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Terra Nova Financial Group, Inc. Announces Third Quarter 2008 Results
- Press Release
- Source: Terra Nova Financial Group, Inc.
- On Friday November 14, 2008, 11:31 am EST
CHICAGO, IL--(MARKET WIRE)--Nov 14, 2008 -- Terra Nova Financial Group, Inc. (OTC BB:TNFG.OB - News), a specialized financial services firm that through its subsidiaries provides brokerage services and trading technologies for professional traders, hedge funds and money managers, today announced key financial performance metrics for the third quarter of 2008.
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| TNFG.OB | 0.75 | +0.10 |
Results in the third quarter 2008 reflect Terra Nova's continued progress in developing a higher margin operation business by growing trading transaction volume and maintaining interest margin spreads while reducing third party costs.
Selected Results and Discussion
-- Consolidated revenue of $9.7 million and $28.2 million for the three
and nine months ended September 30, 2008, respectively. By comparison,
consolidated revenue was $11.5 and $32.9 million for the three and nine
months ended 2007. Despite strong trading volume, lower net interest
income due to lower interest rates and lower average commission rates were
the primary causes of the overall decrease in total revenue.
-- Net income (loss) per share of ($0.05) and ($0.03) for the three and
nine months ended September 30, 2008, compared with $0.04 and $0.10 for the
same periods in 2007. The 2008 net loss was driven by two unusual incidents
involving customers that created unsecured trading losses of $3.5 million
in third quarter of 2008.
-- Excluding the unusual customer trading loses of $3.5 million operating
income would have been $1.3 million for the three months ended September
30, 2008 instead of the reported operating loss of ($2.2 million.)Terra Nova replaced low margin business with higher margin business in 2008 in part by emphasizing direct customers and partners. Daily average revenue trades (DARTs) for the three months ended September 30, 2008 increased 1,123 DARTs or 5% compared to the second quarter of 2008. Total equities volume increased 159 million or 9% to 2 billion shares for the three months ended September of 2008 compared to the second quarter of 2008. Options and futures contracts also increased by 424 thousand or 17% for the third quarter 2008 compared to the second quarter 2008. A similar level of stock, options and futures transaction activity is expected into the fourth quarter of 2008.
Despite declining federal funds interest rates Terra Nova has successfully increased its net interest margin percentage (spread). This measure was 86.4% for the three months ended September 30, 2008 -- a substantial increase over the 60.7% net interest margin percentage for the same period in 2007. Overall net interest income was $1.2 million for the three months ended September 30, 2008, compared with $2.2 million for the three months ended September 30, 2007. The decrease of $1.0 million was primarily caused by lower federal funds rates that were lower by an average of 3.0% for the three months ended September 30, 2008 compared to same period in 2007.
Efforts to reduce third party operating costs and trading execution costs contributed to a 4.3% increase in gross profit on trading activities. This measure was 57.9% for the three months ended September 30, 2008, compared to 53.6% for the same period in 2007 -- an improvement driven largely by trading execution costs that averaged 17.9% lower for the three months ended September 30, 2008 versus the same period in 2007. At the same time, net revenues from software fees increased 12% to $210,821 for the three months ended September 30, 2008, compared to the same period in 2007, due to an increase in the number of users of the Company's Tradient software and a corresponding decrease in the number of higher cost third party software users.
"It has been gratifying to see the positive momentum from second quarter 2008 continued," said Michael Nolan, President and CEO. "Quarter over quarter, our financials are now showing the impact of our steadfast focus on re-engineering this firm's business model for higher margins. We are encouraged by the growth in trade volume we've experienced in this period of extreme market volatility. Coupled with this, our success in driving higher volume and more users through our lower cost proprietary Tradient software have been positive."
Unexpected circumstances just as third quarter 2008 neared closure had a material impact on Terra Nova's reported profitability. Two independent customers conducted unusual trades that resulted in losses in total of $3.5 million during September 2008. These customers had not repaid Terra Nova and the $3.5 million was recorded as bad debt expense as of September 30, 2008. Preventative measures have been instituted to help avoid recurrence of these kinds of losses in the future.
