Q1 2022 Tradeweb Markets Inc Earnings Call
[music].
Good morning, and welcome to trade Web first quarter 2022 earnings conference call. As a reminder, today's call is being recorded and be available for playback.
To begin I'll turn the call over to head of Treasury S. P. A N a and Investor Relations Ashley Serrao. Please go ahead.
Thank you and good morning, joining me today for the call are chairman and CEO Lee Olesky, who will review the highlights for the quarter and.
The business update.
He will elect and precedent Billy Hult, who will dive a little deeper into some growth initiatives and our CFO , Sarah Ferber, who will review our financial results.
We intend to use the best site as a means of disclosing material nonpublic information and complying with disclosure obligations under SEC regulation FD.
I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 stay.
Statements related to among other things our guidance are forward looking statements actual results may differ materially from these forward looking statements information concerning factors that could cause actual results to differ from forward looking statements is contained in our earnings release and periodic reports filed with the SEC.
In addition on today's call, we will reference certain non-GAAP measures information regarding these non-GAAP measures, including reconciliations to GAAP measures are not posted earnings release and presentation.
To recap. This morning, we reported GAAP earnings per diluted share up 40 cents, excluding certain noncash stock based compensation expense.
Acquisition related transaction costs acquisition, and refinance related D&A and certain FX items, and assuming an effective tax rate of 22%. We reported adjusted net income per diluted share up 48 sets. Please see the earnings release and the Form 10-Q to be filed with the SEC for additional information.
Regarding the presentation of our historical results now, let me turn the call over to Lee.
Thanks, Ashley good morning, everyone and thank you for joining our first quarter earnings call.
2022 has begun frantically with a combination of fed tapering global rate hikes, surging inflation and the brutal war in Ukraine.
These macro events have combined to spur higher global government bond yields wider corporate bond spreads.
And the lower equity market valuations.
Amidst this backdrop, we remain very engaged with our clients as they traded more than one trillion dollars daily on average setting new records.
Importantly these.
These records translated into strong revenue growth as trade, we're powered past 300 million in quarterly revenues for the first time in our history.
As we review the quarter.
We were especially pleased by the diversity of our growth across our global multi asset class multi client and multi protocol business that we've built over the last 25 years.
We had an excellent quarter, where we achieved record revenues across U S treasuries European government bonds global swaps U S and European credit Beauty's Global Etfs and repo.
This broad based growth led to record results across our four asset classes.
And across our institutional and wholesale channels.
It's also great to see your early pickup in our retail business, which produced its strongest revenue growth quarter since third quarter 2019.
Turning to slide four record gross revenues of $311 million during the first quarter of 'twenty. Two we're up 13, 9% year on year on a reported basis and 15, 9% on a constant currency basis.
This growth is in line with the 16% growth we've produced over the last five years and is a testament to the durability of our revenue growth story across different macro environments.
The revenue growth and the resulting scale translated into improved profitability relative to the full year 2021, as our first quarter adjusted EBITDA margin increased to 51.6%.
Turning to slide five this quarter was marked by strong performance across all our asset classes with rates and credit continuing to lead the way.
Accounting for 46, and 31% of our revenue growth respectively.
Specifically rates posted a record quarter drew.
Driven by our continued growth across global government bonds and swaps and.
In cash rates global government bond revenues were partially helped by healthy Central bank issuance higher volatility and the addition of amplify.
Swaps produced another quarterly revenue record with positive market share growth, while mortgage revenues declined.
Credit posted a record quarter, driven by strong U S and European corporate credit and Cvs trading.
Equities accounted for 20% of our revenue growth is record revenues were driven by institutional Etfs and our efforts to diversify and grow our other equity products.
The market's performance was fueled by organic growth in institutional repo finally market data growth was driven by investments in our proprietary data products, which are seeing early signs of success.
Moving on to slide six let me provide a brief update of our four main focus areas global interest rate swaps U S treasuries U S credit and global Etfs.
Starting with interest rate swaps, which is our largest right product and improving macro backdrop relative to last year.
Our continued organic growth efforts and led to a record first quarter.
We continue to attract new clients and deepen our client wallet share by driving higher engagement with both existing and newer products and protocols. This led to overall swap volume growing by 25%.
Swaps market share increased to 12, 7% as measured by Clarus.
Longer term, we remain excited by the multi year opportunity here as the market continues to electrify.
Moving onto U S. Treasuries, another REIT product that continues to perform at record levels with volumes up 30% year on year.
Led by both the institutional and wholesale business and aided by our <unk> acquisition.
Market share rose to 19, 6% of the U S Treasury market.
The backdrop of healthy issuance continues to support the institutional channel and the pickup in volatility aided both the wholesale and institutional channels our.
Our share gains have been driven by existing clients doing more business and making further inroads into the TBA market.
Looking ahead, we continue to invest in driving the adoption of early stage institutional streaming protocols like trade web plus.
The wholesale and Avaya integration is going according to plan, we are finalizing our clearing arrangement submitted our broker dealer consolidation plan for regulatory approval and recently announced the timeline for the migration of our data centers.
