Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q1 2015 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, May 1, 2015
Slide 1: First Quarter 2015 Earnings Presentation
First Quarter 2015 Earnings Presentation May 1, 2015
Slide 2: Agenda
Agenda Strategic Review Edward Tilly Chief Executive Officer Financial Review Alan Dean Executive Vice President, CFO and Treasurer Questions and Answers Edward Tilly Alan Dean Edward Provost President and Chief Operating Officer CBOE HOLDINGS 2
Slide 3: Forward-Looking Statements
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 n
Slide 4: Strategic Review
Strategic Review Edward Tilly CEO
Slide 5: Expanding Our Suite of Premium Products and Global Reach
Expanding Our Suite of Premium Products and Global Reach Despite challenging volume conditions, made significant progress on key initiatives Secured rights to trade numerous Russell and FTSE Index products Began exclusive trading in Russell 2000 Index options at CBOE and C2 on April 1 Launched optio
Slide 6: 1Q15 Revenue and Earnings Reflect Impact of Lower Trading Volumes
1Q15 Revenue and Earnings Reflect Impact of Lower Trading Volumes Volume down across each product category 4.95 ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” CBOE HOLDINGS 6
Slide 7: Continue to Lay the Foundation for Future Growth
Continue to Lay the Foundation for Future Growth Decrease in VIX options trading Volatility trades work especially well as a hedge against sharp market declines Absent real concerns about a sharp, sustained market pullback Less utility for volatility products Use other index products, such as SPX op
Slide 8: Advancing CBOE's Index Growth Story
Advancing CBOE’s Index Growth Story Collaborate Create Connect CBOE HOLDINGS 8
Slide 9: Collaborate
Collaborate Growing roster of CBOE indexes CBOE HOLDINGS 9
Slide 10: Collaborate With New Index Providers
Collaborate With New Index Providers Forging collaborative partnerships to expand index complex December 2014 licensing agreement with MSCI CBOE exclusive U.S. exchange for trading MSCI Index options First CBOE MSCI options launched April 21: MSCI EAFE Index (Europe, Australasia, Far East) MSCI Emer
Slide 11: Collaborate With New Index Providers
Collaborate With New Index Providers CBOE entered into an exclusive licensing agreement with London Stock Exchange Group CBOE is the exclusive provider for cash-settled listed options to trade in the U.S. on more than 24 FTSE and Russell Indexes On April 1, became sole provider of listed Russell 200
Slide 12: Creating More Trading Opportunities and Synergies
Creating More Trading Opportunities and Synergies Leveraging cross-marketing opportunities and education CBOE’s expanding suite of index products will allow market participants to hedge and trade: Global Volatility Global Stock Market Broad U.S. Stock Market U.S. Small-Cap Market European and Asian
Slide 13: Connecting With An Expanding Customer Base
Connecting With An Expanding Customer Base Leveraging CBOE’s ability to connect customers globally across a range of efficient channels Leveraging CBOE’s educational resources The Options Institute CBOE TV CBOE.com CBOE’s social media platform CBOE’s Risk Management Conferences (RMC) Expanding annua
Slide 14: Connect: Broadening Access to Our Premium Products
Connect: Broadening Access to Our Premium Products About 8% of VIX futures trading during non-U.S. hours YTD¹ Added extended trading hours session for VIX and SPX options VIX options started March 2 and SPX options started on March 9 New session runs from 2:00 a.m. to 8:15 a.m. CT, Monday through Fr
Slide 15: Create: Weekly VIX Options and Futures
Create: Weekly VIX Options and Futures Launching Weeklys on VIX options and futures¹ Plan to launch Weeklys on futures this July, with options to follow VIX Weeklys will complement VIX futures and options As SPX Weeklys complement our SPX product Provides volatility exposures that more precisely tra
Slide 16: Create New Trading Platform – CBOE Vector
Create New Trading Platform – CBOE Vector℠ Systems development is deeply embedded in CBOE’s value proposition Development of next generation of trading technology is underway Leveraging our in-house trading and technology expertise Building a customized, state-of-the-art platform Responds to the tra
Slide 17: CBOE Holdings global reach map
2014 Risk Management Conference Europe County Wicklow, Ireland BE Oe 9g q eMac J C“yYyyyy Slough, England Trading Hub Secaucus, New Jersey Trading Hub Chicago, Illinois Risk Management Conference us. Bonita Springs. Florida Trading Hours Per Day on 1/1/14 SPX Options [IE Regions covered by CBOE inde
Slide 18: 2015 – Creating New Opportunities
2015 – Creating New Opportunities CBOE HOLDINGS 18
Slide 19: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 20: 1Q15 Financial Overview
1Q15 Financial Overview Adjusted Basis¹ 1Q15 1Q14 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $142.8 $157.9 -$15.1 -10% Adjusted Operating Expenses 73.3 73.3 -- -- Adjusted Operating Income $ 69.5 $ 84.6 -$15.1 -18% Adjusted Operating Margin % 48.7% 53.6% -490 bps Adjusted
Slide 21: Overview of Operating Revenues
Overview of Operating Revenues Transaction fees key driver of revenue decline Operating Revenues Transaction fees down (in millions) 1Q15 1Q14 % Chg $14.1MM Transaction fees $ 98.7 $ 112.8 -12% 15% decrease in trading volume Access fees 13.7 15.2 -10% 3% increase in RPC Exchange services and other f
Slide 22: Increase in RPC Primarily Reflects Lower Volume-Based Incentives
Increase in RPC Primarily Reflects Lower Volume-Based Incentives Trading volume mix and RPC 1Q15 versus 1Q14 CBOE HOLDINGS 22
Slide 23: 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 accounted for 81.3% of transaction fees in 1Q15, up from 81.0% in 1Q14 CBOE HOLDINGS 23
Slide 24: Other Factors Influencing Revenue
Other Factors Influencing Revenue Operating Revenues Access fees declined $1.5MM (in millions) 1Q15 1Q14 % Chg Decrease in trading permits Transaction fees $ 98.7 $ 112.8 -12% Regulatory fees down $1.5MM Access fees 13.7 15.2 -10% Exchange services Lower trading volume industrywide and other fees 9.