Other Highlights
-- Lower overall transaction execution costs in third quarter 2008 were
due to a 51% decrease in number of trades executed on higher cost third
party software trading platforms compared to the same period in 2007. This
resulted in an increase in the number of trades executed on our proprietary
lower cost Tradient platform by 307% from the third quarter of 2007 to 2008
which enabled this overall reduction in transaction execution costs.
-- Increase of 105% in the number of Tradient platform users to nearly
2,700 from third quarter 2007 to third quarter 2008 which reduced software
and trading execution costs to the Company and its customers. The number of
users on higher cost third party platforms decreased 42% to 639 users as of
September 30, 2008 versus the same period in 2007.Brokerage Services Segment
Third quarter 2008 highlights
-- Brokerage revenue of $9.5 million for three months ended September 30, 2008 -- a decline of 15.7% versus the same period in 2007 -- predominately attributable to a decline in net interest income of $990,000 due to decreasing federal funds rates and to a decline in commissions and fees of $580,000 due to lower average commission rates. -- Operating loss of ($1.7 million) for three months ended September 30, 2008 -- a decline of 175% versus the same period in 2007, due primarily to usual trading losses that overshadowed the otherwise positive results for third quarter of 2008. -- Adjusted EBITDA of ($1.3 million) for three months ended September 30, 2008 -- a decline of 152% compared to the same period in 2007. -- Customer assets of $644.1 million for the period ended September 30, 2008, compared with $939.5 million for the same period in 2007.
"Revenue from our Brokerage Services segment was promisingly strong in third quarter, when considering the decline in interest rates and the impact of this challenging economy on the financial services community" said Nolan. "It's unfortunate that this quarter's strong performance has been obscured by customers incurring significant trading losses."
Software Services Segment
Third quarter 2008 highlights
-- Revenue of $821,000 for three months ended September 30, 2008 -- an increase of 336% versus the same period in 2007. -- Income of $269,000 for three months ended September 30, 2008, compared to a loss of ($307,000) in the same period in 2007. -- Adjusted EBITDA of $380,000 for three months ended September 30, 2008 -- a marked increase of 264% over a loss of ($231,000) posted in the same period in 2007. -- A 105% increase in the number of Tradient platform users from third quarter 2007 to third quarter 2008, which reduced software platform costs to the Company and customers. -- A 307% increase in the number of trades executed on the Tradient platforms from third quarter 2007 to third quarter 2008, which reduced overall transaction execution costs.
"We are continuing to see great response to the Tradient proprietary trading platform, demonstrated by the ongoing growth in its user base and the transaction volume driven through its platforms," said Nolan. "Third quarter results show that our focus on value-driven innovation, software speed and client service addresses a meaningful segment of the market. This division plays an important role in Terra Nova's pursuit of a higher margin business model by providing a lower cost platform for trade execution and routing."
Unallocated Expenses
-- An increase in unallocated expenses from $251,000 in the third quarter
of 2007 to $744,000 in the third quarter of 2008 -- a 196% increase caused
by higher depreciation and amortization of $280,000 and professional fees
of $100,000 for legal expenses and marketing costs.Consolidated Company Totals
GAAP and Non-GAAP financial results on a consolidated basis include:
-- Total revenue for three months ended September 30, 2008 of $9.7
million -- a decrease of 15.7% from $11.5 million in the same period in
2007. The decline was attributable to a $990,000 decline in net interest
income mainly due to an average 300 basis point decline in the federal
funds rate along with a $581,000 decrease in commissions and fees from
lower average commission rates.
-- Daily average revenue darts (DARTs) for three months ended September
30, 2008 were 23,500, an increase of 5% from the second quarter of 2008.
-- Net income (loss) for three months ended September 30, 2008 of
approximately ($1.4 million) loss versus $1.3 million net income for the
same period in 2007.
