Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q2 2017 Earnings Presentation
50 slides from Cboe Global Markets's earnings presentation, Aug 4, 2017
Slide 1: Second Quarter 2017 Earnings Presentation
Second Quarter 2017 Earnings Presentation August 4, 2017
Slide 2: Agenda
Agenda Strategic Review Edward Tilly Chairman and Chief Executive Officer Financial Review Alan Dean Executive Vice President, CFO and Treasurer Brian Schell Deputy CFO Questions and Answers Edward Tilly Alan Dean Brian Schell Chris Concannon President and Chief Operating Officer John Deters Chief S
Slide 3: Cautionary Statements Regarding Forward-Looking Information
Cautionary Statements Regarding Forward-Looking Information This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words su
Slide 4: Strategic Review
Strategic Review Edward Tilly Chairman and CEO
Slide 5: Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings
Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings Users find utility trading VIX futures and options, regardless of the VIX level 2Q17 adjusted diluted EPS of $0.87 on net revenue of $267 million Total options ADV up 15% year-over-year SPX and VIX index options up 9% and 15%,
Slide 6: Diversified Product Offering
Strengthening our Position as a Global Exchange Operator • 15% increase in ADV for 2Q17 versus 2Q16 Options • 9% increase in ADV for Index options Diversified Product Offering • 2Q17 market share of 19.2% vs 20.4% in 2Q16 U.S. Equities • Lower volatility; tougher comparisons • 19% increase in ADV fo
Slide 7: U.S. Equities: Growing ETF Market Listings
U.S. Equities: Growing ETF Market Listings Growing ETF listings market share enhances benefits for issuing firms and provides deep liquidity to market participates Number of Bats U.S. ETPs Captured 39% of new listings YTD¹ 221 5 of top 10 new ETF launches in terms of AUM² listed on Bats this year 13
Slide 8: Expanding Our Product Lines
Expanding Our Product Lines Entered into an agreement with Gemini Trust Company Provides CBOE with exclusive global license to use Gemini’s market data to: Create bitcoin derivatives products Create new indexes Distribute Gemini market data over CBOE’s market data feeds Subject to regulatory review,
Slide 9: Strengthening CBOE's Global Position
Strengthening CBOE’s Global Position in Innovative, Tradable Products and Services Opportunity to cross-sell additional products and services to more customers Focus on core index business Target OTC space with quality listed products Extending global reach to promote expanded products Plan to open
Slide 10: Strengthening CBOE's Global Position
Strengthening CBOE’s Global Position in Innovative, Tradable Products and Services Preparing for sixth annual CBOE Risk Management Conference (RMC) Europe 2017 To be held just outside of London from September 11-13 Attracts sophisticated traders who are early adopters of our new products Will featur
Slide 11: Leveraging Bats' Leading Proprietary Trading Technology
Leveraging Bats’ Leading Proprietary Trading Technology Migrating trading technology onto Bats’ proven platform to gain scale and efficiency; Launching new index platform Multi-year technology migration underway Plan to complete migration of CFE in February 2018 and C2 in May 2018 CBOE to follow Imp
Slide 12: European Equities – Leveraging Opportunities Presented by MiFID II
European Equities – Leveraging Opportunities Presented by MiFID II Completed significant software release needed for MiFID II compliance Providing value-added products and services to help customers adapt to changing regulatory environment OTC Trade Reporting Exchange Trade & Reports Systematic Larg
Slide 13: U.S. Equities Market
U.S. Equities Market Bats Market Close (BMC)¹ Near end-of-day match process for non-Bats listed securities Created in response to customer demand Provides a means to secure primary market closing print prices without disrupting the primary market closing auctions On July 6, the SEC extended their BM
Slide 14: Excited About Opportunities Ahead
Excited About Opportunities Ahead CBOE HOLDINGS 14
Slide 15: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 16: 2Q17 Financial Overview
2Q17 Financial Overview Adjusted Combined Financial Results¹ ($ in millions, except per share) 2Q17 2Q16 $ Change % Change Net Revenue¹,² $266.9 $254.0 $12.9 5.1% Adjusted Operating Expenses¹ 101.3 107.0 -5.7 -5.3% Adjusted Operating Income¹ $165.6 $147.0 $18.6 12.7% Adjusted Operating Margin¹ 62.0%
Slide 17: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue Non-transaction revenue accounted for 42.1% of net revenue; up 10 bps versus 2Q16 Net transaction fees up $8.6MM Adjusted Combined % Net Revenue¹ 2Q17 2Q16 Chg (in millions) Primarily driven by growth in proprietary index p
