SOURCE: Terra Nova Financial Group, Inc.

Terra Nova Financial Group, Inc.

February 23, 2009 15:45 ET

Terra Nova Financial Group, Inc. Announces Preliminary Earnings

CHICAGO, IL--(Marketwire - February 23, 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 twelve months ended December 31, 2008.

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.

Contact Information

  • 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.TradientTech.com.

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

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