Virtu Financial, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K and does not provide a standalone fourth-quarter income statement. Virtu operates through two segments: Market Making and Execution Services, plus Corporate.
Business context
Virtu is a technology-enabled global market maker and execution-services provider operating across equities, ETFs, options, fixed income, foreign exchange, futures, commodities, cryptocurrencies and other assets. It provides liquidity and agency execution, workflow technology, analytics and trading venues across more than 50 countries. As of December 31, 2023, Virtu Financial, Inc. owned approximately 57.8% of Virtu Financial LLC.
Financial performance and key metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $2,293.4 million | $2,364.8 million | Down 3.0% |
| Adjusted Net Trading Income | $1,210.7 million | $1,467.6 million | Down 17.5% |
| Income before taxes and noncontrolling interest | $325.1 million | $556.8 million | Down 41.6% |
| Net income | $263.9 million | $468.3 million | Down 43.6% |
| Net income available to common stockholders | $142.0 million | $265.0 million | Down 46.4% |
| Basic/diluted EPS | $1.42 / $1.42 | $2.45 / $2.44 | Lower year over year |
| GAAP net income margin | 11.5% | 19.8% | Down 8.3 percentage points |
| Adjusted EBITDA | $568.0 million | $859.1 million | Down 33.9% |
| Adjusted EBITDA margin on Adjusted Net Trading Income | 46.9% | 58.5% | Down 11.6 percentage points |
Revenue mix shifted materially: trading income declined 20.1% to $1,301.3 million, while interest and dividends income increased 190.7% to $462.6 million, benefiting from higher interest rates, cash collateral and market-making balances. Commissions, net and technology services declined 14.0% to $455.6 million.
- Market Making: Revenue increased 1.7% to $1,843.5 million, but pretax income fell to $315.6 million from $480.6 million. Adjusted Net Trading Income decreased 20.0% to $846.6 million.
- Execution Services: Revenue declined 13.2% to $446.5 million, and pretax income declined to $10.4 million from $41.3 million. Lower institutional engagement and commission activity reduced results.
- Operating expenses: Increased 8.9% to $1,968.2 million, primarily because interest and dividends expense more than doubled to $500.5 million. Brokerage, exchange, clearance and payment-for-order-flow costs declined 17.9% to $508.4 million.
- Taxes: Income tax expense was $61.2 million, with an effective tax rate of 18.8%, compared with 15.9% in FY2022.
Cash flow, liquidity and debt
| Metric | FY2023 / December 31, 2023 |
|---|---|
| Cash and cash equivalents | $820.4 million |
| Net cash provided by operating activities | $491.8 million |
| Net cash used in investing activities | $94.5 million |
| Net cash used in financing activities | $585.0 million |
| Long-term debt principal | $1,751.8 million |
| Long-term borrowings, net | $1,727.2 million |
| Prime brokerage borrowings | $175.3 million |
| Unused broker-dealer facilities | Approximately $1.06 billion |
- The $1.727 billion first-lien term loan matures in January 2029; $24.8 million of SBI bonds mature in 2026. The Company made a $55.0 million voluntary term-loan prepayment in December 2023 and was in compliance with applicable debt covenants at year-end.
- The first-lien revolving facility has $250.0 million of commitments and no borrowings outstanding at year-end. The uncommitted and committed broker-dealer facilities also had no borrowings outstanding.
- In December 2023, Virtu terminated prior interest-rate swaps for $55.8 million of proceeds and entered into a new two-year $1.525 billion floating-to-fixed swap, effectively fixing related debt interest obligations at 7.5% through November 2025.
- Financing cash uses included $306.1 million of dividends and distributions and $229.0 million of treasury-stock purchases.
- Quarterly dividends remained $0.24 per share during 2023. The Board declared another $0.24 dividend in January 2024, payable March 15, 2024.
