OREANDA-NEWS. CBOE Holdings, Inc. (NASDAQ: CBOE) today reported net income allocated to common stockholders of $49.2 million, or $0.60 per diluted share, for the first quarter of 2016, compared with $42.1 million, or $0.50 per diluted share, in the first quarter of 2015. On an adjusted basis, net income allocated to common stockholders was $49.9 million, or $0.61 per share, up 18 percent and 22 percent, respectively, over the first quarter of last year. Operating revenue for the quarter was $162.3 million, up 14 percent compared with $142.8 million in the first quarter of 2015.

Financial results presented on an adjusted basis for the first quarter of 2016 and 2015 exclude certain items, which are detailed in the reconciliation of non-GAAP results.

"Our first-quarter results reflect the strong contribution and utility of our proprietary products. S&P 500® Index (SPX) options, Russell 2000 Index (RUT) options and CBOE Volatility Index® (VIX®) futures and options posted a 28 percent rise in trading volume, significantly outpacing the 3 percent increase reported for multiply-listed options traded industrywide. Moreover, our team is energized by the opportunities we see for ongoing growth as a result of advancing our strategy to continue to define and lead the options and volatility space globally, develop unique products, leverage strategic alliances and expand our customer base," said Edward T. Tilly, CBOE Holdings' Chief Executive Officer.

"Our first-quarter results represent a strong start to 2016, reporting record first-quarter diluted EPS and year-over-year gains in revenues and operating margin. We plan to continue to be disciplined in managing expenses while making prudent investments to strengthen and grow our business for the long term, with a steadfast focus on enhancing shareholder value," said Alan J. Dean, CBOE Holdings' Executive Vice President and Chief Financial Officer.

(1) A full reconciliation of our non-GAAP results to our GAAP results for the 2016 and 2015 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 three-month periods ended March 31, 2016 and 2015. 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 amounts, revenue per contract and trading days)

1Q 2016

1Q 2015

Y/Y
Change

Key Statistics:

      

Total Trading Days

61

  

61

    

Average Daily Volume (options and futures)

4.77

  

4.77

  

—%

Total Trading Volume (options and futures)

291.3

  

290.7

  

—%

Average Revenue Per Contract

$

0.405

  

$

0.340

  

19%

GAAP Financial Highlights:

      

Total Operating Revenues

$

162.3

  

$

142.8

  

14%

Total Operating Expenses

82.8

  

73.3

  

13%

Operating Income

79.5

  

69.5

  

14%

Operating Margin %

49.0%

  

48.7%

  

30 bps

Net Income

$

49.2

  

$

42.3

  

16 %

Net Income Allocated to Common Stockholders

$

49.2

  

$

42.1

  

17%

Diluted EPS

$

0.60

  

$

0.50

  

20%

Weighted Average Shares Outstanding

81.8

  

84.0

  

(3%)

Adjusted Financial Highlights (1):

      

Total Operating Expenses

$

81.7

  

$

73.3

  

11%

Operating Income

80.6

  

69.5

  

16%

Operating Margin %

49.7%

  

48.7%

  

100 bps

Net Income Allocated to Common Stockholders

$

49.9

  

$

42.3

  

18 %

Diluted EPS

$

0.61

  

$

0.50

  

22%
   

(1)

A full reconciliation of our non-GAAP results to our GAAP results for the 2016 and 2015 reporting periods is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.

Operating Revenue

Total operating revenue was $162.3 million in the first quarter of 2016, up $19.5 million, or 14 percent, from $142.8 million in the first quarter of 2015. The higher revenue was primarily driven by increases of $19.3 million in transaction fees and $1.7 million in exchange services and other fees, partially offset by a decrease of $1.7 million in other revenue.

Transaction fees rose 20 percent in the quarter due to a 19 percent increase in the average revenue per contract (RPC), with total trading volume relatively unchanged versus the first quarter of 2015. Total trading volume in the first quarter was 291.3 million contracts, or 4.77 million contracts per day, compared with volume of 290.7 million contracts, or 4.77 million contracts per day, in last year's first quarter. Average daily trading volume in the company's higher-margin index options and futures contracts rose 28 percent in the quarter while lower-margin multiply-listed options declined 14 percent versus the first quarter last year. The RPC in the first quarter of 2016 was $0.405 compared with $0.340 in the first quarter of 2015.

The higher RPC primarily reflects a favorable shift in the mix of products traded with a higher proportion of volume coming from index options and futures contracts, which generate the highest RPC. These product categories accounted for 42.4 percent of trading volume in the first quarter of 2016, compared with 33.3 percent in the first quarter of 2015.

