• Adjusted EPS: $0.82 for the third quarter.
• Adjusted Net Trading Income: $388 million or $6.1 million per day.
• Market-Making Adjusted Net Trading Income: $288 million or $4.5 million per day.
• Execution Services Adjusted Net Trading Income: $100 million or $1.6 million per day.
• Adjusted EBITDA: $215 million.
• Adjusted EBITDA Margin: 55.4%.
• Adjusted Operating Expenses: $190 million.
• Cash Operating Expenses: $173 million.
• Cash Compensation Ratio: 23% for the quarter.
• Total Compensation Ratio: 28% for the quarter.
• Share Repurchase: 1.7 million shares at an average price of $28.80 per share.
• Quarter-End Share Count: 161 million shares outstanding.
• Dividend Commitment: 20% per quarter.

• Warning! GuruFocus has detected 10 Warning Signs with VIRT.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Virtu Financial Inc (NASDAQ:VIRT) reported strong performance in both customer and non-customer market-making businesses, with a 55% EBITDA margin and $215 million of EBITDA on an adjusted basis.
• The company continues to progress its growth initiatives, particularly in crypto options and ETF block, demonstrating positive results from multiyear investments.
• Virtu Technology Solutions (VTS) is empowering regional broker dealers with leading technology, contributing to the company's growth in the Virtu Execution Services (VES) business.
• The company is expanding its reach in underpenetrated regions such as the Middle East, India, and Japan, and is seeing success in new client segments.
• Virtu Financial Inc (NASDAQ:VIRT) is committed to returning capital to shareholders, maintaining a 20% per quarter dividend and actively repurchasing shares.

Negative Points

• Global volumes remain low, with US equity share volume and notional carryover down compared to the previous quarter, impacting overall market conditions.
• The company experienced a sequential decline in adjusted net trading income (ANTI), partly due to a significant drop-off in Bitcoin ETF activity.
• Brokerage costs were at their highest level since COVID, influenced by transaction taxes and Section 31 fees, affecting the company's financials.
• The regulatory environment, particularly the SEC's equity market structure proposal, poses potential challenges and unintended consequences for the market.
• Virtu Financial Inc (NASDAQ:VIRT) faces competitive pressures in the US options market, which remains a challenging area for growth despite international opportunities.

Q & A Highlights

Q: We're seeing a proliferation of brokers offering retail investors access to options and futures. How does this play into Virtu's business model, and how does futures trading compare to options and equities in terms of profitability? A: Douglas Cifu, CEO: It's an exciting opportunity for us, complementary to our existing cash equities wholesale business. We have strong relationships with retail broker dealers, and we are confident in providing efficient liquidity. Futures products may attract more active day traders, which is a different segment from casual retail investors. This expansion is beneficial for Virtu as it strengthens our partnerships with retail firms.

Q: Brokerage costs were at their highest since COVID. Was there anything about the mix of business that drove these costs higher, and how should we think about them going forward? A: Douglas Cifu, CEO: The increase is largely due to Section 31 fees, which are transaction taxes measured in arrears and can be lumpy. Additionally, we started paying some cash fees in September. These factors contributed to the higher brokerage costs this quarter.

Q: Despite positive drivers like ETF launches and strong volumes, there was a sequential decline in ANTI. What drove this? A: Douglas Cifu, CEO: The decline was primarily due to a significant drop-off in Bitcoin ETF activity, with ANTI down about 11% quarter over quarter. Additionally, the spread in index options was down, affecting market-making opportunities. However, we remain optimistic about growth, especially in options and international markets.

Q: Can you provide your updated view on the SEC's equity market structure proposal and its impact on Virtu? Also, how significant is your foreign exchange market-making business? A: Douglas Cifu, CEO: We believe the SEC's proposal could have unintended negative consequences, potentially increasing transaction costs for larger orders. While we are not a rebate trading firm, the reduction in rebates may lead to wider spreads. Our foreign exchange market-making business is not significantly impacted by these changes.

Q: How is Virtu progressing in the US options market, and how do you view the opportunity set internationally versus the US? A: Douglas Cifu, CEO: We are expanding our symbol range and have made investments in on-exchange trading. Internationally, we see opportunities in Asia, particularly in India, Korea, and Japan. Our global scale and trading infrastructure position us well to capitalize on these opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.