Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2015 Earnings Presentation
46 slides from Cboe Global Markets's earnings presentation, Feb 3, 2016
Slide 1: Fourth Quarter 2015 Earnings Presentation
Fourth Quarter 2015 Earnings Presentation February 3, 2016
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 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: 2015 Marks Fifth Consecutive Year of Record Financial Results for CBOE
2015 Marks Fifth Consecutive Year of Record Financial Results for CBOE Expanded our premium products and global customer reach, while forming new alliances to complement our core strengths and diversify product offering Posted record ADV in index Total ADV for Index Complex: complex in 2015 Index Op
Slide 6: Translating our Mission and Strategic Initiatives into Value
Translating our Mission and Strategic Initiatives into Value Our mission is to be the market leader in providing innovative products that facilitate and enhance trading in a global marketplace Strategic Initiatives • Develop unique products • Expand our customer base globally • Form alliances that l
Slide 7: Further Developing Current Products to Grow Index Product Line
Further Developing Current Products to Grow Index Product Line S&P 500 Index (SPX) options, the most SPX ADV* by Year (in thousands) actively traded U.S. index option 1,163 SPX ADV up 6% year over year in 2015 784 823 888 939 698 January ADV up 19% over January 2015 SPX Weeklys ADV up 24% year over
Slide 8: Further Developing Current Products to Grow Index Product Line
Further Developing Current Products to Grow Index Product Line CBOE Volatility Index (VIX) futures and VIX Options ADV Chart Title (in thousands) options anchor volatility products 677 632 567 573 Most of 2015 was marked by historically 443 389 low levels of volatility, punctuated by volatility spik
Slide 9: Leveraging VIX Methodology to Create New Products and Grow Index Product Line
Leveraging VIX Methodology to Create New Products and Grow Index Product Line VIX Weeklys expand array of trading strategies and opportunities to trade volatility Launched VIX Weeklys futures in July, options in October VIX Weeklys options averaged nearly 35,000 contracts per day in 2015 Plan to beg
Slide 10: Leveraging Partnerships With Index Providers to Grow Index Product Line
Leveraging Partnerships With Index Providers to Grow Index Product Line Sole U. S. provider of major FTSE Russell Products, beginning with Russell 2000 Index (RUT) on April 1 Focused on further developing RUT RUT Options ADV Industrywide (in thousands) marketplace Launched Russell 1000 Growth and 11
Slide 11: Forming Alliances that Leverage our Strengths
Forming Alliances that Leverage our Strengths Teamed with London Stock Exchange Group (LSEG) and major dealer banks to form CurveGlobal, a new interest rate derivatives platform Products will trade on the LSE Derivatives Market and clear through LCH.Clearnet Expected to provide more product choices,
Slide 12: Forming Alliances to Develop New Products and Markets
Forming Alliances to Develop New Products and Markets Teamed with Environmental Financial Products (EFP) to launch American Financial Exchange (AFX), an interbank lending exchange AFX is an electronic marketplace for small and mid-sized banks to lend and borrow short-term funds CBOE hosts and operat
Slide 13: Expanding Our Global Customer Base
Expanding Our Global Customer Base Expanding outreach and investor education around the world Launched the first extension of CBOE’s Options Institute with Singapore Exchange (SGX) in December In 2015, expanded CBOE Risk Management Conference (RMC) to include Asia First RMC Asia held in Hong Kong in
Slide 14: Expanding Options and Volatility Trading
Expanding Options and Volatility Trading CBOE made a majority equity investment in Vest Financial (VEST), an investment advisor that provides options-centric products Vest through its subsidiaries provides: Options-based investment advisory services through packaged products Develops technology solu
Slide 15: Focused on Advancing our Strategic Growth Initiatives
