Tradeweb Markets Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Record Performance: Record revenue of nearly $450M, up 36.7% year-over-year on a reported basis, with adjusted EBITDA margins expanding by 154 basis points.
• Market Share Growth: Continued to gain market share in many markets, with multi-asset class trading contributing ~50% of revenue growth.
• Acquisitions: Closed the ICD acquisition in August, with yield broker integration completed five months ahead of schedule.
• Specific Business Areas:
  • U.S. treasuries: Record third quarter revenues, 50%+ market share in U.S. treasuries, strong institutional and wholesale activity.
  • ETFs: Over 20% year-over-year revenue growth, with institutional equity derivative revenues also strong.
  • U.S. credit: Double-digit revenue growth, focus on RFQ Edge, Aladdin integration, and EM expansion.
  • Global swaps: Record revenues, 51% year-over-year growth, 22.4% market share, with EM swaps up 80% year-over-year and RFM protocol growing.

Segment Performance

• Rates: Record third quarter revenues, driven by organic growth across swaps, global government bonds, and mortgages, supplemented by rate fin and yield broker. Revenue contribution is significant, with strong growth in these areas.
• Credit: Strength in U.S. and European corporate bonds, credit derivatives, municipal bonds, and China bonds. Achieved second highest quarterly market share in electronic U.S. high grade and high yield.
• Money markets: Boosted by the acquisition of ICD and growth in U.S. and European repos.
• Equities: Posted double-digit revenue growth, primarily led by the global ETF business and solid growth in equity derivatives.
• Market data: Driven by growth in the LSEG market data contract and proprietary data products.

Guidance

• Adjusted expense guidance increased to $855M-$875M, trending towards the midpoint.
• Expect adjusted EBITDA margin expansion to exceed 2023 levels.
• CapEx and capitalized software development estimated at $77M-$85M for 2024.
• Acquisition and Refinitiv transaction related D&A expected at $158M.
• LSEG revenue guidance: ~$80M in 2024 and ~$90M in 2025.
• Higher occupancy expenses expected in 2025 due to new NYC headquarters.

Risks

• Market Fluctuations: Volatility in financial markets can impact client activity and trading volumes.
• Intense Competition: Fierce competition in the financial technology space may affect market share and pricing.
• Regulatory Changes: Evolving regulations could impact business operations and compliance requirements.

Question and Answer

• Q: Chris Allen of Citi on credit platform evolution and block penetration A: Billy Hult discussed focus on client feedback, the launch of RFQ Edge, enhancements to portfolio trading workflows, and continuing to deliver best-in-class technology.
• Q: Bill Katz of TD Cowen on fee per million in swaps and private credit A: Billy Hult and Sara Furber discussed fee per million calculations, private credit trends, and monitoring market access activities and Apollo's ETF launch.
• Q: Richard Fellinger of Autonomous on expense growth and margin expansion A: Sara Furber talked about a multi-year view of expenses, comp growth, and the impact of ICD integration and the new NYC headquarters on expenses.
• Q: Alex Blostein of Goldman Sachs on fee per million in swaps and revenue growth A: Billy Hult emphasized the long-term growth potential of the swaps business, focusing on EM inroads, the RFM protocol, and electronification opportunities.
• Q: Michael Cyprys of Morgan Stanley on ICD contribution and rate moves A: Sara Furber discussed ICD integration, global expansion, product offering expansion, and money market trends in declining rate environments.
• Q: Dan Fannon of Jefferies LLC on portfolio trading pricing pressure A: Billy Hult talked about competition, value creation, and portfolio trading's unique functionality and pricing model.
• Q: Kyle Voigt of KBW on M&A and asset classes A: Billy Hult and Sara Furber discussed M&A readiness, integration of ICD, and exploring minority investments and partnerships.
• Q: Patrick Moley of Piper Sandler on rates business and velocity A: Billy Hult discussed the strength of the rates business, market share gains, and velocity from alternative market makers and buy-side sophistication.
• Q: Benjamin Budish of Barclays on mortgage business A: Billy Hult discussed mortgage volume increase, convexity hedging, and opportunities in specified pools.
• Q: Ken Worthington of JP Morgan on rates and credit activity A: Sara Furber and Billy Hult talked about market share growth from non-market volume factors and confidence in electronification in EM swaps.
• Q: Alex Kramm of UBS on October revenue and credit market share A: Sara Furber clarified organic growth in October, and Billy Hult discussed innovation, competition, and market share strategies