Q4 2020 Tradeweb Markets Inc Earnings Call
And we remain excited about the opportunity ahead of us to drive further innovation across our markets.
We believe the defining trends underpinning our growth such as technological advances globalization of debt.
Growth of Etfs focus on cost reduction and data driven trading of a long runway.
We remain laser focused on responding to these trends as we strive to be the primary of electronic price discovery and trading platform for our clients as they look to efficiently discover the best price across rates credit OTC equities and money markets.
Turning to slide four the acceleration of Digitization I. Just described was on display as we reported the strongest fourth quarter in our history.
Getting new market share and volume records across a number of products.
Specifically gross revenues of $233 million during.
During the fourth quarter 'twenty were up 18, 1% year on year on a reported basis and 15, 9% on a constant currency basis.
The revenue growth and the resulting scale translated into improved profitability year on year.
As our fourth quarter adjusted EBITDA margin expanded by 231 basis points to 49, 2%.
Turning to slide five this quarter was marked by strong performance across many of our asset classes.
Credit again posted record quarterly revenue growing 36, 1% year over year and exceeding 25% of total quarterly revenue for the first time.
Led by a record market share in the U S high yield and investment grade.
Rates revenue increased 13, 2% as cash rates posted the second highest revenue and volume quarter.
As record Central Bank issuance continues to fuel global government bond trading and low interest rates drive higher refinancing activity, thereby boosting mortgage trading.
Despite the low interest rate environment, we saw a slightly increased rate volatility around the election and positive news around several COVID-19, vaccines, which helped amplify the market share gains we have made the swaps.
Equities grew by 28, 7% with strong ETF trading and our efforts to diversify beyond the Etfs are paying off.
Money market revenues were.
We're up three 5% as organic growth in institutional repo more than offset strong rate headwinds in the retail sector.
Finally market data was up seven 8% driven by growth in both our riffing of the redistribution license and proprietary data products.
Turning to slide six our strong fourth quarter capped off a record year in 2020.
A record volumes across the asset classes translated into 15, 1% and 14, 5% revenue growth on a reported and constant currency basis, respectively.
As a result, we recorded our 20 <unk> consecutive year of record revenues.
The scale generated by our strong top line results drove approximately 336 basis points of EBITDA margin expansion and 31% earnings growth.
And as our growth initiatives continue to scale, we maintained our tradition of consistent and focused organic investment.
2020 was a very busy year and.
The rates, we launched our enhanced specified pool mortgages platform after collaborating closely closely with leading mortgage originators and and the IRS, we expanded our protocol offering with RSM.
Client base and the APAC and.
The product offering the five new EM currencies.
And U S. Treasuries, we continued to onboard new clients and enhance our streaming offering.
The money markets, we added new repo collateral types and expanded into Tri Party repo.
In credit we continue to drive innovation as we connected our three liquidity pools by launching our latest all trade anonymous protocol rematch.
We believe this could be another potential game changing protocol built on the success of session trading.
We also continued to invest in enhancing our net spotting portfolio trading and all to all the functionality and.
And last week, we announced the rollout of our multi client net spotting offering the next generation of net spotting.
Finally in collaboration with CFS marked another milestone in our relationship of becoming the first trading platform to offer foreign investors electronic RF Q trading and the Chinese onshore bond market through EBIT CIB M direct.
This new channel complements our existing bond connect offering, which we launched in 2017.
We are in early innings of building out Civ Underact together with our partners at the <unk> and are seeing strong interest from liquidity providers and clients.
Asia remains a key focus region for us we hired James Sun, who will be based in Shanghai and read our Asian business.
And in December we made a small minority investment in some scope.
A fixed income information service provider for the RMB market in China.
We will be integrating additional pricing analytics into our trading offering to ultimately increase foreign participation in both bond connect and CIB M direct.
Additionally, we executed several partnerships working with CBOE to support the ft trading high yield bond index futures augmenting our definitive data relationship by adding <unk> IRS and supply.
Swaps pricing data to power of the ice swap rate a key benchmark used to price swaption and other rates linked structured products.
These investments of not only positioned us for the future, but also help make 2020 another banner year for trade one.
Moving now to slide seven revenues grew by a 15, 1% continuing the streak of double digit revenue growth that we have worked hard to deliver for multiple years now.
A recent revenue growth trends are very similar and since 2016, we have averaged 14, 6% growth.
One aspect of our performance since 2016 that we are very proud of and think will become increasingly important in the coming years as the rapid growth of our international business.
Which continued its double digit growth in 2020.
So now comprise 36% of our revenues.
Relentless innovation has been critical to our success.
Throughout our history of price being first which requires constant investment.
In the last five years, we have invested over $318 million and technology to help shape the future of electronic markets.
Growing those investments at an average of 11% since 2016.
And as our investments bear fruit EBITDA margins have expanded substantially.
Given the high incremental margin nature of our business model.
It is these investments that have allowed us to not only rapidly grow our leading rates business, but also successfully diversified into a multi asset in global electronic trading network.
Today, while the majority of our revenues come from rates the vast majority of our growth actually comes from our other businesses.
Credit in particular has been a highlight accounting for 43% of our revenue growth in 2020.
In fact with the exception of 2019, the majority of our growth since 2016 has been driven by the combination of our credit <unk>.
Equities money market and data business.
Looking ahead, while our investments are heavily concentrated in rates and credit we remain very optimistic about our growth prospects across the business given our pipeline of innovations the ever increasing stock of global debt.
And an improving macro backdrop.
Moving on to slide eight we wanted to spend some time on gross growth drivers behind our four asset classes.
From our early roots in U S. Treasuries, we have strategically diversified the rates franchise into global government bonds mortgages and more recently interest rate swaps.
We believe there remains a lot of runway across both our cash and derivative products, which have grown revenues at a combined average annual rate of 11, 5% since 2016 in a low rate environment.
