Virtu Financial, Inc.

Hello and welcome to the Virtue Financial 2022 second quarter results call. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand you over to your host, Andrew Smith, Head of Investor Relations for Virtue Financial, to begin. Andrew, please go ahead.

Thank you, Lauren, and good morning, everyone. Thank you for joining us. Our second quarter results were released this morning and are available on our website. On this morning's call, we will have Mr. Douglas Sifu, our Chief Executive Officer, Ms. Cindy Lee, our Deputy CFO, speaking with you. And 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 conditions 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 on 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, Form 10-K, and other public filings. adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margins. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported 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 a 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.

Thank you, Andrew. This morning we reported our second quarter results. For the quarter ended June 30th, we generated 73 cents of adjusted EPS on $5.8 million per day of adjusted net training income, bringing our results for the first half of 2022 to $2 per share and an average adjusted net training income of $7 million per day. Our business performed well and exceeded our internal benchmarks. Both our global customer and non-customer market making, as well as our execution services franchises, delivered solid results. Our firm is resilient and built to deliver what we consider excellent returns in all environments. We continue to see important success in our growth initiatives, and on page five of the supplemental materials, you can see how these initiatives contribute meaningfully to our performance, generating over $575,000 per day of anti-representative years ago is thriving and will continue to grow along with our ETF block, crypto, virtual capital markets and other initiatives. These initiatives are truly organic in that our adjusted net trading income from these revenue sources was nascent only a few years ago and we've achieved these results by leveraging our scaled infrastructure and distribution channels supplemented with a handful of individual hires. In options market making, for example, we continue to improve our models expand our symbol universe and have begun to interact with options routers in a limited way. Our triple digit growth year to date is especially impressive given that option volumes are relatively flat for the same period. We continue to view our investment into options as a key long-term engine of growth which complements our core capabilities and expands our adjustable market by enabling new revenue opportunities that leverage our existing market making business across products, asset classes, regions. Our expansion into crypto also continues to progress. Our entity from crypto market making set a record for Vertu in the second quarter despite the market-wise downturn in crypto. Our crypto desk remains focused on market making in Bitcoin, Ethereum and other top cryptocurrencies in various forms including spot as well as ETF and futures. In addition, as has been reported, we have created a new venture with Citadel Securities and Fidelity, and Charles Schwab to develop a crypto ecosystem to serve the interests of global investors. Along with investments from Sequoia and Paradigm, we believe that this initiative will ultimately fill the void for a stable and resilient ecosystem for investing in crypto across established global brokerage platforms. Our global ETF lock initiative is Year to date, ante from ETF block has grown almost 20% versus full year 2021 as we've expanded the symbols and markets that we cover and continue to onboard new clients around the world that demand our liquidity. Taken together, our growth initiatives are making tremendous progress and have helped raise our baseline performance in any market environment throughout the cycle. We continue to return capital to our shareholders through our ongoing share repurchase. As of today, we have repurchased a total of 27.4 million shares, or almost 800 million in aggregate, and at current levels, we continue to be aggressive in repurchasing our shares every day, with over 425 million of remaining capacity. At current levels of entity, we expect to repurchase this amount over the next 12 to 18 months. Based on the guidance we have provided on page eight of our supplemental materials, we are on pace to exceed our target buybacks for the year. Given the opportunistic refinancing we completed in the first quarter, we would anticipate share repurchase that corresponds to the public buyback ranges for the foreseeable future. As I mentioned above, we have generated an average of $7 million per day in anti-year-to-date through June 30, totaling $2 in EPS and $553 million in adjusted EBITDA, both on target with the ranges provided. As we have said in the past, we believe the range of outcomes on this page are sustainable through the cycle. The levels on this page are the result of significant growth we have achieved to raise our baseline performance over the years organically and through acquisition. Consistent with our ethos of disciplined expense management, we have successfully held costs in line despite the worst inflation since the 1970s, producing a 58.6 EBITDA margin this quarter and 64.1% year to date. Touching on the performance of our segments, market making performed as expected for the volatility and mix of volumes in the period. Our diversified market making businesses performed well against their respective opportunities, especially within customer market making where we realized benefits of our improved internalization capabilities. also performed in line, with a market