EX-99.1 2 a19-4090_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

Virtu Announces Fourth Quarter and Full Year 2018 Results

 

NEW YORK, NY,  February 7, 2019  — Virtu Financial, Inc. (NASDAQ: VIRT), a leading technology-enabled market maker and liquidity provider to the global financial markets, today reported results for the fourth quarter and the full year ended December 31, 2018.

 

Fourth Quarter and Full Year Selected Highlights

 

Fourth Quarter 2018:

 

·                  Net income of $147.9 million, Normalized Adjusted Net Income* of $127.2 million

·                  Basic earnings per share of $0.75, and diluted earnings per share of $0.74; Normalized Adjusted EPS* of $0.67

·                  Total revenues of $442.2 million; Trading income, net of $366.2 million; Adjusted Net Trading Income* of $299.2 million

·                  Adjusted EBITDA* of $195.1 million; Adjusted EBITDA Margin* of 65.2%

·                  Quarterly cash dividend of $0.24 per share payable on March 15, 2019

 

Full Year 2018:

 

·                  Net income of $620.2 million, Normalized Adjusted Net Income* of $375.0 million

·                  Basic earnings per share of $2.82, and diluted earnings per share of $2.78; Normalized Adjusted EPS* of $1.96

·                  Total revenues of $1,878.7 million; Trading income, net of $1,266.7 million; Adjusted Net Trading Income* of $1,020.3 million

·                  Adjusted EBITDA* of $620.0 million; Adjusted EBITDA Margin* of 60.8%

·                  Made $750 million total payments on the term loan to-date

·                  $65.9 million repurchased to-date out of $100 million in previously approved share buyback program;

 

* 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 March 15, 2019 to shareholders of record as of March 1, 2019.

 

“The benefits of Virtu’s scale and the fruits of our multi-asset class global business, as well as continued benefits from our acquisition of KCG all contributed to the outstanding performance in our business against a positive backdrop for our market making services.  Our customer as well as non-customer-facing market making platforms performed very well in the fourth quarter as volatility persisted.  For the full year 2018, we demonstrated once again the durability of our model and the ability to generate strong earnings and cash flows even in less than ideal environments, and outperform when market conditions are more favorable,” said Douglas Cifu, Chief Executive Officer of Virtu Financial.

 

Acquisition of Investment Technology Group, Inc.

 

On November 6, 2018, the Company and Investment Technology Group, Inc. (“ITG”) entered into a definitive agreement (the “ITG Merger Agreement”) whereby the Company will acquire ITG in a cash transaction valued at $30.30 per ITG share, or a total of approximately $1.0 billion (the “ITG Acquisition”). ITG announced that all proposals submitted to a vote of ITG’s stockholders that are necessary for the completion of the ITG Acquisition were approved at ITG’s special meeting of stockholders on January 24, 2019. The ITG Acquisition is expected to close during the first quarter of 2019 after receipt of all required regulatory approvals and satisfaction of other customary closing conditions. In connection with the ITG Acquisition and the refinancing of the Company’s existing term loan,

 

1

 

allocations have been completed for a new $1.5 billion, seven year first lien term loan with indicative pricing of LIBOR + 350 basis points, subject to the completion and execution of definitive documentation.

 

Form of Presentation

 

The Company completed its acquisition of KCG Holdings, Inc. on July 20, 2017 and the reported financial results of the Company for the periods following the acquisition reflect KCG’s and the Company’s balances, and reflect the impact of purchase accounting adjustments.

 

Financial Results

 

Fourth Quarter 2018:

 

Total revenues decreased 4.8% to $442.2 million for this quarter, compared to $464.5 million for the same period in 2017. Trading income, net, increased 27.9% to $366.2 million for this quarter, compared to $286.4 million for the same period in 2017. Net income increased 342.9% to $147.9 million for this quarter, compared to $33.4 million for the same period in 2017.

 

Basic and diluted earnings per share for this quarter were $0.75 and $0.74, respectively, compared to earnings per share of $0.12 each for the same period in 2017.

 

Adjusted Net Trading Income increased 26.1% to $299.2 million for this quarter, compared to $237.3 million for the same period in 2017. Adjusted EBITDA increased 81.0% to $195.1 million for this quarter, compared to $107.8 million for the same period in 2017. Normalized Adjusted Net Income increased 207.2 % to $127.2 million for this quarter, compared to $41.4 million for the same period in 2017.

