Earnings Presentation. Fourth Quarter 2017

Transcription

1 Earnings Presentation Fourth Quarter 207 February 8, 208

2 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 995. Statements regarding Virtu Financial, Inc. s ( Virtu s or our ) business that are not historical facts are forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. The Company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, and if the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect thereto or with respect to other forward-looking statements. Forward-looking statements are based on information available at the time and/or management s good faith belief with respect to future events, and is subject to risks and uncertainties, some or all of which are not predictable or within Virtu s control, that could cause actual performance or results to differ materially from those expressed in the statements. Those risks and uncertainties include, without limitation: fluctuations in trading volume and volatilities in the markets in which we operate; the ability of our trading counterparties and various clearing houses to perform their obligations to us; the performance and reliability of our customized trading platform; the risk of material trading losses from our market making activities; swings in valuations in securities or other instruments in which we hold positions; increasing competition and consolidation in our industry; the effect of the acquisition of KCG Holdings, Inc. ( KCG ) on existing business relationships, operating results, and ongoing business operations generally; the significant costs and significant indebtedness that we incurred in connection with the acquisition of KCG; the risk that we may encounter significant difficulties or delays in integrating the two businesses and the anticipated benefits, cost savings and synergies or capital release may not be achieved; the assumption of potential liabilities relating to KCG's business; the risk that cash flow from our operations and other available sources of liquidity will not be sufficient to fund our various ongoing obligations, including operating expenses, capital expenditures, debt service and dividend payments; regulatory and legal uncertainties and potential changes associated with our industry, particularly in light of increased attention from media, regulators and lawmakers to market structure and related issues; potential adverse results form legal or regulatory proceedings; our ability to remain technologically competitive and to ensure that the technology we utilize is not vulnerable to security risks, hacking and cyber-attacks; risks associated with third party software and technology infrastructure. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in forward-looking statements, see Virtu s Securities and Exchange Commission filings, including but not limited to Virtu s Annual Report on Form 0-K, Quarterly Reports on Form 0-Q and Current Reports on Form 8-K filed with the SEC during 207. GAAP and Non-GAAP Results This presentation includes certain non-gaap financial measures, including Adjusted Net Trading Income, Normalized Adjusted Net Income, Normalized Adjusted Pre-Tax Net Income, Adjusted EBITDA and Trading Capital. Non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP. Other companies may use similarly titled non GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non GAAP financial measures may not be comparable to similar measures used by other companies. We caution investors not to place undue reliance on such non GAAP measures, but instead to consider them with the most directly comparable GAAP measure. Non GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for our results as reported under GAAP. A reconciliation of non GAAP measures to the most directly comparable financial measure prepared in accordance with GAAP is included at the end of the following presentation. February 8, 208 2

3 Financial Highlights 4Q 207 Strong Revenue Performance Generated $237.3 million of Adjusted Net Trading Income ( Adjusted NTI ) o Virtu and KCG market making models come together despite continued challenging environment o Average VIX and realized volatility for 4Q were down 5.8% and 20.0% compared to 3Q, respectively Average daily Adjusted NTI increased 38% to $3.77 million, compared to 3Q 207 Adjusted EPS of $0.22 Expense Synergies on Target Continued progress on integration and synergy realization; expense guidance unchanged for 208 and long-term o Current headcount is approximately 560 Realized $77 million in gross annualized run rate savings through 4Q 207 with no identified adverse impact on Adjusted NTI o Gross annualized run rate expense synergy guidance remains $305-$35 million Capital Management to Reduce Debt and Return Capital $,33 million of Trading Capital at December 3, 207; target Trading Capital remains $750-$850 million Significant flexibility to return capital and further pay down term loan o Initiating a $50 million share/unit repurchase program as a result of excess capital vs target debt o Declared regular dividend of $0.24 Total debt at $,55 million as of January 3, 208; paid $526 million since closing, resulting in $26 million of annual, pre-tax interest expense savings o o BondPoint sale closed for $400 million on January 2, 208; $276 million of net proceeds applied to debt reduction Re-priced term loan and achieved savings of 50 basis points This reflects a non-gaap measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. February 8, 208 3