We have now successfully operated in a zero rate environment for nearly a year and the fed currently doesn't anticipate IP rates until 2023.
This environment is not new to us.
The last rate cycle started in December of 2000 net.
And lastly, a significantly longer in the U S homes more challenging.
Despite seeing several of our major clients merge or restructure and women declare a bankruptcy.
We were able to grow rates revenues of nine 7% annually on average before the fed hiked rates in 2015.
Our formula for growth has always been the same.
Continue to move rates markets electronics.
Positioned the firm to respond to the massive surge in stimulus given global government debt issuance and enhance our rates franchise with strategic acquisitions.
This time around the banking system is healthy as evidenced by the fed recently, allowing buybacks dividends, but just like the last crisis government debt issuance continues to surge and as we emerge from the pandemic Inc.
To a higher and more volatile interest rate environment, we believe our opportunity set is greater than ever given our mix of organic growth initiatives and.
The more importantly, as Digitization accelerates over the next few years.
Let's move on to slide nine.
We saw a great opportunity to add more value to the wholesale U S Treasury markets and announced an agreement to acquire Nasdaq's U S fixed income electronic trading platform.
The NASDAQ platform, formerly known as E speed.
As a fully execute a bowl central limit order book for electronic trading in on the run U S treasuries and will become a part of dealer web serving the wholesale sector.
We are of a long track record of success when it comes to the U S. Treasuries in fact institutional U S. Treasuries was the first electronic market. We started of the trade web of more than 20 years ago.
Since then.
We have brought a lot of innovation to the space.
For more of a Q in the early days to AI ex and <unk> more.
More recently in the wholesale market, we have innovated with streams, which Billy will talk about in a second.
Strategically the acquisition accelerates our efforts to grow a wholesale club and significantly expands the number of market participants connected to dealer volume.
Which includes primary dealers principal traders broker dealers and hedge funds.
We are also excited to give our clients more choice with a liquid claude to complement the streaming activity and lowered their connectivity costs.
Finally.
We believe we will be able to enhance our U S treasury data offering with depth of book data.
Financially. This deal comes at a good price and we believe we can improve EBITDA margins to trade webs, adjusted EBITDA margin or higher.
Exiting the first year of the two year integration period.
To summarize this acquisition will be accretive to adjusted earnings right away.
<unk> two of our adjusted EBITDA margins.
And another growth driver to our U S Treasury offering and also leave us with ample flexibility to pursue future transactions.
Our corporate development team continues to be busy evaluating various opportunities globally.
And now want to turn it over to Billy to discuss some of our organic growth initiatives.
The rates and credit.
Thanks, Lee and thank you everyone for joining the call as we think about building marketplaces, we pay a lot of attention to creating great feedback loops of our clients.
And a great feedback loop to us is centered on listening to our clients across sectors protocols of geographies.
It is this collaborative approach that has sparked the innovation and allowed us to re imagine client workflows to drive organic growth and.
And we believe our organic growth story continues to have a strong multiyear runway.
Turning to our organic opportunity set in rates on slide 10 in U S. Treasuries, our market share increased by a 150 basis points to a record 13, 8% in 2020.
Looking ahead, we are focused on driving our share of higher across both of the institutional and wholesale market.
We're investing a lot of effort in driving the adoption of early stage streaming protocols are becoming more impactful as technology advances today market makers are able to manage risk across multiple multiple liquidity books ULIN changes in client behavior.
In institutional treasuries trade of a plus and <unk> are.
<unk> seen increased client adoption complementing the great growth, we are seeing in our Q.
In the wholesale market or streaming protocol continues its strong growth as market participants increasingly use streaming protocols to complement their club activity.
Even with the rapid growth in streams. The club today accounts for the majority of their electronic wholesale activity, allowing market participants to passively rest orders and an order book to manage risk.
As such the acquisition of the former ESB business is another example of investing to improve our feedback and.
And gain another window into client behavior.
Looking ahead, we are excited about the opportunity to provide a wholesale clients with a seamless offering a cost both the club and streaming protocols.
In mortgages.
We see our leading position in the TBA market is an ideal foundation from which to offer electronic specified pool trading given the similar client and dealer set.
We launched our enhanced specified pool platform last year that was designed in collaboration with leading mortgage originators.
The specified pool market traded 20 traded 26 billion a day on average in 2020.
While the specified pool market is roughly 110th the size of the TBA market pricing of specified pools is higher than our existing mortgage franchise.
Electronic vacation levels today are also quite low at less than 5%.
Looking ahead, we believe the frequent and spreadsheet driven nature of the specified pool market makes it well suited for automation.
Our solution is resonating well and we're seeing a lot of interest from existing and new clients.
In swaps the secular growth story Hasnt changed swaps remain a critical component of the trade Rep story, and one with considerable room for growth and innovation the.
The business outperformed the overall market in 2020 again as a market share increased by a 140 basis points to a record nine 3% driven primarily by gains within core IRS.
This is our main market a focus of accounting for 80% to 85% of the industry revenue.
We continue to innovate by responding to structural changes in the swaps markets be it the growth of E M swaps clearing or the transition to alternative reference rates.
We're driving adoption of new protocols like <unk>, new products like electronic draws and package swaps and expanding regionally in APAC.
During the fourth quarter, we facilitated the first electronics Sony of swaps package trade and recorded new market share milestones and price as we continued to expand the client base.
We also saw a dealers go live as liquidity providers for Hong Kong, Mexican and Indian swaps.
Finally, we are investing in a leading automated trading capability AI ex.
For some of our clients the telephone is going away and being replaced by the mouse for others. The mouse is now being replaced with algorithms that is where AI ex comes in we are helping our clients navigate the growing complexity involved in staging orders, which rules based trading.
