Tradeweb Markets Inc

NASDAQ:TW

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, and welcome to Tradeweb's First Quarter 2022 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 Treasury, FP&A and Investor Relations, Ashley Serrao. Please go ahead.

[Ashley Serrao, Head, U.S. Corporate Development and IR]

Thank you, and good morning. Joining me today for the call are our Chairman and CEO, Lee Olesky, who will review the highlights for the quarter and provide a business update. Our CEO and President, Billy Hult, who will dive a little deeper into some growth initiatives; and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material nonpublic information and complying with disclosure obligations under SEC Regulation FD.

I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from 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.

To recap, this morning, we reported GAAP earnings per diluted share of $0.40. Excluding certain noncash stock-based compensation expense, acquisition-related transaction costs, 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 $0.48. 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, Chief Executive Officer]

Thanks, Ashley. Good morning, everyone, and thank you for joining our first quarter earnings call. 2022 has begun frantically with a combination of Fed tapering, global rate hikes, surging inflation and the brutal war in Ukraine. These macro events have combined to spur higher global government bond yields, a wider corporate bond spreads and lower equity market valuations.

Amidst this backdrop, we remain very engaged with our clients as they traded more than $1 trillion daily on average, setting new records. Importantly, these records translate into strong revenue growth as Tradeweb powered past $300 million in quarterly revenues for the first time in our history.

As we review the quarter, we were especially pleased by the diversity of our growth across our global multi-asset class, multiclient and multi-protocol business that we have built over the last 25 years. We had an quarter where we achieved record revenues across U.S. treasuries, European government bonds, global swaps, U.S. and European credit munis, global ETFs and repo.

This broad-based growth led to record results across our 4 asset classes and across our institutional and wholesale channels. It's also great to see the early pickup in our retail business, which produced its strongest revenue growth quarter since third quarter 2019.

Turning to Slide 4. Record gross revenues of $311 million during the first quarter of '22 were up 13.9% year-on-year on a reported basis and 15.9% on a constant currency basis. This growth is in line with the 16% growth we produced over the last 5 years and is a testament to the durability of our revenue growth story across different macro environments. The revenue growth and the resulting scale translated into improved profitability relative to the full year 2021 as our first quarter adjusted EBITDA margin increased to 51.6%.

Turning to Slide 5. This quarter was marked by strong performance across all our asset classes, with rates in credit continuing to lead the way, accounting for 46% and 31% of our revenue growth, respectively. Specifically, rates posted a record quarter, driven by our continued growth across global government bonds and swaps. In cash rates, global government bond revenues were partially helped by healthy central bank issuance, higher volatility and the addition of NFI. Swaps produced another quarterly revenue record with positive market share growth, while mortgage revenues declined.

Credit posted a record quarter, driven by strong U.S. and European corporate credit and CDS trading. Equities accounted for 20% of our revenue growth as record revenues were driven by institutional ETFs and our efforts to diversify and grow our other equity products. Money Markets performance was fueled by organic growth and institutional repo. Finally, market data growth was driven by investments in our proprietary data products, which are seeing early signs of success.

Moving on to Slide 6. Let me provide a brief update of our 4 main focus areas: global interest rate swaps, U.S. treasuries, U.S. credit and global ETFs. Starting with interest rate swaps, which is our largest rate product, an improving macro backdrop relative to last year, aided our continued organic growth efforts and led to a record first quarter. We continue to attract new clients and deepen our client wallet share by driving higher engagement with both existing and newer products and protocols. This led to overall swap volume growing by 25%. Swaps market share increased to 12.7% as measured by Claris. Longer term, we remain excited by the multiyear opportunity here as the market continues to electronify.

Moving on to U.S. treasuries, another rate product, that continues to perform at record levels with volumes up 30% year-on-year, led by both the institutional and wholesale business and aided by our NFI acquisition. Market share rose to 19.6% of the U.S. treasury market. The backdrop of healthy issuance continues to support the institutional channel and the pickup in volatility aided both the wholesale and institutional channels.

Our share gains have been driven by existing clients doing more business and making further inroads into the T-bill market. Looking ahead, we continue to invest in driving the adoption of early-stage institutional streaming protocols like Tradeweb Plus. The wholesale NFI integration is going according to plan. We are finalizing our clearing arrangements, submitted our dealer consolidation plan for regulatory approval and recently announced the time line for the migration of our data centers.

Shifting to credit, this was another record quarter as our business continues to surge ahead, generating more than $86 million in revenues to start the year. Seven years into our journey, it's amazing to see the growth in this business with high yield hitting a new market share record in January. We're continuing to see growing institutional client demand and our innovations like Portfolio Trading, AllTrade and net spotting and growing wholesale adoption around innovations like session trading and rematch. Looking ahead, we continue to see a lot of opportunity in that credit as our platform continues to scale and as the retail business recovers.