opportunity this quarter realizing $104 million in adjusted net trading income. We are now three full years past the acquisition of ITG, and we have overhauled and re-platformed the technology and algo suite, reduced costs dramatically, and retained our broad, deep, blue-chip client base. Virtue Execution Services has a complete complementary suite of products encompassing every stage of an order's life. Our suite of products reduce costs, enhance productivity, and help us manage operational risk. Broader adoption of our products yields a better client experience, deepens our relationships, and leads to higher client retention, all of which will ultimately help increase our share of wallet and grow our scale. We are confident that the truly global organization we've built is poised to make it much easier for clients to integrate more of our products into their daily business and we see this as an exciting area of growth. Before I turn it over to Cindy for a financial review, let's address the latest statements and press reports regarding potential changes to U.S. equity market structure being bantied about by the chair of the SEC. There are three important points I'd like to make regarding the latest discussions and commentary around potential market structures. First, Virtu has previously publicly supported many of the ideas in Chair Gensler's June 8th speech at the Piper-Sandler Conference. We agree that exchanges should be able to display narrower quotes, odd-locked quotes should be included in the NBBO, and disclosures and retail execution quality reports, Rule 605, are desperately in need of enhancement and modernization. Second, there is currently no formal proposal related to the ideas mentioned by the Chair in his speech. The rulemaking process that the SEC must follow can take years from the time a formal rulemaking proposal is announced to adoption and implementation since it requires copious data, thorough economic analysis to evaluate impact to the U.S. capital markets, as well as adequate notice and comment periods. This process is designed to ensure market structure reforms are driven by data and not politics. Over the last 20-plus years, the SEC has on several occasions examined the retail trading ecosystem, including payment for order flow and wholesaling, and definitively concluded that it provides material benefits to retail investors. The law is perfectly clear. The burden is entirely on Chair Gensler to unequivocally demonstrate that his ideas materially improve this ecosystem. This will prove to be an impossible task. As a result, We believe that the ideas suggested by the Chair will need to change significantly and be supported by sufficient data and economic analysis before they can be approved in order to withstand the likely challenges. Third, if somehow despite these impossibly high burdens of data on the Chair, the current FEC's Chair ideas make it through as currently described, they would most significantly and negatively harm retail investors, retail brokers, institutional investors, and public companies and ETF providers. Because of our decades of experience as a provider of market-making services to retail investors, Virtu would remain highly competitive and opportunistically provide liquidity to these so-called retail auctions. The end result would likely save Virtu hundreds of millions of dollars in exchanging ATS costs and ironically SEC fees. and perhaps multiples of these amounts in price and size improvement to our clients. The retail brokers and their customers, however, would be denied the certainty of execution and services that the current providers compete to provide today with liquidity possibly widening and thinning as we have seen in other markets where competition has been impeded. The knock-on effect of these ideas will reduce liquidity and widen spread in thinly traded mid- and small-cap securities. These smaller to mid-sized names would likely see less liquidity, making it more costly for investors to trade these names and for the issuers to raise capital to fund growth. These market structure changes would be harmful long-term for the markets, as they would introduce more friction in the form of greater intermediation and costs for end investors. costs that prior to the proliferation of zero commission trading had historically served as a barrier that limited younger and lower income investors' access to the markets. As we and many others, including retail brokers and independent academics, have publicly stated, there is a plethora of timely, relevant, and compelling data that supports the fact that retail investors in the United States is free to choose among many great brokers that offer competitive access to the largest capital markets in the world for little to no cost. This contrasts with the obviously politically motivated false narratives, misconceptions, and factually unsupportable conclusions that are being pushed and disguised as so-called reforms to the benefit of investors. For these and many other reasons, we continue to believe that if the SEC moved forward with proposals along the lines of the Chair's public statement, it would continue to be met with substantial industry-wide universal resistance, including potentially in the form of litigation. An overwhelmingly amount of credible evidence from numerous diverse sources demonstrates that the current market structure and infrastructure enhanced with some of the sensible reforms which we support does an incredible job of serving retail investors. We will remain constructively engaged in the dialogue and advocate for policies that enhance transparency, competition, and then promote investor choice and superior execution quality. I will now turn the call over to Cindy Lee, our Deputy Chief Financial Officer, to review the financials in more detail. Cindy?

