First Quarter Financial Highlights*
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
March 31, 2019.
"MarketAxess trading volumes set records across
all of our core products in a quarter with rapidly narrowing credit
spreads,” said Rick McVey, Chairman and CEO of MarketAxess. “Open
Trading continued to contribute to our growth as market
participants seek to benefit from increased liquidity options and
significant transaction cost savings. The trend to automated
execution is gaining momentum in fixed income globally, putting
MarketAxess in a strong position to capitalize on its technology,
global client network and extensive data resources."
First Quarter
Results
Total revenues for the first quarter of 2019
increased 8.5% to $124.5 million, compared to $114.7 million for
the first quarter of 2018. Operating income was $63.2 million,
compared to $60.2 million for the first quarter of 2018, an
increase of 5.0%. Operating margin was 50.8%, compared to 52.5% for
the first quarter of 2018. Net income totaled $52.5 million, or
$1.39 per share on a diluted basis, compared to $47.9 million, or
$1.27 per share, for the first quarter of 2018.
Commission revenue for the first quarter of 2019
increased 9.7% to $112.8 million, compared to $102.8 million for
the first quarter of 2018. Variable transaction fees increased
11.7% to $89.1 million on total trading volume of $526.2 billion
for the first quarter of 2019, compared to variable transaction
fees of $79.8 million on total trading volume of $465.0 billion for
the first quarter of 2018. U.S. high-grade trading volume as a
percentage of FINRA’s high-grade TRACE trading volume decreased to
an estimated 17.6% for the first quarter of 2019, compared to an
estimated 18.0% for the first quarter of 2018.
All other revenue, which consists of information
services, post-trade services and other revenue, decreased to $11.7
million, compared to $11.9 million for the first quarter of 2018.
The decrease in all other revenue was principally due to the
unfavorable impact of the stronger U.S. dollar of $0.5 million
offset by higher data revenue.
Total expenses for the first quarter of 2019
increased 12.4% to $61.3 million, compared to $54.5 million for the
first quarter of 2018. The increase in total expenses was largely
due to higher employee compensation and benefit costs, mainly due
to an increase in headcount, of $3.8 million, clearing costs of
$0.9 million, depreciation and amortization of $0.8 million and
professional and consulting fees of $0.8 million.
Other income increased to $2.0 million from $0.8
million principally due to a $0.8 million increase in investment
income as a result of higher investment balances and an increase in
interest rates.
The effective tax rate for the first quarter of
2019 was 19.5%, compared to 21.4% for the first quarter of 2018.
The income tax provision reflected $3.0 million and $1.8 million,
respectively, of excess tax benefits related to share-based
compensation awards that vested or were exercised during the first
quarter of 2019 and 2018.
Employee headcount was 476 as of March 31, 2019
compared to 429 as of March 31, 2018.
Dividend
The Company’s board of directors declared a cash
dividend of $0.51 per share of common stock outstanding, to be paid
on May 22, 2019 to stockholders of record as of the close of
business on May 8, 2019.
Share
Repurchases
A total of 23,365 shares were repurchased in the
first quarter of 2019 at a cost of $5.2 million.
Balance Sheet
Data
As of March 31, 2019, total assets were $774.8
million and included $483.4 million in cash, cash equivalents and
investments. On January 1, 2019, the Company adopted a new lease
accounting standard and recorded new operating lease right-of-use
assets of $79.5 million, eliminated a deferred rent liability of
$11.7 million and recorded lease liabilities associated with the
future minimum payments required under operating leases of $91.2
million. Total stockholders’ equity as of March 31, 2019 was $631.1
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, April 24, 2019 at 10:00 a.m.
EST. 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 8747808. 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. More than 1,500
firms - comprising the world’s leading asset managers and
institutional broker-dealers - traded a record $1.7
trillion of U.S. investment-grade bonds, U.S. high yield
bonds, emerging market debt, Eurobonds and other fixed income
securities through MarketAxess’ patented trading technology in
2018. 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 the broad
range of credit market participants. Drawing on its deep data and
analytical resources, MarketAxess enables automated
trading solutions and, through its Trax® division, provides a
range of pre- and post-trade services and products.
