Virtu Financial, Inc. (NASDAQ:VIRT), a leading technology-enabled
market maker and liquidity provider to the global financial
markets, today reported results for the third quarter ended
September 30, 2017.
Third Quarter Highlights
Reported results include KCG from July 20 through September 30,
2017
- Net loss of $40.0 million, burdened by costs associated with
the KCG acquisition and amortization of purchased intangibles;
Normalized Adjusted Net Income* of $22.2 million
- Basic and Diluted loss per share of $0.17; Normalized Adjusted
EPS* of $0.08
- Total revenues of $271.3 million; Adjusted Net Trading Income*
of $159.8 million
- Adjusted EBITDA* of $58.9 million; Adjusted EBITDA Margin* of
36.8%
- KCG integration on track; Expense and Capital Synergy progress
ahead of plan
- Made total to-date voluntary pre-payments of $200 million on
the $1.15B term loan debt incurred in connection with KCG
acquisition
- Quarterly cash dividend of $0.24 per share payable on December
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 December 15, 2017 to shareholders of record
as of December 1, 2017.
“The integration of Virtu and KCG is going extraordinarily
well. After a very slow start in July, and despite the
continued extremely challenging environment, we generated $3.1
million per day in Adjusted Net Trading Income for the combined
company for the months of August, September and October.
Barely four months in to the acquisition, we have identified cost
savings in excess of our original estimates and have a clear view
of the run-rate expenses of the combined organization.” Mr.
Cifu continued, “The market making businesses of legacy Virtu and
KCG are quite complimentary, and the trading efficiencies we have
begun to realize and pass on to our clients are real and
tangible.”
Third Quarter Financial Results
Total revenues increased 64.6% to $271.3 million
for this quarter, compared to $164.8 million for the same period in
2016. Trading income, net, increased 30.1% to $203.9 million for
this quarter, compared to $156.7 million for the same period in
2016. Net income (loss) decreased to $(40.0) million for this
quarter, compared to $33.0 million for the same period in 2016.
Basic and Diluted earnings (loss) per share for this quarter
were both $(0.17), compared to $0.18 each for the same period in
2016.
Adjusted Net Trading Income increased 64.4% to
$159.8 million for this quarter, compared to $97.2 million for the
same period in 2016. Adjusted EBITDA increased 3.5% to $58.9
million for this quarter, compared to $56.9 million for the same
period in 2016. Normalized Adjusted Net Income decreased 47.6% to
$22.2 million for this quarter, compared to $42.4 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 $0.08 for this quarter and $0.20 for
the same period in 2016.
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 maintains corporate
overhead expenses.
The following tables show the reconciliations
from trading income, net; to Adjusted Net Trading Income for the
three and nine months ended September 30, 2017 and 2016 (in
