Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q1 2012 Earnings Presentation
41 slides from Cboe Global Markets's earnings presentation, May 1, 2012
Slide 1: First Quarter Earnings Conference Call
First Quarter Earnings Conference Call May 1, 2012 CBOE Holdings, Inc.
Slide 2: Agenda
Agenda Strategic Review William Brodsky Chairman and CEO Financial Review Alan Dean Executive Vice President CFO and Treasurer Willi William Brodsky B d k Questions and Answers Alan Dean Edward Tilly President and Chief Operating Officer Edward Provost Executive Vice President Chi f B Chief Business
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 n
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: Solid Financial Results
Solid Financial Results ► Slight decline in operating revenues to $121.4 million related to industry-wide decline in trading g volume YOY ► Solid expense control enhanced operating margin ► Adjusted diluted EPS up 3% to $0.37 • 7th consecutive q quarter of adjusted EPS growth YOY ► Strong gains in m
Slide 6: Mission and Strategy
Mission and Strategy Create value for stockholders Develop New by offering a diversified Products portfolio of risk management products and services which Optimize generate industry leading profit Revenue and Market Share in margins and growth rates while Commoditized maintaining the highest Product
Slide 7: SPXpm Gaining Traction
SPXpm Gaining Traction ► Working closely with early adopters ► Expanded comprehensive marketing and educational program ► Customer feedback continues to be positive ► Open interest topped 100,000 contracts in March and April p. 7 CBOE Holdings, Inc.
Slide 8: Strong Growth in Volatility Trading
Strong Growth in Volatility Trading ► Strong future growth potential • VIX options up 4% 1Q12 YOY; up 36% in 1Q12 vs 4Q11 • VIX futures up 57% 1Q12 YOY; up 74% in 1Q12 vs 4Q11 ► Growth fueled in part by ETPs tied to VIX index • AUM up 82% to $5.1 billion from $2.8 billion in Dec. 2011 ► Adding new V
Slide 9: CBOE Volatility Benchmark Indexes
CBOE Volatility Benchmark Indexes CBOE Equity Index Volatility Indexes CBOE VIX Indexes on Individual Equities • CBOE Volatility V l tilit IIndex d (VIX) • Apple (VXAPL) • CBOE DJIA Volatility Index (VXD) • Amazon (VXAZN) • CBOE Nasdaq-100 Volatility Index (VXN) • Goldman Sachs (VXGS) • CBOE S&P 100
Slide 10: Optimizing Revenue and Market Share In Commoditized Products
Optimizing Revenue and Market Share In Commoditized Products Achieved significant market share gains: ► Positive customer response to VIP • Pays credits to firms for certain types 28.5% and levels of business at CBOE ► Market share in multiply-listed options up 3.9 percentage points to 23.0% 23.0% f
Slide 11: Expanding User Base
Expanding User Base ► Focus on customer segments with FLEX Index Options ADV greatest potential • Users of OTC market • Institutional investors • Volatility traders ► OTC-type trades migrating to CBOE • 24% increase in FLEX index products 1Q12 vs 1Q11 • 21% growth in FLEX index products i 2011 vs 20
Slide 12: Providing Enhanced CFLEX Technology
Providing Enhanced CFLEX Technology ► Introducing new CFLEX 2.0, customized trading technology • Enables convenient access to FLEX options • Features Automated Improvement Mechanism (AIM) • Began gradual roll out; expect to be fully functional by end of June ► Expected to attract additional trading
Slide 13: Rollout of CBOE Command
Rollout of CBOE Command™ ► Rollout of new trade engine technology • CFLEX 2.0 • New API • Servers move to New Jersey 4Q12 CBOE Command™ ► Systems y development p embedded in value proposition ► Systems designed in-house • Provide flexibility, scalability • Cost effective p. 13 CBOE Holdings, Inc.
