MarketAxess Holdings, Inc.
Jul 26, 2017
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MarketAxess Reports Second Quarter 2017 Revenues of $97.3 Million, Pre-Tax Income of $49.6 Million and Diluted EPS of $1.00

Second Quarter Financial Highlights*

*All comparisons versus second quarter 2016.

NEW YORK, July 26, 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 June 30, 2017.

"We posted our second best quarter ever for trading volume, revenue and diluted EPS in spite of the continued lackluster market environment," said Richard M. McVey, Chairman and CEO of MarketAxess. "We continue to build upon the strong foundation of our global business which we expect will drive further positive momentum when market activity improves.  Our geographic expansion has been a key driver of revenue and earnings growth, with significant gains in the number of active clients, and emerging market trading activity.  Open TradingTM continues to see increased client adoption and, during the second quarter, reached a new record as a percentage of our total trading volume."

Second Quarter Results

Total revenues for the second quarter of 2017 increased 0.7% to $97.3 million, compared to $96.6 million for the second quarter of 2016.  Pre-tax income was $49.6 million, compared to $50.6 million for the second quarter of 2016, a decrease of 1.9%.  Pre-tax margin was 50.9%, compared to 52.3% for the second quarter of 2016.  Net income totaled $38.0 million, or $1.00 per share on a diluted basis, compared to $33.1 million, or $0.88 per share, for the second quarter of 2016.

Commission revenue for the second quarter of 2017 increased 0.9% to $87.0 million, compared to $86.2 million for the second quarter of 2016. Variable transaction fees increased 0.4% to $70.6 million on total trading volume of $361.5 billion for the second quarter of 2017, compared to variable transaction fees of $70.3 million on total trading volume of $338.3 billion for the second quarter of 2016. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to an estimated 17.0% for the second quarter of 2017, compared to an estimated 16.1% for the second quarter of 2016.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, decreased to $10.3 million, compared to $10.4 million for the second quarter of 2016.  The decrease in all other revenue was principally due to an unfavorable impact of $0.6 million caused by the stronger U.S. dollar offset by higher data revenue.

Total expenses for the second quarter of 2017 increased 3.6% to $47.7 million, compared to $46.1 million for the second quarter of 2016. The increase in total expenses was largely due to higher marketing and advertising costs of $1.0 million and an increase in general and administrative costs of $0.7 million.

The effective tax rate for the second quarter of 2017 was 23.3%, compared to 34.5% for the second quarter of 2016.  The second quarter 2017 income tax provision includes excess tax benefits of approximately $5.3 million relating to a new standard for share-based compensation accounting adopted effective January 1, 2017.

Employee headcount was 405 as of June 30, 2017, compared to 383 as of December 31, 2016 and 367 as of June 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 August 24, 2017 to stockholders of record as of the close of business on August 10, 2017.

Share Repurchases

A total of 65,028 shares were repurchased in the second quarter of 2017 at a cost of $12.4 million.

Balance Sheet Data

As of June 30, 2017, total assets were $547.0 million and included $365.5 million in cash, cash equivalents and investments.  Total stockholders' equity as of June 30, 2017 was $501.2 million.

Guidance for 2017

The Company reconfirms its full year 2017 guidance range for total expenses of $192.0 million to $208.0 million, capital spending of $25.0 million to $30.0 million and overall effective tax rate of 26% to 28%.

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, July 26, 2017, 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 1,200 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  Six Months Ended 
 June 30,  June 30, 
 2017  2016  2017  2016 
 (In thousands, except per share data) 
 (unaudited) 
                
Revenues               
Commissions$87,015  $86,239  $181,037  $165,332 
Information and post-trade services 8,272   8,586   16,088   16,365 
Investment income 840   517   1,587   935 
Other 1,187   1,297   2,493   2,580 
Total revenues 97,314   96,639   201,205   185,212 
                
Expenses               
Employee compensation and benefits 25,421   25,815   52,822   50,342 
Depreciation and amortization 4,790   4,540   9,483   9,221 
Technology and communications 4,822   4,277   9,407   8,581 
Professional and consulting fees 4,086   4,245   8,365   8,107 
Occupancy 1,422   1,225   2,826   2,386 
Marketing and advertising 2,782   1,824   4,668   3,602 
Clearing costs 1,517   1,953   2,844   3,719 
General and administrative 2,901   2,209   5,610   4,333 
Total expenses 47,741   46,088   96,025   90,291 
                
Income before income taxes 49,573   50,551   105,180   94,921 
Provision for income taxes 11,550   17,425   24,694   32,832 
Net income$38,023  $33,126  $80,486  $62,089 
                
