Tradeweb(US:TW)2024-02-08 16:00Introductory Note This section details Tradeweb Markets Inc.'s holding company structure, key terms, and market data presentation basis - Tradeweb Markets Inc. became a holding company after its IPO in April 2019, consolidating Tradeweb Markets LLC, which became its principal operating subsidiary1617 - The report's market and industry data are based on management's knowledge, experience, and information from various public and industry sources, with an acknowledgment of inherent uncertainties and imprecision in estimates2122 - LSEG (formerly Refinitiv) acquired the Refinitiv business in January 2021 and indirectly held a majority ownership interest in Tradeweb1823 Use of Non-GAAP Financial Measures Tradeweb uses non-GAAP measures like Free Cash Flow and Adjusted EBITDA to assess performance, noting their limitations - Tradeweb uses non-GAAP financial measures including Free Cash Flow, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income, and Adjusted Diluted EPS, as well as constant currency changes26 - Free Cash Flow is presented as a useful indicator of liquidity, showing cash generated from core operations after capital expenditures27 - Adjusted EBITDA and Adjusted EBIT are used to compare operating performance across reporting periods by excluding items not indicative of core operations, and are part of the executive incentive compensation program28 - Non-GAAP measures have limitations, such as not reflecting all expenditures, working capital changes, interest/tax expenses, or asset replacement costs, and may not be comparable to similarly titled measures from other companies31 Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to significant risks, advising against undue reliance - Forward-looking statements are based on current expectations, assumptions, estimates, and projections, but involve known and unknown risks and uncertainties beyond the company's control34 - Key factors that could cause actual results to differ materially include changes in economic/market conditions, competition, failure to adapt to industry changes, consolidation, dependence on dealer clients, system defects, reliance on third parties, inability to achieve ESG goals, integration of acquisitions, international operation risks, cybersecurity, extensive regulation, and management retention3539 - The company does not undertake any obligation to update or revise forward-looking statements, except as required by law38 Part I Item 1. Business Tradeweb is a global leader in electronic marketplaces, serving diverse clients across asset classes with proprietary technology Overview - Tradeweb is a global leader in building and operating electronic marketplaces for institutional, wholesale, and retail clients across rates, credit, equities, and money markets in over 70 countries41 - The company provides solutions across the trade lifecycle, including pre-trade, execution, post-trade, and data, leveraging proprietary technology and collaborative innovation41 - Electronic trading is increasing due to market demand for greater transparency, higher execution quality, operational efficiency, lower costs, and regulatory changes43 Our Evolution - Founded in 1996, Tradeweb launched its first electronic marketplace in 1998 for institutional U.S. Treasury trading and has since expanded globally and across asset classes47 - Key acquisitions include Hilliard Farber & Co. (2008), Rafferty Capital Markets (2011), BondDesk (2013), Nasdaq's U.S. fixed income platform (2021), Yieldbroker (2023), and r8fin (2024), expanding wholesale, retail, and algorithmic trading capabilities48 - Innovations like Request-for-Quote (RFQ), blast all-to-all (A2A), and portfolio trading have increased estimated average daily trading volumes from $0.6 trillion in 1998 to $8.8 trillion by December 31, 20234950 Our Competitive Strengths - Tradeweb's large network and deep liquidity pools drive efficient trade execution and attract new users, benefiting from a virtuous cycle of liquidity52 - The company is a market leader in electronic trading for products such as U.S. Treasuries, U.S. High-Grade credit, TBA MBS, European government bonds, global interest rate swaps, and European ETFs53 - Proprietary, scalable, and flexible technology, combined with a culture of collaborative innovation, enables rapid development of customized solutions and integration with client workflows5557 - Data and analytics, including Automated Intelligent Execution (AiEX) which executed over 35% of institutional trades in 2023, enhance trading decisions and platform value59 Our Growth Strategies - Tradeweb aims to grow existing markets by capitalizing on increasing underlying asset class volumes (e.g., global government bonds, interest rate swaps, ETFs) and increasing market share through electronification of workflows646566 - The company expands its product set and geographic reach, including initiatives in China (BondConnect, CIBM Direct, Swap Connect) and new solutions like EM bond FX swap workflow and multi-asset package (MAP) trading6869 - Enhancing data and analytics capabilities, including an amended LSEG market data agreement and a strategic partnership with FTSE Russell, is a key strategy for developing innovative solutions and monetizing data717273 - Strategic acquisitions and alliances, such as Yieldbroker and r8fin, are pursued to enhance existing capabilities, leverage scale, and accelerate entry into new markets75 Our Client Sectors - Tradeweb serves over 2,500 clients across institutional, wholesale, and retail sectors, providing deep liquidity pools through its Tradeweb Institutional, Dealerweb, and Tradeweb Direct platforms7677 - The Institutional platform serves over 1,950 clients, including 90% of the world's largest 100 asset