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Investment Technology (NYSE:ITG)

Q2 2014 Earnings Conference Call

July 31, 2014 10:00 a.m. ET

Executives

J.T. Farley – Investor Relations

Robert Gasser – Chief Executive Officer and President

Steven Vigliotti – Managing Director and Chief Financial Officer

Analysts

Patrick O'Shaughnessy – Raymond James

Ken Worthington – JPMorgan

Niamh Alexander - KBW

Patrick O'Shaughnessy – Raymond James

Rich Repetto – Sandler O'Neill

Operator

Good morning, and thank you for joining us to discuss ITG's Second Quarter 2014 Results. My name is Denise and I will facilitate the call today. (Operator Instructions) I would now like to turn the call over to J.T. Farley of ITG.

J.T. Farley

Thank you, Denise and good morning. In accordance with the Safe Harbor regulations, I would like to advise you that the forward-looking statements we will be making this morning are subject to a series of risks and uncertainties that may cause actual results to differ materially from those statements.

These forward-looking statements speak as of today and you should not rely upon them as representing our views in the future. While we may elect to update these forward-looking statements in the future, we undertake no obligation to do so.

I advise you to read about the risk factors that may affect forward-looking statements in this morning's press release as well as in our SEC filings. I would also like to point out that we will be referring to non-GAAP financial measures in today's presentation.

Reconciliations of these non-GAAP measures to the comparable GAAP measures can be found in this morning's press release as well as the press releases covering prior periods. Press releases and the PowerPoint slides, which accompany this presentation, are available for download in the Investor Relations section of itg.com.

Speaking this morning are ITG's CEO, Bob Gasser; and CFO, Steve Vigliotti.

To start, I would like to turn it over to Bob.

Robert Gasser

Thanks, JT and thank you all for joining us to discuss ITG’s second quarter 2014 results. We are generally pleased with our results for the second quarter. We again demonstrated strong overall performance particularly in Europe as well as steady sequential profitability in the U.S. helped by growth in our research, sales and trading business and improving operating efficiency in the Asia Pacific region.

The portfolio approach we have taken around the four regions and four product groups we operate today continues to drive our earnings growth while one product’s group or region may perform better than another in a given period, having a mix of operations across geographies and products provide the platform to outperform over the long run and enhance value for our long term shareholders.

Also, during the quarter we are more aggressive with our share repurchase program and return more than our current quarter’s earnings to shareholders. We bought back more than $40 million worth of shares during the second quarter and we have now reduced our outstanding share count net of issuances by 20% since the end of 2009.

Even as we pursue share buybacks, we do regularly review potential M&A opportunities and measure those opportunities against the relative value of our stock repurchase program. This week’s announcement of the RFQ-hub acquisition as well as our prior investments in investment research are good examples of our willingness to grow our platform in a strategic manner and diversify the assets of the firm’s portfolio.

The benefit of our research investments is evidenced in part by the rebounding our average U.S. revenue per share to 50 mills in the second quarter, the highest level in nearly three years. Research has been the driver of a 20% increase this quarter over the last year and the average U.S. high-touch trading rate, which in turn has been the primary driver of the increase in our overall average. In addition, research has had a positive influence on rates earned for electronic offerings.

Research consuming clients pay rates on average more than 30% higher than non-research client for electronic services. We also saw significant increase in transaction advisory services revenue from our energy research team. These improvements lead to a pre-tax profit for our U.S. research sales and trading operation equaling 20% of the firm’s total for the second quarter.

On the electronic side of the business in the U.S., we continue to invest in product, people and technology. These efforts are paying off from performance. In a dark pool study released this month, TCA provider Abel Noser found that POSIT was one of only two large pools that consistently beat execution benchmarks, delivering cost savings to our clients. These findings were consistent with our improvement in 2014 Greenwich Associates study of electronic trading. Where we ranked number two overall in the electronic trading quality and number one for best protection against toxic counterparties or activities.

Our international investments are also paying off. Taking closer look at our second quarter results, our international revenues were up 12% versus the second quarter of 2013 and our international net income was up 77%, this improvement was driven by a 43% jump in European revenues compared to the prior year quarter.

These solid overall results come despite continued weakness in trading volumes. Market-wide trading activity was down on a sequential basis in all the regions where ITG operates and only Europe saw an increase compared to the second quarter of 2013.

In the U.S. overall equity mutual fund flows were positive but domestic equity funds turned negative for the first time in a year according to ICI. International funds had another strong quarter of inflows.

