Virtu Announces First Quarter 2017 Results

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| Source: Virtu Financial, LLC
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Market Volume and Volatility in the Quarter

Market Volume and Volatility in the Quarter

Market Volume and Volatility in the Quarter

Virtu Financial, LLC

NEW YORK, May 04, 2017 (GLOBE NEWSWIRE) -- Virtu Financial, Inc. (NASDAQ:VIRT) a leading technology-enabled market maker and liquidity provider to the global financial markets, today reported results for the first quarter ended March 31, 2017.

First Quarter Selected Results

  • Net income of $21.1 million; Normalized Adjusted Net Income* of $22.0 million
  • Basic and Diluted EPS of $0.10; Normalized Adjusted EPS* of $0.16
  • Total revenues of $147.3 million; Adjusted Net Trading Income* of $79.4 million
  • Adjusted EBITDA* of $47.7 million; Adjusted EBITDA Margin* of 58.0%
  • Quarterly cash dividend of $0.24 per share payable on June 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 June 15, 2017 to shareholders of record as of June 1, 2017.

“The challenging market conditions of the past several quarters intensified in the first quarter of 2017.  Realized volatility of the S&P 500, a key measure for market makers like Virtu, fell to 6.78 – a decline of over 20% compared to the prior quarter.  Intraday volatility posted the lowest quarterly average in over 17 years; however, our business was stable and remained profitable.  In addition, we have seen a pickup in activity in the first month of the second quarter. Despite these challenging conditions, we continue to invest in our business on a stand-alone basis and believe we are poised to take advantage of more advantageous conditions,” said Douglas Cifu, Chief Executive Officer of Virtu Financial.

Mr. Cifu continued, “On April 20 2017 we announced a definitive agreement to acquire all the outstanding shares of KCG’s Class A Common Stock for $20 per share. The acquisition of KCG is a transformative event for Virtu.  We look forward to closing the transaction in the third quarter of 2017 and leveraging Virtu’s trading and technology acumen and expense and capital discipline to KCG’s outstanding client franchises.”

First Quarter Financial Results

Total revenues decreased 23.5% to $147.3 million for this quarter, compared to $192.6 million for the same period in 2016. Trading income, net, decreased 25.1% to $139.6 million for this quarter, compared to $186.3 million for the same period in 2016. Net income decreased 59.0% to $21.1 million for this quarter, compared to $51.4 million for the same period in 2016.

Basic and Diluted EPS for this quarter were $0.10 and $0.10, compared to $0.27 and $0.26 for the same period in 2016, respectively.

Adjusted Net Trading Income decreased 32.3% to $79.4 million for this quarter, compared to $117.3 million for the same period in 2016. Adjusted EBITDA decreased 41.2% to $47.7 million for this quarter, compared to $81.1 million for the same period in 2016. Normalized Adjusted Net Income decreased 48.5% to $22.0 million for this quarter, compared to $42.7 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 $0.16 for this quarter and $0.31 for the same period in 2016.

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

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 March 31, 2017, we achieved a diverse mix of Adjusted Net Trading Income results, with no one category constituting more than 35.3% of our total Adjusted Net Trading Income. Average daily Adjusted Net Trading Income was approximately $1.280 million for this quarter compared to $1.923 million for the same period in the previous year.

As of March 31, 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 Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by category for the three months ended March 31, 2017 and 2016, respectively.

            
  Three Months Ended March 31, 
 Adjusted Net Trading Income: 2017  % of
Total
  2016  % of
Total
 % Change 
 Category(in thousands, except percentages) 
 Americas Equities$28,052  35.3% $37,278  31.8% -24.7% 
 EMEA Equities 7,218  9.1%  13,710  11.7% -47.4% 
 APAC Equities 11,516  14.5%  12,180  10.4% -5.5% 
 Global Commodities 17,547  22.1%  30,347  25.9% -42.2% 
 Global Currencies 13,157  16.6%  20,501  17.5% -35.8% 
 Options, Fixed Income and Other 3,426  4.3%  8,713  7.4% -60.7% 
 Unallocated1 (1,518) -1.9%  (5,434) -4.7% NM  
 Total Adjusted Net Trading Income$   79,398   100.0% $   117,295   100.0% -32.3% 
            
  Three Months Ended March 31, 
 Average Daily Adjusted Net Trading Income: 2017  % of
Total
  2016  % of
Total
 % Change 
 Category(in thousands, except percentages) 
 Americas Equities$452  35.3% $611  31.8% -26.0% 
 EMEA Equities 116  9.1%  225  11.7% -48.4% 
 APAC Equities 186  14.5%  200  10.4% -7.0% 
 Global Commodities 283  22.1%  497  25.9% -43.1% 
 Global Currencies 212  16.6%  336  17.5% -36.9% 
 Options, Fixed Income and Other 55  4.3%  143  7.4% -61.5% 
 Unallocated1 (24) -1.9%  (89) -4.7% NM  
 Total Adjusted Net Trading Income$   1,280   100.0% $   1,923   100.0% -33.4% 
            
 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 daily Adjusted Net Trading      
 Income calculation can effectively defer or accelerate revenue from one day to another or one reporting period to another, as the case       
 may be. We do not allocate any resulting differences based on the timing of revenue recognition.         
            

