SOURCE: Terra Nova Financial Group, Inc.

August 04, 2008 17:34 ET

Terra Nova Financial Group, Inc. Announces Earnings

CHICAGO, IL--(Marketwire - August 4, 2008) - Terra Nova Financial Group, Inc. (OTCBB: TNFG), 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 performance metrics for the second quarter of 2008.

Results in the second quarter and year-to-date periods reflect diversification within Terra Nova's targeted customer base as the firm broadens its technology platform offerings -- a strategy that has reduced operating costs and contributed to earnings. The quarter is also highlighted by the achievement of strategic milestones aimed to ready the specialized financial services firm for future growth, including corporate rebranding, a relaunch of the firm's technology division, and the release of a powerful new version of its proprietary trading platform enhanced in part through strategic alliances.

Selected Highlights

--  Terra Nova's results include consolidated revenue of $8.5 million and
    $18.5 million for the three and six months ended June 30, 2008,
    respectively. Beginning the three months ended June 30, 2008, the firm
    reclassified interest expense on brokerage accounts to net against interest
    income to conform to industry norm, which will reduce revenue measures
    versus prior periods with no effect on overall net income. Additionally,
    software revenue is now being reported on a net basis.
--  Operating income of approximately $679 thousand and $1.1 million for
    the three and six months ended June 30, 2008, respectively.
--  Net income per share of $0.02 for the three months ended June 30, 2008
    and in the same period in 2007 and $0.01 net income per share reported in
    the three months ended March 31, 2008.
--  Earnings before interest, taxes, depreciation, amortization and other
    non-cash items ("Adjusted EBITDA") of approximately $1.3 million for the
    three months ended June 30, 2008.
--  Repurchased 526,000 shares of common stock in the three months ended
    June 30, 2008.
--  Daily average revenue trades (DARTs) of 22,375 for the three months
    ended June 30, 2008 - a decrease of 3% versus the three months ended June
    30, 2007.
--  Redemption of all outstanding preferred stock, which carried a
    dividend rate of 9%, with a liquidation value of $781,100, during the three
    months ended June 30, 2008.
--  As of June 30, 2008, a 168% increase in the number of Tradient Pro,
    Tradient Plus and Tradient Web users since June 30, 2007.
--  A 465% increase in number of trades executed on Tradient Pro, Tradient
    Plus and Tradient Web in the three months ended June 30, 2008 compared to
    the three months ended June 30, 2007.
    

"Our performance tells the story of our focused commitment to the needs of the professional traders, hedge funds and money managers we serve, and in our experience key drivers for this audience are choice and flexibility," said Michael Nolan, President and CEO. "This quarter, compared to the same quarter last year, the number of users and trades from our proprietary Tradient trading platforms increased by 168% and 465%, respectively, and the software services segment reported overall earnings growth of 193% -- in part due to the lower routing costs of this platform. We see this as validation that developing and marketing a broadened range of technology offerings is a strategy with both revenue and bottom line benefits and we are excited about the momentum we are gaining by executing on this strategy after emerging from a period of change and reorganization."

Brokerage Services Segment

Second quarter 2008 highlights

--  Brokerage revenue of $7.8 million for the three months ended June 30,
    2008 - a decline of 31.6% versus the same period in 2007 - predominately
    attributable to a decline in net interest income of $1.1 million and a
    decline in commissions and fees of $1.9 million.
--  Operating income of $773 thousand for the three months ended June 30,
    2008 - a decline of 58% versus the same period in 2007.
--  Adjusted EBITDA of $1.2 million for the three months ended June 30,
    2008 - a decline of 45% versus the same period in 2007.
--  $773.3 million in customer assets for the period ended June 30, 2008.
    

"Overall market softness in the second quarter had an unavoidable effect on our brokerage revenue," said Nolan. "However, adding the compelling new Tradient Pro release to our proprietary technology trading platform available to clients has played a significant role in expense control, impacting margins."

