- 11th consecutive quarter of double-digit growth in volume, revenues and net income
- GAAP net income up 32.7% to a record $18.5 million; GAAP diluted earnings per share of $0.46
- Proforma net income of $25.0 million; proforma diluted earnings per share of $0.62, excluding costs related to the pending merger with Eurex
- Average daily trading volume up 53.0% to a record 3.4 million equity and index options contracts
- GAAP pre-tax margin of 47.9% and proforma pre-tax margin of 64.7% for the options exchange
- Revenues up 44.1% to a record $72.2 million and gross margin up 53.7% to a record $68.3 million for the options exchange
The International Securities Exchange Holdings, Inc. (NYSE:ISE) today reported record results for the quarter ended September 30, 2007. Net income for the quarter increased 32.7% to $18.5 million, or $0.46 per share on a fully diluted basis. This compares to $14.0 million, or $0.35 per share on a fully diluted basis, in the same period in 2006. Included in the results for the quarter are $11.4 million, or $0.16 per diluted share, of direct costs and associated accelerated stock-based compensation charges related to our pending merger with Eurex. Excluding these expenses, proforma net income for the quarter increased to $25.0 million, or $0.62 per share on a fully diluted basis.
Total consolidated revenues for the quarter increased 70.8% to $85.6 million from $50.1 million in the prior year. Gross margin increased 62.3% to $72.1 million from $44.5 million in the third quarter of 2006. Included in our consolidated results are revenues and expenses from the ISE Stock Exchange, our stock exchange business segment.
Total revenues for the quarter in our options exchange business segment increased 44.1% to $72.2 million. Gross margin, or total revenues less cost of revenues, increased 53.7% to $68.3 million. The average daily volume of equity and index options contracts traded increased 53.0% to a record 3.4 million contracts.
The stock exchange business segment recorded revenues of $13.7 million, gross margin of $4.1 million and earned $0.3 million, all of which was allocated to our strategic investors. The stock exchange traded an average of 48.5 million shares per day in the third quarter of 2007. Please refer to the section titled "Segment Information" for further information.
"Our record trading volume and profitability were fueled by the volatility in the financial markets and the operating leverage in our business," said David Krell, ISE's President and Chief Executive Officer. "We continue to witness volume growth in index options and we are now the second largest U.S. index options exchange. We are gaining traction in our recent new business initiatives, including our foreign exchange offering, ISE FX Options(SM), and our Second Market. Additionally, the new functionalities that we developed to target institutional investors have enabled us to make further inroads into this key segment of the options market," concluded Krell.
"We are pleased to report that the ISE Stock Exchange continued to experience increases in trading volume during the quarter," stated Gary Katz, ISE's Chief Operating Officer. "Although the business is still in its infancy, investors are further embracing our differentiated and value-added platform to trade equities."
"We are looking forward to our merger with Eurex, and we are taking the necessary steps to ensure the seamless integration of our businesses. We are confident that our combined expertise will better position us to compete in the globalization that is accelerating across all financial markets," said Katz.
Third Quarter Results - Options Exchange
Income Statement
Revenues
Transaction fee revenues increased to $60.0 million from $38.8 million last year due to record trading volumes. Average daily trading volume increased to 3.4 million contracts from 2.2 million contracts last year. Other member fees increased to $7.5 million from $6.9 million in the same period last year due to an increase in connectivity fees which are charged to market makers based on quote capacity usage. Market data revenues increased to $4.6 million from $4.4 million in the prior year quarter principally due to increased profitability of OPRA for which we earn our pro-rata share.
Average net transaction fee per side increased to $0.131 from $0.118 principally due to an increase in fees charged to non-ISE market makers, partially offset by a decrease in the transaction fees charged to market makers.
Cost of Revenues, Gross Margin
Cost of revenues for the third quarter decreased to $3.9 million from $5.6 million in the prior year quarter due to a decrease in license fees for certain ETFs for which we no longer pay a fee and accordingly, no longer charge our members. Gross margin increased to $68.3 million from $44.5 million in the third quarter of 2006.
