Tradeweb Markets Inc
NASDAQ:TW
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Tradeweb Markets Inc
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Good morning and welcome to Tradeweb's Fourth Quarter 2022 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback.
To begin, I will turn the call over to Director or Investor Relations, Sameer Murukutla. Please go ahead.
Thank you and good morning. Joining me today for the call are our CEO, Billy Hult, who will review the highlights for the quarter and provide a brief business update, our President, Thomas Pluta, 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, non-public 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 forward-looking statements is contained in our earnings release and presentation 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 $0.42. Excluding certain non-cash stock-based compensation expense, acquisition-related transaction costs, acquisition and Refinitiv-related depreciation and amortization and certain FX items, and assuming an effective tax rate of 22%, we reported adjusted net income per diluted share of $0.49. 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 Billy.
Thanks, Sameer. Good morning, everyone. And thank you for joining our fourth quarter 2022 earnings call. Before I start, I'd like to congratulate our colleague Ashley Serrao, on the birth of his daughter, and we're excited for his return post his paternity leave.
As I kick off my inaugural earnings call as CEO, I want to celebrate the past and the amazing journey that the team has taking to get where we are now. Since joining the firm almost 23 years ago, I've had an exciting front row seat to helping the team grow an innovative startup into a global business that generated nearly $1.2 billion in revenues in 2022, marking our 23rd straight year of record revenues.
Brainstorming challenges and pushing the envelope on the next innovation has been truly rewarding. Our success has been a function of hard work, some luck along the way, and an unwavering core approach, creating great feedback loops by listening to our clients, and then collaborating with them to make their lives easier across market environments. Despite all the success we've had to date, I believe the best is yet to come.
Our competitive advantage combines our people who are the heartbeat of our success, our expanding network and pioneering technology. We believe these three elements will continue to propel our business to new heights in coming years.
We believe our multi asset, multi-protocol, multi-sector and global business really differentiates us from our electronic peers and positions as well to capitalize on the secular shift of phone and chat-based execution to electronic mediums.
As I highlighted last quarter, the entire organization recently galvanized around crafting our three-year plan, and the excitement from the teams across products and geographies was undeniable. From product to sales, finance to technology, to singular focus remains providing all our clients with an increasingly better user experience across the trade lifecycle.
Serial innovation will continue to be our North Star. We're also excited by the current state of the fixed income markets, the attractive yield environment is resonating with our retail and institutional clients and bodes well for actively and passively managed fixed income.
As we look to the future, we are truly excited about the team we have assembled. We're thrilled to have Tom Pluta, who officially transitioned to his President role at the beginning of the year, and we believe he will be a valuable addition as we look to grow Tradeweb's footprint over the coming years.
However, our deep bench of talent goes beyond just Tom and Sara, and I believe our entire executive and operating management teams and rising stars are primed to drive our future growth.
Turning to slide four. Fourth quarter revenues of $293 million were up 5.8% year-over-year on a reported basis, stripping out the 350 basis points of FX headwinds that continued to be severe, we generated revenue growth of 9.3% on a constant currency bases.
The revenue growth and the resulting scale translated into 17% adjusted EPS growth and improved profitability relative to full year 2021 as our adjusted EBITA margin increased by approximately 200 basis points to 52.8%.
Turning to slide five. The diversity of our growth was on display once again this quarter. While rates faced a more challenging growth environment, credit and equities led the way accounting for 61% and 29% of our fourth quarter revenue growth.
Specifically, rates revenues were down 1% as growth across global government bonds was offset by a more risk-off swaps and sluggish mortgage environment. Credit posted another strong quarter driven by strong Munis and U.S. corporate credit trading.
Equities posted its highest fourth quarter revenues ever driven by institutional ETFs and our efforts to diversify and grow our other equity products. Money markets set a new record fueled by growth in our retail CD franchise and continued organic growth and institutional repos. Finally, market data revenue growth was equally split across our refinitiv contract and our proprietary data products which continue to enjoy robust growth
Turning to slide six. Our fourth quarter capped off a record year in 2022. Record volumes across all asset classes translated into 10.4% and 14% revenue growth on a reported and constant currency basis respectively.
The scale generated by our strong top line results drove approximately 111 basis points of adjusted EBITDA margin expansion, and 16% adjusted earnings growth. And as our growth initiatives continued to scale, we maintained our tradition of consistent and focused organic investment.
2022 was a very busy year with many accomplishments to highlight. Broadly, they can be summed up as enhancing our existing capabilities, adding new clients and forging new partnerships.
On the capability front, we made significant headway in integrating our NASDAQ fixed income acquisition, bolstering our EM offering in rates and credit with new currencies and adding new collateral types in repo.
On the client side, specific highlights include the scaling of our credit platform to record levels, as clients continue to embrace our RFQ portfolio trading and AllTrade protocols. A similar story unfolds in equities in U.S. Treasury streaming as an expanding client base made 2022 another record year.
Finally, we collaborated with S&P Global across European credit to integrate with their digital primary markets platform. Perhaps most importantly, in December, we announced our credit partnership with Blackrock's Aladdin. This collaboration is a testament to the progress we have made in credit, and should help our global credit business.
We believe our investments have not only positioned us well for the future, but also helped make 2022 another banner year for Tradeweb. Moving to slide seven. 2022 continue the streak of robust revenue growth that we have worked hard to deliver for multiple years now.
Specifically, 2022 showcased our portfolio of asset classes and regions that allowed us to consistently help our clients navigate a variety of macro environments and drive growth. Today, while the majority of our revenues still comes from rates, most of our growth actually comes from our other businesses.
Credit and equities were highlights, accounting for 35% and 20% of our revenue growth in 2022. Regionally, we continue to see strong growth in our international business, which has grown revenues at an average of 19% since 2016, with 2022 growth of 15% on a constant currency basis. Our international revenues are currently anchored by our European business.
Looking ahead, we believe Asia Pacific and more broadly, emerging markets, will continue to become a larger components of our international growth story over the next few years. We believe we have room to grow our network as we expand our clients footprint across domestic markets, expand our protocol offering, and cross-sell our leading products into fast growing domestic markets.
