FORM 10-Q June 30, 2020 Delaware (I.R.S. Employer Identification No.) 10036 (Address of principal executive offices) (Zip Code) Smaller reporting company Class of Stock Shares Outstanding as of July 24, 2020 Class A Common Stock, par value $0.00001 per share Class B Common Stock, par value $0.00001 per share 96,933,192 Class C Common Stock, par value $0.00001 per share Class D Common Stock, par value $0.00001 per share In addition, statements contained in this Quarterly Report on Form 10-Q relating to the COVID-19 pandemic, the potential impacts of which are inherently uncertain, are forward-looking statements. March 31, 2019 December 31, 2018 Assets Cash $ 100 $ 100 Total assets $ 100 $ 100 Stockholder’s Equity Common Stock, par value $0.01 per share, 1,000 shares authorized, 100 issued and outstanding $ 1 $ 1 Additional paid-in capital (see note 4) 99 99 Total stockholder’s equity $ 100 $ 100 and Subsidiaries As of See Note 8 – Stockholders’ Equity. in exchange for shares of Class B common stock, par value $0.00001 per share, of the Corporation (the “Class B common stock”) in connection with the completion of the Reorganization Transactions and (ii) on and after June 28, 2019, an indirect subsidiary of Refinitiv that owns shares of Class B common stock which shares were contributed by the direct subsidiary of Refinitiv referred to in the foregoing clause (i); and Class of Common Stock Par Value Votes Economic Rights Class A common stock $ 0.00001 1 Yes Class B common stock $ 0.00001 10 Yes Class C common stock $ 0.00001 1 No Class D common stock $ 0.00001 10 No their shares of Class B common stock for newly issued shares of Class A common stock on a 1-for-one basis (in which case their shares of Class B common stock will be cancelled on a 1-for-one basis upon any such issuance). 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 Class D common stock for newly issued shares of Class C common stock on a 1-for-one basis (in which case their shares of Class D common stock will be cancelled on a 1-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. IPO). Tradeweb Markets Successor Successor March 31, December 31, Assets Cash and cash equivalents including cash deposited with related parties of $246,416 and $283,790 at March 31, 2019 and December 31, 2018, respectively $ 361,608 $ 410,104 Restricted cash 1,200 1,200 Receivable from brokers and dealers and clearing organizations including receivables from related parties of $199 and $3,332 at March 31, 2019 and December 31, 2018, respectively 88,422 174,591 Deposits with clearing organizations including deposits from related parties of $500 at both March 31, 2019 and December 31, 2018 8,872 11,427 Accounts receivable, net of allowance including receivables from related parties of $46,947 and $40,730 at March 31, 2019 and December 31, 2018, respectively 94,284 87,192 Furniture, equipment, purchased software and leasehold improvements, net of accumulated depreciation and amortization 36,790 38,128 Right-of-use assets 32,647 — Software development costs, net of accumulated amortization 171,705 170,582 Intangible assets, net of accumulated amortization 1,355,996 1,380,848 Goodwill 2,694,797 2,694,797 Receivable from affiliates 3,026 3,243 Other assets including other assets from related parties of $0 and $9 at March 31, 2019 and December 31, 2018, respectively 32,238 25,027 Total assets $ 4,881,585 $ 4,997,139 Liabilities and Members’ Capital Liabilities Payable to brokers and dealers and clearing organizations including payables to related parties of $0 and $2,404 at March 31, 2019 and December 31, 2018, respectively $ 81,214 $ 171,214 Accrued compensation 54,087 120,158 Deferred revenue including deferred revenue from related parties of $8,556 and $9,151 at March 31, 2019 and December 31, 2018, respectively 28,487 27,883 Accounts payable, accrued expenses and other liabilities including payables to related parties of $387 and $0 at March 31, 2019 and December 31, 2018, respectively 33,295 42,548 Employee equity compensation payable 299 24,187 Lease liability 37,310 — Payable to affiliates 6,050 5,009 Deferred tax liability 19,589 19,627 Total liabilities 260,331 410,626 Commitments and contingencies (note 13) Mezzanine Capital Class C Shares and Class P(C) Shares 23,275 14,179 Members’ capital Members’ capital 4,597,857 4,573,200 Accumulated other comprehensive income 122 (866 ) Total members’ capital 4,597,979 4,572,334 Total liabilities and members’ capital $ 4,881,585 $ 4,997,139 outstanding common stock and directly and indirectly, through Tradeweb Markets Successor Predecessor Three Months Three Months Revenues Transaction fees including from related parties of $59,643 and $52,918 in the three months ended March 31, 2019 and 2018, respectively $ 102,640 $ 90,139 Subscription fees including from related parties of $5,670 and $5,220 in the three months ended March 31, 2019 and 2018, respectively 34,445 36,326 Commissions including from related parties of $16,186 and $11,631 in the three months ended March 31, 2019 and 2018, respectively 34,197 27,883 Refinitiv market data fees 13,616 12,237 Other 1,894 2,918 Gross revenue 186,792 169,503 Contingent consideration — (10,070 ) Net revenue 186,792 159,433 Expenses Employee compensation and benefits 77,273 71,570 Depreciation and amortization 33,503 16,268 Technology and communications including from related parties of $740 in both the three months ended March 31, 2019 and 2018 10,040 8,463 General and administrative including from related parties of $180 in both the three months ended March 31, 2019 and 2018 9,089 6,517 Professional fees 6,971 5,538 Occupancy including from related parties of $155 in both the three months ended March 31, 2019 and 2018 3,639 3,722 Total expenses 140,515 112,078 Operating income 46,277 47,355 Interest income including from related parties of $208 and $21 in the three months ended March 31, 2019 and 2018, respectively 858 471 Income before taxes 47,135 47,826 Provision for income taxes (4,783 ) (2,518 ) Net income $ 42,352 $ 45,308 Net income per share Basic $ 0.19 $ 0.21 Diluted $ 0.19 $ 0.21 Weighted average number of shares outstanding (note 14) Basic 222,222,197 213,435,321 Diluted 223,320,457 213,435,321 TWM LLC. Successor Predecessor Three Months Three Months Ended Ended March 31, March 31, 2019 2018 Net income $ 42,352 $ 45,308 Foreign currency translation adjustments 988 1,928 Comprehensive income $ 43,340 $ 47,236 Members’ Accumulated Total Predecessor Members’ capital at December 31, 2017 $ 999,735 $ (13,267 ) $ 986,468 Comprehensive income: Net income 45,308 45,308 Foreign currency translation adjustments 1,928 1,928 Capital distributions (25,000 ) (25,000 ) Members’ capital at March 31, 2018 $ 1 ,020,043 $ (11,339 ) $ 1 ,008,704 Members’ Accumulated Total Successor Members’ capital at December 31, 2018 $ 4 ,573,200 $ (866 ) $ 4 ,572,334 Comprehensive income: Net income 42,352 42,352 Foreign currency translation adjustments 988 988 Adjustment to Class C Shares and Class P(C) Shares in mezzanine capital (2,369 ) (2,369 ) Share-based compensation 4,674 4,674 Capital distributions (20,000 ) (20,000 ) Members’ capital at March 31, 2019 $ 4 ,597,857 $ 122 $ 4 ,597,979 Successor Predecessor Three Months Three Months Cash flows from operating activities Net income $ 42,352 $ 45,308 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 33,503 16,268 Contingent consideration — 10,070 Share-based compensation expense 4,674 — Deferred taxes (39 ) 452 (Increase) decrease in operating assets: Receivable from brokers and dealers and clearing organizations 86,169 4,324 Deposits with clearing organizations 2,570 (950 ) Accounts receivable (6,406 ) (29,762 ) Receivable from affiliates 217 (119 ) Other assets (7,152 ) 903 Increase (decrease) in operating liabilities: Payable to brokers and dealers and clearing organizations (90,000 ) (4,322 ) Accrued compensation (66,447 ) (59,693 ) Deferred revenue 602 1 ,479 Accounts payable, accrued expenses and other liabilities (4,911 ) 4 ,201 Employee equity compensation payable (17,161 ) (11,797 ) Payable to affiliates 950 9 ,412 Net cash used in operating activities (21,079 ) (14,226 ) Cash flows from investing activities Purchase of furniture, equipment, software and leasehold improvements (1,516 ) (1,244 ) Capitalized software development costs (6,767 ) (6,198 ) Net cash used in investing activities (8,283 ) (7,442 ) Cash flows from financing activities Capital distributions (20,000 ) (25,000 ) Net cash used in financing activities (20,000 ) (25,000 ) Effect of exchange rate changes on cash and cash equivalents 866 1 ,813 Net decrease in cash and cash equivalents (48,496 ) (44,855 ) Cash and cash equivalents and restricted cash Beginning of period 411,304 353,798 End of period $ 362,808 $ 308,943 Successor Predecessor Three Months Three Months March 31, 2019 March 31, 2018 Supplemental disclosure of cash flow information Interest paid $ — $ — Income taxes paid $ 7,301 $ 1,784 Successor Predecessor Three Months Three Months March 31, 2019 March 31, 2018 Cash and cash equivalents $ 361,608 $ 307,743 Restricted cash 1,200 1 ,200 Cash and cash equivalents and restricted cash $ 362,808 $ 308,943 this control, and because Tradeweb Markets Inc. has a substantial financial interest in TWM LLC, The Successor Predecessor Three Months Ended Three Months Ended (in thousands) (in thousands) Variable Fixed Variable Fixed Revenues Transaction fees $ 78,915 $ 23,725 $ 69,637 $ 20,502 Subscription Fees including Refinitiv market data fees 455 47,606 475 48,088 Commissions 24,310 9,887 17,780 10,103 Other 303 1,591 12 2,906 Gross revenues $ 103,983 $ 82,809 $ 87,904 $ 81,599 Tradeweb Markets LLC: Tradeweb Markets LLC Remainder of 2019 $ 1,715 2020 1,953 2021 6,873 2022 — 2023 1,225 Thereafter 29,013 Total future minimum lease payments 40,779 Less imputed interest (3,469 ) Lease liability $ 37,310 Remainder of 2019 $ 8,511 2020 7,725 2021 5,380 2022 4,081 2023 3,907 Thereafter 11,175 $ 40,779 Licenses $ 168,800 Tradename 154,300 Total $ 323,100 Successor Successor March 31, 2019 December 31, 2018 Amortization Cost Accumulated Net Carrying Cost Accumulated Net Carrying Customer relationships - Refinitiv Transaction 12 Years $ 928,200 $ (38,675 ) $ 889,525 $ 928,200 $ (19,338 ) $ 908,862 Content and data 7 Years 154,400 (11,029 ) 143,371 154,400 (5,514 ) 148,886 $ 1,082,600 $ (49,704 ) $ 1,032,896 $ 1,082,600 $ (24,852 ) $ 1,057,748 Remainder of 2019 $ 74,556 2020 99,408 2021 99,408 2022 99,408 2023 99,408 Deferred revenue balance - December 31, 2018 $ 27,883 New billings 29,165 Revenue recognized (28,561 ) Deferred revenue balance - March 31, 2019 $ 28,487 Successor Predecessor Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Current: Federal $ — $ — State and Local 1,487 856 Foreign 3,335 1,210 4,822 2,066 Deferred - Federal 704 299 Deferred - state and local 577 153 Deferred - foreign (1,320 ) — Total deferred (39 ) 452 Total $ 4,783 $ 2,518 grant year. The performance modifier may vary between 0% (minimum) and 200% (maximum) of the target (100%) award amount. Successor Number of Weighted Outstanding at December 31, 2018 1,442.2 $30,472 Granted 554.3 31,563 Outstanding at March 31, 2019 1,996.5 $34,151 Successor Number of Weighted Outstanding at December 31, 2018 522.5 $ 34,075 Exercised (507.2 ) 33,694 Outstanding at March 31, 2019 15.3 $ 51,334 2022 upon the completion of the IPO. In the post-IPO period, the Company awarded options under the Option Plan with a four year-graded vesting schedule. One half of these awards vest solely based on the passage of time, without accelerated vesting, and one half vest only if the Company achieves certain performance targets. The Company may elect to net-settle exercised options by reducing the shares of Class A common stock to be issued upon such exercise by the number of shares of Class A common stock having a fair market value on the date of exercise equal to the aggregate option price. The Company can also elect, upon exercise, to reduce the shares to be issued by the number of shares having a fair market value on the date of exercise equal to employee payroll taxes. The Company may then pay these employee payroll taxes from the Company’s cash. employees vest one-third each year over a three-year period. RSUs granted to non-employee directors vest after one year. The fair value of the Weighted Average Expected Life (years) 5.7 Weighted Average Risk Free Interest Rate 2.94 % Weighted Average Expected Volatility 20.0 % Weighted Average Expected Dividend Yield 4.01 % Share Price $ 25,692 Exercise Price $ 28,601 Class A common stock. Cash-Settled Equity Settled Options Total unrecognized compensation cost $ 390,000 $ 36,199,000 $ 33,460,000 Weighted average recognition period 1.54 years 2.02 years 0.6 years Class C Class P(C) Class P-1(C) 447 2 232 Successor Successor March 31, 2019 December 31, 2018 Cash and cash equivalents $ 246,416 $ 283,790 Receivables from brokers and dealers and clearing organizations 199 $ 3,332 Deposits with clearing organizations 500 500 Accounts receivable 46,947 40,730 Receivable from affiliates 3,026 3,243 Other assets — 9 Payable to brokers and dealers and clearing organizations — 2,404 Deferred revenue 8,556 9,151 Accounts payable, accrued expenses and other liabilities 387 — Payable to affiliates 6,050 5,009 Successor Quoted Prices in Significant Significant Total As of March 31, 2019 Assets Money market funds $ 137,502 $ — $ — $ 137,502 $ 137,502 $ — $ — $ 137,502 As of December 31, 2018 Assets Money market funds $ 127,927 $ — $ — $ 127,927 $ 127,927 $ — $ — $ 127,927 policy of reviewing, as considered necessary, the credit standing of each counterparty with which it conducts business. institutions. Successor Predecessor Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Net Income (in thousands) $ 42,352 $ 45,308 Basic Weighted Average Shares Outstanding 222,222,197 213,435,321 Dilutive Effect of equity settled PRSUs 1,098,260 — Diluted Weighted Average Shares Outstanding 223,320,457 213,435,321 Basic Net Income Per Share $ 0.19 $ 0.21 Diluted Net Income Per Share $ 0.19 $ 0.21 As of March 31, 2019 TWL DW TWD TEL TWJ TWEU Regulatory Capital $ 13,981 $ 39,711 $ 26,695 $ 46,537 $ 10,532 $ 4,034 Regulatory Capital Requirement 1,398 1,133 311 17,515 3,804 4,034 Excess Regulatory Capital $ 12,583 $ 38,578 $ 26,384 $ 29,022 $ 6,728 $ — As of December 31, 2018 TWL DW TWD TEL TWJ Regulatory Capital $ 18,986 $ 41,164 $ 24,042 $ 46,157 $ 10,592 Regulatory Capital Requirement 2,698 1,803 599 17,493 3,413 Excess Regulatory Capital $ 16,288 $ 39,361 $ 23,443 $ 28,664 $ 7,179 As of March 31, 2019 As of December 31, 2018 TW SEF DW SEF TW SEF DW SEF Financial Resources $ 28,912 $ 18,524 $ 31,232 $ 17,837 Required Financial Resources 10,500 5,440 10,500 5,169 Excess Financial Resources $ 18,412 $ 13,084 $ 20,732 $ 12,668 Liquid Financial Assets $ 15,929 $ 12,517 $ 16,662 $ 11,888 Required Liquid Financial Assets 5,250 2,720 5,250 2,585 Excess Liquid Financial Assets $ 10,679 $ 9,797 $ 11,412 $ 9,303 Successor Predecessor Three Months Ended Three Months Ended Net revenue: Institutional $ 109,252 $ 102,320 Wholesale 39,431 32,595 Retail 21,206 19,036 Market Data 16,903 15,552 Contingent consideration — (10,070 ) Net revenue 186,792 159,433 Operating expenses 140,515 112,078 Operating income $ 46,277 $ 47,355 Successor Predecessor Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Net Revenue: U.S. $ 119,397 $ 107,782 International 67,395 61,721 Gross revenue 186,792 169,503 Contingent consideration — (10,070 ) Total $ 186,792 $ 159,433 March 31, 2019 December 31, 2018 Long-lived assets U.S. $ 4,277,698 $ 4,276,568 International 14,237 7,787 Total $ 4,291,935 $ 4,284,355 Tradeweb Markets 10‑Q. the development of new and enhanced platforms is essential to maintaining our level of competitiveness in the market and attracting new clients seeking platforms that provide advanced automation and better liquidity. We believe we will continue to increase demand for our platforms and solutions and the volume of transactions on our platforms, and thereby enhance our client relationships, by responding to new trading and information requirements by utilizing technological advances and emerging industry standards and practices in an effective and efficient way. We plan to continue to focus on and invest in technology infrastructure initiatives and continually improve and expand our platforms and solutions to further enhance our market position. We experience cyber-threats and attempted security breaches. If these were successful, these cyber security incidents could impact revenue and operating income and increase costs. We therefore continue to make investments, which may result in increased costs, to strengthen our cybersecurity measures. board of directors. and sell price of the transacted product. For TBA-MBS, U.S. result of compliance requirements. Facility. non-controlling interests. June 30, 2019 Successor Predecessor Three Three (dollars in thousands) Gross revenue $ 186,792 $ 169,503 Contingent consideration — (10,070 ) Net revenue 186,792 159,433 Total expenses 140,515 112,078 Operating income 46,277 47,355 Net interest income 858 471 Income before taxes 47,135 47,826 Income taxes (4,783 ) (2,518 ) Net income $ 42,352 $ 45,308 2019: business. Our expenses decreased primarily due to lower employee compensation June 30, 2019. Total expenses for the three months ended combined with lower expenses. Successor Predecessor Three Months Three Months $ % of Gross $ % of Gross $ Change % Change (dollars in thousands) Revenues Transaction fees $ 102,640 54.9 % $ 90,139 53.2 % $ 12,501 13.9 % Subscription fees(1) 48,061 25.7 % 48,563 28.7 % (502 ) (1.0 )% Commissions 34,197 18.3 % 27,883 16.4 % 6,314 22.6 % Other 1,894 1.0 % 2,918 1.7 % (1,024 ) (35.1 )% Gross revenue 186,792 100.0 % 169,503 100.0 % 17,289 10.2 % Contingent consideration — (10,070 ) 10,070 (100 )% Net revenue $ 186,792 $ 159,433 $ 27,359 17.2 % Components of gross revenue growth: Constant currency growth(2) 12.6 % Foreign currency impact (2.4 )% Total gross revenue growth 10.2 % Successor Predecessor Three Months Ended Three Months Ended $ Change % Change Variable Fixed Variable Fixed Variable Fixed Variable Fixed (dollars in thousands) Revenues Transaction fees $ 78,915 $ 23,725 $ 69,637 $ 20,502 $ 9,278 $ 3,223 13.3 % 15.7 % Subscription fees(1) 455 47,606 475 48,088 (20 ) (482 ) (4.2 )% (1.0 )% Commissions 24,310 9,887 17,780 10,103 6,530 (216 ) 36.7 % (2.1 )% Other 303 1,591 12 2,906 291 (1,315 ) 2,421 % (45.2 )% Gross revenue $ 103,983 $ 82,809 $ 87,904 $ 81,599 $ 16,079 $ 1,210 18.3 % 1.5 % Transaction fees. Transaction fees increased by government bonds. our APA reporting service. Successor Predecessor Three Months Three Months $ Change % Change (dollars in thousands) Revenues Institutional $ 109,252 $ 102,320 $ 6,932 6.8 % Wholesale 39,431 32,595 6,836 21.0 % Retail 21,206 19,036 2,170 11.4 % Market Data 16,903 15,552 1,351 8.7 % Total gross revenue $ 186,792 $ 169,503 $ 17,289 10.2 % and credit derivatives products. implementation on behalf of certain clients. Refinitiv. Successor Predecessor Three Months Three Months $ Change % Change (dollars in thousands) Revenues Rates $ 104,090 $ 93,913 $ 10,177 10.8 % Credit 39,435 34,733 4,702 13.5 % Equities 11,798 10,192 1,606 15.8 % Money Markets 9,562 8,114 1,448 17.8 % Market Data 16,903 15,552 1,351 8.7 % Other Fees 5,004 6,999 (1,995 ) (28.5 )% Total gross revenue $ 186,792 $ 169,503 $ 17,289 10.2 % Successor Predecessor Three Months Ended Three Months Ended $ Change % Change Variable Fixed Variable Fixed Variable Fixed Variable Fixed (dollars in thousands) Revenues Rates $ 53,650 $ 50,440 $ 45,068 $ 48,845 $ 8,582 $ 1,595 19.0 % 3.3 % Credit 34,358 5,077 29,613 5,120 4,745 (43 ) 16.0 % (0.8 )% Equities 10,152 1,646 8,521 1,671 1,631 (25 ) 19.1 % (1.5 )% Money Markets 5,823 3,739 4,702 3,412 1,121 327 23.8 % 9.6 % Market Data — 16,903 — 15,552 — 1,351 — 8.7 % Other — 5,004 — 6,999 — (1,995 ) — (28.5 )% Gross revenue $ 103,983 $ 82,809 $ 87,904 $ 81,599 $ 16,079 $ 1,210 18.3 % 1.5 % credit derivatives products. ETFs and equity derivatives products. agreements. Refinitiv. higher retail fees. Three Months Ended March 31, 2019 March 31, 2018 ADV Volume ADV Volume ADV Change (dollars in millions) Rates $ 431,380 $ 26,453,386 $ 344,740 $ 21,142,985 25.1 % Credit 16,383 1,009,820 14,999 926,776 9.2 % Equities 7.702 475,731 9,977 612,528 (22.8 )% Money Markets 191,123 11,771,688 164,517 10,071,040 16.2 % increased volatility. Rates ADV decreased slightly due mainly to lower trading activity in short-tenor swaps. Excluding short-tenor swaps, Rates ADV increased due to higher U.S. government bonds and long-tenor swaps volumes. Credit ADV increased due mainly to higher trading activity in credit swaps and U.S. high-grade and high-yield credit. Equities ADV increased mainly due to higher trading volumes in U.S. ETFs. Money Markets ADV increased due to the continued growth of bilateral electronic trading in repurchase agreements. March 31, 2019 2018 $ Change % Change Rates $ 2.02 $ 2.13 $ (0.11 ) (5.4 )% Credit 34.03 32.03 2.00 6.2 % Equities 21.36 13.91 7.45 53.4 % Money Markets 0.49 0.47 0.02 5.8 % across all periods presented. Successor Predecessor Three Months Three Months $ Change % Change (dollars in thousands) Revenues U.S. $ 119,397 $ 107,782 11,615 10.8 % International 67,395 61,721 5,674 9.2 % Total gross revenue $ 186,792 $ 169,503 17,289 10.2 % ETFs. Successor Predecessor Three March 31, Three (in thousands) Employee compensation and benefits $ 77,273 $ 71,570 Depreciation and amortization 33,503 16,268 General and administrative 9,089 6,517 Technology and communications 10,040 8,463 Professional fees 6,971 5,538 Occupancy 3,639 3,722 $ 140,515 $ 112,078 client sector. computer hardware. partially offset by higher legal fees. June 30, 2020. costs related to the Revolving Credit Facility, which did not begin until the second quarter of 2019. local taxes and other discrete items. Total amounts due to the Continuing LLC Owners as of June 30, 2020 under the Tax Receivable Agreement were $373.0 million. ability to continue to meet our future liquidity requirements will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flows from operations and our ability to manage costs and working capital successfully, all of which are subject to general economic, financial, competitive and other factors beyond our control. In the event we require any additional capital, it will take the form of equity or debt financing, or both, and there can be no assurance that we will be able to raise any such financing on terms acceptable to us or at all. 2020. March 31, December (dollars in thousands) Cash and cash equivalents $ 361,608 $ 410,104 Restricted cash 1,200 1,200 Receivable from brokers and dealers and clearing organizations 88,422 174,591 Deposits with clearing organizations 8,872 11,427 Accounts receivable 94,284 87,192 Receivable from affiliates 3,026 3,243 Current assets 557,412 687,757 Payable to brokers and dealers and clearing organizations 81,214 171,214 Accrued compensation 54,087 120,158 Deferred revenue 28,487 27,883 Accounts payable, accrued expenses and other liabilities 29,885 42,548 Employee equity compensation payable 108 24,187 Lease liability 9,740 — Payable to affiliates 6,050 5,009 Current liabilities 209,571 390,999 Working capital $ 347,841 $ 296,758 transactions and an increase in the current portion of the tax receivable agreement liability. Successor Predecessor Three 2019 Three March 31, (in thousands) Net cash flows (used in) operating activities $ (21,079 ) $ (14,226 ) Net cash flows (used in) investing activities (8,283 ) (7,442 ) Net cash flows (used in) financing activities (20,000 ) (25,000 ) Effect of exchange rate changes on cash and cash equivalents 866 1,813 Net decrease in cash and cash equivalents $ (48,496 ) $ (44,855 ) payments. Successor Predecessor Three Three (in thousands) Cash flow from operating activities $ (21,079 ) $ (14,226 ) Less: Capitalization of software development costs (6,767 ) (6,198 ) Less: Purchases of furniture, equipment and leasehold improvements (1,516 ) (1,244 ) Free Cash Flow $ (29,362 ) $ (21,668 ) 2019: Adjusted EBIT and Adjusted EBIT margin this stock-based compensation expense and associated payroll taxes because the amount of expense associated with the Special Option Award and the post-IPO option awards in 2019 may not directly correlate to the underlying performance of our business and will vary across periods. We do not expect to exclude any non-cash stock-based compensation expense associated with options that may be awarded to management and other employees during 2020. In addition, we exclude the tax receivable agreement liability adjustments discussed below under “— Critical Accounting Policies and Estimates — Tax Receivable Agreement.” We believe it is useful to exclude the tax receivable agreement liability adjustment because the recognition of income during a period due to changes in the tax receivable agreement liability recorded in our consolidated statement of financial condition as a result of changes in the mix of earnings, tax legislation and tax rates in various jurisdictions, or other factors that may impact our tax savings, 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. 