Revenue and Trading Volume - In 2022, 89.3% of MarketAxess's revenues were derived from commissions for transactions executed on its platforms[14] - Total credit trading volume increased from approximately $1.7 trillion in 2018 to $2.9 trillion in 2022, with estimated market shares for U.S. high-grade and high-yield corporate bonds rising to 21.3% and 17.9%, respectively[18] - The average daily trading volume for Composite Corporate Bonds on MarketAxess platforms was approximately $9.4 billion in 2022, representing just 19.9% of the estimated addressable market of $47.5 billion[28] - For the year ended December 31, 2022, the average daily trading volume for U.S. high-grade bonds was $25.7 billion, an increase of 8.9% from $23.6 billion in 2021[35] - The average daily trading volume for emerging market debt was $20.8 billion, a slight increase of 2.0% from $20.4 billion in 2021[35] - MarketAxess executed approximately $939.6 billion in credit trading volume using Open Trading in 2022, which accounted for 35.9% of total eligible credit trading volume on its platforms[30] - MarketAxess executed $63.3 billion in corporate and municipal green bond trading volume globally in 2022, marking a 24.0% increase from 2021[72] Open Trading and Price Improvement - Open Trading generated an estimated $945.3 million in price improvement for clients in 2022, with $653.2 million from liquidity taker price improvement and $292.1 million from liquidity provider price improvement[20] - Approximately 35.9% of all eligible credit volume on the MarketAxess platform was executed via Open Trading protocols in 2022[45] - The company reported that Open Trading generated approximately $945.3 million of price improvement for clients in 2022[61] Client and Market Expansion - Revenues from international clients grew from 15.7% of total revenue in 2018 to 19.6% in 2022, with over 1,000 active international client firms[31] - The average daily trading volume in the EMEA, Latin America, and APAC regions on MarketAxess platforms increased from $1.8 billion in 2018 to $3.7 billion in 2022[31] - The company plans to leverage its Open Trading functionality to capture additional market share across core credit markets[39] Technology and Innovation - The company delivered approximately 710 unique new business and technical features to clients during the year ended December 31, 2022[26] - The proprietary pricing algorithm Composite+ generates near real-time prices for approximately 33,000 corporate and sovereign bonds, enhancing trading outcomes[58] - The technology team delivered approximately 710 unique new business and technical features to clients during the year ended December 31, 2022[65] - The company utilizes cloud technology to improve development velocity and enhance its technology platform, ensuring scalability and resiliency[65] Regulatory Environment and Compliance - The company is regulated by multiple authorities globally, including the FCA in the U.K. and ESMA in the E.U., which oversee its operations[90] - The MiFID II and MiFIR regulations introduced significant changes aimed at enhancing market transparency and efficiency, impacting the company's operations[95] - The SEC proposed rules to expand Regulation ATS and amend the definition of an "exchange" to include Communication Protocol Systems, affecting the company's trading protocols[89] - The company is subject to risks related to compliance with extensive regulations, which may affect trading volumes and increase operational costs[140] - Compliance with evolving data privacy regulations, such as GDPR, is critical, with potential penalties for non-compliance that could adversely affect the company's reputation and business[189] Competition and Market Risks - The company faces intense competition in the electronic fixed-income trading markets, which could reduce market share and harm financial performance[78] - The company competes with various electronic trading platforms, including Tradeweb and Bloomberg, in both credit and municipal markets[14] - The company faces substantial competition in the electronic financial services market, with competitors potentially offering lower costs and a wider range of trading solutions[143] - The company has experienced significant declines in trading volumes in the financial markets, which may continue to impact revenues and profitability during periods of low volatility or low trading volume[130] Workforce and Employee Engagement - As of December 31, 2022, MarketAxess had 744 employees, with a 10.1% increase in workforce compared to the previous year[110] - The global workforce composition was approximately 72.3% men and 27.7% women, with U.S. employees being 29.9% Asian, 5.2% Black or African American, and 7.6% Hispanic or Latinx[112] - MarketAxess increased its investment in employee learning and development in 2022, offering customized management training and leadership programs[116] - The overall employee engagement rate was measured at 81%, consistent with global averages for financial services[117] Financial Performance and Future Outlook - The company has experienced significant growth in trading volumes, revenues, and profitability in recent years, but future growth rates cannot be assured[149] - The introduction of new fee plans may not result in increased transaction volumes or revenues, and could potentially lead to reduced business from clients[150] - The company has experienced significant decreases in overall market volumes in the fixed-income markets, which could harm its business and profitability[138] Acquisitions and Investments - The company has made acquisitions in the past, including LiquidityEdge in 2019, Deutsche Börse's regulatory reporting business in 2020, and MuniBrokers in 2021[194] - The company announced a significant minority investment in RFQ-hub in 2022 to enhance its capabilities[197] Operational Risks - The company is exposed to operational risks due to self-clearing of bond transactions, which may lead to inefficiencies and increased expenses[167] - The integrity and capacity of the company's electronic trading platforms are essential for providing reliable service to clients, with potential disruptions leading to a material adverse effect on business[177] - The company faces risks from systems failures, cyber-attacks, and operational disruptions that could harm its reputation and lead to financial losses[185]

Financial Data and Key Metrics Changes - The company reported an 8% revenue growth for Q4 2022, marking the best fourth quarter ever, driven by record market share gains across most products [114][118] - EBITDA grew by 10% and EPS increased by 15% for the year, contributing to the 14th consecutive year of record annual revenue [5][118] - Total commission revenue increased by 9%, with credit commission revenue driven by record increases in estimated market share [15][136] Business Line Data and Key Metrics Changes - Automated trading volume reached a record $62 billion, with no-touch trades totaling 383,000, reflecting strong adoption of automation tools [112][148] - Portfolio trading volume in Q4 was $31 billion, up 135% year-over-year, with an estimated 31% share of the electronic portfolio trading market [135] - The Auto-X solution accounted for 20% of total trade count and 8% of credit trading volume, indicating increased adoption [12] Market Data and Key Metrics Changes - TRACE investment grade bond volumes increased by 23% in Q4 compared to the previous year, with ticket counts growing by 93% [107] - The market is seeing a shift towards fixed income ETFs, with over 70% of flows into fixed income going to ETFs, indicating a growing demand for electronic trading solutions [50][161] - The company noted a record 38% of credit volume executed through Open Trading, contributing to market share gains [6][99] Company Strategy and Development Direction - The company is focused on expanding its leadership position in global credit, with strategic initiatives aimed at enhancing trading and data capabilities [128][99] - The launch of Adaptive Auto-X is expected to provide algorithmic workflows for clients, enhancing liquidity access [113] - The company plans to continue investing in new product areas and geographical expansion, anticipating favorable conditions for e-trading and data revenue growth [128][99] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the fixed income market environment improving, with expectations for increased trading volumes in high-yield and emerging markets [121][130] - The company is monitoring inflation and interest rate trends, which could impact trading volumes, but remains positive about the outlook for 2023 [21][164] - The transition to a new CEO is seen as a strategic move to capitalize on growth opportunities ahead [7][110] Other Important Information - The company reported cash and investments of $515 million with no outstanding debt, indicating a strong balance sheet [137] - The effective tax rate for 2023 is expected to be in the range of 25% to 26%, with CapEx projected between $52 million and $58 million [138] - The company is exploring M&A opportunities in the FinTech space, particularly targeting smaller firms facing capital challenges [77][88] Q&A Session Summary Question: What could derail the outlook on volumes? - Management acknowledged that while the current outlook is positive, unexpected market changes could impact volumes, similar to past commodity market behaviors [142] Question: How do seasonal effects impact market share? - Management noted that market share typically declines in January due to seasonal issuance patterns, but remains optimistic about overall activity levels [143] Question: What is the outlook for high-grade and high-yield markets? - Management indicated that high-grade markets are seeing record activity levels, while high-yield markets are expected to improve as conditions stabilize [146][150] Question: How does the company view pricing flexibility in Open Trading? - Management expressed confidence in the current pricing dynamics and the potential for positive pricing opportunities as market behaviors evolve [152] Question: What are the growth expectations for ETFs and SMA accounts? - Management highlighted the growing demand for fixed income ETFs and SMA accounts, which are expected to drive automation and trading activity [161][162]

Key Themes Source: Corporate bond index duration data sourced from Bloomberg U.S. Corporate Bond Index; U.S. Dollar index data sourced from FactSet. ※ Market Axess® +8% (+10% ex. FX) +8% $100.2 +7% • Financial results include impact of lower duration on U.S. high-grade fee plan; trends improving with corporate bond index duration now 6% above the lows in October 2022. • Higher estimated market volumes and favorable backdrop for fixed income creating attractive operating environment for our model in 2023. 4 ...

