01—Abstract
Summary
Summary of the 10-Q filed May 11, 2017. Cited figures are marked; the original filing is the authoritative source.
Cboe Global Markets, Inc. (CBOE) reported its first quarterly results following the significant acquisition of Bats Global Markets, Inc. The acquisition, completed on February 28, 2017, dramatically reshaped the company's financial profile.
Total revenues surged by 108.9% to $356.2 milliona for the quarter ended March 31, 2017, primarily driven by the inclusion of Bats' operations. This significant revenue increase was accompanied by a substantial rise in the cost of revenues (494.2%) and operating expenses (163.1%), largely due to acquisition-related costs and the integration of Bats. Consequently, operating income and net income saw significant declines compared to the prior year.
Operating income fell to $26.1 millionb from $79.5 million, and net income attributable to common stockholders decreased to $15.1 million from $49.2 million. Diluted earnings per share dropped to $0.16 from $0.60.
Despite the reported net income decline, the company emphasized Adjusted EBITDA, which increased by 35.9% to $125.7 millionc, reflecting a focus on operational performance excluding acquisition-related impacts and other non-recurring items. The balance sheet shows a dramatic increase in total assets to $5,345.1 million, largely due to goodwill and intangible assets recognized from the Bats acquisition, and a significant increase in long-term debt to $1,486.7 million to fund the transaction.
02—Key points
Key Highlights
- The acquisition of Bats Global Markets, Inc. on February 28, 2017, dramatically impacted the company's financial results, nearly doubling total revenues to $356.2 million for the quarter.
- Operating income decreased significantly to $26.1 million from $79.5 million year-over-year, impacted by acquisition-related costs and increased operating expenses.
- Net income attributable to common stockholders fell to $15.1 million ($0.16 per share) from $49.2 million ($0.60 per share) in the prior year period.
- Adjusted EBITDA, a non-GAAP measure excluding acquisition-related costs and other items, increased by 35.9% to $125.7 million, indicating underlying operational strength post-acquisition.
- Total assets grew substantially to $5,345.1 million from $476.7 million, reflecting the integration of Bats' assets, particularly goodwill and intangible assets.
- Long-term debt increased significantly to $1,486.7 million from nil, primarily to finance the cash component of the Bats acquisition.
- The company reorganized into five reportable segments: Options, U.S. Equities, Futures, European Equities, and Global FX, following the Bats acquisition.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2017, Cboe Global Markets, Inc. kept $0.04.
- Revenue$356.2M100.0%
- Cost of revenue−$162.8M45.7%
- Gross profit$193.4M54.3%
- Operating costs−$167.3M47.0%
- Operating income$26.1M7.3%
- Interest, other & tax−$11.0M3.1%
- Net income$15.1M4.2%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed May 11, 2017Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $356.20M$170.50M | +108.9% |
| Cost of Revenue | $162.80M$27.40M | +494.2% |
| Gross Profit | $193.40M$143.10M | +35.2% |
| Operating Expenses | $167.30M$63.60M | +163.1% |
| Operating Income | $26.10M$79.50M | −67.2% |
| Interest Expense | $8.50M$0 | — |
| Net Income | $15.10M$49.20M | −69.3% |
| EPS (Basic) | $0.16$0.60 | −73.3% |
| EPS (Diluted) | $0.16$0.60 | −73.3% |
| Shares Outstanding (Basic) | 91.90M81.80M | +12.3% |
| Shares Outstanding (Diluted) | 92.00M81.80M | +12.5% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant revenue increase in this quarter?
The primary driver of the substantial revenue increase was the acquisition of Bats Global Markets, Inc., which was completed on February 28, 2017. This acquisition significantly expanded Cboe's operations and therefore its reported revenues.
Why did net income and earnings per share decrease so sharply despite the revenue increase?
The decrease in net income and EPS was due to significant acquisition-related costs, including fees for advisors, severance, and the impairment of capitalized data processing software, which totaled $65.2 million. Additionally, operating expenses, including compensation and benefits, depreciation, and amortization, increased substantially due to the integration of Bats' operations and the amortization of acquired intangible assets.
How was the Bats acquisition financed, and what is the impact on the company's debt?
The Bats acquisition was financed through a combination of cash, common stock, equity awards, and debt. The company incurred significant new long-term debt, totaling $1,486.7 million as of March 31, 2017, primarily through a $1.0 billion term loan facility and $650 million in senior notes, to fund the cash portion of the acquisition and refinance existing debt.
How has the company's business structure changed following the acquisition?
Following the Bats acquisition, Cboe Global Markets reorganized its reporting structure into five distinct business segments: Options, U.S. Equities, Futures, European Equities, and Global FX. This reflects the expanded product offerings and geographic reach of the combined entity.
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