Tradeweb Markets Inc

NASDAQ:TW

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, and welcome to Tradeweb's First Quarter 2020 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 the Head of U.S. Corporate Development and Investor Relations, Ashley Serrao. Please go ahead.

[Ashley Serrao, executive]

Thank you, and good morning. Joining me today for the call are our CEO, Lee Olesky, who will review the highlights for the quarter and provide a business update; our President, Billy Hult, who will dive a little deeper into some growth initiatives; and Bob Warshaw, our CFO, who will review our financial results. Our first quarter earnings release, accompanying presentation and April volumes report are available on the Investor Relations portion of our website.

I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance, including 2020 guidance and the COVID-19 pandemic, the potential impacts of which are inherently uncertain are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from the forward-looking statements is contained in our earnings release and periodic reports filed with the SEC.

In addition, on today's call, we will reference certain non-GAAP measures. Information regarding these non-GAAP measures, including reconciliations to GAAP measures, are in our posted earnings release and presentation.

Lastly, we provide certain market and industry data, which is based on management's estimates and various industry sources. See our posted earnings presentation for more details.

To recap, this morning's results were consistent with our recent earnings preannouncement. Specifically, we reported GAAP earnings per diluted share of $0.25. Excluding certain noncash stock-based compensation expense, acquisition and Refinitiv-related D&A and certain FX items, and assuming an effective tax rate of 22%, we reported adjusted net income per diluted share of $0.37. Please see the earnings release and the Form 10-Q to be filed with the SEC for additional information regarding the presentation of our historical results.

Now let me turn the call over to Lee.

[Lee Olesky, executive]

Thanks, Ashley. Good morning, everyone, and thank you for joining our first quarter earnings call. Before we begin, we'd like to acknowledge this extraordinary crisis, which is unlike anything we've ever experienced before. The human suffering and loss is immense, and our thoughts are with all the medical and other essential professionals on the front line and those impacted by the pandemic globally.

For Tradeweb, this is the first time that a significant number of market participants in our 950-plus employees in every region of the world in which we operate have been working remotely. Our clients' amazing ability to shift trading and risk management to a virtual environment and during a period of immense volatility is a testament to the rapid evolution of Wall Street driven by investments made to digitize the trading life cycle. But there remains plenty of room to do even more. We expect these investments to accelerate as risk management playbooks are rewritten and inefficient manual processes are heavily scrutinized.

Not having a robust and tested electronic trading strategy is no longer an option in this new era for trading. We are already seeing clients who have cautiously made investments in electronic trading demonstrate renewed enthusiasm for the efficiencies that our arsenal of solutions is able to provide across asset classes. As the market gradually stabilizes, Tradeweb has transitioned back from solely focused on helping our clients trade significant risk and ensuring system stability in March to actively developing and selling our innovations in April and so far in May. We believe a key factor leading to market stabilization has been the effort of central banks globally who are using the government bond markets to finance their support of the fixed income ecosystem and of course, the broader economy.

We believe our solutions at Tradeweb have only become more critical to clients who currently are and we expect will continue to be very active in absorbing the trillions of forthcoming government bond issuance as deficits widen especially in the U.S. and Europe.

We remain excited by the opportunity ahead of us. We have navigated a variety of challenging environments over the years at Tradeweb, but we believe that we have never been in a position where the diversity of our business model has been stronger or where the array of growth opportunities has been as compelling as it is today. We also have a strong balance sheet that allows us to be opportunistic, and we remain committed to delivering strong revenue growth and driving margins higher over the long term as our investments scale globally.

Overall, I feel good about our resilient business model, how we're managing the complexity of changing global conditions and how we continue to help our customers during these unprecedented times.

Turning to Slide 4. We reported the strongest first quarter in our history and set multiple new volume records across our products. While the volatility in March partially drove increased trading across our platform, the investments we've been making over the years powered a strong start to the year with the volumes we saw in January setting the stage for a very strong first quarter. Looking ahead, given our healthy pipeline of investments and innovations, we look forward to helping our clients transact even more volume on our platform.

Specifically, record gross revenues of $235 million during Q1 were up approximately 26% year-on-year on both a reported and constant currency basis. Our financial performance was once again characterized by strong growth, both domestically and internationally. Our continued double-digit revenue growth and the resulting scale translated into improved profitability as our first quarter adjusted EBITDA margin increased to a record 51%.

Turning to Slide 5. You can see the diversity of our revenue growth as our biggest asset classes, rates and credit continue to grow strongly. Specifically, they both registered their ninth consecutive quarter of double-digit revenue growth. Our other asset classes also grew by double digits, with equities and money market revenues growing by 65% and 17%, respectively, on a reported basis. Our data business grew by 10%, capping a very strong quarter overall.

Moving on to Slide 6. Let me provide a brief update on our 4 main focus areas: global interest rate swaps, U.S. treasuries, U.S. credit and global ETFs. Starting with our largest rates product by revenue, interest rate swaps, our total volumes were up over 62% year-on-year. First quarter with swaps greater than 1 year in duration growing by 12%. Overall, global IRS share for the first quarter increased to over 7% growing substantially year-over-year. We believe we've gained meaningful share versus our closest competitor, Bloomberg, in both the U.S. and Europe, especially as volatility picked up in March. Clients were able to confidently leverage our deep liquidity pools and range of trading tools, including our flagship compression and newer RFM and package trade protocols to exchange substantial amounts of risk.

We believe the significant potential for our interest rate swap franchise remains an underappreciated element of our story. We recognized the interest rate swap market opportunity in the mid-2000s, investing to pioneer the first electronic trading solution guided by our belief that the efficiencies we brought to other large rate markets, such as government bond markets and the mortgage markets, would also resonate with interest rate swap traders.