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. Successor Predecessor Three Three (in thousands) Net income $ 42,352 $ 45,308 Contingent consideration — 10,070 Interest income, net (858 ) (471 ) Depreciation and amortization 33,503 16,268 Provision for income taxes 4,783 2,518 Unrealized foreign exchange (gains) / losses (293 ) (968 ) (Gain) / loss from revaluation of foreign denominated cash(1) 860 (44 ) Adjusted EBITDA $ 80,347 $ 72,681 Adjusted EBITDA margin(2) 43.0 % 42.9 % taxes for the three and six months ended June 30, 2020 and 2019, respectively. For pre-IPO periods, this adjustment assumes Tradeweb Markets LLC was subject to a corporate tax rate for the periods presented. estimated fair value of goodwill and its carrying value. If future events or results differ adversely from the estimates and assumptions made at acquisition or as part of subsequent impairment tests, we may record increased amortization or impairment charges in the future. 2020 Annual Meeting of Stockholders filed with the SEC on April 9, 2020. future. A U.S. shareholder of a controlled foreign corporation (“CFC”) is required to include in income, as a deemed dividend, the global intangible low-taxed income (“GILTI”) of the CFC. We have elected to treat taxes due on future U.S. inclusions in taxable income change occurs. – Recently Adopted adopted). pounds. six months ended June 30, 2020 and 2019: 10-K. Form 10-Q. Description of Exhibit XBRL Instance Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. XBRL Taxonomy Extension Presentation Linkbase Document. /s/ Lee Olesky By: Lee Olesky Chief Executive Officer (Principal Executive Officer) /s/ Robert Warshaw By: Robert Warshaw Chief Financial Officer (Principal Financial Officer)x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 March 31, 2019oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware83-245635883-2456358 (State of other jurisdiction of incorporation or organization) Title of each class Trading Symbol(s) Name of each exchange on which registered Class A common stock, par value $0.00001 TW Nasdaq Global Select Market o☒Yes x☐ Nox☒ Yes o☐ NoLarge accelerated filer oAccelerated filer oNon-accelerated filer xoEmerging growth company xx☒o☐ Yes x☒ NoSecurities registered pursuant to Section 12(b) of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredClass A common stock, par value $0.00001TWNasdaq Global Select MarketMay 15, 201946,000,00010,006,26969,282,736PagePage 463758596060606061616162that were completed subsequent to March 31, 2019 (the “Reorganization Transactions”) that were completed in connection with Tradeweb Markets Inc.’s initial public offering (“IPO”(the “IPO”), which was completedclosed on April 8, 2019. Accordingly, because Tradeweb Markets Inc. had no business transactions or activities and no substantial assets or liabilities during the periods presented in this Quarterly Report on Form 10-Q and because the Reorganization Transactions had not been completed as of such date, we believe that it is informative to provide the financial statements and various other disclosures of TWM LLC as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018. For more information regarding the transactions described above, see Note 41 – Organization to the unaudited financial statements of Tradeweb Markets Inc. and Note 18 to theour unaudited consolidated financial statements of Tradeweb Markets LLC, each containedincluded elsewhere in this Quarterly Report on Form 10-Q.· “We, including the IPO, to Tradeweb Markets LLC, which we refer to as “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 including the IPO, to Tradeweb Markets Inc., and, unless otherwise stated or the context otherwise requires, TWM LLC and all of its subsidiaries and any predecessor entities.· “BankMerrill Lynch, Pierce, Fenner & Smith Incorporated (a subsidiary of Bank of America Corporation), Morgan Stanley & Co. LLC, RBS Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC.· “Continuing 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.continuedcontinue to own LLC Interests immediately prior toafter the closingcompletion of the IPO whoand 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.· “InvestorTransactions, and that may redeem or exchange their LLC Interests for shares of our Class A common stock or Class B common stock and (ii) solely with respect to the Tax Receivable Agreement (as defined below), 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.· “LLCnewly issued common membership interests of TWM LLC.· “OriginalLLC issued in connection with the Reorganization Transactions.· “Refinitiv”· “Refinitiv· “Thomsonexpected dividend policy and our expectations, beliefs, plans, strategies, objectives, prospects or assumptions orregarding future events, including the pending LSEG Transaction, our performance or performance,otherwise, contained in this Quarterly Report on Form 10-Q are forward-looking statements.······ our dependence on third parties for certain market data and certain key functions;·········theour $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with Citibank, N.A., as administrative agent and collateral agent, and the other lenders party thereto, and certain Refinitiv indebtedness;·policypayments and to pay our taxes and expenses, including payments under the tax receivable agreement (the “Tax Receivable Agreement”) entered into in connection with the IPO;···“Risk“Item 1A. Risk Factors” inof our final prospectus, dated April 3,Annual Report on Form 10-K, as amended, for the year ended December 31, 2019 (the “IPO Prospectus”“2019 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule424(b) under the Securities Act, relating to our IPO,, “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q, and in other filings we may make from time to time with the SEC.andor liquidity, and the development of the industry and markets in which we operate, may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition andor liquidity, and events in the industry and markets in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.Financial Statements (Unaudited)Tradeweb Markets Inc.78Tradeweb Markets LLC and Subsidiaries121314Consolidated Statements of Changes in Members’ Capital and Accumulated Other Comprehensive Income151618June 30,
2020December 31,
2019Assets Cash and cash equivalents $ 559,889 $ 460,711 Restricted cash 1,000 1,000 Receivable from brokers and dealers and clearing organizations 66,821 30,641 Deposits with clearing organizations 10,955 9,724 Accounts receivable, net of allowance for credit losses of $115 and $195 at June 30, 2020 and December 31, 2019, respectively 101,512 92,814 Furniture, equipment, purchased software and leasehold improvements, net of accumulated depreciation and amortization 35,733 40,405 Right-of-use assets 25,012 24,504 Software development costs, net of accumulated amortization 171,155 173,086 Goodwill 2,694,797 2,694,797 Intangible assets, net of accumulated amortization 1,231,737 1,281,441 Receivable from affiliates 1,482 2,525 Deferred tax asset 525,534 256,450 Other assets 38,254 27,236 Total assets $ 5,463,881 $ 5,095,334 Liabilities and Stockholders' Equity Liabilities Payable to brokers and dealers and clearing organizations $ 66,697 $ 30,452 Accrued compensation 71,879 119,415 Deferred revenue 27,428 23,990 Accounts payable, accrued expenses and other liabilities 39,258 32,834 Employee equity compensation payable 1,642 1,048 Lease liability 30,306 30,955 Payable to affiliates 3,164 1,506 Deferred tax liability 21,411 21,572 Tax receivable agreement liability 372,953 240,817 Total liabilities 634,738 502,589 Commitments and contingencies (Note 14) Stockholders' Equity Preferred stock, $.00001 par value; 250,000,000 shares authorized; NaN issued or outstanding — — Class A common stock, $.00001 par value; 1,000,000,000 shares authorized; 90,642,108 shares issued and outstanding as of June 30, 2020 1 1 Class B common stock, $.00001 par value; 450,000,000 shares authorized; 96,933,192 shares issued and outstanding as of June 30, 2020 1 1 Class C common stock, $.00001 par value; 350,000,000 shares authorized; 5,109,991 shares issued and outstanding as of June 30, 2020 — — Class D common stock, $.00001 par value; 300,000,000 shares authorized; 34,403,255 shares issued and outstanding as of June 30, 2020 — 1 Additional paid-in capital 3,922,559 3,329,386 Accumulated other comprehensive income (loss) (2,693) 1,366 Retained earnings 94,374 47,833 Total stockholders' equity attributable to Tradeweb Markets Inc. 4,014,242 3,378,588 Non-controlling interests 814,901 1,214,157 Total equity 4,829,143 4,592,745 Total liabilities and stockholders' equity $ 5,463,881 $ 5,095,334 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues Transaction fees $ 122,146 $ 103,952 $ 262,970 $ 206,592 Subscription fees 35,006 34,566 69,489 69,011 Commissions 38,115 36,413 80,608 70,610 Refinitiv market data fees 14,565 13,385 29,193 27,001 Other 2,275 2,169 4,453 4,063 Gross revenue 212,107 190,485 446,713 377,277 Expenses Employee compensation and benefits 88,866 95,995 179,386 173,268 Depreciation and amortization 37,919 34,292 75,095 67,795 Technology and communications 12,042 9,519 22,360 19,559 General and administrative 7,523 9,365 15,863 18,454 Professional fees 6,609 6,738 13,520 13,709 Occupancy 3,509 3,621 7,235 7,260 Total expenses 156,468 159,530 313,459 300,045 Operating income 55,639 30,955 133,254 77,232 Net interest income (expense) (286) 175 413 1,033 Income before taxes 55,353 31,130 133,667 78,265 Provision for income taxes (12,945) (6,314) (28,774) (11,097) Net income 42,408 24,816 104,893 67,168 Less: Pre-IPO net income attributable to Tradeweb Markets LLC — — — 42,352 Net income attributable to Tradeweb Markets Inc. and non-controlling interests 42,408 24,816 104,893 24,816 Less: Net income attributable to non-controlling interests 11,912 11,988 30,469 11,988 Net income attributable to Tradeweb Markets Inc. $ 30,496 $ 12,828 $ 74,424 $ 12,828 Earnings per share Basic Diluted Weighted average shares outstanding Basic Diluted Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Comprehensive income - Tradeweb Markets Inc. Net income attributable to Tradeweb Markets Inc. $ 30,496 $ 12,828 $ 74,424 $ 12,828 Other comprehensive income: Foreign currency translation adjustments attributable to Tradeweb Markets Inc. (265) (647) (3,817) (647) Comprehensive income attributable to Tradeweb Markets Inc. $ 30,231 $ 12,181 $ 70,607 $ 12,181 Comprehensive income - Non-controlling interests Net income attributable to non-controlling interests $ 11,912 $ 11,988 $ 30,469 $ 11,988 Other comprehensive income: Foreign currency translation adjustments attributable to non-controlling interests (71) (359) (1,303) (359) Comprehensive income attributable to non-controlling interests $ 11,841 $ 11,629 $ 29,166 $ 11,629 Comprehensive income - Pre-IPO attributable to Tradeweb Markets LLC Pre-IPO net income attributable to Tradeweb Markets LLC $ 42,352 Other comprehensive income: Foreign currency translation adjustments attributable to Tradeweb Markets LLC 988 Pre-IPO comprehensive income attributable to Tradeweb Markets LLC $ 43,340 Class A
Common StockClass B
Common StockClass C
Common StockClass D
Common StockAdditional
Paid-In
CapitalAccumulated
Other
Comprehensive
Income (Loss)Retained
EarningsNon-
Controlling
InterestsTotal
Stockholders'
EquityShares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2019 66,408,328 $ 1 96,933,192 $ 1 8,328,983 $ — 50,853,172 $ 1 $ 3,329,386 $ 1,366 $ 47,833 $ 1,214,157 $ 4,592,745 Activities related to exchanges of LLC Interests, net of offering costs and cancellations 1,920,941 — — — (939,000) — (981,941) (1) (335) — — — (336) Issuance of common stock from equity incentive plans 2,341,171 — — — — — — — 35,422 — — — 35,422 Tax receivable agreement liability and deferred taxes arising from LLC Interest ownership exchanges — — — — — — — — 32,736 — — — 32,736 Adjustments to non-controlling interests — — — — — — — — 45,436 7 — (45,443) — Dividends ($0.08 per share) — — — — — — — — — — (13,400) — (13,400) Stock-based compensation expense under the PRSU Plan — — — — — — — — 5,407 — — — 5,407 Stock-based compensation expense under the RSU Plan — — — — — — — — 315 — — — 315 Stock-based compensation expense under the Option Plan — — — — — — — — 2,249 — — — 2,249 Payroll taxes paid for stock-based compensation exercises — — — — — — — — (23,991) — — — (23,991) Net income — — — — — — — — — 43,928 18,557 62,485 Foreign currency translation adjustments — — — — — — — — — (3,552) — (1,232) (4,784) Balance at March 31, 2020 70,670,440 $ 1 96,933,192 $ 1 7,389,983 $ — 49,871,231 $ — $ 3,426,625 $ (2,179) $ 78,361 $ 1,186,039 $ 4,688,848 Activities related to the follow-on offering and other exchanges of LLC Interests, net of offering costs and cancellations 17,747,968 — — — (2,279,992) — (15,467,976) — (1,406) — — — (1,406) Issuance of common stock from equity incentive plans 2,223,700 — — — — — — — 27,197 — — — 27,197 Tax receivable agreement liability and deferred taxes arising from LLC Interest ownership exchanges — — — — — — — — 127,846 — — — 127,846 Adjustments to non-controlling interests — — — — — — — — 379,623 (249) — (379,374) — Distributions to non-controlling interests — — — — — — — — — — — (3,605) (3,605) Dividends ($0.08 per share) — — — — — — — — — — (14,483) — (14,483) Stock-based compensation expense under the PRSU Plan — — — — — — — — 7,392 — — — 7,392 Stock-based compensation expense under the RSU Plan — — — — — — — — 1,675 — — — 1,675 Stock-based compensation expense under the Option Plan — — — — — — — — 1,279 — — — 1,279 Payroll taxes paid for stock-based compensation exercises — — — — — — — — (47,672) — — — (47,672) Net income — — — — — — — — — — 30,496 11,912 42,408 Foreign currency translation adjustments — — — — — — — — — (265) — (71) (336) Balance at June 30, 2020 90,642,108 $ 1 96,933,192 $ 1 5,109,991 $ — 34,403,255 $ — $ 3,922,559 $ (2,693) $ 94,374 $ 814,901 $ 4,829,143 Members'
CapitalClass A
Common StockClass B
Common StockClass C
Common StockClass D
Common StockAdditional
Paid-In
CapitalAccumulated
Other
Comprehensive
Income (Loss)Retained
EarningsNon-
Controlling
InterestsTotal
Stockholders'
EquityShares Amount Shares Amount Shares Amount Shares Amount Balance at Balance at December 31, 2018 4,573,200 — $ — — $ — — $ — — $ — $ — $ (866) $ — $ — $ 4,572,334 Adjustment to Class C Shares and Class P(C) shares in mezzanine capital (2,369) — — — — — — — — — — — — (2,369) Capital distributions (20,000) — — — — — — — — — — — — (20,000) Stock-based compensation 4,674 — — — — — — — — — — — — 4,674 Net income 42,352 — — — — — — — — — — — — 42,352 Foreign currency translation adjustments — — — — — — — — — — 988 — — 988 Balance at March 31, 2019 4,597,857 — $ — — $ — — $ — — $ — $ — $ 122 $ — $ — $ 4,597,979 Capital distributions (100,000) — — — (100,000) Effect of the reorganization transactions (4,497,857) — — — — — — — — 4,521,132 — — — 23,275 Issuance of common stock, net of offering costs and cancellations — 46,000,000 — 96,933,192 1 10,006,269 — 69,282,736 1 (15,856) — — — (15,854) Tax receivable agreement liability and deferred taxes arising from the reorganization transactions and IPO — — — — — — — — — (78,232) — — — (78,232) Allocation of equity to non-controlling interests — — — — — — — — — (1,607,529) — — 1,607,529 — Adjustments to non-controlling interests — — — — — — — — — — — — Distributions to non-controlling interests — — — — — — — — — — — — (11,909) (11,909) Dividends ($0.08 per share) — — — — — — — — — — — (11,435) — (11,435) Stock-based compensation expense under the PRSU Plan — — — — — — — — — 6,763 — — — 6,763 Stock-based compensation expense under the Option Plan — — — — — — — — — 20,403 — — — 20,403 Net income — — — — — — — — — — — 12,828 11,988 24,816 Foreign currency translation adjustments — — — — — — — — — — (647) — (359) (1,006) Balance at June 30, 2019 $ — 46,000,000 $ — 96,933,192 $ 1 10,006,269 $ — 69,282,736 $ 1 $ 2,846,681 $ (525) $ 1,393 $ 1,607,249 $ 4,454,800 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Cash flows from operating activities Net income $ 104,893 $ 67,168 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 75,095 67,795 Stock-based compensation expense 18,317 31,960 Deferred taxes 22,208 (3,596) (Increase) decrease in operating assets: Receivable from/payable to brokers and dealers and clearing organizations, net 64 3,290 Deposits with clearing organizations (1,323) (1,965) Accounts receivable (11,162) (5,756) Receivable from/payable to affiliates, net 2,885 1,477 Other assets (10,591) (8,825) Increase (decrease) in operating liabilities: Accrued compensation (46,143) (51,569) Deferred revenue 3,457 (2,613) Accounts payable, accrued expenses and other liabilities 6,258 (3,661) Employee equity compensation payable 595 (16,732) Net cash provided by operating activities 164,553 76,973 Cash flows from investing activities Purchase of furniture, equipment, software and leasehold improvements (4,382) (3,793) Capitalized software development costs (14,798) (13,914) Net cash used in investing activities (19,180) (17,707) Cash flows from financing activities Pre-IPO capital distributions — (120,000) Proceeds from stock-based compensation exercises 62,619 — Proceeds from issuance of Class A common stock in the IPO and follow-on offerings, net of underwriting discounts 626,267 1,161,270 Purchase of LLC Interests (626,267) (1,161,270) Offering costs from issuance of Class A common stock in the IPO and follow-on offerings (1,637) (12,306) Dividends (27,883) (11,435) Capital distributions to non-controlling interests (3,605) (11,909) Payroll taxes paid for stock-based compensation exercises (71,663) — Net cash used in financing activities (42,169) (155,650) Effect of exchange rate changes on cash and cash equivalents (4,026) (138) Net increase (decrease) in cash and cash equivalents 99,178 (96,522) Cash and cash equivalents and restricted cash Beginning of period 461,711 411,304 End of period $ 560,889 $ 314,782 Supplemental disclosure of cash flow information Income taxes paid $ 4,970 $ 24,989 Non-cash financing activities Items arising from LLC Interest ownership changes Establishment of liabilities under tax receivable agreement $ 132,136 $ 171,426 Deferred tax asset $ 292,718 $ 93,194 Reconciliation of cash, cash equivalents and restricted cash as shown on the statements of financial condition: June 30,
2020December 31,
