CBOE Holdings, Inc. Second Quarter Earnings Conference Call A t …ir.cboe.com/~/media/Files/C/CBOE-IR-V2/quarterly-results/... · 2016-06-20 · Second Quarter Earnings Conference

CBOE Holdings, Inc. Second Quarter Earnings Conference CallA t 4 2011

CBOE Holdings, Inc.p. 1p. 1p. 1

August 4, 2011

Agenda

Strategic Review William Brodsky

Chairman and CEO

Financial Review Alan Dean

Executive Vice President, CFO and Treasurer

Questions and Answers William Brodsky

Alan Dean

Edward Tilly

Executive Vice Chairman


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.


Strategic Review

William Brodsky

Chairman and CEO


Strong Financial Results 2Q11 vs 2Q10

► Operating Revenues• $120.3 Million, up 7%

Adjusted Operating Revenues1

(in millions)

$402$433

$417$120.3 Million, up 7%

► Operating Margin• 46 9% up 980 bps

$402

$214$244

$

$344

$253

46.9%, up 980 bps

•Highest level in ten quarters

► Net Income Allocated to Common

2006

2007

2008

2009

2010

YTD10

YTD11

Adj t d O ti I 1► Net Income Allocated to Common Stockholders• $32.6 Million, up 32%

Adjusted Operating Income1

(in millions)

$176$156

$187

► Diluted Earnings Per Share• $0.36, up 33%

$81

$114

$156

$68

$136


2006

2007

2008

2009

2010

YTD10

YTD11

¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”

Options ADV Down 17% in 2Q11 Against Difficult 2Q10 Comparison

Equity Options

2.402.58

1.87

2.26

2.60

1.94

CBOE Holdings Quarterly Options ADV (in millions)

Includes May 6 “Flash Crash”

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Index Options4.55

5.29

4 23

5.04

4.40

Flash Crash

Index Options

1.111.26

0.94 0.98

1.17 1.113.71

4.23

ETF Options1 351 45

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

1.351.26

0.990.91

1.45

1.04

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11


1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Options Volume Trends

Total Monthly Options Average Daily Volume(in millions)May 6

“Flash Crash”

5.295.00

5.30

6.57

4.85 4.854.25

3.853.50

3.794.33 4.46

3.934.19

4.52 4.574.544.12

4.854.48

Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec

2010 2011

CBOE Holdings, Inc.p. 7p. 7

Source: Company Data

VIX Trading Continues to Hit Record Highs

► VIX futures increased 190%VIX Options & Futures ADV (in thousands)

