Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q3 2016 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, Oct 28, 2016
Slide 1: Third Quarter 2016 Earnings Presentation
Third Quarter 2016 Earnings Presentation October 28, 2016
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains certain statements regarding intentions, beliefs and expectations or predictions for the future of CBOE Holdings, Inc. (“CBOE”) and Bats Global Markets, Inc. (“Bats”), which are forward-looking statements as that term is defined in the Private Se
Slide 3: Additional Information
Additional Information Additional Information Regarding the Transaction and Where to Find It This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This presentation is being made in respect of the propo
Slide 4: 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 5: Strategic Review
Strategic Review Edward Tilly CEO
Slide 6: Solid Third-Quarter Results; Difficult Comparison to 3Q15 Record High
Solid Third-Quarter Results; Difficult Comparison to 3Q15 Record High Trading in our proprietary index suite up 5% YTD¹ 3Q16 adjusted EPS of $0.58 on revenue of $156 million ADV for CBOE’s index suite up 5% YTD¹, led by 14% increase in VIX futures ADV for multiply-listed options traded industrywide
Slide 7: Strengthening CBOE's Global Position in Innovative, Tradable Products and Services
Strengthening CBOE’s Global Position in Innovative, Tradable Products and Services Bats acquisition expected to: Expand and diversify CBOE’s Key Events in Roadmap to Completion product line across new asset classes - cash equities, ETPs and File registration statement and foreign exchange joint prox
Slide 8: Product Development Remains Key to our Value Proposition
Product Development Remains Key to our Value Proposition Product innovation is central to our value proposition and enables CBOE to offer the world’s widest array of options and volatility products Launched CBOE S&P 500 Smile Index in Implied Volatility October "Steep" Smile "Flat" Smile A premium-c
Slide 9: Expanding Options and Volatility Trading
Expanding Options and Volatility Trading CBOE Vest Financial launched two new mutual funds CBOE Vest S&P 500 Buffer Protect Strategy Fund First mutual fund designed to provide investors with index-based buffer protection Designed to provide a risk-managed investment that seeks to protect against som
Slide 10: Leveraging Partnerships With Index Providers to Grow Index Product Line
Leveraging Partnerships With Index Providers to Grow Index Product Line Expanding global customer base through joint trading and educational services with our index provider partners In 2015, launched options on MSCI EAFE Index and MSCI Emerging Markets Index Following concentrated business developm
Slide 11: Expanding Our Global Customer Base
Expanding Our Global Customer Base Initiatives focused on education, business development and trading technology Fifth annual CBOE Risk Management Conference (RMC) Europe took place Sept. 26 through 28 in Ireland Second RMC Asia to take place in Hong Kong Begins on November 30th 33rd annual CBOE RMC
Slide 12: 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 Launched on September 26th Products trade on the LSE Derivatives Market and clear through LCH.Clearnet Expected to provide
Slide 13: CBOE's mission: providing innovative products
CBOE’s mission: providing innovative products that facilitate and enhance trading in a global marketplace CBOE’s Strategic Initiatives Transaction Aligns with Strategy Strengthens CBOE’s global position in Develop unique innovative, tradable products and products services Broadens geographic reach a
Slide 14: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 15: 3Q16 Financial Overview
3Q16 Financial Overview (in millions, except EPS and RPC) 3Q16 3Q15 $ Change % Change Operating Revenue $156.2 $187.0 $30.8 -16% Adjusted Operating Expenses¹ 81.4 85.9 -4.5 -5% Adjusted Operating Income¹ $74.8 $101.1 -$26.3 -26% Adjusted Operating Margin %¹ 47.9% 54.1% -620 bps Adjusted Net Income A
