Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q4 2011 Earnings Presentation
49 slides from Cboe Global Markets's earnings presentation, Feb 9, 2012
Slide 1: Fourth Quarter Earnings Conference Call
Fourth Quarter Earnings Conference Call February 9, 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 i involve
Slide 4: Strategic Review
Strategic Review William Brodsky Chairman and CEO p. 4 CBOE Holdings, Inc.
Slide 5: A Banner Year – Record Results
A Banner Year – Record Results Total ADV (thousands) Adjusted Operating Revenues ($mm)¹ Adjusted Operating Margin¹ Adjusted Diluted EPS¹ ¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.” p. 5 CBOE Holdings, Inc.
Slide 6: Achieved Fourth Quarter Highs
Achieved Fourth Quarter Highs Adjusted Operating Revenues¹ ($mm) + 6% + 19% ¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.” p. 6 CBOE Holdings, Inc.
Slide 7: 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 8: Leader in Product Innovation
Leader in Product Innovation Focus on developing exclusive products that generate premium fees ► S&P 500 complex • Flagship SPX contract • SPX Weeklys • SPXpm ► VIX product line • Sector ETFs and single-stock single stock VIX products ► New futures products on CFE CBOE Holdings, Inc. p. 8
Slide 9: SPX Drives Strong Index Volume
SPX Drives Strong Index Volume ► SPX most actively traded cash index • 13% increase in 2011 versus 2010 ► SPX Weeklys W kl important i l x t t componentt off SPX comple • 283% increase in 2011 versus 2010 p. 9 CBOE Holdings, Inc.
Slide 10: SPXpm Broadens Customer Reach
SPXpm Broadens Customer Reach ► Convenience of screen trading on all-electronic C2 Options Exchange ► Lower cost method of accessing a p.m.-settled S&P contract ► Ten times larger than SPY options ► Cash settlement eliminates need for physical delivery ► European exercise eliminates risk of early as
Slide 11: Increasing Awareness and Understanding
Increasing Awareness and Understanding Ads present differences between SPXpm and other S&P 500 contracts p. 11 CBOE Holdings, Inc.
Slide 12: Strong Growth in Volatility Trading
Strong Growth in Volatility Trading ► See strong future growth potential ► Education key to growth ► More than 24 VIX benchmarks and strategies ► Adding new VIX benchmarks and tradable products p p. 12 CBOE Holdings, Inc.
Slide 13: CBOE Volatility Benchmark Indexes
CBOE Volatility Benchmark Indexes CBOE Equity Index Volatility Indexes CBOE VIX Indexes on Individual Equities • CBOE Volatility Index (VIX) • Apple (VXAPL) • CBOE DJIA Volatility Index (VXD) • Amazon (VXAZN) • CBOE Nasdaq-100 Volatility Index (VXN) • Goldman Sachs (VXGS) • CBOE S&P 100 Volatility I
Slide 14: Optimizing Revenue and Market Share in Commoditized Products
Optimizing Revenue and Market Share in Commoditized Products ► Launched C2 to provide all-electronic, maker-taker model • Complements Hybrid model • Achieved target of 1% to 2% market share in first year • Adjusted fees on Nov. 1 to maximize market depth and liquidity p. 14 CBOE Holdings, Inc.
Slide 15: Optimizing Revenue and Market Share in Commoditized Products
Optimizing Revenue and Market Share in Commoditized Products ► Modified fee schedule Jan. 3 • Increase market share in multi- listed products • Ensure optimal p returns in proprietary products ► Implemented volume incentive program g “VIP” • Provides credits to firms for certain types and levels of
Slide 16: Expanding User Base
Expanding User Base ► Focus on customer segments with FLEX Index Options ADV greatest t t potential t ti l • Users of OTC market • Institutional investors • Volatility traders ► OTC-type trades migrating to CBOE • 21% growth in FLEX index products in 2011 p. 16 CBOE Holdings, Inc.
Slide 17: Equity Derivatives: OTC Versus Exchange-Traded
Equity Derivatives: OTC Versus Exchange-Traded In equity-linked options, the OTC markets’ notional value outstanding has declined in comparison to the listed markets Notional amounts outstanding in billions of US dollars 17 CBOE Holdings, Inc. Source: Bank of International Settlements (BIS)
Slide 18: Expand European Customer Base
Expand European Customer Base 28th Annual Risk Management Conference March 2012 First CBOE European Risk Management Conference September 2012 p. 18 CBOE Holdings, Inc.
