CBOE GLOBAL MARKETS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included in Item 8 of this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. See "Risk Factors" and "Forward-Looking Statements" above.
A detailed comparison of the Company's 2019 operating results to its 2018
operating results can be found in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section in the Company's 2019
Annual Report on Form 10-K filed
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
Executive Summary - Includes an overview of the Company's business; a
description of notable recent developments, current economic, competitive and
? regulatory trends relevant to our business; the Company's current business
strategy; and the Company's primary sources of operating and non-operating
revenues and expenses.
Results of Operations - Includes an analysis of the Company's 2020 and 2019
? financial results and a discussion of any known events or trends which are
likely to impact future results.
? Liquidity and Capital Resources - Includes a discussion of the Company's future
cash requirements, capital resources, and financing arrangements.
Critical Accounting Policies - Provides an explanation of accounting policies
? which may have a significant impact on the Company's financial results and the
estimates, assumptions and risks associates with those policies.
Recent Accounting Pronouncements - Includes an evaluation of recent accounting
? pronouncements and the potential impact of their future adoption on the
Company's financial results.
EXECUTIVE SUMMARY OverviewCboe Global Markets, Inc. ("Cboe" or "the Company") is one of the world's largest exchange holding companies, offering cutting-edge trading and investment solutions to investors around the world. The Company is committed to defining markets to benefit its participants and drive the global marketplace forward 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 as ofDecember 31, 2020 , 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 inChicago with offices inKansas City ,New York ,London ,San Francisco ,Sarasota Springs ,Toronto ,Belfast ,Amsterdam ,Calgary ,Singapore ,Hong Kong , andEcuador . 56 Table of Contents Recent Developments
Acquisitions of Hanweck, FT Options and Trade Alert
OnFebruary 3, 2020 , the Company purchasedHanweck Associates, LLC ("Hanweck") and the assets ofFT Providers, LLC ("FT Options"). Hanweck is a real-time risk analytics company based inNew York . FT Options is a portfolio management platform provider based inChicago . Both companies are providers of risk analytics market data and included in the Company's Options segment. Additionally, onJune 1, 2020 , the Company purchased the assets ofTrade Alert, LLC ("Trade Alert"), a real-time alerts and order flow analysis service provider included in the Company's Options segment. Hanweck, FT Options, and TradeAlert are being integrated with Cboe Information Solutions' comprehensive suite of data solutions, analytics and indices that help market participants understand and access financial markets. See Note 5 ("Acquisitions") for more information.
Chicago Trading Floor
OnMarch 13, 2020 , the Cboe Options trading floor was temporarily closed and transitioned to all-electronic trading mode as a precautionary measure to reduce the risk of COVID-19. The Cboe Options trading floor reopened onJune 15, 2020 and is accommodating open-outcry trading activity with a modified floor layout, with stringent health and safety protocols in place for the well-being of the trading floor community, which includes Cboe associates and trading permit holders.
Acquisition of EuroCCP
OnJuly 1, 2020 , the Company completed the acquisition of the remaining 80% interest in EuroCCP which is included in the Company'sEuropean Equities segment. EuroCCP is a European equities central counterparty that provides post-trade services to stock exchanges, MTFs and for over-the-counter trades. EuroCCP clears equities from eighteen European markets and fromthe United States , as well as Depositary Receipts, ETFs, and exchanged traded currencies. In connection with the acquisition, EuroCCP put in place a committed revolving credit facility of up to €1.5 billion, see Note 13 ("Debt") for more information.
Acquisition of MATCHNow
On
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 BIDS ATS is not a registered national securities exchange or a facility thereof. 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 other geographies beyond theU.S.
Business Segments
The Company reports five business segments: Options,North American Equities , Futures,European Equities , 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 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, allU.S. national security exchanges. Cboe Options is the 57 Table of Contents 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 . There was a temporary suspension of open outcry trading betweenMarch 13, 2020 andJune 14, 2020 in response to the COVID-19 pandemic. 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 (formerlyU.S. Equities ).The North American Equities segment includes listedU.S. equities and ETP transaction services that occur on fully electronic exchanges owned and operated byBZX Equities ,BYX Equities ,EDGX Equities , andEDGA Equities and Canadian equities and other transaction services that occur on or through the MATCHNow ATS. This segment was previously referred to as theU.S. Equities segment, but has been updated as a result of the acquisition of MATCHNow, which provides Canadian equities and other transaction services. In addition, in connection with the closing of the acquisition of BIDS Trading, startingJanuary 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, theCboe 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, access and capacity services and advertising activity from ETF.com. 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.European Equities .The European Equities segment includes the pan-European listed equities transaction services, ETPs, exchange traded commodities, and international depository receipts that are hosted on MTFs operated byCboe Europe Equities . It also includes the ETP listings business on RMs and clearing activities of EuroCCP.Cboe Europe Equities operates lit and dark books, a periodic auctions book, and a Large-in-Scale ("LIS") trading negotiation facility.Cboe NL , launched inOctober 2019 , operates similar business functionality to that offered byCboe 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;
? 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.
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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. As of the date of this report, it is too early to determine the full impact this virus may have on the global financial markets and the overall economy. 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 theEuropean Equities 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 theU.S. 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.
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. 59
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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 includes among other items, revenue from various licensing agreements, interest income from clearing operations, all fees related to the trade reporting facility operated in theEuropean Equities 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 revenue.
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 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 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 and PULSe system terminal fees.
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
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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 rabbi trust for the Company's non-qualified retirement and benefit plans, and equity earnings or losses from our investments in other business ventures.
RESULTS OF OPERATIONS
The following are summaries of changes in financial performance and include 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 consolidated
financial statements.
