CBOE GLOBAL MARKETS, INC. The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, included in Item 1 in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 , and as contained in that report, the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." This discussion contains forward-looking information. Please see "Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
Cboe Global Markets, Inc. , the world's leading derivatives and securities exchange network, delivers cutting-edge trading, clearing and investment solutions to people around the world. Cboe provides trading solutions and products in multiple asset classes, including equities, derivatives, FX, and digital assets, acrossNorth America ,Europe andAsia Pacific . Above all, Cboe is committed to building a trusted, inclusive global marketplace that enables people to pursue a sustainable financial future. Cboe's subsidiaries include the largest options exchange and the third largest stock exchange operator in theU.S. In addition, the Company operates one of the largest stock exchanges by value traded inEurope , and owns Cboe Clear Europe (rebranded from EuroCCP inNovember 2022 ), a leading pan-European equities and derivatives clearinghouse, BIDS Trading, a leading block-trading ATS by volume in theU.S. , MATCHNow (operating asTriAct Canada Marketplace LP ), a leading equities ATS inCanada , Cboe Australia, an operator of trading venues inAustralia , and Cboe Japan, an operator of trading venues inJapan . Cboe also is a leading market globally for exchange-traded products ("ETPs") listings and trading. OnMay 2, 2022 , Cboe completed its acquisition of ErisX, subsequently rebranded to Cboe Digital, an operator of aU.S. based digital asset spot market, a regulated futures exchange and a regulated clearinghouse. OnJune 1, 2022 , Cboe completed its acquisition of NEO, subsequently rebranded to CboeCanada , which is a recognized Canadian securities exchange. The Company is headquartered inChicago with offices inAmsterdam ,Belfast ,Hong Kong ,Kansas City ,London ,Manila ,New York ,San Francisco ,Sarasota Springs ,Singapore ,Sydney ,Tokyo , andToronto .
Business Segments
The Company previously operated five reportable business segments prior to the quarter endedJune 30, 2022 . As a result of the Cboe Digital acquisition during the quarter endedJune 30, 2022 , the Company operates six reportable segments: Options,North American Equities ,Europe andAsia Pacific , Futures, Global FX, and Digital, which is reflective of how the Company's chief operating decision-maker reviews and operates the business, as discussed in Note 1 ("Organization and Basis of Presentation"). Segment performance is primarily evaluated based on operating income (loss). The Company's chief operating decision-maker does not use segment-level assets or income and expenses below operating income (loss) as key performance metrics; therefore, such information is not presented below. The Company has aggregated all of its corporate costs, as well as other business ventures, within the Corporate Items and Eliminations totals based on the decision that those activities should not be used to evaluate the operating performance of the segments; however, operating expenses that relate to activities of a specific segment have been allocated to that segment. Options. The Options segment includes options on market indices ("index options"), as well as on the stocks of individual corporations ("equity options"), and options on ETPs, such as exchange-traded funds ("ETFs") and exchange-traded notes ("ETNs"), which are "multi-listed" options and listed on a non-exclusive basis. These options are eligible to trade, as applicable, on Cboe Options, C2, BZX, EDGX, and/or otherU.S. national security exchanges. Cboe Options is the Company's primary options market and offers trading in listed options through a single system that integrates electronic trading and traditional open outcry trading on the Cboe Options trading floor inChicago . C2 Options, BZX Options, and EDGX Options are all-electronic options exchanges, and typically operate with different market models and fee structures than Cboe Options. The Options segment also includes applicable market data fees generated from the consolidated tape plans, the licensing of proprietary options market data, index licensing, and access and capacity services.North American Equities .The North American Equities segment includes listedU.S. equities and ETP transaction services that occur on fully electronic exchanges owned and operated by BZX, BYX, EDGX, and EDGA, equities transactions that occur on the BIDS Trading platform, and Canadian equities and other transaction services that occur on 47
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or through the MATCHNow ATS, and Cboe Canada, as of the
Europe andAsia Pacific . TheEurope andAsia Pacific segment includes the pan-European listed equities and derivatives transaction services, ETPs, exchange-traded commodities, and international depository receipts that are hosted on MTFs operated byCboe Europe Equities (Cboe Europe andCboe NL equities exchanges) and Cboe Europe Derivatives ("CEDX"). It also includes the ETP listings business on RMs and clearing activities of Cboe Clear Europe, as well as the equities transaction services of Cboe Australia and Cboe Japan, operators of trading venues inAustralia andJapan , respectively.Cboe Europe operates lit and dark books, a periodic auctions book, and Cboe BIDS Europe, a Large-in-Scale ("LIS") trading negotiation facility forUK symbols.Cboe NL , launched inOctober 2019 and based inAmsterdam , operates similar business functionality to that offered byCboe Europe , and provides for trading only in European Economic Area ("EEA") symbols. Cboe Europe Derivatives, a pan-European derivatives platform launched inSeptember 2021 , offers futures and options based onCboe Europe equity indices. This segment also includesCboe Europe ,Cboe NL , CEDX, Cboe Australia and Cboe Japan revenue generated from the licensing of proprietary market data and from access and capacity services. Futures. The Futures segment includes transaction services provided by CFE, a fully electronic futures exchange, which includes offerings for trading of VIX futures and other futures products, the licensing of proprietary market data, as well as access and capacity services. Global FX. The Global FX segment includes institutional FX trading services that occur on the Cboe FX fully electronic trading platform, non-deliverable forward FX transactions ("NDFs") offered for execution on Cboe SEF and Cboe Swiss, as well as revenue generated from the licensing of proprietary market data and from access and capacity services. The segment will include transaction services forU.S. government securities executed by Cboe Fixed Income when Cboe Fixed Income operations commence.
Digital. The Digital segment includes Cboe Digital, an operator of a
General Factors Affecting Results of Operations
In broad terms, our business performance is impacted by a number of drivers, including macroeconomic events affecting the risk and return of financial assets, investor sentiment, the regulatory environment for capital markets, geopolitical events, tax policies, central bank policies and changing technology, particularly in the financial services industry. We believe our future revenues and net income will continue to be influenced by a number of domestic and international economic trends, including:
? trading volumes on our proprietary products such as VIX options and futures and
SPX options;
trading volumes in listed equity securities, options, futures, and ETPs in
?
securities and ETPs in
digital assets, and volumes in institutional FX trading;
the demand for and pricing structure of the
? distributed by the Securities Information Processors ("SIPs"), which determines
the pool size of the industry market data fees we receive based on our market
share;
? consolidation and expansion of our customers and competitors in the industry;
the demand for information about, or access to, our markets and products, which
? is dependent on the products we trade, our importance as a liquidity center,
quality and integrity of our proprietary indices, and the quality and pricing
of our data and access and capacity services;
? continuing pressure in transaction fee pricing due to intense competition in
the North American, European, and
? significant fluctuations in foreign currency translation rates or weakened
value of currencies; and
regulatory changes and obligations relating to market structure, digital assets
? and increased capital requirements, and those which affect certain types of
instruments, transactions, products, pricing structures, capital market
participants or reporting or compliance requirements.
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A number of significant structural, political and monetary issues, global
conflicts and global pandemics continue to confront the global economy, and
instability could continue, resulting in an increased or subdued level of
inflation, market volatility, potential recessions, supply chain constraints,
changes in trading volumes and greater uncertainty, inflationary increases in
our expenses, such as compensation inflation, and increased costs related to CAT
may have an adverse effect on our financial results.
Components of Revenues
The components of revenues which include the above changes are described below:
Cash and Spot Markets
Revenue aggregated into cash and spot markets includes associated transaction and clearing fees, the portion of market data fees relating to associatedU.S. tape plan market data fees, associated regulatory fees, and associated other revenue from the Company'sNorth American Equities ,Europe andAsia Pacific , Global FX, and Digital segments.
