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8-K - 8-K - Virtu Financial, Inc.a17-19110_18k.htm

Exhibit 99.1

 

 

Virtu Announces Second Quarter 2017 Results

 

NEW YORK, NY,  August 8, 2017 — Virtu Financial, Inc. (NASDAQ: VIRT) a leading technology-enabled market maker and liquidity provider to the global financial markets, today reported results for the second quarter ended June 30, 2017.

 

Second Quarter Selected Results

 

·                  Net income of $4.4 million; Normalized Adjusted Net Income* of $17.8 million

·                  Basic and Diluted EPS of $0.01; Normalized Adjusted EPS* of $0.13

·                  Total revenues of $144.9 million; Adjusted Net Trading Income* of $74.0 million

·                  Adjusted EBITDA* of $40.9 million; Adjusted EBITDA Margin* of 53.1%

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

 


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

 

“With volatility measures globally at historic lows, challenging conditions for market makers persisted in the second quarter.  We continue to be disciplined in our approach to market making and vigilant around costs to support our results.  On July 20, we closed the acquisition of KCG.  Based on what has been accomplished to date and the positive feedback from our clients, we remain more confident than ever in the value creation potential of the acquisition.  KCG has long-standing and deep client relationships in market making and global agency execution services.  We believe the combination of this client franchise and Virtu’s technology and market structure acumen will benefit the combined company in any environment and will enhance our business and financial results.  We have already made material progress toward integration and synergy realization.  Of the $250 million in gross synergies projected at the time of the transaction announcement, we have already taken actions to realize at least $125 million of annual run rate savings by the end of the third quarter for 2017 as we make the combined firm more efficient and focused.  We are well on our way to meeting or exceeding our synergy goals and are optimistic about the trading efficiencies,” said Douglas Cifu, Chief Executive Officer of Virtu Financial.

 

Second Quarter Financial Results

 

Total revenues decreased 16.8% to $144.9 million for this quarter, compared to $174.2 million for the same period in 2016. Trading income, net, decreased 18.2% to $136.2 million for this quarter, compared to $166.5 million for the same period in 2016. Net income decreased 88.8% to $4.4 million for this quarter, compared to $39.3 million for the same period in 2016.

 

Basic and Diluted EPS for this quarter were $0.01 and $0.01, compared to $0.21 and $0.21 for the same period in 2016, respectively.

 

Adjusted Net Trading Income decreased 27.7% to $74.0 million for this quarter, compared to $102.3 million for the same period in 2016. Adjusted EBITDA decreased 37.8% to $40.9 million for this quarter, compared to $65.8 million for the same period in 2016. Normalized Adjusted Net Income decreased 45.9% to $17.8 million for this quarter, compared to $32.9 million for the same period in 2016. 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 $0.13 for this quarter and $0.24 for the same period in 2016.

 

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

 

1



 

Business Performance

 

Since our inception, we have sought to broadly diversify our market making across securities, asset classes and geographies, and as a result, for the quarter ended June 30, 2017, we achieved a diverse mix of Adjusted Net Trading Income results, with no one category constituting more than 33.4% of our total Adjusted Net Trading Income. Average daily Adjusted Net Trading Income was approximately $1.175 million for this quarter compared to $1.599 million for the same period in the previous year.

 

As of June 30, 2017, Virtu was connected to more than 235 unique market venues in 36 countries and made markets in over 12,000 financial instruments.

 

The following tables show our trading income, net; average daily trading income, net; and percentage of trading income, net by category for the three and six months ended June 30, 2017 and 2016, respectively.

 

 

 

Three Months Ended June 30,

 

Trading income, net:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

45,411

 

33.4

%

$

56,635

 

34.0

%

-19.8

%

EMEA Equities

 

25,474

 

18.7

%

25,627

 

15.4

%

-0.6

%

APAC Equities

 

18,757

 

13.8

%

19,750

 

11.9

%

-5.0

%

Global Commodities

 

21,468

 

15.8

%

30,632

 

18.4

%

-29.9

%

Global Currencies

 

15,879

 

11.7

%

22,733

 

13.6

%

-30.2

%

Options, Fixed Income and Other

 

10,567

 

7.8

%

12,122

 

7.3

%

-12.8

%

Unallocated(1)

 

(1,393

)

-1.2

%

(952

)

-0.6

%

NM

 

Total Trading income, net

 

$

136,163

 

100.0

%

$

166,547

 

100.0

%

-18.2

%

 

 

 

Three Months Ended June 30,

 

