Cboe Global Markets Reports Results for Second Quarter 2021
07/30/2021 - 07:30 AM
CHICAGO , July 30, 2021 /PRNewswire/ -- Cboe Global Markets, Inc. (Cboe: CBOE) today reported financial results for the second quarter of 2021.
"In the second quarter we achieved strong year-over-year revenue growth driven by robust trading in our proprietary index products and demand for our data and access solutions products. With the closing of our acquisition of Chi-X Asia Pacific on July 1 , we further solidified our strategic vision of building one of the world's largest global derivatives and securities networks. With the addition of Chi-X to the Cboe network, we are eager to leverage our strong ecosystem of proprietary index products and data and access solutions to reach an expanding global network of customers," said Edward T. Tilly , Cboe Global Markets Chairman, President and Chief Executive Officer. "As we look to the second half of 2021, we have a number of attractive growth initiatives underway. We remain on target for our September launch of Cboe Europe Derivatives, further expanding our global derivatives network. Lastly, we remain confident in the outlook for organic revenue growth and are raising our organic growth target for recurring non-transaction revenue. This is an incredibly exciting time at Cboe as years of planning and consistent execution have enabled our strong progress toward our strategic vision. We look forward to delivering enhanced value to our customers and our shareholders, as we continue to expand our global network and broaden access to Cboe's products and services."
"We are pleased to report another quarter of solid financial results and ongoing momentum in executing against our strategic priorities. Our strong cash flow generation allowed us to return nearly $79 million full-year recurring non-transaction organic revenue2 growth target to 12 to 13 percent from 10 to 11 percent to incorporate stronger organic growth. Recurring non-transaction revenue, which includes acquisitions, is now expected to increase by 15 to 16 percent, up from previous guidance of 11 to 12 percent, due to stronger organic growth and the addition of Chi-X. Our full-year expense guidance remains unchanged for 2021. While we will absorb the full impact of the Chi-X acquisition to our expense base in the second half of the year, we expect lower expenses than originally anticipated primarily due to timing changes and delays in filling open roles. Overall, we remain focused on continuing to balance our long-standing disciplined capital allocation priorities to sustainably grow our business while maintaining a strong balance sheet and preserving financial flexibility to further enhance shareholder value."
*All comparisons are second quarter 2021 compared to the same period in 2020. (1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables. (2) Specific quantifications of the amounts that would be required to reconcile the company's organic growth guidance, adjusted operating expenses guidance and the effective tax rate on adjusted earnings guidance are not available. The company believes that there is uncertainty and unpredictability with respect to certain of its GAAP measures, primarily related to acquisition-related revenues and expenses that would be required to reconcile to GAAP revenues less costs of revenues, GAAP operating expenses and GAAP effective tax rate, which preclude the company from providing accurate guidance on certain forward-looking GAAP to non-GAAP reconciliations. The company believes that providing estimates of the amounts that would be required to reconcile the range of the company's organic growth, adjusted operating expenses and the effective tax rate on adjusted earnings would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.
Consolidated Second Quarter Results -Table 1 Table 1 below presents summary selected unaudited condensed consolidated financial information for the company as reported and on an adjusted basis for the three months ended June 30, 2021 and 2020.
