NASDAQ: VIRT 18.24 +0.07 +0.39% Volume: 919,467 Pricing Delayed 20 Minutes. Aug 23, 2019

Press Release Details

Virtu Announces Second Quarter 2019 Results

Aug 8, 2019

NEW YORK, Aug. 08, 2019 (GLOBE NEWSWIRE) -- Virtu Financial, Inc. (NASDAQ: VIRT), a leading provider of financial services and products that leverages cutting edge technology to deliver liquidity to the global markets and provide execution services and data, analytics and connectivity products, today reported results for the second quarter ended June 30, 2019.

Second Quarter 2019 Selected Highlights

  • Net loss of $55.5 million, as a result of costs associated with the ITG acquisition and amortization of purchased intangibles; Normalized Adjusted Net Income* of $30.1 million
  • Basic and diluted loss per share of $0.27; Normalized Adjusted EPS* of $0.16
  • Total revenues of $378.5 million; Trading income, net of $205.9 million; Adjusted Net Trading Income* of $238.9 million
  • Adjusted EBITDA* of $89.2 million; Adjusted EBITDA Margin* of 37.3%
  • Increasing synergy targets related to the ITG acquisition by 25% to $167 million
  • Quarterly cash dividend of $0.24 per share payable on September 16, 2019

* 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 16, 2019 to shareholders of record as of September 3, 2019.

"Against a challenging backdrop in the 2nd quarter, our business performed adequately.  The market making segment was impacted to the greatest extent.  However our execution services business, buoyed by the ITG acquisition, performed very well given the market conditions.  While July market conditions were similar to the second quarter overall, we have seen a material increase in volatility in August and a commensurate increase in performance in all of our businesses,” said Douglas A. Cifu, Chief Executive Officer.   Mr Cifu continued, “We believe we are only beginning to implement and discover the multiple ways to serve our clients better through this acquisition.  We are ahead of schedule in all aspects of the ITG integration and have raised our overall synergy targets."

Financial Results

Second Quarter 2019:

Total revenues increased 15.3% to $378.5 million for this quarter, compared to $328.1 million for the same period in 2018. Trading income, net, decreased 20.4% to $205.9 million for this quarter, compared to $258.6 million for the same period in 2018. Net income was a loss of $55.5 million for this quarter, compared to net income of $46.6 million for the same period in 2018.

Basic and diluted loss per share for this quarter were $0.27 and $0.27, respectively, compared to earnings per share of $0.25 and $0.24, respectively, for the same period in 2018.

Adjusted Net Trading Income increased 17.7% to $238.9 million for this quarter, compared to $202.9 million for the same period in 2018. Adjusted EBITDA decreased 20.6% to $89.2 million for this quarter, compared to $112.4 million for the same period in 2018. Normalized Adjusted Net Income decreased 49.4% to $30.1 million for this quarter, compared to $59.6 million for the same period in 2018.

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 taxes, Normalized Adjusted EPS was $0.16 for this quarter, compared to $0.31 for the same period in 2018.

Operating Segment Information

The Company has two operating segments: Market Making and Execution Services; and one non-operating segment: 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. The Company also provides proprietary technology and infrastructure, workflow technology, and trading analytic services to select third parties. Legacy ITG’s operations are included within the Execution Services segment.

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

The following tables show the trading income, net, total revenues and Adjusted Net Trading Income by segment for the three and six months ended June 30, 2019 and 2018.

