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Tradeweb Markets Inc (NASDAQ:TW)
Q4 2019 Earnings Call
Feb 12, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Tradeweb's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

To begin, I will turn the call over to Head of US Corporate Development and Investor Relations, Ashley Serrao. Please go ahead.

Ashley Serrao -- Head of US Corporate Development and Investor Relations

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

I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release and periodic reports filed with the SEC.

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

Lastly, we provide certain market and industry data which is based on management's estimates and various industry sources. For more information, see our earnings presentation posted on our website. To recap, this morning we reported GAAP earnings per diluted share of $0.25. Excluding certain non-cash stock-based compensation expense, acquisition and Refinitiv related D&A and certain FX items, and assuming an effective tax rate of 26.4%, we reported adjusted net income per diluted share of $0.26. Please see the earnings release and the Form 10-K to be filed with the SEC for additional information regarding the presentation of our historical results.

Now, let me turn the call over to Lee.

Lee Olesky -- Chief Executive Officer

Thanks, Ashley. Good morning, everyone and thank you for joining our fourth quarter earnings call. Since our inception, we have harnessed the creativity of our employees and power of our technology to solve problems for our growing global network of clients. We also continue to respond to secular trends. These include the increasing sophistication of technology, globalization of debt, focus on reducing cost, proliferation of data-driven decision making and the growth of ETFs driving changes across other trading products. These are the defining trends that we believe will fuel the digitization of markets and improvement in the quality of trade execution for our clients.

As you can see on slide 4, in 2019, our continued focus on client needs led to another year of strong execution at Tradeweb. Record volumes translated into 13% and 15% revenue growth on a reported and constant currency basis, respectively. As a result, we recorded our 20th consecutive year of record revenues. The scale generated by our strong top line results drove approximately 500 basis points of EBITDA margin expansion and 22% earnings growth. And as our growth initiatives continued to scale, we maintained our tradition of constant -- I'm sorry, consistent and focused organic investment.

In institutional credit trading, after leveraging the liquidity of our treasury platform to support net spotting, we continued to innovate by adding electronic portfolio trading, a game-changing protocol that has seen strong uptake by our clients. We further enhanced AiPrice in credit, that today prices over 19,000 bonds and functions as the reference price for our electronic session and portfolio trades. Beyond credit, we leveraged our multi-asset class footprint to electronify asset swaps and improve our block trading solution for US options. We also expanded our US Treasury streaming offering to cater to institutional clients. For the first time institutions are now able to consume customized liquidity, complementing their RFQ workflows on Tradeweb. Additionally, we executed several partnerships and integrations, augmenting our offering for institutional municipal bonds with Investortools, interest rate swaps with OpenGamma and Cassini and market data with ICE, to just name a few.

2019 also marked another milestone for Tradeweb as we began a new chapter in our life as a publicly listed Company. Our IPO has elevated our brand globally and made us a more attractive destination for top tier talent. During 2019, we added senior talent across cyber security, data, technology, infrastructure and product management.

As we look ahead, we expect 2020 to be no different. We will continue to operate with a growth mindset and invest to amplify our network, enhance our global footprint and pioneer electronic solutions across our asset classes. Our operating philosophy remains the same. We will do this by leading advances in financial technology and continuing to strategically work closely with both existing and new clients.

Turning to slide 5, we reported the strongest fourth quarter in our history and set multiple new volume records across US high grade and high yield credit and equity derivatives. Specifically, gross revenues of $197 million during fourth quarter '19 were up 10.5% year-on-year on a reported basis, and nearly 12% on a constant currency basis. Despite a significantly lower overall industry volume and volatility backdrop when compared to the same period in 2018. Our financial performance was once again characterized by strong growth, both domestically and internationally. We continue to be pleased with our international progress and see a lot of potential to continue to scale our footprint across European, Asian and emerging markets over time. Our double-digit revenue growth and the resulting scale translated into improved profitability as our fourth quarter adjusted EBITDA margin increased to 46.9%.

Turning to slide 6, you can see the diversity of our revenue growth as our biggest asset classes, rates and credit, continue to grow strongly. Specifically, they both registered their eighth consecutive quarter of double-digit revenue growth. Our equities revenues declined year-on-year given challenging comparisons for the US ETF market relative to the fourth quarter '18 that was marked by substantially elevated volatility and tax management trades given the market sell-off in December of 2018. Our data business grew 16% on a reported and constant currency basis.

Moving on to slide 7, let me provide a brief update on our four main focus areas, global interest rate swaps, US Treasuries, US credit and global ETFs.

Starting with our largest rates product by revenue, interest rate swaps, our total volumes were up over 30% year-on-year during the fourth quarter with swaps greater than one year in duration growing by over 11%. We continue to be very focused on driving electronification higher in this market by partnering with our clients to broaden our product set, enhance our functionality and improve workflows.

Moving on to treasuries. While our volumes were down 3% year-on-year given the challenging market conditions during the fourth quarter, I am pleased that our organic growth initiatives have allowed us to take share here using a variety of trading protocols in both the institutional and wholesale sectors. We estimate that our share as of year end was 12.5% of the US Treasury market. We hit another record on our wholesale streaming platform as we continue to leverage our proprietary technology to actively onboard a healthy pipeline of dealers. Traction has continued into 2020 with streams reaching another record in January.

