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8-K - FORM 8-K - MARKETAXESS HOLDINGS INCd384422d8k.htm

Exhibit 99.1

LOGO

MARKETAXESS REPORTS FOURTH QUARTER 2017 REVENUES

OF $99.6 MILLION, PRE-TAX INCOME OF $49.4 MILLION AND

DILUTED EPS OF $0.88

Company Announces 27% Increase in Regular Quarterly Dividend to $0.42 per Share,

up from $0.33

Fourth Quarter Financial Highlights*

 

    Revenues of $99.6 million, up 5.4%

 

    Pre-tax income of $49.4 million, a decrease of 1.9%

 

    One-time tax charge of $11.7 million related to the Tax Cuts and Jobs Act

 

    Diluted EPS of $0.88, consistent with prior year

 

    Trading volume of $355.6 billion, up 5.1%

 

* All comparisons versus fourth quarter 2016.

Full Year 2017 Financial Highlights**

 

    Record revenues of $397.5 million, up 7.4%

 

    Record commission revenue of $355.3 million, up 6.9%

 

    Expenses of $195.7 million, up 9.8%

 

    Record pre-tax income of $201.8 million, up 5.3%

 

    Diluted EPS of $3.89, up 16.5%

 

    Record total trading volume of $1.5 trillion, up 11.4%

 

    Record estimated U.S. high-grade market share of 16.9%, up from 16.0%

 

**  All comparisons versus full year 2016.

NEW YORK, January 31, 2018 – 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, 2017.

“We are pleased to report our ninth straight year of record trading volumes, revenues and operating income. These results were accomplished in spite of the difficult fixed income trading environment in 2017 that had unusually low volatility in both credit spreads and interest rates. As we enter 2018, we are encouraged to see signs of more normal fixed income trading conditions, including improving global economic growth and declining central bank quantitative easing. Client adoption of electronic trading in fixed income continues to grow, and our international client diversification creates a valuable foundation for long term growth.”

 

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Fourth Quarter Results

Total revenues for the fourth quarter of 2017 increased 5.4% to $99.6 million, compared to $94.4 million for the fourth quarter of 2016. Pre-tax income was $49.4 million, compared to $50.3 million for the fourth quarter of 2016, a decrease of 1.9%. Pre-tax margin was 49.6%, compared to 53.3% for the fourth quarter of 2016. Net income totaled $33.5 million, or $0.88 per share on a diluted basis, compared to $33.2 million, or $0.88 per share, for the fourth quarter of 2016.

Commission revenue for the fourth quarter of 2017 increased 2.9% to $88.0 million, compared to $85.5 million for the fourth quarter of 2016. Variable transaction fees decreased 6.5% to $65.4 million on total trading volume of $355.6 billion for the fourth quarter of 2017, compared to variable transaction fees of $69.9 million on total trading volume of $338.3 billion for the fourth quarter of 2016. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 17.6% for the fourth quarter of 2017, compared to an estimated 17.2% for the fourth quarter of 2016.

All other revenue, which consists of information services, post-trade services, investment income and other revenue, increased to $11.6 million, compared to $8.9 million for the fourth quarter of 2016. The increase in all other revenue was principally due to higher information services revenue of $1.1 million and post-trade services revenue of $0.9 million.

Total expenses for the fourth quarter of 2017 increased 13.8% to $50.2 million, compared to $44.1 million for the fourth quarter of 2016. The increase in total expenses was largely due to higher employee compensation and benefit costs of $1.8 million, mainly due to an increase in headcount, technology and communication costs of $1.2 million, general and administrative costs of $1.1 million and depreciation and amortization of $0.9 million.

The effective tax rate for the fourth quarter of 2017 was 32.2%, compared to 34.1% for the fourth quarter of 2016. The fourth quarter of 2017 income tax provision includes a one-time tax charge totaling $11.7 million, or $0.31 per diluted share, 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, or $0.30 per diluted share, related to a new share-based compensation accounting standard (ASU 2016-09) adopted as of January 1, 2017. The tax charge relates to the repatriation tax on accumulated undistributed foreign earnings and re-measurement of U.S. deferred tax assets, among other items. The final impact of the Tax Act may differ materially from the charge recognized this quarter due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued by the U.S. Department of Treasury and actions the Company may take as a result of the Tax Act.

Employee headcount was 429 as of December 31, 2017, compared to 383 as of December 31, 2016.

Full Year 2017 Results

Total revenues for the year ended December 31, 2017 increased 7.4% to a record $397.5 million, compared to $369.9 million for 2016. Pre-tax income was a record $201.8 million, compared to $191.6 million for 2016, an increase of 5.3%. Pre-tax margin was 50.8%, compared to 51.8% for 2016. Net income totaled $148.1 million, or $3.89 per share on a diluted basis, compared to $126.2 million, or $3.34 per share, for 2016.