Total revenues by segment
(in thousands, unaudited)

    Three Months Ended June 30, 2019
    Market Making   Execution Services   Corporate   Total
Trading income, net   $ 205,568     $ 355     $     $ 205,923  
Commissions, net and technology services   4,961     140,159         145,120  
Interest and dividends income   23,284     878         24,162  
Other, net   1,191     632     1,428     3,251  
Total Revenues   $ 235,004     $ 142,024     $ 1,428     $ 378,456  

 

    Three Months Ended June 30, 2018
    Market Making   Execution 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  

 

    Six Months Ended June 30, 2019
    Market Making   Execution Services   Corporate   Total
Trading income, net   $ 460,689     $ 2,774     $     $ 463,463  
Commissions, net and technology services   9,961     210,306         220,267  
Interest and dividends income   41,787     11,506         53,293  
Other, net   1,788     956     1,681     4,425  
Total Revenues   $ 514,225     $ 225,542     $ 1,681     $ 741,448  

 

    Six Months Ended June 30, 2018
    Market Making   Execution 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  

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

    Three Months Ended June 30, 2019
    Market Making   Execution Services   Corporate   Total
Trading income, net   $ 205,568     $ 355     $     $ 205,923  
Commissions, net and technology services   4,961     140,159         145,120  
Interest and dividends income   23,284     878         24,162  
Brokerage, exchange and clearance fees, net   (40,013 )   (35,838 )       (75,851 )
Payments for order flow   (23,617 )   (19 )       (23,636 )
Interest and dividends expense   (36,395 )   (429 )       (36,824 )
Adjusted Net Trading Income   $ 133,788     $ 105,106     $     $ 238,894  

 

    Three Months Ended June 30, 2018
    Market Making   Execution 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  

 

    Six Months Ended June 30, 2019
    Market Making   Execution Services   Corporate   Total
Trading income, net   $ 460,689     $ 2,774     $     $ 463,463  
Commissions, net and technology services   9,961     210,306         220,267  
Interest and dividends income   41,787     11,506         53,293  
Brokerage, exchange and clearance fees, net   (83,040 )   (56,864 )       (139,904 )
Payments for order flow   (47,157 )   (40 )       (47,197 )
Interest and dividends expense   (70,655 )   (11,538 )       (82,193 )
Adjusted Net Trading Income   $ 311,585     $ 156,144     $     $ 467,729  

 

    Six Months Ended June 30, 2018
    Market Making   Execution 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  

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

    Three Months Ended June 30, 2019
    Global Equities   Global FICC, Options and Other   Unallocated   Total Market Making
Trading income, net   $ 163,044     $ 41,126     $ 1,398     $ 205,568  
Commissions, net and technology services   4,961             4,961  
Brokerage, exchange and clearance fees, net   (26,453 )   (10,024 )   (3,536 )   (40,013 )
Payments for order flow   (23,617 )           (23,617 )
Interest and dividends, net   (10,395 )   (2,754 )   38     (13,111 )
Adjusted Net Trading Income   $ 107,540     $ 28,348     $ (2,100 )   $ 133,788  

 

    Three Months Ended June 30, 2018
    Global Equities   Global FICC, Options and Other   Unallocated   Total Market Making
Trading income, net   $ 198,404     $ 55,755     $ 4,470     $ 258,629  
Commissions, net and technology services   6,709     89         6,798  
Brokerage, exchange and clearance fees, net   (40,687 )   (16,311 )   (2,796 )   (59,794 )
Payments for order flow   (15,827 )           (15,827 )
Interest and dividends, net   (9,190 )   (3,246 )   (719 )   (13,155 )
Adjusted Net Trading Income   $ 139,409     $ 36,287     $ 955     $ 176,651  

 

    Six Months Ended June 30, 2019
    Global Equities   Global FICC, Options and Other   Unallocated   Total Market Making
Trading income, net   $ 371,677     $ 90,916     $ (1,904 )   $ 460,689  
Commissions, net and technology services   9,989     (28 )       9,961  
Brokerage, exchange and clearance fees, net   (64,434 )   (20,712 )   2,106     (83,040 )
Payments for order flow   (47,157 )           (47,157 )
Interest and dividends, net   (22,927 )   (5,743 )   (198 )   (28,868 )
Adjusted Net Trading Income   $ 247,148     $ 64,433     $ 4     $ 311,585  

 

