Cboe Global Markets, Inc. · CBOE:CBOE
Cboe Global Markets — Q2 2019 Earnings Presentation
42 slides from Cboe Global Markets's earnings presentation, Aug 2, 2019
Slide 1: Second Quarter 2019 Earnings Presentation
Second Quarter 2019 Earnings Presentation August 2, 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: Second Quarter Net Revenue Flat YOY; Adjusted EPS Up 8%
Second Quarter Net Revenue Flat YOY; Adjusted EPS¹ Up 8% Remain focused on executing on strategic initiatives 2Q19 results primarily reflect: • Higher trading volume in our suite of proprietary products • Flat to lower trading industrywide in U.S. equities, European equities and Global FX Quarterly
Slide 6: Second Quarter Results Reflect a Continuation of Challenging Market Conditions
Second Quarter Results Reflect a Continuation of Challenging Market Conditions Market continued to grind higher through July after a sell off in May Strong index volumes in May offset by slow April and June where traders lacked conviction In July, rising long-term uncertainty has led to a steepening
Slide 7: Changes in VIX Futures Term Structure and Growth in Volatility ETPs
Changes in VIX Futures Term Structure and Growth in Volatility ETPs Presented More Trading Opportunities 42% increase in average AUM in volatility-linked ETPs • Average AUM of $3.7B in 2Q19 vs $2.6B in 1Q19 • Increase driven in part by growth of ETPs based in APAC region, also driving growth in GTH
Slide 8: Focused on Growing Proprietary Product Suite
Focused on Growing Proprietary Product Suite Aligning sales and coverage teams across regions and products U.S. remains largest growth opportunity Exploring new markets U. S. • Asia Insurance • Middle East Companies • Scandinavia Intend to seek jurisdictional Pension approvals: Funds • Italy • Spain
Slide 9: Focused on Growing Proprietary Product Suite: Mini-SPX Options
Focused on Growing Proprietary Product Suite Continued focus on providing solutions for our customers risk management needs Strong growth in mini-SPX (XSP) options • ADV up 119% in 2Q19 versus 1Q19 and up 314% versus 2Q18 • Smaller notional contract provides more risk management granularity • 1/10 t
Slide 10: U.S. Equities
U.S. Equities Cboe EDGX focused on being the destination of choice for retail trading July market share rose above 17%, reflecting impact of pricing changes aimed at attracting more order flow Ready to introduce execution priority to retail limit orders, subject to regulatory approval and customer r
Slide 11: European Equities – Preparing to Operate in a Post-Brexit Environment
European Equities – Preparing to Operate in a Post-Brexit Environment Lighter overall market volumes for European equities in 2Q19 vs 2Q18 Plan to launch our Dutch venue on October 1, with European Economic Area (EEA) stocks available for trading Our UK venue will continue to trade UK, as well as EE
Slide 12: European Equities – Plan to Launch Cboe Closing Cross on August 16
European Equities – Plan to Launch Cboe Closing Cross on August 16 Cboe Closing Cross (C3) expected to bring valuable competition to post-close trading session in Europe Cboe Closing Cross plans to: European Equities Closing Auctions • Serve as a cost-effective, one-stop shop for as a % of All On-Ex
Slide 13: Defining Markets Through Technology
Defining Markets Through Technology Completion of technology migration expected to enhance Cboe’s efficiency and value proposition Final migration of Cboe Options Exchange on schedule for Oct. 7th U.S. Expected benefits of technology migration: Futures Equities • More efficient and user-friendly tra
Slide 14: Laying the Foundation for Future Growth
