MARKETAXESS HOLDINGS INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with "Selected Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements relating to future events and the future performance ofMarketAxess that are based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, as more fully described in this section, in "Item 1A. Risk Factors", in "Cautionary Note Regarding Forward Looking Statements" and elsewhere in this Annual Report on Form 10-K. Except as may be required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. The following discussion includes a comparison of our Financial Results, Cash Flow Comparisons and Liquidity and Capital Resources for the years endedDecember 31, 2020 and 2019, respectively. A discussion of changes in our Financial Results and Cash Flow Comparisons from the year endedDecember 31, 2018 toDecember 31, 2019 may be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Executive Overview
MarketAxess operates leading electronic trading platforms delivering expanded liquidity opportunities, improved execution quality and significant cost savings across global fixed-income markets. Over 1,800 institutional investor and broker-dealer firms are active users of our patented trading technology, accessing global liquidity on our platforms inU.S. investment-grade bonds,U.S. high-yield bonds,U.S. Treasuries, emerging market debt, Eurobonds and other fixed income securities. Through our Open Trading™ protocols, we execute bond trades between and among institutional investor and broker-dealer clients in the leading all-to-all anonymous trading environment for corporate bonds. We also offer a number of trading-related products and services, including: Composite+ TM pricing and other market data products to assist clients with trading decisions; auto-execution and other execution services for clients requiring specialized workflow solutions; connectivity solutions that facilitate straight-through processing; and technology services to optimize trading environments. In addition, we provide a range of pre- and post-trade services, including trade matching, trade publication, regulatory transaction reporting and market and reference data across a range of fixed-income and other products. Our platforms' innovative technology solutions are designed to increase the number of potential trading counterparties and create a menu of solutions to address different trade sizes and bond liquidity characteristics. Our traditional request-for-quote ("RFQ") model 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. Our Open Trading protocols complement our RFQ model by increasing the number of potential counterparties and improving liquidity by allowing all participants to interact anonymously in an all-to-all trading environment. Clients can use our auto-execution technology with both our traditional RFQ and Open Trading protocols, thereby using rules-based execution to connect to diverse sources of liquidity while reducing trading inefficiencies and human errors. Leveraging the benefits of our Open Trading marketplace, we launched Live Markets, an order book that will create a single view of two-way, actionable prices for the most active bonds, including newly issued debt, benchmark issues and news-driven securities. We expect that Open Trading participants will improve their trading capacity through the Live Markets order book, by more efficiently trading liquid names in larger size and accessing integrated real-time market data, such as Composite+.
We derive revenue from commissions for trades executed on our platform, information services, post-trade services and other revenues. Our expenses consist of employee compensation and benefits, depreciation and amortization, technology and communication expenses, professional and consulting fees, occupancy, marketing and advertising, clearing costs and other general and administrative expenses.
Our objective is to provide the leading global electronic trading platforms for fixed-income securities, connecting broker-dealers and institutional investors more easily and efficiently, while offering a broad array of trading information and technology services to market participants across the trading cycle. The key elements of our strategy are:
• to use our broad network of over 1,800 active institutional investor and
broker-dealer participants to drive more clients to our platforms;
• to increase the secondary market liquidity on our trading platform by
deploying innovative technology solutions, such as our Open Trading
protocols, to increase the number of potential trading counterparties on
our platforms and to address different trade sizes, bond liquidity
characteristics and trading preferences;
• to continue to develop innovative next-generation technologies that will
allow our clients to further automate and improve the performance of their
trading desks through increased liquidity, enhanced trading efficiencies
and the ability to identify trends within the bond market;
• to expand and strengthen our existing service, data and analytical
offerings throughout the trading cycle so that we are more fully
integrated into the workflow of our broker-dealer and institutional
investor clients; and
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• to increase and 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. We acquired Regulatory Services
GmbH , the pan-European regulatory reporting business of Deutsche Börse Group in the fourth quarter of 2020.
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. These factors include, among others, credit market conditions, the current interest rate environment, including the volatility of interest rates and investors' forecasts of future interest rates, economic and political conditions inthe United States ,Europe and elsewhere, and the consolidation or contraction of our broker-dealer and institutional investor clients. During the first half of 2020, the global economy experienced a period of significant turmoil due to the outbreak of COVID-19 (the "Pandemic"). The Pandemic triggered a steep drop in economic activity that had an immediate and substantial impact on global credit markets. Credit yield spreads inU.S. corporate bonds, as measured by theCredit Suisse Liquid U.S. Corporate Index ("LUCI Index"), increased from 1.1% overU.S Treasuries inDecember 2019 to 1.5% inMarch 2020 and credit spread volatility inU.S. corporate bonds, as measured by the LUCI Index, increased from 1.1% inDecember 2019 to 11.6% inMarch 2020 . Drastic measures taken by central banks and governments helped restore confidence in the credit markets in the second half of 2020, which led to a tightening in credit spreads that helped stimulate record new issuance inU.S. investment-grade and high-yield corporate bonds. During the second half of 2020, the credit markets continued to improve as credit yield spreads and credit spread volatility tightened to pre-Pandemic levels. The volatile market conditions in 2020 led to an active credit trading environment as the average daily trading volume ofU.S. high-grade and high-yield corporate bonds for the year endedDecember 31, 2020 , as measured by Trade Reporting and Compliance Engine ("TRACE"), increased by 13.7% and 19.7%, respectively, compared to the year endedDecember 31, 2019 . As a result of the Pandemic, we have experienced significant changes in our daily operations. Inmid-March 2020 , we successfully implemented a global work from home mandate for all our employees and we were able to continue to provide our trading platforms and other services to our clients without interruption. In particular, we believe that Open Trading liquidity has been increasingly essential to the functioning of credit markets during the Pandemic, andMarketAxess has played a valuable role keeping our clients connected to the market as traders moved from their centralized trading floors to home offices. During the first several months of the Pandemic, we helped over 10,000 individual users connect to our trading platforms from their homes. Although we have reprioritized certain technology projects due to the changing needs of our clients in the current market environment, we have largely continued with our hiring plans, capital expenditures and the expansion of our trading platforms and services into new jurisdictions. The global spread of the Pandemic is complex and rapidly-evolving, with authorities around the world