FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 |
For the quarterly period ended September 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-50670
MARKETAXESS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation)
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52-2230784
(IRS Employer Identification No.) |
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140 Broadway, 42nd Floor New York, New York
(Address of principal executive offices)
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10005
(Zip Code) |
(212) 813-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated Filer þ Non-accelerated filer o
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of October 30, 2007, the number of shares of the Registrants voting common stock
outstanding was 30,828,017 and the number of shares of the Registrants non-voting common stock was
2,585,654.
MARKETAXESS HOLDINGS INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
TABLE OF CONTENTS
2
PART I Financial Information
Item 1. Financial Statements
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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As of |
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September 30, |
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December 31, |
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2007 |
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2006 |
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(In thousands, except share and per |
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share amounts) |
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ASSETS |
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Cash and cash equivalents |
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$ |
74,350 |
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$ |
82,000 |
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Securities and cash provided as collateral |
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3,766 |
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3,798 |
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Securities available-for-sale |
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53,449 |
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49,015 |
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Accounts receivable, including receivables from related parties of
$6,411 and $8,579,
respectively, net of allowance of $827 and $752 as of September 30,
2007 and December 31,
2006, respectively |
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19,682 |
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17,429 |
|
Furniture, equipment and leasehold improvements, net of accumulated
depreciation
and amortization |
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3,251 |
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4,304 |
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Software development costs, net of amortization |
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5,991 |
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6,610 |
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Prepaid expenses and other assets |
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1,322 |
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2,221 |
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Deferred tax assets, net |
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36,558 |
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38,901 |
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Total assets |
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$ |
198,369 |
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$ |
204,278 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities |
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Accrued employee compensation |
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$ |
11,471 |
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$ |
12,813 |
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Deferred revenue |
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1,144 |
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|
857 |
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Accounts payable, accrued expenses, and other liabilities, including
payables to
related parties of $118 and $110 as of September 30, 2007 and
December 31, 2006, respectively |
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9,423 |
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5,323 |
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Total liabilities |
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22,038 |
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18,993 |
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Commitments and Contingencies (Note 12) |
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Stockholders equity |
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Preferred stock, $0.001 par value, 5,000,000 shares authorized with
no shares issued and outstanding as of September 30, 2007 and
December 31, 2006 |
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Common stock voting, $0.003 par value, 110,000,000 shares authorized
as of
September 30, 2007 and December 31, 2006; 33,010,307 shares and
29,409,537 shares
issued as of September 30, 2007 and December 31, 2006, respectively |
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99 |
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88 |
|
Common stock non-voting, $0.003 par value, 10,000,000 authorized as of
September 30, 2007 and December 31, 2006; 2,585,654 shares and
3,125,379 shares issued
and outstanding as of September 30, 2007 and December 31, 2006,
respectively |
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9 |
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11 |
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Warrants, 0 and 2,379,396 authorized, issued and outstanding as of
September 30, 2007 and December 31, 2006, respectively |
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11,658 |
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Additional paid-in capital |
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286,605 |
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265,030 |
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Receivable for common stock subscribed |
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(834 |
) |
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(1,042 |
) |
Treasury stock Common stock voting, at cost, 2,112,197 shares and
190,500 shares as
of September 30, 2007 and December 31, 2006, respectively |
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(30,030 |
) |
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(2,653 |
) |
Accumulated deficit |
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|
(78,662 |
) |
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|
(87,074 |
) |
Accumulated other comprehensive loss |
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(856 |
) |
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(733 |
) |
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Total stockholders equity |
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176,331 |
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185,285 |
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Total liabilities and stockholders equity |
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$ |
198,369 |
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$ |
204,278 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended Sept. 30, |
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Nine Months Ended Sept. 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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(In thousands, except share and per share amounts) |
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Revenues |
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Commissions |
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U.S. high-grade, including $4,756, $6,064,
$16,896 and
$17,034 from related parties for the three
and nine months
ended September 30, 2007 and
2006, respectively |
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$ |
11,982 |
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$ |
12,250 |
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$ |
40,196 |
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$ |
34,254 |
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European high-grade, including $1,235,
$1,401, $3,770 and
$5,095 from related parties for the three
and nine months
ended September 30, 2007 and 2006, respectively |
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4,889 |
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3,290 |
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14,099 |
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11,717 |
|
Other, including $1,002, $1,285, $3,597
and $4,120 from
related parties for the three and nine
months ended
September 30, 2007 and 2006, respectively |
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2,107 |
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2,057 |
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6,832 |
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6,371 |
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Total commissions |
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18,978 |
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17,597 |
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61,127 |
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52,342 |
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Information and user access fees, including
$218, $290, $595 and
$898 from related parties for the three
and nine months ended
September 30, 2007 and 2006, respectively |
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1,535 |
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1,426 |
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4,357 |
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4,108 |
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License fees |
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90 |
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247 |
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658 |
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742 |
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Investment income, including $474, $227,
$1,388 and $719 from
related parties for the three and nine
months ended
September 30, 2007 and 2006, respectively |
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1,332 |
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1,266 |
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3,812 |
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3,312 |
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Other, including $150, $125, $352 and $389
from related parties
for the three and nine months ended
September 30, 2007 and
2006, respectively |
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263 |
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238 |
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1,313 |
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732 |
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Total revenues |
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22,198 |
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20,774 |
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71,267 |
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61,236 |
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Expenses |
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Employee compensation and benefits |
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10,258 |
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10,483 |
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32,771 |
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31,264 |
|
Depreciation and amortization |
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1,686 |
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|
1,703 |
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5,476 |
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5,025 |
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Technology and communications |
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1,897 |
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1,956 |
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5,595 |
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5,799 |
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Professional and consulting fees |
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1,883 |
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1,883 |
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5,505 |
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6,922 |
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Occupancy |
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869 |
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|
778 |
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2,423 |
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2,270 |
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Marketing and advertising |
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|
481 |
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338 |
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1,364 |
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1,193 |
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General and administrative, including $7,
$16, $32 and $47 to
related parties for the three and nine
months ended
September 30, 2007 and 2006, respectively |
|
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1,481 |
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1,403 |
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3,982 |
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3,748 |
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Total expenses |
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18,555 |
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18,544 |
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57,116 |
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56,221 |
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Income before income taxes |
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3,643 |
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2,230 |
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|
14,151 |
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|
5,015 |
|
Provision for income taxes |
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1,233 |
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|
933 |
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5,739 |
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1,832 |
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Net income |
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$ |
2,410 |
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$ |
1,297 |
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$ |
8,412 |
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$ |
3,183 |
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Net income per common share
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Basic |
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$ |
0.07 |
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$ |
0.04 |
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$ |
0.26 |
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$ |
0.11 |
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Diluted |
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$ |
0.07 |
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$ |
0.04 |
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$ |
0.24 |
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$ |
0.09 |
|
Weighted average shares outstanding
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Basic |
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32,828,978 |
|
|
|
31,319,771 |
|
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|
32,190,478 |
|
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|
30,274,448 |
|
Diluted |
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|
34,575,086 |
|
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|
34,792,784 |
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34,592,715 |
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|
35,028,296 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
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Treasury |
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Common |
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Receivable |
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Stock |
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Accumu- |
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Total |
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Common |
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Stock |
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Additional |
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for Common |
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Common |
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Accumu- |
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lated Other |
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Stock- |
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Stock |
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Non- |
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Paid-In |
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Stock |
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Stock |
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lated |
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Comprehen- |
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holders |
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Voting |
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Voting |
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Warrants |
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Capital |
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Subscribed |
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Voting |
|
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Deficit |
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|
sive Loss |
|
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Equity |
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|
(In thousands) |
|
Balance at December 31, 2006 |
|
$ |
88 |
|
|
$ |
11 |
|
|
$ |
11,658 |
|
|
$ |
265,030 |
|
|
$ |
(1,042 |
) |
|
$ |
(2,653 |
) |
|
$ |
(87,074 |
) |
|
$ |
(733 |
) |
|
$ |
185,285 |
|
Comprehensive income: |
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Net income |
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|
8,412 |
|
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|
|
|
|
|
8,412 |
|
Cumulative translation adjustment
and foreign currency exchange
hedge, net of tax |
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
(145 |
) |
|
|
(145 |
) |
Unrealized net gains on Securities
available-for-sale, net of tax |
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|
22 |
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|
22 |
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Total comprehensive income |
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|
8,289 |
|
Effect of adoption of FIN 48 |
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|
324 |
|
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|
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|
|
|
|
|
|
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|
324 |
|
Stock-based compensation |
|
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|
|
|
|
|
|
|
|
|
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|
4,101 |
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|
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|
4,101 |
|
Issuance of common stock related to
exercise of stock options and grants
of restricted stock |
|
|
2 |
|
|
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|
|
|
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|
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|
5,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,112 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389 |
|
Conversion from non-voting to voting
common stock |
|
|
2 |
|
|
|
(2 |
) |
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Exercise of warrants |
|
|
7 |
|
|
|
|
|
|
|
(11,658 |
) |
|
|
11,651 |
|
|
|
|
|
|
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|
|
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Repayment of promissory notes |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,377 |
) |
|
|
|
|
|
|
|
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|
|
(27,377 |
) |
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|
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|
Balance at September 30, 2007 |
|
$ |
99 |
|
|
$ |
9 |
|
|
$ |
|
|
|
$ |
286,605 |
|
|
$ |
(834 |
) |
|
$ |
(30,030 |
) |
|
$ |
(78,662 |
) |
|
$ |
(856 |
) |
|
$ |
176,331 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
The accompanying notes are an integral part of these consolidated financial statements.
5
MARKETAXESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
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|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,412 |
|
|
$ |
3,183 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
5,476 |
|
|
|
5,025 |
|
Stock based compensation expense |
|
|
4,101 |
|
|
|
4,541 |
|
Deferred taxes |
|
|
5,350 |
|
|
|
762 |
|
Provision for bad debts |
|
|
272 |
|
|
|
538 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) in accounts receivable, including decrease (increase) of $2,168 and
($2,167) from
related parties for the nine months ended September 30, 2007 and 2006,
respectively |
|
|
(2,525 |
) |
|
|
(4,538 |
) |
Decrease in prepaid expenses and other assets |
|
|
899 |
|
|
|
1,667 |
|
(Decrease) in accrued employee compensation |
|
|
(1,342 |
) |
|
|
(3,097 |
) |
Increase (decrease) in deferred revenue |
|
|
287 |
|
|
|
(579 |
) |
Increase in accounts payable, accrued expenses and other liabilities, including
increase of $8 and $157 to related parties for the nine months ended
September 30, 2007 and 2006 |
|
|
1,400 |
|
|
|
577 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
22,330 |
|
|
|
8,079 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
Proceeds from maturities and sales |
|
|
36,855 |
|
|
|
65,039 |
|
Purchases |
|
|
(41,250 |
) |
|
|
(63,213 |
) |
Securities and cash provided as collateral |
|
|
32 |
|
|
|
42 |
|
Purchases of furniture, equipment and leasehold improvements |
|
|
(1,137 |
) |
|
|
(2,309 |
) |
Capitalization of software development costs |
|
|
(2,645 |
) |
|
|
(2,824 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,145 |
) |
|
|
(3,265 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options and grants of restricted stock |
|
|
5,112 |
|
|
|
1,516 |
|
Excess tax benefits from stock-based compensation |
|
|
389 |
|
|
|
1,076 |
|
Repayment of promissory notes |
|
|
208 |
|
|
|
|
|
Purchase of treasury stock common stock voting |
|
|
(27,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(21,668 |
) |
|
|
2,592 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(167 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
|
(7,650 |
) |
|
|
7,104 |
|
Beginning of period |
|
|
82,000 |
|
|
|
58,189 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
74,350 |
|
|
$ |
65,293 |
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
127 |
|
|
$ |
203 |
|
Non-cash activity: |
|
|
|
|
|
|
|
|
Non-cash
exercise of warrants and issuance of common stock |
|
$ |
11,658 |
|
|
$ |
6,035 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited
1. Organization and Principal Business Activity
MarketAxess Holdings Inc. (the Company) was incorporated in the State of Delaware on April
11, 2000. Through its subsidiaries, the Company operates an electronic trading platform for
corporate bonds and certain other types of fixed-income securities, through which the Companys
active institutional investor clients can access the liquidity provided by its broker-dealer
clients. The Companys multi-dealer trading platform allows its institutional investor clients to
simultaneously request competitive, executable bids or offers from multiple broker-dealers, and to
execute trades with the broker-dealer of their choice. The Company offers its clients the ability
to trade U.S. high-grade corporate bonds, European high-grade corporate bonds, credit default
swaps, agencies, high yield and emerging markets bonds. The Companys DealerAxess®
trading service allows dealers to trade fixed-income securities with each other on its platform.
