CBOE Holdings, Inc. Reports Record First Quarter Financial Results For 2013


First Quarter Financial Highlights

  • Record First Quarter Results
  • Operating Revenues Increase 18 Percent to $142.7 Million
  • GAAP Net Income Allocated to Common Stockholders Increases 27 Percent to $41.8 Million; Diluted EPS of $0.48
  • Adjusted Net Income Allocated to Common Stockholders Up 33 Percent to $43.9 Million(1); Adjusted Diluted EPS of $0.50(1)
  • GAAP Operating Margin Expands by 140 Basis Points to 48.7 Percent; Adjusted Operating Margin Up 340 Basis Points to 50.9 Percent(1)
  • CBOE Holdings, Inc. (NASDAQ: CBOE) today reported first quarter 2013 net income allocated to common stockholders of $41.8 million, or $0.48 per diluted share, compared with $32.9 million, or $0.37 per diluted share in the first quarter of 2012. On an adjusted basis, net income allocated to common stockholders was $43.9 million, or $0.50 per share, compared with $33.0 million, or $0.37 per diluted share, in the same period last year. Operating revenues of $142.7 million for the first quarter increased 18 percent compared with $121.4 million in the first quarter of 2012.

"Our record first quarter results were driven by continued strong growth in our proprietary products. Trading volume in our VIX Index options and futures continued to reach new records, while trading in our S&P 500 options complex, led by the tremendous growth in our SPX Weeklys, also increased significantly," said William J. Brodsky, CBOE Holdings Chairman and CEO.

Brodsky added, "As we announced last December, later this month Ed Tilly will assume the role of Chief Executive Officer, Ed Provost will become President and Chief Operating Officer, and I will continue to lead the Board in my new role as Executive Chairman. I am confident that under the leadership of Ed Tilly and Ed Provost, CBOE will continue to serve our customers through innovation and execution, while achieving our growth strategy and delivering long-term value to stockholders."

"CBOE Holdings is off to a good start this year, as solid execution combined with continued strong growth in our proprietary products delivered improved operating margins and excellent financial results. For the quarter, our adjusted diluted EPS of $0.50 per share matched our highest ever and was 35 percent higher than last year, on an 18 percent increase in revenue," stated Alan J. Dean, CBOE Holdings Executive Vice President and Chief Financial Officer. "We generated strong cash flow from operations and ended the quarter with $210 million in cash and no debt," Dean added.

(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 ended March 31, 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 and revenue per contract)

1Q 2013

1Q 2012

Y/Y Change

Key Statistics:


Total Trading Days




Average Daily Volume (options and futures)




Total Trading Volume (options and futures)




Average Revenue Per Contract

$ 0.378

$ 0.280


GAAP Financial Highlights:


Total Operating Revenues

$ 142.7

$ 121.4


Total Operating Expenses




Operating Income




Operating Margin %



140 bps

Net Income

$ 42.4

$ 33.4


Net Income Allocated to Common Stockholders

$ 41.8

$ 32.9


Diluted EPS

$ 0.48

$ 0.37


Weighted Average Shares Outstanding




Adjusted Financial Highlights (1)


Total Operating Expenses

$ 70.1

$ 63.8


Operating Income




Operating Margin %



340 bps

Net Income

$ 44.5

$ 33.5


Net Income Allocated to Common Stockholders

$ 43.9

$ 33.0


Diluted EPS

$ 0.50

$ 0.37



(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.


Operating revenues were $142.7 million in the first quarter of 2013, up $21.3 million, or 18 percent, from $121.4 million in the first quarter of 2012. The increase primarily reflects higher revenue of $14.3 million in transaction fees, $5.0 million in regulatory fees, $1.7 million in exchange services and other fees, and $1.5 million in other revenue, offset somewhat by a decrease of $0.9 million in market data fees.

Transaction fees increased 17 percent for the quarter due to a 35 percent increase in the average revenue per contract (RPC) compared with the first quarter of 2012, offset somewhat by a 13 percent decline in trading volume. RPC increased to $0.378 compared with $0.280 in the first quarter of 2012. Trading volume for the first quarter was 262.0 million contracts, or 4.37 million contracts per day, compared with volume of 302.7 million contracts, or 4.88 million contracts per day, in last year's first quarter.

The increase in RPC primarily resulted from a shift in the mix of trading volume, with contracts carrying the highest rate per contract, index options and futures contracts, accounting for 37.9 percent of trading volume during the quarter compared with 25.4 percent in the first 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).

Adjusted Operating Expenses

Adjusted operating expenses were $70.1 million for the quarter, up $6.3 million, or 10 percent, compared with $63.8 million in the first quarter of 2012. Adjusted operating expenses exclude accelerated stock-based compensation of $3.2 million and $0.2 million for the first quarter of 2013 and 2012, respectively.

