News Details

Fourth-Quarter 2014 Financial Highlights
-- Operating Revenue Increased 17 Percent to $166.5 Million
-- GAAP Net Income Allocated to Common Stockholders Up 8 Percent to $49.1 Million; Diluted EPS Up 12 Percent to $0.58
-- Adjusted Net Income Allocated to Common Stockholders Up 18 Percent to $53.6 Million; Adjusted Diluted EPS Up 23 Percent to $0.64¹
-- GAAP Operating Margin of 52.2 Percent; Adjusted Operating Margin of 53.4 Percent, Up 220 Basis Points¹

Full-Year 2014 Financial Highlights
-- Operating Revenue Increased 8 Percent to $617.2 Million
-- GAAP Net Income Allocated to Common Stockholders Increased 8 Percent to $188.4 Million; Diluted EPS Up 11 Percent to $2.21
-- Adjusted Net Income Allocated to Common Stockholders Increased 10 Percent to $194.5 Million; Adjusted Diluted EPS Up 12 Percent to $2.28¹
-- GAAP Operating Margin of 50.8 Percent; Adjusted Operating Margin of 51.6 Percent, Up 80 Basis Points¹

CHICAGO, February 6, 2015 - CBOE Holdings, Inc. (NASDAQ: CBOE) today announced record revenue and earnings for the fourth-quarter and full-year 2014, marking the fourth consecutive year of record financial results.

For the quarter, the company reported GAAP net income allocated to common stockholders of $49.1 million, or $0.58 per diluted share, compared with $45.6 million, or $0.52 per diluted share, in the fourth quarter of 2013. On an adjusted basis, net income allocated to common stockholders was $53.6 million, or $0.64 per diluted share, compared with $45.6 million, or $0.52 per diluted share, in the prior year period. Operating revenue for the fourth quarter was $166.5 million, up 17 percent compared to $141.8 million in 2013's fourth quarter.

For the year ended December 31, 2014, GAAP net income allocated to common stockholders rose 8 percent to $188.4 million, or $2.21 per diluted share, on total operating revenue of $617.2 million. For 2013, the company reported GAAP net income allocated to common stockholders of $173.9 million, or $1.99 per diluted share, on operating revenue of $572.1 million. On an adjusted basis, net income allocated to common stockholders increased 10 percent to $194.5 million from $177.4 million in 2013, and adjusted diluted earnings per share grew 12 percent to $2.28 from $2.03 in 2013.

¹A full reconciliation of CBOE Holdings' non-GAAP results to its GAAP results for the reporting periods is included in the attached tables. See "Non-GAAP Information” in the accompanying financial tables.

Financial results presented on an adjusted basis for the fourth quarter of 2014 and the years ended December 31, 2014 and 2013 exclude certain items, including accelerated stock-based compensation, severance expense, tax provisions related to prior years and impairment charges, which are detailed in the reconciliation of non-GAAP results. There were no non-GAAP financial measures in the fourth quarter of 2013.

“We are pleased to report that fourth-quarter trading across all product lines led to a new annual record for total options and futures traded at CBOE Holdings. Record trading in our premium proprietary products, S&P 500 Index options and CBOE Volatility Index futures and options, helped fuel our fourth consecutive year of record revenue and earnings. We have carried that positive momentum into the new year, and our entire team is committed to executing on our initiatives to engage customers, develop products and broaden access to our marketplace. I am confident in our ability to continue to drive sustainable profitable growth and to enable CBOE Holdings to deliver value for our shareholders and our customers,” said Edward T. Tilly, CBOE Holdings Chief Executive Officer.

"We were extremely pleased with our results for the fourth quarter and year. Adjusted diluted earnings per share for the quarter grew 23 percent over 2013's fourth quarter, outpacing our strong top-line growth of 17 percent. We have a business model that generates significant cash flow and our strong financial results allowed us to return more capital to our shareholders in 2014, through dividend payments of nearly $111 million and share repurchases of $177 million,” said Alan J. Dean, CBOE Holdings Executive Vice President and Chief Financial Officer.

The table below highlights CBOE Holdings' operating results on a GAAP basis and an adjusted basis for the comparative quarters and twelve-month periods ended December 31, 2014 and 2013. Financial results presented on an adjusted basis provide supplemental information to facilitate period-over-period comparisons by adjusting for certain items that management believes are not indicative of the company's core operating performance.

Key Statistics and Financial Highlights:

(1) A full reconciliation of our non-GAAP results to our GAAP results for the 2014 and 2013 reporting periods is included in the attached tables. See "Non-GAAP Information” in the accompanying financial tables.

Revenues

In the fourth quarter of 2014, operating revenues increased by $24.7 million, or 17 percent, to $166.5 million from $141.8 million in 2013's fourth quarter. The higher revenue primarily reflects an increase of $23.7 million in transaction fees and an increase of $1.0 million in regulatory fees.