Financial Data and Key Metrics Changes - Third quarter revenue was $172 million, up 6% year-over-year, driven by strong trading volume and record market share gains, but negatively impacted by lower duration of U.S. high-grade bonds and a strengthening U.S. dollar [30][31] - Excluding foreign currency fluctuations, revenues would have increased approximately 9% [31] - Total commission revenue increased 7%, with growth in total credit and total rates commission revenue driven by healthy increases in trading volume and estimated market share [34] Business Line Data and Key Metrics Changes - Record trading volume in municipal bonds and portfolio trading, with portfolio trading volume reaching $25 billion in Q3 [26] - Automated trading volume increased to $52 billion, reflecting continued strong adoption during heightened volatility [23] - Open Trading price improvement generated $260 million in estimated transaction cost savings for clients, double the savings from the previous year [21] Market Data and Key Metrics Changes - Emerging markets trading volume grew 8% during the quarter, with local markets' trading volume increasing 33% on a reported basis [27] - U.S. Treasuries saw an increase in active client firms trading on the platform, from 122 to 226 year-over-year [10] - Investment-grade bond indices were down 22% year-to-date, reflecting significant market volatility [12] Company Strategy and Development Direction - The company continues to execute its growth strategy, focusing on expanding market share across various products and enhancing its competitive position in the institutional client e-trading space [41][42] - The leadership position in global credit is expanding beyond U.S. high-grade bonds, with record market share in high yield and municipal bonds [7] - The company is leveraging its global client network and technology to grow share in existing products and add new product areas [17] Management's Comments on Operating Environment and Future Outlook - Management believes that higher bond yields create a better investing and trading environment, despite current volatility [13] - The expectation is that volatility will remain high in 2023, which may favor the company's trading model [87] - The company anticipates that the demand for automation in trading will continue to grow, driven by clients' needs for efficient trading solutions [96] Other Important Information - The effective tax rate was 24.8%, with expectations for the full year to be at the upper end of the previously stated range of 24% to 26% [33] - The company paid out $26 million in quarterly dividends and repurchased 280,000 shares for a total of $88 million year-to-date [39][90] - Cash and investments as of September 30 were $352 million, with trailing 12-month free cash flow of $239 million [38] Q&A Session Summary Question: What is driving the market share gains in U.S. high yield? - Management indicated that liquidity conditions are challenging, leading clients to rely on the all-to-all trading model for diversified sources of liquidity and price improvement [45][46] Question: What is the impact of proposed SEC regulations on central clearing? - Management believes that central clearing will benefit the market overall, but the implementation is still a year or two away [48][51] Question: How did fee per million progress during the quarter? - Fee capture was stable for total credit, with slight pressure from high-grade due to movements in bond yields and years to maturity [56][58] Question: What is the outlook for high-grade trading activity? - Management noted that high-grade market volumes are holding up well despite volatility, but outflows from bond funds are impacting activity [65][66] Question: What enhancements have been made to data and analytics capabilities? - The company has rolled out additional products for its CP+ offering and is seeing growing demand for portfolio construction data [68][71] Question: What are the investment priorities for the cash position? - The company plans to invest in the platform, consider opportunistic M&A, and return capital to shareholders through dividends and repurchases [96][97]

※ Market Axess® Q3 2022 Conference Call and Webcast October 19, 2022 ※ Market Axess® Strategic Update Rick McVey, Chairman and CEO 2 3Q22 Strategic Update & Highlights¹ • Record composite corporate bond2 estimated market share of 20.6%, up 170 bps. • Record U.S. high-yield estimated market share of 19.3%, up from 15.3%, on 25% increase in ADV. Increase penetration in core credit products • +360 bps point increase in emerging markets estimated market share to 20.6%, on 8% increase in ADV (up 12% constant cur ...

[PART I — Financial Information](index=3&type=section&id=PART%20I%20%E2%80%94%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's total assets increased to **$1.57 billion** as of June 30, 2022, from **$1.53 billion** at year-end 2021, while six-month revenues decreased to **$368.3 million** from **$371.8 million**, and net income fell to **$131.7 million** from **$147.7 million**, with operating cash flow at **$69.9 million** compared to **$73.6 million** Consolidated Statements of Financial Condition (Unaudited) | | June 30, 2022 (Millions USD) | December 31, 2021 (Millions USD) | | :--- | :--- | :--- | | **Total assets** | **$1,567.71** | **$1,530.45** | | **Total liabilities** | $566.91 | $489.14 | | **Total stockholders' equity** | $1,000.80 | $1,041.31 | Consolidated Statements of Operations (Unaudited) | | Three Months Ended June 30, 2022 (Millions USD) | Six Months Ended June 30, 2022 (Millions USD) | | :--- | :--- | :--- | | **Total revenues** | **$182.23** | **$368.29** | | **Operating income** | $84.79 | $172.89 | | **Net income** | $66.92 | $131.69 | | **Diluted EPS** | $1.78 | $3.49 | Consolidated Statements of Cash Flows (Unaudited) | | Six Months Ended June 30, 2022 (Millions USD) | Six Months Ended June 30, 2021 (Millions USD) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$69.91** | **$73.57** | | **Net cash (used in) investing activities** | ($55.64) | ($43.35) | | **Net cash (used in) financing activities** | ($187.05) | ($92.77) | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed accounting policies and supplementary information on financial statement items, including regulatory capital, acquisitions, income taxes, and segment reporting, confirming the company operates as a single business segment - In May 2022, the Company invested **$34.4 million** to acquire a minority ownership stake in RFQ–hub Holdings LLC, which will be accounted for under the equity method[57](index=57&type=chunk) - The effective tax rate for the six months ended June 30, 2022, was **26.8%**, up from **21.4%** in the prior year period, partly due to a **$3.2 million** expense for a settlement with New York State tax authorities[61](index=61&type=chunk)[180](index=180&type=chunk) - The company repurchased **280,315 shares** of common stock for **$87.5 million** in the first six months of 2022, following the authorization of a new **$150.0 million** share repurchase program in January 2022[84](index=84&type=chunk) - The company operates as a single business segment, with the Americas contributing the majority of revenues (**$299.9 million** for the six months ended June 30, 2022), followed by Europe (**$58.5 million**) and Asia (**$9.8 million**)[85](index=85&type=chunk)[86](index=86&type=chunk) - As of June 30, 2022, the Company's regulated subsidiaries maintained aggregate net capital and financial resources that were **$477.8 million** in excess of the required levels of **$21.7 million**[47](index=47&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting key business trends and critical factors, noting Q2 2022 revenue growth from higher trading volumes, but profitability impacts from lower average fees and increased operating expenses, while maintaining a strong liquidity position [Critical Factors Affecting Our Industry and Our Company](index=24&type=section&id=Critical%20Factors%20Affecting%20Our%20Industry%20and%20Our%20Company) The company's performance is influenced by economic factors like interest rates and credit spreads, geopolitical events, the competitive landscape of electronic trading, an evolving regulatory environment, and the need for continuous technology investment - Operating conditions improved in Q2 2022 with widening credit spreads, increased volatility, and higher U.S. high-grade market volumes, though a rise in corporate bond yields negatively affected average variable transaction fees due to lower bond duration[96](index=96&type=chunk) - The