Second Quarter 2013 Earnings Presentation August 2, 2013
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
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 number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: the loss of our right to exclusively list certain index option products; increasing price competition in our industry; compliance with legal and regulatory obligations and obligations under agreements with regulatory agencies; our ability to operate our business, monitor and maintain our systems or program them so that they operate correctly, including in response to increases in trading volume and order transaction traffic; decreases in the amount of trading volumes or a shift in the mix of products traded on our exchanges; legislative or regulatory changes; increasing competition by foreign and domestic entities; economic, political and market conditions; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to maintain access fee revenues; our ability to protect our systems and communication networks from security risks, including cyber-attacks; our ability to attract and retain skilled management and other personnel; our ability to maintain our growth effectively; our dependence on third party service providers; and the ability of our compliance and risk management methods to effectively monitor and manage our risks. More detailed information about factors that may affect our performance may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2012 and other filings made from time to time with the SEC. CBOE HOLDINGS 3
Strategic Review Edward Tilly CEO
Best-Ever Quarterly Earnings in 2Q13 Another strong quarter New records set for operating revenue and EPS Driven by continued growth of higher- margin proprietary products Operating revenue increased 14% to $150.8 million Adjusted diluted EPS increased 23% to $0.54 per share Returning value to stockholders Increased quarterly dividend by 20% to $0.18 per share ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” CBOE HOLDINGS 5
Total Options ADV Grew 1% YOY in 2Q13: Increased 13% QOQ Strong growth in proprietary products Options ADV 2Q13 vs 2Q12: Index products increased 23% ETNs and ETFs were up 13% Equity options declined 20% CBOE HOLDINGS 6
Regaining Market Share in Multiply-Listed Options Focused on being among the leaders in options market share Made enhancements to VIP in February and March 27.8% CBOE multiply-listed market share increased to 19.7% in June from 22.8% 15.3% in January Increased to 21.1% in July ¹Market share stats exclude dividend trades CBOE HOLDINGS 7
C2 Gaining Market Share¹ ETF options trading leads the volume gains at C2 C2’s market share in multiply-listed classes increased to 2.1% in June from 1.6% in January C2’s market share in ETFs rose to 3.8% in June from 2.6% in January Implemented new spread-based pricing model in February to attract equity options business Will take time for market participants to fully implement and embrace Plan to provide access to additional real-time fee incentive information in September to more readily maximize the benefits ¹Market share stats exclude dividend trades CBOE HOLDINGS 8
Strong 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 21% in 2Q13 versus 2Q12 SPX ADV up 21% through July 2013 Strong growth in SPX Weeklys *includes SPX Weeklys ADV more than doubled in 2Q13 ADV up 147% through July 2013 ¹YTD through July 31, 2013 CBOE HOLDINGS 9
Record Growth in Volatility Trading Strong Growth Amid Low Volatility Record trading in VIX options and futures for 2Q13 VIX options ADV up 28% in 2Q13; up 36% through July VIX futures ADV up 92% in 2Q13; up 99% through July 2Q13 sixth consecutive record for quarterly volume ¹YTD through July 31, 2013 CBOE HOLDINGS 10
Broadening Interest in VIX Trading Growing list of new users embracing VIX futures and options as alternative to fixed income market Hedge funds, proprietary trading firms and calendar spread traders Increasing mainstream adoption of VIX trading BlackRock, “VIX Your Portfolio,” recommends a short volatility strategy as an equity substitute BlackRock calls it “a particularly compelling strategy that would have improved portfolio performance even during financial crisis.” CBOE HOLDINGS 11