implementing numerous measures to try to contain the coronavirus, such as travel bans and restrictions, social distancing, quarantines, stay at home orders, business limitations and, beginning in the fourth quarter of 2020, vaccinations. While we remain confident that we can continue to maintain business continuity, serve our clients and provide efficient execution in a virtual environment as necessary, we have re-opened our offices and have allowed our employees to return to work, on a voluntary basis, where local regulations permit. The re-opening of offices has created additional risks and operational challenges relating to maintaining the health and safety of our employees. We also anticipate that the full re-opening of our offices may require investments in the design, implementation and enforcement of new workplace safety protocols. These efforts may divert management attention, and the protocols may create logistical challenges for our employees which could adversely impact employee productivity and morale. We believe that we have sufficient liquidity and flexibility to operate during any future disruptions caused by the Pandemic. While we have experienced increased market volumes and market share since the outbreak, we are cautious of the damaging impact the Pandemic may have on the global economy in the longer-term and the adverse impact that a global recession could have on liquidity and market volumes in the global credit markets. We expect that current cash and investment balances, in combination with cash flows that are generated from operations and the ability to borrow under our Credit Agreement (as defined below), will be sufficient to meet our liquidity needs and planned capital expenditure requirements for at least the next twelve months. We have not altered our capital management programs and we have increased our dividend for the 12th consecutive year. We ended the quarter with a strong balance sheet, no borrowings under our Credit Agreement and with capital significantly in excess of our regulatory requirements. In response to the current economic conditions, theFederal Reserve Bank of New York (the "FRBNY") established a Secondary Market Corporate Credit Facility (the "Facility") that lent money, on a recourse basis, to a special purpose vehicle ("SPV") that 43
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purchased corporate debt issued by eligible issuers in the secondary market. The
SPV purchased eligible individual corporate bonds in the secondary market, as
well as eligible corporate bond portfolios in the form of exchange-traded funds
("ETFs"). In September 2020 , we were designated by the FRBNY as an Eligible
Seller for the Facility, which allowed us to provide end investors and
broker-dealers the opportunity to use Open Trading to respond directly and
anonymously to the FRBNY's requests to purchase bonds.
Competitive Landscape
The global fixed-income securities industry generally, and the electronic financial services markets in which we engage in particular, are highly competitive, and we expect competition to intensify in the future. Sources of competition for us will continue to include, among others, bond trading conducted directly between broker-dealers and their institutional investor clients over the telephone or electronically and other multi-dealer or all-to-all trading platforms. Competitors, including companies in which some of our broker-dealer clients have invested, have developed or acquired electronic trading platforms or have announced their intention to explore the development of electronic platforms or information networks that may compete with us. In general, we compete on the basis of a number of key factors, including, among others, the liquidity provided on our platform, the magnitude and frequency of price improvement enabled by our platform, total transaction costs and the quality and speed of execution. We believe that our ability to grow volumes and revenues will largely depend on our performance with respect to these factors. Our competitive position is also enhanced by the familiarity and integration of our broker-dealer and institutional investor clients with our electronic trading platform and other systems. We have focused on the unique aspects of the credit markets we serve in the development of our platform, working closely with our clients to provide a system that is suited to their needs.
Regulatory Environment
Our business is subject to extensive regulations inthe United States and internationally, which may expose us to significant regulatory risk and cause additional legal costs to ensure compliance. The existing legal framework that governs the financial markets is periodically reviewed and amended, resulting in the enactment and enforcement of new laws and regulations that apply to our business. For example, the new administration elected in the 2020 U.S. presidential election may enact regulatory changes that may affect our business. In 2017, theSEC established aFixed Income Market Structure Advisory Committee in order to provide theSEC with diverse perspectives on the structure and operations of theU.S. fixed-income markets, as well as advice and recommendations on matters related to fixed-income market structure. The impact of any reform efforts on us and our operations remains uncertain. In addition, theU.K. ceased to be a member of the E.U. onJanuary 31, 2020 , triggering a transition period in which theU.K. continued to observe applicable E.U. regulations throughDecember 31, 2020 (commonly referred to as "Brexit"). In preparation for Brexit, we obtained authorizations from theNetherlands Authority for the Financial Markets for our subsidiaries inthe Netherlands in 2019. Following Brexit, we now provide regulated services to our clients within the E.U. in reliance on the cross-border services passport held by our Dutch subsidiaries. Brexit has led to legal uncertainty and potentially divergent national laws and regulations as theU.K. determines which E.U. laws to replace or replicate, which may impact our ability to comply with the extensive government regulation to which we are subject. In addition, the cost and complexity of operating across increasingly divergent regulatory regimes is likely to increase following Brexit. Compliance with regulations may require us to dedicate additional financial and operational resources, which may adversely affect our profitability. However, we believe new regulations may also increase demand for our platforms and we believe we are well positioned to benefit from those regulatory changes that cause market participants to seek electronic platforms that meet the various regulatory requirements and help them comply with their regulatory obligations. OnAugust 10, 2020 ,MarketAxess Corporation , our broker-dealer subsidiary, converted to self-clearing for theU.S bond trades to whichMarketAxess Corporation is a counterparty via its Open Trading functionality. Previously, these bond transactions were settled through a third-party clearing broker. As a result of this conversion,MarketAxess Corporation is required to segregate funds in a special reserve bank account for the benefit of customers pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934. 44 --------------------------------------------------------------------------------
Technology Environment
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. 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 existing and prospective broker-dealer and institutional investor clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We plan to continue to focus on technology infrastructure initiatives and continually improve our platforms to further enhance our leading market position. We expect that our transition to agile software development processes will help us continue to be a market leader in developing the technology solutions for our clients' trading needs. We experience cyber-attacks and attempted security breaches. Cybersecurity incidents could impact revenue and operating income and increase costs. We therefore continue to make investments, which may result in increased costs, to strengthen our cybersecurity measures. See also Item 1A. Risk Factors, "Technology, IT Systems and Cybersecurity Risks - Our actual or perceived failure to comply with privacy, data protection and information security laws, regulations, and obligations could harm our business."