SEC has proposed rules to expand Regulation ATS to government securities and amend the definition of an "exchange," which is expected to require the company to operate all its trading protocols in compliance with Regulation ATS[105](index=105&type=chunk) - Automated trading volumes grew **39.0%** year-over-year to **$57.6 billion** in Q2 2022, and the use of dealer algorithms also increased, with **5.7 million** algorithmic responses, up **22.8%** from Q2 2021[110](index=110&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) For Q2 2022, revenues increased **3.3%** to **$182.2 million**, while net income slightly decreased to **$66.9 million**; for the first six months of 2022, revenues decreased **0.9%** to **$368.3 million**, and net income fell **10.9%** to **$131.7 million**, primarily due to higher operating expenses and a higher effective tax rate Q2 2022 vs Q2 2021 Financial Summary | | Three Months Ended June 30, 2022 (Millions USD) | Three Months Ended June 30, 2021 (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | **Revenues** | **$182.23** | **$176.33** | **3.3%** | | **Operating income** | $84.79 | $87.18 | (2.7)% | | **Net income** | $66.92 | $67.29 | (0.5)% | H1 2022 vs H1 2021 Financial Summary | | Six Months Ended June 30, 2022 (Millions USD) | Six Months Ended June 30, 2021 (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | **Revenues** | **$368.29** | **$371.80** | **(0.9)%** | | **Operating income** | $172.89 | $190.65 | (9.3)% | | **Net income** | $131.69 | $147.75 | (10.9)% | - The average variable transaction fee per million for U.S. high-grade bonds decreased **17.7%** in Q2 2022 and **16.0%** in H1 2022 compared to the same periods in 2021, primarily due to a decrease in the duration of bonds traded on the platforms[148](index=148&type=chunk)[169](index=169&type=chunk) - Total expenses for H1 2022 increased by **7.9%** to **$195.4 million**, driven by higher employee compensation and benefits (**+$4.4 million**), depreciation and amortization (**+$5.5 million**), and technology and communications (**+$4.1 million**)[173](index=173&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with **$324.8 million** in cash and investments as of June 30, 2022, supported by undrawn credit facilities, with significant cash uses including share repurchases, dividends, and strategic investments - As of June 30, 2022, the company had cash, cash equivalents, and investments totaling **$324.8 million**[181](index=181&type=chunk) - The company has a **$500.0 million** revolving credit facility and a **$200.0 million** collateralized agreement, both of which were undrawn as of June 30, 2022[182](index=182&type=chunk)[183](index=183&type=chunk) Cash Flow Summary (Six Months Ended June 30) | | 2022 (Millions USD) | 2021 (Millions USD) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$69.91** | **$73.57** | | Net cash (used in) investing activities | $(55.64) | $(43.35) | | Net cash (used in) financing activities | $(187.05) | $(92.77) | - The company's regulated subsidiaries held aggregate excess net capital of **$477.8 million** over the required levels of **$21.7 million**[191](index=191&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP measures such as EBITDA, EBITDA margin, and free cash flow to offer additional perspectives on its operational profitability and cash generation capabilities, with EBITDA at **$210.9 million** and free cash flow at **$96.8 million** for the six months ended June 30, 2022 EBITDA Reconciliation (Six Months Ended June 30) | | 2022 (Millions USD) | 2021 (Millions USD) | | :--- | :--- | :--- | | **Net income** | **$131.69** | **$147.75** | | Interest expense | 0.51 | 0.36 | | Provision for income taxes | 48.31 | 40.11 | | Depreciation and amortization | 30.41 | 24.88 | | **EBITDA** | **$210.92** | **$213.09** | | **EBITDA margin** | **57.3%** | **57.3%** | Free Cash Flow Reconciliation (Six Months Ended June 30) | | 2022 (Millions USD) | 2021 (Millions USD) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$69.91** | **$73.57** | | Less: Purchases of furniture, equipment, etc. | $(2.68) | $(9.81) | | Less: Capitalization of software development costs | $(18.56) | $(16.46) | | Exclude: Other items | 48.17 | 72.34 | | **Free Cash Flow** | **$96.83** | **$119.64** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to general market risk, interest rate risk on its cash and investments, foreign currency exchange rate risk from international operations, credit risk as a matched principal counterparty, and concentration risk with cash deposits at major global banks - A hypothetical **10%** increase or decrease in the U.S. dollar against other currencies would have impacted annual revenue by approximately **$11.9 million** and operating expenses by approximately **$10.8 million** over the last twelve months[207](index=207&type=chunk) - The company is exposed to credit and performance risk as a matched principal trading counterparty, particularly as the volume of anonymous Open Trading transactions increases[208](index=208&type=chunk)[209](index=209&type=chunk) - Cash and cash equivalents are primarily maintained at three major global banks, creating a concentration of credit risk[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that disclosure controls and procedures are effective to ensure timely and accurate reporting as required by the SEC[212](index=212&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2022[213](index=213&type=chunk) [PART II — Other Information](index=43&type=section&id=PART%20II%20%E2%80%94%20Other%20Information) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) In the normal course of business, the company is involved in various lawsuits and regulatory examinations, but management does not expect the outcome of these matters to have a material adverse impact on the company's financial position - The outcome of outstanding legal matters is not expected to have a material adverse impact on the Company's financial position, though the ultimate exposure cannot be determined[216](index=216&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes in the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes in risk factors from the most recent Form 10-K have been reported[217](index=217&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, the company repurchased **180,145 shares** of common stock for an average price of **$272.95** per share under a new **$150.0 million** share repurchase program authorized in January 2022, with approximately **$100.0 million** remaining available as of June 30, 2022 Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share (USD) | Approximate Dollar Value of Shares That May Yet Be Purchased (Millions USD) | | :--- | :--- | :--- | :--- | | April 2022 | 112,645 | $277.49 | $117.84 | | May 2022 | 67,500 | $265.38 | $100.02 | | June 2022 | — | — | $100.02 | | **Total** | **180,145** | **$272.95** | | - In January 2022, the Board of Directors authorized a new share repurchase program for up to **$150.0 million**[220](index=220&type=chunk) [Other Items (Items 3-6)](index=44&type=section&id=Other%20Items%20(Items%203-6)) The company reports no defaults upon senior securities, no mine safety disclosures, and no other material information to disclose under Item 5, with Item 6 listing the exhibits filed with the Form 10-Q, including certifications and XBRL data files - The company reported no defaults on senior securities, no mine safety disclosures, and no other information under Item 5[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)

MarketAxess Holdings Inc. (NASDAQ:MKTX) Q2 2022 Earnings Conference Call July 20, 2022 10:00 AM ET Company Participants Stephen Davidson - Head of Investor Relations Richard McVey - Chairman and CEO Chris Concannon - President and Chief Operating Officer Chris Gerosa - Chief Financial Officer Conference Call Participants Richard Repetto - Piper Sandler & Co. Kyle Voigt - Keefe, Bruyette & Woods, Inc. Gautam Sawant - Credit Suisse AG Patrick O'Shaughnessy - Raymond James & Associates, Inc. Daniel Fannon - Je ...

※ Market Axess® Q2 2022 Conference Call and Webcast July 20, 2022 ※ Market Axess® Strategic Update Rick McVey, Chairman and CEO 2 2Q22 Strategic Update & Highlights¹ • Record total credit trading volume; record composite corporate bond2 estimated market share of 20.2%. • Record combined U.S. high‐grade and U.S. high‐yield estimated market share, of 20.9%, up from 19.1%. Increase penetration in • Record U.S. high‐yield estimated market share of 17.3%, up from 14.3%. core credit products • Record emerging mar ...

