Marketaxess Holdings Inc (MKTX) 10-Q Quarterly Report Fri Oct 25 2019

NEW YORK, October 23, 2019 – 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, 2019.

“Broad-based growth in trading volumes across all major products and geographic regions drove record results in the third quarter as dealers and investors continue to embrace new solutions for credit trading automation,” said Rick McVey, Chairman and CEO of MarketAxess. “In addition to the acceleration of growth in current products, we are excited about new growth opportunities in U.S. Treasury trading, portfolio trading and Live Markets. Our investment in new technology solutions and products for our clients continues to grow while at the same time we produced operating margins in excess of 50% during the third quarter.”

Third Quarter Results

Total revenues for the third quarter of 2019 increased 29.7% to $131.6 million, compared to $101.4 million for the third quarter of 2018. Operating income was $66.0 million, compared to $46.4 million for the third quarter of 2018, an increase of 42.1%. Operating margin was 50.1%, compared to 45.8% for the third quarter of 2018. Net income totaled $54.0 million, or $1.42 per share on a diluted basis, compared to $38.6 million, or $1.02 per share, for the third quarter of 2018.

Commission revenue for the third quarter of 2019 increased 32.4% to $119.9 million, compared to $90.5 million for the third quarter of 2018. Variable transaction fees increased 45.5% to $96.0 million on total trading volume of $528.7 billion for the third quarter of 2019, compared to variable transaction fees of $66.0 million on total trading volume of $385.5 billion for the third quarter of 2018. U.S. high-grade trading volume as a percentage of FINRA’s high-grade TRACE trading volume increased to an estimated 20.2% for the third quarter of 2019, compared to an estimated 17.5% for the third quarter of 2018.

All other revenue, which consists of information services, post-trade services and other revenue, increased to $11.7 million, compared to $10.9 million for the third quarter of 2018. The increase in all other revenue was principally due to higher revenue from data sales and post-trade services, partially offset by the unfavorable impact of the stronger U.S. dollar of $0.5 million.

The following information was filed by Marketaxess Holdings Inc (MKTX) on Wednesday, October 23, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-34091

MARKETAXESS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware		52-2230784
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

55 Hudson Yards, 15th Floor New York, New York		10001
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 813-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol

Name of each exchange on which registered

Common Stock, $0.003 par value

MKTX

NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of October 21, 2019, the number of shares of the Registrant’s voting common stock outstanding was 37,777,078.

MARKETAXESS HOLDINGS INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

		Page
PART I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Financial Condition as of September 30, 2019 and December 31, 2018	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II — Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	41
Item 6.	Exhibits	41

PART I — Financial Information

Item 1. Financial Statements

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	As of
	September 30, 2019			December 31, 2018
	(In thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	320,527		$	246,322
Investments, at fair value		235,625			240,105
Accounts receivable, net of allowance of $146 and $80 as of September 30, 2019 and December 31, 2018, respectively		72,812			57,535
Goodwill and intangible assets, net of accumulated amortization		62,387			62,675
Furniture, equipment, leasehold improvements and capitalized software, net of accumulated depreciation and amortization		66,531			63,010
Operating lease right-of-use assets		75,390			—
Prepaid expenses and other assets		18,591			22,468
Deferred tax assets, net		3,163			3,424
Total assets	$	855,026		$	695,539

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accrued employee compensation	$	35,082		$	39,053
Income and other tax liabilities		13,274			16,432
Deferred revenue		3,731			2,810
Accounts payable, accrued expenses and other liabilities		16,285			29,366
Operating lease liabilities		92,031			—
Total liabilities		160,403			87,661

Commitments and Contingencies (Note 11)

Stockholders' equity
Preferred stock, $0.001 par value, 4,855,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018		—			—
Series A Preferred Stock, $0.001 par value, 110,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018		—			—
Common stock voting, $0.003 par value, 110,000,000 shares authorized, 40,721,937 shares and 40,540,349 shares issued and 37,780,778 shares and 37,639,917 shares outstanding as of September 30, 2019 and December 31, 2018, respectively		122			122
Common stock non-voting, $0.003 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018		—			—
Additional paid-in capital		343,543			341,860
Treasury stock - Common stock voting, at cost, 2,941,159 and 2,900,432 shares as of September 30, 2019 and December 31, 2018, respectively		(196,402	)		(184,962	)
Retained earnings		560,164			463,252
Accumulated other comprehensive loss		(12,804	)		(12,394	)
Total stockholders' equity		694,623			607,878
Total liabilities and stockholders' equity	$	855,026		$	695,539

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands, except share and per share amounts)
Revenues
Commissions	$	119,869		$	90,513		$	346,753		$	289,398
Information services		7,693			7,174			22,215			21,170
Post-trade services		3,784			3,475			11,840			11,671
Other		251			281			770			882
Total revenues		131,597			101,443			381,578			323,121

Expenses
Employee compensation and benefits		32,681			26,282			97,962			81,315
Depreciation and amortization		6,700			6,173			19,127			17,232
Technology and communications		7,381			5,879			19,637			17,451
Professional and consulting fees		7,018			5,685			19,145			16,168
Occupancy		2,802			3,528			8,549			10,332
Marketing and advertising		2,506			2,980			8,472			8,580
Clearing costs		2,782			1,760			7,969			5,497
General and administrative		3,762			2,744			10,686			7,927
Total expenses		65,632			55,031			191,547			164,502
Operating income		65,965			46,412			190,031			158,619
Other income (expense)
Investment income		2,211			1,635			6,296			4,186
Other, net		(838	)		(250	)		(860	)		(785	)
Total other income		1,373			1,385			5,436			3,401
Income before income taxes		67,338			47,797			195,467			162,020
Provision for income taxes		13,336			9,203			40,838			34,999
Net income	$	54,002		$	38,594		$	154,629		$	127,021

