Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q3 2018 Earnings Presentation
41 slides from Cboe Global Markets's earnings presentation, Nov 2, 2018
Slide 1: Third Quarter 2018 Earnings Presentation
Third Quarter 2018 Earnings Presentation November 2, 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: Solid 3Q18 Financial Results
Solid 3Q18 Financial Results 3Q18 EPS of $1.06, up 19% on revenue of $271 million SPX options ADV increased 12% YOY in 3Q18 VIX options and futures volume improved month-over-month in 3Q18, then surged in October as volatility increased Success in FX market and continued growth in European Equities
Slide 6: 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 3Q18 volatility landscape: • VIX futures term structure returned to more familiar upward sloping shape • Steady volume increases in SPX options and VIX complex • As expected, we saw more trading related to volat
Slide 7: VIX and SPX Risk Management Tools: October Volumes
Together VIX and SPX Form a Powerful Set of Risk Management Tools for Investors Globally Record-setting volumes accompanied higher volatility in October October decline was an orderly re-pricing of risk that occurred over a period of weeks Trades suggest customers are monetizing hedges in both SPX a
Slide 8: 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: • Relentless product innovation • Seamless solutions • Leading-edge technology 8
Slide 9: Product Innovation: Successful Launch of Cboe Corporate Bond Index Futures
Product Innovation: Successful Launch of Cboe Corporate Bond Index Futures Launched futures based on the iBoxx iShares High Yield Corporate Bond Index on September 10 and Investment Grade on October 8 New collaboration combines Cboe’s product development expertise with IHS Markit’s and BlackRock’s l
Slide 10: Seamless Trading Solutions: Preparing our Business for a Post-Brexit World
Seamless Trading Solutions: Preparing our Business for a Post-Brexit World Cboe Europe continues to benefit from strong adoption of trading solutions implemented in response to MiFID II Periodic Auctions book is a leading non-continuous platform Cboe LIS, our block trading platform, logged another r
Slide 11: 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 Fully engaged in multi-phased migration of Cboe Options Exchange and on track to reach migration target date of Oct. 7, 2019 Oct. 7,
Slide 12: 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 12
Slide 13: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 13
Slide 14: Business Highlights – Key Growth Drivers
Business Highlights – Key Growth Drivers Growth from non-transaction fees Expense discipline and realizing expense synergies Demonstrated strong earnings growth Net Revenue Up Nominally Adjusted Operating Margin¹, Up 120 bps (in millions) 3Q18 $270.5 3Q18 63.4% 3Q17 $269.7 3Q17 62.2% ADV in Index Su
Slide 15: Options Net Revenue Up 2%
Options Net Revenue Up 2% Net revenue increase reflects higher net transaction fees¹ for multiply-listed options and access fees Net transaction fees¹ down 1%, reflecting: • Higher ADV in multiply-listed options offset by decline in index options ADV • RPC decline primarily due to lower mix of index
Slide 16: Futures Net Revenue Down 23%
Futures Net Revenue Down 23% Revenue decrease reflects lower ADV and RPC RPC decrease primarily due to mix shift in volume RPC increased 4% compared to 2Q18 RPC of $1.633, reflecting: • Higher mix of customer volume • Impact of new TPH fee schedule implemented on August 1, 2018 Futures Statistics 3Q
Slide 17: U.S. Equities Net Revenue Up 2%
U.S. Equities Net Revenue Up 2% Net revenue growth driven by higher net transaction fees¹ and exchange services fees Transaction fees driven by higher net revenue capture Expect downward pressure on full-year SIP market data revenue U.S. Equities Statistics 3Q18 3Q17 Change U.S. Equities Net Revenue
Slide 18: European Equities Net Revenue Up 21%
European Equities Net Revenue Up 21% Net revenue increase primarily due to growth in both net transaction fees¹ and non- transaction revenue Net revenue up a strong 22% on local currency basis Net transaction fees¹ reflect higher market share and increase in net capture Higher net capture resulted f
Slide 19: Global FX Net Revenue Up 20%