400► VIX futures increased 190%

in 2Q11 versus 2Q10

► VIX options increased 34% in

38145

300

350

40

50

► VIX options increased 34% in 2Q11 versus 2Q10

► VIX futures surpassed

248

150

200

250

ptio

ns A

DV

20

30

utur

es A

DV

p100,000 contracts on June 16

► VIX futures monthly ADV set 23

93 103132

1 5

17

50

100

150Op

10

20 Fu

a third consecutive record in July of 58,532 contracts

231 554202005 2006 2007 2008 2009 2010 2011 YTD

0

VIX Options VIX Futures

¹


¹YTD through 6/30/11

2Q11 Market Share Data

4%

Total Industry Volume Excl. Dividend Trades

3%4%

CBOEC2PHLX

10%25%

4%2%31%

14%10%26%

4%3% ISE

NYSE/AmexNYSE/ArcaNOM

23%17%

14% 1%

20%18%

14%1% NOM

BOXBATS

94%


Source: Options Clearing Corporation and CBOE

Differentiated Product Set

CBOE Trades…Equity

OptionsIndex

OptionsOptions on

ETFsCFE Futures

Exchange

2Q10 vs 2Q11 -24.9% -7.0% -11.7% 194%

Options OptionsETFs Exchange

ADV Chg

% of 2Q11 Volume

44% 30% 25% 1%

% of 2Q11 Trans. Fees

24% 20% 51% 5%

2Q11 RPC $0.169 $0.202 $0.627 $1.477


C2 Achieving Steady Growth

► Averaged 191,200 contracts per day in 2Q11, up 18 percent from 1Q11

► Active market makers have nearly doubled since February

► Adjusted fees and incentives on May 2 to improve market quality

► Introduced complex order functionality for all listed classes in July

C2 Monthly ADV(contracts in thousands) 220

186211

149179 175 186

156

111

56

1

Oct-2010 Nov Dec Jan-2011 Feb Mar Apr May June July

CBOE Holdings, Inc.p. 11p. 11p. 11p. 11

Oct-2010 Nov Dec Jan-2011 Feb Mar Apr May June July

C2 Market Share Continues to Grow

C2 Market Share - Gains in SPY, QQQQ and Penny ETF3.8%

4.0%

3.0%

3.5%

1 7%

2.5%

1.9%

2.2%2.0%

2.5%

1.3%

0.8%

1.7%

1.0%

1.3%1.5%

1.0%

1.5%

0.0%

0.5%

Jan Feb Mar Apr May Jun Jul

CBOE Holdings, Inc.p. 12

p yAll Penny Penny ETF SPY QQQQ

SPXpm to Broaden Customer Reach

► SEC extended its evaluation of SPXpm rule filing on June 3

• SEC must act by Sept 6 to

• Approve or disapprove

• Extend review period an additional and final 60 days

► SEC’s extended review focuses on PM settlement

• PM settlement is a long established, logical settlement convention

• Used in many exchange-traded productsUsed in many exchange traded products

• SPXpm provides a potential alternative to OTC trading

• Aligned with Dodd-Frank mandate to move more OTC trades onto exchanges

► Committed to working with the SEC to obtain approval to launch SPXpm


Leveraging Expertise in Volatility Products

► New Initiatives to further develop volatility

Introduced CBOE Tail Hedge Index• Introduced CBOE Tail Hedge Index

• Tracks performance of a portfolio based on one-month out-of-the money VIX calls

• Provides investor a benchmark for VIX-based tail hedge strategies

• CBOE may also use index to create a tradable product or license it to others for trading

• CBOE Options Institute launched new class devoted to VIX tradingCBOE Options Institute launched new class devoted to VIX trading

• CFE plans to launch futures contracts on several Radar Logic 28-Day Real Estate Indexes (RPX), pending regulatory approval


Returning Capital to Stockholders

► Board authorized a $100 million share repurchase program

I d t l di id d b 20% t $0 12 f $0 10► Increased quarterly dividend by 20% to $0.12 from $0.10

► Strong commitment to returning capital to stockholders

► Confidence in long-term growth prospects for CBOE Holdings


2011 Initiatives

► CBOE’s unique focus on options and volatility products leaves us well-positioned to take advantage of long-term secular growth trends

► Key Priorities:

• Build on the success of C2

• Work for approval to launch SPXpm

• Expand product offerings, including VIX product line

• Position CBOE to benefit from regulatory reformPosition CBOE to benefit from regulatory reform

► Strong operating cash flow and debt-free balance sheet provide us financial flexibility

• Invest in innovation• Reward stockholders


2Q11 Financial Overview

2Q11 2Q10 $ Change % Change

(in millions, except RPC and EPS)

Total Operating Revenues $ 120.3 $ 112.6 $ 7.7 7%

Total Operating Expenses 63.8 70.8 (7.0) -10%

Operating Income 56.5 41.8 14.7 35%

Operating Margin Percentage 46.9% 37.1% N/A 980 bps

Income Before Income Taxes 56.3 41.6 14.7 35%

Net Income 33.4 24.9 8.5 34%

Net Income Allocated to Common Stockholders 32.6 24.8 7.8 32%

Diluted EPS $0.36 $0.27 $0.09 33%

Total Contracts Per Day 4.45 5.31 N/A -16%


Rate Per Contract (RPC) $0.308 $0.281 $0.027 10%

2Q11 Operating Revenues

Key Drivers:Operating Revenues (in millions) 2Q 2011 2Q 2010 $ CHG % CHG ► Access fees

• Increase reflects implementation of new trading permit program

Transaction fees $ 86.3 $ 94.1 $ (7.8) -8%

Access fees 17.0 2.3 14.7 639% of new trading permit program

► Transaction fees

• 16% decrease in trading volume

Access fees 17.0 2.3 14.7 639%

Exchange services and other fees 4.3 4.5 (0.2) -4%

Market data fees 4.8 5.6 (0.8) -14%• 10% increase in RPC to $0.308

► Other revenue

Market data fees 4.8 5.6 (0.8) 14%

Regulatory fees 4.8 4.2 0.6 14%

Other Revenue 3.1 1.9 1.2 63%• Increase in licensing fees and

other miscellaneous items

Other Revenue 63%

Total Operating Revenues $ 120.3 $ 112.6 $ 7.7 7%


Transaction Fees Driven by Volumeand Rate Per Contract

Overall Transaction Fee per Contract (RPC)Overall Transaction Fee per Contract (RPC)RPC up due to higher mix of index options and futures and lower volume discountsThousands

