Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q1 2017 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, May 9, 2017
Slide 1: First Quarter 2017 Earnings Presentation
First Quarter 2017 Earnings Presentation May 9, 2017 (Updated May 11, 2017)
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 Chris Concannon President and Chief Operating Officer John Deters Chief Strategy Officer, Head of Corporate Initiatives CBO
Slide 3: Cautionary Statements Regarding Forward-Looking Information
Cautionary Statements Regarding Forward-Looking Information This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words su
Slide 4: Strategic Review
Strategic Review Edward Tilly CEO
Slide 5: 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 8% in 1Q17 vs 1Q16 1Q17 adjusted diluted EPS of $0.78 on revenue of $193.4 million Total options ADV up 9% year-over-year SPX options had record quarterly ADV, up 15% year-over-year VI
Slide 6: Diversified Product Offering
Strengthening our Position as a Global Exchange Operator • 9% increase in ADV for 1Q17 versus 1Q16 Options • Record quarterly ADV in SPX options Diversified Product Offering • 1Q17 market share of 19.2% vs 21.3% in 1Q16 U.S. Equities • Lower volatility; difficult comparisons • 18% increase in ADV fo
Slide 7: Strengthening CBOE's Global Position
Strengthening CBOE’s Global Position Major Areas of Expected Benefit: CBOE Holdings is now one of the world’s Grows our company largest exchange operators Added to S&P 500 Index on March 1 U.S. and European equities; ETF trading; global Diversifies our product foreign exchange (FX) platform; equity,
Slide 8: Strengthening CBOE's Global Position in Innovative, Tradable Products and Services
Strengthening CBOE’s Global Position in Innovative, Tradable Products and Services Executing Integration plan focused on realizing benefits of combining CBOE and Bats Reconfigured business development and sales operations to leverage expanded product line and geographic reach Leveraging marketing an
Slide 9: Newly Launched Division Focused on Enhancing Innovation
Newly Launched Division Focused on Enhancing Innovation Enables an integrated approach to innovation across a broader array of products and services Product Market Information Development Research Solutions Multi-Asset Solutions Division CBOE HOLDINGS 9
Slide 10: Leveraging Bats' Leading Proprietary Trading Technology
Leveraging Bats’ Leading Proprietary Trading Technology Migrating trading technology onto Bats’ proven platform to gain scale and efficiency A multi-year technology migration is underway, led by Chris Isaacson, CIO Plan to complete migration of CFE in February 2018 C2 and CBOE to follow Next custome
Slide 11: Excited About Opportunities Ahead
Excited About Opportunities Ahead CBOE HOLDINGS 11
Slide 12: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 13: 1Q17 Financial Overview
1Q17 Financial Overview Adjusted Pro Forma Financial Results¹ (in millions) 1Q17 1Q16 $ Change % Change Net Revenue¹,² $265.3 $255.2 $10.1 4% Adjusted Operating Expenses¹ 106.3 102.6 3.7 4% Adjusted Operating Income¹ $159.0 $152.6 $6.4 4% Adjusted Operating Margin %¹ 59.9% 59.8% 10 bps Adjusted Net
Slide 14: Net Revenue Growth Supported by both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by both Transaction and Non-Transaction Revenue Non-transaction revenue accounted for 42.9% of net revenue; up 160 bps versus 1Q16 Net transaction fees up $3.6MM Pro Forma Net Revenue¹ 1Q17 1Q16 % Chg (in millions) Primarily driven by growth in proprietary index products
Slide 15: Diversified Product Offering: Pro Forma Net Revenue
Strengthening our Position as a Global Exchange Operator Pro Forma Net Revenue1 • 2% increase in net revenue $265.3 $255.2 Options • Increase in ADV offset somewhat by decline in RPC Diversified Product Offering • Flat net revenue, decrease in net $135.1 U.S. Equities transaction fees offset by grow
Slide 16: Options Pro Forma Net Revenue Up in Both Transaction and Non-Transaction Revenue
Options Pro Forma Net Revenue Up in Both Transaction and Non-Transaction Revenue Record quarterly ADV in SPX options key growth driver Increase in index options net transaction fees offset somewhat by revenue decline in multiply-listed options Growth in market data revenue due to strong market share