Finally, within equities, institutional ETFs produced record quarterly revenues with average daily volume up 54% year-on-year, driven by new client wins and strong industry volumes. The first quarter continued the strong growth we've seen in global ETF volumes after a record 2020 and '21. ETFs are increasingly becoming a core tool for our buy-side clients as they use the products for cash equitization, short-term tactical trades or tax management purposes. We are assisting our clients by providing straight through processing, integrating pre-trade transparency to reduce the number of clicks involved in dealer selection and enhancing our list ticket functionality.

Fundamentally, we continue to add new clients globally and remain excited about the prospects for the business. Our other initiatives to expand beyond our flagship ETF franchise are also bearing fruit with momentum, continued equity options, convertibles and ADRs. Looking forward, we believe we remain well positioned to benefit from the continued growth in ETFs globally and as our growth initiatives scale.

Finally, as most of you saw in February, I will be retiring as CEO at the end of the year with Billy taking the reins at the beginning of 2023. I will continue to be involved with Tradeweb's future, having recently been elected as the Chairman of the Board this past Friday effective through the end of '23. Retiring wasn't an easy decision, but I'm thrilled to be confidently passing the CEO baton to my long-term partner, Billy, at the end of this year. Billy's promotion as CEO is a culmination for 20 years at Tradeweb and he embodies the amazing innovative culture we have here at the firm.

I'll pass it on to Billy to say a few words.

[Billy Hult, President]

Thanks for the kind words, Lee. I am excited by the opportunity to lead this company at a time when the winds have changed, electronification and technological advancements continue to transform the trading ecosystem. I look forward to continuing to work alongside so many creative and talented individuals at Tradeweb and our clients.

Lee has been a tremendous leader, creating a culture of innovation and collaboration, and I am focused on preserving that spirit. We have a fundamental view and a core set of beliefs here at Tradeweb that has served us well. With that said, we will continue to be dynamic and listen to our clients and always be open to being moved and influenced.

Tradeweb is a company built on breakthroughs, consistent and meaningful solutions created for clients, real-world needs and challenges. The simple truth is our clients dictate the pace of change, and we work alongside them to help drive meaningful innovations to benefit their execution experience. We are laser focused on empowering our -- all our clients with innovative technology to access liquidity, accurate pricing and streamlined workflows. Our strategy is working, and clients have responded to our engagement by pushing our revenues to record highs at Tradeweb.

Turning to Slide 7 for a closer look at credit. We believe this was a very important quarter. For the past few years, we have been very happy with the way in which clients have responded to our vision for electronic credit trading by supporting our brand of innovation. As we reimagine the credit ecosystem by introducing and growing a variety of new protocols, we became the fastest-growing credit platform by both share and absolute revenues.

We were especially pleased to see that our belief that our credit platform has reached critical mass play out as liquidity we strike hard to build remain resilient as volatility spiked. We have come a long way since the start of the pandemic. Our brand and competitive position continue to get stronger every quarter, but we know we have more work to do and remain focused on helping our clients and capturing a substantial opportunity in global credit, we believe is in front of us.

A key part of our strategy has been to serve the entire credit market with a variety of protocols. Our share in revenue continues to be anchored by our fast-growing institutional business across both IG and high yield. At the same time, we also believe we have a great balance with wholesale also contributing meaningfully and retail starting to show early signs of a recovery. Additionally, our focus is on voice workflow and net spotting also proved to be another differentiator as electronically processed share at record levels as volatility increased.

Our institutional growth continues to be underpinned by growth in portfolio and RFQ trading. The latter remains an area of focus, and we are pleased to see the growth continue to unfold, especially in high-yield RFQs as client engagement increases. Portfolio trading remains an important protocol, weathering the rapid spread widening and volatility we saw in the quarter. Specifically, we saw a record 45,000 line items traded in March, with record high-yield portfolio trading average daily volume. The value of portfolio trading also continues to resonate globally. Tradeweb facilitated a record $89 billion in portfolio trades in the first quarter of 2022, an increase of more than 25% year-over-year, aided by a client growth of 70%.

Behaviorally, clients continue to become savvier in their usage of portfolio trading by putting more dealers and competition and dealers are becoming more and more sophisticated in the way they price portfolio trades across all environments. Dealers have also become engaged in portfolio trading more than ever with our in-comp portfolio trading reaching record levels, comprising 87% of portfolio trading volumes, up from 64% in the first quarter of last year.

The strength in portfolio trading was matched by the rapid growth of our anonymous liquidity solution, AllTrade, which saw a record of nearly $102 billion in volume, an increase of 23% year-over-year. Session trading hit rates held up as volatility increased and we remain laser-focused on maximizing the value of session liquidity uploaded in our platform through newer protocols like rematch which accesses our all-to-all liquidity.

Turning to the rest of our credit business. We achieved record revenues in institutional European credit with strong growth driven by portfolio and RFQ trading. Institutional muni revenues continue to grow rapidly, increasing nearly 50% year-over-year as we continue to gain share and add clients.

