Virtu Financial
Virtu Financial, Inc. (Form: 8-K, Received: 02/02/2017 07:43:33)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported): February 2, 2017

VIRTU FINANCIAL, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation)
  001-37352
(Commission File No.)
  32-0420206
(IRS Employer
Identification No.)

900 Third Avenue
New York, NY 10022-1010

(Address of principal executive offices)

(212) 418-0100
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

   


ITEM 2.02    RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        On February 2, 2017, Virtu Financial, Inc. (the "Company") issued a press release setting forth its financial results for its fourth quarter and fiscal year ended December 31, 2016. A copy of the Company's press release is attached as Exhibit 99.1 to this report. The Company does not intend for this Item 2.02 or Exhibit 99.1 to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or to be incorporated by reference into filings under the Securities Act of 1933, as amended.

ITEM 9.01    FINANCIAL STATEMENTS AND EXHIBITS

    (d)
    Exhibits
Exhibit No.
  Description
99.1   Press release of Virtu Financial, Inc., dated February 2, 2017 and furnished pursuant to Item 2.02, "Results of Operations and Financial Condition."

2



SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

    VIRTU FINANCIAL, INC.

 

 

By:

 

/s/ JUSTIN WALDIE

        Name:   Justin Waldie
        Title:   Senior Vice President, Secretary and General Counsel

Dated: February 2, 2017

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EXHIBIT INDEX

Exhibit No.
  Description
99.1   Press release of Virtu Financial, Inc., dated February 2, 2017 and furnished pursuant to Item 2.02, "Results of Operations and Financial Condition."

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SIGNATURES
EXHIBIT INDEX

Exhibit 99.1

 

 

Virtu Announces Fourth Quarter and Full Year 2016 Results

 

NEW YORK, NY, February 2, 2017 — Virtu Financial, Inc. (NASDAQ: VIRT) a leading technology-enabled market maker and liquidity provider to the global financial markets, today reported results for the fourth quarter and the full year ended December 31, 2016.

 

Fourth Quarter and Full Year Selected Results

 

Fourth Quarter 2016:

 

·                   Net income of $34.9 million; Normalized Adjusted Net Income* of $32.9 million

·                   Basic and Diluted EPS of $0.22; Normalized Adjusted EPS* of $0.24

·                   Total revenues of $170.6 million; Adjusted Net Trading Income* of $100.3 million

·                   Adjusted EBITDA* of $64.8 million; Adjusted EBITDA Margin* of 62.6%

·                   Quarterly cash dividend of $0.24 per share payable on March 15, 2017

 

Full Year 2016:

 

·                   Net Income of $158.5 million; Normalized Adjusted Net Income* of $135.8 million

·                   Basic and Diluted EPS of $0.88; Normalized Adjusted EPS* of $0.97

·                   Total revenues of $702.3 million; Adjusted Net Trading Income* of $414.1 million

·                   Adjusted EBITDA* of $268.6 million; Adjusted EBITDA Margin* of 63.3%

 


* 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 March 15, 2017 to shareholders of record as of March 1, 2017.

 

“The 4th quarter was really the tale of two very different quarters.  The quarter began similar to the third quarter with muted volumes and volatility and that was upended with the US Presidential election with much more favorable market conditions that were sustained throughout November and early December.  We view Virtu’s solid performance and profitability in this quarter and the full year 2016 to be a testament to the resiliency and sustainability of our business model and the product of our singular focus on broad diversification and scale.  We believe with the new pro-growth and pro-business environment in Washington that the stage is set for return to a more normalized volume and volatility environment globally and we look forward to creating more value for our shareholders,” said Douglas Cifu, Chief Executive Officer of Virtu Financial.

 

Financial Results

 

Fourth Quarter 2016:

 

Total revenues decreased 3.5% to $170.6 million for this quarter, compared to $176.9 million for the same period in 2015. Trading income, net, decreased 6.6% to $155.9 million for this quarter, compared to $166.9 million for the same period in 2015. Net income decreased 18.8% to $34.9 million for this quarter, compared to $42.9 million for the same period in 2015.

 

Basic and Diluted EPS for this quarter were $0.22 and $0.22, compared to $0.22 and $0.22 for the same period in 2015, respectively.

 

Adjusted Net Trading Income decreased 7.0% to $100.3 million for this quarter, compared to $107.8 million for the same period in 2015. Adjusted EBITDA decreased 9.9% to $64.8 million for this quarter, compared to $71.9 million for the same period in 2015. Normalized Adjusted Net Income decreased 10.6% to $32.9 million for this quarter, compared to $36.8 million for the same period in 2015. Assuming all non-controlling interests had been exchanged

 

1



 

for common stock, and the Company’s Normalized Adjusted Net Income before income taxes was subject to corporation taxation, Normalized Adjusted EPS was $0.24 for this quarter and $0.27 for the same period in 2015.

