Market Overview

Virtu Announces Second Quarter 2018 Results

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NEW YORK, July 27, 2018 (GLOBE NEWSWIRE) -- Virtu Financial, Inc. (NASDAQ:VIRT), a leading technology-enabled market maker and liquidity provider to the global financial markets, today reported results for the second quarter ended June 30, 2018.

Second Quarter Selected Highlights

  • Net income of $46.6 million, Normalized Adjusted Net Income* of $59.6 million
  • Basic earnings per share of $0.25; Diluted earnings per share of $0.24; Normalized Adjusted EPS* of $0.31
  • Total revenues of $328.1 million; Adjusted Net Trading Income* of $202.9 million
  • Adjusted EBITDA* of $112.4 million; Adjusted EBITDA Margin* of 55.4%
  • Adjusted Operating Expenses* for first six months of $29 million ahead of prior guidance
  • Made $50 million of incremental payments on the term loan since the prior earnings release; $676 million total payments to-date out of $1.15 billion
  • Board approved $50 million expansion of the previously announced share buyback program; $40.5 million repurchased to-date
  • Quarterly cash dividend of $0.24 per share payable on September 14, 2018

* Non-GAAP financial measures. Please see "Non-GAAP Financial Measures and Other Items" for more information.

The Virtu Financial, Inc. Board of Directors declared a quarterly cash dividend of $0.24 per share. This dividend is payable on September 14, 2018 to shareholders of record as of August 31, 2018.

"Our second quarter results reflect an operating environment for our core wholesale market making operation that was markedly worse than the robust conditions we saw in the first quarter.  In addition to declining volatility we saw reduced retail participation in the market.  However, we have over-achieved on expense reductions and synergies and saw strong performance in businesses underlying our FICC franchise, particularly in foreign exchange," said Douglas Cifu, Chief Executive Officer of Virtu Financial.

Expansion of the Share Repurchase Program

The Virtu Financial, Inc. Board of Directors approved the expansion of the Company's previously announced share repurchase program for Class A common stock and common units of Virtu Financial LLC, increasing the total amount authorized by $50 million to $100 million and extending the duration of the program through September 30, 2019.  Since the inception of the program in February 2018, the Company has repurchased approximately 1.38 million shares and units for approximately $40.5 million.  The Company now has approximately $59.5 million remaining capacity for future purchases of common stock and common units under the plan. 

Form of Presentation

The Company completed its acquisition of KCG Holdings, Inc. on July 20, 2017 and the reported financial results of the Company for the periods following the acquisition reflect KCG's and the Company's balances, and reflect the impact of purchase accounting adjustments. The financial results for the three and six months ended June 30, 2017 comprise solely the results of the Company.

Second Quarter Financial Results

Total revenues increased 126.5% to $328.1 million for this quarter, compared to $144.9 million for the same period in 2017. Trading income, net, increased 89.9% to $258.6 million for this quarter, compared to $136.2 million for the same period in 2017. Net income increased 956.5% to $46.6 million for this quarter, compared to $4.4 million for the same period in 2017.  

Basic and diluted earnings per share for this quarter were $0.25 and $0.24, respectively, compared to $0.01 each for the same period in 2017.

Adjusted Net Trading Income increased 163.2% to $202.9 million for this quarter, compared to $77.1 million for the same period in 2017. Adjusted EBITDA increased 174.8% to $112.4 million for this quarter, compared to $40.9 million for the same period in 2017. Normalized Adjusted Net Income increased 234.8% to $59.6 million for this quarter, compared to $17.8 million for the same period in 2017.

Assuming all non-controlling interests had been exchanged for common stock, and the Company's Normalized Adjusted Net Income before income taxes was subject to corporation taxation, Normalized Adjusted EPS was $0.31 for this quarter and $0.13 for the same period in 2017.

Operating Segment Information

Prior to the acquisition of KCG, the Company was managed and operated as one business, and, accordingly, operated under one reportable segment.  As a result of the acquisition of KCG, beginning in the third quarter of 2017 the Company has three operating segments: (i) Market Making; (ii) Execution Services; and (iii) Corporate.

Market Making principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions.

Execution Services comprises agency-based trading and trading venues, offering execution services in global equities, options, futures and fixed income on behalf of institutions, banks and broker dealers.

