Virtu Financial, Inc.

Hello and welcome to the Virtue Financial first quarter 2023 results. My name is Elliot and I'll be coordinating your call today. If you'd like to register a question during the presentation, please press star followed by one on your telephone keypad. And I'd like to hand over to Andrew Smith, head of investor relations. The floor is yours. Please go ahead.

Thank you, Elliot. Good morning. Thank you. Thank you everyone for joining us. Our first quarter results were released this morning and are available on our website. With us today on this morning's call, we have Mr. Douglas Sifu, our Chief Executive Officer, Mr. Joseph Maluso, our Co-President and Co-Chief Operating Officer, Ms. Cindy Lee, our Deputy Chief Financial Officer, and Mr. Sean Galvin, our Chief Financial Officer. We'll begin with prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements which represent Virtue's current beliefs 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. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures including adjusted net trading income, adjusted net income, adjusted EBITDA, 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 additional supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent gap term in the earnings material with an explanation of why we deem this information to be meaningful as well as how management uses these measures. And with that, I'd like to turn the call over to Doug.

Thank you, Andrew, and good morning, everybody. This morning, we reported our first quarter results. The quarter ended March 31st. Virtu earned 74 cents of adjusted EPS on $6 million per day of adjusted net trading income. Focusing, as always, on expense discipline, We generated a 56% adjusted EBITDA margin and $207 million of adjusted EBITDA. I am pleased with our results this quarter as compared to the fourth quarter of 2022, as this quarter's headline market metrics were mixed overall. Realized volatility was down significantly 32% and U.S. equity volumes were up 5%. As always, we look at specific internal metrics for each of our businesses, and I am happy to report that this quarter we met or exceeded our benchmarks in all cases. Our proprietary market-making business did especially well in the quarter, driven by a particularly strong performance in global currencies and continued strong performances in global commodities as well as European equities. We continue to see the benefits of increased internalization opportunities across the firm's various trading desks. In addition, Our growth initiatives continue to contribute meaningfully and generated 11% of our adjusted net trading income this quarter with continued growth in options market making as the biggest driver. Our customer market making business performed well against the opportunity presented, which was materially better than the fourth quarter of 2022. I'm very pleased with the $278 million in adjusted net trading from market making this quarter, a 53% increase from last quarter. Execution services also improved over the fourth quarter, delivering $95 million of adjusted net trade income. While institutional activity remained muted, volatility in March did prompt some increased activity as clients adjusted their portfolios. We are currently pursuing several exciting initiatives that we believe will contribute to the growth of this segment. Specifically, ongoing investments in Triton and data analytics on the fixed income offering have proven successful, resulting in new mandates and helping us win new clients and retain existing business. It's still early days, but we expect that the uptake in institutional clients' use of automation, API in the case of our data analytics and workflow automation in Triton, will bear fruit over the course of this year. Finally, we've noticed an increased number of clients leveraging more aspects of our platform for the full lifecycle of a trade to achieve scale and cost savings. As a reminder, our VES platform, as is the case across Virtu, was intentionally designed with a focus on scalability, reliability, and ease of use. This allows our clients to optimize their workflows, reduce costs, and increase productivity at every stage of the trade process. Overall, our businesses continue to grow and demonstrated impressive yield this quarter in a market environment that was mixed in terms of the opportunity afforded by the marketplace. While a large part of our business is variable and any quarter can deliver a range of outcomes, especially when viewed against the headline volume and volatility metrics, this quarter is a reminder that Virtu has a broad business that is able to capitalize on opportunities not just in retail trading, but in a myriad of global asset classes. We continue to see important success in our growth initiatives, and on page five of the supplemental materials, you will see how these initiatives contributed meaningfully to our performance. In the first quarter, our growth initiatives generated over $650,000 per day of adjusted net trading income, an increase of over 13% compared to the prior quarter, and the highest level since the first quarter of 22. In total, these initiatives represent 11% of our adjusted net trading income in a quarter. To highlight just a handful of our growth initiatives, our options business, which we launched just a few years ago, is thriving and will continue to grow. Market-wide, options volumes were up about 8% in the first quarter, and options business continued to perform well. We continue to incrementally expand our symbol universe, and we look forward to another record year building on what was achieved since the beginning of this business from scratch in 2019. As we've mentioned previously, we are in the very early days of our expansion into options and believe the global cross-asset opportunity ahead is significant and complements our global footprint in equities ETF futures, and OTC products. Our global ETF block initiative is also contributing meaningfully to our results and had one of its best quarters since 2021, despite global ETP volumes declining in the period. While it remained early in the year, first quarter performance here was 20% better than the average adjusted net trading income we achieved in full year 2022. This growing global business continues to onboard clients around the world that demand our liquidity. Taken together, these and our other growth initiatives are making tremendous progress, and all our initiatives are helping to raise our baseline performance in any market environment throughout the cycle. While these initiatives will fluctuate at any point in time with the market environment, they are evidence of our ability to build businesses from the ground up in a deliberate and incremental style. Turning to the current regulatory debate, I will be brief, as Virtue has been outspoken, to say the least, publicly in commenting on the significant overhaul of the U.S. equity market proposal as proposed by the current SEC chair. Except for the proposal to enhance Rule 605, there is broad opposition to the proposals, as noted in our joint comment letter with State Street, Chiro, T. Rowe Price, CBOE, and UBS, as well as dozens of individual comment letters from asset managers, pensions, exchanges, retail brokers, academics, sell-side brokers, and issuer groups, which all echo concerns about potential harms to investors and capital formation from the Chair's unchecked and wholly politically motivated experiments. I would urge you to review the thoughtful comment letters filed by this broad not just the virtues of the world. In today's supplemental materials, we've included excerpts that demonstrate the broad-based consensus for a phased and methodical approach to market enhancement. Thankfully, the abbreviated comment period has exposed the significant issues with these proposals and illustrates how harmful, unworkable, and ill-conceived they are to the entire market. Our share buyback program has continued through April 19th. We have purchased 4.6 million shares so far this year, exceeding our target ranges at given levels of adjusted net trading income. We are often asked about future non-organic growth opportunities, including new acquisitions. Our answer is, while we always seek to create value and we review many opportunities, but given the abundance of organic opportunities We currently have. There is no third-party investment we see today that competes with executing on our initiatives and repurchasing our own shares. Since we initiated our share repurchase program, we have repurchased 14 percent of the fully diluted shares of Virtu net after new issuances. We will continue to use our significant excess cash flow to repurchase shares and return capital to our shareholders while maintaining our 96 Thank you, Doug, and good morning, everyone.