Average Daily Trading income, net:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

721

 

33.4

%

$

885

 

34.0

%

-18.5

%

EMEA Equities

 

404

 

18.7

%

400

 

15.4

%

1.0

%

APAC Equities

 

298

 

13.8

%

309

 

11.9

%

-3.6

%

Global Commodities

 

341

 

15.8

%

479

 

18.4

%

-28.8

%

Global Currencies

 

252

 

11.7

%

355

 

13.6

%

-29.0

%

Options, Fixed Income and Other

 

168

 

7.8

%

189

 

7.3

%

-11.1

%

Unallocated(1)

 

(22

)

-1.2

%

(15

)

-0.6

%

NM

 

Total Average Daily Trading income, net

 

$

2,162

 

100.0

%

$

2,602

 

100.0

%

-16.9

%

 

2



 

 

 

Six Months Ended June 30,

 

Trading income, net:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

95,242

 

34.5

%

$

123,198

 

34.9

%

-22.7

%

EMEA Equities

 

46,015

 

16.7

%

52,993

 

15.0

%

-13.2

%

APAC Equities

 

36,965

 

13.4

%

37,986

 

10.8

%

-2.7

%

Global Commodities

 

47,863

 

17.4

%

69,728

 

19.8

%

-31.4

%

Global Currencies

 

34,742

 

12.6

%

49,434

 

14.0

%

-29.7

%

Options, Fixed Income and Other

 

16,881

 

6.1

%

25,467

 

7.2

%

-33.7

%

Unallocated(1)

 

(1,971

)

-0.7

%

(5,970

)

-1.7

%

NM

 

Total Trading income, net

 

$

275,737

 

100.0

%

$

352,836

 

100.0

%

-21.9

%

 

 

 

Six Months Ended June 30,

 

Average Daily Trading income, net:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

762

 

34.5

%

$

986

 

34.9

%

-22.7

%

EMEA Equities

 

368

 

16.7

%

424

 

15.0

%

-13.2

%

APAC Equities

 

296

 

13.4

%

304

 

10.8

%

-2.6

%

Global Commodities

 

383

 

17.4

%

558

 

19.8

%

-31.4

%

Global Currencies

 

278

 

12.6

%

395

 

14.0

%

-29.6

%

Options, Fixed Income and Other

 

135

 

6.1

%

204

 

7.2

%

-33.8

%

Unallocated(1)

 

(16

)

-0.7

%

(48

)

-1.7

%

NM

 

Total Average Daily Trading income, net

 

$

2,206

 

100.0

%

$

2,823

 

100.0

%

-21.9

%

 

The following tables show our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by category for the three and six months ended June 30, 2017 and 2016, respectively.

 

3



 

 

 

Three Months Ended June 30,

 

Adjusted Net Trading Income:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

23,950

 

32.4

%

$

30,821

 

30.1

%

-22.3

%

EMEA Equities

 

9,187

 

12.4

%

12,913

 

12.6

%

-28.9

%

APAC Equities

 

12,527

 

16.9

%

13,944

 

13.6

%

-10.2

%

Global Commodities

 

12,821

 

17.3

%

21,276

 

20.8

%

-39.7

%

Global Currencies

 

10,709

 

14.5

%

16,898

 

16.5

%

-36.6

%

Options, Fixed Income and Other

 

7,281

 

9.8

%

8,257

 

8.1

%

-11.8

%

Unallocated(1)

 

(2,516

)

-3.3

%

(1,810

)

-1.7

%

NM

 

Total Adjusted Net Trading Income

 

$

73,959

 

100.0

%

$

102,299

 

100.0

%

-27.7

%

 

 

 

Three Months Ended June 30,

 

Average Daily Adjusted Net Trading Income:

 

2017

 

% of
Total

 

2016

 

% of

Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

380

 

32.4

%

$

482

 

30.1

%

-21.2

%

EMEA Equities

 

146

 

12.4

%

202

 

12.6

%

-27.7

%

APAC Equities

 

199

 

16.9

%

218

 

13.6

%

-8.7

%

Global Commodities

 

204

 

17.3

%

332

 

20.8

%

-38.6

%

Global Currencies

 

170

 

14.5

%

264

 

16.5

%

-35.6

%

Options, Fixed Income and Other

 

116

 

9.8

%

129

 

8.1

%

-10.1

%

Unallocated(1)

 

(40

)

-3.3

%

(28

)

-1.7

%

NM

 

Total Average Daily Adjusted Net Trading Income

 

