Q2 2022 Virtu Financial Inc Earnings Call
Adjusted EBITDA margin.
non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP.
We direct listeners to consult the investor portion of our website, where you will find supplemental information referred to on this call as well as the reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures.
And with that I'd like to turn the call over to Doug.
Good morning, and thank you Andrew just wondering we reported our second quarter results for the quarter ended June 30, we generated 73 of adjusted EPS of $5 8 million per day of adjusted net trading income.
Bringing our results for the first half of 2022 to $2 per share and an average adjusted net trading income of $7 7 million per day.
Our business performed well and exceeded our internal benchmarks, both our global customer and non customer market, making as well as our execution services franchises delivered solid results.
Our firm is resilient and built to deliver what we consider excellent returns in an environment.
We continue to see important success in our growth initiatives and on page five of the supplemental materials you can see how these initiatives contributed meaningfully to our performance joining youre generating over $575000 per day of <unk>, representing 10% of our adjusted net trading income for the quarter.
Our options business, which we launched just a few years ago is thriving and we will continue to grow along with our ETF block crypto Virtu capital markets and other initiatives.
These initiatives are truly organic and that would be in that our adjusted net trading income from these revenue sources with Nathan it's only a few years ago and we've achieved these results by leveraging our scaled infrastructure and distribution channels supplemented with a handful of individual hires.
And options market, making for example, we continue to improve our models expand their assembly universe and have begun to interact with options routers in a limited way.
Triple digit growth year to date is especially impressive given that option volumes are relatively flat for the same period.
We continue to view our investments into options as a as a key long term engine of growth, which complements our core capabilities and expands our addressable market by enabling new revenue opportunities that leverage our existing market, making business across products asset classes and regions.
Our expansion into crypto also continues to progress.
Our A&D from crypto market, making set a record for <unk> two in the second quarter, despite the market wide downturn in crypto.
<unk> remains focused on market, making a good point that CRM and other top crypto currencies in various forms including spot as well as ETF and futures.
In addition, as has been reported we have created a new venture with Citadel Securities Fidelity and Charles Schwab to develop a crypto ecosystem to serve the interest of global investors along with investments from Sequoia and paradigm. We believe that this initiative will ultimately fill a void for a stable and resilient ecosystem for investing.
Crypto across established global brokerage platforms.
Our global ETF Block initiative is also contributing meaningfully to our results year to date A&P from ETF block has grown almost 20% versus full year 2021, as we've expanded assembles and markets that we cover as continued to onboard new clients across around the world that demand our liquidity.
Taken together our growth initiatives are making tremendous progress and have helped raise our baseline performance in any market environment throughout the cycle.
We continue to return capital to our shareholders through our ongoing share repurchase as of today, we have repurchased totaled $27 4 million shares or almost $800 million in aggregate at current and at current levels. We continue to be aggressive in repurchasing our shares every day with over $425 million of remaining capacity.
At current levels, we expect to repurchase this amount over the next 12 to 18 months.
Based on the guidance, we have provided on page eight of our supplemental materials, we are on pace to exceed our target buybacks for the year.
Given the opportunistic refinancing we completed in the first quarter, we would anticipate share repurchases that corresponds to the public buyback ranges for the foreseeable future.
As I mentioned above we have generated an average of $7 million per day, and Asia year to date through June 30, totaling $2 in EPS and $553 million and adjusted EBITDA, both on target with the ranges provided.
As we have said in the past we believe the range of outcomes on this page are sustainable through the cycle.
The levels on this page are the result of significant growth, we have achieved to raise our baseline performance over the years organically and through acquisition.
Distant with our ethos of disciplined expense management, we are successfully held costs in line. Despite the worst inflation since the 19 seventies.
<unk>, a 58, 6% EBITDA margin this quarter and 64, 1% year to date.
Touching on the performance of our segments market, making performed as expected for the volatility and mix of volumes in the period, our diversified market, making businesses performed well against their respective opportunities, especially within customer market, making where we realized benefits of our improved internalization capabilities.
Our execution services business also performed in line with the market opportunity this quarter, realizing $104 million and adjusted net trading income. We are now three full years past the acquisition of ITG and we have overhauled and reflex platform. The technology, an algo suite reduce costs dramatically and retained our broad.
