Tradeweb Reports Third Quarter 2019 Financial Results

Tradeweb Markets Inc. (Nasdaq: TW), a leading, global operator of electronic marketplaces for rates, credit, equities and money markets, today reported financial results for the quarter ended September 30, 2019. The financial results announced today are consistent with the preliminary financial results for the three and nine months ended September 30, 2019, announced on October 15, 2019.

Lee Olesky, Chief Executive Officer of Tradeweb Markets, said, “Tradeweb generated record revenue in the third quarter and double-digit growth in revenue year over year. The diversity of our revenue growth is a testament to our ability to drive electronic trading by collaborating with clients and leveraging our network to deliver innovative new offerings across both cornerstone and newer products. We remain focused on capitalizing on a number of long-term secular trends and organically enhancing customer workflows to continue aggressively pursuing growth while working to increase margins.”

Third Quarter Highlights

• A new quarterly record for average daily volume (“ADV”) of $815.0 billion represented an increase of 53.3% year over year
• During the quarter, a total of 13 trading days with greater than $1 trillion in notional volume
• New quarterly records for ADV in rates and credit derivatives, European government bonds, mortgages, European ETFs and Chinese bonds
• New quarterly records for U.S. high-grade and high-yield credit of 12.5% and 4.1% market share of TRACE volume, respectively, during the quarter
• Net income of $48.6 million, including net income attributable to Tradeweb Markets Inc. of $29.6 million, and GAAP earnings per diluted share (“Diluted EPS”) of $0.20 for the quarter
• Adjusted EBITDA margin of 46.5%, Adjusted EBIT margin of 41.3%, Adjusted Net Income of $61.6 million and Adjusted Net Income per diluted share (“Adjusted Diluted EPS”) of $0.27 for the quarter

Gross revenue increased 21.6% (23.4% on a constant currency basis) to a record $201.0 million for the third quarter of 2019 from $165.3 million for the third quarter of 2018. Net income increased to $48.6 million for the third quarter of 2019 from $46.0 million for the third quarter of 2018. Net income for the third quarter of 2019 was impacted by net depreciation and amortization expense of $18.3 million as a result of the Refinitiv Transaction and the resulting revaluation of our balance sheet. Diluted EPS for Tradeweb Markets Inc. was $0.20 for the third quarter of 2019. Diluted EPS for Tradeweb Markets LLC was $0.21 for the third quarter of 2018.

Adjusted EBITDA increased 40.3% to $93.4 million with an Adjusted EBITDA margin of 46.5% for the third quarter of 2019 compared to Adjusted EBITDA of $66.6 million and an Adjusted EBITDA margin of 40.3% for the third quarter of 2018 (on a constant currency basis, Adjusted EBITDA margin increased 672 basis points compared to the third quarter of 2018). Adjusted EBIT increased 46.5% to $83.1 million with an Adjusted EBIT margin of 41.3% for the third quarter of 2019 compared to Adjusted EBIT of $56.7 million and an Adjusted EBIT margin of 34.3% for the third quarter of 2018 (on a constant currency basis, Adjusted EBIT margin increased 770 basis points compared to the third quarter of 2018). Adjusted Net Income increased 45.9% to $61.6 million for the third quarter of 2019 from $42.3 million for the third quarter of 2018. Adjusted Diluted EPS was $0.27 for the third quarter of 2019 compared to $0.19 for the third quarter of 2018.

Discussion of Results

Rates – Revenues from rates of $115.5 million in the third quarter of 2019 increased 24.7% compared to the third quarter of 2018. ADV in rates of $563.4 billion for the third quarter of 2019 increased 64.5% due mainly to strong year-over-year growth in trading activity in both long and short-tenor interest rate swaps and swaptions, mortgages and U.S. Treasuries.

