Virtu Financial, Inc.

Thank you. Oh, my God. Thank you.

Good day and welcome to the Virtue Financial 2021 first quarter results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone button. To withdraw your question, please press star, then two. Please note this event is being recorded. I'll now turn the conference over to Andrew Smith. Please go ahead.

Thank you, Grant, and good morning. Thanks for joining us, everyone. Our first quarter results were released this morning and are available on our website. On this morning's call, we have Mr. Douglas Sifu, our Chief Executive Officer, and Mr. Joseph Maluso, our Co-President and Co-Chief Operating Officer, and Mr. Sean Galvin, our Chief Financial Officer. They will begin with prepared remarks and take your questions. First, a few reminders. Today's call may include forward-looking statements which represent Virtue's current belief regarding future events and are therefore subject to risks, assumptions, and uncertainties, which may be outside the company's control. Please note that our actual results and financial condition may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based upon information presently available to the company. and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report and form 10-K and other public filings. During today's call, in addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margins. Non-GAAP measures should be considered as supplemental to and not superior to financial measures prepared in accordance with GAAP. We direct listeners to consult the investor portion of our website where you'll find supplemental information referred to on this call as well as reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures. And with that, I turn the call over to Doug.

Thank you, Andrew. Good morning, everyone, and thank you for joining our first quarter earnings call. I will start with a brief overview of our near record results in the quarter and highlight some recent successes, including the strong contribution from our organic growth initiatives and provide an update on the record quarter delivered by our execution services business. At our core, everything at Virtu is driven by our ability to apply technology to efficiently and transparently serve our customers and the markets. It's because of this business model, centered on building and leveraging our operating scale, that we were able to generate a record 77.6% adjusted EBITDA margin in the first quarter this year. I'll get to more of our results in a moment, but I want to point out how the market changes over the last year created lasting opportunities for Virtu. The levels of activity in the market in Q1 were extremely robust. Our performance was driven, however, by the beneficial long-term trends in the market, as well as our organic growth initiative. Beginning in 2020 and to this day, we see a new level of engagement from first-time market participants, and the way they are engaging continues to evolve. A Deutsche Bank study from earlier this year reported that 45 percent of retail investors are new to the market in the last year, and one of the major e-brokers recently commented that almost 70 percent of its daily logins are from a mobile device. While it is difficult to estimate the levels at which these activities will continue compared to the recent past, We are confident the underlying trends will remain in place, supported by Virtu and a robust market ecosystem capable of handling this level of extraordinary activity. During the first quarter, our market-making results reflected continued strength across the board in our underlying businesses. Our customer market-making business performed exceptionally well, and the long-term trends driven by technology, innovation, and competition continue to enable and support unprecedented levels of retail and professional investor engagement. This performance was buttressed by our non-customer market-making business, which saw healthy and steady performance across asset classes and geographies where we make market. In total, our market-making business realized $575 million in adjusted net trading income, or $9.4 billion per day, on par with the first half of 2020. We also provided a total of $470 million in price improvement to retail investors in Q1. It is important to note that while this amount is impressive as a standalone matter, it is more impressive when what we call size improvement is considered. We not only offer investors excellent execution prices, we do so at sizes that are often about three times larger than what is available at the top of book national best bid, best offer prices. None of this size improvement is included in any Rule 605 or 606 filing. Our go-to execution services businesses also performed exceedingly well this quarter. We realized $153 million in adjusted net trading income, a record quarter performance for VES. We have a slide in our supplemental materials which provides a snapshot of this business. The beginning of the second quarter marked the second anniversary of our close on the acquisition of ITG, and slide three illustrates the 26 percent CAGR we achieved over this timeframe. Two years later, you can see the business remains truly global, and our clients represent the largest global institutions and are connected to Virtu across a broad array of products and services. If you recall, our entrance into the execution services business began as an organic initiative and its growth was accelerated through the acquisition of KCG and ITG. At the time when we acquired KCG and ITG, the profitability in each of their execution services businesses were struggling, burdened by legacy technology, cost inefficiencies, and a backward-looking view of these businesses. In the years following these acquisitions, through the heavy lifting of integrating, and the leadership of Steve Cavoli, we were able to successfully invest in the customer technology enhancements necessary to thrive and compete in this business, while at the same time managing the cost basis in a virtu way. While we do not break out segment profitability, I am proud to report