Commission revenue for the year ended December 31, 2017 increased 6.9% to a record $355.3 million, compared to $332.3 million for 2016. Variable transaction fees increased 4.4% to $279.8 million on total trading volume of $1.5 trillion, compared to variable transaction fees of $268.1 million on total trading volume of $1.3 trillion for 2016. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 16.9%, compared to an estimated 16.0% for 2016.

 

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All other revenue increased 12.2% to $42.2 million in 2017, compared to $37.6 million for 2016. The increase in all other revenue was principally due to higher information services revenue of $2.5 million and an increase in investment income of $1.5 million.

Total expenses for the year ended December 31, 2017 increased 9.8% to $195.7 million, compared to $178.3 million for 2016. The increase in total expenses was principally due to higher employee compensation and benefits costs of $6.0 million mainly due to an increase in employee headcount, general and administrative costs of $3.0 million, technology and communication costs of $2.8 million, professional and consulting fees of $2.2 million and depreciation and amortization of $1.4 million.

The effective tax rate for 2017 was 26.6% compared to 34.1% for 2016. The 2017 income tax provision includes excess tax benefits from share-based compensation of approximately $26.1 million, or $0.69 per diluted share, offset by the one-time tax charge totaling $11.7 million, or $0.31 per diluted share, related to the enactment of the Tax Act.

Dividend

The Company’s board of directors declared a 27% increase in the quarterly cash dividend to $0.42 per share of common stock outstanding, to be paid on February 28, 2018 to stockholders of record as of the close of business on February 14, 2018.

Share Repurchases

A total of 32,500 shares were repurchased in the fourth quarter of 2017 at a cost of $6.1 million.

Balance Sheet Data

As of December 31, 2017, total assets were $581.2 million and included $406.5 million in cash, cash equivalents and investments. Total stockholders’ equity as of December 31, 2017 was $514.8 million.

Guidance for 2018

For 2018, the Company is providing the following guidance:

 

    Expenses are expected to be in the range of $220.0 million to $232.0 million, including duplicate occupancy costs of approximately $8.0 million for the Company’s new corporate offices in New York during the build-out phase.

 

    Capital expenditures are expected to be in the range of $43.0 million to $50.0 million, including approximately $25 million of buildout costs for the new corporate offices.

 

    The Company’s overall effective tax rate is expected to be between 23.0% to 25.0%, including the estimated impact of the Tax Act and excess tax benefits on share awards that are expected to vest in 2018.

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.

 

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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 31, 2018, 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 4095858. 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 1,300 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.

 

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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
December 31,
     Twelve Months Ended
December 31,
 
     2017      2016      2017      2016  
     (In thousands, except per share data)  
     (unaudited)  

Revenues

           

Commissions

   $ 87,975      $ 85,519      $ 355,282      $ 332,307  

Information services (1)

     6,793        5,667        25,807        23,269  

Post-trade services (1)

     3,467        2,544        11,090        10,812  

Investment income

     1,068        668        3,619        2,137  

Other (1)

     262        38        1,673        1,394  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     99,565        94,436        397,471        369,919  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Employee compensation and benefits

     24,334        22,529        102,751        96,785  

Depreciation and amortization

     5,208        4,292        19,274        17,838  

Technology and communications

     5,606        4,449        20,048        17,275  

Professional and consulting fees

     5,455        4,726        19,367        17,175  

Occupancy

     1,504        1,075        6,125        4,681  

Marketing and advertising

     3,005        3,192        9,762        8,934  

Clearing costs

     1,477        1,306        5,797        6,060  

General and administrative

     3,605        2,540        12,579        9,569  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     50,194        44,109        195,703        178,317  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     49,371        50,327        201,768        191,602  

Provision for income taxes

     15,898        17,162        53,679        65,430  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 33,473      $ 33,165      $ 148,089      $ 126,172  
  

 

 

    

 

 

    

 

 

    

 

 

 

Per Share Data:

           

Net income per common share

           

Basic

   $ 0.91      $ 0.90      $ 4.02      $ 3.42  

Diluted

   $ 0.88      $ 0.88      $ 3.89      $ 3.34  

Cash dividends declared per common share

   $ 0.33      $ 0.26      $ 1.32      $ 1.04  

Weighted-average common shares:

           

Basic

     36,887        36,837        36,864        36,844  

Diluted

     37,943        37,742        38,038        37,738  

 

(1) The Company reclassified “Information and post-trade services” revenues on the consolidated statements of operations to separately reflect “Information services” revenues and “Post-trade services” revenues. “Information services” revenues includes technology product and service revenue of $0.8 million and $0.7 million for the three months ended December 31, 2017 and 2016, respectively, and $2.9 million for each of the twelve months ended December 31, 2017 and 2016 that was previously reported within “Other” revenue.