$

1,175

 

100.0

%

$

1,599

 

100.0

%

-26.5

%

 

 

 

Six Months Ended June 30,

 

Adjusted Net Trading Income:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

52,002

 

33.9

%

$

68,099

 

31.0

%

-23.6

%

EMEA Equities

 

16,405

 

10.7

%

26,623

 

12.1

%

-38.4

%

APAC Equities

 

24,043

 

15.7

%

26,124

 

11.9

%

-8.0

%

Global Commodities

 

30,368

 

19.8

%

51,623

 

23.5

%

-41.2

%

Global Currencies

 

23,866

 

15.6

%

37,399

 

17.0

%

-36.2

%

Options, Fixed Income and Other

 

10,707

 

7.0

%

16,970

 

7.7

%

-36.9

%

Unallocated(1)

 

(4,034

)

-2.7

%

(7,244

)

-3.2

%

NM

 

Total Adjusted Net Trading Income

 

$

153,357

 

100.0

%

$

219,594

 

100.0

%

-30.2

%

 

 

 

Six Months Ended June 30,

 

Average Daily Adjusted Net Trading Income:

 

2017

 

% of
Total

 

2016

 

% of
Total

 

% Change

 

 

 

(in thousands, except percentages)

 

Category

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

416

 

33.9

%

$

545

 

31.0

%

-23.7

%

EMEA Equities

 

131

 

10.7

%

213

 

12.1

%

-38.5

%

APAC Equities

 

192

 

15.7

%

209

 

11.9

%

-8.1

%

Global Commodities

 

243

 

19.8

%

413

 

23.5

%

-41.2

%

Global Currencies

 

191

 

15.6

%

299

 

17.0

%

-36.1

%

Options, Fixed Income and Other

 

86

 

7.0

%

136

 

7.7

%

-36.8

%

Unallocated(1)

 

(32

)

-2.7

%

(58

)

-3.2

%

NM

 

Total Average Daily Adjusted Net Trading Income

 

$

1,227

 

100.0

%

$

1,757

 

100.0

%

-30.2

%

 

4



 


(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 ANTI 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.

 

5



 

Global Market Volume and Volatility in the Quarter

 

In US Equities, realized intraday volatility of the S&P 500 Index averaged just 55 basis points, a 41% drop year over year and 2% decline, compared to the prior quarter. Average daily consolidated U.S. equity share volume declined 6% year over year.

 

 

Note: 2008 Q4 intraday volatility was 5.18%

 

 

Note: 2008 Q4 realized volatility was 67.1

 

In EMEA Equities, realized intraday volatility of the EURO STOXX 50 Index averaged just 90 basis points, a drop of over 50% year over year.  Realized volatility declined 57% year over year.  Average daily pan-EU share volume declined 13% and increased 7%, year over year and compared to the prior quarter, respectively.

 

In APAC Equities, realized intraday volatility of the Nikkei 225 Index averaged just 69 basis points, a drop of over 62% year over year and 15% versus the prior quarter, respectively.  Realized volatility declined 65% and 27%, year over year and versus the prior quarter, respectively.  Average daily TSE share volume declined 9% and 1%, year over year and compared to the prior quarter, respectively.  Average daily OSE Nikkei 225 Futures volume declined 10% and 5%, year over year and compared to the prior quarter, respectively.

 

6



 

In Commodities, average daily realized volatility of the JPM Commodity Volatility Index declined over 18% and 8%, year over year and versus the prior quarter.  The average daily CBOE Energy Sector Volatility Index declined 26% but increased 1%, year over year and compared to the prior quarter, respectively.  The average daily CBOE / COMEX Gold Volatility Index declined 32% and 15%, year over year and compared to the prior quarter, respectively.  Average daily CME Energy and ICE Energy contract volume increased 5.4% and 1.6%, respectively, versus the prior quarter.

 

In Currencies, the average Deutsche Bank FX Volatility Index (CVIX) declined 29% and 21%, year over year and versus the prior quarter, respectively.  The JPM FX G7 Volatility Index declined 28% and 21%, year over year and versus the prior quarter, respectively.  Average daily volumes on Spot venues were down compared to the prior quarter, with EBS and Hotspot posting the largest drops of 8% and 5%, respectively.  Average Daily CME FX contract volumes increased 5%, and declined 2% compared to the year over year, and prior quarter respectively.

