CBOE Holdings, Inc. Earnings Surge on Record Volume

By Joe TenebrusoFool.com

CBOE mobile app. Image source: CBOE Holdings.

CBOE Holdingsreported third-quarter results on Oct. 30. The holding company for the Chicago Board Options Exchange reported record results as higher trading volumes lifted revenue from transaction fees.

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CBOE Holdings results: The raw numbers

Data source: CBOE Holdings Q3 2015 earnings press release.

What happened with CBOE Holdings this quarter?Operating revenue jumped 26% to $187 million, as a 6% increase in trading volume and a 31% rise in average revenue per contract (RPC) combined to drive a 39% surge in transaction fees.

Record volume for index options and futures helped total trading volume climb to 335.7 million contracts, up from 316.9 million contracts in Q3 2014.

And RPC rose to $0.431, compared with $0.329 in the year-ago period, due to a favorable shift in the mix of products traded, with the highest RPC categories -- index options and futures contracts -- accounting for 44.6% of trading volume, up from 33.8% in Q3 2014. Additionally, RPC increased across each product category as CBOE raised fees and offered lower volume discounts and incentives.

The leverage gained from this higher revenue base helped drive a year-over-year improvement of 370 basis pointsin operating margin to 54.1%.

Total operating expenses increased 16% to $85.9 million, mostly due to higher costs for professional fees, outside services, and royalty fees.

Core operating expenses -- which exclude volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense, and unusual or one-time expenses -- were $51.1 million, up 10% compared with the year-ago quarter, primarily due to higher compensation expenses and outsourced regulatory fees.

Volume-based expenses, which include royalty fees and order-routing fees, increased 30% to $22.4 million, driven by higher trading volume in licensed index products.

All told, net income to common stockholders (adjusted to exclude the recognition of a tax benefit) surged 31% to $63 million. And adjusted earnings per share, boosted by share buybacks, rose and even higher 33% to $0.76.

Capital return programDuring the third quarter, CBOE repurchased 297,394 shares of stock at an average price of $63.12 per share, for a total purchase price of $18.8 million. As of Sep. 30, 2015, the company had approximately $92.2 million of availability remaining under its existing share repurchase authorizations.

What management had to say "We are very pleased with our results for the third quarter as we achieved new highs across a number of financial measures, including operating revenue, operating margin and earnings per share," said CFO Alan Dean. "Our operating margin hit a new high of 54.1 percent, underscoring the operating leverage inherent in our business model and the potential for further gains as we invest in our strategic growth initiatives while prudently managing expenses."

Looking forwardThat strong financial performance will come at cost, however, with management stating that higher performance-driven compensation will likely lead to an increase in full-year expenses. CBOE now expects fiscal 2015 core expenses to be in the range of $194 million to $196 million, up from the company's previous forecast of $190 million to $194 million.

Still, management remains optimistic.

"The record financial results we delivered this quarter highlight the utility of our proprietary products, S&P 500 Index (SPX) options, Russell 2000 Index (RUT) options and CBOE Volatility Index (VIX) futures and options," said CEO Edward Tilly. "Throughout the third quarter, we also advanced key growth initiatives in developing new products, increasing access to our marketplace, and growing our customer base in order to pave the way for continued success this year and beyond."

The article CBOE Holdings, Inc. Earnings Surge on Record Volume originally appeared on Fool.com.

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