MarketAxess Holdings Inc. (MKTX) Earnings Call Transcript & Summary

Okay. Well, good morning, everybody. We're going to get started with our next session. It is my pleasure to welcome Chris Concannon, CEO of MarketAxess; and Ilene Fiszel Bieler, MarketAxess's CFO. MarketAxess is a leading global electronic trading platform specializing in credit markets. Over the course of 2024, MarketAxess continue to drive automation of fixed income trading through new protocols, enhanced use of data and customer expansion. We will look forward to getting an update from Chris and Ilene on MarketAxess progress on a number of key strategic initiatives and your priorities for 2025. Chris, great to see you. Thank you for being here. Ilene, welcome, first time as CFO of MarketAxess, onto the stage. Welcome to your new role. All right. Well, let's jump in.

So I wanted to start with a question around just the state of electronic trading within credit markets. If you think about some of the recent trends, the market share collectively within U.S. IG has kind of stalled out around mid-40s, maybe high 40s and in high yield at around 30%. And that's really collectively for you guys and your peers. Why do you think that is? And what do you think will be the next leg of growth to take this market share higher for the space?

Well, as you know, first of all, thanks for having us. Great conference and it's going to be fun to see everyone throughout the day. I spent a little bit of time thinking about electronic trading and fixed income. And I do think there's an interesting element to what I'll call flatline growth of electronic trading, particularly in high-grade and it's really what we've seen over the last 3 years and the adoption of portfolio trading, which is ironic because you would think portfolio trading is electronic trading. It's changed how many of the PMs in our industry look at transfer of risk. It's a very efficient means of transfer of risk. It's associated with the growth of ETF trading because a vibrant ETF market makes a vibrant portfolio trading market. What's interesting and why I suggest it's flatlined the growth of electronic trading is because it's arguably cannibalized what was already electronic. The early days of portfolio trading, you saw larger block sizes in the PT. Clients got very smart about it, that priced PTs poorly. And so the dealers when they look at portfolio trades, they want tiny little micro lots in a big list. So think 1,000 line items under -- each one under $1 million, that is prime RFQ world for MarketAxess. So what really has happened over the last 3 years is what normally went to electronic RFQ, particularly all-to-all MarketAxess has shifted into a PT. And that has been the focus of our traders, our clients and their PMs to exit and enter risk in the fixed income market. So it's really the novel solution portfolio trading that has actually slowed the growth of electronic trading. But it's good for electronic trading because what it really is, is massive risk transfer in electronic form. So the same trader that is trading that PT has to go back to the phone and chat and go back to the old ways of trading blocks. The other piece of the growth of electronic trading that we all need to observe is, if you look at TRACE and high grade, it's up 27%, something -- high 20s in 2024. That is only possible because of electronic trading. All of the portfolio trades that we see going on in the market, somewhere about 10% of the market. Another area of growth is the dealer-to-dealer business, which is highly electronic. So the truth is while market share is flat of electronic trading the notional volume that's going through electronic means is up dramatically. And it's really -- for the first time, we've been predicting higher velocity in the fixed income market because of electronic trading, that's what we're witnessing. So portfolio trading, automation, dealer-to-dealer business is all driving more volume, historically more volume through those electronic means than we've ever seen before, and it's really associated with that higher velocity, that higher turnover. And then the last piece, I'll just add this, we obviously spend way too much time studying TRACE and looking at market share and like the rest of the industry seems to be very focused on market share. There's noise in TRACE that we're seeing, and we've been picking up for several quarters. There's a lot of affiliate transfers within TRACE. It's a legal trade, it's complying with the TRACE rules, but it's really 2 affiliates trading. So we see a portfolio go up.

So like a BlackRock U.S. versus BlackRock international...

No, this is dealers transferring it to -- typically, they transfer to where they're housing their ETF risk or their creation-redemption bucket. So you see -- we estimate about 5% of TRACE is just pure affiliate transfers of a dealer transferring it to an affiliate because it is in the dealer-to-dealer bucket. But there's literally portfolio trades that are replicas of client-to-dealer portfolio trades happening in TRACE. We estimate somewhere around 5%. So that would push your electronic trading up a little higher if you pull that out of TRACE.

I got you. Does that get captured, do you think, in the portfolio trading volumes that we all observe...

It does. So unfortunately, because it's flagged as a PT, it's also creating some noise around what is the right portfolio trade market share. And it really depends on who wins that because only certain dealers have this anomaly around the back-to-back affiliate trade.