Credit – Revenues from credit of $39.6 million in the third quarter of 2019 increased 17.6% compared to the third quarter of 2018. ADV in credit of $17.2 billion for the third quarter of 2019 increased 44.7% due mainly to a new quarterly record for credit derivatives volumes and increased trading activity in U.S. high-grade and high-yield credit and Chinese bonds.

Equities – Revenues from equities of $12.3 million in the third quarter of 2019 increased 45.4% compared to the third quarter of 2018. ADV in equities of $7.3 billion for the third quarter of 2019 increased 27.8% due mainly to a new quarterly record for European ETF volumes and increased trading activity in U.S. ETFs.

Money Markets – Revenues from money markets of $10.5 million in the third quarter of 2019 increased 20.9% compared to the third quarter of 2018. ADV in money markets of $227.1 billion for the third quarter of 2019 rose 32.4% due to the continued growth of bilateral electronic trading in repurchase agreements.

Market Data – Revenues from market data of $16.9 million in the third quarter of 2019 increased 7.3% compared to the third quarter of 2018 from the expansion of our market data license agreement with Refinitiv in November 2018.

Other – Revenues from other of $6.2 million in the third quarter of 2019 increased 1.2% compared to the third quarter of 2018.

Mr. Olesky added, “Tradeweb’s focus on identifying market needs by collaborating with clients to deliver innovative new offerings, is driving the expansion of electronic trading. We set new records for trading activity in the third quarter in rates and credit derivatives, European government bonds, mortgages, European ETFs and Chinese bonds, reflecting growth from both organic initiatives at Tradeweb as well as a number of long-term secular trends. As we look ahead, we believe we are well positioned to continue to create value for our customers and shareholders.”

Operating Expenses – Operating expenses of $142.7 million in the third quarter of 2019 included a net depreciation and amortization expense of $18.3 million as a result of the Refinitiv Transaction and the resulting revaluation of our balance sheet as well as a non-cash, stock-based compensation expense of $2.0 million related to options. Excluding these items, as well as certain gains and losses, Adjusted Expenses were $117.9 million in the third quarter of 2019. Adjusted Expenses increased 8.6% year over year due primarily to increased revenue-related expenses as well as higher employee compensation and benefits expense related to an increase in headcount. Please see "Non-GAAP Financial Measures" below for additional information.

Other Matters

Assets as of September 30, 2019 included $389.9 million in unrestricted cash and cash equivalents. In the first three quarters of 2019, Tradeweb generated $190.5 million of cash flow from operating activities and $160.7 million of Free Cash Flow representing year-over-year increases of 15.6% and 15.6%, respectively. Please see "Non-GAAP Financial Measures" below for additional information.

Follow-On Offering

Tradeweb Markets Inc. completed a follow-on offering of 17,287,878 shares of Class A Common stock at a price to the public of $42.00 per share on October 22, 2019. The underwriters have a 30-day option to purchase up to an additional 2,593,181 shares at the public offering price, less the underwriting discounts and commissions. Tradeweb Markets Inc. used the proceeds of $704.3 million from the offering, net of underwriting discounts and commissions, but before estimated offering expenses, to purchase equity interests from certain existing owners. Refinitiv continues to own a controlling interest in Tradeweb following the offering.

Full-Year 2019 Guidance*

• Adjusted expenses of $460 - $475 million are expected to trend to the lower half of the range
• Assumed non-GAAP tax rate of 26.4%
• Capital expenditures and capitalization of software of $42 - $48 million
• Acquisition and Refinitiv Transaction related depreciation and amortization expense of $98 million
• Fourth quarter non-cash stock-based compensation expense associated with options of approximately $2 million

*GAAP operating expenses and tax rate guidance are not provided due to the inherent difficulty in quantifying certain amounts due to a variety of factors including the unpredictability in the movement of foreign currency rates.

Dividend

The Board of Directors of Tradeweb Markets Inc. declared a cash dividend of $0.08 per share of Class A common stock and Class B common stock for the third quarter of 2019. The dividend will be payable on December 16, 2019 to stockholders of record as of December 2, 2019.