Relentless innovation has been critical to our success. Throughout our history, we have prioritized being first to market, which requires constant investment. In the last seven years, we have invested over $500 million in technology to help shape the future of electronic markets, growing those investments at an average of 14% since 2016. As our investments bear fruit adjusted EBITDA margins have expanded nicely.
Looking ahead, we expect 2023 to be another investment year. While our investments remain heavily concentrated in rates and credit, we're optimistic about the long term durability of our growth across the business, given our market share gains and pipeline of innovations.
Moving on to slide eight, I will provide a brief update on two of our main focus areas, U.S. Treasuries and ETFs and turn it over to Tom to dig deeper into U.S. credit and global interest rate swaps.
Starting with U.S. Treasuries. Record market share of 20% drove a 10% year-over-year increase in our revenues. The underlying dynamics were mixed. The higher interest rates fueled acceleration of our retail business was accompanied by a challenging environment across our institutional and wholesale client channels.
Institutional clients trimmed the risks and traded in smaller trade lots given the heightened volatility. Despite this challenging backdrop, institutional activity on the platform remain healthy, with fourth quarter institutional average daily trades rising to record highs, up 60% year-over-year.
Other important leading indicators of the institutional business remains strong. We maintained the share versus Bloomberg and client engagement continues to grow as the number of users trading in the fourth quarter increased by 6% year-over-year.
Moving on to the wholesale channel, overall industry volumes were down 9% year-over-year. Our legacy streaming offering outperformed with volumes on par with the fourth quarter 2021, while our CLOB underperformed, as elevated volatility benefited the incumbent.
As I highlighted earlier, we completed the clearing migration and the broker dealer consolidation in 2022, and we look forward to the migration of the data centers in the first half of 2023.
After we migrate the data centers, we believe that this will be a catalyst for revenue growth as we rebuild the liquidity pool and enhance our protocol offering based on client needs.
Stepping back, we believe our unique position in the market where we cater to all client channels offer a full suite of protocols, and a dynamic technology stack puts us in a leadership position to respond to and drive healthy market structure change.
Finally, within equities, clients continue to recognize the utility of ETFs as an easily tradable tool to obtain exposure to a broad range of asset classes, and benchmark indices. In many cases, the ETFs could be more liquid than the underlying securities they hold.
The reduction of manual touch points and automation of ETF trading continues to enable our clients to be more efficient and nimble. The liquidity in ETFs combined with client specific customized solutions have made it possible to transfer large amounts of risk with reduced manual intervention.
Our efforts to lead with innovation resulted in another quarter of strong institutional revenue growth, with average daily volume of 31% year-over-year, driven by new client wins and strong industry volumes.
Our other initiatives to expand beyond our flagship ETF franchise are also bearing fruit, with momentum continuing in equity options, convertibles and ADRs. Institutional equity derivative revenues were up over 10% year-over-year in the fourth quarter.
Looking ahead, the client pipeline remains strong as the benefits of our electronic solutions continue to resonate. We're excited about the potential for the business after this record year. And we believe we remain well-positioned to benefit from the secular growth ETFs and our other growth initiatives scaling.
And with that, I will turn it over to Tom.
Thanks Billy. I'm excited to be participating in my first Tradeweb earnings call. Despite my long history with Tradeweb, these first four months have been eye opening as a deep dive into the business with our teams.
As Billy highlighted in his opening, the singular focus has been and always will be continuous improvement of our clients user experience across the trading lifecycle. We believe that our client-first philosophy was never more important than it was in 2022. From low rates to high rates, low inflation to high inflation, and low volatility to high volatility, our clients have had to deal with an evolving and challenging macro backdrop.
We believe we provide that one-stop shop where clients can access over 40 products globally, numerous client channels, a diverse set of protocols, and leading pre-trade and post-trade services, all while getting the benefits of straight through processing.
Looking forward, we believe we're primed to continue to grow that connective tissue, not only within our existing products and clients, but also as we expand our geographic product and client footprint.
Turning to slide nine for a closer look at credit. Our global credit business produced a healthy fourth quarter with all products seeing positive year-over-year revenue growth on a constant currency basis.
U.S. Corporate credit continues to face a mixed industry volume backdrop, as spreads have stabilized, while IG duration improved in December. While high volatility and FX continued to dampen the true growth across U.S. and European Credit, our Muni business continues to see strong revenue growth, a product of the higher rates driving our retail channel and continued success in gaining wallet share across the institutional channel. All in, our fourth quarter global credit revenues grew 16% year-over-year on a constant currency basis. The second best quarter in our history.
We believe our U.S. credit business is here to stay and we continue to drive our differentiated strategy by expanding our client network, growing our all-to-all volumes and developing our integrated strategy across client channels.
At Tradeweb, we're cognizant of the continued drive for trading speed, transaction cost reduction and the minimize trading footprint. And our strategy is working as the number of clients on our U.S. Credit platform are up 9% year-over-year. We're excited to hit another record across fully electronic IG market share, and we believe further investments in high yields can lead to a similar outcome in the coming quarters and years.
Our institutional volume growth continues to be underpinned by growth in RFQ and portfolio trading. Our fourth quarter RFQ ADV grew 22% year-over-year, driven by investment grade. RFQ remains the primary protocol in the U.S. Credit market, and the ability to intelligently determine the optimal RFQ is critical, especially when there is a lack of market liquidity.
The best trading technology is meaningless if you can't assess, identify and capture the liquidity that drives our clients business. Our clients are increasingly incorporating our AiEX functionality into their RFQ trading, and it's a great example of outcome focused innovation.
In the fourth quarter, over 30% and 20% of our fully electronic institutional IG and high yield trades respectively, utilized our AiEX offering. This was a high watermark for the year despite the challenging macro backdrop.
Expanding our RFQ presence across IG in high yield remains our biggest opportunity and we continue to see great success cross-selling the innovations we have brought to the credit markets to gain wallet share.
