MarketAxess Holdings Inc (MKTX) — Q4 2017 Earnings Call Transcript

Good morning, and welcome to the MarketAxess Fourth Quarter 2017 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer will review the highlights for the quarter, and will provide an update on trends in our businesses. And then, Tony DeLise, Chief Financial Officer will review the financial results. Before I turn the call over to Rick, let me remind you that today’s call may include forward-looking statements. These statements represent the Company’s belief regarding future events that, by their nature, are uncertain. The Company’s actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For discussion of some of the risks and factors that could affect the Company’s future results, please see the descriptions of risk factors in our Annual Report on Form 10-K for the year-ended December 31st, 2016. I would also direct you to read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now, let me turn the call over to Rick.

Good morning. And thank you for joining us for the fourth quarter and full year earnings call. Global trading volume for the quarter was up 5%, led by record emerging markets volumes and continued growth with international plans. Open trading volume also reached record levels in the fourth quarter. Revenue of $99.6 million in Q4 was up 5% and pretax income was down slightly year-over-year. EPS of $0.88 was flat to last year. We believe these results on a relative basis were very strong given the extremely benign market conditions and comparative results throughout the industry through the quarter. Based on our estimate of market volumes during the quarter, US high grade market share rose to a record 17.6%. The competitive landscape continues to be an area of interest for our investors and stock analysts. Unfortunately, very low consistent volume and revenue data is available from private company competitors. As a result, we believe the Greenwich Associates annual e-trading survey provides a relevant and independent review of market share trends. Their investor survey results released in Q4 confirm that our competitive position continues to get stronger with an estimated 86% electronic market share in US high grade and high yield trading. Slide 4 highlights our full year results and continued strong growth rates. 2017 marks the 9th consecutive year of record trading volume, revenue, and operating income. Full year 2017 revenue was a record $397 million, up 7.4% from 2016 and diluted EPS was record $3.89, up 16.5%. Transaction revenue for 2017 was up 6.9% year-over-year to a record $355 million as overall trading volume reached the record $1.5 trillion, up 11.4%. Three- and five-year results showed attractive long-term compound growth rates creating superior returns for MarketAxess shareholders. Trailing 12 months free cash flow was $160 million. In light of our strong results and outlook for continued growth, the Board of Directors approved a 27% increase in the regular quarterly dividend to $0.42 per share. Slide 5 provides an update on market conditions. 