MarketAxess Reports Second Quarter 2018 Revenues of $107.0 Million, Operating Income of $52.0 Million and Diluted EPS of $1.07


Second Quarter Financial Highlights*

  • Revenues of $107.0 million, up 11.1%
  • Operating income of $52.0 million, up 6.2%
  • Expenses of $54.9 million, includes $1.8 million of duplicate occupancy expense
  • Diluted EPS of $1.07, up 7.0%
  • Trading volume of $420.8 billion, up 16.4%
  • Record Open Trading™ volume of $89.5 billion, up 56.7%

*All comparisons versus second quarter 2017.

NEW YORK, July 25, 2018 (GLOBE NEWSWIRE) -- 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 June 30, 2018.

"The second quarter results show a solid 16.4% year-over-year increase in total trading volume and record Open Trading™ activity, " noted Rick McVey, Chairman and CEO of MarketAxess. "International client breadth and trading activity continues to improve, led by a 27.0% increase in emerging market trading volume and a 32.3% increase in Eurobond volume.  We are seeing rapid growth in trading automation in credit, driving improved trading efficiency and lower trading costs for our dealer and investor clients."

Second Quarter Results

Total revenues for the second quarter of 2018 increased 11.1% to $107.0 million, compared to $96.3 million for the second quarter of 2017.  Operating income was $52.0 million, compared to $49.0 million for the second quarter of 2017, an increase of 6.2%. Operating margin was 48.6%, compared to 50.9% for the second quarter of 2017.  Net income totaled $40.5 million, or $1.07 per share on a diluted basis, compared to $38.0 million, or $1.00 per share, for the second quarter of 2017.

Commission revenue for the second quarter of 2018 increased 10.5% to $96.1 million, compared to $87.0 million for the second quarter of 2017. Variable transaction fees increased 1.5% to $71.7 million on total trading volume of $420.8 billion for the second quarter of 2018, compared to variable transaction fees of $70.6 million on total trading volume of $361.5 billion for the second quarter of 2017. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 17.4% for the second quarter of 2018, compared to an estimated 17.0% for the second quarter of 2017.

All other revenue, which consists of information services, post-trade services and other revenue, increased 16.7% to $10.9 million, compared to $9.3 million for the second quarter of 2017.  The increase in all other revenue was principally due to higher post-trade services revenue of $1.1 million.

Total expenses for the second quarter of 2018 increased 16.1% to $54.9 million, compared to $47.3 million for the second quarter of 2017. The increase in total expenses was largely due to higher occupancy costs of $2.0 million, professional and consulting fees of $1.3 million, depreciation and amortization of $1.0 million, technology and communication costs of $1.0 million and employee compensation and benefit costs, mainly due to an increase in headcount, of $0.9 million.  Occupancy costs in the second quarter of 2018 include duplicate expense recognized during the build-out phase of the Company’s new corporate offices in New York.  The duplicate expense had the effect of increasing total expenses by $1.8 million and reducing diluted EPS by $0.03. Other income (expense) increased to $1.2 million from $0.6 million due to a $0.5 million increase in investment income as a result of higher investment balances and an increase in interest rates.

The effective tax rate for the second quarter of 2018 was 23.9%, compared to 23.3% for the second quarter of 2017.  The second quarter of 2017 income tax provision included $5.3 million of excess tax benefits, or $0.14 per diluted share, related to share-based compensation awards.

Dividend

The Company’s board of directors declared a cash dividend of $0.42 per share of common stock outstanding, to be paid on August 23, 2018 to stockholders of record as of the close of business on August 9, 2018. 

Share Repurchases

A total of 31,900 shares were repurchased in the second quarter of 2018 at a cost of $6.6 million.

Balance Sheet Data

As of June 30, 2018, total assets were $617.6 million and included $420.3 million in cash, cash equivalents and investments.  Total stockholders’ equity as of June 30, 2018 was $557.4 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

Richard M. McVey, Chairman and Chief Executive Officer, and Antonio L. DeLise, Chief Financial Officer, will host a conference call to discuss the Company’s financial results and outlook on Wednesday, July 25, 2018, at 10:00 a.m. Eastern time. 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) for one week after the announcement. The passcode for replay callers is 6958779. The Webcast will also be archived on http://investor.marketaxess.com for 90 days following the announcement.

About MarketAxess

MarketAxess operates a leading electronic trading platform that enables fixed-income market participants to efficiently trade corporate bonds and other types of fixed-income instruments using MarketAxess’ patented trading technology.  Over 1,400 institutional investor and broker-dealer firms are active users of the MarketAxess trading platform, accessing global liquidity in U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, municipal bonds, credit default swaps and other fixed-income securities. MarketAxess also offers a number of trading-related products and services, including: market data to assist clients with trading decisions; connectivity solutions that facilitate straight-through processing; technology services to optimize trading environments; and execution services for exchange-traded fund managers and other clients.  Through its Trax® division, MarketAxess also offers a range of pre- and post-trade services, including trade matching, regulatory transaction reporting and market and reference data, across a range of fixed-income products.  Trax is the trading name of Xtrakter Ltd., a MarketAxess group company.

MarketAxess maintains its headquarters in New York and has offices in London, Boston, Chicago, Los Angeles, Miami, Salt Lake City, 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: 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; 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 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.

