MarketAxess(MKTX) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2020 was $164 million, representing a 25% year-over-year increase [7] - Operating income increased by 33% to$ 88 million, with operating margins growing to 53.5% [7][22] - Diluted earnings per share rose 25% to $1.78 [7] - Trailing 12 months EPS growth was 37%, and revenue growth was 31%, indicating an acceleration in growth rates [8] Business Line Data and Key Metrics Changes - Open Trading volume increased by 41% year-over-year, contributing to estimated client transaction cost savings of over$ 250 million for the quarter [7][10] - U.S. high-grade volumes rose 17% year-over-year to $305 billion, with market share increasing by two percentage points to 22.2% [17] - U.S. high-yield volume surged by 46%, reaching a record market share of 16% [17] - Automated trading volumes rose to over$ 30 billion, up from $22.6 billion in Q3 2019, with auto-execution functionality used by 86 firms [14] Market Data and Key Metrics Changes - Credit market trading conditions were mixed, with credit spreads and volatility trending lower compared to earlier in the year [9] - New issue volume was 30% higher than Q3 last year, despite a substantial drop from Q2 [9] - Corporate debt outstanding increased by approximately 9% to$ 10.4 trillion [9] Company Strategy and Development Direction - The company is focused on driving innovation and expanding its global footprint, with new trading protocols and product areas being added to Open Trading [15][16] - Recent acquisitions, including MuniBrokers and Deutsche Borse Group's Regulatory Reporting Hub, aim to enhance trading, data, and post-trade services [16][17] - The company is investing in new rates trading capabilities and plans to launch a fully integrated streaming click-to-trade rates front end [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about ongoing business momentum and market share trends in core products [30] - The company anticipates that new products and trading protocols will expand and diversify revenue sources [30] - Management highlighted the positive trend in average years to maturity for high-grade volume, indicating growing client confidence [10] Other Important Information - The effective tax rate for Q3 was 23%, reflecting excess tax benefits related to share-based compensation [22] - The company expects full-year expenses to be near the upper end of the guidance range of approximately $314 million [26] - Cash and investments as of September 30 were$ 341 million, down from $536 million as of June 30 [27] Q&A Session Summary Question: On self-clearing and its impact on costs - Management indicated that self-clearing could reduce clearing costs by upwards of 30% per ticket, potentially lowering it to 6% or 7% of Open Trading revenue [34][35] Question: On fee per million sustainability - Management noted that various factors influence fees per million, and while current fee capture is strong, it is difficult to predict future trends [37][38] Question: On the regulatory reporting hub acquisition - The acquisition is expected to accelerate margin expansion in the post-trade business and add significant data capabilities [41][44] Question: On high-yield business sustainability - Management highlighted that transaction cost savings and new market participants are driving sustainable growth in the high-yield platform [46][48] Question: On the muni business and MuniBrokers acquisition - Muni revenue grew 37% year-over-year, driven by Open Trading, and the MuniBrokers acquisition is expected to enhance content and overall volumes [50][53] Question: On live markets and liquidity - Live markets are seen as both creating new liquidity and providing a more efficient trading method for already liquid bonds [64][65] Question: On block trade market share - Current market share for block trades is around 10.5%, with an increase in long-dated paper but a slight decline in short-dated paper [66][68]