Focused on Advancing our Strategic Growth Initiatives Excited About Opportunities for 2016 and Beyond Strategic Initiatives • Develop unique products • Expand our customer base globally • Form alliances that leverage and complement our core business • Define and lead the options and volatility space
Slide 16: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 17: 4Q15 Financial Overview
4Q15 Financial Overview Adjusted Basis¹ 4Q15 4Q14 $ Change % Change (in millions, except EPS and RPC) Adjusted Operating Revenues $154.0 $166.5 $(12.5) -8% Adjusted Operating Expenses 80.1 77.7 2.4 3% Adjusted Operating Income $ 73.9 $ 88.8 $(14.9) -17% Adjusted Operating Margin % 48.0% 53.4% -540 b
Slide 18: Operating Revenue Down On Lower Trading Volume
Operating Revenue Down On Lower Trading Volume Key drivers: Transaction fees down $11.9MM Adjusted Operating Revenue¹ 4Q15 4Q14 % Chg 25% decrease in trading volume (in millions) Transaction fees $110.8 $122.7 -10% 20% increase in RPC Access fees 13.2 14.5 -9% – Shift in product mix Exchange service
Slide 19: RPC Increase Primarily Reflects Mix Shift and Lower Volume Discounts
RPC Increase Primarily Reflects Mix Shift and Lower Volume Discounts Trading volume mix and RPC 4Q14 versus 4Q15 Futures Futures 4.2% 4.4% Index Index 31.1% 36.5% Equity Equity 4Q14 34.4% 33.8% ETPs ETPs 30.3% 25.3% 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 83.1% of transaction fees in 4Q15 and 82.9% for full-year 2015 CBOE HOLDINGS 20
Slide 21: Other Revenue Drivers
Other Revenue Drivers Adjusted Operating % Access fees down $1.3MM Revenue¹ 4Q15 4Q14 Chg (in millions) Decrease in trading permits Transaction fees $110.8 $122.7 -10% Exchange services up $2.4MM Access fees 13.2 14.5 -9% Exchange services and Higher revenue from systems other fees 11.8 9.4 25% serv
Slide 22: Ongoing Focus on Expense Management
Ongoing Focus on Expense Management Adjusted Operating Key drivers: Expenses¹ 4Q15 4Q14 % Chg (in millions) Professional fees and outside Compensation and benefits $26.8 $27.5 -2% services up $4.4MM Depreciation and amortization 12.2 11.1 10% Depreciation and amortization up Technology support $1.1M
Slide 23: Core Operating Expenses Up 7% in 4Q15 vs 4Q14
Core Operating Expenses Up 7% in 4Q15 vs 4Q14 Key drivers: Professional fees and outside Core Operating Expenses¹ services up $4.4MM (in millions) 4Q15 4Q14 % Chg Compensation and Outsourcing of certain regulatory benefits $26.8 $27.5 -2% services Technology support services 5.2 4.9 5% Compensations
Slide 24: Volume-Based Expenses
Volume-Based Expenses Royalty fees down $1.5MM Volume-Based Lower trading volume in licensed Expenses 4Q15 4Q14 % Chg products in 4Q15 versus 4Q14 (in millions) Royalty fees $ 17.8 $ 19.3 -8% – Index options volume down 12% Order routing 0.3 0.9 -66% – VIX futures volume down 20% Total $ 18.1 $ 20.2
Slide 25: Fourth Quarter and Full-Year Effective Tax Rate
Fourth Quarter and Full-Year Effective Tax Rate 4Q15 GAAP and adjusted effective tax rate Decrease in effective tax rate for 2015 primarily resulted from the preferential tax treatment of dividend income recognized in the fourth quarter of 2015 4Q14’s adjusted effective tax rate excluded benefit fro
Slide 26: Enhancing Shareholder Value
Enhancing Shareholder Value Strong cash flow generation and disciplined approach to managing cash Generated $245MM in operating cash flow Capital outlays for 2015 include: $73 million to pay dividends $135 million to repurchase shares¹ $39 million in capital expenditures $102MM of cash at Dec. 31, 2
Slide 27: Committed to Returning Capital to Shareholders
Committed to Returning Capital to Shareholders Capital allocation philosophy Reinvest in our business to fund growth Sustainable dividends and steady growth Opportunistic share repurchases Annual Dividend Rate Per Share¹,² $0.88 $0.78 $0.66 $0.54 $0.44 $0.20 2010³ 2011 2012 2013 2014 2015 ¹Excludes
Slide 28: 2016 Full-Year Guidance
2016 Full-Year Guidance 2016 Full-Year As of February 3, 2016 ($ in millions) Guidance 2015 Actual Core operating expenses $211 to $215 $195 Continuing stock-based compensation¹ $13.5 $12 Depreciation and amortization $46 to $48 $46 Capital expenditures $47 to $49 $39 Effective tax rate 38.5% to 39.
