Virtu Financial Inc (VIRT) 2022 Q2 法說會逐字稿

Hello, and welcome to the Virtu Financial 2022 Second Quarter Results Call. My name is Lauren, and I will be coordinating your call today. (Operator Instructions) I will now hand you over to your host, Andrew Smith, Head of Investor Relations for Virtu Financial to begin. Andrew, please go ahead.

Thank you, Lauren, and good morning, everyone. Thank you for joining us. Our second quarter results were released this morning and are available on our website. On this morning's call, we will have Mr. Douglas Cifu, our Chief Executive Officer; Ms. Cindy Lee, our Deputy CFO speaking with you, and they will begin with prepared remarks and take your questions.

First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are, therefore, subject to risks, assumptions and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements. 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. During today's call, in addition to GAAP measures -- in addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. 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, where you'll find supplemental information referred to on this call as well as a 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. This morning, we reported our second quarter results. For the quarter ended June 30, we generated $0.73 of adjusted EPS on $5.8 million per day of adjusted net trading income, bringing our results for the first half of 2022 to $2 per share at an average adjusted net trading income of $7 million per day. Our business performed well and exceeded our internal benchmarks, both our global customer and noncustomer 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 all environments. We continue to see important success in our growth initiatives.

And on Page 5 of the supplemental materials, you can see how these initiatives contribute meaningfully to our performance, generating over $575,000 per day of AP representing 10% of our adjusted net trade income for the quarter. Our options business, which we launched just a few years ago is thriving and will continue to grow along with our ETF block crypto, Virtu Capital Markets and other initiatives. These initiatives are truly organic and that our adjusted net trading income from these revenue sources was nascent 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.

In options Market Making, for example, we continue to improve our models, expand our symbol universe and have begun to interact with options routers in a limited way. Our 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 investment into options 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 ANTI from crypto market-making set a record for Virtu in the second quarter despite the market-wide downturn in crypto. Our crypto desk remains focused on market making a Bitcoin, Ethereum and other top cryptocurrencies in various forms, including spot as well as ETF in 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 Susquehanna and Paradigm, we believe that this initiative will ultimately fill the void for a stable and resilient ecosystem for investing in crypto across established global brokerage platforms. Our global ETF lock initiative is also contributing meaningfully to our results. Year-to-date, ANTI from ETF lock has grown almost 20% versus full year 2021 as we've expanded the symbols and markets that we cover has 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 a total of 27.4 million shares or almost $800 million in agri 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 of AP, we expect to repurchase this amount over the next 12 to 18 months. Based on the guidance we have provided on Page 8 of our supplemental materials, we are on pace to exceed our target buybacks for the year. Given the opportunistic refinancing we concluded in the first quarter, we would anticipate share repurchase 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 in ANTI year-to-date through June 30, totaling $2 in EPS and $553 million in adjusted EBITDA, both are 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 acquisitions. Consistent with our ethos of disciplined expense management, we have successfully held costs in line despite the worst inflation since the 1970s, producing a 58.6% EBITDA margin this quarter and 64.1% year-to-date.

Touching on the performance of our segments. Market Banking 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 in adjusted net trading income. We are now 3 full years past the acquisition of ITG, and we have overhauled and replatformed the technology that Algo suite reduce costs dramatically and retain our broad, deep blue chip client base.

Virtu Execution Services has a complete complementary suite of products encompassing every stage and an order's life. Taking together, our suite of products reduced costs, enhanced productivity and help us manage operational risk. Broader adoption of our products yield 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 to poise to make it much easier for clients integrate more of our products into their daily business, and we do see this as an exciting area of growth.

Before I turn it over to Cindy for a financial review, let's address the latest statements and press reports regarding potential changes to U.S. equity market structure being [bandied] about by the Chair of the SEC. There are 3 important points I'd like to make regarding the latest discussions and commentary around potential market structures.

First, Virtu has previously publicly supported many of the ideas in Chair Gensler June 8 speech at the Piper Sandler conference. We agree that exchanges should be able to display narrower quotes. (inaudible) should be included in the MBBO and disclosures and retail execution quality reports, Rule 605 are desperately in need of enhancement and modernization. Second, there is currently no formal proposal related to the ideas mentioned by the Chair in his speech, the rule-making process that the SEC must follow can take years from the time a formal (inaudible) proposal is announced to adoption and implementation since it requires copious data, thorough economic analysis to evaluate impact to the U.S. capital markets as well as adequate notice and comment periods.

