Fourth Quarter Earnings Conference Call February 9,...
Transcript of Fourth Quarter Earnings Conference Call February 9,...
Fourth Quarter Earnings Conference Call
February 9, 2012
CBOE Holdings, Inc.
Agenda
Strategic Review William BrodskyChairman and CEO
Financial Review Alan DeanExecutive Vice PresidentExecutive Vice PresidentCFO and Treasurer
Willi B d kQuestions and Answers William Brodsky
Alan Dean
Edward TillyEdward TillyPresident and Chief Operating Officer
Edward ProvostExecutive Vice PresidentChi f B i D l t Offi
CBOE Holdings, Inc.p. 2p. 2
Chief Business Development Officer
p. 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 i l b f i k d t i ti Th t t t l di ti b dinvolve 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: legislative or regulatory changes; changes in law or government policy; increasing competition; loss of our exclusive licenses; decrease in t di l i bilit t i t d titi d t d itrading volumes; an inability to introduce competitive new products and services; competitive pressures on our existing products, services and trading access fees; changes in price levels and volatility in the derivatives and equity markets; economic, political and market conditions; increases in our fixed costs and expenses; loss of existing customers; difficulty developing strategic relationships and attracting new customers; increased costs related to or the loss of intellect al propert rapid technological de elopments increasesrelated to, or the loss of, intellectual property; rapid technological developments; increases in trading volume and order transaction traffic that we cannot accommodate; our ability to maintain our growth effectively; damage to our reputation and brand name; loss of market data revenue; detrimental changes to our fee structure; failure to effectively monitor and manage our risks; customer consolidation; and changes to the tax treatment for options tradingtrading.
► 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, 2010 and other filings made from time to time with the SEC.
CBOE Holdings, Inc.p. 3p. 3p. 3
Strategic Review
William BrodskyChairman and CEO
CBOE Holdings, Inc.p. 4p. 4p. 4
A Banner Year – Record Results
Total ADV (thousands) Adjusted Operating Revenues ($mm)¹
Adjusted Diluted EPS¹Adjusted Operating Margin¹
CBOE Holdings, Inc.p. 5p. 5¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.”
Achieved Fourth Quarter Highs
Adjusted Operating Revenues¹ ($mm)
+ 6% + 19%
CBOE Holdings, Inc.p. 6
¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.”
Mission and Strategy
Develop New Products
Create value for stockholders by offering a diversified portfolio of risk management
Optimize Revenue and
Market Share in
portfolio of risk management products and services which generate industry leading profit margins and growth rates while Commoditized
Productsmargins and growth rates while maintaining the highest standards of market regulation
Broaden Customer
Base
CBOE Holdings, Inc.p. 7
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 VIXSector ETFs and single stock VIX products
► New futures products on CFE
CBOE Holdings, Inc. p. 8
SPX Drives Strong Index Volume
► SPX most actively traded cash index• 13% increase in 2011 versus 2010
SPX W kl i t t t f SPX l► SPX Weeklys important component of SPX complex• 283% increase in 2011 versus 2010
CBOE Holdings, Inc.p. 9
SPXpm Broadens Customer Reach
► Convenience of screen trading on all-electronic C2 Options ExchangeOptions 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► Cash settlement eliminates need for physical delivery
► European exercise eliminates risk of early assignment
SPXpm Provides Greater Efficiency, More Control and Lower Costs
CBOE Holdings, Inc.
p y
p. 10
Increasing Awareness and Understanding
Ads present differences between SPXpm and other S&P 500 contracts
CBOE Holdings, Inc.p. 11
Strong Growth in Volatility Trading
► See strong future growth potentialpotential
► Education key to growth
► More than 24 VIX benchmarks and strategies
► Adding new VIX benchmarks and tradable products p