Table 1
Consolidated Second Quarter Results
2Q21
2Q20
($ in millions except per share)
2Q21
2Q20
Change
Adjusted1
Adjusted1
Change
Total Revenues Less Cost of Revenues
$
350.6
$
296.9
18
%
$
350.6
$
296.9
18
%
Total Operating Expenses
$
160.6
$
135.2
19
%
$
128.3
$
95.8
34
%
Operating Income
$
190.0
$
161.7
18
%
$
222.3
$
201.1
11
%
Operating Margin %
54.2
%
54.5
%
(0.3)
pp
63.4
%
67.7
%
(4.3)
pp
Net Income Allocated to Common Stockholders
$
105.2
$
113.3
(7)
%
$
147.4
$
143.3
3
%
Diluted EPS
$
0.98
$
1.03
(5)
%
$
1.38
$
1.31
5
%
EBITDA1
$
231.8
$
201.6
15
%
$
233.6
$
211.0
11
%
EBITDA Margin % 1
66.1
%
67.9
%
(1.8)
pp
66.6
%
71.1
%
(4.5)
pp
Total revenues less cost of revenues (referred to as "net revenue") of $350.6 million $296.9 million 1 . Inorganic net revenue1 in the second quarter of 2021 was $22.2 million Total operating expenses were $160.6 million $135.2 million $128.3 million $95.8 million The effective tax rate for the second quarter of 2021 was 41.1 percent compared with 27.5 percent in the second quarter of 2020. The higher effective tax rate in 2021 is primarily due to the remeasurement of UK deferred tax liabilities following the UK tax rate increase from 19 percent to 25 percent enacted during the second quarter and effective April 1, 2023 . The effective tax rate on adjusted earnings1 was 30.1 percent compared with 26.7 percent in last year's second quarter. The higher effective tax rate on adjusted earnings in the second quarter of 2021 was primarily due to increases in uncertain tax positions. Diluted EPS for the second quarter of 2021 decreased 5 percent to $0.98 1 of $1.38 Business Segment Information:
Table 2
Total Revenues Less Cost of Revenues by
Business Segment
(in millions)
2Q21
2Q20
Change
Options
$
178.6
$
150.6
19
%
North American Equities
89.2
90.6
(2)
%
Futures
27.4
20.9
31
%
Europe
41.6
21.1
97
%
Global FX
13.8
13.7
1
%
Total
$
350.6
$
296.9
18
%
(1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.
Discussion of Results by Business Segment:
Options:
Options net revenue of $178.6 million $28.0 million 1 , as a result of higher trading volumes in both index and multi-listed options, as well as increases in access and capacity fees and market data fees. Net transaction and clearing fees¹ increased $20.3 million Cboe's Options business had total market share of 30.4 percent for the second quarter of 2021 compared to 35.2 percent in the second quarter of 2020, primarily reflecting a decrease in Cboe's multi-listed options market share for the quarter of 26.8 percent compared to 31.4 percent in the second quarter of 2020. While market share declined, revenue per contract increased 31 percent year-over-year, reflecting a mix shift in order flow by order and customer type. North American (N.A.) Equities:
N.A. Equities net revenue of $89.2 million $1.4 million $10.0 million The decrease in net transaction and clearing fees primarily reflects a 15 percent decline in U.S. equities industry ADV compared to the second quarter of 2020. Cboe U.S. Equities exchanges had market share of 14.3 percent for the second quarter of 2021 compared to 16.1 percent in the second quarter of 2020. The decrease was primarily due to higher off-exchange trading volume in the second quarter of 2021, averaging 43.3 percent of total market volume compared to 41.8 percent in the second quarter of 2020. Futures:
Futures net revenue of $27.4 million $6.5 million 1 . Net transaction and clearing fees¹ increased $6.4 million Europe :
Europe net revenue of $41.6 million July 2020 , which contributed $11.7 million €7.3 billion , up 16 percent from last year's second quarter, while net capture increased 7 percent, reflecting a shift in the mix of volume by order book type. For the second quarter of 2021, Cboe European Equities had 17.4 percent market share, up from 15.8 percent in the second quarter of 2020, primarily as a result of the positive impact of a liquidity incentive program initiated in May 2020 , as well as successfully re-introducing Swiss securities on Cboe UK order books in February 2021 . Global FX:
Global FX net revenue of $13.8 million $32.5 billion one million dollars traded was $2.71 $2.77 Cboe FX had market share of 16.2 percent for the quarter compared to 16.4 percent in last year's second quarter. (1) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.
2021 Fiscal Year Financial Guidance
The company updated or reaffirmed its guidance for the 2021 fiscal year as noted below. This guidance incorporates the company's acquisition of Chi-X, which closed on July 1, 2021 .