 

Full Year 2016:

 

Total revenues decreased 11.8% to $702.3 million, compared to $796.2 million in 2015. Trading income, net, decreased 12.1% to $665.5 million, compared to $757.5 million in 2015. Net income decreased 19.7% to $158.5 million, compared to $197.5 million in 2015.

 

Basic and Diluted EPS for this year were $0.88 and $0.88, compared to $0.60 and $0.59 in 2015, respectively.

 

Adjusted Net Trading Income decreased 17.3% to $414.1 million, compared to $500.7 million in 2015. Normalized Adjusted Net Income decreased 27.3% to $135.8 million, compared to $186.7 million in 2015. Adjusted EBITDA decreased 23.8% to $268.6 million, compared to $352.4 million in 2015. 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 $0.97 for this year and $1.35 in 2015.

 

Historical quarterly results from first quarter 2014 to date are available at http://ir.virtu.com.

 

Business Performance

 

Since our inception, we have sought to broadly diversify our market making across securities, asset classes and geographies, and as a result, for the quarter ended December 31, 2016, we achieved a diverse mix of Adjusted Net Trading Income results, with no one category constituting more than 31.3% of our total Adjusted Net Trading Income. Average daily Adjusted Net Trading Income was approximately $1.592 million for this quarter compared to $1.684 million for the same period in the previous year. For the full year 2016, no single category constituted more than 30.0% of our total Adjusted Net Trading Income and our average daily Adjusted Net Trading Income was approximately $1.645 million compared to $1.987 million for the previous year.

 

As of December 31, 2016, Virtu was connected to more than 235 unique market venues in 36 countries and made markets in over 12,000 financial instruments.

 

The following tables show our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by category for the three months ended December 31, 2016 and 2015, and years ended December 31, 2016 and 2015, respectively.

 

2


 

 

 

Three Months Ended December 31,

 

 

 

2016

 

% of
Total

 

2015

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Adjusted Net Trading Income:

 

 

 

 

 

 

 

 

 

 

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

31,409

 

31.3

%

$

33,384

 

31.0

%

-5.9

%

EMEA Equities

 

9,702

 

9.7

%

12,555

 

11.6

%

-22.7

%

APAC Equities

 

11,198

 

11.2

%

11,035

 

10.2

%

1.5

%

Global Commodities

 

23,011

 

22.9

%

22,102

 

20.5

%

4.1

%

Global Currencies

 

15,385

 

15.3

%

20,346

 

18.9

%

-24.4

%

Options, Fixed Income and Other

 

5,321

 

5.3

%

7,109

 

6.6

%

-25.2

%

Unallocated(1)

 

4,262

 

4.3

%

1,279

 

1.2

%

NM

 

Total Adjusted Net Trading Income

 

$

100,288

 

100.0

%

$

107,810

 

100.0

%

-7.0

%

 

 

 

Three Months Ended December 31,

 

 

 

2016

 

% of
Total

 

2015

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Average Daily Adjusted Net Trading Income:

 

 

 

 

 

 

 

 

 

 

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

499

 

31.3

%

$

522

 

31.0

%

-4.4

%

EMEA Equities

 

154

 

9.7

%

196

 

11.6

%

-21.4

%

APAC Equities

 

178

 

11.2

%

172

 

10.2

%

3.5

%

Global Commodities

 

365

 

22.9

%

345

 

20.5

%

5.8

%

Global Currencies

 

244

 

15.3

%

318

 

18.9

%

-23.3

%

Options, Fixed Income and Other

 

84

 

5.3

%

111

 

6.6

%

-24.3

%

Unallocated(1)

 

68

 

4.3

%

20

 

1.2

%

NM

 

Total Adjusted Net Trading Income

 

$

1,592

 

100.0

%

$

1,684

 

100.0

%

-5.5

%

 

3



 

 

 

Year Ended December 31,

 

 

 

2016

 

% of
Total

 

2015

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Adjusted Net Trading Income:

 

 

 

 

 

 

 

 

 

 

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

124,246

 

30.0

%

$

135,662

 

27.1

%

-8.4

%

EMEA Equities

 

44,505

 

10.7

%

58,568

 

11.7

%

-24.0

%

APAC Equities

 

49,931

 

12.1

%

44,910

 

9.0

%

11.2

%

Global Commodities

 

101,234

 

