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, 2020 , 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. ("Cboe" or "the Company") provides cutting-edge trading and investment solutions to market participants around the world. The Company is committed to defining markets through product innovation, leading edge technology, and seamless trading solutions. Cboe offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures,U.S. , Canadian and European equities, exchange-traded products ("ETPs"), global foreign exchange ("FX") and volatility products based on the VIX Index, recognized as the world's premier gauge ofU.S. equity market volatility. 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 EuroCCP, a leading pan-European equities clearinghouse, MATCHNow, a leading equities ATS inCanada , and BIDS Trading, the leading block-trading ATS by volume in theU.S. Cboe also is a leading market globally for ETP listings and trading.
The Company is headquartered in
Recent Developments
Acquisition of
OnDecember 31, 2020 , the Company completed the acquisition ofBIDS Holdings , which is included in the Company'sNorth American Equities segment.BIDS Holdings owns BIDS Trading, a registered broker-dealer and the operator of the BIDS ATS, the largest block-trading ATS by volume in theU.S. The BIDS ATS is not a registered national securities exchange or a facility thereof. The acquisition follows Cboe and BIDS Trading's successful partnership inEurope , which began in 2016 with the creation of Cboe LIS for European equities block trading. Since its launch, Cboe LIS has grown to become one of the largest block-trading platforms inEurope . BIDS Trading's proven block trading capability provides the Company a foothold in the off-exchange segment of theU.S. equities market. Additionally, BIDS Trading's differentiated network of global buy-side investment managers and sell-side constituents provides the foundation for Cboe to potentially build more off-exchange products and services in non-U.S. equities or options products and in geographies beyond theU.S.
Planned acquisition of Chi-X Asia Pacific
OnMarch 24, 2021 , the Company announced it entered into a definitive agreement to acquireChi-X Asia Pacific Holdings, Ltd. , an alternative market operator and provider of innovative market solutions. This acquisition will provide the Company with a single point of entry into two key capital markets,Australia andJapan , to help enable it to expand its global equities business intoAsia Pacific , bring other products and services to the region, and further expand access to its unique proprietary product suite in the region. The transaction is expected to close in the second or third quarter of 2021; subject to regulatory review and other customary closing conditions.
Business Segments
The Company reports five business segments: Options,North American Equities , Futures,Europe , and Global FX. Segment performance is primarily based on operating income (loss). The Company has aggregated all of its corporate costs and eliminations, as well as other business ventures, within Corporate Items and Eliminations; however, operating 38
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expenses that relate to activities of a specific segment have been allocated to that segment. Our management allocates resources, assesses performance and manages our business according to these segments:
Options. The Options segment includes listed 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 trade on Cboe Options, C2 Options, BZX
Options, and EDGX Options, all U.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 in Chicago . 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 revenue 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 listed
U.S. equities and ETP transaction services that occur on fully electronic
exchanges owned and operated by BZX Equities , BYX Equities , EDGX Equities , and
EDGA Equities and Canadian equities and other transaction services that occur on
or through the MATCHNow ATS. In addition, in connection with the closing of the
acquisition of BIDS Trading, starting January 1, 2021 , this segment also
includes equities transactions that occur on the BIDS Trading platforms. The
North American Equities segment also includes ETP listings on BZX, the Cboe
Global Markets, Inc. common stock listing, applicable market data revenue
generated from the consolidated tape plans, the licensing of proprietary
equities market data, routing services, and access and capacity services.
Futures. The Futures segment includes transaction services provided by the
Company's fully electronic futures exchange, CFE, which includes offerings for
trading VIX futures and other futures products, the licensing of proprietary
market data, as well as access and capacity services.
Europe (formerly European Equities ). The Europe segment includes the
pan-European listed equities transaction services, ETPs, exchange traded
commodities, and international depository receipts that are hosted on MTFs
operated by Cboe Europe Equities . It also includes the ETP listings business on
RMs and clearing activities of EuroCCP. This segment was previously referred to
as the European Equities segment, but has been updated as a result of the
buildout and anticipated launch of the pan-European derivatives platform later
in 2021, subject to regulatory approval. Cboe Europe Equities operates lit and
dark books, a periodic auctions book, and a Large-in-Scale ("LIS") trading
negotiation facility for UK symbols. Cboe NL , launched in October 2019 , operates
similar business functionality to that offered by Cboe Europe , and provides for
trading only in European Economic Area symbols. Cboe Europe Equities also
includes revenue generated from the licensing of proprietary market data and
from 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.
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 and ETPs in both
?
volumes in listed equity options, 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 revenue 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, which is dependent
? on the products we trade, our importance as a liquidity center and the quality
and pricing of our data and access and capacity services;
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? continuing pressure in transaction fee pricing due to intense competition in
? significant fluctuations in foreign currency translation rates or weakened
value of currencies; and
regulatory changes relating to market structure and increased capital
? requirements, and those which affect certain types of instruments,
transactions, pricing structures, capital market participants or reporting or
compliance requirements, including any changes resulting from Brexit.
A number of significant structural, political and monetary issues and the COVID-19 pandemic continue to confront the global economy, and instability could continue, resulting in an increased or subdued level of market volatility, changes in trading volumes and greater uncertainty.
OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a global pandemic. We are closely monitoring developments around COVID-19 and following guidance provided by governmental and public health agencies. In response to COVID-19, we have provided frequent communications to employees, customers, regulators, critical vendors, technology equipment suppliers, data and disaster recovery centers, and other service providers and instructed non-essential employees to work from home on a temporary basis, implemented travel restrictions, and temporarily suspended open outcry trading betweenMarch 13, 2020 andJune 14, 2020 , without any known significant disruptions to our business or control processes. We expect to continue to take further actions as necessary in response to addressing COVID-19. Our business and operations could be materially and adversely affected by the effects of COVID-19, however, the extent to which our results could be affected by COVID-19 largely depends on future developments which cannot be accurately predicted and are uncertain. Further, changes in trading behavior, additional suspensions of open outcry trading, market disruptions and other future developments caused by the effects of COVID-19 could impact trading volumes and the demand for our products, market data, and services, which could have a material adverse effect on our business, financial condition, operating results and cash flows for fiscal year 2021 and could be material during any future period impacted either directly or indirectly by this pandemic. Components of Revenues Transaction and Clearing Fees
Transaction fees represent fees charged by the Company for the performance obligation of executing a trade on its markets. These fees can be variable based on trade volume tiered discounts; however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. Transaction fees are recognized across all segments. Clearing fees, which include settlement fees, are charged by the Company for transactions cleared and settled by EuroCCP. Clearing fees can be variable based on trade volume tiered discounts; however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. Clearing fees are recognized in theEurope segment. Transaction and clearing fees, as well as any tiered volume discounts, are calculated and billed monthly in accordance with the Company's published fee schedules. Access and Capacity Fees Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. Facilities, systems services and other fees are generally monthly fee-based. These fees are billed monthly in accordance with the Company's published fee schedules and recognized on a monthly basis when the performance obligation is met. All access and capacity fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized.
Market Data Fees
Market data fees represent the fees from theU.S. tape plans and fees from customers for proprietary market data. Fees from theU.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the Exchanges based on a known formula using trading and/or quoting activity. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company's published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data.U.S. tape plan market data is recognized in theNorth American Equities and Options segments. Proprietary market data fees are recognized across all segments. 40 Table of Contents Regulatory Fees
Regulatory fees primarily represent fees collected by the Company to cover the Section 31 fees charged to the Exchanges under the authority of theSEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by theSEC . Consistent with industry practice, the fees charged to customers are based on the fee set by theSEC per notional value ofU.S. Equities exchange transactions and per round turn of Options transactions executed on the Company'sU.S. securities markets. These fees are calculated and billed monthly and are recognized in theNorth American Equities and Options segments. As the Exchanges are responsible for the ultimate payment to theSEC , the Exchanges are considered the principals in these transactions. Regulatory fees also include the options regulatory fee ("ORF") which supports the Company's regulatory oversight function in the Options segment, along with other miscellaneous regulatory fees, and neither can be used for non-regulatory purposes. The ORF and miscellaneous fees are recognized when the performance obligation is fulfilled.
Other Revenue
Other revenue primarily consists of revenue from various licensing agreements, interest income from clearing operations, all fees related to the trade reporting facility operated in theEurope segment, and revenue associated with advertisements through the Company's websites.
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 Limited , 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/Offer ("NBBO") 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 EuroCCP.
Section 31 Fees
Exchanges under the authority of theSEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) 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 our operating income. CFE,Cboe Europe Limited , BIDS, MATCHNow and Cboe FX are notU.S. national securities exchanges, and accordingly are not charged Section 31 fees.
Royalty Fees
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.
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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, including the Merger. The acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to the mergers and acquisitions, as well as compensation-related expenses.
Other Expenses
Other expenses represent costs necessary to support our operations that are not already included in the above categories.
Non-Operating Income (Expense)
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, dividend income, income
and unrealized gains and losses related to investments held in a trust for the
Company's non-qualified retirement and benefit plans, and equity earnings or
losses from our investments in other business ventures.
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Financial Summary
The following summarizes changes in financial performance for the three months
ended March 31, 2021 and 2020 and certain non-GAAP financial measures. These
non-GAAP financials 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.
Please see the footnotes below for additional information and reconciliations
from our condensed consolidated financial statements.
[[Image Removed: Graphic]]
(1) These are Non-GAAP figures for which reconciliations are provided below.