CBOE Holdings, Inc.p. 12
CBOE Volatility Benchmark Indexes
CBOE Equity Index Volatility Indexes CBOE VIX Indexes on Individual Equities• CBOE Volatility Index (VIX)
• CBOE DJIA Volatility Index (VXD)
• CBOE Nasdaq-100 Volatility Index (VXN)
• CBOE S&P 100 Volatility Index (RVX)
• Apple (VXAPL)
• Amazon (VXAZN)
• Goldman Sachs (VXGS)
• Google (VXGOG)
CBOE ETF VIX Indexes• CBOE Crude Oil ETF Volatility Index (OVX)
• CBOE EuroCurrency ETF Volatility Index (EVZ)
• IBM (VXIBM)
Other CBOE Volatility-Related Indexes• CBOE Tail Hedge Strategy Index (VXTH)
• CBOE Emerging Markets ETF Volatility Index (VXEEM)*
• CBOE Silver ETF Volatility Index (VXSLV)
• CBOE China ETF Volatility Index (VXFXI)
• CBOE Gold Miners ETF Volatility Index (VXGDX)
• CBOE S&P 500 SKEW Index (SKEW)
• CBOE VIX Premium Strategy Index (VPD)
• CBOE Capped VIX Premium Strategy Index (VPN)
• CBOE S&P 500 Implied Correlation Indexes
• CBOE Brazil ETF Volatility Index (VXEWZ)
• CBOE Energy Sector ETF Volatility Index (VXXLE)
• CBOE Gold ETF Volatility Index (GVZ) **
*VXEM f t b t di J 9 2012 VXEEM ti
(KCJ, ICJ, JCJ)
CBOE Holdings, Inc.p. 13
*VXEM futures began trading January 9, 2012; VXEEM options began trading January 31, 2012**Futures and options began trading in 2011
Optimizing Revenue and Market Share inCommoditized 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
CBOE Holdings, Inc.p. 14
Optimizing Revenue and Market Share inCommoditized Products
► Modified fee schedule Jan. 3
• Increase market share in multi-listed products
• Ensure optimal returns in pproprietary products
► Implemented volume incentive program “VIP”g
• Provides credits to firms for certain types and levels of business
Strong Initial Response to VIP
CBOE Holdings, Inc.p. 15
Strong Initial Response to VIP
Expanding User Base
► Focus on customer segments with t t t ti l
FLEX Index Options ADVgreatest potential
• Users of OTC market
• Institutional investors
• Volatility traders
► OTC-type trades migrating to CBOECBOE
• 21% growth in FLEX index products in 2011
CBOE Holdings, Inc.p. 16
Equity Derivatives: OTC Versus Exchange-Traded
In equity-linked options, the OTC markets’ notional value outstanding has declined in comparison to the listed markets
CBOE Holdings, Inc.17
Source: Bank of International Settlements (BIS)
Notional amounts outstanding in billions of US dollars
Expand European Customer Base
28th Annual Risk Management ConferenceMarch 2012
First CBOE European Risk Management Conference
March 2012
CBOE Holdings, Inc.p. 18
Management Conference September 2012
ETNs & ETFs Pegged to CBOE VIX Index
Ticker Issuer Net Assets ($MM)* Benchmark Ticker Issuer
Net Assets ($MM)*
Benchmark
VXX US Barclays iPath ETNs/USA 875 14 S&P 500 VIX Short-Term Futures IVOP US Barclays iPath ETNs/USA 10 79 S&P 500 VIX Short-Term Futures
42 Structured Products with $2.8 Billion in Assets Under Management
VXX US Barclays iPath ETNs/USA 875.14 S&P 500 VIX Short Term Futures IVOP US Barclays iPath ETNs/USA 10.79 S&P 500 VIX Short Term Futures
VXZ US Barclays iPath ETNs/USA 436.57 S&P 500 VIX Mid-Term Futures VXCC US E-TRACS ETNs/USA 10.70 SPX VIX Futures 3-month
XIV US Credit Suisse 386.68 S&P 500 VIX Short-Term Futures VXEE US E-TRACS ETNs/USA 10.36 S&P 500 VIX Mid-Term Futures
TVIX US Credit Suisse 170.83 S&P 500 VIX Short-Term Futures VXDD US E-TRACS ETNs/USA 10.30 SPX VIX Futures 4-month
VOLT LN Nomura 166.92 S&P 500 VIX Mid-Term Futures VXBB US E-TRACS ETNs/USA 10.28 SPX VIX Futures 2-month
VSXX LN Barclays iPath 98.44 VSTOXX Short Term Fut TR VXFF US E-TRACS ETNs/USA 10.22 SPX VIX Futures 6-month
XVZ US iPath ETNs/USA 68.00 S&P 500 Dynamic VIX Futures VXAA US E-TRACS ETNs/USA 10.12 S&P 500 VIX Short-Term Futures
LYMJ GS Lyxor 60.22 S&P 500 VIX Futures Enhanced Roll FFVX US E-TRACS ETNs/USA 9.14 S&P 500 VIX Futures 6-month
1552 JP Kokusai 53.32 S&P 500 VIX Short-Term Futures DDVX US E-TRACS ETNs/USA 8.92 SPX VIX Futures 4-month
VSXY LN Barclays iPath 48.62 VSTOXX Mid Term Fut TR EEVX US E-TRACS ETNs/USA 8.78 S&P 500 VIX Mid-Term Futures
