MarketAxess Holdings, Inc.
Apr 27, 2016
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MarketAxess Reports First Quarter 2016 Record Revenues of $88.6 Million, Record Pre-Tax Income of $44.4 Million and Record Diluted EPS of $0.77

First Quarter Financial Highlights*

*All comparisons versus first quarter 2015.

NEW YORK, April 27, 2016 (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, 2016.

"Our results this quarter show a strong start to 2016.  The combination of strong market share growth across each of our core products and healthier U.S. market volumes resulted in record trading volumes, revenues, pre-tax income and EPS," said Richard M. McVey, Chairman and CEO of MarketAxess. "We continue to invest in new Open Trading protocols, expanding our capabilities outside of the United States and extending our trading platform to new product areas.  We are excited about our recent municipal bond trading launch and the opportunity to deliver broader access to liquidity, better price discovery and greater efficiency to this highly fragmented and manually reliant market." 

First Quarter Results

Total revenues for the first quarter of 2016 increased 15.4% to $88.6 million, compared to $76.8 million for the first quarter of 2015.  Pre-tax income was $44.4 million, compared to $38.5 million for the first quarter of 2015, an increase of 15.2%.  Pre-tax margin was 50.1%, compared to 50.2% for the first quarter of 2015.  Net income totaled $29.0 million, or $0.77 per share on a diluted basis, compared to $24.6 million, or $0.65 per share for the first quarter of 2015.  

Commission revenue for the first quarter of 2016 increased 18.0% to a record $79.1 million, compared to $67.0 million for the first quarter of 2015, principally due to growth in variable transaction fees.  Variable transaction fees increased 22.9% to $63.1 million on total trading volume of $310.0 billion for the first quarter of 2016, compared to variable transaction fees of $51.3 million on total trading volume of $243.7 billion for the first quarter of 2015. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to an estimated 14.9% on an adjusted basis, compared to an estimated 13.7% on an adjusted basis for the first quarter of 2015. See Non-GAAP Financial Measures and Other Items below for further information on FINRA TRACE volume and U.S. high-grade market share.

All other revenue, which consists of information and post-trade services, investment income and other revenue, decreased 2.8% to $9.5 million, compared to $9.8 million for the first quarter of 2015.  The decrease in all other revenue was principally due to lower technology-related professional consulting services fees and the unfavorable impact of the strengthening U.S. dollar totaling $0.7 million, offset by an increase in data and information service revenue of $0.6 million.

Total expenses for the first quarter of 2016 increased 15.5% to $44.2 million, compared to $38.3 million for the first quarter of 2015. The increase in total expenses was principally due to higher employee compensation and benefits costs, mainly due to an increase in headcount, of $3.4 million, clearing costs of $1.1 million, professional and consulting fees of $0.6 million, and marketing expenses of $0.6 million.

The effective tax rate for the first quarter of 2016 was 34.7%, compared to 36.1% for the first quarter of 2015. The decrease was principally due to a higher percentage of income attributable to lower tax jurisdictions.   

Employee headcount was 357 as of March 31, 2016, compared to 342 as of December 31, 2015 and 303 as of March 31, 2015.

Dividend

The Company's board of directors declared a cash dividend of $0.26 per share of common stock outstanding, to be paid on May 26, 2016 to stockholders of record as of the close of business on May 12, 2016. 

Share Repurchase Program

A total of 9,852 shares were repurchased in the first quarter of 2016 at a cost of $1.2 million under the Company's $25.0 million share repurchase program.  As of March 31, 2016, approximately $23.8 million was available for future repurchases under the program.

Balance Sheet Data

As of March 31, 2016, total assets were $451.8 million and included $285.2 million in cash, cash equivalents and investments.  Total stockholders' equity as of March 31, 2016 was $410.4 million.

Guidance for 2016

The Company reconfirms its full year 2016 guidance range for total expenses of $168.0 million to $176.0 million, capital spending of $18.0 million to $22.0 million and overall effective tax rate of 34% to 36%.

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").  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.

For purposes of calculating U.S. high-grade estimated market share, FINRA TRACE volumes have been adjusted to eliminate the increased reporting of affiliate back-to-back trades to FINRA by certain broker-dealers that occurred from April 2014 through October 2015.  Based on information provided by FINRA, the Company believes that the adjusted FINRA TRACE volumes provide a more accurate comparison to prior period reporting.  The Company has provided a reconciliation of U.S. high-grade TRACE volumes to the adjusted U.S. high-grade TRACE volumes on the "Investor Relations-Volume" section of its website.

