The International Securities Exchange Holdings, Inc. (NYSE:ISE)
today reported that net income for the quarter ended March 31, 2007
increased 34.4% to $16.7 million, or $0.42 per share on a fully
diluted basis. This compares to $12.4 million, or $0.32 per share
on a fully diluted basis, in the same period in 2006. Total
consolidated revenues for the quarter increased 18.6% to $56.4
million from $47.5 million in the prior year. Gross margin, or
total revenues less cost of revenues, increased 21.5% to $50.5
million from $41.6 million in the first quarter of 2006. Included
in our consolidated results are the revenues and expenses from the
ISE Stock Exchange, our stock exchange business segment. Total
revenues for the quarter from our options exchange business segment
increased 17.7% to $55.9 million. Gross margin, or total revenues
less cost of revenues, increased 21.2% to $50.4 million. The
average daily volume of equity and index options contracts traded
increased 16.3% to 2.8 million contracts. Our stock exchange
business segment recorded gross margin of $0.4 million, interest
income of $0.5 million, total expenses of $3.9 million and minority
interest of $3.0 million. Our stock exchange has no impact on our
net income as losses are allocated solely to the minority owners.
Please refer to the section titled �Segment Information� for
further information. �The economic climate in the first quarter
provided a strong catalyst for growth in the options industry and
ISE remained at the forefront of this growth,� said David Krell,
ISE�s President and Chief Executive Officer. �The volatility in the
financial markets spurred additional demand for options, and ISE
continued to meet this demand with new and innovative products that
address and anticipate the needs of investors. The cyclical trends
that we have witnessed in the financial markets, together with the
ongoing secular growth that we have experienced, bode well for the
options industry,� said Krell. �We remain focused on realizing the
organic growth opportunities in our options business, while
expanding into new geographic markets and complementary asset
classes. We recently announced our plans to launch a new
derivatives exchange, DEX�, in partnership with the TSX Group. DEX
is our first venture outside of the U.S. markets and we expect to
begin operations in March 2009. In launching this new business, we
will be able to trade options, futures and options on futures on a
variety of Canadian securities.� �We are also excited about our
latest product, ISE FX OptionsTM, which we launched earlier this
month. The foreign exchange market continues to post impressive
growth rates, and we are optimistic that there is significant
untapped demand for this asset class. ISE FX Options provides
investors with effective risk management strategies and new trading
opportunities within the growing foreign exchange asset class.
Going forward, we will continue to introduce new products and new
innovations, as we grow the overall market and garner our fair
share of this business,� concluded Krell. First Quarter Results �
Options Exchange Income Statement Revenues Transaction fee revenues
increased to $43.9 million from $36.9 million last year due to
continued strong growth in trading volumes. Member fees and other
revenues increased to $7.3 million from $5.6 million in the same
period last year due to an increase in connectivity fees which are
charged to market makers based on quote capacity usage. There was
also an increase in connectivity fees from our subsidiary,
Longitude, which was acquired in March 2006. Market data revenues
decreased to $4.7 million from $5.1 million in the prior year
quarter due to our lower market share of trades. Cost of Revenues,
Gross Margin Cost of revenues for the first quarter decreased to
$5.6 million from $6.0 million in the prior year quarter. Gross
margin increased to $50.4 million from $41.6 million in the first
quarter of 2006. Expenses Total expenses for the first quarter of
2007 increased to $23.6 million from $20.1 million in the first
quarter of 2006. This increase was principally due to an increase
in compensation and benefits expenses, in part attributable to
higher stock-based incentive compensation. Technology and
communications expenses increased to $4.3 million from $3.5 million
due to increased network and capacity costs for our trading system.
