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8-K - FORM 8-K - MARKETAXESS HOLDINGS INCd246041d8k.htm

Exhibit 99.1

 

LOGO

MARKETAXESS REPORTS THIRD QUARTER 2016 REVENUES OF $90.3 MILLION,

PRE-TAX INCOME OF $46.4 MILLION

AND DILUTED EPS OF $0.82

Third Quarter Financial Highlights*

 

    Revenues of $90.3 million, up 21.7%

 

    Pre-tax income of $46.4 million, up 31.1%

 

    Diluted EPS of $0.82, up 36.7%

 

    Total trading volume of $322.1 billion, up 34.4%

 

*  All comparisons versus third quarter 2015.

NEW YORK, October 26, 2016 – 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 September 30, 2016.

“The third quarter results continue the trend of strong year-over-year growth in MarketAxess trading volumes, revenues and earnings. In addition to continued gains in U.S. corporate bond volume and market share, we are seeing strong momentum in European fixed income and Emerging Market debt trading,” said Richard M. McVey, Chairman and CEO. “Open Trading participation among dealers and investors is growing rapidly, driving an important new source of market liquidity into global credit markets.”

Third Quarter Results

Total revenues for the third quarter of 2016 increased 21.7% to $90.3 million, compared to $74.2 million for the third quarter of 2015. Pre-tax income was $46.4 million, compared to $35.4 million for the third quarter of 2015, an increase of 31.1%. Pre-tax margin was 51.3%, compared to 47.7% for the third quarter of 2015. Net income totaled $30.9 million, or $0.82 per share on a diluted basis, compared to $22.7 million, or $0.60 per share, for the third quarter of 2015.

Commission revenue for the third quarter of 2016 increased 25.0% to $81.5 million, compared to $65.2 million for the third quarter of 2015. Variable transaction fees increased 34.8% to $64.7 million on total trading volume of $322.1 billion for the third quarter of 2016, compared to variable transaction fees of $48.0 million on total trading volume of $239.7 billion for the third quarter of 2015. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 16.0%, compared to an estimated 14.9% on an adjusted basis for the third quarter of 2015. See Non-GAAP Financial Measures and Other Items below.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, decreased to $8.8 million for the third quarter of 2016, compared to $9.0 million for the third quarter of 2015. The decrease in all other revenue was principally due to the unfavorable impact of the stronger U.S. dollar totaling $1.0 million offset by higher data revenue.

 

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Total expenses for the third quarter of 2016 increased 13.1% to $43.9 million, compared to $38.8 million for the third quarter of 2015. The increase in total expenses was principally due to higher employee compensation and benefits costs of $2.9 million, mainly due to an increase in headcount and higher performance-based incentive accrual, and professional and consulting fees of $1.1 million.

The effective tax rate for the third quarter of 2016 was 33.3%, compared to 35.7% for the third quarter of 2015. The decrease was principally due to a higher percentage of income attributable to lower tax jurisdictions, favorable adjustments resulting from the conclusion of an Internal Revenue Service audit and the filing of prior year tax returns and the inclusion of the research credit permanently enacted in 2016.

Employee headcount was 369 as of September 30, 2016, compared to 342 as of December 31, 2015 and 335 as of September 30, 2015.

Dividend

The Company’s board of directors declared a quarterly cash dividend of $0.26 per share of common stock outstanding, to be paid on November 23, 2016, to stockholders of as of the close of business on November 9, 2016.

Share Repurchase Program

A total of 51,849 shares were repurchased in the third quarter of 2016 at a cost of $8.5 million under the Company’s $25.0 million share repurchase program. As of September 30, 2016, approximately $11.2 million was available for future repurchases under the program. In October 2016, the Company’s board of directors approved a $50.0 million increase in the size of the share repurchase program.

Balance Sheet Data

As of September 30, 2016, total assets were $502.2 million and included $332.1 million in cash, cash equivalents and investments. Total stockholders’ equity as of September 30, 2016 was $451.7 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.

For purposes of calculating U.S. high-grade estimated market share, FINRA TRACE volumes have been adjusted to eliminate the increased reporting of affiliate back-to-back trades to FINRA from April 2014 through October 2015. Based on information provided by FINRA, the Company believes that adjusted FINRA TRACE volumes provide a more accurate comparison to prior period reporting. The Company has provided a reconciliation of U.S. high-grade TRACE volumes to the adjusted U.S. high-grade TRACE volumes on the “Investor Relations-Volume” section of its website.

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, October 26, 2016, at 10:00 a.m. Eastern time. To access the conference call, please dial

 

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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 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 1,100 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,

 

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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    William McBride
MarketAxess Holdings Inc.    RF|Binder
+1-212-813-6017    +1-917-239-6726
Mary Sedarat   
MarketAxess Holdings Inc.   
+1-212-813-6226   

 

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MarketAxess Holdings Inc.

