EX-99.1 2 tm1921827d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 

Virtu Announces Third Quarter 2019 Results

 

NEW YORK, NY, November 5, 2019  - 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 third quarter ended September 30, 2019.

 

Third Quarter 2019 Selected Highlights

 

•Net loss of $5.2 million, as a result of costs associated with the ITG acquisition and amortization of purchased intangibles; Normalized Adjusted Net Income1 of $39.6 million
•Basic and diluted loss per share of $0.04; Normalized Adjusted EPS1 of $0.21
•Total revenues of $385.4 million; Trading income, net of $220.1 million; Adjusted Net Trading Income1 of $249.8 million
•Adjusted EBITDA1 of $103.9 million; Adjusted EBITDA Margin1 of 41.6%
•Quarterly cash dividend of $0.24 per share payable on December 16, 2019

 

The Virtu Financial, Inc. Board of Directors declared a quarterly cash dividend of $0.24 per share. This dividend is payable on December 16, 2019 to shareholders of record as of December 2, 2019.

 

"While the environment in the 3rd quarter continued to be challenging, I am very pleased with our performance globally. Our market making segment saw pockets of elevated volatility in the quarter and we capitalized on these opportunities and otherwise performed in line with our expectations. On the execution services side, we continue to reap the benefits of the ITG acquisition as we integrate and improve the broad spectrum of ITG’s financial services products into our scaled multi asset class global architecture,” 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, have raised our overall synergy targets and have repaid $100.0 million of our long term debt since the closing on March 1st.”

 

Note 1: Non-GAAP financial measures. Please see "Non-GAAP Financial Measures and Other Items" for more information.

 

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Financial Results

 

Third Quarter 2019:

 

Total revenues increased 30.6% to $385.4 million for this quarter, compared to $295.1 million for the same period in 2018. Trading income, net, decreased 6.6% to $220.1 million for this quarter, compared to $235.7 million for the same period in 2018. Net income was a loss of $5.2 million for this quarter, compared to net income of $15.6 million for the same period in 2018.

 

Basic and diluted loss per share for this quarter were $0.04 and $0.04, respectively, compared to earnings per share of $0.08 and $0.08, respectively, for the same period in 2018.

 

Adjusted Net Trading Income increased 40.4% to $249.8 million for this quarter, compared to $177.9 million for the same period in 2018. Adjusted EBITDA increased 17.7% to $103.9 million for this quarter, compared to $88.3 million for the same period in 2018. Normalized Adjusted Net Income decreased 5.8% to $39.6 million for this quarter, compared to $42.0 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 $0.21 for this quarter, compared to $0.22 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.

 

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

 

Total revenues by segment

(in thousands, unaudited)

 

   Three Months Ended September 30, 2019 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $219,535   $613   $—   $220,148 
Commissions, net and technology services   7,252    132,375    —    139,627 
Interest and dividends income   22,617    735    —    23,352 
Other, net   1,393    646    198    2,237 
Total Revenues  $250,797   $134,369   $198   $385,364 

 

   Three Months Ended September 30, 2018 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $235,564   $135   $—   $235,699 
Commissions, net and technology services   6,587    33,665    —    40,252 
Interest and dividends income   21,320    110    21    21,451 
Other, net   899    296    (3,474)   (2,279)
Total Revenues  $264,370   $34,206   $(3,453)  $295,123 

  

   Nine Months Ended September 30, 2019 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $680,224   $3,387   $—   $683,611 
Commissions, net and technology services   17,213    342,681    —    359,894 
Interest and dividends income   64,404    12,241    —    76,645 
Other, net   3,181    1,602    1,879    6,662 
Total Revenues  $765,022   $359,911   $1,879   $1,126,812 

 

   Nine Months Ended September 30, 2018 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $899,902   $552   $—   $900,454 
Commissions, net and technology services   21,886    118,775    —    140,661 
Interest and dividends income   60,681    600    56    61,337 
Other, net   2,132    338,832    (5,113)   335,851 
Total Revenues  $984,601   $458,759   $(5,057)  $1,438,303 

  

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Reconciliation of trading income, net to Adjusted Net Trading Income by operating segment

