Virtu Financial, Inc. 10-K Analysis & Summary – 2/21/2025

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Virtu Financial, Inc.

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Virtu Financial’s 10-K filing for FY2024 shows increased revenues driven by higher trading volumes but also reveals substantial long-term debt and ongoing regulatory scrutiny. The company’s reliance on market making in U.S. equities presents a concentration risk.

ELI5:

Virtu Financial made more money this year because there was more trading activity. However, they also have a lot of debt and are being watched closely by regulators.

Accession #:

0001592386-25-000055

Published on

March 16, 2025

Analyst Summary

Total revenue increased by 25.4% year-over-year.
GAAP Net income Margin increased from 11.5% to 18.6%.
Adjusted EBITDA Margin increased from 46.9% to 57.5%.
Substantial long-term debt of $1,767.3 million as of December 31, 2024.
Gross Profit Margin: 22.42%, lower than the industry average of 50%.
Operating Profit Margin: 22.42%, lower than the industry average of 30%.
Net Profit Margin: 18.58%, slightly below the industry average of 20%.
Return on Assets (ROA): 3.48%, higher than the industry average of 1-2%.
Return on Equity (ROE): 35.94%, significantly higher than the industry average of 10-15%.
Current Ratio: 1.19, below the healthy range of 1.5 to 2.
Quick Ratio: 0.49, below the ideal ratio of 1 or greater.
Cash Ratio: 0.08, very low, indicating limited ability to cover short-term liabilities with cash.
Debt-to-Equity Ratio: 9.33, very high, indicating significant reliance on debt financing.
Debt-to-Assets Ratio: 0.90, high, indicating a large portion of assets are financed by debt.
Interest Coverage Ratio: 9.08, indicating a strong ability to meet interest obligations.
Asset Turnover: 0.19, relatively low, suggesting the company is not generating a high level of revenue from its assets.
Price-to-Earnings Ratio (P/E): 11.88, lower than the industry average of 15.
Price-to-Book Ratio (P/B): 3.68, higher than the industry average of 1-2.
Price-to-Sales Ratio (P/S): 1.91, lower than the industry average of 2-3.
Enterprise Value to EBITDA (EV/EBITDA): 7.19, lower than the industry average of 10-15.
Revenue Growth: 25.44%.
Net Income Growth: 102.54%.
EPS Growth: 109.86%.
Market Making segment accounts for 74.8% of Adjusted Net Trading Income.
The company repurchased 1,704,099 shares of Class A Common Stock at an average price of $34.13 during October-December 2024.

Opportunities and Risks

Regulatory Risk: Pending and proposed regulatory changes in the U.S. and Europe could significantly impact the company’s operations and profitability.
Cybersecurity Risk: Reliance on technology makes the company vulnerable to cyberattacks, which could disrupt operations and result in financial losses.
Competition: The financial services industry is highly competitive, and increased competition could reduce bid/ask spreads and commissions.
Liquidity Risk: The company’s liquidity could be impaired by increased funding requirements or reduced business activity.
Climate Change: Climate change could manifest as a financial risk to the company either through changes in the physical climate or from the process of transitioning to a low-carbon economy.
Diversification: Expansion into new asset classes and geographies could drive future growth.
Technology Innovation: Continued investment in technology could improve efficiency and attract new clients.
Workflow Technology and Analytics: Growing demand for execution services and analytics tools presents a significant opportunity.

Potential Implications

Stock Price

Valuation ratios like P/E and EV/EBITDA suggest potential undervaluation compared to industry peers, while the P/B ratio indicates overvaluation, leading to mixed signals for stock price movement.

Virtu Financial, Inc. (VIRT) – 10-K Report Analysis (FY2024)

Executive Summary

This report analyzes Virtu Financial, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Key findings include increased revenues driven by higher trading volumes, a substantial amount of long-term debt, and ongoing regulatory scrutiny. The company’s reliance on market making in U.S. equities presents a concentration risk. While the company demonstrates effective risk management, potential regulatory changes and cyber threats remain key concerns. Overall, a neutral outlook is warranted, pending further assessment of the impact of regulatory developments and debt management strategies.

