Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2010 Earnings Presentation
41 slides from Cboe Global Markets's earnings presentation, Feb 10, 2011
Slide 1: Fourth Quarter Earnings Conference Call
CBOE Holdings, Inc. Fourth Quarter Earnings Conference Call F b February 10, 10 2011 p. 1 CBOE Holdings, Inc.
Slide 2: Agenda
Agenda Strategic Review William J. Brodsky Chairman and CEO Financial Review Alan Dean Executive VP, VP CFO and Treasurer Questions and Answers William J. J Brodsky Alan Dean Ed Joyce President and COO Ed Tilly Executive Vice Chairman p. 2 CBOE Holdings, Inc.
Slide 3: Forward Looking Statements
Forward Looking Statements ► This presentation contains statements which may be considered forward-looking statements within the meaning of the Securities Exchange Act of 1934, including, without limitation, statements regarding operating strategies, future plans and financial results. Forward-looki
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: Solid Q4 and Full Year
Solid Q4 and Full Year Adjusted Operating ► Results driven by: Revenues Years ended Dec. 31 ($ in millions)1 $433 • Higher revenue from transaction fees $417 $402 $344 • Continued growth of our proprietary $253 products • Disciplined cost control 2006 2007 2008 2009* 2010* ► Well positioned in 2011
Slide 6: Options ADV up 14% 4Q10 vs 3Q10
Options ADV up 14% 4Q10 vs 3Q10 Equity Options CBOE Holdings 2010 Options ADV by Quarter 2.40 2.58 (In Millions) 2.26 1.87 5.2 9 1Q 2Q 3Q 4Q Index Options 4 .55 4 .2 3 1.26 1.11 0.94 0.98 3 .71 1Q 2Q 3Q 4Q ETF Options 1.45 1.04 0.99 0.91 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q p. 6 CBOE Holdings, Inc.
Slide 7: Options Volume Trends Improving
Options Volume Trends Improving Total Monthly Options Average Daily Volume January 2010 through January 2011 (in thousands) 7,000 6,567 6,000 5 304 5,304 5 289 5,289 4,851 5,000 4,541 4,331 4,460 4,246 4,121 3,853 3,785 3,928 4,000 3,502 3,000 2,000 1 000 1,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep
Slide 8: Strong Growth of Volatility Franchise
Strong Growth of Volatility Franchise VIX Futures & Options Annual ADV (000's of contracts) 400 40 39 350 396 35 300 30 Opttions ADV V ures ADV V 250 25 248 200 20 Futu 17 150 15 132 100 10 103 93 50 23 5 5 4 5 1 2 0 0 2005 2006 2007 2008 2009 2010 2011 YTD ¹ ¹YTD through January 31, 2011 VIX Option
Slide 9: Leveraging Expertise in Volatility Products
Leveraging Expertise in Volatility Products ►Extended trading hours in VIX futures • Added one hour and 10 minutes to start of trading day • Nearly two percent of all VIX futures trade during new session ►CBOE Gold Volatility Index (GVZ) options and futures • Received regulatory approval for GVZ ind
Slide 10: Q4 2010 CBOE Market Share Data
Q4 2010 CBOE Market Share Data CBOE ISE Total Industry Volume Excl. Dividend Trades NASDAQ/PHLX 31% NYSE/ARCA 14% NYSE/AMEX 5% 1% 5% 2% BOX 3% 3% 18% NASDAQ/NOM BATS 26% 28% 12% 13% 11% 11% 17% 19% 25% 20% Source: Options Clearing Corporation and CBOE p. 10 CBOE Holdings, Inc.
Slide 11: CBOE Consistent Market Share Leader
CBOE Consistent Market Share Leader Market Share Excluding Dividend Trades, up 180 bps in January 35% 30% 28% 25% 19% 20% 18% 15% 12% 10% 11% 5% 5% 3% 2% 0% 1% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 -5% CBOE ISE NYSE-AMEX NYSE-ARCA PHLX BOX NOM BATS C2 Source: Options Clearing Corporation and CBOE p. 11
Slide 12: Differentiated Product Set
Differentiated Product Set CBOE Trades… Equity Index Options on CFE Futures O ti Options Options ETFs Exchange ’09-’10 ADV -9.7% 21.2% 0.4% 281% Chgg Percent of 51% 24% 25% < 1% 2010 trading volume 3-month avg $0.177 $0.590 $0.224 $1.679 RPC 12/31/10 p. 12 CBOE Holdings, Inc.