We recently launched AI price for munis, which leverages our transactional and MSRB data to initially calculate nearly 900,000 end-of-day prices and eventually provide our clients with intraday pricing as well. Our entire muni platform sees 1 in every 6 trades that occurs in the muni market today, giving us a great foundation for growth. Our CDS revenues also saw double-digit year-over-year growth across regions. In sum, it was a good quarter for credit, and we continue to believe we have a lot of potential for growth as we look ahead.

Moving on to swaps. Our biggest revenue bucket within our rates franchise, just like credit, the multiyear growth story continues as swaps registered another strong quarter, aided by rebounding industry volumes and market share gains. Specifically, the pickup in volatility and rising rate expectations drove a 16% year-over-year increase in first quarter '22 industry volumes. Our variable swaps revenue grew by 19% year-over-year, driven by increased trading and higher fee per million protocols.

Market share increased to 12.7% despite a substantial pickup in short-dated Central Bank meeting date trades in the voice market. These trades tend to be speculative in nature, carrying a low fee per million and have notionals that could be 10x larger than our regular swap trades.

Our momentum in major currencies continues with record first quarter share in euro- and pound-denominated swaps. We believe the LIBOR transition is progressing well. Over 45% of our first quarter volume came from SOFR trades, up from 15% in the year-ago period, with 89% of our dollar swap clients having executed a SOFR-based trade since the start of the year.

Beyond the risk-free rate transition, we continue to respond to structural changes in the swaps market, making strong but early advances and cleared EM swaps, inflation swaps, RFM protocol adoption and multi-asset trading. During the first quarter, we saw a record EM share and revenues increased by over 200% year-over-year. We also saw a record RFM activity as we continue to onboard dealers and deepen our liquidity pool.

Looking ahead, we believe the long-term swap revenue growth potential is meaningful. With the market still only 30% electronified, we believe there remains a lot that we can do to help digitize our clients' manual workflows while the global fixed income markets and broad swap market grow.

Finally, we continue to invest in our leading multi-asset class automated trading capability, AiEX. The first quarter is a testament to growing adoption as clients get increasingly comfortable with low to no touch trading even with the heightened volatility. The number of AiEX trades grew by 15% year-over-year in the first quarter, while the average daily volume increased 31%. In fact, the average daily trades increased each month in the first quarter despite the pickup in volatility.

Clients continue to take advantage of various tools and features like time release and smarter counterparty selection to minimize or eliminate the number of clicks. Time release allows orders to be routed for execution at specific time intervals. We also continue to invest in enriching our advanced dealer selection functionality, which allows clients to customize their counterparty selection according to real-time market conditions and their specific execution objectives. We believe this is really resonating with clients. And as clients become more comfortable with automation, we are seeing them get more comfortable trading larger volumes through AiEX.

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

[Sara Furber, Incoming Chief Financial Officer]

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 $1.1 trillion, up 11% year-over-year and up 8% when excluding short-tenor swaps. Among the 22 product categories that we include in our monthly activity report, 12 had quarterly records, while another 4 achieved their second highest quarterly ADV. Perhaps even more notable 11 of the 22 product areas produced year-over-year volume growth of more than 20%. Areas of strong growth include U.S. and European government bonds, global swaps, U.S. corporate credit, U.S. and 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 13.9% on a reported and 15.9% 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 18.9% and our total trading revenue increased by 14.5%. Total fixed revenues related to our 4 major asset classes continued to grow, up 5.4% and 7.9% on a constant currency basis. Rates fixed revenue growth was primarily driven by the addition of the NFI acquisition, while credit fixed revenue growth was driven by European Credit. Other trading revenues were down 16%. As a reminder, this line does fluctuate as it is affected by periodic revenues tied to technology enhancements performed for our retail clients.

Market data increased by 7%, primarily due to growth in proprietary data products. Adjusted EBITDA margin of 51.6% declined by 40 basis points relative to the first quarter of '21, but increased 75 basis points from the full year 2021. Relative to 1Q '21, margin was impacted by higher compensation due to 3 factors: one, increased headcount; two, a pickup in incentive compensation to better align with stronger revenue performance; and three, elevated payroll taxes, driven by the annual vesting of equity compensation at higher stock price levels. With that said, we remain committed and on track to delivering annual margin expansion in 2022, and there has been no change to our of balancing revenue growth with margin expansion. All in, we reported adjusted net income per diluted share of $0.48.

Moving on to fees per million on Slide 11. The trends that I'm about to describe are driven by a mix of the various products within our 4 asset classes. In sum, our blended fees per million increased 6% year-over-year, primarily as a result of stronger growth in higher fee per million credit, cash rates and cash equities. Excluding lower fee per million short-tenor swaps and futures, our blended fees per million were up 9%.