The US Treasury closing price initiative in partnership with ICE has generated a lot of interest in the industry given the demand for trusted reference price data. We have already enhanced the methodology and are currently engaged with a variety of industry bodies and participants to drive adoption.

We have made rapid strides in US corporate credit during the fourth quarter as we continue to lead the current wave of innovation. We estimate that our overall share in high grade and high yield increased to a record 15.8% and 4.3%, respectively, with electronic share also hitting new records. Our institutional client count increased by 18% year-over-year. We see significant runway to grow as our network and liquidity continue to become stronger. The momentum has continued into 2020, as we reported new volume records for both overall high grade and high yield trading in January, as our strategy of focusing on the entire US credit market, including making strong inroads into the institutional sector, continues to pay off.

Finally, within institutional ETFs, volumes were up 5% as organic growth efforts in Europe more than offset subdued market volatility. Going ahead, we remain well-positioned to benefit from the continued growth of ETFs globally. Today, we see a broad range of clients interacting over our ETF platform from pension funds to wealth managers to hedge funds as our solutions continue to facilitate the transfer of block risk more quickly and efficiently than alternative venues. Building on our success in ETFs, over the past few quarters we have developed an RFQ solution for US options, still early days for that, the business is off to a promising start and nicely complements our flagship ETF RFQ offering.

With that, I will turn it over to Billy to give you some more color on trading automated global swaps and portfolio trading.

Billy Hult -- President

Thanks, Lee. So our markets continue to evolve gradually led by the twin driving forces of workflow simplification and advances in risk management. But once in a while a single innovation like portfolio trading really revolutionizes the way trading is done. I will talk about that in a bit but, let me start with an update on a multi-year trend that is unfolding around over-the-counter trading automation and how we are using AiEX to be the market leader on slide 8.

The search for liquidity continues to become more quantitative. We are helping our clients navigate the growing complexity involved in staging orders to improve execution outcomes with rules-based trading. For years, dealers have continued to invest in auto-quoting capabilities. AiEX allows the buy-side to interact with dealers more efficiently by sending inquiries in an automated fashion. This is a win-win solution for both sides. We are leading this automation of trading in fixed income, ETFs and now across derivatives, leveraging our whole -- leveraging our wide network and OMS integrations.

Today, approximately 25% of our institutional trades are driven by AiEX with plenty of room to grow. Our top 10 AiEX users have automated over 50% of the trades they send to Tradeweb on average, doubling their usage over the last four years.

After adding a record number of new clients in 2019, the pipeline remains strong. We are also seeing trade sizes gradually increasing, especially as AiEX continues to penetrate swaps. Trading behavior is changing as we speak and we are still in the early days of adoption. There is plenty of room for automation to grow even within our top 100 and most sophisticated clients.

Another key growth area for us is global interest rate swaps. 2019 was another record year. The investments we made to respond to market structure changes like the advent of central clearing and demand for compression tools are paying off. Our ability to also offer trading in correlated and adjacent asset classes like mortgages and government bonds have also helped attract more swaps traders to our platform. It has also allowed us to connect markets with innovations like electronic multi-asset package trading. When combined with Tradeweb's expertise in navigating regulatory change, we believe we have become the leading venue for clients to trade interest rate swaps.

Our market share continues to increase and we believe our offering is resonating across currencies. It's important to note that the volume growth is not just confined to Europe, a region that is undergoing rapid change post MiFID II. We are seeing broader based regional growth.

On the regulatory front, we are partnering with market participants to help them transition swaps away from LIBOR indices. Specifically, we are providing transparency into risk-free rates and portfolio solutions to switch reference rates. Improving client workflows has been fundamental to everything we do at Tradeweb and swaps is no different. We are now expanding our request for market solution or RFM to include more swap types. RFM is a great example of a solution where we have partnered with our clients to move large risk efficiently and electronically while mirroring the protocols used in voice execution. We are focused on ensuring that clients have access to the broadest scope of protocols to execute their interest rate swaps.

Turning to credit on slide 9, 2019 further validated our differentiated approach to the credit market. We are laser focused on the big picture which is helping clients leverage our search engine in an illiquid market to find the other side of a trade. The focus, our heritage of pioneering electronic solutions across asset classes and the creative talent that Lee referred to earlier has helped us lead the current wave of innovation in corporate credit.

We are defining the future of electronic credit trading by using our proprietary technology to integrate liquidity across the traditional retail, institutional and wholesale sectors. Our multi-sector presence allows us to focus on bringing electronic workflows to 100% of the US credit market today as measured by TRACE. Electronic and digital execution workflow options in credit have never been better for customers and you can find all of them at Tradeweb.

During the fourth quarter, our market share increased materially as our network continued to season and client engagement improved. As Lee mentioned, the momentum has continued into January and we believe we have significant runway to add more clients and grow our share across both high grade and high yield credit.

When we step back, we are pleased to report that our differentiated strategy and focused investment is firing on all cylinders. Our growth was broad-based across both traditional protocols such as All-to-All and RFQ and also across the next generation of innovations that we are leading such as net spotting, session trading, and connecting retail liquidity into institutional RFQs, and portfolio trading.

