MarketAxess Reports Second Quarter 2020 Record Revenues of $184.8 Million, Record Operating Income of $104.1 Million and Record Diluted EPS of $2.20

Second Quarter Financial Highlights*

  • Record revenues of $184.8 million, up 47%
  • Record operating income of $104.1 million, up 71%
  • Record operating margin of 56.4%, up from 48.5%
  • Record diluted EPS of $2.20, up 73% from $1.27
  • Record estimated U.S. high-grade and high-yield market share of 21.5% and 14.0%, respectively
  • Record credit trading volume of $741.8 billion, up 44%
  • Record Open TradingTM volume of $243.8 billion, up 87%

*All comparisons versus second quarter 2019.

NEW YORK, July 22, 2020 (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, 2020.

“Record corporate bond new issuance and elevated credit spread volatility led to record corporate bond market volumes in the second quarter,” said Rick McVey, Chairman and CEO of MarketAxess. “Institutional investors and dealers both leaned into our Open Trading marketplace to meet their trading and liquidity needs, driving record estimated market share for both high-grade and high-yield bonds on the system.  Estimated transaction cost savings delivered back to our clients reached an all-time high, with client savings exceeding company revenue for the second quarter in a row.  We are encouraged by the breadth of volume and market share gains across all credit products and geographic regions, leading to robust revenue and earnings growth.  Accelerating market share gains, record active clients, and growing product diversification all position the company well for future growth.”

Second Quarter Results

Total revenues for the second quarter of 2020 increased 47% to $184.8 million, compared to $125.5 million for the second quarter of 2019. Operating income was $104.1 million, compared to $60.9 million for the second quarter of 2019, an increase of 71%. Operating margin was 56.4%, compared to 48.5% for the second quarter of 2019.  Net income totaled $83.9 million, or $2.20 per share on a diluted basis, compared to $48.1 million, or $1.27 per share, for the second quarter of 2019.  

Commission revenue for the second quarter of 2020 increased 51% to $172.1 million, compared to $114.1 million for the second quarter of 2019. Variable transaction fees increased 61% to $146.0 million for the second quarter of 2020, compared to variable transaction fees of $90.8 million for the second quarter of 2019. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 21.5% for the second quarter of 2020, compared to an estimated 18.7% for the second quarter of 2019. Variable transaction fees in the second quarter of 2020 includes approximately $3.2 million of U.S. Treasuries trading commissions related to the November 2019 acquisition of LiquidityEdge LLC, now operating as MarketAxess Rates.

All other revenue, which consists of information services, post-trade services and other revenue, increased 12% to $12.7 million, compared to $11.4 million for the second quarter of 2019.  The increase in all other revenue was principally due to higher information services revenue of $1.3 million.

Total expenses for the second quarter of 2020 increased 25% to $80.7 million, compared to $64.6 million for the second quarter of 2019. The increase in total expenses was largely due to higher employee compensation and benefit costs, mainly due to an increase in headcount, of $9.0 million, clearing costs, mainly due to record Open Trading activity and U.S. Treasury matched-principal trading, of $3.1 million, technology and communications costs of $2.1 million and depreciation and amortization of $2.0 million. MarketAxess Rates expenses, including amortization of acquired intangibles expense, totaled $3.8 million during the second quarter of 2020.

The effective tax rate for the second quarter of 2020 was 19.7%, compared to 23.5% for the second quarter of 2019. The income tax provision for the second quarter of 2020 and 2019 reflected $5.7 million and $0.4 million, respectively, of excess tax benefits related to share-based compensation awards.

Employee headcount was 561 as of June 30, 2020 compared to 527 as of December 31, 2019 and 480 as of June 30, 2019. The increase in headcount was due to the continued investment in the Company’s growth initiatives, including geographic expansion, trading automation, new trading protocols and the transition to self-clearing.

Dividend

The Company’s board of directors declared a cash dividend of $0.60 per share of common stock outstanding, to be paid on August 19, 2020 to stockholders of record as of the close of business on August 5, 2020

Share Repurchases

A total of 13,064 shares were repurchased in the second quarter of 2020 at a cost of $5.9 million.

