Tradeweb Markets Inc.
Q1 2021 Earnings Call Transcript

Published: 2 May 2021

[Operator:]

Good morning, and welcome to Tradeweb's First Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I'll turn the call over to head of US Corporate Development and Investor Relations, Ashley Serrao. Please go ahead.

[Ashley Serrao:]

Thank you and good morning. Joining me today for the call are our CEO, Lee Olesky, who will review the highlights of the quarter and provide a business update; our President, Billy Hult, who will dive a little deeper into some of the growth initiatives; and Bob Warshaw, our CFO, who will review our financial results.

[Lee Olesky:]

Thanks, Ashley. Good morning everyone, and thank you for joining our first quarter earnings call. For more than 20 years, Tradeweb has been driving and responding to changes in electronic OTC trading across rates, credit, equities and money markets. We have done this by harnessing the creativity of our people, redefining the limits of our technology, and collaborating with our customers to solve trading challenges that have only become more complex over time. As a result, we have developed a broad and global network that continues to grow and be central to our connect the dots strategy of linking our markets with the goal of ultimately increasing efficiency for our customers. The word unprecedented has been used numerous times to describe the year that unfolded in 2020. Not for a lack of imagination, but because it genuinely captures a period of great change that made everyone re-evaluate and, in many cases, re-invent the way we think and operate.

[Billy Hult:]

Thanks, Lee. Turning to Slide 7 for a closer look at credit. We produced another record-breaking quarter, driven primarily by a continued rapid growth of our US institutional corporate credit trading business. Clients are voting for the liquidity and innovation we have brought to the market by increasing their trading on Tradeweb. While the past few quarters has been about the rapid progress we have made in IG, the tide is now turning in high yield, where we also had a record quarter. Our fast-growing wholesale and retail middle market businesses were also important contributors. Recall, middle market is an important business where institutional traders trade in smaller sizes. Conditions in our core retail business have improved slightly with the recent steepening of the yield curve. However, they still remain challenged relative to the first quarter 2020, as financial advisors remain reluctant to add lower-yielding municipal and corporate bonds to their clients' portfolios. Looking back, when we set out to bring meaningful competition to the US corporate credit market, we had a clear strategy centered around creating a powerful feedback loop, led by sterile innovation, converging different sectors in the credit market and creating novel electronic and digital solutions for our clients. We believe our strategy is resonating loudly with clients as our market share continues to set new records. While we are pleased with the progress made so far, we strongly believe we have the potential to do even better. We believe our technological innovation is permanently influencing client trading behavior. The latest example being portfolio trading, a light bulb solution which continues to attract more clients globally. Tradeweb facilitated a record $70 billion in portfolio trades in the first quarter 2021 with average daily volume up more than 150% year-over-year, highlighted by record activity both in the US and internationally. In the US, we estimate that the industry portfolio trading now regularly comprises 4% to 5% of TRACE versus 2% at the beginning of 2019. The numbers show portfolio trading has quickly become the next big protocol in credit after RFQ and all to all. Clients are increasingly turning to portfolio trading to discover prices for bonds with low liquidity scores and move large amounts of risk and take advantage of hit rates and quote rates in excess of 90%. The certainty and speed of execution has been game-changing. Behaviorally, clients are increasingly putting dealers in competition, our in-comp portfolio trading volumes have tripled from the last year. Moreover, the size of their trades is growing with a number of line items increasing to record levels.

[Bob Warshaw:]

Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior-year period unless otherwise noted. Let me begin with an overview of our volumes on Slide 9. We reported record quarterly average daily volume in excess of $1 trillion, up 18%, both including and excluding short-tenor swaps. Among the 20 product categories that we publicly disclosed in our monthly activity report, 13 hit quarterly records, while another five achieved their second highest quarterly ADV. Areas of notable growth include US and European government bonds, mortgages, US and European corporate credit, Chinese bonds, European ETFs and institutional repo. Slide 10 provides a summary of our quarterly earnings performance. The record first quarter volumes translated into gross revenues increasing by 16.5% percent on reported and 13.9% on a constant-currency basis. We derived approximately 39% of our revenues from international customers and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 21.6%, and our total trading revenue increased by 17.3%. Total fixed revenues related to our four major asset classes continued to grow, up 6.9% and 3.6% on a constant-currency basis. Credit fixed revenue growth was primarily driven by the addition of new dealers in US credit and additional clients in Chinese bonds. Equities fixed revenue growth was driven by the addition of new dealers and the impact of FX. Other trading revenues were up 19.8%, primarily driven by periodic revenues tied to technology enhancements performed for our retail clients. Market data increased by 7.6% due to growth in Refinitiv proprietary data products. Adjusted EBITDA margin came in at a record of 52% and expanded nicely by 97 basis points relative to first quarter 2020 as we continue to benefit from scale. All-in, we reported adjusted net income per diluted share of $0.43. Moving on to fees per million on slide 11. The trends I'm about to describe are driven by a mix of various products within our four asset classes. In sum, our blended fee per million increased 5%, primarily as a result of stronger growth in higher fee per million greater than one-year swaps, credit and institutional ETFs. Excluding lower fee per million short-tenor swaps and futures, our blended fee per million was up 4%. Let's review the underlying trends by asset class. Starting with rates. Average fees per million for rates was up 7% overall. For cash rates products, which include government bonds and TBAs, fees win was flat as growth in longer-dated, the higher fee per million US treasuries was offset by growth in institutional mortgages, which carry a lower fee per million. For long tenor swaps, fee per million was up 14%, primarily due to growth in international clients, emerging market swaps and RFM. In other rate services, which includes rates futures and short-tenor swaps, average fee per million increased 59% due to growth in frauds, which carry a higher fee per million than overnight index swaps. Continuing to credit. Average fees per million for credit increased 74%, as higher fee per million cash credit projects, such as US and European corporate bonds, saw record volumes, while lower fee per million CDS activity declined compared to a very volatile first quarter in 2020. Drilling down on cash credit, average fee per million increased 2% due to stronger growth in US high grade and US high yield, both of which carry a higher fee per million than overall cash credit. Looking at the credit derivatives, electronically processed US cash credit category, fee per million increased 2%, driven by growth in the US high-grade electronic processed volume, which carries a higher fee per million than the credit derivatives average. Continuing with equities. Average fee per million for equities was up 4% overall. For cash equities, average fee per million decreased by 1% due to a decline in fee per million within US ETFs. This was driven by rising asset values in fleeting notional traded. Recall, in the US, we charge per trade and not for notional value traded. Equity derivatives' average fee per million increased 4% due to growth in European convertibles, which carry a higher fee per million than the equity derivatives average. Finally, within money markets, fee per million decreased 30%. This was primarily driven by growth in institutional repo, which reached record levels and continues to grow. Institutional repo carries a lower fee per million than other mining market products. Retail money markets activity remained pressured by the low interest rate environment. Slide 12 details our expenses. At a high level, we continue to invest for growth. There has been no change for our philosophy here. Adjusted expenses for first quarter decreased 13.4% and 8.8% on a constant-currency basis. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling. First quarter 2021 adjusted operating expenses were higher as compared to first quarter 2020 due to increased employee compensation, technology and communication, G&A and professional fees, which were partially offset by lower G&A. Compensation costs increased 11.7% due to higher headcount as well as higher performance-related compensation and payroll-related taxes. Adjusted non-comp expense increased 17% on a reported basis, primarily due to technology and communications and unfavorable movements in FX. Adjusted non-comp expense, on a constant-currency basis, increased by 0.5%. Specifically, technology and communication costs increased primarily due to higher clearing and bid fees as a result of higher AllTrade volumes in credit and streaming US Treasury values, which continue to grow. In addition, this quarter also saw the continued impact of our previously communicated investments in data strategy and infrastructure. Adjusted general and administrative increased primarily due to unfavorable movements in FX, which resulted in a $1.5 million realized loss in first quarter 2021 versus a $2.3 million realized gain in first quarter 2020. Recall, we adjust out unrealized FX hedging gains or losses and the impact of FX on our cash balances. G&A on a constant-currency basis decreased 23.4%, even less travel and entertainment expense. Professional fees increased 15.3% due to increased consulting fees related to our investment in data strategy and infrastructure technology. Slide 13 details capital management and our guidance. First, on our cash position and capital return policy. We ended first quarter in a strong position, holding $809 million in cash and cash equivalents, and free cash flow reached $473 million for the trailing 12 months. We have access to a $500 million revolver that remains undrawn as of quarter end. CapEx and capitalized software development for the quarter was $12.6 million, an increase of 51% year-over-year primarily due to timing of investment spend. We continue to expect capital expenditures and capitalized software to be in the range of $45 million to $50 million for the full year. Within the quarter's earnings, the board declared a quarterly dividend of $0.08 per Class A and Class B share. We did not repurchase any shares in the quarter because of the lag between approval and final implementation. We expect to plan to begin in the second quarter. As a reminder, we authorized a $150 million share repurchase program which we plan to use primarily to us annual equity grants. Turning to other guidance items for 2021. We expect adjusted expenses to trend in the higher half of our previous $530 million to $560 million range for 2021. We continue to believe we can drive operating margin expansion compared to 2020 at either end of this range. For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year. Finally, on Slide 14, we have updated our quarterly share count sensitivity for 2021 to help you calibrate your models for fluctuations in our share price. Now, I'll turn it back to Lee for concluding remarks.