Slide 13: Successful Rollout of C2
Successful Rollout of C2 ► Seamless rollout of high-volume equity and ETF options C2 Monthly ADV ► C2 has listed 360 options classes to date, (in thousands) representing 82% of U.S. options volume 156 ► Targeting 1-2% 1 2% market share of U.S. multiply- multiply 110 listed options in first full year
Slide 14: Regulatory Update
Regulatory Update ► CBOE continues to work with regulators on behalf of options customers and the industry ► SEC proposed rules that could potentially affect options industry include: • Fee caps • “Step Step up up” trading ► Dodd-Frank soundly endorsed exchange trading and central clearing ► Enhance
Slide 15: FLEX Options Products
FLEX Options Products ► FLEX® options offer: FLEX / CFLEX ADV (in thousands) • Customizable contract terms 52 • Transparency of price • Centralized clearing significantly reduces d counterparty t t risk i k 14 4 ► CFLEXSM offers: 2008 2009 2010 • Internet-based execution system for electronic tradin
Slide 16: 2011 Initiatives
2011 Initiatives ► Well-positioned to take advantage of long-term secular growth trends ► Extend VIX product line • Pursue licensing opportunities • Create new products and benchmarks ► Build on success of C2 ► E h Enhance outreach h programs that h educate d iinvestors p. 16 CBOE Holdings, Inc.
Slide 17: Key Growth Drivers
Key Growth Drivers ► Continuing to be the leader and innovator in developing and introducing new products and tools ► Driving volume growth through the C2 electronic platform, and the introduction of an electronic S&P 500 index product ► Leveraging L i iindustry-leading d t l di iintellectual t ll t
Slide 18: Q4 2010 Financial Overview
Q4 2010 Financial Overview ¹Adjusted Basis Q4 2010 Q4 2009 $ Change % Change (in millions, millions except RPC and EPS) Total Operating Revenues $113.0 $ 96.7 $16.3 17% Total Operating Expenses 63.5 62.0 $ 1.5 2% Operating Income $ 49.5 $ 34.7 $14.8 43% Operating Margin 43.8% 35.8% N/A 8.0 pts Other
Slide 19: 4Q 2010 Adjusted Operating Revenues
4Q 2010 Adjusted Operating Revenues Adjusted Operating Revenues (in millions) 1 4Q 2010 4Q 2009 % CHG Key Drivers: Transaction fees $ 79.9 $ 77.3 3% ► Transaction fees • 5% increase in RPC to $0.293 Access fees 18 4 18.4 34 3.4 441% • 2% decrease in trading volume Exchange services and other fees 4.
Slide 20: Transaction Fees Driven by Volume and Rate Per Contract
Transaction Fees Driven by Volume and Rate Per Contract Overall Transaction Fee per Contract (RPC) Higher volume resulted Higher mix of index RPC up 5 % Y-O-Y in lower RPC and options drove RPC Sequential decline due Thousands stronger revenue growth growth th to lower mix RPCof index 6,000 options
Slide 21: 4Q 2010 Options Trading Volume Mix
4Q 2010 Options Trading Volume Mix 4Q 2009 4Q 2010 ETF ETF 25% 24% Equity Equity 53% 53% Index Index 23% 22% Equity Index ETF Options p Options Options p p. 21 CBOE Holdings, Inc.
Slide 22: Strong Volume Growth in Proprietary Index Products
Strong Volume Growth in Proprietary Index Products 4Q09 vs. 4Q10 Average Daily Volume Growth VIX Options O i 58% % VIX Futures 248% p. 22 CBOE Holdings, Inc.