We are very excited about the future of portfolio trading which we see growing in tandem with the growth of fixed income ETFs and the increasing precision of real-time reference pricing sourced from tools like Tradeweb's proprietary AiPrice. This is a lightbulb moment with our most sophisticated and largest clients. It is a global trend and we believe more clients will follow. We estimate portfolio trading has grown rapidly over the last 18 months to now account for 3% to 4% of TRACE.

This is another win-win solution that addresses the inefficiencies in list trading. Clients are able to now trade large and complex baskets containing a mix of bonds across the liquidity spectrum at an attractive price with speed and certainty. Dealers are able to increase balance sheet velocity and reduce holding periods. Many dealers have created or are in the process of creating dedicated portfolio desks -- dedicated portfolio trading desks to capitalize on this. They are also investing heavily in improving their tools to price and manage this risk. Looking ahead, we expect client demand to continue to increase and dealers to continue to play a central role in driving the broad-based adoption of portfolio trading.

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

Robert Warshaw -- Chief Financial Officer

Thanks, Billy and good morning. As Lee indicated, our continued year-over-year growth in the fourth quarter, our full year 2019 growth in volumes, revenue, earnings and improved margin, and our volumes in January 2020, lead us to have confidence by providing sustained value for our clients, we also are creating sustained value for our shareholders.

As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Let me begin with an overview of our volumes on slide 10. We reported quarterly ADV of $685 billion, up 16%. As you can see the growth was broad-based. We believe the diversity of our business is one of our strengths.

Slide 11 provides a summary of our quarterly earnings performance. The strong volume growth I just described translated into gross revenues increasing by nearly 11% and by 12% on a constant currency basis. We derived approximately 35% of our revenues from international customers and recall that 30% of our revenue base is denominated in currencies other than dollars, predominantly in Euros. Our variable revenues increased by 14% and our total trading revenue increased by 10%. Fixed revenues relating to our four major asset classes continued to grow as expected. We continue to expect a low single digit growth rate going forward.

Other information services increased by 22% due to growth in our APA reporting business. Adjusted EBITDA margin came in at 46.9% and expanded nicely relative to fourth '18 as we continued to benefit from scale and the lack of IPO related costs. Full year adjusted EBITDA margin increased to 45.5% from 40.8% in 2018. All in, we reported adjusted net Income per diluted share of $0.26.

Slide 12 lays out the trends in fees per million. We have not made any changes to our fee schedules. The trends I am about to describe are driven by mix of the various products within our four asset classes. In sum, our blended fee per million declined 3% year-over-year, but, excluding lower fees per million short tenor swaps, our blended fee per million was up 2% year-over-year.

Let's spend a minute reviewing the underlying trends by asset class. Starting with rates. Average fees per million for rates decreased slightly due to mix shift toward short tenor swaps. Excluding short tenor swaps, fees per million was up year-over-year primarily due to growth in non-TBA mortgage activity which carries a higher fees per million. Continuing to credit, average fees per million for credit increased 9%. This was primarily driven by mix shift away from derivatives products due to higher growth in cash products as our investments to grow electronic credit pay off. Continuing with equities, average fees per million decreased 20%. This was primarily driven by growth in US equity options, which carry a lower fees per million than other equities products. We expect US equity options to continue to grow as we onboard clients and as liquidity builds. Finally within money markets, fee per million decreased 9%. This was primarily driven by growth in repo which carries a lower fees per million than other money market products.

Slide 13 details our expenses. At a high level, we continue to invest for growth. There has been no change to our philosophy here. While our four quarter operating expenses declined year-over-year, our full year 2019 adjusted expenses grew more than 4% and almost 5% on a constant currency basis, in line with our expectations. As a reminder, adjusted expenses excludes non-cash stock-based compensation expense related to options, acquisition and Refinitiv related D&A and certain FX related gains and losses. Adjusted Expenses for the fourth quarter declined 6.5%, 7% on a constant currency basis. Recall approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling. Fourth quarter '19 operating expenses were lower when compared to fourth quarter 2018, due to the timing of performance-related compensation accruals in 2018.

Adjusted non-comp expense declined 3.5% or 4.2% on a constant currency basis. Specifically, general and administrative fees declined as increased public company insurance expenses were more than offset primarily by one-time items such as a decrease in our bad debt reserve. We expect G&A to trend around $10 million to $11 million a quarter excluding the impact of FX going forward in 2020. Professional fees declined primarily due to reduced consulting and legal fees, in part driven by elevated costs in fourth quarter '18 tied to the IPO. Occupancy increased due to higher costs tied to our Amsterdam offices that we opened in response to Brexit.

Slide 14 details capital management and our guidance. First on our cash position and dividend policy. We ended fourth quarter holding $461 million in unrestricted cash and cash equivalents and free cash flow for the year reached $267 million. Capex for the year was $45 million, an increase of 6% year-over-year, in line with our expectations. With this quarter's earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share.

Turning to guidance for 2020. We will continue to invest in 2020, and are expecting adjusted expenses to range from $495 million to $510 million. The midpoint of this range would represent an approximate 8% increase. We believe we can drive operating margin expansion at either end of this range. As Lee and Billy mentioned, harnessing data to drive execution is an important part of our story. As such, our guidance includes $5 million of investments primarily tied to our data strategy. We also continue to invest in cyber security and risk. Our guidance also includes approximately $3 million of duplicative rent expense in advance of a potential office move in 2021. We are still finalizing the specifics of our move and will be working with landlords to minimize the duplicative expense that we may incur.

