| ● | Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in pricingvaluing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.The Company applied FASB ASC 820, Fair Value Measurement, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:
| ● | Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities.liability. |
| ● | Level 2—Observable inputs, either direct or indirect, not including Level 1 measurements, corroborated by market data or based upon quoted prices in non-active markets. |
| ● | Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in valuing the asset or liability. |
The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | | | | March 31, 2020 | | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | U.S. Treasury securities | | $ | 25.2 | | $ | 25.2 | | $ | — | | $ | — | Marketable securities: | | | | | | | | | | | | | Mutual funds | | | 11.8 | | | 11.8 | | | — | | | — | Money market funds | | | 6.6 | | | 6.6 | | | — | | | — | Total assets | | $ | 43.6 | | $ | 43.6 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 17.5 | | $ | — | | $ | — | | $ | 17.5 | Total Liabilities | | $ | 17.5 | | $ | — | | $ | — | | $ | 17.5 |
| | | | | | | | | | | | | | | December 31, 2019 | | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | U.S. Treasury securities | | $ | 47.6 | | $ | 47.6 | | $ | — | | $ | — | Marketable securities: | | | | | | | | | | | | | Mutual funds | | | 15.7 | | | 15.7 | | | — | | | — | Money market funds | | | 7.7 | | | 7.7 | | | — | | | — | Total assets | | $ | 71.0 | | $ | 71.0 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 2.2 | | $ | — | | $ | — | | $ | 2.2 | Total Liabilities | | $ | 2.2 | | $ | — | | $ | — | | $ | 2.2 |
The following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis:
Financial Investments
Financial investments consist of highly liquid U.S. Treasury securities and marketable securities held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter-dealer brokers and therefore categorized as Level 1. See Note 15
The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in millions): | | | | | | | | | | | | | | | September 30, 2020 | | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | U.S. Treasury securities | | $ | 0.5 | | $ | 0.5 | | $ | — | | $ | — | Marketable securities: | | | | | | | | | | | | | Mutual funds | | | 13.8 | | | 13.8 | | | — | | | — | Money market funds | | | 8.5 | | | 8.5 | | | — | | | — | Total assets | | $ | 22.8 | | $ | 22.8 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 37.9 | | $ | — | | $ | — | | $ | 37.9 | Total Liabilities | | $ | 37.9 | | $ | — | | $ | — | | $ | 37.9 |
| | | | | | | | | | | | | | | December 31, 2019 | | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | U.S. Treasury securities | | $ | 47.6 | | $ | 47.6 | | $ | — | | $ | — | Marketable securities: | | | | | | | | | | | | | Mutual funds | | | 15.7 | | | 15.7 | | | — | | | — | Money market funds | | | 7.7 | | | 7.7 | | | — | | | — | Total assets | | $ | 71.0 | | $ | 71.0 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 2.2 | | $ | — | | $ | — | | $ | 2.2 | Total Liabilities | | $ | 2.2 | | $ | — | | $ | — | | $ | 2.2 |
The following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis: Financial Investments Financial investments consist of highly liquid U.S. Treasury securities and marketable securities held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter-dealer brokers and therefore categorized as Level 1. See Note 16 (“Employee Benefit Plans”) for more information. Contingent Consideration Liabilities In connection with the acquisitionacquisitions of Hanweck and MATCHNow, as well as the acquisition of assets of FT Options and Trade Alert, the Company entered into contingent consideration arrangements with the former owners. The total fair value of the liabilities at March 31,September 30, 2020 was $17.5$37.9 million. That value is based on the Company’s estimate of the likelihood that certain performance targets in the respective acquisition agreements willare expected to be accomplished. Because the fair value measurements relating to the contingent consideration liabilities are subject to management judgment, measurement uncertainty is inherent in the valuation of the contingent consideration liabilities as of the reporting date. Based on the recorded balance of the liabilities, any measurement uncertainty related to this Level 3 measurement is immaterial as of March 31,September 30, 2020. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets, such as goodwill and intangible assets, are measured at fair value on a non-recurring basis. For goodwill, the process involves using a market approach and income approach (using discounted estimated cash flows) to determine the fair value of each reporting unit on a stand-alone basis. That fair value is compared to the carrying amount of the reporting unit, including its recorded goodwill. In connection with the annual impairment evaluation of goodwill and indefinite life intangibles, impairment is considered to have occurred if the fair value of the reporting unit is lower than the carrying amount of the reporting unit. For the intangible assets, the process also involves using a discounted cash flow method to determine the fair value of each intangible asset. Impairment is considered to have occurred if the fair value of the intangible asset is lower than its carrying amount. The Company did not perform an impairment test during the three months ended March 31,September 30, 2020, as there were no market events that would indicate it was more likely than not that these assets were impaired. These measurements are considered Level 3 and these assets are recognized at fair value if they are deemed to be impaired. Equity investments without readily determinable fair values that are valued using the measurement alternative are measured at fair value on a non-recurring basis. During the nine months ended September 30, 2020, no observable transactions or impairments impacted the measurements of the investments accounted for as other equity investments. In addition, property held for sale as of March 31,September 30, 2020 was also measured at fair value, less selling costs at March 31,September 30, 2020. See Note 6 (“Property and Equipment, Net”) for more information on property held for sale. Fair