UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     to     

Commission file number:  001-37352

Virtu Financial, Inc.

(Exact name of registrant as specified in its charter)

Delaware	32-0420206
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Liberty Plaza		10006
165 Broadway
New York,	New York
(Address of principal executive offices)		(Zip Code)

(212) 418-0100

(Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.00001 per share	VIRT	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Class of Stock	Shares outstanding as of August 7, 2020
Class A common stock, par value $0.00001 per share	122,561,543
Class C common stock, par value $0.00001 per share	10,526,939
Class D common stock, par value $0.00001 per share	60,091,740

1

VIRTU FINANCIAL, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

		PAGE NUMBER
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
	Condensed Consolidated Statements of Changes in Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	89
Item 4.	Controls and Procedures	91
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 3.	Defaults Upon Senior Securities	94
Item 4.	Mine Safety Disclosures	94
Item 5.	Other Information	94
Item 6.	Exhibits	94
	SIGNATURES	95

        Unless the context otherwise requires, the terms “we,” “us,” “our,” “Virtu” and the “Company” refer to Virtu Financial, Inc., a Delaware corporation, and its consolidated subsidiaries and the term “Virtu Financial” refers to Virtu Financial LLC, a Delaware limited liability company and a consolidated subsidiary of ours.

1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Index to Condensed Consolidated Financial Statements

	PAGE NUMBER
Condensed Consolidated Statements of Financial Condition (Unaudited)	3
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
Condensed Consolidated Statements of Changes in Equity (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	8
Notes to Condensed Consolidated Financial Statements (Unaudited)	10

2

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands, except share data)	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	670,770	$	732,164
Cash restricted or segregated under regulations and other	77,245		41,116
Securities borrowed	1,435,777		1,928,763
Securities purchased under agreements to resell	244,242		143,032
Receivables from broker-dealers and clearing organizations	2,441,283		1,318,584
Trading assets, at fair value:
Financial instruments owned	2,038,622		2,068,734
Financial instruments owned and pledged	602,971		696,956
Receivables from customers	275,506		103,531
Property, equipment and capitalized software (net of accumulated depreciation of $433,060 and $457,229 as of June 30, 2020 and December 31, 2019, respectively)	114,080		116,089
Operating lease right-of-use assets	294,531		314,526
Goodwill	1,148,926		1,148,926
Intangibles (net of accumulated amortization of $257,151 and $219,239 as of June 30, 2020 and December 31, 2019, respectively)	491,726		529,638
Deferred tax assets	195,844		214,671
Other assets ($53,642 and $48,966, at fair value, as of June 30, 2020 and December 31, 2019, respectively)	257,352		252,640
Total assets	$	10,288,875	$	9,609,370
Liabilities and equity
Liabilities
Short-term borrowings	$	26,274	$	73,486
Securities loaned	1,204,114		1,600,099
Securities sold under agreements to repurchase	312,568		340,742
Payables to broker-dealers and clearing organizations	1,200,212		826,750
Payables to customers	148,519		89,719
Trading liabilities, at fair value:
Financial instruments sold, not yet purchased	2,753,847		2,497,958
Tax receivable agreement obligations	255,996		269,282
Accounts payable, accrued expenses and other liabilities	614,220		399,168
Operating lease liabilities	339,602		365,364
Long-term borrowings	1,732,516		1,917,866
Total liabilities	8,587,868		8,380,434
Commitments and Contingencies (Note 14)
Virtu Financial Inc. Stockholders' equity
Class A common stock (par value $0.00001), Authorized — 1,000,000,000 and 1,000,000,000 shares, Issued — 124,654,210 and 120,435,912 shares, Outstanding — 122,475,439 and 118,257,141 shares at June 30, 2020 and December 31, 2019, respectively	1		1
Class B common stock (par value $0.00001), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 0 and 0 shares at June 30, 2020 and December 31, 2019, respectively	—		—
Class C common stock (par value $0.00001), Authorized — 90,000,000 and 90,000,000 shares, Issued and Outstanding — 10,526,939 and 12,887,178 shares at June 30, 2020 and December 31, 2019, respectively	—		—
Class D common stock (par value $0.00001), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 60,091,740 and 60,091,740 shares at June 30, 2020 and December 31, 2019, respectively	1		1
Treasury stock, at cost, 2,178,771 and 2,178,771 shares at June 30, 2020 and December 31, 2019, respectively	(55,005)		(55,005)
Additional paid-in capital	1,128,977		1,077,398
Retained earnings (accumulated deficit)	259,873		(90,374)
Accumulated other comprehensive income (loss)	(39,567)		(647)
Total Virtu Financial Inc. stockholders' equity	1,294,280		931,374
Noncontrolling interest	406,727		297,562

