Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q4 2017 Earnings Presentation
49 slides from Cboe Global Markets's earnings presentation, Feb 9, 2018
Slide 1: Fourth Quarter 2017 Earnings Presentation
Fourth Quarter 2017 Earnings Presentation February 9, 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: Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings
Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings Strong 4Q17 caps year of tremendous growth Index Options Annual ADV (in thousands) Total options ADV increased 11% over 2016¹ 1,720 1,977 1,613 1,620 1,478 722 Annual record highs for VIX options and 1,247 632 573 588 567 futu
Slide 6: Well Positioned to Leverage our Increased Global Reach and Expanded Product Line in 2018
Well Positioned to Leverage our Increased Global Reach and Expanded Product Line in 2018 Our new mission: “to power your potential to stay ahead of an evolving market,” is brought to life through three commitments: • Relentless product innovation • Leading-edge technology • Seamless solutions 6
Slide 7: Product Innovation: Launched XBT Futures on December 10, 2017
Product Innovation: Launched XBT Futures on December 10, 2017 XBT futures, the first of their kind, provide a risk management tool for market participants seeking to hedge their underlying bitcoin holdings XBT futures create: Cboe Bitcoin Futures • An exchange-listed, regulated and Daily Volume and
Slide 8: Leading-Edge, State-of-the-Art Technology
Leading-Edge, State-of-the-Art Technology Migrating trading technology onto Bats’ proven platform to gain scale and efficiency; Launched new index platform Working closely with customers to achieve seamless technology migrations CFE migration on track for February 25, 2018 C2 Options migration plann
Slide 9: Providing Seamless Trading Solutions
Providing Seamless Trading Solutions We are committed to enhancing the customer’s trading experience through regulatory advocacy, new technologies and education Cboe Market Close (CMC) auction, a closing match process for non-Cboe securities, was approved by SEC on January 17, 2018 • Subsequent appe
Slide 10: Delivered Seamless Trading Solutions for a Post-MiFID II Landscape
Delivered Seamless Trading Solutions for a Post-MiFID II Landscape Providing value-added products and Cboe LIS: Average Daily Value Traded services, helping customers navigate MiFID II (In Euros, single counted) € 250,000,000 Cboe LIS € 200,000,000 • Record volumes since MiFID II in effect € 150,000
Slide 11: Look Forward to Building on Strong Foundation Established in 2017
Look Forward to Building on Strong Foundation Established in 2017 Focused on executing on our growth initiatives Growing our proprietary products Expanding our global reach across asset classes Migrating our technology to Bats Achieving our acquisition synergy targets 11
Slide 12: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 12
Slide 13: Business Highlights – Key Growth Drivers
Business Highlights – Key Growth Drivers Continued strength of proprietary index products Growth from non-transaction fees Expense discipline and overachievement of expense synergies Resulting in margin expansion and earnings growth Combined Net Revenue¹ up 7%; Adjusted Combined Margin¹ up 260 bps C
Slide 14: 4Q17 Options Combined Net Revenue Up 3%
4Q17 Options Combined Net Revenue Up 3% Revenue increase driven by higher transaction fees, offset somewhat by lower regulatory fees and higher royalty payments 2018 initiatives include: • Focus on growing proprietary products • Ongoing education and business development • Targeted incentive program
Slide 15: 4Q17 Futures Net Revenue Up 31%
4Q17 Futures Net Revenue Up 31% - 2017 Marked 13th Consecutive Year of Record ADV for VIX Futures Revenue increase driven by transaction fees, reflecting higher ADV and RPC RPC increase primarily due to fee changes implemented in January 2017 2018 initiatives include: • Optimistic that CFE technolog
Slide 16: U.S. Equities Combined Net Revenue Up 1%