On slide three of our supplemental materials, we provided a summary of our quarterly performance. For the first quarter of 2023, our adjusted net trading income, or ANTI, which represents our trading gains net of direct trading expenses, totaled $373 million, or $6 million per day, which is a 38% increase from the prior quarter. Market making adjusted net trading income was $278 million, or $4.5 million per day, 53% higher than the prior quarter. Execution services adjusted net trading income was $95 million, or $1.5 million per day, which is an 8% increase from the prior quarter. Our first quarter 2023 normalized adjusted EPS was 74 cents. Adjusted EBITDA was $207 million for the first quarter of 2023, which was a 65% increase from the fourth quarter. and our adjusted EBITDA margin was 56%, which was up from 46% in the fourth quarter of 2022. On slide 8, we provided a summary of our operating expense results. For the first quarter of 2023, we recorded $181 million of adjusted operating expenses, which was essentially flat year over year. We continued to maintain an efficient cost structure and disciplined expense management, environment. Financing interest expense was $24 million for the first quarter of 2023 compared to $21 million for the prior year first quarter. With the benefit of our interest rate swap contracts, which we entered into in the prior years, our blended interest rate was just over 5% for our long-term debt in aggregate. Our capitalization remains adequate. In the first quarter of 2023, we repurchased 3.9 million shares Since the inception of our share repurchase program in November 2020, through settlement date April 19th, we have repurchased a total of 36.9 million shares for approximately $987.2 million. We remain committed to our 24 cent per quarter dividend and the combination of this dividend and the share repurchase program demonstrate our continued commitment to return capital to our shareholders. Now I would like to turn the call over to the operator for the Q&A.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. And today we ask you to limit yourself to one question and one follow up. Our first question today comes from Rich Rapetto from Piper Sandler. Your line is open.

Yeah, good morning, Doug and team. So first, congrats on the strong quarter here. And I guess my question, Doug, is, you know, when you look at the 74 cents you put up this quarter and you look at the last, you know, four quarters, has it told you, is there anything more to learn about the normalized earnings potential of the company? So you look at the last four quarters, like $2, a little bit over $2.40. But... Is there anything the investors should take from, I guess, the strong quarter or the last year, I guess?