thousands, except percentages).
|
|
|
Three Months Ended September 30,
2017 |
Reconciliation
of Trading income, net to |
Market |
|
Execution |
|
|
|
|
Adjusted Net
Trading Income |
Making |
|
Services |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
Trading income,
net |
$ |
206,543 |
|
|
$ |
(3,341 |
) |
|
$ |
705 |
|
|
$ |
203,907 |
|
Commissions, net and
technology services |
|
1,563 |
|
|
|
41,788 |
|
|
|
- |
|
|
|
43,351 |
|
Interest and dividends
income |
|
20,056 |
|
|
|
103 |
|
|
|
271 |
|
|
|
20,430 |
|
Brokerage, exchange and
clearance fees, net |
|
(52,321 |
) |
|
|
(12,263 |
) |
|
|
- |
|
|
|
(64,584 |
) |
Payments for order
flow |
|
(12,452 |
) |
|
|
381 |
|
|
|
- |
|
|
|
(12,071 |
) |
Interest and dividends
expense |
|
(31,360 |
) |
|
|
1,561 |
|
|
|
(1,443 |
) |
|
|
(31,242 |
) |
Adjusted Net
Trading Income |
$ |
132,029 |
|
|
$ |
28,229 |
|
|
$ |
(467 |
) |
|
$ |
159,791 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
2017 |
Reconciliation
of Trading income, net to |
Market |
|
Execution |
|
|
|
|
Adjusted Net
Trading Income |
Making |
|
Services |
|
Corporate |
|
Total |
|
|
|
|
|
|
|
|
Trading income,
net |
$ |
482,281 |
|
|
$ |
(3,342 |
) |
|
$ |
705 |
|
|
$ |
479,644 |
|
Commissions, net and
technology services |
|
1,563 |
|
|
|
47,674 |
|
|
|
- |
|
|
|
49,237 |
|
Interest and dividends
income |
|
30,558 |
|
|
|
104 |
|
|
|
271 |
|
|
|
30,933 |
|
Brokerage, exchange and
clearance fees, net |
|
(157,991 |
) |
|
|
(12,262 |
) |
|
|
- |
|
|
|
(170,253 |
) |
Payments for order
flow |
|
(12,452 |
) |
|
|
381 |
|
|
|
- |
|
|
|
(12,071 |
) |
Interest and dividends
expense |
|
(58,575 |
) |
|
|
1,562 |
|
|
|
(1,443 |
) |
|
|
(58,456 |
) |
Adjusted Net
Trading Income |
$ |
285,384 |
|
|
$ |
34,117 |
|
|
$ |
(467 |
) |
|
$ |
319,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables show our Adjusted Net Trading Income,
average daily Adjusted Net Trading Income by category for the three
and nine months ended September 30, 2017 and 2016 (in thousands,
except percentages).
|
|
|
Three Months Ended September 30, |
Adjusted Net
Trading Income by Category: |
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
|
|
|
|
Market Making: |
|
|
|
|
|
Americas
Equities |
$ |
82,588 |
|
|
$ |
24,738 |
|
|
233.9 |
% |
ROW
Equities |
|
16,995 |
|
|
|
20,790 |
|
|
-18.3 |
% |
Global
FICC, Options and Other |
|
32,204 |
|
|
|
45,327 |
|
|
-29.0 |
% |
Unallocated1 |
|
242 |
|
|
|
3,390 |
|
|
NM |
|
Total
market making |
$ |
132,029 |
|
|
$ |
94,245 |
|
|
40.1 |
% |
|
|
|
|
|
|
Execution Services |
|
28,229 |
|
|
|
2,931 |
|
|
863.1 |
% |
|
|
|
|
|
|
Corporate |
|
(467 |
) |
|
|
- |
|
|
NM |
|
|
|
|
|
|
|
Adjusted Net
Trading Income |
$ |
159,791 |
|
|
$ |
97,176 |
|
|
64.4 |
% |
|
|
|
|
|
|
|
Three Months Ended September 30, |
Average Daily
Adjusted Net Trading Income by Category: |
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
|
|
|
|
Market Making: |
|
|
|
|
|
Americas
Equities |
$ |
1,311 |
|
|
$ |
387 |
|
|
239.1 |
% |
ROW
Equities |
|
270 |
|
|
|
325 |
|
|
-17.0 |
% |
Global
