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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 94 added, 73 removed, 654 unchanged (20% 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 years ended December 31, 2022, and 2021 should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2022, which are included in Item 8, of the this Annual Report on Form 10-K.

The following management’s discussion and analysis covers the years ended December 31, 2023, and 2022 should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023, which are included in Item 8, of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

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

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As you read and consider this Annual Report on Form 10-K, you should understand that forward-looking statements are not guarantees of performance or results and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K.

By their nature, forward-looking statements involve known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in this Annual Report on Form 10-K, because they relate to events and depend on circumstances that may or may not occur in the future.

By their nature, forward-looking statements involve known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K because they relate to events and depend on circumstances that may or may not occur in the future.

Although we believe that the forward-looking statements contained in this Annual Report on Form 10-K are based on reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in this Annual Report on Form 10-K, could affect our actual financial results or results of operations and cash flows, and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

• the continuing impacts of COVID-19 and the governmental and other responses thereto, including but not limited to the risk of employees and executives contracting COVID-19 and the deployment of our business continuity plan pursuant to which a significant number of our employees may work remotely and our return to office plan, each of which may increase operational risk, as well as increases in market, counterparty and other forms of operational risk;

• volatility in levels of overall trading activity;

• dependence upon trading counterparties and clearing houses performing their obligations to us;

• dependence upon trading counterparties, clients and clearing houses performing their obligations to us;

• failures of our customized trading platform;

• risks inherent to the electronic market making business and trading generally;

• recent SEC proposals focused on equity markets may, if adopted, materially change U.S.

• recent SEC proposals focused on equity markets which may, if adopted, materially change U.S.

equity market structure, including by reducing overall trading volumes, reducing off-exchange trading and market making opportunities, requiring additional tools, platforms and services to register as an ATS or exchange, and generally increasing the implicit and explicit cost as well as the complexity of the U.S.

equities eco-system for all participants, all of which have an adverse effect on our business;

• additionally, enhanced regulatory, congressional, and media scrutiny, including attention to electronic trading, wholesale market making and off-exchange trading, payment for order flow, and other market structure topics may result in additional potential changes in regulation or law which could have an adverse effect on our business as well as adversely impact the public perception of us or of companies in our industry;

equities eco-system for all participants;

• increased competition in market making activities and execution services;

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Our Corporate segment contains investments principally in strategic financial services-oriented opportunities and maintains corporate overhead expenses and all other income and expenses that are not attributable to our other segments.

Acquisition of ITG

Credit Agreement

On March 1, 2019, the “ITG Closing Date”, we announced the completed acquisition of Investment Technology Group, Inc.

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On March 2, 2020, VFH entered into a second amendment (“Amendment No.

2”), which further amended the Acquisition Credit Agreement to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50% per annum and eliminated any step-down in the spread based on VFH's first lien leverage ratio.

2”), which further amended the Acquisition Credit Agreement to, among other things, reduce the interest rate spread over adjusted London Interbank Offered Rate (“LIBOR”) or the alternate base rate by 0.50% per annum and eliminated any step-down in the spread based on VFH's first lien leverage ratio.

On January 13, 2022 (the “Credit Agreement Closing Date”), VFH and Virtu Financial entered into a credit agreement, with the lenders party thereto, JPMorgan Chase Bank, N.A.

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Net income $ 263,921 $ 468,332 $ 827,234

Selected Operating Margins

GAAP Net income Margin (1) 11.5 % 19.8 % 29.4 %

(1) Calculated by dividing Net income by Total revenue.

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

Years Ended December 31,

(in thousands, except for share or per share data) 2023 2022 2021

Net income $ 263,921 $ 468,332 $ 827,234

Noncontrolling interest (121,885) (203,306) (350,356)

Net income available for common stockholders $ 142,036 $ 265,026 $ 476,878

Earnings per share

Basic $ 1.42 $ 2.45 $ 3.95

Diluted $ 1.42 $ 2.44 $ 3.91

Weighted average common shares outstanding

Basic 94,076,165 103,997,767 117,339,539

Diluted 94,076,165 104,422,443 118,423,928

Total Revenues

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Revenue is recognized on a trade date basis, which is the point at which the performance obligation to the customer is satisfied, based on the trade being executed.

In addition, we offer workflow technology and analytics services to select third parties.

