MarketAxess Holdings Inc. (MKTX) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, January 31, 2018. I would now like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess. Please go ahead, sir.

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 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/plants. Open trading volume also reached record level 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 all 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 spread also continued their one way path of tightening ending the year historically low levels. On a broader scale, the past six to seven years have been extraordinary times in global bond markets. Central Bank 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 increase inflow through US credit funds as investors search for yield. This demand is fueled record growth in corporate bond issuance with another annual record in 2017. Over the last few quarters, we've seen sign of Central Bank's 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 a global credit markets, combined with regulatory trends such as MiFID II, create 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 showing 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 this 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, realtime mid market estimate for corporate bonds, we believe that liquidity providers are achieving similar savings in transaction cost. Currently, 16% 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 dealer and their efforts to increase trading velocity and reduce balance sheet usage. Our vast network of investors and dealers operating an open trading provides an additive pool of liquidity for both dealers and investors. In 2017, open trading accounting 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 estimated our 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, and 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 standup this quarter with average daily volume of $1.3 billion, a significant uplift both sequentially and year-over-year. High yield in 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 leaving 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, 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 face the tough year-over-year comparable with a heighten 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 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 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 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 sequential basis. Approximately half of the variants 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 $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 bond. 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 campaign 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 yearend 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 and 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, 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 suggest an approximate 11% year-over-year increase in expenses, which will be 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 to build out cost for the Hudson Yards office space. We expect that the effective tax rate for 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 incorporate an estimate for excess tax benefits on restricted stock schedule 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 charges mean that the expected excess tax benefits in 2018 will be significantly lower than 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.

[Operator Instructions] Thank you. And our first question comes from Rich Repetto with Sandler O'Neill. Your line is now open.

Yes. Hi, Rick. Hi, Tony. Good morning. I guess the first question is with the MiFID II, that appeared to be -- or appears to be strong catalyst for electronic trading in the European markets. And just trying to see in January and one of your peers has reported an uptick in trading but again like you said the private company comps and difficult to sort of get a clear look. But what's your experience in Europe in January? Are you getting the benefit of MiFID II in your electronic trading?

I think we are encouraged by the early signs and the growth in January volumes that outlined earlier is led by European clients. And by way of reminder, we have a broad based and diversified business with those clients in EM, US credit and Eurobond. And we believe that the reason that their trading activity up is attributable to MiFID II. And 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. And then as Tony mention earlier, it's also having a positive impact on our reg reporting business was tracked. And we continue to be 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 increased year-over-year, it was a little bit higher than usual. And could you get -- expand a little bit more on where the spending and did that -- is the increase partly driven by increased cash flow from tax reform as well or just a little bit color behind that, the increase.

Sure, Rich. I'd say I think the tax reform piece of it or any benefits from tax reform really influence our plans around investing in and we are going to continue to invest. We are investing to expand the geographic reach expand the addressable market, launch new protocol, launch new products and also address what's happening on the regulatory front and just to give some color while that 11% midpoint slightly higher than the five years CAGR, a couple of items in there and I say for MiFID II and for Brexit there are discrete incremental spending 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, you have to remember that 30% of our expenses right around 30% is denominated in -- and the functional currency is not the US dollar, so we are subject to FX swing, just as FX movement with the dollar weakening, it does add around $2 million or $3 million in year-over-year expenses. And so if you -- this isn't to make an excuse but if you were to carve out those two items, you are looking at an expense increase somewhere around 7% or 8%. But just, again not to make excuse. 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 had said the tax benefit right now and again you have to realize they were -- we are making estimate based on what we expect to vest based on where the share price will be. But what we are seeing right now 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. So most of that additional tax benefit will happen in the first quarter. And just rough numbers that 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.

Thank you. And our next question comes from Conor Fitzgerald with Goldman Sachs. Your line is now open.

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 back of it.

Sure. On high yield the changes went through in August and we believe it's fair and scalable fee model for all market participants on our system. Quite honestly I think the flatness in high yield share is had a lot more to do with the benign market environment, the lack of volatility than anything else. And you did see that we put up a record high yield market share number in December, as well Tony picks up we are optimistic that we have a unique liquidity pool that serves the needs of our clients. And 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 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 is a also a lot of moving parts in terms of what will be included in MTFTs as more is disclosed and there maybe some modest modifications coming in the industry and that could include us. It's -- 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 short period of time if there was an M&A opportunity that you are interested in?

It's a good question, Conor. Because we -- there is no secret that we have the fair amount of cash and securities sitting on the balance sheet. And 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 for -- to support open trading. So 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 the year where EBITDA was north of $250 million. So we have a fair amount of leverage that we could put on the company. So if the right opportunity comes along we have the flexibility and we can act opportunistically that way. And it would be 2x or 3x or 4x EBITDA will be the type of leverage that we put on comfortably.

