MarketAxess reports Q1 2005 results

Total revenues for the first quarter of 2005 increased 11.1% to a record $21.3 million, compared to $19.2 million in the first quarter of 2004. Pre-tax income of $5.4 million increased 78.6% compared to $3.0 million in the first quarter of 2004. Net income in the first quarter of 2005 totaled $3.1 million, or $0.09 per share on a diluted basis, compared to $2.9 million in the first quarter of 2004, which reflected a tax provision of only $0.1 million due to the utilization of prior year net operating losses.

Operating margin, defined as pre-tax income as a percentage of total revenues, was 25% in the first quarter of 2005, compared to 16% in the first quarter of 2004.

Richard M. McVey, Chairman and Chief Executive Officer of MarketAxess, commented, "We are very pleased with our record volume and revenue results in the first quarter. Our daily average volume increased 22% over the first quarter of 2004, despite generally soft patterns for corporate bond trading overall. The early renewal of major dealer agreements for U.S. high-grade trading and continued growth in our institutional investor client base are strong endorsements of MarketAxess' leadership position in electronic trading for credit markets."

First Quarter Results

U.S. high-grade corporate bond commissions totaled $12.5 million in the first quarter of 2005, an increase of 9.6% compared to $11.4 million in the first quarter of 2004. European high-grade corporate bond commissions totaled $4.4 million in the first quarter of 2005, a decrease of 2.7% compared to $4.5 million in the first quarter of 2004 due to lower transaction volumes. Other commissions declined 3.9% in the first quarter of 2005 to $1.7 million, compared to $1.8 million in the first quarter of 2004, primarily as a result of lower new issue commissions for the quarter.

Total expenses for the first quarter of 2005 declined 1.4% to $15.9 million,
compared to $16.2 million in the first quarter of 2004. Employee compensation and benefits increased to $9.2 million, compared to $8.2 million in the first quarter of 2004, as a result of new hires, deepening organizational strengths and lower wage capitalization relating to software development. Professional and consulting fees increased to $1.9 million, compared to $0.9 million in the first quarter of 2004, largely due to increased costs associated with being a public company. These increases were offset by the lack of warrant-related expense. The warrant program concluded in the first quarter of 2004 and accounted for $2.5 million of expense during that period.

Record Trading Volume

Total trading volumes in the first quarter of 2005 increased 18.9% to a record $89.2 billion, compared to $75.0 billion in the first quarter of 2004. U.S. high-grade trading volume totaled $54.8 billion in the first quarter, a 21.7% increase over 2004 first quarter volume of $45.0 billion. European high-grade trading volumes in the first quarter of 2005 decreased 3.1% to $22.9 billion, compared to $23.6 billion in the first quarter of 2004. Other trading volumes in the first quarter of 2005 increased 81.3% to $11.5 billion, from $6.4 billion in the first quarter of 2004.

New Fee Agreements

We have entered into new two-year fee agreements with a substantial number of broker-dealer clients for our U.S. high-grade product. The prior agreements were scheduled for renewal in the third quarter of 2005. The new contracts reflect a new pricing plan for spread-based transactions executed on our electronic trading platform, which incorporates higher fixed monthly fees and lower variable fees. The new plan is designed to provide an added incentive to our broker-dealer and institutional investor clients to increase the volume of transactions traded on our platform. Implementation of the new pricing plan is expected to begin taking effect in June 2005.

Credit Derivatives

We are proceeding with our efforts to develop a multi-dealer system to provide electronic credit derivatives trading services between dealers and institutional investors, initially focused on CDS indices. Our objective is to offer clients a fully electronic trade process, from the provision of pre- trade information through trade initiation, execution and confirmation.

We are being assisted in these efforts by a number of our broker-dealer clients, who have been instrumental in identifying inefficiencies in the current derivatives trading marketplace, have provided extensive feedback on the specifications for the new trading platform and have expressed an interest in participating on the platform. Other dealers have also expressed an interest in aiding our development efforts and/or participating on the platform. We have also consulted with many of our institutional investor clients and expect to conclude agreements with certain third-party providers of credit derivatives data and clearing services.

Our current plans call for commercial launch of the new platform in the second half of 2005.

Balance Sheet Data

As of March 31, 2005, total assets were $170.3 million, including $98.9 million in cash, cash equivalents and securities and $39.4 million in deferred tax assets. The $4.6 million decrease in cash, cash equivalents and securities since December 31, 2004 is attributable to annual incentive bonuses that were paid in January 2005. The number of diluted shares outstanding on a weighted-average basis (used for EPS calculations) was 35.5 million for the first quarter of 2005. Total stockholders' equity was $159.8 million as of March 31, 2005.