GlobeNewswire Inc | Oct 27, 2020 06:30AM EDT

October 27, 2020

ThirdQuarter 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.

ThirdQuarter 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 FINRAs 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 Companys growth initiatives, including geographic expansion, trading automation, new trading protocols and the transition to self-clearing.

Dividend

The Companys 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 Companys 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 andTony DeLise, Chief Financial Officer, will host a conference call to discuss the Companys financial results and outlook onTuesday, October 27, 2020at10:00 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 worlds 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, So 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 Companys future financial and operating performance. These and other statements that relate to future results and events are based on MarketAxess current expectations. The Companys 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 markets 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 William McBrideMarketAxess Holdings Inc. RF|Binder+1-212-813-6027 +1-917-239-6726 Kyle WhiteMarketAxess Holdings Inc.+1-212-813-6355



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 37,583 32,681 120,413 97,962 benefitsDepreciation and amortization 9,032 6,700 25,404 19,127 Technology and communications 8,417 7,381 25,170 19,637 Professional and consulting 8,269 7,018 22,009 19,145 feesOccupancy 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 $ 0.60 $ 0.51 $ 1.80 $ 1.53 common share 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) Variabletransaction feesU.S. $ 60,861 $ 45,409 $ 194,039 $ 130,824 high-gradeOther credit ^ 59,131 50,009 191,718 143,276 1Total credit 119,992 95,418 385,757 274,100 Rates ^2 3,191 567 12,623 1,739 Total variabletransaction 123,183 95,985 398,380 275,839 fees Distribution feesU.S. 20,760 17,777 60,369 53,238 high-gradeOther credit^1 6,586 5,986 19,573 17,318 Total credit 27,346 23,763 79,942 70,556 Rates^2 57 121 310 358 Totaldistribution 27,403 23,884 80,252 70,914 feesTotal $ 150,586 $ 119,869 $ 478,632 $ 346,753 commissions Average Variable Transaction Fee Per Million (unaudited) U.S.high-grade - $ 204.24 $ 181.45 $ 190.68 $ 169.10 fixed-rateU.S.high-grade - 47.75 56.08 50.60 65.80 floating-rateTotal U.S. 199.39 173.35 184.83 162.57 high-gradeOther credit ^ 208.27 196.04 203.75 194.12 1Total credit 203.67 184.55 193.78 177.66 Rates^2 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 December 31, 30, 2020 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 380,853 ? organizations and customersGoodwill 147,388 146,861 Intangible assets, net of accumulated 58,873 60,986 amortizationFurniture, equipment, leasehold improvementsand capitalized 82,074 71,795 software, netOperating 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 138,120 ? organizations and customersIncome and other tax liabilities 34,822 16,690 Deferred revenue 5,092 3,499 Accounts payable, accrued expenses and other 25,297 19,294 liabilitiesOperating 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 9,032 6,700 25,404 19,127 amortizationEarnings before interest,taxes, depreciation and $ 98,043 $ 74,038 $ 310,520 $ 214,594 amortization Free Cash Flow (In thousands) (unaudited) Cash flows from operating $ (48,353 ) $ 67,692 $ 176,869 $ 176,794 activitiesExclude: Net change in 638 9,225 (62,636 ) 371 trading investmentsExclude: Net change infail-to-deliver/receivefrom broker-dealers, 164,797 ? 164,797 ? clearing organizations andcustomersLess: Purchases offurniture, equipment and (3,758 ) (2,569 ) (13,022 ) (8,683 )leasehold improvementsLess: Capitalization of (8,121 ) (6,553 ) (21,124 ) (13,863 )software development costsFree cash flow $ 105,203 $ 67,795 $ 244,884 $ 154,619

MarketAxess Holdings Inc. Volume Statistics* Three Months Ended Nine Months Ended September 30, September30, 2020 2019 2020 2019 Total Trading Volume (In millions) (unaudited) U.S.high-grade - $ 295,781 $ 245,027 $ 1,005,975 $ 753,885 fixed-rateU.S.high-grade - 9,450 16,918 43,830 50,830 floating-rateTotal U.S. 305,231 261,945 1,049,805 804,715 high-gradeOther 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. $ 4,770 $ 4,093 $ 5,555 $ 4,280 high-gradeOther 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 ofU.S. Trading 64 64 189 188 Days^ 1Number ofU.K. Trading 65 65 190 189 Days^ 2 ^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 areincluded in the Company's reported volumes when the Company executes trades on a matched principal basis between two counterparties. Consistent withindustry standards, U.S. Government Bond trades are single-counted.