MarketAxess Holdings Inc. Q1 FY2025 earnings call

Revenue Generation

• Product and geographic diversification led to record commission revenue in international and new products like emerging markets, municipals, and U.S. government bonds. U.S. government bonds had strong growth with a single day trading record of $102 billion on April 9, driven by increased velocity and institutional clients using rates algos.

Expenses

• Showed cost discipline with expenses up 2% due to lower variable costs.

Capital Management

• More opportunistic with share repurchases. U.S. credit market share was a challenge, but exit rate in March was encouraging with U.S. high-grade estimated market share at 20%.

Trading Businesses Performance

• Client-initiated channel: Record U.S. credit ADV, strong growth in international products, record local markets ADV in EM, and 42% ADV growth in municipals.
• Portfolio trading channel: Record total PT ADV and U.S. credit PT ADV with 19% market share.
• Dealer-initiated channel: Record dealer RFQ and Mid-X ADV, with 45% increase year-over-year.

New Initiatives

• Progress in block trading solution, portfolio trading market share growth, and upcoming launch of MID-X solution and X-Pro in Europe.

Total revenue was $209 million, down from $210 million in the prior year. Commission revenue decreased 2% due to lower fee per million and market share in U.S. credit, offset by strong market volumes from increased volatility starting March. Services revenue increased 7% driven by 9% growth in information services revenue to $13 million. Technology services revenue increased 14% due to higher Pragma-related license and connectivity fees. Other income increased over $3.5 million from higher interest income, mark-to-market gains on U.S. treasury portfolio, and lower FX losses.

Full Year 2025

• Services revenue and capital expenditures remain as previously stated.
• Expense guidance refined to low end of $505 million to $525 million, including impact of RFQ-hub integration.
• Effective tax rate guidance: GAAP 41%-42%, excluding notable item 26%-27%.
• RFQ-hub revenue expected to grow 15%-20% in 2025, with incremental expenses $7 million-$9 million in 2025.

Risks

• Market Volatility: Could impact spreads and investor outlook, affecting portfolio holdings and turnover.
• Credit Quality Challenges: Macroeconomic impacts could lead to credit quality issues, changing investor outlook and portfolio turnover.
• Competition: Other players in the market, especially in client-to-dealer space, could pose competition in terms of workflow and data analytics.

Q: Unpack increased share gain moving forward, dependence on market environment, and impact of new capabilities A: Market environment with uncertainty, higher volatility favorable. Protocol agnostic model expanding opportunity. New product releases like high-touch block solution, Mid-X, and X-Pro in Europe driving growth.

Q: Fee capture decline in 1Q and April metrics, causes and impact of PT growth and block growth A: Portfolio trading and dealer-to-dealer growth at lower capture rate. Higher PT and block growth but lower fee per million. New block solution launch in 2Q expected to continue growth.

Q: Composition of ADV in PT and fee per million in PT and dealer RFQ A: PT market share in April positive. PT and dealer RFQ come at lower fee per million, but growing share is beneficial. Client to dealer RFQ pricing stable.

Q: Learnings from EM and Eurobonds block trading rollout and U.S. launch A: Positive response to targeted block trading in EM and Eurobonds. High-touch block solution rolling out next week for U.S. clients, with positive feedback on workflow.

Q: Conversations with alternative liquidity providers and protocols they use A: Influx of alternative market makers, requesting all-to-all RFQ protocol for anonymous trading and settlement benefits.

Q: Pricing competitiveness and capacity as a lever for share growth A: Price by protocol, stable client-to-dealer pricing. Focus on workflow and data analytics, not pricing pressure. Next 50% market opportunity with appropriate pricing.

Q: X-Pro rollout in Europe and impact on portfolio trading share A: X-Pro part of tech migration, enabling faster rollout of new functionality. Expected to drive portfolio trading share growth in Europe and EM.