2019Cash and cash equivalents 559,889 460,711 Restricted cash 1,000 1,000 Cash, cash equivalents and restricted cash shown in the statement of cash flows $ 560,889 $ 461,711 Page formedincorporated as a Delaware corporation on November 7, 2018. The Corporation was formed2018 for the purpose of completing certain reorganization transactions in order to carry on the business of Tradeweb Markets LLC (“TWM LLC”) and conducting an initial public offering (“IPO”).On April 8, 2019, the Corporation closed an IPO of 46,000,000 shares of Class A common stock at a public offering price of $27.00, which includes 6,000,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock. as described below under “—Initial Public Offering” and “—Reorganization Transactions.”received $1,161,270,000is a consolidating subsidiary of BCP York Holdings, (“BCP”) a company owned by certain investment funds affiliated with The Blackstone Group Inc. (f/k/a The Blackstone Group L.P.) (“Blackstone”), through BCP’s majority ownership interest in net proceeds, after deducting underwriting discountsRefinitiv Holdings Limited (the “Parent” and, commissions but before deducting offering expenses, which were used to purchase membership interestsunless otherwise stated or the context otherwise requires, together with all of TWM LLC from certain existing equityholdersits subsidiaries, “Refinitiv”). As of TWM LLC (and cancelledJune 30, 2020, Refinitiv owns a majority ownership interest in the corresponding shares of common stock as described below), at a purchase price per interest equal to the public offering price of $27.00, less the underwriting discounts and commissions payable thereon. Subsequent to the Reorganization TransactionsCompany (as defined in note 4) that occurred after March 31, 2019, thebelow).the sole managera holding company whose principal asset is LLC Interests (as defined below) of TWM LLC. As the sole manager of TWM LLC, the Corporation operates and controls all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conducts the Corporation’s business. As a result of this control, and because the Corporation has a substantial financial interest in TWM LLC, the Corporation will consolidateconsolidates the financial results of TWM LLC and reportreports a non-controlling interest in the Corporation’s consolidated financial statements.2.Summary of Significant Accounting PoliciesBasis of AccountingThe statements of financial condition are presented in accordance with accounting principles generally accepted in the United States of America. Separate statements of operations, comprehensive income, changes in stockholder’s equity and cash flows have not been presented in the financial statements because, as of March 31, 2019, there have been no activities in this entity other than the initial capitalization.3.Stockholder’s EquityMarch 31, 2019, the Corporation was authorized to issue 1,000 shares of Common Stock, par value $0.01 per share. The Chief Executive OfficerJune 30, 2020, Tradeweb Markets Inc. owns 82.6% of TWM LLC wasand the sole shareholderContinuing LLC Owners (defined below) own the remaining 17.4% of TWM LLC.CorporationReorganization Transactions (as defined below), and contributed $100TWM LLC and its consolidated subsidiaries prior to the Corporation on November 7, 2018 to purchase 100 sharescompletion of common stock. Holdersthe Reorganization Transactions.common stock were entitled to one voteclients across the institutional, wholesale and retail client sectors. The Company’s principal subsidiaries include:each sharethe Financial Markets (“AFM”).closed ancompleted its IPO of 46,000,000 shares of Class A common stock, par value $0.00001 per share, of the Corporation (the “Class A common stock”) at a public offering price of $27.00, which includesincluded 6,000,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock. The Corporation received $1,161,270,000$1.2 billion in net proceeds, after deducting underwriting discounts and commissions but before deducting offering expenses, which were used to purchase membership interests of TWM LLC from certain existing equity holders of the Bank Stockholders (as defined below)TWM LLC (and cancel the corresponding shares of common stock)stock were cancelled as described below), at a purchase price per interest equal to the public offering price of $27.00, less the underwriting discounts and commissions payable thereon.Tradeweb Markets Inc.Notes to Statements of Financial Condition(Unaudited)following parties:· The Ownersowners of TWM LLC prior to the Reorganization Transactions including an indirect subsidiary (the “Refinitiv(collectively, the “Original LLC Owner”) of Refinitiv Holdings Limited (“Refinitiv”Owners”), including the following parties: and ;management, that continued to own LLC Interests (as defined below) immediatelymanagement;the closing of the IPO and who received shares of the Corporation’s Class C common stock, shares of the Corporation’s Class D common stock orJune 28, 2019, a combination of both, as the case may be (collectively, the “Continuing LLC Owners”); and· An indirectdirect subsidiary (the “Refinitiv Direct Owner” and, together with the Refinitiv LLC Owner, the “Refinitiv Owners”) of Refinitiv that owned interests in an entity that held membership interests of TWM LLC prior to the Reorganization Transactions and contributed such entity to the Corporation (the “Refinitiv Contribution”).·ofin TWM LLC’s existing equityholdersLLC for LLC Interests and (iii) appoint the Corporation as the sole manager of TWM LLC.The TWM LLC Agreement also 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 the Corporation and the number of LLC Interests owned by the Corporation and (ii) a one-to-one ratio between the number of shares of Class C common stock and Class D common stock issued by the Corporation and the number of LLC Interests owned by the holders of such Class C common stock and Class D common stock;· See Note 8 – Stockholders’ Equity.Amount Licenses $ 168,800 Tradename 154,300 Total $ 323,100 June 30, 2020 December 31, 2019 Cost Cost Customer relationships 12 years $ 928,200 $ (135,363) $ 792,837 $ 928,200 $ (96,687) $ 831,513 Content and data 7 years 154,400 (38,600) 115,800 154,400 (27,572) 126,828 $ 1,082,600 $ (173,963) $ 908,637 $ 1,082,600 $ (124,259) $ 958,341 Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019(in thousands) (in thousands) Variable Fixed Variable Fixed Revenues Transaction fees $ 96,389 $ 25,757 $ 79,577 $ 24,375 Subscription Fees including Refinitiv market data fees 415 49,156 435 47,516 Commissions 28,141 9,974 26,635 9,778 Other 237 2,038 302 1,867 Gross revenue $ 125,182 $ 86,925 $ 106,949 $ 83,536 Six Months Ended
June 30, 2020Six Months Ended
June 30, 2019(in thousands) (in thousands) Variable Fixed Variable Fixed Revenues Transaction fees $ 211,726 $ 51,244 $ 158,492 $ 48,100 Subscription Fees including Refinitiv market data fees 880 97,802 890 95,122 Commissions 60,582 20,026 50,945 19,665 Other 347 4,106 605 3,458 Gross revenue $ 273,535 $ 173,178 $ 210,932 $ 166,345 Amount Deferred revenue balance - December 31, 2019 $ 23,990 New billings 58,151 Revenue recognized (54,713) Deferred revenue balance - June 30, 2020 $ 27,428 Votes Class A common stock $ 0.00001 1 Yes Class B common stock $ 0.00001 10 Yes Class C common stock $ 0.00001 1 No Class D common stock $ 0.00001 10 No Tradeweb Markets Inc.NotesStatementstime exchange all or a portion of Financial Condition(Unaudited)one1 share of Class A common stock and each share of Class D common stock will automatically convert into one1 share of 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 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 below (in which case their shares of Class C common stock will be cancelled on a one-for-one basis upon such issuance).· The Corporation assumed sponsorship of an option plan and PRSU plan formerly sponsored by TWM LLC. Accordingly, all options and PRSUs granted under such plans were converted into economically equivalent awards of Corporation with respect to shares of the Corporation’s Class A common stock;· The Corporation’s board of directors adopted a new omnibus equity incentive plan,the Omnibus Equity Plan, under which equity awards may be made in respect of shares of the Corporation’s Class A common stock;·stock. It also assumed sponsorship of the Option Plan and a PRSU plan formerly sponsored by TWM LLC. See Note 10 – Stock-Based Compensation Plans.Shares Class A 146,333 Class C 447 Class P (A) 6,887 Class P (C) 2 Class P-1 (A) 6,094 Class P-1 (C) 232 issued 20,000,000and the number of LLC Interests owned by the Corporation and (ii) a one-to-one ratio between the number of shares of Class C common stock and 105,289,005 shares of Class D common stock toissued by the Continuing LLC Owners, on a one-to-one basis withCorporation and the number of LLC Interests they owned immediately followingby the amendment and restatement of the TWM LLC Agreement for nominal consideration (the Corporation canceled 9,993,731 sharesholders of such Class C common stock and 36,006,269 shares of such Class D common stockstock.connectionaccordance with the Corporation’s purchase ofTWM LLC Interests from certain of the Bank Stockholders using the net proceeds of the IPO).LLC Interests are redeemable,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). TheIn the event of such election by a Continuing LLC Owner, the Corporation may, at its option, effect a direct exchange of Class A common stock or Class B common stock for such LLC Interests of such Continuing LLC Owner in lieu of such redemption. In addition, the Corporation’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 HoldersClass D common stock may also from time to time exchange all or a portion of their shares of 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;·Common StockRefinitiv 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 the Corporation’s Class B common stock for newlyCorporation issued 20,000,000 shares of Class AC common stock on a one-for-one basis (in which case theirand 105,289,005 shares of Class BD common stock will be cancelled on a one-for-one basis upon any such issuance); andTradeweb Markets Inc.Notes to Statements of Financial Condition(Unaudited)· The Corporation entered into a Tax Receivable Agreement with TWM LLC and the ContinuingOriginal LLC Owners that provides forreceived LLC Interests on a one-to-one basis with the payment bynumber of LLC Interests they owned immediately following the Corporation to a Continuing LLC Owner of 50%amendment and restatement of the amountTWM LLC Agreement for nominal consideration (the Corporation subsequently cancelled 9,993,731 shares of U.S. federal, statesuch Class C common stock and local income or franchise tax savings, if any, that36,006,269 shares of such Class D common stock in connection with the Corporation 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) theCorporation’s purchase of LLC Interests from such Continuing LLC Ownercertain of the Bank Stockholders using the net proceeds of the IPO or any future offering or (b) redemptions or exchanges by such Continuing LLC Owner of LLC Interests for shares of Class A common stock or Class B common stock or for cash, as applicable, and (ii) certain other tax benefits related to the Corporation making payments under the Tax Receivable Agreement.Corporation owns 64.3%investors in the IPO collectively owned 46,000,000 shares of Class A common stock, representing 2.7% of the combined voting power of all of the Corporation’s common stock and, through the Corporation’s ownership of LLC Interests, 20.7% of the economic interest in TWM LLC. TheLLC; (ii) the Refinitiv Direct Owner owned 96,933,192 shares of Class B common stock, representing 56.4% of the combined voting power of all of the Corporation’s common stock and, through the Corporation’s ownership of LLC Interests, 43.6% of the economic interest in TWM LLC; (iii) the Refinitiv LLC Owner owned 22,988,329 shares of Class D common stock, representing 13.4% of the combined voting power of all of the Corporation’s common stock, and 22,988,329 LLC Interests, representing 10.3% of the economic interest in TWM LLC, (iv) the Continuing LLC Owners (other than the Refinitiv LLC Owner) collectively owned 10,006,269 shares of Class C common stock and 46,294,407 shares of Class D common stock, representing 27.5% of the combined voting power of all of the Corporation’s common stock, and 56,300,676 LLC Interests, representing 25.3% of the economic interest in TWM LLC; and (v) the Corporation owned 142,933,192 LLC Interests, representing 64.3% of the economic interest in TWM LLC.owncollectively owned 5,109,991 shares of the remaining 35.7% of TWM LLC.On May 8, 2019, the Corporation’s board of directors declared a cash dividend of $0.08 per share ofCompany's Class AC common stock and 11,285,182 shares of the Company's Class BD common stock, forrepresenting 8.4% of the second quartercombined voting power of 2019. This dividend will be payable on June 15, 2019 to stockholders of record as of June 1, 2019.There were no other subsequent events requiring adjustment to the financial statements or disclosure.LLCInc.’s issued and SubsidiariesConsolidated Statements of Financial Condition(in thousands)(Unaudited)
2019
2018The accompanying notes are an integral part of these consolidated financial statements.LLC and SubsidiariesConsolidated StatementsInc., owned 7.2% of Income(the economic interest in thousands, except share and per share data)(Unaudited)
Ended
March 31,
2019
Ended
March 31,
2018The accompanying notes are an integral part of these consolidated financial statements. SubsidiariesConsolidated Statements of Comprehensive Income(in thousands)(Unaudited)The accompanying notes are an integral part of these consolidated financial statements.Tradeweb Markets LLC and SubsidiariesConsolidated Statements of Changes in Members’ Capital and Accumulated Other Comprehensive Income(in thousands)(Unaudited)
Capital
Other
Comprehensive
Loss
Members’
Capital
Capital
Other
Comprehensive
Income
Members’
CapitalThe accompanying notes are an integral part of these consolidated financial statements.Tradeweb Markets LLC and SubsidiariesConsolidated Statements of Cash Flows(in thousands)(Unaudited)
Ended
March 31, 2019
Ended
March 31, 2018The accompanying notes are an integral part of these consolidated financial statements.Tradeweb Markets LLC and SubsidiariesConsolidated Statements of Cash Flows — (Continued)(in thousands)(Unaudited)
Ended
EndedThe following table provides a reconciliation of cash and cash equivalents and restricted cash that sum to the amounts shown in the consolidated statements of cash flows:
Ended
EndedThe accompanying notes are an integral part of these consolidated financial statements.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)1.OrganizationTradeweb Markets LLC (the “Company”) is a leader in building and operating electronic marketplaces for a global network of clients across the institutional, wholesale and retail client sectors.The Company, a Delaware limited liability company, is a consolidating subsidiary of BCP York Holdings (“BCP”), a company owned by certain investment funds affiliated with The Blackstone Group L.P., through BCP’s majority ownership interest in Refinitiv Holdings Limited (“Refinitiv” or the “Parent”). As of March 31, 2019, Refinitiv owned a majority ownership interest in the Company and a minority ownership interest of the Company was owned by a group of investment and commercial banks (the “Banks”).A majority interest of Refinitiv (formerly the Thomson Reuters Financial & Risk Business) was acquired by BCP on October 1, 2018 (the “Refinitiv Transaction”) from Thomson Reuters Corporation (“TR”). The accompanying consolidated financial statements are presented for two periods: predecessor and successor, which relate to the periods preceding and succeeding the Refinitiv Transaction, respectively. The Refinitiv Transaction results in a new basis of accounting beginning on October 1, 2018 and the financial reporting periods are presented as follows:· The successor period of the Company, reflecting the Refinitiv Transaction, as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019.· The predecessor period of the Company for the three months ended March 31, 2018.The Company, through its subsidiary Tradeweb Global LLC (“TWG”), owns:· Tradeweb LLC (“TWL”), a registered broker-dealer under the Securities Exchange Act of 1934, a member of the Financial Industry Regulatory Authority (“FINRA”), a registered independent introducing broker with the Commodities Future Trading Commission (“CFTC”) and a member of the National Futures Association (“NFA”).· Tradeweb Europe Limited (“TEL”), a Multilateral Trading Facility regulated by the Financial Conduct Authority (the “FCA”) in the UK, which maintains branches in Asia which are regulated by certain Asian securities regulators.· TW SEF LLC (“TW SEF”), a Swap Execution Facility (“SEF”) regulated by the CFTC.· DW SEF LLC (“DW SEF”), a SEF regulated by the CFTC.· Tradeweb Japan K.K. (“TWJ”), a security house regulated by the Japanese Financial Services Agency (“JFSA”) and the Japan Securities Dealers Association (“JSDA”).· Tradeweb EU B.V. (“TWEU”), a Trading Venue and Approved Publication Arrangement regulated by the Netherlands Authority for the Financial Markets (“AFM”).The Company, through its subsidiary Tradeweb IDB Markets Inc. (“TWIDB”) (formerly known as Hydrogen Holdings Corporation), owns Dealerweb Inc. (“DW”) (formerly known as Hilliard Farber & Co., Inc.). DW is a registered broker-dealer under the Securities Exchange Act of 1934 and a member of FINRA. DW is also registered as an introducing broker with the CFTC and NFA.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)The Company, through its subsidiary BondDesk Group LLC, owns Tradeweb Direct LLC (“TWD”) (formerly known as BondDesk Trading LLC), a registered broker-dealer under the Securities Exchange Act of 1934 and a member of FINRA.2.Significant Accounting PoliciesThe following is a summary of significant accounting policies:Basis of AccountingThe consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States of America. All adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented, are normal and recurring in nature.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the difference may be material to the consolidated financial statements.Basis of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.RecapitalizationAs discussed in note 18, on April 4, 2019, the Company’s limited liability company agreement (“LLC Agreement”) was amended and restated to, among other things, (i) provide for a new single class of common membership interests in the Company (“LLC Interests”) and (ii) exchange all of the existing membership interests of the Company’s existing equityholders for LLC Interests. For purposes of calculating net income per share on the consolidated statements of income, the number of outstanding shares have been adjusted retroactively for all periods to reflect the above-mentioned amendment and resulting recapitalization. Other share amounts and related disclosures in the notes to the consolidated financial statements reflect the share classes and amounts prior to the recapitalization unless otherwise indicated.Cash and Cash EquivalentsCash and cash equivalents consists of cash and highly liquid investments (such as short-term money market instruments) with original maturities of less than three months.Allowance for Doubtful AccountsThe Company continually monitors collections and payments from its clients and maintains an allowance for doubtful accounts. The allowance for doubtful accounts is based upon the historical collection experience and specific collection issues that have been identified. Additions, if any, to the allowance for doubtful accounts are charged to bad debt expense, which is included in general and administrative expenses on the consolidated statements of income.Furniture, Equipment, Purchased Software and Leasehold ImprovementsFurniture, equipment, purchased software and leasehold improvements are carried at cost less accumulated depreciation. Depreciation for furniture, equipment and purchased software, including the allocated fair value of assets as a result of pushdown accounting (see note 3), is computed on a straight-line basis over the estimated useful lives of the related assets, ranging from three to seven years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the leasehold improvements or the remaining term of the lease for office space.and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)Software Development CostsThe Company capitalizes costs associated withconsolidates the developmentfinancial results of internal use software at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed, in accordance with Accounting Standards Codification (“ASC”) 350. The Company capitalizes employee compensation and related benefits and third party consulting costs incurred during the application development stage which directly contribute to such development. Once the product is ready forTWM LLC into its intended use, such costs are amortized on a straight-line basis over three years. Costs capitalized as part of the pushdown accounting allocation (see note 3) are amortized over nine years. The Company reviews the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable, or that their useful lives are shorter than originally expected. Non-capitalized software costs and routine maintenance costs are expensed as incurred.Intangible AssetsIntangible assets with a finite life are amortized over the estimated lives in accordance with ASC 350. Intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable in accordance with ASC 360. Intangible assets with an indefinite useful life are tested for impairment at least annually. An impairment loss is recognized if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding fair value. Intangible assets are amortized over their estimated useful lives of seven to sixteen years.GoodwillGoodwill is the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company under pushdown accounting. Goodwill is also the cost of acquired companies in excess of the fair value of identifiable net assets at acquisition date. Goodwill is not amortized, but in accordance with ASC 350, goodwill is tested for impairment annually and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. In 2019, the Company changed the annual date on which goodwill is tested for impairment from July 1st to October 1st to align with the annual impairment testing date of the Company’s Parent. This change did not accelerate, delay, avoid or cause an impairment charge, nor does this change result in adjustments to the Company’s previously issuedconsolidated financial statements. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. An impairment loss is recognized if the estimated fair value of a reporting unit is less than its net book value. Such loss is calculated as the difference between the estimated fair value of goodwill and its carrying value.Deferred IPO CostsIn 2018 the Company began incurring costs in connection with the filing of a Registration Statement on Form S-1, which are deferred in other assets in accordance with ASC 505-10-25 in the consolidated statements of financial condition. Initial public offering (“IPO”) costs consist of legal, accounting, and other costs directly related to the Company’s efforts to raise capital through an IPO. These deferred costs were offset against proceeds received from the offering which closed on April 8, 2019 and will be reclassified to additional paid-in capital on the consolidated statements of financial condition. See note 18.Translation of Foreign CurrencyRevenues and expenses denominated in foreign currencies are translated at the rate of exchange prevailing at the transaction date. Assets and liabilities denominated in foreign currencies are translated at the rate prevailing at the consolidated statements of financial condition date. Foreign currency re-measurement gains or losses on transactions in nonfunctional currencies are recognized in the consolidated statements of income. Gains or losses on translation in the financial statements of a non-U.S. operation, when the functional currency is other than the U.S. dollar, are included as a component of comprehensive income.Income TaxCompany is a multiple member limited liability company which is taxed as a partnership. No federal income tax provision is required on the earnings of the Company as it is a partnership, and therefore the tax effects of its activities accrue directly to its partners. As a partnership, the Company and certain subsidiaries are subject to unincorporated business taxes on income earned, or losses incurred, by conducting business inTradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)certain state and local jurisdictions and income taxes in foreign jurisdictions on certain of their operations. Additionally, TWIDB and its subsidiary DW are C Corporations and therefore incur corporate federal, state and local income tax expense. Income taxes are accounted for in accordance with ASC 740. The Company recorded deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company measures deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse. Based on the weight of the positive and negative evidence considered, management believes that it is more likely than not that the Company will be able to realize its deferred tax assets in the future, therefore, no valuation allowance is necessary.The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.The Company recognizes interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income. Accrued interest and penalties are included within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition.The Company has elected to treat taxes due on future U.S. inclusions in taxable income under the GILTI provision as a current period expense when incurred.Revenue RecognitionThe Company earns transaction fees from transactions executed on the Company’s trading platforms through various fee plans. Transaction fees are generated both on a variable and fixed price basis and vary by geographic region, product type and trade size. For variable transaction fees, the Company charges clients fees based on the mix of products traded and the volume of transactions executed. Transaction fee revenue is recorded at a point in time when the trade occurs and is generally billed monthly.The Company earns subscription fees from granting access to institutional investors to the Company’s electronic marketplaces. Subscription fees are recognized into income in the period that access is provided on a monthly basis. Also included in subscription fees on the consolidated statements of income are viewer fees earned monthly from institutional investors accessing fixed income market data. The frequency of subscription fee billings varies from monthly until annually, depending on contract terms. Fees received by the Company which are not yet earned are included in deferred revenuenon-controlling interests balance reported on the consolidated statements of financial condition untilrepresents the revenue recognition criteria has been met.The Company earns commission revenue from its electronic and voice brokerage services on a riskless principal basis. Riskless principal revenues are derived on matched principal transactions where revenues are earned on the spread between the buy and sell priceeconomic interests of the transacted product. Securities transactions and related commission income for brokerage transactions are recorded on a trade-date basis. This income is receivedTWM LLC held by the Company when the transactions settleholders of LLC Interests other than Tradeweb Markets Inc. Income or loss is billed monthly.The Company earns fees from Refinitiv, formerly TR in the predecessor periods, relatingattributed to the sale of market data to Refinitiv, which redistributes that data. Included in these fees, which are billed quarterly, are real-time market data fees which are recognized in the period that the data is provided, generally on a monthly basis and historical data sets which are recognized when the historical data set is provided to Refinitiv.On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the measurement or recognition of revenue in any prior reporting periods. However, subsequent to the adoption,Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)the Company was required to make significant judgements for the Refinitiv market data fees. Significant judgements used in accounting for this contract include:· The provision of real-time market data feeds and annual historical data sets are distinct performance obligations.· The performance obligations under this contract are recognized over time from the initial delivery of the data feeds or each historical data set until the end of the contract term.· Determining the transaction price for the performance obligations by using a market assessment analysis. Inputs in this analysis include a consultant study which determined the overall value of the Company’s market data and pricing information for historical data sets provided by other companies.Some commission and transaction fees earned by the Company have fixed fee components, such as monthly minimums or fixed monthly fees, and variable components, such as transaction based fees. The breakdown of revenues between fixed and variable revenues, in thousands, for the three months ended March 31, 2019 and 2018 is as follows:
March 31, 2019
March 31, 2018Share-Based CompensationThe Company accounts for share-based compensation in accordance with ASC 718. ASC 718 focuses primarily on accounting for a transaction in which an entity obtains employee services in exchange for share-based payments. Under ASC 718, the share-based payments received by the employees of the Company are accounted for either as equity awards or as liability awards.As an equity award, the Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments based on their estimated fair values measured as of the grant date. These costs are recognized as an expense over the requisite service period, with an offsetting increase to members’ capital.As a liability award, the cost of employee services received in exchange for an award of equity instruments is generally measurednon-controlling interests based on the grant-date fair valuerelative ownership percentages of the award. The fair value of that award is remeasured subsequently at each reporting date through the settlement in accordance with ASC 505. Changes in the equity instrument’s fair valueLLC Interests held during the requisite service period are recognized as compensation cost over that period.Under ASC 718, the grant-date fair value of share-based awards that do not require future service (i.e., vested awards) are expensed immediately. The grant-date fair value of share-based employee awards that require future service, and are graded-vesting awards, are amortized over the relevant service period on a straight-line basis, with each tranche separately measured. The grant-date fair value of share-based employee awards that require both future serviceby Tradeweb Markets Inc. and the achievementother holders of Company performance-based conditions, are amortized overLLC Interests.relevant service period for the performance-based condition. Ifownership interest in a reporting period it isJune 30, 2020 June 30, 2019 LLC
InterestsOwnership
%LLC
InterestsOwnership
%Number of LLC Interests held by Tradeweb Markets Inc. 187,575,300 82.6 % 142,933,192 64.3 % Number of LLC Interests held by non-controlling interests 39,513,246 17.4 % 79,289,005 35.7 % Total LLC Interests outstanding 227,088,546 100.0 % 222,222,197 100.0 % and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)determined that the achievement of a performance target for a performance-based tranche is not probable, then no expense is recognized for that tranche and any expenses already recognized relating to that tranche in prior reporting periods are reversed in the current reporting period.Determining the appropriate fair value model and calculating the fair value of the share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment awards and the stock price volatility. The Company uses the Black-Scholes pricing model to value some of its share-based awards. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Company’s consolidated statements of income.Net Income Per ShareBasic net income per share is computed by dividing the net income attributable to the Company’s sharesInterests held by the weighted-average number of the Company’s shares outstanding during the period. For purposes of computing diluted net income per share, the weighted-average number of the Company’s shares reflects the dilutive effect that could occur if convertible securities were converted into or exercised for the Company’s shares using the treasury stock method.Fair Value MeasurementThe fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Instruments that the Company owns (long positions)Continuing LLC Owners are marked to bid prices, and instruments that the Company has sold, but not yet purchased (short positions), are marked to offer prices. Fair value measurements do not include transaction costs.The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:Basis of Fair Value MeasurementLevel 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly;Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.Recent Accounting PronouncementsIn June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. The ASU provides new guidance for estimating credit losses on certain types of financial instruments by introducing an approach based on expected losses. This ASU is effective in the fiscal year beginning January 1, 2020. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other. The ASU simplifies the quantitative goodwill impairment test by eliminating the second step of the test. Under this ASU, impairment will be measured by comparing the estimated fair value of the reporting unit with its carrying value. The ASU is applicable for the Company in the fiscal year beginning January 1, 2021. The CompanyTradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)does not anticipate the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.3.Pushdown AccountingThe Refinitiv Transaction was accounted for by Refinitivredeemable in accordance with the acquisition method of accounting pursuant to ASC 805, and pushdown accounting was applied to Refinitiv to recordTWM LLC Agreement at the fair valueelection of the assets and liabilitiesmembers for shares of RefinitivClass A common stock or Class B common stock, on a 1-for-one basis or, at the dateCompany's option, a cash payment in accordance with the terms of the Refinitiv Transaction. TWM LLC Agreement. See Note 8 – Stockholders’ Equity.Company, as a consolidating subsidiary of Refinitiv, also accounted forfollowing table summarizes the Refinitiv Transaction using pushdown accounting. Under pushdown accounting, the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company was recorded as goodwill. The Company has one year from the date of the Refinitiv Transaction to finalize these amounts.The adjusted valuations resulted in an increase in depreciation and amortization expense,impact on equity due to the increased carrying value of the Company’s assets and the related increase in depreciation of tangible assets and amortization of intangible assets, and a decrease in occupancy expense as a result of the recognition of a leasehold interest liability.4.LeasesEffective January 1, 2019, the Company adopted ASC 842. This standard requires the Company to recognize a right-of-use asset and a lease liability for all leases with an initial term in excess of twelve months. The Company accounts for an option to extend a lease when the option is reasonably certain to be exercised. The asset reflects the present value of unpaid lease payments coupled with initial direct costs, prepaid lease payments, and lease incentives. The amount of the lease liability is calculated as the present value of unpaid lease payments. The Company adopted ASC 842 using a modified retrospective approach and did not restate comparative periods. The Company elected to take the package of practical expedients allowing the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. The Company has elected to account for nonlease components in a contract as part of the single lease component to which they are related.Significant assumptions and judgements in calculating the right-of-use assets and lease liability include the determination of the applicable borrowing rate for each lease.On January 1, 2019, upon the adoption of ASC 842, the Company recorded, for office space and data center leaseschanges in the US and UK, right-of-use assets of $34,760,000, lease liabilities of $39,635,000 and eliminated deferred rent of $4,875,000. The leases have initial lease terms ranging from 3 to 11 years.Activity related to the Company’s leases for the three months ended March 31, 2019 is as follows (in thousands):Operating lease expense$2 ,589Cash for amounts includedCorporation’s ownership interest in the measurement of operating liability2 ,834Right-of-use assets obtained in exchange for operating liabilities—At March 31, 2019, the weighted average borrowing rate and weighted average lease term are as follows:Weighted average borrowing rate2.9%Weighted average remaining lease term (years)5.9and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)The following table presents the maturity of lease liabilities as of March 31, 2019 (in thousands):At March 31, 2019,Net Income Attributable to Tradeweb Markets Inc. and Transfers (to) from the Non-Controlling Interests Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Net income attributable to Tradeweb Markets Inc. $ 30,496 $ 12,828 $ 74,424 $ 12,828 Transfers (to) from non-controlling interests: Change in non-controlling interests as a result of ownership changes 379,374 (1,607,529) 424,817 (1,607,529) Net transfers (to) from non-controlling interests 379,374 (1,607,529) 424,817 (1,607,529) Change from net income attributable to Tradeweb Markets Inc. and transfers (to) from non-controlling interests $ 409,870 $ (1,594,701) $ 499,241 $ (1,594,701) future minimum lease payments are as follows (in thousands):One US leaseOmnibus Equity Plan, the Company is secured by a letterauthorized to issue up to 8,841,864 new shares of credit in the amount of $1,200,000, which is guaranteed by Refinitiv.5.Intangible Assets and GoodwillIntangible assets and goodwill relate to the allocation of purchase price associated with the Refinitiv Transaction (see note 3).The following is a summary of intangible assets which have an indefinite useful life at both March 31, 2019 and December 31, 2018 (in thousands):Intangible assets that are subject to amortization, including the related accumulated amortization, are comprised as follows (in thousands):
Period
Amortization
Amount
Amortization
AmountFor the three months ended March 31, 2019 and 2018, amortization expense relating to intangible assets was $24,852,000 and $6,506,000, respectively.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)The estimated annual future amortization for existing intangibles assets through December 31, 2023 is as follows (in thousands):6.Deferred RevenueThe Company records deferred revenue when cash payments are received or due in advance of services to be performed. The recognized revenue and remaining balance is shown below (in thousands):7.Income TaxesThe provision for income taxes consists of the following (in thousands):The Company and certain of its subsidiaries are taxed as partnerships for U.S federal income tax purposes. The Company’s effective tax rate was 10.1% and 5.3% for the three months ended March 31, 2019 and 2018, respectively. The Company’s consolidated effective tax rate can vary from period to period depending on the geographic mix of its earnings and changes in tax legislation and tax rates.8.SharesThe Company’s issued and vested shares as of both March 31, 2019 and December 31, 2018 are as follows:Class A Shares146,333Class C Shares447Class P(A) Shares6,887Class P(C) Shares2Class P-1(A) Shares6,094Class P-1(C) Shares232Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)As described in note 18, on April 4, 2019, the LLC Agreement was amended and restated, pursuant to which, among other things, all of the outstanding Class A Shares, Class P(A) Shares, Class P-1(A) Shares, Class C Shares, Class P(C) Sharescommon stock to employees, officers and Class P-1(C) Shares ofnon-employee directors. Under this plan, the Company were exchanged for 222,222,197 LLC Interests.Each formerly outstandingmay grant awards in respect of shares of Class A Share, Class P(A) Share, Class P-1(A) Share, Class C Share, Class P(C) Share and Class P-1(C) Share equally participated in the earnings of the Company. All of these shares could not be transferred without approval by the former Board of Managers of the Company, with the exception of transfers to certain related parties. Most of the Class A and Class P(A) Shareholders had the right to appoint the members of the former Board of Managers. The Class C Shareholders, Class P(C) Shareholders and Class P-1(C) Shareholders did not have the right to appoint members of the former Board of Managers.9.Share-Based Compensation PlansAs of March 31, 2019, the Company maintained a share-based incentive plan (the “PRSU Plan”) which provided for the grant ofcommon stock, including performance-based restricted share units (“PRSUs”), stock options, restricted stock units (“RSUs”) and dividend equivalent rights. The awards may have performance-based and time-based vesting conditions. Stock options have a maximum contractual term of 10 years.encourage employeesissue shares of Class A common stock at the end of a three-year cliff vesting period. The fair value of the Company to participate inequity-settled PRSUs is calculated on the long-term successgrant date using the stock price of the Company.PRSUs vest in the third plan year following the year of grant.Class A common stock. The outstanding PRSUs vest on January 1, 2020, 2021 and 2022. The final number of the PRSUs receivedshares a participant will receive upon vesting is determined byin part based on a performance modifier, which is adjusted as a result ofin accordance with the financial performance of the Company. If an employee’s employment withCompany in the Company is terminated, subject to certain exceptions, all unvested PRSUs are forfeited.reports the activitysummarizes information for equity-settled PRSUs of the Company:
PRSUs
Average
Fair Value
of PRSUsSubsequentPRSUs (Equity-Settled) Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 PRSUs (equity-settled) granted — 6,653 360,609 776,603 Weighted-average grant-date fair value $ — $ 22.19 $ 38.87 $ 22.19 PRSUs (equity-settled) compensation expense (in thousands) $ 7,392 $ 6,894 $ 12,799 $ 11,671 March 31, 2019, in connection with the reorganization transactions described in note 18, the Corporation’s boardbe recognized over a weighted-average period of directors adopted and assumed sponsorship of the Amended & Restated Tradeweb Markets Inc. PRSU Plan, including all awards1.95 years.under the predecessor plancash-settled PRSUs, some of the Company. As a result, the equity-settled PRSUswhich are still outstanding at March 31, 2019, converted into equity-settled PRSUs of the Corporation represented by 2,770,334 shares of Class A common stock of the Corporation.Certain PRSUs are cash-settled and are accounted for as liability awards. The Company measures the cost of employee services received in exchange for the award based on the fair value of the Company and the value of accumulated dividend rights associated with each award. The fair value of that award is remeasured subsequently at each reporting date through to settlement. Changes in the award’saward's fair value during the requisite service period is recognized as compensation cost over that period.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)reports the activitysummarizes information for cash-settled PRSUsPRSUs:PRSUs (Cash-Settled) Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 PRSUs (cash-settled) granted — — — — Weighted-average grant-date fair value $ — $ 63,497 $ — $ 63,497 PRSUs (cash-settled) compensation expense (in thousands) $ 596 $ 419 $ 606 $ 519 Company:
PRSUs
Average
Fair Value
of PRSUsIn October 2018,IPO, the Company made a special award ofawarded options to management and other employees under an option plan (the “Option Plan”).the Option Plan. Each option award vests one half based solely on the passage of time and one half only if the Company achieves certain performance targets. The time vesting portion of the options has a four-year graded vesting schedule, with accelerated vesting for time-based options granted prior to the IPO with vesting dates of January 1, 2019, 2020, 2021 and 2022.(“IPO”) or during a 15-day period following a change in control of the Company. Costs related to these options will be recognized as anCompany (and certain other sales of equity by the Company’s shareholders). As a result, expense in the consolidated statements of income over the requisite service period, when exercisability is considered probable. Therefore expense will be recognized onlyrecognition commenced upon the completion of anthe IPO orin April 2019.Options Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Options granted — — — 181,115 Weighted-average grant-date fair value $ — $ — $ — $ 1.85 Option compensation expense (in thousands) $ 1,279 $ 20,403 $ 3,528 $ 20,403 change in control, over the vestingweighted-average period with an offsetting increase to members’ capital. On April 8, 2019, as a result of the options becoming exercisable because of completion of the Corporation’s IPO,1.86 years.recognized $18,883,000expanded its restricted stock unit (“RSU”) grants under the Omnibus Equity Plan to employees. Previously, RSU grants were limited to non-employee directors. RSUs are promises to issue shares of compensation expense relatedClass A common stock at the end of a vesting period. RSUs granted to these options.options wasRSUs is calculated aton the grant date of grant using the Black-Scholes model. The significant assumptions used to estimate the fair valuestock price of the options as of grant date did not reflect changes that would have occurred to these assumptions as a result of the Corporation’s IPO. See note 18. The significant assumptions used to estimate the fair value of the options were as follows:reports the activitysummarizes information for options held by employeesRSUs:RSUs Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 RSUs granted 28,656 — 493,878 — Weighted-average grant-date fair value $ 39.87 $ — $ 39.79 $ — RSUs compensation expense (in thousands) $ 1,675 $ — $ 1,990 $ — SubsidiariesNotesits affiliates which are considered to Consolidated Financial Statements(Unaudited)Subsequent to March 31, 2019, in connectionbe related party transactions. The Company also enters into transactions with the reorganization transactions described in note 18,Bank Stockholders and their respective affiliates. Prior to the Corporation’s board of directors adopted and assumed sponsorship ofReorganization Transactions, the Amended and Restated Tradeweb Markets Inc. 2018 Share Option Plan, including all awards previously granted under the predecessor planBank Stockholders were collectively considered to be related parties of the Company. As a result the options outstanding at March 31, 2019 converted into 18,137,050 options of the Corporation with respectReorganization Transactions, they are no longer considered to shares of the Corporation’s Class A common stock.As of March 31, 2019, total unrecognized compensation costbe related to non-vested share-based compensation arrangements and the expected recognition period are as follows:
PRSUs
PRSUsCertain employees acquired or vested in Class C Shares, Class P(C) Shares and Class P-1(C) Shares of the Company (collectively, the “Employee Shares”).The Employee Shares outstanding at March 31, 2019 and December 31, 2018 are as follows:
Shares
Shares
