MarketAxess Holdings (NASDAQ:MKTX) reported third-quarter results on Oct. 26. The bond-trading network's share of the U.S. high-grade credit market rose to 16% from 14.9% in the year-ago quarter, bolstered by a 27% increase in trading volume.

Image source: MarketAxess Q3 2016 earnings slides.

Volume growth was even more impressive in MarketAxess' international segments, with European client volumes up 70% year over year and emerging-markets trading volume in local markets up 86%. Notably, MarketAxess gained share in all of its core business segments.

Image source: MarketAxess Q3 2016 earnings slides.

In all, total trading volume leapt 34.4% to $322.1 billion, helping to drive a 25% increase in commission revenue to $81.5 million, including a 34.8% jump in variable transaction fees to $64.7 million.

All other revenue -- consisting of information and post-trade services, technology products and services, and investment income -- declined 2% to $8.8 million, mostly due to currency fluctuations.

All told, MarketAxess' total revenue jumped 21.7% year over year to $90.3 million.

The scalability of MarketAxess' platform was fully visible in the third quarter: A 13.1% increase in total expenses to $43.9 million -- due mostly to higher employee compensation costs -- trailed revenue growth. That helped pre-tax margin improve to 51.3%, compared with 47.7% in the prior-year period, with pre-tax income surging 31.1% to $46.4 million.

All told, net income jumped 36.1% to $30.9 million. And earnings per share, boosted by stock buybacks, soared 36.7% to $0.82.

Cash flow and capital returns

Third-quarter free cash flow increased 61% year over year to more than $51 million. That, combined with MarketAxess' fortress-like balance sheet -- including $332.1 million in cash and investments and no long-term debt as of the end of the quarter -- allows the company to continue to reward its shareholders with rising dividend payments.

Image source: MarketAxess Q3 2016 earnings slides.

Additionally, MarketAxess repurchased 51,849 of its shares during the quarter at a cost of $8.5 million. Investors can expect more share buybacks in the quarters ahead, with MarketAxess' board of directors recently boosting the size of the company's share-repurchase program by $50 million.

Looking forward

MarketAxess has long runways for growth still ahead. New markets such as municipal bonds and leveraged loans, combined with a massive international opportunity, should continue to fuel growth for years to come.

"In addition to continued gains in U.S. corporate bond volume and market share, we are seeing strong momentum in European fixed income and Emerging Market debt trading," said chairman and CEO Richard McVey in a press release. "Open Trading participation among dealers and investors is growing rapidly, driving an important new source of market liquidity into global credit markets."

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