Virtu Financial, Inc. Class A

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.