Good morning and welcome to Tradeweb's Fourth Quarter 2022 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I will turn the call over to Director or Investor Relations, Sameer Murukutla. Please go ahead.

Thank you and good morning. Joining me today for the call are our CEO, Billy Hult, who will review the highlights for the quarter and provide a brief business update, our President, Thomas Pluta, who will dive a little deeper into some growth initiatives and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release and presentation and periodic reports filed with the SEC. In addition, on today's call we will reference certain non-GAAP measures. Information regarding these non-GAAP measures, including reconciliations to GAAP measures are in our posted earnings release and presentation. To recap, this morning we reported GAAP earnings per diluted share of $0.42. Excluding certain non-cash stock-based compensation expense, acquisition-related transaction costs, acquisition and Refinitiv-related depreciation and amortization and certain FX items, and assuming an effective tax rate of 22%, we reported adjusted net income per diluted share of $0.49. Please see the earnings release and the Form 10-Q to be filed with the SEC for additional information regarding the presentation of our historical results. Now, let me turn the call over to Billy.

Thanks, Sameer. Good morning, everyone. And thank you for joining our fourth quarter 2022 earnings call. Before I start, I'd like to congratulate our colleague Ashley Serrao, on the birth of his daughter, and we're excited for his return post his paternity leave. As I kick off my inaugural earnings call as CEO, I want to celebrate the past and the amazing journey that the team has taking to get where we are now. Since joining the firm almost 23 years ago, I've had an exciting front row seat to helping the team grow an innovative startup into a global business that generated nearly $1.2 billion in revenues in 2022, marking our 23rd straight year of record revenues. Brainstorming challenges and pushing the envelope on the next innovation has been truly rewarding. Our success has been a function of hard work, some luck along the way, and an unwavering core approach, creating great feedback loops by listening to our clients, and then collaborating with them to make their lives easier across market environments. Despite all the success we've had to date, I believe the best is yet to come. Our competitive advantage combines our people who are the heartbeat of our success, our expanding network and pioneering technology. We believe these three elements will continue to propel our business to new heights in coming years. We believe our multi asset, multi-protocol, multi-sector and global business really differentiates us from our electronic peers and positions as well to capitalize on the secular shift of phone and chat-based execution to electronic mediums. As I highlighted last quarter, the entire organization recently galvanized around crafting our three-year plan, and the excitement from the teams across products and geographies was undeniable. From product to sales, finance to technology, to singular focus remains providing all…

Thanks Billy. I'm excited to be participating in my first Tradeweb earnings call. Despite my long history with Tradeweb, these first four months have been eye opening as a deep dive into the business with our teams. As Billy highlighted in his opening, the singular focus has been and always will be continuous improvement of our clients user experience across the trading lifecycle. We believe that our client-first philosophy was never more important than it was in 2022. From low rates to high rates, low inflation to high inflation, and low volatility to high volatility, our clients have had to deal with an evolving and challenging macro backdrop. We believe we provide that one-stop shop where clients can access over 40 products globally, numerous client channels, a diverse set of protocols, and leading pre-trade and post-trade services, all while getting the benefits of straight through processing. Looking forward, we believe we're primed to continue to grow that connective tissue, not only within our existing products and clients, but also as we expand our geographic product and client footprint. Turning to slide nine for a closer look at credit. Our global credit business produced a healthy fourth quarter with all products seeing positive year-over-year revenue growth on a constant currency basis. U.S. Corporate credit continues to face a mixed industry volume backdrop, as spreads have stabilized, while IG duration improved in December. While high volatility and FX continued to dampen the true growth across U.S. and European Credit, our Muni business continues to see strong revenue growth, a product of the higher rates driving our retail channel and continued success in gaining wallet share across the institutional channel. All in, our fourth quarter global credit revenues grew 16% year-over-year on a constant currency basis. The second best quarter in our history.…

