Virtu Financial(US:VIRT)2022-11-03 19:37Financial Data and Key Metrics Changes - For Q3 2022, the company reported adjusted EPS of $0.61 and adjusted net trading income of $5.2 million per day, bringing year-to-date results to $2.61 per share and an average of $6.3 million per day [10][28] - Adjusted EBITDA for Q3 was $181 million, down 14% from the prior year and the second quarter, with an adjusted EBITDA margin of 55%, reflecting a disciplined expense management approach [37][38] - Total compensation expense for Q3 was $103 million, slightly up from the second quarter, with cash compensation ratios at 25% and 31% of adjusted net trading income respectively [36][60] Business Line Data and Key Metrics Changes - Market Making adjusted net trading income was $238 million or $3.7 million per day, down 4% year-over-year and 9% from the second quarter [35] - Execution Services adjusted net trading income was $93 million or $1.5 million per day, a 12% decrease year-over-year and a 13% decrease from the second quarter [35][32] - The company’s growth initiatives in options accounted for a significant portion of adjusted net trading income, with a focus on expanding capabilities in both U.S. and international markets [13][16] Market Data and Key Metrics Changes - U.S. equity share volume in notional value trading was down 13% and 22% respectively compared to the previous quarter [31] - Average realized and applied volatility decreased by 25% and 10% respectively, indicating a challenging trading environment [31] Company Strategy and Development Direction - The company is focused on expanding its options trading capabilities and has made significant investments in technology and personnel to support this growth [15][16] - The company is also developing its crypto market-making initiatives, aiming to enhance connectivity and technology across various crypto venues [16] - The firm is committed to returning capital to shareholders through share repurchases and dividends, having repurchased 12.2% of its shares since the program's inception [30][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting or exceeding financial targets for the year, despite recent performance fluctuations [28] - The company highlighted concerns regarding regulatory changes and their potential impact on market structure, emphasizing the importance of maintaining a competitive ecosystem for retail investors [25][26] - Management remains optimistic about the long-term growth potential in both options and crypto markets, despite current market conditions [16][73] Other Important Information - The company has repurchased a total of 31.1 million shares, amounting to over $870 million, with approximately $350 million remaining in repurchase capacity [12] - The firm’s long-term debt reflects a debt to trailing EBITDA ratio of 1.7x, indicating a sustainable capital structure [37] Q&A Session Summary Question: What is the view on normalized earnings and future retail flow? - Management indicated that recent quarters should not be seen as indicative of future performance, emphasizing a long-term growth trajectory [41][44] Question: Comments on regulation regarding tick sizes and order competition? - Management expressed support for certain regulatory changes but raised concerns about the potential negative impacts of proposed reforms on market quality and competition [45][46] Question: Insights on expenses and operational efficiency? - Management reassured that expense management remains disciplined, with no significant deviations expected in operational expenses moving forward [59][63] Question: Status of options and crypto initiatives? - Management noted that while growth in these areas has been steady, they are still in early stages and subject to market conditions [70][73] Question: Discussion on trading revenues and cost dynamics? - Management clarified that the divergence in trading revenues and costs was primarily due to the mix of business rather than external factors like margin requirements [97][98]