Expenses
Total expenses for the third quarter of 2007 increased to $38.7 million from $22.5 million in the third quarter of 2006. Excluding accelerated stock-based compensation and costs related to our pending merger with Eurex, our expenses were $27.2 million in the third quarter of 2007. Compensation and benefits expenses increased to $26.1 million from $11.9 million in the same period last year. Included in compensation and benefits expenses is $11.2 million of stock-based compensation that was accelerated upon shareholder approval of our merger agreement with Eurex.
Technology and communications expenses increased to $4.3 million from $4.1 million due to increased capacity costs attributable to increased quoting activity and enhancements for our trading system. Professional fees increased to $2.8 million from $1.4 million due to higher legal costs associated with our ongoing litigation regarding the exclusive listing of index options and patent enforcement, as well as higher advisory fees relating to potential new business initiatives. Other expenses increased to $1.6 million from $1.1 million last year.
Income, Margins and Taxes
Pre-tax income for the third quarter of 2007 increased to $32.8 million from $24.5 million last year. Interest and investment income increased to $3.1 million from $2.3 million primarily due to interest income from higher cash balances.
Our pre-tax margin for the options exchange segment of our business in the third quarter of 2007 was 47.9%. Our pre-tax margin for this segment was 64.7% after adjusting for expenses related to our pending merger with Eurex.
Our tax rate increased to 43.5% from 43.0% in the third quarter of 2006.
Net income for the third quarter increased to $18.5 million from $14.0 million in the prior year quarter. Proforma net income for the quarter increased to $25.0 million, or $0.62 per share on a fully diluted basis, excluding expenses related to the pending merger with Eurex.
Year-to-Date Results - Options Exchange
For the first nine months of 2007, average daily volume of equity and index options increased to 3.0 million contracts traded from 2.3 million equity and index options contracts traded in the prior year. Revenues in the options segment increased to $186.1 million from $148.7 million last year. Gross margin increased to $173.9 million from $131.1 million and pre-tax income increased to $92.0 million as compared to $72.2 million. Year-to-date pre-tax margin was 52.9%. Net income increased to $51.1 million from $40.6 million and earnings per share on a fully diluted basis were $1.26 as compared to $1.02 last year.
Year-to-date proforma pre-tax income in the options segment of our business increased to $105.6 million and proforma pre-tax margin increased to 60.7%, after excluding costs related to our pending merger with Eurex. Proforma net income increased to $59.7 million and proforma fully diluted earnings per share were $1.48.
Consolidated Balance Sheet
As of September 30, 2007, ISE had cash and cash equivalents and investments in securities of $317.6 million, total assets of $446.9 million, and stockholders' equity of $323.2 million. The Company recorded minority interest of $30.8 million, which represents interests of minority shareholders in the ISE Stock Exchange. Included in cash and cash equivalents is $30.5 million from the ISE Stock Exchange which is reserved for its use. There were approximately 38.5 million shares of common stock outstanding on September 30, 2007.
Third Quarter Business Highlights
-- On July 27, 2007, ISE's stockholders voted to approve the
merger agreement in which Eurex will acquire ISE. 99.7 percent
of the stockholders who voted were in favor of the agreement.
More than 67 percent of eligible shares were voted. Under the
terms of the merger agreement announced on April 30, 2007, ISE
stockholders will receive $67.50 in cash for each ISE share
held.
-- On August 16, 2007 ISE set the following daily trading volume
records:
-- 6,532,403 equity, index and FX options contracts traded
on ISE's options exchange, surpassing the previous record
of 6,226,821 contracts set on July 27, 2007.
-- 243,572 index options contracts traded as compared to the
previous record of 212,447 contracts established on August
8, 2007.
-- On September 6, 2007, ISE's Board of Directors declared a
quarterly dividend of $0.05 per outstanding share of its Class A
Common Stock. The dividend was paid on September 28, 2007 to
holders of record as of the close of business on September 21,
2007.
-- On September 19, 2007, the ISE Stock Exchange set a new daily
trading volume record of 115.7 million, surpassing the previous
record of 109.0 million shares set on September 18, 2007.
-- On September 19, 2007, ISE launched a direct XML data feed for
ISEE Select(SM), its customized sentiment data offering.
Subscribers to the proprietary ISEE Select XML Feed can now
simultaneously access sentiment values for nearly all securities
that trade options on ISE as they are published every twenty
minutes.
