Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q3 2020 Earnings Presentation
42 slides from Cboe Global Markets's earnings presentation, Oct 30, 2020
Slide 1: Third Quarter 2020 Earnings Presentation
Third Quarter 2020 Earnings Presentation October 30, 2020 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 Executive Vic
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: Delivering on Cboe's Key Strategic Growth Initiatives
Delivering on Cboe’s Key Strategic Growth Initiatives Build upon core Expand product proprietary lines across products asset classes Leverage leading Broaden proprietary geographic trading reach technology Diversify business mix with growth of non-transactional revenues 5
Slide 6: N.A. Equities: Supporting Market Participants Through Innovative Offerings and Expanding Reach
Expand product lines across asset classes / Broaden geographic reach N.A. Equities: Supporting Market Participants Through Innovative Offerings and Expanding Reach Trading in U.S. Equities up 26% YoY in 3Q20 Strong growth in Cboe Retail Priority on U.S. Equities Retail Priority Cboe EDGX Monthly ADV
Slide 7: Cboe Agrees to Acquire BIDS Trading, the Largest Independent U.S. Block Trading ATS
Expand product lines across asset classes / Extend offerings to New Geographies Cboe Global Markets Agrees to Acquire BIDS Trading¹, the Largest Independent U.S. Block Trading ATS Builds on Cboe’s Key Strategic Growth Initiatives: Provides Cboe with a meaningful presence in the substantial off-excha
Slide 8: Leadership Position in Options; Leveraging Education and Innovative Product Offerings
Leverage leading proprietary trading technology Leadership Position in Options; Leveraging Education and Innovative Product Offerings ADV for multi-listed options up 42% YoY in 3Q20 Multi-listed options up year-over-year across Quarterly Multi-listed Equity Options ADV our four exchanges, led by ret
Slide 9: VIX Index – Above 5-Year Average Level Since Feb. 24, 2020
VIX Index – Above 5-Year Average Level Since Feb. 24, 2020 The VIX® Index is used as a barometer for market uncertainty 90 80 82.69 on March 16 70 Daily Closing Values of 60 VIX Index in 2020 50 40 30 20 10 Five-Year Average Daily Closing Value (17.3) of VIX Index 0 2-Jan 2-Feb 2-Mar 2-Apr 2-May 2-J
Slide 10: Focus on Growing Proprietary Products
Build upon core proprietary products Focus on Growing Proprietary Products Ramping up marketing and education efforts Cboe: Home to every major index provider Third quarter initiatives included: • Launched product focused webinars • Revamping our education website • Developing a new core derivatives
Slide 11: Information Solutions Provide Incremental Recurring Revenues
Diversify business mix with non-transactional revenues Information Solutions Provide Incremental Recurring Revenues; Support Trading of Proprietary Products Expanded offering contributing to strong organic and inorganic growth of proprietary recurring non-transaction revenue in 3Q20 Cboe Information
Slide 12: Efforts to Launch Pan-European Derivatives on Track
Broaden geographic reach Build upon core proprietary products Efforts to Launch Pan-European Derivatives¹ on Track Plan to introduce a transparent, efficient, lit pan-European derivatives market designed to expand derivatives trading in Europe On track to launch futures and options on six key Europe
Slide 13: Expanding and Diversifying Our FX Business
Expand product lines across asset classes Expanding and Diversifying Our FX Business Leveraging Cboe’s product innovation and technology expertise across markets Cboe Spot • Launched FX Central – new Central Limit Order First electronic communication network Book (ECN) for the institutional FX marke
Slide 14: Delivering on our Long-Term Growth Initiatives While Defining Markets Globally
Delivering on our Long-Term Growth Initiatives While Defining Markets Globally • Launched Mini VIX Futures in August 2020 Build upon Core • Launched options on S&P 500 ESG Index in September 2020 Proprietary Footnotes Products applied here • Plan to re-launch XSP and move to BZX, maker-taker pricing
Slide 15: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 15
Slide 16: Business Highlights – Key Performance Drivers
Business Highlights – Key Performance Drivers Strong trading volumes in U.S. equities, multi-listed options and the addition of EuroCCP, offset by muted volume in index options and futures Net transaction and clearing fees¹ down 8%; non-transaction net revenue up 1% Adjusted operating expenses¹ up 1
Slide 17: Grew Recurring Non-Transaction Revenue
Grew Recurring Non-Transaction Revenue Recurring proprietary non-transaction net revenue up 14%; organic growth of 10% YoY 3Q20 organic growth excludes Proprietary Market Data and $5.0MM of revenue contributed from Access and Capacity Fees (in millions) acquisitions and other items¹ $81.9 $81.2 $87.
