Q1 2023 Virtu Financial Inc Earnings Call
Materially from what is indicated in these forward looking statements.
Speaker 1: and financial conditions may differ materially from what is indicated in these forward-looking statements.
Speaker 1: It is important to note that any forward-looking statements made on this call are based on information presently available to the company and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings.
Speaker 1: During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA, adjusted EBITDA margins. These 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.
Speaker 1: Thank you Andrew and good morning everybody. This morning we reported our first quarter results. The quarter ended March 31st. Virtu earned 74 cents of adjusted EPS on $6 million per day of adjusted net trading income.
Speaker 2: Focusing as always on expense discipline, we generated a 56% adjusted EBITDA margin.
Speaker 2: and $207 million of adjusted EBITDA.
Speaker 2: I am pleased with our results this quarter as compared to the fourth quarter of 2022 as this quarter's headline market metrics were mixed overall. US volatility was down significantly 32% and US equity volumes were up 5%.
Speaker 2: As always, we look at specific internal metrics for each of our businesses and I am happy to report that this quarter we met or exceeded our benchmarks in all cases. Our proprietary market making business did especially well in the quarter, driven by a particularly strong performance in global currencies.
Speaker 2: and continued strong performances in global commodities as well as European equities.
Speaker 2: We continue to see the benefits of increased internalization opportunities across the firm's various trading desks.
Speaker 2: In addition, our growth initiatives continued to contribute meaningfully and generated 11% of our adjusted net trading income this quarter with continued growth in options market making as the biggest driver. Our customer market making business performed well against the opportunity presented, which was materially better than the fourth quarter of 2022.
Speaker 2: I'm very pleased with the $278 million in adjusted net trading income from MarketMaking this quarter, a 53% increase from last quarter. Execution Services also improved over the fourth quarter, delivering $95 million of adjusted net trading income.
Speaker 2: While institutional activity remained muted, volatility in March did prompt some increased activity as clients adjusted their portfolios.
Speaker 2: We are currently pursuing several exciting initiatives that we believe will contribute to the growth of this segment. Specifically, ongoing investments in Triton and data analytics on the fixed income offering have proven successful resulting in new mandates and helping us win new clients and retain existing business.
Speaker 2: It's still early days, but we expect that the uptake in institutional clients' use of automation, API in the case of our data analytics and workflow automation in Triton, will bear fruit over the course of this year. Finally, we've noticed an increased number of clients leveraging more aspects of our platform for the full lifecycle of a trade.
Speaker 2: to achieve scale and cost savings. As a reminder, our VES platform, as is the case across Virtu, was intentionally designed with a focus on scalability, reliability, and ease of use.
Speaker 2: This allows our clients to optimize their workflows, reduce costs, and increase productivity at every stage of the trade process.
Speaker 2: Overall, our businesses continue to grow and demonstrated impressive yield this quarter in a market environment that was mixed in terms of the opportunity afforded by the marketplace. While a large part of our business is variable and any quarter can deliver a range of outcomes, especially when viewed against the headline volume and volatility metrics, this quarter is a reminder.
Speaker 2: that Virtu has a broad business that is capable, that is able to capitalize on opportunities not just in retail trading, but in a myriad of global asset classes.
Speaker 2: We continue to see important success in our growth initiatives, and on page 5 of the supplemental materials, you will see how these initiatives contributed meaningfully to our performance.
Speaker 2: In the first quarter, our growth initiatives generated over $650,000 per day adjusted to the trading income, an increase of over 13% compared to the prior quarter, and the highest level since the first quarter of 2022.
Speaker 2: In total, these initiatives represent 11% of our just-in-a-trade income in the quarter. To highlight just the handful of our growth initiatives, our options business, which we launched just a few years ago, is thriving and will continue to grow. Market-wide option volumes were up about 8% in the first quarter and options business continue to perform well.
Speaker 2: We continue to incrementally expand our symbol universe, and we look forward to another record year building on what was achieved since the beginning of this business from scratch in 2019.
Speaker 2: As we've mentioned previously, we are in the very early days of our expansion into options and believe the global cross-asset opportunity ahead is significant and complements our global footprint in equities, ETF futures, and OTC products.
Speaker 2: Our global ETF block initiative is also contributing meaningfully to our results and had one of its best quarters since 2021 despite global ETP volumes declining in the period.
Speaker 2: While it remained early in the year, first core performance here was 20% better than the average adjusted net trading income we achieved in full year 2022. This growing global business continues to onboard clients around the world that demand our liquidity.
Speaker 2: Take it together, these and our other growth initiatives are making tremendous progress, and all our initiatives are helping to raise our baseline performance in any market environment throughout the cycle. While these initiatives will fluctuate at any point in time with the market environment.
Speaker 2: They are evidence of our ability to build businesses from the ground up in a deliberate and incremental virtually in style.