24.4

%

112,616

 

22.5

%

-10.1

%

Global Currencies

 

65,667

 

15.9

%

110,493

 

22.1

%

-40.6

%

Options, Fixed Income and Other

 

28,135

 

6.8

%

32,020

 

6.4

%

-12.1

%

Unallocated(1)

 

411

 

0.1

%

6,430

 

1.2

%

NM

 

Total Adjusted Net Trading Income

 

$

414,129

 

100.0

%

$

500,699

 

100.0

%

-17.3

%

 

 

 

Year Ended December 31,

 

 

 

2016

 

% of
Total

 

2015

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Average Daily Adjusted Net Trading Income:

 

 

 

 

 

 

 

 

 

 

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

493

 

30.0

%

$

538

 

27.1

%

-8.4

%

EMEA Equities

 

177

 

10.7

%

232

 

11.7

%

-23.7

%

APAC Equities

 

198

 

12.1

%

178

 

9.0

%

11.2

%

Global Commodities

 

402

 

24.4

%

447

 

22.5

%

-10.1

%

Global Currencies

 

261

 

15.9

%

439

 

22.1

%

-40.5

%

Options, Fixed Income and Other

 

112

 

6.8

%

127

 

6.4

%

-11.8

%

Unallocated(1)

 

2

 

0.1

%

26

 

1.2

%

NM

 

Total Adjusted Net Trading Income

 

$

1,645

 

100.0

%

$

1,987

 

100.0

%

-17.2

%

 


(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 daily Adjusted Net Trading Income calculation can effectively defer or accelerate revenue from one day to another or one reporting period to another, as the case may be. We do not allocate any resulting differences based on the timing of revenue recognition.

 

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Financial Condition

 

As of December 31, 2016, Virtu had $181.4 million in cash and cash equivalents, and total long-term debt outstanding in an aggregate principal amount of $ 569.9 million.

 

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 interest and dividends income and expense, net, less direct costs associated with those revenues, including brokerage, exchange and clearance fees, net. 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 senior secured credit facility, 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, trading related settlement income, other losses (revenues), equipment write-off, share based compensation, charges related to share based compensation at IPO, 2015 Management Incentive Plan, and charges related to share based compensation at IPO.

 

·                   “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 including IPO-related adjustments 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 of 35.5%.

 

Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS are non-GAAP financial measures used by management 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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS 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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS 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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS differently, and as a result our measures of Adjusted Net Trading Income, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS may not be directly comparable to those of other companies. Although we use these non-GAAP financial measures as financial measures to assess

 

5



 

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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS 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 (loss), cash flows from operations and cash flow data. See below a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure.

 

6


 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(in thousands, except share and per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

155,937

 

$

166,901

 

$

665,480

 

$

757,455

 

Interest and dividends income

 

11,457

 

7,114

 

26,419

 

28,136

 

Technology services

 

3,114

 

2,889

 

10,338

 

10,622

 

Other revenues (losses)

 

138

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

170,646

 

176,904

 

702,273

 

796,213

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Brokerage, exchange and clearance fees, net

 

53,798

 

53,016

 

221,214

 

232,469

 

Communication and data processing

 

17,423

 

17,046

 

71,001

 

68,647

 

Employee compensation and payroll taxes

 

21,113

 

21,219

 

85,295

 

88,026

 

Interest and dividends expense

 

13,308

 

13,189

 

56,557

 

52,423

 

Operations and administrative

 

6,420

 

5,974

 

22,773

 

25,991

 

Depreciation and amortization

 

7,018

 

7,600

 

29,703

 

33,629

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

212

 

211

 

Debt issue cost related to debt refinancing

 

5,579

 

 

5,579

 

 

Reserve for legal matter

 

 

5,440

 

 

5,440

 

Charges related to share based compensation at IPO

 

312

 

(1,098

)

1,755

 

44,194

 

Financing interest expense on senior secured credit facility

 

6,758

 

7,188

 

28,327

 

29,254

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

131,782

 

129,627

 

522,416

 

580,284

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and noncontrolling interest

 

38,864

 

47,277

 

179,857

 

215,929

 

Provision for income taxes

 

4,000

 

4,337

 

21,326

 

18,439

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

34,864

 

$

42,940

 

$

158,531

 

$

197,490

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

(25,898

)

(34,834

)

(123,811

)

(176,603

)

 

 

 

 

 

 

 

 

 

 

Net income available for common stockholders

 

$

8,966

 

$

8,106

 

$

34,720

 

$

20,887

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

$

0.22

 

$

0.88

 

$

0.60

 

Diluted

 