In addition, we offer workflow technology and analytics services to select third

Revenues are derived from fees generated by matching sell-side and buy-side clients orders, and from analytic products delivered to the clients.

Technology licensing fees are charged for the licensing of our proprietary technology and the provision of related services, including hosting, management and support.

These fees include an up-front component and a recurring fee for the relevant terms, which may include both fixed and variable components.

Revenue is recognized ratably for these services over the contractual term of the agreement.

We have interests in multiple strategic investments and telecommunications joint ventures (“JVs”).

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We incur interest expense from loaning certain equity securities in the general course of our market making activities pursuant to collateralized lending transactions.

Typically, dividend expense is incurred when a dividend is paid on securities sold short.

Typically, dividends expense is incurred when a dividend is paid on securities sold short.

Operations and administrative.

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Our presentation of Adjusted Net Trading Income should not be construed as an indication that our future results will be unaffected by revenues or expenses that are not directly associated with our core business activities.

• “EBITDA”, which measures our operating performance by adjusting net income to exclude 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, and Income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, transaction advisory fees and expenses, termination of office leases, charges related to share-based compensation and other expenses, which includes reserves for legal matters, COVID-19 one-time costs and donations and Other, net, which includes gains and losses from strategic investments and the sales of businesses.

• “EBITDA”, which measures our operating performance by adjusting Net Income to exclude 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, and Income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, transaction advisory fees and expenses, termination of office leases, charges related to share-based compensation and other expenses, which includes reserves for legal matters, and Other, net, which includes gains and losses from strategic investments, the sales of businesses, and other income.

• “Normalized Adjusted Net Income”, “Normalized Adjusted Net Income before income taxes”, “Normalized provision for income taxes”, and “Normalized Adjusted EPS”, which we calculate by adjusting Net Income to exclude certain items, and other non-cash items, assuming that all vested and unvested Virtu Financial Units have been exchanged for Class A Common Stock, and applying an effective tax rate, which was approximately 24%.

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Termination of office leases 455 6,982 28,138

Gain on sale of MATCHNow — — (58,652)

Other (65,536) (34,229) (10,558)

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Selected Operating Margins

Net Income Margin (1) 31.9 % 43.3 % 49.3 %

GAAP Net income Margin (1) 11.5 % 19.8 % 29.4 %

Non-GAAP Net income Margin (2) 21.8 % 31.9 % 43.3 %

EBITDA Margin (3) 46.3 % 55.2 % 63.9 %

Adjusted EBITDA Margin (4) 46.9 % 58.5 % 68.1 %

(1) Calculated by dividing Net Income by Total Revenue.

(2) Calculated by dividing Net Income by Adjusted Net Trading Income.

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Termination of office leases 455 6,982 28,138

Gain on sale of MATCHNow — — (58,652)

Other (65,536) (34,229) (10,558)

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Weighted Average Adjusted shares outstanding (2) 167,782,513 177,688,188 191,958,870

Basic earnings per share $ 1.42 $ 2.45 $ 3.95

Normalized Adjusted EPS $ 1.84 $ 3.00 $ 4.57

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(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 years ended December 31, 2022, 2021 and 2020 as well as warrants issued in connection with the Founder Member Loan during the year ended December 31, 2020.

Includes additional shares from the 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 years ended December 31, 2023, 2022, and 2021.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the years ended December 31, 2023, 2022, and 2021:

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Execution Services 364,076 1,456 30.1 % 409,161 1,630 27.9 % 482,377 1,914 25.3 %

Corporate — — — % — — — % — — — %

Adjusted Net Trading Income $ 1,210,683 $ 4,842 100.0 % $ 1,467,635 $ 5,847 100.0 % $ 1,909,929 $ 7,579 100.0 %

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Our total revenues decreased $71.4 million, or 3.0%, to $2,293.4 million for the year ended December 31, 2023, compared to $2,364.8 million for the year ended December 31, 2022.

This decrease was primarily attributable to a decrease of

$476.3 million in Trading income, net, during the year ended December 31, 2022 compared to the prior period.

This decrease was offset, in part, by an increase of $30.5 million in Other, net, which was driven by gains recorded on sales of various strategic investments in 2022, as well as an increase of $83.7 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 year ended December 31, 2022 compared to the same period in 2021.