Software Services Segment

Second quarter 2008 highlights

--  Revenue of $728,000 for the three months ended June 30, 2008 - an
    increase of 402% versus the same period in 2007.
--  Profit of $401,000 for the three months ended June 30, 2008, compared
    to an operating loss of ($428,000) in the same period in 2007.
--  Adjusted EBITDA of $485,000 for the three months ended June 30, 2008 -
    a market increase of 238% from a loss of ($353,000) posted in the same
    period in 2007.
--  As of June 30, 2008, a 168% increase in the number of Tradient Pro,
    Tradient Plus and Tradient Web users to 1,651 since June 30, 2007.
--  A 465% increase in number of trades executed on Tradient Pro, Tradient
    Plus and Tradient Web in the three months ended June 30, 2008 compared to
    the three months ended June 30, 2007.
    

"Having turned the corner to post a swift upturn in revenue and profitability this quarter, our technology development group has demonstrated just a glimpse of its potential," said Nolan. "A continued focus on value-driven innovation, software speed and time-to-market will continue to fuel financial performance."

Unallocated Expenses

--  In the three months ended June 30, 2008, unallocated expenses of
    $495,000 - an increase of 47% from $336,000 in the same period in 2007.
    

Company Highlights

GAAP and Non-GAAP financial highlights on a consolidated basis include:

--  Net income for three months ended June 30, 2008 of approximately
    $399,000 versus $592,000 for the same period in 2007.
--  Total revenue for the three months ended June 30, 2008 of $8.5
    million - a decrease of 26% from $11.6 million in the same period in
    2007. The decline was attributable to a $1.1 million decline in net
    interest income mainly due to a 325 basis point decline in the federal
    funds rate along with a $1.9 million decrease in commissions and fees.
--  Adjusted EBITDA for the three months ended June 30, 2008 was
    approximately $1.3 million, or 14.9% of total revenues, versus $1.6 million
    or 13.8% of revenues for the same period in 2007.
    

                                 Brokerage      Software
                                 Services       Services         Total
                               -------------- -------------  -------------
For three months ended June
 30, 2008:
Revenues                       $    7,812,273 $     727,912  $   8,540,185
Operating expenses                  7,038,842       327,117      7,365,959
                               -------------- -------------  -------------
Income (loss) before income
 taxes                                773,431       400,795      1,174,226
                               ============== =============  =============

Depreciation and amortization         386,192        84,498        470,690
Eliminations of intercompany
 charges from the Software
 segment to Brokerage segment         711,109      (711,109)             -

   Unallocated amounts:
   Other revenue                                                     5,349
   Stock-based compensation                                        (28,322)
   Depreciation expense                                            (97,977)
   Other expense                                                  (373,928)
   Interest expense                                                      -
                                                             -------------
     Consolidated income
      before income taxes                                    $     679,348
                                                             =============

Capital expenditures and
 software development          $            - $     496,904  $     496,904

Total assets                   $  217,874,015 $     971,338  $ 218,845,353
   Unallocated amounts:
   Unallocated assets                                            2,692,946
                                                             -------------
     Total assets                                            $ 221,538,299
                                                             =============



                                 Brokerage      Software
                                  Services      Services         Total
                               -------------- -------------  -------------
For three months ended June
 30, 2007:
Revenues                       $   11,427,934 $     144,512  $  11,572,446
Operating expenses                  9,556,243       572,572     10,128,815
                               -------------- -------------  -------------
Income (loss) before income
 taxes                              1,871,691      (428,060)     1,443,631
                               ============== =============  =============

Depreciation and amortization         246,197        75,444        321,641
   Unallocated amounts:
   Other revenue                                                         -
   Stock-based compensation                                        (17,993)
   Depreciation expense                                           (128,524)
   Other expense                                                  (171,721)
   Interest expense                                                (17,686)
                                                             -------------
     Consolidated income
      before income taxes                                    $   1,107,707
                                                             =============

Capital expenditures and
 software development          $       39,205 $           -  $      39,205

Total assets                   $  229,786,154 $     451,021  $ 230,237,175
   Unallocated amounts:
   Unallocated assets                                            1,020,157
                                                             -------------
     Total assets                                            $ 231,257,332
                                                             -------------

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. Furthermore, while some of these items have been periodically reported in Terra Nova's statements of income, their occurrence in future periods is dependent upon future business and economic factors, among other criteria, and may frequently be beyond the control of management.

