Q2 2022 Tradeweb Markets Inc Earnings Call
[music].
Okay.
Good morning, and welcome to the Great Web second quarter 2020 earnings Conference call as a reminder.
Today's call is being recorded and will be available for playback to begin I will turn the call over to head of Treasury.
D and E F E N E 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 provide a business update our CEO and president Billy Hult, who.
Diving, a little deeper into some growth initiatives and our CFO , Eric Berger, who will review our financial results. We intend to use the website as a means of disclosing material nonpublic information and complying with disclosure obligations.
<unk> FC.
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 995.
Statements related to among other things our guidance are forward looking statements.
<unk> results may differ materially from these forward looking statements.
Information concerning factors that could cause actual results 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.
Our posted earnings release and presentation.
To recap. This morning, we reported GAAP earnings per diluted share of <unk>, excluding certain noncash stock based compensation expense.
Acquisition related transaction costs acquisition related D&A, and certain FX items, and assuming an effective tax rate of 22%.
Reported adjusted net income per diluted share of <unk> 47.
Please see the earnings release and the Form 10-Q, we 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 second quarter earnings call.
Frankly, beginning to 2022 continued into the second quarter as growing recession periods increased investor uncertainty.
The backdrop with global rate hikes surge in inflation and supply chain issues and the continuation of a brutal war wore in Ukraine.
These macro events led to 10 year government bond yields hitting three year highs in June coupled with wider corporate bond spreads and lower equity market valuations.
We remain very engaged with our clients as they traded more than one trillion dollars daily on average setting another quarterly record.
Our record volumes translated into continued and strong double digit revenue growth.
<unk> generated its highest second quarter revenues in our history.
But certainly one of them.
It wasn't all one way traffic well certain products were hampered by more risk off client mentality.
For the yield curve.
The same conditions allowed other products to thrive.
Our early mover advantage and building diversity across our global multi asset class client and multi protocol business over the last 25 years really shines in moments like this.
We achieved record second quarter revenues.
<unk> U S treasuries global swaps U S credit Muni, Cvs global Etfs equity derivatives and repo and.
In fact, we also achieved record second quarter revenues in European government bonds and European credit on a constant currency basis.
And it's also great to see the continued pickup in the retail business, which produced its highest quarterly revenue in our history.
Turning to slide four.
Our record second quarter revenues of $297 million were up 13, 9% year on year on a reported basis and 17, 8% on a constant currency basis.
The revenue growth and the resulting scale translated into improved profitability relative to full year 'twenty, one as our second quarter adjusted EBITDA margin increased to 52, 4%.
Turning to slide five this quarter was marked by strong performance across all of our asset classes.
With rates and credit continuing to lead the way accounting for 48% and 32% of our revenue growth respectively.
Specifically rates posted second quarter revenue is best second quarter revenues ever driven by our continued growth across core global government bonds and swaps.
And cash rates global government bond revenues were partially helped by lowering debt levels.
Volatility, helping the wholesale channel and the addition of <unk>.
Yes.
<unk> produced another solid quarter with positive market share growth, while mortgage revenues declined given the challenging rate backdrop.
Got it.
Similarly credit posted its highest second quarter revenues driven by strong Muni U S corporate credit and Cvs trading.
Not to be overshadowed equities also close to its highest second quarter revenues driven by institutional Etfs and our efforts to diversify and grow our other equity products money.
Money market set a new record fueled by organic growth from repos, coupled with improving fundamentals in our retail CD franchise.
Finally market data revenue growth was equally split across our affinitive contract and our proprietary data products, which continue to enjoy robust growth.
Moving on now to slide six let me provide a brief update on our four main focus areas global interest rate swaps U S treasuries U S credit and global Etfs.
Interest rate swaps, which is our largest REIT product achieved record second quarter revenues.
Our overall swaps volume grew by 43% led by an improved macro backdrop relative to last year and our continued organic growth efforts, which drove market share higher to 15, 1% as measured by Clarus.
We continue to attract new clients and deepen our client wallet share by driving higher engagement with both existing and newer products and protocols.
Moving on to treasuries are volumes increased 23% year on year led by the wholesale business and aided by our <unk> acquisition.
Market share rose to 19, 6% of the U S Treasury market.
In terms of client behavior or asset manager and hedge fund clients move to the sidelines and trimmed risk as volatility spiked.
In contrast, the pickup in volatility continue to aid our wholesale channel our share gains have been driven by existing clients doing more business and we continue to focus on making inroads.
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.
At the end of June also marked the one year anniversary of the acquisition of <unk>.