Yeah, thank you, Rich. It's a great question. I appreciate it. I think this quarter is just a reminder that, you know, as I said in my prepared remarks, that Virtue has a broad business and we're able to capitalize on opportunities. I think for better or worse, this quarter, brouhaha around retail trading. I don't mean to minimize it, obviously, but obviously it's been kind of front and center. And I've helped perpetuate the front and centerness of it by being very front-footed on it you know, can generate, is growing and can generate outsized returns. The other thing that I highlighted in my remarks and I've mentioned in previous calls and in discussions with you all is, you know, we have a very, very strong one firm culture here. In my prepared remarks, I almost cringe when I say trading desk because that provides a connotation that we have like pods and separate things and And so the thesis, one of the theses of acquiring Knight in ITG was to effectively create this internalization mechanism within the firm where we could extract additional efficiencies, obviously from an execution perspective, but more importantly, as Vinny always says, to enable us to be the best bidder in the offer in every asset class around the world. It just has heightened the efficiency. And so if you have a standalone firm that's an options market maker or is an equities market maker or does commodities or even within larger institutions where there's this constant push and pull of P&L and attribution and all the stuff that goes on in other firms, that denigrates from that mission. At Virtu, because of the ethos and the culture that have been instilled in the firm when we first got started, everything's about one firm and everything's about like internalization. And as we have gotten broader and scaled, retail, non-retail, equities, commodities, equities linked products, options with the Delta Hedge, all of that just presents an opportunity for obviously reducing costs by not going outside the firm for hedging or for risk management. You can internalize that. But it just provides additional synergies and opportunities within the firm. So again, very happy with the progress we have made in that regard. you know, to use a very, very overused term, we've got a great central risk book being developed in the firm. Joe, you have something?

Yeah, you know, Rich, it's an interesting comment you make. Looking back over the past four quarters, $2.45 of EPS, your round number is $5.5 million net trading income. You know, we've had a lot of discussion about kind of our chart and the various levels of EPS it generates. I would say there's lots of different ways to look at this. If you want to look at it over the short term, I think your comment is fair. I think that's a reasonable way to look at it in terms of that level of net trading income and earnings. I'd say if you want to look at it over a longer term, and when we were at FIA six weeks ago, whatever it was, we noted what our pro forma performance has been since we went public, if you included ITG and KCG in the numbers, and it's around six on an average basis. And so I would hold to that on a longer-term basis, that we should be there, given growth and then given the outsized quarters, which happen inevitably. And then the third layer I would say to consider, both for the short-term and the long-term, is the impact of the buyback. So we've got, since we started the buyback program, it's, again, round numbers, a billion of stock that we bought back, and it's 14% of the company, even net of issuances for our compensation. So I think as an emerging way to frame it, I think that's fair.

Got it. And I think you're referring to 60.

being 6 million NTI and being around... 6 million net rate income per day over a very long period of time, yes.

So that's helpful, very helpful. And then my quick, I don't know if it's quick, but the follow-up would be thank you for all the laborious work you did on going through these comment letters and presenting it in the format you did. It's very helpful. I think investors... Doug, you know, just want to know if you could briefly summarize what's next. What's next in the process and what can we expect?

Yeah, yeah, thanks, Rich. I'll try to be professional in my remarks. Look, I mean, there was a tidal wave of comment letters that have come in. You would think, and traditionally, and, you know, if they follow the law, there has to be a long and thoughtful process internally at the SEC where they review the comment letters. And the point that I made in my prepared remarks is, you know, I think, and Gensler even said at a Bloomberg conference not that long ago, like, he's dismissive of certain industry comments, which I thought was just a shameful comment, frankly. But he's dismissive of industry comments because we have an interest in it, or I'm paraphrasing. But I think if you look at the totality of what has been received. And that's why we provided this summary. And you look at the participants. The notion that my friends at the New York Stock Exchange would put out a comment letter publicly with Citadel and with Schwab that essentially says, look, we would be the beneficiaries of this auction proposal because presumably they would have an auction format that would satisfy the new rule. and we would be obligated, along with the other wholesalers, to route orders there. When the New York Stock Exchange stands up and says, we don't think this makes any sense, Gary. Please withdraw this comment. And NASDAQ did the same thing, and CBOE, our friends at Tilly, did the same thing. You have the three major exchange groups saying, we don't think that this makes any sense. When you have the Department of Justice, on its own volition, putting out a comment letter that says, We think that these rules are not properly integrated together and don't make a great deal of sense. Another arm of the United States government is criticizing the SEC. I mean, to me, these are just, how can you ignore that in good conscience as a regulator? And certainly you can't do that consistent with the obligations that the SEC and the chair has under the Administrative Procedures Act. So it would be foolhardy for him to proceed on this basis, in my view. And so I think the right thing to do would be to engage the industry in a meaningful dialogue, which he has heretofore not done, just like prior SECs did in 2004, 5, 6. You remember quite well when there was another discussion around a major overhaul of the U.S. equities market reg NMS, and that took years of deliberation. in the industry is saying that there shouldn't be reforms. What we are saying is these rushed, ill-conceived proposals that don't integrate very well. Let me just give you one example. There's a proposal that says we should update Rule 605 and present data on retail execution in a more fulsome format. Virtu proposed this two years ago. Citadel, everybody agrees with that. And so the SEC in putting out that proposal is essentially saying, we don't have complete data today. Okay? Then there's another proposal, the auction proposal, where they're suggesting a major change to the retail market. How in the world are you proposing a change to the retail market when you are saying that the yardstick is broken? I mean, it just defies logic. And so I think everyone should just take a deep breath take a step back and engage this conversation deliberately and collaboratively. And I think, you know, we have never said we don't want the exchanges to have the ability to compete on a level playing field, right? But there needs to be a data-driven, scientific almost approach to this. These markets are too important and are prominent as the leading capital markets center in the world, and the impact that that has on capital formation is just too important to muck around, as I have said many times, in my view, solely for political purposes. So I will now get off my soapbox, and I will take the next question. Thank you, Rich.

