01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Tradeweb Markets Inc. (Nasdaq: TW) filed its annual report on Form 10-K for the year ended December 31, 2019, following its April 2019 IPO.
The company reported gross revenue of $775.6 milliona for 2019, up 13.3% from the combined 2018 total of $684.4 million, with net income of $173.0 million and Adjusted EBITDA of $353.2 million (45.5% margin). Growth was driven by higher trading volumes in rates derivatives, credit cash, money markets and European ETFs, and average daily volume reached $725.4 billion, up 32.3%. The filing highlights a few items investors should weigh.
Refinitiv (controlled by the Investor Group) holds 77.1% of combined voting power and the company is a controlled company under Nasdaq rules. A pending all-share LSEG Transaction, valued at roughly $27 billionb enterprise value for Refinitiv, is expected to close in the second half of 2020, and the company states it expects to remain standalone and publicly traded. The company also carries a $240.8 million Tax Receivable Agreement liability, a $500.0 million undrawn revolving credit facility, and goodwill of $2.69 billion from the Refinitiv Transaction and pushdown accounting.
Pending litigation includes the IDC matter (about $80 millionc claimed) and antitrust suits involving U.S. Treasuries and interest rate swaps, which the company says it intends to defend vigorously. The company paid $0.08 quarterly dividends, declared a first-quarter 2020 dividend on February 11, 2020, and generated $266.5 million of Free Cash Flow in 2019.
02—Key points
Key Highlights
- Gross revenue of $775.6 million for 2019, up 13.3% from $684.4 million for the combined 2018 year; transaction fees rose $52.7 million to $423.6 million.
- Net income of $173.0 million for 2019, with net income attributable to Tradeweb Markets Inc. of $83.8 million after $46.9 million attributable to non-controlling interests.
- Adjusted EBITDA of $353.2 million, a 45.5% margin, and Adjusted Net Income of $230.9 million; Free Cash Flow of $266.5 million.
- Average daily volume of $725.4 billion in 2019, up 32.3% from 2018, led by Rates ADV of $489.6 billion (up 38.3%).
- Refinitiv holds about 77.1% of combined voting power, making Tradeweb a controlled company under Nasdaq rules, with Refinitiv's pending LSEG Transaction expected to close in the second half of 2020.
- Tax Receivable Agreement liability of $240.8 million at year end, requiring 50% of realized tax savings to be paid to Continuing LLC Owners; the company recorded a $33.1 million TRA liability adjustment in 2019.
- Quarterly cash dividend of $0.08 per share, with a first-quarter 2020 dividend declared on February 11, 2020; $500.0 million revolving credit facility undrawn at December 31, 2019.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $775.57M— | — |
| Operating Expenses | $585.75M— | — |
| Operating Income | $189.82M— | — |
| Net Income | $83.77M— | — |
| EPS (Basic) | $0.57— | — |
| EPS (Diluted) | $0.54— | — |
| Shares Outstanding (Basic) | 148.01M— | — |
| Shares Outstanding (Diluted) | 156.54M— | — |
05—Questions
Frequently Asked Questions
How did Tradeweb's revenue and profitability change in 2019?
Gross revenue rose 13.3% to $775.6 million, driven mainly by higher trading volumes across rates, credit, equities and money markets. Net income was $173.0 million, though operating results were affected by higher depreciation and amortization from pushdown accounting and about $24.4 million of stock-based compensation tied to the Special Option Award and post-IPO grants.
What is the significance of Refinitiv's ownership and the pending LSEG Transaction?
Refinitiv owns a majority of the combined voting power and controls the company, which means it can significantly influence board composition and major corporate actions. The LSEG Transaction, an all-share acquisition of Refinitiv valued at about $27 billion in total enterprise value, is expected to close in the second half of 2020. The company states Tradeweb is expected to remain a standalone, publicly traded company and does not expect changes to stockholder voting rights in the near term.
What liabilities and obligations should investors consider?
The Tax Receivable Agreement liability stood at $240.8 million, and the company expects payments under it to be substantial. The company had no outstanding debt at year end, with a $500.0 million senior secured revolving credit facility fully available. Pending litigation includes the IDC matter, in which IDC claims about $80 million in damages, and antitrust cases involving U.S. Treasuries and interest rate swaps; the company says it has no contingency reserves established for these matters.
How is dividend capacity linked to the business structure?
Tradeweb Markets Inc. is a holding company whose main asset is its interest in TWM LLC, so dividends depend on distributions from TWM LLC and its subsidiaries. Those distributions may be limited by regulatory capital requirements, contractual restrictions, and the Revolving Credit Facility. Dividends paid in 2019 totaled $35.9 million, and the board declared a $0.08 per share dividend for the first quarter of 2020.
What is the company's exposure to market volatility and trading volumes?
Revenue is tied closely to trading volumes, and the company notes that lower market volatility may reduce liquidity and trading volume. Approximately 36% of gross revenue in 2019 came from clients outside the United States, and about 44.8% of revenue came from pre-IPO Bank Stockholders and their affiliates. Foreign currency movements reduced 2019 International gross revenue by $11.8 million.
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