Balance Sheet Data

As of June 30, 2020, total assets were $1.0 billion and included $535.5 million in cash, cash equivalents and investments.  Total stockholders’ equity as of June 30, 2020 was $853.5 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 22, 2020 at 10:00 a.m. EDT. 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) and using the conference ID: 8916147 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, institutional electronic trading platform delivering expanded liquidity opportunities, improved execution quality and significant cost savings across global fixed-income markets. A global network of over 1,700 firms, including the world’s leading asset managers and institutional broker-dealers, leverages MarketAxess’ patented trading technology to efficiently trade bonds. 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 a broad range of credit market participants. Drawing on its deep data and analytical resources, MarketAxess provides automated trading solutions, market data products and a range of pre- and post-trade services.

MarketAxess is headquartered in New York and has offices in London, Amsterdam, Boston, Chicago, Los Angeles, Miami, 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: risks relating to the COVID-19 pandemic, including the possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic; 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 
MarketAxess Holdings Inc.
+1-212-813-6027 
William McBride
RF|Binder
+1-917-239-6726
   
Kyle White
MarketAxess Holdings Inc.
+1-212-813-6355
 
   

 

 
MarketAxess Holdings Inc.
Consolidated Statements of Operations
       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2020       2019       2020       2019  
   
  (In thousands, except per share data)
  (unaudited)
               
Revenues              
Commissions $ 172,092     $ 114,124     $ 328,046     $ 226,884  
Information services   8,427       7,156       17,069       14,522  
Post-trade services   4,054       3,956       8,207       8,056  
Other   222       254       451       519  
Total revenues   184,795       125,490       353,773       249,981  
               
Expenses              
Employee compensation and benefits   41,636       32,623       82,830       65,281  
Depreciation and amortization   8,305       6,345       16,372       12,427  
Technology and communications   8,592       6,474       16,753       12,256  
Professional and consulting fees   8,065       6,296       13,740       12,127  
Occupancy   3,286       2,798       6,760       5,747  
Marketing and advertising   1,810       3,667       4,485       5,966  
Clearing costs   5,713       2,610       11,223       5,187  
General and administrative   3,253       3,800       6,386       6,924  
Total expenses   80,660       64,613       158,549       125,915  
Operating income   104,135       60,877       195,224       124,066  
Other income (expense)              
Investment income   714       2,096       1,983       4,085  
Other, net   (446 )     (64 )     (1,102 )     (22 )
Total other income   268       2,032       881       4,063  
Income before income taxes   104,403       62,909       196,105       128,129  
Provision for income taxes   20,549       14,804       37,435       27,502  
Net income $ 83,854     $ 48,105     $ 158,670     $ 100,627  
               
               
Per Share Data:              
Net income per common share              
Basic $ 2.25     $ 1.30     $ 4.25     $ 2.72  
Diluted $ 2.20     $ 1.27     $ 4.16     $ 2.66  
               
Cash dividends declared per common share $ 0.60     $ 0.51     $ 1.20     $ 1.02  
               
Weighted-average common shares:              
Basic   37,340       37,049       37,322       37,046  
Diluted   38,153       37,910       38,115       37,871  
               

 

 
MarketAxess Holdings Inc.
Commission Revenue Details
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2020     2019     2020     2019
               
  Total Commissions Revenue
  (In thousands)
  (unaudited)
               
Variable transaction Fees              
U.S. high-grade $ 75,208   $ 42,914   $ 133,178   $ 85,415
Other credit 1   66,977     47,233     132,587     93,267
Total credit   142,185     90,147     265,765     178,682
Rates 2   3,846     615     9,432     1,172
Total variable transaction fees   146,031     90,762     275,197     179,854
               
Distribution Fees              
U.S. high-grade   19,635     17,483     39,609     35,461
Other credit1   6,329     5,774     12,987     11,332
Total credit   25,964     23,257     52,596     46,793
Rates2   97     105     253     237
Total distribution fees   26,061     23,362     52,849     47,030
Total commissions $ 172,092   $ 114,124   $ 328,046   $ 226,884
               
               
  Average Variable Transaction Fee Per Million
  (unaudited)
               
U.S. high-grade - fixed-rate $ 186.67   $ 168.05   $ 185.04   $ 163.15
U.S. high-grade - floating-rate   55.06     65.22     51.38     70.65
Total U.S. high-grade   181.41     161.72     178.86     157.37
Other credit 1   204.66     190.07     201.80     193.10
Total credit   191.66     175.43     189.62     174.19
               
Rates2   4.02     46.69     3.93     42.69
               
               
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2 Rates includes U.S. Government bonds, agencies and other government bonds.
               