$

0.22

 

$

0.22

 

$

0.88

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

39,354,983

 

36,168,177

 

38,539,091

 

34,964,312

 

Diluted

 

39,354,983

 

36,689,572

 

38,539,091

 

35,339,585

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

Net income

 

$

34,864

 

$

42,940

 

$

158,531

 

$

197,490

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment, net of taxes

 

(2,930

)

(1,304

)

(1,174

)

(4,255

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

31,934

 

$

41,636

 

$

157,357

 

$

193,235

 

Less: Comprehensive income attributable to noncontrolling interest

 

(23,815

)

(33,873

)

(122,969

)

(172,249

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income available for common stockholders

 

$

8,119

 

$

7,763

 

$

34,388

 

$

20,986

 

 

7


 

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 December 31,

 

Year Ended December 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(in thousands, except percentages)

 

Reconciliation of Trading income, net to Adjusted Net Trading Income

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

155,937

 

$

166,901

 

$

665,480

 

$

757,455

 

Interest and dividends income

 

11,457

 

7,114

 

26,419

 

28,136

 

Brokerage, exchange and clearance fees, net

 

(53,798

)

(53,016

)

(221,214

)

(232,469

)

Interest and dividends expense

 

(13,308

)

(13,189

)

(56,557

)

(52,423

)

Adjusted Net Trading Income

 

$

100,288

 

$

107,810

 

$

414,128

 

$

500,699

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Net income

 

$

34,864

 

$

42,940

 

$

158,531

 

$

197,490

 

Financing interest expense on senior secured credit facility

 

6,758

 

7,188

 

28,327

 

29,254

 

Debt issue cost related to debt refinancing

 

5,579

 

 

5,579

 

 

Depreciation and amortization

 

7,018

 

7,600

 

29,703

 

33,629

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

212

 

211

 

Provision for income taxes

 

4,000

 

4,337

 

21,326

 

18,439

 

EBITDA

 

$

58,272

 

$

62,118

 

$

243,678

 

$

279,023

 

 

 

 

 

 

 

 

 

 

 

Severance

 

982

 

420

 

1,252

 

1,064

 

Reserve for legal matter

 

 

5,440

 

 

5,440

 

Transaction advisory fees and expenses

 

318

 

 

994

 

 

Termination of office leases

 

 

 

(319

)

2,729

 

Trading related settlement income

 

 

 

(2,975

)

 

Other losses (revenues)

 

(138

)

 

(36

)

 

Equipment write-off

 

 

 

428

 

 

Share based compensation

 

3,635

 

3,295

 

18,222

 

15,202

 

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

 

1,393

 

1,693

 

5,606

 

4,710

 

Charges related to share based compensation awards at IPO

 

312

 

(1,098

)

1,755

 

44,194

 

Adjusted EBITDA

 

$

64,774

 

$

71,868

 

$

268,605

 

$

352,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Operating Margins

 

 

 

 

 

 

 

 

 

Net Income Margin(1)

 

33.7

%

38.8

%

37.3

%

38.6

%

EBITDA Margin(2)

 

56.4

%

56.1

%

57.4

%

54.6

%

Adjusted EBITDA Margin(3)

 

62.6

%

64.9

%

63.3

%

68.9

%

 


(1) Calculated by dividing net income by the sum of Adjusted Net Trading Income and technology services revenue.

(2) Calculated by dividing EBITDA by the sum of Adjusted Net Trading Income and technology services revenue.

(3) Calculated by dividing Adjusted EBITDA by the sum of Adjusted Net Trading Income and technology services revenue.

 

8


 

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 December 31,

 

Year Ended December 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(in thousands, except share and per share data)

 

Reconciliation of Net Income to Normalized Adjusted Net Income

 

 

 

 

 

 

 

 

 

Net income

 

$

34,864

 

$

42,940

 

$

158,531

 

$

197,490

 

Provision for income taxes

 

4,000

 

4,337

 

21,326

 

18,439

 

Income before income taxes

 

$

38,864

 

$

47,277

 

$

179,857

 

$

215,929

 

 

 

 

 

 

 

 

 

 

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

212

 

211

 

Debt issue cost related to debt refinancing

 

5,579

 

 

5,579

 

 

Severance

 

982

 

420

 

1,252

 

1,064

 

Reserve for legal matter

 

 

5,440

 

 

5,440

 

Transaction advisory fees and expenses

 

318

 

 

994

 

 

Termination of office leases

 

 

 

(319

)

2,729

 

Equipment write-off

 

 

 

428

 

1,719

 

Trading related settlement income

 

 

 

(2,975

)