Our next question comes from Alex Bloestein from Goldman Sachs. Your line is open.

Hey, guys. Good morning. I wanted to go back, Doug, to your point about internalization and the more sort of efficiencies you guys have been able to extract from the business. And we can sort of see it in the results like we had this quarter, right, where the public proxies were not as good relative to what you ended up putting out. But is there a better way to frame the opportunity to do more of that? Like if you kind of think about – and I know it's a tough question to answer, but for us looking from the outside, if we were to think of all else equal, how much more net trading per day – would you be able to extrapolate from your ecosystem? What would that look like relative to what you're doing today?

Yeah, it's a great question, and I'm not going to try to avoid it. It's really hard to come up with an exact – where does this – obviously, you can look at what we pay exchanges and ATSs and our – adjusted net trading day from internalization, if you will, since the KCG merger in 2017 this quarter, right? So we continue to grow, if you will, on a kind of opportunity basis. I think the important thing, and I mentioned it in response, I think, to Rich's first question is, what it does, though, is just makes the firm more excellent and enables us to be more aggressive around public markets and dark pools around the world. It just makes you a better market maker. It's always been the thesis that was drilled into my head by Vinny in 2007 and 2008 when we were starting this firm, which is how do you become the most efficient two-sided provider of liquidity? This is the end state. Not to be a snarky guy, but your firm, I know there's a wall you can't go over, but Goldman had a great quarter in equities this quarter. They are renowned for having a internalization work, and frankly, because we execute a lot with them and you have a lot more capital, they can probably take more risks and they do a great job. So it's not like some thesis that we've just kind of discovered, but I do think it's very important because culturally it fits exceptionally well in this firm. There's never that, I'll say, non-virtuous conversation as to how do you attribute P&L and who's bonus and blah, blah, blah, all that kind of stuff that gets in the way of excellence. We're excited about the opportunity. I know I'm not quantifying it for you because it's really hard for me to do, Alex, in a way that I feel comfortable with. But I will say it has really helped grow in particular our options business and even our ETF block business. And I think it's a huge competitive advantage that we have not done a great job of highlighting, and we will continue to try to do that.

Got it. All right. Well, we'll stay tuned for that. Hey, I wanted, for my follow-up, ask you guys a question around fixed income. In your prepared remarks, I guess you suggested that's becoming a greater focus. It sounds like you're benefiting from some of those initiatives, maybe on the execution services side. Can, again, help us better frame fixed income revenues, credit trading maybe in particular, maybe treasuries trading, across execution services and market making. What does that comprise today? I don't think you do a whole lot on the market making side there, but is there an opportunity as the market evolves for you to do more on the market making side as well as on your services?

Yeah, yeah. Look, it's a great question and it's a little bit, I don't want to say it's the holy grail, but it's, you know, it's something that we are very, very in early stages of, right? So if past in fixed income, obviously. Treasuries, which we have been a participant in for a long time, but we've made some improvements and some hires from outside the firm to help improve our DNA there. I think in corporate credit, same thing. I think the reason I like that those But it also fits in really nicely with our ETF block business because a significant part of what we see in that business, frankly, is fixed income related, both here and in Europe, not surprisingly. So, again, it is de minimis in our results. But I do think it's a significant opportunity. Look, we're never going to be the prop desk of a big bank. that some of our competitor firms do. I mean, those are great firms and they will continue to do really well there. But in terms of providing that acute liquidity, right, to end users both through, you know, the distribution mechanisms of market access, trade web, et cetera, and through our own client network, you know, it's a significant opportunity.