Thanks, Tom and good morning. As I go through the numbers, all comparisons will be to the prior year period unless otherwise noted. Let me begin with an overview of our volumes on slide 11. We reported fourth quarter average daily volume of nearly $1.1 trillion, down 4% year-over-year, but up 3% when excluding short tenor swaps. Among the 22 product categories that we include in our monthly activity report, eight of the 22 product areas produced year-over-year ADV growth of more than 20%. Areas of strong growth include U.S. investment grade credit, munis, credit swaps, global ETFs, repos and other money markets. Slide 12 provides a summary of our quarterly earnings performance. The fourth quarter volume growth translated into gross revenues increasing by 5.8% on a reported and 9.3% on a constant currency basis. We derived approximately one-third of our revenues from international customers and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in Euros. Our variable revenues increased by 11% and our total trading revenue increased by 6.1%. Total fixed revenues related to our four major asset classes were down 5.4% and down 1.4% on a constant currency basis. Rates fixed revenues were down given the migration of certain European government bond clients from fixed to variable contracts at the end of last year and the impact of FX. Equities fixed revenues were down primarily due to a timing adjustments benefiting the year ago period and the impact of FX. Money markets fixed revenue growth was driven by global repos, and other trading revenues were down 1%. As a reminder, this line does fluctuate as it affected by periodic revenues tied to technology enhancements perform for our retail clients. Market data increased by 3%, due to growth in Refinitiv and…

Thanks Billy. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10.30 am Eastern time. Operator, you can now take our first question.

Thank you. [Operator Instructions]. The first question is coming from Richard Repetto of Piper Sandler. Your line is open.

Yes, good morning, Billy, Tom and Sarah. First, Billy, congrats again on the big C on your jersey here. But as you take off the leadership, I got to keep this question at a high level. So that your first question here. But as you take over leadership, I'm just trying to understand, what have you directed Tom Pluta to do? And where he'll focus his efforts? Will the delegation or the split be similar to what Lee and you had arranged? Really, I'm just trying to understand how the firm is run with the Weller [ph] and leadership change, transition that you are bringing?

Thanks a lot Rich. And I appreciate the question. Obviously, I want to congratulate you for making in through a rather long prepared remarks movement of our earnings call. So congratulations to everyone else on the call too. High level, Rich, and I do appreciate taking that this kind of first call from you. My responsibility in a certain way is pretty straightforward, right? Being the CEO of the company, running the company, is really all about sort of what I would describe to us setting the strategic direction of the company, and then really kind of pushing and prodding and leading the company to execute at a very, very high level. And this won't surprise you at all. I'm going to do that my way with my own personality, I got actually some really good advice about a year ago from a board member who just kind of told me to sort of be myself, and I am going to be myself, as I kind of go through this journey. And so, from my perspective, what that is, is really about being relentlessly external, emphasizing and really receiving client feedback. My strong belief is that great companies make their clients happy. And I say that in a very clear and strong way. And then, when I think about, Rich to your question about Tom, when I think about Tom, obviously, what I think about is super kind of heavy duty real markets experience. So, we're going to direct him that way. So Tom is going to be running the U.S. business, which is everyone knows is this combination of wholesale, retail, and institutional, all of the different markets that funnel into that. I do think he's going to be a significant difference maker in the business, but also a…

Thanks, Billy.

Thank you. One moment for our next question. And our next question will be coming from Daniel Fannon of Jefferies. Your line is open.

Thanks. Good morning. Hey, Billy, I wanted to chat about your comments around January. It seemed like a bit of a mixed bag started out slow. And then you said ended on a record. So maybe if you could talk about the mix of products. But that maybe means for kind of the revenue outlook and maybe momentum kind of going forward for the rest of the year?

