Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2012 Earnings Presentation
38 slides from Cboe Global Markets's earnings presentation, Nov 1, 2012
Slide 1: Third Quarter 2012 Earnings Presentation
Third Quarter 2012 Earnings Presentation November 1, 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: Solid Financial Performance
Solid Financial Performance Key Drivers Leverage proprietary products Compete effectively in multi-listed products Prudently manage resources Diverse product line and increased market share helped to mitigate lackluster trading in broader market ¹Market share stats exclude dividend trades CBOE HOLDI
Slide 6: Translating Our Mission into Value
Translating Our Mission into Value Develop New Products Create value for stockholders by offering a diversified portfolio of Optimize risk management products and Revenue and Market Share in services which generate industry Commoditized leading profit margins and growth Products rates while maintain
Slide 7: Strong Contribution from S&P 500 Index Product Line
Strong Contribution from S&P 500 Index Product Line S&P 500 Index product line includes SPX, SPXpm and SPX Weeklys S&P 500 Index product line has highest options RPC Strong growth in SPX Weeklys Moved SPX Weeklys to Hybrid trading in December 2010 Volume up 39% through September ¹YTD through Septemb
Slide 8: Record Growth in Volatility Trading
Record Growth in Volatility Trading Strong growth amid relatively low volatility VIX options ADV up 4% YTD VIX futures ADV up 68% YTD Both set new single-day highs in trading volume in September September was highest-volume month for VIX futures Growth fueled in part by ETPs tied to VIX Index $4.1 b
Slide 9: International Opportunity
International Opportunity Intensifying our international marketing focus Held first CBOE Risk Management Conference outside U.S. Strong focus on SPX options and VIX options and futures Announced plans to establish a CFE London hub and to expand VIX futures trading to virtually 24 hours a day, five d
Slide 10: Product Development Fueling Growth
Product Development Fueling Growth Launching S&P 500 Variance Futures on CFE Offers advantages of trading in an exchange environment Centralized clearing Price discovery Expect new contract to be competitive with OTC market for S&P 500 realized variance swaps Targeting year-end launch CBOE HOLDINGS
Slide 11: Optimizing Revenue and Market Share In Commoditized Products
Optimizing Revenue and Market Share In Commoditized Products Achieved significant market share gains Positive customer response to VIP Pays credit to firms for certain types and levels of business at CBOE Through September, total market 27.5% share of U.S. options of 29.7% 24.7% (CBOE and C2), up 22
Slide 12: Retooling C2 Market and Pricing Model
Retooling C2 Market and Pricing Model Plan to introduce a DPM-centric model on C2 Received SEC approval of a rule to allow for Designated Primary Market (DPM) makers on C2 Expect new DPM model to bring additional liquidity to C2 Plan to announce new C2 pricing plan in near future CBOE HOLDINGS 12
Slide 13: Focused on Long-Term Growth
Focused on Long-Term Growth Product Innovation & Education Product diversity helps us manage fluctuations in Cost Management volume Experienced in managing cycles Focus on Growth Disciplined approach Optimizing resources to pursue future growth and share value CBOE HOLDINGS 13
Slide 14: Financial Review
Financial Review Alan Dean, Executive VP, CFO and Treasurer
Slide 15: 3Q12 Financial Overview
3Q12 Financial Overview Adjusted Basis¹ (in millions, except EPS and RPC) 3Q2012 3Q2011 $ Change % Change Operating Revenues $128.3 $143.6 $(15.3) (11)% Operating Expenses 67.5 68.6 1.1 2% Operating Income $ 60.8 75.0 $(14.2) (19)% Operating Margin % 47.4% 52.2% (480)bps Adjusted Net Income Allocate
Slide 16: Overview of Operating Revenues
Overview of Operating Revenues Key Drivers: Operating Revenues 3Q12 3Q11 % Chg (in millions) Transaction fees 22% decrease in trading volume Transaction fees $ 86.6 $109.8 -21% 1% increase in RPC Access fees 16.0 16.9 -5% Exchange services and Exchange services and other fees other fees 7.8 4.5 73%
Slide 17: Trading Volume Mix 3Q12 vs 3Q11
Trading Volume Mix 3Q12 vs 3Q11 RPC Increase Primarily Reflects Shift in Mix of Trading Volume Futures 2.3% CBOE HOLDINGS 17
Slide 18: Strong Growth in Exchange Services and Other Revenue
