MarketAxess Holdings, the operator of a leading electronic trading platform for fixed-income securities, announced financial results for the fourth quarter and full year ended December 31, 2023.

4Q23 select financial and operational highlights*

• Total revenues of $197.2 million, up 10.9%, includes Pragma revenues of $7.6 million and an increase of $1.8 million from the impact of foreign currency fluctuations.
• Total expenses of $120.2 million,up 19.9%,includesPragma operating expenses of $8.7 million, acquisition-related expenses and costs associated with efficiency initiatives of $2.4 million and an increase of $1.7 million from the impact of foreign currency fluctuations.
• 16.5% increase in diluted EPS to $1.84 on net income of $69.6million, up from diluted EPS of $1.58 on net income of $59.2 million in the prior year. The current quarter includes a benefit to earnings in the provision for income taxes from return-to-provision adjustments and the purchase of transferable tax credits by the Company.
• Record information services revenue of $11.9 million, up 14.6%, and record post-trade revenue of $11.0 million, up 24.1%. Information services and post-trade revenues include increases from the impact of foreign currency fluctuations of $0.4 million and $0.6 million, respectively.
• Strong geographic and product diversification with a 10.8% increase in average daily volume (“ADV”) from international products (emerging markets and Eurobonds); record portfolio trading volume of $41.8 billion, up 35.8%, and 7.8% growth in municipal bonds on record ADV, with a record$23.7billion in tax-exempt trading volume.
• 30.3% of eligible portfolio trading volume was executed over MarketAxess X-Pro, up from 18.2% in 3Q23, as client engagement with the new platform continues to grow.
• Record automated and algorithmic trading volume (+40.3%), trade count (+41.3%) and active client firms (+36.0%); record level of algorithmic responses (+40.0%).
• Record 2,108 (+2.1%) active client firms, record 1,638(+3.7%) active U.S. credit client firms; 1,053 (+2.3%) international active client firms and record 1,167 (+6.6%) active client firms trading three or more products.
• 36% total credit Open Trading® share,¹ down from 38% in the prior year. The Company delivered estimated price improvement² via Open Trading of approximately $173 million in the quarter and $702 million for full year 2023.

All comparisons versus 4Q22 unless otherwise noted.

Chris Concannon, CEO of MarketAxess, commented:

“In 2023, we made significant strides in enhancing our client franchise, increasing client engagement with MarketAxess X-Pro, our new trading platform, and delivering solid growth in ADV across new product areas and regions.

We have integrated our market leading data, protocols and liquidity pools for clients through X-Pro, designed to make client workflows more efficient. Our innovative proprietary data is powering X-Pro, and we believe, is helping our clients make better trading decisions. We are expanding our automated and algorithmic trading solutions by leveraging our newly acquired quantitative trading expertise to generate new client algorithms. These new algorithms solve for increasing investor demand for efficiency and the need to enhance profitability.

We made significant progress establishing the next generation of trading tools for clients to engage our integrated markets. We are entering 2024 with a more favorable backdrop for fixed-income, and our client franchise has never been stronger. We are focused on realizing the full potential of the investments we have made to drive continued growth in the quarters ahead.”

