Tradeweb Markets Inc
For the period ended Sep 30, 2024. Filed Oct 30, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 30, 2024
TW$127.73+0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-07-25.
0001758730-24-000156
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-30.
0001758730-24-000190
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 280 previous paragraphs and 283 current paragraphs.
152 unchanged; 110 reworded; 19 added; 17 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 23 previous and 23 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
In our corporates client sector, we provide comprehensive investment technology and research solutions tailored to the needs of corporate treasury organizations globally. These solutions enable efficient trading of institutional money market funds and other short-term investments. Our expansion into the corporates sector was driven by our acquisition of Institutional Cash Distributors (“ICD”) on August 1, 2024. The addition of ICD to our platform broadens our product suite, further diversifies our client and revenue base and strengthens our position in the corporate treasury space, enabling us to provide a more comprehensive range of liquidity management tools and services.
Current report
In connection with the acquisition closing, the Corporation issued and sold 41,705 shares of Class A common stock, with a grant date fair value of $4.7 million, to an equityholder of the ICD seller, who was also an employee of ICD and is currently an employee of the Company, which shares of Class A common stock were issued and sold as restricted stock (such shares of restricted stock, the “RSAs”). The RSAs are subject to a two-year vesting period and forfeiture terms, pursuant to the Tradeweb Markets Inc. 2019 Omnibus Equity Incentive Plan. Of the $4.7 million in RSAs issued, $3.3 million was allocated to consideration transferred for the business combination, relating to the pre-combination service period completed before the acquisition date, and $1.3 million will be amortized into non-cash stock-based compensation expense over the two-year service period required subsequent to the acquisition date, with such special stock-based compensation amortization expense excluded from our non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income when it is recorded as expense.
Current report
Cash paid at closing, net of cash acquired and net of the proceeds from the sale of the RSAs, totaled $774.1 million, of which $771.2 million was determined to be consideration transferred for the business combination, $1.4 million was expensed during the three and nine months ended September 30, 2024 and $1.4 million was recorded as a prepaid asset, to be expensed over a two-year period. Both of these purchase price amounts that were or will be expensed are considered merger and acquisition transaction and integration costs and will be excluded from our non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income when recorded as expense.
Current report
In connection with the ICD Acquisition, we also issued to certain key ICD employees, 92,672 restricted stock units (the “ICD RSU Awards”), with a total grant date fair value of $10.3 million, that will vest one-third each year over a three-year period. Management determined that approximately $5.2 million of the ICD RSU Awards represents market based ordinary course compensation expense for these individuals, with the remaining $5.2 million representing a special award to help ensure retention of these key ICD employees during the three-year period subsequent to the acquisition and allow sufficient time for the integration of ICD’s operations into Tradeweb. The stock-based compensation expense relating to the portion of the ICD RSU Awards determined to be a special award will also be excluded from our non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income when it is recorded as expense. See “Non-GAAP Financial Measures” below for further details on ICD Acquisition related non-GAAP adjustments.
Current report
From the date of the ICD Acquisition through September 30, 2024, ICD revenues of $17.2 million and an operating loss of $0.3 million, including $7.3 million of depreciation and amortization from acquired assets, were included in our condensed consolidated statements of income for the three and nine months ended September 30, 2024. See Note 4 – Acquisitions to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details of this acquisition.
Current report
Our strong results for the third quarter of 2024 reflected significant organic growth and solid contributions from our recent acquisitions of ICD, r8fin and Yieldbroker. We remained focused on and grew market share while also benefiting from rates market volatility around central bank moves and broad-based volume growth, which underscored our sustained momentum across asset classes. The primary driver of the $120.6 million increase in revenue was related to an $110.0 million increase in transaction fees and commissions to $373.5 million for the three months ended September 30, 2024 from $263.5 million for the three months ended September 30, 2023, primarily due to higher revenues for rate derivatives products, U.S. corporate bonds and U.S. government bonds, as well as the basis point commissions earned on the average daily balance of client money market fund investments made through the ICD Portal for the two months subsequent to the acquisition.
Current report
Average variable fees per million for rates decreased primarily due to a shift in the mix and methods of products traded towards other rates derivative products, which have with a lower variable fee capture compared to overall rates. This was partially offset by a shift in the mix of products traded towards other government bonds, which have a higher variable fee capture compared to overall rates.
Current report
Equities. Revenues from our equities asset class increased by $4.6 million or 22.1% to $25.5 million for the three months ended September 30, 2024 compared to $20.9 million for the three months ended September 30, 2023 primarily due to higher variable transaction fees and commissions on higher trading volumes for European and U.S. ETFs and equity derivative products.
Current report
Average variable fees per million for money markets increased primarily due to a shift in the mix of products traded in this category as a result of the August 1, 2024 acquisition of ICD and the associated basis point commissions earned on the average daily balance of client money market fund investments made through the ICD Portal, which have a higher variable fee capture compared to the historical product mix.
Current report
Corporates. Revenues from our corporates client sector were $17.2 million for the three months ended September 30, 2024. With the August 1, 2024 acquisition of ICD and its proprietary institutional investment technology, we entered the corporates client sector. This new client channel primarily serves corporate treasury organizations worldwide in investing in money market funds. Revenues from our corporates client sector primarily includes the basis point commissions earned on the average daily balance of client money market fund investments made through the ICD Portal for the two months subsequent to the acquisition. See “—Trends and Other Factors Impacting Our Performance—Acquisitions,” above for further details about this acquisition.
Current report
The tax receivable agreement liability adjustment of $0.9 million of expense recognized for the three months ended September 30, 2024 was due to changes in the tax receivable agreement liability recorded in our consolidated statements of financial condition as a result of changes in the mix of earnings in connection with the acquisition of ICD, which impacted our estimated future tax savings. There was no tax receivable agreement liability adjustment recognized for the three months ended September 30, 2023.