Despite the wider spreads and elevated volatility, we continue to see strong portfolio trading activity on the platform. Portfolio trading was an offering we launched in 2019 and the protocol saw healthy growth in 2020 in an environment of low volatility.
Fast-forward to 2022, we believe the question of whether portfolio trading can help clients in a higher volatility environment was answered with a resounding yes. At the core of it, the protocol provided clients with greater access to liquidity, minimization of information leakage and a higher certainty of execution.
Fourth quarter ADV grew 21% year-over-year and was driven by record quarterly ADV and U.S. portfolio trading, with overall portfolio trading hitting a record in November. The underlying trends remain impressive.
Globally, the number of users are up by 5%, while the line items traded were up over 40% year-over-year. The fourth quarter caps off a record 2022 where we executed nearly $370 billion in portfolio trading volumes with ADV up 22% year-over-year and up over 150% since 2020.
The strength in RFQ and portfolio trading was matched by the strong growth of our anonymous liquidity solution, AllTrade. This produced a record quarter with over $110 billion in volume, which represented ADV growth of 16% year-over-year.
Our all-to-all liquidity volumes saw positive year-over-year growth across IG, but faced tougher client conditions within high yield. Though ADV rebounded nearly 30% quarter-on-quarter.
While high yield volumes were down year-over-year, the number of high yield all-to-all responders showed year-over-year growth, giving us confidence that we can continue to deepen our liquidity pool moving forward. We believe our collaboration with Blackrock's Aladdin will help even the playing field in all-to-all.
Sessions volumes saw nearly double digit volume growth led by IG, while high yield faced tougher hit rate conditions given more one-way submission flow. Similar to high yield all-to-all, our high yield sessions ADV improved over 10% quarter-on-quarter.
Finally, we remain laser focused on maximizing the value of session liquidity uploaded on our platform through newer protocols like ReMatch, which accesses our all-to-all liquidity. Our ReMatch ADV was up over 200% in the fourth quarter.
Turning to the non-U.S. Credit business. Revenues grew 30% year-over-year and continued to perform well in the current market environment. Our Muni business achieved a record quarter with revenues up over 130% year-over-year, led by records across our institutional and retail offering.
The strong fourth quarter capped off a record year with 2022 Muni revenues growing over 80% year-over-year. We're excited to leverage our leading position in Munis to expand our offering into the institutional taxable Munis pace, which we expect to roll out in the coming months.
On the market data side, client feedback has been very positive on our AiPrice for Munis offering. We continue to make additional enhancements and have expanded the pricing into our retail platform.
After a record nine months of trading, a more subdued environment across CDS produced relatively flat year-over-year growth in the fourth quarter, though up nearly 10% on a constant currency basis.
Another area of growth over the coming years is emerging markets. Our focus across emerging markets rates and credit is on innovation, differentiation, and cross product adoption. We continue to develop strong dealer relationships and leverage our existing buyside client network to grow our emerging markets footprint.
We believe our position as a global multi-asset class firm gives us a unique one-stop shop proposition, being able to offer EM products across cash rates and credit, swaps, CDS and China bonds to our clients.
In sum, it was another solid quarter and year for global credit, and we continue to see a lot of opportunity as our institutional and wholesale platforms continue to scale and the retail business continues to thrive.
Finally, we're excited about our partnership with Blackrock's Aladdin with our mutual interest to further electronify credit trading, streamline workflows, deepen liquidity, and provide more choice for our clients. We look forward to sharing more as we make progress on the integration.
Moving to global swaps on slide 10, despite the relative risk-off environment in the fourth quarter, the multi-year growth story continues as swaps registered another strong year.
Our fourth quarter variable swaps revenues fell 5% year-over-year, driven by a 20% reduction in duration. While client engagement levels remained at all time highs with institutional average daily trades up 39% year-over-year. Market share fell to 14.7% primarily driven by a reduction in under one-year volumes. However, we achieved the second highest share in our history in December at 18.2%.
Similar to global credit, our global swaps business produced a record 2022 with constant currency revenue growth of 18% year-over-year. Our momentum in major currencies continues with record annual share in Euro, Sterling and EM denominated swaps.
Over 50% of our 2022 volumes came from trades tied to new risk-free rates, up from only 19% in the year ago period. We look forward to assisting our clients as they transition off of dollar LIBOR swaps by June and then helping our clients as they transition off current Canadian and Mexican benchmarks next year.
Taking a step back, the strength of our global swaps franchise has been our ability to innovate with the goal of providing improved pricing, better liquidity, best execution, and straight through processing for our clients. Successfully collaborating with our clients has helped drive our share across currencies higher over time, and deepen that connective tissue across our swaps business.
The number of users trading in the fourth quarter increased by 30% year-over-year, and 29% for 2022. The strong annual growth was led by strong double-digit growth across the Euro, Sterling, Dollar, and Yen swaps.
We believe we can further deepen our connectivity with clients. We are leveraging that expertise across developed market swaps and our RFQ protocol to further our penetration across emerging market swaps and our RFM protocol.
We've learned that our swaps dealers increasingly prefer receiving electronic inquiries in order to price and handle orders faster, while our clients benefit from the efficiencies I described earlier.
Given the success our clients have had and trading G10 swaps electronically, we are seeing increasing numbers of traders expanding their electronic execution capabilities into emerging market swaps.
We saw record EM share in 2022, with revenues increasing by over 90% year-over-year, and we believe there is still a lot of room to grow. Finally, we continue to make inroads with our RFM protocol as fourth quarter ADV was up 28% year-over-year, while full year ADV reach record levels and grew 70% year-over-year.
Looking ahead, we believe the long term swaps 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 client's manual workflows, while the global fixed income markets and broader swap markets grow.
And with that, let me turn it over to Sara to discuss our financials in more detail.
Thanks, Tom 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 11. We reported fourth quarter average daily volume of nearly $1.1 trillion, down 4% year-over-year, but up 3% when excluding short tenor swaps.