Company Overview

Virtu Financial, Inc. (VIRT) is a technology-driven market maker and liquidity provider, offering execution services and analytics to clients across various asset classes globally. The company operates through two segments: Market Making and Execution Services. Recent developments include the sale of a minority interest in RFQ-hub and ongoing regulatory scrutiny of market structure practices.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management attributes the revenue increase to higher trading volumes and opportunities across global markets. They emphasize the importance of technology and risk management. The MD&A also highlights the competitive landscape and potential impact of regulatory changes. A key takeaway is management’s focus on diversification and scalability.

Financial Statement Analysis

Key Ratios and Trends

Revenue Growth: Total revenue increased by 25.4% year-over-year.
Net Income Margin: GAAP Net income Margin increased from 11.5% to 18.6%.
Adjusted EBITDA Margin: Adjusted EBITDA Margin increased from 46.9% to 57.5%.
Debt: Substantial long-term debt of $1,767.3 million as of December 31, 2024.

Financial Performance Charts

(Note: Due to the limitations of HTML output, actual charts cannot be rendered. The following is placeholder data.)

Metric	2022	2023	2024
Adjusted Net Trading Income (Millions)	$1467.6	$1210.7	$1597.7
Net Income (Millions)	$468.3	$263.9	$534.5

Trend Analysis: Revenue and profitability improved significantly in 2024 compared to 2023, indicating a recovery and growth in market making and execution services.

Red Flags and Uncommon Metrics

High Debt Level: The company carries a significant amount of long-term debt, which could constrain future growth and flexibility.
Dependence on Trading Volume: Revenue is highly sensitive to market volatility and trading volumes, making it difficult to predict future performance.
Tax Receivable Agreements: Obligations under the tax receivable agreements could significantly impact future cash flows.

Risk and Opportunity Assessment

Risks

Regulatory Risk: Pending and proposed regulatory changes in the U.S. and Europe could significantly impact the company’s operations and profitability.
Cybersecurity Risk: Reliance on technology makes the company vulnerable to cyberattacks, which could disrupt operations and result in financial losses.
Competition: The financial services industry is highly competitive, and increased competition could reduce bid/ask spreads and commissions.
Liquidity Risk: The company’s liquidity could be impaired by increased funding requirements or reduced business activity.
Climate Change: Climate change could manifest as a financial risk to the company either through changes in the physical climate or from the process of transitioning to a low-carbon economy.

Opportunities

Diversification: Expansion into new asset classes and geographies could drive future growth.
Technology Innovation: Continued investment in technology could improve efficiency and attract new clients.
Workflow Technology and Analytics: Growing demand for execution services and analytics tools presents a significant opportunity.

Conclusion and Actionable Insights

Virtu Financial demonstrated improved financial performance in 2024, driven by increased trading volumes and effective risk management. However, the company faces significant challenges, including regulatory uncertainty, cyber threats, and a high debt burden. While the company is actively pursuing growth opportunities, these risks warrant a cautious approach.

Overall Assessment: Hold

Recommendations:

Monitor regulatory developments closely and assess their potential impact on the company’s business model.
Continue to invest in cybersecurity measures to mitigate the risk of cyberattacks.
Focus on debt management and reducing leverage to improve financial flexibility.
Explore further diversification opportunities to reduce reliance on U.S. equities market making.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin:
- Calculation: Total Revenue – Total Operating Expenses / Total Revenue = $2,876,949 – $2,231,979 / $2,876,949 = 22.42%
- Industry: The average gross profit margin for the financial services industry is around 50%. Virtu Financial’s gross profit margin is significantly lower, indicating higher cost of revenue compared to its revenue.
Operating Profit Margin:
- Calculation: Income Before Income Taxes and Noncontrolling Interest / Total Revenue = $644,970 / $2,876,949 = 22.42%
- Industry: The average operating profit margin for the financial services industry is around 30%. Virtu Financial’s operating profit margin is lower than the industry average.
Net Profit Margin:
- Calculation: Net Income / Total Revenue = $534,535 / $2,876,949 = 18.58%
- Industry: The average net profit margin for the financial services industry is around 20%. Virtu Financial’s net profit margin is slightly below the industry average.
Return on Assets (ROA):
- Calculation: Net Income / Total Assets = $534,535 / $15,361,743 = 3.48%
- Industry: The average ROA for the financial services industry is around 1-2%. Virtu Financial’s ROA is higher than the industry average, indicating efficient asset utilization.
Return on Equity (ROE):
- Calculation: Net Income / Total Equity = $534,535 / $1,487,377 = 35.94%
- Industry: The average ROE for the financial services industry is around 10-15%. Virtu Financial’s ROE is significantly higher than the industry average, indicating high profitability relative to equity.
Earnings Per Share (EPS) – Basic:
- Calculation: Net Income Available for Common Stockholders / Weighted Average Common Shares Outstanding (Basic) = $276,415 / 87,482,162 = $2.98
Earnings Per Share (EPS) – Diluted:
- Calculation: Net Income Available for Common Stockholders / Weighted Average Common Shares Outstanding (Diluted) = $276,415 / 87,821,576 = $2.97

