MKTX
$496.50
Marketaxess
($.26)
(.05%)
Earnings Details
2nd Quarter June 2020
Wednesday, July 22, 2020 6:30:00 AM
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Summary

Marketaxess Beats

Marketaxess (MKTX) reported 2nd Quarter June 2020 earnings of $2.20 per share on revenue of $184.8 million. The consensus earnings estimate was $2.13 per share on revenue of $163.9 million. The Earnings Whisper number was $2.15 per share. Revenue grew 47.3% on a year-over-year basis.

MarketAxess Holdings Inc operates an electronic trading platform for corporate bonds and other types of fixed-income instruments.

Results
Reported Earnings
$2.20
Earnings Whisper
$2.15
Consensus Estimate
$2.13
Reported Revenue
$184.8 Mil
Revenue Estimate
$163.9 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

MarketAxess Reports Second Quarter 2020 Record Revenues of $184.8 Million, Record Operating Income of $104.1 Million and Record Diluted EPS of $2.20

Second Quarter Financial Highlights*

  • Record revenues of $184.8 million, up 47%
  • Record operating income of $104.1 million, up 71%
  • Record operating margin of 56.4%, up from 48.5%
  • Record diluted EPS of $2.20, up 73% from $1.27
  • Record estimated U.S. high-grade and high-yield market share of 21.5% and 14.0%, respectively
  • Record credit trading volume of $741.8 billion, up 44%
  • Record Open TradingTM volume of $243.8 billion, up 87%

*All comparisons versus second quarter 2019.

NEW YORK, July 22, 2020 (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, 2020.

“Record corporate bond new issuance and elevated credit spread volatility led to record corporate bond market volumes in the second quarter,” said Rick McVey, Chairman and CEO of MarketAxess. “Institutional investors and dealers both leaned into our Open Trading marketplace to meet their trading and liquidity needs, driving record estimated market share for both high-grade and high-yield bonds on the system.  Estimated transaction cost savings delivered back to our clients reached an all-time high, with client savings exceeding company revenue for the second quarter in a row.  We are encouraged by the breadth of volume and market share gains across all credit products and geographic regions, leading to robust revenue and earnings growth.  Accelerating market share gains, record active clients, and growing product diversification all position the company well for future growth.”

Second Quarter Results

Total revenues for the second quarter of 2020 increased 47% to $184.8 million, compared to $125.5 million for the second quarter of 2019. Operating income was $104.1 million, compared to $60.9 million for the second quarter of 2019, an increase of 71%. Operating margin was 56.4%, compared to 48.5% for the second quarter of 2019.  Net income totaled $83.9 million, or $2.20 per share on a diluted basis, compared to $48.1 million, or $1.27 per share, for the second quarter of 2019.  

Commission revenue for the second quarter of 2020 increased 51% to $172.1 million, compared to $114.1 million for the second quarter of 2019. Variable transaction fees increased 61% to $146.0 million for the second quarter of 2020, compared to variable transaction fees of $90.8 million for the second quarter of 2019. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 21.5% for the second quarter of 2020, compared to an estimated 18.7% for the second quarter of 2019. Variable transaction fees in the second quarter of 2020 includes approximately $3.2 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 12% to $12.7 million, compared to $11.4 million for the second quarter of 2019.  The increase in all other revenue was principally due to higher information services revenue of $1.3 million.

Total expenses for the second quarter of 2020 increased 25% to $80.7 million, compared to $64.6 million for the second 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 $9.0 million, clearing costs, mainly due to record Open Trading activity and U.S. Treasury matched-principal trading, of $3.1 million, technology and communications costs of $2.1 million and depreciation and amortization of $2.0 million. MarketAxess Rates expenses, including amortization of acquired intangibles expense, totaled $3.8 million during the second quarter of 2020.

The effective tax rate for the second quarter of 2020 was 19.7%, compared to 23.5% for the second quarter of 2019. The income tax provision for the second quarter of 2020 and 2019 reflected $5.7 million and $0.4 million, respectively, of excess tax benefits related to share-based compensation awards.

