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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, 2020  

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 21, 2020, the number of shares of the Registrant’s voting common stock outstanding was 37,971,735.

 

 

 


MARKETAXESS HOLDINGS INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

 

 

 

  

Page

 

PART I — Financial Information

  

 

Item 1.

Financial Statements (Unaudited)

  

3

 

Consolidated Statements of Financial Condition as of June 30, 2020 and December 31, 2019

  

3

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

  

4

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019

  

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

  

6

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

  

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

  

40

Item 4.

Controls and Procedures

  

41

 

PART II — Other Information

  

 

Item 1.

Legal Proceedings

  

42

Item 1A.

Risk Factors

  

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  

43

Item 3.

Defaults Upon Senior Securities

  

43

Item 4.

Mine Safety Disclosures

  

43

Item 5.

Other Information

  

44

Item 6.

Exhibits

  

44

 

 

 

 

 

 

 

 

 

 

 

2


PART I — Financial Information

Item 1. Financial Statements

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

As of

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands, except share

and per share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

404,148

 

 

$

270,124

 

Investments, at fair value

 

 

131,372

 

 

 

230,477

 

Accounts receivable, net of allowance of $200 and $57 as of

   June 30, 2020 and December 31, 2019, respectively

 

 

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 of accumulated depreciation and amortization

 

 

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

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   no shares issued and outstanding as of June 30, 2020 and

   December 31, 2019

 

$

 

 

$

 

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

   no shares issued and outstanding as of June 30, 2020 and

   December 31, 2019

 

 

 

 

 

 

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

  authorized, 40,775,124 shares and 40,746,593 shares issued

  and 37,937,960 shares and 37,935,984 shares outstanding as of

  June 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019

 

 

 

 

 

 

Additional paid-in capital

 

 

327,970

 

 

 

342,541

 

Treasury stock - Common stock voting, at cost, 2,837,164 and

   2,810,609 shares as of June 30, 2020 and

   December 31, 2019, respectively

 

 

(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

 

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,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands, except per share amounts)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

37,340

 

 

 

37,049

 

 

 

37,322

 

 

 

37,046

 

Diluted

 

38,153

 

 

 

37,910

 

 

 

38,115

 

 

 

37,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands)

 

Net income

$

83,854

 

 

$

48,105

 

 

$

158,670

 

 

$

100,627

 

Net cumulative translation adjustment and foreign

   currency exchange hedge, net of tax of $121, $721, $2,562, and $269, respectively

 

(351

)

 

 

(1,100

)

 

 

(4,210

)

 

 

18

 

Net unrealized gain on securities available-for-sale,

   net of tax of $259, $144, $104, and $287, respectively

 

820

 

 

 

459

 

 

 

329

 

 

 

918

 

Comprehensive income

$

84,323

 

 

$

47,464

 

 

$

154,789

 

 

$

101,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

$

122

 

 

$

342,541

 

 

$

(153,388

)

 

$

591,086

 

 

$

(10,270

)

 

$

770,091

 

Net income

 

 

 

 

 

 

 

 

 

 

 

74,816

 

 

 

 

 

 

74,816

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,859

)

 

 

(3,859

)

Unrealized net loss on securities available-for-sale,

    net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(491

)

 

 

(491

)

Stock-based compensation

 

 

 

 

 

6,677

 

 

 

 

 

 

 

 

 

 

 

 

6,677

 

Exercise of stock options

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

80

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

 

(21,243

)

 

 

 

 

 

 

 

 

 

 

 

(21,243

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(5,415

)

 

 

 

 

 

 

 

 

(5,415

)

Cash dividend on common stock ($0.60 per share)

 

 

 

 

 

 

 

 

 

 

 

(22,773

)

 

 

 

 

 

(22,773

)

Balance at March 31, 2020

 

 

122

 

 

 

328,055

 

 

 

(158,803

)

 

 

643,129

 

 

 

(14,620

)

 

 

797,883

 

Net income

 

 

 

 

 

 

 

 

 

 

 

83,854

 

 

 

 

 

 

83,854

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(351

)

 

 

(351

)

Unrealized net gain on securities available-for-sale,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

820

 

 

 

820

 

Stock-based compensation

 

 

 

 

 

5,791

 

 

 

 

 

 

 

 

 

 

 

 

5,791

 

Exercise of stock options

 

 

 

 

 

659

 

 

 

 

 

 

 

 

 

 

 

 

659

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

 

(6,535

)

 

 

 

 

 

 

 

 

 

 

 

(6,535

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(5,873

)

 

 

 

 

 

 

 

 

(5,873

)

Cash dividend on common stock ($0.60 per share)

 

 

 

 

 

 

 

 

 

 

 

(22,764

)

 

 

 

 

 

(22,764

)

Balance at June 30, 2020

 

$

122

 

 

$

327,970

 

 

$

(164,676

)

 

$

704,219

 

 

$

(14,151

)

 

$

853,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


 

6


 

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, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 ($0.51 per share)

 

 

 

 

 

 

 

 

 

 

 

(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