Q1 2025 Tradeweb Markets Inc Earnings Call
Okay.
Speaker Change: Good morning, and welcome to trade webs first quarter 2025 earnings conference call.
Speaker Change: Reminder, today's call is being recorded and will be available for playback to.
Speaker Change: To begin I'll turn the call over to managing director of Investor Relations Samir Moura Coupla. Please go ahead.
Speaker Change: Thank you and good morning, joining me today for the call are our CEO, Billy Hult, who will review our business results and key growth initiatives and our CFO, Sarah Ferber, who will review our financial results.
Speaker Change: We intend to use the website as a means of disclosing material nonpublic information and complying with our disclosure obligations under regulation FD.
Speaker Change: 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 statement.
Speaker Change: Statements related to among other things our guidance are forward looking statements actual results may differ materially from these forward looking statements.
Speaker Change: Information concerning factors that could cause actual results to differ from forward looking statements is contained in our earnings release earnings presentation, and periodic reports filed with the SEC.
Speaker Change: In addition on today's call, we will reference certain non-GAAP measures as well as certain market and industry data.
Speaker Change: Formation regarding these non-GAAP measures, including reconciliations to GAAP measures in our earnings release and earnings presentation information regarding market and industry data, including sources is in our earnings presentation.
Billy Hult: Now, let me turn the call over to Billy.
Billy Hult: Thanks, Samir good morning, everyone and thank you for joining our first quarter earnings call before I start I'd like to congratulate our colleague Ashley Serrao on the birth of our second daughter, and we're excited first return following his protruding leaf.
Billy Hult: I'm extremely proud of the trade web team for delivering the best revenue quarter in our history.
Billy Hult: We achieved strong double digit revenue growth for the seventh consecutive quarter and for the first time, we surpassed $500 million in quarterly revenues. This milestone is a testament to our team who have worked tirelessly to drive durable growth over many years, the first quarter was anything but quiet Mark Barton evolving.
Billy Hult: <unk> backdrop and geopolitical risks at a return to.
Billy Hult: Despite that we believe technology continues to drive markets towards greater connectivity than ever before we thrive in change in complexity and we continue to invest into our strengths.
Billy Hult: This continuous journey of learning and we remain hyper focused on the next wave of growth and innovation across our global marketplaces.
Billy Hult: Diving into the first quarter of strong client activity share gains in a risk on environment drove 24, 7% year over year revenue growth on a reported basis, we continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 88 basis points relative to the first quarter of 2024.
Billy Hult: Sure.
Billy Hult: Turning to slide five our rates business produced a record revenue quarter, driven by continued organic growth across swaps global government bonds and mortgages credit was led by strength in munis and credit derivatives and further supported by growth across global corporate bonds money markets was led by the addition of ICD and <unk>.
Billy Hult: Aided by record quarterly revenues across global Repos equities posted double digit revenue growth led by growth in our global ETF and equity derivatives business. Finally market data revenues were driven by growth in our <unk> market data contract and proprietary data products.
Billy Hult: Turning to slide six I will provide a brief update on two of our focus areas U S treasuries and Etfs and then I will dig deeper into U S credit and global interest rate swaps star.
Billy Hult: Starting with U S. Treasuries, we saw dramatic moves in the U S Treasury market in fact over 25% of the trading days in the quarter for daily yield movements that were twice the historical average our first quarter market share of 23% drove record revenues up 13% year over year.
Billy Hult: Our institutional business delivered record revenues as well with key performance indicators remaining strong we had another quarterly market share record exceeding 50% for the fourth consecutive quarter and institutional U S treasuries versus our main electronic competitor.
Billy Hult: Automation continues to be an important theme with institutional U S. Treasury AI eggs average daily trade, increasing by 15% year over year.
Billy Hult: Turning to our U S Treasury wholesale business, we delivered the highest revenue quarter in our history. This was driven by record adoption of our streaming sessions protocols along with continued contributions from race fan.
Billy Hult: Wholesale remains a key area of focus as we prioritize onboarding more liquidity providers and enhancing our various liquidity pools in line with our holistic strategy.
Billy Hult: In equities, our ETF business generated record revenues as volatility increased over 50% during the quarter and we continue to deepen our integration with our clients our efforts to broaden our equity presence beyond our flagship ETF franchise continues to pay off.
Billy Hult: With record equity derivatives revenues up over 20% year over year.
Billy Hult: Looking ahead, we're continuing to make inroads by on boarding new clients and the pipeline remains strong as the benefits of our electronic solutions continue to resonate.
Billy Hult: Key competitive advantage has been our AI ax solution with average daily trade, increasing by over 100% year over year.
Billy Hult: Turning to slide seven for a closer look at credit high single digit revenue growth for the quarter was driven by strong double digit gains in both credit derivatives and municipal bonds global cash credit delivered low single digit revenue growth due to product and volume mix with retail credit revenues being down 20 per se.
Billy Hult: <unk> year over year, primarily reflecting a risk off tone among retail investors amid rising macro uncertainty. Additionally, the elevated volatility in March drove higher discounts being hit in our wholesale business overall automation continues to surge with global credit AI acts.
Billy Hult: Average daily trades, increasing over 15% year over year.
Billy Hult: We achieved a record 9% block share and fully electronic U S investment grade trading and our second highest block share in U S high yield at over 4%. This growth was driven by continued adoption of portfolio trading RF Q and sessions protocol, our institutional credit business continues to scale.
Billy Hult: As clients leverage our diverse suite of trading solutions institutional RFG average daily volume grew over 25% year over year with strong double digit growth in both IAG and high yield portfolio trading average daily volume also increased 10% year over year with record volumes.
Billy Hult: Across both IAG and high yield during the quarter, we saw our largest portfolio trade by size and volume at over 8 billion in volume involving over 3500 line items.
Billy Hult: All trade had a strong quarter with nearly 220 billion in volume up almost 10% year over year, our all to all average daily volume grew over 25% year over year. The team remains focused on expanding our network and increasing the number of responders on the all trade platform in the first quarter the average.