Consolidated Statements of Operations

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2016      2015      2016      2015  
     (In thousands, except per share data)  
     (unaudited)  

Revenues

           

Commissions

   $ 81,456       $ 65,178       $ 246,788       $ 198,608   

Information and post-trade services

     7,322         7,671         23,687         22,982   

Investment income

     534         248         1,469         621   

Other

     959         1,095         3,539         4,243   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     90,271         74,192         275,483         226,454   
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Employee compensation and benefits

     23,914         21,002         74,256         62,769   

Depreciation and amortization

     4,325         4,642         13,546         13,857   

Technology and communications

     4,245         3,891         12,826         12,196   

Professional and consulting fees

     4,342         3,210         12,449         9,503   

Occupancy

     1,220         1,246         3,606         3,470   

Marketing and advertising

     2,140         1,304         5,742         4,260   

General and administrative1

     3,731         3,544         11,783         9,485   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     43,917         38,839         134,208         115,540   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before taxes

     46,354         35,353         141,275         110,914   

Provision for income taxes

     15,436         12,638         48,268         39,368   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 30,918       $ 22,715       $ 93,007       $ 71,546   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per Share Data:

           

Net income per common share

           

Basic

   $ 0.84       $ 0.62       $ 2.52       $ 1.95   

Diluted

   $ 0.82       $ 0.60       $ 2.46       $ 1.90   

Cash dividends declared per common share

   $ 0.26       $ 0.20       $ 0.78       $ 0.60   

Weighted-average common shares:

           

Basic

     36,889         36,681         36,847         36,695   

Diluted

     37,792         37,643         37,738         37,636   

 

1  Includes third-party clearing costs of $1.0 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively and $4.8 million and $2.3 million for the nine months ended September 30, 2016 and 2015, respectively.

 

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MarketAxess Holdings Inc.

Commission Revenue Details

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2016      2015      2016      2015  
     Total Commissions Revenue  
     (In thousands)  
     (unaudited)  

Transaction Fees

           

U.S. High-Grade

   $ 33,765       $ 23,337       $ 101,104       $ 76,662   

Other Credit 1

     30,181         24,091         94,928         71,321   

Liquid Products 2

     798         598         2,096         1,989   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Transaction Fees

     64,744         48,026         198,128         149,972   
  

 

 

    

 

 

    

 

 

    

 

 

 

Distribution Fees

           

U.S. High-Grade

     15,077         15,376         43,598         43,410   

Other Credit1

     1,466         1,487         4,437         4,400   

Liquid Products2,3

     169         289         625         826   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Distribution Fees

     16,712         17,152         48,660         48,636   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Commissions

   $ 81,456       $ 65,178       $ 246,788       $ 198,608   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Variable Transaction Fee Per Million  
     (unaudited)  

U.S. high-grade - fixed-rate

   $ 195       $ 174       $ 191       $ 183   

U.S. high-grade - floating-rate

     38         37         37         44   

Total U.S. high-grade

     189         167         185         176   

Other credit

     246         286         256         292   

Liquid products

     38         39         39         40   

Total

     201         200         204         206   

 

1  Other Credit includes high-yield, emerging markets, Eurobonds and municipal bonds.
2  Liquid Products includes U.S. agencies and European government bonds.
3  Includes CDS SEF-related revenue.

 

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MarketAxess Holdings Inc.

Consolidated Condensed Balance Sheet Data

 

     As of  
     September 30, 2016      December 31, 2015  
     (In thousands)  
     (unaudited)  

Assets

     

Cash and cash equivalents

   $ 161,444       $ 199,728   

Investments, at fair value

     170,655         84,706   

Accounts receivable, net

     56,583         40,459   

All other assets

     113,469         114,148   
  

 

 

    

 

 

 

Total assets

   $ 502,151       $ 439,041   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Total liabilities

   $ 50,451       $ 48,328   

Total stockholders’ equity

     451,700         390,713   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 502,151       $ 439,041   
  

 

 

    

 

 

 

 

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MarketAxess Holdings Inc.

Reconciliation of Non-GAAP Financial Measures

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  
     (In thousands)  
     (unaudited)  
     Earnings Before Interest, Taxes, Depreciation and Amortization  

Net income

   $ 30,918      $ 22,715      $ 93,007      $ 71,546   

Add back:

        

Interest expense

     —          —          —          —     

Provision for income taxes

     15,436        12,638        48,268        39,368   

Depreciation and amortization

     4,325        4,642        13,546        13,857   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before interest, taxes, depreciation and amortization

   $ 50,679      $ 39,995      $ 154,821      $ 124,771   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Free Cash Flow  
     (In thousands)  
     (unaudited)  

Cash Flow From Operating Activities

   $ 52,643      $ 35,743      $ 23,974      $ 76,338   

Add back:

        

Net purchases of corporate debt trading investments

     2,139        —          74,535        —     

Less:

        

Purchases of furniture, equipment and leasehold improvements

     (850     (1,385     (4,754     (3,730

Capitalization of software development costs

     (2,916     (2,701     (9,058     (7,517
  

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow

   $ 51,016      $ 31,657      $ 84,697      $ 65,091   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MarketAxess Holdings Inc.

Volume Statistics

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2016      2015      2016      2015  
     Total Trading Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade - fixed-rate

   $ 172,006       $ 132,625       $ 525,331       $ 413,071   

U.S. high-grade - floating-rate

     6,442         7,414         20,169         21,313   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. high-grade

     178,448         140,039         545,500         434,384   

Other credit

     122,821         84,333         370,963         244,256   

Liquid products

     20,880         15,353         53,982         49,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 322,149       $ 239,725       $ 970,445       $ 728,141   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Daily Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade

   $ 2,788       $ 2,188       $ 2,886       $ 2,311   

Other credit

     1,912         1,313         1,960         1,298   

Liquid products

     326         240         286         263   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,026       $ 3,741       $ 5,132       $ 3,872   
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of U.S. Trading Days 1

     64         64         189         188   

Number of U.K. Trading Days 2

     65         65         190         189   

 

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 riskless principal basis between two counterparties.

 

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