Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2013 Earnings Presentation
40 slides from Cboe Global Markets's earnings presentation, Nov 1, 2013
Slide 1: Third Quarter 2013 Earnings Presentation
Third Quarter 2013 Earnings Presentation November 1, 2013
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: Strong Earnings for 3Q13
Strong Earnings for 3Q13 Strategy: Maximize market share in multiply- listed options, while developing and promoting higher-margin proprietary products Operating revenue and EPS Driven by continued growth of higher- margin proprietary products Operating revenue increased 7% to $136.7 million Adjuste
Slide 6: Total Options ADV Grew 5% YOY in 3Q13
Total Options ADV Grew 5% YOY in 3Q13 Strong growth in proprietary products Options ADV 3Q13 vs 3Q12: Index products increased 20% ETNs and ETFs were up 18% Equity options declined 10% CBOE HOLDINGS 6
Slide 7: Regaining Market Share in Multiply-Listed Options
Regaining Market Share in Multiply-Listed Options Focused on being among the leaders in options market share Made enhancements to VIP in February and March CBOE total market share increased 28.0% to 28.0% in September from 26.9% in June 22.8% CBOE multiply-listed market share increased to 20.9% in S
Slide 8: Record Growth in Volatility Trading
Record Growth in Volatility Trading Strong growth amid low volatility On October 8, VIX options volume set new single-day high of 1.78 million VIX options ADV up 21% in 3Q13; up 32% through September VIX futures ADV up 48% in 3Q13; up 86% through September Record trading in VIX options for October ¹
Slide 9: Broadening Global Customer Reach
Broadening Global Customer Reach Extending trading hours for VIX futures Implemented first phase of rollout on October 28th Adds a 45-minute trading session after current close of VIX futures Meets demand from U.S. customers for a post-settlement trading period Phase two to be implemented on Novembe
Slide 10: Broadening Global Customer Reach
Broadening Global Customer Reach Boosting global awareness of CBOE’s products European Risk Management Conference (RMC) featured VIX and SPX trading strategies RMC Europe drew 150 sophisticated market practitioners Announced plans to launch new volatility products CBOE HOLDINGS 10
Slide 11: Expanding Suite of Volatility Products
Expanding Suite of Volatility Products Launching Russell 2000 Volatility Index futures on Nov. 18th; options trading (RVX) to launch on December 2nd Russell 2000 Index (RUT) Premier measure of the performance of small-cap U.S. stocks An effective play on the health of the U.S. economy – 84% of reven
Slide 12: Expanding Suite of Volatility Products
Expanding Suite of Volatility Products Launching new CBOE S&P 500 Short-Term Volatility Index (VXST) First-ever gauge of the expected short-term volatility of the S&P 500 Index Same index calculation methodology as our flagship VIX Index Expect to launch VXST Weeklys options and futures in 1Q14, pen
Slide 13: Weeklys Attracting New SPX Users
Weeklys Attracting New SPX Users SPX Weeklys volume primarily represents incremental business from new SPX customer base Tabb Group predicts that Weeklys will reach 25% of total industry- wide volume by the end of 2013 CBOE created the Weeklys concept with the introduction of SPX Weeklys in 2005 SPX
Slide 14: Global Interest in SPX Products Mirrors that of VIX Options and Futures
Global Interest in SPX Products Mirrors that of VIX Options and Futures Investors worldwide use SPX and VIX Index products to hedge global economic risk CBOE HOLDINGS 14
Slide 15: Bullish About Growth Opportunities
Bullish About Growth Opportunities 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 Compliance CBOE
Slide 16: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 17: 3Q13 Financial Overview
3Q13 Financial Overview Adjusted Basis¹ 3Q13 3Q12 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $136.7 $128.3 $ 8.4 7% Operating Expenses 68.3 67.5 0.8 1% Operating Income $ 68.4 $ 60.8 $ 7.6 13% Operating Margin % 50.0% 47.4% 260 bps Adjusted Net Income Allocated to Common
Slide 18: Overview of Operating Revenues
Overview of Operating Revenues Key Drivers Operating Revenues 3Q13 3Q12 % Chg Transaction fees (in millions) 8% increase in trading volume and Transaction fees $ 93.0 $86.6 7% 1% decrease in RPC Access fees 15.0 16.0 -6% Shift in product mix Exchange services and other fees 9.2 7.8 18% Exchange serv
Slide 19: Shift in Trading Volume Mix Significantly Offset RPC Decline
Shift in Trading Volume Mix Significantly Offset RPC Decline in Multiply-listed Options Trading Volume Mix and RPC 3Q12 vs 3Q13 CBOE HOLDINGS 19
Slide 20: 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 79% of transaction fees in 3Q13, up from 69% in 3Q12 CBOE HOLDINGS 20
Slide 21: Other Revenue Drivers
Other Revenue Drivers Regulatory fees up $3.2MM (in millions) 3Q13 3Q12 % Chg Higher volume and increase in ORF rate Regulatory fees $ 8.9 $ 5.7 56% Other revenue down $2.2MM Other revenue $ 3.9 $ 6.1 -36% Lower fines accessed Exchange services and other fees $ 9.2 $ 7.8 18% Exchange services up $1.
