MarketAxess Holdings, Inc.
Oct 26, 2016
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MarketAxess Reports Third Quarter 2016 Revenues of $90.3 Million, Pre-Tax Income of $46.4 Million and Diluted EPS of $0.82

Third Quarter Financial Highlights*

*All comparisons versus third quarter 2015.

NEW YORK, Oct. 26, 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 September 30, 2016.

"The third quarter results continue the trend of strong year-over-year growth in MarketAxess trading volumes, revenues and earnings.  In addition to continued gains in U.S. corporate bond volume and market share, we are seeing strong momentum in European fixed income and Emerging Market debt trading," said Richard M. McVey, Chairman and CEO.  "Open Trading participation among dealers and investors is growing rapidly, driving an important new source of market liquidity into global credit markets."

Third Quarter Results

Total revenues for the third quarter of 2016 increased 21.7% to $90.3 million, compared to $74.2 million for the third quarter of 2015.  Pre-tax income was $46.4 million, compared to $35.4 million for the third quarter of 2015, an increase of 31.1%.  Pre-tax margin was 51.3%, compared to 47.7% for the third quarter of 2015.  Net income totaled $30.9 million, or $0.82 per share on a diluted basis, compared to $22.7 million, or $0.60 per share, for the third quarter of 2015.

Commission revenue for the third quarter of 2016 increased 25.0% to $81.5 million, compared to $65.2 million for the third quarter of 2015.  Variable transaction fees increased 34.8% to $64.7 million on total trading volume of $322.1 billion for the third quarter of 2016, compared to variable transaction fees of $48.0 million on total trading volume of $239.7 billion for the third quarter of 2015. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to an estimated 16.0%, compared to an estimated 14.9% on an adjusted basis for the third quarter of 2015. See Non-GAAP Financial Measures and Other Items below.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, decreased to $8.8 million for the third quarter of 2016, compared to $9.0 million for the third quarter of 2015.  The decrease in all other revenue was principally due to the unfavorable impact of the stronger U.S. dollar totaling $1.0 million offset by higher data revenue.

Total expenses for the third quarter of 2016 increased 13.1% to $43.9 million, compared to $38.8 million for the third quarter of 2015. The increase in total expenses was principally due to higher employee compensation and benefits costs of $2.9 million, mainly due to an increase in headcount and higher performance-based incentive accrual, and professional and consulting fees of $1.1 million.

The effective tax rate for the third quarter of 2016 was 33.3%, compared to 35.7% for the third quarter of 2015.  The decrease was principally due to a higher percentage of income attributable to lower tax jurisdictions, favorable adjustments resulting from the conclusion of an Internal Revenue Service audit and the filing of prior year tax returns and the inclusion of the research credit permanently enacted in 2016.  

Employee headcount was 369 as of September 30, 2016, compared to 342 as of December 31, 2015 and 335 as of September 30, 2015.

Dividend

The Company's board of directors declared a quarterly cash dividend of $0.26 per share of common stock outstanding, to be paid on November 23, 2016, to stockholders of as of the close of business on November 9, 2016. 

Share Repurchase Program

A total of 51,849 shares were repurchased in the third quarter of 2016 at a cost of $8.5 million under the Company's $25.0 million share repurchase program.  As of September 30, 2016, approximately $11.2 million was available for future repurchases under the program.  In October 2016, the Company's board of directors approved a $50.0 million increase in the size of the share repurchase program.

Balance Sheet Data

As of September 30, 2016, total assets were $502.2 million and included $332.1 million in cash, cash equivalents and investments.  Total stockholders' equity as of September 30, 2016 was $451.7 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.

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 from April 2014 through October 2015.  Based on information provided by FINRA, the Company believes that 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, October 26, 2016, 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 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 1,100 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

  
MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
     
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
  2016   2015   2016   2015  
 (In thousands, except per share data) 
 (unaudited) 
Revenues        
Commissions$  81,456  $  65,178  $  246,788  $  198,608  
Information and post-trade services   7,322     7,671     23,687     22,982  
Investment income   534     248     1,469     621  
Other   959     1,095     3,539     4,243  
Total revenues   90,271     74,192     275,483     226,454  
         
Expenses        
Employee compensation and benefits   23,914     21,002     74,256     62,769  
Depreciation and amortization   4,325     4,642     13,546     13,857  
Technology and communications   4,245     3,891     12,826     12,196  
Professional and consulting fees   4,342     3,210     12,449     9,503  
Occupancy   1,220     1,246     3,606     3,470  
Marketing and advertising   2,140     1,304     5,742     4,260  
General and administrative1   3,731     3,544     11,783     9,485  
Total expenses   43,917     38,839     134,208     115,540  
         
Income before taxes   46,354     35,353     141,275     110,914  
Provision for income taxes   15,436     12,638     48,268     39,368  
Net income$   30,918   $   22,715   $   93,007   $   71,546   
         
         
Per Share Data:        
Net income per common share        
Basic$  0.84  $  0.62  $  2.52  $  1.95  
Diluted$  0.82  $  0.60  $  2.46  $  1.90  
         
Cash dividends declared per common share$  0.26  $  0.20  $  0.78  $  0.60  
         
Weighted-average common shares:        
Basic   36,889     36,681     36,847     36,695  
Diluted   37,792     37,643     37,738     37,636  
         
1 Includes third-party clearing costs of $1.0 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively and $4.8 million and $2.3 million for the nine months ended September 30, 2016 and 2015, respectively. 
 

