Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q4 2018 Earnings Presentation
42 slides from Cboe Global Markets's earnings presentation, Feb 8, 2019
Slide 1: Fourth Quarter 2018 Earnings Presentation
Fourth Quarter 2018 Earnings Presentation February 8, 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: Record Financial Results for Fourth Quarter and Full Year
Record Financial Results for Fourth Quarter and Full Year Increased trading across business lines Record trading in our proprietary products 2018 results demonstrated our ability to effectively leverage our increased global reach and expanded product line Quarterly ADV for Index Options and Annual A
Slide 6: 2018: The Return of Volatility to the Market
2018: The Return of Volatility to the Market Expect same concerns that fueled the market correction in 2018 to persist in 2019, creating demand for equity hedges using SPX, and VIX options and futures • Uncertain path of U.S. interest rates • Escalating trade tensions • Risk of a global recession VI
Slide 7: Focused on Growing Highest-Margin Proprietary Index Suite
Focused on Growing Highest-Margin Proprietary Index Suite Index customers at Cboe typically use SPX and VIX products interchangeably or in tandem, depending on their trading objectives and market conditions VIX futures ADV increased 18% in 4Q18; 14th consecutive year of record volume in YOY % Total
Slide 8: Total U.S. Options ADV Rose 23% in 4Q18 and 14% for the Year
Total U. S. Options ADV Rose 23% in 4Q18 and 14% for the Year Options YOY ADV Growth Multiply-listed options ADV up 22% in 24% Index Options 4Q18 vs 4Q17 4Q18; up 14% in 2018 13% Index Options 2018 vs 2017 Index options trading rose 24% in 4Q18 Multi-list Options 4Q18 vs 4Q17 22% Multi-list Options
Slide 9: Product Innovation: Launching Cboe Select Sector Index Options
Product Innovation: Launching Cboe Select Sector Index Options Expands Cboe’s successful suite of products tied to S&P Dow Jones Indexes Cboe plans to launch cash-settled options on the 11 industry sector indexes that comprise the S&P 500, offering: • Efficient way to gain exposure to U.S. industry
Slide 10: U.S. Equities Industry Volume up 33% for 4Q18; up 12% for 2018
U.S. Equities Industry Volume up 33% for 4Q18; up 12% for 2018 Plan to evolve business model to adapt to changing market environment ETP listings up 16% in 2018 versus 2017 U.S. Equities Net Revenue - Percent Transaction Chart Title versus Non-Transaction Fees and Market Share ETP listings now inclu
Slide 11: European Equities – Leveraging Opportunities Under MiFID II
European Equities – Leveraging Opportunities Under MiFID II European equities ADNV increased 19% for 4Q18 and 11% for 2018 Cboe LIS, European block trading platform powered by BIDS technology, logged another record year Strong adoption of Periodic Auctions Positioning business to continue to grow in
Slide 12: Global FX Reached New Highs in 2018
Global FX Reached New Highs in 2018 Developed new products and services, leveraging industry structural changes Cboe Global FX had record year Global FX Net RevenueChart - Percent Title Transaction versus Non-Transaction Fees and Market Share¹ ($ in millions) ADNV up 8% for 4Q18 $60.0 15.3% $56.4 13
Slide 13: Well Positioned to Continue to Deliver Strong Results
Well Positioned to Continue to Deliver Strong Results that Benefit Our Customers and Our Shareholders Plan to build on 2018’s strong results in 2019 Continue to redefine markets through our commitment to: • Relentless product innovation • Leading-edge technology • Seamless trading solutions 13
Slide 14: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 14
Slide 15: Business Highlights – Key Growth Drivers
Business Highlights – Key Growth Drivers Continued strength of proprietary index products Growth from non-transaction fees Expense discipline and over achievement of expense synergies Resulted in margin expansion and earnings growth Index Suite of Products Net Revenue up 26%; Record Quarterly ADV up
Slide 16: Options 4Q18 Net Revenue Up 34%
Options 4Q18 Net Revenue Up 34% 4Q18 revenue increase primarily driven by higher transaction fees 2019 initiatives include: • Focus on growing proprietary products • Ongoing education and business development Options Combined Statistics 4Q18 4Q17 Change 2018 2017 Change ($ in millions, except RPC) O
Slide 17: Futures 4Q18 Net Revenue Up 13%
Futures 4Q18 Net Revenue Up 13% - 2018 Marked 14th Consecutive Year of Record ADV for VIX Futures Revenue increase driven by transaction fees, reflecting higher ADV and lower RPC RPC decrease primarily due to shift in mix of products, with lower block trade volume 2019 initiatives include: • Leverag
Slide 18: U.S. Equities 4Q18 Net Revenue Up 18%
