10-Q

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 2, 2024, the number of shares of the Registrant’s voting common stock outstanding was 37,751,975.

Fair Value Financial Instruments

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” A three-tiered hierarchy for determining fair value has been established that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as Level 1 (unadjusted quoted prices for identical assets or liabilities in active markets), Level 2 (inputs that are observable in the marketplace other than those inputs classified in Level 1) and Level 3 (inputs that are unobservable in the marketplace). The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of its money market funds, trading securities, available-for-sale securities, foreign currency forward contracts and securities sold, not yet purchased. All other financial instruments are short-term in nature and the carrying amounts reported on the Consolidated Statements of Financial Condition approximate fair value.

Receivables from and Payables to Broker-dealers, Clearing Organizations and Customers

Receivables from broker-dealers, clearing organizations and customers include amounts receivable for securities not delivered by the Company to the purchaser by the settlement date (“securities failed-to-deliver”) and cash deposits held at clearing organizations and clearing brokers to facilitate the settlement and clearance of matched principal transactions. Payables to broker-dealers, clearing organizations and customers include amounts payable for securities not received by the Company from a seller by the settlement date (“securities failed-to-receive”). Securities failed-to-deliver and securities failed-to-receive for transactions executed on a matched principal basis where the Company serves as a counterparty to both the buyer and the seller are recorded on a settlement date basis. The Company presents its securities failed-to-deliver and securities failed-to-receive balances on a net-by-counterparty basis within receivables from and payables to broker-dealers, clearing organizations and customers. The difference between the Company’s trade-date receivables and payables for unsettled matched principal transactions reflects commissions earned and is recorded within accounts receivable, net on a trade date basis.

Allowance for Credit Losses

All accounts receivable have contractual maturities of less than one year and are derived from trading-related fees and commissions and revenues from products and services. The Company continually monitors collections and payments from its customers and maintains an allowance for doubtful accounts. The allowance for credit losses is based on the estimated expected credit losses in accounts receivable, as determined from a review of aging schedules, past due balances, historical collection experience and other specific collection issues that have been identified. Account balances are grouped for evaluation based on various risk characteristics, including billing type, legal entity, and geographic region. Additions to the allowance for credit losses are charged to bad debt expense, which is included in general and administrative expense in the Company’s Consolidated Statements of Operations. Balances that are determined to be uncollectable are written off against the allowance for credit losses.

The allowance for credit losses was $0.6 million as of each of June 30, 2024 and December 31, 2023. The provision for bad debts for each of the three and six months ended June 30, 2024 and 2023 was $0.1 million. Write-offs and other charges against the allowance for credit losses were immaterial for each of the three and six months ended June 30, 2024 and 2023.

Depreciation and Amortization

Fixed assets are carried at cost less accumulated depreciation. The Company uses the straight-line method of depreciation over three to seven years. The Company amortizes leasehold improvements on a straight-line basis over the lesser of the life of the improvement or the remaining term of the lease.

Software Development Costs

The Company capitalizes certain costs associated with the development of internal use software, including, among other items, employee compensation and related benefits and third-party consulting costs at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed. Once the product is ready for its intended use, such costs are amortized on a straight-line basis over three to five 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.

MARKETAXESS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Cloud Computing Costs

The Company capitalizes certain costs associated with cloud computing arrangements, including, among other items, vendor software development costs billed to us that are part of the application development stage. These costs are recorded as a prepaid asset on the Consolidated Statements of Financial Condition and are amortized over the period of the hosting service contract, which ranges from one to five 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.

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 in the Consolidated Statements of Financial Condition. Transaction gains and losses are recorded in other, net in the Consolidated Statements of Operations.

The Company enters into foreign currency forward contracts to economically hedge its foreign currency transaction gains and losses. Realized and unrealized gains and losses on these forward contracts are included in other, net in the Consolidated Statements of Operations. The Company records the fair value of the forward contract asset in prepaid expenses and other assets or the fair value of the forward contract liability in accounts payable, accrued expenses and other liabilities in the Consolidated Statements of Financial Condition.

Revenue Recognition

The Company’s classification of revenues in the Consolidated Statements of Operations represents revenues from contracts with customers disaggregated by type of revenue. The Company has four revenue streams as described below.

