Marketaxess Holdings Inc (MKTX) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the MarketAxess fourth quarter full year 2007 earnings conference call. 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 Wednesday, February 6th, 2008.

I would now like to turn the call over to Stephen Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir.

Good morning. And welcome to the MarketAxess fourth quarter and full year 2007 conference call. Before I turn the call over the 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 conditions may differ, possibly materially, from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2006. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release that was issued earlier this morning and is available on our website.

I would now like to turn the call over to Rick.

Good morning. And thank you for joining us to discuss fourth quarter and full year 2007 results. For the agenda this morning, I will provide a high level overview of our results for the quarter and the full year 2007. Kelley Millet will then discuss overall market conditions and some of the recent favorable market trends in our core U.S. high-grade business as well as new product developments.

We will then go to Jim Rucker for a detailed review of our financial results. I will conclude the call with a summary of the market opportunities we see ahead to drive continued revenue and earnings growth.

Fourth quarter net income of $1.9 million, or $0.06 per share, on revenue of $22.4 million was in line with the prior year period's net income of $2.2 million, or $0.06 per share, on revenue of $22.1 million.

We finished 2007 with improved net income of $10.3 million, or $0.30 in earnings per share, on revenue of $93.6 million, well above the $5.4 million in net income, or $0.15 in earnings, on revenue of $83.3 million in 2006. It is interesting to note that one year ago the analyst consensus estimate was $0.26 per share for the full year in 2007. And we are pleased to have exceeded those expectations.

Our fourth quarter and full year results were generated in these difficult market conditions, primarily due to, first, our innovative fixed distribution fee plans in the U.S. and Europe, which provide us with a significant base of recurring commission revenue; and second, significantly higher average fees per million in our core U.S. high-grade product area as a result of increased investor interest in the long end of the yield curve and a decline in shorter-duration FRN trading during the credit crisis.

Investors are increasingly relying on MarketAxess for their most important trading business. As a result of these two factors, our revenues and earnings for the second half of 2007 were up year over year in spite of the extreme market conditions and the subsequent decline in trading volumes.

Our estimated share of FINRA TRACE volume in the fourth quarter was down slightly to 9% versus 9.5% in the prior year period. However, our full year estimated share of TRACE was 9.4%, up from 8.5% in 2006.

It is important to remember that the components of volume within TRACE can vary significantly through different market environments, making it difficult to get a true read on market share.

We believe the second half of the year saw an unusually high percentage of professional trading activity as dealers and hedge funds reduced leverage and balance sheet. We are highly confident that our market position with investor managers continued to strengthen through the credit event. We believe this client progress will become even more evident as credit trading conditions begin to normalize.

Free cash flow from our business continues to be very strong and is running more than two times greater than reported net income for the full year. We ended the year with $124 million in cash and cash equivalents, or $3.61 per share, even after investing $35 million in our share repurchase program during the year.

In sum, we believe that the strength of our client franchise and business model came through loud and clear during the most difficult environment for trading credit anyone can remember. We were one of the very few credit market participants that grew revenue and earnings through the second half of 2007. And we see more opportunity ahead of us than ever before.

Turning to slide four, you can see that 2007 was really a story of two very different halves. Revenue and earnings growth rates accelerated in the first half of '07, driven by higher share in our core products. The operating leverage in our business model was evident with revenues up 21% and expenses up only 2%.

The substantial change in the market environment began in July with a sharp reduction in liquidity and credit trading volumes. In spite of these conditions, we were able to deliver revenue and earnings growth. We remain optimistic that our growth rates in the first half of 2007 are more reflective of long-term trends. And we are encouraged by some of the recent signs that credit trading activity is improving.

With that, let me turn the call over to Kelley.

Thank you, Rick. On slide five, we provide an update on some factors that drive trading in our core market. The upper left hand corner shows the impact of turmoil in the corporate bond market. Liquid high-grade index spreads widened a full 97 basis points from the end of June 2007 to their highs in early February of this year.

The upper right hand corner shows that the low volatility of U.S. corporate index spreads came to an end after the second quarter with the rolling three-month volatility spiking to 7.1% in February of 2008.