Thank you, Doug. In the second 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 $357 million, or $5.8 million per day, which is 6% higher than Q2 2021 and 29% lower the first quarter. Market-making adjusted net trading income was $254 million, or $4.1 million per day, 11% higher than the year-ago quarter and 34% lower the first quarter. At Fusion Services, adjusted net trading income was $104 million, or $1.7 million per day, which is a 4% decrease year over year. Our adjusted EPS was $0.73 for the second quarter. For the second quarter, our overall compensation expense was $99 million, or 5% less than Q1. Our cash and overall compensation ratios were 22% and 27% of adjusted net trading income respectively, and were 19% and 23% year-to-date. Adjusted EBITDA was $209 million for Q2, 5% higher than the prior year quarter and 39% below the first quarter. Our adjusted EBITDA margin was 58.6% for the second quarter, which is down 9 points from the first quarter. but continues to be reflective of our efficient cost structure and disciplined expense management. Our capitalization remains adequate. Our long-term debt was $1.8 billion at quarter end, reflecting a debt to trillion EBITDA ratio of 1.7. Finance interest expense was $22 million for the second quarter of 2022. compared to $20 million in the prior year second quarter. We remain committed to our 24-cent quarterly dividend, which we have consistently paid over 26 quarters in every environment since our IPO. And our approximately $334 million share repurchase year-to-date demonstrates our continued commitment to return capital to our shareholders. I will now turn the call back over to the operator for Q&A.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Rich Rapetto from Piper Sandler. Rich, please go ahead.

Good morning, Doug, and Joe, and Cindy. I guess, Doug, the first question is around the volatility that you experienced in the quarter. At least you look at from the published metrics that most people use, volatility was flat to up, but I get a feeling that doesn't tell the whole story. So could you just talk about the trading environment, I guess, in 2Q?

Yes, thank you. It's a very good question. I mean, you do make the observation and the facts bear it out that this was a very unique quarter. And the volatility we saw this quarter was much more concentrated than we have seen in the past. In fact, the mean volatility in the quarter was 34%, as you see, which is from quarter over quarter. But the median volatility from Q1 to Q2 was only up 2%. So that means that we had you know, very sharp periods of extreme volatility driven by macro events. And, you know, so a few trading days, a few opportunities, you know, to have outside returns and to have risk, et cetera. And so really the way we look at it, you know, quarter over quarter volatility effectively was flat and there's one less trading day this quarter. So there's always a little bit of nuance, you know, if you look under the covers and I think that kind of explains the performance this quarter.

Understood. Thanks. The one follow-up, first, thanks for the forceful and detailed comments on regulation. I guess the one question I'd ask is about size improvement because I think you've made the point, and I think it's backed up by others in the industry, that size improvement You know, it's almost 2x the benefit of price improvement. So the question is, do you see the SEC incorporating any of the benefits like size improvement into the analysis and how would size improvement go away given some of the, if he got, Chair Gensler got his way with some of these proposals, but? Again, we heard your comments, and we appreciate those as well in the prepared remarks.