The Company also provides data and analytical tools that help its clients make trading decisions
and facilitates the trading process by electronically communicating order information between
trading counterparties. The Companys current participating dealers are: ABN AMRO, Banc of America
Securities, Barclays PLC, Bear Stearns, BNP Paribas, Brownstone Investment Group, Calyon, CIBC
World Markets, Citigroup Global Markets, Credit Suisse, Deutsche Bank Securities, Dresdner Bank AG,
DZ Bank AG, FTN Financial, Goldman Sachs, HSBC, ING Financial Markets, JPMorgan, Jefferies and
Company, KBC Financial Products, Lehman Brothers, Merrill Lynch, Morgan Stanley, RBC Capital
Markets, The Royal Bank of Scotland, Santander Investment Securities, SG Corporate & Investment
Banking, UBS, Wachovia Securities and Wall Street Access.
The Companys stockholder broker-dealer clients as of January 1, 2007 were Banc of America
Securities, Bear Stearns, BNP Paribas, Credit Suisse, JPMorgan, Lehman Brothers and UBS. All of
these broker-dealer clients constitute related parties of the Company (together, the Stockholder
Broker-Dealer Clients). For 2006, a total of nine dealers were considered to be Stockholder
Broker-Dealer Clients. See Note 8, Related Parties.
The Companys U.S. subsidiary, MarketAxess Corporation, is a registered broker-dealer with the
U.S. Securities and Exchange Commission (SEC) and is a member of the National Association of
Securities Dealers, Inc. (NASD). The Company also has three international subsidiaries:
MarketAxess Europe Limited (MarketAxess Europe), which is registered as an Alternative Trading
System with the Financial Services Authority (FSA) in the United Kingdom (U.K.) and will become
a Multilateral Trading Facility following implementation of the Markets in Financial Instruments
Directive in November 2007; MarketAxess Leasing Limited (collectively with MarketAxess Europe, the
U.K. Subsidiaries); and MarketAxess Canada Limited, a Canadian subsidiary. MarketAxess Canada
Limited has applied for registration as an Alternative Trading System dealer under the Securities
Act of Ontario and is in the process of seeking approval for membership with the Investment Dealers
Association of Canada.
2. Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company and its
subsidiaries. All intercompany transactions and balances have been eliminated.
These Consolidated Financial Statements are unaudited and should be read in conjunction with
the audited Consolidated Financial Statements included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2006. The consolidated financial information as of December 31,
2006 has been derived from audited financial statements not included herein.
These unaudited Consolidated Financial Statements are prepared in accordance with accounting
principles generally accepted in the United States and the rules and regulations of the SEC with
respect to Form 10-Q and reflect all adjustments that, in the opinion of management, are normal and
recurring, and which are necessary for a fair statement of the results for the interim periods
presented. In accordance with such rules and regulations, certain disclosures that are normally
included in annual financial statements have been omitted. Interim period operating results may not
be indicative of the operating results for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash maintained at U.S. and U.K. banks and in money market
funds. The Company defines cash equivalents as short-term interest-bearing investments with
maturities at the time of purchase of three months or less.
7
Securities and Cash Provided as Collateral
Securities provided as collateral consist of U.S. government obligations and cash.
Collectively, these amounts are used as collateral for standby letters of credit, as collateral for
foreign currency forward contracts to hedge the Companys net investments in the U.K. Subsidiaries
and as collateral for a broker-dealer clearance account.
Securities Available-for-Sale
The Company classifies its marketable securities as Available-for-sale securities. Unrealized
marketable securities gains and losses are reflected as a net amount under the caption of
Accumulated other comprehensive loss in the Consolidated Statements of Financial Condition.
Realized gains and losses are recorded in the Consolidated Statements of Operations in Other
revenues. For the purpose of computing realized gains and losses, cost is determined on a specific
identification basis.
The Company assesses whether an other-than-temporary impairment loss on the investments has
occurred due to decreases in fair value or other market conditions. Declines in fair values that
are considered other-than-temporary are recorded as charges in the Consolidated Statements of
Operations.
Allowance for Doubtful Accounts
The Company continually monitors collections and payments from its clients and maintains an
allowance for doubtful accounts. The allowance for doubtful accounts is based upon the historical
collection experience and specific collection issues that have been identified. Additions to the
allowance for doubtful accounts are charged to bad debt expense, which is included in General and
administrative expense in the Companys Consolidated Statements of Operations.
Depreciation and Amortization
Fixed assets are carried at cost less accumulated depreciation. The Company uses the
straight-line method of depreciation over three years. Leasehold improvements are stated at cost
and are amortized using the straight-line method over the lesser of the life of the improvement or
the remaining term of the lease.
Software Development Costs
In accordance with the American Institute of Certified Public Accountants Statement of
Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, the Company capitalizes certain costs associated with the development of internal
use software at the point at which the conceptual formulation, design and testing of possible
software project alternatives have been completed. The Company capitalizes employee compensation
and related benefits and third party consulting costs incurred during the preliminary software
project stage. Once the product is ready for its intended use, such costs are amortized on a
straight-line basis over three years. The Company reviews the amounts capitalized for impairment
whenever events or changes in circumstances indicate that the carrying amounts of the assets may
not be recoverable.
Revenue Recognition
The majority of the Companys revenues are derived from commissions for trades executed on its
platform that are billed to its broker-dealer clients on a monthly basis. The Company also derives
revenues from information and user access fees, license fees, investment income and other income.
Other income includes revenues from technology consulting services.
Commissions are generally calculated as a percentage of the notional dollar volume of bonds
traded on the platform and vary based on the type and maturity of the bond traded. Under the
Companys transaction fee plans, bonds that are more actively traded or that have shorter
maturities are generally charged lower commissions, while bonds that are less actively traded or
that have longer maturities generally command higher commissions.
The Company enters into agreements with its broker-dealer clients pursuant to which the
Company provides access to its platform through a non-exclusive and non-transferable license.
Broker-dealer clients, other than those that previously made equity investments in the Company,
generally pay an initial license fee, which is typically due and payable upon execution of the
broker-dealer agreement. The initial license fee varies by agreement and at a minimum is intended
to cover the initial set-up costs incurred to enable
8
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
a broker-dealer to begin using the Companys electronic trading platform. Revenue is recognized in
the first three months of the agreement in the estimated amount of the set-up costs incurred (50%
in the first month, 40% in the second month and 10% in the third month), and the remaining amount
is deferred and recognized ratably over the initial term of the agreement, which is generally three
years. The Company anticipates that license fees will be a less material source of revenues on a
going-forward basis.
Revenues from contracts for technology integration consulting services are recognized on the
percentage-of-completion method in accordance with Statement of Position 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts. Percentage-of-completion
accounting involves calculating the percentage of services provided during the reporting period
compared to the total estimated services to be provided over the duration of the contract. If
estimates indicate that a contract loss will occur, a loss provision is recorded in the period in
which the loss first becomes probable and reasonably estimable. Contract losses are determined to
be the amount by which the estimated direct and indirect costs of the contract exceed the estimated
total revenues that will be generated by the contract. There were no contract loss provisions
recorded as of September 30, 2007. Revenues recognized in excess of billings are recorded as
unbilled services. Billings in excess of revenues recognized are recorded as Deferred revenues
until revenue recognition criteria are met.
Stock-Based Compensation for Employees
The Company measures and recognizes compensation expense for all share-based payment awards
made to employees in accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123R). This statement requires that compensation expense for all share-based awards be recognized
based on their estimated fair values measured as of the grant date. These costs are recognized as
an expense in the Consolidated Statements of Operations over the requisite service period, which is
typically the vesting period, with an offsetting increase to Additional paid-in capital. The
Company adopted SFAS 123R using the modified prospective transition method, which required the
application of the accounting standard as of January 1, 2006.
Income Taxes
Income taxes are accounted for using the asset and liability method in accordance with SFAS
No. 109, Accounting for Income Taxes (SFAS 109). Deferred income taxes reflect the net tax
effects of temporary differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is recognized against deferred tax assets if it is more likely than not that such assets
will not be realized in future years.
Foreign Currency Translation and Forward Contracts
Assets and liabilities denominated in foreign currencies are translated using exchange rates
at the end of the period; revenues and expenses are translated at average monthly rates. Gains and
losses on foreign currency translation are a component of Accumulated other comprehensive loss on
the Consolidated Statements of Financial Condition. Transaction gains and losses are recorded in
General and administrative expense in the Consolidated Statements of Operations.
The Company enters into foreign currency forward contracts to hedge its net investment in the
U.K. Subsidiaries. In accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, gains and losses on these transactions are deferred and included in
Accumulated other comprehensive loss on the Consolidated Statements of Financial Condition.
Earnings Per Share
SFAS No. 128, Earnings Per Share, requires the presentation of basic and diluted earnings
per share (EPS) in the Consolidated Statements of Operations. Basic EPS is computed by dividing
the net income attributable to common stock by the weighted-average number of shares of common
stock outstanding for the period. Diluted EPS is computed using the same method as basic EPS, but
in the denominator, shares of common stock outstanding reflect the dilutive effect that could occur
if convertible securities or other contracts to issue common stock were converted into or exercised
for common stock.
9
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments (SFAS 155). SFAS 155 is an amendment of SFAS No. 133 and SFAS No. 140. SFAS 155
permits companies to elect, on a deal-by-deal basis, to apply a fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation. SFAS 155 is effective for all financial instruments acquired or issued after the
beginning of an entitys first fiscal year that begins after September 15, 2006. Adoption of SFAS
155 did not affect the Companys Consolidated Financial Statements.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
(SFAS 156). SFAS 156 amends SFAS No. 140. SFAS 156 requires that all separately recognized
servicing assets and servicing liabilities be initially measured at fair value. For subsequent
measurements, SFAS 156 permits companies to choose between an amortization method or a fair value
measurement method for reporting purposes. SFAS 156 is effective as of the beginning of a companys
first fiscal year that begins after September 15, 2006. Adoption of SFAS 156 did not affect the
Companys Consolidated Financial Statements.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48) which applies to all tax
positions accounted for under SFAS 109. A tax position includes current or future reductions in
taxable income reported or expected to be reported on a tax return. FIN 48 supplements SFAS 109 by
defining the confidence level that a tax position must meet in order to be recognized in the
financial statements. The interpretation requires that the tax effects of a position be recognized
only if it is more-likely-than-not (greater than 50% likelihood) to be sustained based solely on
its technical merits as of the reporting date. In making this assessment, a company must assume
that the taxing authorities will examine the position. As a result of the implementation of FIN 48
effective January 1, 2007, the Company recognized an increase in deferred tax assets of $3.0
million related to previously unrecognized tax benefits, which was accounted for as an increase to
Additional paid-in capital of $0.3 million and an increase in accrued expenses of $2.7 million.
See Note 7, Income Taxes.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Company does not expect SFAS 157 to have a material impact on its
Consolidated Financial Statements.
In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 permits companies to elect to measure eligible
financial instruments, commitments and certain other arrangements at fair value at specified
election dates, with changes in fair value recognized in earnings at each subsequent reporting
period. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does
not expect SFAS 159 to have a material impact on its Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to the prior periods financial statements in order
to conform to the current periods presentation. Such reclassifications had no effect on previously
reported Net income.
10
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
3. Net Capital Requirements and Customer Protection Requirements
The Companys U.S. subsidiary, MarketAxess Corporation, maintains a registration as a U.S.
securities broker-dealer. Pursuant to the Uniform Net Capital Rule under the Securities Exchange
Act of 1934, MarketAxess Corporation is required to maintain minimum net capital, as defined, equal
to the greater of $5 thousand or 6 2/3% of aggregate indebtedness. A summary of MarketAxess
Corporations capital requirements is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
(In thousands) |
|
Net capital |
|
$ |
18,575 |
|
|
$ |
14,982 |
|
Required net capital |
|
|
(1,031 |
) |
|
|
(1,048 |
) |
|
|
|
|
|
|
|
Excess net capital |
|
$ |
17,544 |
|
|
$ |
13,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of aggregate
indebtedness to net
capital |
|
|
.83 to 1 |
|
|
|
1.05 to 1 |
|
MarketAxess Corporation claims exemption from SEC Rule 15c3-3, as it does not hold customer
securities or funds on account, as defined.
