10-QPeriod: Q2 FY2017

Cboe Global Markets, Inc. Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 4, 2017For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported a significant increase in total revenues for the three and six months ended June 30, 2017, primarily driven by the acquisition of Bats Global Markets, Inc. on February 28, 2017. This strategic acquisition has reshaped the company's financial profile, substantially increasing its asset base and expanding its operational segments to include Options, U.S. Equities, Futures, European Equities, and Global FX. While revenues saw a substantial uplift, operating expenses also increased significantly, largely due to integration costs and amortization related to the Bats acquisition. Despite these integration-related cost increases, the company demonstrated resilience, with net income allocated to common stockholders increasing by 32.7% for the quarter and decreasing by 17.4% for the year-to-date period, reflecting the ongoing integration and the inherent volatility of the financial markets. The balance sheet reflects the impact of the Bats acquisition, with total assets growing from $476.7 million at the end of 2016 to $5,395.6 million by June 30, 2017. This growth is largely attributable to significant increases in goodwill and intangible assets, reflecting the acquisition's scale. The company also incurred substantial long-term debt to finance the acquisition. Despite the increased leverage, CBOE appears to be managing its financial position effectively, as indicated by its compliance with debt covenants and sufficient liquidity to meet its near-term obligations.

Financial Highlights

56 data points
Beta

Revenue

$640.80M

41.7% Gross Margin

Net Income

$67.30M

10.5% Net Margin

EPS (Diluted)

$0.60

Total Assets

$5.40B

Cash & Equivalents

$148.60M

Free Cash Flow

$178.00M

Financial Statements
Beta
Revenue$640.80M
Cost of Revenue$373.90M
Gross Profit$266.90M
Operating Expenses$149.10M
Operating Income$117.80M
Interest Expense$12.50M
Net Income$67.30M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)112.10M
Shares Outstanding (Diluted)112.50M

Key Highlights

  • 1Significant revenue growth driven by the acquisition of Bats Global Markets, Inc., which closed on February 28, 2017.
  • 2Total assets increased dramatically from $476.7 million to $5,395.6 million due to the acquisition, with substantial increases in goodwill and intangible assets.
  • 3Long-term debt increased from $0 to $1,411.3 million to finance the acquisition.
  • 4Operating income for the three months increased by 51.0% to $117.8 million, while for the six months, it decreased by 8.6% to $143.9 million, reflecting acquisition-related costs.
  • 5Net income allocated to common stockholders increased by 32.7% to $67.3 million for the quarter, but decreased by 17.4% to $82.4 million for the six-month period, largely impacted by integration costs and financing expenses.
  • 6The company now operates across five distinct business segments: Options, U.S. Equities, Futures, European Equities, and Global FX, a strategic shift post-acquisition.
  • 7The company maintained compliance with its debt covenants and reported adequate liquidity to meet its near-term obligations.

Frequently Asked Questions

The primary driver was the acquisition of Bats Global Markets, Inc., which was completed on February 28, 2017. This acquisition significantly expanded Cboe's scale, product offerings, and geographic reach, leading to a substantial increase in reported revenues and total assets.

The acquisition was largely financed through debt. Cboe incurred $1,411.3 million in long-term debt by June 30, 2017, including a $1.0 billion term loan and significant senior notes issuances, compared to no long-term debt at the end of 2016. This significantly increased the company's leverage but was managed to remain compliant with debt covenants.

For the three months ended June 30, 2017, Cboe showed strong top-line growth with revenues increasing by 270.2% year-over-year and operating income rising by 51.0%. Net income allocated to common stockholders also saw a healthy increase of 32.7%. However, for the six-month period, while revenues grew substantially (190.2%), net income allocated to common stockholders declined by 17.4% year-over-year, primarily due to higher operating expenses and acquisition-related costs during the integration period.

Following the Bats acquisition, Cboe restructured its reporting to reflect five distinct business segments: Options, U.S. Equities, Futures, European Equities, and Global FX. This reflects a more diversified operational footprint across various asset classes and geographies.