MKTX
$263.92
Marketaxess
$1.69
.64%
Earnings Details
4th Quarter December 2018
Wednesday, January 30, 2019 6:30:00 AM
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Summary

Marketaxess (MKTX) Recent Earnings

Marketaxess (MKTX) reported 4th Quarter December 2018 earnings of $1.21 per share on revenue of $112.4 million. The consensus earnings estimate was $1.15 per share on revenue of $110.7 million. Revenue grew 12.9% 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
$1.21
Earnings Whisper
-
Consensus Estimate
$1.15
Reported Revenue
$112.4 Mil
Revenue Estimate
$110.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

MarketAxess Reports Fourth Quarter 2018 Revenues of $112.4 Million, Pre-Tax Income of $56.1 Million and Diluted EPS of $1.21

Fourth Quarter Financial Highlights*

  • Revenues of $112.4 million, up 14.1%
  • Diluted EPS of $1.21, up 37.5%
  • Trading volume of $442.3 billion, up 24.4%
  • Record Open Trading™ volume of $117.5 billion, up 96.5%
  • Record estimated U.S. high-grade market share of 19.3%, up from 17.6%, and U.S. high-yield market share of 10.9%, up from 6.3%

*All comparisons versus fourth quarter 2017.

Full Year 2018 Financial Highlights**

  • Record revenues of $435.6 million, up 10.7%
  • Record diluted EPS of $4.57, up 17.5% 
  • Record total trading volume of $1.7 trillion, up 17.5%
  • Record Open Trading™ volume of $376.5 billion, up 62.6%
  • Record estimated U.S. high-grade market share of 18.1%, up from 16.9%

**All comparisons versus full year 2017.

NEW YORK, Jan. 30, 2019 (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 December 31, 2018.

“The fourth quarter was one of our best quarters ever for year over year market share gains, as well as volume growth in Open Trading™,” said Rick McVey, Chairman and CEO of MarketAxess. “The liquidity pool provided by Open Trading was increasingly valuable as credit spreads widened, leading to record estimated transaction cost savings for our clients of $57 million for the quarter.  I am very happy to welcome Chris Concannon to MarketAxess as our President and COO to kick off the new year.”

Fourth Quarter Results

Total revenues for the fourth quarter of 2018 increased 14.1% to $112.4 million, compared to $98.6 million for the fourth quarter of 2017. Operating income was $54.0 million, compared to $48.8 million for the fourth quarter of 2017, an increase of 10.5%. Operating margin was 48.0%, compared to 49.6% for the fourth quarter of 2017.  Net income totaled $45.8 million, or $1.21 per share on a diluted basis, compared to $33.5 million, or $0.88 per share, for the fourth quarter of 2017. 

Commission revenue for the fourth quarter of 2018 increased 15.3% to $101.4 million, compared to $88.0 million for the fourth quarter of 2017. Variable transaction fees increased 17.0% to $76.6 million on total trading volume of $442.3 billion for the fourth quarter of 2018, compared to variable transaction fees of $65.4 million on total trading volume of $355.6 billion for the fourth quarter of 2017. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 19.3% for the fourth quarter of 2018, compared to an estimated 17.6% for the fourth quarter of 2017.

All other revenue increased 4.0% to $11.0 million, compared to $10.6 million for the fourth quarter of 2017, principally due to higher information services revenue of $0.3 million and post-trade services revenue of $0.2 million.

Total expenses for the fourth quarter of 2018 increased 17.6% to $58.5 million, compared to $49.7 million for the fourth quarter of 2017. The increase in total expenses was largely due to higher employee compensation and benefit costs of $3.6 million, occupancy costs of $2.3 million, technology and communication costs of $0.8 million, clearing costs of $0.8 million and depreciation and amortization of $0.6 million. Occupancy costs in the fourth 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 $2.1 million and reducing diluted EPS by $0.05.

Other income increased to $2.1 million in the fourth quarter of 2018 from $0.5 million in the fourth quarter of 2017 due to a $0.9 million increase in investment income as a result of higher investment balances and an increase in interest rates.

The effective tax rate for the fourth quarter of 2018 was 18.3%, compared to 32.2% for the fourth quarter of 2017.  The fourth quarter of 2018 income tax provision reflected $1.9 million of excess tax benefits related to share-based compensation awards.  The fourth quarter of 2017 income tax provision includes a one-time tax charge totaling $11.7 million related to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law in December 2017, offset by excess tax benefits of $11.4 million related to a new share-based compensation accounting standard (ASU 2016-09) adopted as of January 1, 2017.

Full Year 2018 Results

Total revenues for the year ended December 31, 2018 increased 10.7% to a record $435.6 million, compared to $393.4 million for 2017.  Operating income was a record $212.6 million, compared to $199.6 million for 2017, an increase of 6.5%. Operating margin was 48.8%, compared to 50.7% for 2017.  Net income totaled $172.9 million, or $4.57 per share on a diluted basis, compared to $148.1 million, or $3.89 per share, for 2017. 