FICC, Options and Other |
|
511 |
|
|
|
708 |
|
|
-27.8 |
% |
Unallocated1 |
|
4 |
|
|
|
53 |
|
|
NM |
|
Total
market making |
$ |
2,096 |
|
|
$ |
1,473 |
|
|
42.3 |
% |
|
|
|
|
|
|
Execution Services |
|
448 |
|
|
|
46 |
|
|
878.4 |
% |
|
|
|
|
|
|
Corporate |
|
(7 |
) |
|
|
- |
|
|
NM |
|
|
|
|
|
|
|
Adjusted Net
Trading Income |
$ |
2,536 |
|
|
$ |
1,518 |
|
|
67.0 |
% |
|
|
|
|
|
|
|
Nine Months Ended September 30, |
Adjusted Net
Trading Income by Category: |
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
|
|
|
|
Market Making: |
|
|
|
|
|
Americas
Equities |
$ |
134,590 |
|
|
$ |
92,837 |
|
|
45.0 |
% |
ROW
Equities |
|
57,443 |
|
|
|
73,536 |
|
|
-21.9 |
% |
Global
FICC, Options and Other |
|
97,145 |
|
|
|
151,319 |
|
|
-35.8 |
% |
Unallocated1 |
|
(3,794 |
) |
|
|
(3,854 |
) |
|
NM |
|
Total
market making |
$ |
285,384 |
|
|
$ |
313,838 |
|
|
-9.1 |
% |
|
|
|
|
|
|
Execution Services |
|
34,117 |
|
|
|
7,224 |
|
|
372.3 |
% |
|
|
|
|
|
|
Corporate |
|
(467 |
) |
|
|
- |
|
|
NM |
|
|
|
|
|
|
|
Adjusted Net
Trading Income |
$ |
319,034 |
|
|
$ |
321,062 |
|
|
-0.6 |
% |
|
|
|
|
|
|
|
Nine Months Ended September 30, |
Average Daily
Adjusted Net Trading Income by Category: |
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
|
|
|
|
Market Making: |
|
|
|
|
|
Americas
Equities |
$ |
716 |
|
|
$ |
491 |
|
|
45.7 |
% |
ROW
Equities |
|
306 |
|
|
|
389 |
|
|
-21.5 |
% |
Global
FICC, Options and Other |
|
517 |
|
|
|
801 |
|
|
-35.5 |
% |
Unallocated1 |
|
(20 |
) |
|
|
(20 |
) |
|
NM |
|
Total
market making |
$ |
1,518 |
|
|
$ |
1,661 |
|
|
-8.6 |
% |
|
|
|
|
|
|
Execution Services |
|
181 |
|
|
|
38 |
|
|
374.8 |
% |
|
|
|
|
|
|
Corporate |
|
(2 |
) |
|
|
- |
|
|
NM |
|
|
|
|
|
|
|
Adjusted Net
Trading Income |
$ |
1,697 |
|
|
$ |
1,699 |
|
|
-0.1 |
% |
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. |
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.
BondPoint Sale
On October 24, 2017, the Company announced that it has entered
into a definitive agreement to sell Virtu’s fixed income trading
venue, BondPoint, to Intercontinental Exchange (NYSE: ICE) for $400
million in cash. The transaction is expected to be completed in the
first quarter of 2018, and the closing is subject to the
satisfaction of customary closing conditions and receipt of certain
regulatory clearances.
BondPoint is a leading provider of electronic fixed income
trading solutions for the buy-side and sell-side offering access to
centralized liquidity and automated trade execution services
through its ATS, linking more than 500 financial services
firms.
Financial Condition
As of September 30, 2017, Virtu had $558.0
million in cash and cash equivalents, and total long-term debt
outstanding in an aggregate principal amount of $1,481.1
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 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 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 between 35.5% and
37%.
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 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.
