Virtu Financial, Inc. (VIRT) Q2 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the Virtu Financial Second Quarter 2026 Earnings Call. I will now hand the conference over to Matthew Sandberg, Head of IR. Matthew, please go ahead.

Thank you. Good morning. Our second quarter 2026 results were released this morning and are available on our website. With us today on this morning's call, we have Aaron Simons, our Chief Executive Officer; Cindy Lee, our Chief Financial Officer; and Joe Molluso, our Co-President and Co-Chief Operating Officer. We will begin with brief prepared remarks and then 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, 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 additional supplemental information referred to on this call as well as a reconciliation to non-GAAP measure -- 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. With that, I'd like to turn the call over to Aaron.

Thank you, and good morning. A year ago, we announced our plans to pivot towards growth, including investing in infrastructure, acquiring talent and growing our capital base. I'm happy to report substantial progress in that direction. We have made investments in power and compute and have begun to establish select partnerships via investment. Our talent acquisition efforts are proceeding as planned. We are reestablishing our reputation as a firm run by technologists and traders. And as a result, attrition rates are at multiyear lows. Following our recent opportunistic term loan increase as well as 12 months of retained earnings, our total trading capital stands at $3.4 billion, up from $2 billion a year ago. We continue to find new ways to leverage our technology to productively deploy our growing pool of capital across all markets, and we'll continue accumulating trading capital for future growth through free cash flow. We have provided additional perspective on the quarter in our detailed financial supplement, and we'll be answering your questions shortly. First, Cindy Lee, our Chief Financial Officer, will review the financial results for the quarter.

Thanks, Aaron, and good morning, everyone. For the second quarter of 2026, we generated adjusted net trading income or ANT of $11.6 million per day or a total of $718 million per day. Market Making reported ANT of $9.4 million per day, while Execution Services reported an ANT of $2.2 million per day. Both of our operating segments continue to benefit from favorable market conditions and strong execution by our teams. Our profitability this quarter was robust. We generated $437 million in adjusted EBITDA, representing a 61% margin. Adjusted EPS was $1.82. Over the last 12 months, we have recorded ANT per day of $10.4 million, adjusted EBITDA of $1.7 billion and adjusted EPS of $6.96. All of these numbers represent all-time highs for Virtu from a trailing 12-month perspective. On Slide 6 of our supplemental materials, we provided a summary of our operating expenses. Through June 30, our cash compensation ratio is 23% of our total -- and our total compensation ratio is 28%. Again, these are the levels that we have stated would be appropriate in the near term. Turning to capital. Our invested capital stands at $2.9 billion as of June 30, while generating an average return of 106% over the past year. As Aaron mentioned, we upsized term loan in early July, raising an incremental of $500 million in debt. Our trailing debt-to-EBITDA ratio is 1.5x. So we remain modestly leveraged. We will continue to grow our capital base organically and deploy capital where we see the greatest opportunities, all while maintaining our quarterly dividend of $0.24 per share. We will now take your questions. Thank you.

Your first question comes from the line of Patrick Moley with Piper Sandler.

So I just had one on the trading capital build, invested capital up $270 million this quarter. You added the $500 million term loan. Just curious, how aggressive could you be from here with the trading capital build? Is this a onetime step up? Or should we expect the growth to kind of continue at this pace? And then if you could just maybe speak to how quickly you could look to deploy the proceeds from the term loan and when we should expect that to show up in the financials?

Sure. Patrick, it's Joe. I'll take that question, and then Aaron and Cindy will add anything I leave out. But I think the answer is we've guided previously that we've got a long-term goal of net trading income, and we need to sort of fit capital within that. And that will come from 2 sources in the long term. One is the appropriate amount of leverage and the other is organically through free cash flow generation. And in the debt markets and the leveraged loan markets and the high-yield markets, you raise money when you can, right, not when you have to, and we did that. We had a terrific opportunity to add on to our term loan at the current spread levels. The pricing was very tight. It was a great execution. We were able to do it with a minimum of effort and at an attractive price, and our deal was very oversubscribed. So we're happy with it. But the overall leverage level, I think in the near term here, maybe near to midterm, we're set. And I think further accumulation will come from free cash flow generation, as Aaron mentioned in his opening remarks, right? And that will be the primary means. In terms of deploying the capital, I think the returns speak for themselves. There's active deployment and active opportunities given the markets and the continued levels of volumes and volatility and just opportunity that we're seeing. And in fact, we have been making use of our -- some of our short-term liquidity to capture these opportunities, and now we sort of go back to normal with this level of capital. So it is deployed. We do have opportunities and long term -- sorry, near to medium term, this level of debt is sustainable, and we're happy where we are.

Okay. Great. And then as a follow-up, just on the cash compensation ratio came in around 25%. It's up a little bit on a year-over-year basis from closer to the 20% level. I know Cindy said that, that 25%, I think, was what we should expect in the near term. But just as we think longer term and as we model the business out over the next couple of years, is there anything more episodic in the near term that's going to keep it around that 25% level? Or is that just sort of the new norm and that's how we should think about the level of comp going forward? And then maybe as a second part to that, just if we do get a down quarter, can you give us any sense of how much we should think about that comp ratio kind of flexing in a weaker environment?

Well. I think we've hired lots of real talent. Again, as Aaron mentioned, we're a little more tolerant of an investment period. Saying all that, we've guided to low to mid-20s compensation ratio on a cash basis, which I think for a business like ours is market and very reasonable. And sure, notionally, given the size of the P&L this year, the notional numbers look big. And it's always been our practice to take a top-down approach early in the year and then sharpen our pencil later in the year. But I think that guidance remains around -- and I'm looking more at the year-to-date ratio than the second quarter ratio because we do try to true up our accruals and get them right heading towards year-end. So I look at the 23%. We guided mid -- low to mid-20s and 23% is pretty -- low to mid-20s. So...