Data and Access Solutions
Revenue aggregated into data and access solutions includes access and capacity fees, proprietary market data fees, and associated other revenue across the Company's six segments.
Derivatives Markets
Includes associated transaction and clearing fees, the portion of market data fees relating to associatedU.S. tape plan market data fees, associated regulatory fees, and associated other fees from the Company's Options, Futures,Europe andAsia Pacific , and Digital segments.
Components of Cost of Revenues
Liquidity Payments
Liquidity payments are directly correlated to the volume of securities traded on our markets. As stated above, we record the liquidity rebates paid to market participants providing liquidity, in the case of C2, BZX, EDGX, andCboe Europe Equities and Derivatives, and Cboe Digital, as cost of revenue. BYX and EDGA offer a pricing model where we rebate liquidity takers for executing against an order resting on our book, which is also recorded as a cost of revenues.
Routing and Clearing
Various rules require thatU.S. options and equities trade executions occur at the National Best Bid and Offer displayed by any exchange. Linkage order routing consists of the cost incurred to provide a service whereby Cboe equities and options exchanges deliver orders to other execution venues when there is a potential for obtaining a better execution price or when instructed to directly route an order to another venue by the order provider. The service affords exchange order flow providers an opportunity to obtain the best available execution price and may also result in cost benefits to those clients. Such an offering improves our competitive position and provides an opportunity to attract orders which would otherwise bypass our exchanges. We utilize third-party brokers or our broker-dealer, Cboe Trading, to facilitate such delivery. Also included within routing and clearing are the Order Management System and Execution Management System ("OMS" and "EMS", respectively) fees incurred forU.S. Equities Off-Exchange order execution, as well as settlement costs incurred for the settlement process executed by Cboe Clear Europe and
Cboe Clear Digital. Section 31 Fees
Exchanges under the authority of theSEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA as well as CFE to the extent that CFE offers trading in security futures products) are assessed fees pursuant to the Exchange Act designed to recover the costs to theU.S. government of supervision and regulation of securities markets and securities professionals. We treat these fees as a pass-through charge to customers executing eligible listed equities and listed equity options trades. Accordingly, we recognize the amount that we are charged under Section 31 as a cost of revenues and the corresponding amount that we charge our customers as regulatory transaction fees revenue. Since the regulatory transaction fees recorded in revenues are equal to the Section 31 fees recorded in cost of revenues, there is no impact on 49
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our operating income. Cboe Trading,
Royalty Fees and Other Cost of Revenues
Royalty fees primarily consist of license fees paid by us for the use of
underlying indices in our proprietary products usually based on contracts
traded. The Company has licenses with the owners of the S&P 500 Index, S&P 100
Index and certain other S&P indices, FTSE Russell indices, the DJIA, MSCI, and
certain other index products. This category also includes fees related to the
dissemination of market data related to S&P indices and other products through
Cboe Streaming Market Indices ("CSMI").
Other cost of revenues primarily consists of interest expense from clearing operations, electronic access permit fees and other miscellaneous costs associated with other revenue.
Components of Operating Expenses
Compensation and Benefits
Compensation and benefits represent our largest expense category and tend to be driven by our staffing requirements, financial performance, and the general dynamics of the employment market. Stock-based compensation is a non-cash expense related to equity awards. Stock-based compensation can vary depending on the quantity and fair value of the award on the date of grant and the related service period.
Depreciation and Amortization
Depreciation and amortization expense results from the depreciation of long-lived assets purchased, the amortization of purchased and internally developed software, and the amortization of intangible assets.
Technology support services consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, operating system license and support fees, fees paid to information vendors for displaying data and off-site system hosting fees.
Professional Fees and Outside Services
Professional fees and outside services consist primarily of consulting services, which include supplemental staff activities primarily related to systems development and maintenance, legal, regulatory and audit, and tax advisory services.
Travel and Promotional Expenses
Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel-related expenses.
Facilities Costs
Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs.
Acquisition-Related Costs
Acquisition-related costs relate to acquisitions and other strategic
opportunities. The acquisition-related costs include fees for investment banking
advisors, lawyers, accountants, tax advisors, public relations firms, severance
and retention costs, capitalized software and facilities, and other external
costs directly related to mergers and acquisitions.
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Other Expenses
Other expenses represent costs necessary to support our operations that are not already included in the above categories, including, but not limited to the impairment of digital assets held presented in intangible assets, net as part of the ordinary operations of the Digital segment and changes in contingent consideration.
Non-Operating Income (Expenses)
Income and expenses incurred through activities outside of our core operations
are considered non-operating and are classified as other income (expense). These
activities primarily include interest earned on the investing of excess cash,
interest expense related to outstanding debt facilities, income and unrealized
gains and losses related to investments held in a trust for the Company's
non-qualified retirement and benefit plans, realized gains and losses related to
the Company's previously held minority investments, equity earnings or losses
from our investments in other business ventures, impairment of the Company's
investments, investment establishment costs associated with new business
ventures, and loan forgiveness provided under the SBA's PPP. See Note 10
("Debt") for additional information regarding the PPP.
Financial Summary
The following are summaries of changes in financial performance and include certain non-GAAP financial measures. Management uses these non-GAAP measures internally in conjunction with GAAP measures to help evaluate our performance and to help make financial and operational decisions. These non-GAAP financial measures assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items management believes do not reflect our underlying operations.
We believe our presentation of these measures provides investors with greater transparency into financial measures used by management and is useful to investors for period-to-period comparisons of our ongoing operating performance.
These non-GAAP financial measures are not presented in accordance with, or as an
alternative to, GAAP financial measures and may be calculated differently from
non-GAAP measures used by other companies, which reduces their usefulness as
comparative measures. We encourage analysts, investors and other interested
parties to use these non-GAAP measures as supplemental information to the GAAP
financial measures included herein, including our condensed consolidated
financial statements, to enhance their analysis and understanding of our
performance and in making comparisons. Please see the footnotes below for
definitions, additional information, and reconciliations from the closest GAAP
measure.
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The following summarizes changes in financial performance for the three months
ended
[[Image Removed: Graphic]]
(1) These are Non-GAAP figures for which reconciliations are provided below (in
millions, except percentages, earnings per share, and as noted below).
Three Months Ended March 31, Increase/ Percent
2023 2022 (Decrease) Change
Total revenues $ 988.2 $ 974.5 $ 13.7 1 %
Total cost of revenues 516.8 556.4 (39.6) (7) %
Revenues less cost of
revenues 471.4 418.1 53.3 13 %
Total operating expenses 223.5 178.4 45.1 25 %
Operating income 247.9 239.7 8.2 3 %
Income before income tax
provision 248.2 224.9 23.3 10 %
Income tax provision 74.8 115.3 (40.5) (35) %
Net income $ 173.4 $ 109.6 $ 63.8 58 %
Basic earnings per share $ 1.63 $ 1.02 $ 0.61 60 %
Diluted earnings per share 1.63 1.02 0.61 60 %
Organic net revenue (1) 467.0 418.1 48.9 12 %
EBITDA (2) 303.9 276.2 27.7 10 %
EBITDA margin (3) 64.5 % 66.1 % (1.6) % *
Adjusted EBITDA (2) $ 310.3 $ 281.2 $ 29.1 10 %
Adjusted EBITDA margin (4) 65.8 % 67.3 % (1.5) % *
Adjusted earnings (5) $ 201.8 $ 184.3 $ 17.5 9 %
Adjusted earnings margin (5) 42.8 % 44.1 % (1.3) % *
Diluted weighted average
shares outstanding 106.2 106.8 (0.6) (1) %
Adjusted Diluted earnings
per share (6) $ 1.90 $ 1.73 $ 0.17 10 %
* Not meaningful
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Organic net revenue is defined as revenues less cost of revenues excluding
revenues less cost of revenues of any acquisition that has been owned for
less than one year. Revenues from acquisitions that have been owned at least
one year are considered organic and are no longer excluded from organic net
revenue from either period for comparative purposes. Organic net revenue does
not represent, and should not be considered as, an alternative to revenues
less cost of revenues, or net revenue, as determined in accordance with GAAP.
