Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2015 Earnings Presentation
46 slides from Cboe Global Markets's earnings presentation, Oct 30, 2015
Slide 1: Third Quarter 2015 Earnings Presentation
Third Quarter 2015 Earnings Presentation October 30, 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 John Deters Chief Strategy Officer and Head of Corporate Initiatives C
Slide 3: Forward-Looking Statements
Forward-Looking Statements This press release 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 n
Slide 4: Strategic Review
Strategic Review Edward Tilly CEO
Slide 5: Record trading in our premium products fueled new highs in key financial measures
Record trading in our premium products fueled new highs in key financial measures ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” CBOE HOLDINGS 5
Slide 6: Record Trading in S&P 500 Index (SPX) Options
Record Trading in S&P 500 Index (SPX) Options SPX remains the preferred contract for large institutional investors SPX ADV for 3Q15 Up 39% versus 2Q15 Up 36% versus 3Q14 SPX Weeklys ADV for 3Q15 *includes SPX Weeklys Represented nearly 40% of SPX volume Weeklys ADV increased 47% versus 2Q15 CBOE HOL
Slide 7: Russell 2000 Index (RUT) Options Trading Hits Quarterly High
Russell 2000 Index (RUT) Options Trading Hits Quarterly High On April 1, became sole provider of listed RUT index options RUT options ADV of 97k for 3Q15 23% increase versus 79k for 2Q15 Focused on further developing RUT marketplace Growing concentrated pool of liquidity Expanding customer base thro
Slide 8: Trading in VIX Options and VIX Futures Set Record Highs in 3Q15
Trading in VIX Options and VIX Futures Set Record Highs in 3Q15 Slower volume in first half of year followed by robust trading as volatility increased VIX options ADV for 3Q15 54% increase versus 2Q15 45% rise versus 3Q14 VIX futures ADV for 3Q15 43% increase versus 2Q15 32% rise versus 3Q14 CBOE HO
Slide 9: Advancing CBOE's Growth Story
Advancing CBOE’s Growth Story Create Collaborate Connect CBOE HOLDINGS 9
Slide 10: Create: Strong Debut for VIX Weeklys Futures and Options Trading
Create: Strong Debut for VIX Weeklys Futures and Options Trading VIX Weeklys options launched October 8, following futures in July VIX Weeklys expand array of trading strategies and opportunities VIX Weeklys options averaging 25,000 contracts a day Hit a daily high of more than 68,000 contracts VIX
Slide 11: Collaborate: FTSE Russell Indexes
Collaborate: FTSE Russell Indexes CBOE has an exclusive licensing agreement with London Stock Exchange Group On October 20, began the rollout of our new FTSE Russell products the Russell 1000 Index (ticker symbol: RUI) the Russell 1000 Value Index (ticker symbol: RLV) and the Russell 1000 Growth Ind
Slide 12: Collaborate: CurveGlobal Investment
Collaborate: CurveGlobal Investment CBOE will be the U.S. anchor exchange for CurveGlobal New global interest rate marketplace that offers a compelling trading alternative Offers new interest rate products Increased trading efficiencies Reduced transaction costs CBOE plans to develop products suited
Slide 13: Collaborate: American Financial Exchange (AFX)
Collaborate: American Financial Exchange (AFX) Collaborating with Environmental Financial Products (EFP) to launch a new interbank lending exchange (AFX) AFX is an electronic marketplace for small and mid-sized banks to lend and borrow short-term funds AFX also plans to launch a new transaction-base
Slide 14: Connect: Broadening Access to VIX Futures
Connect: Broadening Access to VIX Futures Nearly 9% of VIX futures trading during non-U.S. hours YTD¹ Generally, on days when volatility spikes, overnight volume increases and accounts for higher percentage of total VIX futures volume ¹YTD and October 2015 through October 28, 2015 ²Extended hours to
Slide 15: Connect: Broadening Access to VIX and SPX Options
Connect: Broadening Access to VIX and SPX Options Extended trading hours (ETH) for VIX and SPX options in March Six-hour session begins at 2:00 a.m. CT Aligns with open of trading in London and close in Asia Steady build in volume during ETH SPXPM options added to ETH on October 1 ¹Through October 2
Slide 16: Connect: Investor Education
Connect: Investor Education Hosted record attendees at Risk Management Conference (RMC) in Europe Expanding annual RMC beyond the U.S. and Europe to include Asia First RMC Asia will run from Nov 30 to Dec 1 in Hong Kong The Options Institute Launching first extension of CBOE’s Options Institute with
Slide 17: 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 18: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 19: 3Q15 Financial Overview
3Q15 Financial Overview Adjusted Basis¹ 3Q15 3Q14 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $187.0 $148.9 $38.1 26% Operating Expenses 85.9 73.8 12.1 16% Operating Income $101.1 $ 75.1 $26.0 35% Operating Margin % 54.1% 50.4% 370 bps Adjusted Net Income Allocated to Comm
Slide 20: Operating Revenue Increases 26%; Sets New High
Operating Revenue Increases 26%; Sets New High Transaction fees up $40.5MM Operating Revenues (in millions) 3Q15 3Q14 % Chg 6% increase in trading volume Transaction fees $ 144.8 $ 104.3 39% 31% increase in RPC Access fees 13.1 14.7 -11% Exchange services – Shift in product mix and other fees 11.0 9
Slide 21: Transaction Fees Driven by Increase in RPC and Favorable Shift in Volume Mix
Transaction Fees Driven by Increase in RPC and Favorable Shift in Volume Mix Highest-margin products posted strongest volume gains CBOE HOLDINGS 21