[Lee Olesky:]

Thanks, Bob. The operating environment still remains subdued, especially across retail, yet organic market share gains and volume increases continue to drive growth. We believe the multiyear secular trends powering electronification and automation remain intact. The regional product and asset class diversity of our revenues was on full display with another strong quarter for credit, rates and institutional equities. While money markets have multiple growth levers despite the noted macro challenges, our network continues to deepen as we innovate and connect the dots between different asset classes, sectors, protocols, regions, and customers. We believe it is this diversity that positions us well to both participate in and lead the next generation of progress. In addition to organic growth and our previously announced NASDAQ fixed income acquisition, we continue to spend time evaluating potential M&A opportunities that we believe would further augment our network, given our cash position. With a couple of important month-end trading days left in April, momentum from the first quarter has continued with overall revenues and volumes up double digits relative to April 2020. We are seeing strong revenue growth across global interest rate swaps and corporate credit. Both electronic investment-grade and high-yield credit market shares are running higher than the last quarter with notable strength across portfolio trading and AllTrade. Before I conclude, I would like to welcome Murray Roos and Von Hughes to our board of directors. We are excited to leverage their voices and experience as operators and strategists, and we believe they will be immensely helpful to the board and our management team. I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to thank my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb. With that, I'll turn it back to Ashley for your questions.

[A - Ashley Serrao:]

Thanks, Lee. As a reminder please limit yourself to one question only. Feel free to hop back into queue and ask additional questions at the end. Q&A will end at 10

[Operator:]

Thank you. And our first question comes from Chris Harris from Wells Fargo. Your line is open.

[Chris Harris:]

Thanks, guys. So, another quarter of obviously very solid growth for Tradeweb. What do you think the normalized level of growth of this business is, putting aside macro factors like interest rates? And related to that, can you give us an update on where you think we might be maybe in terms of an inning with respect to the digitization of the fixed income market?

[Lee Olesky:]