This process is designed to ensure market structure reforms are driven by data and not politics. Importantly, over the last 20-plus years, the SEC has on several occasions examined the retail training ecosystem, including payment for order flow and wholesaling and definitively concluded that it provides material benefits to retail investors. The law is perfectly clear. The burden is entirely on share Chair Gensler to unequivocally demonstrate that his ideas materially improve this ecosystem. This will prove to be an impossible task. As a result, we believe that the idea suggested by the Chair will need to change significantly and be supported by sufficient data, an economic analysis before they can be approved in order to withstand the likely challenges.

Third, if some have despite these impossibly high burns of data, on the chair, the current SEC Chair ideas 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 will remain highly competitive and opportunistically provide liquidity to these so-called retail auctions. The end results would likely save Virtu hundreds of millions of dollars in exchange in ATS costs and ironically SEC fees. And perhaps multiples of these amounts in price and size improvement to our clients.

The retail brokers and their customers, however, would be denied the certainty of execution and services that the current providers compete to provide today with liquidity possibly widening and thinning (inaudible) as we have seen in other markets where competition has been impeded. The knock-on effect of these ideas will reduce liquidity and widen spreads in thinly traded bids and small-cap securities. These small to midsized names would likely see less liquidity, making it more costly for investors to trade these names and to 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 for end investors. Costs that prior to the proliferation of zero-commission trading had historically served as a barrier that limited younger and lower income investors access to the market. 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 investments in the United States is 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 contrast would be, obviously, politically motivated, false narrative, misconceptions and factually unsupportable conclusions that are being pushed and disguised as so-called reforms to the benefit of investors.

For these and many other reasons, we continue to believe that if the SEC moved forward with proposal along the lines of the Chair's public statement, it would continue to be met with substantial industry-wide universal resistance, including potentially in the form of litigation, an overwhelmingly amount of credible evidence from 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 enhance transparency competition and then promote investor choice and superior execution quality.

I will now turn the call over to 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 3 of our supplemental materials, our adjusted net trading income, which represents our trading gains, (inaudible) direct trading expenses totaled $357 million or $5.8 million per day, which is 6% higher than Q2 of 2021 and 29% lower the first quarter. Market Making adjusted net trading income was $254 million or $4.1 million per day, 11% higher than the year ago quarter and 34% lower the first quarter. Execution Services adjusted net trading income was $104 million or $1.7 million per day, which is a 4% decrease year-over-year. Our adjusted EPS was $0.73 for the second quarter.

For the second quarter, our overall compensation expense was $99 million or 5% less than Q1. Our cash and overall compensation ratios were 22% and 27% of adjusted net trading income, respectively, and were 19% and 23% year-to-date. Adjusted EBITDA was $209 million for Q2, 5% higher than the prior year quarter and 39% below the first quarter. Our adjusted EBITDA margin was 58.6% for the second quarter, which is down 9 points from the first quarter, but continues to be reflective of our efficient cost structure and disciplined expense management.

Our capitalization remains adequate. Our long-term debt was $1.8 billion at quarter end, reflecting a debt to trailing EBITDA ratio of 1.7x. Financing interest expense was $22 million for the second quarter of 2022 compared to $20 million in the prior year second quarter. We remain committed to our $0.24 quarterly dividend, which we have consistently paid over 26 quarters in every environment since our IPO. And our approximately $334 million share repurchase year-to-date demonstrates our continued commitment to return capital to our shareholders.

I will now turn it back -- turn the call back over to the operator for Q&A.

(Operator Instructions) Our first question comes from Rich Repetto from Piper Sandler.

I guess, Doug, the first question is around the volatility that you experienced in the quarter. At least you look at from the published metrics that most people use, volatility was flat to up. But I got a feeling that wasn't -- that doesn't tell the whole story. So could you just talk about the trading environment, I guess, in 2Q?

Yes. Thank you, it's a very good question. I mean you do make the observation and the facts (inaudible) that this was a very unique quarter. And the volatility we saw this quarter was much more concentrated than we have seen in the past. In fact, the mean volatility in the quarter was 34%, as you see, which is from quarter-over-quarter. But the median volatility from Q1 to Q2 was only up 2%. So that means that we had a very sharp periods of extreme volatility, driven by macro events. And so a few trading days, a few opportunities to have outside returns and to have risk, et cetera. And so really, the way we look at it quarter-over-quarter volatility effectively was flat, and there's 1 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 the performance this quarter.