 

Assuming all non-controlling interests had been exchanged for common stock, and the Company’s Normalized Adjusted Net Income before income taxes was subject to corporation taxes, Normalized Adjusted EPS was $0.67 for this quarter, compared to $0.22 for the same period in 2017.

 

Full Year 2018:

 

Total revenues increased 82.8% to $1,878.7 million, compared to $1,028.0 million in 2017. Trading income, net, increased 65.4% to $1,266.7 million, compared to $766.0 million in 2017. Net income increased to $620.2 million, compared to $18.9 million in 2017.

 

Basic and Diluted earnings per share for this year were $2.82 and $2.78, respectively, compared to $0.03 each in 2017.

 

Adjusted Net Trading Income increased 83.4% to $1,020.3 million, compared to $556.3 million in 2017. Adjusted EBITDA increased 146.6% to $620.0 million, compared to $251.4 million in 2017. Normalized Adjusted Net Income increased 307.2% to $375.0 million, compared to $92.1 million in 2017.

 

Assuming all non-controlling interests had been exchanged for common stock, and the Company’s Normalized Adjusted Net Income before income taxes was subject to corporation taxes, Normalized Adjusted EPS was $1.96 for the full year 2018, compared to $0.57 for the full year 2017.

 

2

 

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, and maintains corporate overhead expenses.

 

The following tables show the trading income, net, total revenues and Adjusted Net Trading Income by operating segment for the three months and full year ended December 31, 2018 and 2017.

 

3

 

Total revenues by operating segment

(in thousands, unaudited)

 

 

 

Three Months Ended December 31, 2018

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

365,964

 

$

264

 

$

—

 

$

366,228

 

Commissions, net and technology services

 

6,927

 

38,581

 

—

 

45,508

 

Interest and dividends income

 

26,060

 

105

 

7

 

26,172

 

Other, net

 

923

 

454

 

2,961

 

4,338

 

Total Revenues

 

$

399,874

 

$

39,404

 

$

2,968

 

$

442,246

 

 

 

 

Three Months Ended December 31, 2017

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

287,275

 

$

(2,052

)

$

1,160

 

$

286,383

 

Commissions, net and technology services

 

12,126

 

55,140

 

—

 

67,266

 

Interest and dividends income

 

21,263

 

515

 

(2,304

)

19,474

 

Other, net

 

1,170

 

540

 

89,688

 

91,398

 

Total Revenues

 

$

321,834

 

$

54,143

 

$

88,544

 

$

464,521

 

 

 

 

Year Ended December 31, 2018

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

1,265,866

 

$

816

 

$

—

 

$

1,266,682

 

Commissions, net and technology services

 

28,813

 

155,526

 

—

 

184,339

 

Interest and dividends income

 

86,741

 

705

 

62

 

87,508

 

Other, net

 

3,055

 

339,286

 

(2,152

)

340,189

 

Total Revenues

 

$

1,384,475

 

$

496,333

 

$

(2,090

)

$

1,878,718

 

 

 

 

Year Ended December 31, 2017

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

769,556

 

$

(5,394

)

$

1,865

 

$

766,027

 

Commissions, net and technology services

 

13,689

 

102,814

 

—

 

116,503

 

Interest and dividends income

 

51,822

 

619

 

(2,034

)

50,407

 

Other, net

 

1,640

 

1,096

 

92,309

 

95,045

 

Total Revenues

 

$

836,707

 

$

99,135

 

$

92,140

 

$

1,027,982

 

 

4

 

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

(in thousands, unaudited)

 

 

 

Three Months Ended December 31, 2018

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

365,964

 

$

264

 

$

—

 

$

366,228

 

Commissions, net and technology services

 

6,927

 

38,581

 

—

 

45,508

 

Interest and dividends income

 

26,060

 

105

 

7

 

26,172

 

Brokerage, exchange and clearance fees, net

 

(59,676

)

(14,154

)

—

 

(73,830

)

Payments for order flow

 

(24,234

)

(30

)

—

 

(24,264

)

Interest and dividends expense

 

(40,118

)

(497

)

—

 

(40,615

)

Adjusted Net Trading Income

 

$

274,923

 

$

24,269

 

$

7

 

$

299,199

 

 

 

 

Three Months Ended December 31, 2017

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

287,275

 

$

(2,052

)

$

1,160

 

$

286,383

 

Commissions, net and technology services

 