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Comparison of Years Ended
Overview
The following summarizes changes in financial performance for the year ended
[[Image Removed: Graphic]]
(1) These are Non-GAAP figures for which reconciliations are provided below.
Year Ended
December 31, Increase/ Percent
2020 2019 (Decrease) Change
(in millions, except percentages, earnings per share, and as noted below)
Total revenues $ 3,427.1 $ 2,496.1 $ 931.0 37.3 %
Total cost of revenues 2,172.8 1,359.2 813.6 59.9 %
Revenues less cost of revenues 1,254.3
1,136.9 117.4 10.3 %
Total operating expenses 592.1 599.7 (7.6) (1.3) %
Operating income 662.2 537.2 125.0 23.3 %Income before income tax provision 660.4
501.4 159.0 31.7 %
Income tax provision 192.2 130.6 61.6 47.2 %
Net income $ 468.2 $ 370.8 $ 97.4 26.3 %
Basic earnings per share $ 4.28 $ 3.35 $ 0.93 27.7 %
Diluted earnings per share 4.27 3.34 0.93 27.8 %
Organic net revenue(1) $ 1,212.9 $ 1,136.9 $ 76.0 6.7 %
EBITDA(2) $ 855.3 $ 715.8 $ 139.5 19.5 %
EBITDA margin(3) 68.2 % 63.0 % 5.2 % *
Adjusted EBITDA(2) $ 874.6 $ 784.1 $ 90.5 11.5 %
Adjusted EBITDA margin(4) 69.7 % 69.0 % 0.7 % *
Adjusted earnings(5) $ 576.5 $ 528.6 $ 47.9 9.1 %
Adjusted earnings margin(5) 46.0 % 46.5 % (0.5) % *Diluted weighted average shares outstanding 109.3 111.8 (2.5) (2.2) % Adjusted Diluted earnings per share(6) $ 5.27 $
4.73 $ 0.54 11.4 %
* 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 the year the business
was acquired through the following comparable year. 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
supplemental measure of our performance and we use it as the basis for (1) 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 that 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.
Year Ended
December 31,
2020 2019Revenues less cost of revenues$ 1,254.3 $ 1,136.9 Recent acquisitions: Acquisition revenues less cost of revenues (since acquisition)$ (41.4)
$ - Organic net revenue$ 1,212.9 $ 1,136.9
EBITDA is defined as income before interest, income taxes, depreciation and
amortization. Adjusted EBITDA is defined as EBITDA before acquisition-related
costs, provision for notes receivable, bargain purchase gain, and impairment
charges attributed to noncontrolling interest. 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 (2) performance and believe that they are 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 of
purchased intangibles, acquisition-related costs, provision for notes
receivable, bargain purchase gain, change in redemption value of
noncontrolling interest, tax effect of adjustments, deferred taxre-measurements, impairment charges attributed to noncontrolling interest,
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 (5) it an important supplemental measure of our performance and we use it as the
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:
Year Ended December 31,
2020
North
American European
Options Equities Futures Equities Global FX Corporate Total
(in millions)
Net income (loss) allocated to
common stockholders $ 278.6 $ 132.0 $
25.4
- - - 6.9 - 30.7 37.6
Income tax provision (benefit) 151.8 27.3 28.3 12.4 - (27.6) 192.2
Depreciation and amortization 30.9 68.7 3.2 29.1 26.6 - 158.5
EBITDA 461.3 228.0 56.9 95.1 32.4 (18.4) 855.3
Acquisition-related costs 12.9 15.1 - - - 17.2 45.2Provision for notes receivable 1.7 5.0
- - - - 6.7 Bargain purchase gain - - - (32.0) - (0.6) (32.6) Adjusted EBITDA$ 475.9 $ 248.1 $ 56.9 $ 63.1 $ 32.4 $ (1.8) $ 874.6 Year Ended December 31, 2019 North American European Options Equities Futures Equities Global FX Corporate Total (in millions) Net income (loss) allocated to common stockholders$ 202.7 $ 111.8 $
45.5
- - - (0.4) - 36.3 35.9
Income tax provision (benefit) 124.8 20.2 37.4 3.2 0.1 (55.1) 130.6
Depreciation and amortization 38.5 76.0 2.5 28.7 29.9 1.0 176.6
EBITDA 366.0 208.0 85.4 49.8 25.0 (18.4) 715.8
Acquisition-related costs 20.5 - - 1.7 0.3 26.0 48.5Provision for notes receivable 6.1 17.3 - - - - 23.4 Impairment charges attributable to noncontrolling interest - - - - - (3.6) (3.6) Adjusted EBITDA$ 392.6 $ 225.3 $ 85.4 $ 51.5 $ 25.3 $ 4.0 $ 784.1 The following is a reconciliation of net income allocated to common stockholders to adjusted earnings: Year Ended December 31, 2020 2019 (in millions) Net income allocated to common stockholders$ 467.0 $ 372.7 Amortization 124.7 138.5 Acquisition-related costs 45.2 48.5 Provision for notes receivable 6.7 23.4 Bargain purchase gain (32.6) - Change in redemption value of noncontrolling interest - 0.5 Tax effect of adjustments (38.0) (50.7) Deferred tax re-measurements 4.1 - Impairment charges attributed to noncontrolling interest - (3.6) Net income allocated to participating securities (0.6) (0.7) Adjusted earnings$ 576.5 $ 528.6 64 Table of Contents The following summarizes changes in certain operational and financial metrics for the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 . The metrics listed forCanadian Equities and EuroCCP in the table on the following page are newly added for the year endedDecember 31, 2020 as a result of acquisitions completed during the year. Therefore, the table does not include results from 2019 or the periods preceding each acquisition for the applicable metrics. [[Image Removed: Graphical user interface, application, Excel, bar chart