Value of Assets and Liabilities The following table presents the Company’s fair value hierarchy for certain assets and liabilities held by the Company as of March 31,September 30, 2020 and December 31, 2019 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | September 30, 2020 | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury securities | | $ | 25.2 | | $ | 25.2 | | $ | — | | $ | — | | $ | 0.5 | | $ | 0.5 | | $ | — | | $ | — | Deferred compensation plan assets | | | 18.4 | | | 18.4 | | | — | | | — | | | 22.3 | | | 22.3 | | | — | | | — | Total assets | | $ | 43.6 | | $ | 43.6 | | $ | — | | $ | — | | $ | 22.8 | | $ | 22.8 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 17.5 | | $ | — | | $ | — | | $ | 17.5 | | $ | 37.9 | | $ | — | | $ | — | | $ | 37.9 | Deferred compensation plan liabilities | | | 18.4 | | | 18.4 | | | — | | | — | | | 22.3 | | | 22.3 | | | — | | | — | Debt | | | 868.1 | | | — | | | 868.1 | | | — | | | 939.1 | | | — | | | 939.1 | | | — | Total liabilities | | $ | 904.0 | | $ | 18.4 | | $ | 868.1 | | $ | 17.5 | | $ | 999.3 | | $ | 22.3 | | $ | 939.1 | | $ | 37.9 |
| | | | | | | | | | | | | | | December 31, 2019 | | | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | U.S. Treasury securities | | $ | 47.6 | | $ | 47.6 | | $ | — | | $ | — | Deferred compensation plan assets | | | 23.4 | | | 23.4 | | | — | | | — | Total assets | | $ | 71.0 | | $ | 71.0 | | $ | — | | $ | — | Liabilities: | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 2.2 | | $ | — | | $ | — | | $ | 2.2 | Deferred compensation plan liabilities | | | 23.4 | | | 23.4 | | | — | | | — | Debt | | | 867.6 | | | — | | | 867.6 | | | — | Total liabilities | | $ | 893.2 | | $ | 23.4 | | $ | 867.6 | | $ | 2.2 |
Certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, margin deposits and clearing funds, income tax receivable, accounts payable and Section 31 fees payable, are not measured at fair value on a recurring basis, but the carrying values approximate fair value due to their liquid or short-term nature. Debt The carrying amount of debt approximates its fair value based on quoted LIBOR or using a fixed rate at March 31,September 30, 2020 and is considered a Level 2 measurement. Information on Level 3 Financial Liabilities The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities during the three and nine months ended March 31,September 30, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 3 Financial Liabilities for the Three Months Ended March 31, 2020 | | Level 3 Financial Liabilities for the Three Months Ended September 30, 2020 | | | Balance at | | Realized (gains) | | | | | | | | | Balance at | | Realized (gains) | | | | | | | | | | Beginning of | | losses during | | | | | | Balance at | | Beginning of | | losses during | | | | | | Balance at | | | Period | | period | | Additions | | Settlements | | End of Period | | Period | | period | | Additions | | Settlements | | End of Period | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 2.2 | | $ | — | | $ | 17.5 | | $ | (2.2) | | $ | 17.5 | | $ | 20.5 | | $ | — | | $ | 17.4 | | $ | — | | $ | 37.9 | Total Liabilities | | $ | 2.2 | | $ | — | | $ | 17.5 | | $ | (2.2) | | $ | 17.5 | | $ | 20.5 | | $ | — | | $ | 17.4 | | $ | — | | $ | 37.9 |
| | | | | | | | | | | | | | | | | | Level 3 Financial Liabilities for the Nine Months Ended September 30, 2020 | | | Balance at | | Realized (gains) | | | | | | | | | | Beginning of | | losses during | | | | | | Balance at | | | Period | | period | | Additions | | Settlements | | End of Period | Liabilities | | | | | | | | | | | | | | | | Contingent consideration liabilities | | $ | 2.2 | | $ | — | | $ | 37.9 | | $ | (2.2) | | $ | 37.9 | Total Liabilities | | $ | 2.2 | | $ | — | | $ | 37.9 | | $ | (2.2) | | $ | 37.9 |
14.15. SEGMENT REPORTING
The Company reports 5 business segments: Options, U.S.North American Equities, Futures, European Equities, and Global FX, which is reflective of how the Company's chief operating decision-maker reviews and operates the business, as discussed in Note 1 (“Organization and Basis of Presentation”). Segment performance is primarily evaluated based on operating income (loss). The Company’s chief operating decision-maker does not use segment-level assets or income and expenses below operating income (loss) as key performance metrics; therefore, such information is not presented below. The Company has aggregated all of its corporate costs, as well as other business ventures, within the Corporate Items and Eliminations totals based on the decision that those activities should not be used to evaluate the operating performance of the segments; however, operating expenses that relate to activities of a specific segment have been allocated to that segment. Options. The Options segment includes listed options on market indices (“index options”), mostly on an exclusive basis, as well as on non-exclusive “multi-listed” options, such as options on the stocks of individual corporations (“equity options”) and options on ETPs, such as exchange-traded funds (“ETFs”) and exchange-traded notes (“ETNs”). These options trade on Cboe Options, C2, BZX, and EDGX. Cboe Options is the Company’s primary options market and offers trading in listed options through a single system, known as the Hybrid trading model, which integrates electronic trading and traditional open outcry trading on the Cboe Options trading floor in Chicago. There iswas a temporary suspension of open outcry trading between March 13, 2020 and June 14, 2020 in response to the COVID-19 pandemic. C2, BZX, and EDGX 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 U.S. tape plan, the sale of proprietary market data, index licensing, and access and capacity services. U.S.North American Equities. The U.S.North American Equities segment includes listed U.S. equities and ETP transaction services that occur on BZX, BYX, EDGX, and EDGA. This segment was previously referred to as the U.S. Equities segment, but has been updated as a result of the addition of MATCHNow and includes Canadian equities and other transaction services that occur on the MATCHNow 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 U.S. equities tape plans, the sale of proprietary market data, routing services, access and capacity services and advertising activity from ETF.com.
