8-K
MARKETAXESS HOLDINGS INC NASDAQ false 0001278021 0001278021 2020-10-27 2020-10-27

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2020

 

 

MarketAxess Holdings Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   001-34091   52-2230784

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

55 Hudson Yards

New York, New York 10001

(Address of principal executive offices, including zip code)

(212) 813-6000

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.003 per share   MKTX   NASDAQ Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition

On October 27, 2020, MarketAxess Holdings Inc. (the “Company”) issued a press release announcing the Company’s financial results for its third quarter ended September 30, 2020. A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information included in this Current Report on Form 8-K (including Exhibit 99.1 hereto) that is furnished pursuant to this Item 2.02 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. In addition, the information included in this Current Report on Form 8-K (including Exhibit 99.1 hereto) that is furnished pursuant to this Item 2.02 shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference into such filing.

 

Item 8.01

Other Events

On October 27, 2020, the Company also announced that its Board of Directors has declared a regular quarterly dividend to be paid to the holders of the outstanding shares of capital stock. A cash dividend of $0.60 per share of common stock outstanding will be paid on November 25, 2020 to stockholders of record as of the close of business on November 11, 2020.

 

Item 9.01

Financial Statements and Exhibits

(d) Exhibits:

 

99.1    Press Release issued by MarketAxess Holdings Inc. on October 27, 2020.
104    Cover Page Interactive File (the cover page tags are embedded within the Inline XBRL document).


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    MARKETAXESS HOLDINGS INC.
Date: October 27, 2020     By:  

/s/ Antonio L. DeLise

    Name:   Antonio L. DeLise
    Title:   Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

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, October 27, 2020 – 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.

 

1


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.

 

2


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.

 

3


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

 

4


MarketAxess Holdings Inc.

Consolidated Statements of Operations

 

     Three Months Ended
September 30,
    Nine Months Ended
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  

 

5


MarketAxess Holdings Inc.

Commission Revenue Details

 

     Three Months Ended
September 30,
     Nine Months Ended
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.    

 

6


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  
  

 

 

   

 

 

 

 

7


MarketAxess Holdings Inc.

Reconciliation of Non-GAAP Financial Measures    

 

     Three Months Ended
September 30,
    Nine Months Ended
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  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

8


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.    

 

9