In the short run, the sudden and severe repricing in the credit markets had led to a reduction in liquidity and trading activity and corporate bonds. However, we believe that a return to more normal market liquidity, combined with the increase in spreads and volatility, should cause an increase in trading activity among traditional investment managers, our primary client base.

In the lower left hand corner, the steepening of the yield curve has led to an increase in average maturities traded on our system and increase in average variable fees per million.

The lower right hand corner shows the basis point spread between the three-month T bill, representing the risk-free rate, and Libor, representing credit or interbank lending rates for the TED spread. The widening of the TED spread, the highest since the 1987 crash, reflects liquidity and credit concerns in the interbank lending market and those liquidity issues affecting dealer risk appetite. Its narrowing in January indicates a move to a more normal credit and liquidity environment.

On slide six, we show the long-term trend in FINRA TRACE, our respective share, and provide more detail on the mixed or fixed and floating rate bond trading for TRACE and MarketAxess.

On the chart in the upper left hand corner, the decline in our share of TRACE volume, from our record high of 11.1% in the second quarter 2007, has been driven primarily by a decline in electronic trading in short duration, volatile bank and broker names, which make up a significant portion of the floating rate note market. FRN trading has been on a liquidity by appointment basis temporarily and predominantly over the phone since June.

We are not aware of any electronic platform that has been successful in gaining this lost share. And while the upper end market is very important to us, as part of our objective of winning more of the client's low business, this business has a low fee per million attached to it, and is more meaningful from an absolute volume and share perspective than from a P&L perspective, where the impact has been limited.

With the steepening of the yield curve, we are seeing more longer-duration fixed rate bond trading, which is having a positive effect on our average fees per million. In my many years on the street, the highest value, most coveted business for both dealers and investors in the credit market, is the longer-duration business. This is even more important as risk appetite declines and balance sheets shrink. The fact that we are increasing our share of this business is both a sign of strength for our franchise and a key barometer of profitability.

Let me now comment on the positive trends that are emerging for January. Our fees per million for the month are in line with fourth quarter 2007 levels. Our estimated share is running slightly above January 2007 at 7.9%. It is encouraging that TRACE average daily volume has rebounded in January to $9.3 billion per day, up from $6.6 billion per day in December, and more in line with the $9.7 billion per day we saw in the second quarter of 2007 just before the market dislocation.

I should note that, as of January 18th, the day before the Fed cut rates 75 basis points, TRACE was $8.3 billion in average daily volume on 13 trading days. In the last eight trading days of January after the Fed announcement, TRACE average daily trading volumes spiked to $10.9 billion. These are levels more akin to what we saw in 2004.

On slide seven, we have metrics which show the underlying strength of our client franchise. As a reminder, the majority of the volume executed over our platform is predicated on institutional client inquiry. When we look at client flow directed to MarketAxess in the second half of 2007, we're pleased with the results.

The chart on the left shows that institutional investor demand for our platform remains strong. The number of client inquires submitted by our U.S. high-grade platform totaled 77,000 in the fourth quarter of 2007, in line with the 77,000 in inquires submitted by our investor clients in the first quarter of 2007. This is up from the low of 70,000 in the third quarter, when the initial credit shock hit, and down from second quarter levels. I should note that the number of client inquires in the second half of 2007 was still 5% higher than the second half of 2006.

We're also seeing similar trends across our emerging market and high-yield product areas, where client inquiries increased in the second half of 2007 versus the first half. Emerging markets inquiry volume and inquiry count was up 18% and 5%, respectively, while high-yield inquiry volume and inquiry count was up 7% and 1%, respectively.

Connectivity with clients is also a valuable company asset. And we now have 149 straight-through processing connections with clients, up from 113 in the first quarter of 2007. The chart on the right shows the distribution of variable commission revenue for out top 15 dealers in 2007 compared to the relative contribution in 2006. There has been no deterioration in dealer variable commission revenue generation. And concentration remains stable year over year and reflective of overall street activity. This shows that although underlying client demand for our services continues to be strong, it is the degradation in dealer liquidity that has temporarily reduced trading volume.