For years dealers have invested in auto quoting capabilities.
<unk> allows the buy side to interact with dealers and smartly find the other side of the trade in an automated fashion.
Since 2016, the number of AI ex trades have grown by 30% annually on average of cost rates with growth with growth across all products.
As clients become more comfortable with the automation, we believe the will increasingly automate more of their trades and focus on more complicated trades and client relationship management.
Turning to credit on slide 11.
Our journey from Challenger in 2016 to Trailblazer in recent years powered credit to become our largest growth driver in 2020 with revenues growing by 31% to nearly $60 million in the fourth quarter.
Credit is another example of a powerful feedback loop driving serial innovation from a roots as a leading retail venue. We have successfully diversified to serve the entire corporate credit markets.
In fact institutional trading now comprises the vast majority of our market share and revenues in the U S.
Our overall electronic market share reached record levels of 10, 6% investment grade and four 5% in high yogurt in December as our institutional network continues to grow and wholesale solutions continue to provide an alternative to a voice trading.
While conditions have improved slightly of late a retail business continues to face headwinds from the lower yield environment. This does reduce the attractiveness of bonds for a financial advisors. However, our retail middle markets business, which caters to institutional traders transacted in smaller size continues to set new records and growth.
The growth in electronic trading on a platform is being fueled by growth in both disclosed <unk> and our innovations across our all trade net spotting and portfolio trading offerings. These innovations proved to be a great asset to our clients during march when volatility exploded and in the remote working aftermath.
We believe our technology technological innovation has permanently influence of client trading behavior, but there remains more to do as we work together with our clients to improve execution and the credit marketplace.
All trade include an all to all of RF, Q and a suite of anonymous protocols connecting liquidity between our re client sectors continues to see increased adoption.
Clients traded a record 199 billion or nearly $800 million daily to optimize price discovery, using all trade and increase of 44% year over year.
Our investments to grow our all to all network and improved functionality continued to pay off driving record volumes in 2020.
Additionally, we integrated our AI ex rules based trading solution into RF you all to all of this trading leading to a record credit AI ex volumes over the course of the year.
The <unk> trading another key all trade protocol continued to grow as well.
We capitalize on the success of session trading to launch our latest innovation rematch of <unk>.
Total call, which enables unmatched inquiries at the end of a wholesale session to be matched by our institutional all to all platform as well by offsetting retail liquidity.
Currently less than five percentage of total session trading inquiries are filled on a platform, creating a tremendous opportunity for us to help our clients find the other side of the trade.
Rematch, it's still very early in its rollout, but early progress has been encouraging.
Another light bulb solution for trade web has been our electronics spotting and net spotting offering.
The ability for clients to electronically linked a corporate bond spots with underlying treasury hedges emerged as a critical tool in the dispersed working environment of 2020.
As you can imagine clients wanted to avoid dealing with manual errors price slippage in delays.
As a result, our advanced net spotting offerings saw another record year with over 325 billion or $1 3 billion daily.
Up substantially from 2019 as clients increasingly eliminate the efficiencies of manual processes.
As Lee mentioned, we recently rolled out multi multi client net spotting.
This will greatly advanced our existing offering clients will now be able to net their hedging activity across not only dealers, but also other clients at the same time enhancing trading and operational efficiency. This is the next generation of net spotting, which we believe will extend our lead against competitors today with basic responding functionality.
Moving to the bottom half of the slide the portfolio trading and Cds trading, which is primarily comprised of index Etfs are two ways in which we are participating in the explosion of passive investing.
Portfolio trading in particular continues to attract more clients.
Line behavior is changing as the increasingly embraced the protocols ability to provide price discovery for numerous bonds quickly.
This allows them to execute large complex trades at a competitive cost with pricing analytics and audit trails built into the process.
Trade web facilitated 146 billion single and multi dealer portfolio trades in 2020 with average daily volume up 240% year over year.
The adoption is accelerating and our October in comp volumes were higher than all of 2019 combined.
His comfort with the protocol grows we are seeing growth accelerating globally across Europe and E M credits.
Clients are increasingly putting dealers and competition and increasing the size of their trades.
As a result, the number of line items in portfolios on our platform also hit a new record.
Finally, our credit default swap business posted its strongest year on record with volumes up 59% as we continued to gain more market share globally and benefited from higher levels of volatility in the first half of 2020.
We remain focused on driving our share of higher by expanding our product set today.
Today, 99% of our volume is comprised of the index CBS.
We are also seeing growing adoption of electronics single name Cds trading with volumes up 40%.
We're also seeing a rise of EM sovereign Cds with volumes up 350, 350% from 2019.
With that I'll turn it back to Lee to talk about equities and repo business.
Thanks, Billy moving on to Slide 12, we wanted to provide you with some color on the smaller but rapidly growing and important areas of our business.
These are all great examples of how we connect the dots at trade web and maximize the power of our multi asset class network.
Bill you talked about how we are responding to market structure changes in credit driven by the growth of Etfs.
We are also directly capitalizing on the secular growth in passive investing globally with our RF Q ETF platform.
Tradeoffs global ETF volumes have increased by 42% annually on average since 2016 led by both equity and fixed income Etfs.
Together with the portfolio trading and the index Etfs are passive trading electronic solution.
Allows clients to take macro views in an efficient manner across asset classes and products.
And while the shift towards passive investing is more than 20 years in the making of <unk>.
Fixed income Etfs today, only comprise approximately 20% of the $7 trillion outstanding and according to Blackrock are set to grow by more than 30% in <unk>.
<unk> two trillion by 2024.
Sophistication is increasing.
Today fixed income specialist overseas fixed income ETF trading.
The stands in Stark contrast of the days when they were traded by equity specialists.
Simultaneously non bank market makers have also become increasingly important as the liquidity providers to ETF rfps on our platform.
