[]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 April 22, 2022, the number of shares of the Registrant’s voting common stock outstanding was
MARKETAXESS HOLDINGS INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
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Page |
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Item 1. |
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3 |
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Consolidated Statements of Financial Condition as of March 31, 2022 and December 31, 2021 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 |
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Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021 |
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6 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
Item 3. |
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36 |
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Item 4. |
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37 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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38 |
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Item 3. |
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39 |
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Item 4. |
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39 |
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Item 5. |
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39 |
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Item 6. |
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40 |
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2
PART I — Financial Information
Item 1. Financial Statements
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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As of |
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March 31, 2022 |
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December 31, 2021 |
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(In thousands, except share |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Cash segregated under federal regulations |
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Investments, at fair value |
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Accounts receivable, net of allowance of $ |
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Receivables from broker-dealers, clearing organizations and customers |
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Goodwill |
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Intangible assets, net of accumulated amortization |
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Furniture, equipment, leasehold improvements and capitalized software, net of accumulated depreciation and amortization |
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Operating lease right-of-use assets |
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Prepaid expenses and other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Liabilities |
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Accrued employee compensation |
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$ |
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$ |
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Payables to broker-dealers, clearing organizations and customers |
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Income and other tax liabilities |
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Accounts payable, accrued expenses and other liabilities |
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Operating lease liabilities |
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Total liabilities |
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(Note 13) |
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Stockholders' equity |
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Preferred stock, $ |
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Series A Preferred Stock, $ |
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Common stock voting, $ |
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Common stock non-voting, $ |
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— |
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— |
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Additional paid-in capital |
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Treasury stock – Common stock voting, at cost, |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements. |
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3
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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(In thousands, except per share amounts) |
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Revenues |
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Commissions |
$ |
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$ |
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Information services |
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Post-trade services |
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Other |
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Total revenues |
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Expenses |
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Employee compensation and benefits |
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Depreciation and amortization |
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Technology and communications |
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Professional and consulting fees |
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Occupancy |
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Marketing and advertising |
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Clearing costs |
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General and administrative |
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Total expenses |
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Operating income |
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Other income (expense) |
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Investment income |
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Interest expense |
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Other, net |
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Total other income (expense) |
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Income before income taxes |
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Provision for income taxes |
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Net income |
$ |
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$ |
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Net income per common share |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Cash dividends declared per common share |
$ |
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$ |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements. |
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4
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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(In thousands) |
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Net income |
$ |
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$ |
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Cumulative translation adjustment |
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Comprehensive income |
$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements. |
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5
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
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Common |
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Additional |
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Treasury Stock – |
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Retained |
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Accumulated |
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Total |
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(In thousands, except per share amounts) |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Cumulative translation adjustment and foreign currency exchange hedge, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Withholding tax payments on restricted stock vesting and stock option exercises |
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— |
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( |
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— |
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— |
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— |
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( |
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Repurchases of common stock |
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— |
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— |
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— |
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— |
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Cash dividend on common stock ($ |
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— |
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— |
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— |
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( |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Common |
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Additional |
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Treasury Stock – |
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Retained |
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Accumulated |
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Total |
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(In thousands, except per share amounts) |
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Balance at January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Cumulative translation adjustment and foreign currency exchange hedge, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Withholding tax payments on restricted stock vesting and stock option exercises |
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— |
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( |
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— |
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— |
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— |
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( |
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Repurchases of common stock |
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— |
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— |
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( |
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— |
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— |
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( |
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Cash dividend on common stock ($ |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
6
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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(In thousands) |
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Cash flows from operating activities |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of operating lease right-of-use assets |
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Stock-based compensation expense |
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Deferred taxes |
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Other |
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Changes in operating assets and liabilities: |
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(Increase) in accounts receivable |
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(Increase) in receivables from broker-dealers, clearing organizations and customers |
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(Increase) decrease in prepaid expenses and other assets |
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Decrease in trading investments |
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(Increase) in mutual funds held in rabbi trust |
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(Decrease) in accrued employee compensation |
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Increase in payables to broker-dealers, clearing organizations and customers |
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Increase in income and other tax liabilities |
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Increase in accounts payable, accrued expenses and other liabilities |
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(Decrease) in operating lease liabilities |
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Net cash (used in) operating activities |
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Cash flows from investing activities |
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Purchases of furniture, equipment and leasehold improvements |
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Capitalization of software development costs |
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Net cash (used in) investing activities |
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Cash flows from financing activities |
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Cash dividend on common stock |
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Exercise of stock options |
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Withholding tax payments on restricted stock vesting and stock option exercises |
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( |
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Repurchases of common stock |
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( |
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Proceeds from short-term borrowings |
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Repayments of short-term borrowings |
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( |
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Net cash (used in) financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Cash and cash equivalents including restricted cash |
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Net decrease for the period |
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( |
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( |
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Beginning of period |
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End of period |
$ |
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$ |
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Supplemental cash flow information |
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Cash paid for income taxes |
$ |
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$ |
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Cash paid for interest |
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Non-cash activity |
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Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
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The accompanying notes are an integral part of these consolidated financial statements. |
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7
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Principal Business Activity
MarketAxess Holdings Inc. (the “Company” or “MarketAxess”) was incorporated in the State of Delaware on
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated. These consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The consolidated financial information as of December 31, 2021 has been derived from audited financial statements not included herein. These unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that, in the opinion of management, are normal and recurring, and that are necessary for a fair statement of the results for the interim periods presented. In accordance with such rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. Interim period operating results may not be indicative of the operating results for a full year. Certain reclassifications have been made to the prior periods’ consolidated financial statements in order to conform to the current period presentation. Such reclassifications are immaterial, individually and in the aggregate, to both current and all previously issued financial statements taken as a whole and have no effect on previously reported net income.
