Business & Finance
Business and Finance
Business and Finance
Tue, February 24, 2009
Mon, February 23, 2009 Terra Nova Financial Group, Inc.: Terra Nova Financial Group, Inc. Announces Preliminary Earnings
CHICAGO, IL--(Marketwire - February 23, 2009) - Terra Nova Financial Group, Inc. (
Results in the fourth quarter 2008 reflect Terra Nova Financial Group, Inc. ("Terra Nova") continued progress in developing a higher operating margin business by growing trading transaction volume and maintaining interest margin spreads while reducing third party costs.
Selected Results and Discussion
-- Consolidated revenue was $8.9 million and $37.1 million for the three and twelve months ended December 31, 2008, respectively. By comparison, consolidated revenue was $10.3 million and $43.3 million for the three and twelve months ended 2007, respectively. The $1.4 million and $6.2 million revenue decrease for the three and twelve months ended December 31, 2008, respectively, was largely due to the following factors: -- Lower commissions and fees of $160 thousand and $2.6 million for the three and twelve months ended 2008, respectively. While trade activity increased in 2008, its upward effect on commission revenue was offset by lower average commission rates of $0.75 per Daily Average Revenue Trades ("DARTs"). -- Lower net interest income of $1.2 million and $3.3 million for the three and twelve months ended December 31, 2008, respectively. The 44% decrease for twelve months ending December 31, 2008 compared to 2007 was primarily attributable to the decline in the federal funds, the base rate from which the Company earns interest on its bank deposits and margin loans. At the beginning of 2008, the federal funds rate was 4.25%; it declined to 0.25% basis points by year-end. In contrast, in 2007 the federal funds rate remained at 5.25% until September 2007 when it was lowered to 4.75% and ultimately in December 2007 to 4.25%. Despite declining net interest income, Terra Nova has successfully increased its net interest margin percentage for three months ended December 31, 2008 to 85.8% from the 54.9% net interest margin percentage in 2007 for the same reporting period. -- Higher net software fees from Tradient of $289 thousand and $852 thousand for the three and twelve months ended December 31, 2008, respectively compared to $318 thousand and $754 thousand in the same period in 2007. Tradient platform users increased from 1,958 users as of December 31, 2007 to 2,655 at December 31, 2008. -- Overall investment trade activity increased during the period ending December 31, 2008 compared with the same period in 2007. DARTs were 28,124 and 24,783 for the three and twelve months ended December 31, 2008. By comparison, DARTs were 23,563 and 23,553 for the three and twelve months ended 2007. October and November in 2008 represented the highest trade activity months, and December 2008 had lower than average monthly DARTs. -- Commission revenue margin (commissions and fees less cost of sales) increased 1.8% and 3.4% for three and twelve months ended December 31, 2008 over 2007, respectively. This was driven by managing execution costs of trades where the average trade cost was reduced by $0.70 per DART. -- Efforts to reduce third party routing and execution costs contributed to the 1.8% increase in commission revenue margin on trading activities. This measure was 55.1% for three months ending December 31, 2008 compared to 53.3% for same period in 2007. -- Lower routing and execution costs in 2008 were due to a decrease in the number of trades executed on higher cost third party software trading platforms compared to 2007. There was 28% more trades executed on our proprietary lower cost Tradient platform in 2008 which enabled an overall reduction in routing and execution costs. -- Adjusted EBITDA was $1.8 million and $2.5 million for the three and twelve months ended December 31, 2008, respectively. By comparison, Adjusted EBITDA was $2.3 million and $7.7 million for the three and twelve months ended 2007, respectively. Without two significant trading losses in September 2008, Adjusted operating income before unusual loss for the full year of 2008 would have been $3.6 million. -- Net income per share of $0.05 and $0.01 for the three and twelve months ended December 31, 2008, compared with $0.03 and $0.13 for the same periods in 2007. The 2008 income per share was reduced by two unusual incidents in the third quarter of 2008 involving customers that created bad debt expense of $3.6 million for the year. Net income for the three months ended December 31, 2008 was $700 thousand higher than net income for the same period in 2007 due to the reduction of employee compensation expense from the reversal of accrued bonuses not earned. "Our mission has been to re-engineer this firm's business model for higher margins and I am pleased to say that we have succeeded in making meaningful improvements," said Michael Nolan, President and CEO. "Through a disciplined focus embraced by everyone at Terra Nova, we have been able to lower our cost structure -- particularly cost of sales expenses -- due in no small part to the competitiveness of our proprietary Tradient applications."