We're pleased with the integration progress and are currently awaiting regulatory approval to consolidate the two broker dealers.
<unk> margins are progressing as initially planned and we expect further <unk> margin expansion moving forward.
Shifting to credit this was another great quarter as our business continues to surge ahead generated $84 million in revenues despite fee per million pressures in our largest business institutional corporate credit.
Our first half revenues of $170 million were up 16% from the first half of last year.
Seven years into our journey, it's amazing to see the sustainability of the business. Despite the tough client conditions and lackluster corporate credit industry volumes, we are continuing to see growing institutional client demand with users increasing across munis portfolio trading all trade net spotting and growing wholesale adoption.
Session trading and really match.
Looking ahead, we continue to see a lot of opportunity in credit as our platform continues to scale in the retail business continues to recover.
Finally within equities institutional ETF produced strong quarterly revenue growth with the average daily volume up 50% year on year, driven by new client wins and strong industry volumes.
We produced the strongest first half revenues in our history as institutional investors continue to embrace Etfs as a low cost highly liquid and flexible options and navigate a wide range of market environments.
The increasing adoption of our Q.
Also driven greater usage of Etfs with institutional portfolios as it gives investors the ability to efficiently trade large amounts of risk and quickly alter the exposures of their portfolios.
Looking forward.
We believe we remain well positioned to benefit from continued global ETF growth.
And as our growth initiatives scale.
With that I will turn it over to Billy.
Thanks Lee.
Since our inception <unk> has been focused on meeting our clients' needs while being at the forefront of technological developments across the trading ecosystem.
Our competitive advantage is our people network and technology and we remain hyper focused on continuing to grow that moat.
On the people front as we continue with the CEO transition. We are excited that Tom <unk>, who will be joining the firm in October as president elect before officially becoming president at the start of next year.
Tom is a seasoned global leader, who most recently spent the last 27 years at Jpmorgan and it has had a long relationship with the firm as a client trader investor and most recently as one of our board of directors. Tom Likewise believes in our client first approach and we believe he will further enhance the team's ability.
To drive further innovation for our clients.
On the network and technology front, we recently launched the spotlight dealer diversity program. This was a very important initiative that we crafted carefully in collaboration with our clients over the last year, placing a lot of importance on genuinely leveling the playing field now diverse dealers will be able to elevate their.
And leverage of electronic trading in a meaningful way by having the option to either directly provide liquidity or intermediate trades on are all trade network. The initiative has already hit the ground running.
Turning to slide seven for a closer look at credit.
Last quarter, we believe we received validation that our strategy of catering to the entire credit market was the correct one.
This quarter. The first word that comes to mind is resiliency as Lee highlighted in his opening our clients are operating in a very uncertain and complicated time the.
The diversity of our credit business shine during the quarter.
Institutional corporate credit continued to grow overcoming fee per million pressures in investment grade bond trading from duration falling 20% year over year.
On the other hand wider spreads boosted our Cvs business and higher rates helped our retail credit and overall muni businesses.
As we built our corporate credit business, we always thought we need to respect the complexity of the fixed income market and give our clients the choice of picking a protocol that suits them best.
We are very pleased by the product protocol diversity powering our business and we continue to pay close attention to our clients' need for competition.
Our institutional growth continues to be underpinned by growth in <unk> and portfolio trading our second quarter RFG average daily volume grew 25% year over year, driven by both investment grade and high yield.
Expanding our RFG presence remains our biggest opportunity and we continue to see great success cross selling the innovations we have brought to the credit market to gain wallet share.
Despite the continued increase in spreads and volatility. We also continue to see strong portfolio trading activity on the platform with average daily volume growing 29% year over year.
As we step back the underlying trends were impressive.
Globally, the number of users in line items traded were up over 50% year over year, while our largest trade was greater than one 5 billion in the quarter.
When you introduce something new behavior takes time to change in these trends speak to the growing comfort that clients have in executing large trades using portfolio trading despite the volatile macro environment.
<unk> also remain very engaged as our in comp portfolio volume reached 84% up from 73% last year Behaviorally. We also continue to see clients substitute some RF Q, an all to all trading with portfolio trading taking advantage of the certainty of execution time and cost.
Savings associated with the protocol.
In fact Barclays credit research recently published a deep dive on portfolio trading.
They concluded that despite the pickup in volatility portfolio trading remains more effective relative to other protocols in terms of the transaction cost savings reducing costs by 30% to 40% depending on the level of volatility.
They also noted that the that the robust growth prospects for Etfs bodes well for future growth and adoption of portfolio trading.