managers, offering diverse products and trading protocols like RFQ and portfolio trading7980 - Dealerweb (Wholesale) provides electronic, hybrid, and voice trading for over 300 dealers, with e-participant growth exceeding 90% since 2016, while Tradeweb Direct (Retail) serves over 50,000 financial advisors with micro-lot liquidity8182 Our Asset Classes and Products - Tradeweb facilitates trading across Rates (global government bonds, securitized products, SSAs, global rates derivatives), Credit (global credit, European structured notes, municipal bonds, China bonds, global credit derivatives), Equities (global ETFs, global cash equities, global convertible bonds, global equity derivatives), and Money Markets (repurchase agreements, agency discount notes, commercial paper, certificates of deposit)838588 Our Geographies - Tradeweb has a global footprint, serving over 2,500 clients in more than 70 countries across the Americas (1,500+ clients), EMEA (700+ clients), and APAC (300+ clients), with offices in North America, Europe, Asia, Australia, and the Middle East8689 - The company supports trading across over 25 currencies globally, leveraging its expertise in multiple jurisdictions to expand operations8687 Our Solutions - Pre-trade solutions include real-time market data, streaming price updates for over 50 products, and innovative tools like Automated Intelligent Price (Ai-Price) for bond pricing8861 - Trade execution is supported by diverse protocols such as Request-for-Quote (RFQ), Request-for-Market (RFM), Request-for-Stream (RFS), list trading, compression, Blast all-to-all (A2A), Click-to-Trade (CTT), portfolio trading, session-based trading, Central Limit Order Book (CLOB), directed streams, inventory-based, Rematch, and voice brokering9194 - Automated Intelligent Execution (AiEX) allows clients to automate high volumes of trades, with over 35% of institutional trades executed using this functionality in 20239359 - Post-trade solutions include electronic allocation, settlement information, real-time clearing/reporting, Transaction Cost Analysis (TCA), best execution reporting, and regulatory reporting services (APA) for MiFID II94 Sales and Marketing - Tradeweb employs a team-based sales organization focused on new client acquisition and managing existing relationships, leveraging product and regional expertise95 - Senior executives provide thought leadership on market trends, regulatory changes, and technology advancements through media, industry events, and webinars96 - Marketing strategies include a public website, advertising, digital and social media, direct marketing, and industry conferences to strengthen brand position and explain offerings97 Competition - Tradeweb operates in a highly competitive industry, competing with other electronic trading platforms (e.g., MarketAxess, Bloomberg, ICE), exchanges (e.g., CME Group, CBOE), inter-dealer brokers, EMS/OMS providers, single-bank systems, and market data/information vendors99104 - Competition is primarily based on client network, domain expertise, breadth of offerings, ease of platform integration, and the quality, reliability, security, and ease of use of its solutions98 - Industry consolidation has intensified competition, with larger, more sophisticated competitors potentially offering lower costs or wider ranges of services100 Proprietary Technology - Tradeweb's proprietary technology infrastructure is scalable, flexible, and resilient, supported by over 350 technologists with deep market knowledge101102 - Key aspects include nimble product development, a component-based and modular architecture, strong business continuity and disaster recovery planning with redundant data centers (10 globally), and continuous security monitoring104105106 Intellectual Property - Tradeweb protects its proprietary technology, processes, and intellectual property through a combination of copyright, patent, trade secret, and trademark laws, as well as written agreements107108 - The company holds patents or pending patents for significant trading protocols and system technology, and has registered trademarks including 'Tradeweb,' 'Dealerweb,' and 'Tradeweb Direct'107108 Regulation - Tradeweb's business is extensively regulated in numerous jurisdictions globally, including the U.S., UK, EU, Japan, Hong Kong, Singapore, and Australia, by governmental and self-regulatory organizations109120 - U.S. operations are regulated by the SEC (broker-dealers, ATS), CFTC (SEFs, swaps), FINRA, MSRB, and NFA, with significant regulatory changes like the Dodd-Frank Act and proposed expansions to Regulation ATS and SCI113114115117118 - Non-U.S. operations are subject to regulations like MiFID II/MiFIR in the EU, and new frameworks such as the Digital Operational Resilience Act (DORA) and ESMA's Union Strategic Supervisory Priorities (USSPs) focusing on cyber risk and digital resilience123124125 - Certain subsidiaries are subject to jurisdiction-specific regulatory capital requirements, and all regulated entities maintained sufficient capital as of December 31, 2023126747 Human Capital - As of December 31, 2023, Tradeweb had 1,179 employees globally, with a focus on attracting and retaining top talent through a diverse, inclusive, and safe workplace142143 - The company promotes Diversity, Equity, and Inclusion (DE&I) through a dedicated committee, the Global Women's Network, and partnerships with external organizations, including the Spotlight Dealer Diversity Program to promote diverse dealers144145 - Tradeweb offers robust compensation and benefits programs, health and well-being initiatives, and invests in talent development through continuous learning opportunities, internships, and mentoring programs147148149 Corporate Sustainability – Environmental, Social