Slide 18: Diversified Product Offering
Strengthening our Position as a Global Exchange Operator Adjusted Combined Net Revenue1 • 2% increase in net revenue $266.9* $254.0 Options • Increase in ADV offset somewhat by decline in RPC Diversified Product Offering • 3% increase in net revenue $126.7 U.S. Equities • Lower net transaction fees
Slide 19: Options Combined Net Revenue Up 2%
Options Combined Net Revenue Up 2% Record quarterly ADV in SPX options key growth driver Increase in index options net transaction fees offset somewhat by revenue decline in multiply-listed options Growth in market data revenue due to strong market share gains across each exchange Options Combined S
Slide 20: Futures Net Revenue Up 20%
Futures Net Revenue Up 20% 2Q17 ADV for VIX futures hit a record high 19% increase in ADV in 2Q17 vs 2Q16 5% increase in RPC in 2Q17 vs 2Q16 Futures Statistics 2Q17 2Q16 Actual Actual Change Futures Net Revenue (in millions) $36.2 $30.2 20% Futures Key Operating Statistics: Total ADV (in thousands)
Slide 21: Proprietary Products Drove 5% Organic Revenue Growth for Legacy CBOE
Proprietary Products Drove 5% Organic Revenue Growth for Legacy CBOE Proprietary Products account for majority of total net combined transaction fees and organic growth Legacy CBOE Organic Revenue¹ Mix of Proprietary Products to Total Net Year-Over-Year Growth Rate Combined Transaction Fees 46.0% 45
Slide 22: U.S. Equities Combined Net Revenue up 3%
U.S. Equities Combined Net Revenue up 3% Low volatility and difficult comparison to 2Q16 Increase in non-transaction revenue offset decline in net transaction fees Bats maintained position as second-largest U.S. equities market operator in 2Q17 U.S. Equities Combined Statistics 2Q17 2Q16 Change U.S.
Slide 23: European Equities Combined Net Revenue Up 3%
European Equities Combined Net Revenue Up 3% Net transaction fees up 9% in local currency; down 2% in dollars 3% increase in net revenue despite stronger dollar relative to the pound sterling In local currency, net revenue grew 16% European Equities Combined Statistics 2Q17 2Q16 Change European Equi
Slide 24: Global FX Combined Net Revenue Up 21%
Global FX Combined Net Revenue Up 21% Hotspot market share of 12.9% matched high reached in 1Q17 Net revenue growth reflects increases in net transaction fees and non-transaction fees Higher non-transaction fees reflecting fees implemented in 3Q16 Global FX Combined Statistics 2Q17 2Q16 Change Globa
Slide 25: Adjusted Combined Operating Expenses
Adjusted Combined Operating Expenses Key Variances: Professional fees and outside Adjusted Combined Operating Expenses¹ 2Q17 2Q16 % Chg services down $2.9MM (in millions) Compensation and Primarily reflects realization of benefits¹ $ 50.0 $ 50.6 -1% synergies Depreciation and amortization¹ 13.2 15.5
Slide 26: 2017 Full-Year Guidance
2017 Full-Year Guidance Updated 2017 Previous 2017 2016 Adjusted Adjusted Adjusted Combined Full- Combined Full- Combined As of August 4, 2017 ($ in millions) Year Guidance Year Guidance Comparison $415 to $423 Adjusted operating expenses² (expect to be at low $415 to $423 $417¹ end of range) Deprec
Slide 27: Capital Allocation
Capital Allocation Maintain a strong balance with the flexibility to: Invest in the growth our business Return capital through dividends Pay down debt Increased 3Q17 dividend by 8% to $0.27 per share Reduced term loan by $375 million in June through refinancing and principal Access capital markets p
Slide 28: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth of Core • Achieved strong organic growth, driven Proprietary Products by proprietary products Diversification and • Non-transaction revenue offset decreases Stabilization of Revenue in net transaction revenue Stream • S
Slide 29: Questions & Answers
(e-1 HOLDINGS Questions & Answers
Slide 30: Appendix Materials
(e-1 HOLDINGS Appendix Materials
Slide 31: Growing Proprietary Index Suite
Growing Proprietary Index Suite Index suite ADV up 9% through July 2017 versus same period last year VIX futures posted record quarterly ADV in 2Q17 SPX options posted record quarterly ADV in 1Q17 Annual ADV for Index Suite: Index Options and VIX Futures (in millions) 2.16 1.81 1.83 1.96 1.64 0.28 0
Slide 32: Growing Index Product Line
Growing Index Product Line S&P 500 Index (SPX) options, the most actively traded U.S. index options SPX ADV up 9% in 2017 TD¹ SPX ADV* by Year (in thousands) SPX achieved record quarterly ADV in 1Q17 1,024 1,101 888 939 823 2016 was fourth consecutive year of record 698 volume Added Wednesday- and M