Conference Call

Tradeweb Markets will hold a conference call to discuss third quarter 2019 results starting at 8:30 a.m. Eastern Time today, November 7, 2019. A live, audio webcast of the conference call along with related materials will be available at http://investors.tradeweb.com. Alternatively, interested parties can access the call by dialing 866-221-1629 (U.S.) or +1 470-495-9175 (international) and entering passcode 6925059. After the conference call, an archived recording will be available at http://investors.tradeweb.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. Statements related to, among other things, our guidance, including 2019 guidance, and future performance, the industry and markets in which we operate, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions and future events are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed under the heading “Risk Factors” in documents of Tradeweb Markets Inc. on file with or furnished to the SEC, may cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this release are not guarantees of future performance and our actual results of operations, financial condition or liquidity, and the development of the industry and markets in which we operate, may differ materially from the forward-looking statements contained in this release. In addition, even if our results of operations, financial condition, or liquidity, and events in the industry and markets in which we operate, are consistent with the forward-looking statements contained in this release, they may not be predictive of results or developments in future periods. Any forward-looking statement that we make in this release speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this release.

Presentation

The historical financial information and other disclosures contained in this press release relate to periods that ended both prior to and after the completion of the Reorganization Transactions and the IPO of Tradeweb Markets Inc. (unless the context otherwise requires, together with its subsidiaries, referred to as “we,” “our,” “Tradeweb,” “Tradeweb Markets” or the “Company”). The IPO closed on April 8, 2019. As a result of certain reorganization transactions (the “Reorganization Transactions”) completed in connection with the IPO, on April 4, 2019, Tradeweb Markets Inc. became a holding company whose only material assets consist of its equity interest in Tradeweb Markets LLC (“TWM LLC”) and related deferred tax assets. As the sole manager of TWM LLC, Tradeweb Markets Inc. operates and controls all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conducts its business. As a result of this control, and because Tradeweb Markets Inc. has a substantial financial interest in TWM LLC, Tradeweb Markets Inc. consolidates the financial results of TWM LLC and its subsidiaries. The historical financial information contained in this press release relating to periods prior to and including March 31, 2019, which we refer to as the “pre-IPO period,” pertain to TWM LLC, the predecessor of Tradeweb Markets Inc. for financial reporting purposes. The historical financial information contained in this press release relating to periods beginning on April 1, 2019, and through and including September 30, 2019, which we refer to as the “post-IPO period,” pertain to Tradeweb Markets Inc. The pre-IPO period excludes, and the post-IPO period includes, our financial results from April 1, 2019 through April 3, 2019, which are not material.

On October 1, 2018, Refinitiv Holdings Ltd. (“Refinitiv”), which is controlled by certain investment funds affiliated with The Blackstone Group L.P., an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd. and certain co-investors, indirectly acquired substantially all of the financial and risk business of Thomson Reuters Corporation and Thomson Reuters Corporation indirectly acquired a non-controlling ownership interest in Refinitiv (collectively, the “Refinitiv Transaction”). As a result of the Refinitiv Transaction, as a consolidating subsidiary of Refinitiv, we accounted for the Refinitiv Transaction using pushdown accounting. Due to the change in the basis of accounting resulting from the application of pushdown accounting, the financial information for the period beginning on October 1, 2018, and through and including September 30, 2019, or the “successor period,” and the financial information for the periods prior to, and including, September 30, 2018, or the “predecessor period,” are not comparable. However, the change in basis resulting from the Refinitiv Transaction did not impact certain financial information, specifically revenues and certain expenses.

Non-GAAP Financial Measures

This release contains “non-GAAP financial measures,” including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Expenses and Free Cash Flow, which are supplemental financial measures that are not calculated and presented in accordance with GAAP. We make use of non-GAAP financial measures in evaluating our past results and future prospects. We present these non-GAAP financial measures because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management and our board of directors use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin to assess our financial performance and believe they are helpful in highlighting trends in our core operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Further, our executive incentive compensation is based in part on components of Adjusted EBITDA.