Recurring non-transaction revenue, defined as access and capacity fees plus proprietary market data, is now expected to increase by 15 to 16 percent, from a base of $342 million Revenue from acquisitions held less than a year is now expected to contribute net revenue growth in a range of 5 to 7 percentage points in 2021, up from 4 to 6 percentage points, reflecting the addition of Chi-X on July 1 . Reaffirmed that adjusted operating expenses are expected to be in the range of $531 $539 million $126 2 Depreciation and amortization expense, which is included in adjusted operating expenses above, is now expected to be in the range of $34 $38 million $38 $42 million Reaffirmed that the effective tax rate3 on adjusted earnings for the full year is expected to be in the range of 27.5 to 29.5 percent. The company now expects the adjusted effective tax rate for the full year to be at the higher end of the guidance range, due to the second quarter rate slightly exceeding the range. Significant changes in trading volume, expenses, federal, state and local tax laws or rates and other items could materially impact this expectation. Capital expenditures are now expected to be in the range of $55 $60 million $60 $65 million Capital Management
At June 30, 2021 , the company had adjusted cash3 of $442.6 million June 30, 2021 was $1,298.5 million June 30 compared to December 31, 2020 , includes borrowings used to fund the Chi-X acquisition, which closed on July 1, 2021 .
The company paid cash dividends of $45.0 million $0.42 $33.7 million $101.57 June 30, 2021 , the company had approximately $318.9 million
Earnings Conference Call
Executives of Cboe Global Markets will host a conference call to review its second-quarter financial results today, July 30, 2021 , at 8:30 a.m. ET/7:30 a.m. CT. The conference call and any accompanying slides will be publicly available via live webcast from the Investor Relations section of the company's website at www.cboe.com under Events & Presentations. Participants may also listen via telephone by dialing (877) 255–4313 from the United States , (866) 450–4696 from Canada or (412) 317–5466 for international callers. Telephone participants should place calls 10 minutes prior to the start of the call. The webcast will be archived on the company's website for replay. A telephone replay of the earnings call also will be available from approximately 11:00 a.m. CT, July 30, 2021 , through 11:00 p.m. CT, August 6, 2021 , by calling (877) 344–7529 from the U.S., (855) 669–9658 from Canada or (412) 317–0088 for international callers, using replay code 10157218.
(1) Amount does not yet include any estimate for Chi-X acquisition. (2 ) Specific quantifications of the amounts that would be required to reconcile the company's organic growth guidance, adjusted operating expenses guidance and the effective tax rate on adjusted earnings guidance are not available. The company believes that there is uncertainty and unpredictability with respect to certain of its GAAP measures, primarily related to acquisition-related revenues and expenses that would be required to reconcile to GAAP revenues less costs of revenues, GAAP operating expenses and GAAP effective tax rate, which preclude the company from providing accurate guidance on certain forward-looking GAAP to non-GAAP reconciliations. The company believes that providing estimates of the amounts that would be required to reconcile the range of the company's organic growth, adjusted operating expenses and the effective tax rate on adjusted earnings would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above. (3) A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See "Non-GAAP Information" in the accompanying financial tables.
About Cboe Global Markets
Cboe Global Markets (Cboe: CBOE), a leading provider of market infrastructure and tradable products, delivers cutting-edge trading, clearing and investment solutions to market participants around the world. The company is committed to operating a trusted, inclusive global marketplace, providing leading products, technology and data solutions that enable participants to define a sustainable financial future. Cboe provides trading solutions and products in multiple asset classes, including equities, derivatives and FX, across North America, Europe and Asia Pacific. To learn more, visit www.cboe.com .
Cautionary Statements Regarding Forward-Looking Information
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words such as "may," "might," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," and the negative of these terms and other comparable terminology. All statements that reflect our expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements.