Shifting to credit this was another record quarter as our business continues to surge ahead generating more than $86 million in revenue to start the year.
Seven years into our journey, it's amazing to see the growth in this business with high yield hitting new market share record in January .
We are continuing to see growing institutional client demand and our innovations like portfolio trading all trade and net spotting.
And growing wholesale adoption.
Around innovations like session trading and re match.
Looking ahead, we continue to see a lot of opportunity in that credit as our platform continues to scale and as the retail business recovers.
Finally within equities institutional Etfs produced record quarterly revenues with average daily volume up 54% year on year, driven by new client wins and strong industry volumes.
The first quarter continued the strong growth we've seen in global ETF volumes after a record 2020 and 21.
Etfs are increasingly becoming a core tool for our buy side clients as they use the products for cash acquisition.
Short term tactical trades or tax management purposes.
We are assisting our clients by providing straight through processing integrating pre trade transparency to reduce the number of clicks involved in dealer selection and enhancing our lift ticket functionality.
Fundamentally we continue to add new clients globally and remain excited about the prospects for the business.
Our other initiatives to expand beyond our flagship ETF franchise are also bearing fruit with momentum continuing in equity options convertibles and adr's.
Looking forward, we believe we remain well positioned to benefit from the continued growth in Etfs globally.
And as our growth initiatives scale.
Finally, as most of you saw in February I will be retiring as CEO at the end of the year with Deloitte, taking the range at the beginning of 2023.
I will continue to be involved with trade wars future, having recently been elected as the chairman of the board. This past February effective through the end of 2000 words.
Retiring wasn't an easy decision, but I am thrilled to be confidently passing the CEO baton to my long term partner Billy at the end of this year.
Billy's promotion as CEO is the culmination of over 20 years, Eric trade web and he embodies the amazing innovative culture, we have here at the firm.
I'll pass it onto Billy to say a few words.
Thanks for the kind words Lee I.
I am excited by the opportunity to lead this company at a time when the winds of change electronic vacation and technological advancements continue to transform the trading ecosystem I look forward to continuing to work alongside so many creative and talented individuals that trade webinar clients.
Lee has been a tremendous leader, creating a culture of innovation and collaboration and I am focused on preserving that spirit.
We have a fundamental view and a core set of beliefs here at trade web that has served us well.
With that said, we will continue to be dynamic and listen to our clients and always be open to being moved and influenced.
Trade web is a company built on breakthroughs consistent and meaningful solutions created for clients real world needs and challenges.
Simple truth is our clients dictate the pace of change and we work alongside them to help drive meaningful innovations to benefit their execution experience.
We are laser focused on empowering our all our clients with innovative technology to access liquidity accurate pricing and streamlined workflows. Our strategy is working and clients have responded to our engagement by pushing our revenues to record highs at trade well.
Turning to slide seven for a closer look at credit. We believe this was a very important quarter.
For the past few years, we have been very happy with the way in which clients have responded to our vision for electronic credit trading by supporting our brand of innovation as we re imagine the credit ecosystem by introducing and growing a variety of new protocols, we became the fastest growing credit platform by both share in absolute revenue.
We were especially pleased to see that our belief that our credit platform has reached critical mass play out as liquidity, we strived hard to build remained resilient as volatility spiked.
We have come a long way since the start of the pandemic our branded competitive position continues to get stronger every quarter, but we know we have more work to do and remain focused on helping our clients and capturing the substantial opportunity in global credit. We believe is in front of us.
A key part of our strategy has been to serve the entire credit market with a variety of protocols our share and revenue continues to be anchored by our fast growing institutional business across both IAG and high yields.
At the same time, we also believe we have a great balance with wholesale also contributing meaningfully in retail starting to show early signs of a recovery.
Additionally, our focus as a voice workflow and net spotting also proved to be another differentiator as electronically processed share hit record levels as volatility increased.
Our institutional growth continues to be underpinned by growth in portfolio and <unk> trading.
The latter remains an area of focus and we are pleased to see the growth continued to unfold, especially in high yield our Qs as client engagement increases.
Portfolio trading remains an important protocol weathering the rapid spread widening and volatility we saw in the quarter. Specifically, we saw a record 45000 line items trade in March with record high yield portfolio trading average daily volume.
The value of portfolio trading also continues to resonate globally.
Tradebook facilitated a record $89 billion in portfolio trades in the fourth and the first quarter of 2022, an increase of more than 25% year over year aided by our client growth of 70%.
Behaviorally clients continued to become savvier in their usage of portfolio trading by putting more dealers and competition and dealers are becoming more and more sophisticated in the way they price portfolio trades across all environments.
Dealers have also become engaged in portfolio trading more than ever with our in comp portfolio trading reaching record levels, comprising 87% of portfolio trading volumes up from 64% in the first quarter of last year.
The strength in portfolio trading was matched by the rapid growth of our anonymous liquidity solution, all trade, which saw a record of nearly 102 billion in volume an increase of 23% year over year.
Seth and trading hit rates held up as volatility increased and we remain laser focused on maximizing the value of session liquidity uploaded our platform through newer protocols like rematch, which accesses our all to all liquidity.
