Andrew Bond : And — with the recent close of the Yieldbroker transaction, can you give us some guidance in terms of revenue run rate and margin profile as you integrate? And maybe bigger picture, dealmaking and M&A discussions picked up a bit in recent months across the space. given Tradeweb operating from a position of strength and increasing cash flow, how are you thinking about further acquisitions to augment your organic growth?
Sara Furber: Andrew, it’s Sara. Why don’t I start with that? Thanks for the question. It’s nice to hear from you. On Yieldbroker, obviously, we’re really pleased with our acquisition. To give you a sense of it, for the months that we’ve owned Yieldbroker, revenues were approximately $1.3 million and those are up about 30% year-over-year. So that can give you a sense of how the run rate is. The business is operating post our acquisition, I would say just about a 40% margin. And as we think about it, one of the things we’re excited about is post the technology integration period, which has already begun, we think that lasts for about 18 months. we expect Yieldbroker to be accretive to our overall corporate margins, albeit a small transaction.
So hopefully, that gives you enough color just in terms of your modeling. On your broader question about M&A, I think Billy mentioned this last quarter in terms of the earnings call, we’ve been increasing our focus on M&A versus historical levels. We like our positioning and think we can be opportunistic. The scale and the bandwidth of the company has increased. So I think our ability to do multiple things at the same time has also increased, that doesn’t mean we aren’t as confident and we remain really confident in our ability to drive double-digit organic growth as well. The capital allocation waterfall that we always talk about remain the same. So first, organic, then inorganic and then obviously share repo and dividends when you’re talking about our cash on the balance sheet.
But I think one of the things which is embedded in your question is, as we think about how M&A can really be helpful to our franchise, we think about it in 2 ways. We think about strategic priorities and that framework and we think about financial framework. So from a strategic perspective, it always starts with, is it our right to win. Tradeweb has a great portfolio and there are lots of ways where we can add value to things that we’re acquiring. We’re focused on diversifying our revenue base and client base. You saw that in Yieldbroker. And even going back further in the history, you saw us enter and add new client channels with acquisitions that added the retail channel and the wholesale channel and so I think as we look forward, we think that’s still a great way to add new client segments, whether it be things like regional banks or corporates down the road or even just deepening client relationships with places that are growing like systematic macro hedge funds.
We’re also obviously focused on increasing our TAM, always looking for adjacent or new asset classes or products or regions. We’re looking — we like the rate space where we have a strong franchise. We like treasury futures. And then lastly, we’re very focused on looking at new technology that accelerates our time to market and that we can leverage across a really broad portfolio of businesses. So strategically, I think those are our priorities and there are a lot of ways where inorganic opportunities probably come to market there. And then obviously, being CFO, always focused on the discipline of financial framework. We’re focused on making sure they both can enhance revenue growth or increase operating leverage and that they’d be accretive over the medium term.
So I think you can count on that. And Billy can probably.
Billy Hult: You’re spot on, Sara, and — spot on. As we are kind of talking specifically about Yieldbroker, we always talk about our network and the client footprint in the exact way that you described. And one of the things about Yieldbroker that really gets us pretty jazzed is this concept, obviously, of where they are with the superannuation funds. which, as everybody knows, the fifth largest pension fund market globally and the ability to cross-sell into that client network has us quite excited about the acquisition. So you make all the correct points. Thanks very much for the question.
Operator: Our next question comes from Patrick Moley with Piper Sandler.
Patrick Moley : I just had one on regulation. And I know you’ve spoken about this in the past. But it seems like SEC is maybe getting closer to issuing a final rule of potential clearing for cash treasuries. So I was hoping to just get your updated thoughts on this. What do you think the probability is we see something here before the end of the year? And then maybe just an update on the impact you expect this to have on Tradeweb’s business and treasury markets more broadly.
Tom Pluta: Patrick, and yes, a very timely question. So the expansion of U.S. Treasury Central Clearing remains a top priority for the SEC as well as the U.S. Treasury and the New York Fed. So it is happening. It’s coming. We do expect the final rule to be released in the next 2 to 3 months. and still not ruling out a chance that it gets released before the U.S. Treasury Annual Conference, which is on November 16 in 3 weeks. There is a lot of complexity to the implementation of this type of rule operationally. Risk management systems have to be updated, models have to be updated, new participants will need to be connected to the clearing house, changes to the FICC, default funds, waterfalls and things like that. So there will be a significant phase-in period.
The industry is talking about maybe 3 to 5 years to get it sort of all done potentially in stages. The SEC may say, “Hey, let’s try to get this done in 2 years, ” but it will take a number of years. There are differences of opinions about how this would be staged, some think that they’ll focus on getting clearing of U.S. treasury repo done first. Others don’t think that. Others think it will be staged by client type, like maybe getting the PTFs and hedge funds to start clearing and then go to other types of clients later. But regardless of the precise form, it is coming. As far as the question about how it impacts Tradeweb, we’re pretty confident that when adopted this rule will be directionally positive for us. with a lot more trades being centrally cleared without settlement risk and credit checks and things like that, e-trading should continue to increase for all the obvious reasons, easier to submit trades to the clearing house, anonymous protocol should be encouraged to grow.
So — and we did observe this when the dollar swap market moved to central clearing. As far as overall volumes in the market, we don’t think that this will have any particular impact. There’s benefits to many participants if this happens. There’s new cost to other participants. And despite some lobbying against this expansion, we think that treasury volumes won’t be impacted.
Billy Hult: And the only thing I’ll add just really quickly at the risk of becoming like the Tradeweb historian, we’ve done a really good job navigating the regulatory wins in a bunch of the very big markets that we are in frontline and center would be obviously our global interest rate swap business. And so our ability to have a strong voice around ultimately how regulation gets implemented into the marketplace has been something that we’ve consistently had and Tom brings like a significant expertise around these issues that makes us feel really good that the outcome around how this regulation plays out, will ultimately be beneficial for us and something that we want to be straightforward involved in. And again, thanks again for the question.
Operator: Our next question comes from Daniel Fannon with Jefferies.
Daniel Fannon : Billy, I was hoping to get some high-level perspective just given the uncertain macro backdrop. Can you discuss the — what would be an ideal environment for your product suite to see the highest growth? Feels like October is showing a lot of these trends, but would love your perspective.