Slide eight shows the expansion of our successful emerging market product. We have leveraged our first-mover advantage in emerging markets into new trading protocols and market segments. The fundamentals of this asset class are very attractive to our institutional investor clients. And volumes should be less impacted by the structured product and dealer liquidity issues we are seeing in other areas.

Overall as a firm, we are continuing to do everything to accelerate broad market adoption and promote activity in electronic trading of CDS. The market is in very early stages. And the current market dislocation has hampered the adoption of electronic credit derivative trading. We are looking to expand CDS within markets and trading protocols that are more receptive to electronic trading of CDS. And emerging markets is a natural fit.

Expanding beyond the client-to-dealer space, in 2007, we launched interdealer trading of emerging market CDS. And we are encouraged with early results, especially in indices. In December of last year, we launched local market, emerging market, cash trading initially in Mexico, Brazil and Argentina to respond to the increasing issuance of local currency denominated debt and the corresponding decline in supply of U.S. and Euro dollar denominated EM external debt.

The sum of these initiatives has been a near doubling of EM related executed volume in 2007 and EM cash trading. There are attractive fees per million of nearly double our core U.S. high-grade product.

Finally, slide nine highlights TWS and synergies with MarketAxess and an overview of our tech services strategy. As the e-trading market expands in fixed income, the demand for connectivity and infrastructure to support that growth increases. We believe that in a cost-constrained environment, dealers and investors will increasingly look for market-leading, low-cost outsourcing solutions.

So let's example the potential engagements that leverage our current product capabilities, include develop into single-dealer trade solutions, retail fixed income platforms and interdealer licensing opportunities. Our acquisition of TWS expands our product set to include connectivity solutions for dealers and investors as they look to efficiently connect their trading systems to various electronic liquidity pools. Success in tech services would help to grow non-trading related revenue streams and expand our relationships with key dealers and investors.

Now I'd like to turn it over to Jim for a review of the financial results.

Thank you, Kelley. Please turn to slide ten for our earnings performance. Despite the continued dislocation in the credit markets and the resulting decline in our trading volumes, revenue for the fourth quarter of 2007 of $22.4 million was $300,000 above the fourth quarter of 2006. And our earnings per share of $0.06 were in line with the fourth quarter of 2006.

Now let me turn to some of the detail regarding our fourth quarter results. On slide 11, we've laid out the volumes and variable fees per million. The revenue diversification that we have achieved through the introduction of the new fee plans over the last two and a half years have served us well.

Although our trading volume of $68 billion was down 26% compared to the fourth quarter of 2006, with declines in both the U.S. and Europe, our total commission revenues were flat. As a result of the new fee plans, we are now significantly less dependent on the variable transaction fees and have a much higher base of recurring monthly distribution fees. And I'll talk more about this on the next slide.

Let me first, however, talk about the fees per million, particularly in our U.S. high-grade business. Our variable transaction fees in U.S. high grade continue to benefit from a favorable mix of business towards bonds with longer maturities, as Kelley mentioned earlier, where we earn higher fees per million.

The average weighted year's maturity of bonds traded over the platform increased from 5.47 years in the fourth quarter of 2006 to 7.95 years in the fourth quarter of 2007. As a result, variable transaction fees for the fourth quarter of 2007 of $112 per million were 35% above the level in the fourth quarter of 2006, offsetting the decline in trading volume over the period.

Slide 12 provides you with the revenue detail. As I mentioned on the previous slide, our base of recurring revenues has been increasing following the introduction of the new fee plans most recently in Europe. Our revenues are now less sensitive to transaction volume over the platform that will vary, based on overall market conditions.

In the fourth quarter of 2007, the monthly distribution fees from U.S. and European high-grade products accounted for more than 50% of our total revenue. And the benefit of the new European fee plan is clearly evident.

Total European high-grade commissions, including both the fixed monthly distribution fees and the variable transaction fees, were up by $1 million, or 30%, over the fourth quarter of 2006, despite the decline in our transaction volumes in the European region. In the all other revenues category, which was 10% above the fourth quarter of 2006, (inaudible) in our information and user access fees, as well as in interest income.

