SOURCE: Terra Nova Financial Group, Inc.

Terra Nova Financial Group, Inc.

November 13, 2009 16:13 ET

Terra Nova Financial Group, Inc. Announces Third Quarter Earnings

CHICAGO, IL--(Marketwire - November 13, 2009) - 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 preliminary unaudited financial performance metrics for the three and nine months ended September 30, 2009.

Selected Results and Discussion

--  Consolidated revenue was $7 million for the three months ended
    September 30, 2009 versus $9.7 million for the same period in 2008.
    The $2.7 million decrease in revenue was largely influenced by the
    following factors:

    --   Commissions and fees revenues were $6.3 million for the three
         months ended September 30, 2009 -- $1.9 million lower than in
         the same period in 2008. The Company's focus on improving margins
         at the client level contributed to some of the decline in trading
         volume, as did the impact of market drivers.  Trade volumes
         improved gradually throughout the quarter ended September 30,
         2009, but at lower levels than last year, impacting revenues by
         $2.6 million. Due to an increased focus on account level gross
         margins, commissions per trade for the three months ended
         September 30, 2009 improved 14% over the same period in 2008, to
         $6.46. This improvement in commissions per trade offset some of
         the reduction in trading volume by about $750,000 for three
         months ending September 30, 2009 compared to same period last
         year.

    --   Net interest income declined by $860,000 to $329,000 for the
         three months ended September 30, 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 declined approximately 68%
         as of September 30, 2009 compared to the same period in 2008.

    --   Software fees from Tradient platform subscriptions increased by
         9% to $230,000 for the three months ended September 30, 2009
         compared to the same period in 2008 -- an improvement that can
         be attributed to a decline in the number of clients qualifying
         for rebates.

--  Overall trade activity was lower during the three months ended
    September 30, 2009 compared to the same period in 2008. DARTs (daily
    average revenue trades) were 15,209 for the three months ended
    September 30, 2009 compared to 22,602 for the same period in 2008.
    These results are primarily attributable to a drop in the number of
    users related to a single relationship that was terminated in January
    2009. Shares and contracts traded during the second quarter ended
    September 30, 2009 totaled 1.4 billion compared to 2.2 billion in the
    same period last year.

--  Commission gross profit margin (commissions and fees less cost of
    sales) declined 0.9% to 48.4% for the three months ended September
    30, 2009, compared to the same period in 2008.  The decline in
    commission margin is attributable to a shift in trading activity
    from direct clients to more commission payout clients. For the
    three months ended September 30, 2009, 52.8% of trading activity was
    attributable to direct clients and 47.2% was commission payout clients
    versus 73.8% direct clients and 26.2% payout-oriented clients in the
    same period in 2008. Overall trading activity based on tickets was
    down 32% during the three months ended September 30, 2009 compared to
    the same period in 2008, which reflects a 22% decrease in the number
    of tickets executed on third-party software trading platforms and a
    56% decrease in the number of tickets executed on the Tradient
    proprietary platforms.

--  Adjusted EBITDA was ($384,000) for the three months ended September
    30, 2009 compared to ($1.5 million) for the same period in 2008.

--  Net loss per share was ($0.02) for the three months ended September
    30, 2009 compared to net loss per share of ($0.05) for the same
    period in 2008.

--  Excluding an accrual of $285,000 for an arbitration award loss before
    income taxes would have been ($717,000) for the three months ended
    September 30, 2009 instead of the reported operating loss of ($1
    million.)

"We are operating under a very challenging business climate as we have experienced a reduction in our trading volumes due in part to a decline in the number of clients along with historically low federal funds rates which have impacted our net interest income," said Michael Nolan, President and CEO. "Our continued strategy has been to remain focused on the operating initiatives that we can control, like strategic relationships and controlling our variable and fixed costs. Our focus on costs has resulted in Adjusted EBITDA for nine months being only slightly negative at $85,000. In addition, our commission gross profit margin declined only slightly for the three months ended September 2009 and has increased 3.34% to 49.6% for the nine months ended September 2009 compared to the nine months ended September 2008."

Brokerage Services Segment

Third quarter 2009 summary

--  Brokerage revenue of $6.8 million for the three months ended September
    30, 2009 -- a decline of 28% compared to the same period in 2008 --
    attributable to a decline of commissions and fees revenue of $1.9 million
    due to lower trading volume offset by an increase in average commission per
    trade. In addition, net interest income declined $860,000 versus same
    period last year due to lower federal funds rates and a decline in both
    credit and debit client cash balances.
--  Pre-tax net income of $161,000 for the three months ended September
    30, 2009 compared to a pre-tax loss of ($1.7 million) in the same period in
    2008.
--  Adjusted EBITDA of $562,000 for the three months ended September 30,
    2009 compared to an Adjusted EBITDA of ($1.3 million) in the same period in
    2008.
    