Transaction fees, the largest revenue driver, increased 24 percent for the quarter as a result of a 15 percent increase in trading volume and an 8 percent increase in the average revenue per contract (RPC) compared with the fourth quarter of 2013. Total trading volume for the fourth quarter was 361.2 million contracts, or 5.64 million contracts per day, compared with 313.0 million contracts, or 4.89 million contracts per day, in 2013's fourth quarter. RPC for the quarter was $0.340 compared with $0.316 in the fourth quarter of 2013.

The increase in RPC primarily resulted from a shift in the mix of products traded towards higher-margin index options and futures contracts, as well as an increase in the RPC derived from these products in the fourth quarter of 2014 compared with the same period in 2013. Higher-margin index options and futures contracts accounted for 35.3 percent of trading volume in the quarter compared with 33.8 percent in the fourth quarter of 2013. Additionally, the RPC on index options increased nearly 5 percent, while the RPC on futures contracts increased 3 percent, primarily as a result of fee adjustments implemented during the year and the mix of volume by user type within each respective product category compared with last year's fourth quarter.

The average revenue per contract 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.

Adjusted Operating Expenses

Adjusted operating expenses were $77.7 million for the fourth quarter of 2014, up $8.5 million or 12 percent, compared with $69.2 million in the fourth quarter of 2013. Adjusted operating expenses exclude $1.9 million of severance expense in the fourth quarter of 2014. There were no adjustments to operating expenses in the fourth quarter of 2013.

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 $46.5 million for the fourth quarter of 2014, an increase of $2.6 million or 6 percent, compared with the fourth quarter of 2013. The increase primarily reflects higher expenses for outside services.

Volume-based expenses, which include royalty fees and trading volume incentives, were $20.2 million in the fourth quarter of 2014, an increase of $3.9 million or 24 percent, compared with the same period a year ago. The increase resulted from higher royalty fees of $4.2 million, offset somewhat by a decrease in trading volume incentives of $0.3 million. The increase in royalty fees is primarily due to higher trading volume in licensed products.

Adjusted Operating Margin

The company's adjusted operating margin increased 220 basis points to 53.4 percent for the fourth quarter of 2014, compared with 51.2 percent in the same period in 2013. The adjusted operating margin for the full-year 2014 was 51.6 percent, surpassing the prior year's margin by 80 basis points and setting a new fiscal year all-time high.

Effective Tax Rate

On a GAAP basis, the company reported an effective tax rate of 41.2 percent for the fourth quarter versus 36.1 percent in last year's fourth quarter. The increase in the effective tax rate for the fourth quarter of 2014 primarily reflects tax adjustments related to changes in assessments of uncertain tax positions for the current and prior years and a lower benefit from discrete items versus the prior-year quarter. The company's non-GAAP effective tax rate was 39.4 percent compared to 36.1 percent for the fourth quarter of 2013. The company's non-GAAP effective tax rate for the full-year 2014 was 38.2 percent compared to 37.8 percent for 2013. The higher effective tax rate for 2014 was primarily the result of changes in assessments of uncertain tax positions.

Fourth Quarter 2014 Operational Highlights and Recent Developments

• On February 2, 2015, the company reported that January 2015 average daily volume (ADV) for total options was 5.13 million contracts, a 5 percent increase from December 2014 and an 8 percent decrease from January 2014. In addition, CFE reported that January 2015 ADV was 228,683 contracts, an increase of 9 percent from January 2014 and a 1 percent increase from December 2014.
• In 2014, the company reached new all-time highs in total trading volume and average daily volume, reporting 1.3 billion options and futures contracts traded on CBOE, C2 and CFE, an increase of 12 percent over the 1.2 billion contracts traded in 2013. Average daily volume was 5.3 million contracts, an increase of 12 percent from the 4.7 million contracts per day in 2013. New annual records were also set for SPX options, VIX options and VIX futures.
• On December 22, 2014, the company reported that CBOE and C2 have entered into an agreement with the Financial Industry Regulatory Authority (FINRA), under which FINRA will perform the majority of the exchanges’ regulatory services. Additionally, CBOE entered into a separate agreement with FINRA, under which CBOE will assign to FINRA its responsibility to perform regulatory services for the Options Regulatory Surveillance Authority (ORSA), the central organization facilitating collaboration in insider trading surveillance and investigations for all U.S. options exchanges. FINRA began performing these services on January 1, 2015.
• On December 10, 2014, the company announced that it has entered into a licensing agreement with MSCI Inc., a leading provider of investment decision support tools worldwide, to offer options trading on several MSCI indexes. Under the agreement, in the U.S., options on the MSCI indexes will be solely listed for trading on CBOE. The six indexes included in the agreement are the MSCI EAFE Index, MSCI Emerging Markets Index, MSCI ACWI Index, MSCI USA Index, MSCI World Index and the MSCI ACWI ex-USA Index.
• On November 13, 2014, CFE launched futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (ticker symbol: VXTYN). The VXTYN Index, on which futures on VXTYN^® are based, is calculated by applying the CBOE Volatility Index^® (VIX^® Index) methodology to futures options data from CME Group’s 10- year U.S. Treasury note contract -- one of CME Group’s most actively traded interest rate options products.

Return of Capital to Stockholders

As announced on February 4, 2015, the company's Board of Directors declared a quarterly dividend of $0.21 per share, payable March 20, 2015 to stockholders of record on February 27, 2015.