that the profit margins in this business are far superior to the marginally profitable businesses we acquired and likely among the most profitable global institutional businesses. Along the path to improving profitability of this segment, we continue to find efficient ways to offer more value to our clients without the risk inherent in a more traditional prime brokerage model run by nearly every competing scaled player. These offerings are organic because of our scale and integration often generate almost 100% incremental margin. One such driver of our growth story comes from the unique offerings and sources which our clients can only access through our execution tools. including allowing customers to realize the potential benefits available by accessing the multiple sources of unique liquidity by virtue of our global market-making relationships and our U.S. 605 wholesale business, as well as the 2,000 VES clients I mentioned just now. With this offering, our global client network of investors, including buy-side and sell-side institutions, RIAs, asset managers, and ETF issuers are able to transparently interact with pools of unique liquidity from across our businesses, including retail order flow, to achieve their investment objectives by trading with more offsetting flow and achieving larger size fills. Again, access to all of this liquidity is only available through Virtu. I know we have spoken briefly about this offering in the past, but I provide this update to highlight the meaningful progress we've made over the last several months and the larger opportunity ahead. Continuing along our growth theme, one aspect of the Virtue story that we are very proud and I think will make increasing important contributions in the coming years is the performance of our organic growth initiatives. Overall, since 2018, the investments we have made in these various businesses on slide four now comprise 8 percent of our adjusted net trading income. You can see that our myriad avenues of growth contributed to our performance. Our $942,000 per day of ante from these growth initiatives represents 8 percent of our ante for the quarter. These initiatives are truly organic in that our ante from any of these revenue sources was immaterial only a few years ago, and we've achieved these results without additional acquisition. We achieved this the virtue way, which means by leveraging our scaled infrastructure, supplemented with a handful of individual hires. There are a few initiatives that deserve mention beyond what is presented in slide four in the supplemental materials. First, our options market making business continues to make significant progress. Compared to 2020, our daily average adjusted net trading income in options increased over 50% in the first quarter of 2021. Options is a high priority growth avenue for Virtue, and we're investing in and made a handful of strategic hires to help accelerate our time. Our recent efforts in the crypto asset space also contributed to strong results in the first quarter. Our focus on trading crypto products comes from the launch of the Bitcoin and Ether ETFs in Canada in late February this year. These ETFs now have over $1 billion Canadian assets. In Canada, Virtu worked with the ETF issuers to launch the products and become the designated broker or lead market maker and an authorized participant on a handful of the new ETFs, providing liquidity on screen and in blocks to our clients. As an AP, we create and redeem ETF shares with ETF issuers and trade in the underlying crypto assets. The takeaway here is that the growth of a liquid, tradable, crypto-related product is another way that the total addressable market is growing for Virtu's scaled liquidity provision and execution services. Our growing at-the-market business had a strong quarter, setting a new record, helping clients raise nearly $900 million of capital from the public markets by leveraging our existing electronic execution capabilities and network of clients. This is another example of how we generate very high incremental margin revenue due to our operating scale, common technology platform, and sizable footprint. The first quarter also included more than its share of discussion around market structure rules and regulations, congressional hearings around the so-called meme stocks, payment for order flow, investor education, shortness of settlement cycles, gamification, and other important issues. We welcome SEC Chairman Gensler and congratulate him on his new role. We will continue to maintain an open dialogue with all of our global regulators about how to continue to improve the global market structure for all market participants. We believe that we operate in a transparent market structure in the U.S. that serves all market participants exceedingly well. In U.S. equities, for example, U.S. Virtu returned $1.3 billion to retail investors in the form of price improvement in 2020 without giving effect to the size improvement noted above. We believe that the levels of activity in the market is evident itself of the open and transparent access that all investors enjoy today. Finally, given the strength of the results from the beginning of this year and the continued cash generative nature of our business, we are meaningfully expanding our share buyback program by an incremental $300 million, which represents an increase to the existing $170 million authorization. In a moment, Joe will provide more detail on this and other matters, and then Sean will wrap up the call with a review of our numbers. Before I conclude my prepared remarks, I want to pause for a moment to honor the memory of an industry leader and a longtime member of the Virtue Board of Directors, Mr. Jack Sanders. Jack was a mentor to Vinny and myself and was a great man. Jack was the chairman of the CME for the better part of two decades and among those responsible for guiding the CME into the modern electronic age. Jack, we will miss you and are grateful for all of your efforts over the years on behalf of Virtu and the capital markets more generally. Rest in peace, Jack. Now I turn the call over to Jeff.