MarketAxess Europe is subject to certain financial resource requirements of the FSA. A summary
of these financial resource requirements is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
(In thousands) |
|
Financial resources |
|
$ |
17,716 |
|
|
$ |
14,882 |
|
Resource requirement |
|
|
(7,707 |
) |
|
|
(4,372 |
) |
|
|
|
|
|
|
|
Excess financial resources |
|
$ |
10,009 |
|
|
$ |
10,510 |
|
|
|
|
|
|
|
|
MarketAxess Corporation and MarketAxess Europe are subject to U.S. and U.K. regulations as a
registered broker-dealer and as an Alternative Trading System dealer, respectively, which prohibit
repayment of borrowings from the Company or affiliates, paying cash dividends, making loans to the
Company or affiliates or otherwise entering into transactions that result in a significant
reduction in regulatory net capital or financial resources, respectively, without prior
notification to or approval from such regulated entitys principal regulator.
4. Securities
The following is a summary of the Companys Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency issues and municipal
securities |
|
$ |
53,442 |
|
|
$ |
11 |
|
|
$ |
(4 |
) |
|
$ |
53,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities available-for-sale |
|
$ |
53,442 |
|
|
$ |
11 |
|
|
$ |
(4 |
) |
|
$ |
53,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency issues and municipal
securities |
|
$ |
48,036 |
|
|
$ |
5 |
|
|
$ |
(37 |
) |
|
$ |
48,004 |
|
Corporate Bonds |
|
|
1,010 |
|
|
|
1 |
|
|
|
|
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities available-for-sale |
|
$ |
49,046 |
|
|
$ |
6 |
|
|
$ |
(37 |
) |
|
$ |
49,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
5. Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements, net, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
(In thousands) |
|
Computer hardware and related software |
|
$ |
16,254 |
|
|
$ |
15,208 |
|
Office hardware |
|
|
3,241 |
|
|
|
3,166 |
|
Furniture and fixtures |
|
|
1,819 |
|
|
|
1,741 |
|
Leasehold improvements |
|
|
2,239 |
|
|
|
2,221 |
|
Accumulated depreciation and amortization |
|
|
(20,302 |
) |
|
|
(18,032 |
) |
|
|
|
|
|
|
|
Total furniture, equipment and leasehold
improvements, net |
|
$ |
3,251 |
|
|
$ |
4,304 |
|
|
|
|
|
|
|
|
6. Software Development Costs
Software development costs, net, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
(In thousands) |
|
Software development costs |
|
$ |
16,632 |
|
|
$ |
13,977 |
|
Accumulated amortization |
|
|
(10,641 |
) |
|
|
(7,367 |
) |
|
|
|
|
|
|
|
Total software development costs, net |
|
$ |
5,991 |
|
|
$ |
6,610 |
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2007 and 2006, software development costs totaling
$2.6 million and $2.8 million, respectively, were capitalized. Non-capitalized software costs and
routine maintenance costs are expensed as incurred and are included in Employee compensation and
benefits and Professional and consulting fees in the Consolidated Statements of Operations.
7. Income Taxes
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
187 |
|
|
$ |
|
|
|
$ |
421 |
|
State and local |
|
|
|
|
|
|
37 |
|
|
|
88 |
|
|
|
78 |
|
Foreign |
|
|
(9 |
) |
|
|
142 |
|
|
|
69 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
|
(9 |
) |
|
|
366 |
|
|
|
157 |
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
550 |
|
|
|
310 |
|
|
|
3,163 |
|
|
|
436 |
|
State and local |
|
|
303 |
|
|
|
366 |
|
|
|
1,560 |
|
|
|
523 |
|
Foreign |
|
|
389 |
|
|
|
(109 |
) |
|
|
859 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision |
|
|
1,242 |
|
|
|
567 |
|
|
|
5,582 |
|
|
|
986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
$ |
1,233 |
|
|
$ |
933 |
|
|
$ |
5,739 |
|
|
$ |
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
The following is a summary of the Companys net deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
(In thousands) |
|
Deferred tax assets and
liabilities |
|
$ |
37,218 |
|
|
$ |
53,669 |
|
Valuation allowance |
|
|
(660 |
) |
|
|
(14,768 |
) |
|
|
|
|
|
|
|
Deferred tax assets, net |
|
$ |
36,558 |
|
|
$ |
38,901 |
|
|
|
|
|
|
|
|
The Company or one of its subsidiaries files U.S. federal, state and foreign income tax
returns. With the exception of New York and Connecticut state tax returns, all U.S. federal, state
and U.K. income tax returns have not been subject to audit. The Companys New York State franchise
tax returns for 2000 through 2003 and Connecticut income tax returns for 2002 through 2004 are
currently under examination. An examination of the New York City tax returns for 2001 to 2003
recently concluded with no adjustments. The Company cannot estimate when the other examinations
will conclude.
As a result of the implementation of FIN 48 effective January 1, 2007, the Company recognized
an increase in deferred tax assets of $3.0 million related to previously unrecognized tax benefits,
which was accounted for as an increase to Additional paid-in capital of $0.3 million and an
increase in accrued expenses of $2.7 million. Unrecognized tax benefits as of January 1, 2007 and
September 30, 2007 were $2.7 million and $2.8 million, respectively. If recognized, this entire
amount would impact the effective tax rate. In accordance with FIN 48, certain deferred tax assets
aggregating $14.1 million were no longer recognized and the related valuation allowance was
reversed.
The Company recognizes interest and penalties related to unrecognized tax benefits in General
and administrative expenses in the Consolidated Statements of Operations. As of the adoption date
of FIN 48, accrued interest and penalties associated with any unrecognized tax benefits were zero.
Interest expense recognized for the nine months ended September 30, 2007 was $30 thousand.
In the first quarter of 2007, the Company experienced an ownership change within the meaning
of Section 382 of the Internal Revenue Code. The Company does not believe that this ownership
change significantly impacts the ability to utilize existing net operating loss carryforwards.
8. Related Parties
The Company generates commissions, information and user access fees and other income and
related accounts receivable balances from Stockholder Broker-Dealer Clients or their affiliates.
In addition, two Stockholder Broker-Dealer Clients act in an investment advisory, custodial and
cash management capacity for the Company. The Company also maintains
an account with a Stockholder Broker-Dealer Client in connection with
its share repurchase program. The Company incurs investment advisory and bank fees in
connection with these arrangements. As of the dates and for the periods indicated below, the
Company had the following balances and transactions with the Stockholder Broker-Dealer Clients or
their affiliates:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, 2007 |
|
December 31, 2006 |
|
|
(In thousands) |
Cash and cash equivalents |
|
$ |
57,753 |
|
|
$ |
33,050 |
|
Accounts receivable |
|
|
6,411 |
|
|
|
8,579 |
|
Accounts payable, accrued
expenses
and other liabilities |
|
|
118 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Commissions |
|
$ |
6,993 |
|
|
$ |
8,750 |
|
|
$ |
24,263 |
|
|
$ |
26,249 |
|
Information and user access fees |
|
|
218 |
|
|
|
290 |
|
|
|
595 |
|
|
|
898 |
|
Investment income |
|
|
474 |
|
|
|
227 |
|
|
|
1,388 |
|
|
|
719 |
|
Other income |
|
|
150 |
|
|
|
125 |
|
|
|
352 |
|
|
|
389 |
|
General and administrative |
|
|
7 |
|
|
|
16 |
|
|
|
32 |
|
|
|
47 |
|
13
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
9. Stockholders Equity
As of September 30, 2007 and December 31, 2006, the Company had 110,000,000 authorized shares
of common stock and 10,000,000 authorized shares of non-voting common stock. Voting common stock
entitles the holder to one vote per share of common stock held. During the nine months ended
September 30, 2007, a total of 539,725 shares of non-voting common stock were converted to voting
common stock.
During the nine months ended September 30, 2007, two Stockholder Broker-Dealer Clients
converted 2,379,200 warrants into 2,378,764 shares of common stock through non-cash exercises. The
exercise of warrants in the current period and prior years resulted in an unrecognized deferred tax
asset of $19.2 million that will be recorded as an increase to Additional paid-in capital once the
tax benefit serves to reduce taxes payable in future years.
In October 2006, the Board of Directors of the Company authorized a share repurchase program
for up to $40.0 million of the Companys common stock. The Company has repurchased and may continue
to repurchase the shares in the open market or through privately negotiated transactions, at times
and prices considered appropriate by the Company. Shares repurchased under the program will be held
in treasury for future use. During the three months ended September 30, 2007, a total of 204,840
shares were repurchased at a cost of $3.5 million. During the nine months ended September 30,
2007, a total of 1,921,697 shares were repurchased at a cost of $27.4 million. A total of
2,112,197 shares have been repurchased at an aggregate cost of $30.0 million from the inception of
the repurchase program through September 30, 2007.
10. Stock-Based Compensation Plans
Stock-based compensation expense for the three and nine months ended September 30, 2007 and
2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
583 |
|
|
$ |
677 |
|
|
$ |
2,264 |
|
|
$ |
2,529 |
|
Restricted stock |
|
|
568 |
|
|
|
484 |
|
|
|
1,518 |
|
|
|
1,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151 |
|
|
|
1,161 |
|
|
|
3,782 |
|
|
|
4,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee directors and
consultants: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
36 |
|
|
|
39 |
|
|
|
101 |
|
|
|
226 |
|
Restricted stock |
|
|
83 |
|
|
|
81 |
|
|
|
218 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
120 |
|
|
|
319 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
1,270 |
|
|
$ |
1,281 |
|
|
$ |
4,101 |
|
|
$ |
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records stock-based compensation for employees in Employee compensation and
benefits and for non-employee directors and consultants in General and administrative expenses in
the Consolidated Statements of Operations.
During the nine months ended September 30, 2007, the Company granted to employees and
directors a total of 596,500 options to purchase shares of the Companys common stock and 32,000
shares of restricted stock. Based on the Black-Scholes-Merton closed-form model, the weighted
average fair value for each option granted was $6.01 per share. The fair value of the restricted
stock granted was based on a weighted average grant date fair value of $15.48 per share. The total
pre-forfeiture compensation expense for such awards measured on the date of grant amounted to $4.1
million and will be recognized over the requisite service period, which is typically three years.
14
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
11. Earnings Per Share
A reconciliation of basic to diluted weighted average shares of common stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Common stock voting |
|
|
30,243,324 |
|
|
|
27,910,847 |
|
|
|
29,424,916 |
|
|
|
26,251,178 |
|
Common stock non-voting |
|
|
2,585,654 |
|
|
|
3,408,924 |
|
|
|
2,765,562 |
|
|
|
4,023,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding |
|
|
32,828,978 |
|
|
|
31,319,771 |
|
|
|
32,190,478 |
|
|
|
30,274,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
2,379,199 |
|
|
|
772,977 |
|
|
|
3,242,667 |
|
Stock options and restricted stock |
|
|
1,746,108 |
|
|
|
1,093,814 |
|
|
|
1,629,260 |
|
|
|
1,511,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average
shares outstanding |
|
|
34,575,086 |
|
|
|
34,792,784 |
|
|
|
34,592,715 |
|
|
|
35,028,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock totaling 457,043 and 4,051,000 shares for the three months
ended September 30, 2007 and 2006, respectively, and 664,911 and 2,802,730 shares for the nine
months ended September 30, 2007 and 2006, respectively, were excluded from the computation of
diluted earnings per share because their effect would have been antidilutive.
12. Commitments and Contingencies
The Company leases office space and equipment under non-cancelable lease agreements expiring
at various dates through 2015. These leases are subject to escalation based on certain costs
incurred by the landlord. Minimum rental commitments under such leases, net of sublease income, are
as follows:
|
|
|
|
|
|
|
Minimum Rentals |
|
|
(In thousands) |
Remainder of 2007 |
|
$ |
636 |
|
2008 |
|
|
2,550 |
|
2009 |
|
|
2,558 |
|
2010 |
|
|
1,417 |
|
2011 |
|
|
1,028 |
|
2012 and thereafter |
|
|
3,738 |
|
Rental expense of $0.8 million and $0.7 million for the three months ended September 30, 2007
and 2006, respectively, and $2.1 million for each of the nine months ended September 30, 2007 and
2006 is included in Occupancy expenses in the Consolidated Statements of Operations. Rental expense
has been recorded based on the total minimum lease payments after giving effect to rent abatement
and concessions, which are being amortized on a straight-line basis over the life of the lease, and
sublease income.
The Company has entered into a sublease agreement on one of its leased properties through the
April 2011 lease termination date. Monthly sublease income is $0.1 million. A loss on the sublease
was recorded in 2001. The sublease loss accrual as of September 30, 2007 and December 31, 2006 was
$0.7 million and $0.9 million, respectively.
The Company is contingently obligated for standby letters of credit that were issued to
landlords for office space. The Company uses a U.S. government obligation as collateral for these
standby letters of credit. This collateral is included with Securities and cash provided as
collateral on the Consolidated Statements of Financial Condition and had a fair market value of
$3.3 million as of September 30, 2007 and December 31, 2006.