During the fourth quarter of 2014, the company repurchased 489,500 shares of its common stock under its share repurchase program at an average price of $58.69 per share, for an aggregate purchase price of $28.7 million. For the full-year 2014, the company repurchased 3,215,246 shares at an average price of $52.35, for an aggregate purchase price of $168.3 million.

Since the inception of its share repurchase program in 2011 through December 31, 2014, the company has repurchased 7,855,070 shares of its common stock at an average price of $39.51 per share, for a total of $310.4 million.

As of December 31, 2014, the company had approximately $89.6 million of availability remaining under its existing share repurchase authorizations.

2015 Fiscal Year Financial Guidance

CBOE Holdings currently expects the following for the year ending December 31, 2015:

• Core operating expenses are expected to be in the range of $195.0 million to $199.0 million, an increase of 3 to 5 percent compared with $188.9 million in 2014. Continuing stock-based compensation expense included in core expenses is expected to be approximately $12.0 million for the full year.
• Depreciation and amortization expense is expected to be in the range of $46.0 million to $48.0 million.
• The consolidated effective tax rate is expected to be in the range of 38.5 percent to 39.5 percent. Significant changes in trading volume, expenses, state and local tax rates and other items, including ongoing state and federal tax audits, could materially impact this expectation.
• Capital expenditures are projected to be in the range of $37.0 million to $40.0 million, reflecting the company's ongoing investments in systems hardware and software to support and enhance its trading technology.

Earnings Conference Call

Executives of CBOE Holdings will host a conference call to review its fourth quarter financial results today, February 6, 2015, at 8:30 a.m. ET/7:30 a.m. CT. The conference call and any accompanying slides will be publicly available via live webcast from the Investor Relations section of the company's website at www.cboe.com under Events & Presentations. Participants may also listen via telephone by dialing (866) 652-5200 from the United States, (855) 669-9657 from Canada or (412) 317-6060 for international callers. Telephone participants should place calls 10 minutes prior to the start of the call. The webcast will be archived on the company's website for replay. A telephone replay of the earnings call also will be available from approximately 10:30 a.m. CT, February 6, through 11:00 p.m. CT, February 13, 2015, by calling (877) 344-7529 from the U.S., (855) 669-9658 from Canada or (412) 317-0088 for international callers, using replay code 10057897.

About CBOE Holdings, Inc.:

CBOE Holdings, Inc. (NASDAQ: CBOE) is the holding company for Chicago Board Options Exchange (CBOE), CBOE Futures Exchange (CFE) and other subsidiaries. CBOE, the largest U.S. options exchange and creator of listed options, continues to set the bar for options and volatility trading through product innovation, trading technology and investor education. CBOE Holdings offers equity, index and ETP options, including proprietary products, such as S&P 500 options (SPX), the most active U.S. index option, and options and futures on the CBOE Volatility Index (the VIX Index). Other products engineered by CBOE include equity options, security index options, Weeklys options, LEAPS options, FLEX options, and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM). CBOE Holdings is home to the world-renowned Options Institute and www.cboe.com, the go-to place for options and volatility trading resources.

Forward-Looking Statements

This press release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements are those statements that reflect our expectations, assumptions or projections about the future and involve a number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: the loss of our right to exclusively list certain index options and futures products; increasing price competition in our industry; compliance with legal and regulatory obligations and obligations under agreements with regulatory agencies; decreases in the amount of trading volumes or a shift in the mix of products traded on our exchanges; our ability to operate our business, monitor and maintain our systems or program them so that they operate correctly, including in response to increases in trading volume and order transaction traffic; the accuracy of our estimates and expectations; legislative or regulatory changes; increasing competition by foreign and domestic entities; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to maintain access fee revenues; our ability to protect our systems and communication networks from security risks, including cyber-attacks; economic, political and market conditions; our ability to attract and retain skilled management and other personnel; our ability to maintain our growth effectively; our dependence on third party service providers; and the ability of our compliance and risk management methods to effectively monitor and manage our risks.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2013 and other filings made from time to time with the SEC.

The condensed consolidated statements of income, balance sheets and cash flows are unaudited and subject to change.

Trademarks:

CBOE^®, Chicago Board Options Exchange^®, CBOE Volatility Index^®, CFE^®, Execute Success^®, VXTYN^®, FLEX^®, LEAPS^® and VIX^® are registered trademarks and BuyWriteSM, BXMSM, CBOE Futures ExchangeSM, The Options InstituteSM, CBOE/CBOT 10-year U.S. Treasury Note Volatility IndexSM, and WeeklysSM are service marks of Chicago Board Options Exchange, Incorporated (CBOE). C2SM and C2 Options ExchangeSM are service marks of C2 Options Exchange, Incorporated (C2). Standard & Poor's^®, S&P^® and S&P 500^® are registered trademarks of Standard & Poor's Financial Services LLC and have been licensed for use by CBOE, C2 and CFE.

CBOE Holdings, Inc.

Selected Quarterly Operating Statistics

Average Daily Volume by Product (in thousands)

Mix of Trading Volume by Product