MARKETAXESS HOLDINGS INC Q3 FY2024 earnings call

• Rick McVey, Founder and Executive Chairman, will retire from the Board at year-end but remains Chairman of International Board; Carlos Hernandez appointed as new Chairman. • Third quarter revenue grew 20% driven by strong market volumes; operating leverage led to 30% increase in diluted EPS. • U.S. high-grade market share decline attributed to lower portfolio trading and client shift to large block trading. • Launched targeted block trading capability, on track to roll out traditional RFQ on X-Pro to European clients in Q1 2025. • Emerging markets trading activity strong: LatAm up 51%, APAC up 30% y-o-y; strategic data partnership with S&P Global. • Own trading (Open Trading) had ADV $4 billion, share of total credit volume 35%, and record trade count. • Automation trade volume and count continued strong growth, with three-year CAGRs of 31% and 40% respectively.

Commission revenue was $180 million, up 20% for the quarter. International client trade volume was up 23% year-over-year with a three-year CAGR of 17%, and trade count was up 16% year-over-year with a three-year CAGR of 24%. Dealer-initiated trading volume, including dealer RFQ and Mid-X, was over $80 billion in the quarter, a 34% increase over the prior year. Municipal bonds had a record estimated market share of 8.7%, up from 5.8% in the prior year. Portfolio trading in munis, launched in Q2 '24, had YTD through October over $500 million in trading volumes. Open Trading ADV was $4 billion with a share of total credit volume of 35%, up from 34% in the prior year. Automation trade volume represented 11% of total credit volume and 27% of total credit trade count, with three-year CAGRs of 31% and 40% respectively.

• Expect full year 2024 expenses to be in line with previous guidance of slightly below the low end of $480 million to $500 million. • Continue to be positioned to deliver continued growth in coming quarters driven by strong market volumes, constructive market backdrop, and focus on strategic priorities. • Absorb increase in variable expenses within original incremental $10 million, with variable costs subject to market conditions.

• Market share fluctuations due to client activity mix changes (e.g., lower portfolio trading and shift to large block trading in U.S. high-grade). • Regulatory or political changes could potentially impact dealer behavior or electronification process. • Volatility in credit spreads and market conditions could affect price improvement opportunities and trading volumes.

Q: Chris Allen asked about the block solution's game plan and client uptake.

A: Chris Concannon said October had record overall volumes, strong in various areas, and the block solution is early with pilot clients, focusing on protecting information and using AI-driven dealer selection.

Q: Alex Kramm inquired about portfolio trading gains and S&P partnership.

A: Chris Concannon discussed portfolio trading enhancements and the S&P partnership, with data integration rolling out end of quarter.

Q: Benjamin Budish asked about FPM impact of block trading.

A: Chris Concannon said large trades fall under regular fee schedule, with some components at reduced fee capture.

Q: Patrick Moley asked about duration and fee per million.

A: Ilene Fiszel Bieler discussed weighted average years to maturity and sensitivity to duration and yield changes.

Q: Jeff Schmitt asked about emerging markets market share and dealer-to-dealer channel.

A: Chris Concannon and Rich Schiffman talked about emerging markets growth, record block trading, and dealer-to-dealer investments in RFQ, Mid-X, etc.

Q: Dan Fannon asked about change in White House and regulation impact.

A: Chris Concannon said business benefits from commercial reasons of electronic trading adoption regardless of political changes.

Q: Alex Blostein asked about partnership with ICE.

A: Rich Schiffman and Chris Concannon discussed positive start of partnership, liquidity provision, and future connectivity.

Q: Kyle Voigt asked about velocity of trade drivers.

A: Chris Concannon talked about macro factors like rate environment, new issue volume, and volatility driving velocity.

Q: Simon Clinch asked about longer-term normalized total credit fee per million.

A: Ilene Fiszel Bieler discussed factors like high yield mix, Open Trading activity, and portfolio trading impact on fees.

Q: Brian Bedell asked about EM electronification pace.

A: Chris Concannon said current adoption is faster than prior 25 years due to client and dealer capitulation to electronic trading.

Q: Michael Cyprys asked about automation suite progression.

A: Chris Concannon discussed growth in automation, new enhancements using Pragma technology, and success in various products.

Q: Eli Abboud asked about EM business exposure to U.S. tariffs.

A: Chris Concannon said EM business is diversified across regions, reducing impact of U.S. tariffs on client appetite.