We were early. And after the first wave of regulation, led by Dodd-Frank in 2013, electronification accelerated. Since then, the investments we have made to improve our functionality helped clients navigate regulatory changes and our ability to offer trading in correlated and adjacent asset classes like mortgages and government bonds have all combined to drive significant market share gains and make us the leading venue for clients to trade interest rate swaps.

But there remains plenty to do. This is a multiyear story. Looking ahead, we continue to be very focused on driving further electronification higher in this market by partnering with our clients to broaden our product set, enhance our functionality and improve workflows. We've also provided more pricing disclosure to help you model this opportunity going forward. Billy will provide a detailed overview of our current growth initiatives and outlook in a few minutes.

Moving on to U.S. treasuries. Our volumes were up nearly 14% year-on-year. The volatility across the curve was exceptional during the month of March. In more than 20 years of trading treasuries, we've never seen the market try to navigate a global crisis quite like this. Amidst this challenging environment, I'm pleased to report that our organic growth initiatives have helped us to continue to take share using a variety of different trading protocols in both the institutional and wholesale sector. We estimate that our share during the first quarter increased year-on-year to 12.5% of the entire U.S. treasury market.

Our wholesale streaming platform continues to gain traction as an alternative to the traditional order books and our list trading tools proved to be an especially popular tool to help clients navigate the volatile environment. We've not seen any meaningful impact on our volumes from the daily Fed purchases, which have continued to decline as markets stabilized since March -- early March.

As I mentioned earlier, we believe the ongoing and forthcoming wave of U.S. treasury issuance to finance the widening government deficit should bode well for secondary cash trading.

Our credit business hit a new milestone, crossing $50 million in quarterly revenues for the first time, powered by both our cash and derivatives franchise. We saw broad-based strength across global corporate credit, municipals and CDS. Like interest rate swaps, we believe there remains plenty of runway to meaningfully grow credit revenues from here in the coming years across our products.

To help you model our progress, we have enhanced our fee per million disclosure today so that you can better appreciate the growth potential, especially with electronic cash credit which carries a considerably higher fee per million than the blended rate you've been accustomed to seeing from us.

Fundamental to our credit business is our institutional credit business, which today encompasses U.S., European and Chinese cash credit, U.S. municipals and CDS. These businesses collectively comprise the majority of our credit revenues and grew by 60% year-on-year during the first quarter.

With that said, in our efforts to build the deepest pool of liquidity, we recognize that dealer-to-dealer business is equally important as we go after the entire global electronic credit wallet across sectors. We continue to strongly believe that as electronification accelerates, we will be able to further connect the liquidity pools across all of our 3 customer sectors over time. Billy will provide more details on what transpired in March and our growth efforts here momentarily.

Finally, within equities, this quarter was highlighted by institutional ETF volumes that were up 73% due to a combination of elevated volatility, for sure, and our organic growth efforts. Going ahead, we remain well positioned to benefit from the continued growth of ETFs globally and are focused on expanding our client footprint. The ETF market functioned really well during this period of volatility and proved to be a good way to transfer large amounts of risk in a single transaction. Block trading ETFs through RFQ continues to see more demand and the occasional disconnect between NAVs and prices of the ETFs did not impact our business.

With that, I'm going to turn it over to Billy.

[William Hult, executive]

Thanks, Lee. And let me also start by acknowledging the human toll of this pandemic. Our thoughts and prayers are with all those impacted.

As Lee mentioned earlier, we were able to shift swiftly and successfully to working remotely, and we are very fortunate to have a business model that can make this transition and still thrive by serving our clients. Innovation has been and will continue to be the key to our success going forward.

At a high level, as extreme volatility gripped the markets in March, we saw a flight to quality liquidity, where our customers sought to transact against the best prices available. We also saw a flight to safety where our customers used all the tools at their disposal to make their workflows less risky and safer. Auto-execution waned especially in illiquid asset classes as auto-quoting capabilities were paused across dealer desks. While absolute volumes increased year-over-year during the first quarter, we saw the percent of institutional trades executed via AiEX drop to 17% in March and over 25% in January and February.

Looking ahead, as market conditions continue to improve following various ongoing and looming Fed actions, we believe AiEX will continue to grow in the future and remain a critical tool. We have already started to see a recovery in European AiEX usage in April. And given the global nature of these institutional clients, U.S. activity has picked up meaningfully recently.

In this work-from-home environment, we have become the virtual Street, meeting customers where they are and helping them manage meaningful amounts of risk. Our sales force and product teams are very engaged with our clients as much as possible the Tradeweb experience our customers had at their trading desks is the experience they are getting at home.

It is also changing how people work on our platform as clients streamline and optimize their trading processes. Straight-through processing, which is not something that normally makes headlines for us is something that customers are relying on when they're away from their desk. We believe that these behavioral changes will be sticky. When combined with the discrete growth opportunities that I'm about to discuss in swaps and credit, I continue to be very excited about the future at Tradeweb.

Turning to Slide 7. As Lee mentioned, interest rate swaps are one of our largest products at Tradeweb, and we believe there is a lot of runway for growth. The chart on the top left corner shows that the global IRS market today as measured by Clarus trades in excess of $3 trillion daily. We estimate electronification to be around 20% to 25%, leaving plenty of runway for the market to catch up to other markets like in U.S. investment-grade credit in the 25% to 35% range or even European corporate credit at 50% to 60%.

