01—Abstract
Summary
Summary of the 10-Q filed November 7, 2017. Cited figures are marked; the original filing is the authoritative source.
Cboe Global Markets, Inc.'s Q3 2017 10-Q filing reflects a transformative period, largely driven by the significant acquisition of Bats Global Markets, Inc. completed in February 2017.
This acquisition has dramatically reshaped the company's financial statements, leading to a substantial increase in total assets, revenues, and operating expenses. While the integration of Bats presents complexities and initial costs, the combined entity is positioned as a larger, more diversified player in the global exchange market, with expanded offerings in U.S. and European equities, futures, and FX. Investors should note the significant growth in revenues, primarily due to the inclusion of Bats' operations, and the corresponding rise in costs, particularly in liquidity payments, depreciation, amortization, and acquisition-related expenses.
Despite these increased costs and the substantial debt taken on to finance the acquisition, the company demonstrated continued operational strength in its core options business, while integrating new segments. The company's focus on innovation and expanding its global reach through strategic acquisitions will be key for future growth.
02—Key points
Key Highlights
- Total Assets surged from $476.7 million at year-end 2016 to $5,228.1 million as of September 30, 2017, largely due to the Bats acquisition.
- Total Revenues for the nine months ended September 30, 2017, more than doubled to $1,608.4 million, up from $512.3 million in the prior year period, driven significantly by the Bats acquisition.
- Operating Income increased to $263.2 million for the nine months ended September 30, 2017, from $223.3 million in the prior year period, indicating resilience in core operations despite integration costs.
- Long-term debt significantly increased to $1,312.4 million from $0 as of December 31, 2016, primarily to finance the Bats acquisition.
- The company has realigned its reporting structure to five business segments: Options, U.S. Equities, Futures, European Equities, and Global FX, reflecting the expanded operations post-Bats acquisition.
- Depreciation and amortization expenses saw a substantial increase, rising from $34.4 million for the nine months ended September 30, 2016, to $136.3 million for the same period in 2017, largely due to the amortization of intangible assets acquired in the Bats merger.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2017, Cboe Global Markets, Inc. kept $0.10.
- Revenue$611.4M100.0%
- Cost of revenue−$341.7M55.9%
- Gross profit$269.7M44.1%
- Operating costs−$150.4M24.6%
- Operating income$119.3M19.5%
- Interest, other & tax−$59.6M9.7%
- Net income$59.7M9.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2017filed November 7, 2017Financial Statements
Q3 FY2017 against Q3 FY2016
| Line item | Q3 FY2017Q3 FY2016 | Change |
|---|---|---|
| Revenue | $611.40M$168.70M | +262.4% |
| Cost of Revenue | $341.70M$32.50M | +951.4% |
| Gross Profit | $269.70M$136.20M | +98.0% |
| Operating Expenses | $150.40M$70.40M | +113.6% |
| Operating Income | $119.30M$65.80M | +81.3% |
| Interest Expense | $11.00M$200K | +5400.0% |
| Net Income | $59.70M$40.50M | +47.4% |
| EPS (Basic) | $0.53$0.50 | +6.0% |
| EPS (Diluted) | $0.53$0.50 | +6.0% |
| Shares Outstanding (Basic) | 112.30M81.30M | +38.1% |
| Shares Outstanding (Diluted) | 112.60M81.30M | +38.5% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant increase in Cboe's assets and revenues during this period?
The primary driver was the acquisition of Bats Global Markets, Inc., which closed on February 28, 2017. This acquisition significantly expanded Cboe's asset base, revenue streams, and operational footprint across various asset classes and geographies.
How did the Bats acquisition impact Cboe's debt levels?
The acquisition was financed partly through debt. As a result, Cboe's long-term debt increased from $0 at December 31, 2016, to $1,312.4 million as of September 30, 2017. This includes a term loan and senior notes issued to fund the transaction.
What is the impact of the Bats acquisition on Cboe's operating expenses?
The acquisition led to a substantial increase in operating expenses. This includes higher compensation and benefits due to additional employees, increased depreciation and amortization from acquired intangible assets, and significant acquisition-related costs such as professional fees and severance. For the nine months ended September 30, 2017, total operating expenses rose to $466.8 million from $200.1 million in the prior year period.
How has Cboe's business segment reporting changed?
Following the Bats acquisition, Cboe reorganized its reporting structure to reflect its expanded operations. It now reports under five segments: Options, U.S. Equities, Futures, European Equities, and Global FX, which is how management reviews and operates the business.
06—Continue