MarketAxess Holdings, Inc.
Oct 25, 2017
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MarketAxess Reports Third Quarter 2017 Revenues of $96.7 Million, Pre-Tax Income of $47.2 Million and Diluted EPS of $0.90

Third Quarter Financial Highlights*

*All comparisons versus third quarter 2016.

NEW YORK, Oct. 25, 2017 (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, 2017.

"Revenue and profitability held up well in the third quarter in spite of the continued low volatility and low yield environment," said Richard M. McVey, Chairman and CEO of MarketAxess. "We are especially encouraged by the growth in our international business, led by emerging markets trading.  We continue to increase our investment in technology solutions for our clients to help them meet their regulatory requirements and expand their trading opportunities."

Third Quarter Results

Total revenues for the third quarter of 2017 increased 7.1% to $96.7 million, compared to $90.3 million for the third quarter of 2016.  Pre-tax income was $47.2 million, compared to $46.4 million for the third quarter of 2016, an increase of 1.9%.  Pre-tax margin was 48.8%, compared to 51.3% for the third quarter of 2016.  Net income totaled $34.1 million, or $0.90 per share on a diluted basis, compared to $30.9 million, or $0.82 per share, for the third quarter of 2016.  

Commission revenue for the third quarter of 2017 increased 5.9% to $86.3 million, compared to $81.5 million for the third quarter of 2016. Variable transaction fees increased 1.9% to $65.9 million on total trading volume of $346.8 billion for the third quarter of 2017, compared to variable transaction fees of $64.7 million on total trading volume of $322.1 billion for the third quarter of 2016. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to an estimated 17.2% for the third quarter of 2017, compared to an estimated 16.0% for the third quarter of 2016.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, increased to $10.4 million, compared to $8.8 million for the third quarter of 2016.  The increase in all other revenue was principally due to higher information and post-trade services revenue of $1.1 million and an increase in investment income of $0.4 million.

Total expenses for the third quarter of 2017 increased 12.7% to $49.5 million, compared to $43.9 million for the third quarter of 2016. The increase in total expenses was largely due to higher employee compensation and benefit costs, mainly due to an increase in headcount, of $1.7 million, professional and consulting costs of $1.2 million, technology and communication costs of $0.8 million, general and administrative costs of $0.7 million and occupancy costs of $0.6 million.  

The effective tax rate for the third quarter of 2017 was 27.7%, compared to 33.3% for the third quarter of 2016. The third quarter 2017 income tax provision includes excess tax benefits of approximately $3.8 million relating to a new standard for share-based compensation accounting adopted effective January 1, 2017. 

Employee headcount was 427 as of September 30, 2017, compared to 383 as of December 31, 2016 and 369 as of September 30, 2016.

Dividend

The Company's board of directors declared a cash dividend to $0.33 per share of common stock outstanding, to be paid on November 22, 2017 to stockholders of record as of the close of business on November 8, 2017. 

Share Repurchases

A total of 63,500 shares were repurchased in the third quarter of 2017 at a cost of $12.2 million.  In September 2017, the existing share repurchase plan was terminated and the Board of Directors authorized a new share repurchase program for up to $100 million commencing in October 2017.

Balance Sheet Data

As of September 30, 2017, total assets were $562.3 million and included $376.2 million in cash, cash equivalents and investments.  Total stockholders' equity as of September 30, 2017 was $510.9 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

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 25, 2017, 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 99248504. 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 1,300 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,
  2017  2016  2017  2016
 (In thousands, except per share data)
 (unaudited)
        
Revenues       
Commissions$  86,270 $  81,456 $  267,307 $  246,788
Information and post-trade services   8,372    7,322    24,460    23,687
Investment income   964    534    2,551    1,469
Other   1,095    959    3,588    3,539
Total revenues   96,701    90,271    297,906    275,483
        
Expenses       
Employee compensation and benefits   25,595    23,914    78,417    74,256
Depreciation and amortization   4,583    4,325    14,066    13,546
Technology and communications   5,035    4,245    14,442    12,826
Professional and consulting fees   5,547    4,342    13,912    12,449
Occupancy   1,795    1,220    4,621    3,606
Marketing and advertising   2,089    2,140    6,757    5,742
Clearing costs   1,476    1,035    4,320    4,754
General and administrative   3,364    2,696    8,974    7,029
Total expenses   49,484    43,917    145,509    134,208
        
Income before income taxes   47,217    46,354    152,397    141,275
Provision for income taxes   13,087    15,436    37,781    48,268
Net income$   34,130  $   30,918  $   114,616  $   93,007
        