Three Months Ended March 31, Increase/ Percent
2021 2020 (Decrease) Change
(in millions, except percentages, earnings per share, and as noted below)
Total revenues $ 1,010.8 $ 921.5 $ 89.3 9.7 %
Total cost of revenues 645.3 563.2 82.1 14.6 %
Revenues less cost of revenues 365.5
358.3 7.2 2.0 %
Total operating expenses 160.9 131.9 29.0 22.0 %
Operating income 204.6 226.4 (21.8) (9.6) %Income before income tax provision 192.9
217.5 (24.6) (11.3) %
Income tax provision 55.7 60.1 (4.4) (7.3) %
Net income $ 137.2 $ 157.4 $ (20.2) (12.8) %
Basic earnings per share $ 1.27 $ 1.42 $ (0.15) (10.6) %
Diluted earnings per share 1.27 1.42 (0.15) (10.6) %
Organic net revenue (1) 338.7 358.3 (19.6) (5.5) %
EBITDA (2) 246.8 264.9 (18.1) (6.8) %
EBITDA margin (3) 67.5 % 73.9 % (6.4) % *
Adjusted EBITDA (2) $ 250.2 $ 265.7 $ (15.5) (5.8) %
Adjusted EBITDA margin (4) 68.5 % 74.2 % (5.7) % *
Adjusted earnings (5) $ 164.8 $ 182.3 $ (17.5) (9.6) %
Adjusted earnings margin (5) 45.1 % 50.9 % (5.8) % *Diluted weighted average shares outstanding 107.4 110.6 (3.2) (2.9) % Adjusted Diluted earnings per share (6) $ 1.53
$ 1.65 $ (0.12) (7.3) %
* Not meaningful
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The following summarizes changes in certain operational and financial metrics
for the three months ended March 31, 2021 compared to the three months ended
March 31, 2020 :
[[Image Removed: Graphic]]
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The following table includes operational and financial metrics for our Options,
North American Equities , Futures, Europe , and Global FX segments. The metrics
listed for Canadian Equities , EuroCCP, and BIDS Trading in the table below are
newly added for the three months ended March 31, 2021 as a result of
acquisitions completed during 2020. Therefore, the table does not include
results from the periods preceding each acquisition for the applicable metrics.
The following summarizes changes in certain operational and financial metrics
for the three months ended March 31, 2021 compared to the three months ended
March 31, 2020 :
Three Months Ended March 31, Increase/ Percent
2021 2020 (Decrease) Change
(in millions, except percentages, trading days, and as noted below)
Options:
Average daily volume (ADV) (in millions
of contracts):
Market ADV 42.0 28.0 14.0 50.0 %
Total touched contracts 12.7 10.7 2.0 18.7 %
Index contract ADV 1.9 2.7 (0.8) (29.6) %
Multi-Listed contract ADV 10.8 8.0 2.8 35.0 %
Number of trading days 61 62 (1) (1.6) %
Total Options revenue per contract (RPC)
(7) $ 0.177 $ 0.234 $ (0.057) (24.4) %
Multi-Listed Options RPC (7) 0.067 0.053 0.014 26.4 %
Index Options RPC (7) 0.803 0.781 0.022 2.8 %
Total Options Market Share 30.2 % 38.3 % (8.1) % *
Multi-Listed Options Market Share 26.9 % 31.9 % (5.0) % *
Index Options Market Share 99.0 % 99.2 % (0.2) % *
North American Equities :
U.S. Equities:
U.S. Equities - Exchange:
ADV:
Total touched shares (in billions) 2.3
2.0 0.3 15.0 %
Market ADV (in billions) 14.7 11.0 3.7 33.6 %
Market share 15.0 % 16.7 % (1.7) % *
U.S. Equities - Exchange (net capture
per one hundred touched shares) (8) $ 0.015 $ 0.026 $ (0.011) (42.3) %
U.S. ETPs: launches (number of launches) 35 18 17 94.4 %
U.S. ETPs: listings (number of listings) 471 351 120 34.2 %
U.S. Equities - Off-Exchange (9):
ADV:
Total touched shares (in millions) 99.5 - 99.5 - %
U.S. Equities - Off-Exchange (net
capture per one hundred touched shares)
(10) $ 0.121 $ - $ 0.121 - %
Trading days 61 62 (1) (1.6) %
Canadian Equities :ADV (matched shares, in millions) 71.4 - 71.4 - % Trading days 62 - 62 - % Net capture (per 10,000 touched shares, in Canadian dollars) (11) 7.184 - 7.184 - % Futures: ADV (in thousands) 255.9 330.9 (75.0) (22.7) % Trading days 61 62 (1) (1.6) % Revenue per contract $ 1.639 $ 1.750$ (0.111) (6.3) % Europe: Equities: ADNV: Matched and touched ADNV (in billions) € 7.5 € 9.1 € (1.6) (17.6) % Market ADNV (in billions) 44.8 51.5 (6.7) (13.0) % Trading days 63 64 (1) (1.6) % Market share 16.8 % 17.7 % (0.9) % * Net capture (per matched notional value in basis points) (12) 0.284 0.244 0.040 16.4 % EuroCCP: Trades cleared (13) 298.2 - 298.2 - % Fee per trade cleared (14) € 0.011 € - € 0.011 - % Net settlement volume (15) 2.4 - 2.4 - % Net fee per settlement (16) € 0.865 € - € 0.865 - % Global FX: ADNV (in billions) $ 37.1 $ 43.3$ (6.2) (14.3) % Trading days 63 64 (1) (1.6) % Global FX (net capture perone million dollars traded) (17) 2.65 2.69 (0.04) (1.5) % Average British pound/U.S. dollar exchange rate $ 1.379 $ 1.281$ 0.098 7.7 % Average Canadian dollar/U.S. dollar exchange rate $ 0.790 $ -$ 0.790 - % Average Euro/U.S. dollar exchange rate $ 1.205 $ -$ 1.205 - % Average Euro/British pound exchange rate £ 0.874 £
0.861 £ 0.013 1.5 %
* 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 for 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,
2021 2020
(in millions)
Revenues less cost of revenues $ 365.5 $ 358.3 Recent acquisitions:
Acquisition revenues less cost of revenues
$ 338.7 $ 358.3
EBITDA is defined as income before interest, income taxes, depreciation and
amortization. Adjusted EBITDA is defined as EBITDA before acquisition-related
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 (2) frequently used by analysts, investors 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, 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, 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 basis for monitoring our own (5) 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.