 

MarketAxess Holdings Inc.
Commission Revenue Details
 
  
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
  2016   2015   2016   2015  
         
  Total Commissions Revenue  
 (In thousands) 
 (unaudited) 
Transaction Fees        
U.S. High-Grade$  33,765  $  23,337  $  101,104  $  76,662  
Other Credit 1   30,181     24,091     94,928     71,321  
Liquid Products 2   798     598     2,096     1,989  
Total Transaction Fees   64,744     48,026     198,128     149,972  
         
Distribution Fees        
U.S. High-Grade   15,077     15,376     43,598     43,410  
Other Credit1   1,466     1,487     4,437     4,400  
Liquid Products2,3   169     289     625     826  
Total Distribution Fees   16,712     17,152     48,660     48,636  
Total Commissions$   81,456   $   65,178   $   246,788   $   198,608   
         
         
  Average Variable Transaction Fee Per Million  
 (unaudited) 
U.S. high-grade - fixed-rate$  195  $  174  $  191  $  183  
U.S. high-grade - floating-rate   38     37     37     44  
Total U.S. high-grade    189     167     185     176  
Other credit   246     286     256     292  
Liquid products    38     39     39     40  
Total   201      200      204      206   
         
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, 2016 December 31, 2015 
   (In thousands) 
   (unaudited) 
Assets    
 Cash and cash equivalents$  161,444  $  199,728  
 Investments, at fair value   170,655     84,706  
 Accounts receivable, net   56,583     40,459  
 All other assets   113,469     114,148  
  Total assets$   502,151   $   439,041   
       
Liabilities and Stockholders' Equity     
 Total liabilities$  50,451  $  48,328  
 Total stockholders' equity   451,700     390,713  
  Total liabilities and stockholders' equity$   502,151   $   439,041   

 

MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
  
 Three Months Ended Nine Months Ended 
 September 30, September 30, 
  2016   2015   2016   2015  
 (In thousands) 
 (unaudited) 
         
  Earnings Before Interest, Taxes, Depreciation and Amortization  
         
Net income $  30,918  $  22,715  $  93,007  $  71,546  
Add back:        
Interest expense   -      -      -      -   
Provision for income taxes   15,436     12,638     48,268     39,368  
Depreciation and amortization   4,325     4,642     13,546     13,857  
Earnings before interest, taxes, depreciation and amortization $   50,679   $   39,995   $   154,821   $   124,771   
         
  Free Cash Flow  
 (In thousands) 
 (unaudited) 
Cash Flow From Operating Activities$  52,643  $  35,743  $  23,974  $  76,338  
Add back:        
Net purchases of corporate debt trading investments   2,139     -      74,535     -   
Less:        
Purchases of furniture, equipment and leasehold improvements   (850)    (1,385)    (4,754)    (3,730) 
Capitalization of software development costs   (2,916)    (2,701)    (9,058)    (7,517) 
Free Cash Flow$   51,016   $   31,657   $   84,697   $   65,091   

 

 MarketAxess Holdings Inc.
Volume Statistics
 
 Three Months Ended September 30, Nine Months Ended September 30,
  2016   2015   2016   2015 
        
  Total Trading Volume 
 (In millions)
 (unaudited)
U.S. high-grade - fixed-rate$  172,006  $  132,625  $  525,331  $  413,071 
U.S. high-grade - floating-rate   6,442     7,414     20,169     21,313 
Total U.S. high-grade    178,448     140,039     545,500     434,384 
Other credit   122,821     84,333     370,963     244,256 
Liquid products    20,880     15,353     53,982     49,501 
Total$   322,149   $   239,725   $   970,445   $   728,141  
        
  Average Daily Volume 
 (In millions)
 (unaudited)
U.S. high-grade$  2,788  $  2,188  $  2,886  $  2,311 
Other credit   1,912     1,313     1,960     1,298 
Liquid products    326     240     286     263 
Total$   5,026   $   3,741   $   5,132   $   3,872  
        
Number of U.S. Trading Days 1   64     64     189     188 
Number of U.K. Trading Days 2   65     65     190     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 riskless principal basis between two counterparties.

    

Media and Investor Relations Contacts:
Tony DeLise 					
MarketAxess Holdings Inc. 			
+1-212-813-6017				

Mary Sedarat
MarketAxess Holdings Inc.
+1-212-813-6226

William McBride
RF|Binder
+1-917-239-6726