Futures. The Futures segment includes the business of the Company’s futures exchange, CFE, which includes offerings for trading VIX futures and other futures products, as well as revenue generated from the sale of proprietary market data and from 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 occur on MTFs operated by Cboe Europe Equities. It also includes the listings business where ETPs can be listed on RMs.RMs and clearing activities from 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 in October 2019, operates similar business functionality that is offered by Cboe Europe, other than LIS, and provides for trading only in European Economic Area symbols. Cboe Europe Equities also includes revenue generated from the sale 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 platform, non-deliverable forward FX transactions offered for execution on Cboe SEF, as well as revenue generated from the sale of proprietary market data and from access and capacity services. Summarized financial data of reportable segments was as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | | | | | | | | North | | | | | | | | | | | Corporate | | | | | | | | | | | | | | European | | | | | Items and | | | | | | | | American | | | | European | | | | | Items and | | | | | | Options | | U.S. Equities | | Futures | | Equities | | Global FX | | Eliminations | | Total | | Options | | Equities | | Futures | | Equities | | Global FX | | Eliminations | | Total | Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | Revenues | | $ | 356.5 | | $ | 473.7 | | $ | 41.5 | | $ | 32.9 | | $ | 16.9 | | $ | — | | $ | 921.5 | | $ | 312.8 | | $ | 403.6 | | $ | 24.0 | | $ | 39.1 | | $ | 13.2 | | $ | — | | $ | 792.7 | Operating income (loss) | | | 143.4 | | | 49.0 | | | 26.9 | | | 9.5 | | | 3.0 | | | (5.4) | | | 226.4 | | | 94.4 | | | 33.1 | | | 10.1 | | | 9.3 | | | 0.6 | | | (8.2) | | | 139.3 | Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | Revenues | | $ | 232.1 | | $ | 295.8 | | $ | 30.5 | | $ | 30.3 | | $ | 13.9 | | $ | — | | $ | 602.6 | | $ | 266.1 | | $ | 330.7 | | $ | 39.6 | | $ | 25.9 | | $ | 13.1 | | $ | — | | $ | 675.4 | Operating income (loss) | | | 88.1 | | | 37.6 | | | 18.3 | | | 5.8 | | | (0.4) | | | (2.9) | | | 146.5 | | | 85.4 | | | 36.4 | | | 26.2 | | | 4.8 | | | (1.3) | | | (4.1) | | | 147.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | North | | | | | | | | | | | Corporate | | | | | | | | | American | | | | European | | | | | Items and | | | | | | Options | | Equities | | Futures | | Equities | | Global FX | | Eliminations | | Total | Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | Revenues | | $ | 986.9 | | $ | 1,367.8 | | $ | 87.1 | | $ | 97.3 | | $ | 43.8 | | $ | — | | $ | 2,582.9 | Operating income (loss) | | | 331.2 | | | 138.0 | | | 45.3 | | | 24.2 | | | 4.7 | | | (16.0) | | | 527.4 | Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | | | Revenues | | $ | 743.2 | | $ | 925.2 | | $ | 103.9 | | $ | 84.9 | | $ | 40.1 | | $ | 0.2 | | $ | 1,897.5 | Operating income (loss) | | | 252.5 | | | 110.4 | | | 63.9 | | | 16.3 | | | (3.3) | | | (21.8) | | | 418.0 |
15.16. EMPLOYEE BENEFIT PLANS
Employees are eligible to participate in the Cboe Options SMART Plan (“SMART Plan”). The SMART Plan is a defined contribution plan, which is qualified under Internal Revenue Code Section 401(k). In addition, eligible employees may participate in the Supplemental Employee Retirement Plan, Executive Retirement Plan and Deferred Compensation Plan. Effective January 1, 2017, the Executive Retirement Plan is closed to new executive officers and employees. Each plan is a defined contribution plan that is non-qualified under the Internal Revenue Code. The Deferred Compensation Plan assets, held in a rabbi trust, are subject to the claims of general creditors of the Company and totaled $18.4$22.3 million and $23.4 million at MarchSeptember 30, 2020 and December 31, 2020.2019, respectively. Although the value of the plans are recorded in financial investments on the condensed consolidated balance sheets, there are equal and offsetting liabilities in other non-current liabilities. The investment results of these plans have no impact on net income as the investment results are recorded in equal amounts to both other expense, net and compensation and benefits expense in the condensed consolidated statements of income. The Company contributed $1.5$4.0 million and $1.6$3.3 million to the defined contribution plans for the three months ended March 31,September 30, 2020 and 2019, respectively, and $8.1 million and $8.5 million to the defined contribution plans for the nine months ended September 30, 2020 and 2019, respectively. This expense is included in compensation and benefits in the condensed consolidated statements of income. For employees of Cboe Europe, Limited,the Company contributes to an employee-selected stakeholder contribution plan. The Company’s contribution amounted to $0.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.6 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively. This expense is included in compensation and benefits in the condensed consolidated statements of income. For employees of EuroCCP, the Company contributes to an employee-selected stakeholder contribution plan. The Company’s contribution amounted to $0.2 million for the three and nine months ended March 31, 2020 and 2019, respectively.September 30, 2020. This expense is included in compensation and benefits in the condensed consolidated statements of income. 17. REGULATORY CAPITAL As a broker-dealer registered with the SEC, Cboe Trading is subject to the SEC’s Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, as defined therein. The SEC’s requirement also provides that equity capital may not be withdrawn or a cash dividend paid if certain minimum net capital requirements are not met. Cboe Trading computes the net capital requirements under the basic method provided for in Rule 15c3-1. As of March 31,September 30, 2020, Cboe Trading is required to maintain net capital equal to the greater of 6.67% of aggregate indebtedness items, as defined, or $0.1 million. At March 31,September 30, 2020, Cboe Trading had net capital of $7.1$19.0 million, which was $6.1$18.2 million in excess of its required net capital of $1.0$0.8 million. As entities regulated by the FCA, Cboe Europe Limited is subject to the Financial Resource Requirement (“FRR”) and Cboe Chi-X Europe is subject to the Capital Resources Requirement (“CRR”). As a RIE, Cboe Europe Limited computes its FRR in accordance with its Financial Risk Assessment, as agreed by the FCA. This FRR was $20.4$22.7 million at March 31,September 30, 2020. At March 31,September 30, 2020, Cboe Europe Limited had $27.5 million capital in excess of its required FRR of $56.7 million.FRR. As a Banks, Investment firms, PRUdential (BIPRU) 50k firm, as defined byIn accordance with the Markets in Financial Instruments Directive of the FCA requirements, Cboe Chi-X Europe computes its CRR as the greater of the base requirement of $0.1 million at March 31,September 30, 2020, or the summation of the credit risk, market risk and fixed overheads requirements, as defined. At March 31,September 30, 2020, Cboe Chi-X Europe had $0.3 million capital in excess of its required CRR of $0.5 million.CRR. Cboe Chi-X Europe Limited is currently dormant having ceased offering its routing service in November 2018.