Gotcha. All right. Thanks, guys.

Our next question comes from Ken Worthington from JP Morgan. Your line is open.

Hi, good morning. Thanks for taking the questions. It seems like a good crisis always has the potential to be helpful to earnings. I think you mentioned customer repositioning in the prepared remarks. How big a deal was the mid-cap banking crisis to earnings this quarter? And for perspective, how did this crisis compare to others like Swiss franc that were helpful with profits in the past?

Yeah, it's a great question. Actually, this one was different. It helped more on the execution services side, Ken, than it did in market making. In other words, I think there was more institutional activity as a result of what was going on. People moving, you know, portfolio, getting out of XLF or into XLF and blah, blah, blah. And so that helped our execution services segment. On the market making side, you know, and I've said this publicly before, you know, when stocks go from Silicon Valley goes from X to zero, right, it's just serendipity where you were, you know, were you long or short. Frankly, I don't remember if we were. It wasn't a material amount either way. And so there was some activity, obviously, in regional banks, and we did fine, but it wasn't like a big, broad event that, you know, impacted, you know, the thousands and thousands of instruments like some large macro event. So in terms of market making, it wasn't material in the quarter. It really had a bigger impact on execution services.

Joe, you were going to add? You mentioned this was Frank decoupling Ken. I remember that. It started in FX and it reverberated around European equities, commodities, into the US. This was more, I'd say, idiosyncratic and isolated.

There was no big windfall in market making. It wasn't like we made an amazing amount. I mean, frankly, I think we probably ended up breaking even, if you will, more or less in the regional banks, which from a risk management perspective was pretty darn good.

Okay, perfect. And then in options, how big a business is Euroday options for you? And based on what you see – Do you have any opinions on the durability or trading of this product or how much more it might grow for you over time?

Yeah, look, we are a participant in it, and I think any product that institutional investors – I mean, I know there's, like, a bid offer between, like, J.C. Morgan and Goldman as to, like, is it institution, is it retail? I mean, frankly – interest in it. It appears to be more institutional and retail based on what I've read. So I think, look, we are an active market maker in the space. As more participants look of portfolio exposure. And so index market making, maybe we just got lucky here, is where we started. And we have that competitive advantage in that. So it plays nicely to our strengths. So as that subsegment, if you will, grows, we will continue to reap the benefits of that. So I think it's a positive P&L driver for our options and our market making business.

Great. Okay, great. That's it. Thank you very much.

Thanks, Ken. We now turn to Chris Allen from Citi. Your line is open.

Good morning, everyone. Congrats on the Panthers win, Doug.

Thank you. I should have mentioned that to Rich, but he's a big Bruins fan, so I didn't want to rub it in.

I know you missed your opportunity there. I want to get a little bit more color on on some of the areas you noted performing well in the quarter, FX, commodities, and European equities. Energy got better last quarter, and it seems to continue to improve in the beginning of this year. But if we kind of look at FX and European equities, kind of the underlying indicators for both are mixed at best. So I'm just kind of wondering, Were you able to see strength there? Was there any competitive pullbacks, any special situations? Just trying to get at our trajectory just in terms of some of the stuff that maybe we can't see as clear.

Yeah, thank you. It's a good question. Obviously, we look at opportunities. As I said in my prepared remarks, Chris, we measure opportunity in terms of volume and bid offer spread and things like that. Any I think, you know, if you look at FX, it's been a segment that's been a little, I won't say dormant, but less volatile than others. I think volumes were up 7% and FX volatility was up 16%. You know, we made some internal changes and improvements and enhancements there that I think, you know, have borne fruit. Again, it's an asset class, if you will, that we don't but it continues to be an important growing area. I think we saw some nice activity in our commodity segment. Energy volumes were up 18 percent volume, but volatility was down 10 percent, so it was kind of mixed there. But again, in that area, we're much more volume-driven. And then the last thing I would say, which I mentioned before in response to one of Alex's questions, I think internalization shouldn't be under underappreciated within this firm, and that is something that impacts all of the DES, but in particular, even like in Europe, what we do in our European block market making and our ETF block market making, having the ability to hand off large positions and having Again, I think the brouhaha, as I said before, around retail has overshadowed, if you will, the fact that we are a very, very diverse firm. I take full blame and responsibility for that because I sit there in my soapbox and scream about these proposals day and night. But we've got a big, broad business that is completely non-reliant on any customer order flow in large measure, and that continues to grow really, really nicely. I can tell you that very happy with the pace and of that of that growth and in our trajectory I think Joe nailed it before which is and I've said this for the last I guess it is eight years you know we run and manage this firm not quarter by quarter but to the long haul I know every CEO says that I guess when they don't they should and this firm in particular we're going to have you know child period here, there is a sustained growth and expense and capital discipline that ultimately will inure to our investors. And I happen to be one of the big ones, so I'm along the stock.

