MarketAxess Reports Second Quarter 2019 Record Revenues of $125.5 Million, Operating Income of $60.9 Million and Diluted EPS of $1.27

Second Quarter Financial Highlights*

  • Record revenues of $125.5 million, up 17.3%
  • Operating income of $60.9 million, up 17.0%
  • Diluted EPS of $1.27, up 18.7% from $1.07
  • Record trading volume of $527.0 billion, up 25.3%
  • Record trading volume in U.S. high-yield, Eurobonds and emerging market bonds
  • Open TradingTM volume of $130.7 billion, up 46.0%

*All comparisons versus second quarter 2018.

NEW YORK, July 24, 2019 (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, 2019.

"Trading volumes remained strong across all product categories and regions as dealer and investor adoption of electronic trading continues to accelerate,” said Rick McVey, Chairman and CEO of MarketAxess. “We set new quarterly records for trading volumes in U.S. High Yield, Emerging Markets and Eurobonds, three product areas that are benefiting from growth in Open Trading.   We are especially encouraged by the strong demand we are seeing for new trading automation tools in credit markets by both our dealer and investor clients.”  

Second Quarter Results

Total revenues for the second quarter of 2019 increased 17.3% to $125.5 million, compared to $107.0 million for the second quarter of 2018.  Operating income was $60.9 million, compared to $52.0 million for the second quarter of 2018, an increase of 17.0%. Operating margin was 48.5%, compared to 48.6% for the second quarter of 2018.  Net income totaled $48.1 million, or $1.27 per share on a diluted basis, compared to $40.5 million, or $1.07 per share, for the second quarter of 2018.  

Commission revenue for the second quarter of 2019 increased 18.7% to $114.1 million, compared to $96.1 million for the second quarter of 2018. Variable transaction fees increased 26.7% to $90.8 million on total trading volume of $527.0 billion for the second quarter of 2019, compared to variable transaction fees of $71.7 million on total trading volume of $420.8 billion for the second quarter of 2018. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 18.7% for the second quarter of 2019, compared to an estimated 17.4% for the second quarter of 2018.

All other revenue, which consists of information services, post-trade services and other revenue, increased to $11.4 million, compared to $10.9 million for the second quarter of 2018.  The increase in all other revenue was principally due to higher revenue from data sales and post-trade services, partially offset by the unfavorable impact of the stronger U.S. dollar of $0.4 million.

Total expenses for the second quarter of 2019 increased 17.6% to $64.6 million, compared to $54.9 million for the second quarter of 2018. The increase in total expenses was largely due to higher employee compensation and benefit costs, mainly due to an increase in headcount, of $6.4 million, general and administrative costs of $1.1 million, professional and consulting fees of $0.9 million and technology and communications expense of $0.7 million

Other income increased to $2.0 million, compared to $1.2 million for the second quarter 2018.  The increase in other income is principally due to a $0.7 million increase in investment income as a result of higher investment balances and interest rates.

The effective tax rate for the second quarter of 2019 was 23.5%, compared to 23.9% for the second quarter of 2018.   

Employee headcount was 480 as of June 30, 2019 compared to 431 as of June 30, 2018.

Dividend

The Company’s board of directors declared a cash dividend of $0.51 per share of common stock outstanding, to be paid on August 21, 2019 to stockholders of record as of the close of business on August 7, 2019. 

Share Repurchases

A total of 12,850 shares were repurchased in the second quarter of 2019 at a cost of $3.5 million.

Balance Sheet Data

As of June 30, 2019, total assets were $812.0 million and included $518.1 million in cash, cash equivalents and investments.  Total stockholders’ equity as of June 30, 2019 was $661.9 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

Rick McVey, Chairman and Chief Executive Officer, Chris Concannon, President and Chief Operating Officer and Tony DeLise, Chief Financial Officer, will host a conference call to discuss the Company’s financial results and outlook on Wednesday, July 24, 2019 at 10:00 a.m. EST. 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 9192897. The Webcast will also be archived on http://investor.marketaxess.com for 90 days following the announcement.