Revenue per contract represents transaction fees less liquidity payments and (7) routing and clearing costs divided by total contracts traded during the
period.
Net capture per one hundred touched shares refers to transaction fees less (8) 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 for the period.
(9)
Trading, effective
Net capture per 100 touched shares refers to transaction fees less OMS/EMS (10) costs 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
Net capture per 10,000 shares refers to transaction fees divided by the (11) product of one-ten thousandth ADV of shares for MATCHNow and the number of
trading days for the period.
Net capture per matched notional value in basis points refers to transaction (12) fees less liquidity payments in British pounds divided by the product of
ADNV in British pounds of shares matched on
number of trading days for the period.
(13) Trades cleared refers to the total number of non-interoperable trades
cleared.
(14) Fee per trade cleared refers to clearing fees divided by number of
non-interoperable trades cleared.
(15) Net settlement volume refers to the total number of settlements executed
after netting.
(16) 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
market, the number of trading days, and two, which represents the buyer and
seller that are both charged on the transaction for the period.
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The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):
Three Months Ended March 31,
2021
North
American
Options Equities Futures Europe Global FX Corporate Total
Net income (loss) allocated to
common stockholders $ 127.9 $ 43.7 $ 17.4 $ 7.8 $ 1.2 $ (61.2) $ 136.8
Interest expense, net - - - 3.4 - 8.9 12.3
Income tax provision - 1.2 - 3.5 - 51.0 55.7Depreciation and amortization 7.4 19.6 0.7 7.9 6.4 - 42.0 EBITDA 135.3 64.5 18.1 22.6 7.6 (1.3) 246.8 Acquisition-related costs 0.3 -
- - - 3.1 3.4 Adjusted EBITDA$ 135.6 $ 64.5 $ 18.1 $ 22.6 $ 7.6 $ 1.8 $ 250.2 Three Months Ended March 31, 2020 North American Options Equities
Futures
$ 143.3 $ 47.7 $
26.8
- - - (0.1) - 7.4 7.3
Income tax provision - 1.2 - 2.9 - 56.0 60.1
Depreciation and amortization 7.7 17.8 0.8 7.2 7.0 - 40.5
EBITDA 151.0 66.7 27.6 16.8 10.0 (7.2) 264.9
Acquisition-related costs (5.5) - - - - 6.3 0.8 Adjusted EBITDA$ 145.5 $ 66.7 $ 27.6 $ 16.8 $ 10.0 $ (0.9) $ 265.7
The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):
Three Months Ended
March 31,
2021 2020
Net income allocated to common stockholders
32.9 32.5
Acquisition-related costs 3.4 0.8
Tax effect of adjustments (8.2) (7.6)
Net income allocated to participating securities (0.1) (0.4)
Adjusted earnings $ 164.8 $ 182.3
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Revenues
Total revenues for the three months ended March 31, 2021 increased $89.3
million , or 9.7%, compared to the prior period, primarily due to increased
transaction and clearing fees of $101.7 million , or 15.4%, as a result of
increased market volumes in the U.S. Equities exchanges and Options segment,
partially offset by a decrease in regulatory fees. The following summarizes
changes in revenues for the three months ended March 31, 2021 compared to the
three months ended March 31, 2020 (in millions, except percentages):
Three Months Ended
March 31, Increase/ Percent
2021 2020 (Decrease) Change
Transaction and clearing fees
15.4 % Access and capacity fees 66.4 57.7 8.7 15.1 % Market data fees 63.8 56.2 7.6 13.5 % Regulatory fees 101.5 136.8 (35.3) (25.8) % Other revenue 15.9 9.3 6.6 71.0 % Total revenues$ 1,010.8 $ 921.5 $ 89.3 9.7 %
Transaction and Clearing Fees
Transaction and clearing fees increased for the three months endedMarch 31, 2021 compared to the same period in 2020. For the three months endedMarch 31, 2021 , the increase was primarily due to a 33.6% increase inU.S. Equities exchange market ADV, a 35.0% increase in multi-listed options ADV, and additional transaction and clearing fees attributable to EuroCCP and BIDS, which the Company acquired in the third and fourth quarter of 2020, respectively, partially offset by a 29.6% decrease in index options ADV and a 22.7% decrease in Futures ADV, when compared to the same period in 2020.
Access Capacity Fees
Access and capacity fees increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an increase in logical port revenue in the Options,Europe , andNorth American Equities segments, as well as an increase in physical port revenue in theNorth American Equities segment.
Market Data Fees
Market data fees increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an increase in subscribers, an increase in tape plan market data revenue within theNorth American Equities segment related to audit recoveries, and additional revenue attributed to Trade Alert, which was acquired during the second quarter of 2020.
Regulatory Fees
Regulatory fees decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a decrease in Section 31 fees as a result of a 26.2% decrease in the Section 31 fee rate, from an average rate of$21.40 per million dollars of covered sales for the three months endedMarch 31, 2020 to an average rate of$15.80 per million dollars of covered sales during the three months endedMarch 31, 2021 , partially offset by higher volumes in theNorth American Equities segment.