    Six Months Ended June 30, 2018
    Global Equities   Global FICC, Options and Other   Unallocated   Total Market Making
Trading income, net   $ 523,286     $ 137,825     $ 3,227     $ 664,338  
Commissions, net and technology services   15,231     68         15,299  
Brokerage, exchange and clearance fees, net   (97,721 )   (28,850 )   (2,295 )   (128,866 )
Payments for order flow   (32,023 )           (32,023 )
Interest and dividends, net   (20,317 )   (6,497 )   (1,779 )   (28,593 )
Adjusted Net Trading Income   $ 388,456     $ 102,546     $ (847 )   $ 490,155  

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, 2019 and 2018:

(In thousands except percentages, unaudited)

    Three Months Ended June 30,       Six Months Ended June 30,
Adjusted Net Trading Income by Category:   2019   2018   % Change       2019   2018   % Change
                             
Market Making:                            
Global Equities   $ 107,540     $ 139,409     (22.9 )%       $ 247,148     $ 388,456     (36.4 )%
Global FICC, Options and Other   28,348     36,287     (21.9 )%       64,433     102,546     (37.2 )%
Unallocated (1)   (2,100 )   955     NM         4     (847 )   NM  
Total Market Making   $ 133,788     $ 176,651     (24.3 )%       $ 311,585     $ 490,155     (36.4 )%
                             
Execution Services   105,106     26,275     300.0 %       156,144     52,988     194.7 %
                             
Corporate           NM             35     NM  
                             
Adjusted Net Trading Income   $ 238,894     $ 202,926     17.7 %       $ 467,729     $ 543,178     (13.9 )%

 

Average Daily   Three Months Ended June 30,       Six Months Ended June 30,
Adjusted Net Trading Income by Category:   2019   2018   % Change       2019   2018   % Change
                             
Market Making:                            
Global Equities   $ 1,707     $ 2,178     (21.6 )%       $ 1,977     $ 3,108     (36.4 )%
Global FICC, Options and Other   450     567     (20.6 )%       515     820     (37.2 )%
Unallocated (1)   (33 )   15     NM             (7 )   NM  
Total Market Making   $ 2,124     $ 2,760     (23.1 )%       $ 2,493     $ 3,921     (36.4 )%
                             
Execution Services   1,668     411     306.4 %       1,249     424     194.7 %
                             
Corporate           NM                 NM  
                             
Adjusted Net Trading Income   $ 3,792     $ 3,171     19.6 %       $ 3,742     $ 4,345     (13.9 )%

(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, 2019, Virtu had $497.6 million in cash, cash equivalents and restricted cash, and total long-term debt outstanding in an aggregate principal amount of $1,982.5 million.

Share Repurchase Program

The Virtu Financial, Inc. Board of Directors approved the share repurchase program for $50 million Class A common stock and common units of Virtu Financial LLC in February 2018 and subsequently expanded the program to $100 million in July 2018. Since the inception of the program, the Company has repurchased approximately 2.56 million shares and units for approximately $65.9 million. The Company now has approximately $34.1 million remaining capacity for future purchases of common stock and common units under the plan.

Non-GAAP Financial Measures and Other Items

To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), we use the following non-U.S. GAAP (“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, reserves for legal matters, transaction advisory fees and expenses, termination of office leases, acquisition related retention bonuses, 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, Amended and Restated 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 an effective tax rate, which was between approximately 23% and 24%.
  • “Adjusted Operating Expenses”, which we calculate by adjusting total operating expenses to exclude severance, share based compensation, reserves for legal matters, termination of office leases, connectivity early termination and write-down of assets.