In June 2006, MarketAxess Corporation commenced operating an anonymous matching service for
its broker-dealer clients. MarketAxess Corporation executes trades on a riskless principal basis,
which are cleared and settled by an independent clearing
15
MARKETAXESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Continued)
broker. The securities clearing agreement that MarketAxess Corporation maintains with the
independent clearing broker commenced in December 2004. Under the securities clearing agreement,
MarketAxess Corporation maintains a collateral deposit with the clearing broker in the form of cash
or U.S. government securities. As of September 30, 2007 and December 31, 2006, the collateral
deposit included in Securities and cash provided as collateral on the Consolidated Statements of
Financial Condition was $0.5 million. MarketAxess Corporation is exposed to credit risk in the
event a counterparty does not fulfill its obligation to complete a transaction. Pursuant to the
terms of the securities clearing agreement between MarketAxess Corporation and the independent
clearing broker, the clearing broker has the right to charge MarketAxess Corporation for losses
resulting from a counterpartys failure to fulfill its contractual obligations. The losses are not
capped at a maximum amount and apply to all trades executed through the clearing broker. As of
September 30, 2007, MarketAxess Corporation recorded no contingent liabilities with regard to this
right.
In the normal course of business, the Company enters into contracts that contain a variety of
representations, warranties and general indemnifications. The Companys maximum exposure under
these arrangements is unknown, as this would involve future claims that may be made against the
Company that have not yet occurred. However, based on experience, the Company expects the risk of
loss to be remote.
In January 2007, two former employees of the Company commenced arbitration proceedings before
the NASD against the Company arising out of the expiration of certain vested and unvested stock
options and unvested restricted shares issued to them. The claims made by these two former
employees total $4.5 million plus interest.
One of the former employees has alleged that the Company wrongfully prevented him from
exercising his vested options when he sought to do so and that the Company wrongfully claimed that
such options had expired on the previous day.
The other former employee has alleged that the Company wrongfully failed to accelerate the
vesting of his then unvested options and restricted shares upon his termination and to waive the
90-day time period within which he was required to exercise his vested options. This former
employee also alleges that he is entitled to a declaration that certain provisions in the Companys
2004 Stock Incentive Plan are invalid and unenforceable under applicable law. He further alleges
that he is entitled to a bonus for the approximately five months that he worked for the Company
during 2006.
The Company believes that both cases are without merit and intends to vigorously defend them.
The Company answered both arbitration claims during March 2007. Based on currently available
information, management believes that the likelihood of a material loss is not probable.
Accordingly, no amounts have been provided in the accompanying financial statements. However,
arbitration is subject to inherent uncertainties and unfavorable rulings could occur.
13. Comprehensive Income
Comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Net income |
|
$ |
2,410 |
|
|
$ |
1,297 |
|
|
$ |
8,412 |
|
|
$ |
3,183 |
|
Cumulative translation adjustment and foreign
currency exchange hedge, net of taxes |
|
|
(62 |
) |
|
|
(152 |
) |
|
|
(145 |
) |
|
|
(302 |
) |
Unrealized net gains on Securities available-for-sale, net of taxes |
|
|
53 |
|
|
|
85 |
|
|
|
22 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income |
|
$ |
2,401 |
|
|
$ |
1,230 |
|
|
$ |
8,289 |
|
|
$ |
2,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words
such as expects, intends, anticipates, plans, believes, seeks, estimates, will, or
words of similar meaning and include, but are not limited to, statements regarding the outlook for
our future business and financial performance. Forward-looking statements are based on managements
current expectations and assumptions, which are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. It is routine for our internal projections
and expectations to change as the year or each quarter in the year progresses, and therefore it
should be clearly understood that the internal projections and beliefs upon which we base our
expectations may change prior to the end of each quarter or the year. Although these expectations
may change, we are under no obligation to revise or update any forward-looking statements contained
in this report. Our company policy is generally to provide our expectations only once per quarter,
and not to update that information until the next quarter. Actual future events or results may
differ materially from those contained in the projections or forward-looking statements. Factors
that could cause or contribute to such differences include those discussed below and elsewhere in
this report, particularly in the section captioned Part II, Item 1A, Risk Factors.
Executive Overview
MarketAxess operates one of the leading platforms for the electronic trading of corporate
bonds and certain other types of fixed-income securities. Through our platform, 691 active
institutional investor client firms (firms that executed at least one trade through our electronic
trading platform between October 2006 and September 2007) can access the aggregate liquidity
provided by the collective interest of our 30 broker-dealer clients in buying or selling bonds
through our platform. Our active institutional investor clients include investment advisers, mutual
funds, insurance companies, public and private pension funds, bank portfolios and hedge funds. We
also provide data and analytical tools that help our clients make trading decisions and we
facilitate the trading process by electronically communicating order information between trading
counterparties. Our revenues are primarily generated from the trading of U.S. and European
high-grade corporate bonds.
Our multi-dealer trading platform allows our institutional investor clients to simultaneously
request competing, executable bids or offers from our broker-dealer clients and execute trades with
the broker-dealer of their choice from among those that choose to respond. We offer our
broker-dealer clients a solution that enables them to efficiently reach our institutional investor
clients for the distribution and trading of bonds. We offer our clients the ability to trade U.S.
high-grade corporate bonds, European high-grade corporate bonds, credit default swaps, agencies,
high yield and emerging markets bonds. Our DealerAxess® trading service allows dealers
to trade fixed-income securities with each other on our platform.
The majority of our revenues are derived from commissions for trades executed on our platform
that are billed to our broker-dealer clients on a monthly basis. We also derive revenues from
information and user access fees, license fees, investment income and other income. Our expenses
consist of employee compensation and benefits, depreciation and amortization, technology and
communication expenses, professional and consulting fees, occupancy, marketing and advertising and
other general and administrative expenses.
We seek to grow and diversify our revenues by capitalizing on our status as the operator of a
leading platform for the electronic trading of corporate bonds and certain other types of
fixed-income securities. The key elements of our strategy are:
|
|
|
to innovate and efficiently add new functionality and product offerings to the
MarketAxess platform that we believe will help to increase our market share with existing
clients, as well as expand our client base; |
|
|
|
|
to leverage our technology, as well as our strong broker-dealer and institutional
investor relationships, to: deploy our electronic trading platform into additional product
segments within the fixed-income securities markets; deliver fixed income securities-related
technical services and products; and deploy our electronic trading platform into new client
segments; |
|
|
|
|
to continue building our existing service offerings so that our electronic trading
platform is fully integrated into the workflow of our broker-dealer and institutional
investor clients and to continue to add functionality to allow our clients to achieve a
fully automated end-to-end straight-through processing solution (automation from trade
initiation to settlement); |
|
|
|
|
to add new content and analytical capabilities to Corporate
BondTickerTM in order to improve the value of the information we provide
to our clients; and |
17
|
|
|
to continue to supplement our internal growth by entering into strategic alliances, or
acquiring businesses or technologies that will enable us to enter new markets, provide new
products or services, or otherwise enhance the value of our platform to our clients. |
Critical Factors Affecting Our Industry and Our Company
Economic, Political and Market Factors
The global fixed-income securities industry is risky and volatile and is directly affected by
a number of economic, political and market factors that may result in declining trading volume.
These factors could have a material adverse effect on our business, financial condition and results
of operations. Any one or more of these factors may contribute to reduced trading activity in the
fixed-income securities markets generally. Our revenues and profitability are likely to decline
during periods of stagnant economic conditions or low trading volume in the U.S. and global
fixed-income securities markets.
Competitive Landscape
The global fixed-income securities industry generally, and the electronic financial services
markets in which we operate in particular, are highly competitive, and we expect competition to
intensify in the future. We will continue to compete with bond trading conducted directly between
broker-dealers and their institutional investor clients over the telephone or electronically. In
addition, our current and prospective competitors are numerous and include: other multi-dealer
trading companies; market data and information vendors; securities and futures exchanges;
inter-dealer brokerage firms; and electronic communications networks not currently in the
securities business. We believe that we compete favorably with respect to: the liquidity provided
on our platform; the magnitude and frequency of price improvement enabled by our platform; the
quality and speed of execution; total transaction costs; technology capabilities, including the
ease of use of our trading platform; and the range of products and services.
Regulatory Environment
Our industry has been and is subject to continuous regulatory changes and may become subject
to new regulations or changes in the interpretation or enforcement of existing regulations, which
could have a material adverse effect on our business, financial condition and results of
operations.
Rapid Technological Changes
We must continue to enhance and improve our electronic trading platform. The electronic
financial services industry is characterized by increasingly complex systems and infrastructures
and new business models. If new industry standards and practices emerge, our existing technology,
systems and electronic trading platform may become obsolete or our existing business may be harmed.
Our future success will depend on our ability to: enhance our existing products and services;
develop and/or license new products and technologies that address the increasingly sophisticated
and varied needs of our broker-dealer and institutional investor clients and prospective clients;
and respond to technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
Trends in Our Business
The majority of our revenues are derived from commissions for transactions executed on our
platform between our institutional investor and broker-dealer clients. We believe that there are
five key variables that impact the notional value of such transactions on our platform and the
amount of commissions earned by us:
|
|
|
the number of institutional investor clients that participate on the platform and their
willingness to originate transactions through the platform; |
|
|
|
|
the number of broker-dealer clients on the platform and the competitiveness of the prices
they provide to the institutional investor clients; |
|
|
|
|
the number of markets for which we make trading available to our clients; |
|
|
|
|
the overall level of activity in these markets; and |
|
|
|
|
the level of commissions that we collect for trades executed through the platform.
|
18
We believe that overall corporate bond market trading volume is affected by various factors
including the absolute levels of interest rates, the direction of interest rate movements, the
level of new issues of corporate bonds and the volatility of corporate bond spreads versus U.S.
Treasury securities. Because a significant percentage of our revenue is tied directly to the volume
of securities traded on our platform, it is likely that a general decline in trading volumes,
regardless of the cause of such decline, would reduce our revenues and have a significant negative
impact on profitability.
The third quarter of 2007 was a period of significant turmoil in the U.S. and European credit
markets. A widespread retrenchment in the credit markets resulted in increased credit spreads and
significantly higher credit spread volatility across a wide range of asset classes. We believe the
resultant lack of liquidity in the credit markets led institutional investors to conduct a higher
percentage of their trades directly with their broker-dealer counterparties resulting in lower
volumes on our platform and that a normalization in credit market conditions is likely to favorably
impact the volume of trades conducted over our platform.
We have historically earned a substantial portion of our commissions and overall revenues from
broker-dealer clients that are (or whose affiliates are) our stockholders. For 2006, a total of
nine dealers, and for 2007, a total of seven dealers, were considered to be Stockholder
Broker-Dealer Clients. The percentage of our revenues derived from our Stockholder Broker-Dealer
Clients has been
declining. For the nine months ended September 30, 2007, the percentage decreased to 37.3%
from 46.1% for the nine months ended September 30, 2006. Affiliates of most of our Stockholder
Broker-Dealer Clients are also among our institutional investor clients. A table detailing the
amount of our revenues generated by the Stockholder Broker-Dealer Clients, and their respective affiliates, as well as the corresponding percentage of our
total revenues, is provided below for the three and nine months ended September 30, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Sept. 30, |
|
|
Nine Months Ended Sept. 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
($ in thousands) |
|
Commissions |
|
$ |
6,993 |
|
|
$ |
8,750 |
|
|
$ |
24,263 |
|
|
$ |
26,249 |
|
Information and user access fees |
|
|
218 |
|
|
|
290 |
|
|
|
595 |
|
|
|
898 |
|
Investment income |
|
|
474 |
|
|
|
227 |
|
|
|
1,388 |
|
|
|
719 |
|
Other |
|
|
150 |
|
|
|
125 |
|
|
|
352 |
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,835 |
|
|
$ |
9,392 |
|
|
$ |
26,598 |
|
|
$ |
28,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues |
|
|
35.3 |
% |
|
|
45.2 |
% |
|
|
37.3 |
% |
|
|
46.1 |
% |
Commission Revenue Trends
Commissions are generally calculated as a percentage of the notional dollar volume of bonds
traded on our platform and vary based on the type, size, yield and maturity of the bond traded. The
commission rates are based on a number of factors, including fees charged by inter-dealer brokers
in the respective markets, average bid-offer spreads in the products we offer and transaction costs
through alternative channels including the telephone. Under our transaction fee plans, bonds that
are more actively traded or that have shorter maturities are generally charged lower commissions,
while bonds that are less actively traded or that have longer maturities generally command higher
commissions.
