MarketAxess Holdings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited results compared with Q1 2023. MarketAxess operates electronic fixed-income trading platforms and related data, post-trade and technology services.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $210.3 million | $203.2 million | +3.5% |
| Operating income | $92.5 million | $95.4 million | -3.0% |
| Operating margin | 44.0% | 46.9% | -2.9 percentage points |
| Net income | $72.6 million | $73.6 million | -1.4% |
| Diluted EPS | $1.92 | $1.96 | -2.0% |
| Cash dividends declared per share | $0.74 | $0.72 | Higher |
| Operating cash flow | $(4.9) million | $7.5 million | Down $12.5 million |
| Non-GAAP free cash flow | $30.9 million | $43.8 million | Lower |
- Revenue mix: commissions $184.9 million (+1.6%); information services $11.9 million (+7.9%); post-trade services $10.7 million (+7.5%); technology services $2.8 million, primarily reflecting Pragma.
- Total expenses rose 9.3% to $117.8 million, led by employee compensation (+17.1%), technology and communications (+13.7%), and depreciation and amortization (+10.6%). EBITDA was $109.3 million and EBITDA margin was 51.9%, versus $110.5 million and 54.4% in Q1 2023; both are non-GAAP measures.
- Cash and cash equivalents were $376.7 million and investments were $135.8 million at quarter-end. Cash and investments totaled $512.5 million; including segregated cash and deposits, cash and restricted cash totaled $535.2 million.
- No borrowings were outstanding under the $750 million revolving credit facility; $749.9 million was available. The company reported no outstanding settlement-bank facility borrowings or overdrafts and said it was covenant-compliant. Operating lease liabilities were $78.1 million.
Material changes and business drivers
- Total trading volume fell 15.9% to $2.0 trillion. Credit volume rose 7.4%, but rates volume fell 29.0%; U.S. high-yield volume declined 30.5% and U.S. Treasury volume declined 29.9%.
- Credit variable transaction fees increased 0.4% despite a 6.6% decline in the average credit fee per million. High-grade volume rose 16.1%, while high-yield weakness reflected lower estimated market share and reduced ETF market-maker activity. Rates fees declined 17.4%, principally with lower volumes.
- Management cited an active U.S. new-issue calendar and low credit-spread volatility as factors weighing on high-yield activity. U.S. high-grade and high-yield issuance rose 34.0% and 116.5%, respectively, year over year.
- Operating cash flow was negative, with working-capital movements—including lower payables to broker-dealers and customers, lower accrued compensation and tax payments—contributing to cash use. Investing cash outflow was $15.8 million, including $14.0 million of capitalized software costs; financing cash outflow was $52.5 million, including dividends, award-related tax withholding and $10.1 million of share repurchases.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management expects cash, investments, operating cash generation and available borrowing capacity to meet liquidity needs and planned capital expenditures for at least the next 12 months.
- Management noted that expenses may continue to rise with hiring, product investment, technology costs, regulatory complexity, acquisitions and inflation. Trading volumes and commissions remain sensitive to market activity, interest rates, spread volatility, new issuance, product mix and competition.
- Regulatory developments include the T+1 settlement change effective May 2024, proposed SEC rules affecting trading protocols, U.S. Treasury central clearing requirements and EU DORA requirements expected to apply to portions of the business in 2025. Their impacts remain uncertain.
- On April 19, 2024, the company agreed to acquire an additional 49% of RFQ-hub Holdings LLC for approximately $37.9 million, subject to closing conditions and regulatory approvals. Closing is expected in the second half of 2024; MarketAxess would then hold 92%.
- New York State tax examinations for 2015–2017 and New York City examinations for 2016–2018 remain open; the company cannot estimate their timing or impact. Ordinary-course legal matters are not currently expected to materially adversely affect financial position, though ultimate exposure cannot be determined.
- The company reported no material change in risk factors from its 2023 Form 10-K and no cybersecurity incident that materially affected it in at least the prior three years. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether trading volumes, especially high-yield and rates, and average credit fees recover or continue to pressure commission growth.
- Whether expense growth moderates and operating margins stabilize after the Q1 decline.
- Drivers of negative GAAP operating cash flow and the sustainability of non-GAAP free cash flow, dividends and repurchases.
- RFQ-hub acquisition closing, purchase economics, regulatory approvals and subsequent consolidation effects.
- Potential costs and operational effects of T+1, Treasury clearing, SEC rulemaking and other regulatory changes.
- Outcomes of the open New York tax examinations and any developments in legal or counterparty contingencies.