Earnings Call
Tradeweb Markets Inc. (TW)
Earnings Call Transcript - TW Q1 2025
Operator, Operator
Good morning and welcome to Tradeweb's First Quarter 2025 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 Managing Director of Investor Relations, Sameer Murukutla. Please go ahead.
Sameer Murukutla, Managing Director of Investor Relations
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 non-public information and complying with our disclosure obligations under Regulation FD. I would 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, 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 Billy.
Billy Hult, CEO
Thanks, Sameer. Good morning, everyone, and thank you for joining our first quarter earnings call. Before I start, I'd like to congratulate our colleague, Ashley Serrao, on the birth of his second daughter and we're excited for his return following his paternity leave. I'm extremely proud of the Tradeweb team for delivering the best revenue quarter in our history. We achieved strong double-digit revenue growth for the seventh consecutive quarter. And for the first time, we surpassed $500 million in quarterly revenues. This milestone is a testament to our team who have worked tirelessly to drive durable growth over many years. The first quarter was anything but quiet, marked by an evolving macro backdrop and geopolitical risks at every turn. Despite that, we believe technology continues to drive markets towards greater connectivity than ever before. We thrive in change and complexity and we continue to invest in our strengths. We're on this continuous journey of learning, and we remain hyper-focused on the next wave of growth and innovation across our global marketplaces. Diving into the first quarter, strong client activity, share gains, and our risk-on environment drove 24.7% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 88 basis points relative to the first quarter of 2024. Turning to slide 5, our rates business produced a record revenue quarter, driven by continued organic growth across swaps, global government bonds, and mortgages. Credit was led by strength in munis and credit derivatives and further supported by growth across global corporate bonds. Money markets were led by the addition of ICD and aided by record quarterly revenues across global repos. Equities posted double-digit revenue growth, led by growth in our global ETF and equity derivatives business. Finally, market data revenues were driven by growth in our LSEG market data contract and proprietary data products. Turning to slide 6, I will provide a brief update on two of our focus areas: U.S. Treasuries and ETFs, and then I will dig deeper into U.S. credit and global interest rate swaps. Starting with U.S. Treasuries, we saw dramatic moves in the U.S. Treasury market. In fact, over 25% of the trading days in the quarter saw daily yield movements that were twice the historical average. Our first quarter market share of 23% drove record revenues, up 13% year-over-year. Our institutional business delivered record revenues as well, with key performance indicators remaining strong. We hit another quarterly market share record, exceeding 50% for the fourth consecutive quarter in institutional U.S. Treasuries versus our main electronic competitor. Automation continues to be an important theme, with institutional U.S. Treasury AIX average daily trade increasing by 15% year-over-year. Turning to our U.S. Treasury wholesale business, we delivered the highest revenue quarter in our history. This was driven by record adoption of our streaming and sessions protocols, along with continued contributions from r8fin. Wholesale remains a key area of focus as we prioritize onboarding more liquidity providers and enhancing our various liquidity pools, in line with our holistic strategy. In equities, our ETF business generated record revenues as volatility increased over 50% during the quarter, and we continue to deepen our integration with our clients. Our efforts to broaden our equity presence beyond our flagship ETF franchise continue to pay off with record equity derivatives revenues up over 20% year-over-year. Looking ahead, we're continuing to make inroads by onboarding new clients and the pipeline remains strong as the benefits of our electronic solutions continue to resonate. A key competitive advantage has been our AIX solution, with average daily trades increasing by over 100% year-over-year. Turning to Slide 7 for a closer look at credit, high single-digit revenue growth for the quarter was driven by strong double-digit gains in both credit derivatives and municipal bonds. Global cash credit delivered low single-digit revenue growth due to product and volume mix with retail credit revenues down 20% year-over-year, primarily reflecting a risk-off tone among retail investors amid rising macro uncertainty. Additionally, the elevated volatility in March drove higher discounts being hit in our wholesale business. Overall, automation continues to surge with global credit AIX average daily trades increasing over 15% year-over-year. We achieved a record 9% block share in fully electronic U.S. investment-grade trading and our second-highest block share in U.S. high yield at over 4%. This growth was driven by continued adoption of portfolio trading, RFQ, and sessions protocol. Our institutional credit business continues to scale as clients leverage our diverse suite of trading solutions. Institutional RFQ average daily volume grew over 25% year-over-year. The team remains focused on expanding our network and increasing the number of responders on the AllTrade platform. In the first quarter, the average number of responses per all-to-all inquiry remained steady year-over-year. Lastly, Sessions average daily volume grew nearly 10% year-over-year. Looking ahead, U.S. credit remains a key area of focus, and we're confident in the longer-term revenue wallet in this asset class and the way we're positioned across all client channels. Since 2019, we've made meaningful progress, growing our fully electronic U.S. credit market share by 1,100 basis points. This growth has come from putting clients first across the full ecosystem, and we continue to recognize the critical role our dealer partners play. As we've successfully reached critical scale in our credit franchise, we are evolving our pricing model by introducing subscription fees and increasing minimum floors with certain dealers. When we were building a business like credit, it was natural for dealers to start with a fully variable pricing model as they were unsure whether the platform would succeed. As our business has scaled and become a large part of the broader trading ecosystem, a mix of variable and fixed pricing becomes a mutually beneficial model across our credit business to incentivize long-term growth and innovation. In addition, as we have grown significantly, we are also able to rebalance the revenue model by introducing or optimizing variable buy-side fees, ensuring we're capturing the full value we deliver across both sides of the marketplace and maximizing our opportunity for the revenue pool. We also understand that our role in the market isn't one size fits all and varies by channel. While the institutional channel is the holy grail of the industry wallet, it relies on the risk management that occurs in the wholesale channel. Given this, we offer pricing incentives in wholesale to support our dealer clients' risk management, which in turn strengthens our collective ability to execute on our future growth opportunities in the institutional channel. We believe there is still a long runway for growth with plenty of opportunity to innovate alongside both buy-side and dealer clients. We're currently working on the next generation of our institutional portfolio trading offering, focusing on enabling clients to build customized criteria-based portfolio trades. On the wholesale side, we're working with clients to improve post-sessions match rates and are actively exploring new dealer-initiated workflow solutions as the dealer community looks for faster and more efficient ways to recycle risk. Beyond U.S. credit, we're continuing to prioritize our emerging markets credit expansion efforts. Our goal is to build a robust end-to-end trading solution focused on onboarding both global and local dealers while expanding our local network to deepen market connectivity. We expect to launch our Saudi Arabian offering in the coming months and are making steady progress in onboarding local dealers across several key EM regions. While still early in the journey, EM credit revenues grew nearly 20% year-over-year in the first quarter, signaling strong momentum. Moving to Slide 8, Global Swaps delivered record revenues driven by a combination of strong client engagement amid a dynamic macro backdrop, a favorable mix shift towards risk trading, and a 2% increase in weighted average duration. Altogether, Global Swaps revenues grew over 40% year-over-year. Our core risk market share, which excludes compression trading, was the second highest ever, rising over 250 basis points year-over-year. Total market share declined from 22% to 21%, largely due to a significant reduction in U.S. and European client-related compression volumes, which carry much lower fee rates. During the quarter, we achieved the second highest share in our history across other G11 and EM denominated currencies. The first quarter truly showcased the diversity of our global swaps revenue base, not just across currencies but across a broad and expanding client set. We posted record institutional swap revenues with new highs across U.S., European, Sterling, G11, and EM swaps. This growth was supported by an 11% increase in active clients. Importantly, client growth was broad-based, spanning hedge funds, bank clients, asset managers, and insurance firms as we continue to deepen our global relationships across a wide range of clients. Finally, we continue to make progress across emerging market swaps and our rapidly growing RFM protocol. Our first quarter EM swaps revenue rose over 60% 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 70% year-over-year with adoption picking up. Overall, we believe the long-term growth potential for swaps revenue is significant. We're excited about the opportunity to deliver more solutions across both the cleared and uncleared swaps markets. With the cleared swaps market still only about 30% electronified, there is substantial room to further digitize manual workflows. As global fixed income markets and the broader swaps landscape continue to grow, we see meaningful opportunity to support our clients through deeper automation and innovation. And with that, let me turn it over to Sara to discuss our financials in more detail.
Sara Furber, CFO
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 revenues of $510 million, which were up 24.7% year-over-year on a reported basis, and 25.8% on a constant currency basis. We derived approximately 40% of our first quarter revenues from international clients and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly euros. Our variable revenues increased by 27% and total trading revenues increased by 24%. Total fixed revenues related to our four major asset classes were up 14% on a reported basis and 15% on a constant currency basis. Rates fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and U.S. government bond platforms. Credit fixed revenue growth was primarily driven by the migration of certain dealers to a subscription fee model and by prior increases to our subscription fees in 2024. Other trading revenues were up 8%. As a reminder, this line fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients. This quarter's adjusted EBITDA margin of 54.6% increased by 125 basis points on a reported basis when compared to our 2024 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 rate products, average fees per million were down 8%, primarily due to negative mix shift changes within U.S. government bonds and lower European government bond fee per million. For long-tenor swaps, average fees per million were up 42%, primarily due to a decline in compression activity and greater risk-taking volumes. For cash credit, average fees per million decreased 11%, due to a mix shift away from retail, the migration of certain dealers from fully variable plans to fixed, and dealers in our wholesale channel hitting volume to your discounts given the elevated volatility in March. For cash equities, average fees per million increased 17%, due to a mix shift towards EU ETFs, which carry a relatively higher fee per million. And finally, with money markets, average fees per million increased 54%, primarily due to the inclusion of ICD and were partially offset by a mix shift towards repos, which carry a comparatively lower fee per million. 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 first quarter increased 22% on a reported, and 23% on a constant currency basis. Given the strong environment to invest for long-term growth, during the first quarter, we continued investments in digital assets, consulting, and client relationship development. Adjusted compensation costs grew 24%, with the vast majority as a result of discretionary and performance-related compensation and the addition of ICD. Technology and communication costs increased 35%, primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees grew 19%, mainly due to an increase in tech consultants as we augment our offshore technology operations and build incremental scalability. Adjusted general and administrative costs decreased 11%, due to favorable movements in FX that resulted in approximately a $2.9 million gain in the first quarter of 2025 versus approximately a $900,000 gain in the first quarter of 2024. This was partially offset by a pickup in travel and entertainment. Slide 12 details capital management and our guidance. On our cash position and capital return policy, we ended the first quarter in a strong position with $1.3 billion in cash and cash equivalents, and free cash flow reached approximately $834 million for the trailing 12 months. Our net interest income of $13.3 million decreased due to a combination of lower cash balances and interest yields. With this quarter's earnings, the Board declared a quarterly dividend of $0.12 per Class A and Class B shares, up 20% year-over-year. Turning to guidance for 2025, we continue to expect adjusted expenses to range from $970 million to $1.03 billion. We continue to believe we can drive margin expansion compared to 2024, and although it will be more modest compared to last year since we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth. We expect our CapEx spend to increase as the year progresses into our previously communicated range. We continue to expect 2025 revenues generated under the master data agreement with LSEG to be approximately $90 million. And as Billy highlighted, we expect a modest shift between our credit fixed and variable fees this year. In the second quarter, we expect our credit fixed revenues to increase by approximately $6 million to $7 million from the first quarter, up 62% at the midpoint, due to the expected introduction of minimum fee floors and the migration of certain dealers to subscription fees. We would expect the shift in 2Q to be total revenue neutral, resulting in a corresponding $6 million to $7 million drop in variable credit fees, equivalent to approximately a $9 drop in our cash credit fee per million from first quarter levels. As a reminder, fee per million is really variable fee per million, calculated as variable revenues over total volume. Now I'll turn it back to Billy for concluding remarks.
Billy Hult, CEO
Thanks, Sara. We want to build upon the success of the present by continuing to be an ambitious company. We continue to focus on moving more voice and paper markets to more transparent markets and pivoting into new markets organically or via M&A. Every day, we ask ourselves what is the special sauce that we can provide to the market to make our clients' search for liquidity more efficient. I want to briefly touch on the market conditions in April. Macro uncertainty and the emergence of a global trade war triggered rapid repricing of risk across both equity and fixed income markets. While conditions may have felt stressed, our clients remained highly engaged on the platform. As many of our large dealer clients noted during their earnings calls, we continue to see an active and resilient two-way market. We believe moments like April clearly demonstrate how both dealer and buy-side clients have been investing in their electronic trading workflows. In today's environment where the long-term impacts of deglobalization on growth, inflation, and the overall rate outlook remain uncertain, we see an even greater need for a resilient and efficient electronic trading ecosystem. Our clients are the lifeblood of Tradeweb. We believe the global multi-asset footprint we've built is one of our strongest competitive advantages. We feel very confident in our long-term growth outlook and we remain focused on driving innovation and value across the global markets, further enhancing our one-stop shop offering, both organically and inorganically to support all four of our client channels. With an important month and trading day left in April, which tends to be one of our strongest revenue days, overall revenue growth is trending approximately 30% higher relative to April 2024. Revenue growth this month is being impacted by one less trading day. Focusing on average daily revenue, we are trending higher than the first quarter as momentum in the business continues. The diversity of our growth remains a theme as we are seeing double-digit volume and revenue growth across all four asset classes. Our IG shares are trending below March levels, while our high-yield share is tracking ahead of March levels. Finally, I would like to conclude my remarks by welcoming Rich Repetto to our Board of Directors. Rich is known to many of you on this call and brings more than 25 years of industry experience to our Board and a valuable perspective. I'd also like to thank our clients for their business and partnership in the quarter, and recognize my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb. With that, I will turn it back to Sameer for your questions.
Sameer Murukutla, Managing Director of Investor Relations
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. Operator, you can now take our first question.
Operator, Operator
Thank you. Our first question comes from Chris Allen with Citi. You may proceed.
Chris Allen, Analyst
Good morning, everyone. Thanks for taking the question. Billy, I was wondering if you could dig into the rate market commentary a little bit more. Wondering kind of the overall health of the rate market here, any impact of the move and the long end of the curve on customers? Any color on the basis swap spread trades? And lastly, from a current positioning perspective, how are people thinking about duration of risk appetite here?
Billy Hult, CEO
Yes, Chris, I'm doing well and I hope you are too. I might sound a bit hoarse due to a combination of the Knicks losing last night and my allergies. I want to remind you that when we discussed the r8fin acquisition in a previous earnings call, I mentioned that it felt like a good time to invest in the rates market. In the last call, Alex inquired about our interest rate swap business, and I spoke with Sara about how it seemed advantageous to be involved in this sector. While I don’t always get it right, I’m confident in this assessment. Reflecting on April, especially the Monday after Liberation Day, we witnessed unprecedented movements reminiscent of past crises like the 2008 financial collapse and the COVID downturn in March 2020, which were historically significant. We experienced a massive decline in risk assets, a weaker dollar, sharply rising rates, and increased volatility due to leveraged positions unwinding. In fact, the 30-year treasury yield saw its largest weekly increase since 1982. U.S. high-yield spreads widened significantly, marking the largest spread increase outside of previous crises, and we observed unprecedented mortgage basis widening since the COVID period. Amid this volatility, we maintained a strong focus on platform reliability and market functionality. Our investments in infrastructure paid off during these stressful moments, and I’m pleased to report that our clients remained engaged, particularly in electronic transactions. I'm not one to take a victory lap, but as a leading REITs marketplace, I believe we performed exceptionally well. We recorded three consecutive days with volumes exceeding $3 trillion. On the automation side, which is critical to our client retention, we saw over a 20% increase in average daily trades using AiEX compared to the first quarter of 2025. This indicates strong client stickiness in our industry. You raised an important question about our future direction. It's essential to state clearly that the market function held up and remained resilient. Although bid-ask spreads became more expensive in parts of the curve, the overall function of the market was maintained. We observed stability in cover prices and liquidity movement, and our pricing updates were effective. Looking ahead, we may see continuing volatility driven by tariff changes and ongoing discussions about low rates versus persistent inflation. I believe this ongoing debate is beneficial for the macro outlook of our Rates business. We plan to continue supporting our clients through this volatility. As a focused organization and a leader in rates, I have a strong belief that we will thrive in the upcoming environment. Even in challenging times, we’re engaged and looking forward to performing as you would expect from us. Thank you for your question.
Chris Allen, Analyst
Appreciate the color. Thank you.
Operator, Operator
Thank you. Our next question comes from Dan Fannon with Jefferies. You may proceed.
Daniel Fannon, Analyst
Thanks, and good morning. A couple of questions on credit pricing, where do you think you are in the transition from variable to fixed pricing with the dealers that began this quarter? And then can you expand upon your comments around the timing of why now in terms of these changes starting to pick up?
Billy Hult, CEO
Sure, Dan, how are you? Good question. Let me maybe start, for a quick second, high level and a combination of Sara and I are going to kind of tackle this one with you. But I start with this kind of concept that you've heard me talk about, and Sara talked about how the credit market specifically requires this concept of balance, right? And so from our perspective, very clearly, dealers are fundamentally important to everything we do, period. And as you know well, dealers have been sort of the story is that dealers have been the sort of most historically resistant to change and the electronification of markets. And our approach has always been to bring them in as our strongest, most important partners, right? And so when I say that, what I mean is we want them front edge on the platform, participating to provide liquidity front edge all the time. And we're always going to stay leading with our top of two partners on idea generation. And that's a very, very important kind of point, I think, right? That's the tenet for how we built our credit business. And quite honestly, it's dependent on how we built all of markets at Tradeweb, right? It's an advantage for us, right? And so, the other piece of it that I would say, which you also know well, is we've always taken the sort of strategic point that we want to kind of play across the entire market structure spectrum. And so when I say that, I mean the retail piece, the wholesale piece, and the institutional piece. And we do that really for kind of two reasons, right? First of all, maybe most importantly, we have a strong belief here that market structure and micro market structure shifts. And we've seen that shift take place in government bonds. We've seen that shift take place in credit, and we want to play a part in all of these liquidity components, period, right? And the other thing I would say is that we feel very strongly that we can compete independently in all three of those segments. So obviously, in credit, we have a long-standing role on the wholesale side, working with the dealers. And my very strong instinct around that is that where the footprint is smaller and you have a smaller network of clients, we want to make sure that we remain at that partner and win the long game and position ourselves to sustainably scale our business, okay? And so given the depth of our client relationships and our footprint in all three of these channels, we understand, I think, clearly, that the wholesale channel is essential in going after how we characterize to you the big prize, which has continues to be the institutional channel. And so to that end, we have worked with our clients in the wholesale space, as volume has been growing consistently to shift gradually towards fixed fees, which lays how we describe to you the groundwork for this collaboration, if that makes sense, right? And if you want to maybe pick up some of that, Sara?
Sara Furber, CFO
Sure. Maybe I'll hit a little bit more just in terms of timing, Dan. So everything Billy has framed is really important. Given the size of our credit business, we think it's positive to increase the percent of recurring revenues given the scale, showing the strength and commitment to our platform from both the dealers Billy mentioned, across institutional and wholesale. Just in terms of context, if you look in the first quarter a year ago, '24, our credit fixed or recurring revenues as a percent of total credit revenues was less than 7%. And you can compare that across the other asset classes and see that it's quite low relative to the other mix in terms of recurring versus variable. And so, we worked with our dealers and with our clients to shift towards that more recurring nature in revenue. And we alluded to in our remarks, like you'll see more of that shift in the second quarter. So that 7% probably trends closer to 13% by the end of the second quarter. I think that will be more in line with our other businesses, and importantly, the largest part of that shift in the second quarter is really around increasing minimums—so increasing the floors and the commitment of our dealers and is really revenue neutral, as we discussed. I think importantly, it still leaves 85% of our credit revenue fully variable, which leaves lots of room for strong revenue growth with volume. And in fact, in April, we saw double-digit revenue growth in credit. So, I think overall, we believe these changes set up our credit growth algo really well to continue by growing our market share and our revenue in partnership with dealers and clients and really pursue the 50% of the market that remains on the phone while increasing that penetration of those higher fee-per-million businesses that we're still working on in RFQ and all-to-all. So, hopefully, that gives you a little bit of sense around timing and the bigger picture. And thanks, Dan.
Billy Hult, CEO
Thanks, Dan.
Operator, Operator
Thank you. Our next question comes from Alex Blostein with Goldman Sachs. You may proceed.
Alex Blostein, Analyst
Hey, Billy and Sara, good morning. Just staying on the credit business, maybe for another minute. I was hoping you guys could discuss the announcement that came out at securities earlier, effectively pitching to banks to handle their bond trades. And I guess, what are the implications for the e-trading of credit broadly and Tradeweb specifically? And then maybe a follow-up, just to Dan's question around the kind of revenue growth algo discussion within credit. It sounds like you don't think this will cap the opportunity set for Tradeweb when it comes to more volume-driven businesses. Obviously, some of that shifts to fixed now, so maybe just expand a little bit on that and how you view the credit growth algo in the next couple of years?
Billy Hult, CEO
Yes. Hey Alex. I'm going to let Sara kind of hit that second point about the cap. But yes, obviously, some of those moves that we've been doing have been actually sort of almost to kind of attack the wallet in the best way, and Sara will kind of talk about that, but it's a good question about Citadel. And I'm not sure you asked a good question. I'm not sure if it's completely necessarily oriented all towards credit in terms of the overall ambitions of Citadel and how they're looking at some of the partnerships, I think that they're looking to create. But at the end of the day, as you know well, we formed a very strong partnership with Citadel across the board. And the overall instinct is that they kind of started off in government bonds and then hitting into global swaps and now moving into credit, they're going to be, quite frankly, competitive. And I think the instinct is the orientation is that Citadel sees significant opportunity in some ways to broaden out the dealer group and do direct business with clients as some of the European banks have shrunk their presence in these markets. And I think first and foremost, their game plan is about providing those clients direct liquidity and I think that they're putting the time and energy and the effort and the technology to do that. As they're doing that, my other instinct is they're looking to create maybe some other avenues to create distribution by working with some of the dealers and the banks that maybe don't have the level of sophistication and pricing that Citadel does and they don't need me to talk about the fact that, that might be a good game plan. It probably is. The general view here is all of this is quite good for our business. We've been in close contact with them, Alex, in a way that you would expect. We think the concept of Citadel continuing to provide strong pricing and credit allows for more velocity in that market. And we feel like the ambition they have in the space is good for us. And so the dialogue remains very, very strong with them. They're continuing to make strong progress in credit and also, as you know, be leading dealers in the REIT side of the business. So feeling quite good as some of these technology-oriented market makers continue to make investments in the space that this plays out quite well for us. And I do think it's a matter of time before they become more firms oriented like Citadel that continue to enter into these spaces, mostly because to your question, which Sara is going to answer, the wallet is strong. And I think that's a really important component to this, that wallet around the client dealer space in the business is quite strong. And that does feed back to your question about our willingness to protect our reach into that piece of the wallet. And you take a little bit from there, Sara.
Sara Furber, CFO
I appreciate that, Alex. Simply put, having over 85% of our fees be variable demonstrates that there are no constraints on revenue growth. It's a balanced business model. We aim to create stickiness and generate recurring revenue while also having the flexibility to benefit from growth in volumes and new protocols. We believe in that mix of 15% recurring and 85% variable, which allows us significant revenue potential. Regarding our algorithm for credit, it's similar across many of our businesses, focusing on increasing market share, introducing new protocols, and attracting new clients. We've made substantial investments in this area, thanks to the profitability of our model. We see technology enhancements, like the all-to-all responder technology and adding regional salespeople, as crucial to increasing our market share, especially in lucrative protocols such as RFQs and all-to-all. Additionally, new protocols present a significant opportunity in credit, with about 50% of the market still predominantly voice-driven, indicating dealer-initiated flows. Given the strength of our wholesale business, we are making progress in partnering with dealers and innovating aspects like CLR and dealer-initiated flows. Therefore, we're confident in the balance of 15% recurring and over 85% being variable in nature.
Alex Blostein, Analyst
Great. Thank you both.
Operator, Operator
Thank you. Our next question comes from Benjamin Budish with Barclays. You may proceed.
Benjamin Budish, Analyst
Hi. Good morning and thanks for taking the questions. Billy, I was wondering if you could talk a bit about the recent launch of portfolio trading for European government bonds. I'm curious, how does the use case compare to credit? What does it mean for the ultimate level of electronification? Is there a place for this sort of protocol in the U.S. where it's more homogenous? And lastly, would there be any fee rate implications should we really pick up that we should keep in mind? Thank you.
Billy Hult, CEO
Yes, it's a good question. So we do try to like talk about Tradeweb as being an innovative company, and that is important to us and we work with our clients on important enhancements. And I think as you've heard us talk about this, like portfolio trading is kind of like top of the list of something that we've done. We're also just like super practical. So when something is working, we're like how do we scale this technology into other areas, right? And so from our perspective, kind of portfolio trading kind of is a perfect example of that. Like this is working really, really well for us in U.S. credit. It's a differentiator for us. We're the leader here, like where else can we scale this into. And so, great coordination inside of the company because we do have a very strong kind of global lens here. And so it was a matter of time before we figured out that, obviously, from our perspective, portfolio trading would have a very strong impact into our European government bond product. Our clients historically, in a lot of ways, have been under-resourced around technology. The instinct is they're getting more sophisticated now around that search for liquidity. So traders have begun to transcend how we think about this concept of like market silos. And I think portfolio trading in a good way, kind of exemplifies how we talk about the concept of technology being able to break down barriers and kind of harmonize execution flows, and I'm talking in kind of interesting techno-speak. But I think we're positioned well to develop these solutions across asset classes. And in Europe, one of the things you have, which you know well, which is a concept of intra-European sovereign curves. And clients do tend to look at relative value trades across those curves. So become inclinations in terms of how portfolio trading will work. And so, there was no way to really do electronically all-or-nothing lists across those curves. Pragmatically, we solve the problem which I think is something that we do well. And so we have Enrico Bruni, running our international business; Troy Dixon, running our U.S. business now. He's got a very strong kind of mortgage background. As you know, we're going to spend a lot of time thinking about things like will portfolio trading work well for U.S. spread-based products. I think an example would be like specified pools, which we think fits that model kind of well. And so the company is focused on these kinds of continued innovation, capital 'I'. But we're also just like trying to be like super pragmatic, what's working and how do we apply working into other markets and let's be resourceful about that. And so I think in a good way, hopefully, that's an example of how we just think about kind of continuing to expand our technology across different markets. And good to hear your voice, and thanks for the question.
Benjamin Budish, Analyst
Great. Thank you both.
Operator, Operator
Thank you. Our next question comes from Jeff Schmidt with William Blair. You may proceed.
Jeff Schmidt, Analyst
Hi. Good morning. On the regulatory front, if this administration were to loosen up banking regulations, could you discuss how you might benefit from that, what that can mean for turnover? And I'm thinking specifically just about capital requirements for holding treasuries.
Sara Furber, CFO
Hi, Jeff. It's nice to hear from you. That's a great question. At a high level, we believe that changes to the supplementary leverage ratio could significantly enhance the resilience and liquidity of the treasury market, which would be a positive for us. This would enable banks to hold more capital in U.S. treasuries, facilitating increased trading, leading to lower yields and improved market depth. For those who may not be familiar, the supplementary leverage ratio is a measure that requires banks to hold a certain percentage of capital against their assets. This ratio is risk-insensitive, meaning that all securities, regardless of type, contribute equally. Therefore, banks will be able to allocate the same capital for lower-margin treasury businesses as they do for higher-margin businesses, which allows them to hold larger treasury positions when constraints are removed. This would enable them to increase turnover and enhance liquidity, thus narrowing bid-ask spreads. A relevant example is during COVID when the Fed exempted treasuries from the supplementary leverage ratio. During that time, SLR-constrained banks increased their treasury positions, leading to higher turnover and lower profit margins. There's extensive research from the Fed that supports these observations. Overall, we advocate for regulations that enhance transparency and liquidity in the markets, and we see this as a significant advantage for our business.
Jeff Schmidt, Analyst
Thank you.
Operator, Operator
Thank you. Our next question comes from Ken Worthington with JPMorgan. You may proceed.
Ken Worthington, Analyst
Hi. Good morning. Thanks for taking the question. I wanted to hear your thoughts on changes to perception of U.S. exceptionalism. So how does the selloff in the U.S. treasury market depreciation of the dollar, potential deterioration in U.S. exceptionalism influence Tradeweb's business, maybe not just in rates, but maybe your other asset classes as well?
Billy Hult, CEO
Good question, Ken. You're addressing the situation we've faced in April regarding a weaker dollar and significantly higher rates. It's important to consider whether we're experiencing a typical cooling off in risk or something more serious. When you ask about "something more," it seems like you're inquiring about potential damage to the U.S. brand. Our initial belief is that there hasn't been any harm, but your question suggests that it might still matter. We acknowledge that we're operating in unprecedented times, leaving all possibilities open. If you caught Mike Hutsell from PIMCO discussing this on CNBC last Friday, he expressed a positive view on market functionality, indicating we haven't inflicted real damage to the brand. However, in these exceptional circumstances, we must stay alert for anything. Returning to our diverse business, our rates division powered our growth in 2024, while our credit sector led growth in 2021, equities in 2020 and 2022, and money markets in 2023, illustrating our diversification. Our international segment accounted for 38% of our revenues in the first quarter, an increase from below 30% in 2016. Notably, our emerging market revenues surged nearly 55% year-over-year in the first quarter, highlighting our global marketplace. We frequently mention our comprehensive fixed income service, reflecting the interconnectedness of the markets today. Your question is vital, and I hope my response is straightforward. We value our leading U.S. rates platform, which we believe will shape the market moving forward. However, the strength of our international business is a crucial aspect of Tradeweb's narrative that can sometimes be overshadowed by the focus on U.S. rates and credit. Our ability to differentiate as a global platform is significant. Thank you for your insightful question, Ken, as always.
Ken Worthington, Analyst
Thank you.
Operator, Operator
Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. You may proceed.
Michael Cyprus, Analyst
Great. Thank you. Good morning. Just a question on digital assets. I think the areas that you're investing in. I was hoping you could talk about your strategy there where you see some of the most compelling use cases and as you think about the tokenization and blockchain solutions and opportunities there, what room blocks or hurdles limit this from being a reality today? And how do you see that being overcome?
Billy Hult, CEO
Yes, that's a great question. At our core, we are a technology company, and we have always prioritized partnering with our clients to enhance their workflows. Our strategy is consistently applied to our approach to digital assets and other emerging technologies. We are investing to create a distributed ecosystem that democratizes global financial markets, enabling participants to work together seamlessly, efficiently, and at scale. Client interest in digital assets is indeed growing, and we are taking a deliberate approach by investing in infrastructure and partnerships. We believe we are well-positioned to support our clients as this landscape evolves. We've invested alongside key clients like BlackRock and Goldman Sachs, and there will be more investments from us in the future. We are transitioning from being neutral in this space to identifying some potential winners. We believe there will be successful players in areas like collateral management, and we aim to focus on where those opportunities are. Furthermore, we see certain markets, such as the TBA mortgage market and the repo market, significantly benefiting from these enhancements, and we look forward to taking a leadership role as those markets evolve. We have some of our best thinkers working on these initiatives, and we are optimistic about the direction we are heading.
Sara Furber, CFO
I'd like to add that we believe we have a unique technology and, as Billy mentioned, we partnered with what we consider to be smart money. We have also been very hands-on with the technology. We've made investments and are closely involved in building technology that integrates well with elements like blockchain. When Billy emphasizes that our top talent is focused on this, it's to ensure it aligns effectively with our existing infrastructure.
Michael Cyprus, Analyst
Thank you.
Operator, Operator
Thank you. Our next question comes from Richard Fellinger with Autonomous Research. You may proceed.
Richard Fellinger, Analyst
Hi, good morning. I wanted to ask one on capital allocation. So excess cash continues to build on the balance sheet and given M&A has historically been the priority after organic growth, just curious how the current market uncertainty informs your appetite for deals today? And if those conversations have gotten easier or harder with the unique environment we're in, and if it has become harder, at what point would you consider being more opportunistic on the buyback to weigh out the current uncertainty?
Billy Hult, CEO
Good question. It's going to be like, again, like a nice combination of Sara, of me and you on this one. But I think we would start with a very straightforward comment, which is M&A continues to be our preferred use of cash. But we're going to apply the rigor around that, that you would expect us to, which is, first of all, and I say this loudly and Sara says this loudly as well, like the culture around M&A is extremely, extremely important to us. And then we look for networks that we think are under-resourced around technology, and that's the simple lens that we apply all the time. My general instinct is two-fold on this. One is putting forward the organic growth numbers that we put forward leads to momentum and the ability to do larger and more interesting kinds of deals. And then the other thing I would say is, as a public company, the ability to have a good track record around doing deals and Sara has been at the front of this integrating and doing good deals, I think gives us, again, this continued momentum to do something. So I'm feeling personally optimistic and excited about the future around M&A. Sara, you take this from me now.
Sara Furber, CFO
Sure. I mean, I think let me hit a little bit on the share repurchase question that you asked. I think we've been really consistent and Billy and I have both been completely consistent about this. The waterfall of how we want to allocate capital remains the same. So organic and then as Billy mentioned, M&A, then share repurchases and dividends. Share repurchases for us, we're committed to offsetting any dilution from equity compensation. But really beyond that, the opportunistic part of share repurchases will be a function of looking at accretion. And so obviously, we want to be disciplined around that topic. As it relates to M&A, I think there's a couple of interesting points to add to what Billy said. We're focused on strategy, right, and the strategic benefit of pursuing whether it's a large acquisition or an investment or a partnership, has not to change month-to-month, quarter-to-quarter based on the environment. That said, I think given our balance sheet, which is quite strong with $1.3 billion of cash, $500 million undrawn revolver and no debt. We remain probably amongst a relative positioning of pretty nimble, relative to other acquirers. And I think we like that seat, in terms of our ability to be opportunistic to pursue things that strategically makes sense over the long-term. Things that expand our client network, Billy has talked about digital. We've talked about private credit before. I think strategy is the most important thing that to focus on. I do say all of that and being CFO, financial discipline is really important, especially when you have $1.3 billion sitting on the balance sheet and no debt. And we remain very committed to being disciplined. In particular, we want to make sure that we're growing revenue. These transactions would have to be accretive both revenue and/or earnings growth. And we've talked about EPS accretion being something that we look at as a hurdle over the near-term for transactions. So with that in mind, we like our positioning. And we think strategy is really important, but we feel quite nimble and the ability to be opportunistic.
Billy Hult, CEO
Thank you for the question.
Richard Fellinger, Analyst
Thank you.
Operator, Operator
Thank you. I would now like to turn the call back over to Billy Hult, for any closing remarks.
Billy Hult, CEO
Thank you all for joining us this morning. Excellent questions, and hopefully, we always answer genuinely and transparently. We appreciate your time. Again, a special congratulations to our friend Ashley for his baby; we know he's listening. And thanks very much, and everyone, have a great day. Thank you all.
Sara Furber, CFO
Thank you.
Operator, Operator
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.