We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Some factors that could cause actual results to differ include: the impact of the novel coronavirus ("COVID-19") pandemic, including changes to trading behavior broadly in the market; the loss of our right to exclusively list and trade certain index options and futures products; economic, political and market conditions; compliance with legal and regulatory obligations; price competition and consolidation in our industry; decreases in trading and clearing volumes, market data fees or a shift in the mix of products traded on our exchanges; legislative or regulatory changes; our ability to protect our systems and communication networks from security risks, cybersecurity risks, insider threats and unauthorized disclosure of confidential information; increasing competition by foreign and domestic entities; our dependence on and exposure to risk from third parties; fluctuations to currency exchange rates; our index providers' ability to maintain the quality and integrity of their indexes and to perform under our agreements; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to attract and retain skilled management and other personnel; our ability to minimize the risks, including our credit and default risks, associated with operating a European clearinghouse; our ability to accommodate trading and clearing volume and transaction traffic, including significant increases, without failure or degradation of performance of our systems; misconduct by those who use our markets or our products or for whom we clear transactions; challenges to our use of open source software code; our ability to meet our compliance obligations, including managing potential conflicts between our regulatory responsibilities and our for-profit status; our ability to maintain BIDS Trading as an independently managed and operated trading venue, separate from and not integrated with our registered national securities exchanges; damage to our reputation; the ability of our compliance and risk management methods to effectively monitor and manage our risks; our ability to manage our growth and strategic acquisitions or alliances effectively; restrictions imposed by our debt obligations and our ability to make payments on or refinance our debt obligations; our ability to maintain an investment grade credit rating; impairment of our goodwill, long-lived assets, investments or intangible assets; and the accuracy of our estimates and expectations. More detailed information about factors that may affect our actual results to differ may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2020 and other filings made from time to time with the SEC.
We do not undertake, and we expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
The condensed consolidated statements of income and balance sheets are unaudited and subject to reclassification.
CBOE-F
Trademarks:
Cboe Global Markets, Inc.
Key Performance Statistics by Business Segment
2Q 2021
1Q 2021
4Q 2020
3Q 2020
2Q 2020
Options
Total industry ADV (in thousands)
36,442
41,974
32,197
29,535
28,243
Total company Options ADV (in thousands)
11,092
12,681
10,299
9,569
9,944
Multi-listed options
9,254
10,779
8,705
8,136
8,354
Index options
1,838
1,902
1,595
1,433
1,590
Total Options market share
30.4
%
30.2
%
32.0
%
32.4
%
35.2
%
Multi-listed options
26.8
%
26.9
%
28.5
%
29.0
%
31.4
%
Index options
98.7
%
99.0
%
99.3
%
98.9
%
99.4
%
Total Options RPC:
$
0.192
$
0.177
$
0.182
$
0.173
$
0.182
Multi-listed options
$
0.067
$
0.067
$
0.068
$
0.056
$
0.051
Index options
$
0.823
$
0.803
$
0.809
$
0.842
$
0.870
North American Equities
U.S. Equities - Exchange:
Total industry ADV (shares in billions)
10.5
14.7
10.5
9.9
12.4
Market share %
14.3
%
15.0
%
15.1
%
15.1
%
16.1
%
Net capture (per 100 touched shares)
$
0.020
$
0.015
$
0.015
$
0.017
$
0.025
U.S. Equities - Off-Exchange:
ADV (touched shares, in millions)
75.8
99.5
N/A
N/A
N/A
Net capture (per 100 touched shares)
$
0.123
$
0.121
N/A
N/A
N/A
Canadian Equities:
ADV (matched shares, in millions)
47.4
71.4
45.2
40.0
N/A
Total market share %
3.5
%
3.1
%
3.3
%
3.3
%
N/A
Market share % - TSX listed volume
5.0
%
4.6
%
4.7
%
4.7
%
N/A
Net capture (per 10,000 shares, in Canadian Dollars)
$
7.782
$
7.184
$
8.300
$
8.200
N/A
Futures
ADV (in thousands)
214
256
159
172
144
RPC
$
1.648
$
1.639
$
1.575
$
1.527
$
1.743
Europe
Equities:
Total industry ADNV (Euros - in billions)
€
42.0
€
44.8
€
37.5
€
31.5
€
40.1
Market share %
17.4
%