Slide 33: Volatility Index (VIX) Products
Volatility Index (VIX) Products CBOE VIX options and futures VIX Options ADV VIX Options anchor volatility products (in thousands) 687 632 567 573 588 VIX index options ADV up 11% 2017 TD¹ 443 versus prior year VIX futures ADV up 20% 2017 TD¹ versus prior year 2012 2013 2014 2015 2016 2017 TD¹ VIX f
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 accounted for 88.2% of transaction fees in 2016, up from 50.6% in 2010 Annual Mix of Transaction Fee Revenue 10.2% 8.5% 8.0% 5.1% 22.6% 16.7% 6.7% 30.4% 9.7% 9.1% 11.0% 15.6% 19.9% 19.0
Slide 35: Supplemental Segment Information
Supplemental Segment Information 2Q17 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees $99.7 $20.2 $34.0 $11.7 $9.6 $175.2 Access fees $13.9 $12.7 $0.5 $1.8 $0.8 $29.7 Exchange services and other fees $10.1 $5.9 $
Slide 36: 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. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP fin
Slide 37: Non-GAAP Information
Non-GAAP Information Reconciliation of Supplemental Combined Net Revenue by Segment for Options Three months ended June 30, 2016 (in millions) CBOE Bats Historical Historical Combined Net transaction fees $90.3 $5.7 $96.0 Access fees $13.0 $2.1 $15.1 Exchange services and other fees $9.4 --- $9.4 Ma
Slide 38: Non-GAAP Information
Non-GAAP Information ¹A full reconciliation of our non-GAAP and combined results to our GAAP results is included in the following tables. See "Non-GAAP Information” in the accompanying financial tables. CBOE HOLDINGS 38
Slide 39: Non-GAAP Information
Non-GAAP Information NM = Not meaningful CBOE HOLDINGS 39
Slide 40: Non-GAAP Information (see footnotes on slide 45)
Non-GAAP Information (see footnotes on slide 45) Reconciliation of GAAP and non-GAAP Information The information below shows the reconciliation of each financial measure from GAAP to non-GAAP. The non-GAAP financial measures exclude the impact of those items detailed below and are referred to as adj
Slide 41: Non-GAAP Information
Non-GAAP Information EBITDA Reconciliations EBITDA (earnings before interest, income taxes, depreciation and amortization) is a widely used non-GAAP financial measure of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue). It is presented as
Slide 42: Non-GAAP Information
Non-GAAP Information (1) EBITDA margin represents the respective EBITDA divided by the respective net revenue as shown in the non-GAAP reconciliations provided. (2) Combined results for the three months ended June 30, 2017 are the same as the actual results as the company was operating as a combined
Slide 43: Non-GAAP Information
Non-GAAP Information The following non-GAAP unaudited combined financial measures have been prepared by recording combined adjustments to the historical consolidated financial statements of CBOE Holdings. The combined financial measures for the three months ended June 30, 2016 have been prepared as
Slide 44: Non-GAAP Information (see footnotes on slide 45)
Non-GAAP Information (see footnotes on slide 45) CBOE HOLDINGS 44
Slide 45: Non-GAAP Information
Non-GAAP Information Table 5 Footnotes: (1) For the second quarter of 2016, this amount includes $0.3 million for accelerated stock-based compensation expenses and $0.6 million in additional bonus accrual resulting from legal settlement income. For the six months ended June 30, 2017, this amount inc
Slide 46: Non-GAAP Information
Non-GAAP Information ¹A full reconciliation of our non-GAAP and combined results to our GAAP results are available in this section. CBOE HOLDINGS 46
Slide 47: Non-GAAP Information
Non-GAAP Information Three months ended September 30, 2016 - Table 9 CBOE Bats Combined Footnote Non-GAAP Foot- Adjusted (in millions, except per share amounts) Historical Historical Adjustments Reference Combined Adjustments note Combined Revenues $168.7 $441.6 $610.3 $610.3 Cost of revenues 32.5 3
Slide 48: Non-GAAP Information
Non-GAAP Information Three months ended December 31, 2016 - Table 10 CBOE Bats Combined Footnote Non-GAAP Foot- Adjusted (in millions, except per share amounts) Historical Historical¹ Adjustments Reference Combined Adjustments note Combined Revenues $190.8 $315.6 $506.4 $506.4 Cost of revenues 47.8
Slide 49: Non-GAAP Information
Non-GAAP Information Adjusted Combined Operating Expenses for the Year Ended December 31, 2016 - Table 11 Adjusted Combined for Year-Ended CBOE Bats Footnote Non-GAAP Foot- December 31, (in millions) Historical Historical¹ Adjustments Reference Combined Adjustments note 2016 Operating expenses: Comp
Slide 50: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com