MarketAxess(MKTX) - 2025 Q2 - Quarterly Report

PART I — Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q2 2025 financials show total assets at $1.97 billion, revenue up 11.0% to $219.5 million, and net income up 9.6% to $71.1 million Consolidated Statements of Financial Condition Total assets increased to $1.97 billion as of June 30, 2025, driven by receivables and goodwill, while liabilities also rose | Account | June 30, 2025 (In thousands) | December 31, 2024 (In thousands) | | :--- | :--- | :--- | | Total Assets | $1,974,938 | $1,789,216 | | Cash and cash equivalents | $462,837 | $544,478 | | Receivables from broker-dealers, etc. | $559,120 | $357,728 | | Goodwill | $286,020 | $236,706 | | Total Liabilities | $574,038 | $400,556 | | Payables to broker-dealers, etc. | $329,785 | $218,845 | | Income and other tax liabilities | $95,197 | $3,683 | | Total Stockholders' Equity | $1,386,185 | $1,388,660 | Consolidated Statements of Operations Q2 2025 revenues grew 11.0% to $219.5 million and net income rose 9.6% to $71.1 million, while H1 net income fell 37.3% due to higher taxes | Metric | Q2 2025 (In thousands) | Q2 2024 (In thousands) | YoY Change | H1 2025 (In thousands) | H1 2024 (In thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $219,462 | $197,660 | +11.0% | $428,038 | $407,978 | +4.9% | | Commissions | $191,770 | $171,679 | +11.7% | $373,113 | $356,552 | +4.6% | | Total Expenses | $127,598 | $116,321 | +9.7% | $247,792 | $234,139 | +5.8% | | Operating Income | $91,864 | $81,339 | +12.9% | $180,246 | $173,839 | +3.7% | | Provision for Income Taxes | $26,236 | $21,399 | +22.6% | $107,325 | $45,501 | +135.9% | | Net Income | $71,180 | $64,938 | +9.6% | $86,245 | $137,553 | -37.3% | | Diluted EPS | $1.91 | $1.72 | +11.0% | $2.31 | $3.64 | -36.5% | - Cash dividends declared per common share increased to $0.76 in Q2 2025 from $0.74 in Q2 2024[14] Consolidated Statements of Cash Flows H1 2025 operating cash flow increased to $133.3 million, but cash and equivalents decreased by $50.0 million due to acquisitions and share repurchases | Activity | Six Months Ended June 30, 2025 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $133,343 | $113,900 | | Net cash (used in) investing activities | $(68,177) | $(33,753) | | Net cash (used in) financing activities | $(142,315) | $(114,015) | | Net decrease in cash | $(50,005) | $(37,542) | - The acquisition of RFQ-hub resulted in a net cash outflow of $36.5 million[23] - Cash used for repurchases of common stock increased to $74.8 million in H1 2025 from $43.6 million in H1 2024[23] Notes to Consolidated Financial Statements Notes detail revenue recognition, the RFQ-hub acquisition, goodwill, a significant tax provision, and share repurchase activities Commission Revenue by Fee Type (Q2 2025 vs Q2 2024) | Fee Type | Q2 2025 (In thousands) | Q2 2024 (In thousands) | | :--- | :--- | :--- | | Variable transaction fees | $158,073 | $138,440 | | Distribution fees and unused minimum fees | $33,697 | $33,239 | | Total commissions | $191,770 | $171,679 | - In May 2025, the Company acquired a 90.3% controlling stake in RFQ-hub for cash consideration of $38.1 million, recognizing $49.3 million in goodwill and $30.3 million in intangible assets[78][81][83] - The effective tax rate for H1 2025 was 55.4%, up from 24.9% in H1 2024, primarily due to a $58.8 million provision for unrecognized tax benefits[91] - During H1 2025, the Company repurchased 355,688 shares for $74.8 million, with $150.3 million remaining under the 2024 Repurchase Program[116] Geographic Revenue Breakdown (H1 2025 vs H1 2024) | Region | H1 2025 (In thousands) | H1 2024 (In thousands) | | :--- | :--- | :--- | | United States | $291,288 | $282,666 | | United Kingdom | $87,299 | $79,111 | | Other | $49,451 | $46,201 | | Total | $428,038 | $407,978 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 revenue growth driven by trading volumes, increased expenses, a higher H1 tax rate, and strong liquidity Critical Factors Affecting Our Industry and Our Company Market conditions, competition, and evolving regulations, including DORA, significantly impact the company's industry and operations - In H1 2025, U.S. high-grade and high-yield market average daily volumes increased by 12.3% and 