Digging into the financials, this business grew revenues by 35% year-over-year in the first quarter, marking the ninth consecutive quarter of double-digit revenue growth. A significant majority of our swaps revenue is variable, giving us the ability to take advantage of increasing electronification and the growth of the market over time. And 99% of our revenue is generated from long-tenor swaps in excess of a year given our duration-dependent fee model.

In 2019, our full year swap share averaged nearly 8% across our products. It is important to appreciate that all swaps products are not created equal. On the bottom left corner of the slide, you can see the nuances of our swaps franchise across 3 products: core IRS; overnight index swaps, or OIS; and forward rate agreements, or FRAs.

In our core IRS market, which includes vanilla, basis and inflation swaps, we estimate we are the leading platform with 14% share, having gained nearly 800 basis points of share over the past 3 years as electronification of the swaps market accelerated in response to regulation and our organic efforts.

Core IRS is where 85% of the industry revenue opportunity lies, and we estimate that our 14% overall share gives us 60% to 70% share of the electronic market. At the same time, we have grown our presence in OIS and more recently in FRAs, as clients increasingly embrace electronic solutions across swap products.

Looking ahead, in addition to building on existing momentum in major currencies, we are investing across the board to help accelerate the electronification of the market over the coming years. Specifically, we are entering the emerging markets swaps market, where we continue to invest to grow our currency footprint today. Large asset managers that are fully integrated into Tradeweb for major currencies are using the same infrastructure and working with us to further enhance our access to liquidity.

We are actively onboarding dealers to provide liquidity and satisfy the demand we are seeing from clients in 2020. Another area of focus is expanding wholesale session trading to FRAs, where we spent 2019 investing and building this offering, and we just exited beta mode during the first quarter. We are also growing RFM for -- requests for market for interest rate swaps, which helps client hide their intent to buy or sell by requesting a 2-sided market.

Finally, we are continuing to grow our electronic solutions for historically voice-traded products such as swaptions and multi-asset package swaps. We have already traded $29 billion in multi-asset package swaps since our launch in August last year.

So in sum, we believe the swaps opportunity is meaningful with a multiyear runway and our rates franchise is very well positioned to continue growth anchored by swaps and complemented by other opportunities, especially in U.S. treasures (sic) [ U.S. treasuries ].

Honing in on U.S. corporate credit on Slide 8, where we also see a very meaningful near- and long-term opportunity, especially in electronic credit. Our momentum continued in the first quarter as our network and share continued to expand as our investments pay off. The unprecedented level of volatility that gripped the credit markets in March as fears around the pandemic intensified allowed us to battle-test many of our recent innovations, and we are pleased to report that they held up really well.

Specifically, net spotting grew to a record $68 billion during the first quarter, and U.S. portfolio trading also grew to a record $23 billion. With respect to net spotting, clients were able to rely on our benchmark treasury composite pricing and our deep institutional U.S. treasury liquidity pool to successfully hedge their trades in a volatile environment. As clients work from home, demand here has accelerated. In addition, portfolio trading proved to be a more efficient way to trade as opposed to executing multiple RFQs and in some cases, executing via all-to-all.

We continue to see a lot of portfolio -- a lot of potential for portfolio trading globally in our first full quarter since launch. We executed $6 billion in volume across European and emerging markets corporate debt. While March was a very strong revenue month, we saw less AiEX in institutional RFQ activity. Behaviorally, the RFQ flow we did see from clients shifted to all-to-all execution. Consequently, our all-to-all volumes reached a new record during the first quarter.

Institutional RFQs are fundamental to our credit business and a key component of our recent growth. We've seen a rebound in RFQ activity in April and we expect to continue to grow this business as clients expand their engagement within our system. Looking ahead, we are laser-focused on scaling and enriching our all-to-all network. Earlier this year, we rolled out several workflow enhancements, and we have several more in the pipeline. This will be a multiyear investment, and we look forward to reporting on our success as we deepen our all-to-all liquidity pool.

We also saw less volume within our fast-growing wholesale session trading protocol as elevated volatility made it difficult to derive a price for each session. As the credit markets continue to recover and volatility subsides, we have started to see our session activity gradually increase towards the end of April. Session trading remains a very valuable protocol for dealers to clean up balance sheets, and we believe will provide -- we believe will prove to be increasingly useful as the dust settles and dealers are left to digest record levels of issuance. Session trading like portfolio trading is in its early stages with a lot of potential, and we are leading the innovation here.

Turning to the rest of our credit business. We believe one of our strategic advantages is the diversity of our credit franchise, which allows us to participate in the electronification of a variety of credit products. Our CDS business, which we primarily compete against Bloomberg and MarketAxess, hit a new record as we continued to gain more market share as measured by Clarus and benefiting from increased volatility.

In addition, U.S. municipal trading also increased substantially, especially in March, as clients were able to take advantage of our deep liquidity pool as volatility intensified. As a result, our institutional and muni business also reached a new volume record.

Overall, we feel really good about the growth potential in credit. We have a strong client and product pipeline, and we are laser-focused on executing on our various growth initiatives and launching the next wave of innovations.

And with that, let me turn it over to Bob to discuss our financials in more detail.

[Robert Warshaw, executive]

Thanks, Billy, and good morning. Let me start by also taking a moment to acknowledge the tragic human loss and thank everyone working to help us get through all of this. I'd would also like to thank my team who closed our books seamlessly in a remote environment this quarter.

As we indicated, our continued year-over-year growth in volumes, revenue, earnings and improved margin in the first quarter of 2020 as well as our volumes in April continue to give us confidence that by providing sustained value for our clients, we also are creating sustained value for our shareholders.