U.S. High-Grade Corporate Bond Commissions On June 1, 2005, we introduced a new fee plan
primarily for secondary market transactions in U.S. high-grade corporate bonds executed on our
institutional client to multi-dealer electronic trading platform. The fee plan incorporates higher
fixed monthly fees and lower variable fees for our broker-dealer clients than the previous U.S.
high-grade corporate transaction fee plans and incorporates volume incentives to our broker-dealer
clients that are designed to increase the volume of transactions effected on our platform. Under
the fee plan, we electronically add the variable fee to the spread quoted by the broker-dealer
client but do not charge for inquiries that an institutional investor client sends to a single
broker-dealer client. The combination of higher fixed and lower variable fees in the plan results
in higher total revenue to us at current or lower volume levels. If volume grows, total revenues
could be less under the new plan than the previous plan due to the lower variable fees. For trades
on our DealerAxess® dealer-to-dealer electronic trading platform, we charge a fee to the
broker-dealer client involved in the transaction that is based on the size of the transaction and
the maturity of the bond traded. Monthly minimum fees apply to certain dealers participating on the
DealerAxess® platform in their first year of trading. The majority of the
DealerAxess® monthly minimum commitments expired as of June 30, 2007.
19
European High-Grade Corporate Bond Commissions On June 1, 2007, we introduced a new fee plan
for European high-grade corporate bond trades for the majority of our European dealers. Similar to
the U.S. high-grade plan, the new European high-grade corporate bond fee plan incorporates fixed
monthly fees and a variable fee that is lower than the transaction fee under the previous European
high-grade plan and incorporates incentives to our broker-dealer clients that are designed to
increase the volume of transactions effected on our platform. The variable fee under the new plan
is dependent on the type of bond traded and the maturity of the issue. The combination of the
fixed and variable fees in the new plan results in higher total revenue to us at current or lower
volume levels. If volume grows, total revenues could be less under the new plan than the previous
plan due to the lower variable fees. Under the fee plan in effect prior to June 1, 2007,
broker-dealer transaction fees varied based on the type of bond traded and the maturity of the
issue. This fee schedule applied a tiered fee structure, which reduced the fee per trade upon the
attainment of certain specified amounts of monthly commissions generated by a particular
broker-dealer and did not carry a fixed monthly fee.
Other Commissions Commissions for other bond trades generally vary based on the type and the
maturity of the bond traded. We generally operate using standard fee schedules that may include
both variable transaction fees and fixed monthly fees that are charged to the participating
dealers. For credit default swap index trades, we charge commissions to both broker-dealer and
institutional investor clients calculated as a percentage of the notional volume of transactions
traded on the platform.
We anticipate that some reduction in average fees per million may occur in the future.
Consequently, past trends in commissions are not necessarily indicative of future commissions.
Other Revenue Trends
In addition to the commissions discussed above, we earn revenue from information services fees
paid by institutional investor and broker-dealer clients, license fees, income on investments and
other services.
Information and User Access Fees We charge information services fees for Corporate BondTicker
to our broker-dealer clients, institutional investor clients and data-only subscribers. The
information services fee is a flat monthly fee, based on the level of
service. We also generate information services fees from the sale of bulk data to certain institutional
investor clients and data-only subscribers. Institutional investor clients trading U.S. high-grade
corporate bonds are charged a monthly user access fee for the use of our platform. The fee, billed
quarterly, is charged to the client based on the number of the clients users. To encourage
institutional investor clients to execute trades on our U.S. high-grade corporate bond platform, we
reduce these information services and user access fees for such clients once minimum quarterly trading
volumes are attained.
License Fees License fees consist of fees received from broker-dealer clients for access to
our trading platform through a non-exclusive and non-transferable license. Broker-dealer clients,
other than those that made equity investments in the Company, generally pay an initial license fee,
which is typically due and payable upon execution of the broker-dealer agreement. The initial
license fee varies by agreement and at a minimum is intended to cover the initial set-up costs
incurred to enable a broker-dealer to begin using our electronic trading platform. The license fee
is recognized in the first three months of the agreement in the estimated amount of the set-up
costs that we incur and the remaining amount is amortized over the initial term of the agreement,
which is generally three years. We anticipate that license fees will be a less material source of
revenues for us on a going-forward basis.
Investment
Income Investment income consists of income earned on our
investments. In the fourth
quarter of 2006, we commenced a $40.0 million share repurchase program. Through September 30, 2007,
we have expended a total of $30.0 million under this program. Investment income may decline as we
use our cash to purchase our common stock under the share repurchase program.
Other Other revenues consist of telecommunications line charges to broker-dealer clients and
other miscellaneous revenues. In 2007, we also began providing technology consulting services.
Fees for such services are charged based upon the complexity and extent of the services provided.
Expense Trends
In the normal course of business, we incur the following expenses:
Employee Compensation and Benefits Employee compensation and benefits is our most significant
expense and includes employee salaries, stock-based compensation costs, other incentive
compensation, employee benefits and payroll taxes. Effective January 1, 2006, we adopted SFAS 123R,
which requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees based on estimated fair values.
20
Depreciation and Amortization We depreciate our computer hardware and related software,
office hardware and furniture and fixtures and amortize our capitalized software development costs
on a straight-line basis over a three-year period. We amortize leasehold improvements on a
straight-line basis over the lesser of the life of the improvement or the remaining term of the
lease.
Technology and Communications Technology and communications expense consists primarily of
costs relating to maintenance on software and hardware, our internal network connections, data
center hosting costs and data feeds provided by outside vendors or service providers. The majority
of our broker-dealer clients have dedicated high-speed communication lines to our network in order
to provide fast data transfer. We charge our broker-dealer clients a monthly fee for these
connections, which is recovered against the relevant expenses we incur.
Professional and Consulting Fees Professional and consulting fees consist primarily of
accounting fees, legal fees and fees paid to information technology and non-information technology
consultants for services provided for the maintenance of our trading platform and information
services products.
Occupancy Occupancy costs consist primarily of office and equipment rent, utilities and
commercial rent tax.
Marketing and Advertising Marketing and advertising expense consists primarily of print and
other advertising expenses we incur to promote our products and services. This expense also
includes costs associated with attending or exhibiting at industry-sponsored seminars, conferences
and conventions, and travel and entertainment expenses incurred by our sales force to promote our
trading platform and information services.
General and Administrative General and administrative expense consists primarily of general
travel and entertainment, board of directors expenses, charitable contributions, provision for
doubtful accounts, and various state franchise and U.K. value-added taxes.
We anticipate expense growth in the future, primarily due to investment in new products,
notably in employee compensation and benefits, professional and consulting fees, and general and
administrative expense, but we believe that operating leverage can be achieved by increasing
volumes in existing products and adding new products without substantial additions to our
infrastructure.
Critical Accounting Policies
This Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses our Consolidated Financial Statements, which have been prepared in accordance with
accounting principles generally accepted in the United States, also referred to as U.S. GAAP. The
preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported amounts of income and
expenses during the reporting periods. We base our estimates and judgments on historical experience
and on various other factors that we believe are reasonable under the circumstances. Actual results
may differ from these estimates under varying assumptions or conditions. Note 2 of the Notes to our
Consolidated Financial Statements includes a summary of the significant accounting policies and
methods used in the preparation of our Consolidated Financial Statements.
In June 2006, the FASB issued FIN 48, which applies to all tax positions accounted for under
SFAS 109. A tax position includes current or future reductions in taxable income reported or
expected to be reported on a tax return. FIN 48 supplements SFAS 109 by defining the confidence
level that a tax position must meet in order to be recognized in the financial statements. The
interpretation requires that the tax effects of a position be recognized only if it is
more-likely-than-not (greater than 50% likelihood) to be sustained based solely on its technical
merits as of the reporting date. In making this assessment, a company must assume that the taxing
authorities will examine the position. As a result of the implementation of FIN 48 effective
January 1, 2007, the Company recognized an increase in deferred tax assets of $3.0 million related
to previously unrecognized tax benefits, which was accounted for as an increase to Additional
paid-in capital of $0.3 million and an increase in accrued expenses of $2.7 million. Unrecognized
tax benefits as of January 1, 2007 and September 30, 2007 were $2.7 million and $2.8 million,
respectively. If recognized, this entire amount would impact the effective tax rate. In
accordance with FIN 48, certain deferred tax assets aggregating $14.1 million were no longer
recognized and the related valuation allowance was reversed.
Other than the adoption of FIN 48 effective January 1, 2007, there were no significant changes
to our critical accounting policies and estimates during the nine months ended September 30, 2007,
as compared to those we disclosed in Managements Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the year ended December
31, 2006.
21
Segment Results
As an electronic, multi-dealer to client platform for trading fixed-income securities, our
operations constitute a single business segment pursuant to SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Because of the highly integrated nature of the
financial markets in which we compete and the integration of our worldwide business activities, we
believe that results by geographic region, products or types of clients are not necessarily
meaningful in understanding our business.
Statistical Information
Our trading volume for each of the periods presented was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Trading Volume Data (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. high-grade multi dealer |
|
$ |
37.3 |
|
|
$ |
44.7 |
|
|
$ |
155.7 |
|
|
$ |
124.4 |
|
U.S. high-grade single dealer |
|
|
2.6 |
|
|
|
5.1 |
|
|
|
12.6 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. high-grade
|
|
|
39.9 |
|
|
|
49.8 |
|
|
|
168.3 |
|
|
|
139.0 |
|
European high-grade |
|
|
14.8 |
|
|
|
18.7 |
|
|
|
66.9 |
|
|
|
65.5 |
|
Other |
|
|
21.0 |
|
|
|
15.3 |
|
|
|
56.4 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75.7 |
|
|
$ |
83.8 |
|
|
$ |
291.6 |
|
|
$ |
247.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of U.S. Trading Days |
|
|
63 |
|
|
|
63 |
|
|
|
188 |
|
|
|
187 |
|
Number of U.K. Trading Days |
|
|
64 |
|
|
|
64 |
|
|
|
189 |
|
|
|
188 |
|
For volume reporting purposes, transactions in foreign currencies are converted to U.S.
dollars at the exchange rate prevailing on the day the transactions were executed. Single-dealer
inquiries represent U.S. high-grade trades on which no fees were charged in accordance with the
U.S. high-grade corporate bond fee plan that went into effect on June 1, 2005. Credit default swap
trading volume data are included in Other. Trading volume data related to DealerAxess®
bond trading between broker-dealer clients are included in either U.S. high-grade or Other trading
volumes, as appropriate.
Our active institutional investor clients (firms that executed at least one trade through our
electronic trading platform for the twelve months ended September 30, 2007 and 2006, respectively)
and our broker-dealer clients as of September 30, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2007 |
|
2006 |
Institutional Investor Clients: |
|
|
|
|
|
|
|
|
U.S. |
|
|
474 |
|
|
|
452 |
|
Europe |
|
|
217 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
691 |
|
|
|
683 |
|
|
|
|
|
|
|
|
|
|
|
Broker-Dealer Clients |
|
|
30 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
Results of Operations
Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Overview
Total revenues increased by $1.4 million or 6.9% to $22.2 million for the three months ended
September 30, 2007 from $20.8 million for the three months ended September 30, 2006. This increase
in total revenues was primarily due to an increase in European high-grade commissions of $1.6
million.
22
Total expenses increased slightly to $18.6 million for the three months ended September 30,
2007 from $18.5 million for the three months ended September 30, 2006. Higher occupancy, marketing
and advertising expenses totaling $0.2 million were partially offset by lower employee compensation
and benefits.
For the three months ended September 30, 2007, income before taxes increased by $1.4 million
or 63.4% to $3.6 million compared to $2.2 million for the three months ended September 30, 2006.
Net income increased by $1.1 million or 85.8% to $2.4 million compared to $1.3 million for three
months ended September 30, 2006.
Revenues
Our revenues and percentage of revenues for the three months ended September 30, 2007 and
2006, and the resulting dollar and percentage changes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
Change |
|
|
Change |
|
|
|
($ in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. high-grade |
|
$ |
11,982 |
|
|
|
54.0 |
% |
|
$ |
12,250 |
|
|
|
59.0 |
% |
|
$ |
(268 |
) |
|
|
(2.2 |
)% |
European high-grade |
|
|
4,889 |
|
|
|
22.0 |
|
|
|
3,290 |
|
|
|
15.8 |
|
|
|
1,599 |
|
|
|
48.6 |
|
Other |
|
|
2,107 |
|
|
|
9.5 |
|
|
|
2,057 |
|
|
|
9.9 |
|
|
|
50 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commissions |
|
|
18,978 |
|
|
|
85.5 |
|
|
|
17,597 |
|
|
|
84.7 |
|
|
|
1,381 |
|
|
|
7.8 |
|
Information and user access fees |
|
|
1,535 |
|
|
|
6.9 |
|
|
|
1,426 |
|
|
|
6.9 |
|
|
|
109 |
|
|
|
7.6 |
|
License fees |
|
|
90 |
|
|
|
0.4 |
|
|
|
247 |
|
|
|
1.2 |
|
|
|
(157 |
) |
|
|
(63.6 |
) |
Investment income |
|
|
1,332 |
|
|
|
6.0 |
|
|
|
1,266 |
|
|
|
6.1 |
|
|
|
66 |
|
|
|
5.2 |
|
Other |
|
|
263 |
|
|
|
1.2 |
|
|
|
238 |
|
|
|
1.1 |
|
|
|
25 |
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
22,198 |
|
|
|
100.0 |
% |
|
$ |
20,774 |
|
|
|
100.0 |
% |
|
$ |
1,424 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions. Total commissions increased by $1.4 million or 7.8% to $19.0 million for the three
months ended September 30, 2007 from $17.6 million for the three months ended September 30, 2006.
