Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q1 2011 Earnings Presentation
43 slides from Cboe Global Markets's earnings presentation, May 5, 2011
Slide 1: First Quarter Earnings Conference Call
CBOE Holdings, Inc. First Quarter Earnings Conference Call M 5, May 5 2011 p. 1 CBOE Holdings, Inc.
Slide 2: Agenda
Agenda Strategic Review William J. Brodsky Chairman and CEO Financial Review Alan Dean Executive VP, CFO and Treasurer Questions and Answers William J. J Brodsky Alan Dean Ed Tilly Executive Vice Chairman p. 2 CBOE Holdings, Inc.
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 i involve
Slide 4: Strategic Review
Strategic Review William J. Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: Strong Top-Line & Bottom-Line Results
Strong Top-Line & Bottom-Line Results 1Q11 Financial Results versus 1Q10 ► Operating Revenues • $124.0 Million, up 23% ► Adjusted j Operating p g Margin g ¹ • 46.7%, Highest in Nine Quarters ► Net Income Allocated to Common Stockholders • $32.1 Million, up 42% ► Diluted Earnings Per Share • $0.36, u
Slide 6: Competitive Landscape – U.S. Options
Competitive Landscape – U.S. Options Holding Company Exchanges 1Q11 Market Share¹ 28% 25% 24% 18% 3% 2% ¹Excludes dividend trades p. 6 CBOE Holdings, Inc.
Slide 7: Competitive Landscape – U.S. Options
Competitive Landscape – U.S. Options Holding Company Exchanges 1Q11 Market Share¹ 28% 25% 24% 18% 3% 2% ¹Excludes dividend trades p. 7 CBOE Holdings, Inc.
Slide 8: Competitive Landscape – U.S. Options
Competitive Landscape – U.S. Options Holding Company Exchanges 1Q11 Market Share¹ 28% 25% 24% 18% 3% 2% ¹Excludes dividend trades p. 8 CBOE Holdings, Inc.
Slide 9: CBOE has Unique Strengths
CBOE has Unique Strengths ► Leader in innovation ► Superior trading technology ► Most unique and diverse offerings ► Proprietary products outpacing industry growth and generating higher returns ► Committed to increasing high quality market share p. 9 CBOE Holdings, Inc.
Slide 10: Strong 1Q11 Financial Results
Strong 1Q11 Financial Results Adjus te d Ope rating Re ve nue s (in m illions ) 1 Results driven by: $433 ► Higher revenue from access fees and $417 $402 $344 transaction fees $253 • Higher volume across every product $124 $101 category • Record volume reached in VIX options and 2006 2007 2008 2009
Slide 11: Options ADV up 11% 1Q11 vs 1Q10
Options ADV up 11% 1Q11 vs 1Q10 Equity Options CBOE Holdings Quarterly Options ADV 2.58 2.60 2.40 (in millions) 2.26 1.87 5.29 5.04 4.55 4.23 1Q10 2Q10 3Q10 4Q10 1Q11 Index Options 3 71 3.71 1.26 1.17 1.11 0.94 0.98 1Q10 2Q10 3Q10 4Q10 1Q11 ETF Options 1.45 1.26 1.04 0.99 0.91 1Q10 2 Q2 10 3 Q10 4 Q
Slide 12: CBOE is the Home of Volatility Franchise
CBOE is the Home of Volatility Franchise VIX Options & Futures ADV (in thousands) 450 400 50 389 350 42 40 300 Options ADV V ures ADV 250 30 248 200 Futu 20 150 17 100 132 93 103 10 50 1 23 5 5 4 0 2 0 2005 2006 2007 2008 2009 2010 2011 YTD ¹ ¹YTD through 4/30/11 VIX Options VIX Futures p. 12 CBOE H
Slide 13: 1Q11 Market Share Data
1Q11 Market Share Data Total Industry Volume Excl. Dividend Trades CBOE C2 2% 2% PHLX 3% 3% 5% 5% ISE 31% NYSE/Amex 26% 27% 11% 14% 11% NYSE/Arca NOM 13% 1% 13% 1% BOX 20% BATS 22% 17% 18% 94% Source: Options Clearing Corporation and CBOE ¹Excludes Dividend Trades YTD through 3/31/11 p. 13 CBOE Hold
Slide 14: CBOE Consistent Market Share Leader
CBOE Consistent Market Share Leader Sustained Market Share Without Sacrificing Revenue Per Contract All Classes 35% 27% 30% 27% CBOE 25% AMEX 20% 20% ARCA 20% PHLX 19% 18% ISE 15% 13% 14% BOX 10% NOM 12% 11% BATS 5% C2 0% l p ar ar ay n n ov Ju Se Ja Ja M M M N p. 14 CBOE Holdings, Inc. Source: CBOE
Slide 15: Differentiated Product Set
Differentiated Product Set CBOE Trades… Equity Index Options on CFE Futures Options Options ETFs Exchange 1Q10 vs 1Q11 8.7% 5.7% 21.4% 314% ADV Chg Percent of 51% 23% 25% 1% 1Q11 trading volume 3-month avg $0.160 $0.604 $0.207 $1.507 RPC thru 3/31/11 p. 15 CBOE Holdings, Inc.