Deep Blue chip client base.
Virtu execution services has a complete complementary suite of products encompassing every stage of an orders life taken together our suite of products reduce cost enhance productivity and help us manage operational risks.
Broader adoption of our product yields a better client experience deepens, our relationships and leads to higher client retention all of which will ultimately help increase our share of wallet and grow our scale. We are confident that the truly global organization. We've built is poised to make it much easier for clients to integrate.
More of our products into their daily business and we didn't see this as an exciting area of growth.
Before I turn it over to Cindy for financial review, let's address the latest statements in press reports regarding potential changes to U S equity market structure being bandied about by the chair of the SEC.
There are three important points I'd like to make regarding the latest discussion and commentary around potential market structures.
Yes.
<unk> has previously publicly supported many of the ideas and share gains with Q&A speech at the Piper Sandler Conference.
We agree that exchanges should be able to display narrow quotes.
<unk> should be included in the <unk> and.
<unk> and retail execution quality reports rule 605 are desperately in need of enhancement and modernization.
Second.
There is currently no former proposal related to the Ics mentioned by the chair in his speech the rule, making process that the SEC must follow.
Years from the time, a formal rulemaking proposal was announced to adoption and implementation since it requires copious data thorough.
Zero economic analysis to evaluate impact to the U S capital markets as well as adequate notice and comment period and comment period.
This process is designed to ensure market structural reforms are driven by data and not politics importantly over the last 20 plus years. The SEC has on several occasions examines the retail trading ecosystem, including payment for order flow and wholesaling and definitively concluded.
That it provides the material benefits to retail investors.
<unk> is perfectly clear the burden is entirely on share gensler to unequivocally demonstrates that his idea.
Serially improved this ecosystem.
This will prove to be an impossible task.
As a result, we believe that the idea as suggested by the chair will need to change significantly and be supported by sufficient data and economic analysis before they can be approved in order to withstand the likely challenges.
Third.
If somehow despite these impossibly high burdens of data.
On the chair the current SEC chair ideas to make it through as currently described they would most significantly and negatively harm retail investors retail brokers institutional investors and public companies and ETF providers.
Because of our decades of experience as a provider of market, making services to retail investors Virtu wood remains highly competitive and all participate opportunistically provide liquidity liquidity to these so called retail auction.
The end result would likely stay to hundreds of millions of dollars in exchanging ats costs and Ironically SEC.
And perhaps multiples of these amounts in price and size improvement to our clients the retail brokers and their customers. However would be would be denied the certainty of execution and surfaces, but the current.
For the current providers compete to provide today with liquidity, possibly widening and feeling good evening as we've seen in other markets where competition has been impeded.
The knock on effect of these ideas will reduce liquidity and widens spreads in thinly traded mid and small cap securities.
Small to mid sized names would likely to see less liquidity, making it more costly for investors to trade. These names and so the issuers to raise capital to fund growth.
These market structure changes would be harmful long term for the markets as they would introduce more friction in the form of greater intermediation and costs were and investors cost that prior to the proliferation of Zero Commission trading has historically served as a barrier.
That limited younger and lower income investors access to the markets.
As we and many others, including retail brokers and independent academics have publicly stated there is a plethora of timely relevant and compelling data that supports the fact that retail investors in the United States, It's free to choose among many great brokers that offer competitive access to the largest capital markets in the world for little to.
No cost this contracts this contrasts with the obviously politically motivated false narrative misconceptions and factually unsupportable conclusions that are being pushed in disguise that so called reforms for the benefit of investors for these and many other reasons. We continue to believe that the extranet if the SEC.
Going forward with a proposal along the lines of the chairs public statement. It would continue to be met with substantial industry wide universal resistance, including potentially in the form of litigation.
And overwhelmingly amounts incredible evidence from numerous numerous diverse sources demonstrates that the current market structure and infrastructure enhanced with some of the sensible reforms, which we support does an incredible job of serving retail investors. We will remain constructively engaged in the dialogue and advocate for policies that enhanced.
Transparency competition, and then promote investor choice and superior execution quality.
I will now turn the call over to Assembly, Cindy Lee, our Deputy Chief Financial Officer to review the financials in more detail Cindy.
Thank you Doug.