Yeah, look, I mean, thanks, Rich, and I appreciate that. I mean, obviously, look, I'm very front footed and very forceful on these issues because I think somebody needs to be, you know, I have deep respect for the chair, his experiences, his background, and what he's important for our clients and I think the ecosystem that is developed in this country frankly over the last 30 years really drives significant and frankly untold benefits to retail investors, the largest of which we've been very clear about when we provided a white paper is what we dubbed size improvement and the current rules, Rule 605 and Rule 606 do a very, very poor job in capturing what that means. So what does that mean? It means that when an order comes to a wholesaler, be it Virtu Citadel or one of the half dozen or so competitors and more being added every day, we are obligated to fill that order and indeed we do fill that order regardless of the size of the inside at any national securities exchange. Obviously, with respect to small and mid-cap names, that is meaningful liquidity. We have in our white paper in 2020, In a selectively competitive marketplace, which is what Gensler is suggesting, i.e. his quote unquote retail options, the details of which he has not provided, there would just be selective competition. There would be no obligation on behalf of any wholesaler, or indeed any market participant, to provide that size improvement. So as a result, the order, as it would if it were an institutional order without these obligations, will just trade through the book. What does that mean? That means that the retail investor gets a substantially worse spill. That means that the issuer's bid-offer spreads widen, which means that when that issuer goes to raise capital, it will pay more money. This is trading 101. And so I don't know if, frankly, what's in his brain and what's in the brain of the head of trading and markets as they have thought about these issues. We have clearly made them aware of it. The burden of proof is 1,000% on them, that this is not the case. The chief economist of the SEC is an incredibly talented individual that will look at this. My view and this firm's view is that there is no chance that she and they will be able to credibly countermand all of the data and facts that are out there. And the burden is on them. Let's be very clear. You can't just wave a magic wand as the chair of the SEC and change 30 years of market structure. And as markets get more volatile, the service provided by the wholesaler and the size improvement is even more important. So, you know, we look at this and scratch our heads and say, where is this all coming from? Who's the plaintiff? What was the genesis of this suggestion? And to me, it's very obvious. It's just a politically driven approach. And we would strongly encourage the chair to reflect on what he has suggested, to sit with market participants and come up with sensible reforms. that there aren't changes that need to be made. We've made our own proposals to the SEC. We haven't heard back, but we've made our own proposals to the SEC. But to without any facts and without any data, in fact, as I said in my prepared remarks, he often misconstrues the facts, right, for political ends. So we're here to engage, but we want all of our investors to know that the likelihood of this happening is de minimis in our view. And even if it did happen, Virtue would adapt and be fine. Most importantly, don't forget, Rich, and everybody listening, this is a firm that has thousands of institutional customers. We've spoken to our clients on the buy side. The vast, vast majority of them, major asset managers, look at these proposals, scratch their heads and say, this makes no sense to us either. We don't want tiny tick sizes. We don't want quotes to fade. We have no problem with retail investors getting the ecosystem that they have. We know that we can and do interact with retail investors. So all of this narrative out there that he has put out in his various appearances on television and whatnot are frankly just not supported by the facts, not compelled by data, and every market participant that we have spoken to that isn't on Twitter with eight followers doesn't agree with what he's suggesting. So when it all comes out in the wash in a couple years, we'll look back on this episode and say, boy, that was a lot of, A lot of conversations, unfortunately a lot of wasted money, and not a lot is going to change here.

Understood. Thanks for the call, Doug. Thanks.

Yep.

Thank you. Our next question comes from Dan Salmon from Jefferies. Dan, please go ahead.

Thanks. Good morning. I do want to go back to the earlier question just with regards to the environment. Maybe you brought it for the first half, because if you're looking at the metrics that you give us on slide four, and then I just kind of look at the ANTI from the first quarter to the second quarter decline, it doesn't really match up. So, I understand there was some specific things within maybe 2Q that were different, but Can you talk about like levels of internalization or other areas that were impacted more significantly maybe in your business in the second quarter? Because as I said, these external factors still don't look nearly as down as much as what we're seeing in your numbers.

Yes, I appreciate that. And I certainly, you know, superficially, you know, I could see how you could say that. But if you look at the retail, like, you know, on page one, if you look at the IBKR retail equity share volumes being down 17%, notional volumes being down 15%. And as I said before, if you look at mean versus median volatility quarter over quarter, it was flat. So like on all of our internal metrics, we outperformed and I suppose we've beaten guidance here as well to the extent that that means anything. So the realized mean Russell 2000 volatility went down in a very superficial top-line manner and say, okay, I don't understand quarter-to-quarter results, but when you look under the covers and kind of look at on page four, there's a whole number of indices like I'm looking at sort of towards the bottom of the page. The European and Japanese realized volatility being down 25% and 21%. Goldman Sachs is commodities realized volatility index down 34 percent. I mean, so there's a whole host of global indices in the various products and services that we provide that were either flat or materially down quarter over quarter. So, this quarter looks a lot like the second quarter of 2021. You know, I think we performed exceptionally well, and based on all of our internal metrics, we outperformed, so.