This decrease was primarily attributable to decreases of $327.6 million in Trading income, net and $74.2 million in Commissions, net and technology services, during the year ended December 31, 2023 compared to the prior period, partially offset by an increase of $303.5 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 year ended December 31, 2023 compared to the same period in 2022.

The following table shows the total revenues by segment for the years ended December 31, 2023 and 2022.

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Commissions, net and technology services 29,571 42,180 (29.9)%

Other, net 4,176 7,127 (41.4)%

Other, net 78,413 4,176 NM

Total revenues from Market Making $ 1,843,523 $ 1,812,839 1.7%

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Trading income, net $ 17,664 $ 21,079 (16.2)

Interest and dividends income 456 73 524.7%

Interest and dividends income 10,707 456 NM

Commissions, net and technology services 426,027 487,665 (12.6)%

Other, net 5,041 1,067 372%

Other, net (7,856) 5,041 NM

Total revenues from Execution Services $ 446,542 $ 514,241 (13.2)%

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Interest and dividends income increased $303.5 million, or 190.8%, to $462.6 million for the year ended December 31, 2023, compared to $159.1 million for the year ended December 31, 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.

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.

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Commissions, net and technology services revenues decreased $74.2 million, or 14.0%, to $455.6 million for the year ended December 31, 2023, compared to $529.8 million for the year ended December 31, 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.

This decrease was driven by the reduction of institutional investors commissions available, and declining institutional engagement, both of which resulted 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 increased $27.0 million, or 57.6%, to $73.9 million for the year ended December 31, 2023, compared to $46.9 million for the year ended December 31, 2022.

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

The income for the year ended December 31, 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 $257.0 million, or 17.5%, to $1,210.7 million for the year ended December 31, 2023, compared to $1,467.6 million for the year ended December 31, 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 $1.8 million, or 23.7%, to $5.8 million for the year ended December 31, 2022, compared to $7.6 million for the year ended December 31, 2021.

The number of trading days was 251 days for both the year ended December 31, 2022 and December 31, 2021.

This decrease was primarily attributable to lower Trading income, net and Commissions, net and technology services, as noted above, and higher Interest and dividends expense, as noted below, 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.

Average daily Adjusted Net Trading Income decreased $1.0 million, or 17.2%, to $4.8 million for the year ended December 31, 2023, compared to $5.8 million for the year ended December 31, 2022.

The number of trading days was 250 days for the year ended December 31, 2023, compared to 251 days for the year ended December 31, 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 7.

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Operating Expenses

Our operating expenses decreased $6.6 million, or 0.4%, to $1,808.0 million for the year ended December 31, 2022, compared to $1,814.6 million for the year ended December 31, 2021.

The decrease was primarily driven by lower Brokerage, exchange, clearance fees and payments for order flow, net, and lower Termination of office leases, partially offset by an increase in Interest and dividends expense, Employee compensation and payroll taxes, and Financing interest expense on long term borrowings.

Our operating expenses increased $160.2 million, or 8.9%, to $1,968.2 million for the year ended December 31, 2023, compared to $1,808.0 million for the year ended December 31, 2022.

The increase was primarily driven by increase 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.

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Communication and data processing expense increased $11.3 million, or 5.1%, to $230.8 million for the year ended December 31, 2023, compared to $219.5 million for the year ended December 31, 2022.

This increase was primarily attributable to increased connectivity spending on subscriber connections and trading membership fees.

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

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $3.1 million, or 0.8%, to $394.0 million for the year ended December 31, 2023, compared to $390.9 million for the year ended December 31, 2022.

The increase in compensation levels was primarily attributable to an increase in salaries, and share-based compensation related to prior year incentive awards.

The increase in compensation levels was primarily attributable to an increase in salaries and wages, 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 $40.4 million and $35.5 million for the years ended December 31, 2023 and 2022, respectively.

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Interest and dividends expense increased $269.4 million, or 116.6%, to $500.5 million for the year ended December 31, 2023, compared to $231.1 million for the year ended December 31, 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.

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 dividends 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 decreased $2.1 million, or 2.4%, to $86.1 million for the year ended December 31, 2022, compared to $88.1 million for the year ended December 31, 2021.

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

dollar on foreign exchange translation gains during the year ended December 31, 2022, offset in part by higher professional fees and regulatory costs, and increases in travel and entertainment expenses as COVID-19 restrictions eased.