3

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands, except share data)	June 30, 2020		December 31, 2019
Total equity	1,701,007		1,228,936
Total liabilities and equity	$	10,288,875	$	9,609,370

See accompanying notes to the Condensed Consolidated Financial Statements (Unaudited).

4

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share and per share data)	2020		2019		2020		2019
Revenues:
Trading income, net	$	743,996	$	205,923	$	1,546,461	$	463,463
Interest and dividends income	9,340		24,162		35,856		53,293
Commissions, net and technology services	147,736		145,120		318,481		220,267
Other, net	4,831		(104)		5,726		(1,490)
Total revenue	905,903		375,101		1,906,524		735,533
Operating Expenses:
Brokerage, exchange, clearance fees and payments for order flow, net	203,503		99,487		377,321		187,101
Communication and data processing	55,662		54,423		110,689		96,237
Employee compensation and payroll taxes	120,934		83,702		291,292		191,540
Interest and dividends expense	28,841		36,824		70,281		82,193
Operations and administrative	21,737		31,453		48,867		50,970
Depreciation and amortization	16,713		14,810		34,073		31,260
Amortization of purchased intangibles and acquired capitalized software	18,954		20,606		37,912		31,528
Termination of office leases	7		65,207		283		65,208
Debt issue cost related to debt refinancing, prepayment and commitment fees	13,195		(1,319)		17,366		7,894
Transaction advisory fees and expenses	86		1,798		274		16,907
Financing interest expense on long-term borrowings	21,736		34,689		47,406		57,478
Total operating expenses	501,368		441,680		1,035,764		818,316
Income (loss) before income taxes and noncontrolling interest	404,535		(66,579)		870,760		(82,783)
Provision for (benefit from) income taxes	69,250		(11,094)		147,237		(13,679)
Net income (loss)	335,285		(55,485)		723,523		(69,104)
Noncontrolling interest	(136,143)		25,594		(303,312)		32,540
Net income (loss) available for common stockholders	$	199,142	$	(29,891)	$	420,211	$	(36,564)
Earnings (loss) per share
Basic	$	1.59	$	(0.27)	$	3.39	$	(0.34)
Diluted	$	1.58	$	(0.27)	$	3.38	$	(0.34)
Weighted average common shares outstanding
Basic	121,527,673		112,828,240		120,642,415		110,076,375
Diluted	122,238,905		112,828,240		121,013,689		110,076,375
Net income (loss)	$	335,285	$	(55,485)	$	723,523	$	(69,104)
Other comprehensive income (loss)
Foreign exchange translation adjustment, net of taxes	6,444		884		(3,952)		(2,860)
Net change in unrealized cash flow hedges gain (loss), net of taxes	(9,137)		—		(64,739)		—
Comprehensive income (loss)	332,592		(54,601)		654,832		(71,964)
Less: Comprehensive income (loss) attributable to noncontrolling interest	(135,018)		25,258		(273,541)		33,812
Comprehensive income (loss) attributable to common stockholders	$	197,574	$	(29,343)	$	381,291	$	(38,152)

See accompanying notes to the Condensed Consolidated Financial Statements (Unaudited).

5

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

Three and Six Months Ended June 30, 2020 and 2019

	Class A Common Stock			Class C Common Stock			Class D Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Virtu Financial Inc. Stockholders' Equity		Non-Controlling Interest		Total Equity
(in thousands, except share and interest data)	Shares	Amounts		Shares	Amounts		Shares	Amounts		Shares	Amounts		Amounts
Balance at December 31, 2019	120,435,912	$	1	12,887,178	$	—	60,091,740	$	1	(2,178,771)	$	(55,005)	$	1,077,398	$	(90,374)	$	(647)	$	931,374	$	297,562	$	1,228,936
Share based compensation	1,854,961