Professional fees increased to $1.7 million from $1.3 million due
to higher legal fees. Marketing and business development expenses
decreased to $0.5 million from $0.6 million due to the timing of
marketing programs. Depreciation and amortization increased to $1.7
million from $1.5 million due to higher amortization expense of the
assets of Longitude. Income, Margins and Taxes Our pre-tax income
for the first quarter of 2007 increased 28.1% to $29.5 million from
$23.1 million last year.�Interest and investment income increased
to $2.8 million from $1.6 million primarily due to interest income
from higher cash balances. Our pre-tax margin for the first quarter
increased to a record 58.6% from 55.5% last year. Our tax rate
decreased to 43.5% from 44.0% in the first quarter of 2006 due to
lower tax rates on our invested cash. Net income for the first
quarter increased 29.2% to $16.7 million from $12.9 million in the
prior year quarter. Consolidated Balance Sheet As of March 31,
2007, ISE had cash and cash equivalents and investments in
securities of $289.8 million, total assets of $402.0 million, and
stockholders' equity of $274.5 million. The Company recorded
minority interest of $33.3 million as of March 31, 2007, which
represents interests of minority shareholders in the ISE Stock
Exchange. Included in cash and cash equivalents is $34.8 million
from the ISE Stock Exchange which is reserved for its use. There
were approximately 38.2 million shares of common stock outstanding.
First Quarter Business Highlights - Options Exchange ISE was the
largest equity options exchange for the first quarter of 2007 based
on total equity options trading. On January 9, 2007, ISE�s Board of
Directors declared a quarterly dividend of $0.05 per outstanding
share of its Class A Common Stock payable on March 30, 2007 to
holders of record as of the close of business on March 23, 2007. On
February 12, 2007, ISE completed the initial rollout of its Second
Market for options. Approximately 700 options classes now trade in
the Second Market. ISE also announced the addition of three Second
Market Competitive Market Makers (CMMs�): Lehman Brothers Inc., DC
Trading Partners LLC and Monadnock Capital Management, LP. The
total number of Second Market CMMs is now thirteen. On February 21,
2007, ISE launched an enhanced version of ISEE Select�, its
customized sentiment data offering. New features include the
ability to chart intraday and historical sentiment values as well
as the capability to download the historical values for further
analysis. ISE also announced that OptionsDevil, Schaeffer's
Investment Research, SentimenTrader, and Terra Nova Financial, LLC
joined the ISEE Select marketing alliance. On February 26, 2007,
ISE entered into an agreement with First Trust Advisors L.P. to
create and list Exchange-Traded Funds (ETFs) on three proprietary
ISE indexes. First Trust plans to develop ETFs based on the ISE
Water Index (underlying index ticker: HHO), ISE-Revere Natural Gas
Index (underlying index ticker: FUM), and ISE ChIndia Index
(underlying index ticker: to be determined). On February 27, 2007,
ISE set a new record daily trading volume of 5,531,875 equity and
index options contracts. Trading volume in the Nasdaq-100 Index
Tracking Stock (QQQQ) also reached a new high of 1,032,296
contracts. On March 5, 2007, ISE and TSX Group announced the
creation of DEX�, a new Canadian derivatives exchange. DEX, which
is scheduled to begin operations in March 2009, will be owned 52%
by TSX Group and 48% by ISE and will list and trade options,
futures and options on futures on a range of Canadian securities.
On March 9, 2007, ISE traded its 2 billionth options contract. This
trade, which was in the Nasdaq-100(R) Trust Shares (QQQQ), took
place between Penson Financial Services, Inc. and Ronin Capital,
LLC. On March 27, 2007, ISE announced a partnership with
Optionetics, Inc., a recognized leader in options education, in a
joint effort to educate retail investors about ISE FX Options�.
Optionetics will incorporate information and trading strategies for
ISE FX Options into its two-day seminar series, Trading the Foreign
Exchange Markets, which are executed by its affiliate, FX Trading
Education Corp. (FXTE). On March 28, 2007, ISE announced that
Timber Hill LLC, the market making subsidiary of Interactive
Brokers, will serve as the Primary Market Maker (PMM�) for the
first four currency pairs of ISE FX Options that will be listed on
the Exchange. Additionally, Citigroup Derivatives Markets Inc.,
Lehman Brothers Inc., and Optiver US, LLC will act as Competitive
Market Makers (CMMs�) in a variety of the products. Trading will
initially take place in the following four currency pairs: USD/EUR
(Symbol: EUI), USD/GBP (Symbol: BPX), USD/JPY (Symbol: YUK), and
USD/CAD (Symbol: CDD). First Quarter Business Highlights - Stock
Exchange On January 24, 2007, the ISE Stock Exchange added all of
the securities that comprise the S&P 1500 to its
fully-displayed stock market. Additionally, the ISE Stock Exchange
now offers full route-out capabilities to prevent trade-throughs.