Trends in Our Business
The majority of our revenue is derived from commissions for transactions
executed on our platforms between and among our institutional investor and
broker-dealer clients and monthly distribution fees. We believe that there are
five key variables that impact the notional value of such transactions on our
platforms and the amount of commissions and distribution fees earned by us:
• the number of participants on our platforms and their willingness to
originate transactions through the platforms;
• the frequency and competitiveness of the price responses by participants
on our platforms;
• the number of markets that are available for our clients to trade on our
platforms;
• the overall level of activity in these markets; and
• the level of commissions that we collect for trades executed through the
platforms.
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 versusU.S. Treasury securities. Because a significant percentage of our revenue is tied directly to the volume of securities traded on our platforms, 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.
Commission Revenue
Commissions are recognized on a trade date basis and generally calculated as a percentage of the notional dollar volume of bonds traded on our platforms and vary based on the type, size, yield and maturity of the bond traded and individual client incentives. 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. For Open Trading trades that we execute 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, we earn our commission through the difference in price between the two trades. ForU.S. Treasury matched principal trades, commissions are invoiced and recorded on a monthly basis.U.S. High-Grade Corporate Bond Commissions. OurU.S. high-grade corporate bond fee plans generally incorporate variable transaction fees and fixed distribution fees billed to our broker-dealer clients on a monthly basis. Certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments. Under these fee plans, we electronically add the transaction fee to the spread quoted by the broker-dealer client. TheU.S. high-grade transaction fee is generally designated in basis points in yield and, as a result, is subject to fluctuation depending on the duration of the bond traded. The averageU.S. high-grade fees per million may vary in the future due to changes in yield, years-to-maturity and nominal size of bonds traded on our platforms. Distribution fees include any unused monthly fee commitments under our variable fee plans. 45
-------------------------------------------------------------------------------- Other Credit Commissions. Other credit includes Eurobonds, emerging markets bonds, high-yield bonds, municipal bonds and leveraged loans. Commissions for other credit products generally vary based on the type of the instrument traded using standard fee schedules. Our high-yield fee plan structure is similar to ourU.S. high-grade fee plans. Certain dealers participate in a high-yield fee plan that incorporates a variable transaction fee and fixed distribution fee, while other dealers participate in a plan that does not contain monthly distribution fees and instead incorporates additional per transaction execution fees and minimum monthly fee commitments. The average other credit fees per million may vary in the future due to changes in product mix or trading protocols. Rates Commissions. Rates includesU.S. Treasury ,U.S. agency, European government bonds and credit derivatives. Commissions for rates products generally vary based on the type of the instrument traded.U.S. Treasury fee plans are typically volume tiered and can vary based on the trading protocol. The average rates fee per million may vary in the future due to changes in product mix or trading protocols.
We anticipate that average fees per million may change in the future. Consequently, past trends in commissions are not necessarily indicative of future commissions.
Information Services
We generate revenue from data licensed to our broker-dealer clients, institutional investor clients and data-only subscribers; professional and consulting services; technology software licenses; and maintenance and support services. These revenues are either for subscription-based services transferred over time, and may be net of volume-based discounts, or one-time services. Revenues for services transferred over time are recognized ratably over the contract period while 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.
Post-trade Services
We generate revenue from regulatory transaction reporting, trade publication and trade matching services. Customers are generally billed monthly in arrears and revenue is recognized in the period that the transactions are processed. Revenues billed in advance are deferred and recognized ratably over the contract period. We also generate one-time implementation fees for onboarding clients which are invoiced and recognized in the period the implementation is complete.
Other Revenue
Other revenue includes revenue generated from telecommunications line charges to broker-dealer clients.
Expenses
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. 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 three to seven years. 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. Intangible assets with definite lives, including purchased technologies, customer relationships and other intangible assets, are amortized over their estimated useful lives, which range from one to 15 years, using either a straight-line or accelerated amortization method based on the pattern of economic benefit that we expect to realize from such assets. Intangible assets are assessed for impairment when events or circumstances indicate a possible impairment.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, data feeds provided by outside vendors or service providers and US treasuries licensing fees. 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 other consultants for services provided for the maintenance of our trading platforms, information and post-trade services products and other services. 46 --------------------------------------------------------------------------------
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 platforms, information services and post-trade services. Clearing Costs. Clearing costs consist of fees that we are charged by third-party clearing brokers and depositories for the clearing and settlement of matched principal trades, regulatory reporting fees and variable transaction fees assessed by the provider of our third-party middle office system.