Employee headcount was 561 as of June 30, 2020 compared to 527 as of December 31, 2019 and 480 as of June 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 August 19, 2020 to stockholders of record as of the close of business on August 5, 2020

Share Repurchases

A total of 13,064 shares were repurchased in the second quarter of 2020 at a cost of $5.9 million.

Balance Sheet Data

As of June 30, 2020, total assets were $1.0 billion and included $535.5 million in cash, cash equivalents and investments.  Total stockholders’ equity as of June 30, 2020 was $853.5 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 Wednesday, July 22, 2020 at 10:00 a.m. EDT. 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: 8916147 for one week after the announcement. The Webcast will also be archived on http://investor.marketaxess.com for 90 days following the announcement.

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; 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.


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
 
  


 
MarketAxess Holdings Inc.
Consolidated Statements of Operations
    
 Three Months Ended Six Months Ended
 June 30, June 30,
  2020   2019   2020   2019 
  
 (In thousands, except per share data)
 (unaudited)
        
Revenues       
Commissions$172,092  $114,124  $328,046  $226,884 
Information services 8,427   7,156   17,069   14,522 
Post-trade services 4,054   3,956   8,207   8,056 
Other 222   254   451   519 
Total revenues 184,795   125,490   353,773   249,981 
        
Expenses       
Employee compensation and benefits 41,636   32,623   82,830   65,281 
Depreciation and amortization 8,305   6,345   16,372   12,427 
Technology and communications 8,592   6,474   16,753   12,256 
Professional and consulting fees 8,065   6,296   13,740   12,127 
Occupancy 3,286   2,798   6,760   5,747 
Marketing and advertising 1,810   3,667   4,485   5,966 
Clearing costs 5,713   2,610   11,223   5,187 
General and administrative 3,253   3,800   6,386   6,924 
Total expenses 80,660   64,613   158,549   125,915 
Operating income 104,135   60,877   195,224   124,066 
Other income (expense)       
Investment income 714   2,096   1,983   4,085 
Other, net (446)  (64)  (1,102)  (22)
Total other income  268   2,032   881   4,063 
Income before income taxes 104,403   62,909   196,105   128,129 
Provision for income taxes 20,549   14,804   37,435   27,502 
Net income$ 83,854  $ 48,105  $ 158,670  $ 100,627 
        
        
Per Share Data:       
Net income per common share       
Basic$2.25  $1.30  $4.25  $2.72 
Diluted$2.20  $1.27  $4.16  $2.66 
        
Cash dividends declared per common share$0.60  $0.51  $1.20  $1.02 
        
Weighted-average common shares:       
Basic 37,340   37,049   37,322   37,046 
Diluted 38,153   37,910   38,115   37,871 
        


 
MarketAxess Holdings Inc.
Commission Revenue Details
        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2020  2019  2020  2019
        
 Total Commissions Revenue
 (In thousands)
 (unaudited)
        
Variable transaction Fees       
U.S. high-grade$75,208 $42,914 $133,178 $85,415
Other credit 1 66,977  47,233  132,587  93,267
Total credit 142,185  90,147  265,765  178,682
Rates 2 3,846  615  9,432  1,172
Total variable transaction fees 146,031  90,762  275,197  179,854
        
Distribution Fees       
U.S. high-grade 19,635  17,483  39,609  35,461
Other credit1 6,329  5,774  12,987  11,332
Total credit 25,964  23,257  52,596  46,793
Rates2 97  105  253  237
Total distribution fees 26,061  23,362  52,849  47,030
Total commissions$ 172,092 $ 114,124 $ 328,046 $ 226,884
        
        
 Average Variable Transaction Fee Per Million
 (unaudited)
        
U.S. high-grade - fixed-rate$186.67 $168.05 $185.04 $163.15
U.S. high-grade - floating-rate 55.06  65.22  51.38  70.65
Total U.S. high-grade 181.41  161.72  178.86  157.37
Other credit 1 204.66  190.07  201.80  193.10
Total credit 191.66  175.43  189.62  174.19
        
Rates2 4.02  46.69  3.93  42.69
        
        
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2 Rates includes U.S. Government bonds, agencies and other government bonds.
        


