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Hello, everyone. Thank you for joining us and welcome to the Virtu Financial First Quarter 2026 Earnings Call. After today's prepared remarks, we'll host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Matthew Sandberg, head of IR and FP&A. Matthew, please go ahead.
Thank you. Good morning, everyone. Our first quarter 2026 results were released this morning and are available on our website. With us today on this morning's call, we have Aaron Simons, our chief executive officer, Cindy Lee, our chief financial officer, and Joe Meluso, our co-president and co-chief operating officer. We will begin with brief prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements which represent Virtue's current belief regarding future events and are therefore subject to risks, assumptions, and uncertainties which may be outside the company's control. Please note that our actual results in financial conditions may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available for the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to gap measures, we may refer to certain non-gap measures, including adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margin. These non-gap measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the investor portion of our website, where you'll find additional supplemental information referred to on this call, as well as the reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials, with an explanation of why we deem this information to be meaningful, as well as how management uses these measures. With that, I'd like to turn the call over to Aaron.
Thanks, Matt. Good morning, everyone. Again, just like very brief remarks before Cindy goes over the detailed results and we move to Q&A, but just wanted to highlight that our first quarter results show that we're executing on our plan to grow through investing in our infrastructure, acquiring top talent, and expanding our capital base. Following that plan, in the last seven months, we have added over $500 million in new trading capital and maintained a return on our total capital in excess of 100%. Our results for the first quarter were among the best in Virtu's history, aided by an operating environment which was even more favorable than the fourth quarter of last year. Within the context of that environment, all of our businesses performed well, customer and non-customer market making, as well as execution services. We've provided additional perspective on the quarter in our detailed financial supplement, and we'll be answering your questions shortly. First, though, Cindy Lee, our Chief Financial Officer, will review the financial results for the quarter.
Thanks, Aaron. Good morning, everyone. For the first quarter of 2026, we generated Adjusted Net Trading Income, or ANT, of $12.9 million per day, or a total of $787 million. This was the highest quarter total ever for Board 2, Turning to our segment performance, market making reported an ante of $10.4 million per day for Q1. Execution services reached $2.5 million per day for the quarter and $2.1 million on the trailing 12-month basis. This is the eighth consecutive quarter of increased total ante for VES, an indication of the substantial progress we have been noting within the VES business. This performance reflects the investments we have made in technology, our focus on client acquisition, and the expansion of our product offering. Both of our operating segments benefited from generally favorable market conditions and strong execution by our team. Our profitability this quarter was robust. We generated $521 million in adjusted EPS, representing a 66% margin. Adjusted EPS was $2.24. For the last 12 months, we recorded $1.6 billion in adjusted EBITDA, a 66% margin, and $6.66 in adjusted EPS. These numbers all represent highs since early 2021 and an all-time quarterly high in case of adjusted EPS, underscoring the operating leverage inherent in our business. On slide 7 of our supplemental materials, we provide a summary of our operating expenses. Our first quarter 2026 cash compensation ratio was at 22%, which was within the historical range. The increase in compensation expense reflected our continued focus on retaining and acquiring top talent across organizations, particularly in trading and technology. Turning to capital, our invested capital stands at $2.6 billion as of March 31st, while generating an average return of 107% on the capital over the past year. We will continue to expand our capital base, strengthening our infrastructure, and deploy capital where we see the greatest opportunities, all while maintaining our quarterly dividend of $0.24 per share. We will now take your question.
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We'll now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick your hand set up when asking a question to allow for optimum sound quality. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Patrick Mowley from Piper Sandler. Your line is open. Go ahead.
Yes, good morning, and thanks for taking the question. Congrats on the strong quarter. I think the environment across the board was very good, but you guys seem to outperform that. So I was hoping maybe you could just level set with us and talk about where you saw the most opportunity in the quarter. And then maybe, you know, with or with anti up where it is, you know, highest level on record, how should we think about the sustainability of that in this environment? Thanks.
