01—Abstract
Summary
Summary of the 10-K filed February 21, 2017. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Cboe 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.
- Transaction fees remain the primary revenue source, accounting for approximately 70.5% of total operating revenues in 2016.
- Proprietary 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.
- The 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.
- Operating expenses rose by 14% to $358.7 million, primarily due to acquisition-related costs and increased compensation and royalty fees.
- CBOE's market share in U.S. exchange-traded options was 27.7% in 2016.
- The company continued to pay quarterly dividends, reflecting a commitment to returning capital to shareholders.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Cboe Global Markets, Inc. kept $0.26.
- Revenue$703.1M100.0%
- Cost of revenue−$136.7M19.4%
- Gross profit$566.4M80.6%
- Operating costs−$268.2M38.1%
- Operating income$298.2M42.4%
- Interest, other & tax−$112.5M16.0%
- Net income$185.7M26.4%
Where FY2016 revenue went
$703.1M- Operating costs: $268.2M, 38% of revenue
- Net income: $185.7M, 26% of revenue
- Cost of revenue: $136.7M, 19% of revenue
- Interest, other & tax: $112.5M, 16% of revenue
Kept 26% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 21, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $703.10M$663.80M | +5.9% |
| Cost of Revenue | $136.70M$102.10M | +33.9% |
| Gross Profit | $566.40M$561.70M | +0.8% |
| Operating Expenses | $268.20M$241.80M | +10.9% |
| Operating Income | $298.20M$319.90M | −6.8% |
| Interest Expense | $5.70M$43K | +13155.8% |
| Net Income | $185.70M$205.00M | −9.4% |
| EPS (Basic) | $2.27$2.46 | −7.7% |
| EPS (Diluted) | $2.27$2.46 | −7.7% |
| Shares Outstanding (Basic) | 81.40M83.10M | −2.0% |
| Shares Outstanding (Diluted) | 81.40M83.10M | −2.0% |
05—Questions
Frequently Asked Questions
What is the most significant strategic development for Cboe Global Markets as of this filing?
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.
What are the main drivers of Cboe's revenue?
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.
How did Cboe's financial performance trend in 2016 compared to 2015?
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.
What is the role of exclusive licenses for Cboe's business?
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.
06—Continue