Among the 22 product categories that we include in our monthly activity report, eight of the 22 product areas produced year-over-year ADV growth of more than 20%. Areas of strong growth include U.S. investment grade credit, munis, credit swaps, global ETFs, repos and other money markets.
Slide 12 provides a summary of our quarterly earnings performance. The fourth quarter volume growth translated into gross revenues increasing by 5.8% on a reported and 9.3% on a constant currency basis.
We derived approximately one-third 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 11% and our total trading revenue increased by 6.1%. Total fixed revenues related to our four major asset classes were down 5.4% and down 1.4% on a constant currency basis.
Rates fixed revenues were down given the migration of certain European government bond clients from fixed to variable contracts at the end of last year and the impact of FX.
Equities fixed revenues were down primarily due to a timing adjustments benefiting the year ago period and the impact of FX.
Money markets fixed revenue growth was driven by global repos, and other trading revenues were down 1%. As a reminder, this line does fluctuate as it affected by periodic revenues tied to technology enhancements perform for our retail clients.
Market data increased by 3%, due to growth in Refinitiv and our proprietary data products. This quarter's adjusted EBITDA margin of 52.8% increased by 221 basis points on a reported basis, and 166 basis points on a constant currency basis, relative to the fourth quarter of 2021.
Similarly, our adjusted EBITDA margin for the full year 2022 increased by 111 basis points on a reported basis, and 113 basis points on a constant currency basis from the full year 2021. All-in, we reported adjusted net income per diluted share of $0.49.
Moving on to fees per million on slide 13. The trends I'm about to describe are driven by a mix of the various products within our four asset classes. In sum, our blended fees per million increased 18% year-over-year, primarily as a result of stronger growth in cash, credit and cash equities, and an increase in cash rates fee per million. Excluding lower fee per million short tenor swaps and futures are blended fees per million were up 10%.
Let's review the underlying trends by asset class starting with rates. Average fees per million for rates were up 21%. For cash rates products, fees per million were up 23%, primarily due to a positive mix shift towards higher fee per million U.S. Treasuries and the migration of certain European government bond clients from fixed to variable contracts at the end of last year. The positive mix shift towards U.S. Treasuries was also aided by core growth in fee per million due to the continued pick up in our retail channel.
For long tenor swaps, fees per million were down 5%, primarily due to lower duration, while we continue to see growth in EM swaps and RFM. In other rates derivatives, which include rates futures and short tenor swaps, average fees per million increased over 100% due to a shift towards rates futures, which carries a higher fee per million than the group average and a core increase in OIS fee per million.
Continuing the credit, average fees per million for credit increased 2%. Drilling down on cash credit, average fees per million increased 6% due to stronger growth in munis, which carries a higher fee per million than overall cash credit. This more than offset the continued duration related fee pressures in U.S. High Grade. Notably, our fully electronic U.S. High Grade volumes were a record in the fourth quarter.
Looking at the credit derivatives and electronically processed U.S. cash credit category, fees per million decreased 8% driven by stronger growth in U.S. index CDS, which carries a lower fee per million than the group average.
Continuing with equities, average fees per million for equities were up 25%. For cash equities, average fees per million increased by 24% due to a positive mix shift towards higher fee per million institutional U.S. ETFs. Equity derivatives average fees per million increased 8% due to an increase in convertible fees per million.
And finally, within money markets, fees per million increased 17%. This was primarily driven by a mix shift towards us CDs, which carries a higher fee per millions than overall money markets. The higher fee per million retail money markets business continues to improve given the higher interest rate environment.
Slide 14 details our expenses. Adjusted expenses for the fourth quarter increased 2% on a reported basis and 6.3% on a constant currency basis. Recall that approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in Sterling.
The fourth quarter of 2022's adjusted operating expenses were higher as compared to the fourth quarter of 2021, primarily due to increased professional fees, technology and communication and depreciation and amortization, which were partially offset by a decrease in compensation. Compensation costs decreased 6.5% due to lower accruals for performance related variable compensation.
Adjusted non-comp expense increased 20.3% primarily due to professional fees technology and communication and depreciation and amortization, but were helped by favorable movements in FX. Adjusted non-comp expense on a constant currency basis increased 26.9%.
Specifically, professional fees increased 49.3%, mainly due to higher legal costs in connection with regulatory and compliance matters including periodic information requests.
Technology and communication costs increased primarily due to higher data fees related to increased retail volumes, and our previously communicated investments in data strategy and infrastructure.
Adjusted general and administrative costs increased primarily due to an increase in travel and entertainment as we recover from the pandemic. In addition, favorable movements in FX resulted in a $2.6 million gain in the fourth quarter versus a $1.3 million gain in the fourth quarter of 2021.
Slide 15 details capital management and our guidance. First on our cash position and capital return policy. We ended the fourth quarter in a strong position with $1.3 billion in cash and cash equivalents and free cash flow reached approximately $573 million for the trailing 12 months.
Our net interest income of $8.4 million increased due to a combination of higher cash balances and interest deals. This was primarily driven higher by recent Fed hikes and more efficient management of our cash.
We have access to a $500 million revolver, that remains undrawn as of quarter end. CapEx and capitalized software development for the year was $60 million, an increase of 17% year-over-year in line with our prior guidance.
And with this quarters earnings, the board declared a quarterly dividend of $0.09 per Class A and Class B share, an increase of 12.5% year-over-year. The board periodically evaluates our dividend along with the consistency of our earnings and free cash flow generation over time.
In December 2022, our board authorized a new $300 million share buyback after the company completed our original $150 million share buyback program last October. In aggregate across both programs, we spent $99.3 million during the year, leaving $275 million for future deployment at the end of the year.
Turning to guidance for 2023. We will continue to invest in 2023 and are expecting adjusted expenses to range from $669 million to $714 million. The midpoint of this range would represent an approximate 10% increase when excluding the impact of FX gains in 2022, in line with our average expense growth from 2016.
We believe we can drive adjusted EBITDA and operating margin expansion compared to 2022 at either end of this range. Although, we expect the incremental margin expansion to be more modest relative to last year, as overall margins are higher, and we continue to focus on balancing margin expansion with investing for the future.
