Virtu Financial(VIRT) - 2024 Q2 - Quarterly Report

Financial Performance and Revenue Growth - Total revenue for the six months ended June 30, 2024, was $1,335.8 million, a 18.5$1,127.2 million in the same period in 2023[337] - Net income for the six months ended June 30, 2024, was $239.4 million, a 71.5$139.6 million in the same period in 2023[337] - Trading income, net, accounted for 62% of total revenues for the six months ended June 30, 2024, compared to 64% in the same period in 2023[340] - Adjusted Net Trading Income increased by 15.4% to $751.953 million for the six months ended June 30, 2024, compared to$651.763 million for the same period in 2023[371][373] - Market Making segment's Adjusted Net Trading Income grew by 18.7% to $559.242 million for the six months ended June 30, 2024, compared to$471.050 million in 2023[373] - Execution Services segment's Adjusted Net Trading Income increased by 6.6% to $192.711 million for the six months ended June 30, 2024, compared to$180.713 million in 2023[373] - Average Daily Adjusted Net Trading Income rose by 15.1% to $6.064 million for the six months ended June 30, 2024, compared to$5.256 million in 2023[373] - Trading income, net increased by 16.1% to $834.5 million for the six months ended June 30, 2024, compared to$718.7 million in 2023[369] - Total revenues increased by $186.1 million, or 36.7$693.0 million for the three months ended June 30, 2024, compared to $506.9 million for the same period in 2023[374] - Trading income, net increased by$120.2 million, or 39.3%, to $426.4 million for the three months ended June 30, 2024, driven by higher trading volumes and global market opportunities[376] - Adjusted Net Trading Income increased by$106.4 million, or 38.2%, to $385.1 million for the three months ended June 30, 2024, compared to$278.7 million for the same period in 2023[392] - Commissions, net and technology services revenues increased by $16.6 million, or 15.2$126.1 million for the three months ended June 30, 2024, driven by higher client volumes and institutional engagement[390] - Brokerage, exchange, clearance fees and payments for order flow, net increased by $28.3 million, or 23.1$150.8 million for the three months ended June 30, 2024[393] - Total revenues increased by $208.6 million, or 18.5$1,335.8 million for the six months ended June 30, 2024, compared to $1,127.2 million for the same period in 2023[399] - Market Making segment revenues increased by 20.6$1,090.8 million for the six months ended June 30, 2024, driven by a 15.9% increase in trading income and an 18.7% increase in interest and dividends income[400] - Execution Services segment revenues increased by 7.6% to $244.8 million for the six months ended June 30, 2024, primarily due to a 33.6$213.1 million for the six months ended June 30, 2024, driven by higher interest rates and increased dividends on market making trading assets[401] - Other, net increased by 1,776.9% to $43.6 million for the six months ended June 30, 2024, primarily due to gains on settlement fund recoveries[402] - Adjusted Net Trading Income, a non-GAAP measure, increased by 15.4$752.0 million for the six months ended June 30, 2024, driven by higher trading income and other, net[421] Expenses and Costs - Employee compensation and payroll taxes for the six months ended June 30, 2024, were $206.5 million, a 3.8$199.0 million in the same period in 2023[337] - Interest and dividends income for the six months ended June 30, 2024, was $213.1 million, an 18.2$180.2 million in the same period in 2023[337] - Depreciation and amortization expenses for the six months ended June 30, 2024, were $32.2 million, a 2.9$31.3 million in the same period in 2023[337] - Communication and data processing expense increased by 3.3% to $117.5 million for the six months ended June 30, 2024, compared to$113.8 million in 2023[370] - Employee compensation and payroll taxes increased by $10.1 million, or 10.6$105.7 million for the three months ended June 30, 2024[394] - Interest and dividends expense increased by $11.2 million, or 10.0$123.7 million for the three months ended June 30, 2024[395] - Communication and data processing expense increased by $2.3 million, or 4.0$59.3 million for the three months ended June 30, 2024[378] - Debt issue cost related to debt refinancing, prepayment, and commitment fees increased to $24.3 million for the three months ended June 30, 2024[397] - Operating expenses increased by 8.7$1,040.6 million for the six months ended June 30, 2024, driven by higher brokerage, exchange, clearance fees, and interest and dividends expense[403] - Employee compensation and payroll taxes increased by 3.8% to $206.5 million for the six months ended June 30, 2024, primarily due to higher accrued incentive compensation[423] - Interest and dividends expense increased by 18.8$249.7 million for the six months ended June 30, 2024, driven by higher interest rates and increased securities lending transactions[424] - Provision for income taxes increased to $55.8 million for the six months ended June 30, 2024, with an effective tax rate of 18.9$30.6 million and 18.0% for the same period in 2023[428] Cash and Liquidity Management - As of June 30, 2024, the company had $25.4 million in cash in special reserve bank accounts for customer benefits and$6.2 million in reserve bank accounts for proprietary accounts of brokers[296] - Cash and cash equivalents as of June 30, 2024, totaled $684.8 million, primarily for operating activities, capital expenditures, and liquidity needs[429] - Borrowings under