Description automatically generated]] 65 Table of Contents Year Ended December 31, Increase/ Percent 2020 2019 (Decrease) Change (in millions, except percentages, trading days, and as noted below) Options: Average daily volume (ADV) (in millions of contracts): Total touched contracts 10.1 7.3 2.8 38.4 % Market ADV 29.5 19.4 10.1 52.1 % Index contract ADV 1.8 1.9 (0.1) (5.3) % Multi-Listed contract ADV 8.3 5.4 2.9 53.7 % Number of trading days 253 252 1 0.4 % Total Options revenue per contract (RPC) (1)$ 0.193 $ 0.235 $ (0.042) (17.9) % Multi-Listed Options RPC (1) 0.057 0.059 (0.002) (3.4) % Index Options RPC (1) 0.819 0.746 0.073 9.8 % Total Options Market Share 34.3 % 37.7 % (3.4) % * Multi-Listed Options Market Share 30.0 % 31.1 % (1.1) % * Index Options Market Share 99.2 % 99.2 % - % *North American Equities : U.S. Equities: ADV: Total touched shares (in billions) 1.8 1.2 0.6 50.0 % Market ADV (in billions) 10.9 7.0 3.9 55.7 % Trading days 253 252 1 0.4 % Market share 15.8 % 16.3 % (0.5) % *U.S. Equities (net capture per one hundred touched shares) (2)$ 0.021 $ 0.025 $ (0.004) (16.0) % U.S. ETPs: launches (number of launches) 114 57 57 100.0 % U.S. ETPs: listings (number of listings) 437 353 84 23.8 % Canadian Equities: ADV (matched shares, in millions) 43.1 - 43.1 - % Trading days 104 - 104 - % Net capture (per 10,000 touched shares, in Canadian dollars) (3) 8.264
- 8.264 - % Futures: ADV (in thousands) 200.6 249.0 (48.4) (19.4) % Trading days 253 252 1 0.4 % Revenue per contract$ 1.665 $ 1.756 $ (0.091) (5.2) % European Equities: ADNV:
Matched and touched ADNV (in billions) € 6.9 €
7.7 € (0.8) (10.4) % Market ADNV (in billions) 40.1 37.9 2.2 5.8 % Trading days 258 256 2 0.8 % Market share 17.2 % 20.2 % (3.0) % *European Equities (net capture per matched notional value in basis points) (4) 0.249 0.227 0.022 9.7 % EuroCCP: Trades cleared (5) 545.5 - 545.5 - %
Fee per trade cleared (6) € 0.011 € - € 0.011 - % Net settlement volume (7) 4.1 - 4.1 - % Net fee per settlement (8) € 0.811 €
- € 0.811 - %
Global FX:
ADNV (in billions) $ 34.7 $ 32.3 $ 2.4 7.4 %
Trading days 260 259 1 0.4 %
Global FX (net capture per one million
dollars traded) (9) 2.70 2.71 (0.01) (0.4) %
Average British pound/U.S. dollar
exchange rate $ 1.283 $ 1.277 $ 0.006 0.5 %
Average Canadian dollar/U.S. dollar
exchange rate $ 0.746 $ - $ 0.746 - %
Average Euro/
0.022 2.0 %
Average Euro/British pound exchange rate £ 0.889 £ 0.877 £ 0.012 1.4 %
* Not meaningful
66
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Revenue per contract represents transaction fees less liquidity payments and (1) routing and clearing costs divided by total contracts traded during the
period.
Net capture per one hundred touched shares refers to transaction fees less (2) 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.
Net capture per 10,000 shares refers to transaction fees divided by the (3) 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 (4) fees less liquidity payments in British pounds divided by the product of ADNV
in British pounds of shares matched on
trading days for the period.
(5) Trades cleared refers to the total number of non-interoperable trades
cleared.
(6) Fee per trade cleared refers to clearing fees divided by number of
non-interoperable trades cleared.
(7) Net settlement volume refers to the total number of settlements executed
after netting.
(8) 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
the Cboe FX 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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Revenues
Total revenues for the year ended December 31, 2020 increased $931.0 million , or
37.3%, compared to the prior period primarily due to a $701.8 million , or 40.9%
increase in transaction and clearing fees as a result of an increase in market
volumes on the U.S. Equities exchanges and in the Options segment, coupled with
an increase in regulatory fees. The following summarizes changes in revenues for
the year ended December 31, 2020 compared to the year ended December 31, 2019 :
Year Ended
December 31, Increase/ Percent
2020 2019 (Decrease) Change
(in millions, except percentages)Transaction and clearing fees$ 2,418.0 $ 1,716.2 $ 701.8
40.9 % Access and capacity fees 236.7 221.9 14.8 6.7 % Market data fees 232.0 213.5 18.5 8.7 % Regulatory fees 500.2 311.7 188.5 60.5 % Other revenue 40.2 32.8 7.4 22.6 % Total revenues$ 3,427.1 $ 2,496.1 $ 931.0 37.3 %
Transaction and Clearing Fees
Transaction and clearing fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to a 55.7% increase inU.S. Equities exchange market ADV, a 53.7% increase in multi-listed options ADV, and additional revenue attributed to EuroCCP, which was acquired in the third quarter of 2020, partially offset by a 19.4% decrease in Futures ADV.
Access and Capacity Fees
Access and capacity fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to an increase in logical port revenue in the Options,European Equities , andNorth American Equities segments.
Market Data Fees
Market data fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to additional revenue attributed to the acquisitions of Hanweck, FT Options, and Trade Alert during 2020, partially offset by a decrease in tape plan market data revenue within theNorth American Equities segment resulting from a decline in market share.