Strong Growth in Exchange Services and Other Revenue Exchange services up $3.3MM (in millions) 3Q12 3Q11 % Chg Driven by fee changes implemented in January Exchange services and other fees $ 7.8 $ 4.5 73% Increased guidance for year to a range of $28.5 to $30.5 million Other revenue $ 6.1 $ 2.2 177%
Slide 19: Overview of Operating Expenses
Overview of Operating Expenses Operating Expenses Key Drivers: (in millions) 3Q12 3Q11 % Chg Employee costs Employee costs $27.2 $25.9 5% Depreciation and Reflects $2 million severance charge amortization 8.6 8.9 -3% taken in quarter Data processing 5.1 4.3 19% Outside services Outside services 9.1
Slide 20: 3Q12 Core Operating Expenses
3Q12 Core Operating Expenses (in millions) 3Q12 3Q11 % Chg Total Operating Expenses $ 67.5 $ 68.6 -2% Less: Depreciation and amortization 8.6 8.9 -3% Volume-based expenses: Royalty fees 11.3 14.0 -19% Trading volume incentives 1.4 3.5 -60% Core Operating Expenses (non-GAAP)¹: $ 46.1 $ 42.3 9% Detail
Slide 21: Volume-based Expenses
Volume-based Expenses Royalty fees Volume-based Lower trading volume in licensed Expenses 3Q12 3Q11 % Chg (in millions) index products Royalty fees $ 11.3 $ 14.0 -19% Trading volume incentives Trading volume incentives $ 1.4 $ 3.5 -60% Lower trading volume in multipy-listed Total $ 12.7 $ 17.5 -27%
Slide 22: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage 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 3Q12 Operating Income Margin ¹Adj
Slide 23: Third Quarter Effective Tax Rate
Third Quarter Effective Tax Rate 3Q12 GAAP effective tax rate reflects: Benefit of significant discrete items Benefit of a new tax apportionment method for Illinois Adjusted effective tax rate for 3Q12 excludes benefit of $7.7 million for significant discrete items related to prior years 3Q11 GAAP e
Slide 24: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet Business model generates strong cash flow CBOE HOLDINGS 24
Slide 25: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation, continuing investments in new products and technology, improving return of capital to shareholders YTD Capital Outlays Capital expenditures $ 27 million Share repurchases 53 million Dividends paid 35 million Total $ 115 million Annual dividend
Slide 26: 2012 Full-Year Guidance
2012 Full-Year Guidance Updated November 1, 2012 ($ in millions) 2011 Actual 2012 Guidance Exchange services and other fees¹ $ 18.2 $28.5 to $30.5 Access fees $ 68.7 $64 to $67 Core operating expenses² $166.2 $173 to $1783 Adjusted effective tax rate4 40.3% 39.6% to 40.1% Depreciation and amortizati
Slide 27: Confident in Long-Term Growth Prospects
Confident in Long-Term Growth Prospects Leverage Proprietary Successfully Products Prudently Compete in Manage Commoditized Expenses Products Reward Stockholders and Invest in Growth CBOE HOLDINGS 27
Slide 28: Questions & Answers
Questions & Answers
Slide 29: Appendix Materials
Appendix Materials
Slide 30: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 30
Slide 31: 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 $0.124 $0.122 $0.118 Indexes 0.640 0.651 0.658 0.667 0.673 0.677 0.680 0.684 0.682 Exchange-traded funds 0.206 0.188 0.171 0.172 0.176 0.180 0.177 0.177 0.177 Tot
Slide 32: Leading Across Markets – 2012 YTD
Leading Across Markets – 2012 YTD¹ Total Industry Volume Excl. Dividend Trades¹ CBOE 3% C2 4% PHLX 5% ISE 27% 10% NYSE/Amex 28.4% 29.7% NYSE/Arca 14% 1% NOM 16% 20% BOX BATS Equity Options¹ ETF Options¹ Index Options¹ 2% 3% 1% 4% 3% 5% 4% 6% 4% 24% 21% 11% 11% 1% 2% 16% 16% 18% 19% 95% 20% 16% Sourc
Slide 33: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2012 % rev 2Q 2012 % rev 1Q 2012 % rev 4Q 2011 % rev 3Q 2011 % rev Total Operating Expenses $67,458 53% $66,480 50% $63,977 53% $67,529 56% $68,638 48% Less: Depreciation and amortization 8,634 7% 8,320 6% 8,320 7% 7,506 6% 8,897 6% Accelerated
Slide 34: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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 35: Weighted Average Shares Calculation
Weighted Average Shares Calculation 3Q 2012 YTD 2012 Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 88,768,885 92 92 88,768,885 88,768,885 274 274 88,768,885 Vesting of participating securities (restricted stock) on various d
Slide 36: GAAP to Non-GAAP Reconciliation
GAAP to Non‐GAAP Reconciliation GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 3Q12 FY 2009 FY2010 FY2011 Reconciliation of GAAP Net Income Allocated to Common Stockholder to NON-GAAP GAAP net income allocated to common stockholders $ 20,0
Slide 37: 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 38: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com