4 Strong Revenue Performance Adjusted Net Trading Income (NTI) Market Making 3Q Q 207 3Q 207 Adjusted NTI $34.4 $204. Average Daily Adjusted NTI $2.3 $ % Execution Services Adjusted NTI $37.9 $33.2 Average Daily Adjusted NTI $0.60 $ % Execution Services (ex-bondpoint) Adjusted NTI $29.6 $24.9 Average Daily Adjusted NTI $0.47 $ % Market Making + Execution Services Total Adjusted NTI $72.3 $237.3 Total Average Daily Adjusted NTI $2.73 $ % Market Making + Execution Services (ex-bondpoint) Total Adjusted NTI $64.0 $229.0 Total Average Daily Adjusted NTI $2.60 $ % Market Metrics (Average Daily) US Equity Consolidated Volume (mm shares) 6,057 6, % Realized Volatility of S&P 500 Index % Implied Volatility of S&P 500 Index (VIX) % Number of Trading Days This reflects a non-gaap measure; and excludes Adjusted Net Trading Income from Corporate. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. 2 Includes $3mm of Legacy KCG Adjusted NTI from July through July 9, 207 Note: Numbers may not foot due to rounding February 8, 208 4

5 Millions Adjusted Net Trading Income 207 Pro-Forma $300 Reporting Categories Adjusted Net Trading Income $250 $200 $50 $00 $50 $229 ($3.70 / day) $95 ($3.0 / day) $73 8 ($2.75 / day) $237 ($3.77 / day) $0 Q 207 2Q 207 3Q 207 4Q 207 Americas Equities ROW Equities Global FICC, Options & Other Execution Services BondPoint This reflects a non-gaap measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. Note: Numbers may not foot due to rounding. Adjusted Net Trading Income from Unallocated and Corporate reflected in the total sums, but not explicitly reflected as components of the chart. February 8, 208 5

6 Expense Synergies on Target Expense Synergies 4Q 207 Guidance 4Q 207 Actual FY 208 Guidance Occupancy, Overhead and Compensation $8 - $85 $8 $260 - $275 Communications and Data Processing Depreciation & Amortization FY 209 Guidance Total Adjusted Operating Expenses $45 - $55 $47 $490 - $55 $450 - $ Total Adjusted Operating Expenses Annual Expense Synergies $62 2 $77 2 $250 - $275 $305 - $35 Increased 24% from original forecast of $250 million Full-Year 209 Guidance based on 4Q 208 exit run rate This reflects a non-gaap measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. 2 Compared vs. 4Q 207 annualized February 8, 208 6

7 Impact of Tax Cuts and Jobs Act (the Tax Bill ) The Tax Bill enacted on December 22, 207 will have a long-term positive effect on Virtu Corporate tax rate cut from 35% to 2% Prior to the recent tax legislation, Virtu s pro-forma effective tax rate was 37%, reflecting a corporate rate of 35% We estimate Virtu s effective tax rate (pro-forma) will be 23%, reflecting the new 2% corporate rate We continue to operate in Dublin and Singapore as well as the US for corporate tax purposes o No impact on repatriation given Virtu s existing structure Remeasurement of deferred tax asset results in a charge of approximately $75 million, offset by a reduction of $84.9 million on Tax Receivable Agreement liability for 4Q Incorporates assumptions based on our current interpretation of the Tax Act, and impact of the Tax Act recognized this quarter may change as we receive additional clarification and implementation guidance and as the interpretation of the Tax Act evolves over time. February 8, 208 7

8 Strong Capital Position Excess Capital Position Trading Capital as of December 3, 207 Estimate of amounts required to operate Virtu Market Making and Virtu Execution Services 2 Excess Capital as of December 3, 207 $mm $, $463-$563 Leverage Position and Goals Long Term Debt as of January 3, 208 Target repayments through remainder of 208, including tax receivable earmarked for repayment Target Debt Amount at December 3, 208 $mm $, $95 Debt Description Rate Maturity 3 Jan Dec 208 Term Loan 4.99% $624 $384 Notes 6.75% Japannext 5.00% Total 5.75% 4 $,55 $95 Reflects opportunistic refinancing closed January 2, 208 This reflects a non-gaap measure. Please refer to slides at the end of this presentation for reconciliation to the equivalent GAAP measure. 2 Estimate includes appropriate buffers for regulatory and operating capital 3 Current rate of 3-month LIBOR bps 4 Blended rate February 8, 208 8