Other Revenue
Other revenue increased for the three months ended
Cost of Revenues
Cost of revenues increased for the three months ended
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traded on the
The following summarizes changes in cost of revenues for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 (in millions, except percentages): Three Months Ended March 31, Increase/ Percent 2021 2020 (Decrease) Change Liquidity payments$ 501.8 $ 392.4 $ 109.4 27.9 % Routing and clearing 27.1 16.0 11.1 69.4 % Section 31 fees 91.9 127.4 (35.5) (27.9) % Royalty fees 20.3 27.4 (7.1) (25.9) % Other 4.2 - 4.2 100.0 % Total$ 645.3 $ 563.2 $ 82.1 14.6 % Liquidity Payments
Liquidity payments increased for the three months ended
Routing and Clearing
The increase in routing and clearing fees for the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to an increase in routed trades in theNorth American Equities segment, as well as settlement costs related to EuroCCP, which the Company acquired in the third quarter of 2020. Section 31 Fees Section 31 fees decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a 26.2% decrease in the Section 31 fee rate, from an average rate of$21.40 per million dollars of covered sales for the three months endedMarch 31, 2020 to an average rate of$15.80 per million dollars of covered sales during the three months endedMarch 31, 2021 , partially offset by higher volumes in theNorth American Equities segment.
Royalty Fees
Royalty fees decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a decline in trading volume in licensed products.
Revenues Less Cost of Revenues
Revenues less cost of revenues increased$7.2 million , or 2.0%, for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an$8.7 million , or 15.1% increase in access and capacity fees, a$7.6 million , or 13.5% increase in market data fees, and a$7.1 million , or 25.9% decrease in royalty fees, partially offset by an$18.8 million , or 7.4% decrease in transaction and clearing fees less liquidity payments and routing and clearing costs. 49 Table of Contents The following summarizes the components of revenues less cost of revenues for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 (in millions, except percentages): Three Months Ended March 31, Increase/ Percent 2021 2020 (Decrease) Change Transaction and clearing fees less liquidity payments and routing and clearing costs$ 234.3 $ 253.1 $ (18.8) (7.4) % Access and capacity fees 66.4 57.7 8.7 15.1 % Market data fees 63.8 56.2 7.6 13.5 % Regulatory fees, less Section 31 fees 9.6 9.4 0.2 2.1 % Royalty fees (20.3) (27.4) 7.1 (25.9) % Other 11.7 9.3 2.4 25.8 %
Revenues less cost of revenues$ 365.5 $ 358.3 $ 7.2
2.0 %
Transaction and Clearing Fees Less Liquidity Payments and Routing and Clearing Costs
Transaction and clearing fees less liquidity payments and routing and clearing
costs ("Net Transaction and Clearing Fees") decreased for the three months ended
March 31, 2021 compared to the same period in 2020 primarily due to a 29.6%
decrease in index options ADV and a 22.7% decrease in Futures ADV, partially
offset by additional net transaction and clearing fees attributable to EuroCCP
and BIDS, which the Company acquired in the third and fourth quarter of 2020,
respectively.
Access and Capacity Fees
Access and capacity fees increased for the three months ended March 31, 2021
compared to the same period in 2020 primarily due to an increase in logical port
revenue in the Options, Europe , and North American Equities segments, as well as
an increase in physical port revenue in the North American Equities segment.
Market Data Fees
Market data fees increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an increase in subscribers, an increase in tape plan market data revenue within theNorth American Equities segment related to audit recoveries, and additional revenue attributed to Trade Alert, which was acquired during the second quarter of 2020.
Regulatory Fees, less Section 31 Fees
Regulatory fees, less Section 31 fees, were relatively flat for the three months
ended
Royalty Fees
Royalty fees decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a decline in trading volume in licensed products. Other
Other revenue increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to additional net interest income from EuroCCP, which the Company acquired in the third quarter of 2020. 50 Table of Contents Operating Expenses Total operating expenses increased$29.0 million , or 22.0%, for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily due to increases in compensation and benefits and technology support services related to acquisitions.
The following summarizes changes in operating expenses for the three months
ended
Three Months Ended
March 31, Increase/ Percent
2021 2020 (Decrease) Change
Compensation and benefits $ 72.3 $ 53.3 $ 19.0 35.6 %Depreciation and amortization 42.0 40.5 1.5 3.7 % Technology support services 17.2 11.9 5.3 44.5 % Professional fees and outside services 15.6 14.9 0.7 4.7 % Travel and promotional expenses 1.6 2.1 (0.5) (23.8) % Facilities costs 5.3 4.1 1.2 29.3 % Acquisition-related costs 3.4 0.8 2.6 325.0 % Other expenses 3.5 4.3 (0.8) (18.6) % Total operating expenses$ 160.9 $ 131.9 $ 29.0 22.0 % Compensation and Benefits Compensation and benefits increased for the three months endedMarch 31, 2021 compared to the same period in 2020. For the three months endedMarch 31, 2021 , the increase was primarily due to an increase in salaries, wages, and bonus expense of$7.5 million , an increase in compensation expense related to acquisitions of$6.0 million , a$3.6 million increase in equity compensation as a result of performance share and qualified retirement vesting, and a$3.6 million increase in benefits primarily due to the adjustment of deferred compensation plan assets.