2017 was a highly unusual year with credit spread volatility and interest rate volatility at decade lows. Credit spreads also continued their one-way path of tightening, ending the year at historically low levels. On a broader scale, the past six to seven years have been extraordinary times in global bond markets. Central Banks have injected nearly $12 trillion in new liquidity from quantitative easing into bond markets around the world, sending nearly $10 trillion in government bonds to negative yields. The impact of this Central Bank activity has led to increased inflow through US credit funds as investors search for yield. This demand has fueled record growth in corporate bond issuance with another annual record in 2017. Over the last few quarters, we've seen signs of Central Banks pulling back from quantitative easing, resulting in a modest increase in interest rates. We believe that higher interest rates could spur greater activity in secondary trading. The growth in the size of global credit markets, combined with regulatory trends such as MiFID II, creates a large and growing market opportunity for electronic trading and global credit. Slide 6 shows our volume and trade account by product. Our strong year-over-year volume gain of approximately $150 billion was driven by record volume in US high grade and emerging markets. High grade volume was up $94 billion during the year, extending our lead in the space. The growth in overall trading activity was driven by share gains with existing clients, as well as the continued growth in new clients. For the full year, total active client firms grew to over 1,300 firms and all of our major products showed an increase in active clients. We are especially pleased with the continued momentum in our emerging markets business. In 2017, emerging markets volume was up 37% year-over-year to a record $307 billion. Overall, across all products on the platform, the percentage of volume for international clients grew to 26% versus 22% in 2016. Client and product diversification creates a strong foundation for future growth. Since today is the last day of trading in January, I want to give you an update on business trends to start the year. January is currently on track to be a record month for average daily trading volume at around $7 billion per day. EM growth continues to lead the way with another record month. As is typically the case, January high grade market share is below the fourth quarter average but well above last January. We will provide the final January results in a few days. Slide 7 provides an update on open trading. Open trading average daily volume of $926 million in 2017 was up 34% year-over-year. In 2017, open trading represented 16% of the total volume traded on the platform. For the full year, we averaged 2,500 open trades per day. Liquidity takers experienced an estimated cost savings of $90 million in 2017. Participants benefited from average transaction cost savings of approximately 2.2 basis points in yield when they completed the US high grade transaction through open trading protocols. When compared to our Composite Price, real-time mid-market estimate for corporate bonds, we believe that liquidity providers are achieving similar savings in transaction costs. Currently, 16% of client trade run market access experienced price improvement from open trading, up from 13% in 2016. Dealer-initiated open trades reached another new high of 24% of all open trading volume last year, up from 17% in 2016. Open trading is increasingly becoming an important distribution channel for dealers and their efforts to increase trading velocity and reduce balance sheet usage. Our vast network of investors and dealers operating on an open trading platform provides an additive pool of liquidity for both dealers and investors. In 2017, open trading accounted for 37% of US high yield volume, 16% of US high grade volume, and 12% of emerging markets volume. Now let me turn the call over to Tony for additional comments on our financial results and outlook.