Billy Hult: Number of responses for all to all inquiry remained steady year over year Lastly sessions average daily volume grew nearly 10% year over year.
Billy Hult: Looking ahead.
Billy Hult: U S credit remains a key area of focus and we're confident in the longer term revenue wallet in this asset class and the way we're positioned across all client channels. Since 2019, we've made meaningful progress growing our fully electronic U S credit market share by 1100 basis points. This growth is coming.
Billy Hult: From putting clients first across the full ecosystem and we continue to recognize the critical role our dealer partners clay.
Billy Hult: As we've successfully reached critical scale in our credit franchise, we are evolving our pricing model by introducing subscription fees and increasing minimum floors with certain dealers. When we were building a business like credit it was natural for dealers to start with a fully variable pricing model as they were unsure whether the platform would succeed.
Billy Hult: As our business has scaled and becomes a large part of the broader trading ecosystem.
Billy Hult: Mix of variable and fixed pricing becomes a mutually beneficial model across our credit business to incentivize long term growth and innovation.
Billy Hult: In addition, as we have grown significantly we're also able to rebalance the revenue model by introducing our optimizing variable by side fees, ensuring we're capturing the full value we deliver across both sides of the marketplace and maximizing our opportunity for the revenue pool.
Billy Hult: We also understand that our role in the market isn't one size fits all and varies by channel while the institutional channel is the Holy Grail of the industry wallet. It relies on the risk management that occurs in the wholesale channel given this we offer pricing incentives in wholesale to support our dealer clients risk management.
Billy Hult: Which in turn strengthens our collective ability to execute on our future growth opportunities in the institutional channel.
Billy Hult: We believe there is still a long runway for growth with plenty of opportunity to innovate alongside both buy side and dealer clients.
Billy Hult: Currently working on the next generation of our institutional portfolio trading offering focusing on enabling clients to build customized criteria based portfolio trades on the wholesale side, we're working with clients to improve post sessions match rates and are actively exploring new dealer initiated workflow.
Billy Hult: <unk> is the dealer community looks for faster and more efficient ways to recycle risk.
Billy Hult: Beyond U S credit, we're continuing to prioritize our emerging markets credit expansion efforts. Our goal is to build a robust end to end trading solution focused on onboarding, both global and local dealers, while expanding our local network to deepen market connectivity, we expect to launch.
Billy Hult: Our Saudi Arabian offering in the coming months and are making steady progress and onboarding local dealers across several key regions.
Billy Hult: While still early in the journey E M credit revenues grew nearly 20% year over year in the first quarter signaling strong momentum.
Billy Hult: Moving to slide eight global swaps delivered record revenues driven by a combination of strong client engagement amid a dynamic macro backdrop of favorable mix shift towards risk trading and a 2% increase in weighted average duration altogether global swaps revenues grew over 40 <unk>.
Billy Hult: Sent year over year, our core risk market share, which excludes compression trading was second highest ever rising over 250 basis points year over year.
Billy Hult: Total market share declined from 22% to 21% largely due to a significant reduction in U S and European client related compression volumes, which carry much lower fee rates during.
Billy Hult: During the quarter, we achieved the second highest share in our history across other Geo 11 and E M denominated currencies.
Billy Hult: The first quarter truly showcase the diversity of our global swaps revenue base, not just across currencies, but across our broad and expanding clients that.
Billy Hult: We posted record institutional swap revenues with new highs across U S. European Sterling Gilles oven and E. M. Swaps. This growth was supported by an 11% increase in active clients importantly client growth was broad based spanning hedge funds bank clients asset managers and ensure.
Billy Hult: <unk> firms as we continue to deepen our global relationships across a wide range of clients.
Billy Hult: Finally, we continue to make progress across emerging markets swaps and our rapidly growing RF M protocol, our first quarter M swaps revenue rose over 60% year over year, and we believe there is still significant room to grow given the low levels of electronic vacation or RFA protocol.
Billy Hult: Average daily volume rise over 70% year over year with adoption picking up.
Billy Hult: Overall, we believe the long term growth potential for swaps revenue is significant we're excited about the opportunity to deliver more solutions across both the cleared and uncleared swaps markets.
Billy Hult: With the cleared swaps market is still only about 30% electronic side. There is substantial room to further digitize manual workflows.
Billy Hult: As global fixed income markets and the broader swaps landscape continue to grow we see meaningful opportunity to support our clients through deeper automation and innovation.
Billy Hult: With that let me turn it over to Sarah to discuss our financials in more detail.
Sarah Ferber: Thanks, Billy and good morning.
Sarah Ferber: As I go through the numbers all comparisons will be to the prior year period, unless otherwise noted.
Sarah Ferber: Slide nine provides a summary of our quarterly earnings performance.
Sarah Ferber: Recapped earlier this quarter, we saw record revenues of $510 million. They were up 24, 7% year over year on a reported basis and 25, 8% on a constant currency basis.
Sarah Ferber: Derived approximately 40% of our first quarter revenues from international clients and recall that approximately 30% of our revenue base is denominated in currencies other than dollars predominantly in euros.
Sarah Ferber: Our variable revenues increased by 27% and total trading revenues increased by 24%.
Sarah Ferber: Total fixed revenues related to our four major asset classes were up 14% on a reported basis and 15% on a constant currency basis.
Sarah Ferber: Rates fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and U S government bond platforms.
Sarah Ferber: Credit fixed revenue growth was primarily driven by the migration of certain dealers to a subscription fee model.
Sarah Ferber: And by prior increases to our subscription fees in 2024.
Sarah Ferber: Other trading revenues were up 8% as a reminder, this mine fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients.
Sarah Ferber: This quarter's adjusted EBITDA margin of 54, 6% increased by 125 basis points on a reported basis when compared to our 2020 for full year margins.
Sarah Ferber: Moving onto fees per million on slide 10, and I'll highlight the key trends for the quarter you can see slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter.