On February 5, 2007, ISE announced that Lava Trading Inc. added the
ISE Stock Exchange as an equity execution destination. Lava joins
other trading solutions providers connected to the ISE Stock
Exchange, including InstaQuote, MIXIT, Neovest, Portware, Orc
Software, and Order Execution Services. On February 13, 2007, ISE
completed the rollout of its fully-displayed stock market for the
ISE Stock Exchange. Traders can now access approximately 6,000
National Market System (NMS) securities through both ISE's
non-displayed liquidity pool, MidPoint Match� and its displayed
market. On March 5, 2007, the Regulation NMS Order Protection Rule
went into effect for exchanges. The ISE Stock Exchange was created
to operate most effectively in a Reg NMS environment and was fully
compliant prior to the March effective date. INTERNATIONAL
SECURITIES EXCHANGE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF
INCOME (in thousands, except per share amounts) (unaudited) � Three
Months Ended March 31, 2007� 2006� � Revenues: Transaction fees $
44,478� $ 36,867� Member fees and other 7,117� 5,622� Market data �
4,809� � 5,055� Total revenues 56,404� 47,544� � Cost of revenues:
Activity remittance fees 4,079� 4,345� License fees, liquidity
rebates, and brokerage fees � 1,829� � 1,625� Total cost of
revenues 5,908� 5,970� � Gross margin 50,496� 41,574� � Expenses:
Compensation and benefits 15,071� 11,368� Technology and
communications 4,563� 3,518� Occupancy 1,461� 1,318� Professional
fees 2,080� 1,628� Marketing and business development 784� 622�
Depreciation and amortization 1,866� 1,517� Other � 1,417� � 1,033�
Total direct expenses 27,242� 21,004� Reorganization � -� � 24�
Total expenses 27,242� 21,028� � Operating income 23,254� 20,546� �
Interest and investment income 3,233� 1,611� Minority interest �
3,040� � -� Income before provision for income taxes 29,527�
22,157� � Provision for income taxes � 12,843� � 9,739� Net income
$ 16,684� $ 12,418� � Earnings per share: Basic $ 0.44� $ 0.33�
Diluted $ 0.42� $ 0.32� � Weighted average number of shares
outstanding: Basic 38,137� 37,102� Diluted 40,095� 39,254�
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION (in thousands) � March 31, 2007
December 31, 2006 (unaudited) ASSETS Current assets: Cash and cash
equivalents $ 190,244� $ 200,015� Accounts receivable, net 41,342�
34,815� Income tax receivable 8,997� 9,644� Securities owned
67,906� 60,090� Other current assets � 5,475� � 2,415� Total
current assets 313,964� 306,979� � Securities owned 31,616� 32,724�
Fixed assets, net 30,443� 29,009� Deferred tax asset, net 20,288�
21,932� Other assets � 5,643� � 5,781� Total assets � 401,954� �
396,425� � LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
LIABILITIES Current liabilities: Accounts payable and accrued
expenses 19,183� 19,430� Compensation and benefits payable 4,055�
12,453� Deferred revenue 6,015� 5,129� Payment for order flow
payable � 11,886� � 10,262� Total current liabilities 41,139�
47,274� � Deferred revenue 49,675� 50,954� Other liabilities �
3,401� � � 3,609� Total liabilities 94,215� 101,837� � Minority
interest 33,283� 36,323� � � STOCKHOLDERS' EQUITY � 274,456� �
258,265� � � � Total liabilities, minority interest and
stockholders' equity $ 401,954� $ 396,425� INTERNATIONAL SECURITIES
EXCHANGE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands) (unaudited) � Three Months Ended March 31, 2007� 2006� �
Cash flows from operating activities: Net income $ 16,684� $
12,418� Adjustments to reconcile net income to cash provided
by/(used in) operating activities: Depreciation and amortization
1,866� 1,517� Minority interest (3,040) 2,882� Stock based
compensation 2,991� 2,024� Deferred taxes 1,644� 1,136� Unrealized
gain on securities owned and available for sale securities, net
(32) (296) Excess tax benefits from share-based payment
arrangements (2,366) (3,314) � (Increase)/decrease in operating
assets: Accounts receivable, net (6,527) (4,329) Income tax
