MarketAxess Q2 profit soars

Source: MarketAxess

MarketAxess Holdings (Nasdaq: MKTX), the operator of a leading electronic trading platform for U.S. and European high-grade corporate bonds, emerging markets bonds and other types of fixed income securities, today announced results for the second quarter ended June 30, 2007.

Total revenues for the second quarter of 2007 increased 25.8% to a record $25.3 million, compared to $20.1 million in the second quarter of 2006. Pre- tax income for the second quarter of 2007 was $6.0 million, an increase of 335.7% compared to $1.4 million in the second quarter of 2006. Net income in the second quarter of 2007 totaled $3.6 million, or $0.10 per share on a diluted basis, an increase of 344.0% compared to $0.8 million, or $0.02 per share on a diluted basis, in the second quarter of 2006.

Pre-tax margin in the second quarter of 2007 was 23.9%, compared to 6.9% in the second quarter of 2006.

Richard M. McVey, chairman and chief executive officer of MarketAxess, commented, "In the second quarter, top line revenue growth accelerated and we expanded our pre-tax margins to 24% from 7% in the second quarter of 2006. Growth was driven by new record quarterly trading volume with our estimated share of NASD high-grade TRACE increasing to 11.1% from 7.6%. Our ongoing investments in new products and system enhancements are now paying dividends in the form of strong revenue generation, superior operating leverage, and client recognition of our leadership position in e-trading in the credit markets."

Second Quarter Results

Total revenues for the second quarter of 2007 increased 25.8% to a record $25.3 million, compared to $20.1 million in the second quarter of 2006. U.S. high-grade corporate bond commissions increased 32.4% to a record $14.5 million in the second quarter of 2007, compared to $11.0 million in the second quarter of 2006. European high-grade corporate bond commissions totaled $4.5 million in the second quarter of 2007, an increase of 9.0% compared to $4.1 million in the second quarter of 2006. Other commissions increased 12.5% in the second quarter of 2007 to a record $2.5 million, compared to $2.2 million in the second quarter of 2006. Other revenue, which consists of information and user access fees, license fees, technology services fees, investment income and other revenue, increased 34.4% to $3.8 million in the second quarter of 2007, compared to $2.9 million in the second quarter of 2006, primarily due to $0.6 million in revenue recognized under a technology development contract with a broker-dealer client.

Total expenses for the second quarter of 2007 increased 2.8% to $19.3 million, compared to $18.7 million in the second quarter of 2006. Employee compensation and benefits expense increased 4.9% to $11.0 million, compared to $10.5 million in the second quarter of 2006 due to an increase in cash incentive compensation driven by improved business results. Professional and consulting expense decreased 28.2% to $1.8 million, compared to $2.5 million in the second quarter of 2006 due to lower consulting, audit and tax and legal fees.

Pre-tax income in the second quarter of 2007 was a record $6.0 million, an increase of 335.7% compared to $1.4 million in the second quarter of 2006. Pre-tax margin was 23.9% in the second quarter of 2007, compared to 6.9% in the second quarter of 2006.

The effective tax rate for the second quarter of 2007 was 41.2%, compared to 42.3% for the second quarter of 2006.

Net income for the second quarter of 2007 was $3.6 million, or $0.10 per diluted share, an increase of 344.0% compared to $0.8 million, or $0.02 per diluted share, in the second quarter of 2006.

Headcount as of June 30, 2007 was 174, compared to 186 as of June 30, 2006.

Trading Volume

For the second quarter of 2007, total trading volume increased 40.3% to a record $111.4 billion, compared to $79.4 billion in the second quarter of 2006. U.S. high-grade trading volume was a record $67.5 billion in the second quarter of 2007, a 56.1% increase compared to second quarter 2006 volume of $43.3 billion. U.S. high-grade volume as a percentage of TRACE high-grade trading volume increased to a record estimated 11.1% in the second quarter of 2007, up from an estimated 7.6% in the second quarter of 2006. Total TRACE volume in the second quarter of 2007 increased 7.5% to $608.7 billion, compared to $566.2 billion in the second quarter of 2006. Total U.S. high- grade trading volume for the second quarter of 2007 includes single-dealer inquiries of $5.0 billion. European high-grade trading volumes in the second quarter of 2007 increased 4.4% to $23.8 billion, compared to $22.8 billion in the second quarter of 2006. Other trading volumes increased 50.3% to a record $20.1 billion, compared to $13.4 billion in the second quarter of 2006.

New European High-Grade Fee Plan

In the second quarter of 2007, the Company entered into new fee agreements with 18 of its broker-dealer clients for its European high-grade product. The new contracts reflect a pricing plan for transactions executed on the European electronic trading platform, which incorporates fixed monthly fees and lower variable fees, similar to the fee plan implemented in June 2005 for U.S. high- grade trading. The new plan is designed to provide an added incentive to broker-dealer and institutional investor clients to increase the volume of transactions traded on the platform. Implementation of the new pricing plan in Europe began on June 1, 2007.

Balance Sheet Data

As of June 30, 2007, total assets were $193.3 million, which included $121.9 million in cash, cash equivalents and securities, and a deferred tax asset of $37.7 million. Total assets as of December 31, 2006 were $204.3 million and included $131.0 million in cash, cash equivalents and securities and a deferred tax asset of $38.9 million. Total stockholders' equity as of June 30, 2007 was $175.3 million and book value per common share was $5.06, based on 34.6 million diluted shares.

Share Repurchases

In November 2006, the Board of Directors approved a $40 million share repurchase program. During the second quarter of 2007, the Company repurchased 0.3 million shares of its outstanding common stock at an average price of $16.89 per share, for a total expenditure of $5.3 million. A total of $13.5 million remains in the current repurchase program as of June 30, 2007.

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