Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q3 2017 Earnings Presentation
51 slides from Cboe Global Markets's earnings presentation, Nov 7, 2017
Slide 1: Third Quarter 2017 Earnings Presentation
Third Quarter 2017 Earnings Presentation November 7, 2017
Slide 2: Agenda
Agenda Strategic Review Edward Tilly Chairman and Chief Executive Officer Financial Review Alan Dean Executive Vice President, CFO and Treasurer Brian Schell Deputy CFO Questions and Answers Edward Tilly Alan Dean Brian Schell Chris Concannon President and Chief Operating Officer John Deters Chief S
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
Slide 5: Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings
Growth in Proprietary Index Suite Continued to Drive Revenue and Earnings Users find utility trading VIX Index options and futures, regardless of the VIX level 3Q17 adjusted diluted EPS of $0.89 on net revenue of $270 million Continued growth in proprietary index products fueled 3Q17 results VIX Ind
Slide 6: Diversified Product Offering
Strengthening our Position as a Leading Global Exchange Operator • 11% increase in ADV for 3Q17 versus 3Q16 Options • 26% increase in ADV for Index options • Record quarterly ADV in VIX index options Diversified Product Offering • Market share of 19.2% vs 20.8% in 3Q16 U.S. Equities • Lower volatili
Slide 7: 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 3Q17 Highlights: 234 • Added 23 new ETF launches 137 • iShares transferred 30 ETFs to Cboe 56 YTD through Sep
Slide 8: Rebranding Unveiled: Cboe Global Markets
Rebranding Unveiled: Cboe Global Markets Our mission: Powering potential to stay ahead of an evolving global marketplace “This change signals how we have greatly expanded beyond our options heritage to a business with multiple asset classes and a much larger global footprint to serve customers and d
Slide 9: Committed to Driving Growth Through Product Innovation
Committed to Driving Growth Through Product Innovation Plan to launch options on 10 S&P Select Sector Indices Provides exposure to widely followed U.S. equity sectors Expected to appeal to European investors seeking targeted exposure to key U.S. equity benchmarks Plan to launch by year end Index Nam
Slide 10: 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; Launching new index platform Working closely with customers to achieve seamless technology migrations CFE migration on track for February 25, 2018 Implementation of new ind
Slide 11: Leading-Edge, State-of-the-Art Technology
Leading-Edge, State-of-the-Art Technology Acquired assets of Silexx, developer and operator of a multi-asset order and execution management system Caters to institutional customers throughout the U.S. Platform supports equities, options and futures trading Provides access to more than 40 global mark
Slide 12: Providing Seamless Trading Solutions in Preparation for MiFID II
Providing Seamless Trading Solutions in Preparation for MiFID II; Focus on Operational Readiness Operational readiness • Allow customers ample time for testing • Completed fourth and final software release Providing value-added products and services • Cboe LIS - block trading platform that leverages
Slide 13: Seamless Trading Solutions: Customer Education and Collaboration
Seamless Trading Solutions: Customer Education and Collaboration Record attendance at sixth annual Cboe Risk Management Conference Europe 2017 Held just outside of London from September 11-13 Included team members from Cboe’s new product lines, including FX products and European Equities Attracts so
Slide 14: Cboe: Powering Your Potential
Cboe . e = 4 ——, POWERING YOUR POTENTIAL * Product Innovation % Leading-Edge Technology * Seamless Solutions Options Futures U.S. & European Equities ETPs FX Volatility 14
Slide 15: Financial Overview
Financial Overview Alan Dean EVP, CFO and Treasurer
Slide 16: 3Q17 Financial Overview
3Q17 Financial Overview Adjusted Combined Financial Results¹ 3Q17 3Q16 $ Change % Change ($ in millions, except per share) Net Revenue¹,² $269.7 $245.0 $24.7 10% Adjusted Operating Expenses¹ 101.9 103.4 -1.5 -2% Adjusted Operating Income¹ $167.8 $141.6 $26.2 19% Adjusted Operating Margin¹ 62.2% 57.8
Slide 17: Financial Review
Financial Review Brian Schell Deputy CFO
Slide 18: Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue
Net Revenue Growth Supported by Both Transaction and Non-Transaction Revenue Net transaction fees up 14%; non-transaction revenue up 5% Net transaction fee increase driven by Adjusted Combined growth in proprietary index products Net Revenue¹ 3Q17 3Q16 % Chg (in millions) Exchange services and other
Slide 19: Diversified Product Offering
Strengthening our Position as a Leading Global Exchange Operator Adjusted Combined Net Revenue1 $269.7* • 10% increase in net revenue Options • 11% increase in ADV ; 5% increase in RPC $245.0 Diversified Product Offering • 1% decline in net revenue $130.7 U.S. Equities • Lower volatility; Industry A
Slide 20: Options Combined Net Revenue Up 10%
Options Combined Net Revenue Up 10% Record quarterly ADV in VIX Index options Net transaction fees up 15% primarily driven by higher ADV in index options Growth in market data revenue primarily due to rise in market share Options Combined Statistics 3Q17 3Q16 ($ in millions, except RPC) Actual Actua
Slide 21: Futures Net Revenue Up 37%
Futures Net Revenue Up 37% VIX futures set second consecutive quarter of record ADV 36% increase in ADV in 3Q17 vs 3Q16 3% increase in RPC in 3Q17 vs 3Q16 • RPC increase primarily due to fee changes implemented in January 2017 Futures Statistics 3Q17 3Q16 Actual Actual Change Futures Net Revenue (in
Slide 22: Proprietary Products Drove 15% Organic Revenue Growth
Proprietary Products Drove 15% Organic Revenue Growth Cboe Organic Revenue¹ Mix of Proprietary Products to Total Quarterly Y-O-Y Growth Rate Net Combined Transaction Fees 3Q17 15.0% 48.4% 47.0% 68.8% 63.9% 20.4% 16.9% 2Q17 5% 31.2% 36.1% 1Q17 8% 3Q17 3Q16 Non-proprietary Futures Index options ¹See A
Slide 23: U.S. Equities Combined Net Revenue Down 1%
U.S. Equities Combined Net Revenue Down 1% Low volatility environment dampened trading volumes Increase in non-transaction revenue nearly offset decline in net transaction fees Growth in market data fees driven by both pricing changes and expanded usage Continued growth in ETF listings and market sh
Slide 24: European Equities Combined Net Revenue Up 16%
European Equities Combined Net Revenue Up 16% Revenue increase reflects growth in net transactions fees and non- transaction fees Growth in net transaction fees driven by increase in net capture, offset somewhat by lower market share Increase in non-transaction revenue primarily driven by pricing ch
Slide 25: Global FX Combined Net Revenue Up 9%
Global FX Combined Net Revenue Up 9% Continued momentum in growing transaction and non-transaction revenue Net revenue growth driven by 9% increase in net transaction fees Cboe FX market share of 12.9% matched high reached in 1Q17 Global FX Combined Statistics 3Q17 3Q16 Change Global FX Net Revenue
Slide 26: Adjusted Combined Operating Expenses Down 2%
Adjusted Combined Operating Expenses Down 2% Favorable expense variances primarily Adjusted Combined driven by expense synergies: Operating Expenses¹ 3Q17 3Q16 % Chg (in millions) Compensation and benefits down Compensation and by $1.5MM benefits $50.4 $51.9 -3% Depreciation and Professional fees an
Slide 27: Realization of Year 1 Cost Synergies Running Ahead of Initial Projections
Realization of Year 1 Cost Synergies Running Ahead of Initial Projections Increasing targeted annualized GAAP Targeted Run-Rate Cost Synergies as of run rate synergies to $30MM for 2017 September 30, 2017 (in millions) $65 $60 Incremental year 1 run-rate cost $50 synergies primarily a result of bett
Slide 28: Updating 2017 Full-Year Guidance
Updating 2017 Full-Year Guidance Updated 2017 Adjusted Previous 2017 2016 Adjusted As of November 7, 2017 Combined Full-Year Adjusted Combined Combined ($ in millions) Guidance Full-Year Guidance Comparison $415 to $423 Adjusted combined operating $413 to $415 (expect to be at low end $417¹ expenses
Slide 29: 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 $100 million in 3Q17; $325 million YTD Return capital through dividends Maintain an opportunistic approa
Slide 30: 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 31: Questions & Answers
Cboe’ Global Markets 31
Slide 32: Appendix Materials
Appendix Materials 32
Slide 33: Focused on Growing Higher-Margin Proprietary Index Options
Focused on Growing Higher-Margin Proprietary Index Options S&P 500 Index (SPX) Options, the SPX Options ADV* by Year most actively traded U.S. index option (in thousands) 1,119 1,024 SPX Index options ADV up 12% YTD¹ 823 888 939 698 VIX Index options ADV up 22% YTD¹ • Reached new single-day trading
Slide 34: Futures – Home of VIX Futures Trading
