10-QPeriod: Q1 FY2017

Cboe Global Markets, Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 11, 2017For Securities:CBOE

Summary

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 million 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 million 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 million, 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.

Financial Highlights

55 data points
Beta

Revenue

$356.20M

54.3% Gross Margin

Net Income

$15.10M

4.2% Net Margin

EPS (Diluted)

$0.16

Total Assets

$5.35B

Cash & Equivalents

$153.30M

Free Cash Flow

-$25.10M

Financial Statements
Beta
Revenue$356.20M
Cost of Revenue$162.80M
Gross Profit$193.40M
Operating Expenses$167.30M
Operating Income$26.10M
Interest Expense$8.50M
Net Income$15.10M
EPS (Basic)$0.16
EPS (Diluted)$0.16
Shares Outstanding (Basic)91.90M
Shares Outstanding (Diluted)92.00M

Key Highlights

  • 1The 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.
  • 2Operating income decreased significantly to $26.1 million from $79.5 million year-over-year, impacted by acquisition-related costs and increased operating expenses.
  • 3Net 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.
  • 4Adjusted 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.
  • 5Total assets grew substantially to $5,345.1 million from $476.7 million, reflecting the integration of Bats' assets, particularly goodwill and intangible assets.
  • 6Long-term debt increased significantly to $1,486.7 million from nil, primarily to finance the cash component of the Bats acquisition.
  • 7The company reorganized into five reportable segments: Options, U.S. Equities, Futures, European Equities, and Global FX, following the Bats acquisition.

Frequently Asked Questions

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.

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.

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.

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.