Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q1 2019 Earnings Presentation
37 slides from Cboe Global Markets's earnings presentation, May 3, 2019
Slide 1: First Quarter 2019 Earnings Presentation
First Quarter 2019 Earnings Presentation May 3, 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: First Quarter Results Reflect Challenging Market Conditions and Difficult Comparisons
First Quarter Results Reflect Challenging Market Conditions and Difficult Comparisons 1Q19 was a reversal from the sharp market downturn in 4Q18 As markets hit all-time highs, implied volatility levels fell across all asset classes and VIX term structure steepened In 1Q19 S&P 500 Rallied 12% and VIX
Slide 6: Changes in VIX Futures Term Structure and Growth in Volatility ETPs Present More Trading Opportunities
Changes in VIX Futures Term Structure and Growth in Volatility ETPs Present More Trading Opportunities AUM in volatility-linked ETPs has been steadily building since January In last 3 months, ETP complex has gained about 130MM of long vega exposure Average Monthly AUM for ETP Long Vol Vega Exposure
Slide 7: Focused on Growing Proprietary Product Suite
Focused on Growing Proprietary Product Suite Aligning sales and coverage teams across regions and products U.S. remains largest growth opportunity U. S. Insurance Exploring new Companies markets • Asia • Middle East • Scandinavia Pension Funds Pursuing jurisdictional approvals • Israel • Switzerland
Slide 8: U.S. Equities
U.S. Equities Cboe EDGX focused on being the destination of choice for retail trading Adjusted pricing on Cboe EDGX, effective May 1 • Changes aimed at attracting more order flow to bolster market share • Plan to introduce execution priority to retail limit orders, subject to regulatory approval Con
Slide 9: European Equities – Preparing to Operate in a Post-Brexit Environment
European Equities – Preparing to Operate in a Post-Brexit Environment Cboe Europe retained its #1 position in European equities in 1Q19 with market share of 22.1%, up from 21.2% in 1Q18 In March, received authorization from the Dutch Ministry of Finance to operate a new venue in the Netherlands With
Slide 10: Focused on Growing Highest-Margin Proprietary Index Suite
Focused on Growing Highest-Margin Proprietary Index Suite Continue to execute on strategic growth initiatives Well positioned to weather difficult trading conditions and to benefit when market conditions change Plan to further penetrate existing markets with an emphasis on education, targeting key m
Slide 11: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 11
Slide 12: Business Highlights – Key Performance Drivers
Business Highlights – Key Performance Drivers Difficult comparisons against record first quarter in 2018 Lower trading volumes across each business segment and industrywide Net transaction fees down 24%; non-transaction net revenue up 2% Expense discipline resulted in solid margin performance Revers
Slide 13: Growing Recurring Non-Transaction Revenue Streams
Growing Recurring Non-Transaction Revenue Streams Recurring proprietary non-transaction net revenue up 10% in 1Q19 vs 1Q18 Expect growth in proprietary market Proprietary Market Data & data & access and capacity fees Access and Capacity Fees combined to be mid- to high-single (in millions) $80.0 $75
Slide 14: Options 1Q19 Net Revenue Down 17%
Options 1Q19 Net Revenue Down 17% 1Q19 revenue decrease driven by decline in ADV RPC variance reflects a shift in volume mix, with multi-listed options accounting for a higher percentage of volume in 1Q19 versus 1Q18 Non-transaction revenue up 12% due to higher market data and regulatory fees Option
Slide 15: Futures 1Q19 Net Revenue Down 30%
Futures 1Q19 Net Revenue Down 30% Revenue decrease driven by lower ADV RPC increase primarily reflects lower volume-based rebates Non-transaction fees increased 16% due to increases in market data fees and regulatory fines¹ Futures Statistics 1Q19 1Q18 Change Net Revenue (in millions) $29.5 $42.3 -3
Slide 16: U.S. Equities 1Q19 Net Revenue Down 5%
U.S. Equities 1Q19 Net Revenue Down 5% Revenue decline reflects lower volumes and market share offset somewhat by higher net capture, proprietary market data and access and capacity fees Decrease in SIP market data revenue due to lower market share and audit recoveries versus 1Q18 U.S. Equities Stat
Slide 17: European Equities 1Q19 Net Revenue Down 7%