Current report
There was less than $0.1 million of net other income for the three months ended September 30, 2024 compared to a $1.9 million net other loss for the three months ended September 30, 2023, as we unwound the out-of-the-money foreign currency call option entered into in order to partially mitigate the foreign currency exposure relating to the payment of the purchase price for the Yieldbroker acquisition during the three months ended September 30, 2023.
Current report
For the Nine Months Ended September 30, 2024 and Nine Months Ended September 30, 2023
Current report
Our total revenue by asset class for the nine months ended September 30, 2024 and 2023, and the resulting dollar and percentage changes, were as follows:
Current report
Corporates. Revenues from our corporates client sector were $17.2 million for the nine months ended September 30, 2024. With the August 1, 2024 acquisition of ICD and its proprietary institutional investment technology, we entered the corporates client sector. This new client channel primarily serves corporate treasury organizations worldwide in investing in money market funds. Revenues from our corporates client sector primarily includes the basis point commissions earned on the average daily balance of client money market fund investments made through the ICD Portal for the two months subsequent to the acquisition. See “—Trends and Other Factors Impacting Our Performance—Acquisitions,” above for further details about this acquisition.
Current report
Professional Fees. Expenses related to professional fees increased by $14.2 million or 44.0% to $46.6 million for the nine months ended September 30, 2024 from $32.3 million for the nine months ended September 30, 2023, primarily due to an increase in professional fees related to acquisitions.
Current report
The tax receivable agreement liability adjustment of $0.9 million of expense recognized for the nine months ended September 30, 2024 was due to changes in the tax receivable agreement liability recorded in our consolidated statements of financial condition as a result of changes in the mix of earnings in connection with the acquisition of ICD, which impacted our estimated future tax savings. There was no tax receivable agreement liability adjustment recognized for the nine months ended September 30, 2023.
Current report
Capital Expenditures
Current report
Our cash flows for the nine months ended September 30, 2024 and 2023 were as follows:
Removed paragraphs (17)
Previous report
On April 5, 2024, we entered into a definitive agreement for TWM LLC to acquire the Institutional Cash Distributors business (“ICD”) by purchasing all of the outstanding equity interests of each of ICD Intermediate Holdco 1, LLC, SCIC - ICD Blocker 1, Inc. and Parthenon Investors V ICD Blocker, Inc. Pursuant to the terms of the purchase agreement, TWM LLC is required to pay $785 million in cash, subject to customary working capital and other adjustments, for the acquisition. In connection with the acquisition closing, the Corporation will also issue and sell $4.5 million of shares of its Class A common stock in reliance on Section 4(a)(2) of the Securities Act, to an equityholder of the seller, which such shares of Class A common stock will be issued and sold as restricted stock, subject to vesting and forfeiture terms, pursuant to the Tradeweb Markets Inc. 2019 Omnibus Equity Incentive Plan. The acquisition is expected to close in the third quarter of 2024, subject to the satisfaction of customary closing conditions and regulatory reviews.
Previous report
Tax Receivable Agreement Liability Adjustment
Previous report
N/M = not meaningful
Previous report
Our diversified offering across products, client sectors and geographies supported sustained growth amidst a continuingly complex macroeconomic backdrop. This environment included ongoing geopolitical uncertainty, increased market volatility and fluctuating interest rates. Despite these challenges, we saw strong volumes and continued market share gains across our global asset classes. The primary driver of the $94.3 million increase in revenue was related to an $84.0 million increase in transaction fees and commissions to $330.5 million for the three months ended June 30, 2024 from $246.5 million for the three months ended June 30, 2023, primarily due to higher revenues for rate derivatives products, U.S. and European corporate bonds and U.S., European and other government bonds.
Previous report
Average variable fees per million for rates decreased primarily due to a decrease in average variable fees per million for rates derivatives driven primarily by an increase in compression activity and shifts in the mix and duration of derivative products traded as compared to the prior period. This decrease was partially offset by an increase in average variable fees per million for rates cash products primarily due to an increase in European and Australian government bonds fees per million, which each have a higher variable fee capture compared to overall rates.
Previous report
Equities. Revenues from our equities asset class remained relatively flat at $22.9 million for the three months ended June 30, 2024, an increase of $0.7 million or 3.3% from $22.1 million for the three months ended June 30, 2023.
Previous report
Average variable fees per million for money markets decreased primarily due to a shift in the mix of trading away from U.S. certificates of deposit, which have a higher variable fee capture compared to overall money markets.
Previous report
Interest expense remained relatively flat at $0.5 million for the three months ended June 30, 2024 and 2023.
Previous report
There was no other income (loss), net for the three months ended June 30, 2024 compared to a $0.5 million net other loss for the three months ended June 30, 2023, including a $1.1 million loss due to a reduction in the tax indemnification receivables from Refinitiv relating to the settlement of the tax matter for less than the previously estimated amount. See Note 6 – Income Taxes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. This loss was partially offset by a $0.6 million gain recognized during the three months ended June 30, 2023 from the increase in fair value of the foreign currency call option on Australian dollars entered into, in order to partially mitigate the Company’s U.S. dollar versus Australian dollar foreign exchange exposure on the then anticipated payment of the Australian dollar denominated purchase price for the Yieldbroker acquisition completed in August 2023.
Previous report
For the Six Months Ended June 30, 2024 and Six Months Ended June 30, 2023
Previous report
N/M = not meaningful
Previous report
Our total revenue by asset class for the six months ended June 30, 2024 and 2023, and the resulting dollar and percentage changes, were as follows:
Previous report
Professional Fees. Expenses related to professional fees increased by $3.3 million or 15.0% to $25.1 million for the six months ended June 30, 2024 from $21.8 million for the six months ended June 30, 2023. The increase was primarily due to increased acquisition costs, partially offset by a decrease in legal costs driven by costs incurred during the first half of 2023 in connection with regulatory compliance matters, including periodic information requests, that did not reoccur at the same rate during 2024.