4Q23 overview of results

Revenues and trading volume

Credit

• Total credit commission revenue of $161.9million (including $34.6million in fixed-distribution fees) increased $8.2million, or 5%, compared to $153.7million (including $32.8 million in fixed-distribution fees) in the prior year. The increase in total credit commission revenue was driven principally byhigher estimated market volumes and a $1.8 million, or 5%,increase in total credit fixed-distribution fees, partially offset by lower estimated market share and lower average fee per million (“FPM”). The increase in total credit fixed-distribution fees was driven principally by new dealers on fixed fee plans and upgrades of dealers on existing fixed fee plans. The decline in FPM for total credit to $156.28 from $163.87 in the prior year was mainly due to product (lower U.S. high-yield activity) and protocol (higher portfolio trading volume) mix-shift.
  • Total credit ADV of $13.1 billion, up 8.9% versus the prior year, and up 17.5% versus 3Q23 levels.
  • U.S. high-grade ADV of $6.2billion, up 13.3% from the prior year,and up 20.0% versus 3Q23.Estimated market share of 20.9%, down slightly from 21.1% in the prior year, but up from 20.0% in 3Q23. U.S. high-grade estimated market ADV increased 13.9% compared to the prior year, and increased 14.7% versus 3Q23.
  • U.S. high-yield ADV of $1.7 billion, down 8.4% compared to the prior year, but up 27.7% from 3Q23 levels. Estimated market share of 17.2%, down from 20.5% in the prior year, but up from 16.1% in 3Q23. U.S. high-yield estimated market ADV increased 9.0% versus the prior year, and increased 19.4% compared to 3Q23. The decrease in U.S. high-yield estimated market share year-over-year was driven principally by an estimated 18.6% decrease in ETF market maker activity on the platform.
  • Emerging markets ADV of $2.9 billion, up 9.8% from the prior year,and up 4.6% from 3Q23 levels. The year-over-year increase was principally due to a 25.6% increase in local currency trading ADV. Emerging markets estimated market ADV increased 12.1% compared to the prior year, and increased 4.2% compared to 3Q23.⁷
  • Eurobonds ADVof $1.8 billion, up 12.6% from the prior year, and up 19.1% from 3Q23.
  • Record municipal bondADV of $539 million, up 7.8% from the prior year, and up 38.9% from 3Q23. The current quarter included a record $23.7 billion in tax-exempt trading volume. Estimated market share of 5.8%, up from 5.0% in the prior year and in line with 3Q23 levels. Estimated market ADV down 7.0% compared to the prior year, but up 38.5% compared to 3Q23.
  • Axess IQ^TM, the order and execution workflow solution designed for wealth management and private banking clients, achieved record ADV of $140.6 million, up 67.0% from the prior year, and up 41.9% from 3Q23 levels.
  • Record $41.8 billion intotal portfolio trading volume, up 35.8% fromthe prior year, and up 52.1% from 3Q23. Approximately $11.6 billion, or 30.3%, of our eligible portfolio trading volume was executed over X-Pro, our new trading platform, compared to approximately $4.8 billion, or 18.2%, in 3Q23.
  • 36% Open Trading share¹ of total credit trading volume, down from 38% in the prior year, but up from 34% in 3Q23.

Rates

• Total rates commission revenue of $4.8million was in line with the prior year. A 10% decrease inratesADV to $16.5 billion was offset by an 11% increase in FPM for total rates products to $4.62, compared to $4.16 in the prior year.

Information services & post-trade services

• Record information services revenue of $11.9million increased $1.5million, or 15%, compared to the prior year. The increase in revenue was principally driven by net new data contract revenue and the impact of foreign currency fluctuations.
• Record post-trade services revenue of $11.0 million was up 24% compared to the prior year mainly due to the impact of price increases, higher end-of-year resubmissions revenue and the impact of foreign currency fluctuations.

Technology services

• Total technology services revenue of $2.5million, up from $0.2 million in the prior year. The current quarter includes $2.3 million in revenue from the acquisition of Pragma.

Expenses

• Total expenses of $120.2 million, up 19.9%, includes Pragma operating expenses of $8.7 million, acquisition-related expenses and costs associated with efficiency initiatives of $2.4 million and an increase of $1.7 million from the impact of foreign currency fluctuations.

Non-operating

• Other income (expense): Other income was $6.8million, up from $1.8million in the prior year. The current quarter included interest income of $6.3million,compared to $3.3 million in the prior year, driven by higher interest rates.
• Tax rate: The effective tax rate was 16.9%, compared to 25.4% in the prior year. The decrease in the effective tax rate was driven by return-to-provision adjustments and the purchase of transferable tax credits by the Company.

Capital

• The Company had $586.1 million in cash, cash equivalents and investments as of December 31, 2023, which includes the impact of the Pragma acquisition. There were no outstanding borrowings under the Company’s credit facility.
• The Board declared a quarterly cash dividend of $0.74 per share, an increase from $0.72 per share, payable on February 28, 2024 to stockholders of record as of the close of business on February 14, 2024.

Other

• Employee headcount was 881 as of December 31, 2023, which includes 59 employees from the Pragma acquisition, compared to 744 as of December 31, 2022 and 853 as of September 30, 2023.

Guidance for full year 2024

For the full year 2024, the Company is providing the following guidance which is based on foreign exchange rates as of December 31, 2023:

• Revenue from Pragma is expected to grow in the mid-single digits (percent). Pragma’s revenue in 4Q23 was $7.6 million.
• Expenses are expected to be in the range of $480.0 million to $500.0 million and includes a full year of Pragma expenses estimated to range between $33.0 million to $35.0 million. Pragma expenses are expected to include amortization expense on acquired intangible assets of $4.8 million. Based on the midpoint of the stated guidance range, total expenses are expected to increase by approximately 12%, 6% excluding the impact of Pragma expenses.
• The effective tax rate is expected to be between 24.0% and 25.0%.
• Capital expenditures to support new protocols, products and trading platform enhancements are expected to be in the range of $60.0 million to $65.0 million.

Source: MarketAxess