MarketAxess Holdings Inc. (MKTX) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary highlights strong revenue growth, strategic product enhancements, and market expansion efforts, along with a disciplined capital management approach including share repurchases. The Q&A section provides additional insights into strategic initiatives and competitive positioning, with positive sentiment around growth in portfolio trading and open trading adoption. Despite some concerns about revenue growth challenges and management's unclear response on block trading sustainability, the overall sentiment remains positive with optimistic guidance and strategic hires expected to drive future growth.
Key Financial Performance
Revenue $209 million in the quarter, up 1% from the prior year. Reasons for change include a $1 million benefit from foreign currency fluctuations and challenges in U.S. credit revenue growth.
Services Revenue $29 million, increased 9% year-over-year. Reasons for change include strong performance in post-trade services and technology services.
Information Services Revenue $14 million, increased 6% year-over-year or 5% excluding currency fluctuations. Reasons for change include higher demand for information services.
Post-trade Services Revenue $11 million, increased 9% year-over-year or 4% excluding currency fluctuations. Reasons for change include higher demand for post-trade services.
Technology Services Revenue $4 million, increased 20% year-over-year. Reasons for change include higher license fees and connectivity fees from RFQ Hub.
Total Credit Commission Revenue $165 million, down 2% year-over-year. Reasons for change include a 9% decline in U.S. high-grade revenue and flat growth in U.S. high-yield revenue, offset by 11% growth in emerging markets and 9% growth in Eurobond revenue.
Operating Expenses Increased 3% year-over-year, including a $1 million negative impact from foreign currency fluctuations. Reasons for change include higher employee compensation and technology and communication costs.
Effective Tax Rate 27.1%, up from 23% in the prior year. Reasons for change include an increased accrual for the uncertain tax position reserve established earlier in the year.
Free Cash Flow $385 million over the trailing 12 months. Reasons for change not explicitly mentioned.
Share Repurchase 595,000 shares repurchased year-to-date for $120 million, including 239,000 shares repurchased in Q3 for $45 million. Reasons for change not explicitly mentioned.
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Operating Highlights
New Protocol Launch: MarketAxess is introducing a closing auction protocol for the fixed income market, aiming to provide an end-of-day liquidity solution and a more organized market closing process.
Technology Modernization: The company is modernizing its technology platform to deliver new protocols and workflow tools, enhancing client efficiency.
Global Credit Trading Expansion: 36% of global credit trading volume is now driven by clients outside North America, up from 29% in 2020. The company has added over 6,000 international dealer and investor traders to its platform.
Portfolio Trading Growth: Total portfolio trading ADV year-to-date is up 50% compared to the prior year, with U.S. credit portfolio trading market share increasing by 210 basis points.
Automation Adoption: Two-thirds of trades executed by the largest clients are now automated, with automation trade count and trade volumes growing at a 3-year CAGR of 29% and 28%, respectively.
Dealer Algos Contribution: Dealer algorithms now contribute 88% of RFQ responses and 87% of trades in U.S. high grade, including 28% of block trades.
Focus on U.S. Credit Challenges: The company is addressing challenges in U.S. credit by enhancing technology and focusing on competitive positioning.
Revenue Diversification: Revenue growth outside U.S. credit was strong at 10%, with a focus on emerging markets and Eurobonds.
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Risk or Challenges
Market Conditions: The company is facing challenging market conditions with limited periods of volatility and tight spreads, which negatively impact revenue growth in U.S. credit.
Revenue Growth Challenges: Revenue growth in U.S. credit has been affected by the growth of new protocols like portfolio trading, the dealer-to-dealer market, and smaller-sized trades moving to portfolio trades at lower capture rates.
Competitive Pressures: The company is addressing competitive pressures in the U.S. credit market by modernizing its technology platform and introducing new protocols, but the time taken to return to higher growth levels has been a concern.
Regulatory and Tax Risks: The effective tax rate increased to 27.1% from 23% due to an increased accrual for uncertain tax positions, which could impact financial performance.
Operational Execution: The company acknowledges the need to deliver technology enhancements faster to drive revenue growth and address competitive challenges.
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Guidance & Outlook
Revenue Growth: The company expects to return to higher levels of revenue growth in the coming quarters, driven by technology enhancements and new initiatives.
New Protocols and Tools: MarketAxess plans to launch a new protocol introducing closing auctions to the fixed income market, aiming to provide an end-of-day liquidity solution and a more organized market closing process.
Portfolio Trading: Total portfolio trading ADV year-to-date is running 50% above the prior year, with U.S. credit portfolio trading market share over 18%, up 210 basis points. The company expects continued growth in this area.
Block Trading: Block trading ADV is up 23% year-to-date across U.S. credit, emerging markets, and Eurobonds. The company is focusing on automation and targeted RFQ workflows to further grow this segment.
Dealer-Initiated Channel: Dealer-initiated ADV increased 34% year-to-date, with the new Mid-X solution for U.S. credit showing early momentum. The company plans to expand sessions and onboard new dealers.