Corporate contains the Company's investments, principally in strategic trading-related opportunities, and maintains corporate overhead expenses.

The following tables show the total revenues and Adjusted Net Trading Income by operating segment for the three and six months ended June 30, 2018 and 2017.

Total revenues by operating segment
(in thousands, unaudited) 

               
Total Revenues                    
  Three Months Ended June 30, 2018
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 258,629     $ (36 )   $ -     $ 258,593  
Commissions, net and technology services   6,798       39,767       -       46,565  
Interest and dividends income   21,592       345       -       21,937  
Other, net   676       698       (343 )     1,031  
               
Total Revenues $    287,695     $    40,774     $    (343 )   $    328,126  
               
  Three Months Ended June 30, 2017
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 136,163     $ -     $ -     $ 136,163  
Commissions, net and technology services   -       3,107       -       3,107  
Interest and dividends income   5,629       -       -       5,629  
Other, net   -       -       (11 )     (11 )
               
Total Revenues $    141,792     $    3,107     $    (11 )   $    144,888  
               
  Six Months Ended June 30, 2018
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 664,338     $ 417     $ -     $ 664,755  
Commissions, net and technology services   15,299       85,110       -       100,409  
Interest and dividends income   39,361       490       35       39,886  
Other, net   1,233       338,536       (1,640 )     338,129  
               
Total Revenues $    720,231     $   424,553     $    (1,605 )   $    1,143,179  
               
  Six Months Ended June 30, 2017
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 275,737     $ -     $ -     $ 275,737  
Commissions, net and technology services   -       5,886       -       5,886  
Interest and dividends income   10,503       -       -       10,503  
Other, net   -       -       49       49  
               
Total Revenues $    286,240     $    5,886     $    49     $    292,175  
               
               

Reconciliation of trading income, net to Adjusted Net Trading Income by operating segment
(in thousands, unaudited) 

                     
  Three Months Ended June 30, 2018
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 258,629     $ (36 )   $ -     $ 258,593  
Commissions, net and technology services   6,798       39,767       -       46,565  
Interest and dividends income   21,592       345       -       21,937  
Brokerage, exchange and clearance fees, net   (59,794 )     (13,524 )     -       (73,318 )
Payments for order flow   (15,827 )     (15 )     -       (15,842 )
Interest and dividends expense   (34,747 )     (262 )     -       (35,009 )
               
Adjusted Net Trading Income $    176,651     $    26,275     $    -      $    202,926  
               
               
  Three Months Ended June 30, 2017
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 136,163     $ -     $ -     $ 136,163  
Commissions, net and technology services   -       3,107       -       3,107  
Interest and dividends income   5,629       -       -       5,629  
Brokerage, exchange and clearance fees, net   (52,899 )     -       -       (52,899 )
Interest and dividends expense   (14,934 )     -       -       (14,934 )
               
Adjusted Net Trading Income $    73,959     $    3,107     $    -      $    77,066  
               
               
  Six Months Ended June 30, 2018
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 664,338     $ 417     $ -     $ 664,755  
Commissions, net and technology services   15,299       85,110       -       100,409  
Interest and dividends income   39,361       490       35       39,886  
Brokerage, exchange and clearance fees, net   (128,866 )     (32,275 )     -       (161,141 )
Payments for order flow   (32,023 )     (75 )     -       (32,098 )
Interest and dividends expense   (67,954 )     (679 )     -       (68,633 )
               
Adjusted Net Trading Income $    490,155     $    52,988     $    35     $    543,178  
               
               
  Six Months Ended June 30, 2017
  Market   Execution        
  Making   Services   Corporate   Total
               
Trading income, net $ 275,737     $ -     $ -     $ 275,737  
Commissions, net and technology services   -       5,886       -       5,886  
Interest and dividends income   10,503       -       -       10,503  
Brokerage, exchange and clearance fees, net   (105,669 )     -       -       (105,669 )
Interest and dividends expense   (27,214 )     -       -       (27,214 )
               
Adjusted Net Trading Income $    153,357     $    5,886     $    -      $    159,243  
               
               

Reconciliation of trading income, net to Adjusted Net Trading Income by category – Market Making segment
(in thousands, unaudited) 