On March 8, 2019, Cboe Europe NL received approval from the Dutch Ministry of Finance to operate a RM, a MTF, and an approved publication arrangement in the Netherlands. As a RM, Cboe Europe NL is subject to minimum capital requirements, as established by the Dutch Ministry of Finance in the license dated March 8, 2019. As of March 31,September 30, 2020, the minimum capital requirement calculated in accordance with the license was $1.5$5.7 million. At March 31,September 30, 2020, Cboe Europe NL had $1.2 million capital in excess of its requirement. On April 1, 2014, EuroCCP was granted authorization under European Market Infrastructure Regulation (“EMIR”) by the National Competent Authority, DNB. EuroCCP is required by the EMIR, to maintain a minimum amount of capital to reflect an estimate of the capital required to wind down or restructure the activities of the clearinghouse, cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the clearing participants’ collateral and clearing funds. At September 30, 2020, EuroCCP net capital was $59.2 million, which exceeded the EMIR capital requirement of $4.1$29.6 million. The Investment Industry Regulatory Organization of Canada (“IIROC”) sets and monitors regulatory capital requirements for MATCHNow to protect its clients and counterparties. MATCHNow is required to maintain a prescribed minimum level of risk adjusted capital (“RAC”) of $0.2 million in accordance with such requirements as IIROC may from time to time prescribe. At September 30, 2020, MATCHNow had RAC of $1.0 million, which was $0.8 million in excess of its required RAC of $0.2 million. As a designated contract market regulated by the CFTC, CFE is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets, which may include a line of credit, must be equal to at least six months of its projected operating costs. As of March 31,September 30, 2020, CFE had annual projected operating expenses of $58.2$59.3 million and had financial resources that exceeded this amount. Additionally, as of March 31,September 30, 2020, CFE had projected operating expenses for the upcoming six months of $29.1$29.7 million and had unencumbered, liquid financial assets, including a line of credit from Cboe, that exceeded this amount. As a swap execution facility regulated by the CFTC, Cboe SEF is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets must be equal to at least six months of its projected operating costs. As of March 31,September 30, 2020, Cboe SEF had annual projected operating expenses of $0.7$0.8 million and had financial resources that exceeded this amount. Additionally, as of March 31,September 30, 2020, Cboe SEF had projected operating expenses for the upcoming six months of $0.4 million and had unencumbered, liquid financial assets that exceeded this amount. 17.18. STOCK-BASED COMPENSATION
Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of actual forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Vesting may be accelerated for certain officers and employees as a result of attaining certain age and service based requirements in the Company’s long-term incentive plan and award agreements. The Company recognized stock-based compensation expense of $8.3$4.4 million and $5.4$5.3 million for the three months ended March 31,September 30, 2020 and 2019, respectively, and $17.3 million and $17.0 million for the nine months ended September 30, 2020 and 2019, respectively. Stock-based compensation expense is included in compensation and benefits and acquisition-related costs in the condensed consolidated statements of income. The activity in the Company’s stock options and restricted stock, consisting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) for the threenine months ended March 31,September 30, 2020 was as follows: Stock Options The following table summarizes stock options activity during the threenine months ended March 31,September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted | | | | | | | | | | Weighted | | | | | | | | Weighted | | Average | | | | | | | Weighted | | Average | | | | | | | | Average | | Remaining | | Aggregate | | | | Average | | Remaining | | Aggregate | | | Number of | | Exercise | | Contractual | | Intrinsic Value | | Number of | | Exercise | | Contractual | | Intrinsic Value | | | Shares | | Price | | Term (years) | | (in millions) | | Shares | | Price | | Term (years) | | (in millions) | Outstanding and exercisable, December 31, 2019 | | 10,834 | | $ | 18.59 | | | | | | | 10,834 | | $ | 18.59 | | | | | | Exercised | | 1,510 | | | 21.15 | | | | | | | 10,834 | | | 18.59 | | | | | | Outstanding and exercisable, March 31, 2020 | | 9,324 | | $ | 18.17 | | 0.2 | | $ | 0.7 | | Outstanding and exercisable, September 30, 2020 | | | — | | $ | — | | — | | $ | — |
The total intrinsic value of stock options exercised was $0.2$0.9 million and $20.7$25.0 million for the threenine months ended March 31,September 30, 2020 and 2019, respectively. RSAs and RSUs The following table summarizes RSA and RSU activity during the threenine months ended March 31,September 30, 2020: | | | | | | | | | | | | | | | Weighted | | | | Weighted | | | Number of | | Average Grant | | Number of | | Average Grant | | | Shares | | Date Fair Value | | Shares | | Date Fair Value | Nonvested stock at December 31, 2019 | | 436,013 | | $ | 92.47 | | 436,013 | | $ | 92.47 | Granted | | 164,925 | | | 119.65 | | 192,424 | | | 116.11 | Vested | | (246,850) | | | 86.92 | | (271,511) | | | 88.24 | Forfeited | | (10,674) | | | 104.90 | | (12,522) | | | 105.94 | Nonvested stock at March 31, 2020 | | 343,414 | | $ | 109.12 | | Nonvested stock at September 30, 2020 | | | 344,404 | | $ | 108.52 |