and Governance Matters - Tradeweb is committed to corporate sustainability, publishing its third annual Corporate Sustainability Report in August 2023, outlining its ESG goals and progress152 - Environmental efforts include minimizing its global emissions footprint, purchasing renewable energy certificates for 2023 U.S. and Asian energy usage, and publishing its inaugural TCFD report153 - The company joined the Climate Bonds Initiative (CBI) Partnership Programme, with CBI-screened Green Bond trading on Tradeweb increasing 46% to $292.0 billion in 2023154 - Strong governance structures, including a diverse Board of Directors and an ESG Steering Committee, oversee the integration of ESG strategy into the business156 Our Organizational Structure - Tradeweb Markets Inc. is a Delaware-incorporated holding company, with its principal asset being an equity interest in Tradeweb Markets LLC, whose financial results it consolidates157 - As of December 31, 2023, Tradeweb Markets Inc. owned 90.2% of Tradeweb Markets LLC, with non-controlling interests holding the remaining 9.8%157579 LSEG Transaction - London Stock Exchange Group plc (LSEG) acquired the Refinitiv business on January 29, 2021, making LSEG the controlling shareholder of Refinitiv, which in turn remained the controlling shareholder of Tradeweb158159 - As of December 31, 2023, Refinitiv controlled approximately 89.9% of Tradeweb's combined voting power159 - The LSEG transaction did not result in material changes to Tradeweb's strategy, day-to-day operations, or management, and its market data license agreement with LSEG was amended in November 2023159 Available Information - Tradeweb makes its SEC filings (Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements) available free of charge on its website (www.tradeweb.com) and through the SEC's website (www.sec.gov)[160](index=160&type=chunk) - Material financial and operational information is also announced via its investor relations website, press releases, public conference calls, webcasts, and social media channels (Instagram, LinkedIn, and X)161 Item 1A. Risk Factors This section outlines significant risks to Tradeweb's business, financial condition, and stock, covering market, operations, and governance factors Risk Factors Summary - Investing in Class A common stock involves a high degree of risk, with potential for material adverse effects on business, financial condition, and results of operations163 - Principal risk categories include: Market and Industry Dynamics and Competition, Operation and Performance of Business, Growth Strategies and other Strategic Opportunities, International Operations, Cybersecurity and Intellectual Property, Legal, Regulatory and Tax Considerations, Indebtedness, Organizational Structure and Governance, and Ownership of Class A Common Stock166167168169170171 Risks Relating to Market and Industry Dynamics and Competition - Economic, political, and market conditions (e.g., interest rate volatility, geopolitical events, inflation) may reduce trading volumes and profitability, especially if market participants revert to voice trading during high volatility173174175 - Tradeweb faces intense competition from other electronic trading platforms, exchanges, inter-dealer brokers, single-bank systems, and market data vendors, with larger competitors having greater resources and ability to adapt to changes177178179181 - Failure to adapt effectively to rapidly evolving industry changes, including new technologies (like AI), client demands, and regulatory requirements, could harm competitiveness and financial results182183185 - Consolidation in the financial services industry could lead to a smaller client base, increased competition, and reduced trading volumes, potentially increasing dependence on large dealer clients187189 Risks Relating to the Operation and Performance of our Business - Tradeweb is dependent on dealer clients to provide liquidity, and most liquidity-taking clients do not have long-term contracts, posing risks to trading volumes and revenues190191194 - Inability to maintain and grow the capacity of trading platforms, or experiencing design defects, errors, or delays, could lead to service disruptions, client loss, and reputational damage195196197198 - Reliance on third parties for key functions (e.g., data centers, market data, clearinghouses) and exposure to their operational failures or service disruptions could significantly impact operations199200202204 - Unforeseen catastrophic events (natural disasters, cyber-attacks, war) could disrupt business, especially given the concentration of U.S. and European operations in specific geographic areas206207 - Quarterly results may fluctuate significantly due to various factors, and failure to retain senior management or attract qualified personnel could materially impact business operations and growth208211212 - Damage to Tradeweb's reputation or brand, including from negative publicity or cybersecurity incidents, could adversely affect client loyalty and business performance213214215 - The company may incur impairment charges for its goodwill ($2.8 billion as of Dec 31, 2023) and other indefinite-lived intangible assets ($0.3 billion), negatively impacting operating results216 - Failure to achieve environmental, social, and governance (ESG) goals could adversely affect reputation, financial performance, and growth, and lead to increased scrutiny217218219 Risks Relating to our Growth Strategies and other Strategic Opportunities - Failure to maintain current business levels or successfully execute growth plans, including attracting new clients, increasing platform use, and expanding products/geographies, could materially harm the business220221222 - Entry into new markets may not be successful due