Yes. And that's a great question. I'm going to segue it for a quick second, just a little bit of a follow-on to Rich's question, right, because to put a human element on it for a second, right. As a new CEO, there's this concept of obviously, kind of like nailing your first, right. You want to nail your first town hall. You want to nail your first board meeting. You guys can judge whether or not we nailed our first earnings call. But in a human way, there's this concept of really wanting the year to get off to a strong start. And so that's something that we cared about a lot here. So a couple of things I would say about the month of January, against tough comp, and I'll make sure I kind of say that very clearly. Obviously, January 2022, was a very different market of heavy volumes kind of throughout the marketplace, a sort of green light volume marketplace. This is obviously before 400 and now 75 basis points in rate hikes, before there were kind of concerns about liquidity in the market. All of those kind of headline news is about sort of how the marketplace was functioning. The good news, as we've kind of hit this year, I think we're kind of out of sort of that market environment. And I think January 2023, from my perspective, is really what I would describe as a return to a very strong kind of normal market cadence. I think that's an important way to describe it. So, kind of headline for us around January is, against tough comps, volumes up kind of year-over-year, but obviously really, in a very important way, I would say revenues, outpacing volume growth. So, to be crystal clear, we saw revenue growth in January, up very close to sort of near double-digit growth. And obviously, from our perspective, the areas of like high focus that we have as a company, strategically, rates and credit accounted for 75% of that growth. So, all volumes not created equal. I think it's really important that we obviously, the community understands where we were from a volume standpoint, I think a pretty big delta on the on the revenue. And I want to make sure I describe that the right way. We are sort of super commercial. And it was, I think, gratifying against sort of a tough competition a year ago to produce really strong results And end of month, I think we really accelerated particularly in our credit business with a significant amount of records, as some of the strategies that we've put in place around net-net hedging, and net spotting really came to fruition. So a really strong end of the month for us, and feeling really good about how we are set up going into the rest of the year. And thanks very much for the question.

Thank you. One moment for our next question. Our next question will be coming from Brian Bedell of Deutsche Bank. Your line is open.

Hello. Can you hear me?

Yes.

Okay. Sorry, as the intro got interrupted. Thanks so much for all the great commentary very detailed. And if I can ask Tom, given your overview of credit, maybe on the portfolio trading side, I mean, that's obviously been a great protocol for Tradeweb and gaining market share and credit over the last two to three years. Maybe talk about your vision of how that's evolving in 2023 between investment grade and high yield and we have different dynamics in those two areas. Both I guess, on a market share basis versus your main competitor there, and also on how you think the absolute level or I should say penetration of portfolio trading may evolve in 2023, especially if we get maybe wider credit spreads later in the year?

Hi, Brian, thanks. Yes. I mean, overall, we're very positive on the trajectory of our credit business and expected to be a key revenue driver for years to come, revenue growth driver for years to come. On portfolio trading, specifically, as I mentioned in the prepared remarks, I think, 2022 is a good litmus test. And for this protocol, and I think, portfolio trading really was battle tested in this high volatility and difficult macro environment that we all experience and it continued to grow significantly. In my mind, it's rapidly becoming the market standard for fast and efficient trading and credit markets. If you think about the key benefits that we see or the clients see, you get certainty of execution by trading an entire portfolio of bonds in one shot, that could be maybe 100 to 300 line items on average, but we traded a record amount of line items a couple of weeks ago with close to 2000 bonds in one trade. Additional benefits, just being able to move large amounts of risk and minimizing information leakage. So it's a it's an extremely powerful tool that continues to grow in popularity. And this protocol used to be a voice product. And what we've seen is the steady electronification over time over the last few years, it's continued to grow. And we've been beneficiaries of that, and are the clear market leader. As far as IG versus high yield, not surprisingly, investment grade has led the way in electronification. But high yields, while for the pine is also growing rapidly. And we've also continued to work with clients and introduce enhancements to our protocols, which makes it even more attractive. For example, you can trade multicurrency with any combination of high yield investment grade, and emerging market bonds within the same portfolio trade, you can commingle buys and sells. And we provide analytics like PCA analysis, all which provides benefits to clients. As far as the share portfolio trading share of the overall market, I think that was your question. It's been running the last couple years around 5% to 6% of trace volumes. But I expect that it can grow further, as more clients experience the benefits. So in some of this remains a bright spot for us a focus area and a growth area within credit.

Great. Thanks for that color.

Thank you.