We have presented organic net revenue because we consider it an important (1) supplemental measure of our performance and we use it as the basis for
monitoring our operating financial performance before the effects of
acquisitions. We also believe that it is frequently used by analysts,
investors and other interested parties in the evaluation of companies. We
believe that investors may find this non-GAAP measure useful in evaluating
our performance compared to that of peer companies in our industry. Other
companies may calculate organic net revenue differently than we do. Organic
net revenue has limitations as an analytical tool, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under GAAP.
Three Months Ended
March 31,
2023 2022
(in millions)
Revenues less cost of revenues $ 471.4 $ 418.1 Recent acquisitions:
Acquisition revenues less cost of revenues
$ 467.0 $ 418.1
EBITDA is defined as income before interest, income taxes, depreciation and
amortization. Adjusted EBITDA is defined as EBITDA before acquisition-related
costs and investment establishment costs. EBITDA and adjusted EBITDA do not
represent, and should not be considered as, alternatives to net income as
determined in accordance with GAAP. We have presented EBITDA and adjusted
EBITDA because we consider them important supplemental measures of our
performance and believe that they are frequently used by analysts, investors (2) and other interested parties in the evaluation of companies. In addition, we
use adjusted EBITDA as a measure of operating performance for preparation of
our forecasts and evaluating our leverage ratio for the debt to earnings
covenant included in our outstanding credit facility. Other companies may
calculate EBITDA and adjusted EBITDA differently than we do. EBITDA and
adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation or as substitutes for analysis of our results as
reported under GAAP.
(3) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
(4) Adjusted EBITDA margin represents adjusted EBITDA divided by revenues less
cost of revenues.
Adjusted earnings is defined as net income adjusted for amortization ofpurchased intangibles, acquisition-related costs, investment establishment
costs, certain tax reserve changes, deferred tax re-measurements, and net
income allocated to participating securities, net of the income tax effects
of these adjustments. Adjusted earnings does not represent, and should not be
considered as, an alternative to net income or loss, as determined in
accordance with GAAP. We have presented adjusted earnings because we consider
it an important supplemental measure of our performance and we use it as the (5) basis for monitoring our own core operating financial performance relative to
other operators of exchanges. We also believe that it is frequently used by
analysts, investors and other interested parties in the evaluation of
companies. We believe that investors may find this non-GAAP measure useful in
evaluating our performance compared to that of peer companies in our
industry. Other companies may calculate adjusted earnings differently than we
do. Adjusted earnings has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results
as reported under GAAP.
(6) Adjusted diluted earnings per share represents adjusted earnings divided by
diluted weighted average shares outstanding.
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The following is a reconciliation of net income (loss) allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):
Three Months Ended
2023
North
American Europe and
Options Equities Asia Pacific Futures Global FX Digital Corporate Total Net income (loss) allocated to common stockholders
$ 200.0 $ 26.9 $ 9.6 $ 20.8 $ 4.4 $ (10.2) $ (78.9) $ 172.6 Interest expense (income), net - (0.3) 1.5 - - (0.2) 14.1 15.1 Income tax provision (benefit) - 1.7 0.2 - 0.3 (1.0) 73.6 74.8
Depreciation and amortization 6.8 18.6 8.4
0.6 5.2 1.8 - 41.4
EBITDA 206.8 46.9 19.7 21.4 9.9 (9.6) 8.8 303.9
Acquisition-related costs - 0.4 0.7 - - 0.6 4.7 6.4
Adjusted EBITDA $ 206.8 $ 47.3 $ 20.4 $ 21.4 $ 9.9 $ (9.0) $ 13.5 $ 310.3 Three Months Ended
2022
North
American Europe and
Options Equities Asia Pacific Futures Global FX Digital Corporate Total Net income (loss) allocated to common stockholders
$ 162.4 $ 38.4 $ 14.0
- - 1.9 - - - 8.9 10.8
Income tax provision - - 4.8 - - - 110.5 115.3
Depreciation and amortization 6.7 18.1 9.6
0.7 5.8 - - 40.9
EBITDA 169.1 56.5 30.3 17.6 8.2 - (5.5) 276.2
Acquisition-related costs - 0.4 0.8 - - - 0.8 2.0
Investment establishment
costs - - - - - - 3.0 3.0
Adjusted EBITDA $ 169.1 $ 56.9 $ 31.1 $ 17.6 $ 8.2 $ - $ (1.7) $ 281.2 The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):
Three Months Ended
March 31,
2023 2022
Net income allocated to common stockholders
30.9 30.6
Acquisition-related costs 6.4 2.0
Investment establishment costs - 3.0
Increase of tax reserves 1.5 48.5
Tax effect of adjustments (9.5) (8.7)
Net income allocated to participating securities (0.1) (0.3)
Adjusted earnings $ 201.8 $ 184.3
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The following summarizes changes in certain operational and financial metrics
for the three months ended March 31, 2023 , compared to the three months ended
March 31, 2022 :
[[Image Removed: Graphic]]
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The following table includes operational and financial metrics for our Options,
North American Equities , Europe and Asia Pacific , Futures, and Global FX
segments. The metrics listed for Canadian Equities in the table below include
Cboe Canada as a result of the acquisition completed during 2022. Therefore, the
metrics shown in the table below in Canadian Equities do not include Cboe Canada
for the periods preceding the acquisition. The following summarizes changes in
certain operational and financial metrics for the three months ended March 31,
2023 compared to the three months ended March 31, 2022 :
Three Months Ended March 31, Increase/ Percent
2023 2022 (Decrease) Change
(in millions, except percentages, trading days, and as noted below)
Options:
Average daily volume (ADV) (in
millions of contracts):
Market ADV 46.1 42.5 3.6 8 %
Total touched contracts (1) 14.7 13.4 1.3 9 %
Multi-listed contract ADV 11.1 11.0 0.1 1 % Index contract ADV 3.6 2.4 1.2 49 % Number of trading days 62 62 - - % Total Options revenue per contract (RPC) (2) $ 0.267 $ 0.210 $ 0.057 27 % Multi-listed options RPC (2) $ 0.064 $ 0.067$ (0.003) (5) % Index options RPC (2) $ 0.889 $ 0.857 $ 0.032 4 % Total Options market share 31.8 % 31.5 % 0.3 % * Multi-listed options market share 26.1 % 27.4 % (1.3) % *North American Equities : U.S. Equities:U.S. Equities - Exchange: ADV: Total touched shares (in billions) (1) 1.6 1.9 (0.3) (18) % Market ADV (in billions) 11.8 12.9 (1.1) (9) % Market share 12.7 % 14.3 % (1.6) % *U.S. Equities - Exchange (net capture per one hundred touched shares) (3) $ 0.019 $ 0.017 $ 0.002 13 %U.S. ETPs: launches (number of launches) 16 32 (16) (50) %U.S. ETPs: listings (number of listings) 603 566 37 7 %U.S. Equities - Off-Exchange: ADV: Total touched shares (in millions) (1) 89.4 108.5 (19.1) (18) %U.S. Equities - Off-Exchange (net capture per one hundred touched shares) (4) $ 0.113 $ 0.117$ (0.004) (3) % Trading days 62 62 - - % Canadian Equities: ADV (matched shares, in millions) (5) 150.8 41.1 109.7 267 % Trading days 63 62 1 2 % Net capture (per 10,000 touched shares, in Canadian dollars) (6) $ 4.039 $
