Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Tradeweb Markets Inc. (the “Corporation”) was incorporated as a Delaware corporation on November 7, 2018 to carry on the business of Tradeweb Markets LLC (“TWM LLC”) following the completion of a series of reorganization transactions on April 4, 2019 (the “Reorganization Transactions”), in connection with Tradeweb Markets Inc.’s initial public offering (the “IPO”), which closed on April 8, 2019. Following the Reorganization Transactions, Refinitiv Holdings Limited (unless otherwise stated or the context otherwise requires, together with all of its direct and indirect subsidiaries, “Refinitiv”) owned an indirect majority ownership interest in the Company (as defined below).
On January 29, 2021, London Stock Exchange Group plc (“LSEG”) completed its acquisition of Refinitiv from a consortium, including certain investment funds affiliated with The Blackstone Group Inc. (f/k/a The Blackstone Group L.P.) (“Blackstone”) as well as Thomson Reuters Corporation (“TR”), in an all share transaction (the “LSEG Transaction”).
In connection with the LSEG Transaction, the Corporation became a consolidating subsidiary of LSEG. Prior to the LSEG Transaction, the Corporation was a consolidating subsidiary of BCP York Holdings (“BCP”), a company owned by certain investment funds affiliated with Blackstone, through BCP’s previous majority ownership interest in Refinitiv.
The Corporation is a holding company whose principal asset is LLC Interests (as defined below) of TWM LLC. As the sole manager of TWM LLC, the Corporation operates and controls all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conducts the Corporation’s business. As a result of this control, and because the Corporation has a substantial financial interest in TWM LLC, the Corporation consolidates the financial results of TWM LLC and reports a non-controlling interest in the Corporation’s condensed consolidated financial statements. As of June 30, 2022, Tradeweb Markets Inc. owns 87.2% of TWM LLC and the non-controlling interest holders own the remaining 12.8% of TWM LLC. As of December 31, 2021, Tradeweb Markets Inc. owned 86.9% of TWM LLC and the non-controlling interest holders owned the remaining 13.1% of TWM LLC.
Unless the context otherwise requires, references to the “Company” refer to Tradeweb Markets Inc. and its consolidated subsidiaries, including TWM LLC, following the completion of the Reorganization Transactions, and TWM LLC and its consolidated subsidiaries prior to the completion of the Reorganization Transactions.
The Company is a leader in building and operating electronic marketplaces for a global network of clients across the institutional, wholesale and retail client sectors. The Company’s principal subsidiaries include:
•Tradeweb LLC (“TWL”), a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a member of the Financial Industry Regulatory Authority (“FINRA”), a registered independent introducing broker with the Commodities Future Trading Commission (“CFTC”) and a member of the National Futures Association (“NFA”).
•Dealerweb Inc. (“DW”) (formerly known as Hilliard Farber & Co., Inc.), a registered broker-dealer under the Exchange Act and a member of FINRA. DW is also registered as an introducing broker with the CFTC and a member of the NFA.
•Tradeweb Direct LLC (“TWD”) (formerly known as BondDesk Trading LLC), a registered broker-dealer under the Exchange Act and a member of FINRA.
•Execution Access, LLC (“EA”), acquired in June 2021 in connection with the NFI Acquisition (as defined below), a registered broker-dealer under the Exchange Act and a member of FINRA.
•Tradeweb Europe Limited (“TEL”), a Multilateral Trading Facility regulated by the Financial Conduct Authority (the “FCA”) in the UK, which maintains branches in Asia which are regulated by certain Asian securities regulators.
•TW SEF LLC (“TW SEF”), a Swap Execution Facility (“SEF”) regulated by the CFTC.
•DW SEF LLC (“DW SEF”), a SEF regulated by the CFTC.
•Tradeweb Japan K.K. (“TWJ”), a security house regulated by the Japanese Financial Services Agency (“JFSA”) and the Japan Securities Dealers Association (“JSDA”).
•Tradeweb EU B.V. (“TWEU”), a Trading Venue and Approved Publication Arrangement regulated by the Netherlands Authority for the Financial Markets (“AFM”).
•Tradeweb Execution Services Limited (“TESL”), an Investment Firm (“BIPRU Firm”) regulated by the FCA in the UK.
•Tradeweb Commercial Information Consulting (Shanghai) Co., Ltd. a wholly-owned foreign enterprise (WOFE) for the purpose of providing consulting and marketing activities in China. The Tradeweb offshore electronic trading platform is recognized by the People’s Bank of China for the provision of Bond Connect and CIBM Direct.
•Tradeweb Execution Services B.V. (“TESBV”), a European Union investment firm with permission to trade on a matched principal basis, authorized and regulated by the AFM.
In June 2021, the Company acquired Nasdaq’s U.S. fixed income electronic trading platform, formerly known as eSpeed (the “NFI Acquisition”), which was a fully executable central order limit book (CLOB) for electronic trading in on-the-run (OTR) U.S. government bonds.
A majority interest of Refinitiv (formerly the Thomson Reuters Financial & Risk Business) was acquired by BCP on October 1, 2018 (the “Refinitiv Transaction”) from TR. The Refinitiv Transaction resulted in a new basis of accounting for certain of the Company’s assets and liabilities beginning on October 1, 2018. See Note 2 – Significant Accounting Policies for a description of pushdown accounting applied as a result of the Refinitiv Transaction.
In connection with the Reorganization Transactions, TWM LLC’s limited liability company agreement (the “TWM LLC Agreement”) was amended and restated to, among other things, (i) provide for a new single class of common membership interests in TWM LLC (the “LLC Interests”), (ii) exchange all of the then existing membership interests in TWM LLC for LLC Interests and (iii) appoint the Corporation as the sole manager of TWM LLC. As used herein, references to “Continuing LLC Owners” refer collectively to (i) those “Original LLC Owners,” including an indirect subsidiary of Refinitiv, certain investment and commercial banks (collectively, the “Bank Stockholders”) and members of management, that continued to own LLC Interests after the completion of the IPO and Reorganization Transactions, that received shares of Class C common stock, par value $0.00001 per share, of the Corporation (the “Class C common stock”), shares of Class D common stock, par value $0.00001 per share, of the Corporation (the “Class D common stock”) or a combination of both, as the case may be, in connection with the completion of the Reorganization Transactions, and that may redeem or exchange their LLC Interests for shares of Class A common stock, par value $0.00001 per share, of the Corporation (the “Class A common stock”) or Class B common stock, par value $0.00001 per share, of the Corporation (the “Class B common stock”) and (ii) solely with respect to the Tax Receivable Agreement (as defined in Note 6 – Tax Receivable Agreement), also includes those Original LLC Owners, including certain Bank Stockholders, that disposed of all of their LLC Interests for cash in connection with the IPO.
As of June 30, 2022:
•The public investors collectively owned 107,615,695 shares of Class A common stock, representing 7.9% of the combined voting power of Tradeweb Markets Inc.’s issued and outstanding common stock and indirectly, through Tradeweb Markets Inc., owned 45.9% of the economic interest in TWM LLC;
•Refinitiv collectively owned 96,933,192 shares of Class B common stock and 22,988,329 shares of Class D common stock, representing 88.1% of the combined voting power of Tradeweb Markets Inc.’s issued and outstanding common stock and directly and indirectly, through Tradeweb Markets Inc., owned 51.1% of the economic interest in TWM LLC; and
•The Bank Stockholders that continue to own LLC Interests collectively owned 1,654,825 shares of Class C common stock and 5,220,129 shares of Class D common stock, representing 4.0% of the combined voting power of Tradeweb Markets Inc.’s issued and outstanding common stock and directly own 2.9% of the economic interest in TWM LLC. As of June 30, 2022, only entities affiliated with Credit Suisse Securities (USA) LLC remained as Bank Stockholders.
•Other stockholders that continue to own LLC Interests also collectively owned 108,375 shares of Class D common stock, representing less than 0.1% of the combined voting power of Tradeweb Markets Inc.’s issued and outstanding common stock and directly own less than 0.1% of the economic interest in TWM LLC.
In addition, for the three and six months ended June 30, 2022, the Company’s basic and diluted earnings per share calculation is impacted by 76,426 and 80,778, respectively, of weighted average shares resulting from unvested restricted stock units and unsettled vested performance-based restricted stock units that were considered participating securities for purposes of calculating earnings per share in accordance with the two-class method, and for the three and six months ended June 30, 2022 the Company’s diluted earnings per share calculation also includes 2,771,640 and 3,088,966, respectively, of weighted average shares resulting from the dilutive effect of its equity incentive plans. See Note 13 – Earnings Per Share for additional details.