In the second quarter as presented on slide 20 of our supplemental material.
Our adjusted net trading income, which represents our trading.
Our trading gains net of direct trading expenses.
$357 million.
$5 8 million.
Which is 6% higher than Q2, 2021 and 29%.
Okay.
Mark Youre, making adjusted net trading income was $254 million.
$4 1 million per day.
11% higher than a year.
Third quarter and 34%.
Okay.
And Susan services adjusted net trading income was $104 million.
$7 million again.
Just want to thank DC it yet.
Alright, adjusted yes.
For the second quarter.
For the second quarter, our overall compensation expense was $99 million.
5% less than Q1.
Our cash and overall compensation ratio was 22% and 27% adjusted net trading income, respectively, and were 19% and 23% year to date.
Adjusted EBITDA was $209 million for TTM.
5% higher than the prior year quarter, and 39% below the third quarter.
Our adjusted EBITDA margin was 58, 6% for the second quarter, which is down nine points from the second.
<unk> continues to be reflected.
Efficient cost structure and disciplined expense management.
Our capitalization remains adequate.
Long term debt was $1 8 billion at quarter end.
Reflecting a debt to trailing EBITDA at retail on the $1 seven.
Our net interest expense was $22 million for the second quarter of 2020.
Compared to $20 million in the prior year second quarter.
We remain committed to our 20 <unk>.
The dividend, which we have consistently paid of <unk> 26.
Every environment since our IPO.
And our approximately 334 million shares repurchased year to date demonstrate our continued commitment to return capital to our shareholders.
I will now turn it back to turn the call back over to the operator for Q&A.
Thanks.
Yes.
Thank you.
I would like to ask a question. Please press star one.
When you tend to think keypad. If you change your mind. Please question Doug liquid tea.
Carrington I'll ask two questions. Please and choice is a muted lately.
Yes.
Our first question comes from Rich replacement pipe Rich. Please go ahead.
Yes, good morning, Doug and Joe and I guess Cindy.
Cindy.
I guess the first question is around the volatility that you experienced in the quarter at least if you look at the published metrics that most people use.
Volatility was flat to up but.
I got a feeling that wasn't done.
Tell the whole story, so could you just talk about the.
The trading environment I guess in Q.
Yes. Thank you very good question.
You do make the observation and the facts Barrett assets. This was a very unique quarter. The volatility. We saw this quarter was much more concentrated than we have seen in the past.
The mean of volatility in the quarter was 34%.
Sequences from quarter over quarter, but the median volatility.
From Q1 to Q2 was only up 2% so that means that we had.
Very short periods of extreme volatility driven by macro events.
So a few trading days a few opportunities.
To have outside returns and to have risks et cetera, and so really the way we look at it quarter over quarter volatility effectively.
<unk> was flat and there was one less trading day this quarter. So there's always a little bit of nuance.
If you look under the covers and I think that kind of explains.
Sure.
The performance this quarter.
Okay.
Thanks.
The one follow up.
Thanks for the thoughtful and detailed comments on regulation. So I guess the one question.
<unk> is about size improvement because I think you've made the point.
I think it's backed up by others in the industry.
<unk> improvement.
Yeah.
Almost two X the benefit of price improvement.
Question is.
You see the FCC and cooperating.
Any of the benefits like size improvement into the analysis.
How would size improvement goal way given some of the if you got <unk> got his way.
With some of these proposals, but again, we heard your comments, we appreciate those as well in the prepared remarks.
Yes look I mean, thanks, rich I appreciate that I mean, obviously the guidance I'm very front footed and very forceful on these issues because I think somebody needs to be.
I have deep respect for the chair he his experiences.
His background and what he's accomplished so this is not a personal diatribe by any stretch of imagination. However, I will always does.
And what I think is right for this firm and more important for our clients.
Thank the ecosystem that has developed in this country frankly over the last 30 years.
Really drive significant and frankly untold benefits to retail vessels, the largest of which we've been very clear about and we provided a white paper is what we dug signs of improvement in the current rules will 605 606 do a very very poor job in capturing what that means what does that mean that means that when an order.
Comes to a wholesaler fee at Virtu citadel, or one of the half dozen or so competitors and more being added every day, we are obligated to fill that order in a D. We do feel that order regardless of the size of the inside at the national at any National Securities Exchange, obviously with respect to small and mid cap names that is meaningful liquidity.