The following table shows the extent to which the increase in commissions for the three months
ended September 30, 2007 as compared to the three months ended September 30, 2006 was attributable
to changes in transaction volumes, variable fees per million, fixed monthly distribution fees and
DealerAxess® minimum fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from Three Months Ended September 30, 2006 |
|
|
|
U.S. |
|
|
European |
|
|
|
|
|
|
|
|
|
High-Grade |
|
|
High-Grade |
|
|
Other |
|
|
Total |
|
|
|
(In thousands) |
|
Volume (decrease) increase |
|
$ |
(687 |
) |
|
$ |
(686 |
) |
|
$ |
766 |
|
|
$ |
(607 |
) |
Variable fee per million increase (decrease) |
|
|
1,003 |
|
|
|
(1,139 |
) |
|
|
(716 |
) |
|
|
(852 |
) |
Fixed monthly distribution fees increase |
|
|
495 |
|
|
|
3,424 |
|
|
|
|
|
|
|
3,919 |
|
DealerAxess® minimum fees decrease |
|
|
(1,079 |
) |
|
|
|
|
|
|
|
|
|
|
(1,079 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commissions (decrease) increase |
|
$ |
(268 |
) |
|
$ |
1,599 |
|
|
$ |
50 |
|
|
$ |
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Our average fees per million for the three months ended September 30, 2007 and 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2007 |
|
2006 |
Average Fee Per Million |
|
|
|
|
|
|
|
|
U.S. high-grade |
|
|
|
|
|
|
|
|
Total |
|
$ |
300 |
|
|
$ |
246 |
|
Variable |
|
$ |
95 |
|
|
$ |
69 |
|
European high-grade |
|
|
|
|
|
|
|
|
Total |
|
$ |
330 |
|
|
$ |
176 |
|
Variable |
|
$ |
99 |
|
|
$ |
176 |
|
Other |
|
$ |
100 |
|
|
$ |
134 |
|
All Products |
|
$ |
251 |
|
|
$ |
210 |
|
For the three months ended September 30, 2007, U.S. high-grade volume decreased by 19.9%
compared to the three months ended September 30, 2006. The decrease in U.S. high-grade volume was
due primarily to a decline in the Companys estimated market share of total U.S. high-grade
corporate bond volume as reported by NASD Trade Reporting and Compliance Engine (TRACE) from 9.3%
for the three months ended September 30, 2006 to 7.8% for the three months ended September 30,
2007, coupled with a decline in TRACE volume. The majority of the market share decline was
attributable to a decrease in floating rate note volume, a sector of the market that was heavily
impacted by the credit market turmoil. Estimated NASD TRACE U.S. high-grade volume decreased by
4.0% from $533.9 billion for the three months ended September 30, 2006 to $512.7 billion for the
three months ended September 30, 2007. The fixed monthly U.S. high-grade distribution fees were
$8.0 million for the three months ended September 30, 2007, compared to $7.6 million for the three
months ended September 30, 2006. The DealerAxess® monthly minimum fees were $0.2
million and $1.2 million for the three months ended September 30, 2007 and 2006, respectively. The
majority of the DealerAxess® minimum fee commitments expired as of June 30, 2007. The
total U.S. high-grade average fee per million is calculated for each period presented using both
the variable transaction fees and the fixed monthly distribution fees, including the
DealerAxess®
monthly minimum fees, paid by our broker-dealer clients. The variable
U.S. high-grade average fee per million increased due to the longer
maturity of trades executed on the platform, for which we charge
higher commissions.
For the three months ended September 30, 2007, European high-grade volume decreased by 20.9%,
net of a favorable effect of foreign currency changes, compared to the three months ended September
30, 2006. During the third quarter of 2007, we believe that the European credit markets
experienced market conditions similar to the U.S. On June 1, 2007, we introduced a new fee plan
for
European high-grade corporate bond trades. Similar to the U.S. high-grade plan, the new
European high-grade corporate bond fee plan incorporates a fixed monthly fee and a variable fee
that is dependent on the type of bond traded and the maturity of the issue. The fixed monthly
European high-grade distribution fee was $3.4 million for the three months ended September 30,
2007. The total European high-grade average fee per million is calculated for each period
presented using both the variable transaction fees and the fixed monthly distribution fees paid by
our broker-dealer clients. The decrease in the variable European high-grade average fee per
million for the three months ended September 30, 2007 as compared to the three months ended
September 30, 2006 resulted principally from the introduction of the new European high-grade fee
plan.
For the three months ended September 30, 2007, Other volume increased by 37.3%, compared to
the three months ended September 30, 2006. The increase was primarily due to higher credit default
swap, high-yield and agencies volume. Other average fee per million declined primarily due to
higher volume in lower margin products, including credit default swap indexes and agencies.
Information and User Access Fees. Information and user access fees increased by $0.1 million
or 7.6% to $1.5 million for the three months ended September 30, 2007 from $1.4 million for the
three months ended September 30, 2006.
License Fees. License fees decreased by $0.2 million or 63.6% to $0.1 million for the three months ended September 30, 2007 from $0.2 million for the three months ended September 30, 2006.
Investment Income. Investment income was $1.3 million for each of the three months ended September 30, 2007 and 2006.
Other. Other revenues increased by 10.5% to $0.3 million for the three months ended September 30, 2007 from $0.2 million for the three months ended September 30, 2006.
24
Expenses
Our expenses and percentage of revenues for the three months ended September 30, 2007 and 2006, and the resulting dollar and percentage changes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
Change |
|
|
Change |
|
|
|
($ in thousands) |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits |
|
$ |
10,258 |
|
|
|
46.2 |
% |
|
$ |
10,483 |
|
|
|
50.5 |
% |
|
$ |
(225 |
) |
|
|
(2.1 |
)% |
Depreciation and amortization |
|
|
1,686 |
|
|
|
7.6 |
|
|
|
1,703 |
|
|
|
8.2 |
|
|
|
(17 |
) |
|
|
(1.0 |
) |
Technology and communications |
|
|
1,897 |
|
|
|
8.5 |
|
|
|
1,956 |
|
|
|
9.4 |
|
|
|
(59 |
) |
|
|
(3.0 |
) |
Professional and consulting fees |
|
|
1,883 |
|
|
|
8.5 |
|
|
|
1,883 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
Occupancy |
|
|
869 |
|
|
|
3.9 |
|
|
|
778 |
|
|
|
3.7 |
|
|
|
91 |
|
|
|
11.7 |
|
Marketing and advertising |
|
|
481 |
|
|
|
2.2 |
|
|
|
338 |
|
|
|
1.6 |
|
|
|
143 |
|
|
|
42.3 |
|
General and administrative |
|
|
1,481 |
|
|
|
6.7 |
|
|
|
1,403 |
|
|
|
6.8 |
|
|
|
78 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
18,555 |
|
|
|
83.6 |
% |
|
$ |
18,544 |
|
|
|
89.3 |
% |
|
$ |
11 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits. Employee compensation and benefits decreased by $0.2 million or 2.1% to $10.3 million for the three months ended September 30, 2007 from $10.5 million for the three months ended September 30, 2006. This decrease was primarily attributable to reduced severance costs of $0.6 million, offset by higher incentive compensation of $0.4 million.
Depreciation and
Amortization. Depreciation and amortization expense was $1.7 million for each of the three
months ended September 30, 2007 and 2006. For the three months ended September 30, 2007 and 2006,
we capitalized $0.9 million and $0.8 million, respectively, of software development costs
and $0.5 million and $0.8 million, respectively, of computer and related equipment purchases.
Technology and Communications. Technology and communications expense decreased by $0.1 million or 3.0% to $1.9 million for the three months ended September 30, 2007 from $2.0 million for the three months ended September 30, 2006. This decrease was attributable to lower software license and maintenance costs.
Professional and Consulting Fees. Professional and consulting fees were $1.9 million for each of the three months ended September 30, 2007 and 2006. Increases in recruiting and legal costs totaling $0.3 million were offset by lower information technology and non-technology consultant costs.
Occupancy.
Occupancy costs increased by $0.1 million or 11.7% to $0.9 million for the three months ended September 30, 2007 from $0.8 million for the three months ended September 30, 2006, primarily due to rent expense for additional leased space in New York City.
Marketing and Advertising. Marketing and advertising expense increased by $0.1 million or 42.3% to $0.5 million for the three months ended September 30, 2007 from $0.3 million for the three month periods ended September 30, 2006, primarily due to higher public relations cost.
General and Administrative. General and administrative expense increased by $0.1 million or 5.6% to $1.5 million for the three months ended September 30, 2007 from $1.4 million for the three months ended September 30, 2006, primarily due to higher travel and entertainment expense.
Provision for Income Tax. For the three months ended September 30, 2007 and 2006, we recorded an income tax provision of $1.2 million and $0.9 million, respectively. The increase in the tax provision was primarily attributable to the $1.4 million increase in pre-tax income for the period. With the exception of the payment of certain state and local taxes, the provision for income
taxes was a non-cash expense since we had available net operating loss carryforwards and tax credits to offset the cash payment of taxes.
25
Our consolidated
effective tax rate for the three months ended September 30, 2007 was 33.9% compared to 41.8% for the
three months ended September 30, 2006. The decrease in the effective tax rate was principally
attributable to an increase in foreign earnings in 2007. Our consolidated effective tax rate can vary from
period to period depending on, among other factors, the geographic and business mix of our earnings and change in tax legislation.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
Overview
Total revenues increased by $10.0 million or 16.4% to $71.3 million for the nine months ended September 30, 2007 from $61.2 million for the nine months ended September 30, 2006. This increase in total revenues was primarily due to increases in total commissions of $8.8 million, investment income of $0.5 million and other revenues of $0.6 million.
Total expenses
increased by $0.9 million or 1.6% to $57.1 million for the nine months ended September 30, 2007
from $56.2 million for the nine months ended September 30, 2006. This increase was primarily due to
higher employee compensation and benefits of $1.5 million and depreciation and amortization
of $0.5 million, offset by a decline in professional and consulting fees of $1.4 million.
For the nine months ended September 30, 2007, income before taxes increased by $9.1 million or 182.1% to $14.1 million compared to $5.0 million for the nine months ended September 30, 2006. Net income increased by $5.2 million or 164.3% to $8.4 million compared to $3.2 million for the nine months ended September 30, 2006.
Revenues
Our revenues and percentage of revenues for the nine months ended September 30, 2007 and 2006, and the resulting dollar and percentage changes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
Change |
|
|
Change |
|
|
|
($ in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. high-grade |
|
$ |
40,196 |
|
|
|
56.4 |
% |
|
$ |
34,254 |
|
|
|
55.9 |
% |
|
$ |
5,942 |
|
|
|
17.3 |
% |
European high-grade |
|
|
14,099 |
|
|
|
19.8 |
|
|
|
11,717 |
|
|
|
19.1 |
|
|
|
2,382 |
|
|
|
20.3 |
|
Other |
|
|
6,832 |
|
|
|
9.6 |
|
|
|
6,371 |
|
|
|
10.4 |
|
|
|
461 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commissions |
|
|
61,127 |
|
|
|
85.8 |
|
|
|
52,342 |
|
|
|
85.5 |
|
|
|
8,785 |
|
|
|
16.8 |
|
Information and user access fees |
|
|
4,357 |
|
|
|
6.1 |
|
|
|
4,108 |
|
|
|
6.7 |
|
|
|
249 |
|
|
|
6.1 |
|
License fees |
|
|
658 |
|
|
|
0.9 |
|
|
|
742 |
|
|
|
1.2 |
|
|
|
(84 |
) |
|
|
(11.3 |
) |
Investment income |
|
|
3,812 |
|
|
|
5.3 |
|
|
|
3,312 |
|
|
|
5.4 |
|
|
|
500 |
|
|
|
15.1 |
|
Other |
|
|
1,313 |
|
|
|
1.8 |
|
|
|
732 |
|
|
|
1.2 |
|
|
|
581 |
|
|
|
79.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
71,267 |
|
|
|
100.0 |
% |
|
$ |
61,236 |
|
|
|
100.0 |
% |
|
$ |
10,031 |
|
|
|
16.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions.