Let's review the underlying trends by asset class, starting with rates. Average fees per million for rates were up 1%. For cash rate products, fees per million were up 8%, primarily due to growth in higher fee per million U.S. treasuries and migration of certain European government bond clients from fixed to variable contracts. For long-tenor swaps, fees per million were up 2%, primarily due to growth in billable volume, EM Swaps and RFM. That was offset by lower duration. In other rates derivatives, which includes rates futures and short-tenor swaps, average fees per million decreased 17% due to a shift towards OIS, which carries a lower fee per million than FRAs.

Continuing to credit. Average fees per million for credit decreased 6% due to relative product mix with stronger volume growth in lower fee per million credit derivatives and electronically processed trades. Drilling down on cash credit, average fees per million increased 9% due to stronger growth in U.S. high yield, which carries a higher fee per million overall cash credit. Our U.S. high-grade and high-yield volumes were a record in the first quarter.

Looking at the credit derivatives and electronically processed U.S. cash credit category, fees per million increased 9%, driven by growth in European CDS, which carries a higher fee per million than the group average.

Continuing with equities. Average fees per million for equities were up 13%. For cash equities, average fees per million increased by 11% due to an increase in fees per million within U.S. ETFs, which was driven by a decrease in notional per share traded. Recall in the U.S., we charge per share and not for notional value traded. Equity derivatives average fees per million decreased 4% due to growth in equity features, which carry a lower fee per million than the equity derivatives average.

Finally, within money markets, fees per million increased 1%. This was primarily driven by an increase in our European repo fees per million, which was partially offset by a reduction in our retail CD fee per million. The higher fee per million retail money markets business remained pressured by the low interest rate environment.

Slide 12 details our expenses. Adjusted expenses for the first quarter increased 14.6% and 17.1% on a constant currency basis. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling.

First quarter '22 adjusted operating expenses were higher as compared to the first quarter of '21 due to increased employee compensation, technology and communication, G&A and D&A, which were partially offset by lower occupancy costs. Compensation costs increased 17.4% due to higher headcount, incentive compensation and payroll taxes related to equity compensation that I discussed earlier.

Adjusted noncomp expense increased 8.7% on a reported basis, primarily due to technology and communications and D&A, but were helped by favorable miss in FX. Adjusted noncomp expense on a constant currency basis increased 15.2%. Specifically, tech and communication costs increased primarily due to higher clearing and data fees as a result of higher credit AllTrade volumes and streaming U.S. treasury volumes 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 costs increased primarily due to an increase in travel and entertainment recover from the pandemic. Favorable movements in FX resulted in a $1.1 million realized gain in the first quarter of '22 versus a $1.5 million realized loss in the first quarter of '21.

Professional fees decreased to 1.2% due to lower legal costs, partially offset by the inclusion of NFI expenses following our acquisition in June of last year.

Slide 13 details capital management and our guidance. First, on our cash position and capital return policy. We ended the first quarter in a strong position, holding $828 million in cash and cash equivalents, and free cash flow reached nearly $511 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 $18 million, an increase of 43% year-over-year, primarily due to accelerated timing of investment spend. We continue to expect capital expenditures and capitalized software to be in the range of $62 million to $68 million for the full year. With this quarter's earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share.

We spent $143 million offsetting equity dilution during the quarter. Specifically, we spent $47 million under our regular share buyback program, leaving $27 million for future deployment at the end of the quarter. In addition, we withheld 96 million in shares to cover payroll tax obligations related to equity compensation. As a reminder, we plan to use our share repurchase authorization to mostly offset dilution from ongoing equity compensation.

Turning to other guidance items for 2022. In line with our previous guidance, we expect adjusted expenses to range from $620 million to $655 million. For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year. And finally, on Slide 14, we've updated our quarterly share count sensitivity for the second quarter of '22 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, Chief Executive Officer]

Thanks, Sara. 2022 is up to a strong start, and I'm very encouraged by the broadening momentum across our business, giving us a strong foundation for future growth. With a couple of important month-end trading days left in April, which tend to be our strongest revenue days, momentum from the first quarter has continued with overall revenues and volumes up double digits relative to April '21.

Similar to the first quarter, the diversity of our growth remains a theme as we continue to see double-digit average daily revenue growth across global interest rate swaps, European government bonds, low equities in U.S. and European corporate credit. Our IG share has rebounded strongly from March to exceed first quarter levels, while (technical difficulty) high-yield share is trending similar to the first quarter levels.

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 the efforts that contributed to the record quarterly revenues and volumes of Tradeweb. With that, I'll turn it back to Ashley for your questions.

[Ashley Serrao, Head, U.S. Corporate Development and IR]

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

[Operator]

[Operator Instructions] And our first question comes from Rich Repetto from Piper Sandler.

[Rich Repetto, Piper Sandler]

So I guess, first, a question on volatility. The environment -- current environment for rates has been friendly. And while -- at least in 2021, the environment for credit has been less friendly, but it seems like it's improving here in 2021. So Lee, as you think about the rates business and you look back at prior periods, we -- and if you compare the tailwinds like especially in '18 -- 2018 and 2021, when you had high double-digit 17%, 18% revenue. So how would you compare the tailwinds now to those years?

