01—Abstract
Summary
Summary of the 10-Q filed August 2, 2016. Cited figures are marked; the original filing is the authoritative source.
Cboe Global Markets, Inc. (CBOE) reported a strong second quarter and first half of 2016, demonstrating significant revenue and net income growth year-over-year.
Total operating revenues increased by 9.8%a in the quarter and 11.7% in the first half, primarily driven by a substantial rise in transaction fees, which benefited from both increased trading volume and a favorable shift in the product mix towards higher-revenue-generating index options and futures. This revenue growth, coupled with disciplined expense management, led to a notable increase in operating income and net income. The company also highlighted strategic acquisitions, including Vest Financial Group Inc., to enhance its offerings.
Investors should note the strategic shift towards higher-margin products, contributing to a higher average revenue per contract. While operating expenses did increase, driven by investments in staffing, acquisitions, and technology, the company managed to improve its operating margin.
CBOE's financial health remains robust, supported by strong operating cash flow and ongoing share repurchase programs, indicating a commitment to returning value to shareholders. The company also noted a significant legal settlement, which positively impacted other income in the quarter.
02—Key points
Key Highlights
- Total operating revenues grew by 9.8% to $163.3 million for the three months ended June 30, 2016, and by 11.7% to $325.7 million for the six months ended June 30, 2016, compared to the prior year periods.
- Transaction fees increased significantly, up 16.1% for the quarter and 17.8% for the six months, driven by a 5.6% and 2.8% increase in trading volume, respectively, and a favorable shift in product mix towards index options and futures.
- Net income allocated to common stockholders increased by 13.6% to $50.7 million for the quarter and by 15.0% to $99.7 million for the six months.
- Diluted Earnings Per Share (EPS) for common stockholders rose to $0.62 in the quarter and $1.22 in the first half, up from $0.54 and $1.04, respectively, in the prior year.
- The company completed a majority acquisition of Vest Financial Group Inc. in January 2016, adding $18.8 million in goodwill and $8.0 million in intangible assets, aimed at enhancing its investment solutions.
- Operating expenses increased, largely due to higher compensation and benefits, depreciation and amortization, and professional fees, reflecting investments in growth and acquisitions.
- Cash flow from operations remained strong, providing $114.9 million for the six months ended June 30, 2016, supporting operational needs and capital allocation strategies like share repurchases and dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2016, Cboe Global Markets, Inc. kept $0.29.
- Revenue$173.1M100.0%
- Cost of revenue−$29.0M16.8%
- Gross profit$144.1M83.2%
- Operating costs−$66.1M38.2%
- Operating income$78.0M45.1%
- Interest, other & tax−$27.1M15.7%
- Net income$50.9M29.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2016filed August 2, 2016Financial Statements
Q2 FY2016 against Q2 FY2015
| Line item | Q2 FY2016Q2 FY2015 | Change |
|---|---|---|
| Revenue | $173.10M$148.72M | +16.4% |
| Cost of Revenue | $29.00M— | — |
| Gross Profit | $144.10M— | — |
| Operating Expenses | $66.10M$75.36M | −12.3% |
| Operating Income | $78.00M$73.37M | +6.3% |
| Interest Expense | $0— | — |
| Net Income | $50.90M$44.84M | +13.5% |
| EPS (Basic) | $0.62$0.54 | +14.8% |
| EPS (Diluted) | $0.62$0.54 | +14.8% |
| Shares Outstanding (Basic) | 81.30M83.29M | −2.4% |
| Shares Outstanding (Diluted) | 81.30M83.29M | −2.4% |
05—Questions
Frequently Asked Questions
What were the primary drivers of revenue growth in the second quarter of 2016?
Revenue growth was primarily driven by an increase in transaction fees, which rose by 16.1% to $117.9 million. This was a result of a 5.6% increase in total trading volume and a 9.9% increase in average revenue per contract, largely due to a favorable shift in product mix towards higher-revenue-generating index options and futures.
How did operating expenses change, and what were the main contributing factors?
Total operating expenses increased by 13.3% to $85.3 million for the quarter. The key drivers of this increase were higher compensation and benefits (up 18.2%), depreciation and amortization (up 8.7%), professional fees and outside services (up 17.1%), and royalty fees (up 15.4%). These increases reflect investments in staffing, technology, acquisition-related costs (like Vest and Livevol), and higher trading volume in licensed products.
What is the impact of the Vest Financial Group Inc. acquisition on CBOE's financials?
The acquisition of a majority stake in Vest Financial Group Inc. in January 2016 added $18.8 million in goodwill and $8.0 million in intangible assets to the balance sheet. For the first half of 2016, this acquisition contributed to increased depreciation and amortization expenses related to the amortization of intangible assets. The company reported that the Vest acquisition, along with the Livevol acquisition, was not material to its consolidated financial statements under certain regulatory tests.
How is CBOE managing its liquidity and capital?
CBOE maintained robust liquidity, with cash and cash equivalents of $52.2 million as of June 30, 2016. Net cash from operating activities was strong at $114.9 million for the first six months of 2016. The company continued its share repurchase program, repurchasing $60.5 million worth of common stock in the first half of 2016, with $97.0 million remaining availability under its authorizations. CBOE also expects to continue paying dividends.
06—Continue