(in thousands, unaudited)

 

   Three Months Ended September 30, 2019 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $219,535   $613   $—   $220,148 
Commissions, net and technology services   7,252    132,375    —    139,627 
Interest and dividends income   22,617    735    —    23,352 
Brokerage, exchange and clearance fees, net   (49,009)   (25,306)   —    (74,315)
Payments for order flow   (24,454)   (20)   —    (24,474)
Interest and dividends expense   (34,222)   (324)   —    (34,546)
Adjusted Net Trading Income  $141,719   $108,073   $—   $249,792 

 

   Three Months Ended September 30, 2018 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $235,564   $135   $—   $235,699 
Commissions, net and technology services   6,587    33,665    —    40,252 
Interest and dividends income   21,320    110    21    21,451 
Brokerage, exchange and clearance fees, net   (54,305)   (14,333)   —    (68,638)
Payments for order flow   (18,261)   (22)   —    (18,283)
Interest and dividends expense   (32,048)   (518)   —    (32,566)
Adjusted Net Trading Income  $158,857   $19,037   $21   $177,915 

 

   Nine Months Ended September 30, 2019 
   Market Making   Execution Services   Corporate   Total 
Trading income, net  $680,224   $3,387   $—   $683,611 
Commissions, net and technology services   17,213    342,681    —    359,894 
Interest and dividends income   64,404    12,241    —    76,645 
Brokerage, exchange and clearance fees, net   (132,049)   (82,170)   —    (214,219)
Payments for order flow   (71,611)   (60)   —    (71,671)
Interest and dividends expense   (104,877)   (11,862)   —    (116,739)
Adjusted Net Trading Income  $453,304   $264,217   $—   $717,521 

 

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   Nine Months Ended September 30, 2018 
   Market
Making		   Execution
Services		   Corporate   Total 
Trading income, net  $899,902   $552   $—   $900,454 
Commissions, net and technology services   21,886    118,775    —    140,661 
Interest and dividends income   60,681    600    56    61,337 
Brokerage, exchange and clearance fees, net   (183,171)   (46,608)   —    (229,779)
Payments for order flow   (50,284)   (97)   —    (50,381)
Interest and dividends expense   (100,002)   (1,197)   —    (101,199)
Adjusted Net Trading Income  $649,012   $72,025   $56   $721,093 

 

Reconciliation of trading income, net to Adjusted Net Trading Income by category – Market Making segment

(in thousands, unaudited)

  

   Three Months Ended September 30, 2019 
   Global
Equities		   Global FICC,
Options and Other		   Unallocated   Total Market
Making		 
Trading income, net  $166,031   $52,126   $1,378   $219,535 
Commissions, net and technology services   7,252    —    —    7,252 
Brokerage, exchange and clearance fees, net   (37,449)   (10,024)   (1,536)   (49,009)
Payments for order flow   (24,454)   —    —    (24,454)
Interest and dividends, net   (8,889)   (2,754)   38    (11,605)
Adjusted Net Trading Income  $102,491   $39,348   $(120)  $141,719 

 

 

   Three Months Ended September 30, 2018 
   Global
Equities		   Global FICC,
Options and
Other		   Unallocated   Total Market
Making		 
Trading income, net  $180,800   $58,134   $(3,370)  $235,564 
Commissions, net and technology services   6,469    118    —    6,587 
Brokerage, exchange and clearance fees, net   (39,143)   (14,905)   (257)   (54,305)
Payments for order flow   (18,261)   —    —    (18,261)
Interest and dividends, net   (7,830)   (2,517)   (381)   (10,728)
Adjusted Net Trading Income  $122,035   $40,830   $(4,008)  $158,857 

 

   Nine Months Ended September 30, 2019 
   Global
Equities		   Global FICC,
Options and Other		   Unallocated   Total Market
Making		 
Trading income, net  $537,708   $143,042   $(526)  $680,224 
Commissions, net and technology services   17,241    (28)   —    17,213 
Brokerage, exchange and clearance fees, net   (101,883)   (30,736)   570    (132,049)
Payments for order flow   (71,611)   —    —    (71,611)
Interest and dividends, net   (31,816)   (8,497)   (160)   (40,473)
Adjusted Net Trading Income  $349,639   $103,781   $(116)  $453,304 

