Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q4 2019 Earnings Presentation
45 slides from Cboe Global Markets's earnings presentation, Feb 7, 2020
Slide 1: Fourth Quarter 2019 Earnings Presentation
Fourth Quarter 2019 Earnings Presentation February 7, 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 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: 4Q19 Reflects Difficult Comparisons Against Record Results in 4Q18
4Q19 Reflects Difficult Comparisons Against Record Results in 4Q18 Lower volatility dampened trading, particularly in our index products, which had exceptionally strong trading in 4Q18 Strengthened our foundation for further growth • Completed technology migration • Expanded our offering of unique t
Slide 6: 4Q19 Capped Another Year of Strong Stock Market Growth but Lower Market Volatility
4Q19 Capped Another Year of Strong Stock Market Growth but Lower Market Volatility As market unknowns increase, seeing greater focus on hedging and risk management, creating demand for our proprietary products Continued to provide investors more precision around positioning by accelerating listing o
Slide 7: Executing on Our Initiatives for 2020
Executing on Our Initiatives for 2020 Our goal is to define markets by being the global leader in innovative tradable products and services Strengthen our proprietary products and services Pursue leveragable derivatives methodologies Engage customers via information solutions Focus on technology lea
Slide 8: Pending Acquisition of EuroCCP Expected to Expand Cboe's Global Reach
Pending Acquisition of EuroCCP1 Expected to Expand Cboe’s Global Reach and Diversify Revenue Stream See opportunity in European derivatives market to grow addressable market and win market share Look to provide an alternative market model, enhancing the overall trading eco- system*: • Introduce effi
Slide 9: Engaging Customers Through Information Solutions
Engaging Customers Through Information Solutions Addition of Hanweck and FT Options expands Cboe’s Information Solutions offering Profitable, best-in-class companies in Cboe Information Solutions – a broad suite of fastest growing component of financial data solutions, analytics and indices market d
Slide 10: Cboe Information Solutions – Optimizing the Customer Experience
Cboe Information Solutions – Optimizing the Customer Experience Throughout the Trade Process PRE-TRADE AT-TRADE Index construction Cboe Silexx order execution Option Strategy Benchmarks management system (OEMS) Pre- At- FLEX options executions Pre-trade “what-if” risk modeling Trade Trade Theoretica
Slide 11: Market Structure Advocacy Focused on Capital Efficiency
Market Structure Advocacy Focused on Capital Efficiency Cboe has been the leading advocate for market-defining policies and regulations that promote capital efficiency for traders In 2019, along with OCC, began work to advocate for the expansion of customer portfolio margining to include more of our
Slide 12: Cboe's Vision for Equity Market Structure Reform
Cboe’s Vision for Equity Market Structure Reform At the forefront of capital markets advocacy with initiatives to promote fair, efficient, and transparent equity markets Cboe’s report focused on four key recommendations for equity market structure enhancements: • Implement SIPs in multiple locations
Slide 13: Introducing Cboe Market Close (CMC)
Introducing Cboe Market Close (CMC) Plan to launch Cboe Market Close on Cboe BZX Exchange on March 6, 2020 Pleased to receive final approval from the U.S. Equities Closing Volume as a SEC for CMC Percent of Total Market Volume We look to provide added opportunities 6.8% for cost efficiencies at mark
Slide 14: Laying the Foundation for Future Growth
Laying the Foundation for Future Growth Focused on Leveraging Organic Growth Unified Trading Platform Expanding DEFINING Closed Two Product and MARKETS Pivotal Service Acquisitions Offerings Embarking on Global Marketing and Education Effort 14
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 Lower trading volumes in proprietary products and industrywide Net transaction fees¹ down 30%; non-transaction net revenue up 10% Adjusted operating expenses¹ down 14% Continued expense discipline with EBITDA¹ margin of over 70% Index Suite of Products N
Slide 17: Grew Recurring Non-Transaction Revenue Streams
Grew Recurring Non-Transaction Revenue Streams Recurring proprietary non-transaction net revenue up 7% YoY in 4Q19 and full-year 2019 Expect growth in proprietary market Proprietary Market Data and data and access and capacity fees Access and Capacity Fees combined to be low-to-mid-single (in millio
Slide 18: Options 4Q19 Net Revenue Down 20%
Options 4Q19 Net Revenue Down 20% Against Difficult Comparisons to 4Q18 4Q19 revenue decrease driven by lower trading volume, particularly in index options RPC increase in index options due to shift in volume mix; decrease in multi-listed options reflects shift in mix by order type and higher rebate
Slide 19: Futures 4Q19 Net Revenue Down 24%
Futures 4Q19 Net Revenue Down 24% Revenue decrease primarily driven by lower trading volume RPC increase primarily reflects lower volume-based rebates Futures Selected Revenue Data 4Q19 4Q18 Chg 2019 2018 Chg ($ in millions) Net Revenue $30.9 $40.4 -24% $131.3 $144.1 -9% Net transaction fees¹ $26.1
Slide 20: U.S. Equities 4Q19 Net Revenue Down 7%
U.S. Equities 4Q19 Net Revenue Down 7% Revenue decrease primarily due to lower net transaction fees, offset somewhat by higher non-transaction revenue Trading dampened by lower volatility; higher percentage of volume traded off- exchange and in the auctions U.S. Equities Selected Revenue Data 4Q19 4
Slide 21: U.S. Equities – Reinvesting in Gaining Market Share