Previous report
Capital Expenditures and Acquisitions
Previous report
In addition, on April 5, 2024, we entered into a definitive agreement for TWM LLC to acquire ICD for $785 million in cash, subject to customary working capital and other adjustments. The acquisition is expected to close in the third quarter of 2024, subject to the satisfaction of customary closing conditions and regulatory reviews and the purchase price is expected to be funded with cash and cash equivalents on hand.
Previous report
Our cash flows for the six months ended June 30, 2024 and 2023 were as follows:
Previous report
Business Combinations
Reworded paragraphs (110)
Previous wording
We are a leader in building and operating electronic marketplaces for our global network of clients across the financial ecosystem. Our network is comprised of clients across the institutional, wholesale and retail client sectors, including many of the largest global asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading firms and retail brokerage and financial advisory firms, as well as regional dealers. Our marketplaces facilitate trading across a range of asset classes, including rates, credit, equities and money markets. We are a global company serving clients in over 70 countries with offices in North America, Europe, Asia, Australia and the Middle East. We believe our proprietary technology and culture of collaborative innovation allow us to adapt our offerings to enter new markets, create new platforms and solutions and adjust to regulations quickly and efficiently. We support our clients by providing solutions across the trade lifecycle, including pre-trade, execution, post-trade and data.
Current wording
We are a leader in building and operating electronic marketplaces for our global network of more than 2,800 clients across the financial ecosystem. Our network is comprised of clients across the institutional, wholesale, retail and corporates client sectors, including many of the largest global asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading firms, retail brokerage and financial advisory firms, regional dealers and corporate treasury organizations. Our marketplaces facilitate trading across a range of asset classes, including rates, credit, equities and money markets. We are a global company serving clients in over 70 countries with offices in North America, Europe, Asia, Australia and the Middle East. We believe our proprietary technology and culture of collaborative innovation allow us to adapt our offerings to enter new markets, create new platforms and solutions and adjust to regulations quickly and efficiently. We support our clients by providing solutions across the trade lifecycle, including pre-trade, execution, post-trade and data.
Previous wording
In our wholesale client sector, we provide a broad range of electronic, voice and hybrid platforms to more than 300 dealers and financial institutions with more than 190 actively trading on our electronic or hybrid markets with our Dealerweb platform. This platform was launched in 2008 following the acquisition of inter-dealer broker Hilliard Farber & Co., Inc. In 2011, we acquired the brokerage assets of Rafferty Capital Markets and in June 2021, we acquired Nasdaq’s U.S. fixed income electronic trading platform (formerly known as eSpeed) (the “NFI Acquisition”). Today, Dealerweb actively competes across a range of rates, credit, money markets, derivatives and equity markets.
Current wording
In our wholesale client sector, we provide a broad range of electronic, voice and hybrid platforms to dealers and financial institutions trading on our electronic or hybrid markets with our Dealerweb platform. This platform was launched in 2008 following the acquisition of inter-dealer broker Hilliard Farber & Co., Inc. In 2011, we acquired the brokerage assets of Rafferty Capital Markets and in June 2021, we acquired Nasdaq’s U.S. fixed income electronic trading platform (formerly known as eSpeed) (the “NFI Acquisition”). Today, Dealerweb actively competes across a range of rates, credit, money markets, derivatives and equity markets.
Previous wording
In our retail client sector, we provide advanced trading solutions for financial advisory firms and traders with our Tradeweb Direct platform. We entered the retail sector in 2006 and launched our Tradeweb Direct platform following the 2013 acquisition of BondDesk Group LLC, which was built to bring innovation and efficiency to the wealth management community. Tradeweb Direct has provided financial advisory firms access to live offerings, accurate pricing in the marketplace and fast execution.
Current wording
In our retail client sector, we provide advanced trading solutions for financial advisory firms and traders with our Tradeweb Direct platform. We entered the retail sector in 2006 and launched our Tradeweb Direct platform following the 2013 acquisition of BondDesk Group LLC, which was built to bring innovation and efficiency to the wealth management community. Tradeweb Direct provides financial advisory firms access to live offerings, accurate pricing in the marketplace and fast execution.
Previous wording
ICD is an institutional investment technology provider for corporate treasury organizations trading short-term investments. ICD’s flagship products include ICD Portal and ICD Portfolio Analytics. The portal is a one-stop shop to research, trade, analyze and report on investments across more than 40 available investment providers primarily offering money market funds and access to other short term products including deposits, fixed term funds and separately managed accounts (“SMAs”). Portfolio Analytics is an AI-driven cloud solution for aggregating positions across a corporate treasury’s entire portfolio for analysis and reporting. With the acquisition of ICD and its proprietary technology, we will add a new and fast-growing client channel serving corporate treasury professionals, complementing our existing focus on institutional, wholesale and retail clients.
Current wording
ICD is an institutional investment technology provider for corporate treasury organizations trading short-term investments. ICD’s flagship products include ICD Portal and ICD Portfolio Analytics. The portal is a one-stop shop to research, trade, analyze and report on investments across more than 40 available investment providers primarily offering money market funds and access to other short term products including deposits, fixed term funds and separately managed accounts (“SMAs”) (collectively referred to herein as “money market funds”). Portfolio Analytics is an AI-driven cloud solution for aggregating positions across a corporate treasury’s entire portfolio for analysis and reporting. With the acquisition of ICD and its proprietary technology, we have added a new client channel, “corporates”, serving corporate treasury professionals, complementing Tradeweb’s existing focus on institutional, wholesale and retail clients.
