- Third Quarter 2013 Financial Highlights
- Operating Revenue Increases 7 Percent to $136.7 Million
- GAAP Net Income Allocated to Common Stockholders of $41.0 Million, Compared With $45.2 Million; Diluted EPS of $0.47, Compared With $0.52
- Adjusted Net Income Allocated to Common Stockholders Up 9 Percent to $41.0 Million(1); Adjusted Diluted EPS of $0.47, Up 9 Percent
- Operating Margin of 50.0 Percent, Up 260 Basis Points
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported third quarter 2013 net income allocated to common stockholders of$41.0 million, or $0.47 per diluted share, compared with $45.2 million, or $0.52 per diluted share, in the third quarter of 2012. On an adjusted basis, net income allocated to common stockholders was $41.0 million, or $0.47 per diluted share, compared with $37.7 million, or $0.43 per diluted share, in the same period last year. Operating revenue for the quarter was $136.7 million, up 7 percent compared with $128.3 million in the third quarter of 2012.
Financial results presented on an adjusted basis for the third quarter of 2012 exclude the recognition of a tax benefit relating to prior years of $7.7 million, or $0.09per diluted share.
"CBOE Holdings delivered a strong third quarter, primarily driven by trading volume increases in our SPX options complex and VIX Index options and futures. CBOE's average daily options volume for the quarter rose five percent over a year ago despite flat trading volume for the U.S. options industry as a whole," said Edward T. Tilly, CBOE Holdings Chief Executive Officer. "We continue to see exciting growth opportunities for our company as we add new services and products that create value for both our customers and stockholders, such as our recently announced plans to launch options and futures on the new CBOE Short-term Volatility Index (VXST)."
"Our solid financial results this quarter reflect our operational discipline and focus on investing for future growth," stated Alan J. Dean, CBOE Holdings Executive Vice President and Chief Financial Officer. "Year-to-date, we have returned over $62 million to stockholders through dividends and share repurchases. Our ability to return capital to our stockholders reflects the confidence we have in our business, its opportunities for growth and its ability to generate meaningful free cash flow."
(1) A full reconciliation of our non-GAAP results to our GAAP results for the 2013 and 2012 reporting periods is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.
Key Statistics and Financial Highlights
The table below highlights CBOE Holdings' operating results on a GAAP basis and an adjusted basis for the comparative quarters and nine-month periods endedSeptember 30, 2013 and 2012. Financial results presented on an adjusted basis provide supplemental information to facilitate period-over-period comparisons by adjusting for certain items that management believes are not indicative of the company's core operating performance.
(in millions, except per share, revenue per contract and trading days) |
3Q 2013 |
3Q 2012 |
Y/Y Change |
YTD 2013 |
YTD 2012 |
Y/Y Change |
||||||||||
Key Statistics: |
||||||||||||||||
Total Trading Days |
64 |
63 |
188 |
188 |
||||||||||||
Average Daily Volume (options and futures) |
4.62 |
4.34 |
6% |
4.65 |
4.67 |
— |
||||||||||
Total Trading Volume (options and futures) |
295.4 |
273.3 |
8% |
874.7 |
878.6 |
— |
||||||||||
Average Revenue Per Contract |
$ |
0.315 |
$ |
0.317 |
(1%) |
$ |
0.341 |
$ |
0.303 |
13% |
||||||
GAAP Financial Highlights: |
||||||||||||||||
Total Operating Revenues |
$ |
136.7 |
$ |
128.3 |
7% |
$ |
430.2 |
$ |
382.3 |
13% |
||||||
Total Operating Expenses |
68.3 |
67.5 |
1% |
217.0 |
197.9 |
10% |
||||||||||
Operating Income |
68.4 |
60.8 |
13% |
213.2 |
184.4 |
16% |
||||||||||
Operating Margin % |
50.0% |
47.4% |
260 bps |
49.6% |
48.2% |
140 bps |
||||||||||
Net Income |
$ |
41.4 |
$ |
45.8 |
(10%) |
$ |
129.9 |
$ |
117.7 |
10% |
||||||
Net Income Allocated to Common Stockholders |
$ |
41.0 |
$ |
45.2 |
(9%) |
$ |
128.2 |
$ |
116.0 |
11% |
||||||
Diluted EPS |
$ |
0.47 |
$ |
0.52 |
(10%) |
$ |
1.47 |
$ |
1.33 |
11% |
||||||
Weighted Average Shares Outstanding |
87.6 |
87.3 |
— |
87.4 |
87.5 |
— |
||||||||||
Adjusted Financial Highlights (1) |
||||||||||||||||
Total Operating Expenses |
$ |
68.3 |
$ |
67.5 |
1% |
$ |
212.0 |
$ |
197.7 |
7% |
||||||
Operating Income |
68.4 |
60.9 |
12% |
218.2 |
184.5 |
18% |
||||||||||
Operating Margin % |