Slide 13 provides you with the expense detail. This quarter again highlights that our expenses are mostly predictable and do not vary significantly based on transaction volume. Total expenses in the fourth quarter of 2007 were just 4% above the fourth quarter of 2006, primarily driven by an increase in professional and consulting expenses, which was partially offset by a decline in employee compensation and benefits expense.

Employee compensation and benefits as a percent of revenue was 46%, down from 49% in the fourth quarter of 2006. Coverage of our expense base by the U.S. and European high-grade monthly distribution fees and the non-trading related revenue has increased from 66% of our expense base in the fourth quarter of 2006 to 78% in the fourth quarter of 2007.

Employee headcount as of December 31, 2007, was 182, compared to 176 at the end of 2006.

CapEx for the full year of 2007 was $4.9 million, $100,000 below the low end of the guidance range that I provided on our second quarter 2007 call.

On slide 14, we have our 2008 expense guidance. We expect our 2008 full year expenses to be in a range of 3% to 7% above our full year 2007 expenses of $76.4 million. This expense guidance includes approximately $2 million in operating expenses from our recent acquisition of Trade West Systems.

Variance within the range will be impacted by the investment decisions we make based on credit market conditions through the year, as well as by company performance, which is a key determinant of employee performance-based compensation.

We expect our CapEx expenses for 2008 to be in the range of $5 million to $7 million. We expect the diluted share count for the first quarter of 2008 to be in the range of 33.7 million shares to 34.2 million shares.

On slide 15, we show our strong free cash flow generation. For the full year of 2007, we generated free cash flow of $24.2 million, or $0.70 per share on a diluted basis. This is more than double the reported net income of $10.3 million, or $0.30 a share, driven by the non-cash expenses and our ability to utilize prior year net operating losses to offset our current year tax liabilities. Our free cash flow margin for the year was 26%.

On slide 16, we have summary balance sheet data. Our cash, cash equivalents and securities balances as of December 31, 2007, were $124 million, or $3.61 per share. This is just $7 million, or 5%, below the $131 million at year end 2006, despite the fact that during 2007 we invested total of $34.6 million in the stock repurchase program.

During the fourth quarter of 2007, we repurchased 531,000 shares under the program at a total cost of $7.2 million. And as of January 8th, we had completed the $40 million repurchase program, approved by our board in November 2006.

Total stockholders' equity as of December 31, 2007, was $174 million, representing book value on a diluted basis of $5.12.

Over the past two quarters, we have utilized our cash balances for stock repurchases and for acquisitions, namely TWS. And our board continues to evaluate both alternatives.

Now let me pass the call back to Rick, who will provide you with a strategic update on the company.

Thank you, Jim. The underlying strength of our client franchise and the solid financial results that we have reported today show that we have built a successful business model capable of growing through the most extreme market environments. We have diversified our revenue stream to build a higher base of recurring revenue while preserving valuable upside through electronic transaction fees.

Most important, we see a number of trends in the market today that increase our confidence in the growth rates ahead. The sharp reduction in revenue expectations for the dealer community in the credit area is causing an increase in focus on reducing expenses. We believe dealers want to serve their investor clients with a lower cost base, especially for low-margin flow business. We provide that solution with our fixed license fees for electronic client-to-dealer trading and our significantly lower brokerage costs for interdealer trading.

The increase in credit spreads creates new demand for credit assets from value investors. As confidence is restored in market liquidity, we believe overall investor trading activity in credit products will grow. Demand for electronic trading is moving into new sectors of credit, creating a broader market opportunity for us. We see this demand coming through most clearly in emerging market and high-yield debt in the near term, while remaining confident in the long-term prospects for CDS and interdealer trading.

Market demand for technology solutions to improve trading efficiency continues to grow. We believe dealers and investors will be increasingly attracted to market-leading, low-cost outsourcing solutions. Our acquisition of TWS is the first step in building our technology service capabilities through value-creating acquisitions.

Demand for new sources of market liquidity is growing. We see opportunities to attract new dealers and investors to our trading system and to more fully utilize our existing network to create new and valuable sources of trading connectivity and liquidity.

While it is clear that the credit event negatively impacted our growth rates in the near term, it is creating new market opportunities for us that increase our growth prospects. We are enthusiastic about our market position as demand grows for low-cost trading and technology services solutions.