Slide 17: Futures Net Revenue Up 37%
Futures Net Revenue Up 37% 1Q17 ADV for VIX futures third highest ever 18% increase in ADV in 1Q17 vs 1Q16 10% increase in RPC in 1Q17 vs 1Q16 Futures Statistics 1Q17 1Q16 ($ in millions, except RPC) Actual Actual Change Futures Net Revenue $28.8 $21.0 37% Futures Key Operating Statistics: Total ADV
Slide 18: Proprietary Products Drive 8% Organic Revenue Growth for Legacy CBOE
Proprietary Products Drive 8% Organic Revenue¹ Growth for Legacy CBOE Proprietary Products account for majority of net transaction fees for both Legacy CBOE and Combined Mix of Proprietary Products to Legacy Mix of Proprietary Products to Total Net CBOE Net Transaction Fees Pro Forma Transaction Fee
Slide 19: U.S. Equities Pro Forma Net Revenue Unchanged 1Q17 vs 1Q16
U.S. Equities Pro Forma Net Revenue Unchanged 1Q17 vs 1Q16 Low volatility and difficult comparison to record 1Q16 Increase in non-transaction revenue offset decline in net transaction fees Bats maintained position as second-largest U.S. equities market operator in 1Q17 U.S. Equities Pro Forma¹ Stati
Slide 20: European Equities Pro Forma Net Revenue Impacted by Currency
European Equities Pro Forma Net Revenue Impacted by Currency Faced with difficult market conditions 4% decline due to stronger dollar relative to the pound sterling In local currency, net revenue grew 11% European Equities Pro Forma¹ Statistics 1Q17 1Q16 Change ($ in millions, except RPC) European E
Slide 21: Global FX Pro Forma Net Revenue Increase Driven by Non-transaction
Global FX Pro Forma Net Revenue Increase Driven by Non-transaction Hotspot market share reached a new high of 12.9% Increase in net revenue due to higher non-transaction fees implemented in 2016 Global FX Pro Forma¹ Statistics 1Q17 1Q16 Change ($ in millions, except RPC) Global FX Pro Forma Net Reve
Slide 22: Pro Forma Operating Expenses
Pro Forma Operating Expenses Key Variances: Pro Forma Adjusted Operating Expenses¹ 1Q17 1Q16 % Chg (in millions) Compensation and benefits Compensation and up $5.8MM benefits¹ $54.8 $49.0 12% Depreciation and Primarily higher incentive-based amortization¹ 12.9 14.7 -12% compensation Technology suppo
Slide 23: Estimated Cost Synergies Update
Estimated Cost Synergies Update Primary sources of synergies Targeted Run Rate Cost Synergies as of Sept. 2016 (in millions) $65 Compensation and benefits $60 $50 IT consultants $35 Professional services $15 Corporate expenses Systems development amortization YR 1 YR 2 YR 3 YR 4 YR5 IT Costs Non-IT
Slide 24: 2017 Full-Year Guidance
2017 Full-Year Guidance 2017 Pro Forma 2016 Pro Full-Year Forma As of May 9, 2017 ($ in millions) Guidance¹ Comparison Adjusted operating expenses² $415 to $423 $417² Depreciation and amortization¹ (excluding $52 to $54 $56 amortization of acquired intangible assets) Capital expenditures $55 to $60
Slide 25: Debt and Interest Expense
Debt and Interest Expense Issued $650 million Senior Notes on January 12, 2017 $1 billion term loan drawn upon closing of Bats acquisition Pay down of $150 million during 1Q17 Initial interest rate of 2.304%, based on 3 month LIBOR plus 1.25 percent per annum Spread subject to change based on credit
Slide 26: 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 to: Invest in the growth of our business Return capital through dividends Pay down debt Take an opportunistic approach towards share repurchases As of Change in Quarterly Dividend Rate Pe
Slide 27: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth of Core • Achieved strong organic growth, driven Proprietary Products by proprietary products Diversification and Stabilization of Revenue • Increased non-transaction revenue Stream • Solid expense controls Scale of Bus
Slide 28: Questions & Answers
(e-1 HOLDINGS Questions & Answers
Slide 29: Appendix Materials
(e-1 HOLDINGS Appendix Materials
Slide 30: Growing Proprietary Index Suite
Growing Proprietary Index Suite Index suite ADV up 15% through April 2017 versus same period last year SPX options posted record quarterly ADV in 1Q17 2016 was fourth consecutive year of record index trading with new highs in SPX options and VIX futures Annual ADV for Index Suite: Index Options and