                           
  Three Months Ended June 30, 2018
  Americas   ROW   Global FICC,       Total
  Equities   Equities   Options and Other   Unallocated   Market Making
                   
Trading income, net $   166,608     $   31,796     $   55,755     $   4,470     $   258,629  
Commissions, net and technology services     6,709         -          89         -          6,798  
Brokerage, exchange and clearance fees, net     (28,674 )       (12,013 )       (16,311 )       (2,796 )       (59,794 )
Payments for order flow     (15,827 )       -          -          -          (15,827 )
Interest and dividends, net     (6,452 )       (2,738 )       (3,246 )       (719 )       (13,155 )
                   
Adjusted Net Trading Income $    122,364     $    17,045     $    36,287     $    955     $    176,651  
                   
                   
  Three Months Ended June 30, 2017
  Americas   ROW   Global FICC,       Total
  Equities   Equities   Options and Other   Unallocated   Market Making
                   
Trading income, net $   45,411     $   44,231     $   47,914     $   (1,393 )   $   136,163  
Brokerage, exchange and clearance fees, net     (18,825 )       (18,305 )       (15,306 )       (463 )       (52,899 )
Interest and dividends, net     (2,636 )       (4,212 )       (1,797 )       (660 )       (9,305 )
                   
Adjusted Net Trading Income $    23,950     $    21,714     $    30,811     $    (2,516 )   $    73,959  
                   
                   
  Six Months Ended June 30, 2018
  Americas   ROW   Global FICC,       Total
  Equities   Equities   Options and Other   Unallocated   Market Making
                   
Trading income, net $   439,796     $   83,490     $   137,825     $   3,227     $   664,338  
Commissions, net and technology services     15,231         -          68         -          15,299  
Brokerage, exchange and clearance fees, net     (69,759 )       (27,962 )       (28,850 )       (2,295 )       (128,866 )
Payments for order flow     (32,023 )       -          -          -          (32,023 )
Interest and dividends, net     (15,185 )       (5,132 )       (6,497 )       (1,779 )       (28,593 )
                   
Adjusted Net Trading Income $    338,060     $    50,396     $    102,546     $    (847 )   $    490,155  
                   
                   
  Six Months Ended June 30, 2017
  Americas   ROW   Global FICC,       Total
  Equities   Equities   Options and Other   Unallocated   Market Making
                   
Trading income, net $   95,242     $   82,980     $   99,486     $   (1,971 )   $   275,737  
Brokerage, exchange and clearance fees, net     (39,041 )       (35,395 )       (30,382 )       (851 )       (105,669 )
Interest and dividends, net     (4,200 )       (7,137 )       (4,163 )       (1,211 )       (16,711 )
                   
Adjusted Net Trading Income $    52,001     $    40,448     $    64,941     $    (4,033 )   $    153,357  
                   
                   

The following tables show our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by category for the three and six months ended June 30, 2018 and 2017:

(In thousands except percentages, unaudited) 

                       
Adjusted Net Trading Income by segment, category                    
  Three Months Ended June 30,   Six Months Ended June 30,
Adjusted Net Trading Income by Category:  2018      2017   % Change      2018      2017     % Change
                       
Market Making:                      
Americas Equities $   122,364     $   23,950       410.9 %   $   338,060     $   52,001     550.1 %
ROW Equities     17,045         21,714       -21.5 %       50,396         40,448     24.6 %
Global FICC, Options and Other     36,287         30,811       17.8 %       102,546         64,941     57.9 %
Unallocated1     955         (2,516 )   NM       (847 )       (4,033 )   NM
                       
Total Market Making $   176,651     $   73,959       138.8 %   $   490,155     $   153,357     219.6 %
                         
Execution Services     26,275         3,107       745.7 %       52,988         5,886     800.2 %
                       
Corporate     -          -      NM         35         -      NM  
                       
Adjusted Net Trading Income $    202,926     $    77,066       163.3 %   $    543,178     $    159,243     241.1 %
                       
                       
Average Daily  Three Months Ended June 30,   Six Months Ended June 30,
Adjusted Net Trading Income by Category:  2018    2017   % Change    2018    2017   % Change
                       