RPC down due to lower mix of index

options and fee caps

5,000

6,000

$0.300

$0.320

Thousands RPCp p

3 000

4,000

$0 260

$0.280

2,000

3,000

$0.240

$0.260

0

1,000

$0.200

$0.220

ADV (000s) 4 636 4 306 5 346 4 594 4 479 4 715 4 488 4 350 4 555 5 310 3 725 4 262 5 081 4 447

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11


ADV (000s) 4,636 4,306 5,346 4,594 4,479 4,715 4,488 4,350 4,555 5,310 3,725 4,262 5,081 4,447

RPC ($) 0.292 0.279 0.289 0.291 0.292 0.273 0.266 0.278 0.300 0.281 0.306 0.293 0.285 0.308

p. 19

Options Trading Volume Mix

RPC Increased due to Mix Shift to Higher-Margin Index Options and Futures

2Q 2011Futures,

1.1%

2Q 2010

ETF, 30.3%

ETF, 27.3%

Equity, 43.5%

Index, 25.1%

Equity, 48.6%

Index, 23.8%

25.1%


2Q11 Operating Expenses

Key Drivers:►Employee Costs

I i t k b dOperating Expenses (in millions) 2Q 2011 2Q 2010 $ CHG % CHG

• Increase in stock-based compensation; $2.5 million continuing expense and $0.1 million of accelerated

Employee Costs $ 24.5 $ 22.6 $ 1.9 8%

Depreciation and Amortization 9.0 7.3 1.7 23%

Data Processing 4 9 5 2 (0 3) 6%►Depreciation and Amortization

• Reflects startup of C2 and accelerated write-off of assets

O t id S i

Data Processing 4.9 5.2 (0.3) -6%

Outside Services 7.2 10.1 (2.9) -29%

Royalty Fees 10.4 11.5 (1.1) -10%►Outside Services

• Lower legal and consulting fees

►Royalty Fees

Trading Volume Incentives 2.5 7.3 (4.8) -66%

Travel and Promotional Expenses 2.3 3.2 (0.9) -28%

F iliti C t 1 4 1 3 0 1 8% • Lower volume in licensed index options

►Trading Volume Incentives

Facilities Costs 1.4 1.3 0.1 8%

Other Expenses 1.6 2.3 (0.7) -30%

Total Operating Expenses $ 63.8 $ 70.8 $ (7.0) -10%


• Lower volume in equity and ETF options and change in incentive program

2Q11 Core Operating Expenses Down 12% Excluding Impact of Stock Grants

(in thousands) 2Q11 2Q10 $ CHG % CHGT t l O ti E $ 63 838 $ 70 792 $ (6 954) 10%Total Operating Expenses $ 63,838 $ 70,792 $ (6,954) -10%Less: Depreciation and amortization 8,996 7,301 1,695 23% Accelerated stock-based compensation expense 113 - 113 NM Volume-based expenses: -

10 373 11 519 (1 146) Royalty fees 10,373 11,519 (1,146) -10% Trading volume incentives 2,515 7,339 (4,824) -66%Core Operating Expenses (non-GAAP): $ 41,841 $ 44,633 $ (2,792) -6%Less: Continuing stock-based compensation expense (3,106) (636) (2,470) NMCore Operating Expenses Excluding Continuing Stock-Based Compensation (non GAAP) 38 735$ 43 997$ (5 262)$ 12%Based Compensation (non-GAAP) 38,735$ 43,997$ (5,262)$ -12%

Detail of Core Operating Expenses Excluding Continuing Stock-Based Compensation (non-GAAP) Employee costs (excluding stock-based compensation expense) $ 21,285 $ 22,004 $ (719) -3% Data processing 4,905 5,155 (250) -5% Outside services 7,190 10,041 (2,851) -28% Travel and promotional expenses 2,368 3,209 (841) -26% Facilities costs 1,400 1,315 85 6% Other expenses 1,587 2,273 (686) -30% Total $ 38,735 $ 43,997 $ (5,262) -12%


NM = not meaningful

Volume-based Expenses

(in thousands) 2Q11 2Q10 $ CHG % CHGVolume-based expenses:

Royalty fees $ 10,373 $ 11,519 $ (1,146) -10% Trading volume incentives 2,515 7,339 (4,824) -66% Total $ 12,888 $ 18,858 $ (5,970) -32%