9.103$ (5.064) (56) %Europe andAsia Pacific : European Equities: ADNV: Matched ADNV (Euros - in billions) (7) € 11.4 € 12.8 € (1.4) (11) % Market ADNV (in billions) € 45.8 € 58.7 € (12.9) (22) % Trading days 65 64 1 2 % Market share 24.9 % 21.8 % 3.1 % * Net capture (per matched notional value (bps)) (8) € 0.215 € 0.233 € (0.018) (8) % Cboe Clear Europe: Trades cleared (9) 359.4 456.5 (97.1) (21) % Fee per trade cleared (10) € 0.008 € 0.009 € (0.001) (13) % European equities market share cleared (11) 34.1 % 32.2 % 1.9 % * Net settlement volume (12) 2.7 2.8 (0.1) (5) % Net fee per settlement (13) € 0.953 €
0.924 € 0.029 3 %
Australian Equities :
ADNV (AUD billions) $ 0.8 $ 0.9 $ (0.1) (14) %
Trading days 63 63 - - %Market share - Continuous 18.5 % 15.8 % 2.7 % * Net capture (per matched notional value (bps), inAustralian Dollars)(14 ) $ 0.160 $ 0.173$ (0.013) (8) % Japanese Equities: ADNV (JPY billions) ¥ 183.3 ¥ 161.8 ¥ 21.5 13 % Trading days 60 59 1 2 %
Market share - Lit Continuous 4.8 % 3.8 % 1.0 % * Net capture (per matched notional value (bps)) (15) ¥ 0.243 ¥
0.228 ¥ 0.015 7 %
Futures:
ADV (in thousands) 231.8 253.7 (21.9) (9) %
Trading days 62 62 - - %Revenue per contract $ 1.725 $ 1.637 $ 0.088 5 % Global FX: ADNV ($ in billions) $ 45.0 $ 42.0 $ 3.0 7 % Market share 19.0 % 17.3 % 1.7 % * Trading days 65 64 1 2 % Net capture (perone million dollars traded) (16) $ 2.64 $ 2.67$ (0.03) (1) % Average British pound/U.S. dollar exchange rate $ 1.214 $ 1.342$ (0.128) (10) % Average Canadian dollar/U.S. dollar exchange rate $ 0.740 $ 0.789$ (0.049) (6) % Average Euro/U.S. dollar exchange rate $ 1.073 $ 1.122$ (0.049) (4) % Average Euro/British pound exchange rate £ 0.883 £ 0.836 £ 0.047 6 % Average Australian dollar/U.S. dollar exchange rate $ 0.684 $ 0.721$ (0.037) (5) % Average Japanese Yen/U.S. dollar exchange rate $ 0.008 $ 0.009$ (0.001) (12) % * Not meaningful
Note, the percent change listed represents the change in the unrounded metrics figures.
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Touched volume represents the total number of shares of equity securities and (1) ETFs internally matched on our exchanges or routed to and executed on an
external market center.
Average revenue per contract, for options and futures represents total net (2) transaction fees recognized for the period divided by total contracts traded
during the period.
Net capture per one hundred touched shares refers to transaction fees less (3) liquidity payments and routing and clearing costs divided by the product of
one-hundredth ADV of touched shares on BZX, BYX, EDGX, and EDGA and the
number of trading days.
Net capture per one hundred touched shares refers to transaction fees less (4) 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.
(5) Matched volume represents the total number of shares of equity securities and
ETFs activity executed on our exchanges.
Net capture per 10,000 touched shares refers to transaction fees divided by (6) the product of one-ten thousandth ADV of shares for Cboe Canada and MATCHNow
and the number of trading days.
(7) Matched ADNV represents the average daily notional value of shares or
contracts executed on our exchanges.
Net capture per matched notional value refers to transaction fees less (8) liquidity payments in British pounds divided by the product of ADNV in
British pounds of shares matched on
trading days.
(9) Trades cleared refers to the total number of non-interoperable trades
cleared.
(10) Fee per trade cleared refers to clearing fees divided by number of
non-interoperable trades cleared.
venues.
(12) Net settlement volume refers to the total number of settlements executed
after netting.
(13) Net fee per settlement refers to settlement fees less direct costs incurred
to settle divided by the number of settlements executed after netting.
Net capture per matched notional value refers to transaction fees less (14) liquidity payments in Australian dollars divided by the product of ADNV in
Australian dollars of shares matched on Cboe Australia and the number of
Australian Equities trading days.
Net capture per matched notional value refers to transaction fees less (15) liquidity payments in Japanese Yen divided by the product of ADNV in
Japanese Yen of shares matched on Cboe Japan and the number of Japanese
Equities trading days.
Net capture per
less liquidity payments, if any, divided by the Spot and SEF products of (16) 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.
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Revenues
Total revenues for the three months ended March 31, 2023 increased $13.7
million , or 1%, compared to the prior period primarily due to increases in
derivatives markets revenue as a result of increased volumes traded on the
Options exchanges and an increase in the Section 31 fee rate following rate
changes in May 2022 and February 2023 , coupled with an increase in data and
access solutions revenue primarily related to an increase in access and capacity
fees in the Options and North American Equities segments and additional revenue
attributable to Cboe Canada, which was acquired in the second quarter of 2022.
The revenue increases were partially offset by a decrease in cash and spot
markets revenue, driven by a decline in volumes traded on the U.S. Equities
exchanges.
The following summarizes changes in revenues for the three months ended March
31, 2023 compared to the three months ended March 31, 2022 (in millions, except
percentages):
Three Months Ended
March 31, Increase/ Percent
2023 2022 (Decrease) Change
Cash and spot markets $ 407.0 $ 461.9 $ (54.9) (12) %
Data and access solutions 129.4 118.9 10.5 9 %
Derivatives markets 451.8 393.7 58.1 15 %
Total revenues $ 988.2 $ 974.5 $ 13.7 1 %
Cash and Spot Markets
Cash and spot markets revenue decreased for the three months ended March 31,
2023 compared to the same period in 2022 primarily due to a decrease in
transaction and clearing fees, partially offset by an increase in regulatory
fees. Transaction and clearing fees decreased primarily due to an 18% decrease
in total touched shares on the U.S. Equities exchanges and an 11% decrease in
European Equities matched ADNV, partially offset by additional transaction and
clearing fees attributable to Cboe Canada. Regulatory fees increased primarily
due to a 241% increase in the Section 31 fee rate, from an average rate of $5.10
per million dollars of covered sales for the three months ended March 31, 2022
to an average rate of $17.40 per million dollars of covered sales for the three
months ended March 31, 2023 .
Data and Access Solutions
Data and access solutions revenue increased for the three months ended March 31,
2023 compared to the same period in 2022 primarily due to increases in access
and capacity fees and proprietary market data fees. Access and capacity fees
increased primarily due to increased logical and physical port fees in the
Options and North American Equities segments driven by an increase in
subscribers. Proprietary market data fees increased primarily due to proprietary
market data attributable to Cboe Canada, coupled with an increase in proprietary
market data in the Options segment.