Okay. I'll take that one. Thanks, Chris, for the question. It's a good one. I think, look, when you think about - when I think about responding to this, really, the best answer is to look at the history of our double-digit revenue growth on average that we've delivered for many, many years across different cycles as a real indicator of where we're headed. The reality is that the secular drivers powering the growth are intact across all of our asset class. The most important thing, though, for us, will be continuing our culture of innovation and creativity, where we unearth the new opportunities working with our customers around the world. That's really critical. It's the network that we've built over the last 20 years that allows us to drive and respond to changes - to really drive growth and respond to changes in client behavior by providing them with better tools than they currently have to improve their workflow and reduce their cost. So the acceleration in the digitization of the financial markets is happening right before our eyes. I mean this year was quite extraordinary. We had a record-breaking first quarter in an environment where volatility was relatively more subdued than last year's first quarter. So this is a function of our innovation and our execution that allows us to get these market share gains, but also a broader increase in electronification. Now, if you look at just the US IG sector, that's up over 600 basis points in electronic activity from the first quarter of last year. High yields, even more, 700 or so basis points of growth. And swaps, electronification is 200, 300 basis points of growth from the first quarter. So we believe these trends suggest the behavior is changing and perhaps accelerating a bit. We've been on the forefront of this behavioral change. The success of our innovations has allowed us to account for from more than half of the incremental percentages that have gone electronic. In IG, in the swaps market, the electronic pie is growing. We firmly believe this is a multiyear trend. We still have as one of our main competitors is the phone. So there's so many parts of our business that are primed for more innovation and more advances in technology that will lead to more electronic execution. If you look at just some of our recent current innovations, streaming protocols and treasuries, RFMs and IRS, the great success that we've had with portfolio trading, we were on the cutting edge with that, the first ones out with that. Net spotting, we've got ReMatch in credit, things we're doing in repo with RFQ solutions and equities. So we believe the new world is going to be a more flexible work environment with employees working from home and satellite offices. That's going to amplify the importance of technology and efficiency. And we kind of feel like this is a new era. It's a real changing point. So, lots of opportunities. Salesforce is very engaged. We're ramping up our marketing expenditure to further that, to broaden the network, and we're real excited about the opportunities ahead of us. So, in innings, so I don't know, the innings are different depending on where you are in the world and what the asset class is. So certain rates products are further along but even perhaps the furthest along, the treasury market in the D2C space is only at the fourth inning, maybe going into the fifth inning. IG and credit, 37% electronics, so I don't know, that's third or fourth inning. Swaps is even earlier, right. IRS is only 25% electronics, so that's, I don't know, second inning, third inning. So it really depends on where you are in the world and in the asset class.

[Operator:]

Thank you. And our next question comes from Ari Ghosh from Credit Suisse. Your line is open.

[Ari Ghosh:]

Hey. Good morning, everyone. So maybe one for Billy on the mortgage business. So the mortgage business has done really well in a low rate environment, setting new records last year, but volumes have been a bit more muted recently, growing around 5% in 1Q and lagging growth in other products. So, Billy, just how should we think about the impact of rising yields on Tradeweb's mortgage business? Thanks so much.

[Billy Hult:]

Sure. Hey, Ari. How are you? Good question. I'm going to sort of date myself with this and kind of make Lee chuckle at the same time. I think it was like the second or third business that Tradeweb got into like way back when. And we've been an industry leader in the mortgage space from a very early on moment and have had very strong market share and a really strong brand attached to that business. So a lot of good stuff has always happened with us in the mortgage business in general. It was a really good quarter for us, Ari; a record quarter for us, really strong things happening with our new initiatives around specified pool trading, so lots of good kind of highlights for us. What I would highlight around just the first quarter was really strong activity, specifically around convexity trading in the market. There was kind of good mortgage volatility happening. I always ask myself when I think about how a business is going to perform in different settings, it's a little bit to Lee's point, where are you with your network, right? It's not just about like do we have all of the customers on? Do we have the right customers on? Do we have the right users on right? The mortgage market is interesting and unique because in different settings, different types of companies will do the bulk of the volume. So very low rate volumes typically come from mortgage originators. You guys know that well. In a higher yield environment, you get different types of customers that tend to enter the fray, right. There's delta hedging, there's relative value trades, the asset managers can get more active. So at the end of the day around things that we can control, we have this wonderful network in mortgages. We feel really confident that business will perform in a variety of different settings. And the other thing I would just add is there's a low rate environment and there's a rising moment in a low rate environment, but that's a long way from a high rate environment. So we always have to keep where we are in the yield curve kind of in perspective. And thank you for your question, Ari.

[Operator:]

Thank you. Our next question comes from Rich Repetto from Piper Sandler. Your line is open.

[Rich Repetto:]

Yeah. Good morning, Lee and thanks for the baseball analogies. I want to know whether Billy is the starter, the long reliever, the closer, all this. I think he's all of them.

[Billy Hult:]

You can tell us after.

