MARKETAXESS HOLDINGS INC - FORM 8-K - EX-99.1

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8-K - 8-K - MARKETAXESS HOLDINGS INC	d87424d8k.htm

Exhibit 99.1

LOGO

MARKETAXESS REPORTS THIRD QUARTER 2020 REVENUES

OF $164.0 MILLION, OPERATING INCOME OF $87.8 MILLION AND

DILUTED EPS OF $1.78

Third Quarter Financial Highlights^*

•

Revenues of $164.0 million, up 25%

•

Operating income of $87.8 million, up 33%

•

Operating margin of 53.5%, up from 50.1%

•

Net income of $67.8 million, up 26%

•

Diluted EPS of $1.78, up 25% from $1.42

•

Record Estimated U.S. high-grade market share of 22.2%, up from 20.2%

•

Record Estimated U.S. high-yield market share of 16.0%, up from 11.9%

^*	All comparisons versus third quarter 2019.

NEW YORK, October 27, 2020 – 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, 2020.

“It is gratifying to see the strength in market share trends and Open Trading volumes in spite of the return to more normal credit market conditions in the third quarter,” said Rick McVey, Chairman and CEO of MarketAxess. “Trading automation and lower transaction costs on MarketAxess are driving a sustainable change in trading behavior among institutional market participants. Market share gains fueled strong revenue and earnings growth with higher operating margins during the quarter.”

Third Quarter Results

Total revenues for the third quarter of 2020 increased 25% to $164.0 million, compared to $131.6 million for the third quarter of 2019. Operating income was $87.8 million, compared to $66.0 million for the third quarter of 2019, an increase of 33%. Operating margin was 53.5%, compared to 50.1% for the third quarter of 2019. Net income totaled $67.8 million, or $1.78 per share on a diluted basis, compared to $54.0 million, or $1.42 per share, for the third quarter of 2019.

Commission revenue for the third quarter of 2020 increased 26% to $150.6 million, compared to $119.9 million for the third quarter of 2019. Variable transaction fees increased 28% to $123.2 million for the third quarter of 2020, compared to variable transaction fees of $96.0 million for the third quarter of 2019. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 22.2% for the third quarter of 2020, compared to an estimated 20.2% for the third quarter of 2019. Variable transaction fees in the third quarter of 2020 includes approximately $2.4 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 14% to $13.4 million, compared to $11.7 million for the third quarter of 2019. The increase in all other revenue was principally due to new data sales and introduction of new Securities Finance Transaction Regulation (“SFTR”) reporting services of $1.1 million and the favorable impact of the weaker U.S. dollar of $0.6 million.

Total expenses for the third quarter of 2020 increased 16% to $76.2 million, compared to $65.6 million for the third 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 $4.9 million, depreciation and amortization of $2.3 million, clearing costs, mainly due to increased Open Trading activity and U.S. Treasury matched-principal trading, of $2.1 million, and professional and consulting fees of $1.3 million offset by a $1.4 million decrease in marketing and advertising expense. MarketAxess Rates expenses, including amortization of acquired intangibles expense, totaled $3.3 million during the third quarter of 2020.

The effective tax rate for the third quarter of 2020 was 23.0%, compared to 19.8% for the third quarter of 2019. The income tax provision for the third quarter of 2020 and 2019 reflected $5.9 million and $3.5 million, respectively, of excess tax benefits related to share-based compensation awards. In the third quarter of 2020, the Company recorded an additional provision for unrecognized tax benefits of $4.8 million.

Employee headcount was 599 as of September 30, 2020 compared to 527 as of December 31, 2019 and 511 as of September 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 November 25, 2020 to stockholders of record as of the close of business on November 11, 2020.

Share Repurchases

A total of 8,748 shares were repurchased in the third quarter of 2020 at a cost of $4.2 million.

Balance Sheet Data

As of September 30, 2020, total assets were $1.2 billion and included $341.6 million in cash, cash equivalents and investments. Total stockholders’ equity as of September 30, 2020 was $897.5 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 Tuesday, October 27, 2020 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) and using the conference ID: 8278649 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; risks related to self-clearing; 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 September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands, except per share data)
	(unaudited)
Revenues
Commissions	$	150,586		$	119,869		$	478,632		$	346,753
Information services		8,501			7,693			25,570			22,215
Post-trade services		4,689			3,784			12,896			11,840
Other		230			251			681			770

Total revenues		164,006			131,597			517,779			381,578

Expenses
Employee compensation and benefits		37,583			32,681			120,413			97,962
Depreciation and amortization		9,032			6,700			25,404			19,127
Technology and communications		8,417			7,381			25,170			19,637
Professional and consulting fees		8,269			7,018			22,009			19,145
Occupancy		3,445			2,802			10,205			8,549
Marketing and advertising		1,148			2,506			5,633			8,472
Clearing costs		4,838			2,782			16,061			7,969
General and administrative		3,467			3,762			9,853			10,686

Total expenses		76,199			65,632			234,748			191,547

Operating income		87,807			65,965			283,031			190,031
Other income (expense)
Investment income		344			2,211			2,327			6,296
Interest expense		(1,046	)		—			(1,046	)		—
Other, net		860			(838	)		(242	)		(860	)

Total other income		158			1,373			1,039			5,436

Income before income taxes		87,965			67,338			284,070			195,467
Provision for income taxes		20,189			13,336			57,624			40,838

Net income	$	67,776		$	54,002		$	226,446		$	154,629

Per Share Data:
Net income per common share
Basic	$	1.81		$	1.46		$	6.06		$	4.17
Diluted	$	1.78		$	1.42		$	5.94		$	4.08

Cash dividends declared per common share	$	0.60		$	0.51		$	1.80		$	1.53

Weighted-average common shares:
Basic		37,386			37,066			37,343			37,053
Diluted		38,160			37,995			38,129			37,913

MarketAxess Holdings Inc.

