Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2013 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, Feb 7, 2014
Slide 1: Fourth Quarter 2013 Earnings Presentation
Fourth Quarter 2013 Earnings Presentation February 7, 2014
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 CBOE HOLDINGS 2
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: Banner Year in 2013; New Records Set for Financial Performance
Banner Year in 2013; New Records Set for Financial Performance CAGR: + 18.5% CAGR: + 9.2% ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 5
Slide 6: Solid Fourth Quarter Results
Solid Fourth Quarter Results 9% increase in operating revenue 16% increase in adjusted diluted EPS 18% increase in ADV + 9% + 16% + 18% ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 6
Slide 7: Remain Focused on Core Mission and Strategic Initiatives
Remain Focused on Core Mission and Strategic Initiatives Leverage and Develop Proprietary Products Optimize Revenue in Create value for stockholders Commoditized by generating industry-leading Products profit margins and growth rates through a diversified portfolio of risk management products Broade
Slide 8: Growing Contribution from S&P 500 Index Product Line
Growing Contribution from S&P 500 Index Product Line Volume gains in S&P 500 Index options driven primarily by growth in SPX Weeklys S&P 500 Index ADV up 18% in 2013 SPX Weeklys ADV up 98% in 2013 Record SPX Weeklys ADV in January 2014, up 53% YOY and 29% versus *includes SPX Weeklys December Attrac
Slide 9: SPX Options Remain Index Option of Choice for Institutional Investors
SPX Options Remain Index Option of Choice for Institutional Investors Continue to see significant opportunities to further grow trading among likely users SPX volume, excluding Weeklys, up 5% in 2013 January total SPX volume up 10% YOY; up 7% versus December Likely users include: SPY options users O
Slide 10: Early Stages of Growing VIX Domestically
Early Stages of Growing VIX Domestically Strong growth despite prolonged periods of low volatility VIX options ADV up 28% in 2013 Record volume in 2013 New monthly high in January 2014, up 16% YOY and up 61% over December VIX futures ADV up 67% in 2013 New monthly record in January 2014, up 52% YOY
Slide 11: Responding to Growing Demand for Information with Investor Education
Responding to Growing Demand for Information with Investor Education Investor education goes hand in hand with new products Plans for 2014 include: Expanding Business Development staff Increasing educational offerings New options and volatility educational apps for mobile and tablet users Newly rede
Slide 12: Broadening Our Customer Base
Broadening Our Customer Base Extending trading hours for VIX futures Phase 1 Phase 2 Results to Date October 28, 2013 November 4, 2013 February 2014 • Added a 45-minute trading • Added another five hours to • Encouraged by volume & session after current close of the trading day number of users durin
Slide 13: Increasing Access to VIX Futures Trading Through Extended Trading Hours
Increasing Access to VIX Futures Trading Through Extended Trading Hours 8% of VIX futures trading now takes place outside of regular U.S. trading hours In 2014, plan to expand extended trading hours to nearly 24X5 Plan to add trading of VIX and SPX options later in the year Total SPX AM ADV Extended
Slide 14: Expanding Suite of Volatility Products
Expanding Suite of Volatility Products Launching Futures and Options on Short-Term Volatility Index (VXST) Futures launch February 13th – Options to follow¹ Leverage most compelling features of SPX Weeklys and volatility products Short-term VIX uses SPX options that expire in one week versus SPX mon
Slide 15: Global Interest in SPX Products Mirrors that of VIX Options and Futures
Global Interest in SPX Products Mirrors that of VIX Options and Futures Investors worldwide use SPX and VIX Index products to hedge global economic risk Global investors are interested in the ability to trade short-term volatility CBOE HOLDINGS 15