Global FX Net Revenue Up 20% Growth driven by increased volume Favorable macro environmental factors, stronger market share and a disciplined pricing schedule contributed to growth Global FX Statistics 3Q18 3Q17 Change Global FX Net Revenue (in millions) $13.6 $11.3 20% Key Operating Statistics: Mar
Slide 20: Adjusted Operating Expenses Down 3%
Adjusted Operating Expenses Down 3% 3Q18 vs 3Q17: Key drivers of change in adjusted operating expenses: • Depreciation and amortization lower due to accelerated depreciation in prior year and retirement of certain assets • Travel and promotional expenses fell due to reduction in advertising Adjusted
Slide 21: Run-Rate Expense Synergy Target of $50 MM in 2018; $85MM in 2020
Run-Rate Expense Synergy Target of $50 MM in 2018; $85MM in 2020 Realized $5.0 million of pre-tax expense synergies in 3Q18; Realized $12.2 million of pre-tax expense synergies YTD through September 30, 2018 Maintain run-rate expense synergy target of $85 million in 2020 Targeted Run-Rate Expense Sy
Slide 22: 2018 Full-Year Guidance
2018 Full-Year Guidance 2018 Full-Year Guidance Guidance as of ($ in millions) November 2, 2018¹ Adjusted operating expenses² $420 to $428 Depreciation and amortization (excluding $43 to $48 amortization of acquired intangible assets) Capital expenditures $35 to $40 Effective tax rate on adjusted ea
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 Return capital through dividends and share repurchases • Returned nearly $84 million in dividends and share repurchases in 3Q18 Sep
Slide 24: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth Footnotes of Core applied here • Focused on growing proprietary products Proprietary Products Diversification and Stabilization of Revenue • Strong growth in diverse set of revenue streams Stream • Disciplined expense m
Slide 25: Questions & Answers
Cboe’ Global Markets 25
Slide 26: Appendix Materials
Appendix Materials 26
Slide 27: 3Q18 Financial Overview
3Q18 Financial Overview Adjusted Financial Results¹ 3Q18 3Q17 % Chg ($ in millions, except per share) Net Revenue² $270.5 $269.7 -- Adjusted Operating Expenses¹ 99.1 101.9 -3% Adjusted Operating Income¹ $171.4 $167.8 2% Adjusted Operating Margin¹ 63.4% 62.2% 120 bps Adjusted Net Income Allocated to
Slide 28: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 3Q18 net transaction fees down 3%; non-transaction revenue up 5% Net Revenue 3Q18 3Q17 % Chg (in millions) Net transaction fees¹ $173.9 $179.6 -3% Access fees 34.3 30.1 14% Exchange services and other fees 19.3 20.0 -3% Mar
Slide 29: Supplemental Segment Information
Supplemental Segment Information 3Q18 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $103.5 $18.8 $25.7 $14.1 $11.8 $173.9 Access fees $16.8 $12.1 $2.2 $2.2 $1.0 $34.3 Exchange services and other fees $8.3 $7.4
Slide 30: Mix of Net Revenue and Net Transaction Fees
Mix of Net Revenue and Net Transaction Fees Higher growth in non-transaction revenue in 3Q18 resulted in mix shifts Mix of Net Transaction Fees¹ as Percentage Mix of Net Revenue by Transaction and of Total Net Transactions Fees Non-Transaction 47.2% 48.4% 56.6% 58.4% 62.0% 68.8% 14.8% 20.4% 43.4% 41
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: 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 34: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended September 30, 2018 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 175.2 $ 176.7 $ 25.7 $ 22.4 $ 11.8 $ 411.8 Liquidity payments (68.2) (152.7) - (8.3) -
Slide 35: 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 Net income allocated to common stockholders $ 15.1 $ 67.3 $ 59.7 $ 254.6 $ 396.7 $ 117.3 $ 82.4 $ 85.0 Compensation and ben
Slide 36: 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 37: 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 38: 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 39: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 4Q17 1Q18 2Q18 3Q18 LTM Net income allocated to common stockholders $ 254.6 $ 117.3 $ 82.4 $ 85.0 $ 539.3 Interest 10.4 9.6 9.3 9.6 38.9 Income tax provision (153.0) 41.3 36.8 30.6 (44.3) Depreciation and amortizati
Slide 40: Trademarks
Trademarks Trademarks: Cboe®, Bats®, BZX®, BYX®, EDGX®, EDGA®, Cboe Volatility Index® and VIX® are registered trademarks and Cboe Global MarketsSM is a service mark of Cboe Global Markets, Inc. and its subsidiaries. All other trademarks and service marks are the property of their respective owners.
Slide 41: Cboe Global Markets
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 41