PART I — Financial Information [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for MarketAxess Holdings Inc. for the quarter ended March 31, 2022, including the statements of financial condition, operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes to these financial statements [Consolidated Statements of Financial Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) The Consolidated Statements of Financial Condition show an increase in total assets primarily driven by higher receivables from broker-dealers, clearing organizations, and customers, while total liabilities also increased significantly due to higher payables to the same entities. Total stockholders' equity saw a slight decrease Fair Value Measurements (As of March 31, 2022, in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :------------------------------ | :------------------------------- | :-------------------- | :------- | | Total assets | $1,707,485 | $1,530,452 | $177,033 | 11.6% | | Total liabilities | $683,944 | $489,143 | $194,801 | 39.8% | | Total stockholders' equity | $1,023,541 | $1,041,309 | $(17,768) | -1.7% | - Receivables from broker-dealers, clearing organizations and customers increased significantly from **$408.3 million** at December 31, 2021, to **$721.1 million** at March 31, 2022[9](index=9&type=chunk) - Payables to broker-dealers, clearing organizations and customers increased substantially from **$229.3 million** at December 31, 2021, to **$458.5 million** at March 31, 2022[9](index=9&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2022, MarketAxess experienced a decrease in total revenues and net income compared to the same period in 2021, primarily driven by lower commissions, despite an increase in total expenses Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total revenues | $186,057 | $195,464 | $(9,407) | -4.8% | | Total expenses | $97,953 | $91,990 | $5,963 | 6.5% | | Operating income | $88,104 | $103,474 | $(15,370)| -14.9% | | Net income | $64,769 | $80,457 | $(15,688)| -19.5% | | Basic EPS | $1.73 | $2.15 | $(0.42) | -19.5% | | Diluted EPS | $1.71 | $2.11 | $(0.40) | -19.0% | - Commissions, the largest revenue component, decreased by **$9.7 million (-5.5%)** from **$175.8 million** in Q1 2021 to **$166.1 million** in Q1 2022[12](index=12&type=chunk) - Depreciation and amortization expenses increased by **$3.4 million (28.8%)** from **$11.8 million** in Q1 2021 to **$15.2 million** in Q1 2022[12](index=12&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the three months ended March 31, 2022, decreased significantly to $59,718 thousand from $78,525 thousand in the prior year, primarily due to lower net income and a larger negative cumulative translation adjustment Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $64,769 | $80,457 | | Cumulative translation adjustment | $(5,051) | $(1,932) | | Comprehensive income | $59,718 | $78,525 | - The cumulative translation adjustment resulted in a loss of **$5.1 million** in Q1 2022, compared to a loss of **$1.9 million** in Q1 2021, further reducing comprehensive income[15](index=15&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased from $1,041,309 thousand at January 1, 2022, to $1,023,541 thousand at March 31, 2022, primarily due to common stock repurchases and cash dividends, partially offset by net income and stock-based compensation Item (in thousands) | Item (in thousands) | Three Months Ended March 31, 2022 | | :------------------ | :-------------------------------- | | Balance at January 1, 2022 | $1,041,309 | | Net income | $64,769 | | Stock-based compensation | $8,099 | | Repurchases of common stock | $(38,800) | | Cash dividend on common stock | $(26,543) | | Balance at March 31, 2022 | $1,023,541 | - Repurchases of common stock amounted to **$38.8 million** for the three months ended March 31, 2022[17](index=17&type=chunk) - Cash dividends declared per common share were **$0.70** in Q1 2022, totaling **$26.5 million**[12](index=12&type=chunk)[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities remained relatively stable, while net cash used in investing activities decreased. Net cash used in financing activities significantly increased, primarily due to higher common stock repurchases and lower net short-term borrowings, leading to a substantial overall net decrease in cash and cash equivalents for the period Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash (used in) operating activities | $(23,730) | $(23,159) | $(571) | | Net cash (used in) investing activities | $(10,821) | $(12,332) | $1,511 | | Net cash (used in) financing activities | $(86,467) | $(18,850) | $(67,617)| | Net decrease for the period | $(125,374) | $(55,368) | $(70,006)| - The significant increase in cash used in financing activities was driven by an increase in repurchases of common stock (**$38.8 million** in Q1 2022 vs. **$0.5 million** in Q1 2021) and a net zero impact from short-term borrowings in Q1 2022 (proceeds of **$100.0 million** offset by repayments of **$100.0 million**) compared to net proceeds of **$34.3 million** in Q1 2021[19](index=19&type=chunk) - Capitalization of software development costs increased to **$9.4 million** in Q1 2022 from **$8.1 million** in Q1 2021[19](index=19&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on the company's organization, significant accounting policies, regulatory capital, fair value measurements, receivables/payables, acquisitions, goodwill and intangible assets, income taxes, stock-based compensation, earnings per share, credit agreements, leases, commitments, share repurchases, segment/geographic information, and cash reconciliation [Note 1. Organization and Principal Business Activity](index=8&type=section&id=Note%201.%20Organization%20and%20Principal%20Business%20Activity) MarketAxess Holdings Inc. operates leading electronic trading platforms for global fixed-income markets, offering expanded liquidity, improved execution, and cost savings. It serves over 1,900 institutional investor and broker-dealer firms with patented trading technology across various fixed-income securities, including U.S. investment-grade, high-yield, emerging market debt, Eurobonds, municipal bonds, and U.S. government bonds. The company also provides trading-related products and services like Composite+™ pricing, auto-execution, connectivity solutions, and pre- and post-trade services - MarketAxess operates electronic trading platforms for global fixed-income markets, serving over **1,900 institutional investor and broker-dealer firms**[21](index=21&type=chunk) - Key products include U.S. investment-grade bonds, U.S. high-yield bonds, emerging market debt, Eurobonds, municipal bonds, and U.S. government bonds[21](index=21&type=chunk) - The company offers Open Trading® protocols for all-to-all anonymous trading and various trading-related products and services, such as Composite+™ pricing, auto-execution, and pre/post-trade services[21](index=21&type=chunk) [Note 2. Significant Accounting Policies](index=8&type=section&id=Note%202.%20Significant%20Accounting%20Policies) The company's financial statements are prepared in accordance with U.S. GAAP and SEC rules, reflecting normal and recurring adjustments. Key policies include the consolidation of subsidiaries, classification of investments (available-for-sale or trading), fair value measurement using a three-tiered hierarchy, and specific revenue recognition criteria for commissions, information services, and post-trade services. The company also details policies for depreciation, software development, foreign currency translation, stock-based compensation, income taxes, business combinations, and earnings per share - The consolidated financial statements are unaudited and prepared in accordance with **U.S. GAAP** and **SEC rules** for Form 10-Q[22](index=22&type=chunk) - Revenue is disaggregated into four streams: Commissions, Information services, Post-trade services, and Other, each with specific recognition criteria[34](index=34&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk) Commission Revenue by Fee Type (Three Months Ended March 31, in thousands) | Commission Revenue by Fee Type (in thousands) | 2022 | 2021 | | :-------------------------------------------- | :-------- | :-------- | | Variable transaction fees | $134,873 | $148,398 | | Distribution fees and unused minimum fees | $31,240 | $27,440 | | Total commissions | $166,113 | $175,838 | - The company adopted ASU 2020-04, 'Reference Rate Reform (Topic 848),' as of January 1, 2022, but determined it had no impacted contracts or hedging relationships[23](index=23&type=chunk) [Note 3. Regulatory Capital Requirements](index=13&type=section&id=Note%203.%20Regulatory%20Capital%20Requirements) Certain U.S. and foreign subsidiaries are subject to regulatory capital requirements (SEC, FINRA, CFTC, FCA). As of March 31, 2022, all regulated subsidiaries exceeded their minimum net capital or financial resources requirements, with an aggregate excess of $567.3 million over the required $24.2 million. The U.S. broker-dealer subsidiary also maintained a special reserve bank account of $50.2 million for customers - Company subsidiaries are subject to regulatory capital requirements from **SEC, FINRA, CFTC, and FCA**[46](index=46&type=chunk) - As of March 31, 2022, aggregate net capital and financial resources were **$567.3 million** in excess of the required levels of **$24.2 million**[46](index=46&type=chunk) - The U.S. broker-dealer subsidiary maintained a **$50.2 million** balance in its special reserve bank account for customers and had **$360.9 million** in excess of its **$6.0 million** required net capital[47](index=47&type=chunk) [Note 4. Fair Value Measurements](index=13&type=section&id=Note%204.