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
Expenses may grow in the future, notably in employee compensation and benefits, as we increase headcount to support investment in new products, operational support and geographic expansion, depreciation and amortization due to increased investment in new products and enhancements to our trading platforms, and technology and communication costs. Expenses may also grow due to acquisitions.
Other Income (Expense)
Investment Income. Investment income consists of income earned on our investments.
Interest Expense. Interest expense consists of financing charges incurred on short-term borrowings.
Other, Net. Other, net consists of unrealized gains or losses on trading security investments, realized gains or losses on investments, foreign currency transaction gains or losses, investment advisory fees, credit facility administrative fees and other miscellaneous revenues and expenses.
Critical Accounting Policies and Estimates
This Management's 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 inthe United States , also referred to asU.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. See Note 2 to the Consolidated Financial Statements, for a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
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--------------------------------------------------------------------------------Segment Results We operate electronic platforms for the trading of fixed-income securities and provide related data, analytics, compliance tools and post-trade services. We consider our operations to constitute a single business segment because of the highly integrated nature of these product and services, the financial markets in which we compete and our worldwide business activities. We believe that results by geographic region or client sector are not necessarily meaningful in understanding our business. See Note 16 to the Consolidated Financial Statements for certain geographic information about our business required byU.S. GAAP.
Results of Operations
Year Ended
The comparability of our results of operations is impacted by our acquisition of LiquidityEdge inNovember 2019 which enabled us to expand our trading capabilities to includeU.S. Treasuries. For additional information regarding this acquisition, see Note 6 to the Consolidated Financial Statements. The following table summarizes our financial results, which includes LiquidityEdge related revenue and expenses of$13.1 million and$14.5 million , respectively, recognized during 2020 and$2.5 million and$3.8 million , respectively, recognized during 2019: Year Ended December 31, 2020 2019 $ Change % Change ($ in thousands, except per share amounts) Revenues$ 689,125 $ 511,352 $ 177,773 34.8 % Expenses 314,397 260,470 53,927 20.7 Operating income 374,728 250,882 123,846 49.4 Other income (expense) (369 ) 6,542 (6,911 ) (105.6 ) Income before income taxes 374,359 257,424 116,935 45.4 Provision for income taxes 74,982 52,522 22,460 42.8 Net income$ 299,377 $ 204,902 $
94,475 46.1 %
Net income per common share - Diluted
Revenues
Our revenues for the years ended
Year Ended December 31,
2020 2019
($ in thousands)
% of % of $ %
$ Revenues $ Revenues Change Change
Commissions $ 634,445 92.1 % $ 463,856 90.7 % $ 170,589 36.8 %
Information services 34,341 5.0 30,730 6.0 3,611 11.8
Post-trade services 19,460 2.8 15,763 3.1 3,697 23.5
Other 879 0.1 1,003 0.2
(124 ) (12.4 )
Total revenues
48
--------------------------------------------------------------------------------Commissions
Our commission revenues for the years ended
Year Ended December 31,
$ %
2020 2019 Change Change
($ in thousands)
Variable transaction fees
U.S. high-grade $ 253,684 $ 173,944 $ 79,740 45.8 %
Other credit 256,763 188,514 68,249 36.2
Total credit 510,447 362,458 147,989 40.8
Rates 15,890 4,722 11,168 236.5Total variable transaction fees 526,337 367,180 159,157
43.3 Distribution fees U.S. high-grade 81,893 71,885 10,008 13.9 Other credit 25,834 24,347 1,487 6.1 Total credit 107,727 96,232 11,495 11.9 Rates 381 444 (63 ) (14.2 ) Total distribution fees 108,108 96,676 11,432 11.8 Total commissions$ 634,445 $ 463,856 $ 170,589 36.8 %U.S. high-grade variable transaction fees increased$79.7 million due to a 29.4% increase in trading volume and a 12.7% increase in the variable transaction fee per million. Other credit variable transaction fees increased$68.2 million due to a 29.5% increase in trading volume and a 5.2% increase in the variable transaction fee per million. Open Trading credit volume increased by 60.8% and represented 33.2% and 27.0% of credit variable transaction fees for the years endedDecember 31, 2020 and 2019, respectively. The 236.5% increase in variable transaction fees for rates was attributable to the inclusion ofU.S. Treasuries trading volume and commissions following theNovember 1, 2019 acquisition of LiquidityEdge.
Our trading volume for each of the years presented was as follows:
Year Ended December 31,
$ %
2020 2019 Change Change
($ in millions)
Trading Volume Data
U.S. high-grade - fixed rate $ 1,311,512 $ 992,844 $ 318,668 32.1 %
U.S. high-grade - floating rate 56,786 64,980 (8,194 ) (12.6 )
Total U.S. high-grade 1,368,298 1,057,824 310,474 29.4
Other credit 1,262,074 974,494 287,580 29.5
Total credit 2,630,372 2,032,318 598,054 29.4
Rates 3,987,424 659,548 3,327,876 N/M
Number of U.S. Trading Days 251 250
Number of U.K. Trading Days 254 253
For volume reporting purposes, transactions in foreign currencies are converted
to U.S. dollars at average monthly rates. The 29.4% increase in our U.S.
high-grade volume was principally due to an increase in estimated overall market
volume coupled with growth in our estimated market share. Our estimated market
share of total U.S. high-grade corporate bond volume increased to 21.6% for the
year ended December 31, 2020 from 19.0% for the year ended December 31, 2019 .
Estimated U.S. high-grade TRACE volume increased by 14.2% to $6.3 trillion for
the year ended December 31, 2020 from $5.6 trillion for the year ended December
31, 2019 .