This strengthened <unk> portfolio trading was matched by the strong growth of our anonymous liquidity solution, all trade, which saw over $94 billion in volume with average daily volume, increasing 7% year over year Destiny trading submission volumes continued to remain steady despite the increased volatility.
And we remain laser focused on maximizing the value of obsession liquidity uploaded on our platform.
Through newer protocols like rematch, which access our all to all liquidity our rematch average daily volume was up nearly 100% in the second quarter.
Turning to the rest of our credit business. It was great to see a lot of our products really drive.
We achieved record constant currency revenues in institutional European credit with strong growth driven by portfolio trading.
Our muni business achieved record second quarter revenues as the retail markets run back to life in the institutional business.
Which grew more than 100% year over year continues to attract new clients.
Last quarter, we announced the launch of AI price for movies and the team is seeing strong interest out of the gate for the product given the quality of the pricing.
The volatility in the market also boosted our Cts revenues, which grew by over 70% year over year with strong growth across regions.
Looking ahead, we continue to invest in.
And building out our E M credit offering and we're excited about our collaboration with London stock exchange groups FX all to develop hedging workflow solutions that allow emerging market products to be traded more efficiently.
In sum it was another solid quarter for credit and we continue to believe we have a lot of potential for growth as we look ahead.
Moving on to swaps just like credit the multi year growth story continues as swaps registered another strong quarter aided by a rebounding industry volumes and market share gains are variable swap revenues grew 26% year over year, driven by strong growth across tenors and market share climbing to 50.
1%.
Our momentum in major currencies continues with record first half share in euro and pound denominated swaps. We believe the LIBOR transition is progressing well, 47% of our first half volumes came from sofa trades up from 12% in the year ago period with 95% of our dollars.
While clients, having executed a sofa base trade since the start of the year.
I wanted to spend a minute on inflation swaps, which will become an important tool in today's environment like.
<unk> credit.
<unk> and protocol diversity in the swaps market is equally important since executing our first cleared inflation a swap transaction in 2017, using our RFG protocol. We have responded to increasing demand from our clients to become the leaders in electronic trading of inflation swaps.
Clients can aggregate inflation swap liquidity across four major cleared indices, taking advantage of the efficiencies of electronic trading.
Our efforts are seeing early success with first half volumes up over 30% year over year.
Beyond the risks risk free rate transition and inflation swaps, we continue to respond to structural changes in the swaps market, making strong, but early advances and cleared swaps RFA protocol adoption and multi asset trading.
We saw record <unk> share in the first half with revenues increasing by over 140% year over year.
We also saw record RFP activity as we continue to onboard dealers and deepened our liquidity pool.
Our first half RFS activity is over 90% of the activity. We saw in full year 2021 with strong growth across U S EMEA and APAC regions.
Looking ahead, we believe the long term swap revenue growth potential is meaningful this quarter. We successfully completed the first ever fully electronic institutional so for swaption trade. Just another example of how we in conjunction with our customers look to grow the electronic pie.
With the market's still only 30% of electronic side. We believe there remains a lot. We can do to help digitize our clients manual workflows, while the global fixed income markets and broader swap market grows.
Finally, we continue to invest in our leading multi asset class automated trading capability.
10 years into our journey to second quarter is a testament to how we're helping our clients lower operational risk and transaction cross across trades of various sizes and complexities.
Specifically the number of AI ex trades grew by over 35% year over year in the second quarter.
We have recently seen the lessons learned from COVID-19, being applied by traders to navigating new challenges brought on by the Russia, and Ukraine, or surgical inflation and central Central bank rate hike fears.
The upshot is been that clients are auto trading with relative ease modifying rules on the fly to manage transaction costs using AI.
<unk> features.
And as clients become more comfortable with automation, we are seeing them get more comfortable trading larger volumes through AI apps.
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 20% year over year and up 16% when excluding short tenor swaps.
Among the 22 product categories that we include in our monthly activity report.
<unk> had quarterly record while another four achieved the second highest quarterly Adv.
Even more known about 10 of the 22 product areas produced year over year volume growth of more than 20%.
Areas of strong growth, including European government bonds.
<unk>.
U S corporate credit.
Etfs and institutional repo.
Slide 10 provides a summary of our quarterly earnings performance a record second quarter volumes translated into gross revenues, increasing by 13, 9% on a reported and 17, 8% on a constant currency basis.
Derived approximately 36% of our revenues from international customers and recall that approximately 30% of our revenue base is denominated in currencies other than dollars predominantly in euros.
Our variable revenues increased by 27% and our total trading revenue increased by 14, 6%.