Thank you, Doug. Measuring against the progress we have made versus the model that we presented in the second half of last year and how the progress in our growth initiatives and performance are consistent with what we outlined and expressing confidence in the future long-term growth of our business, we are increasing our share and purchase program meaningfully. Our share and purchase program began in November 2020 with an initial $100 million authorization and increased to $170 million in total when we announced our Q4 earnings. As Doug just mentioned, our board has authorized an incremental $300 million increase to our repurchase program, bringing the total to $470 million. We have provided specific parameters for earnings and share repurchases in prior communication. We believe increasing the share repurchase authorization by an additional $300 million is consistent with our prior guidance. This increase allows us to achieve our goals of returning excess capital in an efficient manner to our shareholders, allows us to be a continuous purchaser in the market for our shares, reduce the share outstanding over time, and allows us to remain flexible to increase the authorization in the future as conditions and our results allow. To date, we have repurchased $151 million of our shares at an average cost of $27.77, resulting in 5.4 million shares repurchased since the inception of our buyback program about six months ago. It is important to note that our share buybacks are the result of excess cash generated by our business after making proper allowance for adequate amounts of trading capital and liquidity to allow us to take advantage of market opportunities. Our ability to devote excess cash to our shared purchase program is also related to our total capitalization and long-term debt outstanding. Given that our total debt-to-EBITDA ratio stands at 100% EBITDA as of March 31st, we would expect to maintain our current level of indebtedness for the foreseeable future. Third to slide five is a supplemental material to review our capital management snapshots. As you know, Virtue has consistently paid a 24-cent quarterly dividend since our IPO in 2015. There are two important things to point out on this slide. Consistent with guidance, our share count has been declining due to our buyback program. This decline is net investing of restricted stock and other share awards that are part of our regular employee compensation. We would expect that as we consummate the existing repurchase authorization within the next 12 months, and that share of outstanding will continue to decline. Importantly, we wanted to point out what we believe is a significant and underappreciated aspect of Virtue's operation. Despite Virtue's growth as a global multi-asset class market maker and our strategic expansion into offering a suite of execution, workflow, and analytics products to the buy side and sell side, we continue to remain focused on capital efficiency. The nature of our operations and services we provide are not capital intensive and allow us to maintain a relatively consistent level of capital across market environments. You can see from this slide that even in 2019, a trough year for market making and a year that also included our completion of the ITG acquisition, we were able to achieve strong cash returns on invested capital. Now compare that to 2020 where, driven by Virtue realizing additional expense synergies from integration, executing on organic growth initiatives, and a new level of market activity, Birch has generated a return on invested capital of 100% in 2020. This extraordinary outcome is due to a number of factors, including our disciplined management of capital and costs, and our business model designed to leverage our global operating scale, all of which helps us generate more free cash flow. I'll now turn the call over to Sean for a review of our financial results before moving to questions and answers.