Speaker 2: Turning to the current regulatory debate, I will be brief as Virtu has been outspoken, to say the least, publicly in commenting on the significant overhaul of the U.S. Equity March proposal as proposed by the current SEC Chair. Except for the proposal to enhance Rule 605, there is broad opposition to the proposals as noted in our joint comment letter with State Street,
Speaker 2: T-RO price, excuse me, CBOE and UBS, as well as dozens of individual comment letters from asset managers, pensions, exchanges, retail brokers, academics, sell-side brokers and issuer groups.
Speaker 2: which all echo concerns about potential harms to investors and capital formation from the chair's unchecked.
Speaker 2: and wholly politically motivated experiments.
Speaker 2: I would urge you to review the thoughtful comment letters filed by this broad and diverse group of investors and industry participants, not just the virtues of the world.
Speaker 2: In today's supplemental materials, we've included excerpts that demonstrate the broad-based consensus for a phase and the botical approach to market enhancement.
Speaker 2: Thankfully, the abbreviated comment period has exposed the significant issues with these proposals and illustrates how harmful, unworkable, and ill-conceived they are to the entire market.
Speaker 2: Our sheer buyback program has continued through April 19th. We have purchased 4.6 million shares so far this year, exceeding our target range, ranges at given levels of adjustment and trading income.
Speaker 2: We are often asked about future non-organic growth opportunities, including new acquisitions. Our answer is, while we only seek to create value and we review many opportunities,
Speaker 2: But given the abundance of organic opportunities we currently have, there is no third-party investment we see today that competes with executing on our initiatives and repurchasing our own shares.
Speaker 2: Since we initiated our share repurchase program, we have repurchased 14% of the fully diluted shares of Virtue net affinuitions.
Speaker 2: We will continue to use a significant excess cash flow to repurchase shares and return capital to our shareholders while maintaining our 96-cent annual dividend. And with that, I will turn it over to our esteemed CFO , Sean Galvat, John . Thank you, Doug, and good morning, everyone.
Speaker 1: On slide 3 of our supplemental materials, we provided a summary of our quarterly performance.
Speaker 1: For the first quarter of 2023, our adjusted net trading income, or ANTI, which represents our trading gains net of direct trading expenses totaled $373 million, or $6 million per day, which is a 38% increase from the prior quarter.
Speaker 1: Market making, just in the trading income, was $278 million or $4.5 million per day, 53% higher than the prior quarter.
Speaker 3: Execution services at just the trading income was $95 million for $1.5 million per day, which is an 8% increase from the prior quarter.
Speaker 3: Our first quarter 2023 normalized adjusted EPS was 74 cents.
Speaker 3: Adjusted EBITDA was $207 million for the first quarter of 2023, which was a 65% increase from the fourth quarter, and adjusted EBITDA margin was 56%, which was up from 46% in the fourth quarter of 2022.
Speaker 3: On slide 8, we provided a summary of our operating expense results.
Speaker 3: For the first quarter of 2023, we recorded $181 million of adjusted operating expenses, which was essentially flat year over year. We continue to maintain an efficient cost structure and disappoints expense management to help us control our operating expenses during this inflationary environment.
Speaker 3: Financing interest expense is $24 million for the first quarter of 2023 compared to $21 million for the prior year of first quarter.
Speaker 3: The benefit of our interest rate swap contracts which we entered into in the prior years, our blended interest rate was just over 5% for our long-term debt in aggregate.
Speaker 3: Our capitalization remains adequate. In the first quarter of 2023, we repurchased 3.9 million shares for approximately $76 million.
Speaker 3: Since the inception of our share repartus program in November 2020, through settlement date April 19th, we have repurchased a total of 36.9 million shares for approximately $987.2 million.
Speaker 3: We remain committed to our 24 cent per quarter dividend.
Speaker 3: 24% per quarter dividend and combined.
Speaker 3: The combination of this dividend and the Sherry Purchase Program demonstrate our continued commitment to return capital to our shareholders.
Speaker 3: Now I would like to turn the call over to the operator for the Q&A.
Speaker 3: Thank you. If you would like to ask a question, please press star follow by one on your telephone keypad. If you would like to withdraw your question, please press star follow by two.
Speaker 4: When transparent, ask your question, please ensure your device is unmuted locally. And today we ask you a limit yourself to one question and one follow up.
Speaker 4: Our first question today comes from Rich Repetto from Piper Sandler. Your line is open.
Speaker 3: Yeah, good morning, Doug and team. So first congrats on the storm quarter here. And I guess my question, Doug, is, you know, when you look at the 74 cents, you put up this quarter. And you look at the last, you know, four quarters. Okay.
Speaker 3: Has it told you, is there anything more to learn about the normalized earnings potential of the company? So you look at the last four quarters, like two dollars, a little bit over two dollars and forty cents. But is there anything the investors should take from, I guess, the start and quarter or any other last year, I guess?
Speaker 2: Yes, thank you, Richard. It's a great question. I appreciate it. I think this quarter is just a reminder that, you know, as I said in my prepared marks that Virtue has defined the broad business and were able to capitalize on opportunities. I think for better or worse, this Ruha-ha around retail trading, I don't mean to minimize it obviously, but obviously.
Speaker 2: 2017.
Speaker 2: We have a very broad-based, market-making business that can generate, is growing and can generate outsize returns. The other thing that I highlighted in my remarks and I've mentioned in previous calls.
