Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q2 2012 Earnings Presentation
41 slides from Cboe Global Markets's earnings presentation, Aug 2, 2012
Slide 1: Second Quarter 2012 Earnings Presentation
Second Quarter 2012 Earnings Presentation August 2, 2012
Slide 2: Agenda
Agenda Strategic Review William Brodsky Chairman and CEO Financial Review Alan Dean Executive Vice President, CFO and Treasurer William Brodsky Questions and Answers Alan Dean Edward Tilly President and Chief Operating Officer Edward Provost Executive Vice President and Chief Business Development Of
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 William Brodsky Chairman and CEO
Slide 5: Continued Strong Financial Performance in 2Q12
Continued Strong Financial Performance in 2Q12 Operating Revenues Delivered eighth consecutive quarter of $ in millions YOY adjusted EPS growth, significant + 10% gains in market share YOY Strong performance in multi-listed options products Adjusted Operating Margin¹ Prudent approach to cost managem
Slide 6: Translating Our Mission into Value
Translating Our Mission into Value Develop New Products Create value for stockholders by offering a diversified Optimize Revenue and portfolio of risk management Market Share in products and services which Commoditized Products generate industry leading profit margins and growth Broaden rates while
Slide 7: Leader in Product Innovation
Leader in Product Innovation Focus on developing exclusive products that generate premium fees S&P 500 complex Flagship SPX contract SPX Weeklys SPXpm Volatility product line Sector ETFs and single-stock volatility index products New futures products on CFE CBOE HOLDINGS 7
Slide 8: SPX Complex Drives Strong Index Volume
SPX Complex Drives Strong Index Volume SPX most actively traded cash index option Up 12% in 2Q12 versus 1Q12 Up 10% in 2Q12 versus 2Q11 SPXpm gaining traction Increased 17% in 2Q12 compared with 1Q12 SPX Weeklys important component of SPX complex Up 54% in 2Q12 versus1Q12 Up 65% in 2Q12 versus 2Q11
Slide 9: Strong Growth in Volatility Trading
Strong Growth in Volatility Trading Strong growth potential VIX options up 22% in 2Q12 vs 2Q11 VIX futures up 40% in 2Q12 vs 1Q12; up 91% vs 2Q11 and up 75% YTD Growth fueled in part by ETPs tied to VIX index AUM increased to $5.7 billion at June 1 from $2.8 billion in Dec. 2011 Adding new Volatilit
Slide 10: Optimizing Revenue and Market Share In Commoditized Products
Optimizing Revenue and Market Share In Commoditized Products Achieved significant market share gains¹ Positive customer response to VIP 2Q12 market share in multiply- 29.0% listed options of 22.6%, down 60 bps versus 1Q12; up 210 bps over 2Q11 22.9% YTD market share in multiply-listed options of 22.
Slide 11: Expanding User Base
Expanding User Base Building Relationships with Customers through Educational Programs CBOE HOLDINGS 11
Slide 12: Expanding User Base
Expanding User Base Building Relationships with Customers through Educational Programs Expansion of the Options Institute Conducts over 400 educational events annually Launching “Options Lab” aimed at college curricula Began new partnerships to further expand reach Options Institute staff includes –
Slide 13: Leveraging Customized Trading Technology
Leveraging Customized Trading Technology Rollout of new trade engine technology – CBOE Command Next generation of trade engine technology Servers move to New Jersey 4Q12 Completed rollout of CFLEX 2.0 CBOE Command™ Launched “BasketWeaver” system New functionalities enable us to expand trading in pro
Slide 14: Strong Growth Potential
Strong Growth Potential Tabb Group study “US Options Trading 2012: Standing Out from the Crowd” calls future growth in U.S. options trading “a foregone conclusion,” predicting buy-side trading will lead volume growth Well positioned to: Continue to grow our business Capitalize on growth opportunitie
Slide 15: Financial Review
Financial Review Alan Dean, Executive VP CFO and Treasurer
Slide 16: 2Q12 Financial Overview
2Q12 Financial Overview Adjusted Basis1 2Q12 2Q11 $ Chg. % Chg. (in millions, except EPS and RPC) Operating Revenues $132.6 $120.3 $ 12.3 10% Adjusted Operating Expenses 66.5 63.7 -2.8 -4% Adjusted Operating Income $ 66.1 $ 56.6 $ 9.5 17% Adjusted Operating Margin % 49.8% 47.0% 280 bps Adjusted Net
Slide 17: Overview of Operating Revenues
Overview of Operating Revenues Key Drivers: Operating Revenues (in millions) 2Q12 2Q11 $ CHG % CHG Transaction Fees 8% increase in trading volume Transaction fees $ 94.9 $ 86.3 $ 8.6 10% 2% increase in RPC Access fees 16.1 17.0 (0.9) -5% Access Fees Exchange services and other fees 7.9 4.3 3.6 84% R
Slide 18: 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 decline reflects net impact of VIP, 2Q12 RPC up versus 2Q11 and 1Q12 primarily due volume discounts and other fee changes to higher mix of index options and futures contracts RPC Thousands CBOE HOL
Slide 19: Trading Volume Mix 2Q12 vs 2Q11
Trading Volume Mix 2Q12 vs 2Q11 RPC Increase Primarily Reflects Shift in Mix of Trading Volume CBOE HOLDINGS 19
Slide 20: Fee Change Drives Market Share and Other Benefits
Fee Change Drives Market Share and Other Benefits CBOE Achieved Significant Gains in Market Share Due to VIP¹ Millions Market share gains accrue other benefits: Growth of market data fees Support for access fees and exchange services revenue Reduction in trading volume incentive expenses ¹Market sha
