Marketaxess Reports Third Quarter 2020 Revenues of $164.0 Million, Operating Income of $87.8 Million and Diluted EPS of $1.78

Third Quarter Financial Highlights*

  • Revenues of $164.0 million, up 25%
  • Operating income of $87.8 million, up 33%
  • Operating margin of 53.5%, up from 50.1%
  • Net income of $67.8 million, up 26%
  • Diluted EPS of $1.78, up 25% from $1.42
  • Record Estimated U.S. high-grade market share of 22.2%, up from 20.2%
  • Record Estimated U.S. high-yield market share of 16.0%, up from 11.9%

*All comparisons versus third quarter 2019.

NEW YORK, Oct. 27, 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 September 30, 2020.

“It is gratifying to see the strength in market share trends and Open Trading volumes in spite of the return to more normal credit market conditions in the third quarter,” said Rick McVey, Chairman and CEO of MarketAxess. “Trading automation and lower transaction costs on MarketAxess are driving a sustainable change in trading behavior among institutional market participants. Market share gains fueled strong revenue and earnings growth with higher operating margins during the quarter.”

Third Quarter Results

Total revenues for the third quarter of 2020 increased 25% to $164.0 million, compared to $131.6 million for the third quarter of 2019. Operating income was $87.8 million, compared to $66.0 million for the third quarter of 2019, an increase of 33%. Operating margin was 53.5%, compared to 50.1% for the third quarter of 2019. Net income totaled $67.8 million, or $1.78 per share on a diluted basis, compared to $54.0 million, or $1.42 per share, for the third quarter of 2019.

Commission revenue for the third quarter of 2020 increased 26% to $150.6 million, compared to $119.9 million for the third quarter of 2019. Variable transaction fees increased 28% to $123.2 million for the third quarter of 2020, compared to variable transaction fees of $96.0 million for the third quarter of 2019. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 22.2% for the third quarter of 2020, compared to an estimated 20.2% for the third quarter of 2019. Variable transaction fees in the third quarter of 2020 includes approximately $2.4 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 14% to $13.4 million, compared to $11.7 million for the third quarter of 2019. The increase in all other revenue was principally due to new data sales and introduction of new Securities Finance Transaction Regulation (“SFTR”) reporting services of $1.1 million and the favorable impact of the weaker U.S. dollar of $0.6 million.

Total expenses for the third quarter of 2020 increased 16% to $76.2 million, compared to $65.6 million for the third 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 $4.9 million, depreciation and amortization of $2.3 million, clearing costs, mainly due to increased Open Trading activity and U.S. Treasury matched-principal trading, of $2.1 million, and professional and consulting fees of $1.3 million offset by a $1.4 million decrease in marketing and advertising expense. MarketAxess Rates expenses, including amortization of acquired intangibles expense, totaled $3.3 million during the third quarter of 2020.

The effective tax rate for the third quarter of 2020 was 23.0%, compared to 19.8% for the third quarter of 2019. The income tax provision for the third quarter of 2020 and 2019 reflected $5.9 million and $3.5 million, respectively, of excess tax benefits related to share-based compensation awards. In the third quarter of 2020, the Company recorded an additional provision for unrecognized tax benefits of $4.8 million.

Employee headcount was 599 as of September 30, 2020 compared to 527 as of December 31, 2019 and 511 as of September 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 November 25, 2020 to stockholders of record as of the close of business on November 11, 2020.

Share Repurchases

A total of 8,748 shares were repurchased in the third quarter of 2020 at a cost of $4.2 million.

Balance Sheet Data

As of September 30, 2020, total assets were $1.2 billion and included $341.6 million in cash, cash equivalents and investments.   Total stockholders’ equity as of September 30, 2020 was $897.5 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 Tuesday, October 27, 2020 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) and using the conference ID: 8278649 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; risks related to self-clearing; 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     Nine Months Ended  
  September 30,     September 30,  
  2020   2019   2020   2019  
                 
                 
                 
  (In thousands, except per share data)  
  (unaudited)  
                               
Revenues                              
Commissions $ 150,586     $ 119,869     $ 478,632     $ 346,753  
Information services   8,501       7,693       25,570       22,215  
Post-trade services   4,689       3,784       12,896       11,840  
Other   230       251       681       770  
Total revenues   164,006       131,597       517,779       381,578  
                               
Expenses                              
Employee compensation and benefits   37,583       32,681       120,413       97,962  
Depreciation and amortization   9,032       6,700       25,404       19,127  
Technology and communications   8,417       7,381       25,170       19,637  
Professional and consulting fees   8,269       7,018       22,009       19,145  
Occupancy   3,445       2,802       10,205       8,549  
Marketing and advertising   1,148       2,506       5,633       8,472  
Clearing costs   4,838       2,782       16,061       7,969  
General and administrative   3,467       3,762       9,853       10,686  
Total expenses   76,199       65,632       234,748       191,547  
Operating income   87,807       65,965       283,031       190,031  
Other income (expense)                              
Investment income   344       2,211       2,327       6,296  
Interest expense   (1,046 )           (1,046 )      
Other, net   860       (838 )     (242 )     (860 )
Total other income   158       1,373       1,039       5,436  
Income before income taxes   87,965       67,338       284,070       195,467  
Provision for income taxes   20,189       13,336       57,624       40,838  
Net income $ 67,776     $ 54,002     $ 226,446     $ 154,629  
                               
                               
Per Share Data:                              
Net income per common share                              
Basic $ 1.81     $ 1.46     $ 6.06     $ 4.17  
Diluted $ 1.78     $ 1.42     $ 5.94     $ 4.08  
                               
Cash dividends declared per common share $ 0.60     $ 0.51     $ 1.80     $ 1.53  
                               
Weighted-average common shares:                              
Basic   37,386       37,066       37,343       37,053  
Diluted   38,160       37,995       38,129       37,913  