Market Making:                      
Americas Equities $   1,912     $   380       402.9 %   $   2,704     $   416     550.1 %
ROW Equities     266         345       -22.7 %       403         324     24.4 %
Global FICC, Options and Other     567         489       15.9 %       820         520     57.8 %
Unallocated1     15         (40 )   NM       (7 )       (32 )   NM
                       
Total Market Making $   2,760     $   1,174       135.1 %   $   3,921     $   1,228     219.3 %
                       
Execution Services     411         49       733.4 %       424         47     800.2 %
                       
Corporate     -          -      NM         0         -      NM  
                       
Adjusted Net Trading Income $    3,171     $    1,223       159.2 %   $    4,345     $    1,275     240.8 %
                       
1 Under our methodology for recording ‘‘trading income, net'' in our condensed consolidated statements of comprehensive income, we recognize  revenues based on the exit price of assets in accordance with applicable U.S. GAAP rules, and when we calculate Adjusted Net Trading Income for corresponding reporting periods, we start with trading income, net. By contrast, when we calculate Adjusted Net Trading Income by category, we recognize revenues on a daily basis, and as a result prices used in recognizing revenues may differ. Because we provide liquidity on a global basis, across asset classes and time zones, the timing of any particular Adjusted Net Trading Income calculation can defer or accelerate the amount in a particular asset class from one day to another, and, at the end of a reporting period, from one reporting period to another. The purpose of the Unallocated category is to ensure that Adjusted Net Trading Income by category sums to total Adjusted Net Trading Income, which can be reconciled to Trading Income, Net, calculated in accordance with GAAP. We do not allocate any resulting differences based on the timing of revenue recognition. 

Financial Condition

As of June 30, 2018, Virtu had $660.1 million in cash and cash equivalents, and total long-term debt outstanding in an aggregate principal amount of $1.047 billion ($1.005 billion as of July 27, 2018).

Non-GAAP Financial Measures and Other Items

To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), we use the following non-GAAP measures of financial performance:

  • "Adjusted Net Trading Income", which is the amount of revenue we generate from our market making activities, or trading income, net, plus commissions, net and technology services, plus interest and dividends income and expense, net, less direct costs associated with those revenues, including brokerage, exchange and clearance fees, net and payments for order flow. Management believes that this measurement is useful for comparing general operating performance from period to period. Although we use Adjusted Net Trading Income as a financial measure to assess the performance of our business, the use of Adjusted Net Trading Income is limited because it does not include certain material costs that are necessary to operate our business. Our presentation of Adjusted Net Trading Income should not be construed as an indication that our future results will be unaffected by revenues or expenses that are not directly associated with our market making activities.
  • "EBITDA", which measures our operating performance by adjusting Net Income to exclude financing interest expense on our long-term borrowings, debt issue cost related to debt refinancing, depreciation and amortization, amortization of purchased intangibles and acquired capitalized software, and income tax expense, and "Adjusted EBITDA", which measures our operating performance by further adjusting EBITDA to exclude severance, reserve for legal matter, transaction advisory fees and expenses, termination of office leases, acquisition related retention bonus, trading related settlement income, gain on sale of business, connectivity early termination, other, net, write-down of assets, share based compensation, charges related to share based compensation at IPO, 2015 Management Incentive Plan, and charges related to share based compensation at IPO, and "Adjusted EBITDA Margin", which compares Adjusted EBITDA to Adjusted Net Trading Income.
  • "Normalized Adjusted Net Income", "Normalized Adjusted Net Income before income taxes", "Normalized provision for income taxes", and "Normalized Adjusted EPS", which we calculate by adjusting Net Income to exclude certain items and other non-cash items, assuming that all vested and unvested Virtu Financial LLC units have been exchanged for Class A Common Stock, and applying a corporate tax rate, which was between 35.5% and 37% for periods prior to January 1, 2018 and decreasing to approximately 23% beginning January 1, 2018 as a result of the Tax Act.
  • "Adjusted Operating Expenses", which we calculate by adjusting Operating Expenses to exclude severance, share based compensation, reserve for legal matters, connectivity early termination and write-down of assets.