to established competitors, lack of brand recognition, or regulatory challenges, potentially leading to less than expected earnings223224225227 - Acquisitions and divestitures involve numerous risks, including difficulties in identifying targets, integration challenges, management distraction, and failure to realize anticipated benefits228229230231232 - Strategic alliances, partnerships, or joint ventures may not achieve anticipated goals due to development difficulties, conflicts with partners, or lack of control, potentially harming reputation and financial results233234235 Risks Relating to our International Operations - International operations in over 70 countries expose Tradeweb to risks from local economic, political, and social conditions, differing legal/regulatory requirements, varying tax regimes, and restrictions on fund transfers236237 - Fluctuations in foreign currency exchange rates, particularly for the British pound sterling and euros, can adversely affect financial results, despite hedging activities which may not fully mitigate the risk238239 Risks Relating to Cybersecurity and Intellectual Property - Tradeweb is susceptible to cyber-threats, cyber-attacks, and security breaches, which could lead to reputational damage, financial losses, client dissatisfaction, and regulatory enforcement actions240241243244 - Systems failures, interruptions, or delays in service, from various causes including heavy use, power outages, or catastrophic events, could materially harm business and reputation245246247248 - Inability to adequately protect intellectual property (patents, copyrights, trademarks, trade secrets) or reliance on third-party IP rights could harm brand and business from competition or infringement claims249250251252 - The use of open source software could result in litigation or impose unanticipated restrictions on commercializing platforms and solutions253 Risks Relating to Legal, Regulatory and Tax Considerations - Extensive regulation of the financial services industry exposes Tradeweb to significant costs, penalties, enhanced oversight, and restrictions on business operations, with potential for non-compliance to result in sanctions254255259260262 - New laws, rules, or regulations (e.g., Dodd-Frank, MiFID II, DORA) or changes in existing ones, including their interpretation and enforcement, could materially adversely affect Tradeweb's business and its clients, increasing compliance costs263264265267268 - Failure to comply with evolving privacy, data protection, and information security laws (e.g., GDPR, CCPA, CPRA) could harm business, reputation, and incur significant liabilities, fines, or litigation269270271272273274275 - New tax legislation (e.g., IRA's corporate alternative minimum tax, global minimum tax) or unanticipated changes in effective tax rates or audit outcomes could materially adversely affect financial condition276277278279 - Ineffective compliance and risk management programs could lead to losses, reputational damage, and adverse financial outcomes280281282 - Exposure to litigation risk, including securities litigation, can result in substantial costs, diversion of management attention, and potential significant liabilities283284 Risks Relating to our Indebtedness - The 2023 Revolving Credit Facility imposes operating and financial restrictions (e.g., maximum total net leverage ratio, minimum cash interest coverage ratio) that may limit business opportunities and affect future financing285286287289 - Borrowings under the 2023 Revolving Credit Facility are at variable interest rates, exposing Tradeweb to interest rate risk and potentially increasing debt service obligations if rates rise290 - The possible volatility and uncertainty around SOFR as a LIBOR replacement rate could result in higher borrowing costs291 Risks Relating to our Organizational Structure and Governance - Refinitiv (controlled by LSEG) maintains significant control over Tradeweb, holding approximately 89.9% of the combined voting power as of December 31, 2023, which could lead to conflicts of interest292579 - Tradeweb's status as a 'controlled company' on Nasdaq allows it to rely on exemptions from certain corporate governance requirements, potentially reducing protections for stockholders294 - Anti-takeover provisions in organizational documents and Delaware law, such as a multi-class common stock structure and restrictions on stockholder actions, might discourage or delay acquisition attempts295297 - As a holding company, Tradeweb depends on distributions from TWM LLC to pay taxes and expenses, including substantial payments under the Tax Receivable Agreement, which could be significant ($457.5 million liability as of Dec 31, 2023)300303305445 - Payments under the Tax Receivable Agreement may be accelerated or significantly exceed actual tax benefits, negatively impacting liquidity, and Tradeweb will not be reimbursed if tax benefits are disallowed307308309 - There is a risk of being deemed an investment company under the Investment Company Act of 1940, which could impose restrictions making it impractical to continue business as contemplated310311312 Risks Relating to Ownership of our Class A Common Stock - Refinitiv and Continuing LLC Owners may require the issuance of additional shares of Class A common stock, potentially causing the market price to decline313314 - The market price and trading volumes of Class A common stock may be highly volatile due to economic conditions, industry trends, competition, regulatory actions, and other factors315316319 - The company intends to pay regular dividends, but its ability to do so may be limited by TWM LLC distributions, earnings, capital requirements, and contractual/legal restrictions321322323 - The timing and amount of any share