Virtu Financial(US:VIRT)2023-04-28 20:03PART I - FINANCIAL INFORMATION Financial Statements This section presents Virtu Financial, Inc.'s unaudited condensed consolidated financial statements as of March 31, 2023, and for the three months then ended, including detailed notes on accounting policies and financial specifics Condensed Consolidated Statements of Financial Condition (Unaudited) As of March 31, 2023, total assets increased to $11.86 billion from $10.58 billion, while total liabilities rose to $10.23 billion from $8.93 billion, and total equity slightly decreased to $1.64 billion Condensed Consolidated Statements of Financial Condition (in millions) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total assets | $11,861.3 | $10,583.2 | | Cash and cash equivalents | $769.0 | $981.6 | | Trading assets, at fair value | $5,438.3 | $4,630.6 | | Total liabilities | $10,225.9 | $8,931.8 | | Trading liabilities, at fair value | $5,114.8 | $4,197.0 | | Long-term borrowings | $1,779.1 | $1,796.0 | | Total equity | $1,635.4 | $1,651.4 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) For Q1 2023, total revenue decreased to $620.4 million from $701.3 million, with net income falling to $110.1 million from $199.9 million, and diluted EPS dropping to $0.56 from $0.98 Condensed Consolidated Statements of Comprehensive Income (in millions, except per share data) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenue | $620.4 | $701.3 | | Trading income, net | $412.5 | $522.3 | | Commissions, net and technology services | $121.4 | $154.7 | | Total operating expenses | $485.6 | $459.6 | | Net income | $110.1 | $199.9 | | Net income available for common stockholders | $57.9 | $112.3 | | Diluted EPS | $0.56 | $0.98 | Condensed Consolidated Statements of Changes in Equity (Unaudited) Total equity decreased from $1.65 billion to $1.64 billion in Q1 2023, primarily due to $93.2 million in treasury stock purchases and $52.0 million in dividends, partially offset by $110.1 million in net income - Key changes in equity for Q1 2023 include net income of $110.1 million, offset by treasury stock purchases of $93.2 million and dividends/distributions of $52.0 million18 Condensed Consolidated Statements of Cash Flows (Unaudited) Net cash used in operating activities improved to $148.4 million in Q1 2023 from $255.2 million in the prior year, with overall cash and cash equivalents decreasing by $229.1 million Condensed Consolidated Statements of Cash Flows (in millions) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(148.4) | $(255.2) | | Net cash used in investing activities | $(35.8) | $(35.0) | | Net cash used in financing activities | $(46.5) | $(212.9) | | Net decrease in cash and cash equivalents | $(229.1) | $(508.3) | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes detail accounting policies and financial data, covering business segments, goodwill, intangible assets, borrowings, fair value measurements, revenue recognition, income taxes, legal proceedings, and capital structure - The company operates through two main segments: Market Making and Execution Services, significantly shaped by the KCG acquisition in 2017 and ITG acquisition in 20192729 - As of March 31, 2023, Goodwill was $1.15 billion, and net intangible assets were $305.5 million, primarily customer relationships4546 - The company is cooperating with an SEC investigation regarding information access barriers from January 2018 to April 2019 and has engaged in settlement discussions132 - The share repurchase program, authorized up to $1.22 billion, had approximately $244.8 million remaining capacity as of March 31, 2023153 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, attributing revenue and net income decreases to lower market volumes and volatility, covering segment performance, non-GAAP measures, liquidity, and capital resources - Total revenues for Q1 2023 decreased by 11.5% year-over-year to $620.4 million, primarily due to lower market volumes and volatility248 - Adjusted Net Trading Income decreased 26.1% to $373.1 million in Q1 2023 from $505.1 million in Q1 2022256 - Operating expenses increased by 5.7% to $485.6 million, largely driven by a 129.4% increase in Interest and dividends expense due to higher interest rates257261 - The company repurchased 4.86 million shares for approximately $93.6 million in Q1 2023 under its share repurchase program363 Results of Operations Q1 2023 total revenues fell 11.5% to $620.4 million, and net income dropped 44.9% to $110.1 million, driven by declines in Trading income and Commissions, offset by a 291.4% surge in Interest and dividends income Revenue and Pre-Tax Income by Segment (in millions) | Segment | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | :--- | | Market Making | Total revenue | $498.9 | $546.6 | | | Pre-tax income | $124.1 | $224.2 | | Execution Services | Total revenue | $118.5 | $151.7 | | | Pre-tax income | $9.0 | $15.1 | Key Revenue and Expense Changes (YoY Q1 2023 vs Q1 2022) | Item | Q1 