For the year ended December 31, 2005, total revenue increased 3.6% to $78.6 million from $75.8 million in 2004. Pre-tax income was $11.6 million compared to $17.3 million in 2004 and net income for 2005 was $8.1 million, or $0.23 per diluted share. Net income of $57.6 million in 2004 included an income tax benefit of $40.3 million primarily related to the recognition of net operating loss carryforwards.

Total revenues for the fourth quarter of 2005 declined 4.0% to $18.9 million, compared to $19.7 million in the fourth quarter of 2004. Pre-tax income was $1.6 million compared to $5.1 million in the fourth quarter of 2004. Net income in the fourth quarter of 2005, which included an income tax benefit of $0.5 million, totaled $2.1 million, or $0.06 per share on a diluted basis, compared to $2.5 million, or $0.08 per share on a diluted basis, in the fourth quarter of 2004. The net income tax benefit recorded in the fourth quarter of 2005 resulted from a reduction in the deferred tax asset valuation allowance, which was partially offset by an adjustment to the income tax rate used for recognizing deferred taxes. The impact of these two adjustments was a reduction of the income tax provision for the fourth quarter 2005 of $1.1 million.

For 2005, operating margin was 15% versus 23% in 2004. In the fourth quarter of 2005, operating margin was 9% compared to 26% in the fourth quarter of 2004. Operating margin declines for each period were primarily driven by increased investment in new products and the additional costs of being a public company.

"Despite the challenging corporate bond market conditions, evidenced by the 19% decline in NASD high-grade TRACE volumes year-over-year, the Company strengthened its competitive position through share gains in existing products, growth in active clients and the launch of new products," commented Richard M. McVey, Chairman and Chief Executive Officer of MarketAxess.

Specifically, McVey pointed out the following highlights from 2005, noting that MarketAxess:

• Continued to grow its U.S. high-grade volume as a percentage of NASD TRACE to 7.6% in 2005 from 6.4% in 2004.
• Successfully implemented a new transaction fee model for U.S. corporate bond trading, providing its clients with a more favorable economic model and its shareholders with a more favorable revenue stream.
• Significantly expanded the MarketAxess network in 2005 with the addition of 118 new active institutional investor clients and three new dealer partners.
• And, continued to expand its product offering with the launch of the first client to multi-dealer Credit Default Swaps (CDS) trading platform.

Full-Year 2005 Results
For the year ended December 31, 2005, total revenue increased 3.6% to $78.6 million from $75.8 million in 2004. U.S. high-grade corporate bond commissions totaled $45.6 million in 2005, an increase of 0.3% compared to $45.5 million in 2004. European high-grade corporate bond commissions totaled $14.1 million, a decrease of 7.0% compared to $15.1 million in 2004. Other commissions decreased 4.5% to $7.2 million in 2005, compared to $7.6 million in 2004. Other revenue, which consists of information and user access fees, license fees, interest income and other revenue, increased 52.7% to $11.6 million in 2005 compared to $7.6 million in 2004 due to higher interest income and an increase in fees from our Corporate BondTicker service.

Total expenses for 2005 increased 14.6% to $67.0 million, compared to $58.5 million in 2004. The increase in expenses was primarily driven by increased costs related to the development and launch of our credit default swaps trading platform in September 2005 and increased costs associated with being a public company. Professional and consulting fees increased to $9.4 million, compared to $4.9 million in 2004, largely due to increased audit, tax, legal and technology consulting expenses. Technology and communications expenses increased to $8.5 million, compared to $6.4 million in 2004, driven primarily by increased market data and data communication costs. Employee compensation and benefits increased to $35.4 million, compared to $33.1 million in 2004, primarily driven by an increase in expenses related to employee compensation and benefits programs and an increase in headcount. 2005 expenses benefited from a lack of Warrant program expenses and Moneyline revenue share, which totaled $2.5 million and $1.2 million, respectively, in 2004. The final share allocations under the Warrant program occurred on March 1, 2004 and the Moneyline revenue share program concluded in the first quarter of 2005.

Headcount as of December 31, 2005 was 182 compared to 172 as of December 31, 2004.

