SEC sanctions take toll on ITG third quarter

Third quarter 2015 highlights included:

GAAP net income of $2.7 million, or $0.08 per diluted share compared to GAAP net income of $11.4 million, or $0.32 per diluted share for the third quarter of 2014. GAAP net income for the third quarter of 2015 includes legal and other fees related to the August 2015 final SEC settlement of $2.6 million pre-tax and $1.5 million after taxes, or $0.04 per diluted share.

Adjusted net income of $4.2 million, or $0.12 per diluted share, excluding the fees related to the SEC settlement. Both GAAP net income and adjusted net income in the third quarter of 2015 include a net reduction to compensation expense related to the reversal of stock and cash compensation associated with the management changes announced in August totaling $2.1 million pre-tax and $1.2 million after taxes, or $0.03 per diluted share. There were no non-GAAP adjustments to earnings in the third quarter of 2014, however there was a net tax benefit of $2.4 million, or $0.07 per diluted share, from resolving a multi-year contingency in the U.S.

Revenues of $120.4 million, compared to revenues of $134.8 million in the third quarter of 2014.

Expenses of $117.2 million compared to expenses of $122.7 million in the third quarter of 2014. Adjusted expenses, net of the legal and other fees related to the SEC settlement, were $114.7 million.

Average daily trading volume in the U.S. of 152 million shares versus 147 million shares in the third quarter of 2014. POSIT® average daily U.S. volume was 67 million shares compared to 72 million shares in the third quarter of 2014. Total average daily volume traded through POSIT Alert® was 9 million shares, compared to 14 million shares in the third quarter of 2014.

In Europe, average daily value traded in POSIT was $1.2 billion, compared with $1.0 billion in the third quarter of 2014. Total average daily value traded through POSIT Alert declined 21% in the third quarter of 2015 compared with the prior-year period.

The repurchase of 460,000 shares of common stock under ITG’s authorized share repurchase program for a total of $7.2 million. Repurchases since the first quarter of 2010 have totaled $220.7 million for a total of 14.7 million shares, resulting in a decrease in shares outstanding, net of issuances, by more than 23%.


“Over the course of the quarter, we worked to address the concerns of our clients and to return to normal business conditions. I am proud of what everyone at ITG accomplished,” said ITG interim CEO Jarrett Lilien. “While much work remains to be done, we are pleased with our progress, particularly the renewed momentum in POSIT Alert and the stability of our Platforms and Analytics businesses, and we are looking forward to pursuing a path of growth in 2016.”

Maureen O’Hara, Chair of ITG’s Board of Directors, commented, “We are pleased that Frank Troise, a proven leader in our industry, will join us as our new CEO. ITG’s Board and management team are all looking forward to working with him and welcoming him when he comes on board in January."


Regional Segment Results

ITG's North American revenues were $80.9 million in the third quarter of 2015 compared to $90.1 million in the third quarter of 2014. ITG reported net income of $2.4 million in North America in the third quarter of 2015, down from $7.9 million in the third quarter of 2014. U.S. revenues were $66.0 million, down 9% from the third quarter of 2014 while Canada revenues were down 16% to $14.9 million in the third quarter of 2015, including the impact of currency translation. The overall revenue capture rate per share in the U.S. was $0.0040, down from $0.0042 in the second quarter of 2015 and down from $0.0046 in the third quarter of 2014. The decline in the overall average rate was due in large part to the impact of a higher percentage of trading activity from sell-side clients.

ITG’s Europe and Asia Pacific revenues were $39.3 million in the third quarter of 2015 compared to $44.2 million in the third quarter of 2014, including the impact of currency translation. European revenues were $28.9 million, down 9% from the third quarter of 2014 while Asia Pacific revenues were $10.4 million, down 17% from the third quarter of 2014. ITG’s Europe and Asia Pacific operations reported net income of $3.6 million in the third quarter of 2015 compared to $6.8 million in the third quarter of 2014.

Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2015, including the after-tax impact of legal and other fees of $1.5 million related to the August 2015 final SEC settlement and the after-tax reduction to compensation associated with the management changes announced in August of $1.2 million. Corporate activity reduced GAAP net income by $3.3 million in the third quarter of 2014. Corporate activity includes investment income 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.


Year-to-Date Results

For the first nine months of 2015, revenues were $410.6 million, GAAP net income was $9.2 million, or $0.26 per diluted share, and adjusted net income was $32.3 million, or $0.92 per diluted share. For the first nine months of 2014, revenues were $410.8 million and GAAP net income was $37.9 million, or $1.04 per diluted share. There were no adjustments to earnings in the first nine months of 2014.

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.


Quarterly Dividend

For the fourth quarter of 2015, the Board of Directors declared a quarterly cash dividend of $0.07 per share. The dividend is payable on December 11, 2015, to shareholders of record on November 20, 2015.