MarketAxess is headquartered in New
York and has offices
in London, Amsterdam, 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: 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:
Tony DeLiseMarketAxess Holdings
Inc.+1-212-813-6017 |
William McBrideRF|Binder+1-917-239-6726 |
|
|
Mary SedaratMarketAxess Holdings
Inc.+1-212-813-6226 |
|
MarketAxess Holdings
Inc. |
Consolidated Statements of
Operations |
|
|
|
|
Three Months
Ended |
|
|
March 31, |
|
|
2019 |
|
|
2018 |
|
|
(In thousands, except per
share data) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
Commissions |
$ |
112,760 |
|
|
$ |
102,772 |
|
Information services |
|
7,366 |
|
|
|
7,066 |
|
Post-trade services |
|
4,100 |
|
|
|
4,576 |
|
Other |
|
265 |
|
|
|
300 |
|
Total revenues |
|
124,491 |
|
|
|
114,714 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Employee compensation and benefits |
|
32,658 |
|
|
|
28,834 |
|
Depreciation and amortization |
|
6,082 |
|
|
|
5,269 |
|
Technology and communications |
|
5,782 |
|
|
|
5,779 |
|
Professional and consulting fees |
|
5,831 |
|
|
|
5,057 |
|
Occupancy |
|
2,949 |
|
|
|
3,337 |
|
Marketing and advertising |
|
2,299 |
|
|
|
2,065 |
|
Clearing costs |
|
2,577 |
|
|
|
1,725 |
|
General and administrative |
|
3,124 |
|
|
|
2,475 |
|
Total expenses |
|
61,302 |
|
|
|
54,541 |
|
Operating income |
|
63,189 |
|
|
|
60,173 |
|
Other income (expense) |
|
|
|
|
|
|
|
Investment income |
|
1,989 |
|
|
|
1,168 |
|
Other, net |
|
42 |
|
|
|
(328 |
) |
Total other income |
|
2,031 |
|
|
|
840 |
|
Income before income taxes |
|
65,220 |
|
|
|
61,013 |
|
Provision for income taxes |
|
12,698 |
|
|
|
13,073 |
|
Net income |
$ |
52,522 |
|
|
$ |
47,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
Basic |
$ |
1.42 |
|
|
$ |
1.30 |
|
Diluted |
$ |
1.39 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
$ |
0.51 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
Weighted-average common shares: |
|
|
|
|
|
|
|
Basic |
|
37,043 |
|
|
|
36,954 |
|
Diluted |
|
37,832 |
|
|
|
37,886 |
|
MarketAxess Holdings
Inc. |
Commission Revenue
Details |
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
March 31, |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Total Commissions
Revenue |
|
(In
thousands) |
|
(unaudited) |
|
|
|
|
|
|
|
|
Transaction Fees |
|
|
|
|
|
|
|
U.S. high-grade |
$ |
42,501 |
|
|
$ |
38,767 |
|
Other credit 1 |
|
46,034 |
|
|
|
40,427 |
|
Liquid products 2 |
|
557 |
|
|
|
583 |
|
Total transaction fees |
|
89,092 |
|
|
|
79,777 |
|
|
|
|
|
|
|
|
|
Distribution Fees |
|
|
|
|
|
|
|
U.S. high-grade |
|
17,978 |
|
|
|
17,227 |
|
Other credit1 |
|
5,558 |
|
|
|
5,540 |
|
Liquid products2 |
|
132 |
|
|
|
228 |
|
Total distribution fees |
|
23,668 |
|
|
|
22,995 |
|
Total commissions |
$ |
112,760 |
|
|
$ |
102,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Variable
Transaction Fee Per Million |
|
(unaudited) |
|
|
|
|
|
|
|
|
U.S. high-grade - fixed-rate |
$ |
158 |
|
|
$ |
158 |
|
U.S. high-grade - floating-rate |
|
76 |
|
|
|
94 |
|
Total U.S. high-grade |
|
153 |
|
|
|
154 |
|
Other credit |
|
196 |
|
|
|
202 |
|
Liquid products |
|
39 |
|
|
|
41 |
|
Total |
|
169 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
March 31,
2019 |
|
|
December 31,
2018 |
|
|
(In
thousands) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
260,953 |
|
|
$ |
246,322 |
|
Investments, at fair value |
|