Speaker 2: and the discussions with you all is, you know, we have a very, very strong one firm culture here. I almost, in my prepared remarks, I almost cringe when I say trading death.
Speaker 2: because that provides a connotation that we have like pods and separate things and trader payouts and all the stuff that is traditionally.
Speaker 2: that's not true to never has it. So the thesis, one of the thesis of a quarrying night in ITG was to
Speaker 2: Effectively, create this internalization mechanism within the firm where we could extract additional efficiencies obviously from an execution perspective, but more importantly, as many of you as he says, to enable us to be the best bid in the offer in every asset class around It just has heightened the efficiency. And so if you have a standalone firm...
Speaker 2: That's an options market maker, or is an equity market maker, or does commodities, or even within larger institutions where there's this constant push and pull of P&L and attribution and all the stuff that goes on in other firms, that integrates from that mission. Other companies produce, or they can get advertise purchases, or print ?? insurance specifically for sale bull maar ex ????ses Tot Read.
Speaker 2: because of the ethos and the culture that have been instilled in the firm when we first got started. Everything is about one firm and everything is about like internalization. And as we have gotten broader and scaled, retail, non-retail, equity, commodities, you know, equity, link products, options with the Delta Hage, all of that.
Speaker 2: It just presents an opportunity for obviously reducing costs by not going outside the firm for hedging or for risk management, you can turnalyze that. But it just provides additional synergies and opportunities within the firm. So again, very happy with the priorities we have made in that regard.
Speaker 2: You know, to use a very, very overused term, we've got a great temporal wrist book being developed in the firm. Joe, yes. Yeah. You know, it reaches an interesting comment. You make the looking back over the past four quarters.
Speaker 5: $2,45,000, your RAM number is 5.5 million in the trading income.
Speaker 5: We've had a lot of discussion about our charts and the various levels of EPSA generates. I would say there's lots of different ways to look at this. If you want to look at it over the short term, I think your comment is fair. I think that's a reasonable...
Speaker 5: way to look at it in terms of that level of net trading income and earnings.
Speaker 5: I'd say if you want to look at it over a longer term and we read FIA six weeks ago, whatever it was, we noted what our performance has been since we went public if you included ITG and KCG in the numbers and it's around six.
Speaker 5: on an average basis. And so I would hold to that on the longer term basis.
Speaker 5: is that we should be there, given growth and in giving the outsized quarters, which happen inevitably. And in the third layer, I would say we consider, both for the short term and the long term, is the impact of the buybacks.
Speaker 5: Since we started the ViBap program, it's going to get around numbers of building in a stock.
Speaker 5: that we bought back and it's 14% of the company, even net of issuances for our compensation. So I think as an emerging way to frame it, they think that's fair.
Speaker 5: Got it. And I think you refer on the six being six million NTI and being around the <expletive> . I'm not for a day over a very long period of time now.
Speaker 5: So that's helpful, very helpful. And then my quick, I don't know when it's quick, but the follow-up would be thank you for all the labor, his work you did on going through these comment letters and presenting it in the format you did. It's very helpful. I think investors.
Speaker 5: that you know just want to know if you could briefly summarize what's next, what's next in the process and what can we expect?
Speaker 2: Yeah, yeah, thanks for the professional my remarks. Look, I mean, there was a title label of comment letters that have come in, but you would think and traditionally, and then, you know, if I follow the law, there has to be a long and thoughtful
Speaker 2: process internally at the SEC where they review the comment letters. And the point that I made in my prepared remarks is, you know, I think and Gensler even said at a Bloomberg conference not that long ago, like he's dismissive of certain industry comments as to why people of different talents, and they underway Kira the the oath th
Speaker 2: Which I thought was just a shameful comment, frankly. But he's dismissive of industry comments because we have an interest in it or a paraphrasing.
Speaker 2: But I think if you look at the totality of what has been received.
Speaker 2: But I think if you look at the totality of what has been received, and that's why we provided this summary, and you look at the participants.
Speaker 2: The notion that my friends at the New York Stock Exchange would...
Speaker 2: put out a comment letter publicly with Citadel and Wichwaab that essentially says, look, we would be the beneficiaries of this option proposal because presumably they would have an auction format that would satisfy the new rule.
Speaker 2: and we would be obligated along with the other host cells to route orders there.
Speaker 2: When the New York Stock Exchange stands up and says, we don't think this makes any sense, Gary, please withdraw this comment. And that's the same thing in CBOE, our friends, at Tilley did the same thing. You have the three major exchange groups saying, we don't think this makes any sense.
Speaker 2: When you have the Department of Justice on its own volition putting out a comment letter that says we think that these rules are Not properly integrated together and don't make a great deal of sense Another arm of the United States government
Speaker 2: is criticized in the SEC. I mean to me these are just how can you ignore that in good conscience as a regular?
Speaker 2: And certainly you can't do that consistent with the obligations.
Speaker 2: that the SEC and the chair has under the administrative procedures out. So it would be foolhardy.