U.S. Equities – Reinvesting in Gaining Market Share Reinvested a portion of higher net capture to attract market share Share of continuous trading higher, reflecting impact of pricing changes Market share decrease primarily reflects increasing portion of volumes trading during the closing auctions a
Slide 22: European Equities 4Q19 Net Revenue Down 11% on Local Currency Basis
European Equities 4Q19 Net Revenue Down 11% on Local Currency Basis Net revenue decrease reflects lower net transaction fees and higher non- transaction revenue On both dollars and a local currency basis, net transaction fees decreased 28% and non-transaction revenue increased 20% Decline in net tra
Slide 23: Global FX 4Q19 Net Revenue Down 6%
Global FX 4Q19 Net Revenue Down 6% Revenue decline reflects lower market volume offset somewhat by higher net capture Record market share in 4Q19 driven by positive response to our new Full Amount offering Higher net capture due to lower volumes, reducing the lower tiered transaction rates 4Q19 4Q18
Slide 24: 4Q19 Adjusted Operating Expenses Down 14%
4Q19 Adjusted Operating Expenses Down 14% 4Q19 vs 4Q18: Decrease driven by 19% decline in compensation and benefits, reflecting decrease in incentive-based compensation 2020 guidance for adjusted operating expenses is a range of $435 to $443 million, excludes pending acquisition of EuroCCP and relat
Slide 25: Factors Influencing 2020 Adjusted Operating Expenses
Factors Influencing 2020 Adjusted Operating Expenses Adjusted Operating Expenses Bridge from 2019 to 2020 2020 Guidance of $435 to $443 million¹ ($ in millions) 2019 Adjusted Operating Expenses² $ 389 Guidance Range Core expense growth 4-5% $ 16 $ 20 Realized synergies projected (18) (18) Expense gr
Slide 26: Pending Acquisition of EuroCCP and Buildout of Pan-European Derivatives
Pending Acquisition of EuroCCP and Buildout of Pan-European Derivatives Trading and Clearing Investing in long-term growth U.S. and EU Projected EPS 2020¹ 2021 U.S. GDP versus EU 2019 Notional Values ($ in trillions) of Options Traded EuroCCP ($0.04) to ($0.05) neutral to positive ($ in trillions) B
Slide 27: 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 February 7, 2020 (in millions) $85 $80 $
Slide 28: 2020 Full-Year Guidance
2020 Full-Year Guidance 2020 Full-Year Guidance 1, 2 2020 Guidance as of ($ in millions) Feb. 7, 2020 2019 Actual Adjusted operating expenses 3 $435 to $443 $389.3 Depreciation and amortization (excluding $34 to $38 $38.1 amortization of acquired intangible assets) Effective tax rate on adjusted ear
Slide 29: Focused on Efficient Allocation of Capital
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 $110MM in 4Q19; $307MM Year 2019 Raised quarterly dividend payment in 3Q19; consistent a
Slide 30: 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 31: Questions & Answers
Cboe’ Global Markets 31
Slide 32: Appendix Materials
Appendix Materials 32
Slide 33: Realized Versus Run-Rate Synergies
Realized Versus Run-Rate Synergies 2019 realized synergies 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 75% 80% $18.3 $70.0 $25 64% 70% $2.0 $24.0 $60.0
Slide 34: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Increase in Run-Rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Run- Rate Each Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Year Realized/Targeted Synergies Year Run-Rate by Yea
Slide 35: Fourth Quarter and Year Financial Overview
Fourth Quarter and Year Financial Overview Adjusted Financial Results¹ 4Q19 4Q18 % Chg 2019 2018 % Chg ($ in millions, except per share) Net Revenue² $280.3 $334.4 -16% $1,136.9 $1,216.9 -7% Adjusted Operating Expenses¹ 95.6 111.8 -14% 389.3 426.8 -9% Adjusted Operating Income¹ 184.7 $222.6 -17% $74
Slide 36: Net Revenue for 2019 Impacted by Decline in Trading Volumes
Net Revenue for 2019 Impacted by Decline in Trading Volumes; Non-Transaction Revenue 4Q19 net transaction fees down 30%; non-transaction revenue up 10% Adjusted Combined Net Revenue¹ 4Q19 4Q18 % Chg 2019 2018 % Chg (in millions) Net transaction fees $170.6 $243.1 -30% $715.7 $834.8 -14% Access and c
Slide 37: Supplemental Segment Information
Supplemental Segment Information 4Q19 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction fees² $105.0 $17.2 $26.1 $11.3 $11.0 $170.6 Proprietary net transaction fees included above $85.6 $26.1 $111.7 Access and capacity
Slide 38: Supplemental Segment Information
Supplemental Segment Information 2019 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction fees² $434.5 $75.8 $110.2 $49.8 $45.4 $715.7 Proprietary net transaction fees included above $353.9 $110.2 $464.1 Access and capaci
Slide 39: Non-GAAP Information
Non-GAAP Information 39
Slide 40: 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 41: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended Options U.S. Equities Futures European Equities Global FX Total March 31 (in millions) 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Transaction fees $ 173.8 $ 235.8 $ 198.9 $ 233.8 $ 24.6
Slide 42: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Reconciliation of Net Income Allocated to Common Stockholders 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 $ 86.1 $ 37
Slide 43: 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 44: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 1Q19 2Q19 3Q19 4Q19 LTM Net income allocated to common stockholders $ 94.6 $ 87.6 $ 105.5 $ 86.1 $ 372.7 Interest expense, net 9.9 10.0 8.2 7.8 35.9 Income tax provision 32.6 35.1 35.0 27.9 130.6 Depreciation and am
Slide 45: Cboe Global Markets, 400 South LaSalle Street, Chicago, IL
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 45