Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MarketAxess Holdings Inc (MKTX, Financial) delivered 10% total revenue growth, including the benefit of the Pragma acquisition.
- Diluted earnings per share was $1.72, reflecting solid financial performance.
- Strong revenue growth in international product areas and emerging markets, with emerging markets commission revenue increasing by 22%.
- Successful rollout of X-Pro, with over 60% of trade activity from largest clients coming through the platform.
- Record information services revenue of $13 million, driven by new contracts and strong adoption across the data product suite.
Negative Points
- Total operating expenses increased by 12%, including the impact of the Pragma acquisition.
- US credit estimated market share continues to disappoint, with lower estimated market share in high yield.
- Decline in total credit fee capture driven by product and protocol mix, specifically lower high yield activity and increased portfolio trading.
- Lower volatility and lower price dispersion in the market reduced the price improvement opportunity in open trading.
- Challenges in the dealer-to-dealer segment, with estimated share down slightly and the need to allocate more resources to this segment.
Q & A Highlights
Q: Can you provide more details on the ICE partnership and its benefits?
A: Christopher Concannon, CEO: We're excited about the ICE announcement. This partnership came at the request of clients who see liquidity in both our destination and the ICE platform. It allows us to connect our institutional distribution with ICE's strong retail and private client distribution, enhancing liquidity for our clients. Rich Schiffman, Global Head of Trading Solutions, added that this partnership brings complementary liquidity pools together, allowing clients to access expanded liquidity without changing their workflow.
Q: How has recent market volatility impacted client engagement and protocol utilization?
A: Christopher Concannon, CEO: While it's early to predict a trend, we've seen positive activity on our platform over the past three days, particularly from ETF market makers. Rich Schiffman, Global Head of Trading Solutions, noted that in higher volatility, clients prioritize liquidity over workflow efficiency, leading to increased use of Open Trading.
Q: Can you expand on the rollout of X-Pro and its impact on client behavior?
A: Christopher Concannon, CEO: The X-Pro rollout has been successful, with over 60% of trade activity from our largest clients now coming through X-Pro. The platform has also seen significant adoption in portfolio trading, with 56% of portfolio trades in the second quarter executed through X-Pro. We're now extending X-Pro to Europe and emerging markets.
Q: What are the opportunities for moving larger trade sizes to electronic platforms?
A: Christopher Concannon, CEO: Over 40% of the TRACE market involves trades greater than $5 million, which are still largely non-electronic. Our high-touch solution in X-Pro targets this segment with AI-based dealer selection tools and real-time price information. Additionally, our Adaptive Auto-X algo solution helps clients trade larger sizes with less market impact.
Q: Can you provide more details on the ICE partnership's economic structure and potential for expansion?
A: Rich Schiffman, Global Head of Trading Solutions: Each platform collects revenue independently, with no payments between MarketAxess and ICE. The partnership allows clients to access expanded liquidity pools. Christopher Concannon, CEO, added that the partnership leverages the growing retail market, including SMAs, and there are no regulatory concerns.
Q: How are you balancing growth and margins, given your investments and expense management?
A: Ilene Bieler, CFO: We're striking a balance between growth and efficiency. Recent expense efficiencies, such as those from the Pragma acquisition, have allowed us to invest in growth while managing costs. We expect some incremental expenses in the second half of the year but remain focused on disciplined capital management.
Q: What is your growth outlook for emerging markets over the next three to five years?
A: Christopher Concannon, CEO: Emerging markets present a significant growth opportunity, particularly in local markets. We've seen strong growth in local market trading and portfolio trading in EM. The addition of India to major indexes also boosts the attractiveness of EM assets.
Q: Can you elaborate on your initiatives to drive growth in information services?
A: Christopher Concannon, CEO: We're excited about our information services business, particularly in international markets. Our CP+ data product is crucial in dark markets like EM. We're also developing new data products for portfolio construction and trading, and our partnership with MSCI on fixed income indexes presents significant opportunities.
Q: How do you view capital allocation and the new share repurchase program?
A: Ilene Bieler, CFO: The new $200 million share repurchase program reflects the Board's confidence in our performance and cash generation. We'll continue to reinvest in the business, pursue bolt-on acquisitions, and return capital to shareholders through dividends and buybacks, maintaining flexibility and discipline.
Q: How does the ICE partnership impact your market share and reporting?
A: Christopher Concannon, CEO: We'll be transparent about where transactions take place and who benefits from the revenue. The partnership with ICE aims to solve client needs for broader liquidity access, and we expect it to enhance our market share in Muni and corporate bonds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