Accounting Pronouncements, Recently Adopted
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (the “ASU”), which is designed to ease the potential burden in accounting for the transition away from the London Inter-bank Offered Rate (“LIBOR”). The ASU applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued and replaced with alternative reference rates as a result of reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company adopted this ASU as of January 1, 2022, and determined that it did not have any contracts, hedging relationships, or other transactions impacted by this ASU.
Cash and Cash Equivalents
The Company defines cash equivalents as short-term interest-bearing investments with maturities at the time of purchase of
Investments
The Company determines the appropriate classification of securities at the time of purchase which are recorded in the Consolidated Statements of Financial Condition on the trade date. Securities are classified as available-for-sale or trading. Available-for-sale investments are carried at fair value with the unrealized gains or losses reported in accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. Trading investments include U.S. Treasuries and are carried at fair value, with realized and unrealized gains or losses included in other, net in the Consolidated Statements of Operations.
8
Fair Value Financial Instruments
Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” A three-tiered hierarchy for determining fair value has been established that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as Level 1 (unadjusted quoted prices for identical assets or liabilities in active markets), Level 2 (inputs that are observable in the marketplace other than those inputs classified in Level 1) and Level 3 (inputs that are unobservable in the marketplace). The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of its money market funds, trading securities and contingent consideration payables associated with acquisitions. All other financial instruments are short-term in nature and the carrying amount is reported on the Consolidated Statements of Financial Condition at approximate fair value.
Receivables from and Payables to Broker-dealers, Clearing Organizations and Customers
Receivables from broker-dealers, clearing organizations and customers include amounts receivable for securities not delivered by the Company to the purchaser by the settlement date (“securities failed-to-deliver”) and cash deposits held at clearing organizations and clearing brokers to facilitate the settlement and clearance of matched principal transactions. Payables to broker-dealers, clearing organizations and customers include amounts payable for securities not received by the Company from a seller by the settlement date (“securities failed-to-receive”). Securities failed-to-deliver and securities failed-to-receive for transactions executed on a matched principal basis where the Company serves as a counterparty to both the buyer and the seller are recorded on a settlement date basis. The Company presents its securities failed-to-deliver and securities failed-to-receive balances on a net-by-counterparty basis within receivables from and payables to broker-dealers, clearing organizations and customers. The difference between the Company’s trade-date receivables and payables for unsettled matched principal transactions reflects commissions earned and is recorded within accounts receivable, net on a trade date basis.
Allowance for Credit Losses
All accounts receivable have contractual maturities of less than
Depreciation and Amortization
Fixed assets are carried at cost less accumulated depreciation. The Company uses the straight-line method of depreciation over to
Software Development Costs
The Company capitalizes certain costs associated with the development of internal use software, including, among other items, employee compensation and related benefits and third party consulting costs at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed. Once the product is ready for its intended use, such costs are amortized on a straight-line basis over
Cloud Computing Costs
The Company capitalizes certain costs associated with cloud computing arrangements, including, among other items, employee compensation and related benefits and third party consulting costs that are part of the application development stage. These costs are setup as a prepaid asset on the Consolidated Statement of Financial Condition and are amortized over the period of the hosting service contract, which range from to
9
Foreign Currency Translation and Forward Contracts
Assets and liabilities denominated in foreign currencies are translated using exchange rates at the end of the period; revenues and expenses are translated at average monthly rates. Gains and losses on foreign currency translation are a component of accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. Transaction gains and losses are recorded in other, net in the Consolidated Statements of Operations.
The Company previously entered into foreign currency forward contracts to hedge its net investment in its U.K. subsidiaries. Gains and losses on these transactions are included in accumulated other comprehensive loss in the Consolidated Statements of Financial Condition.
Revenue Recognition
The Company’s classification of revenues in the Consolidated Statements of Operations represents revenues from contracts with customers disaggregated by type of revenue. The Company has
Commission Revenue – The Company charges its broker-dealer clients variable transaction fees for trades executed on its platforms and, under certain plans, distribution fees or monthly minimum fees to use the platforms for a particular product area. Variable transaction fees are recognized on a trade date basis, are generally calculated as a percentage of the notional dollar volume of bonds traded on the platforms and vary based on the type, size, yield and maturity of the bond traded, as well as individual client incentives. Bonds that are more actively traded or that have shorter maturities generally generate lower commissions, while bonds that are less actively traded or that have longer maturities generally command higher commissions. Under the Company’s disclosed trading transaction fee plans, variable transaction fees, distribution fees and unused monthly fee commitments are invoiced and recorded on a monthly basis.
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Three Months Ended March 31, |
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2022 |
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2021 |
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(In thousands) |
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Commission revenue by fee type |
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Variable transaction fees |
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Disclosed trading |
$ |
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$ |
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Open Trading – matched principal trading |
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U.S. Treasuries – matched principal trading |
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