 

Other losses (revenues)

 

(138

)

 

(36

)

 

Share based compensation

 

3,635

 

3,295

 

18,222

 

15,202

 

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

 

1,393

 

1,693

 

5,606

 

4,710

 

Charges related to share based compensation awards at IPO

 

312

 

(1,098

)

1,755

 

44,194

 

Normalized Adjusted Net Income before income taxes

 

$

50,998

 

$

57,080

 

$

210,575

 

$

291,198

 

 

 

 

 

 

 

 

 

 

 

Normalized provision for income taxes(1)

 

18,104

 

20,263

 

74,754

 

103,375

 

Normalized Adjusted Net Income

 

$

32,894

 

$

36,817

 

$

135,821

 

$

187,823

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Adjusted shares outstanding(2)

 

139,681,670

 

138,918,476

 

139,685,124

 

138,772,354

 

 

 

 

 

 

 

 

 

 

 

Normalized Adjusted EPS

 

$

0.24

 

$

0.27

 

$

0.97

 

$

1.35

 

 


(1)                                 Reflects U.S. federal, state, and local income tax rate applicable to corporations of approximately 35.5%.

(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. Includes additional shares from dilutive impact of options and restricted stock units outstanding under the 2015 Management Incentive Plan during the three months and the year ended December 31, 2016 and 2015.

 

9


 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

 

 

December 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

181,415

 

$

163,235

 

Securities borrowed

 

220,005

 

453,296

 

Securities purchased under agreements to resell

 

 

14,981

 

Receivables from broker-dealers and clearing organizations

 

449,771

 

476,536

 

Trading assets, at fair value

 

1,960,126

 

1,297,214

 

Property, equipment and capitalized software, net

 

29,660

 

37,501

 

Goodwill

 

715,379

 

715,379

 

Intangibles (net of accumulated amortization)

 

992

 

1,203

 

Deferred taxes

 

185,354

 

193,740

 

Other assets

 

77,669

 

38,845

 

Total assets

 

$

3,820,371

 

$

3,391,930

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Short-term borrowings

 

$

25,000

 

$

45,000

 

Securities loaned

 

222,203

 

524,603

 

Payables to broker-dealers and clearing organizations

 

828,223

 

486,604

 

Trading liabilities, at fair value

 

1,350,198

 

979,090

 

Tax receivable agreement obligations

 

226,048

 

218,399

 

Accounts payable and accrued expenses and other liabilities

 

67,976

 

86,775

 

Long-term borrowings, net

 

564,957

 

493,589

 

Total liabilities

 

$

3,284,605

 

$

2,834,060

 

 

 

 

 

 

 

Total equity

 

535,766

 

557,870

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,820,371

 

$

3,391,930

 

 

 

 

 

As of December 31, 2016

 

 

 

Interests

 

%

 

Ownership of Virtu Financial LLC Interests:

 

 

 

 

 

Virtu Financial, Inc. - Class A Common Stock

 

41,562,952

 

29.5

%

Non-controlling Interests (Virtu Financial LLC)

 

99,421,197

 

70.5

%

Total Virtu Financial LLC Interests

 

140,984,149

 

100.0

%

 

10



 

Conference Call Information

 

Douglas Cifu, Chief Executive Officer, and Joseph Molluso, Chief Financial Officer, will host a conference call to discuss the Company’s financial results and outlook on Thursday, February 2, 2017, at 8:00 a.m. Eastern Time. To access the conference call, please dial (855) 645-0552 (U.S.) or (720) 634-9067 (international). The Company will also host a live audio Webcast of the conference call on the Investor Relations section of the Company’s website at http://ir.virtu.com/events.cfm . The Webcast will also be archived on http://ir.virtu.com/events.cfm for 90 days following the announcement.

 

About Virtu Financial, Inc.

 

Virtu is a leading technology-enabled market maker and liquidity provider to the global financial markets. We stand ready, at any time, to buy or sell a broad range of securities and other financial instruments, and we generate revenue by buying and selling securities and other financial instruments and earning small amounts of money on individual transactions based on the difference between what buyers are willing to pay and what sellers are willing to accept, which we refer to as “bid/ask spreads,” across a large volume of transactions. We make markets by providing quotations to buyers and sellers in more than 12,000 securities and other financial instruments on more than 235 unique exchanges, markets and liquidity pools in 36 countries around the world. We believe that our broad diversification, in combination with our proprietary technology platform and low-cost structure, enables us to facilitate risk transfer between global capital markets participants by supplying liquidity and competitive pricing while at the same time earning attractive margins and returns.

 

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. 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

 

11