2. Significant Accounting Policies
The following is a summary of significant accounting policies:
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. As discussed in Note 1 – Organization, as a result of the Reorganization Transactions, Tradeweb Markets Inc. consolidates TWM LLC and its subsidiaries and TWM LLC is considered to be the predecessor to Tradeweb Markets Inc. for financial reporting purposes. Tradeweb Markets Inc. had no business transactions or activities and no substantial assets or liabilities prior to the Reorganization Transactions. The condensed consolidated financial statements represent the financial condition and results of operations of the Company and report a non-controlling interest related to the LLC Interests held by the Continuing LLC Owners.
These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The consolidated financial information as of December 31, 2021 has been derived from audited financial statements not included herein. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) with respect to interim financial reporting and Form 10-Q. In accordance with such rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. These unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the difference may be material to the condensed consolidated financial statements.
Business Combinations
Business combinations are accounted for under the purchase method of accounting pursuant to Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. The fair value of assets acquired and liabilities assumed is determined based on assumptions that reasonable market participants would use in the principal (or most advantageous) market for the asset or liability. Determining the fair value of certain assets acquired and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates, growth rates, customer attrition rates and asset lives.
Transaction costs incurred to effect a business combination are expensed as incurred and are included as a component of professional fees in the condensed consolidated statements of income. During the three and six months ended June 30, 2021, the Company incurred a total of $3.0 million and $4.7 million, respectively, in transaction costs related to the NFI Acquisition. No material transaction costs were incurred during the three and six months ended June 30, 2022.
Pushdown Accounting
In connection with the Refinitiv Transaction, a majority interest of Refinitiv was acquired by BCP on October 1, 2018 from TR. The Refinitiv Transaction was accounted for by Refinitiv in accordance with the acquisition method of accounting pursuant to ASC 805, and pushdown accounting was applied to Refinitiv to record the fair value of the assets and liabilities of Refinitiv as of October 1, 2018, the date of the Refinitiv Transaction. The Company, as a consolidating subsidiary of Refinitiv, also accounted for the Refinitiv Transaction using pushdown accounting which resulted in a new fair value basis of accounting for certain of the Company’s assets and liabilities beginning on October 1, 2018. Under the pushdown accounting applied, the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company as of October 1, 2018 was recorded as goodwill. The fair value of assets acquired and liabilities assumed was determined based on assumptions that reasonable market participants would use in the principal (or most advantageous) market for the asset or liability. The adjusted valuations primarily affected the values of the Company’s long-lived and indefinite-lived intangible assets, including software development costs.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and highly liquid investments (such as short-term money market instruments) with original maturities at the time of purchase of three months or less.
Allowance for Credit Losses
The Company continually monitors collections and payments from its clients and maintains an allowance for credit losses. The allowance for credit losses is based on an estimate of the amount of potential credit losses in existing accounts receivable, as determined from a review of aging schedules, past due balances, historical collection experience and other specific account data. Careful analysis of the financial condition of the Company’s counterparties is also performed.
Additions to the allowance for credit losses are charged to credit loss expense, which is included in general and administrative expenses in the condensed consolidated statements of income. Aged balances that are determined to be uncollectible, are written off against the allowance for credit losses. See Note 11 – Credit Risk for additional information.
Receivable from and Payable to Brokers and Dealers and Clearing Organizations
Receivable from and payable to brokers and dealers and clearing organizations consists of proceeds from transactions executed on the Company’s wholesale platform which failed to settle due to the inability of a transaction party to deliver or receive the transacted security. These securities transactions are generally collateralized by those securities. Until the failed transaction settles, a receivable from (and a matching payable to) brokers and dealers and clearing organizations is recognized for the proceeds from the unsettled transaction.
Deposits with Clearing Organizations
Deposits with clearing organizations are comprised of cash deposits.
Furniture, Equipment, Purchased Software and Leasehold Improvements
Furniture, equipment, purchased software and leasehold improvements are carried at cost less accumulated depreciation. Depreciation for furniture, equipment and purchased software is computed on a straight-line basis over the estimated useful lives of the related assets, ranging from three to seven years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the leasehold improvements or the remaining term of the lease for office space.
Furniture, equipment, purchased software and leasehold improvements are tested for impairment whenever events or changes in circumstances suggest that an asset’s carrying value may not be fully recoverable.
As of June 30, 2022 and December 31, 2021, accumulated depreciation related to furniture, equipment, purchased software and leasehold improvements totaled $63.9 million and $56.0 million, respectively. Depreciation expense for furniture, equipment, purchased software and leasehold improvements was $4.9 million and $5.7 million for the three months ended June 30, 2022 and 2021, respectively, and $9.6 million and $11.1 million for the six months ended June 30, 2022 and 2021, respectively.
Software Development Costs
The Company capitalizes costs associated with the development of internal use software at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed. The Company capitalizes employee compensation and related benefits and third party consulting costs incurred during the application development stage which directly contribute to such development. Such costs are amortized on a straight-line basis over three years. Software development costs acquired as part of the NFI Acquisition are amortized over one year. Costs capitalized as part of the Refinitiv Transaction pushdown accounting allocation are amortized over nine years. The Company reviews the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable, or that their useful lives are shorter than originally expected. Non-capitalized software costs and routine maintenance costs are expensed as incurred.
As of June 30, 2022 and December 31, 2021, accumulated amortization related to software development costs totaled $140.5 million and $114.5 million, respectively. Amortization expense for software development costs was $13.0 million and $11.3 million for the three months ended June 30, 2022 and 2021, respectively, and $26.0 million and $22.0 million for the six months ended June 30, 2022 and 2021, respectively.
Goodwill
Goodwill includes the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company as previously applied under pushdown accounting in connection with the Refinitiv Transaction. Goodwill also includes the cost of acquired companies in excess of the fair value of identifiable net assets at the acquisition date, including the NFI Acquisition. Goodwill is not amortized, but is tested for impairment annually on October 1st and between annual tests, whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company consists of one reporting unit for goodwill impairment testing purposes. An impairment loss is recognized if the estimated fair value of a reporting unit is less than its net book value. Such loss is calculated as the difference between the estimated fair value of goodwill and its carrying value.
Goodwill was last tested for impairment on October 1, 2021 and no impairment of goodwill was identified.
Intangible Assets
Intangible assets with a finite life are amortized over the estimated lives, ranging from seven to thirteen years. These intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. Intangible assets with an indefinite useful life are tested for impairment at least annually. An impairment loss is recognized if the sum of the estimated discounted cash flows relating to the asset or asset group is less than the corresponding book value.
As of June 30, 2022 and December 31, 2021, accumulated amortization related to intangible assets totaled $380.6 million and $327.0 million, respectively. Amortization expense for definite-lived intangible assets was $26.8 million and $24.9 million for the three months ended June 30, 2022 and 2021, respectively, and $53.6 million and $49.7 million for the six months ended June 30, 2022 and 2021, respectively.
Equity Investments Without Readily Determinable Fair Values
Equity Investments without a readily determinable fair value are measured at cost, less impairment, plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. If the Company determines that the equity investment is impaired on the basis of a qualitative assessment, the Company will recognize an impairment loss equal to the amount by which the investment’s carrying amount exceeds its fair value. Equity investments are included as a component of other assets on the condensed consolidated statements of financial condition.
Securities Sold Under Agreements to Repurchase
From time to time, the Company sells securities under agreements to repurchase in order to facilitate the clearance of securities. Securities sold under agreements to purchase are treated as collateralized financings and are presented in the condensed consolidated statements of financial condition at the amounts of cash received. Receivables and payables arising from these agreements are not offset in the condensed consolidated statements of financial condition.
Leases
At lease commencement, a right-of-use asset and a lease liability are recognized for all leases with an initial term in excess of twelve months based on the initial present value of the fixed lease payments over the lease term. The lease right-of-use asset also reflects the present value of any initial direct costs, prepaid lease payments and lease incentives. The Company’s leases do not provide a readily determinable implicit discount rate. Therefore, management estimates the Company’s incremental borrowing rate used to discount the lease payments based on the information available at lease commencement. The Company includes the term covered by an option to extend a lease when the option is reasonably certain to be exercised. The Company has elected not to separate non-lease components from lease components for all leases. Significant assumptions and judgments in calculating the lease right-of-use assets and lease liabilities include the determination of the applicable borrowing rate for each lease. Operating lease expense is recognized on a straight-line basis over the lease term and included as a component of occupancy expense in the consolidated statements of income.