Total commissions increased by $8.8 million or 16.8% to $61.1 million for the nine months ended September 30, 2007 from $52.3 million for the nine months ended September 30, 2006. The following table shows the extent to which the increase in commissions for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was attributable to changes in transaction
volumes, variable fees per million, fixed monthly distribution fees and DealerAxess® minimum fees:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from Nine Months Ended September 30, 2006 |
|
|
|
U.S. |
|
|
European |
|
|
|
|
|
|
|
|
|
High-Grade |
|
|
High-Grade |
|
|
Other |
|
|
Total |
|
|
|
(In thousands) |
|
Volume increases |
|
$ |
2,276 |
|
|
$ |
250 |
|
|
$ |
1,927 |
|
|
$ |
4,454 |
|
Variable fee per million increase (decrease) |
|
|
215 |
|
|
|
(2,407 |
) |
|
|
(1,466 |
) |
|
|
(3,659 |
) |
Fixed monthly distribution fees increase |
|
|
1,276 |
|
|
|
4,539 |
|
|
|
|
|
|
|
5,815 |
|
DealerAxess® minimum fees increase |
|
|
2,175 |
|
|
|
|
|
|
|
|
|
|
|
2,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commissions increase |
|
$ |
5,942 |
|
|
$ |
2,382 |
|
|
$ |
461 |
|
|
$ |
8,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our average fees per million for the nine months ended September 30, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
Average Fee Per Million |
|
|
|
|
|
|
|
|
U.S. high-grade |
|
|
|
|
|
|
|
|
Total |
|
$ |
239 |
|
|
$ |
246 |
|
Variable |
|
$ |
79 |
|
|
$ |
78 |
|
European high-grade |
|
|
|
|
|
|
|
|
Total |
|
$ |
211 |
|
|
$ |
179 |
|
Variable |
|
$ |
143 |
|
|
$ |
179 |
|
Other |
|
$ |
121 |
|
|
$ |
147 |
|
All Products |
|
$ |
210 |
|
|
$ |
211 |
|
For the nine months ended September 30, 2007, U.S. high-grade volume increased by 21.1% compared to the nine months ended September 30, 2006. The increase in U.S. high-grade volume was due primarily to an increase in the Companys estimated market share of total U.S. high-grade corporate bond volume as reported by NASD TRACE from 8.2% for the nine months ended September 30, 2006 to 9.5% for the nine
months ended September 30, 2007. Estimated NASD TRACE U.S. high-grade volume increased by 4.0% from $1,702 billion for the nine months ended September 30, 2006 to $1,771 billion for the nine months ended September 30, 2007. The fixed monthly U.S. high-grade distribution fees were $23.5 million for the nine months ended September 30, 2007, compared to $22.2 million for the nine months ended September 30, 2006.
The DealerAxess® monthly minimum fees were $3.4 million and $1.2 million for the nine months ended September 30, 2007 and 2006, respectively. The majority of the DealerAxess® minimum fee commitments expired as of June 30, 2007. The total U.S. high-grade average fee per million is calculated for each period
presented using both the variable transaction fees and the fixed monthly distribution fees, including the
DealerAxess® monthly minimum fees, paid by our broker-dealer clients.
For the nine months ended September 30, 2007, European high-grade volume increased by 2.1% compared to the nine months ended September 30, 2006 principally due to the favorable effect of foreign currency changes. In local currency, volume decreased by 6.5% for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. On June 1, 2007,
we introduced a new fee plan for European high-grade corporate bond trades. Similar to the U.S. high-grade plan, the new European high-grade corporate bond fee plan incorporates a fixed monthly fee and a variable fee that is dependent on the type of bond traded and the maturity of the issue. The fixed monthly European high-grade distribution fee was $4.5 million for the nine months ended September 30, 2007. The total European high-grade average fee per million is calculated
for each period presented using both the variable transaction fees and the fixed
monthly distribution fees paid by our broker-dealer clients. The decrease in the
variable European high-grade average fee per million for the three months ended
September 30, 2007 as compared to the three months ended September 30, 2006
resulted principally from the introduction of the new European high-grade fee plan.
For the nine months ended September 30, 2007, Other volume increased by 30.3% compared to the nine months ended September 30, 2007. The increase was primarily due to higher credit default swap, high-yield and agencies volume. Other average fee per million declined primarily due to higher volume in lower margin products, including credit default swap and agencies.
Information and User Access Fees. Information and user access fees increased by $0.2 million or 6.1% to $4.4 million for the nine months ended September 30, 2007 from $4.1 million for the nine months ended September 30, 2006.
27
License Fees. License fees were $0.7 million for each of the nine months ended September 30,
2007 and 2006.
Investment Income. Investment income increased by $0.5 million or 15.1% to $3.8 million for
the nine months ended September 30, 2007 from $3.3 million for the nine months ended September 30,
2006. This increase was primarily due to higher Cash and cash equivalents and Securities
available-for-sale balances, which include the effect of the share repurchase program, and a rise
in interest rates during the nine months ended September 30, 2007 as compared to the nine months
ended September 30, 2006.
Other. Other revenues increased by $0.6 million or 79.4% to $1.3 million for the nine months
ended September 30, 2007 from $0.7 million for the nine months ended September 30, 2006. Other
revenues in 2007 included $0.6 million in revenue recognized under a technology development
contract with a broker-dealer client.
Expenses
Our expenses and percentage of revenues for the nine months ended September 30, 2007 and 2006,
and the resulting dollar and percentage changes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and
benefits |
|
$ |
32,771 |
|
|
|
46.0 |
% |
|
$ |
31,264 |
|
|
|
51.1 |
% |
|
$ |
1,507 |
|
|
|
4.8 |
% |
Depreciation and
amortization |
|
|
5,476 |
|
|
|
7.7 |
|
|
|
5,025 |
|
|
|
8.2 |
|
|
|
451 |
|
|
|
9.0 |
|
Technology and
communications |
|
|
5,595 |
|
|
|
7.9 |
|
|
|
5,799 |
|
|
|
9.5 |
|
|
|
(204 |
) |
|
|
(3.5 |
) |
Professional and
consulting fees |
|
|
5,505 |
|
|
|
7.7 |
|
|
|
6,922 |
|
|
|
11.3 |
|
|
|
(1,417 |
) |
|
|
(20.5 |
) |
Occupancy |
|
|
2,423 |
|
|
|
3.4 |
|
|
|
2,270 |
|
|
|
3.7 |
|
|
|
153 |
|
|
|
6.7 |
|
Marketing and advertising |
|
|
1,364 |
|
|
|
1.9 |
|
|
|
1,193 |
|
|
|
1.9 |
|
|
|
171 |
|
|
|
14.3 |
|
General and administrative |
|
|
3,982 |
|
|
|
5.6 |
|
|
|
3,748 |
|
|
|
6.1 |
|
|
|
234 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
57,116 |
|
|
|
80.1 |
% |
|
$ |
56,221 |
|
|
|
91.8 |
% |
|
$ |
895 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits. Employee compensation and benefits increased by $1.5
million or 4.8% to $32.8 million for the nine months ended September 30, 2007 from $31.3 million
for the nine months ended September 30, 2006. This increase was primarily attributable to higher
cash incentive compensation of $2.6 million and increased payroll taxes of $0.8 million. These
increases were offset by reductions in wages of $1.0 million, stock-based compensation costs of
$0.4 million and severance costs of $0.6 million.
Depreciation and Amortization. Depreciation and amortization expense increased by $0.5
million or 9.0% to $5.5 million for the nine months ended September 30, 2007 from $5.0 million for
the nine months ended September 30, 2006. This increase was attributable to increased amortization
of capitalized software development costs for our credit default swap and DealerAxess®
products. For the nine months ended September 30, 2007 and 2006, we capitalized $2.6 million and
$2.8 million, respectively, of software development costs and $1.1 million and $2.3 million,
respectively, of computer and related equipment purchases.
Technology and Communications. Technology and communications expense decreased by $0.2
million or 3.5% to $5.6 million for the nine months ended September 30, 2007 from $5.8 million for
the nine months ended September 30, 2006. This decrease was attributable to lower maintenance and
office hardware costs.
Professional and Consulting Fees. Professional and consulting fees decreased by $1.4 million
or 20.5% to $5.5 million for the nine months ended September 30, 2007 from $6.9 million for the
nine months ended September 30, 2006. This decrease was primarily due to lower information
technology and non-technology consulting costs of $1.1 million and accounting and tax fees of $0.8
million, offset by higher recruiting fees of $0.6 million.
28
Occupancy.
Occupancy costs increased by $0.2 million or 6.7% to $2.4 million for the nine
months ended September 30, 2007 from $2.3 million for the nine months ended September 30, 2006,
primarily due to rent expense for additional leased space.
Marketing and Advertising. Marketing and advertising expense increased by $0.2 million or
14.3% to $1.4 million for the nine months ended September 30, 2007 from $1.2 million for the nine
months ended September 30, 2006, primarily due to higher public relations and promotional expenses.
General and Administrative. General and administrative expense increased by $0.2 million or
6.2% to $4.0 million for the nine months ended
September 30, 2007 from $3.7 million for the nine
months ended September 30, 2006, primarily due to higher travel and entertainment expense.
Provision for Income Tax. For the nine months ended September 30, 2007 and 2006, we recorded
an income tax provision of $5.7 million and $1.8 million, respectively. The increase in the tax
provision was primarily attributable to the $9.1 million increase in pre-tax income for the period.
With the exception of the payment of certain state and local taxes, the provision for income taxes
was a non-cash expense since we had available net operating loss carryforwards and tax credits to
offset the cash payment of taxes.
Our consolidated effective tax rate for the nine months ended September 30, 2007 was 40.6%
compared to 36.5% for the nine months ended September 30, 2006. The 2007 provision includes an
adjustment to the deferred tax asset balance of $0.5 million to reflect the tax rate anticipated to
be in effect when temporary differences are expected to reverse, as well as changes in an enacted
state and foreign tax rates. This adjustment increased the effective tax rate for the nine months
ended September 30, 2007 by 3.1 percentage points. The 2006 tax provision included an adjustment
to the deferred tax liability of $0.2 million, which reduced the effective tax rate by 3.2
percentage points. Our consolidated effective tax rate can vary from period to period depending
on, among other factors, the geographic and business mix of our earnings and change in tax
legislation.
Liquidity and Capital Resources
Since our inception, we have met our funding requirements through the issuance of our
preferred stock, internally generated funds and our initial public offering in November 2004. Cash
and cash equivalents and Securities available-for-sale totaled $127.8 million as of September 30,
2007. We have no long-term or short-term debt and do not maintain bank lines of credit.
On October 26, 2006, our Board of Directors authorized a stock repurchase program for up to
$40.0 million of our common stock. Shares repurchased under the program will be held in treasury
for future use. During the nine months ended September 30, 2007, a total of 1,921,697 shares were
repurchased at a cost of $27.4 million. A total of 2,112,197 shares have been repurchased at an
aggregate cost of $30.0 million from the inception of the repurchase program through September 30,
2007.
Our cash flows for the periods presented below were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Net cash provided by operating activities |
|
$ |
22,330 |
|
|
$ |
8,079 |
|
Net cash used in investing activities |
|
|
(8,145 |
) |
|
|
(3,265 |
) |
Net cash (used in) provided by financing activities |
|
|
(21,668 |
) |
|
|
2,592 |
|
Effect of exchange rate changes on cash |
|
|
(167 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
$ |
(7,650 |
) |
|
$ |
7,104 |
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities of $22.3 million for the nine months ended September
30, 2007 consisted of net income of $8.4 million, adjusted for non-cash charges, primarily
consisting of depreciation and amortization of $5.5 million, stock-based compensation expense of
$4.1 million and deferred taxes of $5.3 million, offset by an increase in cash used for working
capital of $1.3 million. The use of working capital primarily resulted from an increase in
accounts receivable of $2.5 million and decrease in accrued
employee compensation of $1.3 million partially offset by a
decline in accounts payable, accrued expenses and other liabilities
of $1.4 million.
29
Net cash provided by operating activities of $8.1 million for the nine months ended September
30, 2006 consisted of net income of $3.2 million, adjusted for non-cash charges, primarily
consisting of depreciation and amortization of $5.0 million, stock-based compensation expense of
$4.5 million, and deferred taxes of $0.8 million offset by an increase in cash used for working
capital of $6.0 million. The use of working capital primarily resulted from an increase in
accounts receivable of $4.5 million.