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-------------------------------------------------------------------------------- Other credit volumes increased by 29.5% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to increases of 68.4% inU.S. high-yield bond volume, 21.3% in Eurobond volume and 14.8% in emerging markets bond volume on a combination of higher estimatedU.S. high-yield market volume and higherU.S. high-yield, emerging markets and Eurobond estimated market share. Our estimated market share ofU.S. high-yield TRACE volume increased to 14.6% for the year endedDecember 31, 2020 from 10.4% for the year endedDecember 31, 2019 . The significant increase in rates volume was attributable to the inclusion ofU.S. Treasuries trading volumes following theNovember 1, 2019 acquisition of LiquidityEdge.
Our average variable transaction fee per million for the years ended
Year Ended December 31,
2020 2019
Average Variable Transaction fee per million
U.S. high-grade - fixed rate $ 191.34 $ 171.06
U.S. high-grade - floating rate 48.21 63.15
Total U.S. high-grade 185.40 164.44
Other credit 203.45 193.45
Total credit 194.06 178.35
Rates 3.99 7.16
The increase in U.S. high-grade average variable transaction fee per million was
mainly due to an increase in the duration of bonds traded on the platforms. The
increase in Other credit average variable transaction fee per million was mainly
due to a larger percentage of trading volume in high-yield bonds that command
higher fees per million. The significant decrease in the average variable
transaction fee per million for rates products was primarily attributable to the
inclusion of U.S. Treasuries trading volumes that command lower fees per
million.
Information Services. Information services revenue increased
Post-Trade Services. Post-trade services revenue increased$3.7 million for the year endedDecember 31, 2020 principally due to additional regulatory transaction reporting revenue of$1.3 million generated by Regulatory Reporting Hub since theNovember 30, 2020 acquisition date and the introduction of new SFTR reporting services of$0.9 million .
Other. Other revenue was
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--------------------------------------------------------------------------------Expenses
The following table summarizes our expenses for the years endedDecember 31, 2020 and 2019. Expenses for the year endedDecember 31, 2020 and 2019 include$14.5 million and$3.8 million , respectively, of expenses related to LiquidityEdge, including amortization of acquired intangibles expense of$2.8 million and$0.4 million , respectively. Year Ended December 31, 2020 2019 ($ in thousands) % of % of $ % $ Revenues $ Revenues Change Change Expenses Employee compensation and benefits$ 156,885 22.8 %$ 131,079 25.6 %$ 25,806 19.7 % Depreciation and amortization 35,996 5.2 26,857 5.3 9,139 34.0 Technology and communications 34,092 4.9 26,792 5.2 7,300 27.2 Professional and consulting fees 32,304 4.7 25,534 5.0 6,770 26.5 Occupancy 13,425 1.9 11,639 2.3 1,786 15.3 Marketing and advertising 7,940 1.2 11,559 2.3 (3,619 ) (31.3 ) Clearing costs 21,058 3.1 11,314 2.2 9,744 86.1 General and administrative 12,697 1.8 15,696 3.1 (2,999 ) (19.1 ) Total expenses$ 314,397 45.6 %$ 260,470 50.9 %$ 53,927 20.7 % Employee compensation and benefits increased by$25.8 million primarily due increases in salaries, taxes and benefits on higher employee headcount of$16.0 million and employee incentive compensation of$9.1 million , which is tied to operating performance. The total number of employees increased to 606 as ofDecember 31, 2020 from 527 as ofDecember 31, 2019 . Depreciation and amortization increased by$9.1 million primarily due to higher amortization of software development costs of$5.0 million and amortization of acquired intangibles of$3.1 million . For the years endedDecember 31, 2020 and 2019,$15.0 million and$12.3 million , respectively, of equipment purchases and leasehold improvements and$30.6 million and$22.4 million , respectively, of software development costs were capitalized. Technology and communications expenses increased by$7.3 million primarily due to higher IT license and support costs of$3.2 million ,U.S. Treasury platform licensing costs of$2.6 million and cloud hosting costs of$1.8 million . Professional and consulting fees increased by$6.8 million primarily due to higher consulting fees related to our self-clearing and settlements initiatives of$2.5 million , audit and tax fees of$1.2 million , recruiting fees of$1.1 million and acquisition-related expenses of$1.1 million .
Occupancy costs increased by
Marketing and advertising expense decreased
Clearing costs increased by$9.7 million primarily due to a$6.0 million increase in clearing costs associated with Open Trading matched principal credit transactions and a$3.7 million increase in clearing costs associated withU.S. Treasuries matched principal transactions. Clearing costs as a percentage of Open Trading matched principal credit trading revenue decreased to 9.8% for the year endedDecember 31, 2020 from 11.0% for the year endedDecember 31, 2019 principally due to higher Open Trading variable transaction fee per million and transaction cost savings resulting from our conversion to self-clearingU.S. bonds, offset by certain non-recurring self-clearing conversion costs.
General and administrative expenses decreased by
51
--------------------------------------------------------------------------------Other Income (Expense)
Our other income (expense) for the years ended
Year Ended December 31,
2020 2019
($ in thousands)
% of % of $ %
$ Revenues $ Revenues Change Change
Investment income $ 2,446 0.4 % $ 8,063 1.6 % $ (5,617 ) (69.7 ) %
Interest expense (1,142 ) (0.2 ) - - (1,142 ) -
Other, net (1,673 ) (0.2 ) (1,521 ) (0.3 ) (152 ) 10.0
Total other income (expense) $ (369 ) (0.1 ) % $ 6,542 1.3 % $ (6,911 ) (105.6 ) %
Investment income decreased by $5.6 million primarily due to lower investment
balances, due in part to the cash paid for the acquisition of LiquidityEdge in
November 2019 of $104.4 million and new self-clearing related deposit, reserve
and liquidity requirements, and a decrease in interest rates.