Laying the Foundation for Future Growth Focused on Pursuing Market Creating Growth Defining Opportunities Initiatives DEFINING Unifying Developing New MARKETS Trading Platform & Products Building Data Platform Expanding Global Reach 14
Slide 15: Financial Overview and Guidance
Financial Overview and Guidance Brian Schell EVP, CFO and Treasurer 15
Slide 16: Business Highlights – Key Performance Drivers
Business Highlights – Key Performance Drivers Higher trading volumes in proprietary products and lower volumes in other business segments and industrywide Net transaction fees¹ down 1%; non-transaction net revenue up 1% Continued expense discipline resulted in solid EBITDA¹ margin performance Index
Slide 17: Grew Recurring Non-Transaction Revenue Streams
Grew Recurring Non-Transaction Revenue Streams Recurring proprietary non-transaction net revenue up 6% in 2Q19 vs 2Q18; up 8% YTD Expect growth in proprietary market Proprietary Market Data and data and access and capacity fees Access and Capacity Fees combined to be mid- to high-single (in millions
Slide 18: Options 2Q19 Net Revenue Up 3%
Options 2Q19 Net Revenue Up 3% 2Q19 revenue increase driven by growth in market data and access and capacity fees RPC variance primarily reflects a mix shift in index options, with mini-SPX accounting for a higher percentage of index volume in 2Q19 versus 2Q18 Non-transaction revenue up 10% Options
Slide 19: Futures 2Q19 Net Revenue Up 4%
Futures 2Q19 Net Revenue Up 4% Revenue increase driven by net transaction fees resulting from higher RPC RPC increase primarily reflects lower volume-based rebates ADV in non-U.S. trading hours (GTH) increased to 13.4% in 2Q19 from 9.5% in 1Q19 and 11% for all of 2018 Futures Statistics 2Q19 2Q18 Ch
Slide 20: U.S. Equities 2Q19 Net Revenue Down 5%
U.S. Equities 2Q19 Net Revenue Down 5% Revenue decline reflects lower volumes and market share offset somewhat by higher net capture and access and capacity fees Decrease in SIP market data revenue due to lower market share and audit recoveries versus 2Q18 U.S. Equities Statistics 2Q19 2Q18 Change N
Slide 21: European Equities 2Q19 Net Revenue Down 4%; Up 1% on Local Currency Basis
European Equities 2Q19 Net Revenue Down 4%; Up 1% on Local Currency Basis Net revenue decrease primarily reflects unfavorable foreign-currency translation On local currency basis, net transaction fees decreased 6% and non-transaction revenue increased 14% Decline in net transaction fees driven by lo
Slide 22: Global FX 2Q19 Net Revenue Down 10%
Global FX 2Q19 Net Revenue Down 10% Revenue decline reflects lower market volume offset somewhat by higher net capture and market share Higher net capture due to the impact of fee changes implemented in 2018 2Q19 2Q18 Change FX Net Revenue (in millions) $13.1 $14.5 -10% Key Operating Statistics: Mar
Slide 23: Acquisition-Related Expenses
Acquisition-Related Expenses 2Q19 acquisition-related expenses included: • An impairment charge of $6.1 million related to Cboe headquarters – Classified Chicago headquarters location as property held for sale – Ceased depreciation on headquarters May 1, 2019 – Plan to relocate headquarters due to a
Slide 24: Adjusted Operating Expenses Down 3%
Adjusted Operating Expenses Down 3% 2Q19 vs 2Q18: Compensation and benefits down due to decrease in incentive-based compensation and equity compensation, offset somewhat by higher expense related to deferred compensation plans Lowering full-year 2019 adjusted operating expense guidance to a range of
Slide 25: Maintaining Expense Synergy Targets
Maintaining Expense Synergy Targets Maintaining 2019 run-rate expense synergy target of $80 million and 2020 target of $85 million Targeted Run-Rate Expense Synergies as of August 2, 2019 (in millions) $85 $80 $57 $50 $33 $15 2017 2018 2019 2020 Prior Projection Actual Target as of Aug '19 25