And then I guess on Billy, you made a lot of comments about how things have improved, but could you get more specific on what really how the credit platform, what really comes to mind from you that highlights the performance with higher volatility on the credit side?

[Lee Olesky, Chief Executive Officer]

Rich, it's Lee. Thanks for the question. And I'll take the rates part of the question and then have Billy handle the credit piece. I think -- look, it's always tough to draw comparisons with different market conditions. I think this is true across all asset classes. So in 2018 was one set of circumstances. We had MiFID phasing and MiFID II phasing in, in Europe with the swap business. '20 and '21 obviously were impacted by the pandemic and increased electronification.

When we look at the -- just talking about the first quarter for this year in our rates business, this was a very strong quarter for us. Over 14% growth when we compare it to the first quarter of last year, which is great. There's a number of unique things obviously happening in the market right now with, obviously, what's happening with the Fed, interest rates in general. We have the war in the Ukraine with Russia. I mean, this created quite a bit of uncertainty.

I think also in terms of what's going to happen in the -- with respect to yields is -- and sometimes we'll pause things a little bit because of the uncertainty. But generally, this has been a favorable environment. And as we've kind of suggested as we've seen in April, we continue to sort of have this kind of growth.

I mean, the best thing, I think, is to look at -- go back historically, look at things, every period is unique. But if you look at our growth has been over a variety of cycles, from 2016 to 2020, it's kind of been that 11.5% compound annual growth rate which is indicative, but it's not certain. I think the -- we're pretty positive about things going forward in the rate space. We're off to a very good start. And I think that there will continue to be, if I were to speculate, volatility that will be a positive for our volumes on our business as we kind of go forward.

So let me pass it over to Bill.

[Billy Hult, President]

Rich, maybe you need get specific, which will hold against you at some point. But in 2021, Rich, as you know really well, that was our year -- those are real year-end credit, right? We went from 7% IG to 12%. 2.5% in high yield to 5.5%, like maybe huge strides, right, getting to this place that we call critical mass, which is like a big expression and a really important expression. As you know, we kind of did it 2 ways. Super talented, very important experience team that kind of starts there. And then the second thing is I've talked about this a lot, the sort of market has this appetite to support competition. Those things we're working for us, right?

Around March of 2020, if you remember, we really made, I think, in a significant way this commitment towards our liquidity pool, right, getting it deeper and more vital. And so the numbers specifically are kind of the number of all-to-all responders in our liquidity pool doubled. The number of our portfolio traders since March of 2020 is up 150%, Rich.

One thing that's really important, we talk about AiEX a lot. It's like a very sticky indicator of how we're doing with our clients. It's up 4x since March of 2020. So now 40% of our RFQ users and credit now trade with us through AiEX. That's like a big important kind of number and stat. And so a little bit of your question, I think, which is important, is kind of like 2021 was one market what would happen to our innovations, what would happen to kind of -- you've heard us use the sort of expression around the life, but what would happen around that when the market got tough, when the market got volatile, when prices went -- were going all over the place, would it hold up?

I think it's a really important question and it was a really important test for us. The answer is, I think it's really, really important for you to hear me say this, in March when things got tough, as you know, our portfolio trading in high yield was a record, 6.1%. I mentioned on my prepared remarks with 45,000-plus line items in one of our portfolio trades, that's a record, 30% of our RFQ traders, Rich, in March of 2022, did portfolio trades with us. That's up from 15% 2 years ago and 5% from last year. So these underlying numbers are building up.

And so when we kind of step back, we said, we went through a test in March, and I think we passed that test. At the end of the day, as you know really well, the credit market is getting more and more sophisticated. And our goal is to keep up with that sophistication, keep building these products the right way for our clients and keep doing it as well as we are doing. So we feel really good about where we are. And thanks for the question.

[Operator]

And our next question comes from Gautam Sawant from Crédit Suisse.

[Gautam Sawant, Crédit Suisse]

Sara, can you please frame the opportunity for Tradeweb to drive operating leverage in 2022 as well as as well as expense growth in the context of investing in new organic growth initiatives versus other cost pressures?

[Sara Furber, Incoming Chief Financial Officer]

Sure. Thanks for the question, Gautam. Look, we're always thinking about the balance between investing for growth and margin expansion. In fact, as you know, the senior leaders of the firm were all incentivized to think about balancing those equally in our compensation structure. We continue to believe we can drive operating margin expansion in '22 when we compare it to the full year last year margin of 50.8%, and we can do that at either end of the guidance range.

I wouldn't get bogged down in the first quarter comparison. It was particularly impacted by a number of factors, which I highlighted in my prepared remarks. In particular, the performance-driven comp and payroll taxes that are always outside in the first quarter were particularly outsized this year given the strong performance we had last year and our stock price, which was $100 when the PRSUs vested.