As Billy and Tom described, we continue to invest for the future with credit and rates remaining key focus areas with a long runway for growth. We are investing in driving new protocol adoption, growing our client footprint and expanding our geographic and product reach. Some of these investments will take some time to scale, but we continue to prize innovation and have a technology pipeline that continues to grow.
We expect G&A expenses to ramp from fourth quarter 2022 levels through the course of the year as we don't expect $7 million in FX gains primarily tied to our hedges from the U.S. Dollars rapid appreciation to repeat in 2023.
We expect technology and communication and expenses to grow from fourth quarter 2022 levels driven by investments in data strategy and infrastructure. Additionally, we expect continued growth of Credit AllTrade and our U.S. Treasury streaming platform. For forecasting purposes, our assumed non-GAAP tax rate will range from 24% to 25% for the year,
Approximately 80% of the increase in our tax rate is driven by lower equity compensation windfall benefits tied to our stock price. The remaining increase is driven by the firm now being subject to prior tax law changes related to executive compensation.
We expect CapEx and capitalized software development to be about $56 million to $62 million. We estimate that approximately 70% will be spent on software development to support our growth initiatives, and approximately 30% will be related to growth and maintenance CapEx.
The midpoint of our CapEx guidance implies a roughly 2% year-over-year decline, due to prior years accelerated infrastructure enhancements. Excluding those opportunistic infrastructure investments, mid point growth will be approximately 20% year-over-year.
Acquisition and Refinitiv transaction related depreciation and amortization, which we just out due to the increase associated with pushdown accounting is expected to be $127 million. Finally, on slide 16, we have updated our quarterly share count sensitivity for the first quarter of 2023 to help you calibrate your models for fluctuations in our share price.
Now, I'll turn it back to Billy for concluding remarks.
Thanks, Sara. Historically, change has created opportunities for us to help our clients improve their trading workflow, and that continues to be the ethos for our company. It started with a pandemic and a lockdown and now has morphed into inflation historically fast Fed rate hikes, liquidity concerns, a war in Europe and a pending recession.
We see that some of our largest clients are now making tough personnel and cost decisions as they look to weather the next storm. In times like these, it's never been more important to be in front of our clients to help them navigate the fixed income markets in a more time and cost efficient manner.
We released January volumes this morning and the secular trends powering electronification were on display again, having already facilitated more than 1 trillion in average daily volume. January volumes were up 3% year-over-year with double-digit growth across greater than one year global swaps, our biggest rates product and U.S. credit, our biggest credit product.
In addition, we also saw double-digit growth across European government bonds, munis and repose. The month started off slow, but momentum picked up as we ended the month achieving the best revenue day in our history.
Our U.S. IG credit share in January was 13.7%, a strong month when factoring in the strong pickup in new issue volume. Our share of U.S. high yield credit fell to 5.6% primarily due to lower industry high yield portfolio trading volumes and lighter volumes in our all-to-all network. We believe the best is yet to come with our high yield franchise and we achieved our highest fully electronic daily share to end the month.
In closing, we are extremely focused on capitalizing on the growing demand for global fixed income products and on the various growth opportunities ahead of us, while continuing to strike the right balance between investing for the future and driving margin expansion to create long-term value for our shareholders.
I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter. And I would like to thank my colleagues for their efforts that contributed to the strong quarterly and annual revenue and volumes at Tradeweb.
With that, I will turn it back to Sameer for your questions.
Thanks Billy. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10.30 am Eastern time. Operator, you can now take our first question.
Thank you. [Operator Instructions]. The first question is coming from Richard Repetto of Piper Sandler. Your line is open.
Yes, good morning, Billy, Tom and Sarah. First, Billy, congrats again on the big C on your jersey here. But as you take off the leadership, I got to keep this question at a high level. So that your first question here. But as you take over leadership, I'm just trying to understand, what have you directed Tom Pluta to do? And where he'll focus his efforts? Will the delegation or the split be similar to what Lee and you had arranged? Really, I'm just trying to understand how the firm is run with the Weller [ph] and leadership change, transition that you are bringing?
Thanks a lot Rich. And I appreciate the question. Obviously, I want to congratulate you for making in through a rather long prepared remarks movement of our earnings call. So congratulations to everyone else on the call too. High level, Rich, and I do appreciate taking that this kind of first call from you. My responsibility in a certain way is pretty straightforward, right? Being the CEO of the company, running the company, is really all about sort of what I would describe to us setting the strategic direction of the company, and then really kind of pushing and prodding and leading the company to execute at a very, very high level.
And this won't surprise you at all. I'm going to do that my way with my own personality, I got actually some really good advice about a year ago from a board member who just kind of told me to sort of be myself, and I am going to be myself, as I kind of go through this journey. And so, from my perspective, what that is, is really about being relentlessly external, emphasizing and really receiving client feedback. My strong belief is that great companies make their clients happy. And I say that in a very clear and strong way. And then, when I think about, Rich to your question about Tom, when I think about Tom, obviously, what I think about is super kind of heavy duty real markets experience. So, we're going to direct him that way.
So Tom is going to be running the U.S. business, which is everyone knows is this combination of wholesale, retail, and institutional, all of the different markets that funnel into that. I do think he's going to be a significant difference maker in the business, but also a difference maker, specifically around regulation, he has heavy duty regulatory experience. I think that this is a moment where that's going to be a difference maker. And I will also say, in a very strong way, we have a really good management team. And obviously, Sara with us in the room, I want to mention that. When I think about the qualities, I'll say this, because I think it's important. Hard work, passion for what we do are kind of like the table stakes of it all.
I really like a little bit of the special sauce around what I would describe to you as sort of relentless optimism. I think that's a really important expression, something I'm going to say very clearly. Tradeweb is in the human behavior business. It's about changing human behavior. And I do think you have to bring that relentless optimism to the equation. So we're excited and energized and I really appreciate your question. Other thing I will just say quickly. I was sort of fortunate last night I wound up running into an industry event. I wound up running into our friends at market access. Rick and Chris, I thank them when I saw them. I always think if you say something to someone privately, you should be very comfortable saying it publicly. So I want to thank, congratulate them on their leadership transition. We are obviously competitors. But I think in an important way, we are respectful competitors. So I want to make sure I said that as well. And thanks for the question, Rich.