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 $47.6 million for the first quarter of 2013, up $6.0 million, or 14 percent, compared with last year's first quarter. The increase primarily represents higher expenses for outside services and employee costs. Outside services were up primarily due to higher legal fees. The higher employee costs mainly reflect increases in incentive compensation, stock-based compensation and salaries.

Volume-based expenses, which include royalty fees and trading volume incentives, were $14.2 million in the first quarter of 2013, representing an increase of $0.4 million, or 3 percent, compared with the same period last year. This increase reflects higher royalty fees of $2.0 million, offset somewhat by a decrease in trading volume incentives of $1.6 million. The higher royalty fees are directly related to the growth in trading volume in licensed index products and, to a lesser extent, an increase in royalty rates resulting from the previously announced licensing agreement extension. The decline in trading volume incentives primarily resulted from lower trading volume in multiply-listed options and modifications to the incentive program criteria.

Adjusted Operating Margin

The company's adjusted operating margin for the first quarter of 2013 increased 340 basis points to 50.9 percent compared with 47.5 percent for the same quarter last year, representing the Company's second highest adjusted operating margin ever.

Effective Tax Rate

The company reported an effective tax rate of 38.3 percent for the quarter versus 41.3 percent in last year's first quarter. The decrease in the effective rate for the first quarter of 2013 compared to 2012 is the result of the recognition of discrete items and the benefit of a lower apportionment by Illinois.

First Quarter 2013 Operational Highlights and Recent Developments
•For a fourth consecutive quarter, CFE and VIX futures experienced record-setting quarterly trading volume.
•On May 1, 2013, the company reported that average daily volume (ADV) for total options in April 2013 was 4.48 million contracts, a 4 percent increase from March 2013 ADV of 4.33 million contracts and a 1 percent decrease from April 2012 ADV of 4.54 million contracts. In addition, CFE reported ADV of 184,983 contracts in April 2013, up 119 percent compared with 84,631 contracts per day during April 2012 and a 15 percent increase from 161,444 contracts per day in March 2013.
•On April 8, CBOE launched its new "CBOE Options Hub" (www.cboeoptionshub.com), a comprehensive Website designed to be the "hub" of CBOE's industry-leading social media program and the definitive online source for up-to-the-minute news and views from the options community.
•On March 18, CBOE and C2 launched trading in "mini-options" that are one-tenth the size of standard options on five popular stocks/exchange traded funds - Apple (AAPL), Amazon (AMZN), Google (GOOG), the SPDR Gold Trust ETF (GLD), and the SPDR S&P 500 ETF Trust (SPY).
•On March 14, in light of a number of rulings by the court in CBOE's favor, International Securities Exchange (ISE) conceded to an adverse judgment in its suit against CBOE for alleged infringement of ISE's patent relating to an "automated exchange." ISE has filed its notice of appeal with the Federal Circuit.
•On March 13, CBOE and S&P Dow Jones Indices announced that they amended their license agreement, extending CBOE's exclusive rights to use the S&P 500 and the S&P 100 to create exchange-traded standardized options on those indexes and on other derivative indexes published by S&P Dow Jones Indices. The exclusive license for the S&P 500 extends through 2032, with non-exclusive rights through 2033.
•On March 8, Russell Indexes, CBOE Holdings and NYSE Euronext announced that Russell Index options will be offered on a "semi-exclusive" basis with both groups' options exchanges.
•In early March, CBOE held its 29th annual Risk Management Conference in Carlsbad, California, which was attended by approximately 300 investment professionals.
•On January 14, CBOE affiliate, Market Data Express, launched the CBOE Customized Option Pricing Service (COPS). The new data service, which employs the market-making expertise of CBOE's liquidity-providing community, offers subscribers end-of-day indicative valuations for "customized" options such as FLexible EXchange options and certain over-the-counter options.

2013 Fiscal Year Financial Guidance

The company reaffirmed the following 2013 financial guidance provided in its February 8, 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.
•Depreciation and amortization expense is expected to be in the range of $37.0 million to $39.0 million.
•Capital expenditures are expected to be in the range of $35.0 million to $40.0 million.
•Adjusted effective tax rate for the full-year 2013 is expected to be in the range of 39.5 to 40.0 percent.

Return of Capital to Stockholders

As announced on May 1, 2013, CBOE Holdings' Board of Directors declared a first-quarter dividend of $0.15 per share, payable June 21, 2013, to stockholders of record on May 31, 2013.

During the first quarter of 2013, the company did not repurchase any shares of its common stock. At March 31, 2013, the company had approximately $103.3 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 first quarter financial results today, May 3, 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 at www.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, May 3, through 11:00 p.m. CT, May 10, 2013, by calling (855) 859-2056 within the U.S. and Canada, or (404) 537-3406 for international callers, using replay code 25993283.