-

GAAP net loss of $23.9 million, or $0.73 per share compared to GAAP net income of $2.7 million, or $0.08 per share for the third quarter of 2015. 

-

GAAP results for the third quarter of 2016 include the establishment of a reserve for the potential settlement of an SEC inquiry into activity involving pre-release American Depositary Receipts (ADRs). The firm discontinued transacting in pre-release ADRS in the fourth quarter of 2014. The settlement reserve of  $22.1 million, together with related legal expenses of $1.6 million in the quarter,  reduced after-tax earnings by $0.68 per share. A substantial portion of the reserve represents anticipated disgorgement of approximately $15 million in revenue for the period 2011 through the fourth quarter of 2014, as well as pre-judgment interest.  The rest relates to an anticipated civil monetary penalty.  

-

Adjusted net loss of $2.8 million, or $0.08 per share, compared to adjusted net income of $4.2 million, or $0.12 per share in the third quarter of 2015, in each case excluding the charges and gains listed above.

-

Revenues of $104.2 million, compared to revenues of $120.4 million in the third quarter of 2015. 

-

GAAP expenses of $132.0 million and adjusted expenses of $109.7 million compared to GAAP expenses of $117.2 million and adjusted expenses of $114.7 million in the third quarter of 2015.  Adjusted expenses exclude the charges and gains listed above. 

-

Average daily trading volume in the U.S. of 116 million shares versus 152 million shares in the third quarter of 2015. POSIT® average daily U.S. volume was 45 million shares compared to 67 million shares in the third quarter of 2015. Total average daily U.S. volume traded through POSIT Alert® was 11 million shares, compared to 9 million shares in the third quarter of 2015.

-

In Europe, average daily value traded in POSIT was $857 million compared to $1.2 billion in the third quarter of 2015, including the effects of currency translation. Total average daily value traded through POSIT Alert in Europe increased 26% compared to the third quarter of 2015.

-

Repurchased 426,000 shares of common stock for a total of $7.2 million under ITG’s authorized share repurchase program. Repurchases since the first quarter of 2010 have totaled $253 million for a total of 16.6 million shares, resulting in a decrease in shares outstanding, net of issuances, of more than 25%. 

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Revenues:

Commissions and fees

$

$

$

$

Recurring

Other

Total revenues

Expenses:

Compensation and employee benefits

Transaction processing

Occupancy and equipment

Telecommunications and data processing services

Restructuring charges

 —

 —

 —

Other general and administrative

Interest expense

Total expenses

(Loss) income before income tax expense

Income tax (benefit) expense

Net (loss) income

$

$

$

$

(Loss) income per share:

Basic

$

$

$

$

Diluted

$

$

$

$

Basic weighted average number of common shares outstanding

Diluted weighted average number of common shares outstanding

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Revenues by Geographic Region:

U.S. Operations

$

$

$

$

Canadian Operations

European Operations

Asia Pacific Operations

Corporate (non-product)

Total Revenues

$

$

$

$

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Revenues by Product Group:

Execution Services (1)

$

$

$

$

Workflow Technology (2)

Analytics

Corporate (non-product)

Total Revenues

$

$

$

$

(1)

In December 2015, the Company sold its energy research operations and in May 2016 the Company sold its remaining investment research operations, both of which were within the Research Sales and Trading (RS&T) product group. Beginning in the second quarter 2016, the remaining portfolio trading and high-touch execution offerings, previously grouped within RS&T, were combined with the electronic execution and liquidity solutions, previously grouped with the Electronic Brokerage (EB) product group, to form the new Execution Services product group to create an optimal alignment for cross-selling synergies. The entire historic activity of EB and RS&T, including the divested research operations, has been reclassified to the Execution Services product group to conform to the current presentation.

(2)

Previously known as Platforms.