► Royalty fees declined due to lower trading volume in licensed index products

► Trading volume incentives down due to lower trading volume and changes in incentive program

• Equity options down 25% in 2Q11 versus 2Q10• Equity options down 25% in 2Q11 versus 2Q10• ETF options down 7% in 2Q11 versus 2Q10


Well Positioned to Deliver Higher Margins

$60.0 50.0%

Quarterly Adjusted Operating Income and Margin¹($ in millions)

$50.046.0%

48.0%

$30 0

$40.0

40 0%

42.0%

44.0%

$20.0

$30.0

36.0%

38.0%

40.0%

$10.0

32.0%

34.0%


$0.01Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

30.0%

Operating Income Margin

¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”

Guidance Summary for Full Year 2011► Revenue impact of 1/2/11 fee changes expected to be +$3 to +$5 million

► Fee changes expected to increase RPC by $0.003 to $0.004 in 2011

► Access fees in a range of $65 to $68 million

• Excludes access fees for SPXpm on C2

► Core expenses adjusted to a range of $170 to $173 million from a range of $173 to $177 million

• Includes continuing stock-based compensation expense in a range of $12 2Includes continuing stock based compensation expense in a range of $12.2 to $12.7 million

► Accelerated stock-based compensation expense of $453,000 (excluded from adjusted earnings)from adjusted earnings)

► Depreciation and amortization expense of $35 to $37 million

Capital expenditures of $30 to $35 million


► Capital expenditures of $30 to $35 million

► Effective tax rate in a range of 41.7% to 42.0%

Strong Debt-Free Balance Sheet

($ in thousands)

As of Dec. 31, 2010

As of Mar. 31, 2011

As of June 30, 2011

SBalance Sheet Data

Cash¹ $ 53,789 $115,689 $106,545

Total Assets $254,112 $320,820 $319,422Total Assets $254,112 $320,820 $319,422

Total Liabilities $ 78,238 $117,856 $ 92,128

Total Stockholders’ Equity $175,874 $202,964 $227,294

Other Data

Working Capital¹ $ 61,118 $ 93,479 $116,629

► No existing debt

Working Capital $ 61,118 $ 93,479 $116,629

Capital Expenditures² $ 23,556 $ 7,134 $ 18,334


1. Current assets minus current liabilities.2. Does not include new investments in affiliates or the disposition of interests in affiliates.

Strong Cash Flow and Return of Capital

► Generated $14.3 million in operating cash flow for second quarter and $92.6 million year-to-datey

• 63% increase in 2Q11 compared with 2Q10

• 30% increase year-to-date 2011 versus 2010

► Cash from operations expected to fund ongoing growth initiatives

► Focused on short-term earnings performance while driving long-t t kh ld lterm stockholder value


Questions & Answers


Appendix Materials


Annual Financial Highlights

Options ADV (mm) Transaction Fees ($mm)RPC

4.74 5 4 5

Exchange-traded fundsIndexes $0.309 $344 $330

1.9

2.7

3.8

4.5

24%20%22%24%

23%

25%24%28%

23%

19%

4.5IndexesEquities $0.282 $0.288 $0.288

$0.277$0.294

$145

$190

$273

$315 $330

51%56%51%53%58%

59%

23%25%16%

2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010

Adjusted Operating Revenues ($mm)¹ Adjusted Pre-Tax Earnings ($mm)¹Adjusted Operating Expenses ($mm)¹

$344

$417 $402$433

$ $185$208

$229$246 $257

$193

$155$175

$201

$253$180 $185

$20

$72

$140$155


2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010

$20

2005 2006 2007 2008 2009 2010¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.”

Historical Transaction Fee Drivers

For the Year Ended December 31,

(in thousands, ‘06-’10CAGR/

6 Mos Ended

June 30,

6 Mos Ended

June 30,except rate per contract) 2006 2007 2008 2009 2010

CAGR/ Avg.