Sarah Ferber: For cash rates products average fees per million were down 8%, primarily due to negative mix shift changes within the U S government bonds and lower European government bond fee per million.
Sarah Ferber: For long tenor swaps average fees per million were up 42%, primarily due to a decline in compression activity and greater risk taking volumes.
For cash credit average fees per million decreased 11% due to a mix shift away from retail the migration of certain dealers from fully variable plans to fixed and dealers in our wholesale channel hitting volume tiered discounts given the elevated volatility in March.
Sarah Ferber: For cash equities average fees per million increased 17% due to a mix shift towards EU, ETS, which carry relatively higher fee per million.
Sarah Ferber: And finally with money markets average fees per million increased 54%, primarily due to the inclusion of ICD and were partially offset by a mix shift towards repos, which carry a comparatively lower fee per million.
Sarah Ferber: Slide 11 details our adjusted expenses at a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins.
Sarah Ferber: We've maintained a consistent philosophy here.
Sarah Ferber: Adjusted expenses for the first quarter increased 22% on a reported and 23% on a constant currency basis.
Sarah Ferber: Given the strong environment to invest for long term growth during the first quarter. We continued investments in digital assets consulting client relationship development.
Sarah Ferber: Adjusted compensation costs grew 24% with the vast majority as a result of discretionary and performance related compensation and the addition of ICD.
Sarah Ferber: Technology and communication costs increased 35%, primarily due to our previously communicated investments in data strategy and infrastructure.
Sarah Ferber: Adjusted professional fees grew 19%, mainly due to an increase in pet consultants as we augment our offshore technology operations and build Incrementals scalability.
Sarah Ferber: Adjusted General and administrative costs decreased 11% due to favorable movements in FX that resulted in approximately $8 million to $9 million gain in the first quarter of 'twenty five versus approximately a $900000 in the <unk>.
Sarah Ferber: First quarter of 'twenty four.
Sarah Ferber: This was partially offset by a pickup in travel and entertainment.
Sarah Ferber: Slide 12 details capital management and our guidance.
Sarah Ferber: On our cash position and capital return policy.
Sarah Ferber: Ended the first quarter in a strong position with $1 $3 billion in cash and cash equivalents and free cash flow reached approximately $834 million for the trailing 12 months.
Sarah Ferber: Our net interest income of $13 $3 million decreased due to a combination of lower cash balances and interest yields.
Sarah Ferber: With this quarter's earnings the board declared a quarterly dividend of <unk> 12 per class, a and class b shares up 20% year over year.
Sarah Ferber: Turning to guidance for 2025.
Sarah Ferber: We continue to expect adjusted expenses to range from 970 million to 1.03 billion.
Sarah Ferber: We continue to believe we can drive margin expansion compared to 2024.
Sarah Ferber: Though it will be more modest compared to last year since we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth.
Sarah Ferber: We expect our capex spend to increase as the year progresses into our previously communicated range.
Sarah Ferber: We continue to expect 2025 revenues generated under the master data agreement with <unk> to be approximately $90 million.
Billy Hult: And as Billy highlighted we expect a modest shift between our credit fixed and variable fees in this year in.
Billy Hult: In the second quarter, we expect our credit fixed revenues to increase by approximately six to 7 million from the first quarter up 62% at the midpoint due to the expected introduction of minimum fee floors, and the migration of certain dealers to subscription fees.
Billy Hult: We would expect the shift in <unk> to be total revenue neutral, resulting in a corresponding $6 million to $7 million drop and variable credit fees.
Billy Hult: Well that two approximately a nine dollar drop in our cash credit fee per million from first quarter levels.
Billy Hult: As a reminder fee per million is really variable fee per million calculated as variable revenues over total volume.
Billy Hult: Now I'll turn it back to Billy for concluding remarks.
Billy Hult: Thanks, Sara we want to build upon the success of the present by continuing to be an ambitious company.
Billy Hult: We continue to focus on moving more voice and paper markets to more transparent market and pivoting into new markets organically or via M&A ever.
Billy Hult: Every day, we ask ourselves what is the special sauce that we can provide to the market to make our clients search for liquidity more efficient.
Billy Hult: I want to briefly touch on the market conditions in April.
Billy Hult: Macro uncertainty and the emergence of a global trade war triggered rapid repricing of risk across both equity and fixed income markets.
Billy Hult: While conditions may have felt stressed our clients remained highly engaged on the platform as many of our large dealer clients noted during their earnings calls we continue to see an active and resilient two way market.
Billy Hult: We believe moments like April clearly demonstrate how both dealer and buy side clients have been investing in their electronic trading workflows in today's environment, where the long term impacts of de globalization on growth inflation and the overall rate outlook remain uncertain, we see an even greater need for a resilient and efficient.
Electronic trading ecosystem, our clients are the lifeblood of trade web we believe the global multi asset footprint. We've built is one of our strongest competitive advantages we feel very confident in our long term growth outlook, we remain focused on driving innovation and value.
Billy Hult: Across the global markets further enhancing our one stop shop offering both organically and Inorganically to support all four of our client channels.
With an important month and trading day left in April which tends to be one of our strongest revenue days overall revenue growth is trending approximately 30% higher relative to April 2020 for revenue growth. This month is being impacted by one less trading day.
Focusing on average daily revenue, we are trending higher than the first quarter as momentum in the business continues the diversity of our growth remains a theme as we are seeing double digit volume and revenue growth across all four asset classes. Our <unk> share is trending below March levels, while our high yield share is tracking.
Billy Hult: Ahead of March levels.
Billy Hult: Finally, I would like to conclude my remarks by welcoming rich repetto to our board of directors, which is known to many of you on this call and brings more than 25 years of industry experience to our board and a valuable perspective I'd also like to thank our clients for their business and partnership in the quarter and recognize my colleagues.
Samir: Their efforts that contributed to the record quarterly revenues and volumes at trade web with that I will turn it back to Samir for your questions.