For forecasting purposes, we are now assuming a non-GAAP tax rate for 2020 of 22%, compared to 26.4% in 2019. The lower tax rate is driven by both changes in marginal tax rates across various jurisdictions as well as windfall benefits from the PRSUs we award as part of our share based compensation. We expect these changes to recur in subsequent years. We expect capex to be about $45 million to $50 million. Acquisition and Refinitiv transaction related D&A, which we adjust out due to the increase associated with pushdown accounting, is expected to be $110 million.

Finally, let me discuss our share count. We have updated our quarterly share count sensitivity for 2020 to help you calibrate your models for fluctuations in our share price.

Now I'll turn it back to Lee for concluding remarks.

Lee Olesky -- Chief Executive Officer

Thanks, Bob. 2019 was another record year marked by numerous milestones for the Company and our products. We continued to expand our opportunity set across all of our businesses and we are very excited by the potential we see for Tradeweb. We are focused on capitalizing on the various growth opportunities ahead of us and continuing to strike the right balance between investing for the future and driving margin expansion to create long-term value for our shareholders.

The markets that we operate in are fundamentally changing as we speak. We believe the digitization of fixed income is accelerating and this technology fueled transition will continue to play out for years to come. As such, we believe that our multi-asset, multi-sector, multi-protocol and global presence gives Tradeweb the ideal vantage point to both participate in and lead the next generation of progress.

The momentum from 2019 has carried over into 2020 so far with January volumes increasing 29% with broad-based growth across our four asset classes and new volume records in mortgages, European government bonds, US corporate credit and repo. I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter and I want to thank my colleagues for their efforts that contributed to our strongest fourth quarter in our history and a truly record year for Tradeweb.

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

Ashley Serrao -- Head of US Corporate Development and Investor Relations

Thanks, Lee. [Operator Instructions] Q&A will end at 9:30 Eastern time. Operator, you can now take our first question.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Rick Repetto with Piper Sandler.

Richard Repetto -- Piper Sandler -- Analyst

Yeah, good morning, Lee, and Billy and Bob. I guess, since I have one question, I guess I'll go to the portfolio of trading side of it. And I know you've made a lot of comments on automation and how the market continues to move in that direction. Could you talk about the portfolio trading side? And I know you include that Billy as fully electronic. Are these trades truly fully electronic and what's the outlook there? How can that grow and impact your fully electronic share I guess in credit?

Billy Hult -- President

Yeah, hey, Rich, how are you? Very good question. So the answer is -- the straight answer is yes, we look at that as fully electronic business. I think the evolution around portfolio trading is going to be from what we would consider non-comp trading into more competitive environment type trading. I've described it as the kind of lightbulb moment with customers. And I think absolutely, it's an innovation not to be on any level dismissed. It is one of those things where once clients understand the value of it, they absolutely on board and start their usage that way.

On some level, it's about -- from the client perspective, do they get better levels when they send out bid list offer lists, or do they get better levels when they send out portfolio trades. And 100% we are seeing more and more clients using portfolio trades. We have never dismissed Rich, the reality that there are always going to be some voice process trades in the marketplace. And we think that's important investment for us. But 100% we think about portfolio trades as fully electronic trades.

Richard Repetto -- Piper Sandler -- Analyst

And there's risk transfer -- transference in these portfolio trades that you are reported.

Billy Hult -- President

100%.

Richard Repetto -- Piper Sandler -- Analyst

Got it. Thank you.

Billy Hult -- President

Thanks.

Operator

Our next question comes from Ari Ghosh with Credit Suisse.

Ari Ghosh -- Credit Suisse -- Analyst

Hey, good morning, everyone. So I was hoping you could give us an update on some of your new European initiatives and just overall growth expectations from that region. Yeah, just curious what type of traction you're seeing from recent rollouts of including portfolio trading across asset map tools in the region. And then you know, if you see any client demand weakening at all from that region as well, that'd be really helpful like some of your peers have noted saying. Thanks much.

Lee Olesky -- Chief Executive Officer

Well, thanks, Ari. Good morning. It's Lee. Yeah, Europe is a key component of our international growth story. We see a lot of opportunity within a number of areas in Europe, the corporate cash, credit business, the interest rate swap business. And as you mentioned, portfolio trading Billy spoke about that a bit, is really a global trend.

We just started doing it in a meaningful way in Europe. And as Billy said, we just think there's a lot of room to go with this. The percentages are going up quite rapidly in terms of both the US and in Europe. So, adoption continues. It's still relatively early days with us. We've been doing portfolio trading now as a company for over a year. So we've clearly been the leader in this space. I think as a result we have a nice meaningful share of activity in portfolio trading. We also have, as you mentioned, the multi-asset package activity that started in Europe, that's kind of asset swaps in my old speak, really started with the sterling market in sterling swaps. But we're rolling that out now to other currencies.

That's part of our whole connect the dots concept and you'll hear us talk about that a lot. And we've basically linked together the swap market and the bond market electronically. It's a market that's existed for some time, the package trading and the asset swap trading. Obviously, it's been going on for 20 plus years. But we're doing it now electronically. It is a real time saver and a real efficiency. To be able to link these markets, you have to be in both of the markets to begin to link them.

