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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 September 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 October 28, 2020, the number of shares of the Registrant’s voting common stock outstanding was 37,963,482.

 

 

 


MARKETAXESS HOLDINGS INC.

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

TABLE OF CONTENTS

 

 

 

  

Page

 

PART I — Financial Information

  

 

Item 1.

Financial Statements (Unaudited)

  

3

 

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

  

3

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

  

4

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019

  

5

 

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

  

6

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 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

  

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

  

44

Item 4.

Controls and Procedures

  

45

 

PART II — Other Information

  

 

Item 1.

Legal Proceedings

  

46

Item 1A.

Risk Factors

  

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  

47

Item 3.

Defaults Upon Senior Securities

  

47

Item 4.

Mine Safety Disclosures

  

47

Item 5.

Other Information

  

48

Item 6.

Exhibits

  

48

 

 

 

 

 

 

 

 

 

 

 

2


PART I — Financial Information

Item 1. Financial Statements

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

As of

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands, except share

and per share amounts)

 

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 of allowance of $166 and $57 as of

   September 30, 2020 and December 31, 2019, respectively

 

 

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 of accumulated depreciation and amortization

 

 

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

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 4,855,000 shares authorized, no shares issued and outstanding as of September 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 September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock voting, $0.003 par value, 110,000,000 shares authorized, 40,809,252 shares and 40,746,593 shares issued and 37,964,882 shares and 37,935,984 shares outstanding as of September 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 September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Additional paid-in capital

 

 

327,646

 

 

 

342,541

 

Treasury stock - Common stock voting, at cost, 2,844,370 and 2,810,609 shares as of September 30, 2020 and December 31, 2019, respectively

 

 

(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

 

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

 

3


 

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands, except per share amounts)

 

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 (expense)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

37,386

 

 

 

37,066

 

 

 

37,343

 

 

 

37,053

 

Diluted

 

38,160

 

 

 

37,995

 

 

 

38,129

 

 

 

37,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands)

 

Net income

$

67,776

 

 

$

54,002

 

 

$

226,446

 

 

$

154,629

 

Net cumulative translation adjustment and foreign

   currency exchange hedge, net of tax of $1,654, $1,021, $(908)  and $1,281, respectively

 

4,423

 

 

 

(1,416

)

 

 

213

 

 

 

(1,398

)

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

   net of tax of $(276), $22, $(172), and $309, respectively

 

(871

)

 

 

70

 

 

 

(542

)

 

 

988

 

Comprehensive income

$

71,328

 

 

$

52,656

 

 

$

226,117

 

 

$

154,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income

 

 

 

 

 

 

 

 

 

 

67,776

 

 

 

 

 

 

67,776

 

Cumulative translation adjustment and foreign

   currency exchange hedge, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

4,423

 

 

 

4,423

 

Unrealized net loss on securities available-for-sale,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(871

)

 

 

(871

)

Stock-based compensation

 

 

 

 

6,451

 

 

 

 

 

 

 

 

 

 

 

 

6,451

 

Exercise of stock options

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Withholding tax payments on restricted stock

   vesting and stock option exercises

 

 

 

 

(6,784

)

 

 

 

 

 

 

 

 

 

 

 

(6,784

)

Repurchases of common stock

 

 

 

 

 

 

 

(4,165

)

 

 

 

 

 

 

 

 

(4,165

)

Cash dividend on common stock ($0.60 per share)

 

 

 

 

 

 

 

 

 

 

(22,784

)

 

 

 

 

 

(22,784

)

Balance at September 30, 2020

$

122

 

 

$

327,646

 

 

$

(168,841

)

 

$

749,211

 

 

$

(10,599

)

 

$

897,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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