Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q2 2020 Earnings Presentation
46 slides from Cboe Global Markets's earnings presentation, Jul 31, 2020
Slide 1: Second Quarter 2020 Earnings Presentation
Second Quarter 2020 Earnings Presentation July 31, 2020 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 Executive Vic
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: Delivering on Cboe's Key Strategic Growth Initiatives
Delivering on Cboe’s Key Strategic Growth Initiatives Build upon core Expand product proprietary lines across products in asset classes tandem Leverage leading Broaden proprietary geographic trading reach technology Diversify business mix with non- transactional revenues 5
Slide 6: U.S. Equities: Supporting Market Participants Through Innovative Offerings
Expand product lines across asset classes U.S. Equities: Supporting Market Participants Through Innovative Offerings Record 2Q trading in U.S. Equities, up 82% vs 2Q19 Strong growth in Cboe Retail Priority; 12% U.S. Equities Retail Priority of Cboe EDGX trades in June and July Monthly ADV (in millio
Slide 7: Leadership Position in Options; Optimizing Operating Leverage
Leverage leading proprietary trading technology Leadership Position in Options; Optimizing Operating Leverage Inherent in our Business Model ADV for multi-listed options up 57% YoY in 2Q20 Set record for quarterly ADV in multi-listed Quarterly Multi-listed Options ADV options in 2Q20 by Exchange (in
Slide 8: Completed EuroCCP Acquisition; Plan to Launch Pan-European Derivatives
Broaden geographic reach Build upon core proprietary products in tandem Completed EuroCCP Acquisition; Plan to Launch Pan-European Derivatives¹ Plan to introduce a transparent, efficient, lit pan-European derivatives market designed to expand derivatives trading in Europe Extending European equities
Slide 9: Plan to Acquire MATCHNow - a Leading Canadian ATS
Broaden geographic reach Plan to Acquire MATCHNow - a Leading Canadian ATS MATCHNow to broaden Cboe’s North American equities business Aligns with Cboe’s global growth strategy • Expands geographic presence • Diversifies product capabilities Largest broker-neutral equities alternative trading system
Slide 10: Completed Three Acquisitions in 2020 that Provide Incremental Recurring Revenues
Diversify business mix with non-transactional revenues Completed Three Acquisitions in 2020 that Provide Incremental Recurring Revenues Recent investments complement and strengthen our comprehensive suite of data and analyst solutions Providing market participants tools for better understanding risk
Slide 11: Unprecedented Environment Limited Opportunity for Institutions to Trade Volatility
Unprecedented Environment Limited Opportunity for Institutions to Trade Volatility or Broad-based Indexes The VIX® Index is used as a barometer for market uncertainty Daily closing values (January 3, 2000 – July 28, 2020). Source: Cboe Options Institute • All-time intraday high of 89.53 on October 2
Slide 12: Focus on Growing Proprietary Products
Build upon core proprietary products in tandem Focus on Growing Proprietary Products Expanding our proprietary product offering Cboe: Home to every major index provider Saw uptake in Cboe iBoxx iShares High Yield Corporate Bond Index Futures Plan to launch Mini-VIX futures August 10th, subject to re
Slide 13: Delivering on Cboe's Key Strategic Growth Initiatives By Asset Class
Delivering on Cboe’s Key Strategic Growth Initiatives Delivering on Cboe’s Key Strategic Cboe Net Revenue (%) Growth Initiatives Pre-Bats1 Post-Bats2 5% Global FX 7% By Asset Class European Equities Expand 27% U.S. Equities Build upon product lines core proprietary 11% Futures across asset 19% Futur
Slide 14: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 14
Slide 15: Business Highlights – Key Performance Drivers
Business Highlights – Key Performance Drivers Record trading volumes in U.S. equities and multi-listed options Results demonstrate the inherent benefits of our diversified business model Net transaction fees¹ up 2%; non-transaction net revenue up 7% Adjusted operating expenses¹ down 7% Operating sca
Slide 16: Grew Recurring Non-Transaction Revenue