Europe, we're also seeing as in the US, the beginning of the move away from LIBOR to the global risk free rates. That's something we're spending a good deal of time on. And also in Europe, we have a focus on emerging markets that continues. So, there's an awful lot happening in Europe. It has been a great area of growth for us, a great place to innovate. And we're very excited about the opportunities over there.

Ari Ghosh -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Our next question comes from Ken Hill with Rosenblatt.

Ken Hill -- Rosenblatt -- Analyst

Hi, good morning. In the prepared remarks, I think you highlighted that you expanded the US Treasury streaming offering to institutional clients. So, they're able to customize the liquidity a little bit. I was hoping to kind of flush that out a little bit as to maybe what you're seeing from a competitive environment perspective there. And then may be how that's being implemented in client behaviors and how that might be kind of additive to, for you guys versus more of RFQ type process?

Lee Olesky -- Chief Executive Officer

Yeah, so we have that -- that's a great question. So, we have that business that we call stack. And we think -- look, we think that there are certain types of clients in certain environments that are going to want to consume streams pricing. And we think that's an important evolution of the government bond market. We feel very strongly that we've always been a leader in this space and we think, playing a leadership role around this evolution is obviously a very important thing. Is RFQ and that type of trading going away? Absolutely not. But there is going to be evolution, some of that evolution will be around streaming and we're going to play a leadership role around that.

In terms of the kind of competitive environment that you're describing, the one thing I would say is obviously, it's pretty in the rate space. It's a pretty crowded landscape. Obviously, we have Tradeweb in the leadership role that we've played. You have Bloomberg, you have CME, you have NASDAQ, you have Senex [Phonetic]. It's a pretty kind of long list of competitors in that field.

When we step back a little bit, one of the things that makes us feel pretty confident about our offering is just the breadth of offering that we have and that we offer to clients. So, 100% kind of laser focused on this space. And a strong feeling that streaming is an important strategy. And we're glad that we're in it. And we're glad that we're playing a leadership role around it.

Ken Hill -- Rosenblatt -- Analyst

Thanks for the detail.

Lee Olesky -- Chief Executive Officer

Yeah.

Operator

Next question comes from Alex Blostein with Goldman Sachs.

Alex Blostein -- Goldman Sachs -- Analyst

Hi, good morning, everybody. I was hoping to dig a little bit deeper into the recent share gains you guys have seen in the credit business. Feels like again, that dynamic has been accelerating quite a bit in terms of volumes, but maybe spend a little bit of time in terms of the incremental revenues, incremental areas of revenue growth within that product. What are the capture rate you guys are seeing on that sort of incremental volume you've seen over the last couple of quarters?

Billy Hult -- President

Hey, Alex, it's Billy. One way I think we would describe it a little bit as you kind of heard us. You heard Lee and I talked a little bit in the prepared remarks around something important, which is like creating efficiencies for our clients. Right, that is kind of something Tradeweb has always done. It's a little bit of our oxygen. And I would say this in kind of a very obvious way. We have a lot of clients, right. And some of our clients are asset managers. Some of our clients are banks. Some of our clients are hedge funds. Some of our clients are wealth managers. Some of our clients are alternative market makers, right.

So, we don't always necessarily think about like, the boxes around institutional trading and D2D trading and D2C trading, right. Like, if you think about the credit landscape for a second, it's pretty interesting, right. You have obviously clients that trade with dealers. You have clients that trade with clients. And obviously that's the kind of All-to-All environment that we've all spoken about a lot. You have dealers that trade with dealers.

And I think we've played a very strong role around that innovation and our sweet product. Right. And then you have actually dealers that send out RFQs that clients respond to. So you have this very kind of evolving market structure in credit. And if you step back a little bit, and you see that Tradeweb is actually like the Company that's playing the leadership role in all of these segments. And that's really kind of how we think about our business, which is how do we create efficiencies for our clients. And how do we put enough bets on the table? We're going to play your leadership role as this market structure evolves.

And that's the kind of the best way I can kind of answer that. In a separate way, obviously, Alex, when we talk about portfolio trading and net spotting, and those types of innovations, we're talking about how we derived value and efficiencies for our buy side clients. So doing that with our buy side clients in our institutional business is always a massive and huge priority for us.

Robert Warshaw -- Chief Financial Officer

I'll just add one thing to that. And that is, as that happens, one of the impacts of that as we would expect that cash credit will grow -- continue to grow faster than our derivatives piece of credit. And so when you look at fees per million, we would expect that start blending higher overtime as well. So that's just a byproduct of what those described.

Alex Blostein -- Goldman Sachs -- Analyst

Got you. Great. Thanks very much.

Operator

Our next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey good morning. Thanks for taking the question. I was just hoping to hear an update on your business and your strategy in China. And in particular, how does the recent trade deal impact any sort of timing or development in your view of international access to Chinese bond markets? I think the markets there and your build out of the business and any impact that you're seeing that terms of activity volume from the coronavirus? And I guess maybe more big picture what risk you seek to the China growth story longer term.

Lee Olesky -- Chief Executive Officer

Right. Thanks, Michael. It's Lee. Yeah the international demand for access to China and their bond markets continues to grow and be very real. Our focus has been on increasing the participation with this electronification, mainly with asset managers.