Depreciation and Amortization
Depreciation and amortization increased for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily due to an increase depreciation and amortization expense resulting from the acquisitions made in 2020, 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 endedMarch 31, 2021 compared to the same period in 2020, primarily due to increases in market data support service fees, purchased software, and purchased hardware related to the acquisitions made in 2020.
Professional Fees and Outside Services
Professional fees and outside services increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to increases in contracted services, consulting fees, and regulatory fees, partially offset by a decline in legal fees.
Travel and Promotional Expenses
Travel and promotional expenses decreased for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily due to travel restrictions implemented inMarch 2020 in response to the COVID-19 pandemic coupled with a decrease in marketing expenses. 51 Table of Contents Facilities Costs Facilities costs increased for the three months endedMarch 31, 2021 compared to the same period in 2020, primarily due to additional rent expense related to the new trading floor location beginning inMay 2020 , as well as additional facilities costs related to the acquisitions made in 2020.
Acquisition-Related Costs
Acquisition-related costs increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an increase in professional fees and other fees, as well as an impairment charge related to the investment in Signal recorded in the first quarter of 2021.
Other Expenses
Other expenses decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a$0.7 million decrease in charitable contributions resulting from one-time charitable contributions made to support COVID-19 relief efforts of$1.0 million during the three months ended March
31, 2020. 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, 2021 compared to the same period in 2020 primarily due to commitment fees related to the EuroCCP Credit Facility, as well as additional interest expense related to the 1.625% Senior Notes issued in the fourth quarter of 2020.
Other Expense, Net
Net other expense decreased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to a$2.5 million increase in deferred compensation plan asset income.
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 28.9% and 27.6% for the three months endedMarch 31, 2021 and 2020, respectively. The higher effective tax rate in 2021 is primarily due to decreased benefits from foreign derived intangible income ("FDII"). Net Income
As a result of the items above, net income for the three months endedMarch 31, 2021 was$137.2 million compared to$157.4 million for the three months endedMarch 31, 2020 , a decrease of$20.2 million . 52 Table of Contents Segment Operating Results
We report results from our five segments: Options,North American Equities , Futures,Europe , and Global FX. 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:
[[Image Removed: Graphic]]
Percentage of
Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2021 2020 Change 2021 2020
(in millions, except percentages)
Options $ 382.4 $ 356.5 7.3 % 37.9 % 38.7 %North American Equities 526.0 473.7 11.0 % 52.0 %
51.4 %
Futures 31.6 41.5 (23.9) % 3.1 % 4.5 %
Europe 55.8 32.9 69.6 % 5.5 % 3.6 %
Global FX 14.7 16.9 (13.0) % 1.5 % 1.8 %
Corporate 0.3 - 100.0 % - % - %
Total revenues $ 1,010.8 $ 921.5 9.7 % 100.0 % 100.0 %
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The following summarizes our revenues less cost of revenues by segment:
[[Image Removed: Graphic]]
Percentage of
Total Revenues
Less Cost of Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2021 2020 Change 2021 2020
(in millions, except percentages)
Options $ 181.7 $ 188.5 (3.6) % 49.8 % 52.6 %
North American Equities 96.1 86.6 11.0 % 26.3 % 24.2 %
Futures 30.6 40.1 (23.7) % 8.4 % 11.2 %
Europe 42.1 26.2 60.7 % 11.5 % 7.3 %
Global FX 14.7 16.9 (13.0) % 4.0 % 4.7 %
Corporate 0.3 - 100.0 % - % - %
Total revenues less cost
of revenues $ 365.5 $ 358.3 2.0 % 100.0 % 100.0 %
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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,
2021 2020 Change 2021 2020Revenues less cost of revenues$ 181.7 $ 188.5 (3.6) %
47.5 % 52.9 %
Operating expenses 53.0 45.1 17.5 % 13.9 % 12.7 %
Operating income $ 128.7 $ 143.4 (10.3) % 33.7 % 40.2 %
EBITDA (1) $ 135.3 $ 151.0 (10.4) % 35.4 % 42.4 %
EBITDA margin (2) 74.5 % 80.1 % * * *
* 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 decreased$6.8 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a 29.6% decrease in index options ADV, partially offset by a 35.0% increase in multi-listed options ADV, a decrease in royalty fees, and an increase in proprietary market data revenue attributable to Trade Alert, which the Company acquired in the second quarter of 2020. For the three months endedMarch 31, 2021 , operating income for the Options segment decreased$14.7 million compared to the three months endedMarch 31, 2020 , primarily due to an increase in operating expenses. Operating expenses increased$7.9 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to increases in acquisition-related costs and compensation and benefits, partially offset by a decrease in professional fees and outside services.
