Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2014 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, Oct 31, 2014
Slide 1: Third Quarter 2014 Earnings Presentation
Third Quarter 2014 Earnings Presentation October 31, 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: Solid Financial Results for 3Q14
Solid Financial Results for 3Q14 Trading volume in 3Q14 improved across each product group Total ADV of 4.95MM in 3Q14 Up 2% versus 2Q14 Up 7% versus 3Q13 Uptick in October volume ADV of 7.17MM, up 40% versus ADV of 5.13MM through September 2014 ¹4Q14 TD through 10/29/14 CBOE HOLDINGS 5
Slide 6: Trading in VIX Options and Futures Continues to Grow
Trading in VIX Options and Futures Continues to Grow Volatility remained relatively low in 3Q14, but with intermittent spikes as the quarter progressed VIX options ADV for 3Q14 Up 6% versus 3Q13 Down 10% versus 2Q14 VIX futures ADV for 3Q14 Up 35% versus 3Q13 Up 19% versus 2Q14 CBOE HOLDINGS 6
Slide 7: Trading in S&P 500 Index (SPX) Increases Sequentially and YOY
Trading in S&P 500 Index (SPX) Increases Sequentially and YOY SPX Weeklys - fastest growing product in SPX complex SPX ADV for 3Q14 Up 8% versus 2Q14 Up 10% versus 3Q13 SPX Weeklys ADV *includes SPX Weeklys Up 24% versus 2Q14 Up 54% versus 3Q13 CBOE HOLDINGS 7
Slide 8: VIX Futures Trading Poised for Continued Growth
VIX Futures Trading Poised for Continued Growth Key indicators supporting our growth outlook Increased demand for market data Shift in mix of market participants to include users that are generally more active traders Increasing number of CFE trading permit holders Increased participation provided f
Slide 9: Trading Volume in Index Products Soared in October
Trading Volume in Index Products Soared in October with Higher Market Volatility VIX Options October ADV up 22% YOY VIX Futures October ADV up 86% YOY VIX Options ADV up 14% YOY thru October VIX Futures ADV up 25% YOY thru October ¹2014 YTD and October through 10/29/14 CBOE HOLDINGS 9
Slide 10: Trading Volume in Index Products Soared in October
Trading Volume in Index Products Soared in October with Higher Market Volatility SPX ADV up 44% YOY in October SPX Weeklys ADV up 49% YOY in October VIX Options ADV up 6% YOY thru October VIX futures ADV up 39% YOY thru October *SPX ADV includes SPX Weeklys ¹YTD and October through 10/29/14 CBOE HOL
Slide 11: 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 12: Increasing Access to VIX Futures Trading Through Extended Trading Hours
Increasing Access to VIX Futures Trading Through Extended Trading Hours Over 9% of VIX futures trading takes place during non-U.S. trading hours since full implementation of 24-hour trading Plan to add trading hours for VIX and SPX options in 1Q15, pending regulatory review New session will run from
Slide 13: Diversifying Volatility Products
Diversifying Volatility Products CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN Index) Began disseminating index values in May 2013 CFE plans to launch futures on the VXTYN Index on November 13th Interest rate derivatives represent the largest asset class in the global derivatives mark
Slide 14: 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 September 2014: CBOE & C2 accounted for 29.1% of industry volume; down versus 30.4% in 27.0% June 2014 22.8% CBOE total market share of 27.0%; down versus 28.4% in June 2014 C
Slide 15: Enhancing Market Regulation
Enhancing Market Regulation CBOE and C2 are committed to providing the highest standards in market regulation CBOE and C2 would continue to operate as SROs and work closely with the SEC We believe FINRA's independence and regulatory efficiency together with CBOE's regulatory oversight experience and
Slide 16: Remain Focused on Strategic Growth Initiatives
Remain Focused on Strategic Growth Initiatives 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 Regulation and Comp
Slide 17: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 18: 3Q14 Financial Overview
3Q14 Financial Overview GAAP Basis¹ 3Q14 3Q13 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $148.9 $136.7 $12.2 9% Operating Expenses 73.8 68.3 5.5 8% Operating Income $ 75.1 $ 68.4 $6.7 10% Operating Margin % 50.4% 50.0% 40 bps Net Income Allocated to Common Stockholders $
Slide 19: Overview of Operating Revenues
Overview of Operating Revenues Transaction fees up $11.3MM Operating Revenues (in millions) 3Q14 3Q13 % Chg 7% increase in trading volume Transaction fees $ 104.3 $93.0 12% 4% increase in RPC Access fees 14.7 15.0 -2% Exchange services – Shift in product mix and other fees 9.5 9.2 3% – Higher volume
Slide 20: Increase in RPC Primarily Reflects Shift in Mix of Products Traded
Increase in RPC Primarily Reflects Shift in Mix of Products Traded Trading volume mix and RPC 3Q13 versus 3Q14 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 81% of transaction fees in 3Q14, up from 79% in 3Q13 CBOE HOLDINGS 21
