Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q2 2016 Earnings Presentation
41 slides from Cboe Global Markets's earnings presentation, Jul 29, 2016
Slide 1: Second Quarter 2016 Earnings Presentation
Second Quarter 2016 Earnings Presentation July 29, 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: Strong Second-Quarter Results Fueled by Proprietary Index Products
Strong Second-Quarter Results Fueled by Proprietary Index Products Ongoing growth of trading in our proprietary index product, led by record trading in VIX futures Revenue up 10% in 2Q16 vs 2Q15; Total ADV for Index Complex: Adjusted diluted EPS up 11% Index Options and VIX Futures (in millions) 2.3
Slide 6: Translating our Mission and Strategic Initiatives into Long-Term Shareholder Value
Translating our Mission and Strategic Initiatives into Long-Term Shareholder Value Our mission is to be the leader in providing innovative products that facilitate and enhance trading in a global marketplace Strategic Initiatives • Develop unique products • Form strategic alliances that leverage and
Slide 7: Broadening Access to Proprietary Products
Broadening Access to Proprietary Products More than 235,00 VIX futures contracts traded during non- U.S. hours on June 24th in reaction to the Brexit referendum New single-day record for trading in our overnight session Surpassed previous single-day record by 67% VIX Futures ADV During Non-U.S. Trad
Slide 8: Near Record ADV in VIX Futures for 2Q16
Near Record ADV in VIX Futures for 2Q16 CBOE Volatility Index (VIX Index) is considered the world’s barometer of equity market volatility VIX futures ADV up 41% in 2Q16 vs 2Q15; up 19% vs 1Q16 VIX options ADV up 17% in 2Q16 vs 2Q15; down 8% vs 1Q16 Began overnight dissemination of VIX Index on April
Slide 9: Extending Access to Our Markets
Extending Access to Our Markets Broadened Access to VIX and SPX Options Trading and VIX Index Information Extended trading hours for VIX and SPX options in March 2015 Six-hour session begins at 2:00 a.m. CT; aligns with open of trading in London Began overnight dissemination of VIX Index on April 15
Slide 10: 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 actively traded U.S. index option SPX ADV for 2Q16 up 19% vs 2Q15; down 5% vs 1Q16 SPX Weeklys ADV up 18% vs 2Q15; up 7% vs 1Q16 SPX Weeklys with Wednesday Expirations introduced in February Wednesda
Slide 11: Expanding Our Global Customer Base
Expanding Our Global Customer Base Initiatives focused on education, business development and trading technology The fifth annual CBOE Risk Management Conference (RMC) Europe scheduled to take place Sept. 26 through 28 in County Wicklow, Ireland CBOE RMC now includes RMC U.S., RMC Europe and RMC Asi
Slide 12: Forming Alliances that Leverage our Strengths
Forming Alliances that Leverage our Strengths CBOE made a minority equity investment in Eris Exchange Holdings, LLC (Eris) in May Eris is a U.S.-based futures exchange group offering swap futures as a capital-efficient alternative to over-the-counter (OTC) swaps CBOE and Eris partnership will focus
Slide 13: Forming Alliances that Leverage our Strengths
Forming Alliances that Leverage our Strengths CBOE to Develop Series of Social Media-Based Strategy Benchmark Indexes CBOE entered into an exclusive licensing agreement with Social Market Analytics (SMA), a leader in providing actionable intelligence from social media sources CBOE plans to develop a
Slide 14: Solid YTD Results Reflect Companywide Commitment to Executing our Strategic Initiatives
Solid YTD Results Reflect Companywide Commitment to Executing our Strategic Initiatives Chart Title Total ADV (in thousands) Adjusted Operating Revenue¹ (in millions) 5,259 4,829 4,537 4,713 4,658 4,660 $617 $633 $572 $508 $512 $292 $326 2011 2012 2013 2014 2015 6 mos 6 mos 2011 2012 2013 2014 2015
Slide 15: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 16: 2Q16 Financial Overview
2Q16 Financial Overview Adjusted Basis¹ 2Q16 2Q15 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $163.3 $148.7 $14.6 10% Adjusted Operating Expenses 83.8 75.3 8.5 11% Adjusted Operating Income $79.5 $73.4 $6.1 8% Adjusted Operating Margin % 48.7% 49.3% -60 bps Adjusted Net In
Slide 17: Operating Revenue Up 10%
Operating Revenue Up 10% Transaction fees main driver of revenue growth Transaction fees up $16.3MM Operating Revenue 2Q16 2Q15 % Chg (in millions) 10% increase in RPC Transaction fees $117.9 $101.6 16% – Shift in product mix Access fees 13.2 13.4 -1% 6% increase in trading volume Exchange services
Slide 18: Change in RPC Reflects Mix Shift and Higher Volume-Based Incentives
Change in RPC Reflects Mix Shift and Higher Volume-Based Incentives Trading volume mix and RPC 2Q15 versus 2Q16 Futures Futures 4.2% 5.7% Index Index 33.0% Equity 37.2% Equity 29.9% 34.9% 2Q15 2Q16 ETPs 27.9% ETPs 27.2% 2Q16 RPC $0.405 $0.070 $0.103 $0.701 $0.328 $1.682 CBOE HOLDINGS 18
Slide 19: 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 87.9% of transaction fees in 2Q16 versus 82.4% in 2Q15 Quarterly Mix of Transaction Fee Revenue 8.8% 7.0% 8.0% 6.4% 5.2% 9.0% 7.8% 6.9% 8.8% 8.9% 64.3% 62.4% 65.0% 64.8% 6
Slide 20: Other Factors Influencing Operating Revenue
Other Factors Influencing Operating Revenue Exchange services and other Operating Revenues (in millions) 2Q16 2Q15 % Chg fees up $1.6MM Transaction fees $117.9 $101.6 16% Primarily reflects the addition of Access fees 13.2 13.4 -1% CBOE Livevol Exchange services and other fees 11.3 9.7 17% Other rev
Slide 21: Ongoing Focus on Prudent Expense Management
Ongoing Focus on Prudent Expense Management Largest expense variances aligned Adjusted Operating with performance and volume: Expenses¹ 2Q16 2Q15 % Chg (in millions) Compensation and benefits up Compensation and $3.5MM benefits $27.6 $24.1 15% Depreciation and Royalty fees up $2.5MM amortization 12.
