Just several days after releasing its low January trading volumes, CBOE Holdings, Inc. (NASDAQ: CBOE) announced its financial results for the fourth quarter and full year ended December 31, 2016.
For the quarter ended December 31, 2016, the company reported GAAP net income allocated to common stockholders of $44.7 million, or $0.55 per diluted share, compared with $50.2 million, or $0.61 per diluted share, in the fourth quarter of 2015. On an adjusted basis, net income allocated to common stockholders was $51.5 million, or $0.63 per diluted share, compared with $48.9 million, or $0.59 per diluted share, in the prior year period. Operating revenue for the fourth quarter was $163.2 million, up 5% compared to $156.0 million in 2015’s fourth quarter.
For the year ended December 31, 2016, GAAP net income allocated to common stockholders decreased 9% to $184.9 million, or $2.27 per diluted share. For 2015, the company reported GAAP net income allocated to common stockholders of $204.1 million, or $2.46 per diluted share. On an adjusted basis, net income allocated to common stockholders decreased 1 percent to $197.3 million, or $2.42 per diluted share, from $198.9 million or $2.40 per diluted share in 2015. Operating revenue of $645.1 million increased 2% in 2016, compared with $634.5 million in 2015.
The fourth quarter capped off another year of solid financial results for CBOE Holdings, highlighted by record trading in our SPX options and VIX futures. In addition, we are closer to completing our pending acquisition of Bats Global Markets, Inc. (Bats), which we now expect to close by the end of the first quarter, pending the receipt of certain regulatory approvals and the satisfaction or waiver of customary closing conditions. We are preparing for a seamless integration process that will enable us to immediately begin to realize the benefits of bringing together Bats’ U.S. and European equities, options, ETF trading and global FX platform with CBOE’s wide array of equity and index options, multi-asset volatility products and educational resources,” said Edward T. Tilly, CBOE Holdings’ Chief Executive Officer.
Operating Revenue
Operating revenue was $163.2 million in the fourth quarter of 2016, an increase of $7.2 million, or 5 percent, compared to $156.0 million in 2015’s fourth quarter. On an adjusted basis, operating revenue increased $9.2 million, or 6 percent, compared to $154.0 million in the fourth quarter of 2015. The increase in both operating revenue and adjusted operating revenue primarily resulted from an increase of $4.6 million in transaction fees and $1.5 million in market data fees. In addition to these increases, adjusted operating revenue includes a $2.4 million increase in other revenue.
Transaction fees increased $4.6 million, or 4 percent, for the fourth quarter of 2016 due to a 13 percent increase in trading volume, offset somewhat by an 8 percent decrease in the average revenue per contract (RPC) compared with 2015’s fourth quarter. Total trading volume for the quarter was 305.8 million contracts, or 4.85 million contracts per day, compared with 271.6 million contracts, or 4.25 million contracts per day in 2015’s fourth quarter. RPC for the quarter was $0.377 compared with $0.408 in the fourth quarter of 2015. The decrease in RPC primarily resulted from higher volume discounts and incentives.
The average RPC represents total transaction fees recognized for the period for Chicago Board Options Exchange® (CBOE®), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE®) divided by total contracts traded during the period.
Operating Expenses
Total operating expenses were $88.1 million for the fourth quarter of 2016, up $8.0 million or 10 percent, compared with $80.1 million in the fourth quarter of 2015, driven by higher professional fees and outside services, royalty fees and compensation and benefits, partially offset by lower depreciation and amortization. The increase in professional fees and outside services largely reflects fees incurred relating to the company’s planned acquisition of Bats. Total adjusted operating expenses, which exclude accelerated stock-based compensation, acquisition-related expenses and other unusual items were $83.4 million, up $3.3 million or 4 percent, compared with $80.1 million for the fourth quarter of 2015.
The company’s core operating expenses, which include total operating expenses less volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, were $53.2 million for the fourth quarter of 2016, an increase of $3.5 million or 7 percent, compared with the fourth quarter of 2015. The increase primarily reflects higher expenses for compensation and benefits and travel and promotional expenses.
Volume-based expenses, which include royalty fees and order routing, were $20.4 million in the fourth quarter of 2016, an increase of $2.3 million or 13 percent, compared with the same period a year ago. The increase was due to higher royalty fees resulting from the growth in trading volume in licensed index options and futures products, which rose 12 percent versus 2015’s fourth quarter.
Operating Margin
The company’s operating margin was 46.0 percent for the fourth quarter of 2016 compared with 48.7 percent in the prior year period. The adjusted operating margin for the fourth quarter was 48.9 percent, up 90 basis points from 48.0 percent in 2015’s fourth quarter.
Effective Tax Rate
The company’s effective tax rate was 39.8 percent for the fourth quarter of 2016, compared with 36.7 percent in 2015’s fourth quarter. The company’s effective tax rate for the full-year 2016 was 39.4 percent compared to 36.7 percent for 2015. The increase in the effective tax rate for the quarter and year was due to an increase in uncertain tax positions in 2016 versus a decrease in the comparable periods in 2015.
For CBOE’s complete 4Q report, click here.