Etfs have become an important instrument for both equity and fixed income of traders looking to manage data.
Poser or echo ties cash.
In fact <unk>.
Fixed income Etfs functioned as a strategic tool for institutional investors during the crisis.
During the most recent crisis, given they're a reliable liquidity, particularly in credit markets with broker dealers and market makers routinely using fixed income etfs to manage inventory facilitate large client trades and hedge risk.
And while we believe we are well positioned to cater to changes in market structure driven by the growth in fixed income Etfs.
Our solution is designed to treat any Jeff.
During the fourth quarter equity Etfs comprised 61% of our global volume with fixed income contributing 36%.
Clients continue to increasingly leverage our intelligent pre trade liquidity provider selection.
Robust electronic audit trails, and deep integration with LMS providers more.
Moreover, similar to rates and credit AIE.
<unk> has also resonated strongly with the European and U S ETF clients, who traded 74% and 44% of their trades automatically respectively. During the quarter.
We've come a long way from as recently, a six years ago. When trade war was a relatively unknown name on the equity trading desks.
We are expanding our collaboration with clients and leveraging our leadership position in the Etfs to selectively expand into other areas with manual slows.
There are lots of trades that you are still done over chat or phone.
Areas of focus include block trading for equity options, especially options on Etfs Delta one in U S convertible bonds.
In some of our equity offering remains dynamic with a lot of room for future growth as we benefit from secular tailwind in the ETF industry and targeted expansion across the equity ecosystem.
Turning to repos as.
As the industry's leading multi dealer to client repo trading platform.
Brought much needed speed and efficiency to the repo market.
The repo platform is another example of how we connect the dots of trade web as trades are primarily collateralized by U S treasuries and mortgages.
Repos posted its strongest volume year on record as clients show increasing interest in automating manual workflows in a post COVID-19 world.
We believe electronic vacation of the repo market to be at about 20% to 25%.
With the U S actually being lower in Europe.
We continue to invest to build out a full scale of institutional electronic repo offering in the U S and Europe.
We recently launched Canadian agency, and <unk> sponsored repo and upgraded the user experience for our Tri Party offering.
Looking ahead, we are excited about future collateral rollouts and product enhancements. We are also investing to grow our electronic wholesale report repo platform by adding functionality and both growing and Onboarding our pipeline of clients.
At the end of the day it all comes down to the pursuit of efficiency the.
A definition of efficiency changes as technology advances regulation changes in market structure of box.
A trade web we are laser focused on identifying inefficiencies challenging our client base and being the first to respond to them when it makes financial sense.
The wheels of innovation than continue to turn as we focus on maintaining our thought leadership.
By continuously streamlining workflows to make it easier from market participants to trade it.
Multi client net spotting as John.
The latest example of our cereal innovation.
As you can hopefully tell we have a number of initiatives underway across our asset classes and especially in rates and credit are two biggest growth drivers that we believe positions us well for the future.
And we hope to add to this by continuing to announce many more firsts for trade, one and electronic trading in 2021 and in the coming years.
With that let me turn it over to Bob to discuss our quarterly financials in more detail.
Thanks, Lee and good morning.
As I go through the numbers all comparisons will be to the prior year period, unless otherwise noted.
Let me begin with an overview of our volumes on slide 13.
We reported a quarterly total adv of nearly 898 billion up 39% and up 29, 7% when you exclude short tenor swaps.
Areas of notable growth include U S and European government bonds mortgages U S corporate credit Chinese bonds, Etfs equity derivatives and bilateral repo.
Slide 14 provides a summary of our quarterly earnings performance.
The record fourth quarter volumes translate into gross revenues, increasing by 18, 1% on a reported and 15, 9% on a constant currency basis.
We derived approximately 37% of our revenues from international customers.
Recall that approximately 30% of our revenue base is denominated in currencies other than the print.
Predominantly in euros.
Our variable revenues increased by 27% and our <unk>.
Total trading revenue increased by 19, 3%.
Total fixed revenues related to a four major asset classes continued to grow up six 5% and three 7% on a constant currency basis.
Credit fixed revenue growth was primarily driven by the addition of new dealers in the U S credit and additional clients in Chinese bonds.
Equities fixed revenue growth was driven by the issue of new dealers and the impact of FX.
Other trading revenues the vast majority of which are tied to a retail business was up 4% driven in part by periodic revenue is tied to technology enhancements from <unk> for our clients.
Market data increased by seven 8% led by Refinished, HPA and prepare a proprietary data products.
Adjusted EBIT a margin came in at 49, 2% and expanded nicely by 231 basis points relative to fourth quarter of 2019, as we continued to benefit from scale.
All in we reported adjusted net income per diluted share of 34.
Moving onto the fees per million on slide 15, the trends I'm about to describe are driven by a mix of the various products within our four asset classes.
Some of our blended piece per million decreased 3% year over year, primarily as a result of continued growth in T bills and institutional repos.
Excluding lower fees per million short tenor swaps and futures a blended fee per million.
<unk>, 2% year over year.
Let's review the underlying trends by asset class all trends will be discussed on a year over year basis, starting with rates average fees per million per rates were up 1% overall.
The cash rates products, which include government bonds and TBA fees from the increased 10% primarily due to growth in the institutional T bills, which carry a lower fee per million than the cash rates average.
For a long tenor swaps fee per million were up 32%, primarily due to an increase in average maturity as well as less compression activity.
In other rates derivatives, which includes the rates futures and short tenor swaps average fees per million decreased 7% due to growth in OIS, which carries lower fees per million and fries.
Continuing to credit.
Average fees per million per credit increased 3% overall.
Drilling down on cash credit average fees per million decreased 4% due to a record quarter for Chinese bonds, which carry a significantly lower fee per million than the cash credit average.
