Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2011 Earnings Presentation
43 slides from Cboe Global Markets's earnings presentation, Nov 3, 2011
Slide 1: Third Quarter Earnings Conference Call
CBOE Holdings, Inc. Third Quarter Earnings Conference Call November 3, 2011 p. 1 CBOE Holdings, Inc.
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 p. 2 CBOE Holdings, Inc.
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
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: Record Financial Results for 3Q11
Record Financial Results for 3Q11 ► Operating Revenues • $143.6 million, up 35% ► Adjusted Operating Margin • 52.2%, up 890 bps • Highest ever ► Adjusted Net Income Allocated to Common Stockholders • $44.7 Million, up 69% ► Adjusted Diluted EPS • $0.50, up 92% ¹Adjusted to reflect the impact of cert
Slide 6: Options ADV Up 46% in 3Q11 vs 3Q10
Options ADV Up 46% in 3Q11 vs 3Q10 CBOE Holdings Quarterly Options ADV (in millions) Includes May 6 “Flash Crash” 5.42 5.29 5.04 4.55 4.40 4.23 3.71 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 p. 6 CBOE Holdings, Inc.
Slide 7: Options Volume Trending Up YOY
Options Volume Trending Up YOY Total Monthly Options Average Daily Volume (in millions) May 6 “Flash Crash” Source: Company Data p. 7 CBOE Holdings, Inc.
Slide 8: Leading Across Markets – 3Q11
Leading Across Markets – 3Q11 Excl. Dividend Trades CBOE Total Industry Volume C2 PHLX ISE 27.0% 27.5% NYSE/Amex NYSE/Arca NOM BOX BATS Equity Options¹ ETF Options¹ Index Options Source: Options Clearing Corporation and CBOE ¹Excludes Dividend Trades p. 8 CBOE Holdings, Inc.
Slide 9: Consistently Leading the Market
Consistently Leading the Market 27% 20% 19% 13% 12% Source: Options Clearing Corporation and CBOE p. 9 CBOE Holdings, Inc.
Slide 10: An Evolving Market with Room to Grow
Sep-11 p. 10 582,022 Jun-11 30-Aug-11 463,793 Mar-11 26-May-11 Dec-10 22-Feb-11 Sep-10 16-Nov-10 An Evolving Market with Room to Grow Jun-10 13-Aug-10 334,016 Mar-10 11-May-10 Dec-09 4-Feb-10 Sep-09 29-Oct-09 Jun-09 28-Jul-09 Mar-09 23-Apr-09 Dec-08 16-Jan-09 156,489 Sep-08 VIX Index - Daily Closing
Slide 11: VIX Trading Continues to Set New Highs
VIX Trading Continues to Set New Highs ► VIX options increased 127% in 3Q11 versus 3Q10 ► VIX futures increased 320% in 3Q11 versus 3Q10 ¹ ¹YTD through 10/31/11 p. 11 CBOE Holdings, Inc.
Slide 12: SPX Drives Strong Index Volume
SPX Drives Strong Index Volume SPX Most Actively Traded Cash Index Option SPX 2011 Monthly ADV (in thousands) SPX Trading Averaging 794,000 Contracts Per Day YTD p. 12 CBOE Holdings, Inc.
Slide 13: SPXpm Successfully Launched Oct. 4
SPXpm Successfully Launched Oct. 4 ► Market makers on C2 doubled since launch of SPXpm ► Steady volume growth ► Activated paired orders and complex orders in mid-Oct. ► Increased participation guarantees for SPXpm orders p. 13 CBOE Holdings, Inc.
Slide 14: Actively Raising Awareness
Actively Raising Awareness Ads present differences between SPXpm and other S&P 500 contracts p.14 CBOE Holdings, Inc.
Slide 15: A Product Already in Demand
A Product Already in Demand Expect SPXpm to be embraced by a diverse group of customers ► Liquidity providers currently trading SPX ► Active retail investors and traders seeking larger notional value contract ► OTC users seeking exchange-traded alternative p. 15 CBOE Holdings, Inc.