Slide 16: Operating Revenue
Operating Revenue Transaction fees main driver of revenue decline Operating Revenue Transaction fees down $32.9MM (in millions) 3Q16 3Q15 % Chg 12% decrease in RPC Transaction fees $111.9 $144.8 -23% – Shift in product mix Access fees 13.0 13.1 -- – Higher volume-related discounts Exchange services
Slide 17: RPC Variance Primarily Reflects Shift in Product Mix and Higher Volume-related Discounts
RPC Variance Primarily Reflects Shift in Product Mix and Higher Volume-related Discounts Trading volume mix and RPC 3Q15 versus 3Q16 Futures Futures 5.0% 5.3% Index 35.4% Index 39.6% Equity 28.1% Equity 3Q15 3Q16 31.9% ETPs ETPs 27.3% 27.4% 3Q16 RPC $0.378 $0.050 $0.079 $0.707 $0.304 $1.709 CBOE HOL
Slide 18: 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 90.0% of transaction fees in 3Q16 versus 84.0% in 3Q15 and 87.9% in 2Q16 Quarterly Mix of Transaction Fee Revenue 7.0% 8.0% 6.4% 5.2% 4.2% 6.9% 5.8% 9.0% 8.9% 7.8% 64.3% 6
Slide 19: Other Factors Influencing Operating Revenue
Other Factors Influencing Operating Revenue Market data fees up $1.1MM Operating Revenue 3Q16 3Q15 % Chg (in millions) Higher revenue from OPRA market Transaction fees $111.9 $144.8 -23% data and proprietary index data Access fees 13.0 13.1 -- Regulatory fees up $0.9MM Exchange services and other fe
Slide 20: Ongoing Focus on Prudent Expense Management
Ongoing Focus on Prudent Expense Management Largest expense variances aligned Adjusted Operating with performance and volume: Expenses¹ 3Q16 3Q15 % Chg (in millions) Compensation and benefits Compensation and down $1.5MM benefits¹ $28.1 $29.6 -5% Depreciation and Royalty fees down $2.4MM amortizatio
Slide 21: Core Operating Expenses
Core Operating Expenses Key drivers: Core Operating Travel and promotional up Expenses¹ (in millions) % Chg $1.2MM 3Q16 3Q15 Compensation and Primarily due to increases in benefits¹ $28.1 $29.6 -5% advertising and special events Technology support Services 5.6 5.3 6% Facilities costs up $0.4MM Profe
Slide 22: 2016 Full-Year Guidance
2016 Full-Year Guidance Full-Year Guidance Updated Guidance as As of October 28, 2016 ($ in millions) as of July 29, 2016 of October 28, 2016 Expect to be slightly below Core operating expenses $211 to $215 range of $211 to $215 Continuing stock-based $13.5 $13.5 compensation¹ Accelerated stock-base
Slide 23: Volume-based Expenses
Volume-based Expenses Royalty fees down $2.4MM Volume-based Lower trading volume in licensed Expenses 3Q16 3Q15 % Chg (in millions) products in 3Q16 versus 3Q15 Royalty fees $19.4 $21.8 -11% – Index complex volume down 19% Order routing 0.5 0.6 -8% Shift in mix of licensed products traded resulted i
Slide 24: Enhancing Shareholder Value
Enhancing Shareholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $73 million at Sept. 30, 2016 Operating Cash Flow ($ in millions) Generated $174 million in operating cash flow YTD¹ Capital outlays YTD¹: $263 $245 $224 $203 $201 $194 $36 million for capital e
Slide 25: Committed to Returning Capital to Shareholders
Committed to Returning Capital to Shareholders Expect to maintain a strong balance sheet and flexibility for: Capital expenditures Dividend payments Opportunistic share repurchases Other strategic initiatives Cash Used Under Share Repurchase Plan Change in Quarterly Dividend Rate Per Share ($ in mil
Slide 26: Questions & Answers
Questions & Answers
Slide 27: Appendix Materials
Appendix Materials
Slide 28: Solid YTD Results Reflect Companywide Commitment to Executing our Strategic Initiatives
Solid YTD Results Reflect Companywide Commitment to Executing our Strategic Initiatives Total ADV (in thousands) Adjusted Operating Revenue² (in millions) 5,259 4,829 4,537 4,713 4,658 4,649 $617 $633 $572 $508 $512 $479 $482 2011 2012 2013 2014 2015 2016 TD¹ 2011 2012 2013 2014 2015 2015 TD¹ 2016 T
