Virtu Financial, Inc. · NYSE:VIRT
Virtu Financial — Q2 2021 Earnings Presentation
37 slides from Virtu Financial's earnings presentation, 2021
Slide 1: Second Quarter 2021 Earnings Presentation
Presentation Title in Second Title Case Quarter 2021 Earnings Presentation Presentation subtitle in sentence case Presenter Name Event name xx Month 201x © 201X Virtu Financial. All rights reserved. Not to be reproduced or retransmitted without permission. Compliance #XXXX-XXXX © 2021 Virtu Financia
Slide 2: Second Quarter Highlights
Second Quarter Highlights Adj. NTI1 Normalized Adj. EPS1 2Q 2021 Highlights $342M $0.63 • Quarterly results reflective of market conditions o Realized volatility 9% below 2019 average o US equity share TCV 3% below 2020 average Adj. NTI/day1,2 Adj. EBITDA1 • Generated $32M of Adj. NTI1 from organic
Slide 3: Key Financial Metrics
Key Financial Metrics Full Year 2Q 2021 v 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 ($M) 2020 1Q 2021 1 Total Adjusted Net Trading Income $784 $669 $362 $456 $2,271 $728 $342 - 55% 1 Daily Average Adj. NTI $12.7 $10.6 $5.7 $7.1 $9.0 $11.9 $5.4 Market Making Adj. NTI $652 $552 $257 $321 $1,782
Slide 4: Major Market Metrics
Major Market Metrics Full Year 2Q 2021 v 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 2020 1Q 2021 Market Metrics (Average Daily) Volume Metrics US Equity Consolidated Volume (mm shares) 10,972 12,352 9,942 10,454 10,924 14,650 10,559 - 28% U.S. OTC Equity Volume (mm $ notional) 1,939 1,729 1,498
Slide 5: Virtu Has Multiple Levers to Drive Growth
Virtu Has Multiple Levers to Drive Growth Normalized Historical Results Virtu Pro Forma Pro forma results for Virtu + KCG + ITG result in through- Through- ANTI per Day1 Adj. EPS1 Adj. EBITDA1 the-cycle Adj. NTI per day of ~$5.5M annually -- before the the-Cycle benefits of growth initiatives and Me
Slide 6: Organic Business Growth
Organic Business Growth CAGR2 + 82% $942k/day $656k/day $503k/day 1 $296k/day Daily Average Adj. NTI from $160k/day Organic Growth Initiatives FY 2018 FY 2019 FY 2020 1Q 2021 2Q 2021 Total Adj. NTI 1 $40M $75M $166M $57M $32M % of Firmwide Adj. NTI 1 3% 7% 7% 8% 9% Expansion into New Markets Growth
Slide 7: Capital Management
Capital Management Scaled business model delivers superior return on capital Steady Payout in All Environments Share Buybacks2,3 Dividends declared per share and adjusted earnings per share1 per quarter Shares outstanding (million shares) and share repurchases ($ million) per quarter $2.05 $2.04 $14
Slide 8: Update on Share Buybacks
Update on Share Buybacks Currently on pace for target repurchase range 3Q 2020 Authorization $100M Illustrative Range of Outcomes Based on 4Q 2020 Authorization $70M 2021 Expense Guidance 1Q 2021 Authorization $300M Target Range Adj. NTI Full-Year Adj. Available for Share Buyback Authorization to Da
Slide 9: The current US equities market structure provides meaningful and measurable benefits to retail investors
The current US equities market structure provides meaningful and measurable benefits to retail investors Significant Price and Size Improvement • Wholesalers provided over $3.6B in price improvement to retail investors in 2020, based on Rule 605’s calculation method; however, this method greatly und
Slide 10: Separating Fact From Fiction
Separating Fact From Fiction Myth Reality Retail flow is not • Approximately 40% of total retail flow handled by Virtu interacts with displayed, hidden and accessible midpoint liquidity on public exchanges and ATSs or are displayed on lit exchanges • Most retail brokers are capable of routing direct
Slide 11: Operating Expenses and Long Term Debt
Operating Expenses and Long Term Debt Disciplined focus on expense management Operating Expense Results & Guidance Adj. Operating Expense Forecast 1Q 2Q YTD FY 2021 FY 2019 FY 2020 ($M) 2021 2021 2021 Guidance Cash Compensation 230 321 90 70 160 270 - 280 Comms & Data Processing, Ops & Admin 313 302