Net income per common share
Basic	$	1.46		$	1.04		$	4.17		$	3.44
Diluted	$	1.42		$	1.02		$	4.08		$	3.36

Cash dividends declared per common share	$	0.51		$	0.42		$	1.53		$	1.26

Weighted average shares outstanding
Basic		37,066			36,951			37,053			36,952
Diluted		37,995			37,828			37,913			37,859

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Net income	$	54,002		$	38,594		$	154,629		$	127,021
Net cumulative translation adjustment and foreign currency exchange hedge, net of tax of $1,012, $240, $1,281 and $746, respectively		(1,416	)		(582	)		(1,398	)		(1,602	)
Net unrealized gain (loss) on securities available-for-sale, net of tax of $22, $23, $309 and $(66), respectively		70			72			988			(205	)
Comprehensive income	$	52,656		$	38,084		$	154,219		$	125,214

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock Voting		Additional Paid-In Capital			Treasury Stock - Common Stock Voting			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	(In thousands)
Balance at January 1, 2019	$	122	$	341,860		$	(184,962	)	$	463,252		$	(12,394	)	$	607,878
Net income		—		—			—			52,522			—			52,522
Cumulative translation adjustment and foreign currency exchange hedge, net of tax		—		—			—			—			1,118			1,118
Unrealized net gain on securities available-for-sale, net of tax		—		—			—			—			459			459
Stock-based compensation		—		5,196			—			—			—			5,196
Exercise of stock options		—		172			—			—			—			172
Withholding tax payments on restricted stock vesting and stock option exercises		—		(11,803	)		—			—			—			(11,803	)
Repurchases of common stock		—		—			(5,184	)		—			—			(5,184	)
Cash dividend on common stock		—		—			—			(19,212	)		—			(19,212	)
Balance at March 31, 2019		122		335,425			(190,146	)		496,562			(10,817	)		631,146
Net income		—		—			—			48,105			—			48,105
Cumulative translation adjustment and foreign currency exchange hedge, net of tax		—		—			—			—			(1,100	)		(1,100	)
Unrealized net gain on securities available-for-sale, net of tax		—		—			—			—			459			459
Stock-based compensation		—		5,929			—			—			—			5,929
Exercise of stock options		—		350			—			—			—			350
Withholding tax payments on restricted stock vesting and stock option exercises		—		(258	)		—			—			—			(258	)
Repurchases of common stock		—		—			(3,486	)		—			—			(3,486	)
Cash dividend on common stock		—		—			—			(19,237	)		—			(19,237	)
Balance at June 30, 2019		122		341,446			(193,632	)		525,430			(11,458	)		661,908
Net income		—		—			—			54,002			—			54,002
Cumulative translation adjustment and foreign currency exchange hedge, net of tax		—		—			—			—			(1,416	)		(1,416	)
Unrealized net gain on securities available-for-sale, net of tax		—		—			—			—			70			70
Stock-based compensation		—		7,944			—			—			—			7,944
Exercise of stock options		—		363			—			—			—			363
Withholding tax payments on restricted stock vesting and stock option exercises		—		(6,210	)		—			—			—			(6,210	)
Repurchases of common stock		—		—			(2,770	)		—			—			(2,770	)
Cash dividend on common stock		—		—			—			(19,268	)		—			(19,268	)
Balance at September 30, 2019	$	122	$	343,543		$	(196,402	)	$	560,164		$	(12,804	)	$	694,623

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(Unaudited)

	Common Stock Voting		Additional Paid-In Capital			Treasury Stock - Common Stock Voting			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	(In thousands)
Balance at January 1, 2018	$	121	$	331,081		$	(159,791	)	$	353,583		$	(10,226	)	$	514,768
Net income		—		—			—			47,940			—			47,940
Cumulative translation adjustment and foreign currency exchange hedge, net of tax		—		—			—			—			268			268
Unrealized net loss on securities available-for-sale, net of tax		—		—			—			—			(334	)		(334	)
Stock-based compensation		—		3,951			—			—			—			3,951
Exercise of stock options		—		258			—			—			—			258
Withholding tax payments on restricted stock vesting and stock option exercises		—		(7,621	)		—			—			—			(7,621	)
Repurchases of common stock		—		—			(6,268	)		—			—			(6,268	)
Cash dividend on common stock		—		—			—			(15,798	)		—			(15,798	)
Balance at March 31, 2018		121		327,669			(166,059	)		385,725			(10,292	)		537,164
Net income		—		—			—			40,487			—			40,487
Cumulative translation adjustment and foreign currency exchange hedge, net of tax		—		—			—			—			(1,288	)		(1,288	)
Unrealized net gain on securities available-for-sale, net of tax		—		—			—			—			57			57
Stock-based compensation		—		3,650			—			—			—			3,650
Exercise of stock options		—		113			—			—			—			113
Withholding tax payments on restricted stock vesting and stock option exercises		—		(376	)		—			—			—			(376	)
Repurchases of common stock		—		—			(6,636	)		—			—			(6,636	)
Cash dividend on common stock		—		—			—			(15,793	)		—

Marketaxess Holdings Inc (MKTX) SEC Filing 10-Q Quarterly report for the period ending Monday, September 30, 2019

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