XVIX US UBS 44.56 S&P 500 VIX Futures Term-Structure VIIZ US Credit Suisse 8.78 S&P 500 VIX Mid-Term Futures
VIIX US Credit Suisse 39.98 S&P 500 VIX Short-Term Futures VSXX IM Barclays iPath/Germany 8.58 VSTOXX Short Term Fut TR
VIXY US ProShares ETFs 37.00 S&P 500 VIX Short-Term Futures CCVX US E-TRACS ETNs/USA 8.37 SPX VIX Futures 3-month
HVU CN BetaPro 26.06 S&P 500 VIX Short-Term Futures BBVX US E-TRACS ETNs/USA 8.23 SPX VIX Futures 2-month
XXV US iPath ETNs/USA 19.10 S&P 500 VIX Short-Term Futures AAVX US E-TRACS ETNs/USA 7.29 S&P 500 VIX Short-Term Futures
VIXS LN Source Markets Plc/Ireland 17.05 S&P 500 VIX Short-Term Futures VZZB US iPath ETNs/USA 7.27 S&P 500 VIX Mid-Term Futures
TVIZ US Credit Suisse 14.77 S&P 500 VIX Mid-Term Futures SVXY US ProShares ETFs 6.92 S&P 500 VIX Short-Term Futures
VXIS GR Barclays iPath/Germany 13.39 S&P 500 VIX Short-Term Futures UVXY US ProShares ETFs 6.53 S&P 500 VIX Short-Term Futures
CBOE Holdings, Inc.p. 19
CVOL US Citigroup Funding Inc. 13.23 Citi Volatility Index Total Return ZIV US Credit Suisse 6.44 S&P 500 VIX Mid-Term Futures
VIXM US ProShares ETFs 12.28 S&P 500 VIX Mid-Term Futures HUV CN BetaPro 2.24 S&P 500 VIX Short-Term Futures
VXIM GR Barclays iPath/Germany 12.06 S&P 500 VIX Mid-Term Futures
*($2.784B as of Dec. 12, 2011)Issued in 2011
Expanding VIX Futures Trading
• VIX futures offer CTAs and hedge funds diversification and a source of non-correlated returns
• Tremendous VIX futures liquidity has increased interest and usage
• CTA/hedge fund penetration in U.S. and Europe is expanding
f• Potential exists for expansion in Asia and Australia
CBOE Holdings, Inc.p. 20
Ongoing Value Proposition
Develop New Products
Maintain the highest
standards of market
Continue to drive
margins and
Capitalize on operating
leverage inherent in
Reinvest capital to
drive growth and return
excess cash
Optimize Revenue and
Market Share in Commoditized market
regulationg
cash flow inherent in the business
excess cash to
stockholders
Commoditized Products
B dBroaden Customer
Base
CBOE Holdings, Inc.p. 21
Financial Review
Alan DeanExecutive Vice President CFO and TreasurerCFO and Treasurer
CBOE Holdings, Inc.p. 22p. 22p. 22
4Q11 Financial Overview
Adjusted Basis1
($s in millions, except for EPS) 4Q11 4Q10 $ Chg. % Chg.g gAdjusted Operating Revenues $120.2 $113.0 $ 7.2 6%Adjusted Operating Expenses 63.8 63.5 (0.3) -Adjusted Operating Income $ 56 4 $ 49 5 $ 6 9 14%Adjusted Operating Income $ 56.4 $ 49.5 $ 6.9 14%
Adjusted Operating Margin % 46.9% 43.8% 310 bpsAdjusted Net Income Allocated to Common Stockholders $ 33 2 $ 30 2 $ 3 0 10%Common Stockholders $ 33.2 $ 30.2 $ 3.0 10%Adjusted Diluted EPS $ 0.37 $ 0.31 $0.06 19%
Total Contracts per Day² 4.30 4.26 1%Rate per Contract $0.321 $0.293 $0.028 10%¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”
CBOE Holdings, Inc.p. 23
²Trading days in fourth quarter 2011 and 2010 totaled 63 and 64, respectively.
Adjusted Operating Revenues up 6%
Key Drivers:
T ti FOperating Revenues (in millions) 4Q11 4Q10 $ CHG % CHG
► Transaction Fees
• 10% increase in RPC to $0.321
• 1% decrease in trading volume
Transaction fees $ 87.1 $ 79.9 $ 7.2 9%
Access fees 17.1 18.4 (1.3) -7%► Access Fees
• Reflects implementation of sliding fee scale for market maker trading
Access fees 17.1 18.4 (1.3) 7%
Exchange services and other fees 4.7 4.0 0.7 18%
Market data fees 5.1 5.1 - 0% fee scale for market maker trading permits
► Exchange Services
F i f t i
Market data fees 5.1 5.1 0%
Regulatory fees 4.2 3.9 0.3 8%
Other revenue 2.0 1.7 0.3 18% • Fee increases for certain user services
Other revenue 18%
Total Operating Revenues $ 120.2 $ 113.0 $ 7.2 6%
CBOE Holdings, Inc.p. 24p. 24p. 24
Transaction Fees Driven by Volumeand Rate Per Contract
Overall Transaction Fee per Contract (RPC)Overall Transaction Fee per Contract (RPC)
Thousands
RPC up versus 4Q11 due to higher mix of index options and futures and lower volume discounts
5,000 $0.320
Thousands RPC
3,000
4,000
$0.280
$0.300
1 000
2,000$0.240
$0.260
0
1,000
$0.200