Slide 16: Optimizing Revenue and Market Share in Multiply-Listed Options
Optimizing Revenue and Market Share in Multiply-Listed Options Focused on being among the leaders in options market share In December 2013: CBOE & C2 accounted for 29.3% of 27.5% industry volume CBOE multiply-listed market share of 22.8% 20.3% in December CBOE total market share of 27.5% in December
Slide 17: Continue to Further Define and Expand Options and Volatility Space
Continue to Further Define and Expand Options and Volatility Space Develop New Products Extend Global Customer Reach Invest in Return Value to Strategic Stockholders Maximize revenue in Growth multiply-listed Initiatives products Maintain Prudent Fiscal Management Provide Highest Standards in Market
Slide 18: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 19: 4Q13 Financial Overview
4Q13 Financial Overview Adjusted Basis¹ 4Q13 4Q12 $ Change % Change (in millions, except EPS and RPC) Adjusted Operating Revenues $141.8 $130.1 $ 11.7 9% Adjusted Operating Expenses 69.2 65.2 4.0 6% Adjusted Operating Income $ 72.6 $ 64.9 $ 7.7 12% Adjusted Operating Margin % 51.2% 49.9% 130 bps Adj
Slide 20: Overview of Operating Revenues
Overview of Operating Revenues Transaction fees key driver of revenue growth Operating Revenues Transaction fees up $8.2MM (in millions) 4Q13 4Q12 % Chg 22% increase in trading volume Transaction fees $ 99.0 $90.8 9% 11% decrease in RPC Access fees 15.3 16.0 -4% Exchange services and – Higher volume
Slide 21: Change in RPC Primarily Reflects Higher Volume-Based Incentives
Change in RPC Primarily Reflects Higher Volume-Based Incentives Trading volume mix and RPC 4Q12 versus 4Q13 CBOE HOLDINGS 21
Slide 22: 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 80% of transaction fees in 4Q13, up from 71% in 4Q12 CBOE HOLDINGS 22
Slide 23: Other Revenue Drivers
Other Revenue Drivers Market data fees up $1.5MM (in millions) 4Q13 4Q12 % Chg Higher share of OPRA market data revenue and increase in revenue Market data fees $ 7.0 $ 5.5 27% from CBOE Streaming Markets Exchange services and other fees $ 9.6 $ 8.3 16% Exchange services up $1.3MM Regulatory fees $
Slide 24: Ongoing Focus on Controlling Expenses
Ongoing Focus on Controlling Expenses Adjusted Operating Key drivers: Expenses¹ 4Q13 4Q12 % Chg (in millions) Outside services down $4.9MM Employee costs $28.1 $26.3 7% Reflects lower costs related to Depreciation and amortization 9.1 6.2 47% legal expenses Data processing 4.3 4.7 -9% Royalty fees u
Slide 25: Core Operating Expenses Down 5% in 4Q13 vs 4Q12
Core Operating Expenses Down 5% in 4Q13 vs 4Q12 Key drivers: Outside services down $4.9MM Lower litigation expenses Core Operating Expenses¹ 4Q13 4Q12 % Chg Insurance reimbursement (in millions) Employee costs $28.1 $26.3 7% Employee costs up $1.8MM Data processing 4.3 4.7 -9% Higher salaries result
Slide 26: Core Operating Expenses for 2013 Better Than Expected
Core Operating Expenses for 2013 Better Than Expected 2013 core expenses below Core Operating guidance range Expenses¹ (in millions) 2013 2012 % Chg Reflects lower than anticipated legal Employee costs $114.1 $103.9 10% expenses Data processing 17.9 19.6 -9% Decline in outside services in third and
Slide 27: Volume-based Expenses
Volume-based Expenses Royalty fees up $3.4MM Volume-based Expenses 4Q13 4Q12 % Chg (in millions) Higher trading volume in licensed products Royalty fees $ 15.0 $ 11.6 29% Trading volume Increases in royalty rates incentives $ 1.2 $ 1.0 20% Total $ 16.3 $ 12.7 28% May not foot due to rounding CBOE HO
Slide 28: Fourth Quarter Effective Tax Rate
Fourth Quarter Effective Tax Rate 4Q13 4Q12 GAAP effective tax rate reflects: GAAP effective tax rate reflects: Higher tax benefits recognized for Benefit of significant discrete items Section 199 deduction Non-deductible tax expense of $5 million Adjusted effective tax rate excludes: Benefit of $5.
