MarketAxess Reports First Quarter 2019 Record Revenues of $124.5 Million, Record Operating Income of $63.2 Million and Record Diluted EPS of $1.39

First Quarter Financial Highlights*

  • Record revenues of $124.5 million, up 8.5%

  • Record operating income of $63.2 million, up 5.0%

  • Record EBITDA of $71.3 million, up 7.6%

  • Record diluted EPS of $1.39, up 9.4% from $1.27

  • Record trading volume of $526.2 billion, up 13.2%

  • Record Open TradingTM volume of $134.4 billion, up 65.6%

  • Record trading volume in each of our four core products: U.S. high-grade, U.S. high-yield, Eurobonds and emerging market bonds

*All comparisons versus first quarter 2018.

NEW YORK, April 24, 2019 (GLOBE NEWSWIRE) -- MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, today announced results for the quarter ended March 31, 2019.

"MarketAxess trading volumes set records across all of our core products in a quarter with rapidly narrowing credit spreads,” said Rick McVey, Chairman and CEO of MarketAxess. “Open Trading continued to contribute to our growth as market participants seek to benefit from increased liquidity options and significant transaction cost savings. The trend to automated execution is gaining momentum in fixed income globally, putting MarketAxess in a strong position to capitalize on its technology, global client network and extensive data resources."

First Quarter Results

Total revenues for the first quarter of 2019 increased 8.5% to $124.5 million, compared to $114.7 million for the first quarter of 2018. Operating income was $63.2 million, compared to $60.2 million for the first quarter of 2018, an increase of 5.0%. Operating margin was 50.8%, compared to 52.5% for the first quarter of 2018. Net income totaled $52.5 million, or $1.39 per share on a diluted basis, compared to $47.9 million, or $1.27 per share, for the first quarter of 2018.

Commission revenue for the first quarter of 2019 increased 9.7% to $112.8 million, compared to $102.8 million for the first quarter of 2018. Variable transaction fees increased 11.7% to $89.1 million on total trading volume of $526.2 billion for the first quarter of 2019, compared to variable transaction fees of $79.8 million on total trading volume of $465.0 billion for the first quarter of 2018. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume decreased to an estimated 17.6% for the first quarter of 2019, compared to an estimated 18.0% for the first quarter of 2018.

All other revenue, which consists of information services, post-trade services and other revenue, decreased to $11.7 million, compared to $11.9 million for the first quarter of 2018. The decrease in all other revenue was principally due to the unfavorable impact of the stronger U.S. dollar of $0.5 million offset by higher data revenue.

Total expenses for the first quarter of 2019 increased 12.4% to $61.3 million, compared to $54.5 million for the first quarter of 2018. The increase in total expenses was largely due to higher employee compensation and benefit costs, mainly due to an increase in headcount, of $3.8 million, clearing costs of $0.9 million, depreciation and amortization of $0.8 million and professional and consulting fees of $0.8 million

Other income increased to $2.0 million from $0.8 million principally due to a $0.8 million increase in investment income as a result of higher investment balances and an increase in interest rates.

The effective tax rate for the first quarter of 2019 was 19.5%, compared to 21.4% for the first quarter of 2018. The income tax provision reflected $3.0 million and $1.8 million, respectively, of excess tax benefits related to share-based compensation awards that vested or were exercised during the first quarter of 2019 and 2018. 

Employee headcount was 476 as of March 31, 2019 compared to 429 as of March 31, 2018.

Dividend

The Company’s board of directors declared a cash dividend of $0.51 per share of common stock outstanding, to be paid on May 22, 2019 to stockholders of record as of the close of business on May 8, 2019. 

Share Repurchases

A total of 23,365 shares were repurchased in the first quarter of 2019 at a cost of $5.2 million.

Balance Sheet Data

As of March 31, 2019, total assets were $774.8 million and included $483.4 million in cash, cash equivalents and investments. On January 1, 2019, the Company adopted a new lease accounting standard and recorded new operating lease right-of-use assets of $79.5 million, eliminated a deferred rent liability of $11.7 million and recorded lease liabilities associated with the future minimum payments required under operating leases of $91.2 million. Total stockholders’ equity as of March 31, 2019 was $631.1 million.

Non-GAAP Financial Measures and Other Items

To supplement the Company’s unaudited financial statements presented in accordance with generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP measures of financial performance, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) and free cash flow. The Company believes that these non-GAAP financial measures, when taken into consideration with the corresponding GAAP financial measures, are important in understanding the Company's operating results. See the attached schedule for a reconciliation of GAAP net income to EBITDA and GAAP cash flow from operating activities to free cash flow.