Total Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions. Additional information provided regarding the breakdown of Total Adjusted Net Trading Income by category is also a non-GAAP financial measure but is not used by the Company in evaluating operating performance and in making strategic decisions. In addition, these non-GAAP financial measures or similar non-GAAP measures are used by research analysts, investment bankers and lenders to assess our operating performance. Management believes that the presentation of Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses provide useful information to investors regarding our results of operations because they assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses provide indicators of general economic performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period. Furthermore, our credit agreement contains covenants and other tests based on metrics similar to Adjusted EBITDA. Other companies may define Adjusted Net Trading Income, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS  and Adjusted Operating Expenses differently, and as a result our measures of Adjusted Net Trading Income, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses may not be directly comparable to those of other companies. Although we use these non-GAAP financial measures as financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business.
                   
Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income should be considered in addition to, and not as a substitute for, Net Income in accordance with U.S. GAAP as a measure of performance. Our presentation of Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Adjusted Net Trading Income, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and our EBITDA-based measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

  • they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
  • our EBITDA-based measures do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and our EBITDA-based measures do not reflect any cash requirement for such replacements or improvements;
  • they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
  • they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
  • they do not reflect limitations on our costs related to transferring earnings from our subsidiaries to us.

Because of these limitations, Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income are not intended as alternatives to Net Income as indicators of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. These U.S. GAAP measurements include Net Income, cash flows from operations and cash flow data. See below a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure.

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited) 

                     
  Three Months Ended June 30,   Six Months Ended June 30,
(in thousands, except share and per share data)  2018     2017     2018     2017 
               
               
Revenues:              
Trading income, net $   258,593     $   136,163     $   664,755     $   275,737  
Commissions, net and technology services     46,565         3,107         100,409         5,886  
Interest and dividends income     21,937         5,629         39,886         10,503  
Other, net     1,031         (11 )       338,129         49  
               
Total revenues     328,126         144,888         1,143,179         292,175  
               
Operating Expenses:              
Brokerage, exchange and clearance fees, net     73,318         52,899         161,141         105,669  
Communication and data processing     48,791         18,985         98,277         37,192  
Employee compensation and payroll taxes     41,226         17,365         105,896         38,712  
Payments for order flow     15,842         -          32,098         -   
Interest and dividends expense     35,009         14,934         68,633         27,214  
Operations and administrative     16,610         6,770         36,416         11,616  
Depreciation and amortization     16,194         6,798         31,546         13,555  
Amortization of purchased intangibles and              
 acquired capitalized software     6,838         53         13,675         106  
Termination of office leases     1,777         -          21,860         -   
Debt issue cost related to debt refinancing     2,359         4,482         8,380         4,482  
Transaction advisory fees and expenses     1,750         8,511         9,246         8,643  
Charges related to share based compensation at IPO     10         179         24         364  
Financing interest expense on long-term borrowings     18,780         8,720         37,827         15,548  
               
Total operating expenses     278,504         139,696         625,019         263,101  
               
Income before income taxes and noncontrolling interest     49,622         5,192         518,160         29,074  
Provision for income taxes     3,000         779         61,515         3,587  
               
Net income $   46,622     $   4,413     $   456,645     $   25,487  
               
Noncontrolling interest     (21,413 )       (3,512 )       (256,684 )       (20,006 )
               
               
Net income available for common stockholders $   25,209     $   901     $   199,961     $   5,481  
               
Earnings per share:              
Basic $   0.25     $   0.01     $   2.06     $   0.11  
Diluted $   0.24     $   0.01     $   2.02     $   0.11  
               
               
Weighted average common shares outstanding              
Basic   99,542,659       40,814,214       95,124,675       40,607,791  
Diluted   101,619,651       40,814,214       97,155,104       40,607,791  
               
Comprehensive income:              
Net income $   46,622     $   4,413     $   456,645     $   25,487  
Other comprehensive income (loss)              
  Foreign exchange translation adjustment, net of taxes     (5,576 )       4,852         (3,047 )       5,637  
               
Comprehensive income $   41,046     $   9,265     $   453,598     $   31,124  
Less: Comprehensive income attributable to noncontrolling interest     (18,972 )       (6,901 )       (255,531 )       (23,945 )
               
Comprehensive income available for common stockholders $   22,074     $   2,364     $   198,067     $   7,179  
               
               

Virtu Financial, Inc. and Subsidiaries
Reconciliation to Non-GAAP Operating Data (Unaudited)

The following tables reconcile Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and selected Operating Margins. 