repurchases are subject to uncertainties, including market conditions, stock price, and the IRA's excise tax on repurchases324325326 - The requirements of being a public company (Exchange Act, Sarbanes-Oxley Act, Nasdaq) strain resources, increase costs, and divert management's attention, with potential for non-compliance to lead to sanctions327328 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - There are no unresolved staff comments329 Item 1C. Cybersecurity Tradeweb maintains comprehensive cybersecurity risk management and governance, with Board oversight and a 'three lines of defense' model Risk Management and Strategy - Tradeweb integrates its cybersecurity program into a comprehensive Risk Framework for identifying, assessing, measuring, mitigating, and reporting material risks331 - The cybersecurity program includes regular risk assessments, strong frameworks (ISO/IEC 27001, NIST), strict access controls, encryption, advanced threat detection, security audits, and third-party vendor assessments332 - The company conducts annual SOC 1 and SOC 2 audit reviews and a third-party cybersecurity maturity assessment, and provides regular employee training333334 - While experiencing non-significant cybersecurity events, no cyber-attack has had a material impact on operations or financial condition335 Governance - The Board of Directors and its Audit Committee exercise direct oversight of strategic cybersecurity risks, receiving periodic reports from the Chief Information Security Officer (CISO) and Chief Risk Officer (CRO)336 - Management operates on a 'three lines of defense' risk governance model, with the Enterprise Risk Committee (ERC) responsible for overseeing the Risk Framework, including cybersecurity risks337 - The CISO, with over 25 years of industry experience, leads a highly qualified cybersecurity team, and the company participates in industry organizations like FS-ISAC and SIFMA to stay current on trends338 Item 2. Properties Tradeweb's headquarters are in New York, with key global offices and data centers, deemed adequate for current and future needs - Tradeweb's corporate headquarters is in New York, New York (41,062 sq ft, lease expires 12/31/2024)339 - Other principal offices include Jersey City, New Jersey (65,242 sq ft, lease expires 12/31/2027) and London, United Kingdom (16,259 sq ft, lease expires 3/1/2030)339 - The company rents additional offices globally and operates out of third-party data centers in the U.S. (Secaucus, Weehawken, Piscataway, Chicago), UK (Hounslow, Slough), Japan (Saitama, Tokyo), and Australia (Sydney)339340 - Tradeweb believes its facilities are in good operating condition and adequately meet current needs, with additional space available for future expansion341 Item 3. Legal Proceedings Tradeweb is involved in legal and regulatory proceedings, including dismissed antitrust cases, expecting no material adverse effect - Tradeweb is subject to various claims, lawsuits, and regulatory proceedings, but does not expect them to have a material adverse effect on its business or financial condition342733 - The 'Treasuries Matter,' an antitrust class action alleging a 'Boycott Conspiracy' in U.S. Treasury securities trading, was dismissed by the District Court in March 2021, and this dismissal was affirmed by the Second Circuit on February 1, 2024344345346735 - In the 'Interest Rate Swaps Matter,' an antitrust lawsuit, Tradeweb Markets LLC was dismissed as a defendant in July 2017, but remains actively engaged in third-party discovery347348349736 - The company records its best estimate of a loss when probable and estimable, but currently has no contingency reserves established for these matters343737 Item 4. Mine Safety Disclosures Mine safety disclosure requirements are not applicable to Tradeweb Markets Inc - This item is not applicable350 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Tradeweb's Class A common stock trades on Nasdaq, with plans for quarterly dividends and an active share repurchase program - Tradeweb's Class A common stock trades on the Nasdaq Global Select Market under the ticker symbol 'TW'; there is no established public trading market for Class B, C, or D common stock353 - As of December 31, 2023, there were two holders of record for Class A common stock354 - The company intends to pay quarterly cash dividends of $0.10 per share (increased from $0.09 in Q1 2024), dependent on distributions from TWM LLC and other factors355439750 - Tradeweb has a $300 million share repurchase program (2022 Share Repurchase Program), with $239.8 million remaining available as of December 31, 2023442683 - In January 2024, 374,601 shares of Class A common stock were issued as partial consideration for the r8fin acquisition358643 Item 6. Reserved This item is intentionally left blank - This item is reserved363 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Tradeweb's financial performance and condition, covering revenues, expenses, liquidity, and non-GAAP reconciliations Overview - Tradeweb is a global leader in electronic marketplaces for institutional, wholesale, and retail clients across rates, credit, equities, and money markets in over 70 countries366 - The company leverages proprietary technology and collaborative innovation to provide solutions across the trade lifecycle, benefiting from increasing market electronification driven by demand for transparency, efficiency, and regulatory changes366370 - Tradeweb serves institutional investors in over 70 countries, provides electronic, voice, and hybrid platforms for over 300 dealers in the wholesale sector (Dealerweb), and offers advanced trading solutions for over 50,000 financial advisors in the retail sector (Tradeweb Direct)367368369 Trends and Other Factors Impacting Our