 

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MarketAxess Holdings Inc.

Commission Revenue Details    

 

     Three Months Ended      Twelve Months Ended  
     December 31,      December 31,  
     2017      2016      2017      2016  
     Total Commissions Revenue  
     (In thousands)  
     (unaudited)  

Transaction Fees

           

U.S. high-grade

   $ 34,623      $ 34,191      $ 137,034      $ 135,295  

Other credit 1

     30,271        35,048        140,492        129,976  

Liquid products 2

     531        699        2,277        2,795  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total transaction fees

     65,425        69,938        279,803        268,066  
  

 

 

    

 

 

    

 

 

    

 

 

 

Distribution Fees

           

U.S. high-grade

     16,724        15,107        64,709        58,705  

Other credit1

     5,648        346        10,154        4,783  

Liquid products2,3

     178        128        616        753  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total distribution fees

     22,550        15,581        75,479        64,241  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commissions

   $ 87,975      $ 85,519      $ 355,282      $ 332,307  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Variable Transaction Fee Per Million  
     (unaudited)  

U.S. high-grade - fixed-rate

   $ 177      $ 189      $ 170      $ 191  

U.S. high-grade - floating-rate

     73        49        65        39  

Total U.S. high-grade

     172        185        166        185  

Other credit

     213        258        242        256  

Liquid products

     42        40        43        39  

Total

     184        207        192        205  

 

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  
     December 31, 2017      December 31, 2016  
     (In thousands)  
     (unaudited)  

Assets

     

Cash and cash equivalents

   $ 167,014      $ 168,243  

Investments, at fair value

     239,521        194,404  

Accounts receivable, net

     52,636        50,668  

All other assets

     122,061        114,727  
  

 

 

    

 

 

 

Total assets

   $ 581,232      $ 528,042  
  

 

 

    

 

 

 

Liabilities and stockholders’ equity

     

Total liabilities

   $ 66,464      $ 60,029  

Total stockholders’ equity

     514,768        468,013  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 581,232      $ 528,042  
  

 

 

    

 

 

 

 

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MarketAxess Holdings Inc.

Reconciliation of Non-GAAP Financial Measures

Table I. Earnings Before Interest, Taxes, Depreciation and Amortization

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2017      2016      2017      2016  
     (In thousands)  
     (unaudited)  

Net income

   $ 33,473      $ 33,165      $ 148,089      $ 126,172  

Add back:

           

Interest expense

     —          —          —          —    

Provision for income taxes

     15,898        17,162        53,679        65,430  

Depreciation and amortization

     5,208        4,292        19,274        17,838  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before interest, taxes, depreciation and amortization

   $ 54,579      $ 54,619      $ 221,042      $ 209,440  
  

 

 

    

 

 

    

 

 

    

 

 

 

Table II. Free Cash Flow

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2017     2016     2017     2016  
     (In thousands)  
     (unaudited)  

Cash flow from operating activities

   $ 46,452     $ 56,607     $ 168,035     $ 89,747  

Add back:

        

Net purchases of corporate debt trading investments

     25,419       (340     17,081       74,195  

Less:

        

Purchases of furniture, equipment and leasehold improvements

     (4,841     (1,631     (12,086     (6,385

Capitalization of software development costs

     (3,377     (3,060     (13,471     (12,118
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 63,653     $ 51,576     $ 159,559     $ 145,439  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MarketAxess Holdings Inc.

Volume Statistics*

 

     Three Months Ended December 31,      Twelve Months Ended December 31,  
     2017      2016      2017      2016  
     Total Trading Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade - fixed-rate

   $ 191,411      $ 179,317      $ 791,194      $ 704,648  

U.S. high-grade - floating-rate

     9,815        5,749        33,839        25,917  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. high-grade

     201,226        185,066        825,033        730,565  

Other credit

     141,857        135,799        579,912        506,762  

Liquid products

     12,543        17,393        53,383        71,375  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 355,626      $ 338,258      $ 1,458,328      $ 1,308,702  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Daily Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade

   $ 3,246      $ 3,034      $ 3,300      $ 2,922  

Other credit

     2,281        2,207        2,316        2,021  

Liquid products

     202        285        213        285  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,729      $ 5,526      $ 5,829      $ 5,228  
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of U.S. Trading Days 1

     62        61        250        250  

Number of U.K. Trading Days 2

     63        63        252        253  

 

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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