10-QPeriod: Q3 FY2013

Cboe Global Markets, Inc. Quarterly Report for Q3 Ended Nov 4, 2013

Filed November 5, 2013For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported a solid financial performance for the nine months ended September 30, 2013, with total operating revenues increasing by 12.5% year-over-year to $430.2 million, driven primarily by a 12.0% rise in transaction fees. This revenue growth, coupled with a 9.6% increase in operating expenses, led to a substantial 15.6% growth in operating income to $213.2 million. Net income allocated to common stockholders saw a 10.6% increase, reaching $128.2 million, or $1.47 per diluted share. The company's liquidity position strengthened, with cash and cash equivalents rising to $226.4 million from $135.6 million at the end of 2012, supported by robust cash flow from operations. CBOE continues to return capital to shareholders through dividends and a share repurchase program, though the pace of buybacks slowed in the first nine months of 2013 compared to the prior year. Investors should note the company's ongoing efforts to manage costs, as evidenced by a slight decrease in the operating expense ratio as a percentage of revenue, and its strategic focus on higher-margin products like index options and futures.

Financial Highlights

42 data points
Beta

Revenue

$136.74M

Net Income

$41.36M

30.2% Net Margin

EPS (Diluted)

$0.47

Total Assets

$441.15M

Cash & Equivalents

$226.38M

Free Cash Flow

$55.50M

Financial Statements
Beta
Revenue$136.74M
Operating Expenses$68.32M
Operating Income$68.43M
Net Income$41.36M
EPS (Basic)$0.47
EPS (Diluted)$0.47
Shares Outstanding (Basic)87.65M
Shares Outstanding (Diluted)87.65M

Key Highlights

  • 1Total operating revenues grew 12.5% to $430.2 million for the nine months ended September 30, 2013, driven by a 12.0% increase in transaction fees.
  • 2Operating income increased 15.6% to $213.2 million for the nine months ended September 30, 2013.
  • 3Net income allocated to common stockholders rose 10.6% to $128.2 million, with diluted EPS at $1.47 for the nine months ended September 30, 2013.
  • 4Cash and cash equivalents increased significantly to $226.4 million as of September 30, 2013, indicating improved liquidity.
  • 5Share repurchase activity slowed in the first nine months of 2013 ($14.0 million) compared to the same period in 2012 ($49.7 million), although the company continued to pay dividends.
  • 6The company experienced a shift in trading volume mix towards higher-revenue per contract products like index options and futures.
  • 7Despite revenue growth, operating expenses also increased by 9.6% primarily due to higher employee costs and royalty fees.

Frequently Asked Questions

Cboe's revenue growth was primarily driven by a significant increase in transaction fees, which rose 12.0% to $298.2 million for the nine months ended September 30, 2013. This was largely attributable to a shift in the volume mix towards higher average revenue per contract products such as index options and futures, along with increased trading volume in these segments, partially offset by higher volume-based incentives and a decline in equity options volume.

Total operating expenses increased by 9.6% to $217.0 million for the nine months ended September 30, 2013. Key drivers of this increase were higher employee costs ($12.2 million), largely due to stock-based compensation and salaries, and increased royalty fees ($7.0 million) driven by higher trading volume in licensed index products and amended royalty rates. The company also saw an increase in outside services. Despite these increases, operating expenses as a percentage of total operating revenues slightly decreased from 51.8% to 50.4%, indicating some cost management efficiencies.

Cboe's liquidity position strengthened significantly, with cash and cash equivalents increasing to $226.4 million as of September 30, 2013, up from $135.6 million at the end of 2012. This was supported by strong net cash flows from operating activities, which increased to $172.4 million for the nine months ended September 30, 2013. The company continues to return capital to shareholders through regular dividend payments and a share repurchase program, although the amount spent on share repurchases decreased substantially in the first nine months of 2013 compared to the prior year.

Cboe entered into a Consent Order with the SEC on June 11, 2013, which included a censure, a cease and desist order, and a $6.0 million fine. The company recorded $1.0 million of this penalty in other expenses for the nine months ended September 30, 2013, with $5.0 million having been recognized in the fourth quarter of 2012. Management believes that the ultimate liability from other pending legal proceedings will not materially affect the company's financial position, liquidity, or capital resources.