Commission Revenue – The Company charges its broker-dealer clients variable transaction fees for trades executed on its platforms and, under certain plans, distribution fees or monthly minimum fees to use the platforms for a particular product area. Variable transaction fees are recognized on a trade date basis, are generally calculated as a percentage of the notional dollar volume of bonds traded on the platforms and vary based on the type, size, yield and maturity of the bond traded, as well as individual client incentives. Bonds that are more actively traded or that have shorter maturities generally generate lower commissions, while bonds that are less actively traded or that have longer maturities generally command higher commissions. Under the Company’s disclosed trading transaction fee plans, variable transaction fees, distribution fees and unused monthly fee commitments are invoiced and recorded on a monthly basis.

For Open Trading trades that the Company executes between and among institutional investor and broker-dealer clients on a matched principal basis by serving as counterparty to both the buyer and the seller, the Company earns its commission through the difference in price between the two trades. The commission is collected upon settlement of the trade, which typically occurs within one to two trading days after the trade date. For the majority of the Company’s U.S. Treasury matched principal trades, commissions are invoiced and recorded on a monthly basis.

Following its acquisition of Pragma LLC and Pragma Financial Systems LLC (collectively, “Pragma”) in the fourth quarter of 2023, the Company also earns other commissions on equities and foreign exchange products for algorithmic trading services. These fees incorporate variable transaction fees, which are calculated as a percentage of the notional dollar volume traded and are billed on a monthly basis.

The following table presents commission revenue by fee type:


		Three Months Ended June 30,						Six Months Ended June 30,
		2024			2023			2024			2023
	(In thousands)
Commission revenue by fee type
Variable transaction fees
Disclosed trading	$		86,778	$		78,424	$		181,556	$		166,552
Open Trading – matched principal trading			42,439			41,606			90,619			95,842
U.S. government bonds - matched principal trading			4,147			3,227			7,859			8,091
Other			5,076			—			9,925			—
Total variable transaction fees			138,440			123,257			289,959			270,485
Distribution fees and unused minimum fees			33,239			35,329			66,593			70,092
Total commissions	$		171,679	$		158,586	$		356,552	$		340,577

MARKETAXESS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Information services – Information services includes data licensed to the Company’s broker-dealer clients, institutional investor clients and data-only subscribers; professional and consulting services; technology software licenses; and maintenance and support services. The nature and timing of each performance obligation may vary as these contracts are either subscription-based services transferred over time, and may be net of volume-based discounts, or one-time services that are transferred at a point in time. Revenues for services transferred over time are recognized ratably over the contract period as the Company’s performance obligation is met, whereas revenues for services transferred at a point in time are recognized in the period the services are provided. Customers are generally billed monthly, quarterly, or annually; revenues billed in advance are deferred and recognized ratably over the contract period. The following table presents information services revenue by timing of recognition:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Information services revenue by timing of recognition
Services transferred over time	$	12,103	$	11,487	$	23,977	$	22,146
Services transferred at a point in time		441		168		448		519
Total information services revenues	$	12,544	$	11,655	$	24,425	$


Delaware		52-2230784
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

55 Hudson Yards, 15th Floor New York, New York		10001
(Address of principal executive offices)		(Zip Code)


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


		Page
PART I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Financial Condition as of June 30, 2024 and December 31, 2023	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	47
PART II — Other Information
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50


	As of
	June 30, 2024			December 31, 2023
	(In thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	434,063		$	451,280
Cash segregated under federal regulations		46,141			45,122
Investments, at fair value		135,908			134,861
Accounts receivable, net of allowance of $609 and $577 as of June 30, 2024 and December 31, 2023, respectively		92,350			89,839
Receivables from broker-dealers, clearing organizations and customers		577,992			687,936
Goodwill		236,706			236,706
Intangible assets, net of accumulated amortization		108,420			119,108
Furniture, equipment, leasehold improvements and capitalized software, net of accumulated depreciation and amortization		108,802			102,671
Operating lease right-of-use assets		60,500			63,045
Prepaid expenses and other assets		85,831			84,499
Total assets	$	1,886,713		$	2,015,067

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accrued employee compensation		41,002			60,124
Payables to broker-dealers, clearing organizations and customers		392,846			537,398
Securities sold, not yet purchased, at fair value		9,167			—
Income and other tax liabilities		2,058			7,892
Accounts payable, accrued expenses and other liabilities		36,338			37,013
Operating lease liabilities		76,081			79,677
Total liabilities	$	557,492		$	722,104

Commitments and Contingencies (Note 13)

