SOURCE: Terra Nova Financial Group, Inc.

Terra Nova Financial Group, Inc.

March 26, 2010 19:10 ET

Terra Nova Financial Group, Inc. Announces Fourth Quarter Earnings

CHICAGO, IL--(Marketwire - March 26, 2010) - Terra Nova Financial Group, Inc. (OTCBB: TNFG), a specialized financial services firm that through its subsidiaries provides brokerage services for professional traders, hedge funds and money managers, today announced preliminary unaudited financial performance metrics for the three and twelve months ended December 31, 2009.

Operating Initiatives

Due to the economic climate and after a thorough review of the Company's operations, the Company initiated a restructuring program in November 2009. The objective of the program is to refocus the Company on its core customer base and to align financial resources appropriately. As part of this effort, the Company completed its shutdown of Tradient Technologies, Inc. ("Tradient") on February 1, 2010.

The initiatives resulted in the elimination of 23% of the Company's full time work force in fourth quarter of 2009 and the first quarter of 2010 which is anticipated to reduce employee costs by $2.1 million annually. Additionally, cost savings of $750,000 are anticipated from reduced capital expenditures and infrastructure costs associated with operating Tradient. The savings are expected to be realized beginning in the second quarter of 2010.

"Terra Nova operates in an industry that is going through significant change. Making the right operating decisions at this juncture is imperative," said Bernay Box, Chief Executive Officer. "We looked critically at all of our business operations and determined to eliminate offerings that were not directly serving our active professional trading clients. This review resulted in the decision to shut down Tradient Technologies. This move is much more than a reaction to lower ticket volume; it is targeted at re-focusing the Company on its long-time customer. As we continue to experience significantly lower ticket volumes, preserving our capital remains our primary focus."

Selected Fourth Quarter Results and Discussion

-- Consolidated revenue was $5.7 million for the three months ended
   December 31, 2009 versus $8.9 million for the same period in 2008.
   The following factors were primary contributors to the $3.2 million
   decrease in revenue:

   -- Commissions and fees revenues were $5 million for the three months
      ended December 31, 2009 -- $3.1 million lower than in the same period
      in 2008. Lower trade volumes, primarily as a result of persistently
      low market volatility reduced revenues by $4.2 million. Commissions
      per trade for the three months ended December 31, 2009 improved 29.5%
      over the same period in 2008, to $5.86. This improvement in
      commissions per trade offset the revenue impact of the reduction in
      trading volume by about $1.1 million for the three months ended
      December 31, 2009.

   -- Net interest income declined by $115,000 to $284,000 for the three
      months ended December 31, 2009, compared to same period in 2008. The
      decline was primarily attributable to a drop in the federal funds
      rate -- the base rate from which the Company earns interest on its
      bank deposits and margin loans. Additionally, client margin balances
      increased by 14% for three months ended December 31, 2009 compared
      to the same period in 2008.

   -- Software fees from Tradient trading platforms subscriptions decreased
      by 26% to $212,000 for the three months ended December 31, 2009
      compared to the same period in 2008. The decline is attributable to
      the Company's decision to exit the software development business
      associated with its proprietary Tradient trading platforms

-- DARTs (daily average revenue trades) were 13,440 for the three months
   ended December 31, 2009 compared to 28,567 for the same period in 2008.
   The results are primarily attributable to a decline in active clients,
   as well as a less volatile market than experienced in the fourth quarter
   of 2008. Shares and contracts traded during the quarter ended December
   31, 2009 totaled 1.2 billion compared to 1.9 billion in the same period
   last year.

-- Commission gross profit margin (commissions and fees less cost of sales)
   declined 6.5% to 47.3% for the three months ended December 31, 2009,
   compared to the same period in 2008. The decline in gross commission
   margin stems from a shift in trading activity from retail clients to
   more commission payout clients. Additionally, in the fourth quarter
   of 2008 the Company received a rebate of regulatory fees totaling
   $214,000 compared to no rebate in the same period of 2009 -- the
   rebate accounts for 2.1% of the variance in commission gross profit
   margin in the three months ended December 31, 2009 when compared to
   the same period in 2008.