Billy Hult: Thanks, Billy 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.
Speaker Change: Operator, you can now take our first question.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Our first question comes from Chris Allen with Citi. You May proceed.
Speaker Change: Good morning, everyone and thanks for taking the question.
Speaker Change: I was wondering if you could dig into the right market commentary a little bit more wondering kind of the overall health of the rate market here any impact of the move in the long into the curve on customers any color on the basis swaps spread trades and lastly from a current positioning perspective, how are people thinking about duration of risk appetite here yeah, Chris.
Speaker Change: Are you hopefully you can hear me, okay like a combination of.
Speaker Change: The next losing last night plus my allergies.
Speaker Change: A little hoarse.
Speaker Change: And I hope you're doing well so I think if you remember well when we did the rate for an acquisition a little while ago on the earnings call you talked about the fact that it.
Speaker Change: I thought it was a good time to place a bet in the rates market and then on the last earnings call I Remember Alex asked a question about our interest rate swap business have made another point with share around I think it was a good good point in time to be in the range of business.
Speaker Change: I'm not right all the time definitely right about that.
Speaker Change: As we kind of think about what happened.
Speaker Change: The month of April, but really that day at the Monday After liberation Dan I think the.
Speaker Change: Just sort of words like unprecedented we kind of all been through the weekend sale in a way Covid March of 2020, we're talking about kind of headline.
Speaker Change: Historic moves and so we would kind of characterize it very in a very simple way like.
Speaker Change: Massive drawdown in risk assets, alongside a weaker dollar sharply higher rates and volatility exacerbated by sort of levered position unwind.
Speaker Change: Right and then big Big position reversals so.
Speaker Change: The way, we kind of think about it obviously has a 30 year treasury yield. It was the largest weekly move higher since 1982, I think I was in seventh grade I know Sarah was not even born.
Speaker Change: Yeah.
Speaker Change: U S high yield spreads widened by 150 basis points over two week journey, that's the largest two week spread widening outside of the crisis and that Covid period of time largest mortgage basis widening since COVID-19. These are like again unprecedented moves.
Speaker Change: And as that volatility played out.
Speaker Change: I would say, Chris we kind of did what you would expect which is we paid very intense attention to.
Speaker Change: Platform reliability and the underlying plumbing of the market function.
Speaker Change: We have been investing as a company.
Speaker Change: Infrastructure for these moments of stress.
Speaker Change: And the good news I would say.
Speaker Change: Is that our clients stayed engaged and for sure electronically oriented.
Speaker Change: And without any concept you know as well without any concept of kind of a victory lap but.
Speaker Change: As the leading rates marketplace.
Speaker Change: My feeling is we excelled.
Speaker Change: So in April three days in a row of volumes above three trillion a day.
Speaker Change: On the automation front, which is something we watch closely I think an important indication of how we think about client stickiness APRA.
Speaker Change: April average daily trades, utilizing AI X grew over 20% versus <unk> versus the first quarter of 'twenty five that's an important stat.
Speaker Change: So I think what we're seeing is as the industry standard of of the rates business like stickiness frontline stickiness around automation and so you asked a great question and I think it's essentially kind of where do we go from here.
Speaker Change: And as we kind of think about where we go from here I think it's important for us to really kind of say something.
Speaker Change: And a very straightforward way, which is the market function held off it was resilient right. So we looked at like the bid asks it obviously you got more expensive in areas of the curve.
Speaker Change: You would expect it to get more expensive, but it held up we look at things like cover prices and the ability for liquidity that move and that kind of held up we looked at how our pricing updates occurred and that held up so when you think about a market function.
Speaker Change: With that preserve that was resilient and then you think about kind of where we're headed from here I would say you know headed from here a little bit more of the same potentially right. So tariffs.
Speaker Change: And then we will continue to drive market volatility volatility period right tariffs on tariffs off.
Speaker Change: Uncertainty right.
Speaker Change: Right there is going to be this continued focus on lower rates.
Speaker Change: It will be offset by the reality that inflation remains high above the fed target. Okay debate will continue.
Speaker Change: Instinct is that debate continues this is very good for the forward macro outlook of.
Speaker Change: Our rates business right and so.
Speaker Change: We're going to continue to focus on.
Speaker Change: Working with our clients managing our clients through this period of volatility as partners.
Speaker Change: Focused company and my very strong instinct is as the rates leader, we're going to continue to prosper in the environment going forward.
Speaker Change: No.
Speaker Change: Challenging a challenging market and a challenging time.
Speaker Change: We're engaged and focused and looking forward to continue to excel in a way that you would expect us to.
Speaker Change: And thanks for the question.
Speaker Change: Appreciate the color. Thank you.
Speaker Change: Thank you.
Dan Fannon: Our next question comes from Dan Fannon with Jefferies. You May proceed.
Dan Fannon: Thanks, and good morning.
Dan Fannon: A couple of questions on credit pricing, where do you think you are in the transition from variable to fixed pricing with the dealers that began this quarter and then can you expand upon your comments around the timing of why now in terms of these changes are starting to pick up.
Dan Fannon: Sure Hey, Dan how are you.
Dan Fannon: Good question. Thanks, Let me, let me maybe start for a quick second high level and a combination of Sara and I are going to kind of tackle this one with you but.
Dan Fannon: I start with this kind of concept that you've heard me talk about and Sarah to talk about how the credit market specifically requires this concept of balance.
Dan Fannon: And so from our perspective.
Dan Fannon: Very clearly dealers are fundamentally important to everything we do.
Dan Fannon: Period end.
Dan Fannon: As you know well dealers have been sort of the story is that dealers have been the most historically resistant to change and the electronic vacation of markets.
Dan Fannon: And our approach has always been to bring them in as our strongest most important partners.
Dan Fannon: And so when I say that what I mean is we want them front edge down on the platform participating to provide liquidity front edge all the time.
Dan Fannon: And we're always going to stay leading with our with our top a few partners.