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three Months Nine Months Ended
Ended
September 30, September 30,
2007 2006 2007 2006
-------- ------- -------- --------
Revenues:
Transaction fees $71,222 $38,778 $163,258 $116,327
Member fees and other 7,328 6,946 21,332 18,898
Market data 7,006 4,357 16,534 13,507
-------- ------- -------- --------
Total revenues 85,556 50,081 201,124 148,732
Cost of revenues:
Activity remittance fees 4,567 3,525 11,179 11,576
License fees, liquidity rebates,
and brokerage fees 8,851 2,106 11,521 6,052
-------- ------- -------- --------
Total cost of revenues 13,418 5,631 22,700 17,628
Gross margin 72,138 44,450 178,424 131,104
Expenses:
Compensation and benefits 28,860 11,864 60,232 34,708
Technology and communications 4,623 4,140 13,744 11,397
Occupancy 1,522 1,273 4,562 3,987
Professional fees 3,086 1,432 7,307 4,503
Marketing and business development 884 751 2,431 2,189
Depreciation and amortization 1,803 1,727 6,500 5,083
Other 1,641 1,092 5,023 3,663
-------- ------- -------- --------
Total direct expenses 42,419 22,279 99,799 65,530
Merger related costs 235 - 2,384
Reorganization - 197 - 326
-------- ------- -------- --------
Total expenses 42,654 22,476 102,183 65,856
Operating income 29,484 21,974 76,241 65,248
Interest and investment income 3,520 2,281 10,247 5,427
Minority interest (250) 223 5,504 495
-------- ------- -------- --------
Income before provision for income
taxes 32,754 24,478 91,992 71,170
Provision for income taxes 14,237 10,520 40,908 31,091
-------- ------- -------- --------
Net income $18,517 $13,958 $ 51,084 $ 40,079
======== ======= ======== ========
Earnings per share:
Basic $ 0.48 $ 0.37 $ 1.33 $ 1.07
Diluted $ 0.46 $ 0.35 $ 1.26 $ 1.01
Weighted average number of shares
outstanding:
Basic 38,470 37,528 38,296 37,338
Diluted 40,442 39,885 40,432 39,794
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
September 30, December 31,
2007 2006
---------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 271,676 $200,015
Accounts receivable, net 38,196 34,815
Income tax receivable 19,809 9,644
Securities owned 45,962 60,090
Other current assets 3,848 2,415
------------- -------------
Total current assets 379,491 306,979
Securities owned - 32,724
Fixed assets, net 30,350 29,009
Deferred tax asset, net 21,053 21,932
Other assets 16,014 5,781
------------- -------------
Total assets 446,908 396,425
============= =============
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses 11,418 19,430
Compensation and benefits payable 14,843 12,453
Deferred revenue 5,470 5,129
Payment for order flow payable 11,081 10,262
------------- -------------
Total current liabilities 42,812 47,274
Deferred revenue 47,118 50,954
Other liabilities 3,008 3,609
---------------------------
Total liabilities 92,938 101,837
Minority interest 30,819 36,323
STOCKHOLDERS' EQUITY 323,151 258,265
------------- -------------
------------- -------------
Total liabilities, minority interest
and stockholders' equity $ 446,908 $396,425
============= =============
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
2007 2006
--------- ---------
Cash flows from operating activities:
Net income 51,084 40,079
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,551 4,899
Asset impairment 949 184
Minority interest (5,504) 2,387
Stock based compensation 17,982 5,989
Deferred taxes 879 682
Unrealized gain on securities owned and
available for sale securities, net 32 (233)
Excess tax benefits from share-based payment
arrangements (12,482) (13,309)
(Increase)/decrease in operating assets:
Accounts receivable, net (3,381) (622)
Income tax receivable 2,317 5,303
Securities owned 3,985 2,481
Other assets (975) (264)
Increase/(decrease) in operating liabilities:
Accounts payable and accrued expenses (8,012) 669
Compensation and benefits payable 2,390 2,191
Income tax payable - (372)
Deferred revenue (3,495) (373)
Payment for order flow payable 819 (191)
Other liabilities (601) (392)
--------- ---------
Net cash provided by operating activities 51,538 49,108
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (6,641) (4,222)
Purchase of intangible assets - (2,234)
Investment in joint ventures (11,891) (1,760)