 

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   Nine Months Ended September 30, 2018 
   Global Equities   Global FICC, Options and Other   Unallocated   Total Market Making 
Trading income, net  $704,086   $195,959   $(143)  $899,902 
Commissions, net and technology services   21,700    186    —    21,886 
Brokerage, exchange and clearance fees, net   (136,864)   (43,755)   (2,552)   (183,171)
Payments for order flow   (50,284)   —    —    (50,284)
Interest and dividends, net   (28,147)   (9,014)   (2,160)   (39,321)
Adjusted Net Trading Income  $510,491   $143,376   $(4,855)  $649,012 

 

The following tables show our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by category for the three and nine months ended September 30, 2019 and 2018:

 

(In thousands except percentages, unaudited)  

 

   Three Months Ended September 30,  

 

Nine Months Ended September 30,

 
Adjusted Net Trading Income by Category:  2019   2018   % Change   2019   2018   % Change 
Market Making:                              
Global Equities  $102,491   $122,035    (16.0)%  $349,639   $510,491    (31.5)%
Global FICC, Options and Other   39,348    40,830    (3.6)%   103,781    143,376    (27.6)%
Unallocated (1)   (120)   (4,008)   NM    (116)   (4,855)   NM 
Total Market Making  $141,719   $158,857    (10.8)%  $453,304   $649,012    (30.2)%
                               
Execution Services   108,073    19,037    467.7%   264,217    72,025    266.8%
                               
Corporate   —    21    NM    —    56    NM 
                               
Adjusted Net Trading Income  $249,792   $177,915    40.4%  $717,521   $721,093    (0.5)%

  

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Average Daily  Three Months Ended September 30,   Nine Months Ended September 30, 
Adjusted Net Trading Income by Category:  2019   2018   % Change   2019   2018   % Change 
Market Making:                              
Global Equities  $1,601   $1,937    (17.3)%  $1,850   $2,715    (31.9)%
Global FICC, Options and Other   615    648    (5.1)%   549    763    (28.0)%
Unallocated (1)   (2)   (64)   NM    (1)   (26)   NM 
Total Market Making  $2,214   $2,521    (12.2)%  $2,398   $3,452    (30.5)%
                               
Execution Services   1,689    303    457.3%   1,398    383    265.0%
                               
Corporate   —    —    NM    —    —    NM 
                               
Adjusted Net Trading Income  $3,903   $2,824    38.2%  $3,796   $3,835    (1.0)%

 

(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 September 30, 2019, Virtu had $394.8 million in cash, cash equivalents and restricted cash, and total long-term debt outstanding in an aggregate principal amount of $1,982.4 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 share repurchase program expired on September 30, 2019. At the time of expiration, the Company had approximately $34.1 million remaining capacity for future repurchases 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.

 

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•"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.

 

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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.

 

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Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
(in thousands, except share and per share data)  2019   2018   2019   2018 
Revenues:                    
Trading income, net  $220,148   $235,699   $683,611   $900,454 
Interest and dividends income   23,352    21,451    76,645    61,337 
Commissions, net and technology services   139,627    40,252    359,894    140,661 
Other, net   2,237    (2,279)   6,662    335,851 
Total revenues   385,364    295,123    1,126,812    1,438,303 
                     
Operating Expenses:                    
Brokerage, exchange and clearance fees, net   74,315    68,638    214,219    229,779 
Payments for order flow   24,474    18,283    71,671    50,381 
Communication and data processing   59,767    39,516    156,004    137,793 
Employee compensation and payroll taxes   90,595    44,827    282,135    150,723 
Interest and dividends expense   34,546    32,566    116,739    101,199 
Operations and administrative   28,357    17,254    85,232    53,671 
Depreciation and amortization   17,598    16,012    48,859    47,558 
Amortization of purchased intangibles and acquired capitalized software   18,908    6,367    50,436    20,042 
Termination of office leases   1,278    1,440    66,490    23,300 
Debt issue cost related to debt refinancing       3,347    7,894    11,727 
Transaction advisory fees and expenses   7,163    (261)   24,074    8,985 
Charges related to share based compensation at IPO       —    —    24 
Financing interest expense on long-term borrowings   34,191    17,709    91,669    55,536 
Total operating expenses   391,192    265,698    1,215,422    890,718 
                     