Software Services Segment

Third quarter 2009 summary

--  Revenue of $447,000 for the three months ended September 30, 2009 -- a
    decrease of 45% compared to the same period in 2008.
--  Pre-tax net loss of ($196,000) for the three months ended September
    30, 2009, compared to net income of $269,000 in the same period in 2008.
    The decline in net income is due to a $374,000 decline in revenue and a
    $126,000 reversal of a legal accrual and capitalization of wages of $60,000
    in the third quarter of 2008. Advertising and depreciation expense also was
    lower by $72,000 in the third quarter of 2009 compared to same period last
    year.
--  Adjusted EBITDA of ($113,000) for the three months ended September 30,
    2009 compared to $380,000 for the same period in 2008.
--  The number of Tradient platform users declined to 2,070 as of
    September 30, 2009 from 2,804 as of September 30, 2008.  The loss of 734
    users is primarily due to a single relationship that was terminated in
    January 2009.
    

Unallocated Expenses

--  Unallocated expenses increased from $743,000 in the quarter ending
    September 30, 2008 to $967,000 in the quarter ending September 30, 2009.
    The increase included $100,000 in wages expense and a $50,000 investment
    write off.
    

SEGMENT REPORTING and CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- Preliminary Unaudited

           TERRA NOVA FINANCIAL GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF LOSS
                                (UNAUDITED)


                        Three Months Ended          Nine Months Ended
                          September 30,               September 30,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------
REVENUES:
Commissions and
 fees               $  6,288,807  $  8,147,071  $ 19,761,940  $ 23,438,687

Interest income          329,017     1,376,672     1,189,231     4,848,101
Interest expense on
 brokerage accounts            -       187,260             -     1,009,689
                    ------------  ------------  ------------  ------------
       Net interest
        income           329,017     1,189,412     1,189,231     3,838,412

Software fees, net       229,778       210,821       716,978       563,157
Other revenues           154,833       163,243       262,192       359,731
                    ------------  ------------  ------------  ------------

       Net revenues    7,002,435     9,710,547    21,930,341    28,199,987

EXPENSES:
Commissions and
 clearing              2,575,546     2,488,600     7,663,804     8,267,603
Compensation and
 benefits              2,216,306     2,315,995     6,616,982     7,125,321
Software and market
 data                    741,207     1,330,087     2,494,848     4,580,196
Advertising and
 promotional             161,798       214,906       456,139       470,091
Professional fees        653,566       736,876     2,032,802     2,048,807
Communications and
 information
 technology              246,875       189,618       713,341       637,712
Depreciation and
 amortization            583,662       595,923     1,715,916     1,721,854
Bad debt expense               -     3,553,296             -     3,470,890
Other general and
 administrative
 expenses                825,863       464,310     2,129,092       977,102
                    ------------  ------------  ------------  ------------

       Total
        expenses       8,004,823    11,889,611    23,822,924    29,299,576
                    ------------  ------------  ------------  ------------

Loss before income
 taxes                (1,002,388)   (2,179,064)   (1,892,583)   (1,099,589)

Income tax benefit       392,021       785,814       737,021       277,696
                    ------------  ------------  ------------  ------------

Net loss                (610,367)   (1,393,250)   (1,155,562)     (821,893)
                    ------------  ------------  ------------  ------------

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

Loss attributable
 to common
 shareholders       $   (610,367) $ (1,393,250) $ (1,155,562) $   (842,006)
                    ============  ============  ============  ============

Loss per common
 share:
Basic               $      (0.02) $      (0.05) $      (0.05) $      (0.03)
                    ============  ============  ============  ============
Diluted             $      (0.02) $      (0.05) $      (0.05) $      (0.03)
                    ============  ============  ============  ============

Weighted average
 common shares
 outstanding:
Basic                 25,054,508    25,520,694    25,328,622    25,987,771
                    ============  ============  ============  ============
Diluted               25,054,508    25,520,694    25,328,622    25,987,771
                    ============  ============  ============  ============





