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Cboe Global Markets Reports 2019 Fourth Quarter and Full Year Results

Fourth Quarter and Full Year Highlights*

- Diluted EPS for the Quarter of $0.77 and the Year of $3.34 , Down 37 Percent and 12 Percent, Respectively

- Adjusted Diluted EPS(1) for the Quarter of $1.21 and the Year of $4.73 , Down 21 Percent and 6 Percent, Respectively

- Net Revenue for the Quarter of $280.3 Million , Down 16 Percent; Down 7 Percent for the Year

- Operating Expenses for the Quarter of $161.1 Million , Up 2 Percent; Down 3 Percent for the Year

- Adjusted Operating Expenses(1) for the Quarter of $95.6 Million , Down 14 Percent; Down 8 Percent for the Year

- EBITDA Margin(1) for the Quarter of 58.7 Percent and the Year of 63.0 Percent; Down 360 bps for the Year

- Adjusted EBITDA Margin(1) for the Quarter of 70.2 Percent and the Year of 69.0 Percent, Down 10 bps for the Year

- Returned $110 Million and $307 Million to Shareholders Through Dividends and Share Repurchases in the Fourth Quarter and Year, Respectively

CHICAGO , Feb. 7, 2020 /PRNewswire/ -- Cboe Global Markets, Inc. (Cboe: CBOE) today reported financial results for the 2019 fourth quarter and full year.

(PRNewsfoto/Cboe Global Markets, Inc.)

"Our fourth quarter results reflect lower year-over-year trading volumes industrywide as lower volatility dampened trading, particularly in our suite of proprietary products, which experienced exceptionally strong trading in 2018's fourth quarter," said Edward T. Tilly , Cboe Global Markets Chairman, President and Chief Executive Officer. "I am pleased to note, however, that in 2019 we significantly strengthened our foundation for further growth by investing in initiatives aimed at growing our proprietary products; completing our technology migration while delivering on our synergy targets; and launching new initiatives, such as our plan to acquire EuroCCP and launch pan-European derivatives trading and clearing.  Additionally, we further enhanced our foundation for growth through this week's acquisitions of Hanweck, a real-time risk analytics company, and FT Options, a portfolio management platform provider.  Our forward momentum leaves us well positioned for ongoing growth and to continue to deliver increased value to our customers and our shareholders in 2020 and beyond," Mr. Tilly added.

"We faced difficult comparisons this quarter versus last year's record fourth quarter results; however, we continued to exercise prudent expense management, with adjusted operating expenses down 14 percent, in line with the fourth quarter revenue decline," said Brian N. Schell , Cboe Global Markets Executive Vice President, Chief Financial Officer and Treasurer.  "During the quarter, we also maintained our ongoing commitment to returning capital to shareholders in a disciplined and consistent manner with $70 million of share repurchases and $40 million of dividends.  During the year, we returned nearly $157 million to shareholders through share repurchases and over $150 million through dividends, increasing our dividend by 15 percent with the third quarter dividend payment, used $350 million to reduce debt and continued to fund investments in our business," Mr. Schell added.

*All comparisons are the fourth quarter or the year ended December 31, 2019, compared to the same period in 2018.

 (1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.

Consolidated Fourth Quarter Results -Table 1
Table 1 below presents summary selected unaudited condensed consolidated financial information for the company as reported and on an adjusted basis for the three months ended December 31, 2019 and 2018.






















Table 1

Consolidated Fourth Quarter Results












4Q19


4Q18



($ in millions except per share data)

4Q19


4Q18

Change


Adjusted 1


Adjusted 1

Change

Total Revenues Less Cost of Revenues


$

280.3



$

334.4


(16)

%


$

280.3



$

334.4


(16)

%

Total Operating Expenses


$

161.1



$

158.0


2

%


$

95.6



$

111.8


(14)

%

Operating Income


$

119.2



$

176.4


(32)

%


$

184.7



$

222.6


(17)

%

Operating Margin % 



42.5

%



52.8

%

NM




65.9

%



66.6

%

(70)

bps

Net Income Allocated to Common Stockholders


$

86.1



$

137.3


(37)

%


$

134.9



$

171.6


(21)

%

Diluted EPS


$

0.77



$

1.23


(37)

%


$

1.21



$

1.54


(21)

%

EBITDA


$

164.6



$

233.4


(29)

%


$

196.7



$

240.2


(18)

%

EBITDA Margin % 



58.7

%



69.8

%

NM




70.2

%



71.8

%

(160)

bps

 

