What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-07-28 · 130 added, 136 removed, 717 unchanged (27% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis covers the three and six months ended June 30, 2023, and 2022 should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes for the period ended June 30, 2023, which are included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2022, which are included in Items 8 and 7 respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

The following management’s discussion and analysis covers the three and nine months ended September 30, 2023, and 2022 should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes for the period ended September 30, 2023, which are included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2022, which are included in Items 8 and 7 respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

This management's discussion and analysis contains forward-looking statements that involve risks and uncertainties.

99 unchanged sentences

In connection with the IPO, non-qualified stock options to purchase 9,228,000 shares were granted at the IPO per share price, each of which vested in equal annual installments over a period of four years from the grant date and expire not later than 10 years from the grant date.

Subsequent to the IPO and through June 30, 2023, options to purchase 1,643,750 shares in the aggregate were forfeited and 6,072,474 options were exercised.

Subsequent to the IPO and through September 30, 2023, options to purchase 1,643,750 shares in the aggregate were forfeited and 6,072,474 options were exercised.

The fair value of the stock option grants was determined through the application of the Black-Scholes-Merton model and was recognized on a straight-line basis over the vesting period.

5 unchanged sentences

There are no material differences between our condensed consolidated financial statements and the financial statements of Virtu Financial except as follows:

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2023 in the amount of $5.4 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2023 in the amount of $129.1 million and tax receivable agreement obligation in the amount of $215.5 million, in each case as described in greater detail in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of June 30, 2023;

and (iv) provision for corporate income tax in the amount of $1.1 million and $19.0 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023, respectively.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2023 in the amount of $58.9 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2023 in the amount of $127.0 million and tax receivable agreement obligation in the amount of $215.5 million, in each case as described in greater detail in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of September 30, 2023;

and (iv) provision for corporate income tax in the amount of $15.9 million and $34.9 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023, respectively.

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and six months ended June 30, 2023, and 2022:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2023, and 2022:

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,

Market Making 2023 2022 2023 2022

12 unchanged sentences

Income before income taxes and noncontrolling interest $ 138,105 $ 101,606 $ 308,337 $ 517,103

The following table shows our results of operations for the three and six months ended June 30, 2023, and 2022:

Three Months Ended June 30, Six Months Ended June 30,

The following table shows our results of operations for the three and nine months ended September 30, 2023, and 2022:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

24 unchanged sentences

Net income available to stockholders and basic and diluted earnings per share are presented below:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except for share or per share data) 2023 2022 2023 2022

25 unchanged sentences

Our trading income, net, results from gains and losses associated with trading strategies, which are designed to capture small bid/ask spreads, while hedging risks.

Trading income, net, accounted for 64% and 70% of our total revenues for the six months ended June 30, 2023 and 2022, respectively.

Trading income, net, accounted for 59% and 70% of our total revenues for the nine months ended September 30, 2023 and 2022, respectively.

Interest and dividends income.

106 unchanged sentences

GAAP measure.

The following table reconciles the Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Non-GAAP Operating Margins for the three and six months ended June 30, 2023, and 2022.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

29 unchanged sentences

(4) Calculated by dividing Adjusted EBITDA by Adjusted Net Trading Income.

The following table reconciles Net Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the three and six months ended June 30, 2023, and 2022:

Three Months Ended June 30, Six Months Ended June 30,

The following table reconciles Net income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the three and nine months ended September 30, 2023, and 2022:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except share and per share data) 2023 2022 2023 2022

14 unchanged sentences

Weighted Average Adjusted shares outstanding (2) 167,164,049 175,893,027 169,101,067 179,290,742

Basic earnings per share $ 0.63 $ 0.38 $ 1.36 $ 2.17

Normalized Adjusted EPS $ 0.45 $ 0.61 $ 1.56 $ 2.61

2 unchanged sentences

(2) Assumes that (1) holders of all vested and unvested non-vesting Virtu Financial Units (together with corresponding shares of the Company's Class C common stock, par value $0.00001 per share (the “Class C Common Stock”)) have exercised their right to exchange such Virtu Financial Units for shares of Class A Common Stock on a one-for-one basis, (2) holders of all Virtu Financial Units (together with corresponding shares of the Company's Class D common stock, par value $0.00001 per share (the “Class D Common Stock”)) have exercised their right to exchange such Virtu Financial Units for shares of the Company's Class B common stock, par value $0.00001 per share (the “Class B Common Stock”) on a one-for-one basis, and subsequently exercised their right to convert the shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis.

Includes additional shares from dilutive impact of options, restricted stock units and restricted stock awards outstanding under the Amended and Restated 2015 Management Incentive Plan and the Amended and Restated ITG 2007 Equity Plan during the three and six months ended June 30, 2023 and 2022.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and six months ended June 30, 2023, and 2022:

Three Months Ended June 30, 2023

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2023, and 2022:

Three Months Ended September 30, 2023

(in thousands) Market Making Execution Services Corporate Total

5 unchanged sentences

Adjusted Net Trading Income $ 208,069 $ 89,938 $ — $ 298,007

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

(in thousands) Market Making Execution Services Corporate Total

5 unchanged sentences

Adjusted Net Trading Income $ 238,264 $ 92,878 $ — $ 331,142

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(in thousands) Market Making Execution Services Corporate Total

5 unchanged sentences

Adjusted Net Trading Income $ 679,120 $ 270,649 $ — $ 949,769

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(in thousands) Market Making Execution Services Corporate Total

5 unchanged sentences

Adjusted Net Trading Income $ 873,836 $ 319,720 $ — $ 1,193,556

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and six months ended June 30, 2023, and 2022:

Three Months Ended June 30,

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2023, and 2022:

Three Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

3 unchanged sentences

Adjusted Net Trading Income $ 298,007 $ 331,142 (10.0)%

Three Months Ended June 30,

Three Months Ended September 30,

Average Daily Adjusted Net Trading Income by Segment (in thousands):

3 unchanged sentences

Average Daily Adjusted Net Trading Income $ 4,731 $ 5,174 (9.6)%

Six Months Ended June 30,

Nine Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

3 unchanged sentences

Adjusted Net Trading Income $ 949,769 $ 1,193,556 (20.4)%

Six Months Ended June 30,

Nine Months Ended September 30,

Average Daily Adjusted Net Trading Income by Segment (in thousands):

3 unchanged sentences

Average Daily Adjusted Net Trading Income $ 5,079 $ 6,349 (19.0)%

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Total Revenues

Our total revenues decreased $97.9 million, or 16.2%, to $506.9 million for the three months ended June 30, 2023, compared to $604.7 million for the three months ended June 30, 2022.

The decrease was primarily driven by lower market volumes and lower volatility across global markets, and decreased opportunity in our customer market making trading as a result of lower spread opportunity and decreased quality of the order flow with which we interacted during the three months ended June 30, 2023 compared to the same period in 2022, as well as a decrease in Other, net, which was driven by gains recorded on sales of various strategic investments in 2022.

The following table shows total revenues by segment for the three months ended June 30, 2023 and 2022.

Three Months Ended June 30,

Our total revenues increased $69.2 million, or 12.3%, to $630.2 million for the three months ended September 30, 2023, compared to $561.0 million for the three months ended September 30, 2022.

The increase was primarily driven by an increase in Other, net as a result of gains recorded from settlement fund recoveries received in the three months ended September 30, 2023.

The following table shows total revenues by segment for the three months ended September 30, 2023 and 2022.

Three Months Ended September 30,

(in thousands, except for percentage) 2023 2022 % Change

3 unchanged sentences

Commissions, net and technology services 6,343 10,687 (40.6)%

Other, net 709 395 79.5%

Other, net 75,682 1,257 NM

Total revenues from Market Making $ 517,351 $ 447,886 15.5%

14 unchanged sentences

Trading income, net was primarily earned by our Market Making segment.

Trading income, net decreased $89.8 million, or 22.7% to $306.2 million for the three months ended June 30, 2023, compared to $395.9 million for the three months ended June 30, 2022.

Trading income, net decreased $81.3 million, or 20.5% to $316.1 million for the three months ended September 30, 2023, compared to $397.4 million for the three months ended September 30, 2022.

The decrease was largely a result of lower market volumes and lower volatility across global markets and decreased opportunity in our customer market making trading as a result of lower spread opportunity and decreased quality of the order flow with which we interacted.

2 unchanged sentences

Interest and dividends income was primarily earned by our Market Making segment.

Interest and dividends income increased $67.2 million, or 218.2%, to $98.0 million for the three months ended June 30, 2023, compared to $30.8 million for the three months ended June 30, 2022.

This increase was primarily attributable to the higher dividends earned on market making trading assets held over periods when dividends are paid along with an increase in interest income earned on cash collateral posted as part of securities borrowing transactions and interest earned on balances maintained at banks and prime brokers, both of which benefited from higher interest rates for the period compared to the same period during the prior year.

Interest and dividends income increased $84.1 million, or 192.9%, to $127.7 million for the three months ended September 30, 2023, compared to $43.6 million for the three months ended September 30, 2022.

This increase was primarily attributable to an increase in interest income earned on cash collateral posted as part of securities borrowing transactions and interest earned on balances maintained at banks and prime brokers, and higher dividends earned on market making trading assets held over periods when dividends are paid, both of which benefited from higher interest rates for the period compared to the same period during the prior year.

As indicated above, rather than analyzing interest and dividends income in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

1 unchanged sentence

Commissions, net and technology services revenues were primarily earned by our Execution Services segment.

Commissions, net and technology services revenues decreased $26.8 million, or 19.7%, to $109.5 million for the three months ended June 30, 2023, compared to $136.3 million for the three months ended June 30, 2022.

Commissions, net and technology services revenues decreased $10.7 million, or 8.8%, to $110.3 million for the three months ended September 30, 2023, compared to $121.0 million for the three months ended September 30, 2022.

This decrease was driven by lower market volumes, a reduction of institutional investors' commissions available, and declining institutional engagement.

As indicated above, rather than analyzing interest and dividends income in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

Other, net decreased $48.5 million, or 116.3%, to $(6.8) million for the three months ended June 30, 2023, compared to $41.7 million for the three months ended June 30, 2022.

Other, net comprises changes in the valuation on our level 3 investment, as well as other miscellaneous income including gains and losses attributable to our variable interest entities and other investments.

The three months ended June 30, 2022 included gains from sales of investments in our strategic investments

Other, net increased $77.1 million, to $76.1 million for the three months ended September 30, 2023, compared to $(1.0) million for the three months ended September 30, 2022.

Other, net comprises changes in the valuation on our level 3 investment, as well as other miscellaneous income including various nonrecurring gains and losses.

The three months ended September 30, 2023 included gains on settlement fund recoveries in which we are eligible to participate based on

our transactions in the applicable products.

Refer to Note 9 "Financial Assets and Liabilities" in Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for more details on our level 3 investment.

