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"We are very pleased with our results for the first quarter, our first as a public company," said David Krell, ISE's President and Chief Executive Officer. "The growth in our trading volume and solid financial performance are testaments to the strength of our business model and relentless focus on innovation. We believe that there is significant untapped demand for our products and we remain focused on expanding the breadth of our offerings to meet the needs of our current clients as well as attracting a larger and more diverse client base in the months ahead. The capital that we raised in our initial public offering will provide us with additional resources to fund this growth," continued Krell.
First Quarter Results
Revenues
Total revenues for the first quarter of 2005 increased 11.1% to $34.5 million principally due to increased trading volume. Transaction fee revenues increased 10.9% to $24.0 million in the first quarter of 2005 from $21.7 million in the first quarter of 2004. Other member fees increased 6.8% to $5.5 million from $5.2 million last year. Market data revenues increased 18.6% to $4.6 million in the first quarter of 2005 from $3.9 million in the year ago quarter.
Expenses
Total expenses increased 7.7% for the first quarter of 2005 to $18.1 million as compared to $16.8 million in the first quarter of the prior year. Included in our first quarter 2005 expenses are approximately $0.5 million of one-time costs and approximately $0.3 million of new costs associated with ISE becoming a public company.
- Compensation and benefits expenses increased 8.9% to $8.2 million principally due to increased headcount to support our growth.
- Technology and communications expenses declined 27.9% to $3.4 million primarily due to the elimination of licensing fees paid to OMX(US) Inc. ("OMX") resulting from restructuring our agreement with them in June 2004. The new agreement changed our licensing fee from a variable fee based on trading volume to a fixed license fee. Our first quarter 2004 expenses included $1.4 million of licensing expenses to OMX. Excluding this licensing fee in 2004, technology and communications expense increased 2.3%.
- Occupancy expenses increased 28.3% to $1.1 million primarily due to increased space requirements for disaster recovery purposes.
- Professional fees increased 65.9% to $1.6 million primarily due to higher legal and auditing fees as a result of ISE becoming a public company.
- Marketing and business development expenses decreased 30.5% to $0.6 million primarily due to lower discretionary spending in this area.
- Depreciation and amortization expenses increased to $1.5 million in the first quarter of 2005 from $0.5 million in the year ago quarter reflecting the impact of the amortization of $1.0 million for our trading license with OMX referred to above.
- Other expenses increased 21.7% to $1.7 million primarily due to fees we pay for trading licensed products. This fee is offset by surcharges we charge members for trading licensed products, which is included in transaction fees.
Pre-tax income increased 15.2% to $16.4 million in the first quarter of 2005 from $14.3 million in the year ago quarter. Our pre-tax margin for the quarter was 47.6% as compared to 45.9% in the same period last year. Net income for the quarter increased 19.5% to $8.9 million from $7.4 million in the prior year quarter.Balance SheetAt March 31, 2005, ISE had cash and cash equivalents of $127.9 million, total assets of $249.0 million, and shareholders' equity of $149.5 million. There were 36.7 million shares of common stock outstanding.
"ISE has benefited from our strong volume growth and our highly efficient cost structure which have translated to impressive pre-tax margins," said Bruce Cooperman, ISE's Chief Financial Officer. "We intend to continue to focus on providing our members with a high quality marketplace while leveraging our scalable systems and low cost base."
Business Highlights
- ISE began trading on the New York Stock Exchange under the ticker symbol "ISE" on March 9, 2005. In the offering, ISE sold 4,602,115 shares of Class A common stock, including 602,115 shares upon the exercise in full of the underwriters' over-allotment option, at $18.00 per share. Certain ISE shareholders sold an additional 6,954,590 shares of Class A common stock, including 905,282 shares sold in connection with the underwriters' over-allotment option. Including the exercise of the over-allotment option, proceeds to the Company, less underwriting discounts and commissions and other selling expenses, were $70.7 million.
- ISE was the largest U.S. options exchange for the first quarter of 2005 based on total equity and index options trading. ISE traded more volume in its own listings than any other options exchange. In addition, ISE traded its 900 millionth contract on March 1, 2005.
- ISE continued expanding its product offering. On January 10, 2005, we began trading options on the Standard & Poor's Depository Receipts(R) (SPY), commonly known as "Spiders." Since we began trading this product, we have traded approximately 26,000 contracts per day on average, which accounted for 21.0% of total industry trading in this issue.
- ISE also continued its index trading strategy. On February 22, 2005, we began trading options on the Nasdaq-100(R) (NDX) and Mini Nasdaq-100(R) (MNX) indexes.
ISE will host a conference call to discuss its first quarter 2005 results at 5:00 p.m. Eastern Time today. The conference call will be web cast and can be accessed on the Investor Relations section of ISE's web site at www.iseoptions.com. Investors can also listen to the conference call by dialing (800)-510-0219 (Pass code: 47673213). International investors can access the call by calling (617)-614-3451. An archived recording of the call will be maintained on this site for 72 hours and can be accessed by calling (888)-286-8010 (Pass code: 71313282). An investor presentation that will be referenced during the call will also be posted to the web site.
ISE Background
The International Securities Exchange, the world's largest equity options exchange, was founded on the principle that technology fosters and infuses new efficiencies and operational innovations into securities trading. After developing an innovative market structure that integrated auction market principles into an advanced screen-based trading system, ISE launched the first fully electronic U.S. options exchange in May 2000. ISE continually enhances its trading systems to provide investors with the best marketplace to execute their options orders.
For more information about ISE, its products and its technology, visit www.iseoptions.com.
Forward-Looking Statements: Statements in this news release which are not historical in nature are "forward-looking statements" pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are subject to various risks and uncertainties as set forth from time to time in the Company's filings with the Securities and Exchange Commission. For a discussion of such risks and uncertainties contained in the forward-looking statements, see "Risk Factors" in the Company's filings with the Securities and Exchange Commission.
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