Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2012 Earnings Presentation
40 slides from Cboe Global Markets's earnings presentation, Feb 8, 2013
Slide 1: Fourth Quarter 2012 Earnings Presentation
Fourth Quarter 2012 Earnings Presentation February 8, 2013
Slide 2: Agenda
Agenda Strategic Review William Brodsky Chairman and CEO Financial Review Alan Dean Executive Vice President, CFO and Treasurer Questions and Answers William Brodsky Alan Dean Edward Tilly President and Chief Operating Officer Edward Provost Executive Vice President and Chief Business Development Of
Slide 3: Forward Looking Statements
Forward Looking Statements This presentation 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 nu
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO
Slide 5: Record Earnings for 4Q12 and Year
Record Earnings for 4Q12 and Year Key Drivers Leveraged proprietary products Higher growth rate in proprietary products drove increase in RPC Effectively managed resources Invested in future growth initiatives Returned increased value to stockholders Well positioned to continue to grow and shape opt
Slide 6: Translating Our Mission into Value
Translating Our Mission into Value Leading and defining the options industry for 40 years Product Development Trading Technology Investor Education CBOE HOLDINGS 6
Slide 7: Record Growth in Volatility Trading
Record Growth in Volatility Trading Strong growth in 2012 amid relatively low volatility VIX options ADV up 53% in 4Q12; up 14% for year VIX futures ADV more than tripled in 4Q12; increased 99% for year Growth increasingly driven by a broader user base ¹Through January 2013 CBOE HOLDINGS 7
Slide 8: Broadening Customer Base
Broadening Customer Base Ongoing commitment to investor education Increased VIX curricula at CBOE’s Options Institute RMC continues to showcase VIX trading Opened CFE London Hub February 1 Expanding VIX futures trading to virtually 24 hours a day, five days a week in 2013 Pending regulatory approval
Slide 9: Strong Contribution from S&P Index Product Line
Strong Contribution from S&P 500 Index Product Line S&P 500 Index product line: SPX, SPXpm & SPX Weeklys S&P 500 Index product line has highest options RPC Volume down 7% in 2012 versus 2011 Strong growth in SPX Weeklys Volume up 69% in 2012 versus 2011 TotalAM SPX Weeklys ADVSettled Chart Title Mov
Slide 10: Product Development Fueling Growth
Product Development Fueling Growth Focus for 2013: Establishing Traction in Variance Products CFE introduced S&P 500 variance futures in December 2012 Customized to meet the needs of the OTC variance swap market Expertise in volatility puts CBOE in a unique position to attract OTC variance swap busi
Slide 11: Optimizing Revenue and Market Share In Commoditized Products
Optimizing Revenue and Market Share In Commoditized Products Focused on maintaining leadership position in options industry Positive customer response to VIP drove market share gains in 2012 For 2012, total market share of U.S. options of 29.0% (CBOE and C2), up 160 bps versus 2011 Market share decl
Slide 12: Retooled C2 Market and Pricing Model
Retooled C2 Market and Pricing Model Implemented a DPM-centric model on C2 effective Feb. 1 Designated Primary Market-maker (DPM) model Price-time matching algorithm that features a unique spread- based pricing schedule Believe the new model and pricing structure provides maximum incentive for order
Slide 13: Confident in Long-Term Growth Prospects
Confident in Long-Term Growth Prospects Encouraging January volume trends Industry-wide options volume up 8% in January YOY Equity options trading up 4% Index options trading up 53%, driven primarily by CBOE’s products New monthly volume records in CBOE’s VIX options and futures in January VIX futur
Slide 14: Undisputed Leader in Innovation for 40 Years
Undisputed Leader in Innovation for 40 Years Industry Leader in Product Innovation 1970s 1980s 1990s 2000s 2010s • First • Introduced • Introduced • Began Hybrid • Launched C2 marketplace Index Options LEAPS trading model and SPXpm for trading • Introduced options • Established • Devised • Began tra
Slide 15: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 16: 4Q12 Financial Overview
4Q12 Financial Overview Adjusted Basis¹ (in millions, except EPS and RPC) 4Q12 4Q11 $ Change % Change Operating Revenues $130.1 $120.2 $ 9.9 8% Adjusted Operating Expenses 65.2 63.8 1.4 2% Adjusted Operating Income $ 64.9 $ 56.4 $ 8.5 15% Adjusted Operating Margin % 49.9% 46.9% 300 bps Adjusted Net
Slide 17: Overview of Operating Revenues
Overview of Operating Revenues Key Drivers Operating Revenues 4Q12 4Q11 % Chg (in millions) Transaction fees Transaction fees $ 90.8 $87.0 4% 11% increase in RPC Access fees 16.0 17.1 -6% 6% decline in trading volume Exchange services and other fees 8.3 4.7 77% Exchange services and other fees Marke
Slide 18: Trading Volume Mix 4Q12 vs 4Q11
Trading Volume Mix 4Q12 vs 4Q11 RPC Increase Reflects Shift in Mix of Trading Volume CBOE HOLDINGS 18
Slide 19: Proprietary Products Account for Growing Percentage of Transaction Fee Revenue
Proprietary Products Account for Growing Percentage of Transaction Fee Revenue Index options and futures contracts increased to 71.3% of transaction fee revenue in 4Q12 versus 58.5% in 4Q11 CBOE HOLDINGS 19
Slide 20: Strong Growth in Exchange Services and Other Revenue