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 ADV of $898 billion, up 39%. And as you can see, the growth was broad-based. Our organic growth initiatives powered the bulk of the quarter, especially in January and February. On the one hand, in March, our organic efforts were amplified by seasonal strength in our derivatives products. On the other hand, the impact of volatility was mixed. In some markets like ETFs and to a certain extent, derivatives, volatility helped amplify our share gains. In other markets, extreme volatility and the imbalance between selling and buying interests, especially in more illiquid markets, provided its own set of challenges. With that said, we believe the diversity of our business is one of our strengths, and we continue to invest to capitalize on the opportunities ahead of us.

During the quarter, we saw ADV records in U.S. and European government bonds, mortgages, swaps greater than 1 year in duration, global cash credit, credit derivatives, equities and repo.

Slide 10 provides a summary of our quarterly earnings performance. The strong volume growth I've just described translated into gross revenues increasing by nearly 26% on a reported and constant currency basis. We derived approximately 38% 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 43%, and our total trading revenue increased by 27%. Fixed revenues related to our 4 major asset classes continued to grow as expected. Other information services increased by 20%, led by increased market data revenue from our APA business.

Adjusted EBITDA margin came in at 51%, exceeding 50% for the first time since we went public and expanded nicely relative to one -- first quarter '19 as we continued to benefit from scale. All in, we reported adjusted net income per diluted share of $0.37.

Moving on to fee per million on Slide 11. Today, we are providing more color on the variable fees per million we generate on our cash and derivative products to help you better calibrate your models. We have not made any changes to our fee schedules. The trends I'm about to describe are driven by mix of the various products within our 4 asset classes. In sum, our blended fee per million increased 1% year-over-year, excluding lower fee per million short-tenor swaps, our blended fee per million was up 10% year-over-year.

Let's review the underlying trends by asset class. All trends will be discussed on a year-over-year basis. Starting with rates. Average fees per million for rates was flat overall. For cash rate products, which include government bonds and TBAs, fee per million increased 5% due to growth of specified pools activity in mortgages. Specified pools carry a higher fee per million than the cash rates average.

For long-tenor swaps, fee per million increased 32% year-over-year due to growth in noncompression activity. Noncompression swap protocols carry a higher average fee per million than the long-tenor swaps average and fluctuates from quarter to quarter.

In other rates derivatives, which includes rates futures and short-tenor swaps, average fee per million decreased 59% year-over-year due to growth in short-tenor swaps activity, which carries a comparatively lower fee per million in the futures.

Continuing to credit, average fees per million for credit declined 31%. This was primarily driven by mix shift to credit derivatives given the seasonal index roll activity, organic market share gains and elevated volatility. Drilling down to cash credit, average fees per million decreased 3% due to mix shift away from municipals, driven by faster growth in the U.S. high-grade and high-yield credit products. Munis carry a higher fee per million than the cash credit average.

Looking at the credit derivatives electronically processed U.S. cash credit category, fee per million decreased 6% due to higher credit derivatives activity driven by market volatility and organic market share gains.

Continuing with equities. Total asset class and equity derivatives average fees per million decreased 27% and 58%, respectively. This was primarily driven by growth in U.S. equity options, which carry a lower fee per million than in other equity products. We expect U.S. equity options to continue to grow as we onboard clients and as liquidity builds. Cash equities average fee per million decreased 12% due to growth in U.S. ETFs, which carry a lower fee per million than the cash equities average.

Finally, within money markets, fees per million decreased 8%. This was primarily driven by growth in repo, which carries a lower fee per million than other money market products.

Slide 12 details our expenses. At a high level, we continue to invest for growth. There has been no change to our philosophy here. As a reminder, adjusted expenses excludes noncash stock-based compensation expense related to options, acquisition and Refinitiv-related D&A and certain FX-related gains and losses. Adjusted expenses for first quarter increased 7.8%, 10.7% on a constant currency basis. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling.

First quarter 2020 operating expenses were higher as compared to first quarter of 2019 due to increased employee compensation costs. Compensation costs were higher year-on-year due to increased commission expense associated with our increased wholesale revenue as well as higher performance-related compensation. Adjusted noncomp expense declined 1.6% or increased 6.5% on a constant currency basis.

Specifically, general and administrative fees declined as the euro appreciated against the pound. This resulted in approximately a $2 million FX gain in our accounts receivable. Recall, we expense all gains and losses tied to accounts receivable and only adjust out unrealized FX gains and losses tied to our hedges and translation of our cash balances.

On a constant currency basis, which excluded all FX gains and losses, general and administrative expenses were up 19.6% due mostly to increased insurance expenses associated with being a public company. We expect G&A to trend around $10 million to $11 million a quarter, excluding the impact of FX going forward in 2020.

Slide 13 details capital management and our guidance. First, on our cash position and dividend policy. We ended first quarter in a strong position, holding $424 million in unrestricted cash and cash equivalents and free cash flow reached $266 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 for the quarter was $8.4 million, an increase of 1% year-over-year, in line with our expectations.

With this quarter's earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share.

Turning to guidance for 2020, which remains unchanged, we will continue to invest in 2020 and are expecting adjusted expenses to range from $495 million to $510 million. We continue to believe we can drive operating margin expansion compared to 2019 at either end of this range.

For forecasting purposes, we are using an assumed non-GAAP tax rate of 22% for the year. We also expect capital expenditures and capitalized software to be in the range of $45 million to $50 million.