[Rich Repetto:]

Hey. Anyway, my question is like you've highlighted over all these calls on an ongoing basis the different electronic and digitization efforts you're making whether it's portfolio trading or even passive investing sort of the last time - last quarter. This quarter, at least this all-to-all AllTrade was a bit, at least a little bit new to me. And I guess the question is, your AllTrade or all-to-all trading, it seems like it has more - there's a couple of different platforms in it, it's not just the all to all, the session-based and ReMatch as well. So I guess two questions on the all-to-all. Do you have enough liquidity at this point, say, in credit, if there was something like we had last year, that now it would hold up pretty much in any market environment? And then the second is related still to all-to-all is it doesn't appear like you're taking share of all-to-all from other - from your peer, if I have it correct, is whether you're just bringing more customers into this automated trading environment.

[Lee Olesky:]

Yeah. So let me just start off by saying Billy is an amazing athlete, he can play any position. So I wouldn't even keep him at pitcher, we could put him on third base if we need to. I'll kick it off and Billy, feel free to jump in. Yeah, look, I think what we've been doing in this whole sort of connect the dots strategy and linking in different customer segments of the market with lots of different technology tools is going to continue to really serve us well as it responds to customer demand. So whether or not there's a - and I guess there always will be another crisis, but in response to is there enough liquidity, I think what we're really starting to see here is - well, a, the answer is yes to that in terms of the scope of our network and the different tools we're bringing to bear; but b, look at the functionality, right. So we're attracting more and more customers, particularly when we're talking about credit and all-to-all as a result of the different tools we're offering. So whether it's portfolio trading or linking what we're doing in session-based trading into RFQ or what we did previously with retail into responding to institutional. Now we've got wholesale retail institutional all somewhat linked together with different waterfalls. We think that these advances will assist in any sort of time of stress with respect to liquidity. So it's going to all be about the innovation of these tools and stitching them together nicely. And then at the same time, kind of having this very broad expansive network, that is a very efficient tool for customers at an attractive price. I mean that's what we're doing. We're in a battle to attract the clients to use our system to search for liquidity. And that's going to be a bit of an arms race in terms of the kind of technology you can bring to bear and apply into the market as you're responding to customer needs. So I think we're very well positioned for that. And really, the proof is in the kind of - proof is in the pudding, right. Look at the numbers across the board over the last several years since we've been public. And if you wanted to, you could go back a lot further and see that we just continue to grow. So we're very positive about being able to handle different situations. I mean the situation we dealt with in March last year, and not just us, the whole market, was so unprecedented and just to really a great extent with the help of the Fed, obviously, big help of the Fed, things kind of performed quite well. It was challenging in those first couple of months, but we're very pleased with how we've kind of been riding out the storm and in fact, really just accelerating things. Thanks, Rich. Yeah.

[Operator:]

Thank you. Our next question comes from Alex Blostein from Goldman Sachs. Your line is open.

[Alex Blostein:]

Hey, guys. Good morning everybody. Thanks for taking the question. I was hoping to spend a couple more minutes on credit as well and definitely encouraging to hear your comments around market share and IG high-yield up from - in April from the last quarter from first quarter. It sounds like portfolio trading continues to be a good contributor to that growth. So I was hoping to dig into that a little bit more. Obviously, we've seen industry-wide momentum in portfolio training growing. But can you spend a minute on sort of differentiated features of your offering relative to the competition? It seems like it's getting a little bit more momentum versus what we've seen from others. And then any sense in terms of the revenue contribution from portfolio trading that you could help us with as well? Thanks.

[Billy Hult:]

Hey, Alex. It's Billy. Yes, so listen, not to be a technocrat, I would just slightly change the word from good to great, right. Portfolio trading is becoming fundamentally important to the market. And the reality is, particularly - and you guys can understand this really well, particularly in the environment that we are in, what do customers care about? They care about saving money and they care about saving time. They care about efficiency. And I think in just a very, very specific way, portfolio trading has absolutely resonated with clients' workflow, kind of period. Instead of sort of going through the actual sort of workflow and kind of highlighting like what we do differently because obviously, we're sort of protective of how we build out our functionality, I would say like it's complex. It's a complex workflow, but the end result is simplified to the customer. And I think that's one of the most important kind of principles around it. And I would also highlight something that Lee just mentioned, which was we were sort of like first around this. And I think that gave us a sort of inherent advantage around it. And we paid very specific attention to it very early on and the moment has kind of arrived in a significant way around portfolio trading.

