Virtu Financial, Inc. Class A

Good day all, and thank you for joining the Ferti's Financial 2022 First Quarters Results Call. My name's Louisa, and I'll be operating your call today. If you would like to ask a question, you will have the opportunity to do so at the end of the presentation. Please press star, followed by one on your telephone keypad if you wish to ask a question. I now have the pleasure of handing over to your host today, Andrew Smith, Head of Investor Relations. Andrew, please go ahead.

Thank you, Louisa, and good morning, everyone. Thanks for joining us. Our first quarter results were released this morning and are available on our website. On this morning's call, we have Mr. Douglas Sifu, our Chief Executive Officer, Mr. Joseph Meluso, our Co-President and Co-Chief Operating Officer, and Mr. Sean Galvin, our Chief Financial Officer. They will 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 condition may differ materially from what is indicated in those 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 releases and encourage you to review the description of risk factors contained in our annual report and Form 10-K and other gap results, we may refer to certain non-gap measures, including adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margins. These non-gap measures should be considered as supplemental to and not superior to financial measures prepared in accordance with gap. We direct listeners I'd like to turn the call over to Doug.

Good morning, and thank you, Andrew. This morning, we reported our first quarter results, which reflect a 7% quarter-over-quarter increase in adjusted debt trading income to $8.1 million per day and adjusted EPS of $1.27. These results cap another strong quarter for Virtu. I'm pleased with our results for this quarter and particularly pleased with the continued success of our growth initiatives and our global efforts to improve firm-wide internalization. Our market-making business produced $6.2 million per day in the quarter, 6% more than we achieved in the fourth quarter. Our diversified business saw strong performance overall, and in particular in our non-customer market-making businesses. We saw particularly strong results from Asia and ETF market-making, as well as our commodities market-making, where we were able to capitalize on continued volatility in crude and other commodity products. Firm-wide, our strong performance was driven by several factors, including, most significantly, the continued progress we have made on our efforts to improve internalization, which optimizes how we manage opportunity and net positions across the firm. The better we internalize, the less spread we pay away to the street, and the more we can save on brokerage, exchange, and clearing fees. Our global multi-asset footprint and our collaborative culture means VER2 is uniquely positioned to achieve higher levels of inter and intra asset internalization. As we discussed on our prior calls, we believe the benefits of these ongoing enhancements will continue to bear fruit for the foreseeable future and will continue to grow as we expand to new asset classes and geographies. Our execution services segment also performed well in the first quarter, where performance was driven by our workflow products, particularly our EMS Triton Valor. I'm really proud of the work this team has accomplished since the acquisition of ITG. As a reminder, we focused on two principal objectives in our execution services business. First was to streamline our offering by moving clients to our new global enterprise technology, Triton Valor, and second to focus on delivering more value to clients by building new features which help them scale and reduce operational risk. This quarter, we've begun seeing results from these efforts. To date, on the Triton side, We've migrated well over 90% of our clients to the new technology, and with respect to enhancement, we've seen good uptick in the use of automation, where traders are able to routinize busy work in a safe, controlled manner. Our capital markets ATM business was also a meaningful contributor to our organic growth this quarter, and we are optimistic for its continued expansion. We've added more seasoned professionals to the ATM team, and we are excited for the pipeline of new business to materialize. As we mentioned on prior calls, Virtu's unique combination of market-making and execution services allows us to provide liquidity in size and scope unlike any other ATM provider. We continue to see impressive progress in our business this quarter as our stated organic growth initiatives grew to 10% of our adjusted net trading income, or $821,000 per day. Within these initiatives, our growing options business delivered another solid quarter of growth on the back of expanded symbol and venue coverage, as well as new technology deployment as we increase our footprint globally. Growing our options capabilities remains a top priority, and we are investing significant resources to become a wholesaler and option to service our retail partners. As we have mentioned on prior calls, We set out a couple years ago to build an options franchise from scratch by leveraging our infrastructure, technology, and market structure expertise. Additionally, we did this in part to ultimately leverage one of Virtu's most important and unique strategic assets, the connectivity and relationships that exist between Virtu and the nearly 250 retail brokers in the U.S. and abroad. We decided to focus initially on the handful of products that compromise a great proportion of the volumes and options. This allowed us to develop and sharpen our pricing capabilities in hyper-competitive environments. 