Thank you. And our next question comes from Kyle Voigt with KBW. Your line is now open.

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 kind of Conor's question about maybe you could help us understand your interest in potentially acquiring to other asset classes outside of cash corporate bonds if there are assets for sale? Seems like in the past you've been kind of just of the view that there is such long run rate here that is important to kind of focus your energy on a core bond space?

Sure. On the first question, the news was new to us, yesterday along with most everyone else we spoken to so all we've done, Kyle, is read the same media reports and press release that you have. It would appear from what we know that Tradeweb will be included in the assets that Blackstone is investing in. And 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 the 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 there 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 bond. And our interests are well beyond corporate. I would say we believe our competitive advantage is in credit and the credit opportunity is very significant and we think we've served our shareholder extremely well to focus on organic growth. We started another year with that as our primary focus. But there are assets within the credit market that could be complimentary either in clients or 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 above January of last year in high grade but below 4Q level for high grade specifically. Any color on high yield and EM and how that is tracking versus 4Q levels?

I think with the ADD numbers that I outlined earlier, it's safe to assume that we've seen broad based growth across products. And we'll have as we always do a full detail on our January monthly result out in a few days across every product but as I mentioned we are really encouraged by the start to the year. And these are trading volumes that we have never seen before. And we are optimistic that between the slight increase that we are seeing in market volatility and the regulatory trends that 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 big 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 high yield side? And 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 first implementation of the new fees schedule 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 trade on price, high yield that trade on spread, , we have all been trading so we have different fee plans or structures working across that. So there could be some swings but we are seven months into this or five months into this and it's all been around $350 per million.

Thank you. And our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is now open.

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 you kind of brings people into market access ecosystem and that leads to more electronic execution over time or is that in your view kind of the completely discrete type of activity?

Well, to be specific Patrick I mentioned foreign trade capture. And so these are trades conducted bilaterally by phone or their communication mechanisms between clients and dealers the trade off system. And then one or both parties won that trade processed on system. And so 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 obviously carry very low with any fees. So it's a service but it does help our clients to increase their efficiency and accuracy at 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 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 got 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. And that is a vast market that requires investments because we have created a comprehensive trading solution and market place 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. So one of the investments is to continue to expand EM product offering, while at the same time increasing sales resources to attract more EM local market dealers to the platform and more EM clients around the world. And international client diversification is a key priority for us. So a disproportionate of those sales resources will continue to go into Europe and 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. And one of the ways that we are helping with that is to invest in auto execution which we rolled out in Q4 in Europe and we are in the process of rolling out now in the US. For small trades this allows investors to execute electronically with absolutely no manual labor whatsoever. So another way that we can further increases their efficiency. And as you mentioned in retail, as we look at that space, we are encouraged by the liquidity pool that we have for micro lot trading, and we do believe that they can be extended further into the retail client segment with the combination of some modest investments in technology to fit with retail and client trading activity, as well as sales resources to focus on the retail wealth advisors and brokers. So something those are so many areas but it's a full agenda. And we are pretty excited about the return on investment that we are seeing currently.

Got it, very helpful, thank you. And then one for you Tony. And you probably are going to groan when I ask this. But now that we have kind of 2018 OpEx guidance just initial thoughts on 2018. And I think 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?

That saying -- how can I groan, Patrick? You are asking about 2019. Its outside, it's clear it's possible on that. So you have to remember its part of this. Today, we lease about 55,000 square feet in three separate locations here in New York and what we are doing with Hudson Yards, we are taking on 83,000 square feet and the rent expense of per square foot cost for Hudson Yards is right around 50% high. So there will be an uplift, there will be an uplift in rent expense. Now trying to be as clear as I can, if you are taking the GAAP numbers for this year and last year occupancy cost wee around $6 million. If I am telling you that the duplicate rent is about $8 million that means this year for 2018 you should probably modeling something close to $14 million for occupancy cost. And when the new space comes online fully and we exit 299 Park 10 floor, 299 Park 12 floor, 560 Lexington, you can expect those occupancy cost to come down around $3 million. So $6 million last year to up to $14 million down to $11 million for 2019. That's about as clear as I can get.

Thank you. And our next question comes from Chris Shutler with William Blair. Your line is now open.

Hey, guys, good morning. Regarding progress on larger trade sizes, can you give us the block percentage in the quarter and maybe just can you quantify in some way the progress you've made on the work up functionality or [Indiscernible] matching. Thanks.