2023 ($M) | Q1 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Trading income, net | $412.5 | $522.3 | (21.0)% | | Commissions, net & tech services | $121.4 | $154.7 | (21.5)% | | Interest and dividends income | $82.2 | $21.0 | 291.4% | | Interest and dividends expense | $97.6 | $42.5 | 129.4% | Non-GAAP Financial Measures The company uses non-GAAP measures, with Q1 2023 Adjusted Net Trading Income at $373.1 million (down from $505.1 million), Adjusted EBITDA at $207.5 million (down from $343.8 million), and Normalized Adjusted EPS at $0.74 (down from $1.27) Reconciliation of Net Income to Adjusted EBITDA (in millions) | | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Adjusted Net Trading Income | $373.1 | $505.1 | | Net income | $110.1 | $199.9 | | EBITDA | $192.6 | $322.7 | | Adjusted EBITDA | $207.5 | $343.8 | | Adjusted EBITDA Margin | 55.6% | 68.1% | Normalized Adjusted EPS (in millions, except per share data) | | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Normalized Adjusted Net Income ($ thousands) | $127.6 | $231.8 | | Normalized Adjusted EPS | $0.74 | $1.27 | Liquidity and Capital Resources As of March 31, 2023, the company held $769.0 million in cash and $1.81 billion in long-term debt, with liquidity needs including margin, operating expenses, debt service, dividends, and share repurchases - As of March 31, 2023, the company held $769.0 million in cash and cash equivalents and had long-term debt of approximately $1.81 billion270 - The company has various credit facilities, including broker-dealer facilities with $125.0 million outstanding and prime brokerage facilities with $285.1 million outstanding as of March 31, 2023283 - The share repurchase program was expanded to $1.22 billion, with $975.2 million used and $244.8 million remaining capacity as of March 31, 2023, authorized through November 3, 2023302304 Quantitative and Qualitative Disclosures About Market Risk The company manages market, interest rate, and foreign currency risks through strategies like minimizing net positions, using interest rate swaps, and monitoring international revenue exposure, with 15.8% of Q1 2023 revenues in non-U.S. dollar currencies - Market making activities minimize capital at risk by limiting notional positions and hedging with correlated instruments337 - The company uses floating-to-fixed interest rate swap agreements to manage interest rate risk on its long-term debt345 - Approximately 15.8% of total revenues for Q1 2023 were non-U.S. dollar denominated, where a hypothetical 10% adverse USD change would decrease revenues by $9.8 million349 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective354 - No material changes occurred in internal control over financial reporting during Q1 2023357 PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal and regulatory matters, including an ongoing SEC investigation into information access barriers and several lawsuits related to trading and market manipulation - The company is responding to an SEC investigation regarding information barriers from January 2018 to April 2019 and has engaged in settlement discussions132 - The company is a defendant in several lawsuits, including claims related to trading in a crude oil ETF, a stockholder demand for books and records, and alleged market manipulation, all believed to be without merit134135138 Risk Factors No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K were reported - No material changes to the Risk Factors described in the 2022 Form 10-K were reported361 Unregistered Sales of Equity Securities and Use of Proceeds This section details Q1 2023 share repurchase activity, where the company repurchased 4.86 million shares for approximately $93.6 million, with $244.8 million remaining capacity as of March 31, 2023 Share Repurchases for Q1 2023 (in millions) | Period | Total Shares Purchased | Average Price Paid per Share | Value of Shares Purchased Under Program ($M) | | :--- | :--- | :--- | :--- | | Jan 2023 | 1,126,656 | $20.11 | $22.7 | | Feb 2023 | 2,448,127 | $19.60 | $48.0 | | Mar 2023 | 1,282,161 | $17.94 | $23.0 | | Total Q1 2023 | 4,856,944 | $19.28 | $93.7 | - As of March 31, 2023, the company had approximately $244.8 million remaining capacity for future purchases under its share repurchase program, authorized through November 3, 2023365 Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reported no defaults upon senior securities366 Mine Safety Disclosures The company reported no mine safety disclosures - The company reported no mine safety disclosures367 Other Information The company reported no other information required under this item - The company reported no other information required under this item368 Exhibits This section lists exhibits filed with the Form 10-Q, including management incentive plan award agreements, CEO and CFO certifications, and XBRL interactive data files - Exhibits filed include various employee restricted stock unit award agreements and certifications from the CEO and CFO370