RSAs granted to non-employee members of the board of directors have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the RSAs will be forfeited if the director leaves the board of directors prior to the applicable vesting date. The RSAs have voting rights and entitle the holder to receive dividends. RSUs entitle the holder to 1 share of common stock upon vesting, typically vest over a three year period, and vesting accelerates upon the occurrence of a change in control or a termination of employment following a change in control.control, or in the event of a participant’s earlier death or disability. Vesting will also accelerate upon a qualified retirement. Qualified retirement eligibility occurs once a holder is at least 55 years of age and has completed at least 10 years of service for grants awarded in and after 2017. Unvested RSUs will be forfeited if the officer, or employee, leaves the Company prior to the applicable vesting date, except in limited circumstances. The RSUs have no voting rights but entitle the holder to receive dividend equivalents. In connection with the Merger, each award of restricted Bats common stock (“Bats restricted shares”) granted under any of the Bats Plans that was unvested immediately prior to the effective time of the Merger was assumed by the Company and converted into an award of restricted shares of our common stock, subject to the same terms and conditions (including vesting schedule) that applied to the applicable Bats restricted shares immediately prior to the effective time of the Merger (but taking into account any changes, including any acceleration of vesting of such Bats restricted shares, occurring by reason provided for in the agreement related to the Merger). During the threenine months ended March 31,September 30, 2020, to satisfy employees’ tax obligations upon the vesting of restricted stock, the Company purchased 97,321100,114 shares of common stock totaling $11.5$11.8 million as the result of the vesting of 246,850271,511 shares of restricted stock. PSUs The following table summarizes restricted stock units contingent upon achievement of performance conditions, also known as PSUs, activity during the threenine months ended March 31,September 30, 2020: | | | | | | | | | | | | | | | Weighted | | | | Weighted | | | Number of | | Average Grant | | Number of | | Average Grant | | | Shares | | Date Fair Value | | Shares | | Date Fair Value | Nonvested stock at December 31, 2019 | | 132,248 | | $ | 105.75 | | 132,248 | | $ | 105.75 | Granted | | 72,975 | | | 125.62 | | 72,975 | | | 125.62 | Vested | | (48,053) | | | 108.91 | | (48,053) | | | 108.91 | Forfeited | | (34,504) | | | 109.85 | | (34,504) | | | 109.85 | Nonvested stock at March 31, 2020 | | 122,666 | | $ | 115.18 | | Nonvested stock at September 30, 2020 | | | 122,666 | | $ | 115.18 |
PSUs include awards related to earnings per share during the performance period as well as awards related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return PSUs which incorporated the following assumptions: risk-free interest rate (1.36)%, three-year volatility (21.0)% and three-year correlation with S&P 500 Index (0.25). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive 1 share of the Company’s common stock. The vesting period for the PSUs contingent on the achievement of performance conditions is three years. For each of the performance awards, the PSUs will be settled in shares of the Company’s common stock following vesting of the PSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration in the event of a change in control of the Company, or a termination of employment following a change in control, or in the event of a participant’s earlier death or disability. Participants have no voting rights with respect to the PSUs until the issuance of the shares of common stock. Dividends are accrued by the Company and will be paid after the associated performance conditions are achieved and the PSUs are settled in shares of the Company’s common stock. In the threenine months ended March 31,September 30, 2020, to satisfy employees’ tax obligations upon the vesting of PSUs, the Company purchased 19,456 shares of common stock totaling $2.4 million as the result of the vesting of 48,053 PSUs. As of March 31,September 30, 2020, there were $34.1$26.7 million in total unrecognized compensation costs related to restricted stock, RSUs, and PSUs. These costs are expected to be recognized over a weighted average period of 2.31.9 years. Employee Stock Purchase Plan In May 2018, the Company’s stockholders approved an Employee Stock Purchase Plan, (“ESPP”), under which a total of 750,000 shares of the Company’s common stock was made available for purchase to employees. The ESPP is a broad-based plan that permits employees to contribute up to 10% of wages and base salary to purchase shares of the Company’s common stock at a discount, subject to applicable annual Internal Revenue Service limitations. Under the ESPP, a participant may not purchase more than a maximum of 312 shares of the Company’s common stock during any single offering period. No participant may accrue options to purchase shares of the Company’s common stock at a rate that exceeds $25,000 in fair market value of the Company’s common stock (determined at the time such options are granted) for each calendar year in which such rights are outstanding at any time. The exercise price per share of common stock shall be 90% (for eligible U.S. employees) or 85% (for eligible international employees) of the lesser of the fair value of the stock on the first day of the applicable offering period or the applicable exercise date. The Company records compensation expense over the offering period related to the discount that is given to employees, which totaled $0.1$18.6 thousand and $0.2 million for the three months ended March 31,September 30, 2020 and 2019, respectively, and $0.2 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively. As of March 31,September 30, 2020, 710,103692,432 shares were reserved for future issuance under the ESPP. 18.19. EQUITY