September 30,

December 31,

2016

2015

(unaudited)

Assets

Cash and cash equivalents

$

$

Cash restricted or segregated under regulations and other

Deposits with clearing organizations

Securities owned, at fair value

Receivables from brokers, dealers and clearing organizations

Receivables from customers

Premises and equipment, net

Capitalized software, net

Goodwill

Intangibles, net

Income taxes receivable

Deferred taxes

Other assets

Total assets

$

$

Liabilities and Stockholders’ Equity

Liabilities:

Accounts payable and accrued expenses

$

$

Short-term bank loans

Payables to brokers, dealers and clearing organizations

Payables to customers

Securities sold, not yet purchased, at fair value

Income taxes payable

Term debt

Total liabilities

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; 52,410,571 and 52,300,885 shares issued at September 30, 2016 and December 31, 2015, respectively

Additional paid-in capital

Retained earnings

Common stock held in treasury, at cost; 19,846,254 and 19,207,419 shares at September 30, 2016 and December 31, 2015, respectively

Accumulated other comprehensive income (net of tax)

Total stockholders’ equity

Total liabilities and stockholders’ equity

$

$

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Total revenues

$

$

$

$

Less:

Other revenues - gains (1)

 —

 —

 —

Adjusted revenues

Total expenses

Less:

Reserve for potential settlement related to ADRs and associated costs (2)

 —

 —

Restructuring (3)

 —

 —

 —

Compensation awards for current CEO (4)

 —

 —

Arbitration case with former CEO and associated costs(5)

 —

 —

Settlement related to trading pilot and associated costs (6)

 —

 —

Gain from currency translation adjustment (7)

 —

 —

Adjusted expenses

(Loss) income before income tax (benefit) expense

Effect of adjustments

Adjusted pre-tax (loss) income

Income tax (benefit) expense

Tax effect of adjustments (1) – (6)

Adjusted income tax (benefit) expense

Net (loss) income

Net effect of adjustments

Adjusted net (loss) income

$

$

$

$

Diluted (loss) earnings per share

$

$

$

$

Net effect of adjustments

Adjusted diluted (loss) earnings per share

$

$

$

$

(1)

In the second quarter of 2016, the Company received insurance proceeds of $2.4 million from its corporate insurance carrier to settle a claim for lost profits arising from an August 2015 outage in its outsourced primary data center in the U.S. Additionally, the Company generated a nominal gain on the completion of the sale of its investment research operations in May 2016.

(2)

In the third quarter of 2016, the Company accrued $22.1 million for a potential settlement with the SEC with respect to an inquiry involving pre-released ADRs and incurred legal fees associated with this matter of $1.6 million.

(3)

During the second quarter of 2016, the Company incurred restructuring charges related to (a) the reduction in its high-touch trading and sales organizations and (b) the closing of its U.S. matched-book securities lending operations and its Canadian arbitrage trading desk.

(4)

The Company’s current Chief Executive Officer was granted cash and stock awards upon the commencement of his employment in January 2016, a significant portion of which replaced awards he forfeited at his former employer. Due to U.S. tax regulations, only a small portion of the amount expensed for these awards was eligible for a tax deduction.

(5)

In the first half of 2016, the Company incurred a charge of $4.8 million, net of an insurance recovery of $0.5 million, to settle an arbitration case with its former CEO and incurred legal fees of $2.7 million.  During the three months ended September 30, 2016, the Company recorded a reimbursement of $0.9 million of these legal fees from its insurance carrier.

(6)

In the second quarter of 2015, the Company reserved $20.3 million for a settlement with the SEC related to an investigation into a proprietary trading pilot and incurred legal and related costs of $2.3 million. In the third quarter of 2015, the Company incurred $2.6 million in legal and related costs to finalize the settlement order.

(7)

In the three months ended September 30, 2016, the Company substantially completed the liquidation of its investment in its Israel entity that ceased operations in December 2013. During the Company’s period of ownership and through December 2013, the Company had accumulated foreign exchange translation gains as a component of equity, which have been reclassified as a gain that reduced other general and administrative expenses in the Condensed Consolidated Statement of Operations.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Net (Loss) Income (1)(2)

$

$

$

$

Impact of adjustments, after-tax

Adjusted net (loss) income

Deduct:

Investment income

Add Back:

Interest expense

Provision for income taxes

Tax effect of adjustments

Depreciation and Amortization

Adjusted earnings before interest, taxes, depreciation, and amortization

$

$

$

$

(1)

Net income includes pre-tax charges for non-cash stock-based compensation of $4.9 million and $2.7 million for the three months ended September 30, 2016 and 2015, respectively.

(2)

Net income includes pre-tax charges for non-cash stock-based compensation of $19.4 million and $12.2 million for the nine months ended September 30, 2016 and 2015, respectively.