Deferred IPO and Follow-On Offering Costs
Deferred IPO and follow-on offering costs consist of legal, accounting, and other costs directly related to the Company’s efforts to raise capital. These costs are recognized as a reduction in additional paid-in capital within the condensed consolidated statements of financial condition when the offering is effective. As of both June 30, 2022 and December 31, 2021, $15.9 million of deferred costs related to the IPO and $5.2 million of deferred costs related to follow-on offerings were included as a component of the additional paid-in capital balance in the condensed consolidated statements of financial condition. No offering costs were incurred during each of the three and six months ended June 30, 2022 and 2021.
Revenue Recognition
The Company’s classification of revenues in the condensed consolidated statements of income represents revenues from contracts with customers disaggregated by type of revenue. See Note 4 – Revenue for additional details regarding revenue types and the Company’s policies regarding revenue recognition.
Translation of Foreign Currency and Foreign Currency Forward Contracts
Revenues, expenses, assets and liabilities denominated in non-functional currencies are recorded in the appropriate functional currency for the legal entity at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities that are denominated in non-functional currencies are then remeasured at the end of each reporting period at the exchange rate prevailing at the end of the reporting period. Foreign currency remeasurement gains or losses on monetary assets and liabilities in nonfunctional currencies are recognized in the condensed consolidated statements of income within general and administrative expenses. The realized and unrealized losses totaled $1.4 million and $0.1 million during the three months ended June 30, 2022 and 2021, respectively, and realized and unrealized losses totaled $1.7 million and $1.9 million during the six months ended June 30, 2022 and 2021, respectively. Since the condensed consolidated financial statements are presented in U.S. dollars, the Company also translates all non-U.S. dollar functional currency revenues, expenses, assets and liabilities into U.S. dollars. All non-U.S. dollar functional currency revenue and expense amounts are translated into U.S. dollars monthly at the average exchange rate for the month. All non-U.S. dollar functional currency assets and liabilities are translated at the rate prevailing at the end of the reporting period. Gains or losses on translation in the financial statements, when the functional currency is other than the U.S. dollar, are included as a component of other comprehensive income.
The Company enters into foreign currency forward contracts to mitigate its U.S. dollar and British pound sterling versus euro exposure, generally with a duration of less than twelve months. The Company’s foreign currency forward contracts are not designated as hedges for accounting purposes and changes in the fair value of these contracts during the period are recognized in the condensed consolidated statements of income within general and administrative expenses. The Company does not use derivative instruments for trading or speculative purposes. Realized and unrealized gains/losses on foreign currency forward contracts totaled a $5.5 million gain and a $0.7 million loss during the three months ended June 30, 2022 and 2021, respectively, and realized and unrealized gains on foreign currency forward contracts totaled $6.2 million and $5.0 million during the six months ended June 30, 2022 and 2021, respectively. See Note 10 – Fair Value of Financial Instruments for additional details on the Company’s derivative instruments.
Income Tax
The Corporation is subject to U.S. federal, state and local income taxes with respect to its taxable income, including its allocable share of any taxable income of TWM LLC, and is taxed at prevailing corporate tax rates. TWM LLC is a multiple member limited liability company taxed as a partnership and accordingly any taxable income generated by TWM LLC is passed through to and included in the taxable income of its members, including the Corporation. Income taxes also include unincorporated business taxes on income earned or losses incurred for conducting business in certain state and local jurisdictions, income taxes on income earned or losses incurred in foreign jurisdictions on certain operations and federal and state income taxes on income earned or losses incurred, both current and deferred, on subsidiaries that are taxed as corporations for U.S. tax purposes.
The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company measures deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse. The Company evaluates the need for valuation allowances based on the weight of positive and negative evidence. The Company records valuation allowances wherever management believes it is more likely than not that the Company will not be able to realize its deferred tax assets in the foreseeable future.
The Company records uncertain tax positions on the basis of a two-step process whereby (i) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to income taxes within the provision for income taxes in the condensed consolidated statements of income. Accrued interest and penalties are included within accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition.
The Company has elected to treat taxes due on future U.S. inclusions in taxable income under the global intangible low-taxed income (“GILTI”) provision of the Tax Cuts and Jobs Act as a current period expense when incurred.
Stock-Based Compensation
The stock-based payments received by the employees of the Company are accounted for as equity awards. The Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments based on their estimated fair values measured as of the grant date. These costs are recognized as an expense over the requisite service period, with an offsetting increase to additional paid-in capital. The grant-date fair value of stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures of stock-based compensation awards are recognized as they occur.
For grants made during the post-IPO period, the fair value of the equity instruments is determined based on the price of the Class A common stock on the grant date.
Prior to the IPO, the Company awarded options to management and other employees (collectively, the “Special Option Award”) under the Amended and Restated Tradeweb Markets Inc. Option Plan (the “Option Plan”). The significant assumptions used to estimate the fair value as of grant date of the options awarded prior to the IPO did not reflect changes that would have occurred to these assumptions as a result of the IPO. The non-cash stock-based compensation expense associated with the Special Option Award began being expensed in the second quarter of 2019.
The Company uses the Black-Scholes pricing model to value some of its option awards. Determining the appropriate fair value model and calculating the fair value of the option awards requires the input of highly subjective assumptions, including the expected life of the option awards and the stock price volatility.
Earnings Per Share
Basic and diluted earnings per share are computed in accordance with the two-class method as unvested restricted stock units and unsettled vested performance-based restricted stock units issued to certain retired executives are entitled to non-forfeitable dividend equivalent rights and are considered participating securities prior to being issued and outstanding shares of common stock. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common shareholders. Basic earnings per share, is computed by dividing the net income attributable to the Company’s outstanding shares of Class A and Class B common stock by the weighted-average number of the Company’s shares outstanding during the period. For purposes of computing diluted earnings per share, the weighted-average number of the Company’s shares reflects the dilutive effect that could occur if all potentially dilutive securities were converted into or exchanged or exercised for the Company’s Class A or Class B common stock.
The dilutive effect of stock options and other stock-based payment awards is calculated using the treasury stock method, which assumes the proceeds from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of LLC Interests is evaluated under the if-converted method, where the securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted earnings per share calculation for the entire period presented. Performance-based awards are considered contingently issuable shares and their dilutive effect is included in the denominator of the diluted earnings per share calculation for the entire period, if those shares would be issuable as of the end of the reporting period, assuming the end of the reporting period was also the end of the contingency period.
Shares of Class C and Class D common stock do not have economic rights in Tradeweb Markets Inc. and, therefore, are not included in the calculation of basic earnings per share.
Fair Value Measurement
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Instruments that the Company owns (long positions) are marked to bid prices, and instruments that the Company has sold, but not yet purchased (short positions) are marked to offer prices. Fair value measurements do not include transaction costs.
The fair value hierarchy under ASC 820, Fair Value Measurement (“ASC 820”), prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below.
Basis of Fair Value Measurement
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2: Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly;
•Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
Recent Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. ASU 2022-03 also requires the disclosure of the fair value, as reflected in the statement of financial condition, of equity securities subject to contractual sale restrictions and the nature and the disclosure of the remaining duration of those restrictions. ASU 2022-03 is effective for the Company beginning on January 1, 2024 and early adoption is permitted for both interim and annual financial statements that have not yet been issued. The ASU is to be applied prospectively, with any adjustments from the adoption recognized in earnings on the date of adoption. As of June 30, 2022, the Company has not yet adopted ASU 2022-03 and does not expect that the adoption of this ASU will have a material impact on the Company’s consolidated financial statements.
3. Restricted Cash
Cash has been segregated in a special reserve bank account for the benefit of brokers and dealers under SEC Rule 15c3-3. The Company computes the proprietary accounts of broker-dealers (“PAB”) reserve, which requires the Company to maintain minimum segregated cash in the amount of excess total credits per the reserve computation. As of both June 30, 2022 and December 31, 2021, cash in the amount of $1.0 million has been segregated in the PAB reserve account, exceeding the requirements pursuant to SEC Rule 15c3-3.