|
|
|
|
Virtu Financial, Inc. and
Subsidiaries |
Condensed Consolidated Statements of
Comprehensive Income (Unaudited) |
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
(in thousands, except share and per share
data) |
Revenues: |
|
|
|
|
|
|
|
Trading
income, net |
$ |
203,907 |
|
|
$ |
156,706 |
|
|
$ |
479,644 |
|
|
$ |
509,542 |
|
Commissions and technology services |
|
43,351 |
|
|
|
2,931 |
|
|
|
30,933 |
|
|
|
7,224 |
|
Interest
and dividends income |
|
20,430 |
|
|
|
5,271 |
|
|
|
49,237 |
|
|
|
14,961 |
|
Other,
net |
|
3,598 |
|
|
|
(102 |
) |
|
|
3,647 |
|
|
|
(102 |
) |
Total
revenues |
|
271,286 |
|
|
|
164,806 |
|
|
|
563,461 |
|
|
|
531,625 |
|
|
|
|
|
|
|
|
|
Operating
Expenses: |
|
|
|
|
|
|
|
Brokerage, exchange and clearance fees, net |
|
64,584 |
|
|
|
52,118 |
|
|
|
170,253 |
|
|
|
167,416 |
|
Communication and data processing |
|
45,998 |
|
|
|
17,903 |
|
|
|
83,190 |
|
|
|
53,578 |
|
Employee
compensation and payroll taxes |
|
72,341 |
|
|
|
20,816 |
|
|
|
111,053 |
|
|
|
64,182 |
|
Payments
for order flow |
|
12,071 |
|
|
|
- |
|
|
|
12,071 |
|
|
|
- |
|
Interest
and dividends expense |
|
31,242 |
|
|
|
15,615 |
|
|
|
58,456 |
|
|
|
43,249 |
|
Operations and administrative |
|
24,183 |
|
|
|
5,543 |
|
|
|
38,107 |
|
|
|
16,353 |
|
Depreciation and amortization |
|
15,602 |
|
|
|
7,158 |
|
|
|
29,157 |
|
|
|
22,685 |
|
Amortization of purchased intangibles and |
|
|
|
|
|
|
|
acquired capitalized software |
|
6,440 |
|
|
|
53 |
|
|
|
6,546 |
|
|
|
159 |
|
Debt
issue cost related to debt refinancing |
|
4,869 |
|
|
|
- |
|
|
|
9,351 |
|
|
|
- |
|
Transaction advisory fees and expenses |
|
15,677 |
|
|
|
- |
|
|
|
24,188 |
|
|
|
- |
|
Reserve
for legal matter |
|
- |
|
|
|
- |
|
|
|
(2,176 |
) |
|
|
- |
|
Charges
related to share based compensation at IPO |
|
181 |
|
|
|
333 |
|
|
|
545 |
|
|
|
1,444 |
|
Financing
interest expense on long-term borrowings |
|
24,593 |
|
|
|
7,393 |
|
|
|
40,141 |
|
|
|
21,569 |
|
Total
operating expenses |
|
317,781 |
|
|
|
126,932 |
|
|
|
580,882 |
|
|
|
390,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and noncontrolling interest |
|
(46,495 |
) |
|
|
37,874 |
|
|
|
(17,421 |
) |
|
|
140,990 |
|
Provision
(benefit) for income taxes |
|
(6,505 |
) |
|
|
4,851 |
|
|
|
(2,918 |
) |
|
|
17,325 |
|
Net
income (loss) |
$ |
(39,990 |
) |
|
$ |
33,023 |
|
|
$ |
(14,503 |
) |
|
$ |
123,665 |
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
26,472 |
|
|
|
(25,997 |
) |
|
|
6,466 |
|
|
|
(97,913 |
) |
|
|
|
|
|
|
|
|
Net
income (loss) available for common stockholders |
$ |
(13,518 |
) |
|
$ |
7,026 |
|
|
$ |
(8,037 |
) |
|
$ |
25,752 |
|
|
|
|
|
|
|
|
|
Earnings per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.17 |
) |
|
$ |
0.18 |
|
|
$ |
(0.17 |
) |
|
$ |
0.66 |
|
Diluted |
$ |
(0.17 |
) |
|
$ |
0.18 |
|
|
$ |
(0.17 |
) |
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
|
|
|
|
|
Basic |
|
79,199,142 |
|
|
|
38,230,684 |
|
|
|