Performance - Tradeweb completed the acquisition of Yieldbroker in August 2023 for A$123.6 million ($80.1 million USD) and entered into a definitive agreement to acquire r8fin in November 2023 for $125 million (closed Jan 2024)371372373 - A new LSEG market data agreement, effective November 1, 2023, is forecasted to generate approximately $80 million in revenue for 2024 and $90 million for 2025374 - Performance is impacted by the economic environment (market activity, volatility, central bank policies, inflation), regulatory changes (e.g., Dodd-Frank, MiFID II, DORA), and competitive pressures driving technology investment375376378379380 - Foreign currency exchange rate fluctuations affect financial results, and tax legislation (Inflation Reduction Act of 2022, OECD's Two Pillar Plan) impacts tax obligations, though the CAMT is not expected to materially impact the effective tax rate381382383384 Components of our Results of Operations - Revenues are primarily derived from transaction fees and commissions (variable and fixed, including riskless principal), subscription fees for market access and data, and LSEG market data fees385386387388389390 - Operating expenses include employee compensation and benefits, depreciation and amortization, technology and communications, general and administrative, professional fees, and occupancy costs391392393394395396 - Other components affecting results include tax receivable agreement liability adjustments, net interest income/expense, other income/loss (e.g., investment impairments, FX derivative gains/losses), and income taxes397398399400 - Net income attributable to non-controlling interests reflects the economic interests of TWM LLC held by Continuing LLC Owners; Tradeweb Markets Inc. owned 90.2% of TWM LLC as of December 31, 2023, up from 88.7% in 2022401402579 Results of Operations For the Years Ended December 31, 2023 and December 31, 2022 Summary of Statements of Income (2023 vs 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | $ Change | % Change | | :------------------------------------- | :------------------ | :------------------ | :------- | :------- | | Total revenue | $1,338,219 | $1,188,781 | $149,438 | 12.6% | | Total expenses | $832,950 | $776,208 | $56,742 | 7.3% | | Operating income | $505,269 | $412,573 | $92,696 | 22.5% | | Income before taxes | $547,980 | $437,133 | $110,847 | 25.4% | | Net income | $419,503 | $359,613 | $59,890 | 16.7% | | Net income attributable to Tradeweb Markets Inc. | $364,866 | $309,338 | $55,528 | 18.0% | Revenue by Asset Class (2023 vs 2022) | Asset Class (in thousands) | 2023 | 2022 | $ Change | % Change | | :------------------------- | :--------- | :--------- | :------- | :------- | | Rates | $695,434 | $605,406 | $90,028 | 14.9% | | Credit | $367,394 | $331,803 | $35,591 | 10.7% | | Equities | $95,295 | $93,474 | $1,821 | 1.9% | | Money Markets | $63,010 | $49,958 | $13,052 | 26.1% | | Market Data | $94,074 | $85,913 | $8,161 | 9.5% | | Other | $23,012 | $22,227 | $785 | 3.5% | | Total Revenue | $1,338,219 | $1,188,781 | $149,438 | 12.6% | Revenue by Client Sector (2023 vs 2022) | Client Sector (in thousands) | 2023 | 2022 | $ Change | % Change | | :--------------------------- | :--------- | :--------- | :------- | :------- | | Institutional | $797,038 | $719,211 | $77,827 | 10.8% | | Wholesale | $312,586 | $273,189 | $39,397 | 14.4% | | Retail | $134,521 | $110,468 | $24,053 | 21.8% | | Market Data | $94,074 | $85,913 | $8,161 | 9.5% | | Total Revenue | $1,338,219 | $1,188,781 | $149,438 | 12.6% | Key Expense Changes (2023 vs 2022) | Expense Category (in thousands) | 2023 | 2022 | $ Change | % Change | | :------------------------------ | :--------- | :--------- | :------- | :------- | | Employee compensation and benefits | $460,305 | $432,421 | $27,884 | 6.4% | | Depreciation and amortization | $185,350 | $178,879 | $6,471 | 3.6% | | Technology and communications | $77,506 | $65,857 | $11,649 | 17.7% | | General and administrative | $51,495 | $46,561 | $4,934 | 10.6% | | Professional fees | $42,364 | $37,764 | $4,600 | 12.2% | | Occupancy | $15,930 | $14,726 | $1,204 | 8.2% | - Net interest income increased significantly by $53.4 million to $65.4 million in 2023, primarily due to higher average invested cash balances and increased interest rates427 - Other loss increased by $12.1 million to $13.1 million in 2023, mainly due to an $11.1 million impairment of a minority equity investment and a $1.3 million loss from unwinding a foreign currency call option428 - The provision for income taxes increased by $51.0 million (65.7%) to $128.5 million in 2023, with the effective tax rate rising to 23.4% from 17.7% in 2022429 Liquidity and Capital Resources - Tradeweb maintains strong liquidity through cash and cash equivalents ($1.7 billion as of Dec 31, 2023) and cash flows from operations, supplemented by a $500.0 million unsecured revolving credit facility431433435449 - The company's primary cash needs include day-to-day operations, working capital, capital expenditures (projected $75 million-$83 million for 2024, up 28% from 2023 midpoint), expected dividend payments, and share repurchases432459 - Tradeweb intends to pay quarterly cash dividends of $0.10 per share (increased from $0.09 in Q1 2024), which are dependent on distributions from TWM LLC436439750 - A $300.0 million share repurchase program was authorized in December 2022, with $239.8 million remaining as of December 31, 2023; $35.2 million in shares were repurchased in 2023442682683 - The Tax Receivable Agreement liability totaled $457.5 million as of December 31, 2023, with payments substantially due over 15 years, impacting future cash flows445446 - Working capital increased to $1.634 billion as of December 31, 2023 (from $1.184 billion in 