Male Speaker Okay.

And just to clarify, I think a statement you made, 12 to 18 months, I think was something, it was a time period, I think you said, to exhaust the buyback. And just want to make sure I heard that correctly. And, you know, based on everything you're seeing in the environment, you've given us some quarter date metrics. The buyback remains the primary use of excess capital and still no thoughts around M&A or other things that might be increasing in terms of priority here.

Yeah, absolutely, Dan. Great question. Yeah, so that is exactly what I said. We have $425 million remaining in our program. We would think that would be exhausted in the next 12 to 18 months. We are in the market every day. We don't try to time the market. Obviously, we use a great broker and attempt to get VWAP every day. And so based on the public It was a sharehold, a block that we were able to purchase in the first quarter from a significant investor, and we will continue to look to do that. But 100% our focus is on capital return. Obviously, we have our dividends, but then we will continue the buyback program. The hurdle for any type of merger acquisition, for years are significantly undervalued by the public markets and so we think it's incredibly and creative and the right thing and in our shareholders' best interest for us to continue to buy back stock.

Thank you.

Thank you.

Our next question comes from Alex Crown from UBS. Alex, please go ahead.

Yeah, hey, good morning, everyone. I noticed that you took the retail slide out that you had last quarter over the last two quarters. So just wondering if you can give us, I mean, I think we can all track the same thing, but maybe from your perspective, what you've seen in retail in terms of participation, any changes in terms of the type of retail that you're getting or any other color that helps us because it seems like retail, unless I heard you incorrectly, was probably the biggest driver of the quarter-over-quarter decline.

No, I don't think it was the biggest driver. It certainly is a driver. We have a very large diversified business. You know, I suppose we took the slide out because it's all just public data. And, you know, we then people focus and say we're exclusively a retail firm. We're not. You know, there's a significant advance. More than half of our revenue comes from not from retail trading. But certainly, yes, that along with all the other metrics that look at other global indices and the fact that they were down quarter over quarter in terms of volumes and volatility, that will end up driving results. We continue to be very, very bullish on the future of retail. If you just look at 2019 pre-zero commission trading, amount of retail engagement is significantly increased. It's almost 100% increased from the pre-zero commission, not the pandemic, pre-zero commission. Remember that happened in October of 2019 when our friends at Schwab went to zero commission and then a bunch of competitors matched them in a new norm in the industry. So that introduced to investing a whole new class of investors, young, previously underbroke and underbanked, brokered and under banked individuals. So we think that is a systemic change. No one has ever shown any evidence that it's not. We're not putting that genie back in the vial. We're not going to go to a marketplace where people don't have access on a smartphone to the U.S. equities market and indeed other markets. But again, we are a very large diversified market-making business. I'm very proud of what we do in retail. I'm obviously going to be a spokesperson and we will continue to be spokespeople for the industry and for our clients. But we run a very large diversified business and I'm happy to talk about the other segments as well.

Very good. Thank you and thanks for the stat of retail relative to the other businesses. That's definitely helpful. And then just maybe this is more numbers questions, but you obviously have that slide that gives the various scenarios in different environments. Just curious why, if you look quarter over quarter, those, I guess, scenarios changed a bit. So for whatever reason, the OPEX is higher. In particular, the low end, the EPS is lower. The EBITDA is lower. So just wondering what changed quarter over quarter in those scenarios. And then maybe just a quick other data question. I saw share-based comp or stock-based comp increase quarter over quarter. Just curious why that would be up. in a lower revenue and earnings environment. Thank you.

Yeah, I'll ask Cindy to answer the second question, which is I know there was some technical reason why we had to recognize some stock-based comp in the second quarter. Right, Cindy?