Quiddity meaningful liquidity, we have in our white paper in 2020, we estimate that the value of that exceeded a price improvement exceeded over $2 billion.
In a selectively competitive marketplace, which is what gensler is suggesting.
He is quote unquote retail options, but details of which we have not provided they would just be selective competition. There would be no obligation on behalf of enables or indeed any market participant to provide the size of improvement. So as a result, the order as it would if it were an institutional order without these obligations will just trade through the book what does that mean that mean.
The retail investor getting substantially worse, Phil does.
That means that the issuers.
Bid offer spreads widen which means that when that issuer goes to raise capital it will pay more money. So this is trading 101.
And so I don't know if frankly, what thing is bringing in what's in the brain of the head of trading and markets and as I have thought about these issues. We have clearly made it made them aware of it the burden of proof is 1000% on them to demonstrate that this is not the case the chief economist of the FCC is an incredibly penalty.
Individuals that will look at this my view and this firm's view that there is no chance.
She and they will be able to credibly countermand all of the data and facts that are out there and the burden is on them right, let's be very clear.
You can't just wave a magic wand as the chair of the FTC and changed marketing of 30 years of market structure and as markets get more volatile the service provided by the wholesaler and the size of improvement is even more important.
So.
We look at this and scratch our heads and say where is this all coming from who's the plaintiff.
What was the Genesis of this suggestion and to me, it's very obvious let's just a politically driven.
Approach and we would strongly encourage the chair to reflect on what you have suggested to sit with market participants to come up with sensible reforms, what I'm, suggesting that there aren't changes that needs to be made.
We made our own proposal to the SEC, we haven't heard back that we've made our own proposal to the FCC, but two without any facts aneth without engaging in fact as I said in my prepared remarks, you often misconstrued. The fact right for political and so we're here to engage but we want all of our investors to note that the likelihood of this happening.
Is is de Minimis, and rvs and even if it did happen or to adapt would be fine. Most importantly don't forget rich.
And everybody listening this is a firm that has.
<unk> of institutional customers, we've spoken to our clients on the buy side.
Vast vast majority of them major asset managers look at these proposals scratch their heads and say this makes no sense to us either we don't want tiny tick sizes. We don't want quotes to face we have no problem with retail investors getting the ecosystem that they have.
We know that we can and do interact with retail investors. So all of this narrative out there that he is put out.
Various appearances on TV or whatnot, or frankly, just not supported by the facts not compelled by data and every market participant that we've spoken to that isn't on Twitter with eight followers.
Doesn't agree with what you're suggesting so when it all comes out in the wash in a couple of years will look back on this episode and say boy that was a lot of a lot of conversations. Unfortunately, a lot of wasted money and not a lot's going to change here.
Understood. Thanks for the color Doug Thanks.
Yes.
Thank you.
Our next question comes from Dan Fannon from Jefferies. Please go ahead.
Hi, Thanks, good morning.
I just wanted to go back to the earlier question just with regards to the environment maybe brought it for the first half because if youre looking at the metrics that you gave us on slide four.
And then I just kind of look at the NCI from the first quarter the second quarter decline does.
Doesn't really match up so I understand there was some specific things within <unk> that were different but can you talk about like levels of internalization or other areas that are impacted that were impacted more significantly maybe in your business in the second quarter.
Because as I said these external factors still don't look nearly as down as much as what we're seeing in your numbers.
Yes, I appreciate that and I certainly see.
Super efficiently.
I can see.
How you can say that if you look at the retail and on.
On page four if you look at the <unk> retail equity share volumes being down 17%.
Notional volumes being down 15% and as I said before if you look at mean versus median volatility quarter over quarter. It was flat. So like on all of our return metrics, we outperformed and I suppose we've beaten guidance here as well to the extent that that means anything so the realized mean Russell 2000.
<unk> was down 2% quarter over quarter Thats significant then.
I get it.
You can look at realized volatility and a very superficial topline.
Manner, and say, okay, I don't understand quarter to quarter results, but when you look under the covers and kind of.
Look at that on page four there is a whole number of indices like I'm looking at.
It's sort of towards the bottom of the page.
