Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q1 2018 Earnings Presentation
42 slides from Cboe Global Markets's earnings presentation, May 4, 2018
Slide 1: First Quarter 2018 Earnings Presentation
First Quarter 2018 Earnings Presentation May 4, 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: Record Results Driven by Growth Across All Business Segments and Trading Highs in Proprietary Products
Record Results Driven by Growth Across All Business Segments and Trading Highs in Proprietary Products Raised expected run-rate expense synergy target to $85 million at the end of 2020, up $20 million and a year ahead of initial projections Record adjusted diluted EPS of $1.38¹ on net revenue of $32
Slide 6: VIX Futures Term Structure
VIX Futures Term Structure Since February, VIX futures term structure has been in downward-sloping or flat 55 out of 61 days, an unusually long period of time Recently trending toward more familiar upward-sloping shape, but with higher volatility base level 28 VIX Futures Term Structure 2/12/18 26 2
Slide 7: 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 • Leading-edge technology • Seamless solutions 7
Slide 8: Product Innovation - Celebrating 25 Years of VIX
Product Innovation - Celebrating 25 Years of VIX April 2018 marked the 25th anniversary of the introduction of the Cboe Volatility Index® Began disseminating the new Cboe One-Year Volatility Index (ticker: VIX1Y) in April 2018 • Designed to monitor the market’s expectations for longer-term volatilit
Slide 9: 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 Oct. 7, 2019 • Planned Cboe Options May 14, 2018 technology migration¹ Apr. 30, 2018 • Planned C2 migration to Bats Feb. 25, 2018 • M
Slide 10: Providing Trading Solutions for the Post-MiFID II Landscape
Providing Trading Solutions for the Post-MiFID II Landscape Diversifying our European business model post MiFID II Rapid adoption of our Periodic Auctions book • Record volumes since MiFID II in effect • Lit order book provides pre-trade transparency, true price formation process • Not subject to th
Slide 11: Excited About Opportunities Ahead
Excited About Opportunities Ahead Laying the Groundwork for Future Growth Launching new products Expanding our global reach across asset classes Migrating exchanges to Bats technology 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 Strong growth from both transaction and non-transaction fees Expense discipline and expense synergies Demonstrated strong operating leverage and earnings growth Combined Net Revenue¹ up 24% Organic Net Revenue
Slide 14: 1Q18 Options Combined Net Revenue Up 24%
1Q18 Options Combined Net Revenue Up 24% Revenue increase driven by higher transaction fees, offset somewhat by lower regulatory fees and higher royalty payments Options Combined Statistics 1Q18 1Q17 Change ($ in millions, except RPC) Options Combined Net Revenue $167.1 $135.1¹ 24% Key Operating Sta
Slide 15: 1Q18 Futures Net Revenue Up 47%
1Q18 Futures Net Revenue Up 47%; Driven by Record ADV for VIX Futures Revenue increase driven by transaction fees, reflecting record ADV, offset somewhat by a decrease in RPC RPC decrease primarily due to higher volume-based incentives Futures Statistics 1Q18 1Q17 Change Futures Net Revenue (in mill
Slide 16: U.S. Equities Combined Net Revenue Up 10%
U.S. Equities Combined Net Revenue Up 10% Increase in volatility lifted trading volumes in 1Q18 Increase in SIP market data revenue primarily driven by audit recoveries Proprietary market data increase primarily due to pricing changes Expect downward pressure on full-year SIP market data revenue due
Slide 17: European Equities Combined Net Revenue Up 37%
European Equities Combined Net Revenue Up 37% Net revenue increase primarily due to growth in net transaction fees and a benefit from foreign currency translation Net revenue up a healthy 18% on local currency basis Net transaction fees reflect increase in net capture • Delay in implementation of da
Slide 18: Global FX Combined Net Revenue Up 35%
Global FX Combined Net Revenue Up 35% First quarter marked a high point for both market share and ADNV traded Growth driven by increased volume on both New York and London matching engines, with London volume up threefold Favorable macro environmental factors contributed to growth, in addition to te
Slide 19: Adjusted Combined Operating Expenses Up 3%
Adjusted Combined Operating Expenses Up 3%; Primarily Reflects Higher Performance-Based Expenses 1Q18 vs 1Q17: Compensation and benefits up due to increase in incentive-based compensation • Incentive-based compensation driven by and aligned with financial and operational performance • Accelerated st