               
  Three Months Ended June 30,
  Six Months Ended June 30,
(in thousands, except percentages)  2018      2017      2018      2017
               
               
Reconciliation of Trading income, net to Adjusted Net Trading Income            
Trading income, net $ 258,593     $   136,163     $   664,755     $   275,737  
Commissions, net and technology services     46,565         3,107         100,409         5,886  
Interest and dividends income     21,937         5,629         39,886         10,503  
Brokerage, exchange and clearance fees, net     (73,318 )       (52,899 )       (161,141 )       (105,669 )
Payments for order flow     (15,842 )       -          (32,098 )       -   
Interest and dividends expense     (35,009 )       (14,934 )       (68,633 )       (27,214 )
               
Adjusted Net Trading Income $   202,926     $   77,066     $   543,178     $   159,243  
               
Reconciliation of Net Income to EBITDA and Adjusted EBITDA              
Net income $   46,622     $   4,413     $   456,645     $   25,487  
Financing interest expense on long-term borrowings     18,780         8,720         37,827         15,548  
Debt issue cost related to debt refinancing     2,359         4,482         8,380         4,482  
Depreciation and amortization     16,194         6,798         31,546         13,555  
Amortization of purchased intangibles and acquired capitalized software     6,838         53         13,675         106  
Provision for income taxes     3,000         779         61,515         3,587  
               
EBITDA $   93,793     $   25,245     $   609,588     $   62,765  
               
Severance     2,590         -          6,334         877  
Reserve for legal matter     400         (2,176 )       400         (2,176 )
Transaction advisory fees and expenses     1,750         8,511         9,246         8,643  
Termination of office leases     1,777         -          21,860         -   
Connectivity early termination     4,562         -          7,062         -   
Gain on sale of business     -          -          (337,549 )       -   
Other, net     (1,031 )       11         (580 )       (49 )
Write-down of assets     1,761         544         2,697         544  
Share based compensation     5,204         7,253         13,121         14,833  
Charges related to share based compensation at IPO, 2015 Management Incentive Plan     1,534         1,373         2,931         2,798  
Charges related to share based compensation awards at IPO     10         179         24         364  
               
Adjusted EBITDA $   112,350     $   40,940     $   335,134     $   88,599  
               
               
Selected Operating Margins              
Net Income Margin1   23.0 %     5.7 %     84.1 %     16.0 %
EBITDA Margin2   46.2 %     32.8 %     112.2 %     39.4 %
Adjusted EBITDA Margin3   55.4 %     53.1 %     61.7 %     55.6 %
               
1 Calculated by dividing net income by Adjusted Net Trading Income. 
2 Calculated by dividing EBITDA by Adjusted Net Trading Income. 
3 Calculated by dividing Adjusted EBITDA by Adjusted Net Trading Income. 
               
               

Virtu Financial, Inc. and Subsidiaries
Reconciliation to Non-GAAP Operating Data (Unaudited)
(Continued)

The following tables reconcile Condensed Consolidated Statements of Comprehensive Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS.     

                     
  Three Months Ended June 30,   Six Months Ended June 30,
(in thousands, except per share data)  2018    2017    2018    2017
               
               
Reconciliation of Net Income to Normalized Adjusted Net Income              
Net income $   46,622     $   4,413     $   456,645     $   25,487  
Provision for income taxes     3,000         779         61,515         3,587  
               
Income before income taxes $   49,622     $   5,192     $   518,160     $   29,074  
               
Amortization of purchased intangibles and acquired capitalized software     6,838         53         13,675         106  
Financing interest expense related to KCG transaction     -          1,616         -          1,616  
Debt issue cost related to debt refinancing     2,359         4,482         8,380         4,482  
Severance     2,590         -          6,334         877  
Reserve for legal matter     400         (2,176 )       400         (2,176 )
Transaction advisory fees and expenses     1,750         8,511         9,246         8,643  
Termination of office leases     1,777         -          21,860         -   
Connectivity early termination     4,562         -          7,062         -   
Write-down of assets     1,761         1,102         2,697         1,102  
Gain on sale of business     -          -          (337,549 )    
Other, net     (1,031 )       11         (580 )       (49 )
Share based compensation     5,204         7,253         13,121         14,833  
Charges related to share based compensation at IPO, 2015 Management Incentive Plan     1,534         1,373         2,931         2,798  
Charges related to share based compensation awards at IPO     10         179         24         364  
               
