Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2016 Earnings Presentation
44 slides from Cboe Global Markets's earnings presentation, Feb 6, 2017
Slide 1: Fourth Quarter 2016 Earnings Presentation
Fourth Quarter 2016 Earnings Presentation February 6, 2017
Slide 2: Cautionary Statements Regarding Forward-Looking Information
Cautionary Statements Regarding Forward-Looking Information This presentation contains certain statements regarding intentions, beliefs and expectations or predictions, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, including sta
Slide 3: Additional Information
Additional Information Additional Information Regarding the Transaction and Where to Find It This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities. This presentation relates to the proposed merger transaction involving CBOE Holdings, Bats, CBOE
Slide 4: 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 4
Slide 5: Strategic Review
Strategic Review Edward Tilly CEO
Slide 6: Growth in Proprietary Index Suite Continues to Drive Revenue and Earnings
Growth in Proprietary Index Suite Continues to Drive Revenue and Earnings Trading in our proprietary index suite up 14% in 4Q16 vs 4Q15 4Q16 adjusted diluted EPS of $0.63 on revenue of $163 million Fourth consecutive year of record index trading with new highs in SPX options and VIX futures Total AD
Slide 7: Strengthening CBOE's Global Position in Innovative, Tradable Products and Services
Strengthening CBOE’s Global Position in Innovative, Tradable Products and Services Bats acquisition expected to: Key Events in Roadmap to Completion Expand and diversify CBOE’s Sept. 26: Execution of merger agreement product line across new asset announced classes - cash equities, ETPs and Nov. 18:
Slide 8: Positioning to Better Meet Needs of Growing Index-Based Investing Market
Positioning to Better Meet Needs of Growing Index-Based Investing Market CBOE and Bats combination expected to influence entire value chain throughout the product development and trading cycle Product Product Design Listing Market Data Product Packaging Trading Market Data Generation CBOE HOLDINGS 8
Slide 9: Better Positioned to Capitalize on Major Industry Trends
Better Positioned to Capitalize on Major Industry Trends • Potential to Develop Ongoing Value-Added Industry-Defining Trends Relationships • ETPs account for 30% of total dollar-value traded Sophisticated strategies in U.S. cash equity markets¹ packaged into simple and • ETP assets stand at $2.5 tri
Slide 10: Expanding Options and Volatility Trading
Expanding Options and Volatility Trading CBOE Vest Financial provides access to innovative Target Outcome Investment strategies CBOE VEST Financial continues to expand its product offering Launched three mutual funds, each focusing on unique targeted investment outcomes – Downside protection – Enhan
Slide 11: Expanding Our Global Customer Base and Product Line
Expanding Our Global Customer Base and Product Line Investor education and collaboration with end-users goes hand- in-hand with successful product development Hosted second RMC Asia in Hong Kong in November 2016 Attendance nearly doubled from previous year 33rd annual CBOE RMC U.S. to start March 8t
Slide 12: Enhancing CBOE's Growth Opportunities
Enhancing CBOE’s Growth Opportunities CBOE’s Strategic Initiatives Transaction Aligns With Strategy Strengthens CBOE’s global position in Develop unique innovative, tradable products and products services Broadens geographic reach and Expand our enables company to build on customer base relationship
Slide 13: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 14: 4Q16 Financial Overview
4Q16 Financial Overview (in millions, except EPS and RPC) 4Q16 4Q15 $ Change % Change Adjusted Operating Revenues¹ $163.2 $154.0 $9.2 6% Adjusted Operating Expenses¹ 83.4 80.1 3.3 4% Adjusted Operating Income¹ $ 79.8 $ 73.9 $5.9 8% Adjusted Operating Margin %¹ 48.9% 48.0% 90 bps Adjusted Net Income
Slide 15: Operating Revenue Increase Driven by Higher Trading Volume