Slide 26: 2019 Full-Year Guidance
2019 Full-Year Guidance 2019 Full-Year Guidance Guidance as of Guidance as of ($ in millions) May 3, 2019 Aug. 2, 2019 Adjusted operating expenses¹,4 $415 to $423 million $405 to $413 million Depreciation and amortization (excluding $35 to $40 million $35 to $40 million amortization of acquired inta
Slide 27: 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 opportunistic share repurchases - about $35MM in 2Q19 Utilize cash to reduce debt - $300 MM de
Slide 28: Delivering on Sources of Operating Leverage and Key Strategic Initiatives
Delivering on Sources of Operating Leverage and Key Strategic Initiatives While Defining Markets Globally Growth Footnotes of Core applied here • Focused on growing proprietary products Proprietary Products Strengthen Recurring • Growth in recurring revenue Revenue Stream Scale of Business Model • D
Slide 29: Questions & Answers
Cboe’ Global Markets 29
Slide 30: Appendix Materials
Appendix Materials 30
Slide 31: 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 $25 64
Slide 32: Targeted Run-Rate Synergies Realization
Targeted Run-Rate Synergies Realization % of Incremental Run-Rate Actual/Targeted Carryover Total Synergies Cumulative Targeted Run- Increase in Run- Synergies Realized from Prior Realized/Targeted Synergies (in millions) Rate Synergies Rate Each Year Realized/Targeted Synergies Year Run-Rate by Yea
Slide 33: 2Q19 Financial Overview
2Q19 Financial Overview Adjusted Financial Results¹ 2Q19 2Q18 % Chg ($ in millions, except per share) Net Revenue² $283.2 $283.5 -- Adjusted Operating Expenses¹ 103.1 106.1 -3% Adjusted Operating Income¹ $180.1 $177.4 2% Adjusted Operating Margin¹ 63.6% 62.6% 100 bps Adjusted Net Income Allocated to
Slide 34: 2Q19 Net Revenue Detail
2Q19 Net Revenue Detail 2Q19 net transaction fees down 1%; non-transaction net revenue up 1% Net Revenue 2Q19 2Q18 % Chg (in millions) Net transaction fees¹ $181.9 $183.9 -1% Access and capacity fees 54.5 52.2 4% Market data fees 51.8 52.5 -1% Regulatory fees 9.4 8.2 15% Royalty fees (21.9) (22.0) -
Slide 35: Supplemental Segment Information
Supplemental Segment Information 2Q19 Supplemental Net Revenue U.S. European Global Options Futures Total¹ by Segment (in millions) Equities Equities FX Net transaction fees² $109.1 $20.1 $28.3 $13.2 $11.2 $181.9 Proprietary net transaction fees include above $89.7 $28.3 $118.0 Access and capacity f
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-GAA
Slide 38: Reconciliation of Net Transaction Fees by Segment
Non-GAAP Information Reconciliation of Net Transaction Fees by Segment For the Three Months Ended June 30, 2019 U.S. European (in millions) Options Equities Futures Equities Global FX Total Transaction fees $ 185.9 $ 182.0 $ 28.3 $ 19.5 $ 11.2 $ 426.9 Liquidity payments (73.3) (156.2) - (6.3) - (235
Slide 39: Non-GAAP Information
Non-GAAP Information (in millions, except per share amounts) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 Reconciliation of Net Income Allocated to Common Stocholders to Non-GAAP Net income allocated to common stockholders $ 117.3 $ 82.4 $ 85.0 $ 137.3 $ 422.1 $ 94.6 $ 87.6 Acquisition-related expenses (1) 8.
Slide 40: EBITDA Reconciliations
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 41: Adjusted Debt to EBITDA - Trailing Twelve Months
Non-GAAP Information Adjusted Debt to EBITDA - Trailing Twelve Months¹ (in millions) 3Q18 4Q18 1Q19 2Q19 LTM Net income allocated to common stockholders $ 85.0 $ 137.3 $ 94.6 $ 87.6 $ 404.5 Interest expense, net 9.6 9.7 9.9 10.0 39.2 Income tax provision 30.6 37.3 32.6 35.1 135.6 Depreciation and am
Slide 42: Cboe Global Markets, 400 South LaSalle Street, Chicago, IL
Cboe Global Markets 400 South LaSalle Street Chicago, IL 60605 www.cboe.com 42