Thank you, Jim. In the first quarter, as presented on slide three of our supplemental materials, our adjusted net trading income, which represents our trading gains, net of direct trading expenses, totaled $728 million, or $11.9 million per day, which is 7% lower than Q1 2020 and 60% above the fourth quarter. Market-making adjusted net trading income was $575 million, or $9.4 million per day, 10% lower than the year-ago quarter but 88% above the fourth quarter. Execution services adjusted net trading income was $153 million, or $2.5 million per day, which is a record high and a 19% increase year-over-year. Our $2.04 in adjusted EPS was just a penny shy of last year's record first quarter and well above $1.18 per share in the fourth quarter of 2020. In the first quarter, our cash and overall compensation ratios were 12 percent and 14 percent of adjusted net trading income, respectively. A note about our compensation ratio. Consistent with past practice, we accrue year-end incentive compensation to a range of percentages earlier in the year. Depending upon how the remainder of the year unfolds, this may result in adjustments to our compensation ratio in later quarters this year as we refine our specific compensation targets. Overall, we believe our full-year cost results will be consistent with the cost guidance we previously provided for 2021. Adjusted EBITDA came in at $565 million for Q1, 1% lower than the prior year quarter and 64% above the fourth quarter. We delivered a record-adjusted EBITDA margin of 77.6% for the first quarter by continuing to successfully leverage our efficient cost structure and by carefully managing our expenses. As Joe mentioned, our capitalization remains adequate and our debt remains relatively flat at $1.67 billion, reflecting a $1.5 million repayment in the first quarter. Finance interest expense was $19 million for the first quarter of 2021 compared to $26 million for the prior year first quarter, with this decrease primarily due to the repayment of $289 million of long-term debt in 2020. We remain committed to our 24-cent quarterly dividend, which we have consistently paid over 23 quarters in every market environment since our IPO, and the $300 million increase we announced today to our existing $170 million share buyback authorization fully demonstrates our continued commitment to return capital to our shareholders. I will now turn the call back over to the operator for Q&A.

You will now begin the question and answer session. To ask your question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question today will come from Rich Rapeto with Tiger Sandler. Please go ahead.

Yeah, good morning, Doug and Joe and Sean. First, congrats over the top quarter here. So I guess my first question has to do with cash flow. You know, you did buy back shares and, you know, you have paid down debt in the past. But in your previously sort of public statements, you talked about, you know, a buyback commensurate with the adjusted net trading incomes. So, I mean, I'm trying to understand the timing of the buyback. Does it be more accelerated, I guess, going forward because of the increased cash flow?

Yeah, Rich, we put those handy charts out that show EPS and levels of cash flow at different levels of net trading income. So we think this is consistent. I mean, what we put out in the past, you've got to look at this quarter as a quarter, right? So you want to take the full year range that we put out here, and if you quarterize it, I think it's consistent. And it's also a statement about the full year. Obviously, if we continue to print quarters like this, we would have more, we would have share buybacks consistent with what we've got for the full year. So I guess that's the first point. The second point is we've already bought back $150 million worth of shares, you know, it's a, it is almost the full authorization of 170 prior to this. You know, and I would expect the board to authorize this new repurchase horizon of a year from now. And I would target, you know, starting now through the end of the first quarter of next year. So I would look at it as kind of rolling 12-month periods. You know, we've chosen to not try to you know, pick stock prices where we'll be a buyer and not pick other prices where we won't be a buyer. We've tried to look at it. You know, I think most people look at these things over a 12 to 18-month period. We've tried to tighten that up because we've been so specific about our guidance, and we've tried to be just a consistent purchaser in the market at all levels. And, you know, I think, you know, that seems to have worked so far.

Got it. That's helpful, Joe. And then I guess my follow-up would be, you know, you didn't update or address the sensitivity tables on adjusted net trading income and EPS that you published. I'm assuming that you still believe, you know, the earnings, and you far surpassed this, but the earnings capability in a normalized environment is at least $3 in EPS. You know, the question, and it'll either come from me or someone else later, is just, you know, could you talk about, you know, have we returned to that more sort of the normalized environment and how close are we to it in too few to date in April?