Regulatory Fees
Regulatory transaction fees increased for the year ended
Other Revenue
Other revenue increased for the year ended
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Cost of Revenues
Cost of revenues increased in the year endedDecember 31, 2020 compared to the same period in 2019 primarily due to higher liquidity payments driven by an increase in volumes traded on theU.S. Equities and Options exchanges, as well as an increase in Section 31 fees within theNorth American Equities and Options segments, which increased$172.1 million and$21.5 million , respectively. The following summarizes changes in cost of revenues for the year endedDecember 31, 2020 compared to the prior year: Year Ended December 31, Increase/ Percent 2020 2019 (Decrease) Change (in millions, except percentages) Liquidity payments$ 1,554.1 $ 964.7 $ 589.4 61.1 % Routing and clearing 70.4 35.8 34.6 96.6 % Section 31 fees 465.0 271.4 193.6 71.3 % Royalty fees 83.4 86.8 (3.4) (3.9) % Other (0.1) 0.5 (0.6) (120.0) % Total$ 2,172.8 $ 1,359.2 $ 813.6 59.9 % Liquidity Payments
Liquidity payments increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to an increase in volumes traded on theU.S. Equities and Options exchanges.
Routing and Clearing
The increase in routing and clearing fees for the year endedDecember 31, 2020 compared to the same period in 2019 was primarily due to an increase in routed shares on theU.S. Equities exchanges.
Section 31 Fees
Section 31 fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to higher volumes in theNorth American Equities segment, coupled with an increase in the average Section 31 fee rate for 2020. Royalty Fees
Royalty fees decreased for the year ended
Revenues Less Cost of Revenues
Revenues less cost of revenues increased$117.4 million , or 10.3%, in the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to a$77.8 million , or 10.9%, increase in transaction and clearing fees less liquidity payments and routing and clearing costs, coupled with increases in market data fees and access and capacity fees. 69 Table of Contents The following summarizes the components of revenues less cost of revenues for the year endedDecember 31, 2020 , presented as a percentage of revenues less cost of revenues and compared to the prior year: Percentage of Revenues Less Cost of Revenues Year Ended Year Ended December 31, Percent December 31, 2020 2019 Change 2020 2019 (in millions, except percentages) Transaction and clearing fees less liquidity payments and routing and clearing costs$ 793.5 $ 715.7 10.9 % 63.2 % 63.0 % Access and capacity fees 236.7 221.9 6.7 % 18.9 % 19.5 % Market data fees 232.0 213.5 8.7 % 18.5 % 18.8 % Regulatory fees, less Section 31 fees 35.2 40.3 (12.7) % 2.8 % 3.5 % Royalty fees (83.4) (86.8) 3.9 % (6.6) % (7.6) % Other 40.3 32.3 24.8 % 3.2 % 2.8 % Revenues less cost of revenues$ 1,254.3 $ 1,136.9 10.3 % 100.0 % 100.0 %
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") increased for the year ended
December 31, 2020 compared to the same period in 2019, primarily due to a 53.7%
increase in multi-listed options ADV, a 55.7% increase in U.S. Equities exchange
market ADV, and additional revenues attributed to EuroCCP, which was acquired in
the third quarter of 2020.
Access and Capacity Fees
Access and fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to an increase in logical port revenue in the Options,European Equities , andNorth American Equities segments.
Market Data Fees
Market data fees increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to additional revenue attributed to the acquisitions of Hanweck, FT Options, and Trade Alert during 2020, partially offset by a decrease in tape plan market data revenue within theNorth American Equities segment resulting from a decline in market share.
Regulatory Fees, Less Section 31 Fees
Regulatory fees, less Section 31 Fees, decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to a decrease in fines and assessment fees. Royalty Fees
Royalty fees decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to lower trading volumes in licensed products
in 2020. Other
Other revenue increased for the year ended
Operating Expenses
For the year ended
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compensation and benefits. The following summarizes changes in operating
expenses for the year ended
Year Ended
December 31, Increase/ Percent
2020 2019 (Decrease) Change
(in millions, except percentages)
Operating Expenses:
Compensation and benefits $ 224.9 $ 199.0 $ 25.9 13.0 %Depreciation and amortization 158.5 176.6 (18.1) (10.2) % Technology support services 54.5 46.2 8.3 18.0 % Professional fees and outside services 60.6 68.3 (7.7) (11.3) % Travel and promotional expenses 6.6 11.9 (5.3)
(44.5) %
Facilities costs 17.6 11.0 6.6 60.0 %
Acquisition-related costs 45.2 48.5 (3.3) (6.8) %
Other expenses 24.2 38.2 (14.0) (36.6) %
Total operating expenses $ 592.1 $ 599.7 $ (7.6) (1.3) %
Compensation and Benefits
Compensation and benefits increased for the year ended
Depreciation and Amortization
Depreciation and amortization decreased for the year endedDecember 31, 2020 compared to the same period in 2019, due to a decline in amortization under the discounted cash flow method for the intangibles acquired in the Bats acquisition, coupled with the write-off of the Cboe Command software in the fourth quarter of 2019.
Technology support services costs increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to increases in purchased hardware and market data support services fees related to the acquisitions in 2020.
Professional Fees and Outside Services
Professional and outside services fees decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to declines in regulatory service fees of$5.3 million , legal fees of$3.9 million , and accounting fees of$1.2 million , partially offset by a$2.7 million increase in contract services due to the acquisition of EuroCCP.
Travel and Promotional Expenses
Travel and promotional expenses decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to travel restrictions implemented inMarch 2020 in response to the COVID-19 pandemic coupled with a decline in marketing expenses also driven by lack of sponsored events due to the COVID-19 pandemic. Facilities Costs
Facilities costs increased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to additional rent expense incurred for the new headquarters location beginning inJanuary 2020 and for the new trading 71
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floor location beginning in
Acquisition-Related Costs
Acquisition-related costs decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to severance costs incurred in the third quarter of 2019 that did not recur in 2020, coupled with the write down of goodwill attributed to a 2016 acquisition recorded in the second quarter of 2019, offset by the costs related to the six acquisitions closed in 2020. 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 decreased for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to a$23.4 million provision for the notes receivable recorded in the fourth quarter of 2019 as a result of circumstances associated with the development of the CAT, partially offset by a$6.7 million provision recorded in the third quarter of 2020, also related to the CAT.