Turning to the rest of our credit business, we achieved record revenues and institutional European credit with strong growth driven by portfolio and <unk> trading.
Institutional Muni revenues continued to grow rapidly increasing nearly 50% year over year as we continued to gain share and add clients. We recently launched AI price for munis, which leverages, our transactional and MSRP data to initially calculate nearly 900000.
<unk> prices and eventually provide our clients with intraday pricing as well.
Our entire Muni platform. She is one in every six trades that occurs in the muni market today, giving us a great foundation for growth.
Our Cvs revenues also saw double digit year over year growth across regions.
In sum it was a good quarter for credit and we continue to believe we have a lot of potential for growth as we look ahead.
Yeah.
Yeah.
Moving on to swaps.
Our biggest revenue bucket within our rates franchise, just like credit the multi year growth story continues as swaps registered another strong quarter aided by rebounding industry volumes and market share gains spin.
Specifically, the pickup in volatility and rising rate expectation expectations.
Drove a 16% year over year increase in first quarter 'twenty two industry volumes.
Our variable swaps revenue grew by 19% year over year, driven by increased trading in higher fee per million protocols.
<unk> market share increased to 12, 7% despite a substantial pickup in short dated Central Bank meeting date trades and the voice market. These.
These trades tend to be speculative in nature carrying a low fee per million and have no signals that could be 10 times larger than our regular swap trades.
Our momentum in major currencies continues with record first quarter share in euro and pound denominated swaps.
We believe the library transition is progressing well.
Over 45% of our first quarter volumes came from sofa trades up from 15% in the year ago period, with 89% of our dollar swap clients, having executed a soap rebase trade since the start of the year.
Beyond the risk free rate transition, we continue to respond to structural changes in the swaps market, making strong, but early advances and cleared swaps inflation swaps, Oregon protocol adoption and multi asset trading.
During the first quarter, we saw record <unk> share and revenues increased by over 200% year over year.
We also saw a record <unk> activity as we continue to onboard dealers and deepened our liquidity pool.
Looking ahead, we believe the long term swaps revenue growth potential is meaningful with the market's still only 30% of electronics side. We believe there remains a lot that we can do to help digitize our clients manual workflows, while the global fixed income markets and broader swap market grow.
Finally, we continued to invest in our leading multi asset class automated trading capability AI acts.
The first quarter is a testament to growing adoption as clients get increasingly comfortable with low to no touch trading even with the heightened volatility.
The number of AI ex trades grew by 15% year over year in the first quarter, while the average daily volume increased 31%.
In fact, the average daily trades increased each month in the first quarter, despite the pickup in volatility.
Clients continue to take advantage of various tools and features like time release.
And smarter counterparty selection to minimize or eliminate the number of clicks timing.
Time release allows orders to be routed for execution at specific time intervals.
We also continue to invest in enriching our advanced dealer selection functionality, which allows clients to customize their counterparty selection. According to real time market conditions and their specific execution objectives.
We believe this is really resonating with clients and as clients become more comfortable with automation we.
We are seeing them get more comfortable trading larger volumes through a IX.
And with that let me turn it over to Sarah to discuss our financials in more detail.
Thanks, Billy 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 nine.
We reported record quarterly average daily volume in excess of $1, one trillion up 11% year over year and up 8% when excluding short tenor swaps.
Among the 22 product categories that we include in our monthly activity report 12 headquartered record while another four achieved the second highest quarterly Adv.
Perhaps even more notable 11 of the 22 product areas produced year over year volume growth of more than 20%.
There is a strong growth include U S and European government bonds Global flat U S corporate credit.
And European Etfs and institutional repo.
Slide 10 provides a summary of our quarterly earnings performance.
Our record first quarter volumes translated into gross revenues, increasing by 13, 9% on a reported and 15, 9% on a constant currency basis, we derived approximately 39% of our revenues from international customers and recall that approximately 30% of our revenue base is denominated in currencies other than <unk>.
Imminently in euros.
Our variable revenues increased by 18, 9% and our total trading revenue increased by 14, 5%.
Total fixed revenues related to our four major asset classes continued to grow up five 4% and seven 9% on a constant currency basis.
Fixed revenue growth was primarily driven by the addition of the MSI acquisition.
Fixed revenue growth was driven by European credit.
Other trading revenues were down 16% as a reminder, this line does fluctuate as it affected by periodic revenues tied to technology enhancements perform for our retail clients.
Market data increased by 7%, primarily due to growth in proprietary data products.
Adjusted EBITDA margin of $51 six declined by 40 basis points relative to the first quarter of 'twenty, one, but increased 75 basis points from the full year 2021.
Relative to <unk> 'twenty, one margin was impacted by higher compensation due to three factors one increased head count to a pickup in incentive compensation to better align with stronger revenue performance and three elevated payroll taxes, driven by the annual vesting of equity compensation at higher stock price levels.
With that said, we remain committed and on track to delivering annual margin expansion in 2022, and there has been no change to our philosophy of balancing revenue growth with margin expansion.
All in we reported adjusted net income per diluted share a 48%.
Moving onto fees per million on slide 11, the <unk>.