Dan Fannon: On idea generation.
Dan Fannon: And Thats, a very very important point I think right.
Dan Fannon: That's the tenant for how we built our credit business and quite honestly, it's dependent for how we built all of the markets.
Dan Fannon: Our trade well.
Dan Fannon: It's an advantage for us right and so the other piece of it that I would say, which you also know well is we've always taken the.
Dan Fannon: Just sort of strategic point that we wanted to kind of play across.
Dan Fannon: The entire market structure spectrum, and so when I say that I mean, the retail piece the wholesale piece.
Dan Fannon: On the institutional piece and we redo that really for two.
Dan Fannon: Two reasons right first of all maybe maybe most importantly, we have a strong belief here that market structure and micro market structure shifts.
And we've seen that shift take place in government bonds, we've seen that shift take place in credit and.
Dan Fannon: And we want to play a part in all of these liquidity components.
Dan Fannon: <unk>.
Dan Fannon: Right.
Speaker Change: And the other thing I would say is that we feel very strongly that we can compete independently and all three of those segments.
Dan Fannon: So obviously.
Dan Fannon: Credit we have a longstanding role on the wholesale side working with the dealers.
Dan Fannon: And my very strong instinct around that.
Dan Fannon: Is that where the where the footprint is smaller and you have a smaller network of clients. We want to make sure that we remain as that partner and win the long game and position ourselves to sustainably scale, our business, okay, and so given the depth of our client relationships and our footprint in all three of these <unk>.
Dan Fannon: Annals, we understand I think clearly that the wholesale channel is a central and going after how we characterize teu the Big Prize.
Dan Fannon: Which has and continues to be the institutional channel.
Dan Fannon: And so to that end, we have worked with our clients in the wholesale space as volume has been growing consistently to shift gradually towards fixed fees.
Dan Fannon: Which ways, we describe to you the ground work for this collaboration.
Dan Fannon: If that makes sense right and if you want to maybe pick up some of that Sarah sure maybe I'll hit a little bit more just in terms of timing Dan So.
Bill: Everything Bill is framed is really important given the size of our credit business.
Dan Fannon: It's positive to increase this percent.
Dan Fannon: <unk> revenues, given our scale showing the strength and commitment to our platform from dealer to dealer as Billy mentioned.
Dan Fannon: So in wholesale.
Dan Fannon: Just in terms of context, if you looked in the first quarter a year ago 24 right.
Dan Fannon: It fixed or our recurring revenues as a percent of total credit revenues was less than 7%.
Dan Fannon: Compare that across the other asset classes and see at that low quite low relative to the other mix in terms of recurring versus variable.
Dan Fannon: So we work with our dealers.
Dan Fannon: With our clients to shift towards that more recurring in nature and revenue and we alluded to in our remarks youll see more of that shift in the second quarter, so that 7% probably trends closer to 13% by the end of the second quarter I think that will be more in line with our other businesses and importantly, the largest part of that shift in the second quarter.
Dan Fannon: Really around increasing minimums, so increasing the floors and the commitment of our dealers and is really revenue neutral as we discussed.
Dan Fannon: And I think importantly, it still leaves 85% of our credit revenues fully variable, which leaves lots of room for strong revenue growth with volume and in fact in April we saw double digit revenue growth in credit.
Dan Fannon: So I think overall, we believe these changes set up our credit growth, although really well to continue growing our market share and our revenue in partnership with dealers and clients and really pursue the 50% of the market that remains on the phone while increasing that penetration of the higher fee per million businesses that were still working on in RF.
Dan Fannon: And so hopefully that gives you a little bit of sense around timing and the bigger picture and thanks, Dan Thanks, Dan.
Dan Fannon: Thank you.
Speaker Change: Thank you. Our next question comes from Alex <unk> with Goldman Sachs. You May proceed.
Hey, Bill you Sarah good morning.
Speaker Change: Just staying on the credit business, maybe for another minute I was hoping you guys could discuss the announcement came out that came out is it all securities earlier.
Speaker Change: <unk> really pitching to banks to handle their bond trades and I guess what are the implications for the trading of credit broadly in trade with specifically and then maybe a follow up just to Dan's question around the <unk>.
Revenue growth algo discussion within credit it sounds like you don't think this will cap the opportunity set for trade web.
Speaker Change: When it comes to more volume driven business is obviously some of that shifts to fixed now.
Speaker Change: Can you just expand a little bit on that and how you view the credit growth I'll go over the next couple of years.
Alex: Hey, Alex.
Alex: Eric kind of hit that second point about the cap, but yes, obviously some of those moves that we've been doing have been actually sort of almost kind of attack the wallet in the best way and Sarah will talk about that but it's a good question about citadel and I'm not sure.
Alex: You ask a good question I'm not sure if it's completely necessarily oriented all towards credit.
Alex: In terms of the overall ambitions of Citadel, and how theyre looking at some of the partnerships I think that they're looking to create.
Alex: But at the end of the day as you know well, we formed a very strong partnership with citadel kind of across the board.
Alex: And the overall instinct as they kind of started off and global government bonds, and then hitting into global swaps and now moving into into credit theyre going to be quite frankly competitive and I think the.
Alex: <unk> is the orientation.
Alex: Is that is that citadel sees significant.
Alex: <unk> opportunity in some ways to broaden out the dealer group and do direct business with clients as some of the European banks have shrunk their presence in these markets and I think first and foremost their game plan is about providing those clients direct liquidity.
Alex: And I think that they are putting the time and energy in the effort and the technology to do that.
Alex: As they're doing that my other interesting as theyre looking to create maybe some other avenues to create distribution by working with some of the dealers and the banks that maybe don't have the level of sophistication in pricing that citadel daus.
Alex: And.
Alex: They don't need me to talk about the fact that that might be a good game plan. It probably is.
Alex: The General view here is all of this is quite good for our business we've been in close contact with them Alex in a way that you would expect we think the concept of citadel continuing to provide strong pricing and credit allows for more velocity in that market and we feel like the ambition.