2021 was an important year for us. As we allocated resources and built and expanded the infrastructure and risk management systems required, we began trading options in Asia and expanded our symbol coverage past the initial index products to single name instruments and grew the team to fill gaps in our capabilities and accelerate our growth. In 2022, We will continue to build out this framework, expand the product set, and add to our core group of talented traders and developers. Our crypto market making continues to progress as well, as we allocate more traders and technologists to expand our activities across major venues. We now trade over 100 crypto products across the United States, Canada, Europe, and Asia, including the ETFs. We continue to support the launch of a US-based spot Bitcoin ETF for crypto, and are working with issuers to be ready to support these funds at launch. Looking at the macro environment, most measures of volatility were up versus the fourth quarter, although some broader market indices like the Russell 2000 saw significantly reduced volatility. That said, retail participation of percentage of overall volumes was down with market-wide Rule 605 volumes down 15 to 20 percent from the fourth quarter. Although, as you will see in our supplemental materials, the shared volumes of retail remain strong at over two times what they were in 2018 and 2019. To us, this indicates the long-term resilience of the retail investor as a significant presence in the market. The outbreak of war in Europe was impactful from a volatility as well as, of course, a humanitarian standpoint. We continue to see disruption in the macroeconomy from record inflation. as well as the continued emergence from the global pandemic and issues around supply chain and other economic disruptions. Our efforts to expand our footprint by entering new markets and products combined with our continued enhancements to our core businesses compounds the sustained growth potential of Virtu from secular and macro tailwinds. Virtu remains committed to disciplined expense management and scaled operations, means that our success is not tied to a single trend or type of macro environment. We are well positioned to success in any environment as we endeavor to continually raise our baseline performance across the gamut of macroeconomic environments. Turning to some of the more recent amendments from the SEC and the impact on our industry, we have been vocal and consistent in calling for fact and data-driven reform where warranted. we believe a data-led approach is consistent with the SEC's mission and practice. In recent weeks, we have joined basically the entire industry in challenging the SEC's proposed amendments to various rules, including Reg ATS, rules regarding share repurchase, and 10b-5-1, among others. While not all of these rules' proposals will have an impact on Virtu, we feel it's imperative that the SEC follow established proper processes for responsible rulemaking to ensure proposals today and in the future are good for the market. As you can see in our published comment letters, these proposals are clearly rushed, ill-advised, and statutorily impermissible because they do not follow the prescribed guidelines for rulemaking under the Administrative Procedures Act, that the SEC won't consult with the industry in good faith and proposed several reforms is disappointing, but sadly not unexpected. On the other hand, we applaud the CFTC and its chairman, who has taken the exact opposite approach. We remain in continuous dialogue with clients, lawmakers, regulators, and key industry stakeholders regarding market structure policies that provide investors with more information and investment choices, and that make our markets more accessible and more transparent for investors. As I look back on the past two years, I would note that we have entered a new phase of post-acquisition integration Virtu, where the benefits of our global business have become evident as the significant cash flows of our business generators are available to return capital to our shareholders. To that end, since the inception of our share repurchase program in late 2020, Virtu has repurchased $732 million of our shares at an average price of about $29. This represents 9% of our company net of normal cost new share issuances for compensation purposes. I refer you all to page 8 of our supplemental materials. We clearly lay out the earnings power of the new post-acquisition virtue and our use of excess capital for the foreseeable future. We believe this presents a clear, compelling investment story. Now I will turn it over to Joe and Shawn. who will provide more detail on the quarter before taking a question. Joe?