  • Total revenues less cost of revenues (referred to as "net revenue") were $280.3 million , compared to $334.4 million in the prior-year period, reflecting lower trading volumes across business segments, particularly in options and futures in our proprietary index products, including SPX options and VIX options and futures, which had particularly strong trading volume in the fourth quarter of 2018.
  • Total operating expenses were $161.1 million versus $158.0 million in the fourth quarter of 2018. Operating expenses for the fourth quarter of 2019 include a $23.4 million provision for notes receivable, included in other expenses, associated with the funding for the development of the consolidated audit trail ("CAT"). Adjusted operating expenses¹ of $95.6 million decreased 14 percent compared with $111.8 million in the fourth quarter of 2018, primarily reflecting a decrease in compensation and benefits as a result of lower incentive-based compensation.
  • Operating income declined 32 percent to $119.2 million and adjusted operating income¹ decreased by 17 percent to $184.7 million .
  • The operating margin for the fourth quarter was 42.5 percent compared to 52.8 percent in the fourth quarter of 2018. The adjusted operating margin¹ for the fourth quarter was 65.9 percent, down 70 basis points from 2018's fourth quarter, reflecting lower net revenue.
  • The effective tax rate for the fourth quarter of 2019 was 24.4 percent compared with 21.2 percent in the fourth quarter of 2018. The effective tax rate on adjusted earnings¹ in the fourth quarter of 2019 was 24.7 percent compared with 22.1 percent in last year's fourth quarter. The higher effective tax rate for the fourth quarter of 2019 was primarily due to tax benefits associated with re-measuring net deferred tax liabilities recognized in the fourth quarter of 2018.
  • Diluted EPS for the fourth quarter of 2019 was $0.77 , down 37 percent. Adjusted diluted EPS 1 was $1.21 , down 21 percent compared to 2018's fourth-quarter results.

Business Segment Information:












Table 2

Total Revenues Less Cost of Revenues by











Business Segment











(in millions)


4Q19


4Q18

Change

Options


$

139.4


$

174.5



(20)

%

U.S. Equities



75.5



81.5



(7)

%

Futures



30.9



40.4



(24)

%

European Equities



21.6



24.3



(11)

%

Global FX



12.9



13.7



(6)

%

Total


$

280.3


$

334.4



(16)

%


(1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.

Discussion of Results by Business Segment:

Options:

  • Options net revenue of $139.4 million was down $35.1 million or 20 percent from the fourth quarter of 2018, primarily due to lower revenue from net transaction fees 1 , offset somewhat by lower royalty fees and higher market data revenue.
  • Net transaction fees¹ decreased $47.0 million , as total options average daily volume (ADV) decreased 15 percent and revenue per contract (RPC) decreased 20 percent compared to the fourth quarter 2018. The variance in the options RPC was mainly due to multi-listed options representing a higher percentage of options volume. The RPC for multi-listed options decreased 34 percent, primarily due to a shift in volume mix by order type and higher volume rebates versus the fourth quarter of 2018. The RPC for index options increased 2 percent, reflecting a shift in the volume mix by product.
  • Cboe's Options business had market share of 37.4 percent for the fourth quarter of 2019 compared to 38.4 percent in the fourth quarter of 2018, reflecting the lower mix of volume contributed from index options.

U.S. Equities:

  • U.S. Equities net revenue of $75.5 million was down $6.0 million or 7 percent, primarily due to lower revenue from net transaction fees 1 , offset somewhat by higher revenue from non-transaction fees.
  • Cboe U.S. Equities had market share of 16.4 percent for the fourth quarter of 2019 compared to 17.8 percent in the fourth quarter of 2018, due in part to higher volume traded off-exchange and a higher percentage of volume traded in the closing auctions, where Cboe did not compete.

Futures:

  • Futures net revenue of $30.9 million decreased $9.5 million or 24 percent, primarily due to lower net transaction fees 1 .
  • Net transaction fees¹ decreased $10.3 million or 28 percent, reflecting a 33 percent decrease in ADV, offset somewhat by a 6 percent increase in RPC.

European Equities:

  • European Equities net revenue of $21.6 million decreased by 11 percent, reflecting a decline in net transaction fees 1 , offset by an increase in non-transaction revenue. In local currency, net revenue was down 10 percent. Average daily notional value (ADNV) for the overall market was down 25 percent during the quarter and ADNV traded for Cboe Europe was ¬6.5 billion, down 39 percent from last year's fourth quarter, with net capture up 23 percent.
  • For the fourth quarter of 2019, Cboe European Equities had 18.4 percent market share, down from 22.7 percent in the fourth quarter of 2018, primarily a result of off-exchange trading and closing auctions accounting for a larger share of trading, largely driven by low market volume and low volatility.

