Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q1 2014 Earnings Presentation
47 slides from Cboe Global Markets's earnings presentation, May 6, 2014
Slide 1: First Quarter 2014 Earnings Presentation
First Quarter 2014 Earnings Presentation May 6, 2014
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 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 Edward Tilly CEO
Slide 5: Options Market is Fundamentally Different than Cash Equities Market
Options Market is Fundamentally Different than Cash Equities Market Key differences include: Dark pools do not exist in options market Maker-taker transaction pricing model is not the dominant fee structure in the options market Customer orders primarily trade against quotes that are supplied by ded
Slide 6: Record Revenue and Earnings in 1Q14
Record Revenue and Earnings in 1Q14 Double-digit volume increases across each product category CBOE HOLDINGS 6
Slide 7: Remain Focused on Core Mission and Strategic Initiatives
Remain Focused on Core Mission and Strategic Initiatives Leverage and Develop Proprietary Products Optimize Revenue in Create value for stockholders Commoditized by generating industry-leading Products profit margins and growth rates through a diversified portfolio of risk management products Broade
Slide 8: Broadening our SPX Customer Base
Broadening our SPX Customer Base Continue to see significant opportunities to further grow trading among likely SPX users Intensifying educational and marketing efforts in 2014 Targeted user groups include: Users of SPY options and SPY Weeklys Institutional investors – OTC users – Pension funds – As
Slide 9: Strong Growth from S&P 500 Index (SPX) Product Line
Strong Growth from S&P 500 Index (SPX) Product Line Volume gains in SPX options driven primarily by growth in SPX Weeklys SPX ADV up 8% in 1Q14 versus 1Q13; up 7% versus 4Q13 SPX Weeklys up 59% in 1Q14 versus 1Q13; up 33% versus 4Q13 SPX Weeklys appeal to a growing base *includes SPX Weeklys of reta
Slide 10: VIX Trading Continues to Achieve Strong Growth
VIX Trading Continues to Achieve Strong Growth Posted all-time volume records in VIX options and futures in 1Q14 VIX options ADV up 35% in 1Q14 versus 4Q13; up 22% versus 1Q13 VIX futures ADV up 32% in 1Q14 versus 4Q13; up 33% versus 1Q13 Volatility space poised for growth ¹Through March 31, 2014 CB
Slide 11: VIX Futures and Options are Preferred Means for Managing Volatility
VIX Futures and Options are Preferred Means for Managing Volatility Growth in VIX trading consistent with early stages of other ground-breaking product lines Vega – refers to how the price of an option can move in response to a one • Equity Options percent change in its implied 1973 volatility VIX o
Slide 12: Seeing New Users and Strategies for Trading VIX Futures and Options
Seeing New Users and Strategies for Trading VIX Futures and Options VIX universe of users continues to expand A major investment group that principally trades energy and interest rates products recently became a trading privilege holder at CFE European investors trading VIX products against VSTOXX B
Slide 13: Responding to Growing Demand for Education in Volatility Trading
Responding to Growing Demand for Education in Volatility Trading Investor education goes hand in hand with new products Options Institute classes and webinars in high demand Options Institute curriculum heavily weighted toward VIX futures and options and SPX trading Social media programs reflect str
Slide 14: CBOE RMC Attracts Most Active and Sophisticated VIX Customers
CBOE RMC Attracts Most Active and Sophisticated VIX Customers Boosting awareness of CBOE’s proprietary products CBOE’s 2014 RMC drew more than 320 participants Content-rich program focused on options and VIX-related strategies and trends Third annual RMC Europe to be held Sept. 3-5 CBOE HOLDINGS 14
Slide 15: Broadening Our Customer Base: Extending Trading Hours for VIX Futures