Speaker 2: for him to proceed on this basis in my view.
Speaker 2: And so I think the right thing to do would be to engage the industry in a meaningful dialogue, which he has here to fore not done, just like prior SEC's did in 2045, 6th, you remember quite well when there was another discussion around a major overhaul of the US equity market of the US. And that took years of deliberation.
Speaker 2: Nobody in the industry is saying that there shouldn't be reforms. What we are saying is...
Speaker 2: These rush still conceive Proposals that don't integrate very well. Let me just give you one example. There's a proposal that says We should update rule 605 and and and and present data on retail execution in a more full-sum format of virtue
Speaker 2: Proposed this two years ago, citadel everybody agrees with that. So the FEC and putting out that proposal is essentially saying we don't have complete data today.
Speaker 2: Okay, then there's another proposal on the auction proposal where they're suggesting a major change to the retail market.
Speaker 2: How in the world are you proposing a change should retail market when you are saying that the yardstick is broken?
Speaker 2: I mean, it just defines logic. And so I think everyone should just take a deep breath, take a step back, and engage this conversation deliberately and collaboratively. And I think, you know, we have never said we don't want the exchanges to have the ability to compete on a level playing field.
Speaker 2: Right, but there needs to be a data driven, scientific almost approach to this. These markets are too important and are prominent as the leading capital markets.
Speaker 2: center in the world and the impact that that has on capital formation is just too important to muck around as I have said many times in my view solely for political purposes. So I will now get off my top off and I will take the next question. Thank you Rich.
Speaker 3: Next question comes from Alex Blostin from Goldman Sachs. The line is open. Hey guys, good morning. I wanted to go back to your point about internalization and the more sort of efficiency you guys have been able to extract from the business. We can sort of see it in the results like we had the squatter right where the public proxies were not as good relative to William.
Speaker 2: It's a great question and I'm not going to try to avoid it. It's really hard to come up with an exact, where does this, obviously you can look at what we pay exchanges and ATSs and our broker of commission expense line right in this obviously a significant cost there so there's the cost savings. I mean, I will say.
Speaker 2: We had our highest adjusted next rating day from internalization, if you will, since the KCG merger in 2017, this quarter. So we continue to grow, if you will, on a kind of opportunity basis, I think.
Speaker 2: The important thing, and I mentioned it in response, I think, to Rich's first question is, what it does though is just makes the firm more excellent and enables us to be more aggressive around pricing, you know, to clients and the prices and et cetera that we can post.
Speaker 2: on public markets and dark pools around the world. So it just makes you a better market maker. And it's always been the thesis that was drilled into my head by Vinnie in 2007 and 2008 when we were starting this firm, right? Which is how do you become the most efficient to decided provider liquidity? This is the end state. Not to be a snarky guy, but like your firm.
Speaker 2: I know there's a wall you can't go over, but Goldman had a great quarter in equities this quarter and they are renowned for having a fabulous central risk book. So your institution gets it as well and does a great deal of internalization work. And frankly, because we execute a lot with them and you have a lot more capital, they can probably take more risks and they do a great job. So it's not like some thesis that we've just kind of discovered.
Speaker 2: But I do think it's very important because culturally it fits exceptionally well in this There's never that, you know, I'll say non-virtuous conversation as to how do you attribute piano, who's bonus and bubble bottle, that kind of stuff that gets in the way of excellence that doesn't happen in virtue. So we're excited about the opportunity. I know I'm not quantifying it for you because it's really hard.
Speaker 2: for me to do Alex in a way that I feel comfortable with, but I will say it is really helped grow in particular like our options business and even our ETF block business.
Speaker 2: And I think it's a huge competitive advantage that we have knocked on a great job of highlighting and we will continue to try to do that.
Speaker 3: Got it. All right. Well, we'll stay tuned for that. Hey, I wanted for my follow up ask you guys a question around fixed income in your prepared remarks against you suggested that's becoming a greater focus. It sounds like you're benefiting from some of those initiatives maybe on the execution services side.
Speaker 3: Again, help us better frame fixed income revenues, credit trading, maybe in particular, maybe treasury trading across execution services in market making. What is that comprised today? I don't think you do a whole lot on the market make inside there, but is there an opportunity as the market evolves for you to do more on the market make inside as well as on your services? Yeah, it's a great question and it's a little bit, I don't want to take the holy grail, but it's, you know.
Speaker 2: We have been a participant in it for a long time, but we've made some improvements and some hires from outside the firm to help improve our DNA there. I think in corporate credit, same thing. I think the reason I like those businesses, obviously, is because they're so much more
Speaker 2: Electronification of markets and our friends at like, you know, Trade Web and Market Access and Bloomberg and Truman and whatnot help effectively beat distribution of those prices to end users. But it also fits in really nicely with our ETF block business.
Speaker 2: because a significant part of what we see in that business, frankly, is fixed income related, both here and in Europe , not surprisingly. So again, it is de minimis in our results, but I do think it's a significant opportunity. Look, we're never gonna be the prop desk of a big bank. We don't have the footings to do that. It's not in our DNA.