4. Revenue
Revenue Recognition
The Company enters into contracts with its clients to provide a stand-ready connection to its electronic marketplaces, which facilitates the execution of trades by its clients. The access to the Company’s electronic marketplaces includes market data, continuous pricing data refreshes and the processing of trades thereon. The stand-ready connection to the electronic marketplaces is considered a single performance obligation satisfied over time as the client simultaneously receives and consumes the benefit from the Company’s performance as access is provided (that is, the performance obligation constitutes a series of services that are substantially the same in nature and are provided over time using the same measure of progress). For its services, the Company earns subscription fees for granting access to its electronic marketplaces. Subscription fees, which are generally fixed fees, are recognized as revenue on a monthly basis, in the period that access is provided. The frequency of subscription fee billings varies from monthly to annually, depending on contract terms. Fees received by the Company which are not yet earned are included in deferred revenue on the condensed consolidated statements of financial condition until the revenue recognition criteria have been met. The Company also earns transaction fees and/or commissions from transactions executed on the Company’s electronic marketplaces. The Company earns commission revenue from its electronic and voice brokerage services on a riskless principal basis. Riskless principal revenues are derived on matched principal transactions where revenues are earned on the spread between the buy and sell price of the transacted product. Transaction fees and commissions are generated both on a variable and fixed price basis and vary by geographic region, product type and trade size. Fixed monthly transaction fees or commissions, or monthly transaction fees or commission minimums, are earned on a monthly basis in the period the stand-ready trading services are provided and are generally billed monthly. For variable transaction fees or commissions, the Company charges its clients amounts calculated based on the mix of products traded and the volume of transactions executed. Variable transaction fee or commission revenue is recognized and recorded on a trade-date basis when the individual trade occurs and is generally billed when the trade settles or is billed monthly. Variable discounts or rebates on transaction fees or commissions are earned and applied monthly or quarterly, resolved within the same reporting period and are recorded as a reduction to revenue in the period the relevant trades occur.
The Company earns fees from Refinitiv relating to the sale of market data to Refinitiv, which redistributes that data. Included in these fees, which are billed quarterly, are real-time market data fees which are recognized monthly on a straight-line basis, as Refinitiv receives and consumes the benefit evenly over the contract period, as the data is provided. Also included in these fees are fees for historical data sets which are recognized when the historical data set is provided to Refinitiv. Significant judgments used in accounting for this contract include the following determinations:
•The provision of real-time market data feeds and annual historical data sets are distinct performance obligations.
•The performance obligations under this contract are recognized over time from the initial delivery of the data feeds or each historical data set until the end of the contract term.
•Determining the transaction price for the performance obligations by using a market assessment analysis. Inputs in this analysis include a consultant study which determined the overall value of the Company’s market data and pricing information for historical data sets provided by other companies.
Some revenues earned by the Company have fixed fee components, such as monthly minimums or fixed monthly fees, and variable components, such as transaction-based fees. The breakdown of revenues between fixed and variable revenues for the three and six months ended June 30, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended |
| | June 30, 2022 | | June 30, 2021 |
| | (in thousands) | | (in thousands) |
| | Variable | | Fixed | | Variable | | Fixed |
| Revenues | | | | | | | | |
| Transaction fees and commissions | | $ | 201,199 | | | $ | 36,470 | | | $ | 166,655 | | | $ | 38,726 | |
| Subscription fees | | 485 | | | 41,055 | | | 460 | | | 37,423 | |
| Refinitiv market data fees | | — | | | 15,426 | | | — | | | 14,926 | |
| Other | | 214 | | | 2,289 | | | 217 | | | 2,433 | |
| Total revenue | | $ | 201,898 | | | $ | 95,240 | | | $ | 167,332 | | | $ | 93,508 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 |
| | (in thousands) | | (in thousands) |
| | Variable | | Fixed | | Variable | | Fixed |
| Revenues | | | | | | | | |
| Transaction fees and commissions | | $ | 414,935 | | | $ | 74,539 | | | $ | 346,322 | | | $ | 76,875 | |
| Subscription fees | | 960 | | | 82,035 | | | 922 | | | 74,829 | |
| Refinitiv market data fees | | — | | | 30,984 | | | — | | | 30,043 | |
| Other | | 465 | | | 4,706 | | | 430 | | | 4,818 | |
| Total revenue | | $ | 416,360 | | | $ | 192,264 | | | $ | 347,674 | | | $ | 186,565 | |
Deferred Revenue
The Company records deferred revenue when cash payments are received or due in advance of services to be performed. The revenue recognized and the remaining deferred revenue balances are shown below:
| | | | | | | | |
| | Amount |
| | |
| | (in thousands) |
| Deferred revenue balance - December 31, 2021 | | $ | 24,930 | |
| New billings | | 57,195 | |
| Revenue recognized | | (58,153) | |
| Effect of foreign currency exchange rate changes | | (110) | |
| Deferred revenue balance - June 30, 2022 | | $ | 23,862 | |
During the six months ended June 30, 2022, the Company recognized $20.2 million in total revenue that was deferred as of December 31, 2021. During the six months ended June 30, 2021, the Company recognized $20.0 million in total revenue that was deferred as of December 31, 2020.
5. Income Taxes
The Corporation is subject to U.S. federal, state and local income taxes with respect to its taxable income, including its allocable share of any taxable income of TWM LLC, and is taxed at prevailing corporate tax rates. The Company’s actual effective tax rate will be impacted by the Corporation’s ownership share of TWM LLC, which is expected to continue to increase over time as the Continuing LLC Owners redeem or exchange their LLC Interests for shares of Class A common stock or Class B common stock, as applicable, or the Corporation purchases LLC Interests from the Continuing LLC Owners. The Company’s consolidated effective tax rate will also vary from period to period depending on changes in the mix of earnings, tax legislation and tax rates in various jurisdictions. The Company’s provision for income taxes includes U.S. federal, state, local and foreign taxes.
The Company’s effective tax rate for the three months ended June 30, 2022 and 2021 was approximately 23.8% and 20.6%, respectively. The effective tax rate for the three months ended June 30, 2022 differed from the U.S. federal statutory rate of 21.0% primarily due to the effect of state, local and foreign taxes, partially offset by non-controlling interests. The effective tax rate for the three months ended June 30, 2021 differed from the U.S. federal statutory rate of 21.0% primarily due to the effect of non-controlling interests and the tax impact of the issuance of common stock from equity incentive plans, partially offset by state, local and foreign taxes.
The Company’s effective tax rate for the six months ended June 30, 2022 and 2021 was approximately 18.0% and 18.5%, respectively. The effective tax rate for the six months ended June 30, 2022 differed from the U.S. federal statutory rate of 21.0% primarily due to the tax impact of the issuance of common stock from equity incentive plans, return-to-provision adjustments and the effect of non-controlling interests, partially offset by state, local and foreign taxes. The effective tax rate for the six months ended June 30, 2021 differed from the U.S. federal statutory rate of 21.0% primarily due to the effect of non-controlling interests and the tax impact of the issuance of common stock from equity incentive plans, partially offset by state, local and foreign taxes.
The Company expects to obtain an increase in its share of the tax basis of the assets of TWM LLC when LLC Interests are redeemed or exchanged by the Continuing LLC Owners and in connection with certain other qualifying transactions. This increase in tax basis may have the effect of reducing the amounts that the Corporation would otherwise pay in the future to various tax authorities. Pursuant to the Tax Receivable Agreement, the Corporation is required to make cash payments to the Continuing LLC Owners equal to 50% of the amount of U.S. federal, state and local income or franchise tax savings, if any, that the Corporation actually realizes (or in some circumstances are deemed to realize) as a result of certain future tax benefits to which the Corporation may become entitled. The Corporation expects to benefit from the remaining 50% of tax benefits, if any, that the Corporation may actually realize. See Note 6 – Tax Receivable Agreement for further details. The tax benefit has been recognized in deferred tax assets on the condensed consolidated statement of financial condition.
In connection with the completion of the Reorganization Transactions, the Corporation received 96,933,192 LLC Interests and Refinitiv received 96,933,192 shares of Class B common stock (“Refinitiv Contribution”). As a result of the Refinitiv Contribution, the Company assumed the tax liabilities of the contributed entity. The contributed entity is under audit by the State of New Jersey for the tax years 2012 through 2015 and is appealing a tax assessment from an audit by the State of New Jersey for the tax years 2008 through 2011. As of both June 30, 2022 and December 31, 2021, the tax liability related to the Refinitiv Contribution was $2.7 million and is included within accounts payable, accrued expenses and other liabilities on the condensed consolidated statement of financial condition. The Company is indemnified by Refinitiv for these tax liabilities that were assumed by the Company as a result of the Refinitiv Contribution. As of both June 30, 2022 and December 31, 2021, $2.7 million is included in other assets on the condensed consolidated statements of financial condition related to this related party indemnification.
6. Tax Receivable Agreement
In connection with the Reorganization Transactions, the Corporation entered into a tax receivable agreement (the “Tax Receivable Agreement”) with TWM LLC and the Continuing LLC Owners, which provides for the payment by the Corporation to a Continuing LLC Owner of 50% of the amount of U.S. federal, state and local income or franchise tax savings, if any, that the Corporation actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of TWM LLC’s assets resulting from (a) the purchase of LLC Interests from such Continuing LLC Owner, including with the net proceeds from the IPO and any subsequent offerings or (b) redemptions or exchanges by such Continuing LLC Owner of LLC Interests for shares of Class A common stock or Class B common stock or for cash, as applicable, and (ii) certain other tax benefits related to the Corporation making payments under the Tax Receivable Agreement. Payments under the Tax Receivable Agreement are made within 150 days after the filing of the tax return based on the actual tax savings realized by the Corporation. The first payment of the Tax Receivable Agreement was made in January 2021. Substantially all payments due under the Tax Receivable Agreement are payable over the fifteen years following the purchase of LLC Interests from Continuing LLC Owners or redemption or exchanges by Continuing LLC Owners of LLC Interests.