Understood. And the 1 follow-up. First, thanks for the forceful and detailed comments on regulation. So I guess the 1 question I asked is about size improvement because I think you've made the point, and I think it's backed up by others in the industry, the size improvement, it's almost 2x the benefit of price improvement. So the question is, do you see the SEC incorporating any of the benefits like size improvement into the analysis? And how would size improvement go away given some of the -- if he got -- Chair Gensler got his way with some of these proposals. But again, we heard your comments and we appreciate those as well in the prepared remarks.

Yes. Look, I mean thanks, Rich, and I appreciate that. I mean, obviously, look, I'm very front foot and very forceful on these issues because I think somebody needs to be. I have deep respect for the Chair, his experiences, his background and what he's accomplished. So this is not a personal diatribe by any stretch of the imagination. However, I will always defend what I think is right for this firm and more importantly for our clients. And I think the ecosystem that is developed in this country, frankly, over the last 30 years, really drives significant and, frankly, untold benefit to retail investments, the largest of which we've been very clear about, and we provided a white paper is what we do size improvement and the current rules, Rule 605, Rule 606 do a very, very poor job in capturing what that means. So what does that mean? It means that when an order comes to a wholesaler, be it Virtu (inaudible) one of the half dozen or so competitors and more being added every day. We are obligated to fill that order. Indeed, we do fill that order regardless of the size of the inside as a national -- at any national securities exchange.

Obviously, with respect to small and mid-cap names, that is meaningful liquidity, meaningful liquidity. We have in our white paper in 2020, we estimate that the value of that exceeded or price improvement exceeded over $2 billion in a selectively competitive marketplace, which is what Gensler is suggesting, i.e. "retail options" the details of which he has not provided, there would just be selective competition. There would be no obligation on behalf of any wholesaler, indeed any market participants to provide size improvement. So as a result, the order as it would if we're an institutional order without these obligations, we'll just trade through the book.

What does that mean? That means that the retail investor gets a substantially worse bill, that means that the issuers bid offer spreads widen, which means that when that issuer goes to raise capital, it will pay more money. This is trading 101. And so I don't know if frankly, what's in his brain and what's in the brain of the Head of Trading and Markets as I have thought about these issues. We have clearly made them aware of it. The burden of proof is 1,000% on them to demonstrate that this is not the case. The chief economist of the SEC is an incredibly talented individual that will look at this. My view and this firm's view that there is no chance that 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 change 30 years of market structure. And as markets get more volatile, the service provided by the wholesaler, and this size improvement is even more important. So we look at this and scratch our heads and say, where is this all coming from? Who's (inaudible)? What is the genesis of this suggestion? And to me, it's very obvious. It's just a politically driven approach, and we would strongly encourage the Chair to reflect on what he had suggested to sit with market participants and come up with sensible reforms.

We're not suggesting that there aren't changes that need to be made, right? We've made our own proposals to the SEC. We haven't heard back, but we've made our own proposals to the SEC. But to -- without any tax on that without integrative facts, as I said in my prepared remarks, you often misconstrued the facts, right, for political ends. So we're here to engage, but we want all of our investors to know that the likelihood of this happening is de minimis in our view. And even if it did happen, Virtu would adapt would be fine. Most importantly, don't forget, Rich, and everybody listening, this is a firm that has thousands of institutional customers. We've spoken to our clients on the buy side. The 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 investments that they have. We know that we can and do interact with retail investors.

So all of these narratives out there that he has put out in his various appearances on television and whatnot are frankly just not supported by the facts not compelled by data. And every market participant that we have spoken to that isn't on Twitter with a followers doesn't agree with what you're suggesting. So when it all comes out in the wash in a couple of years, we'll look back on this episode and say, boy, that was a lot of conversation, unfortunately, a lot of wasted money and not a lot is going to change here.

Our next question comes from Dan Fannon from Jefferies.

