10-QPeriod: Q1 FY2013

Cboe Global Markets, Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 7, 2013For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported strong financial performance for the first quarter of 2013, with total operating revenues increasing by 17.5% to $142.7 million compared to the same period in 2012. This growth was primarily driven by a significant increase in transaction fees, particularly from index and futures products, and a notable rise in regulatory fees. Net income allocated to common stockholders surged by 27.1% to $41.8 million, leading to a diluted EPS of $0.48, up from $0.37 in the prior year. Despite a slight decrease in overall trading volume, CBOE benefited from a higher average revenue per contract, a shift in product mix towards more profitable index and futures options, and increased trading in VIX options and futures. The company also saw improved operating income of $69.4 million, a 20.9% increase year-over-year, reflecting efficient cost management alongside revenue growth, with operating expenses growing at a slower pace than revenues. The company's cash position strengthened significantly, with cash and cash equivalents rising to $210.5 million.

Financial Highlights

42 data points
Beta

Revenue

$142.71M

Net Income

$42.37M

29.7% Net Margin

EPS (Diluted)

$0.48

Total Assets

$409.63M

Cash & Equivalents

$210.49M

Free Cash Flow

$95.30M

Financial Statements
Beta
Revenue$142.71M
Operating Expenses$73.28M
Operating Income$69.43M
Net Income$42.37M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)87.27M
Shares Outstanding (Diluted)87.27M

Key Highlights

  • 1Total operating revenues grew by 17.5% to $142.7 million in Q1 2013, driven by transaction, exchange services, and regulatory fees.
  • 2Net income allocated to common stockholders increased by 27.1% to $41.8 million, with diluted EPS rising to $0.48 from $0.37 in Q1 2012.
  • 3Transaction fees saw a 16.9% increase, primarily due to a 35.0% rise in average revenue per contract, driven by a favorable shift in product mix towards index and futures options.
  • 4Operating income rose by 20.9% to $69.4 million, indicating strong operational efficiency as revenue growth outpaced expense growth.
  • 5Cash and cash equivalents increased substantially to $210.5 million from $135.6 million at the end of 2012, highlighting robust cash generation from operations.
  • 6The company extended its exclusive licensing agreement for S&P 500 Index options until 2032, a key strategic move for future revenue streams.
  • 7Trading volume in VIX options and futures saw significant increases of 43.2% and 124.2% respectively, indicating strong market interest in volatility products.

Frequently Asked Questions

Cboe's revenue growth was primarily driven by an increase in transaction fees, which rose by 16.9% to $99.1 million. This was supported by a significant 35.0% increase in average revenue per contract, largely due to a shift in product mix towards higher-margin index and futures options, and strong growth in VIX options and futures. Regulatory fees also saw a substantial increase of 106.4%.

Total operating expenses increased by 14.5% to $73.3 million, a slower rate of growth than revenue. Key drivers for this increase included higher employee costs (up 21.7%, partly due to stock-based compensation) and outside services. Despite the rise in expenses, operating income grew by 20.9% to $69.4 million, indicating improved profitability and operational leverage.

Cboe's liquidity position strengthened significantly, with cash and cash equivalents increasing by over $74 million to $210.5 million as of March 31, 2013. This was primarily due to strong cash flow from operating activities, which benefited from increases in deferred revenue and efficient working capital management. The company expects to use its cash on hand and operational cash flow to fund operations, capital expenditures, and dividends.

The company is involved in ongoing legal proceedings, including patent litigation with ISE and an investigation by the SEC. While Cboe has recorded a liability of $5.0 million for the SEC matter and believes additional penalties are unlikely to exceed $10 million, the outcome of litigation is inherently uncertain and could potentially impact future earnings. The company continues to cooperate with the SEC and has made modifications to its compliance programs.