Investing Activities
Net cash used in investing activities of $8.1 million for the nine months ended September 30,
2007 primarily consisted of net purchases of securities available-for-sale of $4.4 million,
purchases of furniture, equipment and leasehold improvements of $1.1 million and capitalization of
software development costs of $2.6 million.
Net cash used in investing activities of $3.3 million for the nine months ended September 30,
2006 primarily consisted of net purchases of securities-available-for-sale of $1.8 million,
purchases of furniture, equipment and leasehold improvements of $2.3 million and capitalization of
software development costs of $2.8 million.
Financing Activities
Net cash used in financing activities of $21.7 million for the nine months ended September 30,
2007 primarily consisted of the purchase of treasury stock of $27.4 million, offset by proceeds
from the exercise of stock options and issuance of restricted stock of $5.1 million.
Net cash provided by financing activities of $2.6 million for the nine months ended September
30, 2006 consisted of proceeds from the exercise of stock options and issuance of restricted stock
of $1.5 million and excess tax benefits of $1.1 million.
Past trends of cash flows are not necessarily indicative of future cash flow levels. A
decrease in cash flows may have a material adverse effect on our liquidity, business and financial
condition.
Other Factors Influencing Liquidity and Capital Resources
We are dependent on our broker-dealer clients, seven of which were also our stockholders as of
January 1, 2007 who are not restricted from buying and selling fixed-income securities, directly or
through their own proprietary or third-party platforms, with institutional investors. None of our
broker-dealer clients is contractually or otherwise obligated to continue to use our electronic
trading platform. The loss of, or a significant reduction in the use of our electronic platform by,
our broker-dealer clients could reduce our cash flows, affect our liquidity and have a material
adverse effect on our business, financial condition and results of operations.
We believe that our current resources are adequate to meet our liquidity needs and capital
expenditure requirements for at least the next 12 months. However, our future liquidity and capital
requirements will depend on a number of factors, including expenses associated with product
development and expansion and new business opportunities that are intended to further diversify our
revenue stream. We may also acquire or invest in technologies, business ventures or products that
are complementary to our business. In the event we require any additional financing, it will take
the form of equity or debt financing. Any additional equity offerings may result in dilution to our
stockholders. Any debt financings may involve restrictive covenants with respect to dividends,
issuances of additional capital and other financial and operational matters related to our
business.
We have two major operating subsidiaries, MarketAxess Corporation and MarketAxess Europe
Limited. MarketAxess Corporation is a registered broker-dealer in the U.S. and MarketAxess Europe
Limited is a registered alternative trading system in the U.K. As such, they are subject to minimum
regulatory capital requirements imposed by their respective market regulators that are intended to
ensure general financial soundness and liquidity based on certain minimum capital requirements. The
U.S. and the U.K. regulations
prohibit a registrant from repaying borrowings from its parent or affiliates, paying cash
dividends, making loans to its parent or affiliates or otherwise entering into transactions that
result in a significant reduction in its regulatory net capital position without prior notification
to or approval from its principal regulator. The capital structures of our subsidiaries are
designed to provide each with capital and liquidity consistent with its business and regulatory
requirements. As of September 30, 2007, MarketAxess Corporation
had net capital of $18.6 million,
which was $17.5 million in excess of its required minimum net
capital of $1.0 million. MarketAxess
Europe Limited had financial resources, as defined by the FSA, of $17.7 million, which was $10.0
million in excess of its required financial resources of $7.7 million.
30
In June 2006, our U.S. subsidiary, MarketAxess Corporation, commenced operating an anonymous
matching service for its broker-dealer clients. MarketAxess Corporation executes trades on a
riskless principal basis, which are cleared and settled by an independent clearing broker. The
securities clearing agreement that MarketAxess Corporation maintains with the independent clearing
broker commenced in December 2004. Under the securities clearing agreement, MarketAxess Corporation
maintains a collateral deposit with the clearing broker in the form of cash or U.S. government
securities. As of September 30, 2007, the collateral deposit included in Securities and cash
provided as collateral on the Consolidated Statements of Financial Condition was $0.5 million.
MarketAxess Corporation is exposed to credit risk in the event a counterparty does not fulfill its
obligation to complete a transaction. Pursuant to the terms of the securities clearing agreement
between MarketAxess Corporation and the independent clearing broker, the clearing broker has the
right to charge MarketAxess Corporation for losses resulting from a counterpartys failure to
fulfill its contractual obligations. The losses are not capped at a maximum amount and apply to all
trades executed through the clearing broker. As of September 30, 2007, MarketAxess Corporation
recorded no contingent liabilities with regard to this right. In the ordinary course of business,
we enter into contracts that contain a variety of representations, warranties and general
indemnifications. Our maximum exposure from any claims under these arrangements is unknown, as this
would involve claims that have not yet occurred. However, based on past experience, we expect the
risk of loss to be remote.
Effects of Inflation
Because the majority of our assets are short-term in nature, they are not significantly
affected by inflation. However, the rate of inflation may affect our expenses, such as employee
compensation, office leasing costs and communications expenses, which may not be readily
recoverable in the prices of our services. To the extent inflation results in rising interest rates
and has other adverse effects on the securities markets, it may adversely affect our financial
position and results of operations.
Contractual Obligations and Commitments
As of September 30, 2007, we had the contractual obligations and commitments detailed in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 year |
|
|
1 3 years |
|
|
3 5 years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
11,927 |
|
|
$ |
636 |
|
|
$ |
5,108 |
|
|
$ |
2,445 |
|
|
$ |
3,738 |
|
Foreign currency forward contracts |
|
|
20,992 |
|
|
|
20,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,919 |
|
|
$ |
21,628 |
|
|
$ |
5,108 |
|
|
$ |
2,445 |
|
|
$ |
3,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss resulting from adverse changes in market rates and prices,
such as interest rates and foreign currency exchange rates.
Market Risk
The global financial services business is, by its nature, risky and volatile and is directly
affected by many national and international factors that are beyond our control. Any one of these
factors may cause a substantial decline in the U.S. and global financial services markets,
resulting in reduced trading volume. These events could have a material adverse effect on our
business, financial condition and results of operations.
As of September 30, 2007, we had Securities available-for-sale of $53.4 million. Adverse
movements, such as a 10% decrease in these securities or a downturn or disruption in the markets
for these securities, could result in a substantial loss. In addition, principal gains and losses
resulting from theses securities could on occasion have a disproportionate effect, positive or
negative, on our financial condition and results of operations for any particular reporting period.
31
Interest Rate Risk
Interest rate risk represents our exposure to interest rate changes with respect to the money
market instruments, U.S. Treasury obligations and short-term fixed-income securities in which we
invest. As of September 30, 2007, our Cash and cash equivalents and Securities available-for-sale
amounted to $127.8 million and was primarily in money market instruments, federal agency issues and
municipal securities. We do not maintain an inventory of bonds that are traded on our platform.
Derivative Risk
Our limited derivative risk stems from our activities in the foreign currency forward contract
market. We use this market to mitigate our U.S. dollar versus Pound Sterling exposure that arises
from the investment of our U.K. Subsidiaries. As of September 30, 2007, the notional value of our
foreign currency forward contracts was $21.0 million. We do not speculate in any derivative
instruments.
Credit Risk
In June 2006, we began executing riskless principal transactions between our broker-dealer
clients through our subsidiary, MarketAxess Corporation. We act as an intermediary in these
transactions by serving as counterparty to both the buyer and the seller in matching back-to-back
trades, which are then settled through a third-party clearing organization. Settlement typically
occurs within one to three trading days after the trade date. Cash settlement of the transaction
occurs upon receipt or delivery of the underlying instrument that was traded.
We are exposed to credit risk in our role as trading counterparty to our broker-dealer clients
executing trades on the DealerAxess® platform. We are exposed to the risk that third
parties that owe us money, securities or other assets will not perform their obligations. These
parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational
failure or other reasons. Adverse movements in the prices of securities that are the subject of
these transactions can increase our risk. Where the unmatched position or failure to deliver is
prolonged, there may also be regulatory capital charges required to be taken by us. The policies
and procedures we use to manage this credit risk are new and untested. There can be no assurance
that these policies and procedures will effectively mitigate our exposure to credit risk.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our management, including the Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as that term is defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of September 30,
2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective to ensure that information required to be
disclosed by MarketAxess in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and to ensure that information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting. There were no changes in our
internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under
the Exchange Act) during the quarter ended September 30, 2007 identified in connection with the
evaluation thereof by our management, including the Chief Executive Officer and Chief Financial
Officer, that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II Other Information
Item 1. Legal Proceedings
In January 2007, two former employees commenced arbitration proceedings against us before the
NASD arising out of the expiration of certain vested and unvested stock options and unvested
restricted shares issued to them. The claims made by these two former employees total $4.5 million
plus interest.
One of the former employees has alleged that we wrongfully prevented him from exercising his
vested options when he sought to do so and that we wrongfully claimed that such options had expired
on the previous day.
32
The other former employee has alleged that we wrongfully failed to accelerate the vesting of
his then unvested options and restricted shares upon his termination and to waive the 90-day time
period within which he was required to exercise his vested options. This former employee also
alleges that he is entitled to a declaration that certain provisions in our 2004 Stock Incentive
Plan are invalid and unenforceable under applicable law. He further alleges that he is entitled to
a bonus for the approximately five months that he worked for us during 2006.
We believe that both cases are without merit and we intend to vigorously defend them. We
answered both arbitration claims during March 2007. Based on currently available information, we
believe that the likelihood of a material loss is not probable. Accordingly, no amounts have been
provided in the accompanying financial statements. However, arbitration is subject to inherent
uncertainties and unfavorable rulings could occur.
Item 1A. Risk Factors
Risks that could have a negative impact on our business, results of operations and financial
condition include: our dependence on our broker-dealer clients, seven of which were also our
stockholders as of January 1, 2007; the level and intensity of competition in the fixed-income
electronic trading industry and the pricing pressures that may result; the variability of our
growth rate; our limited operating history; the level of trading volume transacted on the
MarketAxess platform; potential fluctuations in our operating results which may cause our stock
price to decline; the absolute level and direction of interest rates and the corresponding
volatility in the corporate fixed-income market; our ability to develop new products and offerings
and the markets acceptance of those products; technology failures, security breaches or rapid
technology changes that may harm our business; our ability to enter into strategic alliances and to
acquire other businesses and successfully integrate them with our business; extensive government
regulation; continuing international expansion that may present economic and regulatory challenges;
and our future capital needs and our ability to obtain capital when needed. This list is intended
to identify only certain of the principal factors that could have a material adverse impact on our
business, results of operations and financial condition. A more detailed description of each of
these and other important risk factors can be found under the caption Risk Factors in our most
recent Form 10-K, filed on March 14, 2007. There have been no material changes to the risk factors
described in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the quarter ended September 30, 2007, we repurchased the following shares of our common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Dollar Value of Shares |
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
|
That May Yet Be |
|
|
|
Total Number of Shares |
|
|
Average Price Paid per |
|
|
Publicly Announced |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
Share |
|
|
Plans |
|
|
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
July 1, 2007 July 31, 2007 |
|
|
105,000 |
|
|
$ |
18.79 |
|
|
|
105,000 |
|
|
$ |
11,517 |
|
August 1, 2007 August 31, 2007 |
|
|
30,000 |
|
|
|
17.61 |
|
|
|
30,000 |
|
|
|
10,989 |
|
September 1, 2007 September 30, 2007 |
|
|
69,840 |
|
|
|
14.58 |
|
|
|
69,840 |
|
|
|
9,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,840 |
|
|
$ |
17.18 |
|
|
|
204,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 26, 2006, our Board of Directors authorized a stock repurchase program for up to
$40.0 million of our common stock. We have repurchased and may continue to repurchase the shares in
the open market or privately negotiated transactions, at times and prices considered appropriate by
us depending upon prevailing market conditions. Shares repurchased under the program will be held
in treasury for future use. A total of 2,112,197 shares have been repurchased at an aggregate cost
of $30.0 million from the inception of the repurchase program through September 30, 2007.
Item 3. Defaults upon Senior Securities
None
33
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibit Listing
|
|
|
|
|
Number |
|
Description |
|
|
31.1 |
|
|
Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has
duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized.
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MARKETAXESS HOLDINGS INC.
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Date: November 1, 2007 |
By: |
/s/ RICHARD M. MCVEY
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Richard M. McVey |
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Chief Executive Officer
(principal executive officer) |
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Date: November 1, 2007 |
By: |
/s/ JAMES N.B. RUCKER
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James N. B. Rucker |
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Chief Financial Officer
(principal financial and accounting officer) |
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35