 

 
MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
       
  As of
  June 30, 2020   December 31, 2019
   
  (In thousands)
  (unaudited)
       
Assets      
Cash and cash equivalents $ 404,148     $ 270,124  
Investments, at fair value   131,372       230,477  
Accounts receivable, net   99,222       62,017  
Goodwill   147,394       146,861  
Intangible assets, net of accumulated amortization   59,552       60,986  
Furniture, equipment, leasehold improvements and capitalized software, net   78,461       71,795  
Operating lease right-of-use assets   77,933       81,399  
Prepaid expenses and other assets   41,102       30,770  
Deferred tax assets, net   33       501  
Total assets $ 1,039,217     $ 954,930  
       
Liabilities and stockholders' equity      
Liabilities      
Accrued employee compensation $ 39,434     $ 47,365  
Income and other tax liabilities   24,906       16,690  
Deferred revenue   4,068       3,499  
Accounts payable, accrued expenses and other liabilities   22,624       19,294  
Operating lease liabilities   94,701       97,991  
Total liabilities   185,733       184,839  
       
Stockholders' equity      
Common stock   122       122  
Additional paid-in capital   327,970       342,541  
Treasury stock   (164,676 )     (153,388 )
Retained earnings   704,219       591,086  
Accumulated other comprehensive loss   (14,151 )     (10,270 )
Total stockholders' equity   853,484       770,091  
Total liabilities and stockholders' equity $ 1,039,217     $ 954,930  
       

 

 
MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2020       2019       2020       2019  
               
  Earnings Before Interest, Taxes, Depreciation and Amortization
  (In thousands)
  (unaudited)
Net income $ 83,854     $ 48,105     $ 158,670     $ 100,627  
Add back:              
Interest expense                      
Provision for income taxes   20,549       14,804       37,435       27,502  
Depreciation and amortization   8,305       6,345       16,372       12,427  
Earnings before interest, taxes, depreciation and amortization $ 112,708     $ 69,254     $ 212,477     $ 140,556  
               
  Free Cash Flow
  (In thousands)
  (unaudited)
Cash flows from operating activities $ 104,853     $ 69,733     $ 225,222     $ 109,102  
Exclude: Net change in trading investments   (6,880 )     (2,839 )     (63,274 )     (8,854 )
Less: Purchases of furniture, equipment and leasehold improvements   (4,973 )     (5,465 )     (9,264 )     (6,114 )
Less: Capitalization of software development costs   (6,225 )     (4,126 )     (13,003 )     (7,310 )
Free cash flow $ 86,775     $ 57,303     $ 139,681     $ 86,824  
               

 

 
MarketAxess Holdings Inc.
Volume Statistics*
               
               
  Three Months Ended
June 30,
  Six Months
Ended June 30,
  2020   2019   2020   2019
               
  Total Trading Volume
  (In millions)
  (unaudited)
               
U.S. high-grade - fixed-rate $ 398,006   $ 249,025   $ 710,194   $ 508,858
U.S. high-grade - floating-rate 16,574   16,335   34,380   33,912
Total U.S. high-grade 414,580   265,360   744,574   542,770
Other credit 327,266   248,503   657,019   482,994
Total credit 741,846   513,863   1,401,593   1,025,764
               
Rates 955,594   13,174   2,400,472   27,450
               
  Average Daily Volume
  (In millions)
  (unaudited)
U.S. high-grade $ 6,581   $ 4,212   $ 5,957   $ 4,377
Other credit 5,234   3,979   5,256   3,895
Total credit 11,815   8,191   11,213   8,272
               
Rates 15,169   209   19,204   221
               
Number of U.S. Trading Days 1 63   63   125   124
Number of U.K. Trading Days 2 61   61   125   124
               
               
 
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. Consistent with industry standards, U.S. Government Bond trades are single-counted.

 

 

 

 

 

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Source: MarketAxess Holdings, Inc.