Previous wording
As part of Tradeweb, ICD will provide a comprehensive solution for corporate treasurers and asset managers worldwide to manage short-term liquidity needs and FX risk, as well as optimize yield and duration via our existing suite of products. ICD clients will retain the ability to fully integrate their workflows with leading third-party treasury management and accounting systems and ICD’s portfolio analytics solution. In addition to opportunities to cross-sell our products to ICD’s clients, we will aim to accelerate ICD’s growth and expansion by leveraging our international presence and offering money market funds to our existing network of clients globally.
Current wording
As part of Tradeweb, ICD provides a comprehensive solution for corporate treasurers and asset managers worldwide to manage short-term liquidity needs and FX risk, as well as optimize yield and duration via our existing suite of products. ICD clients retain the ability to fully integrate their workflows with leading third-party treasury management and accounting systems and ICD’s portfolio analytics solution. In addition to opportunities to cross-sell our products to ICD’s clients, we aim to accelerate ICD’s growth and expansion by leveraging our international presence and offering money market funds to our existing network of clients globally.
Previous wording
On January 19, 2024, we completed our acquisition of r8fin in exchange for total consideration of $125.9 million, consisting of $89.2 million in cash paid at closing (net of cash acquired) and the issuance of 374,601 shares of Class A common stock of the Corporation valued as of the closing date at $36.7 million
Current wording
On January 19, 2024, we completed our acquisition of r8fin (the “r8fin Acquisition”) in exchange for total consideration of $125.9 million, consisting of $89.2 million in cash paid at closing (net of cash acquired) and the issuance of 374,601 shares of Class A common stock of the Corporation valued as of the acquisition date at $36.7 million.
Previous wording
r8fin provides a suite of algorithmic-based tools as well as a thin-client execution management system (EMS) trading application to facilitate futures and cash trades. The solutions complement Tradeweb’s existing Dealerweb Active Streams, Dealerweb Central Limit Order Book (CLOB), Tradeweb Request-for-Quote (RFQ) and Tradeweb AiEX (Automated Intelligent Execution) offerings, creating a valuable and broad-based approach to trading U.S. Treasuries and related futures trading. The r8fin acquisition is not material to our consolidated financial statements and did not have a significant impact to our results of operations for the three and six months ended June 30, 2024. See Note 4 – Acquisitions to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details.
Current wording
r8fin provides a suite of algorithmic-based tools as well as a thin-client execution management system (EMS) trading application to facilitate futures and cash trades. The solutions complement Tradeweb’s existing Dealerweb Active Streams, Dealerweb Central Limit Order Book (CLOB), Tradeweb Request-for-Quote (RFQ) and Tradeweb AiEX (Automated Intelligent Execution) offerings, creating a valuable and broad-based approach to trading U.S. Treasuries and related futures trading. The r8fin Acquisition is not material to our consolidated financial statements and did not have a significant impact to our results of operations for the three and nine months ended September 30, 2024. See Note 4 – Acquisitions to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details.
Previous wording
On June 20, 2024, we announced organizational changes to optimize operations for continued growth. As part of those organizational changes, Amy Clack will join the Company in August 2024 as Chief Administrative Officer and a member of the Executive Committee, overseeing operations, business integration, risk and corporate services. In addition, Thomas Pluta, President of the Company, will leave the Company and the Board of Directors, effective September 30, 2024.
Current wording
On June 20, 2024, we announced organizational changes to optimize operations for continued growth. As part of those organizational changes, Amy Clack joined the Company in August 2024 as Chief Administrative Officer and a member of the Executive Committee, overseeing operations, business integration, risk and corporate services. In addition, Thomas Pluta, President of the Company, left the Company and the Board of Directors, effective September 30, 2024.
Previous wording
During the three months ended June 30, 2024, we incurred $2.9 million in incremental compensation expense related to a cash severance payment to be paid to Mr. Pluta in accordance with the Company’s Executive Severance Policy with respect to Mr. Pluta’s departure in September 2024. As of June 17, 2024, there was also approximately $4.4 million in total unamortized stock-based compensation associated with equity awards previously granted to Mr. Pluta that will be accelerated and amortized into expense over a revised estimated service period ending on September 30, 2024. Of this amount, $1.7 million represents regularly scheduled amortization that would have been recognized from June 17, 2024 through September 30, 2024 if Mr. Pluta’s employment was not terminated and $2.7 million represents accelerated stock-based compensation expense that will be excluded from our non-GAAP measures of Adjusted EBITDA and Adjusted Net Income when it is recorded as expense. See “—Non-GAAP Financial Measures” below for further details. During the three months ended June 30, 2024, we incurred a total of $0.3 million in accelerated stock-based compensation expense relating to Mr. Pluta’s departure, with the remaining $2.4 million to be recorded during the three months ending September 30, 2024.
Current wording
During the nine months ended September 30, 2024, we incurred $2.9 million in incremental compensation expense related to a cash severance payment to be paid to Mr. Pluta in accordance with the Company’s Executive Severance Policy with respect to Mr. Pluta’s departure in September 2024, all recorded during the three months ended June 30, 2024. As of June 17, 2024, there was also approximately $4.4 million in total unamortized stock-based compensation associated with equity awards previously granted to Mr. Pluta that were accelerated and amortized into expense over a revised estimated service period ending on September 30, 2024. Of this amount, $1.7 million represented regularly scheduled amortization that would have been recognized from June 17, 2024 through September 30, 2024 if Mr. Pluta’s employment was not terminated and $2.7 million represented accelerated stock-based compensation expense that was excluded from our non-GAAP financial measures of Adjusted EBITDA and Adjusted Net Income when it was recorded as expense. See “—Non-GAAP Financial Measures” below for further details. During the three and nine months ended September 30, 2024, we incurred a total of $2.4 million and $2.7 million, respectively in accelerated stock-based compensation expense relating to Mr. Pluta’s departure.