Automation: Automation trade count and trade volumes are growing at a 3-year CAGR of 29% and 28%, respectively. The company is investing in automation tools to handle the increase in ticket counts and smaller-sized trades.
Expense Guidance: The company reconfirmed its full-year 2025 expense guidance, expecting to be at the low end of the previously stated range of $501 million to $521 million on an ex notable non-GAAP basis.
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Shareholder Return Plan
Dividend Program: No specific mention of a dividend program or any updates related to dividends were discussed in the transcript.
Share Repurchase Program: The company repurchased 595,000 shares year-to-date through October 2025 for a total of $120 million, including 239,000 shares repurchased during the third quarter at a cost of $45 million. As of October 31, 2025, $105 million remains on the Board's share repurchase authorization.
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Key Q&A
Q:Can you talk about the pipeline to add additional dealers for the Mid-X U.S. launch and its interaction with PT?
A:The Mid-X U.S. launch is addressing the dealer-to-dealer market, which is about 30% of the trace market. Dealer-initiated business in October was up 22%, and Mid-X is running daily sessions with a run rate of $2.7 billion for the month. The solution is designed to help dealers exit inventory efficiently and is priced competitively to cater to dealer needs.
Q:How are you addressing competition and delivering faster technology enhancements?
A:The company has invested in a portfolio approach, addressing several critical areas such as tech transformation, portfolio trading, dealer-to-dealer business, algo suite, block trading, and closing auctions. Investments include leveraging the Pragma acquisition for automation and matching technology. While these investments are yielding volume growth, revenue growth remains a challenge due to lower fee per million in some areas.
Q:Can you provide insights into the closing auctions and their potential impact?
A:The closing auction is designed to support the growing indexation of the fixed income market, which is a $150 trillion market with 20% benchmarked to an index. The auction is not a mid-market matching session but a true auction with a clearing price. It targets the liquid end of IG and high-yield markets and leverages partnerships with S&P for evaluated pricing. The auction aims to cater to the $2.7 trillion fixed income ETF market, expected to grow to $5 trillion in five years.
Q:What is the progress and outlook for U.S. block trading?
A:Block trading is seen as a significant opportunity, with global fixed income markets having a large non-electronic portion. Block growth in Q3 was 10%, jumping to 21% in October. U.S. IG block activity grew 30% in October. Key ingredients for success include content sharing and new features to enhance block trading solutions. Regular updates are being made to address block trading needs.
Q:How are you planning to grow in a low volatility and tight spread environment?
A:The strategy involves being protocol agnostic, offering tools like portfolio trading, dealer-to-dealer sessions, and block trading for low volatility environments. Proprietary market data helps clients choose the right protocol. Investments in block trading, portfolio trading, and dealer-to-dealer initiatives are designed for such environments, while the all-to-all network thrives in higher volatility.
Q:What are the challenges and opportunities in the high-yield market?
A:Challenges include liquidity and information leakage. The company is addressing these with AI tools to select dealers and portfolio trading tools. High-yield portfolio trading has grown to 15% of the market in November, up from 5-6% a few years ago. The ETF market supports liquidity, and the company is in a leadership position in high-yield portfolio trading.
Q:What is the outlook for portfolio trading growth?
A:Portfolio trading in IG has stabilized at 10-12% of the market, but high-yield portfolio trading has grown to 15%. Dealer liquidity is ample, and the company has a leadership position in high-yield portfolio trading. Growth in this area is supported by client adoption and the ETF market.
Q:What is driving the growth in Open Trading?
A:Open Trading adoption increased to 39% of credit volume in October, driven by new liquidity sources like systematic hedge funds and large investment managers using automation tools. High-yield Open Trading penetration reached 43%. The company continues to add liquidity sources and enhance tools to support Open Trading.
Q:What are the unique challenges in electronifying high-yield corporate bond trading?
A:Challenges include liquidity and information leakage. The company uses AI tools to select dealers and portfolio trading tools to address these issues. High-yield portfolio trading has grown significantly, supported by the ETF market and client adoption.
Q:What is the competitive landscape and its impact on revenue pools?
A:The competitive landscape includes lower fee per million in portfolio trading and dealer-to-dealer segments. The company has invested in these areas to support growth, with new solutions like Mid-X and international expansion in EM markets. EM markets show consistent growth, with all-to-all networks providing 40% of liquidity.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the sustainability of the surge in block trading volumes and the shrinking of dealer-to-client portions of the market. Their response lacked clarity on whether these trends are cyclical or structural.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADV date
ADV portfolio
Dealer
Eurobonds block
KPIs
North America
SMA
Slide client
algos
automation tool
block size
block trade
channel increase
closing auction
credit portfolio
credit trading
currency fluctuation
date credit
dealer ADV
demand
end expense
environment
evolution
explosion ticket
increase dealer
increase ticket
market closing
market condition
platform automation
platform protocol
protocol tool
response
segment market
size trade
ticket count
volume ticket
way
yield ADV
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Frequently Asked Questions
Where does this earnings call transcript come from?
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