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)   2019   2018   2019   2018
                 
Revenues:                
Trading income, net   $ 205,923     $ 258,593     $ 463,463     $ 664,755  
Commissions, net and technology services   145,120     46,565     220,267     100,409  
Interest and dividends income   24,162     21,937     53,293     39,886  
Other, net   3,251     1,031     4,425     338,129  
Total revenues   378,456     328,126     741,448     1,143,179  
                 
Operating Expenses:                
Brokerage, exchange and clearance fees, net   75,851     73,318     139,904     161,141  
Payments for order flow   23,636     15,842     47,197     32,098  
Communication and data processing   54,423     48,791     96,237     98,277  
Employee compensation and payroll taxes   83,702     41,226     191,540     105,896  
Interest and dividends expense   36,824     35,009     82,193     68,633  
Operations and administrative   34,808     16,610     56,885     36,416  
Depreciation and amortization   14,810     16,194     31,260     31,546  
Amortization of purchased intangibles and acquired capitalized software   20,606     6,838     31,528     13,675  
Termination of office leases   65,207     1,777     65,208     21,860  
Debt issue cost related to debt refinancing   (1,319 )   2,359     7,894     8,380  
Transaction advisory fees and expenses   1,798     1,750     16,907     9,246  
Charges related to share based compensation at IPO       10         24  
Financing interest expense on long-term borrowings   34,689     18,780     57,478     37,827  
Total operating expenses   445,035     278,504     824,231     625,019  
                 
Income (loss) before income taxes and noncontrolling interest   (66,579 )   49,622     (82,783 )   518,160  
Provision for (benefit from) income taxes   (11,094 )   3,000     (13,679 )   61,515  
Net income (loss)   $ (55,485 )   $ 46,622     $ (69,104 )   $ 456,645  
                 
Noncontrolling interest   25,594     (21,413 )   32,540     (256,684 )
                 
Net income (loss) available for common stockholders   $ (29,891 )   $ 25,209     $ (36,564 )   $ 199,961  
                 
Earnings (loss) per share:                
Basic   $ (0.27 )   $ 0.25     $ (0.34 )   $ 2.06  
Diluted   $ (0.27 )   $ 0.24     $ (0.34 )   $ 2.02  
                 
Weighted average common shares outstanding                
Basic   112,828,240     99,542,659     110,076,375     95,124,675  
Diluted   112,828,240     101,619,651     110,076,375     97,155,104  
                 
Comprehensive income:                
Net income (loss)   $ (55,485 )   $ 46,622     $ (69,104 )   $ 456,645  
Other comprehensive income (loss)                
Foreign exchange translation adjustment, net of taxes   884     (5,576 )   (2,860 )   (3,047 )
Comprehensive income (loss)   $ (54,601 )   $ 41,046     $ (71,964 )   $ 453,598  
Less: Comprehensive income (loss) attributable to noncontrolling interest   25,258     (18,972 )   33,812     (255,531 )
Comprehensive income (loss) available for common stockholders   $ (29,343 )   $ 22,074     $ (38,152 )   $ 198,067  
 


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)   2019   2018   2019   2018
                 
Reconciliation of Trading income, net to Adjusted Net Trading Income                
Trading income, net   $ 205,923     $ 258,593     $ 463,463     $ 664,755  
Commissions, net and technology services   145,120     46,565     220,267     100,409  
Interest and dividends income   24,162     21,937     53,293     39,886  
Brokerage, exchange and clearance fees, net   (75,851 )   (73,318 )   (139,904 )   (161,141 )
Payments for order flow   (23,636 )   (15,842 )   (47,197 )   (32,098 )
Interest and dividends expense   (36,824 )   (35,009 )   (82,193 )   (68,633 )
Adjusted Net Trading Income   $ 238,894     $ 202,926     $ 467,729     $ 543,178  
                 
Reconciliation of Net Income to EBITDA and Adjusted EBITDA                
Net income (loss)   (55,485 )   46,622     (69,104 )   456,645  
Financing interest expense on long-term borrowings   34,689     18,780     57,478     37,827  
Debt issue cost related to debt refinancing   (1,319 )   2,359     7,894     8,380  
Depreciation and amortization   14,810     16,194     31,260     31,546  
Amortization of purchased intangibles and acquired capitalized software   20,606     6,838     31,528     13,675  
Provision for income taxes   (11,094 )   3,000     (13,679 )   61,515  
EBITDA   $ 2,207     $ 93,793     $ 45,377     $ 609,588  
                 