<unk> about to describe are driven by a mix of the various products within our four asset classes.
In sum our blended fees per million increased 6% year over year, primarily as a result of stronger growth and higher fee per million credit cash rates and cash equities.
<unk> lower fee per million short tenor swaps and features our blended fees per million were up 9%.
Let's review the underlying trends by asset class, starting with rates average fees per million for rates were up 1%.
Cash rates products fees per million were up 8%, primarily due to growth in higher fee per million U S treasuries and migration of certain European government on clients from fixed to variable contracts.
Our long tenor swaps fees per million were up 2%, primarily due to growth in billable volume and flat in RF and that was offset by lower duration.
And other rates derivatives, which include rates features in short tenor swaps average fees per million decreased 17% due to a shift towards elas, which carries a lower fee per million than fries.
Continuing to credit average fees per million for credit decreased 6% due to a relative product mix with stronger volume growth and lower fee per million credit derivatives and electronically processed trades.
Drilling down on cash credit average fees per million increased 9% due to stronger growth in U S high yield which carries a higher fee per million overall cash credit.
Our U S high grade and high yield volumes were a record in the first quarter.
Looking at the credit derivatives and electronically processed U S cash credit category fees per million increased 9% driven by growth in European Cts, which carries a higher fee per million than the group average.
Continuing with equities average fees per million for equities were up 13%.
Cash equities average fees per million increased by 11% due to an increase in fees per million within U S. Etfs, which was driven by a decrease in notional per share traded.
Recall in the U S, we charge per share and not for notional value traded.
Equity derivatives average fees per million decreased 4% due to growth in equity features which carry a lower fee per million than the equity derivatives average.
Finally within money markets fees per million increased 1%.
This was primarily driven by an increase in our European repo fees per million, which was partially offset by a reduction in our retail CD fee per million.
The higher fee per million retail money markets business remained pressured by the low interest rate environment.
Slide 12 details our expenses.
Adjusted expenses for the first quarter increased 14, 6% and 17, 1% on a constant currency basis.
Recall, approximately 15% of our expense base is denominated in currencies other than dollars predominantly in Sterling.
First quarter 'twenty to adjusted operating expenses were higher as compared to the first quarter of 'twenty, one due to increased employee compensation technology, and communication G&A, and DNA, which were partially offset by lower occupancy costs.
Compensation costs increased 17, 4% due to higher head count and incentive compensation and payroll taxes related to equity compensation that I discussed earlier.
Adjusted non comp expense increased eight 7% on a reported basis, primarily due to technology and communications and DNA.
A favorable movements in FX.
Adjusted non comp expense on a constant currency basis increased 15, 2%.
Specifically tech and communication costs increased primarily due to higher clearing and data fees as a result of higher credit all trade volumes and streaming U S Treasury volumes, which continued to grow.
In addition, this quarter also saw the continued impact of our previously communicated investments in data strategy and infrastructure.
Adjusted General and administrative costs increased primarily due to an increase in travel and entertainment as we recover from the pandemic favorable movements in FX resulted in a $1 1 million realized gain in the first quarter of 'twenty two versus $1 5 million realized loss in the first quarter of 'twenty one.
Professional fees decreased one 2% due to lower legal costs, partially offset by the inclusion of MSI expenses. Following our acquisition in June of last year.
Slide 13 details capital management and our guidance.
First on our cash position and capital return policy.
We ended the first quarter in a strong position holding $828 million in cash and cash equivalents and free cash flow reached nearly $511 million for the trailing 12 months.
We have access to a $500 million revolver that remains undrawn as of quarter end.
Capex and capitalized software development for the quarter was $18 million, an increase of 43% year over year, primarily due to accelerated timing of investment spend.
Continue to expect capital expenditures and capitalized software to be in the range of $62 million to $68 million for the full year.
With this quarter's earnings the board declared a quarterly dividend of <unk> <unk> per class, a and class b share.
We spent $143 million offsetting equity dilution during the quarter, specifically, we spent $47 million under our regular share buyback program, leaving $27 million for future deployment at the end of the quarter. In addition, we withheld $96 million and shares to cover payroll tax obligations related to equity compensation.
As a reminder, we plan to use our share repurchase authorization to mostly offset dilution from ongoing equity compensation.
Turning to other guidance items for 2022.
In line with our previous guidance, we expect adjusted expenses to range from 620 million to $655 million.
Forecasting purposes, we contained to use an assumed non-GAAP tax rate of 22% for the year.
Finally on slide 14, we've updated our quarterly share count sensitivity for the second quarter of 2002 to help you calibrate your models for fluctuations in our share price.
Now I'll turn it back to Li for concluding remarks.
Thanks, Sarah 2022 is off to a strong start and I'm very encouraged by the broadening momentum across our business, giving us a strong foundation for future growth.
With a couple of important month in trading days left in April which tend to be our strongest revenue days momentum from the first quarter has continued with overall revenues and volumes up double digits relative to April 'twenty one.
Similar to the first quarter the diversity of our growth remains a theme as we continue to see double digit average the average daily revenue growth across global interest rate swaps European government bonds global equities and U S and European corporate credit.
