MarketAxess Reports Third Quarter 2018 Revenues of $101.4 Million, Operating Income of $46.4 Million and Diluted EPS of $1.02

Third Quarter Financial Highlights*

  • Revenues of $101.4 million, up 6.1%
  • Expenses of $55.0 million, including $1.9 million of duplicate occupancy expense
  • Diluted EPS of $1.02, up 13.3%
  • Trading volume of $385.5 billion, up 11.2%
  • Open Trading™ volume of $88.3 billion, up 58.3%

*All comparisons versus third quarter 2017.

NEW YORK, Oct. 24, 2018 (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 September 30, 2018.

"Strong market share gains across our core products and increased Open Trading activity led to a solid increase in trading volume in the third quarter in spite of quiet credit trading conditions," said Rick McVey, Chairman and CEO of MarketAxess. "Product diversification is evident in the results with a record 9.2% estimated high-yield market share, 22% year-on-year increase in emerging market trading volume and a 28% increase in Eurobond volumes.  We are encouraged by the improvement in market conditions for credit trading that we started to see in September." 

Third Quarter Results

Total revenues for the third quarter of 2018 increased 6.1% to $101.4 million, compared to $95.6 million for the third quarter of 2017.  Operating income was $46.4 million, compared to $46.6 million for the third quarter of 2017, a decrease of 0.5%. Operating margin was 45.8%, compared to 48.8% for the third quarter of 2017.  Net income totaled $38.6 million, or $1.02 per share on a diluted basis, compared to $34.1 million, or $0.90 per share, for the third quarter of 2017.  

Commission revenue for the third quarter of 2018 increased 4.9% to $90.5 million, compared to $86.3 million for the third quarter of 2017. Variable transaction fees were $66.0 million on total trading volume of $385.5 billion for the third quarter of 2018, compared to variable transaction fees of $65.9 million on total trading volume of $346.8 billion for the third quarter of 2017. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 17.5% for the third quarter of 2018, compared to an estimated 17.2% for the third quarter of 2017.

All other revenue increased 17.4% to $10.9 million, compared to $9.3 million for the third quarter of 2017, principally due to higher information services revenue of $0.8 million and post-trade services revenue of $0.8 million.

Total expenses for the third quarter of 2018 increased 12.4% to $55.0 million, compared to $48.9 million for the third quarter of 2017. The increase in total expenses was largely due to higher occupancy costs of $1.7 million, depreciation and amortization of $1.6 million, marketing and advertising expenses of $0.9 million, technology and communication costs of $0.8 million and employee compensation and benefit costs of $0.8 million, mainly due to an increase in headcount.  Occupancy costs in the third quarter of 2018 include duplicate expense recognized during the build-out phase of the Company’s new corporate offices in New York.  The duplicate expense had the effect of increasing total expenses by $1.9 million and reducing diluted EPS by $0.04.

Other income increased to $1.4 million in the third quarter of 2018 from $0.6 million in the third quarter of 2017 due to a $0.7 million increase in investment income as a result of higher investment balances and an increase in interest rates.

The effective tax rate for the third quarter of 2018 was 19.3%, compared to 27.7% for the third quarter of 2017.  The third quarter of 2018 income tax provision reflected $1.7 million of excess tax benefits related to share-based compensation awards and a $0.4 million reduction to the provisional tax charge recorded in 2017 in connection with the Tax Cuts and Jobs Act.  The third quarter of 2017 income tax provision included $3.8 million of excess tax benefits related to share-based compensation awards.

Dividend

The Company’s board of directors declared a cash dividend of $0.42 per share of common stock outstanding, to be paid on November 21, 2018 to stockholders of record as of the close of business on November 7, 2018. 

Share Repurchases

A total of 31,500 shares were repurchased in the third quarter of 2018 at a cost of $6.1 million.

Balance Sheet Data

As of September 30, 2018, total assets were $646.1 million and included $446.2 million in cash, cash equivalents and investments.  Total stockholders’ equity as of September 30, 2018 was $578.6 million.