Yes, correct. In the second quarter, we have to accrue percentage of share-based comp based off performance and based off the incentive comp. So that's why it increased comparing to the previous quarter publication.

Yeah, I guess the answer to the first question, maybe we can follow up offline, but there were some modest increases in OPX. I mean, nothing really material here. Candidly, nothing is jumping to my mind as to, you know, there's no individual item, and maybe it's up a couple million bucks here or there. But otherwise, you know, given the, as I said in my prepared remarks, given the environment we're all in, inflationary environment we're all in, we're doing our best to kind of hold the line here. So maybe we can follow up offline because I don't, nothing is really jumping out at me, Alex.

Yeah, makes sense, and I know it's just for illustrative purposes anyways. So thanks again.

Yep, thank you.

Our next question comes from Michael Cypress from Morgan Stanley. Michael, please go ahead.

Hey, good morning. Thanks for taking the question. I wanted to ask and talk about the options market making business. I know that's a big focus and priority for you guys. So just curious, how many single name tickers are you guys making markets in today on the options market making side? And maybe just any color, how that compares to a year ago and any thoughts on where you'd like that to be you know, looking out three years or so or some time frame, and maybe you could talk a little bit about some of the actions you're taking that would allow you to increase the number of tickers that you're making markets in today on the options side.

Thank you. Yeah, thank you. It's a great question, and you're right. It's obviously a keen growth area. I mean, we hadn't been at all really an options market maker, you know, three years ago, and certainly two years ago we were just getting started, so I'm very, very proud of the folks involved in that group here in New York and in Singapore because we've truly become more of a global firm. They'll kill me if I give an exact date as to when we're going to start expanding Symbology. The answer is right now we are trading dozens of individual names. We try to improve and increase that every day. As I mentioned in my prepared remarks, we are now interacting with routers, which is the first step towards having a more We've improved our tools. As I said before, we re-engineered and re-architected all of our technology, frankly, to be competitive. And I can't be really more pleased with the progress we've made both in cash equity options as well as what we've learned in the options market making to other regions and to other asset classes. that we have launched index options market making in Asia. So I'm not going to give a definitive date and say, okay, by the, you know, X quarter of X year, you know, we're going to be full hog into the 605 options business because that would frankly be irresponsible of me because I frankly don't know right now. It really depends upon how we continue to grow, what the market opportunities look like, what our clients are asking us to do, and how that market structure continues to evolve. The good news is that it is a meaningful growth area. If you had said to me two years ago that we were going to have, you know, near a nine-figure adjusted net training income business and options, I might have, you know, questioned whether that was feasible. But that's where we're at. And so I'm very, very proud of what we have accomplished. Everybody can look at the marketplace and look at the lines and look at the competitors and say this is a very significant opportunity for the firm. I continue to be very, very bullish on it, and we're going to work our tails off to accomplish it.

Great. Thank you. And just maybe a follow-up question on fixed income. Maybe you could just add a little bit of color on how meaningful that contributed in the quarter relative to the first quarter, and maybe you could talk a little bit about some of the initiatives that you have going on on the fixed income side. Thank you.

Yeah, great question. It's still very early in fixed income. I mean, it's where options were a couple years ago, so very, very nascent. You know, good group. We've done some lateral hiring. We've established connectivity to, you know, electronic fixed income markets like Market Access and obviously Bloomberg and TradeWeb. And more importantly, we're onboarding clients and we've done our first, you know, portfolio trades for clients of corporate credit which is again a sentence I never thought I would say even as recently as a year ago. So I'm very proud of the accomplishments we've made there. It's a big asset class obviously. Historically it's been dominated by dealers. There are a number of our competitors that are very meaningful in it. It is important to us because obviously it's a large asset class but more importantly It is part and parcel of what we offer as a global ETF market maker. In order to be in that business, we concluded that we needed to have a corporate credit capability as well because obviously there's a lot of fixed income ETFs both here in Europe and in Asia. And so we just needed to be in that marketplace. And so it was done methodically and strategically. It is not at all a material part of what we do today. Great, thank you. Thank you.