Our share has rebounded strongly from March to exceed first quarter levels, while high yield share is trending similar to the first quarter levels.
I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter I want to thank my colleagues for the efforts that contributed to the record quarterly revenues and volumes and trade growth.
With that I'll turn it back to Ashley for your questions.
Thanks, Lee as a reminder, please limit yourself to one question only feel free to hop back into queue and ask additional questions at the end Q&A will end at 10 30, a M. Eastern time, operator, you can now take our first question.
Thank you and if you'd like to ask a question that is star one again, if you'd like to ask a question that is star one Anna.
First question comes from Rich Repetto from Piper Sandler.
Your line is now open.
Yeah, Good morning, Lee and Billy and Sarah.
So I guess first a question on volatility.
The environment current environment for rates has been friendly and.
Wow.
At least in 2021, the environment for credit than less friendly, but it seems like.
It's improving here in 2021, so Lee as you think about the rates business and you look back at prior periods.
And if you compare the tailwind like especially in <unk> 2018, and 2021, what you had.
High double digit 17, 18% revenue growth. So how would you compare the tailwind now to those years and then I guess on Billy.
You've made a lot of comments about.
How things have improved but could you get more specific on what really.
How the credit platform what really.
Demand from you that highlights the performance with higher volatility on the credit side.
Hey, rich.
Thanks, Thanks for the question.
I'll take the rich part of the question and then have Billy.
Handle the credit piece.
I think look it's always tough to draw comparisons.
Current market conditions I think this is true across all.
All asset classes.
2018 was one set of circumstances, we have missed the phasing in Mifid II phasing in in Europe with swap business 2020 , one obviously were impacted by.
Pandemic increased electronic vacation.
When we when we look at the just talking about the first quarter for this year.
And our rates business. This was a very strong quarter for us.
Over 14% growth.
When we compared to the first quarter of last year, which is.
Which is great.
There is a number of unique things obviously happening in the market right now.
Obviously, what's happening with the fed interest rates in general we are.
And the Ukraine with Russia, I mean, this has created quite a bit of uncertainty I think also in terms of what.
What's going to happen in the with respect to yields is sometimes we'll parse things a little bit.
Because of the uncertainty, but generally this has been a favorable environment.
As we've kind of suggested as we've seen in April we continue to sort of positive kind of growth.
The best thing I think is to look at go back historically looked at things every February period, as you need but if you look at our growth has been over a variety of cycles from 2016 to 2020, it's kind of been that 11, 5% compound annual growth rate.
Which is indicative, but it is not.
It's not certain I think.
We're pretty we're pretty positive about things going forward in the right space, we're off to a very good could start and.
And I think that there will continue to be if I were to speculate.
So we that will be.
Positive for our volumes on our businesses.
As we kind of go forward.
So let me let me pass it to bill.
Sure Hey, rich.
Thank you me get specific which will hold against you at some point, but.
Yeah.
In 2021.
Rich as you know really well that was our year those are real year on credit right. We went from 7% market share in IGT to 12% to 5% in high yield of five 5% like maybe huge.
Huge strides right getting to this place what we call critical mass, which is like a big a big expression and a really important expression as you know.
Kind of hit it two ways.
Super talented very important experience team that kind of starts there and then the second thing is that I've talked about this a lot the sort of market hazard appetite to support competition. Those things were working for US right around March March of 2020. If you remember we really made I think in a significant way this commitment towards our liquidity.
The pool, right getting a deeper and more vital and so the numbers specifically are kind of.
The number of our all to all responders in our liquidity pool doubled.
The number of our portfolio traders since March 2020 is up a 150% rich one thing Thats really important we talk about AI extra lot. It's like a very sticky indicator of how we're doing with our clients. It's up four times since March of 2020, So now 40% of our RFU users in credit.
Now trade with us through AI.
Big important kind of number in stat, and so a little bit of your question I think which is important as kind of like 2021 was one market what would happen to our innovations what would happen to kind of you've heard us use the sort of expression around the light bulb what would happen around that when the market got tough when the market got vol.
It'll when prices were going all over the place would it hold up.
I think it's a really important question and it was a really important test for us.
Answer is I think is really really important for you to hear me say this in March when things got tough.
As you know our portfolio trading and high yield was a record six 1%.
I mentioned on my prepared prepared remarks, with 45000, plus line items and one of our portfolio trades, that's a record.
30% of our RFP.
Traders rich in March of 2022.
Did portfolio trades with us that's up from 15% two years ago and 5% from last year. So these underlying numbers are building up so when we kind of step back. We said we went through a test in March and I think we passed that patch passed that test at the end of the day as you know really well the credit market is getting more and more sophisticated.
And our goal is to keep up with that sophistication keep building. These products the right way for our clients and keep doing that as well as we are doing so we feel really good about where we are.
And thanks for the question.
Got it thanks, a specific answer bill.
Thanks.
Mhm.
And thank you.
And our next question come from the Tam so from.
From Credit Suisse. Your line is now open.
Good morning, Lee billion, Sarah Thank you for taking my question Derek.
