Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q2 2011 Earnings Presentation
39 slides from Cboe Global Markets's earnings presentation, Aug 4, 2011
Slide 1: Second Quarter Earnings Conference Call
CBOE Holdings, Inc. Second Quarter Earnings Conference Call A August t44, 2011 p. 1 CBOE Holdings, Inc.
Slide 2: Agenda
Agenda Strategic Review William Brodsky Chairman and CEO Financial Review Alan Dean Executive Vice President, CFO and Treasurer Questions and Answers William Brodsky Alan Dean Edward Tilly Executive Vice Chairman p. 2 CBOE Holdings, Inc.
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 i involve
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: Strong Financial Results 2Q11 vs 2Q10
Strong Financial Results 2Q11 vs 2Q10 Adjus te d Ope rating Re ve nue s 1 ► Operating Revenues (in m illions ) • $120.3 Million, up 7% $417 $ $402 $433 $344 ► Operating Margin $253 $214 $244 • 46.9%, 46 9% up 980 bps •Highest level in ten quarters 2006 2007 2008 2009 2010 YTD10 YTD11 ► Net Income Al
Slide 6: Options ADV Down 17% in 2Q11 Against Difficult 2Q10 Comparison
Options ADV Down 17% in 2Q11 Against Difficult 2Q10 Comparison Equity Options CBOE Holdings Quarterly Options ADV 2.40 2.58 2.60 (in millions) 2.26 1.94 Includes May 6 1.87 “Flash Flash Crash Crash” 5.29 5.04 4.55 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 4.40 4 23 4.23 Index Options 1.26 1.17 1.11 3.71 1.11 0.
Slide 7: Options Volume Trends
Options Volume Trends Total Monthly Options Average Daily Volume (in millions) May 6 “Flash Crash” 6.57 5.29 5.30 5.00 4.85 4.85 4.54 4.48 4.52 4.57 4.46 4.25 4.19 4.12 4.33 3.85 3.79 3.93 3.50 Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec 2010 2011 Source: Company Data p. 7 CBOE Holdings, Inc.
Slide 8: VIX Trading Continues to Hit Record Highs
VIX Trading Continues to Hit Record Highs VIX Options & Futures ADV (in thousands) ► VIX futures increased 190% 400 in 2Q11 versus 2Q10 350 381 50 45 300 40 ► VIX options increased 34% in O p tio n s A D V F u tu re s A D V 2Q11 versus 2Q10 250 248 30 200 ► VIX futures surpassed p 150 20 100,000 con
Slide 9: 2Q11 Market Share Data
2Q11 Market Share Data Total Industry Volume Excl. Dividend Trades CBOE C2 4% 4% PHLX 3% 2% ISE 4% 4% 31% NYSE/Amex 25% 26% 10% 14% 10% NYSE/Arca 1% 1% NOM 14% 14% BOX 23% 20% BATS 17% 18% 94% Source: Options Clearing Corporation and CBOE p. 9 CBOE Holdings, Inc.
Slide 10: Differentiated Product Set
Differentiated Product Set CBOE Trades… Equity Options on Index CFE Futures Options ETFs Options Exchange 2Q10 vs 2Q11 -24.9% -7.0% -11.7% 194% ADV Chg % of 2Q11 44% 30% 25% 1% Volume % of 2Q11 24% 20% 51% 5% Trans. Fees 2Q11 RPC $0.169 $0.202 $0.627 $1.477 p. 10 CBOE Holdings, Inc.
Slide 11: C2 Achieving Steady Growth
C2 Achieving Steady Growth ► Averaged 191,200 contracts per day in 2Q11, up 18 percent from 1Q11 ► Active market makers have nearly doubled since February ► Adjusted fees and incentives on May 2 to improve market quality ► Introduced complex order functionality for all listed classes in July C2 Mont
Slide 12: C2 Market Share Continues to Grow
C2 Market Share Continues to Grow C2 Market Share - Gains in SPY, QQQQ and Penny ETF 4.0% 3.8% 3.5% 3.0% 2.5% 2.5% 2.2% 2.0% 1.9% 1 7% 1.7% 1.5% 1.5% 1.3% 1.3% 1.0% 1.0% 0.8% 0.5% 0.0% Jan Feb Mar Apr p May y Jun Jul All Penny Penny ETF SPY QQQQ p. 12 CBOE Holdings, Inc.