About MarketAxess

MarketAxess operates a leading, institutional electronic trading platform delivering expanded liquidity opportunities, improved execution quality and significant cost savings across global fixed-income markets.  More than 1,500 firms - comprising the world’s leading asset managers and institutional broker-dealers - traded a record $1.7 trillion of U.S. investment-grade bonds, U.S. high yield bonds, emerging market debt, Eurobonds and other fixed income securities through MarketAxess’ patented trading technology in 2018.   MarketAxess’ award-winning Open Trading™ marketplace is regarded as the preferred all-to-all trading solution in the global credit markets, creating a unique liquidity pool for the broad range of credit market participants.  Drawing on its deep data and analytical resources, MarketAxess enables automated trading solutions and, through its Trax® division, provides a range of pre- and post-trade services and products. 

MarketAxess is headquartered in New York and has offices in London, Amsterdam, 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: global economic, political and market factors; 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 and existing 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:  
David Cresci William McBride
MarketAxess Holdings Inc. RF|Binder
+1-212-813-6027 +1-917-239-6726
   
Mary Sedarat  
MarketAxess Holdings Inc.  
+1-212-813-6226  

   

MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
                               
           
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2019     2018     2019     2018  
  (In thousands, except per share data)  
  (unaudited)  
                               
Revenues                              
Commissions $ 114,124     $ 96,113     $ 226,884     $ 198,885  
Information services   7,156       6,930       14,522       13,996  
Post-trade services   3,956       3,620       8,056       8,196  
Other   254       301       519       601  
Total revenues   125,490       106,964       249,981       221,678  
                               
Expenses                              
Employee compensation and benefits   32,623       26,199       65,281       55,033  
Depreciation and amortization   6,345       5,790       12,427       11,059  
Technology and communications   6,474       5,793       12,256       11,572  
Professional and consulting fees   6,296       5,426       12,127       10,483  
Occupancy   2,798       3,467       5,747       6,804  
Marketing and advertising   3,667       3,535       5,966       5,600  
Clearing costs   2,610       2,012       5,187       3,737  
General and administrative   3,800       2,708       6,924       5,183  
Total expenses   64,613       54,930       125,915       109,471  
Operating income   60,877       52,034       124,066       112,207  
Other income (expense)                              
Investment income   2,096       1,383       4,085       2,551  
Other, net   (64 )     (207 )     (22 )     (535 )
Total other income   2,032       1,176       4,063       2,016  
Income before income taxes   62,909       53,210       128,129       114,223  
Provision for income taxes   14,804       12,723       27,502       25,796  
Net income $ 48,105     $ 40,487     $ 100,627     $ 88,427  
                               
                               
Per Share Data:                              
Net income per common share                              
Basic $ 1.30     $ 1.10     $ 2.72     $ 2.39  
Diluted $ 1.27     $ 1.07     $ 2.66     $ 2.33  
                               
Cash dividends declared per common share $ 0.51     $ 0.42     $ 1.02     $ 0.84  
                               
Weighted-average common shares:                              
Basic   37,049       36,950       37,046       36,952  
Diluted   37,910       37,862       37,871       37,874  

                

MarketAxess Holdings Inc.
Commission Revenue Details
                             
                             
  Three Months Ended     Six Months Ended
  June 30,     June 30,
  2019     2018     2019     2018
                             
  Total Commissions Revenue
  (In thousands)
  (unaudited)
                             
Transaction Fees                            
U.S. high-grade $ 42,914     $ 36,401     $ 85,415     $ 75,168
Other credit 1   47,233       34,765       93,267       75,192
Liquid products 2   615       488       1,172       1,071
Total transaction fees   90,762       71,654       179,854       151,431
                             
Distribution Fees                            
U.S. high-grade   17,483       18,261       35,461       35,488
Other credit1   5,774       6,042       11,332       11,582
Liquid products2   105       156       237       384
Total distribution fees   23,362       24,459       47,030       47,454
Total commissions $ 114,124     $ 96,113     $ 226,884     $ 198,885
                             
                             
  Average Variable Transaction Fee Per Million
  (unaudited)
                             
U.S. high-grade - fixed-rate $ 168     $ 162     $ 163     $ 160
U.S. high-grade - floating-rate   65       96       71       95
Total U.S. high-grade   162       158       157       156
Other credit   190       196       193       199
Liquid products   47       39       43       40
Total   172       170       171       171
                             
                             
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2 Liquid products includes U.S. agencies and European government bonds.
     