U.S. Equities Combined Net Revenue Up 1% Persistent low volatility environment dampened trading volumes in 2017 Growth in non-transaction revenue offset decline in net transaction fees Increase in market data revenue driven by both pricing changes and expanded usage 2018 initiatives include: • Conti
Slide 17: European Equities Combined Net Revenue Up 17%
European Equities Combined Net Revenue Up 17% Net revenue increase reflects growth in net transaction fees and non-transaction revenue and a benefit from foreign currency translation; Net revenue up 10% on local currency basis Ready day one with full suite of products and services to address the new
Slide 18: Global FX Combined Net Revenue Up 18%
Global FX Combined Net Revenue Up 18% Fourth quarter marked a high point for both market share and ADNV traded Growth driven by increased volume on our London matching engine and better fill rates 2018 initiative include: • Growing core FX Spot offering while diversifying revenue by adding new produ
Slide 19: Adjusted Combined Operating Expenses Flat for 4Q and Down 1% for Year
Adjusted Combined Operating Expenses Flat for 4Q and Down 1% for Year 4Q17 vs 4Q16: Compensation and benefits up due to increase in incentive-based compensation Travel and promotional up due to increase in costs for travel and marketing and promotional events Professional fees declined due to realiz
Slide 20: Realization of Year 1 Expense Synergies Running Ahead of Initial Projections
Realization of Year 1 Expense Synergies Running Ahead of Initial Projections Finished 2017 with run-rate expense synergies of $33MM pre-tax Incremental year 1 run-rate expense synergies primarily a result of better utilization of technology resources Increasing 2018 targeted annualized run-rate expe
Slide 21: 2018 Full-Year Guidance
2018 Full-Year Guidance As of February 9, 2018 2017 Adjusted ($ in millions) 2018 Full-Year Guidance Combined Actual¹ Adjusted combined operating expenses² $420 to $428 $415¹ Depreciation and amortization (excluding $53 to $58 $53 amortization of acquired intangible assets) Capital expenditures $50
Slide 22: Tax Rate Guidance and Impact of Tax Reform
Tax Rate Guidance and Impact of Tax Reform U.S. Corporate Tax Reform Enacted in December: • Reduces statutory tax rate from 35% to 21% • Repeals a number of deductions relevant to Cboe, such as Section 199 • Introduces incremental taxes on foreign earnings • Results in net reduction to our effective
Slide 23: 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 De-lever – reduced debt by $75 million in 4Q17; $400 million in 2017 Return capital through dividends Continue to evaluate share re
Slide 24: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth of Core • Focused on growing proprietary products Footnotes applied here Proprietary Products • Generated strong organic growth Diversification and Stabilization of Revenue • Grew base of non-transaction revenue Stream
Slide 25: VIX Futures Growth vs VIX ETP Assets
VIX Futures Growth vs VIX ETP Assets VIX Futures ADV vs. VIX ETP Assets 350,000 $5,000 VIX Futures ADV: 82% Growth 300,000 $4,000 ETP Assets $MMs VIX Futures ADV $3,000 250,000 $2,000 200,000 $1,000 $0 150,000 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 Jan-18 Short VIX E
Slide 26: Growth in CFE User Accounts
Growth in CFE User Accounts Unique CFE User Accounts 6,000 5,706 5,500 27% Growth 5,000 4,495 4,500 4,000 3,500 3,000 Q4 2015 Q4 2017 Source: Cboe 26
Slide 27: Short ETPs Account for < 5% of VIX Futures ADV
Short ETPs Account for < 5% of VIX Futures ADV 4Q 2017 ADV Est. Short ETP Holdings (3Q/4Q 2017) 4.4% = ~12k ADV 4Q 2015 ADV 21.4% 6.3% = ~12k ADV 78.6% Institutional Non-Institutional 95.7% 93.7% Other Short ETP Other Short ETP Total: 187,689 Total: 284,008 Source: Cboe and SEC 13F filings 27
Slide 28: Questions & Answers
Cboe’ Global Markets 28
Slide 29: Appendix Materials
Appendix Materials 29
Slide 30: 4Q17 and 2017 Financial Overview
4Q17 and 2017 Financial Overview Adjusted Combined Financial Results¹ 4Q17 4Q16 % Chg 2017 2016 % Chg ($ in millions, except per share) Net Revenue¹,² $265.6 $248.6 10% $1,067.5 $1,002.8 6% Adjusted Operating Expenses¹ 105.0 104.6 -2% 415.3 417.6 -1% Adjusted Operating Income¹ $160.6 $144.0 19% $652
