Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q2 2015 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, Jul 31, 2015
Slide 1: Second Quarter 2015 Earnings Presentation
Second Quarter 2015 Earnings Presentation July 31, 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: Solid 2Q15 Financial Results
Solid 2Q15 Financial Results CBOE was well positioned to benefit as market conditions changed in 2Q15 Total ADV by Product (in millions) Low-volume, low-volatility environment persisted throughout 5.64 most of 2Q15 4.83 4.95 4.77 4.94 4.38 1.94 Volume in volatility products 1.81 1.85 1.81 1.53 1.54
Slide 6: Strong Trading Continues in SPX Index Options
Strong Trading Continues in SPX Index Options SPX ADV by Quarter (in thousands) SPX Options ADV: 1,047 1,003 Down 8% in 2Q15 vs 1Q15 889 843 821 783 Rose 5% in 2Q15 vs 2Q14 Up 6% YOY through July 2015 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 TD¹ SPX ADV by Year (in thousands) 888 875 823 784 698 2011 2012 2013
Slide 7: CBOE Became the Exclusive Home of Russell 2000 Index (RUT) Trading on April 1
CBOE Became the Exclusive Home of Russell 2000 Index (RUT) Trading on April 1st RUT options volume continues to build; July ADV strongest YTD RUT options volume has RUT Options ADV Industrywide increased each month since April (in thousands) Focused on further developing 92 RUT marketplace 80 85 81
Slide 8: July Volume for VIX Options and Futures
July Volume for VIX Options and Futures Highest This Year and Since Record Oct. ‘14 VIX Options July ADV up 15% MoM VIX Futures July ADV up 12% MoM VIX Options ADV up 22% in 2Q15 vs 1Q15 VIX Futures ADV up 11% in 2Q15 vs 2Q14 ¹July and 3Q15 through 7/29/15 CBOE HOLDINGS 8
Slide 9: Advancing CBOE's Index Growth Story
Advancing CBOE’s Index Growth Story Create Collaborate Connect CBOE HOLDINGS 9
Slide 10: Connect: Broadening Access to Our Premium Products
Connect: Broadening Access to Our Premium Products More than 8% of VIX futures trading during non-U.S. hours YTD¹ When volatility spiked in early July, overnight session accounted for as much as 13% of VIX futures volume, on higher volume overall VIX Futures ADV During Non-U.S. Trading Hours (ETH) -
Slide 11: Connect: Broadening Access to Our Premium Products
Connect: Broadening Access to Our Premium Products Extended trading hours (ETH) for VIX and SPX options in March Six-hour session begins at 2:00 a.m. CT Aligns with open of trading in London and close in Asia Steady build in volume during ETH; spike in July for VIX options ¹Through July 29, 2015 CBO
Slide 12: Create: Weekly VIX Futures and Options
Create: Weekly VIX Futures and Options Launched Weekly VIX futures on July 23rd, rollout of options planned for October 8th Weeklys complement standard VIX futures and options Provides volatility exposures that more closely track our benchmark VIX Index Allows users to fine tune the timing of their
Slide 13: Create: New Tools to Facilitate the Trading of CBOE's Premium Products
Create: New Tools to Facilitate the Trading of CBOE’s Premium Products Plan to disseminate 10 new CBOE options-based strategy performance benchmarks Highlight the long-term utility of options as risk management and yield enhancing investment tools Two of the benchmarks will use popular SPX Weekly op
Slide 14: Collaborating with SGX to Educate Investors in Asia
Collaborating with SGX to Educate Investors in Asia Launching the first extension of CBOE’s Options Institute with Singapore Exchange (SGX) Leverages the strengths of CBOE and SGX to efficiently respond to the tremendous interest we see for products in Asia Expanding our Risk Management Conference t
Slide 15: 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 16: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 17: 2Q15 Financial Overview
2Q15 Financial Overview GAAP Basis 2Q15 2Q14 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $148.7 $143.9 $4.8 3% Operating Expenses 75.3 74.2 1.1 2% Operating Income $73.4 $ 69.7 $3.7 5% Adjusted Operating Margin % 49.3% 48.4% 90 bps Net Income Allocated to Common Stockholde
Slide 18: Overview of Operating Revenues
Overview of Operating Revenues Key drivers: Operating Revenues 2Q15 2Q14 % Chg Increases in: (in millions) Transaction fees $101.6 $ 97.9 4% Transaction fees up $3.7MM Access fees 13.4 14.8 -10% Other revenue of $3.8MM Exchange services and other fees 9.7 9.7 -- Decreases in: Market data fees 7.6 7.