We use Adjusted Net Income and Adjusted Diluted EPS as supplemental metrics to evaluate our business performance in a way that also considers our ability to generate profit without the impact of certain items. Each of the normal recurring adjustments and other adjustments included in Adjusted Net Income and Adjusted Diluted EPS help to provide management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

We use Adjusted Expenses as a supplemental metric to evaluate our underlying operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

We use Free Cash Flow to assess our liquidity in a way that considers the amount of cash generated from our core operations after expenditures for capitalized software development costs and furniture, equipment and leasehold improvements.

See the attached schedules for reconciliations of the non-GAAP financial measures contained in this release to their most comparable GAAP financial measure. Non-GAAP financial measures have limitations as analytical tools, and you should not consider these non-GAAP financial measures in isolation or as alternatives to net income attributable to Tradeweb Markets Inc., net income, earnings per share, operating income, operating expenses or cash flow from operating activities or any other financial measure derived in accordance with GAAP. You are encouraged to evaluate each adjustment included in the reconciliations. In addition, in evaluating Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Expenses and Free Cash Flow, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of these non-GAAP financial measures. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, the non-GAAP financial measures contained in this release may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

We present certain growth information on a “constant currency” basis. Since our consolidated financial statements are presented in U.S. dollars, we must translate non-U.S. dollar revenues and expenses into U.S. dollars. Constant currency growth, which is a non-GAAP financial measure, is defined as growth excluding the effects of foreign currency fluctuations. Constant currency information is calculated by translating the current period and prior period’s results using the average exchange rates for 2018. We use constant currency growth as a supplemental metric to evaluate our underlying performance between periods by removing the impact of foreign currency fluctuations. We present certain constant currency growth information because we believe it provides investors and analysts a useful comparison of our results and trends between periods. This information should be considered in addition to, not as a substitute for, results reported in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies.

Tradeweb Social Media

Investors and others should note that Tradeweb Markets announces material financial and operational information using its investor relations website, press releases, SEC filings and public conference calls and webcasts. Information about Tradeweb Markets, its business and its results of operations may also be announced by posts on the Company’s accounts on the following social media channels: Instagram, LinkedIn and Twitter. The information that we post through these social media channels may be deemed material. As a result, we encourage investors, the media, and others interested in Tradeweb Markets to monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. These social media channels may be updated from time to time on our investor relations website.

About Tradeweb Markets

Tradeweb Markets Inc. (Nasdaq: TW) is a leading, global operator of electronic marketplaces for rates, credit, equities and money markets. Founded in 1996, Tradeweb provides access to markets, data and analytics, electronic trading, straight-through-processing and reporting for more than 40 products to clients in the institutional, wholesale and retail markets. Advanced technologies developed by Tradeweb enhance price discovery, order execution and trade workflows while allowing for greater scale and helping to reduce risks in client trading operations. Tradeweb serves approximately 2,500 clients in more than 65 countries. On average, Tradeweb facilitated more than $700 billion in notional value traded per day over the past four fiscal quarters.

The following table summarizes the calculation of Adjusted Diluted EPS for the three and nine months ended September 30, 2019 and 2018:

TRADEWEB MARKETS INC.
BASIC AND DILUTED EPS CALCULATIONS (UNAUDITED)
Dollars in Thousands, Except per Share Data

The following table summarizes the basic and diluted earnings per share calculations for Tradeweb Markets LLC (pre-IPO period):

The following table summarizes the basic and diluted earnings per share calculations for Tradeweb Markets Inc. (post-IPO period):

To access historical traded volumes, go to https://www.tradeweb.com/newsroom/monthly-activity-reports/.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191107005337/en/

Investors
Ashley Serrao, Tradeweb + 1 646 430 6027
[email protected]

Media
Jonathan Mairs, Tradeweb +1 646 430 6176
[email protected]