MarketAxess Holdings Inc. (MKTX) 1Q25 Earnings Review
Earnings Beat Consensus Estimates on Lower Expenses and Higher Non-Operating Income; Tax Rate Guidance Increased on NY Court Ruling; Volumes Off to Strong Start in 2Q25
EPS Beats Street by 3% on Lower Expenses and Higher Non-Operating Income
MKTX reported 1Q25 earnings prior to market open today. Total revenue came in at $209M, up 3% Q/Q but down 1% Y/Y. The sequential increase in revenue was driven by an increase in transaction fees and commissions, which rose 4% Q/Q but were down 2% Y/Y to $181M. Meanwhile, information services declined 2% Q/Q (+9% Y/Y) to $13M, post trade services rose 1% Q/Q (+3% Y/Y) to $11M and technology services was down 8% Q/Q (+14% Y/Y) to $3M. On the expense side, total operating expenses came in at $120M, down 2% sequentially (+2% Y/Y) and drove operating margins to 42.4% (up 290bps Q/Q but down 160bps Y/Y). Non-operating income came in at $8M (+5% Q/Q, +49% Y/Y) and adjusted diluted EPS came in at $1.87, up 8% Q/Q (-3% Y/Y). Adjusted diluted EPS excludes $55M in tax reserves related to uncertain positions for prior periods.
Relative to consensus estimates, revenue came in 1% below the consensus forecast of $210M. Meanwhile, pre-tax income was 7% above the street and adjusted EPS came 3% above consensus.
In terms of key operating metrics, volume detail for the quarter was known coming into today’s print, however, to recap the quarter, total average daily volume (ADV) was a record $43B for 1Q25 (+5% Q/Q, +31% Y/Y). Fee per million (FPM) for credit for the quarter was down 7% sequentially (-10% Y/Y) to $139 while fee per million for rates was down 3% Q/Q (-12% Y/Y) to $4.20.
MKTX Earnings Summary and Key Operating Metrics
Source: company data and Tikr.com
Highlights from MKTX Earnings Call, Presentation and Press Release
In terms of the outlook going forward, MKTX 0.00%↑ management touched on several details during this morning’s earnings call that are worth highlighting:
Tax Rate Guidance – In 1Q25 the company established a tax reserve of $54M related to uncertain tax positions for prior periods following a NY State court issuance of an opinion in which the company was not party to the case. The company increased GAAP tax rate guidance for the year to a range of 41.0% - 42.0% from 23.5% - 24.5%. Excluding the reserve established in 1Q25, non-GAAP tax rate guidance is for a range of 26.0% - 27.0%.
Expense Guidance – Now anticipating full year operating expenses to be at the low-end of previously disclosed range of $505 - $525M. Noted that variable expenses can change depending on operating conditions
RFQ Hub Transaction – Anticipate closing RFQ Hub transaction later in May and will be consolidating into financials. RFQ Hub had full year 2024 revenue of $13M and anticipate that growing 15% - 20% in 2025. Most of RFQ Hub revenue expected within variable transaction fees though $750k expected in technology services. Incremental expenses related to consolidation anticipated in a range of $7 - $9M. RFQ Hub incremental expenses are included in update expense guidance range
Fee Per Million Commentary – While FPM has declined in recent quarters this has largely been attributed to product / protocol mix. Portfolio trading and dealer-to-dealer trading tend to have lower (in some cases no) FPM associated with them. Noted that while this has pressured blended fee rate, this volume is incremental, thus revenue positive for MKTX. Also noted that these protocols typically have lower, and in some cases no, variable costs associated, thus they are higher margin businesses. Also noted that core fee capture rates for core RFQ business have remained steady (with adjustments based on typical things such as years to maturity, etc.)
Other notable highlights from the earnings call/press release:
April / 2Q Environment Commentary– While volatility and trading velocity spiked in early April and did come down, it has not reset back to January and early February levels and overall velocity continues to be elevated into May. Electronic trading has benefited the market turnover seen in early April
Broad Thoughts / Outlook
I thought this was a good quarter out of MKTX. While total revenue was down Y/Y, driven by commissions revenue, it has been nice to see the pace of market share deterioration falling (and market share growth in USHG in the April metrics reported yesterday). I think we are beginning to see green shoots of the company’s market share turnaround story as a result of new product releases, which the company expects to further bolster share as the year progresses. It was also good to see total services revenue growth of 7.0% (towards the higher end of full year guidance for mid-single digits). Expenses were well maintained in the quarter, increasing by 2% Y/Y despite full year guidance for 8% growth at the midpoint and the company lowered its expectations for expenses to now come in at the low end of the range (despite the consolidation of RFQ Hub into MKTX’s results beginning in 2Q). While the updated tax rate guidance is unfortunate and will likely weigh on estimates a bit, there is not much on that front within the company’s control.
MKTX also reported volume figures for April yesterday morning, which indicate 2Q is off to a strong start, showing a record month across both credit and rates products. More details are included below:
Reported record April total credit ADV of $18.4B (+3% M/M, +32% Y/Y)
Reported record total April rates ADV of $39.1B (+36% M/M, +93% Y/Y)
USHG market share was roughly flat M/M at 19.3% (up 130bps Y/Y)
This was the first month of Y/Y share gains since September 2024
USHY market share increased 100bps M/M to 13.5% (down 40bps Y/Y)
While market share was still down Y/Y this remained at a much slower pace of decline than we’ve seen in the past 22 months
Fee Per Million (FPM) came in at $139 for credit (unchanged from $139 reported in 1Q25) and $4.23 for rates (up slightly from $4.20 reported in 1Q25)
MKTX attributed FPM changes in the month to product mix
MKTX April ADV ($B) Snapshot
Source: company documents
MKTX April Market Share Snapshot