Alex: And as they have in this space is good for us.
Alex: And so the dialogue remains very very strong with them, they're continuing to make strong progress in credit and also as you know we are leading dealer in the right side of the business so feeling quite good.
Alex: Some of these technology oriented market makers can change to make investments in this space that this plays out quite well for us and I do think it's a matter of time before they become more firms oriented like citadel that continue to enter into these spaces.
Alex: Mostly because to your question, which is going to answer the wallet is strong.
Alex: And I think that's a really important kind of component to this that wallet around the client dealer space in the business is quite strong and that does feedback to your question about our willingness to 100 protect.
Alex: R R.
Alex: Our reach into that piece of the wallet.
Alex: And you take it you take a little bit from there.
Speaker Change: Yes, no I appreciate that Alex I mean, I think like really simply put.
Speaker Change: The notion of having 85% of the fees more than 85% is variable in nature really.
Speaker Change: Theres really no constraint in terms of the revenue growth I think it's a balanced business you want to create stickiness and you want recurring revenue coupled with the ability as volumes grow and as new protocols get developed to participate in that upside we like that mix of 15, 85 and think that that long.
Speaker Change: A long way away from having a capped revenue opportunity.
Speaker Change: I think as it relates to the algo algo for credit and it's probably very similar for many of our businesses, but it's really around driving market share.
Speaker Change: Introducing new protocols and growing and adding new clients.
Speaker Change: When we think about how we drive market share and add new clients, we've talked a lot about our investments and the great News is we have such a profitable model that we've really been able to accelerate a lot of investments in this space, we see technologies or things like alter all responder technology that we're adding as well as people.
Speaker Change: Like some of the regional salespeople that we've been talking about really helping drive nothing happens overnight I wish it did but really helped drive that market share opportunity in some of the most lucrative protocols that are out there as I mentioned, our F Q and all the all importantly, new protocols are a huge opportunity.
Speaker Change: <unk> and credit and we've talked about.
Speaker Change: 50% of the market really remaining more voice oriented that's really dealer initiated flows and opportunities that we see we like our positioning given the strength of our wholesale business and we see strides that we're making there to really partner with the dealers and innovate around things like dealer and dealer initiated flows through.
Speaker Change: <unk> business and our wholesale business. So I think the algo is really important and I think we're really feeling strong about that balance of 15% recurring in 80%, 85% plus being variable in nature.
Speaker Change: Great. Thank you Bob.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Benjamin <unk> with Barclays. You May proceed.
Benjamin: Hey, good morning, and thanks for taking the questions.
Speaker Change: Billy I was wondering if you could talk a bit about the recent launch of portfolio trading for European government bonds I'm curious how does the use case compare to credit what does it mean for the ultimate level of electronic vacation.
Speaker Change: Is there a place for this sort of protocol in the U S, where it's more homogenous and lastly would there be any fee rate implications.
Speaker Change: Really pick up that we should keep in mind. Thank you, yes. It's a good question. So like we do try to like talk about <unk>.
Speaker Change: <unk> web is being an innovative company and that is important to us.
Speaker Change: And we work with our clients.
Speaker Change: An important enhancements and I think as you've heard us talk about this like portfolio trading is kind of like topical list. That's something that we've done. We're also look just like Super practical.
Speaker Change: So when something's working where like how do we scale this technology into other areas right and so from our perspective kind of portfolio trading kind of is a perfect example of that like this is working really really well for us in U S credit, it's a differentiator for US we're the leader here.
Speaker Change: Where else can we scale this into and so great coordination inside of the company because we do have a very strong kind of global wins here.
And so it was a matter of time before we figured out that obviously.
Speaker Change: Our perspective portfolio trading would have a very strong impact into our Europe European government bond product.
Speaker Change: Our clients historically and a lot of ways have been under resource around technology.
Speaker Change: The instinct is are getting more sophisticated now around that search for liquidity. So traders have begun to transcend how we think about this concept of like market silos, and I think portfolio trading in a good way kind of exemplifies how.
Speaker Change: We talk about the concept of technology being able to break down barriers and kind of harmonize execution flows and I'm talking in kind of interesting techno speak but.
Speaker Change: I think we're I think we're positioned well to develop these solutions across asset classes.
Speaker Change: And then Europe, one of the things that you have which you know well is this concept of intra European sovereign curve.
Speaker Change: And clients do tend to look at relative value trades across those curves. So those become inclinations in terms of how portfolio.
Speaker Change: Portfolio trading will work.
Speaker Change: And so there was no way to really do electronically.
Speaker Change: All or nothing lifts across those curves and so pragmatically, we solve the problem, which I think is something that we do well and so we have Enrico bruni running our international business Troy Dixon running our U S business now she has got a very strong kind of mortgage background as you know.
Speaker Change: We're going to spend a lot of time thinking about things.
Speaker Change: Things like portfolio trading work well for U S spread based products.
Speaker Change: An example would be like specified pools, which we think fits that model kind of well and so the company is focused on these kind of continued innovation caf.
Speaker Change: Capital I, but we're also just trying to be like Super pragmatic whats working and how do we apply what's working into other markets and let's be resourceful about that and so I think in a good way hopefully that's an example of how we just think about kind of continuing to expand.
Speaker Change: Our technology across across different markets and good to hear your voice and thanks for the question.
Bill: Great. Thank you Bill.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Schmitt with William Blair You May proceed.
Jeff Schmitt: Hi, good morning on the regulatory front. If this administration were to loosen up banking regulations could you discuss how you might benefit from that what that can mean for turnover and I'm thinking specifically just about capital requirements for holding treasuries.
Speaker Change: Great Hey, Jeff I'll take that one nice to hear your voice.
Speaker Change: I think it's a great question at a high level, we think changes to the SLR ratio could be one of the most impactful changes to increase the resilience and liquidity of the treasury market.