Stockholders' equity
Preferred stock, $0.001 par value, 4,855,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		—			—
Series A Preferred Stock, $0.001 par value, 110,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		—			—
Common stock voting, $0.003 par value, 110,000,000 shares authorized, 41,032,190 shares and 40,940,769 shares issued and 37,783,610 shares and 37,899,688 shares outstanding as of June 30, 2024 and December 31, 2023, respectively		123			123
Common stock non-voting, $0.003 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		—			—
Additional paid-in capital		335,641			333,292
Treasury stock – Common stock voting, at cost, 3,248,580 shares and 3,041,081 shares as of June 30, 2024 and December 31, 2023, respectively		(302,455	)		(260,298	)
Retained earnings		1,325,139			1,244,216
Accumulated other comprehensive loss		(29,227	)		(24,370	)
Total stockholders' equity		1,329,221			1,292,963
Total liabilities and stockholders' equity	$	1,886,713		$	2,015,067

The accompanying notes are an integral part of these consolidated financial statements.


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023			2024	2023
	(In thousands, except per share amounts)
Revenues
Commissions	$	171,679	$	158,586	$	356,552	$	340,577
Information services		12,544		11,655		24,425		22,665
Post-trade services		10,400		9,415		21,130		19,395
Technology services		3,037		190		5,871		378
Total revenues		197,660		179,846		407,978		383,015

Expenses
Employee compensation and benefits		56,790		48,383		118,054		100,698
Depreciation and amortization		18,356		17,005		36,556		33,466
Technology and communications		17,771		15,235		34,822		30,234
Professional and consulting fees		7,669		8,023		14,064		15,150
Occupancy		3,714		3,199		7,139		6,810
Marketing and advertising		3,010		3,308		4,843		6,303
Clearing costs		4,122		4,182		9,033		8,727
General and administrative		4,889		4,784		9,628		10,544
Total expenses		116,321		104,119		234,139		211,932
Operating income		81,339		75,727		173,839		171,083
Other income (expense)
Interest income		6,401		5,312		12,374		9,561
Interest expense		(621)		(53)		(937)		(183)
Equity in earnings of unconsolidated affiliate		354		250		724		454
Other, net		(1,136)		(2,286)		(2,946)		(3,770)
Total other income (expense)		4,998		3,223		9,215		6,062
Income before income taxes		86,337		78,950		183,054		177,145
Provision for income taxes		21,399		19,091		45,501		43,658
Net income	$	64,938	$	59,859	$	137,553	$	133,487

Net income per common share
Basic	$	1.72	$	1.60	$	3.65	$	3.56
Diluted	$	1.72	$	1.59	$	3.64	$	3.55

Cash dividends declared per common share	$	0.74	$	0.72	$	1.48	$	1.44

Weighted average shares outstanding
Basic		37,655		37,485		37,698		37,482
Diluted		37,689		37,588		37,740		37,617

The accompanying notes are an integral part of these consolidated financial statements.


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common Stock Voting		Additional Paid-In Capital		Treasury Stock - Common Stock Voting		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	(In thousands, except per share amounts)
Balance at January 1, 2024	$	123	$	333,292	$	(260,298)	$	1,244,216	$	(24,370)	$	1,292,963
Net income		—		—		—		72,615		—		72,615
Cumulative translation adjustment		—		—		—		—		(4,241)		(4,241)
Unrealized net gain (loss) on securities available-for-sale, net of tax		—		—		—		—		(40)		(40)
Stock-based compensation		—		7,298		—		—		—		7,298
Exercise of stock options		—		1,977		—		—		—		1,977
Withholding tax payments on full value awards vesting and stock option exercises		—		(14,893)		—		—		—		(14,893)
Reissuance of treasury stock		—		(155)		1,440		(581)		—		704
Repurchases of common stock		—		—		(10,147)		—		—		(10,147)
Cash dividend on common stock ($0.74 per share)		—		—		—		(28,003)		—		(28,003)
Balance at March 31, 2024		123		327,519		(269,005)		1,288,247		(28,651)		1,318,233
Net income		—		—		—		64,938		—		64,938
Cumulative translation adjustment		—		—		—		—		(563)		(563)
Unrealized net gain (loss) on securities available-for-sale, net of tax		—		—		—		—		(13)		(13)
Stock-based compensation		—		8,328		—		—		—		8,328
Exercise of stock options		—		—		—		—		—		—
Withholding tax payments on full value awards vesting and stock option exercises		—		(206)		—		—		—		(206)
Repurchases of common stock		—		—		(33,450)		—		—		(33,450)
Cash dividend on common stock ($0.74 per share)		—		—		—		(28,046)		—		(28,046)
Balance at June 30, 2024	$	123	$	335,641	$	(302,455)	$	1,325,139	$	(29,227)	$	1,329,221

The accompanying notes are an integral part of these consolidated financial statements.