Futures – Home of VIX Futures Trading VIX futures trades nearly 24X5 VIX Futures ADVVIX Options (in thousands) 297 VIX futures ADV up 24% YTD¹ versus same 239 period last year 200 205 159 Achieved second consecutive quarterly ADV 95 record in 3Q17 Trading in non-U.S. hours accounts for 2012 2013 201
Slide 35: Supplemental Segment Information
Supplemental Segment Information 3Q17 Supplemental Net U.S. European Global Revenue by Segment Options Futures Total¹ Equities Equities FX (in millions) Net transaction fees $105.0 $17.0 $36.6 $11.1 $9.9 $179.6 Access fees $14.4 $12.5 $0.4 $2.0 $0.8 $30.1 Exchange services and other fees $10.0 $5.7
Slide 36: Non-GAAP Information
Non-GAAP Information 36
Slide 37: 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 38: Non-GAAP Information
Non-GAAP Information Reconciliation of Supplemental Combined Net Revenue by Segment for Options Three months ended September 30, 2016 (in millions) CBOE Bats Historical Historical Combined Net transaction fees $84.8 $6.4 $91.2 Access fees $13.0 $2.1 $15.1 Exchange services and other fees $9.5 --- $9
Slide 39: Non-GAAP Information
Non-GAAP Information Table 1 Third Quarter Results 3Q17 3Q16 Adjusted ($ in millions except per share) 3Q17 3Q16 Change Adjusted1 Combined1 Change Total Revenue Less Cost of Revenue $ 269.7 $ 136.2 98% $ 269.7 $ 245.0 10% Total Operating Expenses $ 150.4 $ 70.4 114% $ 101.9 $ 103.4 -2% Operating Inc
Slide 40: Non-GAAP Information
Non-GAAP Information Table 2 Revenue Less Cost of Revenue by Business Segment 3Q16 (in millions) 3Q17 3Q16 Change Combined Change Options¹ $ 130.7 $ 107.8 21% $ 119.2 10% U.S. Equities 70.2 - - 71.1 -1% Futures 38.9 28.4 37% 28.4 37% European Equities 18.4 - - 15.9 16% Global FX 11.3 - - 10.4 9% Cor
Slide 41: Non-GAAP Information (see footnotes on slide 46)
Non-GAAP Information (see footnotes on slide 46) Reconciliation of GAAP and non-GAAP Information The information below shows the reconciliation of each financial measure from GAAP to non-GAAP. The non-GAAP financial measures exclude the impact of those items detailed below and are referred to as adj
Slide 42: 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 43: Non-GAAP Information
Non-GAAP Information Table 5 September 30, September 30, (in millions) 2017 2016 2017 2016 Reconciliation of Net Income Allocated to Common Stockholders to EBITDA and Adjusted EBITDA (Per Table 1) Net income allocated to common stockholders $ 59.7 $ 40.3 $ 142.1 $ 140.0 Interest 10.5 0.2 30.9 0.2 In
Slide 44: Non-GAAP Information
Non-GAAP Information The following 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 September 30, 2016 have been p
Slide 45: Non-GAAP Information (see footnotes on slide 46)
Non-GAAP Information (see footnotes on slide 46) Three months ended September 30, 2016 - Table 7 Cboe Bats Combined Non-GAAP Adjusted (in millions, except per share amounts) Historical Historical¹ Adjustments Combined Adjustments Combined Revenues $ 168.7 $ 441.6 $ 610.3 $ 610.3 Cost of revenues 32.
Slide 46: Non-GAAP Information
Non-GAAP Information Table 4 Footnotes: (1) For the third quarter of 2016, this amount includes $0.2 million for accelerated stock-based compensation expenses. For the nine months ended September 30, 2017, this amount includes $9.1 million for accelerated stock-based compensation expense. For the ni
Slide 47: Non-GAAP Information
Non-GAAP Information Adjusted Combined Debt to EBITDA - Trailing Twelve Months (TTM) - Table 8 1 LTM Ended ($ in millions) 4Q16 1Q17 2Q17 3Q17 9/30/17 Combined net income allocated to common stockholders $ 60.3 $ 73.0 $ 67.3 $ 59.7 $ 260.3 Interest 12.1 12.0 12.5 10.5 47.1 Income tax provision 35.3
Slide 48: Non-GAAP Information
Non-GAAP Information Three months ended December 31, 2016 - Table 9 Cboe Bats Combined Footnote Non-GAAP Adjusted (in millions, except per share amounts) Historical Historical¹ Adjustments Reference Combined Adjustments Foot-note Combined Revenues $190.8 $315.6 $506.4 $506.4 Cost of revenues 47.8 34
Slide 49: Non-GAAP Information
Non-GAAP Information Adjusted Combined Operating Expenses for the Year Ended December 31, 2016 - Table 10 Adjusted Combined for Cboe Bats Footnote Non-GAAP Foot- the Year-Ended (in millions) Historical Historical¹ Adjustments Reference Combined Adjustments note December 31, 2016 Operating expenses:
Slide 50: 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 51: Cboe Global Markets, 400 South LaSalle Street, Chicago
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 51