Good morning. My name is Dana and I will be your conference operator today. At this time, I would like to welcome everyone to the KCG Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Andrew Smith, you may begin your conference.

Thank you, Dana. Good morning and welcome. Today’s call may including forward-looking statements, which represents Virtu’s current belief regarding future events and are therefore subject to risks, assumptions and uncertainties, which may be outside the Company's control, and our actual result and financial condition 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 releases and encourage you to review the description of risk factors contained in our final S1 Registration Statement and other filings with the Securities and Exchange Commission. 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. We believe these non-GAAP measures are more reflective of our operations and core business performance. You will find a reconciliation of these non-GAAP measures to GAAP terms included in the earnings materials with an explanation of why we deem this information be meaningful as well as how management uses these measures. When used on this call, adjusted net trading income refers to our trading income net of all interest and dividend income and expenses, and all brokerage clearing and exchange fees and/or rebates. Speaking and answering your questions today are Mr. Douglas Cifu, our Chief Executive Officer; and Mr. Joseph Molluso, our Chief Financial Officer. They will begin with some prepared remarks and then turn the time over to the operator to take some of your questions. Now, I would like to turn the call over to Doug.

Thank you Andrew and thank you all for joining us today on such short notice. I am extremely pleased and humbled to announce today that we have signed a definitive agreement to acquire KCG Holdings. KCG is a prominent and unique franchise that has served in these – of an impressive array of customers for decades. This is a transformative acquisition for Virtu and represents a natural evolution for our company. Our scale, efficiency and advanced order routing capabilities will now be married with KCG’s extraordinary client franchise and KCG's hundreds of talented employees and will allow Virtu to accelerate its strategic priorities. Importantly, this transaction takes place that what we believe is an opportune time to be investing in the market making and agency businesses given historically low points in global realized volatility, which are naturally cyclical. Finally, we will be able to achieve meaningful cost and capital synergies that will create significant value for Virtu’s shareholders. I will go through some selective slides in the presentation that we have distributed this morning and discuss the strategic rationale and why this transaction is a unique opportunity that will expand, strengthen and diversify the combined platform and set us up for future growth. Then I will turn the call over to Joe to discuss select key terms and review detail around significant expense and capital synergies in this transaction. While on a standalone basis Virtu’s role as the leading liquidity provider across asset classes in 36 countries continues to grow, simply put this transaction will allow us to access for the first time customer order flow in our Americas Equities business and accelerate our growth in our agency execution segment. As outlined in the Slide 4, we will leverage Virtu’s scale, geographic reach and micro market structure expertise to interact…

Thank you, Doug. I will pick up the slide deck on Slide 8, which shows the enhanced diversification to our revenue stream this transaction will bring. Based on 2016 numbers, this transaction will increase Virtu’s non-market making net revenues from 2% of the total to nearly 20%, an important and strategic diversification. Slide 9 reviews the expense synergies. There will be significant value creation to Virtu’s shareholders derived from achievable expense synergies. Through identifying redundant operations and consolidating businesses, trading debts, office facilities and other identified savings, we believe we will achieve run rate net expense synergies of $208 million over the first 24 months post closing. In addition, we believe these efficiencies, which we have identified will concurrently results in the reduction of capital usage for the combined company by $440 million, which will be used to rapidly pay down debt and return the combined company to its current capital structure on a pro forma basis. Slide 10 is an attempt to demonstrate the powerful impact the transaction will have on our after-tax earnings. What we have done here is attempt to provide you with the pieces needed to understand how accretive this transaction is to Virtu. When you look at a fully phased-in in this case year two of the transaction in this case 2019, you see that after-tax synergies, net of revenue dissynergies are $129 million. After applying the proceeds from debt reduction and other cash flows to pay down debt to current combined company levels, we’re assuming incremental $5 million in interest expense after-tax. You can then model across a variety of scenarios for KCG’s standalone contribution and therefore we expect over 25% earnings accretion across a range of scenarios. Finally, I wanted to note on Slide 11 a significant unmodeled upside potential not included in…

[Operator Instructions] And your first question comes from the line of Warren Gardiner [Evercore ISI].

Good morning, Warren.

Can you may be just dig into the $42 million of revenue dissynergies a bit more like kind of where that comes from and what are some of the assumptions behind that number?