The average RPC represents total transaction fee revenue divided by total reported trading volume for Chicago Board Options Exchange® (CBOE®), C2 Options ExchangeSM (C2SM) and CBOE Futures ExchangeSM (CFE®).

Adjusted Operating Expenses

Total operating expenses were $82.8 million for the first quarter of 2016, up $9.5 million or 13 percent, compared with $73.3 million for the same period in 2015, primarily due to increases in royalty fees, professional fees and outside services, compensation and benefits and depreciation and amortization. Total adjusted operating expenses, which exclude accelerated stock-based compensation, acquisition-related expenses and other unusual items included in the first quarter of 2016, were $81.7 million, up $8.4 million or 11 percent, compared with $73.3 million for the first quarter of 2015.

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 $50.9 million for the first quarter of 2016, up $3.0 million, or 6 percent, compared with last year's first quarter. The increase in core operating expenses primarily reflects increases of $1.3 million in professional fees and outside services and $1.5 million in compensation and benefits. The increase in professional fees and outside services primarily reflects higher fees for legal and other professional services. The increase in compensation and benefits was largely driven by higher expenses for stock-based compensation and incentive compensation, which are aligned with the company's financial performance.

Volume-based expenses, which include royalty fees and order routing fees, were $19.2 million in the first quarter of 2016, an increase of $4.2 million or 29 percent, compared with the same period last year. This increase includes higher royalty fees of $4.9 million, partially offset by lower order routing fees of $0.7 million. The increase in royalty fees resulted from higher trading volume in licensed index and futures products, which rose 28 percent over last year's first quarter.

Adjusted Operating Margin

The company's adjusted operating margin was 49.7 percent for the first quarter of 2016, up 100 basis points compared with 48.7 percent for the first quarter of 2015. The margin increase reflects the positive operating leverage generated from the company's higher revenue base.

Effective Tax Rate

The company reported an effective tax rate of 38.9 percent for the current quarter compared with 39.0 percent in last year's first quarter.

Operational Highlights and Recent Developments

  • On April 15, CBOE started overnight dissemination of the VIX Index. Values for the VIX Index are expected to be published every 15 seconds starting at 2:15 a.m. during CBOE's extended trading hours session for VIX and SPX options, which runs from 2:00 a.m. to 8:15 a.m. CT.
  • On March 29, CBOE listed options on the FTSE 100 and FTSE China 50 Mini-Indexes.
  • On March 21, CBOE launched FLEX® index options with Asian and Cliquet style settlement.
  • On March 14, CBOE received two honors at the EQDerivatives Global Equity & Volatility Derivatives Awards in New York City: U.S. Exchange of the Year and Listed Product Launch of the Year for VIX Weeklys futures and options.
  • On February 23, CBOE listed SPX Wednesday-expiring WeeklysSM options. CBOE's new SPX Wednesday-expiring Weeklys options, or "Wednesday Weeklys," generally have the same characteristics as CBOE's Friday-expiring SPX Weeklys options.
  • On January 25, the company announced that it made a majority equity investment in Vest Financial Group Inc., an asset management firm that provides options-based investments through structured protective strategies and innovative technology solutions.

2016 Fiscal Year Financial Guidance

The company reaffirmed or updated its financial guidance for the 2016 fiscal year as follows:

  • Core expenses for the 2016 fiscal year are expected to be in the range of $211.0 million to $215.0 million.
  • Continuing stock-based compensation expense included in core expenses is expected to be approximately $13.5 million for the full year.
  • In addition, the company expects to recognize accelerated stock-based compensation expense, on a quarterly basis, totaling approximately $1.0 million for the full year. This expense is expected to be reported in compensation and benefits and included in the company's non-GAAP reconciliation as an adjusted financial measure.
  • Capital expenditures are expected to be in the range of $47.0 million to $49.0 million.
  • Depreciation and amortization expense is expected to be in the range of $46.0 million to $48.0 million.
  • The adjusted effective tax rate for full-year 2016 is expected to be in the range of 38.5 percent to 39.5 percent. 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.

Return of Capital to Stockholders

During the first quarter of 2016, the company repurchased 666,886 shares of its common stock under its share repurchase program at an average price of $63.60 per share, for an aggregate purchase price of $42.4 million.

Since the inception of its share repurchase program in 2011 through March 31, 2016, the company has repurchased 10,666,501 shares of its common stock at an average price of $45.46 per share, for a total of $484.9 million.

As of March 31, 2016, the company had approximately $115.1 million of availability remaining under its existing share repurchase authorizations.