UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 12, 2020

 

 

Tradeweb Markets Inc.

(Exact name of registrant as specified in charter)

 

 

 

 

Registrant’s telephone number, including area code: (646) 430-6000

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On February 12, 2020, Tradeweb Markets Inc. (the “Company”) issued a press release, a copy of which is furnished as Exhibit 99.1 hereto and incorporated herein by reference, announcing financial results for the year ended December 31, 2019.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d)    Exhibits:

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

NEWS RELEASE

 

TRADEWEB REPORTS FOURTH QUARTER

AND FULL YEAR 2019 FINANCIAL RESULTS

 

FOURTH QUARTER 2019

 

FULL YEAR 2019

 

NEW YORK – February 12, 2020 – Tradeweb Markets Inc. (Nasdaq: TW), a leading, global operator of electronic marketplaces for rates, credit, equities and money markets, today reported financial results for the quarter and full-year ended December 31, 2019.

 

Lee Olesky, Chief Executive Officer of Tradeweb Markets, said, “A strong fourth quarter contributed to another record year at Tradeweb. The resulting revenue growth, margin expansion and free cash flow generation underscore the power of Tradeweb’s model. Adoption of electronic trading is accelerating as market participants gain a deeper appreciation for the functionality, efficiencies, data and analytics it delivers. Record full-year average daily volume of $725 billion in 2019 demonstrates the extent to which innovation is driving Tradeweb’s growth within an expanding market.  We’re excited about the opportunity ahead and remain focused on driving greater connectivity across the global markets and broad client network we serve.”

 

Fourth Quarter 2019

Gross revenue increased 10.5% (11.7% on a constant currency basis) compared to the prior year period to $197.3 million for the fourth quarter of 2019. Net income increased 95.4% compared to the prior year period to $57.3 million for the fourth quarter of 2019 due primarily to higher revenues. GAAP earnings per diluted share (Diluted EPS) for Tradeweb Markets Inc. was $0.25 for the fourth quarter of 2019.

 

Adjusted EBITDA margin increased to 46.9% for the fourth quarter of 2019 compared to 36.6% for the prior year period, representing an increase of 1,029 basis points (1,110 bps on a constant currency basis). Adjusted Net Income per diluted share (Adjusted Diluted EPS) was $0.26 for the fourth quarter of 2019.

 

 

 

“Diversification across products, protocols, client sectors and regions drove continued double-digit growth in total trading activity in the fourth quarter. New highs for volumes and market share in US credit reflect heightened client demand for advanced trading protocols such as portfolio trading, all-to-all trading and session-based trading. Rates cash and derivatives volumes surged on higher trading activity in mortgages and interest rate derivatives. AiEX automated trading accounted for more than a quarter of total institutional tickets across all products during the quarter as clients look for ways to improve workflows,” added Mr. Olesky.

 

Discussion of Results

Rates – Revenues from rates of $107.5 million in the fourth quarter of 2019 increased 10.2% compared to the fourth quarter of 2018 (10.8% on a constant currency basis). ADV in rates of $451.3 billion for the fourth quarter of 2019 increased 19.1% due mainly to increased trading activity in mortgages and interest rate swaps and swaptions.

 

Credit – Revenues from credit of $43.5 million in the fourth quarter of 2019 increased 17.0% compared to the fourth quarter of 2018 (20.0% on a constant currency basis). ADV in credit of $13.2 billion for the fourth quarter of 2019 increased 9.8% due mainly to new quarterly records for US high-grade and high-yield credit plus increased trading activity in European credit.

 

Equities – Revenues from equities of $11.7 million in the fourth quarter of 2019 decreased 7.4% compared to the fourth quarter of 2018 (-5.4% on a constant currency basis). ADV in equities of $9.0 billion for the fourth quarter of 2019 increased 5.2% due mainly to a new quarterly record for convertibles, swaps and options.

 

Money Markets – Revenues from money markets of $10.0 million in the fourth quarter of 2019 increased 5.6% compared to the fourth quarter of 2018 (6.3% on a constant currency basis). ADV in money markets of $211.1 billion for the fourth quarter of 2019 rose 11.7% due to the continued growth of bilateral electronic trading in repurchase agreements.