Purchase of available for sale securities (10,733) (38,585)
Maturities of available for sale securities 53,693 9,939
--------- ---------
Net cash provided by/(used in) investing
activities 24,428 (36,862)
--------- ---------
Cash flows from financing activities:
Dividend (5,827) (5,697)
Proceeds from options exercised 1,303 1,052
Shares repurchased (12,263) (3,002)
Excess tax benefits from share-based payment
arrangements 12,482 13,309
--------- ---------
Net cash (used in)/provided by financing
activities (4,305) 5,662
--------- ---------
Increase in cash and cash equivalents 71,661 17,908
Cash and cash equivalents, beginning of period 200,015 170,927
--------- ---------
Cash and cash equivalents, end of period $271,676 $188,835
========= =========
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
KEY STATISTICAL INFORMATION - OPTIONS BUSINESS
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
---------- ---------- ----------- -----------
Trading Days 63 63 187 188
----------------------------------------------------------------------
Average daily trading
volume (1) (2)
Equity and Index Options
------------------------
Total U.S. industry
equity and index
options traded (in
thousands) 12,119 7,524 10,817 7,881
Our equity and index
options traded (in
thousands) 3,407 2,227 3,032 2,339
Our market share of
equity and index
options traded 28.1% 29.6% 28.0% 29.7%
Equity Options
------------------------
Total U.S. industry
equity options traded
(in thousands) 10,872 6,815 9,745 7,159
Our equity options
traded (in thousands) 3,321 2,194 2,972 2,307
Our market share of
equity options traded 30.5% 32.2% 30.5% 32.2%
Index Options
------------------------
Total U.S. industry
index options traded
(in thousands) 1,237 709 1,067 722
Our index options traded
(in thousands) 82 33 59 32
Our market share of
index options traded 6.6% 4.6% 5.5% 4.4%
----------------------------------------------------------------------
Our member total trading
volume (sides, in
thousands): (3)
Account type:
Customer 173,666 112,429 467,934 364,217
Firm proprietary 65,155 36,402 165,753 108,998
Market maker 190,460 131,710 500,465 406,366
---------- ---------- ----------- -----------
Total Sides 429,281 280,540 1,134,152 879,581
----------------------------------------------------------------------
Our market share of total
industry trading: (4)
Customer 28.5% 29.3% 29.1% 30.2%
Firm proprietary 27.8% 25.8% 26.2% 25.7%
Market maker 27.9% 31.2% 27.8% 30.5%
----------------------------------------------------------------------
Revenue:
Average transaction fee
per side (5) $ 0.140 $ 0.138 $ 0.133 $ 0.132
Average cost of
transaction fee per
side (6) ($0.009) ($0.020) ($0.011) ($0.020)
---------- ---------- ----------- -----------
Average net transaction
fee per side (6) $ 0.131 $ 0.118 $ 0.122 $ 0.112
Average transaction fee
per revenue side (7) $ 0.200 $ 0.176 $ 0.187 $ 0.176
----------------------------------------------------------------------
Our trades:(8)
Average contracts per
trade 18.1 18.0 18.1 17.6
Average trades per day
(in thousands) 188.1 123.4 167.6 133.0
Total trades (in
thousands) 11,853 7,774 31,332 24,999
Our market share of
industry trade volume 31.3% 32.5% 31.6% 32.3%
----------------------------------------------------------------------
Our listed issues: (9)
Average number of issues
traded during the
period 1,778 931 1,719 891
----------------------------------------------------------------------
Our Members (average
number trading during
period) (10)
PMMs 10 10 10 10
CMMs 143 148 144 145
EAMs 108 99 109 101
---------- ---------- ----------- -----------
Total 261 257 263 256
----------------------------------------------------------------------
Employees (period
average)
Full-time equivalent
(11) 196 178 188 181
----------------------------------------------------------------------
(1) Represents single counted contract volume. For example, a
transaction of 500 contracts on our exchange is counted as a single
500 contract transaction for purposes of calculating our volumes,
even though we may receive transaction fees from parties on both
sides of the transaction, one side of a transaction, or in some
cases, neither side of a transaction.
