Virtu Financial(VIRT) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Virtu Financial, Inc.'s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022, covering financial condition, comprehensive income, equity, and cash flows Condensed Consolidated Statements of Financial Condition As of September 30, 2022, total assets increased to $10.97 billion while total liabilities grew to $9.30 billion, leading to a decrease in total equity to $1.67 billion Condensed Consolidated Statements of Financial Condition (Unaudited) | (in thousands) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total assets | $10,972,260 | $10,319,971 | | Cash and cash equivalents | $836,298 | $1,071,463 | | Trading assets, at fair value | $4,803,348 | $4,256,955 | | Goodwill | $1,148,926 | $1,148,926 | | Total liabilities | $9,299,352 | $8,456,353 | | Trading liabilities, at fair value | $4,199,838 | $3,510,779 | | Long-term borrowings | $1,792,063 | $1,605,132 | | Total equity | $1,672,908 | $1,863,618 | Condensed Consolidated Statements of Comprehensive Income Q3 2022 saw a slight revenue increase to $561.0 million but net income decreased to $79.9 million due to higher expenses, while nine-month revenue and net income also declined year-over-year Q3 Financial Performance (Three Months Ended September 30) | (in thousands, except per share data) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue | $561,044 | $544,344 | | Total operating expenses | $459,438 | $399,245 | | Net income | $79,874 | $123,138 | | Diluted EPS | $0.37 | $0.59 | Year-to-Date Financial Performance (Nine Months Ended September 30) | (in thousands, except per share data) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue | $1,867,044 | $2,105,881 | | Total operating expenses | $1,349,941 | $1,335,994 | | Net income | $428,698 | $641,276 | | Diluted EPS | $2.16 | $3.01 | Condensed Consolidated Statements of Changes in Equity Total equity decreased to $1.67 billion by September 30, 2022, primarily due to $415.3 million in treasury stock purchases and $78.4 million in dividends, partially offset by net income - For the nine months ended September 30, 2022, the company purchased treasury stock totaling $415.3 million ($287.2 million in Q1, $47.5 million in Q2, $80.6 million in Q3)[18] - Dividends paid to common stockholders and distributions to noncontrolling interests for the nine months ended September 30, 2022, amounted to $78.4 million ($27.1 million in Q1, $26.1 million in Q2, $25.3 million in Q3)[18] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $290.5 million for the nine months ended September 30, 2022, while financing activities used $466.5 million, resulting in a $230.5 million net decrease in cash Cash Flow Summary (Nine Months Ended September 30) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $290,462 | $374,522 | | Net cash used in investing activities | ($10,980) | ($65,440) | | Net cash used in financing activities | ($466,498) | ($550,322) | | Net decrease in cash and cash equivalents | ($230,506) | ($252,692) | Notes to Condensed Consolidated Financial Statements These notes detail the company's operations, accounting policies, and financial items, including segment structure, goodwill, debt refinancing, revenue disaggregation, and the share repurchase program - The company operates through two main segments: Market Making and Execution Services[36] - On January 13, 2022, the company entered into a new Credit Agreement for a $1.8 billion senior secured first lien term loan and a $250 million revolving facility, using the proceeds to repay a previous credit agreement and fund share repurchases[78] - The company's share repurchase program was expanded to $1.22 billion, with authorization extending through November 3, 2023; as of September 30, 2022, approximately $365.6 million remained available for future repurchases[161] Pre-tax Earnings by Segment (Nine Months Ended Sep 30) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Market Making | $448,943 | $713,723 | | Execution Services | $32,005 | $51,941 | | Corporate | $36,155 | $4,223 | | Consolidated Total | $517,103 | $769,887 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month 2022 financial results, noting a decline in Adjusted Net Trading Income and Normalized Adjusted EPS due to lower market volumes, alongside details on liquidity, capital, and share repurchases Q3 2022 vs Q3 2021 Performance Summary | Metric | Q3 2022 (in millions) | Q3 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $561.0 | $544.3 | 3.1% | | Net Income | $79.9 | $123.1 | (35.1)% | | Adjusted Net Trading Income | $331.1 | $354.4 | (6.6)% | | Normalized Adjusted EPS | $0.61 | $0.70 | (12.9)% | 9M 2022 vs 9M 2021 Performance Summary | Metric | 9M 2022 (in millions) | 9M 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,867.0 | $2,105.9 | (11.3)% | | Net Income | $428.7 | $641.3 | (33.2)% | | Adjusted Net Trading Income | $1,193.6 | $1,424.3 | (16.2)% | | Normalized Adjusted EPS | $2.61 | $3.38 | (22.8)% | - The company's share repurchase program authorization was increased to $1.22 billion, extending through November 2023; from inception through September 30, 2022, the company repurchased approximately 30.3 million shares for $854.4 million, with $365.6 million remaining capacity[332] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks, including price, interest rate, and currency fluctuations, through market-neutral strategies, proprietary tools, and interest rate swaps, with 19.4% of nine-month revenues exposed to foreign currency risk - Market making strategies are designed to minimize risk by capturing bid-ask spreads and are not dependent on market direction; proprietary risk management tools monitor activity and can automatically freeze strategies that exceed preset limits[364][366] - For the nine months ended September 30, 2022, approximately 19.4% of total revenues were denominated in non-U.S. dollar currencies, exposing the company to foreign exchange rate fluctuations[376] - The company uses floating-to-fixed interest rate swap agreements, designated as cash flow hedges, to manage interest rate risk associated with its long-term debt obligations[372] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective[381] - No material changes to internal control over financial reporting occurred during the third quarter of 2022[384] PART II - OTHER INFORMATION Legal Proceedings The company faces various legal claims, lawsuits, and regulatory examinations, but management believes these will not materially impact financial condition or operating results - The company is a defendant in several legal matters, including In re United States Oil Fund, LP Securities Litigation and Iron Workers Local No. 55 Pension Fund v. Virtu Financial, Inc., and is subject to ongoing regulatory reviews by the SEC and FINRA[142][144][146] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K were reported - No material changes to the Risk Factors described in the 2021 Form 10-K were reported[388] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 3.47 million shares for $81.4 million, with $365.6 million remaining available under the share repurchase program Share Repurchases for Q3 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 700,211 | $22.32 | | August 2022 | 1,950,038 | $24.29 | | September 2022 | 824,570 | $22.35 | | Total Q3 2022 | 3,474,819 | $23.43 | - As of September 30, 2022, the company had approximately $365.6 million remaining capacity for future share repurchases under its program, which is authorized through November 3, 2023[391] Other Items (Items 3, 4, 5, 6) This section confirms no defaults on senior securities, no mine safety disclosures, and no other material information to report, along with a list of filed exhibits - The company reported no defaults upon senior securities, no mine safety disclosures, and no other information under Item 5[392][393][394]