Broadening Global Customer Reach Extending trading hours for VIX futures First phase in late September adds a 45-minute trading session after current close Meets demand from U.S. customers for a post-settlement trading period Phase two, shortly thereafter Allows European-based customers to trade during their local trading hours Trading will begin at 2:00 a.m. CT; aligns with open of London markets European Risk Management Conference will feature VIX and SPX trading strategies CBOE HOLDINGS 12
Expanding Volatility-Related Products and Benchmarks CBOE/CBOT 10-Year U.S. Treasury Note Volatility Index In May, CBOE launched an interest rate volatility index based on CME Group’s 10-year Treasury Note contract, as part of an agreement with CME Group Interest rate derivatives represent the largest asset class traded in the over-the-counter market CBOE HOLDINGS 13
Bullish About Prospects for Continued Growth Develop New Products Extend Global Return Value to Invest in Customer Reach Stockholders Strategic Growth Initiatives Maintain Prudent Fiscal Management Provide Highest Standards in Market Regulation and Compliance CBOE HOLDINGS 14
Financial Review Alan Dean EVP, CFO and Treasurer
2Q13 Financial Overview Adjusted Basis¹ 2Q13 2Q12 $ Change % Change (in millions, except EPS and RPC) Operating Revenues $150.8 $132.6 $ 18.2 14% Adjusted Operating Expenses 73.6 66.5 7.1 11% Adjusted Operating Income $ 77.2 $ 66.1 $11.1 17% 140 bps Adjusted Operating Margin % 51.2% 49.8% Adjusted Net Income Allocated to Common Stockholders $ 47.0 $ 37.9 $ 9.1 24% Adjusted Diluted EPS $ 0.54 $ 0.44 $ 0.10 23% Total ADV 4.96 4.80 3% Revenue per Contract $0.334 $0.314 $0.020 6% ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” CBOE HOLDINGS 16
Overview of Operating Revenues Key Drivers Operating Revenues 2Q13 2Q12 % Chg Transaction fees (in millions) 5% increase in trading volume and Transaction fees $ 106.1 $94.9 12% 6% increase in RPC Access fees 15.0 16.1 -7% Shift in product mix Exchange services and other fees 9.3 7.9 18% Regulatory Fees Market data fees 5.7 6.4 -11% Increases in Options Regulatory Regulatory fees 10.5 4.1 156% Fee (ORF) Other revenue 4.2 3.2 31% Exchange services and other Total Operating fees Revenues $150.8 $132.6 14% Positive response to a new network access option Access fees Fee modifications and decline in trading permits CBOE HOLDINGS 17
Trading Volume Mix and RPC 2Q12 vs 2Q13 RPC Increase Reflects Shift in Mix of Trading Volume CBOE HOLDINGS 18
Proprietary Products Account for Growing Percentage of Transaction Fee Revenue Index options and futures contracts accounted for 80% of transaction fees in 2Q13, up from 66% in 2Q12 CBOE HOLDINGS 19
Other Revenue Drivers Regulatory fees up $6.4MM (in millions) 2Q13 2Q12 % Chg Higher volume and increase in ORF rate Regulatory fees $10.5 $ 4.1 156% Exchange services Exchange services up $1.4MM and other fees $ 9.3 $ 7.9 18% Driven by positive response to a Access fees $15.0 $16.1 -7% new network access option Access fees down $1.1MM Reflects decline in trading permits and introduction of new credit and rebate programs CBOE HOLDINGS 20
Ongoing Focus on Controlling Expenses Key Drivers: Adjusted Operating 2Q13 2Q12 % Chg Expenses¹ (in millions) Employee costs Employee costs $30.4 $25.3 20% Reflects increases in stock-based Depreciation and compensation, incentive amortization 8.6 8.3 4% compensation and salaries Data processing 4.6 4.9 -6% Royalty fees Outside services 9.6 9.3 3% Royalty fees 14.5 12.0 21% Driven by higher trading volume in Trading volume licensed index products and an incentives 0.9 1.2 -25% increase in royalty rates Travel and promotional 2.6 3.3 -21% Travel and promotional Facilities costs 1.3 1.2 8% Decrease in advertising Other expenses 1.1 1.0 10% expenditures Total Adjusted Operating Expenses $73.6 $66.5 11% ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” CBOE HOLDINGS 21
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