Tradeweb Markets Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 3, 2022. Tradeweb operates global electronic marketplaces for institutional, wholesale and retail clients across rates, credit, equities and money markets.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Revenue | $297.1 million | $260.8 million | +13.9% |
| Operating income | $106.6 million | $83.8 million | +27.2% |
| Operating margin | 35.9% | 32.1% | +3.8 percentage points |
| Net income attributable to Tradeweb Markets Inc. | $68.3 million | $55.3 million | +23.6% |
| Diluted EPS | $0.33 | $0.27 | +22.2% |
| Adjusted EBITDA | $155.6 million | $131.9 million | +18.0% |
| Adjusted EBITDA margin | 52.4% | 50.6% | +1.8 percentage points |
For the six months ended June 30, revenue rose 13.9% to $608.6 million; operating income increased 19.8% to $218.2 million; net income attributable to Tradeweb increased 22.8% to $151.3 million; and diluted EPS was $0.73 versus $0.60. Six-month Adjusted EBITDA was $316.3 million, with a 52.0% margin, compared with $274.0 million and 51.3%.
- Revenue drivers: Q2 transaction fees and commissions grew 15.7% to $237.7 million, principally on higher trading volumes and fees in rates derivatives, U.S. government bonds and municipals. Total platform volumes increased 20.4%. Retail-sector revenue grew 46.8%; equities revenue grew 30.2%.
- Margins and costs: Revenue grew faster than expenses, which rose 7.6% to $190.5 million. Compensation increased 11.6%, technology and communications 14.9%, and depreciation and amortization 6.9%. The six-month effective tax rate was 18.0%, compared with 18.5%.
- Cash flow: Six-month operating cash flow was $223.3 million, versus $204.0 million. Free cash flow, a company-defined non-GAAP measure, was $190.2 million, versus $178.5 million. Investing used $33.1 million; financing used $193.1 million, including dividends, share repurchases and employee-award tax withholding.
- Liquidity and debt: Cash and cash equivalents were $959.7 million at June 30, down from $972.0 million at year-end 2021. Working capital was $974.2 million. No borrowings were outstanding under the $500 million revolving facility; $0.5 million of letters of credit were issued. The facility matures in April 2024. Management said cash, operating cash flow and potential facility borrowings should cover liquidity needs for at least 12 months.
- Other balance-sheet items: Total liabilities were $618.8 million, including a $409.2 million tax receivable agreement liability and $29.9 million of lease liabilities. Goodwill was $2.78 billion. The filing reports no material change in principal risk factors from the 2021 Form 10-K.
Material changes, outlook and notable items
- Revenue growth was partly offset by currency translation: reported Q2 growth was 13.9%, versus 17.8% on a constant-currency basis. Management attributed the currency impact to a stronger U.S. dollar; the six-month impact on revenue was also negative.
- Management expects fiscal 2022 capital expenditures and software development costs of $62 million to $68 million, versus $51.3 million in 2021, primarily reflecting technology investments; approximately 18% of 2022 spending was expected to be non-recurring.
- CEO Lee Olesky is set to retire effective December 31, 2022, with President Billy Hult to become CEO on January 1, 2023. Thomas Pluta was appointed President effective January 1, 2023. Q2 included $5.7 million of accelerated stock-based compensation expense related to the CEO transition; $7.4 million was recorded for the six months.
- The company declared a Q3 dividend of $0.08 per Class A and Class B share after quarter-end. TWM LLC also approved a $22.4 million distribution to equityholders, subject to tax withholdings.
- A consolidated U.S. Treasury securities antitrust action was dismissed in full in March 2022; plaintiffs appealed, and the appeal was pending. The company stated it could not estimate any loss and had no reserve for pending legal proceedings.
- Key risks highlighted include changes in market activity and trading volumes, competition, technology and cybersecurity incidents, regulation, foreign exchange movements, dependence on dealer clients and the ability to fund dividends and tax receivable agreement payments from TWM LLC distributions.
Most important facts for investors to verify
- Whether the volume-led revenue growth and margin improvement persist if market volatility or trading activity declines.
- How currency movements affect international revenue and operating income, and the effectiveness of the company’s foreign-exchange hedging.
- Actual 2022 technology and capital spending against the $62–$68 million outlook.
- Cash requirements for dividends, share repurchases, employee-award tax withholding and the $409.2 million tax receivable agreement obligation.
- Developments in the Treasury securities antitrust appeal and any change in the company’s ability to estimate or reserve for potential losses.