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MarketAxess Q1 revenue slips

07 May 2008  |  1323 views  |  0 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 first quarter ended March 31, 2008.

Total revenues for the first quarter of 2008 decreased 3.5% to $22.9 million, compared to $23.8 million for the first quarter of 2007. Pre-tax income for the first quarter of 2008 was $3.0 million, compared to $4.5 million for the first quarter of 2007, a decrease of 33.7%. Net income for the first quarter of 2008 totaled $1.6 million, or $0.05 per share on a diluted basis, compared to $2.5 million, or $0.07 per share on a diluted basis, for the first quarter of 2007.

For the first quarter of 2007, pre-tax margin was 12.9%, compared to 18.8% for the first quarter of 2007.

Richard M. McVey, chairman and chief executive officer of MarketAxess, commented, "Our base of recurring revenue, the improving quality of business traded over the MarketAxess platform, and growing contributions from new businesses all helped to preserve profitability and cash flow through these extraordinary times for credit markets, although trading volumes during the first quarter continued to be negatively impacted by dealer balance sheet constraints. Our strategy to increase client technology integration and expand customer order flow is on track, and we continue opportunistically to explore means to enhance the liquidity available to our dealer and investor clients on our platform. Importantly, business diversification is improving, advanced by our acquisition of Greenline Financial Technologies, Inc. ("GFT"), and we see significant opportunities for growth when market conditions stabilize."

First Quarter Results

Total revenue for the first quarter of 2008 decreased 3.5% to $22.9 million, compared to $23.8 million for the first quarter of 2007. Commission revenue totaled $19.3 million on total trading volume of $64.5 billion for the first quarter of 2008, compared to $20.7 million in commission revenue on total trading volume of $104.5 billion for the first quarter of 2007. U.S. high-grade corporate bond commissions decreased 9.4% to $12.4 million on trading volume of $38.8 billion for the first quarter of 2008, compared to $13.7 million in commissions on trading volume of $60.8 billion for the first quarter of 2007. U.S. high-grade fixed-rate and floating-rate bond trading volume in the first quarter of 2008 totaled $33.5 billion and $2.8 billion, respectively, compared to $40.4 billion and $15.5 billion, respectively, in the first quarter of 2007. Total U.S. high-grade trading volume includes single-dealer inquiries of $2.4 billion and $4.9 billion for the first quarter of 2008 and the first quarter of 2007, respectively. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume decreased to an estimated 7.3% for the first quarter of 2008, compared to an estimated 9.4% for the first quarter of 2007.

European high-grade corporate bond commissions decreased 3.5% to $4.6 million on trading volume of $8.1 billion for the first quarter of 2008, compared to $4.8 million in commissions on trading volume of $28.3 billion for the first quarter of 2007. European high-grade bond commissions in the first quarter of 2008 included distribution fees of $3.7 million and variable transaction fees of $0.9 million, based on the European pricing plan that was introduced in June 2007.

Other commissions, which include emerging markets, high yield, credit default swaps and agencies, increased 2.1% to $2.3 million on trading volume of $17.6 billion for the first quarter of 2008, compared to $2.3 million in commissions on $15.3 billion in trading volume for the first quarter of 2007.

Technology products and services, which reflects revenue for technology licenses, support and professional services from our recent acquisitions of GFT and Trade West Systems ("TWS"), totaled $0.8 million in the first quarter of 2008.

Other revenue, which consists of information and user access fees, investment income and other revenue, decreased 5.6% to $2.9 million for the first quarter of 2008, compared to $3.0 million for the first quarter of 2007.

There were a total of 61 and 62 trading days in the U.S. and U.K., respectively, in the first quarter of 2008, compared to 62 and 64 trading days in the U.S. and U.K., respectively, in the first quarter of 2007.

Total expenses for the first quarter of 2008, which include expenses from the acquisition of GFT and TWS, increased 3.5% to $20.0 million, compared to $19.3 million for the first quarter of 2007. Employee compensation and benefits expense, which includes $0.4 million in severance costs, decreased 4.2% to $11.0 million, compared to $11.5 million for the first quarter of 2007. Professional and consulting expenses increased 17.3% to $2.2 million, compared to $1.8 million for the first quarter of 2007. General and administrative expenses increased 32.8% to $1.6 million, compared to $1.2 million for the first quarter of 2007.

Pre-tax income for the first quarter of 2008 was $3.0 million, compared to $4.5 million for the first quarter of 2007. Pre-tax margin was 12.9% for the first quarter of 2008, compared to 18.8% for the first quarter of 2007.

The effective tax rate for the first quarter of 2008 was 46.2%, compared to 45.2% for the first quarter of 2007. The first quarter 2008 effective tax rate was unfavorably impacted by the absence of a research and development tax credit, a decrease in tax-exempt investment income and a relative increase in non-deductible expenses.

Net income for the first quarter of 2008 was $1.6 million, or $0.05 per diluted share, compared to $2.5 million, or $0.07 per diluted share, for the first quarter of 2007.

Employee headcount as of March 31, 2008 was 202, compared to 171 as of March 31, 2007. First quarter 2008 headcount includes the addition of 25 employees from the acquisition of GFT on March 5, 2008.

Balance Sheet Data

As of March 31, 2008, total assets were $200.8 million and included $88.6 million in cash, cash equivalents and securities, and a deferred tax asset of $39.0 million. Total stockholders' equity as of March 31, 2008 was $180.0 million and book value per common share was $5.39, based on 33.4 million weighted-average diluted shares outstanding.

Acquisition of Greenline Financial Technologies

On March 5, 2008 the Company closed the acquisition of GFT for total consideration of $40.8 million in cash and stock, consisting of $35.0 million in cash and MarketAxess shares valued at $5.8 million, with additional cash consideration of up to $3.0 million contingent on attainment of certain earn- out targets.

Founded in 2000, GFT develops software solutions that include a full suite of FIX message testing, monitoring, and management support tools designed to ensure reliable, high-volume throughput of critical electronic transaction messages. In addition to FIX-related products and services, GFT has a growing professional services business that provides clients with custom system development and proprietary software solutions.

Updated Guidance for 2008

The Company is updating its full-year 2008 expense guidance previously announced on the fourth quarter and full-year 2007 earnings conference call on February 6, 2008. The Company now expects total expenses for 2008 to be between $81.0 million and $84.0 million. This guidance includes the addition of GFT-related expenses and downward adjustments to performance driven variable incentive compensation.

The Company now expects its full-year 2008 capital spending, which includes hardware and software, to be in the range of $5.0 million to $7.0 million.

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