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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019  

or

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number 001-34091

 

MARKETAXESS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

52-2230784

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

55 Hudson Yards, 15th Floor New York, New York

 

10001

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (212) 813-6000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol

 

Name of each exchange on which registered

Common Stock, $0.003 par value

 

MKTX

 

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of July 22, 2019, the number of shares of the Registrant’s voting common stock outstanding was 37,756,668.

 

 

 

 


MARKETAXESS HOLDINGS INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

TABLE OF CONTENTS

 

 

 

  

Page

 

PART I — Financial Information

  

 

Item 1.

Financial Statements (Unaudited)

  

3

 

Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018

  

3

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

  

4

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018

  

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2019 and 2018

  

6

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

  

8

 

Notes to Consolidated Financial Statements

  

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

  

38

Item 4.

Controls and Procedures

  

39

 

PART II — Other Information

  

 

Item 1.

Legal Proceedings

  

40

Item 1A.

Risk Factors

  

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  

40

Item 3.

Defaults Upon Senior Securities

  

40

Item 4.

Mine Safety Disclosures

  

40

Item 5.

Other Information

  

41

Item 6.

Exhibits

  

41

 

 

 

 

2


PART I — Financial Information

Item 1. Financial Statements

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

As of

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands, except share

and per share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

286,179

 

 

$

246,322

 

Investments, at fair value

 

 

231,895

 

 

 

240,105

 

Accounts receivable, net of allowance of $76 and $80 as of

   June 30, 2019 and December 31, 2018, respectively

 

 

66,332

 

 

 

57,535

 

Goodwill and intangible assets, net of accumulated amortization

 

 

62,483

 

 

 

62,675

 

Furniture, equipment, leasehold improvements and capitalized

   software, net of accumulated depreciation and amortization

 

 

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

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 4,855,000 shares authorized,

   no shares issued and outstanding as of June 30, 2019 and

   December 31, 2018

 

 

 

 

 

 

Series A Preferred Stock, $0.001 par value, 110,000 shares authorized,

   no shares issued and outstanding as of June 30, 2019 and

   December 31, 2018

 

 

 

 

 

 

Common stock voting, $0.003 par value, 110,000,000 shares

  authorized, 40,688,233 shares and 40,540,349 shares issued

  and 37,753,481 shares and 37,639,917 shares outstanding as of

  June 30, 2019 and December 31, 2018, respectively

 

 

122

 

 

 

122

 

Common stock non-voting, $0.003 par value, 10,000,000 shares

   authorized, no shares issued and outstanding as of

   June 30, 2019 and December 31, 2018

 

 

 

 

 

 

Additional paid-in capital

 

 

341,446

 

 

 

341,860

 

Treasury stock - Common stock voting, at cost, 2,934,752 and

   2,900,432 shares as of June 30, 2019 and

   December 31, 2018, respectively

 

 

(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

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands, except share

and per share amounts)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

37,049

 

 

 

36,950

 

 

 

37,046

 

 

 

36,952

 

Diluted

 

37,910

 

 

 

37,862

 

 

 

37,871

 

 

 

37,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

4


MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Net income

$

48,105

 

 

$

40,487

 

 

$

100,627

 

 

$

88,427

 

Net cumulative translation adjustment and foreign

   currency exchange hedge, net of tax of $721, $1,328, $269

   and $506, respectively

 

(1,100

)

 

 

(1,288

)

 

 

18

 

 

 

(1,020

)

Net unrealized gain (loss) on securities available-for-sale,

   net of tax of $144, $18, $287 and $(89), respectively

 

459

 

 

 

57

 

 

 

918

 

 

 

(277

)

Comprehensive income

$

47,464

 

 

$

39,256

 

 

$

101,563

 

 

$

87,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

5


 

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Stock

Voting

 

 

Additional

Paid-In

Capital

 

 

Treasury Stock -

Common

Stock

Voting

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

 

 

(In thousands)

 

Balance at January 1, 2019

 