-- Adjusted EBITDA was ($12.4 million) for the three months ended
   December 31, 2009 compared to $1.8 million for the same period in 2008.

-- Net loss per share was ($0.48) for the three months ended
   December 31, 2009 compared to net income per share of $0.05 for the
   same period in 2008.

-- Items included in three months ended December 31, 2009: $619,000
   non-cash impairment charge related to the shutdown of Tradient;
   $262,000 of severance charges related to the reduction in workforce;
   $204,000 dispute with a third party clearing partner; a non-cash charge
   of $7.5 million for the full write down of goodwill; and a non-cash
   charge of $967,000 for the write down on capitalized software assets.
   Excluding these charges, loss before income taxes would have been an
   operating loss of ($1.5 million) for the three months ended
   December 31, 2009 instead of the reported operating loss of
   ($11.1 million.)

CONSOLIDATED FINANCIAL STATEMENTS - Preliminary Unaudited

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


                                                    Three Months Ended
                     Years Ended December 31,          December 31,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------

REVENUES
Commissions and
 fees               $ 24,799,276  $ 31,578,276  $  5,037,335  $  8,139,589

Interest income        1,473,405     5,314,233       284,175       466,133
Interest expense on
 brokerage accounts            -     1,075,883             -        66,195
                    ------------  ------------  ------------  ------------
       Net interest
        income         1,473,405     4,238,350       284,175       399,938

Software fees, net       929,471       852,133       212,493       288,976
Other revenues           397,353       426,792       135,161        67,061
                    ------------  ------------  ------------  ------------

       Net revenues   27,599,505    37,095,551     5,669,164     8,895,564

EXPENSES
Commissions and
 clearing              9,578,920    11,090,405     1,915,116     2,822,803
Compensation and
 benefits              8,657,365     8,537,649     2,040,382     1,412,327
Software and market
 data                  3,251,404     5,797,055       756,556     1,216,858
Advertising and
 promotional             604,828       629,126       148,689       159,035
Professional fees      2,901,713     2,815,477       868,911       766,670
Communications and
 information
 technology              952,682       864,638       239,341       226,927
Depreciation and
 amortization          2,306,639     2,307,628       590,723       585,774
Bad debt expense               -     3,604,685             -       133,795
Loss on impairment
 of goodwill           7,501,408             -     7,501,408             -
Loss on impairment
 of capitalized
 software
 development costs     1,410,414             -     1,410,414             -
Loss on impairment
 of property and
 equipment               173,599             -       173,599             -
Other general and
 administrative
 expenses              3,208,760     1,362,875     1,079,669       385,772
                    ------------  ------------  ------------  ------------

       Total
        expenses      40,547,732    37,009,538    16,724,808     7,709,961
                    ------------  ------------  ------------  ------------

Net income (loss)
 before income
 taxes               (12,948,227)       86,013   (11,055,644)    1,185,603

Income tax expense
 (benefit)               262,979      (277,734)    1,000,000           (38)
                    ------------  ------------  ------------  ------------

Net income (loss)    (13,211,206)      363,747   (12,055,644)    1,185,641
                    ------------  ------------  ------------  ------------

Dividends on
 preferred stock               -       (20,113)            -             -
                    ------------  ------------  ------------  ------------

Net income (loss)
 attributable to
 common
 shareholders       $(13,211,206) $    343,634  $(12,055,644) $  1,185,641
                    ============  ============  ============  ============

Net income (loss)
 per common share:
Basic               $      (0.52) $       0.01  $      (0.48) $       0.05
                    ============  ============  ============  ============
Diluted             $      (0.52) $       0.01  $      (0.48) $       0.05
                    ============  ============  ============  ============

Weighted average
 common shares
 outstanding:
Basic                 25,259,530    25,860,874    25,054,508    25,483,909
                    ============  ============  ============  ============
Diluted               25,259,530    25,860,874    25,054,508    25,483,909
                    ============  ============  ============  ============



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


                                              December 31,   December 31,
                                                  2009           2008
                                              -------------  -------------
                   ASSETS