Looking at the credit derivatives.
And the electronically processed U S cash credit category fee.
From the increased 3% driven by increased volumes in single name Cds, which carry a higher fee per million than the credit derivatives average.
Continuing with the equities.
Average fees per million for equities were down 5% year over year overall.
For cash equities average fees per million decreased 10% due to the growth in wholesale etfs, which carry lower fees per million the institutional Etfs.
Equity derivatives average fees per million decreased 6% due to mix shifts towards you.
U S options and futures, which carry lower fees per million than the equity derivatives average.
Finally within the money markets.
He is familiar decreased 35%.
This is primarily driven by mix shift away from high fee per million retail Cds, given the low interest rate environment and towards bilateral repo, which reached record levels of continues to grow rapidly.
Institutional repo carries a lower fee per million than other money market products.
Slide 16 details our expenses at a high level, we continue to invest for growth there's been no change to a philosophy here in the last two years, we have grown our adjusted EBIT margins by 810 basis points, all the while growing our expense base as we invest for the future.
As a reminder, adjusted expenses excludes noncash stock based compensation expense related to options issued primarily as a result of the IPO acquisition of definitive related D&A and certain FX related gains and losses.
Adjusted expenses for fourth quarter increased 11, 8%.
Recall, approximately 15% of our expense base is denominated in currencies other than dollars.
Predominantly in Sterling.
Fourth quarter 2020, operating expenses were higher as compared to fourth quarter 2019, due to increased employee compensation costs and technology technology and communication expenses, partially offset by lower G&A.
Compensation costs were higher year on year John.
Due to higher head count as well as higher performance related compensation.
Adjusted non comp expense increased nine 4% on a reported basis and increased eight 3% on a constant currency basis.
Specifically technology and communication costs increased primarily due to a higher clearing and data fees as a result of higher all trade volumes and credit and streaming U S Treasury volumes, which continued to grow.
In addition, this quarter also saw the continued impact of our previously communicated of investments in data strategy and cyber security.
General and administrative declined primarily due to less travel and entertainment attainment of expense came in slightly higher than our guidance given unfavorable movements in FX and an opportunistic of increase in marketing spend to drive higher client engagement.
Slide 17 details capital management and our guidance.
First on a cash position and dividend policy. We ended the fourth quarter in a strong position holding $791 million in cash and cash equivalents and free cash flow reached $400 million for the trailing 12 months as mentioned earlier, we will be spending a $190 million of our excess cash balance.
The acquired Nasdaq's U S fixed income electronic trading platform.
Primary preference per investing excess cash remains strategic M&A.
With this quarter's earnings the board declared a quarterly dividend of <unk> <unk> per class, a and class b share and authorized a $150 million share repurchase program, which we plan to use primarily the offset annual equity grants.
We have access to a $500 million revolver remains undrawn as of quarter end.
Capex and capitalized software development for the year was $42 million, a decrease of 4% year over year, the lower expectations due to the timing of investment spend and COVID-19 related delays by vendors.
Turning to guidance for 2021, we.
We will continue to invest in 2021 and are expecting adjusted expenses to range from $530 million to $560 million.
Our guidance does not include any expenses tied to a recently announced the acquisition.
We will update our guidance following the closing of the deal.
The midpoint of this range would represent an approximate 9% increase which is in line with our average expense growth from 2016 of 9%. We believe we can drive EBITDA and operating margin expansion compared to 2020 at either end of this range.
As Lee and Billy described we continue to invest in the future with credit and rates being key focus areas of the long runway for growth, we are investing in introducing and driving new protocol adoption launching new products and expanding our geographic reach.
Some of these investments will take some time to scale, but we continue to price innovation leadership and have a technology pipeline the continues to grow.
We expect G&A expenses to ramp through the course of the year to 2019 levels with the resumption of TNA TD in the back half of 2021, and additional targeted marketing expenditure to drive higher client engagement.
We expect technology and communication expenses to grow from fourth quarter of 2020 levels driven in part by $3 million and additional investments in data strategy and the infrastructure. Additionally, we expect continued growth of credit all trades and our U S treasury streaming platform.
Yeah.
Our guidance incorporates FX movements for example of the recent depreciation of the U S. Dollar for forecasting purposes, we continue to use and a suit non-GAAP tax rate of 22% for the year.
We expect Capex and capitalized software development to be about $45 million to $50 million acquisition, and we're seeing a transaction with a DNA, which we adjust out to to increase the scene. We've pushed out of accounting is expected to be a $120 million.
Finally on slide 18.
The updated a quarterly share count sensitivity for 2021 to help you calibrate your models from fluctuations in our share price.
Now I'll turn it back to Li for concluding remarks.
Thanks, Bob.
As many of you will attest to 2020 was a very challenging year.
Devastating health pandemic, coupled with numerous political.
Climate and social challenges.
That being said.
We are thankful to those on the frontline and scientists behind the vaccines.
Worked tirelessly to get us through the pandemic.
I've never been prouder of trade web team, which thrived while working remotely.
<unk> thousand 20 was another record year marked by numerous milestones for the company and our products.
We continue to expand our opportunity set across all of our businesses and we're very excited by the potential we see for trade web over the next few years, we are extremely.
We focused on capitalizing on the various growth opportunities ahead of us and continuing to strike the right balance between investing for the future and driving markets and driving margin expansion.
Create long term value for our shareholders.
The markets that we operate in are fundamentally changing as we speak.
In this current pandemic further demonstrates the importance of trade web as a critical marketplace for our clients to transfer risk.
We believe the Digitization of fixed income is accelerating.
And as we've seen a numerous times in the past behavioral change is very sticky.
There remains plenty of room for Digitization to increase and.
And this technology fueled transition will continue to play out for years to come.
Our network continues to deepen as we innovate and connect the dots between different asset classes sectors protocols and regions.