Previous wording
Because the majority of our financial assets are short-term in nature, they are not significantly affected by inflation. However, the rate of inflation may affect our expenses, such as employee compensation and benefits, technology and communication expenses and occupancy costs, which may not be readily recoverable in the prices of our services. We believe any effects of inflation on our results of operations and financial condition have not been significant during any of the periods presented in this Quarterly Report on Form 10-Q. To the extent inflation, along with other factors, continue to result in rising interest rates and have other adverse effects on the securities markets and the overall economy, they may adversely affect our results of operations and financial condition.
Current wording
Because the majority of our financial assets are short-term in nature, they are not significantly affected by inflation. However, the rate of inflation may affect our expenses, such as employee compensation and benefits, technology and communication expenses and occupancy costs, which may not be readily recoverable in the prices of our services. We believe any effects of inflation on our results of operations and financial condition have not been significant during any of the periods presented in this Quarterly Report on Form 10-Q. To the extent inflation, along with other factors, results in rising interest rates and have other adverse effects on the securities markets and the overall economy, they may adversely affect our results of operations and financial condition.
Previous wording
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA establishes a 15% corporate alternative minimum tax (“CAMT”) effective for taxable years beginning after December 31, 2022, and imposes a 1% excise tax on the repurchase after December 31, 2022 of stock by publicly traded U.S. corporations. The 1% excise tax did not have an impact to our financial condition, results of operations and cash flows as of and for the three and six months ended June 30, 2024. The Company is subject to the 15% CAMT, however, it is not expected to have a material impact on the Company’s effective tax rate. The adoption of the IRA will also not have an impact to our non-GAAP adjusted effective tax rate used for purposes of calculating our non-GAAP measure of Adjusted Net Income.
Current wording
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA establishes a 15% corporate alternative minimum tax (“CAMT”) effective for taxable years beginning after December 31, 2022, and imposes a 1% excise tax on the repurchase after December 31, 2022 of stock by publicly traded U.S. corporations. The 1% excise tax did not have an impact to our financial condition, results of operations and cash flows as of and for the three and nine months ended September 30, 2024. The Company is subject to the 15% CAMT, however, it is not expected to have a material impact on the Company’s effective tax rate. The adoption of the IRA will also not have an impact to our non-GAAP adjusted effective tax rate used for purposes of calculating our non-GAAP measure of Adjusted Net Income.
Previous wording
We earn transaction fees from transactions executed on our trading platforms through various fee plans. Transaction fees are generated on both a variable and fixed price basis and vary by geographic region, product type and trade size. For most of our products, clients pay both fixed minimum monthly transaction fees and variable transaction fees on a per transaction basis in excess of the monthly minimum. For certain of our products, clients also pay a subscription fee in addition to the minimum monthly transaction fee. For other products, instead of a minimum monthly transaction fee, clients pay a subscription fee and a fixed transaction fee or variable transaction fees on a per transaction basis. For variable transaction fees, we charge clients fees based on the mix of products traded and the volume of transactions executed.
Current wording
We earn transaction fees and/or commissions from transactions executed on our trading platforms on both a variable and fixed price basis, which vary by geographic region, product type and trade size. For most of our products, clients pay both fixed minimum monthly transaction fees and variable transaction fees on a per transaction basis in excess of the monthly minimum. Clients may also pay a subscription fee in addition to or instead of the minimum monthly transaction fees. For other products, instead of a minimum monthly transaction fee, clients may pay a fixed transaction fee or only a variable transaction fee on a per transaction basis. We also earn commission revenue from our 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. For to-be-announced mortgage backed securities (“TBA-MBS”), U.S. Treasury and repurchase agreement transactions executed by our wholesale clients, we also generate revenue from fixed commissions that are generally invoiced monthly.
Previous wording
Transaction volume is determined by using either a measure of the notional volume of the products traded or a count of the number of trades. We typically charge higher fees for products that are less actively traded. In addition, because transaction fees are sometimes subject to fee plans with tiered pricing based on product mix, volume, monthly minimums and monthly maximum fee caps, average transaction fees per million generated for a client may vary each month depending on the mix of products and volume traded. Furthermore, because transaction fees vary by geographic region, product type and trade size, our revenues may not correlate with volume growth.
Current wording
For variable transaction fees and commissions, we charge clients based on the mix of products traded and the volume of transactions executed. Transaction volume is determined by using either a measure of the notional volume of the products traded, a count of the number of trades or in the case of the ICD Portal, the client’s average daily balance (“ADB”) invested in the money market funds during a calendar month. Because transaction fees and commissions are sometimes subject to plans with tiered pricing based on product mix, volume, monthly minimums and monthly maximum fee caps, average variable fees per million dollars of volume traded generated for a client may vary each month depending on the mix of products and volume traded. Furthermore, because transaction fees and commissions vary by geographic region, product type and trade size, our revenues may not correlate with volume growth.
Previous wording
We earn subscription fees primarily for granting clients access to our markets for trading and market data. For a limited number of products, we only charge subscription fees and no transaction fees or commissions. Subscription fees are generally generated on a fixed price basis.
Current wording
We earn subscription fees primarily for granting clients access to our markets for trading and market data. For a limited number of products, we only charge subscription fees and no transaction fees or commissions. Subscription fees are generally charged on a fixed price basis.
Previous wording
Occupancy expense consists of operating lease rent and related costs for office space and data centers leased in North America, Europe, Asia, Australia and the Middle East. We expect occupancy expense to increase as our space needs grow inline with our global expansion.
Current wording
Occupancy expense consists of operating lease rent and related costs for office space and data centers leased in North America, Europe, Asia, Australia and the Middle East. We expect occupancy expense to increase as our space needs grow in line with our global expansion.
Previous wording
The tax receivable agreement liability adjustment reflects changes in the tax receivable agreement liability recorded in our condensed consolidated statements of financial condition as a result of changes in the mix of earnings, tax legislation and tax rates in various jurisdictions which impacted our estimated future tax savings. There was no tax receivable agreement liability adjustment during each of the three and six months ended June 30, 2024 and 2023.