Guidance for 2018

The Company is updating its full year 2018 overall effective tax rate guidance to a range of 21.0% to 22.0%, down from the previous guidance of 23.0% to 25.0%.  The reduction is primarily due to excess tax benefits related to share-based compensation awards that were exercised during 2018.

The Company expects that full year 2018 expenses will be near the low-end of the $220.0 million to $232.0 million guidance range. The expense guidance includes duplicate occupancy costs of approximately $7.0 million for the Company’s new corporate offices in New York during the build-out phase. 

The Company also expects that full year 2018 capital expenditures will be near the high-end of the $43.0 million to $50.0 million guidance range.  The capital expenditure guidance includes approximately $26.0 million of buildout costs for the new corporate offices.

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

Richard M. McVey, Chairman and Chief Executive Officer, and Antonio L. DeLise, Chief Financial Officer, will host a conference call to discuss the Company’s financial results and outlook on Wednesday, October 24, 2018, at 10:00 a.m. Eastern time. 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 3998335. The Webcast will also be archived on http://investor.marketaxess.com for 90 days following the announcement.

About MarketAxess

MarketAxess operates a leading electronic trading platform that enables fixed-income market participants to efficiently trade corporate bonds and other types of fixed-income instruments using MarketAxess’ patented trading technology.  Over 1,400 institutional investor and broker-dealer firms are active users of the MarketAxess trading platform, accessing global liquidity in U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, municipal bonds, credit default swaps and other fixed-income securities. MarketAxess also offers a number of trading-related products and services, including: market data to assist clients with trading decisions; connectivity solutions that facilitate straight-through processing; technology services to optimize trading environments; and execution services for exchange-traded fund managers and other clients.  Through its Trax® division, MarketAxess also offers a range of pre- and post-trade services, including trade matching, regulatory transaction reporting and market and reference data, across a range of fixed-income products.  Trax is the trading name of Xtrakter Ltd., a MarketAxess group company.

MarketAxess maintains its headquarters in New York and has offices in London, 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: 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 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  William McBride
MarketAxess Holdings Inc.  RF|Binder
+1-212-813-6017 +1-917-239-6726
   
Mary Sedarat  
MarketAxess Holdings Inc.  
+1-212-813-6226  

 

MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
                               
           
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2018     2017     2018     2017  
  (In thousands, except per share data)  
  (unaudited)  
                               
Revenues                              
Commissions $ 90,513     $ 86,270     $ 289,398     $ 267,307  
Information services   7,174       6,331       21,170       19,013  
Post-trade services   3,475       2,678       11,671       7,623  
Other   281       305       882       919  
Total revenues   101,443       95,584       323,121       294,862  
                               
Expenses                              
Employee compensation and benefits   26,282       25,485       81,315       78,088  
Depreciation and amortization   6,173       4,583       17,232       14,066  
Technology and communications   5,879       5,035       17,451       14,442  
Professional and consulting fees   5,685       5,547       16,168       13,912  
Occupancy   3,528       1,795       10,332       4,621  
Marketing and advertising   2,980       2,089       8,580       6,757  
Clearing costs   1,760       1,476       5,497       4,320  
General and administrative   2,744       2,939       7,927       7,878  
Total expenses   55,031       48,949       164,502       144,084  
Operating income   46,412       46,635       158,619       150,778  
Other income (expense)                              
Investment income   1,635       964       4,186       2,551  
Other, net   (250 )     (382 )     (785 )     (932 )
Total other income   1,385       582       3,401       1,619  
Income before income taxes   47,797       47,217       162,020       152,397  
Provision for income taxes   9,203       13,087       34,999       37,781  
Net income $ 38,594     $ 34,130     $ 127,021     $ 114,616  
                               
                               
Per Share Data:                              
Net income per common share                              
Basic $ 1.04     $ 0.93     $ 3.44     $ 3.11  
Diluted $ 1.02     $ 0.90     $ 3.36     $ 3.01  
                               
Cash dividends declared per common share $ 0.42     $ 0.33     $ 1.26     $ 0.99  
                               
Weighted-average common shares:                              
Basic   36,951       36,865       36,952       36,856  
Diluted   37,828       38,019       37,859       38,069  