For the quarter, our percentage of the U.S. sale side volume was 49%, steady with the second quarter of 2013. POSIT posted average daily volume of 67 million shares while POSIT Alert buy side block volume averaged 15 million shares. We now post a range of POSIT statistics, including average daily volume and trade size, overall crossing rate and percentage of mid-point crosses on the transparency section of our website, transparency.itg.com.

Turning now to Europe, our revenue in the region grew 43% and net income more than doubled compared to the second quarter of 2013. Average daily value traded in POSIT was $1.02 billion compared with $674 million in the second quarter of 2013.

Total average daily value traded through POSIT Alert rose more than 150% in the second quarter of 2014 compared with the prior year period. Although market-wide turnover in Europe was slightly lower than the first quarter, we saw a record number of distinct clients trading through ITG, which contributed to our second best ever quarterly performance. We ranked number one for European electronic trading quality in the UK and number one among large European institutions according to latest Greenwich Associates survey.

Revenues in Canada were $17.9 million down 11% versus the second quarter of 2013. Much of the decline is attributable to the foreign exchange impact as the Canadian dollar decline 6% against the U.S. dollar as compared with the year ago period. While the environment in that market remains challenging, we are gaining market share in our sales side dark pool Match Now which represents more than 3% of total Canadian trading volume. According to the Greenwich survey, ITG Canada remains the number one electronic broker continuing eight year streak.

In the Asia-Pacific region, our total revenues in the second quarter of 2014 were $12.1 million and our loss narrowed to just $0.2 million or $200,000. While our road to profitability has been long, we think we are closing in and that Asia-Pacific will ultimately evolve to be a significant contributor to our profitability.

The initiatives we are currently taking in the region to improve operating margins are in the early stages of execution. In addition, market structure is evolving rapidly in AP as client wallets unbundled. Japanese decimalization and the corporate agreement between the Shanghai and Hong Kong stock exchanges are just two examples of market forces that play to our strengths.

The Asia-Pac market environment is evolving in a manner reminiscent of Europe post MiFID. In July, POSIT alert had its best month since launch in the region and it is showing good acceleration going into the second half of the year.

During the quarter, we continue to innovate and bring new products to market. We launched expanded multi-broker options capabilities in our Triton execution management system and rolled out ITG Peer Analytics, a set of customizable analytics that draws insights from the industry’s largest collection of the institutional trading data.

We also launched ITG’s first apps the Equity Trading Cost Index App and the FX Trading Cost Index App. The free apps offer quick insight in the trading costs and equities and foreign exchange and provided introduction to ITG’s robust transaction cost analysis capabilities. These capabilities were recognized this month by Waters magazine which means ITG the industry’s best TCA systems provider in its 2014 rankings.

ITG investment research continue to expand its coverage in the energy, consumer and T&P verticals, initiating coverage on seven companies, including web.com, Urban Outfitters, and Six Flags. ITG IR has also issued 11 research reports on pre-IPO companies so far this year and we are gaining traction with our macroeconomic research which is informed by much of the data used in our company’s specific research.

And as I mentioned, we just purchased RFQ-hub, while this is not a large acquisition, it helps us further expand our platform beyond equities into the OTC derivatives markets. RFQ-hub serves as a blue chip community of derivative dealers and asset managers with the best in class trading platform and network that will integrate easily with ITG’s platform business.

This deal is in line with ITG’s key strategic goals looking into 2015 and 2016, expansion with the new asset classes and new client segments and continued growth of our international businesses. We expect to provide regular updates on our progress towards these goals in the coming quarters.

To wrap up, we are pleased with our second quarter results and believe it has been a generally successful first half of the year. We remain confident on our ability to capitalize in the evolution of market structure and equities, diversify our portfolio products in the other asset classes and most importantly to serve as a trusted partner to our clients as they invest and execute around the globe.

With that, I would like to turn it over to our Chief Financial Officer Steve Vigliotti to review the second quarter financial results.

Steven Vigliotti

Thanks, Bob and good morning everyone. Continued strength in our European operations, improving operating efficiency in Asia-Pacific and growth in our U.S. research sales and trading operations, fuelled sold earnings during the second quarter despite the impact of lower volumes in most of our operating regions.

As noted on slide eight, we generated consolidated revenues of $138.5 million during the first quarter, up 1% from the first quarter of 2014 and down 1% from the second quarter of 2013. We posted GAAP net income of $0.35 per share in the second quarter of 2014, this compares the GAAP net income of $0.37 per share in the first quarter of 2014 and GAAP net income of $0.13 per share in the second quarter of 2013.