U.S. Equities 4Q18 Net Revenue Up 18% Growth driven by higher levels of volatility and volumes with higher net capture Increase in market data revenue through organic growth and product enhancements 2019 initiatives include: • Continued growth of proprietary market data • Evolve business model to ch
Slide 19: European Equities 4Q18 Net Revenue Up 29%
European Equities 4Q18 Net Revenue Up 29% Net revenue increase reflects growth in net transaction fees and non-transaction revenue Net revenue up 31% on local currency basis Growth in net transaction fees driven by greater share of higher industry volume with increased net capture 2019 Initiatives i
Slide 20: Global FX 4Q18 Net Revenue Up 14%
Global FX 4Q18 Net Revenue Up 14% Fourth quarter marked a high point for both market share and ADNV traded Growth driven by increased volume and better fill rates 2019 initiatives include: • Growing core FX Spot offering while diversifying revenue by adding new products and expanding market data off
Slide 21: Adjusted Combined Operating Expenses Up 6% in 4Q and 3% for Year
Adjusted Combined Operating Expenses Up 6% in 4Q and 3% for Year 4Q18 vs 4Q17: Compensation and benefits up due to increase in incentive-based compensation Other expenses up due to higher VAT and sales taxes and bad debt write-off Depreciation and amortization down due to accelerated depreciation in
Slide 22: 2018 Run-Rate Expense Synergy Above Target; Maintaining 2020 Target
2018 Run-Rate Expense Synergy Above Target; Maintaining 2020 Run-Rate Target of $85MM 2018 run-rate synergies of $57 million, $7 million above target due to timing Maintaining run-rate expense synergy target of $85 million in 2020 Targeted Run-Rate Expense Synergies as of February 8, 2019 (in millio
Slide 23: 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 $25 64%
Slide 24: 2019 Full-Year Guidance
2019 Full-Year Guidance 2019 Full-Year Guidance Guidance as of ($ in millions) February 8, 2019 2018 Actual Adjusted operating expenses² $420 to $428 million $426.8¹ Depreciation and amortization (excluding $35 to $40 million $43.4 amortization of acquired intangible assets) Capital expenditures $50
Slide 25: 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 • Returned more than $271 million in dividends and share repurchases in 2018
Slide 26: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth Footnotes of Core applied here • Focused on growing proprietary products Proprietary Products Diversification and Stabilization of Revenue • Strong growth in diverse set of revenue streams Stream • Disciplined expense m
Slide 27: Questions & Answers
Cboe’ Global Markets 27
Slide 28: Appendix Materials
Appendix Materials 28
Slide 29: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Run-rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Increase in Run Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Rate Each Year Realized/Targeted Synergies Year Run-Rate by Year
Slide 30: 4Q18 and 2018 Financial Overview
4Q18 and 2018 Financial Overview Adjusted Combined Financial Results¹ 4Q18 4Q17 % Chg 2018 2017 % Chg ($ in millions, except per share) Net Revenue¹,² $334.4 $265.6 26% $1,216.9 $1,067.5 14% Adjusted Operating Expenses¹ 111.8 105.0 6% 426.8 415.3 2% Adjusted Operating Income¹ $222.6 $160.6 39% $790.
Slide 31: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 4Q18 net transaction fees up 37%; non-transaction revenue up 8% Adjusted Combined Net Revenue¹ 4Q18 4Q17 % Chg 2018 2017 % Chg (in millions) Net transaction fees $243.1 $178.0 37% $834.8 $705.4 18% Access fees 33.8 29.2 16%
Slide 32: Supplemental Segment Information
Supplemental Segment Information 4Q18 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $152.0 $27.0 $36.4 $15.7 $12.0 $243.1 Access fees $17.0 $11.4 $2.2 $2.2 $1.0 $33.8 Exchange services and other fees $9.3 $7.9
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-GAA
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 December 31, 2018 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 235.5 $ 254.0 $ 36.6 $ 25.1 $ 12.0 $ 563.2 Liquidity payments (80.7) (219.5) (0.2) (9.4
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 3Q18 4Q18 2018 Net income allocated to common stockholders $ 15.1 $ 67.3 $ 59.7 $ 254.6 $ 396.7 $ 117.3 $ 82.4 $ 85.0 $ 137.3 42
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 Twelve Months Ended (in millions, except per share amounts) March 31, 2017 December 31, 2017 Reconciliation of Non-transaction Revenue (1): Access fees $ 17.8 $ 106.8 Exchange services and other fees 15.4 74.8 Market data fees 22
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) 1Q18 2Q18 3Q18 4Q18 LTM Net income allocated to common stockholders $ 117.3 $ 82.4 $ 85.0 $ 137.3 $ 422.1 Interest 9.6 9.3 9.6 9.7 38.2 Income tax provision 41.3 36.8 30.6 37.3 146.0 Depreciation and amortization 54
Slide 42: Cboe Global Markets
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 42