[Lee Olesky:]

Yes. And I would just - I mean, Billy just nailed it, but I would just really emphasize the last point, which is, most of the time, our innovations are iterative, right? So just about everything we've done from the very beginning, you redo, you improve, you improve. So being first is super important. And then being able to deliver on the technology enhancements and portfolio is just a great example of that. We've done it in a lot of other places, but portfolio is a great example. It's a multiyear effort already. We're on our, I don't know, umpteenth version of this that we're putting out. And as Billy said, this is complex. So we are constantly improving it and making it more user-friendly. I remember when we first started off, it was like, okay, let's have 100 bonds in the list for the portfolio trade. Then it was 200, then it was 500, I don't even know what number we're up to right now, but that just continues to grow. And that's complex stuff to make sure you're getting that right and tweaking it and enhancing the functionality is really super important.

[Bob Warshaw:]

And Lee, I'd just add one other thing, which is in portfolio trading, one of the big changes we've seen over the last two years is how much of it now is in comp, two-thirds of it is now in comp, starting from two years ago, 13%. So that's incredibly important because it means there's a lot more price discovery going on and it's being used for that purpose. And as a matter of sort of side helped us the income trade portfolio have slightly higher fee per million. So it's sort of all good in terms of how it's being used and its impact on revenues and on what clients are able to do.

[Lee Olesky:]

Yeah. That's a great point Bob.

[Operator:]

Thank you. Our next question comes from Alex Kramm from UBS. Your line is open.

[Alex Kramm:]

Yeah. Hey, good morning everyone. Just actually staying on the topic of credit and maybe turning the question around a little bit. Clearly, you've made having a lot of traction, and that's exciting. But maybe you can help us talk about where you're not gaining traction or where there's still the largest area of untapped opportunities? Maybe that's certain clients, certain regions, certain types of trades, so - and then, of course, related to that, is there something missing that you're doing? Is it just about sales efforts or is there anything else that you see in the marketplace that somebody else is doing that it actually would make sense to maybe inorganically add to the war chest? Thank you.

[Billy Hult:]

We're competing in credit. We talked about this a lot, the market really wants competition. And I think we're showing you guys through our market share gains that we're a real force and we're competing in credit. When you compete, there's never an area where you don't have anything else to work on, right. So we're always kind of trying to figure out what our soft spots are and how we can improve. I think I would probably highlight maybe high yield as an area where we've made a lot of improvements, and we've had some very recent success, but we feel like we can get even stronger in high yield. And obviously, one of the big areas that we're always kind of after are the block trades, right. And I think one of the - a little bit back to Alex's point or Alex's question, I think one of the real kind of important realities around portfolio trading is it's become a real kind of risk transfer mechanism now. And so I think the thing that we talk about a lot is how are we going after these block trades and how are we getting sort of more voice business coming our way. And that is our kind of singular focus always around credit.

[Operator:]

Thank you. Our next question comes from Ken Worthington from J.P. Morgan. Your line is open.

[Ken Worthington:]

Yeah. Hi, good morning. So emerging markets, I think, continues to be a priority for you. Can you talk about the success - building on the success you've had in China, can you talk about moving the ball forward to grow emerging market trading? Maybe what is resonating most with clients? And actually, how big EM is relative to the broader business at this point?

[Lee Olesky:]

Sure. Thanks for that, Ken. Look, just to hit on China for a second. We obviously see that as a very large opportunity, and we've been making investment there. We've announced some hires that we made. We hired James Sun, who runs the business out of Shanghai. We've made some minority investments in the data company Sun's co, and we continue to see really great growth coming out of China. The emerging markets side of things has been - we started kind of where - with our strength in the derivatives area. So you see us reporting on new types of trades that we're instituting and we are investing in the space. You've got the China side. You've got the derivative side. You've got the cash side, which is an opening for us, which we're studying and putting more time and energy into. So we see a lot of opportunity in EM, but you'll see us coming at it with our strengths, which is tapping into the network, doing some clever things on the technology, strength in derivatives, geographic diversity that we have. I think we're pretty unique. We were the first firm actually into China, allowing access into the domestic market there. That was, I don't know, three years or so ago already at least. And we've had steady growth coming out of that, so exciting area. I think it's a great question Ken in an area that you'll be hearing more from us about in the future.

