Tradeweb Markets Inc. (TW) Q2 2024 Earnings Call Transcript

Good morning. And welcome to Tradeweb's Second Quarter 2024 Earnings Conference Call. As a reminder, today’s call is being recorded and will be available for playback. To begin I'll turn the call over to Head of Treasury, FP&A and Investor Relations, Ashley Serrao. Please go ahead.

Thank you and good morning. Joining me today for the call are our CEO, Billy Hult, who will review our business results and key 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 nonpublic information and complying with our disclosure obligations under 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 and the ICD acquisition 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, earnings presentation and periodic reports filed with the SEC. In addition on today's call we will reference certain non-GAAP measures as well as certain market industry data. Information regarding these non-GAAP measures including reconciliations to GAAP measures is in our earnings release and earnings presentation. Information regarding market and industry data including sources is in our earnings presentation. Now let me turn the call over to.

Thanks, Ashley. Good morning, everyone and thank you for joining our second quarter earnings call. This was another outstanding quarter as Central Bank step back private sector intermediation continues to be in vogue. From evolving inflation print to snap elections across Europe and the UK, the macro debate continues to flourish globally and our one-stop solution is resonating with our clients. At our core, we are a technology company that caters to the financial service industry. We have a simple job: how can we continue to save our clients time and money and provide them with more efficient means of trading in the financial markets? Change is constant and we are focused on being at the forefront of that change via technological, market structure or behavioral. As the markets and our clients evolve, we continue to position Tradeweb for the future. After closing our acquisitions of Yieldbroker and r8fin, we are pleased to have announced the signing of an agreement to acquire ICD in April. We are on track to close ICD shortly, which will add corporates as our fourth client channel. Diving into the second quarter, we achieved our best second quarter in our history. Specifically, strong client activity, share gains and a risk-on environment drove 30.4% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 98 basis points relative to the second quarter of 2023. Turning to slide 5. Rates and credit led the way, accounting for 61% and 29% of our revenue growth, respectively. Specifically, the rates business was driven by continued organic growth across global government bonds, swaps and mortgages and was also supplemented by the addition of r8fin and Yieldbroker. Credit was led by strong US and European corporate credit with record quarterly market share in electronic US investment-grade and aided by strong growth across municipal bonds, China bonds, and credit derivatives. Money markets were led by continued growth in institutional repos; equities posted low single-digit revenue growth despite challenging industry volumes in our core ETF business. Finally, market data revenues were driven by growth in our LSAG market data contract and proprietary data products. Turning to slide 6. I will provide a brief update on two of our focus areas; US Treasuries and ETFs, and then I will dig deeper into US credit and global interest rate swaps. Starting with US Treasuries. Record second quarter revenues increased by 28% year-over-year led by records across all our client channels. Our institutional business saw record adoption of our streaming protocol and growing usage of our RFQs offering. The leading indicators of the institutional business remain strong. We gained share and achieved record quarterly market share of US Treasuries versus Bloomberg crossing the 50% threshold for the first time, which we have maintained. Client engagement was healthy with institutional average daily trades up 45% year-over-year. Automation continues to be an important theme with institutional US Treasury AIX average daily trades increasing by nearly 100% year-over-year. Our wholesale business produced record volumes led by our streaming offering. Our other protocols also saw strong growth, particularly our CLOB which has begun to trend higher. Our recent acquisition of r8fin is off to a strong start, contributing approximately 2.3% to our overall US Treasury market share, complementing our CLOB and streaming protocols. The team remains focused on onboarding more CLOB liquidity providers over the coming quarters, as they deliver on a holistic strategy across our wholesale protocols. Within equities, our ETF revenues grew mid-single digits, but faced a tough industry backdrop given lower equity market volatility. Other initiatives to expand our equity brand beyond our flagship ETF franchise continue to bear fruit with second quarter convertible bond revenues increasing by 10% year-over-year. Looking ahead, the client pipeline remains strong as the benefits of our electronic solutions continue to resonate. We believe we are well positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Turning to slide 7 for a closer look at another strong quarter for credit. Strong double-digit revenue growth was driven by 33% and 29% year-over-year revenue growth across US and European Credit, respectively. We also achieved strong double-digit growth across munis, China Bonds, and credit derivatives. Automation