tv529956-s1 - none - 60.0228126s
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As filed with the Securities and Exchange Commission on October 15, 2019
Registration No. 333-               ​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Tradeweb Markets Inc.
(Exact name of registrant as specified in its charter)
Delaware
6200
83-2456358
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
1177 Avenue of the Americas
New York, New York 10036
(646) 430-6000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Lee Olesky
Chief Executive Officer
1177 Avenue of the Americas
New York, New York 10036
(646) 430-6000
(Name, address, including zip code, and telephone number including area code, of agent for service)
Copies to:
Steven G. Scheinfeld, Esq.
Andrew B. Barkan, Esq.
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
(212) 859-8000
Michael Kaplan, Esq.
Shane Tintle, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be
Registered(1)
Proposed Maximum
Offering Price per Share(2)
Proposed Maximum
Aggregate Offering Price(2)
Amount of
Registration Fee
Class A common stock, par value $0.00001 per share
17,020,000 $ 40.58 $ 690,671,600 $ 89,649.17
(1)
Includes 2,220,000 shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low sales prices of the Registrant’s Class A common stock as reported by the Nasdaq Global Select Market on October 10, 2019.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, and it is not soliciting an offer to buy, these securities in any state where the offer or sale is not permitted.
Subject to completion, dated October 15, 2019
PRELIMINARY PROSPECTUS
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14,800,000 Shares
Tradeweb Markets Inc.
Class A Common Stock
Tradeweb Markets Inc. is selling 14,800,000 shares of Class A common stock. Our Class A common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “TW.” The closing price of our Class A common stock on October 11, 2019 was $40.27 per share.
The underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to a maximum of 2,220,000 additional shares of Class A common stock.
We will use the net proceeds that we receive from this offering to purchase (i) issued and outstanding common membership units, which we refer to as “LLC Interests,” in Tradeweb Markets LLC, which we refer to as “TWM LLC,” from certain of the Bank Stockholders (as defined below) and certain of our executive officers and (ii) issued and outstanding shares of Class A common stock from certain of our executive officers. There is no public market for the LLC Interests. The purchase price payable by us to the holders of these LLC Interests and shares of Class A common stock will be equal to the public offering price of our Class A common stock, less the underwriting discounts and commissions referred to below.
We have four classes of authorized common stock: Class A common stock, Class B common stock, Class C common stock and Class D common stock. Each share of Class A common stock and Class C common stock entitles its holder to one vote on all matters presented to our stockholders generally. Each share of Class B common stock and Class D common stock entitles its holder to ten votes on all matters presented to our stockholders generally. The holders of Class C common stock and Class D common stock do not have any of the economic rights (including the rights to dividends) provided to holders of Class A common stock and Class B common stock.
Immediately following this offering, the holders of our Class A common stock collectively will hold 3.8% of the combined voting power in us and will indirectly hold 27.3% of the economic interest in TWM LLC, the Refinitiv Owners (as defined below), through their ownership of Class B common stock and Class D common stock, collectively will hold 75.5% of the combined voting power in us and will indirectly and directly hold 54.0% of the economic interest in TWM LLC, and the Other LLC Owners (as defined below), through their ownership of Class C common stock and/or Class D common stock, as the case may be, collectively will hold the remaining 20.7% of the combined voting power in us and will directly hold the remaining 18.7% of the economic interest in TWM LLC. We are a holding company, and upon completion of this offering and the application of the net proceeds therefrom, we will hold LLC Interests representing an aggregate 71.0% economic interest in TWM LLC. The remaining 29.0% economic interest in TWM LLC will be owned by the Continuing LLC Owners through their ownership of LLC Interests.
The Refinitiv Owners own a majority of the combined voting power in us. As a result, we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and are subject to reduced reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 40 to read about factors you should consider before buying shares of our Class A common stock.
Per Share
Total
Price to public
$     $    
Underwriting discounts and commissions(1)
$     $    
Proceeds, before expenses, to Tradeweb Markets Inc.
$ $
(1)
See “Underwriting (Conflicts of Interest)” for additional information regarding underwriting compensation.
Delivery of the shares of Class A common stock will be made on or about            , 2019.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
J.P. Morgan
Barclays Citigroup
Goldman Sachs & Co. LLC
Morgan Stanley
BofA Merrill Lynch
Credit Suisse
Deutsche Bank Securities
UBS Investment Bank
Wells Fargo Securities
Jefferies
Rosenblatt Securities
Sandler O’Neill + Partners, L.P.
The date of this prospectus is            , 2019.

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F-1
Neither we nor the underwriters have authorized anyone to provide you with any information other than that included in this prospectus or in any free writing prospectus prepared by or on behalf of us. We do not take any responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. Offers to sell, and solicitations of offers to buy, shares of our Class A common stock are being made only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, operating results and prospects may have changed since such date.
No action is being taken in any jurisdiction outside the United States to permit a public offering of Class A common stock. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.
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MARKET AND INDUSTRY DATA
This prospectus includes estimates regarding market and industry data. Unless otherwise indicated, information concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity and market size, are based on our management’s knowledge and experience in the markets in which we operate, together with currently available information obtained from various sources, including publicly available information, industry reports and publications, surveys, our clients, trade and business organizations and other contacts in the markets in which we operate. Certain information is based on management estimates, which have been derived from third-party sources, as well as data from our internal research, and are based on certain assumptions that we believe to be reasonable. In particular, to calculate our market position, market opportunity and market size we derived the size of the applicable market from a combination of management estimates and public industry sources, including FINRA’s Trade Reporting and Compliance Engine (“TRACE”), the Securities Industry and Financial Markets Association (“SIFMA”), the International Swaps and Derivatives Association (“ISDA”), Clarus Financial Technology, Trax, the Chicago Board Options Exchange (“CBOE”) and the Federal Reserve Bank of New York. In calculating the size of certain markets, we omitted products for which there is no publicly available data, and, as a result, the actual markets for certain of our asset classes may be larger than those presented herein.
In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets in which we operate. While we believe the estimated market and industry data included in this prospectus are generally reliable, such information, which is derived in part from management’s estimates and beliefs, is inherently uncertain and imprecise. Market and industry data are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of such data. In addition, projections, assumptions and estimates of the future performance of the markets in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us. Accordingly, you are cautioned not to place undue reliance on such market and industry data or any other such estimates. Neither we nor the underwriters can guarantee the accuracy or completeness of this information, and neither we nor the underwriters have independently verified any third-party information and data from our internal research has not been verified by any independent source.
CERTAIN TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This prospectus includes trademarks and service marks owned by us. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
BASIS OF PRESENTATION
The financial statements and other disclosures included in this prospectus include those of Tradeweb Markets Inc., which is the issuer of the Class A common stock, and those of its consolidating subsidiaries, including Tradeweb Markets LLC, which became the principal operating subsidiary of Tradeweb Markets Inc. on April 4, 2019 in a series of reorganization transactions (the “Reorganization Transactions”) that were completed in connection with Tradeweb Markets Inc.’s initial public offering (the “IPO”), which closed on April 8, 2019. See “The IPO and Reorganization Transactions.”
As used in this prospectus, unless the context otherwise requires, references to:

“We,” “us,” “our,” the “Company,” “Tradeweb” and similar references refer: (i) on or prior to the completion of the Reorganization Transactions, to Tradeweb Markets LLC, which we refer to as
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“TWM LLC,” and, unless otherwise stated or the context otherwise requires, all of its subsidiaries and any predecessor entities, and (ii) following the completion of the Reorganization Transactions, to Tradeweb Markets Inc., and, unless otherwise stated or the context otherwise requires, TWM LLC and all of its subsidiaries and any predecessor entities.

“Bank Stockholders” refer collectively to entities affiliated with the following clients: Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, BofA Securities, Inc. (a subsidiary of Bank of America Corporation), Morgan Stanley & Co. LLC, RBS Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC, which, prior to the completion of the IPO, collectively held a 46% ownership interest in Tradeweb. Following the IPO and the application of the net proceeds therefrom, entities affiliated with BofA Securities, Inc., RBS Securities Inc. and UBS Securities LLC no longer hold LLC Interests and, except as otherwise indicated, are not considered Bank Stockholders for post-IPO periods.

“Continuing LLC Owners” refer collectively to the Other LLC Owners and the Refinitiv LLC Owner.

“Investor Group” refer to certain investment funds affiliated with The Blackstone Group Inc. (f/k/a The Blackstone Group L.P.) (“Blackstone”), an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd. and certain co-investors, which collectively hold indirectly a 55% ownership interest in Refinitiv (as defined below).

“Net Exercise” refer to the net exercise by certain of our executive officers immediately prior to the pricing of this offering of vested options and the issuance of shares of Class A common stock upon such net exercise, a portion of which shares of Class A common stock will be purchased by us with a portion of the net proceeds of this offering.

“LLC Interests” refer to the single class of common membership interests of TWM LLC.

“Original LLC Owners” refer to the owners of TWM LLC prior to the Reorganization Transactions (including the Refinitiv Owners, the Bank Stockholders and members of management).

“Other LLC Owners” refer collectively to: (i) those Original LLC Owners (including certain of the Bank Stockholders and members of management and excluding the Refinitiv LLC Owner) that continue to own LLC Interests after the completion of the IPO and Reorganization Transactions, that received shares of our Class C common stock, shares of our Class D common stock or a combination of both, as the case may be, in connection with the completion of the Reorganization Transactions, and that may redeem or exchange their LLC Interests for shares of our Class A common stock or Class B common stock as described in “Certain Relationships and Related Party Transactions — Related Party Transactions Entered Into in Connection With the IPO — TWM LLC Agreement” and (ii) solely with respect to the Tax Receivable Agreement (as defined in “Prospectus Summary — Summary of the IPO and Reorganization Transactions”), also includes those Original LLC Owners, including certain Bank Stockholders, that disposed of all of their LLC Interests for cash in connection with the IPO.

“Refinitiv” refer to Refinitiv Holdings Limited, and unless otherwise stated or the context otherwise requires, all of its subsidiaries, which owns substantially all of the former financial and risk business of Thomson Reuters (as defined below), including, prior to and following the completion of the Reorganization Transactions, an indirect majority ownership interest in Tradeweb, and is controlled by the Investor Group.

“Refinitiv Direct Owner” refer (i) prior to June 28, 2019, to a direct subsidiary of Refinitiv that owned interests in an entity that held membership interests of TWM LLC and received shares of our Class B common stock in exchange for the contribution of such entity to Tradeweb Markets Inc., which we refer to as the “Refinitiv Contribution,” in connection with the completion of the
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Reorganization Transactions and (ii) on and after June 28, 2019, to an indirect subsidiary of Refinitiv that owns shares of our Class B common stock which shares were contributed by the direct subsidiary of Refinitiv referred to in the foregoing clause (i).

“Refinitiv LLC Owner” refer to an indirect subsidiary of Refinitiv that, prior to the Reorganization Transactions, owned membership interests of TWM LLC and that continues to own LLC Interests after the completion of the IPO and Reorganization Transactions, who received shares of our Class D common stock in connection with the completion of the Reorganization Transactions, and that may redeem or exchange its LLC Interests for shares of our Class A common stock or Class B common stock as described in “Certain Relationships and Related Party Transactions — Related Party Transactions Entered Into in Connection With the IPO — TWM LLC Agreement.”

“Refinitiv Owners” refer collectively to the Refinitiv Direct Owner and the Refinitiv LLC Owner.

“Refinitiv Transaction” refer to the transaction pursuant to which Refinitiv indirectly acquired on October 1, 2018 substantially all of the financial and risk business of Thomson Reuters and Thomson Reuters indirectly acquired a 45% ownership interest in Refinitiv.

“Thomson Reuters” refer to Thomson Reuters Corporation, which indirectly holds a 45% ownership interest in Refinitiv.