[Operator:]

Thank you. Our next question comes from Michael Cyprys from Morgan Stanley. Your line is open.

[Michael Cyprys:]

Hey, good morning. Thanks for taking the question. Just be curious to hear your outlook on the muni market. Just how you're thinking about the opportunity set there? Any new protocols that you think can make sense? And as we look at your muni market business, I think retail business is bigger for you in munis than institutional, if I'm right. So I guess just any color on the channels would be helpful and how you're navigating bringing the different liquidity pools together from the retail and institutional side that have different needs.

[Billy Hult:]

Yeah. So the muni market is really kind of - it's still - in kind of April 2021, it's still just really kind of a little bit of old school, kind of old school market, right. And so we feel like we're in a really good position around munis because obviously, the role that munis play in our retail business, we have a wholesale muni business. And there has been, to your question, a lot more kind of conversation and engagement around, is this the right time around a real kind of institutional muni platform? That feels a lot like how we've electronified other markets. And so what we are going to do is we're going to do kind of, I think, something that we've historically done well, which is collaborate with the community and figure out whether or not this is the right moment to really kind of go after this space in a strong way. There are some absolutely interesting signs kind of pointing in that direction now. And we are kind of, again, kind of sitting back a little bit. The fact that we have the muni business on the retail side, the fact that we're in the wholesale business in munis kind of gives us a little bit of this kind of edge that we always look for. And the next step is going to be this real engagement and collaboration with the external community, which is kind of always our kind of lead point as we kind of push these different business developments forward.

[Operator:]

Thank you. Our next question comes from Dan Fannon from Jefferies. Your line is open.

[Dan Fannon:]

Thanks. My question is on the fixed revenues. They continue to grow and you talk about new kind of customer adds across a host of your businesses. So just trying to get a sense of the outlook as we think about this year, the trajectory of growth and kind of the fixed revenue, how we should think about that?

[Bob Warshaw:]

There are several components to it, so let me talk about the components, and it really comes in two parts. One is fixed revenues associated with our trading businesses. And in that particular area, we sort of see a big kind of consistent growth year-over-year, which has been lower single digits. And we expect that to continue, and that comes from adding new dealers, in some cases, new products, sometimes changing slightly the way the mix between fixed and variable works for certain clients as they have choices to make related to that, as they can determine some of their minimums. So that's the trading side of it. The other piece of it is our information services, is a big part. And there, we expect the growth to be more in the mid-single digits at least in the short term, and that's related to continuing to add new product to also some are adding customers to IT reporting in Europe, and also the Refinitiv contract that we have, so really all the parts kind of contribute to that piece of it. And I think a key other thing to think about when you're thinking about these things is, particularly for the growth in our information services, we are investing in that area and all of that investment is included in our projections on expenses. So it's all sort of part of how we're operating the business at this point, and that's important because we are focusing in that area. So it's those two pieces and somewhat consistent with what you've been seeing in both cases.

[Operator:]

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

[Kyle Voigt:]

Hi. Good morning. You mentioned in the prepared remarks about gaining share versus Bloomberg, I think it was related to IRS specifically. If we look at that market, your market share gains from 7.2% to 11.8% year-on-year. Could you help us frame what proportion of that you think is related to market share shifts versus Bloomberg relative to just electronification of voice brokerage? And then secondly, do you think you're seeing any benefit from the trading fee changes more broadly that were proposed at Bloomberg? Thank you.