Current wording
The tax receivable agreement liability adjustment reflects changes in the tax receivable agreement liability recorded in our condensed consolidated statements of financial condition as a result of changes in the mix of earnings, tax legislation and tax rates in various jurisdictions which impacted our estimated future tax savings.
Previous wording
Interest income consists of interest earned from our cash deposited with large commercial banks and money market funds.
Current wording
Interest income consists primarily of interest earned from our cash deposited with large commercial banks and money market funds, as well as interest earned from our investments in available-for-sale debt securities.
Previous wording
(1)Subscription fees for the three months ended June 30, 2024 and 2023 include $20.6 million and $15.5 million respectively, of LSEG market data fees (formerly referred to as Refinitiv market data fees).
Current wording
(1)Subscription fees for the three months ended September 30, 2024 and 2023 include $20.5 million and $15.5 million, respectively, of LSEG market data fees (formerly referred to as Refinitiv market data fees).
Previous wording
(4)We acquired Yieldbroker on August 31, 2023 and acquired r8fin on January 19, 2024. Total volume reported includes volumes from each acquired business subsequent to the closing date of the applicable acquisition.
Current wording
(4)We acquired Yieldbroker, r8fin and ICD on August 31, 2023, January 19, 2024 and August 1, 2024, respectively. Total volume reported includes volumes from each acquired business subsequent to the closing date of the applicable acquisition.
Previous wording
Rates. Revenues from our rates asset class increased by $57.2 million or 35.7% to $217.5 million for the three months ended June 30, 2024 compared to $160.4 million for the three months ended June 30, 2023 primarily due to higher variable transaction fees and commissions on higher trading volumes for rates derivatives products and U.S., European and other government bonds.
Current wording
Rates. Revenues from our rates asset class increased by $60.3 million or 34.9% to $233.1 million for the three months ended September 30, 2024 compared to $172.8 million for the three months ended September 30, 2023 primarily due to higher variable transaction fees and commissions on higher trading volumes for rates derivatives products, U.S., European and other government bonds and mortgages.
Previous wording
Credit. Revenues from our credit asset class increased by $27.3 million or 32.5% to $111.3 million for the three months ended June 30, 2024 compared to $84.0 million for the three months ended June 30, 2023 primarily due to higher variable transaction fees and commissions on higher trading volumes for U.S. and European corporate bonds and an increase in fixed subscription fees. The fixed subscription fee increase was primarily driven by the addition of dealers joining the subscription pricing plan, subscription price increases and the implementation of fee minimums to certain subscription plans.
Current wording
Credit. Revenues from our credit asset class increased by $28.2 million or 31.4% to $118.3 million for the three months ended September 30, 2024 compared to $90.1 million for the three months ended September 30, 2023 primarily due to higher variable transaction fees and commissions on higher trading volumes for U.S. and European corporate bonds and credit derivative products and an increase in fixed subscription fees. The fixed subscription fee increase was primarily driven by the addition of dealers joining the subscription pricing plan, subscription price increases and the implementation of fee minimums to certain subscription plans.
Previous wording
Average variable fees per million for credit decreased primarily due to a shift in the mix and methods of products traded from cash credit products and electronically processed U.S. corporate bonds to derivatives products, which have a lower variable fee capture compared to overall credit.
Current wording
Average variable fees per million for credit decreased primarily due to a shift in the mix and methods of products traded, including increases in the percentage of derivative products, which have a lower variable fee capture compared to overall credit.
Previous wording
Average variable fees per million for equities decreased primarily due to a shift in the mix of products traded, including higher volumes in equity derivatives, which have a lower variable fee capture compared to overall equities.
Current wording
Average variable fees per million for equities increased primarily due to a shift in the mix of products traded, including higher volumes in European ETFs, which have a higher variable fee capture compared to overall equities.
Previous wording
Money Markets. Revenues from our money markets asset class increased by $2.2 million or 14.0% to $18.0 million for the three months ended June 30, 2024 compared to $15.8 million for the three months ended June 30, 2023 primarily due to higher variable transaction fees and commissions for repurchase agreements.
Current wording
Money Markets. Revenues from our money markets asset class increased by $20.4 million or 129.2% to $36.1 million for the three months ended September 30, 2024 compared to $15.8 million for the three months ended September 30, 2023 primarily due to the August 1, 2024 acquisition of ICD and the associated basis point commissions earned on the average daily balance of client money market fund investments made through the ICD Portal.
Previous wording
Market Data. Revenues from our market data asset class increased by $6.5 million or 28.3% to $29.2 million for the three months ended June 30, 2024 compared to $22.8 million for the three months ended June 30, 2023. The increase was derived primarily from increased LSEG market data fees from our market data agreement that was amended effective November 1, 2023 and proprietary third party market data revenue.
Current wording
Market Data. Revenues from our market data asset class increased by $6.8 million or 29.6% to $29.8 million for the three months ended September 30, 2024 compared to $23.0 million for the three months ended September 30, 2023. The increase was derived primarily from increased LSEG market data fees from our market data agreement that was amended effective November 1, 2023 and proprietary third party market data revenue.
Previous wording
Other. Revenues from our other asset class was relatively flat with an increase of $0.5 million or 9.1% to $6.0 million for the three months ended June 30, 2024 compared to $5.5 million for the three months ended June 30, 2023.
Current wording
Other. Revenues from our other asset class was relatively flat with an increase of $0.2 million or 4.0% to $6.1 million for the three months ended September 30, 2024 compared to $5.9 million for the three months ended September 30, 2023.
Previous wording
Institutional. Revenues from our institutional client sector increased by $61.8 million or 33.6% to $245.6 million for the three months ended June 30, 2024 from $183.8 million for the three months ended June 30, 2023. The increase was derived primarily from higher revenues for rates derivatives products, U.S. corporate bonds and U.S., European and other government bonds.