Slide 19: ETNs & ETFs Pegged to CBOE VIX Index
ETNs & ETFs Pegged to CBOE VIX Index 42 Structured Products with $2.8 Billion in Assets Under Management Net Net Assets Ticker Issuer ($MM)* Benchmark Ticker Issuer Assets Benchmark ($MM)* VXX US Barclays iPath ETNs/USA 875 14 875.14 S&P 500 VIX Short-Term Short Term Futures IVOP US Barclays iPath E
Slide 20: Expanding VIX Futures Trading
Expanding VIX Futures Trading • VIX futures offer CTAs and hedge funds diversification and a source of non-correlated returns • Tremendous VIX futures liquidity has increased interest and usage • CTA/hedge fund penetration in U.S. and Europe is expanding • Potential exists for f expansion in Asia an
Slide 21: Ongoing Value Proposition
Ongoing Value Proposition Develop New Products Optimize Reinvest Maintain the Capitalize capital to Revenue and highest Continue to on operating drive growth Market Share in drive and return standards of leverage margins g and excess cash Commoditized market cash flow inherent in regulation the busi
Slide 22: Financial Review
Financial Review Alan Dean Executive Vice President CFO and Treasurer p. 22 CBOE Holdings, Inc.
Slide 23: 4Q11 Financial Overview
4Q11 Financial Overview Adjusted Basis1 ($s in millions, except for EPS) 4Q11 4Q10 $ Chg. g % Chg. g Adjusted Operating Revenues $120.2 $113.0 $ 7.2 6% Adjusted Operating Expenses 63.8 63.5 (0.3) - Adjusted Operating Income $ 56.4 56 4 $ 49.5 49 5 $ 6 6.9 9 14% Adjusted Operating Margin % 46.9% 43.8
Slide 24: Adjusted Operating Revenues up 6%
Adjusted Operating Revenues up 6% Key Drivers: Operating Revenues (in millions) 4Q11 4Q10 $ CHG % CHG ► T Transaction ti Fees F Transaction fees $ 87.1 $ 79.9 $ 7.2 9% • 10% increase in RPC to $0.321 Access fees 17.1 18.4 (1.3) -7% 7% • 1% decrease in trading volume ► Access Fees Exchange services a
Slide 25: 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 versus 4Q11 due to higher mix of index options and futures and lower volume discounts Thousands RPC 5,000 $0.320 $0.300 4,000 $0.280 3,000 $0.260 2,000 $0.240 1 000 1,000 $0.220 0 $0.200 1Q09 2Q
Slide 26: Trading Volume Mix 4Q11 vs 4Q10
Trading Volume Mix 4Q11 vs 4Q10 RPC Increased due to Shift to Higher-Margin Index Options and Futures Futures Futures 0.7% 0.9% 4Q10 RPC $0.293 4Q11 RPC $0.321 Equities $0.177 Equities $0.167 ETFS $0.224 ETFS $0.212 Index $0.590 Index $0.631 Futures $1.679 Futures $1.329 p. 26 CBOE Holdings, Inc.
Slide 27: Trading Permits Holding Steady
Trading Permits Holding Steady ► Implemented sliding fee scale for market maker trading permits on Jan 1 Jan. 1, 2011 ► Trading permits holding steady ► Market makers continue to take advantage of sliding fee scale p. 27 CBOE Holdings, Inc.
Slide 28: Adjusted Operating Expenses
Adjusted Operating Expenses¹ Key Drivers: Adjusted j Operating p g Expenses p (in millions) 4Q11 4Q10 $ CHG % CHG ► Royalty Fees Employee Costs $ 24.6 $ 23.8 $ 0.8 3% • Higher volume in licensed index Depreciation and Amortization 7.5 8.2 (0.7) -9% options Data Processing 4.3 5.0 (0.7) -14% ► Tradin
Slide 29: 4Q11 Core Operating Expenses
4Q11 Core Operating Expenses (in thousands) 4Q11 4Q10 $ CHG % CHG Total Operating Expenses $ 67,529 $ 65,537 $ 1,992 3% Less: Depreciation and amortization 7,506 8,190 (684) -8% Accelerated stock-based compensation expense - 2,004 (2,004) NM Severance expense pursuant to executive employment agreeme
Slide 30: Volume-based Expenses
Volume-based Expenses Volume-based expenses: (in millions) 4Q11 4Q10 $ CHG % CHG Royalty R lt ffees $ 12 12,346 346 $ 9 9,710 710 $ 2 2,636 636 27% Trading volume incentives 2,440 5,665 (3,225) -57% Total $ 14,786 $ 15,375 $ (589) -4% ► Royalty fees increased due to higher trading volume in licensed
Slide 31: Sixth Consecutive Quarter of Year-Over-Year Margin Improvement
Sixth Consecutive Quarter of Year-Over-Year Margin g Improvement p Increase 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% $10.0 $0.0 30.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Operating I
Slide 32: Fourth Quarter Tax Rate
Fourth Quarter Tax Rate ► 4Q11 increase reflects Illinois tax rate increase on 1/1/2011, net of tax benefits recognized ► Adjusted tax rate excludes $322 thousand in tax credits related to prior years 4Q11 4Q10 Change 2011 2010 Change GAAP 39.2% 37.2% +200 bps 41.9% 39.6% +230 bps Adj t d Adjusted 3
Slide 33: Strong Debt-Free Balance Sheet
Strong Debt-Free Balance Sheet Cash and Cash Equivalents (in millions) Strong cash flow Debt-free balance sheet p. 33 CBOE Holdings, Inc.
