Revenue Growth of 10% Driven by Growth in Total Credit ADV and Pragma Revenues

Second Strongest Quarter for Total Credit ADV with Strong Growth Across Most Products

Record Eurobonds ADV, Portfolio Trading Volume and Muni Bond Estimated Market Share

Board Increases Share Repurchase Authorization to $250 Million

MarketAxess Holdings, the operator of a leading electronic trading platform for fixed-income securities, announced financial results for the second quarter ended June 30, 2024.

2Q24 select financial and operational highlights*

• Total revenues of $197.7 million , up 10% , includes Pragma revenues of $7.9 million and an increase of approximately $0.3 million from the impact of foreign currency fluctuations.
  • Strong geographic and product/protocol diversification with 16% growth across emerging markets, Eurobonds and municipals commission revenue helping to offset a decrease in U.S. high-yield trading activity, driven by lower credit spread volatility.
  • Record portfolio trading volume of $55.0 billion . ¹
  • 22% increase in services revenue (combined information, post-trade and technology services revenue) to $26.0 million , includes record information services revenue and an increase of approximately $2.9 million from Pragma revenues.
• Total expenses of $116.3 million , up 12% , includes Pragma operating expenses of $7.8 million and an increase of approximately $0.2 million from the impact of foreign currency fluctuations.
• Diluted earnings per share (“EPS”) of $1.72 on net income of $64.9 million , compared to EPS of $1.59 on net income of $59.9 million . The prior year quarter included a negative $0.04 per diluted share impact from foreign currency transaction losses and unrealized losses on investments.
• Record 2,119 (+2%) active client firms, 1,626 (+1%) active U.S. credit client firms, record 1,076 (+2%) international active client firms and 1,167 (+4%) active client firms trading three or more products.
• Record automation suite trade count (+37%) and record active client firms (+70%) ; automation suite trading volume up 21% and dealer algorithmic responses up 38% .
• In August 2024, the Board of Directors authorized a new share repurchase program for up to $200.0 million of the Company’s common stock. This program is in addition to the $50.0 million currently remaining under the Company’s existing program for a current aggregate outstanding authorization of $250.0 million .

*All comparisons versus 2Q23 unless otherwise noted.

Chris Concannon, CEO of MarketAxess, commented:

“In the second quarter, we continued to execute our strategy and delivered solid financial results and continued expense and capital discipline. Our strong free cash flow generation model gives us the flexibility to invest for growth and return capital to investors. We repurchased $50 million in shares year-to-date, and our Board approved a new share repurchase authorization of $200 million.

The international roll-out of X-Pro and the launch of the next phase of our high-touch strategy is expected to occur late in the third quarter and will include initial elements of AI dealer select functionality. Our announcement to connect our liquidity pools with ICE Bonds to drive greater efficiency and liquidity in the Municipal and corporate bond markets is a great example of how we are leveraging connectivity to drive future growth.

In summary, we made significant progress in executing our strategy in the second quarter, and we believe the strategic priorities we have established will drive increased market share and higher levels of revenue growth for shareholders in the future.”

2Q24 overview of results

Commission revenue and trading volume

Credit

Credit Commission Revenue

• Total credit commission revenue of $160.8 million (including $33.2 million in fixed-distribution fees) increased $6.8 million , or 4% , compared to $154.0 million (including $35.3 million in fixed-distribution fees) in the prior year. The increase in total credit commission revenue was driven principally by higher emerging markets, U.S. high-grade and Eurobonds commission revenue. Strong growth in these products was partially offset by lower U.S. high-yield commission revenue on lower credit spread volatility. The decline in variable transaction fees per million (“FPM”) to $148.16 from $157.42 in the prior year was mainly due to product and protocol mix-shift, principally lower levels of U.S. high-yield activity and increased portfolio trading. The decrease in fixed-distribution fees was principally driven by the consolidation of two global dealers and migrations to variable fee plans, partially offset by the addition of new dealer fixed fee plans.

Credit Trading Volumes

• Strong growth in total credit average daily volume (“ADV”) to $13.7 billion , up 12% . Record $55.0 billion in total portfolio trading volume, up 143% compared to the prior year, and up 24% from 1Q24. ¹
• 34% Open Trading share ² of total credit trading volume, in line with the prior year. The Company delivered estimated price improvement ³ via Open Trading of approximately $110 million in the quarter.

