Virtu Financial, Inc. (NASDAQ:VIRT) Q4 2018 Earnings Conference Call - Final Transcript

Feb 07, 2019 • 07:00 am ET


Virtu Financial, Inc. (NASDAQ:VIRT) Q4 2018 Earnings Conference Call - Final Transcript


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Douglas Cifu

our business organically. The aforementioned $1 billion in adjusted net trading income generated a 61% adjusted EBITDA margin, an incredible accomplishment in an environment and especially in the midst of a multifaceted integration of the KCG acquisition. Our total outstanding debt was $931 million at the end of the year or 1.5 times our 2018 adjusted EBITDA after we repaid $750 million of the indebtedness incurred to fund the KCG acquisition which obviously afforded us the flexibility to acquire ITG.

We also return capital to our stockholders in the form of our $0.96 annual dividend and our $100 million stock repurchase program during the course of the year fulfilling our promise to be good stewards of firm capital. Our businesses ended the year on a high note and we have demonstrated through all market conditions that the operational efficient and technologically advanced culture of Virtu could scale to grow a client facing business. Our market making businesses achieved $924 million of adjusted net trading income in 2018 while we do not break down the non-customer facing market making operations of legacy Virtu from the customer market making operations of legacy KCG, I wanted to offer some highlights.

The non-customer facing market makes -- market making business of Virtu has continued to demonstrate that it is a growing franchise. In fact, our non-customer facing market making business was up over 30% in 2018. I highlight these accomplishments to point out that the core Virtu Financial technology and operating efficiency around market making and post-trade settlement declaring are the engine that drives the firm in global markets in multi-asset classes, and our legacy business is stronger than ever and growing.

In addition, our customer facing market making businesses had a record year reflecting the high quality of the people and the quantitative strategies embedded in that franchise. As a reminder, the customer market making business has long-term relationships. In many instances relationships that stretch over two decades with firms that provide retail investors, RIAs and others with execution capabilities. Virtu competes for this order flow by providing price improvement to retail investors, real customer service and value as a market center.

When we acquired KCG, we committed to investing and in growing this business globally by integrating it with Virtu's financial technology and continuing to provide superior execution quality and services as we have taken great strides to do so. 2018 was a record year as our Virtu customer market making businesses were up over 50%. Overall, we believe we have strength in this business segment, improved profitability and offer superior service to our growing list of counterparties.

Our execution services business generated $96 million of net revenues in 2018. We spent a good part of 2018, analyzing and thinking about how this business fit into Virtu's future. The business we acquired from KCG required a significant technological and strategic overhaul and we have streamlined the business, converted to an optimal product offering in a single common technology platform and we believe