Slide 34: Strong Cash Flow Generation
Strong Cash Flow Generation ► Generated $203.1 million in operating cash flow in 2011, up 51% ► Returned $91.7 million to stockholders via dividends and share repurchases ► $100 million share repurchase program authorized on August 2, 2011 • Used $47 million to purchase 1.8 million shares at average
Slide 35: Highlights of Fee Changes Implemented Jan. 3 on CBOE
Highlights of Fee Changes Implemented Jan. 3 on CBOE ► Revised liquidity provider sliding scale to exclude proprietary and exclusive products ► I l Implemented t d a new volume l iincentive ti program (VIP) • VIP pays credits to permit holders for executing certain customer orders on multiply- liste
Slide 36: 2012 Full-Year Guidance
2012 Full-Year Guidance ($ 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 $29.1
Slide 37: Ongoing Value Proposition
Ongoing Value Proposition Reinvest Maintain the Capitalize on capital to drive highest Continue to operating growth and standards of drive margins leverage return excess market and cash flow inherent in the cash to regulation business stockholders p. 37 CBOE Holdings, Inc.
Slide 38: Questions & Answers
Questions & Answers p. 38 CBOE Holdings, Inc.
Slide 39: Appendix Materials
Appendix Materials p. 39 CBOE Holdings, Inc.
Slide 40: Options ADV Up 1% in 4Q11 vs 4Q10
Options ADV Up 1% in 4Q11 vs 4Q10 CBOE Holdings Quarterly Options ADV (contracts in millions) Includes May 6 “Flash Crash” p. 40 CBOE Holdings, Inc.
Slide 41: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 4Q 2011 % rev 3Q 2011 % rev 2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % rev Total Operating Expenses $67,529 56% $68,638 48% $63,838 53% $66,507 54% $65,537 62% Less: Depreciation and Amortization 7,506 6% 8,897 6% 8,996 8% 8,696 7% 8,190 8% Accelerated
Slide 42: Calculation of Weighted Average Shares
Calculation of Weighted Average Shares 4Q 2011 Year 2011 Days Total Days Total Shares Outstanding Days Weighted Avg Shares Outstanding Days Weighted Avg Unrestricted common stock 90,084,711 92 92 90,084,711 90,084,711 365 365 90,084,711 Vesting of participating securities (restricted stock) on 5/17/
Slide 43: 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 $0.163 $0.168 $0.169 $0.171 $0.159 $0.159 $0.155 $0.163 $0.167 Indexes 0.592 0.601 0.604 0.615 0.618 0.627 0.624 0.606 0.605 0.605
Slide 44: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three and Twelve Months Ended December 31, 2011 (in thousands, except per share amounts) Three months ended December 31, 2011 Twelve months ended December 31, 2011 Items
Slide 45: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three and Nine Months Ended September 30, 2011 (in thousands, ex cept per share amounts) Three months ended Septebmber 30, 2011 Nine months ended September 30, 2011 Item
Slide 46: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three Months Ended March 31 and June 30, 2011 (in thousands, ex cept per share amounts) Three months ended March 31, 2011 Three months ended June 30, 2011 Items Impactin
Slide 47: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CBOE Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures For the Three Months and Year Ended December 31, 2010 and 2009 (in thousands, ex cept per share amounts) Three months ended September 30, 2010 Three months ended December 31, 20
Slide 48: 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 49: 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. 49 CBOE Holdings, Inc.