Thanks, Billy.
Thank you. One moment for our next question. And our next question will be coming from Daniel Fannon of Jefferies. Your line is open.
Thanks. Good morning. Hey, Billy, I wanted to chat about your comments around January. It seemed like a bit of a mixed bag started out slow. And then you said ended on a record. So maybe if you could talk about the mix of products. But that maybe means for kind of the revenue outlook and maybe momentum kind of going forward for the rest of the year?
Yes. And that's a great question. I'm going to segue it for a quick second, just a little bit of a follow-on to Rich's question, right, because to put a human element on it for a second, right. As a new CEO, there's this concept of obviously, kind of like nailing your first, right. You want to nail your first town hall. You want to nail your first board meeting. You guys can judge whether or not we nailed our first earnings call. But in a human way, there's this concept of really wanting the year to get off to a strong start. And so that's something that we cared about a lot here. So a couple of things I would say about the month of January, against tough comp, and I'll make sure I kind of say that very clearly.
Obviously, January 2022, was a very different market of heavy volumes kind of throughout the marketplace, a sort of green light volume marketplace. This is obviously before 400 and now 75 basis points in rate hikes, before there were kind of concerns about liquidity in the market. All of those kind of headline news is about sort of how the marketplace was functioning. The good news, as we've kind of hit this year, I think we're kind of out of sort of that market environment. And I think January 2023, from my perspective, is really what I would describe as a return to a very strong kind of normal market cadence. I think that's an important way to describe it.
So, kind of headline for us around January is, against tough comps, volumes up kind of year-over-year, but obviously really, in a very important way, I would say revenues, outpacing volume growth. So, to be crystal clear, we saw revenue growth in January, up very close to sort of near double-digit growth. And obviously, from our perspective, the areas of like high focus that we have as a company, strategically, rates and credit accounted for 75% of that growth. So, all volumes not created equal. I think it's really important that we obviously, the community understands where we were from a volume standpoint, I think a pretty big delta on the on the revenue. And I want to make sure I describe that the right way. We are sort of super commercial. And it was, I think, gratifying against sort of a tough competition a year ago to produce really strong results
And end of month, I think we really accelerated particularly in our credit business with a significant amount of records, as some of the strategies that we've put in place around net-net hedging, and net spotting really came to fruition. So a really strong end of the month for us, and feeling really good about how we are set up going into the rest of the year. And thanks very much for the question.
Thank you. One moment for our next question. Our next question will be coming from Brian Bedell of Deutsche Bank. Your line is open.
Hello. Can you hear me?
Yes.
Okay. Sorry, as the intro got interrupted. Thanks so much for all the great commentary very detailed. And if I can ask Tom, given your overview of credit, maybe on the portfolio trading side, I mean, that's obviously been a great protocol for Tradeweb and gaining market share and credit over the last two to three years. Maybe talk about your vision of how that's evolving in 2023 between investment grade and high yield and we have different dynamics in those two areas. Both I guess, on a market share basis versus your main competitor there, and also on how you think the absolute level or I should say penetration of portfolio trading may evolve in 2023, especially if we get maybe wider credit spreads later in the year?
Hi, Brian, thanks. Yes. I mean, overall, we're very positive on the trajectory of our credit business and expected to be a key revenue driver for years to come, revenue growth driver for years to come. On portfolio trading, specifically, as I mentioned in the prepared remarks, I think, 2022 is a good litmus test. And for this protocol, and I think, portfolio trading really was battle tested in this high volatility and difficult macro environment that we all experience and it continued to grow significantly.
In my mind, it's rapidly becoming the market standard for fast and efficient trading and credit markets. If you think about the key benefits that we see or the clients see, you get certainty of execution by trading an entire portfolio of bonds in one shot, that could be maybe 100 to 300 line items on average, but we traded a record amount of line items a couple of weeks ago with close to 2000 bonds in one trade. Additional benefits, just being able to move large amounts of risk and minimizing information leakage. So it's a it's an extremely powerful tool that continues to grow in popularity.
And this protocol used to be a voice product. And what we've seen is the steady electronification over time over the last few years, it's continued to grow. And we've been beneficiaries of that, and are the clear market leader. As far as IG versus high yield, not surprisingly, investment grade has led the way in electronification. But high yields, while for the pine is also growing rapidly. And we've also continued to work with clients and introduce enhancements to our protocols, which makes it even more attractive. For example, you can trade multicurrency with any combination of high yield investment grade, and emerging market bonds within the same portfolio trade, you can commingle buys and sells. And we provide analytics like PCA analysis, all which provides benefits to clients.
As far as the share portfolio trading share of the overall market, I think that was your question. It's been running the last couple years around 5% to 6% of trace volumes. But I expect that it can grow further, as more clients experience the benefits. So in some of this remains a bright spot for us a focus area and a growth area within credit.
Great. Thanks for that color.
Thank you.
Thank you. One moment while we prepare for the next question. Our next question comes from Michael Cyprys of Morgan Stanley. Your line is open.
Hey, good morning. Can you hear me?
Yes.
Okay, great. Hey, Billy, Tom, Sara. Question for Sarah, if I could on the margin profile. So you guys continue to put up strong margin expansion. I think it's five consecutive years now over 100 basis points expansion of the adjusted EBITDA margin here at 2022. I hear you on more modest margin expansion in 2023. But just maybe a longer term question. How do you think about what's the right long-term margin profile for the business as compared to the 51.9% adjusted EBITDA margin in 2022? Do you think it could have a six handle and what's it take to achieve that?