On slide nine, we have detailed the non-operating items included in our GAAP results for the second quarter of 2013. We incurred duplicate rent and office closing charges associated with the move to our new headquarters in lower Manhattan, we also incurred wind down charges and tax charges related to the closing of our development center in Israel. These items were partially offset by accrual reversals relating to restructurings in prior years. Excluding these items, adjusted net income for the second quarter of 2013 was $0.27 per share.

There were no non-operating items in either the second quarter of 2014 or the first quarter. For the rest of this discussion, all references to results and costs for the second quarter of 2013 will be on an adjusted basis.

Slide 10 presents our consolidated results along with separate breakdowns of the results from our U.S. and international operations. On a year-over-year comparative basis, consolidated expenses were down $1.7 million while revenues were down just $800,000. Our consolidated pre-tax margin was 12.1%, down from 13.4% in the first quarter of 2014 but up from 11.4% in the second quarter of 2013. Our consolidated effective tax rate was 22.5% for the quarter reflecting the high earnings from our international operations, as our U.S. effective tax rate was 43.3% for the quarter and our international effective tax rate was 14.5%. Given a similar international earnings mix going forward, we expect our international effective tax rate to rise to 21% following the full utilization of net offering losses in the UK.

During the second quarter of 2014, we posted net income of $0.07 per share in the U.S. on revenues of $77.3 million versus $75.6 million of revenues and net income of $0.07 per share in the first quarter of 2014. Other revenues in the U.S. increased to $5.1 million from $2.7 million in the first quarter due to the growth in transaction advisory services revenue generated by our energy research team and higher stock loan income. U.S. earnings were down from $0.12 per share in the second quarter of 2013 due to lower volume levels.

Our second quarter pre-tax margin in the U.S. was 6%, down from the first quarter of 2014 and the second quarter of 2013. As a remainder, the U.S. segment bears nearly all of the firm’s corporate costs which negatively impacts pre-tax margins reported for that segment. These costs which are typically $5.5 million per quarter include among others the cost of being a public company, intangible amortization, interest expense and the cost of maintaining our global transfer pricing structure. Excluding these costs, our U.S. pre-tax margin in the quarter would have been 12.9%.

Our combined international businesses posted net income in the quarter of $0.28 per share on revenues of $61.2 million. Our reported international pre-tax margin rate was 19.7%.

On Slide 11, you can see that that our U.S. expenses declined 5% from the second quarter of 2013 due chiefly to lower transaction processing costs associated with reduced trading activity and with an increase in the amount of passive trading by our clients and lower market data and connectivity costs. These reductions were offset in part by higher compensation costs as our compensation ratio increased to 44% due in part to improved global profitability.

Transaction processing cost as a percentage of revenue were 11.9% almost unchanged from the first quarter of 2014 and down from 13.5% in the second quarter of 2013.

On Slide 12, we provide a summary of our international results. Revenues were down $800,000 from the first quarter of 2014 and up $6.5 million from the second quarter of 2013.

European revenues were up sharply versus the second quarter of 2013 while Asia-Pacific revenues dip only 5% despite a 32% drop in regional value trading. In Canada, revenues fell 11% compared to the second quarter of 2013 but over half of that figure is due to currency translation.

International expenses were higher than both the first quarter 2014 and the second quarter of 2013 due largely to the higher general administrative cost. The compensation ratio for our combined international operations was 30 6%, up slightly from the first quarter of 2014 but down from 35.2% in the second quarter of 2013.

Combined international transaction processing cost during the quarter as a percentage of revenue dipped to 17.8% compared to 18.7% in the first quarter of 2014 and 20.3% in the second quarter of 2013 due in part to our efforts to reduce execution costs in the Asia-Pacific region and from lower rates for the clearance and settlement of trades in Canada.

On the next slide, we track the performance of our foreign segments over the past five quarters. Of note, this quarter our Asia-Pacific loss was narrow to $200,000 while Europe saw its second best quarter on record.

On Slide 14, we offer supplementary information on revenues broken out by our four product groups for the last five quarters. The table also includes the corporate group which primarily reflects investment income that is not directly attributable to any of the product groups.

As you can see from this table, revenues in electronic brokerage in research and sales and trading showed modest sequential increases in the second quarter of 2014 while platforms and analytics generally held steady.