Got it. And then just on the organic growth initiatives, maybe if you could help us think about on a year-over-year perspective, where are you seeing growth? I would imagine you're seeing increased traction on the option side. but maybe you're seeing a more challenging environment in crypto i'm just kind of trying to try and think about what's expanding and what's been challenged maybe from an environment i know um atm has obviously been challenging right now so you're trying to think of like what's working well right now what's being cyclically pressured yeah great question uh i think what's working well is you know options and block etf i think i could

EDX debacle and the criminality there. I was talking about the opportunities and whatnot. We're still market making in crypto. We're obviously pulled back some and some platforms frankly don't exist anymore, but we've resumed limited market making and we continue to be very, very excited about the initiative called EDX markets with Citadel, Schwab, Fidelity, And so we're excited about that. You know, fixed income, again, not a contributor, but has a decent trajectory. And you're right, the ATM business, which, again, is an incredible, you know, scalable, fits really nicely into Virtu. You know, I think we have four people working in it full time, right? So it's a great contributor, you know, to the firm and really

long period of time that's going to grow but you know uh block etf and options were the driver in this court thank you our next question comes from dan fannin from jeffries your line is open thanks uh good morning i guess one more on the new initiatives and we've been talking about the success and the growth of these for an extended period of time and i i guess when we think about you know, a year from now or two years from now, what are the goals or what are the kind of benchmarks we can hold against to talk about success? Because there's obviously growth and it's continuing, but the markets like options volume are growing. So trying to gauge your success versus your internal targets or goals or benchmarks, is there things that we could point to or you could lay out to help us kind of gauge that success outside of just growing?

Boy, that's a great question. Again, I'm always loathe to... uh you know subdivide and provide like you know uh uh i know granularity for lack of a better word around our various businesses because that's a dual a two-edged sword right like if we start providing like you know granularity around our businesses god forbid one quarter will you know when we when we don't satisfy the metrics everyone runs around with their hair on fire like you know our fx business was going out of business five years ago i vaguely remember and it clearly has not so look uh i think From our perspective, I said in my remarks, Dan, that it was $650,000 per day in the quarter, which was the highest since the first quarter of 2022. I mean, that's a meaningful contribution to the firm. I look at that and say, okay, absent market forces, if you will,

No, we've said that our goal is to have a million dollars of contribution in a medium-term type of period, in a three-year-ish type of period. Again, it's going to depend on the market conditions. It's going to depend on the opportunity. If you look at that chart on page five, obviously 2020 is a little bit of an outlier, but you can discern you know, a nice, you know, up and to the right type of growth there. So, you know, we expect that to continue.

Okay. No, that's helpful. Longer term targets, knowing the market's going to, you know, be, you know, change is helpful. And then just one on expenses. It doesn't look like you guys updated your expense guidance based on the first quarter and how things are tracking. Does that all, what you guys outlined last quarter still kind of hold for the year?

I think so. And, you know, you've got to look at the major categories of expenses sort of individually. Compensation, our first quarter, if you go back historically and look, I think, is all the nominal amount of compensation. The nominal dollar amount is typically the highest in any quarter in Q1. And then the percentage falls out of that. So, I think, you know, comparing to the full year, your comp ratio, Our first quarter was up as looking at 1.5-ish type of percent. So, you know, I would expect the same trend that you've seen in prior years in terms of the dollar amount that is accrued. Communications and data processing, I think, is tracking on an annualized basis a few percentage points higher, 3, 4 percent higher. Again, that's just, you know, we're in an inflationary environment and that's, you know, we work hard at weeding out that so i think we've actually done a good job there and then uh the uh overhead category uh same thing a little bit of inflation there there's some uh you know strong dollar in 22 impacting uh that made it made it a little lower on a dollar constant basis uh it's up a bit uh again you know just the the typical stuff that you would expect um your expenses running the firm uh But I would expect, we didn't update the guidance, and I would expect it to be pretty consistent with what we provided in the past.

Great. Thank you.

Thank you, Dan.

