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8-K - 8-K - Virtu Financial, Inc.a18-17750_18k.htm

Exhibit 99.1

 

 

Virtu Announces Second Quarter 2018 Results

 

NEW YORK, NY,  July 27, 2018  — 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.

 

1



 

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.

 

2



 

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)

 

 

 

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

 

 

3



 

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

 

 

4



 

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

 

 

5



 

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)

 

 

 

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

%

Unallocated(1)

 

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

%

Unallocated(1)

 

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.

 

6



 

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

 

7



 

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.

 

8



 

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

 

 

9



 

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 Margin(1)

 

23.0

%

5.7

%

84.1

%

16.0

%

EBITDA Margin(2)

 

46.2

%

32.8

%

112.2

%

39.4

%

Adjusted EBITDA Margin(3)

 

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.

 

10



 

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 taxes(1)

 

17,796

 

9,797

 

61,125

 

21,893

 

Normalized Adjusted Net Income

 

$

59,580

 

$

17,799

 

$

204,636

 

$

39,777

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Adjusted shares outstanding(2)

 

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.

 

11



 

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

 

 

 

Interests

 

%

 

Ownership of Virtu Financial LLC 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

%

 

12



 

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

 

13