Liquidity

Current Ratio:
- Calculation: Current Assets / Current Liabilities. To calculate this, we need to determine current assets and current liabilities.
  Current Assets = Cash and cash equivalents + Cash restricted or segregated under regulations and other + Securities borrowed + Securities purchased under agreements to resell + Receivables from broker-dealers and clearing organizations + Trading assets, at fair value (Financial instruments owned + Financial instruments owned and pledged) + Receivables from customers = $872,513 + $41,478 + $2,294,529 + $983,941 + $1,100,850 + $5,520,015 + $2,282,637 + $149,804 = $13,245,767
  Current Liabilities = Short-term borrowings + Securities loaned + Securities sold under agreements to repurchase + Payables to broker-dealers and clearing organizations + Payables to customers + Trading liabilities, at fair value (Financial instruments sold, not yet purchased) = $38,541 + $2,431,878 + $1,271,788 + $918,566 + $46,112 + $6,440,971 = $11,147,876
  Current Ratio = $13,245,767 / $11,147,876 = 1.19
- Industry: A current ratio of 1.5 to 2 is generally considered healthy for most industries. Virtu Financial’s current ratio is below this range, suggesting a slightly lower liquidity position.
Quick Ratio (Acid-Test Ratio):
- Calculation: (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable to Virtu Financial, we will subtract Trading Assets at fair value from current assets.
  Quick Assets = $13,245,767 – $5,520,015 – $2,282,637 = $5,443,115
  Quick Ratio = $5,443,115 / $11,147,876 = 0.49
- Industry: A quick ratio of 1 or greater is generally considered ideal. Virtu Financial’s quick ratio is below 1, indicating a potential reliance on inventory or less liquid assets to meet short-term obligations.
Cash Ratio:
- Calculation: (Cash and Cash Equivalents + Marketable Securities) / Current Liabilities. We will use Cash and Cash Equivalents + Cash restricted or segregated under regulations and other for the numerator.
  Cash Ratio = ($872,513 + $41,478) / $11,147,876 = 0.08
- Industry: A cash ratio of 0.5 to 1 is considered ideal, but this varies greatly by industry. Virtu Financial’s cash ratio is very low, indicating a limited ability to cover short-term liabilities with cash and equivalents alone.

Solvency/Leverage

Debt-to-Equity Ratio:
- Calculation: Total Liabilities / Total Equity = $13,874,366 / $1,487,377 = 9.33
- Industry: The average debt-to-equity ratio for the financial services industry is around 2. Virtu Financial’s debt-to-equity ratio is very high, indicating a significant reliance on debt financing.
Debt-to-Assets Ratio:
- Calculation: Total Liabilities / Total Assets = $13,874,366 / $15,361,743 = 0.90
- Industry: The average debt-to-assets ratio for the financial services industry is around 0.7. Virtu Financial’s debt-to-assets ratio is high, indicating that a large portion of the company’s assets are financed by debt.
Interest Coverage Ratio (Times Interest Earned):
- Calculation: EBIT / Interest Expense. EBIT = Income Before Income Taxes and Noncontrolling Interest + Financing interest expense on long-term borrowings + Debt issue cost related to debt refinancing, prepayment and commitment fees + Depreciation and amortization + Amortization of purchased intangibles and acquired capitalized software = $644,970 + $97,802 + $29,479 + $65,816 + $50,471 = $888,538
  Interest Coverage Ratio = $888,538 / $97,802 = 9.08
- Industry: An interest coverage ratio of 1.5 or higher is generally considered safe. Virtu Financial’s interest coverage ratio is well above this level, indicating a strong ability to meet its interest obligations.