 

MarketAxess Holdings Inc.
Commission Revenue Details
 
                               
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2018     2017     2018     2017  
                               
  Total Commissions Revenue  
  (In thousands)  
  (unaudited)  
                               
Transaction Fees                              
U.S. high-grade $ 32,385     $ 34,020     $ 107,553     $ 102,411  
Other credit 1   33,088       31,381       108,280       110,221  
Liquid products 2   482       546       1,553       1,746  
Total transaction fees   65,955       65,947       217,386       214,378  
                               
Distribution Fees                              
U.S. high-grade   18,032       16,305       53,520       47,985  
Other credit1   6,385       3,842       17,967       4,506  
Liquid products2,3   141       176       525       438  
Total distribution fees   24,558       20,323       72,012       52,929  
Total commissions $ 90,513     $ 86,270     $ 289,398     $ 267,307  
                               
                               
  Average Variable Transaction Fee Per Million  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 162     $ 174     $ 161     $ 168  
U.S. high-grade - floating-rate   91       67       94       62  
Total U.S. high-grade   157       169       156       164  
Other credit   198       235       199       252  
Liquid products   39       45       40       43  
Total   171       190       171       194  
                               
                               
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.  
2 Liquid products includes U.S. agencies and European government bonds.  
3 Includes CDS SEF-related revenue.      

 

MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
 
               
               
  As of  
  September 30, 2018     December 31, 2017  
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 210,085     $ 167,014  
Investments, at fair value   236,101       239,521  
Accounts receivable, net   62,004       52,636  
All other assets   137,941       122,061  
Total assets $ 646,131     $ 581,232  
               
Liabilities and stockholders' equity              
Total liabilities $ 67,513     $ 66,464  
Total stockholders' equity   578,618       514,768  
Total liabilities and stockholders' equity $ 646,131     $ 581,232  
               

 

MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                               
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2018     2017     2018     2017  
                               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 38,594     $ 34,130     $ 127,021     $ 114,616  
Add back:                              
Interest expense                      
Provision for income taxes   9,203       13,087       34,999       37,781  
Depreciation and amortization   6,173       4,583       17,232       14,066  
Earnings before interest, taxes, depreciation and amortization $ 53,970     $ 51,800     $ 179,252     $ 166,463  
                               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flow from operating activities $ 67,994     $ 52,465     $ 153,812     $ 121,583  
Less:                              
Net (sales) of corporate debt trading investments   (9,959 )     (8,449 )     (6,671 )     (8,338 )
Purchases of furniture, equipment and leasehold improvements   (7,786 )     (1,468 )     (23,821 )     (7,245 )
Capitalization of software development costs   (2,635 )     (3,427 )     (9,171 )     (10,094 )
Free cash flow $ 47,614     $ 39,121     $ 114,149     $ 95,906  

 

MarketAxess Holdings Inc.
Volume Statistics*
 
                               
                               
  Three Months Ended September 30,     Nine Months Ended September 30,  
  2018     2017     2018     2017  
                               
  Total Trading Volume  
  (In millions)  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 191,950     $ 192,092     $ 643,781     $ 599,783  
U.S. high-grade - floating-rate   14,066       8,734       43,739       24,024  
Total U.S. high-grade   206,016       200,826       687,520       623,807  
Other credit   166,990       133,757       544,614       438,055  
Liquid products   12,505       12,189       39,134       40,840  
Total $ 385,511     $ 346,772     $ 1,271,268     $ 1,102,702  
                               
  Average Daily Volume  
  (In millions)  
  (unaudited)  
U.S. high-grade $ 3,270     $ 3,188     $ 3,657     $ 3,318  
Other credit   2,641       2,116       2,893       2,327  
Liquid products   198       193       208       217  
Total $ 6,109     $ 5,497     $ 6,758     $ 5,862  
                               
Number of U.S. Trading Days 1   63       63       188       188  
Number of U.K. Trading Days 2   64       64       189       189  
                               
                               
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.