Virtu Financial(VIRT) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Virtu Financial, Inc.'s unaudited condensed consolidated financial statements, including financial condition, income, equity, and cash flows, with detailed accounting notes Condensed Consolidated Statements of Financial Condition Total assets increased to $17.62 billion from $10.58 billion, and total liabilities rose to $16.11 billion from $8.93 billion, while total equity decreased to $1.51 billion from $1.65 billion as of September 30, 2023 Condensed Consolidated Statements of Financial Condition (Unaudited) | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total assets | $17,618,428 | $10,583,241 | | Total liabilities | $16,107,778 | $8,931,814 | | Total equity | $1,510,650 | $1,651,427 | Condensed Consolidated Statements of Comprehensive Income Q3 2023 net income available to common stockholders increased to $61.9 million, while nine-month net income decreased to $136.5 million, primarily due to lower net trading income year-to-date Key Income Statement Data (Unaudited) | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $630,164 | $561,044 | $1,757,396 | $1,867,044 | | Trading income, net | $316,085 | $397,383 | $1,034,764 | $1,315,618 | | Net income | $117,593 | $79,874 | $257,220 | $428,698 | | Net income available for common stockholders | $61,915 | $40,007 | $136,498 | $237,434 | | Diluted EPS | $0.63 | $0.37 | $1.36 | $2.16 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $143.7 million for the nine months ended September 30, 2023, with significant cash used in investing and financing activities, resulting in a net decrease in cash of $311.9 million Cash Flow Summary (Unaudited) | (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $143,691 | $290,462 | | Net cash used in investing activities | ($70,463) | ($10,980) | | Net cash used in financing activities | ($385,285) | ($466,498) | | Net decrease in cash and cash equivalents | ($311,887) | ($230,506) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, business segments, goodwill, borrowings including a $1.8 billion term loan, revenue disaggregation, legal proceedings including a new SEC action, and regulatory capital requirements - The company operates through two main segments: Market Making and Execution Services[36] - Total goodwill was $1.15 billion as of September 30, 2023, with no impairment recognized during the period[58] - In September 2023, the SEC filed an action against the Company alleging violations related to information barriers policies from January 2018 to April 2019, which the Company intends to defend vigorously[146] - The company's share repurchase program has approximately $154.4 million remaining capacity as of September 30, 2023[170] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 total revenue growth of 12.3% to $630.2 million, driven by settlement fund recoveries despite a 20.5% decline in net trading income, and details segment performance, non-GAAP measures, liquidity, and accounting policies - Q3 2023 total revenues increased 12.3% YoY to $630.2 million, primarily due to gains from settlement fund recoveries, offsetting a 20.5% decline in net trading income[268][270] - For the nine months ended Sep 30, 2023, total revenues decreased 5.9% YoY, driven by a 21.3% decrease in net trading income[291][294] Adjusted Net Trading Income (Non-GAAP) | (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Adjusted Net Trading Income | $298,007 | $331,142 | (10.0)% | | Average Daily Adjusted Net Trading Income | $4,731 | $5,174 | (9.6)% | - As of September 30, 2023, the company had $688.8 million in cash and cash equivalents, with primary liquidity from operations and available credit facilities[314] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market, interest rate, and foreign currency risks through proprietary tools, interest rate swaps, and hedging, noting that a 10% adverse change in USD exchange rates would decrease YTD revenues by $28.2 million - Market risk is managed through proprietary risk management tools that continuously monitor positions and can automatically freeze strategies exceeding preset limits[373][375] - Interest rate risk is managed via floating-to-fixed interest rate swap agreements to hedge long-term debt obligations[381] - Approximately 16.0% of total revenues for the nine months ended September 30, 2023, were non-U.S. dollar denominated; a hypothetical 10% adverse change in USD exchange rate would decrease revenues by $28.2 million for this period[385] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[390] - No material changes to internal control over financial reporting occurred during the third quarter of 2023[393] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section incorporates legal proceedings from Note 14, highlighting a September 2023 SEC action regarding information access barriers, which the company intends to vigorously defend - The company is subject to various legal and regulatory proceedings, including a recently filed SEC action in September 2023 regarding information barriers policies, as detailed in Note 14[396][146] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K were reported - No material changes to the Risk Factors from the 2022 Form 10-K were reported[397] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 2.94 million shares for $53.5 million, with $154.4 million remaining for future repurchases under the program Share Repurchases for Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 85,167 | ~$18.66 | | August 2023 | 1,097,488 | ~$18.82 | | September 2023 | 1,759,862 | $17.77 | | Total Q3 2023 | 2,942,517 | $18.19 | - As of September 30, 2023, approximately $154.4 million remained available for future purchases under the share repurchase program[400][399] Other Items (Items 3, 4, 5, 6) This section confirms no defaults on senior securities, no mine safety disclosures, no other material information, and lists filed exhibits - Item 3: No defaults upon senior securities[401] - Item 4: No mine safety disclosures[402] - Item 5: No other information to report[403]