Operations and administrative expense increased $12.9 million, or 15.0%, to $99.0 million for the year ended December 31, 2023, compared to $86.1 million for the year ended December 31, 2022.

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

dollar on foreign exchange translation gains during the prior year period.

Depreciation and amortization.

Depreciation and amortization decreased $3.1 million, or 4.7%, to $63.3 million for the year ended December 31, 2023, compared to $66.4 million for the year ended December 31, 2022.

This decrease was primarily attributable to a decrease in capital expenditures on telecommunication, networking, and other assets.

This decrease was 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 $0.8 million, or 1.2%, to $64.0 million for the year ended December 31, 2023, compared to $64.8 million for the year ended December 31, 2022.

This decrease was primarily attributable to certain intangible assets being fully amortized in 2021 and early 2022.

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

Termination of office leases.

Termination of office leases was $0.5 million for the year ended December 31, 2023, compared to $7.0 million for the year ended December 31, 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.

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 increased $23.3 million, or 353.9%, to $29.9 million for the year ended December 31, 2022, compared to $6.6 million for the year ended December 31, 2021.

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

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees decreased $21.6 million, or 72.2%, to $8.3 million for the year ended December 31, 2023, compared to $29.9 million for the year ended December 31, 2022.

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

See Note 8 “Borrowings” of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional details.

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Financing interest expense on long-term borrowings increased $7.3 million, or 7.9%, to $99.3 million for the year ended December 31, 2023, compared to $92.0 million for the year ended December 31, 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.

Provision for income taxes

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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 December 31, 2022, we had borrowings under our prime brokerage credit facilities of approximately $212.9 million, no borrowings under our broker dealer facilities, short-term bank overdrafts of $3.9 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,826.7 million.

As of December 31, 2023, we had borrowings under our prime brokerage credit facilities of approximately $175.3 million, no borrowings under our broker dealer facilities, and long-term debt outstanding in an aggregate principal amount of approximately $1,751.8 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.

Collateralized receivables consist primarily of securities borrowed, receivables from clearing houses for settlement of securities transactions and, to a lesser extent, securities purchased under agreements to resell.

We actively manage our liquidity, and we maintain significant borrowing facilities through the securities lending markets and with banks and prime brokers.

We actively manage our liquidity, and we

maintain significant borrowing facilities through the securities lending markets and with banks and prime brokers.

We have continually received the benefit of uncommitted margin financing from our prime brokers globally.

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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.

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.

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

We manage and monitor our margin and liquidity needs on a real-time basis and can adjust our requirements both intra-day and inter-day, as required.

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Tax Receivable Agreements

Generally, we are required under the tax receivable agreements entered into in connection with our IPO to make payments to certain direct or indirect equity holders of Virtu Financial that are generally equal to 85% of the applicable cash tax savings, if any, that we realize as a result of favorable tax attributes that are available to us as a result of the Reorganization Transactions, for exchanges of membership interests for Class A Common Stock or Class B Common Stock and payments made under the tax receivable agreements.

Generally, we are required under the tax receivable agreements entered into in connection with our IPO to make payments to certain direct or indirect equity holders of Virtu Financial that are generally equal to 85% of the applicable cash tax savings, if any, that we realize as a result of favorable tax attributes that are available to us as a result of the IPO and certain reorganization transactions undertaken in connection therewith, for exchanges of membership interests for Class A Common Stock or Class B Common Stock and payments made under the tax receivable agreements.

We will retain the remaining 15% of any such cash tax savings.

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 5 "Tax Receivable Agreements" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $36.4 thousand to $22.0 million per year over the next 15 years.

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 4 “Tax Receivable Agreements” of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $0.1 million to $22.1 million per year over the next 15 years.

Such payments will occur only after we have filed our U.S.

federal and state income tax returns and realized the cash tax savings from the favorable tax attributes.

We made our first payment of $7.0 million in February 2017, and subsequent payments of $12.4 million in September 2018, $13.3 million in March 2020, $16.5 million in April 2021, and $21.3 million in March 2022.

We made our first payment of $7.0 million in February 2017, and subsequent payments of $12.4 million in September 2018, $13.3 million in March 2020, $16.5 million in April 2021, $21.3 million in March 2022, and $23.3 million in April 2023.

Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts.

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broker-dealer, and its primary regulators include the SEC and the Financial Industry Regulatory Authority (“FINRA”).

