Tradeweb Markets Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Tradeweb operates electronic trading marketplaces and related services across rates, credit, equities and money markets, serving institutional, wholesale and retail clients.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,076.4 million | $892.7 million | +20.6% |
| Operating income | $358.8 million | $263.4 million | +36.3% |
| Net income | $273.1 million | $218.4 million | +25.1% |
| Net income attributable to Tradeweb Markets Inc. | $226.8 million | $166.3 million | +36.4% |
| Diluted EPS | $1.09 | $0.88 | +23.9% |
| Cash from operating activities | $578.0 million | $443.2 million | +$134.8 million |
| Free cash flow (non-GAAP) | $526.7 million | $400.7 million | +$126.0 million |
GAAP operating margin was approximately 33.3%, compared with 29.5% in 2020. Adjusted EBITDA was $547.0 million, with a 50.8% margin versus $436.4 million and 48.9%; adjusted EBIT margin was 46.5% versus 44.0%. Adjusted diluted EPS was $1.63 versus $1.31. These are non-GAAP measures and should be considered alongside GAAP results.
Revenue growth was led by transaction fees and commissions, up 24.2% to $846.4 million; subscription fees rose 8.7% to $219.6 million. By asset class, credit grew 37.6% to $292.4 million and rates grew 18.2% to $562.9 million. Retail-sector revenue fell 7.6% to $70.6 million, while institutional and wholesale revenue increased 20.7% and 37.5%, respectively. International revenue increased 25.0% to $403.2 million; currency movements added $11.4 million to international revenue.
Cash and cash equivalents were $972.0 million at year-end, up from $791.3 million. Working capital was $887.4 million. The company reported no outstanding borrowings under its $500 million revolving facility and $499.5 million available, after letters of credit; it was in compliance with facility covenants. Operating lease liabilities were $24.3 million. The filing states that liquidity should be sufficient for at least the next 12 months, subject to business and market conditions.
Material changes and notable items
- Operating expenses rose 14.0% to $717.6 million, below revenue growth. Employee compensation increased 16.5% to $407.3 million; depreciation and amortization increased 11.4% to $171.3 million.
- Tradeweb acquired Nasdaq’s U.S. fixed-income electronic trading platform in June 2021. The stated purchase price was $190 million, net of acquired cash and clearing deposits and before working-capital adjustments. Cash paid for the acquisition, net of acquired cash, was $207.8 million. Acquisition transaction costs were $5.1 million.
- Income tax expense rose to $96.9 million from $56.1 million; the effective tax rate increased to 26.2% from 20.4%, including the effect of state tax apportionment and deferred-tax remeasurement.
- The company repurchased 901,968 Class A shares for $75.7 million in 2021. It paid $64.6 million in dividends, or $0.32 per share for the year, and stated an intention to continue quarterly dividends of $0.08 per share, subject to board discretion and other constraints.
- The tax receivable agreement liability was $412.4 million at year-end; substantially all was expected to be paid over 15 years. Tradeweb is obligated to remit 50% of specified realized or deemed tax savings to continuing LLC owners.
Outlook, management commentary and risks
Management cited electronic trading adoption, product and geographic expansion, and investment in technology, data and analytics as growth drivers. It provided no specific revenue or earnings guidance. The company expects FY2022 capital expenditures and software-development spending of $62–$68 million, versus $51.0 million in 2021; approximately 20% of the 2022 amount is expected to be non-recurring.
Management said market activity and volatility affect trading volumes, while a mix of fixed and variable fees and continued electronification may partly offset that exposure. It could not reasonably estimate COVID-19’s potential financial impact. Other key risks include competition and pricing pressure; reliance on dealer liquidity and third-party data, technology and clearing services; cybersecurity or platform outages; extensive and changing regulation, including Brexit-related operating complexity; foreign-exchange movements; and acquisition integration.
Refinitiv, controlled by LSEG following its acquisition of Refinitiv in January 2021, held approximately 87.8% of Tradeweb’s combined voting power at year-end. Tradeweb said the transaction had not materially affected its strategy or day-to-day operations; the Refinitiv market-data agreement remained unchanged, but Refinitiv’s non-compete period ended. The filing also disclosed an ongoing U.S. Treasuries antitrust matter, with dismissal motions fully briefed, and a separate interest-rate-swaps case from which Tradeweb had been dismissed. The company had no contingency reserves for these matters and could not estimate any potential loss.
After year-end, Tradeweb announced that CEO Lee Olesky would retire effective December 31, 2022, with President Billy Hult to succeed him on January 1, 2023. It expected approximately $7.7 million of accelerated stock-based compensation expense in 2022 related to Olesky’s awards; this would be excluded from specified non-GAAP measures. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Reconcile GAAP earnings and cash generation with non-GAAP adjustments, especially acquisition costs, stock compensation, foreign-exchange items and tax receivable agreement adjustments.
- Assess whether trading-volume and revenue growth can persist, including the decline in retail revenue and the concentration of revenue in rates.
- Review the NFI acquisition’s integration, contribution to growth and purchase-accounting assumptions, including the valuation and useful life of acquired customer relationships.
- Evaluate the timing and liquidity impact of the $412.4 million tax receivable agreement liability, alongside dividends, repurchases and planned technology spending.
- Monitor the Treasuries litigation, regulatory developments, cybersecurity and platform resilience, and the leadership transition and related compensation expense.