Commission revenue for the year ended December 31, 2018 increased 10.0% to a record $390.8 million, compared to $355.3 million for 2017.  Variable transaction fees increased 5.1% to $293.9 million on total trading volume of $1.7 trillion, compared to variable transaction fees of $279.8 million on total trading volume of $1.5 trillion for 2017.  U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 18.1%, compared to an estimated 16.9% for 2017.

All other revenue increased 17.3% to $44.7 million in 2018, compared to $38.1 million for 2017. The increase in all other revenue was principally due to higher post-trade services revenue of $4.3 million and information services revenue of $2.4 million.

Total expenses for the year ended December 31, 2018 increased 15.1% to $223.0 million, compared to $193.8 million for 2017.  The increase in total expenses was principally due to higher occupancy costs of $8.1 million, employee compensation and benefits costs of $6.8 million, depreciation and amortization of $3.8 million, technology and communication costs of $3.8 million and marketing and advertising costs of $2.4 million. Occupancy costs in 2018 included 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 $7.3 million and reducing diluted EPS by $0.15.

The effective tax rate for 2018 was 20.7%, compared to 26.6% for 2017.  The 2018 income tax provision reflected $5.6 million of excess tax benefits related to share-based compensation awards.  The 2017 income tax provision included $26.1 million of excess tax benefits related to share-based compensation awards offset by the one-time tax charge of $11.7 million related to the enactment of the Tax Act.

Dividend

The Company’s board of directors declared a 21% increase in the quarterly cash dividend to $0.51 per share of common stock outstanding, to be paid on February 27, 2019 to stockholders of record as of the close of business on February 13, 2019

Share Repurchases

A total of 30,106 shares were repurchased in the fourth quarter of 2018 at a cost of $6.2 million.  In January 2019, the Board of Directors authorized a new two-year share repurchase program for up to $100 million.   The Company expects the plan to commence in April 2019 following the expiration of the current plan.

Balance Sheet Data

As of December 31, 2018, total assets were $695.5 million and included $486.4 million in cash, cash equivalents and investments.  Total stockholders’ equity as of December 31, 2018 was $607.9 million.

Guidance for 2019

For 2019, the Company is providing the following guidance:

  • Expenses are expected to be in the range of $244.0 million to $256.0 million.
  • Capital expenditures are expected to be in the range of $25.0 million to $30.0 million.
  • The Company’s overall effective tax rate is expected to be between 20.5% to 22.5%, including the estimated impact of excess tax benefits on share-based compensation awards.

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 and useful for period-to-period comparison results.  See the attached schedule at the end of this release for a reconciliation of GAAP to non-GAAP financial measures.  

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, January 30, 2019, 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 4467811. 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 1,500 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 DeLise
MarketAxess Holdings Inc.
+1-212-813-6017
 William McBride
RF|Binder
+1-917-239-6726
   
Mary Sedarat
MarketAxess Holdings Inc.
+1-212-813-6226
  


MarketAxess Holdings Inc.
Consolidated Statements of Operations
 
                
      
 Three Months Ended  Twelve Months Ended 
 December 31,  December 31, 
 2018  2017  2018  2017 
 (In thousands, except per share data) 
 (unaudited) 
                
Revenues               
Commissions$101,436  $87,975  $390,834  $355,282 
Information services 7,057   6,793   28,227   25,806 
Post-trade services 3,675   3,467   15,346   11,090 
Other 276   325   1,158   1,244 
Total revenues 112,444   98,560   435,565   393,422 
                
Expenses               
Employee compensation and benefits 27,802   24,225   109,117   102,313 
Depreciation and amortization 5,848   5,208   23,080   19,274 
Technology and communications 6,415   5,606   23,866   20,048 
Professional and consulting fees 5,353   5,455   21,521   19,367 
Occupancy 3,844   1,504   14,176   6,125 
Marketing and advertising 3,534   3,005   12,114   9,762 
Clearing costs 2,257   1,477   7,754   5,797 
General and administrative 3,426   3,243   11,353   11,121 
Total expenses 58,479   49,723   222,981   193,807 
Operating income 53,965   48,837   212,584   199,615 
Other income (expense)               
Investment income 1,926   1,068   6,112   3,619 
Other, net 175   (534)  (610)  (1,466)
Total other income 2,101   534   5,502   2,153 
Income before income taxes 56,066   49,371   218,086   201,768 
Provision for income taxes 10,235   15,898   45,234   53,679 
Net income$45,831  $33,473  $172,852  $148,089 
                
