MarketAxess Reports Second Quarter 2021 Revenues of $176.3 Million, Operating Income of $87.2 Million and Diluted EPS of $1.77

Second Quarter Highlights*

  • Revenues of $176.3 million, down 5%
  • Operating income of $87.2 million, down 16%
  • Operating margin of 49.4%
  • Diluted EPS of $1.77, down 20% from $2.20
  • 2-year compound annual growth rates of 19% for revenue and 20% for operating income compared to second quarter of 2019
  • Estimated U.S. high-grade market share of 21.1%
  • Record municipal bond trading volume; closed MuniBrokers transaction in April 2021
  • Emerging market trading volume up 11%; estimated market volumes down 17%
  • Record active total client firms of 1,842 and international client firms of 930

*All comparisons versus second quarter 2020 unless otherwise stated.

NEW YORK, July 21, 2021 (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, 2021.

“Second quarter results were heavily impacted by low levels of credit market volatility in a very tough year over year comparison for MarketAxess,” said Chairman and CEO Rick McVey. “We are proud of the Company’s record results achieved last Spring during elevated credit spread volatility and high market volume caused by the Pandemic and, though we were not able to duplicate those results, we believe the Company’s long-term revenue and earnings growth rates remain on track. In addition to consistent long-term growth in our core business, we are excited about the progress we are making in our international business, emerging markets, municipal bonds, and new trading protocols. We believe our investments are creating a much broader foundation for future growth that will be evident when more normal levels of volatility return to fixed income markets.”

Second Quarter Results

Total revenues for the second quarter of 2021 decreased 4.6% to $176.3 million, compared to $184.8 million for the second quarter of 2020. Operating income was $87.2 million, compared to $104.1 million for the second quarter of 2020, a decrease of 16.3%. Operating margin was 49.4%, compared to 56.4% for the second quarter of 2020. Net income totaled $67.3 million, or $1.77 per share on a diluted basis, compared to $83.9 million, or $2.20 per share, for the second quarter of 2020.

Commission revenue for the second quarter of 2021 decreased 9.1% to $156.4 million, compared to $172.1 million for the second quarter of 2020. Variable transaction fees decreased 13.0% to $127.1 million for the second quarter of 2021, compared to variable transaction fees of $146.0 million for the second quarter of 2020. Commission revenue includes $1.1 million generated by MuniBrokers, which was acquired in April 2021. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume was an estimated 21.1% for the second quarter of 2021, compared to an estimated 21.5% for the second quarter of 2020. Estimated U.S. credit TRACE trading volume decreased by 18.7% year-over-year.

All other revenue, which consists of information services, post-trade services and other revenue, increased to $19.9 million, compared to $12.7 million for the second quarter of 2020. The increase in all other revenue was principally due to $3.8 million of regulatory trade reporting revenue generated by Regulatory Reporting Hub, which was acquired from Deutsche Börse Group in November 2020, and $1.3 million of revenue due to the weaker U.S. dollar to U.K. pound sterling exchange rate.

Total expenses for the second quarter of 2021 increased 10.5% to $89.2 million, compared to $80.7 million for the second quarter of 2020. The increase in total expenses was largely due to higher depreciation and amortization of $4.8 million, which includes $2.8 million of acquired intangibles expense; higher professional and consulting fees of $2.6 million, mainly attributable to non-recurring integration costs associated with the Regulatory Reporting Hub transaction of $1.3 million and self-clearing consulting fees of $0.7 million; and higher technology and communication costs of $2.0 million which was partially offset by a decrease in clearing costs of $1.3 million. Expenses in the second quarter of 2021 reflect operating expenses and costs associated with the MuniBrokers and Regulatory Reporting Hub businessess totaling $5.1 million. Excluding the MuniBrokers and Regulatory Reporting Hub expenses, total expenses for the quarter were up 4.2%.

The effective tax rate for the second quarter of 2021 was 21.8%, compared to 19.7% for the second quarter of 2020. The income tax provision for the second quarter of 2021 and 2020 reflected $5.6 million and $5.7 million, respectively, of excess tax benefits related to share-based compensation awards.

Employee headcount was 637 as of June 30, 2021 compared to 561 as of June 30, 2020. 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 quarterly cash dividend to $0.66 per share of common stock outstanding, to be paid on August 18, 2021 to stockholders of record as of the close of business on August 4, 2021.

