Tradeweb Markets Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021, with comparisons to the same 2020 periods. Tradeweb operates global electronic marketplaces for rates, credit, equities and money markets, serving institutional, wholesale and retail clients, as well as market-data customers. It reports one business segment. LSEG acquired Refinitiv, Tradeweb’s majority owner, on January 29, 2021; Tradeweb became an LSEG consolidating subsidiary.
Key financial metrics
Dollar amounts are in millions except per-share data. Margins shown are calculated from reported GAAP figures unless identified as adjusted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $265.3 | $212.9 | $799.6 | $659.6 |
| Operating income | $85.5 | $58.5 | $267.6 | $191.8 |
| Operating margin | 32.2% | 27.5% | 33.5% | 29.1% |
| Net income | $65.3 | $47.0 | $213.1 | $151.9 |
| Net income attributable to Tradeweb Markets Inc. | $54.8 | $36.8 | $177.9 | $111.2 |
| Diluted EPS | $0.26 | $0.19 | $0.86 | $0.60 |
| Adjusted EBITDA and margin | $132.9; 50.1% | $100.9; 47.4% | $406.9; 50.9% | $321.9; 48.8% |
| Adjusted EBIT margin | 45.6% | 42.3% | 46.5% | 43.9% |
- Revenue mix: Q3 transaction fees and commissions were $206.3 million, subscription fees $56.4 million and other revenue $2.6 million. Transaction fees and commissions grew 28.8% year over year; subscription fees grew 11.7%.
- Cash flow: For the first nine months, operating cash flow was $386.4 million versus $303.5 million. Free cash flow, a company-defined non-GAAP measure, was $350.8 million versus $274.2 million.
- Liquidity and debt: September 30 cash and cash equivalents were $821.9 million, with an additional $1.0 million restricted. Working capital was $781.2 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.
- Balance sheet: Total assets were $5.94 billion and total liabilities $688.2 million. The tax receivable agreement liability was $425.2 million; substantially all amounts are payable over 15 years. The filing identifies no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Q3 revenue rose 24.6% and operating income rose 46.1%; nine-month revenue increased 21.2% and operating income 39.6%. Management attributed growth mainly to higher trading volumes and fees, notably in U.S. and European corporate bonds, rates derivatives and U.S. government bonds.
- Q3 adjusted EBITDA margin increased 270 basis points year over year; nine-month adjusted EBITDA margin increased 209 basis points. GAAP expenses grew more slowly than revenue in both periods.
- For the nine-month period, transaction fees and commissions increased $125.8 million. Institutional revenue grew 22.7% and wholesale revenue 35.7%; retail revenue declined 10.3%. Credit revenue was the fastest-growing major asset class, up 42.7%.
- Cash flow from investing increased substantially, principally due to the $208.9 million net cash outlay for the NFI Acquisition. Financing cash outflows included $63.7 million of program share repurchases and $48.4 million of dividends.
Outlook, commentary, risks and unusual items
- Outlook: The filing gives no quantified revenue or earnings guidance. Management expects cash, operating cash flows and, if needed, facility borrowings to cover liquidity needs for at least the next 12 months. It expects electronic-trading growth to support the business, while noting sensitivity to trading activity and market volatility.
- Acquisition: Tradeweb completed its $190 million all-cash NFI Acquisition on June 25, 2021, adding Nasdaq’s U.S. on-the-run government-bond electronic trading platform. The preliminary purchase-price allocation includes $99.2 million of customer relationships and $88.0 million of goodwill and remains subject to final valuation and working-capital adjustments.
- Costs and management: New CFO Sara Furber took office in September; the former CFO’s transition runs through January 4, 2022. Management expected above-average employee compensation expense during the transition period and through March 2022. Q3 included $0.5 million of accelerated former-CFO stock compensation expense and $0.4 million relating to the new CFO’s awards.
- Risks: Results may be affected by changes in trading volumes and volatility, competition, regulatory requirements, platform availability and cybersecurity, reliance on dealer clients and third-party data, foreign-exchange movements, and COVID-19-related uncertainty. The company uses foreign-currency forwards; their notional value was $122.7 million at quarter-end.
- Legal and other contingencies: Treasury-securities auction antitrust class actions were pending after plaintiffs amended their complaint; dismissal motions were fully briefed by August 4, 2021. Tradeweb says it intends to defend the matter and cannot estimate a loss or range; no reserve was recorded. Management considers the risk of material loss from contractual intellectual-property indemnities remote.
- Capital returns: The board declared a fourth-quarter dividend of $0.08 per Class A and Class B share, payable December 15, 2021. The $150 million repurchase authorization runs through fiscal 2023; $86.3 million remained available at September 30.
Important facts for investors to verify
- Whether trading volumes, fee capture and the strong credit and rates performance remain supportive as market activity changes; Q3 growth was substantially transaction-driven.
- Final NFI purchase accounting, including the customer-relationship valuation, useful life and working-capital adjustment, and the acquisition’s subsequent contribution to revenue and expenses.
- Cash-flow conversion after acquisition spending, share repurchases, dividends and future tax receivable agreement payments; the liability stood at $425.2 million.
- The pace of compensation-cost normalization after the CFO transition and the effect of stock-based compensation and dilution.
- Developments in the Treasury-auction antitrust litigation and any changes to the company’s ability to estimate potential exposure.
- How changes in foreign exchange, regulation, cybersecurity risks and COVID-19 conditions affect operations; management stated that COVID-19’s potential financial impact could not be reasonably estimated.