 

KCG Acquisition Update

 

On July 20, 2017 (the “Closing Date”), the Company completed the acquisition (the “Acquisition”) of KCG Holdings, Inc. (“KCG”).  Pursuant to the terms of the Agreement and Plan of Merger, dated as of April 20, 2017 (the “Merger Agreement”), by and among the Company, Orchestra Merger Sub, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the Company (“Merger Sub”), and KCG, Merger Sub merged with and into KCG (the “Merger”), with KCG surviving the Merger as a wholly-owned subsidiary of the Company, in a cash transaction valued at $20.00 per KCG share, or a total of approximately $1.4 billion.

 

7



 

Financial Condition

 

As of June 30, 2017, Virtu had $165.0 million in cash and cash equivalents, $1,119 million in restricted cash held in escrow to fund the KCG Acquisition, and total long-term debt outstanding in an aggregate principal amount of $1,681.1 million.

 

Non-GAAP Financial Measures and Other Items

 

To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), we use the following non-GAAP measures of financial performance:

 

·                  “Adjusted Net Trading Income”, which is the amount of revenue we generate from our market making activities, or trading income, net, plus interest and dividends income and expense, net, less direct costs associated with those revenues, including brokerage, exchange and clearance fees, net. Management believes that this measurement is useful for comparing general operating performance from period to period. Although we use Adjusted Net Trading Income as a financial measure to assess the performance of our business, the use of Adjusted Net Trading Income is limited because it does not include certain material costs that are necessary to operate our business. Our presentation of Adjusted Net Trading Income should not be construed as an indication that our future results will be unaffected by revenues or expenses that are not directly associated with our market making activities.

·                  “EBITDA”, which measures our operating performance by adjusting Net Income to exclude financing interest expense on our senior secured credit facility, debt issue cost related to debt refinancing, depreciation and amortization, amortization of purchased intangibles and acquired capitalized software, and income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, reserve for legal matter, transaction advisory fees and expenses, termination of office leases, other losses (revenues) net, equipment write-off, share based compensation, charges related to share based compensation at IPO, 2015 Management Incentive Plan, and charges related to share based compensation at IPO.

·                  “Normalized Adjusted Net Income”, “Normalized Adjusted Net Income before income taxes”, “Normalized provision for income taxes”, and “Normalized Adjusted EPS”, which we calculate by adjusting Net Income to exclude certain items including IPO-related adjustments and other non-cash items, assuming that all vested and unvested Virtu Financial LLC units have been exchanged for Class A Common Stock, and applying a corporate tax rate of 35.5%.

 

Total Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions. 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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS provide useful information to investors regarding our results of operations because they assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS provide indicators of general economic performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period. Furthermore, our credit agreement contains covenants and other tests based on metrics similar to Adjusted EBITDA. Other companies may define Adjusted Net Trading Income, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS differently, and as a result our measures of Adjusted Net Trading Income, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS may not be directly comparable to those of other companies. Although we use these non-GAAP financial measures

 

8



 

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, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes and Normalized Adjusted EPS should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Adjusted Net Trading Income, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and our EBITDA-based measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

·                  they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;

·                  our EBITDA-based measures do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;

·                  although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and our EBITDA-based measures do not reflect any cash requirement for such replacements or improvements;

·                  they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

·                  they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

·                  they do not reflect limitations on our costs related to transferring earnings from our subsidiaries to us.

 

Because of these limitations, Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income are not intended as alternatives to Net Income as indicators of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. These U.S. GAAP measurements include Net Income (loss), cash flows from operations and cash flow data. See below a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure.

 

9



 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except share and per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

136,163

 

$

166,547

 

$

275,737

 

$

352,836

 

Interest and dividends income

 

5,629

 

5,422

 

10,503

 

9,690

 

Technology services

 

3,107

 

2,212

 

5,886

 

4,293

 

Other, net

 

(11

)

 

49

 

 

Total revenues

 

144,888

 

174,181

 

292,175

 

366,819

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Brokerage, exchange and clearance fees, net

 

52,899

 

55,573

 

105,669

 

115,298

 

Communication and data processing

 

18,985

 

17,953

 

37,192

 

35,675

 

Employee compensation and payroll taxes

 

17,365

 

20,809

 

38,712

 

43,366

 

Interest and dividends expense

 

14,934

 

14,097

 

27,214

 

27,634

 

Operations and administrative

 

8,946

 

5,736

 

13,792

 

10,655

 

Depreciation and amortization

 

6,798

 

7,800

 

13,555

 

15,527

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

106

 

106

 

Debt issue cost related to debt refinancing

 

4,482

 

 

4,482

 

