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MarketAxess Q3 profits tumble as expenses soar

01 November 2005  |  1122 views  |  0 Source: MarketAxess

MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading electronic trading platform for U.S. and European high-grade corporate and emerging markets bonds, today announced results for the third quarter ended September 30, 2005.

Total revenues for the third quarter of 2005 increased 2.0% to $19.1 million, compared to $18.7 million in the third quarter of 2004. Pre-tax income in the third quarter of 2005 was $1.7 million compared to $4.9 million in the third quarter of 2004. Net income in the third quarter of 2005 totaled $1.2 million, or $0.03 per share on a diluted basis, compared to $9.1 million in the third quarter of 2004. Net income in the third quarter of 2004 included an income tax benefit of $4.2 million primarily related to the recognition of net operating loss carryforwards.

Operating margin, defined as pre-tax income as a percentage of total revenues, was 9% in the third quarter of 2005, compared to 26% in the third quarter of 2004.

Richard M. McVey, Chairman and Chief Executive Officer of MarketAxess, commented, "The third quarter of 2005 included several gratifying developments for the MarketAxess platform. In U.S. high-grade corporate bonds, despite continued weakness in the market and the adjustment of our institutional and broker-dealer clients to the new fee plan implemented in June, our trading volume in the third quarter was approximately 7.9% of total NASD TRACE reported volume, up from approximately 7.1% in the second quarter of 2005. In mid-September, we launched the first client to multi-dealer electronic solution for the trading of credit default swaps (CDS). We continue to add functionality, including a full novation protocol solution, to meet the changing requirements of this rapidly growing market. Led by a strong performance from emerging markets bonds, other trading volumes made a solid showing during the quarter. Lastly, on September 21, we held our second annual charity trading day which generated approximately $270,000 in charitable contributions to emerging markets charities and the Hurricane Katrina Red Cross Relief Fund. All of these developments reflect continuing momentum in our business, and will enable us to further leverage our leadership position in electronic trading in the credit markets as we move through the fourth quarter."

Third Quarter Results

U.S. high-grade corporate bond commissions totaled $10.8 million in the third quarter of 2005, a decrease of 2.6% compared to $11.1 million in the third quarter of 2004. European high-grade corporate bond commissions totaled $3.1 million in the third quarter of 2005, a decrease of 14.2% compared to $3.7 million in the third quarter of 2004. Other commissions decreased 11.4% in the third quarter of 2005 to $1.8 million, compared to $2.1 million in the third quarter of 2004. Other revenue, which consists of information and user access fees, license fees, interest income and other revenue, increased 75.0% to $3.3 million in the third quarter of 2005 compared to $1.9 million in the third quarter of 2004 due to higher interest income and an increase in fees from our Corporate BondTicker(TM) service.

Total expenses for the third quarter of 2005 increased 25.7% to $17.3 million, compared to $13.8 million in the third quarter of 2004. Employee compensation and benefits increased to $9.0 million, versus $8.3 million in the third quarter of 2004, primarily driven by increased costs related to employee benefit programs. Technology and communications expenses increased to $2.3 million, versus $1.5 million in the third quarter of 2004, driven primarily by increased market data and data communication costs. Professional and consulting fees increased to $2.4 million, compared to $1.0 million in the third quarter of 2004, largely due to increased costs associated with being a public company and higher consulting expenses.

Trading Volume

Total trading volumes in the third quarter of 2005 decreased 8.1% to $68.6 billion, compared to $74.7 billion in the third quarter of 2004. U.S. high- grade trading volume totaled $39.1 billion in the third quarter of 2005, a 12.9% decrease versus 2004 third quarter volume of $44.9 billion. Total U.S. high-grade trading volume for the third quarter of 2005 includes single-dealer inquiries of $3.3 billion. European high-grade trading volumes in the third quarter of 2005 decreased 11.7% to $16.3 billion, compared to $18.4 billion in the third quarter of 2004. Other trading volumes, which now includes credit default swaps volume, in the third quarter of 2005 increased 16.9% to $13.3 billion, from $11.4 billion in the third quarter of 2004.

Balance Sheet Data

As of September 30, 2005, total assets were $185.7 million. This included $111.9 million in cash, cash equivalents and securities, and represents an increase of $5.2 million as compared to June 30, 2005. Total stockholders' equity was $167.4 million and book value per common share was $4.72 based on 35.5 million diluted shares outstanding.» Download the document now 36.3 kb (Adobe Acrobat Document)

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