Sure. I think that 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. So around 70% of our volume in US high grade comes from $1 million and up trade sizes and about 23% of our volume comes from $5 million and up. So increasingly the share gains are coming larger trade. I think I am right in saying that we are running around 9.5% or so what we see in trades block trades for high grade. So there is definitely progress there in terms of clients getting more comfortable especially with liquid bonds, trading larger ticket sizes on the platform. Now I point out two things. One, we are having some success with work up and sometimes that starts with a $2 million trade-in and ends with a series of trades that add up to something more meaningful in the block trading category through open trading. The other example I would give Chris is in emerging markets trading during the course of last year we introduced a request for market protocol for two way responses in EM local markets and we've seen very fast pickup of block trading in EM local markets through that protocol. So we will continue to invest to deliver technology solution that really fit for both investors and dealers to continue to do more large trade sizes on the system.

All right, thanks, Rick. And then just one more, you talked about the -- you are seeing really strong growth in emerging markets. Is more of that growth being driven by existing clients or trading more or is it being driven more by addition of new client. 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?

I honestly not sure we have the exact number but you are exactly right it has been both. We've taken on a lot of new clients in EM over the last 12 months globally. And I will tell you that there is a disproportionate share of last year of our EM growth that 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 were prior to 2017 were primarily in the US and their volume are up. But if you looked at last year the growth of newly international clients I think would be the distinguishing feature for the year. And we have reasonable estimates on EM market size given the numbers that we can see from trace EM corporate bond reporting but importantly our tracks database in London and 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. So with client adoption really heating up and our investment in both protocols and sales to attract new and onboard new clients, we are really encouraged that this could be a long-term growth opportunity for the company.

Thank you. And our next question is a follow up from Rich Repetto from Sandler O'Neill. Your line is now open.

Yes, Hey, Rick, just a little tries to learn from your experience in the fixed income market. But you look historically your market share in December a lot of time; most of the times are 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 we can look at the trade size and block but can you give us a little bit deeper inside on why that happens and I guess what we could expect this year? I know you gave the range, some of the range is already but what's really going on? What's the market catalyst for this to happen all the time?

Well, first of all thank you for that question because I think December and January results create a really interesting story of what's really going on in the fixed income markets and why it's extremely difficult to measure trends in electronic trading on market access on monthly basis. Because you are absolutely right we set new records in estimated market share in high grade, high yield and EM in the month of December. But obviously it's a month where market volumes are significantly lighter. And the distinguishing feature is there December as you would expect given the holiday environment is typically one of the lightest months for new issue activity and it is also a month where investors have a lot of yearend portfolio rebalancing to conduct and tax trading. So there is more secondary activity leading into yearend around those rebalances. And when new issues are very high which they are in typically in January and they have been again this year. You see the focus go to the underwriters, that new issue bond trade very actively in the first week or two. Market protocol currently is that that new issue trade generally gets done through the underwriters and the block trading percentage of trace goes up. So if you look at the last two months in December you will see that the block trading percentage or 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%, that is reflective of the difference in the new issue calendar and all of the activity in trading those new issues in block size with the underwriters for the first week or two. Now 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 is driving record trading volumes for the company. So what we do know is if you set back and you look at quarters or years, it is clear to see that there is secular trend going on for greater electronics trading and global credit. And I think that we are highly optimistic that that trend will continue but it's impossible to measure those trends month to month. I can promise you that the fact that our January share is lower than December has nothing to do with client behavior changing and how they feel about market access. It has all do to with what's in trace. And that's what make it really, really difficult to measure market share changes month to month and then we all have to step back and look at them in a longer term basis.

Got it, very, very helpful. And just other last quick thing on I guess market share but from what I understood you saying earlier to my first question is that the way you had experienced the benefits or one way you experienced the benefits of MiFID II would be through European clients trading EM in the EM market. And so do imply that's what you are seeing in January. Do I have that picture right? Is there any way you can sort of ballpark quantify that because again I think people are excited about the opportunity that's been produced, that seems like occurring in Europe with this regulatory change.

Yes. Yes. So as you know our European business yield, you'll see an active contribution across products. And I think it's a mistake to view euros in isolation because our business is diversified with EM, US credit and euros, and we are seeing that behavior will change in the first month of January. It's hard to know exactly what MiFID II is and what part is because the market environment is a bit better starting the year than it has been in the fourth quarter and during 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. And the fact that it does look like the regulatory changes are causing a behavioral shift in electronic trading activity.

Thank you. And our next question comes from Chris Allen with Rosenblatt. Your line is now open.

Good morning, guys. Just had a quick one on the info services one. I apologize if I miss this. Fee now is up 20% due to new occurring 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 is the pipeline look for that going forward.

So, Chris, we -- you saw that we ended up breaking out the info services line and historically that info services business has been growing at about 10% per year. And within that category it's our bond pick or data service we have volume and pricing reports. We have -- are access all products, there is reference data, so there is a variety of product in that line. The past two years now we've had new recurring data contracts $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 there.

Thank you. And I am not showing any further questions at this time. I'd now like to turn the call back over to Rick McVey for any further remarks.

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