Compared with the second quarter of 2013, we saw growth in research sales and trading of 8%, thanks to higher average commission rates on the high-touch trading as well as increase in revenues from energy transaction advisory services.

On Slide 15, we are presenting supplementary pre-tax income information for our four product groups and for our corporate function for the second quarter of 2014 along with the margin rates for the first quarter of 2014, year-to-date 2014 and full year 2013.

You will notice that margins for research sales and trading are up considerably over the prior year level substantially all of the profitability from research sales and trading has been generated out of the U.S. where we have combined our acquired research offerings with high-touch sales trading. On a combined basis, our international RS&T operations are effectively breakeven.

On Slide 16, we have presented our U.S. volume and rate capture statistics. Our average daily executed volume is down 9% versus the first quarter and down 17% versus the second quarter of 2013. Our average overall revenue capture per share rose to 50 mills, the highest level since the second quarter of 2011. As Bob mentioned, the higher rate was driven primarily by increases in rates paid on high-touch trading.

The percentage of sell side volume was 49% down from 51% in the first quarter of 2014. We ended the quarter with $239.1 million of cash and cash equivalents on our balance sheet, up from $222.7 million at the end of the first quarter.

Our excess cash at June 30 over and above what we need for regulatory capital and competition liabilities was $60 million, a slight decrease from March 31, due to higher capital requirements in Europe due to increased activity.

We were active with our share repurchase program again and bought back 771,000 shares during the quarter or 14.3 million representing 111% of our net income for the quarter. Our buyback program has reduced shares outstanding, net of issuances by 20% since the end of 2009.

Looking forward, I would like to offer the following observations. In July, we are seeing a seasonal slowdown in market-wide trading activities. Our U.S. average daily volume for July is approximately 140 million shares. In our combined international businesses, our average daily commissions in July were approximately 9% below our second quarter average. The decline in our trading activity in July is in line or in some cases less than the decline in market-wide trading activity.

As we have reported yesterday, we have just completed the acquisition of RFQ-hub, Paris-based request for quote technology platform for global listed and over-the-counter financial instruments. Roughly 90% of the $6 million of expected revenue for full year 2014 are from European clients and roughly 85% of the revenue is recurring.

From a product prospective, this business will fall within our platform’s group. The total purchase price of approximately $20 million net of acquired cash was funded by our excess cash. We expect this investment to be in neutral to earnings for the remainder of 2014 and to be modestly accretive in 2015.

And with that, I would like to open the call to Q&A. Operator, please open up the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Patrick O'Shaughnessy from Raymond James. Please go ahead sir.

Patrick O'Shaughnessy – Raymond James

Good morning guys.

Robert Gasser

Good morning, Patrick.

Patrick O'Shaughnessy - Raymond James

I was hoping you could maybe take this time to take a step back and assess your corporate strategy, the decisions you've made over the last few years and how you think of those have played out for you guys.

Robert Gasser

Yes, I think this is a quarter where I think our corporate strategy and the benefits of the portfolio approach that I allude to earlier are kind of in full bloom from the perspective of the rate card and from the perspective of the European contribution, we think there is a lot more runway to go particularly in place like Asia-Pac. We do think we are getting sharper and more focused around the firm’s value proposition and how we collect on that and I think that reflected in our rate card. And the strategy around diversification in the multi-asset, I think is a clear one, we have studied these markets. We are now ready to act and we started to see that in FXCCA and there is a lot more to come in the next weeks and months in terms of announcements around those initiatives.

RFQ-hub I think is going to be a fantastic addition to the firm’s portfolio from the perspective of the easily integrated into Triton, helps us leap-frog I think the competition in terms of functionality and asset class diversification there and we join up with the really-really sharp management team and great domain knowledge in the space that we think will help us evolve into the RFQ of choice in the global OTC derivatives space. So certainly market access has done a great job in the fixed income space particularly U.S. corporate, Tradeweb does a great job in the govies and the agency space. And RFQ-hub is the early leader, the first out of the chutes into the OTC derivatives space which is changing dramatically as a result of Dodd-Frank, EMIR and a lot of other regulatory initiatives throughout the globe.

Patrick O'Shaughnessy - Raymond James

Got you, appreciate that. Secondly from me, can you just provide an update on where you see the equity market structure conversation going in the U.S. Certainly we've had a lot of panel discussions and things of that like during the second quarter, IEX seems like it's gained a fair amount of market share as a dark pool with a somewhat similar value proposition to yours. So how do you see things developing at this point?