Speaker 2: mechanisms of market access, trade web, et cetera, and through our own client network to a significant opportunity.
Speaker 3: Got you. All right. Thanks, guys.
Speaker 4: Our next question comes from Ken Worthington from JP Morgan. Your line is open.
Speaker 1: Hi, good morning. Thanks for taking the questions. It seems like a good crisis always has the potential to be helpful to earnings. I think you mentioned customer repositioning in the prepared remarks. How big a deal was the BINCAP banking crisis to earnings this quarter? And for perspective, how did this crisis compare to others like Swiss franc that were helpful with profits in the past?
Speaker 2: Yes, it's a great question. Actually this one was different. It helped more on the execution services side than it did in market making. In other words, I think there was more institutional activity as a result of what was going on. People moving portfolios, getting out of XLF or into XLF. If you read the code book of different values it means everything to me.
Speaker 2: blah blah blah. And so that helps our execution services segment. On the market making side, you know, and I've said this publicly before enough.
Speaker 2: When stocks go from Silicon Valley goes from X to zero, it's just their indipity where you long or short. I frankly, I don't remember if we were at wasn't a material amount either way. And so there was some activity obviously in regional banks and we did fine, but it wasn't like...
Speaker 5: You mentioned this was Frank de Kuffle, I can. I remember that. It started in FX.
Speaker 5: It reverberated around European equity, which is commodities into the US.
Speaker 5: This was more, I'd say, in yourocratic.
Speaker 5: more, I'd say, in your secratic and isolated.
Speaker 2: Yeah, perfect. Okay, it makes total... No big windfall in market making. Why don't we make an amazing amount? Frankly, I think we probably ended up breaking even if you will, more or less in the regional banks, which from a risk management perspective was pretty darn good. Okay, perfect. And then...
Speaker 1: In options, how big of business is your day options for you? And based on what you see, do you have any opinions on the durability or trading of this product or how much more it might grow for you over time?
Speaker 2: Yeah, look, we are participants in it and I think any product that institutional investors, I mean I know there's like a bit offer between like Jason Warching Goldman asked that like, is it institution as a retail? I mean frankly, I don't have a dog in that fight. We know that they're significant.
Speaker 2: interest in it, it appears to be more institutional and retail based on what I've read. So I think, look, we are an active market maker in the space. As more participants look to these daily options to hedge their market exposure, which I think that's what institutions are doing, I think it's probably more that.
Speaker 2: than it is like a more than a speculative kind of instrument. I think it's an important way to hedge report follow-up exposure. And so, you know, index market making, maybe we just got lucky here, is where we started, and we have that competitive advantage in that. So it plays nicely to our strengths. So as that...
Speaker 2: sub-segment if you will grows, you know, we will continue to reap the benefits of that. So I think it's a positive P&L driver for our options and our market making business.
Speaker 2: if you will grow, we will continue to reap the benefits of that. So I think it's a positive P&L driver for our options and our market making business. Great, that's it. Thank you very much.
Speaker 4: Thank you. In our turn to Chris Allen from City, your line is open.
Speaker 2: Good morning everyone. Congrats on the path there's wind does. Thank you. I should have mentioned that to Rich, but he's a big brood fan. I didn't want to rub it in. Yeah. I know you missed your opportunity there. I want you to get a little bit more color.
Speaker 6: On some of the areas you noted performing well in the quarter, FX commodities in European equities. Energy got better last quarter to continue to improve in the first clue in the beginning of this year. It's kind of looking at FX in European equities, kind of the underlying indicators for both the auditor...
Speaker 6: Mixed it best. So I'm just kind of wondering where you're able to see strength there Was there any competitive pullbacks any special situations? Just try to get out of trajectory just in terms of some of the stuff that maybe we can't see as clear
Speaker 2: Yes, yes, thank you. It's a good question and obviously we look at opportunities. As I said, I might prepare remarks. Chris, we measure opportunity in terms of volume and bit off-risk red and things like that in each of these.
Speaker 2: segments that we've participated in and we did have an outperforming. I did note obviously that the metrics were mixed. So, you know, I think, you know, if you look at F-FACTS, it's been a segment that's been a little, I don't say dormant, but less volatile than others, I think volumes were up.
Speaker 2: 7% and effects volatility was up 16%. You know, we made some internal changes and improvements and enhancements there that I think, you know, have born fruit. Again, it's an asset class, if you will, that we don't talk about as much as we don't separately kind of disclose its performance anymore, but it continues to be an important growing area. I think we saw some nice activity.
Speaker 2: in our commodity segment, energy volumes were up 18% volume, but volatility was down 10%, so it was kind of mixed there. But again, in that area, we're much more volume driven. And then the last thing I would say, which I mentioned before in response to one of our questions, I think.
Speaker 2: Internalization shouldn't be under appreciated within this firm. And that is something that impacts all of the deaths, but in particular, even like in Europe , what we do in our European block market making, in our ETF block market making.
Speaker 2: having the ability to hand off large positions and having other desks deal with them and having these cross desk opportunities and able to scale into new products and opportunities around the globe, which is kind of virtue 101, has really helped continue to grow that business. Again, I think.