$0.220
ADV (000s) 4,479 4,715 4,488 4,350 4,555 5,310 3,725 4,262 5,081 4,447 5,481 4,301
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
CBOE Holdings, Inc.p. 25
ADV (000s) 4,479 4,715 4,488 4,350 4,555 5,310 3,725 4,262 5,081 4,447 5,481 4,301
RPC ($) $0.292 $0.273 $0.266 $0.278 $0.300 $0.281 $0.306 $0.293 $0.285 $0.308 $0.313 $0.321
p. 25p. 25
Trading Volume Mix 4Q11 vs 4Q10
Futures Futures
RPC Increased due to Shift to Higher-Margin Index Options and Futures
Futures 0.7%
Futures0.9%
4Q11 RPC $0.321
$0.167Equities
4Q10 RPC $0.293
$0.177Equities
$0.631
$0.212
Index
ETFS
$0.590
$0.224
Index
ETFS
CBOE Holdings, Inc.p. 26
$1.329Futures$1.679Futures
Trading Permits Holding Steady
► Implemented sliding fee scale for market maker trading permits on Jan 1 2011Jan. 1, 2011
► Trading permits holding steady
► Market makers continue to take advantage of sliding fee scale
CBOE Holdings, Inc.p. 27p. 27p. 27
Adjusted Operating Expenses¹
Key Drivers:Adjusted Operating Expenses (in millions) 4Q11 4Q10 $ CHG % CHG
► Royalty Fees• Higher volume in licensed index
options
j p g p $
Employee Costs $ 24.6 $ 23.8 $ 0.8 3%
Depreciation and Amortization 7.5 8.2 (0.7) -9%
►Trading Volume Incentives• Down due to changes in program
criteria
Data Processing 4.3 5.0 (0.7) -14%
Outside Services 6.7 6.8 (0.1) -1%
Royalty Fees 12.3 9.7 2.6 27%
►Travel and Promotional Expenses• Higher advertising to support
launch of SPXpm
y y
Trading Volume Incentives 2.4 5.6 (3.2) -57%
Travel and Promotional Expenses 3.3 1.6 1.7 106%
► Employee Costs• Increase in costs for employee
benefits
Facilities Costs 1.4 1.7 (0.3) -18%
Other Expenses 1.3 1.1 0.2 18%
Total Adjusted Operating Expenses $ 63.8 $ 63.5 $ 0.3 0%
CBOE Holdings, Inc.p. 28p. 28
¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”
p. 28
4Q11 Core Operating Expenses
(in thousands) 4Q11 4Q10 $ CHG % CHGTotal 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 agreement 3,709 - 3,709 NM Volume-based expenses: Royalty fees 12,346 9,710 2,636 27%y y Trading volume incentives 2,440 5,665 (3,225) -57%Core Operating Expenses (non-GAAP): $ 41,528 $ 39,968 $ 1,560 4%
Detail of Core Operating Expenses (non-GAAP)E l t $ 24 560 $ 23 819 $ 741 3% Employee costs $ 24,560 $ 23,819 $ 741 3%
Data processing 4,263 4,960 (697) -14% Outside services 6,657 6,788 (131) -2% Travel and promotional expenses 3,345 1,672 1,673 100% Facilities costs 1,426 1,662 (236) -14% Other expenses 1,277 1,067 210 20%
T t l $ 41 528 $ 39 968 $ 1 560 4% Total $ 41,528 $ 39,968 $ 1,560 4%
CBOE Holdings, Inc.p. 29
NM = not meaningful
p. 29
Volume-based Expenses
(in millions) 4Q11 4Q10 $ CHG % CHG
R lt f $ 12 346 $ 9 710 $ 2 636 27%
Volume-based expenses:
Royalty fees $ 12,346 $ 9,710 $ 2,636 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 index products
► Trading volume incentives decreased due to changes in incentive program and lower trading volume in equity and ETF options combined
• Equity and ETF options down 6% in 4Q11 versus 4Q10
CBOE Holdings, Inc.p. 30p. 30
Sixth Consecutive Quarter ofYear-Over-Year Margin Improvement
Quarterly Adjusted Operating Income and Margin¹($ in millions)
g pIncrease
55.0%$80.0
50.0%$60.0
$70.0
45.0%
$40.0
$50.0
35.0%
40.0%
$20.0
$30.0
30.0%$0.0
$10.0
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
CBOE Holdings, Inc.
¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”
Operating Income Margin
p. 31
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 Change4Q11 4Q10 Change 2011 2010 Change
GAAP 39.2% 37.2% +200 bps 41.9% 39.6% +230 bps
Adj t d 39 8% 37 2% +260 b 40 3% 39 6% +70 bAdjusted 39.8% 37.2% +260 bps 40.3% 39.6% +70 bps
CBOE Holdings, Inc.p. 32
Strong Debt-Free Balance Sheet
Cash and Cash Equivalents(in millions)
Strong cash flow
Debt-free balance sheet
CBOE Holdings, Inc.p. 33
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 price of $25 59 per share$25.59 per share
• $53 million remaining under plan at 12/31/11
R t d th $525 illi i h► Returned more than $525 million in cash to stockholders since IPO
CBOE Holdings, Inc.