Robert Gasser

Well, I think it's early. There's a lot of electricity in the air. We certainly have tried our own course around transparency as you guys have seen on our website and I think that will continue on in terms of more and more data provided for not only clients but for the investing public. We are certainly deeply-deeply engaged in these conversations, not only in Capitol Hill but with the regulators, with the SEC, with commissioners, with their staffs and as always I think our approach is very empirical, it’s very data driven which is based on performance and clearly we do think that some of the pilots that have been announced are a good idea.

It's good to measure them, it’s good to see what the influence of trade out in minimal increments, change in minimal incremental will be in terms liquidity and overall market structure and market performance. So I think as I said we are deeply engaged, we are an active participant, we think POSIT is right for the times certainly it’s a dark pool and as a significant instrument in terms of overall execution quality. So when you look at alert, when you look at the block size, execution we provide there and the TCA data that goes along with it, a TCA competitor like Abel Noser putting out that piece last week I think speaks volumes about the quality of what we do and the durability, despite any changes that may come down to pipe in U.S. market structure or global market structure for that matter.

Patrick O'Shaughnessy - Raymond James

Got you, appreciate that. And the last one for me before I jump in the queue. So obviously very aggressive with the share repurchases this quarter, as more and more of your earning start to come from outside the U.S., does the amount of U.S. cash that you have available for repurchases start to become an issue or is the way you're structured in such a way that you will still have plenty of cash in order to do repurchases going forward?

Steven Vigliotti

Hi Patrick, it’s Steve. We have our corporate international structure is efficient and that we will be able to repatriate income to the U.S. to fund the repurchase program for a sustained period of time without incurring any additional tax loss.

Patrick O'Shaughnessy - Raymond James

Alright, great. Thank you.

Robert Gasser

Thank you.

Operator

And our next question comes from Ken Worthington from JPMorgan. Please go ahead sir.

Ken Worthington – JPMorgan

Hi, good morning. I want to dig into the research revenue and you have attributed a portion of the higher revenue to higher rates. How is that taking place if volumes are down, is there business that is still being replaced higher or is it just a function of as volumes are shrinking, the low fee volumes are shrinking more quickly than the higher rate volumes?

Robert Gasser

I think it’s a function, Ken as I alluded to my prepared remarks, it’s a function of client engagement, whether or not it’s electronic products or it’s a high-touch product, whether or not it’s Alert or an Algo. It’s really about the way we engage clients and I think we are getting sharper in terms of approaching the client, not only with best-in-class electronic offerings but research that is generating alpha and it continues to climb in the research votes of a lot of major institutions and as volumes have shrunk, it requires us to look at the other piece of the equation or the other variable which is rate card. So I think in the lot of the circumstances, we have had the pricing power to raise that rate card above and beyond what it would have been if we were a purely agent and electronic broker. And so that is having a profound impact on the mix of the business, on the revenue contribution and on the profitability of the U S RS&T business. So it really is about client engagement and I think it’s about partnership with those clients and thinking differently about ITG and it’s business mix and the way it preserves and generate alpha on their behalf.

Ken Worthington – JPMorgan

Okay, thanks. And for Steve I think you hit this quickly and I wanted us to revisit it. The other revenue increased 2.7 to 5.1. I think you said was the energy research team, I'm sorry, can you flesh that out more, please?

Steven Vigliotti

Sure, yes. So during the quarter, we recognized $2.5 million worth of transaction in advisory services revenue from our energy research team where the team is providing a valuable insights to potential purchase reserve energy investments.

Ken Worthington – JPMorgan

Okay, is it one time or is that going to recur?

Steven Vigliotti

It is part of the business model. It is not “recurring revenue” which is why we have another revenue but it is part of the business model.

Ken Worthington – JPMorgan

Okay. And are there direct expenses associated with that, or does that really fall to the bottom line?

Steven Vigliotti

Most of it, I think it is associated competition from time to time. There may be some consulting support behind that but for most of the part it’s directly by or team.

Robert Gasser

Yes and Ken I would just highlight the fact that it’s a corporate segment in terms of client base, right. So there again a diversification of the client segments which I think has been additive, we have certainly empowered the energy research folks to go after corporate and not only provide them with research but provide them with potentially very powerful strategic advice as well.

Ken Worthington – JPMorgan

Okay. And then lastly, on the recurring revenue side a couple quarters in a row of declines there, I assume that's largely still MacGregor. What's happening to drive the decline and does that bounce back as well?

