Tradeweb Markets Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter filing; selected Q4 comparisons are included below. Tradeweb operates electronic trading marketplaces and related data and workflow services across rates, credit, equities and money markets.
Financial performance
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Gross and net revenue | $892.7 million | $775.6 million | +15.1% |
| Operating income | $263.4 million | $189.8 million | +38.7% |
| Net income | $218.4 million | $173.0 million | +26.2% |
| Net income attributable to Tradeweb Markets Inc. | $166.3 million | $83.8 million | +98.5% |
| Diluted EPS attributable to Tradeweb Markets Inc. | $0.88 | $0.54 | Increased |
| Operating cash flow | $443.2 million | $311.0 million | +42.5% |
| Free cash flow (non-GAAP) | $400.7 million | $266.5 million | +50.3% |
| Adjusted EBITDA (non-GAAP) | $436.4 million | $353.2 million | +23.6% |
| Adjusted EBITDA margin (non-GAAP) | 48.9% | 45.5% | +3.4 percentage points |
Revenue growth was led by transaction fees, up 22.4% to $518.5 million, reflecting higher trading activity. Credit revenue rose 31.1%, equities 31.5%, rates 9.7% and money markets 5.5%. Institutional revenue grew 22.3%; wholesale rose 8.4%; retail declined 5.0%. Rates remained the largest asset class at $476.3 million. Total average daily trading volume increased 15.5% to $838.0 billion, including growth of 49.5% in credit and 27.9% in money markets.
Total expenses increased 7.4% to $629.3 million, mainly from higher employee compensation, depreciation and amortization, and technology and communications costs. GAAP operating margin was approximately 29.5%, compared with 24.5% in 2019. GAAP diluted EPS is not directly comparable with adjusted diluted EPS: adjusted net income was $306.2 million and adjusted diluted EPS was $1.31, both non-GAAP measures.
Q4 comparison: Revenue was $233.1 million versus $197.3 million in Q4 2019; operating income was $71.6 million versus $54.3 million; net income was $66.4 million versus $57.3 million; and diluted EPS was $0.28 versus $0.25.
Cash, liquidity and debt
- Cash and cash equivalents at year-end were $791.3 million, up from $460.7 million; working capital was $680.2 million, versus $372.7 million.
- Operating cash flow was $443.2 million. Investing used $62.5 million, including $31.0 million of capitalized software development and a $20.0 million equity investment. Financing used $52.7 million, including $58.1 million of dividends.
- No borrowings were outstanding under the $500 million revolving credit facility, which had $500 million available and matures in April 2024. The company reported compliance with its covenants.
- The Tax Receivable Agreement liability was $404.3 million, with substantially all amounts expected to be paid over 15 years. Contractual obligations also included $36.9 million of lease payments.
Changes, outlook and risks
- Management attributed stronger results to increased client trading activity across asset classes and additional market-data feeds licensed to Refinitiv. COVID-19-related volatility supported strong trading volumes, while remote operations continued; management said the pandemic’s future financial impact could not be reliably estimated and could be material.
- The company expects continued investment in technology, data and cybersecurity. It gave no specific financial guidance. Management said it expects liquidity from cash and operating cash flow to meet requirements for at least the next 12 months.
- On January 29, 2021, LSEG completed its acquisition of Refinitiv. Refinitiv remained Tradeweb’s controlling shareholder, with approximately 88.1% of combined voting power. Management did not expect a near-term material change to Tradeweb’s strategy or operations; the existing data license agreement remained unchanged. Refinitiv’s non-compete period ended at closing.
- After year-end, Tradeweb agreed to acquire Nasdaq’s U.S. Treasury electronic trading platform for $190 million in cash, subject to customary closing conditions and regulatory approvals. The board also authorized up to $150 million of Class A share repurchases through fiscal 2023, and declared a $0.08-per-share Q1 2021 dividend.
- Key risks include dependence on dealer liquidity and trading volumes, intense competition, platform outages and cybersecurity incidents, extensive and changing regulation, Brexit-related operating complexity, foreign exchange exposure, and Refinitiv’s voting control. Goodwill was $2.7 billion and indefinite-lived intangible assets were $323.1 million; impairment could affect results.
- Two antitrust matters were disclosed: a pending U.S. Treasury securities case and an interest-rate-swaps case from which Tradeweb had been dismissed. The company said it could not estimate potential losses and had no contingency reserves for these matters.
Investor facts to verify
- Review the quality and durability of volume-driven growth, especially the contribution from volatile markets and the decline in retail revenue.
- Reconcile GAAP earnings and EPS with non-GAAP adjusted results, including excluded stock compensation, acquisition-related amortization and Tax Receivable Agreement adjustments.
- Assess the $404.3 million Tax Receivable Agreement liability, the associated cash-payment schedule and the potential effects of future LLC-interest exchanges.
- Monitor the Nasdaq platform acquisition, its regulatory approvals, integration costs and expected contribution; verify the terms and actual execution of the repurchase authorization.
- Evaluate the implications of LSEG/Refinitiv control, the end of Refinitiv’s non-compete, and continuing reliance on Refinitiv for market-data distribution.
- Track resolution of the disclosed litigation and changes in the company’s regulatory, cybersecurity and foreign-exchange exposures.
Reporting comparability note: The 2019 IPO and reorganization changed the reporting structure, and the 2018 Refinitiv acquisition introduced pushdown accounting; some historical periods are therefore not directly comparable. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.