continued to surge with global credit AiEX average daily trades increasing by about 45% year-over-year. We set another fully electronic quarterly market share record in US IG helped by record IG block market share of 9%. We also achieved our second highest fully electronic market share in US high yield. Our institutional business continues to scale as clients adopt our diverse set of protocols to improve liquidity, price transparency, and efficiency. Our primary focus on growing institutional RFQ continues to pay off with average daily volumes growing 30% year-over-year, with strong double-digit growth across both IG and high yield. Moreover, portfolio trading average daily volume rose 100% year-over-year with IG portfolio trading reaching record levels. We continue to focus on leading with innovation, and this is resonating with our clients. We saw portfolio trading users grow by over 20% year-over-year, a record number of line items traded in the quarter, and our largest ever portfolio trade in excess of $3 billion. Retail credit revenues were up over 20% year-over-year as financial advisors continue to allocate investments towards credit to complement their buying of US Treasuries and retail certificates of deposit. AllTrade produced a solid quarter with nearly $190 billion in volume, up over 45% year-over-year. Specifically, our all-to-all volumes grew over 20% year-over-year and our dealer-RFQ offering grew over 10% year-over-year. The team continues to be focused on broadening out our network and increasing the number of responders on the AllTrade platform. In the second quarter, the average number of responses per all-to-all A2A inquiry rose by 35% year-over-year. We also continue to increase our engagement and wallet share with ETF market makers. Finally, our sessions average daily volume grew over 60% year-over-year and produced the second highest quarterly average daily volume ever. Looking ahead, US credit remains our biggest focus area and we like the way we are positioned across our three client channels. We believe we have a long runway for growth with ample opportunity to innovate alongside our clients. Our strategy is focused on expanding our network, increasing our wallet share, enhancing our pre and post-trade analytics and continuously improving our protocols and client experience. In the second quarter, we enhanced our RFQ offering with our rollout of RFQ Edge, where we’re already seeing over 25% of our RFQ users utilizing RFQ Edge. RFQ Edge takes the traditional RFQ list ticket and incorporates real-time trading data, charting functionality, and execution cost analysis. We also remain very focused on chipping away at high yield, and we believe we are well positioned to replicate the success we’ve had in IG. Specifically, we're making progress in our Aladdin integration with the goal of improving the client experience and increasing electronification in these markets. We're still on Phase 2, which is focused on all trade and RFQ, but our teams are already out on the road meeting with respective clients and walking them through all the enhancements made to date. With our Aladdin integration closing a gap and providing a foundation for growth, we expect high yield growth from here to be driven by the expansion of our client network led by strategic sales hires, functionality enhancements, and stronger penetration with ETF market makers. Beyond U.S. credit, our EM expansion efforts continue with growing adoption of our portfolio trading and RFQ offerings and early positive signs across wholesale EM. On the product side, we are focused on leveraging our diverse product expertise, enhancing our integration with FXR, and continuing to build out functionality for multi-asset package trading. Moving to Slide 8. Global swaps produced record revenues driven by a combination of strong client engagement in response to the macro environment and continued market share gains. Strength here was partially offset by a 3% reduction in duration and elevated quarterly compression activity. All in global swaps revenues grew 56% year-over-year and market share rose to 23.6% with record share across dollar G-11 and EM-denominated currencies. Central to our ethos is our focus on helping clients by connecting the dots across fixed income products. Given the heightened market volatility across money markets, our repo clients have been increasingly referencing swap curves, when evaluating fixed-rate repo trades. Yet their process was cumbersome, and our clients asked for a better solution. During the quarter, we became the first electronic trading platform to make overnight index swap curves available during the repo trade negotiation process, helping institutional clients assess the price competitiveness of different repo rates across different currencies and maturities. Finally, we continue to make progress across emerging markets swaps and our rapidly growing RFM protocol. Our second quarter EM swaps revenues more than doubled year-over-year, and we believe there is still significant room to grow given the low levels of electronification. Our RFM protocol saw average daily volume rise over 115% year-over-year with adoption picking up. Looking ahead, we believe the long-term swaps revenue growth potential is meaningful. With the market still about 30% electronified, we believe there remains a lot we can do to help digitize our clients’ manual workflows, while the global fixed income markets and broader swaps market grow. And with that, let me turn it over to Sara to discuss our financials in more detail.