Slide 13: SPXpm to Broaden Customer Reach
SPXpm to Broaden Customer Reach ► SEC extended its evaluation of SPXpm rule filing on June 3 • SEC must act by Sept 6 to • Approve or disapprove • Extend review period an additional and final 60 days ► SEC’s extended review focuses on PM settlement • PM settlement is a long established, logical sett
Slide 14: Leveraging Expertise in Volatility Products
Leveraging Expertise in Volatility Products ► New Initiatives to further develop volatility • Introduced CBOE Tail Hedge Index • Tracks performance of a portfolio based on one-month out-of-the money VIX calls • Provides investor a benchmark for VIX-based tail hedge strategies • CBOE may also use ind
Slide 15: Returning Capital to Stockholders
Returning Capital to Stockholders ► Board authorized a $100 million share repurchase program ► I Increased d quarterly t l didividend id d bby 20% tto $0 $0.12 12 ffrom $0 $0.10 10 ► Strong commitment to returning capital to stockholders ► Confidence in long-term growth prospects for CBOE Holdings p
Slide 16: 2011 Initiatives
2011 Initiatives ► CBOE’s unique focus on options and volatility products leaves us well-positioned to take advantage of long-term secular growth trends ► Key Priorities: • Build on the success of C2 • Work for approval to launch SPXpm • Expand product offerings, including VIX product line • Positio
Slide 17: 2Q11 Financial Overview
2Q11 Financial Overview 2Q11 2Q10 $ Change % Change (in millions, except RPC and EPS) Total Operating Revenues $ 120.3 $ 112.6 $ 7.7 7% Total Operating Expenses 63.8 70.8 (7.0) -10% Operating Income 56.5 41.8 14.7 35% Operating Margin Percentage 46.9% 37.1% N/A 980 bps Income Before Income Taxes 56.
Slide 18: 2Q11 Operating Revenues
2Q11 Operating Revenues Operating Revenues (in millions) 2Q 2011 2Q 2010 $ CHG % CHG Key Drivers: ► Access fees Transaction fees $ 86.3 $ 94.1 $ (7.8) -8% • Increase reflects implementation Access fees 17.0 2.3 14.7 639% of new trading permit program Exchange services and other fees 4.3 4.5 (0.2) -4
Slide 19: Transaction Fees Driven by Volume and Rate Per Contract
Transaction Fees Driven by Volume and Rate Per Contract Overall Transaction Fee per Contract (RPC) RPC down due to RPC up due to higher mix of lower mix of index index options and futures and options p and fee caps p lower volume discounts Thousands RPC 6,000 $0.320 5,000 $0.300 4,000 $0.280 3 000 3
Slide 20: Options Trading Volume Mix
Options Trading Volume Mix RPC Increased due to Mix Shift to Higher-Margin Index Options and Futures 2Q 2010 2Q 2011 Futures, 1.1% ETF, ETF, 27.3% 30.3% Equity, Index, Equity, 43.5% 23.8% 48.6% Index, 25.1% p. 20 CBOE Holdings, Inc.
Slide 21: 2Q11 Operating Expenses
2Q11 Operating Expenses Key Drivers: Operating Expenses (in millions) 2Q 2011 2Q 2010 $ CHG % CHG Employee Costs ► • Increase I in i stock-based t kb d Employee Costs $ 24.5 $ 22.6 $ 1.9 8% compensation; $2.5 million continuing expense and $0.1 million of Depreciation and Amortization 9.0 7.3 1.7 23
Slide 22: 2Q11 Core Operating Expenses Down 12% Excluding Impact of Stock Grants
2Q11 Core Operating Expenses Down 12% Excluding Impact of Stock Grants (in thousands) 2Q11 2Q10 $ CHG % CHG T t l Operating Total O ti Expenses E $ 63 63,838 838 $ 70 70,792 792 $ (6 (6,954) 954) -10% 10% Less: Depreciation and amortization 8,996 7,301 1,695 23% Accelerated stock-based compensation
Slide 23: Volume-based Expenses
Volume-based Expenses Volume-based expenses: (in thousands) 2Q11 2Q10 $ CHG % CHG Royalty fees $ 10,373 $ 11,519 $ (1,146) -10% Trading volume incentives 2,515 7,339 (4,824) -66% Total $ 12,888 $ 18,858 $ (5,970) -32% ► Royalty fees declined due to lower trading volume in licensed index products ► T
Slide 24: Well Positioned to Deliver Higher Margins
Well Positioned to Deliver Higher Margins Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $60.0 50.0% 48.0% $50.0 46.0% 44.0% $40.0 42.0% $30 0 $30.0 40 0% 40.0% 38.0% $20.0 36.0% 34.0% $10.0 32.0% $0.0 30.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 ¹Adjusted to reflect the
Slide 25: Guidance Summary for Full Year 2011
Guidance Summary for Full Year 2011 ► Revenue impact of 1/2/11 fee changes expected to be +$3 to +$5 million ► Fee changes expected to increase RPC by $0.003 to $0.004 in 2011 ► Access fees in a range of $65 to $68 million • Excludes access fees for SPXpm on C2 ► Core expenses adjusted to a range of
Slide 26: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet As of As of As of ($ in thousands) Dec. 31, 2010 Mar. 31, 2011 June 30, 2011 Balance Sheet S Data Cash¹ $ 53,789 $115,689 $106,545 Total Assets $254,112 $320,820 $319,422 Total Liabilities $ 78,238 $117,856 $ 92,128 Total Stockholders’ Equity $175,874 $202,964 $227,294
Slide 27: Strong Cash Flow and Return of Capital
Strong Cash Flow and Return of Capital ► Generated $14.3 million in operating cash flow for second quarter and $92.6 million year-to-date y • 63% increase in 2Q11 compared with 2Q10 • 30% increase year-to-date 2011 versus 2010 ► Cash from operations expected to fund ongoing growth initiatives ► Focu
Slide 28: Questions & Answers
Questions & Answers p. 28 CBOE Holdings, Inc.