Material changes versus FY2022
- Profitability weakened substantially despite relatively stable total revenue, reflecting lower trading opportunities, reduced spread capture and lower-quality order flow.
- Market Making revenue rose because higher interest and dividends income offset lower trading income; however, the segment’s pretax income and Adjusted Net Trading Income declined materially.
- Execution Services revenue and pretax income declined as institutional commission activity and engagement weakened.
- Higher interest rates increased both interest income and interest-related expenses; the latter was a significant drag on earnings.
- Cash from operations declined from $706.8 million to $491.8 million, while year-end cash and cash equivalents declined from $981.6 million to $820.4 million.
- Share repurchases reduced outstanding Class A shares. Cumulative repurchases since program inception reached approximately 43.6 million shares or units for $1.1096 billion, with approximately $110.4 million of remaining authorization at year-end.
Outlook, risks and unusual items
Management provided no quantitative revenue or earnings guidance in the supplied filing. Management expects operating cash flow, available cash and available broker-dealer borrowings to fund anticipated needs over the next twelve months, while noting that margin requirements could increase with trading activity and market volatility.
- Market dependence: Results remain sensitive to trading volumes, realized volatility, retail participation, bid-ask spreads, order-flow quality and U.S. equity-market conditions.
- Regulatory risk: Proposed and adopted SEC market-structure reforms could affect payment for order flow, off-exchange trading, ATS and exchange registration, tick sizes, access fees, best execution, market data and technology obligations.
- Litigation and investigations: The SEC filed an action in September 2023 concerning information-barrier policies and related statements for a period in 2018–2019. Related shareholder securities litigation was consolidated. Other disclosed matters include litigation involving the United States Oil Fund, Mallinckrodt, Northwest Biotherapeutics and a Delaware books-and-records proceeding. Ultimate exposure cannot presently be determined.
- Technology and cybersecurity: Trading platforms, third-party infrastructure, cyber incidents, system failures and operational errors could cause trading losses, service interruptions, regulatory exposure or reputational damage. The Company stated it was not aware of a material impact from cyber incidents as of the filing date.
- Leverage and liquidity: Debt service, variable-rate exposure, collateral and margin requirements, self-clearing and reliance on prime brokers create liquidity risk. Debt covenants restrict certain distributions, dividends, investments and other corporate actions.
- Holding-company structure: Virtu Financial, Inc. depends on distributions from Virtu Financial LLC for dividends, taxes and corporate obligations. Regulatory capital requirements and debt covenants may limit those distributions.
- Tax receivable agreements: The Company has recorded $216.5 million of obligations and generally must remit 85% of realized cash tax savings to specified equity holders. Expected payments are approximately $0.1 million to $22.1 million annually over the next 15 years, excluding additional obligations from future exchanges.
- Ownership and governance: The Founder Post-IPO Member controls approximately 86.5% of combined voting power, creating significant control and potential conflicts with Class A stockholders.
Investor verification checklist
- Verify the reported FY2023 revenue, Adjusted Net Trading Income, net income, EPS and margin declines against the audited financial statements and non-GAAP reconciliations.
- Assess whether higher interest income can continue to offset weaker trading income and higher interest and dividends expense.
- Review debt maturities, floating-rate exposure, the 7.5% interest-rate swap through November 2025 and the January 2025 revolving-commitment termination.
- Evaluate liquidity under stressed margin requirements, reduced trading volumes, counterparty defaults or loss of prime-broker financing.
- Monitor the SEC information-barrier litigation and related shareholder actions, including potential losses that management cannot currently estimate.
- Track SEC and international market-structure rulemaking, particularly changes affecting payment for order flow, off-exchange trading, ATSs, best execution and exchange access.
- Consider the effect of the 57.8% operating ownership, 86.5% voting control, tax receivable agreements and distribution restrictions on Class A shareholder economics.
- Reconcile share repurchases, diluted share count, noncontrolling interests and the continuing $0.24 quarterly dividend policy.