receivable 3,013� 370� Securities owned 1,323� 2,033� Other assets
(3,064) 578� Increase/(decrease) in operating liabilities: Accounts
payable and accrued expenses (247) (1,462) Compensation and
benefits payable (8,398) (4,998) Income tax payable -� (372)
Deferred revenue (393) 677� Payment for order flow payable 1,624�
(2,189) Other liabilities � (208) � (177) Net cash provided by
operating activities � 4,870� � 6,498� � Cash flows from investing
activities: Purchase of fixed assets (3,158) (852) Purchase of
intangible assets -� (2,000) Purchase of available for sale
securities (7,979) -� Maturities of available for sale securities �
-� � 4,973� Net cash (used in)/provided by investing activities �
(11,137) � 2,121� � Cash flows from financing activities: Dividend
(1,941) (1,894) Proceeds from options exercised 266� 294� Share
repurchase (4,195) (1,971) Excess tax benefits from share-based
payment arrangements � 2,366� � 3,314� Net cash used in financing
activities � (3,504) � (257) � (Decrease)/Increase in cash and cash
equivalents (9,771) 8,362� Cash and cash equivalents, beginning of
period � 200,015� � 170,927� Cash and cash equivalents, end of
period $ 190,244� $ 179,289� INTERNATIONAL SECURITIES EXCHANGE
HOLDINGS, INC. KEY STATISTICAL INFORMATION - OPTIONS BUSINESS �
Three Months Ended March 31, 2007� 2006� Trading Days � 61� � 62�
Average daily trading volume (1) (2) Equity and Index Options Total
U.S. industry equity and index options traded (in thousands) 9,990�
7,828� Our equity and index options traded (in thousands) 2,773�
2,384� Our market share of equity and index options traded 27.8%
30.5% Equity Options Total U.S. industry equity options traded (in
thousands) 9,033� 7,202� Our equity options traded (in thousands)
2,728� 2,356� Our market share of equity options traded 30.2% 32.7%
Index Options Total U.S. industry index options traded (in
thousands) 957� 626� Our index options traded (in thousands) 45�
28� Our market share of index options traded � 4.7% � 4.5% Our
member total trading volume (sides, in thousands): (3) Account
type: Customer 141,620� 127,302� Firm proprietary 47,089� 32,232�
Market maker 149,680� 136,097� Total Sides � 338,389� � 295,631�
Our market share of total industry trading: (4) Customer 29.4%
32.1% Firm proprietary 23.6% 24.9% Market maker � 27.9% � 30.6%
Revenue: Average transaction fee per side (5) $0.130� $0.125�
Average cost of transaction fee per side (6) ($0.016) ($0.020)
Average net transaction fee per side (6) $0.113� $0.105� Average
transaction fee per revenue side (7) � $0.174� � $0.176� Our
trades:(8) Average contracts per trade 18.5� 16.2� Average trades
per day (in thousands) 150.1� 147.2� Total trades (in thousands)
9,156� 9,126� Our market share of industry trade volume � 31.7% �
33.8% Our listed issues: (9) Average number of issues traded during
the period � 1,643� � 854� Our Members (average number trading
during period) PMMs 10� 10� CMMs 147� 142� EAMs 110� 102� Total �
267� � 254� Employees (period average) Full-time equivalent (10) �
182� � 189� � (1) Represents single counted contract volume. For
example, a transaction of 500 contracts on our exchange is counted
as a single 500 contract transaction for purposes of calculating
our volumes, even though we may receive transaction fees from
parties on both sides of the transaction, one side of a
transaction, or in some cases, neither side of a transaction. (2)
Our market share is calculated based on the number of contracts
executed on our exchange as a percentage of total industry contract
volume. (3) Represents each side of a buy or sell transaction. For
example, a transaction of 500 contracts on our exchange is counted
as two sides of 500 contracts, representing a buy and a sell
transaction. We generally do not charge our members for executing
non-broker-dealer customer orders on our exchange except for
options on our premium products as well as options for listings in
our Second Market. (4) Represents our market share of total U.S.