Slide 29: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Generated $224MM in operating cash flow in 2013 2013 Capital Outlays Share repurchases¹ $ 51 MM Dividends 58 MM Capital expenditures² 32 MM Total $ 141 MM Cash of $221MM at year-end 2013 Special dividen
Slide 30: 2014 Full-Year Guidance
2014 Full-Year Guidance 2014 Full-Year As of February 7, 2014 ($ in millions) Guidance 2013 Actual Core operating expenses $191 to $196 $186 Continuing stock-based compensation¹ $13 $17 Accelerated stock-based compensation¹ $3 $4 Effective tax rate 38.5% to 39.5% 38.0% Depreciation and amortization
Slide 31: Well Positioned for Long-Term Growth
Well Positioned for Long-Term Growth ¹Adjusted to reflect the impact of certain items. See appendix for “Non-GAAP Information.” CBOE HOLDINGS 31
Slide 32: Questions & Answers
Questions & Answers
Slide 33: Appendix Materials
Appendix Materials
Slide 34: 2013 Financial Overview
2013 Financial Overview Adjusted Basis¹ 2013 2012 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $572.1 $512.3 $ 59.8 12% Adjusted Operating Expenses 281.2 262.9 18.3 7% Adjusted Operating Income $290.9 $249.4 $ 41.5 17% Operating Margin % 50.8% 48.7% 210 bps Adjusted Net Inc
Slide 35: Estimated 2014 Stock-Based Compensation by Quarter
Estimated 2014 Stock-Based Compensation by Quarter Quarterly breakout of estimated continuing stock-based compensation for 2014 1Q14 2Q14 3Q14 4Q14 Total Continuing stock-based compensation¹ $5 $4 $2 $2 $13 Accelerated stock-based compensation¹,² $3 $3 ¹All stock-based compensation is reported in em
Slide 36: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) $80 55% $70 50% $60 $50 45% $40 40% $30 $20 35% $10 $0 30% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 ¹Adjusted to reflect the impact of certain items. See
Slide 37: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) CBOE HOLDINGS 37
Slide 38: Trading Volume Mix and RPC 4Q12 vs 4Q13
Trading Volume Mix and RPC 4Q12 vs 4Q13 RPC change primarily reflects higher volume-based incentives CBOE HOLDINGS 38
Slide 39: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.149 $0.153 $0.140 $0.114 $0.094 $0.090 $0.082 $0.081 $0.077 $0.076 $0.076 $0.075 Indexes 0.665 0.670 0.671 0.679 0.674 0.675 0.670 0.671 0.669 0.666 0.666 0.666 Exchange-traded products 0.194 0.181 0.1
Slide 40: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ in thousands) 2013 % rev 2012 % rev 2011 % rev 2010 % rev 2009 % rev Total Operating Expenses $286,236 50% $268,241 52% $266,512 52% $269,763 62% $248,497 62% Less: Depreciation and Amortization 34,488 6% 31,485 6% 34,094 7% 29,891 7% 27,512 7% Accelerated stock-ba
Slide 41: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 4Q 2013 % rev 3Q 2013 % rev 2Q 2013 % rev 1Q 2013 % rev 4Q 2012 % rev Total Operating Expenses $69,231 49% $68,316 50% $75,414 50% $73,275 51% $70,325 54% Less: Depreciation and amortization 9,108 6% 8,476 6% 8,622 6% 8,282 6% 6,210 5% Accelerated
Slide 42: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation For Years 2009, 2010 and 2011 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 FY 2009 FY2010 FY2011 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common
Slide 43: 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 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. The non-GAAP measures provided in this presentation include core operating expenses, adjusted operating revenue, adjusted operati
Slide 45: CBOE, 400 South LaSalle Street, Chicago
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com