Severance   7,873     2,590     61,224     6,334  
Reserve for legal matter       400         400  
Transaction advisory fees and expenses   1,798     1,750     16,907     9,246  
Termination of office leases   65,208     1,777     65,208     21,860  
Connectivity early termination       4,562         7,062  
Gain on sale of business               (337,549 )
Other, net   104     (1,031 )   1,491     (580 )
Write-down of assets       1,761         2,697  
Share based compensation   11,983     5,204     21,796     13,121  
Charges related to share based compensation at IPO, Amended and Restated 2015 Management Incentive Plan   (9 )   1,534     1,385     2,931  
Charges related to share based compensation awards at IPO       10         24  
Adjusted EBITDA   $ 89,164     $ 112,350     $ 213,388     $ 335,134  
                 
Selected Operating Margins                
Net Income Margin (1)   (23.2 )%   23.0 %   (14.8 )%   84.1 %
EBITDA Margin (2)   0.9 %   46.2 %   9.7 %   112.2 %
Adjusted EBITDA Margin (3)   37.3 %   55.4 %   45.6 %   61.7 %
                 
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 share and per share data)   2019   2018   2019   2018
                 
Reconciliation of Net Income to Normalized Adjusted Net Income                
Net income (loss)   $ (55,485 )   $ 46,622     $ (69,104 )   $ 456,645  
Provision (benefit) for (from) income taxes   (11,094 )   3,000     (13,679 )   61,515  
Income (loss) before income taxes and noncontrolling interest   $ (66,579 )   $ 49,622     $ (82,783 )   $ 518,160  
Amortization of purchased intangibles and acquired capitalized software   20,606     6,838     31,528     13,675  
Debt issue cost related to debt refinancing   (1,319 )   2,359     7,894     8,380  
Severance   7,873     2,590     61,224     6,334  
Reserve for legal matter       400         400  
Transaction advisory fees and expenses   1,798     1,750     16,907     9,246  
Termination of office leases   65,208     1,777     65,208     21,860  
Connectivity early termination       4,562         7,062  
Write-down of assets       1,761         2,697  
Gain on sale of business               (337,549 )
Other, net   104     (1,031 )   1,491     (580 )
Share based compensation   11,983     5,204     21,796     13,121  
Charges related to share based compensation at IPO, Amended and Restated 2015 Management Incentive Plan   (9 )   1,534     1,385     2,931  
Charges related to share based compensation awards at IPO       10         24  
Normalized Adjusted Net Income before income taxes   $ 39,665     $ 77,376     $ 124,650     $ 265,761  
Normalized provision for income taxes (1)   9,520     17,796     29,916     61,125  
Normalized Adjusted Net Income   $ 30,145     $ 59,580     $ 94,734     $ 204,636  
                 
Weighted Average Adjusted shares outstanding (2)   194,217,318     191,142,871     192,959,477     190,320,527  
                 
Normalized Adjusted EPS   $ 0.16     $ 0.31     $ 0.49     $ 1.08  
                 
(1) Reflects U.S. federal, state, and local income tax rate applicable to corporations of approximately 24% for 2019 and 23% for 2018.
(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, and (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)

(in thousands, except share data)   June 30,
2019
  December 31,
2018
         
Assets        
Cash and cash equivalents   $ 458,064     $ 729,547  
Cash and securities segregated under regulations and other   39,497     6,500  
Securities borrowed   1,201,327     1,399,684  
Securities purchased under agreements to resell   22,974     15,475  
Receivables from broker-dealers and clearing organizations   1,287,091     1,101,449  
Receivables from customers   254,650      
Trading assets, at fair value   3,105,002     2,639,921  
Property, equipment and capitalized software, net   117,899     113,322  
Operating lease right-of-use assets   318,269      
Goodwill   1,196,548     836,583  
Intangibles (net of accumulated amortization)   532,061     83,989  
Deferred taxes   252,229     200,359  
Other assets   295,786     254,149  
Total assets   9,081,397     7,380,978  
         