Sir can you please frame the opportunity for trade web to drive operating leverage in 2022, as well as express as well as expense growth in the context of investing in new organic growth initiatives versus other cost pressures.
Sure. Thanks for the question.
Look we're always thinking about the balance between investing for growth and margin expansion.
As you know our senior leaders of the firm, we're all incentivized to think about balancing those equally in our compensation structure.
We continue to believe we can drive operating margin expansion in 'twenty two when we compare it to the full year last year margin of 58% and we can do that at either end of the guidance range.
I wouldn't get bogged down on the first quarter comparison, it was particularly impacted by a number of factors, which I highlighted in my prepared remarks.
In particular, the performance driven comp and payroll taxes that are always outside in the first quarter were particularly outsized. This year given the strong performance, we had last year and our stock price, which was $100 on the PRC is vested.
As you think about our ability one other thing to think about with margins as is FX. This year.
So that negatively impact our results this quarter.
We have a lot of disclosure around that in our 10-K, but as far as your specific expense growth question. Ultimately comes down to revenue growth, which is our priority in which we have gotten right. So far and we believe margins take care of themselves as our products scale with that.
And at our current revenue growth levels, which you can see we've been able to invest in organic growth that you were asking about absorb the cost pressures and still grow margins.
Got it thank you.
Thanks for the question.
And thank you and our next question comes from Michael Cyprus from Morgan Stanley . Your line is now open.
Hey, Good morning, just a question for Billy I was hoping you could talk about the CEO transition how things might be different under your leadership, Billy and then as you think about future growth how do you see the competitive environment evolving in credit.
Sure Hey, Michael how are you. So yes. Thanks for the question I'll, just I'll answer the sort of part of it. The first part of it is a super Super authentically and genuinely I think in a way that we would really we'll really respect we're all kind of humans here right. So there is just sort of complex emotions involved on the one hand to make it obvious point I'm Super enthusiastic.
<unk> excited and ready for all of this on the other hand, Lee and I have enjoyed a very unique and important partnership for us.
A really long time.
Changing the good news is I'm still going to have Lee is a very important advisor on the as the chair of the board and that feels really good and we're working.
Super diligently around transition and all the ways that you would expect we have a we have a very talented team here, we feel really good about the direction of the company. The nice part about about our partnership at the end of the day as we've been kind of shoulder to shoulder around the strategy of the company for a very very long time, so it couldnt feel better about where we're headed.
Strategically speaking, so I'm not going to kind of advocate for any kind of change at all around that we feel super good about where we're headed and I am excited about it <unk> had great support starting with Lee obviously.
The board and then David at <unk>. So it's been across the board a really good feeling and by the way as we're working and going through all of the transition stuff. We are super busy with our day jobs. So theres, many days, where we roll up our sleeves.
Get to work and keep moving things forward in the way that you would expect so it is an exciting fun.
And interesting.
Time for us the competitive landscape is going to keep kind of getting more competitive and we welcome that we understand that <unk> always said. This we've competed as a company against Bloomberg from day, one and we're comfortable competing so there was a time specifically to your question Michael around credit where the question was with.
With the.
The strong player in the market is there room for two.
And that was the question about how we would penetrate and do well in credit the obvious answer is theres more than room for two.
There is now a third player in the marketplace things are competitive.
And we continue to do really well build innovations connect with clients and move the ball forward and so we love the we love the atmosphere that we're in and we're going to continue to work hard and do really well.
And thank you for your question.
Great. Thanks, so much I appreciate it.
And thank you.
And our next question comes from Craig <unk>.
<unk> from Bank of America.
Your line is now open.
Hey, good morning, everyone.
My.
<unk> is on the contract renegotiation, where appropriate for Affinitive based on pricing trends in your competitors. It's looking like there could be a nice increase in revenues. So I wanted to see if you could share your perspective on this potential catalysts.
Yeah, I think that's broadly speaking in terms of our information services. There is a lot of demand for our data and we are really excited about the long term opportunity.
It's worth pointing out that data first and foremost we think about how it drives trading on our platform and that's our core focus.
But we have a great partnership with definitive.
And that contract is a long term contract and we will have that discussion, but the partnership there and the opportunity to work together has been quite favorable and away from that contract. We do have proprietary data products that we're investing in and realizing some.
So strong growth in as well. So overall, we're quite pleased about where we are.
Thank you Sarah.
Thanks.
And thank you.
Our next question comes from Dan Fannon from Jefferies. Your line is now open.
Thanks, Good morning, I wanted to follow up on the retail opportunity in the prepared remarks, you guys mentioned a couple of times about retail showing some signs of life and improving so maybe give us a sense of what the contribution is today, maybe what its been at points in time before historically.
It does carry a higher capture rate and higher fees. So just want to put some numbers around what that opportunity is light.
Sure. This is Sarah thanks for that question.
In the first quarter, the retail sector accounted for about 6% of our revenues and it was up about 7% year over year.
And just it's a great time to talk about retail because the sector. We are seeing it come.
For contacts.