Commission Revenue Details


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	Total Commissions Revenue

	(In thousands)
	(unaudited)
Variable transaction fees
U.S. high-grade	$	60,861	$	45,409	$	194,039	$	130,824
Other credit ¹		59,131		50,009		191,718		143,276

Total credit		119,992		95,418		385,757		274,100
Rates ²		3,191		567		12,623		1,739

Total variable transaction fees		123,183		95,985		398,380		275,839

Distribution fees
U.S. high-grade		20,760		17,777		60,369		53,238
Other credit¹		6,586		5,986		19,573		17,318

Total credit		27,346		23,763		79,942		70,556
Rates²		57		121		310		358

Total distribution fees		27,403		23,884		80,252		70,914

Total commissions	$	150,586	$	119,869	$	478,632	$	346,753


	Average Variable Transaction Fee Per Million

	(unaudited)
U.S. high-grade - fixed-rate	$	204.24	$	181.45	$	190.68	$	169.10
U.S. high-grade - floating-rate		47.75		56.08		50.60		65.80

Total U.S. high-grade		199.39		173.35		184.83		162.57
Other credit ¹		208.27		196.04		203.75		194.12

Total credit		203.67		184.55		193.78		177.66

Rates²		4.19		48.65		3.99		44.46

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
	September 30, 2020			December 31, 2019
	(In thousands)
	(unaudited)
Assets
Cash and cash equivalents	$	310,368		$	270,124
Cash segregated under federal regulations		50,033			—
Investments, at fair value		31,274			230,477
Accounts receivable, net		81,706			62,017
Receivables from broker-dealers, clearing organizations and customers		380,853			—
Goodwill		147,388			146,861
Intangible assets, net of accumulated amortization		58,873			60,986
Furniture, equipment, leasehold improvements and capitalized software, net		82,074			71,795
Operating lease right-of-use assets		76,692			81,399
Prepaid expenses and other assets		26,191			30,770
Deferred tax assets, net		52			501

Total assets	$	1,245,504		$	954,930

Liabilities and stockholders’ equity
Liabilities
Accrued employee compensation	$	50,926		$	47,365
Payables to broker-dealers, clearing organizations and customers		138,120			—
Income and other tax liabilities		34,822			16,690
Deferred revenue		5,092			3,499
Accounts payable, accrued expenses and other liabilities		25,297			19,294
Operating lease liabilities		93,708			97,991

Total liabilities		347,965			184,839

Stockholders’ equity
Common stock		122			122
Additional paid-in capital		327,646			342,541
Treasury stock		(168,841	)		(153,388	)
Retained earnings		749,211			591,086
Accumulated other comprehensive loss		(10,599	)		(10,270	)

Total stockholders’ equity		897,539			770,091

Total liabilities and stockholders’ equity	$	1,245,504		$	954,930

MarketAxess Holdings Inc.

Reconciliation of Non-GAAP Financial Measures


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

	Earnings Before Interest, Taxes, Depreciation and Amortization
	(In thousands)
	(unaudited)
Net income	$	67,776		$	54,002		$	226,446		$	154,629
Add back:
Interest expense		1,046			—			1,046			—
Provision for income taxes		20,189			13,336			57,624			40,838
Depreciation and amortization		9,032			6,700			25,404			19,127

Earnings before interest, taxes, depreciation and amortization	$	98,043		$	74,038		$	310,520		$	214,594


	Free Cash Flow
	(In thousands)
	(unaudited)
Cash flows from operating activities	$	(48,353	)	$	67,692		$	176,869		$	176,794
Exclude: Net change in trading investments		638			9,225			(62,636	)		371
Exclude: Net change in fail-to-deliver/receive from broker-dealers, clearing organizations and customers		164,797			—			164,797			—
Less: Purchases of furniture, equipment and leasehold improvements		(3,758	)		(2,569	)		(13,022	)		(8,683	)
Less: Capitalization of software development costs		(8,121	)		(6,553	)		(21,124	)		(13,863	)

Free cash flow	$	105,203		$	67,795		$	244,884		$	154,619

MarketAxess Holdings Inc.

Volume Statistics*


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	Total Trading Volume
	(In millions)
	(unaudited)
U.S. high-grade - fixed-rate	$	295,781	$	245,027	$	1,005,975	$	753,885
U.S. high-grade - floating-rate		9,450		16,918		43,830		50,830

Total U.S. high-grade		305,231		261,945		1,049,805		804,715
Other credit		283,920		255,097		940,939		738,091

Total credit		589,151		517,042		1,990,744		1,542,806

Rates		760,676		11,661		3,161,148		39,111

	Average Daily Volume
	(In millions)
	(unaudited)
U.S. high-grade	$	4,770	$	4,093	$	5,555	$	4,280
Other credit		4,421		3,971		4,972		3,921

Total credit		9,191		8,064		10,527		8,201

Rates		11,885		182		16,726		208

Number of U.S. Trading Days¹		64		64		189		188
Number of U.K. Trading Days²		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 matched principal basis between two counterparties. Consistent with industry standards, U.S. Government Bond trades are single-counted.

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