Liabilities and equity        
Liabilities        
Short-term borrowings, net   146,847     15,128  
Securities loaned   778,351     1,130,039  
Securities sold under agreements to repurchase   295,803     281,861  
Payables to broker-dealers and clearing organizations   668,545     567,441  
Payables to customers   131,303      
Trading liabilities, at fair value   2,716,418     2,475,395  
Tax receivable agreement obligations   256,700     214,403  
Accounts payable and accrued expenses and other liabilities   349,832     294,975  
Deferred tax liabilities   65,848      
Operating lease liabilities   388,070      
Long-term borrowings, net   1,931,811     907,037  
Total liabilities   7,729,528     5,886,279  
         
Total equity   1,351,869     1,494,699  
         
Total liabilities and equity   $ 9,081,397     $ 7,380,978  
         
    As of June 30, 2019
Ownership of Virtu Financial LLC Interests:   Interests   %
Virtu Financial, Inc. - Class A Common Stock and Restricted Stock Units   120,987,176     62.3 %
Non-controlling Interests (Virtu Financial LLC)   73,230,142     37.7 %
Total Virtu Financial LLC Interests   194,217,318     100.0 %

 

About Virtu Financial, Inc.

Virtu is a leading provider of financial services and products that leverages cutting-edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to its clients. Leveraging its global market making expertise and infrastructure, Virtu provides a robust product suite including offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology.  Virtu’s product offerings allow clients to trade on hundreds of venues across 50+ countries and in multiple asset classes, including global equities, ETFs, foreign exchange, futures, fixed income and myriad other commodities.  In addition, Virtu’s integrated, multi-asset analytics platform provides a range of pre and post-trade services, data products and compliance tools that clients rely upon to invest, trade and manage risk across global markets.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements regarding Virtu Financial, Inc.’s (“Virtu’s”, the “Company’s” or “our”) business that are not historical facts are forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. The Company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, and if the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect thereto or with respect to other forward-looking statements. Forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties, some or all of which are not predictable or within Virtu’s control, that could cause actual performance or results to differ materially from those expressed in the statements. Those risks and uncertainties include, without limitation: fluctuations in trading volume and volatilities in the markets in which we operate; the ability of our trading counterparties and various clearing houses to perform their obligations to us; the performance and reliability of our customized trading platform; the risk of material trading losses from our market making activities; swings in valuations in securities or other instruments in which we hold positions; increasing competition and consolidation in our industry; the effect of the acquisition of Investment Technology Group, Inc. (“ITG”) on existing business relationships, operating results, and ongoing business operations generally; the significant costs and significant indebtedness that we have incurred and expect to incur in connection with the acquisition of ITG; the risk that we may encounter significant difficulties or delays in integrating the two businesses and the anticipated benefits, cost savings and synergies or capital release may not be achieved; the assumption of potential liabilities relating to ITG's business; the risk that cash flow from our operations and other available sources of liquidity will not be sufficient to fund our various ongoing obligations, including operating expenses, capital expenditures, debt service and dividend payments; regulatory and legal uncertainties and potential changes associated with our industry, particularly in light of increased attention from media, regulators and lawmakers to market structure and related issues; potential adverse results from legal or regulatory proceedings; our ability to remain technologically competitive and to ensu re that the technology we utilize is not vulnerable to security risks, hacking and cyber-attacks; risks associated with third party software and technology infrastructure. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in forward-looking statements, see Virtu’s Securities and Exchange Commission filings, including but not limited to Virtu’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

CONTACT              

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

Media Relations
media@virtu.com

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Source: Virtu Financial, LLC