Slide 18: Options 3Q20 Net Revenue Up 1%
Options 3Q20 Net Revenue Up 1% Revenue increase primarily driven by: • Higher transaction fees from multi-listed options of $8.6 million • Growth in proprietary market data revenue, with $4.5 million from acquisitions • Increase in access and capacity fees of $1.5 million RPC increase in index optio
Slide 19: Futures 3Q20 Net Revenue Down 39%
Futures 3Q20 Net Revenue Down 39% Revenue decrease driven by net transaction fees resulting from lower trading volume and RPC RPC decrease primarily reflects the introduction of mini VIX futures (one-tenth the size of standard VIX contract) and growth of iBoxx futures • RPC also reflects market make
Slide 20: North American Equities 3Q20 Net Revenue Up 1%
North American (N.A.) Equities 3Q20 Net Revenue Up 1% Increase in net transaction fees offset somewhat by lower SIP market data revenue, reflecting lower market share and decrease in SIP audit recoveries Net transaction fees reflect higher U.S. equities trading volume offset somewhat by lower net ca
Slide 21: European Equities 3Q20 Net Revenue Up 47% on Local Currency Basis
European Equities 3Q20 Net Revenue Up 47% on Local Currency Basis, Reflecting Addition of EuroCCP Net revenue increase includes $10.3 million contribution from EuroCCP On local currency basis, net transaction and clearing fees increased 59% and non- transaction revenue increased 30% Decline in net t
Slide 22: Global FX 3Q20 Net Revenue Up 1%
Global FX 3Q20 Net Revenue Up 1% Revenue increase driven by higher non-transaction revenue FX continues to made solid progress in expanding its footprint and diversifying its revenue streams, introducing new order types and products, including: • Launch of Cboe Swiss, a new venue • Addition of FX Ce
Slide 23: 3Q20 Adjusted Operating Expenses Up 13%; Primarily Reflects Acquisitions
3Q20 Adjusted Operating Expenses Up 13%; Primarily Reflects Acquisitions Expense increases primarily driven by addition of EuroCCP and other acquisitions: • $10 million increase in compensation and benefits, reflecting: – $4 million increase in compensation expenses related to acquisitions – $2 mill
Slide 24: Updated Guidance: 2020 Adjusted Operating Expenses
Updated Guidance: 2020 Adjusted Operating Expenses Decrease reflects lower expenses related to compensation costs, including incentive compensation, professional fees, technology services and travel and promotional expenses C1 migration in October 2019 key contributor to lower expenses in 2020 Detai
Slide 25: 2020 Full-Year Guidance
2020 Full-Year Guidance 2020 Full-Year Guidance 1, 2 2020 Guidance as of 2020 Guidance as of ($ in millions) October 30, 2020 July 31, 2020 Adjusted operating expenses 3 $415 to $420 $436 to $444 Depreciation and amortization (excluding $32 to $36 $34 to $38 amortization of acquired intangible asset
Slide 26: 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 Invest in growth of our business Return capital through dividends and opportunistic share repurchases • Returned $386MM in dividends and share repurchases through 3Q20;
Slide 27: Leveraging Cboe's Strong Value Proposition While Defining Markets Globally