European Equities 1Q19 Net Revenue Down 7% Net revenue decrease primarily reflects unfavorable foreign-currency translation On local currency basis, net transaction fees down 8% and non-transaction revenue up 11% Decline in net transaction fees driven by lower overall industry volume, offset somewha
Slide 18: Global FX 1Q19 Net Revenue Down 5%
Global FX 1Q19 Net Revenue Down 5% Revenue decline reflects lower market volume offset somewhat by higher net capture and market share Higher net capture due to the impact of fee changes implemented in 2018 First quarter marked a new record high for market share Global FX Statistics 1Q19 1Q18 Change
Slide 19: Adjusted Operating Expenses Down 14%
Adjusted Operating Expenses Down 14% 1Q19 vs 1Q18: Compensation and benefits down due to decrease in incentive-based compensation and equity compensation Lowering full-year 2019 adjusted operating expense guidance to a range of $415 to $423 million, a decrease of $5 million Adjusted Operating Expens
Slide 20: Maintaining Expense Synergy Targets
Maintaining Expense Synergy Targets Maintaining 2019 run-rate expense synergy target of $80 million and 2020 target of $85 million Targeted Run-Rate Expense Synergies as of May 3, 2019 (in millions) $85 $80 $57 $50 $33 $15 2017 2018 2019 2020 Prior Projection Actual Target as of May '19 20
Slide 21: 2019 Full-Year Guidance
2019 Full-Year Guidance 2019 Full-Year Guidance Guidance as of Guidance as of ($ in millions) February 8, 2019 May 3, 2019 Adjusted operating expenses¹ $420 to $428 million $415 to $423 million Depreciation and amortization (excluding $35 to $40 million $35 to $40 million amortization of acquired in
Slide 22: 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 the growth of our business Return capital through dividends and share repurchases – about $70MM in 1Q19 Mar. 31, Dec. 31, Sept. June 30, Mar. 31, Debt Outstan
Slide 23: 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 products Proprietary Products Strengthen Recurring • Growth in recurring revenue Revenue Stream Scale of Business Model • D
Slide 24: Questions & Answers
Cboe’ Global Markets 24
Slide 25: Appendix Materials
Appendix Materials 25
Slide 26: Realized Versus Run-Rate Expense Synergies
Realized Versus Run-Rate Expense 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 $25 64
Slide 27: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Run-Rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Increase in Run Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Rate Each Year Realized/Targeted Synergies Year Run-Rate by Year
Slide 28: 1Q19 Financial Overview
1Q19 Financial Overview Adjusted Financial Results¹ 1Q19 1Q18 % Chg ($ in millions, except per share) Net Revenue² $280.5 $328.5 -15% Adjusted Operating Expenses¹ 94.1 109.9 -14% Adjusted Operating Income¹ $186.4 $218.6 -15% Adjusted Operating Margin¹ 66.5% 66.5% -- Adjusted Net Income Allocated to
Slide 29: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 1Q19 net transaction fees down 24%; non-transaction net revenue up 2% Net Revenue 1Q19 1Q18 % Chg (in millions) Net transaction fees¹ $177.5 $233.9 -24% Access and capacity fees 54.4 50.6 8% Market data fees 51.6 54.2 -5% R
Slide 30: Supplemental Segment Information
Supplemental Segment Information 1Q19 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $104.8 $22.5 $24.6 $13.6 $12.0 $177.5 Access and capacity fees $26.0 $19.0 $3.7 $4.0 $1.7 $54.4 Market data fees $13.7 $32.9
Slide 31: Non-GAAP Information
Non-GAAP Information 31
Slide 32: 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 33: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended March 31, 2019 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 173.8 $ 198.9 $ 24.6 $ 21.1 $ 12.0 $ 430.4 Liquidity payments (65.5) (170.7) (7.5) - (243.
Slide 34: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 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 Acquisition-related expenses (1) 8.8 8.6 5.9 6.
Slide 35: 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 36: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 2Q18 3Q18 4Q18 1Q19 LTM Net income allocated to common stockholders $ 82.4 $ 85.0 $ 137.3 $ 94.6 $ 399.3 Interest expense, net 9.3 9.6 9.7 9.9 38.5 Income tax provision 36.8 30.6 37.3 32.6 137.3 Depreciation and amo
Slide 37: Cboe Global Markets, 400 South LaSalle Street, Chicago
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 37