Slide 22: Increase in RPC Primarily Reflects Favorable Shift in Mix of Products Traded
Increase in RPC Primarily Reflects Favorable Shift in Mix of Products Traded Trading volume mix and RPC 3Q14 versus 3Q15 CBOE HOLDINGS 22
Slide 23: 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 84.0% of transaction fees in 3Q15, up from 81.3% in 3Q14 and 82.4% in 2Q15 ¹Through September 30, 2015 CBOE HOLDINGS 23
Slide 24: Other Revenue Drivers
Other Revenue Drivers Exchange services and other fees Operating up $1.5MM Revenues 3Q15 3Q14 % Chg (in millions) Higher revenue from systems Transaction fees $ 144.8 $ 104.3 39% services and Livevol technology services Access fees 13.1 14.7 -11% Exchange services Access fees down $1.6MM and other f
Slide 25: Volume-based and Performance-based Expenses Key Drivers
Volume-based and Performance-based Expenses Key Drivers Key drivers: Operating Expenses 3Q15 3Q14 % Chg (in millions) Royalty fees up $5.6MM Compensation and benefits $29.6 $28.7 3% Professional fees and outside Depreciation and amortization 12.4 10.4 20% services up $4.4MM Technology support servic
Slide 26: 3Q15 Core Operating Expenses Up 10% versus 3Q14; Up 2% YTD
3Q15 Core Operating Expenses Up 10% versus 3Q14; Up 2% YTD Key drivers: Core Operating Professional fees and outside Expenses (in millions) % Chg services up $4.4MM 3Q15 3Q14 Compensation and Outsourcing of certain regulatory benefits $29.6 $28.7 3% services Technology support services 5.3 4.7 12% C
Slide 27: 2015 Full-Year Guidance
2015 Full-Year Guidance Increase in core expenses primarily reflects higher incentive- based compensation fueled by stronger financial performance Full-Year Previous As of October 30, 2015 ($ in millions) Guidance Guidance Core operating expenses $194 to $196 $190 to $194 Continuing stock-based $12
Slide 28: Increase in Volume-based Expenses Due to Growth of Licensed Products Traded
Increase in Volume-based Expenses Due to Growth of Licensed Products Traded Royalty fees up $5.6MM Volume-based % Expenses 3Q15 3Q14 (in millions) Chg Primarily reflects higher volume in Royalty fees $ 21.8 $ 16.2 35% licensed products, which set new volume records Order routing 0.6 1.0 -40% Total $
Slide 29: Effective Tax Rate
Effective Tax Rate 3Q15 effective tax rate of 33.4% versus 35.4% in 3Q14 Includes benefit from the release of uncertain tax positions Adjusted effective tax rate 37.7%, excluding $4.3 million non-GAAP adjustment Adjusted to reflect the release of an uncertain tax position related to research and dev
Slide 30: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $122MM at Sept 30, 2015 Generated $194MM in operating cash flow through September 30, 2015 Capital outlays YTD include: $54 million to pay dividends $101 million to repurchase shares¹ $27 millio
Slide 31: Committed to Returning Capital to Shareholders
Committed to Returning Capital to Shareholders $92MM available under share repurchase program at Sept 30, 2015 Capital allocation philosophy Reinvest in our business to fund growth Sustainable dividends and steady growth Opportunistic share repurchases ¹Excludes special dividends ²Dividends paid for
Slide 32: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $110 55% $100 $90 53% $80 $70 51% $60 $50 49% $40 $30 $20 47% $10 $0 45% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Adjusted Operating Incom
Slide 33: Questions & Answers
Questions & Answers
Slide 34: Appendix Materials
Appendix Materials
Slide 35: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Quarterly Operating Revenue and Adjusted Diluted EPS¹ ($ in millions, except EPS) $0.80 $180 $0.75 $160 $0.70 $140 $0.65 $0.60 $120 $0.55 $100 $0.50 $80 $0.45 $60 $0.40 $0.35 $40 $0.30 $20 $0.25 $0 $0.20 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q
Slide 36: 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 82.8% of transaction fees in 2015, up from 50.6% in 2010 CBOE HOLDINGS 36
Slide 37: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 37
Slide 38: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.069 $0.070 $0.077 $0.077 $0.087 $0.093 $0.098 $0.104 $0.106 Indexes 0.702 0.704 0.712 0.707 0.701 0.697 $0.702 $0.703 $0.709 Exchange-traded products 0.111 0.115 0.118 0.115 0.114 0.117 $0.123 $0.133 $
Slide 39: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2015 % rev 2Q 2015 % rev 1Q 2015 % rev 4Q 2014 % rev 3Q 2014 % rev Total Operating Expenses $85,925 46% $75,355 51% $73,286 51% $79,525 48% $73,826 50% Less: Depreciation and amortization 12,394 7% 11,275 8% 10,402 7% 11,053 7% 10,361 7% Severan
Slide 40: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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: RPC Increase Primarily Reflects Favorable Shift in Mix of Products Traded
RPC Increase Primarily Reflects Favorable Shift in Mix of Products Traded Trading Volume Mix & RPC 3Q14 vs 3Q15 CBOE HOLDINGS 41
Slide 42: GAAP to Non-GAAP Reconciliation For 2010 and 2011
GAAP to Non-GAAP Reconciliation For 2010 and 2011 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 FY2010 FY2011 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders $ 20,0
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 and 2015 YTD
GAAP to Non-GAAP Reconciliation For 2014 and 2015 YTD GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q14 2Q14 3Q14 4Q14 FY2014 1Q15 2Q15 3Q15 4Q15 FY2015 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stock
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, Illinois
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com