53,520,346 |
|
|
|
38,264,139 |
|
Diluted |
|
79,199,142 |
|
|
|
38,230,684 |
|
|
|
53,520,346 |
|
|
|
38,264,139 |
|
|
|
|
|
|
|
|
|
Comprehensive
income: |
|
|
|
|
|
|
|
Net
income |
$ |
(39,990 |
) |
|
$ |
33,023 |
|
|
$ |
(14,503 |
) |
|
$ |
123,665 |
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
Foreign exchange translation adjustment, net of taxes |
|
2,558 |
|
|
|
519 |
|
|
|
8,300 |
|
|
|
1,783 |
|
Comprehensive
income |
$ |
(37,432 |
) |
|
$ |
33,542 |
|
|
$ |
(6,203 |
) |
|
$ |
125,448 |
|
Less:
Comprehensive income attributable to noncontrolling interest |
|
25,122 |
|
|
|
(26,370 |
) |
|
|
1,014 |
|
|
|
(99,195 |
) |
Comprehensive income
available for common stockholders |
$ |
(12,310 |
) |
|
$ |
7,172 |
|
|
$ |
(5,189 |
) |
|
$ |
26,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
(in thousands, except
percentages) |
Reconciliation
of Trading income, net to Adjusted Net Trading Income |
|
|
|
|
|
|
|
Trading
income, net |
$ |
203,907 |
|
|
$ |
156,706 |
|
|
$ |
479,644 |
|
|
$ |
509,542 |
|
Commissions and technology services |
|
43,351 |
|
|
|
2,931 |
|
|
|
30,933 |
|
|
|
7,224 |
|
Interest
and dividends income |
|
20,430 |
|
|
|
5,271 |
|
|
|
49,237 |
|
|
|
14,961 |
|
Brokerage, exchange and clearance fees, net |
|
(64,584 |
) |
|
|
(52,118 |
) |
|
|
(170,253 |
) |
|
|
(167,416 |
) |
Payments
for order flow |
|
(12,071 |
) |
|
|
- |
|
|
|
(12,071 |
) |
|
|
- |
|
Interest
and dividends expense |
|
(31,242 |
) |
|
|
(15,615 |
) |
|
|
(58,456 |
) |
|
|
(43,249 |
) |
Adjusted Net
Trading Income |
$ |
159,791 |
|
|
$ |
97,175 |
|
|
$ |
319,034 |
|
|
$ |
321,062 |
|
|
|
|
|
|
|
|
|
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA |
|
|
|
|
|
|
|
Net
income |
$ |
(39,990 |
) |
|
$ |
33,023 |
|
|
$ |
(14,503 |
) |
|
$ |
123,665 |
|
Financing
interest expense on senior secured credit facility |
|
24,593 |
|
|
|
7,393 |
|
|
|
40,141 |
|
|
|
21,569 |
|
Debt
issue cost related to debt refinancing |
|
4,869 |
|
|
|
- |
|
|
|
9,351 |
|
|
|
- |
|
Depreciation and amortization |
|
15,602 |
|
|
|
7,158 |
|
|
|
29,157 |
|
|
|
22,685 |
|
Amortization of purchased intangibles and acquired capitalized
software |
|
6,440 |
|
|
|
53 |
|
|
|
6,546 |
|
|
|
159 |
|
Provision
for income taxes |
|
(6,505 |
) |
|
|
4,851 |
|
|
|
(2,918 |
) |
|
|
17,325 |
|
EBITDA |
$ |
5,009 |
|
|
$ |
52,478 |
|
|
$ |
67,774 |
|
|
$ |
185,403 |
|
|
|
|
|
|
|
|
|
Severance |
|
9,295 |
|
|
|
77 |
|
|
|
10,172 |
|
|
|
270 |
|
Reserve
for legal matter |
|
- |
|
|
|
- |
|
|
|
(2,176 |
) |
|
|
- |
|
Transaction advisory fees and expenses |
|
15,677 |
|
|
|
521 |
|
|
|
24,188 |
|
|
|
676 |
|
Termination of office leases |
|
1,811 |
|
|
|
- |
|
|
|
1,811 |
|
|
|
(319 |
) |
Acquisition related retention bonus |
|
23,050 |
|
|
|
- |
|
|
|
23,050 |
|
|
|
- |
|
Trading
related settlement income |
|
- |
|
|
|
(2,975 |
) |
|
|
- |
|
|
|
(2,975 |
) |
Other,
net |
|
(300 |
) |
|
|
102 |
|
|
|
(289 |
) |
|
|
102 |
|
Equipment
write-off |
|
544 |