Slide 31: Growing Index Product Line
Growing Index Product Line S&P 500 Index (SPX) options, the most actively traded U.S. index options SPX ADV up 19% in 2017 TD¹ SPX ADV* by Year (in thousands) SPX achieved record quarterly ADV in 1Q17 1,024 1,162 939 888 2016 was fourth consecutive year of record 698 823 volume Added Wednesday- and
Slide 32: Volatility Index (VIX) Products
Volatility Index (VIX) Products CBOE VIX options and futures VIX Options ADV VIX Options anchor volatility products (in thousands) 712 632 567 573 588 VIX options ADV up 13% 2017 TD¹ versus 443 prior year VIX futures ADV up 23% 2017 TD¹ versus prior year 2012 2013 2014 2015 2016 2017 TD¹ 2016 was 12
Slide 33: 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 34: 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. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP fin
Slide 35: Non-GAAP Information
Non-GAAP Information Table 1 First Quarter GAAP Actual and Non- GAAP Adjusted Results 1Q17 1Q16 1Q17 1Q16 ($ in millions except per share) GAAP GAAP Change Adjusted1 Adjusted1 Change Total Revenue Less Cost of Revenue $ 193.4 $ 143.1 35% $ 193.4 $ 143.1 35% Total Operating Expenses $ 167.3 $ 63.6 16
Slide 36: Non-GAAP Information
Non-GAAP Information Table 3 1Q17 1Q16 Revenue Less Cost of Revenue by Business Segment 1Q17 1Q16 Pro Pro (in millions) GAAP GAAP Change Forma Forma Change Options $ 129.0 $ 122.1 6 %$ 135.1 $ 132.2 2 % U.S. Equities $ 25.5 $ — — $ 72.7 $ 73.0 — % Futures $ 28.8 $ 21.0 37 %$ 28.8 $ 21.0 37 % Europea
Slide 37: Non-GAAP Information
Non-GAAP Information Reconciliation of GAAP and non-GAAP Information The information below shows the reconciliation of each financial measure from GAAP to non-GAAP. The non-GAAP financial measures exclude the impact of those items detailed below and are referred to as adjusted financial measures Tab
Slide 38: Non-GAAP Information
Non-GAAP Information EBITDA (earnings before interest, income taxes, depreciation and amortization) is a widely used non-GAAP financial measure of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue). It is presented as supplemental informati
Slide 39: Non-GAAP Information
Non-GAAP Information The following unaudited pro forma condensed consolidated financial statements have been prepared by recording pro forma adjustments to the historical consolidated financial statements of CBOE Holdings. The pro forma consolidated condensed income statements for the three months e
Slide 40: Non-GAAP Information (Table 7)
Non-GAAP Information (see footnotes to Table 7 on Slide 42) Three months ended March 31, 2017 - Table 7 Adjusted Pro Pro Forma Forma CBOE Bats Pro Forma Footnote Combined Per Non-GAAP Foot- Combined Per (in millions, except per share amounts) Reported Historical¹ Adjustments Reference Table 2 Adjust
Slide 41: Non-GAAP Information (Table 8)
Non-GAAP Information (see footnotes to Table 8 on slide 42) Three months ended March 31, 2016 - Table 8 Adjusted Pro Pro Forma Forma CBOE Bats Pro Forma Footnote Combined Non-GAAP Foot- Combined Per (in millions, except per share amounts) Historical Historical¹ Adjustments Reference Per Table 2 Adju
Slide 42: Non-GAAP Information
Non-GAAP Information Table 7 Footnotes: ¹Bats Historical activity for 2017 reflects activity for the period beginning January 1, 2017 through February 28, 2017. (1) Reflects adjustments to reduce Bats historical amortization of acquired intangibles by $4.5 million and increase amortization of acquir
Slide 43: Non-GAAP Information
Non-GAAP Information Adjusted Pro Forma Combined Operating Expenses for the Year Ended December 31, 2016 - Table 9 Adjusted Pro Forma Combined for Year-Ended CBOE Bats Pro Forma Footnote Pro Forma Non-GAAP Foot- December 31, (in millions) Historical Historical¹ Adjustments Reference Combined Adjustm
Slide 44: Non-GAAP Information
Non-GAAP Information Debt to EBITDA - Trailing Twelve Months (TTM) - Table 10 ($ in millions) LTM Ended 2/28/17 LTM Ended 3/31/17 Pro forma net income allocated to common stockholders $ 235.6 $ 212.0 Interest 45.7 49.8 Income tax provision 157.4 139.6 Depreciation and amortization 84.5 95.7 Pro form
Slide 45: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com