%20Fair%20Value%20Measurements) The company measures financial assets and liabilities at fair value using a three-tiered hierarchy. As of March 31, 2022, total assets measured at fair value were $50.2 million, primarily in Level 1 (money market funds) and Level 2 (trading securities, mutual funds in rabbi trust). Level 3 liabilities, consisting of contingent consideration payable from acquisitions, decreased to $39.1 million, reflecting a revaluation gain and foreign currency translation Fair Value Measurements (As of March 31, 2022, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :------- | :--------- | :--------- | :--------- | :--------- | | Assets | $14,300 | $35,875 | $— | $50,175 | | Liabilities | $— | $— | $39,119 | $39,119 | - Contingent consideration payable (Level 3 liability) decreased from **$41.1 million** at December 31, 2021, to **$39.1 million** at March 31, 2022, due to an unrealized gain of **$1.6 million** and a foreign currency translation impact of **$0.4 million**[49](index=49&type=chunk)[51](index=51&type=chunk) - Significant unobservable inputs for Level 3 liabilities include client retention rates (**84.0%**), electronic trading volume percentages (**86.0%-96.6%**), and variable fees[51](index=51&type=chunk) [Note 5. Receivables from and Payables to Broker-dealers, Clearing organizations and Customers](index=16&type=section&id=Note%205.%20Receivables%20from%20and%20Payables%20to%20Broker-dealers,%20Clearing%20organizations%20and%20Customers) Receivables from broker-dealers, clearing organizations, and customers significantly increased to $721.1 million as of March 31, 2022, from $408.3 million at December 31, 2021, primarily due to higher securities failed-to-deliver. Correspondingly, payables to these entities also rose substantially to $458.5 million from $229.3 million, driven by increased securities failed-to-receive Receivables and Payables (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :------------------------------------------ | :------------- | :---------------- | | Receivables from broker-dealers, clearing organizations and customers | $721,127 | $408,346 | | Payables to broker-dealers, clearing organizations and customers | $458,476 | $229,325 | - Securities failed-to-deliver to customers increased from **$182.1 million** to **$418.6 million**[56](index=56&type=chunk) - Securities failed-to-receive from broker-dealers and clearing organizations increased from **$166.0 million** to **$268.4 million**[56](index=56&type=chunk) [Note 6. Acquisitions](index=16&type=section&id=Note%206.%20Acquisitions) In April 2021, MarketAxess acquired MuniBrokers LLC for $17.1 million cash and up to $25.0 million in contingent consideration, recording $32.0 million in amortizable intangible assets and $7.4 million in goodwill. In 2022, a $1.6 million decrease in contingent consideration payable was recognized as a gain. In November 2020, the company acquired Regulatory Services GmbH for $22.5 million cash and up to $24.6 million in contingent consideration, recording $37.4 million in amortizable intangible assets - Acquired MuniBrokers LLC on April 9, 2021, for **$17.1 million** cash and up to **$25.0 million** contingent consideration[57](index=57&type=chunk) - MuniBrokers acquisition resulted in **$32.0 million** of amortizable intangible assets and **$7.4 million** of goodwill[57](index=57&type=chunk) - A **$1.6 million** decrease in contingent consideration payable related to MuniBrokers was recognized as a gain in Q1 2022[57](index=57&type=chunk) - Acquired Regulatory Services GmbH on November 30, 2020, for **$22.5 million** cash and up to **$24.6 million** contingent consideration, recording **$37.4 million** in amortizable intangible assets[58](index=58&type=chunk) [Note 7. Goodwill and Intangible Assets](index=16&type=section&id=Note%207.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained stable at $154.8 million. Amortizable intangible assets, net of accumulated amortization, decreased to $111.6 million as of March 31, 2022, from $116.4 million at December 31, 2021, primarily due to ongoing amortization. Amortization expense for Q1 2022 was $4.0 million, an increase from $2.7 million in Q1 2021 - Goodwill and intangible assets with indefinite lives remained at **$154.8 million** as of March 31, 2022, and December 31, 2021[59](index=59&type=chunk) Amortizable Intangible Assets (in thousands) | Category | March 31, 2022 Net Carrying Amount | December 31, 2021 Net Carrying Amount | | :------------------------ | :--------------------------------- | :------------------------------------ | | Customer relationships | $108,037 | $112,384 | | Technology and other intangibles | $3,583 | $3,993 | | Total | $111,620 | $116,377 | - Amortization expense for identifiable intangible assets was **$4.0 million** for the three months ended March 31, 2022, up from **$2.7 million** in the prior year[60](index=60&type=chunk) [Note 8. Income Taxes](index=17&type=section&id=Note%208.%20Income%20Taxes) The provision for income taxes increased to $25.7 million for Q1 2022, resulting in an effective tax rate of 28.4%, up from 21.0% in Q1 2021. This increase was primarily due to a $3.2 million expense related to a settlement with New York State tax authorities and lower excess tax benefits from share-based payments ($0.1 million in Q1 2022 vs. $4.0 million in Q1 2021) Income Tax Provision and Effective Tax Rate | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------ | :-------------------------------- | :-------------------------------- | | Provision for income taxes | $25,650 thousand | $21,344 thousand | | Effective tax rate | 28.4% | 21.0% | - The Q1 2022 provision included **$3.2 million** expense for a settlement with New York State tax authorities for 2010-2014 audits[61](index=61&type=chunk) - Excess tax benefits on share-based payments decreased significantly from **$4.0 million** in Q1 2021 to **$0.1 million** in Q1 2022[61](index=61&type=chunk) [Note 9. Stock-Based Compensation Plans](index=17&type=section&id=Note%209.%20Stock-Based%20Compensation%20Plans) Total stock-based compensation expense increased to $8.1 million for Q1 2022 from $7.4 million in Q1 2021. The company granted 56,548 restricted stock units, 23,904 stock options, and performance stock units with an expected payout of 22,141 shares in Q1 2022. Unrecognized compensation cost for non-vested awards totaled $58.8 million, expected to be recognized over a weighted-average period of 2.0 years Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------ | :-------------------------------- | :-------------------------------- | | Employees | $7,642 | $7,103 | | Non-employee directors | $457 | $321 | | Total | $8,099 | $7,424 | - As of March 31, 2022, **2,476,921 shares** were available for grant under the stock incentive plan[63](index=63&type=chunk) - Total unrecognized compensation cost related to non-vested awards was **$58.8 million**, with a weighted-average recognition period of **2.0 years**[66](index=66&type=chunk) [Note 10. Earnings Per Share](index=17&type=section&id=Note%2010.%20Earnings%20Per%20Share) Basic earnings per share decreased to $1.73 in Q1 2022 from $2.15 in Q1 2021, and diluted EPS decreased to $1.71 from $2.11. The weighted-average shares outstanding for both basic and diluted calculations slightly decreased, while a higher number of stock options and restricted stock were excluded from diluted EPS computation due to their antidilutive effect in Q1 2022 compared to Q1 2021 Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted average shares outstanding | 37,384 | 37,470 | | Diluted weighted average shares outstanding | 37,824 | 38,155 | | Basic earnings per share | $1.73 | $2.15 | | Diluted earnings per share | $1.71 | $2.11 | - **174,642 shares** of stock options and restricted stock were excluded from diluted EPS in Q1 2022 due to antidilutive effect, compared to **61,089 shares** in Q1 2021[68](index=68&type=chunk) [Note 11. Credit Agreements and Short-term Financing](index=18&type=section&id=Note%2011.%20Credit%20Agreements%20and%20Short-term%20Financing) MarketAxess replaced its 2020 Credit Agreement with a new three-year $500.0 million revolving credit facility (2021 Credit Agreement) in October 2021, maturing in October 2024. As of March 31, 2022, the company had $499.0 million in available borrowing capacity and was in compliance with all covenants. Additionally, a U.S. broker-dealer subsidiary has an uncommitted $200.0 million Collateralized Agreement with its settlement bank, with no outstanding borrowings as of March 31, 2022 - The 2021 Credit Agreement is a **$500.0 million** revolving credit facility, maturing October 15, 2024[71](index=71&type=chunk) - As of March 31, 2022, **$499.0 million** in borrowing capacity was available under the 2021 Credit Agreement, with **$1.0 million** in letters of credit outstanding[71](index=71&type=chunk) - A U.S. broker-dealer subsidiary has a **$200.0 million** uncommitted Collateralized Agreement, with no outstanding borrowings as of March 31, 2022[74](index=74&type=chunk) [Note 12. Leases](index=19&type=section&id=Note%2012.