I got you. Your increased velocity point is very important because I feel like we have been talking about it for many years, right? It's like there's more electronic trading, but velocity just keeps going down. And I agree with you, it's the first year or 2 where it actually feels like velocity in credit markets starting to improve.

Yes. Look, there's been a heavy new issue this year. We've seen record new issue. That tends to add to the velocity and the overall volumes. But you can't discount the value of these portfolio trades that are $2 billion to $4 billion in size. We didn't see that before. And electronic trading is facilitating that kind of risk transfer, and it will continue into the years ahead. So the good news is if you're modeling out the future years, velocity and turnover is technically higher because of structural changes, not just the market.

Yes, yes. No, that's a really helpful way to frame it. All right. Let's bring this conversation down to MarketAxess, a little bit closer. If we look at your guys' market share, it's also been pretty range bound, right? Like high grade has been kind of hovering in the 19% to 20% range, high yield slipped to kind of low to mid-teens. You've been very busy over the last 12 to 18 months, you rolled out a ton of new capabilities and the list is long, but you talk about X-Pro, you talk about portfolio trading, block solutions, rule-based automation. So we can talk quite a bit about all of that. But give us a sense of what's been most impactful so far, where are you seeing most traction? Where is it coming from? And ultimately, when do you expect some of these initiatives to materialize in more meaningful shift in market share gains?

So we're undergoing a technology transformation. So we do look at market share month-to-month, but our focus is what's coming in the next year and the next 3 years. What we don't want to do is build for the next quarter. And if you look at the market, it tends to do that. If portfolio trades are hot in this quarter, everyone focuses all their energy on how do I capture the next portfolio trade because, by the way, portfolio trades whip market share around pretty dramatically. So expect more movement in market share. Unfortunately, portfolio trading has what we call tiny TAM. It's a very small addressable market, revenue opportunity is tiny. So you'll have market share movement with very little impact to revenue and that goes for the market itself. So it's interesting that we can have such big trades move market share around and impact our stock price, mind you, for very little TAM opportunity. Now the important thing about portfolio trading is it's what our clients want. So we came to the market late with our offering. We built it out in our new platform. So we kind of married our tech transformation to delivering what clients are asking for. The other piece of the puzzle of that tech transformation is not just the client experience in that front end that we call X-Pro, but it's the data that is contained inside our all-to-all. So we run the largest all-to-all liquidity pool on the planet for U.S. credit, U.S. high yield. There's just nothing in comparison. What people forget about that is it's not just vibrant liquidity that we have. It's the data that no one else has because it's all anonymous, it's all ours to look through. And we've been, over the last 2 years, cutting through that data to identify what to trade, which we haven't actually achieved yet. We're getting there. How to trade, like what size bucket should I trade in. And now we're just launching who to trade with. These are key components that traders want. The traditional dealer runs and axes, interesting, depending on which market you're in, but really knowing that a dealer is truly axe, which means they're active in that ISIN or in that sector, that's important. So those -- this data that we're unlocking, I think, will change outcomes around how people trade in the next year.

And the data unlocking would help you in the portfolio trading side of things because that's kind of how clients want to trade. Is it going to enhance all-to-all? Is it going to enhance RFQ? Like where is that going to be most impactful?