Normalized Adjusted Net Income before income taxes $   77,376     $   27,596     $   265,761     $   61,670  
               
Normalized provision for income taxes1     17,796         9,797         61,125         21,893  
               
Normalized Adjusted Net Income $   59,580     $   17,799     $   204,636     $   39,777  
               
Weighted Average Adjusted shares outstanding2     191,142,871         140,764,500         190,320,527         140,764,500  
               
Normalized Adjusted EPS $   0.31     $   0.13     $   1.08     $   0.28  
               
1 Reflects U.S. federal, state, and local income tax rate applicable to corporations of approximately 23% for 2018 and 35.5% for 2017
2 Assumes that (1) holders of all vested and unvested Virtu Financial LLC Units (together with corresponding shares of Class C common stock), have exercised their right to exchange such Virtu Financial LLC Units for shares of Class A common stock on a one-for-one basis, (2) holders of all Virtu Financial LLC Units (together with corresponding shares of Class D common stock), have exercised their right to exchange such Virtu Financial LLC Units for shares of Class B common stock on a one-for-one basis, and subsequently exercised their right to convert the shares of Class B common stock into shares of Class A common stock on a one-for-one basis. 

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Financial Condition (Unaudited) 

       
  June 30   December 31,
   2018    2017 
       
  (in thousands, except share data)
Assets      
Cash and cash equivalents $   660,067   $   532,887  
Securities borrowed     1,217,172       1,471,172  
Securities purchased under agreements to resell     5,163       -   
Receivables from broker-dealers and clearing organizations     1,051,922       972,018  
Trading assets, at fair value     2,773,083       2,712,622  
Property, equipment and capitalized software, net     129,242       137,018  
Goodwill     836,583       844,883  
Intangibles (net of accumulated amortization)     97,549       111,224  
Deferred taxes     181,359       125,760  
Assets of business held for sale     -        55,070  
Other assets     219,023         357,352  
       
Total assets $   7,171,163   $   7,320,006  
       
Liabilities and equity      
Liabilities      
Short-term borrowings, net $   44,006   $   27,883  
Securities loaned     788,843       754,687  
Securities sold under agreements to repurchase     279,760       390,642  
Payables to broker-dealers and clearing organizations     747,613       716,205  
Trading liabilities, at fair value     2,406,364       2,384,598  
Tax receivable agreement obligations     211,623       147,040  
Accounts payable and accrued expenses and other liabilities     235,580       358,825  
Long-term borrowings, net     1,015,748       1,388,548  
       
Total liabilities $   5,729,537   $   6,168,428  
       
       
Total equity     1,441,626       1,151,578  
       
       
Total liabilities and equity $   7,171,163   $   7,320,006  
       
       
  As of June 30, 2018
Ownership of Virtu Financial LLC Interests: Interests   %
       
Virtu Financial, Inc. - Class A Common Stock and Restricted Stock Units     108,853,792     56.6 %
Non-controlling Interests (Virtu Financial LLC)     83,423,007     43.4 %
       
Total Virtu Financial LLC Interests     192,276,799     100.0 %
 
 

About Virtu Financial, Inc.

Virtu is a leading financial firm that leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to our clients. As a market maker, Virtu provides deep liquidity that helps to create more efficient markets around the world. Our market structure expertise, broad diversification, and execution technology enables us to provide competitive bids and offers in over 25,000 securities, at over 235 venues, in 36 countries worldwide.

Cautionary Note Regarding Forward-Looking Statements

The foregoing information and certain oral statements made from time to time by representatives of the Company contain certain forward-looking statements that reflect the company's current views with respect to certain current and future events and financial performance, including with respect to integration of KCG and synergy realization. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment which may cause the company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's filings with the Securities and Exchange Commission.

CONTACT              

Investor Relations
Andrew Smith
Virtu Financial, Inc.
(212) 418-0195
investor_relations@virtu.com

Media Relations
media@virtu.com

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