12,126

 

55,140

 

—

 

67,266

 

Interest and dividends income

 

21,263

 

515

 

(2,304

)

19,474

 

Brokerage, exchange and clearance fees, net

 

(66,715

)

(19,958

)

—

 

(86,673

)

Payments for order flow

 

(15,586

)

(70

)

—

 

(15,656

)

Interest and dividends expense

 

(34,295

)

(347

)

1,105

 

(33,537

)

Adjusted Net Trading Income

 

$

204,068

 

$

33,228

 

$

(39

)

$

237,257

 

 

 

 

Year Ended December 31, 2018

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

1,265,866

 

$

816

 

$

—

 

$

1,266,682

 

Commissions, net and technology services

 

28,813

 

155,526

 

—

 

184,339

 

Interest and dividends income

 

86,741

 

705

 

62

 

87,508

 

Brokerage, exchange and clearance fees, net

 

(242,847

)

(58,932

)

—

 

(301,779

)

Payments for order flow

 

(74,518

)

(127

)

—

 

(74,645

)

Interest and dividends expense

 

(140,120

)

(1,694

)

—

 

(141,814

)

Adjusted Net Trading Income

 

$

923,935

 

$

96,294

 

$

62

 

$

1,020,291

 

 

 

 

Year Ended December 31, 2017

 

 

 

Market

 

Execution

 

 

 

 

 

 

 

Making

 

Services

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

769,556

 

$

(5,394

)

$

1,865

 

$

766,027

 

Commissions, net and technology services

 

13,689

 

102,814

 

—

 

116,503

 

Interest and dividends income

 

51,822

 

619

 

(2,034

)

50,407

 

Brokerage, exchange and clearance fees, net

 

(224,706

)

(32,220

)

—

 

(256,926

)

Payments for order flow

 

(28,038

)

311

 

—

 

(27,727

)

Interest and dividends expense

 

(92,871

)

1,215

 

(337

)

(91,993

)

Adjusted Net Trading Income

 

$

489,452

 

$

67,345

 

$

(506

)

$

556,291

 

 

5

 

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

(in thousands, unaudited)

 

 

 

Three Months Ended December 31, 2018

 

 

 

Americas

 

ROW

 

Global FICC,

 

 

 

Total

 

 

 

Equities

 

Equities

 

Options and Other

 

Unallocated

 

Market Making

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

259,866

 

$

49,776

 

$

54,562

 

$

1,760

 

$

365,964

 

Commissions, net and technology services

 

6,883

 

—

 

44

 

—

 

6,927

 

Brokerage, exchange and clearance fees, net

 

(27,854

)

(17,825

)

(12,878

)

(1,119

)

(59,676

)

Payments for order flow

 

(24,234

)

—

 

—

 

—

 

(24,234

)

Interest and dividends, net

 

(9,914

)

(2,487

)

(2,312

)

655

 

(14,058

)

Adjusted Net Trading Income

 

$

204,747

 

$

29,464

 

$

39,416

 

$

1,296

 

$

274,923

 

 

 

 

Three Months Ended December 31, 2017

 

 

Americas

 

ROW

 

Global FICC,

 

 

 

Total

 

 

 

Equities

 

Equities

 

Options and Other

 

Unallocated

 

Market Making

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

186,710

 

$

57,589

 

$

45,022

 

$

(2,046

)

$

287,275

 

Commissions, net and technology services

 

12,121

 

—

 

5

 

—

 

12,126

 

Brokerage, exchange and clearance fees, net

 

(36,266

)

(19,298

)

(11,976

)

825

 

(66,715

)

Payments for order flow

 

(15,586

)

—

 

—

 

—

 

(15,586

)

Interest and dividends, net

 

(5,857

)

(3,502

)

(2,447

)

(1,226

)

(13,032

)

Adjusted Net Trading Income

 

$

141,122

 

$

34,789

 

$

30,604

 

$

(2,447

)

$

204,068

 

 

 

 

Year Ended December 31, 2018

 

 

 

Americas

 

ROW

 

Global FICC,

 

 

 

Total

 

 

 

Equities

 

Equities

 

Options and Other

 

Unallocated

 

Market Making

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

846,090

 

$

167,638

 

$

250,521

 

$

1,617

 

$

1,265,866

 

Commissions, net and technology services

 

28,583

 

—

 

230

 

—

 

28,813

 