Slide 19: Transaction Fees Increased 4%
Transaction Fees Increased 4% Transaction fees up $3.7MM Operating Revenues (in millions) 2Q15 2Q14 % Chg 14% increase in RPC Transaction fees $101.6 $ 97.9 4% – Shift in product mix Access fees 13.4 14.8 -10% Exchange services – Lower volume discounts and other fees 9.7 9.7 -- 9% decrease in tradin
Slide 20: Change in RPC Reflects Mix Shift, Fee Adjustments and Lower Volume-Based Incentives
Change in RPC Reflects Mix Shift, Fee Adjustments and Lower Volume-Based Incentives Trading volume mix and RPC 2Q14 versus 2Q15 Futures 4.2% Index 33.0% Equity 34.9% 2Q15 ETPs 27.9% CBOE HOLDINGS 20
Slide 21: 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 82.4% of transaction fees in 2Q15, up from 80.9% in 2Q14 and 81.3% in 1Q15 CBOE HOLDINGS 21
Slide 22: Other Factors Influencing Revenue
Other Factors Influencing Revenue Operating Revenues Other revenue up $3.8MM (in millions) 2Q15 2Q14 % Chg Higher regulatory fines assessed Transaction fees $101.6 $ 97.9 4% Access fees declined $1.4MM Access fees 13.4 14.8 -10% Exchange services Decrease in trading permits and other fees 9.7 9.7 --
Slide 23: Ongoing Focus on Controlling Expenses
Ongoing Focus on Controlling Expenses Key drivers: Operating Expenses 2Q15 2Q14 % Chg (in millions) Increases in - Compensation and benefits $24.1 $30.3 -20% Professional fees and outside services Depreciation and of $4.7MM amortization 11.3 9.9 14% Technology support Royalty fees of $2.1MM services
Slide 24: Core Operating Expenses Down 4%
Core Operating Expenses Down 4% Key drivers: Core Operating Comp and benefits down $6.2MM Expenses (in millions) 2Q15 2Q14 % Chg Primarily due to lower costs for Compensation and salaries, stock-based compensation benefits $24.1 $30.3 -20% and incentive compensation Technology support Services 4.8 4
Slide 25: 2015 Full-Year Guidance
2015 Full-Year Guidance 2015 Full-Year As of July 31, 2015 ($ in millions) Guidance Core operating expenses $190 to $194 Continuing stock-based compensation¹ $12 Depreciation and amortization $46 to $48 Capital expenditures $37 to $40 Effective tax rate 38.5% to 39.5% 1Stock-based compensation expen
Slide 26: Volume-based Expenses
Volume-based Expenses Royalty fees up $2.1MM Volume-based Expenses 2Q15 2Q14 % Chg Shift in mix of licensed products traded (in millions) Royalty fees $16.8 $14.7 14% – resulting in an increase in the average royalty rate per licensed contract Order routing 0.6 1.1 -44% Total $17.4 $15.8 10% CBOE HO
Slide 27: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $90MM at June 30, 2015 Generated $106MM in operating cash flow through June 30, 2015 YTD Capital Outlays Capital expenditures $ 18MM Quarterly dividends 35MM Share repurchases¹ 82MM OCC contribu
Slide 28: Committed to Returning Capital to Shareholders
Committed to Returning Capital to Shareholders $111MM available under share repurchase program at June 30, 2015 Includes additional $100MM authorized in May 2015 Board increased quarterly dividend by 10%, to $0.23 per share Effective with the third quarter 2015 dividend ¹Excludes special dividends ²
Slide 29: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Quarterly Operating Revenue and Adjusted Diluted EPS¹ ($ 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 30: Questions & Answers
Questions & Answers
Slide 31: Appendix Materials
Appendix Materials
Slide 32: 2015 YTD Financial Overview
2015 YTD Financial Overview 6 mos. 6 mos. Adjusted Basis¹ End End $ Change % Change (in millions, except EPS and RPC) 06/2015 06/2014 Operating Revenues $291.5 $301.8 -$10.3 -3% Adjusted Operating Expenses 148.6 147.5 1.1 1% Adjusted Operating Income $142.9 $154.3 -$11.4 -7% Adjusted Operating Margi
Slide 33: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ 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 2Q15 Adjusted Operating Income Adjus
Slide 34: 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 account for 81.8% of transaction fees in 2014, up from 50.6% in 2010 CBOE HOLDINGS 34
Slide 35: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 35
Slide 36: RPC Change Primarily Reflects Shift in Product Mix and Higher Volume-Based Incentives
RPC Change Primarily Reflects Shift in Product Mix and Higher Volume-Based Incentives Trading Volume Mix & RPC 2Q14 vs 2Q15 CBOE HOLDINGS 36
Slide 37: 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 June 2015: CBOE & C2 accounted for 28.5% of industry volume; up versus 27.2% in March 2015 CBOE total market share of 26.4%; up versus 25.2% in March 2015 CBOE multiply-listed
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 $0.077 $0.087 $0.093 Indexes 0.702 0.704 0.712 0.707 0.701 0.697 Exchange-traded products 0.111 0.115 0.118 0.115 0.114 0.117 Total options RPC 0.279 0.283 0.284 0.280 0.290 0.308 Fut
Slide 39: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 2Q 2015 % rev 1Q 2015 % rev 4Q 2014 % rev 3Q 2014 % rev 2Q 2014 % rev Total Operating Expenses $75,355 51% $73,286 51% $79,525 48% $73,826 50% $74,226 52% Less: Depreciation and amortization 11,275 8% 10,402 7% 11,053 7% 10,361 7% 9,895 7% Severanc
Slide 40: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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 41: GAAP to Non-GAAP Reconciliation For 2010 and 2011
GAAP to Non-GAAP Reconciliation For 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 $ 20,0
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