Thank you, Rick. Please turn to Slide 8 for a summary of our trading volume across product categories. Our global volume increased 5% for the quarter while our estimated aggregated market volumes were flat. We closed out the year on a strong note with record estimated monthly market share in December for US high grade, high yield, and emerging market bonds. As Rick just mentioned, the increased trading activity has carried over into January. U.S. high-grade volumes were $201 billion for the quarter, up 9% year-over-year on a combination of higher estimated market share and a 6% increase in market volume. Volumes in the other credit category were up 4% year-over-year and 6% sequentially. Emerging markets trading was again the standout this quarter with average daily volume of $1.3 billion, a significant uplift both sequentially and year-over-year. High yield and Eurobond trading volume were flat sequentially. The estimated average daily total market volume across our product set is approximately $68 billion. For 2017, our average daily volume was $5.8 billion leading to a composite estimated share of around 9%, or double the level from five years ago. And every percentage point of market share is equal to approximately $35 million in annual transaction revenue. Client engagement is increasing, and there is significant room to grow market share, and we are making the necessary investments to drive electronic adoption higher. On Slide 9, we provide a summary of quarterly earnings performance. Overall revenue was up 5% and quarterly commission revenue was up 3% as we faced a tough year-over-year comparable with heightened market activity post-election in 2016. You would notice that we also recast our revenue reporting to provide a clear picture of our information services and post-trade businesses. Information services' revenue is up 20%, principally due to new recurring data contracts. The uptick in post-trade and services revenue is mainly due to MiFID II implementation fees. While the post-trade services revenue has historically grown at a low single-digit pace, we expect revenue growth in 2018 of more than 20%. Operating expenses were up 14% year-over-year leading to a 2% decline in income before taxes. The effective tax rate was 32% in the fourth quarter and reflects offsetting items. We recognized $11.4 million, or $0.30 per share in excess tax benefits from share-based compensation. This benefit was offset by a one-time tax charge of $11.7 million, or $0.31 per share to reflect the impact of the Tax Cuts and Jobs Act which was signed into law in December. Our diluted EPS was $0.88 on a fairly stable diluted share count of 37.9 million shares. On Slide 10, we've laid out our commission revenue trading volumes and fees per million. Total variable transaction fees were down 6% year-over-year as the 5% increase in trading volume was offset by the impact of our new high yield fee plan and mix shift within certain products. US high grade fee capture was up slightly on a sequential basis and down $13 per million from the fourth quarter of 2016. The year-over-year change reflects lower execution fees caused by two dealers shifting to the distribution fee plan and a higher percentage of volume traded in larger size buckets. Our other credit category fee capture was down $22 on a sequential basis. Approximately half of the variance was due to a full quarter impact from the new high yield fee structure implemented effective August 1st. The lower high yield transaction fees were offset by a $1.6 million increase in distribution fees. We also experienced typical swings in the other credit category fee capture resulting from mix shift, mainly a higher percentage of emerging markets volume in sovereign bonds. Slide 11 provides you with the expense details. Sequentially expenses increased by 1%. The most significant increase was in marketing and advertising, which tends to swing period-to-period depending on the timing of campaigns and events. Compensation and benefits declined $1.3 million sequentially on a lower variable incentive compensation which is tied directly to operating performance. Full year 2017 expenses of $196 million were up 10% versus 2016. Total year headcount of 429 was an increase of 46 from year-end 2016. On Slide 12, we provide balance sheet and capital management information. Cash and investments as of December 31st were $407 million and free cash flow reached $160 million in 2017. Dividend and share repurchases including net downs, option exercises, and restricted stock vesting aggregated $120 million. Our current quarterly dividend is an important element of our capital management strategy. With the announced 27% increase to $0.42, we have more than doubled the quarterly dividend rate in just the past three years. During the fourth quarter, we repurchased a total of 33,000 shares under our share buyback program. As of December 31st, approximately $94 million was available for future repurchases under this program. On Slide 13, we have our 2018 expense, capital expenditure, and income tax rate guidance. We expect the total 2018 expenses will be in the range of $220 million to $232 million inclusive of approximately $8 million of duplicate occupancy costs for our new corporate offices we are building out at 55 Hudson Yards in New York City. We took possession of the space in mid-January and have a targeted moving date in December of this year. Excluding the duplicate occupancy cost, the midpoint in the guidance range suggests an approximate 11% year-over-year increase in expenses, which will be a little higher than our growth rate over the past five years. 2018 capital expenditures are expected to range from $43 million to $50 million and include approximately $25 million for build-out costs for the Hudson Yards office space. We expect that the effective tax rate for the full year 2018 will range from 23% to 25%. The reduction in the US federal income tax rate is expected to reduce our effective tax rate by roughly 10 percentage points. The guidance range also incorporates an estimate for excess tax benefits on restricted stock slated to vest in 2018 of roughly $2 million, with the majority of that benefit recognized in the first quarter. The combination of the significant stock option exercises in 2017, the lower federal tax rate, and other tax reform changes mean that the expected excess tax benefits in 2018 will be significantly lower than in 2017. Now let me turn the call back to Rick for some closing comments.