We believe its this diversity the positions us well to both participate in and lead the next generation of progress.
The momentum from 2020 is carried over into 2021.
We've made several investments in our future to start the year investing in the Asia launching multi client net spotting and announcing the acquisition of Nasdaq's U S electronic fixed income business.
Our existing organic growth initiatives continued to pay off with January volumes, reaching a new record spin.
Specifically, our volumes increased by 29% year on year with broad based growth across our four asset classes and new volume Records.
In U S treasuries.
Mortgages.
Hi, great.
High yield credit the European credit.
And Chinese bonds.
Additionally, we captured a record 25% of the entire U S high grade trace market.
I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter.
And I want to thank my colleagues for their efforts that contributed to a strongest fourth quarter in history and a record year for trade growth.
With that I will turn it back to Ashley for your questions.
Thanks, Lee as a reminder, please limit yourself to one question only feel fleet of hop back into queue and ask additional questions at the end Q&A will end of around $10 40, Eastern time, operator, you can now take a question.
Thank you to ask a question you will need the press star one on your telephone to withdraw your question press. The pound key please standby will be compared of the Q&A roster.
And our first question comes from Richard Repetto with Piper Sandler Your line is now open.
Good morning, Lee Good morning, Billy and good morning, Bob.
So the my question's on the.
The NASDAQ fixed income acquisition and you certainly made a compelling case.
A club or central limit order book fits with your multi channel you deal a web.
But there's been a there was a dramatic deterioration in revenues there from a $100 million.
Back in 2000 $12 million to $23 million, So I guess.
Given you can do a lot of things with it but did you identify like what was the drop off.
No because if you can't.
That would be important to fix two I guess and I heard pricing was an issue.
At least in years past.
Good morning, Rich just Lee I'll take a crack at that skewed question.
Yes, so look the.
We're excited about this deal.
This is a space in the treasury markets that we've been active in for over 20 years is where we started the business and we have a.
Oh complement of our team between sales product right up to $1 billion.
Been very involved in the treasury space for many many years so.
Also.
As part of our focus so.
Without any.
The too much analysis of what happened when it was in Nasdaq's hands I think it's pretty clear to say that this is our sweet spot. This is one of our core markets.
And in terms of the the asset itself from what we're acquiring a liquid club is really complementary to everything else. We're doing we think it's important to offer.
Of our customers of.
Verizon of solutions in fact, just about every different way they could trade of treasuries. So.
We've now offered this central limit order book.
With some real liquidity in it.
We've also with the asset extended our client reach so we're adding we're adding customers connect it up.
And we think as the other other situations with the platforms. The market is interested in competition.
The market wants to have meaningful competitors in the space.
So we've got the sort of breadth of of the.
The treasury offering now somewhat completed.
And we're essentially now in a position where we can offer clients a single API to connect to both the streams that we have today in the order book.
That's a cost savings and the advantage for our clients.
We think the multi protocol approach to the Treasury market is a key differentiator that will will offer the didn't exist.
The former.
The structure. So we know complements everything else, we're doing in treasuries with essentially.
The same is the same marketplace a lot of the same customers, we add customers and we think we'll be able to.
A really ramp this up and bring it to a competitive footprint with the the leader I guess I would add my own experience.
It's a long time ago, but actually started broker tech so.
Go way back.
In terms of the space.
We of treasuries as the ability so we.
We have a focus on this from the absolute top of the organization and a number of individuals who are focused on selling and product design.
Service to clients. In addition to the technology right. So we've got a tech advantage here in the.
After.
A couple of years will be on the same club that we've previously built so there's a real efficiency play there as well so we're.
We're pretty excited about it we think we can we can turn the asset around and bring it to a very competitive footprint and really complement our whole offering in the treasury market.
Great. Thank you thanks Lee.
Sure.
Thank you. Our next question comes from Ike <unk> with Credit Suisse. Your line is now open.
Hey, good morning, everyone believes maybe once the U.
So there's been a a lot of of news flow around Bloomberg starting to charge the trading and rethinking of the pricing. So they can invest more to announce the platform just curious what you're hearing in the market and compliance and potential implications for trade book.
Sure Hi.
How are you I think it's been a.
About a year since since we got a chance of having you in person of it feels like about 15 years since that year has.
Kind of gone by but thanks. Thanks for the question and then obviously great to hear your voice.
I've kind of said this before already and I know you've heard the lease at least say this as well we grew up.
Sensually from day, one competing with Bloomberg, whether or not that was U S government bonds European government bonds global swaps, it's been kind of Boston Bloomberg kind of shoulder to shoulder together for a long time, so we know the company well.
Healthy obviously healthy respect.
Without sort of getting into sort of the absolute specifics around what the pricing change is and how it's being received.
A couple of sort of a high level points that I would make is always difficult to make a pricing change. So eyes wide opened that's always a difficult thing to do and then I would just say given given the work from home environment and all of that it's probably on the edges make some of those conversation.
Sort of in a certain way of even more difficult. So just kind of pointing that pointing that out as I was.
Kind of context.
But in this in a specific way.
We're going to continue to do kind of what we do really well, which is collaborate with the marketplace continue to solve for problems partner with the with the most important participants in the market and kind of do things that we've done to kind of get us here. So always have our eye kind of on the competitive landscape, but at the end of the day.
Also understand what we do best and kind of continue to do that.
The other point I would just kind of make very quickly as you've heard us talk very specifically around this big important kind of trend of.
Around the acceleration of the movement from low touch the no touch and we will continue to play a leadership role in that ex.
And we think that's a very important trend going forward in the marketplace.
And thank you for your question.
Great. Thanks, so much and it certainly hasnt been too long.
Thank you. Our next question comes from Ken Worthington with Jpmorgan. Your line is now open.
Hi, good morning.
