Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q2 2018 Earnings Presentation
42 slides from Cboe Global Markets's earnings presentation, Aug 3, 2018
Slide 1: Second Quarter 2018 Earnings Presentation
Second Quarter 2018 Earnings Presentation August 3, 2018 1
Slide 2: Agenda
Agenda Strategic Review Edward Tilly Chairman and Chief Executive Officer Financial Review Brian Schell Executive Vice President, CFO and Treasurer Questions and Answers Edward Tilly Brian Schell Chris Concannon President and Chief Operating Officer John Deters Chief Strategy Officer and Head of Mul
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 and CEO 4
Slide 5: Achieved Strong 2Q18 Financial Results
Achieved Strong 2Q18 Financial Results Raised third-quarter cash dividend by 15%, eighth consecutive year to increase Adjusted EPS¹ of $1.05, up 21% Net revenue of $284 million, up 6% Increased share repurchase authorization by $100 million Raised third-quarter dividend to $0.31 per share from $0.27
Slide 6: SPX Options Key Growth Driver in 2Q18
SPX Options Key Growth Driver in 2Q18 SPX options trading increased 18%, helping offset declines in VIX options and futures Notable success in FX market and healthy growth in European Equities • FX market ADNV up 38% versus 2Q17 • European Equities net revenue up 26% SPX Quarterly ADV for Index Opti
Slide 7: Together VIX and SPX Form a Powerful Set of Risk Management Tools
Together VIX and SPX Form a Powerful Set of Risk Management Tools for Investors Globally Lingering instability in VIX term structure made it difficult for traders to consistently monetize roll-down premium that drives attractiveness of short volatility strategies Recently, have seen a return to the
Slide 8: Top of Book Growth in SPX and VIX Options
Top of Book Growth in SPX and VIX Options Average displayed size at top of book increased for SPX and VIX options Displayed size in SPX and VIX options in June and July higher than any month in 2017 Since migration of SPX to hybrid, displayed size has increased significantly Average Bid/Ask Displaye
Slide 9: Remain Focused on Executing Our Strategic Initiatives
Remain Focused on Executing Our Strategic Initiatives Our mission: “to power your potential to stay ahead of an evolving market,” is brought to life through three commitments: • Seamless solutions • Relentless product innovation • Leading-edge technology 9
Slide 10: Seamless Trading Solutions: Customer Education and Collaboration
Seamless Trading Solutions: Customer Education and Collaboration Expanding Cboe Risk Management Conference (RMC) program to include mini-RMC format Pilot program to be used opportunistically based on customer demand Upcoming RMC programs include: • RMC Europe planned for September 12-14, 2018; the 7
Slide 11: Product Innovation: Plan to Launch Cboe Corporate Bond Index Futures
Product Innovation: Plan to Launch Cboe Corporate Bond Index Futures Entered into collaboration with IHS Markit and BlackRock to develop broad-based corporate bond index futures¹ New collaboration combines Cboe’s product development expertise with IHS Markit’s and BlackRock’s leadership in the credi
Slide 12: Preparing our Business for a Post-Brexit World
Preparing our Business for a Post-Brexit World Announced plans to establish a new venue in Amsterdam Positions our business well to continue to serve customers across Europe after the UK’s planned exit from the European Union • Netherlands supportive of competitive and open financial market infrastr
Slide 13: Leading-edge Technology
Leading-edge Technology Migrating Cboe exchanges onto Bats technology to create a common world-class trading platform across our options, futures and equities markets Oct. 7, 2019 • Planned Cboe Options May 14, 2018 technology migration¹ Apr. 30, 2018 • C2 migrated to Bats technology Feb. 25, 2018 •
Slide 14: Excited About Opportunities Ahead
Excited About Opportunities Ahead Laying the Groundwork for Future Growth Launching new products Expanding our global reach across asset classes Advancing our technology migration Achieving our acquisition synergy targets 14
Slide 15: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 15
Slide 16: Business Highlights – Key Growth Drivers
Business Highlights – Key Growth Drivers Growth in index options net transaction revenue¹, driven by 9% increase in RPC Growth from both transaction and non-transaction fees Expense discipline and expense synergies Demonstrated strong earnings growth Net Revenue up 6% Adjusted EBITDA¹ up 5% (in mill
Slide 17: 2Q18 Options Net Revenue Up 8%
2Q18 Options Net Revenue Up 8% Revenue increase driven by higher transaction fees, mainly from index options 9% increase in index options RPC main growth driver, primarily reflects: • Higher mix of volume from SPX • Price changes implemented January 1 Options Statistics 2Q18 2Q17 Change ($ in millio
Slide 18: 2Q18 Futures Net Revenue Down 13%
2Q18 Futures Net Revenue Down 13% Revenue decrease reflects lower ADV and RPC RPC decrease primarily due to mix shift in volume Implemented new fee schedule on August 1, 2018, expect favorable impact on RPC Futures Statistics 2Q18 2Q17 Change Futures Net Revenue (in millions) $31.4 $36.2 -13% Key Op
Slide 19: U.S. Equities Net Revenue Up 4%
U.S. Equities Net Revenue Up 4% Net revenue growth primarily driven by market data Increase in SIP market data revenue primarily due to audit recoveries Proprietary market data increase primarily due to pricing changes Expect downward pressure on full-year SIP market data revenue due to industry con
Slide 20: European Equities Net Revenue Up 26%
European Equities Net Revenue Up 26% Net revenue increase primarily due to growth in net transaction fees and a benefit from foreign currency translation Net revenue up a healthy 12% on local currency basis Net transaction fees reflect increase in net capture • Strong response to Periodic Auctions a