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

                                              September 30,  December 31,
                                                  2009           2008
                                              -------------  -------------
                       ASSETS
Cash and cash equivalents                     $   6,481,304  $   7,889,553
Cash segregated in compliance with federal
 regulations                                    149,390,045    141,159,364
Receivables from brokers, dealers and
 clearing organizations                          32,907,231     13,568,459
Receivables from customers and non-customers,
 net of allowance for doubtful accounts          10,295,347      4,858,360
Property and equipment, net of accumulated
 depreciation and amortization                    1,307,758      1,221,066
Capitalized software development costs, net
 of accumulated amortization                      1,798,575      2,060,015
Intangible assets, net of accumulated
 amortization                                     3,083,901      4,111,514
Income tax receivables                              738,285      1,446,264
Goodwill                                          7,501,408      7,501,408
Deferred income taxes                             2,499,761      1,784,761
Other assets                                      1,193,435      1,346,764
                                              -------------  -------------
       Total assets                           $ 217,197,050  $ 186,947,528
                                              =============  =============


        LIABILITIES AND SHAREHOLDERS' EQUITY

Payables to brokers, dealers and clearing
 organizations                                $   1,191,819  $     913,621
Payables to customers and non-customers         183,377,532    151,970,566
Accounts payable and accrued expenses             2,426,404      2,525,692
                                              -------------  -------------
       Total liabilities                        186,995,755    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
 September 30, 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 September 30, 2009 and no shares
 at December 31, 2008                              (272,056)             -
Additional paid-in capital                       52,096,682     52,005,418
Accumulated deficit                             (21,878,160)   (20,722,598)
                                              -------------  -------------
       Total shareholders' equity                30,201,295     31,537,649
                                              -------------  -------------
       Total liabilities and shareholders'
        equity                                $ 217,197,050  $ 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 an arbitration award that we believe to be unusual. Management believes that its exclusion provides individuals with additional information to compare the Company's results over multiple periods. The exclusion of this item 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 Segment & Total Adjusted EBITDA reconciliations for the three and nine months ended September 30, 2009 and 2008.

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


                         Three Months Ended         Nine Months Ended
                           September 30,              September 30,
                     -------------------------  --------------------------
                         2009         2008          2009          2008
                     -----------  ------------  ------------  ------------
REVENUES:
Commissions and fees $ 6,288,807  $  8,147,071  $ 19,761,940  $ 23,438,687
Net interest income      329,017     1,189,412     1,189,231     3,838,412
Software fees, net       229,778       210,821       716,978       563,157
Other revenue            154,833       163,243       262,192       359,731
                     -----------  ------------  ------------  ------------
       Net revenues    7,002,435     9,710,547    21,930,341    28,199,987

Cost of sales          3,246,184     4,132,416     9,961,382    12,598,078
Gross profit           3,756,251     5,578,131    11,968,959    15,601,909
                     -----------  ------------  ------------  ------------
Operating expenses     4,758,639     7,757,195    13,861,542    16,701,498
                     -----------  ------------  ------------  ------------

Loss before income
 taxes                (1,002,388)   (2,179,064)   (1,892,583)   (1,099,589)

Income tax benefit       392,021       785,814       737,021       277,696
                     -----------  ------------  ------------  ------------

Net loss                (610,367)   (1,393,250)   (1,155,562)     (821,893)

Adjustments:
Depreciation and
 amortization            583,662       595,923     1,715,916     1,721,854
Stock-based
 compensation             34,749        36,288        91,264       107,094
Income tax benefit      (392,021)     (785,814)     (737,021)     (277,696)
                     -----------  ------------  ------------  ------------

Total Adjusted
 EBITDA              $  (383,977) $ (1,546,853) $    (85,403) $    729,359
                     ===========  ============  ============  ============

Commissions gross
 profit              $ 3,042,623  $  4,014,655  $  9,800,558  $ 10,840,609
Commissions gross
 profit margin              48.4%         49.3%         49.6%         46.3%



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


                        Three Months Ended          Nine Months Ended
                          September 30,               September 30,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------
TOTAL REVENUES      $  7,002,435  $  9,710,547  $ 21,930,341  $ 28,199,987
Total expenses         8,004,823    11,889,611    23,822,924    29,299,576
                    ------------  ------------  ------------  ------------
Loss before income
 taxes                (1,002,388)   (2,179,064)   (1,892,583)   (1,099,589)

ADJUSTMENTS:
Unusual arbitration
 and litigation
 accrual                 285,000             -       485,000             -
Unusual customer
 trading losses                -     3,553,296             -     3,470,890
                    ------------  ------------  ------------  ------------
Total Adjusted
 income (loss)
 before taxes       $   (717,388) $  1,374,232  $ (1,407,583) $  2,371,301
                    ============  ============  ============  ============