As you think about our ability, one other thing to think about with margins is FX this year. You saw that negatively impact our results this quarter. And we have a lot of disclosure around that in our 10-K. But as far as your specific expense growth question, ultimately comes down to revenue growth, which is our priority in which we've gotten right so far, and we believe margins take care of themselves as our products with that.

And at our current revenue growth levels, which you can see, we've been able to invest in organic growth that you're asking about, absorb the cost pressures and still grow margins.

[Operator]

And our next question comes from Michael Cyprys from Morgan Stanley.

[Michael Cyprys, Morgan Stanley]

Just a question for Billy. I was hoping you could talk about the CEO transition how things might be different under your leadership, Billy? And as you think about future growth, how do you see the competitive environment evolving in credit?

[Billy Hult, President]

Sure. Michael. So yes, thanks for the question. I'll answer the sort of it first part of it is super authentically and genuinely, I think in a way that Lee will really respect, we're all kind of humans here, right? So there's sort of complex emotions involved. On the one hand, to make an obvious point, I'm super enthusiastic, excited and ready for all of this. On the other hand, Lee and I have enjoyed a very unique and important partnership for a really long time. That's changing. The good news is I'm still going to have Lee as a very important adviser on the -- as the Chair of the Board and that feels really good. And we're working super diligently around transition in all the ways that you would expect.

We have a very talented team here. We feel really good about the direction of the company. The nice part about our partnership at the end of the day is we've been kind of shoulder to shoulder around the strategy of the company for a very, very long time. So I couldn't feel better about where we're headed strategically speaking. So I'm not going to kind of advocate for any kind of change at all around that. We feel super good about where we're headed. And I'm excited about it. I've had great support starting with Lee. Obviously, the Board and then David at LSX. So it's been across the Board really good feeling.

And by the way, as we're working and going through all of the transition stuff, we are super busy with our day jobs. So there are many days where we roll up our sleeves, get to work and keep moving things forward in the way that you would expect. So it's an exciting, fun and interesting time for us. The competitive landscape is going to keep kind of getting more competitive, and we welcome that. We understand that. Lee's always said this. We've competed as a company against Bloomberg from day 1 we're comfortable competing.

So there was a time, specifically to your question, Michael, around credit where the question was with the strong player in the market, is there room for 2? And that was the question about how we would penetrate and do well in credit. The obvious answer is there's more than room for 2. There's now a third player in the marketplace. Things are competitive. And we continue to do really well built innovations, connect with clients and move the ball forward. And so we love the atmosphere that we're in, and we're going to continue to work hard and do really well. And thank you for your question.

[Operator]

And our next question comes from Craig Siegenthaler from Bank of America.

[Craig Siegenthaler, Bank of America]

My question is on the contract renegotiation with Refinitiv. Based on pricing trends at your competitors, it's looking like there could be a nice increase in revenues. So I wanted to see if you could share your perspective on this potential catalyst?

[Sara Furber, Incoming Chief Financial Officer]

I think broadly speaking, in terms of our information services, there's a lot of demand for our data, and we are really excited about the long-term opportunity. It's worth pointing out that data, first and foremost, we think about how it drives trading on our platform, and that's our core focus. But we have a great partnership with Refinitiv, and that contract is a long-term contract, and we'll have that discussion. But the partnership there and the opportunity to work together has been quite favorable. And away from that contract, we do have proprietary data products that we're investing in and realizing some strong growth in as well. So overall, we're quite pleased about where we are.

[Operator]

And our next question comes from Dan Fannon from Jefferies.

[Dan Fannon, Jefferies]

I wanted to follow up on the retail opportunity in the prepared remarks, you guys mentioned a couple of times about retail showing some signs of life and improving. So maybe give us a sense of what the contribution is today? Maybe what it's been at points in time before historically? I think it does carry a higher capture rate and higher fees. So just want to put some numbers around what that opportunity is like?

[Sara Furber, Incoming Chief Financial Officer]

Sure. This is Sara. Thanks for that question. In the first quarter, the retail sector accounted for about 6% of our revenues, and it was up about 7% year-over-year. And just -- it's a great time to talk about retail because the sector we are seeing it come back. For context, if you think about its contribution last year, it was about 7% of firm-wide revenues. And if you go back a little bit further, pre-pandemic in 2019, that figure was about 10%. So it puts it in context.

Obviously, the environment we've seen over the last few years, particularly with low rates and depressed yields, it's been a little bit less attractive to financial advisers. But as I mentioned, we're seeing signs of that recovery, albeit gradual. I think, it how realizes in our revenues. And maybe I'll just highlight 2 points specifically and Billy, let me know if I missed anything. But think about what's underlying our retail revenues, retail muni revenues in the first quarter were up 15%, albeit down double digits from the first quarter of '19. So you kind of get that context. But we're really quite pleased with our middle market meeting business, which has done much better.