Focused on Driving Increased Stockholder Valuep. 34
Highlights of Fee ChangesImplemented Jan. 3 on CBOE
► Revised liquidity provider sliding scale to exclude proprietary and exclusive products
I l t d l i ti (VIP)► Implemented a new volume incentive program (VIP)
• VIP pays credits to permit holders for executing certain customer orders on multiply-listed options at CBOE in excess of defined thresholds
• Modified the firm fee cap criteria on multiply-listed options, limiting applicable trades
► Increased fees for certain exchange services, including connectivity charges, registration fees and co-location fees
► Reduced monthly fee for market maker trading permits to $5,500 from $6,000
• Lowered the sliding fee scale for market maker trading permits for multiply-listed productsproducts
• Increased fees for other permits and appointments
CBOE Holdings, Inc.p. 35
Drive incremental volume, leverage proprietary products, ensure competitive pricing
2012 Full-Year Guidance
($ 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 $30 to $35Capital expenditures $29.1 $30 to $35
(1) The company expects core expenses to be at the low end of the guidance range if volume in 2012 is flat to up 4 percent and at the high end of the range if volume growth is 5 percent or higher.
(2) Continuing stock-based compensation expense, included in core expenses, is expected to be in the range of $12.2 to $12.7 million, i l d d i l t 2011 i l d d ti i t k b d ti f $12 2 illi
CBOE Holdings, Inc.
included in employee costs; 2011 core expenses included continuing stock based compensation of $12.2 million.
p. 36
Ongoing Value Proposition
ReinvestMaintain the highest
standards of market
regulation
Continue to drive margins and cash flow
Capitalize on operating leverage
inherent in the business
Reinvest capital to drive
growth and return excess
cash to stockholdersstockholders
CBOE Holdings, Inc.p. 37
Questions & Answers
CBOE Holdings, Inc.p. 38p. 38p. 38
Appendix Materials
CBOE Holdings, Inc.p. 39p. 39p. 39
Options ADV Up 1% in 4Q11 vs 4Q10
CBOE Holdings Quarterly Options ADV (contracts in millions)
Includes May 6 “Flash Crash”
CBOE Holdings, Inc.p. 40
Quarterly Core Operating Expenses¹
4Q 2011 % rev 3Q 2011 % rev 2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % rev
($ in thousands)
4Q 2011 % rev 3Q 2011 % rev 2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % revTotal 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 stock-based compensation - - - - 113 - 340 - 2,004 2%
Severance expense pursuant to executive employment agreement 3,709 3% -
--
--
--
-
Volume-based Expense:R lt F 12 346 10% 13 956 10% 10 373 9% 11 146 9% 9 710 9% Royalty Fees 12,346 10% 13,956 10% 10,373 9% 11,146 9% 9,710 9%
Trading Volume Incentives 2,440 2% 3,525 2% 2,515 2% 5,759 5% 5,665 5%Core Operating Expenses (non-GAAP)¹: $41,528 35% $42,260 29% $41,841 35% $40,566 33% $39,968 38%Less: Continuing stock-based compensation (3,010) -3% (2,976) -2% (3,106) -3% (3,073) -3% (3,233) -3%
Core Operating Expenses excluding continuing stock-based compensation (non-GAAP)¹: $38,518 32% $39,284 27% $38,735 32% $37,493 30% $36,735 35%
Expense Detail:p Employee Costs $21,550 18% $22,969 16% $21,285 18% $22,323 18% $20,586 19% Data Processing 4,263 4% 4,337 3% 4,905 4% 4,428 4% 4,960 5% Outside Services 6,657 6% 6,881 5% 7,190 6% 6,579 5% 6,788 6% Travel and Promotion Expenses 3,345 3% 2,416 2% 2,368 2% 1,685 1% 1,672 2% Facilities Costs 1,426 1% 1,081 1% 1,400 1% 1,492 1% 1,662 2% Other Expenses 1,277 1% 1,600 1% 1,587 1% 986 1% 1,067 1%
Number of Full Time Employees 596 591 588 582 581p y
¹Please see our disclaimer regarding Non-GAAP financial measures.
CBOE Holdings, Inc.p. 41p. 41
Calculation of Weighted Average Shares
Shares Days
Outstanding Total Days Weighted Avg Shares
Days Outstanding
Total Days Weighted Avg
4Q 2011 Year 2011
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 5/17/11 22,641 92 92 22,641 22,641 228 365 14,143 Vesting of participating securities (restricted stock) on 6/15/11 413,175 92 92 413,175 413,175 199 365 225,265 Vesting of participating securities (various dates) 84,358 various 92 29,378 84,358 various 365 7,405 Treasury share purchases (various dates) (1,236,100) various (1,152,648) (1,836,000) various (337,527)
Total weighted average shares - basic and diluted 89,397,257 89,993,997
P ti i ti iti f t d 1 485 331 1 485 331 1 485 331 1 485 331Participating securities as of quarter end 1,485,331 1,485,331 1,485,331 1,485,331
Weighted average shares including participating securities 90,882,588 91,479,328 Percentage of net income allocated to participating securities 1.63% 1.62%
Net income allocated to common stockholders equals net income less the percentage of net income allocated to participating securities.
GAAP EPS is calculated by dividing net income allocated to common stockholders by the total weighted average shares outstanding during the period for basic and diluted.