(2) Our market share is calculated based on the number of contracts
executed on our exchange as a percentage of total industry contract
volume.
(3) Represents each side of a buy or sell transaction. For example, a
transaction of 500 contracts on our exchange is counted as two sides
of 500 contracts, representing a buy and a sell transaction. We
generally do not charge our members for executing non-broker-dealer
customer orders on our exchange except for options on our premium
products as well as options for listings in our Second Market.
(4) Represents our market share of total U.S. industry equity and
index trading for members trading on our exchange based on contract
trading volume.
(5) Average transaction fee per side is calculated by dividing our
transaction fees by the total number of sides executed on our
exchange. We generally do not charge our members for executing non-
broker-dealer customer orders on our exchange except for options on
our premium products as well as options for listings in our Second
Market. Comparing our average transaction fee per side to our average
transaction fee per revenue side reflects the negative effect of our
fee waivers or reductions on our revenues, on a per side basis.
(6) Average cost of transaction fee per side is calculated by
subtracting cost of revenues from transaction fees, which we refer to
as net transaction fees, and dividing the result by the total number
of sides executed on our exchange.
(7) Our average transaction fee per revenue side reflects the
transaction fee we charge to our market participants per our publicly
available pricing schedules. These schedules were part of rule
proposals that became effective upon filing pursuant to Section
19(b)(3)(A) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Securities and Exchange Commission may abrogate
such rule proposals within 60 days of filing if it determines that
such action is necessary or appropriate in the public interest, for
the protection of investors or otherwise in furtherance of the
purposes of the Exchange Act.
(8) Members can have several contracts per trade. Trades represent the
number of trades cleared through The Option Clearing Corporation, or
the OCC. Market data revenue is generated on a per trade basis, not
on a contract basis.
(9) By "issues" we mean the number of securities underlying our
options. We trade multiple options series on each underlying
security.
(10) Excludes PMM's and CMM's in our Second and FX Markets.
(11) Excludes full-time equivalent employees of ISE Stock Exchange,
LLC, beginning April 2006.
Segment Information
We operate two segments:
-- An Options Exchange business segment which includes our
options trading business as well as Alternative Markets
platform, corporate overhead costs related to public company
matters and corporate wide strategic initiatives.
-- A Stock Exchange business segment which includes trading in
equity securities. Pursuant to the terms of our agreement with
the strategic investors of the ISE Stock Exchange and in
accordance with U.S. GAAP, we are the primary beneficiary of
the ISE Stock Exchange and consolidated its financial results.
We exercise a majority of the voting interest of the ISE Stock
Exchange; however, beginning in April 2006, losses have been
allocated solely to the minority owners. Consolidation of the
ISE Stock Exchange does not currently have any effect on our
net results of operations. Therefore, consolidation increases
our revenues and expenses to reflect 100% of the ISE Stock
Exchange's results; however, these revenues and expenses are
offset dollar-for-dollar by minority interest since we are not
required to recognize any of its operating results.
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
STATEMENTS OF OPERATIONS BY BUSINESS SEGMENT
(in thousands)
(unaudited)
Three Months Ended
September 30, 2007
Options Stock ISE
Exchange Exchange Elimination Holdings
-----------------------------------------
Revenues:
Transaction fees $ 60,033 $11,189 $ - $ 71,222
Member fees and other 7,531 117 (320) 7,328
Market data 4,606 2,400 - 7,006
--------- --------- ----------- ---------
Total revenues 72,170 13,706 (320) 85,556
Cost of revenues:
Activity remittance fees 2,716 1,851 - 4,567
License fees, liquidity