Total fixed revenues related to our four major asset classes continued to grow up one 3% and five 5% on a constant currency basis.
Right X revenue growth was primarily driven by the addition of the ESI acquisition.
Money market <unk> growth was driven by growth.
Other trading revenues were down 3% as a reminder, this line does fluctuate as it is affected by periodic revenues tied to technology enhancements performed prior retail clients.
Market data increased by five 1% data processing and Affinitive and our proprietary data products.
This quarter's adjusted EBITDA margin of 52, 4% increased by 181 basis points relative to the second quarter of 2021, and our adjusted EBITDA margin for the first six months of the year increased to 115 basis points from the full year 2021 margin.
We remain committed and on track to delivering annual margin expansion in 2022, and there has been no change in our philosophy of balancing revenue growth with margin expansion.
All in we reported adjusted net income per diluted share a 47%.
Moving onto fees per million on slide 11.
But thats described are driven by a mix of the various products within our four asset classes.
In sum our blended fee per million increased 3% year over year, primarily as a result of stronger growth and higher fee per million rates derivatives and cash equities.
Excluding lower fee per million short tenor swaps and futures our blended fees per million were up 7%.
Let's review the underlying trends by asset class starting with rates.
Average fees per million per rates were up 1%.
For cash rates products fees per million were up 12%, primarily due to growth in higher fee per million U S treasuries and migration of certain European government bond clients from fixed to variable contracts at the end of last year.
Our long tenor swaps fees per million were down 4%, primarily due to lower duration and billable volume mix, while we continue to see growth in emerging markets flat.
<unk>.
And other rates derivatives, which includes rates features and short tenor swaps.
Fees per million decreased 21% due to a shift towards OIS, which carries a lower fee per million than price.
Continuing the credit.
Average fees per million for credit decreased 18% due to the relative product mix with stronger volume growth and lower fee per million dollars of credit derivatives.
Likely process trades.
Drilling down on cash credit average fees per million increased 12% due to stronger growth in U S high yield U S high grade anemia, which carry a higher fee per million in overall cash credit.
Notably our U S high grade volumes were a record in the second quarter.
Looking at the credit derivatives and electronically processed U S cash credit category fees per million decreased 2% driven by stronger growth in Cts, which carries a lower fee per million than the group average.
Continuing with equities.
Average fees per million for equities were up 36% for cash equities average fees per million increased by 26% due to an increase in fees per million within U S. Etfs, which was driven by a decrease in notional per share traded.
<unk> in the U S, we charge per share and not for notional value traded.
Equity derivatives average fees per million increased 11% due to an increase in fees per million within equity futures.
Finally within money market fees per million decreased 6%. This was primarily driven by a decrease in our U S repo fees per million the higher fee per million retail money market business continues to improve given our higher interest rate environment.
Slide 12 details our expenses at <unk>.
<unk> expenses for the second quarter increased nine, 9% and 12, 6% on a constant currency basis.
Recall, approximately 15% of our expense base is denominated in currencies other than dollars predominantly in Sterling.
Second quarter 2022, adjusted operating expenses were higher as compared to the second quarter of 'twenty, one primarily due to increased employee compensation G&A and technology and communications.
Compensation costs increased seven 3% due to higher head count and performance related compensation.
Adjusted non comp expense increased 15, 6% on a reported basis, primarily due to G&A technology and communications DNA and professional services.
Were helped by favorable movements in FX.
Adjusted non comp expense on a constant currency basis increased 19, 8%.
Specifically technology and communication costs increased primarily due to higher clearing and data fees as a result of higher credit all trade volumes and screaming 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.
Havable movements in FX resulted in $8 million gain in the second quarter of 2022 versus a $300000 loss in the second quarter of 2021.
Professional fees increased 15, 6% higher legal costs and the inclusion of MSI expenses. Following our acquisition in June of last year.
Yeah.
Slide 13 details capital management, and our guidance first on our cash position and capital return policy.
We ended the second quarter in a strong position holding $959 million in cash and cash equivalents and free cash flow reached $538 million kind of 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 $15 million, an increase of 17% year over year, we continue to expect capital expenditures and capitalized software to be in the range of <unk> $62 million to $68 million for the full year.
With this quarter's earnings and board declared a quarterly dividend of <unk> <unk> per class, a and class b share.
We spent $11 2 million offsetting equity dilution during the quarter, specifically, we spent $9 million under our regular share buyback program, leaving $18 million for future deployment as of the end of the quarter.
In addition, we would have $2 2 million in 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.
For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year and.