Interest expense increased by
Other, net decreased by
Provision for Income Taxes.
The provision for income taxes and effective tax rate for the years ended
Year Ended December 31,
$ %
2020 2019 Change Change
($ in thousands)
Provision for income taxes
Effective tax rate 20.0 % 20.4 % The provision for income taxes reflected$24.1 million and$10.6 million of excess tax benefits related to share-based compensation awards that vested or were exercised during the years endedDecember 31, 2020 and 2019, respectively. During the years endedDecember 31, 2020 and 2019, we recorded an additional provision for unrecognized tax benefits of$9.5 million and$2.1 million , respectively. Our consolidated effective tax rate can vary from period to period depending on the geographic mix of our earnings, changes in tax legislation and tax rates and the amount and timing of excess tax benefits related to share-based payments, among other factors. 52 --------------------------------------------------------------------------------
Quarterly Results of Operations
Our quarterly results have varied significantly as a result of:
? changes in trading volume due to market conditions, changes in the number
of trading days in certain quarters, and seasonality effects caused by
slow-downs in trading activity during certain periods;
? changes in the number of broker-dealers and institutional investors usingour trading platform, as well as variation in usage by existing clients;
? acquisitions or the Company's expansion into new products; or
? variance in our expenses, particularly employee compensation and benefits.
The following table sets forth certain unaudited consolidated quarterly income statement data for the eight quarters endedDecember 31, 2020 . In our opinion, this unaudited information has been prepared on a basis consistent with our annual financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the unaudited quarterly data. This information should be read in conjunction with our Consolidated Financial Statements and related Notes included in this Annual Report on Form 10-K. The results of operations for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods. Three Months Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, 2020 2020 2020 2020 2019 2019 2019 2019 (In thousands, except per share amounts) (unaudited) Revenues Commissions$ 155,813 $ 150,586 $ 172,092 $ 155,954$ 117,103 $ 119,869 $ 114,124 $ 112,760 Information services 8,771 8,501 8,427 8,642 8,515 7,693 7,156 7,366 Post-trade services 6,564 4,689 4,054 4,153 3,923 3,784 3,956 4,100 Other 198 230 222 229 233 251 254 265 Total revenues 171,346 164,006 184,795 168,978 129,774 131,597 125,490 124,491
Expenses
Employee compensation and benefits 36,472 37,583 41,636 41,194 33,117 32,681 32,623 32,658 Depreciation and amortization 10,592 9,032 8,305 8,067 7,730 6,700 6,345 6,082 Technology and communications 8,922 8,417 8,592 8,161 7,155 7,381 6,474 5,782 Professional and consulting fees 10,295 8,269 8,065 5,675 6,389 7,018 6,296 5,831 Occupancy 3,220 3,445 3,286 3,474 3,090 2,802 2,798 2,949 Marketing and advertising 2,307 1,148 1,810 2,675 3,087 2,506 3,667 2,299 Clearing costs 4,997 4,838 5,713 5,510 3,345 2,782 2,610 2,577 General and administrative 2,844 3,467 3,253 3,133 5,010 3,762 3,800 3,124 Total expenses 79,649 76,199 80,660 77,889 68,923 65,632 64,613 61,302 Operating income 91,697 87,807 104,135 91,089 60,851 65,965 60,877 63,189 Other income (expense) Investment income 119 344 714 1,269 1,767 2,211 2,096 1,989 Interest expense (96 ) (1,046 ) - - - - - - Other, net (1,431 ) 860 (446 ) (656 ) (661 ) (838 ) (64 ) 42 Total other income (expense) (1,408 ) 158 268 613 1,106 1,373 2,032 2,031 Income before income taxes 90,289 87,965 104,403 91,702 61,957 67,338 62,909 65,220 Provision for income taxes 17,358 20,189 20,549 16,886 11,684 13,336 14,804 12,698 Net income$ 72,931 $ 67,776 $ 83,854 $ 74,816$ 50,273 $ 54,002 $ 48,105 $ 52,522 Net income per common share Basic$ 1.95 $ 1.81 $ 2.25 $ 2.01$ 1.35 $ 1.46 $ 1.30 $ 1.42 Diluted$ 1.91 $ 1.78 $ 2.20 $ 1.96$ 1.32 $ 1.42 $ 1.27 $ 1.39 53
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The following tables set forth trading volume and average variable transaction
fee per million for the eight quarters ended
Three Months Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2020 2020 2020 2020 2019 2019 2019 2019
Trading Volume Data (In millions)
U.S. high-grade - fixed
rate $ 305,537 $ 295,781 $ 398,006 $ 312,188 $ 238,959 $ 245,027 $ 249,025 $ 259,833
U.S. high-grade -
floating rate 12,956 9,450 16,574 17,806 14,150 16,918 16,335 17,577
Total U.S. high-grade 318,493 305,231 414,580 329,994 253,109 261,945 265,360 277,410
Other credit 321,135 283,920 327,266 329,753 236,403 255,097 248,503 234,491
Total credit 639,628 589,151 741,846 659,747 489,512 517,042 513,863 511,901
Rates (1) 826,276 760,676 955,594 1,444,878 620,437 11,661 13,174 14,276
(1) Rates includes
Three Months Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2020 2020 2020 2020 2019 2019 2019 2019
Average Variable Transaction
Fee Per Million
U.S. high-grade - fixed rate $ 193.51 $ 204.24 $ 186.67 $ 182.95 $ 177.27 $ 181.45 $ 168.05 $ 158.45
U.S. high-grade - floating
rate 40.14 47.75 55.06 47.96 53.64 56.08 65.22 75.70
Total U.S. high-grade 187.27 199.39 181.41 175.67 170.36 173.35 161.72 153.21
Other credit 202.55 208.27 204.66 198.97 191.36 196.04 190.07 196.32
Total credit 194.94 203.67 191.66 187.31 180.50 184.55 175.43 172.95
Rates (1) 3.95 4.19 4.02 3.87 4.81 48.62 46.69 38.99
Number of U.S. trading days 62 64 63 62 62 64 63 61
Number of U.K. trading days 64 65 61 64 64 65 61 63