rebates, and brokerage fees 1,141 7,710 - 8,851
--------- --------- ----------- ---------
Total cost of revenues 3,857 9,561 - 13,418
Gross margin 68,313 4,145 (320) 72,138
Expenses:
Compensation and benefits 26,089 3,048 (277) 28,860
Technology and
communications 4,315 312 (4) 4,623
Occupancy 1,264 284 (26) 1,522
Professional fees 2,831 255 - 3,086
Marketing and business
development 703 181 - 884
Depreciation and
amortization 1,664 149 (10) 1,803
Other 1,571 73 (3) 1,641
--------- --------- ----------- ---------
Total direct expenses 38,437 4,302 (320) 42,419
Merger related costs 235 - - 235
Reorganization - - - -
--------- --------- ----------- ---------
Total expenses 38,672 4,302 (320) 42,654
Operating income 29,641 (157) - 29,484
Interest and investment
income 3,113 407 - 3,520
Minority interest - (250) - (250)
--------- --------- ----------- ---------
Income before provision for
income taxes 32,754 - - 32,754
Provision for income taxes 14,237 - - 14,237
--------- --------- ----------- ---------
Net income $ 18,517 $ - $ - $ 18,517
========= ========= =========== =========
Nine Months Ended
September 30, 2007
Options Stock ISE
Exchange Exchange Elimination Holdings
-----------------------------------------
Revenues:
Transaction fees $150,339 $12,919 $ - $163,258
Member fees and other 21,955 268 (891) 21,332
Market data 13,776 2,758 - 16,534
--------- --------- ----------- ---------
Total revenues 186,070 15,945 (891) 201,124
Cost of revenues:
Activity remittance fees 8,881 2,298 - 11,179
License fees, liquidity
rebates, and brokerage fees 3,295 8,226 - 11,521
--------- --------- ----------- ---------
Total cost of revenues 12,176 10,524 - 22,700
Gross margin 173,894 5,421 (891) 178,424
Expenses:
Compensation and benefits 52,630 8,366 (764) 60,232
Technology and
communications 12,915 841 (12) 13,744
Occupancy 3,823 813 (74) 4,562
Professional fees 6,375 932 - 7,307
Marketing and business
development 1,861 570 - 2,431
Depreciation and
amortization 6,085 445 (30) 6,500
Other 4,774 260 (11) 5,023
--------- --------- ----------- ---------
Total direct expenses 88,463 12,227 (891) 99,799
Merger related costs 2,384 - - 2,384
Reorganization - - - -
--------- --------- ----------- ---------
Total expenses 90,847 12,227 (891) 102,183
Operating income 83,047 (6,806) - 76,241
Interest and investment
income 8,945 1,302 - 10,247
Minority interest - 5,504 - 5,504
--------- --------- ----------- ---------
Income before provision for
income taxes 91,992 - - 91,992
Provision for income taxes 40,908 - - 40,908
--------- --------- ----------- ---------
Net income $ 51,084 $ - $ - $ 51,084
========= ========= =========== =========
Three Months Ended
September 30, 2006
Options Stock ISE
Exchange Exchange Elimination Holdings
------------------------------------------
Revenues:
Transaction fees $ 38,778 $ - $ - $ 38,778
Member fees and other 6,946 11 (11) 6,946
Market data 4,357 - - 4,357
--------- --------- ----------- ---------
Total revenues 50,081 11 (11) 50,081
Cost of revenues:
Activity remittance fees 3,525 - - 3,525
License fees, liquidity
rebates, and brokerage
fees 2,106 - - 2,106
--------- --------- ----------- ---------
Total cost of revenues 5,631 - - 5,631
Gross margin 44,450 11 (11) 44,450
Expenses:
Compensation and benefits 11,864 1,586 (1,586) 11,864
Technology and
communications 4,140 278 (278) 4,140
Occupancy 1,273 166 (166) 1,273
Professional fees 1,432 144 (144) 1,432
Marketing and business
development 751 604 (604) 751
Depreciation and
amortization 1,727 61 (61) 1,727
Other 1,092 147 (147) 1,092
--------- --------- ----------- ---------
Total direct
expenses 22,279 2,986 (2,986) 22,279
Merger related costs - - - -
Reorganization 197 - - 197
--------- --------- ----------- ---------
Total expenses 22,476 2,986 (2,986) 22,476
Operating income 21,974 (2,975) 2,975 21,974
Interest and investment
income 2,281 527 (527) 2,281
Minority interest 223 - - 223
--------- --------- ----------- ---------
Income before provision for
income taxes 24,478 (2,448) 2,448 24,478
Provision for income taxes 10,520 - - 10,520
--------- --------- ----------- ---------
Net income $ 13,958 $(2,448) $ 2,448 $ 13,958
========= ========= =========== =========
Nine Months Ended
September 30, 2006
Options Stock ISE
Exchange Exchange Elimination Holdings