June 30, 2011

June 30, 2010

Average Daily Volume

Equities 1,556 1,996 2,387 2,519 2,273 10% 2,267 2,489

Indexes 628 918 1,026 884 1,071 14% 1,143 1,187

ETF’s 504 849 1,304 1,100 1,097 22% 1,306 1,249

Total Options 2,688 3,763 4,717 4,503 4,440 13% 4,716 4,925

Futures 2 4 5 5 17 71% 46 13

Total 2,690 3,767 4,722 4,508 4,457 14% 4,762 4,938, , , , , , ,

Rate Per Contract

Equities $ 0.182 $ 0.180 $ 0.177 $ 0.181 $ 0.176 $ 0.179 $ 0.164 $ 0.172

Indexes 0.500 0.544 0.576 0.567 0.591 0.556 0.616 0.588

ETF’s 0 312 0 257 0 259 0 255 0 227 0 262 0 204 0 225ETF s 0.312 0.257 0.259 0.255 0.227 0.262 0.204 0.225

Total Options $ 0.280 $ 0.286 $ 0.286 $ 0.275 $ 0.288 $ 0.286 $ 0.284 $ 0.286

Futures $ 1.974 $ 2.130 $ 1.860 $ 1.990 $ 1.723 $ 1.935 $ 1.491 $ 1.806

Total $ 0.282 $ 0.288 $ 0.288 $ 0.277 $ 0.294 $ 0.286 $0.296 $ 0.290


Total Transaction Fees $190,224 $272,716 $ 343,779 $ 314,506 $ 330,264 15% $ 176,179 $177,493

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 $0.169Indexes 0.592 0.601 0.604 0.615 0.618 0.627Exchange-traded funds 0.223 0.215 0.207 0.207 0.208 0.202 Total options average 0.276 0.272 0.275 0.282 0.289 0.295Futures 1.657 1.591 1.507 1.493 1.514 1.477 Total average transaction fee per contract $0.286 $0.282 $0.285 $0.293 $0.301 $0.308

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 $0.177Indexes 0.576 0.590 0.597 0.584 0.578 0.580 0.590 0.597 0.598 0.592 0.592 0.590Indexes 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 DecE iti $0 179 $0 188 $0 195 $0 188 $0 183 $0 188 $0 187 $0 181 $0 171 $0 168 $0 172 $0 172Equities $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 0.290Futures 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


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

Quarterly Core Operating Expenses

2Q 2011 % rev 1Q 2011 % rev 4Q 2010 % rev 3Q 2010 % rev 2Q 2010 % revTotal Operating Expenses $63,838 53% $66,507 54% $65,537 62% $71,082 67% $70,792 63%Less:

($ in thousands)

Less: Depreciation and Amortization 8,996 8% 8,696 7% 8,190 8% 7,099 7% 7,301 6% Accelerated stock-based compensation 113 - 340 - 2,004 2% 10,965 10% Volume-based Expense: Royalty Fees 10,373 9% 11,146 9% 9,710 9% 9,226 9% 11,519 10% Trading Volume Incentives 2,515 2% 5,759 5% 5,665 5% 4,594 4% 7,339 7% Non-Operating Items:p g Exercise Right Appeal Settlement - - - - - - -Core Operating Expenses (non-GAAP)¹: $41,841 35% $40,566 33% $39,968 38% $39,198 37% $44,633 40%Less: Continuing stock-based compensation (3,106) -3% (3,073) -3% (3,233) -3% (3,963) -4% (636) -1%Core Operating Expenses excluding continuing stock-based compensation (non-GAAP)¹: $38,735 32% $37,493 30% $36,735 35% $35,235 33% $43,997 39%

E D t ilExpense Detail: Employee Costs $21,285 18% $22,323 18% $20,586 19% $19,715 19% $22,004 20% Data Processing 4,905 4% 4,428 4% 4,960 5% 4,304 4% 5,155 5% Outside Services 7,190 6% 6,579 5% 6,788 6% 6,293 6% 10,041 9% Travel and Promotion Expenses 2,368 2% 1,685 1% 1,672 2% 2,702 3% 3,209 3% Facilities Costs 1,400 1% 1,492 1% 1,662 2% 1,440 1% 1,315 1%

Other Expenses 1 587 1% 986 1% 1 067 1% 781 1% 2 273 2% Other Expenses 1,587 1% 986 1% 1,067 1% 781 1% 2,273 2%

Number of Full Time Employees 588 582 581 591 593

¹Please see our disclaimer regarding Non-GAAP financial measures.