Brokerage Services Segment
Fourth quarter 2008 highlights
-- Brokerage revenue of $8.6 million for three months ended December 31, 2008 -- a decline of 14% versus the same period in 2007 -- predominately attributable to a decline in net interest income of $1.2 million due to decreasing federal funds rates. Commissions and fees declined $160 thousand due to lower average commission rates. -- Operating income of $1.7 million for three months ended December 31, 2008 -- a decline of 36.7% versus the same period in 2007 due primarily to lower commission revenue and net interest income for fourth quarter of 2008. -- Adjusted EBITDA of $2.1 million for three months ended December 31, 2008 -- a decline of 27.9% compared to the same period in 2007.
"In 2009, we will continue to focus on our core competency of servicing the ultra-active professional trading community," said Nolan. "This segment wants more than just a trading platform. We intend to deliver new resources and support channels to keep traders on the leading edge of advanced trading techniques. We also plan to make marketing investments to boost customer acquisition rates."
Software Services Segment
Fourth quarter 2008 highlights
-- Revenue of $857 thousand for three months ended December 31, 2008 -- an increase of 169.4% versus the same period in 2007. -- Operating income of $124 thousand for three months ended December 31, 2008, compared to loss of $454 thousand in the same period in 2007. -- Adjusted EBITDA of $201 thousand for three months ended December 31, 2008 -- an increase of 153% over the same period in 2007. -- A 36% increase in the number of Tradient platform users for period ending December 31, 2007 to December 31, 2008 which reduced software platform costs to the Company and customers. -- A 43.2% increase in the number of trades executed on the Tradient platforms and 28.3% increase in trades executed on other low cost third party platforms from fourth quarter ending December 31, 2007 to fourth quarter ending December 31, 2008 which reduced overall transaction execution costs.
Unallocated Expenses
-- An increase in unallocated expenses from $589 thousand in the fourth quarter ending December 31, 2007 to $1 million in the fourth quarter ending December 31, 2008 -- a 69.8% increase caused by higher depreciation and amortization of $230,000 and professional fees of $300,000 for legal expenses and marketing costs.
Consolidated Company Totals
GAAP and Non-GAAP preliminary unaudited financial results on a consolidated basis include:
-- Total revenue for three months ended December 31, 2008 of $8.9 million a decrease of 13.9% from $10.3 million in the same period in 2007. The decline was attributable to a $1.2 million decline in net interest income mainly due to an average 400 basis point decline in the federal funds rate along with a $160 thousand decrease in commissions and fees from lower average commission rates. -- Net income for three months ended December 31, 2008 of approximately $1.2 million versus $767 thousand net income for the same period in 2007. -- Adjusted EBITDA for three months ended December 31, 2008 of approximately $1.8 million, or 20.3% of total revenues compared to $2.3 million or 21.8% of revenues for the same period in 2007.