The European and Japanese.
Japanese realized volatility being down 25% to 21%.
Goldman Sachs is commodities realized volatility index down 34%. So there's a whole host of global indices and the various products and services that we provide that were either flat or materially down quarter over quarter. So this quarter. It looks a lot like the second quarter of 2020.
One.
I think we performed exceptionally well and based on all of our internal metrics, we outperformed so.
Okay. Okay.
And just to.
Clarify.
The statements you made 12 months to 18 months I think it was something.
Was it tied to that I think you said to exhaust the buyback.
Just want to make sure I heard that correctly.
Based on.
Everything youre seeing in the environment.
You've given us some quarterly metrics.
Buybacks remains the primary use of excess capital and still no no thoughts around M&A or other things that might be increasing in terms of priority here.
Yes, absolutely Dan Great question, Yes.
That is exactly what I said, we have $425 million remaining in our program. We would think that would be exhausted in the next 12 to 18 months.
We are in the market everyday we don't try to time the market, obviously, we use a great broker.
It tends to get <unk> every day.
And so based on the public guidance, we've given you in the materials, where we have made a hair under 7 million per day, we're right on target. We were opportunistic there was a shareholder a block that we were able to purchase in the first quarter from from.
A significant investor and we will continue to look to do that but 100% of our focus is on capital return. Obviously, we have our dividend, but then we will continue the buyback program that hurdle for any type of.
Merger acquisition is significantly higher because we think the shares as I have said publicly.
For years are significantly undervalued by the public markets and so we think it's incredibly accretive.
The right thing and in our shareholders' best interest for us to continue to buy back stock.
Thank you.
Thank you.
Our next question comes from Alex Kramm from UBS. Please go ahead.
Yeah, Hey, good morning, everyone.
I noticed that you took the retail slide out that you had last quarter over the last two quarters. So just wondering if you can give us I mean, I think we can all check the same thing, but maybe from your perspective, what you've seen in retail in terms of participation and any changes in terms of the type of retail that you're getting or any other <unk>.
That helps us because it seems like retail unless I heard you correctly. It was probably the biggest driver of quarter over quarter decline.
No I don't think it was the biggest driver of it certainly is a driver we have a very large diversified business.
Supposedly took the slide out because it's all just public.
Data and.
We then people will focus on what they were exclusively a retail front we're not.
Significant events more than half of our revenue comes from not from retail trading.
But certainly yes that along with all the other metrics that I went through in response to Dan's question earlier.
Tends to drive results. If you look at the commodity indices. If you look at what happened in Europe . When you look at Japan and look at other global indices.
And the fact that they were down quarter over quarter in terms of volumes and volatility that that'll end up tracking results. We continue to be very very bullish on the future of retail. If you just look at 2019 pre zero Commission trading involvement as compared to.
<unk>.
What is the <unk>.
Retail engagement today, you will see that fee.
The amount of retail engagement is significantly.
Increases almost almost 100% increase from the three zero Commission now for pandemic pre Zero Commission remember that happened in October of 2019, with our friends at Schwab with a zero Commission and then a bunch of competitors match them enough of the new norm in the industry So that introduced.
Two.
Investing a whole new class of investors young previously under broken under banking brokerage and under banked individuals. So we think that is a systemic change no. One has ever shown evidence that it's not we're not putting that genie back in the file we're not going to go to a marketplace where people are not don't have access on a <unk>.
Arc home to the U S equities market and indeed other markets, but again, we are very large diversified market, making business I'm very proud of what we do in retail obviously going to be a spokesperson and we will continue to be spokes people for the industry and for our clients, but we run a very large diversified business and I'm happy to talk about the other segments as well.
Very good thank you and thanks for the for the state of retail whether it's the other businesses.
That's definitely helpful.
And then just.
Maybe this is more numbers questions, but you obviously have that.
That gives the various scenarios.
In different environments, just curious why if you look quarter over quarter those dose.
Yes.
Scenario has changed a bit so for whatever reason.
The Opex is higher in particular low end EPS is lower the EBITDA is lower so just just wondering what changed quarter over quarter in those scenarios and then maybe just a quick quick other data question I saw share based comp stock based comp increased quarter over quarter. Just curious why that will be up in a in a lower.