 
MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
    
 As of
 June 30, 2020 December 31, 2019
  
 (In thousands)
 (unaudited)
    
Assets   
Cash and cash equivalents$404,148  $270,124 
Investments, at fair value 131,372   230,477 
Accounts receivable, net 99,222   62,017 
Goodwill 147,394   146,861 
Intangible assets, net of accumulated amortization 59,552   60,986 
Furniture, equipment, leasehold improvements and capitalized software, net 78,461   71,795 
Operating lease right-of-use assets 77,933   81,399 
Prepaid expenses and other assets 41,102   30,770 
Deferred tax assets, net 33   501 
Total assets$ 1,039,217  $ 954,930 
    
Liabilities and stockholders' equity    
Liabilities   
Accrued employee compensation$39,434  $47,365 
Income and other tax liabilities 24,906   16,690 
Deferred revenue 4,068   3,499 
Accounts payable, accrued expenses and other liabilities 22,624   19,294 
Operating lease liabilities 94,701   97,991 
Total liabilities 185,733   184,839 
    
Stockholders' equity   
Common stock 122   122 
Additional paid-in capital 327,970   342,541 
Treasury stock (164,676)  (153,388)
Retained earnings 704,219   591,086 
Accumulated other comprehensive loss (14,151)  (10,270)
Total stockholders' equity 853,484   770,091 
Total liabilities and stockholders' equity$ 1,039,217  $ 954,930 
    


 
MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2020   2019   2020   2019 
        
 Earnings Before Interest, Taxes, Depreciation and Amortization
 (In thousands)
 (unaudited)
Net income $83,854  $48,105  $158,670  $100,627 
Add back:       
Interest expense           
Provision for income taxes 20,549   14,804   37,435   27,502 
Depreciation and amortization 8,305   6,345   16,372   12,427 
Earnings before interest, taxes, depreciation and amortization $ 112,708  $ 69,254  $ 212,477  $ 140,556 
        
 Free Cash Flow
 (In thousands)
 (unaudited)
Cash flows from operating activities$104,853  $69,733  $225,222  $109,102 
Exclude: Net change in trading investments (6,880)  (2,839)  (63,274)  (8,854)
Less: Purchases of furniture, equipment and leasehold improvements (4,973)  (5,465)  (9,264)  (6,114)
Less: Capitalization of software development costs (6,225)  (4,126)  (13,003)  (7,310)
Free cash flow$ 86,775  $ 57,303  $ 139,681  $ 86,824 
        


 
MarketAxess Holdings Inc.
Volume Statistics*
        
        
 Three Months Ended
June 30,
 Six Months
Ended June 30,
 2020 2019 2020 2019
        
 Total Trading Volume
 (In millions)
 (unaudited)
        
U.S. high-grade - fixed-rate$398,006 $249,025 $710,194 $508,858
U.S. high-grade - floating-rate16,574 16,335 34,380 33,912
Total U.S. high-grade414,580 265,360 744,574 542,770
Other credit327,266 248,503 657,019 482,994
Total credit741,846 513,863 1,401,593 1,025,764
        
Rates955,594 13,174 2,400,472 27,450
        
 Average Daily Volume
 (In millions)
 (unaudited)
U.S. high-grade$6,581 $4,212 $5,957 $4,377
Other credit5,234 3,979 5,256 3,895
Total credit11,815 8,191 11,213 8,272
        
Rates15,169 209 19,204 221
        
Number of U.S. Trading Days 163 63 125 124
Number of U.K. Trading Days 261 61 125 124
        
        
 
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.



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Source: MarketAxess Holdings, Inc.