The Corporation accounts for the income tax effects resulting from taxable redemptions or exchanges of LLC Interests by the Continuing LLC Owners for shares of Class A common stock or Class B common stock or cash, as the case may be, and purchases by the Corporation of LLC Interests from the Continuing LLC Owners by recognizing an increase in deferred tax assets, based on enacted tax rates at the date of each redemption, exchange, or purchase, as the case may be. Further, the Corporation evaluates the likelihood that it will realize the benefit represented by the deferred tax asset, and, to the extent that the Corporation estimates that it is more likely than not that it will not realize the benefit, it reduces the carrying amount of the deferred tax asset with a valuation allowance.
The impact of any changes in the total projected obligations recorded under the Tax Receivable Agreement as a result of actual changes in the mix of the Company’s earnings, tax legislation and tax rates in various jurisdictions, or other factors that may impact the Corporation’s actual tax savings realized, are reflected in income before taxes on the condensed consolidated statement of income in the period in which the change occurs. As of June 30, 2022 and December 31, 2021, the tax receivable agreement liability on the condensed consolidated statements of financial condition totaled $409.2 million and $412.4 million, respectively. During each of the three and six months ended June 30, 2022 and 2021, no tax receivable agreement liability adjustment was recognized in the condensed consolidated statements of income.
7. Non-Controlling Interests
In connection with the Reorganization Transactions, Tradeweb Markets Inc. became the sole manager of TWM LLC and, as a result of this control, and because Tradeweb Markets Inc. has a substantial financial interest in TWM LLC, consolidates the financial results of TWM LLC into its condensed consolidated financial statements. The non-controlling interests balance reported on the condensed consolidated statements of financial condition represents the economic interests of TWM LLC held by the holders of LLC Interests other than Tradeweb Markets Inc. Income or loss is attributed to the non-controlling interests based on the relative ownership percentages of LLC Interests held during the period by Tradeweb Markets Inc. and the other holders of LLC Interests.
The following table summarizes the ownership interest in Tradeweb Markets LLC:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | June 30, 2021 |
| | LLC
Interests | | Ownership
% | | LLC
Interests | | Ownership
% |
| Number of LLC Interests held by Tradeweb Markets Inc. | | 204,548,887 | | | 87.2 | % | | 202,086,400 | | | 86.9 | % |
| Number of LLC Interests held by non-controlling interests | | 29,971,658 | | | 12.8 | % | | 30,531,933 | | | 13.1 | % |
| Total LLC Interests outstanding | | 234,520,545 | | | 100.0 | % | | 232,618,333 | | | 100.0 | % |
LLC Interests held by the Continuing LLC Owners are redeemable in accordance with the TWM LLC Agreement at the election of the members for shares of Class A common stock or Class B common stock, on a one-for-one basis or, at the Company’s option, a cash payment in accordance with the terms of the TWM LLC Agreement.
The following table summarizes the impact on Tradeweb Market Inc.’s equity due to changes in the Corporation’s ownership interest in TWM LLC:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income Attributable to Tradeweb Markets Inc. and Transfers (to) from the Non-Controlling Interests | | Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
| Net income attributable to Tradeweb Markets Inc. | | $ | 68,344 | | | $ | 55,316 | | | $ | 151,309 | | | $ | 123,175 | |
| Transfers (to) from non-controlling interests: | | | | | | | | |
| Increase/(decrease) in Tradeweb Markets Inc.’s additional paid-in capital as a result of ownership changes in TWM LLC | | (1,300) | | | 4,797 | | | 28,705 | | | 85,462 | |
| Net transfers (to) from non-controlling interests | | (1,300) | | | 4,797 | | | 28,705 | | | 85,462 | |
| Change from net income attributable to Tradeweb Markets Inc. and transfers (to) from non-controlling interests | | $ | 67,044 | | | $ | 60,113 | | | $ | 180,014 | | | $ | 208,637 | |
8. Stockholders’ Equity and Stock-Based Compensation Plans
The rights and privileges of the Company’s stockholders’ equity and LLC Interests are described in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and there have been no changes to those rights and privileges during the six months ended June 30, 2022.
Stock-Based Compensation Plans
Under the Tradeweb Markets Inc. 2019 Omnibus Equity Incentive Plan, the Company is authorized to issue up to 8,841,864 new shares of Class A common stock to employees, officers and non-employee directors. Under this plan, the Company may grant awards in respect of shares of Class A common stock, including performance-based restricted stock units (“PRSUs”), stock options, restricted stock units (“RSUs”) and dividend equivalent rights. The awards may have performance-based and/or time-based vesting conditions. RSUs and PRSUs each represent promises to issue actual shares of Class A common stock at the end of a vesting period. Stock options have a maximum contractual term of 10 years.
On February 16, 2022, the Company announced that Mr. Olesky will retire as Chief Executive Officer (“CEO”) of the Company, effective December 31, 2022. On February 11, 2022, the board of directors elected the Company’s President, Mr. Billy Hult, to succeed Mr. Olesky as CEO of the Company, effective January 1, 2023. Mr. Olesky will stay on with the Company in the position of Chairman of the board of directors, and accordingly will continue to serve in his capacity as a director of the Company.
As of the beginning of Mr. Olesky’s six month notice period under the Company’s 2019 Omnibus Equity Incentive Plan, there was approximately $6.7 million in total unamortized stock-based compensation associated with equity awards previously granted to Mr. Olesky plus $5.0 million in unamortized stock-based compensation awards granted to Mr. Olesky during 2022 that will both be accelerated and amortized into expense over a revised estimated service period ending on August 11, 2022, the date that ends such six month notice period. Of these amounts, $3.1 million represents regular amortization that would have been recognized through August 11, 2022 if Mr. Olesky had not announced his retirement and $8.6 million represents accelerated stock-based compensation (the “CEO Retirement Accelerated Stock-Based Compensation Expense”). Total amortization amounts disclosed are based on a 100% multiplier achieved for the 2022 PRSUs and are subject to adjustment, up or down, in an amount up to $2.1 million, based on the final performance multiplier achieved for the year ending December 31, 2022. During the three and six months ended June 30, 2022, the Company incurred a total of $5.7 million and $7.4 million, respectively, in CEO Retirement Accelerated Stock-Based Compensation Expense.
During the three months ended June 30, 2022, the Company granted 1,125 RSUs at a weighted-average grant-date fair value of $88.84. No PRSUs were granted during the three months ended June 30, 2022. During the six months ended June 30, 2022, the Company granted 396,554 RSUs and 249,292 PRSUs at a weighted-average grant-date fair value of $83.81 and $83.74, respectively. RSU awards granted to employees will generally vest one-third each year over a three-year period, and RSU awards granted to non-employee directors will vest after one year. PRSUs generally cliff vest on January 1 of the third calendar year from the calendar year of the date of grant and the number of shares a participant will receive upon vesting is determined by a performance modifier, which is adjusted as a result of the financial performance of the Company in the grant year. The performance modifier can vary between 0% (minimum) and 200% (maximum) of the target (100%) award amount.
A summary of the Company’s total stock-based compensation expense, including expense associated with the CEO Retirement Accelerated Stock-Based Compensation Expense, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
| Total stock-based compensation expense | | $ | 20,963 | | | $ | 12,407 | | | $ | 34,675 | | | $ | 23,167 | |
Share Repurchase Program
On February 4, 2021, the Company announced that the board of directors authorized a new share repurchase program (the “Share Repurchase Program”), primarily to offset annual dilution from stock-based compensation plans. The Share Repurchase Program authorizes the purchase of up to $150.0 million of the Company’s Class A common stock at the Company’s discretion through the end of fiscal year 2023. The Share Repurchase Program will be effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1). The amounts and timing of the repurchases will be subject to general market conditions and the prevailing price and trading volumes of the Company’s Class A common stock. The Share Repurchase Program does not require the Company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. For shares repurchased pursuant to the Share Repurchase Program, the excess of the repurchase price paid over the par value of the Class A common stock will be recorded as a reduction to retained earnings.