So, we continue to kind of outperform that segment in terms of capturing real money demand. And we account for a significant majority of the net inflows into China via bond connect. The current coronavirus situation and market conditions putting aside that humanitarian impact definitely creates some short term volatility.

Our execution plans, our long term outlook for our China business is unchanged. We continue to see significant secular growth and international demand for participation in China's bond market. We had a situation in January that you see from our volumes, our average daily volume went down. But some of that was also the fact that the Chinese New Year actually hit in January this year. And last year, the Chinese New Year, lunar calendar actually hit in February. So, there was a little bit of bad timing. And of course the markets were closed for a day in January as a result of the coronavirus.

So, short term, it's a challenging situation for all of us who haven't -- some of our team based in China and for the markets there. But, medium term longer term, we continue to be very committed and expect we'll get out of this just fine.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. Thanks.

Operator

[Operator Instructions] Our next question comes from Michael Carrier with Bank of America.

Sameer Murukutla -- Bank of America Merrill lynch -- Analyst

Hey, good morning. This is actually Sameer Murukutla on for Michael. Thanks for taking my question. So Lee, you've highlighted several times on the call that you're laser focused on both investments in the business to drive revenue growth and margin expansion.

But given the new peers keep pushing into the rate segment. And then there are already many well-funded peers, I guess how confident are you that you're spending enough to defend your market share revenues? And I guess Rob any details you can provide on, what kind of margin expansion you're budgeting on the low end and high end of your guidance?

Lee Olesky -- Chief Executive Officer

Right. So of course, rates part of our franchise has long been our leading component of our revenues and we've been known for many years. And as Billy pointed out and you're pointing out it's a pretty competitive space, has been for as long as we've been in the market.

And yet we've grown from day one and continue to grow and have grown in right up until the fourth quarter, and even the January numbers that you see. So, we like our trajectory. We like our opportunity set.

It's all about innovation. It's all about creativity about building the software that meets the client's needs and demands. It's about being clever. But mostly it's about listening to the clients and as I said before, connecting some of the dots between markets that allow for greater flow.

And I expected we will just continue on that path. And we are obviously investing and building new things and different innovations. And the results speak for themselves. And we're on that same track. I think in terms of the guidance, I'm going to let Bob comments on that the expense guidance.

Robert Warshaw -- Chief Financial Officer

Yeah, I think, as we said, on either side of the expense guidance, we believe we can still experience -- deliver some margin improvement. And the reason for that, I think is several parts. One is, as we've talked a lot about over the last quarters, is we have a scale business.

And as we get to different stages in our investments in different products, we start to see that scale improve. And we believe that will continue to improve through 2020 in the products that we've been investing in. And most of new investments which will also deliver some value. So I think that's the first thing I think I'd say. I think the second thing is that part of these networks is because we have a certain amount of our compensation expenses are variable against the performance, both on revenue and on earnings.

And so it's kind of -- it's just -- it happens, it goes up if we get more revenue and/or more earnings. But it sort of goes up more slowly than the scale of the revenue and the earnings. So I think that also is a way that we've put in devices, I guess you can call that to make sure that we are continuing to deliver more value with new revenue.

And I think the last thing I'd say is, as there are, obviously some costs we had in 2019 that were related to first be a public company. We don't expect those to increase substantially in the same way they did in 2019. And yet 2019 we demonstrated we still deliver substantial margin growth, inspite of having to absorb the costs of being a public company. There's still some more of those. But for the most part, that's now -- it's kind of what we think is sort of a status quo. And so growth again will get delivered against that without that substantially increasing in that regard.

And I think those are some samples of the kinds of things we're doing. We're obviously always looking at expenses and figure out if we can be more efficient. But the primary drivers as you would notice, obviously, scale and compensation.

Sameer Murukutla -- Bank of America Merrill lynch -- Analyst

Perfect. Thanks again.

Operator

Our next question is a follow-up question from Michael Cyprys, from Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, thanks for taking the follow-up. I just wanted to circle back on the ETF business. Just curious what the mix is between fixed income ETFs, versus equities, versus say commodities and other types of products. Where are you seeing the bigger opportunity if you were to look at the ETF market by geographic region, but also by strategy as well?

Lee Olesky -- Chief Executive Officer

Yeah, thanks for that question. Yeah, ETFs for us is pretty reflective of the overall market, the breakdowns between equities and fixed income. I know we're known as a fixed income platform. But in the ETF space, we are broadly reflective of the underlying volumes in the marketplace, so splits between ETF and -- sorry, equities and fixed income. So there's nothing there.

I do think, the correlations that we see with the credit markets are obviously of particular interest to us from links into the portfolio trading that we've built. That is kind of the evolution of the credit market is particularly interesting to us because we're not any sort of meaningful player in the underlying equity instruments. We are obviously corporate bonds and derivatives and all the other things that make up ETF. So we see those connections, as kind of harbinger of future growth opportunity, future connectivity, whether it's the clients that we're bringing into our system that are liquidity providers or focus on ETFs and linked into credit.

Those are those are really interesting things to us. But, to answer your first question, what's our split, it's reflective of what's going on in the market between equities and fixed income ETFs.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay, great, thank you.

Operator

Our next question comes from Ken Worthington with J.P. Morgan.

