10-KPeriod: FY2016

Cboe Global Markets, Inc. Annual Report, Year Ended Dec 31, 2016

Filed February 21, 2017For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported its 2016 performance, highlighting stable operating revenues and a significant strategic move with the announcement of its pending merger with Bats Global Markets, Inc. The company's core business of operating options and futures exchanges remains robust, with transaction fees being the primary revenue driver. The exclusive licensing of key index products, such as S&P 500 and VIX options and futures, continues to be a cornerstone of CBOE's financial performance. The most impactful development for investors is the pending acquisition of Bats, expected to close in early 2017. This merger is positioned to expand CBOE's product offerings, geographic reach, and potentially enhance its non-transactional revenue streams. The company has secured significant financing to facilitate this transaction. While the merger presents growth opportunities, it also introduces integration complexities and associated costs, which were noted in the filing.

Financial Highlights

53 data points
Beta

Revenue

$703.10M

80.6% Gross Margin

Net Income

$185.70M

26.4% Net Margin

EPS (Diluted)

$2.27

Total Assets

$476.70M

Cash & Equivalents

$97.30M

Free Cash Flow

$185.20M

Financial Statements
Beta
Revenue$703.10M
Cost of Revenue$136.70M
Gross Profit$566.40M
Operating Expenses$268.20M
Operating Income$298.20M
Interest Expense$5.70M
Net Income$185.70M
EPS (Basic)$2.27
EPS (Diluted)$2.27
Shares Outstanding (Basic)81.40M
Shares Outstanding (Diluted)81.40M

Key Highlights

  • 1Cboe Global Markets announced a pending merger with Bats Global Markets, Inc., with an expected closing date of February 28, 2017, signaling a significant strategic expansion.
  • 2Transaction fees remain the primary revenue source, accounting for approximately 70.5% of total operating revenues in 2016.
  • 3Proprietary products, particularly index options and futures like those based on the VIX and S&P 500, are critical to revenue, with these categories representing 88.2% of transaction fees.
  • 4The company experienced a slight increase in total operating revenues to $656.9 million in 2016, driven by growth in transaction, market data, and regulatory fees.
  • 5Operating expenses rose by 14% to $358.7 million, primarily due to acquisition-related costs and increased compensation and royalty fees.
  • 6CBOE's market share in U.S. exchange-traded options was 27.7% in 2016.
  • 7The company continued to pay quarterly dividends, reflecting a commitment to returning capital to shareholders.

Frequently Asked Questions

The most significant strategic development is the announced merger with Bats Global Markets, Inc., which was expected to close shortly after the filing date (February 28, 2017). This merger was aimed at expanding Cboe's product offerings, geographic presence, and operational capabilities.

The primary driver of Cboe's revenue is transaction fees, which are generated from the trading of options and futures contracts on its exchanges. Proprietary products, particularly index options and futures, contribute a substantial portion of these fees.

In 2016, Cboe saw a slight increase in operating revenues to $656.9 million from $634.5 million in 2015. However, operating income decreased to $298.2 million from $319.9 million, mainly due to a significant rise in operating expenses, particularly acquisition-related costs and increased compensation and royalty fees.

Exclusive licenses, particularly for index options and futures on products like the S&P 500 and VIX, are crucial for Cboe's business. These exclusive rights allow the company to differentiate its offerings and capture a larger share of transaction fee revenue, as these products represent a significant portion of its overall trading volume and fees.