And finally on slide 14, we have updated our quarterly share count sensitivity for the third quarter of 2022 to help you calibrate your models for fluctuations in our share price.
Now I'll turn it back to Li for concluding remarks.
Thanks, Dara halfway through 2022 is off to a strong start and I'm very encouraged by the diversity of growth across products and the reemergence of our retail channel, which further solidifies our growth Foundation.
While areas of the business continue to contend with more risk off client behavior. We remained focus on investing in our lead position, our leading position across products to drive further electron application and our earnings power higher.
Taking a step back and the majority of our markets. Our clients are still trading over the phone and we believe we have a meaningful revenue growth opportunity as we continue to collaborate and innovate with our customers to improve their trading experience.
We released July volumes, this morning, and the secular trends powering electron execution, Ron play again, having already facilitated more than one trillion and average daily volumes.
July volumes increase over 10% year on year led by growth across interest rates swaps money markets and institutional Etfs.
The diversity of our credit business was on display at again with strong growth in U S IAG credit munis and Cvs.
Before I conclude I'd like to welcome Tom who I think will be a terrific leader of trade well I would also like to welcome Jacques Grin and welcome back Ron <unk> to our board of directors as we increase the independence of our board Josh brings more than 30 years of financial service expertise and global leadership in.
Human capital experience to our board.
Donna previously spent five years on the board prior to our IPO and brings a strong leadership and financial experience to the board.
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 their efforts that contributed to the record quarterly revenues and volumes of trade War.
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 free to hop back in 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.
Again, ladies and gentlemen to ask a question. Please press star one one when you touch tone telephone. Our first question comes from Alexandra <unk> of Goldman Sachs. Your line is open.
A bit of an of an ecosystem question for you guys I guess, but we've seen excess capital at a number of large money center banks decline pretty meaningfully the cycle and thats before considering any potential credit issues.
Sort of leading to various balance sheet and <unk> mitigation across the space. So I'm not asking you to obviously predict volumes, but curious how you think smaller bank balance sheets, and maybe less liquidity in the system.
General.
And back trade webs various businesses, but in particular rates.
One tends to be I guess, a little bit larger from as I think about the bank's balance sheet consumption.
Is there a risk because there are positives or negatives, how do you sort of thinking about that dynamic. Thanks.
Hey, Alex.
<unk>.
Is there a risk because there are positives or negatives, how do you sort of thinking about that dynamic. Thanks.
Hey, Alex.
<unk>.
Thanks for the question.
I guess the first part of my response to that is it is.
Tough when you group all the banks together right not all banks are are the same.
We have a large network of liquidity providers, who are going to react to the environment differently.
Some will dial up risk others will pull back.
I think what's most important here either way regardless of how individual banks react to the market is that as an electronic platform. We believe we're going to continue to play a critical role in helping clients find liquidity and dealers manage their balance sheets.
And you can see this in recent months, we've consistently traded over one trillion daily as the macro environment has changed from a bank perspective. The bottom line is our biggest products are relatively capital efficient right. So our large cash products attract very low risk weightings and the <unk>.
Majority of derivatives are essentially cleared.
So for sure on the margin high yield repos could be impacted.
But they're not that far along in their electronic vacation journey.
So another I think another point here is.
The market structure is continuing to evolve so.
If you look at where banks and a broader set of <unk>.
Non banks.
We are now playing sort of.
A bigger role in our Treasury Margaret.
There are more than 50% of the exact except accepted liquidity.
In 22 right. So this is this is an important point principal trading firms are also playing a larger role in markets like U S credit. So when we take a step back we think we're very well positioned market remains fluid.
<unk> engaged with our sales force.
And even in todays stressed environment, we have new clients shifting from voice to electronic so we're we're very laser focused kind of on this future opportunity that we believe we continue to have.
Great. Thanks for that context sure.
Thank you.
Our.
Question comes from Richard <unk> of Piper Sandler Your line is open.
Sure.
Yes.
Okay.
Hello.
Eric.
Rob.
I'm, having a little communicate.
Yes.
Difficulty here.
So anyway.
Okay.
I apologize looks like he disconnected.
Do have a question press star one again.
He may have disconnected.
Our next question comes from Craig, It's Peter Naylor.
Bank of America. Your line is open.
So my question is on MBS volumes, which continued to decline.
Is this more of a function of lower industry volumes due to higher rates.
Our share declines for electronic trading get less issuance and then with the bond markets now starting to price in great part.
By 'twenty three we wanted to get your perspective on the potential for MBS volume Reacceleration into next year.
Hey, Craig.