prime brokerage credit facilities were$119.3 million, broker-dealer facilities $75.0 million, and long-term debt$1,766.8 million as of June 30, 2024[429] - The company anticipates increased cash and liquidity needs due to margin requirements from expanded trading activities in existing and new markets[431] - Net cash provided by operating activities was $95.4 million for the six months ended June 30, 2024, compared to a net cash used of$26.4 million in the same period of 2023[450] - Net cash used in financing activities was $194.7 million for the six months ended June 30, 2024, primarily due to$160.7 million in dividends and $82.9 million in treasury stock purchases[452] - Outstanding principal balance on broker-dealer facilities is$75.0 million, and short-term credit facilities with prime brokers and financial institutions total approximately $119.3 million as of June 30, 2024[459] - The company has$1,245.0 million outstanding under term loans as of June 30, 2024, and is in compliance with all applicable covenants under the Credit Agreement[462] Debt and Financing Activities - The company completed the acquisition of Investment Technology Group, Inc. (ITG) for $1,500.0 million, with$404.5 million used to repay previous term loans and $1,095.0 million to finance the acquisition[314] - On June 21, 2024, the company issued$500.0 million in 7.50% senior secured first lien notes due 2031, with interest payable semi-annually[315] - The company entered into Amendment No. 1 to the Credit Agreement, issuing $1,245.0 million in Senior Secured First Lien Term B-1 Loans due 2031 and increasing the revolving credit facility from$250.0 million to $300.0 million[332] - The company entered into a$1,800.0 million senior secured first lien term loan and a $250.0 million revolving facility on January 13, 2022[435] - In December 2023, the company terminated two interest rate swaps, receiving$55.8 million, and entered into a new $1,525.0 million swap agreement[439] - On June 21, 2024, the company issued$1,245.0 million in New Term Loans and increased its revolving credit facility to $300.0 million[440] - The company completed the offering of$500.0 million in 7.50% senior secured first lien notes due 2031 on June 21, 2024[444] - The company entered into two interest rate swap agreements totaling $1,525.0 million, with effective fixed interest payment obligations at rates of 4.5$52.615 million[298] - Regulatory capital requirements are imposed by SEC, FINRA, NYSE, and other international regulators, with potential sanctions for non-compliance[432][433] - The company's U.S. subsidiary, Virtu Americas LLC, is subject to regulation and capital requirements by the SEC and FINRA, and RFQ-hub Americas LLC became a registered U.S. broker-dealer in June 2023[457] Technology and Operations - The company's proprietary technology platform is highly reliable, scalable, and modular, enabling global market making and execution services across multiple asset classes without significant incremental costs[289] - The company's Market Making segment is significantly impacted by market volatility, which can increase bid/ask spreads and capture rates per notional amount transacted[291] - The Execution Services segment earns commissions through client-based trading, proprietary technology services, and trading analytics, including portfolio management and securities valuation tools[292][301] - The company's Corporate segment includes investments in strategic financial services opportunities and manages corporate overhead expenses[293] - The company's workflow technology revenues include order and trade execution management, order routing services, and commission share arrangements with third-party brokers[476][477] - The company's commission management program allows institutional clients to allocate gross commissions for research and other services, recorded on a net basis within Commissions, net[475] Dividends and Shareholder Returns - The company declared a dividend of $0.24 per share of Class A and Class B Common Stock, payable on September 15, 2024, to holders of record as of September 1, 2024[306] - The share repurchase program was expanded to$1,720 million and extended through April 24, 2026[470] Tax and Legal Matters - The company's effective tax rate was 17.6% for the three months ended June 30, 2024, compared to 16.7% for the same period in 2023[364] - The company made tax receivable payments totaling $114.0 million from February 2017 through March 2024, with expected annual payments ranging from$0.1 million to $22.0 million over the next 15 years[360] - The company is required to make payments equal to 85$1,500.0 million, with $404.5 million used to repay previous term loans and$1,095.0 million to finance the acquisition[314] - The company's Amended and Restated 2015 Management Incentive Plan was amended to increase the number of shares of Class A Common Stock reserved for issuance from 16,000,000 to 26,000,000[333] Market and Economic Risks - The company's forward-looking statements highlight risks such as regulatory changes, market volatility, and competition, which could impact future financial performance[286][287][308] Other Financial Metrics - Other, net increased by $40.2 million to$33.4 million for the three months ended June 30, 2024, compared to $(6.8) million for the same period in 2023[363] - The company has two secured credit facilities with borrowing limits of$400 million (Uncommitted Facility) and $650 million (Committed Facility) to finance overnight securities positions[361]