Finally, let me discuss our share count. We have updated our quarterly share count sensitivity for 2020 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, executive]

Thanks, Bob. As I noted in my recent shareholder letter, the future for Tradeweb is bright. We have an exciting plan that we are executing against across our asset classes, and our diversity affords us a variety of opportunities to improve client workflows. Driving strong revenue growth and balancing associated investments with margin expansion continues to be our top priority.

Today's additional fee per million disclosure should help shed more light on the drivers of our double-digit revenue growth and illuminate the vast potential we see for our rates and our credit business. We think we are very well positioned to capitalize on what we believe will be an acceleration in electronification coming out of this pandemic.

The momentum we saw to start the year has continued into the beginning of the second quarter, with April volumes increasing 15% year-over-year with broad-based growth across our 4 asset classes. The rates markets are in substantially better shape than March, and the credit markets are improving gradually as market function improves.

I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter. And I want to especially thank my colleagues for their efforts that have contributed to our strongest first quarter in our history under very difficult circumstances.

With that, I'll turn it back to Ashley for your questions.

[Ashley Serrao, executive]

Thanks, Lee.

[Operator Instructions] Operator, you can now take our first question.

[Operator]

And our first question comes from the line of Jeremy Campbell from Barclays.

[Jeremy Campbell, analyst]

I hope you guys are all well. Lee, I'm just wondering how you've seen the client base grow or evolve in this work-from-home environment. I imagine maybe like the demand for electronic offerings from existing customers under remote working conditions has increased. But I also wanted to get a sense of what new client wins look like in this environment.

[Lee Olesky, executive]

Jeremy, thanks for the thoughts and the question. I hope you're doing well, too. So yes, look, electronification is a multiyear secular trend, right, those benefits, we've all been aware for some time. What I would say is, sometimes you have catalysts that accelerate things. And in my career, doing this for a while now, the first catalyst was tech innovation, literally the Internet in the '90s, then we kind of fast-forward into some regulatory post '08. We saw that as an accelerant. And candidly, right now, it's obviously a different dynamic, but we have another significant change that's going to accelerate things.

So the work-from-home environment is -- we're not going to snapback to the way things were. I've said that repeatedly, and I feel very strongly about it.

To answer your question more specifically, yes, we're adding clients, we're adding users. We're very pleased with that. I think when you really break it down, March was just a -- was different from April, which is -- even in May now, we're seeing some more changes to the environment. We've got a number of wins. I mean, you saw our volumes for April. So April was a very strong month for us as -- what I would suggest as things started to normalize a bit, whatever the new normal is. But we've added activity in institutional munis with respect to clients looking for alternatives to voice. We've seen more of an uptake in specified pools as people move from chat to E. Billy mentioned this increase on the credit side, significantly increased interest in net-spotting, which reduces manual booking and hedges trades in volatile times, but also it's just an easier process for everybody, same thing with the portfolio trading, which has surged. In repo, we've got more STP functionality. So we're -- look, we're seeing increased demand, and we're seeing an acceleration kind of across the board. But every month and every day, in some respects, is some new lessons that we're picking up. But we're very pleased with how we've performed as a company.

[Operator]

Our next question comes from Ari Ghosh from Crédit Suisse.

[Arinash Ghosh, analyst]

So Lee, maybe you can take this. You touched on your tech-heavy nimble business model. So just could you talk maybe about new launches that have either enhanced platform functionality and products to help customers navigate this crisis? And then related to that, could you also touch on how COVID-19 has impacted new product development and key initiatives for 2020, just given that folks are not in the same vicinity and some technicals might be more challenging?

[Lee Olesky, executive]

Right. Thanks, Ari. Yes. So look, in some ways, all the things we do are designed to simplify workflows. We've obviously made some specific changes as a result of the current environment we find ourselves in. I say this a lot. We're putting our people first, the safety of our folks, and we're trying to figure out second, where we can help clients. And so we've put in a number of enhancements to help the customers essentially work from home in this environment. We've built out some functionality that's allowed us in real-time to change tolerance parameters. We've put in some changes that ensure the dollar-denominated notes are capable of trading at negative yield, if need be. Hopefully, we don't get there, but we're ready for that. Changed some protocols to ensure the participants have enough time to respond in the work-from-home environment, obviously.

The interesting thing about this environment is we're all experiencing the same thing at the same time. So I think we can all relate on some level to navigating this incredibly different environment that we're doing our jobs in. And I'm standing here at my desk and trying to fit everything on the desk, which is a lot more than the desk I'm used to with all the devices and the cords all over the place. So we're all experiencing the same thing. So we've made changes to user interface to help clients have just a better work-from-home experience in terms of what's on their monitors, those sorts of things.

We're actually, though -- in terms of kind of new things, new product development, we really in -- we've moved into another phase, really the first month in March, we moved all our developers, all our -- whole tech team, 300-plus people, to focus on stability, given the surge in volume and just making sure that everything was working and we could all work remotely.

We've kind of gotten into the second phase in -- really in April and obviously in May already, and we're focusing on delivering new services, new products. We actually put in a release in the last week or so. We stayed away from doing that, obviously, in March because it was such a stressful environment for everybody led by the markets. But we're back to innovating, have been for some time, and we're doing a number of things just to make it easier for our clients to function in this environment.

[Operator]

Our next question comes from Rich Repetto from Piper Sandler.

[Richard Repetto, analyst]

First, I'm glad you made the conversion, and everyone is healthy and safe here. I guess, trying to pull together some of these questions. But the thing that strikes me more than anything on the call is how diverse your business is, as Billy ran through the different products and so forth and the initiatives. So I know this is a tough question. But to pull this all together, could you just maybe highlight which you see as the 2 most impactful initiatives or products over the next 12 to 18 months, given the current market environment and maybe the 2 areas or products that you're concerned because market conditions have changed?