Slide 20: Increased Run-Rate Expense Synergy Target to $85MM
Increased Run-Rate Expense Synergy Target to $85MM; Expect to Reach in 2020, A Year Ahead of Plan Realized $3 million of pre-tax expense synergies in 1Q18 Raised run-rate expense synergy target to $85 million from $65 million Expect to reach run-rate expense synergies in 2020, one year ahead of init
Slide 21: 2018 Full-Year Guidance
2018 Full-Year Guidance 2018 Full-Year Guidance Guidance as of ($ in millions) May 4, 2018¹ Previous Guidance Adjusted combined operating expenses² $420 to $428 $420 to $428 Depreciation and amortization (excluding $53 to $58 $53 to $58 amortization of acquired intangible assets) Capital expenditure
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 • Returned ~$31 million in dividends and ~$44 million in share repurchases i
Slide 23: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives Growth Footnotes of Core applied here • Focused on growing proprietary products Proprietary Products • Generated strong organic revenue growth Diversification and Stabilization of Revenue • Strong growth in diverse set of reve
Slide 24: Questions & Answers
Cboe’ Global Markets 24
Slide 25: Appendix Materials
Appendix Materials 25
Slide 26: 1Q18 Financial Overview
1Q18 Financial Overview Adjusted Combined Financial Results¹ 1Q18 1Q17 % Chg ($ in millions, except per share) Net Revenue¹,² $328.5 $265.3 24% Adjusted Operating Expenses¹ 109.9 106.3 3% Adjusted Operating Income¹ $218.6 $159.0 37% Adjusted Operating Margin¹ 66.5% 59.9% 660 bps Adjusted Net Income
Slide 27: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue 1Q18 net transaction fees up 36%; non-transaction revenue up 7% Adjusted Combined Net Revenue¹ 1Q18 1Q17 % Chg (in millions) Net transaction fees $233.9 $172.6 36% Access fees 28.6 29.7 -4% Exchange services and other fees
Slide 28: Supplemental Segment Information
Supplemental Segment Information 1Q18 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees² $144.7 $21.5 $38.8 $15.9 $13.0 $233.9 Access fees $13.5 $11.7 $0.3 $2.2 $0.9 $28.6 Exchange services and other fees $10.1 $6.
Slide 29: Revenue Growth
Revenue Growth Proprietary Products - Key Driver of 1Q18 Revenue Growth Grew Mix of Proprietary Products as Percentage of Total Net Transaction Fees 51.9% 47.6% 68.4% 63.6% 14.9% 16.5% 31.6% 37.5% 1Q18 1Q17 Non-proprietary Futures Index options 29
Slide 30: Continued to Grow CFE User Accounts
Continued to Grow CFE User Accounts Unique CFE User Accounts 7,000 6,500 6,350 11% Growth 6,000 5,706 27% Growth 5,500 5,000 4,495 4,500 4,000 3,500 3,000 Q4 2015 Q4 2017 1Q18 Source: Cboe 30
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-GA
Slide 33: Non-GAAP Information
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 Segment Net Revenues (in millions) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 Options $ 128.9 $ 126.7 $ 130.7 $ 130.0 $ 516.3 $ 167.1 U.S. Equities 25.5 74.4 70.2 69.0 239.1 79.7 Futures 28.8 36.2 38.9 35.6 139.5 42.3 European Equities 6.1 18.5 18.4 18.8 61.8 24.6 Global FX
Slide 35: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended March 31, 2018 U.S. European (in millions) Options Equities Futures Equities Global FX Total Reconciliation of Net Transaction Fees by Segment Transaction fees $ 235.8 $ 233.8 $ 38.8 $ 25.7 $ 13.0 $ 547
Slide 36: Non-GAAP Information
Non-GAAP Information Reconciliation of Net Transaction Fees (in millions) Consolidated Options Segment 1Q18 1Q17 1Q18 1Q17 Transaction fees $ 547.1 $ 256.4 $ 235.8 $ 140.2 Liquidity payments (302.9) (105.3) (87.6) (35.8) Routing and clearing (10.3) (6.3) (3.5) (3.5) Net transaction fees $ 233.9 $ 14
Slide 37: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q17 2Q17 3Q17 4Q17 2017 1Q18 Reconciliation of Net Income Allocated to Common Stockholders to Non-GAAP Net income allocated to common stockholders $ 15.1 $ 67.3 $ 59.7 $ 254.6 $ 396.7 $ 117.3 Compensation and benefits (1) 9.1 — — — 9.1 —
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
Non-GAAP Information (see slide 40 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 adj
Slide 40: Non-GAAP Information - Footnotes
Non-GAAP Information - Footnotes for table on slide 39 (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 Janua
Slide 41: Non-GAAP Information
Non-GAAP Information Adjusted Combined Debt to EBITDA - Trailing Twelve Months ¹ (in millions) 2Q17 3Q17 4Q17 1Q18 LTM Combined net income allocated to common stockholders $ 67.3 $ 59.7 $ 254.6 $ 117.3 $ 498.9 Interest 12.5 10.5 10.4 9.6 43.0 Income tax provision 38.1 45.6 (153.0) 41.3 (28.0) Deprec
Slide 42: Cboe Global Markets
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 42