Slide 21: Strong Growth in Exchange Services and Market Data Revenue
Strong Growth in Exchange Services and Market Data Revenue Key Drivers: Access fees down 5% (in millions) 2Q12 2Q11 $ CHG % CHG Reflects fee modifications Trading permits held steady Access fees $ 16.1 $ 17.0 $ (0.9) -5% More permit holders taking advantage of sliding scale pricing Exchange services
Slide 22: Adjusted Operating Expenses
Adjusted Operating Expenses Key Drivers: Adjusted Operating Expenses¹ (in millions) 2Q12 2Q11 $ CHG % CHG Employee costs Employee Costs $ 25.3 $ 24.4 $ 0.9 4% Higher expenses for salaries and self- Depreciation and Amortization 8.3 9.0 (0.7) -8% insurance Data Processing 4.9 4.9 - - Outside Services
Slide 23: 2Q12 Core Operating Expenses up 8%
2Q12 Core Operating Expenses up 8% (in thousands) 2Q12 2Q11 $ CHG % CHG Total Operating Expenses $ 66.5 $ 63.8 $ 2.7 4% Less: Depreciation and amortization 8.3 9.0 1 -8% Accelerated stock-based compensation expense - 0.1 0 NM Volume-based expenses: Royalty fees 12.0 10.4 (2) 15% Trading volume incen
Slide 24: Volume-based Expenses
Volume-based Expenses Volume-based expenses: (in thousands) 2Q12 2Q11 $ CHG % CHG Royalty fees $ 12.0 $ 10.4 $ 1.6 15% Trading volume incentives 1.2 2.5 (1.3) -52% Total $ 13.2 $ 12.9 $ 0.3 2% Royalty fees up due to higher trading volume in licensed index products Trading volume incentives decline p
Slide 25: 2Q12 Reported 8th Consecutive Quarter of YOY Margin Improvement
2Q12 Reported 8th Consecutive Quarter of YOY Margin Improvement 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 4Q11 1Q12 2Q12 Operating Inc
Slide 26: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet Business Model Generates Strong Cash Flow $ in millions $ in millions 1 At quarter end CBOE HOLDINGS 26
Slide 27: Creating Value for Stockholders
Creating Value for Stockholders Strong Cash Flow Generation and Return of Capital Through June, used nearly $53 million to purchase shares and returned over $21 million through dividends $3.3 million remaining on 2011 share repurchase program at July 31, 2012 Board approved 25% increase in dividend
Slide 28: 2012 Full-Year Guidance
2012 Full-Year Guidance Updated August 2, 2012 ($ in millions) 2011 Actual 2012 Guidance Exchange services and other fees¹ $18.2 $27 to $29 Access fees $68.7 $64 to $67 Core operating expenses2 $166.2 $173 to $1783 Tax rate 41.9% 41.2% to 41.7% Depreciation and amortization $34.1 $33 to $35 Capital
Slide 29: Ongoing Value Proposition
Ongoing Value Proposition Develop New Products Optimize Revenue and Market Share in Commoditized Products Reinvest Maintain the Capitalize on capital to highest Continue to operating drive growth Broaden standards of drive margins leverage and return Customer market and cash flow inherent in excess
Slide 30: Questions & Answers
Questions & Answers
Slide 31: Appendix Materials
Appendix Materials
Slide 32: Options ADV Up 7% 2Q12 VS 2Q11
Options ADV Up 7% 2Q12 VS 2Q11 CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 32
Slide 33: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.151 $0.128 $0.110 $0.112 $0.117 $0.123 Indexes 0.640 0.651 0.658 0.667 0.673 0.677 Exchange-traded funds 0.206 0.188 0.171 0.172 0.176 0.180 Total options average 0.297 0.275 0.261 0.267 0.279 0.288 Fu
Slide 34: Leading Across Markets – 2012 YTD
Leading Across Markets – 2012 YTD Total Industry Volume Excl. Dividend Trades¹ CBOE C2 PHLX ISE 28.6% 29.8% NYSE/Amex NYSE/Arca NOM BOX BATS Equity Options¹ ETF Options¹ Index Options¹ Source: Options Clearing Corporation and CBOE ¹YTD through June 30, 2012, Excludes Dividend Trades May not add to 1
Slide 35: Mix of Products Traded and Transaction Fees
Mix of Products Traded and Transaction Fees Mix of Products Traded Mix of Transaction Fees CBOE HOLDINGS 35
Slide 36: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 2Q 2012 % rev 1Q 2012 % rev 4Q 2011 % rev 3Q 2011 % rev 2Q 2011 % rev Total Operating Expenses $66,480 50% $63,977 53% $67,529 56% $68,638 48% $63,838 53% Less: Depreciation and Amortization 8,320 6% 8,320 7% 7,506 6% 8,897 6% 8,996 7% Accelerated
Slide 37: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2011 % rev 2010 % rev 2009 % rev 2008 % rev Total Operating Expenses $266,512 52% $269,763 62% $248,497 62% $229,473 55% Less: Depreciation and Amortization 34,094 7% 29,891 7% 27,512 7% 25,633 6% Accelerated stock-based compensation 453 0% 12,968 3%
Slide 38: Calculation of Weighted Average Shares
Calculation of Weighted Average Shares 2Q 2012 YTD 2012 Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 88,768,885 91 91 88,768,885 88,768,885 182 182 88,768,885 Vesting of participating securities (restricted stock) on 6/14/1
Slide 39: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) Reconciliation of GAAP Net Income Allocated to Common Stockholder to NON-GAAP 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 FY 2009 FY2010 FY2011 GAAP net Income allocated to common stockholders $ 20,020 $
Slide 40: 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 41: 400 South LaSalle Street Chicago, Illinois 60605
400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com