2011 Calculation of ProjectedWeighted Average Shares

Shares Days

Outstanding Total Days Weighted Avg Shares

Days Outstanding

Total Days Weighted Avg

Unrestricted common stock 51,786,717 90 90 51,786,717 51,786,717 91 91 51,786,717

2Q 2011 (vested qtr)1Q 2011 (pre-vesting)

, , , , , , , ,Class A-2 common stock (converts to unresticted 6/13/11) 38,297,994 90 90 38,297,994 38,297,994 91 91 38,297,994 Vesting of participating securities (restricted stock) on 5/17/11 22,641 44 91 10,947 Vesting of participating securities (restricted stock) on 6/15/11 413,175 15 91 68,106

Total weighted average shares - basic and diluted 90,084,711 90,084,711 90,520,527 90,163,764

Participating securities as of quarter end 2,195,621 90 90 2,195,621 2,193,521 91 91 2,193,521 p g qVesting of participating securities on 5/17/11 (22,641) 44 91 (10,947) Vesting of participating securities on 6/15/11 (542,550) 15 91 (89,431)

Weighted average shares including participating securities 92,280,332 92,148,857 92,256,906 Percentage of net income allocated to participating securities 2.379% 2.269%

3Q and 4Q 2011 (post-vesting) Full-Year 2011

Shares Days

Outstanding Total Days Weighted Avg Shares

Days Outstanding

Total 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 5/17/11 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 92 413,175 413,715 199 365 225,560

Total weighted average shares - basic and diluted 90,520,527 90,520,527 90,324,414

Participating securities as of 6/30/11 2,193,521 92 92 2,193,521 2,195,621 365 365 2,195,621 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 (542,550) 92 92 (542,550) (542,550) 199 365 (295,801)

Weighted average shares including participating securities 92,148,857 92,505,892


Percentage of net income allocated to participating securities 1.767% 2.038%

Quarterly Financial Highlights

Options ADV (mm) Transaction Fees ($mm)RPC

5.3 5.1Equities Indexes Exchange-traded funds

$0 300 $0 306 $0.308 $83$94

$80

$90 $86

24%

24%22%

19%

18%20%

27%

23%

25%

24%

23%26%

4.5

3.74.2

4.4$0.300

$0.281$0.306

$0.293 $0.285$ $

$73$80

49%53%53%57%

59%54%

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Adjusted Operating Revenue ($mm)¹ Adjusted Pre-Tax Earnings ($mm)¹Adjusted Operating Expenses ($mm)¹

$101$113

$106$113

$124 $120$71

$66 $46$49

$58 $56

$62

$60

$64 $64 $39$42


1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11¹Adjusted to reflect the impact of certain items. See “Non-GAAP Information.”

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

After After

Three months ended June 30, 2011Three months ended March 31, 2011


Reported (GAAP)

Accelerated stock-based compensation

Impairment charge

Considering Items (non-GAAP)

Reported (GAAP)


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 p g p ( ) ( )

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$


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$

GAAP to Non-GAAP Reconciliation

(in thousands, ex cept per share amounts)

Items Impacting Results Items Impacting Results

Reported (GAAP)


After Considering Items (non-GAAP)

Reported (GAAP)

Recognition of prior-period revenue


Impairment charge


Total Operating Revenues 106,015$ -$ 106,015$ 117,391$ (4,406)$ 112,985$

Three months ended September 30, 2010 Three months ended December 31, 2010

p g , , , ( , ) ,

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


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)$ (138)$ (572)$ (690)$ 61$ (28)$ (22)$ (679)$

Net Income Allocated to Common Stockholders 20,020$ 6,366$ 26,386$ 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, 2009Year ended December 31, 2010Items Impacting Results

Reported (GAAP)

Recognition of prior-period revenue


Impairment charge


Reported (GAAP)

Recognition of deferred access fee revenue

Exercise right appeal settlement


Total Operating Revenues 437,104$ (4,406)$ 432,698$ 426,082$ (24,086)$ 401,996$

Total Operating Expenses 269,763 (12,968) 256,795 248,498 (2,086) 246,412

O ti I 167 341 (4 406) 12 968 175 903 177 584 (24 086) 2 086 155 584


Operating Income 167,341 (4,406) 12,968 175,903 177,584 (24,086) 2,086 155,584


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)$ -$ -$ -$ -$


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

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 revenue adjusted operating expensescore operating expenses, adjusted revenue, adjusted operating expenses, adjusted operating income, adjusted operating margin, 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


p , ( ) p p ( )unusual or one-time expenses.

CBOE Holdings, Inc.400 South LaSalle Street400 South LaSalle StreetChicago, IL 60605

Debbie KoopmanDirector, Investor Relationskoopman@cboe [email protected]


Documents

CBOE Holdings, Inc. Second Quarter Earnings Conference Call A t …ir.cboe.com/~/media/Files/C/CBOE-IR-V2/quarterly-results/... · 2016-06-20 · Second Quarter Earnings Conference