Our next question comes from Michael Cypress from Morgan Stanley. Your line is open.

Hi. Good morning. This is Truman Wankel standing in for Mike here. I just had a question about the environments. I know you guys don't like to get into month-by-month, even course-to-course commentary necessarily. I'm just curious how the market from Q1 has evolved in April months to date. I think if I heard you correctly, commodities and FX are particularly strong, and how are you seeing things evolve there? And I guess following onto that, as you think about the various ways the macro could evolve, are there any particular environments where you think Virtu would prefer or could perform better, or do you think the firm is set up to do well regardless of how the macro evolves from here? Thank you.

Thanks. Did Alex Cram put you up to that question? Because usually he asks that, and I'm joking. Look, I mean, we've tried very hard to stick to the script, if you will. Day quarter, so it's early and I wouldn't talk about it anyhow. Look, I think I've said this many times. I mean, the best marketplace for us is one where there's a rising market, people have a lot of confidence, want to move portfolios, and are making money because then they just trade more. We have always said that volumes are very, very important to this firm. We are a market-making firm that collects bid-offer spread. And so the more bid-offer spread, if you will, that comes through the system and various markets, then more often than not, we're going to have better results and better returns. When there's volatility that tends to drive volume, sometimes it doesn't. Sometimes there's a disconnect that I can't necessarily always put my finger on why. And there are certain types of volatility that are helpful. And as I said early in response to a question from Ken, there's other types of volatility. When stocks go from whatever Silicon Valley bank was down effectively to zero. It's not like we have some, you know, uh, Uber algorithm that can handle that. We're going to either make or lose money depending upon whether we were long or short at that instant in time. So, uh, we like more confidence and more certainty, uh, you know, to markets where investors are moving portfolios and feel pretty good about what they're doing. You know, so in 2023, you're going to see a mixed market, right? You've got intense uncertainty as to put it mildly, both geopolitical over in Europe and now in Asia with saber rattling and obviously a live shooting war. You've got central banks all over the place that are trying to figure out which way is up. You've got, you know, trying to manage inflation and expectations. You've got a debt ceiling fight in this country, right? Which doesn't make investors happy. So those are, you know, variables, again, that are, you know, provide a backdrop that can be mixed in certain circumstances. But again, looking at the long haul, we're extremely well poised and have been well positioned, if you will, you know, over the next couple, three, four, five years to, you know, provide the liquidity that folks need as they manage portfolios and get through these various large macro events. I'm trying very hard to answer your question in a way that is sensible, intelligent, without talking about April because I said I wasn't going to do that.

I appreciate that, Doug. Thank you very much for all the color. And I guess for the follow-up, this may sound a bit greedy here because I know you guys are working a lot with all the organic growth initiatives going on, but as you look at the platform, is there any white space that you think there is where you could potentially start from scratch and build a business like the options business where Versu doesn't currently have a presence? How do you think about that?

It's a great question. We think about it all the time because the more widgets we can put into our system, presumably in a profitable manner, the more money we can make and that's all we focus on. I would say it's not white, but it's pretty darn close to white, which is fixed income and credit, which we've talked about. All of the elements, if you will, are there or are being constructed in terms and products and whatnot. Distribution is always an issue. That's why we partner with Market Access and TradeWeb, both of whom are terrific partners to us. So I look at that as a green fill opportunity. I mean, I'm aware, obviously, that there are firms that we compete with that have meaningful presences there, the Jane Streets, the Flow Traders, the Citadels, et cetera, that are just terrific firms. But, again, I would reemphasize it's still very early for us in options. So, again, it's not quite white, but it's not black either, right? So it's probably whiter than black in terms of opportunity to continue this very painful analogy that I started where you actually provoked on me. So I think those are two areas that were very, very – I prefer the innings and the analogy of the baseball player and the dugout because my son is a great – we stand. That's where we stand.

Thank you for all the color.

Thank you.

We now turn to Alex Cram from UBS. Your line is open.

Yeah. Hey, good morning, everyone. And yeah, thanks, Doug, for the shout out. I was definitely going to ask that question. So now I have nothing left. I do maybe only have a couple of follow-ups on things that were already discussed. Maybe just to come back to the options business, because I think somebody asked about the kind of organic trajectory. I think last quarter you talked about the number of symbols you've rolled out and maybe some markets you're slowly expanding into. So maybe you can be a little bit more specific as we think about the next four quarters, perhaps, of where you want to be in terms of you know, symbols and options or markets you want to be in? Again, to the earlier question of something to hold you accountable on, like what are those underlying metrics that you're looking at to see that the business is actually getting bigger?