Revenue and earnings environment. Thank you.
Yes, I'll ask Cindy to answer the second question, which is.
I know there was some technical reason why we had a we had a.
Recognize them stock base comp in the second quarter incident.
Please standby.
Yes, correct in the second quarter.
Hi.
Accrual.
Percentage of Champagne Kevin's comp thanks.
Yes.
Performance and incentive comp so that's why it increased.
Sure.
Yeah.
This quarter.
Patient.
Yes, I guess the answer to the first question, maybe we can follow up offline, but there were some modest increases.
And Opex I mean, nothing really material here.
And candidly nothing is jumping to my mind, there's no.
Individuals.
Maybe it's up a couple million bucks here or there, but otherwise.
Given the as I said in my prepared remarks, given the environment. We're all in.
Hey, Shneur environment, where all land, we're doing our best to kind of hold the line here. So maybe we can follow up offline because I don't none.
That's really jumping out at me Alex.
Yes, it makes sense and I know, it's just for illustrative purposes anyways. So thank you again.
Yes. Thank you.
Our next question comes from Michael <unk> from Morgan Stanley Michael. Please go ahead.
Hey, good morning, Thanks for taking the question wanted to ask.
The options market, making business I know, that's a big focus and priority for you guys. So just curious.
How many single named Tickers are you guys, making markets and today on the options market, making side and maybe just any color how that compares to a year ago and any thoughts on where you'd like that to be.
Looking out three years or salary some timeframe and maybe you could talk a little bit about some of the actions you're taking that would allow you to increase the number of particulars that you are making markets and today on the option side. Thank you.
Yes. Thanks, it's a great question and you're right. It's obviously a key growth area I mean, we hadn't been.
It all really an options market maker three years ago, and certainly two years ago. We were just getting started so I'm very very proud of the folks in that group here in New York and in Singapore.
Because we truly become more of a global.
<unk>.
Will kill me if I, if I give you an exact date as to when we're going to start expanding symbology. The answer is right now where we are trading dozens of individual names, we try to improve and increase that every day as I mentioned.
I mentioned in my prepared remarks, we are now interacting with routers, which is the first step towards.
Having a more broad.
We call retail options market, making business.
We've learned an awful lot we've improved our our tools as I said before we're reengineering to re architect it to all of our.
All of our technology, frankly to be competitive and I can't be really more pleased with the progress we've made both in cash equity options as well as what we learned in the options market, making into other regions into other asset classes. I said previously that we have launched an index.
<unk> market, making in Asia, So I'm not going to give a definitive date and say okay by us.
<unk> quarter of next year, we're going to be full hog into the 605 options business because that would frankly be.
Irresponsible at me because I frankly don't know right now is really dependent upon.
How do we continue to grow with the market opportunities looks like what our clients are asking us to do and how that market structure continues to evolve. The good news is that it is a meaningful growth area. If you had said to me two years ago that we were going to have near a nine figure.
Adjusted net trading income business, an option I might have questions.
Whether that was feasible, but that's where we are with where we're at and so I'm very very proud of what we've accomplished.
Everybody can look at the marketplace and look at the volumes and look at the competitors and say this is a very significant opportunity for the firm.
Tend to be very very bullish on it and we're going to work our tails off to accomplish it.
Great. Thank you and just maybe a follow up question on the fixed income maybe you could just go a little bit of color on how meaningful that contributed in the quarter relative to the first quarter and maybe you could talk a little bit about some of the initiatives that you have going on.
Income side. Thank you.
Yes, great question, it's still very early in fixed income where options, whereas a couple of years ago, So very very nascent.
Good group, we've done some lateral hiring we've established connectivity to.
Electronic fixed income markets like market access and obviously Bloomberg and Tradeweb.
And more importantly, we're onboarding clients and we've done our first.
Portfolio trades for clients of of.
Corporate credit, which is again, a satisfied episode I would say even if.
Recently as a year ago, so very proud of the accomplishments we've made there its a big asset class. Obviously, it historically has been dominated by dealers. They are more of a number of our competitors that are very meaningful and it is important to us.
Of course, obviously, the large asset class, but more importantly is part and parcel of what we offer as a global ETF market maker in order to be in that business.
We concluded that we needed to have a call.