MarketAxess Holdings Inc.
Commission Revenue Details
 
                               
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2020     2019     2020     2019  
                               
  Total Commissions Revenue  
  (In thousands)  
  (unaudited)  
                               
Variable transaction fees                              
U.S. high-grade $ 60,861     $ 45,409     $ 194,039     $ 130,824  
Other credit 1   59,131       50,009       191,718       143,276  
Total credit   119,992       95,418       385,757       274,100  
Rates 2   3,191       567       12,623       1,739  
Total variable transaction fees   123,183       95,985       398,380       275,839  
                               
Distribution fees                              
U.S. high-grade   20,760       17,777       60,369       53,238  
Other credit1   6,586       5,986       19,573       17,318  
Total credit   27,346       23,763       79,942       70,556  
Rates2   57       121       310       358  
Total distribution fees   27,403       23,884       80,252       70,914  
Total commissions $ 150,586     $ 119,869     $ 478,632     $ 346,753  
                               
                               
  Average Variable Transaction Fee Per Million  
  (unaudited)  
                               
U.S. high-grade - fixed-rate $ 204.24     $ 181.45     $ 190.68     $ 169.10  
U.S. high-grade - floating-rate   47.75       56.08       50.60       65.80  
Total U.S. high-grade   199.39       173.35       184.83       162.57  
Other credit 1   208.27       196.04       203.75       194.12  
Total credit   203.67       184.55       193.78       177.66  
                               
Rates2   4.19       48.65       3.99       44.46  
                               
                               
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  
           
  September 30, 2020     December 31, 2019  
           
  (In thousands)  
  (unaudited)  
               
Assets              
Cash and cash equivalents $ 310,368     $ 270,124  
Cash segregated under federal regulations   50,033        
Investments, at fair value   31,274       230,477  
Accounts receivable, net   81,706       62,017  
Receivables from broker-dealers, clearing organizations and customers   380,853        
Goodwill   147,388       146,861  
Intangible assets, net of accumulated amortization   58,873       60,986  
Furniture, equipment, leasehold improvements and capitalized
software, net
  82,074       71,795  
Operating lease right-of-use assets   76,692       81,399  
Prepaid expenses and other assets   26,191       30,770  
Deferred tax assets, net   52       501  
Total assets $ 1,245,504     $ 954,930  
               
Liabilities and stockholders' equity              
Liabilities              
Accrued employee compensation $ 50,926     $ 47,365  
Payables to broker-dealers, clearing organizations and customers   138,120        
Income and other tax liabilities   34,822       16,690  
Deferred revenue   5,092       3,499  
Accounts payable, accrued expenses and other liabilities   25,297       19,294  
Operating lease liabilities   93,708       97,991  
Total liabilities   347,965       184,839  
               
Stockholders' equity              
Common stock   122       122  
Additional paid-in capital   327,646       342,541  
Treasury stock   (168,841 )     (153,388 )
Retained earnings   749,211       591,086  
Accumulated other comprehensive loss   (10,599 )     (10,270 )
Total stockholders' equity   897,539       770,091  
Total liabilities and stockholders' equity $ 1,245,504     $ 954,930  
               


MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                               
                               
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2020     2019     2020     2019  
                               
  Earnings Before Interest, Taxes, Depreciation and Amortization  
  (In thousands)  
  (unaudited)  
Net income $ 67,776     $ 54,002     $ 226,446     $ 154,629  
Add back:                              
Interest expense   1,046             1,046        
Provision for income taxes   20,189       13,336       57,624       40,838  
Depreciation and amortization   9,032       6,700       25,404       19,127  
Earnings before interest, taxes, depreciation and
amortization
$ 98,043     $ 74,038     $ 310,520     $ 214,594  
                               
  Free Cash Flow  
  (In thousands)  
  (unaudited)  
Cash flows from operating activities $ (48,353 )   $ 67,692     $ 176,869     $ 176,794  
Exclude: Net change in trading investments   638       9,225       (62,636 )     371  
Exclude: Net change in fail-to-deliver/receive
from broker-dealers, clearing organizations and customers
  164,797             164,797        
Less: Purchases of furniture, equipment and
leasehold improvements
  (3,758 )     (2,569 )     (13,022 )     (8,683 )
Less: Capitalization of software development costs   (8,121 )     (6,553 )     (21,124 )     (13,863 )
Free cash flow $ 105,203     $ 67,795     $ 244,884     $ 154,619  


MarketAxess Holdings Inc.
Volume Statistics*
 
                             
                             
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2020     2019   2020     2019  
                             
  Total Trading Volume  
  (In millions)  
  (unaudited)  
                             
U.S. high-grade - fixed-rate $ 295,781     $ 245,027   $ 1,005,975     $ 753,885  
U.S. high-grade - floating-rate   9,450       16,918     43,830       50,830  
Total U.S. high-grade   305,231       261,945     1,049,805       804,715  
Other credit   283,920       255,097     940,939       738,091  
Total credit   589,151       517,042     1,990,744       1,542,806  
                             
Rates   760,676       11,661     3,161,148       39,111  
                             
  Average Daily Volume  
  (In millions)  
  (unaudited)  
U.S. high-grade $ 4,770     $ 4,093   $ 5,555     $ 4,280  
Other credit   4,421       3,971     4,972       3,921  
Total credit   9,191       8,064     10,527       8,201  
                             
Rates   11,885       182     16,726       208  
                             
Number of U.S. Trading Days 1   64       64     189       188  
Number of U.K. Trading Days 2   65       65     190       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. Consistent with industry standards, U.S. Government Bond trades are single-counted.  
                             
   

 


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Source: MarketAxess Holdings, Inc.