Operating Income
As a result of the items above, operating income for the year endedDecember 31, 2020 was$662.2 million , compared to$537.2 million for the year endedDecember 31, 2019 , an increase of$125 million , or 23.3%.
Interest Expense, Net
Net interest expense increased in the year endedDecember 31, 2020 primarily due to the commitment fees related to the EuroCCP Credit Facility and fees related to the amended Revolving Credit Agreement, partially offset by the decrease in the variable interest rate on the term loan agreement.
Other Income, Net
Net other income increased in the year ended
Income Before Income Tax Provision
As a result of the above, income before income tax provision for the year endedDecember 31, 2020 was$660.4 million compared to$501.4 million for the year endedDecember 31, 2019 , an increase of$159.0 million , or 31.7%.
Income Tax Provision
For the year endedDecember 31, 2020 , the income tax provision was$192.2 million compared with$130.6 million for the year endedDecember 31, 2019 , an increase of$61.6 million , primarily due to the increase in income before income tax provision and a higher tax rate for the year endedDecember 31, 2020 . The effective tax rate for the year endedDecember 31, 2020 was 29.1%, compared to a rate of 26.0% for the year endedDecember 31, 2019 .
Net Income
As a result of the items above, net income for the year endedDecember 31, 2020 was$468.2 million , or 37.3% of revenues less cost of revenues, compared to$370.8 million , or 32.6% of revenues less cost of revenues, for the year endedDecember 31, 2019 , an increase of$97.4 million , or 26.3%. 72 Table of Contents Segment Operating Results
We report results from our five segments: Options,North American Equities , Futures,European Equities , 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 the 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:
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Percentage of
Total
Revenues
Year Ended Year Ended
December 31, Percent December 31,
2020 2019 Change 2020 2019
(in millions, except percentages)
Options $ 1,330.1 $ 983.1 35.3 % 38.8 % 39.4 %
North American Equities 1,789.5 1,213.1 47.5 % 52.2 % 48.6 %
Futures 109.2 135.9 (19.6) % 3.2 % 5.4 %
European Equities 140.5 110.8 26.8 % 4.1 % 4.4 %
Global FX 57.8 53.0 9.1 % 1.7 % 2.1 %
Corporate - 0.2 (100.0) % - % - %
Total revenues $ 3,427.1 $ 2,496.1 37.3 % 100.0 % 100.0 %
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The following summarizes our revenues less cost of revenues by segment:
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Percentage of
Total Revenues
less Cost of Revenues
Year Ended Year Ended
December 31, Percent December 31,
2020 2019 Change 2020 2019
(in millions, except percentages)
Options $ 649.7 $ 564.1 15.2 % 51.9 % 49.6 %
North American Equities 326.6 300.8 8.6 % 26.0 % 26.5 %
Futures 105.8 131.3 (19.4) % 8.4 % 11.5 %
European Equities 114.4 87.5 30.7 % 9.1 % 7.7 %
Global FX 57.8 53.0 9.1 % 4.6 % 4.7 %
Corporate - 0.2 (100.0) % - % - %
Total revenues less cost of revenues $ 1,254.3 $ 1,136.9 10.3 % 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:
Percentage
of Total
Revenues
Year Ended Year Ended
December 31, Percent December 31,
2020 2019 Change 2020 2019
(in millions, except percentages)
Revenues less cost of revenues $ 649.7 $ 564.1 15.2 % 48.8 % 57.4 %
Operating expenses 219.3 229.8 (4.6) % 16.5 % 23.4 %
Operating income $ 430.4 $ 334.3 28.7 % 32.4 % 34.0 %
EBITDA(1) $ 461.3 $ 366.0 26.0 % 34.7 % 37.2 %
EBITDA margin(2) 71.0 % 64.9 % * * *
* Not meaningful
See footnote (1) to the table under "Overview" above for a reconciliation of (1) 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$85.6 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to a 53.7% increase in multi-listed options ADV, coupled with a 9.8% increase in index options RPC and an increase in proprietary market data revenue as a result of the acquisitions of Hanweck, FT Options, and Trade Alert. For the year endedDecember 31, 2020 , operating income increased$96.1 million compared to the year endedDecember 31, 2019 primarily due to higher revenues less cost of revenues. Operating expenses decreased$10.5 million for the year endedDecember 31, 2020 compared to the prior period, primarily due to decreases in professional fees and outside services, acquisition-related costs, and depreciation and amortization, partially offset by an increase in compensation and benefits, facilities costs, and technology support services.
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA and EBITDA margin for ourNorth American Equities segment: Percentage of Total Revenues Year Ended Year Ended December 31, Percent December 31, 2020 2019 Change 2020 2019 (in millions, except percentages) Revenues less cost of revenues$ 326.6 $ 300.8 8.6 % 18.3 % 24.8 % Operating expenses 167.1 168.3 (0.7) % 9.3 % 13.9 % Operating income$ 159.5 $ 132.5 20.4 % 8.9 % 10.9 % EBITDA(1)$ 228.0 $ 208.0 9.6 % 12.7 % 17.1 % EBITDA margin(2) 69.8 % 69.1 % * * * * Not meaningful
See footnote (1) to the table under "Overview" above for a reconciliation of (1) 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$25.8 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to a 50.0% increase in volumes traded and shares routed on ourU.S. Equities exchanges. For the year endedDecember 31, 2020 , theNorth American Equities segment's operating income increased$27.0 million compared to the year endedDecember 31, 2019 as a result of higher revenues less cost of revenues. Operating expenses decreased slightly for the year endedDecember 31, 2020 compared to the year ended December 75
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31, 2019, primarily due to a decrease in other expenses and depreciation and amortization, offset by an increase in acquisition-related costs.
