10-QPeriod: Q2 FY2019

Cboe Global Markets, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 2, 2019For Securities:CBOE

Summary

Cboe Global Markets, Inc. (CBOE) reported its second-quarter 2019 financial results, showcasing a slight increase in net income for the quarter ($84.5 million) compared to the prior year's quarter ($83.0 million), driven by improved revenue less cost of revenues, despite a decline in total revenues. However, for the first six months of 2019, net income saw a decrease to $178.6 million from $201.1 million in the same period of 2018, reflecting lower transaction and regulatory fees, and higher acquisition-related costs. The company's balance sheet shows total assets of $5.2 billion and total equity of $3.3 billion as of June 30, 2019. Cboe experienced a decrease in overall revenue for both the three and six-month periods, largely due to lower transaction and regulatory fees, impacting segments like U.S. Equities and Global FX. The company also reported a goodwill impairment charge of $10.5 million related to its Vest acquisition. Despite revenue headwinds, Cboe demonstrated resilience in its Options segment, which saw increased average daily volume and revenue per contract in the second quarter. The company also managed its operating expenses effectively, particularly in the six-month period, leading to a reduction in total operating expenses. Cboe's liquidity remains strong, with ample cash on hand and availability under its revolving credit facility to meet its financial obligations and fund future initiatives. The company also continues its share repurchase program, signaling confidence in its financial position.

Financial Highlights

54 data points
Beta

Revenue

$620.60M

45.6% Gross Margin

Net Income

$87.60M

14.1% Net Margin

EPS (Diluted)

$0.78

Total Assets

$5.16B

Cash & Equivalents

$161.30M

Free Cash Flow

$186.30M

Financial Statements
Beta
Revenue$620.60M
Cost of Revenue$337.40M
Gross Profit$283.20M
Operating Expenses$158.00M
Operating Income$125.20M
Interest Expense$10.50M
Net Income$87.60M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)111.50M
Shares Outstanding (Diluted)111.60M

Key Highlights

  • 1Net income for the three months ended June 30, 2019, increased to $84.5 million from $83.0 million in the prior year's quarter, while net income for the six months ended June 30, 2019, decreased to $178.6 million from $201.1 million in the prior year.
  • 2Total revenues for both the three-month and six-month periods decreased year-over-year, primarily driven by lower transaction fees and regulatory fees.
  • 3Operating expenses saw a decrease of 7.4% for the six months ended June 30, 2019, compared to the prior year, mainly due to reductions in compensation, benefits, and depreciation/amortization.
  • 4The Options segment showed strength with an increase in average daily volume (ADV) for the second quarter and a slight increase in revenues less cost of revenues.
  • 5The company reported a goodwill impairment charge of $10.5 million in the Corporate and Other segment related to the Vest acquisition.
  • 6Cboe maintained a strong liquidity position, with cash and cash equivalents of $161.3 million and $150 million available under its revolving credit facility as of June 30, 2019.
  • 7The company repaid $300 million of its 1.950% Senior Notes upon maturity in June 2019.

Frequently Asked Questions

Cboe experienced a decrease in total revenues for the three and six months ended June 30, 2019, compared to the same periods in 2018. This decline was primarily attributed to a significant drop in transaction fees and regulatory fees. Specifically, transaction fees were impacted by lower market volumes in European Equities and Global FX, and a decline in market share in U.S. Equities. Regulatory fees were also down due to decreased volumes in U.S. Equities and Options segments.

Despite a slight increase in operating expenses for the three-month period, Cboe achieved a significant reduction in operating expenses by 7.4% for the six-month period ended June 30, 2019. This was mainly due to decreases in compensation and benefits, and depreciation and amortization. The company also incurred acquisition-related costs, including a $10.5 million goodwill impairment charge, which impacted the three-month period's operating expenses.

Cboe maintained a solid financial position. As of June 30, 2019, the company had $161.3 million in cash and cash equivalents. Total debt was $916.6 million, a reduction from the prior year-end due to the repayment of senior notes. Cboe also had $150 million available under its revolving credit facility, indicating sufficient liquidity to meet its obligations and fund operations.

Cboe is involved in several legal proceedings, including a class action lawsuit related to high-frequency trading, a SIFMA denial of access application concerning market data fees, and litigation related to VIX products. While the company believes these claims are without merit and intends to litigate vigorously, the outcomes are uncertain and could potentially impact financial results. The company also faces various risk factors as detailed in its SEC filings, including competition, regulatory changes, and market conditions.