Speaker 2: The brouhaha, as I said before, around retail has overshadowed, if you will, the fact that we are a very, very diverse firm. I take full blame and responsibility for that because I sit there on my soapbox and scream about these proposals day and night. But we've got a big, broad business that is completely non-reliant on any customer order flow.
Speaker 2: in large measure and that continues to grow really, really nicely. I can tell you that I'm very happy with the pace and of that growth and our trajectory. I think Joe nailed it before, which is, and I've said this for the last, I guess it is eight years. You know, we run and...
Speaker 2: manage this firm not quarter by quarter but for the long haul. I know every CEO says that I guess they don't they should and Disperm in particular we're gonna have you know choppy quarters that are gonna surprise both ways and
Speaker 2: you've been seeing it for the last eight years, I think over the long period here, there is a sustained growth and an expense and capital discipline that ultimately will endure to our investors. And I happen to be one of the big ones, so I'm willing to stock. Got it. And then this one.
Speaker 6: On your organic growth initiatives, maybe if you could help us think about it on a year of your perspective, where are you seeing growth? I would imagine you're seeing increased traction on the option side, but maybe you're seeing more challenging environment in crypto. Just trying to try and think about what's expanding and what's been challenged in the environment. I know ATM has obviously been challenging right now. So, sure.
Speaker 2: there. You know, I was talking about the opportunities and whatnot. We're still market making in crypto. We're obviously pulled back some and some platforms frankly don't exist anymore. But we've resumed limited market making and we continue to be very, very excited about the initiative called EDX Markets with Citadel, Linoshua, Fidelity, Susquehanna, no not Susquehanna, excuse me Sequoia.
Speaker 2: and paradigm. And so we're excited about that. Fixed income, again, not a contributor to what has a decent trajectory, and you're right, the ATM business, which again is an incredible, scalable, fits really nicely into her too. I think we have four people working in it full time, right? So it's a great contributor to the firm and really leverages everything else we have.
Speaker 2: You know, that is something again that I look at over the long period of time that's going to grow. But you know, block ETF and options were the driver in this court.
Speaker 2: is something again that I look at over the long period of time that's going to grow. But block ETF and options were the driver in this court. Thanks, Mr. President.
Speaker 1: Thank you. Our next question comes from Dan Fanon from Jefferies. Your line is open. Thanks. Good morning. I guess one more on the new initiatives and we've been talking about the success and the growth of these for an extended period of time. And I guess when we think about a year from now or two years from now, what are the goals or what are the kind of.
Speaker 1: benchmarks we can hold against to talk about success because there's obviously growth and it's continuing but the markets like options going are growing so trying to gauge your success versus your internal targets or goals or benchmarks or things that we could point to or you can lay out to help us engage that success outside of just growing. Oh boy that's a great question again I'm always low.
Speaker 2: you know, when we don't satisfy the metrics, everyone runs around with their hair on fire. Like, you know, our FX business was going out of business five years ago. I vaguely remember it and it clearly has not. So look, I think from our perspective,
Speaker 2: I said in my remarks, it was $650,000 per day in the quarter, which was the highest since the first quarter of 2022. That's a meaningful contribution to the firm. I look at that and say, okay, absent market.
Speaker 2: forces if you will. What will that look like in the next couple years? Yeah, we think that that amount should grow and it should be a safe, a seven-figure amount and I will say that here and I said that to our board and whatnot and that's the ambition. I mean, Joe, do you want to... No, we've said that our goal is to have a million dollars of contribution. You know, in a medium term, you know, type of period and I...
Speaker 5: three-year type of type of period. So, again, it's going to depend on the market conditions, it's going to depend on the opportunity. If you look at that chart on page five, obviously 2020 is a little bit of an outlier, but you can discern.
Speaker 5: a nice up and to the right type of growth there. So we expect that to continue.
Speaker 1: Okay, no, that's helpful. It has longer term targets that knowing the market's going to, you know, be, be, you know, change is helpful. And then I just went on expenses. It doesn't look like you guys updated your expense guidance based on the first quarter and how things are tracking. Does that all what you guys outlined last quarter still kind of hold for the year?
Speaker 5: I think so. And you've got to look at the major categories of expenses that are individually compensation.
Speaker 5: Our first quarter if you go back historically and look I think it's all the nominal amount of Compensation the dump not a dollar amount is typically the highest In any in any quarter in q1 and then the percentage falls out of that. So I think You're comparing to the full year your comp ratio
Speaker 5: Our first quarter was up as of 1.5% percent. So I would expect the same trend that you've seen in prior years in terms of the dollar amount that is accrued. Communications and data processing, I think, is tracking on an annualized basis. Thank you.
Speaker 5: A few percentage points higher, three, four percent higher. Again, that's just, you know, we're in a stationary environment and that's, you know, we work hard at weeding out that. So I think we've actually done a good job there.
Speaker 5: And then the overhead category, same thing, a little bit of inflation there. There's some strong dollar in 2022 impacting that made it a little lower on a dollar constant basis.