Derivatives Markets
Derivatives markets revenue increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to increases in transaction and clearing fees and regulatory fees. Transaction and clearing fees increased primarily due to a 49% increase in index options ADV, partially offset by a 1% decline in multi-listed options market share. Regulatory fees increased primarily due to a 241% increase in the Section 31 fee rate, from an average rate of$5.10 per million dollars of covered sales for the three months endedMarch 31, 2022 to an average rate of$17.40 per million dollars of covered sales for the three months endedMarch 31, 2023 . 58 Table of Contents Cost of Revenues The following tables reconcile the cost of revenues captions presented on the condensed consolidated statements of income to the updated net revenue captions presented on the condensed consolidated statements of income for the three months endedMarch 31, 2023 and 2022, respectively (in millions): Three Months Ended March 31, 2023 Cash and Data and Derivatives Spot Markets Access Solutions Markets Total Liquidity payments$ 227.0 $ -$ 144.8 $ 371.8 Routing and clearing fees 14.3 - 9.7 24.0 Section 31 fees 61.4 - 13.5 74.9
Royalty fees and other cost of revenues 7.1
2.2 36.8 46.1
Total cost of revenues $ 309.8 $ 2.2 $ 204.8 $ 516.8
Three Months Ended March 31,
2022
Cash and Data and Derivatives
Spot Markets Access Solutions Markets Total
Liquidity payments $ 299.6 $ - $ 167.9 $ 467.5
Routing and clearing fees 15.6 - 6.7 22.3
Section 31 fees 31.8 - 3.9 35.7Royalty fees and other cost of revenues 4.6
2.4 23.9 30.9
Total cost of revenues $ 351.6 $ 2.4 $ 202.4 $ 556.4
Cost of revenues decreased for the three months ended March 31, 2023 compared to
the same period in 2022 primarily due to decreased cash and spot markets costs
of revenues driven by a decrease in liquidity payments as a result of decreased
volumes traded on U.S. Equities exchanges, partially offset by an increase in
Section 31 fees as a result of an increase in the Section 31 fee rate.
The following summarizes changes in the disaggregated cost of revenues for the
three months ended March 31, 2023 compared to the three months ended March 31,
2022 (in millions, except percentages):
Three Months Ended
March 31, Increase/ Percent
2023 2022 (Decrease) Change
Liquidity payments $ 371.8 $ 467.5 $ (95.7) (20) %
Routing and clearing 24.0 22.3 1.7 8 %
Section 31 fees 74.9 35.7 39.2 110 %Royalty fees and other cost of revenues 46.1 30.9
15.2 49 %
Total cost of revenues $ 516.8 $ 556.4 $ (39.6) (7) %
Liquidity Payments
Liquidity payments decreased for the three months ended March 31, 2023 compared
to the same period in 2022 primarily due to a decrease in volumes traded ontheU.S. Equities exchanges. Routing and Clearing Routing and clearing fees increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to an increase in routed trades on the Options exchanges, partially offset by a decrease in routed shares on the U.S Equities exchanges. 59 Table of Contents Section 31 Fees Section 31 fees increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to a 241% increase in the Section 31 fee rate, from an average rate of$5.10 per million dollars of covered sales for the three months endedMarch 31, 2022 to an average rate of$17.40 per million dollars of covered sales for the three months endedMarch 31, 2023 .
Royalty Fees and Other Cost of Revenues
Royalty fees and other cost of revenues increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to an increase in trading volumes of licensed products in the Options segment and increases in royalty fee rates, coupled with an increase in operating interest expense attributable to Cboe Clear Europe.
Revenues Less Cost of Revenues
Revenues less cost of revenues increased$53.3 million , or 13.0%, for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to an increase in derivatives markets revenues less cost of revenues attributable to an increase in volumes traded on the Options exchanges, as well as an increase in access and capacity fees in theOptions and North American Equities segments, partially offset by a decrease in cash and spot markets revenues less cost of revenues driven by a decrease in volumes traded on theU.S. Equities andEuropean Equities exchanges. The following summarizes the components of revenues less cost of revenues for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 (in millions, except percentages): Three Months Ended March 31, Increase/ Percent 2023 2022 (Decrease) Change Cash and spot markets$ 97.2 $ 110.3 $ (13.1) (12) % Data and access solutions 127.2 116.5 10.7 9 % Derivatives markets 247.0 191.3
55.7 29 %
Total revenues less cost of revenues
Cash and Spot Markets Cash and spot markets revenues less cost of revenues decreased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to decreases in transaction and clearing fees less liquidity payments and routing and clearing costs ("net transaction and clearing fees") in theEurope andAsia Pacific andNorth American Equities segments, coupled with a decrease in industry market data fees. Net transaction and clearing fees decreased primarily due to an 11% decrease inEuropean Equities matched ADNV, an 18% decrease in total touched shares on theU.S. Equities exchanges, and a 5% decrease in net settlement volume attributable to Cboe Clear Europe, partially offset by a 7% increase in Global FX ADNV. Industry market data fees decreased primarily due to a decrease inU.S. tape plan revenue driven by a 2% decline in market share
on theU.S. Equities exchanges. Data and Access Solutions
Data and access solutions revenues less cost of revenues increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to increases in access and capacity fees and proprietary market data fees. Access and capacity fees increased primarily due to increased logical and physical port fees in theOptions and North American Equities segments driven by an increase in subscribers. Proprietary market data fees increased primarily due to proprietary market data attributable to Cboe Canada, coupled with an increase in proprietary market data in the Options segment.
Derivatives Markets
Derivatives markets revenues less cost of revenues increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to increases in net transaction and clearing fees driven by a 49% increase in index options ADV, partially offset by a 1% decline in multi-listed options market share and a 5% decrease in multi-listed 60
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options net capture, an increase in royalty fees due to an increase in trading volumes of licensed products in the Options segment and increases in royalty fee rates. Operating Expenses
Total operating expenses for the three months endedMarch 31, 2023 compared to the same period in 2022 increased$45.1 million , or 25%, primarily due to increases in compensation and benefits, acquisition-related costs, professional fees and outside services, travel and promotional expenses, and technology support services.
The following summarizes changes in operating expenses for the three months
ended
Three Months Ended
March 31, Increase/ Percent
2023 2022 (Decrease) Change
Compensation and benefits $ 110.4 $ 81.2 $ 29.2 36 %
Depreciation and amortization 41.4 40.9 0.5 1 %
Technology support services 22.2 19.2 3.0 16 %
Professional fees and outside
services 23.9 19.7 4.2 21 %
Travel and promotional expenses 6.2 2.9 3.3 114 %
Facilities costs 7.6 6.5 1.1 17 %
Acquisition-related costs 6.4 2.0 4.4 220 %
Other expenses 5.4 6.0 (0.6) (10) %
Total operating expenses $ 223.5 $ 178.4 $ 45.1 25 %
Compensation and Benefits
Compensation and benefits increased for the three months ended March 31, 2023
compared to the same period in 2022 primarily due to a $16.1 million increase in
salaries, wages, and bonuses, driven by merit and cost-of-living increases and
increased headcount excluding acquisitions, coupled with a $4.6 million increase
related to the acquisitions of Cboe Digital and Cboe Canada, which were both
acquired in the second quarter of 2022. Additionally, there was an $8.0 million
increase in equity compensation due to 2020 performance-based restricted stock
units vesting above target during the three months ended March 31, 2023 .
Depreciation and Amortization
Depreciation and amortization was relatively flat for the three months endedMarch 31, 2023 compared to the same period in 2022 due to an increase in depreciation and amortization expenses related to the acquisitions of Cboe Digital and Cboe Canada, partially offset by a decline in amortization under the discounted cash flow method for the intangibles acquired in the Bats acquisition.