Grew Recurring Non-Transaction Revenue Recurring proprietary non-transaction net revenue up 8% YoY; organic growth of 10% Organic growth excludes $3.5MM of Proprietary Market Data and market data revenue contributed from Access and Capacity Fees 1Q20 acquisitions as well as other items (in millions)
Slide 17: Options 2Q20 Net Revenue Up 7%
Options 2Q20 Net Revenue Up 7% 2Q20 revenue increase primarily driven by record trading volumes in multi-listed options and higher market data revenue RPC increase in index options due to shift in volume mix, fee realignments and SPX options fee increase; decrease in multi-listed options reflects hi
Slide 18: Futures 2Q20 Net Revenue Down 36%
Futures 2Q20 Net Revenue Down 36% Revenue decrease resulted from lower trading volume RPC held relatively constant Futures Selected Revenue Data 2Q20 2Q19 Chg ($ in millions) Net Revenue $20.9 $32.6 -36% Net transaction fees¹ $15.8 $28.3 -44% Access and capacity $4.1 $3.8 8% Market data $1.7 $1.6 6%
Slide 19: U.S. Equities 2Q20 Net Revenue Up 22%
U.S. Equities 2Q20 Net Revenue Up 22% Revenue increase primarily due to higher net transaction fees Trading volumes driven by increase in retail activity and higher market share Decrease in net capture primarily due to customers achieving lower pricing tiers U.S. Equities Selected Revenue Data 2Q20
Slide 20: European Equities 2Q20 Net Revenue Down 2% on Local Currency Basis
European Equities 2Q20 Net Revenue Down 2% on Local Currency Basis On a local currency basis, net transaction fees decreased 13% and non-transaction revenue increased 14% Decrease in net transaction fees driven by lower overall industry volume and lower market share, offset somewhat by higher net ca
Slide 21: Global FX 2Q20 Net Revenue Up 5%
Global FX 2Q20 Net Revenue Up 5% Revenue increase reflects higher market share and net capture Record quarterly market share of 16.4% Higher net capture due to mix shift in volume by customer type 2Q20 2Q19 Chg FX Net Revenue (in millions) $13.7 $13.1 5% FX Key Operating Stats Market share¹ 16.4% 15
Slide 22: 2Q20 Adjusted Operating Expenses Down 7%
2Q20 Adjusted Operating Expenses Down 7% Expense decline resulted from: • $7 million decrease in professional fees and outside services • $2 million decrease in travel and promotional expenses • $3 increase in compensation and benefits, reflecting: – $4 million increase in incentive-based compensati
Slide 23: Updated Guidance: 2020 Adjusted Operating Expenses
Updated Guidance: 2020 Adjusted Operating Expenses C1 migration and COVID-19 environment driving lower expenses in 2020, reflecting: • Reduction in headcount, depreciation and amortization and other supporting services achieved as a result of final technology migration in October 2019 • COVID-19 has
Slide 24: 2020 Full-Year Guidance
2020 Full-Year Guidance 2020 Full-Year Guidance 1, 2 2020 Guidance as of 2020 Guidance as of ($ in millions) July 31, 2020 May 1, 2020 Adjusted operating expenses 3 $436 to $444 $419 to $427 Depreciation and amortization (excluding $34 to $38 $34 to $38 amortization of acquired intangible assets) Ef
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 Returned capital of $139 million through dividends and share repurchases Leverage ratio held constant at 1.0x from March 31, 2020 Used cash on hand to fund acquisition
Slide 26: Delivering on our Long-Term Growth Initiatives While Defining Markets Globally
Delivering on our Long-Term Growth Initiatives While Defining Markets Globally Growth Footnotes of Core applied here • Diversity of our business model resulted in strong results Proprietary Products despite muted volume in proprietary products • Growth in recurring non-transaction net revenue of 7%
Slide 27: Questions & Answers
Cboe’ Global Markets 27
Slide 28: Appendix Materials
Appendix Materials 28
Slide 29: Updated Guidance for 2020 Adjusted Operating Expenses; Detailed Bridge
Updated Guidance for 2020 Adjusted Operating Expenses; Detailed Bridge from 2019 to 2020 as of July 31, 2020 Adjusted Operating Expenses Bridge from 2019 to 2020 2020 Guidance Increased by $17 million to $436 to $444 million¹ ($ in millions) Guidance Range 2019 Adjusted Operating Expenses¹ $ 389 as
Slide 30: Second Quarter Financial Overview