The Company began purchasing shares pursuant to the Share Repurchase Program during the second quarter of 2021. During the three months ended June 30, 2022 and 2021, the Company acquired a total of 103,458 and 617,644 shares of Class A common stock, at an average price of $86.99 and $83.67, for purchases totaling $9.0 million and $51.7 million, respectively. During the six months ended June 30, 2022 and 2021, the Company acquired a total of 662,886 and 617,644 shares of Class A common stock, at an average price of $84.97 and $83.67, for purchases totaling $56.3 million and $51.7 million, respectively. Each share of Class A common stock repurchased pursuant to the Share Repurchase Program was funded with the proceeds, on a dollar-for-dollar basis, from the repurchase by Tradeweb Markets LLC of an LLC Interest from the Company in order to maintain the one-to-one ratio between outstanding shares of the Company’s common stock and LLC Interests owned by the Company. Subsequent to their repurchase, the shares of Class A common stock and the LLC Interests were all cancelled and retired. As of June 30, 2022, a total of $18.0 million remained available for repurchase pursuant to the Share Repurchase Program.
Other Share Repurchases
During the three months ended June 30, 2022 and 2021, the Company withheld 29,530 and 98,003 shares, respectively, of common stock from employee stock option, PRSU and RSU awards, at an average price per share of $75.14 and $81.32, respectively, and an aggregate value of $2.2 million and $8.0 million, respectively, based on the price of the Class A common stock on the date the relevant withholding occurred. During the six months ended June 30, 2022 and 2021, the Company withheld 1,015,489 and 794,850 shares, respectively, of common stock from employee stock option, PRSU and RSU awards, at an average price per share of $96.49 and $67.23, respectively, and an aggregate value of $98.0 million and $53.4 million, respectively, based on the price of the Class A common stock on the date the relevant withholding occurred.
These shares are withheld in order for the Company to cover the payroll tax withholding obligations upon the exercise of stock options and settlement of RSUs and PRSUs and such shares were not withheld in connection with the Share Repurchase Program discussed above.
9. Related Party Transactions
The Company enters into transactions with its affiliates from time to time which are considered to be related party transactions.
As of June 30, 2022 and December 31, 2021, the following balances with such affiliates were included in the condensed consolidated statements of financial condition in the following line items:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
| Accounts receivable | | $ | — | | | $ | 277 | |
| Receivable from affiliates | | 5,814 | | | 3,313 | |
| Other assets | | 3,232 | | | 3,530 | |
Accounts payable, accrued expenses and other liabilities | | 7,545 | | | 7,767 | |
| Deferred revenue | | 4,820 | | | 4,767 | |
| Payable to affiliates | | 3,358 | | | 4,860 | |
The following balances with such affiliates were included in the condensed consolidated statements of income in the following line items:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
| Revenue: | | | | | | | | |
| Subscription fees | | $ | 317 | | | $ | 206 | | | $ | 517 | | | $ | 775 | |
Refinitiv market data fees (1) | | 15,426 | | | 14,926 | | | 30,984 | | | 30,043 | |
| Other fees | | 126 | | | 122 | | | 243 | | | 283 | |
Expenses: (2) | | | | | | | | |
| | | | | | | | |
| Employee compensation and benefits | | — | | | — | | | 613 | | | — | |
| Technology and communications | | 1,199 | | | 740 | | | 2,315 | | | 1,480 | |
| General and administrative | | 54 | | | 2 | | | 197 | | | 4 | |
| Professional fees | | 33 | | | — | | | 45 | | | — | |
| | | | | | | | |
(1)The Company maintains a market data license agreement with Refinitiv. Under the agreement, the Company delivers to Refinitiv certain market data feeds which Refinitiv redistributes to its customers. The Company earns license fees and royalties for these feeds.
(2)The Company maintains agreements with Refinitiv to provide the Company with certain real estate, payroll, benefits administration and other administrative services.
The Company engaged Blackstone Advisory Partners L.P., an affiliate of Blackstone, to provide certain financial consulting services in connection with the IPO, the October 2019 follow-on offering and the April 2020 follow-on offering for fees of $1.0 million, $0.5 million, and $0.5 million, respectively, which fees, with respect to the October 2019 follow-on offering and the April 2020 follow-on offering, were reimbursed by the underwriters. As of both June 30, 2022 and December 31, 2021, $2.0 million related to these offering costs, is included as a component of the additional paid-in capital balance on the condensed consolidated statements of financial condition.
10. Fair Value of Financial Instruments
Financial Instruments Measured at Fair Value
The Company’s financial instruments measured at fair value on the condensed consolidated statements of financial condition as of June 30, 2022 and December 31, 2021 have been categorized based upon the fair value hierarchy as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quoted Prices in active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| | | | | | | | |
| | (in thousands) |
| As of June 30, 2022 | | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents – Money market funds | | $ | 725,142 | | | $ | — | | | $ | — | | | $ | 725,142 | |
Receivable from affiliates – Foreign currency forward contracts | | — | | | 5,561 | | | — | | | 5,561 | |
| Total assets measured at fair value | | $ | 725,142 | | | $ | 5,561 | | | $ | — | | | $ | 730,703 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| As of December 31, 2021 | | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents – Money market funds | | $ | 654,553 | | | $ | — | | | $ | — | | | $ | 654,553 | |
Receivable from affiliates – Foreign currency forward contracts | | — | | | 3,019 | | | — | | | 3,019 | |
| Total assets measured at fair value | | $ | 654,553 | | | $ | 3,019 | | | $ | — | | | $ | 657,572 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company’s money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. There were no financial instruments measured at fair value in a liability position as of June 30, 2022 and December 31, 2021.
The valuation for the Company’s foreign currency forward contracts is primarily based on the difference between the exchange rate associated with the forward contract and the exchange rate at the current period end. Foreign currency forward contracts are categorized as Level 2 in the fair value hierarchy. The Company enters into foreign currency forward contracts to mitigate its U.S. dollar and British pound sterling versus euro exposure, generally with a duration of less than twelve months. As of June 30, 2022 and December 31, 2021, the counterparty on each of the foreign currency forward contracts was an affiliate of Refinitiv and therefore the corresponding receivables on such contracts were included in receivable from affiliates on the accompanying condensed consolidated statements of financial condition.
The following table summarizes the aggregate U.S. dollar equivalent notional amount of the Company’s foreign currency forward contracts not designated as hedges for accounting purposes:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
| Foreign currency forward contracts – Gross notional amount | | $ | 161,918 | | | $ | 146,202 | |
The Company’s foreign currency forward contracts are not designated as hedges for accounting purposes and changes in the fair value of these contracts during the period are recognized in the condensed consolidated statements of income within general and administrative expenses.
The total realized and unrealized gains (losses) on foreign currency forward contracts recorded within general and administrative expenses in the condensed consolidated statements of income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
|
| (in thousands) |
| Foreign currency forward contracts not designated in accounting hedge relationship | | $ | 5,488 | | | $ | (737) | | | $ | 6,170 | | | $ | 4,961 | |
Financial Instruments Not Measured at Fair Value
The Company’s financial instruments not measured at fair value on the condensed consolidated statements of financial condition as of June 30, 2022 and December 31, 2021 have been categorized based upon the fair value hierarchy as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Quoted Prices in
active Markets
for Identical
Assets
(Level 1) | | Significant Observable Inputs (Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total Fair Value |
| | | | | | | | | | |
| As of June 30, 2022 | | (in thousands) |
| Assets | | | | | | | | | | |
| Cash and restricted cash | | $ | 235,577 | | | $ | 235,577 | | | $ | — | | | $ | — | | | $ | 235,577 | |
| Receivable from brokers and dealers and clearing organizations | | 1,646 | | | — | | | 1,646 | | | — | | | 1,646 | |
| Deposits with clearing organizations | | 25,990 | | | 25,990 | | | — | | | — | | | 25,990 | |
| Accounts receivable | | 155,426 | | | — | | | 155,426 | | | — | | | 155,426 | |
Other assets – Memberships in clearing organizations | | 2,410 | | | — | | | — | | | 2,410 | | | 2,410 | |
| Total | | $ | 421,049 | | | $ | 261,567 | | | $ | 157,072 | | | $ | 2,410 | | | $ | 421,049 | |
| | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| | | | | | | | | | |
| Payable to brokers and dealers and clearing organizations | | $ | 1,644 | | | $ | — | | | $ | 1,644 | | | $ | — | | | $ | 1,644 | |
| Total | | $ | 1,644 | | | $ | — | | | $ | 1,644 | | | $ | — | | | $ | 1,644 | |
| | | | | | | | | | |
| As of December 31, 2021 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and restricted cash | | $ | 318,495 | | | $ | 318,495 | | | $ | — | | | $ | — | | | $ | 318,495 | |
| Receivable from brokers and dealers and clearing organizations | | — | | | — | | | — | | | — | | | — | |
| Deposits with clearing organizations | | 20,523 | | | 20,523 | | | — | | | — | | | 20,523 | |
| Accounts receivable | | 129,937 | | | — | | | 129,937 | | | — | | | 129,937 | |
Other assets – Memberships in clearing organizations | | 2,392 | | | — | | | — | | | 2,392 | | | 2,392 | |
| Total | | $ | 471,347 | | | $ | 339,018 | | | $ | 129,937 | | | $ | 2,392 | | | $ | 471,347 | |
| | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| | | | | | | | | | |
| Payable to brokers and dealers and clearing organizations | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The carrying value of financial instruments not measured at fair value classified within level 1 or level 2 of the fair value hierarchy approximates fair value because of the relatively short term nature of the underlying assets or liabilities. The memberships in clearing organizations, which are included in other assets on the condensed consolidated statements of financial condition, are classified within level 3 of the fair value hierarchy because the valuation requires assumptions that are both significant and unobservable.
