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8-K - FORM 8-K - MARKETAXESS HOLDINGS INCd440972d8k.htm

Exhibit 99.1

 

LOGO

MARKETAXESS REPORTS THIRD QUARTER 2017 REVENUES

OF $96.7 MILLION, PRE-TAX INCOME OF $47.2 MILLION AND

DILUTED EPS OF $0.90

Third Quarter Financial Highlights*

 

  Revenues of $96.7 million, up 7.1%

 

  Pre-tax income of $47.2 million, up 1.9%

 

  Diluted EPS of $0.90, up 9.8% from $0.82

 

  Trading volume of $346.8 billion, up 7.6%

 

*  All comparisons versus third quarter 2016.

NEW YORK, October 25, 2017 – 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, 2017.

“Revenue and profitability held up well in the third quarter in spite of the continued low volatility and low yield environment,” said Richard M. McVey, Chairman and CEO of MarketAxess. “We are especially encouraged by the growth in our international business, led by emerging markets trading. We continue to increase our investment in technology solutions for our clients to help them meet their regulatory requirements and expand their trading opportunities.”

Third Quarter Results

Total revenues for the third quarter of 2017 increased 7.1% to $96.7 million, compared to $90.3 million for the third quarter of 2016. Pre-tax income was $47.2 million, compared to $46.4 million for the third quarter of 2016, an increase of 1.9%. Pre-tax margin was 48.8%, compared to 51.3% for the third quarter of 2016. Net income totaled $34.1 million, or $0.90 per share on a diluted basis, compared to $30.9 million, or $0.82 per share, for the third quarter of 2016.    

Commission revenue for the third quarter of 2017 increased 5.9% to $86.3 million, compared to $81.5 million for the third quarter of 2016. Variable transaction fees increased 1.9% to $65.9 million on total trading volume of $346.8 billion for the third quarter of 2017, compared to variable transaction fees of $64.7 million on total trading volume of $322.1 billion for the third quarter of 2016. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 17.2% for the third quarter of 2017, compared to an estimated 16.0% for the third quarter of 2016.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, increased to $10.4 million, compared to $8.8 million for the third quarter of 2016. The increase in all other revenue was principally due to higher information and post-trade services revenue of $1.1 million and an increase in investment income of $0.4 million.

 

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Total expenses for the third quarter of 2017 increased 12.7% to $49.5 million, compared to $43.9 million for the third quarter of 2016. The increase in total expenses was largely due to higher employee compensation and benefit costs, mainly due to an increase in headcount, of $1.7 million, professional and consulting costs of $1.2 million, technology and communication costs of $0.8 million, general and administrative costs of $0.7 million and occupancy costs of $0.6 million.

The effective tax rate for the third quarter of 2017 was 27.7%, compared to 33.3% for the third quarter of 2016. The third quarter 2017 income tax provision includes excess tax benefits of approximately $3.8 million relating to a new standard for share-based compensation accounting adopted effective January 1, 2017.

Employee headcount was 427 as of September 30, 2017, compared to 383 as of December 31, 2016 and 369 as of September 30, 2016.

Dividend

The Company’s board of directors declared a cash dividend to $0.33 per share of common stock outstanding, to be paid on November 22, 2017 to stockholders of record as of the close of business on November 8, 2017.

Share Repurchases

A total of 63,500 shares were repurchased in the third quarter of 2017 at a cost of $12.2 million. In September 2017, the existing share repurchase plan was terminated and the Board of Directors authorized a new share repurchase program for up to $100 million commencing in October 2017.

Balance Sheet Data

As of September 30, 2017, total assets were $562.3 million and included $376.2 million in cash, cash equivalents and investments. Total stockholders’ equity as of September 30, 2017 was $510.9 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

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 25, 2017, 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 99248504. 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

 

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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
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     (In thousands, except per share data)  
     (unaudited)  

Revenues

           

Commissions

   $ 86,270      $ 81,456      $ 267,307      $ 246,788  

Information and post-trade services

     8,372        7,322        24,460        23,687  

Investment income

     964        534        2,551        1,469  

Other

     1,095        959        3,588        3,539  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     96,701        90,271        297,906        275,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Employee compensation and benefits

     25,595        23,914        78,417        74,256  

Depreciation and amortization

     4,583        4,325        14,066        13,546  

Technology and communications

     5,035        4,245        14,442        12,826  

Professional and consulting fees

     5,547        4,342        13,912        12,449  

Occupancy

     1,795        1,220        4,621        3,606  

Marketing and advertising

     2,089        2,140        6,757        5,742  

Clearing costs

     1,476        1,035        4,320        4,754  

General and administrative

     3,364        2,696        8,974        7,029  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     49,484        43,917        145,509        134,208  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     47,217        46,354        152,397        141,275  