Second Quarter Financial Overview Adjusted Financial Results¹ 2Q20 2Q19 % Chg ($ in millions, except per share) Net Revenue² $296.9 $283.2 5% Adjusted Operating Expenses¹ 95.8 103.1 -7% Adjusted Operating Income¹ 201.1 $180.1 12% Adjusted Operating Margin¹ 67.7% 63.6% 4.1 pts Adjusted Net Income All
Slide 31: 2Q20 Net Revenue Growth Primarily Driven by Market Data Fees
2Q20 Net Revenue Growth Primarily Driven by Market Data Fees 2Q20 net transaction fees up 2%; non-transaction net revenue up 7% Net Revenue 2Q20 2Q19 % Chg (in millions) Net transaction fees $185.0 $181.9 2% Access and capacity fees 55.7 54.5 2% Market data fees 58.7 51.8 13% Regulatory fees 9.7 9.4
Slide 32: Supplemental Segment Information
Supplemental Segment Information 2Q20 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction fees² $113.8 $33.0 $15.8 $11.0 $11.4 $185.0 Proprietary net transaction fees included above $87.1 $15.8 $164.9 Access and capacity
Slide 33: 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 options and futures interchangeably or in tandem, depending on market conditions Plan to further penetrate existing markets with an emphasis on education, targeting key market segments and geo
Slide 34: Maintaining Synergy Targets
Maintaining Synergy Targets Maintaining 2019 run-rate synergy target of $80 million and 2020 target of $85 million Remaining synergies of $5 million in 2020 will be reflected in a reduction in cost of revenues versus expenses Targeted Run-Rate Synergies as of February 7, 2020 (in millions) $85 $80 $
Slide 35: Realized Versus Run-Rate Synergies
Realized Versus Run-Rate Synergies 2019 realized synergies 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 75% 80% $18.3 $70.0 $25 64% 70% $2.0 $24.0 $60.0
Slide 36: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Increase in Run-Rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Run- Rate Each Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Year Realized/Targeted Synergies Year Run-Rate by Yea
Slide 37: EuroCCP and Buildout of Pan-European Derivatives Trading and Clearing
EuroCCP and Buildout of Pan-European Derivatives Trading and Clearing Investing in long-term growth Expect EPS impact for 2020 and 2021 to be at higher end of range, primarily due to higher than originally projected facility fees for EuroCCP U.S. GDP versus EU U.S. and EU backup credit facility ($ i
Slide 38: Non-GAAP Information
Non-GAAP Information 38
Slide 39: 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 40: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended Options U.S. Equities Futures European Equities Global FX Total March 31 (in millions) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Transaction fees $ 284.2 $ 173.8 $ 304.0 $ 198.9 $ 35.9
Slide 41: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Reconciliation of Net Income Allocated to Common Stockholders to Non-GAAP Net income allocated to common stockholders $ 94.6 $ 87.6 $ 105.5 $ 86.1 $ 372.7 $ 157.0 $ 113.3 Acquisition-related expenses (1)
Slide 42: Non-GAAP Information
Non-GAAP Information EBITDA Reconciliations EBITDA (earnings before interest, income taxes, depreciation and amortization) and Adjusted EBITDA are widely used non-GAAP financial measures of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue)
Slide 43: Non-GAAP Information
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 3Q19 4Q19 1Q20 2Q20 LTM Net income allocated to common stockholders $ 105.5 $ 86.1 $ 157.0 $ 113.3 $ 461.9 Interest expense, net 8.2 7.8 7.3 7.3 $ 30.6 Income tax provision 35.0 27.9 60.1 43.0 $ 166.0 Depreciation a
Slide 44: Non-GAAP Information
Non-GAAP Information Reconciliation of Organic Growth for Recurring Proprietary Non- transaction Net Revenue (in millions) 2Q20 2Q19 % Chg Access and capacity fees $55.7 $54.5 Proprietary market data 25.5 20.8 Total reported $81.2 $75.3 8% Less: acquisitions (3.5) Less: impact of reporting changes (
Slide 45: Trademarks
Trademarks Trademarks: Cboe®, Cboe Global Markets®, Bats®, BZX®, BYX®, EDGX®, EDGA®, EuroCCP®, Cboe Volatility Index® and VIX® are registered trademarks and 3CSM, FT OptionsSM, HanweckSM, and Trade AlertSM are service marks of Cboe Global Markets, Inc. and its subsidiaries. All other trademarks and
Slide 46: Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 46