MarketAxess (MKTX) Q2 Earnings Beat on Eurobonds' Performance
MarketAxess Holdings Inc. MKTX reported second-quarter 2023 earnings per share of $1.63, which outpaced the Zacks Consensus Estimate of $1.58. The bottom line, however, declined from $1.78 per share a year ago.
Total revenues decreased 1.3% year over year to $179.8 million in the quarter under review. The top line also missed the consensus mark by 0.8%.
The better-than-expected second-quarter earnings were supported by solid Eurobonds’ performance and higher adoption of its Composite+ pricing engine. The positives were partially offset by low credit spread volatility, an elevated expense level, lackluster U.S. government bonds trading and lower overall credit trading.
MarketAxess Holdings Inc. Price, Consensus and EPS Surprise
MarketAxess Holdings Inc. price-consensus-eps-surprise-chart | MarketAxess Holdings Inc. Quote
Quarterly Operational Update
Commission revenues declined 3% year over year to $158.6 million in the second quarter, and missed our estimate by 6.8%. Information services revenues registered a record $11.7 million, which increased 24% year over year and beat our estimate by 19.4% on the back of strong adoption of the company’s algorithmic pricing engine, Composite+. Meanwhile, post-trade services revenues of $9.4 million inched up 3% year over year in the quarter under review, beating our estimate of $9.1 million.
Total expenses of $104.1 million escalated 6.9% year over year, coming close to our estimate of $106.6 million. The year-over-year growth was primarily due to increased employee compensation and benefits, technology and communication expenses, and marketing and occupancy costs.
MarketAxess reported an operating income of $75.7 million, which decreased 10.7% year over year in the second quarter and missed our estimate by 8.5%.
Trading Volumes
MarketAxess’ high-grade trading volume declined 1.8% year over year to $353.2 billion, missing our estimate by 5.1%. The average daily volume (ADV) of the same product category fell 1.8% year over year to $5,697 million, missing our estimate by 5.1%.
Other credit trading volume of $24,729 million rose 0.6% year over year, whereas ADV of the same product category jumped 0.5% year over year to $399 million in the second quarter.
The emerging markets’ trading volume and ADV fell 4% each on a year-over-year basis. Trading volume and ADV of MKTX’s Eurobonds rose 30.2% each, year over year.
Total credit trading volume decreased 0.6% year over year to $754.1 billion in the quarter under review, while ADV reached $12,226 million (down 0.5% year over year). Both total rates’ trading volume and ADV declined 32.5% year over year.
Balance Sheet (as of Jun 30, 2023)
MarketAxess exited the second quarter of 2023 with cash and cash equivalents of $396.5 million, which decreased from the 2022-end figure of $430.7 million. Total assets of $1,619.2 million increased from the $1,607.8 million level in 2022 end.
The company had no outstanding borrowing under its credit facility at the second-quarter end. Total stockholders’ equity rose from $1,081.1 million at 2022-end to $1,165.1 million at second quarter-end.
Cash Flows
MarketAxess generated cash from operations of $105.4 million in the second quarter, up from $93.6 million a year ago. However, free cash flow of $46.4 million declined from $62.8 million a year ago.
Dividend Update
Management approved a quarterly cash dividend of 72 cents per share, which will be paid out on Aug 16, to shareholders of record as of Aug 2.
2023 Guidance Reaffirmed
Management anticipates expenses between $418 million and $446 million for this year, the mid-point of which indicates a 10% increase from the 2022 reported figure.
Capital expenditure was estimated between $52 million and $58 million for 2023.
The effective tax rate is likely to be 25-26%.
Zacks Rank & Key Picks
MarketAxess currently has a Zacks Rank #3 (Hold). Investors interested in the broader finance space can consider better-ranked companies like Burford Capital Limited BUR, Houlihan Lokey, Inc. HLI and CME Group Inc. CME, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in Saint Peter Port, Guernsey, Burford Capital offers legal finance products and services around the world. The Zacks Consensus Estimate for BUR’s current-year bottom line is pegged at $2.16 per share, indicating a massive jump from 14 cents a year ago.
Los Angeles-based Houlihan Lokey is an investment banking company. The Zacks Consensus Estimate for HLI’s current-year earnings implies 6.6% year-over-year growth. Houlihan Lokey beat earnings estimates in all the last four quarters, with an average of 16.8%.
Headquartered in Chicago, CME Group is one of the largest futures exchanges in the world in terms of trading volume. The Zacks Consensus Estimate for CME’s current year earnings indicates an 11.5% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average of 2.2%.
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