MarketAxess Holdings Inc. (MKTX) Q2 2010 Earnings Call July 28, 2010 8:30 am ET Executives Dave Gretzky - Investor Relations Manger Rick McVey - Chairman and Chief Executive Officer Kelly Millet - President Tony DeLise - Chief Financial Officer Analysts Hugh Miller – Sidoti Chris Donat - Sandler O'Neill Howard Chen – Credit Suisse Michael Wong – Morningstar Presentation Operator
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Now let me turn the call over to Rick.Rick McVey Good morning and thank you for joining us to discuss our second quarter 2010 results. We are pleased to report another set of strong quarterly results with record revenues of $35.3 million of 37% from a year-ago. And a record pre-tax income of $11.9 million, 107% above second quarter of 2009. The strong revenue growth combined with operating leverage lead to a marked improvement in operating margins to approximately 34%. EPS of $0.18 was more than double year-ago levels. Variable transaction fees were the largest contributor to revenue growth and were up 53% driven by a combination of volume and fee per million growths. Fee capture remained strong reflecting additional contributions from our regional dealer fee plant. Total trading volume of $98 million was 47% above a year-ago. Investor order fall in to this system was up 30% and we now have 80 market making dealers up from 60 one year ago. Slide 4 displays the details on our financial strength. For the trailing 12 months ended June 30th 2010. EBITDA and free cash flow were both approximately $50 million in each case more than double the levels from one year ago. Trailing 12 months operating margin expanding to 32%. Our cash and securities balance at June month end was $188 billion or $4.75 per diluted shares. When assessing alternatives for deploying our capital we have four priorities. Our first priority is to grow the business by investing in both existing products and new product opportunities such as CDS. We continue to evaluate additive acquisitions in the e-trading market data or trading technologies states. We are returning capital through our shareholders through our regular quarterly cash dividend. The Board is approved our fourth quarterly dividend of $0.07 per share. Finally, we recently announced the $30 million share repurchase program. The buyback was principally established to offset the increase in our diluted share accounts. The repurchase program started in July and it expected to be accretive.
Slide five provides an update on the current regulatory reform in our credit to flows swap platform. On July, 21, the financial regulatory reform bill was signed which contains two important mandates regarding electronic trading of OTC derivatives.First, standardized swaps must be cleared by an approved clearing organization. And second, Clearable swaps must be traded on an exchange or swap execution facility. We believe that in regulations will create a stronger and sounder OTC derivatives market. The ultimate result is likely to be a larger OTC swap market with a broader set of industry participants. We intended to register and operate as a swap execution facility which will be regulated by the SEC and CFTC. Although the room making process is expected to take approximately 12 to 18 months we are preparing now for transition to e-trading for standardized swaps. Based on data published by the DTC [ph] Trade ware house, we estimate that the total average daily trading volume in the client to deal our CDS market is approximately 50 to $60 billion including index and single main swaps. We currently expect the e-trading mandate to apply to 50 to 75% of the daily CDS volume. We believe our improving credit trading technology and our large institutional credit-trading network are valuable assets in the CDS space. We are focused on this opportunity. Now, let me turn the call over to Kelly for more detail regarding our second quarter business results. Kelly Millet Thank you, Rich. Slide six provides an update on market conditions. Through the second quarter credit market conditions weaken slightly demonstrated by an increase in credit spreads and credit spread volatility along with softer new issuance volume. High-grade credit spread as measured by the Credit Suisse Lucy Index end of the quarter at 158 basis points above treasury, an increase from 118 basis points at the end of the first quarter. And credit spread volatility with 6.5% at June on '10 up from 3.8% at the end of March. Read the rest of this transcript for free on seekingalpha.com