Thank you, Tony. We are pleased with the fourth quarter and full year results given the difficult trading conditions during the year. We continue to invest heavily to build valuable technology solutions for our clients to reduce transaction costs. Our global client network continues to grow and the credit markets are more focused than ever on improving trading efficiency. We are excited about the large opportunity ahead and the New Year is off to a good start. Now I'd be happy to open the lines for your questions.

Good morning, Rick and Tony. My first question is about MiFID II, which seems to be a strong driver for electronic trading in European markets. In January, one of your competitors noted an increase in trading, but as you mentioned, the private company comparisons make it challenging to get a clear picture. What has been your experience in Europe this January? Are you seeing benefits from MiFID II in your electronic trading?

I think we are encouraged by the early signs and the growth in January volumes that I outlined earlier is led by European clients. By way of reminder, we have a broad-based and diversified business with those clients in EM, US credit, and Eurobond. We believe that the increase in their trading activity is attributable to MiFID II. I would also say that we've seen a significant increase in phone trade processing which, of course, we do not include in our electronic trading volumes. But those numbers are up as well, suggesting that European clients do want to get more trades on regulated venues for reporting purposes. As Tony mentioned earlier, it's also having a positive impact on our regulatory reporting business. We are encouraged about the development we see in our data products.

Thank you. That helps. And then I guess one for Tony. You mentioned that the 11% midpoint expense increase year-over-year was a little bit higher than usual. Could you expand a little bit more on where the spending is coming from? Is the increase partly driven by increased cash flow from tax reform as well or just a bit of color behind that increase?

Sure, Rich. I'd say I think the tax reform piece of it or any benefits from tax reform really influenced our plans around investing, and we are going to continue to invest. We are investing to expand the geographic reach, launch new protocols, launch new products, and also address what's happening on the regulatory front. While that 11% midpoint is slightly higher than the five years' CAGR, a couple of items are contributing to that. For MiFID II and for Brexit, there are discrete incremental spending amounts upwards of $5 million that will be in the recurring run rate going forward. But that's incremental spending that will result in 2018. So that's a bit of an uplift. I'd say the second piece to remember is that 30% of our expenses, right around 30%, is denominated in a functional currency that is not the US dollar, so we are subject to FX swings. So if you were to carve out those two items, you are looking at an expense increase somewhere around 7% or 8%. But just to clarify, we are trying to explain where the components are.

Got it. And just one last quick one. You gave the tax rate guidance for the year that's very helpful. But you said like the first quarter can be more volatile I would assume because of the stock vesting. Any help on first quarter sort of a range for the effective tax rate in the first quarter?

Yes. So, Rich, in those prepared remarks, I said the tax benefit right now, and again you have to realize that we are making estimates based on what we expect to vest based on where the share price will be. But what we are seeing right now is that the excess tax benefits in 2018 would be somewhere around $2 million, and most of that will occur in the first quarter. Actually, most of it occurs today to be quite frank about it. So most of that additional tax benefit will happen in the first quarter. We are guiding to a midpoint of 24%, you might see something like 21% in the first quarter and then 25% in Q3 and Q4. So it's not going to swing that much. So it will look a bit lower in the first quarter.

Hi, good morning. Just want to get a little bit an update on the response you are seeing from some of the price changes around high yield in Europe that you made in the back half of last year, and see if client behavior is changing any because of it.

On high yield, the changes went through in August and we believe it's a fair and scalable fee model for all market participants on our system. Quite honestly, the flatness in high yield share has had a lot more to do with the benign market environment and the lack of volatility than anything else. You did see that we put up a record high yield market share number in December, as well; Tony picked up on that. We are optimistic that we have a unique liquidity pool that serves the needs of our clients. I think it will be important to watch the trends over the coming months and quarters to make sure that we are benefiting from the changes that we have made. So we think we are on the right track there and we are in the early days of those high yield fee changes.

And did you have to tweak your presence schedule at all with MiFID or is that the same it was in 4Q?

I think everyone is going through the exercise of making sure that everything is standardized as required by the MTF regulations, and we did make a few changes to standardize the fee schedules and make sure that they are consistent with those new regulations. There are also a lot of moving parts in terms of what will be included in MTFs as more details are disclosed, and there may be some modest modifications coming in the industry, which could include us. We are really analyzing things as we go.

That's helpful color. Thanks. And then Tony just one for you. Nice to see the dividend increased today. Just want to ask on capital flexibility if the right opportunity came across, just want your updated thoughts on how much leverage you think your business could carry for a short period of time if there was an M&A opportunity that you were interested in?

It's a good question, Conor. There is no secret that we have a fair amount of cash and securities sitting on the balance sheet. At year end, it was right around $405 million. And we don't need $405 million to run the business. So when we look at the money we need for regulatory and working capital purposes, we do have excess capital earmarked to support open trading. We have excess capital in our regulated entity. There is still a fair amount of excess cash on the balance sheet. We could use upward of around $200 million of our cash and securities if the right opportunity came along. We don't have any leverage on today. We just posted a year where EBITDA was north of $250 million. So we have a fair amount of leverage that we could put on the company. If the right opportunity comes along, we have the flexibility and we can act opportunistically that way. We would be comfortable putting on 2x, 3x, or 4x EBITDA as the type of leverage.