[Lee Olesky:]

Yeah, let me take a crack at that, Kyle. Thanks for the question. I think, just context, IRS, holistically, we put at about 25% electronic these days, so let's just say first quarter of '21. If we go back to first quarter of '20, we had it at about 20%, so pretty significant percentage growth, 500 basis points. So we've had meaningful growth there. And you can look at our numbers, and we think we're picking up the majority of that movement that's coming more electronic, so that's always a - that's a big component depending on where the asset classes and the life cycle of electronification, so we're picking up a lot there. We're also - this is a tough one to nail down because it's not all publicly disclosed stuff, but we do think we're picking up market share as we have pointed out in our recorded comments and historically. I don't know what the exact number is, but we're gaining there. I wouldn't - it's hard to comment on whether that's the talk of pricing at our competitor. I think it's always down to liquidity, first and foremost, functionality, responsiveness. The clients come to our system because of our interface, because the main desire is to find the best possible price. And I think we've been leading the way with respect to that in the swap space, in addition to innovation. I wouldn't say it's a fee-based thing per se but costs are critical. Billy said this before. It's all about efficiency, time efficiency. First and foremost, liquidity, time, efficiency and cost, reducing costs, so those are big, big issues across our customer base that we're very mindful of and I think we've played well to that, as you can see from the results that we had in the first quarter.

[Operator:]

Thank you. Our next question comes from Brian Bedell from Deutsche Bank. Your line is open.

[Brian Bedell:]

Thanks. Good morning, folks. Thanks for letting the call go past 10

[Billy Hult:]

Yeah, it's critical, right, because it absolutely kind of channels into exactly what we were talking about before, which is like save me time, save me money. And it absolutely accomplishes both of those things. We get asked a lot like where is your kind of competitive moat around this, and we feel really strongly about it. Obviously, we feel like the workflow just absolutely sinks in with the biggest participants in the market. And we feel like our rates franchise, obviously, is the kind of engine around the pricing that gives so much comfort and credibility to what we've done. So we feel as kind of confident about this functionality as we did when we first started talking about it with you guys a year ago or 18 months ago, really. It is an absolutely fundamentally important and critical component to the biggest kind of credit consumers in the marketplace. And that's a strong statement, and it makes us feel like we've accomplished something significant. Thank you, Brain.

[Operator:]

Thank you. Our next question comes from Sean Horgan from Rosenblatt Securities. Your line is open.

[Sean Horgan:]

Hi, guys. Good morning. Thanks for taking my question. I just had one more on the market data side of things. Can you give us an update on market data solutions? Where are you seeing traction versus a year ago? And I think you already touched on growth. So anything more there would be great.

[Lee Olesky:]

Hi, Sean. I'll take a stab at that. I think everyone is getting worn out. Thanks for the question. Yeah, look, market data is a combination for us of growth that we've got with our redistribution agreement with Refinitiv and our own focus on things that we're doing from a proprietary standpoint that we're delivering out to the market. It's an area of real opportunity. We think, especially in light of the work-from-home environment, data just becomes that much more essential, but also just the way the electronification of the market is going. So we've started this journey with market data thinking about how can we enhance the experience for our clients in terms of execution. So we've got focuses on the AI pricing, so we're driving prices now in tens of thousands of different bonds across the spectrum, obviously, in credit and other areas now that we're looking at and actually implementing on. So we think we have opportunity there. We're focusing on closing prices. So we've got a number of initiatives where we've launched closing prices in partnership with different firms and ourselves to establish that closing price. There's so much activity that occurs on the closing, and that's just increasing. So look, overall, it's a big area of focus. We've invested and recruited some tremendous talent in both the data science side, the tech side and also on the product leadership side. We've got new leadership in place there now for a little over a year. Although I'm reminded that's one of the people who's probably only spent about a month actually in the office. So it's amazing what we've been able to accomplish in this remote kind of setting. Yeah, it's an exciting area and I think one where we expect to have continued growth along those two lines that I mentioned.

[Operator:]

Thank you. And that does conclude the question-and-answer session for today's conference. I'd now like to turn the call back over to Lee Olesky for any closing remarks.

[Lee Olesky:]

Thank you. Let me just say quickly thanks, everyone for joining us this morning. We started '21 on a very strong note. We remain excited about the rest of the year and tackling the multiyear opportunities in front of us. And obviously, if you have any follow-up questions, please feel free to reach out to Ashley or anyone on the team. So thanks a lot for joining us and we look forward to talking to you next quarter. Thanks.

[Billy Hult:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect. Everyone, have a wonderful day.