Ken Worthington -- J.P. Morgan -- Analyst

Hi, good morning. Maybe we can talk a little bit about the tax guidance at 22%. And I think those pre IPO and post IPO you're really looking at 26.4% tax rate. And there's a pretty decent gap between the 22% and the 26%. So can you talk about what's driving the change in tax outlook? Is this more unique to 2020 or is it 22%? Something we can think about as a best guess, as we look further into the future?

Lee Olesky -- Chief Executive Officer

I think it is a great question. I love talking about taxes. So it makes my morning.

Ashley Serrao -- Head of US Corporate Development and Investor Relations

Make it short.

Lee Olesky -- Chief Executive Officer

Make it short. Yes, exactly. There's really two primary things that are causing the change and a few other smaller things. The two primary things are, as we spent a good amount of time this last year looking at where revenue is sourced and what the different jurisdictional tax rates are.

We determined there were some marginal tax rate savings that we could ingest into our tax calculations. And that's about 50% of the change. So, that's a major piece of it. A lot of work associated with it is pretty complicated, but that's basically jurisdictional marginal tax rate thing. Another big piece of it is how one accounts for PRSUs. And I think that we call it for a windfall benefit because it relates to when we book the expense for PRSUs, we book it for accounting purposes at the basis of the value of equity at the time of issuance of the PRSUs.

When we book it for tax purposes. It's the point in time when invests in the value of equity at that time. So there's a much higher expense associated with tax purposes and for accounting purposes. And as we unraveled all the different pieces of equity in particular PRSUs have this particular impact. And that's a good part of the rest of it. There's some R&D credits we've done. There's certain things related to GILTI and FDII, which I'm sure you don't want me to talk about as far as tax benefits. But that's the major pieces of it.

We decided to change the rate because we believe this is a multiyear impact. And problem certainly goes to the next couple, three years. So, in '20, '21 and '22. We will obviously update if we see a material change. And as you know we tend to once we make these terminus for the year, it's the rate that we plan to use for the year unless there is material change in some form. But that's the story behind it.

Ken Worthington -- J.P. Morgan -- Analyst

Right. Well, thank you very much.

Operator

Our next question is a follow up question from Alex Blostein with Goldman Sachs.

Alex Blostein -- Goldman Sachs -- Analyst

Hi, guys, thanks. Thanks for the follow up. Real quick on data, specifically Refinitiv looks like the quarterly number picking up there sequentially. And I think going back to FDR, remember there was a new contract you guys had in place with Refinitiv that kind of temporary raised how much you guys are, well not temporarily but on a one off basis. I guess kind of raised how much you're making from that contract? So what sort of drove the increase in the quarter is a good run rate and how are you thinking about the Refinitiv revenues longer term?

Lee Olesky -- Chief Executive Officer

Thanks, Alex. Yes, look, there's, I mean, let me just take, take a little bit of a broader lens on data. We think there's plenty of room to use data to further drive execution. And Refinitiv in particular, allows us to redistribute data to our clients around the world. The contracts with Refinitiv should grow overtime. I mean, we have delivery milestones, if we achieve them, we can continue to have growth there. We don't feel at all restricted. It's been a great partnership. We had some nice growth, as you saw in the fourth quarter.

We don't talk about what our expectations are for revenue going forward. So I don't want to kind of wade into that world other than to say, data is a very important component of our business. And for the markets in general, as we all know, with the increase of electronification in the way the trading desks are changing with data scientists quants, we've got a real focus on how we can further monetize our data. And right now it's been about how do we use the data to really drive more intelligent execution. But there's a number of different paths that we're investigating with respect to data. We're very excited about what we're doing.

We've got the AI price that we've built that's now being used in our suite protocols and it's coming from retail sectors institutional sectors. We're working on a number of different closing price standards that are IOSCO-compliant. We just did that with treasuries with ICE. We didn't previously with FTSE and Gilts. We have TCI. So data is a meaningful focus for us going forward. And we think that the Refinitiv deal that we have in place is incredibly complimentary to our overall strategy in data.

Alex Blostein -- Goldman Sachs -- Analyst

Great. Thanks very much.

Lee Olesky -- Chief Executive Officer

Sure.

Operator

Our next question comes from Michael Carrier with Bank of America.

Sameer Murukutla -- Bank of America Merrill lynch -- Analyst

Hi. Thanks for taking my follow up. Just a quick one on capital management. It's been tremendous pass build despite your investment. So any update you can give on your thoughts around the dividends and maybe one we can do some dialogue at the board on possibly increasing this dividend. And I guess over the long term, is the growth more tied to earnings or any other metric?

Robert Warshaw -- Chief Financial Officer

I'll take that one. Thanks for the question. It's -- we kind of look at this as, we've obviously had the year of IPO and we had some other cash uses with the pre IPO dividends. As we're heading into 2020, we are looking at what potential uses for cash might have.

The central theme is delivering value back to shareholders. And that's in a number of ways that obviously acquisitions and potential, increase in dividends, potentially buybacks. So I'll go through all three of those quickly. Buybacks: We don't have any current plans to do it. And we have not -- and if we change that, obviously, we'll make that announcement as appropriate.