Think about its contribution last year was about 7% of firm wide revenues and if you go back a little bit further pre pandemic in 2019 that figure was about 10%. So it puts it in context, obviously the environment, we've seen over the last few years, particularly with low rates and depressed yield it's been a little bit less attract.
To financial advisers, but as I mentioned, we're seeing signs of that recovery.
Albeit gradual I think in how it realizes in our revenues.
And maybe I'll just highlight two points, specifically and Billy let me know if I missed anything, but if you think about whats underlying our retail revenues.
Retail muni revenues in the first quarter up 15%, albeit down double digits from the first COVID-19, So you kind of get that context.
But we're really quite pleased with our middle market Muni business, which has done much better revenues there hit a new record.
50% nearly year over year in the first quarter and our efforts to penetrate and really all im trying to fly that tax exempt institutional space are paying off.
Looking ahead, we do think the pickup is there just will be gradual as rates rise and the bond ladders repriced and I think you asked about fees per million as a reminder, retail products tend to have higher pricing than our cash credit average so to the extent these businesses pick up we'd expect that to be accretive to our fees per million.
The only thing I would add as I mentioned.
To Rich's question on the first question about just the importance of.
The liquidity pool in credit one of the things that really gave us an edge in terms of building up that liquidity pool was getting into the retail business. The way that we did it allowed us to onboard a lot of these kind of a central responders in the all to all networks. So there is an important strategy that we're getting out of being in that business as well.
Yes.
Great. Thank you.
And thank you and our next question comes from Alex Crane from UBS. Your line is now open.
Yeah, Hey, good morning, everyone wanted to come back to credit for a second one of the things I'm I guess sensing is more appetite from the <unk>.
Large buy side firms, but even even maybe some of the middle tier of buy side firms to also do more direct connectivity with.
The larger dealers.
We're also increasingly aggregating flows from other places so just wondering if you're actually seeing that if that's a competitive.
Dynamic that we should be watching and what this could mean for trades, perhaps in the future you're competing more with I guess.
Dealer sponsored and.
Internal platforms. Thanks.
Yes, it's a good question.
Out there.
And we've been hearing about it too and it's definitely something that.
That you can tell a couple of the big the bigger buy side firms having to have as an agenda, it's not something that we're worried about.
We do feel really strongly about how we built our protocols.
And the collective network that we have and that our competitive position is really strong there. It's out there we keep our eye on kind of everything around the competitive space, but we feel really strongly that if we keep delivering to our clients. The right way around all of these things the network effect of it all went out at the end of the day. So it's not something that's like sort of big <unk>.
I'm on our radar around something like that but it's something that we are definitely aware of.
Excellent helpful. Thank you.
Sure.
And thank you and our next question comes from Alex Blasting from Goldman Sachs. Your line is now open.
Hey, everybody good morning.
The one around credit.
It feels like it dominates most of you guys just calls but.
I wanted to take a quick step back for a second and I know you guys provided a lot of color around portfolio trading and the fact that it's still remained quite active despite increased volatility, but also coupling that with Cummins Bill you made around the appetite from clients to do more continues to increase and sort of the adoption curve continues to come up I think in the <unk>.
Past, we've talked about this being sort of a mid single digit percentage of overall credit volumes, but based on the kind of client conversations you have today, what do you think that could ultimately go and do you think that PT still going to be sort of one of the key drivers behind trade months market share gains or the products that is <unk>.
And it enough, where youre going to be more competitive and other things. Yes. We do we do think it is going to be super important I think like sort of producing at that number what would you say like 6% or whatever.
And that kind of a volatile market in March is a pretty strong Testament and a pretty strong statement. So we don't we would never characterize it as like a flatlining around the appetite for portfolio trading it's continuing to build up and the reason why it's going to continue to build up its because it solves for some major things.
From the buy side's perspective right.
Alex information leakage, that's first and foremost first and foremost on the buy side.
Executable pricing, that's a big deal to the buy side and I mentioned, the fact that the market is getting more sophisticated the dealer's ability to respond out to a portfolio trade specifically in.
And very volatile situations is growing and getting way more on the screws and these are all like big time important things.
So we feel we feel really strongly that portfolio trading is.
Only going to become a bigger and more important piece of the <unk> workflow.
Other protocols, obviously will matter too.
It's always getting all of the pieces of the puzzle together and credit the right way the all to all network as I mentioned is table Stakes that's really important.
Everything that we're doing Alex around sweep we feel very very strongly about so it's getting these kind of pieces of the puzzle together in the right way matters a ton, but we really feel like portfolio trading got stressed in March and absolutely came through on the other side as a more important protocol than ever.
Thanks very much.
Thank you and our next question comes from Ken Worthington from Jpmorgan. Your line is now open.
Hi, good morning, and thank you for taking the question.
You mentioned in the prepared remarks that some European clients converted from fixed to floating contracts.
Given that at least we think volumes have been rising I assume that conversion was probably driven by trade web as opposed to the other way around so if that's the correct is there an opportunity to convert more customers to these variable contracts overtime, maybe what is enabling this conversion now is it sort of macro or micro.
Specific.
And as the conversion more likely over time in credits or rates.