Yeah, look, I say, not to be flip rich, I feel pretty good about $3 a share this year, given that we're at $2.04. So the year has got 12 months, which is a good thing. There's no reason to update the chart, given that it's math, right? It's the adjusted trading income per day, number of trading days, and then we've been really precise about expense guidance, as we always are. So So it's pretty easy math. You were nice enough to host us at the virtual BOCA in March. We put a range up of different outcomes around ANSI. And we think that's the relevant range. Now, if anyone, if you look at the past year, year and a half, two years, and can point to something that's normal, I'm all ears. But yeah, the answer to your question is yes.

Okay. Thank you. That's helpful. Thank you.

Our next question will come from Dan Fannin with Jefferies. Please go ahead.

So I guess just building upon that and trying to get a sense of maybe not what's normal, but just kind of what is happening in your business as you think about kind of the external metrics all moderating here in April, and if you could kind of update us on how you're tracking within this kind of backdrop.

Yeah, Dana, obviously, you know, you look at the same metrics I do, just to give you a little commentary on them. I mean, you know, April volumes were a hair under 10 billion shares per day, which is down, you know, 32 odd percent from the first quarter. I would point out only down 5 percent from Q4, right, of 2020. And on a notional basis, which is important as well, it's actually up from Q4. So there's always some distortion in these periods, and they can look particularly like the first quarter, can look very exaggerated by a lot of these, you know, lower-priced names like an SNDL that'll trade a couple billion shares a day, and it tends to distort the data on a notional basis. The changes are really not as relevant. You know, realized volatility is down in April as well, so it's down, you know, to 30, about 30 percent from Q1. You know, I'm really trying to stay out of the commentary game going forward. I mean, it really has not served us well. Frankly, either way, I'm excited about the future of this company. We're very, very proud of the EBITDA margin that we produced in this quarter, and we continue to focus on operating discipline. We're very committed to capital return to our investors, as is witnessed by buying back $150 million of shares. My board is very supportive of that going forward, as we just articulated. And, you know, we're running this company, I'm running this company for the next 20 quarters. And so what April means as compared to April of 2023 kind of doesn't really matter to me. We will continue to focus on the organic growth initiative that have borne significant fruit. I mean, 8% of our adjusted net trading income. So, you know, we're executing on everything that we said we were going to execute on. We are integrated to massive companies that were materially large to us. And frankly, in many regards, we're a mess. We created an enormous amount of value. We created an execution services business that I'm proud to say is unparalleled in scale and efficiency. It doesn't rely on the vagaries of prime brokerage and risk-taking. We're finding new opportunities in options, in ETF block. And as we announced, we're very supportive of crypto as a new asset class that we can provide a lot of value to. So that's really the investment case for Virtu. And, obviously, I understand you have a job to do, and investors look at monthly, daily, weekly volumes and get all excited about them. You know what? I'm trying to stay in the middle of the fairway and run this firm for the next, you know, five or more years, and that's what we intend to do.

Understood. And then just the disclosures did change, and so transparency has kind of narrowed over the last few years on your business. Could you maybe talk about the public versus global equities and, you know, Yeah, sure.

I mean, it's consistent with how we report on a gap basis, right? So a lot of it was historical when we were a smaller company and didn't have, you know, a customer or non-customer segment, didn't have execution services, business, et cetera. So the company has gotten a lot larger and more complicated. But again, it goes back to the point I just tried to make, which is, You know, Virtu is a story of not whether or not our metals business is up consistent in a quarter with some metric that somebody's looking at. The vagaries of that type of analysis are not consistent, in my view, with longholder shareholder value creation. I'm all about providing transparency. This is not the easiest business in the world to explain, but my conclusion was, with the support of my colleagues here in this room and my board, was that providing that level of granularity, I guess, was not consistent with the long-term shareholder values we're trying to create, and all it did was encourage folks to trade in and out of the stock, which they have done with alacrity, and they're entitled to do. but certainly we're not going to provide additional information so that people can do that on a more regular basis. We want people to understand this story as a scaled electronic provider. And, you know, rest assured, our FIC numbers are completely in line with historical averages, and we said this on the last earnings call, we're going to narrow the focus of this firm, if you will, and the review of this firm as a technologically-enabled financial services firm that is broad and is unique in the market and will continue to return capital to investors. We're just trying to reduce the noise quarter to quarter.