Current wording
Institutional. Revenues from our institutional client sector increased by $71.6 million or 36.7% to $266.7 million for the three months ended September 30, 2024 from $195.1 million for the three months ended September 30, 2023. The increase was derived primarily from higher revenues for rates derivatives products, U.S. corporate bonds, U.S. and European government bonds and credit derivative products.
Previous wording
Wholesale. Revenues from our wholesale client sector increased by $20.9 million or 28.6% to $94.3 million for the three months ended June 30, 2024 from $73.3 million for the three months ended June 30, 2023. The increase was derived primarily from higher revenues for U.S. government bonds, including positive contributions from the r8fin acquisition, as well as higher revenues for U.S. and European corporate bonds and mortgages.
Current wording
Wholesale. Revenues from our wholesale client sector increased by $21.5 million or 27.6% to $99.5 million for the three months ended September 30, 2024 from $78.0 million for the three months ended September 30, 2023. The increase was derived primarily from higher revenues for U.S. government bonds, including positive contributions from the r8fin Acquisition, as well as higher revenues for U.S. corporate bonds, repurchase agreements and rates derivative products.
Previous wording
Retail. Revenues from our retail client sector increased by $5.2 million or 16.9% to $35.9 million for the three months ended June 30, 2024 from $30.7 million for the three months ended June 30, 2023. The increase was derived primarily from higher revenues for municipals and U.S. corporate bonds.
Current wording
Retail. Revenues from our retail client sector increased by $3.4 million or 10.6% to $35.8 million for the three months ended September 30, 2024 from $32.3 million for the three months ended September 30, 2023. The increase was derived primarily from higher revenues for municipals and U.S. corporate bonds.
Previous wording
Market Data. Revenues from our market data client sector increased by $6.5 million or 28.3% to $29.2 million for the three months ended June 30, 2024 from $22.8 million for the three months ended June 30, 2023. The increase was derived primarily from increased LSEG market data fees from our market data agreement that was amended effective November 1, 2023 and proprietary third party market data revenue.
Current wording
Market Data. Revenues from our market data client sector increased by $6.8 million or 29.6% to $29.8 million for the three months ended September 30, 2024 from $23.0 million for the three months ended September 30, 2023. The increase was derived primarily from increased LSEG market data fees from our market data agreement that was amended effective November 1, 2023 and proprietary third party market data revenue.
Previous wording
U.S. Revenues from U.S. clients increased by $51.2 million or 25.5% to $252.1 million for the three months ended June 30, 2024 from $200.9 million for the three months ended June 30, 2023 primarily due to higher revenues for U.S. corporate bonds, U.S. government bonds, rates derivatives products and market data.
Current wording
U.S. Revenues from U.S. clients increased by $71.9 million or 34.6% to $279.7 million for the three months ended September 30, 2024 from $207.8 million for the three months ended September 30, 2023 primarily due to higher revenues for U.S. corporate bonds, U.S. government bonds, money markets, including the contribution from the ICD Acquisition, rates derivatives products and market data.
Previous wording
International. Revenues from International clients increased by $43.1 million or 39.3% to $152.8 million for the three months ended June 30, 2024 from $109.7 million for the three months ended June 30, 2023 primarily due to higher revenues for rates derivatives products, European corporate bonds, market data and European and other government bonds.
Current wording
International. Revenues from International clients increased by $48.7 million or 40.4% to $169.2 million for the three months ended September 30, 2024 from $120.5 million for the three months ended September 30, 2023 primarily due to higher revenues for rates derivatives products, money markets, including the contribution from the ICD Acquisition, European and other government bonds and market data.
Previous wording
Employee Compensation and Benefits. Expenses related to employee compensation and benefits increased by $33.3 million or 32.1% to $137.2 million for the three months ended June 30, 2024 from $103.9 million for the three months ended June 30, 2023. The increase was primarily due to an increase in incentive compensation expense tied to our financial performance, as well as an increase in headcount and related salaries and benefits to support our continued growth. As discussed above, the three months ended June 30, 2024 also included $2.9 million in incremental cash compensation expense and $0.3 million in accelerated stock-based compensation expense associated with our departing President. See “—Trends and Other Factors Impacting Our Performance—Organizational Changes,” above for further details.
Current wording
Employee Compensation and Benefits. Expenses related to employee compensation and benefits increased by $44.1 million or 38.1% to $160.2 million for the three months ended September 30, 2024 from $116.0 million for the three months ended September 30, 2023. The increase was primarily due to an increase in incentive compensation expense tied to our financial performance, as well as an increase in headcount and related salaries, bonus and benefits associated with our continued growth, including the August 1, 2024 ICD Acquisition. As discussed above, the three months ended September 30, 2024 also included $2.4 million in accelerated stock-based compensation expense associated with our former President and $1.4 million in compensation expense relating to acceleration, as of the ICD Acquisition closing date, of unvested stock-based compensation awards previously issued by the ICD seller. See “—Trends and Other Factors Impacting Our Performance” above for further details.
Previous wording
Depreciation and Amortization. Expenses related to depreciation and amortization increased by $4.0 million or 8.8% to $49.9 million for the three months ended June 30, 2024 from $45.9 million for the three months ended June 30, 2023. The increase was primarily due to increases in amortization of assets acquired in connection with the r8fin and Yieldbroker acquisitions on January 19, 2024 and August 31, 2023, respectively, and an increase in amortization of software development costs driven by increases in investment in our infrastructure.
Current wording
Depreciation and Amortization. Expenses related to depreciation and amortization increased by $11.3 million or 24.3% to $57.9 million for the three months ended September 30, 2024 from $46.6 million for the three months ended September 30, 2023. The increase was primarily due to increases in amortization of assets acquired in connection with the ICD, r8fin and Yieldbroker acquisitions on August 1, 2024, January 19, 2024 and August 31, 2023, respectively.