------------------------------------------
Revenues:
Transaction fees $116,327 $ - $ - $116,327
Member fees and other 18,898 11 (11) 18,898
Market data 13,507 - - 13,507
--------- --------- ----------- ---------
Total revenues 148,732 11 (11) 148,732
Cost of revenues:
Activity remittance fees 11,576 - - 11,576
License fees, liquidity
rebates, and brokerage
fees 6,052 - - 6,052
--------- --------- ----------- ---------
Total cost of revenues 17,628 - - 17,628
Gross margin 131,104 11 (11) 131,104
Expenses:
Compensation and benefits 34,200 3,116 (2,608) 34,708
Technology and
communications 11,329 436 (368) 11,397
Occupancy 3,940 296 (249) 3,987
Professional fees 4,126 580 (203) 4,503
Marketing and business
development 2,189 641 (641) 2,189
Depreciation and
amortization 5,074 78 (69) 5,083
Other 3,654 215 (206) 3,663
--------- --------- ----------- ---------
Total direct
expenses 64,512 5,362 (4,344) 65,530
Merger related costs - - - -
Reorganization 326 - - 326
--------- --------- ----------- ---------
Total expenses 64,838 5,362 (4,344) 65,856
Operating income 66,266 (5,351) 4,333 65,248
Interest and investment
income 5,427 598 (598) 5,427
Minority interest 495 - - 495
--------- --------- ----------- ---------
Income before provision for
income taxes 72,188 (4,753) 3,735 71,170
Provision for income taxes 31,549 (458) - 31,091
--------- --------- ----------- ---------
Net income $ 40,639 $(4,295) $ 3,735 $ 40,079
========= ========= =========== =========
Non-GAAP Reconciliation
In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews this non-GAAP financial measurement when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measures should be considered in the context with our GAAP results.
We have disclosed our results excluding certain non-operating charges. These non-operating charges relate to accelerated stock-based compensation expenses associated with awards that vested upon shareholder approval of our merger with Eurex and awards that will vest upon closing, as well as advisory fees incurred in connection with our pending merger with Eurex. Management excludes these costs when measuring our financial performance as they do not relate to our core business of operating a multi-asset class exchange. Management believes presenting our results excluding these costs provides a clearer measure of our results and performance.
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
GAAP TO NON GAAP RECONCILIATION
(in thousands, except per share amounts)
(unaudited)
Three Months Nine Months Ended
Ended
September 30, September 30,
2007 2006 2007 2006
-------- -------- --------- ---------
GAAP Total expenses, as reported $42,654 $22,476 $102,183 $ 65,856
Less Accelerated stock based
compensation, included in
Compensation and benefits
expense 11,200 - 11,200 -
Less Merger related costs 235 - 2,384 -
Less Reorganization - 197 - 326
-------- -------- --------- ---------
Total expenses, proforma $31,219 $22,279 $ 88,599 $ 65,530
-------- -------- --------- ---------
GAAP Income before provision for
income taxes, as reported $32,754 $24,478 $ 91,992 $ 71,170
Less Accelerated stock based
compensation 11,200 - 11,200 -
Less Merger related costs 235 - 2,384 -
Less Reorganization - 197 - 326
-------- -------- --------- ---------
Income before provision for
income taxes, proforma $44,189 $24,675 $105,576 $ 71,496
-------- -------- --------- ---------
GAAP Net income, as reported $18,517 $13,958 $ 51,084 $ 40,079
Less Accelerated stock based
compensation, net of tax 6,272 - 6,272 -
Less Merger related costs, net
of tax 235 - 2,352 -
Less Reorganization, net of tax - 197 - 326
----------------- --------- ---------
Net income, proforma $25,024 $14,155 $ 59,708 $ 40,405
----------------- --------- ---------
GAAP Diluted earnings per share,
as reported $ 0.46 $ 0.35 $ 1.26 $ 1.01
Less Accelerated stock based
compensation, net of tax 0.16 - 0.16 -
Less Merger related costs, net
of tax (0.00) - 0.06 -
Less Reorganization, net of tax - 0.00 - 0.01
-------- -------- --------- ---------
Diluted earnings per share,
proforma $ 0.62 $ 0.35 $ 1.48 $ 1.02
-------- -------- --------- ---------
Gross Margin 72,138 44,450 178,424 131,104
GAAP pre-tax margins, as
reported 45.4% 55.1% 51.6% 54.3%
Pre-tax margins, proforma 61.3% 55.5% 59.2% 54.5%