Common Stock The Company’s common stock is listed on Cboe BZX under the trading symbol CBOE. As of March 31,September 30, 2020, 325,000,000 shares of common stock were authorized, $0.01 par value, and 125,944,478125,996,924 and 109,719,823108,311,921 shares were issued and outstanding, respectively. As of December 31, 2019, 325,000,000 shares of common stock were authorized, $0.01 par value, and 125,701,889 and 110,656,892 shares were issued and outstanding, respectively. The holders of common stock are entitled to one1 vote per share. Common Stock in Treasury, at Cost The Company accounts for the purchase of treasury stock under the cost method with the shares of stock repurchased reflected as a reduction to Cboe stockholders’ equity and included in common stock in treasury, at cost in the condensed consolidated balance sheets. Shares repurchased under the Company’s share repurchase program are available to be redistributed. When treasury shares are redistributed, they are recorded at the average cost of the treasury shares acquired. The Company held 16,224,65517,685,003 and 15,044,997 shares of common stock in treasury as of March 31,September 30, 2020 and December 31, 2019, respectively. 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 in February 2018, $100 million in August 2018, and $250 million in October 2019, and $250 million in June 2020, for a total authorization of $1.1$1.4 billion. The Company expects to fund repurchases primarily through the use of existing cash balances. 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. The table below shows the repurchased shares of common stock under the Company’s share repurchase program during the periods presented as follows: | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | Three Months Ended September 30, | | | 2020 | | 2019 | | 2020 | | 2019 | Number of shares of common stock repurchased | | | 1,062,881 | | | 366,793 | | | 465,366 | | | 453,319 | Average price paid per share | | $ | 112.46 | | $ | 95.36 | | $ | 89.92 | | $ | 115.49 | Total purchase price (in millions) | | $ | 119.5 | | $ | 35.0 | | $ | 41.8 | | $ | 52.4 |
Since inception of the program through March 31,September 30, 2020, the Company has repurchased 14,778,89016,236,415 shares of common stock at an average cost per share of $62.27,$65.40, totaling $920.3 million.$1.1 billion. As of March 31,September 30, 2020 and 2019, the Company had $179.7$288.1 million and $171.1$118.7 million of availability remaining under its existing share repurchase authorizations, respectively. Purchase of Common Stock from Employees The Company purchased 116,777786 and 118,5633,569 shares that were not part of the publicly announced share repurchase authorization from employees for an average price paid per share of $119.53$100.62 and $94.59$111.56 during the three months ended March 31,September 30, 2020 and 2019, respectively. These shares consisted of shares retained to cover payroll withholding taxes or option costs in connection with the vesting of RSAs, RSUs, PSUs, and stock option exercises. Preferred Stock The Company has authorized the issuance of 20,000,000 shares of preferred stock, par value $0.01 per share, issuable from time to time in one or more series. As of March 31,September 30, 2020, and December 31 2019, the Company had 0 shares of preferred stock issued or outstanding. Dividends During the three months ended March 31,September 30, 2020, the Company declared and paid cash dividends per share of $0.42 for an aggregate payout of $45.8 million. During the three months ended September 30, 2019, the Company declared and paid cash dividends per share of $0.36 for an aggregate payout of $40.0 million. During the three months ended March 31, 2019, the Company declared and paid cash dividends per share of $0.31 for an aggregate payout of $34.8$40.4 million. Each share of common stock, including RSAs, RSUs, and PSUs, is entitled to receive dividend and dividend equivalents, respectively, if, as and when declared by the board of directors of the Company. 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. As a holding company, the Company’s ability to declare and continue to pay dividends in the future with respect to its common stock will also be dependent upon the ability of its subsidiaries to pay dividends to it under applicable corporate law. 19.20. INCOME TAXES
The Company records income tax expense during interim periods based on the best estimate of the full year’s income tax rate as adjusted for discrete items, if any, that are taken into account in the relevant interim period. Each quarter, the Company updates its estimate of the annual effective income tax rate and any change in the estimated rate is recorded on a cumulative basis. The effective income tax rate from continuing operations was 27.6%32.7% and 25.5%24.8% for the three months ended March 31,September 30, 2020 and 2019, respectively, and 29.1% and 26.5% for the nine months ended September 30, 2020 and 2019, respectively. The lowerhigher effective income tax rate for the three months ended March 31, 2019 wasin 2020 is primarily due to excessthe remeasurement of deferred tax benefits related to equity awards.liabilities as a result of an increase in the statutory tax rate in the United Kingdom. The Company petitioned the U.S. Tax Court on January 13, 2017, May 7, 2018 and November 29, 2018 for a redetermination of Internal Revenue ServiceIRS notices of deficiency for Cboe and certain of its subsidiaries for tax years 2011 through 2015 related to its Section 199 claims. The Company also filed a complaint on October 5, 2018 with the Court of Federal Claims for a refund of Section 199 claims related to tax years 2008 through 2010. The U.S. Tax Court set the trial to start on April 20, 2020, but due to the COVID-19 public emergency, the U.S. Tax Court struck the April 20, 2020 trial date and suspended all other deadlines. The Company believes the aggregate amount of any additional liabilities that may result from these examinations, if any, will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. As of March 31,September 30, 2020, the Company has not resolved these matters, and proceedings continue in the U.S. Tax Court and the Court of Federal Claims. 20.21. EARNINGS PER SHARE
The computation of basic net income per common share is calculated by reducing net income for the period by dividends paid or declared and undistributed net income for the period that are allocated to participating securities to arrive at net income allocated to common stockholders. Net income allocated to common stockholders is divided by the weighted average number of common shares outstanding during the period to determine net income per share allocated to common stockholders. The computation of diluted net income per share is calculated by dividing net income allocated to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The dilutive effect is calculated using the more dilutive of the two-class or treasury stock method. Additionally, the change in the redemption value for the noncontrolling interest reduces net income allocated to common stockholders.