But credit capability as well because obviously, there's a lot of fixed income Etfs.
Both here Europe and in Asia, and so we just needed to be in that marketplace and so it was done methodically and strategically.
It is not at all a material part of what we do today, but im optimistic that it will.
Grow and the same with our options capability as well.
Great. Thank you.
Thank you.
As a reminder, any.
To ask a question please press star one.
Pat.
Our next question comes from Paul Goldberg from being back intelligence. Please go ahead.
Yes, good morning, and thank you very much for the commentary.
Quick questions on the <unk>, which is kind of.
Broader in terms than just virtue and given the good joint venture with Citadel and other partners.
Looking to see whether you would look into differentiates from the entire eco space because everybody's from both sides trying to get into this space that gripped the guys trying to get into the equities and options trading in the traditional players so looking into crypto, so, whereas the differentiation we should look for.
Yes, great question, we're very very.
Excited about this venture we've got some incredibly talented partners. We've partnered again with our main competitor has stood at all securities that just shows you have.
When we need to collaborate on something we need to collaborate again this is client driven.
Clients have come to us and said we.
So this is an asset class, that's not going away I'm not commenting on whether.
Bitcoin is going to be.
1000, or 100000, I don't know and frankly, I don't care, it's not really meant to be an asset when clients come to us and say.
We have both retail and institutional interest in this asset class.
We are not satisfied.
We are not satisfied with speaking as if I'm, an investor with the ecosystems that exist today. We trust you guys you've done a great job for us in equities and in Philadelphia case, they've done a great job in options than in other asset classes. We know that you will architect this the right way.
We've got.
Great. Thanks, your partners that have a great relationship with Citadel and are part and parcel with and have an unbelievable understanding the marketplace to the goal of this venture is to create a reliable and stable ecosystem around crypto that is client driven whether that's an indictment of a reflection of the competitors in the market place I don't really know.
I don't really care I know, but when clients come to us and say we want you to do something if you do it properly we will trade on that venue and therefore, you will be part of that as a partner in it but more importantly.
We will have more confidence in that ecosystem and so therefore, we will send more client flows theyre enough to market, making opportunity for virtu financial strategic initiatives.
Our Park pass your second question Crypto players becoming stock.
Trading venues I support that is exciting is great and it brings more people into the marketplace.
It's a very crowded field, so I wish them luck.
But more people trading is ultimately a good thing we have relationships with SPX and coinbase and everybody else. So if they start trading.
Cash equities and options.
That's them more power to them, bringing more investors into the market in a sensible safe and transparent manner, we're all in favor of that.
Okay I appreciate it.
Thank you. Our next question comes from Alex Kramm from UBS. Please go ahead.
Yes, Hello, everyone again, I guess it looks like a lot of people stayed up so coming from a follow up to a couple of them first of all you mentioned Doug.
Three years of ITG integration.
The execution services business doesn't get a lot of attention from investors I think a lot of people still think this is predominantly a U S equities business and I know, it's not so maybe just quick reminder, where that business stands today, maybe in terms of the biggest buckets, where it makes money and then what's the biggest opportunity sets are that you're kind of like <unk>.
Going after right now.
Yes, yes, a great question I appreciate it very much because it tends to get overshadowed by the market maker and what's your cash flows up to and all that kind of stuff look.
Just to go back in time, we started a very small we call. The development rope offering we bought night had a sub scale largely U S largely hedge fund hedge fund.
<unk> broker high touch and low touch business, we looked at it and said we can do this better we can create a true a truly global.
Integrated financial products business, we can do it by buying ITG, which is a world class firm that was desperately in need of a technology refresh.
So we bought ITG it was not without its challenges.
Very similar to Knight capital and that it was originally a market leader that had fallen on tough time.
We have fully integrated it to reduce costs.
It is very very meaningful way and today, we have in our view.
<unk>, leading non big Bank. If you will we don't have prime we don't have calendar and we don't have we don't have researched lovely folks like yourself. We are an execution only shop that also provides other financial products.
<unk>.
Our margins in that business I would venture to say not that anyone else is showing me their equity.
Institutional equity margins have to be industry, leading because they.
They are virtualized. So we've taken an enormous amount of cost we have.
The platform all of the Knight and ITG algo offerings to a single.