Income (loss) before income taxes and noncontrolling interest   (5,828)   29,425    (88,610)   547,585 
Provision for (benefit from) income taxes   (644)   13,815    (14,322)   75,330 
Net income (loss)  $(5,184)  $15,610   $(74,288)  $472,255 
                     
Noncontrolling interest   872    (6,998)   33,412    (263,682)
                     
Net income (loss) available for common stockholders  $(4,312)  $8,612   $(40,876)  $208,573 
                     
Earnings (loss) per share:                    
Basic  $(0.04)  $0.08   $(0.38)  $2.07 
Diluted  $(0.04)  $0.08   $(0.38)  $2.04 
                     
Weighted average common shares outstanding                    
Basic   117,548,769    106,692,034    112,602,934    99,038,084 
Diluted   117,548,769    107,128,206    112,602,934    100,468,860 
                     
Comprehensive income:                    
Net income (loss)  $(5,184)  $15,610   $(74,288)  $472,255 
Other comprehensive income (loss)                    
Foreign exchange translation adjustment, net of taxes   (7,197)   (666)   (10,057)   (3,713)
Comprehensive income (loss)  $(12,381)  $14,944   $(84,345)  $468,542 
Less: Comprehensive income (loss) attributable to noncontrolling interest   3,598    (6,708)   37,221    (262,239)
Comprehensive income (loss) available for common stockholders  $(8,783)  $8,236   $(47,124)  $206,303 

 

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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
September 30,		   Nine Months Ended
September 30,		 
(in thousands, except percentages)  2019   2018   2019   2018 
Reconciliation of Trading income, net to Adjusted Net Trading Income                    
Trading income, net  $220,148   $235,699   $683,611   $900,454 
Commissions, net and technology services   139,627    40,252    359,894    140,661 
Interest and dividends income   23,352    21,451    76,645    61,337 
Brokerage, exchange and clearance fees, net   (74,315)   (68,638)   (214,219)   (229,779)
Payments for order flow   (24,474)   (18,283)   (71,671)   (50,381)
Interest and dividends expense   (34,546)   (32,566)   (116,739)   (101,199)
Adjusted Net Trading Income  $249,792   $177,915   $717,521   $721,093 
                     
Reconciliation of Net Income to EBITDA and Adjusted EBITDA                    
Net income (loss)   (5,184)   15,610    (74,288)   472,255 
Financing interest expense on long-term borrowings   34,191    17,709    91,669    55,536 
Debt issue cost related to debt refinancing   —    3,347    7,894    11,727 
Depreciation and amortization   17,598    16,012    48,859    47,558 
Amortization of purchased intangibles and acquired capitalized software   18,908    6,367    50,436    20,042 
Provision for income taxes   (644)   13,815    (14,322)   75,330 
EBITDA  $64,869   $72,860   $110,248   $682,448 
                     
Severance   13,403    1,291    74,627    7,625 
Reserve for legal matter   —    1,620    —    2,020 
Transaction advisory fees and expenses   7,163    (261)   24,074    8,985 
Termination of office leases   1,278    1,440    66,490    23,300 
Connectivity early termination   —    —    —    7,062 
Gain on sale of business   —    2,339    —    (335,210)
Other, net   787    (60)   2,278    (641)
Write-down of assets   —    542    —    3,239 
Share based compensation   16,374    7,091    39,564    20,213 
Charges related to share based compensation at IPO, Amended and Restated 2015 Management Incentive Plan   —    1,425    —    4,356 
Charges related to share based compensation awards at IPO   —    —    —    24 
Adjusted EBITDA  $103,874   $88,287   $317,281   $423,421 
                     
Selected Operating Margins                    
Net Income Margin (1)   (2.1)%   8.8%   (10.4)%   65.5%
EBITDA Margin (2)   26.0%   41.0%   15.4%   94.6%
Adjusted EBITDA Margin (3)   41.6%   49.6%   44.2%   58.7%

 

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.  