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, April 27, 2016, at 9:00 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 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 1,000 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, 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.  Bryant Park Financial Communications
+1-212-813-6017 +1-917-239-6726
tdelise@marketaxess.combill@bryantparkfc.com
  
Diana Bhaktul  
MarketAxess Holdings Inc. 
+1-212-813-6354 
dbhaktul@marketaxess.com                            


MarketAxess Holdings Inc.  
Consolidated Statements of Operations  
      
 Three Months Ended March 31,  
  2016   2015   
 (In thousands, except per share data)  
 (unaudited)  
Revenues     
Commissions$79,093  $67,018   
Information and post-trade services 7,779   7,679   
Investment income 418   183   
Other 1,283   1,891   
Total revenues 88,573   76,771   
      
Expenses     
Employee compensation and benefits 24,527   21,174   
Depreciation and amortization 4,681   4,612   
Technology and communications 4,304   4,338   
Professional and consulting fees 3,862   3,282   
Occupancy 1,161   992   
Marketing and advertising 1,778   1,192   
General and administrative1 3,890   2,679   
Total expenses 44,203   38,269   
      
Income before taxes 44,370   38,502   
Provision for income taxes 15,407   13,909   
Net income$   28,963   $   24,593    
      
      
Per Share Data:     
Net income per common share     
Basic$0.79  $0.67   
Diluted$0.77  $0.65   
      
Cash dividends declared per common share$0.26  $0.20   
      
Weighted-average common shares:     
Basic 36,775   36,706   
Diluted 37,671   37,626   
      
1 Includes clearing costs of $1.8 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively.  
      

 

MarketAxess Holdings Inc. 
Commission Revenue Details 
     
 Three Months Ended March 31, 
  2016   2015  
     
  Total Commissions Revenues  
 (In millions) 
 (unaudited) 
Transaction Fees    
U.S. High-Grade$31,568  $26,887  
Other Credit 1 30,921   23,753  
Liquid Products 2 620   701  
Total Transaction Fees 63,109   51,341  
     
Distribution Fees    
U.S. High-Grade 14,224   13,950  
Other Credit1 1,500   1,446  
Liquid Products3 260   281  
Total Distribution Fees 15,984   15,677  
Total Commissions$   79,093   $   67,018   
     
     
  Average Variable Transaction Fee Per Million  
 (unaudited) 
U.S. high-grade - fixed-rate$184  $192  
U.S. high-grade - floating-rate 36   46  
Total U.S. high-grade 178   185  
Other credit 264   291  
Liquid products 40   42  
Total   204      211   
     
1 Other Credit includes high-yield, emerging markets, Eurobonds and structured products 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 
   March 31, 2016 December 31, 2015 
   (In thousands) 
   (unaudited) 
Assets      
Cash and cash equivalents  $137,995  $199,728  
Investments, at fair value   147,226   84,706  
Accounts receivable, net   52,755   40,459  
All other assets   113,866   114,148  
Total assets  $   451,842   $   439,041   
       
Liabilities and Stockholders' Equity       
Total liabilities   41,426   48,328  
Total stockholders' equity   410,416   390,713  
Total liabilities and stockholders' equity  $   451,842   $   439,041   
       

 

MarketAxess Holdings Inc.  
Reconciliation of Non-GAAP Financial Measures  
Earnings Before Interest, Taxes, Depreciation and Amortization  
      
 Three Months Ended  
 March 31,  
  2016   2015   
 (In thousands)  
 (unaudited)  
          
Net income $28,963  $24,593   
Add back:     
Interest expense -   -   
Provision for income taxes 15,407   13,909   
Depreciation and amortization 4,681   4,612   
Earnings before interest, taxes, depreciation and amortization $   49,051   $   43,114    
      

 

MarketAxess Holdings Inc. 
Volume Statistics 
     
     
     
 Three Months Ended March 31, 
  2016   2015  
     
  Total Trading Volume  
 (In millions) 
 (unaudited) 
U.S. high-grade - fixed-rate$170,219  $137,987  
U.S. high-grade - floating-rate 7,507   7,395  
Total U.S. high-grade 177,726   145,382  
Other credit 116,974   81,619  
Liquid products 15,320   16,675  
Total$   310,020   $   243,676   
     
  Average Daily Volume  
 (In millions) 
 (unaudited) 
U.S. high-grade$2,914  $2,383  
Other credit 1,909   1,327  
Liquid products 251   273  
Total$   5,074   $   3,983   
     
Number of U.S. Trading Days 1 61   61  
Number of U.K. Trading Days 2 62   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 riskless principal basis between two counterparties.