Thank you. One moment while we prepare for the next question. Our next question comes from Michael Cyprys of Morgan Stanley. Your line is open.

Hey, good morning. Can you hear me?

Yes.

Okay, great. Hey, Billy, Tom, Sara. Question for Sarah, if I could on the margin profile. So you guys continue to put up strong margin expansion. I think it's five consecutive years now over 100 basis points expansion of the adjusted EBITDA margin here at 2022. I hear you on more modest margin expansion in 2023. But just maybe a longer term question. How do you think about what's the right long-term margin profile for the business as compared to the 51.9% adjusted EBITDA margin in 2022? Do you think it could have a six handle and what's it take to achieve that?

Well, good morning. Thanks for that question. Look, I'm happy to give you some color here as you think about it. But we obviously don't provide a long-term margin target. That said, I think we've been pretty clear and pretty consistent that we think we can continue to drive long-term operating margin expansion. Obviously, this quarter we give out guidance for 2023. And we're confident that we can drive that margin expansion in the near term at either side of that range. But I do think as you referenced, we've delivered a tremendous amount of margin improvement, and at 52%, we'd expect annual increases just to be more modest. There are a number of factors that drive the scale and ultimate opportunity. And I think, just kind of taking a step back in terms of how we manage the company, the most important thing that we're focused on, is striking that right balance between investing for long-term revenue growth, and driving margin expansion. And if you think about it, especially from a long-term perspective, if we get that balance right, particularly with that focus around driving revenue growth, the business scales really well and we will really lift that overall margin. Obviously, like there are things that change that dynamic moment to moment and market to market, one of those things is on the investment side. So as we think about 2023, it continues to be an investment year for us. We're focused on that long-term growth. We're making investments in talent and technology. We've talked about this in the past. And a lot of those initiatives, particularly around rates and credit, which have been Tom referenced, we expect to continue to invest in that over coming years, given that runway of growth opportunity that we see. And maybe just the only other thing I can give you in terms of color is just really, as you think about -- thinking about the expansion, as revenue grows, there is an impact in terms of variable compensation and other variable expenses. And so, last year we grew 14% on a constant currency basis and margins expanded that 100 basis points that you referenced, as revenue moves differently, that margin expansion does correlate to that a little bit more in the near term. So that gives you a little bit more color on how to think about the margin.

Great, thank you.

Thanks.

Thank you. One moment, while we prepare for the next question. And next question is coming from Gautam Sawant of Credit Suisse. Your line is open.

Good morning, Billy, Tom and Sara. Can you please share with us your growth outlook for derivatives activity in 2023. How emerging markets derivatives uptake is progressing? And if EM derivatives growth improves prospects on the cash side?

Hi, good morning. This is Tom, I'll take that one. Emerging markets remains a focus area for us in 2023. And on the back of a very strong 2022, my outlook is for another very strong growth year ahead. We lead with interest rate swaps here and we've leveraged our market leading position and develop market swaps, and our expansive network to have really great early success in the EM swaps. It's the same technology, it's the same interface. It's the same protocols that are developed markets clients are familiar with. So it's a very easy expansion into those markets. We've introduced three more emerging markets, IRS currencies in 2022, and now offer 16 on the platform. We've also made some key hires to our EM team that we're very excited about. So, we're really pushing ahead here and expect it to be very strong growth area for us going forward. More generally, in rates, because I think you're asking generally the outlook for derivatives. We're quite positive on the outlook for further electronification in swaps. In develop market swaps, the market is only about 30% electronified. And by the way, in EM, that number is about 10%. So there is a lot of upside there, compared to the level of electronification we see in say U.S. Treasuries, areas of credit, the mortgage market, certainly. And I think, the comment that I would make generally around our rates businesses. If you think about where we were a year ago, at the outset of this Fed tightening cycle, we actually came into 2022, the Fed was still in a quantitative easing process. There was an outlook for maybe a couple of rate hikes, but given how that outlook changed over the course of the year, flipping from QE to QT, the…

And you guys are getting a really good snapshot to sort of Tom's kind of tightness in his content around these market dynamics, which I think is really important. The only thing I would add to an absolutely spot on response is obviously, I mentioned sort of the importance of regulation. A little bit before regulation continues to play an important role specifically in the European swaps market where we are continuing to onboard important clients in that dynamic. And we're also doing things that you guys would expect, which is continuing to provide what I would describe as really important micro protocols that are going to add new types of clients with new types of volumes attached to it. So our European swaps business is really thriving, and sort of deserves its own kind of comment around some excellent market dynamics that that Tom was providing for everyone.

