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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

July 22, 2020 6:31 AM

Second Quarter Financial Highlights*

*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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