23.9%, respectively[130] - Increased client demand for portfolio trading has intensified competition, potentially impacting market share due to competing platforms[136] - The E.U.'s Digital Operational Resilience Act (DORA) became applicable in January 2025, introducing significant ICT governance and risk management requirements[140] Results of Operations Q2 2025 revenues rose 11.0% due to higher trading volumes, while H1 net income dropped 37.3% primarily from a substantial tax provision Q2 2025 vs Q2 2024 Trading Volume (in millions) | Product | Q2 2025 (in millions) | Q2 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Credit | $1,035,916 | $861,535 | +20.2% | | Total Rates | $1,994,517 | $1,285,423 | +55.2% | | Total Trading Volume | $3,030,433 | $2,146,958 | +41.2% | Q2 2025 vs Q2 2024 Average Variable Fee Per Million | Product | Q2 2025 ($) | Q2 2024 ($) | % Change | | :--- | :--- | :--- | :--- | | Credit | $138.02 | $148.16 | -6.8% | | Rates | $4.03 | $4.45 | -9.4% | - Employee compensation and benefits for Q2 2025 increased by $8.4 million YoY, primarily due to $4.0 million in severance costs[185] - The effective tax rate for H1 2025 increased to 55.4% from 24.9% in H1 2024, due to a reserve for unrecognized tax benefits[205] Liquidity and Capital Resources The company maintains strong liquidity with $620.9 million in cash and investments, and $749.9 million available under its credit facility - As of June 30, 2025, the company had $749.9 million in available borrowing capacity under its Credit Agreement[208] - Regulated subsidiaries held aggregate net capital $603.8 million in excess of the required $42.4 million[216] - The 2022 Share Repurchase Program was exhausted in Q1 2025, with $150.3 million remaining under the 2024 program[222] Non-GAAP Financial Measures The company uses non-GAAP measures like EBITDA and free cash flow, with Q2 2025 EBITDA at $110.8 million and an EBITDA margin of 50.5% Reconciliation of GAAP to Non-GAAP Diluted EPS (H1 2025) | Metric | H1 2025 ($) | | :--- | :--- | | Diluted EPS, GAAP-basis | $2.31 | | Notable items impact | $1.56 | | Diluted EPS, excluding notable items | $3.87 | EBITDA and EBITDA Margin | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | H1 2025 (in thousands) | H1 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | EBITDA | $110,820 | $98,913 | $218,254 | $208,173 | | EBITDA Margin | 50.5% | 50.0% | 51.0% | 51.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market, interest rate, foreign currency, and credit risks, with specific impacts quantified for interest rate and FX changes - A hypothetical 100 basis point change in interest rates would impact annual interest income by approximately $6.5 million[232] - A hypothetical 10.0% change in the U.S. dollar against other currencies would impact annual revenue by approximately $13.8 million and operating expenses by $13.4 million[236] - The company is exposed to credit risk as a matched principal trading counterparty, particularly with the growth of Open Trading[238] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[242] PART II — Other Information Item 1. Legal Proceedings The company is involved in routine legal matters, with outcomes not expected to materially impact its financial position - The outcome of outstanding legal matters is not expected to have a material adverse impact on the Company's financial position[246] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2024 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased 169,195 shares for $218.65 average per share, with $150.3 million remaining for repurchase Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2025 | 63,593 | $216.14 | | May 2025 | 56,032 | $219.31 | | June 2025 | 49,570 | $221.12 | | Total | 169,195 | $218.65 | - As of June 30, 2025, the company had $150.3 million of remaining capacity under the 2024 Repurchase Program[250] Item 5. Other Information The Chief Information Officer adopted a Rule 10b5-1 trading plan in May 2025 for the potential sale of up to 600 shares - On May 15, 2025, the Chief Information Officer adopted a Rule 10b5-1(c) trading arrangement for the sale of up to 600 shares of the Company's common stock, expiring May 29, 2026[253] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and various agreements