Cash and cash equivalents                     $   1,857,671  $   7,889,553
Cash segregated in compliance with federal
 regulations                                    136,042,376    141,159,364
Receivables from brokers, dealers and
 clearing organizations                          23,001,389     13,568,459
Receivables from brokerage customers             12,022,905      4,858,360
Property and equipment, net of accumulated
 depreciation and amortization                    1,045,707      1,221,066
Capitalized software development costs, net
 of accumulated amortization                        246,835      2,060,015
Intangible assets, net of accumulated
 amortization                                     2,741,364      4,111,514
Income tax receivable                               738,285      1,446,264
Goodwill                                                  -      7,501,408
Deferred income taxes, net                        1,499,761      1,784,761
Other assets                                        657,361      1,346,764
                                              -------------  -------------
       Total assets                           $ 179,853,654  $ 186,947,528
                                              =============  =============


     LIABILITIES AND SHAREHOLDERS' EQUITY

Payables to brokerage customers               $ 159,825,033  $ 151,970,566
Payables to brokers, dealers and clearing
 organizations                                      490,911        913,621
Accounts payable and accrued expenses             1,355,905      2,525,692
                                              -------------  -------------
       Total liabilities                        161,671,849    155,409,879

Commitments and contingencies

Shareholders' equity
Preferred stock; $10 par value; 5,000,000
 shares authorized; none issued                           -              -
Common stock; $0.01 par value; 150,000,000
 shares authorized; 25,482,942 shares
 issued and 25,054,508 shares outstanding at
 December 31, 2009 and 25,482,942 shares
 issued and outstanding at December 31, 2008        254,829        254,829
Treasury stock, common, at cost; 428,434
 shares at December 31, 2009 and no shares at
 December 31, 2008                                 (272,056)             -
Additional paid-in capital                       52,132,836     52,005,418
Accumulated deficit                             (33,933,804)   (20,722,598)
                                              -------------  -------------
       Total shareholders' equity                18,181,805     31,537,649
                                              -------------  -------------
       Total liabilities and shareholders'
        equity                                $ 179,853,654  $ 186,947,528
                                              =============  =============

In addition to reporting financial results in accordance with generally accepted accounting principles in the United States, or GAAP, the Company uses the measure of non-GAAP Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and other non-cash items) and non-GAAP loss before income taxes. These measures are not in accordance with or an alternative for GAAP, and should not be considered more meaningful than amounts determined in accordance with 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 can help in the assessment and evaluation of the relative strength of the Company's operating performance and is intended to assist investors in evaluating the current operating and financial performance of the Company's core business. The non-GAAP loss before income taxes excludes certain non-cash charges and certain items, including arbitration awards, that we believe to be unusual. Management believes that their exclusion provides individuals with additional information to compare the Company's results over multiple periods. The exclusion of these identified items from this non-GAAP financial measure should not be construed as an inference that arbitration hearings or awards are unusual or infrequent. The Company's management uses these measures internally for reviewing its financial results and for business planning. The Company 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 are Terra Nova's preliminary unaudited Total Adjusted EBITDA reconciliations for the three and twelve months ended December 31, 2009 and 2008.

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

                                                    Three Months Ended
                     Years Ended December 31,          December 31,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------

Commissions and
 fees               $ 24,799,276  $ 31,578,276  $  5,037,335  $  8,139,589
Net interest income    1,473,405     4,238,350       284,175       399,938
Software fees, net       929,471       852,133       212,493       288,976
Other revenue            397,353       426,792       135,161        67,061
                    ------------  ------------  ------------  ------------
       Net revenues   27,599,505    37,095,551     5,669,164     8,895,564

Cost of sales         12,618,052    16,362,476     2,656,670     3,764,399
Gross profit          14,981,453    20,733,075     3,012,494     5,131,165
                    ------------  ------------  ------------  ------------
Operating expenses    27,929,680    20,647,062    14,068,138     3,945,562
                    ------------  ------------  ------------  ------------

Net income (loss)
 before income
 taxes               (12,948,227)       86,013   (11,055,644)    1,185,603

Income tax expense
 (benefit)               262,979      (277,734)    1,000,000           (38)
                    ------------  ------------  ------------  ------------