Sure, I think it's really twofold and Joe can help you with all the details, but it's – we assume that there's going to be some books of business that are capital inefficient if you will that we will in a reduced positions and then get out of and so there's some revenue loss there, but significant capital pick ups. And as well we assume that there'll be some, in the transition that there'll be some revenue loss from customers that trade away for a time period, but would come back. So I would argue – I would think that those numbers are conservative, but we wanted to make sure that they were included in the model from the get go. We think we can ultimately outperform that, but we wanted to be conservative with our revenue dissynergies. Joe?

Yeah, that's right. I mean we are trying to be quite conservative as Doug said as we look at businesses where capital does not – the capital does not supported by the profitability and obviously we dug into all this in due diligence. We want to be – part of the good thing about being in this business today is that we feel we can migrate a lot of the revenues and obtain the capital efficiencies, but we're trying to be very conservative around that. So we've made some very, very detailed bottoms up assumptions and across a variety of desks and that – generate that number, Warren.

Okay, thank you. And then I guess obviously some real benefit from moving upstream on the retail front, I mean any sense how should we maybe thinking about I guess sort of the accretion of the capture rate if you will on Americas Equities and then also maybe some color on – in Europe I know there’s sort of an effort on KCG’s front there as well with respect to retail just over there.

Yeah, it’s a great question. And as I tried to note in my prepared remarks, this is not like a new business for us really what happened globally is you have segmentation of order flow and it’s done by different mechanisms and different regulatory regimes. In the United States, you have this well oiled machine if you will some people call payment order flow or wholesale market making whatever is and in Europe and in Asia it’s done differently. So we participate in segmented markets globally in Europe and in Asia in particular. And in those markets while we don't disclose individual capture rates for an all call market as opposed to a segmented market we can tell you just episodically if you will and obviously we track this by venue and by strategy that there is a meaningful difference as to how our strategies perform not surprisingly when they're not in an all to all market but they're in a segmented market. And so translating that to the United States and to the KCG business, we’re obviously very optimistic that having access to that order flow with our partners and new friends at KCG that we can significantly augment the experience that the customer has and also maximize our profitability as we interact with that. I would also point out that the thing that we have done very well as a firm is really hone our entry and exit of positions. When you don't have the benefit if you will of customer and institutional order flow when you're fighting in the all to all market, you've got to be very acute and very good around technology, understanding market structure and you have to have a low cost environment. That's really been the Virtu’s story, right. We don't have a…

Great, thanks. That's really helpful. That's really helpful color. I think just lastly for me. I just think the answer is no, but should we be thinking about any change to the dividend you know as you guys are sort of delevering or not is related but the tax structure as well?

Yeah, great question. The tax structure will say the same and I think we put in the press release that there's no plan for changing dividend as well.

Yeah.

That's obviously…

Okay, I got…

We’ve dealt with that in the capital structure and the – and our partners of J.P. Morgan – and formulating the credit make sure that we have the ability to continue to pay the dividend.

Great, thanks a lot. I appreciate it.

Thank you, Warren.

[Operator Instructions] Your next question comes from the line of Alex Kramm [UBS].

Yeah, good morning everyone. Just wanted to come back to you’re guys entering the retail market making space. Maybe you’ve mentioned this at the beginning, but obviously you're entering this business at a time where there's lot of price competition at the end market, you’re seeing swap and others fees a lot. And obviously that’s the lost revenue opportunity for those guys and you could argue that at some point that could trickle through to the market making community and in particular if you think you're going to make more money in trading the order flow, some of those guys might want to share the upsides, right. So how do you feel comfortable that that business is not a race of zero in particular there's competition in the end market?

Yeah, it's a great question. And I think the way we do business is to be transparent and collaborative with our business partners. We've done that throughout since we started Virtu. So obviously I need to get to know these folks. I know some of them very well. And I know the great folks at KCG that have interacted with them, for years I have a terrific relationship with them. I think this is a win-win for those customers because at the end of the day we're going to bring the efficiency and scale that Virtu is known for to that business. And so we can make that a more efficient business and make it a better experience. At the end of the day is there going to be an adult conversation about how does that shared and ultimately how does the end use of the retail and the institutional investor that are using the services of a Schwab or et cetera, how are they going to benefit from this. That's really the most important thing. We think we can drive execution quality. We think we can continue to reduce cost because that's what we did – already kind of what we do. We've been one of the proponents of competing at lower spreads and dealing with rising costs in the competitive all to all market. So we think that this is a key moment in time for this segment of the business to get more efficient and to hone in skill. So look at the end of the day, we're all adults, we’re all in business to make money but at the end you need to provide a superior product to the end user and I'm very confident that this will be a win-win for the fantastic customer base at KCG.

