MarketAxess Reports Third Quarter 2019 Record Revenues of $131.6 Million, Record Operating Income of $66.0 Million and Record Diluted EPS of $1.42

Third Quarter Financial Highlights*

  • Record revenues of $131.6 million, up 30%
  • Record operating income of $66.0 million, up 42%
  • Record diluted EPS of $1.42, up 39% from $1.02
  • Record trading volume of $528.7 billion, up 37%
  • Record Open TradingTM volume of $141.7 billion, up 61%
  • Record estimated U.S. high-grade market share of 20.2%

*All comparisons versus third quarter 2018.

NEW YORK, Oct. 23, 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 September 30, 2019.

“Broad-based growth in trading volumes across all major products and geographic regions drove record results in the third quarter as dealers and investors continue to embrace new solutions for credit trading automation,” said Rick McVey, Chairman and CEO of MarketAxess. “In addition to the acceleration of growth in current products, we are excited about new growth opportunities in U.S. Treasury trading, portfolio trading and Live Markets.  Our investment in new technology solutions and products for our clients continues to grow while at the same time we produced operating margins in excess of 50% during the third quarter.” 

Third Quarter Results

Total revenues for the third quarter of 2019 increased 29.7% to $131.6 million, compared to $101.4 million for the third quarter of 2018. Operating income was $66.0 million, compared to $46.4 million for the third quarter of 2018, an increase of 42.1%. Operating margin was 50.1%, compared to 45.8% for the third quarter of 2018.  Net income totaled $54.0 million, or $1.42 per share on a diluted basis, compared to $38.6 million, or $1.02 per share, for the third quarter of 2018.  

Commission revenue for the third quarter of 2019 increased 32.4% to $119.9 million, compared to $90.5 million for the third quarter of 2018. Variable transaction fees increased 45.5% to $96.0 million on total trading volume of $528.7 billion for the third quarter of 2019, compared to variable transaction fees of $66.0 million on total trading volume of $385.5 billion for the third quarter of 2018. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 20.2% for the third quarter of 2019, compared to an estimated 17.5% for the third quarter of 2018.

All other revenue, which consists of information services, post-trade services and other revenue, increased to $11.7 million, compared to $10.9 million for the third 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 $0.5 million.

Total expenses for the third quarter of 2019 increased 19.3% to $65.6 million, compared to $55.0 million for the third 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, technology and communications expense of $1.5 million, professional and consulting fees of $1.3 million, general and administrative costs of $1.0 million and clearing costs of $1.0 million

Other income was $1.4 million for each of the third quarters of 2019 and 2018.

The effective tax rate for the third quarter of 2019 was 19.8%, compared to 19.3% for the third quarter of 2018.   

Employee headcount was 511 as of September 30, 2019 compared to 444 as of September 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 November 20, 2019 to stockholders of record as of the close of business on November 6, 2019. 

Share Repurchases

A total of 7,500 shares were repurchased in the third quarter of 2019 at a cost of $2.8 million.

Balance Sheet Data

As of September 30, 2019, total assets were $855.0 million and included $556.2 million in cash, cash equivalents and investments.  Total stockholders’ equity as of September 30, 2019 was $694.6 million.

Guidance for 2019

The Company is reconfirming its full year 2019 expense guidance range of $244.0 million to $256.0 million.  The expense guidance range excludes any post-acquisition impact of the LiquidityEdge transaction.  The Company is also reconfirming its full year 2019 overall effective tax rate of 20.5% to 22.5%.  Finally, the Company is updating its full year 2019 capital expenditure guidance range to $31.0 million to $33.0 million, up from $25.0 million to $30.0 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, October 23, 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 1878106. 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 record $1.7 trillion of U.S. investment-grade bonds, U.S. high-yield bonds, emerging market debt, Eurobonds and other fixed income securities traded through MarketAxess’ patented trading technology in 2018. The global community of 1,600 firms trading on MarketAxess today include the world’s leading asset managers and institutional broker-dealers. 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 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        
MarketAxess Holdings Inc.   
+1-212-813-6027

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

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

MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
           
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2019     2018     2019     2018  
  (In thousands, except per share data)  
  (unaudited)  
                               
Revenues                              
Commissions $ 119,869     $ 90,513     $ 346,753     $ 289,398  
Information services   7,693       7,174       22,215       21,170  
Post-trade services   3,784       3,475       11,840       11,671  
Other   251       281       770       882  
Total revenues   131,597       101,443       381,578       323,121  
                               
Expenses                              
Employee compensation and benefits   32,681       26,282       97,962       81,315  
Depreciation and amortization   6,700       6,173       19,127       17,232  
Technology and communications   7,381       5,879       19,637       17,451  
Professional and consulting fees   7,018       5,685       19,145       16,168  
Occupancy   2,802       3,528       8,549       10,332  
Marketing and advertising   2,506       2,980       8,472       8,580  
Clearing costs   2,782       1,760       7,969       5,497  
General and administrative   3,762       2,744       10,686       7,927  
Total expenses   65,632       55,031       191,547       164,502  
Operating income   65,965       46,412       190,031       158,619  
Other income (expense)                              
Investment income   2,211       1,635       6,296       4,186  
Other, net   (838 )     (250 )     (860 )     (785 )
Total other income   1,373       1,385       5,436       3,401  
Income before income taxes   67,338       47,797       195,467       162,020  
Provision for income taxes   13,336       9,203       40,838       34,999  
Net income $ 54,002     $ 38,594     $ 154,629     $ 127,021  
                               