                
Per Share Data:               
Net income per common share               
Basic$1.03  $0.90  $2.18  $1.69 
Diluted$1.00  $0.88  $2.11  $1.65 
                
Cash dividends declared per common share$0.33  $0.26  $0.66  $0.52 
                
Weighted-average common shares:               
Basic 36,853   36,876   36,852   36,826 
Diluted 38,077   37,748   38,095   37,710 


MarketAxess Holdings Inc. 
Commission Revenue Details
  
 Three Months Ended  Six Months Ended 
 June 30,  June 30, 
 2017  2016  2017  2016 
                
 Total Commissions Revenue 
 (In thousands) 
 (unaudited) 
                
Transaction Fees               
U.S. high-grade$32,868  $35,771  $68,391  $67,339 
Other credit 1 37,145   33,826   78,840   64,747 
Liquid products 2 570   678   1,200   1,298 
Total transaction fees 70,583   70,275   148,431   133,384 
                
Distribution Fees               
U.S. high-grade 15,930   14,297   31,680   28,521 
Other credit1 384   1,471   664   2,971 
Liquid products2,3 118   196   262   456 
Total distribution fees 16,432   15,964   32,606   31,948 
Total commissions$87,015  $86,239  $181,037  $165,332 
                
                
 Average Variable Transaction Fee Per Million 
 (unaudited) 
                
U.S. high-grade - fixed-rate$165  $194  $166  $189 
U.S. high-grade - floating-rate 63   36   59   36 
Total U.S. high-grade 162   189   162   183 
Other credit 257   258   259   261 
Liquid products 43   38   42   39 
Total 195   208   196   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 
 June 30, 2017  December 31, 2016 
 (In thousands) 
 (unaudited) 
        
Assets       
Cash and cash equivalents$128,143  $168,243 
Investments, at fair value 237,361   194,404 
Accounts receivable, net 55,215   50,668 
All other assets 126,322   114,727 
Total assets$547,041  $528,042 
        
Liabilities and stockholders' equity       
Total liabilities$45,813  $60,029 
Total stockholders' equity 501,228   468,013 
Total liabilities and stockholders' equity$547,041  $528,042 


MarketAxess Holdings Inc. 
Reconciliation of Non-GAAP Financial Measures
  
 Three Months Ended  Six Months Ended 
 June 30,  June 30, 
 2017  2016  2017  2016 
                
 Earnings Before Interest, Taxes, Depreciation and Amortization 
 (In thousands) 
 (unaudited) 
Net income$38,023  $33,126  $80,486  $62,089 
Add back:               
Interest expense           
Provision for income taxes 11,550   17,425   24,694   32,832 
Depreciation and amortization 4,790   4,540   9,483   9,221 
Earnings before interest, taxes, depreciation and amortization$54,363  $55,091  $114,663  $104,142 
                
 Free Cash Flow 
 (In thousands) 
 (unaudited) 
Cash flow from operating activities$38,569  $28,714  $69,118  $(28,669)
Add back:               
Net purchases of corporate debt trading investments (1,085)  (839)  111   72,396 
Excess tax benefits from share-based compensation previously recorded under financing activities    3,933      8,573 
Less:               
Purchases of furniture, equipment and leasehold improvements (1,628)  (1,252)  (5,777)  (3,904)
Capitalization of software development costs (3,495)  (3,107)  (6,667)  (6,142)
Free cash flow$32,361  $27,449  $56,785  $42,254 


MarketAxess Holdings Inc. 
Volume Statistics*
  
 Three Months Ended June 30,  Six Months Ended June 30, 
 2017  2016  2017  2016 
                
 Total Trading Volume 
 (In millions) 
 (unaudited) 
U.S. high-grade - fixed-rate$195,717  $183,107  $407,691  $353,326 
U.S. high-grade - floating-rate 7,870   6,220   15,290   13,727 
Total U.S. high-grade 203,587   189,327   422,981   367,053 
Other credit 144,574   131,168   304,298   248,142 
Liquid products 13,345   17,781   28,651   33,102 
Total$361,506  $338,276  $755,930  $648,297 
                
 Average Daily Volume 
 (In millions) 
 (unaudited) 
U.S. high-grade$3,232  $2,958  $3,384  $2,936 
Other credit 2,311   2,058   2,434   1,985 
Liquid products 212   278   229   265 
Total$5,755  $5,294  $6,047  $5,186 
                
Number of U.S. Trading Days 1 63   64   125   125 
Number of U.K. Trading Days 2 61   63   125   125 
                
                
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. 


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