Consolidated financial statements - Preliminary Unaudited
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Twelve Months Ended December 31, December 31, --------------------------- -------------------------- 2008 2007 2008 2007 ------------- ------------ ------------ ------------ REVENUES Commissions and fees $ 8,190,270 $ 8,350,899 $ 31,869,752 $ 34,452,151 Interest income 466,133 2,943,191 5,314,233 13,971,377 Interest expense on brokerage accounts 66,195 1,324,808 1,075,883 6,407,478 ------------- ------------ ------------ ------------ Net interest income 399,938 1,618,383 4,238,350 7,563,899 Software fees, net 288,976 318,144 852,133 754,317 Other income 16,380 46,231 135,316 514,989 ------------- ------------ ------------ ------------ Net revenues 8,895,564 10,333,657 37,095,551 43,285,356 OPERATING EXPENSES Commissions and clearing 2,606,187 2,441,238 10,227,524 12,916,474 Employee compensation 1,619,395 2,275,010 9,157,187 9,982,675 Software and market data 1,219,446 1,713,956 5,808,438 6,064,341 Advertising and promotional 234,035 56,088 929,126 642,124 Professional fees 766,670 609,254 2,815,477 2,138,896 Communications and information technology 226,927 227,863 864,639 814,432 Depreciation and amortization 585,774 370,786 2,307,628 1,519,190 Bad debt expense 133,795 11,244 3,604,685 - Other general and administrative expenses 317,732 784,828 1,294,834 3,072,213 ------------- ------------ ------------ ------------ Total operating expenses 7,709,961 8,490,267 37,009,538 37,150,345 ------------- ------------ ------------ ------------ Operating income 1,185,603 1,843,390 86,013 6,135,011 Interest expense - (9,939) - (65,373) ------------- ------------ ------------ ------------ Income before income taxes 1,185,603 1,833,451 86,013 6,069,638 Income tax benefit (provision) 38 (1,066,111) 277,734 (2,450,905) ------------- ------------ ------------ ------------ Net income 1,185,641 767,340 363,747 3,618,733 ------------- ------------ ------------ ------------ Dividends on preferred stock - (18,995) (20,113) (145,827) ------------- ------------ ------------ ------------ Net income attributable to common shareholders $ 1,185,641 $ 748,345 $ 343,634 $ 3,472,906 ============= ============ ============ ============ Net income per common share: Basic $ 0.05 $ 0.03 $ 0.01 $ 0.13 ============= ============ ============ ============ Diluted $ 0.05 $ 0.03 $ 0.01 $ 0.13 ============= ============ ============ ============ Weighted average common shares outstanding: Basic 25,483,909 26,934,747 25,860,874 27,124,661 ============= ============ ============ ============ Diluted 25,483,909 27,024,524 25,860,874 27,521,696 ============= ============ ============ ============
Consolidated financial statements - Preliminary Unaudited, continued
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, ASSETS 2008 2007 ------------- ------------- (Unaudited) Cash and cash equivalents $ 7,889,553 $ 7,937,880 Cash segregated in compliance with federal regulations 141,159,364 144,225,499 Receivables from brokers, dealers and clearing organizations 13,568,459 24,902,262 Receivables from customers and non-customers, net 4,873,360 47,261,886 Property and equipment, net 1,221,066 1,150,312 Capitalized software development costs, net 2,060,015 1,883,375 Intangible assets, net 4,111,514 5,481,660 Income tax receivable 1,446,264 - Goodwill 7,501,408 7,501,408 Deferred income taxes, net 1,784,761 1,569,892 Other assets 1,331,764 1,309,190 ------------- ------------- Total assets $ 186,947,528 $ 243,223,364 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Line of credit $ - $ 10,848,000 Payables to brokers, dealers and clearing organizations 913,622 694,148 Payables to customers and non-customers 151,970,565 194,493,946 Accounts payable and accrued expenses 2,525,691 3,407,832 Accrued preferred stock dividends - 29,950 Income tax liability - 592,918 ------------- ------------- Total liabilities 155,409,878 210,066,794 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 December 31, 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 December 31, 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; 25,482,942 shares issued and outstanding at December 31, 2008 and 26,531,557 shares issued and outstanding at December 31, 2007 254,829 265,316 Additional paid-in capital 52,005,418 53,339,299 Accumulated deficit (20,722,597) (21,086,345) ------------- ------------- Total shareholders' equity 31,537,650 33,156,570 ------------- ------------- Total liabilities and shareholders' equity $ 186,947,528 $ 243,223,364 ============= =============
SEGMENT REPORTING and CONSOLIDATED FINANCIAL STATEMENTS - Preliminary 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 preliminary unaudited Segment reporting & Adjusted EBITDA reconciliations for three and twelve months ended December 31, 2008.