50.0% |
47.4% |
260 bps |
50.7% |
48.3% |
240 bps |
||||||||||
Net Income |
$ |
41.4 |
$ |
38.1 |
9% |
$ |
133.5 |
$ |
110.1 |
21% |
||||||
Net Income Allocated to Common Stockholders |
$ |
41.0 |
$ |
37.7 |
9% |
$ |
131.8 |
$ |
108.5 |
21% |
||||||
Diluted EPS |
$ |
0.47 |
$ |
0.43 |
9% |
$ |
1.51 |
$ |
1.24 |
22% |
(1) A full reconciliation of our non-GAAP results to our GAAP results for the 2013 and 2012 reporting periods is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables. |
Revenues
Operating revenue was $136.7 million in the third quarter of 2013, up $8.4 million, or 7 percent, from $128.3 million in the third quarter of 2012. The increaserepresents higher revenue of $6.4 million in transaction fees, $3.2 million in regulatory fees and $1.4 million in exchange services and other fees, offset somewhat by a decrease of $2.2 million in other revenue.
Transaction fees increased 7 percent for the quarter due to an 8 percent increase in trading volume, offset somewhat by a 1 percent decline in the average revenue per contract (RPC) compared with the third quarter of 2012. Total trading volume in the third quarter was 295.4 million contracts, or 4.62 million contracts per day, compared with volume of 273.3 million contracts, or 4.34 million contracts per day, in last year's third quarter. RPC was $0.315 compared with $0.317 in thethird quarter of 2012.
The decrease in RPC primarily resulted from higher volume-based incentives for certain multiply-listed options (options on equities and exchange-traded products), under our VIP program. The impact of the RPC decline in multiply-listed options was significantly offset by a shift in the mix of trading volume towards index options and futures contracts, which generate the highest RPC. Index options and futures contracts accounted for 33.1 percent of trading volume during the quarter compared with 28.8 percent in the third quarter of 2012.
The average revenue per contract represents total transaction fee revenue divided by total reported trading volume for Chicago Board Options Exchange (CBOE),C2 Options Exchange (C2) and CBOE Futures Exchange (CFE).
Operating Expenses
Total operating expenses were $68.3 million for the quarter, up $0.8 million or 1 percent, compared with $67.5 million in the third quarter of 2012.
The company's core operating expenses, which include total operating expenses less volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, were $44.8 million for the third quarter of 2013, down $1.3 million or 3 percent, compared with last year's third quarter. The decrease was primarily due to lower expenses for outside services, resulting from a decline in legal expenses.
Volume-based expenses, which include royalty fees and trading volume incentives, were $15.1 million in the third quarter of 2013, representing an increase of $2.3 million or 18 percent, compared with the same period last year. This increase reflects higher royalty fees of $2.5 million, offset somewhat by a decrease in trading volume incentives of $0.2 million. The higher royalty fees are directly related to the growth in trading volume in licensed index products, as well as certain fee adjustments implemented this year.
Operating Margin
The company's operating margin for the third quarter of 2013 increased 260 basis points to 50.0 percent compared with 47.4 percent for the same quarter last year.
Effective Tax Rate
The company reported an effective tax rate of 39.1 percent for the quarter versus 24.4 percent in last year's third quarter. The effective tax rate for the third quarter of 2012 benefited from the recognition of significant discrete items relating to 2012 and prior years. Discrete items recognized in the third quarter of 2012 relating to prior years totaled $7.7 million, or $0.09 per share. Excluding the discrete items relating to prior years, the effective tax rate for the third quarter of 2012 was 37.1 percent.
The company noted that it now expects its adjusted effective tax rate for the full-year 2013 to be in a range of 39.0 to 39.5 percent. The most significant differences in the effective rate and the statutory rate are state income taxes and discrete items relating to the current period.
Third Quarter 2013 Operational Highlights and Recent Developments
- CFE plans to start trading CBOE Russell 2000 Volatility Index futures (VU) on Monday, November 18, 2013, with options trading on the CBOE Russell 2000 Volatility Index (RVX) in the weeks that follow.