Speaker 5: It's up a bit, again, just the typical stuff that you would expect, the expenses were in the firm, or up a little bit, but I would expect, we did not take the guidance, and I would expect it to be pretty consistent with what we provided in the past.
Speaker 5: It's up a bit, again, just the typical stuff that you would expect, the expenses were in the firm, or up a little bit, but I would expect we didn't update the guidance, and I would expect it to be pretty consistent with what we provided in the past. Great, thank you.
Speaker 7: Thank you, dear. Our next question comes from Michael Cypress from Morgan Stanley . Your line is open. Hi, good morning. This is Truman Weinstein standing in for Mike here. I just had a question about the environment. I know you guys are going to get into a month-long month, even of course the quarter commentary necessarily. I'm just curious how the market from Q1 has evolved in April , months to date. I think I heard you correctly, the modesty is an FX that's particularly strong and how you think things have evolved there. I guess following on to that, as you think about the various ways the macro could evolve, are there any particular environments where you think virtual would prefer or could perform better?
Speaker 2: So do well regardless of how the microwave rolls from here. Thank you. Right. The Alex Prams, please go up to that question, because usually he is. I'm joking. Look, I mean, I've tried very hard to stick to this script, if you will, talking about the quarter, and not getting into what's happened in April . I mean, it's not only what today's date, April 20th. So.
Speaker 2: I don't have any training days, I guess I should know, maybe 10 we've had in a 62 day quarter, so it's early, I wouldn't talk about it in any app. Look, I think I've said this many times, I mean, the best marketplace for us is one where there's a rising market, people have a lot of confidence, want to move portfolio and are making money, because then they just train more.
Speaker 2: We have always said that volumes are very, very important to disperm. We are a market-making firm that collects bid offer spread, and so the more bid offer spread, if you will, that comes through the system and various markets then.
Speaker 2: you know, more often than not, we're going to have better results and better returns. When there's, you know, volatility that tends to drive volume, sometimes it doesn't. Sometimes there's a disconnect and I can't necessarily always put my finger on why. And there are certain types of volatility that are helpful. And as I said early in response to a question from Ken,
Speaker 2: There's other types of volatility, you know, when stocks go from whatever Silicon Valley bank was, you know, down effectively to zero. It's not like we have some, you know, uber algorithm that can handle that. We're going to either make a lose money depending upon whether we were longer short at that instant in time.
Speaker 2: So we like more confidence and more certainty to markets where investors are moving portfolios and feel pretty good about what they're doing. So in 2023, you're going to see a mixed market. You've got intense uncertainty, as to put it mildly, both geopolitical and economic
Speaker 2: over in Europe and now in Asia with saber rattling and obviously a live shooting war. You've got central banks all over the place that are trying to figure out which way is up. You've got, you know, try to manage inflation and expectations. You've got a debt ceiling fight in this country, right? And you've got a debt ceiling fight in this country.
Speaker 2: that make investors happy. So those are variables again that provide a backdrop that can be mixed in certain circumstances. But again, looking at the long haul where extremely wealth points that have been well positioned if you will, over the next couple three, four, five years.
Speaker 2: to provide the liquidity that folks need as they manage portfolios and get through these various large macro events. I'm trying very hard to answer your question in the way that is.
Speaker 7: without talking about April because I said I wasn't going to do this. I appreciate that Doug. Thank you very much for all the color. And I guess for the follow-up, this may sound a bit greedy here because I know you guys are working a lot with all the organic growth initiatives going on. But as you look at the platform, is there any, I guess, is there any white space that you think there is where you could potentially start from scratch and build the business like the options business where it doesn't currently have a presence?
Speaker 2: How do you think about that? Yes, no, it's a great question. We think about it all the time, right, because the more widgets we can put into our system, presumably in a profitable manner, the more money we can make, and that's all we focus on. I would say it's not white, but it's pretty darn close to white, which is fixed income and credit, which we've talked about. All of the elements, if you will, are there or are being constructed.
Speaker 2: in terms of being able to respond to our cues and being in the marketplace and pricing products and whatnot. Distribution is always an issue. That's why we partner with Market Access and Tradeweb, both of whom are terrific partners to us. So I look at that as... singing.
Speaker 2: a green fill opportunity. I mean, I'm aware obviously that there are firms that we compete with that have meaningful presences there. You know, the Jane Streets, the Flow Traders, the Citadel, et cetera, that are just terrific firms. But again, I would reemphasize it's still very early for us in options. So again, it's not quite white, but it's...
Speaker 2: You know, it's not black either, right? So it's probably wider than black in terms of opportunity to continue this very painful analogy that I started. Were you actually provoked on me? So I think those two areas that were very, very, I prefer the innings and the analogy of the baseball player and the duck I guess my son is a great baseball.
Speaker 2: So if we can stick with that in the future, I'd appreciate it. But that's where we stand. That's where we stand. Thank you for all the color.
Speaker 4: Thank you. We now turn to Alex Cran from UBS. Your line is open.
Speaker 8: Thanks for the shout out. I was definitely going to ask that question. So no, I have nothing left to get.
