Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q3 2019 Earnings Presentation
40 slides from Cboe Global Markets's earnings presentation, Nov 1, 2019
Slide 1: Third Quarter 2019 Earnings Presentation
Third Quarter 2019 Earnings Presentation November 1, 2019 1
Slide 2: Agenda
Agenda Strategic Review Edward Tilly Chairman, President and Chief Executive Officer Financial Review Brian Schell Executive Vice President, CFO and Treasurer Questions and Answers Edward Tilly Brian Schell Chris Isaacson Executive Vice President and Chief Operating Officer John Deters Chief Strateg
Slide 3: Cautionary Statements Regarding Forward-Looking Information
Cautionary Statements Regarding Forward-Looking Information This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words su
Slide 4: Strategic Review
Strategic Review Edward Tilly Chairman, President and CEO 4
Slide 5: Continue to Focus on Executing Our Strategic Initiatives to Drive Long-Term Growth
Continue to Focus on Executing Our Strategic Initiatives to Drive Long-Term Growth Completed final step in our multi-exchange technology migration on October 7th Provides customers with a single, world-class trading experience across markets Enables Cboe to redirect technology efforts to building ne
Slide 6: 3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products
3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products Index options ADV increased 13% in 3Q19 vs 3Q18 • VIX options up 23% • SPX options up 6% SPX Flex open interest hit a new all-time high in 3Q19 of over 925,000 contracts • Flex options allow investors to customize exercise p
Slide 7: 3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products
3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products Responding to customer demand Options-based strategies used by mutual funds and ETFs continue to be a growth driver • AUM tied to options-based strategies up 24% through August this year Added Monday expiring options to XSP,
Slide 8: 3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products
3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products 19% increase in VIX futures ADV in 3Q19 versus 3Q18 AUM in volatility-linked ETPs hit $4.8B in early Oct.; highest level since Jan. 2018 Average AUM of $3.7B for 3Q19, unchanged from 2Q19 Average Monthly AUM for Volatility-
Slide 9: Focused on Growing our Proprietary Products Through Customer Education and Outreach
Focused on Growing our Proprietary Products Through Customer Education and Outreach Organic growth remains our primary focus Hosted 8th Annual RMC Europe on September 9-11, 2019 in Munich, Germany Attendees included participants from 16 different countries Industry experts delivered over 20 differen
Slide 10: European Equities – Preparing to Operate in a Post-Brexit Environment
European Equities – Preparing to Operate in a Post-Brexit Environment Leadership transition Lighter overall market volumes for European equities in 3Q19 vs 3Q18 Launched our Dutch venue on October 1, with European Economic Area (EEA) stocks available for trading Our UK venue will continue to trade U
Slide 11: Laying the Foundation for Future Growth
Laying the Foundation for Future Growth Focused on Leveraging Organic Growth Unified Trading Platform Building New Realigned Sales DEFINING Data Platform and Coverage MARKETS and Revamping Teams Educational Efforts Expanding Global Reach 11
Slide 12: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 12
Slide 13: Business Highlights – Key Performance Drivers
Business Highlights – Key Performance Drivers Higher trading volumes in proprietary products and lower volumes in other business segments and industrywide Net transaction fees¹ up 7%; non-transaction net revenue up 11% Continued expense discipline resulted in growth of EBITDA¹ and EBITDA¹ margin Ind
Slide 14: Grew Recurring Non-Transaction Revenue Streams
Grew Recurring Non-Transaction Revenue Streams Recurring proprietary non-transaction net revenue up 6% in 3Q19 vs 3Q18; up 7% YTD Expect growth in proprietary market Proprietary Market Data and data and access and capacity fees Access and Capacity Fees combined to be mid- to high-single (in millions
Slide 15: Options 3Q19 Net Revenue Up 10%
Options 3Q19 Net Revenue Up 10% 3Q19 revenue increase primarily driven by growth in trading volume RPC variance primarily reflects higher volume-related discounts in multi-listed options as we captured higher market share Transaction revenue up 13%; non-transaction revenue up 4% Options Selected Opt
Slide 16: Futures 3Q19 Net Revenue Up 28%
Futures 3Q19 Net Revenue Up 28% Revenue increase primarily driven by net transaction fees resulting from higher trading volume and RPC RPC increase primarily reflects new pricing schedules implemented in August and December of 2018 and lower volume-based rebates Futures Selected Futures Key Revenue
Slide 17: U.S. Equities 3Q19 Net Revenue Up 6%
U.S. Equities 3Q19 Net Revenue Up 6% Revenue increase primarily due to higher SIP market data revenue, driven primarily by audit recoveries of $4.3 million in 3Q19 versus none in 3Q18 Transaction fees decreased 15%, reflecting lower net capture on relatively flat matched ADV, reflecting fee changes
Slide 18: European Equities 3Q19 Net Revenue Down 2% on Local Currency Basis
European Equities 3Q19 Net Revenue Down 2% on Local Currency Basis Net revenue decrease reflects lower net transaction fees and unfavorable foreign- currency translation On local currency basis, net transaction fees decreased 13% and non-transaction revenue increased 16% Decline in net transaction f
Slide 19: Global FX 3Q19 Net Revenue Down 4%