The following summarizes revenues less cost of revenues, operating expenses,
operating income, EBITDA, and EBITDA margin for our
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2021 2020 Change 2021 2020Revenues less cost of revenues$ 96.1 $ 86.6 11.0 %
18.3 % 18.3 %
Operating expenses 51.0 37.6 35.6 % 9.7 % 7.9 %
Operating income $ 45.1 $ 49.0 (8.0) % 8.6 % 10.3 %
EBITDA (1) $ 64.5 $ 66.7 (3.3) % 12.3 % 14.1 %
EBITDA margin (2) 67.1 % 77.0 % * * *
* 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$9.5 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to additional revenue attributable to BIDS, which the Company acquired in the fourth quarter of 2020. For the three months endedMarch 31, 2021 , operating income for theNorth American Equities segment decreased$3.9 million compared to the three months endedMarch 31, 2020 , primarily due to an increase in operating expenses. Operating expenses increased$13.4 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to an increase in compensation and benefits, as 55
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well as increases in depreciation and amortization and technology support services as a result of the BIDS and MATCHNow acquisitions.
Futures
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Futures segment (in millions, except percentages):
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2021 2020 Change 2021 2020Revenues less cost of revenues$ 30.6 $ 40.1 (23.7) %
96.8 % 96.6 %
Operating expenses 13.1 13.2 (0.8) % 41.5 % 31.8 %
Operating income $ 17.5 $ 26.9 (34.9) % 55.4 % 64.8 %
EBITDA (1) $ 18.1 $ 27.6 (34.4) % 57.3 % 66.5 %
EBITDA margin (2) 59.2 % 68.8 % * * *
* 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$9.5 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a 22.7% decrease in Futures ADV. For the three months endedMarch 31, 2021 , operating income for the Futures segment decreased$9.4 million compared to the three months endedMarch 31, 2020 , due to lower revenues less cost of revenues. Operating expenses decreased$0.1 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a decrease in professional fees and outside services and other expenses, partially offset by an increase in compensation and benefits.
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for ourEurope segment (in millions, except percentages): Percentage of Total Revenues Three Months Ended Three Months Ended March 31, Percent March 31, 2021 2020 Change 2021 2020
Revenues less cost of revenues$ 42.1 $ 26.2 60.7 %
75.4 % 79.6 %
Operating expenses 27.6 16.7 65.3 % 49.5 % 50.8 %
Operating income $ 14.5 $ 9.5 52.6 % 26.0 % 28.9 %
EBITDA (1) $ 22.6 $ 16.8 34.5 % 40.5 % 51.1 %
EBITDA margin (2) 53.7 % 64.1 % * * *
*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$15.9 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to additional revenue attributable to EuroCCP, which the Company acquired in the third quarter of 2020. For the three months endedMarch 31, 2021 , operating income for theEurope segment increased$5.0 million compared to the three months endedMarch 31, 2020 , due to higher revenues less cost of revenues. Operating expenses increased$10.9 million for the three months endedMarch 31, 2021 compared to the three 56
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months ended
Global FX
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Global FX segment (in millions, except percentages):
Percentage
of Total
Revenues
Three Months Ended Three Months Ended
March 31, Percent March 31,
2021 2020 Change 2021 2020Revenues less cost of revenues$ 14.7 $ 16.9 (13.0) %
100.0 % 100.0 %
Operating expenses 13.5 13.9 (2.9) % 91.8 % 82.2 %
Operating income $ 1.2 $ 3.0 (60.0) % 8.2 % 17.8 %
EBITDA (1) $ 7.6 $ 10.0 (24.0) % 51.7 % 59.2 %
EBITDA margin (2) 51.7 % 59.2 % * * *
* Not meaningful
See footnote (2) to the table under "Financial Summary" above for a (1) reconciliation of net income to EBITDA and adjusted 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$2.2 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a 14.8% decrease in Global FX ADNV. For the three months endedMarch 31, 2021 , operating income for the Global FX segment decreased$1.8 million compared to the three months endedMarch 31, 2020 , primarily due to a decline in revenues less costs of revenues. Operating expenses decreased$0.4 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a decrease in depreciation and amortization and professional fees and outside services, partially offset by an increase in compensation
and
benefits.
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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, 2021 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 will meet our cash needs to fund our operations, capital expenditures,
interest payments on debt, debt repayments, any dividends, potential strategic
acquisitions, and opportunities for common stock repurchases under the
previously announced program. We may also utilize excess cash on hand to pay
down amounts outstanding under the Term Loan Agreement. See Note 10 ("Debt") of
the condensed consolidated financial statements for further information.
On July 1, 2020 , in connection with the Company's acquisition of EuroCCP,
EuroCCP as borrower and the Company as guarantor of scheduled interest and fees
on borrowings (but not the principal amount of any borrowings), entered into a
€1.5 billion committed syndicated multicurrency revolving and swingline credit
facility agreement (the "Facility"). The Facility is available to be drawn by
EuroCCP towards (a) financing unsettled amounts in connection with the
settlement of transactions in securities and other items processed through
EuroCCP's clearing system and (b) financing any other liability or liquidity
requirement of EuroCCP incurred in the operation of its clearing system.
Borrowings under the Facility are secured by cash, eligible government bonds and
eligible equity assets deposited by EuroCCP into secured accounts. As a result,
should the Facility be drawn by EuroCCP it could potentially impact EuroCCP's
liquidity, and we can give no assurance that this Facility will be sufficient to
meet all of such obligations or sufficiently mitigate EuroCCP'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 July 1, 2021 and we may not
be able to enter into a replacement facility on commercially reasonable terms,
or at all.