industry equity and index trading for members trading on our
exchange based on contract trading volume. (5) Average transaction
fee per side is calculated by dividing our transaction fees by the
total number of sides executed on our exchange. We generally do not
charge our members for executing non-broker-dealer customer orders
on our exchange except for options on our premium products as well
as options for listings in our Second Market. Comparing our average
transaction fee per side to our average transaction fee per revenue
side reflects the negative effect of our fee waivers or reductions
on our revenues, on a per side basis. (6) Average cost of
transaction fee per side is calculated by subtracting cost of
revenues from transaction fees, which we refer to as net
transaction fees, and dividing the result by the total number of
sides executed on our exchange. (7) Our average transaction fee per
revenue side reflects the transaction fee we charge to our market
participants per our publicly available pricing schedules. These
schedules were part of rule proposals that became effective upon
filing pursuant to Section 19(b)(3)(A) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Securities and
Exchange Commission may abrogate such rule proposals within 60 days
of filing if it determines that such action is necessary or
appropriate in the public interest, for the protection of investors
or otherwise in furtherance of the purposes of the Exchange Act.
(8) Members can have several contracts per trade. Trades represent
the number of trades cleared through The Option Clearing
Corporation, or the OCC. Market data revenue is generated on a per
trade basis, not on a contract basis. (9) By "issues" we mean the
number of securities underlying our options. We trade multiple
options series on each underlying security. (10) Excludes full-time
equivalent employees of ISE Stock Exchange, LLC, beginning April
2006. Segment Information We operate two segments � an options
exchange segment and a stock exchange segment. Pursuant to the
terms of our agreement with the strategic investors of the ISE
Stock Exchange and in accordance with U.S. GAAP, we are the primary
beneficiary of the ISE Stock Exchange and consolidated its
financial results. We exercise a majority of the voting interest of
the ISE Stock Exchange; however, all losses are allocated solely to
the minority owners. Consolidation of the ISE Stock Exchange does
not currently have any effect on our net results of operations and
will not until it generates net profits. Therefore, consolidation
increases our revenues and expenses to reflect 100% of the ISE
Stock Exchange�s results; however, these revenues and expenses are
offset dollar-for-dollar by minority interest since we are not
required to recognize any of its losses. INTERNATIONAL SECURITIES
EXCHANGE HOLDINGS, INC. STATEMENTS OF OPERATIONS BY BUSINESS
SEGMENT (in thousands) (unaudited) � Three Months Ended Three
Months Ended March 31, 2007 March 31, 2006 � Options Exchange Stock
Exchange Elimination ISE Holdings Options Exchange Stock Exchange
ISE Holdings � Revenues: Transaction fees $ 43,885� $ 593� $ -� $
44,478� $ 36,867� $ -� $ 36,867� Member fees and other 7,310� 74�
(267) 7,117� 5,622� -� 5,622� Market data � 4,743� � 66� � -� �
4,809� � 5,055� � -� � 5,055� Total revenues 55,938� 733� (267)
56,404� 47,544� -� 47,544� � Cost of revenues: Activity remittance
fees 3,897� 182� -� 4,079� 4,345� -� 4,345� License fees, liquidity
rebates, and brokerage fees � 1,656� � 173� � -� � 1,829� � 1,625�
� -� � 1,625� Total cost of revenues 5,553� 355� -� 5,908� 5,970�
-� 5,970� � Gross margin 50,385� 378� (267) 50,496� 41,574� -�
41,574� � Expenses: Compensation and benefits 12,798� 2,502� (229)
15,071� 10,933� 435� 11,368� Technology and communications 4,271�
296� (4) 4,563� 3,460� 58� 3,518� Occupancy 1,260� 221� (20) 1,461�
1,277� 41� 1,318� Professional fees 1,697� 383� -� 2,080� 1,278�
350� 1,628� Marketing and business development 537� 247� -� 784�
622� -� 622� Depreciation and amortization 1,729� 147� (10) 1,866�
1,509� 8� 1,517� Other � 1,335� � 86� � (4) � 1,417� � 1,025� � 8�
� 1,033� Total direct expenses 23,627� 3,882� (267) 27,242� 20,104�
900� 21,004� Reorganization � -� � -� � -� � -� � 24� � -� � 24�
Total expenses 23,627� 3,882� (267) 27,242� 20,128� 900� 21,028� �
Operating income 26,758� (3,504) -� 23,254� 21,446� (900) 20,546� �
Interest and investment income 2,769� 464� -� 3,233� 1,611� -�
1,611� Minority interest � -� � 3,040� � -� � 3,040� � -� � -� � -�
Income before provision for income taxes 29,527� -� -� 29,527�
23,057� (900) 22,157� � Provision for income taxes � 12,843� � -� �
-� � 12,843� � 10,144� � (405) � 9,739� Net income $ 16,684� $ -� $
-� $ 16,684� $ 12,913� $ (495) $ 12,418� Earnings Conference Call
ISE will host a conference call to discuss its first quarter 2007
results at 8:30 a.m. Eastern Time today. The conference call will
be web cast and can be accessed on the Investor Relations section
of ISE�s web site at www.iseoptions.com. An investor presentation
that will be referenced during the call will be posted to the web
site. Investors can also listen to the conference call by calling
(800) 599-9795 and dialing the participant passcode 90542572. An
archived recording of the call will be available from 10:30 a.m. on
April 25, 2007 until midnight on April 26, 2007 and can be accessed
by calling (888) 286-8010 and dialing the participant passcode
98916666. An archived replay of the call will be available on the
Investor Relations section of the Company�s web site at
www.iseoptions.com. ISE Background International Securities
Exchange Holdings, Inc. (NYSE: ISE), through its subsidiaries,
operates a family of innovative securities markets. ISE is founded
on the principle that technology and competition create better,
more efficient markets for investors and consists of an options
exchange, a stock exchange and an alternative markets platform. ISE
continually enhances its trading systems and develops new products
to provide investors with the best marketplace and investment tools
to trade smarter. ISE developed a unique market structure for
advanced screen-based trading systems and in May 2000 launched the
first fully electronic US options exchange. Currently, ISE operates
the largest U.S. equity options exchange and is among the leading
options exchanges in the world. ISE offers index options, including
a portfolio of proprietary index products, and enhanced market data
products for sophisticated investors. ISE FX Options� launched in
the second quarter of 2007. ISE Stock Exchange, launched in
September 2006 with strategic partners, includes an innovative
MidPoint Match� platform which offers investors continuous price
improvement. MidPoint Match was integrated with a fully displayed
Best Bid Offer market in the fourth quarter of 2006. ISE�s
alternative markets business currently consists of an events market
trading platform known as Longitude. Longitude�s patented and
proprietary technology provides a unique parimutuel structure for
derivatives auctions which results in greater trading and pricing
flexibility for market participants. For more information about ISE
and its options exchange, visit www.iseoptions.com and for more
information about ISE Stock Exchange, visit www.isestock.com.
Additionally, to learn more about ISE alternative markets
technology, visit www.longitude.com. Certain matters discussed in
this press release are �forward looking statements� intended to
qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. These statements
relate to future events or our future financial performance, and
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements, to be materially different from those contemplated
by the forward looking statements. We undertake no ongoing
obligation, other than that imposed by law, to update these
statements. Factors that could affect our results, levels of
activity, performance or achievements and cause them to materially
differ from those contained in the forward looking statements can
be found in our filings with the Securities and Exchange
Commission, including our annual report on Form 10-K, current
reports on Form 8-K and quarterly reports on Form 10-Q. -ISE-
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