Revenues there hit a new record, up 50% nearly year-over-year in the first quarter. And our efforts to penetrate and really electronify that tax-exempt institutional space are paying off. So looking ahead, we do think the pickup is there. It just will be gradual as rates rise and the bond ladders reprice. And I think you asked about these per million. As a reminder, retail products tend to have higher pricing than our cash credit average. So to the extent these businesses pick up, we'd expect that to be accretive to our fees per million.

[Billy Hult, President]

Yes. The only thing I would add is I mentioned to Rich's question on the first question about just the importance of the the liquidity pool and credit. One of the things that really gave us an edge in terms of building out that liquidity pool was getting into the retail business the way that we did it allowed us to onboard a lot of these kind of essential responders in the all-to-all network. So there's an important strategy that we're getting out of being in that business as well.

[Operator]

And our next question comes from Alex Kramm from UBS.

[AlexKramm]

I wanted to come back to credit for a second. One of the things I'm, I guess, sensing is more appetites from the large buy-side firms, but even maybe some of the middle-tier buy-side firms to also do more direct connectivity with the larger dealers who are also increasingly aggregating close from other places. So just wondering if you're actually seeing that, if there's a competitive dynamic that we should be watching, and yes, what this could mean for Tradeweb in the future? Are you competing more with, I guess, like dealer-sponsored internal platforms?

[Billy Hult, President]

Yes, it's a good question. It's out there, and we've been hearing about it, too, and it's definitely something that you can tell a couple of the bigger buy-side firms have as an agenda. It's not something that we're worried about. We do feel really strongly about how we built our protocols and the collective network that we have and that our competitive position is really strong there. It's out there. We keep our eye on kind of everything around the competitive space, but we feel really strongly that we keep delivering to our clients the right way around all of these things. The network effect, if at all, will win out at the end of the day. So it's not something that's like sort of big time on our radar around something like that, but it's something that we are definitely aware of.

[Operator]

And our next question comes from Alex Blostein from Goldman Sachs.

[AlexBlostein]

Another one around credit, definitely feels like it dominate some of your guys' calls. But I wanted to take a quick step back for a second. And I know you guys provided a lot of color around portfolio trading and the fact that it still remains quite active despite increased volatility. But also coupling that with comments, Bill, you made around the appetite from clients to do more continues to increase and sort of the adoption curve continues to come up.

I think in the past, we talked about this being sort of a mid-single-digit percentage of overall credit volumes. But based on the kind of client conversations you have today, where do you think that could ultimately go? And do you think that PT is still going to be sort of one of the key drivers behind Tradeweb's market share gains or the products that has expanded enough where you're going to be more competitive and other things?

[Billy Hult, President]

Yes, we do. We do think it's going to be super important. I think like sort of producing at that number, would you say like mid-6% or whatever, in that kind of a volatile market in March is a pretty strong testament and a pretty strong statement. So we don't -- we would never characterize it as like a flat lining around the appetite for portfolio trading. It's continuing to build up. And the reason why it's going to continue to build up is because it solves for some major things from the buy side perspective, right, Alex, information leakage that's first and foremost on the buy side. Executable pricing, that's a big deal to the buy side.

And I mentioned the fact that the market is getting more sophisticated. The dealer's ability to respond now to portfolio trades, specifically in very volatile situations is growing and getting way more on the screws. These are all like big time important things. So we feel really strongly that portfolio trading is only going to become a bigger and more important piece of the buy side's workflow.

Other protocols obviously will matter, too. It's always getting the pieces of the puzzle together and credit the right way. The all-to-all network, as I mentioned, is table stakes. That's really important. Everything that we're doing, Alex, around suite, we feel very, very strong about. So with getting these kind of pieces of the puzzle together in the right way matters a ton. But we really feel like portfolio trading got stressed in March and absolutely came through on the other side as a more important protocol than ever.

[Operator]

And our next question comes from Ken Worthington from JPMorgan.

[KenWorthington]

You mentioned in the prepared remarks that some European clients converted from fixed to floating contracts. Given that at least we think volumes have been rising, I assume that conversion was probably driven by Tradeweb as opposed to the other way around. So if that's correct, is there an opportunity to convert more customers to these variable contracts over time? Maybe what is enabling this conversion now? Is it sort of macro or micro specific? And is the conversion more likely over time in credits or rates?

[Sara Furber, Incoming Chief Financial Officer]

It's a hard question to answer with a lot of precision. The reality is the decision to change between fixed and variable fee contracts is a combination of different reasons. And a lot of it's idiosyncratic in terms of what's going on with clients the market, the various different products. So it's really hard to extrapolate that and see a broad trend. It really just depends on the particular situation. We did have some of that change in European govies over the last quarter, probably a bit of a combination of both coming from us and the dealers. But I wouldn't get too caught up in terms of looking at it as something that we're driving in the absence of communication with our clients.