I do want to go back to the earlier question just with regards to the environment and maybe broaden it for the first half because if you're looking at the metrics that you gave us on Slide 4, and then I just kind of look at the ANTI from the first quarter, the second quarter decline doesn't really match up. So I understand there was some specific things within maybe 2Q that were different, but can you talk about like levels of internalization or other areas that are impact -- 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. No, I appreciate that and I, certainly -- superficially, I could see how you could say that. But if you look at the retail, like on Page 4, if you look at the IBKR 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 internal metrics, we outperformed, and I suppose we've beaten guidance here as well to the extent that means anything. So the realized means Russell 2000 volatility was down 2% quarter-over-quarter. That's significant Dan. So I get it, you can look at realized volatility in a very superficial top line manner and say, okay, I don't understand quarter-to-quarter results. But when you look under the covers and kind of look at -- on Page 4, there's a whole number of indices, like I'm looking at sort of towards the bottom of the page, the European and Japanese realized volatility being down 25% and 21%.

Goldman Sachs is commodities realized volatility index down 34%. I mean -- so there's a whole host of global indices in the various products and services that we provide that were either flat or materially down quarter-over-quarter. So this quarter looks a lot like the second quarter of 2021. I think we performed exceptionally well. And based on all of our internal metrics, we outperformed. So...

Okay. Okay. And just to clarify, I think a statement you made 12 to 18 months, I think it was something -- was a time period. I think you said to exhaust the buyback and just want to make sure I heard that correctly. And based on everything you're seeing in the environment, I think you've given us some quarterly metrics, the buyback remains the primary use of excess capital and still no thoughts around M&A or other things that might be increasing in terms of priority here?

Yes, absolutely, Dan. Great question. Yes. So 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 every day. We don't try to time the market. Obviously, we use a great broker and attempt to get VWAP every day. And so based on the public guidance we've given you in the materials where we've made a hair under $7 million per day, we're right on target. We were opportunistic. It was a block that we were able to purchase in the first quarter 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. The 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 market. And so we think it's incredibly accretive and the right thing and in our shareholders' best interest for us to continue to buy back stock.

Our next question comes from Alex Kramm from UBS.

I noticed that you took the retail slide out that you had last quarter, over the last 2 quarters. So just wondering if you can give us -- I mean I think we can all track the same thing, but maybe from your perspective, what you've seen in retail in terms of participation, any changes in terms of the type of retail that you're getting or any other color that helps us because it seems like retail, unless I heard you incorrectly, it was probably the biggest driver of the quarter-over-quarter decline.

No, I don't think it was the biggest driver. It certainly is a driver. We have a very large diversified business. I suppose we took the slide out because it's all just public data. And we then -- people focus and say we're exclusively retail firm. We're not. There's a significant event, more than half of our revenue comes 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, tend to drive results if you look at the commodity indices. If you look at what happened in Europe and you look at Japan and you look at other global indices and the fact that they were down quarter-over-quarter in terms of volumes and volatility that will end up driving results. We continue to be a very, very bullish on the future of retail.

If you just look at 2019 pre zero-commission trading involvement as compared to what is the retail engagement today, you will see that the amount of retail engagement is significantly increased, it's almost 100% increase from the pre zero-commission, not the pandemic pre zero-commission. Remember that happened in October of 2019 when our friends at Schwab with the zero-commission and then a bunch of competitors match them in a new norm in the industry. So that introduced to investing a whole new class of investors, young, previously underbrokered and underbanked individuals. So we think that is a systemic change. No one has ever shown an evidence that it's not. We're not putting that genie back in the bottle. We're not going to go to a marketplace where people are not -- don't have access on a smartphone to the U.S. Equities Market and indeed other markets. But again, we are a very large diversified market making business. I'm very proud of what we do in retail. I'm obviously going to be a spokesperson, and we will continue to be spokespeople 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. And thanks for this data of retail relative to the other businesses. That's definitely helpful. And then just maybe this is more numbers questions, but you obviously have that slide that gives the various scenarios in different [NP] environments. Just curious why if you look quarter-over-quarter, those, I guess, scenarios changed a bit. So for whatever reason, the OpEx is higher, in particular, on the low end, the EPS is lower, the EBITDA is lower. So just wondering what changed quarter-over-quarter in those scenarios? And then maybe just a quick other data question. I saw share-based comp or stock-based comp increase quarter-over-quarter. Just curious why that will be up in a lower revenue and earnings environment?

Yes. I'll ask Cindy to answer the second question, which is I know there was some technical reason why we had to recognize some stock-based comp in the second quarter, right Cindy?

Yes. Yes, correct. In the second quarter, we have to accrue percentage of share-based, comp-based of performance and based on the incentive comp. So that's why it increased compared to the previous quarter publication.