You know, it's a hard question to answer with a lot of precision and the reality is the decision to change between fixed and variable fee contracts is a combination of different reason, there's been a lot of it idiosyncratic in terms of what's going on with clients.
The market the various different products. So it's really hard to extrapolate that and see a broad trend.
It really just depends on the particular situation. We did have some of that change in European <unk> over the last quarter, it's probably a bit of a combination of both coming from us and the dealers, but I wouldn't get too caught up in terms of looking at it as something that we're driving.
In the absence of communication with our clients.
Should we expect more over time.
I wouldn't expect I wouldn't think of it as like an outlying driver of anything.
Okay, Great you answered it somewhat yes, I think just generally speaking I think the way youre trying to model. It I would think about fixed trading revenue and that sort of low single digit growth rate. So there's going to be different pops, you'll see in variable, but that line is probably in that ballpark.
Great. Thank you.
Welcome. Thanks for the question.
Thank you.
And our next question comes from Kyle Voigt from K B W.
Line is now open.
Hi, good morning.
Just a question on the cash Treasury business.
Of your newer competitors in the space spoke a bit recently about bolstering together all to all trading.
Pleasure.
I'll also say that strike.
Such a solution just wondering if you could talk a bit about whether you are here similar type of slightly less.
Sure.
For all to all trading functionality is cash treasuries market.
And do you think that's part of what's critical to the successful in treasuries.
Corporate.
For both you and others. Thanks.
Broke up a little bit, but I think we got the gist of your of your question a.
A couple a couple of very strong points. One is obviously the treasury market and the liquidity around the treasury market is obviously very different in the credit market.
We feel really strongly particularly around how we've.
We've gotten the AI into all of our clients on how clients have gotten much more sophisticated in terms of their search for liquidity that the traditional model is really working in treasuries that being said and an obvious way we don't discount change at all here right. So we're actively watching that marketplace, particularly as it pertains to the <unk>.
The run market, we feel we have all of the pieces together ready to go we feel like it's the right time to move in that direction and if we do feel like that we will strongly and we do not feel like the timing is now and we feel very strongly about where our where our offering is right now as we speak and we're in a really good position. So is on the competitive landscape.
Always but a very strong understanding of the treasury market operates differently than credit and we feel like we're in a really good position with our clients there.
Understood. Thank you.
Yes.
And thank you and our next question comes from Brian Bedell from Deutsche Bank. Your line is now open.
Great great. Thanks, very much good morning folks.
Maybe the ability to started to come back to the credit market here, but.
If I can just sort of.
Having sort of more of an overarching comment on the future of competition in this market. Obviously, you said, we've got a third competitor thats a little bit more.
Entrenched and obviously the tailwind is very good here in corporate bonds in both high grade and high yield in terms of electronic vacation. So theres certainly room for multiple competitors, but as you see the competition developing in this over the next couple of years or so do you think it's going to be more a battlefield.
<unk>.
Protocol development coming out with new and more innovative protocols or rather growing the sales force or leveraging the network effect and then maybe if you can comment on whether you think price competition will enter the market.
Yes, it's a really well framed question. It is kind of all of the above right and we do make a really strong point that even though we are extremely comfortable and confident with where we are with our pricing model.
Have never lead with price because we just don't think that that's the right kind of technique in terms of migrating.
The competitive landscape in the way that we have we've always led with innovation problem solving and saving time and money for our clients first first and foremost and we think that will continue to win out in the day.
The credit market has obviously experienced a tremendous amount of innovations over the past bunch of years part of those innovations have come because theres been a lot of competition in this space, it's pretty interesting right. The net winners around all of this has really been the community of users. When you think about what's happened with the <unk>.
All to all networks net spotting and net hedging portfolio trading session trading. These are really pretty amazing protocol innovations that have happened recently and a lot of that has become because we've all gotten better.
Between the three of US I think we've all raised our game gotten better gotten more in tune with our clients.
<unk> delivered and developed strong technology and it's all been kind of working so we feel really strongly that it's kind of a mixture of combination of what you described and we will continue with that playbook because its been working for us.
Okay, great great that's great color. Thank you.
And thank you.
And our next question comes from Rich Repetto from Piper Sandler Your line is now open.
I apologize that line disconnected.
Next question is.
From Craig Siegenthaler from Bank of America. Your line is now open.
Hi, everyone. This is Ely from Greg <unk> with a follow up.
We wanted your insight into the consolidated tape pilots for fixed income, which are being rolled out in Europe . This quarter.
Some media attention around the potential consortium between trade lab market access and Bloomberg for joint type project can you share that your thoughts on that development too. Thanks.
We thank you for the question.
I'll play the bad Guy here.
We're not going to comment on that one.
<unk>.
Just not something we want to discuss.
Page.
But thanks for the question.
No worries thanks.
Yes.
And thank you.
And I am showing no further questions I would now like to turn the call back over to Lee Olesky for closing remarks.
Okay. Thank you everyone for joining us. This morning, we're really pleased that we had a record start to 2022 and obviously if you have any follow up questions feel free to reach out to <unk>.
And the team and have a great day. Thanks again bye bye thanks, Scott Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
[music].