Adjusted Net Trading Income

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $78.7 million, or 22.0%, to $278.7 million for the three months ended June 30, 2023, compared to $357.4 million for the three months ended June 30, 2022.

This decrease was primarily attributable to lower Trading income, net in the Market Making segment during the three months ended June 30, 2023 compared to the same period in 2022, as noted above.

Adjusted Net Trading Income per day decreased $1.3 million, or 22.0%, to $4.5 million for the three months ended June 30, 2023, compared to $5.8 million for the three months ended June 30, 2022.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $33.1 million, or 10.0%, to $298.0 million for the three months ended September 30, 2023, compared to $331.1 million for the three months ended September 30, 2022.

This decrease was primarily attributable to lower Trading income, net in the Market Making segment during the three months ended September 30, 2023 compared to the same period in 2022, as noted above.

Adjusted Net Trading Income per day decreased $0.5 million, or 9.6%, to $4.7 million for the three months ended September 30, 2023, compared to $5.2 million for the three months ended September 30, 2022.

For a full description of Adjusted Net Trading Income and a reconciliation of Adjusted Net Trading Income to trading income, net, see “Non-GAAP Financial Measures and Other Items” in this Item 2.

1 unchanged sentence

Operating Expenses

Our operating expenses increased $40.4 million, or 9.4%, to $471.4 million for the three months ended June 30, 2023, compared to $431.0 million for the three months ended June 30, 2022.

Our operating expenses increased $32.7 million, or 7.1%, to $492.1 million for the three months ended September 30, 2023, compared to $459.4 million for the three months ended September 30, 2022.

The increase in operating expenses is primarily due to an increase in Interest and dividends expense, partially offset by a decline in Brokerage, exchange, clearance fees and payments for order flow, net, described in more detail below.

Brokerage, exchange, clearance fees and payments for order flow, net.

Brokerage exchange, clearance fees and payments for order flow, net, decreased $34.5 million, or 22.0%, to $122.5 million for the three months ended June 30, 2023, compared to $157.0 million for the three months ended June 30, 2022.

Brokerage exchange, clearance fees and payments for order flow, net, decreased $45.7 million, or 27.1%, to $123.2 million for the three months ended September 30, 2023, compared to $168.9 million for the three months ended September 30, 2022.

These costs vary period to period based upon the level and composition of our trading activities.

1 unchanged sentence

Communication and data processing.

Communication and data processing expense increased $1.3 million, or 2.3%, to $57.0 million for the three months ended June 30, 2023, compared to $55.7 million for the three months ended June 30, 2022.

This increase was primarily due to increased connectivity spending on colocation, and microwave communication networks maintained by our joint ventures.

Communication and data processing expense increased $4.2 million, or 7.9%, to $57.1 million for the three months ended September 30, 2023, compared to $52.9 million for the three months ended September 30, 2022.

This increase was primarily due to increased connectivity spending on colocation, access, ports, and gateways, and microwave communication networks maintained by our joint ventures.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes decreased $3.0 million, or 3.1% to $95.6 million for the three months ended June 30, 2023, compared to $98.6 million for the three months ended June 30, 2022.

Employee compensation and payroll taxes decreased $6.1 million, or 5.9% to $97.2 million for the three months ended September 30, 2023, compared to $103.3 million for the three months ended September 30, 2022.

The decrease in compensation levels was primarily attributable to a decrease in accrued incentive compensation, which is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability on a year-to-date basis, as well as the anticipated mix of cash and stock-based awards.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $10.1 million and $8.3 million for the three months ended June 30, 2023, and 2022, respectively.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $9.7 million and $8.4 million for the three months ended September 30, 2023, and 2022, respectively.

Interest and dividends expense.

Interest and dividends expense increased $63.8 million or 130.9% to $112.5 million for the three months ended June 30, 2023, compared to $48.7 million for the three months ended June 30, 2022.

This increase was primarily attributable to higher dividend expense with respect to securities sold, not yet purchased and higher interest expense incurred on cash collateral received as part of securities lending transactions and higher financing costs with respect to trading assets driven by higher interest rates.

Interest and dividends expense increased $70.8 million or 114.2% to $132.8 million for the three months ended September 30, 2023, compared to $62.0 million for the three months ended September 30, 2022.

This increase was primarily attributable to higher interest expense incurred on cash collateral received as part of securities lending transactions and higher financing costs with respect to trading assets driven by higher interest rates, and higher dividend expense with respect to securities sold, not yet purchased.

As indicated above, rather than analyzing interest and dividends expense in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

Operations and administrative.

Operations and administrative expense increased $11.9 million or 87.8% to $25.5 million for the three months ended June 30, 2023, compared to $13.6 million for the three months ended June 30, 2022.

Operations and administrative expense increased $8.1 million or 56.6% to $22.4 million for the three months ended September 30, 2023, compared to $14.3 million for the three months ended September 30, 2022.

This increase was primarily driven by favorable foreign exchange rate movements in the prior year period.

Depreciation and amortization.

Depreciation and amortization decreased $0.4 million, or 2.6% to $15.9 million for the three months ended June 30, 2023, compared to $16.3 million for the three months ended June 30, 2022.

The decrease is driven primarily by decreased amortization of capitalized software compared to the prior period.

Depreciation and amortization decreased $0.9 million, or 5.4% to $15.8 million for the three months ended September 30, 2023, compared to $16.7 million for the three months ended September 30, 2022.

The decrease is driven primarily by decreased depreciation on computer equipment and amortization of capitalized software compared to the prior period.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $0.3 million, or 1.6%, to $16.0 million for the three months ended June 30, 2023, compared to $16.3 million for the three months ended June 30, 2022.