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
GAAP TO NON GAAP RECONCILIATION
(in thousands, except per share amounts)
(unaudited)
Three Months Nine Months Ended
Ended
September 30, September 30,
Options Exchange Segment 2007 2006 2007 2006
-------------------------------- -------- -------- --------- ---------
GAAP Total expenses, as reported $38,672 $22,476 $ 90,847 $ 64,838
Less Accelerated stock based
compensation, included in
Compensation and benefits
expense 11,200 - 11,200 -
Less Merger related costs 235 - 2,384 -
Less Reorganization - 197 - 326
-------- -------- --------- ---------
Total expenses, proforma $27,237 $22,279 $ 77,263 $ 64,512
-------- -------- --------- ---------
GAAP Income before provision for
income taxes, as reported $32,754 $24,478 $ 91,992 $ 72,188
Less Accelerated stock based
compensation 11,200 - 11,200 -
Less Merger related costs 235 - 2,384 -
Less Reorganization - 197 - 326
-------- -------- --------- ---------
Income before provision for
income taxes, proforma $44,189 $24,675 $105,576 $ 72,514
-------- -------- --------- ---------
GAAP Net income, as reported $18,517 $13,958 $ 51,084 $ 40,639
Less Accelerated stock based
compensation, net of tax 6,272 - 6,272 -
Less Merger related costs, net
of tax 235 - 2,352 -
Less Reorganization, net of tax - 197 - 326
----------------- --------- ---------
Net income, proforma $25,024 $14,155 $ 59,708 $ 40,965
----------------- --------- ---------
GAAP Diluted earnings per share,
as reported $ 0.46 $ 0.35 $ 1.26 $ 1.02
Less Accelerated stock based
compensation, net of tax 0.16 - 0.16 -
Less Merger related costs, net
of tax (0.00) - 0.06 -
Less Reorganization, net of tax - 0.00 - 0.01
-------- -------- --------- ---------
Diluted earnings per share,
proforma $ 0.62 $ 0.35 $ 1.48 $ 1.03
-------- -------- --------- ---------
Gross Margin 68,313 44,450 173,894 131,104
GAAP pre-tax margins, as
reported 47.9% 55.1% 52.9% 55.1%
Pre-tax margins, proforma 64.7% 55.5% 60.7% 55.3%
ISE Background
International Securities Exchange Holdings, Inc. (NYSE: ISE), through its subsidiaries, operates a family of innovative securities markets. ISE is founded on the principle that technology and competition create better, more efficient markets for investors and consists of an options exchange, a stock exchange and an alternative markets platform. ISE continually enhances its trading systems and develops new products to provide investors with the best marketplace and investment tools to trade smarter.
ISE developed a unique market structure for advanced screen-based trading systems and in May 2000 launched the first fully electronic US options exchange. Currently, ISE operates the world's largest equity options exchange. ISE offers index options, including a portfolio of proprietary index products, and enhanced market data products for sophisticated investors. ISE FX Options(SM) launched in the second quarter of 2007.
ISE Stock Exchange, launched in September 2006, is a completely electronic marketplace and the only dual structure platform that integrates a dark pool, MidPoint Match(SM), with a fully displayed stock market. Midpoint Match is a proprietary, non-displayed market that trades equity securities at the midpoint between the National Best Bid and Offer (NBBO).
ISE's alternative markets business currently consists of an events market trading platform known as Longitude. Longitude's patented and proprietary technology provides a unique parimutuel structure for derivatives auctions which results in greater trading and pricing flexibility for market participants.
For more information about ISE, visit www.ise.com.
Certain matters discussed in this press release are "forward looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements, to be materially different from those contemplated by the forward looking statements. We undertake no ongoing obligation, other than that imposed by law, to update these statements. Factors that could affect our results, levels of activity, performance or achievements and cause them to materially differ from those contained in the forward looking statements can be found in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, current reports on Form 8-K and quarterly reports on Form 10-Q.