Speaker Change: A strong positive for us.
Speaker Change: As banks can add more capital to hold U S. Treasury U S. Treasury isn't really that allows them to facilitate more trading which should lead to lower yields and improved market depth, which we think is one of the strongest platforms in rates for us is a real positive.
Speaker Change: And maybe just like backing up for everyone, who isn't totally familiar with it I think.
Speaker Change: <unk> as a supplementary leverage ratio and for banks loosening that means reducing the required percentage of capital that they're holding against bank assets.
Speaker Change: Importantly, SLR. Unlike other measures is risk insensitive, meaning all securities whether they be corporate bond or treasury is with different maturities contribute equally to that measure and so today, having the same level of capital potentially or lower revenue margin and market, making businesses in the U S.
Speaker Change: Treasuries as a bank might have to hold against higher revenue higher margin businesses like high yield credit as an example.
Speaker Change: Our view that when these constraints are lifted for those banks that were constrained on the ratio.
Speaker Change: And do you typically hold larger treasury positions.
Speaker Change: The reason, we think they can facilitate more turnover and improved liquidity narrowing that asks.
Speaker Change: Probably the best data point to look at when you're trying to assess like what's the implication in terms of a multiple on turnover and every market is different I would go back to COVID-19 when the fed exempted treasuries from the SLR requirement and in that circumstance you saw very specifically SLR constraint banks really increase their treasury.
Speaker Change: Physicians and turnover and lower their profit margins and there's a lot of research out there by the fed what are you kind of look at those assumptions, but generally speaking we're.
Speaker Change: Always a proponent of regulation that increases transparency and liquidity across markets and we think this is a strong positive for our business.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ken Worthington with Jpmorgan you May proceed.
Ken Worthington: Hi, good morning, Thanks for taking the question.
Wanted to hear your thoughts on changes to perception of U S. Exceptionalism. So how does the sell off in the U S Treasury market depreciation of the dollar.
Ken Worthington: Potential deterioration in the U S exception exceptionalism influenced trade web business, maybe not just in rates, but maybe your other asset classes as well.
Ken Worthington: Good question Ken.
Ken Worthington: And sort of as you're framing it.
Ken Worthington: Youre kind of talking about sort of what we've gone through in April the <unk>.
Ken Worthington: Concept.
Ken Worthington: Of a weaker dollar.
Ken Worthington: Sharply higher rates than where I was describing before.
Ken Worthington: Sure.
Ken Worthington: And there is this concept obviously of.
Ken Worthington: What are we talking about here are we talking about sort of classic kind of unwind in risk.
Ken Worthington: Or are we talking about something more and when you are kind of asking the question about like something more I think sort of what you are asking a little bit quite honestly is.
Ken Worthington: No.
Ken Worthington: Is there a damage to the brand.
Ken Worthington: Is there a damage to the U S brand, that's really kind of like the question sort of that you're asking I think and you know the inclination kind of we have here.
Speaker Change: Is no.
Ken Worthington: But the fact that you are asking the question probably means something.
Ken Worthington: Right and so look eyes wide opened I said before we're in kind of his.
Ken Worthington: Historic unprecedented zones, and so you take kind of nothing off the table I don't know if you had a chance to see.
Speaker Change: Mike Hutzell from Pimco talk about a version of this question on CNBC last Friday.
Speaker Change: He was talking about the way that the market was functioning that made him feel positive.
Speaker Change: That we had not done sort of any kind of real real damage to the brand.
Speaker Change: But we have to kind of understand that when you're in unprecedented zones you have to be prepared for anything so I do come back to this concept that we have.
Speaker Change: There's a very diverse business here and so when we think about our business you know this but like our rates business drove our growth in 2024, but our credit business drove our growth in 2021 equities in 2020 to money markets in 'twenty three that tells you a bit about this kind of diversification story.
Speaker Change: Around our business.
Speaker Change: International business represents 38% of our revenues in the first quarter.
Speaker Change: It's up from basically less than 30%.
Speaker Change: In 2016.
Speaker Change: And I like to talk about the fact that like our E M revenues.
Speaker Change: We're up over I think it's up over almost 55%.
Speaker Change: Year over year in the first quarter. So that becomes this concept of this global marketplace and then what we talk about a lot is this one stop shop.
Speaker Change: Four for fixed income, where the markets are more connected than ever in these become big principles as we navigate through kind of historic moment in the market and so I think your question is really really important hopefully I'm answering it.
Speaker Change: In a really direct way.
Speaker Change: We love the fact that we have this leading U S rates platform. We think this is going to be the marketplace going forward.
Speaker Change: But the concept of us having this significantly strong international business is a big piece of the trade web story that sometimes doesn't get lost in the source of.
Speaker Change: U S rates and credit.
Speaker Change: And the ability that we have to differentiate ourselves as this global platform is a big deal. So you're asking a really good question, Ken as always and thank you.
Speaker Change: Alright, thank you.
Speaker Change: Thank you. Our next question comes from Michael Cyprus with Morgan Stanley You May proceed.
Michael Cyprus: Great. Thank you good morning, just a question on the digital assets.
Michael Cyprus: The areas that you're investing and I was hoping you could talk about your strategy, there where you see some of the most compelling use cases.
Michael Cyprus: Listen I think as you think about the <unk> nation, and blockchain solutions and opportunities there, what roadblocks or hurdles limit this from being a reality today and how do you see that being overcome yeah. It's a good question. So like Evercore you know theres like we're a technology company.
Michael Cyprus: And so we say that we're a technology company and so we've always kind of prioritized I think from our perspective.
Michael Cyprus: Partnering with our clients to help make their workflows more efficient and you've heard us talk that way and so the strategy carries through like 100% consistently.
Michael Cyprus: Two our approach to digital assets and other <unk>.
Michael Cyprus: Other emerging technologies, so we're investing with the goal of creating a distributed ecosystem that democratizes. These global financial markets, allowing participants to inter operate seamlessly efficiently and at scale and so youre right. The client interest in digital assets continues to.