Slide 21: Global FX Net Revenue Up 33%
Global FX Net Revenue Up 33% Growth driven by increased volume on both New York and London matching engines, with London volume doubling Favorable macro environmental factors contributed to growth, in addition to technology enhancements and more effective liquidity provisioning Global FX Statistics
Slide 22: Adjusted Operating Expenses Up 5%; Higher Compensation-Related Expenses
Adjusted Operating Expenses Up 5%; Primarily Reflects Higher Compensation-Related Expenses 2Q18 vs 2Q17: Compensation and benefits up due to increase in: • Incentive-based compensation driven by YTD financial performance and timing of accruals versus prior year • Annual salary increases and lower ca
Slide 23: Run-Rate Expense Synergy Target of $20 MM in 2018; $85MM in 2020
Run-Rate Expense Synergy Target of $20 MM in 2018; $85MM in 2020 Realized $4.2 million of pre-tax expense synergies in 2Q18; Realized $7.2 million of pre-tax expense synergies YTD through June 30, 2018 Run-rate expense synergy target of $85 million in 2020 Targeted Run-Rate Expense Synergies as of A
Slide 24: 2018 Full-Year Guidance
2018 Full-Year Guidance 2018 Full-Year Guidance Guidance as of ($ in millions) August 3, 2018¹ Previous Guidance Adjusted operating expenses² $420 to $428 $420 to $428 Depreciation and amortization (excluding $43 to $48 $53 to $58 amortization of acquired intangible assets) Capital expenditures $35
Slide 25: 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 Invest in the growth of our business Return capital through dividends and share repurchases • Returned nearly $79 million in dividends and share repurchases in 2Q18 • I
Slide 26: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth Footnotes of Core applied here • Focused on growing proprietary products Proprietary Products Diversification and Stabilization of Revenue • Strong growth in diverse set of revenue streams Stream • Disciplined expense m
Slide 27: Questions & Answers
Cboe’ Global Markets 27
Slide 28: Appendix Materials
Appendix Materials 28
Slide 29: 2Q18 Financial Overview
2Q18 Financial Overview Adjusted Financial Results¹ 2Q18 2Q17 % Chg ($ in millions, except per share) Net Revenue² $283.5 $266.9 6% Adjusted Operating Expenses¹ 106.1 101.3 5% Adjusted Operating Income¹ $177.4 $165.6 7% Adjusted Operating Margin¹ 62.6% 62.0% 60 bps Adjusted Net Income Allocated to C
Slide 30: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 2Q18 net transaction fees up 5%; non-transaction revenue up 8% Net Revenue 2Q18 2Q17 % Chg (in millions) Net transaction fees $183.9 $175.2 5% Access fees 31.2 29.7 5% Exchange services and other fees 21.0 19.9 6% Market da
Slide 31: Supplemental Segment Information
Supplemental Segment Information 2Q18 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $109.5 $20.0 $26.9 $14.7 $12.8 $183.9 Access fees $14.5 $11.4 $2.1 $2.2 $1.0 $31.2 Exchange services and other fees $9.9 $7.3
Slide 32: Mix of Net Transaction Fees
Mix of Net Transaction Fees Proprietary Products - Key Driver of Revenue Growth Mix of Net Transaction Fees as Percentage of Total Net Transactions Fees Lower 48.0% 46.0% 62.6% 65.4% 14.6% 19.4% 37.4% 34.7% 2Q18 2Q17 Non-proprietary Futures Index options 32
Slide 33: Non-GAAP Information
Non-GAAP Information 33
Slide 34: 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-GA
Slide 35: Reconciliation of Segment Net Revenues
Non-GAAP Information Combined Reconciliations The non-GAAP unaudited combined financial measures have been prepared by recording combined adjustments to the historical consolidated financial statements of Cboe Global Markets. The combined financial measures for the three months ended March 31, 2017
Slide 36: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended June 30, 2018 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 189.0 $ 211.9 $ 26.9 $ 24.2 $ 12.8 $ 464.8 Liquidity payments (75.7) (185.9) - (9.5) - (271
Slide 37: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Income Allocated to Common Stockholders, Diluted EPS (in millions, except per share amounts) 1Q17* 2Q17 3Q17 4Q17 2017* 1Q18 2Q18 Net income allocated to common stockholders $ 15.1 $ 67.3 $ 59.7 $ 254.6 $ 396.7 $ 117.3 $ 82.4 Compensation and benefits (1) 9
Slide 38: Non-GAAP Information
Non-GAAP Information EBITDA Reconciliations EBITDA (earnings before interest, income taxes, depreciation and amortization) is a widely used non-GAAP financial measure of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue). It is presented as
Slide 39: Non-GAAP Information (see next slide for footnotes)
Non-GAAP Information (see next slide for footnotes) Three Months Ended (in millions, except per share amounts) March 31, 2017 Reconciliation of Non-transaction Revenue (1): Access fees $ 17.8 Exchange services and other fees 15.4 Market data fees 22.5 Regulatory fees 8.3 Other revenue 5.8 Non-GAAP a
Slide 40: Non-GAAP Information - Footnotes for table on prior slide
Non-GAAP Information - Footnotes for table on prior slide (1)Total non-transaction revenue represents the sum of access fees, exchange services and other fees, market data fees, regulatory fees (net of Section 31 fees) and other revenue. (2) Reflects adjustment to include the activity of Bats for Ja
Slide 41: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 3Q17 4Q17 1Q18 2Q18 LTM Combined net income allocated to common stockholders $ 59.7 $ 254.6 $ 117.3 $ 82.4 $ 514.0 Interest 10.5 10.4 9.6 9.3 39.8 Income tax provision 45.6 (153.0) 41.3 36.8 (29.3) Depreciation and
Slide 42: Cboe Global Markets, 400 South LaSalle Street, Chicago
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 42