Well, good morning. Thanks for that question. Look, I'm happy to give you some color here as you think about it. But we obviously don't provide a long-term margin target. That said, I think we've been pretty clear and pretty consistent that we think we can continue to drive long-term operating margin expansion. Obviously, this quarter we give out guidance for 2023. And we're confident that we can drive that margin expansion in the near term at either side of that range. But I do think as you referenced, we've delivered a tremendous amount of margin improvement, and at 52%, we'd expect annual increases just to be more modest.
There are a number of factors that drive the scale and ultimate opportunity. And I think, just kind of taking a step back in terms of how we manage the company, the most important thing that we're focused on, is striking that right balance between investing for long-term revenue growth, and driving margin expansion. And if you think about it, especially from a long-term perspective, if we get that balance right, particularly with that focus around driving revenue growth, the business scales really well and we will really lift that overall margin. Obviously, like there are things that change that dynamic moment to moment and market to market, one of those things is on the investment side. So as we think about 2023, it continues to be an investment year for us. We're focused on that long-term growth. We're making investments in talent and technology. We've talked about this in the past.
And a lot of those initiatives, particularly around rates and credit, which have been Tom referenced, we expect to continue to invest in that over coming years, given that runway of growth opportunity that we see. And maybe just the only other thing I can give you in terms of color is just really, as you think about -- thinking about the expansion, as revenue grows, there is an impact in terms of variable compensation and other variable expenses. And so, last year we grew 14% on a constant currency basis and margins expanded that 100 basis points that you referenced, as revenue moves differently, that margin expansion does correlate to that a little bit more in the near term. So that gives you a little bit more color on how to think about the margin.
Great, thank you.
Thanks.
Thank you. One moment, while we prepare for the next question. And next question is coming from Gautam Sawant of Credit Suisse. Your line is open.
Good morning, Billy, Tom and Sara. Can you please share with us your growth outlook for derivatives activity in 2023. How emerging markets derivatives uptake is progressing? And if EM derivatives growth improves prospects on the cash side?
Hi, good morning. This is Tom, I'll take that one. Emerging markets remains a focus area for us in 2023. And on the back of a very strong 2022, my outlook is for another very strong growth year ahead. We lead with interest rate swaps here and we've leveraged our market leading position and develop market swaps, and our expansive network to have really great early success in the EM swaps. It's the same technology, it's the same interface. It's the same protocols that are developed markets clients are familiar with. So it's a very easy expansion into those markets. We've introduced three more emerging markets, IRS currencies in 2022, and now offer 16 on the platform.
We've also made some key hires to our EM team that we're very excited about. So, we're really pushing ahead here and expect it to be very strong growth area for us going forward. More generally, in rates, because I think you're asking generally the outlook for derivatives. We're quite positive on the outlook for further electronification in swaps. In develop market swaps, the market is only about 30% electronified. And by the way, in EM, that number is about 10%. So there is a lot of upside there, compared to the level of electronification we see in say U.S. Treasuries, areas of credit, the mortgage market, certainly. And I think, the comment that I would make generally around our rates businesses.
If you think about where we were a year ago, at the outset of this Fed tightening cycle, we actually came into 2022, the Fed was still in a quantitative easing process. There was an outlook for maybe a couple of rate hikes, but given how that outlook changed over the course of the year, flipping from QE to QT, the Fed hiking 425 basis points. And then another 25. Yesterday, we saw a very difficult environment for rates, volatility spiked, liquidity was challenged. But given all that, we did quite well across all of our products. Yes, some did better than others. Retail, obviously, perform much better, as rates went higher mortgages struggled a bit in the backup. But overall, we did as well as we had set out to do at the beginning of the year.
What we see here now that we're seeing the prospects for the end of the Fed tightening cycle, and attractive yields is a very strong outlook for rates activity. And I think a big part of that is the sharp decline of volatility that we've seen, that should bring and bid offers, we're starting to see narrowing as well. And I think that's going to bring larger position sizes into the market, both from the sell side and the buy side. So we think the outlook is quite strong. And the other thing I'd like to say as cash is an asset class again, right? Yields over 4%, short and bonds, these are very attractive yields to all segments of the market. So, we're feeling pretty good about where the rates business is headed this year.
And you guys are getting a really good snapshot to sort of Tom's kind of tightness in his content around these market dynamics, which I think is really important. The only thing I would add to an absolutely spot on response is obviously, I mentioned sort of the importance of regulation. A little bit before regulation continues to play an important role specifically in the European swaps market where we are continuing to onboard important clients in that dynamic. And we're also doing things that you guys would expect, which is continuing to provide what I would describe as really important micro protocols that are going to add new types of clients with new types of volumes attached to it. So our European swaps business is really thriving, and sort of deserves its own kind of comment around some excellent market dynamics that that Tom was providing for everyone.
Thank you. That's super helpful context. Appreciate it.
Thank you while we prepare for the next question. Our next question will come from Kyle Voigt of KBW. Your line is open. Kyle Voigt of KBW. Your line is open.
Hi. It cut out there for a second. So just a question on the retail business. I think that was roughly 10% of revenue last quarter. Given your comment, is it fair to say that proportion can meet up again in the fourth quarter. And when we think about the growth of that, that retail business over the years, it seems historically to be a bit more cyclical with rates. I just wonder if you could kind of expand upon or outline how you can grow that business from a secular standpoint, if we begin to see rates moving lower here and the Fed begin cutting again?
Sure, I'll take that one. It's Tom. Yes, the retail business has obviously been a great story for us in 2022. And we expect that to continue this year. Large backup and rates, demand for money market products and bonds has increased dramatically as yields are very attractive. Just for context, retail makes up almost 5% of our rates revenue, over 20% of credit revenues and about 15% of money market revenue. So definitely significant. And most of these revenues come from munis, U.S. credit, U.S. Treasuries and retail. I think those four add up to about 75% of our revenues. As far as comparing it to other rate hiking cycles. It's a little difficult for us to do. I mean, I think the last time rates were this high in the U.S. was in 2007, we entered the retail business, I believe in 2011. So, we don't have sort of comparisons on how that evolves with respect to our particular business. But what I can say is that we believe that the retail businesses back and will remain robust going forward.