So a good question. Thanks for asking it we have I think as you know really well we have a very strong leading leading franchise position in mortgages, both on the institutional side and the wholesale side the mortgage market is going through.
A rough spell it is a combination of higher yield lower issuance and I think as you know very well sort of technical situation with the fed.
I'm sort of being in the middle of the mortgage trade and so volumes are challenging right.
Right now we feel really good about our position from a market share perspective.
In that space and we do feel like this is a very resilient marketplace, it's gone through ups and downs before and ultimately we feel like the fed exiting the mortgage trade will be an impetus for volumes increasing there. So the forward from our perspective around mortgage volume will look good and we love the <unk>.
Way that we are kind of set up in that space with a very strong market share kind of across the board.
And thanks for the question.
Thank you Billy.
Thank you.
Our next question comes from Michael <unk> of Morgan Stanley . Your line is open.
Thanks, Good morning, guys I wanted to ask about the Muni business you guys are putting up some very strong volumes. There I think it was up a 100% in the quarter. It looks like the strength is continuing here in July up over 90% year on year. So I was just hoping you could elaborate a bit on the strength that you guys are seeing from your Muni franchise, how much of that is coming from retail.
Versus institutional and then can you talk about some of the initiatives and priorities to make your muni business a more meaningful revenue contributor at trade web and is there any sort of role for M&A to play to help accelerate your presence within the media space.
It's not.
It's really it's not like the exact opposite of the mortgage story, but it's like it's basically an inverse right lots of good things are happening in the Muni space right now right and it's from our perspective, one of the things. That's really great is this has been these last bunch of months with higher rates has been a real validation from our perspective.
Around our retail strategy and then an obvious way to Muni volume is sort of the engine.
Our around our retail strategy at the same time to your point. We're also investing in hyper focused on building out and continuing to build out a muni institutional platform are we feel like that market will obviously benefit from a tremendous amount of transparency and efficiency in our modernization.
<unk> of that business. So it's really like a two pronged approach for us in <unk>, both on the retail side and the institutional side.
And we feel like this is an opportunity kind of sitting right in front of us where we're putting.
The exact amount of emphasis and.
And muscle into those into those businesses as you'd expect it's kind of traditionally as Super old school market and a lot of ways that sets up perfectly for us because to <unk> point in his prepared remarks, we're constantly focused on sort of transitioning phone business into the electronic world and in a certain way didn't union.
Market represents that at the highest level for us so it's a big priority for us as a company.
Okay.
Great. Thank you, but just on the M&A point, just any thoughts there if that could be helpful.
Nothing that I think that would absolutely kind of come to mind for US right now around that obviously, we're always looking at M&A opportunities in ways that would help our business grow our network or add a piece of technology that we feel would be incredibly useful for us, but I don't think that we would have like a big comment around sort of M&A lean in that space in part.
Because we feel really good about how we're approaching this business organically.
Great. Thank you.
Yes.
Thank you. Our next question comes from Kyle Voigt of <unk>. Your line is open.
A question for Billy you mentioned in your prepared remarks external hire of Tom alluded to fill that president position.
I'm wondering if you could elaborate a bit more on why landed on time to fill that role and more specifically some of them what the interest rate trading background and just wondering if we should infer from that move that youre kind of doubling down in rates versus maybe choosing a candidate with a credit background for example.
Yes, so that's a great question so.
Not surprisingly Lee and I spent a ton of time on this because I think bringing someone at a very senior at a very senior position into the company externally means a lot. So we were very focused on getting this getting this higher right and to make an obvious comment we feel great about it.
Tom has very strong sort of tangible qualities both.
Background 25, I don't know.
David So much for 25 plus years.
<unk> at Jpmorgan.
Morgan kind of living and breathing in this space that trade web operates gives him a tremendous amount of experience into our world.
Known Tom for a long time, both as a client a board member.
<unk> had a tremendous amount of confidence in him and his market background.
I would also say in a very kind of genuine way Theres always also the concept of kind of the intangibles and intangibles at a company like trade web matter a lot and we don't sort of we described that at a very specific way intangibles do matter and so we got very very comfortable with how Tom operate.
Felix exceptionally transparent he's a great communicator and so we felt in a very strong way that he would be a very additive person to our management team and they are really good news I would say is from our perspective the team and the company has reacted really well to hit higher and so we're excited for him to start.
October and we feel really good about about the skills in the background that he brings into the equation the rates history and the rates background that he has is only a good thing.
We have a very strong kind of rates team here and they are excited to have him onboard but by the way so as our credit team. So we feel like his contribution is really going to be across the board in every way that you would expect them to have.