Slide 22: Core Operating Expenses
Core Operating Expenses Key drivers: Core Operating Compensation and benefits up Expenses¹ (in millions) % Chg $3.5MM 2Q16 2Q15 Compensation and Primarily due to higher salaries and benefits $27.6 $24.1 15% incentive-based compensation Technology support Services 5.7 4.8 18% Professional fees and ou
Slide 23: 2016 Full-Year Guidance
2016 Full-Year Guidance 2016 Full-Year As of July 29, 2016 ($ in millions) Guidance Core operating expenses $211 to $215 Continuing stock-based compensation¹ $13.5 Accelerated stock-based compensation² $1.0 Depreciation and amortization $46 to $48 Capital expenditures $47 to $49 Effective tax rate 3
Slide 24: Volume-based Expenses
Volume-based Expenses Royalty fees up $2.5MM Volume-based Higher trading volume in licensed Expenses 2Q16 2Q15 % Chg (in millions) products in 2Q16 versus 2Q15 Royalty fees $19.3 $16.8 15% – Index complex volume up 22% • Index options volume up 19% Order routing -0.1 0.6 -113% Total $19.2 $17.4 10%
Slide 25: Enhancing Shareholder Value
Enhancing Shareholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $52 million at June 30, 2016 Operating Cash Flow ($ in millions) Generated $115 million in operating cash flow through June 30, 2016 Capital outlays YTD: $263 $245 $224 $203 $201 $38 million to
Slide 26: Committed to Returning Capital to Shareholders
Committed to Returning Capital to Shareholders Reinvest in our business to fund growth Sustainable dividends and steady growth Board declared increased third quarter dividend of $0.25 per share, up 9% Sixth consecutive annual increase Cash Used Under Share Repurchase Plan Change in Quarterly Dividen
Slide 27: Questions & Answers
Questions & Answers
Slide 28: Appendix Materials
Appendix Materials
Slide 29: 2016 YTD Financial Overview
2016 YTD Financial Overview 6 mos. 6 mos. Adjusted Basis¹ End End $ Change % Change (in millions, except EPS and RPC) 06/2016 06/2015 Operating Revenues $325.7 $291.5 $34.2 12% Adjusted Operating Expenses 165.6 148.6 17.0 11% Adjusted Operating Income $160.1 $142.9 $17.2 12% Adjusted Operating Margi
Slide 30: 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 86.8% of transaction fees through June ‘16, up from 50.6% in 2010 Annual Mix of Transaction Fee Revenue 10.2% 8.5% 8.0% 5.8% 22.6% 16.7% 7.4% 30.4% 9.7% 9.1% 11.0% 15.6% 19.
Slide 31: RPC Increase Primarily Due to Shift in Product Mix
RPC Increase Primarily Due to Shift in Product Mix Trading Volume Mix & RPC 2Q16 vs 2Q16 2Q15 Trading Volume Mix 2Q16 Trading Volume Mix Futures Futures 5.7% 4.2% ETPs ETPs 27.9% VIX 27.2% 11.8% VIX Index Index 13.3% S&P 37.2% S&P 33.0% Indexes Indexes 19.0% 22.0% Equity Equity 34.9% 29.9% Other 2.2
Slide 32: Quarterly Options ADV
Quarterly Options ADV Index Options ( in millions) 2.07 1.75 1.76 1.81 1.55 1.69 1.50 1.54 1.49 1.47 1.48 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 5.42 5.41 4.78 4.73 4.67 4.75 4.98 Equity Options (in million
Slide 33: 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 $0.070 Exchange-traded products 0.138 0.131 0.117 0.111 0.104 0.103 Indexes 0.738 0.733 0.720 0.706 0.698 0.701 Total options RPC 0.351 0.351 0.346 0.335 0.326 0.328 Fut
Slide 34: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 2Q 2016 % rev 1Q 2016 % rev 4Q 2015 % rev 3Q 2015 % rev 2Q 2015 % rev Total Operating Expenses $85,361 53% $82,849 51% $80,052 52% $85,925 43% $75,355 51% Less: Depreciation and amortization 12,259 8% 11,851 7% 12,202 8% 12,394 7% 11,275 8% Acquisi
Slide 35: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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 36: 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 37: 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 38: 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 39: GAAP to Non-GAAP Reconciliation For 2016
GAAP to Non-GAAP Reconciliation For 2016 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 1Q16 2Q16 3Q16 4Q16 FY2016 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders $ 49,198 $ 50,719 $ 99,693 Add:
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. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP fin
Slide 41: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com