Thank you. That's super helpful context. Appreciate it.

Thank you while we prepare for the next question. Our next question will come from Kyle Voigt of KBW. Your line is open. Kyle Voigt of KBW. Your line is open.

Hi. It cut out there for a second. So just a question on the retail business. I think that was roughly 10% of revenue last quarter. Given your comment, is it fair to say that proportion can meet up again in the fourth quarter. And when we think about the growth of that, that retail business over the years, it seems historically to be a bit more cyclical with rates. I just wonder if you could kind of expand upon or outline how you can grow that business from a secular standpoint, if we begin to see rates moving lower here and the Fed begin cutting again?

Sure, I'll take that one. It's Tom. Yes, the retail business has obviously been a great story for us in 2022. And we expect that to continue this year. Large backup and rates, demand for money market products and bonds has increased dramatically as yields are very attractive. Just for context, retail makes up almost 5% of our rates revenue, over 20% of credit revenues and about 15% of money market revenue. So definitely significant. And most of these revenues come from munis, U.S. credit, U.S. Treasuries and retail. I think those four add up to about 75% of our revenues. As far as comparing it to other rate hiking cycles. It's a little difficult for us to do. I mean, I think the last time rates were this high in the U.S. was in 2007, we entered the retail business, I believe in 2011. So, we don't have sort of comparisons on how that evolves with respect to our particular business. But what I can say is that we believe that the retail businesses back and will remain robust going forward. I think we're clearly in a higher inflationary environment. I don't expect that the Fed and the other major central banks are going to reverse and cut rates dramatically. So we think that the demand will remain robust, and very healthy. Munis as an asset class generally were very positive on and we're continuing to develop protocols there, not just in retail, but also in bringing in institutional liquidity to that market all on the same platform. So, we're quite positive. While we can't quite forecast exactly where markets will go. We're positive. We're very positive on the outlook for this year.

And one of the things just I would just add, I think it's important is, these segments, and the way that we describe them, the wholesale channel and the retail channel and the institutional channel, they don't, obviously, across these different businesses that we are in. They don't always stay perfectly separate, right? So there's this continuing kind of blend, important blend of these segments. So we've talked in the past about what we feel is an ongoing opportunity for Tradeweb around the institutional Muni business to Tom's point. And to make it obvious point, the activity that takes place for us on the retail side in munis, we think gives us a strong head start in terms of building out that the liquidity for that institutional channel. Other thing I think that is very important that has been described before, is the fact that we have all of these retail entities on the credit side has given us a tremendous advantage in terms of building out our all-to-all network with really important liquidity providers and credit that exist in our retail world. So you see how not only is that business performing in and of itself exceptionally well, strategically, it fits us really well because of the blend that I was just describing. And thanks for the question.

Thank you. One moment while we prepare for the next question. Our next question comes from Chris Allen of Citi. Your line is open.

Hey, morning everyone. Just a quick follow up to Kyle's question. I wonder if you could talk about any growth opportunities from increasing retail distributions? Where you're penetrating financial advisors on the wirehouse? And are you connected to all kinds of the major retail players out there?

Sure, I'll, I'll take that. We, in terms of our retail distribution, we have all the major retail wealth management firms connected to the platform and most of the regional dealer community already. But we do think that we can continue to broaden out our set of liquidity providers, but yes, we are -- we're kind of plugged in to most of the market already.

