Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2014 Earnings Presentation
46 slides from Cboe Global Markets's earnings presentation, Feb 6, 2015
Slide 1: Fourth Quarter 2014 Earnings Presentation
Fourth Quarter 2014 Earnings Presentation February 6, 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 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: 2014 Marks Fourth Consecutive Year of Record Financial Results
2014 Marks Fourth Consecutive Year of Record Financial Results Record trading volume, particularly in our proprietary products, drove new highs in key financial metrics Broaden Develop Engage Access to New Customers Our Products Marketplace CBOE HOLDINGS 5
Slide 6: 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 December 2014: CBOE total market share of 28.6% 28.6% versus 27.5% in December 2013 27.5% CBOE multiply-listed market share of 22.8% 20.8% versus 20.3% in December 2013 20.3%
Slide 7: Positive Momentum Carried into 2015
Positive Momentum Carried into 2015 Total ADV of 5.4MM in January, up 5% versus December 2014 Strong volume continued in SPX options and VIX futures Flat VIX term structure impacted VIX options trading in January VIX Futures Term Structure VIX Futures Term Structure December 2, 2014 January 30, 2015
Slide 8: Use of Equity Derivatives Expected to Continue to Grow
Use of Equity Derivatives Expected to Continue to Grow TABB Group study highlights strong growth in U.S. Equity Index derivatives over past 5 years TABB projects use of equity index derivatives to increase 6% in 2015 Over 90% of asset managers surveyed plan to increase use of equity index derivative
Slide 9: Use of Equity Derivatives Expected to Continue to Grow
Use of Equity Derivatives Expected to Continue to Grow Study shows ongoing shift from Share of Global Assets (2012 / 2020E) active to passive investments 2012 Global AUM 2020E Global AUM (% of Total) (% of Total) Passive assets more than tripled from 2004 to 2012 Expect passive assets to triple agai
Slide 10: Expanding and Leveraging Partnerships with Index Providers
Expanding and Leveraging Partnerships with Index Providers Expanding Index Complex New licensing agreement with MSCI Combining MSCI’s experience in global benchmark indexes with CBOE’s leadership in developing and trading successful index options CBOE only U.S. exchange for trading MSCI Index option
Slide 11: Developing New Products While Leveraging Current Products
Developing New Products While Leveraging Current Products CBOE offers the widest array of index options and volatility products Committed to tapping growth opportunities in current index product mix 2004-2014 CAGR 16% Intensifying educational efforts to grow trading in SPX options Institutional inve
Slide 12: Increasing Access to Our Marketplace
Increasing Access to Our Marketplace Expanding SPX marketplace globally in 2015 Number of Option-Based Funds Key findings of new white paper on (Dec. 31, 2000 to Dec 31, 2014) fund use of options 119 109 Number of option-based funds 95 growing 77 67 56 58 Option-based funds had higher risk- 49 adjus
Slide 13: Expanding and Growing Volatility Space
Expanding and Growing Volatility Space VIX futures and options post record trading volume in 2014 VIX futures ADV up 26% in 2014 VIX options ADV up 11% in 2014 Diversifying volatility product line Calculating and disseminating values for three new volatility indexes on CME Group Products: – Dollar/E
Slide 14: Broadening Access to Our Marketplace
Broadening Access to Our Marketplace Over 9% of VIX futures trading takes place during non-U.S. trading hours since full implementation of 24-hour trading¹ Plan to extend trading hours for VIX options on March 2 and SPX options on March 9 New session will run from 2:00 a.m. to 8:15 a.m. CT, Monday t
Slide 15: Educating and Engaging Customers
Educating and Engaging Customers Continue to leverage marketing and educational efforts of our comprehensive index suite Launched enhanced CBOE.com website and new “CBOE Mobile” App Expanding annual Risk Management Conference beyond the U.S. and Europe to include Asia Investing in systems to insure
Slide 16: Enhancing Market Regulation
Enhancing Market Regulation CBOE and C2 are committed to providing the highest standards in market regulation On January 1, FINRA began performing the majority of CBOE and C2’s options regulatory services We believe FINRA's regulatory independence and efficiency together with CBOE's regulatory overs
Slide 17: Focused on Advancing our Strategic Growth Initiatives
Focused on Advancing our Strategic Growth Initiatives Well positioned to meet the considerable opportunities on the horizon this year and beyond Broaden Engage Develop New Access to Our Customers Products Marketplace CBOE HOLDINGS 17
Slide 18: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 19: 4Q14 Financial Overview
4Q14 Financial Overview Adjusted Basis¹ 4Q14 4Q13 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $166.5 $141.8 $ 24.7 17% Adjusted Operating Expenses 77.7 69.2 8.5 12% Adjusted Operating Income $ 88.8 $ 72.6 $16.2 22% Adjusted Operating Margin % 53.4% 51.2% 220 bps Adjusted N
Slide 20: 4Q Operating Revenues Increase 17% YOY