%20Leases) The company has operating leases for corporate offices with terms ranging from one to 15 years. Net lease cost for Q1 2022 was $3.383 million. As of March 31, 2022, the weighted average remaining lease term was 11.3 years with a weighted average discount rate of 5.9%. Total future lease payments amount to $120.058 million, with a present value of lease liabilities of $86.391 million Lease Cost (in thousands) | Lease Cost Component | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $3,310 | $3,323 | | Net lease cost | $3,383 | $3,324 | - As of March 31, 2022, the weighted average remaining lease term was **11.3 years**, and the weighted average discount rate was **5.9%**[78](index=78&type=chunk) Maturity of Lease Liabilities (As of March 31, 2022, in thousands) | Period | Amount | | :---------------- | :--------- | | Remainder of 2022 | $8,108 | | 2023 | $10,747 | | 2024 | $11,209 | | 2025 | $11,015 | | 2026 | $10,913 | | 2027 and thereafter | $68,066 | | Total lease payments | $120,058 | | Less: interest | $33,667 | | Present value of lease liabilities | $86,391 | [Note 13. Commitments and Contingencies](index=20&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) The company is involved in various lawsuits, proceedings, and regulatory examinations in the normal course of business. Management assesses potential liabilities and accrues for probable and estimable losses, but currently does not expect any outstanding matters to have a material adverse impact on its financial position. The company also faces credit risk from matched principal transactions and enters into contracts with indemnification provisions, for which the maximum exposure is unknown but considered remote based on experience - The company is involved in various lawsuits, proceedings, and regulatory examinations, but does not expect a material adverse impact on its financial position from outstanding matters[80](index=80&type=chunk)[81](index=81&type=chunk) - The company is exposed to credit risk in matched principal transactions where it acts as counterparty, but recorded no liabilities or losses for counterparty failures in Q1 2022 or Q1 2021[82](index=82&type=chunk) - The company enters into contracts with indemnification provisions, with maximum exposure unknown but risk of material loss considered remote[83](index=83&type=chunk) [Note 14. Share Repurchase Programs](index=20&type=section&id=Note%2014.%20Share%20Repurchase%20Programs) In January 2022, the Board of Directors authorized a new share repurchase program for up to $150.0 million, following the exhaustion of a $100.0 million program in January 2022. For the three months ended March 31, 2022, the company repurchased 101,514 shares of common stock at a cost of $38.8 million under these programs - A new **$150.0 million** share repurchase program was authorized in January 2022[84](index=84&type=chunk) - The previous **$100.0 million** share repurchase program, authorized in January 2021, was exhausted in January 2022[84](index=84&type=chunk) - For Q1 2022, **101,514 shares** were repurchased at a cost of **$38.8 million**[84](index=84&type=chunk) [Note 15. Segment and Geographic Information](index=21&type=section&id=Note%2015.%20Segment%20and%20Geographic%20Information) MarketAxess operates as a single business segment due to the integrated nature of its products and services. Geographically, the Americas generated the majority of revenues ($150.6 million) and long-lived assets ($75.1 million) in Q1 2022, followed by Europe ($30.7 million revenue, $19.9 million assets). The U.K. was the only individual foreign country accounting for 10% or more of total revenues or long-lived assets - The company operates as a **single business segment**[85](index=85&type=chunk) Revenues by Geographic Area (Three Months Ended March 31, in thousands) | Geographic Area | 2022 | 2021 | | :-------------- | :-------- | :-------- | | Americas | $150,556 | $160,119 | | Europe | $30,736 | $29,544 | | Asia | $4,765 | $5,801 | | Total | $186,057 | $195,464 | Long-Lived Assets by Geographic Area (As of, in thousands) | Geographic Area | March 31, 2022 | December 31, 2021 | | :-------------- | :------------- | :---------------- | | Americas | $75,141 | $75,328 | | Europe | $19,917 | $20,547 | | Asia | $244 | $186 | | Total | $95,302 | $96,061 | [Note 16. Cash and Cash Equivalents and Restricted Cash](index=21&type=section&id=Note%2016.%20Cash%20and%20Cash%20Equivalents%20and%20Restricted%20Cash) The total cash and cash equivalents, including restricted cash, decreased to $500.2 million as of March 31, 2022, from $625.6 million at December 31, 2021. This reconciliation includes cash and cash equivalents, cash segregated for regulatory purposes, deposits with clearing organizations and broker-dealers, and other deposits Cash and Cash Equivalents and Restricted Cash Reconciliation (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :------------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $364,567 | $506,735 | | Cash segregated for regulatory purposes | $50,187 | $50,159 | | Deposits with clearing organizations and broker-dealers | $85,331 | $68,565 | | Other deposits | $108 | $108 | | Total | $500,193 | $625,567 | - The total cash and cash equivalents including restricted cash decreased by **$125.4 million** from December 31, 2021, to March 31, 2022[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021. It covers an executive overview, critical factors affecting the industry, business trends, detailed analysis of revenues and expenses, critical accounting estimates, liquidity and capital resources, and non-GAAP financial measures [Executive Overview](index=22&type=section&id=Executive%20Overview) MarketAxess operates leading electronic trading platforms for global fixed-income markets, offering efficiency, liquidity, and cost savings to over 1,900 institutional investor and broker-dealer firms. The company leverages patented technology, including Open Trading®, and diverse trading protocols to connect participants and provide a full trading lifecycle solution, including automated trading, data products, and post-trade services. Revenue is derived from commissions, information services, post-trade services, and other sources, with a strategic focus on expanding its global electronic trading platforms - MarketAxess operates leading electronic trading platforms for global fixed-income markets, serving over **1,900 institutional investor and broker-dealer firms**[90](index=90&type=chunk) - The Open Trading marketplace is a key feature, creating a unique liquidity pool for corporate bonds and driving transaction cost savings[90](index=90&type=chunk)[91](index=91&type=chunk) - Revenue streams include commissions, information services, post-trade services, and other revenues[92](index=92&type=chunk) [Critical Factors Affecting Our Industry and Our Company](index=23&type=section&id=Critical%20Factors%20Affecting%20Our%20Industry%20and%20Our%20Company) The company's business is influenced by economic, political, and market factors such as declining trading volumes in U.S. high-grade and high-yield corporate bonds, geopolitical events like the Russia-Ukraine conflict, and the ongoing impact of the COVID-19 pandemic. Competition is intense, driven by client network, liquidity, transaction costs, and platform quality. Regulatory changes, including proposed SEC rules and Brexit-related divergence, increase compliance costs but may also drive demand for electronic platforms. Technological advancements, including automated trading and cybersecurity investments, are crucial for future success - Market volumes in U.S. high-grade and U.S. high-yield corporate bonds decreased by **6.9%** and **7.8%** respectively in Q1 2022 compared to Q1 2021[96](index=96&type=chunk) - The Russia-Ukraine conflict and associated sanctions are being monitored, with no material losses expected on unsettled trades, but potential adverse effects on markets[97](index=97&type=chunk) - Automated trading volumes increased by **26.3%** to **$49.3 billion** in Q1 2022, with algorithmic responses up **11.6%**[110](index=110&type=chunk) - New SEC proposed rules expanding Regulation ATS and SCI to government securities and amending the definition of an 'exchange' are expected to impact operations and compliance costs[105](index=105&type=chunk) [Trends in Our Business](index=25&type=section&id=Trends%20in%20Our%20Business) The company's revenue is primarily from commissions, which are influenced by participant numbers, price competitiveness, market availability, overall market activity, and bond duration. Trading volumes declined in Q1 2022 compared to Q1 2021. Information services and post-trade services revenues are recognized over time or at a point in time. Expenses, particularly employee compensation, depreciation, and technology, are expected to grow due to investments in new products, operational support, and geographic expansion. Other income/expense includes investment income, interest expense, and 'other, net' which captures unrealized gains/losses and foreign currency effects - Five key variables impact transaction notional value and commissions: number of participants, price competitiveness, market availability, overall market activity, and bond duration[112](index=112&type=chunk) - Commission revenue is generally calculated as a percentage of notional dollar volume and varies by bond type, size, yield, maturity, and client incentives[114](index=114&type=chunk) - Employee compensation and benefits is the most significant expense, expected to grow with headcount and investment in new products[123](index=123&type=chunk)[130](index=130&type=chunk) - Other, net includes unrealized gains/losses on trading securities, foreign currency transaction gains/losses, and gains/losses on revaluations of contingent consideration payable[132](index=132&type=chunk) [Critical Accounting Estimates](index=27&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates include stock-based compensation, particularly for performance equity awards, and contingent consideration payable related to acquisitions. For performance