Thanks Billy and good morning. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Slide 9 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter we saw record second quarter revenues of $405 million that were up 30.4% year-over-year on a reported basis and 30.8% on a constant currency basis. We derived approximately 38% of our second quarter revenues from international clients, and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 40% and total trading revenues increased by 31%. Total fixed revenues related to our four major asset classes were up 4.2% on a reported and 4.5% on a constant currency basis. Fixed revenue growth was primarily driven by previously disclosed dealer fee increases in credit that were instituted at the start of the third quarter of 2023. And other trading revenues were up 9%. As a reminder, this line fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients. Year-to-date adjusted EBITDA margin of 53.6% increased by 117 bps on a reported basis when compared to the 2023 full-year margins. Moving on to fees per million on Slide 10 and a highlight of the key trends for the quarter. You can see slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter. For cash rates products, fees per million were up 4%, primarily due to an increase in European and Australian government bond fees per million. For long-tenor swaps, fees per million were down 2% primarily due to a slight increase in compression as well as a 3% decline in duration. For cash credit average fees per million decreased 12% due to a mix shift away from munis and sessions traded. For cash equities, average fees per million were flat due to lower U.S. ETF fees per million given an increase in notional per share traded. Recall in the US, we charge per share and not for notional value traded. This was offset by a mix shift towards higher fee per million EU ETFs. And finally within money markets, average fees per million decreased 8% driven by a mix shift away from higher fee per million U.S. CDs and towards our growing institutional repo business. Slide 11 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the second quarter increased 25.8% on a reported basis and 27% on a constant currency basis. Adjusted compensation cost increased 32.2% due to increases primarily in performance-related compensation headcount and severance. Excluding $2.9 million related to severance compensation costs increased 29.4%. Technology and communication costs increased 29.6% primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees increased 6% mainly due to an increase in consulting costs. We expect professional fees to continue to grow over time, as we spend more on technology consulting to support our organic growth. General and administrative costs increased due to a pickup in travel and entertainment which on a reported basis was partially offset by FX gains year-on-year. Favorable movements in FX resulted in a $1.7 million gain in the second quarter of 2024 versus a $150,000 loss in the second quarter of 2023. Slide 12 details capital management and our guidance. On our cash position and capital return policy. We ended the second quarter in a strong position with a $1.72 billion in cash and cash equivalents and free cash flow reached approximately $722 million for the trailing 12 months. Recall, we intend to pay $785 million in cash consideration for ICD once it closes. Our net interest income of $21 million increased due to a combination of higher cash balances and interest yields. This was primarily driven by the higher interest rate environment and more efficient management of our cash. With this quarter's earnings, the Board declared a quarterly dividend of $0.10 per Class A and Class B shares. Turning to updated guidance for 2024, in light of strong business momentum and the anticipated closing of ICD shortly, we are increasing our adjusted expense guidance from $805 million. We now expect to be in the $830 million to $860 million range for 2024. Including the anticipated closing of ICD, we are currently trending towards the midpoint of this range which would represent an approximate 22% increase versus our 2023 adjusted expenses. Focusing on organic growth the midpoint of this range would represent an approximately 16% increase. Bridging the gap from $805 million to the midpoint of our new range, 63% of this increase is coming from the inclusion of ICD with 30% and 7% coming from better business momentum and the recently announced management changes respectively. Provided that ICD closes shortly, revenue from ICD is expected to be approximately $40 million over the next five months. Recall, we plan to invest in technology and marketing during the first 12 months post-closing which we expect may temporarily push ICD's adjusted EBITDA margin down to 47% to 49%. All in, primarily factoring in the better business momentum we now expect our 2024 adjusted EBITDA margin expansion to slightly exceed 2023 levels. At the same time we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth. This includes infrastructure-related investments such as further enhancements to our global credit tech stack, expanding our integration capabilities to allow for cloud-based Python integration and retail platform enhancements to support the growth in trading activity we've seen in recent years. We are also selectively making small investments in emerging digital technologies such as blockchain and digital assets in order to leverage and benefit from their technical expertise without having to make significant investments to experiment in-house. We now expect our CapEx and capitalized software development to be about $77 million to $85 million for 2024. Acquisition and Refinitiv transaction-related D&A which we adjust out due to the increase associated with pushdown accounting is now expected to be $158 million. We continue to expect 2024 and 2025 revenues generated under the new master data agreement with LSEG to be approximately $80 million and $90 million respectively. Now, I'll turn it back to Billy for concluding remarks.

Thanks Sara. Tradeweb thrives unchanged and we look forward to solving complex problems. Change can happen very fast or very slowly but we want to be that trusted partner that our clients look towards to drive innovation in the market. It's a great time to be in the risk intermediation business. I feel good about our future growth outlook. With a couple of important month-end trading days left in July which tend to be our strongest revenue days average daily revenue growth is trending at a high teens growth rate relative to July 2023. The diversity of our growth remains a theme. We are seeing strong volume growth across global government bonds, mortgages, interest rate swaps, corporate credit and repos. Our IG and high-yield share are trending above 18% and 7% respectively in July. I would also like to welcome Amy Clock to the team who will be joining Tradeweb in August as Chief Administrative Officer and as a member of the Executive Committee. Amy brings more than 25 years of experience and will oversee operations business integration, risk and corporate services. Finally, I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter and I want to thank my colleagues for their efforts that contributed to the best second quarter revenues and volumes at Tradeweb. With that, I will turn it back to Ashley for your questions.

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 a.m. Eastern Time. Operator, you can now take our first question.

Our first question comes from Craig Siegenthaler of Bank of America. Your line is now open.

Good morning, Billy. Hope something is doing well. We had a question on a key competitive advantage. Tradeweb's ability to provide a one-stop shop platform across multiple asset classes. So how important is the wide asset class offering to your sales pitch and ability to penetrate traders on the buy side? And also to what degree has multi-asset trading become more or less common over time?

Yes, Craig good to hear your voice. I've been saying this pretty clearly for a while that technology is making the markets more connected than ever and Tradeweb is really well positioned because of our product depth as being this kind of one-stop shop. I said it on CNBC, and it sounded amazing. Maybe just don't say shop; say platform, because this isn't like the '90s. You're not going to go home and watch signs all night. But the thesis, I think you understand really well. So when we think about this for a moment I would say part of the company's history forever. So let me just say this very clearly: for sure being in government bonds way back when helped us get into, for example, TBA mortgages, being in European government bonds helped us get into European slots. Then there are moments where we wanted to get into interest rate swaps at a point in time where the Fed was cutting rates and mortgage originators became this massive consumer of interest rate swaps and kind of put us on the map. You can feel the history in terms of what I'm describing around our commitment to multi-asset class trading. As of today, stats indicate that about 16% of global AUM now sits in multi-asset bonds, that's up from about 10% in 2018. We think that's going to trend continually higher. Our perspective tells us that around 60% of our clients trade at least two products, and about one in five trade at least five products. On a trader level, it's even a bit more interesting. 30% of our traders are now trading three products with us. And over 10% of our traders trade over five products. We even have one trader who's trading like 11 different markets with us. Those stats matter. And then there is the ethos piece of this, which is part of how we build and grow our businesses here. If you think about the macro businesses, that makes a lot of sense. And over 10% of our traders trade over five products. It's been a big advantage for us and the strong instinct is given the trend of technology and the way these markets are more connected than ever, it's a further advantage for us as we continue to grow our market share and build ourselves into new markets. So that's the view. Appreciate the question, Craig. Thank you.

Thank you, Billy.

Thank you. One moment for next questions. Our next question comes from the line of Ben Budish of Barclays. Your line is now open.

Hi. Good morning, and thank you for taking the question. Billy, in your prepared remarks, you called out a number of stats on portfolio trading, the growth in ADV, increasing number of line items, the largest portfolio trade ever on your platform. I was wondering if you could talk about your medium to longer-term outlook for the protocol. How is usage changing? What are these new types of firms engaging with portfolio trades that weren't before? And how are some of the newer market makers, the large trading firms that are joining the platform recently, how are they engaging with the protocol? Thank you.

Yeah. That's a good question, Ben. We are positive on portfolio trading. We stand for balance, right? We love the concept of ultimately the buy side acting like the buy side and the banks acting as market makers; there will be significant volume that goes through in that basic direction. Portfolio trading now represents a little bit less than 10% of TRACE in the second quarter of 2024, that's up from 5% in the second quarter of 2023. We're getting a lot of opinions that that can land in that sort of 20% to 25% zone of total TRACE volume. I have an instinct that it can be higher. Originally if you remember the protocol was sort of built for asset managers for kind of month or quarter end rebalancing kind of period. It's shifted and changed a lot from there. Now you have hedge funds using the protocol for tactical trades. More recently we've seen insurance firms use it for asset liability management. On the emergence of alternative market makers, they're quite important players in the space, filling a void left by legacy traditional ways of doing business. They are very serious players and their entry into disclosed trading is a big deal. My instinct is that they're going to take the concept and the premise of portfolio trading very seriously. So feeling quite good about directionally where we're going with portfolio trading and thanks for the question.

Great, Bill. Thanks for the detailed response.

Thank you. One moment for next question. Our next question comes from the line of Tyler Mueller of William Blair. Your line is now open.

Good morning. This is Tyler Mueller on for Jeff Schmidt. We were curious what has the client response been to the rollout of RFQ Edge? Is the additional functionality in analytics helping penetration of larger block trades? Thank you.

Sure. Hi, Tyler. Good question. The initial feedback has been quite positive. The enhancements are all about adding analytics and real-time charging into the RFQ ticket. We think investing in clients more upstream is important. RFQ Edge enhancements reflect similar analytics to what we provide to clients across portfolio trading. It allows trading with multiple dealers and the all-to-all market all at once. Enhancing and investing in the client experience is of utmost importance. We have clients utilizing it to send larger-sized trades to fewer dealers, minimizing information leakage. That's the ultimate edge for us. We're feeling good about that protocol, early days, more to come on it, and I appreciate the question.

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

Good morning, everyone. Thanks for taking the question. I want to talk about the third-party market data business a little bit. I'm wondering what the kind of key growth drivers are here. Any new products you may be able to introduce now, how are you maybe able to expand the penetration of existing products? And also, can you kind of remind us some of the mix today between different data offerings and how much they contribute?

Sure. Hey Chris, it's Sara. Thank you for the question. Market Data has been a great business for us. First and foremost our top priority with utilizing market data is to improve execution for our clients. In the second quarter, we had about $29 million of revenue overall from market data, with approximately $20 million coming from AiEX, and $9 million from the third party data line that you're asking about. That line is significantly smaller but has grown nicely for us at about 17% over the last five years on average. The biggest element driving that third party line is really pricing products, constituting about 60% of that $9 million, and things like benchmark and reference products. Newer products like iNAV and our intraday ETF pricing create benchmarks and then can add growth directly from licensing fees as people consume closing and reference prices, as well as increased trading flow. That's the biggest bucket and growth driver we're most excited about. There are also analytics and some post-trade regulatory-type products, like PCA. Overall, we are quite bullish in our ability to grow the opportunity here, as new types of licensing and reference data can be created.

Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Alex Blostein of Goldman Sachs. Your line is now open.

Hey. Good morning. Hi, Billy and everybody else. So, I wanted to talk a little bit more about the interest rate swap business. I know it's a topic that has come up a bunch in the past and I've asked you guys this numerous times in the past as well. But it seems like this business just continues to set new records and the second quarter was an exception to that. So, what drove the strength in the second quarter? And maybe you can just kind of zoom out and talk broadly how you're thinking about the revenue growth algorithm in this business over the next couple of years, because it seems like it continues to do much better than what the baseline should be.

Yes, it's been a great environment for us, and it's a very good question. The second quarter is a clear reflection of what our clients care about the most. There's geopolitical uncertainty, varying inflation rates, and changing election odds, and our business has really been thriving as a result. It has primarily been a market share story for us. Our swaps business complements our global government bond business and our mortgage franchise. When the Fed shifts towards rate cuts, mortgage originators become significant consumers in the swaps market. We've gained market share and increased revenue through three main steps. First, we are adding new customers and transitioning them from previous providers. Second, we are focused on developing new products, including in emerging markets. Finally, we are making progress with micro trading protocols, such as our request for market where buy-side clients can ask one dealer for a two-sided market. As we look to the future, success in emerging market swaps, inflation swaps, and technology in multi-asset products will be crucial for us in this area. We feel we are gaining market share effectively in swaps.

Thank you. One moment for the next question. Our next question comes from the line of Patrick Moley of Piper Sandler. Your line is now open.

Good morning. Thank you for taking my question. I have a question regarding FMX, which is launching in September. I know there has been a lot of discussion about its futures business, but they also have a club treasury business that we're currently competing with. While I realize it's not a significant part of your business, I'm interested in hearing your thoughts on FMX overall and what this new consortium of dealers in the rate space means for competition in the industry. Additionally, you mentioned in your prepared remarks that the CLOB is showing an upward trend for you. I know you've been somewhat dissatisfied with that business since acquiring it from Nasdaq a few years ago. Could you elaborate on the strength you're witnessing there and your expectations for that business in the future? Thank you.

Yes. Hey, Patrick, good to hear your voice. Our goal with FMX is from their perspective is to take on the incumbent in the futures market. I think it's going to play out interestingly. We feel good about the strength of our treasury business both client-side and wholesale-side. Our whole business stays extremely aware of competitive landscape but remains focused on clients. From your question about the cloud versus the streaming business, we continue to do exceptionally well on the treasury side. The r8fin acquisition has been very helpful for us in all of that. I do think we still have work to do on the CLOB. There have been market share shifts in the CLOB world, and we tend to roll up our sleeves a little bit and make sure we are pressing the right buttons there to move that business forward. So we are focused and will continue to do our best to navigate the competitive landscape.

Thank you. One moment for our question. Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open.

Great. Thanks. Good morning, everyone. I don't want to dwell too much on the short-term, but Billy, could you share your thoughts on why the market share for investment grade and high yield in July appears to be slightly lower than in June? What factors do you believe might be contributing to this? Is it more related to a change in the business mix, perhaps due to environmental influences or shifts in portfolio trading, or is it about the dynamics between dealers and institutions within the client base?

Yeah. Good question and fully get you. Don't read too much into those numbers yet. Generally speaking we tend to outperform from a market share perspective around those portfolio trading protocols towards the end of the month. I think we are going wind up in a very good place when you see our all-in July number. Continued growth of portfolio trading is key from our perspective. So I don't think you're going to see a big disconnect when all is said and done.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Ken Worthington from JPMorgan. Your line is now open.

Hi. Good morning. Thanks for taking my question. I wanted to focus on business environment maybe part one, as you mentioned to Alex's question it's been election season globally. How is the election season impacted activity levels given some changes in Europe already? And are there any clear takeaways from a Harris or Trump presidency for Tradeweb in U.S. markets? And then maybe part two is, we've seen bond issuance in net sales into fixed income funds increased substantially in 2024 versus 2023 levels. How should we expect higher issuance in sales to translate into investment grade or high-yield trading volume from Tradeweb from a timing and magnitude perspective?

Sure. You've got it. We've had an incredible kind of six weeks. Healthy debate in the market is good for business. We saw record revenue days in June. Geopolitical uncertainty, different inflation prints, all of that has impacted our business. I think the Fed is going to cut, regardless of who the President is. That's going to wind up being good for our business. I think you're going to see strong levels of debt issuance going forward. Markets like high-yield are going to pick up in volume as we get into 2025.

Appreciate your perspective.

Yes.

Thank you. Our next question comes from the line of Daniel Fannon of Jefferies. Your line is now open.

Good morning. Thanks for taking my question. Within high yield you mentioned in your prepared remarks expanding your client network is kind of key to growth. Can you impact where your current strengths are today and what client segments you're targeting to actually get that future growth? And maybe how does the Aladdin partnership accelerate that?

Yes. So, that's a good question, Dan. Our strengths are primarily with long-only asset managers. We need to continue to deepen our relationships with ETF market makers, critical in the high-yield business. We've done well with them. We're very focused on Aladdin because we think it's going to help round out that responder network and help our liquidity in high yield. As we do that we'll communicate the benefits of portfolio trading, particularly in the high yield area as well.

And Billy maybe just one other area we've talked about in the past as well. When we think about the client base we've spent a lot of time and energy and continue to focus on building out our EM platform. That's another area I think we see some benefit in terms of high yield expansion. There's a big overlap there in some of those traders.

Yes, thank you Sara. Thanks for the question.

Thank you. Our next question comes from the line of Kyle Voigt of KBW. Your line is now open.

Hi, good morning everyone. So, with ICD likely to close within the next week or so, just wondering if you can update us on your appetite for incremental M&A from here especially given that we still have a significant amount of balance sheet flexibility post-close? And with respect to ICD. Can you just remind us of the integration timeline there? It sounds like there may be some incremental investment upfront. So how can we think about the margin trajectory after that?

Yes, that's great. We think M&A is a tool just like organic growth as a tool partnerships and investments are tools to implement our strategic objectives. We've done three acquisitions if you include ICD in the last 18 months and we're focused on doing those well, which means executing and integrating. While we are focused on that, we are also looking at other opportunities. ICD specifically, we expect to close shortly. The margin expectation for ICD is probably lower than ours right now at 47% to 49%, reflecting our increased investment in that platform. The strategic business is performing well and there are strong client relationships in place. The opportunities in the near and medium term include driving revenue synergies. Corporate treasurers can buy our products, with a range of outcomes that we see over the medium term and we're quite excited about that opportunity.

And Sara, we talked a lot about the importance of the management team and the cultural fit maybe just a minute from you on how impressive we've been with that management team starting with Tory.

Yes. The management team starting with Tory has been impressive. We've connected with them during the diligence process and across levels including product, tech, and finance. The talent we are bringing on board as partners to grow our platform is really exciting. The cultural fit and client focus is tremendous, which makes these acquisitions even more successful.

That’s great. Thank you very much.

You're welcome.

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

Great. Thanks, so much for squeezing me in here. Just wanted to circle back to your earlier comments on the investments you're making in emerging technology. I was hoping you could elaborate a little bit on that. What are your aspirations there? And if successful what does that look like? I think one of the things you were articulating with blockchain. So I guess just related to that, how do you see the potential for a blockchain in your markets and your business over the long term?

Sure. Thanks for the question. Digital assets and emerging technologies present an exciting point in the cycle. We've spent years looking at the space and are disciplined in our capital spending. Increasingly, we are focused on partnerships and investments. Leveraging distributed ledger technology like blockchain can impact trading by eliminating manual reconciliations, reducing transaction costs, and allowing us to see how to leverage it. Two recent investments, Canton Network and Alpha Ledger, give us insights into how that technology can be utilized for either issuance or trading. We're positioning ourselves to be an important player as this market evolves. Whether it's digital assets trading on the blockchain or more traditional assets, we are excited about the opportunities.

And Michael, Sara described that perfectly. When you build markets, you learn an aspect of pragmatism pretty quickly. We are always considering how these things can fit into our marketplace. We would point out two markets that could benefit from blockchain technologies: the repo market, and the TBA market's settlement process. It will take time for that technology to be applied practically, but the opportunity is there.

Great. Thank you.

Thank you. Our next question comes from the line of Alex Kramm of UBS.

Yes. Hello, everyone. Just wanted to come back to portfolio trading and credits one more time. When I talk to some of your largest buy-side clients, they totally agree that this protocol is going to get bigger. So that sounds great. But at the same time obviously you have very dominant market share in that business. And when I talk to those clients, they definitely say like look over time we do like competition. We're going to have to spread all off a little bit more. So considering that that's a very concentrated market right now and I don't think it has as much network effect than maybe RFQ has. Is that something that worries you? And how do you think you can defend that as again maybe it's a little bit more of a workflow than a real network liquidity? Thanks.

That's a really good question. I think, in a certain way I kind of agree with your thesis. First of all, I'm glad that the buy-side clients are embracing that protocol. I think that is spot on. It's important to maintain balance around the ecosystem. We are going to enhance and innovate and do things around technology to enhance our clients' experience with portfolio trading. We also want to remind our bank partners that by creating this portfolio, we have indeed gone out of our way to bring the big banks back into the equation. I think the forward trend is going to be continued growth in market share in portfolio trading. We will focus on defending that and we are determined to remain the leading venue for portfolio trading.

Fair enough. Thanks, guys.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to CEO, Billy Hult for closing remarks.

Thank you all very much for joining us this morning. Great questions as always. Any follow-up please obviously feel free to reach out to Ashley, Sameer and our great team. Thank you all. Have a great day. Bye-bye.

Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.