Algo offering.
And so today, we have a full financial services.
Offering which provides both high and low touch execution, where a top 10 broker.
In the United States and in Europe , again, without Prime and research et cetera, which is just truly remarkable and we sell more products and services to existing clients that we have any.
Execution management service, we have.
In analytics business.
So.
Of our Virtu execution services revenue. The makeup is commission basis.
More than half of it but not the vast refinery.
Workflow solutions, which tends to be more recurring revenue and more subscription based and as the transaction element to it as well.
Makes up the rest of it in the gold and the growth is to focus on those global clients that can use more than one of our products because what we have seen and this is kind of <unk>.
Sales 101 is when a client uses more than one and up to six products. We get a lot more revenue per per widget. If you will for our clients than we would if it just using one product so get on the desktop have them use triton sell them analytics have abuse emission management have them.
Other brokers using <unk> are ITG net capability and have them used our block trading capability through conditional orders on alert as well when they choose to use it as an execution broker gives them a truly global integrated product that is best in class in terms of execution capabilities. That's the model.
It really is.
These kibali and the folks in execution services all the credit in the world because we have changed the wheels on the car if it's going down the highway at 90 miles an hour.
And thats not without risks of clients into.
Just disrupting an existing ecosystem, but we've accomplished it exceedingly well and I'm very very happy with where we're at and I would like to thank all of our clients as well for hanging in there with us.
Basically said.
Rules that you were using from ITG, we're going to make them better trust us and they can have and the results have been very very promising.
Very good thanks for the up to date and then just lastly, you get on these calls and.
So a little bit like a broken record in a positive way I guess that the stock is under value. Then do you think it's the best investment. So we're not really interested in M&A right now so I guess the question is like.
Why why do you think it still makes sense it would be a public company why do you need that currency.
And if you think the stock is still undervalued a lot of your peers, obviously private.
Some of your peers have gotten investments on some real blue chip investors out there. So is that something that crosses your mind and does it eventually makes sense. If it doesn't feel like the public market really gets the story that you're trying to tell us.
Yes, it's a great question and it's kind of an obvious question and we have for the record and no plans or intentions.
To go private obviously.
The former M&A lawyer, so I understand all the nuances there and I certainly understand all the rules are going to be very very careful about what I say look we're very very happy having been a public company has given us an opportunity to raise an inordinate amount of capital in my view, it's still humbling.
Trust that debt and equity investments.
<unk> it enabled us to do two.
Game changing acquisitions of amazing businesses that frankly had much better franchise than we could ever dream of having grown on our own and we did that with the public.
With the currency that we were able to have as a result of being a public company is a frustrating that public investors seem not to understand.
The growth story here of course of course.
I started this firm with my partner Vinnie Viola and so I think it's the greatest firm in the World. We have continued to grow EPS from around $1 pre acquisition. Two we made $2 in the first half of 2022 and it seems that all that happens is that we have had multiple contraction I'm just kind of.
Roughly from when we went public we were trading at like 15% to 16 times and now you can do the math as to where you guys have it. So we have raised the bar we are consistently we've given you model.
We've accomplished that we have.
<unk> maintained our expense base in ways that our competitors frankly have not.
We've reduced head count we've returned capital to shareholders. So I continue to believe in the public markets. Obviously, that's kind of what we do.
We think that eventually investors will get it we think this quarter. For example is a great example of where the environment was not compelling there was no great macro event. Indeed, some of the volatility with with a bit of a challenge and we still produced 73, a share I can do math multiplied 73 times four.
It doesn't make any sense to me that the stock doesn't trade at a meaningful price meaningfully larger than where it trades that was trading yesterday. So as a result, I look at that I'm not the smartest guy in the world and I say, okay. If I have an extra dollar should I go try to buy our competitor in.
Take all the risks and uncertainties of that or should I take a dollar and buyback by stock, which I think is horribly undervalued and thats accretive so I'm going to continue to do the latter.
Phil until proven otherwise.
Alright, thanks for your thoughts.
Thank you.
We currently have no you've asked the question Shlomo.
Mckim for closing remarks.
Thank you very much and thank you everybody very much for your interest in <unk>, we look forward to speaking with you in the fall.
Have a great day.
Okay.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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