Brokerage, exchange and clearance fees, net

 

(120,840

)

(61,703

)

(56,633

)

(3,671

)

(242,847

)

Payments for order flow

 

(74,518

)

—

 

—

 

—

 

(74,518

)

Interest and dividends, net

 

(31,031

)

(9,517

)

(11,326

)

(1,505

)

(53,379

)

Adjusted Net Trading Income

 

$

648,284

 

$

96,418

 

$

182,792

 

$

(3,559

)

$

923,935

 

 

 

 

Year Ended December 31, 2017

 

 

 

Americas

 

ROW

 

Global FICC,

 

 

 

Total

 

 

 

Equities

 

Equities

 

Options and Other

 

Unallocated

 

Market Making

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

404,113

 

$

175,840

 

$

192,563

 

$

(2,960

)

$

769,556

 

Commissions, net and technology services

 

12,184

 

342

 

(79

)

1,242

 

13,689

 

Brokerage, exchange and clearance fees, net

 

(97,832

)

(70,180

)

(55,910

)

(784

)

(224,706

)

Payments for order flow

 

(27,600

)

—

 

—

 

(438

)

(28,038

)

Interest and dividends, net

 

(15,151

)

(13,770

)

(8,825

)

(3,303

)

(41,049

)

Adjusted Net Trading Income

 

$

275,714

 

$

92,232

 

$

127,749

 

$

(6,243

)

$

489,452

 

 

6

 

The following tables show our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by category for the three months and full year ended December 31, 2018 and 2017:

 

(In thousands except percentages, unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

Adjusted Net Trading Income by Category:

 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Making:

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

204,747

 

$

141,122

 

45.1

%

$

648,284

 

$

275,714

 

135.1

%

ROW Equities

 

29,464

 

34,789

 

-15.3

%

96,418

 

92,232

 

4.5

%

Global FICC, Options and Other

 

39,416

 

30,604

 

28.8

%

182,792

 

127,749

 

43.1

%

Unallocated(1)

 

1,296

 

(2,447

)

NM

 

(3,559

)

(6,243

)

NM

 

Total Market Making

 

$

274,923

 

$

204,068

 

34.7

%

$

923,935

 

$

489,452

 

88.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Execution Services

 

24,269

 

33,228

 

-27.0

%

96,294

 

67,345

 

43.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

7

 

(39

)

NM

 

62

 

(506

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Trading Income

 

$

299,199

 

$

237,257

 

26.1

%

$

1,020,291

 

$

556,291

 

83.4

%

 

Average Daily

 

Three Months Ended December 31,

 

Year Ended December 31,

 

Adjusted Net Trading Income by Category:

 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Making:

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas Equities

 

$

3,250

 

$

2,240

 

45.1

%

$

2,583

 

$

1,098

 

135.1

%

ROW Equities

 

468

 

552

 

-15.3

%

384

 

367

 

4.5

%

Global FICC, Options and Other

 

626

 

486

 

28.8

%

728

 

509

 

43.1

%

Unallocated(1)

 

20

 

(39

)

NM

 

(14

)

(25

)

NM

 

Total Market Making

 

$

4,364

 

$

3,239

 

34.7

%

$

3,681

 

$

1,949

 

88.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Execution Services

 

385

 

527

 

-27.0

%

384

 

268

 

43.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

0

 

(1

)

NM

 

0

 

(2

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Trading Income

 

$

4,749

 

$

3,765

 

26.1

%

$

4,065

 

$

2,215

 

83.4

%

 

(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 Adjusted Net Trading Income by category sums to total Adjusted Net Trading Income, which can be reconciled to Trading Income, Net, calculated in accordance with GAAP. We do not allocate any resulting differences based on the timing of revenue recognition.

 

7

 

Financial Condition

 

As of December 31, 2018, Virtu had $736.0 million in cash and cash equivalents, and total long-term debt outstanding in an aggregate principal amount of $930.8 million.

 

Share Repurchase Program

 

The Virtu Financial, Inc. Board of Directors approved the share repurchase program for $50 million Class A common stock and common units of Virtu Financial LLC in February 2018 and subsequently expanded the program to $100 million in July 2018.  Since the inception of the program, the Company has repurchased approximately 2.56 million shares and units for approximately $65.9 million.  The Company now has approximately $34.1 million remaining capacity for future purchases of common stock and common units under the plan.