I think we're clearly in a higher inflationary environment. I don't expect that the Fed and the other major central banks are going to reverse and cut rates dramatically. So we think that the demand will remain robust, and very healthy. Munis as an asset class generally were very positive on and we're continuing to develop protocols there, not just in retail, but also in bringing in institutional liquidity to that market all on the same platform. So, we're quite positive. While we can't quite forecast exactly where markets will go. We're positive. We're very positive on the outlook for this year.
And one of the things just I would just add, I think it's important is, these segments, and the way that we describe them, the wholesale channel and the retail channel and the institutional channel, they don't, obviously, across these different businesses that we are in. They don't always stay perfectly separate, right? So there's this continuing kind of blend, important blend of these segments. So we've talked in the past about what we feel is an ongoing opportunity for Tradeweb around the institutional Muni business to Tom's point. And to make it obvious point, the activity that takes place for us on the retail side in munis, we think gives us a strong head start in terms of building out that the liquidity for that institutional channel.
Other thing I think that is very important that has been described before, is the fact that we have all of these retail entities on the credit side has given us a tremendous advantage in terms of building out our all-to-all network with really important liquidity providers and credit that exist in our retail world. So you see how not only is that business performing in and of itself exceptionally well, strategically, it fits us really well because of the blend that I was just describing. And thanks for the question.
Thank you. One moment while we prepare for the next question. Our next question comes from Chris Allen of Citi. Your line is open.
Hey, morning everyone. Just a quick follow up to Kyle's question. I wonder if you could talk about any growth opportunities from increasing retail distributions? Where you're penetrating financial advisors on the wirehouse? And are you connected to all kinds of the major retail players out there?
Sure, I'll, I'll take that. We, in terms of our retail distribution, we have all the major retail wealth management firms connected to the platform and most of the regional dealer community already. But we do think that we can continue to broaden out our set of liquidity providers, but yes, we are -- we're kind of plugged in to most of the market already.
Maybe I just add, which I think is getting at the underlying point as well. We have plans to add, but also we're seeing that increased activity. So with even the network that we do have, we're seeing 40% more a phase login to the system, given the interest in the product set, users are up something like 200%. So, it's a combination of both drivers that I would definitely focus on.
Thanks.
Thank you. And one moment for the next question. Our next question will be coming from Ken Worthington of JPMorgan. Your line is open.
Hi, good morning. Thanks for squeezing me in here. As we look back to 2022, we saw a noticeable acceleration in the migration of fixed income investing from active to passive similar to what we've seen in equities over the last decade. As we think about Tradeweb, from both a credit and rate perspective, is this transition from active to passive a tailwind or a headwind from both an activity perspective and an revenue perspective for the company? And where is the ongoing transition from active to passive maybe most impactful to your business?
Hey, Ken, thanks for the question. I guess I'll start. The trend to passive investing has been well documented and continues to grow. We have a significant and growing ETF business that includes both equities and fixed income ETFs, the growth rate has been quite strong, and some of the market forecasts for the forwards over the next decade are also quite strong. So we are well-positioned to capitalize on that by expanding, continuing to expand our ETF business. I think this kind of highlights the diversity of our offerings across various liquidity pools, various asset classes, various channels. And as passive continues to grow, I think we will continue to benefit from that as it's a huge area of focus for us.
I completely agree. I mean, I think we're particularly excited as we think about the fixed income ETF portion, which historically has been a little bit behind and those growth rates even outpacing the equity ETFs. So there are a couple of trends within there that I think we're quite excited about.
Okay. But I think about sort of your fixed income or your rates business and credit business, they're flow-through back to those businesses as well? And is it positive or negative?
Yes. I mean, certainly positive, right. So if the active investing continues, we're already in all those businesses in a big way and as the ETFs continue to grow, we're in rates and credit and equity ETFs and well-positioned to capitalize on that growth.
Great. Thank you.
Thanks.
Thank you. One moment while we prepare for the next question. And next question is coming from Craig Siegenthaler of Bank of America. Your line is open.
Hi, good morning, everyone. This is [Indiscernible] just filling in for Craig. I was wondering to what extent you think the reduction in dealer liquidity has impacted credit RFQ volumes in 2022. In particular, on a year-over-year basis, are you seeing a meaningful reduction in the size of dealer responses or reduction in the average number of responses per RFQ? If liquidity improves, I'm trying to think about how much of acceleration we could see in those volumes? Thanks.
It's been a part of the story of 2022. It's a great question, Eli. There's no question that all-to-all trading in credit is a sort of table stakes protocol and a very important of how that market has developed electronically. My general feeling is while there is some ebb and flow to where the dealers are in terms of their liquidity. They've really made a strong investment in protocol innovations that we've talked about, like portfolio trading. And my feeling is that there's a sort of a relevance or an attachment to that protocol, that's extremely sticky. My instinct is we've gotten on the other side around a little bit of that kind of liquidity concern in credit. And I do think we're going to see a rise of principal market making as we get into 2023. And we're going to see that play through the dynamic of response rates to your point in traditional RFQs. And also the pricing and the aggressive pricing around portfolio trading.
I think the marketplace learned a pretty interesting lesson around the rise of all-to-all trading. My general feeling and I'll say this pretty strongly is the dealers want to play a significant role in the evolution of electronic credit trading, and they will. And so, I'll kind of answer your excellent question that way, Eli.. And thank you.
I guess the thing I would add to that is, as some of the innovations that we've introduced, like AiEX give clients the ability to trade on an automated basis. That is actually sort of increase the number of trades and reduced the average trade side size and certain asset classes. And that's just a function of the way the trades are executed and really given clients control over how and when they want to execute.
Thank you.
Thank you. That concludes today's Q&A session. I would like to turn the call back over to Billy Hult for closing remarks.
So thank you everyone for joining us this morning. If you have any follow up questions, feel free to reach out to Ashley, Sameer and the team. I hope everyone has a great day and thank you very much.
This concludes today's conference call. You all may disconnect and please enjoy the rest of your day.