The data is most important on the pre-trade side, whether it's a portfolio trade, a block trade or an automated trade. Those 3 -- let me go through those 3 buckets. So you have a portfolio trade, a list of ISINs or CUSIPs, call it 1,000 long. The trader is truly challenged trying to perfect that portfolio for pricing. There's 2 opportunities they get before they submit it to the dealer. And then after the dealer prices the portfolio trade, you can still optimize that PT. The data will tell you how to optimize that PT and perfect your execution. So that's one very important bucket that our feedback from our clients is your data is pristine and telling us how to optimize. So how we wrap that portfolio trading tool into that data is a critical piece of the puzzle for Q1. The next piece, and this is back to your first question, what's really going to be the next leg of electronic trading. Portfolio trading is really the signal for us and how we think about that next leg. The portfolio trade is massive. It's anywhere from $300 million to $4 billion. It means the traders on the desk of our clients want to trade electronically in large size. They just want to do it quietly with 1, 2 or 3 dealers. The block part of the market, call it, the next 50% that is nonelectronic. That's all block. It's on chat, it's on phone. It's on all the most inefficient means of trading for a trader to experience, yet the buy side wants to go faster, do more with less traders. Our high-touch solution, which just is rolling out as we speak, is designed to target that who to trade with, how to trade, what sizes to trade and even when to trade. And it's critically -- the data, again, is linked to how a trader uses that high-touch block solution. We've rolled it out in Europe and in EM, and we're already seeing early results. We're seeing average trade size over $4 million, and we're seeing a few hundred million of activity going across. We have about 26 clients that have already engaged the block solution in both Euro and EM. So we're very excited about what the axe content and the dealer selection content that we're providing to the clients is resulting in high fill rates because of that dealer selection tool. So that's another piece of the puzzle. You're not -- when a trader wants to share block information with the Street, they want to do it very -- they don't want to go to all. Think of MarketAxess traditionally has been an all-to-all all-the-time solution. We're now introducing go to one, go to two, go to your preferred dealers, do it quietly, do it electronically. And by the way, we'll help you size your order, and we'll help you decide which dealer you should go to. Because sometimes the dealer that's not axed may be active in the CUSIP and you want to go to that dealer. Sorry, that was a long-winded -- it's a market share question.

We touched on a couple of interesting points here, and we'll double click into that in a minute. But I did want to ask, how are you thinking about the trade-off between market share and sort of advancing your initiatives and revenues. You kind of hit on that a little bit earlier on. Look, portfolio trading, obviously, lower fee per million. But how are you thinking about maximizing actual revenues and what you guys are trying to accomplish versus market share? How do you think about the risk of also cannibalizing some of your existing RFQ flow with enhanced portfolio trading or other things?

So we think about this a lot, and we think about the market environment we're in, and it's slightly different in each market that we touch. So think treasuries, high grade, high yield, Eurobonds and then EM. In EM, that's a sweet spot for us. It just keeps growing because the adoption of electronic trading there is probably, I don't know, maybe 5%, somewhere in that bucket. So there's a long runway in EM that we see. When I think about revenue opportunities, we have to focus on delivering what clients want. Traditionally, we have delivered high revenue opportunities around all-to-all. And there's a lot of market share that's sitting out there that may come in at a lower revenue point, but it's new revenue. So our job is to grow revenue of all shapes and sizes and just dominate the client-to-dealer space by solving what clients are asking for. They're asking for more automation. We actually think there's a premium that can be attached to automation over time because it really makes clients super efficient. They can run all of their trading through a single trader using high adoption, high penetration of automation. That's a premium offering that we have because it's attached to unique market data that makes decisions -- the computer makes decisions around the unique market data that we give. The other piece, the higher touch, call it block trading, that can come in at a lower revenue point because we have to be friendly to the dealer that's providing that price back. We can't overcharge what we charge in, say, all-to-all unique liquidity. We have to be very careful on how we price that single dealer trade or that multi-dealer trade, that's a block trade, where they're giving us access, they're marketing their liquidity, and we're exchanging -- in exchange, we're giving them a client interest. The last piece is portfolio trading. That comes in at a much lower price point. But the trader that trades portfolio trades, trades block. So we have to be on the desktop. We're willing to take lower price points, and we're willing to grab market share at lower price points. The last part of the market, which is now about 30% of TRACE is the dealer-to-dealer market. That's going to be crushed TAM, as I call it. That's going to be highly competitive. We're going to step into it aggressively. So all the models of our fee per million captures are going to get screwed up, sorry. But it's an important part of the market because think of the growth of PT, it's now around 10% to 11% of the market. The minute of portfolio trade goes down on a dealer's desk, they're turning around and dumping it into a variety. They have a waterfall of how they get out. They go right to the dealer market and get rid of anything they can get rid of. That's why to the credit of Tradeweb, they've built the Sweep product. That's a place where people dump a lot of their inventory to get out of that risk. But that dealer-to-dealer market has been growing, our Dealer RFQ is a quite powerful tool because it allows dealers to trade with dealers anonymously to get out of risk. So that dealer market is going to be a very vibrant market. But from a TAM perspective, it's going to get crushed. And we have every intention of going into it and crushing that revenue opportunity.

How much lower do you think your price point would be relative to what's available in the marketplace in the dealer-to-dealer market?

It can go very low. It can be cut by 1/3. In Europe, where we're running our Mid-X solution has been quite successful. We lowered pricing and we instantly got volume. So the dealers do respond to what is competitive pricing. They're very elastic. They always -- I've been in the dealer space, my whole career. I know the elasticity of dealers.

