Lower Trading Volume Sinks CBOE Holdings, Inc. Earnings
Image source: CBOE Holdings.
CBOE Holdings(NASDAQ: CBOE)saw its third-quarter profits fall as trading volume retreated from all-time highs set last year, but the holding company for the Chicago Board Options Exchange is making a bold move to reignite its growth by acquiring a major stock exchange competitor.
CBOE Holdings results: The raw numbers
Data source: CBOE Holdings Q3 2016 earnings press release. YOY = year over year.
What happened with CBOE Holdings this quarter?
Operating revenue fell 16% to $156.2 million, due mainly to a 23% decrease in transaction fees to $112 million.
Total trading volume declined 12% year over year to 296 million contracts, or 4.63 million per trading day. Average revenue per contract (RPC) also decreased 12% to $0.378 as trading in CBOE's higher-margin RPC index options and futures contracts fell to 40.7% of trading volume, down from 44.6% in Q3 2015.
"Although trading volume was down this quarter compared to last year's record third-quarter volume, CBOE posted solid financial results, while continuing our efforts to efficiently manage our resources and expenses," said CFO Alan Dean in a press release.
Total operating expenses increased 5% to $90.6 million. Core operating expenses -- which exclude volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense, and unusual or one-time expenses -- were $51.6 million, up 1% compared to the year-ago period. And volume-based expenses, which include royalty fees and order-routing fees, declined 11% to $19.9 million because of lower trading volume in licensed index and futures products.
All told, operating income -- adjusted to exclude acquisition-related expenses and other special items -- fell 26% to $74.8 million. Adjusted net income to common stockholders decreased 25% to $47.2 million. And adjusted earnings per share, aided somewhat by share buybacks, declined 24% to $0.58.
Bats acquisition
On Sept. 26, CBOE announced that it had entered into an agreement to acquire stock exchange operator Bats Global Markets (NYSEMKT: BATS) for approximately $3.2 billion in cash and stock. The deal is expected to help CBOE expand into stock, ETF, and currency trading while also improving the company's trading technology.
CEO Edward Tilly elaborated:
Looking forward
CBOE said its full-year core operating expenses and capital expenditures would likely be "slightly below" its prior forecasts of $211 millionto$215 million and $47 millionto$49 million, respectively.
"Our focus on creating long-term value for our shareholders remains unchanged," added Dean. "The recently announced planned acquisition of Bats is an example of how we are allocating resources in a way that we believe will generate the best returns for our shareholders."
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