Slide 16: C2 Achieving Steady Growth
C2 Achieving Steady Growth ► Averaged 162,500 contracts per day in 1Q11 and 174,600 in April ► Active market makers have nearly doubled since February ► Capture rate from CBOE linkage volume continues to increase ► Adjusting fees and incentives to improve market quality ► Targeting 1-2% market share
Slide 17: SPXpm to Broaden Customer Reach
SPXpm to Broaden Customer Reach ► Identical in structure to traditional SPX index option, except it will have a “p.m.” p settlement ► Provides a settlement convention found in the OTC market while offering benefits and safeguards of exchange trading ► Expect SPX and SPXpm to provide customers two de
Slide 18: Leveraging Expertise in Volatility Products
Leveraging Expertise in Volatility Products ► Calculating volatility values on individual equities • “Stock VIXes, VIXes ” introduced in January 2011 as volatility benchmarks benchmarks, include Apple, Amazon, Goldman Sachs, Google and IBM • Filed for SEC approval to list options on “Stock VIXes,” f
Slide 19: Regulatory Update
Regulatory Update ► CBOE continues to work with regulators on behalf of options customers and the industry ► Dodd-Frank Bill continues to be foremost on agenda ► Bill introduced to delay implementation of Dodd-Frank by 18 months ► Expect Dodd-Frank will eventually result in most OTC-types of trades
Slide 20: 2011 Initiatives
2011 Initiatives ► With CBOE’s unique product mix, we are well-positioned to take advantage of long-term secular growth trends in the industry ► Key Priorities: • Extend the VIX product line • Build on the success of C2 ► Financial strength gives us flexibility to invest in growth while continuing t
Slide 21: 1Q11 Financial Overview
1Q11 Financial Overview Adjusted Basis¹ 1Q11 1Q10 $ Change % Change (in millions, except RPC and EPS) T t l Operating Total O ti Revenues R $124 0 $124.0 $101 1 $101.1 $ 22 22.9 9 23% Total Operating Expenses 66.1 62.4 $ 3.7 6% Operating Income $ 57.9 $ 38.7 $ 19.2 50% Operating Margin 46.7% 38.3% N
Slide 22: 1Q11 Operating Revenues
1Q11 Operating Revenues Operating Revenues (in mil ions) 1Q 2011 1Q 2010 $ CHG % CHG Key Drivers: ► Access fees Transaction fees $ 89.9 $ 83.4 $ 6.5 8% • Increase reflects implementation Access fees 17 6 17.6 22 2.2 15 4 15.4 700% of new trading permit program ► Transaction fees Exchange services an
Slide 23: Transaction Fees Driven by Volume and Rate Per Contract
Transaction Fees Driven by Volume and Rate Per Contract Overall Transaction Fee per Contract (RPC) RPC up 5 % Y-O-Y RPC down due to Sequential decline due lower mix of index Thousands Higher mix of to lower mix of index options and fee caps RPC index options options in 4Q vs 3Q 6,000 drove RPC growt
Slide 24: Average Transaction Fee Per Contract
Average Transaction Fee Per Contract 1Q 2011 4Q 2010 3Q 2010 2Q 2010 1Q 2010 PRODUCT: PRODUCT Equities $0.160 $0.177 $0.182 $0.162 $0.184 Indexes 0.604 0.590 0.598 0.580 0.597 Exchange-traded funds 0.207 0.224 0.236 0.217 0.236 Total Options RPC 0.275 0.284 0.300 0.277 0.297 Futures 1.507 1.679 1.66
Slide 25: Options Trading Volume Mix
Options Trading Volume Mix 1Q 2010 1Q 2011 ETF ETF 23% 25% Equity Equity 53% 52% Index Index 24% 23% Equity Index ETF Options p Options Options p p. 25 CBOE Holdings, Inc.