Male Speaker 1 Oh, next question will come from Chris Allen with Compass Point. Please go ahead.

Morning, everyone. I want to ask a little bit about execution services. Last quarter, you noted a growing recurring revenue base within that line. Maybe you could give us some color in terms of framing that out, just how big that is, the percentage of that segment, because obviously first quarter was a good industry backdrop as well within that business.

Yeah, great question, Chris. I mean, we don't traditionally kind of break it out into recurring versus non-recurring, and, you know, there's a little bit of a mixture in there. As you know, if you think of the recurring segments, we have a workflow solutions and analytics business, We're obviously very focused on that. We launched, you know, some new products, which we outlined in the quarter, you know, our open Intel, our open Python products. We really replatformed in large measure our Triton product and delivering our analytics solution in a very, very, you know, material way. So the way we look at it is like kind of these are like reoccurrence revenues, right? We have 2,000 global clients. The vast preponderance of them use two or more products, including commission management, which is a really important part of that. And so, sure, there's going to be elements of, you know, transactional activity that will impact those products, but it's no different than an institutional business at a large-scale broker-dealer. As I've pointed out, absent, of course, the vagaries of prime brokerage and risk-taking, right? So we're providing these skilled execution service solutions, multi-product, in a very, very meaningful way. The key, though, to this quarter was, you know, two years after the acquisition, having launched a number of these new products, having replatformed virtually all of the IPG products, it's working, right?

There was concern that, you know, clients wouldn't resonate.

opted in to our pools of natural liquidity and our ability to cross clients against each other have given that service rave reviews. And I would stipulate or argue that we're the only firm in the planet that can provide that type of unique liquidity provision coupled with a technologically enabled view of global equities markets and indeed markets around the world. So we think it's a very, very unique scale business. We're very excited about it. Again, Steve Cavoli's done a great job integrating it, and we've taken out literally hundreds of millions of dollars of costs of a business without sacrificing any client or customer service. Indeed, we've gotten a hell of a lot better. So I'm very, very proud of what we've created in execution services two years ahead.

Got it. And then just on the organic growth opportunities, maybe you can give us some color on, I think it was the big data analytics launch you noted on the slide. One thing I did not see on the slide was corporate credit, which you talked a little bit about in the past. So any color there would be helpful.

Yeah, yeah, great. So, look, I mean, I just kind of went through our commitment to the analytics business, and we look at that as, you know, again, this is probably a little bit of a silly analogy, but we kind of want to be the app store Chris, right, as opposed to, you know, we always have provided consulting services and whatnot, but we want to enable our clients to access their data in a scaled way and enable them to have access to, you know, peer reports and peer data, obviously in an anonymized fashion, in a way that is where they can then take that information and along with a library of APIs that we're going to provide and drive significant value for. That's really what our clients want. They don't want to be pushed a bunch of PDFs that say, okay, well, here would be, you know, your impact analysis on your parent algo order. I mean, that's literally like the late 90s type of delivery. And so, you know, we've revamped the way that we look at that business and say, you know, we want to be in the platform data delivering, data provisioning business And clients have really resonated to that. So we think that's certainly unique, and we've got, one, the technology footprint to do that, and two, the peer of clients to be able to provide that. In terms of corporate credit, again, it is unique. something that we're very committed to. I told you that we launched it, you know, late last year and early this year, so its contributions are, you know, swallowed up by the rest of the results. But it's certainly something that we're very, very excited about. It's not a standalone product. It scales and leverages very well our existing capabilities globally in ETFs. And it further just, you know, bolsters the fixed-income ETF market-making offering that we have. you know, we will continue to be, you know, continue to invest in it, and we think we'll be a significant player. And the addressable market in fixed-income ETFs just continues to grow. And so it's a very exciting opportunity for us going forward.