Global FX:

  • Global FX net revenue of $12.9 million decreased $0.8 million or 6 percent, primarily due to lower net transaction fees 1 compared with the fourth quarter of 2018. ADNV traded on the Cboe FX platform was $30.1 billion for the quarter, down 14 percent from last year's fourth quarter, offset somewhat by a 6 percent increase in net capture per one million dollars traded of $2.80 for fourth quarter 2019 compared to fourth quarter 2018.
  • Cboe FX had record market share of 16.0 percent for the fourth quarter of 2019 compared to 15.3 percent in last year's fourth quarter, primarily reflecting customer adoption of Cboe's new full amount product offering.

 

 (1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.

2020 Fiscal Year Financial Guidance

The company provided guidance as noted below for the 2020 fiscal year.  This guidance does not take into account the company's planned acquisition of EuroCCP and its investment in launching pan-European trading and clearing.  The company plans to update its guidance for 2020 after the acquisition closes, which is expected in the first half of this year.

  • Adjusted operating expenses are expected to be in the range of $435 to $443 million , up from the previous guidance of $420 to $428 million , reflecting the company's recent acquisitions of Hanweck and FT Options, announced February 4, 2020 . The guidance excludes the expected amortization of acquired intangible assets of $120 million , which the company plans to include in its non-GAAP reconciliation.¹
  • Depreciation and amortization expense, which is included in adjusted operating expenses above, are expected to be in the range of $34 to $38 million , excluding the expected amortization of acquired intangible assets of $120 million .
  • The effective tax rate¹ on adjusted earnings for the full year is expected to be in the range of 26.5 to 28.5 percent. Significant changes in trading volume, expenses, federal, state and local tax laws or rates and other items could materially impact this expectation.
  • Capital expenditures are expected to be in the range of $65 to $70 million , which includes expenditures associated with the company's Chicago headquarters relocation occurring later this year and its trading floor relocation planned for 2021.

 

(1) S pecific quantifications of the amounts that would be required to reconcile the company's adjusted operating expenses guidance and the effective tax rate on adjusted earnings guidance are not available. The company believes that there is uncertainty and unpredictability with respect to certain of its GAAP measures, primarily related to acquisition-related expenses that would be required to reconcile to GAAP operating expenses and GAAP effective tax rate, which preclude the company from providing accurate guidance on certain forward-looking GAAP to non-GAAP reconciliations. The company believes that providing estimates of the amounts that would be required to reconcile the range of the company's adjusted operating expenses and the effective tax rate on adjusted earnings would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

Capital Management

The company paid cash dividends of $40.1 million , or $0.36 per share, during the fourth quarter of 2019 and utilized $69.5 million to repurchase 0.6 million shares of its common stock under its share repurchase program at an average price of $115.76 per share.  For the full-year 2019, the company paid cash dividends of $150.0 million , or $1.34 per share, and utilized $156.9 million to repurchase 1.4 million shares of its common stock under its share repurchase program at an average price of $110.42 per share.  In addition, through January 31, 2020 , the company used $26.6 million to repurchase 0.2 million shares at an average price of $117.20 , resulting in approximately $273 million of availability remaining under its share repurchase program as of January 31 , 2020. 

At December 31, 2019 , the company had adjusted cash and financial investments 2 of $207.9 million . Total debt as of December 31, 2019 was $867.6 million .

Earnings Conference Call

Executives of Cboe Global Markets will host a conference call to review its fourth-quarter financial results today, February 7, 2020 , at 8:30 a.m. ET/7:30 a.m. CT. The conference call and any accompanying slides will be publicly available via live webcast from the Investor Relations section of the company's website at www.cboe.com under Events & Presentations. Participants may also listen via telephone by dialing (877) 2554313 from the United States , (866) 4504696 from Canada or (412) 3175466 for international callers. Telephone participants should place calls 10 minutes prior to the start of the call. The webcast will be archived on the company's website for replay. A telephone replay of the earnings call also will be available from approximately 11:00 a.m. CT, February 7, 2020 , through 11:00 p.m. CT, February 14, 2020 , by calling (877) 3447529 from the U.S., (855) 6699658 from Canada or (412) 3170088 for international callers, using replay code 10137501.

(2) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.

