital structure of ITG’s operations outside North America.
- Adjusted net income of $5.3 million, or $0.16 per diluted share, compared to an adjusted net loss of $2.5 million, or $0.07 per diluted share in the fourth quarter of 2015, in each case excluding the charges and gains listed above. Adjusted net income (as well as GAAP net income) for the fourth quarter of 2016 includes a reduction in compensation expenses of $2.4 million, or $0.05 per share after taxes, related to an increase in the proportion of deferred equity in ITG’s full-year 2016 compensation plan for better alignment with long-term growth objectives.
- Revenues of $119.6 million, compared to revenues of $224.2 million and adjusted revenues of $116.5 million in the fourth quarter of 2015. Adjusted revenues for the fourth quarter of 2015 exclude the pre-tax gain on the sale of the energy research operations.
- Expenses of $121.7 million and adjusted expenses of $112.3 million compared to expenses of $119.5 million in the fourth quarter of 2015. Adjusted expenses for the fourth quarter of 2016 exclude the charges listed above.
- Average daily trading volume in the U.S. was 145 million shares versus 125 million shares in the fourth quarter of 2015. POSIT® average daily U.S. volume was 58 million shares compared to 49 million shares in the fourth quarter of 2015. Total average daily U.S. volume traded through POSIT Alert® was 16 million shares, compared to 8 million shares in the fourth quarter of 2015.
- In Europe, average daily value traded in POSIT was $1.1 billion compared to $1.2 billion in the fourth quarter of 2015, including the effects of currency translation. Total average daily value traded through POSIT Alert in Europe increased 60% compared to the fourth quarter of 2015.
Commenting on the results, ITG President and Chief Executive Officer, Frank Troise, said, “We are pleased with the positive momentum in our business, as demonstrated by strong sequential revenue growth across all of our regions, improved profitability in our international operations and consistent market share gains in the U.S. We are focused on building upon this momentum through continued execution of our Strategic Operating Plan, which is enhancing ITG’s ability to deliver best-in-class client solutions in liquidity, execution, analytics and workflow technology,” he concluded.
Fourth Quarter Regional Segment Results
North American revenues were $72.2 million in the fourth quarter of 2016 compared to revenues of $75.8 million in the fourth quarter of 2015.
ITG reported net income of $0.5 million in North America in the fourth quarter of 2016, compared to a net loss of $2.0 million in the fourth quarter of 2015.
U.S. revenues in the fourth quarter of 2016 were $56.0 million, compared to $63.3 million in the fourth quarter of 2015 including the impact of the research divestitures in December 2015 and May 2016.
Canada revenues in the fourth quarter of 2016 were $16.2 million, compared to $12.5 million in the fourth quarter of 2015, including the impact of the closure of the Canadian arbitrage operation in May 2016.
Europe and Asia Pacific revenues were $47.1 million in the fourth quarter of 2016, compared to $40.4 million in the fourth quarter of 2015.
ITG reported net income for its Europe and Asia Pacific operations of $8.2 million in the fourth quarter of 2016 compared to $2.5 million in the fourth quarter of 2015.
European revenues were $33.7 million in the fourth quarter of 2016 including the impact of currency translation, up from $30.7 million in the fourth quarter of 2015.
Asia Pacific revenues were $13.4 million, up from $9.8 million in the fourth quarter of 2015.
Corporate activity reduced GAAP net income by $2.9 million in the fourth quarter of 2016, including the final settlement with the SEC of the pre-released ADR matter and related professional fees in the quarter, the restructuring charge, the charges for upfront awards to ITG’s CEO and the benefit related to reducing tax reserves.
Corporate activity increased GAAP net income by $81.8 million in the fourth quarter of 2015, including the impact of the sale of the energy research operations and the tax charge to amend ITG’s capital structure outside of North America.
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, costs of being a public company, intangible amortization, interest expense, costs of maintaining a global transfer pricing structure, foreign exchange gains and losses and certain non-operating items.
Full Year Results
For the full year 2016, revenues were $469.1 million and adjusted revenues were $466.6 million. GAAP net loss for full year 2016 was $25.9 million, or $0.79 per diluted share, and adjusted net income was $3.6 million, or $0.11 per diluted share.
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.
Non-GAAP Financial Measures
To supplement our financial information presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), management uses certain “non-GAAP financial measures” as such term is defined in Regulation G promulgated by the SEC. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with GAAP. Management believes the presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations, and therefore a more complete understanding of factors affecting our business than GAAP measures alone. In addition, management believes the presentation of these matters is useful to investors for period-to-period comparison of results as the items may reflect certain unique and/or non-operating items such as acquisitions, divestitures, restructuring charges, large write-offs, asset impairments, significant charges associated with litigation or regulatory matters together with related expenses or items outside of management’s control.
Adjusted revenues, adjusted expenses, adjusted pre-tax income (loss), adjusted income tax expense (benefit), adjusted net income (loss) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), together with related per share amounts, are non-GAAP performance measures that we believe are useful to assist investors in gaining an understanding of the trends and operating results for our core business. These measures should be viewed in addition to, and not in lieu of, results reported under GAAP.
Reconciliations of adjusted revenues, adjusted expenses, adjusted pre-tax income (loss), adjusted income tax expense (benefit), adjusted net income (loss) and adjusted EBITDA to revenues, expenses, income (loss) before income tax expense (benefit), income tax expense (benefit) and net income (loss) and related per share amounts as determined in accordance with GAAP for the three months and full year ended December 31, 2016 and December 31, 2015, respectively, are provided in the accompanying supplemental tables at the end of this release.
Conference Call on 4Q16 Results
An investor conference call to discuss ITG’s results will be held today at 8:00 am ET. Those wishing to listen to the call should dial 1-844-881-0134 (1-412-317-6722 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 at: investor.itg.com. A replay will be available for one week by dialing 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering replay number 10099920. The replay will be accessible approximately one hour after the completion of the conference call.
About ITG
Investment Technology Group (NYSE:ITG) is a global financial technology company that helps leading brokers and asset managers improve returns for investors around the world. We empower traders to reduce the end-to-end cost of implementing investments via technology-enabled liquidity, execution, analytics and workflow solutions. ITG has offices in Asia Pacific, Europe and North America and offers execution services in more than 50 countries. Please visit: www.itg.com for more information.
In addition to historical information, this press release may contain “forward-looking” statements that reflect management’s expectations for the future. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” and the negative of these terms and other comparable terminology. A variety of important factors could cause results to differ materially from such statements.
Certain of these factors are noted throughout ITG’s 2015 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, political and financial market conditions, both internationally and domestically, 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, customer or shareholder reaction to the Company’s settlement of the SEC’s inquiry regarding pre-released ADRs or further proceedings or sanctions based on the Company’s discontinued ADR activity, the outcome of other contingencies such as legal proceedings or governmental or regulatory investigations, the volatility of our stock price, changes in tax policy or accounting rules, the ability of the Company to recognize its deferred tax assets, 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 protect our intellectual property, our ability to execute on strategic initiatives or transactions, our ability to attract and retain talented employees, and our ability to pay dividends or repurchase our common stock in the future.
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.