Slide 14: Undisputed Leader in Options Innovation
Undisputed Leader in Options Innovation 1983 2003 Introduced Began operating Index Options Hybrid trading 2011 model Launched 1985 SPXpm 1973 Options 2006 CBOE became Institute 1993 Began trading VIX options first marketplace established Devised methodology for trading options for the VIX Index, the
Slide 15: Financial Review
Financial Review Alan Dean Executive Vice President CFO and Treasurer p. 15 CBOE Holdings, Inc.
Slide 16: 1Q12 Financial Overview
1Q12 Financial Overview Adjusted Basis1 (in millions, except EPS and RPC) 1Q12 1Q11 $ Chg. g % Chg. g Operating Revenues $121.4 $124.0 $ (2.6) -2% Adjusted Operating Expenses 63.8 66.1 2.3 -3% Adjusted Operating Income $ 57.6 57 6 $ 57.9 57 9 $ (0 (0.3) 3) -1% 1% Adjusted Operating Margin % 47.5% 46
Slide 17: Overview of Operating Revenues
Overview of Operating Revenues Key Drivers: p g Revenues ((in millions)) Operating 1Q12 1Q11 $ CHG % CHG ► Transaction Fees • 4% decrease in trading volume Transaction fees $ 84.8 $ 89.9 $ (5.1) -6% • 2% decrease in RPC Access fees 16.0 17.6 ((1.6)) -9% ► Access Fees Exchange services and other fees
Slide 18: Highlights of Fee Changes
Highlights of Fee Changes CBOE Achieved Significant Gains in Market Share¹► Implemented a new volume Millions incentive program (VIP) ► Revised liquidity provider sliding scale to exclude proprietary and exclusive products ► Increased fees for certain exchange services ► Modified access fees ► Incre
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) 4Q11 RPC up versus 4Q10 due to higher mix of index RPC decline reflects net impact of VIP, options and futures and lower volume discounts volume discounts and other fee changes Thousands RPC p. 19 CBOE
Slide 20: Trading Volume Mix 1Q12 vs 1Q11
Trading Volume Mix 1Q12 vs 1Q11 RPC Changes Primarily Reflect Impact of Fee Modifications p. 20 CBOE Holdings, Inc.
Slide 21: Strong Growth in Exchange Services and Market Data Revenue
Strong Growth in Exchange Services and Market Data Revenue Key Drivers: ► Access fees decline (in millions) 1Q12 1Q11 $ CHG % CHG • Reflects fee modifications • Trading permits held steady Access fees $ 16.0 $ 17.6 $ (1.6) -9% • More permit holders taking advantage of sliding scale pricing Exchange
Slide 22: Adjusted Operating Expenses
Adjusted Operating Expenses¹ Key Drivers: Adjusted j Operatingg Expenses (in millions) 1Q12 1Q11 $ CHG % CHG ► Outside Services Employee Costs $ 25.1 $ 25.4 $ (0.3) -1% • Higher expenses for contract Depreciation and Amortization 8.3 8.7 (0.4) -5% programmers D t Processing Data P i 49 4.9 44 4.4 05
Slide 23: 1Q12 Core Operating Expenses up 3%
1Q12 Core Operating Expenses up 3% (in thousands) 1Q12 1Q11 $ CHG % CHG Total Operating Expenses $ 63,977 $ 66,507 $ (2,530) -4% Less: Depreciation and amortization 8,320 8,696 (376) -4% Accelerated stock-based compensation expense 194 340 (146) NM Volume-based expenses: Royalty fees 11,191 11,146 4
Slide 24: Volume-based Expenses
Volume-based Expenses Volume-based expenses: (in thousands) 1Q12 1Q11 $ CHG % CHG Royalty R lt ffees $ 11 11,191 191 $ 11 11,146 146 $ 45 0% Trading volume incentives 2,649 5,759 (3,110) -54% Total $ 13,840 $ 16,905 $ (3,065) -18% ► Royalty fees primarily determined by trading volume in licensed ind
Slide 25: Seventh Consecutive Quarter of Year-Over-Year Margin Improvement
Seventh Consecutive Quarter of Year-Over-Year Margin Improvement Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $80.0 55.0% $70.0 50.0% $60.0 $50.0 45.0% $40.0 40.0% $30.0 $20.0 35 0% 35.0% $10.0 $0.0 30.0% 1Q09 Q 2Q09 Q 3Q09 Q 4Q09 Q 1Q10 Q 2Q10 Q 3Q10 Q 4Q10 Q 1Q11 Q 2Q11 Q 3Q11 Q