Global FX 3Q19 Net Revenue Down 4% Revenue decline reflects lower market volume offset somewhat by higher net capture Higher net capture due to the impact of fee changes implemented in 2018 3Q19 3Q18 Change FX Net Revenue (in millions) $13.1 $13.6 -4% Key Operating Statistics: Market share¹ 14.1% 14
Slide 20: Adjusted Operating Expenses Down 3%
Adjusted Operating Expenses Down 3% 3Q19 vs 3Q18: Compensation and benefits down due to decrease in incentive – and equity-based compensation, offset somewhat by higher benefits Lowering full-year 2019 adjusted operating expense guidance to a range of $390 to $395 million, a decrease of $15 to $18 m
Slide 21: Factors Influencing 2020 Adjusted Operating Expenses
Factors Influencing 2020 Adjusted Operating Expenses 2020 adjusted operating expenses¹ expected to be in a range of $420 to $428 million, which takes into account the following potential factors: • Achieving targeted incentive compensation in 2020 • Absence of $6 million in favorable expense adjustm
Slide 22: Maintaining Synergy Targets
Maintaining Synergy Targets Maintaining 2019 run-rate synergy target of $80 million and 2020 target of $85 million Remaining synergies of $5 million in 2020 will be reflected in a reduction in cost of revenues versus expenses Targeted Run-Rate Synergies as of November 1, 2019 (in millions) $85 $80 $
Slide 23: 2019 Full-Year Guidance
2019 Full-Year Guidance 2019 Full-Year Guidance Guidance as of Guidance as of ($ in millions) Aug. 2, 2019 Nov. 1, 2019 Adjusted operating expenses¹,4 $405 to $413 million $390 to $395 million Depreciation and amortization (excluding $35 to $40 million $35 to $40 million amortization of acquired int
Slide 24: Focused on Efficient Allocation of Capital to Create Long-Term Shareholder Value
Focused on Efficient Allocation of Capital to Create Long-Term Shareholder Value Preserving balance sheet flexibility is a priority Returned capital through dividends and opportunistic share repurchases - nearly $93MM in 3Q19; $197MM YTD 2019 Utilized cash to reduce debt - $50MM in 3Q19 and $350MM Y
Slide 25: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives While Defining Markets Globally Growth Footnotes of Core applied here • Focused on growing proprietary index products Proprietary Products Strengthen Recurring • Growth in recurring revenue Revenue Stream Scale of Business Mod
Slide 26: Questions & Answers
Cboe’ Global Markets 26
Slide 27: Appendix Materials
Appendix Materials 27
Slide 28: Realized Versus Run-Rate Synergies
Realized Versus Run-Rate Synergies 2019 realized synergies expected to be lower due to timing of C1 migration in October 2019 Timing of Incremental Run-Rate Timing of Realized Synergies* (in millions) Synergies* (in millions) $90.0 $35 100% $3.0 $80.0 $33.0 90% $30 80% $18.4 75% $70.0 $25 64% 70% $2
Slide 29: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Run-Rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Increase in Run- Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Rate Each Year Realized/Targeted Synergies Year Run-Rate by Yea
Slide 30: 3Q19 Financial Overview
3Q19 Financial Overview Adjusted Financial Results¹ 3Q19 3Q18 % Chg ($ in millions, except per share) Net Revenue² $294.0 $270.5 9% Adjusted Operating Expenses¹ 96.5 99.1 -3% Adjusted Operating Income¹ $197.5 $171.4 15% Adjusted Operating Margin¹ 67.2% 63.4% 380 bps Adjusted Net Income Allocated to
Slide 31: 3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products
3Q19 Results Primarily Driven by Higher Trading in Our Proprietary Products Index suite ADV increased 14% in 3Q19 vs 3Q18 Index options ADV increased 13% • 23% increase in VIX options • 6% increase in SPX options VIX futures increased 19% Quarterly ADV for Index Options and Annual ADV for Index Opti
Slide 32: 3Q19 Net Revenue Detail
3Q19 Net Revenue Detail 3Q19 net transaction fees up 7%; non-transaction net revenue up 11% Net Revenue 3Q19 3Q18 % Chg (in millions) Net transaction fees¹ $186.8 $173.9 7% Access and capacity fees 55.7 53.6 4% Market data fees 56.3 47.6 18% Regulatory fees 8.7 8.4 4% Royalty fees (22.9) (20.7) 11%
Slide 33: Supplemental Segment Information
Supplemental Segment Information 3Q19 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction fees² $116.7 $16.0 $31.2 $11.7 $11.2 $186.8 Proprietary net transaction fees included above $96.4 $31.2 $127.6 Access and capacity
Slide 34: Non-GAAP Information
Non-GAAP Information 34
Slide 35: Non-GAAP Information
Non-GAAP Information In addition to disclosing results determined in accordance with GAAP, Cboe Global Markets has disclosed certain non-GAAP measures of operating performance. These measures are not in accordance with, or a substitute for GAAP, and may be different from or inconsistent with non-GAA
Slide 36: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended Sept. 30, 2019 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 207.1 $ 199.4 $ 31.2 $ 16.9 $ 11.2 $ 465.8 Liquidity payments (86.9) (177.6) - (5.2) - (26
Slide 37: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 Reconciliation of Net Income Allocated to Common Stocholders to Non-GAAP Net income allocated to common stockholders $ 117.3 $ 82.4 $ 85.0 $ 137.3 $ 422.1 $ 94.6 $ 87.6 $ 105.5 Acquisition-related ex
Slide 38: Non-GAAP Information
Non-GAAP Information EBITDA Reconciliations EBITDA (earnings before interest, income taxes, depreciation and amortization) and Adjusted EBITDA are widely used non-GAAP financial measures of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue)
Slide 39: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 4Q18 1Q19 2Q19 3Q19 LTM Net income allocated to common stockholders $ 137.3 $ 94.6 $ 87.6 $ 105.5 $ 425.0 Interest expense, net 9.7 9.9 10.0 8.2 37.8 Income tax provision 37.3 32.6 35.1 35.0 140.0 Depreciation and a
Slide 40: Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 40