Tradeweb Markets Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue Milestone: Achieved the best revenue quarter in history, surpassing $500 million in quarterly revenues with 24.7% year-over-year growth.
• Business Areas: Rates, credit, global swaps, equities, and market data all had notable performances; continued investments in technology and innovation.
• Specific Initiatives: U.S. Treasuries had record market share and revenues; ETFs and equity derivatives saw growth; credit business shifted pricing model with subscription fees and minimum floors; emerging markets credit and swaps expansion efforts; RFM protocol adoption growth.

Segment Performance

• Rates: Record revenue quarter with swaps, global government bonds, and mortgages driving growth; credit led by munis and credit derivatives; money markets boosted by ICD and global repos; equities saw double-digit growth; market data from LSEG contract and proprietary products. Rates business was a key contributor, with various segments contributing to overall revenue.
• Credit: High single-digit revenue growth, strong in munis and credit derivatives; global cash credit had low single-digit growth; automation surged; progress in emerging markets credit expansion.
• Global Swaps: Record revenues driven by client engagement, risk trading mix, and duration increase; core risk market share was second highest; EM swaps and RFM protocol showed significant growth.

Guidance

• 2025 Expenses: Expect adjusted expenses to range from $970 million to $1.03 billion, with margin expansion expected as investments support growth.
• Credit Revenues: Anticipate credit fixed revenues to increase by approximately $6 million to $7 million in Q2 2025, shifting from variable to fixed fees, with the shift being revenue neutral overall.
• CapEx: Expect capital expenditure spend to increase as the year progresses.
• LSEG Agreement: Expect approximately $90 million in revenues from the master data agreement with LSEG.

Risks

• Macro and Geopolitical: Evolving macro backdrop and geopolitical risks impacted the first quarter, but the company thrives in change and complexity.
• Market Volatility: Volatility in markets, such as in U.S. Treasuries and credit, affected fee per million and volume mix; elevated volatility in March led to discounts in wholesale credit business.
• Regulatory: Changes in banking regulations, like the SLR ratio, could impact treasury market liquidity and trading volumes, though positive regulatory changes are viewed as beneficial.

Question and Answer

Q: Dig into rate market commentary, impact of long end of curve, basis swap spreads, risk appetite A: Massive market moves occurred, the platform held up resiliently, tariffs drive volatility, and the rates leader position is expected to prosper.

Q: Credit pricing transition from variable to fixed, timing of changes A: There's a balance between recurring and variable fees; credit fixed revenues were 7% in 2024 and are expected to shift to ~13% by the end of 2025 Q2, with the shift being revenue neutral overall, and 85% variable fees remaining.

Q: Implications of Citadel's bond trade pitch on credit e-trading, credit growth algo A: Citadel's moves don't cap revenue opportunity; 85% variable fees allow volume-driven growth, with focus on market share, new protocols, and partnerships.

Q: Portfolio trading launch for European government bonds, use case vs credit, fee rates A: Portfolio trading is scalable across asset classes, fits European sovereign curve trading, and is applicable to U.S. spread-based products with no immediate fee rate implications.

Q: Regulatory impact on banking regulations, SLR ratio, treasury market A: Loosening the SLR ratio could increase treasury market liquidity, allowing more trading, lower yields, and improved depth.

Q: Impact of U.S. exceptionalism perception selloff on Tradeweb's business A: The strong international business diversifies risk, and the global platform resilience helps navigate historic market moments.

Q: Digital assets strategy, use cases, tokenization hurdles A: The company invests in a distributed ecosystem, partners with Smart Money clients, and focuses on collateral management and integration with existing infrastructure.

Q: Capital allocation, M&A appetite, buyback opportunism A: M&A remains the preferred use of cash with a disciplined approach; the balance sheet strength allows nimble opportunism, and share repurchases are tied to accretion.