Financial Instruments Without Readily Determinable Fair Values
Included in other assets on the condensed consolidated statements of financial condition are equity investments without readily determinable fair values of $21.0 million and $21.1 million as of June 30, 2022 and December 31, 2021, respectively. There were no impairments or adjustments to the carrying value of equity investments without readily determinable fair values during each of the three and six months ended June 30, 2022 and 2021 and no adjustments to the original cost basis recorded to the consolidated statements of operations have been made to the carrying value over the life of the instruments.
11. Credit Risk
In the normal course of business the Company, as agent, executes transactions with, and on behalf of, other brokers and dealers. If the agency transactions do not settle because of failure to perform by either counterparty, the Company will recognize a receivable from (and a matching payable to) brokers and dealers and clearing organizations for the proceeds from the unsettled transaction, until the failed transaction settles. The Company may be obligated to discharge the obligation of the non-performing party and, as a result, may incur a loss if the market value of the security is different from the contract amount of the transaction. However, from time to time, the Company enters into repurchase and/or reverse repurchase agreements to facilitate the clearance of securities relating to fails to deliver or receive. We seek to manage credit exposure related to these agreements to repurchase (or reverse repurchase), including the risk related to a decline in market value of collateral (pledged or received), by entering into agreements to repurchase with overnight or short-term maturity dates and only entering into repurchase transactions with netting members of the Fixed Income Clearing Corporation (“FICC”). The FICC operates a continuous net settlement system, whereby as trades are submitted and compared, the FICC becomes the counterparty.
A substantial number of the Company’s transactions are collateralized and executed with, and on behalf of, a limited number of broker-dealers. The Company’s exposure to credit risk associated with the nonperformance of these clients in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair the clients’ ability to satisfy their obligations to the Company.
The Company does not expect nonperformance by counterparties in the above situations. However, the Company’s policy is to monitor its market exposure and counterparty risk. In addition, the Company has a policy of reviewing, as considered necessary, the credit standing of each counterparty with which it conducts business.
Allowance for Credit Losses
The Company may be exposed to credit risk regarding its receivables, which are primarily receivables from financial institutions, including investment managers and broker-dealers. The Company maintains an allowance for credit losses based upon an estimate of the amount of potential credit losses in existing accounts receivable, as determined from a review of aging schedules, past due balances, historical collection experience and other specific account data. Careful analysis of the financial condition of the Company’s counterparties is also performed.
Account balances are pooled based on the following risk characteristics:
1.Geographic location
2.Transaction fee type (billing type)
3.Legal entity
Write-Offs
Once determined uncollectible, aged balances are written off against the allowance for credit losses. This determination is based on careful analysis of individual receivables and aging schedules, which are disaggregated based on the risk characteristics described above. Based on current policy, this generally occurs when the receivable is 360 days past due.
As of June 30, 2022 and December 31, 2021, the Company maintained an allowance for credit losses with regard to these receivables of $0.1 million and $0.3 million, respectively. For the three months ended June 30, 2022, credit loss expense was recognized totaling $49,000. For the three months ended June 30, 2021, recoveries resulted in a reversal of credit loss expense totaling $42,000. For the six months ended June 30, 2022 and 2021, recoveries resulted in a reversal of credit loss expense totaling $25,000 and $106,000, respectively.
12. Commitments and Contingencies
In the normal course of business, the Company enters into user agreements with its dealers which provide the dealers with indemnification from third parties in the event that the electronic marketplaces of the Company infringe upon the intellectual property or other proprietary right of a third party. The Company’s exposure under these user agreements is unknown as this would involve estimating future claims against the Company which have not yet occurred. However, based on its experience, the Company expects the risk of a material loss to be remote.
The Company has been named as a defendant, along with other financial institutions, in two consolidated antitrust class actions relating to trading practices in United States Treasury securities auctions. The cases were dismissed in March 2021, with the Court granting the Plaintiffs leave to further amend the complaint by no later than May 14, 2021. The plaintiffs filed an amended complaint on or about May 14, 2021, and the Company moved to dismiss the amended complaint on June 14, 2021. By order dated March 31, 2022, the Court granted the Company’s motion to dismiss in full and dismissed all of the claims in the amended complaint. The Court also denied the plaintiffs’ request for leave to file a further amended complaint. On April 28, 2022, the Plaintiffs filed a Notice of Appeal of the decision; that appeal is currently pending in the United States Court of Appeals for the Second Circuit. The Company intends to vigorously defend the District Court’s decision on appeal and assert its meritorious defenses to the allegations.
Additionally, the Company was dismissed from a class action relating to an interest rate swaps matter in 2017, but that matter continues against the remaining defendant financial institutions.
The Company records its best estimate of a loss, including estimated defense costs, when the loss is considered probable and the amount of such loss can be reasonably estimated. Based on its experience, the Company believes that the amount of damages claimed in a legal proceeding is not a meaningful indicator of the potential liability. At this time, the Company cannot reasonably predict the timing or outcomes of, or estimate the amount of loss, or range of loss, if any, related to its pending legal proceedings, including the matters described above, and therefore does not have any contingency reserves established for any of these matters.
Revolving Credit Facility
On April 8, 2019, the Company entered into a five year, $500.0 million senior secured revolving credit facility (“Credit Facility”) with a syndicate of banks. The Credit Facility was subsequently amended on November 7, 2019. The Credit Facility provides additional borrowing capacity to be used to fund ongoing working capital needs, letters of credit and for general corporate purposes, including potential future acquisitions and expansions.
Under the terms of the credit agreement that governs the Credit Facility, borrowings under the Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) a base rate equal to the greatest of (i) the administrative agent’s prime rate, (ii) the federal funds effective rate plus ½ of 1.0% and (iii) one month LIBOR plus 1.0%, in each case plus 0.75%, or (b) LIBOR plus 1.75%, subject to a 0.00% floor. The credit agreement also includes a commitment fee of 0.25% for available but unborrowed amounts and other administrative fees that are payable quarterly. The Credit Facility is available until April 2024, provided the Company is in compliance with all covenants. Financial covenant requirements include maintaining minimum ratios related to interest coverage and leverage.
As of June 30, 2022 and December 31, 2021, there were $0.5 million in letters of credit issued under the Revolving Credit Facility and no borrowings outstanding.
Leases
The Company has operating leases for corporate offices and data centers with initial lease terms ranging from one to ten years. The following table presents the future minimum lease payments and the maturity of lease liabilities as of June 30, 2022:
| | | | | | | | |
| | Amount |
| | (in thousands) |
| Remainder of 2022 | | $ | 5,242 | |
| 2023 | | 11,286 | |
| 2024 | | 7,024 | |
| 2025 | | 2,933 | |
| 2026 | | 2,544 | |
| Thereafter | | 2,544 | |
| Total future lease payments | | 31,573 | |
| Less imputed interest | | (1,651) | |
| Lease liability | | $ | 29,922 | |
13. Earnings Per Share
The following table summarizes the calculations of basic and diluted earnings per outstanding share of Class A and Class B common stock for Tradeweb Markets Inc.:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands, except share and per share amounts) |
| Numerator: | | | | | | | | |
| Net income attributable to Tradeweb Markets Inc. | | $ | 68,344 | | | $ | 55,316 | | | $ | 151,309 | | | $ | 123,175 | |
Less: Distributed and undistributed earnings allocated to unvested RSUs and unsettled vested PRSUs (1) | | (26) | | | — | | | (53) | | | — | |
| Net income attributable to outstanding shares of Class A and Class B common stock - Basic and Diluted | | $ | 68,318 | | | $ | 55,316 | | | $ | 151,256 | | | $ | 123,175 | |
| | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted average shares of Class A and Class B common stock outstanding - Basic | | 204,501,035 | | | 201,749,985 | | | 204,282,406 | | | 200,414,714 | |
| Dilutive effect of PRSUs | | 782,955 | | | 2,021,234 | | | 765,497 | | | 1,926,771 | |
| Dilutive effect of options | | 1,839,177 | | | 3,461,230 | | | 2,080,602 | | | 3,656,412 | |
| Dilutive effect of RSUs | | 149,508 | | | 231,511 | | | 242,867 | | | 255,859 | |
| Weighted average shares of Class A and Class B common stock outstanding - Diluted | | 207,272,675 | | | 207,463,960 | | | 207,371,372 | | | 206,253,756 | |
| | | | | | | | |
| Earnings per share - Basic | | $ | 0.33 | | | $ | 0.27 | | | $ | 0.74 | | | $ | 0.61 | |
| Earnings per share - Diluted | | $ | 0.33 | | | $ | 0.27 | | | $ | 0.73 | | | $ | 0.60 | |
(1)During the three and six months ended June 30, 2022, there was a total of 76,426 and 80,778, respectively, weighted average unvested RSUs and unsettled vested PRSUs that were considered a participating security for purposes of calculating earnings per share in accordance with the two-class method. There were none during the three and six months ended June 30, 2021.