222,458 |
|
|
|
240,105 |
|
Accounts receivable, net |
|
70,946 |
|
|
|
57,535 |
|
Goodwill and intangible assets, net |
|
62,579 |
|
|
|
62,675 |
|
Furniture, equipment, leasehold improvements and
capitalized software, net |
|
61,047 |
|
|
|
63,010 |
|
Operating lease right-of-use assets |
|
78,190 |
|
|
|
— |
|
Prepaid expenses and other assets |
|
17,219 |
|
|
|
22,468 |
|
Deferred tax assets, net |
|
1,417 |
|
|
|
3,424 |
|
Total assets |
$ |
774,809 |
|
|
$ |
695,539 |
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Accrued employee compensation |
$ |
16,699 |
|
|
$ |
39,053 |
|
Income and other tax liabilities |
|
18,857 |
|
|
|
16,432 |
|
Deferred revenue |
|
3,545 |
|
|
|
2,810 |
|
Accounts payable, accrued expenses and other
liabilities |
|
13,717 |
|
|
|
29,366 |
|
Operating lease liabilities |
|
90,845 |
|
|
|
— |
|
Total liabilities |
|
143,663 |
|
|
|
87,661 |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
Common stock |
|
122 |
|
|
|
122 |
|
Additional paid-in capital |
|
335,425 |
|
|
|
341,860 |
|
Treasury stock |
|
(190,146 |
) |
|
|
(184,962 |
) |
Retained earnings |
|
496,562 |
|
|
|
463,252 |
|
Accumulated other comprehensive loss |
|
(10,817 |
) |
|
|
(12,394 |
) |
Total stockholders' equity |
|
631,146 |
|
|
|
607,878 |
|
Total liabilities and stockholders'
equity |
$ |
774,809 |
|
|
$ |
695,539 |
|
MarketAxess Holdings
Inc. |
Reconciliation of
Non-GAAP Financial Measures |
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
March 31, |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Earnings Before Interest,
Taxes, Depreciation and Amortization |
|
|
(In
thousands) |
|
|
(unaudited) |
|
Net income |
$ |
52,522 |
|
|
$ |
47,940 |
|
Add back: |
|
|
|
|
|
|
|
Interest expense |
|
— |
|
|
|
— |
|
Provision for income taxes |
|
12,698 |
|
|
|
13,073 |
|
Depreciation and amortization |
|
6,082 |
|
|
|
5,269 |
|
Earnings before interest,
taxes, depreciation and
amortization |
$ |
71,302 |
|
|
$ |
66,282 |
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow |
|
|
(In
thousands) |
|
|
(unaudited) |
|
Cash flow from
operating activities |
$ |
39,369 |
|
|
$ |
31,439 |
|
Less: |
|
|
|
|
|
|
|
Net purchases (sales) of corporate
debt trading investments |
|
(6,015 |
) |
|
|
(3,054 |
) |
Purchases of furniture, equipment and
leasehold improvements |
|
(649 |
) |
|
|
(2,278 |
) |
Capitalization of software development costs |
|
(3,184 |
) |
|
|
(3,590 |
) |
Free cash flow |
$ |
29,521 |
|
|
$ |
22,517 |
|
MarketAxess Holdings
Inc. |
Volume
Statistics* |
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Total Trading
Volume |
|
(In
millions) |
|
(unaudited) |
|
|
|
|
|
|
|
U.S. high-grade - fixed-rate |
$ |
259,833 |
|
|
$ |
236,523 |
U.S. high-grade - floating-rate |
|
17,577 |
|
|
|
14,462 |
Total U.S. high-grade |
|
277,410 |
|
|
|
250,985 |
Other credit |
|
234,491 |
|
|
|
199,943 |
Liquid products |
|
14,276 |
|
|
|
14,079 |
Total |
$ |
526,177 |
|
|
$ |
465,007 |
|
|
|
|
|
|
|
|
Average Daily
Volume |
|
(In
millions) |
|
(unaudited) |
U.S. high-grade |
$ |
4,548 |
|
|
$ |
4,115 |
Other credit |
|
3,812 |
|
|
|
3,254 |
Liquid products |
|
233 |
|
|
|
230 |
Total |
$ |
8,593 |
|
|
$ |
7,599 |
|
|
|
|
|
|
|
Number of U.S. Trading Days 1 |
|
61 |
|
|
|
61 |
Number of U.K. Trading Days 2 |
|
63 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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