|
|
|
- |
|
|
|
544 |
|
|
|
428 |
|
Share
based compensation |
|
2,270 |
|
|
|
4,892 |
|
|
|
17,102 |
|
|
|
14,587 |
|
Charges
related to share based compensation at IPO, 2015 Management
Incentive Plan |
|
1,336 |
|
|
|
1,512 |
|
|
|
4,134 |
|
|
|
4,212 |
|
Charges
related to share based compensation awards at IPO |
|
181 |
|
|
|
333 |
|
|
|
545 |
|
|
|
1,444 |
|
Adjusted
EBITDA |
$ |
58,873 |
|
|
$ |
56,940 |
|
|
$ |
146,855 |
|
|
$ |
203,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Operating Margins |
|
|
|
|
|
|
|
Net
Income Margin1 |
|
-25.0 |
% |
|
|
34.0 |
% |
|
|
-4.5 |
% |
|
|
38.5 |
% |
EBITDA
Margin2 |
|
3.1 |
% |
|
|
54.0 |
% |
|
|
21.2 |
% |
|
|
57.7 |
% |
Adjusted
EBITDA Margin3 |
|
36.8 |
% |
|
|
58.6 |
% |
|
|
46.0 |
% |
|
|
63.5 |
% |
|
|
|
|
|
|
|
|
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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
(in thousands, except share and per share
data) |
Reconciliation
of Net Income to Normalized Adjusted Net Income |
|
|
|
|
|
|
|
Net
income |
$ |
(39,990 |
) |
|
$ |
33,023 |
|
|
$ |
(14,503 |
) |
|
$ |
123,665 |
|
Provision
for income taxes |
|
(6,505 |
) |
|
|
4,851 |
|
|
|
(2,918 |
) |
|
|
17,325 |
|
Income
before income taxes |
$ |
(46,495 |
) |
|
$ |
37,874 |
|
|
$ |
(17,421 |
) |
|
$ |
140,990 |
|
Amortization of purchased intangibles and acquired capitalized
software |
|
6,440 |
|
|
|
53 |
|
|
|
6,546 |
|
|
|
159 |
|
Financing
interest expense related to KCG transaction |
|
3,010 |
|
|
|
- |
|
|
|
4,626 |
|
|
|
- |
|
Debt
issue cost related to debt refinancing |
|
4,869 |
|
|
|
- |
|
|
|
9,351 |
|
|
|
- |
|
Severance |
|
9,295 |
|
|
|
77 |
|
|
|
10,172 |
|
|
|
270 |
|
Reserve
for legal matter |
|
- |
|
|
|
- |
|
|
|
(2,176 |
) |
|
|
- |
|
Transaction advisory fees and expenses |
|
15,677 |
|
|
|
521 |
|
|
|
24,188 |
|
|
|
676 |
|
Termination of office leases |
|
1,811 |
|
|
|
- |
|
|
|
1,811 |
|
|
|
(319 |
) |
Equipment
write-off |
|
1,075 |
|
|
|
- |
|
|
|
2,177 |
|
|
|
428 |
|
Acquisition related retention bonus |
|
23,050 |
|
|
|
- |
|
|
|
23,050 |
|
|
|
- |
|
Trading
related settlement income |
|
- |
|
|
|
(2,975 |
) |
|
|
- |
|
|
|
(2,975 |
) |
Other
losses (revenues) |
|
(300 |
) |
|
|
102 |
|
|
|
(289 |
) |
|
|
102 |
|
Share
based compensation |
|
2,270 |
|
|
|
4,892 |
|
|
|
17,102 |
|
|
|
14,587 |
|
Charges
related to share based compensation at IPO, 2015 Management
Incentive Plan |
|
1,336 |
|
|
|
1,512 |
|
|
|
4,134 |
|
|
|
4,212 |
|
Charges
related to share based compensation awards at IPO |
|
181 |
|
|
|
333 |
|
|
|
545 |
|
|
|
1,444 |
|
Normalized Adjusted Net Income before income taxes |
$ |
22,219 |
|
|
$ |
42,389 |
|
|
$ |
83,816 |
|
|
$ |
159,574 |
|
Normalized provision for income taxes1 |
|
8,221 |
|
|
|
15,048 |
|
|
|
31,012 |
|
|
|
56,649 |
|
Normalized
Adjusted Net Income |
$ |
13,998 |
|
|
$ |
27,341 |
|
|
$ |
52,804 |
|
|
$ |
102,925 |
|
|
|
|
|
|
|
|
|
Weighted Average
Adjusted shares outstanding2 |
|