Michael Cyprus: Grow I think we're pretty in a lot of ways kind of eyes wide open and that we're taking a pretty deliberate approach to investing in infrastructure and partnerships I think we're positioned very very well to support our clients as this landscape continues to evolve.
Michael Cyprus: We have invested alongside kind of I use the expression like smart money clients, but we've invested alongside our smart money clients like Blackrock like Goldman.
Michael Cyprus: On this and I think youre going to see more investments from us in the future I think we're a little bit moving from this concept of being I kind of say to Sarah like Switzerland.
Michael Cyprus: Around the space for like let's pick some where we think the winners are.
Michael Cyprus: And I do think when you think about the sort of guardrails around kind of collateral management, we feel like there will be winners and so we're going to kind of like things like weigh in on where we think.
Michael Cyprus: Those winners live.
Michael Cyprus: And then we look at the sort of the reality of some of the markets that we live and breathe then really benefiting from some of this.
Michael Cyprus: Enhancement and they can be markets like the TBA mortgage market or the repo market and we look forward to playing that leadership role as these markets move maybe from a settlement perspective in a different direction, but it is an exciting time around the space. We have some of our best thinkers kind of working at it on the company and.
Michael Cyprus: The kind of partners to help us navigate I think that you would expect us to so feeling good about directionally, where we're headed there.
Michael Cyprus: Maybe one other.
Michael Cyprus: I think it's a unique technology.
Billy Hult: And we've definitely as Billy said partnered with what we think is smart money, but we've also really gotten our hands dirty from a technology perspective, and so we've made investments, but we also are internally very close and part of building technology.
Billy Hult: It's well integrated with these with these aspects like blockchain. So it is not from a far when Billy says like we're really spending time of our smartest people are on it.
Billy Hult: Really to make sure it's well integrated with all the funding we already have anymore.
Billy Hult: Yeah.
Billy Hult: Thank you. Thank you.
Billy Hult: Okay.
Thank you. Our next question comes from Richard Fellinger with Autonomous Research you May proceed.
Billy Hult: Okay.
Hi, Good morning, I wanted to ask one on capital allocation. So excess cash continues to build on the balance sheet and given M&A has historically been the priority after organic growth just curious how the current market uncertainty informs your appetite for deals today.
Billy Hult: Those conversations have gotten easier or harder with the unique environment. We're in.
Billy Hult: If it has become harder at what point would you consider being more optimistic or opportunistic on the buyback kind of.
Billy Hult: Wait out the current uncertainty.
Billy Hult: Good question, and there's going to be like again like a nice combination therapy and you on this one but.
Billy Hult: I think we would start with.
Billy Hult: Cost straightforward comment, which is M&A continues to be our preferred use of cash.
Billy Hult: But we're going to apply the kind of rigor around that that you would expect us to.
Speaker Change: Right, which is first of all and I say this loudly and Sarah says as loudly as well like the culture around M&A is extremely extremely important to us and then we look for kind of networks that we think are under under resource around technology and that's the that's the simple ones that.
Billy Hult: We apply all the time.
Speaker Change: My General Instinct is kind of twofold on this one is.
Speaker Change: Putting forward the kind of organic growth numbers that we put forward leads to momentum and the ability to do.
Speaker Change: Larger and more interesting kinds of deals.
Speaker Change: And then the other thing I would say is.
Speaker Change: No.
Speaker Change: As a public company the ability to have.
Speaker Change: A good track record around doing deals and Sarah has been.
Speaker Change: At the front of this.
Speaker Change: Integrating and doing good deals I think gives US again this continued momentum to do something so.
Speaker Change: Feeling personally optimistic and excited about the future around M&A.
Speaker Change: I'm sorry, Jay you take this from me now sure I mean I think.
Speaker Change: Let me hit a little bit of the share repurchase question that you asked I think we've been really consistent and Billy and I have both.
Speaker Change: Consistent about this the waterfall of how we want to allocate capital remains the same so organic and then as Billy mentioned M&A than share repurchases and dividend share repurchases for us were committed to offsetting any dilution from equity comp, but really beyond that the opportunistic part of share repurchases.
Speaker Change: Be a function of looking at accretion and so obviously you want to be disciplined around that topic.
Speaker Change: And as it relates to M&A I think Theres, a couple of interesting points to add to what Billy said.
Speaker Change: We're focused on strategy right and the strategic benefit of pursuing whether its a large acquisition or an investment or a partnership.
Speaker Change: Not to change month to month quarter to quarter based on the environment.
Speaker Change: That said I think given our balance sheet, which is quite strong with a $1 three of cash $500 million undrawn revolver and no debt.
Speaker Change: We remain probably amongst our relative positioning of pretty nimble relative to other acquirers and I think we like that.
Speaker Change: In terms of our ability to be opportunistic to pursue things that strategically makes sense over the long term.
Speaker Change: Things that expand our client network really is talking about digital let's talk about private credit before.
Speaker Change: I think strategy is the most important thing that to focus on I do say all of that and being CFO financial discipline is really important, especially when you have 1 billion three sitting on the balance sheet and no debt and we remain very committed to being disciplined in particular, we want to make sure that we're growing.
Speaker Change: Revenue these transactions would have to be accretive to both revenue and earnings growth and we've talked about EPS accretion being something that we look at it as a hurdle over the near term for transactions so with that in mind, we like our positioning and we think strategy is really important, but we feel quite nimble and the ability to be opportunistic.
Speaker Change: Thank you for the question.
Speaker Change: Thank you.
Speaker Change: Thank you I would now like to turn the call back over to Billy Holt for any closing remarks.
Speaker Change: Thank you all for.
Speaker Change: Joining us this morning excellent questions and hopefully we always answer.
Speaker Change: Genuinely and transparently. We appreciate your time again, a special congratulations to our friend Ashley for his baby, we know he's listening in thanks, very much and everyone have a great day. Thank you all thank you.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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