Futures
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Futures segment:
Percentage
of Total
Revenues
Year Ended Year Ended
December 31, Percent December 31,
2020 2019 Change 2020 2019
(in millions, except percentages)
Revenues less cost of revenues $ 105.8 $ 131.3 (19.4) % 96.9 % 96.6 %
Operating expenses 52.0 48.2 7.9 % 47.6 % 35.5 %
Operating income $ 53.8 $ 83.1 (35.3) % 49.3 % 61.1 %
EBITDA(1) $ 56.9 $ 85.4 (33.4) % 52.1 % 62.8 %
EBITDA margin(2) 53.8 % 65.0 % * * *
* Not meaningful
See footnote (1) to the table under "Overview" above for a reconciliation of (1) 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$25.5 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to a 19.4% decline in Futures ADV, coupled with a 5.2% decrease in revenue per contract. For the year endedDecember 31, 2020 , the Futures segment's operating income decreased$29.3 million compared to the year endedDecember 31, 2019 due to lower revenues less cost of revenues. Operating expenses increased$3.8 for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to an increase in compensation and benefits.
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA and EBITDA margin for ourEuropean Equities segment: Percentage of Total Revenues Year Ended Year Ended December 31, Percent December 31, 2020 2019 Change 2020 2019 (in millions, except percentages) Revenues less cost of revenues$ 114.4 $ 87.5 30.7 % 81.4 % 79.0 % Operating expenses 80.9 67.2 20.4 % 57.6 % 60.6 % Operating income$ 33.5 $ 20.3 65.0 % 23.8 % 18.3 % EBITDA(1)$ 95.1 $ 49.8 91.0 % 67.7 % 44.9 % EBITDA margin(2) 83.1 % 56.9 % * * * * Not meaningful
See footnote (1) to the table under "Overview" above for a reconciliation of (1) 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$26.9 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to additional revenue attributable to the acquisition of EuroCCP, as well as a 9.7% increase in net capture and a 5.8% increase in market ADNV. For the year endedDecember 31, 2020 , operating income increased$13.2 million compared to the year endedDecember 31, 2019 as a result of higher revenues less cost 76
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of revenues. Operating expenses increased
Global FX
The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA and EBITDA margin for our Global FX segment:
Percentage
of Total
Revenues
Year Ended Year Ended
December 31, Percent December 31,
2020 2019 Change 2020 2019
(in millions, except percentages)
Revenues less cost of revenues $ 57.8 $ 53.0 9.1 % 100.0 % 100.0 %
Operating expenses 51.8 57.9 (10.5) % 89.6 % 109.2 %
Operating income (loss) $ 6.0 $ (4.9) 222.4 % 10.4 % (9.2) %
EBITDA(1) $ 32.4 $ 25.0 29.6 % 56.1 % 47.2 %
EBITDA margin(2) 56.1 % 47.2 % * * *
* Not meaningful
See footnote (1) to the table under "Overview" above for a reconciliation of (1) 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$4.8 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to a 7.4% increase in Global FX ADNV during 2020. For the year endedDecember 31, 2020 , the Global FX segment's operating income increased$10.9 million compared to the year endedDecember 31, 2019 due to a decline in operating expenses, coupled with higher revenues less costs of revenues. Operating expenses decreased$6.1 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to decreases in depreciation and amortization, professional fees and outside services, and travel and promotional expenses. 77 Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Below are charts that reflect our capital allocation:
[[Image Removed: Chart Description automatically generated]]
We expect our cash on hand atDecember 31, 2020 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 13 ("Debt") of the consolidated financial statements for further information. OnJuly 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 onJuly 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 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 ofDecember 31, 2020 increased 78
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$16.1 million fromDecember 31, 2019 primarily due to proceeds from long-term debt and net income, partially offset by acquisitions net of cash of acquired of$351.5 million and share repurchases of$349.1 million . See "Cash Flow" below for further discussion. Our cash and cash equivalents held outside ofthe United States in various foreign subsidiaries totaled$128.2 million and$85.1 million as ofDecember 31, 2020 andDecember 31, 2019 , respectively. The remaining balance was held inthe United States and totaled$117.2 million and$144.1 million as ofDecember 31, 2020 andDecember 31, 2019 , respectively. Any offshore cash repatriated tothe United States could subject us to additionalUnited States income taxes, less applicable foreign tax credits. Our financial investments include deferred compensation plan assets, as well as investments with original or acquired maturities longer than three months but that mature in less than one year from the balance sheet date and are recorded at fair value. As ofDecember 31, 2020 , financial investments consisted ofU.S. Treasury securities and deferred compensation plan assets.