Amortization of purchased intangibles and acquired capitalized software decreased $0.1 million, or 0.6%, to $16.0 million for the three months ended September 30, 2023,

compared to $16.1 million for the three months ended September 30, 2022.

This decrease was due to certain intangible assets being fully amortized during 2022.

Termination of office leases.

Termination of office leases was $(0.1) million for the three months ended June 30, 2023, compared to $0.7 million for the three months ended June 30, 2022.

Termination of office leases was $0.4 million for the three months ended September 30, 2023, and September 30, 2022.

These expenses are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated office space.

1 unchanged sentence

Debt issue cost related to debt refinancing, prepayment and commitment fees.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased to $1.8 million for the three months ended June 30, 2023, compared to $1.4 million for the three months ended June 30, 2022.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased to $1.8 million for the three months ended September 30, 2023, compared to $1.4 million for the three months ended September 30, 2022.

The increase was primarily driven by costs incurred related to amending VAL's credit facility.

1 unchanged sentence

Transaction advisory fees and expenses.

Transaction advisory fees and expenses were immaterial for the three months ended June 30, 2023, compared to $0.6 million for the three months ended June 30, 2022.

These expenses were primarily incurred in relation to our strategic investment portfolio.

Transaction advisory fees and expenses were insignificant for both the three months ended September 30, 2023, and September 30, 2022.

These expenses are primarily incurred in relation to our strategic investment portfolio.

Financing interest expense on long-term borrowings.

Financing interest expense on long-term borrowings increased $2.8 million or 12.5% to $24.9 million for the three months ended June 30, 2023, compared to $22.1 million for the three months ended June 30, 2022.The increase was attributable to the effect of higher interest rates applied on our outstanding principal.

Financing interest expense on long-term borrowings increased $1.9 million or 8.1% to $25.4 million for the three months ended September 30, 2023, compared to $23.5 million for the three months ended September 30, 2022.The increase was attributable to the effect of higher interest rates applied on our outstanding principal.

Provision for income taxes

4 unchanged sentences

subsidiaries.

Our provision for income taxes and effective tax rates were $5.9 million and 16.7% for the three months ended June 30, 2023, compared to $24.9 million and 14.3% for the three months ended June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Our provision for income taxes and effective tax rates were $20.5 million and 14.9% for the three months ended September 30, 2023, compared to $21.7 million and 21.4% for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Total Revenues

Our total revenues decreased $178.8 million, or 13.7%, to $1,127.2 million for the six months ended June 30, 2023, compared to $1,306.0 million for the six months ended June 30, 2022.

This decrease was primarily attributable to a decrease of $199.6 million in Trading income, net, during the six months ended June 30, 2023 compared to the prior period, as well as a decrease of $47.6 million in Other, net, which was driven by gains recorded on sales of various strategic investments in 2022, partially offset by an increase of $128.4 million in Interest and dividends income which is largely driven by the level of trading assets held over periods when dividends are paid, and the levels of stock borrowing and trading asset financing during the six months ended June 30, 2023 compared to the same period in 2022.

The following table shows the total revenues by segment for the six months ended June 30, 2023 and 2022.

Six Months Ended June 30,

Our total revenues decreased $109.6 million, or 5.9%, to $1,757.4 million for the nine months ended September 30, 2023, compared to $1,867.0 million for the nine months ended September 30, 2022.

This decrease was primarily attributable to a decrease of $280.8 million in Trading income, net, during the nine months ended September 30, 2023 compared to the prior period, partially offset by an increase of $212.5 million in Interest and dividends income, which is largely driven by the level of trading assets held over periods when dividends are paid, and the levels of stock borrowing and trading asset financing during the nine months ended September 30, 2023 compared to the same period in 2022.

The following table shows the total revenues by segment for the nine months ended September 30, 2023 and 2022.

Nine Months Ended September 30,

(in thousands, except for percentage) 2023 2022 % Change

3 unchanged sentences

Commissions, net and technology services 22,677 30,881 (26.6)%

Other, net 1,897 568 234.0%

Other, net 77,580 1,825 NM

Total revenues from Market Making $ 1,421,522 $ 1,427,044 (0.4)%

1 unchanged sentence

Trading income, net $ 13,585 $ 16,501 (17.7)

Interest and dividends income 4,940 29 16934.5%

Interest and dividends income 7,830 214 NM

Commissions, net and technology services 318,546 381,100 (16.4)%

6 unchanged sentences

Commissions, net and technology services 341,223 411,981 (17.2)%

Other, net (2,617) 44,966 NM

Other, net 73,493 44,010 67.0%

Total revenues $ 1,757,396 $ 1,867,044 (5.9)%

1 unchanged sentence

Trading income, net was primarily earned by our Market Making segment.

Trading income, net, decreased $199.6 million, or 21.7%, to $718.7 million for the six months ended June 30, 2023, compared to $918.2 million for the six months ended June 30, 2022.

Trading income, net, decreased $280.8 million, or 21.3%, to $1,034.8 million for the nine months ended September 30, 2023, compared to $1,315.6 million for the nine months ended September 30, 2022.

The decrease was largely a result of the decreased opportunity in our customer market making trading as a result of lower spread opportunity and decreased quality of the order flow with which we interact.

2 unchanged sentences

Interest and dividends income was primarily earned by our Market Making segment.

Interest and dividends income increased $128.4 million, or 247.9%, to $180.2 million for the six months ended June 30, 2023, compared to $51.8 million for the six months ended June 30, 2022.