 

Market Data – Revenues from market data of $19.4 million in the fourth quarter of 2019 increased 15.7% compared to the fourth quarter of 2018 (15.9% on a constant currency basis) due to the delivery of additional data under our market data license agreement with Refinitiv.

 

Operating Expenses – Operating expenses of $143.0 million in the fourth quarter of 2019 decreased 2.5% compared to the fourth quarter of 2018 and was impacted by a net depreciation and amortization expense of $18.9 million as a result of the Refinitiv Transaction and the subsequent revaluation of our balance sheet as well as non-cash stock-based compensation expense and payroll taxes of $2.7 million, which were related to the Special Option Award and post-IPO options awarded in 2019 and options exercised during the quarter, respectively. Excluding these items, as well as certain gains and losses, Adjusted Expenses were $115.8 million in the fourth quarter of 2019. Adjusted Expenses decreased 6.5% year over year primarily due to higher fourth quarter 2018 expenses associated with the timing of performance-related compensation expense. Please see "Non-GAAP Financial Measures" below for additional information.

 

Full Year 2019

Gross revenue increased 13.3% (15.1% on a constant currency basis) compared to the combined year ended December 31, 2018 to a record $775.6 million in 2019. Net income was $173.0 million in 2019. Net income in 2019 was impacted by net depreciation and amortization expense of $71.5 million as a result of the Refinitiv Transaction and the subsequent revaluation of our balance sheet as well as non-cash stock-based compensation expense and payroll taxes of $25.1 million, which were primarily related to the Special Option Award, as a result of the completion of the IPO during the second quarter of 2019, and options exercised in 2019, respectively. Diluted EPS for Tradeweb Markets Inc. was $0.54 and Diluted EPS for Tradeweb Markets LLC was $0.19 for 2019.

 

Adjusted EBITDA margin increased to 45.5% for 2019 compared to 40.8% for the combined year ended December 31, 2018, representing an increase of 471 basis points (530 bps on a constant currency basis). Adjusted Diluted EPS for Tradeweb Markets Inc. was $0.77 and Adjusted Diluted EPS for Tradeweb Markets LLC was $0.23 for 2019.

 

 

 

* (a) Presents information for Tradeweb Markets LLC (pre-IPO period).

* (b) Presents information for Tradeweb Markets Inc. (post-IPO period).

 

 

Other Matters

Assets as of December 31, 2019 included $460.7 million in unrestricted cash and cash equivalents. In 2019, Tradeweb generated $311.0 million of cash flow from operating activities and $266.5 million of Free Cash Flow. Please see "Non-GAAP Financial Measures" below for additional information.

 

Follow-On Offering

During the fourth quarter, Tradeweb Markets Inc. completed a follow-on offering of 19,881,059 shares of Class A Common stock at a price to the public of $42.00 per share, which includes the full exercise of the underwriters’ option to purchase an additional 2,593,181 shares.  Tradeweb Markets Inc. used the proceeds of $810.0 million from the offering, net of underwriting discounts and commissions, but before estimated offering expenses, to purchase equity interests from certain existing owners. Refinitiv continues to own a controlling interest in Tradeweb following the offering.

 

Full-Year 2020 Guidance*

-    Includes approximately $5 million of new investments, primarily in data strategy and cybersecurity

-    Includes approximately $3 million of duplicative rent expense

 

*GAAP operating expenses and tax rate guidance are not provided due to the inherent difficulty in quantifying certain amounts due to a variety of factors including the unpredictability in the movement of foreign currency rates.

 

Dividend

The Board of Directors of Tradeweb Markets Inc. declared a cash dividend of $0.08 per share of Class A common stock and Class B common stock for the fourth quarter of 2019. The dividend will be payable on March 16, 2020 to stockholders of record as of March 2, 2020.