Market Volume and Volatility in the Quarter

Around the world, the market remained uncharacteristically calm in the first quarter of 2017.

In US Equities, realized intraday volatility of the S&P 500 Index averaged just 57 basis points, a 18% drop from historical lows of Q4 2016.  Average daily consolidated U.S. equity share volume declined 20% year over year.

Graphs accompanying this announcement are available at http://www.globenewswire.com/NewsRoom/AttachmentNg/19eb511d-d500-4bf2-a321-8d0a6a237531

In EMEA Equities, realized intraday volatility of the EURO STOXX 50 Index averaged just 86 basis points, a drop of over 20% year over year and versus the prior quarter.  Realized volatility declined 19% versus the prior quarter.  Average daily pan-EU share volume and notional turnover declined 25% and 15%, year over year, respectively.

In APAC Equities, realized intraday volatility of the Nikkei 225 Index averaged just 81 basis points, a drop of over 57% year over year and 28% versus the prior quarter.  Realized volatility declined 28% versus the prior quarter.  Average daily TSE share volume and OSE Nikkei 225 Futures volume declined 22% and 36%, year over year, respectively.

In Commodities, average daily realized volatility of the CBOE Crude Oil Volatility Index declined over 23% versus the prior quarter.  The average daily CBOE Energy Sector Volatility Index and the CBOE/COMEX Gold Volatility Index declined 19% and 13%, respectively, compared to the prior quarter and 48% and 24%, year over year, respectively.  Average daily CME Energy contract volume declined 3% versus the prior quarter.

In Currencies, average daily realized volatility of the JPM FX G7 Volatility Index declined 13% versus the prior quarter.  Average daily volumes on Spot venues were down year over year, with EBS and Reuters posting the largest drops of 10% and 20%, respectively.

KCG Acquisition Update

Since the April 20 announcement of our definitive agreement to acquire KCG Holdings, we have begun working on a transition plan with KCG management, initiated the formal change in control applications with regulators, as well as customary anti-trust processes, and continued to conduct due diligence required to close the transaction. At this time, we continue to anticipate closing the transaction in Q3 2017.

Financial Condition

As of March 31, 2017, Virtu had $165.0 million in cash and cash equivalents, and total long-term debt outstanding in an aggregate principal amount of $570.1 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, 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%.

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. 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 March 31,
   2017   2016 
     
  (in thousands, except share and per share data)
Revenues:    
Trading income, net $139,574  $186,289 
Interest and dividends income  4,874   4,268 
Technology services  2,779   2,081 
Other, net  60   - 
Total revenues  147,287   192,638 
     
Operating Expenses:    
Brokerage, exchange and clearance fees, net  52,770   59,725 
Communication and data processing  18,207   17,722 
Employee compensation and payroll taxes  21,347   22,557 
Interest and dividends expense  12,280   13,537 
Operations and administrative  4,978   4,919 
Depreciation and amortization  6,757   7,727 
Amortization of purchased intangibles and    
acquired capitalized software  53   53 
Charges related to share based compensation at IPO  185   595 
Financing interest expense on senior secured credit facility  6,828   7,101 
Total operating expenses  123,405   133,936 
     
Income before income taxes and noncontrolling interest  23,882   58,702 
Provision for income taxes  2,808   7,346 
Net income $21,074  $51,356 
     
Noncontrolling interest  (16,494)  (41,008)
     
Net income available for common stockholders $4,580  $10,348 
     
Earnings per share:    
Basic $0.10  $0.27 
Diluted $0.10  $0.26 
     
Weighted average common shares outstanding    
Basic  40,398,381   38,210,209 
Diluted  40,398,381   38,489,489 
     
Comprehensive income:    
Net income $21,074  $51,356 
Other comprehensive income (loss)    
Foreign exchange translation adjustment, net of taxes  785   2,494 
Comprehensive income $21,859  $53,850 
Less: Comprehensive income attributable to noncontrolling        
interest  (17,044)  (42,801)
Comprehensive income available for common stockholders $4,815  $11,049 
     


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 March 31,
 2017
  2016
 (in thousands, except percentages)
Reconciliation of Trading income, net to Adjusted Net Trading Income      
Trading income, net$139,574   $186,289 
Interest and dividends income 4,874    4,268 
Brokerage, exchange and clearance fees, net (52,770)   (59,725)
Interest and dividends expense (12,280)   (13,537)
Adjusted Net Trading Income$79,398   $117,295 
     
