Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — CBOE Holdings — Q2 2014 Earnings Presentation
44 slides from Cboe Global Markets's earnings presentation, Aug 1, 2014
Slide 1: Second Quarter 2014 Earnings Presentation
Second Quarter 2014 Earnings Presentation August 1, 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: Solid Financial Performance Despite Quarter's Low Volume Trading Environment
Solid Financial Performance Despite Quarter’s Low Volume Trading Environment Second quarter trading activity reflected low market volatility and investor complacency Total ADV of 4.83 MM in 2Q14 Down 14% versus 1Q14 Down 3% versus 2Q13 Increased quarterly dividend and share repurchase authorization
Slide 6: 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 7: S&P 500 Index (SPX) Product Line
S&P 500 Index (SPX) Product Line SPX Weeklys - fastest growing product in SPX complex SPX ADV for 2Q14 Down 11% versus 1Q14 Down 13% versus 2Q13 SPX Weeklys ADV *includes SPX Weeklys Down 11% versus 1Q14 Up 20% versus 2Q13 CBOE HOLDINGS 7
Slide 8: VIX Options Trading Continues to Grow YOY
VIX Options Trading Continues to Grow YOY Low volatility throughout 2Q14 dampened trading in SPX and VIX VIX options ADV for 2Q14 Declined 21% versus 1Q14 Increased 11% versus 2Q13 VIX futures ADV for 2Q14 Down 19% versus 1Q14 Declined 8% versus 2Q13 Focused on long-term growth trajectory CBOE HOLDI
Slide 9: YTD Through June Shows More Favorable Trading in Index Products
YTD Through June Shows More Favorable Trading in Index Products SPX ADV down 3% YOY thru June SPX Weeklys ADV up 38% YOY thru June VIX Options ADV up 17% YOY thru June VIX futures ADV up 10% YOY thru June *SPX ADV includes SPX Weeklys ¹YTD through June 30, 2014 CBOE HOLDINGS 9
Slide 10: Focused on Growing Our Customer Base
Focused on Growing Our Customer Base As VIX returns to historical norms, we expect to see even greater participation in VIX options and futures trading CBOE HOLDINGS 10
Slide 11: VIX Futures Trading Poised for Renewed Growth
VIX Futures Trading Poised for Renewed Growth Communication with marketplace integral to developing new product lines Key indicators supporting our growth outlook Increased demand for VIX futures market data over last six months Shift in mix of market participants to include users that are generally
Slide 12: Broadening Our Customer Base
Broadening Our Customer Base Extended trading hours for VIX futures to 24X5 Phase 1 Phase 2 Phase 3 October 28, 2013 November 4, 2013 June 22, 2014 • Added a 45-minute trading • Added another five hours to • Extended hours to nearly 24 session after current close of the trading day hours a day, five
Slide 13: Increasing Access to VIX Futures Trading Through Extended Trading Hours
Increasing Access to VIX Futures Trading Through Extended Trading Hours 10.2% of VIX futures trading took place during non-U.S. trading hours in July, our first full month of 24-hour trading June 22 extended trading hours to nearly 24X5 8.1% of VIX futures traded during non-U.S. trading hours YTD th
Slide 14: Expanding Volatility Suite of Products
Expanding Volatility Suite of Products Launched Futures on Short-Term Volatility Index (VXST) on February 13th – Options on April 10th Low-volatility environment has posed headwinds for VXST Believe market participants will embrace the utility of VXST futures and options Launched targeted educationa
Slide 15: Expanding Volatility-Related Products and Benchmarks
Expanding Volatility-Related Products and Benchmarks Diversifying VIX product line across asset classes provides growth opportunity Began disseminating index values in May 2013 Plan to launch futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN Index) later this year, pending