Okay, yeah, so I have mentioned this in earlier quarters, and I think one of our main emphasis in 2020 is going to be in Asia. We have ramped up there and staffed up there. We moved you know two really high caliber people from New York are out there have moved out there so I do think there is significant opportunity there obviously there are competitors there but there's a very robust market both in Japan and in India for index options we are a participant there and so yeah we have internal metrics as to where we want to be at the end of 2023 there and you know they're they'll get included obviously in the large mix of non-customer market making and then market making as we report out. But it's meaningful and it's a significant growth opportunity and I've challenged the desk and the folks to grow that business and that's something that, you know, the board's going to hold us accountable to. So we're excited about that. I think, you know, there's opportunities in cross asset class options around energy and Korea is another market, FX options. So these are all things, as I said before, using my sports analogy, where we continue to be in the very early innings. I mean, there are firms that are big, broad firms that have been doing this for 30 years. The Optiverse, the IMCs, the Citadel, the Susquehanna, that's right. They're fabulously scaled, wonderfully executing, terrific firms that do a lot of great work there. We're nowhere near their excellence and their size. And so that's the goal to be, you know, named in the same breath, if you will, as those firms. And we have the technology. We have the distribution. There's not a client or a counterparty that we want to deal with or an exchange, et cetera, that won't, you know, that won't do business with us. We have the capital. We have the clearing. So now it's just a question of executing. And for the last 15 years since Vinny was gracious enough to invite me into this firm, that's what we've done. We're a really good executing firm. So, again, I don't measure success or excellence quarter by quarter. I know that's what we have to do as a public company. But I look at that business and say, in the next two, three years, you know, that business could double, could triple in size, and that's our goal.

Okay, but too early to give us updates on progress on symbols and things like that, right, since you mentioned them before.

Yeah, frankly, I don't even have a symbol count in here, so I'm not going to just, you know, I don't know.

Maybe helpful in the future. That would be maybe helpful in the future. And just secondly, and sorry to be a little bit of a history buff here, but you obviously mentioned commodities. FX and and European equities and somebody asked about those those three business before now if I go back to the pre KCG days I think 2015 those businesses peaked when we were able to track them more actively I think you know FX and commodities were doing four hundred thousand a day each European equities was doing two hundred thousand so about a million between the three of them so when and now it's been seven years seven eight years in the markets have changed up but like when you look at those prior results and I mean, are these businesses meaningfully bigger? Like, how would you compare them? I know a lot has changed, but clearly you call them out this quarter.

Yeah, no, look, it's a great question, and you should do your homework, and you do do your homework, and you're very thorough at it, so thank you for that. Look, I think a lot has changed since then. The FX market has gotten incredibly more competitive, and, you know, volumes and volatilities You know, the commodities market, again, I'm not trying to, you know, engender sympathy here. You know, the natural gas market effectively didn't really trade much for like three or four years, and it used to be something that was a significant contributor, you know, back in 2015. So, I'm not going to comment separately on what those results are because we've gotten away from that. I will say that they continue to be important contributors and vibrant, you know, parts of the firm where we have, you know, dedicated, really, really terrific resources. And again, to bring it back, I think it is part of the story that we are a very diversified, scaled firm. I think the narrative somehow that we were like a melting ice cube or all that kind of stuff is just, is not valid. And I do think that, you know, the continued P&L opportunities from internalization, even within those desks that I mentioned, continue to be robust. And, you know, opportunities and desks And groups will ebb and flow within the firm. And that's one of the reasons, Alex, not to beat a dead horse, that we've gotten away from the granularity of disclosures, not because we're ashamed by anything that's happened or the performance has been so horrible, blah, blah, blah. It's because we think the right investment thesis is to look at the totality of this firm and the service, if you will, that we provide to the marketplace around the world, to look at the opportunities, the quote-unquote white spaces that we have, and say, okay, in the next two to three years, all things being equal, where can this firm be, given the expense discipline and the capital management we have and the stock buyback program we have, and project out and say, this is an attractive firm that gives us that, which has scale and allows us to pivot and reallocate resources where there's opportunities. You know the investment thesis. And parenthetically, investors are getting paid 96 cents per year to continue to believe in that investment thesis and that story going forward.

Very helpful. Thanks for the call.

Thank you, sir.

This concludes our Q&A. I'll now hand back to Douglas Sifu, CEO, for any closing remarks.

Elliot, thank you very much, and thank you to our investors and to our research analysts for all the hard work and for all the great questions, and we look forward to speaking with you in the summer. Thank you all.

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.