This increase was primarily attributable to higher dividends earned on market making trading assets held over periods when dividends are paid, along with an increase in interest income earned on cash collateral posted as part of securities borrowed transactions, both of which benefited from higher interest rates for the period compared to the prior period.

Interest and dividends income increased $212.5 million, or 222.7%, to $307.9 million for the nine months ended September 30, 2023, compared to $95.4 million for the nine months ended September 30, 2022.

This increase was primarily attributable to an increase in interest income earned on cash collateral posted as part of securities borrowed transactions, and higher dividends earned on market making trading assets held over periods when dividends are paid, both of which benefited from higher interest rates for the period compared to the prior period.

As indicated above, rather than analyzing interest and dividends income in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

1 unchanged sentence

Commissions, net and technology services revenues were primarily earned by our Execution Services segment.

Commissions, net and technology services revenues decreased $60.0 million, or 20.6%, to $230.9 million for the six months ended June 30, 2023, compared to $291.0 million for the six months ended June 30, 2022.

Commissions, net and technology services revenues decreased $70.8 million, or 17.2%, to $341.2 million for the nine months ended September 30, 2023, compared to $412.0 million for the nine months ended September 30, 2022.

This decrease was driven by the reduction of institutional investors commissions available, and declining institutional engagement, both of which result in lower commission income.

As indicated above, rather than analyzing commission income in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

Other, net decreased $47.6 million, or 105.8%, to $(2.6) million for the six months ended June 30, 2023, compared to $45.0 million for the six months ended June 30, 2022.

The decrease was primarily due to gains recognized during the 2022 period from sales of investments in our strategic investments portfolio.

Other, net increased $29.5 million, or 67.0%, to $73.5 million for the nine months ended September 30, 2023, compared to $44.0 million for the nine months ended September 30, 2022.

The income for the nine months ended September 30, 2023 primarily related to gains on settlement fund recoveries in which we are eligible to participate based on our

transactions in the applicable products.

The income in 2022 was primarily due to gains recognized from sales of investments in our strategic investments portfolio.

Adjusted Net Trading Income

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $210.7 million, or 24.4%, to $651.8 million for the six months ended June 30, 2023, compared to $862.4 million for the six months ended June 30, 2022.

This decrease was primarily attributable to lower Trading Income, net as noted above, partially offset by lower Brokerage, exchange, clearance fees and payments for order flow, net as described below, incurred by Market Making.

Adjusted Net Trading Income per day decreased $1.7 million, or 24.4%, to $5.3 million for the six months ended June 30, 2023, compared to $7.0 million for the six months ended June 30, 2022.

The number of trading days was 124 days for both the six months ended June 30, 2023 and June 30, 2022.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $243.8 million, or 20.4%, to $949.8 million for the nine months ended September 30, 2023, compared to $1,193.6 million for the nine months ended September 30, 2022.

This decrease was primarily attributable to lower Trading income, net as noted above, partially offset by an increase in Interest and dividends income, as described above, and lower Brokerage, exchange, clearance fees and payments for order flow, net as described below.

Adjusted Net Trading Income per day decreased $1.2 million, or 19.0%, to $5.1 million for the nine months ended September 30, 2023, compared to $6.3 million for the nine months ended September 30, 2022.

The number of trading days was 187 days for the nine months ended September 30, 2023, compared to 188 days for the nine months ended September 30, 2022.

For a full description of Adjusted Net Trading Income and a reconciliation of Adjusted Net Trading Income to trading income, net, see “Non-GAAP Financial Measures and Other Items” in this “Item 2.

1 unchanged sentence

Operating Expenses

Our operating expenses increased $66.5 million, or 7.5%, to $957.0 million for the six months ended June 30, 2023, compared to $890.5 million for the six months ended June 30, 2022.

Our operating expenses increased $99.2 million, or 7.3%, to $1,449.1 million for the nine months ended September 30, 2023, compared to $1,349.9 million for the nine months ended September 30, 2022.

The increase was primarily driven by increased in Interest and dividends expense, offset in part, by lower Brokerage, exchange, clearance fees and payments for order flow, net, and lower Debt issue cost related to debt refinancing, prepayment and commitment fees.

Brokerage, exchange, clearance fees and payments for order flow, net.

Brokerage, exchange, clearance fees and payments for order flow, net, decreased $39.4 million, or 12.8%, to $268.0 million for the six months ended June 30, 2023, compared to $307.4 million for the six months ended June 30, 2022.

Brokerage, exchange, clearance fees and payments for order flow, net, decreased $85.0 million, or 17.8%, to $391.2 million for the nine months ended September 30, 2023, compared to $476.2 million for the nine months ended September 30, 2022.

These costs vary period to period based upon the level and composition of our trading activities.

1 unchanged sentence

Communication and data processing.

Communication and data processing expense increased $2.2 million, or 2.0%, to $113.8 million for the six months ended June 30, 2023, compared to $111.5 million for the six months ended June 30, 2022.

This increase was primarily attributable to increased connectivity spending on colocation, and microwave communication networks maintained by our joint ventures.

Communication and data processing expense increased $6.4 million, or 3.9%, to $170.8 million for the nine months ended September 30, 2023, compared to $164.4 million for the nine months ended September 30, 2022.

This increase was primarily attributable to increased connectivity spending on colocation, access ports and gateways, and microwave communication networks maintained by our joint ventures.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes decreased $3.1 million, or 1.5%, to $199.0 million for the six months ended June 30, 2023, compared to $202.1 million for the six months ended June 30, 2022.