Hi, good morning. First one I guess just on the Thompson transaction with Blackstone, just curious to get your thoughts on the transaction, how it could potentially impact the competitive environment with Tradeweb? And then just more broadly, maybe a follow-up to Conor's question about potentially expanding into other asset classes outside of cash corporate bonds if there are assets for sale? It seems like in the past you've been kind of just of the view that there is such long run rate here that it is important to focus your energy on a core bond space?

On the first question, the news was new to us yesterday along with most everyone else. All we've done, Kyle, is read the same media reports and press releases that you have. It would appear from what we know that Tradeweb will be included in the assets that Blackstone is investing in. That creates an additional owner of Tradeweb as well as all the other TR financial assets in Blackstone. TR by all appearances will stay involved with a meaningful equity stake. So it's too early to really predict or even speculate on what changes may come. At face value, we do not see any significant difference in the competitive landscape. And on your second question in terms of M&A, clearly, we've been growing organically in many products beyond corporate bonds. Our interests are well beyond corporate. I would say we believe our competitive advantage is in credit, and the credit opportunity is significant. We think we've served our shareholders extremely well by focusing on organic growth. We started another year with that as our primary focus. But there are assets within the credit market that could be complementary either in clients, products, or regions to help us expand inorganically, and we would be very interested in anything that fits with that long term vision.

All right, thank you. And then second one just on the market share. I think you said it's above January of last year in high grade but below 4Q levels for high grade specifically. Any color on high yield and EM and how that is tracking versus 4Q levels?

With the ADD numbers that I outlined earlier, it's safe to assume we've seen broad-based growth across products. As we always do, we'll have a full detail on our January monthly result in a few days across every product, but as I mentioned, we are really encouraged by the start to the year. These are trading volumes that we have never seen before. We are optimistic that between the slight increase we are seeing in market volatility and the regulatory trends, the outlook for ongoing growth is very positive.

Great. And then last for me just a follow-up on the fees per million. Just the other credit fees per million I think are a little bit lower than we expected. I mean high grade was a bit higher. Tony, just on the high yield product specifically, did that come in where you expected? I think you are guiding towards around $350 per million or did it come in a bit below that on the high yield side? I'm just trying to think about how we should run rate that going forward.

Yes. Kyle, you came in literally spot on with that number. So what we've seen post-August 1st implementation of the new fee schedule is that those high yield fees are right around $350 per million. Now realize that when you look at high yield, we have high yield that trades on price, high yield that trades on spread, and all have been trading, so we have different fee plans or structures working across that. So there could be some swings based on that, but we are seven months into this or five months into this, and it's all been around $350 per million.

So, Rick, you mentioned trade spotting and how you guys had some traction with that. Is that something where trade spotting for voice trade, if you do it, kind of brings people into the MarketAxess ecosystem and that leads to more electronic execution over time or is that in your view kind of a completely discrete type of activity?

Well, to be specific, Patrick, I mentioned foreign trade capture. These are trades conducted bilaterally by phone or through communication mechanisms between clients and dealers that are subsequently processed on the system. We believe that this is a post-trade activity that's obviously not in electronic trade and the platform. But it's an ancillary service for clients at a very low fee. So it's a service, but it does help our clients to increase their efficiency and accuracy in trade reporting. Of course, we are attracted to those clients staying on the system for more of their activity throughout the day.

Got it. Thanks for that clarification. And then as we think about your investment initiatives for 2018 and where you are going to be investing your technology? I think there are a few things you've talked about in the past. One is retail pricing functionality, having streaming quotes; another one is maybe having some sort of auction process throughout the day. What's your most updated thinking on where that spending goes in 2018?