Hey, Patrick. Good morning. It's Joe. You know, you're right. The environment was very robust, as I think you wrote in your note. And, you know, I think we we did outperform. you know it's difficult to to kind of pinpoint growth since we've we've had this growth pivot you know it's it is across the board and I think you know for the last couple of quarter quarters you know our focus has been on growing the firm you know but that means a lot of things across the board and a lot of asset classes and a lot of geographies you know and it naturally includes growth and investment, you know, in asset classes that maybe we were historically less focused on, but, you know, we want to accelerate growth in, but, you know, it's hard to pinpoint, right? So, I think in the past, we've talked about crypto, we've talked about options, right? But our growth, we want to make sure that it's understood the growth plan isn't limited, you know, to a handful of narrower areas. it's really, you know, broad-based and, you know, it's focused on a lot of different areas. And it includes all the things that we've been talking about. Capital, it includes personnel, it includes investment in technology, et cetera.
And then, I mean, was there, you know, anything you can share in terms of asset classes where you maybe saw outsized growth this quarter? I can think of, you know, maybe, you know, the metals market. We saw a lot of activity, especially among retail in the earlier part of the quarter. So, you know, anything there that you can share on asset classes?
We made the point last quarter to remind the world that Virtu's performance is not solely based on retail investor participation, which, by the way, remains strong. So, you know, the customer market-making business has done very well, but I think we saw continued outstanding performance and growth in what we call prop market-making. And the headline volatility in the quarter, obviously, from exogenous events contributed, but there's also a lot of underlying growth in trades and investments that have been made over a long period of time. So we want to get away from talking about your specific areas, but I think it's pretty obvious in the quarter, if you look at just the volatility in the world and what's been going on, that that was a good environment that was helped by our continued investment and everything else we've been talking about.
Maybe I'll just add one thing. I get it's hard. Quarter over quarter, the environment, as we pointed out last time, is the most important variable. But it's not like, oh, we found some new trade or something took off. Really, what I tried to highlight in the introductory remarks was you should think of this as what would have happened in the counterfactual world where we didn't add 500 million of new trading capital. Our P&L would not have been what it was in the first quarter, right? I'm not saying it's a one-for-one difference, right? But it definitely was a huge factor. And so going forward, you know, the idea is that in any environment, we should outperform where we were before with lower capital.
So maybe just if I could sneak one more in here, just a bigger picture question. I think it was just a few quarters ago you said you were looking to target about $10 million a day in ante through the cycle and that was kind of the longer term goal for the business so how should we interpret this quarter do you feel like we're we're kind of at that point where we can you know we're sort of building toward this 10 million dollars a day through the cycle and if not what still needs to be done to kind of get us to that place i mean the honest answer is we don't know i mean our the trailing return on capital is over 100 i don't think we always achieve that through like a multi-year cycle.
So at points in the cycle where it's less than 100%, you can back into how much capital we might need to make 10 million a day. But in environments like this, then we need much less and we make more than 10 million a day.
Yeah, the through the cycle point, Patrick, is the key point in that discussion. And it makes it, it is what makes it difficult to say where we are. I think, as Aaron pointed out, and I think as I pointed out in earlier calls, when we talk about goals and trading capital of $4 billion, that factors into that goal. But it's more than that. There have been a number of investments in personnel and people, the recruiting environment for Virtu, I think, is very good. The investments in technology being stepped up all contribute to that. So you need all of those things together to execute on that. And I think in the past, we've used terms like the medium term, like a three-year time horizon kind of being you know something that you know when forced to give a view is something we feel comfortable uh giving to you okay thanks for the call you guys that's it for me your next question comes from dan fannin at jeffrey's your line is open uh thanks good morning thanks good morning um so wanted to just talk about what's what you've been doing obviously You talked about $500 million of incremental capital.
Can you also talk about the hiring, where you've been focused, where you are, do you think, in terms of the goal of what you're looking to expand and invest in internally?
Yeah, sure. So, you know, there's definitely a number of areas where we're trying to hire people. So definitely people that are in the sort of like, you know, continuum of trader to quant to researcher type role we're tired trying to hire a lot of engineers software developers that takes time because you know we have a very high bar for quality but you know we're trying to kind of do that as quickly as possible we have made a few key senior hires in the last six to seven months that have started and they're gonna have an impact on the business hopefully in short timeframe. But it is a longer term expansion as well. I think this year we hope to get our head count close to 1100. We don't have like an exact number. It's more about just having a sufficient number of people to do a certain level of quality work that we need done. But definitely for the foreseeable future, we're going to be pretty aggressively hiring.