As a reminder, to ask any further questions, please press star followed by 1 on your telephone keypad. Our next question comes from Paul Goldberg from Bloomberg Intelligence. Paul, please go ahead.

Yes, good morning, and thank you very much for the commentary. Quick questions on the crypto which is kind of broader in terms than just Virtue and given the venture with Citadel and other partners. Looking to see where you're looking to differentiate from the entire eco space because everybody's from both sides trying to get into the space. The crypto guy is trying to get into the equities and options trading and the traditional players are looking into crypto. So where is the differentiation we should look for?

Yeah, look, it's a great question. You know, we're very, very excited about this venture. We've got some incredibly talented partners. We've partnered again with our main competitor at Citadel Securities that just showed you how, you know, when we need to collaborate on something, we need to collaborate. Again, this is client-driven. So clients have come to us and said, we recognize that this is an asset class that's not going away. I'm not commenting on, you know, whether Bitcoin is going to be I don't know and frankly I don't care. It's not really my business to be in that. But when clients come to us and say we have both retail and institutional interest in this asset class, we are not satisfied. We are not satisfied. I'm speaking as if I'm an investor with the ecosystems that exist today. We trust you guys. You've done a great job for us in equities and in Citadel's case they've done a great job in options and in other asset classes. We know that you will architect this the right way. We've got great venture partners that have a great relationship with Citadel and are part and parcel of this and have an unbelievable understanding of the marketplace. So the goal of this venture is to create a reliable and stable ecosystem around crypto that is client driven. Whether that's an indictment or a reflection of the competitors in the marketplace, I don't really know and I don't really care. I know when clients come to us and say, we want you to do something, if you do it properly, we will trade on that venue and therefore you will be part of that as a partner. And more importantly, we will have more confidence in that ecosystem and so therefore we will send more client flows there and that's a market-making opportunity for Virtu Financial. So it's a strategic initiative on our part. Your second question, crypto players becoming stock trading venues, I support that. That's exciting. It's great. Wish them luck. But more people trading is ultimately a good thing. We have relationships with FTX and Coinbase and everybody else. So if they start trading cash equities and options, God bless them. More power to them. Bring more investors into the market in a sensible, safe, and transparent manner. We're all in favor of that.

I appreciate it.

Thank you. Our next question comes from Alex Crown from UBS. Alex, please go ahead.

Yeah. Hey, hello, everyone. Again, I guess it looks like a lot of people tied up, so I figured I'd come in for a follow-up, so a couple of them. First of all, you know, you mentioned, Doug, three years of ITG integration. The execution services business doesn't get a lot of attention from investors. I think a lot of people still think this is predominantly a U.S. equities business, and I know it's not, so... Maybe just a quick reminder where that business stands today, maybe in terms of the biggest buckets, where it makes money, and then what the biggest opportunity sets are that you're kind of like going after right now?