CBOE Holdings, Inc.p. 42p. 42
CBOE Rolling 3-Month RPC
CBOE Rolling Three-Month Average Transaction Fee Per Contract2011 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 $0.167Indexes 0.592 0.601 0.604 0.615 0.618 0.627 0.624 0.606 0.605 0.605 0.621 0.631Exchange-traded funds 0.223 0.215 0.207 0.207 0.208 0.202 0.197 0.187 0.192 0.194 0.205 0.212 Total options average 0.276 0.272 0.275 0.282 0.289 0.295 0.303 0.300 0.301 0.300 0.308 0.312Futures 1.657 1.591 1.507 1.493 1.514 1.477 1.437 1.376 1.371 1.348 1.328 1.329 Total average transaction fee per contract $0.286 $0.282 $0.285 $0.293 $0.301 $0.308 $0.316 $0.313 $0.313 $0.311 $0.317 $0.321
2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecEquities $0 177 $0 180 $0 184 $0 172 $0 163 $0 162 $0 170 $0 180 $0 182 $0 180 $0 179 $0 177Equities $0.177 $0.180 $0.184 $0.172 $0.163 $0.162 $0.170 $0.180 $0.182 $0.180 $0.179 $0.177Indexes 0.576 0.590 0.597 0.584 0.578 0.580 0.590 0.597 0.598 0.592 0.592 0.590Exchange-traded funds 0.234 0.237 0.236 0.225 0.215 0.217 0.222 0.233 0.236 0.228 0.228 0.224 Total options average 0.282 0.290 0.297 0.282 0.274 0.277 0.288 0.296 0.300 0.296 0.292 0.284Futures 2.092 2.004 1.952 1.879 1.832 1.717 1.694 1.600 1.661 1.669 1.674 1.679 Total average transaction fee per contract $0.286 $0.294 $0.300 $0.286 $0.279 $0.281 $0.293 $0.301 $0.306 $0.302 $0.300 $0.293
2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecEquities $0.179 $0.188 $0.195 $0.188 $0.183 $0.188 $0.187 $0.181 $0.171 $0.168 $0.172 $0.172Indexes 0.583 0.573 0.569 0.563 0.565 0.565 0.570 0.567 0.574 0.578 0.574 0.563Exchange-traded funds 0.259 0.267 0.285 0.285 0.272 0.263 0.247 0.245 0.237 0.235 0.234 0.233 Total options average 0.287 0.287 0.292 0.282 0.273 0.272 0.272 0.270 0.264 0.266 0.273 0.274Futures 1.728 1.696 1.689 1.657 1.670 1.738 1.819 1.927 1.938 2.077 2.106 2.186 Total average transaction fee per contract $0.288 $0.288 $0.292 $0.283 $0.274 $0.273 $0.273 $0.272 $0.266 $0.268 $0.277 $0.278
2008 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecEquities $0.174 $0.183 $0.187 $0.187 $0.182 $0.176 $0.174 $0.179 $0.175 $0.178 $0.171 $0.169Indexes 0.550 0.567 0.581 0.582 0.580 0.575 0.573 0.571 0.577 0.579 0.585 0.582Exchange-traded funds 0.244 0.254 0.258 0.271 0.268 0.260 0.259 0.263 0.267 0.260 0.257 0.244
Total options average 0 277 0 284 0 290 0 292 0 285 0 277 0 275 0 280 0 287 0 298 0 297 0 290
CBOE Holdings, Inc.p. 43p. 43p. 43
Total options average 0.277 0.284 0.290 0.292 0.285 0.277 0.275 0.280 0.287 0.298 0.297 0.290Futures 1.937 2.085 1.835 1.842 1.926 1.919 1.874 1.851 1.898 1.904 1.855 1.763 Total average transaction fee per contract $0.279 $0.286 $0.292 $0.293 $0.287 $0.279 $0.276 $0.282 $0.289 $0.299 $0.298 $0.291
GAAP to Non-GAAP Reconciliation
CBOE Holdings, Inc. and SubsidiariesReconciliation of GAAP to Non-GAAP Financial MeasuresFor 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 Impacting Results Items Impacting Results
Reported (GAAP)
Other Expense
Income Tax Expense
After Considering Items (non-
GAAP)Reported (GAAP)
Operating expenses
Income tax expense
Other expense
After Considering Items (non-GAAP)
Total Operating Revenues $ 120,208 $ 120,208 $ 508,144 $ 508,144
Total Operating Expenses 67,529 (3,709) 63,820 266,512 (4,162) 262,350
Operating Income 52 679 3 709 56 388 241 632 4 162 245 794Operating Income 52,679 3,709 56,388 241,632 4,162 245,794
Operating Margin 43.8 % 46.9 % 47.6 % 48.4 %
Total Other Income /(Expense) (343) (343) (1,548) 460 (1,088)
Income Before Income Taxes 52,336 3,709 56,045 240,084 4,162 460 244,706
Income Tax Provision 20,529 1,478 322 22,329 100,678 1,677 (3,901) 185 98,639
Effective Income tax rate 39.2 % 0.6% 39.8 % 41.9 % (1.6)% 40.3 %
N t I $ 31 807 $ 2 231 $ (322) $ 33 716 $ 139 406 $ 2 485 $ 3 901 $ 275 $ 146 067Net Income $ 31,807 $ 2,231 $ (322) $ 33,716 $ 139,406 $ 2,485 $ 3,901 $ 275 $ 146,067
Net Income Allocated to Participating Securities (520) (37) 5 (552) (2,263) (40) (63) (6) (2,372)
Net Income Allocated to Common Stockholders $ 31,287 $ 2,194 $ (317) $ 33,164 $ 137,143 $ 2,445 $ 3,838 $ 269 $ 143,695
Diluted Net Income per Share Allocated to Common Stockholders $ 0.35 $ 0.02 $ - $ 0.37 $ 1.52 $ 0.03 $ 0.04 $ - $ 1.60
CBOE Holdings, Inc.
