MarketAxess(US:MKTX)2021-01-27 22:00Financial Data and Key Metrics Changes - Revenue for Q4 2020 was $171 million, representing a 32% year-over-year increase, while EPS increased by 45% to $1.91 [6][7] - Operating income surged by 51% year-over-year, with an operating margin of 53.5% for the quarter and 54.4% for the full year 2020 [23][28] - Full year 2020 revenue growth was 35%, and EPS growth was 45%, reflecting strength across all core credit products [9][28] Business Line Data and Key Metrics Changes - High-grade market share reached a new high of 22.8%, while high-yield share increased to 17.1%, up from 10.6% [7][19] - Open Trading volume grew 63% to $218 billion in Q4 2020, with estimated transaction cost savings of $225 million for clients [7][11] - Total credit trading volume for 2020 was up 29% to $2.6 trillion, with Open Trading accounting for 33% of traded volume, up from 26% in 2019 [9][11] Market Data and Key Metrics Changes - High-grade credit spreads have recovered to pre-pandemic levels, with credit spread volatility declining over the last several quarters [10] - TRACE volume was up 9% year-over-year in Q4 2020, reflecting more normal new issue activity [10] - Estimated US TRACE market volumes in January 2021 are running more than 10% above January 2020 levels [21] Company Strategy and Development Direction - The company is focused on investing heavily to grow its portfolio of products, protocols, and clients to ensure long-term sustainable growth [33] - The acquisition of Deutsche Borse's Regulatory Reporting Hub is expected to enhance client penetration in Continental Europe and strengthen data capabilities [17][28] - The company aims to leverage automation and new trading technologies to differentiate its offerings in the Rates business and enhance trading efficiency [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth due to market share momentum and strong demand for electronic trading solutions [33] - The company anticipates a normalization of spending in 2021, with a focus on organic growth and investment in new protocols and geographic expansion [39] - Management highlighted the significant growth opportunities in the municipal bond and emerging markets, emphasizing the potential for increased electronic trading adoption [53][54] Other Important Information - The company approved an increase in its quarterly dividend to $0.66 per share, tripling the dividend level over the past five years [8][28] - Free cash flow reached a record $340 million in 2020, with cash and investments totaling $489 million as of December 31 [28] Q&A Session Summary Question: Expense outlook and areas of spending - Management indicated a 13% constant currency increase in expenses, driven primarily by headcount growth and investments in new protocols and product areas [38][39] Question: Self-clearing and its impact - Management clarified that self-clearing has been fully implemented in the US, with plans for European conversion by the end of Q1 2021, expecting significant long-term savings [44][46] Question: Uptake of integrated Rates trading capability - Management reported strong client interest in the new net hedging solution and integrated trading capabilities, with further enhancements planned for 2021 [48][49] Question: Strategy for Muni and EM markets - Management emphasized the growth potential in the municipal bond and emerging markets, highlighting the fragmented nature of these markets and the opportunity for electronic trading [53][54] Question: High-yield market electronic penetration - Management noted significant growth in high-yield electronic trading, driven by increased participation from hedge funds and alternative market makers [60][61] Question: Impact of new issuance on trading - Management acknowledged a potential headwind from reduced new issuance activity but remains optimistic about long-term market turnover and electronic trading growth [79][80] Question: Non-transactional revenue outlook - Management expects double-digit growth in information services and post-trade revenues, with a strong pipeline entering 2021 [84][85]