$

122

 

 

$

341,860

 

 

$

(184,962

)

 

$

463,252

 

 

$

(12,394

)

 

$

607,878

 

Net income

 

 

 

 

 

 

 

 

 

 

 

52,522

 

 

 

 

 

 

52,522

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,118

 

 

 

1,118

 

Unrealized net gain on securities available-for-sale,

    net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

459

 

 

 

459

 

Stock-based compensation

 

 

 

 

 

5,196

 

 

 

 

 

 

 

 

 

 

 

 

5,196

 

Exercise of stock options

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

172

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

 

(11,803

)

 

 

 

 

 

 

 

 

 

 

 

(11,803

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(5,184

)

 

 

 

 

 

 

 

 

(5,184

)

Cash dividend on common stock

 

 

 

 

 

 

 

 

 

 

 

(19,212

)

 

 

 

 

 

(19,212

)

Balance at March 31, 2019

 

 

122

 

 

 

335,425

 

 

 

(190,146

)

 

 

496,562

 

 

 

(10,817

)

 

 

631,146

 

Net income

 

 

 

 

 

 

 

 

 

 

 

48,105

 

 

 

 

 

 

48,105

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,100

)

 

 

(1,100

)

Unrealized net gain on securities available-for-sale,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

459

 

 

 

459

 

Stock-based compensation

 

 

 

 

 

5,929

 

 

 

 

 

 

 

 

 

 

 

 

5,929

 

Exercise of stock options

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

 

(258

)

 

 

 

 

 

 

 

 

 

 

 

(258

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(3,486

)

 

 

 

 

 

 

 

 

(3,486

)

Cash dividend on common stock

 

 

 

 

 

 

 

 

 

 

 

(19,237

)

 

 

 

 

 

(19,237

)

Balance at June 30, 2019

 

$

122

 

 

$

341,446

 

 

$

(193,632

)

 

$

525,430

 

 

$

(11,458

)

 

$

661,908

 

 

The accompanying notes are an integral part of these consolidated financial statements.


 

6


 

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(Unaudited)

 

 

 

Common

Stock

Voting

 

 

Additional

Paid-In

Capital

 

 

Treasury Stock -

Common

Stock

Voting

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

 

 

(In thousands)

 

Balance at January 1, 2018

 

$

121

 

 

$

331,081

 

 

$

(159,791

)

 

$

353,583

 

 

$

(10,226

)

 

$

514,768

 

Net income

 

 

 

 

 

 

 

 

 

 

 

47,940

 

 

 

 

 

 

47,940

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

268

 

 

 

268

 

Unrealized net loss on securities available-for-sale,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(334

)

 

 

(334

)

Stock-based compensation

 

 

 

 

 

3,951

 

 

 

 

 

 

 

 

 

 

 

 

3,951

 

Exercise of stock options

 

 

 

 

 

258

 

 

 

 

 

 

 

 

 

 

 

 

258

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

 

(7,621

)

 

 

 

 

 

 

 

 

 

 

 

(7,621

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(6,268

)

 

 

 

 

 

 

 

 

(6,268

)

Cash dividend on common stock

 

 

 

 

 

 

 

 

 

 

 

(15,798

)

 

 

 

 

 

(15,798

)

Balance at March 31, 2018

 

 

121

 

 

 

327,669

 

 

 

(166,059

)

 

 

385,725

 

 

 

(10,292

)

 

 

537,164

 

Net income

 

 

 

 

 

 

 

 

 

 

 

40,487

 

 

 

 

 

 

40,487

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,288

)

 

 

(1,288

)

Unrealized net gain on securities available-for-sale,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

57

 

Stock-based compensation

 

 

 

 

 

3,650

 

 

 

 

 

 

 

 

 

 

 

 

3,650

 

Exercise of stock options

 

 

 

 

 

113

 

 

 

 

 

 

 

 

 

 

 

 

113

 

Withholding tax payments on restricted stock

   vesting and stock option exercises