Operating Revenue Increase Driven by Higher Trading Volume Key drivers: Transaction fees up $4.6MM Adjusted Operating Revenue¹ 4Q16 4Q15 % Chg 13% increase in trading volume (in millions) Transaction fees $115.4 $110.8 4% 8% decrease in RPC Access fees 12.9 13.2 -2% – Higher volume discounts and Exc
Slide 16: RPC Decrease Primarily Reflects Higher Volume Discounts and Incentives
RPC Decrease Primarily Reflects Higher Volume Discounts and Incentives Trading volume mix and RPC 4Q15 versus 4Q16 Futures Futures 4.4% 4.9% Index Index 36.5% 35.9% Equity Equity 30.8% 33.8% ETPs ETPs 25.3% 28.4% 4Q16 RPC $0.377 $0.053 $0.083 $0.712 $0.311 $1.683 CBOE HOLDINGS 16
Slide 17: 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 89.4% of transaction fees in 4Q16 vs 83.1% in 4Q15 Mix of Transaction Fee Revenue 8.0% 4.3% 8.0% 5.1% 6.3% 6.7% 8.9% 9.1% 64.8% 67.7% 66.4% 63.7% 18.3% 21.7% 19.2% 21.8% 4
Slide 18: Other Operating Revenue Drivers
Other Operating Revenue Drivers Market data fees up $1.5MM Adjusted Operating % Revenue¹ 4Q16 4Q15 Chg (in millions) Increase in OPRA revenue allocated to CBOE Transaction fees $115.4 $110.8 4% Increase in revenue derived from Access fees 12.9 13.2 -2% CBOE’s proprietary index values Exchange servic
Slide 19: Ongoing Focus on Expense Management
Ongoing Focus on Expense Management Key drivers: Adjusted Operating Compensation and benefits up Expenses¹ 4Q16 4Q15 % Chg (in millions) $2.2MM Compensation and benefits¹ $29.0 $26.8 8% Royalty fees up $2.3MM Depreciation and amortization¹ 9.8 12.2 -20% Travel and promotional expenses Technology sup
Slide 20: Core Operating Expenses Up 7% in 4Q16 vs 4Q15
Core Operating Expenses Up 7% in 4Q16 vs 4Q15 Key drivers: Core Operating Compensation and benefits up Expenses¹ $2.2MM (in millions) 4Q16 4Q15 % Chg Compensation and Increase in incentive-based benefits¹ $29.0 $26.8 8% compensation, aligned with Technology support services 5.5 5.2 6% financial perf
Slide 21: Volume-Based Expenses
Volume-Based Expenses Royalty fees up $2.3MM Higher trading volume in licensed Volume-Based Expenses 4Q16 4Q15 % Chg products in 4Q16 versus 4Q15 (in millions) – Index complex volume up 12% Royalty fees $ 20.1 $ 17.8 13% • Index options volume up 11% Order routing 0.3 0.3 -- Total $ 20.4 $ 18.1 13%
Slide 22: 4Q16 Financial Review
4Q16 Financial Review Investment and other income Investment and other income of $5.1 million in 4Q16, up $1.6 million versus 4Q15 – Increase in dividend recognized from the Options Clearing Corporation (OCC) Tax rate 4Q16 effective tax rate of 39.8% 4Q15 effective tax rate of 36.7% – Increase in un
Slide 23: Enhancing Shareholder Value
Enhancing Shareholder Value Strong cash flow generation and disciplined approach to managing cash Generated $230 million in operating Operating Cash Flow ($ in millions) cash flow Net income includes $19.3 million pre-tax in acquisition-related costs $263 $245 Cash of $97 million at Dec. 31, 2016 $2
Slide 24: 2017 Full-Year Guidance
2017 Full-Year Guidance 2017 Full-Year As of February 6, 2017 ($ in millions) Guidance 2016 Actual Core operating expenses $214 to $218 $208 Stock-based compensation, including $13.0 $27.5¹ $14.5² in accelerated stock-based compensation¹ Depreciation and amortization $40 to $42 $44 Capital expenditu
Slide 25: Committed to Long-Term Value Creation for Shareholders
Committed to Long-Term Value Creation for Shareholders Expect to maintain a strong balance sheet and flexibility for: Capital expenditures Dividend payments Opportunistic share repurchases Other strategic initiatives Cash Used Under Share Repurchase Plan Change in Quarterly Dividend Rate Per Share (
Slide 26: Questions & Answers
Questions & Answers
Slide 27: Appendix Materials
Appendix Materials
Slide 28: Strong Track Record of Organic Growth
Strong Track Record of Organic Growth Focused on executing strategic initiatives while effectively managing expenses and deploying capital Total ADV (in thousands) Adjusted Operating Revenue¹ (in millions) 5,259 4,713 4,658 4,701 $633 $645 4,537 $617 $572 $512 2012 2013 2014 2015 2016 2012 2013 2014
Slide 29: Optimistic About Long-Term Growth Prospects
Optimistic About Long-Term Growth Prospects Adjusted Operating Revenue and Adjusted Diluted EPS¹ ($ 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 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q1