Alright, thank you. That’s helpful. And then just secondly, I guess this is for Joe. Can you talk a little bit more on the technology synergy as the [indiscernible] there? I don't know KCG that well anymore, but I feel like there were a lot of acquisitions and obviously get go KCG coming together a few years ago, but from what I understand not much more integrated maybe they're like four different training platforms or more. So where are you heading I mean is the roadmap to find already, is this going to be a Virtu backbone over time or is one of those situation both wake up and you actually realized you can't integrate as much because you don't know what happens when you shutdown one system and there's a lot of risk involved. So how comfortable are you with the technology movement? And actually what are you seeing there internally that might be very efficient?

Yeah, look – when you look at how we've detailed the synergies, we've broken out 70 million of technology communications and data processing synergies. The first step there is just kind of identifying redundant paths – redundant telecommunication paths around the globe. KCG has done a great job managing that and I think we’ve done a great job managing that. And this is an area where you can literally look at contracts and services and data contracts and what they pay for market data, what we pay for market data and there are just direct redundancies there. And that’s what’s represented in that number. So that $70 million that we called out is just cost savings associated with redundant technology infrastructure data processing that we think is very achievable. It’s very similar to what Virtu did when it acquired Madison Tyler in 2011. I think to your point to know about the overall technology platform and systems, I think that will be a phased process. I think ultimately the goal is to have one technology platform, but there are a lot of different areas to look at. And I think they will build the benchmarks within 6 months, 12 months, 18 months, 24 months, but I think from the customer experience at KCG there's not going to be anything that changes in the near-term or the intermediate term like there will be no overhaul of technology immediately that will change anything related to the important customer franchise.

Yeah, I think that's the most important point that Joe just made, which is as far as the customer experiences we get how important that is and that the interaction with the KCG environment right now is superior and we don't want to change that. What happens behind the scenes if you will as behind the wall? And we really always pride ourselves as you all know in having a single integrated platform that’s multi-asset class, multi-currency and you can – all of our offices in the way we operate are 100% seamless and interchangeable. We're going to bring that scale and efficiency to what KCG has to offer to the customers. That will be behind the scenes if you will, but absolutely at the end the day that's why we have been able to be as successful as we are in terms of having a scale plan.

Okay, so if I hear you right the $70 million in technology savings is really just I guess the duplication in market data and there should probably be upside if we actually end up cleaning up the backbone. Did I hear you right there, Joe?

It’s duplicated market structure and its duplicated telecommunications. Yes.

Okay. And then just one quickly at the end here as well, in terms of the leverage, you said you can delever quickly. What do you think long-term this company should be running at in terms of leverage in multi…

I think that today we're around 2.25 to 2.50 and that's where we think we had to.

All right.

So based on – if you look at our leverage profile today, we did a refinancing of our debt in the fall. And our message was that this is the right long-term leverage level for the company. And I think what we've identified is a 12-month path here, 18-month path where we can return to that proper capital structure.

All right that’s it from me then. Thank you.

Thank you very much.

And your next question comes from the line of Christian Bolu [Credit Suisse]

Hello.

Good morning, Christian.

Good morning. Apologies if I missed this, but could you talk about what the cost to achieve synergies and then fully integrated KCG are?

Yeah, the cost to achieve synergies here we haven't outlined them. We will naturally be – as we achieve these synergies around telecommunications, around occupancy and leases, we're going to be having kind of a one-time write-off. So we haven't fully identified the total charge and separated that between cash or non-cash. But I will tell you as a rule of thumb something that is in between half and 50% and 100% of the fully phased-in run rate as a one-time charge would not surprise me.

Okay and that's a cash charge that that…

No, it will be cash and non-cash. It will be cash and non-cash.

Can you give the splits of cash and non-cash? I’m really trying to understand the cash bit.

We’ll be providing more detail on that. I think the non-cash part will be the greater number.

Okay.

Non-cash part will be the greater number just because as you capitalize long-term leases and as you capitalize real estate and things like that, those numbers tend to be bigger. And then as you cancel contracts or if you have any reductions in force, the way we've modeled it anyway that’s the smaller part of it and those tend to be the cash items.