Technology support services increased for the three months ended
Professional Fees and Outside Services
Professional fees and outside services increased for the three months ended
Travel and Promotional Expenses
Travel and promotional expenses increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to increases in marketing and advertising expenses driven by the Company's rebranding as well as an increase in travel expenses due to an increase in travel. 61 Table of Contents Facilities Costs
Facilities costs increased for the three months ended
Acquisition-Related Costs
Acquisition-related costs increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to an increase in professional fees associated with acquisition and ongoing integration costs with Cboe Digital and Cboe Canada acquisitions. Other Expenses
Other expenses decreased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to a decrease in taxes, licenses, permits, VAT taxes, and record storage costs, partially offset by an increase in bad debt expense and expenses associated with hosting theCboe Risk Management Conference .
Operating Income
As a result of the items above, operating income for the three months ended
Interest Expense, Net
Net interest expense increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to additional interest expense incurred in connection with the 3.000% Senior Notes issued at the end of the first quarter of 2022, coupled with additional interest expense incurred in connection with the additional borrowings on the Term Loan in the second quarter of 2022, as well as an increase in the SOFR rate, partially offset by a decrease in interest expense related to the Cboe Clear Europe Credit Facility, which was amended and restated inJune 2022 .
Other Income (Expense), Net
Net other income increased for the three months endedMarch 31, 2023 compared to the same period in 2022 primarily due to a$14.4 million gain on the Company's investment in 7Ridge Fund (which owns Trading Technologies), coupled with a$3.1 million loss related to investment establishment costs attributable to the Company's investment in 7Ridge Fund recorded in the first quarter of 2022, which did not recur.
Income Before Income Tax Provision
As a result of the above, income before income tax provision for the three
months ended
Income Tax Provision
The effective tax rate from continuing operations was 30.1% and 51.3% for the three months endedMarch 31, 2023 and 2022, respectively. The lower effective tax rate for the three months endedMarch 31, 2023 compared to the same period in 2022 is primarily due to the derecognition of the Company's Section 199 tax benefits for tax years 2008 through 2016 and related interest and penalties upon the filing of an unfavorable decision by the United States Tax Court in the matter ofBats Global Markets Holdings, Inc. , and Subsidiaries v. Commissioner onMarch 31, 2022 . Net Income
As a result of the items above, net income for the three months endedMarch 31, 2023 was$173.4 million , compared to net income of$109.6 million for the three months endedMarch 31, 2022 , an increase of$63.8 million . 62
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Segment Operating Results
We report results from our six segments: Options,North American Equities ,Europe andAsia Pacific , Futures, Global FX, and Digital. Segment performance is primarily based on operating income (loss). We have aggregated all corporate costs, as well as other business ventures, within Corporate Items and Eliminations as those activities should not be used to evaluate a segment's operating performance. All operating expenses that relate to activities of a specific segment have been allocated to that segment. The following summarizes our total revenues by segment (in millions, except percentages): [[Image Removed: Graphic]] Percentage of Total Revenues Three Months Ended Three Months Ended March 31, Percent March 31, 2023 2022 Change 2023 2022 Options$ 486.1 $ 422.6 15 % 49 % 43 % North American Equities 379.8 423.7 (10) % 39 % 44 % Europe and Asia Pacific 72.3 78.6 (8) % 7 % 8 % Futures 32.1 32.3 (1) % 3 % 3 % Global FX 18.8 17.3 9 % 2 % 2 % Digital (0.9) - * % * % - % Total revenues$ 988.2 $ 974.5 1 % 100 % 100 % * Not meaningful 63 Table of Contents
The following summarizes our revenues less cost of revenues by segment (in millions, except percentages):
[[Image Removed: Graphic]]
Percentage of
Total Revenues
Less Cost of Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022
Options $ 280.7 $ 219.2 28 % 59 % 52 %
North American Equities 93.1 93.1 0 % 20 % 22 %
Europe and Asia Pacific 49.3 57.5 (14) % 10 % 14 %
Futures 31.1 31.2 (0) % 7 % 8 %
Global FX 18.5 17.1 8 % 4 % 4 %
Digital (1.3) - * % * % - %
Total revenues less cost
of revenues $ 471.4 $ 418.1 13 % 100 % 100 %
* Not meaningful
64
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Options
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Options segment (in millions, except percentages):
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022Revenues less cost of revenues$ 280.7 $ 219.2 28 %
58 % 52 %
Operating expenses 79.7 56.5 41 % 16 % 13 %
Operating income $ 201.0 $ 162.7 24 % 41 % 38 %
EBITDA (1) $ 206.8 $ 169.1 22 % 43 % 40 %
EBITDA margin (2) 73.7 % 77.1 % * * *
* Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA, and management's reasons for using
such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
Revenues less cost of revenues increased$61.5 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to a 49% increase in index options ADV and a 4% increase in index options net capture, partially offset by a 5% decrease in multi-listed options net capture. For the three months endedMarch 31, 2023 , operating income for the Options segment increased$38.3 million compared to the three months endedMarch 31, 2022 primarily due to an increase in revenues less cost of revenues, partially offset by an increase in operating expenses. Operating expenses increased$23.2 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to an increase in compensation and benefits.
The following summarizes revenues less cost of revenues, operating expenses,
operating income, EBITDA, and EBITDA margin for our
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022Revenues less cost of revenues$ 93.1 $ 93.1 0
% 25 % 22 % Operating expenses 64.7 54.5 19 % 17 % 13 % Operating income$ 28.4 $ 38.6 (26) % 7 % 9 % EBITDA (1)$ 46.9 $ 56.5 (17) % 12 % 13 % EBITDA margin (2) 50.4 % 60.7 % * * * * Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA, and management's reasons for using
such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
Revenues less cost of revenues remained flat for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to an 18% decrease in total touched shares on theU.S. Equities exchanges, partially offset by additional revenues less cost of revenues attributable to Cboe Canada, which was acquired in the second quarter of 2022. For the three months endedMarch 31, 2023 , operating income for theNorth American Equities segment decreased$10.2 million compared to the three months endedMarch 31, 2022 due to an increase in operating expenses. Operating expenses increased$10.2 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to increases in compensation and benefits, professional fees and outside services, and travel and promotional expenses, as well as increased expenses attributable to Cboe Canada. 65 Table of ContentsEurope andAsia Pacific
The following summarizes revenues less cost of revenues, operating expenses,
operating income, EBITDA, and EBITDA margin for our
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022
Revenues less cost of revenues $ 49.3 $ 57.5 (14) % 68 % 73 %
Operating expenses 38.0 36.6 4 % 53 % 47 %
Operating income $ 11.3 $ 20.9 (46) % 16 % 27 %
EBITDA (1) $ 19.7 $ 30.3 (35) % 27 % 39 %
EBITDA margin (2) 40.0 % 52.7 % * * *
*Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA, and management's reasons for using
such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
Revenues less cost of revenues decreased$8.2 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to adverse changes in foreign currency rates, most notably a 4% decline in the Euro and a 12% decline in Japanese Yen, coupled with an 11% decrease inEuropean Equities matched ADNV and a 5% decrease in net settlement volume attributable to Cboe Clear Europe. For the three months endedMarch 31, 2023 , operating income for theEurope andAsia Pacific segment decreased$9.6 million compared to the three months endedMarch 31, 2022 primarily due to a decrease in revenues less cost of revenues and an increase in operating expenses. Operating expenses increased$1.4 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to increases in compensation and benefits and technology support services, partially offset by a decrease in depreciation and amortization.