Previous wording
Technology and Communications. Expenses related to technology and communications increased by $5.5 million or 29.6% to $24.2 million for the three months ended June 30, 2024 from $18.7 million for the three months ended June 30, 2023. The increase was primarily due to increased investment in our data strategy and infrastructure and increased clearance and data fees driven primarily by higher trading volumes period-over-period.
Current wording
Technology and Communications. Expenses related to technology and communications increased by $4.6 million or 23.1% to $24.3 million for the three months ended September 30, 2024 from $19.7 million for the three months ended September 30, 2023. The increase was primarily due to increased investment in our data strategy and infrastructure and increased clearance and data fees driven primarily by higher trading volumes period-over-period.
Previous wording
General and Administrative. Expenses related to general and administrative costs decreased by $1.4 million or 5.5% to $23.6 million for the six months ended June 30, 2024 from $25.0 million for the six months ended June 30, 2023. The decrease was primarily due to a $5.7 million increase in foreign exchange gains, partially offset by an increase in travel and entertainment and marketing costs during the six months ended June 30, 2024. Realized and unrealized foreign currency gains totaled $5.0 million during the six months ended June 30, 2024 as compared to $0.7 million in losses during the six months ended June 30, 2023. The change was primarily driven by changes in fair value of our foreign currency forward contracts used in connection with our foreign currency risk management program.
Current wording
General and Administrative. Expenses related to general and administrative costs increased by $13.7 million or 204.7% to $20.4 million for the three months ended September 30, 2024 from $6.7 million for the three months ended September 30, 2023. The increase was primarily due to an $8.7 million increase in foreign exchange losses during the three months ended September 30, 2024 compared to the prior year period. Realized and unrealized foreign currency losses totaled $4.1 million during the three months ended September 30, 2024 as compared to $4.6 million in gains during three months ended September 30, 2023. The change was primarily driven by changes in fair value of our foreign currency forward contracts used in connection with our foreign currency risk management program. Increases in travel and recruiting costs to support our continued growth also contributed to the overall increase in general and administrative expenses.
Previous wording
Professional Fees. Expenses related to professional fees increased by $2.7 million or 24.9% to $13.3 million for the three months ended June 30, 2024 from $10.7 million for the three months ended June 30, 2023. The increase was primarily due to an increase in professional fees related to acquisitions compared to the prior period.
Current wording
Professional Fees. Expenses related to professional fees increased by $11.0 million or 104.5% to $21.4 million for the three months ended September 30, 2024 from $10.5 million for the three months ended September 30, 2023, primarily due to an increase in professional fees related to acquisitions.
Previous wording
Occupancy. Expenses related to occupancy costs increased by $0.9 million or 23.5% to $5.0 million for the three months ended June 30, 2024 from $4.0 million for the three months ended June 30, 2023. The increase was primarily due to higher data center and office rent expense associated with our global expansion.
Current wording
Occupancy. Expenses related to occupancy costs increased by $1.3 million or 31.1% to $5.4 million for the three months ended September 30, 2024 from $4.1 million for the three months ended September 30, 2023. The increase was primarily due to higher data center and office rent expense associated with our global expansion.
Previous wording
Interest income increased by $14.1 million to $42.6 million for the six months ended June 30, 2024 from $28.5 million for the six months ended June 30, 2023 primarily due to an increase in interest income earned as a result of an increase in our average invested cash balance and an increase in interest rates period over period.
Current wording
Interest income decreased by $1.3 million to $16.7 million for the three months ended September 30, 2024 from $17.9 million for the three months ended September 30, 2023 primarily due to a decrease in interest income earned as a result of a decrease in our average invested cash balance as a result of the cash paid in connection with the ICD Acquisition.
Previous wording
Income tax expense increased by $18.0 million to $47.0 million for the three months ended June 30, 2024 from $29.0 million for the three months ended June 30, 2023. The provision for income taxes includes U.S. federal, state, local and foreign taxes. The effective tax rate for the three months ended June 30, 2024 was approximately 25.6%, compared with 22.2% for the three months ended June 30, 2023. The effective tax rate for the three months ended June 30, 2024 differed from the U.S. federal statutory rate of 21.0% primarily due to state, local and foreign taxes and the disallowance of compensation expense tax deductions, partially offset by the effect of non-controlling interests. The effective tax rate for the three months ended June 30, 2023 differed from the U.S. federal statutory rate of 21.0% primarily due to the disallowance of compensation expense tax deductions and state, local and foreign taxes, partially offset by the effect of non-controlling interests.
Current wording
Income tax expense increased by $14.8 million to $43.5 million for the three months ended September 30, 2024 from $28.7 million for the three months ended September 30, 2023. The provision for income taxes includes U.S. federal, state, local and foreign taxes. The effective tax rate for the three months ended September 30, 2024 was approximately 25.0%, compared with 20.4% for the three months ended September 30, 2023. The effective tax rate for the three months ended September 30, 2024 differed from the U.S. federal statutory rate of 21.0% primarily due to state, local and foreign taxes and the disallowance of compensation expense tax deductions, partially offset by the effect of non-controlling interests and the Foreign-Derived Intangible Income (“FDII”) deduction. The effective tax rate for the three months ended September 30, 2023 differed from the U.S. federal statutory rate of 21.0% primarily due to the return-to-provision adjustment and the effect of non-controlling interests, partially offset by the effect of state, local and foreign taxes.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
On August 1, 2024, we completed our acquisition of ICD.
Current report — wording carried from elsewhere
Interest expense increased by $1.0 million to $1.4 million for the three months ended September 30, 2024 from $0.5 million for the three months ended September 30, 2023 primarily due to interest expense incurred on payments due under the Tax Receivable Agreement.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
We earn commission revenue from our 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. For TBA-MBS, U.S. Treasury and repurchase agreement transactions executed by our wholesale clients, we also generate revenue from fixed commissions that are generally invoiced monthly.