-- Adjusted EBITDA for three months ended September 30, 2008 of
approximately ($1.5 million) loss, or 16% of total revenues, versus $2.1
million or 17.9% of revenues for the same period in 2007.SEGMENT REPORTING and CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
In addition to reporting financial results in accordance with generally accepted accounting principles in the United States, or GAAP, Terra Nova uses the measure of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and other non-cash items). This measure is not in accordance or an alternative for GAAP and may be different from measures used by other companies. Adjusted EBITDA eliminates certain items of expenses and losses. The Company's management believes that this statistic is indicative of the relative strength of the Company's operating performance and allows investors to evaluate the current operating and financial performance of the Company's core business. The Company's management uses these measures for reviewing its financial results and for business planning. Terra Nova's management discloses this information externally along with a reconciliation of their most directly comparable GAAP amounts, to provide access to the detail and general nature of adjustments made to GAAP financial results.
Below is Terra Nova's unaudited Segment reporting & Adjusted EBITDA reconciliations and the consolidated financial statements relating to three months ended September 30, 2008 and 2007.
Segment reporting & Adjusted EBITDA reconciliations - Unaudited
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Adjustments - Unaudited
Three Months Three Months
Ended Ended
September 30, September 30,
2008 2007
------------- -------------
TOTAL REVENUES $ 9,710,547 $ 11,459,870
Operating expenses 11,889,611 9,734,689
------------- -------------
Operating income (loss) (2,179,064) 1,725,181
Interest expense - (12,921)
------------- -------------
Income (loss) before income taxes (2,179,064) 1,712,260
Income tax benefit (provision) 785,814 (428,647)
------------- -------------
Net income (loss) (1,393,250) 1,283,613
ADJUSTMENTS:
Depreciation and amortization 595,923 320,202
Stock-based compensation 36,288 13,884
Interest expense - 12,921
Income tax (benefit) provision (785,814) 428,647
------------- -------------
Total Adjusted EBITDA $ (1,546,853) $ 2,059,267
============= =============Segment reporting & Adjusted EBITDA reconciliations - Unaudited, continued
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Adjustments - Unaudited
Three Months Three Months
Ended Ended
September 30, September 30,
2008 2007
------------- --------------
TOTAL REVENUES $ 9,710,547 $ 11,459,870
Operating expenses 11,889,611 9,734,689
------------- --------------
Operating income (loss) (2,179,064) 1,725,181
ADJUSTMENTS:
Unusual customer trading losses 3,553,296 -
------------- --------------
Total Adjusted operating income before
unusual loss $ 1,374,232 $ 1,725,181
============= ==============
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
Segment reconciliation of Non-GAAP Adjustments - Unaudited
Three Months Three Months
Ended Ended
September 30, September 30,
Brokerage Services 2008 2007
------------- -------------
Total Revenues $ 9,496,244 $ 11,265,664
Operating expenses 11,200,330 8,995,958
------------- -------------
Operating income (loss) (1,704,086) 2,269,706
Net income (loss) (1,704,086) 2,269,706
ADJUSTMENTS:
Depreciation and amortization 385,542 244,967
------------- -------------
Total Adjusted EBITDA $ (1,318,544) $ 2,514,673
Three Months Three Months
Ended Ended
September 30, September 30,
Software Services 2008 2007
------------- -------------
Total Revenues $ 821,213 $ 188,387
Elimination of intercompany charges (610,392) -
Operating expenses (1) (57,750) 495,019
------------- -------------
Operating income (loss) 268,571 (306,632)
Net income (loss) 268,571 (306,632)
ADJUSTMENTS:
Depreciation and amortization 111,817 75,235
------------- -------------
Total Adjusted EBITDA $ 380,388 $ (231,397)
============= =============
(1) Includes operating expenses of $68,250 offset by a reversal of legal
accural of $126,000Consolidated financial statements - Unaudited
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
(as (as
REVENUES restated) restated)
Commissions and
fees $ 8,086,868 $ 8,670,564 $ 23,326,740 $ 25,719,907
Interest income 1,376,671 3,589,902 4,848,101 11,028,185
Interest expense on
brokerage accounts 187,260 1,409,944 1,009,689 5,082,670
------------ ------------ ------------ ------------
Net interest
income 1,189,411 2,179,958 3,838,412 5,945,515