                
Per Share Data:               
Net income per common share               
Basic$1.24  $0.91  $4.68  $4.02 
Diluted$1.21  $0.88  $4.57  $3.89 
                
Cash dividends declared per common share$0.42  $0.33  $1.68  $1.32 
                
Weighted-average common shares:               
Basic 36,978   36,887   36,958   36,864 
Diluted 37,845   37,943   37,855   38,038 


MarketAxess Holdings Inc.
Commission Revenue Details
 
                
                
 Three Months Ended  Twelve Months Ended 
 December 31,  December 31, 
 2018  2017  2018  2017 
                
 Total Commissions Revenue 
 (In thousands) 
 (unaudited) 
                
Transaction Fees               
U.S. high-grade$37,089  $34,623  $144,642  $137,034 
Other credit 1 38,868   30,271   147,148   140,492 
Liquid products 2 593   531   2,146   2,277 
Total transaction fees 76,550   65,425   293,936   279,803 
                
Distribution Fees               
U.S. high-grade 18,615   16,724   72,135   64,709 
Other credit1 6,110   5,648   24,077   10,154 
Liquid products2,3 161   178   686   616 
Total distribution fees 24,886   22,550   96,898   75,479 
Total commissions$101,436  $87,975  $390,834  $355,282 
                
                
 Average Variable Transaction Fee Per Million 
 (unaudited) 
                
U.S. high-grade - fixed-rate$161  $177  $161  $170 
U.S. high-grade - floating-rate 70   73   87   65 
Total U.S. high-grade 154   172   156   166 
Other credit 208   213   201   242 
Liquid products 41   42   40   43 
Total 173   184   172   192 
                
                
1 Other credit includes high-yield, emerging markets, Eurobonds and municipal bonds. 
2 Liquid products includes U.S. agencies and European government bonds. 
    


MarketAxess Holdings Inc.
Consolidated Condensed Balance Sheet Data
 
        
        
 As of 
 December 31, 2018  December 31, 2017 
 (In thousands) 
 (unaudited) 
        
Assets       
Cash and cash equivalents$246,322  $167,014 
Investments, at fair value 240,105   239,521 
Accounts receivable, net 57,535   52,636 
All other assets 151,577   122,061 
Total assets$695,539  $581,232 
        
Liabilities and stockholders' equity       
Total liabilities$87,661  $66,464 
Total stockholders' equity 607,878   514,768 
Total liabilities and stockholders' equity$695,539  $581,232 
        


MarketAxess Holdings Inc.
Reconciliation of Non-GAAP Financial Measures
 
                
                
 Three Months Ended  Twelve Months Ended 
 December 31,  December 31, 
 2018  2017  2018  2017 
                
 Earnings Before Interest, Taxes, Depreciation and Amortization 
 (In thousands) 
 (unaudited) 
Net income$45,831  $33,473  $172,852  $148,089 
Add back:               
Interest expense           
Provision for income taxes 10,235   15,898   45,234   53,679 
Depreciation and amortization 5,848   5,208   23,080   19,274 
Earnings before interest, taxes,
  depreciation and amortization
$61,914  $54,579  $241,166  $221,042 
                
 Free Cash Flow 
 (In thousands) 
 (unaudited) 
Cash flow from operating
  activities
$70,105  $46,452  $223,917  $168,035 
Less:               
Net purchases (sales) of corporate debt trading investments 5,815   25,419   (856)  17,081 
Purchases of furniture, equipment
  and leasehold improvements
 (11,847)  (4,841)  (35,668)  (12,086)
Capitalization of software
  development costs
 (2,754)  (3,377)  (11,925)  (13,471)
Free cash flow$61,319  $63,653  $175,468  $159,559 


MarketAxess Holdings Inc.
Volume Statistics*
 
                
                
 Three Months Ended December 31,  Twelve Months Ended December 31, 
 2018  2017  2018  2017 
                
 Total Trading Volume 
 (In millions) 
 (unaudited) 
                
U.S. high-grade - fixed-rate$223,737  $191,411  $867,518  $791,194 
U.S. high-grade - floating-rate 16,915   9,815   60,654   33,839 
Total U.S. high-grade 240,652   201,226   928,172   825,033 
Other credit 187,274   141,857   731,888   579,912 
Liquid products 14,345   12,543   53,479   53,383 
Total$442,271  $355,626  $1,713,539  $1,458,328 
                
 Average Daily Volume 
 (In millions) 
 (unaudited) 
U.S. high-grade$3,945  $3,246  $3,728  $3,300 
Other credit 3,037   2,281   2,929   2,316 
Liquid products 234   202   214   213 
Total$7,216  $5,729  $6,871  $5,829 
                
Number of U.S. Trading Days 1 61   62   249   250 
Number of U.K. Trading Days 2 64   63   253   252 
                
                
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. 

 

 

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Source: MarketAxess Holdings, Inc.