Your next question comes from the line of Dan Fannon with Jefferies.

So I was hoping to just expand a bit upon just kind of the current environment. Obviously, you've talked about the capital that's being deployed in the business, but maybe discuss the opportunity set as 2Q kind of progressed and as you sit here in July, maybe some of the asset classes or markets that are generating higher levels of return or more interest or attractive in this current environment?

Sure. Thanks, Dan. It's Joe again. I think the growth markets that we used to refer to and call out have continued to grow. So crypto and options and block ETF. But I think the emphasis, again, through hiring, through accessing markets, through the growth of capital has been pretty global and pretty widespread. And that is what we wanted and what Aaron's referred to for the past year. So global equities, retail and prop were standouts this quarter, right? Of course, the operating environment is one of the primary determinants of how we do, but it's also notable, I think that we've improved qualitatively. I think if you repeated this environment 2 years ago or more, then we wouldn't have done as well. So -- and I'd mentioned VES as well. VES kind of reaching a level that's been consistently above $2 million a day for 3 quarters in a row is something we don't talk about a lot, but that consistency has been a contributing factor, and that's a very good business that's coming into its own.

Okay. And then just as a follow-up, you mentioned the hiring. And can you just talk to where you think you are in that process? Is that -- is there a time frame to think about in terms of getting to where you want to be in terms of the talent? And then you also mentioned low attrition. I don't remember you guys ever referring to attrition. So any numbers or things you could put around maybe what's happening today versus a year ago or any context would be helpful.

This is Aaron. I'll answer that. We don't have like a headcount target in mind. And at this point, it's really more just we're kind of hiring as fast as we can in all key areas like quants, researchers, traders and especially engineers, developers. And I think we're just going to kind of continue on that pace until we feel like we don't have too much work for the number of people that we have. And I mean, it's very hard for me to say because we always discover new things that we want to do. But I would say, at least for the next couple of years, you can expect us to be hiring pretty aggressively. I think in terms of the attrition, it's not that we were like targeting again certain numbers, but it's more just kind of trying to highlight that there's been an overall culture shift, and I think it's been recognized by the employee base and also just by the available talent pool and reflected in the interest that we're seeing.

Your next question comes from the line of Ken Worthington with JPMorgan.

So you're building capital, you're hiring more trading talent. Can you maybe help us understand which of the asset classes and the products that you're focusing these incremental resources towards? Is it completely broad-based? Or are you really focusing it on some particular areas, geographies or products or asset classes?

Sure. I'll answer. I mean I think Joe sort of said this in the previous question, but it's really broad-based. I mean, of course, it's not going to be dollar for dollar equal everywhere. There are some that in any given quarter, take more capital or less capital. And as we've kind of highlighted on other calls, the structure of the company, the flat structure, the way we make decisions, capital can move around opportunistically extremely quickly. So even if I had a plan, it would change tomorrow. But there's really a number of areas across the firm over the last year have seen sustained increases in deployable trading capital.

Okay. And then can you talk about the jump in the brokerage and transaction costs? Maybe how did the mix change versus the last maybe 2 quarters to drive the bigger jump in the brokerage and transaction cost this quarter?

That's going to really depend on business mix. It could depend on geographic mix. It could depend on timing of expenses. So I wouldn't really read too much into it. I'd look long term. I don't know, Cindy, is there anything to add?

Yes. No. I mean it's just -- as Joe was saying, right, it kind of really depends on the type of instrument. So that's why in kind of our disclosure, we try to guide people to not focus on just one line item on the income statement.

Your next question comes from the line of Michael Cyprys with Morgan Stanley.

Just wanted to ask on perpetual futures. There's obviously been a lot of discussion around scope for regulated perpetual futures of late. Just curious as you think about that market potentially developing in the U.S., is that ultimately a new revenue opportunity for firms like Virtu? Or is it simply shifting volume from existing products? Just curious how you think about that.

Sure. Thanks for the question. So I mean, I don't think we think we can predict where volumes are going to go. It does seem historically that when there's been new ways to trade things and new sources of fragmentation that generally volumes go up. And certainly, in the short term, it seems like that has happened and exactly where it shakes out, we don't know. But our attitude is always just be connected to everything that trades electronically everywhere we can and stand ready to be able to price and shift liquidity around in the market. And it's been great for us so far, and we're going to continue to be there as it grows.

And also just curious to get your perspective on the appeal that you see for customers with perpetual futures. Just curious how much interest appetite you see from customers for that sort of product. What is it that appeals in your view that you think is most compelling? I mean, overseas, it seems like it's the high leverage and the 24/7 access as that comes to the U.S. Curious what you think might appeal? What might be the appetite from institutions? And what might be the scope for the perpetual product to evolve over time, maybe to address some of the perceived shortcomings in some pockets?

When you say a customer appeal, are you talking retail? I wasn't following.

All of the above.

All of the above. Look [indiscernible] Sure. Virtu Execution Services has institutional customers. There's not a big demand right now. And I think as you know, we don't have direct retail customers. We're a wholesaler for a number of hundreds of retail brokers. And Mike, I think I'd refer to Aaron's previous answer, right? We will be there to trade these products as they evolve. I don't actually recognize them. We don't think of them as a new asset class. It is the evolution of lots of existing asset classes. So if there are novel ways that customers want to trade and hedge and use these products, we will be there, as Aaron said, to price them and to trade them, right? So and we generally don't take a view as to if something is a better product or a worse product or something that we'd like to see more or less of. We try to be agnostic and just trade it as it becomes tradable and liquid and something that we can offer our services around.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.