NOTE: May not foot due to rounding
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GAAP to Non-GAAP Reconciliation
CBOE Holdings, Inc. and SubsidiariesReconciliation of GAAP to Non-GAAP Financial MeasuresFor the Three and Nine Months Ended September 30, 2011
(in thousands, ex cept per share amounts)
Items Impacting Results
After After
Three months ended Septebmber 30, 2011 Nine months ended September 30, 2011
Items Impacting Results
Reported (GAAP)
Income tax reserve adjustment
Considering Items (non-GAAP)
Reported (GAAP)
Income tax reserve adjustment
Accelerated stock-based compensation
Impairment charge
Considering Items (non-GAAP)
Total Operating Revenues $143,604 143,604$ $387,935 $387,935
Total Operating Expenses 68,638 68,638 198,984 (453) 198,531
Operating Income 74 966 74 966 188 951 453 189 404 Operating Income 74,966 74,966 188,951 453 189,404
Operating Margin 52.2% 52.2% 48.7% 48.8%
Total Other Income /(Expense) (401) (401) (1,204) 460 (744)
Income Before Income Taxes 74,565 74,565 187,747 453 460 188,660
Income Tax Provision 33,238 (4,223) 29,015 80,148 (4,223) 188 191 76,304
Effective Income Tax Rate 44.6% 38.9% 42.7% 40.4%
Net Income $41,327 $4,223 45,550$ $107,599 $4,223 $265 $269 $112,356
Net Income Allocated to Participating Securities (730) (75) (805) (2,294) (90) (6) (6) (2,396)
Net Income Allocated to Common Stockholders $40,597 $4,148 44,745$ $105,305 $4,133 $259 $263 $109,960
Diluted Net Income per Share Allocated to Common Stockholders $0.45 $0.05 0.50$ $1.17 $0.05 $0.00 $0.00 $1.22
CBOE Holdings, Inc.
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GAAP to Non-GAAP Reconciliation
CBOE Holdings, Inc. and SubsidiariesReconciliation of GAAP to Non-GAAP Financial MeasuresFor the Three Months Ended March 31 and June 30, 2011
(in thousands, ex cept per share amounts)
Items Impacting Results
Three months ended June 30, 2011Three months ended March 31, 2011
Items Impacting Results
Reported (GAAP)
Accelerated stock-based compensation
Impairment charge
After Considering Items (non-GAAP)
Reported (GAAP)
Accelerated stock-based compensation
After Considering Items (non-GAAP)
Total Operating Revenues 124,042$ 124,042$ 120,290$ 120,290$
Total Operating Expenses 66 507 (340) 66 167 63 838 (113) 63 725 Total Operating Expenses 66,507 (340) 66,167 63,838 (113) 63,725
Operating Income 57,535 340 57,875 56,452 113 56,565
Operating Margin 46.4% 46.7% 46.9% 47.0%
Total Other Income /(Expense) (643) 459 (184) (162) (162)
Income Before Income Taxes 56,892 340 459 57,691 56,290 113 56,403
Income Tax Provision 24,021 143 194 24,358 22,889 46 22,935
Net Income 32,871$ 197$ 265$ 33,333$ 33,401$ 67$ 33,468$
Net Income Allocated to Participating Securities (782) (5) (6) (793) (792) (2) (794)
Net Income Allocated to Common Stockholders 32,089$ 192$ 259$ 32,540$ 32,609$ 65$ 32,674$
Dil t d N t I Sh All t d t C St kh ld 0 36$ 0 00$ 0 00$ 0 36$ 0 36$ 0 00$ 0 36$
CBOE Holdings, Inc.p. 46p. 46
NOTE: May not foot due to rounding
Diluted Net Income per Share Allocated to Common Stockholders 0.36$ 0.00$ 0.00$ 0.36$ 0.36$ 0.00$ 0.36$
p. 46
GAAP to Non-GAAP Reconciliation
CBOE Holdings, Inc. and SubsidiariesReconciliation of GAAP to Non-GAAP Financial MeasuresFor the Three Months and Year Ended December 31, 2010 and 2009
(in thousands, ex cept per share amounts)
Items Impacting Results Items Impacting ResultsAfter After
Three months ended September 30, 2010 Three months ended December 31, 2010
Reported (GAAP)
Accelerated stock-based compensation
After Considering Items (non-GAAP)
Reported (GAAP)
Recognition of prior-period revenue
Accelerated stock-based compensation
Impairment charge
After Considering Items (non-GAAP)
Total Operating Revenues 106,015$ -$ 106,015$ 117,391$ (4,406)$ 112,985$
Total Operating Expenses 71,082 (10,965) 60,117 65,537 (2,004) 63,533