Provision for income taxes

     13,087        15,436        37,781        48,268  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 34,130      $ 30,918      $ 114,616      $ 93,007  
  

 

 

    

 

 

    

 

 

    

 

 

 

Per Share Data:

           

Net income per common share

           

Basic

   $ 0.93      $ 0.84      $ 3.11      $ 2.52  

Diluted

   $ 0.90      $ 0.82      $ 3.01      $ 2.46  

Cash dividends declared per common share

   $ 0.33      $ 0.26      $ 0.99      $ 0.78  

Weighted-average common shares:

           

Basic

     36,865        36,889        36,856        36,847  

Diluted

     38,019        37,792        38,069        37,738  

 

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MarketAxess Holdings Inc.

Commission Revenue Details

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     Total Commissions Revenue  
     (In thousands)  
     (unaudited)  

Transaction Fees

           

U.S. high-grade

   $ 34,020      $ 33,765      $ 102,411      $ 101,104  

Other credit 1

     31,381        30,181        110,221        94,928  

Liquid products 2

     545        798        1,746        2,096  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total transaction fees

     65,946        64,744        214,378        198,128  
  

 

 

    

 

 

    

 

 

    

 

 

 

Distribution Fees

           

U.S. high-grade

     16,305        15,077        47,985        43,598  

Other credit1

     3,844        1,466        4,506        4,437  

Liquid products2,3

     175        169        438        625  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total distribution fees

     20,324        16,712        52,929        48,660  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commissions

   $ 86,270      $ 81,456      $ 267,307      $ 246,788  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Variable Transaction Fee Per Million  
     (unaudited)  

U.S. high-grade—fixed-rate

   $ 174      $ 195      $ 168      $ 191  

U.S. high-grade—floating-rate

     67        38        62        37  

Total U.S. high-grade

     169        189        164        185  

Other credit

     235        246        252        256  

Liquid products

     45        38        43        39  

Total

     190        201        194        204  

 

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

Assets

     

Cash and cash equivalents

   $ 138,992      $ 168,243  

Investments, at fair value

     237,221        194,404  

Accounts receivable, net

     63,027        50,668  

All other assets

     123,107        114,727  
  

 

 

    

 

 

 

Total assets

   $ 562,347      $ 528,042  
  

 

 

    

 

 

 

Liabilities and stockholders’ equity

     

Total liabilities

   $ 51,439      $ 60,029  

Total stockholders’ equity

     510,908        468,013  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 562,347      $ 528,042  
  

 

 

    

 

 

 

 

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MarketAxess Holdings Inc.

Reconciliation of Non-GAAP Financial Measures

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  
     Earnings Before Interest, Taxes, Depreciation and Amortization  
     (In thousands)  
     (unaudited)  

Net income

   $ 34,130     $ 30,918     $ 114,616     $ 93,007  

Add back:

        

Interest expense

                        

Provision for income taxes

     13,087       15,436       37,781       48,268  

Depreciation and amortization

     4,583       4,325       14,066       13,546  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before interest, taxes,

depreciation and amortization

   $ 51,800     $ 50,679     $ 166,463     $ 154,821  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Free Cash Flow  
     (In thousands)  
     (unaudited)  

Cash flow from operating activities

   $ 52,465     $ 52,643     $ 121,583     $ 23,974  

Add back:

        

Net (sales) purchases of corporate debt
trading investments

     (8,449     2,139       (8,338     74,535  

Excess tax benefits from share-based
compensation previously recorded under
financing activities

           593             9,166  

Less:

        

Purchases of furniture, equipment and
leasehold improvements

     (1,468     (850     (7,245     (4,754

Capitalization of software development
costs

     (3,427     (2,916     (10,094     (9,058
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 39,121     $ 51,609     $ 95,906     $ 93,863  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MarketAxess Holdings Inc.

Volume Statistics*

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     Total Trading Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade—fixed-rate

   $ 192,092      $ 172,006      $ 599,783      $ 525,331  

U.S. high-grade—floating-rate

     8,734        6,442        24,024        20,169  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. high-grade

     200,826        178,448        623,807        545,500  

Other credit

     133,757        122,821        438,055        370,963  

Liquid products

     12,189        20,880        40,840        53,982  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 346,772      $ 322,149      $ 1,102,702      $ 970,445  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Average Daily Volume  
     (In millions)  
     (unaudited)  

U.S. high-grade

   $ 3,188      $ 2,788      $ 3,318      $ 2,886  

Other credit

     2,116        1,912        2,327        1,960  

Liquid products

     193        326        217        286  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,497      $ 5,026      $ 5,862      $ 5,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of U.S. Trading Days 1

     63        64        188        189  

Number of U.K. Trading Days 2

     64        65        189        190  

 

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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