16.8
%
17.5
%
17.7
%
15.8
%
Net capture (bps)
€
0.267
€
0.284
€
0.259
€
0.245
€
0.248
EuroCCP:
Trades cleared (in thousands)
294,801.9
298,223.5
290,181.9
255,293.1
N/A
Fee per trade cleared
€
0.011
€
0.011
€
0.011
€
0.011
N/A
Net settlement volume (shares in thousands)
2,367.3
2,423.2
2,132.7
1,952.3
N/A
Net fee per settlement
€
0.893
€
0.865
€
0.803
€
0.785
N/A
Global FX
Market share %
16.2
%
16.5
%
16.7
%
15.9
%
16.4
%
ADNV ($ in billions)
$
32.5
$
37.1
$
33.7
$
30.2
$
31.8
Net capture (per one million dollars traded)
$
2.71
$
2.65
$
2.64
$
2.70
$
2.77
ADV = average daily volume; ADNV = average daily notional value. December 31, 2020 . For U.S. Equities – Off-Exchange, "net capture per 100 touched shares" refers to transaction fees less order and execution management system (OMS/EMS) fees and clearing costs divided by the product of one-hundredth ADV of touched shares on BIDS Trading and the number of trading days for the period. August 4, 2020 . Canadian Equities, "net capture per 10,000 shares" refers to transaction fees divided by the product of one-ten thousandth ADV of shares for MATCHNow and the number of trading days. Total market share represents MATCHNow volume divided by the total volume of the Canadian Equities market. TSX listed volume market share represents MATCHNow volume divided by the total volume in TSX listed equities. July 1, 2020 . "Trades cleared" refers to the total number of non-interoperable trades cleared, "Fee per trade cleared" refers to clearing fees divided by number of non-interoperable trades cleared, "Net settlement volume" refers to the total number of settlements executed after netting, and "Net fee per settlement" refers to settlement fees less direct costs incurred to settle divided by the number of settlements executed after netting. one million dollars traded" refers to transaction fees less liquidity payments, if any, divided by the Spot and SEF products of one-thousandth of ADNV traded on the Cboe FX Markets and the number of trading days, divided by two, which represents the buyer and seller that are both charged on the transaction. Market Share represents Cboe FX volume divided by the total volume of publicly reporting spot FX venues (Cboe FX, EBS, Refinitiv, and Euronext FX).
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 2021 and 2020
Three Months Ended June 30,
Six Months Ended June 30,
(in millions, except per share amounts)
2021
2020
2021
2020
Revenue:
Transaction and clearing fees
$
618.2
$
618.3
$
1,381.4
$
1,279.8
Access and capacity fees
67.1
55.7
133.5
113.4
Market data fees
62.8
58.7
126.6
114.9
Regulatory fees
36.9
128.7
138.4
265.5
Other revenue
15.8
7.3
31.7
16.6
Total Revenues
800.8
868.7
1,811.6
1,790.2
Cost of Revenues:
Liquidity payments
377.9
415.6
879.7
808.0
Routing and clearing
19.9
17.7
47.0
33.7
Section 31 fees
28.8
119.0
120.7
246.4
Royalty fees
20.3
19.4
40.6
46.8
Other
3.3
0.1
7.5
0.1
Total Cost of Revenues
450.2
571.8
1,095.5
1,135.0
Revenues Less Cost of Revenues
350.6
296.9
716.1
655.2
Operating Expenses:
Compensation and benefits
67.7
54.9
140.0
108.2
Depreciation and amortization
40.6
38.0
82.6
78.5
Technology support services
16.2
12.5
33.4
24.4
Professional fees and outside services
22.4
12.3
38.0
27.2
Travel and promotional expenses
1.9
0.9
3.5
3.0
Facilities costs
5.4
4.1
10.7
8.2
Acquisition-related costs
1.8
9.4
5.2
10.2
Other expenses
4.6
3.1
8.1
7.4
Total Operating Expenses
160.6
135.2
321.5
267.1
Operating Income
190.0
161.7
394.6
388.1
Non-operating Income (Expenses):
Interest expense, net
(12.3)
(7.3)
(24.6)
(14.6)
Other income, net
1.5
2.2
2.1
0.6
Total Non-operating Income (Expenses)
(10.8)
(5.1)
(22.5)
(14.0)
Income Before Income Tax Provision
179.2
156.6
372.1
374.1
Income tax provision
73.7
43.0
129.4
103.1
Net Income
105.5
113.6
242.7
271.0
Net income allocated to participating securities
(0.3)
(0.3)
(0.7)
(0.7)
Net Income Allocated to Common Stockholders
$
105.2
$
113.3
$
242.0
$
270.3
Net Income Per Share Allocated to Common Stockholders:
Basic earnings per share
$
0.99
$
1.04
$
2.26
$
2.46
Diluted earnings per share
0.98
1.03
2.26
2.45
Weighted average shares used in computing income per share:
Basic
106.8
109.5
107.1
109.9
Diluted
106.9
109.6
107.3
110.1
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2021 and 2020
June 30,
December 31,
(in millions)
2021
2020
Assets
Current Assets:
Cash and cash equivalents
$
450.9
$
245.4
Financial investments
118.7
92.4
Accounts receivable, net
333.1
337.3
Margin deposits and clearing funds