Share Repurchases

A total of 28,701 shares were repurchased in the second quarter of 2021 at a cost of $13.4 million.

Balance Sheet Data

As of June 30, 2021, total assets were $1.5 billion and included $449.5 million in cash, cash equivalents and investments. Total stockholders’ equity as of June 30, 2021 was $1.0 billion.

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 21, 2021 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: 5230777 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 1,800 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. 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; risks relating to the COVID-19 pandemic, including the possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic; risks related to the U.K. exit from the European Union; the level of trading volume transacted on the MarketAxess platform; the rapidly evolving nature of the electronic financial services industry; 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; our ability to introduce new fee plans and our clients’ response; our ability to attract clients or adapt our technology and marketing strategy to new markets; risks related to our growing international operations; our dependence on our broker-dealer clients; the loss of any of our significant institutional investor clients; 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; risks related to self-clearing; the effect of rapid market or technological changes on us and the users of our technology; our dependence on third-party suppliers for key products and services; our ability to successfully maintain the integrity of our trading platform and our response to system failures, capacity constraints and business interruptions; the occurrence of design defects, errors, failures or delays with our platforms; our vulnerability to cyber security risks; our actual or perceived failure to comply with privacy and data protection laws; 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 dependence on our management team and our ability to attract and retain talent; limitations on our flexibility because we operate in a highly regulated industry; the increasing government regulation of us and our clients; our exposure to costs and penalties related to our extensive regulation; our risks of litigation and securities laws liability; 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
   
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,  
  2021     2020     2021     2020  
  (In thousands, except per share data)  
  (unaudited)  
                               
Revenues                              
Commissions $ 156,431     $ 172,092     $ 332,269     $ 328,046  
Information services   9,844       8,427       19,006       17,069  
Post-trade services   9,848       4,054       20,109       8,207  
Other   211       222       414       451  
Total revenues   176,334       184,795       371,798       353,773  
                               
Expenses                              
Employee compensation and benefits   40,732       41,636       88,820       82,830  
Depreciation and amortization   13,097       8,305       24,876       16,372  
Technology and communications   10,544       8,592       20,580       16,753  
Professional and consulting fees   10,704       8,065       20,344       13,740  
Occupancy   3,300       3,286       6,617       6,760  
Marketing and advertising   3,128       1,810       4,332       4,485  
Clearing costs   4,372       5,713       9,066       11,223  
General and administrative   3,280       3,253       6,512       6,386  
Total expenses   89,157       80,660       181,147       158,549  
Operating income   87,177       104,135       190,651       195,224  
Other income (expense)                              
Investment income   107       714       214       1,983  
Interest expense   (171 )           (362 )      
Other, net   (1,060 )     (446 )     (2,649 )     (1,102 )
Total other income (expense)   (1,124 )     268       (2,797 )     881  
Income before income taxes   86,053       104,403       187,854       196,105  
Provision for income taxes   18,765       20,549       40,109       37,435  
Net income $ 67,288     $ 83,854     $ 147,745     $ 158,670  
                               
                               
Per Share Data:                              
Net income per common share                              
Basic $ 1.79     $ 2.25     $ 3.94     $ 4.25  
Diluted $ 1.77     $ 2.20     $ 3.87     $ 4.16  
                               
Cash dividends declared per common share $ 0.66     $ 0.60     $ 1.32     $ 1.20  
                               
Weighted-average common shares:                              
Basic   37,508       37,340       37,489       37,322  
Diluted   38,104       38,153       38,129       38,115  


MarketAxess Holdings Inc.
Commission Revenue Details
 
                               
                               
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2021     2020     2021     2020  
                               
  Total Commissions Revenue  
  (In thousands)  
  (unaudited)  
                               
Transaction Fees                              
U.S. high-grade $ 56,413     $ 75,208     $ 121,769     $ 133,178  
Other credit 1   67,074       66,977       145,973       132,587  
Total credit   123,487       142,185       267,742       265,765  
Rates 2   3,612       3,846       7,755       9,432  
Total transaction fees   127,099       146,031       275,497       275,197  
                               
Distribution Fees                              
U.S. high-grade   21,373       19,635       42,343       39,609  
Other credit1   7,895       6,329       14,299       12,987  
Total credit   29,268       25,964       56,642       52,596  
Rates2   64       97       130       253  
Total distribution fees   29,332       26,061       56,772       52,849  
  Total commissions $ 156,431     $ 172,092     $ 332,269     $ 328,046  
                               