9 Appendix February 8, 208 9

10 Market Metrics and Volumes Americas Equities Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Volume Benchmarks (ADV) U.S. Equity Consolidated ADV Shares M 8,552 7,25 6,585 7,25 6,843 6,852 6,093 6, % - 0.6% U.S. Notional Value ADV $USD B % -.3% Blended Average Price per Share $USD # % + 0.4% Volatility Benchmarks (ADV) SPX Implied Volatility - QTD # # % % SPX Realized Volatility - QTD # # % % Ratio: Realized Volatility / VIX Ratio % 89.7% 86.9% 74.% 60.6% 58.0% 64.2% 65.2% 55.4% - 5.% - 8.6% SPX Intraday Volatility # %.52% 0.93% 0.69% 0.69% 0.57% 0.55% 0.48% 0.4% - 4.3% % EMEA Equities Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Volume Benchmarks (ADV) Pan-EU Equity Shares (incl auction) Shares M 6,658 6,45 5,27 5,339 4,978 5,340 4,052 4, % - 7.2% Pan-EU Notional Value (incl auction) Euro B % + 0.5% Volatility Benchmarks (ADV) SX5E Implied Volatility - QTD # # % % SX5E Realized Volatility - QTD # # % - 29.% Ratio: Realized Volatility / Implied Ratio % 95% 09% 76% 62% 63% 74% 7% 66% - 7.0% + 7.% SX5E Intraday Volatility # % 2.32%.80%.35%.% 0.86% 0.9% 0.85% 0.7% - 6.9% % APAC Equities Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Volume Benchmarks (ADV) TSE ADV Shares M 2,90 2,452 2,229 2,533 2,259 2,234 2,0 2,078 -.% - 7.9% TSE Notional ADV B 2,94 2,458 2,450 2,783 2,600 2,759 2,550 3, % + 6.8% OSE Nikkei 225 Futures (Total) Contracts # 267,575 96,978 63,930 9,7 85,30 76,683 56,692 28, % + 4.% Volatility Benchmarks (ADV) NKY Implied Volatility - QTD # # % - 7.8% NKY Realized Volatility - QTD # # % - 43.% Ratio: Realized Volatility / VNKY Ratio % 09% 07% 77% 05% 82% 68% 64% 73% + 3.3% % NKY Intraday Volatility # % 2.5%.82%.4% 0.96% 0.8% 0.69% 0.57% 0.88% % - 7.5% February 8, 208 0

11 Market Metrics (continued) Global Commodities Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Futures Contract Volume (ADV) CME Energy ADV Contracts M % - 3.7% ICE Energy ADV Contracts M % - 3.6% Total Energy Contracts M % - 3.7% Volatility Benchmarks (ADV) OVX Implied Volatility - QTD # # % - 34.% OVX Realized Volatility - QTD # # % - 6.7% Ratio: Realized Volatility / Implied Ratio % 23% 7% 77% 20% 245% 233% 29% 254% + 6.2% % CBOE Energy Sector Vol # # % % CBOE/COMEX Gold Vol Index # # % % Global Currencies Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Spot and Futures Volume (ADV) Hotspot ADV FX $USD M 29,449 25,924 25,657 26,705 28,8 27,927 29,036 32,43 +.7% + 2.4% Reuters ADV FX $USD M 2,234 02,45 9,2 92,63 89,908 88,323 90,723 9, % -.7% EBS ADV FX $USD M 96,83 85,77 75,88 89,280 86,984 80,392 87,88 76, % - 4.5% FastMatch FX $USD M 0,983 2,850 2,246 4,863 7,66 20,494 8,33 8, % + 2.5% CME FX Notional ADV $USD M 82,85 74,647 68,220 76,003 78,304 77,520 90,23 80, % + 6.0% CME FX ADV Contracts K % + 6.6% Volatility Benchmarks (ADV) CVIX Implied Volatility - QTD # # % % CVIX Realized Volatility - QTD # # % - 5.5% Ratio: Realized Volatility / Implied Ratio % % - 33.% JPMVXYG7 Implied Volatility - QTD # # % % JPMVXYG7 Realized Volatility - QTD # # % % Ratio: Realized Volatility / Implied Ratio % % - 2.7% JPMorgan Emerging Market Volatility # # % % CBOE/CME FX Vol Index # # % % CBOE/CME FX Vol Index # # % % CBOE/CME FX Vol Index # # % - 7.% Options, Fixed Income, & Other Securities Type Units Q 206 2Q 206 3Q 206 4Q 206 Q 207 2Q 207 3Q 207 4Q 207 3Q 207 4Q 206 Futures and Options Contract Volume (ADV) OCC ADV Contracts M % + 7.% VIX Futures Volume Contracts # 26, ,26 243,56 235, ,6 306,38 330, ,8-0.3% % February 8, 208

12 Daily Average Shares (billions) SPX Realized Volatility Market Metrics (continued) US Equity Market Volumes and Volatility Financial Crisis August 20 Global Debt Crisis October 204 U.S. Treasury Flash Crash June 206 Brexit Nov 206 US Elections US Equity Market Volume SPX Realized Volatility Source: FactSet, Nasdaq Note: As of December 29, 207; U.S. equity volume represents millions of shares traded monthly on consolidated tape; realized volatility calculated by dividing the difference between the S&P 500 intraday high and low by the midpoint of the high and low; shown as average across the month February 8, 208 2