 

Non-GAAP Financial Measures and Other Items

 

To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles (“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 long-term borrowings, debt issue cost related to debt refinancing, depreciation and amortization, amortization of purchased intangibles and acquired capitalized software, and income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, reserve for legal matter, transaction advisory fees and expenses, termination of office leases, acquisition related retention bonus, trading related settlement income, gain on sale of business, connectivity early termination, other, net, write-down of assets, share based compensation, charges related to share based compensation at IPO, 2015 Management Incentive Plan, and charges related to share based compensation at IPO, and “Adjusted EBITDA Margin”, which compares Adjusted EBITDA to Adjusted Net Trading Income.

·                  “Normalized Adjusted Net Income”, “Normalized Adjusted Net Income before income taxes”, “Normalized provision for income taxes”, and “Normalized Adjusted EPS”, which we calculate by adjusting Net Income to exclude certain items and other non-cash items, assuming that all vested and unvested Virtu Financial LLC units have been exchanged for Class A Common Stock, and applying a corporate tax rate, which was between 35.5% and 37% for periods prior to January 1, 2018 and decreasing to approximately 23% beginning January 1, 2018 as a result of the Tax Act.

·                  “Adjusted Operating Expenses”, which we calculate by adjusting total operating expenses to exclude severance, share based compensation, reserve for legal matters, connectivity early termination and write-down of assets.

 

Total Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS and Adjusted Operating Expenses are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions. Additional information provided regarding the breakdown of Total Adjusted Net Trading Income by category is also a non-GAAP financial measure but is not used

 

8

 

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

 

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

 

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

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

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

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

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

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

 

Because of these limitations, Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income are not intended as alternatives to Net Income as indicators of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Net Trading Income, EBITDA, Adjusted EBITDA and Normalized Adjusted Net Income along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. These

 

9

 

U.S. GAAP measurements include Net Income, cash flows from operations and cash flow data. See below a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure.

 

10

 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

(in thousands, except share and per share data)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

366,228

 

$

286,383

 

$

1,266,682

 

$

766,027

 

Commissions, net and technology services

 

45,508

 

67,266

 

184,339

 

116,503

 

Interest and dividends income

 

26,172

 

19,474

 

87,508

 

50,407

 

Other, net

 

4,338

 

91,398

 

340,189

 

95,045

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

442,246

 

464,521

 

1,878,718

 

1,027,982

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Brokerage, exchange and clearance fees, net

 

73,830

 

86,673

 

301,779

 

256,926

 

Communication and data processing

 

38,327

 

48,316

 

176,120

 

131,506

 

Employee compensation and payroll taxes

 

64,833

 

66,436

 

215,556

 

177,489

 

Payments for order flow

 

24,264

 

15,656

 

74,645

 

27,727

 

Interest and dividends expense

 

40,615

 

33,537

 

141,814

 

91,993

 

Operations and administrative

 

13,100

 

25,302

 

64,749

 

61,466

 

Depreciation and amortization

 

13,596

 

18,170

 

61,154

 

47,327

 

Amortization of purchased intangibles and acquired capitalized software

 

6,081

 

8,901

 

26,123

 

15,447

 

Termination of office leases

 

57

 

1,860

 

23,357

 

3,671

 

Debt issue cost related to debt refinancing

 

—

 

1,109

 

11,727

 

10,460

 

Transaction advisory fees and expenses

 

2,502

 

950

 

11,487

 

25,270

 

Reserve for legal matters

 

—

 

2,833

 

2,020

 

657

 

Charges related to share based compensation at IPO

 

—

 

227

 

24

 

772

 

Financing interest expense on long-term borrowings

 

16,264

 

23,966

 

71,800

 

64,107

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

293,469

 

333,936

 

1,182,355

 

914,818

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and noncontrolling interest

 

148,777

 

130,585

 

696,363

 

113,164

 

Provision for income taxes

 

841

 

97,184

 

76,171

 

94,266

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

147,936

 

$

33,401

 

$

620,192

 

$

18,898

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

(67,068

)

(22,425

)

(330,751

)

(15,959

)

 

 

 

 

 

 

 

 

 

 

Net income available for common stockholders

 

$

80,868

 

$

10,976

 

$

289,441

 

$

2,939

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.12

 

$

2.82

 

$

0.03

 

Diluted

 

$

0.74

 

$

0.12

 

$

2.78

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

106,309,194

 

89,362,838

 

100,875,793

 

62,579,147

 