Broadening Our Customer Base Extending trading hours for VIX futures Phase 1 Phase 2 Phase 3 October 28, 2013 November 4, 2013 June 22, 2014 • Added a 45-minute trading • Added another five hours to • Plan to extend hours to nearly session after current close of the trading day 24 hours a day, five
Slide 16: Increasing Access to VIX Futures Trading Through Extended Trading Hours
Increasing Access to VIX Futures Trading Through Extended Trading Hours YTD 7.4% of VIX futures trading outside of regular U.S. trading hours, through April 2014 June 22 plan to extend trading hours to nearly 24X5, pending regulatory review Plan to add trading hours for VIX and SPX options later thi
Slide 17: Expanding Suite of Volatility Products
Expanding Suite of Volatility Products Launched Futures on Short-Term Volatility Index (VXST) on February 13th – Options on April 10th Leverage most compelling features of SPX Weeklys and volatility products Short-term VIX uses SPX options that expire in one week versus SPX monthly options Trading o
Slide 18: Expanding Volatility-Related Products and Benchmarks
Expanding Volatility-Related Products and Benchmarks Diversifying VIX product line across asset classes provides growth opportunity Plan to launch futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN Index) later this year, pending regulatory review Began disseminating index v
Slide 19: Optimizing Revenue and Market Share in Multiply-Listed Options
Optimizing Revenue and Market Share in Multiply-Listed Options Focused on being among the leaders in options market share In March 2014: CBOE & C2 accounted for 29.5% of 28.0% industry volume CBOE total market share of 28.0% 22.8% ------- CBOE multiply-listed market share of 20.8% Maximize market sh
Slide 20: Continue to Further Define and Expand Options and Volatility Space
Continue to Further Define and Expand Options and Volatility Space 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
Slide 21: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 22: Record Financial Results in 1Q14
Record Financial Results in 1Q14 Adjusted Basis¹ 1Q14 1Q13 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $157.9 $142.7 $ 15.2 11% Adjusted Operating Expenses 73.3 70.1 3.2 5% Adjusted Operating Income $ 84.6 $ 72.6 $ 12.0 17% Adjusted Operating Margin % 53.6% 50.9% 270 bps A
Slide 23: Overview of Operating Revenues
Overview of Operating Revenues Transaction fees key driver of revenue growth Operating Revenues Transaction fees up $13.6MM (in millions) 1Q14 1Q13 % Chg 31% increase in trading volume Transaction fees $ 112.8 $99.1 14% 13% decrease in RPC Access fees 15.2 15.7 -3% Exchange services – Higher volume
Slide 24: Change in RPC Primarily Reflects Higher Volume-Based Incentives and Mix Shift
Change in RPC Primarily Reflects Higher Volume-Based Incentives and Mix Shift Trading volume mix and RPC 1Q13 versus 1Q14 CBOE HOLDINGS 24
Slide 25: 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% of transaction fees in 1Q14, up from 76% in 1Q13 CBOE HOLDINGS 25
Slide 26: Other Revenue Drivers
Other Revenue Drivers Operating Revenues Market data fees up $1.6MM (in millions) 1Q14 1Q13 % Chg Higher share of OPRA market Transaction fees $ 112.8 $99.1 14% data revenue - 24.5% in 1Q14 Access fees 15.2 15.7 -3% versus 18.9% in 1Q13 and Exchange services OPRA rate increase and other fees 9.5 9.1
Slide 27: Disciplined Control of Expenses
Disciplined Control of Expenses Adjusted Operating Key drivers: Expenses¹ 1Q14 1Q13 % Chg (in millions) Employees Costs up $3.2MM Employee costs $30.8 $27.6 12% Primarily due to staff additions Depreciation and amortization 8.6 8.3 4% and increase in provision for incentive compensation Data process
Slide 28: Core Operating Expenses Flat in 1Q14 vs 1Q13
Core Operating Expenses Flat in 1Q14 vs 1Q13 Key drivers: Core Operating Employee costs up $3.2MM Expenses¹ (in millions) 1Q14 1Q13 % Chg Higher salaries resulting from Employee costs $30.8 $27.6 12% headcount additions Data processing 4.7 4.5 5% Increase in provision for incentive Outside services