Segment reporting & Adjusted EBITDA reconciliations - Preliminary Unaudited
TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Adjustments - Unaudited Three Months Ended Twelve Months Ended December 31, December 31, -------------------------- -------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ TOTAL REVENUES Commissions and fees $ 8,190,270 $ 8,350,899 $ 31,869,752 $ 34,452,151 Net interest income 399,938 1,618,383 4,238,350 7,563,899 Software fees, net 288,976 318,144 852,133 754,317 Other income 16,380 46,231 135,316 514,989 ------------ ------------ ------------ ------------ Net revenues 8,895,564 10,333,657 37,095,551 43,285,356 Cost of sales 3,678,899 3,900,892 16,031,776 18,497,911 ------------ ------------ ------------ ------------ Gross Profit 5,216,665 6,432,765 21,063,775 24,787,445 ------------ ------------ ------------ ------------ Operating expenses 4,031,062 4,599,314 20,977,762 18,717,807 ------------ ------------ ------------ ------------ Operating income 1,185,603 1,843,390 86,013 6,135,011 Interest expense - 9,939 - 65,373 ------------ ------------ ------------ ------------ Income before income taxes 1,185,603 1,833,451 86,013 6,069,638 Income tax benefit (provision) 38 (1,066,111) 277,734 (2,450,905) ------------ ------------ ------------ ------------ Net income 1,185,641 767,340 363,747 3,618,733 ADJUSTMENTS: Depreciation and amortization 585,774 370,786 2,307,628 1,519,190 Stock-based compensation 36,477 37,478 143,571 90,189 Interest expense - 9,939 - 65,373 Income tax (benefit) provision (38) 1,066,111 (277,734) 2,450,905 ------------ ------------ ------------ ------------ Total Adjusted EBITDA $ 1,807,854 $ 2,251,654 $ 2,537,213 $ 7,744,391 ============ ============ ============ ============ Gross profit margin % 58.6% 62.3% 56.8% 57.3% Commissions revenue margin 4,511,371 4,450,007 15,837,976 15,954,240 Commissions revenue margin % 55.1% 53.3% 49.7% 46.3% TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Adjustments - Unaudited Three Months Ended Twelve Months Ended December 31, December 31, ------------------------- ------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ TOTAL REVENUES $ 8,895,564 $ 10,333,657 $ 37,095,551 $ 43,285,356 Operating expenses 7,709,961 8,490,267 37,009,538 37,150,345 ------------ ------------ ------------ ------------ Operating income 1,185,603 1,843,390 86,013 6,135,011 ADJUSTMENTS: Unusual customer trading losses - - 3,553,296 - ------------ ------------ ------------ ------------ Total Adjusted operating income before unusual loss $ 1,185,603 $ 1,843,390 $ 3,639,309 $ 6,135,011 ============ ============ ============ ============ TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES Segment reconciliation of Non-GAAP Adjustments - Unaudited Three Months Ended Twelve Months Ended December 31, December 31, -------------------------- -------------------------- Brokerage Services 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Total Revenues $ 8,605,222 $ 10,011,873 $ 36,224,209 $ 42,511,801 Operating expenses 6,884,301 7,294,288 34,338,784 33,694,138 ------------ ------------ ------------ ------------ Operating income 1,720,921 2,717,585 1,885,425 8,817,663 Net income 1,720,921 2,717,585 1,885,425 8,817,663 ADJUSTMENTS: Depreciation and amortization 410,478 235,447 1,566,740 971,766 ------------ ------------ ------------ ------------ Total Adjusted EBITDA $ 2,131,399 $ 2,953,032 $ 3,452,165 $ 9,789,429 Three Months Ended Twelve Months Ended December 31, December 31, -------------------------- -------------------------- Software Services 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Total Revenues $ 857,232 $ 318,144 $ 2,982,111 $ 756,703 Elimination of intercompany charges (568,256) - (2,129,978) (2,386) Operating expenses 165,354 771,861 362,586 2,270,276 ------------ ------------ ------------ ------------ Operating income 123,622 (453,717) 489,547 (1,515,959) Net income (loss) 123,622 (453,717) 489,547 (1,515,959) ADJUSTMENTS: Depreciation and amortization 77,103 74,812 346,772 293,367 ------------ ------------ ------------ ------------ Total Adjusted EBITDA $ 200,725 $ (378,905) $ 836,319 $ (1,222,592) ============ ============ ============ ============
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., NASDAQ OMX PHLX, Chicago Stock Exchange, National Stock Exchange, CBOE Stock Exchange, NYSE Arca Options, NYSE Arca Equities, NYSE Alternext US, NYSE Euronext, 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 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 in this press release, whether as a result of new information, future events, or otherwise.