Webcast and Conference Call Information

Rick McVey, Chairman and Chief Executive Officer, Chris Concannon, President and Chief Operating Officer and Tony DeLise, Chief Financial Officer, will host a conference call to discuss the Company’s financial results and outlook on Wednesday, April 24, 2019 at 10:00 a.m. EST. To access the conference call, please dial 855-425-4206 (U.S.) or 484-756-4249 (international). The Company will also host a live audio Webcast of the conference call on the Investor Relations section of the Company's website at http://investor.marketaxess.com. A replay of the call will be made available by dialing 855-859-2056 (U.S.) or 404-537-3406 (international) for one week after the announcement. The passcode for replay callers is 8747808. The Webcast will also be archived on http://investor.marketaxess.com for 90 days following the announcement.

About MarketAxess

MarketAxess operates a leading, institutional electronic trading platform delivering expanded liquidity opportunities, improved execution quality and significant cost savings across global fixed-income markets. More than 1,500 firms - comprising the world’s leading asset managers and institutional broker-dealers - traded a record $1.7 trillion of U.S. investment-grade bonds, U.S. high yield bonds, emerging market debt, Eurobonds and other fixed income securities through MarketAxess’ patented trading technology in 2018. MarketAxess’ award-winning Open Trading™ marketplace is regarded as the preferred all-to-all trading solution in the global credit markets, creating a unique liquidity pool for the broad range of credit market participants. Drawing on its deep data and analytical resources, MarketAxess enables automated trading solutions and, through its Trax® division, provides a range of pre- and post-trade services and products. 

MarketAxess is headquartered in New York and has offices in London, Amsterdam, Boston, Chicago, Los Angeles, Miami, Salt Lake City, San Francisco, São Paulo, Hong Kong and Singapore. For more information, please visit www.marketaxess.com.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain forward-looking statements, including statements about the outlook and prospects for Company and industry growth, as well as statements about the Company’s future financial and operating performance. These and other statements that relate to future results and events are based on MarketAxess’ current expectations. The Company’s actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, including: global economic, political and market factors; the volatility of financial services markets generally; the level of trading volume transacted on the MarketAxess platform; the absolute level and direction of interest rates and the corresponding volatility in the corporate fixed-income market; the level and intensity of competition in the fixed-income electronic trading industry and the pricing pressures that may result; the variability of our growth rate; the rapidly evolving nature of the electronic financial services industry; our ability to introduce new fee plans and our clients’ response; our exposure to risks resulting from non-performance by counterparties to transactions executed between our clients in which we act as an intermediary in matched principal trades; our dependence on our broker-dealer clients; the loss of any of our significant institutional investor clients; our ability to develop new products and offerings and the market’s acceptance of those products; the effect of rapid market or technological changes on us and the users of our technology; our ability to successfully maintain the integrity of our trading platform and our response to system failures, capacity constraints and business interruptions; our vulnerability to cyber security risks; our ability to protect our intellectual property rights or technology and defend against intellectual property infringement or other claims; our ability to enter into strategic alliances and to acquire other businesses and successfully integrate them with our business; our ability to comply with new and existing laws, rules and regulations both domestically and internationally; our ability to maintain effective compliance and risk management methods; the strain of growth initiatives on management and other resources; our future capital needs and our ability to obtain capital when needed; limitations on our operating flexibility contained in our credit agreement; and other factors. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. More information about these and other factors affecting MarketAxess’ business and prospects is contained in MarketAxess’ periodic filings with the Securities and Exchange Commission and can be accessed at www.marketaxess.com.

Media and Investor Relations Contacts:

Tony DeLise
MarketAxess Holdings Inc.
+1-212-813-6017
William McBride
RF|Binder
+1-917-239-6726
   
Mary Sedarat
MarketAxess Holdings Inc.
+1-212-813-6226
 



MarketAxess Holdings Inc.
  Consolidated Statements of Operations      
     
  Three Months Ended  
  March 31,  
  2019     2018  
  (In thousands, except per share data)  
  (unaudited)  
               
Revenues              
Commissions $ 112,760     $ 102,772  
Information services   7,366       7,066  
Post-trade services   4,100       4,576  
Other   265       300  
Total revenues   124,491       114,714  
               
Expenses              
Employee compensation and benefits   32,658       28,834  
Depreciation and amortization   6,082       5,269  
Technology and communications   5,782       5,779  
Professional and consulting fees   5,831       5,057  
Occupancy   2,949       3,337  
Marketing and advertising   2,299       2,065  
Clearing costs   2,577       1,725  
General and administrative   3,124       2,475  
Total expenses   61,302       54,541  
Operating income   63,189       60,173  
Other income (expense)              
Investment income   1,989       1,168  
Other, net   42       (328 )
Total other income   2,031       840  
Income before income taxes   65,220       61,013  
Provision for income taxes   12,698       13,073  
Net income $ 52,522     $ 47,940  
               