Leveraging Cboe’s Strong Value Proposition While Defining Markets Globally Diverse and Uniquehere Product • Growth in multi-listed options and cash equities drove Footnotes applied revenue growth in 3Q20 despite muted volume in Set proprietary products • Reported growth of 14% in non-transactional p
Slide 28: Questions & Answers
Cboe’ Global Markets 28
Slide 29: Appendix Materials
Appendix Materials 29
Slide 30: Updated Guidance for 2020 Adjusted Operating Expenses; Detailed Bridge
Updated Guidance for 2020 Adjusted Operating Expenses; Detailed Bridge from 2019 to 2020 as of October 30, 2020 Adjusted Operating Expenses Bridge from 2019 to 2020 2020 Guidance Reduced by $21 million in 3Q20 to $415 to $420 million¹ ($ in millions) 2019 Adjusted Operating Expenses¹ $ 389 Guidance
Slide 31: 3Q20 Financial Overview
3Q20 Financial Overview Adjusted Financial Results¹ 3Q20 3Q19 % Chg ($ in millions, except per share) Net Revenue² $292.0 $294.0 -1% Adjusted Operating Expenses¹ 108.9 96.5 13% Adjusted Operating Income¹ $183.1 $197.5 -7% Adjusted Operating Margin¹ 62.7% 67.2% -4.5 pp Adjusted Net Income Allocated t
Slide 32: 3Q20 Net Revenue Detail
3Q20 Net Revenue Detail 3Q20 net transaction fees down 8%; non-transaction net revenue up 1% Net Revenue 3Q20 3Q19 % Chg (in millions) Net transaction and clearing fees¹ $171.2 $186.8 -8% Access and capacity fees 60.6 55.7 9% Market data fees 59.5 56.3 6% Regulatory fees 8.4 8.7 -3% Royalty fees (17
Slide 33: Supplemental Segment Information
Supplemental Segment Information 3Q20 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction and clearing fees² $106.1 $18.2 $16.8 $19.2 $10.9 $171.2 Proprietary net transaction fees included above $77.2 $16.8 $94.0 Access a
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 and Clearing Fees by Segment For the Three Months Ended Options U.S. Equities Futures European Equities Global FX Total March 31 (in millions) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Transaction fees $ 284.2 $ 173.8 $ 304.0 $
Slide 37: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 Reconciliation of Net Income Allocated to Common Stockholders to Non-GAAP Net income allocated to common stockholders $ 94.6 $ 87.6 $ 105.5 $ 86.1 $ 372.7 $ 157.0 $ 113.3 $ 109.6 Acquisition-related
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 (in millions) 4Q19 1Q20 2Q20 3Q20 LTM Net income allocated to common stockholders $ 86.1 $ 157.0 $ 113.3 $ 109.6 $ 466.0 Interest expense, net 7.8 7.3 7.3 9.5 31.9 Income tax provision 27.9 60.1 43.0 53.5 184.5 Depreciation and amortization 42.8 40.5 38.0 39.5 160.8 EBITDA $ 164
Slide 40: Non-GAAP Information
Non-GAAP Information Reconciliation of Organic Growth for Recurring Proprietary Non-transaction Net Revenue (in millions) 2Q20 2Q19 % Chg 3Q20 3Q19 % Chg Access and capacity fees $55.7 $54.5 $60.6 $55.7 Proprietary market data 25.5 20.8 27.1 20.9 Total reported $81.2 $75.3 8% $87.7 $76.6 14% Less: a
Slide 41: Trademarks
Trademarks Trademarks: Cboe®, Cboe Global Markets®, Bats®, BZX®, BYX®, EDGX®, EDGA®, EuroCCP®, Cboe Volatility Index® and VIX® are registered trademarks and 3CSM, FT OptionsSM, HanweckSM, and Trade AlertSM are service marks of Cboe Global Markets, Inc. and its subsidiaries. All other trademarks and
Slide 42: Cboe Global Markets, 400 South LaSalle Street, Chicago, IL 60605
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 42