In June 2023 our U.S.

subsidiary RFQ-Hub Americas LLC (“RAL”) became a registered U.S.

broker-dealer and as such is subject to regulation and capital requirements from its primary regulators, the SEC and FINRA.

The SEC and FINRA impose rules that require notification when regulatory capital falls below certain pre-defined criteria.

These rules also dictate the ratio of debt-to-equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances.

If a firm fails to maintain the required regulatory capital, it may be subject to suspension or revocation of registration by the applicable regulatory agency, and suspension or expulsion by these regulators could ultimately lead to the firm’s liquidation.

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.

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.

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 Investment Industry Regulatory Organization of Canada.

Our Irish subsidiaries, Virtu Financial Ireland Limited ("VFIL") and Virtu ITG Europe Limited ("VIEL") 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 VIEL are required to obtain consent prior to receiving capital contributions or making capital distributions from their regulatory capital.

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.

Failure to comply with their regulatory capital requirements could result in regulatory sanction or revocation of their regulatory license.

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Virtu ITG Australia Limited, and Virtu ITG Hong Kong Limited are also subject to local regulatory capital requirements and are regulated by the Australian Securities and Investments Commission, the Securities and Futures Commission of Hong Kong, respectively.

Similarly, Virtu ITG Singapore Pte.

Virtu ITG Singapore Pte.

Limited and Virtu Financial Singapore Pte.

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Pursuant to the Warrant, the Founder Member was entitled to purchase up to 3,000,000 shares of Class A Common Stock on or after May 22, 2020 and up to and including January 15, 2022 at a price of $22.98.

The Warrant was exercised on December 17, 2021 for the full 3,000,000 shares of the Company's Class A Common Stock.

The Warrant was exercised on December 17, 2021 for 3,000,000 shares of the Company's Class A Common Stock.

The Warrant and Class A Common Stock issued pursuant to the Warrant were offered, issued and sold, in reliance on the exemption from the registration requirements of the Securities Act, set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering.

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The Credit Agreement provides (i) a senior secured first lien term loan in an aggregate principal amount of $1,800.0 million, drawn in its entirety on the Credit Agreement Closing Date, the proceeds of which were used by VFH to repay all amounts outstanding under the Acquisition Credit Agreement, to pay fees and expenses in connection therewith, to fund share repurchases under the Company’s repurchase program and for general corporate purposes, and (ii) a $250.0 million senior secured first lien revolving facility to VFH, with a $20.0 million letter of credit subfacility and a $20.0 million swingline subfacility.

The term loan borrowings and revolver borrowings under the Credit Agreement bear interest at a per annum rate equal to, at the Company’s election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted term SOFR rate with an interest period of one month plus 1.00% and (d)(1) in the case of term loan borrowings, 1.50% and (2) in the case of revolver borrowings, 1.00%, plus, (x) in the case of term loan borrowings, 2.00% and (y) in the case of revolver borrowings, 1.50% or (ii) the greater of (a) an adjusted term SOFR rate for the interest period in effect and (b) (1) in the case of term loan borrowings, 0.50% and (2) in the case of revolver borrowings, 0.00%, plus, (x) in the case of term loan borrowings, 3.00% and (y) in the case of revolver borrowings, 2.50%.

The term loan borrowings and revolver borrowings under the Credit Agreement bear interest at a per annum rate equal to, at the Company’s election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted term Secured Overnight Financing Rate (“SOFR”) rate with an interest period of one month plus 1.00% and (d)(1) in the case of term loan borrowings, 1.50% and (2) in the case of revolver borrowings, 1.00%, plus, (x) in the case of term loan borrowings, 2.00% and (y) in the case of revolver borrowings, 1.50% or (ii) the greater of (a) an adjusted term SOFR rate for the interest period in effect and (b) (1) in the case of term loan borrowings, 0.50% and (2) in the case of revolver borrowings, 0.00%, plus, (x) in the case of term loan borrowings, 3.00% and (y) in the case of revolver borrowings, 2.50%.

In addition, a commitment fee accrues at a rate of 0.50% per annum on the average daily unused amount of the revolving facility, with step-downs to 0.375% and 0.25% per annum based on VFH’s first lien leverage ratio, and is payable quarterly in arrears.

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In April 2021, each of the swap agreements described above was novated to another counterparty and amended in connection with such novation.