Yes. And I guess the answer to the first question, maybe we can follow up offline, but there were some modest increases in OpEx. I mean nothing really material here. And candidly, nothing is jumping to my mind as to there's no individual item and maybe it's up a couple of million bucks here or there. But otherwise, given the -- as I said in my prepared remarks, given the environment we're all in, inflationary environment we're all in, we're doing our best to kind of hold the line here. So maybe we can follow up offline because I don't -- nothing is really jumping out of me, Alex.

Yes, makes sense. And I know it's just for illustrative purposes anyways.

Our next question comes from Michael Cyprys from Morgan Stanley.

I wanted to ask and talk about the options market-making business. I know that's a big focus and priority for you guys. So just curious how many single name tickers are you guys making markets in 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 3 years or so or some time frame? 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 tickers that you're making markets in today on the option side.

Yes. Thank you. It's a great question. And you're right, it's obviously a key growth area. I mean, we hadn't been at all really an options market maker 3 years ago and certainly 2 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 firm. They'll kill me if I give an exact data as to when we're going to start expanding symbology. The answer is, right now, we are trading dozens of individual names. We try to improve and increase that every day as I mentioned in my prepared remarks, we are now interacting with routers, which is the first step towards having a more broad, what I would call, retail options market making business. We've learned an awful lot.

We've improved our tools. As I said before, we reengineered and re-architected 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've learned in the options market making to other regions and other asset classes. I said previously, that we have launched index options market making in Asia. So I'm not going to give a definitive date and say, okay, by the next quarter or next year, we're going to be full hog into the 605 options business because that would frankly be irresponsible. I mean I, frankly, don't know right now, it really depends upon how we continue to grow. What the market opportunities look 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 2 years ago that we were going to have near a 9-figure adjusted net trading income business and options, I might have questioned whether that was feasible. But that's where we're at. And so I'm very, very proud of what we have 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. I continue to be very, very bullish on it, and we're going to work our tails off to accomplish it.

Great. And just maybe a follow-up question on the fixed income. Maybe you could just give 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, on the fixed income side?

Yes, great question. It's still very early in fixed income. I mean it's where options were a couple of years ago. So very, very nascent. Good group. We've done some lateral hiring. We have 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 corporate credit, which is again a sentence I [never] thought I would say even as recently as a year ago, so very proud of the accomplishments we've made there. It's a big asset class obviously. It historically has been dominated by dealers. There are number of our competitors that are very meaningful in it. It is important to us because, obviously, the large asset class, but more importantly, it 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 corporate credit capability as well because obviously, there's a lot of fixed income ETFs, both here in 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 I'm optimistic that it will grow in the same that our options capability has grown.

(Operator Instructions) Our next question comes from Pavel Gulberg from Bloomberg Intelligence.

Yes. And thank you very much for the commentary. Quick questions on the Crypto, which is kind of broader in terms than just Virtu and given the -- your joint venture with Citadel and other partners. Looking to see where you'd look to differentiate from the entire ecospace because everybody is from both sides, trying to get into the space, the crypto guys trying to get into the equities and options trading and the traditional players are looking into crypto. So where is the differentiation we should look for?

Yes. Look, it's a great question. We're very, very excited about this venture. We've got some incredibly talented partners. We've partnered again with our main competitors, Citadel Securities that just showed you how -- when we need to collaborate on something we need to collaborate. Again, this is client-driven. So clients have come to us and said, we recognize that this is an asset class that's not going away. I'm not commenting on whether Bitcoin is going to be 1,000 or 100,000. I don't know. And frankly, I don't care, it's not really my business to be in that. But when clients come to us and say, we have both retail and institutional interest in this asset class, we are not satisfied 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 in incidentals 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 venture partners that have a great relationship with Citadel and our important costs (inaudible) have an unbelievable understanding of the marketplace. So the goal of this venture is to create a reliable and stable ecosystem around crypto. That is client driven.

Whether that's an indictment or a reflection of the competitors in the marketplace, 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. And if but more importantly, we will have more confidence in that ecosystem. And so therefore, we will send more client flows there and that's the market making opportunity for Virtu Financials. So it's a strategic initiative on our part.

For your second question, Crypto play is becoming stock trading venues. I support that. That's exciting. It's great. 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 FTX and Coinbase and everybody else. So if they start tradings, cash equities and options, God bless them, more power to them, bring more investors into the market in a sensible, safe and transparent manner. We're all in favor of that.

Our next question comes from Alex Kramm from UBS.