On dividends, we have talked about sort of tracking that against how we're doing on cash flow, and obviously, the sources of cash flow. And I think there we're going to walk a little slowly. But again, it's up to the Board as to whether we increase it or not. And so because -- and the reason we're walking slowly is because we want to make sure that as ideas come up inside of our four walls about possible things we might want to look at externally, that we're not -- that we retain as much of the cash to do that particularly this year as we're examining those things.

And I think that's really the story focused on value shareholders and through ways we do it. And finally, inorganic growth is one of the things we said we look at. And we're going to make sure we accumulate cash to support that at least through this year.

Sameer Murukutla -- Bank of America Merrill lynch -- Analyst

Good perfect. Thank you.

Operator

Our next question comes from Patrick O'Shaughnessy with Raymond James.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning. So for the entirety of 2019, your commission revenue grew by 33%, while your transaction fee revenue grew by 14%. Can you explain the dynamics underline why commission revenue would have grown a fair amount faster than transaction revenue?

Lee Olesky -- Chief Executive Officer

So it's a bit of an accounting historical definition problem. The commission revenue isn't exactly in every case what you think is commission revenues not. For example all related to our wholesale voice business, which is I think we consider it normally.

It has to do with the way we have collected revenue overtime in some of the other products. That's not directly -- and this looks more transactional. So without going into the gritty details of that, that's really -- it's something which we may look to refine a little bit as this year goes on. We needed to be consistent with past comparisons. And our accounting statements, which is what makes a little bit noisy. Less than 10% of our total revenue is related to voice which is where you would normally think commission is coming from. And so, we have some models and our some of our electronic products that are commission like but not commission. And they end up in that category.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Got it. Thank you.

Operator

Our next question comes from Rick Repetto with Piper Sandler.

Richard Repetto -- Piper Sandler -- Analyst

Yeah. Thanks for taking my follow up, and I apologize if this has been asked. I've been jumping back and forth. But on expenses, Bob and Lee. I mean, this has played out almost exactly as you talked about, as far as margin expansion being 500 basis point margin expansion year to year.

So I guess -- and you had a 78% incremental margin in the year. So this whole idea about revenue growth outpacing expense growth definitely played out. So my question is expenses grew 5% or 4.5% this year. You get them going 8% next year. And, we're off to a good start in volume. But I guess the question is, was there anything peculiar why you accelerated the expense growth for next year when you had an IPO this year and it only grew 5%.

Robert Warshaw -- Chief Financial Officer

Yeah, I think we identified some of the reasons for that. There's a couple things. One in that number is the potential that we may have some overlap rent expense, if we are likely to move our offices in 2021. But as you know, that sometimes requires the 6 or 7 months lead up to the event. And so there's some potential costs.

The only potential, because we're negotiating with different landlords about ways to not have to spend that money this year. That's what we end up doing. In terms of agreeing on a new space that time. And the new space has mostly to do with when leases are up and that sort of thing for our New York office. So that's one piece of it.

The second piece is we wanted to identify a new expense, some of the additional expenses we're doing on related to data in particular. And as Lee and Billy both talked about how important data is come to our execution business. And so we've been focusing more and more how to sort of unleash more and more of our data for that purpose. And yes, off of that might come as a specific revenue opportunities as well. But that's really what the focus has been. A good part of about $5 million, that's mostly due to data and some due to cyber and risk, but it's mostly due to expanding our capabilities, in effect farming our large data pools to help execution.

And so that's why we thought it was -- we are adding some expense, its investment to get toward execution. And we thought we should identify it and be pretty specific. Obviously, the $3 million that's identified may not actually happen.

Lee Olesky -- Chief Executive Officer

Look I would just add to that, which is pretty much Bob said, but I'll just reiterate it. Our view is -- this is a growth business. We have a lot of different opportunities in front of us around the world, different asset classes, different products, etc., etc. And we're going to continue to invest in the business to seize those opportunities. Are we going to continue to be focused on enhancing margin? Of course we are, right. We [Indecipherable] that's a factor in how our shareholders view our performance for the business. But first and foremost, we think there's a lot of opportunity out there and a lot of potential for growth. So we're going to continue to invest in people, invest in regions, invest in businesses, and mostly invest in innovation with respect to technology, which is money.

Billy Hult -- President

The last thing I add to that is, as we indicated, we think that both ends in the range, we're still going to get margin expansion. So it's kind of done in the context of can we get margin expansion, and invest? And we said, we believe we can, and we believe we can.

Richard Repetto -- Piper Sandler -- Analyst

Got it. Thank you.

Lee Olesky -- Chief Executive Officer

Thanks, Rich.

Operator

And I'm not showing any further questions this time. I'd like to turn the call back over to our host.

Lee Olesky -- Chief Executive Officer

Well, OK, great. Thank you all very much for joining us this morning. We're really excited about obviously, what we had done last year and even more excited about what we have to look forward to in 2020. So thank you very much.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Ashley Serrao -- Head of US Corporate Development and Investor Relations

Lee Olesky -- Chief Executive Officer

Billy Hult -- President

Robert Warshaw -- Chief Financial Officer

Richard Repetto -- Piper Sandler -- Analyst

Ari Ghosh -- Credit Suisse -- Analyst

Ken Hill -- Rosenblatt -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Sameer Murukutla -- Bank of America Merrill lynch -- Analyst

Ken Worthington -- J.P. Morgan -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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