About Cboe Global Markets

Cboe Global Markets (Cboe: CBOE) is one of the world's largest exchange holding companies, offering cutting-edge trading and investment solutions to investors around the world. The company is committed to defining markets to benefit its participants and drive the global marketplace forward through product innovation, leading edge technology and seamless trading solutions.

The company offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S. and European equities, exchange-traded products (ETPs), global foreign exchange (FX) and volatility products based on the Cboe Volatility Index (VIX Index), recognized as the world's premier gauge of U.S. equity market volatility.

Cboe's subsidiaries include the largest options exchange and the third largest stock exchange operator in the U.S. In addition, the company operates one of the largest stock exchanges by value traded in Europe and is a leading market globally for ETP listings and trading. 

The company is headquartered in Chicago with a network of domestic and global offices across the Americas, Europe and Asia , including main hubs in New York , London , Kansas City and Amsterdam . For more information, visit www.cboe.com .

Cautionary Statements Regarding Forward-Looking Information

This press release 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 such as "may," "might," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," and the negative of these terms and other comparable terminology. All statements that reflect our expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements.

We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Some factors that could cause actual results to differ include: the loss of our right to exclusively list and trade certain index options and futures products; economic, political and market conditions; compliance with legal and regulatory obligations; price competition and consolidation in our industry; decreases in trading volumes, market data fees or a shift in the mix of products traded on our exchanges; legislative or regulatory changes; our ability to protect our systems and communication networks from security risks, cybersecurity risks, insider threats and unauthorized disclosure of confidential information; increasing competition by foreign and domestic entities; our dependence on and exposure to risk from third parties; fluctuations to currency exchange rates; our index providers' ability to maintain the quality and integrity of their indexes and to perform under our agreements; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to attract and retain skilled management and other personnel, including those experienced with post-acquisition integration; our ability to accommodate trading volume and transaction traffic, including significant increases, without failure or degradation of performance of our systems; misconduct by those who use our markets or our products; challenges to our use of open source software code; our ability to meet our compliance obligations, including managing potential conflicts between our regulatory responsibilities and our for-profit status; damage to our reputation; the ability of our compliance and risk management methods to effectively monitor and manage our risks; our ability to manage our growth and strategic acquisitions or alliances effectively; restrictions imposed by our debt obligations; our ability to maintain an investment grade credit rating; impairment of our goodwill, investments or intangible assets; and the accuracy of our estimates and expectations. More detailed information about factors that may affect our actual results to differ may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2018 and other filings made from time to time with the SEC.

We do not undertake, and we expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The condensed consolidated statements of income and balance sheets are unaudited and subject to reclassification.







Cboe Media Contacts:





Analyst Contact:

Angela Tu


Stacie Fleming



Debbie Koopman

(646) 8568734


442070128950



(312) 7867136

atu@cboe.com


sfleming@cboe.com



dkoopman@cboe.com

CBOE-F

Trademarks:
Cboe®, Cboe Global Markets®, Bats®, BZX®, BYX®, EDGX®, EDGA®, Cboe Volatility Index® and VIX® are registered trademarks of Cboe Global Markets, Inc. and its subsidiaries. All other trademarks and service marks are the property of their respective owners.

...

Cboe Global Markets, Inc.

Key Performance Statistics by Business Segment




4Q 2019


3Q 2019


2Q 2019


1Q 2019


4Q 2018


Options (ADV in thousands)

















Total industry ADV



19,492



19,790



19,274



19,193



22,450


Total company Options ADV



7,297



7,720



7,261



7,063



8,610


Multi-listed options



5,552



5,715



5,329



5,215



6,067


Index options



1,745



2,005



1,932



1,848



2,543


Total Options Market Share



37.4

%


39.0

%


37.7

%


36.8

%


38.4

%

Total Options RPC:


$

0.225


$

0.236


$

0.238


$

0.240


$

0.280


Multi-listed options


$

0.055


$

0.056


$

0.058


$

0.067


$

0.083


Index options


$

0.766


$

0.751


$

0.736


$

0.730


$

0.750



















U.S. Equities

















Total industry ADV (shares in billions)



6.8



6.9



6.9



7.5



8.5


Market share % 



16.4

%


17.2

%


15.7

%


16.0

%


17.8

%

Net capture (per 100 touched shares)


$

0.023


$

0.020


$

0.028


$

0.029


$

0.027



















Futures

















ADV (in thousands)



228



279



257



231



338


RPC


$

1.794


$

1.746


$

1.748


$

1.739


$

1.697



















European Equities

















Total industry ADNV (Euros - in billions)