 

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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
September 30,		   Nine Months Ended
September 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)  $(5,184)  $15,610   $(74,288)  $472,255 
Provision (benefit) for (from) income taxes   (644)   13,815    (14,322)   75,330 
Income (loss) before income taxes and noncontrolling interest  $(5,828)  $29,425   $(88,610)  $547,585 
Amortization of purchased intangibles and acquired capitalized software   18,908    6,367    50,436    20,042 
Debt issue cost related to debt refinancing   —    3,347    7,894    11,727 
Severance   13,403    1,291    74,627    7,625 
Reserve for legal matter   —    1,620    —    2,020 
Transaction advisory fees and expenses   7,163    (261)   24,074    8,985 
Termination of office leases   1,278    1,440    66,490    23,300 
Connectivity early termination   —    —    —    7,062 
Write-down of assets   —    542    —    3,239 
Gain on sale of business   —    2,339    —    (335,210)
Other, net   787    (60)   2,278    (641)
Share based compensation   16,374    7,091    39,564    20,213 
Charges related to share based compensation at IPO, Amended and Restated 2015 Management Incentive Plan   —    1,425    —    4,356 
Charges related to share based compensation awards at IPO   —    —    —    24 
Normalized Adjusted Net Income before income taxes  $52,085   $54,566   $176,753   $320,327 
Normalized provision for income taxes (1)   12,500    12,550    42,421    73,675 
Normalized Adjusted Net Income  $39,585   $42,016   $134,332   $246,652 
                     
Weighted Average Adjusted shares outstanding (2)   192,618,019    191,989,323    192,959,477    190,886,342 
                     
Normalized Adjusted EPS  $0.21   $0.22   $0.70   $1.29 

 

(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.

 

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Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

   September 30,   December 31, 
(in thousands, except share data)  2019   2018 
Assets          
Cash and cash equivalents  $372,710   $729,547 
Cash and securities segregated under regulations and other   22,109    6,500 
Securities borrowed   1,578,941    1,399,684 
Securities purchased under agreements to resell   18,805    15,475 
Receivables from broker-dealers and clearing organizations   1,563,731    1,101,449 
Receivables from customers   267,108    — 
Trading assets, at fair value   2,674,836    2,639,921 
Property, equipment and capitalized software, net   117,236    113,322 
Operating lease right-of-use assets   305,116    — 
Goodwill   1,195,477    836,583 
Intangibles (net of accumulated amortization)   513,153    83,989 
Deferred taxes   247,612    200,359 
Other assets   309,911    254,149 
Total assets   9,186,745    7,380,978 
           
Liabilities and equity          
Liabilities          
Short-term borrowings, net   94,888    15,128 
Securities loaned   1,093,321    1,130,039 
Securities sold under agreements to repurchase   281,783    281,861 
Payables to broker-dealers and clearing organizations   1,024,549    567,441 
Payables to customers   118,259    — 
Trading liabilities, at fair value   2,248,932    2,475,395 
Tax receivable agreement obligations   256,700    214,403 
Accounts payable and accrued expenses and other liabilities   395,987    294,975 
Deferred tax liabilities   65,861    — 
Operating lease liabilities   375,390    — 
Long-term borrowings, net   1,934,358    907,037 
Total liabilities   7,890,028    5,886,279 
           
Total equity   1,296,717    1,494,699 
           
Total liabilities and equity  $9,186,745   $7,380,978 

 

   As of September 30, 2019 
   Interests   % 
Ownership of Virtu Financial LLC Interests:          
Virtu Financial, Inc. - Class A Common Stock and Restricted Stock Units   119,760,556    62.1%
Non-controlling Interests (Virtu Financial LLC)   72,996,265    37.9%
Total Virtu Financial LLC Interests   192,756,821    100.0%

 

Page 13

 

 

 

 

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.

 

Page 14

 

 

 

 

CONTACT

 

Investor Relations

Andrew Smith

Virtu Financial, Inc.

(212) 418-0195

investor_relations@virtu.com

 

Media Relations

media@virtu.com

 

Page 15