SharesOn April 4, 2019, asparties. As a result, the related party transactions listed below include transactions with affiliates of the amendment to the LLC Agreement described in note 18, the Employee Shares outstanding at March 31, 2019 converted into 946,569 LLC Units.The Employee Shares were classified as mezzanine capital, as opposed to members’ capital, due to the right of employees to sell the shares back to the Company at fair value upon termination of employment. Employee Shares that have been outstandingRefinitiv for less than six months were included in employee equity compensation payable. At December 31, 2018, $6,727,000 of vested Class P-1(C) Shares were included in employee compensation payable with any changes in the value of the shares included in compensation cost on the consolidated statements of income. There were no vested Class P-1(C) Shares included in employee compensation payable at March 31, 2019. Changes in the fair value of the Employee Shares included in mezzanine capital were not recognized as compensation cost.For the three months ended March 31, 2019all periods presented and 2018, $4,878,000 and $5,946,000, respectively, has been expensed relating to PRSUs, options and shares and included in employee compensation and benefits in the consolidated statements of income.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)10.Related Party TransactionsThe Company enters intoonly includes transactions with affiliates of the Banks and Refinitiv. Bank Stockholders for pre-IPO periods.March 31, 2019June 30, 2020 and December 31, 2018,2019, the following balances with such affiliates were included in the consolidated statements of financial condition in the following line items (in thousands):June 30, 2020 December 31, 2019 Accounts receivable $ 2,459 $ — Receivable from affiliates 1,482 2,525 Other assets 2,721 2,721 Accounts payable, accrued expenses and other liabilities 537 — Deferred revenue 4,235 4,733 Payable to affiliates 3,164 1,506 Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Revenue: $ — $ — $ 59,643 — — 5,670 — — 16,186 14,565 13,385 29,193 27,001 Interest income — — 858 Technology and communications 740 740 1,480 1,480 General and administrative (620) 191 (596) 371 Occupancy (31) 155 15 310 Refinitiv (TR in the predecessor period).Refinitiv. Under the terms of the agreement, Refinitiv provides the Company with certain real estate, payroll, benefits administration, insurance, content, financial reporting and tax support. For both the three months ended March 31, 2019 and 2018, the Company incurred shared services fees of $1,075,000 relating to this agreement. These fees are included in occupancy, technology and communications and general and administrative expenses in the consolidated statements of income.The Company maintains a market data license agreement with Refinitiv (TR in the predecessor period). Under the agreement, the Company delivers to Refinitiv certain market data feeds which Refinitiv redistributes to its customers. The Company earns license fees or royalties for these feeds. For the three months ended March 31, 2019 and 2018, the Company earned $13,616,000 and $12,237,000, respectively, of revenue under this agreement.Refinitv (TR in the predecessor period)Refinitiv for expenses paid on behalf of the Company for various services including salaries and bonuses, marketing, professional fees, communications, data costs and certain other administrative services. For the three and six months ended March 31,June 30, 2020, the Company reimbursed such affiliates a net amount of approximately $0.9 million and $1.2 million, respectively, for these expenses. For the three and six months ended June 30, 2019, and 2018, the Company reimbursed such affiliates approximately $1,027,000$3.2 million and $6,258,000,$4.2 million, respectively, for these expenses.Forthree months ended March 31,IPO, the October 2019 follow-on offering and 2018, the Company earned approximately $81,499,000April 2020 follow-on offering for fees of $1.0 million, $0.5 million, and $69,769,000,$0.5 million, respectively, which fees, with respect to the October 2019 follow-on offering and theBanks.For the three months ended March 31, 2019 and 2018, the Company earned $208,000 and $21,000, respectively, of interest income from money market funds invested with and savings accounts deposited with affiliates of the Banks. Interest rates earnedunderwriters. $2.0 million is included in additional paid-in capital on the money market and savings accounts are comparable to rates offered to third parties.During 2014, the Company issued Class A Shares and unvested Class P-1(A) Shares to someJune 30, 2020 consolidated statement of the Banks as a result of a $120,000,000 capital contribution. In connection with this investment, employees invested $5,266,000 in the Company and were issued Class C Shares and unvested Class P-1(C) Shares. Certain Class P-1(A) Shares and Class P-1(C) Shares vested on July 31, 2018, based on a formula determined by the Company’s new credit platforms’ revenues and any remaining unvested Class P-1(A) Shares and Class P-1(C) Shares were cancelled and as a result no contingent consideration has been recognizedfinancial condition related to these shares subsequent to that date. The Company recognized contingent consideration for the three months ended March 31, 2018 of $10,070,000 relating to these shares, which is included in net revenue on the consolidated statements of income.Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)11.offering costs.not carried at fair value on the consolidated statements of financial condition are carried at amounts that approximate fair value. These instruments include receivables from/payables to brokers and dealers and clearing organizations, deposits with clearing organizations and accounts receivable.Following is a description of the fair value methodologies used for the Company’s instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:Company’sCompany's money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
active Markets
for Indentical
Assets
(Level 1)
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)12.Successor Total As of June 30, 2020 Assets Money market funds $ 474,845 $ — $ — $ 474,845 $ 474,845 $ — $ — $ 474,845 As of December 31, 2019 Assets Money market funds $ 219,158 $ — $ — $ 219,158 $ 219,158 $ — $ — $ 219,158 The Company may be exposed to credit risk regarding its receivables, which are primarily receivables from financial institutions, including investment managers and broker/dealers. At March 31, 2019 and December 31, 2018 the Company established an allowance for doubtful accounts of $1,253,000 and $1,169,000, respectively, with regard to these receivables.Company’sCompany's transactions are collateralized and executed with, and on behalf of, a limited number of brokers and dealers.broker-dealers. The Company’sCompany's exposure to credit risk associated with the nonperformance of these clients in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair the clients’clients' ability to satisfy their obligations to the Company.Company’sCompany's policy is to monitor its market exposure and counterparty risk. In addition, the Company has aTradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)13.Amount Beginning balance, prior to adoption of ASC 326 - December 31, 2019 $ 195 Current-period provision for expected credit losses 114 Write-offs charged against the allowance (41) Recoveries collected (153) Ending balance - June 30, 2020 $ 115 Company’sCompany's exposure under these user agreements is unknown as this would involve estimating future claims against the Company which have not yet occurred. However, based on its experience, the Company expects the risk of a material loss to be remote.dozens ofother financial institutions, in antitrust class actions (consolidated into two actions) relating to trading practices in United States Treasury securities auctions and, separately, interest rate swaps.auctions. The Company was dismissed fromhas filed a motion to dismiss the interest rate swaps matter andactions, believes it has substantial defenses to the other plaintiff’splaintiff's claims and intends to defend itself vigorously.The Additionally, the Company iswas dismissed from a co-defendant in a matterclass action relating to an interest rate swaps matter in 2017, but that matter continues against the distribution ofremaining defendant financial strength ratings over the Company’s trading platform to one of its customers. The matter alleges that while certain business units of the client were licensed to receive the data via the Company’s platform, the data was also distributed without authorization to certain end clients of the customer. The plaintiff claims to have suffered approximately $80,000,000 in damages and also seeks punitive damages, attorneys’ fees and costs. The Company intends to continue to vigorously defend what the Company believes to be meritless and excessive claims.mattersmatter described above, and therefore does not have any contingency reserves established for any of these matters.Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 EPS: Post-IPO net income attributable to Tradeweb Markets Inc. (in thousands, except share and per share amounts) Numerator: Post-IPO net income attributable to Tradeweb Markets Inc. $ 30,496 $ 12,828 $ 74,424 $ 12,828 Denominator: Weighted average shares of Class A and Class B common stock outstanding - Basic 177,649,501 142,933,192 171,942,125 142,933,192 Dilutive effect of equity-settled PRSUs 2,492,567 2,214,480 2,265,494 2,214,480 Dilutive effect of options 5,168,379 5,699,511 5,694,964 5,699,511 Dilutive effect of RSUs 179,377 — 106,308 — Weighted average shares of Class A and Class B common stock outstanding - Diluted 185,489,824 150,847,183 180,008,891 150,847,183 Earnings per share - Basic $ 0.17 $ 0.09 $ 0.43 $ 0.09 Earnings per share - Diluted $ 0.16 $ 0.09 $ 0.41 $ 0.09 Six Months Ended June 30, 2019 (in thousands, except share and per share amounts) Numerator: Pre-IPO net income attributable to Tradeweb Markets LLC $ 42,352 Denominator: Weighted average LLC Interests outstanding - Basic 222,222,197 Dilutive effect of equity-settled PRSUs 1,098,260 Weighted average LLC Interests outstanding - Diluted 223,320,457 Earnings per share - Basic $ 0.19 Earnings per share - Diluted $ 0.19 SubsidiariesNotesweighted average shares outstanding for the pre-IPO period has been computed to Consolidated Financial Statements(Unaudited)14.Net Income Per ShareOn April 4, 2019,give effect to the Reorganization Transactions, including the amendment and restatement of the TWM LLC Agreement was amended and restated to, among other things, (i) provide for LLC Interests and (ii) exchange all of the then existing membership interests of the Company’s existing equityholdersin TWM LLC for LLC Interests. See note 18. interests.purposes of calculating net income per share on the consolidated statements of income, the number of outstanding shares has been adjusted retroactively for all periods presented to reflect the above-mentioned amendmentthree and resulting recapitalization. The following table sets forth the computation of basic and diluted net income per share:Shares from the contingent consideration payable totaling 5,519,568 for threesix months ended March 31, 2018June 30, 2020, there were approximately 3,500 and 289,563 weighted-average options and RSUs, respectively, that were anti-dilutive. As a result, these shares, which are still outstanding, were excluded from the computation of diluted net incomeearnings per share. For the three and six months ended June 30, 2019, there were approximately 340 weighted-average equity-settled PRSUs that were anti-dilutive and thus excluded from the computation of diluted earnings per share.because their effect wouldfor the post-IPO periods.been anti-dilutive.15.economic rights in Tradeweb Markets Inc. and, therefore, are not participating securities for purposes of the computation of earnings per share.March 31, 2019June 30, 2020 and December 31, 2018,2019, the regulatory capital requirements and regulatory capital for TWL, DW, TWD, TEL, TWJ and TWEU wereare as follows (in thousands):As of June 30, 2020 TWL DW TWD TEL TWJ TWEU Regulatory Capital $ 68,860 $ 56,374 $ 23,037 $ 53,331 $ 11,401 $ 7,044 Regulatory Capital Requirement 1,373 1,506 509 20,331 6,559 1,704 Excess Regulatory Capital $ 67,487 $ 54,868 $ 22,528 $ 33,000 $ 4,842 $ 5,340 As of December 31, 2019 TWL DW TWD TEL TWJ TWEU Regulatory Capital $ 42,317 $ 52,016 $ 33,807 $ 49,611 $ 11,851 $ 6,217 Regulatory Capital Requirement 2,396 2,026 664 21,856 8,565 1,701 Excess Regulatory Capital $ 39,921 $ 49,990 $ 33,143 $ 27,755 $ 3,286 $ 4,516 March 31, 2019June 30, 2020 and December 31, 20182019 are as follows (in thousands):Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)16.Employees Savings PlanThe Company sponsors a 401(k) savings plan for its US employees. Employees may voluntarily contribute up to 75% of their annual compensation, including bonus. The Company matches 100% of the employee’s contribution, up to 4% of their annual compensation, not to exceed the maximum tax deferred amount, which vests immediately. Company’s expense for matching contributions for these plans was $2,436,000 and $2,136,000 for the three months ended March 31, 2019 and 2018, respectively.The Company has deferred compensation plans for its International employees. Employer contributions to the plans were $425,000 and $398,000 for the three months ended March 31, 2019 and 2018, respectively.As of June 30, 2020 As of December 31, 2019 TW SEF DW SEF TW SEF DW SEF Financial Resources $ 28,776 $ 14,202 $ 21,303 $ 13,707 Required Financial Resources 13,500 5,629 10,500 5,505 Excess Financial Resources $ 15,276 $ 8,573 $ 10,803 $ 8,202 Liquid Financial Assets $ 16,572 $ 7,359 $ 18,168 $ 7,583 Required Liquid Financial Assets 6,750 2,815 5,250 2,753 Excess Liquid Financial Assets $ 9,822 $ 4,544 $ 12,918 $ 4,830 pricing and post-trade processing services. The Company’s operations constitute a single business segment because of the integrated nature of these marketplaces and services. Information regarding revenue by client sector is as follows (in thousands):
March 31, 2019
March 31, 2018Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months EndedJune 30, 2020 Six Months EndedJune 30, 2019 Gross revenue: Institutional $ 129,992 $ 111,057 $ 275,604 $ 220,309 Wholesale 43,252 41,945 92,008 81,376 Retail 20,366 19,939 42,042 41,145 Market Data 18,497 17,544 37,059 34,447 Total revenue 212,107 190,485 446,713 377,277 Operating expenses 156,468 159,530 313,459 300,045 Operating income $ 55,639 $ 30,955 $ 133,254 $ 77,232 Asia.Asia regions. Revenues are attributed to geographic area based on the jurisdiction where the underlying transactions take place. The results by geographic region are not meaningful in understanding the Company’sCompany's business. Long-lived assets are attributed to the geographic area based on the location of the particular subsidiary. Information regardingMarch 31,June 30, 2020 and 2019 and 2018 and(in thousands):Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended
June 30, 2020Six Months Ended
June 30, 2019U.S. $ 140,073 $ 122,693 $ 285,329 $ 242,090 International 72,034 67,792 161,384 135,187 Gross Revenue $ 212,107 $ 190,485 $ 446,713 $ 377,277 March 31, 2019June 30, 2020 and December 31, 2018 is as follows2019 (in thousands):Tradeweb Markets LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)June 30,
2020December 31,
2019Long-lived assets U.S. $ 4,145,763 $ 4,200,133 International 12,673 14,100 Total $ 4,158,436 $ 4,214,233 April 3, 2019,July 29, 2020, the Company paid a $100 million distribution to the then current owners of the Company (the “Original LLC Owners”).Prior to the closing of the Corporation’s IPO on April 8, 2019, the Corporation, the Company and the Original LLC Owners, including those Original LLC Owners that continued to own LLC Interests immediately prior to the closing of the IPO and who received shares of the Corporation’s common stock (collectively, the “Continuing LLC Owners”), completed a series of reorganization transactions (the “Reorganization Transactions”).On April 4, 2019, in connection with the IPO and the Reorganization Transactions, the LLC Agreement was amended and restated to, among other things, (i) provide for LLC Interests, a new single class of common membership interests in the Company; (ii) exchange all of the existing membership interests of the Company’s existing equityholders for LLC Interests; and (iii) appoint the Corporation as the sole manager of the Company. As the sole manager of the Company, the Corporation operates and controls all of the business and affairs of the Company and, through the Company and its subsidiaries, conducts the Corporation’s business. As a result of this control, and because, following the completion of the Reorganization Transactions, including the IPO and the application of the proceeds therefrom, the Corporation owns 64.3% of the LLC Interests, the Corporation will consolidate the financial results of the Company and report a non-controlling interest in the Corporation’s consolidated financial statements. The LLC Agreement also requires that the Company at all times maintain (i) a one-to one ratio between the number of shares of the Class A common stock and Class B common stock issued by the Corporation and the number of LLC Interests owned by the Corporation and (ii) a one-to-one ratio between the number of shares of Class C common stock and Class D common stock issued by the Corporation and the number of LLC Interests owned by the holders of such Class C common stock and Class D common stock.LLC Interests are redeemable, 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 Corporation’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 Corporation to make a cash payment equal to the volume weighted average market price of one share of Class A common stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the LLC Agreement.LLC and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)In addition, the Corporation assumed sponsorship of the Option Plan and the PRSU Plan formerly sponsored by the Company. Accordingly, all options and PRSUs granted under such plans were converted into economically equivalent awards of the Corporation with respect to shares of the Corporation’s Class A common stock.On April 8, 2019, the Company entered into a $500 million senior secured revolving credit facility with a five-year term, which includes borrowing capacity available for letters of credit and swingline loans.On May 8, 2019, the CompanyInc. declared a cash distribution of $33,378,019 for the second quarter of 2019. This distribution was paid on May 15, 2019 on a pro rata basis to the equityholders of the Company as of May 9, 2019, including the Corporation, for the purpose of funding the Corporation’s cash dividend of $0.08 per share of Class A common stock and Class B common stock for the third quarter of 2020. This dividend will be payable on JuneSeptember 15, 2019 and2020 to fundstockholders of record as of September 1, 2020.tax liabilitiessole manager, approved a distribution by TWM LLC to its equityholders, including Tradeweb Markets Inc., in an aggregate amount of $27.8 million payable on the equityholders’ allocable shareSeptember 11, 2020.theour unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion of our historical financial position and results of operations does not give effect to the completion of our IPO or the Reorganization Transactions, which are described in the notes to unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.10‑Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by the forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.markets and equities.markets. We are a global company serving clients in 62over 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.37over 40 markets across 2425 currencies, and in 62over 65 countries around the globe. We connect institutional investors with pools of liquidity using our flexible order and trading systems. Our clients trust the integrity of our markets and recognize the value they get by trading electronically: enhanced transparency, competitive pricing, efficient trade execution and regulatory compliance.90100 actively trading on our electronic or hybrid markets with our Dealerweb platform. This platform was launched in 2008 following the acquisition of inter-dealer broker Hilliard Farber & Co., Inc. In 2011, we acquired the brokerage assets of Rafferty Capital Markets. Today, Dealerweb actively competes across a range of rates, credit, derivatives and equity markets.presidential administration.administration and could be further impacted by the results of the upcoming U.S. 2020 elections cycle. The impact of any reform efforts on us and our operations remains uncertain. In addition, as a result of the referendum in favor of the United Kingdom’s withdrawal from the European Union (“Brexit”) in June 2016, which is currently scheduled to occurwithdrawal occurred on OctoberJanuary 31, 2019,2020, we have incurred additional costs to address the potential effects of Brexit, including costs associated with establishing a new regulated subsidiary in the Netherlands. Compliance with regulations may require us to dedicate additional financial and operational resources, which may adversely affect our profitability. In addition, compliance with regulations may require our clients to dedicate significant financial and operational resources, which may negatively affect their ability to pay our fees and use our platforms and, as a result, our profitability. However, under certain circumstances regulation may increase demand for our platforms and solutions, and we believe we are well positioned to benefit from any potential increased electronification due to regulatory changes as market participants seek platforms that meet regulatory requirements and solutions that help them comply with their regulatory obligations. For example, our 2018 revenue increased due in part to increasedhigher trading volumes as a result of, and the introduction of our new Approved Publication Arrangement (“APA”) service in connection with, the implementation of Markets in Financial Instruments Directive II (“MiFID II”) in January 2018.sophisticated systems and infrastructures and new business models. Offering specialized trading venues and solutions through During the three months ended March 31, 2019 and 2018, approximately 30.3% and 29.1%, respectively, of our gross revenue and 15.1% and 16.1%, respectively, of our operating expenses were denominated in currencies other than the U.S. dollar, almost entirely the Euro for gross revenue and the British pound sterling for operating expenses. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations from period to period. In particular, fluctuations in exchange rates for non-U.S. dollar currencies may reduce the U.S. dollar value of revenues, earnings and cash flows we receive from non-U.S. markets, increase our operating expenses (as measured in U.S. dollars) in those markets, negatively impact our competitiveness in those markets or otherwise adversely impact our results of operations or financial condition. Future fluctuations of foreign currency exchange rates and their impact on our results of operations and financial condition are inherently uncertain. As we continue to grow the size of our global operations, these fluctuations may be material.Effect of Pushdown Accounting on our Financial StatementsAs a result of the Refinitiv Transaction, and the application of pushdown accounting, our assets and liabilities were adjusted to their estimated fair values as of October 1, 2018, the closing date of the Refinitiv Transaction. These adjusted valuations resulted in an increase in depreciation and amortization expense, due to the increased carrying value of our assets and the related increase in depreciation of tangible assets and amortization of our intangible assets, and a decrease in occupancy expense as a result of the recognition of a leasehold interest liability. Additionally, the excess of the portion of the total purchase price of the Refinitiv Transaction attributable to the purchase of our assets and liabilities over their estimated fair value as of the closing date of the Refinitiv Transaction was allocated to goodwill. Goodwill is subject to annual impairment testing. Amounts allocated to intangible assets with definite lives are subject to amortization over the estimated useful life of the asset. See “Note 3” to the unaudited consolidated financial statements of Tradeweb Markets LLC included elsewhere in this Quarterly Report on Form 10-Q and “— Critical Accounting Policies and Estimates — Pushdown Accounting.”Due to the change in the basis of accounting resulting from the application of pushdown accounting, the financial information for the period beginning on October 1, 2018, and through and including March 31, 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,” are not necessarily comparable. As discussed above, the new basis of accounting primarily impacted the values of our long-lived and indefinite-lived intangible assets and resulted in increased depreciation and amortization expense and decreased occupancy expense. However, the change in basis resulting from the Refinitiv Transaction and the application of pushdown accounting did not impact revenues, employee compensation and benefits expense, general and administrative expense, technology and communications expense or professional fees.Beginningwill bebecame subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of TWM LLC and will beare taxed at prevailing corporate tax rates. Our actual effective tax rate is impacted by our ownership share of Tradeweb MarketsTWM LLC, which will increase over time as the Continuing LLC Owners redeem or exchange their LLC Interests for shares of Class A common stock or Class B common stock, as applicable.applicable, or as we purchase LLC Interests from the Continuing LLC Owners. In addition to tax expenses, we also incur expenses related to our operations. Furthermore, in connection with the IPO, we entered into the Tax Receivable Agreement pursuant to which we will be required to make payments that we expect to be significant. We intend to cause TWM LLC to make distributions in an amount sufficient to allow us to pay our tax obligations, and operating expenses, including payments under the Tax Receivable Agreement.Historically, Thomson ReutersAgreement, and related entities provided certain servicesour quarterly cash dividends, as and activities to supportwhen declared by our business, including human resources, finance, tax and accounting services, market data services, client services, technology services, sales and customer support services and real estate and facilities support. Refinitiv will continue to provide market data services and insurance and, at least in the near term, office space and related services. We do not anticipate that we will incur any material increased expenses if we transition away from Refinitiv for these services in the future.started to implementimplemented additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In particular, we expect our accounting, legal and personnel-related expenses and directors’ and officers’ insurance costs to increaseincreased as we establishestablished more comprehensive compliance and governance functions, establish, maintain and review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act and prepare and distribute periodic reports in accordance with SEC rules. OurBeginning in the second quarter of 2019, our financial statements for future periods will reflect the impact of these expenses. For the three months ended March 31, 2018, our gross revenue is offset by contingent consideration recognized as a contra-revenue adjustment related to the achievement of specific revenue earnout milestones, as further described below. This contingent consideration vested on, and has no additional impacts on our results of operations after, July 31, 2018. We believe that gross revenue is the key driver of our operating performance and therefore is the revenue measure we utilize to assess our business on a period by period basis.sevenfive years from the date of the initial referral.Treasurytreasury and repurchase agreement transactions executed by our wholesale clients, we also generate revenue from fixed commissions that are generally invoiced monthly.Contingent ConsiderationIn 2014, we issued Class A Shares and unvested Class P1-(A) Shares to some of the Bank Stockholders as a result of a $120.0 million capital contribution to facilitate our expansion into new credit products. In connection with this investment, certain employees also invested $5.3 million in us and were issued Class C Shares and unvested Class P1-(C) Shares. The Class P1-(A) Shares vested on July 31, 2018 upon the achievement of specific revenue earnout milestones related to the growth of specified credit products (the “Credit Initiative Earnout”). Prior to the July 31, 2018 vesting, we recognized contingent consideration with respect to the Credit Initiative Earnout as a contra-revenue adjustment, which partially offset gross revenue for the three months ended March 31, 2018. See “— Critical Accounting Policies and Estimates — Contingent Consideration” for a discussion of the calculation of contingent consideration. The value of the contingent consideration of $156.2 million was finalized and contributed to members’ capital or employee equity compensation payable on July 31, 2018 and we therefore no longer recognize any contra-revenue adjustments from the Credit Initiative Earnout subsequent to that date.and stock-based compensation cost.cost and related taxes. Factors that influence employee compensation and benefits expense include revenue and earnings growth, hiring new employees and trading activity which generates broker commissions and, beginning with the second quarter of 2019, the share price of our Class A common stock. As we grow our business, we expect to hire additional employees. As a result, wecommissions. We expect employee compensation and benefits expense to increase as we hire additional employees and as our revenues and earnings grow. As a result, employee compensation and benefits can vary from period to period.other intangible assets, acquired and internally developed software, leasehold improvements, furniture and equipment. As discussed in “— Effect of Pushdown Accounting on our Financial Statements,” we applied pushdown accounting as a result of the Refinitiv Transaction and therefore depreciation and amortization expense in Successor reporting periods will differ from amounts reported in Predecessor periods.are expected to growhave increased as athe changes in our structureexpanding public company and operations that we will continue to implement as a public company. Factors that influence technology and software consulting expense include the growth of our client base and product offerings.the United StatesNorth America, Europe and the United Kingdom.Asia. Fees incurred by us under a shared services agreement with Refinitiv for office space are also included in occupancy expense. We expect occupancy expense to increase as we expand the number of our employees and grow our operations. As discussed in “— Effect of Pushdown Accounting on our Financial Statements,” we applied pushdown accounting as a result of the Refinitiv Transaction and therefore occupancy expense in Successor reporting periods will differ from amounts reported in Predecessor periods.will consistconsists of commitment fees payable on, and, if applicable, interest payable on any borrowings outstanding under, the Revolving Credit Facility, if any.not requiredpassed through to maintain anand included in the taxable income tax provision onof its earnings.members, including us. Income taxes consist ofalso include unincorporated business taxes on income earned or losses incurred byfor conducting business in certain state and local jurisdictions. Income taxes also includesjurisdictions, income taxes on income earned or losses incurred in foreign jurisdictions on certain of our operations as well asand federal and state income taxes on income earned or losses incurred, both current and deferred, fromon subsidiaries that are taxed as corporations for U.S. tax purposes. Beginningwill also be subjectbegan reporting net income attributable to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of TWM LLC and will be taxed at prevailing corporate tax rates.March 31, 2019 (Successor)June 30, 2020 and Three Months Ended March 31, 2018 (Predecessor)March 31, 2019June 30, 2020 and 2018:
Months
Ended
March 31,
2019
Months
Ended
March 31,
2018Three Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Gross revenue $ 212,107 $ 190,485 $ 21,622 11.4 % Total expenses 156,468 159,530 (3,062) (1.9) % Operating income 55,639 30,955 24,684 79.7 % Net interest income (expense) (286) 175 (461) (263.4) % Income before taxes 55,353 31,130 24,223 77.8 % Provision for income taxes (12,945) (6,314) (6,631) 105.0 % Net income 42,408 24,816 17,592 70.9 % Less: Net income attributable to non-controlling interests 11,912 11,988 (76) (0.6) % Net income attributable to Tradeweb Markets Inc. $ 30,496 $ 12,828 $ 17,668 137.7 % March 31,June 30, 2020 as compared to the three months ended June 30, 2019, our business was impacted by a number of factors, includingresults benefited from higher client trading activity, drivingwhich drove revenue increases in our rates, credit, equities and money markets trading. Our market data business also grew due to the expansion ofasset classes and increased license fees in our market data license agreement with Refinitiv.$17.3$21.6 million or 10.2%11.4% to $186.8$212.1 million for the three months ended March 31, 2019June 30, 2020 from $169.5$190.5 million for the three months ended March 31, 2018. ThisJune 30, 2019. The increase in gross revenue was mainly due to higher trading volumes resulting in a $12.5an $18.2 million increase in transaction fees and a $6.3$1.7 million increase in commissions. Netrevenue increased$27.4$3.1 million or 17.2%(1.9)% to $186.8$156.5 million for the three months ended March 31, 2019June 30, 2020 from $159.4$159.5 million for the three months ended March 31, 2018. Non-cash contingent consideration decreased by $10.1 million for the three months ended March 31, 2019 as a result of the vesting of the Credit Initiative Earnout at July 31, 2018.March 31,June 30, 2020 decreased primarily due to lower employee compensation and benefits expense, specifically related to the Special Option Award. In April 2019, and 2018 were $140.5we recognized $18.9 million and $112.1as compensation expense related to these options immediately upon the completion of the IPO.respectively. Total expensesor 77.8% to $55.4 million for the three months ended March 31, 2019 were impacted by higher employee compensation and benefits expense, higher professional fees and higher general and administrative costs, specifically foreign exchange losses. Total expensesJune 30, 2020 from $31.1 million for the three months ended March 31, 2019 were also impacted by higher depreciation and amortization expense as a result of the application of pushdown accounting.Income before taxesJune 30, 2019. Net income increased $17.6 million or 70.9% to $42.4 million for the three months ended March 31, 2019 and 2018 was $47.1June 30, 2020 from $24.8 million and $47.8 million, respectively. Net income for the three months ended March 31, 2019 and 2018 was $42.4June 30, 2019. Net income attributable to Tradeweb Markets Inc. increased $17.7 million and $45.3or 137.7% to $30.5 million respectively. Income before taxes and net income for the three months ended March 31, 2019 were negatively impacted byJune 30, 2020 from $12.8 million for the three months ended June 30, 2019. Income before taxes, net income and net income attributable to Tradeweb Markets Inc. for the three months ended June 30, 2020 benefited from higher depreciation and amortization expense as a resultgross revenue of the application of pushdown accounting, resulting in a $16.7$21.6 million increase in depreciation and amortization expense, partially offset by higher revenues.March 31,June 30, 2020 and 2019, and 2018, and the resulting dollar and percentage changes, were as follows:
Ended March 31, 2019
Ended March 31, 2018
Revenue
RevenueThree Months Ended June 30, 2020 2019 $ $ $ Change % Change (dollars in thousands) Revenues Transaction fees $ 122,146 57.6 % $ 103,952 54.6 % $ 18,194 17.5 % 49,571 23.4 % 47,951 25.2 % 1,620 3.4 % Commissions 38,115 18.0 % 36,413 19.1 % 1,702 4.7 % Other 2,275 1.0 % 2,169 1.1 % 106 4.9 % Gross revenue $ 212,107 100.0 % $ 190,485 100.0 % $ 21,622 11.4 % Components of gross revenue growth: 11.8 % Foreign currency impact (0.4) % Gross revenue growth 11.4 % March 31,June 30, 2020 and 2019 and 2018 include $13.6$14.6 million and $12.2$13.4 million, respectively, of Refinitiv market data fees.impacteffects of foreign currency fluctuations is calculated by translating the current period and prior period’s gross revenue using the average exchange rates for 2018.2019. We use constant currency growth as a supplemental metric to evaluate our underlying gross revenue performance between periods by removing the impact of foreign currency fluctuations. We believe that providing constant currency growth provides a useful comparison of our gross revenue performance and trends between periods.Our variable and fixed revenues by fee type for the three months ended March 31, 2019 and 2018, and the resulting dollar and percentage changes, were as follows:
March 31, 2019
March 31, 2018(1) Subscription fees for the three months ended March 31, 2019 and 2018 include $13.6 million and $12.2 million, respectively, of Refinitiv (formerly Thomson Reuters) market data fees.$12.5$18.2 million or 13.9%17.5% to $102.6$122.1 million for the three months ended March 31, 2019June 30, 2020 from $90.1$104.0 million for the three months ended March 31, 2018June 30, 2019 primarily due to increased trading volumes for U.SU.S. corporate bonds, mortgages, U.S. ETFs, and European rates derivatives products, U.S. and European ETFs and U.S. credit products.decreasedincreased by $0.5$1.6 million or (1.0)%3.4% to $48.1$49.6 million for the three months ended March 31, 2019June 30, 2020 from $48.6$48.0 million for the three months ended March 31, 2018June 30, 2019 primarily due to lower European government bond fees, and software development fees, partially offset by higher market data fees and retail fees.$6.3$1.7 million or 22.6%4.7% to $34.2$38.1 million for the three months ended March 31, 2019June 30, 2020 from $27.9$36.4 million for the three months ended March 31, 2018June 30, 2019 primarily due to higher trading volumes for equity derivatives products, municipals, and U.S. corporate bonds, andpartially offset by lower trading volumes for U.S. treasuries.decreasedincreased by $1.0$0.1 million or (35.1)%4.9% to $1.9$2.3 million for the three months ended March 31, 2019June 30, 2020 from $2.9$2.2 million for the three months ended March 31, 2018June 30, 2019 primarily as a result of lower feesrevenue from a third party for certain licensing and development in Canada.Contingent consideration. There was no contingent consideration for the three months ended March 31, 2019 due to the vesting of the Credit Initiative Earnout at July 31, 2018. Contingent consideration for the three months ended March 31, 2018 was $10.1 million.March 31,June 30, 2020 and 2019, and 2018, and the resulting dollar and percentage changes, were as follows:
Ended March
31, 2019
Ended March
31, 2018Three Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Revenues Institutional $ 129,992 $ 111,057 $ 18,935 17.0 % Wholesale 43,252 41,945 1,307 3.1 % Retail 20,366 19,939 427 2.1 % Market Data 18,497 17,544 953 5.4 % Gross revenue $ 212,107 $ 190,485 $ 21,622 11.4 % $6.9$18.9 million or 6.8%17.0% to $109.3$130.0 million for the three months ended March 31, 2019June 30, 2020 from $102.3$111.1 million for the three months ended March 31, 2018.June 30, 2019. The increase was derived primarily from increased volumes for U.S. and Europeancorporate bonds, mortgages, ETFs, rates derivatives products, partially offset by the impact of foreign exchange, mainly the deterioration of the euro.$6.8$1.3 million or 21.0%3.1% to $39.4$43.3 million for the three months ended March 31, 2019June 30, 2020 from $32.6$41.9 million for the three months ended March 31, 2018.June 30, 2019. The increase was derived primarily from U.S. session-basedhigher trading volumes.Retail.activity for equity derivatives products, rates derivatives products, and mortgages.$2.2$0.4 million or 11.4%2.1% to $21.2$20.4 million for the three months ended March 31, 2019June 30, 2020 from $19.0$19.9 million for the three months ended March 31, 2018.June 30, 2019. The increase was derived primarily from higher trading volumes for U.S. corporaterevenues from software development and municipal bonds.Data.Data. Revenues from our Market Data client sector increased by $1.4$1.0 million or 8.7%5.4% to $16.9$18.5 million for the three months ended March 31, 2019June 30, 2020 from $15.6$17.5 million for the three months ended March 31, 2018June 30, 2019 primarily as a result of increased Refinitiv (formerly Thomson Reuters) license fees due to an increase in the number of market data feeds provided to Refinitiv and increased Gilt closing price revenues.March 31,June 30, 2020 and 2019, and 2018, and the resulting dollar and percentage changes, were as follows:
Ended March
31, 2019
Ended March
31, 2018Three Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Revenues Rates $ 112,823 $ 107,063 $ 5,760 5.4 % Credit 49,105 39,599 9,506 24.0 % Equities 15,407 11,116 4,291 38.6 % Money Markets 10,539 10,322 217 2.1 % Market Data 18,497 17,544 953 5.4 % Other Fees 5,736 4,841 895 18.5 % Gross revenue $ 212,107 $ 190,485 $ 21,622 11.4 % March 31,June 30, 2020 and 2019, and 2018, and the resulting dollar and percentage changes, were as follows:
March 31, 2019
March 31, 2018Three Months Ended June 30, 2020 2019 $ Change % Change Variable Fixed Variable Fixed Variable Fixed Variable Fixed (dollars in thousands) Revenues Rates $ 62,101 $ 50,722 $ 56,743 $ 50,320 $ 5,358 $ 402 9.4 % 0.8 % Credit 43,731 5,374 34,337 5,262 9,394 112 27.4 % 2.1 % Equities 12,905 2,502 9,195 1,921 3,710 581 40.3 % 30.2 % Money Markets 6,445 4,094 6,674 3,648 (229) 446 (3.4) % 12.2 % Market Data — 18,497 — 17,544 — 953 — 5.4 % Other — 5,736 — 4,841 — 895 — 18.5 % Gross revenue $ 125,182 $ 86,925 $ 106,949 $ 83,536 $ 18,233 $ 3,389 17.0 % 4.1 % $10.2$5.8 million or 10.8%5.4% to $104.1$112.8 million for the three months ended March 31, 2019June 30, 2020 from $93.9$107.1 million for the three months ended March 31, 2018June 30, 2019 primarily due to increasedhigher trading volumes in U.S.for mortgages and Europeanrates derivatives and U.S. treasuries.Credit.products.$4.7$9.5 million or 13.5%24.0% to $39.4$49.1 million for the three months ended March 31, 2019June 30, 2020 from $34.7$39.6 million for the three months ended March 31, 2018June 30, 2019 primarily due to increasedhigher trading volumes for U.S. corporate bonds and municipal bonds.$1.6$4.3 million or 15.8%38.6% to $11.8$15.4 million for the three months ended March 31, 2019June 30, 2020 from $10.2$11.1 million for the three months ended March 31, 2018June 30, 2019 primarily due to increasedhigher trading volumes for U.S. and European ETFs.$1.4$0.2 million or 17.8%2.1% to $9.6$10.5 million for the three months ended March 31, 2019June 30, 2020 from $8.1$10.3 million for the three months ended March 31, 2018June 30, 2019 primarily due to increased volumes for U.S. and European repurchase agreements and certificates of deposit.Data.Data. Revenues from Market Data increased by $1.4$1.0 million or 8.7%5.4% to $16.9$18.5 million for the three months ended March 31, 2019June 30, 2020 from $15.6$17.5 million for the three months ended March 31, 2018June 30, 2019 primarily as a result of increased Refinitiv (formerly Thomson Reuters) license fees due to an increase in the number of market data feeds provided to Refinitiv and increased Gilt closing price revenues.decreasedincreased by $2.0$0.9 million or (28.5)%18.5% to $5.0$5.7 million for the three months ended March 31, 2019June 30, 2020 from $7.0$4.8 million for the three months ended March 31, 2018June 30, 2019 primarily due to lower fees from a third party for certain licensing and development in Canada and the timing of Retail fees for software development and implementation.March 31,June 30, 2020 and 2019, and 2018the resulting percentage changes, were as follows:Three Months Ended June 30, 2020 2019 ADV ADV Volume ADV Volume % Change (dollars in millions) Rates $ 506,736 $ 31,796,034 $ 509,914 $ 32,018,431 (0.6) % Credit 17,945 1,120,406 12,253 766,798 46.5 % Equities 9,995 627,112 7,119 445,485 40.4 % Money Markets 243,681 15,309,908 223,011 14,026,068 9.3 % Total $ 778,357 $ 48,853,460 $ 752,297 $ 47,256,782 3.5 % the three months ended March 31, 2019June 30, 2020 for most asset classes can be attributed to various factors, including increased volatility across our rates, credit and money markets asset classes, further electronification of trading activities across our asset classes, increase in marketnew clients.March 31,June 30, 2020 and 2019 and 2018 are summarized below. There are fourthree potential drivers of quarterly fluctuations in our average variable fees per million: (1) volume discounts, (2) the mix of cash and derivatives products traded, and (3) the mix of protocols underpinning cash and derivatives products and (4) pricing.products. 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 variableThree Months Ended June 30, 2020 2019 $ Change % Change Rates $ 1.95 $ 1.77 $ 0.18 10.2 % Cash Rates $ 1.94 $ 1.85 $ 0.09 4.9 % Rates Derivatives $ 1.97 $ 1.68 $ 0.29 17.3 % Swaps / Swaptions Tenor (greater than 1 year) $ 2.84 $ 2.86 $ (0.02) (0.7) % $ 0.18 $ 0.07 $ 0.11 168.0 % Credit $ 39.03 $ 44.78 $ (5.75) (12.8) % $ 134.53 $ 130.42 $ 4.11 3.2 % Credit Derivatives and U.S. Cash 'EP' $ 7.31 $ 7.70 $ (0.39) (5.1) % Equities $ 20.58 $ 20.64 $ (0.06) (0.3) % Cash Equities $ 28.71 $ 28.60 $ 0.11 0.4 % Equity Derivatives $ 6.58 $ 9.71 $ (3.13) (32.2) % Money Markets (Cash) $ 0.42 $ 0.48 $ (0.05) (11.5) % Total Fees per Million $ 2.56 $ 2.26 $ 0.30 13.2 % $ 2.79 $ 2.59 $ 0.20 7.7 % dollars of volume for our Rates asset class decreased 5.4% for the three months ended March 31, 2019 while gross revenue for our Rates asset class increased 10.8% over the same period.was impacted by volume tier discounts inincreased due to a mix shift to higher fees per million cash and long-tenor swaps products and away from lower fees per million short-tenor swaps products. Credit average variable fees per million was impacted bydecreased due to higher growth in credit derivatives and U.S. electronically processed cash volume, products which have a shift in volumes from derivatives towards cash.lower variable fee capture as compared to cash credit products. Equities average variable fees per million was impacted by a mix shift in volumes towards institutional ETFs.overall remained flat. Money Markets average variable fees per million was impacted bydecreased due to a mix shift in volumes within non-repurchase agreement products.from higher variable fees per million to lower variable fees per million repurchase agreements.March 31,June 30, 2020 and 2019, and 2018, and the resulting dollar and percentage changes, were as follows:
Ended March
31, 2019
Ended March
31, 2018Three Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Revenues U.S. $ 140,073 $ 122,693 $ 17,380 14.2 % International 72,034 67,792 4,242 6.3 % Gross revenue $ 212,107 $ 190,485 $ 21,622 11.4 % $11.6$17.4 million or 10.8%14.2% to $119.4$140.1 million for the three months ended March 31, 2019June 30, 2020 from $107.8$122.7 million for the three months ended March 31, 2018June 30, 2019 primarily due to higher trading volumes from ourfor U.S. credit products,corporate bonds, mortgages, and U.S. ETFs, dollar swaps, treasuries and municipal bonds.$5.7$4.2 million or 9.2%6.3% to $67.4$72.0 million for the three months ended March 31, 2019June 30, 2020 from $61.7$67.8 million for the three months ended March 31, 2018June 30, 2019 primarily due to increased trading volumes for European interest rate swaps, China bondsrates derivatives products and European credit default indexes.ETFs. Fluctuations in foreign currency rates for the three months ended June 30, 2020 decreased our International gross revenue by $2.3$0.5 million.March 31,June 30, 2020 and 2019 and 2018 were as follows:
Months
Ended
2019
Months
Ended
March 31,
2018Three Months Ended June 30, 2020 2019 $ Change % Change (in thousands) Employee compensation and benefits $ 88,866 $ 95,995 $ (7,129) (7.4) % Depreciation and amortization 37,919 34,292 3,627 10.6 % Technology and communications 12,042 9,519 2,523 26.5 % General and administrative 7,523 9,365 (1,842) (19.7) % Professional fees 6,609 6,738 (129) (1.9) % Occupancy 3,509 3,621 (112) (3.1) % Total Expenses $ 156,468 $ 159,530 $ (3,062) (1.9) % increaseddecreased by $5.7$7.1 million or 8.0%(7.4)% to $77.3$88.9 million for the three months ended March 31, 2019June 30, 2020 from $71.6$96.0 million for the three months ended March 31, 2018.June 30, 2019. The increasedecrease was primarily due to a $15.4 million decrease in non-cash stock-based compensation expense related to options, specifically the Special Option Award. In April 2019, we recognized $18.9 million as compensation expense related to the Special Option Award immediately upon the completion of the IPO. This $15.4 million decrease was offset by a $4.3 million increase in incentive compensation expenses tied to operating performance, a $4.2 million increase in salaries and benefits due toas a result of an increase in employee headcount, and an increase in commissions of $1.8$0.8 million due to higher revenues from our Wholesale revenues. Total employee headcount increased to 931 as of March 31, 2019 from 848 as of March 31, 2018.for the three months ended March 31, 2019 was $33.5 million. Depreciation and amortization expense for the three months ended March 31, 2018 was $16.3 million. As a result of the Refinitiv Transaction and the application of pushdown accounting, we adjusted our assets and liabilities to their estimated fair values as of October 1, 2018, which resulted in an increase in depreciation of tangible assets and amortization of our intangible assets. The impact of such adjustments increased depreciation and amortization expense during the three months ended March 31, 2019 by $16.7 million.General and Administrative. General and administrative expense increased by $2.6$3.6 million or 39.5%10.6% to $9.1$37.9 million for the three months ended March 31, 2019June 30, 2020 from $6.5$34.3 million for the three months ended March 31, 2018.June 30, 2019. The increase was primarily athe result of an increase in foreign exchange losses of $1.9 million, which includes a $0.9 million loss dueadditions to the revaluation of foreign denominated cash,internally capitalized software and one-time IPO related fees.$1.6$2.5 million or 18.6%26.5% to $10.0$12.0 million for the three months ended March 31, 2019June 30, 2020 from $8.5$9.5 million for the three months ended March 31, 2018.June 30, 2019. The increase was primarily due to increases in cybersecurity spend, infrastructure initiativesincreased clearance and increased clearancedata fees as a result of higher trading volumes.Professional Feesvolumes, and increased investment in our data strategy and cyber-security.Professional fees increasedGeneral and administrative expense decreased by $1.4$1.8 million or 25.9%(19.7)% to $7.0$7.5 million for the three months ended March 31, 2019June 30, 2020 from $5.5$9.4 million for the three months ended March 31, 2018.June 30, 2019. The decrease was primarily a result of lower travel and entertainment expenses, partially offset by higher foreign exchange losses and insurance expense.Six Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Gross revenue $ 446,713 $ 377,277 $ 69,436 18.4 % Total expenses 313,459 300,045 13,414 4.5 % Operating income 133,254 77,232 56,022 72.5 % Net interest income 413 1,033 (620) (60.0) % Income before taxes 133,667 78,265 55,402 70.8 % Provision for income taxes (28,774) (11,097) (17,677) 159.3 % Net income 104,893 67,168 37,725 56.2 % Less: Pre-IPO net income attributable to Tradeweb Markets LLC — 42,352 (42,352) (100.0) % Net income attributable to Tradeweb Markets Inc. and non-controlling interests 104,893 24,816 80,077 322.7 % Less: Net income attributable to non-controlling interests 30,469 11,988 18,481 154.2 % Net income attributable to Tradeweb Markets Inc. $ 74,424 $ 12,828 $ 61,596 480.2 % Six Months Ended June 30, 2020 2019 $ $ $ Change % Change (dollars in thousands) Revenues Transaction fees $ 262,970 58.9 % $ 206,592 54.8 % $ 56,378 27.3 % 98,682 22.1 % 96,012 25.4 % 2,670 2.8 % Commissions 80,608 18.0 % 70,610 18.7 % 9,998 14.2 % Other 4,453 1.0 % 4,063 1.1 % 390 9.6 % Gross revenue $ 446,713 100.0 % $ 377,277 100.0 % $ 69,436 18.4 % Components of gross revenue growth: 19.0 % Foreign currency impact (0.6) % Gross revenue growth 18.4 % Six Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Revenues Institutional $ 275,604 $ 220,309 $ 55,295 25.1 % Wholesale 92,008 81,376 10,632 13.1 % Retail 42,042 41,145 897 2.2 % Market Data 37,059 34,447 2,612 7.6 % Gross revenue $ 446,713 $ 377,277 $ 69,436 18.4 % Six Months Ended June 30, 2020 2019 $ Change % Change (dollars in thousands) Revenues Rates $ 238,862 $ 211,153 $ 27,709 13.1 % Credit 103,083 79,034 24,049 30.4 % Equities 34,841 22,914 11,927 52.1 % Money Markets 21,747 19,884 1,863 9.4 % Market Data 37,059 34,447 2,612 7.6 % Other Fees 11,121 9,845 1,276 13.0 % Gross revenue $ 446,713 $ 377,277 $ 69,436 18.4 % Six Months Ended June 30, 2020 2019 $ Change % Change Variable Fixed Variable Fixed Variable Fixed Variable Fixed (dollars in thousands) Revenues Rates $ 137,642 $ 101,220 $ 110,393 $ 100,760 $ 27,249 $ 460 24.7 % 0.5 % Credit 92,306 10,777 68,695 10,339 23,611 438 34.4 % 4.2 % Equities 30,005 4,836 19,347 3,567 10,658 1,269 55.1 % 35.6 % Money Markets 13,582 8,165 12,497 7,387 1,085 778 8.7 % 10.5 % Market Data — 37,059 — 34,447 — 2,612 — 7.6 % Other — 11,121 — 9,845 — 1,276 — 13.0 % Gross revenue $ 273,535 $ 173,178 $ 210,932 $ 166,345 $ 62,603 $ 6,833 29.7 % 4.1 % Six Months Ended June 30, 2020 2019 ADV ADV Volume ADV Volume % Change (dollars in millions) Rates $ 548,558 $ 68,663,898 $ 470,238 $ 58,375,775 16.7 % Credit 25,508 3,191,217 14,314 1,776,835 78.2 % Equities 13,884 1,738,843 7,439 925,422 86.6 % Money Markets 249,542 31,229,868 207,863 25,797,704 20.1 % Total $ 837,492 $ 104,823,827 $ 699,854 $ 86,875,736 19.7 % Six Months Ended June 30, 2020 2019 $ Change % Change Rates $ 2.00 $ 1.89 $ 0.11 6.0 % Cash Rates $ 1.92 $ 1.83 $ 0.09 4.9 % Rates Derivatives $ 2.13 $ 1.98 $ 0.15 7.6 % Swaps/Swaptions Tenor (greater than 1 year) $ 3.15 $ 2.73 $ 0.42 15.4 % $ 0.17 $ 0.11 $ 0.06 54.5 % Credit $ 28.93 $ 38.66 $ (9.74) (25.2) % $ 133.65 $ 133.83 $ (0.18) (0.1) % Credit Derivatives and U.S. Cash 'EP' $ 6.54 $ 7.03 $ (0.49) (7.0) % Equities $ 17.26 $ 20.91 $ (3.65) (17.5) % Cash Equities $ 26.83 $ 28.85 $ (2.02) (7.0) % Equity Derivatives $ 5.06 $ 10.06 $ (5.00) (49.7) % Money Markets (Cash) $ 0.43 $ 0.48 $ (0.05) (10.2) % Total Fees per Million $ 2.61 $ 2.43 $ 0.18 7.5 % $ 2.86 $ 2.63 $ 0.23 8.9 % Six Months Ended
June 30,2020 2019 $ Change % Change (dollars in thousands) Revenues U.S. $ 285,329 $ 242,090 $ 43,239 17.9 % International 161,384 135,187 26,197 19.4 % Gross revenue $ 446,713 $ 377,277 $ 69,436 18.4 % Six Months Ended
June 30,2020 2019 $ Change % Change (in thousands) Employee compensation and benefits $ 179,386 $ 173,268 $ 6,118 3.5 % Depreciation and amortization 75,095 67,795 7,300 10.8 % Technology and communications 22,360 19,559 2,801 14.3 % General and administrative 15,863 18,454 (2,591) (14.0) % Professional fees 13,520 13,709 (189) (1.4) % Occupancy 7,235 7,260 (25) (0.3) % Total Expenses $ 313,459 $ 300,045 $ 13,414 4.5 % and audit fees, including fees incurred in preparation for the IPO.threesix months ended March 31, 2019 was $3.6 million. Occupancy expense for the three months ended March 31, 2018 was $3.7 million. As a result of the Refinitiv Transaction and the application of pushdown accounting, at October 1, 2018, we established a leasehold interest liability, which resulted in a $0.1 million decrease in occupancy expense during the three months ended March 31, 2019. (Expense)(expense) increaseddecreased by $0.4$0.6 million to net interest income of $0.9$0.4 million for the threesix months ended March 31, 2019June 30, 2020 from net interest income of $0.5 million. Net interest income$1.0 million for the threesix months ended March 31,June 30, 2019 due to a decrease in interest rates and 2018 was impacted by higher interest rates.Provisionthreesix months ended March 31, 2019June 30, 2020 was $4.8 million. Provision for income taxesapproximately 21.5%, compared with 14.2% for the threesix months ended March 31, 2018 was $2.5 million. Provision for income taxesJune 30, 2019. The effective tax rate for the threesix months ended March 31,June 30, 2020 differed from the U.S. federal statutory rate of 21.0% primarily due to the effect of state and local taxes, partially offset by the effect of non-controlling interests. The effective tax rate for the six months ended June 30, 2019 was impacteddiffered from the U.S. federal statutory rate of 21.0% primarily due to the effect of non-controlling interests, partially offset by increased earnings in certain subsidiariesstate and foreign jurisdictions which resulted in higher tax expense.March 31, 2019June 30, 2020 and December 31, 2018,2019, we had cash and cash equivalents of approximately $361.6$559.9 million and $410.1$460.7 million, respectively. All cash and cash equivalents were held in accounts with banks such that the funds are immediately available in money market funds or in fixed term deposits with a maximum maturity of three months.Weinitially equal to $0.08 per share, beginning with the second quarter of 2019. Based on 46,000,000 shares of Class A common stock and 96,933,192 shares of Class B common stock outstanding, this dividend policy implies a quarterly cash requirement of approximately $11.4 million (or an annual cash requirement of approximately $45.7 million).share. As discussed below, our ability to pay these quarterly cash dividends on our Class A common stock and Class B common stock will depend on distributions to us from TWM LLC.managing membermanager 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. If TWM LLC is unable to cause these subsidiaries to make distributions, it may have inadequate funds to distribute to us and we may be unable to fund our dividends. In addition, when TWM LLC makes distributions to us, the Continuingother holders of LLC OwnersInterests will be entitled to receive proportionate distributions based on their economic interests in TWM LLC at the time of such distributions.We currently intend to increase the amount of our expected quarterly dividends in line with free cash flow growth, if any, after giving effect to required tax distributions to be paid by TWM LLC; however, anyAny future determination to change the amount of dividends and/or declare special dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions and other factors that our board of directors considers relevant.April 3, 2019, in connection withJuly 29, 2020, the IPO, TWM LLC made a cash distribution to the Original LLC Owners in an aggregate amount of $100.0 million.On May 15, 2019, TWM LLC made a cash distribution to its equityholders, including Tradeweb Markets Inc., in an aggregate amount of $34.4 million.The board of directors of Tradeweb Markets Inc. declared a cash dividend of $0.08 per share of Class A common stock and Class B common stock for the secondthird quarter of 2019.2020. This dividend will be payable on JuneSeptember 15, 20192020 to stockholders of record as of JuneSeptember 1, 2019.March 31, 2019June 30, 2020 and December 31, 2018,2019, we had no outstanding indebtedness.Historically, the Company has only issued debt in connection with significant investment transactions and all debt issued by the Company has been issued to subsidiaries of Thomson Reuters.Concurrently with the closing of the IPO, weFacility.Facility with a syndicate of banks. The Revolving Credit Facility permits borrowings of up to $500.0 million, and includesprovides borrowing capacity available for letters of credit andswingline loans. The Revolving Credit Facility will mature on April 8, 2024. We expect that the Revolving Credit Facility willto be used to fund our ongoing working capital needs, letters of credit and for general corporate purposes, including potential future acquisitions and expansions.March 31, 2019June 30, 2020 and December 31, 2018,2019, each of our regulated subsidiaries had maintained sufficient net capital or financial resources in excess ofto at least satisfy their minimum requirements which in aggregate was $44.1were $51.1 million and $41.7$53.2 million, respectively. We maintain capital balances in these subsidiaries in excess of our minimum requirements in order to satisfy working capital needs and to ensure that we have enough cash on hand to satisfy margin requirements and credit risk, including the excess capital expectations of our clients.andlease liability, payable to affiliates.affiliates and tax receivable agreement liability. Changes in working capital, which impact our cash flows provided by operating activities, can vary depending on factors such as delays in the collection of receivables, changes in our operating performance, changes in trading patterns, changes in client billing terms and other changes in the demand for our platforms and solutions.March 31, 2019June 30, 2020 and December 31, 20182019 was as follows:
2019
31, 2018June 30,
2020December 31,
2019 (dollars in thousands) Cash and cash equivalents $ 559,889 $ 460,711 Restricted cash 1,000 1,000 Receivable from brokers and dealers and clearing organizations 66,821 30,641 Deposits with clearing organizations 10,955 9,724 Accounts receivable 101,512 92,814 Receivable from affiliates 1,482 2,525 Current assets 741,659 597,415 Payable to brokers and dealers and clearing organizations 66,697 30,452 Accrued compensation 71,879 119,415 Deferred revenue 27,428 23,990 Accounts payable, accrued expenses and other liabilities 38,675 32,834 Employee equity compensation payable 1,642 1,048 Lease liability 9,742 8,516 Payable to affiliates 3,164 1,506 Tax receivable agreement liability 28,729 6,949 Current liabilities 247,956 224,710 Working capital $ 493,703 $ 372,705 decreasedincreased to $557.4$741.7 million as of March 31, 2019June 30, 2020 from $687.8$597.4 million as of December 31, 20182019 due to payments for annual accrued compensationan increase in cash and employee equity compensation. In addition, there wascash equivalents and accounts receivable as a decreaseresult of increased revenues and earnings and due to an increase in receivable from brokers and dealers and clearing organizations resulting from a lowerhigher number of fails to deliver as a result of lowerincreased unsettled wholesale platform transactions.decreasedincreased to $209.6$248.0 million as of March 31, 2019June 30, 2020 from $391.0$224.7 million as of December 31, 20182019 due to payments for annual accrued compensation and employee equity compensation. In addition, there was a decreasean increase in payable to brokers and dealers and clearing organizations resulting from a lowerhigher number of fails to receivedeliver as a result of lowerincreased unsettled wholesale platform transactions.March 31,June 30, 2020 and 2019 and 2018 were as follows:
Months
Ended
March 31,
Months
Ended
2018Six Months Ended June 30, 2020 2019 (in thousands) Net cash flows provided by operating activities $ 164,553 $ 76,973 Net cash flows used in investing activities (19,180) (17,707) Net cash flows used in financing activities (42,169) (155,650) Effect of exchange rate changes on cash and cash equivalents (4,026) (138) Net increase (decrease) in cash and cash equivalents $ 99,178 $ (96,522) contingent consideration and deferred revenue.stock-based compensation expense. Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for accrued compensation (primarily in the first quarter) and other items impact reported cash flows.used inprovided by operating activities for the threesix months ended March 31,June 30, 2020 was $164.6 million, an increase of 113.8% over 2019, was $(21.1) million, which was primarily driven by annual payments for accrued compensationan increase in gross revenue and a decrease in cash taxes and employee equity compensation. Netcompensation cash used in operating activities for the three months ended March 31, 2018 was $(14.2) million, which was primarily driven by annual payments for accrued compensation.$8.3$19.2 million for the threesix months ended March 31, 2019,June 30, 2020, which consisted of $6.8$14.8 million of capitalized software development costs and $1.5$4.4 million of purchases of furniture, equipment, purchased software and leasehold improvements. Net cash used in investing activities was $7.4$17.7 million for the threesix months ended March 31, 2018,June 30, 2019, which consisted of $6.2$13.9 million of capitalized software development costs and $1.2$3.8 million of purchases of furniture, equipment, purchased software and leasehold improvements.Financing activities consist of distributions to the Original LLC Owners.threesix months ended March 31, 2019June 30, 2020 was $20.0$42.2 million, which consistedprimarily driven by the purchase of capital distributions.LLC Interests, dividend payments, and activity related to stock-based compensation exercises. Net cash used in financing activities for the threesix months ended March 31, 2018June 30, 2019 was $25.0$155.7 million, which consistedprimarily driven by the purchase of LLC Interests and pre-IPO capital distributions.threesix months ended March 31, 2019June 30, 2020 and 2018:
Months
Ended
March 31,
2019
Months
Ended
March 31,
2018Six Months Ended June 30, 2020 2019 (in thousands) Cash flow from operating activities $ 164,553 $ 76,973 Less: Capitalization of software development costs (14,798) (13,914) Less: Purchases of furniture, equipment and leasehold improvements (4,382) (3,793) Free Cash Flow $ 145,373 $ 59,266 and Adjusted EBITDA margin, Adjusted EBIT and Adjusted EBIT margin as a measuremeasures of our operating performance and Adjusted Net Income and Adjusted Net Income per diluted share (“Adjusted Diluted EPSEPS”) as a measuremeasures of our profitability. and Adjusted EBITDA margin,before contingent consideration,net interest income, net, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including certain stock-based compensation expense and payroll taxes associated with certain option exercises, tax receivable agreement liability adjustments and gains and losses from outstanding foreign exchange forward contracts and the revaluation of foreign denominated cash. Adjusted EBIT is defined as net income, net interest income and provision for income taxes, adjusted for the impact of certain other items, including certain stock-based compensation expense and payroll taxes associated with certain option exercises, tax receivable agreement liability adjustments, acquisition and Refinitiv Transaction-related depreciation and amortization and gains and losses from outstanding foreign exchange forward contracts and the revaluation of foreign denominated cash. Adjusted EBITDA margin isand 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 EBITDAEBIT 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, beginning with the second quarter of 2019, we expect to also excludenon-cash stock-based compensation expense associated with the Special Option Award discussed below under “— Critical Accounting Policies and Estimates — Stock-Based Compensation.Compensation,” as well as non-cash stock-based compensation expense associated with options awarded to management and other employees following the IPO during 2019 as well as payroll taxes associated with exercises of such options during the applicable period. We believe it will beis useful to exclude stock basedEBITDAEBIT 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.before contingent consideration,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), each adjusted for certain stock-based compensation expense and payroll taxes associated with certain option exercises, tax receivable liability adjustments, acquisition and Refinitiv Transaction related depreciation and amortization and gains and losses from outstanding foreign exchange forwardassumingand, 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. 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 treasury stock method.In addition to excluding contingent consideration for the reasons described above, 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. Beginning with the second quarter of 2019, we expect to alsoWe exclude stock-based compensation expense associated with the Special Option Award and the post-IPO option awards in 2019 and payroll taxes associated with exercises of such options, tax receivable liability adjustments 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.net incomeearnings per diluted share or any other financial measure derived in accordance with GAAP. 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.EBITDAEBIT margin for the three and six months ended March 31,June 30, 2020 and 2019:Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 (in thousands) Net income $ 42,408 $ 24,816 $ 104,893 $ 67,168 Net interest income (expense) 286 (175) (413) (1,033) Depreciation and amortization 37,919 34,292 75,095 67,795 4,995 20,403 8,492 20,403 Provision for income taxes 12,945 6,314 28,774 11,097 Unrealized foreign exchange (gains) / losses 2,793 1,577 3,957 1,284 (37) (302) 161 558 Adjusted EBITDA $ 101,309 $ 86,925 $ 220,959 $ 167,272 Less: Depreciation and amortization (37,919) (34,292) (75,095) (67,795) 27,131 24,133 53,404 47,342 Adjusted EBIT $ 90,521 $ 76,766 $ 199,268 $ 146,819 47.8 % 45.6 % 49.5 % 44.3 % 42.7 % 40.3 % 44.6 % 38.9 % 2018:
Months
Ended
March 31,
2019
Months
Ended
March 31,
2018(1)(2)Represents foreign exchange gain or loss from the revaluation of cash denominated in a different currency than the entity’s functional currency.(2) Adjusted EBITDA margin increased by 14 basis points or 80 basis points on a constant currency basis. Adjusted EBITDA margin growth on a constant currency basis, which is a non-GAAP financial measure, is defined as Adjusted EBITDA margin growth excluding the effects(1)(3)Represents acquisition relatedacquisition-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).Three Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 (in thousands except per share amounts) $ 0.16 $ 0.09 $ 0.41 0.19 /
0.09$ — $ — $ — $ 42,352 30,496 12,828 74,424 12,828 11,912 11,988 30,469 11,988 42,408 24,816 104,893 67,168 Provision for income taxes 12,945 6,314 28,774 11,097 27,131 24,133 53,404 47,342 4,995 20,403 8,492 20,403 Unrealized foreign exchange (gains) / losses 2,793 1,577 3,957 1,284 (37) (302) 161 558 Adjusted Net Income before income taxes 90,235 76,941 199,681 147,852 (19,852) (20,312) (43,930) (39,033) Adjusted Net Income $ 70,383 $ 56,629 $ 155,751 $ 108,819 $ 0.30 $ 0.25 $ 0.67 $ 0.23 /
0.25(3)26.4%, for the three months ended March 31, 201922.0% and 201826.4% applied to Adjusted Net Income before income taxes.Pre-IPO Period Post-IPO Period Reconciliation of Diluted Weighted Average Shares Outstanding to
Adjusted Diluted Weighted Average Shares OutstandingThree Months Ended
June 30, 2020Three Months Ended
June 30, 2019Six Months Ended
June 30, 2020Six Months Ended
June 30, 2019Six Months Ended
June 30, 2019Diluted weighted average TWM LLC shares outstanding — — — 223,320,457 — Diluted weighted average shares of Class A and Class B common stock outstanding 185,489,824 150,847,183 180,008,891 — 150,847,183 48,132,630 79,289,005 52,888,588 — 79,289,005 Adjusted diluted weighted average shares outstanding 233,622,454 230,136,188 232,897,479 223,320,457 230,136,188 Adjusted Net Income (in thousands) $ 70,383 $ 56,629 $ 155,751 $ 52,190 $ 56,629 Adjusted Diluted EPS $ 0.30 $ 0.25 $ 0.67 $ 0.23 $ 0.25 “NoteNote 2 — Summary of– Significant Accounting Policies”Policies to theour unaudited consolidated financial statements of Tradeweb Markets LLC included elsewhere in this Quarterly Report on Form 10-Q.contingent consideration payable and current and deferred income taxes.appraisals and they are continuing to review the amounts and allocations to finalize these amounts. We have one year from the dateappraisals.undiscounteddiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. Intangible assets are amortized over their estimated useful lives of seven to sixteentwelve years.using a discounted cash flow or a revenuesbased on the fair market value of the Company’s Class A and earnings multiple approach.B common shares. We calculate such loss as the difference between theOnce the product is ready for its intended use, suchSuch costs are amortized on a straight-line basis over three years. Costs capitalized as part of the pushdown accounting allocation are amortized over nine years. We review the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable, or that their useful lives are shorter than originally expected. Due to rapidly changing technology and the uncertainty of the software development process itself, future results could be affected if management’s current assessment of its software projects differs from actual performance.We earn transaction fees from transactions executed on our trading platforms through various fee plans. Transaction fees are generated on both a variable and fixed price basis and vary by geographic region, product type and trade size. For variable transaction fees, we charge clients fees based on the mix of products traded and the volume of transactions executed.We earn subscription fees primarily for granting clients access to our markets for trading and market data. Subscription fees are generally generated on a fixed price basis.We earn commission revenue from our electronic and voice brokerage services on a riskless principal basis. Riskless principal revenues are derived on matched principal transactions where revenues are earned on the spread between the buy and sell price of the transacted product.On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the measurement or timing of recognition of revenue in any prior reporting periods. However, in the current reporting period, we were We are required to make significant judgements for the Refinitiv market data fees. Significant judgements used in accounting for this contract include:···areis accounted for as equity or liability awards. As a stock-based equity award, the Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments based on their estimated fair values measured as of the grant date. These costs are recognized as an expense over the requisite service period, with an offsetting increase to members’additional paid-in capital.in accordance withbased on the American Instituteprice of Certified Public Accountants Practice Aid, Valuation of Privately Held Company Securities Issued as Compensation. Factors that are considered in determining the fair value include forecasted future cash flows,Company’s Class A common stock on the weighted average cost of capital,grant date. the performance multiples of comparable companies.In October 2018, following the closing of the Refinitiv Transaction,IPO, we made a special award ofawarded options to management and other employees (the(collectively, the “Special Option Award”) under ourthe Amended and Restated Tradeweb Markets Inc. Option Plan. In accounting for the options issued under this plan, we measure and recognize compensation expense for all awards based on their estimated fair values measured as of the grant date. Costs related to these options will beare recognized as an expense in our consolidated statements of income over the requisite service period, with an offsetting increase to additional paid-in capital. We expectstarted to expense the non-cash stock-based compensation expense associated withrelated to the Special Option Award to be between approximately $33.5 million and $35.7 million, which is expected to be expensed beginning in the second quarter of 2019, with a charge of $20.4 million ($18.9 million of which was charged immediately upon the completion of the IPO), and continuingwill continue to expense over the following three years. For more information, please see “Executive Compensation—Narrative Disclosure to Summary Compensation Table—Amended and Restated Tradeweb Markets Inc. 2018 Share Option Plan” in our definitive proxy statement for the IPO Prospectus.share-based paymentstock-based awards. Determining the appropriate fair value model and calculating the fair value of the share-based paymentstock-based awards requires the input of highly subjective assumptions, including the expected life of the share-based paymentstock-based awards, the number of expected share-based paymentstock-based awards that will be forfeited prior to the completion of the vesting requirements, and the stock price volatility.not requiredpassed through to maintain anand included in the taxable income tax provision on its earnings. Therefore, the remaining tax effects of its activities accrue directlymembers, including to its partners.us. TWM LLC records taxes for conducting business in certain state, local and foreign jurisdictions and records U.S. federal taxes for subsidiaries that are taxed as corporations for U.S. tax purposes. We currently record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and measure the deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse. We record valuation allowances when we believe that it is more likely than not that the Company will not be able to realize its deferred tax assets in the future, therefore, no valuation allowance is necessary. Tradeweb Markets Inc. is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of TWM LLC and will be taxed at prevailing corporate tax rates.under theof GILTI provision as a current period expense when incurred.Contingent ConsiderationIn 2014, we issued Class A Sharesunvested Class P-1(A) Sharesthe Continuing LLC Owners which provides for the payment by Tradeweb Markets Inc. to somea Continuing LLC Owner of 50% of the Bank Stockholdersamount of U.S. federal, state and local income or franchise tax savings, if any, that Tradeweb Markets Inc. actually realizes (or in some circumstances is deemed to realize) as a result of a capital contribution to facilitate our expansion into new credit products. The(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 issuanceIPO, the October 2019 and April 2020 follow-on offerings and any future offering or (b) redemptions or exchanges by such Continuing LLC Owner of LLC Interests for shares of Class A common stock or Class B common stock or for cash, as applicable, and (ii) certain other tax benefits related to Tradeweb Markets Inc. making payments under the sharesTax Receivable Agreement.included in members’ capital. In connection withpurchased by us using the investment, certain employees also invested in the Company and were issued Class C Shares and unvested Class P-1(C) Shares. Thenet proceeds from the issuanceIPO. As of these shares were included in members’ capital. The Class A Shares and Class C Shares issued in connection withDecember 31, 2019, the investment equally participated inliability was $240.8 million, primarily due to the earningspurchase of LLC Interests by the Corporation using the net proceeds of the Company together withOctober 2019 follow-on offering as well as additional exchanges of LLC Interests by Continuing LLC Owners. During the other Class A Shares, Class P(A) Shares, Class C Shares and Class P(C) Sharessecond quarter of 2020, the Company. Most of the holders of Class A shares had the rightliability increased to appoint members$373.0 million primarily due to the boardApril 2020 follow-on offering and additional exchanges of managersLLC Interests by Continuing LLC Owners.Class P-1(A) Shares and Class P-1(C) Shares did not have any earnings participation rights, nor did anyimpact of the Class P-1(A) Shares have the right to appoint members to the former board of managers, until they vested. The Class P-1(A) Shares and Class P-1(C) Shares vested in July 2018 upon the achievement of specific revenue earnout milestones related to the growth of our credit products, as defined by the agreement, from August 2014 through the vesting date of July 2018.Prior to the July 2018 vesting, we recognized contingent consideration with respect to the potential vesting of Class P-1(A) Shares and Class P-1(C) Shares as a contra-revenue adjustment in accordance with ASC 605-50-45-2 because the vesting could be viewed as a sales incentive to participating Bank Stockholders since they are also customers of the Company. The contingent consideration for each reporting period was calculated by estimating the final contingent consideration value using a monte carlo simulation and recognizing that value on a straightline basis over the 48 monthperiod of the agreement, adjusting at each reporting period for any changes in the final value estimate. The revenue milestones provided that shares would vest only if certain credit revenue milestones would be achieved inprojected obligations under the twelve months ended July 2016, 2017 and 2018.As a result of achieving these milestones, the final earnout amount was calculated based on the credit revenues during the twelve months ended July 31, 2018. On July 31, 2018, members’ capital increased by $150.5 millionTax Receivable Agreement as a result of changes in the vestinggeographic mix of the Class P-1(A) Sharesour earnings, changes in tax legislation and employee equity compensation payable increased by $5.7 million as a result oftax rates or other factors that may impact our tax savings will be reflected in income before taxes in the vesting ofperiod in which the Class P-1(C) Shares. The value of the vested Class P-1(C) Shares was included in employee equity compensation payable because the Class P-1(C) were owned for less than six months by employees who had the ability to exercise a put option of those shares under certain conditions under their control.Effective January 1, 2019, we adopted ASC 842, Leases. This standard requires us to recognize a right-of-use asset and a lease liability for all leases with an initial term in excess of twelve months. The asset reflects the present value of unpaid lease payments coupled with initial direct costs, prepaid lease payments, and lease incentives. The amount of the lease liability is calculated as the present value of unpaid lease payments. We adopted ASC 842 prospectively and elected to take the package of practical expedients allowing us not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.On January 1, 2019, upon the adoption of ASC 842, the Company recorded right-to-use assets of $34.8 million, lease liabilities of $39.6 million and eliminated deferred rent of $4.9 million.“NoteNote 2 — Summary of– Significant Accounting Policies”Policies to theour unaudited consolidated financial statements of Tradeweb Markets LLC included elsewhere in this Quarterly Report on Form 10-Q for information regardinga discussion of recent accounting pronouncements (adopted and not yet adopted. Duringthree months ended March 31, 2019 and 2018 approximately 30.3% and 29.1%, respectively,percentage breakdown of our gross revenue and 15.1% and 16.1%, respectively, of our operating expenses were denominated in currencies other than the U.S. dollar almost entirelyfor the Euro for grossthree and six months ended June 30, 2020 and 2019:Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 27% 30% 29% 30 % 16% 14% 15% 14 % and thein foreign currencies is primarily denominated in Euros.pound sterling for operating expenses.Fluctuationsdecreased our gross revenue by approximately $2.3 million forduring the three and six months ended March 31, 2019June 30, 2020 and decreased our operating income by approximately $3.1 million for2019:Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Increase (decrease) in gross revenue $ (500) $ (2,400) $ (1,200) $ (4,700) Increase (decrease) in operating income $ (2,500) $ (2,100) $ (2,400) $ (5,300) three months ended March 31, 2019. Fluctuations in foreign currency rates increased our gross revenue by approximately $1.5 millionfor the three months ended March 31, 2018 and increased our operating income by approximately $1.4 million for the three months ended March 31, 2018. Based on actual results for the three months ended March 31, 2019 and 2018,impact a hypothetical 10% increase or decrease in the U.S. dollar against all other currencies would have decreased or increasedon actual gross revenue by approximately $5.7 million and $4.9 million, respectively, and operating income by approximately $3.6 millionfor the three and $3.1 million, respectively.Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Effect of 10% change on gross revenue +/- $6,400 +/- $5,800 +/- $14,500 +/- $11,500 Effect of 10% change on operating income +/- $3,900 +/- $3,600 +/- $9,400 +/- $7,300 fourteentwelve months. We do not use derivative instruments for trading or speculative purposes. As of March 31, 2019June 30, 2020 and December 31, 2018,2019, the notional amount of our foreign currency forward contracts was $58.2$127.1 million and $1.7$83.9 million, respectively.At March 31, 2019 and December 31, 2018, we established an allowance for doubtful accounts of $1.3 million and $1.2 million, respectively, with regard to these receivables. and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e)‑15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.10‑Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q10‑Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.March 31, 2019June 30, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.below,in our Quarterly Report on Form 10-Q filed on May 12, 2020, there have been no material changes from the legal proceedings previously disclosed under the heading “Business—“Item 3. Legal Proceedings” in the IPO Prospectus. The legal proceeding described below has been disclosed previously in the IPO Prospectus. The matter is described in this Quarterly Report onour 2019 Form 10-Q to include certain developments in the case since we filed the IPO Prospectus.IDC MatterIn September 2015, IDC Financial Publishing, Inc. (“IDC”) filed a lawsuit in the United States District Court for the Eastern District of Wisconsin against BondDesk Group LLC and Tradeweb Markets LLC (together, the “Tradeweb Parties”), and Fidelity Global Brokerage Group, Inc., Fidelity Brokerage Services, LLC, and National Financial Services, LLC (collectively, “Fidelity”), captioned IDC Financial Publishing Inc. v. BondDesk Group LLC, et al., Case No. 2:15-cv-01085-PP, relating to the distribution of IDC’s financial strength ratings over Tradeweb’s trading platform to Fidelity, its registered investment advisors and Fidelity’s correspondent banks. IDC alleges that while certain business units of Fidelity were licensed to receive its data via Tradeweb’s platform, the IDC data was also distributed without authorization to Fidelity’s institutional customers for approximately five years. The complaint, as amended, asserts claims for breach of contract and intentional misrepresentation against all of the defendants (as well as a claim of tortious interference with contract against Fidelity). IDC claims to have suffered approximately $80 million in damages and also seeks punitive damages, attorneys’ fees and costs. The defendants answered the complaint denying the claims and asserting various affirmative defenses. The Tradeweb Parties and Fidelity have moved for summary judgment dismissing IDC’s claims and rejecting its damage theory as speculative and contrary to the evidence, and IDC has sought partial summary judgment dismissing several of the Tradeweb Parties’ and Fidelity’s affirmative defenses. Those motions remain pending. The Court has scheduled oral argument on those motions for September 2019. In April 2019, the Court adjourned the scheduled trial date, which had been set for July 2019, until March 2020. We intend to continue to vigorously defend what we believe to be meritless and excessive claims.IPO Prospectus, which is accessibleinformation set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Trends and Other Factors Affecting Our Performance—COVID-19” of this Quarterly Report on the SEC’s website at www.sec.gov.Unregistered Sales of Equity SecuritiesIn connection with the Reorganization Transactions, Tradeweb Markets Inc., among other things, issued an aggregate of 96,933,192 shares of Class B common stock to Refinitiv Parent Limited. In addition, in connection with the Reorganization Transactions, Tradeweb Markets Inc. issued 20,000,000 shares of Class C common stock and 105,289,005 shares of Class D common stock to the Continuing LLC Owners. These equityholders also received LLC Interests and an immaterial amount of cash in lieu of the issuance of any fractional interests. Holders of Class B common stock may from time to time exchange all or a portion of their shares of Class B common stock for newly issued shares of Class A common stock on a one-for-one basis. In addition, the LLC Interests are redeemable for newly issued shares of Class A common stock or Class B common stock on a one-for-one basis. For further information, see “Description of Capital Stock” in the IPO Prospectus. The issuances of the Class B common stock, Class C common stock and Class D common stock described in this paragraph were made in reliance on Section 4(a)(2) of the Securities Act. The Company relied on this exemption from registration based in part on the nature of the transactions and the various representations made by the parties thereto.Use of ProceedsOn April 8, 2019, we completed the IPO by issuing 46,000,000 shares of Class A common stock, which included 6,000,000 shares of Class A common stock issued in connection with the underwriters’ exercise in full of their option to purchase additional shares of Class A common stock. The shares of Class A common stock sold in the offering were registered under the Securities Act pursuant to the Registration Statement on Form S-1 (File No. 333-333-230115), which was declared effective by the SEC on April 3, 2019, and the Registration Statement on Form S-1 (File No. 333-230715), which became effective upon filing with the SEC on April 3, 2019. The shares of Class A common stock are listed on the Nasdaq Global Select Market under the symbol “TW.” The shares of Class A Common Stock were sold at an initial public offering price of $27.00 per share. The offering closed on April 8, 2019, resulting in net proceeds of $1,161.3 million after deducting underwriting discounts and commissions of $80.7 million. We also incurred offering expenses of approximately $12.1 million in connection with the IPO. J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC acted as joint lead book-running managers in the IPO. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC acted as joint book-running managers for the IPO. Jefferies LLC and Sandler O’Neill & Partners, L.P. acted as co-managers for the IPO.We used the net proceeds from the IPO to purchase 46,000,000 issued and outstanding LLC Interests from certain of the Bank Stockholders (and cancelled 9,993,731 shares of Class C common stock and 36,006,269 shares of Class D common stock), at a purchase price per interest equal to the IPO price per share of Class A common stock, less the underwriting discounts and commissions payable thereon.There has been no material change in the use of proceeds as described in the IPO Prospectus.None.(a) ExhibitsThe following exhibits are filed as a part of this Quarterly Report on Form 10-Q:Exhibit Number 3.131.1 3.210.1*10.2*10.3*10.4*10.5*10.6*10.7*10.8†*Amended and Restated Tradeweb Markets Inc. 2018 Share Option Plan.10.9†*10.10†*10.11†*Form of Director RSU Agreement under the Tradeweb Markets Inc. 2019 Omnibus Equity Incentive Plan.31.1*31.2*32.1*32.2*101.INS*Exhibit NumberDescription of Exhibit101.SCH*101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL*101.DEF*101.LAB*101.PRE*104 Cover page formatted as Inline XBRL and contained in Exhibit 101. TRADEWEB MARKETS INC. May 20, 2019May 20, 2019