Great. That's helpful. And then just in the context of that, and obviously the revenue environment that you're operating in, How to think about expense growth would be helpful in the context of what you're thinking about either cash compensation versus previously and or growth in the kind of more fixed cost base to support new asset classes, new personnel, all the things you're investing in.
Sure. So I think, you know, we have given some guidance on the compensation ratios and, you know, the first quarter accrual sort of reflects where we want to be. Um, obviously when you have a great quarter, it's, it's much easier and the percentage looks lower, but, you know, as we've highlighted last few quarters, like we have been adjusting that up slightly because we are trying to attract the best talent in the business. And, you know, part of retention is competitive compensation. But I think we are, you know, at that level and you can see that it doesn't really affect the ratios or the EBITDA margin all that much, especially when you have a, have a great quarter. As far as the infrastructure investment, yes, we are going to do incrementally more of that, but already our business has a very heavy capital expenditure profile, so I'm not sure it's going to be so immediately obvious in the expense tables. I don't know, Joe, if you want to add.
No, I think that's exactly, you know, where we are. We, you know, you saw the comp accrual this quarter as a nominal number certainly looks outsized compared to the past. But as Aaron said, we want to, you know, hire the best people and pay them best in class. So that is, that reflects it. So, you know, Dan, if we have a comp accrual or if we have a comp ratio that creeps up in the future, even in a really robust environment or even in a median environment, that will be deliberate and intentional and, in our view, will be a good thing, right, if you see that. It'll mean that the growth plan is being executed on, and we're creating value for shareholders, and we're just paying people market comp, or better than market comp.
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Your next question comes from Alex Bostein at Goldman Sachs. Your line is open. Please go ahead. Just a reminder to unmute locally.
Yep, there we go. Sorry about that. So a bit of a nuanced question, but when we look at the trends in cost of trading, so like kind of VCME and payment forward of loan, things like that in the quarter, it seems to show a pretty meaningful divergence in the market making business. Those are down, obviously the trading results are up. So maybe just a little bit more granularity of what drove that.
And what I'm trying to get to, I guess, is are we starting to see some incremental benefits of internalization or things like that that could make sort of the the flow more profitable for you guys or there's something else went on this quarter that sort of boosted the net trading numbers within from from that perspective specifically uh thanks alex the answer is all the above when you know the the flow characteristics were attractive this quarter And in addition, again, I'd go back to the answer on, you know, it's not just a retail machine, although, you know, the business, that business had a great quarter. And, again, the flow was very attractive, I think, leading to some of the things you're talking about. But also a reminder that, you know, the business is not wholly dependent on retail and is pretty diversified both globally and by asset class. on the market-making side. So depending on the sources of that non-customer market-making P&L, you could get divergence in brokerage clearing exchange as a percentage of the gross number. I'm not sure I'd read anything permanent or long-term into it. I think over time, we're always looking to lower execution costs. We're always looking to internalize more to the extent we can and optimize, but some of that is environment dependent as opposed to just us getting better and better.
Yeah, understood. It's just the absolute divergence, not so much the percentage was very notable. One was up a lot, the other one was down a lot, but that's right. Okay, and then obviously we don't want to get into the habit of calling every month, But there's been quite significant change in the backdrop, you know, this April versus last year's April and obviously over the last couple of months. So any color you guys have on how the environment is unfolding so far in the second quarter, both on the retail side and just broadly would be super helpful.