Net income (loss)    (13,211,206)      363,747   (12,055,644)    1,185,641

Adjustments
Depreciation and
 amortization          2,306,639     2,307,628       590,723       585,774
Stock-based
 compensation            127,418       143,562        36,154        36,477
Income tax
 (expense) benefit      (262,979)      277,734    (1,000,000)           38
                    ------------  ------------  ------------  ------------

Total Adjusted
 EBITDA             $(11,040,128) $  3,092,671  $(12,428,767) $  1,807,930
                    ============  ============  ============  ============

Commissions gross
 profit             $ 12,181,224  $ 15,215,800  $  2,380,665  $  4,375,190
Commissions gross
 profit margin              49.1%         48.2%         47.3%         53.8%








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

                                                    Three Months Ended
                     Years Ended December 31,          December 31,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------- ------------  -------------
Total revenues      $ 27,599,505  $  37,095,551 $  5,669,164  $   8,895,564
Total expenses        40,547,732     37,009,538   16,724,808      7,709,961
                    ------------  ------------- ------------  -------------
Net income (loss)
 before income
 taxes               (12,948,227)        86,013  (11,055,644)     1,185,603

Adjustments
Unusual arbitration
 and litigation
 accrual                 465,000              -            -              -
Unusual customer
 trading losses                -      3,553,296            -              -
Loss on Tradient
 assets writedown        619,000              -      619,000              -
Severance charges
 due to reduction
 in workforce            285,000              -      262,000              -
Loss from
 settlement with a
 third party
 clearing firm           204,000              -      204,000              -
Goodwill impairment
 and capitalized
 software writeoff     8,467,000              -    8,467,000              -
                    ------------  ------------- ------------  -------------
Total Adjusted
 income (loss)
 before taxes       $ (2,908,227) $   3,639,309 $ (1,503,644) $   1,185,603
                    ============  ============= ============  =============

About Terra Nova Financial Group, Inc.

Terra Nova Financial Group, Inc. is a holding company of businesses providing a range of products and services to professional traders. The Company has two primary subsidiaries. Terra Nova Financial, LLC, a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of Financial Industry Regulatory Authority, Inc. provides execution, clearing and prime brokerage services to professional traders, hedge funds and money managers. SC QuantNova Research SRL, based in Bucharest, Romania, provides software development, architecture and engineering for back office clearing systems. Terra Nova Financial Group, Inc. trades under the stock symbol "TNFG" and is listed on the OTC Bulletin Board.

Terra Nova Financial, LLC ("Terra Nova") is a specialized financial services firm focused on supporting trading professionals. Professional traders, hedge funds and money managers come to Terra Nova for value in execution, clearing and prime brokerage services. This recognition originated with the firm's role (from 1996 to 1998) as the sponsoring broker-dealer for the innovative Archipelago ECN (now part of the NYSE Euronext). Terra Nova empowers self-directed clients to trade, analyze, strategize and report through a portfolio of advanced trading platforms. Terra Nova was founded in 1994 and is headquartered in Chicago, Illinois with a sales presence in New York, New York. Primary sources of revenue for Terra Nova include commissions, account fees and interest.

Terra Nova is a member of Financial Industry Regulatory Authority, Inc. ("FINRA"), Securities Investor Protection Corporation ("SIPC"), National Futures Association ("NFA"), The Depository Trust & Clearing Corporation ("DTCC"), National Securities Clearing Corporation ("NSCC") and The Options Clearing Corporation ("OCC") along with the following exchanges: International Securities Exchange, Boston Options Exchange, NYSE Arca Options, NYSE Amex Options, NASDAQ OMX PHLX, NYSE Arca Equities, NYSE Amex Equities, NYSE Euronext, NASDAQ OMX BX, NASDAQ Stock Market, ISE Stock Exchange, National Stock Exchange and BATS Exchange, Inc.

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," "will," "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-K for the year ended December 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 in this press release, whether as a result of new information, future events, or otherwise.

Contact Information

  • Contact Information

    For more information about Terra Nova's brokerage and clearing services,
    please visit www.TNFG.com.

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