Business context and reporting period
MarketAxess Holdings Inc. operates electronic fixed-income trading platforms and provides market data, analytics, and post-trade services. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023; comparisons are to the same 2022 periods. The company reports one operating segment.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $172.3 | $172.1 | $555.3 | $540.4 |
| Operating income | $66.9 | $76.3 | $238.0 | $249.2 |
| Net income | $54.9 | $59.3 | $188.4 | $191.0 |
| Diluted EPS | $1.46 | $1.58 | $5.01 | $5.07 |
| Net margin | 31.9% | 34.5% | 33.9% | 35.3% |
| EBITDA margin, company-defined non-GAAP | 48.1% | 54.0% | 51.2% | 56.2% |
- Q3 total revenue was nearly unchanged: commissions declined 1.7% to $150.5 million, while information-services revenue rose 21.5% to $11.8 million and post-trade revenue rose 9.3% to $9.8 million.
- Q3 expenses rose 10.0% to $105.4 million, outpacing revenue. Operating income fell 12.3% and net income fell 7.4%. For the nine months, revenue increased 2.8%, but expenses increased 9.0%; operating income declined 4.5% and net income declined 1.3%.
- Q3 total platform trading volume declined 8.2% to $1.85 trillion. Credit volume edged up 0.3%, but rates volume fell 12.8%; high-yield volume declined 21.7%. Credit average variable transaction fee per million fell 6.5%, partly reflecting shorter U.S. high-grade bond duration and product mix.
- Operating cash flow for the first nine months was $192.1 million, versus $155.0 million. Company-defined free cash flow, a non-GAAP measure, was $165.0 million versus $166.7 million. Dividends paid were $82.1 million; there were no repurchases under the public share-repurchase program.
- At September 30, cash and cash equivalents were $420.5 million and investments were $132.8 million. Including segregated cash and clearing deposits, cash and cash equivalents and restricted/deposit cash totaled $588.9 million. Total assets were $1.74 billion and stockholders’ equity was $1.19 billion.
- No material funded borrowings were reported; short-term overdrafts were $4.0 million. A $750 million revolving facility had $749.9 million available, and separate uncommitted collateralized borrowing capacity was up to $500 million, with no borrowings outstanding. The company reported compliance with credit covenants and regulatory capital $505.6 million above required levels.
Outlook, commentary, and risks
- Management provided no specific forward revenue or earnings guidance in the supplied filing text. It expects cash, investments, operating cash flow, and credit availability to meet liquidity needs and planned capital expenditures for at least the next 12 months.
- Management cited challenging fixed-income markets: the 10-year U.S. Treasury yield rose more than 70 basis points during Q3 to above 4.50%; lower bond duration pressured credit transaction fees, while low credit-spread volatility weighed on high-yield activity. Management also noted ongoing inflationary pressure on compensation and technology costs.
- Automated trading protocols had $75.3 billion of Q3 volume, up 45.7% year over year; 167 client firms were active, up 24.6%, and dealer algorithmic responses rose 40.7%. The company launched its MarketAxess X-Pro platform in 2023.
- In October 2023, after quarter-end, MarketAxess acquired Pragma, an algorithmic trading and analytics provider, for approximately $128.6 million: $80.4 million in cash and 216,173 shares valued at approximately $48.2 million. The company also declared a $0.72-per-share quarterly dividend payable in November.
- Key risks include trading-volume and market-share changes, competition, market and interest-rate volatility, counterparty and settlement exposures, currency movements, cybersecurity, and evolving regulation. Management expects outstanding legal matters not to have a material adverse financial impact based on current information, but says ultimate exposure cannot presently be determined. New York State and New York City tax examinations remain ongoing.
- Other income included higher interest income, but “other, net” was a $1.7 million Q3 expense versus $0.4 million income a year earlier, primarily reflecting foreign-currency transaction losses rather than gains. The filing reported no material changes to previously disclosed risk factors.
Investor facts to verify
- Whether trading activity and market share recover, particularly in U.S. high-grade, high-yield, and rates, and whether lower credit fees per million persist.
- Whether expense growth moderates and how continued technology investment, hiring, and inflation affect operating and EBITDA margins.
- Pragma’s final purchase accounting, integration costs, use of cash and shares, and contribution to future results.
- Cash-flow comparability: operating cash flow is affected by matched-principal clearing balances and investment movements; the company’s free-cash-flow measure is non-GAAP.
- Liquidity and risk exposure from clearing and settlement activity, regulated-subsidiary capital limits, foreign-exchange hedges, and the $4.0 million overdraft balance.