Sure. We have four or five different priorities, and I don't think any of them will come as a surprise to you. First, as we mentioned over the last two or three quarters, we are really encouraged by the momentum that we have in global or emerging markets trading. That is a vast market requiring investments because we have created a comprehensive trading solution and marketplace for our clients that includes hard currency, sovereign debt trading, EM corporate bond trading, and increasingly EM local market trading with about 25 or 26 local markets available for trading. One of the investments is to continue to expand our EM product offering, while at the same time increasing sales resources to attract more EM local market dealers and more EM clients around the world. International client diversification is a key priority for us. A disproportionate amount of those sales resources will continue to go into Europe, Asia, and Latin America to really take advantage of what we see as a very large and growing EM product opportunity. Within our credit businesses, we are also encouraged by what we see in the investor and dealer desire to continue to increase trading efficiency. We are helping with that by investing in auto-execution, which we rolled out in Q4 in Europe, and we are currently in the process of rolling out in the US. For small trades, this allows investors to execute electronically with absolutely no manual intervention. This is another way that we can further increase their efficiency. As you mentioned in retail, as we look into that space, we are encouraged by the liquidity pool that we have for micro lot trading and believe that we can extend that further into the retail client segment with a combination of modest investments in technology to fit with retail trading activity, as well as sales resources to focus on the retail wealth advisors and brokers. There are many areas we are working on, but it's a full agenda, and we are excited about the return on investment that we are seeing currently.

Got it, very helpful, thank you. And then one for you, Tony. You probably are going to groan when I ask this. But now that we have the 2018 OpEx guidance, just initial thoughts on 2018. Specifically for your occupancy line. Do we basically just think of it as the $8 million from your new headquarters stays in and then what you are currently paying for your existing headquarters rolls off?

How can I groan, Patrick? You are asking about 2019. It's a part of this. Today, we lease about 55,000 square feet in three separate locations here in New York, and what we're doing with Hudson Yards is taking on 83,000 square feet. The rent expense per square foot for Hudson Yards is about 50% higher. So there will be an uplift; there will be an uplift in rent expense. Trying to be as clear as I can, if you are taking the GAAP numbers for this year and last year, occupancy cost was around $6 million. So, if I'm telling you that the duplicate rent is about $8 million, that means this year for 2018 you should probably model something close to $14 million for occupancy cost. When the new space comes online fully and we exit 299 Park 10th floor, 299 Park 12th floor, and 560 Lexington, you can expect those occupancy costs to come down around $3 million. So from $6 million last year to up to $14 million down to $11 million for 2019. That's about as clear as I can get.

Hey, guys, good morning. Regarding progress on larger trade sizes, can you give us the block percentage in the quarter and quantify the progress you've made on the workup functionality or matching?

Sure. As we look at our share gain last year in high grade, most of it came from larger trade sizes, both $1 million to $5 million, and $5 million and up. Approximately 70% of our volume in US high grade comes from trades sized $1 million and up, and about 23% of our volume comes from $5 million and up. So increasingly, the share gains are coming from larger trades. I believe we are running around 9.5% or so in block trades for high grade. There is definitely progress on the client side getting more comfortable trading larger ticket sizes on the platform, especially with liquid bonds. I would point out, however, that we are having some success with workup. Sometimes that starts with a $2 million trade and ends with a series of trades adding up to something more meaningful in the block trading category through open trading. Another example to share is in our emerging markets trading; we introduced a request for market protocol for two-way responses in EM local markets last year and have seen a very fast pickup of block trading through that protocol. We will continue to invest to deliver technology solutions that fit the needs of both investors and dealers to continue to facilitate larger trade sizes on the system.

All right, thanks, Rick. And then just one more. You talked about seeing really strong growth in emerging markets. Is more of that growth being driven by existing clients trading more, or is it being driven more by the addition of new clients? I know it's a combination of both, but just trying to figure out what's the more important driver historically and what will be the more important driver over the next couple of years?

Honestly, I'm not sure we have the exact number, but you're exactly right; it has been both. We've taken on a lot of new clients in EM over the last 12 months globally. I will tell you that a disproportionate share of last year’s EM growth came from international clients in Europe and Asia, which is why we are increasing our resources there. Those new clients have been incredibly important to our EM growth. The existing clients, prior to 2017, were primarily in the US, and their volume is up. If you look at last year, I think the growth of newly international clients would be the distinguishing feature. We have reasonable estimates on EM market size based on the numbers we see from TRACE EM corporate bond reporting and, importantly, our TRAX database in London. As much as we've grown over the last two or three years in EM, we estimate that we are around 9% of the market opportunity currently. With client adoption heating up and our investment in both protocols and sales to attract and onboard new clients, we are really encouraged that this could be a long-term growth opportunity for the company.