1,188.2
812.1
Income taxes receivable
39.7
53.1
Other current assets
50.2
26.5
Total Current Assets
2,180.8
1,566.8
Investments
41.1
42.7
Land
2.3
—
Property and equipment, net
95.6
82.6
Property held for sale
—
13.0
Operating lease right of use assets
113.7
111.0
Goodwill
2,899.5
2,895.1
Intangible assets, net
1,670.4
1,729.0
Other assets, net
93.1
76.3
Total Assets
$
7,096.5
$
6,516.5
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities
$
260.0
$
250.0
Section 31 fees payable
120.9
152.9
Deferred revenue
17.2
10.2
Margin deposits and clearing funds
1,188.2
812.1
Income taxes payable
4.8
4.2
Current portion of long-term debt
—
68.7
Current portion of contingent consideration liabilities
12.9
15.2
Total Current Liabilities
1,604.0
1,313.3
Long-term debt
1,298.5
1,135.2
Unrecognized tax benefits
187.5
164.7
Deferred income taxes
384.1
377.6
Non-current operating lease liabilities
134.0
132.1
Contingent consideration liabilities
13.7
17.5
Other non-current liabilities
32.2
27.2
Total Liabilities
3,654.0
3,167.6
Stockholders' Equity:
Preferred stock
—
—
Common stock
1.3
1.2
Treasury stock at cost
(1,337.5)
(1,250.4)
Additional paid-in capital
2,730.7
2,713.3
Retained earnings
1,962.2
1,809.8
Accumulated other comprehensive income, net
85.8
75.0
Total Stockholders' Equity
3,442.5
3,348.9
Total Liabilities and Stockholders' Equity
$
7,096.5
$
6,516.5
Non-GAAP Information
In addition to disclosing results determined in accordance with GAAP, Cboe Global Markets has disclosed certain non-GAAP measures of operating performance. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. The non-GAAP measures provided in this press release include net transaction and clearing fees, adjusted operating expenses, adjusted operating income, organic net revenue, inorganic net revenue, adjusted operating margin, adjusted net income allocated to common stockholders and adjusted diluted earnings per share, effective tax rate on adjusted earnings, adjusted cash, EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin.
Management believes that the non-GAAP financial measures presented in this press release, including adjusted operating income, organic net revenue and adjusted operating expenses, provide additional and comparative information to assess trends in our core operations and a means to evaluate period-to-period comparisons. Non-GAAP financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results.
Organic net revenue, inorganic net revenue, organic non-transaction revenue and organic net revenue guidance: These are non-GAAP financial measures that exclude or have otherwise been adjusted for the impact of our acquisitions for the period or guidance, as applicable. Management believes the organic net revenue growth and guidance measures provide users with supplemental information regarding the company's ongoing and future potential revenue performances and trends by presenting revenue growth and guidance excluding the impact of the acquisitions. Revenues from acquisitions that have been owned for at least one year are considered organic and are no longer excluded from organic net revenue from either period for comparative purposes.
Amortization expense of acquired intangible assets: We amortize intangible assets acquired in connection with various acquisitions. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. As such, if intangible asset amortization is included in performance measures, it is more difficult to assess the day-to-day operating performance of the businesses, the relative operating performance of the businesses between periods and the earnings power of the company. Therefore, we believe performance measures excluding intangible asset amortization expense provide investors with an additional basis for comparison across accounting periods.
Acquisition-related expenses: From time to time, we have pursued acquisitions, which have resulted in expenses which would not otherwise have been incurred in the normal course of the company's business operations. These expenses include integration costs, as well as legal, due diligence and other third-party transaction costs. The frequency and the amount of such expenses vary significantly based on the size, timing and complexity of the transaction. Accordingly, we exclude these costs for purposes of calculating non-GAAP measures which provide an additional analysis of Cboe's ongoing operating performance or comparisons in Cboe's performance between periods.