                               
Per Share Data:                              
Net income per common share                              
Basic $ 1.46     $ 1.04     $ 4.17     $ 3.44  
Diluted $ 1.42     $ 1.02     $ 4.08     $ 3.36  
                               
Cash dividends declared per common share $ 0.51     $ 0.42     $ 1.53     $ 1.26  
                               
Weighted-average common shares:                              
Basic   37,066       36,951       37,053       36,952  
Diluted   37,995       37,828       37,913       37,859  


MarketAxess Holdings Inc.
Commission Revenue Details
 
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2019     2018     2019     2018  
                               
  Total Commissions Revenue  
  (In thousands)  
  (unaudited)  
                               
Transaction Fees                              
U.S. high-grade $ 45,409     $ 32,385     $ 130,824     $ 107,553  
Other credit 1   50,009       33,088       143,276       108,280  
Liquid products 2   567       482       1,739       1,553  
Total transaction fees   95,985       65,955       275,839       217,386  
                               
Distribution Fees                              
U.S. high-grade   17,777       18,032       53,238       53,520  
Other credit1   5,986       6,385       17,318       17,967  
Liquid products2   121       141       358       525  
Total distribution fees   23,884       24,558       70,914       72,012  
Total commissions $ 119,869     $ 90,513     $ 346,753     $ 289,398  
                               
                               
  Average Variable Transaction Fee Per Million  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 181     $ 162     $ 169     $ 161  
U.S. high-grade - floating-rate   56       91       66       94  
Total U.S. high-grade   173       157       163       156  
Other credit   196       198       194       199  
Liquid products   49       39       44       40  
Total   182       171       174       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  
  September 30, 2019     December 31, 2018  
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 320,527     $ 246,322  
Investments, at fair value   235,625       240,105  
Accounts receivable, net   72,812       57,535  
Goodwill and intangible assets, net   62,387       62,675  
Furniture, equipment, leasehold improvements and capitalized
  software, net
  66,531       63,010  
Operating lease right-of-use assets   75,390        
Prepaid expenses and other assets   18,591       22,468  
Deferred tax assets, net   3,163       3,424  
Total assets $ 855,026     $ 695,539  
               
Liabilities and stockholders' equity              
Liabilities              
Accrued employee compensation $ 35,082     $ 39,053  
Income and other tax liabilities   13,274       16,432  
Deferred revenue   3,731       2,810  
Accounts payable, accrued expenses and other liabilities   16,285       29,366  
Operating lease liabilities   92,031        
Total liabilities   160,403       87,661  
               
Stockholders' equity              
Common stock   122       122  
Additional paid-in capital   343,543       341,860  
Treasury stock   (196,402 )     (184,962 )
Retained earnings   560,164       463,252  
Accumulated other comprehensive loss   (12,804 )     (12,394 )
Total stockholders' equity   694,623       607,878  
Total liabilities and stockholders' equity $ 855,026     $ 695,539  
               


MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2019     2018     2019     2018  
                               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 54,002     $ 38,594     $ 154,629     $ 127,021  
Add back:                              
Interest expense                      
Provision for income taxes   13,336       9,203       40,838       34,999  
Depreciation and amortization   6,700       6,173       19,127       17,232  
Earnings before interest, taxes, depreciation and
  amortization
$ 74,038     $ 53,970     $ 214,594     $ 179,252  
                               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flows from operating activities $ 67,692     $ 67,994     $ 176,794     $ 153,812  
Exclude: Net change in trading investments   9,225       (9,959 )     371       (6,671 )
Less: Purchases of furniture, equipment and
  leasehold improvements
  (2,569 )     (7,786 )     (8,683 )     (23,821 )
Less: Capitalization of software development costs   (6,553 )     (2,635 )     (13,863 )     (9,171 )
Free cash flow $ 67,795     $ 47,614     $ 154,619     $ 114,149  


MarketAxess Holdings Inc.
Volume Statistics*
 
                               
  Three Months Ended September 30,     Nine Months Ended September 30,  
  2019     2018     2019     2018  
                               
  Total Trading Volume  
  (In millions)  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 245,027     $ 191,950     $ 753,885     $ 643,781  
U.S. high-grade - floating-rate   16,918       14,066       50,830       43,739  
Total U.S. high-grade   261,945       206,016       804,715       687,520  
Other credit   255,097       166,990       738,091       544,614  
Liquid products   11,661       12,505       39,111       39,134  
Total $ 528,703     $ 385,511     $ 1,581,917     $ 1,271,268  
                               
  Average Daily Volume  
  (In millions)  
  (unaudited)  
U.S. high-grade $ 4,093     $ 3,270     $ 4,280     $ 3,657  
Other credit   3,972       2,641       3,921       2,893  
Liquid products   182       198       208       208  
Total $ 8,247     $ 6,109     $ 8,409     $ 6,758  
                               
Number of U.S. Trading Days 1   64       63       188       188  
Number of U.K. Trading Days 2   65       64       189       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 matched principal basis between two counterparties.  
   

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Source: MarketAxess Holdings, Inc.