Yes, hey, Rick. Just trying to learn from your experience in the fixed income market. Historically, your market share in December is often the highest of the year, and it comes down in January. Could you explain a little bit of color behind that? I know we can look at issuance and trading sizes and blocks, but can you give us a deeper insight on why that happens and what we could expect this year? I know you gave some range; some of the range is already set, but what's really going on? What are the market catalysts for this to happen all the time?

First, thank you for that question, because I think December and January results create a really interesting story about what's going on in the fixed income markets and why it's extremely difficult to measure trends in electronic trading on MarketAxess on a monthly basis. You are absolutely right; we set new records in estimated market share in high grade, high yield, and EM in December. But obviously, it's a month where market volumes are significantly lighter. The distinguishing feature is that December, as you'd expect given the holiday environment, is typically one of the lightest months for new issue activity, and it's also a month where investors have a lot of year-end portfolio rebalancing to conduct and tax trading. So, there's more secondary activity leading into year-end around those rebalances. When new issues are very high, which they typically are in January, you see the focus shift to underwriters, and new issue bond trades are conducted very actively in the first week or two. The market protocol currently is that new issue trades generally get executed through underwriters, driving the block trading percentage of TRACE up. If you look at the last two months, in December, you'll see that the block trading percentage of TRACE was at the low end of the range around 40%. If you fast forward to January, you will see it's up around 46% or 47%, reflecting the differences in the new issue calendar and trading activities concerning those new issues. If you ask us which we do prefer, clearly, we like January better than we do December, even though our share numbers are lower because market activity is much higher, which drives record trading volumes for the company. So what we do know is if you step back and look at quarters or years, it is clear to see that there are secular trends for greater electronic trading across global credit. We are highly optimistic that trend will continue. However, measuring those trends month to month is quite challenging. I can promise you that the fact that our January share is lower than December has nothing to do with client behavior changing towards MarketAxess; it has everything to do with what's in TRACE. Understanding these patterns makes measuring market share changes month to month quite difficult, and we all must observe these trends in a longer-term context.

Got it, very helpful. Just one last quick thing on market share, but from what I understood you saying earlier to my first question is that one way you've experienced the benefits of MiFID II would be through European clients trading EM in the EM market. If so, do I understand that's what you are seeing in January? Is there any way you can sort of ballpark quantify that? People seem to be excited about the opportunities produced and occurring in Europe because of this regulatory change.

Yes. So as you know, our European business does contribute actively across products. It's a mistake to view euros in isolation because our business diversifies with EM, US credit, and euros, and we are seeing that behavior change in January. It's hard to know exactly what MiFID II is influencing versus what we are seeing because the market environment is a bit better starting the year than it has been in the fourth quarter and in 2017. But when we look in January year-over-year, our European client activity across products is up about 35%. So we are encouraged by the start to the year with European client activity. It does look like the regulatory changes are causing a behavioral shift in electronic trading activity.

Good morning, guys. Just had a quick one on the info services. I apologize if I missed this. Fees are now up 20% due to new recurring revenue contracts. I was wondering if you could give us any color just in terms of the type of client purchasing those contracts and what the pipeline looks like for that going forward.

So, Chris, we saw that we ended up breaking out the info services line. Historically, that info services business has been growing at about 10% per year. Within that category, it's our bond pick or data service; we have volume and pricing reports; access to various products, reference data; so there is a variety of products in that line. In the past two years now, we've had new recurring data contracts of $4 million or higher each year. So we do expect growth going forward. It's a combination of broker-dealer, investment managers; it's a pretty broad-based client group.

Thank you for joining us this morning. We look forward to catching up with all of you next quarter.