Again, I guess, it looks like a lot of people tied up, so I figured I come in for a follow-up or a couple of them. First of all, you mentioned, Doug, 3 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 the biggest opportunity sets are that you're kind of like going after right now?

Yes. Yes, great question, I appreciate it very much. (inaudible) by the market maker and what Chair Gensler is up to and all that kind of stuff. Look, just to go back in time, we started a very small, we call it the (inaudible) offering, we bought (inaudible) at a subscale, largely U.S., largely hedge fund, single broker, high-touch and low-touch business. We looked at it and said, we can do this better. We can create 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 has fallen on tough times. We have fully integrated it, reduced costs in a very, very meaningful way. And today, we have, in our view, the leading non-big bank, if you will. So we don't have prime, we don't have calendar, we don't have (inaudible), we don't have research, lovely folks like yourself. We are an execution-only shaft that also provides other financial products. And our margins in that business, I would eventually say not that anyone else has shown me their equity -- institutional equity margins have to be industry-leading because of their Virtu life. So we've taken an enormous amount of cost. We have replatformed 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.

We're 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. So we have an execution management service. We have an analytics business. So of our Virtu execution services revenue, the makeup is -- commission base is more than half of it, but not the best refiners of it. And then the workflow solutions, which tends to be more recurring revenue and more subscription based and there's a transaction element to it as well, makes up the rest of it. And the goal 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 sales 101 is when a client uses more than 1 and up to 6 products, we get a lot more revenue per widget, if you will, of per client than we would if they're just using 1 product. So get on the desktop, have them use Triton, sell them analytics, have them use commission management, right, have them route to other brokers using our ITG Net capability and have them use our block trading capability through conditional orders on alert and as well when they choose to use this as an execution broker, give them a truly global integrated product that is best-in-class in terms of execution capabilities. That's the model. It really is -- I give Steve Cavoli and the folks in execution services, all the credit in the world because we have changed the wheels on the car as it's going down the highway at 90 miles an hour. And that's not without risk to clients and to disrupting an existing ecosystem, but we've accomplished it exceedingly well, and I'm very, very happy with where we're at, and I'd like to thank all of our clients as well for hanging in there with us as we basically said those tools that you were using from ITG, we're going to make them better trust us. And they have and the results have been very, very promising.

Very good. And then just lastly, you get on these calls and sound a little bit like a broken record in a positive way, I guess, that the stock is undervalued and you think it's the best investment, so not really interested in M&A right now. So I guess the question is like why do you think it still makes sense to be a public company? Why do you need that currency? And if you think the stock is still undervalued. A lot of your peers are obviously private. Some of your peers have gotten investments from some real blue chip investors out there. So is that something that crosses your mind? And does that eventually make 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. It's kind of an obvious question. And we have, for the record, no plans or intentions to go private. Obviously, I'm a former M&A lawyer. So I understand all the nuances there. And I certainly understand all the rules. So I'm going to be very, very careful about what I say. Look, we are very, very happy having been a public company. It's given us an opportunity to raise an (inaudible) amount of capital, in my view, it's still humbling the trust that debt and equity investors have provided to us. It enabled us to do 2 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're able to have as a result of being a public company. Is it frustrating that public investors team not to understand the growth story here? Of course.

Of course, I have -- I started this firm with my partner, Vinnie Viola. So I think it's the greatest firm in the world. We have continued to grow EPS from around $1 pre-acquisition to -- we made $2 in the first half of 2022, and it seems that all that happens is that we've had multiple contraction of just kind of chuckling from when we went public, we were trading at like 15 to 16x and now you can do the math as to where you guys have us.

So we have raised the bar. We have consistently -- we've given you models as to how we've accomplished that. We have maintained our expense base in ways that our competitors, frankly, have not. We've reduced headcount. 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 was a bit of a challenge. And we still produced $0.73 a share. I can do math, multiply 0.73 times 4, and it doesn't make any sense to me that the stock doesn't trade at a meaningful -- at a price meaningfully larger than 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 a competitor and take all the risks and uncertainties of that? Or should I take a dollar and buy back my stock, which I think is horribly undervalued, and it's accretive. So I'm going to continue to do the latter until proven otherwise.

We currently have no further questions. So I'll now hand back to the management of the closing remarks.

Thank you very much, and thank you, everybody, very much for your interest in Virtu. We look forward to speaking with you in the fall. Have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.