Virtu Financial, Inc. Class A

Good day and thank you for standing by. Welcome to the Virtue Financial 2024 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Smith, Head of Investor Relations. Please go ahead.

Thank you, Kevin, and good morning, everyone. Thank you for joining us. Our second quarter results were released this morning and are available on our website. With us today and 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. We 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 belief regarding future events that 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 vary 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, and adjusted EBITDA margin. 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 GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful, as well as how management uses these measures. And with that, I'd like to turn the call over to Doug.

Thank you, and good morning, everybody. This morning, we reported our second quarter results. For the quarter ended June 30th, Virtu earned 83 cents of adjusted EPS on $6.1 million per day of adjusted net trading income. We generated a 56.5% EBITDA margin and $218 million of EBITDA, both on an adjusted basis. We performed well this quarter compared to headline volume and volatility statistics, thanks to strong performances from our market-making businesses our growing Virtu Execution Services franchise, and meaningful contributions from our organic growth initiatives. Beginning this quarter with Virtu Execution Services, our business performed very well. Adjusted net trading income was up 3% over the first quarter, delivering $100 million of adjusted net trading income, or $1.6 million per day, the highest since the second quarter of 2022, when volumes were 5% higher and volatility was 63% higher. These results are especially impressive considering that U.S. notional turnover was down almost 6%, pan-European notional turnover was down about 2% per day, and in Asia, Tokyo Stock Exchange notional turnover was down about 10%. Virtu's scaled operations afford us the unique ability to continually invest in our global multi-asset class platform to meet clients' needs and maintain our position as a valuable partner. We believe these investments in technology and infrastructure are essential for providing the efficiencies clients need to thrive in a fast-paced and competitive landscape. And it's clear that our multi-year investments are paying off as evidenced by third-party validation and increased client adoption. Major contributors to this are our multi-asset class capability, which makes us eligible to win more RFPs, and our white label offerings, or what we call Virtu Technology Services, which allows us to distribute our scalable technology efficiently and strategically to other sell-side institutions, helping them better serve their local clients. These non-exclusive strategic partnerships create recurring and reoccurring revenue opportunities for us and allow regional and boutique brokers to benefit from Virtu's global access to markets, advanced trading automation, risk management, and rich data analytics platform. Partnerships like these allow us to accelerate the efficient distribution of our offerings and to expand our adjustable market by serving new clients and additional verticals. To help us realize this important opportunity, we've made several senior hires in the US and abroad, industry veterans with impressive track records of building successful B2B franchises in tier one global banks and exchanges. Recruiting and retaining human capital has been crucial to making enhancements to our product suite and creating the right distribution network. Our disciplined approach to staffing means we've kept a constant level while adding key talent to support important initiatives. We've also seen interest in our new IRS CDS analytics offering, as well as our fixed income pre- and post-trade analytics and cost curve offerings. These are examples of how, as a result of the scaled global platform we've built, we can collaborate with clients, understand their needs, and rapidly develop practical solutions to their problems. We are as excited about the future of this business as ever. As always, our offerings are driven by client demand and built around long-term sustainable partnerships. Turning to market-making. Despite the muted background, our business performed very well, including in the United States where both our customer and non-customer market-making businesses delivered an exceptional quarter thanks in part to the continuous cross-desk internalization improvements made by the team, and an increase in the attractiveness of the flow we received offset by reduced volatility across many drivers. While we saw softer results in certain commodity segments in the second quarter, we recognized meaningful benefits from enhancements to our global equity market making operations that drove outstanding results in single stock and ETFs across the United States, Canada, Europe, and Asia. These enhancements combined with our focus on optimizing internalization opportunities helped us achieve greater results this quarter, despite the reduced opportunity compared to last quarter. This is a great example of how we're focused on investing to enhance our yield from every opportunity in any market condition. We are proud of the continued real progress in our core market making businesses, as well as our success in the new areas, which we had no presence in only a few short years ago. Growth initiatives generated $670,000 per day in adjusted net trading income, contributing 11% of our overall adjusted net trading income. I will highlight results from the standout performers this quarter. In ETF block, our continued growth is the result of the team's efforts to onboard new clients, broadening our distribution, develop new pricing models to win RFQs, and build streamlined processes to create operational leverage as we expand our services to more clients in more asset classes and geographies. In addition, our growing symbol and underwire coverage capabilities has opened the door for broader relationships with ETF issuers and fund managers, including facilitating their regular rebalanced execution needs. Our growing options business delivered stronger performance than the prior quarter, despite lower addressable opportunities. Building our global options capabilities continues to be a top priority of the firm, and we expect this to be a significant part of Virtu's future as our global footprint grows. Similarly, we remain optimistic about the growth potential for us in the fixed income markets, given the rapid growth rate of the accessible market opportunity moving in our direction and the pace at which we are developing technology and deploying the talent to increase our footprint in the space. The opportunity in fixed income is especially exciting when combined with the synergistic benefits from our growing ETF block desk. Touching briefly on crypto, our crypto market making business was also a meaningful contributor, albeit the opportunity this quarter was muted as spot Bitcoin ETF volumes were down over 30% compared to Q1. We are strategically expanding our crypto venue footprint in a virtue manner that is consistent with our historical appetite for risk. Our expansion in the spot crypto markets enhances our liquidity distribution and access to desirable diverse order flow. As part of this development, we are building out cross-product internalization capabilities, which allow us to keep more of the spread we earn and reduce trading fees, similar to what we have developed in other asset classes across the firm. Looking forward, We are working with ETF issuers to prepare to support spot Ethereum ETFs and with exchanges and regulators to be ready to make markets and options on spot crypto ETFs when they are approved. As we mentioned last quarter, the introduction of spot crypto ETF products has transformed Virtu's role in the crypto ecosystem and plays to Virtu's strengths by enabling us to leverage our scale capabilities to service clients and the markets. The recent success of the crypto ecosystem has rapidly accelerated since the launch of Spot ETS, and we are seeing more adoption from traditional investors than ever. We continue to see client demand for our unique abilities, as well as demand for our liquidity from new platforms and products coming to market. Suffice to say, we are still in the early innings of tapping the growth opportunity in crypto. Now I'll turn it over for Joe for more commentary. Joe?