Slide 26: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet Our Business Model Generates Significant Cash Cash Flow Highlights $ in millions 1Q11 2Q11 3Q11 4Q11 1Q12 Net Cash Flow from Operating $ 78.2 $ 14.3 $ 71.1 $ 38.3 $ 63.3 Acti ities Activities Capital Expenditures (7.1) (11.2) (5.1) (5.7) (7.9) Dividend Payments (9.2) (
Slide 27: 2012 Full-Year Guidance
2012 Full-Year Guidance ($ in millions) 2011 Actual 2012 Guidance Exchange services and other fees $18.2 $24 to $26 Access fees $68.7 $64 to $67 Core operating expenses¹ $166.2 $173 to $178² Tax rate 41.9% 41.2% to 41.7% Depreciation and amortization $34.1 $33 to $35 Capital expenditures $29 1 $29.1
Slide 28: Ongoing Value Proposition
Ongoing Value Proposition Reinvest Maintain the Capitalize on capital to drive highest Continue to operating growth and standards of drive margins leverage return excess market and cash flow inherent in the cash to regulation business stockholders p. 28 CBOE Holdings, Inc.
Slide 29: Questions & Answers
Questions & Answers p. 29 CBOE Holdings, Inc.
Slide 30: Appendix Materials
Appendix Materials p. 30 CBOE Holdings, Inc.
Slide 31: Options ADV Up 13% 1Q12 Compared with 4Q11
Options ADV Up 13% 1Q12 Compared with 4Q11 CBOE Holdings Quarterly Options ADV (contracts in millions) p. 31 CBOE Holdings, Inc.
Slide 32: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 1Q 2012 % rev 4Q 2011 % rev 3Q 2011 % rev 2Q 2011 % rev 1Q 2011 % rev Total Operating Expenses $63,977 53% $67,529 56% $68,638 48% $63,838 53% $66,507 54% L Less: Depreciation and Amortization 8,320 7% 7,506 6% 8,897 6% 8,996 8% 8,696 7% Accelerate
Slide 33: Calculation of Weighted Average Shares
Calculation of Weighted Average Shares 1Q 2012 Year 2011 Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 88,768,885 91 91 88,768,885 90,084,711 365 365 90,084,711 Vesting of participating securities (restricted stock) on 5/17/
Slide 34: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.151 $0.128 $0.110 Indexes 0.640 0.651 0.658 Exchange-traded funds 0.206 0.188 0.171 Total options average 0.297 0.275 0.261 Futures 1.474 1.610 1.697 Total average transaction fee per contract $0.308 $
Slide 35: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, except per share amounts) Three months ended March 31, 2012 Items Impacting Results Accelerated stock- After Considering Reported (GAAP) based compensation¹ Items
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 (in thousands, except per share amounts) Three months ended December 31, 2011 Twelve months ended December 31, 2011 Items Impacting Results Items Impacting Results After After C
Slide 37: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, ex cept per share amounts) Three months ended Septebmber 30, 2011 Nine months ended September 30, 2011 Items Impacting Items Impacting Results Results After After
Slide 38: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, ex cept per share amounts) Three months ended March 31, 2011 Three months ended June 30, 2011 Items Impacting Items Impacting Results Results After After Accelera
Slide 39: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures (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
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 presentation include core operating expenses expenses, adjusted operating revenue revenu
Slide 41: CBOE Holdings, Inc.
CBOE Holdings, Inc. 400 South LaSalle Street Chicago, IL 60605 Debbie Koopman Vice President, Investor Relations koopman@cboe com koopman@cboe.com 312-786-7136 p. 41 CBOE Holdings, Inc.