Slide 29: Strong Track Record of Organic Growth
Strong Track Record of Organic Growth Focused on executing strategic initiatives while effectively managing expenses and deploying capital ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 29
Slide 30: Questions & Answers
Questions & Answers
Slide 31: Appendix Materials
Appendix Materials
Slide 32: 2015 Financial Overview
2015 Financial Overview Adjusted Basis¹ 2015 2014 $ Change % Change (in millions, except EPS and RPC) Adjusted Operating Revenues $632.5 $617.2 $ 15.3 2% Adjusted Operating Expenses 314.6 299.0 15.6 5% Adjusted Operating Income $317.9 $318.2 $ ( 0.3) -- Operating Margin % 50.3% 51.6% -130 bps Adjust
Slide 33: 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 $0.20 1Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142
Slide 34: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Adjusted Operating Income and Margin¹ ($ in millions) $110 55% $100 $90 53% $80 $70 51% $60 $50 49% $40 $30 $20 47% $10 $0 45% 1Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q15 Adjusted Operating Income Adjusted Operating Mar
Slide 35: 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 82.9% of transaction fees in 2015, up from 50.6% in 2010 Annual Mix of Transaction Fee Revenue 10.2% 8.5% 8.0% 22.6% 16.7% 30.4% 9.7% 9.1% 11.0% 15.6% 19.9% 19.0% 63.0% 63.7
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 accounted for 82.1% of transaction fees in 4Q15 versus 83.7% in 4Q14 Quarterly Mix of Transaction Fee Revenue 6.9% 8.7% 8.8% 7.0% 8.0% 9.4% 10.0% 8.8% 9.0% 8.9% 63.8% 61.6% 62.4% 65.0%
Slide 37: Increase in Rate Per Contract Primarily Reflects Favorable Shift in Mix
Increase in Rate Per Contract (RPC) Primarily Reflects Favorable Shift in Mix of Products Traded 4Q14 Trading Volume Mix 4Q15 Trading Volume Mix Futures Futures 4.2% 4.4% ETPs ETPs 30.3% 25.3% VIX VIX 10.7% Index S&P Index S&P 12.9% 31.1% Indexes 36.5% Indexes 18.9% 21.7% Equity Equity 34.4% 33.8% O
Slide 38: Quarterly Options ADV
Quarterly Options ADV Index Options 2.07 2.00 1.75 1.76 1.50 1.54 1.49 1.47 1.48 1.55 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 TD¹ 5.42 5.41 4.98 5.15 4.78 4.73 4.67 4.75 Equity Options 4.47 4.58 2.17 4.21 4.20 1.
Slide 39: 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 $0.105 $0.098 $0.097 Indexes 0.702 0.704 0.712 0.707 0.701 0.697 0.702 0.703 0.709 0.706 0.718 0.726 Exchange-traded products 0.111 0.115 0.1
Slide 40: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 4Q 2015 % rev 3Q 2015 % rev 2Q 2015 % rev 1Q 2015 % rev 4Q 2014 % rev Total Operating Expenses $80,052 52% $85,925 43% $75,355 51% $73,286 51% $79,525 48% Less: Depreciation and amortization 12,202 8% 12,394 7% 11,275 8% 10,402 7% 11,053 7% Severan
Slide 41: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2015 % rev 2014 % rev 2013 % rev 2012 % rev 2011 % rev Total Operating Expenses $314,617 50% $303,424 51% $286,236 50% $268,241 52% $266,512 52% Less: Depreciation and amortization 46,274 7% 39,913 7% 34,488 6% 31,485 6% 34,094 7% Accelerated stock-ba
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
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 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. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP fin
Slide 46: CBOE, 400 South LaSalle Street, Chicago, Illinois
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com