MKTX MarketAxess Holdings Inc

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 McBrideRF|Binder+1-917-239-6726
Kyle WhiteMarketAxess 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 EndedJune 30,						Six MonthsEnded 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-rate	16,574			16,335			34,380			33,912
Total U.S. high-grade	414,580			265,360			744,574			542,770
Other credit	327,266			248,503			657,019			482,994
Total credit	741,846			513,863			1,401,593			1,025,764
Rates	955,594			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 credit	5,234			3,979			5,256			3,895
Total credit	11,815			8,191			11,213			8,272
Rates	15,169			209			19,204			221
Number of U.S. Trading Days 1	63			63			125			124
Number of U.K. Trading Days 2	61			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.