Slide 25: Disciplined Control of Expenses
Disciplined Control of Expenses Adjusted Operating Key drivers: Expenses¹ 1Q15 1Q14 % Chg (in millions) Lower expenses - Compensation and benefits $25.4 $30.8 -18% Comp and benefits down $5.4MM Depreciation and amortization 10.4 8.6 21% Royalty fees down $1.7MM Technology support services 5.3 4.7 13
Slide 26: Core Operating Expenses In Line With Prior Year
Core Operating Expenses In Line With Prior Year Key drivers: Prof. fees and outside services up Core Operating Expenses¹ $4.6MM (in millions) 1Q15 1Q14 % Chg Compensation and Primarily due to outsourcing of benefits $25.4 $30.8 -18% certain regulatory services to FINRA Technology support services 5.
Slide 27: 2015 Full-Year Guidance
2015 Full-Year Guidance Current 2015 Prior 2015 Full-Year Full-Year As of May 1, 2015 ($ in millions) Guidance Guidance Core operating expenses $190 to $194 $195 to $199 Continuing stock-based compensation¹ $12 $12 Depreciation and amortization $46 to $48 $46 to $48 Capital expenditures $37 to $40 $
Slide 28: Volume-based Expenses
Volume-based Expenses Royalty fees down $1.7MM Volume-based Expenses 1Q15 1Q14 % Chg (in millions) Lower trading volume in licensed products Royalty fees $ 14.2 $ 15.9 -11% Order-routing – Includes index options and VIX futures fees $ 0.8 $ 1.1 -27% Total $ 15.0 $ 17.0 -12% May not foot due to round
Slide 29: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $138MM at quarter end Generated $78MM in operating cash flow in 1Q15 1Q15 Capital Outlays Regular dividends $ 18 MM Share repurchases¹ 34 MM Capital expenditures 8 MM OCC capital funding 30 MM T
Slide 30: Enhancing Stockholder Value
Enhancing Stockholder Value Priorities regarding use of cash have not changed Reinvest in our business to fund growth Steady, consistent dividend growth Share repurchases ¹Excludes special dividends ²Dividends paid for last two quarters of the year, post IPO CBOE HOLDINGS 30
Slide 31: Remain Focused on Strategic Growth Initiatives
Remain Focused on Strategic Growth Initiatives Develop New Products Extend Global Customer Reach Invest in Return Value to Strategic Stockholders Maximize Revenue in Growth Multiply-listed Initiatives Products Maintain Prudent Fiscal Management Provide Highest Standards in Market Regulation and Comp
Slide 32: Questions & Answers
Questions & Answers
Slide 33: Appendix Materials
Appendix Materials
Slide 34: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Quarterly Adjusted Operating Revenue and Diluted EPS¹ ($ in millions, except EPS) $0.70 $160 $0.65 $140 $0.60 $120 $0.55 $100 $0.50 $0.45 $80 $0.40 $60 $0.35 $40 $0.30 $20 $0.25 $0 $0.20 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Slide 35: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $90 54% $80 52% $70 $60 50% $50 48% $40 46% $30 44% $20 42% $10 $0 40% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Adjusted Operating Income Adjusted O
Slide 36: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 36
Slide 37: Trading Volume Mix and RPC 1Q14 vs 1Q15
Trading Volume Mix and RPC 1Q14 vs 1Q15 RPC change primarily reflects higher volume-based incentives CBOE HOLDINGS 37
Slide 38: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.069 $0.070 $0.077 Indexes 0.702 0.704 0.712 Exchange-traded products 0.111 0.115 0.118 Total options RPC 0.279 0.283 0.284 Futures 1.647 1.649 1.705 Total RPC $0.333 $0.340 $0.340 2014 Jan Feb Mar Apr
Slide 39: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2014 % rev 2013 % rev 2012 % rev 2011 % rev 2010 % rev Total Operating Expenses $303,424 49% $286,236 50% $268,241 52% $266,512 52% $269,763 62% Less: Depreciation and Amortization 39,913 6% 34,488 6% 31,485 6% 34,094 7% 29,891 7% Accelerated stock-ba
Slide 40: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 1Q 2015 % rev 4Q 2014 % rev 3Q 2014 % rev 2Q 2014 % rev 1Q 2014 % rev Total Operating Expenses $73,286 51% $79,525 48% $73,826 50% $74,226 52% $75,847 48% Less: Depreciation and amortization 10,402 7% 11,053 7% 10,361 7% 9,895 7% 8,604 5% Accelerat
Slide 41: GAAP to Non-GAAP Reconciliation For Years 2010 and 2011
GAAP to Non-GAAP Reconciliation For Years 2010 and 2011 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 FY2010 FY2011 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders
Slide 42: GAAP to Non-GAAP Reconciliation For 2012 and 2013
GAAP to Non-GAAP Reconciliation For 2012 and 2013 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q12 2Q12 3Q12 4Q12 FY2012 1Q13 2Q13 3Q13 4Q13 FY2013 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockhold
Slide 43: GAAP to Non-GAAP Reconciliation For 2014 and 2015 YTD
GAAP to Non-GAAP Reconciliation For 2014 and 2015 YTD GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q14 2Q14 3Q14 4Q14 FY2014 1Q15 2Q15 3Q15 4Q15 FY2015 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stock
Slide 44: 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 45: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com