“Transactions” refer to the Refinitiv Transaction, the Reorganization Transactions, the IPO, the Net Exercise, this offering and the other transactions described in “Unaudited Pro Forma Consolidated Financial Information.”
The financial statements and other disclosures included in this prospectus relate to periods that ended both prior to and after the completion of the Reorganization Transactions and the IPO. As a result of the Reorganization Transactions completed in connection with the IPO, Tradeweb Markets Inc. became a holding company whose only material assets consist of its equity interest in Tradeweb Markets LLC and related deferred tax assets. As the sole manager of Tradeweb Markets LLC, Tradeweb Markets Inc. operates and controls all of the business and affairs of Tradeweb Markets LLC and, through Tradeweb Markets LLC and its subsidiaries, conducts its business. As a result of this control, and because Tradeweb Markets Inc. has a substantial financial interest in Tradeweb Markets LLC, Tradeweb Markets Inc. consolidates the financial results of Tradeweb Markets LLC and its subsidiaries.
The historical consolidated financial information included elsewhere in this prospectus relating to periods prior to and including March 31, 2019, which we sometimes refer to as the “pre-IPO period,” reflect the results of operations, financial position and cash flows of Tradeweb Markets LLC, the predecessor of Tradeweb Markets Inc. for financial reporting purposes, and its subsidiaries. The historical consolidated financial information included elsewhere in this prospectus relating to periods beginning on April 1, 2019, and through and including June 30, 2019, which we sometimes refer to as the “post-IPO period,” reflect the results of operations, financial position and cash flows of Tradeweb Markets Inc. and its subsidiaries, including the consolidation of its investment in Tradeweb Markets LLC. As a result, for financial reporting purposes, the pre-IPO period excludes, and the post-IPO period includes, our financial results from April 1, 2019 through April 3, 2019, which are not material. The historical consolidated financial information included elsewhere in this prospectus do not reflect what the results of operations, financial position or cash flows of would have been had the Reorganization Transactions and the IPO taken place at the beginning of the periods presented.
The unaudited pro forma consolidated financial information of Tradeweb Markets Inc. presented in this prospectus has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Tradeweb Markets Inc. and its subsidiaries as of and for the six months ended June 30, 2019 and Tradeweb Markets LLC and its subsidiaries for the 2018 Successor Period (as defined below) and the 2018 Predecessor Period (as defined below), each included elsewhere in this prospectus. These pro forma adjustments give effect to the Transactions, including this offering, as well as certain other items described therein, as if all such transactions had occurred on January 1, 2018, in the case of the unaudited pro forma consolidated statements of income, and as of June 30, 2019, in the case of the
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unaudited pro forma consolidated statement of financial condition. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the pro forma financial information included in this prospectus.
As a result of the Refinitiv Transaction, we revalued our assets and liabilities based on their fair values as of the closing date of the Refinitiv Transaction in accordance with the acquisition method of accounting. Certain financial information presented herein, including the allocation of the total purchase price of the Refinitiv Transaction attributable to the purchase of our assets and liabilities, are based on the fair values of our assets and our liabilities, as of the closing date of the Refinitiv Transaction. The values of our assets and liabilities were determined based on assumptions that reasonable market participants would use in the principal (or most advantageous) market for the asset or liability. In determining the fair value of the assets acquired and liabilities assumed, we considered the report of a third-party valuation expert. Our management is responsible for these internal and third-party valuations and appraisals.
Due to the change in the basis of accounting resulting from the application of pushdown accounting, we are required to present separately the financial information for the periods beginning on October 1, 2018, and through and including June 30, 2019, which we refer to as the “Successor period,” and the financial information for the periods prior to, and including, September 30, 2018, which we refer to as the “Predecessor period.”
The financial information presented in this prospectus and the consolidated financial statements included in this prospectus include a black line division to indicate that the Successor and Predecessor periods have applied different bases of accounting and are not comparable. Please note that our discussion of certain financial information, specifically revenues and certain expenses, represent the combined results of the Successor and Predecessor periods for the full year ended December 31, 2018. The change in basis resulting from the Refinitiv Transaction did not impact such financial information and, although this presentation of financial information on a combined basis does not comply with generally accepted accounting principles in the United States, or “GAAP,” we believe it provides a meaningful method of comparison to the other periods presented in this prospectus. The combined financial information is being presented for informational purposes only and (i) has not been prepared on a pro forma basis as if the Refinitiv Transaction occurred on the first day of the period, (ii) may not reflect the actual results we would have achieved absent the Refinitiv Transaction, (iii) may not be predictive of future results of operations and (iv) should not be viewed as a substitute for the financial results of the Successor and Predecessor periods presented in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Effect of Pushdown Accounting on our Financial Statements.”
References in this prospectus to (i) “2018 Successor Period” mean the period from October 1, 2018 to December 31, 2018, (ii) “2018 Predecessor Period” mean the period from January 1, 2018 to September 30, 2018, (iii) “combined year ended December 31, 2018” or “2018 (Combined)” represent the sum of the results of the 2018 Successor Period and the 2018 Predecessor Period, and (iv) “1H 2019” mean the six months ended June 30, 2019.
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. In addition, we round certain percentages presented in this prospectus to the nearest whole number. As a result, figures expressed as percentages in the text may not total 100% or, when aggregated, may not be the arithmetic aggregation of the percentages that precede them. Previously disclosed Rates volumes have been updated as a result of a reclassification of certain U.S. Treasury transactions.
USE OF NON-GAAP FINANCIAL MEASURES
This prospectus contains “non-GAAP financial measures,” which are financial measures that are not calculated and presented in accordance with GAAP.
The Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in other public disclosures of non-GAAP financial measures. These rules govern the manner in which non-GAAP financial measures are publicly presented and require, among other things:
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a presentation with equal or greater prominence of the most comparable financial measure or measures calculated and presented in accordance with GAAP; and

a statement disclosing the purposes for which the registrant’s management uses the non-GAAP financial measure.
Specifically, we make use of the non-GAAP financial measures “Free Cash Flow,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Adjusted EBIT,” “Adjusted EBIT margin,” “Adjusted Net Income” and “Adjusted Diluted EPS” in evaluating our past results and future prospects. For the definition of Free Cash Flow and a reconciliation to cash flow from operating activities, its most directly comparable financial measure presented in accordance with GAAP, see note 5 to the table under the heading “Prospectus Summary — Summary Historical and Pro Forma Consolidated Financial and Other Data.” For the definitions of Adjusted EBITDA, Adjusted EBIT and Adjusted Net Income and reconciliations to net income and net income attributable to Tradeweb Markets Inc., as applicable, their most directly comparable financial measures presented in accordance with GAAP, see note 6 to the table under the heading “Prospectus Summary — Summary Historical and Pro Forma Consolidated Financial and Other Data.” Adjusted EBITDA margin and Adjusted EBIT margin are defined as Adjusted EBITDA and Adjusted EBIT, respectively, divided by gross revenue for the applicable period. Adjusted Diluted EPS is defined as Adjusted Net Income divided by the diluted weighted average number of shares of Class A common stock and Class B common stock outstanding for the applicable period, assuming the full exchange of all outstanding LLC Interests held by non-controlling interests for shares of Class A common stock or Class B common stock, for post-IPO periods, and the diluted weighted average number of shares of TWM LLC outstanding for the applicable period, for pre-IPO periods.
We present Free Cash Flow because we believe it is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations after expenditures for capitalized software development costs and furniture, equipment and leasehold improvements.
We present Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management and our board of directors use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin to assess our financial performance and believe they are helpful in highlighting trends in our core operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Further, our executive incentive compensation is based in part on components of Adjusted EBITDA and Adjusted EBITDA margin.
We use Adjusted Net Income and Adjusted Diluted EPS as supplemental metrics to evaluate our business performance in a way that also considers our ability to generate profit without the impact of certain items. Each of the normal recurring adjustments and other adjustments described in the definition of Adjusted Net Income helps to provide management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.
Free Cash Flow, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations include the following:

Free Cash Flow, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS do not reflect every expenditure, future requirements for capital expenditures or contractual commitments;

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS do not reflect changes in our working capital needs;

Adjusted EBITDA and Adjusted EBIT do not reflect any interest expense, or the amounts necessary to service interest or principal payments on any debt obligations;
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Adjusted EBITDA and Adjusted EBIT do not reflect income tax expense, which in post-IPO periods is a necessary element of our costs and ability to operate;

although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, and the depreciation and amortization related to certain acquisitions and the Refinitiv Transaction are eliminated in the calculation of Adjusted EBIT, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBIT do not reflect any costs of such replacements;

in post-IPO periods, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS do not reflect the noncash component of certain employee compensation;

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative, on a recurring basis, of our ongoing operations; and