(1) The decrease in the average variable transaction fee per million for rates during the three months ended
Liquidity and Capital Resources
During the past two years, we have met our funding requirements through cash on hand, internally generated funds and short-term borrowings. Cash and cash equivalents and investments totaled$489.0 million atDecember 31, 2020 . Our investments are generally invested in investment-grade securities. We limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair values are less sensitive to interest rate changes. We believe our investments as ofDecember 31, 2020 that were in an unrealized loss position were not other-than-temporarily impaired. In addition, we believe there has not been any event after such date, including the recent developments related to the Pandemic, that would indicate any other-than-temporary impairment. 54 -------------------------------------------------------------------------------- OnAugust 19, 2020 , we amended our Amended and Restated Credit Agreement (the "Prior Credit Agreement") withJPMorgan Chase Bank, N.A . ("JPMorgan") to, among other things, (i) permit investments of up to$500.0 million inMarketAxess Corporation and (ii) increase the aggregate commitments of the lender under the Prior Credit Agreement from$100.0 million to$450.0 million , which we intend to use from time to time to make advances to our broker-dealer subsidiaries to assist with certain capital or liquidity requirements related to our self-clearing and trade settlement activities and for other general corporate purposes. The Prior Credit Agreement matured onNovember 13, 2020 , when we entered into a new credit agreement (the "Credit Agreement") with a syndicate of lenders and JPMorgan, as administrative agent, that provides aggregate commitments totaling$500.0 million , consisting of a revolving credit facility and a$5.0 million letter of credit sub-limit for standby letters of credit. The Credit Agreement will mature onNovember 12, 2021 , with our option to request up to two additional 364-day extensions at the discretion of each lender and subject to customary conditions. As ofDecember 31, 2020 , we had$1.0 million in letters of credit outstanding and$499.0 million in available borrowing capacity under the Credit Agreement. See Note 13 to the Consolidated Financial Statements for a discussion of the Credit Agreement and the Prior Credit Agreement. In connection with its self-clearing operations,MarketAxess Corporation , our broker-dealer subsidiary, entered into an agreement (the "Collateralized Agreement") with its settlement bank to provide loans up to an aggregate of$200.0 million on an uncommitted basis. Borrowings under the Collateralized Agreement are collateralized by securities pledged byMarketAxess Corporation to the settlement bank, subject to applicable haircuts and concentration limits. As ofDecember 31, 2020 ,MarketAxess Corporation had no borrowings outstanding and$200.0 million in available borrowing capacity under the Collateralized Agreement. See Note 13 to the Consolidated Financial Statements for a discussion of the Collateralized Agreement. As a result of our self-clearing activities, we are required to finance certain transactions, maintain deposits with various clearing organizations and clearing broker-dealers and maintain a special reserve bank account for the benefit of customers pursuant to SEC Rule 15c3-3. As ofDecember 31, 2020 , the aggregate amount of the positions financed, deposits and customer reserve balances associated with our self-clearing activities was$138.2 million . These requirements can fluctuate based on trading activity, market volatility or other factors which may impact our liquidity or require us to use our capital resources.
During the past two years, our cash flows were as follows:
Year Ended December 31,
$ %
2020 2019 Change Change
($ in thousands)
Net cash provided by operating activities $ 404,489 $ 265,935 $ 138,554 52.1 %
Net cash provided by (used in) investing
activities 68,867 (122,051 ) 190,918 (156.4 )
Net cash (used in) financing activities (145,112 ) (118,100 ) (27,012 ) 22.9
Effect of exchange rate changes on cash and
cash equivalents 5,553 1,011 4,542 449.3
Net increase for the period $ 333,797 $ 26,795 $ 307,002 1,145.7 %
Cash Flows for the Year Ended
The$138.6 million increase in net cash provided by operating activities was primarily due to increases in net income of$94.5 million , net sales and maturities of trading investments of$63.9 million , income and other tax liabilities of$16.0 million , depreciation and amortization of$9.1 million and accounts payable, accrued expenses and other liabilities of$6.8 million . These increases in cash provided were offset by an increase of$49.5 million in net receivables from broker-dealers, clearing organizations and customers associated with our self-clearing conversion. The$190.9 million net increase in net cash provided by investing activities was primarily attributable to an increase in net proceeds from sales and maturities of securities available-for-sale of$127.7 million and lower cash used for acquisitions of$74.1 million , offset by an increase in capital expenditures of$10.9 million . The$27.0 million increase in net cash (used in) financing activities was principally due to increases in withholding tax payments on restricted stock vesting and stock option exercises of$16.6 million and cash dividends paid on common stock of$14.3 million , offset by an increase in exercises of stock options of$2.8 million and a decrease in repurchases of our common stock 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.