 

Transaction advisory fees and expenses

 

8,511

 

155

 

8,643

 

155

 

Reserve for legal matter

 

(2,176

)

 

(2,176

)

 

Charges related to share based compensation at IPO

 

179

 

516

 

364

 

1,111

 

Financing interest expense on senior secured credit facility

 

8,720

 

7,075

 

15,548

 

14,176

 

Total operating expenses

 

139,696

 

129,767

 

263,101

 

263,703

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and noncontrolling interest

 

5,192

 

44,414

 

29,074

 

103,116

 

Provision for income taxes

 

779

 

5,128

 

3,587

 

12,474

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,413

 

$

39,286

 

$

25,487

 

$

90,642

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

(3,512

)

(30,908

)

(20,006

)

(71,916

)

 

 

 

 

 

 

 

 

 

 

Net income available for common stockholders

 

$

901

 

$

8,378

 

$

5,481

 

$

18,726

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

$

0.21

 

$

0.11

 

$

0.48

 

Diluted

 

$

0.01

 

$

0.21

 

$

0.11

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

40,814,214

 

38,230,684

 

40,607,791

 

38,220,390

 

Diluted

 

40,814,214

 

38,230,684

 

40,607,791

 

38,220,390

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

Net income

 

$

4,413

 

$

39,286

 

$

25,487

 

$

90,642

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment, net of taxes

 

4,852

 

(1,230

)

5,637

 

1,264

 

Comprehensive income

 

$

9,265

 

$

38,056

 

$

31,124

 

$

91,906

 

Less: Comprehensive income attributable to noncontrolling interest

 

(6,901

)

(30,024

)

(23,945

)

(72,825

)

Comprehensive income available for common stockholders

 

$

2,364

 

$

8,032

 

$

7,179

 

$

19,081

 

 

10



 

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,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except percentages)

 

Reconciliation of Trading income, net to Adjusted Net Trading Income

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

136,163

 

$

166,547

 

$

275,737

 

$

352,836

 

Interest and dividends income

 

5,629

 

5,422

 

10,503

 

9,690

 

Brokerage, exchange and clearance fees, net

 

(52,899

)

(55,573

)

(105,669

)

(115,298

)

Interest and dividends expense

 

(14,934

)

(14,097

)

(27,214

)

(27,634

)

Adjusted Net Trading Income

 

$

73,959

 

$

102,299

 

$

153,357

 

$

219,594

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Net income

 

$

4,413

 

$

39,286

 

$

25,487

 

$

90,642

 

Financing interest expense on senior secured credit facility

 

8,720

 

7,075

 

15,548

 

14,176

 

Debt issue cost related to debt refinancing

 

4,482

 

 

4,482

 

 

Depreciation and amortization

 

6,798

 

7,800

 

13,555

 

15,527

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

106

 

106

 

Provision for income taxes

 

779

 

5,128

 

3,587

 

12,474

 

EBITDA

 

$

25,245

 

$

59,342

 

$

62,765

 

$

132,925

 

 

 

 

 

 

 

 

 

 

 

Severance

 

 

 

877

 

193

 

Reserve for legal matter

 

(2,176

)

 

(2,176

)

 

Transaction advisory fees and expenses

 

8,511

 

155

 

8,643

 

155

 

Termination of office leases

 

 

 

 

(319

)

Other, net

 

11

 

 

(49

)

 

Equipment write-off

 

544

 

 

544

 

428

 

Share based compensation

 

7,253

 

4,301

 

14,833

 

9,696

 

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

 

1,373

 

1,505

 

2,798

 

2,701

 

Charges related to share based compensation awards at IPO

 

179

 

516

 

364

 

1,111

 

Adjusted EBITDA

 

$

40,940

 

$

65,819

 

$

88,599

 

$

146,890

 

 

 

 

 

 

 

 

 

 

 

Selected Operating Margins

 

 

 

 

 

 

 

 

 

Net Income Margin(1)

 

5.7

%

37.6

%

16.0

%

40.5

%

EBITDA Margin(2)

 

32.8

%

56.8

%

39.4

%

59.4

%

Adjusted EBITDA Margin(3)

 

53.1

%

63.0

%

55.6

%

65.6

%

 


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

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

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

 

11



 

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,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except share and per share data)

 

Reconciliation of Net Income to Normalized Adjusted Net Income

 

 

 

 

 

 

 

 

 

Net income

 

$

4,413

 

$

39,286

 

$

25,487

 

$

90,642

 