Yes. For many reasons. Okay. Let's talk about a couple of things you mentioned earlier on. So we touched on portfolio trading in a couple of different ways. But I did want to zone in on this just one more time, thinking about the competitive edge you guys bring to that part of the market. And we talked about data. So that's clearly going to be critical, and it's pretty important. The other thing that we continue to hear is the importance, especially in the IG space, the importance of having a vibrant treasury pool of liquidity from a net spotting perspective, right? So just making sure that it's really efficient and you're kind of hedging both legs of the trades and it's all kind of done at once. Do you have enough there? Or is that ultimately the kind of prohibitive factor that will hold you guys back from becoming much bigger in portfolio trading relative to what's available?

Right now, if you look at our treasury business, it's hitting near record volumes. It's quite vibrant. We have -- we're not missing any large investment bank dealer liquidity. We have a ton of alternative market maker liquidity. So when we look at the liquidity pool that we have access to, that's not the issue. Really, we have been net spotting now for quite some time. It's client participation. So clients have to opt in to get their everything netted. And then dealer spotting, particularly around portfolio trading is where we've been pushing very hard. We feel very good about, call it, January, February time frame where some dealers don't auto spot on our platform. We're putting down kind of a deadline on auto spotting. If you want to participate in portfolio trading, you need to be auto spotting. And so it's a client demand that we have. So there's a lot of different flavors of when you hear netting, hedging, spotting, there's lots of different flavors of that, and it's a source of confusion for both client and I think a lot of investors. We've been running netting, net hedging, so where you have your spot associated with your IG trade, for over a year now. So...

And is it fully integrated at this point?

Fully integrated. Client -- in fact, there are some very large nets that you get on the platform because of the size of our IG business. So if you have a smaller RFQ business, the nets don't get that big. So our liquidity needs are bigger than any other platform because we're netting so much down. And there's still a net hedge that has to be executed at the end of the day. But when we look at spotting, the different flavors of spotting, you have spot at 3, spot at 4, spot now or spot at 3 and spot now because I just changed my mind. So those are all the different spotting flavors. There's also auto spotting as part of your PT trade. That's the one piece that we're -- we don't have all the dealers participating in our auto spotting yet. Lots of flavors.

Lots of flavors. So the other important aspect of what you guys are working on has been high touch solutions. And for many of us kind of following this industry for a while, it feels like that is really kind of the part of the market that has been not penetrated by electronic trading for many reasons, mostly transparency, right? So as you think about what is ultimately within your TAM, most people will say, well, larger-sized trades are just not. So like the TAM is not 100, the TAM is like 50 and they're already at 50, so kind of game over. It's interesting what you come to market with. Can you -- and you alluded to that a little bit in terms of the number of folks you have signed up, but talk about how that's going to get rolled out. What has been the reception? What's the target size? Kind of how high could you guys go in terms of size of the trade and ultimately, the fee per million dynamics for that type of vertical?

Sure. This is the most exciting part because look, I've spent now almost 6 years at MarketAxess and spent a lot of time looking at the all-to-all and growth of all-to-all, a lot of time on automation. But really what's -- and we got on this topic of what's holding back the full rollout of electronic trading to higher sizes. If you talk to clients, their #1 concern is information leakage. And that baffled me for a while because what you -- like you can use electronic means to go to one. So there's no leakage. But so many of our clients were just wedded to all-to-all defaulted on. And we didn't help. We made the default pretty hard to turn off. So the clients were very much -- MarketAxess is all-to-all electronic trading. They associate electronic trading with all-to-all. And that, I think, was a mistake. There's so many other ways to go direct to one dealer. And now we're offering that. So this -- the high-touch offering is a critical change in the IG market that I see over the next couple of years. It allows clients to go direct to a single dealer, so think process trade, much more efficient than anything you could see on chat or on the phone. It allows clients to pick the right dealer. So when it comes to information sharing, like RFQs, you share the full amount of your trade and your direction. That's a unique kind of piece of information that you're giving a dealer. You prefer not to go to the wrong dealer and one that's not active in the bond. So your selection is critical when you're about to share that block information. What you don't want to do is go to all. If you have a $5 million high-yield block trade, telling the Street that you're selling it is not favorable to your price out, right? And so some basic logic of how we direct clients to pick dealers, Axess is obviously a key ingredient but really also this AI dealer selection tool that we've launched, which helps look at the dealer activity in the market that we can see and help you pick of your axe dealers who's really axe. And that's a key ingredient and the feedback on that one product is quite high. So the clients love the electronic trading of larger size. It's more efficient for them to just do what they do in chat on a platform where they can select the same number of dealers.