55
--------------------------------------------------------------------------------Other Factors Influencing Liquidity and Capital Resources
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 liquidity requirements associated with our self-clearing operations and 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, if available at all, may involve restrictive covenants with respect to dividends, issuances of additional capital and other financial and operational matters related to our business. Certain of ourU.S. subsidiaries are registered as a broker-dealer or a SEF and therefore are subject to the applicable rules and regulations of theSEC ,FINRA and the CFTC. These rules contain minimum net capital requirements, as defined in the applicable regulations, and also may require that a significant part of the registrants' assets be kept in relatively liquid form. Certain of our foreign subsidiaries are regulated by theFCA in theU.K. or other foreign regulators and must maintain financial resources, as defined in the applicable regulations, in excess of the applicable financial resources requirement. As ofDecember 31, 2020 , each of our subsidiaries that are subject to these regulations had net capital or financial resources in excess of their minimum requirements. As ofDecember 31, 2020 , our subsidiaries maintained aggregate net capital and financial resources that were$435.4 million in excess of the required levels of$21.6 million . Each of ourU.S. and foreign regulated subsidiaries are subject to local regulations which generally prohibit repayment of borrowings from our affiliates, paying cash dividends, making loans to our affiliates or otherwise entering into transactions that result in a significant reduction in regulatory net capital or financial resources without prior notification to or approval from such regulated entity's principal regulator. As ofDecember 31, 2020 , the amount of unrestricted cash held by our non-U.S. subsidiaries was$144.4 million . We execute bond transactions between our institutional investor and broker-dealer clients on a matched principal basis by serving as counterparty to both the buyer and the seller in trades. InAugust 2020 , one of ourU.S. broker-dealer subsidiaries converted to a self-clearing model for the settlement of such transactions. Our otherU.S. andU.K subsidiaries continue to settle their transactions through third-party clearing brokers. Settlement typically occurs within one to two trading days after the trade date. Cash settlement of the transaction occurs upon receipt or delivery of the underlying instrument that was traded. Under both the self-clearing and the third-party clearing broker models, we are exposed to credit risk in the event a counterparty does not fulfill its obligation to complete a transaction or if there is a miscommunication or other error in executing a matched principal transaction. Pursuant to the terms of the securities clearing agreements, each third-party clearing broker has the right to charge us for any losses they suffer resulting from a counterparty's failure on any of our trades. We did not record any liabilities or losses with regard to counterparty failures for the years endedDecember 31, 2020 and 2019. In the normal 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 material loss to be remote. OnNovember 30, 2020 we acquiredRegulatory Services GmbH , the pan-European regulatory reporting business of Deutsche Börse Group. The purchase price was approximately$22.5 million in cash paid at closing and up to$24.6 million in contingent consideration payable within 18 months of the closing. InSeptember 2020 , we entered into an agreement to acquireMuniBrokers LLC , a central electronic venue serving municipal bond inter-dealer brokers and dealers. The acquisition is expected to close in the first half of 2021, subject to the satisfaction of customary closing conditions. The purchase price is approximately$45.0 million in cash, plus transaction costs, with$20.0 million paid at closing and up to$25.0 million in contingent consideration payable within three years of the closing.
See Item 5 of this Annual Report on Form 10-K for a discussion of our repurchases of our common stock and our dividend policy.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, we use
certain non-GAAP financial measures called earnings before interest, taxes,
depreciation and amortization ("EBITDA") and free cash flow ("FCF"). As a result
of our conversion to self-clearing, we redefined FCF as cash flow from operating
activities excluding the net change in trading investments and net change in
securities failed-to-deliver and securities failed-to-receive from
broker-dealers, clearing organizations and customers, less expenditures for
furniture, equipment and leasehold improvements and capitalized software
development costs. We believe these non-GAAP financial measures, when taken into
consideration with the corresponding GAAP financial measures, are important in
understanding our operating
56
-------------------------------------------------------------------------------- results. EBITDA and FCF are not measures of financial performance or liquidity under GAAP and therefore should not be considered an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. We believe that EBITDA and FCF provide useful additional information concerning profitability of our operations and business trends and the cash flow available to pay dividends, repurchase stock and meet working capital requirements.
The table set forth below presents a reconciliation of our net income to EBITDA,
as defined, for the years ended
Year Ended December 31,
2020 2019
(In thousands)
Net income $ 299,377 $ 204,902
Add back:
Interest expense 1,142 -
Provision for income taxes 74,982 52,522
Depreciation and amortization 35,996 26,857
Earnings before interest, taxes, depreciation and amortization
$ 284,281 The table set forth below presents a reconciliation of our net cash provided by operating activities to FCF, as defined, for the years endedDecember 31, 2020 and 2019: Year Ended December 31, 2020 2019 (In thousands) Net cash provided by operating activities$ 404,489 $ 265,935 Exclude: Net change in trading investments (67,952 )
(4,045 ) Exclude: Net change in fail-to-deliver/receive from broker-dealers, clearing organizations and customers
49,278 -
Less: Purchases of furniture, equipment and leasehold improvements
(15,010 ) (12,292 )
Less: Capitalization of software development costs (30,618 ) (22,408 )
Free cash flow $ 340,187 $ 227,190
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.
57
--------------------------------------------------------------------------------Contractual Obligations and Commitments
As ofDecember 31, 2020 , we had the following contractual obligations and commitments: Payments due by period Less than More than Total 1 year 1 - 3 years 3 - 5 years 5 years (In thousands) Operating leases$ 133,794 $ 12,131 $ 20,786 $ 21,874 $ 79,003 Foreign currency forward contract 157,862 157,862 - - - Total$ 291,656 $ 169,993 $ 20,786 $ 21,874 $ 79,003 We enter into foreign currency forward contracts to hedge the net investment in ourU.K. subsidiaries. As ofDecember 31, 2020 , the notional value of the foreign currency forward contract outstanding was$157.1 million and the fair value of the liability was$0.8 million . 58
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