Thank you. Our next question will come from Sean Horgan, who is with Resin Blood Securities. Please go ahead.

Hey, good morning. Thanks for taking my question, guys. So just one on crypto. I was wondering if you could expand on the market-making initiative there. Can we get a sense of the contribution of crypto market-making to organic growth? And how impactful do you see this opportunity? How should we think of the business ramping up?

Yeah, I mean, look, I mean, God bless Canada. It's a great country with, you know, the home of hockey and all that kind of stuff. You know, I love hockey. So, you know, the Ontario Securities Commission appears to all fit to approve a couple of ETFs. We looked at that as an opportunity for us to, you know, be a significant market maker because it's right in our wheelhouse. It's an equity security against either a cash or a future or both. Right? And that's what we do as a market maker. We like being an authorized participant. We want to partner with issuers so that they issue products that are, you know, are attractive to investors. Otherwise, what's the point? And it scales very, very nicely into our existing infrastructure. So, the incremental spend to become an AP and a direct market maker up there was effectively zero. So the incremental margin of any revenue there is 100% effectively, right? So, you know, we've been a market maker in crypto futures for a long time. As a part of a contribution, you know, it's a small market and these are small products right now. The exciting thing, however, is, you know, there's obviously been a lot of talk about what's going to happen in the United States. I think there are five or six or seven in, you know, Fidelity, WisdomTree, and other, you know, world-class issuers that have proposals pending at the SEC. You know, I think, you know, the chairman is extremely well-versed on these issues. He lectured about them at MIT. I watched his lecture. He's very, very thoughtful on it. And so I'm guardedly optimistic that product or products will launch in the United States and then the sort of floodgates open up and we can grow very, very quickly with these issuers, excuse me, and partner with these issuers. It's just another example. Again, I don't, you know, I'm not a Bitcoin guy. I'm not talking about whether or not, you know, the underlying asset and sort of you shouldn't come to me for that kind of questioning. The opportunity, however, for us as a market maker is if this is viewed as a store of value, people are going to want to access it as an ETF, as a spot position, and as a future. That's Virtue 101, right? So the exciting thing for us is that you have this entirely new addressable market that with presumably trillions of dollars of value that needs to be market-made and needs to have price discovery on it. We can do that without increasing our risk at all, right, and without any real investment other than, you know, the technology plant we have and the personnel that we have today. That's why we're very excited about it.

Okay, got it. Great, thanks. That's helpful. And just one other one, I guess, same question with the options market making. How should we think about the trajectory going forward there?

Yeah, obviously, you know, as I said in the script, you know, a 50% incremental growth against a really good quarter in the fourth quarter is exciting, right? And so we're building that business divert-to-way from scratch. And as I said earlier in my prepared remarks, you know, we're adding a couple of, really talented free agents, if you will, that have some subject matter expertise that frankly we were lacking here. And so doing it the Virtu way, having a team right now that is smaller than a bread box, if you will, will grow somewhat, but will never be a giant, large-scale group of folks, and so it will have a significant margin. So I would say we're in the first inning right now. We have not addressed Individual names, we're certainly not in the retail 605 business, which I've read can be pretty profitable in options, right? And so there's a lot of opportunity and a lot of growth for us. Again, the significant thing is it's a Virtu-style growth story. We have the fixed-cost plans of technological infrastructure. We continue to address and tweak it for options. I'm very confident we will get there because we've had meaningful success there. We have all the connectivity to the exchanges. We have the relationships. We have prime brokerage. And more importantly, we have relationships with the retail providers or the retail brokers, if you will, for all these options. So we have all of the makings of a global scaled options business. It's just a question of blocking, attacking, and executing. And that's something that I'm very proud to say we have been excellent in. over the last 13 years. So I have every reason to believe that we will continue to see very significant improvements in this area. We're making awesome progress. I'm very happy with where we're at right now.

Okay. Got it. Thanks, Doug.

Thank you.

Our next question will come from Alex Cram, who's with UBS. Please go ahead.