Slide 16: Complements the Trading of SPX
Complements the Trading of SPX SPX on CBOE and SPXpm on C2 = Two Deep Pools of Liquidity p.16 CBOE Holdings, Inc.
Slide 17: C2 Achieving Steady Growth
C2 Achieving Steady Growth ► Averaged 255,000 contracts per day in 3Q11, up 34 percent from 2Q11 ► Adjusted market model on Nov. 1 to maximize market depth and liquidity • Implemented new maker-taker fee Nov.1 – highest maker credit • Modified the matching algorithm to pro-rata, with not priority or
Slide 18: Regulatory Environment Update
Regulatory Environment Update ► SEC remains focused on writing rules for Dodd-Frank ► Expect U.S. regulatory reform will eventually result in most OTC-types of trades being traded on exchanges and/or centrally cleared ► Well positioned to benefit from OTC-type opportunities p.18 CBOE Holdings, Inc.
Slide 19: 2011 Initiatives
2011 Initiatives ► CBOE’s unique focus on options and volatility products leaves us well-positioned to take advantage of long-term secular growth trends ► Key Priorities: • Drive investor awareness of the benefits of SPXpm • Expand product offerings, including VIX product line • Build on success of
Slide 20: Financial Review
Financial Review Alan Dean Executive Vice President CFO and Treasurer p. 20 CBOE Holdings, Inc.
Slide 21: Record Third Quarter Financial Results
Record Third Quarter Financial Results¹ 3Q11 3Q10 $ Change % Change (in millions, except RPC and EPS) Total Operating Revenues $ 143.6 $ 106.0 $ 37.6 35% Total Adjusted Operating Expenses 68.6 60.1 8.5 14% Adjusted Operating Income 75.0 45.9 29.1 63% Adjusted Operating Margin Percentage 52.2% 43.3%
Slide 22: Operating Revenues up 35 percent
Operating Revenues up 35 percent Key Drivers: Operating Revenues (in millions) 3Q11 3Q10 $ CHG % CHG ► Transaction Fees Transaction fees $ 109.8 $ 72.9 $ 36.9 51% • 47% increase in trading volume Access fees 16.9 18.5 (1.6) -9% • 2% increase in RPC to $0.313 Exchange services and other fees 4.5 3.9
Slide 23: Transaction Fees Driven by Volume and Rate Per Contract
Transaction Fees Driven by Volume and Rate Per Contract Overall Transaction Fee per Contract (RPC) RPC up due to higher mix of index options RPC up due to higher mix of and futures and lower volume discounts index options and futures Thousands RPC 6,000 $0.320 5,000 $0.300 4,000 $0.280 3,000 $0.260
Slide 24: Options Trading Volume Mix
Options Trading Volume Mix RPC Increased due to Mix Shift to Higher-Margin Index Options and Futures p. 24 CBOE Holdings, Inc.
Slide 25: Trading Permits Holding Steady
Trading Permits Holding Steady ► Implemented sliding fee scale for market maker trading permits on Jan. 1, 2011 ► Trading permits holding steady ► Market makers continue to take advantage of sliding fee scale p. 25 CBOE Holdings, Inc.