Software fees, net 210,821 188,387 563,157 436,172
Other income 223,447 420,961 471,678 850,105
------------ ------------ ------------ ------------
Net revenues 9,710,547 11,459,870 28,199,987 32,951,699
OPERATING EXPENSES
Commissions and
clearing 2,397,668 4,062,610 7,779,949 10,406,850
Employee
compensation 2,356,509 2,785,394 7,537,791 7,707,664
Software and market
data 1,331,637 1,378,683 4,588,993 4,350,386
Advertising and
promotional 214,501 95,341 468,876 585,992
Professional fees 727,698 547,415 2,026,333 1,529,593
Communications and
information
technology 189,618 160,631 637,712 586,568
Depreciation and
amortization 595,923 320,202 1,721,854 1,148,403
Bad debt expense 3,553,296 - 3,470,890 -
Other general and
administrative
expenses 522,761 384,413 1,067,178 2,344,622
------------ ------------ ------------ ------------
Total operating
expenses 11,889,611 9,734,689 29,299,576 28,660,078
------------ ------------ ------------ ------------
Operating income
(loss) (2,179,064) 1,725,181 (1,099,589) 4,291,621
Interest expense - (12,921) - (55,434)
------------ ------------ ------------ ------------
Income (loss)
before income
taxes (2,179,064) 1,712,260 (1,099,589) 4,236,187
Income tax benefit
(provision) 785,814 (428,647) 277,696 (1,384,795)
------------ ------------ ------------ ------------
Net income (loss) (1,393,250) 1,283,613 (821,893) 2,851,392
------------ ------------ ------------ ------------
Dividends on
preferred stock - (98,237) (20,113) (126,832)
------------ ------------ ------------ ------------
Net income (loss)
attributable to
common
shareholders $ (1,393,250) $ 1,185,376 $ (842,006) $ 2,724,560
============ ============ ============ ============
Net income (loss)
per common share:
Basic $ (0.05) $ 0.04 $ (0.03) $ 0.10
============ ============ ============ ============
Diluted $ (0.05) $ 0.04 $ (0.03) $ 0.10
============ ============ ============ ============
Weighted average
common shares
outstanding:
Basic 25,520,694 27,200,113 25,987,771 27,191,127
============ ============ ============ ============
Diluted 25,520,694 27,655,917 25,987,771 27,916,322
============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements.Consolidated financial statements - Unaudited, continued
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2008 2007
------------- -------------
(Unaudited)
Cash and cash equivalents $ 869,159 $ 7,937,880
Cash segregated in compliance with federal
regulations 175,819,261 144,225,499
Receivables from brokers, dealers and
clearing organizations 46,094,959 24,902,262
Receivables from customers and non-customers,
net 20,736,171 47,261,886
Property and equipment, net 1,104,012 1,150,312
Capitalized software development costs, net 2,176,829 1,883,375
Intangible assets, net 4,466,379 5,481,660
Income tax receivable 1,225,464 -
Goodwill 7,501,408 7,501,408
Deferred income taxes, net 1,962,522 1,569,892
Other assets 1,350,587 1,309,190
------------- -------------
Total assets $ 263,306,751 $ 243,223,364
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit $ 3,625,821 $ 10,848,000
Payables to brokers, dealers and clearing
organizations 714,225 694,148
Payables to customers and non-customers 224,305,177 194,493,946
Accounts payable and accrued expenses 4,282,198 3,407,832
Accrued preferred stock dividends - 29,950
Income tax liability - 592,918
------------- -------------
Total liabilities 232,927,421 210,066,794
Commitments and contingencies
Shareholders' equity
Preferred stock - $10 par value; 5,000,000
shares authorized
Preferred stock - cumulative; $10 par
value; 38,792 shares authorized;
none issued and outstanding at September
30, 2008 and 14,350 shares issued and
outstanding at December 31, 2007 - 143,500
Preferred stock - convertible cumulative;
$10 par value; 835,000 shares authorized;
none issued and outstanding at September
30, 2008 and 49,480 shares
issued and outstanding at December 31, 2007 - 494,800
Common stock; $0.01 par value; 150,000,000
shares authorized; 25,483,909 shares
issued and 25,482,942 outstanding at
September 30, 2008 and 26,531,557 shares
issued and outstanding at December 31, 2007 254,839 265,316
Treasury stock, at cost; 967 shares at
September 30, 2008 and no shares at
December 31, 2007 (1,148) -
Additional paid-in capital 52,033,877 53,339,299
Accumulated deficit (21,908,238) (21,086,345)
------------- -------------
Total shareholders' equity 30,379,330 33,156,570
------------- -------------
Total liabilities and shareholders'
equity $ 263,306,751 $ 243,223,364
============= =============
See accompanying notes to unaudited consolidated financial statements.About Terra Nova Financial Group, Inc.