 

Conference Call

Tradeweb Markets will hold a conference call to discuss fourth quarter 2019 results starting at 8:30 a.m. Eastern Time today, February 12, 2020. A live, audio webcast of the conference call along with related materials will be available at http://investors.tradeweb.com.  Alternatively, interested parties can access the call by dialing 866-221-1629 (U.S.) or +1 470-495-9175 (international) and entering passcode 3072418. After the conference call, an archived recording will be available at http://investors.tradeweb.com.

 

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. Statements related to, among other things, our guidance, including 2020 guidance, and future performance, the industry and markets in which we operate, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions and future events are forward-looking statements.

 

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed under the heading “Risk Factors” in documents of Tradeweb Markets Inc. on file with or furnished to the SEC, may cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this release are not guarantees of future performance and our actual results of operations, financial condition or liquidity, and the development of the industry and markets in which we operate, may differ materially from the forward-looking statements contained in this release. In addition, even if our results of operations, financial condition, or liquidity, and events in the industry and markets in which we operate, are consistent with the forward-looking statements contained in this release, they may not be predictive of results or developments in future periods. Any forward-looking statement that we make in this release speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this release.

 

Presentation

The historical financial information and other disclosures contained in this press release relate to periods that ended both prior to and after the completion of the Reorganization Transactions and the IPO of Tradeweb Markets Inc. (unless the context otherwise requires, together with its subsidiaries, referred to as “we,” “our,” “Tradeweb,” “Tradeweb Markets” or the “Company”). The IPO closed on April 8, 2019. As a result of certain reorganization transactions (the “Reorganization Transactions”) completed in connection with the IPO, on April 4, 2019, Tradeweb Markets Inc. became a holding company whose only material assets consist of its equity interest in Tradeweb Markets LLC (“TWM LLC”) and related deferred tax assets. As the sole manager of TWM LLC, Tradeweb Markets Inc. operates and controls all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conducts its business. As a result of this control, and because Tradeweb Markets Inc. has a substantial financial interest in TWM LLC, Tradeweb Markets Inc. consolidates the financial results of TWM LLC and its subsidiaries. The historical financial information contained in this press release relating to periods prior to and including March 31, 2019, which we refer to as the “pre-IPO period,” pertain to TWM LLC, the predecessor of Tradeweb Markets Inc. for financial reporting purposes. The historical financial information contained in this press release relating to periods beginning on April 1, 2019, and through and including December 31, 2019, which we refer to as the “post-IPO period,” pertain to

Tradeweb Markets Inc. The pre-IPO period excludes, and the post-IPO period includes, our financial results from April 1, 2019 through April 3, 2019, which are not material.

 

On October 1, 2018, Refinitiv Holdings Ltd. (“Refinitiv”), which is controlled by certain investment funds affiliated with The Blackstone Group L.P., an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd. and certain co-investors, indirectly acquired substantially all of the financial and risk business of Thomson Reuters Corporation and Thomson Reuters Corporation indirectly acquired a non-controlling ownership interest in Refinitiv (collectively, the “Refinitiv Transaction”). As a result of the Refinitiv Transaction, as a consolidating subsidiary of Refinitiv, we accounted for the Refinitiv Transaction using pushdown accounting. Due to the change in the basis of accounting resulting from the application of pushdown accounting, the financial information for the period beginning on October 1, 2018, and through and including December 31, 2019, or the “successor period,” and the financial information for the periods prior to, and including, September 30, 2018, or the “predecessor period,” are not comparable. However, the change in basis resulting from the Refinitiv Transaction did not materially impact certain financial information. Accordingly, we present certain financial information for the year ended December 31, 2018 on a combined basis as the change in basis resulting from the Refinitiv Transaction did not impact such financial information and, we believe it provides a meaningful method of comparison to other periods. The combined financial information is being presented for informational purposes only and (i) has not been prepared on a pro forma basis as if the Refinitiv Transaction occurred on the first day of the period, (ii) may not reflect the actual results we would have achieved absent the Refinitiv Transaction, (iii) may not be predictive of future results of operations and (iv) should not be viewed as a substitute for the financial results of the separate periods presented in accordance with GAAP.