equity awards, a 10% change in expected final share payouts would impact compensation expense by $1.7 million. For contingent consideration, a 10% change in projected annual subscription and license fees would not materially impact the expected payable - Critical accounting estimates include stock-based compensation (performance equity awards) and contingent consideration payable[133](index=133&type=chunk) - A **10%** change in expected final share payouts for performance equity awards would increase or decrease life-to-date compensation expense by **$1.7 million**[135](index=135&type=chunk) - A **10%** change in projected annual subscription and license fees for contingent consideration payable would not have a material impact[136](index=136&type=chunk) [Recent Accounting Pronouncements](index=27&type=section&id=Recent%20Accounting%20Pronouncements) The company refers to Note 2 of the Consolidated Financial Statements for a discussion of recent accounting pronouncements - Refer to Note 2 for recent accounting pronouncements[137](index=137&type=chunk) [Segment Results](index=27&type=section&id=Segment%20Results) MarketAxess operates as a single business segment due to the highly integrated nature of its electronic trading platforms for fixed-income securities and related data, analytics, compliance tools, and post-trade services. Geographic or client sector results are not considered meaningful for understanding the business - The company operates as a **single business segment**[138](index=138&type=chunk) - This is due to the highly integrated nature of its products and services, financial markets, and worldwide business activities[138](index=138&type=chunk) [Results of Operations - Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021](index=28&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20March%2031,%202022%20Compared%20to%20Three%20Months%20Ended%20March%2031,%202021) For Q1 2022, total revenues decreased by 4.8% to $186.1 million, while total expenses increased by 6.5% to $98.0 million, leading to a 14.9% decrease in operating income and a 19.5% decrease in net income. This was influenced by lower commission revenues, particularly in U.S. high-grade credit, and increased depreciation, technology, and marketing expenses, partially offset by a significant increase in 'other income (expense)' due to revaluation gains and foreign exchange Financial Results Summary (in thousands, except per share amounts) | Metric | 2022 | 2021 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :------- | | Revenues | $186,057 | $195,464 | $(9,407) | (4.8)% | | Expenses | $97,953 | $91,990 | $5,963 | 6.5% | | Operating income | $88,104 | $103,474 | $(15,370) | (14.9)% | | Net income | $64,769 | $80,457 | $(15,688) | (19.5)% | | Net income per common share – Diluted | $1.71 | $2.11 | $(0.40) | (19.0)% | - A **2.9%** change in the average foreign currency exchange rates of the British pound sterling decreased revenues by **$0.8 million** and expenses by **$0.7 million**[140](index=140&type=chunk) - MuniBrokers contributed **$1.3 million** in revenue and **$1.8 million** in expenses (including **$1.2 million** amortization of acquired intangibles) in Q1 2022[139](index=139&type=chunk)[150](index=150&type=chunk) [Revenues](index=28&type=section&id=Revenues) Total revenues decreased by 4.8% to $186.1 million in Q1 2022, primarily due to a 5.5% decline in commissions. Information services revenue increased by 7.1%, while post-trade services revenue decreased by 3.4% Revenues by Type (in thousands) | Revenue Type | 2022 | % of Revenues | 2021 | % of Revenues | $ Change | % Change | | :------------------ | :-------- | :------------ | :-------- | :------------ | :-------- | :------- | | Commissions | $166,113 | 89.3% | $175,838 | 90.0% | $(9,725) | (5.5)% | | Information services | $9,809 | 5.3% | $9,162 | 4.7% | $647 | 7.1% | | Post-trade services | $9,912 | 5.3% | $10,261 | 5.2% | $(349) | (3.4)% | | Other | $223 | 0.1% | $203 | 0.1% | $20 | 9.9% | | Total revenues | $186,057 | 100.0% | $195,464 | 100.0% | $(9,407) | (4.8)% | [Commissions](index=29&type=section&id=Commissions) Total commissions decreased by 5.5% to $166.1 million in Q1 2022. This was driven by a 19.1% decrease in U.S. high-grade variable transaction fees due to lower trading volume and average fees per million, and a 3.9% decrease in other credit variable transaction fees. Conversely, rates variable transaction fees increased by 49.4% due to higher U.S. Treasury trading volume. Distribution fees for U.S. high-grade and other credit increased by 9.8% and 27.3% respectively Commission Revenues by Product (in thousands) | Commission Type | 2022 | 2021 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :------- | | U.S. high-grade variable transaction fees | $52,878 | $65,356 | $(12,478) | (19.1)% | | Other credit variable transaction fees | $75,804 | $78,899 | $(3,095) | (3.9)% | | Rates variable transaction fees | $6,191 | $4,143 | $2,048 | 49.4% | | U.S. high-grade distribution fees | $23,026 | $20,970 | $2,056 | 9.8% | | Other credit distribution fees | $8,152 | $6,404 | $1,748 | 27.3% | | Total commissions | $166,113 | $175,838 | $(9,725) | (5.5)% | Trading Volume Data (in millions) | Trading Volume Data | 2022 | 2021 | $ Change | % Change | | :------------------ | :---------- | :---------- | :---------- | :------- | | Total U.S. high grade | $342,093 | $363,441 | $(21,348) | (5.9)% | | Other credit | $403,718 | $391,020 | $12,698 | 3.2% | | Total credit | $745,811 | $754,461 | $(8,650) | (1.1)% | | Rates | $1,581,234 | $1,120,868 | $460,366 | 41.1% | Average Variable Transaction Fee Per Million | Average Variable Transaction Fee per Million | 2022 | 2021 | $ Change | % Change | | :------------------------------------------- | :-------- | :-------- | :-------- | :------- | | Total U.S. high-grade | $154.57 | $179.83 | $(25.26) | (14.0)% | | Other credit | $187.76 | $201.78 | $(14.02) | (6.9)% | | Rates | $3.92 | $3.70 | $0.22 | 5.9% | [Information Services](index=30&type=section&id=Information%20Services) Information services revenue increased by $0.6 million for Q1 2022, primarily driven by net new data contract revenue - Information services revenue increased by **$0.6 million** in Q1 2022, mainly due to net new data contract revenue[148](index=148&type=chunk) [Post-Trade Services](index=30&type=section&id=Post-Trade%20Services) Post-trade services revenue decreased by $0.3 million for Q1 2022, mainly due to the negative impact of foreign exchange rates - Post-trade services revenue decreased by **$0.3 million** in Q1 2022, primarily due to a negative foreign exchange impact of **$0.2 million**[148](index=148&type=chunk) [Expenses](index=31&type=section&id=Expenses) Total expenses increased by 6.5% to $98.0 million in Q1 2022. This was primarily driven by a $3.4 million increase in depreciation and amortization (due to acquired intangibles and software development costs) and a $2.2 million increase in technology and communications expenses (due to software subscriptions, cloud hosting, and market data). Marketing and advertising also increased by $0.6 million as pandemic-related reductions eased Expenses by Category (in thousands) | Expense Category | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :-------- | :-------- | :-------- | :------- | | Employee compensation and benefits | $47,756 | $48,088 | $(332) | (0.7)% | | Depreciation and amortization | $15,174 | $11,779 | $3,395 | 28.8% | | Technology and communications | $12,192 | $10,036 | $2,156 | 21.5% | | Marketing and advertising | $1,789 | $1,204 | $585 | 48.6% | | Total expenses | $97,953 | $91,990 | $5,963 | 6.5% | - Depreciation and amortization increased by **$3.4 million**, primarily due to **$1.4 million** higher amortization of acquired intangibles and **$1.8 million** higher amortization of software development costs[152](index=152&type=chunk) - Technology and communications expenses increased by **$2.2 million**, driven by higher software subscription costs (**$1.0 million**), cloud hosting costs (**$0.5 million**), and market data costs (**$0.3 million**)[153](index=153&type=chunk) [Other Income (Expense)](index=32&type=section&id=Other%20Income%20(Expense)) Total other income (expense) significantly improved, shifting from a net expense of $1.7 million in Q1 2021 to a net income of $2.3 million in Q1 2022. This $4.0 million increase was primarily driven by a $1.6 million gain on the revaluation of contingent consideration payable and higher foreign exchange gains of $1.8 million Other Income (Expense) (in thousands) | Category | 2022 | 2021 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :------- | | Investment income | $59 | $107 | $(48) | (44.9)% | | Interest expense | $(173) | $(191) | $18 | (9.4)% | | Other, net | $2,429 | $(1,589) | $4,018 | (252.9)% | | Total other income (expense) | $2,315 | $(1,673) | $3,988 | (238.4)% | - Other, net increased by **$4.0 million**, primarily due to a **$1.6 million** gain on revaluation of contingent consideration payable and **$1.8 million** higher foreign exchange gains[156](index=156&type=chunk) [Provision for Income Taxes](index=32&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes increased by 20.2% to $25.7 million in Q1 2022, resulting in an effective tax rate of 28.4%, up from 21.0% in Q1 2021. This was mainly due to a $3.2 million expense from a New York State tax settlement and significantly lower excess tax benefits from share-based compensation ($0.1 million in Q1 2022 vs. $4.0 million in Q1 2021) Income Tax Provision and Effective Tax Rate | Metric | 2022 | 2021 | $ Change | % Change | | :------------------ | :-------- | :-------- | :-------- | :-------- | | Provision for income taxes | $25,650 | $21,344 | $4,306 | 20.2% | | Effective tax rate | 28.4% | 21.0% | | | - The Q1 2022 provision included **$3.2 million** expense for a settlement with New York State tax authorities[157](index=157&type=chunk) - Excess tax benefits from share-based payments decreased from **$4.0 million** in Q1 2021 to **$0.1 million** in Q1 2022[157](index=157&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) MarketAxess met its Q1 2022 funding needs through cash, internally generated funds, and short-term borrowings, ending the quarter with $400.4 million in cash and investments. The company has a $500.0 million revolving credit facility (2021 Credit Agreement) with $499.0 million available and a $200.0 million uncommitted Collateralized Agreement, both with no outstanding borrowings. Regulatory capital requirements for subsidiaries were significantly exceeded. Net cash used in operating activities remained stable, while financing activities saw a substantial increase in cash usage due to share repurchases - Cash and cash equivalents and investments totaled **$400.4 million** as of March 31, 2022[158](index=158&type=chunk) - The company has **$499.0 million** in available borrowing capacity under its **$500.0 million** 2021 Credit Agreement and **$200.0 million** under its Collateralized Agreement, with no outstanding borrowings on either as of March 31, 2022[159](index=159&type=chunk)[160](index=160&type=chunk) - Subsidiaries maintained aggregate net capital and financial resources **$567.3 million** in excess of the required **$24.2 million**[168](index=168&type=chunk) Cash Flows Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | $ Change | % Change | | :----------------- | :-------- | :-------- | :-------- | :------- | | Net cash (used in) operating activities | $(23,730) | $(23,159) | $(571) | 2.5% | | Net cash (used in) investing activities | $(10,821) | $(12,332) | $1,511 | (12.3)% | | Net cash (used in) financing activities | $(86,467) | $(18,850) | $(67,617) | 358.7% | [Other Factors Influencing Liquidity and Capital Resources](index=33&type=section&id=Other%20Factors%20Influencing%20Liquidity%20and%20Capital%20Resources) The company believes current resources are adequate for short-term liquidity, but future needs depend on self-clearing operations, product development, expansion, and potential acquisitions. Regulatory restrictions prohibit subsidiaries from significantly reducing net capital without approval. The company faces credit risk from matched principal transactions but recorded no losses in Q1 2022 or Q1 2021. Operating lease commitments total $120.1 million. A new $150.0 million share repurchase program was authorized in January 2022, and a quarterly cash dividend of $0.70 per share was approved in April 2022 - Future liquidity and capital requirements depend on self-clearing operations, product development, expansion, and new business opportunities, including potential acquisitions[167](index=167&type=chunk) - The company has total future contractual rent payments on operating leases of **$120.1 million**, with **$10.8 million** due within the next 12 months[172](index=172&type=chunk) - A new **$150.0 million** share repurchase program was authorized in January 2022, and a quarterly cash dividend of **$0.70** per share was approved in April 2022[173](index=173&type=chunk)[174](index=174&type=chunk) [Non-GAAP Financial Measures](index=34&type=section&id=Non-GAAP%20Financial%20Measures) MarketAxess uses non-GAAP financial measures, EBITDA and free cash flow, to provide additional insights into operating results and liquidity. EBITDA decreased to $105.8 million in Q1 2022 from $113.8 million in Q1 2021. Free cash flow decreased to $34.0 million in Q1 2022 from $52.4 million in Q1 2021, primarily due to lower net cash from operating activities and increased software capitalization - Non-GAAP financial measures used are **EBITDA** and **free cash flow**[176](index=176&type=chunk) Reconciliation of Net Income to EBITDA (in thousands) | Metric | 2022 | 2021 | | :---------------------------------------- | :-------- | :-------- | | Net income | $64,769 | $80,457 | | Earnings before interest, taxes, depreciation and amortization | $105,766 | $113,771 | Reconciliation of Cash Flow from Operating Activities to Free Cash Flow (in thousands) | Metric | 2022 | 2021 | | :---------------------------------------- | :-------- | :-------- | | Net cash (used in) operating activities | $(23,730) | $(23,159) | | Free Cash Flow | $33,991 | $52,384 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) MarketAxess is exposed to market risk from adverse changes in interest rates and foreign currency exchange rates, as well as credit risk from matched principal trading. A hypothetical 10% decrease in U.S. Treasuries could result in substantial loss. A 10 basis point increase in interest rates would increase interest income by approximately $0.4 million. Foreign currency fluctuations (affecting 17.5% of revenue and 30.6% of expenses) could significantly impact financial results. The company manages credit risk with policies and controls, but these may not fully mitigate exposure - The company is exposed to market risk from interest rates and foreign currency exchange rates, and credit risk from matched principal trading[180](index=180&type=chunk)[181](index=181&type=chunk)[186](index=186&type=chunk) - A hypothetical **10 basis point** increase in interest rates would increase interest income by approximately **$0.4 million**[183](index=183&type=chunk) - Approximately **17.5%** of revenue and **30.6%** of expenses were denominated in non-U.S. dollar currencies during the twelve months ended March 31, 2022[185](index=185&type=chunk) - A hypothetical **10%** increase or decrease in the U.S. dollar against other currencies would impact revenue by approximately **$12.0 million** and operating expenses by approximately **$11.1 million**[185](index=185&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2022, and concluded they were effective. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as **effective** as of March 31, 2022[190](index=190&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[191](index=191&type=chunk) PART II — Other Information [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) MarketAxess and its subsidiaries are involved in various lawsuits, proceedings, and regulatory examinations in the normal course of business. Based on current information, the outcome of these matters is not expected to have a material adverse impact on the company's financial position, although the ultimate exposure cannot be precisely determined - The company is involved in various lawsuits, proceedings, and regulatory examinations[194](index=194&type=chunk) - The outcome of outstanding matters is not expected to have a material adverse impact on the company's financial position[194](index=194&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2021 - No material changes to risk factors from the 2021 Form 10-K[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) MarketAxess did not have any unregistered sales of equity securities. During Q1 2022, the company repurchased a total of 157,766 shares of common stock, including 101,514 shares under its share repurchase program at a cost of $38.8 million, and 56,252 shares surrendered by employees for tax obligations. A new $150.0 million share repurchase program was authorized in January 2022 - No unregistered sales of equity securities occurred[196](index=196&type=chunk) Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------------- | :------------------------------- | :--------------------------- | | January 1, 2022 - January 31, 2022 | 132,887 Shares | $375.74 | | February 1, 2022 - February 28, 2022 | 21,304 Shares | $377.98 | | March 1, 2022 - March 31, 2022 | 3,575 Shares | $348.09 | | Total | 157,766 Shares | $375.41 | - **101,514 shares** were repurchased under the share repurchase program at a cost of **$38.8 million**, and **56,252 shares** were surrendered by employees for tax obligations[84](index=84&type=chunk)[197](index=197&type=chunk) - A new **$150.0 million** share repurchase program was authorized in January 2022, commencing in March 2022[198](index=198&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - No defaults upon senior securities[200](index=200&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[201](index=201&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information[202](index=202&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various stock incentive plan agreements, a consulting services agreement, certifications by the CEO and CFO, and Inline XBRL documents - Exhibits include various stock incentive plan agreements (e.g., Restricted Stock Unit Agreement, Performance Stock Unit Agreement, Incentive Stock Option Agreement) for executive officers[204](index=204&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350 are filed[204](index=204&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Label, Presentation, Definition Linkbase Documents) are included[204](index=204&type=chunk)

MarketAxess Holdings Inc. (NASDAQ:MKTX) Q1 2022 Earnings Conference Call April 20, 2022 10:00 AM ET Company Participants Stephen Davidson - Head of Investor Relations Richard McVey - Chairman and Chief Executive Officer Chris Concannon - President and Chief Operating Officer Christopher Gerosa - Chief Financial Officer Conference Call Participants Richard Repetto - Piper Sandler & Co. Brian Bedell - Deutsche Bank AG Kyle Voigt - Keefe, Bruyette & Woods, Inc. Sean Horgan - Rosenblatt Securities Inc. Gautam S ...