 

MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
 
               
               
  As of  
  June 30, 2019     December 31, 2018  
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 286,179     $ 246,322  
Investments, at fair value   231,895       240,105  
Accounts receivable, net   66,332       57,535  
Goodwill and intangible assets, net   62,483       62,675  
Furniture, equipment, leasehold improvements and capitalized
  software, net
  64,206       63,010  
Operating lease right-of-use assets   76,722        
Prepaid expenses and other assets   22,597       22,468  
Deferred tax assets, net   1,595       3,424  
Total assets $ 812,009     $ 695,539  
               
Liabilities and stockholders' equity              
Liabilities              
Accrued employee compensation $ 26,669     $ 39,053  
Income and other tax liabilities   12,860       16,432  
Deferred revenue   3,810       2,810  
Accounts payable, accrued expenses and other liabilities   17,050       29,366  
Operating lease liabilities   89,712        
Total liabilities   150,101       87,661  
               
Stockholders' equity              
Common stock   122       122  
Additional paid-in capital   341,446       341,860  
Treasury stock   (193,632 )     (184,962 )
Retained earnings   525,430       463,252  
Accumulated other comprehensive loss   (11,458 )     (12,394 )
Total stockholders' equity   661,908       607,878  
Total liabilities and stockholders' equity $ 812,009     $ 695,539  
               

 

MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                               
                               
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2019     2018     2019     2018  
                               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 48,105     $ 40,487     $ 100,627     $ 88,427  
Add back:                              
Interest expense                      
Provision for income taxes   14,804       12,723       27,502       25,796  
Depreciation and amortization   6,345       5,790       12,427       11,059  
Earnings before interest, taxes, depreciation and
  amortization
$ 69,254     $ 59,000     $ 140,556     $ 125,282  
                               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flows from operating activities $ 69,733     $ 54,379     $ 109,102     $ 85,818  
Exclude: Net change in trading investments   (2,839 )     6,342       (8,854 )     3,288  
Less: Purchases of furniture, equipment and
  leasehold improvements
  (5,465 )     (13,757 )     (6,114 )     (16,035 )
Less: Capitalization of software development costs   (4,126 )     (2,946 )     (7,310 )     (6,536 )
Free cash flow $ 57,303     $ 44,018     $ 86,824     $ 66,535  

 

MarketAxess Holdings Inc.
Volume Statistics*
                             
                             
  Three Months Ended June 30,     Six Months Ended June 30,
  2019     2018     2019     2018
                             
  Total Trading Volume
  (In millions)
  (unaudited)
                             
U.S. high-grade - fixed-rate $ 249,025     $ 215,308     $ 508,858     $ 451,831
U.S. high-grade - floating-rate   16,335       15,211       33,912       29,673
Total U.S. high-grade   265,360       230,519       542,770       481,504
Other credit   248,503       177,681       482,994       377,624
Liquid products   13,174       12,550       27,450       26,629
Total $ 527,037     $ 420,750     $ 1,053,214     $ 885,757
                             
  Average Daily Volume
  (In millions)
  (unaudited)
U.S. high-grade $ 4,212     $ 3,602     $ 4,377     $ 3,852
Other credit   3,979       2,796       3,895       3,021
Liquid products   209       197       221       213
Total $ 8,400     $ 6,595     $ 8,493     $ 7,086
                             
Number of U.S. Trading Days 1   63       64       124       125
Number of U.K. Trading Days 2   61       62       124       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.
                             

 

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Source: MarketAxess Holdings, Inc.