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


                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------  ------------------------
                            2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Brokerage Services
 Segment
Total revenues          $ 6,772,657  $ 9,499,726  $21,213,363  $27,636,830
Total expenses           (6,611,953) (11,203,822) (19,974,020) (27,472,327)
                        -----------  -----------  -----------  -----------
Income (loss) before
 income taxes               160,704   (1,704,096)   1,239,343      164,503
Net income                  160,704   (1,704,096)   1,239,343      164,503

ADJUSTMENTS:
Depreciation and
 amortization               401,418      385,552    1,185,523    1,156,261
                        -----------  -----------  -----------  -----------
Total Adjusted EBITDA   $   562,122  $(1,318,544) $ 2,424,866  $ 1,320,764


                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------  ------------------------
Software Services
 Segment                    2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Total revenues          $   447,458  $   821,213  $ 1,507,365  $ 2,124,879
Total expenses             (643,800)    (552,642)  (1,884,415)  (1,758,954)
                        -----------  -----------  -----------  -----------
Income (loss) before
 income taxes              (196,342)     268,571     (377,050)     365,925
Net income (loss)          (196,342)     268,571     (377,050)     365,925

ADJUSTMENTS:
Depreciation and
 amortization                83,299      111,816      235,254      269,670
                        -----------  -----------  -----------  -----------
Total Adjusted EBITDA   $  (113,043) $   380,387  $  (141,796) $   635,595
                        ===========  ===========  ===========  ===========

Total Adjusted EBITDA
 for Segments:          $   449,079  $  (938,157) $ 2,283,070  $ 1,956,359


                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------  ------------------------
Unallocated expenses       2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Total revenues          $         -  $         -  $         -  $         -
Total expenses             (966,750)    (743,539)  (2,754,876)  (1,630,017)
                        -----------  -----------  -----------  -----------
Loss before income
 taxes                     (966,750)    (743,539)  (2,754,876)  (1,630,017)
Income tax benefit          392,021      785,814      737,021      277,696
                        -----------  -----------  -----------  -----------
Net loss                   (574,729)      42,275   (2,017,855)  (1,352,321)

ADJUSTMENTS:
Depreciation and
 amortization                98,945       98,555      295,139      295,923
Stock-based
 compensation                34,749       36,288       91,264      107,094
Income tax benefit         (392,021)    (785,814)    (737,021)    (277,696)
                        -----------  -----------  -----------  -----------
Total Adjusted EBITDA
 for Unallocated
 expenses:              $  (833,056) $  (608,696) $(2,368,473) $(1,227,000)
                        ===========  ===========  ===========  ===========

Total Adjusted EBITDA   $  (383,977) $(1,546,853) $   (85,403) $   729,359
                        ===========  ===========  ===========  ===========


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 the professional trading community. The Company has three primary subsidiaries: Terra Nova Financial, LLC, a broker-dealer registered with the Securities and Exchange Commission and a member of Financial Industry Regulatory Authority provides execution, clearing and prime brokerage services to professional traders, hedge funds and money managers. Tradient Technologies, Inc., a financial technology development business provides proprietary applications for electronic trade execution, order routing and clearing. SC QuantNova Research SRL, based in Bucharest, Romania, provides software development, architecture and engineering for Tradient and 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 ("FINRA"), Securities Investor Protection Corporation ("SIPC"), National Futures Association ("NFA"), The Depository Trust Company ("DTCC"), National Securities Clearing Corporation ("NSCC") and The Options Clearing Corporation ("OCC") along with the following exchanges: International Securities Exchange, Boston Options Exchange, Chicago Stock Exchange, National Stock Exchange, NYSE Arca Options, NYSE Arca Equities, NYSE Amex Equities, NYSE Euronext, NASDAQ OMX BX, NASDAQ OMX PHLX, ISE Stock Exchange, NASDAQ Stock Market, and NYSE Amex Options.

Tradient Technologies, Inc. ("Tradient") operates the Company's proprietary technology development activities, building applications for electronic trade execution, order routing and clearing. Tradient platforms are shaped by what we believe are the foremost needs of professional traders, hedge funds and registered investment advisors -- efficiency, consistency and value -- using a swift, targeted innovation and development process. Tradient is located in Chicago, Illinois. Primary sources of revenue for Tradient include software licensing and routing fees.

Tradient offers three trading platforms. Tradient's flagship product, Tradient Pro, is a fully customizable Level II trading platform that efficiently executes sophisticated equity and options trading strategies. Tradient Plus is a customizable trading platform designed for ease of use that economically offers essential equity and options trading features. Tradient Web is a browser-based trading system providing anytime, anywhere access to quotes, research, charting tools and other resources to help traders trade the market online.

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-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.

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 Information

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