Yeah, yeah, great question. I appreciate it very much. You're right, because it tends to get overshadowed by the market maker and what Chair Gensler is up to and all that kind of stuff. Just to go back in time, we started a very small, we called it a velvet rope offering. We bought NYSE at a sub-scale, largely US, largely hedge fund, single broker, high-touch and low-touch business. We looked at it and said, we can do this better. We can create a truly global, integrated financial product business. We can do it by buying ITG, which is a world-class firm that was desperately in need of a technology refresh. So we bought ITG. It was not without its challenges, very similar to Knight Capital in that it was originally a market leader that had fallen on tough times. We have fully integrated it, reduced costs in a very, very meaningful way. And today we have, in our view, the leading non-big bank, if you will. So we don't have Prime. We don't have Calendar. We don't have Research, lovely folks like yourself. an execution-only shop that also provides other financial products. And our margins in that business, I would venture to say, not that anyone else is showing me their equity margins, have to be industry-leading because they're virtue-like. So we've taken an enormous amount of costs. We have replatformed all of the Knight and ITG algo offerings to a single algo offering. And so today we have a full financial services offering which provides both high and low touch execution. We're a top ten broker in the United States and in Europe, again without prime and research, etc., which is just truly remarkable. And we sell more products and services to existing clients. So we have an execution management service. We have an analytics business. you know, of our Virtu Execution Services revenue, the makeup is, you know, commission-based is, you know, more than half of it, but not the best of it. And then the workload solutions, which tends to be more recurring revenue and more subscription-based, and there's a transaction element to it as well, you know, makes up the rest of it. And the goal and the growth is to focus on those global clients that can use more than one of our products because what we have seen, and this is kind of sales 101, is when a client uses more than one and up to six products, we get a lot more revenue per widget, if you will, or per client than we would if they're just using one product. So get on the desktop. Have them use Triton. sell them analytics, have them use commission management, have them route to other brokers using our ITG net capability, and have them use our block trading capability through conditional orders on alert, and as well, when they choose to use us as an execution broker, give them a truly global integrated product that is best in class in terms of execution capabilities. That's the model. It really is. I give it to Steve Cavoli and the folks in execution services all the credit in the world because we have changed the wheels on the car as it's going down the highway at 90 miles an hour, you know, and that's not without risk to clients and to, you know, disrupting an existing ecosystem, but we've accomplished it exceedingly well and I'm very, very happy with where we're at and I'd like to thank all of our clients as well for hanging in there with us as we basically said, you know, those tools that you were using from ITG, we're going to make them better, trust us, and they have

Very good. Thanks for the update. And then just lastly, you get on these calls and sound a little bit like a broken record in a positive way, I guess, that the stock is undervalued and you think it's the best investment, so not really interested in M&A right now. So I guess the question is, why do you think it still makes sense to be a public company? Why do you need that currency? And if you think the stock is so undervalued, a lot of your peers are obviously private. Some of your peers have gotten investments from some real blue-chip investors out there. So is that something that crosses your mind? And does that eventually make sense if it doesn't feel like the public market really gets the story that you're trying to tell us?

Yeah, it's a great question. It's kind of an obvious question. And we have, for the record, no plans or intentions to go So I understand all the nuances there and I certainly understand all the rules. So I'm going to be very, very careful about what I say. Look, we are very, very happy having been a public company. It's given us an opportunity to raise an inordinate amount of capital in my view. It's still humbling the trust that debt and equity investors have provided to us. It enabled us to do two game-changing acquisitions of amazing businesses that frankly had much better franchises than we could ever dream of having grown on our own. And we did that with the public, you know, with the currency that we were able to have as a result of being a public company. Is it frustrating that public investors seem not to understand the growth story here? Of course. Of course. You know, I have, you know, I started this firm with my partner, Vinnie Viola, and so, you know, I think it's the greatest firm in the world. We have continued to grow EPS from around a dollar pre-acquisition to, you know, we made $2 in the first half of 2022, and it seems that all that happens is that we've had, you know, multiple contraction. I'm just kind of chuckling from when we went public. We were trading at like 15 to 16 times, and now you can do the math as to where you guys have us. So we have raised the bar. We have consistently, you know, we've given you models as to how we've accomplished that. We have maintain our expense base in ways that our competitors frankly have not. We've reduced headcount. We've returned capital to shareholders. So I continue to believe in the public market. Obviously, that's kind of what we do. We think that eventually investors will get it. We think this quarter, for example, is a great example of where the environment was not compelling. There was no great macro event. Indeed, some of the volatility was a bit of a challenge. and we still produce 73 cents a share. I can do math, multiply 73 times 4, and it doesn't make any sense to me that the stock doesn't trade at a price meaningfully larger than where it was trading yesterday. So as a result, I look at that. I'm not the smartest guy in the world, and I say, okay, if I have an extra dollar, should I go try to buy a competitor and take all the risks and uncertainties of that, or should I take a dollar and buy back my stock, which I think is horribly undervalued in its accretion. So I'm going to continue to do the latter until proven otherwise.

All right. Thanks for your thoughts.

Thank you.

We currently have no further questions, so I'll now hand back to the management team for closing remarks.

Thank you very much, and thank you, everybody, very much for your interest in Virtu. We look forward to speaking with you in the fall. Have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.