Slide 29: Appendix Materials
Appendix Materials p. 29 CBOE Holdings, Inc.
Slide 30: Annual Financial Highlights
Annual Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Exchange-traded funds 4.7 $0.309 $344 Indexes 4.5 45 4.5 45 $330 $0.294 $315 Equities $0.282 $0.288 $0.288 $0.277 3.8 28% $273 24% 25% 23% 2.7 20% $190 22% 24% 19% 24% $145 1.9 16% 23% 25% 51% 56% 53% 51% 58% 59% 2005 2006 2007
Slide 31: Historical Transaction Fee Drivers
Historical Transaction Fee Drivers For the Year Ended December 31, 6 Mos 6 Mos ‘06-’10 Ended Ended (in thousands, CAGR/ June 30, June 30, except rate per contract) 2006 2007 2008 2009 2010 Avg. 2011 2010 Average Daily Volume Equities 1,556 1,996 2,387 2,519 2,273 10% 2,267 2,489 Indexes 628 918 1,02
Slide 32: CBOE Rolling 3-Month RPC
CBOE Rolling 3-Month RPC CBOE Rolling Three-Month Average Transaction Fee Per Contract 2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.170 $0.164 $0.160 $0.163 $0.168 $0.169 Indexes 0.592 0.601 0.604 0.615 0.618 0.627 Exchange-traded funds 0.223 0.215 0.207 0.207 0.208 0.202 Total o
Slide 33: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses ($ in thousands) 2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % rev 3Q 2010 % rev 2Q 2010 % rev Total Operating Expenses $63,838 53% $66,507 54% $65,537 62% $71,082 67% $70,792 63% Less: Depreciation and Amortization 8,996 8% 8,696 7% 8,190 8% 7,099 7% 7,301 6% Accelerated s
Slide 34: 2011 Calculation of Projected Weighted Average Shares
2011 Calculation of Projected Weighted Average Shares 1Q 2011 (pre-vesting) 2Q 2011 (vested qtr) Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 51,786,717 , , 90 90 51,786,717 , , 51,786,717 , , 91 91 51,786,717 , , Class A-2
Slide 35: Quarterly Financial Highlights
Quarterly Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Equities Indexes Exchange-traded funds $94 $90 5.3 5.1 $86 $0 306 $0.306 $0.308 $ $83 $ $0 300 $0.300 $80 4.5 $0.293 4.4 $0.281 $0.285 $73 23% 4.2 23% 26% 3.7 25% 27% 18% 24% 24% 20% 22% 19% 24% 54% 59% 53% 53% 49% 57% 1Q10 2
Slide 36: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three Months Ended March 31 and June 30, 2011 (in thousands, ex cept per share amounts) Three months ended March 31, 2011 Three months ended June 30, 2011 Items Impactin
Slide 37: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation (in thousands, ex cept per share amounts) Three months ended September 30, 2010 Three months ended December 31, 2010 Items Impacting Results Items Impacting Results After After Accelerated Considering Recognition of Accelerated Considering Reported stock-based Items (
Slide 38: 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 expenses, adjusted revenue revenue, adjuste
Slide 39: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, IL 60605 Debbie Koopman Director, Investor Relations koopman@cboe com [email protected] 312-786-7136 p. 39 CBOE Holdings, Inc.