13 Virtu 4Q 207 GAAP Income Statement Income Statement 4Q 207 Trading income, net $286.4 Commissions, net and technology services 62.2 Interest and dividends 22. Other 89.7 Total Revenues $460.4 Brokerage, exchange and clearance fees 8.7 Communication and data processing 48.3 Employee compensation and payroll taxes 66.4 Payment for order flow 5.7 Interest and dividends expense 36. Operations and administrative 30.0 Depreciation and amortization 8.2 Amortization of purchased intangibles and acquired capitalized software 8.9 Debt issue cost related to debt refinancing. Transaction fees and expenses.0 Share based compensation at IPO 0.2 Financing interest expense 24.0 Total Operating Expenses $33.5 Income (Loss) before income taxes $28.9 Provision for income taxes (benefit) 8. Net Income (Loss) $47.8 February 8, 208 3

14 GAAP to Non-GAAP Reconciliation Reconciliation to Adj. EPS and Adj. EBITDA Adjusted EPS Reconciliation 4Q 207 Adjusted EBITDA Reconciliation 4Q 207 Pre-Tax Income (Loss) $28.9 Pre-Tax Income (Loss) $28.9 Intangible amortization 8.9 Interest expense 25. Debt issue costs related to financing. Depreciation and amortization 27. Severance 4.7 Severance 4.7 Reserve for legal matter 2.8 Reserve for legal matter 2.8 Transaction fees and expenses.0 Transaction fees and expenses.0 Trading related settlement income (0.6) Trading related settlement income (0.6) Lease loss accrual.9 Lease loss accrual.9 Write-down of assets 0.7 Write-down of assets 0.7 Shared based compensation 6.0 Shared based compensation 6.0 Other (89.7) Other (89.7) Normalized Adjusted Pre-Tax Income $65.7 Adjusted EBITDA $07.8 Taxes (37%) 24.3 Adjusted EBITDA Margin 45.4% Normalized Adjusted Net Income $4.4 Weighted average fully diluted shares outstanding 88.2 Normalized Adjusted EPS $0.22 Calculated by dividing Adjusted EBITDA by Adjusted Net Trading Income February 8, 208 4

15 GAAP to Non-GAAP Reconciliation Balance Sheet and Trading Capital December 3, 207 Assets 2/3/207 Liabilities and Equity 2/3/207 Cash and equivalents $532.9 Short term borrowings, net $27.9 Securities borrowed,485.4 Securities loaned Receivables from broker dealers and clearing organizations,087. Securities sold under agreements to repurchase Trading assets, at fair value 2,830.4 Payables to broker dealers and clearing organizations Property, equipment and capitalized software, net 37.0 Trading liabilities, at fair value 2,499.7 Goodwill Tax receivable agreement obligations 48.7 Intangibles, net of accumulated amortization.2 Accounts payable and accrued expenses and other liabilities Deferred taxes 40.9 Long-term borrowings, net,388.5 Assets of business held for sale 54.3 Total Liabilities $6,409. Other assets 35.0 Equity,66.0 Total Assets $7,575. Total Liabilities and Equity $7,575. Trading Capital 2/3/207 Sum of Trading Assets $5,935.7 Sum of Trading Liabilities $4,622.5 Total Trading Capital $,33.2 Partially included in Trading Liabilities February 8, 208 5

16 GAAP to Non-GAAP Reconciliation Reconciliation to Adjusted NTI by Category Adjusted Net Trading Income Reconciliation Market Making 4Q 207 Execution Services Corporate Total Trading income, net $287.3 ($2.) $.2 $286.4 Commissions, net and technology services Brokerage, exchange and clearance fees, net (6.7) (20.0) - (8.7) Payments for order flow (5.6) (0.) - (5.7) Interest and dividends, net (3.0) 0.2 (.2) (4.) Adjusted Net Trading Income $204. $33.2 ($0.0) $237.3 Adjusted Net Trading Income Reconciliation Market Making 3Q 207 Execution Services Corporate Total Trading income, net $25.3 $0.7 $.6 $27.6 Commissions, net and technology services Brokerage, exchange and clearance fees, net (59.7) (6.3) - (76.0) Payments for order flow (4.9) (0.) - (5.0) Interest and dividends, net (2.5) 0.2 (0.7) (3.0) Adjusted Net Trading Income $34.4 $37.9 $0.9 $73. 2Q 207 Adjusted Net Trading Income Reconciliation Market Execution Making Services Corporate Total Trading income, net $25.2 $0.4 $0.2 $25.8 Commissions, net and technology services Brokerage, exchange and clearance fees, net (02.8) (8.9) - (2.7) Payments for order flow (5.0) (0.) - (5.) Interest and dividends, net (22.) (9.9) Adjusted Net Trading Income $5.3 $4.8 $2.2 $95.3 Q 207 Adjusted Net Trading Income Reconciliation Market Execution Making Services Corporate Total Trading income, net $292.4 $.2 $0. $293.7 Commissions, net and technology services Brokerage, exchange and clearance fees, net (06.0) (9.6) - (25.6) Payments for order flow (7.0) (0.2) - (7.) Interest and dividends, net (2.3) (8.2) Adjusted Net Trading Income $80. $46. $3.0 $229.2 February 8, 208 6