U.S. Credit

• U.S. high-grade ADV of $6.4 billion , up 13% on a 25% increase in estimated market ADV. Estimated market share was 18.7% ( 19.2% including single-dealer portfolio trades), ⁶ down from 20.7% ( 20.8% including single-dealer portfolio trades). ⁶
• U.S. high-yield ADV of $1.3 billion , down 9% , with estimated market share of 13.5% ( 13.8% including single-dealer portfolio trades), ⁶ down from 16.5% ( 16.6% including single-dealer portfolio trades). ⁶ U.S. high-yield estimated market ADV increased 11% . We believe the decrease in U.S. high-yield estimated market share year-over-year was driven, in part, by lower levels of credit spread volatility and a greater focus on the new issue calendar by our long-only client segment.
  • Lower levels of credit spread volatility drove an estimated 37% decrease in ETF market maker client activity on the platform.
  • U.S. high-yield new issuance was $77.9 billion , up 44% from the prior year.

Other credit

• Emerging markets ADV of $3.3 billion , up 23%, with strong regional contribution across the LATAM, EMEA and APAC regions. The increase was driven by a 26% increase in hard currency ADV, and a 17% increase in local markets ADV.
  • Record $4.7 billion in emerging markets portfolio trading volume.
• Record Eurobonds ADV of $2.1 billion , up 8% .
• Municipal bond ADV of $522 million , up 34% , with estimated market ADV down 2% . Record estimated market share of 7.4% , up from 5.4% in the prior year. ¹

Strategic priority related protocols & workflow tools

• A record 56% of our portfolio trading volume was executed on X-Pro.
• Dealer RFQ ADV of $1.2 billion across all credit products increased 27% .
• AxessIQ , the order and execution workflow solution designed for wealth management and private banking clients, achieved ADV of $135 million , up 22% from the prior year.

Rates

• Total rates commission revenue of $5.8 million increased $1.2 million , or 25% . A 31% increase in total rates ADV to $20.4 billion was partially offset by a 5% decrease in FPM to $4.45 due to mix, compared to $4.70 in the prior year.

Other

• Total other commission revenue was $5.1 million , which consists of Pragma commission revenue.

Services revenue

Information services

• Information services revenue of $12.5 million increased $0.9 million , or 8% , compared to the prior year. The increase in revenue was principally driven by net new data contract revenue.

Post-trade services

• Post-trade services revenue of $10.4 million increased $1.0 million , or 10% , compared to the prior year mainly due to the impact of price increases and net new contract revenue.

Technology services

• Total technology services revenue of $3.0 million , up from $0.2 million in the prior year. The current quarter includes $2.9 million of Pragma revenue.

Expenses

• Total expenses of $116.3 million , up 12% , includes Pragma operating expenses of $7.8 million and an increase of $0.2 million from the impact of foreign currency fluctuations.

Non-operating

• Other income (expense): Other income was $5.0 million , up from $3.2 million in the prior year. The current quarter included interest income of $6.4 million driven by higher interest rates, partially offset by a $1.0 million net foreign currency transaction loss. The prior year period included a $1.3 million net foreign currency transaction loss and a $0.8 million unrealized loss on U.S. Treasury investments, which had a negative $0.04 per diluted share impact in the quarter.
• Tax rate: The effective tax rate was 24.8% , up from 24.2% in the prior year.

Capital

• The Company had $558.8 million in cash, cash equivalents, corporate bond investments and U.S. Treasury investments as of June 30, 2024 . There were no outstanding borrowings under the Company’s credit facility.
• In August 2024, the Board of Directors authorized a new share repurchase program for up to $200.0 million of the Company’s common stock.
• Year-to-date through July 2024, a total of 242,890 shares were repurchased at a cost of $50.0 million , including 164,411 shares repurchased during the second quarter at a cost of $33.5 million . As of August 6, 2024 , an aggregate of $250.0 million remained under the current authorizations by the Company’s Board of Directors.
• The Board declared a quarterly cash dividend of $0.74 per share, payable on September 4 , 2024 to stockholders of record as of the close of business on August 21, 2024 .

Other

• Employee headcount was 864 as of June 30, 2024 , down from 881 as of December 31, 2023 , but up from 803 as of June 30, 2023 .

Source: MarketAxess