Look, and you started your question with the correct answer, which is we really don't do this month to month. My only comment to you, well, I'd say two things. One is keep perspective, right? So, we had an all-time high here, and that, as Aaron said, is helped by the robust environment. Just because it's more muted, I think you said in your note, doesn't mean it isn't a very good environment. And, you know, we're only a third of the way through it, but you can see, you know, the headline numbers, you know, while not in terms of some of the numbers in the first quarter, are still very good from any perspective. So that's point one. Point two is we haven't talked about execution services, but if you look at the momentum in that business over the past two years, it has grown through the cycle, truly grown through the cycle in a number of different environments, and there's a tremendous amount of momentum there. There's client wins. there's multiple products kind of being tied together across clients so you know we're we're looking at that as as a you know the continued growth engine as well and that business has a tremendous amount of momentum great thank you guys very much your next question comes from kenneth worthington at jp morgan your line is open please feel free to speak hi uh good morning i want to go back to sort of patrick's question to get a better sense of how the investments that you've made contribute to the capacity to profit
over a cycle. And Aaron, you mentioned invested capital is up 20%. You've added headcount. You've invested in technology. You sort of implied that there's a multiplier on the 20% growth in invested capital. How do we think about that multiplier? Is it something like 1.1? Is it 1.3? It doesn't seem like it's something like a 0.9. How do we think about that multiplier over a cycle?
Hey, Ken, I think what Aaron was stating was that the ante, just in the trading income we achieved in this quarter would not have been achieved had we not increased our capital risk. I'm not sure there was any implication of a multiplier around capital. You know, if anything, there will be a multiplier in a good environment, but it all comes out in the return. That's it. We put the returns. The original purpose of that return slide was to demonstrate that we're a services business and not a, you know, a, you know, kind of a risk business. So, I'm not sure I'd read anything into any statement about a multiplier. What I'd say, I just repeat, capital is fungible, right? We're not, you know, we can't parse or bifurcate the new capital and the old capital. But I think what we're saying is that we are able to earn more because we had a bigger capital base, because there were greater opportunities. And it's important to remember that our capital is nimble, that we remain flexible and agile with it.
And it goes where the opportunities are. okay okay fair enough um and maybe as we think about new asset classes like predictive markets and tokenized markets so what do you see as holding you know more promise for virtue um and and where are you thinking about uh focusing investments there i mean it's hard to say i think we you know we we're kind of ready to be to trade in any any market any exchange and it's really about where the where the volume goes um you know tokenization might might be slightly easier just because to the extent things are linked to an underlier that we already trade
it's very easy for us to value and we know the trade very well whereas in prediction markets but you know we don't have any expertise particularly predicting like geopolitical events um but you know it really depends on volume to be honest okay great thank you your last question comes from michael cypress at morgan stanley your line is open please go ahead good morning great thanks for taking the question i was hoping to dig in on execution services and um hoping you could elaborate and unpack some of the drivers of the momentum that you're seeing across the execution
services business and if you can just remind us as well the top revenue contributors under the hood there and how that's evolved over the past couple years and how you see that mix and contributors evolving as you look out over the next couple of years?
Sure, Michael. This is Joe. I'll take that question. As I said, the business has a tremendous amount of momentum. The business has grown through the cycle. It has been a multi-year process since we acquired ITG around a common technology platform, emphasizing the penetration of these products through the customer base. I think what we inherited and what we bought was a very siloed organization. And I think Steve Cavoli and the team there have done an amazing job of tying together a global client list that is as blue chip as it gets. There is the same client list that your firm will have. We service, and we service them through products that we consider best in class, whether it's the Algo Suite or whether it is the analytics platform or or the ems triton right so i think that it's a business that's evolved that is you know the technology is really paying off uh and that you know is is increasing client penetration right and the margins have improved the business has been rationalized again we don't break out, you know, down to the EBITDA line for, you know, buy business. You know, when we bought ITG, it had a mid-teens EBITDA margin that is, you know, think of something that is best in class now that is, you know, a multiple of that, you know, in terms of, you know, in terms of how that business is performed. So, I think it's just a lot of work, a lot of blocking and tackling, and a great sales effort kind of tying together, you know, a diverse product offering across geographies and across different types of products, you know, to an incredible blue-chip client list.
Great, thanks. And then just a quick follow-up question on AI, clearly very quickly advancing. I was hoping you could talk about how you see the opportunity for agentic AI and if you could elaborate on how you're using generative and maybe even agentic AI today across the organization, how you see that evolving. What are some of the use cases and if you're able to quantify any sort of the benefits that you're seeing?