In conclusion, on page 18, we remain confident in the growth prospects for our business for the following reasons. First, January trading activity is up sharply from the depressed levels of the fourth quarter, potentially signaling a turning point in the trading environment. Credit trading is getting more interesting, not less.

Second, we have attracted and retained the vast majority of the leading dealers and institutional investors to our trading system. And we are broadening our relationships into new electronic markets and technology solutions.

Third, our competitive position remains strong with the dominant share of the institutional electronic client-to-dealer credit market. Barriers to entry are growing as we increase the breadth and depth of our institutional relationships with dealers and investors.

Fourth, our cash flow and balance sheet are more valuable than ever as we look for new organic growth and acquisition opportunities to build long-term shareholder value.

Now I would be happy to open the line for your questions.

(OPERATOR INSTRUCTIONS)

And our first question will come from the line of Daniel Harris with Goldman Sachs. Please proceed.

Hi, Rick. Good morning. How are you?

Hi, Daniel. Good. Thank you.

I was wondering if you could comment just a bit more on -- and I don't think we touched on it too much here. And it seems like the competitive market is sort of quiet this quarter relative to, say, last. But a little bit more on the landscape out there as it relates to changes that may have happened recently. And how would you characterize your operating results this quarter in terms of anything that's been happening in the sector?

Sure. First, on the competitive question, Daniel. We don't see any change over the second half of 2007. We are carefully watching the activity of others that are involved in the electronic trading space for credit, including the New York Stock Exchange and Thomson Trade Web. And quite honestly, we continue to believe that our client relationships are getting stronger. And I think the stats that we showed earlier today on the breadth of our network and activity with both clients and dealers proves that this is still the place where the vast majority of electronic credit trading is taking place.

With respect to the announcement on the dealer investment into Trade Web during the second half, by all accounts the primary focus there continues to be on the interest rate space and specifically the interest rate swap space. As you know, Trade Web has tried unsuccessfully to enter the corporate bonding credit space many times since 2002, and I think has been confronted with the depth of our network and our technology solutions and has not had any meaningful success.

So we think that their focus is primarily in other areas. And anecdotally, all of our work with institutional investors and dealers would show that we continue to occupy not only most of the trading activity in credit today, but also the mindshare in terms of new ideas and new products within the credit space.

And so, is that a similar case in your other products as well, like CDS or within Europe or anything, that you haven't seen a pickup in clients coming back to you with pressure from other sources of, potentially, electronic trading menus?

That's correct. It's obviously much earlier days in CDS than it is in the cash trading of credit electronically. And obviously, there are many people proposing solutions in the CDS space. It's not yet clear which sectors within CDS and which product areas are going to take hold first. But it's early days. And we're very confident in our market position and the leadership position that we've already established in cash credit, which we think gives us a natural advantage in the CDS space.

Okay. Thanks a lot for that.

Your other question was about the operating results. Clearly, Daniel, this market environment has been very difficult for all participants in the credit market. We're not pleased with the decline in overall trading volumes. But we are very pleased with how well our business held up in environment that no one expected last July. And I think, if you look at the earnings and revenue performance of this company in light of those circumstances, we held up exceptionally well. And I think we're well positioned as the market conditions start to normalize in the future.

Yes. No, I agree. I think you guys did a good job with the industry the way it was. Turning just a little bit more to the European side of the business. Can you give me an update on what you're hearing from clients in the European business in terms of how, I guess, generally, the buy side is viewing the changes to your pricing since you adjusted your pricing card and how you think about that last summer?

And while it's good to see the overall 30% increase in revenues, and it certainly seems like your volumes have been down pretty substantially, and more so than I think the decline was seen in the U.S. So, taking into account that the overall industry has certainly been paralyzed, the European business has seemed like it's been a little bit worse. And so, I'm just trying to get your sense of, is it still in line with what you would've thought with regards to enacting a pricing change? Or do you still think maybe there's some tweaking that needs to go on over there?

No, I think it's an important question. And obviously, the European business is important to the overall company. First, in terms of investor behavior, I think consistent with previous market environments, what you typically find when credit conditions get this volatile is European investors tend to be more risk averse than their U.S. counterparts. And we have seen a stepping away from the credit market temporarily in Europe that's more significant than what we've observed in the U.S.