 

Non-GAAP Financial Measures

This release contains “non-GAAP financial measures,” including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Expenses and Free Cash Flow, which are supplemental financial measures that are not calculated or presented in accordance with GAAP. We make use of non-GAAP financial measures in evaluating our past results and future prospects. We present these non-GAAP financial measures because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

 

Management and our board of directors use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin to assess our financial performance and believe they are helpful in highlighting trends in our core operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Further, our executive incentive compensation is based in part on components of Adjusted EBITDA.

 

We use Adjusted Net Income and Adjusted Diluted EPS as supplemental metrics to evaluate our business performance in a way that also considers our ability to generate profit without the impact of certain items. Each of the normal recurring adjustments and other adjustments included in Adjusted Net Income and Adjusted Diluted EPS help to provide management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

 

We use Adjusted Expenses as a supplemental metric to evaluate our underlying operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

 

We use Free Cash Flow to assess our liquidity in a way that considers the amount of cash generated from our core operations after expenditures for capitalized software development costs and furniture, equipment and leasehold improvements.

 

See the attached schedules for reconciliations of the non-GAAP financial measures contained in this release to their most comparable GAAP financial measure. Non-GAAP financial measures have limitations as analytical tools, and you should not consider these non-GAAP financial measures in isolation or as alternatives to net income attributable to Tradeweb Markets Inc., net income, earnings per share, operating income, operating expenses or cash flow from operating activities or any other financial measure derived in accordance with GAAP. You are encouraged to evaluate each adjustment included in the reconciliations. In addition, in evaluating Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Expenses and Free Cash Flow, you should be aware that in the future we may incur expenses similar to the adjustments in the presentation of these non-GAAP financial measures. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, the non-GAAP financial measures contained in this release may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

 

We present certain growth information on a “constant currency” basis. Since our consolidated financial statements are presented in U.S. dollars, we must translate non-U.S. dollar revenues and expenses into U.S. dollars. Constant currency growth, which is a non-GAAP financial measure, is defined as growth excluding the effects of foreign currency fluctuations. Constant currency information is calculated by translating the current period and prior period’s results using the average exchange rates for 2018. We use constant currency growth as a supplemental metric to evaluate our underlying performance between periods by removing the impact of foreign currency fluctuations. We present certain constant currency growth information because we believe it provides investors and analysts a useful comparison of our results and trends between periods. This information should be considered in addition to, not as a substitute for, results reported in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies.

 

Tradeweb Social Media

Investors and others should note that Tradeweb Markets announces material financial and operational information using its investor relations website, press releases, SEC filings and public conference calls and webcasts. Information about Tradeweb Markets, its business and its results of operations may also be announced by posts on the Company’s accounts on the following social media channels: Instagram, LinkedIn and Twitter. The information that we post through these social media channels may be deemed material. As a result, we encourage investors, the media, and others interested in Tradeweb Markets to monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. These social media channels may be updated from time to time on our investor relations website.

 

About Tradeweb Markets

Tradeweb Markets Inc. (Nasdaq: TW) is a leading, global operator of electronic marketplaces for rates, credit, equities and money markets. Founded in 1996, Tradeweb provides access to markets, data and analytics, electronic trading, straight-through-processing and reporting for more than 40 products to clients in the institutional, wholesale and retail markets. Advanced technologies developed by Tradeweb enhance price discovery, order execution and trade workflows while allowing for greater scale and helping to reduce risks in client trading operations. Tradeweb serves approximately 2,500 clients in more than 65 countries. On average, Tradeweb facilitated more than $720 billion in notional value traded per day over the past four fiscal quarters.

 

 

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TRADEWEB MARKETS INC.

INCOME STATEMENT

Dollars in Thousands, Except Per Share Data

 

 

 

See “Basic and Diluted EPS Calculations” below for additional information.

TRADEWEB MARKETS INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Dollars in Thousands, Except per Share Data

 

The following is the calculation of Adjusted EBITDA and Adjusted EBITDA margin for the full year ended December 31, 2018. These non-GAAP measures were not materially impacted by the Refinitiv Transaction or the application of pushdown accounting. See “Presentation” above for additional information.

 

 

 

 

 

 

See the “Basic and Diluted EPS Calculations” table below for additional information.