Steven Vigliotti

You are right. That is largely, the lagging impact of some previous attrition of the platform but we think that’s still very stable place and we are optimistic about our ability to continue to grow connectivity revenue of the Triton and Triton Black platform.

Ken Worthington – JPMorgan

Okay, great. Thank you very much.

Robert Gasser

Thank you, Ken.

Operator

And our next question is from Niamh Alexander from KBW. Please go ahead.

Niamh Alexander - KBW

Hi, thanks for taking my question.

Robert Gasser

Good morning.

Niamh Alexander - KBW

Good morning. When I look at the growth, you've really kind of managed it to bring down the taxes really effectively because it's tough to grow to revenue in this environment and there hasn't been a lot of year-on-year growth but you've got good earnings growth. So maybe I'm asking you to repeat yourself, Steve, because you kind of gave some guidance on the taxes. But I thought you were kind of just starting to hit maybe benefiting from net operating losses in Asia but did I hear right that the tax rate should go up overseas or help me understand maybe.

Steven Vigliotti

Sure yes. Happy to brought some clarity on that. So following a tax restructuring we implemented a few years ago, we actually built up some NOLs in the UK and as you know recently we have had some pretty good growth in the region and as a result have utilized those NOLs to now ongoing forward basis will be incurring UK tax, so the 14.5% of international rate on our international earnings this quarter given us a similar mix of earnings from the international groups, would rise to just over 21%. And I think the point you are trying to make and that's a good point to keep in mind is that our international tax rate will decline when we achieve profitability in Asia-Pac due to the fact that we do have full reserved NOLs there.

Niamh Alexander - KBW

Okay so the 21% doesn't assume kind of moving into profitability or anything like that yet?

Steven Vigliotti

Yes I just assume that there is similar and I think exact same mix of earnings on a go-forward what would impact on the tax rate. Obviously if we have – when we have our earnings from our Asia-Pacific segment that will lower the tax rate.

Niamh Alexander - KBW

Okay, fair enough. That's helpful. And the compensation ratio, it's picked up a little bit here and I see kind of overseas looks like -- or the U.S. is 44% but you said it was to do with global growth, help me understand kind of what's a good ratio to think about.

Steven Vigliotti

I think that at these revenue levels, that's a good ratio to think about in the U.S., a good number of management team that's incentivized to manage the global operation is located here in U.S. and that cost is afforded in that region. So again on similar revenue levels you could expect the ratio around where we are now. If revenues improve I would expect that the scale a little bit and the rate to come down a little bit.

Niamh Alexander - KBW

Okay, fair enough. Thanks. And then just on FX, you've been kind of working on something for quite a few years. You've rolled out a TCA product. Now help me think about the revenue opportunity for you there. Where are you relative to where you think you can get and is TCA kind of the first of maybe a few different things you could do with this business?

Robert Gasser

Yes TCA is clearly the first of I think a series of things we want to do in FX. Certainly I think some of the barriers to entry really focus around the fact that we are not – we don’t have a large balance sheet and we don’t look like a traditional FX counterparty. So there have certainly been some challenges there in terms of growing into for instance the electronic brokerage business into the FX space. On the platform side, I think there will be some more news to come there in the coming weeks and months and we view FX as a key part of the multi-asset class diversification in the functionality of the platform business. So when you think about staking all this stuff up together we believe going forward that would be the addition for instance of RFQ-hub and other asset class capabilities will building into Triton that we will be leap-frog the competition pretty forcefully in terms of the ability to not only serve the equity desks on our constituent client trading desk but also the other side of the shop whether or not it's fixed income FX or the derivatives side.

Niamh Alexander - KBW

Okay, interesting to think Bob. And then I guess just lastly, on the investor presentation that we saw last week and the SEC filing, have other investors expressed similar concerns, or what can you share there?

Robert Gasser

I would say that we certainly have digested the presentation. We continue to focus on a lot of the things that are pointed out there, we agree with some of the points, we certainly disagree with some others. We certainly have a very active dialogue with our largest shareholders and certainly we expect that to continue. And I think that the thing we are focused on right now is the execution, it’s geographic diversification, asset class diversification and continued operating performance improvement and I think its flowing through the bottom line. And really what we are focused on just continuing to streak of beating consensus earnings I think it's six quarters now and we want to continue. It’s really we want to continue that batting average.

Niamh Alexander - KBW

Okay. I will get back in line. Thank you.