[Lee Olesky, executive]

Yes. It's a great question, Rich. And obviously, it's something we've been very, very focused on trying to assess what occurred in March, what happened in April, even what's happening day-to-day now in May. And we are reorienting around the edges. We have technology schedules for 6 to 9 months out, even longer. We've got a lot of people developing different things. How do we reorder things in order to seize the opportunity, both short term, medium term and not to give up on the long-term stuff.

Most impactful, I don't really think that that's a significant change from what you heard from us in the past and really what comes out when you look at our numbers, our most recent ones in April. We're focused on where we can control investing for organic growth. That's always where there are things that can be digitized and electronified more quickly or where there is a lot of share that we can grab from voice transactions in phone or where we think we can have competitive advantages versus other platforms.

So for us, we've had a huge focus, and Billy went through some of this, one of the reasons we tried to give a little more detail in our business on the price per million and focusing on the swaps and new sort of derivatives versus the cash business split was to sort of show, "Hey, this is in rates." Yes, there's going to be a huge surge of issuance. And so obviously, there's a lot to play for with respect to how that gets distributed and traded after the fact. So government bonds, it's shocking, the numbers, I don't know, 3 or 4x the issuance that we saw last year. So we think that there's clearly going to be more activity in that space.

But immediately adjacent to the government bond space, where we have such a strong position, both in the U.S., Europe and Asia, we also have this interest rate swap business that is the leader in the world in terms of the liquidity provision to institutions, and we kind of provide those -- that information. So that's -- we got a 9% market share-ish there. We think that's going to continue to grow. So we've got great upside in our swaps business. U.S., Europe, Asia, et cetera, emerging markets, there's lots of growth there.

Same thing in CDS, by the way. That's a market that's become much, much more active on Tradeweb, as you see from our numbers. Credit, of course -- in terms of impactful, credit in the U.S. has had this massive surge. I mean, the fact that we've got $50 million-ish in revenues in the first quarter, granted that's only 20%, 25% of our revenues, but we didn't have a credit business a few years ago. So -- and we continue to see significant opportunity in credit in the way we're tackling credit, right? So not to kind of get into a peer comparison. The way we're going at credit, what we're doing with innovation, with portfolio trading, with the net-spotting that we're doing in derivatives, what we're doing with retail, institutional, wholesale, session-based trading, we -- where our goal is to have this big, broad network across what we consider to be all of the markets that are relevant for us in fixed income.

So I would still -- rates and credit are #1 and 2. At the same time, I would be remiss to say, wow, take a look at what we're doing in ETFs. I mean, those numbers are very strong, another new business that we've built. I think often, we just don't get credit for maybe because we haven't been public that long, all of the different innovation that we've done over time and how we've kind of layered in new products. And we have a whole bunch of other things that we're thinking about, and we'll be rolling out.

In terms of what's going to be negatively hit, I guess -- I have this sense that it's going to be tougher to do organic new, new things in the short run because everyone is at least for the next few months going to be very focused and maybe longer on adopting to the new environment. So often things that we do are -- require some market-wide cooperation, whether it's integration or that sort of thing. So I would say that might be an area where new, new things take a bit longer than they have in the past. But at the same time, we've got a surge in activity, a surge in electronification with everyone working from home just, I think, a more of an accelerant overall as we saw even in April, right? Things normalized sort of, as I said, whatever the new normal is after all the Fed action in March, and we still had a really powerful April across the board. So let me stop there and continue to take questions. Thanks, Rich.

[Operator]

Our next question comes from Alex Kramm from UBS.

[Alex Kramm, analyst]

Just wanted to -- I appreciate that the -- most of the growth of the business is clearly structural and secular as you obviously outlined here multiple times. But can you just go back to the cyclical side a little bit. Lee, you mentioned, obviously, the 0 interest rate environment or quantitative easing. And you just touched upon a little bit again. But just -- can you just outline what you expect to happen? I know we have a lot of issuance, but also, obviously, rate volatility has already come down. So how does -- how do all these factors impact different parts of your business, your cash business, your derivatives business, your swaps business, obviously?

And then maybe just lastly on that whole theme, how are some of these products that may or may not be affected different in terms of variable versus fixed pricing? I guess what I'm trying to get is like, depending on how this shakes out, how does it really impact your P&L?

[Lee Olesky, executive]

Right. Well, what I would -- I guess the way I would answer that is the biggest factor in all of this is the secular point that we're making. It's so hard to predict, obviously, what's going to happen in the rate situation, let alone, how that will impact volumes. We've got such a unique situation that we're dealing with. I think the best thing I can say is look a little bit at our history, right? We've been through multiple, multiple cycles in this business over 20 years. And in Europe, we've had negative rates for -- Europe's like -- our international business is like 1/3 of our revenues, and that business has been in a negative environment for years now.

And honestly, going back post crisis like '08, '09, as we saw things starting to move towards a negative situation, I definitely had that question in my mind. What is going to happen to our business? And you know what, our business has thrived because firms need to adjust their duration. They need to digest and distribute in all of these markets. And I think, bluntly, the markets that are being influenced most directly by the central banks, they're right under our umbrella, right? So this is our world. [indiscernible] first and foremost, government bonds, rates markets, and it spreads out to credit markets for sure, too. There's going to be a lot more massive amounts of issuance.