178,490,856 |
|
|
|
139,687,848 |
|
|
|
152,812,060 |
|
|
|
139,685,124 |
|
|
|
|
|
|
|
|
|
Normalized
Adjusted EPS |
$ |
0.08 |
|
|
$ |
0.20 |
|
|
$ |
0.35 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
1 Reflects
U.S. federal, state, and local income tax rate applicable to
corporations of approximately 37%. |
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 nine months ended September 30, 2017
and 2016. |
|
|
|
|
|
Virtu Financial, Inc. and
Subsidiaries |
Condensed Consolidated Statements of Financial
Condition (Unaudited)
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
(in thousands, except share data) |
Assets |
|
|
|
Cash and
cash equivalents |
$ |
557,990 |
|
$ |
181,415 |
|
Cash and
securities segregated under federal and other regulations |
|
3,000 |
|
|
- |
|
Securities borrowed |
|
1,525,403 |
|
|
220,005 |
|
Securities purchased under agreements to resell |
|
8,249 |
|
|
- |
|
Receivables from broker-dealers and
clearing organizations |
|
980,518 |
|
|
448,728 |
|
Trading
assets, at fair value |
|
2,902,400 |
|
|
1,827,882 |
|
Property,
equipment and capitalized software, net |
|
144,686 |
|
|
29,660 |
|
Goodwill |
|
859,598 |
|
|
715,379 |
|
Intangibles (net of accumulated amortization) |
|
152,748 |
|
|
992 |
|
Deferred
taxes |
|
224,804 |
|
|
193,859 |
|
Current
taxes receivable |
|
111,204 |
|
|
5,796 |
|
Other
assets |
|
268,745 |
|
|
68,674 |
|
Total
assets |
$ |
7,739,345 |
|
$ |
3,692,390 |
|
|
|
|
|
Liabilities and
equity |
|
|
|
Liabilities |
|
|
|
Short-term borrowings |
$ |
15,000 |
|
$ |
25,000 |
|
Securities loaned |
|
582,915 |
|
|
222,203 |
|
Securities sold under agreements to repurchase |
|
620,887 |
|
|
- |
|
Payables
to broker-dealers and clearing organizations |
|
839,067 |
|
|
695,978 |
|
Payables
to customers |
|
25,550 |
|
|
- |
|
Trading
liabilities, at fair value |
|
2,535,891 |
|
|
1,349,155 |
|
Tax
receivable agreement obligations |
|
232,552 |
|
|
231,404 |
|
Accounts
payable and accrued expenses and other liabilities |
|
287,327 |
|
|
69,281 |
|
Long-term
borrowings, net |
|
1,434,629 |
|
|
564,957 |
|
Total
liabilities |
$ |
6,573,818 |
|
$ |
3,157,978 |
|
|
|
|
|
Total
equity |
|
1,165,527 |
|
|
534,412 |
|
|
|
|
|
Total
liabilities and equity |
$ |
7,739,345 |
|
$ |
3,692,390 |
|
|
|
|
|
|
As of September 30, 2017 |
Ownership of
Virtu Financial LLC Interests: |
Interests |
|
% |
|
|
|
|
Virtu
Financial, Inc. - Class A Common Stock |
|
90,593,964 |
|
|
48.0 |
% |
Non-controlling Interests (Virtu Financial LLC) |
|
97,954,713 |
|
|
52.0 |
% |
Total
Virtu Financial LLC Interests |
|
188,548,677 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
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 19,000
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 RelationsAndrew SmithVirtu Financial,
Inc.(212) 418-0195investor_relations@virtu.com
Media Relationsmedia@virtu.com
Virtu Financial (NASDAQ:VIRT)
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