other companies in our industry may calculate Free Cash Flow, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS or similarly titled measures differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by relying primarily on our GAAP results and using Free Cash Flow, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Diluted EPS only as supplemental information.
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PROSPECTUS SUMMARY
This summary highlights information contained in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our consolidated financial statements and related notes thereto included elsewhere in this prospectus and the information in “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a description of certain of the terms we use to describe our business in this prospectus, see “Business.”
Overview
We are a leader in building and operating electronic marketplaces for our global network of clients across the financial ecosystem. Our network is comprised of clients across the institutional, wholesale and retail client sectors, including many of the largest global asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading firms and retail brokerage and financial advisory firms, as well as regional dealers. Our marketplaces facilitate trading across a range of asset classes, including rates, credit, equities and money markets. We are a global company serving clients in over 65 countries with offices in North America, Europe and Asia. We believe our proprietary technology and culture of collaborative innovation allow us to adapt our offerings to enter new markets, create new platforms and solutions and adjust to regulations quickly and efficiently. We support our clients by providing solutions across the trade lifecycle, including pre-trade, execution, post-trade and data. Our marketplaces provide deep pools of liquidity with average daily trading volume for the trailing twelve months ended September 30, 2019 of over $700 billion across more than 40 products.
There are multiple key dimensions to the electronic marketplaces that we build and operate. Foundationally, these begin with our clients and then expand through and across multiple client sectors, geographic regions, asset classes, product groups, trading protocols and trade lifecycle solutions.
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Our markets are large and growing. Electronic trading continues to increase across the markets in which we operate as a result of market demand for greater transparency, higher execution quality, operational efficiency and lower costs, as well as regulatory changes. We believe our deep client relationships, asset class breadth, geographic reach, regulatory knowledge and scalable technology position us to continue to be at the forefront of the evolution of electronic trading. Our platforms provide transparent, efficient, cost-effective and compliant trading solutions across multiple products, regions and regulatory regimes. As market participants seek to trade across multiple asset classes, reduce their costs of trading and increase the effectiveness of their trading, including through the use of data and analytics, we believe the demand for our platforms and electronic trading solutions will continue to grow.
We have a powerful network of over 2,500 clients across the institutional, wholesale and retail client sectors. Our clients include leading global asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading firms and retail brokerage and financial advisory firms, as well as regional dealers. As our network continues to grow across client sectors, we will generate additional transactions and data on our platforms, driving a virtuous cycle of greater liquidity and value for our clients.
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Our technology supports multiple asset classes, trading protocols and geographies, and as a result, we are able to provide a broad spectrum of solutions and cost savings to our clients. We have built a scalable, flexible and resilient proprietary technology architecture that enables us to remain agile and evolve with market structure. This allows us to partner closely with our clients to develop customized solutions for their trading and workflow needs. Our technology is deeply integrated with our clients’ risk and order management systems, clearinghouses, trade repositories, middleware providers and other important links in the trading value chain. These qualities allow us to be quick to market with new offerings, to constantly enhance our existing marketplaces and to collect a robust set of data and analytics to support our marketplaces.
We are focused on balancing revenue growth and margin expansion to create long-term value and have a track record of growth and financial performance. By expanding the scope of our platforms and solutions, building scale and integration across marketplaces and benefiting from broader network effects, we have been able to grow both our transaction volume and subscription-based revenues. Between 2004 and 2018, we had annual compound average daily trading volume growth of 12.5% and annual compound gross revenue growth of 12.2%. For the six months ended June 30, 2019 and the combined year ended December 31, 2018, 44.1% and 48.0% of our gross revenues, respectively, were fixed. For the six months ended June 30, 2019, our variable revenues and fixed revenues each increased as compared to the prior year period.
For the six months ended June 30, 2019 and 2018, respectively, our gross revenue was $377.3 million and $340.5 million, an increase of 10.8%, our net income was $67.2 million (including net income attributable to Tradeweb Markets Inc. of  $12.8 million) and $84.2 million, our Adjusted EBITDA was $167.3 million and $147.5 million, with an Adjusted EBITDA margin of 44.3% and 43.3%, and our Adjusted Net Income was $108.8 million and $95.1 million. For the combined year ended December 31, 2018 and the year ended December 31, 2017, respectively, our gross revenue was $684.4 million and $563.0 million, an increase of 21.6%. For the 2018 Successor Period, the 2018 Predecessor Period and the year ended December 31, 2017, respectively, our net income was $29.3 million, $130.2 million and $83.6 million, our Adjusted EBITDA was $65.3 million, $214.1 million and $215.2 million, with an Adjusted EBITDA margin of 36.6%, 42.3% and 38.2%, and our Adjusted Net Income was $40.8 million, $137.3 million and $131.4 million. For the definitions of Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income and reconciliations to their most directly comparable financial measures presented in accordance with GAAP, see note 6 in “— Summary Historical and Pro Forma Consolidated Financial and Other Data.”
Our Evolution
We were founded in 1996 and set out to solve for inefficiencies in the institutional U.S. treasury trading workflows, including limited price transparency, weak connectivity among market participants and error-prone manual processes. Our first electronic marketplace went live in 1998, and over the next two decades we leveraged our technology and expertise to expand into additional rates products and other asset classes, such as credit, equities and money markets. Market demand for better trading workflows globally also was increasing and we initiated a strategy of rolling out our existing products to new geographies and adding local products. We expanded to Europe in 2000, initially offering U.S. fixed income products and soon thereafter added a marketplace for European government bonds. We expanded to Asia in 2004, where our first local product was Japanese government bonds. We have since continued to expand our product and client base in Europe and Asia.
We identified an opportunity to expand our offerings to the wholesale and retail client sectors based on our existing relationships with dealers and our strong market position. We developed our wholesale platform through the acquisitions of Hilliard Farber in 2008 and Rafferty Capital Markets in 2011, and developed technology to facilitate the migration of inefficient wholesale voice markets to more efficient and transparent electronic markets. We entered the retail market through our acquisition of LeverTrade in 2006, scaled our market position through our acquisition of BondDesk in 2013, and have continued to leverage our market and technology expertise to enhance our platform serving that client sector.
Throughout our evolution we have developed many new innovations that have provided greater pre-trade price transparency, better execution quality and seamless post-trade solutions. Such innovations
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include the introduction of pre-trade composite pricing for multi-dealer-to-customer (“D2C”) trading and the Request-for-Quote (“RFQ”) trading protocol across all of our asset classes. We have also integrated our trading platforms with our proprietary post-trade systems as well as many of our clients’ order management and risk systems for efficient post-trade processing. In addition, because large components of the market remain relationship-driven, we continue to focus on introducing technology solutions to solve inefficiencies in voice markets, such as electronic voice processing, which allows our clients to use Tradeweb technology to process voice trades. We expect to continue to leverage our success to expand into new products, asset classes and geographies, while growing our powerful network of clients.
While our cornerstone products continue to be some of the first products we launched, including U.S. treasuries, European government bonds and To-Be-Announced mortgage-backed securities (“TBA MBS”), we have continued to solve trading inefficiencies by adding new products across our rates, credit, equities and money markets asset classes. As a result of expanding our offerings, we have increased our opportunities in related addressable markets, where estimated average daily trading volumes have grown from approximately $0.6 trillion in 1998 to $6.5 trillion through the first half of 2019, according to industry sources and management estimates.
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Our Market Opportunity
Continued Growth of Global Markets
Based on industry sources and management estimates, we estimate that the global notional value outstanding for rates and credit was approximately $539 trillion as of December 2018. When combined with equities and money markets, the market size for our platforms increases to an estimated notional value of approximately $551 trillion. The markets in which we participate are actively traded and growing, and we estimate that trading in rates, credit, ETFs and money markets generated average daily trading volumes of approximately $4.0 trillion, $0.1 trillion, $0.1 trillion and $2.3 trillion, respectively, through the first six months of 2019 as compared to $2.1 trillion, $0.1 trillion, $0.1 trillion and $1.6 trillion, respectively, in 2015. As electronic trading in these markets continues to develop, we believe we are well positioned to increase our share of these markets over time. For the first half of 2019, calculated on the same basis as our calculation of our addressable markets, trading in certain of our rates, credit, ETFs and money markets products generated average daily trading volumes of  $470.0 billion, $13.0 billion, $4.0 billion and $207.0 billion, respectively, and our average daily trading volumes for these product groups have increased by 27%, 36%, 13% and 29%, respectively, since 2015. Major market participants include large asset managers, hedge funds, central banks, banks and dealers, insurance companies, corporations, proprietary trading, brokerage and retail advisory firms, governments and retail investors.
Trading volumes are influenced by, among other things, the amount of notional securities outstanding, new issuances, market volatility, regulation and economic factors such as growth and monetary policy. We
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believe we are well positioned to benefit from secular and cyclical trends impacting many of the markets in which we operate. For example, the U.S. government bond market has experienced substantial growth in notional value outstanding, growing at 12% annually since 2007, according to SIFMA. The U.S. corporate bond and Chinese bond markets have grown annually at 6% and 20%, respectively, over the last decade, according to SIFMA and BIS. The U.S. and European ETF markets have each grown annually at nearly 17% since 2007, according to ETFGI. Continuing growth in these markets is expected to be driven by increasing global trading volumes, resulting from increased economic activity, new government and corporate debt issuances and the continued growth of passive investing. Markets have migrated to electronic trading platforms at different adoption rates — some gradually over time (e.g., government bonds and corporate bonds) and others on a more accelerated basis due to regulation (e.g., interest rate swaps).
Advancements in technology, increased connectivity and the evolving business needs of market participants have caused financial markets to become larger and more global. Our platforms operate throughout the 24-hour trading day as market participants have become increasingly global and comprehensive, trading across multiple geographies, asset classes and currencies.
Electronification of Trading
Trading in fixed income and derivative markets historically has been a highly manual process. With traditional methods of trading, buyers lack a centralized source of price discovery and automated post-trade processing solutions, and as a result, are required to telephone multiple dealers to receive price quotes, compare quotes among multiple dealers, confirm orders via telephone and then engage in manual trade settlement via fax. The process is time-consuming and error-prone, leading to poor price transparency and execution quality, limited connectivity among market participants and high levels of operational risk.
Market demand for greater execution efficiency and changing regulations are shifting the paradigm of trading from voice markets to electronic markets across our asset classes. As a result of technological advances, there has been a rising use of electronic trading technologies, referred to as the electronification of markets, which have automated many of the manual processes required by traditional methods of trading, including voice. Electronification has made markets more efficient by improving price transparency and execution, while also reducing operational risk and allowing market participants to create organizational cost efficiencies, by reducing front, middle and back office headcount and eliminating manual errors. However, even as other markets, such as the equity, FX and futures markets, transitioned to the use of electronic trading processes, large components of the fixed income and derivative markets have been slower to migrate to electronic trading because of the diverse and heterogeneous nature of those instruments and because participants in these markets have traditionally operated in a more relationship-driven environment.
Demand for more efficient trading solutions continues to increase, which we believe will further drive the electronification of the markets in which we operate. Over the last 20 years, we have been a leader in the electronification of fixed income and other markets, using proprietary technologies and collaborating hand-in-hand with clients to develop innovative workflow solutions across the trade lifecycle. Our trading platforms and solutions automate and integrate key parts of the trading process, which in turn helps our clients to improve execution quality, manage risk and compliance and account for their trading activities. For example, we have designed our platforms to seamlessly integrate with our clients’ internal and third-party risk and order management systems, as well as with vendor systems, including clearinghouses, confirmation systems and other third-party service providers. These integrations, which include over 375 proprietary client integrations and over 30 vendor integrations, help our clients to improve the efficiency of their front, middle and back offices and provide them with the opportunity to adopt end-to-end straight-through processing.
The process of market electronification is ongoing. Many markets — even in products we already offer — are in the early stages of electronification, such as U.S. corporate bonds, or continue to have meaningful volumes traded manually, with liquidity-taking investors calling multiple dealers for quotes and engaging in manual post-trade processing. For example, for U.S. treasuries, voice trading still accounts for approximately 35% to 40% of overall trading volumes, according to industry sources and management estimates. Certain markets in which we operate have experienced higher rates of electronification, such as
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ETFs, interest rate swaps and credit default swaps, and we believe we are well positioned to increase our share in these markets as our network continues to grow. Our innovation will continue to be driven by client demand for efficiencies in additional workflows, products and geographies, which, combined with our entrepreneurial culture and domain expertise, are expected to attract additional market participants to Tradeweb.
Regulatory changes have also driven demand for electronification. The policy objectives of a number of post-2008 crisis reforms, such as the Dodd-Frank Wall Street Reform and Customer Protection Act (the “Dodd-Frank Act”), Basel III and the Markets in Financial Instruments Directive II (“MiFID II”), are to increase transparency and reduce systemic risk. These objectives have generally led to increased adoption of electronic trading on regulated markets where price transparency, counterparty credit checks, reporting tools and clearing are essential components. In the United States, for example, swaps are experiencing increased rates of electronification due to mandates in the Dodd-Frank Act that require certain derivatives to trade on CFTC-regulated swap execution facilities (SEFs). Tradeweb launched two SEFs in 2013 and, in 2018, we had the leading market position in SEF trading for U.S. dollar-denominated interest rate swaps, excluding forward rate agreements, according to Clarus Financial Technology. In addition, higher capital requirements have driven dealers to reduce the size of their balance sheets and utilize the distribution and scale provided by electronic trading venues.
Unlocking the Value of Data for our Network
Traders are increasingly using data for pre-trade analytics, automated execution, transaction cost analysis, predictive insights and post-trade solutions. Greater demand for data and analytics has improved the value proposition of electronic trading relative to other mediums. Our real-time pre-trade data and analytics provide additional value-add to platform users, further entrenching our platforms and solutions among our clients. We provide continuous pre-trade pricing updates across our markets to clients increasing transparency in trading. Additionally, regulations are mandating additional audit trail and reporting requirements, which we help solve with our trading platforms and integrated post-trade settlement solutions. These applications are supported by advancements in technology and the increased prevalence of electronic trading, both of which have made it easier to generate, capture, store and analyze data.
Our Competitive Strengths
Our Network of Clients, Products, Geographies and Protocols
Our clients continue to come to our trading venues because of our large network and deep pools of liquidity, which result in better and more efficient trade execution. We expand our relationships through our integrated technology and new offerings made available to our growing network of clients. As an electronic trading marketplace for key asset classes and products, we benefit from a virtuous cycle of liquidity — trading volumes growing together and re-enforcing each other. We expect our existing clients to trade more volume on our trading venues and to attract new users to our already powerful network, as liquidity on our marketplaces grows and we offer more products and value-added solutions. The breadth of our network, products, global presence and embedded scalable technology offers us unique insights and an established platform to swiftly enter additional markets and offer new value-added solutions. This is supported by more than 20 years of successful innovation and long trusted relationships with our clients.