Below are the Adjusted EBITDA reconciliations relating to the three months ended June 30, 2008 and three months ended June 30, 2007.

            TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
            Reconciliation of Non-GAAP Adjustments - Unaudited


                                             Three Months    Three Months
                                                Ended           Ended
                                            June 30, 2008   June 30, 2007
                                            --------------  --------------
TOTAL REVENUES                              $    8,545,534  $   11,571,351
Operating expenses                               7,866,186      10,445,958
                                            --------------  --------------
Operating income                                   679,348       1,125,393
Interest expense                                         -         (17,686)
                                            --------------  --------------
Income before income taxes                         679,348       1,107,707
Income tax provision                              (280,118)       (516,076)
                                            --------------  --------------
Net income                                         399,230         591,631

ADJUSTMENTS:
Depreciation and amortization expense              568,368         450,165
Stock-based compensation                            28,322          17,993
Interest expense                                         -          17,686
Income tax provision                               280,118         516,076
                                            --------------  --------------
Total Adjusted EBITDA                       $    1,276,038  $    1,593,551


         Segment reconciliation of Non-GAAP Adjustments - Unaudited

                                             Three Months    Three Months
                                                Ended           Ended
Brokerage Services                           June 30, 2008   June 30, 2007
                                            --------------  --------------
TOTAL REVENUES                              $    7,812,273  $   11,427,934
Operating expenses                               7,038,842       9,556,243
                                            --------------  --------------
Operating income                                   773,431       1,871,691
Net income                                         773,431       1,871,691

ADJUSTMENTS:
Depreciation and amortization expense              386,192         246,197
                                            --------------  --------------
Total Adjusted EBITDA                       $    1,159,623  $    2,117,888

                                             Three Months    Three Months
                                                 Ended           Ended
Software Services                            June 30, 2008   June 30, 2007
                                            --------------  --------------
TOTAL REVENUES                              $      727,912  $      144,512
Operating expenses                                 327,117         572,572
                                            --------------  --------------
Operating income                                   400,795        (428,060)
Net income                                         400,795        (428,060)

ADJUSTMENTS:
Depreciation and amortization expense               84,498          75,444
                                            --------------  --------------
Total Adjusted EBITDA                       $      485,293  $     (352,616)

FINANCIAL STATEMENTS - Unaudited, continued

            TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS


                        Three Months Ended June     Six Months Ended June
                                  30,                       30,
                      --------------------------  ------------------------
                          2008          2007          2008         2007
                      ------------  ------------  -----------  -----------
                      (Unaudited)   (as restated  (Unaudited) (as restated
                                        and                        and
REVENUES                             unaudited)                unaudited)
Commissions and fees  $  7,071,117  $  8,981,479  $15,239,872  $17,049,341

Interest income          1,400,545     3,939,233    3,471,429    7,438,283
Interest expense on
 brokerage accounts        213,686     1,687,197      822,429    3,672,725
                      ------------  ------------  -----------  -----------
   Net interest income   1,186,859     2,252,036    2,649,000    3,765,558

Software fees, net         193,333       144,666      352,336      247,785
Other income                94,225       193,170      248,231      429,143
                      ------------  ------------  -----------  -----------

   Total revenues        8,545,534    11,571,351   18,489,439   21,491,827

OPERATING EXPENSES
Commissions and
 clearing                2,704,354     3,654,100    5,382,281    6,344,240
Employee compensation    2,159,231     2,634,489    5,181,282    4,922,270
Quotations and market
 data                    1,603,344     1,448,418    3,257,356    2,971,703
Advertising and
 promotional               147,386       249,033      254,375      490,650
Professional fees          505,391       564,558    1,298,635      982,177
Communications and
 information
 technology                191,523       238,463      448,094      425,937
Depreciation and
 amortization              568,368       450,165    1,125,931      828,200
Other general and
 administrative
 expenses                  (13,411)    1,206,732      462,010    1,960,207
                      ------------  ------------  -----------  -----------