Employee compensation and payroll taxes decreased $9.1 million, or 3.0%, to $296.2 million for the nine months ended September 30, 2023, compared to $305.3 million for the nine months ended September 30, 2022.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $19.8 million and $16.7 million for the six months ended June 30, 2023 and 2022, respectively.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $29.5 million and $25.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest and dividends expense.

Interest and dividends expense increased $118.8 million, or 130.2%, to $210.1 million for the six months ended June 30, 2023, compared to $91.3 million for the six months ended June 30, 2022.

This increase was primarily attributable to higher dividend expense with respect to securities sold, not yet purchased and higher interest expense incurred on cash collateral received driven by higher interest rates, as well as an increase in securities lending transactions for the period compared to the same period during the prior year.

Interest and dividends expense increased $189.7 million, or 123.8%, to $342.9 million for the nine months ended September 30, 2023, compared to $153.2 million for the nine months ended September 30, 2022.

This increase was primarily attributable to higher interest expense incurred on cash collateral received driven by higher interest rates, as well as an increase in securities lending transactions and higher dividend expense with respect to securities sold, not yet purchased for the period compared to the same period during the prior year.

As indicated above, rather than analyzing interest and dividends expense in isolation, we generally evaluate it in the broader context of our Adjusted Net Trading Income.

Operations and administrative.

Operations and administrative expense increased $11.0 million, or 28.4%, to $49.8 million for the six months ended June 30, 2023, compared to $38.8 million for the six months ended June 30, 2022.

Operations and administrative expense increased $19.1 million, or 36.0%, to $72.2 million for the nine months ended September 30, 2023, compared to $53.1 million for the nine months ended September 30, 2022.

The increase was primarily driven by the beneficial effect of a strong U.S.

1 unchanged sentence

Depreciation and amortization.

Depreciation and amortization decreased $2.6 million, or 7.5%, to $31.3 million for the six months ended June 30, 2023, compared to $33.8 million for the six months ended June 30, 2022.

This decrease is driven primarily by decreased amortization of capitalized software compared to the prior period.

Depreciation and amortization decreased $3.4 million, or 6.7%, to $47.1 million for the nine months ended September 30, 2023, compared to $50.5 million for the nine months ended September 30, 2022.

This decrease is driven primarily by decreased depreciation of computer equipment, and amortization of capitalized software compared to the prior period.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $0.7 million, or 2.2%, to $32.0 million for the six months ended June 30, 2023, compared to $32.8 million for the six months ended June 30, 2022.

Amortization of purchased intangibles and acquired capitalized software decreased $0.8 million, or 1.6%, to $48.0 million for the nine months ended September 30, 2023, compared to $48.8 million for the nine months ended September 30, 2022.

This decrease was primarily attributable to certain intangible assets being fully amortized in 2022.

Termination of office leases.

Termination of office leases was $(0.1) million for the six months ended June 30, 2023, compared to $1.4 million for the six months ended June 30, 2022.

These expenses are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated office space.

Termination of office leases was $0.3 million for the nine months ended September 30, 2023, compared to $1.7 million for the nine months ended September 30, 2022.

These expenses in the prior period are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated office space.

Debt issue cost related to debt refinancing, prepayment and commitment fees.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees decreased $23.2 million, or 85.4%, to $3.9 million for the six months ended June 30, 2023, compared to $27.1 million for the six months ended June 30, 2022.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees decreased $22.8 million, or 80.0%, to $5.7 million for the nine months ended September 30, 2023, compared to $28.5 million for the nine months ended September 30, 2022.

The decrease was primarily driven by the acceleration of deferred debt issuance costs as a result of refinancing our long-term debt transaction in January 2022.

1 unchanged sentence

Transaction advisory fees and expenses.

Transaction advisory fees and expenses were immaterial for the six months ended June 30, 2023, compared to $1.0 million for the six months ended June 30, 2022.

Transaction advisory fees and expenses were immaterial for the nine months ended September 30, 2023, compared to $1.1 million for the nine months ended September 30, 2022.

These expenses were primarily incurred in relation to our strategic investment portfolio.

Financing interest expense on long term borrowings.

Financing interest expense on long-term borrowings increased $5.7 million, or 13.2%, to $49.1 million for the six months ended June 30, 2023, compared to $43.4 million for the six months ended June 30, 2022.

Financing interest expense on long-term borrowings increased $7.6 million, or 11.4%, to $74.5 million for the nine months ended September 30, 2023, compared to $66.9 million for the nine months ended September 30, 2022.

This increase was attributable to the increase in outstanding principal as a result of refinancing our long-term debt in January 2022, as described in further detail below, and the effect of higher interest rates.

5 unchanged sentences

subsidiaries.

Our provision for income taxes and effective tax rate was $30.6 million and 18.0% for the six months ended June 30, 2023, compared to a provision for income taxes and effective tax rate of $66.7 million and 16.0% for the six months ended June 30, 2022.

Our provision for income taxes and effective tax rate was $51.1 million and 16.6% for the nine months ended September 30, 2023, compared to a provision for income taxes and effective tax rate of $88.4 million and 17.1% for the nine months ended September 30, 2022.

Liquidity and Capital Resources

As of June 30, 2023, we had $698.7 million in Cash and cash equivalents.

As of September 30, 2023, we had $688.8 million in Cash and cash equivalents.

This balance is maintained primarily to support operating activities, for capital expenditures and for short-term access to liquidity, and for other general corporate purposes.

As of June 30, 2023, we had borrowings under our prime brokerage credit facilities of approximately $140.6 million, borrowings under our broker dealer facilities of $115.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,806.3 million.