        
Per Share Data:       
Net income per common share       
Basic$  0.93 $  0.84 $  3.11 $  2.52
Diluted$  0.90 $  0.82 $  3.01 $  2.46
        
Cash dividends declared per common share$  0.33 $  0.26 $  0.99 $  0.78
        
Weighted-average common shares:       
Basic   36,865    36,889    36,856    36,847
Diluted   38,019    37,792    38,069    37,738
        

 

MarketAxess Holdings Inc.
Commission Revenue Details
 
         
         
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
  2017  2016  2017  2016 
         
  Total Commissions Revenue  
 (In thousands) 
 (unaudited) 
         
Transaction Fees        
U.S. high-grade$  34,020 $  33,765 $  102,411 $  101,104 
Other credit 1   31,381    30,181    110,221    94,928 
Liquid products 2   545    798    1,746    2,096 
Total transaction fees   65,946    64,744    214,378    198,128 
         
Distribution Fees        
U.S. high-grade   16,305    15,077    47,985    43,598 
Other credit1   3,844    1,466    4,506    4,437 
Liquid products2,3   175    169    438    625 
Total distribution fees   20,324    16,712    52,929    48,660 
Total commissions$   86,270  $   81,456  $   267,307  $   246,788  
         
         
  Average Variable Transaction Fee Per Million  
 (unaudited) 
         
U.S. high-grade - fixed-rate$  174 $  195 $  168 $  191 
U.S. high-grade - floating-rate   67    38    62    37 
Total U.S. high-grade    169    189    164    185 
Other credit   235    246    252    256 
Liquid products    45    38    43    39 
Total   190     201     194     204  
         
         
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, 2017 December 31, 2016 
 (In thousands) 
 (unaudited) 
     
Assets    
Cash and cash equivalents$  138,992 $  168,243 
Investments, at fair value   237,221    194,404 
Accounts receivable, net   63,027    50,668 
All other assets   123,107    114,727 
Total assets$   562,347  $   528,042  
     
Liabilities and stockholders' equity     
Total liabilities$  51,439 $  60,029 
Total stockholders' equity   510,908    468,013 
Total liabilities and stockholders' equity$   562,347  $   528,042  
     

 

MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
        
        
 Three Months Ended Nine Months Ended
 September 30, September 30,
  2017   2016   2017   2016 
        
  Earnings Before Interest, Taxes, Depreciation and Amortization 
 (In thousands)
 (unaudited)
Net income $  34,130  $  30,918  $  114,616  $  93,007 
Add back:       
Interest expense   —     —     —     — 
Provision for income taxes   13,087     15,436     37,781     48,268 
Depreciation and amortization   4,583     4,325     14,066     13,546 
Earnings before interest, taxes, depreciation and amortization $   51,800   $   50,679   $   166,463   $   154,821  
        
  Free Cash Flow 
 (In thousands)
 (unaudited)
Cash flow from operating activities$  52,465  $  52,643  $  121,583  $  23,974 
Add back:       
Net (sales) purchases of corporate debt trading investments   (8,449)    2,139     (8,338)    74,535 
Excess tax benefits from share-based compensation previously recorded under financing activities   —     593     —     9,166 
Less:       
Purchases of furniture, equipment and leasehold improvements   (1,468)    (850)    (7,245)    (4,754)
Capitalization of software development costs   (3,427)    (2,916)    (10,094)    (9,058)
Free cash flow$   39,121   $   51,609   $   95,906   $   93,863  
        

 

MarketAxess Holdings Inc.
Volume Statistics*
 
         
         
 Three Months Ended September 30, Nine Months Ended September 30, 
  2017  2016  2017  2016 
         
  Total Trading Volume  
 (In millions) 
 (unaudited) 
         
U.S. high-grade - fixed-rate$  192,092 $  172,006 $  599,783 $  525,331 
U.S. high-grade - floating-rate   8,734    6,442    24,024    20,169 
Total U.S. high-grade    200,826    178,448    623,807    545,500 
Other credit   133,757    122,821    438,055    370,963 
Liquid products    12,189    20,880    40,840    53,982 
Total$   346,772  $   322,149  $   1,102,702  $   970,445  
         
  Average Daily Volume  
 (In millions) 
 (unaudited) 
U.S. high-grade$  3,188 $  2,788 $  3,318 $  2,886 
Other credit   2,116    1,912    2,327    1,960 
Liquid products    193    326    217    286 
Total$   5,497  $   5,026  $   5,862  $   5,132  
         
Number of U.S. Trading Days 1   63    64    188    189 
Number of U.K. Trading Days 2   64    65    189    190 
         
         
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.