Operator

And our next question is from Patrick O'Shaughnessy from Raymond James

Patrick O'Shaughnessy - Raymond James

So just a follow-up on your revenue capture. I feel like in previous quarters, we've kind of asked how much more runway do you have to increase your revenue capture and the commentary has been around maybe a little bit but maybe not too much more and then you continue to ramp it up. So as if I kind of think about the next year to 18 months, do you think there is still a fair amount more room that you can go with the revenue capture as you continue to have these conversations with your clients?

Robert Gasser

I think our success on that front Patrick I think will require continued maturity in terms of the Firm's ability to engage clients, as I discussed and the trend lines are good one. I think we continue to influence a lot of staff, we continue to generate and invest in first-class equity electronic brokerage product, globally. And so I think if we continue to do that and continue to engage the clients effectively and strategically I think that we – we have got some runway but I probably don’t want to comment on exactly what that is.

Patrick O'Shaughnessy - Raymond James

Appreciate that. And then Asia-Pacific, you mentioned that industry-wide volumes were down quarter-over-quarter yet your revenues were up a pretty substantial amount. Can you kind of talk about what's going on in MAP? Was it just a lot of market share gains from you guys, or just a specific market that you are in? What was the big driver for your success there this last quarter?

Robert Gasser

I think the product is coming together. I think that I talked about the client while it being unbundled and in other words I am separating out institutional research we are seeing good growth in our CSA businesses. In Asia-Pac we are seeing client evolved in terms of the way that they look at market structure there. Japan certainly I think is a very exciting place right now in terms of decimalization and lower latency trading. There is, I think of a significant liquidity management opportunity there for our firm going forward. And as I alluded to in the remarks that it feels very kind of Europe post method in terms of things I think we can continue to do with our existing product suit that don’t require a lot of incremental investment to capitalize on those changes.

Alert, as you guys know, has really been kind of the foundational element of what we consider to be the biggest growth opportunity in Asia-Pac and now that is deployed, it really has gaining some momentum and I think going into the back half of the year it will become a meaningful contributor to the revenues in the region. And so we are live and alert in places like Malaysia and Korea, Japan, Australia, Hong Kong, Singapore, Indonesia so I think we – and we have got some more geographies to add to that mix. When you think about our built out to algos and direct market access into virtually every market of consequence in Asia-Pac it’s now starting to gel and starting to coalesce. And at the end of the day, as I said earlier it doesn’t require a more incremental investment from here, just execution.

Patrick O'Shaughnessy - Raymond James

Got you and then you touched on unbundling. In the UK, the FCA seems to be really getting aggressive with its interpretation of unbundling and how it's reviewing large asset managers and certainly there's some language in MiFID too about unbundling. So how do you see that playing out in Europe? And kind of what inning of the whole unbundling trend do you think we are in in Europe right now?

Steven Vigliotti

I think most importantly well I think we are pretty advanced stage already in Europe but most importantly has global implications and that is most of the institutions that are operating in the UK have global enterprises, have global capability the ones have size and certainly I think its going to have potentially profound influence on their global operations not just on their UK based operations. So as a result, when I talk about the clients, unbundling in Asia-Pac, I wouldn’t discount the fact that there are other things going on under other jurisdiction that might potentially influence the pace of that.

Patrick O'Shaughnessy - Raymond James

I got you, appreciate that. Then the last one for me, GFI Group is selling Trayport to FENICS. B2C partners obviously had a lot of success selling its ESP asset. When you look at your product portfolio, do you think there are any assets that could potentially be carved out and achieve a higher valuation independent of you (inaudible)?

Steven Vigliotti

We think today that the four business units or product segments held together very nicely. They are called very nicely within our firm. I think you see that in the – as I said earlier the portfolio approach to regions and products I think its working well for us. I wouldn’t say that we even come close to a place where all of those things are hitting on all cylinders but there is – I think a good improvement in the overall average, certainly year over year and so I think one of the things that we have done I think and hopefully its helpful to you all and to shareholders is we have broken out the results and we have operated these company segments I think not only pretty efficiently but very transparently and I think that gives you an opportunity to compare the valuation of the ITG portfolio against some of the single assets that are trading in the marketplace today but today I would tell you that the portfolio coalesces it hand together well. It certainly engage the client very effectively and we don’t have any plans to spin any of these assets off. But we are watching as we always do what’s going on in the marketplace around us.

Patrick O'Shaughnessy - Raymond James

All right, appreciate it. Thanks for taking all my questions.