Much like the stats that Kelley showed earlier for our U.S. business, interestingly enough, Daniel, the level of client inquiries is off much, much less in Europe than the level of actual trading volume. And I think this is the same factor. Clients are still utilizing the system and relying on the system. I think with dealer liquidity so impaired, the responses that they're getting back are just far different than they were six months ago.

With respect to what portion of this might be related to the market environment versus the fee model, we think it's almost all the former, not the latter. We think we have a fair and reasonable electronic transaction fee that's built into every trade in Europe, as we do in the U.S. And quite frankly, as a percentage of the bid offer, that number is declining significantly as the market has become so much more volatile.

So the transaction fee is less relevant to the transaction than ever before. And we think that the value we deliver to the client through the price discovery, and competition for their order that we provide is significantly greater than the transaction fee.

Okay. Thanks. So no real pushback from the European client base on the changes, just in general.

We don't see it. The breadth of clients utilizing the system is largely unchanged from the first half before the fee model was changed. And, as I mentioned, the level of inquiries is off just slightly. And obviously, we're talking to clients and dealers every day. And we just don't think that's the factor.

Okay. Great. Thanks a lot. And then just a couple numbers questions here for Jim. A couple things -- on the interest income line, should the -- is it safe to assume that, as the Fed is cutting rates here, after that continued at that line will go down, of course, offset by potentially higher cash balances? And then, just on the non-comp, was there any seasonality in the fourth quarter with some of your line items picking up a little bit more than I would've thought or that we had certainly modeled? And thanks for the disclosures on '08. Appreciate it.

Yes, Dan, first of all on interest income. Yes, as rates come down, we obviously would expect to have some decline in our rates on our interest income going forward, as you say obviously, offset by what happens with the cash balances.

On the non-comp expenses, there were a couple of one-off items in Q4 that are in the professional and consulting line as well as in the other general administrative expenses. So fourth quarter expenses did encompass those two one-off items.

So then it's not necessarily seasonal. It's more just there was a pickup here. And I shouldn't expect that to happen, say, next fourth quarter.

That's right. It wasn't seasonal. It was just a couple of one-off items within the expenses.

Okay. Thanks a lot guys.

Thank you.

And our next question will come from the line of [Joe Hurry] with Banc of America Securities. Please proceed.

Hi, guys.

Hi, Joe.

Morning, Joe.

Morning. Given the strong new issuance volume that's on the second half of January and what's expected to be a pretty good calendar going into the first half of February, could you maybe help us think about how we should think about the market share impact on your platform? And also, is there a lag between when we see that coming through and really ramp up secondary activity?

It's Kelley. Good morning. There is a positive correlation between new issue activity and activity over our platform over time. But I think as you rightly point out, there is typically a lag. In the current market, where new issues are typically coming at somewhat of a discount, i.e. it spreads 20 to 30 back of where secondary paper is trading, a lot of that business is done by phone or on swap. And then when that new issue frees to trade, for the first 24 to 48 hours, those transactions in large block size are typically done between the holders of that paper and the lead managers.

So new issue activity provides liquidity in the marketplace, does accelerate the velocity of trading in our market. But there is a delay in terms of the digestion of that new issue business and when we begin to see incremental trading on our platform, in terms of launched client inquiries and typically smaller sites trades.

So, what should we be looking towards, I guess, the back half of this quarter to see that start coming through?

Well, there are a lot of -- as you know, there are a lot of variables that will affect overall TRACE volume and our share on that. And clearly, a positive factor influence TRACE volumes is typically -- and if you look at it historically, a robust new issue market typically will lead to greater TRACE volumes. And you'd expect to see that, if we have an active calendar through the most of February, you would expect and we would hope to see improved volumes on the back of that, again, acknowledging other factors in that March and April timeframe.

Great. Could you also discuss the single dealer program that you have and whether you're seeing the corresponding uptake that you'd hoped, using that as a loss leader? And if not, have you considered potentially charging for those volumes or modifying the program in some way?