LLC Interests held by the Continuing LLC Owners are redeemable in accordance with the TWM LLC Agreement, at the election of such holders, for shares of Class A or Class B common stock of Tradeweb Markets Inc. The potential dilutive effect of LLC Interests are evaluated under the if-converted method. The potential dilutive effect of PRSUs, shares underlying options and RSUs are evaluated under the treasury stock method.
The following table summarizes the PRSUs, shares underlying options, RSUs and weighted-average LLC Interests that were anti-dilutive for the periods indicated. As a result, these shares, which were outstanding, were excluded from the computation of diluted earnings per share for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | |
| Anti-dilutive Shares: | | | | | | | | |
| PRSUs | | 378,265 | | | — | | | — | | | — | |
| Options | | — | | | — | | | — | | | — | |
| RSUs | | 338,109 | | | — | | | 43,255 | | | — | |
| LLC Interests | | 29,971,658 | | | 30,531,933 | | | 30,133,370 | | | 30,871,285 | |
Shares of Class C and Class D common stock do not have economic rights in Tradeweb Markets Inc. and, therefore, are not included in the calculation of basic earnings per share and are not participating securities for purposes of the computation of diluted earnings per share.
14. Regulatory Capital Requirements
TWL, DW, TWD and EA are subject to the Uniform Net Capital Rule 15c3-1 under the Exchange Act. TEL and TESL are subject to certain financial resource requirements with the FCA in the UK, TWJ is subject to certain financial resource requirements with the FCA in Japan and TWEU and TESBV are subject to certain finance resource requirements with the AFM in the Netherlands.
At June 30, 2022 and December 31, 2021, the regulatory capital requirements and regulatory capital for TWL, DW, TWD, TEL, TWJ, TWEU, TESL, EA and TESBV are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2022 | | TWL | | DW | | TWD | | TEL | | TWJ | | TWEU | | TESL | | EA | | TESBV |
| | | | | | | | | | | | | | | | | | |
| | (in thousands) | | |
| Regulatory Capital | | $ | 52,387 | | | $ | 64,317 | | | $ | 39,582 | | | $ | 84,720 | | | $ | 7,571 | | | $ | 8,641 | | | $ | 1,620 | | | $ | 213,216 | | | $ | 1,783 | |
| Regulatory Capital Requirement | | 2,244 | | | 2,593 | | | 551 | | | 32,041 | | | 1,147 | | | 2,191 | | | 1,114 | | | 95 | | | 787 | |
| Excess Regulatory Capital | | $ | 50,143 | | | $ | 61,724 | | | $ | 39,031 | | | $ | 52,679 | | | $ | 6,424 | | | $ | 6,450 | | | $ | 506 | | | $ | 213,121 | | | $ | 996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | | TWL | | DW | | TWD | | TEL | | TWJ | | TWEU | | TESL | | EA |
| | | | | | | | | | | | | | | | |
| | (in thousands) |
| Regulatory Capital | | $ | 33,566 | | | $ | 61,379 | | | $ | 22,784 | | | $ | 84,636 | | | $ | 7,932 | | | $ | 7,626 | | | $ | 1,760 | | | $ | 212,572 | |
| Regulatory Capital Requirement | | 3,424 | | | 2,931 | | | 652 | | | 36,136 | | | 1,184 | | | 3,272 | | | 1,272 | | | 78 | |
| Excess Regulatory Capital | | $ | 30,142 | | | $ | 58,448 | | | $ | 22,132 | | | $ | 48,500 | | | $ | 6,748 | | | $ | 4,354 | | | $ | 488 | | | $ | 212,494 | |
As SEFs, TW SEF and DW SEF are required to maintain adequate financial resources and liquid financial assets in accordance with CFTC regulations. The required and maintained financial resources and liquid financial assets at June 30, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| | TW SEF | | DW SEF | | TW SEF | | DW SEF |
| | | | | | | | |
| | (in thousands) |
| Financial Resources | | $ | 36,096 | | | $ | 16,295 | | | $ | 30,063 | | | $ | 15,999 | |
| Required Financial Resources | | 11,000 | | | 7,032 | | | 11,000 | | | 6,770 | |
| Excess Financial Resources | | $ | 25,096 | | | $ | 9,263 | | | $ | 19,063 | | | $ | 9,229 | |
| | | | | | | | |
| Liquid Financial Assets | | $ | 16,706 | | | $ | 9,416 | | | $ | 15,283 | | | $ | 10,014 | |
| Required Liquid Financial Assets | | 2,750 | | | 1,758 | | | 2,750 | | | 1,693 | |
| Excess Liquid Financial Assets | | $ | 13,956 | | | $ | 7,658 | | | $ | 12,533 | | | $ | 8,321 | |
15. Business Segment and Geographic Information
The Company operates electronic marketplaces for the trading of products across the rates, credit, equities and money markets asset classes and provides related pre-trade and post-trade services. The Company’s operations constitute a single business segment because of the integrated nature of these marketplaces and services.
Information regarding revenue by client sector is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
| Revenues | | | | | | | | |
| Institutional | | $ | 181,298 | | | $ | 160,883 | | | $ | 378,508 | | | $ | 336,207 | |
| Wholesale | | 68,010 | | | 61,689 | | | 140,948 | | | 121,079 | |
| Retail | | 26,800 | | | 18,261 | | | 46,772 | | | 36,974 | |
| Market Data | | 21,030 | | | 20,007 | | | 42,396 | | | 39,979 | |
| Total revenue | | 297,138 | | | 260,840 | | | 608,624 | | | 534,239 | |
Operating expenses | | 190,531 | | | 177,048 | | | 390,415 | | | 352,120 | |
Operating income | | $ | 106,607 | | | $ | 83,792 | | | $ | 218,209 | | | $ | 182,119 | |
The Company operates in the U.S. and internationally, primarily in the Europe and Asia regions. Revenues are attributed to geographic area based on the jurisdiction where the underlying transactions take place. The results by geographic region are not meaningful in understanding the Company’s business. Long-lived assets are attributed to the geographic area based on the location of the particular subsidiary.
The following table provides revenue by geographic area:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
| Revenues | | | | | | | | |
| U.S. | | $ | 190,150 | | | $ | 163,605 | | | $ | 380,443 | | | $ | 331,341 | |
| International | | 106,988 | | | 97,235 | | | 228,181 | | | 202,898 | |
| Total revenue | | $ | 297,138 | | | $ | 260,840 | | | $ | 608,624 | | | $ | 534,239 | |
The following table provides information on the attribution of long-lived assets by geographic area:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
| Long-lived assets | | | | |
| U.S. | | $ | 4,104,021 | | | $ | 4,152,186 | |
| International | | 13,353 | | | 15,848 | |
| Total | | $ | 4,117,374 | | | $ | 4,168,034 | |
16. Subsequent Events
On August 2, 2022, the board of directors of Tradeweb Markets Inc. declared a cash dividend of $0.08 per share of Class A common stock and Class B common stock for the third quarter of 2022. This dividend will be payable on September 15, 2022 to stockholders of record as of September 1, 2022.
On August 1, 2022, Tradeweb Markets Inc., as the sole manager, approved a distribution by TWM LLC to its equityholders, including Tradeweb Markets Inc., in an aggregate amount of $22.4 million, as adjusted by required state and local tax withholdings that will be determined prior to the record date of September 1, 2022, payable on September 13, 2022.