The amendments included certain changes to collateral posting obligations and also had the effect of increasing the effective fixed interest payment obligations to rates of 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.

The amendments included certain changes to collateral posting obligations and also had the effect of increasing the effective fixed

interest payment obligations to rates of 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.

In January 2022, in order to align the swap agreements with the Credit Agreement, the Company amended each of the swap agreements to align the floating rate term of such swap agreements to SOFR.

The effective fixed interest payment obligations remained at 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.

In December 2023, the Company terminated the two interest rate swap arrangements and received $55.8 million in proceeds from the counterparty.

The Company therefore dedesignated those cash flow hedges under ASC 815, and the amounts in AOCI related to the terminated swaps are to be amortized through interest expense.

The Company simultaneously entered into a two-year $1,525 million floating-to-fixed interest rate swap agreement with the same counterparty.

The new interest rate swap met the criteria to be considered and was designated as a qualifying cash flow hedge under ASC 815 as of December 2023, and it effectively fixed interest payment obligations on $1,525 million of principal under the First Lien Term Loan Facility at rate of 7.5% through November 2025, based on the interest rates set forth in the Credit Agreement.

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.

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Net cash provided by operating activities was $491.8 million for the year ended December 31, 2023, compared to net cash provided by operating activities of $706.8 million for the year ended December 31, 2022.

The decrease in net cash provided by 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 year ended December 31, 2022 compared to the prior period.

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 year ended December 31, 2023 compared to the prior period.

Investing Activities

Net cash used in investing activities was $29.5 million for the year ended December 31, 2022, compared to net cash used in investing activities of $87.3 million for the year ended December 31, 2021.

The net decrease in cash used in investing activities for the year ended December 31, 2022 was primarily attributable to sales of strategic investments during the year ended December 31, 2022 as compared to the prior period, offset by cash used for the acquisition of property and equipment, and capitalized software for both periods.

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 $94.5 million for the year ended December 31, 2023, compared with net cash used in investing activities of $29.5 million for the year ended December 31, 2022.

Net cash used in investing activities for the year ended December 31, 2022 included cash proceeds provided by the sale of strategic investments, partially offsetting cash uses in that period.

Financing Activities

Net cash used in financing activities was $585.0 million for the year ended December 31, 2023, compared to $735.7 million for the year ended December 31, 2022.

The cash used in financing activities for the year ended December 31, 2022 was primarily attributable to $375.3 million in dividends to stockholders and distributions made to noncontrolling interests and $480.5 million in purchases of treasury stock, partially offset by the net proceeds of $200.2 million from the issuance of the new term loan and repayment of the existing term loan in January 2022.

The cash used in financing activities of $957.9 million during the same period of 2021 primarily reflects $548.0 million net dividends to stockholders and distributions to noncontrolling interests, and $427.5 million purchase of treasury stock, partially offset by an increase of $2.0 million in short-term borrowings.

The cash used in financing activities for the year ended December 31, 2023 was primarily attributable to $306.1 million in dividends to stockholders and distributions made to noncontrolling interests and $229.0 million in purchases of treasury stock.

The cash used in financing activities of $735.7 million during the same period of 2022 primarily reflects $375.3 million net dividends to stockholders and distributions to noncontrolling interests, and $480.5 million purchase of treasury stock, partially offset by $164.4 million of net proceeds from long term borrowings, and an increase of $59.1 million in short-term borrowings.

Share Repurchase Program

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, on May 4, 2021 to $470.0 million (and extended the duration through May 4, 2022), on November 3, 2021 to $1,220.0 million (and extended the duration through November 3, 2023, and on November 2, 2023, further extended the program through December 31, 2024).

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.

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Each year, we are required to repay $18.0 million of this balance, with the remaining principal due in 2029.

On December 12, 2023, we made a voluntary prepayment of $55.0 million, and the payment is applied toward subsequent annual amortization installments.

Additionally, $24.8 million of our long-term debt related to the SBI bonds is due in 2026.

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Interest income and interest expense are accrued in accordance with contractual rates.

Interest income consists of income earned on collateralized financing arrangements and on cash held by brokers.

Interest income consists of income earned on collateralized financing arrangements and on cash held by brokers and banks.

Interest expense includes interest expense from collateralized transactions, margin and related short-term lending facilities.

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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 Company 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.

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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-K

Item 7. Management’s Discussion and Analysis