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data) for the three and nine months ended March 31,September 30, 2020 and 2019: | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (in millions, except per share amounts) | | 2020 | | 2019 | | | 2020 | | 2019 | | 2020 | | 2019 | Basic earnings per share numerator: | | | | | | | | | | | | | | | | | | | | Net income | | $ | 157.4 | | $ | 95.2 | | | $ | 109.9 | | $ | 105.9 | | $ | 380.9 | | $ | 284.5 | Loss attributable to noncontrolling interest | | | — | | | 0.2 | | | | — | | | 0.1 | | | — | | | 4.1 | Net income excluding noncontrolling interest | | | 157.4 | | | 95.4 | | | | 109.9 | | | 106.0 | | | 380.9 | | | 288.6 | Change in redemption value of noncontrolling interest | | | — | | | (0.2) | | | | — | | | (0.1) | | | — | | | (0.5) | Earnings allocated to participating securities | | | (0.4) | | | (0.6) | | | | (0.3) | | | (0.4) | | | (1.0) | | | (1.5) | Net income allocated to common stockholders | | $ | 157.0 | | $ | 94.6 | | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | Basic earnings per share denominator: | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding | | | 110.4 | | | 111.5 | | | | 108.7 | | | 111.6 | | | 109.5 | | | 111.6 | Basic earnings per share | | $ | 1.42 | | $ | 0.85 | | | $ | 1.01 | | $ | 0.95 | | $ | 3.47 | | $ | 2.57 | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share numerator: | | | | | | | | | | | | | | | | | | | | Net income | | $ | 157.4 | | $ | 95.2 | | | $ | 109.9 | | $ | 105.9 | | $ | 380.9 | | $ | 284.5 | Loss attributable to noncontrolling interest | | | — | | | 0.2 | | | | — | | | 0.1 | | | — | | | 4.1 | Net income excluding noncontrolling interest | | | 157.4 | | | 95.4 | | | | 109.9 | | | 106.0 | | | 380.9 | | | 288.6 | Change in redemption value of noncontrolling interest | | | — | | | (0.2) | | | | — | | | (0.1) | | | — | | | (0.5) | Earnings allocated to participating securities | | | (0.4) | | | (0.6) | | | | (0.3) | | | (0.4) | | | (1.0) | | | (1.5) | Net income allocated to common stockholders | | $ | 157.0 | | $ | 94.6 | | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | Diluted earnings per share denominator: | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding | | | 110.4 | | | 111.5 | | | | 108.7 | | | 111.6 | | | 109.5 | | | 111.6 | Dilutive potential common shares outstanding | | | 0.2 | | | 0.2 | | | | 0.1 | | | 0.3 | | | 0.3 | | | 0.4 | Total dilutive weighted average shares | | | 110.6 | | | 111.7 | | | | 108.8 | | | 111.9 | | | 109.8 | | | 112.0 | Diluted earnings per share | | $ | 1.42 | | $ | 0.85 | | | $ | 1.01 | | $ | 0.94 | | $ | 3.46 | | $ | 2.56 |
For the periods presented, the Company did not have shares of stock-based compensation that would have an anti-dilutive effect on the computation of diluted net income per common share. 21.22. COMMITMENTS, CONTINGENCIES AND GUARANTEES
Legal Proceedings As of March 31,September 30, 2020, the Company was subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. The Company reviews its legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the condensed consolidated financial statements to not be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company’s assessment of whether a loss is remote, reasonably possible, or probable is based on its assessment of the ultimate outcome of the matter following all appeals. As of March 31,September 30, 2020, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these legal proceedings and claims, regulatory reviews, inspections or other legal proceedings, if any, has been incurred. While the consequences of certain unresolved proceedings are not presently determinable, the outcome of any proceeding is inherently uncertain and an adverse outcome from certain matters could have a material effect on the financial position, results of operations, or cash flows of the Company in any given reporting period. Except as set forth herein, there have been no material changes during the period covered by this Form 10-Q from the legal proceedings disclosures in the Annual Report on Form 10-K for the year ended December 31, 2019. City of Providence On April 18, 2014, the City of Providence, Rhode Island filed a securities class action lawsuit in the Southern District of New York against Bats and Direct Edge Holdings LLC, as well as 14 other securities exchanges. The action purports to be brought on behalf of all public investors who purchased and/or sold shares of stock in the United States since April 18, 2009 on a registered public stock exchange (“Exchange Defendants”) or a U.S.