2022), driven by increases in cash and receivables from brokers/dealers due to unsettled wholesale platform transactions464465466 Cash Flows (2023 vs 2022) | Cash Flows (in thousands) | 2023 | 2022 | | :------------------------ | :--------- | :--------- | | Operating Activities | $746,089 | $632,822 | | Investing Activities | $(132,765) | $(60,096) | | Financing Activities | $(168,174) | $(276,703) | | Net Increase (Decrease) | $449,239 | $285,181 | Non-GAAP Financial Measures - Free Cash Flow, a non-GAAP liquidity measure, was $684.3 million in 2023, up from $572.7 million in 2022477 - Adjusted EBITDA and Adjusted EBIT are presented to compare operating performance by excluding items like M&A costs, certain stock-based compensation, and tax receivable agreement liability adjustments479480482 Adjusted EBITDA and Adjusted EBIT Margins (2023 vs 2022) | Metric | 2023 | 2022 | Change (bps) | Constant Currency Change (bps) | | :----------------- | :---- | :---- | :----------- | :----------------------------- | | Adjusted EBITDA margin | 52.4% | 51.9% | +49 bps | +100 bps | | Adjusted EBIT margin | 48.1% | 47.5% | +58 bps | +107 bps | - Adjusted Net Income and Adjusted Diluted EPS are used to evaluate profitability, assuming full exchange of LLC Interests and adjusting for non-core items and tax effects484486 Adjusted Net Income and Adjusted Diluted EPS (2023 vs 2022) | Metric (in thousands, except EPS) | 2023 | 2022 | | :-------------------------------- | :--------- | :--------- | | Adjusted Net Income | $535,515 | $450,080 | | Adjusted Diluted EPS | $2.26 | $1.90 | Critical Accounting Policies and Estimates - Critical accounting policies and estimates include business combinations (e.g., valuation of acquired customer relationships and goodwill), revenue recognition, stock-based compensation, current and deferred income taxes, and the tax receivable agreement liability504 - Business combinations involve significant judgment in determining fair values of acquired assets and liabilities, such as the $39.7 million in customer relationships and $35.3 million in goodwill from the Yieldbroker acquisition505506639 - Revenue recognition involves a single performance obligation for marketplace access, with subscription fees recognized monthly and transaction fees/commissions on a trade-date basis; LSEG market data fees are recognized over time or at a point in time508509510652653 - Stock-based compensation for performance-based restricted stock units (PRSUs, PSUs) is valued using a Monte Carlo simulation, requiring subjective assumptions for maturity, volatility, and risk-free interest rates512624 - Income taxes involve significant judgment in measuring deferred tax assets and liabilities, assessing valuation allowances (none established on $687.4 million gross deferred tax assets as of Dec 31, 2023), and recognizing uncertain tax positions513514661 - The Tax Receivable Agreement liability requires significant judgment in projecting future earnings and the geographic mix of those earnings to estimate the timing of payments over 15 years516 Recent Accounting Pronouncements - ASU 2023-09 (Improvements to Income Tax Disclosures), effective December 31, 2025, requires disaggregated information about effective tax rate reconciliation and income taxes paid632 - ASU 2023-07 (Segment Reporting), effective December 31, 2024, expands public entities' segment disclosures to include significant segment expenses and additional measures of segment profit or loss633 - ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions), effective January 1, 2024, clarifies that contractual sale restrictions are not considered part of an equity security's fair value634 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Tradeweb faces foreign currency and credit risks from global operations, mitigated by hedging and high-credit-quality counterparties Foreign Currency and Derivative Risk Revenue and Operating Expenses Denominated in Foreign Currencies | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---- | :---- | :---- | | % of revenue denominated in foreign currencies | 28% | 28% | 29% | | % of operating expenses denominated in foreign currencies | 16% | 15% | 15% | - Fluctuations in the U.S. dollar's value against other currencies (primarily euros for revenue, British pound sterling for expenses) affect operating revenues, income, and balance sheet items522523 Impact of Hypothetical 10% Change in U.S. Dollar Value (2023) | Currency Impact (in thousands) | Effect on Revenue | Effect on Operating Income | | :----------------------------- | :---------------- | :------------------------- | | All currencies | +/- $41,800 | +/- $27,000 | | Euros | +/- $37,500 | +/- $35,600 | | British pound sterling | +/- $1,700 | +/- $8,700 | - Tradeweb uses foreign currency forward contracts (notional amount $192.9 million in 2023) to mitigate U.S. dollar and British pound sterling versus euro exposure, generally with a duration of less than 12 months523524 - A $1.3 million loss was recognized in 2023 from unwinding a foreign currency call option related to the Yieldbroker acquisition523 Credit Risk - Tradeweb faces credit risk from cash and cash equivalents held by global financial institutions and from receivables, primarily from investment managers and brokers/dealers526527 - Credit risk is mitigated by investing through high-credit-quality financial institutions, monitoring credit exposure, and diversifying investments526529 - An allowance for credit losses of $0.3 million was maintained as of December 31, 2023 (up from $0.1 million in 2022) for receivables527732 - The company is exposed to counterparty non-performance risk in agency transactions, particularly during volatile markets, but monitors market exposure and counterparty creditworthiness528529 