Okay and thanks for the questions. Thank you.
Thank you.
Our next question comes from Alex Kramm of UBS. Your line is open.
Okay.
The.
Hoping you could give us an update on high yield credits trading I think.
Year over year.
And electronic trading are clearly saw it but it seems like the market share gains have stalled out a little bit. So just wondering you know specific efforts in that area macro environment, and then maybe just remind us around pricing relative to other I guess IAG and competitors.
How we should be thinking about that business. Thank you.
Yes.
It's a good question.
We wouldn't say sort of dismiss month to month market share numbers are even quarter to quarter to quarter market shares.
I was sort of static noise, because we care about everything and you guys know that we are a very very competitive company that wants to win every day every week every month every quarter. So we care about all of it that being said if you take a step back right. We have from sort of March of 2020 sort of <unk>.
<unk> our market share just specifically speaking in high yield from basically less than 1% to up to 8%.
In January of course, there is always going to be some sort of a back and forth around the numbers and if I was going to describe it to you specifically what I would say is just again very bluntly.
Through February March and April of this past year as the market has got more volatile our take on it all is that more business went into the all to all channels dental portfolio trading which has been our historical strength in lead.
One of the things I think that we do a very good job at and pay a lot of close attention to is what I would describe to you as sort of signposts or sort of indications of from our perspective franchise strength. So around high yield what we would say to you I think in a very in a very specific way is that.
<unk>.
In the second quarter.
Our responder rate on trade wealth was up 25% year.
Year over year, that's a very strong and important number our average daily volume was up 16% in the second quarter year over year and the percent of high yield.
<unk> trades that utilized aix's increased over 30% or up four times actually since 2020. These become kind of a very important indicators of where we are going and then a really important way they sort of mimic stats that we saw along the way as our <unk>.
<unk> market share continues to do exceptionally well now up over 13 odd percent and it continues to sort of increase and play a leading role for us. So those are the kinds of things that we focus on and we think about when we look at where we are.
Around all of this.
Yes.
Thank you. Our next question comes from Daniel Fannon of Jefferies. Your line is open.
Sir I was hoping you could provide some additional color on just the expense outlook halfway through the year with FX.
Kind of a benefit with inflation, maybe as a headwind maybe talk about how you are tracking as you think about the full year based on kind of current spending levels.
Sure. Thanks for the question.
Based on where we offer the first half of the year, we're trending towards the middle of our range for expenses such as 620%.
Scott.
And to your point on FX, that's partially being helped by the depreciation of the pound.
Perfect.
As we think about the rest of the year.
You are trying to get a handle on it.
<unk> portion of our expense base is variable about 30% periods with revenues and a large part of that is really compensation.
<unk> III, which is impacted by how well we do in terms of revenue and margin.
Beyond that I would just say in terms of the year over year comparisons or as you look at sequential quarters. Obviously, we expect patent communication that grow on an absolute basis as volumes continue to grow.
G&A clearly is an area, where we picked up the peony will just not a bad thing when you think about coming out of the pandemic.
Absolute level I would expect those to increase.
And then I, just keep an eye on currency, which obviously hasn't been as big a factor in years past.
But when you look at the first half we talked about its impact.
And really a lot of that out in the queue. Even in July we're seeing.
Yes, almost another five.
So that's another element just if you think about the overall expense range, but overall I think we feel comfortable that we're in the middle of that.
And I think thats in a variety of markets in a second.
Yes.
Thank you.
Yes.
Thank you. Our next question comes from Ken Worthington of Jpmorgan. Your line is open.
Congrats on hiring Tom it's a loss for us I think a big win for you.
And then maybe for Bill familiar Lee you mentioned that you are working more closely with LSE and you called out FX as an initiative.
Let's see which seem to have some businesses and capabilities, which might be relevant for our trade web too as you look out at the opportunity set for trade web innovation and new products in the future how big a deal if it is a big deal.
Our opportunities for further LSC collaboration and are there any asset classes that represent bigger opportunities than others.
Hey, Kenneth Lee Thank you.
I'll kick off with this one.
Yes, so look we're always on the hunt for opportunities to partner with.
Important market players like.
<unk> so.
In particular, I think we announced since the FX effort that we've got going on.
With them and their FX all capabilities, we think Thats really interesting. It's always we're always going to focus on the customer and what is it that we are able to deliver to the market that is solving some problems, creating some efficiency reducing some costs.
And we have a great dialogue with I'll segue.
And just sort of first evidence is.
FX initiative that we've started it's a place where we've shown really nice traction.
With respect to the swap space and.
And we're looking at.