Okay, thanks. And can you just help me understand why you raised $750 million equity and $1.65 billion in debt to fund $1.4 billion deal. What's the delta between…

Delta is our – we’re refinancing. So the delta is that two companies have $1 billion of debt on them today. So we have to refinance both of those pieces of debt. And so the incremental – so you have your numbers right Christian, but just think of the debt as an incremental $600 million.

Got you, okay. That’s helpful. And then the 25% accretion just unclear, that does include – that does factoring the impact of the equity offering, right.

It does. It does.

Okay, perfect. And just lastly – and I think you tried to mention – you didn’t talk about this earlier on. I guess one could argue again to how exactly the same thesis or very similar thesis to you when it’s KCG and profitability has been somewhat tough. Maybe just help me understand very big picture wise what's different this time? How you’d approach the integrating – to come to a better or long-term outcome?

I wasn't there and I have no real idea. Obviously, I read from the news clippings and things like that that you did. All I know is how we operate and how I'm going to approach this transaction. And to be blunt, we have a lot more to learn from KCG then KCG has to learn from us. And these guys have been in a tremendous business and have served the market ably for two decades. And so we're going to go in there very humbly and say guys we really want to understand how you will operate. We think we can help you make it better and let's be collaborative and work together. We are a lean and mean management team here. It’s Joe and myself and some other folks sitting in this conference room. We're not going to go in there, guns blazing and say it's our way at our highway. We're going to go in and really try to learn and be collaborative. I'm 100% convinced that there are literally hundreds of very, very talented people at KCG that will kind of get the way that we want to run this business. We’ll be excited about creating a truly integrated financial services firm. And we think that we can build the best-in-class market-making and agency business that can be competitive and that can be sustainable and can provide a better customer experience. And most importantly for our investors, we’ll continue to drive significant margins and profitability. So that's kind of the best that we can do, which is to be humble, to try to learn and try to get the best out of both firms and integrate them in the right way. We’ve had the experience of doing that with Madison Tyler, which was a very significant market-making firm that we merged with in 2011. And the most important thing that I learned from that transaction is it's not often that – it's not Virtu and Madison Tyler, it’s us. And so at the end of day, it's not going to be Virtu and KCG and I don't care where you came from, the best people will be promoted, the best people will be on the management committee and the best people will continue to grow and learn with the firm as I will. So we're really looking forward to the experience.

Okay, thank you very much for the detailed answer.

Thank you.

And your next question comes from the line of Chris Allen [Buckingham].

Good morning guys.

Good morning, Chirs.

Hi.

Apologies if I missed – missed some of this in redundant, but I just had a couple of different questions. One, the 25% accretion is that for fiscal 2018 or 2019, I am just trying to…

The way we presented here in the deck, Chris, is really what we've tried to do is say look you have your own view of Virtu, you have your own view of KCG, no matter what scenario you model. The moving pieces are going to be kind of what is the net cost savings and what is the incremental interest expense. So naturally if you modeled it right out of the box where we haven't paid down net debt in the first quarter it's still accretive, but what we've done here is say look on a fully phased-in what’s the right capital structure scenario, it is over 25% accretion. So the example we've given on Page 10, it says its 2019, which shows 2019 just because it's the full second year and we're assuming we closed in Q3, but it doesn't have to be. You can pick any year. You can plug-in any numbers you want that you'll come up with for KCG and Virtu. And when you plug-in the synergy number even with higher amounts of incremental interest expense, it is meaningfully accretive.

So you’re using 2019 consensus. Is that right for the 25%?

Yes, I mean, if you’re plugging 2019 consensus, I think you’re going to get something even higher.

Okay. And then just kind of the – I know it’s two years the fully phased-in synergies, I’m just trying to think about how that kind of liked that in over those two years kind of – I mean how long is the development work needed on your side to be able to implement the KCG strategies or are do you utilizing some of those? I’m just trying to reconcile that to kind of make sure we're not going too quickly in terms of the synergy build outs.

I think just in terms of the actual number that that we put out there it’s like Chris simplifying assumption that that would work is just 50:50, 50% year one and then 100% in year two.