Slide 23: 4Q 2010 Adjusted Operating Expenses
4Q 2010 Adjusted Operating Expenses Adjusted Operating Expenses¹ Key Drivers: (in millions) 4Q 2010 4Q 2009 % CHG ► Employee Costs Employee Costs $ 23.8 $ 21.2 12% • $3.2 million increase from continuing stock-based compensation expense Depreciation and Amortization 8.2 6.9 19% ► Depreciation and Am
Slide 24: 4Q 2010 Core Operating Expenses Down 5% Excluding Impact of Stock Grants
4Q 2010 Core Operating Expenses Down 5% Excluding Impact of Stock Grants ($ in thousands) 4Q 2010 4Q2009 % CHG Total Operating Expenses $ 65,537 $ 64,152 2% Less: Depreciation and amortization 8,190 6,859 19% Accelerated stock-based compensation expense 2,004 - NM Exercise right appeal settlement -
Slide 25: 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% $0.0 30.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 ¹Adjusted to reflect the impact of
Slide 26: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet As of As of As of ($ in thousands) Dec. 31, 2009 Sept. 30, 2010 Dec. 31, 2010 B l Balance Sh Sheett Data D t Cash $383,730 $322,936 $53,789 Total Assets 571,948 530,624 254,112 Total Liabilities 383,814 81,482 78,238 Total Stockholders’/Members’ Equity¹ 188,134 449,142
Slide 27: Return of Capital to Stockholders
Return of Capital to Stockholders ► Generated nearly $135 million in operating cash flow in 2010 ► Used net IPO proceeds of $300 million to purchase restricted stock • Purchased more than 12 million shares of Class A-1 and Class A-2 restricted common stock • Reduced shares outstanding by 12 percent
Slide 28: Summary of Significant Fee Changes
Summary of Significant Fee Changes ► Eliminated firm sliding scale; replaced with a new firm fee cap • Applies to all products except proprietary • Firm multiply-listed transaction fees capped at $75,000/month ► Implemented new firm sliding scale for proprietary products • Provides opportunity to at
Slide 29: Guidance Summary for Full Year 2011
Guidance Summary for Full Year 2011 ► Revenue impact of 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 S&P 500 index product on C2 ► Core expenses in a range of $
Slide 30: Questions & Answers
Questions & Answers p. 30 CBOE Holdings, Inc.
Slide 31: Appendix Materials
Appendix Materials p. 31 CBOE Holdings, Inc.
Slide 32: Annual Financial Highlights
Annual Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Exchange-traded funds 4.7 $0.309 $344 Indexes 45 4.5 45 4.5 $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 33: Historical Transaction Fee Drivers
Historical Transaction Fee Drivers For the Year Ended December 31, 2006 2007 2008 2009 2010 A Average D Daily il Volume V l (in (i thousands) th d ) Equities 1,556 1,996 2,387 2,519 2,273 Indexes 628 918 1,026 884 1,071 ETF’s 504 849 1,304 1,100 1,096 Total Options 2,688 3,763 4,717 4,503 4,440 Futu
Slide 34: Calculation of Weighted Average Shares
Calculation of Weighted Average Shares 3 Months Ending Dec 31, 2010 12 Months Ending Dec 31, 2010 Days Total Days Total Weighted Shares Outstanding Days Weighted Avg Outstanding Days Avg Shares Issued to Members 74,400,000 92 92 74,400,000 365 365 74,400,000 Shares Issued to Exercise Right Settlemen
Slide 35: CBOE Rolling 3-Month RPC
CBOE Rolling 3-Month RPC CBOE Rolling Three-Month Average Transaction Fee Per Contract (RPC) 2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.177 $0.180 $0.184 $0.172 $0.163 $0.162 $0.170 $0.180 $0.182 $0.180 $0.179 $0.177 Indexes 0.576 0.590 0.597 0.584 0.578 0.580 0.590 0.597 0.598
Slide 36: Quarterly Financial Highlights
Quarterly Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Equities Indexes Exchange-traded funds $94 5.3 $0 306 $0.306 $81 $83 $ $0 300 $0.300 $80 $80 4.7 $0.292 $0.293 $76 $77 4.5 4.5 4.5 $0.278 $0.281 $73 4.3 27% 4.2 $0.273 $0.266 23% 23% 3.7 26% 24% 25% 25% 18% 24% 25% 20% 19% 24
Slide 37: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses ($ in thousands) 4Q 2010 % rev 3Q 2010 % rev 2Q 2010 % rev 1Q 2010 % rev 4Q 2009 % rev Total Operating Expenses $65 537 $65,537 62% $71 082 $71,082 67% $70,792 $70 792 63% $62,352 $62 352 62% $64,152 $64 152 53% Less: Depreciation and Amortization 8,190 8% 7,099 7%
Slide 38: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) Three months ended December 31, 2010 Three months ended December 31, 2009 Items Impacting Results Items Impacting Results After Recognition of After Recognition of Accelerated Considering deferred Exercise right Considering Rep
Slide 39: Reconciliation of Net Income Allocated to Common Stockholders
Reconciliation of Net Income Allocated to Common Stockholders Three months ended December 31, For the year ended December 31, 2010 2009 2010 2009 Basic EPS Numerator: Net Income $ 31,377 $ 34,904 $ 99,396 $ 106,451 Less: Net Income allocated to participating securities (690) - (1,229) - Net Income a
Slide 40: 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 press release include core operating expenses expenses, adjusted operating revenues reve
Slide 41: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, IL 60605 Debbie Koopman Director, Investor Relations koopman@cboe com koopman@cboe.com 312-786-7136 p. 41 CBOE Holdings, Inc.