MarketAxess(MKTX) - 2025 Q1 - Quarterly Report

PART I — Financial Information Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for Q1 2025 show net income decreased to $15.1 million from $72.6 million, driven by a higher tax provision, with total assets growing to $1.88 billion Consolidated Statements of Financial Condition As of March 31, 2025, total assets increased to $1.88 billion from $1.79 billion, while total liabilities rose to $530.8 million, leading to a decrease in stockholders' equity to $1.35 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,878,096 | $1,789,216 | | Cash and cash equivalents | $486,224 | $544,478 | | Receivables from broker-dealers, etc. | $493,613 | $357,728 | | Total Liabilities | $530,783 | $400,556 | | Payables to broker-dealers, etc. | $318,866 | $218,845 | | Income and other tax liabilities | $80,987 | $3,683 | | Total Stockholders' Equity | $1,347,313 | $1,388,660 | Consolidated Statements of Operations For Q1 2025, total revenues slightly decreased to $208.6 million, while expenses rose, and a significant $81.1 million tax provision led to net income falling to $15.1 million and diluted EPS to $0.40 Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenues | $208,576 | $210,318 | | Commissions | $181,343 | $184,873 | | Total Expenses | $120,194 | $117,818 | | Operating Income | $88,382 | $92,500 | | Provision for Income Taxes | $81,089 | $24,102 | | Net Income | $15,065 | $72,615 | | Diluted EPS | $0.40 | $1.92 | | Cash dividends declared per share | $0.76 | $0.74 | Consolidated Statements of Cash Flows In Q1 2025, net cash from operations improved to $29.6 million, while investing activities used $17.1 million and financing activities used $77.1 million, resulting in a $56.0 million decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $29,629 | $(4,949) | | Net cash (used in) investing activities | $(17,148) | $(15,830) | | Net cash (used in) financing activities | $(77,066) | $(52,543) | | Net decrease in cash and cash equivalents | $(56,005) | $(76,508) | Notes to Consolidated Financial Statements The notes detail accounting policies, revenue sources, regulatory capital, a $56.3 million provision for unrecognized tax benefits, $38.1 million in share repurchases, and the planned acquisition of RFQ-hub Holdings LLC - The company operates electronic trading platforms for global fixed-income markets, serving approximately 2,100 institutional investor and broker-dealer firms[26] Commission Revenue Breakdown (Q1 2025, in thousands) | Commission Type | Amount | | :--- | :--- | | Variable transaction fees | $147,991 | | Distribution fees and unused minimum fees | $33,352 | | Total Commissions | $181,343 | - The provision for income taxes for Q1 2025 includes a charge of $56.3 million ($54.9 million for prior periods and $1.4 million for the current period) for unrecognized tax benefits following a New York state tax court decision. This increased the effective tax rate for the quarter to 84.3%[82][83] - The company repurchased 187,905 shares of common stock for $38.1 million during the quarter. As of March 31, 2025, $187.0 million remained available under the 2024 Repurchase Program[106] - On April 19, 2024, the Company agreed to acquire a controlling interest in RFQ–hub Holdings LLC for approximately $37.9 million in cash, subject to regulatory approvals[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 results, noting a 0.8% revenue decrease to $208.6 million and a $56.3 million tax provision that reduced net income to $15.1 million, while highlighting strong liquidity and strategic technology investments Critical Factors Affecting Our Industry and Our Company Company performance is influenced by economic factors, intensifying competition, and evolving regulations, including new SEC proposals and EU's DORA, while technology investments like X-Pro platform remain key - In Q1 2025, U.S. high-grade and high-yield market average daily volumes increased by 8.4% and 14.1% year-over-year, respectively, but credit spreads and volatility remained at relatively low levels[120] - Competition has heightened in portfolio trading, where increased client use of competitor platforms could decrease MarketAxess's market share[125] - The company faces an evolving regulatory landscape, including proposed SEC rules to expand Regulation ATS to government securities and mandate central clearing for U.S. Treasuries, as well as the EU's Digital Operational Resilience Act (DORA)[127][129] Results of Operations In Q1 2025, total revenues decreased 0.8% to $208.6 million, expenses rose 2.0%, and a 236.4% surge in tax provision to $81.1 million caused net income to fall 79.3% to $15.1 million Q1 2025 vs Q1 2024 Financial Summary ($ in thousands) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $208,576 | $210,318 | (0.8)% | | Total Expenses | $120,194 | $117,818 | 2.0% | | Operating Income | $88,382 | $92,500 | (4.5)% | | Provision for Income Taxes | $81,089 | $24,102 | 236.4% | | Net Income | $15,065 | $72,615 | (79.3)% | - Total credit trading volume increased 6.3% to $976.0 billion, while the average variable transaction fee per million for credit decreased 9.7% to $139.18, mainly due to product and protocol mix-shift[166][167][169] - The company's estimated market share of U.S. high-grade volume decreased to 18.0% from 19.3% year-over-year, and its U.S. high-yield market share decreased to 11.9% from 12.9% year-over-year[168] Liquidity and Capital Resources The company maintains strong liquidity with $642.1 million in cash and investments, $749.9 million available credit, and $552.1 million in excess regulatory capital, funding share repurchases and a planned $37.9 million acquisition - As of March 31, 2025, the company had $749.9 million in available borrowing capacity under its $750.0 million revolving credit facility[179] - Net cash used in financing activities increased by $24.5 million year-over-year, primarily due to higher repurchases of common stock[185] - The company's subsidiaries maintained aggregate net capital and financial resources that were $552.1 million in excess of the required levels of $36.6 million[188] - The company plans to acquire a controlling interest in RFQ–hub Holdings LLC for approximately $37.9 million in cash[196] Non-GAAP Financial Measures The company presents non-GAAP measures, showing Q1 2025 adjusted net income of $70.0 million and diluted EPS of $1.87 (excluding a $54.9 million tax reserve), with EBITDA at $107.4 million and free cash flow at $47.1 million GAAP to Non-GAAP Reconciliation (Q1 2025) | Metric | GAAP-basis | Notable Items | Non-GAAP basis | | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $15,065 | $54,939 | $70,004 | | Diluted EPS | $0.40 | $1.47 | $1.87 | | Effective Tax Rate | 84.3% | (57.1)% | 27.2% | EBITDA and Free Cash Flow (Q1 2025, in thousands) | Metric | Amount | | :--- | :--- | | EBITDA | $107,434 | | EBITDA Margin | 51.5% | | Free Cash Flow | $47,067 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from $155.9 million in investments, interest rate risk on $644.5 million cash, foreign currency risk on 16.1% of revenues and 25.8% of expenses, and credit risk from matched principal trading - A hypothetical 100 basis point change in interest rates would impact annual interest income by approximately $6.4 million and change the fair value of its available-for-sale and trading securities portfolios by $1.0 million and $2.1 million, respectively[203][204][205] - Approximately 16.1% of revenues and 25.8% of expenses were denominated in currencies other than the U.S. dollar over the last twelve months, primarily the British Pound Sterling[207] - The company is exposed to credit risk as a matched principal trading counterparty and has policies and controls in place to manage this risk[209][210] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[213] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[214] PART II — Other Information Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, but their outcome is not expected to have a material adverse impact on its financial position - The outcome of outstanding legal matters is not expected to have a material adverse impact on the Company's financial position[217] Item 1A. Risk Factors No material changes in risk factors have been reported from the most recent Annual Report on Form 10-K - No material changes in risk factors from the most recent Form 10-K have been reported[218] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 234,293 shares of common stock, including 187,905 shares under repurchase programs, with $187.0 million remaining available under the 2024 program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 45,548 | $218.88 | | Feb 2025 | 104,840 | $193.21 | | Mar 2025 | 83,905 | $207.10 | | Total | 234,293 | $203.17 | - Of the total shares repurchased, 187,905 were part of the company's Repurchase Programs. As of March 31, 2025, the 2022 program was exhausted and $187.0 million remained under the 2024 program[220][221] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None[222] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[223] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q1 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading plan in Q1 2025[224] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including executive compensation agreements, equity plans, and CEO/CFO certifications - Exhibits filed include consulting agreements, forms of restricted stock unit and stock option agreements, and CEO/CFO certifications[225]