Provision for income taxes

 

779

 

5,128

 

3,587

 

12,474

 

Income before income taxes

 

$

5,192

 

$

44,414

 

$

29,074

 

$

103,116

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

106

 

106

 

Financing interest expense related to KCG transaction

 

1,616

 

 

1,616

 

 

Debt issue cost related to debt refinancing

 

4,482

 

 

4,482

 

 

Severance

 

 

 

877

 

193

 

Reserve for legal matter

 

(2,176

)

 

(2,176

)

 

Transaction advisory fees and expenses

 

8,511

 

155

 

8,643

 

155

 

Termination of office leases

 

 

 

 

(319

)

Equipment write-off

 

1,102

 

 

1,102

 

428

 

Other losses (revenues)

 

11

 

 

(49

)

 

Share based compensation

 

7,253

 

4,301

 

14,833

 

9,696

 

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

 

1,373

 

1,505

 

2,798

 

2,701

 

Charges related to share based compensation awards at IPO

 

179

 

516

 

364

 

1,111

 

Normalized Adjusted Net Income before income taxes

 

$

27,596

 

$

50,944

 

$

61,670

 

$

117,187

 

Normalized provision for income taxes(1)

 

9,797

 

18,085

 

21,893

 

41,601

 

Normalized Adjusted Net Income

 

$

17,799

 

$

32,859

 

$

39,777

 

$

75,586

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Adjusted shares outstanding(2)

 

140,764,500

 

139,652,286

 

140,764,500

 

139,687,755

 

 

 

 

 

 

 

 

 

 

 

Normalized Adjusted EPS

 

$

0.13

 

$

0.24

 

$

0.28

 

$

0.54

 

 


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

(2)         Assumes that (1) holders of all vested and unvested Virtu Financial LLC Units (together with corresponding shares of Class C common stock), have exercised their right to exchange such Virtu Financial LLC Units for shares of Class A common stock on a one-for-one basis,  (2) holders of all Virtu Financial LLC Units (together with corresponding shares of Class D common stock), have exercised their right to exchange such Virtu Financial LLC Units for shares of Class B common stock on a one-for-one basis, and subsequently exercised their right to convert the shares of Class B common stock into shares of Class A common stock on a one-for-one basis. Includes additional shares from dilutive impact of options and restricted stock units outstanding under the 2015 Management Incentive Plan during the three and six months ended June 30, 2017 and 2016.

 

12



 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

164,934

 

$

181,415

 

Restricted cash(1)

 

1,119,360

 

 

Securities borrowed

 

285,219

 

220,005

 

Receivables from broker-dealers and clearing organizations

 

385,368

 

448,728

 

Interest & dividends receivable

 

 

 

 

 

Trading assets, at fair value

 

1,390,587

 

1,827,882

 

Property, equipment and capitalized software, net

 

33,000

 

29,660

 

Goodwill

 

718,521

 

715,379

 

Intangibles (net of accumulated amortization)

 

886

 

992

 

Deferred taxes

 

198,289

 

193,859

 

Other assets

 

77,681

 

74,470

 

 

 

 

 

 

 

Total assets

 

$

4,373,845

 

$

3,692,390

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Short-term borrowings

 

$

13,000

 

$

25,000

 

Securities loaned

 

345,184

 

222,203

 

Payables to broker-dealers and clearing organizations

 

397,904

 

695,978

 

Trading liabilities, at fair value

 

1,109,010

 

1,349,155

 

Tax receivable agreement obligations

 

231,639

 

231,404

 

Accounts payable and accrued expenses and other liabilities

 

131,304

 

69,281

 

Long-term borrowings, net

 

1,628,323

 

564,957

 

 

 

 

 

 

 

Total liabilities

 

$

3,856,364

 

$

3,157,978

 

 

 

 

 

 

 

Total equity

 

517,481

 

534,412

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,373,845

 

$

3,692,390

 

 

 

 

 

 

 

 

 

As of June 30, 2017

 

 

 

Interests

 

%

 

Ownership of Virtu Financial LLC Interests:

 

 

 

 

 

Virtu Financial, Inc. - Class A Common Stock

 

42,380,119

 

30.1

%

Non-controlling Interests (Virtu Financial LLC)

 

98,384,381

 

69.9

%

 

 

 

 

 

 

Total Virtu Financial LLC Interests

 

140,764,500

 

100.0

%

 


(1) Represents proceeds from capital raise held in escrow to fund KCG Acquisition.

 

13



 

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 12,000 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

 

14