4Q Operating Revenues Increase 17% YOY Transaction fees key driver of revenue growth Transaction fees up $23.7MM Operating Revenues 4Q14 4Q13 % Chg (in millions) 15% increase in trading volume Transaction fees $ 122.7 $ 99.0 24% 8% increase in RPC Access fees 14.5 15.3 -5% – Shift in product mix Exc
Slide 21: Change in RPC Primarily Reflects Mix Shift Towards Proprietary Products
Change in RPC Primarily Reflects Mix Shift Towards Proprietary Products Trading volume mix and RPC 4Q13 versus 4Q14 CBOE HOLDINGS 21
Slide 22: 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 83.7% of transaction fees in 4Q14, up from 80.1% in 4Q13 CBOE HOLDINGS 22
Slide 23: Other Revenue Drivers
Other Revenue Drivers Regulatory fees up $1.0MM Operating Revenues 4Q14 4Q13 % Chg (in millions) Higher ORF and volume Transaction fees $ 122.7 $ 99.0 24% Market data fees up $0.7MM Access fees 14.5 15.3 -5% Exchange services and Higher share of OPRA market data other fees 9.4 9.6 -2% revenue and in
Slide 24: Ongoing Focus on Expense Management
Ongoing Focus on Expense Management Adjusted Operating Key drivers: Expenses¹ 4Q14 4Q13 % Chg (in millions) Royalty fees up $4.2MM Employee costs $27.5 $28.1 -2% Depreciation and Primarily driven by higher trading amortization 11.1 9.1 22% volume in licensed products Data processing 4.9 4.3 14% Outs
Slide 25: Core Operating Expenses Up 6% in 4Q14 vs 4Q13
Core Operating Expenses Up 6% in 4Q14 vs 4Q13 Key drivers: Outside services up $2.6MM Core Operating Expenses¹ Benefit from an insurance (in millions) 4Q14 4Q13 % Chg reimbursement in 4Q13 Employee costs $27.5 $28.1 -2% Higher costs for contract services Data processing 4.9 4.3 14% Outside services
Slide 26: Volume-based Expenses
Volume-based Expenses Royalty fees up $4.2MM Volume-based Expenses 4Q14 4Q13 % Chg (in millions) Higher trading volume in licensed products in 4Q14 versus 4Q13 Royalty fees $ 19.3 $ 15.1 28% Trading volume – Index options volume up 18% incentives 0.9 1.2 -25% – VIX futures volume up 51% Total $ 20.2
Slide 27: Fourth Quarter and Full-Year Effective Tax Rate
Fourth Quarter and Full-Year Effective Tax Rate GAAP effective tax rate for 4Q14 Increase in 4Q14 versus 4Q13 primarily due to tax adjustments related to changes in assessments of uncertain tax positions and a lower benefit from discrete items versus the prior-year quarter Non-GAAP effective tax rat
Slide 28: Enhancing Stockholder Value
Enhancing Stockholder Value Generated $263MM in operating cash flow in 2014 2014 Capital Outlays Share repurchases¹ $ 177 MM Quarterly dividends 67 MM Special dividend 44 MM Capital expenditures 50 MM Total $ 338 MM Cash of $148MM at year-end 2014 compared with $221MM at year-end 2013 $90MM remainin
Slide 29: 2015 Full-Year Guidance
2015 Full-Year Guidance 2015 Full-Year As of February 6, 2015 ($ in millions) Guidance 2014 Actual Core operating expenses $195 to $199 $189 Continuing stock-based compensation¹ $12 $13 Depreciation and amortization $46 to $48 $40 Capital expenditures $37 to $40 $50 Effective tax rate 38.5% to 39.5%
Slide 30: Well Positioned for Long-Term Growth
Well Positioned for Long-Term Growth ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 30
Slide 31: Questions & Answers
Questions & Answers
Slide 32: Appendix Materials
Appendix Materials
Slide 33: 2014 Financial Overview
2014 Financial Overview Adjusted Basis¹ 2014 2013 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $617.2 $572.1 $ 45.1 8% Adjusted Operating Expenses 299.0 281.2 17.8 6% Adjusted Operating Income $318.2 $290.9 $ 27.3 9% Operating Margin % 51.6% 50.8% 80 bps Adjusted Net Income
Slide 34: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Quarterly Adjusted Operating Revenue and Diluted EPS¹ $0.70 ($ in millions, except EPS) $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 $90 ($ in millions) 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 Adjusted Operating Income Adjusted Operat
Slide 36: Trading Volume Mix and RPC 4Q13 vs 4Q14
Trading Volume Mix and RPC 4Q13 vs 4Q14 RPC increase primarily reflects shift in volume mix CBOE HOLDINGS 36
Slide 37: 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 37
Slide 38: 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 $0.082 $0.081 $0.079 $0.074 $0.076 $0.077 $0.078 $0.074 $0.068 Indexes 0.664 0.667 0.669 0.674 0.674 $0.670 $0.671 $0.677 0.680 0.690 0.692 0.696 Exchange-traded products 0.124 0.119
Slide 39: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) ¹Through January 31, 2015 CBOE HOLDINGS 39
Slide 40: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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% $269,763 62% Less: Depreciation and Amortization 39,913 6% 34,488 6% 31,485 6% 34,094 7% 29,891 7% Accelerated stock-ba
Slide 41: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 4Q 2014 % rev 3Q 2014 % rev 2Q 2014 % rev 1Q 2014 % rev 4Q 2013 % rev Total Operating Expenses $79,525 48% $73,826 50% $74,226 52% $75,847 48% $69,231 49% Less: Depreciation and amortization 11,053 7% 10,361 7% 9,895 7% 8,604 5% 9,108 6% Accelerate
Slide 42: 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 43: 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 44: 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 $ 42,598 $ 48,146 $ 49,
Slide 45: 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 46: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com