Strong Growth in Exchange Services and Other Revenue Exchange services up $3.6MM (in millions) 4Q12 4Q11 % Chg Driven by fee changes Exchange services implemented in January and other fees $ 8.3 $ 4.7 77% Regulatory fees up $2.3MM Regulatory fees $ 6.5 $ 4.2 55% Reflects increase in fees to account
Slide 21: Stringent Control of Operating Expenses
Stringent Control of Operating Expenses Adjusted Operating Key Drivers: Expenses 4Q 4Q % Chg 2012 2011 (in millions) Employee costs Employee costs $26.3 $24.6 7% Reflects accrual adjustment for Depreciation and incentive compensation amortization 6.2 7.5 -17% Data processing 4.7 4.3 9% Outside servi
Slide 22: 4Q12 Core Operating Expenses
4Q12 Core Operating Expenses (in millions) 4Q12 4Q11 % Chg Total Operating Expenses $ 70.3 $ 67.5 4% Less: Depreciation and amortization 6.2 7.5 -17% Accelerated stock-based compensation 0.2 - Severance expense pursuant to executive employment agreement - 3.7 Estimated liability related to SEC inves
Slide 23: Volume-based Expenses
Volume-based Expenses Royalty fees Volume-based Higher trading volume in licensed Expenses 4Q12 4Q11 % Chg (in millions) index products offset by impact of accrual adjustment in 4Q11 Royalty fees $ 11.7 $ 12.4 -6% Trading volume Trading volume incentives incentives $ 1.0 $ 2.4 -58% Total $ 12.7 $ 14
Slide 24: Fourth Quarter Effective Tax Rate
Fourth Quarter Effective Tax Rate 4Q12 4Q11 GAAP effective tax rate reflects: GAAP effective tax rate reflects: Benefit of significant discrete items • Impact of an increase in the Illinois tax rate effective 1/1/11 Non-deductible tax expense of $5 million Adjusted effective tax rate excludes: Adjus
Slide 25: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation, continuing investments in new products and technology, improving return of capital to stockholders 2012 Capital Outlays Share repurchases $ 53 million Dividends 114 million Capital expenditures 30 million Total $ 197 million 2012 regular divid
Slide 26: 2013 Full-Year Guidance
2013 Full-Year Guidance As of February 8, 2013 ($ in millions) 2012 Actual 2013 Guidance Core operating expenses $ 179 $189 to $194 Continuing stock-based compensation¹ $ 12 $18 Core operating expenses excluding stock-based compensation $ 167 $171 to $176 Adjusted tax rate 39.7% 39.5% to 40.0% Depre
Slide 27: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $80.0 55.0% $70.0 50.0% $60.0 $50.0 45.0% $40.0 40.0% $30.0 $20.0 35.0% $10.0 $0.0 30.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Operating Income Margin
Slide 28: Questions & Answers
Questions & Answers
Slide 29: Appendix Materials
Appendix Materials
Slide 30: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 30
Slide 31: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.151 $0.128 $0.110 $0.112 $0.117 $0.123 $0.124 $0.122 $0.118 $0.121 $0.124 $0.134 Indexes 0.640 0.651 0.658 0.667 0.673 0.677 0.680 0.684 0.682 0.675 0.670 0.670 Exchange-traded products 0.206 0.188 0.1
Slide 32: Increasing Market Share – 2012
Increasing Market Share – 2012 Total Industry Volume Excl. Dividend Trades¹ CBOE CBOE C2 ISE NASDAQ PHLX NASDAQ NOM 27.8% 29.0% NAASDAQ NOBO NYSE AMEX NYSE ARCA BOX BATS Equity Options¹ Options on ETPs¹ Index Options¹ Source: Options Clearing Corporation and CBOE ¹Full‐Year 2012. Excludes Dividend T
Slide 33: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ 4Q 2012 % rev 3Q 2012 % rev 2Q 2012 % rev 1Q 2012 % rev 4Q 2011 % rev Total Operating Expenses $70,325 54% $67,458 53% $66,480 50% $63,977 53% $67,529 56% Less: Depreciation and amortization 6,210 5% 8,634 7% 8,320 6% 8,320 7% 7,506 6% Accelerated stock-based compe
Slide 34: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2012 % rev 2011 % rev 2010 % rev 2009 % rev 2008 % rev Total Operating Expenses $268,241 52% $266,512 52% $269,763 62% $248,497 62% $229,473 55% Less: Depreciation and Amortization 31,485 6% 34,094 7% 29,891 7% 27,512 7% 25,633 6% Accelerated stock-ba
Slide 35: Estimated 2013 Stock-Based Compensation by Quarter
Estimated 2013 Stock-Based Compensation by Quarter Quarterly breakout of estimated continuing stock-based compensation for 2013 1Q13 2Q13 3Q13 4Q13 Total Continuing stock-based compensation¹ $3.7 $5.5 $4.4 $4.4 $18.0 Accelerated stock-based compensation¹,² $3.2 $ 3.2 ¹All stock-based compensation is
Slide 36: Weighted Average Shares Calculation
Weighted Average Shares Calculation 4Q 2012 YTD 2012 Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 88,768,885 92 92 88,768,885 88,768,885 366 366 88,768,885 Vesting of participating securities (restricted stock) on various d
Slide 37: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation For Years 2009, 2010 and 2011 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 FY 2009 FY2010 FY2011 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common
Slide 38: GAAP to Non-GAAP Reconciliation For 2012
GAAP to Non-GAAP Reconciliation For 2012 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q12 2Q12 3Q12 4Q12 FY2012 Reconciliation of GAAP Net Income Allocated to Common Stockholder to NON-GAAP GAAP net income allocated to common stockholders $ 32,863 $ 37,903 $ 45,243 $ 39,
Slide 39: Non-GAAP Information
Non-GAAP Information In addition to disclosing results determined in accordance with GAAP, CBOE Holdings has disclosed certain non-GAAP measures of operating performance. The non-GAAP measures provided in this presentation include core operating expenses, adjusted operating revenue, adjusted operati
Slide 40: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com