Slide 29: Optimistic About Long-Term Growth Prospects
Optimistic About Long-Term Growth Prospects Adjusted Operating Revenue and Adjusted Diluted EPS¹ ($ 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 1Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152
Slide 30: 2016 Financial Overview
2016 Financial Overview 9 mos. 9 mos. (in millions, except EPS and RPC) Ended Ended $ Change % Change 09/30/16 09/30/15 Operating Revenue $481.9 $478.6 $3.3 1% Adjusted Operating Expenses¹ 247.0 234.6 12.4 5% Adjusted Operating Income¹ $234.9 $244.0 -$9.1 -4% Adjusted Operating Margin %¹ 48.7% 51.0%
Slide 31: 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 87.9% of transaction fees through Sept. ‘16, up from 50.6% in 2010 Annual Mix of Transaction Fee Revenue 10.2% 8.5% 8.0% 5.3% 22.6% 16.7% 6.8% 30.4% 9.7% 9.1% 11.0% 15.6% 19
Slide 32: RPC Variance Primarily Reflects Shift in Product Mix and Higher Volume-related Discounts
RPC Variance Primarily Reflects Shift in Product Mix and Higher Volume-related Discounts Trading Volume Mix & RPC 3Q15 vs 3Q16 3Q15 Trading Volume Mix 3Q16 Trading Volume Mix Futures Futures 5.0% 5.3% ETPs ETPs 27.4% 27.3% VIX VIX Index 15.2% Index S&P 11.9% S&P 35.4% 39.6% Indexes Indexes 22.3% 21.
Slide 33: Quarterly Options ADV
Quarterly Options ADV Index Options ( in millions) 2.07 1.75 1.76 1.81 1.55 1.69 1.64 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 3Q16 5.42 5.41 4.78 4.73 4.67 4.75 4.98 Equity Options (
Slide 34: 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* (in thousands) 1,000 939 SPX ADV up 5% YoY through September 823 888 698 Introduced SPX Weeklys with Wednesday Expirations on Feb. 23 Increases opportuniti
Slide 35: Leveraging VIX Methodology to Create New Products and Grow Index Product Line
Leveraging VIX® Methodology to Create New Products and Grow Index Product Line CBOE Volatility Index® (VIX Index) is VIX Options ADV Chart Title considered the world’s barometer of (in thousands) equity market volatility 632 603 567 573 443 VIX options ADV up 4% YoY through September VIX futures ADV
Slide 36: Broadening Access to Proprietary Products
Broadening Access to Proprietary Products Over 11% of VIX futures traded during non-U.S. hours through September 2016, up from 9% for full-year 2015 Generally, on days when volatility spikes, overnight volume increases and accounts for higher percentage of total VIX futures volume VIX Futures ADV Du
Slide 37: 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 $0.063 $0.057 $0.050 Exchange-traded products 0.138 0.131 0.117 0.111 0.104 0.103 0.096 0.089 0.079 Indexes 0.738 0.733 0.720 0.706 0.698 0.701 0.704 0.706 0.707
Slide 38: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 3Q 2016 % rev 2Q 2016 % rev 1Q 2016 % rev 4Q 2015 % rev 3Q 2015 % rev Total Operating Expenses $90,557 58% $85,361 53% $82,849 51% $80,052 52% $85,925 43% Less: Depreciation and amortization 10,200 7% 12,259 8% 11,851 7% 12,202 8% 12,394 7% Compens
Slide 39: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2016 YTD % rev 2015 % rev 2014 % rev 2013 % rev 2012 % rev Total Operating Expenses $258,768 54% $314,617 50% $303,424 49% $286,236 50% $268,241 52% Less: Depreciation and amortization 34,311 7% 46,274 7% 39,913 6% 34,488 6% 31,485 6% Acquisitions rel
Slide 40: 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 41: 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 42: 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 43: GAAP to Non-GAAP Reconciliation For 2016
GAAP to Non-GAAP Reconciliation For 2016 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP 1Q16 2Q16 3Q16 4Q16 FY2016 GAAP net income allocated to common stockholders $ 49,198 $ 50,719 $ 40,280 $ 139,974 Add: Compensation and benefits (1) 200 892 212 1,305 Add: Acquisitio
Slide 44: 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 45: CBOE, 400 South LaSalle Street, Chicago, Illinois
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com