   Total operating
    expenses             7,866,186    10,445,958   17,409,964   18,925,384
                      ------------  ------------  -----------  -----------

Operating income           679,348     1,125,393    1,079,475    2,566,443

Interest expense                 -       (17,686)           -      (42,513)
                      ------------  ------------  -----------  -----------

Income before income
 taxes                     679,348     1,107,707    1,079,475    2,523,930

Income tax provision      (280,118)     (516,076)    (508,118)    (956,146)
                      ------------  ------------  -----------  -----------

Net income                 399,230       591,631      571,357    1,567,784

Dividends on
 preferred stock            (2,538)      (14,297)     (20,113)     (28,594)
                      ------------  ------------  -----------  -----------

Net income
 attributable to
 common shareholders  $    396,692  $    577,334  $   551,244  $ 1,539,190
                      ============  ============  ===========  ===========

Net income per common
 share:
Basic                 $       0.02  $       0.02  $      0.02  $      0.06
                      ============  ============  ===========  ===========
Diluted               $       0.02  $       0.02  $      0.02  $      0.06
                      ============  ============  ===========  ===========

Weighted average
 number of common
 shares
Basic                   26,223,876    27,187,428   26,223,876   27,186,490
                      ============  ============  ===========  ===========
Diluted                 26,223,876    27,690,626   26,223,876   27,869,997
                      ============  ============  ===========  ===========


   See accompanying notes to unaudited consolidated financial statements.

FINANCIAL STATEMENTS - Unaudited, continued

            TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                                June 30,     December 31,
                  ASSETS                          2008           2007
                                              -------------  -------------
                                               (Unaudited)
Cash and cash equivalents                     $   5,335,687  $   7,937,880
Cash segregated in compliance with federal
 regulations                                    150,152,112    144,225,499
Receivables from brokers, dealers and
 clearing organizations                          14,701,118     24,902,262
Receivables from customers and non-customers     33,014,885     47,261,886
Property and equipment, net                       1,114,930      1,150,312
Capitalized software development costs, net       2,236,470      1,883,375
Intangible assets, net                            4,804,806      5,481,660
Goodwill                                          7,501,408      7,501,408
Deferred income taxes, net                        1,484,003      1,569,892
Other assets                                      1,192,880      1,309,190
                                              -------------  -------------
       Total assets                           $ 221,538,299  $ 243,223,364
                                              =============  =============

    LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit                                $           -  $  10,848,000
Payables to brokers, dealers and clearing
 organizations                                    6,093,393        694,148
Payables to customers and non-customers         180,252,251    194,493,946
Accounts payable and accrued expenses             3,438,643      3,407,832
Accrued preferred stock dividends                         -         29,950
Income tax liability                                 19,973        592,918
                                              -------------  -------------
       Total liabilities                        189,804,260    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;
   zero shares issued and outstanding at June
   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;
   zero shares issued and outstanding at June
   30, 2008 and 49,480 shares issues and
   outstanding at December 31, 2007;                      -        494,800
Common stock; $0.01 par value, 150,000,000
 shares authorized; 26,017,057 outstanding and
 25,529,057 issued at June 30, 2008 and
 26,531,557 shares issued and outstanding as
 of December 31, 2007, respectively                 260,171        265,316
Treasury stock; issued 488,000 shares as of
 June 30,2008, at par                                (4,880)             -
Additional paid-in capital                       51,993,736     53,339,299
Accumulated deficit                             (20,514,988)   (21,086,345)
                                              -------------  -------------
       Total shareholders' equity                31,734,039     33,156,570
                                              -------------  -------------
       Total liabilities and shareholders'
        equity                                $ 221,538,299  $ 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 covering 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.

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.

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 Stock Market, Chicago Stock Exchange, National Stock Exchange, American Stock Exchange, CBOE Stock Exchange, NYSE Arca Options, NYSE Arca Equities, 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 March 31, 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.

Contact Information

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.tradient.com.

Contact Information

  • Investor Relations:
    Gregg J. Fuesel
    1-312-827-3654

    Media Contact:
    Christopher Hartman
    1-312-827-3695