So generally, we're pretty optimistic about what the impact is going to be, but we sure don't want to project with respect to specifics on the short run at all. But there's -- I mean, it's not so insightful to say the amount of U.S. treasury outstanding is going to increase massively. And it's going to need to be distributed and digested and what that does to the rate environment, I would ask people who are a lot smarter than I am to opine on. What I do know is these are the critical markets. The most critical markets right now are the financing markets for financing the governments, which is government bonds, which is at our -- that's at our core. That's what we started with. And we have all of these adjacent markets, mortgages, the derivative markets we talked about, the swap markets that are -- that surround those markets that benefit as a result of a surge of activity there.

So we're very positive about this. We also think, unlike the '08 crisis, where we were losing big banks on a daily basis. And I remember that I was in London at that time, how I was feeling about things. It's not that kind of crisis at least now or yet with respect to solvency of financial institutions. So I feel a little bit better about that. I think -- I also think we're in the early innings of this. It's -- the essential action that took place in March was so critical to stabilizing the markets. I just don't think that's it. I think there's going to be more to come as things unfold over the coming months and maybe even a little bit longer.

But what I do know is we are distributed with our -- the whole network around the world, thousands of institutions connected in a way where we're integrated, and we're able to make adjustments and we're established. And I think that, that is a big help in this environment as new, new things are going to be a little bit more challenging for folks to introduce.

So I hope that I attempted to answer your question, but some of it's just unknowable in terms of the underlying volumes and where the rates are going to be.

[Operator]

Our next question comes from Alex Blostein from Goldman Sachs.

[Alexander Blostein, analyst]

A question for Billy, just around the credit market dynamics, and you guys gave a good amount of detail on this already. But I was hoping you could talk a little bit about sort of lessons learned from the crisis so far with respect to acceleration in electronification of credit markets specifically, and sort of your efforts there.

And then separately, if you look at the market share trends in the kind of fully electronic side of the equation, they've slowed down a bit over the course of March and April. So maybe a little more color on what went on there as well would be helpful.

[William Hult, executive]

Sure. Alex, we mentioned something interesting, which was basically like we're not kind of going back to where we were, and this has been such a big -- kind of a moment. Interestingly, I'm going to kind of hit you, Alex, with a very kind of almost like similar refrain, which is one thing that we learned kind of loud and clear through March and through April is something that you've heard me say before, which is the market 100% wants competition and is willing to support competition. You've also heard me speak pretty loudly about portfolio trading. And if you can think about what happened through March and into April now around this kind of like search for liquidity in the market, it's a moment in time where an innovation that we have, quite honestly, been on the forefront of around portfolio trading has found like a moment in time where it's going to resonate with our client base at that highest level.

And so when we look at what we're doing in credit, we feel so good about how we are creating these innovations for clients. And so that's been a real kind of trend and a real lesson learned. As we kind of look back around March and April and you've kind of heard some of these big stats from us like records out of Europe, a single record trade in the month of April around portfolio trading, this is a moment where you've heard me describe that kind of light bulb effect with clients, it's like louder than ever now, brighter than ever now. So that's a big deal.

As much as you learn things from a moment in time, we try not to kind of overdo it. And you heard Lee talk about our session trading. And we -- that's something that we've always been in the front of. And in that moment, that didn't work as well through March. It's definitely picked back up as markets have gotten more normalized in April, and we feel really good about where we are position-wise there. So generally speaking, it's like we are kind of leading the innovation in credit and feel really good about where we are. And thanks for your question, Alex.

[Operator]

Our next question comes from Kyle Voigt from KBW.

[Kyle Voigt, analyst]

Maybe a question for Billy. Obviously, there were some liquidity issues in the cash treasury market during certain periods, especially in late March. So my question is really a regulatory question related to this. Do you think there is regulatory interest in revisiting U.S. cash treasury market structure once we move past the pandemic? And if so, I realize that we're still really early days here. But do you have any suggestions for how market structure can be adjusted to tackle those liquidity issues going forward?

[William Hult, executive]

That's a good question. I mean, it would be almost impossible -- I think nothing is going to surprise us in terms of kind of like what we've learned from what happened in March and April. So I don't have like an absolute answer for you on like, yes, this will happen. We've always been, I think, an important voice around regulation. And as that develops, we will continue to have a large voice around that. I think -- listen, I think that the role of nonprimaries in the government space is going to kind of increase. And we've always had a strategy of making sure that those nonprimaries had an important place in our ecosystem. So I think that that's an important thing to kind of keep in mind. And I think things will develop from this moment, and we're going to play a leadership role in terms of how it develops, and we're going to make sure our voice is kind of loud around to continue development of the ecosystem.

[Operator]

Our next question comes from Ken Worthington from JPMorgan.

[Kenneth Worthington, analyst]

I think we're dancing, some of us, around the same issue. In the world of ultra-low rates, maybe where have you or where do you expect to position product development differently than you would if the U.S. and the rest of the world were in a more normal or higher rate environment? Maybe said differently, do you shift product development and investments given the knowledge that we're probably in a 0 rate environment for the foreseeable future?

[Lee Olesky, executive]

Okay. Let me take a crack at that, and thank you for the question. So yes, I mean, this is clearly something I sort of got it a little bit before. Let me see if I can do a better job. We've lived through negative rates in Europe now for years. And so we've learned quite a bit about how it impacts markets and trading. And from a Tradeweb perspective, I'm going to give a Tradeweb perspective, we've managed incredibly well, and there's been significant increase in our business in govi bonds and in euro-denominated swaps. So that business has just continued to grow. We're always looking at what should we be prioritizing based on the current situation. As Billy was saying, we're not going to try to kind of jump from one thing to another, but we are a fairly nimble organization. You're talking to the guys who started the company with 2 people and grown to this size. And so we are -- Billy, and I and Bob, we're very involved in prioritization of business and what we're going to do next, and we speak regularly with the market and our entire organization. We're very connected.