Slide 31: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 4Q17 net transaction fees up 11%; non-transaction revenue up 2% Adjusted Combined Net Revenue¹ 4Q17 4Q16 % Chg 2017 2016 % Chg (in millions) Net transaction fees $178.0 $160.5 11% $705.4 $653.7 8% Access fees 29.2 29.6 -1%
Slide 32: Supplemental Segment Information
Supplemental Segment Information 4Q17 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $105.9 $17.4 $32.4 $11.6 $10.7 $178.0 Access fees $14.1 $11.9 $0.5 $2.0 $0.7 $29.2 Exchange services and other fees $9.6 $5.6
Slide 33: Revenue Growth
Revenue Growth Proprietary Products Drove Revenue Growth in 4Q17 Growing Mix of Proprietary Products as Percentage of Total Net Transaction Fees 49.7% 48.7% 67.9% 64.3% 18.2% 15.6% 32.1% 35.7% 4Q17 4Q16 Non-proprietary Futures Index options 33
Slide 34: U.S. Equities: Growing ETF Market Listings
U.S. Equities: Growing ETF Market Listings Growing ETF listings market share enhances benefits for issuing firms and provides deeper liquidity to market participants Number of Cboe U.S. ETPs 2017 Highlights: 250 • Increased ETP listings by 82% • Captured 32% of new listings and 137 62% of transfers
Slide 35: Non-GAAP Information
Non-GAAP Information 35
Slide 36: 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 37: Non-GAAP Information
Non-GAAP Information Organic Net Revenue Reconciliation Three Months Ended Twelve Months Ended December 31, December 31, (in millions) 2017 2016 2017 2016 Reconciliation of Revenue Less Cost of Revenue to Organic Net Revenue Revenue less cost of revenue (net revenue) $ 265.6 $ 143.0 $ 995.6 $ 566.4
Slide 38: Non-GAAP Information
Non-GAAP Information ¹A full reconciliation of our non-GAAP and combined results to our GAAP results are available in this section. 38
Slide 39: Non-GAAP Information
Non-GAAP Information Table 3 Revenue Less Cost of Revenue by Business Segment (in millions) 4Q17 4016 Change Combined Change _| Options $ 130.0 $ 115.9 12% _§ 126.8 3% U.S. Equities 69.0 - * 68.4 1%! Futures 35.6 27.1 31% 27.1 31% European Equities 18.8 - * 16.1 17% Global FX 12.0 - * 10.2 18% Corpo
Slide 40: Non-GAAP Information (See slide 43 for footnotes)
Non-GAAP Information (See slide 43 for footnotes) Three Months Ended Twelve Months Ended Table 6 December 31, December 31, (in millions, except per share amounts) 2017 2016 2017 2016 Reconciliation of Net Income Allocated to Common Stockholders to Non-GAAP (As shown on Table 1) Net income allocated
Slide 41: 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 42: Non-GAAP Information
Non-GAAP Information ¹EBITDA margin represents the respective EBITDA divided by the respective net revenue as shown in the non-GAAP reconciliations provided. 2Combined results for the three months ended December 31, 2017 are the same as the financial results reported as the company was operating as
Slide 43: Non-GAAP Information
Non-GAAP Information Table 6 Footnotes: (1) For the fourth quarter of 2016, this amount includes $0.2 million for accelerated stock-based compensation expenses. For the year ended December 31, 2017, this amount includes $9.1 million for accelerated stock-based compensation expense. For the year ende
Slide 44: Non-GAAP Information (see slide 43 for footnotes)
Non-GAAP Information (see slide 43 for footnotes) 44
Slide 45: Non-GAAP Information (see footnotes on slide 43)
Non-GAAP Information (see footnotes on slide 43) 45
Slide 46: Non-GAAP Information (see slide 43 for footnotes)
Non-GAAP Information (see slide 43 for footnotes) 46
Slide 47: Non-GAAP Information
Non-GAAP Information ¹A full reconciliation of our non-GAAP and combined results to our GAAP results are available in this section. 47
Slide 48: Non-GAAP Information
Non-GAAP Information Adjusted cash is a non-GAAP measure and represents cash and cash equivalents plus financial investments minus cash collected for Section 31 fees, which will need to be remitted in the near term. We have presented adjusted cash because we consider it an important supplemental mea
Slide 49: Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 49