Slide 29: Volume-based Expenses
Volume-based Expenses Royalty fees up $2.7MM Volume-based Expenses 1Q14 1Q13 % Chg (in millions) Higher trading volume in licensed products Royalty fees $ 15.9 $ 13.2 21% Trading volume Increase in royalty rates incentives $ 1.1 $ 1.0 11% Total $ 17.0 $ 14.2 20% CBOE HOLDINGS 29
Slide 30: First Quarter Effective Tax Rate
First Quarter Effective Tax Rate 1Q14 effective tax rate of 39.9% reflects the recognition of a discrete tax charge Tax charge due to a change in New York State tax law effective 2015 – Changes to market-based sourcing, impacting our New York State apportionment factor – Increased deferred tax liabi
Slide 31: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $199MM at quarter end Generated $88MM in operating cash flow in 1Q14 1Q14 Capital Outlays Regular dividends $ 16 MM Special dividends 44 MM Capital expenditures 12 MM Share repurchases¹ 39 MM To
Slide 32: Strong Start to 2014
Strong Start to 2014 1Q14 marks sixth consecutive quarter of YOY growth in adjusted operating revenue and adjusted Diluted EPS Quarterly Adjusted Operating Revenue and Diluted EPS¹ $160 ($ in millions, except EPS) $0.60 $140 $0.55 $120 $0.50 $100 $0.45 $80 $0.40 $60 $0.35 $40 $0.30 $20 $0.25 $0 $0.2
Slide 33: Questions & Answers
Questions & Answers
Slide 34: Appendix Materials
Appendix Materials
Slide 35: Reaffirming 2014 Full-Year Guidance
Reaffirming 2014 Full-Year Guidance 2014 Full-Year As of May 6, 2014 ($ in millions) Guidance Core operating expenses $191 to $196 Continuing stock-based compensation¹ $13 Accelerated stock-based compensation¹ $3 Effective tax rate 38.5% to 39.5% Depreciation and amortization $38 to $40 Capital expe
Slide 36: Estimated 2014 Stock-Based Compensation by Quarter
Estimated 2014 Stock-Based Compensation by Quarter Quarterly breakout of estimated continuing stock-based compensation for 2014 1Q14 2Q14 3Q14 4Q14 Total Continuing stock-based compensation¹ $5 $4 $2 $2 $13 Accelerated stock-based compensation¹,² $3 $3 ¹All stock-based compensation is reported in em
Slide 37: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) 55% $80 $70 50% $60 $50 45% $40 40% $30 $20 35% $10 $0 30% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 ¹Adjusted to reflect the impact of certain items
Slide 38: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 38
Slide 39: Trading Volume Mix and RPC 1Q13 vs 1Q14
Trading Volume Mix and RPC 1Q13 vs 1Q14 RPC change primarily reflects higher volume-based incentives CBOE HOLDINGS 39
Slide 40: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.079 $0.079 $0.081 Indexes 0.664 0.667 0.669 Exchange-traded products 0.124 0.119 0.117 Total options RPC 0.273 0.281 0.281 Futures 1.602 1.614 1.617 Total RPC $0.317 $0.329 $0.329 2013 Jan Feb Mar Apr
Slide 41: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 1Q 2014 % rev 4Q 2013 % rev 3Q 2013 % rev 2Q 2013 % rev 1Q 2013 % rev Total Operating Expenses $75,847 48% $69,231 49% $68,316 50% $75,414 50% $73,275 51% Less: Depreciation and amortization 8,604 5% 9,108 6% 8,476 6% 8,622 6% 8,282 6% Accelerated
Slide 42: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2013 % rev 2012 % rev 2011 % rev 2010 % rev 2009 % rev Total Operating Expenses $286,236 50% $268,241 52% $266,512 52% $269,763 62% $248,497 62% Less: Depreciation and Amortization 34,488 6% 31,485 6% 34,094 7% 29,891 7% 27,512 7% Accelerated stock-ba
Slide 43: GAAP to Non-GAAP Reconciliation For Years 2009, 2010 and 2011
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 44: 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 45: GAAP to Non-GAAP Reconciliation For 2014
GAAP to Non-GAAP Reconciliation For 2014 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q14 2Q14 3Q14 4Q14 FY2014 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders $ 48,528 Add: Accelerated stock-
Slide 46: 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 47: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com