Activity/Efficiency

Asset Turnover:
- Calculation: Total Revenue / Total Assets = $2,876,949 / $15,361,743 = 0.19
- Industry: The average asset turnover ratio for the financial services industry is around 0.2-0.5. Virtu Financial’s asset turnover is relatively low, suggesting that the company is not generating a high level of revenue from its assets.

Valuation

Price-to-Earnings Ratio (P/E):
- Calculation: Stock Price / EPS. $35.39 / $2.98 = 11.88
- Industry: The average P/E ratio for the financial services industry is around 15. Virtu Financial’s P/E ratio is lower than the industry average, suggesting that the stock may be undervalued.
Price-to-Book Ratio (P/B):
- Calculation: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price = (86,618,617 + 8,194,847 + 60,091,740) * $35.39 = 154,905,204 * $35.39 = $5,480,000 (rounded)
  P/B = $5,480,000 / $1,487,377 = 3.68
- Industry: The average P/B ratio for the financial services industry is around 1-2. Virtu Financial’s P/B ratio is higher than the industry average, suggesting that the stock may be overvalued.
Price-to-Sales Ratio (P/S):
- Calculation: Market Cap / Total Revenue = $5,480,000 / $2,876,949 = 1.91
- Industry: The average P/S ratio for the financial services industry is around 2-3. Virtu Financial’s P/S ratio is lower than the industry average, suggesting that the stock may be undervalued.
Enterprise Value to EBITDA (EV/EBITDA):
- Calculation: (Market Cap + Total Debt – Cash) / EBITDA. Total Debt = Short-term borrowings + Long-term borrowings = $38,541 + $1,740,467 = $1,779,008
  Cash = Cash and cash equivalents = $872,513
  EV = $5,480,000 + $1,779,008 – $872,513 = $6,386,495
  EV/EBITDA = $6,386,495 / $888,538 = 7.19
- Industry: The average EV/EBITDA ratio for the financial services industry is around 10-15. Virtu Financial’s EV/EBITDA ratio is lower than the industry average, suggesting that the stock may be undervalued.

Growth Rates

Revenue Growth:
- Calculation: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = ($2,876,949 – $2,293,373) / $2,293,373 = 25.44%
Net Income Growth:
- Calculation: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = ($534,535 – $263,921) / $263,921 = 102.54%
EPS Growth:
- Calculation: (Current Year EPS – Previous Year EPS) / Previous Year EPS = ($2.98 – $1.42) / $1.42 = 109.86%

Other Relevant Metrics

Adjusted Net Trading Income by Segment:
- Market Making: $1,195,107 (74.8%)
- Execution Services: $402,580 (25.2%)
- The majority of Adjusted Net Trading Income comes from Market Making.
Share Repurchases:
- The company repurchased 1,704,099 shares of Class A Common Stock at an average price of $34.13 during October-December 2024.
- Remaining authorized amount for share repurchases: $438,159,344.

Commentary

Virtu Financial demonstrated strong financial performance in 2024, marked by substantial revenue and net income growth, driven primarily by its Market Making segment. The company exhibits high profitability metrics, such as ROE, which significantly exceeds the industry average. However, Virtu Financial also carries a high level of debt, as indicated by its debt-to-equity and debt-to-assets ratios, which could pose risks. Despite strong growth, valuation ratios like P/E and EV/EBITDA suggest potential undervaluation compared to industry peers, while the P/B ratio indicates overvaluation. Overall, Virtu Financial’s performance reflects a profitable but highly leveraged business model with mixed signals from valuation metrics.