MarketAxess Holdings Inc. Earnings: Share Gains Drive Profits 33% Higher

Source: MarketAxess.

MarketAxess reported second-quarter results before the market open today. The global electronic bond trading network delivered earnings per share that came in slightly above Wall Street's estimates and revenue slightly below expectations. Investors appear to be selling first and asking questions later, with shares down about 4% as I write this at 9:40 a.m.

Revenue rose 16.2% year over year to $75.5 million and earnings per share surged 33.3% to $0.64. The revenue figure was less than 1% below the $76.25 million Wall Street expected, and EPS beat the $0.64 consensus estimate by a penny.

MarketAxess continues to gobble up market share in U.S. high-grade corporate debt, with an estimated 17% share in Q2 2015, up from 14% in the second quarter of 2014.

Total trading volume increased 31.6% to $244.7 billion. That helped variable transaction fees increase 32.2% to $50.6 million and commission revenue rise 22.3% to $66.4 million. All other revenue -- consisting of information and post-trade services, technology products and services, and investment income -- fell 14% to $9.1 million, primarily due to lower consulting fees and unfavorable foreign exchange fluctuations.

MarketAxess' operating leverage was also on full display in the second quarter. Total expenses increased only 7.1% to $38.4 million, mostly due to higher employee compensation and benefits costs. That helped pre-tax margin rise to 49.1%, compared to 44.7% in the year-ago quarter.

Pre-tax income was $37.1 million, up 27.5% year over year. A lower effective tax rate led to an even higher 33% jump in net income to $24.2 million. And share buybacks boosted EPS still further to $0.64 per share, a 33.3% year-over-year increase.

Balance sheet and capital return programMarketAxess continues to maintain a pristine balance sheet; as of June 30, 2015, the company had no debt and $236.8 million in cash, cash equivalents, and securities available for sale. Total assets and total stockholders' equity were $398.9 million and $359.9 million, respectively.

Combined with MarketAxess' strong cash flow generation, this fortress-like balance sheet strength has allowed the company to return cash to shareholders in the form of dividends and share buybacks. Management purchased 63,000 shares in the second quarter at a cost of $5.5 million (averaging to about $87 per share). As of June 30, 2015, approximately $47.6 million was still available for future repurchases under MarketAxess' $100 million share repurchase program.

Looking aheadManagement lowered its full-year 2015 tax rate guidance range to 35% to 36.5%, down from its previous range of 36% to 38%. Management also reconfirmed its full-year 2015 expense guidance range of $153 million to $159 million and capital spending guidance range of $14 million to $17 million.

"We are very pleased to report record volumes across U.S. high-grade, high-yield and emerging market bonds this quarter, driven by increased momentum in market share gains," said Chairman and CEO Richard McVey, in a press release. "Volumes and participation in Open Trading also reached new records this quarter. An acceleration in regulatory obligations, including the Volcker compliance requirements that went into effect this week, are reinforcing the need for all market participants to find new liquidity solutions, and access a broader group of trading counterparties."

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