So we're assessing constantly where is the next opportunity, which we'll be doing next. At the same time, extending where we are is critical. And so we expect there will be some bits of functionality, bits of things that we'll do a little bit differently. But a very low rate environment, 10, 15 years ago would have made me much more nervous than it does today. Right now, this whole distribution of massive amounts of debt is going to be a huge deal. And I think as much as the short end is really going to 0, essentially, we -- most of our revenue comes from longer-dated things, right, so interest rate swaps, that's like over 90%, and it's true across the board for what we do.

And I think that, that medium and longer-dated sort of stuff is going to continue to be somewhat volatile. I mean, it's very hard to predict exactly what's going to happen. But I just -- I think there's going to continue need to be a platform that is incredibly efficient at networking and connecting up the markets and layering out software that allows people to transact digitally more efficiently. And those will -- that will drive things more than anything. And what happens with -- exactly what happens in the rate environment, while it's obviously a huge issue first for everybody, is a little bit less impactful than I would have thought it would be not having come on through this as I said, 10, 15 years ago. Now that we've seen it, we see what's going on. Look at what happened in -- just in April, we were up 15% from the previous year, and that was a -- people were taking their breath. They were catching breath in some respect in April. So we're pretty positive about our ability to function in sort of almost any of these environments.

[Operator]

Our next question comes from Chris Harris from Wells Fargo.

[Christopher Harris, analyst]

Great. A question for Bob. How are you thinking about capital allocation at this point, no debt on the balance sheet, a larger float, sort of stock buyback something that might make more sense now than they have previously? And can you give us an update on your thoughts on M&A in this environment?

[Robert Warshaw, executive]

So let me tackle the first part, and maybe leave the second to Lee. The -- in terms of our capital management, we're doing what you expect us to do, which is we think this is an interesting environment to continue to look at opportunities. So maybe I'll get to the second half first, but continue to look at opportunities. So we're paying a dividend. So we're returning some money to shareholders. We don't really think it's the right time still for a buyback because of still somewhat limited in terms of our stock. And the third one, we are continuing to look at opportunities. And we think it's really interesting time to be looking at opportunities. We think it's really important to be not only gathering cash to be -- so we can be quick at it. And that we obviously have a $500 million line of credit that we haven't drawn to add to that. But we think it's pretty important to be bit faster and quick if we see an opportunity that will be good, and we continue to look at them in this sort of new environment that assets are in.

[Lee Olesky, executive]

So what did you leave for me there, Bob? Was it...

[Robert Warshaw, executive]

Not much.

[Lee Olesky, executive]

Yes. I mean, I know we're running late here. So Chris, let me just say, we are -- we've got a global corporate development team led by Simon Maisey. Ashley is the guy in North America. We're talking all the time. We're looking at things. We're evaluating opportunities. We believe the space is going to continue to consolidate. We want to participate. Right now, pricing is, I think, going to continue to be a little bit challenging, given just what's going on in the market. But we're looking at opportunities. And if we see ones that make sense for us, we will seize them. We will not hesitate to see them and move forward.

We -- I've said this before, but if you look at the history of the company, we've been mostly organic, but we've done 4 or 5 acquisitions over the years. And where we think we can buy something more and integrate it more efficiently than building it, we're going to do it. And we do have a strong position. You're right to point that out in terms of cash and in terms of access to lines of credit.

[Operator]

Our next question comes from Mike Carrier from Bank of America.

[Michael Carrier, analyst]

Just one on the strategic front and how it impacts on expenses and M&A. Lee, you mentioned upfront that sometimes we get these big catalysts that change behavior with technology and then regulation and now this work from home. When you get these catalysts that can fuel transitions in industries and structural growth, do you see the potential for shifts either it's in investments or M&A opportunities in areas that maybe initially you thought you could build out maybe better now to get there faster?

[Lee Olesky, executive]

Yes. Thanks, Mike, for that. So look, it's such a tough environment for all of us. I don't want to sound obnoxious candidly. But having built a couple of businesses, this kind of seismic change is -- creates significant opportunity, right? It's unique. It's a different set of circumstances than we experienced with the Internet in the '90s or regulation in the 2000s or even more recently. This is a whole different thing. But for people who are innovative, creative, it does really get you thinking about where you can deliver value to your clients. And I think you're right to point out, it probably opens up our eyes a little bit more broadly, but we're still going to be disciplined. We're always -- that's our nature. That's what we've done as a company. We've been incredibly disciplined over all of these years. And we're only going to do things that we think makes sense. We know folks view us as a growth business. They also care about margins. And so we'll be disciplined, but it's a very interesting time. And especially -- look, for Tradeweb, we've been so fortunate, right? We went public a little over a year ago. Boy, that was a timing-wise fortunate relative to where we are today. We built our business to the point where we have. And we've distributed it from home. We're working remotely as a digital company with software engineers and people using all the tools that were out to people. So yes, I think there's a lot of opportunity that's going to be out there in front of us, and we're going to work really hard to make the right decisions and move in the right direction.

[Operator]

Thank you. This concludes our Q&A session. At this time, I'd like to turn the call over to Mr. Lee Olesky, CEO, for closing remarks. Please go ahead.

[Lee Olesky, executive]

Well, thanks. Well, I know we're running late. You guys -- it always amazes me how much you guys cover and do in a day. So I don't want to take up more of all your time. We really appreciate you joining us. We wish you the best in these very challenging times, and we appreciate you spending the time with us this morning. So thanks a lot, guys. Take care.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.