Slide 12: GAAP Reconciliations and Other Information
GAAP Reconciliations and Other Information
Slide 13: GAAP Income Statement
GAAP Income Statement Income Statement FY 2018 FY 20191 1Q 2020 2Q 2020 3Q 2020 4Q 2020 FY 2020 1Q 2021 2Q 2021 ($mm) Trading income, net $1,267 $912 $802 $744 $441 $505 $2,493 $813 $385 Commissions, net and technology services 184 499 171 148 134 148 601 192 143 Interest and dividends income 88 109
Slide 14: GAAP Balance Sheet
GAAP Balance Sheet Assets Liabilities and Equity 6/30/2021 6/30/2021 ($M) ($M) Cash and cash equivalents 848 Short-term borrowings, net 214 Cash and securities segregated under regulations and other 67 Securities loaned 1,143 Securities borrowed 1,535 Securities sold under agreements to repurchase 4
Slide 15: Share Count Roll Forward
Share Count Roll Forward (M shares) 4Q 2020 1Q 2021 2Q 2021 Beginning of Period Shares 197.1 195.6 195.0 Class A Buybacks - 1.44 - 2.28 - 3.36 Net Shares Issued - 0.05 + 1.70 + 0.19 End of Period Shares 195.6 195.0 191.9 See endnotes at end of this supplement 15
Slide 16: Adjusted EBITDA & Normalized Adjusted EPS
Adjusted EBITDA & Normalized Adjusted EPS Adj. EBITDA / Adj. EPS FY 2018 FY 20191 1Q 2020 2Q 2020 3Q 2020 4Q 2020 FY 2020 1Q 2021 2Q 2021 ($M) Income (Loss) Before income taxes $696 ($116) $466 $405 $253 $260 $1,383 $490 $135 (+) Financing interest expense 72 122 26 22 20 20 88 19 20 (+) Debt issue
Slide 17: Adjusted Net Trading Income Reconciliation
Adjusted Net Trading Income Reconciliation Operating segments Adjusted Net Trading Income Reconciliation Market Making ($M) 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 Trading income, net 803 745 442 466 801 381 Commissions, net and technology services 1 (1) 9 43 14 9 Brokerage, exchange, cleara
Slide 18: Adjusted Net Trading Income Reconciliation
Adjusted Net Trading Income Reconciliation Organic growth initiatives Adjusted Net Trading Income Reconciliation Organic Growth Initiatives ($M) 2018 2019 2020 1Q 2021 2Q 2021 Trading income, net 36 77 246 62 35 Commissions, net and technology services 7 11 23 13 7 Brokerage, exchange, clearance fee
Slide 19: Adjusted Operating Expense Reconciliation
Adjusted Operating Expense Reconciliation Adjusted Operating Expenses Reconciliation 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 FY 20191 FY 2020 ($M) Employee compensation and payroll taxes $170 $121 $36 $66 $105 $84 $384 $394 Operations and administrative $27 $22 $25 $21 $26 $22 $104 $95 Commu
Slide 20: Disclaimer
Disclaimer Cautionary Statement Regarding Forward Looking Statements This presentation may contain “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements regarding Virtu Financial, Inc.’s (“Virtu’s”, the “Company’s
Slide 21: End Notes
End Notes These notes refer to metrics and/or defined terms presented on: Slide 2 1. This reflects a non-GAAP measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. Prior period reconciliations available https://ir.virtu.com/financials-and-
Slide 22: End Notes—continued
End Notes—continued These notes refer to metrics and/or defined terms presented on: Slide 7 1. This reflects a non-GAAP measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. Prior period reconciliations available https://ir.virtu.com/finan
Slide 23: End Notes—continued
End Notes—continued These notes refer to metrics and/or defined terms presented on: Slide 11 (continued) 2. Virtu entered into a fixed-for-floating interest rate swap ending February 2025 3. Virtu entered into a fixed-for-floating interest rate swap ending October 2024 4. 3.5 billion JPY 5. Blended
Slide 24: Appendix: Measuring Real Execution Quality
Appendix: Measuring Real Execution Quality
Slide 25: Measuring Real Execution Quality
Measuring Real Execution Quality Benefits to Retail Are Significantly Understated Douglas Cifu Chief Executive Officer Virtu Financial U.S. Securities and Exchange Commission Investor Advisory Committee June 10, 2021 © 2021 Virtu Financial. All rights reserved. Not to be reproduced or retransmitted