I got you. Okay. Let's shift to asset class a little bit. I wanted to hit on EM. You guys had a lot of competitive advantages in this part of the market for a while. It's probably your fastest growing segment within credit over the last couple of years. Can you frame what percentage of emerging markets now trades electronically today? And how are you thinking about the addressable market here over time and really sustainability of your competitive advantage in this part of the market?

Right now, as I mentioned earlier, we think -- because remember, in EM, you've got hard dollar EM market and local markets, it's about 50-50 split. Local markets is where we're making a lot of the growth. We've seen a lot of growth on the platform over the last 2 years since we rolled out more of the local markets. We estimate somewhere around 5% is electronic. So there's a long road ahead. It's a heavy -- the local markets have a lot of heavy sovereigns in it. So highly liquid local government bonds. Dealers are -- lots of liquidity, lots of dealers quoting those bonds. So we see further electronification of that market as we go into the local markets, individual local markets. So the road ahead is huge. The opportunity is huge. The macro market is healthy. So overall, traction and assets being dedicated to EM is still high. We just had a record day in LatAm the other day. So exciting growth across the EM landscape. Remember, the fee per million in the local markets is a little bit smaller because they are sovereign bonds with very tight spreads. But overall, that market opportunity is quite sizable. What's great about the competitive environment is we only see a little bit of Bloomberg. We don't see anyone else making any headway in that space as we're still collecting more and more clients. When we look at where are we onboarding clients, it's in those local markets, adding to our network. The other key to the EM market, which I think is a competitive weapon that we have is the diversity of dealer. So the network effect of having more dealers that solve your local and your hard dollar bonds is critical. In IG, you probably need the top 5 and you could have a market. In EM, you need 25 because that diversity of product, diversity of dealer is critical link to providing liquidity to the client. That's very hard to build. That takes a lot of years. We've invested in a lot of years. So the moat isn't just all-to-all, which we have that moat already in EM. It's a sizable part of our EM market. The moat is also dealer diversity.

I got you. Okay. All right. Let's talk about some of the other aspects of the business. I want to spend a couple of minutes on data. It really cuts through a number of really important initiatives for you guys, but also the value of data on itself is quite important. Other markets, and you know as well from equities, have monetized data quite well. Credit markets are not quite there yet. So how are you thinking about monetization of the data opportunity outside of just accelerating the trading backdrop?

I have this concept of a careful monetization. When I look at our service to our client business, and look, we are a client franchise business, the dealer-to-dealer business is quite interesting to us because it is a partnership with our dealer community. But the client franchise business is global. It's every client you could ever dream of is on our platform. So we need to be helpful to their needs. And to me, execution solutions driven by data is our #1 competitive element. So there's a healthy balance of monetizing data, meaning selling it for hard dollars and using it in our trading tools. It's a balance. If you look at where the exchanges around the planet have monetized their data. They sold their data to intermediaries who sold execution solutions. We are the intermediary selling execution solutions. So I want to be very careful how we distribute our data and monetize our data. So we think there's healthy monetization just given what we're rolling out from a how to price a bond, but how to trade a bond, who to trade with, why would I sell that? Why would I monetize that when I can drive flow onto the platform? If I could win a portfolio trade from a very large client with unique data, that's the priority that we have in our business model. If you think about where we're going from an automation perspective, automation is driven by data. The best automation has the best unique data to make trade decisions. So again, those tools need to be powered by unique data. It just changes the outcome for the client, and no one can replicate it.

Right. And the network effect from that is obviously very huge.

It's huge.

Yes. Okay. All right. Let's turn our attention to maybe a couple of financial items, bring Ilene into conversation as well. You did put on the mic. We made you put on a mic -- so I don't want to zone in too much on any given quarter, but fee per million is obviously an important part of the discussion, acknowledging nobody's got a crystal ball. But if you think about the direction of travel and the fee growth algorithm that you guys have in the business over the next couple of years, knowing what portfolio -- what protocols you guys are most excited about, knowing the direction of travel, how do you think fee per million is likely to evolve over the next few years?