[KenWorthington]

Should we expect more over time?

[Sara Furber, Incoming Chief Financial Officer]

I wouldn't expect -- I wouldn't think of it as like an outlying driver of anything.

[Ken Worthington, JPMorgan]

Okay. Great. You answered it.

[Sara Furber, Incoming Chief Financial Officer]

Yes. I think just generally speaking, I think the way -- if you're trying to model it, I would think about fixed trading revenue in that sort of low single-digit growth rate. So there's going to be different pops you'll see in variable, but that line is probably in that ballpark.

[Operator]

And our next question comes from Kyle Voigt from KBW.

[Kyle Voigt, KBW]

Maybe just a question on the cash treasury business. One of your newer competitors has spoke a bit recently about holstering that are all-to-all treasury and also saw a strong strike for such a solution. Just wondering if you could talk a bit about whether you're hearing similar type of client request for pure all-to-all trading functionality in cash treasuries market? And do you think this is part of successful in treasury that has in corporates for both you and others?

[Billy Hult, President]

You broke up a little bit, Kyle, but I think we got the gist of your question. A couple of very strong points. One is obviously the the treasury market and the liquidity around the treasury market is obviously very different than the credit market. And we feel really strongly, particularly around how we've -- we've gotten AiEX into all of our clients and how clients have gotten much more sophisticated in terms of their search for liquidity that the traditional model is really working in treasuries.

That being said, an obvious way, we don't discount change at all here, right? So we have -- we are actively watching that marketplace particularly as it pertains to the other market. We feel we have all of the pieces together, ready to go if we feel like it's the right time to move in that direction. And if we do feel like that, we will move there strongly. We do not feel like the timing is now, and we feel very strongly about where our offering is right now as we speak, and we're in a really good position. So eyes on the competitive landscape always, but a very strong understanding that the treasury market operates differently than credit, and we feel like we're in a really good position with our clients there.

[Operator]

And our next question comes from Brian Bedell from Deutsche Bank.

[Brian Bedell, Deutsche Bank]

Great. Great. Maybe, Billy, sorry to come back to the credit market here. But maybe if I can just sort of having sort of more of an overarching comment on future of competition in this market. Obviously, you said that we've got a third competitor that's a little bit more entrenched. And obviously, the tailwind is very good here in corporate bonds in both high grade and high yield in terms of electronification. So there's certainly room for multiple competitors.

But as you see this, the competition developing in this over the next couple of years or so, do you think it's going to be more about a field of protocol development and coming out with new and more innovative protocols or rather growing the sales force or leveraging the network effect? And then maybe if you can comment on whether you think price competition will enter the market?

[Billy Hult, President]

Yes. That's a really well-framed question. It is kind of all of the above, right? And we did make a really strong point that even though we are extremely comfortable and confident with where we are with our pricing model, we have never led with price because we just don't think that, that's the right kind of technique in terms of migrating the competitive landscape in the way that we have. We've always led with innovation, problem solving and saving time and money for our clients first, and foremost. And we think that will continue to win out in the day.

The credit market has obviously experienced like tremendous amount of innovations over the past bunch of years. Part of those innovations have come because there's been a lot of competition in the space. It's pretty interesting, right? The net winners around all of this has really been the community of users when you think about what's happened with all-to-all network, net spotting and net hedging portfolio trading, session trading. These are like pretty amazing protocol innovations that have happened recently, and a lot of that's because we've all gotten better.

Between the 3 of us, I think we've all raised our game, gotten better, gotten more in tune with our clients, delivered and developed strong technology and it's all been kind of working. So we feel really strongly that it's kind of a mixture of a combination of what you described, and we'll continue with that playbook because it's been working for us.

[Operator]

And our next question comes from Rich Repetto from Piper Sandler. I apologize that line disconnected. Our next question is from Craig Siegenthaler from Bank of America.

[Unidentified Analyst]

This is Eli from Craig Siegenthaler with a follow-up. We wanted into the consolidated tape pilots for fixed income, which are being rolled out in Europe this quarter. There is some media attention around the potential consortium between Tradeweb Market Access and Bloomberg for a joint tape project. Can you share your thoughts on that development too?

[Lee Olesky, Chief Executive Officer]

Eli, It's Lee. Thank you for the question. I'll play the bad guy here. We're not going to comment on that one. It's just not something we want to discuss at this stage. But thanks for the question.

[Operator]

And I am showing no further questions. I would now like to turn the call back over to Lee Olesky for closing remarks.

[Lee Olesky, Chief Executive Officer]

Okay. Thank you, everyone, for joining us this morning. We're really pleased that we had a record start to 2022. And obviously, if you have any follow-up questions, feel free to reach out to Ashley and the team. And have a great day. Thanks again. Bye-bye.

[Billy Hult, President]

Thanks.

[Sara Furber, Incoming Chief Financial Officer]

Thanks.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.