Slide 22: Ongoing Focus on Controlling Expenses
Ongoing Focus on Controlling Expenses Key Drivers: Operating Expenses 3Q13 3Q12 % Chg (in millions) Outside services down $1.2MM Employee costs $28.0 $27.2 3% Reflects lower costs related to Depreciation and legal expenses amortization 8.5 8.6 -1% Data processing 4.6 5.1 -10% Royalty fees up $2.5MM
Slide 23: 3Q13 Core Operating Expenses
3Q13 Core Operating Expenses (in millions) 3Q13 3Q12 % Chg Total Operating Expenses $ 68.3 $ 67.5 1% Less: Depreciation and amortization 8.5 8.6 -1% Volume-based expenses: Royalty fees 13.8 11.3 22% Trading volume incentives 1.2 1.4 -14% Core Operating Expenses (non-GAAP)¹: $ 44.8 $ 46.1 -3% Less: C
Slide 24: Volume-based Expenses
Volume-based Expenses Royalty fees Volume-based Higher trading volume in licensed Expenses 3Q13 3Q12 % Chg (in millions) products and increases in royalty rates Royalty fees $ 13.8 $ 11.3 22% Trading volume incentives Trading volume incentives $ 1.2 $ 1.4 -14% Changes in program criteria to qualify
Slide 25: Third Quarter Effective Tax Rate
Third Quarter Effective Tax Rate Full-Year 2013 3Q13 3Q12¹ Change YTD ‘13 YTD ‘12¹ Change Guidance GAAP 39.1% 24.4% 1470 bps 38.6% 35.8% 280 bps 39.0% to 39.5% Adjusted 39.1% 37.1% 200 bps 38.4% 39.9% -150 bps ¹3Q12 and year-to-date 2012 GAAP effective tax rate reflects the benefit of significant di
Slide 26: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation $226MM in cash at quarter end Generated $172MM in cash from operations through September YTD Capital Outlays Dividends $ 43 million Capital expenditures 20 million Stock purchases¹ 20 million Total $ 83 million $89.3MM available on share repurc
Slide 27: Updating 2013 Full-Year Guidance
Updating 2013 Full-Year Guidance As of November 1, 2013 Full-Year Previous ($ in millions) Guidance Guidance Core operating expenses $189 to $194 No change Continuing stock-based compensation¹ $18 No change Core operating expenses excluding stock-based compensation $171 to $176 No change Adjusted ef
Slide 28: Well Positioned for Long-Term Growth
Well Positioned for Long-Term Growth ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 28
Slide 29: Questions & Answers
Questions & Answers
Slide 30: Appendix Materials
Appendix Materials
Slide 31: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $80 55% $70 50% $60 $50 45% $40 40% $30 $20 35% $10 $0 30% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Operating Income Margin ¹Adjusted to reflect the impact of
Slide 32: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 32
Slide 33: Trading Volume Mix and RPC 3Q12 vs 3Q13
Trading Volume Mix and RPC 3Q12 vs 3Q13 RPC Increase Reflects Shift in Mix of Trading Volume CBOE HOLDINGS 33
Slide 34: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.149 $0.153 $0.140 $0.114 $0.094 $0.090 $0.082 $0.081 $0.077 Indexes 0.665 0.670 0.671 0.679 0.674 0.675 0.670 0.671 0.669 Exchange-traded products 0.194 0.181 0.155 0.127 0.119 0.119 0.121 0.122 0.123
Slide 35: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2013 % rev 2Q 2013 % rev 1Q 2013 % rev 4Q 2012 % rev 3Q 2012 % rev Total Operating Expenses $68,316 50% $75,414 50% $73,275 51% $70,325 54% $67,458 53% Less: Depreciation and amortization 8,476 6% 8,622 6% 8,282 6% 6,210 5% 8,634 7% Accelerated
Slide 36: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 9 mos 2013 % rev 2012 % rev 2011 % rev 2010 % rev 2009 % rev Total Operating Expenses $217,005 50% $268,241 52% $266,512 52% $269,763 62% $248,497 62% Less: Depreciation and Amortization 25,380 6% 31,485 6% 34,094 7% 29,891 7% 27,512 7% Accelerated st
Slide 37: GAAP to Non-GAAP Reconciliation
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 38: 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 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders $ 32,863
Slide 39: 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 40: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com