I mean I think -- look, I went back in time, right? I'm really relatively new here, just I think I'm on like 6 months now, right? So I did go back and look at, call it, the last 5 years of data, understanding that that's not necessarily what the next 5 years are going to look at -- look like, particularly when you listen to everything Chris was just talking about. But if you look, the average fee per million during that time period was about $173, right? And we know that had some spikes. We had COVID, that was about, call it -- there was a high watermark there of about $204. We're obviously not going to see that again. There were some unique things happened during that time period that we wouldn't expect to happen. So then you start to think about, okay, well, where are the macro environmental aspects of things that impact us. Obviously, that's important in our business, right? And so you look at what's happened recently, we've been -- spreads are so tight, right? We've been in a situation where vol has been really low. Think about the C VIX, right? If you look at the investment-grade C VIX, I want to say yesterday, it was at 25, and you've got high yield is at 101, those are low numbers, right? You've got the min/max, I want to say the max in investment grade is more like 80, and we're at 25 over the last 4 years. That's -- there's a lot of room there. You've even got median at 33. So I mean I can go on and on and on. I mean, I'm...

Yes. The cyclical is definitely...

That's right. You've got it. We're in a low environment, right? So that would tell you that if vol is going to come back even some, right, you're going to get some more movement in activity. That's obviously positive for fee per million. So even just putting macro aside, there should be some opportunity there, right? We know that to your point that what you just said, look, $146 where we just were. Does that seem like the right number? That seems like you've got some opportunity there. And when you think of the sensitivities inherent in our model, particularly in high grade with duration, duration is the way that -- we price duration and the way that looks and the way this works in our industry, we know there's a sensitivity here. The sensitivity is when we look at weighted average years to maturity on the platform, when we see a year of increase in terms of what's happening on weighted average years to maturity in high grade, you get about a $15 increase in fees per million, right? And so that's again an opportunity. So I think about headwinds, I think about tailwinds, there's lots of puts and takes, when we see more high yield, that's going to help us in fees per million, right? When we see more activity in our premium protocol of Open Trading, that's going to, again, give you more in terms of fees per million. Now what's not going to probably come back, and Chris just talked about this, portfolio trading. We know that portfolio trading is -- we've seen about a $5 or $6 headwind on fees per million on average in terms of what we're seeing there. So all of that in, I just gave you a lot, right? You've got to think about the macro factors. You've got to think about the mix of what's going on. You've got to think about things that are coming through that we know are lower fees per million. But do I think there's some more room to go on fees for million? Yes, from where we are, I do. So we've got to see where it all comes out. But those are sort of -- if I think about the algebra and the puts and takes, that's how I would think about looking at it.

I got you. Okay. A little less than a minute on the clock, but we'll try to sneak one more in, expenses and margins. You guys have been much more focused on expenses in the last couple of years. You've taken a couple of actions. It feels like the normalizing for some of the acquisitions, you're probably running at something kind of like a high single-digit expense growth this year, give or take. How durable is that? How sustainable is that? I know you guys are still investing a lot. Is that roughly the right amount of expense growth we should anticipate in the model? And how important is margin expansion over time for you guys?

Yes. So I mean, obviously, it's a little early to give you some 2025 guidance, right? I'm in the middle of doing budgeting.

We're running out of time...

We're running out of time. Look, I think investment, to your point, is super important in this business, expense discipline, equally important in any business. It's important to have good health and hygiene in how you run a firm, right? We saw positive operating leverage last quarter. I was really happy to see that. Chris just talked about a number of things that we're doing in terms of investments. I will give you one little pivot that I think is important from a dynamics perspective, which is if you think about some of the interesting things we're doing, they, for instance, don't need additional variable costs, right? Think about what we're doing on some of the high-touch strategies. There's not additional clearing costs, right? We self-clear what we do for our RFQ business, right, for a lot of what we do there. And so when you think about blocks, when you think about PT, that doesn't consider additional cost -- variable costs that we currently see come through the P&L. And so that's higher incremental margin business, right? So this -- we don't have enough time to go through this. I'll have to do this another time. But there's other things to consider and think about when you think about it.

I'll just add one last closing point. We've made a huge tech investment already. So when I talk about our tech transformation, it's been underway and the Pragma acquisition, a lot of X-Pro, all of that investment happened in '24. So when you're looking at '24, it's certainly a good model to think about investments going forward.

Got it. Great. Well, that's perfect. Thank you both very much. Always a pleasure.

Thank you.

Thanks, Chris.