And Chris just a little more color on. I think there are a lot of things that are going to be day one like we obviously don't have to pay my favorite topic, market data fees and things like that. Those are day one tiering benefits. Those are day one consolidating flow within legal entities to reduce brokerage costs. Those are all day one. We've a lot of experience from having done that in the Madison Tyler Virtu transaction where we saw a lot of those day one synergies. Obviously terming out telecommunication lines and colos and whatnot reducing footprints, migrating strategy on to a single box, so that you can reduce a footprint in a very expensive colo. Those aren't necessarily day one, maybe they are day 30 to day 90 depending upon the term of the actual lease or co-location facility, but they're easily identifiable. In terms of technology and re-platform, what I would point out is that here at Virtu we have a lot of experience being a technology service provider we have an arrangement with a large financial situation on the FX side and then our much ballyhooed arrangement with J.P. Morgan, where effectively we are routing risk for J.P. Morgan in the fixed income world and the U.S. Treasury’s world, right. So it's not entirely just similar to the situation that we're going to be faced with from an architectural perspective in the KCG environment where they've got this great host of strategies that are very, very complementary to what we do in the customer market making segment. They access the market in a particular way. We are very good at accessing markets. We’re really fundamentally a terrific smart order router as a firm. So taking those intentions, those orders from KCG and routing them through a Virtu environment is something that will be very high on our list and we have real-time experience if you will by doing that as a technology provider already with our friends at J.P. Morgan, so they were terrific test case in terms of how do you access the market when your strategy if you will is now actually coming up with the idea to place a particular order on a particular side of a particular product. So it's going to take a little bit of time to do that, but we're very confident in our ability to do that. We've already done that as I said before with Madison Tyler and we've done it with a large global financial institution. So in looking at the architecture KCG, we think we can get that done relatively quickly.

Got it. And then just digging a little on the $440 million of capital synergies, you talked about rationalizing non-core businesses. Does that include potential sale of BondPoint?

No, and to be blunt I mean I don't know a lot about BondPoint other than obviously what I've read. I haven’t met the people and strategically I have to really understand how it fits in to their customer base and how it makes sense. I mean it's a terrific asset. Obviously, I don't know if they do separate financials on it, whatnot. So I’m not going to talk about those here, but the results that I have seen and the growth that I have seen is really a terrific asset and a great product. I understand the market somewhat in terms of credit and credit platforms. I think it's a market leader and what it does I think it's got a lot of potential. Can we augment the customer experience this through technology through this, that or the other thing I'm not sure. But Joe, myself, the guys at Virtu, we will be very collaborative with the folks at KCG that have the most experience. In particular, we never want to do anything that that has any impact at all in the negative fashion on the customer segments they have. So do their customers rely on it how important is that? So we're going to make that strategic assessment. All I know is it’s a very, very impressive asset and these guys have done a great job running it, they really have.

Okay and then [indiscernible] $440 million of capital synergy seems to be a pretty big number to me.

Yes.

Joe you can buckle down between the three bullets you kind of listed in the Page 12 like what's – how that’s broken down between those just I mean if we were to sell BondPoint I would say no problem, you can get it done very easily, but kind of question that number now a little bit.

Yes so just to complete the BondPoint answering, BondPoint really doesn't use any meaningful capital.

All right, no it just – it can be sold for decent amount of money, so…

Yes, so – no, no, yeah. So that's not included here. And look – Chris, a lot of this is kind of in a very, very detailed due diligence, but there are a number of areas. We've got consolidating businesses within Virtu. I think what that means is kind of we’ve got legal entities – regulated legal entities in Europe and in Asia and in the U.S. as they do, right. So you achieve capital synergies when you move businesses into our own legal entities, all right. We got a separate legal entity setup for proprietary trading and agency trading in Europe, all right. We're going to achieve capital synergies there. There are a number of things that we dug into in terms of how much capital is used to support different debts and different businesses that are going to be consolidated or rationalized and we've done a very granular, very kind of position by position bottoms up analysis of capital usage and the impact on revenue. So some of that revenue dissynergy is a result of this, but we’ve applied a very kind of Virtu like lens in terms of appropriate returns on capital. And this is what we've come up with.

Okay, that’s it from me guys. Thanks.

Thank you, Chris. I think operator anymore questions, I don’t believe there are.

There are no further questions at this time, sir.

Great, thank you everybody. We appreciate everybody assembling on such short notice. And again we really look forward to continue to discuss how this important and accretive transaction will evolve Virtu. And for my friends at KCG, I will be down there later today. I look forward to meeting a lot of you in person. Thank you all.

And this concludes today's conference call. You may now disconnect.