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 is identified, in which case we expect
that we would be able to borrow the necessary funds and/or issue additional
shares of
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our common stock to complete such an acquisition. In addition, we do not expect
COVID-19 to have a material impact on our liquidity or capital resources,
including cash from operations or uses of cash, or change our ability to access
capital markets in the near term or the foreseeable future.
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 of March 31, 2021 increased $17.9
million from December 31, 2020 , primarily due to results from operations and
proceeds from available-for-sale financial investments, partially offset by
purchases of available-for-sale financial investments, share repurchases under
the share repurchase program, and cash dividends paid on common stock. See "Cash
Flow" below for further discussion.
Our cash and cash equivalents held outside of the United States in various
foreign subsidiaries totaled $133.4 million as of March 31, 2021 . The remaining
balance was held in the United States and totaled $129.9 million as of March 31,
2021 . Our cash and cash equivalents held outside of the United States as of
December 31, 2020 totaled $128.2 million , and are held in various foreign
subsidiaries. The majority of cash held outside the United States is available
for repatriation, but under current law, could subject us to additional United
States income taxes, less applicable foreign tax credits.
Our financial investments include deferred compensation plan assets as well as
investments with original or acquired maturities longer than three months but
that mature in less than one year from the balance sheet date and are recorded
at fair value. As of March 31, 2021 and December 31, 2020 , financial investments
consisted of U.S. Treasury securities and deferred compensation plan assets.
Cash Flow
The following table summarizes our cash flow data for the three months ended
Three Months Ended
March 31,
2021 2020Net cash provided by operating activities$ 599.1 $
163.3
Net cash used in investing activities (13.3)
(51.0)
Net cash used in financing activities (119.5)
(175.7)
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
(0.5) (0.7)
Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
$ 465.8 $ (64.1) As of March 31, 2021 2020
Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents: Cash and cash equivalents
$ 263.3 $
165.2
Restricted cash and cash equivalents (margin deposits and clearing funds) 1,260.0 - Total$ 1,523.3 $ 165.2
Net Cash Flows Provided by Operating Activities
During the three months endedMarch 31, 2021 , net cash provided by operating activities was$461.9 million higher than net income. The variance is primarily attributed to the increase of$447.9 million of restricted cash and cash equivalents (margin deposits and clearing funds) for the three months endedMarch 31, 2021 . Net cash flows provided by operating activities were$599.1 million and$163.3 million for the three months endedMarch 31, 2021 and 2020, respectively. The change in net cash flows provided by operating activities was primarily due to the change in margin deposits and clearing funds of$447.9 million and the change for accounts receivable of$37.6 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . 59
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Net Cash Flows Used in Investing Activities
Net cash flows used in investing activities were$13.3 million and$51.0 million for the three monthsMarch 31, 2021 and 2020, respectively. The variance is primarily due to acquisitions, net of cash acquired for the three months endedMarch 31, 2020 , partially offset by additional purchases of available-for-sale financial investments for the three months endedMarch 31, 2021 .
Net Cash Flows Used in Financing Activities
Net cash flows used in financing activities for the three months endedMarch 31, 2021 and 2020 were$119.5 million and$175.7 million , respectively. The variance is primarily attributed to a decrease in share repurchases, which were$47.6 million and$119.5 million for the three months endedMarch 31, 2021 and 2020, respectively, partially offset by the$20.0 million principal payment of the current portion of long-term debt during the three months endedMarch 31, 2021 .
Financial Assets
The following summarizes our financial assets, excluding margin deposits and
clearing funds, as of
March 31, 2021 December 31, 2020
Cash and cash equivalents $ 263.3 $ 245.4
Financial investments 95.5 92.4Less deferred compensation plan assets (24.0)
(24.5)
Less cash collected for Section 31 fees (70.9) (103.0) Adjusted cash (1) $ 263.9 $ 210.3
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, 2021 December 31, 2020
Term Loan Agreement $ 50.0 $ 70.0
3.650% Senior Notes 650.0 650.0
1.625% Senior Notes 500.0 500.0
Revolving Credit Agreement - -
EuroCCP Credit Facility - -Less unamortized discount and debt issuance costs (12.2)
(16.1)
Total debt $ 1,187.8 $ 1,203.9
As of
In addition to the debt outstanding, as ofMarch 31, 2021 , we had an additional$250.0 million available through our revolving credit facility, with the ability to borrow another$100.0 million by increasing the commitments under the facility. Together with adjusted cash, we had$513.9 million available to fund our operations, capital expenditures, potential acquisitions, debt repayments and any dividends as ofMarch 31, 2021 .
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
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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 approved additional authorizations of$100 million in each of 2012, 2013, 2014, 2015 and 2016,$250 million in each of 2018, 2019 and 2020, and$200 million inFebruary 2021 , 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.
Under the program, for the three months ended
As of
Commercial Commitments and Contractual Obligations
As ofMarch 31, 2021 , our commercial commitments and contractual obligations included operating leases, data and telecommunications agreements, equipment leases, our long-term debt outstanding, contingent considerations 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 EuroCCP's clearinghouse exposure guarantee, and Note 22 ("Leases") for discussion on operating leases and equipment leases.
Off Balance Sheet Arrangements
See Note 12 ("Clearing Operations") for discussion on contingent assets and liabilities related to clearing operations in connection with the Company's acquisition of EuroCCP.
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