Speaker 8: I do maybe only have a couple of follow-ups on things that we've already discussed. Maybe just to go back to the options business because I think somebody asked about the kind of organic trajectory. I think last quarter you talked about the number of symbols you've rolled out and maybe some markets you're slowly expanding into. So maybe it can be a little bit more specific as we think about the next four quarters perhaps of where you want to be in terms of symbols and options or markets you want to be in again to the early question of.
Speaker 8: something to hold you accountable on like what are those underlying metrics that you're looking at to see that the business is actually getting bigger.
Speaker 2: Okay, yeah, so I have mentioned this in earlier quarters and I think that one of our main emphasis is in 2020 is going to be in Asia. We have ramped up there and staffed up there. We moved, you know, to really high-calve people from New York or out there have moved out there. So I do think there is significant opportunity there. Obviously there are competitors there, but there's a very robust. So that is then perhaps
Speaker 2: market both in Japan and in India for index options. We are a participant there. And so yeah, we have internal metrics as to where we want to be at the end of 2023 there. And, you know, they'll get included obviously in the large mix of non-customer market making and then market making as we report up. But it's meaningful and it's a significant growth opportunity and I've challenged the desk.
Speaker 2: and the folks to grow that business and that's something that the board is going to hold us accountable to. So we're excited about that. I think there's opportunities in cross-asset class options around energy and et cetera, Korea is another market at XOption. So these are all things, as I said before, using...
Speaker 2: my sports analogy where we continue to be in the very early innings. I mean, there are firms that are big broad firms that have been doing this, you know, for 30 years, the activist, the IMC, the Citadel, the Sustal Hound, that's right. They're fabulously scaled, wonderfully executing, you know, terrific firms that do a lot of great work there. We're nowhere near their excellence and their side. And so that's the...
Speaker 2: the goal to be, you know, named in the same breath, if you will, as those firms. And we have the technology, we have the distribution. There's not a client or a counterparty that we want to deal with or an exchange, et cetera, that won't do business with us. We have the capital, we have the clearing. So now it's just a question of executing. And for the last 15 years, since Vinny was gracious enough to invite me into this firm, that's what we've done.
Speaker 2: We're really good executing firm. So again, I don't measure success or excellence quarter by quarter. I know that's what we have to do with the public company. But I look at that business and say, in the next two, three years, that business could double, could triple inside, and that's our goal. OK. But too early to give us updates on progress.
Speaker 8: mentioned commodities FX and European equities and somebody asked about those those three business before. Now if I go back to the pre-KCG days I think 2015 those businesses peaked when we were able to track them more actively. I think you know FX and commodities were doing 400,000 a day each. European equities was doing 200,000 so about a million between the three of them.
Speaker 8: So when you're now, it's been seven years, seven, eight years in the market to change up, but when you look at those prior results in context, I mean, are these businesses meaning fully bigger? Like, how would you compare them? I know a lot of change, but clearly you call them out the quarter. Yeah, no, it's a great question. And then...
Speaker 2: You should do your homework and you did your homework and you're very thorough at it. Thank you for that. I think a lot has changed since then. The FX market has gotten incredibly more competitive and volumes and volatility as you track in as we track it have dissipated significantly.
Speaker 2: The commodities market, again, I'm not trying to engender sympathy here, the natural gas market effectively didn't really trade much for like three or four years and it used to be something that was a significant contributor back in 2015. So I'm not going to comment separately on what those results are because we've gotten away from that. I will say that they continue to be important contributors in vibrant parts of the firm where we have.
Speaker 2: you know, dedicated really, really terrific resources. And again, to bring it back, I think it is part of the story that we are a very diversified scale firm. I think the narrative somehow that we were like a melting ice cube or all that kind of stuff is just is not.
Speaker 2: is not valid and I do think that the continued P&L opportunities from internalization even within those deaths that I mentioned continue to be robust. And opportunities and deaths.
Speaker 2: and groups will ebb and flow within the firm. And that's one of the reasons, Alex, not to beat a dead horse that we've gotten away from the granularity of disclosures, not because we're ashamed by anything that's happened or the performance has been so horrible, blah, blah, blah. It's because we think the right investment thesis is to look at the totality of this firm.
Speaker 2: and the service, if you will, that we provide to the marketplace around the world to look at the opportunities, the quote-unquote white spaces that we have and say, okay, in the next two to three years, all things being equal, where can this firm be given the expense discipline on the capital manager we have, and the stock buyback program we have, and project out and say, this is an attractive firm.
Speaker 2: that gives us that, you know, which has scale and allows us to pivot and reallocate resources with its opportunities. You know the investment thesis. And parenthetically, investors are getting paid 96 cents, you know, for a year to continue to like, you know, believe in that investment thesis and that story going forward. Very helpful. Thanks for the color.
Speaker 4: Thank you, sir. This concludes our Q&A. I'll now hand back to Douglas Seifu, CEO , for any closing remarks.
Speaker 2: Thank you very much and thank you to our investors and for our research analysts for all the hard work and for all the great questions. We look forward to speaking with you in the summer. Thank you all.
Speaker 4: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your minds.