Slide 26: 1Q11 Adjusted Operating Expenses
1Q11 Adjusted Operating Expenses Key Drivers: Adjusted Operating Expenses¹ (in millions) 1Q 2011 1Q 2010 $ CHG % CHG ► Employee Costs Employee Costs $ 25.3 $ 23.1 $ 2.2 10% • $3.1 million increase from continuing stock-based compensation expense Depreciation and Amortization 8.7 7.3 1.4 19% ► Deprec
Slide 27: 1Q11 Core Operating Expenses Down 7% Excluding Impact of Stock Grants
1Q11 Core Operating Expenses Down 7% Excluding Impact of Stock Grants (in thousands) 1Q 2011 1Q2010 $ CHG % CHG Total Operating Expenses $ 66 66,507 507 $ 62 62,352 352 $ 44,155 155 7% Less: Depreciation and amortization 8,696 7,301 1,395 19% Accelerated stock-based compensation expense 340 - 340 NM
Slide 28: Well Positioned to Deliver Higher Margins
Well Positioned to Deliver Higher Margins Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $70.0 50.0% 48.0% $60.0 46.0% $ $50.0 44.0% 42.0% $40.0 40 0% 40.0% $30.0 38.0% $20.0 36.0% 34.0% $10.0 32.0% $0.0 30.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 ¹Adjusted to reflect the imp
Slide 29: Guidance Summary for Full Year 2011
Guidance Summary for Full Year 2011 ► Revenue impact of 1/2/11 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 SPXpm on C2 ► Core expenses in a range of $173 to $1
Slide 30: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet As of As of As of ($ in thousands) Sept. 30, 2010 Dec. 31, 2010 Mar. 31, 2011 Balance Sheet Data Cash¹ $322,936 $ 53,789 $115,689 Total Assets 530,624 254,112 320,820 Total Liabilities 81,482 78,238 117,856 Total Stockholders’ Equity¹ 449,142 175,874 202,964 Other Data
Slide 31: Well Positioned to Return Additional Capital to Stockholders
Well Positioned to Return Additional Capital to Stockholders ► Generated more than $78 million in operating cash flow in 1Q11 ► Paid $9.2 $9 2 million in dividends in first quarter • $0.10 per share ► Board declared dividend of $0.10 per share for second quarter 2011 ► Committed to returning additio
Slide 32: Questions & Answers
Questions & Answers p. 32 CBOE Holdings, Inc.
Slide 33: Appendix Materials
Appendix Materials p. 33 CBOE Holdings, Inc.
Slide 34: Annual Financial Highlights
Annual Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Exchange-traded funds 4.7 $0.309 $344 Indexes 4.5 45 4.5 45 $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 35: Historical Transaction Fee Drivers
Historical Transaction Fee Drivers For the Year Ended December 31, 3 Mos ‘06-’10 3 Mos Ended (in thousands, CAGR/ Ended Mar. Mar. 31, except rate per contract) 2006 2007 2008 2009 2010 Avg. 31, 2010 2011 Average Daily Volume Equities 1,556 1,996 2,387 2,519 2,273 10% 2,396 2,604 Indexes 628 918 1,02
Slide 36: CBOE Rolling 3-Month RPC
CBOE Rolling 3-Month RPC CBOE Rolling Three-Month Average Transaction Fee Per Contract 2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.170 $0.164 $0.160 Indexes 0.592 0.601 0.604 Exchange-traded funds 0.223 0.215 0.207 Total options average 0.276 0.272 0.275 Futures 1.657 1.591 1.50
Slide 37: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses ($ in thousands) 1Q 2011 % rev 4Q 2010 % rev 3Q 2010 % rev 2Q 2010 % rev 1Q 2010 % rev Total Operating Expenses $66,507 54% $65,537 62% $71,082 67% $70,792 63% $62,352 62% Less: Depreciation and Amortization 8,696 7% 8,190 8% 7,099 7% 7,301 6% 7,301 7% Accelerated s
Slide 38: 2011 Calculation of Projected Weighted Average Shares
2011 Calculation of Projected Weighted Average Shares 1Q 2011 (pre-vesting) 2Q 2011 (vested qtr) Days Days Shares Outstanding Total Days Weighted Avg Shares Outstanding Total Days Weighted Avg Unrestricted common stock 51 786 717 51,786,717 90 90 51 786 717 51,786,717 51,786,717 51 786 717 91 91 51
Slide 39: Quarterly Financial Highlights
Quarterly Financial Highlights Options ADV (mm) RPC Transaction Fees ($mm) Equities Indexes Exchange-traded funds $94 $90 5.3 5.1 $0 306 $0.306 $83 $ $0 300 $0.300 $80 4.5 $0.293 $0.281 $0.285 $73 23% 4.2 23% 26% 3.7 25% 18% 24% 24% 20% 22% 19% 54% 59% 53% 53% 57% 1Q10 2Q10 3Q10 4Q10 1Q11 1Q10 2Q10
Slide 40: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) Three months ended March 31, 2011 Items Impacting Results After Accelerated Considering Reported stock-based Impairment Items (non- ((GAAP)) compensation p charge g GAAP)) Total Operating Revenues $ 124,042 $ 124,042 Total Oper
Slide 41: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation (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 Accelerated Considering Recognition of Accelerated Considering Reported stock-based Items (
Slide 42: 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 revenue revenue, adjuste
Slide 43: 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. 43 CBOE Holdings, Inc.