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 June 2014: CBOE & C2 accounted for 30.4% of 28.4% industry volume; up versus 29.5% in March 2014 22.8% CBOE total market share of 28.4%; up versus 28.0% in March 2014 CBOE mul
Slide 17: CBOE RMC Attracts Most Active and Sophisticated VIX Customers
CBOE RMC Attracts Most Active and Sophisticated VIX Customers Boosting awareness of CBOE’s proprietary products Third annual RMC Europe Looking For an Edge in to be held Sept. 3rd thru 5th Managing Risk? Program will highlight: The CBOE Risk Management Conference is Small-cap strategies that use the
Slide 18: 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 19: Financial Review
Financial Review Alan Dean EVP, CFO and Treasurer
Slide 20: 2Q14 Financial Overview
2Q14 Financial Overview Adjusted Basis¹ 2Q14 2Q13 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $143.9 $150.8 -$6.9 -5% Adjusted Operating Expenses 74.2 73.6 0.6 1% Adjusted Operating Income $ 69.7 $ 77.2 -$7.5 -10% Adjusted Operating Margin % 48.4% 51.2% -280 bps Adjusted N
Slide 21: Overview of Operating Revenues
Overview of Operating Revenues Transaction fees down $8.2MM Operating Revenues (in millions) 2Q14 2Q13 % Chg 4% decrease in trading volume Transaction fees $ 97.9 $106.1 -8% 4% decrease in RPC Access fees 14.8 15.0 -1% Exchange services – Shift in product mix and other fees 9.7 9.3 4% – Higher volum
Slide 22: Change in RPC Primarily Reflects Mix Shift and Higher Volume-Based Incentives
Change in RPC Primarily Reflects Mix Shift and Higher Volume-Based Incentives Trading volume mix and RPC 2Q13 versus 2Q14 CBOE HOLDINGS 22
Slide 23: 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 81% of transaction fees in 2Q14, up from 80% in 2Q13 CBOE HOLDINGS 23
Slide 24: Other Revenue Drivers
Other Revenue Drivers Operating Revenues Regulatory fees down $0.7MM (in millions) 2Q14 2Q13 % Chg Lower trading volume industrywide Transaction fees $ 97.9 $106.1 -8% Expect regulatory fees to decline in Access fees 14.8 15.0 -1% 3Q & 4Q due to reduction in ORF rate Exchange services and other fees
Slide 25: Disciplined Control of Expenses
Disciplined Control of Expenses Adjusted Operating Key drivers: Expenses¹ 2Q14 2Q13 % Chg (in millions) Depreciation and Amortization Employee costs $30.3 $30.4 -- up $1.3MM Depreciation and amortization 9.9 8.6 15% Facilities costs up $0.3MM Data processing 4.8 4.6 5% Other expenses up $0.4MM Outsi
Slide 26: Core Operating Expenses Down 2%
Core Operating Expenses Down 2% Key drivers: Core Operating Outside services down $1.7MM Expenses¹ (in millions) 2Q14 2Q13 % Chg Lower legal expenses Employee costs $30.3 $30.4 -- Facilities cost up $0.3MM Data processing 4.8 4.6 5% Outside services 7.9 9.6 -19% Other expenses up $0.4MM Travel and p
Slide 27: Volume-based Expenses
Volume-based Expenses Royalty fees up $0.2MM Volume-based Expenses 2Q14 2Q13 % Chg (in millions) Higher fees related to certain order flow for multiply-listed options directed to Royalty fees $ 14.7 $ 14.5 1% CBOE Trading volume incentives $ 1.1 $ 0.9 23% Increase in fees associated with market Tota
Slide 28: Enhancing Stockholder Value
Enhancing Stockholder Value Strong cash flow generation and disciplined approach to managing cash Cash of $145MM at quarter end Generated $121MM in operating cash flow through June YTD Capital Outlays Regular dividends $ 31 MM Special dividend 44 MM Share repurchases¹ 97 MM Capital expenditures 28 M