We are a leader in making trading and the associated workflow more efficient for market participants. Based on industry sources and management estimates, we believe that we are a market leader in electronic trading for the following products: U.S. treasuries, TBA MBS, European government bonds, U.S. dollar-denominated interest rate swaps and euro-denominated interest rate swaps, which are some of our largest products, as well as ETP-traded Yen-denominated interest rate swaps and European ETFs, which are some of our newer products. We cover all major client sectors participating in electronic trading, including the institutional, wholesale and retail client sectors. We are a global business with users accessing our platforms and solutions in over 65 countries. For each of the six months ended June 30, 2019 and the combined year ended December 31, 2018, we generated approximately 36% of our gross revenue from clients outside of the United States. We have built a business that is diverse across more than 40 products. In addition, we provide the full spectrum of trading protocols from voice to sweeps (session-based trading) through RFQ to CLOB (central limit order book).
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We believe the breadth of our offerings, experience and client relationships provides us unique market feedback and enables us to enter new markets with higher probabilities of success and greater speed. Many of our markets are interwoven and we provide participants trading capabilities across multiple products through a single relationship. We cover our global clients through offices in North America, Europe and Asia and a global trading network that is distributed throughout the world.
Culture of Collaborative Innovation
We have developed trusted client relationships through a culture of collaborative innovation where we work alongside our clients to solve their evolving workflow needs. We have a long track record of working with clients to solve both industry-level challenges and client-specific issues. We have had a philosophy of collaboration since our founding, when we worked with certain clients to improve U.S. treasury trading for the institutional client sector.
More recently, we helped make trading in credit markets more efficient by partnering with major dealers to improve liquidity and reduce the cost of net spotting the U.S. treasury in connection with a corporate bond trade. This net spotting functionality allows our credit clients to spot multiple bonds at the same time using our multi-dealer net spotting tool to net their interest rate risk simultaneously using one spot price. We have also worked side-by-side with clients and federal agencies to customize solutions for their particular needs in the TBA MBS market. For example, in direct collaboration with our leading TBA MBS clients we developed a functionality (Round Robin) to help resolve the issue of systemic fails on TBA MBS trades and reduce the operational risk and costs associated with delivery failures that often plague the TBA MBS market. In conjunction with Freddie Mac, we developed a direct-to-Freddie Mac exchange path for institutional clients related to the single security initiative, paving the way for a combined Freddie Mac and Fannie Mae TBA market of Uniform Mortgage-Backed Securities. Through collaborative endeavors like these, we have become deeply integrated into our clients’ workflow and become a partner of choice for new innovations.
Scalable and Flexible Technology
We have consistently used our proprietary technology to find new ways for our clients to trade more effectively and efficiently. Our core software solutions span multiple components of the trading lifecycle and include pre-trade data and analytics, trade execution and post-trade data, analytics and reporting, integration, connectivity and straight-through processing. Our systems are built to be scalable, flexible and resilient. Our internet-based, thin client technology is readily accessible and enables us to quickly access the market with easily distributed new solutions. For example, we were the first to offer web-based electronic multi-dealer trading to the institutional U.S. treasury market and have subsequently automated the market structure of additional markets globally. We have also created new trading protocols and developed additional solutions for our clients that are translated and built by our highly experienced technology and business personnel working together to solve a client workflow problem. Going forward, we expect our technology platform to help us stay at the forefront of the evolution of electronic trading.
Our Global Regulatory Footprint and Domain Expertise
We are regulated (as necessitated by jurisdiction and applicable law) or have necessary legal clearance to offer our platforms and solutions in major markets globally, and our experience provides us credibility when we enter new markets and facilitates our ability to comply with additional regulatory regimes. With extensive experience in addressing existing and pending regulatory changes in our industry, we offer clients a central source of expertise and thought leadership in our markets and assist them through the myriad of regulatory requirements. We then provide our clients with trading platforms that meet regulatory requirements and enable connectivity to pre-and post-trade systems necessary to comply with their regulatory obligations.
Platforms and Solutions Empowered by Data and Analytics
Our data and analytics enhance the value proposition of our trading venues and improve the trading experience of our clients. We support our clients’ core trading functions by offering trusted pre- and post-trade services, value-added analytics and predictive insights informed by our deep understanding of
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how market participants interact. Our data and analytics help clients make better trading decisions, benefitting our current clients and attracting new market participants to our network. For example, data powers our Automated Intelligent Execution (“AiEX”) functionality which allows traders to automatically execute trades according to pre-programmed rules and automatically sends completed or rejected order details to internal order management systems. By allowing traders to automate and execute their smaller, low touch trades more efficiently, AiEX helps traders focus their attention on larger, more nuanced trades. During the nine months ended September 30, 2019, the average daily volume executed by our institutional clients using our AiEX functionality was $3.0 billion, up from $0.6 billion in 2015, and we are seeing demand for AiEX continue to grow across some of our key products, including U.S. treasuries, European government bonds, global swaps, U.S. and European corporate bonds and global ETFs.
Our over 20 year operating history has allowed us to build comprehensive and unique datasets across our markets and, as we add new products to our platforms, we will continue to create new datasets that may be monetized in the future. Our marketplaces generate valuable data, processing over 50,000 trades and over 1.0 billion pre-trade price updates daily, that we collect centrally and use as inputs to our pre-trade indicative pricing and analytics. We maintain a full history of inquiries and transactions, which means, for example, we have 20 years of U.S. treasury data. We will seek to further monetize our data both through potential expansion of our existing market data license agreement with Refinitiv and through distributing additional datasets and analytics offerings through our own network or through other third-party networks.
We are continuously developing new offerings and solutions to meet the changing needs of our clients and will benefit from helping them comply with new regulations. For example, in January 2018, we launched our Approved Publication Arrangement (“APA”) reporting service in response to demand by our clients to satisfy new off-venue and over-the-counter (“OTC”) reporting requirements under MiFID II. We now operate one of the largest fixed income APA services with over 100 clients, including 20 leading global banks, and expect to expand our APA service in the coming years.
Experienced Management Team
Our focus and decades of experience have enabled us to accumulate the knowledge and capabilities needed to serve complex, dynamic and highly regulated markets. Our founder-led management team is composed of executives with an average of over 25 years of relevant industry experience including an average of 13 years working together at Tradeweb under different ownership structures and through multiple market cycles. Our stable management team has overseen our expansion into new markets and geographies while managing ongoing strategic initiatives including our significant technology investments. Additionally, management has fostered a culture of collaborative innovation with our clients, which combined with management’s focus and experience, has been an important contributor to our success. We have been thought leaders and contributors to the public dialogue on key issues and regulations affecting our markets and industry, including congressional testimony, public roundtables, regulatory committees and industry panels.
Our Growth Strategies
Throughout our history, we have operated with agility to address the evolving needs of our clients. We have been guided by our core principles, which are to build better marketplaces, to forge new relationships and to create trading solutions that position us as a strategic partner to the clients that we serve. We seek to advance our leadership position by focusing our efforts on the following growth strategies:
Continue to Grow Our Existing Markets
We believe there are significant opportunities to generate additional revenue from secular and cyclical tailwinds in our existing markets:
Growth in Our Underlying Asset Classes
The underlying volumes in our asset classes continue to increase due to expanded government and corporate issuance. In addition, the government bond market is foundational to and correlative to virtually every asset class in the cash and derivatives fixed income markets. Based on industry sources and
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management estimates, we estimate that the addressable average daily trading volume across the rates, credit, equities and money markets asset classes has grown at a compound average annual rate of 13% from the first half of 2015 through the first half of 2019. Select products that we believe have a high growth potential due to current market trends include global government bonds, interest rate derivatives, ETFs and cash credit.
Growth in Our Market Share
Our clients represent most of the largest institutional, wholesale and retail market participants. The global rates, credit, equities and money markets asset classes continue to evolve electronically, and we seek to increase our market share by continuing to innovate to electronify workflows. We intend to continue to increase our market share by growing our client base and increasing the percentage of our clients’ overall trading volume transacted in those asset classes on our platforms, including by leveraging our voice solutions to win more electronic trading business from electronic voice processing clients in our rates and credit asset classes. In particular, across many of our products, we are implementing an integrated approach to grow our market share — serving all three of our client sectors across all trade sizes, from odd-lot to block trades, through a variety of trading protocols. Many of our asset manager, hedge fund, insurance, central bank/sovereign entity and regional dealer clients actively trade multiple products on our platforms. In addition, our global dealer clients trade in most asset classes across all three client sectors. We also see a growing appetite for multi-asset trading to reduce cost and duration risk. For example, over 90% of our U.S. institutional high grade cash credit trades leverage our U.S. treasury marketplace for spotting. During the third quarter of 2019, net spotting accounted for over 25% of our overall U.S. high grade credit notional volume and over 12% of our electronic credit volume.
Electronification of Our Markets
Market demands and regulation are changing the paradigm of trading and driving the migration to electronic markets. Our clients desire transparency, best execution and choice of trading protocols amidst dynamic and evolving markets. Furthermore, innovations in capital markets have enabled increased automation and process efficiency across our markets. The electronification of our marketplaces varies by product. We typically see meaningful electronification of new products within three to five years of their launch, with certain products experiencing significant revenue growth following that period of time, including as a result of market and regulatory developments. For example, our U.S.- and euro-denominated derivative products experienced increased rates of electronification and related revenue growth following the implementation of mandates under the Dodd-Frank Act in 2013 and MiFID II in 2018. We are well positioned to continue to innovate and provide better electronic markets and solutions that satisfy the needs of our clients and that meet changing market demands and evolving regulatory standards.
We believe that U.S. treasuries, global interest rate swaps, global ETFs, in particular, institutional block ETFs, and U.S. credit products, including corporate high grade and high yield bonds, are key drivers of our potential growth. Our penetration of these markets, and their level of electronification, are at various stages. We are focused on growing our market share for these products by continuing to invest in new technology solutions that will attract new market participants to our platforms and increase the use of our platforms by existing clients.
Expand Our Product Set and Reach
We have grown our business by prudently expanding our offerings to add new products and asset classes, and we expect to continue to add new products and expand into new complementary markets as client demand and market trends evolve. We expanded into China in 2017 and offer our global clients access to the Chinese bond market through our initiative with BondConnect. We continue to focus on that initiative and on other opportunities in China, and on expanding opportunities with clients in the Asia region more broadly. In addition, we have expanded our product set to include wholesale electronic repurchase agreements, as well as U.S. and European bilateral repurchase agreements, European cash equities and U.S. options for our institutional client sector. We also intend to leverage innovation and technology capabilities to develop new solutions that help our clients trade more effectively and efficiently. For example, our swap compression functionality allows clients to reduce their swap positions at the
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clearinghouse, resulting in significant cost savings. In addition, on our institutional U.S. credit platform, our portfolio trading solution allows clients to obtain competitive prices on a full basket of securities and trade on net present value from dealers. Given the breadth of expertise of our sales people and management, we have the ability to focus on new client opportunities and on selling additional solutions to existing clients.
In addition, we believe our business model is well suited to serve market participants in other asset classes and geographies where our guiding principles can continue to transform markets and broaden our reach. We currently have clients in over 65 countries, and we plan to expand our platforms and solutions into additional geographies. Our international strategy involves offering our existing products to new geographies and then adding local products. In addition, we believe we can, and will, continue to develop trading models in one product or asset class and deliver those models to other products or asset classes, irrespective of geography. For example, we are leveraging our session-based trading technology in European corporate bonds for session-based trading in U.S. corporate bonds and Off-the-Run U.S. treasuries, and we are focused on growing this newer trading protocol. We have significant scale and breadth across our platforms, which position us well to take advantage of favorable market dynamics when introducing new products or solutions or entering into new markets.
Enhance Underlying Data and Analytics Capabilities to Develop Innovative Solutions
As the demand for data and analytics solutions grows across markets and geographies, we plan to continue to expand the scope of our underlying data, improve our tools and technology and enhance our analytics and trade decision support capabilities to provide innovative solutions that address this demand. As the needs of market participants evolve, we expect to continue to help them meet their challenges, which our recent investments in data, technology and analytics enable us to do more quickly and efficiently. For example, we enhance our solutions by linking indicative pre-trade data to our clients’ specific trades to create predictive insights from client trading behavior. Our technology architecture reduces the time to market for new data solutions, which allows us to react quickly to client needs.
In November 2018, we extended our long-term agreement with Refinitiv, pursuant to which Refinitiv licenses certain data from us, which provides us with a predictable and growing revenue stream. In addition, we will continue to selectively pursue new strategic partnerships to expand our data and analytics offering over time.
Pursue Strategic Acquisitions and Alliances
We intend to selectively consider opportunities to grow through strategic acquisitions and alliances. These opportunities should enhance our existing capabilities, accelerate our ability to enter new markets or provide new solutions. For example, in addition to our acquisitions in the wholesale and retail client sectors, we made an acquisition (CodeStreet) in 2016, which bolstered our predictive analytics capabilities. Our focus will be on opportunities that we believe can enhance or benefit from our technology platform and client network, provide significant market share and profitability and are consistent with our corporate culture.
Recent Developments
LSEG Transaction
On August 1, 2019, London Stock Exchange Group plc announced that it has agreed to definitive terms with a consortium including certain investment funds affiliated with Blackstone as well as Thomson Reuters to acquire the Refinitiv business in an all share transaction for a total enterprise value of approximately $27 billion (the “LSEG Transaction”).
If the LSEG Transaction is consummated, any change of control of Refinitiv could in turn affect us, because Refinitiv is our controlling shareholder. However, following the consummation of the LSEG Transaction, Tradeweb is expected to remain a standalone, publicly-traded company, and we do not expect the LSEG Transaction to result in any changes to our stockholder voting rights in the near-term, and we do not foresee any material impact on our strategy, day-to-day operations or Tradeweb management as a result of the LSEG Transaction. Our existing market data license agreement with Refinitiv is also expected to
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remain unchanged immediately following the consummation of the LSEG Transaction, however the non-compete period applicable to Refinitiv in their restrictive covenant agreement with us is expected to terminate immediately following the consummation of the LSEG Transaction. For descriptions of the market data license agreement and restrictive covenant agreement, see “Certain Relationships and Related Party Transactions — Transactions With Refinitiv/Thomson Reuters.”
The LSEG Transaction is subject to customary regulatory approvals and closing conditions, and is expected to close during the second half of 2020. There can be no assurance that the LSEG Transaction will be consummated on the expected timing or at all.
We plan to enter into an amendment to the credit agreement governing the Revolving Credit Facility to permit the LSEG Transaction.
Preliminary Results for Three and Nine Months Ended September 30, 2019 (Successor) and Three and Nine Months Ended September 30, 2018 (Predecessor)
Our preliminary estimated unaudited financial results for the three and nine months ended September 30, 2019 are set forth below. Our estimates of results are based solely on information available to us as of the date of this prospectus and are inherently uncertain and subject to change due to a variety of business, economic and competitive risks and uncertainties, many of which are not within our control, and we undertake no obligation to update this information. Actual results remain subject to the completion of management’s final reviews and our other financial closing procedures, as well as the completion of our auditor’s review of our unaudited consolidated financial statements, as described below. Our actual unaudited consolidated financial statements and related notes as of and for the three and nine months ended September 30, 2019 are not expected to be filed with the SEC until after this offering is completed. During the course of the preparation of our actual unaudited consolidated financial statements and related notes, additional items that would require material adjustments to the preliminary estimated unaudited financial results presented below may be identified. See “Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Use of Estimates,” “Risk Factors — Risks Relating to Our Business and Industry” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this prospectus.
