MarketAxess Q2 revenue soars

"We are gratified with the operating performance achieved this quarter in a period of rising interest rates and a shift in investor sentiment. The record volumes in our three core products - high grade, high yield and emerging markets – were driven by growth in market share and led to record revenues and pre-tax income," said Richard M. McVey, Chairman and Chief Executive Officer of MarketAxess. "We are also pleased with the promising momentum in our Open Trading initiatives and the positive response to our early integration efforts in Europe with Xtrakter."

Second Quarter Results

Total revenues for the second quarter of 2013 increased 34.3% to a record $65.6 million, compared to $48.8 million for the second quarter of 2012. Pre-tax income was a record $31.5 million, compared to $21.2 million for the second quarter of 2012, an increase of 48.6%. Pre-tax margin was 48.1%, compared to 43.4% for the second quarter of 2012. Net income totaled $19.3 million, or $0.51 per share on a diluted basis, compared to $12.6 million, or $0.34 per share on a diluted basis, for the second quarter of 2012.

Commission revenue for the second quarter of 2013 totaled $54.2 million on record total trading volume of $187.7 billion, compared to $42.7 million in commission revenue on total trading volume of $144.8 billion for the second quarter of 2012. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume increased to a record estimated 14.1%, compared to an estimated 12.4% for the second quarter of 2012.

All other revenue, which consists of information and post-trade services, technology products and services, investment income and other revenue, increased 85.2% to $11.4 million, compared to $6.1 million for the second quarter of 2012. The increase in all other revenue was principally due to information and post-trade services revenue generated by Xtrakter Limited ("Xtrakter") totaling $5.5 million in the second quarter of 2013. The Company completed the acquisition of Xtrakter on February 28, 2013.

Total expenses for the second quarter of 2013 increased 23.3% to $34.0 million, compared to $27.6 million for the second quarter of 2012. The increase in total expenses was largely due to approximately $5.3 million of Xtrakter operating expenses incurred during the second quarter of 2013. Excluding Xtrakter operating expenses, the increase in total expenses from the second quarter of 2012 of approximately 4.1% was principally attributable to higher variable incentive compensation, employee recruiting fees and technology consulting costs, offset by the impact of a favorable out-of-period adjustment of $1.6 million. The out-of-period adjustment, which related to the capitalization of certain employee costs previously expensed as incurred, increased net income by $1.0 million and diluted earnings per share by $0.02 per share for the three months ended June 30, 2013.

The effective tax rate for the second quarter of 2013 was 38.6%, compared to 40.4% for the second quarter of 2012.

Employee headcount as of June 30, 2013 was 327, compared to 247 as of June 30, 2012. The June 30, 2013 headcount includes 65 Xtrakter personnel.

Dividend

The Company's board of directors declared a quarterly cash dividend of $0.13 per share of common stock outstanding, to be paid on August 22, 2013 to stockholders of record as of the close of business on August 8, 2013.

Balance Sheet Data

As of June 30, 2013, total assets were $305.4 million and included $149.9 million in cash, cash equivalents and securities available-for-sale. Total stockholders' equity as of June 30, 2013 was $270.6 million.

Guidance for 2013

The Company is updating its full year 2013 capital spending guidance and now expects total capital expenditures for 2013 will be in the range of $21.0 million to $24.0 million, up from the latest guidance of $15.0 million to $18.0 million. The increase in estimated capital spending primarily relates to the build-out of new office space in London following the Xtrakter acquisition, which the Company expects to occupy in the fourth quarter of 2013, and higher new product software development costs. The Company is reconfirming its full year 2013 expense guidance of $137.0 million to $143.0 million and tax rate guidance of 38.0% to 40.0%. 

Full report can be downloaded below.