Media and Investor Relations Contacts:
Tony DeLiseWilliam McBride
MarketAxess Holdings Inc.RF|Binder
+1-212-813-6017+1-917-239-6726
  
Mary Sedarat 
MarketAxess Holdings Inc. 
+1-212-813-6226 
  

                  

  
MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
                
      
 Three Months Ended  Six Months Ended 
 June 30,  June 30, 
 2018  2017  2018  2017 
 (In thousands, except per share data) 
 (unaudited) 
                
Revenues               
Commissions$96,113  $87,015  $198,885  $181,037 
Information services 6,930   6,497   13,996   12,682 
Post-trade services 3,620   2,489   8,196   4,945 
Other 301   313   601   614 
Total revenues 106,964   96,314   221,678   199,278 
                
Expenses               
Employee compensation and benefits 26,199   25,319   55,033   52,603 
Depreciation and amortization 5,790   4,790   11,059   9,483 
Technology and communications 5,793   4,822   11,572   9,407 
Professional and consulting fees 5,426   4,086   10,483   8,365 
Occupancy 3,467   1,422   6,804   2,826 
Marketing and advertising 3,535   2,782   5,600   4,668 
Clearing costs 2,012   1,517   3,737   2,844 
General and administrative 2,708   2,591   5,183   4,939 
Total expenses 54,930   47,329   109,471   95,135 
Operating income 52,034   48,985   112,207   104,143 
Other income (expense)               
Investment income 1,383   840   2,551   1,587 
Other, net (207)  (252)  (535)  (550)
Total other income 1,176   588   2,016   1,037 
Income before income taxes 53,210   49,573   114,223   105,180 
Provision for income taxes 12,723   11,550   25,796   24,694 
Net income$40,487  $38,023  $88,427  $80,486 
                
                
Per Share Data:               
Net income per common share               
Basic$1.10  $1.03  $2.39  $2.18 
Diluted$1.07  $1.00  $2.33  $2.11 
                
Cash dividends declared per common share$0.42  $0.33  $0.84  $0.66 
                
Weighted-average common shares:               
Basic 36,950   36,853   36,952   36,852 
Diluted 37,862   38,077   37,874   38,095 
 


 
MarketAxess Holdings Inc.
Commission Revenue Details
               
               
 Three Months Ended  Six Months Ended
 June 30,  June 30,
 2018  2017  2018  2017
               
 Total Commissions Revenue
 (In thousands)
 (unaudited)
               
Transaction Fees              
U.S. high-grade$36,401  $32,868  $75,168  $68,391
Other credit 1 34,765   37,145   75,192   78,840
Liquid products 2 488   570   1,071   1,200
Total transaction fees 71,654   70,583   151,431   148,431
               
Distribution Fees              
U.S. high-grade 18,261   15,930   35,488   31,680
Other credit1 6,042   384   11,582   664
Liquid products2,3 156   118   384   262
Total distribution fees 24,459   16,432   47,454   32,606
Total commissions$96,113  $87,015  $198,885  $181,037
               
               
 Average Variable Transaction Fee Per Million
 (unaudited)
               
U.S. high-grade - fixed-rate$162  $165  $160  $166
U.S. high-grade - floating-rate 96   63   95   59
Total U.S. high-grade 158   162   156   162
Other credit 196   257   199   259
Liquid products 39   43   40   42
Total 170   195   171   196
               
               
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2 Liquid products includes U.S. agencies and European government bonds.
3 Includes CDS SEF-related revenue.
 


 
MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
       
       
 As of
 June 30, 2018  December 31, 2017
 (In thousands)
 (unaudited)
       
Assets      
Cash and cash equivalents$170,686  $167,014
Investments, at fair value 249,591   239,521
Accounts receivable, net 61,883   52,636
All other assets 135,438   122,061
Total assets$617,598  $581,232
       
Liabilities and stockholders' equity      
Total liabilities$60,220  $66,464
Total stockholders' equity 557,378   514,768
Total liabilities and stockholders' equity$617,598  $581,232
       


 
MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
 
 Three Months Ended  Six Months Ended 
 June 30,  June 30, 
 2018  2017  2018  2017 
                
 Earnings Before Interest, Taxes, Depreciation and Amortization 
 (In thousands) 
 (unaudited) 
Net income$40,487  $38,023  $88,427  $80,486 
Add back:               
Interest expense           
Provision for income taxes 12,723   11,550   25,796   24,694 
Depreciation and amortization 5,790   4,790   11,059   9,483 
Earnings before interest, taxes, depreciation and amortization$59,000  $54,363  $125,282  $114,663 
                
 Free Cash Flow 
 (In thousands) 
 (unaudited) 
Cash flow from operating activities$54,379  $38,569  $85,818  $69,118 
Add back:               
Net (sales) purchases of corporate debt trading investments 6,342   (1,085)  3,288   111 
Less:               
Purchases of furniture, equipment and leasehold improvements (13,757)  (1,628)  (16,035)  (5,777)
Capitalization of software development costs (2,946)  (3,495)  (6,536)  (6,667)
Free cash flow$44,018  $32,361  $66,535  $56,785 
 


 
MarketAxess Holdings Inc.
Volume Statistics*
               
               
 Three Months Ended June 30,  Six Months Ended June 30,
 2018  2017  2018  2017
               
 Total Trading Volume
 (In millions)
 (unaudited)
               
U.S. high-grade - fixed-rate$215,308  $195,717  $451,831  $407,691
U.S. high-grade - floating-rate 15,211   7,870   29,673   15,290
Total U.S. high-grade 230,519   203,587   481,504   422,981
Other credit 177,681   144,574   377,624   304,298
Liquid products 12,550   13,345   26,629   28,651
Total$420,750  $361,506  $885,757  $755,930
               
 Average Daily Volume
 (In millions)
 (unaudited)
U.S. high-grade$3,602  $3,232  $3,852  $3,384
Other credit 2,796   2,311   3,021   2,434
Liquid products 197   212   213   229
Total$6,595  $5,755  $7,086  $6,047
               
Number of U.S. Trading Days 1 64   63   125   125
Number of U.K. Trading Days 2 62   61   125   125
 
  
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.