Slide 26: Benefits of Current Market Structure
Benefits of Current Market Structure The current US equities market structure provides meaningful and measurable benefits to retail investors Significant Price and Size Improvement • Wholesalers provided over $3.6B in price improvement to retail investors in 2020, based on Rule 605’s calculation met
Slide 27: Benefits to Retail Are Significantly Understated
Benefits to Retail Are Significantly Understated A more fulsome measure of execution quality is necessary to accurately quantify the experience of retail investors 1 Real PI Provided by Virtu Is Over 3x Greater Than What Is Measured by Rule 605 +210% +221% +11% +3% -3% Add Odd Lot Add Odd Lot Add Sh
Slide 28: Rule 605 Recommended Reforms
Rule 605 Recommended Reforms We advocate for changes that enhance execution quality metrics and disclosures to retail investors and encourage vigorous competition In an attempt to measure fill quality on marketable orders, Rule 605 reports compare the execution price of those orders to the NBBO pric
Slide 29: Separating Fact From Fiction
Separating Fact From Fiction Myth Reality Retail flow is • Approximately 40% of total retail flow handled by Virtu interacts with displayed, hidden and midpoint liquidity on public exchanges and ATSs or are displayed on lit exchanges not accessible • Most retail brokers are capable of routing direct
Slide 30: Wholesalers Are Part of a Broad Ecosystem
Wholesalers Are Part of a Broad Ecosystem Brokers leverage wholesalers for execution and order handling Brokers evaluate wholesalers based on overall execution quality obtained, which incentivizes wholesalers to seek price improving liquidity for the broker, including accessing better prices on exch
Slide 31: Strong Competition Benefits Retail
Strong Competition Benefits Retail • Wholesalers compete against each other and over 40 other liquidity sources (exchanges, ATSs) for the opportunity to provide execution and routing of orders for retail brokers • Retail brokers measure liquidity sources based on the amount of price improvement prov
Slide 32: Appendix
Appendix VIRTU G FINANCIAL
Slide 33: Benefits to Retail Are Significantly Understated (con't)
Benefits to Retail Are Significantly Understated (con’t) Current Rule 605 method ignores odd lot quotes, odd lot orders, short sell orders and the size of covered orders relative to the amount of shares available at the NBBO # Method Net Price Covered Benchmark Limitations / Notes Imp. Order (2020)1
Slide 34: Example: Why PI Calculation Matters
Example: Why PI Calculation Matters Ignoring size of orders understates the benefits retail receives Consider the following scenario Wholesaler receives a market order to sell long 600 shares. The aggregate size on the bid looks like the illustration below. Benchmark Calculation Wholesaler fills the
Slide 35: Size Improvement Frequency
Size Improvement Frequency A significant percentage of retail activity comes from orders that exceed the displayed quantity of shares at the NBBO1 Shares traded and notional value traded by retail often outsizes the displayed quantity of shares at the NBBO1 60% 54% 50% 45% 40% 30% 20% 10% 0% % of Re
Slide 36: Retail Volume as a % of Total Market Volume
Retail 605 Volume as a % of Total Market Volume Retail activity has grown from under 12% in 2018 and 2019 to 18% in 2020 and 20.4% for 2021 YTD Retail Marketable 605 Activity as % of Total Market Activity (Shares and Value Traded) 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Retail 605 Volume as % of
Slide 37: Wholesalers access other liquidity sources to fill about 30% of the volume
Wholesalers access other liquidity sources, including exchanges and ATS, to fill about 30% of the volume Internalized Retail 605 Marketable Volume accounts for approximately 14% of TCV1 20.4% 30% 14.3% -6.1% 1 Extrapolating from Virtu’s activity, excludes marketable and non-marketable orders routed