Cash Flow
The following table summarizes our cash flow data for the years endedDecember 31, 2020 , 2019 and 2018: For the Year Ended December 31, 2020 2019 2018 (in millions) Net cash provided by operating activities$ 1,458.8 $ 632.8 $ 534.7 Net cash used in investing activities (430.5) (15.9) (25.6) Net cash used in financing activities (201.7)
(662.9) (371.6) Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
1.6 0.2 (5.9) Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
$ 828.2 $ (45.8) $ 131.6 As of December 31, 2020 2019 2018 (in millions) Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents: Cash and cash equivalents$ 245.4 $ 229.3 $ 275.1 Restricted cash and cash equivalents (margin deposits and clearing funds) 812.1 - - Total$ 1,057.5 $ 229.3 $ 275.1
Net Cash Flows Provided by Operating Activities
During the year endedDecember 31, 2020 , net cash provided by operating activities was$990.6 million higher than net income. The variance is primarily attributed to the addition of$812.1 million of restricted cash and cash equivalents (margin deposits and clearing funds) resulting from the EuroCCP acquisition, the adjustment for depreciation and amortization expense of$158.5 million , the change in accounts payable and accrued liabilities of$59.4 million , and the change in Section 31 fees payable of$53.9 million , partially offset by the change in accounts receivable of$90.0 million . Net cash provided by operating activities was$1,458.8 million and$632.8 million for the years endedDecember 31, 2020 and 2019, respectively. The increase in net cash flows provided by operating activities was primarily due to the addition of margin deposits and clearing funds resulting from the EuroCCP acquisition and the increase in net income. Net cash provided by operating activities was$262.0 million higher than net income for the fiscal year endedDecember 31, 2019 . The variance is primarily attributed to the adjustment for depreciation expense of$176.6 million and the change in accounts receivable of$50.3 million , partially offset by the adjustment for provision of deferred taxes of$37.2 million , the change in accounts payable and accrued liabilities of$25.7 million , and other prepaid expenses of$16.9 million . 79 Table of Contents Net cash provided by operating activities was$632.8 million and$534.7 million for the years endedDecember 31, 2019 and 2018, respectively. The increase in net cash flows provided by operating activities was primarily due to higher net income.
Net Cash Flows Used in Investing Activities
Net cash flows used in investing activities was$430.5 million and$15.9 million for the years endedDecember 31, 2020 and 2019, respectively. The variance is primarily due to acquisitions, net of cash acquired in 2020 and the return of capital from investments in 2019.
Net cash flows used in investing activities totaled
Capital expenditures are expected to be in the range of
Net Cash Flows Used in Financing Activities
For the year ended
Net cash flows used in financing activities totaled$662.9 million for the year endedDecember 31, 2019 . The Company paid down$350.0 million of long-term debt, repurchased$156.9 million of common stock, and paid dividends of$150.0 million . Net cash flows used in financing activities totaled$371.6 million for the year endedDecember 31, 2018 . The$291.3 million decrease in net cash flows provided by financing activities resulted primarily from the long-term debt repayment in 2019.
Financial Assets
The following summarizes our financial assets excluding margin deposits and
clearing funds as of
As of December 31,
2020 2019 2018
(in millions)
Cash and cash equivalents $ 245.4 $ 229.3 $ 275.1
Financial investments 92.4 71.0 35.7Less deferred compensation plan assets (24.5) (23.4) - Less cash collected for Section 31 Fees (103.0) (69.0) (53.1) Adjusted Cash(1)$ 210.3 $ 207.9 $ 257.7
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.
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Debt
The following summarizes our debt obligations as of December 31, 2020 , 2019 and
2018:
As of December 31,
2020 2019 2018
(in millions)
Debt:
Term Loan Agreement $ 70.0 $ 225.0 $ 275.0
3.650% Senior Notes 650.0 650.0 650.0
1.950% Senior Notes - - 300.0
1.625% Senior Notes 500.0 - -
Revolving Credit Agreement - - -
EuroCCP Credit Facility - - -Less unamortized discount and debt issuance costs (16.1) (7.4)
(9.6)
Total debt $ 1,203.9 $ 867.6 $ 1,215.4 At
In addition to the debt outstanding, as ofDecember 31, 2020 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$460.3 million available to fund our operations, capital expenditures, potential acquisitions, debt repayments and any dividends as ofDecember 31, 2020 .
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 approved additional authorizations of$100 million in each of 2012, 2013, 2014, 2015 and 2016,$150 million inFebruary 2018 ,$100 million inAugust 2018 ,$250 million inOctober 2019 , and$250 million inJune 2020 , for a total authorization of$1.4 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 year endedDecember 31, 2020 , the Company repurchased 3,534,115 shares of common stock at an average cost per share of$98.78 , totaling$349.1 million . Since inception of the program throughDecember 31, 2020 , the Company has repurchased 17,250,124 shares of common stock at an average cost per share of$66.66 , totaling$1.1 billion .
As of
OCC Capital Management Policy
The Company's contributed capital to OCC has been recorded under investments in the consolidated balance sheets as ofDecember 31, 2020 . Under OCC's current capital management policy, which was approved by theSEC onJanuary 24, 2020 , if OCC's equity capital falls below certain defined thresholds, OCC can access additional capital through an operational loss fee charged to clearing members. None of OCC's shareholders (including Cboe Options) has any obligation to contribute capital to OCC under the capital management policy, nor does any shareholder have the right to receive dividends from OCC under such policy. OCC did not pay its shareholders any dividend or other return on the retained portion of their capital contributions. As such, the Company reversed the$8.8 million OCC dividend declared in 81
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2018, which was to be paid in 2019, in other expense, net in the consolidated
statement of income for the year ended
Lease and Obligations
The Company currently leases additional office space, data centers and remote network operations center, with lease terms remaining from 4 months to 180 months as ofDecember 31, 2020 . InSeptember 2019 , we entered into two leases that commenced in 2020 for a new principal office space and trading floor space, both located inChicago, Illinois . Total rent expense related to current and former lease obligations for the years endedDecember 31, 2020 , 2019 and 2018 totaled$20.2 million ,$12.4 million and$10.1 million , respectively. In addition to our lease obligations, we have contractual obligations related to certain operating leases, data and telecommunications agreements, and our long-term debt outstanding. Purchase obligations include our estimate of the minimum outstanding obligations under agreements to purchase goods or services that we believe are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed or minimum and maximum amounts to be paid; and the approximate timing of the transaction. Purchase obligations include licensing agreements with various licensors which contain annual minimum fee requirements that total$361.6 million for the next five years. Purchase obligations exclude agreements that are cancellable at any time without penalty. We have excluded from the contractual obligations listed below$812.1 million in cash margin deposits and clearing funds. Clearing participants of EuroCCP are required to make deposits to a clearing fund. The cash deposits made by clearing participants are recorded in the consolidated balance sheet as current assets with equal and offsetting current liabilities. See Note 15 ("Clearing Operations") to our consolidated financial statements for additional information on EuroCCP and the margin deposits and clearing funds. Future minimum payments under these leases and agreements were as follows as ofDecember 31, 2020 : Payments Due by Period Less than More than Total 1 year 1-3 years 4-5 years 5 years Contractual Obligations (in millions) Operating leases$ 157.7 $ 16.4 $ 33.1 $ 21.4 $ 86.8 Purchase obligations 963.0 70.1 143.5 148.0 601.4 Principal payments of debt 1,220.0 70.0 - - 1,150.0 Interest payments on debt 224.9 32.7 63.7 63.7 64.8 Total$ 2,565.6 $ 189.2 $ 240.3 $ 233.1 $ 1,903.0
Commercial Commitments and Contractual Obligations
As ofDecember 31, 2020 , 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 24 ("Commitments, Contingencies, and Guarantees") to the consolidated financial statements for a discussion of commitments and contingencies, Note 13 ("Debt") for a discussion of the outstanding debt, Note 15 ("Clearing Operations") for information on EuroCCP's clearinghouse exposure guarantee, and Note 25 ("Leases") for discussion on operating leases and equipment leases.