I'll answer that. So, I mean, I think like most other companies right now, we're definitely taking a look, doing exploratory things. You know, we do believe that with the right sort of focus and setup, it can really be a productivity enhancement for our software developers. But at the same time, you know, our company is really built on a code base, and we employ excellent engineers to maintain it. And it's something that is really beyond the capability of current tools to think about at a high level, reason about, and design. So, you know, in our environment, you know, introducing a bunch of technical debt of AI-generated slop is really never going to be in our business plan. But that being said, you know, pairing high, high-quality engineers with a tool that can, you know, just kind of execute at beyond human speed and do sort of like boilerplate grudge work, assist in explanations, we're definitely trying to use that internally. And, you know, I'd say it's a little early yet to determine the productivity impact, but I expect in the coming year or two, you know, it will have a material impact and maybe we'll have a little bit more to say.
And if I could just think of a quick follow-up on that, just curious what impact you see across the competitive landscape from these advances in AI and agentic AI.
Well, I mean, as I said in a previous call, I think the term AI is pretty overloaded. And if you just want to talk about statistical modeling, that's been a big part of competitive landscape for trading businesses for 30 years on Wall Street. And this is just like another iteration with novel advancements in models and hardware availability. I have zero insight as to what other people are doing with, quote unquote, agentic AI. So I don't really feel like I can give any color there.
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Your next question comes from Craig Siegenthaler at Bank of America. Your line is open. Please go ahead.
Good morning, everyone. Hope you're all doing well. First question on risk management, given the strong results. Yeah, let me. I'm changing the speaker. So can you hear me OK?
All right. Good. So given the strong results, we were curious, How do you quantify the changes in risk management that Virtua has been taking in the market-making business over the last few quarters?
I don't think there's been any change in risk management. If you're asking if that elevated P&L was the result of us taking on more risk and things we weren't doing before, the answer is no. And, Aaron, any way to quantify that? In terms of?
Well, in terms of how you guys look at risk. Yeah, no, I think that's the answer, is that based on how we look at risk, no. The answer is the risk profile of the firm has not changed materially.
I think that was Joe. Thank you, Joe. It is. One follow-up here. Some of your market-making peers operate a hedge fund in parallel to the core business. I'm curious why Virtu doesn't look at doing that. That could provide a whole new revenue source for the company. So just wondering how you think about that potential strategic initiative.
That is a tough one, Craig. I'm not sure which competitors you're referring to. We're a public company, obviously, and we maintain a dividend. I think you might be referring to some competitors that have been around a long time, are bigger, and maybe have retained personal capital in the firm that they use to make investments or have a side pocket hedge fund. We haven't contemplated virtue asset management lately, but, you know, we'll talk a few years from now and see, okay? I don't want to be misinterpreted. We're not currently contemplating anything around beginning a hedge fund.
I guess, like, another way to think about it, and this is, again, something we've highlighted on previous calls. At the moment, you know, our business is very high-sharp but capacity-constrained. So acquiring a bunch of assets, we wouldn't really have a productive use for them. And in order to deploy them, we'd probably have to put them in far lower sharp strategies, and we already have difficulty explaining the variance in our earnings quarter to quarter. So I think it would just make the problem much worse.
Yeah, you asked about risk management, and we don't have an infrastructure in place to really manage, you know, a sharp one type or sharp two hedge fund setup.
Got it. And listen, I think some of your peers, Citadel, Susquehanna, their hedge fund strategies are different than the market-making strategy. So I don't know if capacity is really an issue for them.
Well, Citadel is a great firm, but they began as a hedge fund. So that's a different evolution of the firm.
Well, but I think you're right, right? But that's not our expertise. We don't hire a bunch of long, short guys and give them a risk allocation and say, good luck to you. like we run highly automated electronic market making strategies backed by statistical research that is capacity limited at the scale we're talking about got it guys thank you for taking my questions this concludes our q a session i will now turn the call back to aaron simmons simons ceo for closing remarks uh nothing really but thanks everyone for joining and thanks for the questions and we'll talk to you next quarter this concludes today's call thank you for attending
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