The repetitive deal with LSC has just closed in my fingers are crossed here that this may be a better allow you to comment but given the relationship between LLC and trade web now and the unique capabilities that <unk> are there opportunities to trade for trade web to work with LSE and <unk>.
To further innovate in rates.
And if there are any chance you can give us some high level of hints on areas, where you might see opportunities.
I'll take that Ken how are you. Thanks for the question.
Right. So the deal has closed and.
In some respects are our mission stays consistent of right. We're trying to build the most efficient market ecosystem and provide clients with the a.
A full suite of pre trade trade and post trade services.
And we've as part of our history. We've said this repeatedly.
Repeatedly.
We work to <unk>.
<unk>.
With our stakeholders.
We've been doing that for many many years, so whether it's through definitive or for LSC.
Our motivation is to innovate improved transparency into the financial markets and bring down the costs. So we'll be we'll be studying that in.
And looking for ways to collaborate.
Work together.
We've got one thing we've done with them with the FTSE Russell.
We were producing and of the guilt reference prices just.
Just an example of something that we've done the them.
And I think the broad statement is that like we've done with all of our owners in the past when it makes sense, we're going to work too.
Collaborate work together to provide services and products that are best for our customers.
And we're excited for that and we're looking forward to it and I'm sure we'll have more to talk about in the future.
Okay, great. Thank you very much.
John.
Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is now open.
Thanks. Good morning. My question is around the credit if you could expand.
The expand upon the rematch protocol that you highlighted in your prepared comments and just differentiate the app or some of the other offerings you have in credit and thinking about 2021, and what has kind of the best potential do you think for uptake.
Hey, it's Billy so rematches, great right because to its core it sort of takes advantage on some level of what we do best which is.
Our network.
And one of the things that rematch does at its very basics. It takes unmatched the orders from our wholesale suite business and channel as those orders into both of our retail network and our institutional all the all network. So when we think about what trade web does the best we think about a network how do we create more liquidity because of.
This vast network that we have.
And the early response around it is that we've nailed the functionality and we feel really good about where this business is going for us. It's just another example of how we're innovating in credits.
Okay.
Thanks for the question from.
Thank you. Our next question comes from Alex <unk> with Goldman Sachs. Your line is now open.
Great. Thanks, good morning, everybody.
I was hoping with the dig into the mortgage business a little bit obviously, a really robust year in terms of volumes and the refi activity, obviously is helping to some extent.
Can you help us with the sensitivity.
Two of revenues if we've seen if we were to see a significant pullback in refi activity and maybe just a reminder, sort of the breakdown within the mortgage business, how much of a sort of fixed versus variable.
Bob do you want to take that one.
Nobody on Samsung.
Yeah.
I'm, sorry, I missed a little bit of the first part of the question sorry was on mute.
Some of my phone sort of what the cause.
Something.
<unk>.
So that's all right.
Of course, so the question is around the mortgage business and just hoping to get some sensitivity around.
Kind of the variability of the variable part of the mortgage revenues how sensitive it is to refi volume. So if you were to see a replay of volume slowdown how big of a deal of that is to a mortgage revenue.
Yeah look I think.
We've obviously shown growth in volume and in revenue of mortgages. So I think that we have.
Demonstrated that that's growth and we've actually seen more come.
Come into a.
Non comp side of our platform, which.
It means more and comp and therefore, we get paid a bit.
More for that given the price discovery of the rest.
I think of refi rates slow there's other aspects of the mortgage markets.
Net.
You mentioned as well and certainly having a lease has a has helped to increase it but we're also heading.
The some initiatives in the spec pools and given the nature of that there's a large opportunity to spec pools to grow.
Which clearly could talk to and we're seeing that is the other side of if one part of mortgages.
So it was down in any way because of the rates increasing.
<unk> changing.
That would be the thing we're working on too.
It could be on the other side of that.
That being said I don't think we've.
So far we haven't seen a sign that that's going to be a short term.
Happening in terms of of what we're seeing and it's.
And so I think that given the nature of our fee structure.
And what we see we should see a.
A balance of growth going forward, even as the market reform slightly because of the initiatives, we have particularly in the spec pools.
Great. Thanks.
Thank you. Our next question comes from Alex Kramm with UBS. Your line is now open.
Hey, good morning, everyone, just coming back to credit for a second here I mean tremendous job on innovation, obviously and it seems to be driving some good market share, but can you also talk about how pricing matters at all or how much of a factor that's been a.
I think you'll find a cup cut some of your primary.
Incumbent competitors. They are so as I was just wondering if that's a big factor or do you think pricing is going to become more of a factor as maybe all of these these markets evolve over time. So so any update on pricing would be fantastic. Thank you sure sure hey, its ability.
So we feel very comfortable with our pricing, we're the low cost provider.
In the space and we feel comfortable.
With that lens that being said in a very straightforward way, we don't lead with price and with clients with.
That's a mistake, we lead with innovation, we lead with with solving for client workflows, we lead with how we are bringing value whether or not that the portfolio trading or a net spotting and hedging.
The lead with value to your question over time, do we think that our pricing model will kick in more and more and help us be something that gets more market share absolutely yes.
It's not the first thing we lead with with clients.
Very good thank you.
Yep.
Thank you. Our next question comes from Kyle Voigt with K VW. Your line is now open.
Okay.
Hi, good morning.
So it appears the new administration is potentially Inc.
A broad review of.
Of Treasury trading and treasury market structure following the liquidity.
She is in March of last year.
And some of the press reports noted that the administration could consider <unk>.
Pension of primary dealers or.
Also consider the introduction of central clearing just wondering if you could provide any any color on how either of those changes might be might impact your rates business.
I'll take that one.
Thanks for the question.
It's a good one.
Yes look we've.
We've.
The truth is historically, we benefited as a result of change.