Slide 26: Operating Expenses
Operating Expenses¹ Key Drivers: Adjusted Operating Expenses (in millions) 3Q11 3Q10 $ CHG % CHG ► Royalty Fees Employee Costs $ 25.9 $ 23.7 $ 2.2 9% • Higher volume in licensed index Depreciation and Amortization 8.9 7.1 1.8 25% options Data Processing 4.3 4.3 - 0% ► Employee Costs Outside Services
Slide 27: 3Q11 Core Operating Expenses
3Q11 Core Operating Expenses (in thousands) 3Q11 3Q10 $ CHG % CHG Total Operating Expenses $ 68,638 $ 71,082 $ (2,444) -3% Less: Depreciation and amortization 8,897 7,099 1,798 25% Accelerated stock-based compensation expense - 10,965 (10,965) NM Volume-based expenses: - Royalty fees 13,956 9,226 4,
Slide 28: Volume-based Expenses
Volume-based Expenses Volume-based expenses: (in millions) 3Q11 3Q10 $ CHG % CHG - Royalty fees $14.0 $9.2 $4.8 52% Trading volume incentives 3.5 4.6 -1.1 -24% Total $17.5 $13.8 $3.7 27% ► Royalty fees increased due to higher trading volume in licensed index products ► Trading volume incentives decr
Slide 29: Record Third Quarter Margin of 52.2%
Record Third Quarter Margin of 52.2% Quarterly Adjusted Operating Income and Margin¹ ($ 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 Operating Income Margin ¹Adjusted to reflect the impact
Slide 30: Income Tax Rate
► Increase in Illinois tax rate on 1/1/2011 ► Additional tax liabilities of $4.2 million due to NY State advisory opinion extending taxing power over certain electronic transactions on out-of-state exchanges going back to 2007 ► We are vigorously challenging NY’s interpretation ► Positive impact of
Slide 31: Guidance Summary for Full Year 2011
Guidance Summary for Full Year 2011 ► Access fees in a range of $65 to $68 million • Excludes access fees for SPXpm on C2 ► Core annual expenses in a range of $170 to $173 million • Includes continuing stock-based compensation expense in a range of $12.2 to $12.7 million ► Accelerated stock-based co
Slide 32: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet ($ in millions) Mar. 31, 2011 June 30, 2011 Sept. 30, 2011 Balance Sheet Data Cash and cash equivalents $115.7 $106.5 $147.2 Total Assets $320.8 $319.4 $344.6 Total Liabilities $117.8 $ 92.1 $ 98.9 Total Stockholders’ Equity $203.0 $227.3 $245.7 Other Data Working Capi
Slide 33: Strong Cash Flow Generation
Strong Cash Flow Generation ► YTD generated operating cash flow of $164.3 million • Exceeds full-year 2010 operating cash flow of $134.9 million • 3Q11 cash flow of $71.7 million versus $13.5 million for 3Q10 ► Purchased 599,900 shares • Average price of $24.82, total of $15 million • $100 million s
Slide 34: Questions & Answers
Questions & Answers p. 34 CBOE Holdings, Inc.
Slide 35: Appendix Materials
Appendix Materials p. 35 CBOE Holdings, Inc.
Slide 36: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2011 % rev 2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % rev 3Q 2010 % rev Total Operating Expenses $68,638 48% $63,838 53% $66,507 54% $65,537 62% $71,082 67% Less: Depreciation and Amortization 8,897 6% 8,996 8% 8,696 7% 8,190 8% 7,099 7% Accelerated
Slide 37: 2011 Calculation of Weighted Average Shares
2011 Calculation of Weighted Average Shares 1Q 2011 (pre-vesting) 2Q 2011 (vested qtr) Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 51,786,717 90 90 51,786,717 51,786,717 91 91 51,786,717 Class A-2 common stock (converts to
Slide 38: CBOE Rolling 3-Month RPC
CBOE Rolling 3-Month RPC CBOE Rolling Three-Month Average Transaction Fee Per Contract 2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.170 $0.164 $0.160 $0.163 $0.168 $0.169 $0.171 $0.159 $0.159 Indexes 0.592 0.601 0.604 0.615 0.618 0.627 0.624 0.606 0.605 Exchange-traded funds 0.22
Slide 39: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three and Nine Months Ended September 30, 2011 (in thousands, ex cept per share amounts) Three months ended Septebmber 30, 2011 Nine months ended September 30, 2011 Item
Slide 40: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three Months Ended March 31 and June 30, 2011 (in thousands, ex cept per share amounts) Three months ended March 31, 2011 Three months ended June 30, 2011 Items Impactin
Slide 41: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three Months and Year Ended December 31, 2010 and 2009 (in thousands, ex cept per share amounts) Three months ended September 30, 2010 Three months ended December 31, 20
Slide 42: 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 revenue, adjusted operating expen
Slide 43: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, IL 60605 Debbie Koopman Director, Investor Relations [email protected] 312-786-7136 p. 43 CBOE Holdings, Inc.