Futures
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Futures segment (in millions, except percentages):
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022
Revenues less cost of revenues $ 31.1 $ 31.2 (0) % 97 % 97 %
Operating expenses 10.2 14.2 (28) % 32 % 44 %
Operating income $ 20.9 $ 17.0 23 % 65 % 53 %
EBITDA (1) $ 21.4 $ 17.6 22 % 67 % 54 %
EBITDA margin (2) 68.8 % 56.4 % * * *
* Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA, and management's reasons for using
such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
Revenues less cost of revenues remained relatively flat for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to a decrease in transaction and clearing fees as a result of a 9% decrease in ADV, partially offset by a 5% increase in net capture and an increase in physical port fees. For the three months endedMarch 31, 2023 , operating income for the Futures segment increased$3.9 million compared to the three months endedMarch 31, 2022 primarily due to a decrease in operating expenses. Operating expenses decreased$4.0 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to decreases in compensation and benefits. 66 Table of Contents Global FX
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Global FX segment (in millions, except percentages):
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2023 2022 Change 2023 2022Revenues less cost of revenues$ 18.5 $ 17.1 8
% 98 % 99 % Operating expenses 13.8 14.7 (6) % 73 % 85 % Operating income$ 4.7 $ 2.4 96 % 25 % 14 % EBITDA (1)$ 9.9 $ 8.2 21 % 53 % 47 % EBITDA margin (2) 53.5 % 48.0 % * * * * Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA, and management's reasons for using
such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
Revenues less cost of revenues increased$1.4 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to a 7% increase in ADNV, partially offset by a 1% decrease in net capture. For the three months endedMarch 31, 2023 , operating income for the Global FX segment increased$2.3 million compared to the three months endedMarch 31, 2022 due to an increase in revenues less cost of revenues and a decrease in operating expenses. Operating expenses decreased$0.9 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 primarily due to decreases in depreciation and amortization and professional fees and outside services. Digital The following summarizes revenues less cost of revenues, operating expenses, operating loss, EBITDA, and EBITDA margin for our Digital segment (in millions, except percentages): Percentage of Total Revenues Three Months Ended Three Months EndedMarch 31 ,March 31, 2023 2023
Revenues less cost of revenues $ (1.3)
* % Operating expenses 10.1 * % Operating loss $ (11.4) * % EBITDA (1) $ (9.6) * % EBITDA margin (2) * * * Not meaningful
(1) See footnote (2) to the table under "Financial Summary" above for a reconciliation of net income to EBITDA, and management's reasons for using such non-GAAP measures.
(2) EBITDA margin represents EBITDA divided by revenues less cost of revenues.
The Digital segment was established in the second quarter of 2022 following the acquisition of ErisX, which was subsequently rebranded to Cboe Digital. Cost of revenues exceeded revenues for the three months endedMarch 31, 2023 primarily due to the contra-revenue recorded in connection with the non-recourse notes accounted for as options. See Note 17 ("Stock-Based Compensation") for additional information on the syndication. For the three months endedMarch 31, 2023 , the Digital segment had an operating loss of$11.4 million , due to operating expenses, which primarily consist of compensation and benefits, depreciation and amortization, and professional fees and outside services, exceeding revenues less cost of revenues. 67
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Liquidity and Capital Resources
Below are charts that reflect elements of our capital allocation:
[[Image Removed: Graphic]]
We expect our cash on hand at March 31, 2023 and other available resources,
including cash generated from operations, to be sufficient to continue to meet
our cash requirements for the foreseeable future. In the near term, we expect
that our cash from operations and availability under the Revolving Credit
Facility and potentially participating in future financing transactions to
obtain additional capital will meet our cash needs to fund our operations,
capital expenditures, interest payments on debt, debt repayments, such as under
the Term Loan Agreement, which matures on December 15, 2023 , any dividends,
potential strategic acquisitions, opportunities for common stock repurchases
under the previously announced program, and payouts related to the unfavorable
decision in the Section 199 litigation. See Note 10 ("Debt") of the condensed
consolidated financial statements for further information.
Cboe Clear Europe also has a €1.25 billion committed syndicated multicurrency
revolving and swingline credit facility agreement with Cboe Clear Europe as
borrower and the Company as guarantor of scheduled interest and fees on
borrowings (but not the principal amount of any borrowings) (the "Facility").
The Facility is available to be drawn by Cboe Clear Europe towards (a) financing
unsettled amounts in connection with the settlement of transactions in
securities and other items processed through Cboe Clear Europe's clearing system
and (b) financing any other liability or liquidity requirement of Cboe Clear
Europe incurred in the operation of its clearing system. Borrowings under the
Facility are secured by cash, eligible bonds and eligible equity assets
deposited by Cboe Clear Europe into secured accounts. As a result, should the
Facility be drawn by Cboe Clear Europe it could potentially impact Cboe Clear
Europe's liquidity, and we can give no assurance that this Facility will be
sufficient to meet all of such obligations or sufficiently mitigate Cboe Clear
Europe's liquidity risk to meet its payment obligations when due. Additionally,
a default of the Facility may allow lenders, under certain circumstances, to
accelerate any related drawn amounts and may result in the acceleration of the
Company's other outstanding debt to which a cross-acceleration or cross-default
provision applies, which may limit the Company's liquidity, business and
financing activities. The Facility is expected to terminate on June 29, 2023 and
we may not be able to enter into a replacement facility on commercially
reasonable terms, or at all. Please refer to Note 10 ("Debt") for further
information on the amendment.
Our long-term cash needs will depend on many factors, including an introduction
of new products, enhancements of current products, the geographic mix of our
business and any potential acquisitions. We believe our cash from operations and
the availability under our Revolving Credit Facility will meet any long-term
needs unless a significant acquisition or acquisitions are identified, in which
case we expect that we would be able to borrow the necessary funds and/or issue
additional shares of our common stock to complete such acquisition(s).
68
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Cash and cash equivalents include cash in banks and all non-restricted, highly liquid investments with original maturities of three months or less at the time of purchase. Cash and cash equivalents as ofMarch 31, 2023 increased$2.9 million fromDecember 31, 2022 primarily due to the results of operations, partially offset by outflows from share repurchases and cash dividends. See "Cash Flow" below for further discussion. Our cash and cash equivalents held outside ofthe United States in various foreign subsidiaries totaled$205.0 million as ofMarch 31, 2023 . The remaining balance was held inthe United States and totaled$230.6 million as ofMarch 31, 2023 . The majority of cash held outsidethe United States is available for repatriation, but under current law, could subject us to additionalUnited States income taxes, less applicable foreign tax credits. Our financial investments include deferred compensation plan assets, as well as investments with original or acquired maturities longer than three months, but that mature in less than one year from the balance sheet date and are recorded at fair value. As ofMarch 31, 2023 andDecember 31, 2022 , financial investments consisted ofU.S. Treasury securities and deferred compensation plan assets.
Cash Flow
The following table summarizes our cash flow data for the three months ended
Three Months Ended
March 31,
2023 2022Net cash provided by operating activities$ 1,030.8 $
1,259.8
Net cash provided by (used in) investing activities 1.9
(24.9)
Net cash (used in) provided by financing activities (141.2)
146.5
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
21.1 0.7
Increase in cash, cash equivalents, and restricted cash and cash equivalents$ 912.6 $ 1,382.1 As of March 31, 2023 2022 Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents: Cash and cash equivalents$ 435.6 $
659.4
Restricted cash and cash equivalents (included in margin deposits and clearing funds) 1,428.4
1,810.3
Restricted cash and cash equivalents (included in other current assets) 4.1
4.6
Customer bank deposits (included in margin deposits and clearing funds) 24.4 - Total$ 1,892.5 $ 2,474.3
Net Cash Flows Provided by Operating Activities
During the three months endedMarch 31, 2023 , net cash provided by operating activities was$857.4 million higher than net income. The variance is primarily attributable to the change in restricted cash and cash equivalents, driven by margin deposits and clearing funds related to Cboe Clear Europe of$898.2 million , partially offset by the change in the Section 31 fees payable of$71.7 million and the change in accounts payable and accrued liabilities of$56.0 million for the three months endedMarch 31, 2023 . Net cash flows provided by operating activities were$1,030.8 million and$1,259.8 million for the three months endedMarch 31, 2023 and 2022, respectively. The change in net cash flows provided by operating activities was primarily due to the change in restricted cash and cash equivalents, driven by margin deposits and clearing funds related to Cboe Clear Europe, the change in Section 31 fees payable, and the change in accounts payable and accrued liabilities, partially offset 69 Table of Contents
by the change in net income for the three months ended
Net Cash Flows Provided by (Used in) Investing Activities
Net cash flows provided by (used in) investing activities were$1.9 million and$(24.9) million for the three months endedMarch 31, 2023 and 2022, respectively. The variance is primarily due to the change in proceeds from maturities available-for-sale financial investments, partially offset by the change in purchases of available-for-sale financial investments and purchases of property and equipment and leasehold improvements for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 .