Reconciliation of Net Income to EBITDA and Adjusted EBITDA    
Net income$21,074   $51,356 
Financing interest expense on senior secured credit facility 6,828    7,101 
Depreciation and amortization 6,757    7,727 
Amortization of purchased intangibles and acquired capitalized software 53    53 
Provision for income taxes 2,808    7,346 
EBITDA$37,520   $73,583 
     
Severance 877    193 
Transaction advisory fees and expenses 132    - 
Termination of office leases -    (319)
Other, net (60)   - 
Equipment write-off -    428 
Share based compensation 7,579    5,395 
Charges related to share based compensation at IPO, 2015 Management        
Incentive Plan 1,425    1,196 
Charges related to share based compensation awards at IPO 185    595 
Adjusted EBITDA$47,658   $81,071 
     
Selected Operating Margins    
Net Income Margin1 25.6%   43.0%
EBITDA Margin2 45.7%   61.6%
Adjusted EBITDA Margin3 58.0%   67.9%
     
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.
   
     


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 March 31, 
  2017    2016  
 (in thousands, except share and per share data)
Reconciliation of Net Income to Normalized Adjusted Net Income     
Net income$21,074   $51,356  
Provision for income taxes 2,808    7,346  
Income before income taxes$23,882   $58,702  
Amortization of purchased intangibles and acquired capitalized software 53    53  
Severance 877    193  
Transaction advisory fees and expenses 132    -  
Termination of office leases -    (319) 
Equipment write-off -    428  
Other losses (revenues) (60)   -  
Share based compensation 7,579    5,395  
Charges related to share based compensation at IPO, 2015 Management         
Incentive Plan 1,425    1,196  
Charges related to share based compensation awards at IPO 185    595  
Normalized Adjusted Net Income before income taxes$34,073   $66,243  
Normalized provision for income taxes1 12,096    23,516  
Normalized Adjusted Net Income$21,977   $42,727  
      
Weighted Average Adjusted shares outstanding2 140,837,161    139,891,431  
      
Normalized Adjusted EPS$0.16   $0.31  
      
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 months ended March 31, 2017 and 2016.
      


Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Financial Condition (Unaudited)
    
 March 31, December 31,
  2017  2016 
 (in thousands, except share data)
Assets   
Cash and cash equivalents$  164,967 $  181,415 
Securities borrowed   358,463    220,005 
Receivables from broker-dealers and clearing organizations   662,313    448,728 
Interest & dividends receivable   
Trading assets, at fair value   1,899,970    1,827,882 
Property, equipment and capitalized software, net   34,071    29,660 
Goodwill   715,379    715,379 
Intangibles (net of accumulated amortization)   939    992 
Deferred taxes   197,330    193,859 
Other assets   73,921    74,470 
Total assets$  4,107,353 $  3,692,390 
    
Liabilities and equity   
Liabilities   
Short-term borrowings$  22,000 $  25,000 
Securities loaned   423,672    222,203 
Payables to broker-dealers and clearing organizations   589,688    695,978 
Trading liabilities, at fair value   1,673,802    1,349,155 
Tax receivable agreement obligations   229,381    231,404 
Accounts payable and accrued expenses and other liabilities   73,498    69,281 
Long-term borrowings, net   565,317    564,957 
Total liabilities$  3,577,358 $  3,157,978 
    
Total equity   529,995    534,412 
    
Total liabilities and equity$  4,107,353 $  3,692,390 
    
 As of March 31, 2017
Ownership of Virtu Financial LLC Interests:Interests %
Virtu Financial, Inc. - Class A Common Stock   42,145,236  29.9%
Non-controlling Interests (Virtu Financial LLC)   98,691,925  70.1%
Total Virtu Financial LLC Interests   140,837,161  100.0%
 

About Virtu Financial, Inc.

Virtu is a leading technology-enabled market maker and liquidity provider to the global financial markets. We stand ready, at any time, to buy or sell a broad range of securities and other financial instruments, and we generate revenue by buying and selling securities and other financial instruments and earning small amounts of money on individual transactions based on the difference between what buyers are willing to pay and what sellers are willing to accept, which we refer to as "bid/ask spreads," across a large volume of transactions. We make markets by providing quotations to buyers and sellers in more than 12,000 securities and other financial instruments on more than 235 unique exchanges, markets and liquidity pools in 36 countries around the world. We believe that our broad diversification, in combination with our proprietary technology platform and low-cost structure, enables us to facilitate risk transfer between global capital markets participants by supplying liquidity and competitive pricing while at the same time earning attractive margins and returns.

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. 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