MarketAxess Holdings Inc. (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 third quarter ended September 30, 2011.
"We are very pleased to report another record quarter of revenues, pre-tax income and operating margin," said Richard M. McVey, chairman and chief executive officer of MarketAxess. "This represents the 10th consecutive quarter of record results and has been driven by strong U.S. high grade market share gains and continued expense discipline."
Third Quarter Results
Total revenues for the third quarter of 2011 increased 24.5% to a record $46.6 million, compared to $37.4 million for the third quarter of 2010. Pre-tax income was a record $22.3 million, compared to $13.5 million for the third quarter of 2010, an increase of 64.9%. Pre-tax margin was 47.9%, compared to 36.1% for the third quarter of 2010. Net income totalled $13.4 million, or $0.34 per share on a diluted basis, compared to $8.6 million, or $0.22 per share on a diluted basis, for the third quarter of 2010.
Commission revenue for the third quarter of 2011 totalled $39.8 million on total trading volume of $131.7 billion, compared to $31.2 million in commission revenue on total trading volume of $100.5 billion for the third quarter of 2010. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to an estimated 11.6%, compared to an estimated 8.3% for the third quarter of 2010.
Technology products and services revenue, which includes revenue for technology licenses, support and professional services, increased 9.4% to $3.8 million for the third quarter of 2011, compared to $3.5 million for the third quarter of 2010. Other revenue, which consists of information and user access fees, investment income and other revenue, increased 5.6% to $3.0 million, compared to $2.8 million for the third quarter of 2010.
Total expenses for the third quarter of 2011 increased 1.6% to $24.3 million, compared to $23.9 million for the third quarter of 2010. The increase in expenses during the third quarter of 2011 was primarily due to higher marketing and advertising expense of $0.6 million. During the third quarter of 2011, the Company's Compensation Committee modified the cash incentive bonus accrual methodology to reflect lower than expected staffing levels and higher than expected operating income. Without the adjustment, employee compensation costs for the quarter would have been approximately $1.9 million higher. For the first nine months of 2011, the total cash bonus provision is approximately 18% higher compared to the first nine months of 2010.
The effective tax rate for the third quarter of 2011 was 39.7%, compared to 36.3% for the third quarter of 2010.
Employee headcount as of September 30, 2011 was 233, compared to 223 as of September 30, 2010.
The Company's board of directors declared a quarterly cash dividend of $0.09 per share of common stock outstanding or issuable upon conversion of outstanding shares of non-voting common stock, to be paid on November 24, 2011 to stockholders of record as of the close of business on November 10, 2011.
Share Repurchase Program
The Company's board of directors approved a $35.0 million share repurchase program, which authorizes the Company to repurchase shares of its common stock in the open market or in privately negotiated transactions, at times and prices considered appropriate by the Company.
Balance Sheet Data
As of September 30, 2011, total assets were $339.2 million and included $237.8 million in cash, cash equivalents and securities. Total stockholders' equity as of September 30, 2011 was $305.8 million.
Guidance for 2011
The Company previously expected that its full year 2011 expenses would be at the high end of the guidance range of $101.0 million to $107.0 million. Due principally to the modification in the incentive bonus accrual methodology and lower than expected staffing levels, the Company now expects full year 2011 expenses to be at the lower end of this range.
The Company now expects its full year 2011 capital spending to be in the range of $7.0 million to $8.0 million.