Yes, good morning, everyone. Sorry to harp on the transparency discussion from earlier, but just coming back to the question that was asked, I think, twice about second quarter trends so far, it seems to me that, you know, historically speaking, just as recent as conferences or your first quarter earnings call, you've been very happy to provide us with kind of like ideas of how things are trending from an anti-perspective when things were trending fairly decently. So with all these metrics or industry metrics suggesting a little bit of a softening here quarter-to-date and your lack of giving us some insights, I mean, how are we not supposed to infer that things are running decently softer quarter-to-date? I'm not sure if that's a question, but I just wanted to clarify it.

You just wrote your note, Alex, and I guess I'm not surprised. So, look, we have tried to be very transparent. We gave monthly reports in 2020, and we put out an August report that I guess was lower than someone's expectations, and the stock went down 15 percent, right? So, there is no benefit to our long-term investors to continuing to do that. So I'm just not going to do it. And you obviously will write whatever you're going to write. You continue to be very negative on the stock. And that's fine. That's your prerogative. I've had you at Virtu. I've shown you everything about the intersection with Virtu. And we've shown you how we're going to grow this firm. I'm running this firm for the next 20 quarters. If you think April is important to that story, then write the note that you're going to write. I would candidly disagree with you. And so therefore, I've given you my commentary on April. I've given you where we're going to be in 2026. Where we're going to be in 2026 is a lot more important to me than what you think about April.

What I'd add is in the past, what Doug just mentioned there late last summer when we stopped the monthly guidance, we did that for a reason because we tried to be more transparent and frankly it didn't help anything It didn't help anyone's understanding of the stock. It didn't help our shareholders. We heard directly from them. And, frankly, it didn't help any of the people who write on Virtu. That's why we stopped doing it. And I think since then we've been very consistent. So I don't think this is new. You know, when you look at the fourth quarter and the first quarter, you know, we've tried to kind of, you know, outline, you know, ante per day, 6, 7, 8, 9, 10, 11s. What is the range of available for carry purchases? What is the range for EPS? And that's meant to be a long-term tool. That's meant to be a very long-term tool to help people understand what to expect to build your models on the revenue side and on the cost side. So I think that's the best we can do. The month-to-month and quarter-to-quarter guidance just didn't help. And I don't think it's new. I don't think it's been... This is something that we're just starting now.

All right. I appreciate the comments. I guess, sorry to harp on it one more time. It's obviously not a question about being positive or negative on the stock, but if I think about it from a new investor perspective, if you think about your firm, I think from the beginning, you've prided yourself on being an open kimono company with regulators, with your customers, et cetera. And it just seems to me, considering that you're complaining about the multiple that your stock trades at, that to attract new investor interest, wouldn't you want to give people transparency that they can actually see the path for growth? So, again, sorry to harp.

Alex, I can't really disagree with your characterization, okay? We have given more transparency than any public company in this space. about what we're trying to do to grow this business. You had a note two years ago that Virtu was a melting ice cube, and you were wrong. We've shown you all the growth initiatives that we've initiated. We've started options. We've started block ETFs. We're going to be a major player in crypto assets as they move into a more regularized environment. We've taken out hundreds of millions of dollars of costs. We've recreated an execution services business that candidly your firm would love to have. And so if all of those things don't attract new investors, then I don't know what else we can do. Whether or not we should harp on monthly results on a stock that is a five-year story, to me, is not the right way to approach a stock. You're going to write your note. I know exactly what the headline is going to see. Record quarter, but softening in the future. I texted that to Andrew this morning. So write your note, and let's have the next question.

Thank you.

Again, if you'd like to ask a question today, just star then 1, star then 1 to ask a question. There being no further questions, this will conclude the question and answer session. I'd like to turn the conference back over to Douglas Sifu for any closing remarks.

Great. I want to thank everybody for joining today again, particularly those that are interested in long-term investing in Virtu. We're here to answer any of your questions anytime, and we look forward to talking to you, frankly, whenever you'd like, or sometime in late July or August. Thank you, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.