17 GAAP to Non-GAAP Reconciliation Reconciliation to Adjusted NTI by Category Market Making Segment Adjusted Net Trading Income Reconciliation Americas Equities ROW Equities 4Q 207 Global FICC, Options, Other Unallocated Total Market Making Trading income, net $86.7 $57.6 $45.0 ($2.0) $287.3 Commissions, net and technology services Brokerage, exchange and clearance fees, net (3.2) (9.3) (2.0) 0.8 (6.7) Payments for order flow (5.6) (5.6) Interest and dividends, net (5.9) (3.5) (2.4) (.2) (3.0) Adjusted Net Trading Income $4. $34.8 $30.6 ($2.4) $204. Adjusted Net Trading Income Reconciliation Americas Equities ROW Equities 3Q 207 Global FICC, Options, Other Unallocated Total Market Making Trading income, net $28.2 $40.0 $48.2 ($.) $25.3 Commissions, net and technology services (0.) Brokerage, exchange and clearance fees, net (30.4) (6.) (3.5) 0.4 (59.7) Payments for order flow (4.9) (4.9) Interest and dividends, net (6.) (3.6) (2.2) (0.6) (2.5) Adjusted Net Trading Income $82.4 $20.9 $32.3 ($.3) $34.4 2Q 207 Adjusted Net Trading Income Reconciliation Americas ROW Global FICC, Total Market Equities Equities Options, Other Unallocated Making Trading income, net $44.0 $55.4 $53.2 ($.4) $25.2 Commissions, net and technology services Brokerage, exchange and clearance fees, net (64.) (22.0) (6.3) (0.5) (02.8) Payments for order flow (5.0) (5.0) Interest and dividends, net (3.8) (5.7) (.9) (0.7) (22.) Adjusted Net Trading Income $88.9 $29.9 $35.0 ($2.5) $5.3 Q 207 Adjusted Net Trading Income Reconciliation Americas ROW Global FICC, Total Market Equities Equities Options, Other Unallocated Making Trading income, net $80.0 $52.3 $60.7 ($0.6) $292.4 Commissions, net and technology services Brokerage, exchange and clearance fees, net (64.6) (22.5) (8.4) (0.4) (06.0) Payments for order flow (7.0) (7.0) Interest and dividends, net (3.4) (4.9) (2.5) (0.6) (2.3) Adjusted Net Trading Income $4.6 $26.9 $40. ($.5) $80. February 8, 208 7

18 GAAP to Non-GAAP Reconciliation Reconciliation to Adjusted Operating Expenses Adjusted Operating Expenses Reconciliation 4Q 207 Employee compensation and payroll taxes $66.4 Operations and administrative 30.0 Communication and data processing 48.3 Depreciation and amortization 8.2 Less: Severance (4.7) Share based compensation (4.7) Charges related to share based compensation at IPO, 205 Management Incentive Plan (.) Reserve for legal matters (2.8) Termination of office leases (.9) Equipment write-off (0.7) Adjusted Operating Expenses $47 February 8, 208 8

19 GAAP to Non-GAAP Reconciliation Reconciliation to Adjusted Operating Expenses Adjusted Operting Expenses Reconciliation - KCG 206 Adjusted Operting Expenses Reconciliation - Virtu 206 Employee compensation and benefits $263.8 Employee compensation and benefits 2 $59.7 Communications and data processing 47.9 Communications and data processing 7.0 Occupancy and equipment rentals 37.9 Operations and administrative 23.0 Professional fees 9.8 Depreciation and amortization 29.9 Business development 5.3 Total Adjusted operating expenses $83.7 Other expenses 35.3 Depreciation and amortization Total Adjusted operating expenses $58.6 Total 206 Adjusted operating expenses $765.3 Excludes share based compensation of $9.6 million and severance of $.7 million 2 Excludes share based compensation of $25.6 million and severance of $.3 million 3 Excludes amortization of purchased intangibles of $7.3 million February 8, 208 9