Slide 22: Other Revenue Drivers
Other Revenue Drivers Market data fees up $1.1MM Operating Revenues 3Q14 3Q13 % Chg (in millions) Higher revenue from CBOE’s market data services, primary due to growth Transaction fees $ 104.3 $93.0 12% in subscribers and rate adjustments Access fees 14.7 15.0 -2% Exchange services OPRA revenue fla
Slide 23: Disciplined Control of Expenses
Disciplined Control of Expenses Key drivers: Operating Expenses¹ 3Q14 3Q13 % Chg (in millions) Royalty fees up $2.4MM Employee costs $28.7 $28.0 3% Depreciation and Depreciation and amortization amortization 10.4 8.5 22% up $1.9MM Data processing 4.7 4.6 5% Employee costs up $0.7MM Outside services
Slide 24: Core Operating Expenses Up 3% YOY; Down 5% Sequentially
Core Operating Expenses Up 3% YOY; Down 5% Sequentially Key drivers: Core Operating Employee costs up $0.7MM Expenses¹ (in millions) 3Q14 3Q13 % Chg Reflects increases in salaries, Employee costs $28.7 $28.0 3% severance and incentive Data processing 4.7 4.6 5% compensation, somewhat offset by Outsi
Slide 25: Volume-based Expenses
Volume-based Expenses Royalty fees up $2.4MM Volume-based Expenses 3Q14 3Q13 % Chg Primarily reflects higher volume in (in millions) licensed products Royalty fees $ 16.2 $ 13.8 17% Higher fees related to certain order flow Trading volume for multiply-listed options directed to incentives $ 1.0 $ 1.
Slide 26: Effective Tax Rate
Effective Tax Rate 3Q14 effective tax rate of 35.4% versus 39.1% in 3Q13 Reflects adjustments to state tax provision versus prior estimates Effective tax rate for full-year 2014 expected to be slightly below the guidance range of 38.5% to 39.5% CBOE HOLDINGS 26
Slide 27: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $127MM at quarter end Generated $184MM in operating cash flow through September YTD Capital Outlays Regular dividends $ 49 MM Special dividend 44 MM Share repurchases¹ 148 MM Capital expenditure
Slide 28: Enhancing Stockholder Value Through Share Repurchases
Enhancing Stockholder Value Through Share Repurchases Increase in cash used to repurchase shares in 2014 3Q14 used $51MM Purchased more than 1MM shares at an average price of $50.64 Program to date used $282MM Purchased 7.4MM shares at an average price of $38.24 $118MM available under program at Sep
Slide 29: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Well positioned to provide a compelling total shareholder return over the long run 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 $0.2
Slide 30: Questions & Answers
Questions & Answers
Slide 31: Appendix Materials
Appendix Materials
Slide 32: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) 55% $80 $70 50% $60 $50 45% $40 40% $30 $20 35% $10 $0 30% 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 ¹Adjusted to reflect the impact of certain items
Slide 33: 2014 Full-Year Guidance
2014 Full-Year Guidance 2014 Full-Year Reaffirmed or Updated on October 31, 2014 ($ in millions) Guidance Core operating expenses $186 to $190 Continuing stock-based compensation¹ $13 Accelerated stock-based compensation¹ $3 Effective tax rate - expected to be slightly below 38.5% to 39.5% guidance
Slide 34: 2014 Stock-Based Compensation by Quarter
2014 Stock-Based Compensation by Quarter Quarterly breakout of actual and estimated continuing stock- based compensation for 2014 1Q14 2Q14 3Q14 Actual Actual Actual 4Q14 Total Continuing stock-based compensation¹ $5 $4 $2 $2 $13 Accelerated stock-based compensation¹,² $3 $3 ¹All stock-based compens
Slide 35: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) ¹4Q14 TD through 10/29/14 CBOE HOLDINGS 35
Slide 36: RPC Increase Primarily Reflects Shift in Mix of Products Traded
RPC Increase Primarily Reflects Shift in Mix of Products Traded Trading Volume Mix & RPC 3Q13 vs 3Q14 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 81.1% of transaction fees YTD, 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 Indexes 0.664 0.667 0.669 0.674 0.674 $0.670 $0.671 $0.677 0.680 Exchange-traded products 0.124 0.119 0.117 0.113 0.113 $0.111 $0.112 $0.114
Slide 39: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2014 % rev 2Q 2014 % rev 1Q 2014 % rev 4Q 2013 % rev 3Q 2013 % rev Total Operating Expenses $73,826 50% $74,226 52% $75,847 48% $69,231 49% $68,316 50% Less: Depreciation and amortization 10,361 7% 9,895 7% 8,604 5% 9,108 6% 8,476 6% Accelerated
Slide 40: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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 41: 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 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
GAAP to Non-GAAP Reconciliation For 2014 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q14 2Q14 3Q14 4Q14 YTD2014 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 $ 13
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