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, Oct. 27, 2020 (GLOBE NEWSWIRE) -- 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. [phone]	William McBride RF|Binder [phone]
Kyle White MarketAxess Holdings Inc. [phone]

                         

MarketAxess Holdings Inc. Consolidated Statements of Operations
	Three Months Ended								Nine Months Ended
	September 30,								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								Nine Months Ended
	September 30,								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								Nine Months Ended
	September 30,								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 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 matched principal basis between two counterparties. Consistent with industry standards, U.S. Government Bond trades are single-counted.