The preliminary financial data included in this prospectus have been prepared by and are the responsibility of our management. Our independent accountant, Deloitte & Touche LLP, has not audited, reviewed, compiled or performed any procedures with respect to the preliminary financial data. Accordingly, Deloitte & Touche LLP does not express an opinion or any other form of assurance with respect thereto. These estimates are not a comprehensive statement of our financial results as of and for the three and nine months ended September 30, 2019, and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. In addition, these preliminary estimates for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be achieved for a full fiscal year or any future periods.
The table set forth below presents estimates for our expected gross revenue, total expenses, net income, net income attributable to Tradeweb Markets Inc., diluted earnings per share, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS for the three and nine months ended September 30, 2019. As noted above, each of the line items presented below represents our preliminary estimated unaudited financial results which remain subject to the completion of management’s final reviews and our other financial closing procedures, as well as the completion of our auditor’s review of our unaudited consolidated financial statements for the three and nine months ended September 30, 2019.
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Successor
Predecessor
Three Months
Ended
September 30,
2019
Three Months
Ended
September 30,
2018
$ Change
% Change
(dollars in thousands)
Revenue
Rates
$ 115,505 $ 92,592 $ 22,913 24.7%
Credit
39,578 33,642 5,936 17.6
Equities
12,333 8,484 3,849 45.4
Money Markets
10,480 8,667 1,813 20.9
Market Data
16,914 15,770 1,144 7.3
Other
6,171 6,098 73 1.2
Gross revenue
200,981 165,253 35,728 21.6
Total expenses
142,723 114,973 * *
Net income
48,578 45,955 * *
Net income attributable to Tradeweb Markets Inc.
29,612
Diluted earnings per share(1)
0.20(b) 0.21(a) * *
Non-GAAP Financial Measures
Adjusted EBITDA(2)
93,449 66,583 26,866 40.3%
Adjusted EBITDA margin(2)
46.5% 40.3% +620bps
Adjusted EBIT(2)
$ 83,096 $ 56,734 $ 26,362 46.5%
Adjusted EBIT margin(2)
41.3% 34.3% +701bps
Adjusted Net Income(2)
$ 61,627 $ 42,252 $ 19,375 45.9%
Adjusted Diluted EPS(2)(3)
0.27 0.19 0.08 38.6
Successor
Predecessor
Nine Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2018
$ Change
% Change
(dollars in thousands)
Revenue
Rates
$ 326,658 $ 281,641 $ 45,017 16.0%
Credit
118,612 102,452 16,160 15.8
Equities
35,247 28,347 6,900 24.3
Money Markets
30,364 25,248 5,116 20.3
Market Data
51,361 47,059 4,302 9.1
Other
16,016 21,024 (5,008) (23.8)
Gross revenue
578,258 505,771 72,487 14.3
Total expenses
442,768 338,607 * *
Net income
115,746 130,160 * *
Net income attributable to Tradeweb Markets Inc.
42,440
Diluted EPS(1)
0.19(a)/ 0.28(b)
0.60(a) * *
Non-GAAP Financial Measures
Adjusted EBITDA(2)
260,721 214,091 46,630 21.8%
Adjusted EBITDA margin(2)
45.1% 42.3% +276bps
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Successor
Predecessor
Nine Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2018
$ Change
% Change
(dollars in thousands)
Adjusted EBIT(2)
$ 229,915 $ 184,859 $ 45,056 24.4%
Adjusted EBIT margin(2)
39.8% 36.5% +321bps
Adjusted Net Income(2)
$ 170,446 $ 137,327 $ 33,119 24.1%
Adjusted Diluted EPS(2)(3)
0.74 0.64 0.10 16.0
*
As a result of the Refinitiv Transaction and pushdown accounting, certain financial information for the period beginning on October 1, 2018, and through and including September 30, 2019, which we refer to as the “Successor period,” and certain financial information for the periods prior to, and including, September 30, 2018, which we refer to as the “Predecessor period,” are not comparable. See “Basis of Presentation.”
(1)
As a result of the Reorganization Transactions and the IPO completed in April 2019, certain earnings information is being presented separately for Tradeweb Markets LLC and Tradeweb Markets Inc.
(a)
Presents information for Tradeweb Markets LLC (pre-IPO period).
(b)
Presents information for Tradeweb Markets Inc. (post-IPO period).
For more information for pre-IPO period and post-IPO period earnings per share information, see “Basis of Presentation,” “Note 16 — Earnings Per Share” to the unaudited consolidated financial statements of Tradeweb Markets Inc. and “Note 18 — Net Income Per Share” to the audited consolidated financial statements of Tradeweb Markets LLC, each included elsewhere in this prospectus.
(2)
For the definitions of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS, see note 6 in “— Summary Historical and Pro Forma Consolidated Financial and Other Data.” For reconciliations to their most directly comparable financial measures presented in accordance with GAAP, see the tables below.
(3)
Adjusted Diluted EPS includes certain tax related adjustments to reflect an assumed effective tax rate for all periods presented and, for the three and nine months ended September 30, 2019, assumes all LLC Interests are exchanged for shares of Class A or Class B common stock. As a result, we believe that Adjusted Diluted EPS for Tradeweb Markets Inc. and Tradeweb Markets LLC are comparable.
During the three and nine months ended September 30, 2019 our estimated results were impacted by higher revenues related to increases in rates, credit, equities and money markets trading as well as market data. Our expenses were impacted by higher depreciation and amortization expense as a result of the application of pushdown accounting and non-cash stock-based compensation expense related to the Special Option Award discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Stock-Based Compensation” as a result of the completion of the IPO. Net income for the three and nine months ended September 30, 2019 was $48.6 million and $115.7 million, respectively. Net income for the three and nine months ended September 30, 2018 was $46.0 million and $130.2 million, respectively. Net income for the three months ended September 30, 2019 was impacted by higher revenues, partially offset by $18.3 million of higher depreciation expense as a result of the Refinitiv Transaction and the application of pushdown accounting. Net income for the nine months ended September 30, 2019 was impacted by $52.5 million of higher depreciation expense as a result of the Refinitiv Transaction and the application of pushdown accounting and higher employee compensation and benefits, including $22.4 million of stock-based compensation expense related to the Special Option Award, partially offset by higher revenues. Net income attributable to Tradeweb Markets Inc. for the three and nine months ended September 30, 2019 was $29.6 million and $42.4 million, respectively.
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Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS increased for the three and nine months ended September 30, 2019 as compared to prior periods, primarily due to gross revenue growth of 21.6% and 14.3%, respectively.
A significant percentage of our revenues are tied directly to overall trading volumes in the rates, credit, equities and money markets asset classes. The average daily volumes and total volumes on our trading platforms by asset class for the three and nine months ended September 30, 2019 and 2018 and the trailing twelve months ended September 30, 2019 and 2018 were as follows:
Three Months Ended
September 30, 2019
September 30, 2018
ADV
Volume
ADV
Volume
ADV Change
(dollars in millions)
Rates $ 563,379 $ 36,305,114 $ 342,572 $ 21,710,832 64.5%
Credit $ 17,199 $ 1,117,045 $ 11,885 $ 760,207 44.7%
Equities $ 7,345 $ 476,129 $ 5,746 $ 366,590 27.8%
Money Markets
$ 227,125 $ 14,701,122 $ 171,509 $ 10,872,806 32.4%
Total
$ 815,048 $ 52,599,410 $ 531,712 $ 33,710,434 53.3%
Nine Months Ended
September 30, 2019
September 30, 2018
ADV
Volume
ADV
Volume
ADV Change
(dollars in millions)
Rates $ 502,303 $ 94,680,563 $ 345,759 $ 65,186,563 45.3%
Credit $ 15,295 $ 2,893,232 $ 12,871 $ 2,433,824 18.8%
Equities $ 7,385 $ 1,397,429 $ 7,543 $ 1,419,622 (2.1)%
Money Markets
$ 213,920 $ 40,495,243 $ 168,618 $ 31,773,689 26.9%
Total
$ 738,903 $ 139,466,467 $ 534,791 $ 100,813,698 38.2%
Trailing Twelve Months Ended
September 30, 2019
September 30, 2018
ADV
Volume
ADV
Volume
ADV Change
(dollars in millions)
Rates $ 472,192 $ 118,119,615 $ 329,381 $ 82,562,651 43.4%
Credit $ 14,487 $ 3,645,616 $ 11,403 $ 2,874,097 27.0%
Equities $ 7,674 $ 1,940,373 $ 7,238 $ 1,814,489 6.0%
Money Markets
$ 207,581 $ 52,184,471 $ 162,791 $ 40,803,091 27.5%
Total
$ 701,934 $ 175,890,074 $ 510,814 $ 128,054,328 37.4%
We believe the increases in average daily volumes in the three and nine months ended September 30, 2019 for most asset classes can be attributed to various factors, including further electronification of trading activities across our asset classes, increase in market share, new products, new clients and increased volatility. Trading activity in interest rate swaps and swaptions, in particular short-tenor swaps, repurchase agreements and mortgages were the leading drivers of our overall volume growth for the three and nine months ended September 30, 2019. Rates ADV increased due mainly to higher trading activity in interest rate swaps and swaptions, in particular short-tenor swaps, mortgages and U.S. treasuries. Credit ADV increased due mainly to higher trading activity in credit derivatives, high-grade and high-yield credit as well as Chinese bonds. Equities ADV increased due mainly to higher trading activity in institutional European ETFs. Money Markets ADV increased due to the continued growth of bilateral electronic trading in repurchase agreements.
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The average variable fees per million dollars of volume traded on our trading platforms by asset class for the three and nine months ended September 30, 2019 and 2018 and the trailing twelve months ended September 30, 2019 and 2018 are summarized below. There are four potential drivers of fluctuations in our average variable fees per million: (1) volume discounts, (2) the mix of cash and derivatives products traded, (3) the mix of protocols underpinning cash and derivatives products and (4) pricing. Average variable fees per million should be reviewed in conjunction with our trading volumes and gross revenue by asset class. Since variable fees are sometimes subject to fee plans with tiered pricing based on product mix and volume, average variable fees per million for a specific asset class may not correlate with volumes or revenue growth. For example, average variable fees per million dollars of volume for our Credit asset class decreased 17.7% for the three months ended September 30, 2019 while gross revenue for our Credit asset class increased 17.6% over the same period.
Three Months Ended
September 30,
2019
2018
$ Change
% Change
Average variable fees per million
Rates
$ 1.79 $ 1.97 $ (0.18) (9.2)%
Credit
$ 30.81 $ 37.45 $ (6.64) (17.7)%
Equities
$ 20.78 $ 19.27 $ 1.51 7.8%
Money Markets
$ 0.46 $ 0.47 $ (0.01) (1.9)%
Total
$ 2.20 $ 2.47 $ (0.27) (10.9)%
Nine Months Ended
September 30,
2019
2018
$ Change
% Change
Average variable fees per million
Rates
$ 1.85 $ 2.04 $ (0.19) (9.3)%
Credit
$ 35.64 $ 35.85 $ (0.21) (0.6)%
Equities
$ 20.93 $ 16.55 $ 4.38 26.5%
Money Markets
$ 0.48 $ 0.47 $ 0.01 2.1%
Total
$ 2.34 $ 2.57 $ (0.23) (8.9)%
Trailing
Twelve Months Ended
September 30,
2019
2018
$ Change
% Change
Average variable fees per million
Rates
$ 1.89 $ 2.04 $ (0.15) (7.4)%
Credit
$ 37.05 $ 38.64 $ (1.59) (4.1)%
Equities
$ 20.71 $ 15.79 $ 4.92 31.2%
Money Markets
$ 0.48 $ 0.47 $ 0.01 2.1%
Total
$ 2.41 $ 2.56 $ (0.15) (5.9)%
The table set forth below presents a reconciliation of net income to Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin for the three and nine months ended September 30, 2019 and 2018:
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Successor
Predecessor
Three Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2019
Three Months
Ended
September 30,
2018
Nine Months
Ended
September 30,
2018
(in thousands)
Net income
$ 48,578 $ 115,746 $ 45,955 $ 130,160
Contingent consideration
(2,537) 26,830
Interest income, net
(636) (1,669) (673) (1,726)
Depreciation and amortization
35,133 102,928 16,362 48,808
Stock-based compensation expense associated
with Special Option Award
1,995 22,398
Provision for income taxes
10,316 21,413 7,535 11,900
Unrealized foreign exchange (gains) / losses
(2,499) (1,215) 407 (960)
(Gain) / loss from revaluation of foreign denominated cash(1)
562 1,120 (466) (921)
Adjusted EBITDA
$ 93,449 $ 260,721 $ 66,583 $ 214,091
Less: Depreciation and amortization
(35,133) (102,928) (16,362) (48,808)
Add: Acquisition and Refinitiv Transaction related D&A(2)
24,780 72,122 6,513 19,576
Adjusted EBIT
$ 83,096 $ 229,915 $ 56,734 $ 184,859
Adjusted EBITDA margin(3)
46.5% 45.1% 40.3% 42.3%
Adjusted EBIT margin(3)
41.3% 39.8% 34.3% 36.5%
(1)
Represents foreign exchange gain or loss from the revaluation of cash denominated in a different currency than the entity’s functional currency.
(2)
Represents acquisition-related intangibles amortization and increased tangible asset and capitalized software depreciation and amortization resulting from the Refinitiv Transaction and the application of pushdown accounting (where all assets were marked to fair value as of the closing date of the Refinitiv Transaction).
(3)
For the three and nine months ended September 30, 2019 and 2018, Adjusted EBITDA margin increased compared to the prior year period by 620 basis points, and 276 basis points, respectively, or 672 basis points, and 326 basis points on a constant currency basis. For the three and nine months ended September 30, 2019 and 2018, Adjusted EBIT margin increased compared to the prior year period by 701 basis points and 321 basis points, respectively, or 770 basis points and 386 basis points on a constant currency basis. The changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis, which are non-GAAP financial measures, are defined as the changes in Adjusted EBITDA margin and Adjusted EBIT margin excluding the effects of foreign currency fluctuations. Adjusted EBITDA margin and Adjusted EBIT margin excluding the effects of foreign currency fluctuations are calculated by translating the current period and prior period’s results using the average exchange rates for the prior period. We use changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis as supplemental metrics to evaluate our underlying margin performance between periods by removing the impact of foreign currency fluctuations. We believe that providing changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis provide useful comparisons of our Adjusted EBITDA margin and Adjusted EBIT margin and trends between periods.
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The table set forth below presents a reconciliation of net income attributable to Tradeweb Markets Inc. and net income, as applicable, to Adjusted Net Income and Adjusted Diluted EPS for the three and nine months ended September 30, 2019 and 2018:
Successor
Predecessor
Three Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2019
Three Months
Ended
September 30,
2018
Nine Months
Ended
September 30,
2018
(in thousands except share and per share amounts)
Earnings per diluted share(1)
$
0.20(b)
$
0.19(a)/
$
0.21(a)
$
0.60(a)
0.28(b)
Pre-IPO net income attributable to Tradeweb
Markets LLC(1)
$ $ 42,352 $ 45,955 $ 130,160
Add: Net income attributable to Tradeweb Markets Inc.(1)
29,612 42,440
Add: Net income attributable to non-controlling interests(1)(2)
18,966 30,954
Net income
48,578 115,746 45,955 130,160
Provision for income taxes
10,316 21,413 7,535 11,900
Contingent consideration
(2,537) 26,830
Acquisition and Refinitiv Transaction related
D&A(3)
24,780 72,122 6,513 19,576
Stock-based compensation expense associated with Special Option Award
1,995 22,398
Unrealized foreign exchange (gains) / losses
(2,499) (1,215) 407 (960)
(Gain) / loss from revaluation of foreign denominated cash(4)
562 1,120 (466) (921)
Adjusted Net Income before income taxes
83,732 231,584 57,407 186,585
Adjusted income taxes(5)
(22,105) (61,138) (15,155) (49,258)
Adjusted Net Income
$ 61,627 $ 170,446 $ 42,252 $ 137,327
Adjusted Diluted EPS(1)(6)
$
0.27(b)
$
0.23(a)/
$
0.19(a)
$
0.64(a)
0.51(b)
(1)
As a result of the Reorganization Transactions and the IPO completed in April 2019, certain earnings information is being presented separately for Tradeweb Markets LLC and Tradeweb Markets Inc.
(a)
Presents information for Tradeweb Markets LLC (pre-IPO period).
(b)
Presents information for Tradeweb Markets Inc. (post-IPO period).
See “Basis of Presentation,” “Note 16 — Earnings Per Share” to the unaudited consolidated financial statements of Tradeweb Markets Inc. and “Note 18 — Net Income Per Share” to the audited consolidated financial statements of Tradeweb Markets LLC, each included elsewhere in this prospectus.
(2)
For post-IPO periods, represents the reallocation of net income attributable to non-controlling interests from the assumed exchange of all outstanding LLC Interests held by non-controlling interests for shares of Class A or Class B common stock.
(3)
Represents acquisition-related intangibles amortization and increased tangible asset and capitalized software depreciation and amortization resulting from the Refinitiv Transaction and the application of pushdown accounting (where all assets were marked to fair value as of the closing date of the Refinitiv Transaction).
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(4)
Represents foreign exchange gain or loss from the revaluation of cash denominated in a different currency than the entity’s functional currency.
(5)
Represents corporate income taxes at an assumed effective tax rate of 26.4% for all periods presented applied to Adjusted Net Income before income taxes. For pre-IPO periods, this adjustment assumes Tradeweb Markets LLC was subject to a corporate tax rate for the periods presented.
(6)
Due to the Reorganization Transactions and the IPO completed in April 2019, shares outstanding during the nine months ended September 30, 2019 represent shares of TWM LLC (pre-IPO period) and shares of Class A and Class B common stock of Tradeweb Markets Inc. (post-IPO period).
The following table summarizes the calculation of Adjusted Diluted EPS for all periods presented:
Pre-IPO Period
Post-IPO Period
Reconciliation of Diluted Weighted
Average Shares Outstanding to
Adjusted Diluted Weighted Average
Shares Outstanding
Three Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2019
Nine Months
Ended
September 30,
2019
Three Months
Ended
September 30,
2018
Nine Months
Ended
September 30,
2018
Diluted weighted average TWM LLC shares outstanding
223,320,457 219,165,997 215,365,920
Diluted weighted average shares of Class A and Class B common stock outstanding
151,362,643 151,158,760
Assumed exchange of LLC Interests for shares of Class A or Class B common stock(1)
79,289,005 79,289,005
Adjusted diluted weighted average shares outstanding 
230,651,648 223,320,457 230,447,765 219,165,997 215,365,920
Adjusted Net Income (in thousands)
$ 61,627 $ 52,190 $ 118,256 $ 42,252 $ 137,327
Adjusted Diluted EPS
$ 0.27 $ 0.23 $ 0.51 $ 0.19 $ 0.64
(1)
Assumes the full exchange of all outstanding LLC Interests held by non-controlling interests for shares of Class A or Class B common stock, resulting in the elimination of the non-controlling interests and recognition of the net income attributable to non-controlling interests.
Summary of the IPO and Reorganization Transactions
On April 8, 2019, we completed our IPO of 46,000,000 shares of Class A common stock at a public offering price of  $27.00 per share, which included 6,000,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock. We received $1,161.3 million in net proceeds, after deducting underwriting discounts and commissions, but before deducting offering expenses of  $15.9 million, which we used to purchase 46,000,000 LLC Interests from certain of the Bank Stockholders (and the corresponding shares of common stock held by such Bank Stockholders were cancelled), at a purchase price per interest equal to the public offering price of  $27.00, less the underwriting discounts and commissions payable thereon.
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Prior to the completion of the IPO and Reorganization Transactions described below, the Original LLC Owners were the only members of TWM LLC. Tradeweb Markets Inc. was incorporated as a Delaware corporation on November 7, 2018 to serve as the issuer of the Class A common stock offered hereby. Prior to the closing of the IPO, we consummated the Reorganization Transactions. In connection with the Reorganization Transactions, the following steps occurred:

we amended and restated the limited liability company agreement of TWM LLC (as so amended, the “TWM LLC Agreement”) to, among other things, (i) provide for LLC Interests that are the single class of common membership interests in TWM LLC, (ii) exchange all of the existing membership interests in TWM LLC for LLC Interests and (iii) appoint us as the sole manager of TWM LLC;

we amended and restated our certificate of incorporation to, among other things, provide for Class A common stock, Class B common stock, Class C common stock and Class D common stock. Each share of Class A common stock and Class C common stock entitles its holder to one vote on all matters presented to our stockholders generally. Each share of Class B common stock and Class D common stock entitles its holder to ten votes on all matters presented to our stockholders generally. The holders of Class C common stock and Class D common stock have no economic interests in Tradeweb (where “economic interests” means the right to receive any dividends or distributions, whether cash or stock, in connection with common stock). These attributes are summarized in the following table:
Class of Common Stock
Votes
Economic
Rights
Class A common stock
1
Yes
Class B common stock
10
Yes
Class C common stock
1
No
Class D common stock
10
No
Holders of any outstanding shares of our Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law;

we assumed sponsorship of the Option Plan (as defined herein) and the PRSU Plan (as defined herein) that were previously sponsored by TWM LLC. Accordingly, all options and PRSUs granted under such plans were converted into economically equivalent awards of Tradeweb;

we issued 20,000,000 shares of Class C common stock and 105,289,005 shares of Class D common stock to the Original LLC Owners that received LLC Interests on a one-to-one basis with the number of LLC Interests they owned immediately following the amendment and restatement of the TWM LLC Agreement, for nominal consideration (we subsequently canceled 9,993,731 shares of such Class C common stock and 36,006,269 shares of such Class D common stock in connection with our purchase of LLC Interests from certain of the Bank Stockholders using the net proceeds of the IPO);

as a result of the Refinitiv Contribution, the Refinitiv Direct Owner received 96,933,192 shares of Class B common stock and we received 96,933,192 LLC Interests. The Refinitiv Direct Owner and other future holders of Class B common stock may from time to time exchange all or a portion of their shares of our Class B common stock for newly issued shares of Class A common stock on a one-for-one basis (in which case their shares of Class B common stock will be cancelled on a one-for-one basis upon any such issuance);

the LLC Interests held by the Continuing LLC Owners are redeemable in accordance with the terms of the TWM LLC Agreement, at the election of such holders, for newly issued shares of Class A common stock or Class B common stock, as the case may be, on a one-for-one basis (and such holders’ shares of Class C common stock or Class D common stock, as the case may be, will be cancelled on a one-for-one basis upon any such issuance). The Continuing LLC Owners that hold shares of Class D common stock may also from time to time exchange all or a portion of
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their shares of our Class D common stock for newly issued shares of Class C common stock on a one-for-one basis (in which case their shares of Class D common stock will be cancelled on a one-for-one basis upon such issuance). In addition, with respect to each Bank Stockholder that holds shares of Class D common stock, immediately prior to the occurrence of any event that would cause the combined voting power held by such Bank Stockholder to exceed 4.9%, the minimum number of shares of Class D common stock of such Bank Stockholder that would need to convert into shares of Class C common stock such that the combined voting power held by such Bank Stockholder would not exceed 4.9% will automatically convert into shares of Class C common stock;

in the event of such election by a Continuing LLC Owner, we may, at our option, effect a direct exchange of Class A common stock or Class B common stock, as the case may be, for such LLC Interests of such Continuing LLC Owner in lieu of such redemption. In addition, Tradeweb’s board of directors, which includes directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future, may, at its option, instead of the foregoing redemptions or exchanges of LLC Interests, cause the Company to make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest redeemed or exchanged (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the TWM LLC Agreement;

each share of our Class B common stock will automatically convert into one share of Class A common stock and each share of our Class D common stock will automatically convert into one share of our Class C common stock (i) immediately prior to any sale or other transfer of such share by a holder or its permitted transferees to a non-permitted transferee, or (ii) once the Refinitiv Owners and their affiliates together no longer beneficially own a number of shares of our common stock and LLC Interests that together entitle them to at least 10% of TWM LLC’s economic interest. Holders of LLC Interests that receive shares of Class C common stock upon any such conversion may continue to elect to have their LLC Interests redeemed for newly issued shares of Class A common stock as described above (in which case their shares of Class C common stock will be cancelled on a one-for-one basis upon such issuance). See “Description of Capital Stock;” and

Tradeweb entered into (i) a tax receivable agreement (the “Tax Receivable Agreement”) with TWM LLC and the Continuing LLC Owners, (ii) a stockholders agreement (the “Stockholders Agreement”) with the Refinitiv Owners and (iii) a registration rights agreement (the “Registration Rights Agreement”) with the Refinitiv Owners and the Bank Stockholders.
We will issue 14,800,000 shares of Class A common stock (or 17,020,000 shares of Class A common stock, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) to the purchasers in this offering in exchange for approximately $578.1 million of net proceeds (or approximately $664.8 million, if the underwriters exercise in full their option to purchase additional shares of Class A common stock), after deducting underwriting discounts, but before deducting estimated offering expenses, and based on an assumed price of  $40.27 per share of our Class A common stock (the closing price for our shares of Class A common stock on Nasdaq on October 11, 2019). We estimate that the offering expenses (other than the underwriting discounts and commissions) will be approximately $3.1 million. All of such offering expenses will be paid for or otherwise borne by TWM LLC.
After the completion of this offering, in order to facilitate the disposition of equity interests held by certain of our equityholders, we intend to use the net proceeds from this offering to purchase (i) 14,763,668 issued and outstanding LLC Interests (or 16,978,219 LLC Interests, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain of the Bank Stockholders and certain of our executive officers (collectively, the “Selling LLC Owners”) (and cancel the corresponding shares of common stock held by such Selling LLC Owners) and (ii) 36,332 issued and outstanding shares of Class A common stock (or 41,781 shares of Class A common stock, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain executive officers following the Net Exercise (and cancel such shares of Class A common stock), at a purchase price per interest and
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share equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions payable thereon. The LLC Interests and shares of Class A common stock we intend to purchase collectively represent a 6.7% economic interest in TWM LLC (or 7.7%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). See “Use of Proceeds.”
For more information regarding the Reorganization Transactions and our organizational structure after the completion of the IPO, the Reorganization Transactions and this offering and the application of the net proceeds therefrom, see “The IPO and Reorganization Transactions” and “Use of Proceeds.”
Tradeweb is a holding company whose principal asset consists of its equity interest in TWM LLC it acquired from certain of the Bank Stockholders using the net proceeds from the IPO as described above and the LLC Interests it received as a result of the Refinitiv Contribution. As the sole manager of TWM LLC, we operate and control all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conduct our business. As a result of this control, and because we have a substantial financial interest in TWM LLC, we consolidate TWM LLC in our consolidated financial statements and report a non-controlling interest related to the LLC Interests held by the Continuing LLC Owners on our consolidated financial statements for post-IPO periods.
See “Description of Capital Stock” for more information about our amended and restated certificate of incorporation and the terms of the Class A common stock, Class B common stock, Class C common stock and Class D common stock. See “Certain Relationships and Related Party Transactions” for more information about the TWM LLC Agreement, including the terms of the LLC Interests and the redemption rights of the Continuing LLC Owners; the Tax Receivable Agreement; the Stockholders Agreement; and the Registration Rights Agreement.
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The following diagram shows our simplified organizational structure as of June 30, 2019, after giving effect to the Net Exercise and this offering and the application of the net proceeds therefrom as described in “Use of Proceeds,” assuming no exercise by the underwriters of their option to purchase additional shares of Class A common stock:
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13150463&doc=23]
*
Represents economic interest in Tradeweb Markets Inc. and not Tradeweb Markets LLC.
(1)
After giving effect to this offering, the Refinitiv Owners will collectively hold 75.5% of the combined voting power in Tradeweb Markets Inc. The Refinitiv Owners will, directly and indirectly, hold 61.5% of the economic interest in Tradeweb Markets Inc. and 54.0% of the economic interest in Tradeweb Markets LLC (including through their ownership of Tradeweb Markets Inc.).
(2)
Includes shares of Class A common stock held by certain of our executive officers, representing less than 1% of the combined voting power and economic interest in Tradeweb Markets Inc.
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Risks Associated with Our Business
Our business is subject to numerous risks described in “Risk Factors” immediately following this prospectus summary and elsewhere in this prospectus. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Some of the more significant risks we face include:

changes in economic, political and market conditions and the impact of these changes on trading volumes and electronic trading;

our failure to compete successfully;

our failure to adapt our business effectively to keep pace with industry changes;

consolidation and concentration in the financial services industry;

our dependence on dealer clients that are also stockholders;

systems failures, interruptions, delays in services, catastrophic events and resulting interruptions;

extensive regulation of our industry; and

Refinitiv’s control of us and our status as a controlled company.
See “Risk Factors” immediately following this prospectus summary for a more thorough discussion of these and other risks and uncertainties we face.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:

we are not required to engage an auditor to report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes”; and

we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of the IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a “large accelerated filer,” which will occur as of the end of any fiscal year in which we (x) have an aggregate market value of our common stock held by non-affiliates of   $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) have been required to file annual and quarterly reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for a period of at least 12 months and (z) have filed at least one annual report pursuant to the Exchange Act.
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We have elected to take advantage of some of the reduced disclosure obligations listed above in this prospectus, and may elect to take advantage of other reduced reporting requirements in future filings. In particular, we have elected to adopt the reduced disclosure with respect to our executive compensation disclosure. As a result of this election, the information that we provide stockholders may be different than you might get from other public companies.
The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Corporate Information
Tradeweb Markets Inc. was incorporated as a Delaware corporation on November 7, 2018. Our corporate headquarters are located at 1177 Avenue of the Americas, New York, New York 10036. Our telephone number is (646) 430-6000. Our principal website address is www.tradeweb.com . The information contained on, or that can be accessed through, our website is deemed not to be incorporated in this prospectus or to be part of this prospectus.
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The Offering
Issuer
Tradeweb Markets Inc., a Delaware corporation.
Class A common stock offered by us
14,800,000 shares.
Option to purchase additional shares of Class A common stock
The underwriters have an option to purchase up to an aggregate of 2,220,000 additional shares of Class A common stock from us at the public offering price, less underwriting discounts and commissions. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
Class A common stock to be outstanding after this offering
60,805,680 shares (or 63,020,231 shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Class B common stock to be outstanding after this offering
96,933,192 shares, all of which are owned by the Refinitiv Direct Owner.
Class C common stock to be outstanding after this offering
9,679,716 shares, all of which are owned by certain Bank Stockholders (or 9,250,826 shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Class D common stock to be outstanding after this offering
54,845,621 shares, all of which are owned by the Continuing LLC Owners (or 53,059,960 shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
LLC Interests to be held by us after this offering
157,738,872 LLC Interests, representing a 71.0% economic interest in TWM LLC (or 159,953,423 LLC Interests, representing a 72.0% economic interest in TWM LLC, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Total LLC Interests to be outstanding after this offering
222,264,209 LLC Interests.
Voting rights
Each share of Class A common stock entitles its holder to one vote on all matters presented to our stockholders generally, representing an aggregate of 3.8% of the combined voting power of our issued and outstanding common stock upon completion of this offering (or 4.0%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Each share of Class B common stock entitles its holder to ten votes on all matters presented to our stockholders generally, representing an aggregate of 61.0% of the combined voting power of our issued and outstanding common stock upon completion of this offering (or 61.7%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The Refinitiv Direct Owner owns all of our outstanding Class B common stock.
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Each share of Class C common stock entitles its holder to one vote on all matters presented to our stockholders generally representing an aggregate of 0.6% of the combined voting power of our issued and outstanding common stock upon completion of this offering (or 0.6%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Certain Bank Stockholders own all of our outstanding Class C common stock.
Each share of Class D common stock entitles its holder to ten votes on all matters presented to our stockholders generally, representing an aggregate of 34.6% of the combined voting power of our issued and outstanding common stock upon consummation of this offering (or 33.7%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The Continuing LLC Owners own all of our outstanding Class D common stock.
Holders of all outstanding shares of our Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law. See “Description of Capital Stock.”
Combined voting power held by the Refinitiv Owners
75.5% (or 76.3%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Combined voting power held by the Bank Stockholders
20.3% (or 19.4%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Combined voting power held by management
0.4% (or 0.3%, if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Controlled company
The Refinitiv Owners own a majority of the combined voting power in us. As a result, we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq. See “Management — Director Independence and Controlled Company Exception.”
Dividend policy
Subject to legally available funds, we intend to continue to pay quarterly cash dividends on our Class A common stock and Class B common stock initially equal to $0.08 per share.
Because we are a holding company and all of our business is conducted through our subsidiaries, we expect to pay dividends, if any, from funds we receive from our subsidiaries. As the sole manager of TWM LLC, we intend to cause, and will rely on, TWM LLC to make distributions in respect of LLC Interests to fund our dividends. When TWM LLC makes such distributions, the Continuing LLC Owners will be entitled to receive proportionate distributions based on their economic interests in TWM LLC. If TWM LLC is unable to cause these subsidiaries to make distributions, it may have
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inadequate funds to distribute to us and we may be unable to fund our expected dividends.
The declaration, amount and payment of any dividends will be at the sole discretion of our board of directors and subject to certain considerations. See “Dividend Policy.”
Ratio of shares of common stock to LLC Interests
The TWM LLC Agreement requires that TWM LLC at all times maintain (i) a one-to-one ratio between the number of shares of Class A common stock and Class B common stock issued by us and the number of LLC Interests owned by us and (ii) a one-to-one ratio between the number of shares of Class C common stock and Class D common stock issued by us and the number of LLC Interests owned by the holders of such Class C common stock and Class D common stock.
Redemption rights of holders of LLC Interests/exchange rights of holders of Class B common stock and Class D common stock
The Continuing LLC Owners, from time to time, may require TWM LLC to redeem all or a portion of their LLC Interests for newly issued shares of Class A common stock or Class B common stock on a one-for-one basis in accordance with the terms of the TWM LLC Agreement (and such holders’ shares of Class C common stock or Class D common stock, as the case may be, will be cancelled on a one-for-one basis upon any such issuance).
In the event of such election by a Continuing LLC Owner, we may, at our option, effect a direct exchange of Class A common stock or Class B common stock, as the case may be, for such LLC Interests of such Continuing LLC Owner in lieu of such redemption. In addition, Tradeweb’s board of directors, which includes directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future, may, at its option, instead of the foregoing redemptions of LLC Interests, cause the Company to make a cash payment equal to the volume weighted average market price of one share of our Class A common stock for each LLC Interest redeemed or exchanged (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the TWM LLC Agreement. See “Certain Relationships and Related Party Transactions — Related Party Transactions Entered Into in Connection With the IPO — TWM LLC Agreement.”
The Refinitiv Direct Owner and other future holders of Class B common stock may from time to time exchange all or a portion of their shares of our Class B common stock for newly issued shares of Class A common stock on a one-for-one basis (in which case their shares of Class B common stock will be cancelled on a one-for-one basis upon any such issuance). Furthermore, the Continuing LLC Owners that hold shares of Class D common stock may from time to time exchange all or a portion of their shares of our
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Class D common stock for newly issued shares of Class C common stock on a one-for-one basis (in which case their shares of Class D common stock will be cancelled on a one-for-one basis upon such issuance).
Conversion
Each share of our Class B common stock will automatically convert into one share of Class A common stock and each share of our Class D common stock will automatically convert into one share of our Class C common stock (i) immediately prior to any sale or other transfer of such share by a holder or its permitted transferees to a non-permitted transferee, or (ii) once the Refinitiv Owners and their affiliates together no longer beneficially own a number of shares of our common stock and LLC Interests that together entitle them to at least 10% of TWM LLC’s economic interests. In addition, with respect to each Bank Stockholder that holds shares of Class D common stock, immediately prior to the occurrence of any event that would cause the combined voting power held by such Bank Stockholder to exceed 4.9%, the minimum number of shares of Class D common stock of such Bank Stockholder that would need to convert into shares of Class C common stock such that the combined voting power held by such Bank Stockholder would not exceed 4.9% will automatically convert into shares of Class C common stock. Holders of LLC Interests that receive shares of Class C common stock upon any such conversion may continue to elect to have their LLC Interests redeemed for newly issued shares of Class A common stock as described above (in which case their shares of Class C common stock will be cancelled on a one-for-one basis upon such issuance). See “Description of Capital Stock.”
Tax Receivable Agreement
We entered into the Tax Receivable Agreement with TWM LLC and the Continuing LLC Owners that provides for the payment by Tradeweb to a Continuing LLC Owner of 50% of the amount of U.S. federal, state and local income or franchise tax savings, if any, that Tradeweb actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of TWM LLC’s assets resulting from (a) the purchase of LLC Interests from such Continuing LLC Owner, including with the net proceeds from the IPO and this offering or (b) redemptions or exchanges by such Continuing LLC Owner of LLC Interests for shares of our Class A common stock or Class B common stock or for cash, as applicable, as described above under “— Redemption rights of holders of LLC Interests/exchange rights of holders of Class B common stock and Class D common stock” and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions — Related Party Transactions Entered Into in Connection With the IPO — Tax Receivable Agreement.”
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Registration Rights Agreement
Pursuant to the Registration Rights Agreement, we granted the Refinitiv Owners, the Bank Stockholders, their affiliates and certain of their transferees the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act shares of Class A common stock. See “Certain Relationships and Related Party Transactions — Related Party Transactions Entered Into in Connection With the IPO — Registration Rights Agreement.”
Use of proceeds
We estimate that the net proceeds to us from this offering, after deducting underwriting discounts, but before deducting estimated offering expenses, will be approximately $578.1 million (or approximately $664.8 million, if the underwriters exercise in full their option to purchase additional shares of Class A common stock), based on an assumed price of  $40.27 per share of our Class A common stock (the closing price for our shares of Class A common stock on Nasdaq on October 11, 2019).
We intend to use the net proceeds that we receive from this offering to purchase (i) 14,763,668 issued and outstanding LLC Interests (or 16,978,219 LLC Interests, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from the Selling LLC Owners (and cancel the corresponding shares of common stock held by such Selling LLC Owners) and (ii) 36,332 issued and outstanding shares of Class A common stock (or 41,781 shares of Class A common stock, if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain of our executive officers following the Net Exercise (and cancel such shares of Class A common stock), at a purchase price per interest and share equal to the public offering price per share of our Class A common stock, less the underwriting discounts and commissions payable thereon. See “Use of Proceeds” and “Certain Relationships and Related Party Transactions — Transactions With Certain Original LLC Owners” for additional information.
Conflicts of interest
Because affiliates of Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC will each receive more than 5.0% of the net proceeds from this offering, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC are deemed to have a “conflict of interest” pursuant to FINRA Rule 5121(f)(5)(C)(ii). See “Use of Proceeds.” Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121. As such, any underwriter that has a conflict of interest pursuant to Rule 5121 will not confirm sales to accounts in which it exercises discretionary authority without the prior written consent of the customer.
Nasdaq symbol
“TW.”
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Risk factors
Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” in this prospectus for a discussion of factors you should carefully consider before investing in our Class A common stock.
The number of shares of our common stock to be issued and outstanding after this offering (i) is based on 222,222,197 shares of common stock outstanding as of June 30, 2019, (ii) gives effect to the Net Exercise and (iii) excludes approximately:

17,988,075 shares of Class A common stock issuable upon the exercise of outstanding options under our Amended and Restated Tradeweb Markets Inc. 2018 Stock Option Plan (the “Option Plan”) as of October 11, 2019 at a weighted-average exercise price of $20.91 per share, which options may be exercised on a cashless or net settlement basis;

42,538 shares of Class A common stock issued as of October 11, 2019 following the net exercise of vested options pursuant to the Option Plan, which do not include shares of Class A common stock issued in the Net Exercise;

2,740,204 shares of Class A common stock underlying performance based restricted share units issued under our Amended & Restated Tradeweb Markets Inc. PRSU Plan (the “PRSU Plan”);

9,812,374 shares of Class A common stock reserved for future issuance under our Option Plan and our 2019 Omnibus Equity Incentive Plan (the “2019 Equity Incentive Plan”);

with respect to the Refinitiv Direct Owner, 96,933,192 shares of Class A common stock reserved for future issuance upon (i) exchange of Class B common stock by the Refinitiv Direct Owner or (ii) conversion of the Class B common stock; and

with respect to the Continuing LLC Owners, (i) 64,525,337 shares of Class A common stock and 54,845,621 shares of Class B common stock reserved for future issuance upon the redemption or exchange of LLC Interests by the Continuing LLC Owners and (ii) 54,845,621 shares of Class C common stock reserved for future issuance upon (x) exchange of Class D common stock by the Continuing LLC Owners or (y) conversion of the Class D common stock. See “— Redemption rights of holders of LLC Interests/exchange rights of holders of Class B common stock and Class D common stock.”
Unless otherwise stated or the context otherwise requires, all information contained in this prospectus:

assumes no exercise of outstanding options (other than the Net Exercise);

assumes the underwriters’ option to purchase additional shares of Class A common stock has not been exercised; and