The tables below show the reconciliation of each financial measure from GAAP to non-GAAP. The non-GAAP financial measures exclude the impact of those items detailed below and are referred to as adjusted financial measures.
Organic Net Revenue Reconciliation
Table 3
Three Months Ended
Six Months Ended
(in millions)
June 30,
June 30,
Reconciliation of Revenue Less Cost of Revenue to Organic Net Revenue
2021
2020
2021
2020
Revenues less cost of revenues (net revenue)
$
350.6
$
296.9
$
716.1
$
655.2
Less acquisitions:
Acquisition revenue less cost of revenues (inorganic net revenue)
$
(22.2)
$
—
$
(49.0)
$
—
Organic net revenue
$
328.4
$
296.9
$
667.1
$
655.2
Reconciliation of GAAP and non-GAAP Information
Three Months Ended
Six Months Ended
Table 4
June 30,
June 30,
(in millions, except per share amounts)
2021
2020
2021
2020
Reconciliation of Net Income Allocated to Common Stockholders to Non-GAAP (As shown on Table 1)
Net income allocated to common stockholders
$
105.2
$
113.3
$
242.0
$
270.3
Non-GAAP adjustments
Acquisition-related expenses (1)
1.8
9.4
5.2
10.2
Amortization of acquired intangible assets (2)
30.5
30.0
63.4
62.5
Total Non-GAAP adjustments
32.3
39.4
68.6
72.7
Income tax expense related to the items above
(7.7)
(9.3)
(15.9)
(16.9)
Deferred tax re-measurements
17.7
—
17.7
—
Net income allocated to participating securities - effect on reconciling items
(0.1)
(0.1)
(0.2)
(0.5)
Adjusted net income allocated to common stockholders
$
147.4
$
143.3
$
312.2
$
325.6
Reconciliation of Diluted EPS to Non-GAAP
Diluted earnings per common share
$
0.98
$
1.03
$
2.26
$
2.45
Per share impact of non-GAAP adjustments noted above
0.40
0.28
0.65
0.51
Adjusted diluted earnings per common share
$
1.38
$
1.31
$
2.91
$
2.96
Reconciliation of Operating Margin to Non-GAAP
Revenue less cost of revenue
$
350.6
$
296.9
$
716.1
$
655.2
Non-GAAP adjustments noted above
—
—
—
—
Adjusted revenue less cost of revenue
$
350.6
$
296.9
$
716.1
$
655.2
Operating expenses (3)
$
160.6
$
135.2
$
321.5
$
267.1
Non-GAAP adjustments noted above
32.3
39.4
68.6
72.7
Adjusted operating expenses
$
128.3
$
95.8
$
252.9
$
194.4
Operating income
$
190.0
$
161.7
$
394.6
$
388.1
Non-GAAP adjustments noted above
32.3
39.4
68.6
72.7
Adjusted operating income
$
222.3
$
201.1
$
463.2
$
460.8
Adjusted operating margin (4)
63.4
%
67.7
%
64.7
%
70.3
%
Reconciliation of Income Tax Rate to Non-GAAP
Income before income taxes
179.2
156.6
372.1
374.1
Non-GAAP adjustments noted above
32.3
39.4
68.6
72.7
Adjusted income before income taxes
$
211.5
$
196.0
$
440.7
$
446.8
Income tax expense
73.7
43.0
129.4
103.1
Non-GAAP adjustments noted above
(10.0)
9.3
(1.8)
16.9
Adjusted income tax expense
$
63.7
$
52.3
$
127.6
$
120.0
Adjusted income tax rate
30.1
%
26.7
%
29.0
%
26.9
%
(1) This amount includes professional fees and outside services, severance, facilities expenses, impairment charges and other costs related to the company's acquisitions.
(2) This amount represents the amortization of acquired intangible assets related to the company's acquisitions.