- CBOE plans to list a Mini-SPX Index option (XSP) contract with a new PM-settlement feature beginning on Tuesday, November 5, 2013.
- On October 28, CFE completed the first phase of its extended trading hours initiative, adding an additional 45-minute extended trading hours period from 3:30 p.m. to 4:15 p.m. (Chicago time) Monday through Thursday. The launch date for the second phase of VIX futures extended trading hours will be Monday, November 4, 2013, which will add five hours to the trading day, extending VIX futures trading hours to 2:00 a.m. through 3:15 p.m. (Chicago time) Monday through Friday.
- On October 8, CBOE's VIX options established a new single-day volume record when nearly 1.8 million contracts traded.
- On October 1, CBOE began disseminating values for a new benchmark volatility index, the CBOE Short-Term Volatility Index (VXSTSM). Like the VIX® Index, the VXST Index reflects investors' consensus view of expected market volatility, but where the VIX Index has a 30-day horizon, the VXST Index looks out just nine days, making it particularly responsive to changes in short-term volatility. Plans call for CBOE and CFE to introduce VXST Weeklys options and futures - with launch dates yet to be determined and pending regulatory approval.
- On September 30 through October 2, CBOE hosted its second Risk Management Conference Europe near Lisbon, Portugal with about 150 in attendance, including institutional money managers and traders. During the conference, 31 speakers covering 14 sessions discussed options products, latest strategies and trends, with a focus on SPX options and VIX options and futures.
- On July 1, CBOE began disseminating values for the CBOE EFA ETF Volatility Index (VXEFA), which expands investors' ability to track market volatility of major geographic regions outside of the United States. The index measures the volatility of the iShares MSCI EAFE Index Fund (EFA), an exchange traded product (ETP) that offers exposure to developed-market stocks in Europe, Australia, Asia and the Far East.
2013 Fiscal Year Financial Guidance
Based on its year-to-date financial results, the company updated its 2013 fiscal year financial guidance as follows:
- Capital expenditures are now expected to be in the range of $33.0 million to $36.0 million for the year, compared with the previous guidance range of $35.0 million to $40.0 million.
- Depreciation and amortization expense is now expected to be in the range of $34.0 million to $36.0 million for the year, down from the previous guidance range of $37.0 millionto $39.0 million, due to lower than expected capital spending.
- Adjusted effective tax rate for the full-year 2013 is expected to be in the range of 39.0 percent to 39.5 percent, down from the previous guidance range of 39.5 percent to40.0 percent. The most significant differences in the adjusted effective rate and the statutory rate are state income taxes and discrete items relating to the current period. Significant changes in trading volume, expenses, state and local tax rates and other items, including ongoing state and federal tax audits, could materially impact this expectation.
The company reaffirmed the following 2013 financial guidance last provided in its August 2, 2013 earnings press release:
- Core operating expenses are expected to be in the range of $189.0 million to $194.0 million. Continuing stock-based compensation expense included in core expenses is expected to be approximately $18.0 million for the full year.
Return of Capital to Stockholders
As announced on October 24, 2013, CBOE Holdings' Board of Directors declared a fourth-quarter dividend of $0.18 per share, payable December 20, 2013, to stockholders of record on November 29, 2013.
During the third quarter of 2013 and through September 30, 2013, the company repurchased 306,300 shares of its common stock under its share repurchase program at an average price of $45.63 per share, for a total of $14.0 million. At September 30, 2013, the company had approximately $89.3 million of availability remaining under its existing share repurchase authorizations.
Earnings Conference Call
Executives of CBOE Holdings will host a conference call to review its third quarter financial results today, November 1, 2013, at 8:30 a.m. ET/7:30 a.m. CT. The conference call and any accompanying slides will be publicly available via live webcast from the Investor Relations section of the company's website atwww.cboe.com under Events & Presentations. Participants may also listen via telephone by dialing (877) 372-0876 from the United States or Canada, or (253) 237-1167 for international callers. Telephone participants should place calls 10 minutes prior to the start of the call. The webcast will be archived on the company's website for replay. A telephone replay of the earnings call also will be available from approximately 11:00 a.m. CT, November 1, 2013, through 11:00 p.m. CT,November 8, 2013, by calling (855) 859-2056 within the U.S. and Canada, or (404) 537-3406 for international callers, using replay code 70236852.