Terra Nova Financial, LLC ("Terra Nova Financial") and Tradient Technologies, Inc. ("Tradient") are wholly-owned subsidiaries of Terra Nova Financial Group, Inc., ("Terra Nova") a public company trading on the OTC Bulletin Board under the symbol TNFG. Terra Nova, through its subsidiaries, primarily operates as a registered broker-dealer and service bureau, offering a broad array of trading products including equities, options, futures and commodity options, ETFs, fixed income, and mutual funds.
Terra Nova Financial is a specialized financial services firm focused on supporting trading professionals. Professional traders, hedge funds and money managers come to Terra Nova Financial for unmatched value in execution, clearing and prime brokerage services. This recognition originated with the firm's role as the sponsoring broker-dealer for the innovative Archipelago ECN (now part of the NYSE Euronext) and has been further earned through its proven mastery of the client experience. Through a portfolio of advanced technology tools, Terra Nova Financial empowers self-directed clients to trade, analyze, strategize and report with the precision professionals require. Its team is built to enhance the impact of these tools by providing swift, flexible care and insight, with one goal in mind: clients' success. The firm was founded in 1994 and is headquartered in Chicago, IL with a sales presence in New York, NY.
Tradient operates Terra Nova's technology development activities, building applications for electronic trade execution, order routing and clearing. Tradient platforms are designed around the need for efficiency, consistency and value using a swift, targeted innovation and development process. Tradient is located in Chicago, IL.
Terra Nova Financial is regulated by the SEC, FINRA and NFA and is a member of Depository Trust Company, National Securities Clearing Corporation, Securities Investor Protection Corporation, and the Options Clearing Corporation. The firm holds trading memberships with the NASDAQ OMX Group, Inc., Chicago Stock Exchange, National Stock Exchange, CBOE Stock Exchange, NYSE Arca Options, NYSE Arca Equities, NYSE Alternext US, Boston Options Exchange and International Securities Exchange.
Forward-looking statements
Certain statements in this release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and other laws and regulations. Such forward-looking statements involve known and unknown risks and other important factors that could cause the actual results or performance of the company to differ materially from any future results expressed or implied by such forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "project," or other similar words, or the negative of these terms or comparable language, or by discussion of strategy or intentions. This cautionary statement is being made pursuant to applicable securities laws with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, risks and uncertainties that are described in the Annual Report on Form 10-KSB for the year ended December 31, 2007, the Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and in other securities filings by the Company with the SEC. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
For more information about Terra Nova's brokerage and clearing services, please visit www.TNFG.com.
For more information about Terra Nova's technology offering, please visit www.tradienttech.com.
Contact:
Contact Information
Investor Relations:
Gregg J. Fuesel
1-312-827-3654
Media Contact:
Christopher Hartman
1-312-827-3695
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