                               
  Average Variable Transaction Fee Per Million  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 179.02     $ 186.67     $ 182.21     $ 185.04  
U.S. high-grade - floating-rate   36.40       55.06       41.19       51.38  
Total U.S. high-grade   174.11       181.41       177.13       178.86  
Other credit 1   194.49       204.66       198.36       201.80  
Total credit   184.62       191.66       188.11       189.62  
                               
Rates2   4.07       4.02       3.86       3.93  
                               
                               
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, 2021     December 31, 2020  
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 413,612     $ 460,858  
Cash segregated under federal regulations   50,108       50,059  
Investments, at fair value   35,838       28,111  
Accounts receivable, net   87,125       79,577  
Receivables from broker-dealers, clearing organizations and customers   475,739       279,915  
Goodwill   154,789       147,388  
Intangible assets, net of accumulated amortization   119,989       95,354  
Furniture, equipment, leasehold improvements and capitalized
   software, net
  93,108       85,204  
Operating lease right-of-use assets   73,906       75,924  
Prepaid expenses and other assets   33,709       29,039  
Total assets $ 1,537,923     $ 1,331,429  
               
Liabilities and stockholders' equity              
Liabilities              
Accrued employee compensation $ 39,278     $ 62,326  
Payables to broker-dealers, clearing organizations and customers   278,303       133,326  
Income and other tax liabilities   41,345       42,750  
Accounts payable, accrued expenses and other liabilities   65,872       44,354  
Operating lease liabilities   91,265       93,612  
Total liabilities   516,063       376,368  
               
Stockholders' equity              
Common stock   123       123  
Additional paid-in capital   313,683       329,742  
Treasury stock   (183,479 )     (169,523 )
Retained earnings   896,977       799,369  
Accumulated other comprehensive loss   (5,444 )     (4,650 )
Total stockholders' equity   1,021,860       955,061  
Total liabilities and stockholders' equity $ 1,537,923     $ 1,331,429  
               


MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                               
                               
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2021     2020     2021     2020  
                               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 67,288     $ 83,854     $ 147,745     $ 158,670  
Add back:                              
Interest expense   171             362        
Provision for income taxes   18,765       20,549       40,109       37,435  
Depreciation and amortization   13,097       8,305       24,876       16,372  
Earnings before interest, taxes, depreciation and
   amortization
$ 99,321     $ 112,708     $ 213,092     $ 212,477  
                               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flows from operating activities $ 96,726     $ 104,853     $ 73,567     $ 225,222  
Exclude: Net change in trading investments   11,064       (6,880 )     5,569       (63,274 )
Exclude: Net change in fail-to-deliver/receive
from broker-dealers, clearing organizations and customers
  (26,596 )           66,774        
Less: Purchases of furniture, equipment and
 leasehold improvements
  (5,552 )     (4,973 )     (9,809 )     (9,264 )
Less: Capitalization of software development costs   (8,384 )     (6,225 )     (16,459 )     (13,003 )
Free cash flow $ 67,258     $ 86,775     $ 119,642     $ 139,681  


MarketAxess Holdings Inc.
Volume Statistics*
 
                               
                               
  Three Months Ended
June 30,
    Six Months Ended
June 30,
 
  2021     2020     2021     2020  
                               
  Total Trading Volume  
  (In millions)  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 312,858     $ 398,006     $ 662,673     $ 710,194  
U.S. high-grade - floating-rate   11,153       16,574       24,779       34,380  
Total U.S. high-grade   324,011       414,580       687,452       744,574  
Other credit   344,865       327,266       735,885       657,019  
Total credit   668,876       741,846       1,423,337       1,401,593  
                               
Rates   888,267       955,594       2,009,135       2,400,472  
                               
  Average Daily Volume  
  (In millions)  
  (unaudited)  
U.S. high-grade $ 5,143     $ 6,581     $ 5,544     $ 5,957  
Other credit   5,521       5,234       5,935       5,256  
Total credit   10,664       11,815       11,479       11,213  
                               
Rates   14,113       15,169       16,203       19,204  
                               
Number of U.S. Trading Days 1   63       63       124       125  
Number of U.K. Trading Days 2   61       61       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. Consistent with industry standards, U.S. Government Bond trades are single-counted.  
   

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Source: MarketAxess Holdings, Inc.