Operating Income 34,933 10,965 45,898 51,854 (4,406) 2,004 49,452
Operating Margin 33.0% 43.3% 44.2% 43.8%
Total Other Income /(Expense) (235) (235) (1 898) 1 620 (278) Total Other Income /(Expense) (235) (235) (1,898) 1,620 (278)
Income Before Income Taxes 34,698 10,965 45,663 49,956 (4,406) 2,004 1,620 49,174
Income Tax Provision 14,244 4,461 18,705 18,579 (1,638) 745 602 18,288
Net Income 20,454$ 6,504$ 26,958$ 31,377$ (2,768)$ 1,259$ 1,018$ 30,886$
Net income allocated to Participating Securities (434)$ (144)$ (578)$ (690)$ 61$ (28)$ (22)$ (679)$
Net Income Allocated to Common Stockholders 20,020$ 6,360$ 26,380$ 30,687$ (2,707)$ 1,231$ 995$ 30,206$
Diluted Net Income Per Share Allocated to Common Stockholders 0.20$ 0.06$ 0.26$ 0.31$ (0.03)$ 0.01$ 0.01$ 0.31$
Diluted Net Income Per Share for all Stockholders 0.20$ 0.06$ 0.26$ 0.32$ (0.03)$ 0.01$ 0.01$ 0.32$
(in thousands, ex cept per share amounts) Year ended December 31, 2009Items Impacting Results
Reported (GAAP)
Recognition of prior-period revenue
Accelerated stock-based compensation
Impairment charge
After Considering Items (non-GAAP)
Reported (GAAP)
Recognition of deferred access fee revenue
Exercise right appeal settlement
After Considering Items (non-GAAP)
Total Operating Revenues 437,104$ (4,406)$ 432,698$ 426,082$ (24,086)$ 401,996$
Items Impacting ResultsYear ended December 31, 2010
Total Operating Expenses 269,763 (12,968) 256,795 248,498 (2,086) 246,412
Operating Income 167,341 (4,406) 12,968 175,903 177,584 (24,086) 2,086 155,584
Operating Margin 38.3% 40.7% 41.7% 38.7%
Total Other Income /(Expense) (2,718) 1,620 (1,098) (355) (355)
Income Before Income Taxes 164,623 (4,406) 12,968 1,620 174,805 177,229 (24,086) 2,086 155,229
Income Tax Provision 65,227 (1,746) 5,138 642 69,261 70,778 (9,619) 833 61,992
Net Income 99,396$ (2,660)$ 7,830$ 978$ 105,544$ 106,451$ (14,467)$ 1,253$ 93,237$
Net income allocated to Participating Securities (1 229)$ 33$ (97)$ (12)$ (1 305)$ $ $ $ $
CBOE Holdings, Inc.p. 47p. 47
Net income allocated to Participating Securities (1,229)$ 33$ (97)$ (12)$ (1,305)$ -$ -$ -$ -$
Net Income Allocated to Common Stockholders 98,167$ (2,627)$ 7,733$ 966$ 104,239$ 106,451$ (14,467)$ 1,253$ 93,237$
Diluted Net Income Per Share Allocated to Common Stockholders 1.03$ (0.03)$ 0.08$ 0.01$ 1.09$ 1.17$ ($0.16) $0.01 1.03$ Diluted Net Income Per Share for all Stockholders 1.04$ (0.03)$ 0.08$ 0.01$ 1.10$ 1.17$ ($0.16) $0.01 1.03$
NOTE: May not foot due to rounding p. 47
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 operatingcore operating expenses, adjusted operating revenue, adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted effective tax rate, adjusted net income, adjusted net income allocated to common stockholders and adjusted diluted earnings per share.M t b li th t th GAAP fi i l t d i► Management believes that the non-GAAP financial measures presented in this presentation, including adjusted net income and core operating expenses, provide useful and comparative information to assess trends in our core operations and a means to evaluate period-to-period comparisons. Non-GAAP financial measures disclosed by management including adjustedNon GAAP financial measures disclosed by management, including adjusted diluted EPS, are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP fi i l d b th iGAAP financial measures used by other companies.
► Core operating expenses is the company’s operating expenses after excluding (i) volume-based expenses, (ii) depreciation and amortization expense, (iii) accelerated stock-based compensation expense and (iv) other
CBOE Holdings, Inc.p. 48
p , ( ) p p ( )unusual or one-time expenses.
p. 48
CBOE Holdings, Inc.400 South LaSalle Street400 South LaSalle StreetChicago, IL 60605
Debbie KoopmanDirector, Investor Relationskoopman@cboe [email protected]
CBOE Holdings, Inc.p. 49p. 49p. 49