Net Cash Flows (Used in) Provided by Financing Activities
Net cash flows (used in) provided by financing activities were$(141.2) million and$146.5 million for the three months endedMarch 31, 2023 and 2022, respectively. The variance is primarily attributable to proceeds from the long-term debt issuance of$298.6 million from the three months endedMarch 31, 2022 that did not recur in 2023, partially offset by the change in payments of contingent consideration related to acquisitions for three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 .
Financial Assets
The following summarizes our financial assets, excluding margin deposits and
clearing funds, as of
March 31, December 31,
2023 2022
Cash and cash equivalents $ 435.6 $ 432.7
Financial investments 80.2 91.7
Less deferred compensation plan assets (30.7) (27.5)
Less cash collected for Section 31 fees (50.0) (93.7)
Adjusted cash (1) $ 435.1 $ 403.2
Adjusted cash is a non-GAAP measure and represents cash and cash equivalents
plus financial investments, minus deferred compensation plan assets and cash (1) collected for Section 31 fees. We have presented adjusted cash because we
consider it an important supplemental measure of our liquidity and believe
that it is frequently used by analysts, investors and other interested
parties in the evaluation of companies.
Debt
The following summarizes our debt obligations as of
March 31, December 31,
2023 2022
Term Loan Agreement $ 305.0 $ 305.0
3.650% Senior Notes 650.0 650.0
1.625% Senior Notes 500.0 500.0
3.000% Senior Notes 300.0 300.0Less unamortized discount and debt issuance costs (12.4) (13.0) Total debt
$ 1,742.6 $ 1,742.0
As of
In addition to the debt outstanding, as ofMarch 31, 2023 , we had an additional$400.0 million available through our revolving credit facility, with the ability to borrow another$200.0 million by increasing the commitments under the facility, subject to the agreement of the applicable lenders. Together with adjusted cash, we had$891.2 million available to fund 70
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our operations, capital expenditures, potential acquisitions, debt repayments
and any dividends, net of regulatory capital requirements as of
Dividends
The Company's expectation is to continue to pay dividends. The decision to pay a dividend, however, remains within the discretion of the Company's Board of Directors and may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness and other considerations our Board of Directors deems relevant. Future debt obligations and statutory provisions, among other things, may limit, or in some cases prohibit, our ability to pay dividends.
Share Repurchase Program
In 2011, the Board of Directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of$100 million and subsequently approved additional authorizations for a total authorization of$1.6 billion . The program permits the Company to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate the Company to make any repurchases at any specific time or situation. Share repurchases are repurchased to the Company'sTreasury stock and ultimately retired or they are available to be redistributed. OnAugust 16, 2022 ,President Biden signed into law H.R. 5376 (commonly known as the "Inflation Reduction Act of 2022" or simply the "IRA"). Tax measures contained in the IRA include, among other items, a new excise tax of 1% on repurchases of stock by domestic corporations with stock traded on established securities markets. The amount on which the tax is imposed is reduced by the value of any stock issued by such corporation during the tax year and the tax generally applies to stock buy-back transactions occurring afterDecember 31, 2022 . This new tax is not expected to result in a material impact to the Company. Under the program, for the three months endedMarch 31, 2023 , the Company repurchased 567,073 shares of common stock at an average cost per share of$123.42 , totaling$70.0 million . Since inception of the program throughMarch 31, 2023 , the Company has repurchased 19,515,440 shares of common stock at an average cost per share of$71.84 , totaling$1.4 billion .
As of
Commercial Commitments and Contractual Obligations
As ofMarch 31, 2023 , our commercial commitments and contractual obligations included operating leases, data and telecommunications agreements, equipment leases, our long-term debt outstanding, contingent considerations, software development activities and other obligations. See Note 21 ("Commitments, Contingencies, and Guarantees") to the condensed consolidated financial statements for a discussion of commitments and contingencies, Note 10 ("Debt") for a discussion of the outstanding debt, Note 12 ("Clearing Operations") for information on Cboe Clear Europe and Cboe Digital's clearinghouse exposure guarantees, and Note 22 ("Leases") for discussion on operating leases and equipment leases.
Guarantees
We use Wedbush and Morgan Stanley to clear our routed equities transactions for ourU.S. Equities exchanges. Wedbush and Morgan Stanley guarantee the trade until one day after the trade date, after which time theNational Securities Clearing Corporation ("NSCC") provides a guarantee. The BIDS Trading ATS platform delivers matched trades toBofA Securities, Inc. ("BOA"), which delivers the matched trades to theNSCC . BOA guarantees the trade until one day after the trade date, after which time theNSCC provides a guarantee. In the case of failure to perform on the part of Wedbush or Morgan Stanley on routed transactions for ourU.S. Equities exchanges, we provide the guarantee to the counterparty to the trader. In the case of failure to perform on the part of BOA on transactions for the BIDS Trading ATS platform, BIDS has obligations to the counterparties to satisfy the trades. OCC acts as a central counterparty on all transactions in listed equity options in our Options segment, and as such, guarantees clearance and settlement of all of our options transactions. We believe that any potential requirement for us to make payments under these guarantees is remote and accordingly, have not recorded any liability in the condensed consolidated financial statements for these guarantees. Similarly, with respect to trades inU.S. listed equity options and futures occurring
on
Cboe Options, C2, BZX,
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EDGX, and CFE, we deliver matched trades of our customers to the OCC, which acts as a central counterparty on all transactions occurring on these exchanges and, as such, guarantees clearance and settlement of all of those matched options and futures trades. With respect to Canadian equities, we deliver matched trades of our customers to TheCanadian Depository for Securities , which acts as a central counterparty on all transactions occurring on MATCHNow and Cboe Canada and, as such, guarantees clearance and settlement of all of our matched Canadian equities trades. With respect to Australian equities and derivatives, we deliver matched trades of our customers toASX Clear Pty Ltd andASX Settlement Pty Ltd. ASX Clear Pty Ltd acts as a central counterparty on all transactions occurring on Cboe Australia and, as such, guarantees clearance and settlement on all of our matched trades inAustralia . With respect to Japanese equities, we deliver matched trades of our customers to theJapanese Securities Clearing Corporation , which acts as a central counterparty on all transactions occurring on Cboe Japan and, as such, guarantees clearance and settlement on all of our matched trades inJapan . Critical Accounting Estimates The preparation of condensed consolidated financial statements in conformity withU.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of the amounts of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. The Company bases its estimates on historical experience, observance of trends in particular areas, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Information from these sources form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. In the three months endedMarch 31, 2023 , there were no significant changes to our critical accounting estimates from those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Annual Report on Form 10-K.
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