Item 8. Financial Statements and Supplementary Data This section presents Tradeweb's audited consolidated financial statements, including the independent auditor's unqualified opinion and detailed notes Reports of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion on Tradeweb Markets Inc.'s consolidated financial statements as of and for the year ended December 31, 2023, and on the effectiveness of its internal control over financial reporting535536548549 - Income Taxes and Tax Receivable Agreement Liability were identified as critical audit matters due to the complexity of calculations, multiple jurisdictions, and significant auditor judgment required539541542544 Consolidated Statements of Financial Condition Consolidated Statements of Financial Condition (in thousands) | Asset/Liability/Equity | December 31, 2023 | December 31, 2022 | | :--------------------- | :---------------- | :---------------- | | Total Assets | $7,059,538 | $6,260,131 | | Cash and cash equivalents | $1,706,468 | $1,257,229 | | Goodwill | $2,815,524 | $2,780,259 | | Intangible assets, net | $1,004,797 | $1,072,818 | | Deferred tax asset | $684,250 | $689,442 | | Total Liabilities | $1,128,132 | $713,815 | | Tax receivable agreement liability | $457,523 | $425,724 | | Total Equity | $5,931,406 | $5,546,316 | Consolidated Statements of Income Consolidated Statements of Income (in thousands, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :--------- | :--------- | :--------- | | Total revenue | $1,338,219 | $1,188,781 | $1,076,447 | | Operating income | $505,269 | $412,573 | $358,828 | | Income before taxes | $547,980 | $437,133 | $369,983 | | Net income | $419,503 | $359,613 | $273,108 | | Net income attributable to Tradeweb Markets Inc. | $364,866 | $309,338 | $226,828 | | Diluted EPS | $1.71 | $1.48 | $1.09 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :--------- | :--------- | :--------- | | Net income | $419,503 | $359,613 | $273,108 | | Other comprehensive income (loss), net of tax | $5,419 | $(13,242) | $(3,219) | | Comprehensive income attributable to Tradeweb Markets Inc. | $369,716 | $297,929 | $224,032 | Consolidated Statements of Changes in Equity Consolidated Statements of Changes in Equity (in thousands) | Metric | Balance at Dec 31, 2023 | Balance at Dec 31, 2022 | Balance at Dec 31, 2021 | | :-------------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity Attributable to Tradeweb Markets Inc. | $5,373,755 | $4,953,791 | $4,401,366 | | Non-controlling interests | $557,651 | $592,525 | $663,348 | | Total Equity | $5,931,406 | $5,546,316 | $5,308,943 | - Key changes in 2023 included net income of $419.5 million, stock-based compensation expense of $67.4 million, dividends of $(75.9) million, and share repurchases of $(35.2) million565 Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :----------------- | :--------- | :--------- | :--------- | | Operating Activities | $746,089 | $632,822 | $578,021 | | Investing Activities | $(132,765) | $(60,096) | $(259,110) | | Financing Activities | $(168,174) | $(276,703) | $(136,100) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $449,239 | $285,181 | $180,768 | | Cash, Cash Equivalents and Restricted Cash (End of Period) | $1,707,468 | $1,258,229 | $973,048 | - Net cash used in investing activities in 2023 included $69.7 million for the Yieldbroker acquisition and $43.2 million for capitalized software development costs472567 - Net cash used in financing activities in 2023 was primarily driven by $75.9 million in cash dividends, $35.2 million in share repurchases, and $36.1 million in payroll tax payments for stock-based compensation473567 Notes to Consolidated Financial Statements - Note 1: Organization details Tradeweb Markets Inc. as a holding company consolidating TWM LLC, with LSEG indirectly controlling Tradeweb through Refinitiv. As of Dec 31, 2023, Tradeweb Markets Inc. owned 90.2% of TWM LLC576578579 - Note 2: Significant Accounting Policies covers GAAP conformity, use of estimates, business combinations (including pushdown accounting from the Refinitiv Transaction), revenue recognition, income taxes, stock-based compensation, and recent accounting pronouncements589592594610613620625632633634 - Note 4: Acquisitions details the Yieldbroker acquisition (Aug 2023, $80.1 million cash, $35.3 million goodwill, $39.7 million customer relationships) and the r8fin acquisition (Jan 2024, $125 million total consideration)636639643 - Note 6: Goodwill and Intangible Assets reports goodwill of $2.815 billion and definite-lived intangible assets of $681.7 million as of December 31, 2023646648 - Note 9: Income Taxes indicates an effective tax rate of 23.4% for 2023 and a net deferred tax asset of $663.5 million, with no valuation allowance established659661 - Note 10: Tax Receivable Agreement details a liability of $457.5 million as of December 31, 2023, representing 50% of tax savings from basis increases, payable over 15 years668 - Note 13: Stock-Based Compensation Plans reports total stock-based compensation expense of $66.6 million in 2023, related to PRSUs, PSUs, options, and RSUs709 - Note 17: Commitments and Contingencies discusses legal proceedings (Treasuries Matter dismissed, IRS Matter ongoing) and the $500.0 million 2023 Revolving Credit Facility, which replaced the 2019 facility735736738739 - Note 19: Regulatory Capital Requirements confirms that all regulated subsidiaries maintained sufficient net capital or financial resources as of December 31, 2023747 - Note 21: Subsequent Events reports the declaration of a $0.10 per share cash dividend for Q1 2024 and a $62.1 million distribution by TWM LLC, both approved on February 2, 2024750751 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes or disagreements with the inde