To be honest, it is a service that we provide to our clients on the system. To be honest, the volumes are relatively immaterial to the overall activity of the platform. And quite frankly, if you think about the best execution and compliance demand of our buy side clients, obviously, the ability to launch inquiry to multi-dealers and providing that level of transparency and competition is probably even more critical in the current market environment.

So, although we view that as a service to a client who may desire to transact in that mode, we don't see that being a real material contributor to volumes going forward and, obviously, to revenue.

Okay. Great. And then just a numbers question here. Looking at the other volumes, you had a pretty healthy rebound there in January. Could you break out for us -- I mean, not numerically, but at least thematically -- what the drivers were there for components?

Yes, Joe, on the other volume, as you know, that's comprised of EM, CDS, and also high yield and agency volumes. And it's really -- it's a mixture of those which has driven the increase in January versus the prior month.

So it's pretty broad based. Across the board, you saw things moving forward.

Yes. No, it was fairly widespread.

And in terms of your comp-to-revenue ratio, it seemed like it was in line with the prior quarter. I guess for some reason I was under the impression that, given bonus accruals and so on, that we might actually see that come down in the fourth quarter. Except I thought you guys do the accrual in the third quarter, unless I'm mistaken about that. I thought there might be a little bit more leverage on it.

All right. Typically that ratio is not going to change significantly from quarter to quarter because, as I mentioned in my prepared remarks and you noted there, Joe, we do accrue employee compensation based on the results -- variable compensation based on the results of the company. But we accrue it throughout the year.

Okay.

So typically, you wouldn't expect to see last swings of that from quarter to quarter.

And in the --

Does that answer the questions?

Yes, that's helpful. Sorry, just to loop back to the other volumes, the pricing went up significantly there. And should we see that persisting, as we head into '08?

Which category are you speaking about, Joe?

The other volumes. The pricing on that jumped to [119].

I'm sorry. You're asking, Joe, about the fourth quarter compared to the third quarter, are you, sir?

Yes, it jumped up. Should we expect that -- sort of a new run rate?

That's a number that is going to vary from quarter to quarter, somewhat based on the mix of business because, as I mentioned, we've got in there businesses that have pretty significant variances on the fee per million. On the one hand, you've got the emerging markets business, which is typically higher. On the other hand, at the low end, you have CDS and the agency business that have significantly lower fees per million. Q4, I think, was probably in a slightly higher fees per million than trend. So I think what you want to look at is more of an average over the second half of last year.

Thanks, guys.

Thanks, Joe.

(OPERATOR INSTRUCTIONS)

And our next question is a follow-up question from the line of Daniel Harris with Goldman Sachs.

Hi. I was wondering, Jim or Rick, if you guys could address the cash on your balance sheet. It seems like cash is down on $7 million or $8 million. I know you purchased TWS in the quarter and used $7 million for repurchases, offset by a couple million in net income. So clearly, cash generation is still pretty solid there and looks like ,with about $125 million in cash on the balance sheet and your repurchase finalized during the quarter. If you can give us an update on how you're thinking about whether you extend the repurchase, or if you're still comfortable keeping that cash on hand for acquisition or for other potential corporate action.

Yes, Dan. It's Jim. Obviously, what we think is important is to stay focused on the long-term growth for the company. What's important within that is continuing to build our revenue scale and diversification. We feel great about the organic opportunities that will help build that scale and diversification. But we're also focused on selective acquisitions that can help.

And to be quite honest, we think that the opportunities over the next few quarters for acquisitions look a lot better than they did a little while ago. So that's what we're focused on. But having said that, and again, as I said in my prepared remarks, the board will continue to look at the alternatives for use of the cash, including both acquisitions and stock buybacks.

Okay. So, nothing to announce in terms of repurchase right now.

Nothing to announce at this point, no.

And I might've missed it. What was CapEx in the fourth quarter?

I don't think I gave the CapEx number for the fourth quarter in my prepared remarks. But it was $1.1 million.

Okay. Thanks a lot, guys.

Thanks, Daniel.

At this time, we have no questions in queue. I would now like to turn the call back over to Mr. Rick McVey for closing remarks.

Thank you for joining us today. And we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.