As of September 30, 2023, we had borrowings under our prime brokerage credit facilities of approximately $93.6 million, borrowings under our broker dealer facilities of $100.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,805.4 million.

The majority of our trading assets consist of exchange-listed marketable securities, which are marked-to-market daily, and collateralized receivables from broker-dealers and clearing organizations arising from proprietary securities transactions.

6 unchanged sentences

Short-term Liquidity and Capital Resources

Based on our current level of operations, we believe our cash flows from operations, available cash and cash equivalents, and available borrowings under our broker-dealer credit facilities will be adequate to meet our future liquidity needs for the next twelve months.

needs for the next twelve months.

We anticipate that our primary upcoming cash and liquidity needs will be increased margin requirements from increased trading activities in markets where we currently provide liquidity and in new markets into which we plan to expand.

33 unchanged sentences

Additionally, certain applicable rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to and/or approval from the SEC and FINRA for certain capital withdrawals.

VAL is also subject to rules set forth by NYSE and is required to maintain a certain level of capital in connection with the operation of its designated market maker business.

VAL is also subject to

rules set forth by NYSE and is required to maintain a certain level of capital in connection with the operation of its designated market maker business.

Our Canadian subsidiaries, Virtu Canada Corp (f/k/a Virtu ITG Canada Corp.) and Virtu Financial Canada ULC, are subject to regulatory capital requirements and periodic requirements to report their regulatory capital and submit other regulatory reports set forth by the Canadian Investment Regulatory Organization.

Our Irish subsidiaries, Virtu Financial Ireland

Limited ("VFIL") and Virtu Europe Trading Limited ("VETL") (f/k/a Virtu ITG Europe Limited) are regulated by the Central Bank of Ireland as Investment Firms and in accordance with European Union law are required to maintain a minimum amount of regulatory capital based upon their positions, financial conditions, and other factors.

Our Irish subsidiaries, Virtu Financial Ireland Limited ("VFIL") and Virtu Europe Trading Limited ("VETL") (f/k/a Virtu ITG Europe Limited) are regulated by the Central Bank of Ireland as Investment Firms and in accordance with European Union law are required to maintain a minimum amount of regulatory capital based upon their positions, financial conditions, and other factors.

In addition to periodic requirements to report their regulatory capital and submit other regulatory reports, VFIL and VETL are required to obtain consent prior to receiving capital contributions or making capital distributions from their regulatory capital.

9 unchanged sentences

See Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for details on our various credit facilities.

As of June 30, 2023, there was an outstanding principal balance on our broker-dealer facilities of $115.0 million, and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $140.6 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

As of September 30, 2023, there was an outstanding principal balance on our broker-dealer facilities of $100.0 million, and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $93.6 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

On March 20, 2020, a broker-dealer subsidiary of the Company entered into a loan agreement (the “Founder Member Loan Facility”) with TJMT Holdings LLC (the “Founder Member”), as lender and administrative agent, providing for unsecured term loans from time to time (the “Founder Member Loans”) in an aggregate original principal amount not to exceed $300 million.

22 unchanged sentences

The revolving commitments will terminate on January 13, 2025.

As of June 30, 2023, $1,782.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of June 30, 2023.

As of September 30, 2023, $1,782.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of September 30, 2023.

In October 2019, the Company entered into a five-year $525 million floating-to-fixed interest rate swap agreement.

6 unchanged sentences

Our main sources of liquidity are cash flow from the operations of our subsidiaries, our broker-dealer credit facilities (as described above), margin financing provided by our prime brokers and cash on hand.

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2023, and 2022.

Six Months Ended June 30,

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2023, and 2022.

Nine Months Ended September 30,

Net cash provided by (used in):

5 unchanged sentences

Operating Activities

Net cash used in operating activities was $26.4 million for the six months ended June 30, 2023, compared to net cash provided by operating activities of $57.6 million for the six months ended June 30, 2022.

The change in net cash used in operating activities was primarily attributable to lower net income, as well as increases in operating assets, net of operating liabilities, related to our trading activities for the six months ended June 30, 2023 compared to the prior period.

Net cash provided by operating activities was $143.7 million for the nine months ended September 30, 2023, compared to net cash provided by operating activities of $290.5 million for the nine months ended September 30, 2022.

The change in net cash provided by operating activities was primarily attributable to lower net income, as well as decreases in noncash adjustments for the nine months ended September 30, 2023 compared to the prior period.

Investing Activities

Net cash used in investing activities, which includes cash used with respect to capitalized software and cash used in the acquisition of property and equipment, was $55.1 million for the six months ended June 30, 2023, compared with net cash provided by investing activities of $4.0 million for the six months ended June 30, 2022.

Net cash provided by investing activities for the six months ended June 30, 2022 included cash proceeds from the sale of strategic investments.

Net cash used in investing activities, which includes cash used with respect to capitalized software and cash used in the acquisition of property and equipment, was $70.5 million for the nine months ended September 30, 2023, compared with net cash used in investing activities of $11.0 million for the nine months ended September 30, 2022.

Net cash used in investing activities for the nine months ended September 30, 2022 included cash proceeds from the sale of strategic investments, partially offsetting cash uses in the prior period.

Financing Activities

Net cash used in financing activities was $215.1 million for the six months ended June 30, 2023, compared to $307.8 million for the six months ended June 30, 2022.

The cash used in financing activities for the six months ended June 30, 2023 was primarily attributable to $145.7 million in dividends to stockholders and distributions made to noncontrolling interests and $135.0 million in purchases of treasury stock.