Across the board all of the opportunity in <unk>. So this is an important collaboration.
As I said were in constant dialogue with market participants in order to find places, where we can connect and deliver a solution to our customers that's beneficial.
I'm sure, there's going to be more opportunities with <unk> and other other significant market participants to combine and do things that are beneficial to the market.
Thanks Kim.
Yes.
Thank you. Our next question comes from Watson slot.
Of credit Suisse. Your line is open.
My question, just given the heightened levels of volatility in the market how is <unk> positioned to grow the firm's client network near term and what is attracting new domestic international clients to the firm's platform and then longer term could you expand on what some of the most important factors are for growing in Europe and <unk>.
Thank you.
Thanks for that I'm going to I'll take him. This is Lee.
Let me, let me start off on the international perspective.
And.
This is this has proven to be.
Terrific business for us over time, I forget exactly what the revenue participation is 36, 37%.
Our real focus for us for really for decades, and that team has done amazing job to to grow that business and it's all about doing what we do at a high level in terms of solving as I was saying before solving client issues building efficiencies for our clients.
Our competitive advantage in Europe , and Asia, We would call international is very similar to what we have in our business collectively it's the people. It's the network. It's the technology the great thing about the technology as it scales very globally and the people on the people side, we built a franchise both in Europe .
In Asia over the last several decades.
Imports this.
So it's been a number of years that we've been.
This we're always looking to add new regions, new asset classes further protocols into this global network I would point out that our leading position in global swaps, which by the way we started in Europe .
While ago now.
<unk> to grow tremendously, we have lots of greenfield opportunity both in Europe and in Asia with respect to that.
And we continue to leverage our technology and our footprint.
Into things like emerging markets with respect to swaps. So we think we have a strong competitive advantage.
And a real opportunity to accelerate that.
We've even when it comes to <unk>, we've added 14, a EM currencies to date. The most recent as Israeli shekel, which I think we started in July the <unk>.
Asia region continues to be playing a bigger component in our international growth story, and we think that will.
Accelerate over time, so we've got a lot of room to grow our network cross sell our products and extend our global kind of reach through the presence that we have in Europe and Asia.
Thank you. Our next question comes from Brian Madame.
Deutsche Bank your line is open.
Maybe at some portfolio trading Billy if you want to share or if you can share sort of any kind of updated view.
<unk>.
On how dominant that could become in the market given youre seeing different different.
Different studies.
The resiliency of portfolio trading in a more volatile environment.
And whether thats what.
You are actually seeing that play out.
We move into the summer here.
In terms of in terms of market share gains.
Croatia and your question is accomplished.
Very good question. Thanks for asking if if you werent sure if.
If portfolio trading would work as well in Super volatile.
Market environments, you've found out that it would and that's a really important test that portfolio trading went through if you think about the kind of months of February March and April .
Becoming stickier and more resilient with clients and they are using them if they're using portfolio trading for both.
And the investment grade trading so those are kind of big statements that I'm, making if you believe in the growth of the ETF business you believe in the growth of portfolio trading and I would say clients are getting more and more sophisticated and are becoming very good at quantifying the ability to.
Save time and money as they continue to use portfolio trading and it's become a bit more resilient.
So as we've continued to make these really strong market share progress and.
The power behind that progress and a lot of ways continues to be the leadership role that we play.
In portfolio trading and as high yield becomes a kind of challenging market environment, we feel very strongly that.
<unk>.
That portfolio trading plays a very strong role in getting clients first acts and they are getting more and more sophisticated in understanding what that value is and by the way we always want to make sure that we stressed this is a global initiative, so and a lot of ways. Our European volume, obviously leads the way in terms of how we think about.
Portfolio trading specifically as a mechanic to transfer a real risk. So it was important to us as a company within credit that we will find something that was a real differentiator for us in terms of client experience and I think that we've played that leadership role around portfolio trading and it continues to be one of our stronger.
<unk>.
Our strongest protocols within the credit suite.
And thanks for the question.
That's great color. Thank you.
Yes.
Thank you again, ladies and gentlemen, I would like to ask a question. Please press star one one when you touch tone telephone again to ask a question. Please press star one.
One moment please.
Okay.
I'm showing no further questions at this time I will turn the call back over to management for any closing remarks.
Yes.
Oh, Okay. Thank you thanks very much for joining us this morning.
As you heard from us and saw in the numbers. It was a great first half of the year that strength is absolutely continued into July .
Of course, if you have any follow up questions feel free to reach out to Ashley and Samir and the team have a great day. Thanks for joining us take care of pointing us take care.
And gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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Okay.
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