               
Per Share Data:              
Net income per common share              
Basic $ 1.42     $ 1.30  
Diluted $ 1.39     $ 1.27  
               
Cash dividends declared per common share $ 0.51     $ 0.42  
               
Weighted-average common shares:              
Basic   37,043       36,954  
Diluted   37,832       37,886  



MarketAxess Holdings Inc.
Commission Revenue Details
               
  Three Months Ended  
  March 31,  
  2019     2018  
               
  Total Commissions Revenue
  (In thousands)
  (unaudited)
               
Transaction Fees              
U.S. high-grade $ 42,501     $ 38,767  
Other credit 1   46,034       40,427  
Liquid products 2   557       583  
Total transaction fees   89,092       79,777  
               
Distribution Fees              
U.S. high-grade   17,978       17,227  
Other credit1   5,558       5,540  
Liquid products2   132       228  
Total distribution fees   23,668       22,995  
Total commissions $ 112,760     $ 102,772  
               
               
  Average Variable Transaction Fee Per Million
  (unaudited)
               
U.S. high-grade - fixed-rate $ 158     $ 158  
U.S. high-grade - floating-rate   76       94  
Total U.S. high-grade   153       154  
Other credit   196       202  
Liquid products   39       41  
Total   169       172  
               
               
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2 Liquid products includes U.S. agencies and European government bonds.



MarketAxess Holdings Inc.
 
Consolidated Condensed Balance Sheet Data
               
  As of  
  March 31, 2019     December 31, 2018  
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 260,953     $ 246,322  
Investments, at fair value   222,458       240,105  
Accounts receivable, net   70,946       57,535  
Goodwill and intangible assets, net   62,579       62,675  
Furniture, equipment, leasehold improvements and capitalized software, net   61,047       63,010  
Operating lease right-of-use assets   78,190        
Prepaid expenses and other assets   17,219       22,468  
Deferred tax assets, net   1,417       3,424  
Total assets $ 774,809     $ 695,539  
               
Liabilities and stockholders' equity              
Liabilities              
Accrued employee compensation $ 16,699     $ 39,053  
Income and other tax liabilities   18,857       16,432  
Deferred revenue   3,545       2,810  
Accounts payable, accrued expenses and other liabilities   13,717       29,366  
Operating lease liabilities   90,845        
Total liabilities   143,663       87,661  
               
Stockholders' equity              
Common stock   122       122  
Additional paid-in capital   335,425       341,860  
Treasury stock   (190,146 )     (184,962 )
Retained earnings   496,562       463,252  
Accumulated other comprehensive loss   (10,817 )     (12,394 )
Total stockholders' equity   631,146       607,878  
Total liabilities and stockholders' equity $ 774,809     $ 695,539  



MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
               
  Three Months Ended  
  March 31,  
  2019     2018  
               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 52,522     $ 47,940  
Add back:              
Interest expense          
Provision for income taxes   12,698       13,073  
Depreciation and amortization   6,082       5,269  
Earnings before interest, taxes, depreciation and amortization $ 71,302     $ 66,282  
               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flow from operating activities $ 39,369     $ 31,439  
Less:              
Net purchases (sales) of corporate debt trading investments   (6,015 )     (3,054 )
Purchases of furniture, equipment and leasehold improvements   (649 )     (2,278 )
Capitalization of software development costs   (3,184 )     (3,590 )
Free cash flow $ 29,521     $ 22,517  



MarketAxess Holdings Inc.
Volume Statistics*
             
  Three Months Ended March 31,
  2019     2018
             
  Total Trading Volume
  (In millions)
  (unaudited)
             
U.S. high-grade - fixed-rate $ 259,833     $ 236,523
U.S. high-grade - floating-rate   17,577       14,462
Total U.S. high-grade   277,410       250,985
Other credit   234,491       199,943
Liquid products   14,276       14,079
Total $ 526,177     $ 465,007
             
  Average Daily Volume
  (In millions)
  (unaudited)
U.S. high-grade $ 4,548     $ 4,115
Other credit   3,812       3,254
Liquid products   233       230
Total $ 8,593     $ 7,599
             
Number of U.S. Trading Days 1   61       61
Number of U.K. Trading Days 2   63       63
             
             
1 The number of U.S. trading days is based on the SIFMA holiday recommendation calendar.
2 The number of U.K. trading days is based on the U.K. Bank holiday schedule.
             
*Consistent with FINRA TRACE reporting standards, both sides of trades are included in the Company's reported volumes when the Company executes trades on a matched principal basis between two counterparties.

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Source: MarketAxess Holdings, Inc.