Operator

The next question is from Rich Repetto from Sandler O'Neill. Please go ahead. Sir do you have your line muted? Mr. Repetto? I am sorry, sir. I show no further questions at this time. I would like to go ahead and end the Q&A session and turn the call back over to management for closing remarks.

J.T. Farley

Sorry operator, is there anyone else from Sandler on the line? Collin Cook, I think there are audio issues, not on Sandler’s part here.

Operator

I am sorry sir. Yes, he just prompted in. There is Colin Cook.

Colin Cook - Sandler O'Neill

Can you hear me?

J.T. Farley

Yes, we can hear you.

Colin Cook - Sandler O'Neill

Okay. Rich, I've got them on my line. Rich?

Rich Repetto - Sandler O'Neill

Can you hear me?

Robert Gasser

Yes sure again, loud and clear.

Rich Repetto - Sandler O'Neill

We just battled with your conference call company for the last 15 minutes but that's beside the point here.

Robert Gasser

Sorry about that.

Rich Repetto - Sandler O'Neill

Anyway, I guess first question is someone already asked this but on the energy transaction, I know you have said, it seems would it be asked whether it’s occurring and as part of the business model but is this, can you expect it sort of every quarter or just one, or is it onetime payment and sort of the same goes for the revenue capture as well.

Robert Gasser

Yes certainly we have, I think -- no pun intended here, we've got a pipeline of transaction advisory assignments that we are focused on. We don’t expect it to be recurring as Steve said so it’s not to be a steady line but it could be chunky from quarter to quarter but we do view it as actually a very nice way to leverage the energy research asset and into the client segment. But historically the firm has really not had a lot of exposure to, so energy asset is a fantastic one, traditionally used by not only asset managers but private equity firms but also now entering the corporate space we think it’s got some good runway in the market that obviously has very-very positive secular trend.

Rich Repetto - Sandler O'Neill

Thanks. That helps well. I guess just one – what you call just accounting question, can you give us the CapEx and the non-cash comp? Steve?

Steven Vigliotti

CapEx similar to Q1 were down from the prior year periods. As you know prior year periods we have made some meaningful investments in our infrastructure with our new offices, bear with me one second here Rich.

Rich Repetto - Sandler O'Neill

And I am happy after last question.

Steven Vigliotti

Do that while I dig around for a little bit.

Rich Repetto - Sandler O'Neill

Okay, I gave Bob the last question is the bigger question, you did address the Phily Financial, you did comment on it but I guess can you be more specific, what are the points that you agree with, what are the points that you disagree with and what’s the plan of action to deal with this or do you expect to respond to it. Just so shareholders and analysts can see, what’s your views on this?

Robert Gasser

I think our plan of action at this stage of game Rich is to the let the results speak for themselves which we have and I think that certainly I think a lot of the -- in the current quarter a lot of these things that we pointed out in the deck are – I think are addressed with performance. We will continue to be addressed with performance. We are focused on execution, planning simple. So that's my response to that question.

Rich Repetto - Sandler O'Neill

And like you did say that there were certain points that you agreed with?

Robert Gasser

No, we certainly agree that there is significant imperative to diversify the firm, to continue to invest in technology which we have. When you look at the Greenwich survey and you look it – I think it’s probably the most rigorous scientific survey out there on a global basis of the electronic brokerage community and certainly it looks at the lot of segments in our business and our leadership is unquestioned. And I think we would all agree it is a significantly competitive market where we go up against very strong competitors with very strong balance sheets, very strong bench strength and we succeed. And so the track record, there again, I think speaks for itself. So I think we agree that you have to continue to invest in this business, you need to diversify into other asset classes and the imperative to bring Asia-Pac over the goal line into profitability and we are astoundingly close. So with that I will turn it over to Steve.

Steven Vigliotti

Yes, sorry Rich for the delay. Let me get to your questions. So in terms of non-cash stock comp it was just under 4 million for the quarter at 3.9 and for capital expenditures for the quarter we spent 3.4 million, [repurchase] just under $6 million on CapEx on year-to-date basis. And our capitalized software expenditure this quarter was $6.9 million, which puts us at $13.6 million on a year-to-day basis.

Rich Repetto - Sandler O'Neill

Okay. Thanks and gland you could finally get my questions and thanks.

Robert Gasser

Sorry about that Rich.

Operator

I am showing no further questions at this time, we will conclude our question and answer session. I would like to turn the conference back over to management for closing remarks.

Robert Gasser

Well, thank you once again for joining us for the quarterly call and we look forward to speaking with you all in October. Have a great summer.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.

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