Off-Balance Sheet Arrangements
See Note 15 ("Clearing Operations") for discussion of contingent assets and liabilities related to clearing operations in connection with the Company's acquisition of EuroCCP.
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 theNSCC provides a guarantee. In the case of failure to perform on the part of one of our clearing firms, Wedbush or Morgan Stanley, we provide the guarantee to the counterparty to the trade. 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 82
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accordingly, have not recorded any liability in the consolidated financial statements for these guarantees. Similarly, with respect toU.S. listed equity options and futures, we deliver matched trades of our customers to the OCC, which acts as a central counterparty on all transactions occurring on Cboe Options, C2, BZX, EDGX, and CFE and, as such, guarantees clearance and settlement of all of our 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, as such, guarantees clearance and settlement of all of our matched Canadian equities trades. The BIDS Trading ATS platform delivers matched trades toBofA Securities, Inc. , which delivers the matched trades to theNSCC . CRITICAL ACCOUNTING POLICIES The preparation of 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. We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these policies on our business operations is discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations." For a detailed discussion on the application of these and other accounting policies, see Note 2 ("Summary of Significant Accounting Policies") to our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
For further discussion related to revenue recognition of fees, such as transaction and clearing fees, access and capacity fees, market data fees, and regulation transaction and Section 31 fees, see Note 4 ("Revenue Recognition").
Our acquisitions of Bats,Cboe Vest Financial Group Inc. ("Vest"),Silexx Financial Systems, LLC ("Silexx"),LiveVol , Hanweck, FT Options, Trade Alert, MATCHNow, andBIDS Holdings resulted in the recording of goodwill and other intangible assets, while our acquisition of EuroCCP, resulted in a bargain purchase gain and other intangible assets. In accordance with ASC 350-Intangibles-Goodwill and Other, we test the carrying values of goodwill and indefinite-lived intangible assets for impairment at least annually, or more frequently when events or changes in circumstances signal indicators of impairment are present. We perform our annual impairment test of goodwill and other indefinite-lived intangible assets during the fourth quarter of our fiscal year, using theOctober 1 carrying values.Goodwill is tested for impairment at the reporting unit level in accordance with ASC 350-20. If the carrying value of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess. If the fair value of indefinite-lived intangible assets is less than their carrying value, an impairment loss will be recognized in an amount equal to the difference. We performed our annual goodwill impairment test as ofOctober 1, 2020 and determined that no impairment existed. The estimated fair values of our reporting units are based on the market approach and the income approach (using discounted estimated future cash flows). The estimated fair values of indefinite-lived intangibles used the income approach. The discounted cash flow analysis requires significant judgment, including judgments about the discount rate, forecasted revenue growth rate, and operating expenses, that are inherent in these fair value estimates over the estimated remaining operating period. As such, actual results may differ from these estimates and lead to a revaluation of our goodwill and indefinite-lived intangible assets. If updated estimates indicate that the fair value of goodwill or any indefinite-lived intangibles is less than the carrying value of the asset, an impairment charge is expected to be recorded in the consolidated statements of income in the period of the change in estimate. 83 Table of Contents Purchase Accounting Tangible and intangible assets acquired and liabilities assumed in an acquired business are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. Determining the fair value of assets acquired and liabilities assumed requires management's judgment, often utilizes independent valuation experts and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset and the duration of each liability, could significantly impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. When available, the estimated fair values of these assets and liabilities are determined based on observable inputs, such as quoted market prices, information from comparable transactions, offers made by other prospective acquirers, in such cases where we may have certain rights to acquire additional interests in existing investments, and the replacement cost of assets in the same condition or stage of usefulness (Level 1 and 2). Unobservable inputs, such as expected future cash flows or internally developed estimates of value (Level 3), are used if observable inputs are not available. As noted in ASC 805-Business Combinations, the allocation of the purchase price may be modified up to twelve months after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. See Note 5 ("Acquisitions") for additional information.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that all or some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expense is recognized on the full amount of deferred benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in the income tax provision within the consolidated statements of income.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 3 ("Recent Accounting Pronouncements") to the consolidated financial statements for further discussion of recently adopted and recently issued accounting pronouncements that are applicable to the Company.
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