Slide 30: 2016 Financial Overview
2016 Financial Overview Year Year (in millions, except EPS and RPC) Ended Ended $ Change % Change 12/31/16 12/31/15 Adjusted Operating Revenue¹ $645.1 $632.5 $12.6 2% Adjusted Operating Expenses¹ 330.4 314.6 15.8 5% Adjusted Operating Income¹ $314.7 $317.9 -$3.2 -1% Adjusted Operating Margin %¹ 48.8
Slide 31: 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 88.2% of transaction fees in 2016, up from 50.6% in 2010 Annual Mix of Transaction Fee Revenue 10.2% 8.5% 8.0% 5.1% 22.6% 16.7% 6.7% 30.4% 9.7% 9.1% 11.0% 15.6% 19.9% 19.0
Slide 32: RPC Increase Primarily Due to Shift in Product Mix
RPC Increase Primarily Due to Shift in Product Mix Trading Volume Mix & RPC 2015 vs 2016 2015 Trading Volume Mix 2016 Trading Volume Mix Futures Futures 4.4% 5.1% ETPs ETPs 27.3% 27.5% VIX VIX 12.3% Index 12.5% Index S&P S&P 34.8% Indexes 36.6% Indexes 20.6% 22.2% Equity Equity 33.5% 30.8% Other Oth
Slide 33: Quarterly Options ADV
Quarterly Options ADV Index Options ( in millions) 2.07 1.75 1.76 1.81 1.74 1.55 1.691.64 1.50 1.54 1.49 1.471.48 1.38 1.40 1.45 CBOE and C2 Quarterly Options ADV (in millions) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 5.42 5.41 4.78 4.73 4.67 4.75 4.98 Equity O
Slide 34: SPX Weeklys ADV
Growing Index Product Line S&P 500 Index (SPX) options, the most actively traded U.S. index options SPX ADV up 9% in 2016 Fourth consecutive year of record volume Added Wednesday- and Monday- expiring SPX Weeklys in 2016 Increases opportunities to trade SPX Wednesday expirations had ADV of 91,000 SP
Slide 35: Further Developing Current Products to Grow Index Complex
Further Developing Current Products to Grow Index Complex CBOE Volatility Index (VIX) options and futures anchor volatility products VIX options ADV was up 3% from last year’s ADV VIX futures ADV was up 16% over 2015 12th consecutive ADV record Began overnight dissemination of VIX VIX Futures ADV VI
Slide 36: Broadening Access to Proprietary Products
Broadening Access to Proprietary Products Over 11% of VIX futures traded during non-U.S. hours in 2016, up from 9% for 2015 Generally, on days when volatility spikes, overnight volume increases and accounts for a higher percentage of total VIX futures volume Traded record overnight volume of more th
Slide 37: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities* $0.095 $0.092 $0.085 $0.081 $0.075 $0.070 $0.063 $0.057 $0.050 $0.048 $0.051 $0.053 Exchange-traded products* 0.138 0.131 0.117 0.111 0.104 0.103 0.096 0.089 0.079 0.075 0.082 0.083 Indexes 0.738 0.733 0
Slide 38: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 4Q 2016 % rev 3Q 2016 % rev 2Q 2016 % rev 1Q 2016 % rev 4Q 2015 % rev Total Operating Expenses $88,139 54% $90,557 58% $85,361 53% $82,849 51% $80,052 52% Less: Depreciation and amortization 10,066 6% 10,200 7% 12,259 8% 11,851 7% 12,202 8% Compens
Slide 39: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2016 % rev 2015 % rev 2014 % rev 2013 % rev 2012 % rev Total Operating Expenses $346,906 54% $314,617 50% $303,424 49% $286,236 50% $268,241 52% Less: Depreciation and amortization 44,377 7% 46,274 7% 39,913 6% 34,488 6% 31,485 6% Acquisitions related
Slide 40: 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 41: GAAP to Non-GAAP Reconciliation For 2014 and 2015
GAAP to Non-GAAP Reconciliation For 2014 and 2015 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 stockhold
Slide 42: GAAP to Non-GAAP Reconciliation For 2016
GAAP to Non-GAAP Reconciliation For 2016 (in thousands, except per share am ounts) Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP 1Q16 2Q16 3Q16 4Q16 FY2016 GAAP net incom e allocated to com m on stockholders * $ 49,198 $ 50,719 $ 40,280 $ 44,748 $ 184,946 Add: Com pen
Slide 43: Non-GAAP Information
Non-GAAP Information In addition to disclosing results determined in accordance with Generally Accepted Accounting Principles (GAAP), CBOE Holdings has disclosed certain non-GAAP measures of operating performance. These measures are not in accordance with, or a substitute for, GAAP measures, and may
Slide 44: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com