Maybe I just add, which I think is getting at the underlying point as well. We have plans to add, but also we're seeing that increased activity. So with even the network that we do have, we're seeing 40% more a phase login to the system, given the interest in the product set, users are up something like 200%. So, it's a combination of both drivers that I would definitely focus on.

Thanks.

Thank you. And one moment for the next question. Our next question will be coming from Ken Worthington of JPMorgan. Your line is open.

Hi, good morning. Thanks for squeezing me in here. As we look back to 2022, we saw a noticeable acceleration in the migration of fixed income investing from active to passive similar to what we've seen in equities over the last decade. As we think about Tradeweb, from both a credit and rate perspective, is this transition from active to passive a tailwind or a headwind from both an activity perspective and an revenue perspective for the company? And where is the ongoing transition from active to passive maybe most impactful to your business?

Hey, Ken, thanks for the question. I guess I'll start. The trend to passive investing has been well documented and continues to grow. We have a significant and growing ETF business that includes both equities and fixed income ETFs, the growth rate has been quite strong, and some of the market forecasts for the forwards over the next decade are also quite strong. So we are well-positioned to capitalize on that by expanding, continuing to expand our ETF business. I think this kind of highlights the diversity of our offerings across various liquidity pools, various asset classes, various channels. And as passive continues to grow, I think we will continue to benefit from that as it's a huge area of focus for us.

I completely agree. I mean, I think we're particularly excited as we think about the fixed income ETF portion, which historically has been a little bit behind and those growth rates even outpacing the equity ETFs. So there are a couple of trends within there that I think we're quite excited about.

Okay. But I think about sort of your fixed income or your rates business and credit business, they're flow-through back to those businesses as well? And is it positive or negative?

Yes. I mean, certainly positive, right. So if the active investing continues, we're already in all those businesses in a big way and as the ETFs continue to grow, we're in rates and credit and equity ETFs and well-positioned to capitalize on that growth.

Great. Thank you.

Thanks.

Thank you. One moment while we prepare for the next question. And next question is coming from Craig Siegenthaler of Bank of America. Your line is open.

Hi, good morning, everyone. This is [Indiscernible] just filling in for Craig. I was wondering to what extent you think the reduction in dealer liquidity has impacted credit RFQ volumes in 2022. In particular, on a year-over-year basis, are you seeing a meaningful reduction in the size of dealer responses or reduction in the average number of responses per RFQ? If liquidity improves, I'm trying to think about how much of acceleration we could see in those volumes? Thanks.

It's been a part of the story of 2022. It's a great question, Eli. There's no question that all-to-all trading in credit is a sort of table stakes protocol and a very important of how that market has developed electronically. My general feeling is while there is some ebb and flow to where the dealers are in terms of their liquidity. They've really made a strong investment in protocol innovations that we've talked about, like portfolio trading. And my feeling is that there's a sort of a relevance or an attachment to that protocol, that's extremely sticky. My instinct is we've gotten on the other side around a little bit of that kind of liquidity concern in credit. And I do think we're going to see a rise of principal market making as we get into 2023. And we're going to see that play through the dynamic of response rates to your point in traditional RFQs. And also the pricing and the aggressive pricing around portfolio trading. I think the marketplace learned a pretty interesting lesson around the rise of all-to-all trading. My general feeling and I'll say this pretty strongly is the dealers want to play a significant role in the evolution of electronic credit trading, and they will. And so, I'll kind of answer your excellent question that way, Eli.. And thank you.

I guess the thing I would add to that is, as some of the innovations that we've introduced, like AiEX give clients the ability to trade on an automated basis. That is actually sort of increase the number of trades and reduced the average trade side size and certain asset classes. And that's just a function of the way the trades are executed and really given clients control over how and when they want to execute.

Thank you.

Thank you. That concludes today's Q&A session. I would like to turn the call back over to Billy Hult for closing remarks.

So thank you everyone for joining us this morning. If you have any follow up questions, feel free to reach out to Ashley, Sameer and the team. I hope everyone has a great day and thank you very much.

This concludes today's conference call. You all may disconnect and please enjoy the rest of your day.