gives effect to the application of the net proceeds from this offering as described under “Use of Proceeds.”
Unless otherwise stated or the context otherwise requires, references in this prospectus to the exercise of the underwriters’ option to purchase additional shares of Class A common stock give effect to the use of the net proceeds therefrom.
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Summary Historical and Pro Forma Consolidated Financial and Other Data
The following tables present the summary historical and pro forma consolidated financial and other data for Tradeweb Markets Inc. and its subsidiaries and Tradeweb Markets LLC and its subsidiaries for the periods indicated below. TWM LLC is the predecessor of the issuer, Tradeweb Markets Inc., for financial reporting purposes. Prior to the consummation of the Reorganization Transactions, Tradeweb Markets Inc. did not conduct any activities other than those incident to its formation and the IPO. As a result of the Reorganization Transactions completed in connection with the IPO, Tradeweb Markets Inc. became the sole manager of Tradeweb Markets LLC whose only material assets consist of its equity interest in Tradeweb Markets LLC and related deferred tax assets. As a result, Tradeweb Markets Inc. consolidates the financial results of Tradeweb Markets LLC and its subsidiaries. Accordingly, the historical consolidated financial data presented below relating to periods prior to and including March 31, 2019 reflect the results of operations, financial position and cash flows of Tradeweb Markets LLC and its subsidiaries. The historical consolidated financial data presented below relating to periods beginning on April 1, 2019, and through and including June 30, 2019 reflect the results of operations, financial position and cash flows of Tradeweb Markets Inc. and its subsidiaries, including the consolidation of its investment in Tradeweb Markets LLC. See “Basis of Presentation.”
The summary consolidated statement of income data for the six months ended June 30, 2019 and 2018 and the statement of financial condition data as of June 30, 2019 have been derived from the unaudited consolidated financial statements of Tradeweb Markets Inc. included elsewhere in this prospectus. The summary consolidated statement of income data for the 2018 Successor Period, the 2018 Predecessor Period and each of the years in the two-year period ended December 31, 2017 and the summary consolidated statement of financial condition data as of December 31, 2018 and 2017 are derived from the audited consolidated financial statements of Tradeweb Markets LLC included elsewhere in this prospectus. The summary consolidated statement of financial condition data as of June 30, 2018 and December 31, 2016 are derived from the consolidated financial statements of Tradeweb Markets LLC not included in this prospectus. In the opinion of our management, the unaudited consolidated financial statements for and as of the six months ended June 30, 2019 and June 30, 2018 reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results operations for such period.
As discussed elsewhere in this prospectus, as a result of the Refinitiv Transaction, we revalued our assets and liabilities based on their fair values as of the closing date of the Refinitiv Transaction in accordance with the acquisition method of accounting. Due to the change in the basis of accounting resulting from the application of pushdown accounting, we are required to present separately the financial information for the period beginning on October 1, 2018, and through and including June 30, 2019, which we refer to as the “Successor period,” and the financial information for the periods prior to, and including, September 30, 2018, which we refer to as the “Predecessor period.” Certain financial information of the Successor period is not comparable to that of the Predecessor period. For a discussion of our Successor and Predecessor periods, see “Basis of Presentation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Effects of Pushdown Accounting on our Financial Statements.”
The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period. The information set forth below should be read together with “Basis of Presentation,” “Selected Historical Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
The summary unaudited pro forma consolidated financial data of Tradeweb Markets Inc. presented below have been derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma consolidated financial data as of and for the six months ended June 30, 2019 and for the year ended December 31, 2018 give effect to the Transactions, including this offering, as if all such transactions had occurred on January 1, 2018, in the case of the summary unaudited pro forma consolidated statement of income data, and as of June 30, 2019, in the case of the summary unaudited pro forma consolidated statement of financial condition data. The unaudited pro forma consolidated financial data includes various estimates which are subject to material
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change and may not be indicative of what our operations or financial position would have been had the Transactions, including this offering, taken place on the dates indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data.
Historical
Pro Forma(1)
Successor
Predecessor
Six Months
Ended
June 30,
2019
Six Months
Ended
June 30,
2019
Six Months
Ended
June 30,
2018
(in thousands)
Statement of Income Data:
Revenues
Transaction fees
$ 206,592 $ 206,592 $ 181,169
Subscription fees(2)
96,012 96,012 98,291
Commissions
70,610 70,610 55,436
Other
4,063 4,063 5,622
Gross revenue
377,277 377,277 340,518
Contingent consideration(3)
(29,367)
Net revenue
377,277 377,277 311,151
Expenses
Employee compensation and benefits
173,268 173,268 139,977
Depreciation and amortization
67,795 67,795 32,446
Technology and communications
19,559 19,559 17,486
General and administrative
18,454 18,454 13,670
Professional fees
13,709 13,709 12,814
Occupancy
7,260 7,260 7,241
Total expenses
300,045 300,045 223,634
Operating income
77,232 77,232 87,517
Net interest income
1,033 1,033 1,053
Income before taxes
78,265 78,265 88,570
Provision for income taxes
(15,712) (11,097) (4,365)
Net income
$ 62,553 $ 67,168 $ 84,205
Less: Pre-IPO net income attributable to Tradeweb Markets LLC
42,352
Net income attributable to Tradeweb Markets Inc. and non-controlling interests
62,553 24,816
Less: net income attributable to non-controlling interests
22,050 11,988
Net income attributable to Tradeweb Markets Inc.
$ 40,503 $ 12,828
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Historical
Pro Forma(1)
Successor
Predecessor
Year Ended
December 31,
2018
October 1,
2018 to
December 31,
2018
January 1,
2018 to
September 30,
2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
(in thousands)
Statement of Income Data:
Revenues
Transaction fees
$ 370,881 $ 97,130 $ 273,751 $ 267,020 $ 230,171
Subscription fees(2)
190,500 46,519 143,981 194,534 191,983
Commissions
112,670 32,840 79,830 96,745 91,663
Other
10,357 2,148 8,209 4,669 4,587
Gross revenue
684,408 178,637 505,771 562,968 518,404
Contingent consideration(3)
(26,830) (26,830) (58,520) (26,224)
Net revenue
657,578 178,637 478,941 504,448 492,180
Expenses
Employee compensation and benefits
296,363 80,436 209,053 248,963 228,584
Depreciation and amortization
129,399 33,020 48,808 68,615 80,859
Technology and communications
36,505 9,907 26,598 30,013 28,239
General and administrative
34,893 11,837 23,056 33,973 27,392
Professional fees
28,554 8,194 20,360 19,351 18,158
Occupancy
13,739 3,308 10,732 14,441 15,817
Total expenses
539,453 146,702 338,607 415,356 399,049
Operating income
118,125 31,935 140,334 89,092 93,131
Interest income
2,513 787 1,726 1,140 644
Interest expense
(455) (1,339)
Income before taxes
120,638 32,722 142,060 89,777 92,436
Provision for income taxes
(24,219) (3,415) (11,900) (6,129) 725
Net income
$ 96,419 $ 29,307 $ 130,160 $ 83,648 $ 93,161
Less: Net income attributable to non-controlling interests
30,576
Net income attributable to Tradeweb Markets Inc.
$ 65,843
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Historical
Pro Forma(1)
Successor
Predecessor
As of
June 30,
2019
As of
June 30,
2019
As of
December 31,
2018
As of
June 30,
2018
As of
December 31,
2017
As of
December 31,
2016
(in thousands)
Statement of Financial Condition Data:
Cash and cash equivalents(4)
$ 310,501 $ 313,582 $ 410,104 $ 320,538 $ 352,598 $ 324,074
Total assets(4)
5,222,449 5,072,347 4,997,139 1,295,808 1,316,887 1,320,732
Total liabilities
706,312 617,547 410,626 293,892 317,118 283,319
Non-controlling interests
1,305,876 1,607,249
Total equity/members’ capital(4)
4,516,137 4,454,800 4,572,334 988,615 986,468 1,024,759
Successor
Predecessor
Six Months
Ended
June 30,
2019
October 1,
2018 to
December 31,
2018
January 1,
2018 to
September 30,
2018
Six Months
Ended
June 30,
2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
(dollars in thousands)
Other Financial Data:
Free Cash Flow(5)
$ 59,266 $ 96,310 $ 138,978 $ 49,137 $ 183,962 $ 136,496
Adjusted EBITDA(6)
$ 167,272 $ 65,308 $ 214,091 $ 147,508 $ 215,185 $ 200,771
Adjusted EBITDA
margin(6)
44.3% 36.6% 42.3% 43.3% 38.2% 38.7%
Adjusted EBIT(6)
$ 146,819 $ 54,701 $ 184,859 $ 128,125 $ 177,806 $ 161,037
Adjusted EBIT Margin(6)
38.9% 30.6% 36.5% 37.6% 31.6% 31.1%
Adjusted Net Income(6)
$ 108,819 $ 40,839 $ 137,327 $ 95,075 $ 131,369 $ 118,012
Six Months
Ended
June 30,
2019
Six Months
Ended
June 30,
2018
Year Ended
December 31,
2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
(in millions)
Operating Data:
Average Daily Volumes:
Rates
$ 470,492 $ 347,343 $ 354,023 $ 253,432 $ 219,130
Credit
14,295 13,370 12,658 7,554 5,954
Equities
7,406 8,429 7,798 4,817 4,523
Money markets
207,009 167,050 173,743 132,105 94,324
Total
$ 699,202 $ 536,191 $ 548,221 $ 397,908 $ 323,932
(1)
Pro forma figures give effect to the Transactions, including this offering. See “Unaudited Pro Forma Consolidated Financial Information” for a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments.
(2)
Subscription fees for the pro forma six months ended June 30, 2019 and the pro forma year ended December 31, 2018 include $27.0 million and $50.3 million, respectively, of Refinitiv (formerly Thomson Reuters) market data fees. Subscription fees for the six months ended June 30, 2019 and
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2018, the 2018 Successor Period, the 2018 Predecessor Period and the years ended December 31, 2017 and 2016 include $27.0 million, $24.3 million, $13.5 million, $36.9 million, $50.1 million and $50.6 million, respectively, of Refinitiv (formerly Thomson Reuters) market data fees.
(3)
In 2014, we issued equity to certain of the Bank Stockholders and management as a result of a capital contribution to facilitate our expansion into new credit products. The equity vested on July 31, 2018 upon the achievement of specific revenue earnout milestones related to the new credit products. Prior to the July 31, 2018 vesting, we recognized contingent consideration as a contra-revenue adjustment, which partially offset gross revenue for the periods presented.
(4)
Historical and pro forma cash and cash equivalents, total assets and total equity do not reflect the (i) $11.4 million cash dividend paid to holders of Class A common stock and Class B common stock in the aggregate in September 2019 and (ii) $11.8 million cash distribution paid to Continuing LLC Owners in the aggregate in September 2019. See “Dividend Policy.”
(5)
In addition to cash flow from operating activities presented in accordance with GAAP, we use Free Cash Flow to measure liquidity. Free Cash Flow is defined as cash flow from operating activities less expenditures for capitalized software development costs and furniture, equipment and leasehold improvements.
We present Free Cash Flow because we believe it is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations after expenditures for capitalized software development costs and furniture, equipment and leasehold improvements.
Free Cash Flow has limitations as an analytical tool, and you should not consider Free Cash Flow in isolation or as an alternative to cash flow from operating activities or any other liquidity measure determined in accordance with GAAP. For a discussion of these limitations, see “Use of Non-GAAP Financial Measures.” You are encouraged to evaluate each adjustment. In addition, in evaluating Free Cash Flow, you should be aware that in the future, we may incur expenditures similar to the adjustments in the presentation of Free Cash Flow. In addition, Free Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
The table set forth below presents a reconciliation of our cash flow from operating activities to Free Cash Flow for the six months ended June 30, 2019 and 2018, the 2018 Successor Period, the 2018 Predecessor Period and the years ended December 31, 2017 and 2016:
Successor
Predecessor
Six Months
Ended
June 30,
2019
October 1,
2018 to
December 31,
2018
January 1,
2018 to
September 30,
2018
Six Months
Ended
June 30,
2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
(in thousands)
Cash flow from operating activities
$ 76,973 $ 112,556 $ 164,828 $ 65,027 $ 224,580 $ 171,845
Less: Capitalization of software development costs
(13,914) (7,156) (19,523) (12,765) (27,157) (25,351)
Less: Purchases of furniture, equipment and leasehold improvements
(3,793) (9,090) (6,327) (3,125) (13,461) (9,998)
Free Cash Flow
$ 59,266 $ 96,310 $ 138,978 $ 49,137 $ 183,962 $ 136,496
(6)
In addition to net income and net income attributable to Tradeweb Markets Inc., each presented in accordance with GAAP, we present Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin as measures of our operating performance and Adjusted Net Income and Adjusted Diluted EPS as measures of our profitability.
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Adjusted EBITDA is defined as net income before contingent consideration, net interest income, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including certain stock-based compensation expense, gains and losses from outstanding foreign exchange forward contracts and the revaluation of foreign denominated cash. Adjusted EBIT is defined as net income before contingent consideration, net interest income and provision for income taxes, adjusted for the impact of certain other items, including certain stock-based compensation expense, acquisition and Refinitiv Transaction-related depreciation and amortization, gains and losses from outstanding foreign exchange forward contracts and the revaluation of foreign denominated cash. Adjusted EBITDA margin and Adjusted EBIT margin are defined as Adjusted EBITDA and Adjusted EBIT, respectively, divided by gross revenue for the applicable period. We present Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. For example, we exclude contingent consideration because it is equity settled and its balance is based on our value at a certain time and may not reflect our actual operating performance. In addition, we also exclude non-cash stock-based compensation expense associated with the Special Option Award discussed under “Management’s Discussion & Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Stock-Based Compensation.” We believe it is useful to exclude this stock-based compensation expense because the amount of expense associated with the Special Option Award may not directly correlate to the underlying performance of our business and will vary across periods. With respect to Adjusted EBIT and Adjusted EBIT margin, we believe it is useful to exclude the depreciation and amortization of acquisition related tangible and intangible assets resulting from certain acquisitions, the Refinitiv Transaction and the application of pushdown accounting in order to facilitate a period-over-period comparison of our financial performance.
Management and our board of directors use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin to assess our financial performance and believe it is helpful in highlighting trends in our core operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Further, our executive incentive compensation is based in part on components of Adjusted EBITDA and Adjusted EBITDA margin.
We present Adjusted Net Income and Adjusted Diluted EPS for Tradeweb Markets Inc. for post-IPO periods and Tradeweb Markets LLC for pre-IPO periods. As discussed below, because Adjusted Net Income and Adjusted Diluted EPS give effect to certain tax related adjustments to reflect an assumed effective tax rate for all periods presented and, for post-IPO periods, assumes all LLC Interests held by non-controlling interests are exchanged for shares of Class A or Class B common stock, we believe that Adjusted Net Income and Adjusted Diluted EPS for Tradeweb Markets Inc. and Tradeweb Markets LLC are comparable.
Adjusted Net Income is defined as net income attributable to Tradeweb Markets Inc. assuming the full exchange of all outstanding LLC Interests held by non-controlling interests for shares of Class A common stock or Class B common stock of Tradeweb Markets Inc., for post-IPO periods, and net income, for pre-IPO periods, in each case adjusted for contingent consideration, certain stock-based compensation expense, acquisition and Refinitiv Transaction-related depreciation and amortization, gains and losses from outstanding foreign exchange forward contracts and the revaluation of foreign denominated cash. Adjusted Net Income also gives effect to certain tax related adjustments to reflect an assumed effective tax rate and, for pre-IPO periods, assumes TWM LLC was subject to a corporate tax rate for the periods presented. Adjusted Diluted EPS is defined as Adjusted Net Income divided by the diluted weighted average number of shares of Class A common stock and Class B common stock outstanding for the applicable period, assuming the full exchange of all outstanding LLC Interests held by non-controlling interests for shares of Class A common stock or Class B common stock, for post-IPO periods, and the diluted weighted average number of shares of TWM LLC outstanding for the applicable period, for pre-IPO periods. The diluted weighted average number of shares outstanding for the pre-IPO periods and post-IPO periods give effect to potentially dilutive securities using the
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treasury stock method. We use Adjusted Net Income and Adjusted Diluted EPS as supplemental metrics to evaluate our business performance in a way that also considers our ability to generate profit without the impact of certain items. We exclude contingent consideration, stock-based compensation expense associated with the Special Option Award and acquisition and Refinitiv Transaction-related depreciation and amortization for the reasons described above. Each of the normal recurring adjustments and other adjustments described in the definition of Adjusted Net Income helps to provide management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses. In addition to excluding items that are non-recurring or may not be indicative of our ongoing operating performance, by assuming the full exchange of all outstanding LLC Interests held by non-controlling interests, we believe that Adjusted Net Income and Adjusted Diluted EPS for Tradeweb Markets Inc. facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period, because it eliminates the effect of any changes in net income attributable to Tradeweb Markets Inc. driven by increases in our ownership of TWM LLC, which are unrelated to our operating performance.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS have limitations as analytical tools, and you should not consider these non-GAAP financial measures in isolation or as alternatives to net income attributable to Tradeweb Markets Inc., net income, operating income, gross margin, earnings per share or any other financial measure derived in accordance with GAAP. For a discussion of these limitations, see “Use of Non-GAAP Financial Measures.” You are encouraged to evaluate each adjustment and, as applicable, the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of these non-GAAP financial measures. Our presentation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBIT, Adjusted EBIT margin, Adjusted Net Income and Adjusted Diluted EPS may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
The table set forth below presents a reconciliation of net income to Adjusted EBITDA, Adjusted EBIT, Adjusted EBITDA margin and Adjusted EBIT margin for the six months ended June 30, 2019 and 2018, the 2018 Successor Period, the 2018 Predecessor Period and the years ended December 31, 2017 and 2016:
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Successor
Predecessor
Six Months
Ended
June 30,
2019
October 1,
2018 to
December 31,
2018
January 1,
2018 to
September 30,
2018
Six Months
Ended
June 30,
2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
(dollars in thousands)
Net income
$ 67,168 $ 29,307 $ 130,160 $ 84,205 $ 83,648 $ 93,161
Contingent consideration
26,830 29,367 58,520 26,224
Interest income, net
(1,033) (787) (1,726) (1,053) (685) 695
Depreciation and amortization
67,795 33,020 48,808 32,446 68,615 80,859
Stock-based compensation expense associated with Special Option
Award
20,403
Provision for income taxes
11,097 3,415 11,900 4,365 6,129 (725)
Unrealized foreign exchange (gains) / losses
1,284 263 (960) (1,367) (364) 1,872
(Gain) / loss from revaluation of foreign denominated cash(a)
558 90 (921) (455) (678) (1,315)
Adjusted EBITDA
$ 167,272 $ 65,308 $ 214,091 $ 147,508 $ 215,185 $ 200,771
Less: Depreciation and amortization
$ (67,795) $ (33,020) $ (48,808) $ (32,446) $ (68,615) $ (80,859)
Add: Acquisition and Refinitiv Transaction related depreciation and amortization(b)
47,342 22,413 19,576 13,063 31,236 41,125
Adjusted EBIT
$ 146,819 $ 54,701 $ 184,859 $ 128,125 $ 177,806 $ 161,037
Adjusted EBITDA margin(c)
44.3% 36.6% 42.3% 43.3% 38.2% 38.7%
Adjusted EBIT margin(c)
38.9% 30.6% 36.5% 37.6% 31.6% 31.1%
(a)
Represents foreign exchange gain or loss from the revaluation of cash denominated in a different currency than the entity’s functional currency.
(b)
Represents acquisition-related intangibles amortization and increased tangible asset and capitalized software depreciation and amortization resulting from the Refinitiv Transaction and the application of pushdown accounting (where all assets were marked to fair value as of the closing date of the Refinitiv Transaction).
(c)
For the six months ended June 30, 2019 and the combined year ended December 31, 2018, Adjusted EBITDA margin increased compared to the prior year period by 102 basis points and 260 basis points, respectively, or 149 basis points and 126 basis points on a constant currency basis. For the year ended December 31, 2017, Adjusted EBITDA margin decreased compared to the prior year period by 51 basis points, or 102 basis points on a constant currency basis. For the six months ended June 30, 2019 and the combined year ended December 31, 2018, Adjusted EBIT margin increased compared to the prior year period by 129 basis points and 342 basis points, respectively, or 190 basis points and 183 basis points on a constant currency basis. For the year ended December 31, 2017, Adjusted EBIT margin increased by 52 basis points and decreased by 3 basis points on a constant currency basis. The changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis, which are non-GAAP financial measures, are defined as the change in Adjusted EBITDA margin and Adjusted EBIT margin excluding the effects of foreign currency fluctuations. Adjusted EBITDA margin and Adjusted EBIT margin excluding the effects of foreign currency fluctuations are calculated by translating the current period and prior period’s results using the average exchange rates for the prior period. We use changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis as supplemental metrics to evaluate our underlying margin performance between periods by removing the impact of foreign currency fluctuations. We believe that providing changes in Adjusted EBITDA margin and Adjusted EBIT margin on a constant currency basis provide useful comparisons of our Adjusted EBITDA margin and Adjusted EBIT margin and trends between periods.
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The table set forth below provides a reconciliation of net income attributable to Tradeweb Markets Inc. and net income, as applicable, to Adjusted Net Income and Adjusted Diluted EPS for the six months ended June 30, 2019 and 2018, the 2018 Successor Period, the 2018 Predecessor Period and the years ended December 31, 2017 and 2016:
Successor
Predecessor
Six Months
Ended
June 30,
2019
October 1,
2018 to
December 31,
2018
January 1,
2018 to
September 30,
2018