The regulatory change tack a change these have been big drivers of of the growth of our business I should say that upfront and we are supportive of regulators soliciting comments with respect to access of the market.
Considering the central counterparty of those sorts of things.
And when you have a mandates a centrally cleared securities that's been historically an E trading accelerant for a number of obvious reasons, we really saw that happened in the swaps market. Most recently at a.
Allow us for.
New liquidity providers.
Generally tends to increase the velocity.
The turnover in the markets so.
We think overall.
Is that what youre, suggesting implies change we've been able to.
Really benefit from those kinds of changes historically.
In terms of.
How much of an advocate we are in the market, but also the ability to adjust and change our systems too.
It's a support the changes so.
In terms of the cost to us.
We're kind of a registered in a lot of different ways, where a registered as a yes.
That includes our treasury business.
It's hard to imagine there'd be any sort of a material change to a regulatory requirements with respect to this but.
It does look to us like there's going to be.
A lot more interest and focus on this and we welcome it.
We welcome it.
Change is good and it allows us to innovate solve for clients.
Issues as as these things come into play.
Thank you.
Thanks.
Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. Your line is now open.
Hey, good morning, Thanks for fitting me in here with a question.
With the a steeper curve that many expect here with an economic reopening later in the year prospects for a steeper curve just hoping you could talk a little bit about how that may impact the different parts of your business in terms of greater appetite for say a different products such as a rate swaps and also how that may impact them play through on the capture rate.
Would it just be seen a mix driving the change in the fee capture of where could actually the fee rate itself actually adjust higher.
Yeah. Thanks, Thanks, Michael.
A.
So I think what youre, suggesting in your question is change and as I was saying just before change is always a good thing, especially a market change.
Or maybe more importantly, a.
A bit of uncertainty in terms of what the actual direction is and.
There's a lot of debate about what is going to be happening I mean, if you look at what's happening to a much older over.
Today, and what's been happening once a month of these types of changes that you're referring to.
Our positive for for volumes and the positive for for a trade web diverging views.
Chasing higher yields these are all positives.
A steeper yield curve is actually a good for our retail business, which has been.
<unk> has.
Has had some challenges as a result of that we've made spawns more attractive.
So that sector.
And.
It's not as if these things the macro stuff is what we've been living with for 20 years right our business and the dynamics. These kinds of changes tend to be.
A positive accelerant if in fact.
They occur.
Look at the January.
Annual rate numbers, and that's an example of possibly what's what's to come but more importantly than the the macro stuff, which absolutely impacts our business I don't want to say that's not important.
Is the Digitization March right.
Move towards more electronic vacation.
Clients are trying to streamline things and I would add to that when we're talking about the treasury market an explosion of debt right. So the.
We have an absolute explosion of that globally not just in the U S.
With the potential from more stimulus these are all.
Issues that create some uncertainty and potential movement.
Some of them, some steepening, which is.
Historically, that's been a that's a good thing for our business.
But.
As always that's not true.
Try not to speculate on that kind of stuff because it's just it's really unknowable.
From our view.
I think the.
The idea that add to that is one of the things.
We can't predict what's going to a point you said exactly but our fees are correlated to some extent the duration. So the shape of the things that might happen.
Have a positive effect as well.
Yes, absolutely.
That's a good point Bob.
Yes.
Thank you.
Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is now open.
Great. Good morning, Thanks for taking the question.
<unk> provided a.
A lot of good detail across the different product categories and strategic initiatives the growth.
And you mentioned the strong international growth, but can you provide an update on geographies you just given the recent hire in Asia and where your current client base is today and may be investments being made size of the sales platform in the U S versus outside in and the potential growth you see whether it's in Asia or Europe.
Okay. There's a lot there so let me just start by saying.
International growth in general for US is average.
About 20% a year since the.
When you go back four or five years 2016.
The <unk> Europe and the initial when we talk about international.
And we've been expanding our product offering and those those areas, obviously, we've talked about China.
The bonds in our recorded comments.
We've got a new hire the just started in.
Asia.
James Who's going to be running that business, we've made the investment and some scope minority investments some scope in December.
So we.
We are we are fully focused on the growth opportunities outside of the U S and have been for for some time.
It's a.
So I don't know a 36, 37% of our revenues.
From from last year, all of that business ex U S. So it's a meaningful component and it's a it's a it's a real opportunity.
<unk> set for us in particular, we think as I said.
The Asia and China, while it's tough to handicap, the timing of liberalization and access to the market both in and out of China. We are going to stay on the cutting edge and we were the first ones to be in that market in 2017, allowing access for international investors and we continue to invest.
Yes.
They're locally with both talent and.
<unk>.
Some some complementary assets so we're.
We're very excited about the opportunity there.
It's got a ways to go in terms of electronics occasion, when we think about Asia and and we always go back to the theme of connecting the dots.
The fact that the markets are global markets and as a <unk>.
Billy likes to say our network. These are a great strength so adding.
Adding a new region, adding new asset classes, adding new types of protocols and connecting that into our global network.
As a real.
A big opportunity for us and one that we're pretty excited about.
Alright, Thanks, a lot.
Sure. Thank you.
Thank you we can take one more question of anyone has anything.
I'm not showing any further questions at this time I would now like to turn the call back over to Lee Olesky for closing remarks.
Okay. Thank you all very much for joining us this morning.
Hopefully we were clear 2020 was a banner year for trade web and we're really excited about 2021 the <unk>.
Starts of the year you can see the numbers in January and we feel we have really multi year opportunities in front of us.
If you of any other follow up questions feel free to reach out to Ashley and the team and thank you very much for joining us today.
Ladies and gentlemen, thank.
Thank you guys concludes today's conference. Thank you. Thank you for participating you may now disconnect.
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Yes.
Okay.
Sure.
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