Slide 29: Enhancing Stockholder Value Through Share Repurchases
Enhancing Stockholder Value Through Share Repurchases Increase in cash used to repurchase shares in 2014 Used over $51MM in 2Q14 Purchased more than 1MM shares at an average price of $50.57 Used over $230MM through June 30 Purchased nearly 6.4MM shares at an average price of $36.26 $69.7MM available
Slide 30: Optimistic About Long-term Growth Prospects
Optimistic About Long-term Growth Prospects Well positioned to generate stronger financial results as trading volume improves Quarterly Adjusted Operating Revenue and Diluted EPS¹ $160 ($ in millions, except EPS) $0.60 $140 $0.55 $120 $0.50 $100 $0.45 $80 $0.40 $60 $0.35 $40 $0.30 $20 $0.25 $0 $0.20
Slide 31: Questions & Answers
Questions & Answers
Slide 32: Well Positioned to Gain Additional Leverage
Well Positioned to Gain Additional Leverage Quarterly Adjusted Operating Income and Margin¹ ($ in millions) 55% $80 $70 50% $60 $50 45% $40 40% $30 $20 35% $10 $0 30% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 ¹Adjusted to reflect the impact of certain
Slide 33: 2014 Full-Year Guidance
2014 Full-Year Guidance Current 2014 Prior 2014 Full-Year Full-Year As of August 1, 2014 ($ in millions) Guidance Guidance Core operating expenses $186 to $190 $191 to $196 Continuing stock-based compensation¹ $13 $13 Accelerated stock-based compensation¹ $3 $3 Effective tax rate 38.5% to 39.5% 38.5
Slide 34: 2014 Stock-Based Compensation by Quarter
2014 Stock-Based Compensation by Quarter Quarterly breakout of actual and estimated continuing stock- based compensation for 2014 1Q14 2Q14 Actual Actual 3Q14 4Q14 Total Continuing stock-based compensation¹ $5 $4 $2 $2 $13 Accelerated stock-based compensation¹,² $3 $3 ¹All stock-based compensation i
Slide 35: Quarterly Options ADV
Quarterly Options ADV CBOE Holdings Quarterly Options ADV (contracts in millions) 2Q14 TD through June 30, 2014 CBOE HOLDINGS 35
Slide 36: RPC Change Primarily Reflects Shift in Product Mix and Higher Volume-Based Incentives
RPC Change Primarily Reflects Shift in Product Mix and Higher Volume-Based Incentives Trading Volume Mix & RPC 2Q13 vs 2Q14 CBOE HOLDINGS 36
Slide 37: CBOE Holdings Rolling 3-Month RPC
CBOE Holdings Rolling 3-Month RPC 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Equities $0.079 $0.079 $0.081 $0.082 $0.081 $0.079 Indexes 0.664 0.667 0.669 0.674 0.674 0.670 Exchange-traded products 0.124 0.119 0.117 0.113 0.113 0.111 Total options RPC 0.273 0.281 0.281 0.277 0.275 0.275 Fut
Slide 38: Quarterly Core Operating Expenses
Quarterly Core Operating Expenses¹ ($ in thousands) 2Q 2014 % rev 1Q 2014 % rev 4Q 2013 % rev 3Q 2013 % rev 2Q 2013 % rev Total Operating Expenses $74,226 52% $75,847 48% $69,231 49% $68,316 50% $75,414 50% Less: Depreciation and amortization 9,895 7% 8,604 5% 9,108 6% 8,476 6% 8,622 6% Accelerated
Slide 39: Annual Core Operating Expenses
Annual Core Operating Expenses¹ ($ 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 40: GAAP to Non-GAAP Reconciliation For Years 2009, 2010 and 2011
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 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
GAAP to Non-GAAP Reconciliation For 2014 1Q14 2Q14 3Q14 4Q14 YTD2014 Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP GAAP net income allocated to common stockholders $ 48,528 $ 42,598 $ 91,126 Add: Accelerated stock-based compensation 2,530 2,530 Add: Estimated liabilit
Slide 43: 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 44: CBOE, 400 South LaSalle Street, Chicago, Illinois
CBOE 400 South LaSalle Street Chicago, Illinois 60605 www.cboe.com