MARKETAXESS HOLDINGS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 saw 9% revenue growth, the strongest since 2020, with record commission and services revenue.
• Progressed on high-touch strategy, including portfolio trading tools, block trading solutions, and dealer solutions.
• Launched block trading solution in EM and Eurobonds in late 2024, with plans to roll out in U.S. credit in Q1 2025.
• Key 2025 initiatives include global rollout of block trading solution, full rollout of global benchmark pricing for portfolio trading, and enhancements to dealer-initiated channel.
• Enhanced functionality, differentiated data, and innovative client solutions expected to drive growth in 2025.

Segment Performance

• Credit: Record commission revenue of $712 million in 2024. Saw growth in emerging markets, Eurobonds, and munis, but U.S. high yield declined. Maintained leadership in client-initiated RFQ in U.S. credit. Credit ADV was at record levels.
• Rates: Trading ADV and client-focused rates pool increased significantly, from $2.9 billion per day in Q1 2024 to $11.4 billion ADV in Q4 2024, driven by algos.
• Portfolio trading: Gained over 200 basis points in share in U.S. high-grade portfolio trading in 2024. Rolled out new platforms and saw growth in emerging markets, Eurobonds, and munis. Eurobond portfolio trading volume doubled in Q4 2024 vs. 3Q 2024, and emerging markets portfolio trading ADV was up 175% for 2024 vs. 2023.
• Block trading: Launched in EM in December 2024 and Eurobonds in Q4 2024. Set to launch in U.S. credit in Q1 2025. Saw early progress with over $0.5 billion in block trades in EM since launch.

Guidance

• Total services revenue expected to grow in the mid single-digits in 2025.
• Total expenses expected in the range of $505 million to $525 million, up from $476 million in 2024.
• Effective tax rate expected in the range of 23.5% to 24.5%.
• Capital expenditures expected in the range of $65 million to $70 million, with 80% related to capitalized software development costs.

Risks

• Market volatility affecting trading volumes and market share.
• Competitive pressures from other trading platforms.
• Dependence on continued adoption of data products and innovative solutions.
• Impact of economic and regulatory changes on fixed income markets.

Question and Answer

Q: Talked about block trading launch in U.S., why led with EM and Eurobonds first, steps to ensure success.

A: Targeted EM and Eurobonds first due to pre-trade analytics, saw EM block market share increase, feedback from clients and dealers positive, launching in U.S. high grade in Q2 2025.

Q: Confidence in growing market share in high grade, protocols driving that.

A: Macro market favorable, portfolio trading feature complete in Q1, block trading solution launching in U.S. high grade, dealer business growing, data and analytics key.

Q: Higher-level look at electronifying market, low-hanging fruit.

A: Block market largely unelectronified, retail space and emerging markets have opportunity, data and analytics crucial.

Q: High-yield market share, client segments.

A: ETF players exited, systematics and traditional buy side still active, portfolio trading picking up, block trading solution welcomed.

Q: Success in market share in 2025, revenue implications.

A: Portfolio trading, block trading, automation protocols, each with impact on share and revenue, fee per million affected by duration and market conditions.

Q: Portfolio trading percent of industry activity, driving factors.

A: Volatility and capital willingness impact, client demand for convenience, confident in grabbing share with enhanced capabilities.

Q: Motivation behind acquiring RFQ hub, cross-asset priority.

A: Excited about multi-asset platform, synergies with fixed income client base, access to ETFs and derivatives, expanding product access.

Q: Rates platform initiatives, uptake of net spotting tool.

A: Growth in rates, algo solutions launching on Pragma, net hedging adopted, excited about rates complex growth.

Q: Fee per million and duration, scenarios.

A: Difficult to call a bottom, depends on rate environment and trading behavior, sensitivity to rate changes and economic policy.