(3) The company sponsors deferred compensation plans held in a trust. The expenses or income related to the deferred compensation plans are included in "Compensation and benefits" ($1.1 million and $2.2 million in expense for the three months ended June 30, 2021 and 2020, respectively, and $1.4 million and $0.1 million in the six months ended June 30, 2021 and 2020, respectively), and are directly offset by deferred compensation income, expenses and dividends included within "Other income, net" ($1.1 million and $2.2 million in income, expense and dividends in the three months ended June 30, 2021 and 2020, respectively, and $1.4 and $0.1 million in the six months ended June 30, 2021 and 2020, respectively), on the consolidated statements of income. The deferred compensation plans' expenses are not excluded from "adjusted operating expenses" and do not have an impact on "Income before income taxes."
(4) Adjusted operating margin represents adjusted operating income divided by adjusted revenue less cost of revenue.
EBITDA Reconciliations
EBITDA (earnings before interest, income taxes, depreciation and amortization) and Adjusted EBITDA are widely used non-GAAP financial measures of operating performance. EBITDA margin represents EBITDA divided by revenues less cost of revenues (net revenue). It is presented as supplemental information that the company believes is useful to investors to evaluate its results because it excludes certain items that are not directly related to the company's core operating performance. EBITDA is calculated by adding back to net income interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA is calculated by adding back to EBITDA acquisition-related expenses. EBITDA and Adjusted EBITDA should not be considered as substitutes either for net income, as an indicator of the company's operating performance, or for cash flow, as a measure of the company's liquidity. In addition, because EBITDA and Adjusted EBITDA may not be calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA margin represents Adjusted EBITDA divided by net revenue.
Table 5
Three Months Ended
Six Months Ended
(in millions)
June 30,
June 30,
Reconciliation of Net Income Allocated to Common Stockholders to EBITDA and Adjusted EBITDA (Per Table 1)
2021
2020
2021
2020
Net income allocated to common stockholders
$
105.2
$
113.3
$
242.0
$
270.3
Interest expense, net
12.3
7.3
24.6
14.6
Income tax provision
73.7
43.0
129.4
103.1
Depreciation and amortization
40.6
38.0
82.6
78.5
EBITDA
$
231.8
$
201.6
$
478.6
$
466.5
EBITDA Margin
66.1
%
67.9
%
66.8
%
71.2
%
Non-GAAP adjustments not included in above line items
Acquisition-related expenses
1.8
9.4
5.2
10.2
Adjusted EBITDA
$
233.6
$
211.0
$
483.8
$
476.7
Adjusted EBITDA Margin
66.6
%
71.1
%
67.6
%
72.4
%
Table 6
(in millions)
June 30,
December 31,
Reconciliation of Cash and cash equivalents to Adjusted Cash
2021
2020
Cash and cash equivalents
$
450.9
$
245.4
Financial investments
118.7
92.4
Less deferred compensation plan assets
(25.6)
(24.5)
Less cash collected for Section 31 Fees
(101.4)
(103.0)
Adjusted Cash
$
442.6
$
210.3
Table 7
(in millions)
Reconciliation of Net Transaction and Clearing Fees –Three Months Ended June 30, 2021 and 2020
Consolidated
Options Segment
N.A. Equities Segment
Futures Segment
Europe Segment
Global FX Segment
Three Months Ended
Three Months Ended
Three Months Ended
Three Months Ended
Three Months Ended
Three Months Ended
June 30,
June 30,
June 30,
June 30,
June 30,
June 30,
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Transaction and clearing fees
$
618.2
$
618.3
$
283.2
$
250.8
$
268.0
$
325.1
$
22.2
$
15.8
$
33.3
$
15.2
$
11.5
$
11.4
Liquidity payments
(377.9)
(415.6)
(144.1)
(132.0)
(228.4)
(279.4)
—
—
(5.4)
(4.2)
—
—
Routing and clearing
(19.9)
(17.7)
(5.0)
(5.0)
(10.0)
(12.7)
—
—
(4.9)
—
—
—
Net transaction and clearing fees
$
220.4
$
185.0
$
134.1
$
113.8
$
29.6
$
33.0
$
22.2
$
15.8
$
23.0
$
11.0
$
11.5
$
11.4
https://www.prnewswire.com/news-releases/cboe-global-markets-reports-results-for-second-quarter-2021-301344881.html
SOURCE Cboe Global Markets, Inc.