Fourth Quarter Results

Total revenues for the fourth quarter of 2005 declined 4.0% to $18.9 million, compared to $19.7 million in the fourth quarter of 2004. U.S. high-grade corporate bond commissions totaled $10.7 million in the fourth quarter of 2005, a decrease of 6.3% compared to $11.4 million in the fourth quarter of 2004. European high-grade corporate bond commissions totaled $3.2 million in the fourth quarter of 2005, a decrease of 4.1% compared to $3.3 million in the fourth quarter of 2004. Other commissions decreased 9.2% in the fourth quarter of 2005 to $1.8 million, compared to $2.0 million in the fourth quarter of 2004. Other revenue, which consists of information and user access fees, license fees, interest income and other revenue, increased 9.0% to $3.1 million in the fourth quarter of 2005 compared to $2.9 million in the fourth quarter of 2004 due to higher interest income and an increase in fees from our Corporate BondTicker service.

Total expenses for the fourth quarter of 2005 increased 18.6% to $17.3 million, compared to $14.5 million in the fourth quarter of 2004. General and administrative expenses increased to $2.2 million compared to $0.5 million in the fourth quarter of 2004, primarily as a result of increased occupancy expenses, the classification of Board of Director costs to general and administrative expenses in the quarter and the reversal of a VAT tax reserve in the fourth quarter of 2004. Technology and communications expenses increased to $2.2 million compared to $1.8 million in the fourth quarter of 2004, primarily as a result of increased market data and data communication costs. Fourth quarter 2005 expenses benefited from a lack of Moneyline revenue share expense which totaled $0.2 million in the fourth quarter of 2004.

Trading Volume

Total trading volume for 2005 increased 0.4% to $299.2 billion compared to $298.1 billion in 2004. U.S. high-grade trading volume totaled $177.7 billion in 2005, a 3.2% decrease versus 2004 volume of $183.5 billion. U.S. high- grade volume as a percentage of NASD TRACE increased to 7.6% in 2005 from 6.4% in 2004. Total U.S. high-grade trading volume for 2005 includes single-dealer inquiries of $7.5 billion. European high-grade trading volume in 2005 decreased 4.1% to $73.4 billion, compared to $76.5 billion in 2004. Other trading volume, which includes emerging markets, credit default swaps, high yield, agencies and new issue volumes, increased 26.6% to $48.2 billion in 2005, from $38.1 billion in 2004.

For the fourth quarter ended December 31, 2005, total trading volume declined 12.6% to $69.3 billion compared to $79.3 billion in the fourth quarter of 2004. U.S. high-grade trading volume totaled $39.2 billion in the fourth quarter of 2005, a 20.7% decrease compared to 2004 fourth quarter volume of $49.4 billion. Total U.S. high-grade trading volume for the fourth quarter of 2005 includes single-dealer inquiries of $3.3 billion. European high-grade trading volumes in the fourth quarter of 2005 increased 2.0% to $17.3 billion, compared to $16.9 billion in the fourth quarter of 2004. Other trading volumes decreased 0.6% to $12.9 billion, compared to $12.9 billion in the fourth quarter of 2004.

Balance Sheet Data

As of December 31, 2005, total assets were $190.5 million and included $118.1 million in cash, cash equivalents and securities and a deferred tax asset of $39.8 million. Total stockholders' equity as of December 31, 2005 was $170.9 million and book value per common share was $4.80 based on 35.6 million diluted shares outstanding.

Guidance for 2006

In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123R (SFAS 123R), the Company is required to estimate the cost of stock-based compensation using a fair value method and record the expense in the Company's consolidated financial statements beginning with the first quarter of 2006. The company will use the modified prospective method. Excluding the stock-based compensation impact of SFAS 123R, the Company expects total expenses for 2006 to increase 8% to 12% over 2005 reported expense levels. Including the stock-based compensation impact of SFAS 123R, the Company expects total expenses for 2006 to increase 10% to 15% over an adjusted 2005 expense level of $69.5 million, which represents full-year 2005 expenses plus the stock-based compensation impact of SFAS 123R if it had been adopted in 2005.

The Company expects its full-year 2006 capital spending, which includes hardware and software, to be in the range of $5.0 million to $7.0 million.

The Company expects its diluted shares outstanding for the first quarter of 2006 to be in the range of 36.4 million to 36.6 million shares under the treasury stock method, including shares of non-voting common stock and shares issuable upon the exercise of options and warrants.Download the document now 36.3 kb (Adobe Acrobat Document)