Diluted

 

106,970,415

 

89,362,838

 

102,089,138

 

62,579,147

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

Net income

 

$

147,936

 

$

33,401

 

$

620,192

 

$

18,898

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment, net of taxes

 

1,037

 

817

 

(2,677

)

9,117

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

148,973

 

$

34,218

 

$

617,515

 

$

28,015

 

Less: Comprehensive income attributable to noncontrolling interest

 

(67,517

)

(22,847

)

(329,756

)

(21,833

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income available for common stockholders

 

$

81,456

 

$

11,371

 

$

287,759

 

$

6,182

 

 

11

 

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 December 31,

 

Year Ended December 31,

 

(in thousands, except percentages)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Trading income, net to Adjusted Net Trading Income

 

 

 

 

 

 

 

 

 

Trading income, net

 

$

366,228

 

$

286,383

 

$

1,266,682

 

$

766,027

 

Commissions, net and technology services

 

45,508

 

67,266

 

184,339

 

116,503

 

Interest and dividends income

 

26,172

 

19,474

 

87,508

 

50,407

 

Brokerage, exchange and clearance fees, net

 

(73,830

)

(86,673

)

(301,779

)

(256,926

)

Payments for order flow

 

(24,264

)

(15,656

)

(74,645

)

(27,727

)

Interest and dividends expense

 

(40,615

)

(33,537

)

(141,814

)

(91,993

)

Adjusted Net Trading Income

 

$

299,199

 

$

237,257

 

$

1,020,291

 

$

556,291

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Net income

 

$

147,936

 

$

33,401

 

$

620,192

 

$

18,898

 

Financing interest expense on long-term borrowings

 

16,264

 

23,966

 

71,800

 

64,107

 

Debt issue cost related to debt refinancing

 

—

 

1,109

 

11,727

 

10,460

 

Depreciation and amortization

 

13,596

 

18,170

 

61,154

 

47,327

 

Amortization of purchased intangibles and acquired capitalized software

 

6,081

 

8,901

 

26,123

 

15,447

 

Provision for income taxes

 

841

 

97,184

 

76,171

 

94,266

 

EBITDA

 

$

184,718

 

$

182,731

 

$

867,167

 

$

250,505

 

 

 

 

 

 

 

 

 

 

 

Severance

 

1,901

 

4,739

 

10,974

 

14,911

 

Reserve for legal matters

 

—

 

2,833

 

2,020

 

657

 

Transaction advisory fees and expenses

 

2,502

 

950

 

11,487

 

25,270

 

Termination of office leases

 

57

 

1,860

 

23,357

 

3,671

 

Acquisition related retention bonus

 

—

 

—

 

—

 

23,050

 

Trading related settlement income

 

—

 

(628

)

—

 

(628

)

Connectivity early termination

 

—

 

—

 

7,062

 

—

 

Loss (gain) on sale of businesses

 

—

 

—

 

(335,210

)

—

 

Other, net

 

(4,338

)

(91,398

)

(4,979

)

(95,045

)

Write-down of assets

 

—

 

672

 

3,239

 

1,216

 

Share based compensation

 

8,852

 

4,723

 

29,065

 

21,825

 

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

 

1,425

 

1,091

 

5,781

 

5,225

 

Charges related to share based compensation awards at IPO

 

—

 

223

 

24

 

740

 

Adjusted EBITDA

 

$

195,117

 

$

107,796

 

$

619,987

 

$

251,397

 

 

 

 

 

 

 

 

 

 

 

Selected Operating Margins

 

 

 

 

 

 

 

 

 

Net Income Margin(1)

 

49.4

%

14.1

%

60.8

%

3.4

%

EBITDA Margin(2)

 

61.7

%

77.0

%

85.0

%

45.0

%

Adjusted EBITDA Margin(3)

 

65.2

%

45.4

%

60.8

%

45.2

%

 

(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.