Net cash used in financing activities was $385.3 million for the nine months ended September 30, 2023, compared to $466.5 million for the nine months ended September 30, 2022.

The cash used in financing activities for the nine months ended September 30, 2023 was primarily attributable to $251.9 million in dividends to stockholders and distributions made to noncontrolling interests and $184.4 million in purchases of treasury stock.

The cash used in financing activities of $466.5 million during the same period of 2022 primarily reflects $316.1 million net dividends to stockholders and distributions to noncontrolling interests, and $434.5 million purchase of treasury stock, partially offset by $164.4 million of net proceeds from long term borrowings, and an increase of $104.9 million in short-term borrowings.

1 unchanged sentence

On November 6, 2020, the Company's Board of Directors authorized a new share repurchase program of up to $100.0 million in Class A common stock and Virtu Financial Units by December 31, 2021.

On February 11, 2021, the Company's Board of Directors authorized the expansion of the Company's share repurchase program, increasing the total authorized amount by $70.0 million to $170.0 million in Class A Common Stock and Virtu Financial Units up to December 31, 2021.

On May 4, 2021, the Company's Board of Directors authorized the expansion of the Company's share repurchase program, increasing the total authorized amount by $300 million to $470 million in Class A Common Stock and Virtu Financial Units and extending the duration of the program through May 4, 2022.

On November 3, 2021, the Company's Board of Directors authorized the expansion of the Company's current share repurchase program, increasing the total authorized amount by $750 million to $1,220 million and extended the duration through November 3, 2023.

Subsequently, the Company's Board of Directors authorized expansions of the share repurchase program on February 11, 2021 to $170.0 million, May 4, 2021 to $470.0 million (and extended the duration through May 4, 2022), and on November 3, 2021 to $1,220.0 million (and extended the duration through November 3, 2023).

The share repurchase program authorizes the Company to repurchase shares from time to time in open market transactions, privately negotiated transactions or by other means.

1 unchanged sentence

The timing and amount of repurchase transactions are determined by the Company's management based on its evaluation of market conditions, share price, cash sources, legal requirements and other factors.

From the inception of the program through June 30, 2023, the Company repurchased approximately 38.5 million shares of Class A Common Stock and Virtu Financial Units for approximately $1,016.7 million.

As of June 30, 2023, the Company has approximately of $203.3 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

From the inception of the program through September 30, 2023, the Company repurchased approximately 41.2 million shares of Class A Common Stock and Virtu Financial Units for approximately $1,065.6 million.

As of September 30, 2023, the Company has approximately of $154.4 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Critical Accounting Policies and Estimates

59 unchanged sentences

Share-based awards issued for compensation in connection with or subsequent to the Reorganization Transactions and the IPO pursuant to our Amended and Restated 2015 Management Incentive Plan, and assumed pursuant to the Amended and Restated ITG 2007 Equity Plan, were in the form of stock options, Class A Common Stock, restricted stock awards ("RSAs") and restricted stock units ("RSUs").

The fair value of the stock option grants is determined through the application of the Black-

Scholes-Merton model.

The fair value of the stock option grants is determined through the application of the Black-Scholes-Merton model.

The fair value of the Class A Common Stock and RSUs is determined based on the volume weighted average price for the three days preceding the grant.

33 unchanged sentences

When assessing impairment, an entity may perform an initial qualitative assessment, under which it assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an entity shall assess relevant events and circumstances, including the following:

• general economic conditions;

• limitations on accessing capital;

• fluctuations in foreign exchange rates or other developments in equity and credit markets;

• industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development;

• cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;

• overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods;

• other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation.

If, after assessing the totality of such events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further goodwill impairment testing is necessary.

If further testing is necessary, the fair value of the reporting unit is compared to its carrying value;

if the fair value of the reporting unit is less than its carrying value, a goodwill impairment loss is recorded, equal to the excess of the reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit).

Our estimate of goodwill impairment, if indicated based on results of the qualitative assessment, is highly dependent on our estimate of a reporting unit’s fair value.

An entity has an unconditional option to bypass this qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the goodwill impairment test.

An entity may resume performing the qualitative assessment in any subsequent period.

We assess goodwill for impairment on an annual basis as of July 1st and on an interim basis when certain events or circumstances exist.

In the impairment assessment as of July 1, 2022, we performed a qualitative assessment as described above for each reporting unit.

No impairment of goodwill was identified.

In the impairment assessment as of July 1, 2023, we performed a quantitative assessment as described above for each reporting unit and, the estimated fair value of each of the reporting units exceeded its respective carrying value, and therefore, goodwill was not impaired.

The estimated fair value of each reporting unit was based on valuation techniques the firm believes market participants would use to value these reporting units, and allocated the enterprise value to each reporting unit based on an estimate of relative fair value for each reporting unit.

The carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the applicable reporting unit under currently applicable regulatory capital requirements.

Valuation of intangible assets involves the use of significant estimates and assumptions with respect to the timing and amounts of revenue growth rates, customer attrition rates, future tax rates, royalty rates, contributory asset charges, discount rate and the resulting cash flows.

1 unchanged sentence

Our largest finite-lived intangible asset is customer relationships, which is being amortized over an estimated useful life of ten years.

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $5.4 million and $10.8 million of amortization expense for the three and six months ended June 30, 2023, and 2022, respectively.

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $5.4 million and $16.3 million of amortization expense for the three and nine months ended September 30, 2023, and 2022, respectively.

We test finite-lived intangible assets for impairment when impairment indicators are present, and if impaired, they are written down to fair value.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis