Tradeweb Markets Inc

NASDAQ:TW

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.

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 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 and 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.

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 into 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 was 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 institutional U.S. treasury AiEX 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 continues 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 AiEX 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 being 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 AiEX 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 with strong double-digit growth in both IG and high yield. Portfolio trading average daily volume also increased 10% year-over-year, with record volumes across both IG and high yield. During the quarter, we saw our largest portfolio trade by size and volume at over $8 billion in volume, involving over 3,500 line items. AllTrade had a strong quarter with nearly $220 billion in volume, up almost 10% year-over-year. Our all-to-all 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 have 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 becomes 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 that 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 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.

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 that 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 in euros. Our variable revenues increased by 27% and total trading revenues increased by 24%. Total fixed revenues related to our 4 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 '25 versus approximately a $900,000 gain in the first quarter of '24. 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 in 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.

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 trigger 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 2-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, 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 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.

Thanks, Billy. [Operator Instructions] Q&A will end at 10:30 a.m. Eastern. Operator, you can now take our first question.

[Operator Instructions] Our first question comes from Chris Allen with Citi.

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?

Yes. Chris, how are you? Hopefully, you can hear me okay, like a combination of the Knicks losing last night plus my allergies has me a little horse, and I hope you're doing well. So I think if you remember well, when we did the r8fin acquisition a little while ago on the earnings call, I talked about the fact that I thought it was a good time to place a bet in the rates market. And then on the last earnings call, I remember Alex asked a question about our interest rate swap business, and I've made another point with Sara around -- I think it was a good point in time to be in the rates business. I'm not right all the time, definitely right about that. As we kind of think about what happened through the month of April, but really that sort of [ day at ] the Monday after Liberation Day, I think the sort of words like unprecedented we've kind of all been through the [indiscernible] in '08, COVID March of 2020, we're talking about kind of headline kind of historic moves. And so we would kind of characterize it in a very simple way, like a massive drawdown in risk assets alongside a weaker dollar, sharply higher rates and volatility exacerbated by sort of levered position unwinds right? And then big, big position reversals.

So the way we kind of think about it, obviously, is the 30-year treasury yield it was the largest weekly move higher since 1982. I think I was in seventh grade. I know Sara was not even born yet. U.S. high-yield spreads widened by 150 basis points over a 2-week period. That's the largest 2-week spread widening outside of the crisis and that COVID period of time, largest mortgage base is widening since COVID. These are like, again, unprecedented moves. And as that volatility played out, I would say, Chris, we kind of did what you would expect, which is we paid very intense attention to platform reliability and the underlying plumbing of the market function. We have been investing as a company in infrastructure for these moments of stress. And the good news, I would say, is that our clients stayed engaged and for sure, electronically oriented. And without any concept you know us well without any concept of kind of victory lap, but as the leading REITs marketplace, my feeling is we excelled. So in April, three days in a row of volumes above $3 trillion a day. On the automation front, which is something we watch closely, I think an important indication of how we think about client stickiness. April average daily trades utilizing AiEX grew over 20% versus the first quarter of '25. That's an important stat. And so I think what we're seeing is as the industry standard of the REIT's business like stickiness, frontline stickiness around automation. And so you asked a great question, and I think it's essentially kind of where do we go from here.

And as we kind of think about where we go from here, I think it's important for us to really kind of say something in a very straightforward way, which is the market function held up. It was resilient, right? So we looked at like the bid ask. It obviously got more expensive in areas of the curve where you would expect it to get more expensive but it held up. We look at things like cover prices and the ability for liquidity to move and that kind of held up. We looked at how our pricing updates occurred and that held up. So when you think about a market function that preserves that was resilient. And then you think about kind of where we're headed from here. I would say headed from here a little bit more of the same potentially, right? So tariffs can and will continue to drive market volatility period, right? Tariffs on, tariffs off, uncertainty, right? There's going to be this continued focus on lower rates that will be offset by the reality that inflation remains high above the Fed target okay, debate will continue. Instinct is as that debate continues, this is very good for the forward macro outlook of our Rates business, right? And so we're going to continue to focus on working with our clients, managing our clients through this period of volatility as partners. We're a very focused company. And my very strong instinct is as the rates leader, we're going to continue to prosper in the environment going forward. So a challenging market, a challenging time, we're engaged and focused and looking forward to continue to excel in a way that you would expect us to. And thanks for the question.

Our next question comes from Dan Fannon with Jefferies.

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?

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 for how we built all of the 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 and 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 ground work for this collaboration, if that makes sense, right?

And if you want to maybe pick up some of that, Sara?

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, it looked 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 [indiscernible]. So hopefully, that gives you a little bit of sense around timing and the bigger picture. And thanks, Dan.

Thanks, Dan.

Our next question comes from Alex Blostein with Goldman Sachs.

Just staying on the credit business, maybe for another minute. I was hoping you guys could discuss the announcement that came out at [indiscernible] 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 trade it 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 the growth algo in the next couple of years.

Yes. 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 kind of 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 a leading dealer 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 kind of 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 [ 100 ] protect our reach into that piece of the wallet.

And you take a little bit from there, Sara.

Yes. No, I appreciate that, Alex. I mean, I think like really simply put, the notion of having 85% of the fees, more than 85% be variable in nature, really show that there's really no constraint in terms of the revenue growth. I think it's a balanced business. You want to create stickiness and you want recurring revenue, coupled with the ability as volumes grow and as new protocols get developed to participate in that upside, we like that mix of [ 1585 ] and think that does a long way away from having a capped revenue opportunity.

I think as it relates to the algo for credit, it's probably very similar for many of our businesses, but it's really around driving market share, introducing new protocols and growing and adding new clients. When we think about how we drive market share and add new clients. We've talked a lot about our investments in the great [indiscernible], we have such a profitable model that we've really been able to accelerate a lot of investment in this space. We see technology through things like all-to-all responder technology that we're adding as well as people like some of the regional salespeople that we've been talking about really helping drive -- nothing happens overnight. I wish it did, but really helped drive that market share opportunity in some of the most lucrative protocols that are out there, as I mentioned, RFQ and all-to-all. Importantly, new protocols are a huge opportunity in credit. And we've talked about 50% of the market really remaining more voice oriented. That's really dealer-initiated flows and opportunities that we see. We like our positioning, given the strength of our wholesale business. And we see strides that we are making there to really partner with the dealers and innovate around things like [ CLR RFQ ] and dealer-initiated flows through our [indiscernible] business and our wholesale business. So I think the algo is really important, and I think we're really feeling strong about that balance of 15% recurring in 80% -- 85% plus being variable in nature.

The next question comes from Benjamin Budish with Barclays.

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 [indiscernible] to really pick up that we should keep in mind?

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 those 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. And so 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 kind 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 what's 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.

Our next question comes from Jeff Schmitt with William Blair.

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.

Great. Jeff, I'll take that one. Nice to hear your voice. I think it's a great question. At a high level, we think changes to the SLR ratio could be one of the most impactful changes to increase the resilience and liquidity of the treasury market and a strong positive for us, it means banks can have more capital to hold U.S. treasuries. And really, that allows them to facilitate more trading which should lead to lower yields and improved market depth, which we think is one of the strongest platforms and rates for us is a real positive.

Maybe just like backing up for everyone who isn't totally familiar with it, I think -- SLR is a supplementary leverage ratio and where banks loosening that means reducing the required percentage of capital that they're holding against bank assets. Importantly, SLR, unlike other measures, is risk insensitive, meaning all securities, whether they be corporate bonds or treasuries with different maturities contribute equally to that measure. And so today, having about the same level of capital potentially for lower revenue margin market-making businesses in the U.S. treasuries as a bank might have to hold against higher revenue higher-margin businesses like high-yield credit as an example, allows our view that when these constraints are lifted for those banks that were constrained on the ratio, they can and do typically hold larger treasury positions. That's the reason we think they can facilitate more turnover and improve liquidity, narrowing bid-ask.

I think probably the best data point to look at when you're trying to assess like what's the implication in terms of the multiple on turnover and every market is different, I would go back to COVID when the Fed exempted treasury is from the SLR requirement. And in that circumstance, you saw very specifically SLR-constrained banks really increase their treasury positions and turnover and lower their profit margins. And there's a lot of like research out there by the Fed where you can look at those assumptions. But generally speaking, we're always a proponent of regulation that increases transparency and liquidity across markets, and we think this is a [ strong ] positive for our business.

Our next question comes from Ken Worthington with JPMorgan.

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 the U.S. exceptionalism influence Tradeweb's business, maybe not just in rates, but maybe your other asset classes as well.

Good question, Ken. And sort of as you're framing it, you're kind of talking about sort of what we've gone through in April the concept of a weaker dollar kind of sharply higher rates than the way I was describing before. And there's this concept obviously, of what are we talking about here, right? Are we talking about a sort of classic kind of unwind in risk? Or are we talking about something more? And when you are kind of asking the question about like something more, I think sort of what you're asking a little bit, quite honestly, is there damage to the brand? Is there damage to the U.S. brand? That's really kind of like the question sort of that you're asking, I think. And the inclination kind of we have here is no but the fact that you're asking the question probably means something, right? And so look, eyes wide open, I said before, we're in kind of historic unprecedented zones. And so you take kind of nothing off the table.

I don't know if you had a chance to see [ Mike Hutsell, from PIMCO ] talk about a version of this question on CNBC last Friday, but he was talking about the way that the market was functioning that made him feel positive that we had not done sort of any kind of real damage to the brand. But we have to kind of understand that when you're in unprecedented zones, you have to be prepared for anything. So I do come back to this concept that we have this very diverse business here. And so when we think about our business, you know this. But like our rates business drove our growth in 2024 but our credit business drove our growth in 2021, equities in '20 and '22, money markets in '23, that tells you a bit about this kind of diversification story around our business. Our international business represents 38% of our revenues in the first quarter. That's up from basically less than 30% in 2016. And I'd like to talk about the fact that like our EM revenues are up over -- I think it's up over almost 55% year-over-year in the first quarter. So that becomes the concept of this global marketplace. And then what we talk about a lot is this one-stop shop for fixed income, where the markets are more connected than ever. And these become big, big principles as we navigate through kind of historic moments in the market.

And so I think your question is really, really important. Hopefully, I'm answering it in a really direct way. We love the fact that we have this leading U.S. rates platform. We think this is going to be the marketplace going forward. But the concept of us having this significantly strong international business is a big piece of the Tradeweb story that sometimes does get lost in the sauce of U.S. rates and credit and the ability that we have to differentiate ourselves as this global platform is a big deal. So you're asking a really good question, Ken, as always, and thank you.

Our next question comes from Michael Cyprus with Morgan Stanley.

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?

Yes, it's a good question. So like at our core, you know this, like we're a technology company, right? And so we say that we're a technology company. And so we've always kind of prioritize, I think, from our perspective, partnering with our clients to help make their workflows more efficient, and you've heard us kind of talk that way. And so the strategy carries through like 100% consistently to our approach to digital assets and other emerging technologies. So we're investing with the goal of creating a distributed ecosystem that democratizes these global financial markets, allowing participants to interoperate seamlessly, efficiently and at scale.

And so you're right, the client interest in digital assets continues to grow. I think we're pretty in a lot of ways, kind of eyes wide open and that we're taking a pretty deliberate approach through investing in infrastructure and partnerships. I think we're positioned very, very well to support our clients as this landscape continues to evolve. We have invested alongside kind of our -- I used expression like Smart Money clients, but we've invested alongside our Smart Money clients, like BlackRock, like Goldman, on this. And I think you're going to see more investments from us in the future. I think we're a little bit moving from this concept of being, I kind of say, to Sara like the Switzerland around the space to like let's pick some where we think the winners are. And I do think when you think about the sort of guardrails around kind of collateral management, we feel like there will be winners. And so we're going to kind of like think like weigh in on where we think that those winners live.

And then we look at the sort of the reality of some of the markets that we live and breathe in, really benefiting from some of this enhancement and they can be markets like the TBA mortgage market or the repo market, and we look forward to playing that leadership role as these markets move maybe from a settlement perspective in a different direction but it's an exciting time around the space. We have some of our best thinkers kind of working at it on the company and the kind of partners to help us navigate, I think, that you would expect us to. So feeling good about directionally kind of where we're headed there.

Maybe just one other point I'd add on that is, I think -- it's a unique technology, and was definitely, as Billy said, partnered with what we think is smart money. But we've also really gotten our hands dirty from a technology perspective. And so we've made investments, but we also are internally very close and part of building technology that's well integrated with these aspects like blockchain. So it's not [ it from an far ] when Billy says, like we're really spending time and our smartest people are on it. It's really to make sure it's well integrated with all the plumbing we already have.

Our next question comes from Richard Fellinger with Autonomous Research.

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 kind of weigh out the current uncertainty?

Good question. It's going 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 kind of rigor around that, that you would expect us to, right, 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 kind of 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 kind of twofold on this. One is putting forward the kind of 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.

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 comp. 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 to 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.

Thank you. I would now like to turn the call back over to Billy Hult for any closing remarks.

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.

Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.