 

12

 

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 December 31,

 

Year Ended December 31,

 

(in thousands, except per share data)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Normalized Adjusted Net Income

 

 

 

 

 

 

 

 

 

Net income

 

$

147,936

 

$

33,401

 

$

620,192

 

$

18,898

 

Provision for income taxes

 

841

 

97,184

 

76,171

 

94,266

 

Income before income taxes

 

$

148,777

 

$

130,585

 

$

696,363

 

$

113,164

 

Amortization of purchased intangibles and acquired capitalized software

 

6,081

 

8,901

 

26,123

 

15,447

 

Financing interest expense related to KCG transaction

 

—

 

—

 

—

 

4,626

 

Debt issue cost related to debt refinancing

 

—

 

1,109

 

11,727

 

10,460

 

Severance

 

1,901

 

4,739

 

10,974

 

14,911

 

Reserve for legal matters

 

—

 

2,833

 

2,020

 

657

 

Transaction advisory fees and expenses

 

2,502

 

950

 

11,487

 

25,270

 

Termination of office leases

 

57

 

1,860

 

23,357

 

3,671

 

Connectivity early termination

 

—

 

—

 

7,062

 

—

 

Write-down of assets

 

—

 

672

 

3,239

 

2,849

 

Acquisition related retention bonus

 

—

 

—

 

—

 

23,050

 

Trading related settlement income

 

—

 

(628

)

—

 

(628

)

Loss (gain) on sale of businesses

 

—

 

—

 

(335,210

)

—

 

Other, net

 

(4,338

)

(91,398

)

(4,979

)

(95,045

)

Share based compensation

 

8,852

 

4,723

 

29,065

 

21,825

 

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

 

1,425

 

1,091

 

5,781

 

5,225

 

Charges related to share based compensation awards at IPO

 

—

 

223

 

24

 

740

 

Normalized Adjusted Net Income before income taxes

 

$

165,257

 

$

65,660

 

$

487,033

 

$

146,222

 

Normalized provision for income taxes(1)

 

38,009

 

24,295

 

112,018

 

54,102

 

Normalized Adjusted Net Income

 

$

127,248

 

$

41,365

 

$

375,015

 

$

92,120

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Adjusted shares outstanding(2)

 

191,174,005

 

188,248,614

 

190,959,477

 

161,464,923

 

 

 

 

 

 

 

 

 

 

 

Normalized Adjusted EPS

 

$

0.67

 

$

0.22

 

$

1.96

 

$

0.57

 

 

(1)    Reflects U.S. federal, state, and local income tax rate applicable to corporations of approximately 23% for 2018 and 37% for 2017

(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.

 

13

 

Virtu Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

 

 

December 31

 

December 31,

 

 

 

2018

 

2017

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

736,047

 

$

532,887

 

Securities borrowed

 

1,399,684

 

1,471,172

 

Securities purchased under agreements to resell

 

15,475

 

—

 

Receivables from broker-dealers and clearing organizations

 

1,101,449

 

972,018

 

Trading assets, at fair value

 

2,639,921

 

2,712,622

 

Property, equipment and capitalized software, net

 

113,322

 

137,018

 

Goodwill

 

836,583

 

844,883

 

Intangibles (net of accumulated amortization)

 

83,989

 

111,224

 

Deferred taxes

 

200,359

 

125,760

 

Assets of business held for sale

 

—

 

55,070

 

Other assets

 

254,149

 

357,352

 

Total assets

 

$

7,380,978

 

$

7,320,006

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Short-term borrowings, net

 

$

15,128

 

$

27,883

 

Securities loaned

 

1,130,039

 

754,687

 

Securities sold under agreements to repurchase

 

281,861

 

390,642

 

Payables to broker-dealers and clearing organizations

 

567,441

 

716,205

 

Trading liabilities, at fair value

 

2,475,395

 

2,384,598

 

Tax receivable agreement obligations

 

214,403

 

147,040

 

Accounts payable and accrued expenses and other liabilities

 

294,975

 

358,825

 

Long-term borrowings, net

 

907,037

 

1,388,548

 

Total liabilities

 

$

5,886,279

 

$

6,168,428

 

 

 

 

 

 

 

Total equity

 

1,494,699

 

1,151,578

 

 

 

 

 

 

 

Total liabilities and equity

 

$

7,380,978

 

$

7,320,006

 

 

 

 

As of December 31, 2018

 

 

 

Interests

 

%

 

Ownership of Virtu Financial LLC Interests:

 

 

 

 

 

Virtu Financial, Inc. - Class A Common Stock and Restricted Stock Units

 

108,155,199

 

56.6

%

Non-controlling Interests (Virtu Financial LLC)

 

82,841,626

 

43.4

%

Total Virtu Financial LLC Interests

 

190,996,825

 

100.0

%

 

14

 

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 25,000 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 and with respect to the acquisition of ITG and related integration 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

 

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