10-QPeriod: Q2 FY2013

Cboe Global Markets, Inc. Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 6, 2013For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported a strong second quarter for 2013, demonstrating robust revenue and net income growth compared to the same period in the prior year. Total operating revenues increased by 13.7% to $150.8 million, driven significantly by a surge in transaction fees, particularly from index options and futures. This revenue growth outpaced the increase in operating expenses, leading to a substantial rise in operating income and net income. Net income allocated to common stockholders grew by 20.1% to $45.5 million, or $0.52 per diluted share, up from $0.44 in the prior year's quarter. This performance was fueled by strong trading volumes in key products like SPX options and VIX futures. Despite a slight dip in overall market share for exchange-traded options, CBOE successfully leveraged its product mix and fee structures to improve average revenue per contract. The company also addressed a regulatory matter with the SEC, incurring a $1 million expense in the quarter related to a previously disclosed fine.

Financial Highlights

42 data points
Beta

Revenue

$150.77M

Net Income

$46.16M

30.6% Net Margin

EPS (Diluted)

$0.52

Total Assets

$429.86M

Cash & Equivalents

$207.77M

Free Cash Flow

$21.56M

Financial Statements
Beta
Revenue$150.77M
Operating Expenses$75.41M
Operating Income$75.36M
Net Income$46.16M
EPS (Basic)$0.52
EPS (Diluted)$0.52
Shares Outstanding (Basic)87.34M
Shares Outstanding (Diluted)87.34M

Key Highlights

  • 1Total operating revenues for Q2 2013 increased by 13.7% to $150.8 million compared to Q2 2012, primarily driven by a 11.8% increase in transaction fees.
  • 2Net income allocated to common stockholders rose by 20.1% to $45.5 million in Q2 2013, translating to diluted EPS of $0.52, up from $0.44 in Q2 2012.
  • 3Transaction fees saw a significant uplift, increasing by 11.8% driven by higher average revenue per contract, largely due to a favorable shift in product mix towards higher-margin index options and futures.
  • 4Trading volume in key products like SPX options (+23.2%), VIX options (+29.7%), and VIX futures (+95.6%) showed strong growth during the quarter.
  • 5Operating expenses increased by 13.4% to $75.4 million, largely due to higher employee costs (including stock-based compensation) and royalty fees.
  • 6The company incurred a $1.0 million expense in the quarter related to a $6 million SEC fine for regulatory compliance issues, with the total SEC matter expense for the year now at $6.0 million.
  • 7Cash and cash equivalents significantly increased to $207.8 million as of June 30, 2013, from $135.6 million at the end of 2012, reflecting strong operating cash flows.

Frequently Asked Questions

The primary driver of revenue growth was the significant increase in transaction fees, which rose by 11.8%. This was mainly due to a higher average revenue per contract, attributed to a favorable shift in the trading volume mix towards higher-margin products such as index options and futures. Regulatory fees also saw a substantial increase of 156.9%.

Total operating expenses increased by 13.4% to $75.4 million. The main contributors to this increase were higher employee costs (up 23.3%, including stock-based compensation and salaries) and increased royalty fees (up 20.8%).

CBOE and C2 entered into a Consent Order with the SEC on June 11, 2013, which included a censure, a cease and desist order, and a $6 million fine. For the three months ended June 30, 2013, the company recorded an additional $1.0 million expense related to this penalty. The company is also undertaking specific actions as part of the order.

The company's cash and cash equivalents position strengthened considerably, reaching $207.8 million at the end of Q2 2013, an increase from $135.6 million at the end of 2012. This improvement was driven by robust net cash flows from operating activities.