-based alternate trading venue and were injured as a result of the alleged misconduct detailed in the complaint, which includes allegations that the Exchange Defendants committed fraud through a variety of business practices associated with, among other things, what is commonly referred to as high frequency trading. On May 2, 2014 and May 20, 2014, American European Insurance Company and Harel Insurance Co., Ltd. each filed substantially similar class action lawsuits against the Exchange Defendants which were ultimately consolidated with the City of Providence, Rhode Island securities class action lawsuit. On June 18, 2015, the Southern District of New York (the “Lower Court”) held oral argument on the pending Motion to Dismiss and thereafter, on August 26, 2015, the Lower Court issued an Opinion and Order granting Exchange Defendants’ Motion to Dismiss, dismissing the complaint in full. Plaintiff filed a Notice of Appeal of the dismissal on September 24, 2015 and its appeal brief on January 7, 2016. Respondent's brief was filed on April 7, 2016 and oral argument was held on August 24, 2016. Following oral argument, the Court of Appeals issued an order requesting that the SEC submit an amicus brief on whether the Lower Court had jurisdiction and whether the Exchange Defendants have immunity in the claims alleged. The SEC filed its amicus brief with the Court of Appeals on November 28, 2016 and Plaintiff and the Exchange Defendants filed their respective supplemental response briefs on December 12, 2016. On December 19, 2017, the Court of Appeals reversed the Lower Court’s dismissal and remanded the case back to the Lower Court. On March 13, 2018, the Court of Appeals denied the Exchange Defendants’ motion for re-hearing. The Exchange Defendants filed their opening brief for their motion to dismiss May 18, 2018, Plaintiffs’ response was filed June 15, 2018 and the Exchange Defendants’ reply was filed June 29, 2018. On May 28, 2019, the Lower Court issued an opinion and order denying the Exchange Defendants’ motion to dismiss. On June 17, 2019, the Exchange Defendants filed a motion seeking interlocutory appeal of the May 28, 2019 dismissal order, which was denied July 16, 2019. Exchange Defendants filed their answers on July 25, 2019. The discovery period in the matter commenced and is scheduled to continue through 2020. Given the preliminary nature of the proceedings, the Company is unable to estimate what, if any, liability may result from this litigation. However, the Company believes that the claims are without merit and intends to litigate the matter vigorously. SIFMA Securities Industry Financial Markets Association (“SIFMA”) has filed a number of denial of access applications with the SEC to set aside proposed rule changes to establish or modify fees for Cboe Options, C2, BZX, BYX, EDGX and EDGA (the “Exchanges”) market data products and related services (the “Challenged Fees”). The Challenged Fees were held in abeyance pending a decision, which was issued by the SEC on October 16, 2018, on a separate SIFMA denial of access application regarding fees proposed by Nasdaq and the NYSE for their respective market data products. NASDAQ and NYSE filed petitions for review (“PFRs”) with the Court of Appeals for the D.C. Circuit (“D.C. Circuit”) seeking to appeal the SEC’s opinion (“Bellwether Case”). On June 5, 2020, the D.C. Circuit granted the PFRs and vacated the SEC’s finding that SIFMA could challenge generally applicable market data fees as a denial of access under Section 19(d) of the Exchange Act. In a second order entered on October 16, 2018, the SEC issued an order (the “Order”) that remanded the stayed Challenged Fees and ordered the Exchanges to: (i) within six months of the Order, provide notice to the SEC of developed or identified fair procedures for assessing the Challenged Fees (the “Procedures”) and (ii) within one year of the Order, apply the Procedures to the Challenged Fees and submit to the SEC a record explaining the Exchanges’ conclusions. On October 26, 2018, the Exchanges filed a motion to reconsider the Order with the SEC. On November 21, 2018, the Exchanges filed with the SEC a joinder motion to NYSE’s prior motion for stay of the Order. On December 3, 2018, SIFMA filed a response to NYSE’s motion for stay. Nasdaq withdrew its motion to reconsider the Order with the SEC on December 4, 2018, and on December 5, 2018, filed a Petition for Review with the Court of Appeals for the D.C. Circuit (the “D.C. Circuit”).Circuit. On December 14, 2018, the SEC denied the motion for stay but tolled the compliance date set forth in the remand order until ruling is made on the motion to reconsider. The Exchanges and NYSE filed on January 4, 2019 a motion to intervene in the Nasdaq Petition for Review to ensure the ability to participate in the case; the motion to intervene was granted on January 25, 2019. On the same day, SIFMA filed a motion with the D.C. Circuit moving to dismiss or hold in abeyance the Petition for Review. The Exchanges and NYSE submitted on February 6, 2019 a statement of issues for consideration in connection with the Petition for Review pending before the D.C. Circuit. On March 29, 2019, the D.C. Circuit issued an order indicating that SIFMA’s motion to dismiss will be considered with the underlying merits of the Petition for Review. On May 7, 2019, the SEC denied the Exchanges and NYSE’s motion for reconsideration of the Order. The SEC also further tolled the effectiveness of the remand order subject to the resolution of the substantive SIFMA case against Nasdaq and NYSE Arca that is already before the D.C. Circuit. On June 17, 2019, the Exchanges filed a petition for review of the May 7, 2019 SEC order denying reconsideration of the Order with the D.C. Circuit and of the Order. The Exchanges’ joint opening brief was filed on October 23, 2019, the SEC’s response was filed on November 22, 2019, the Exchanges’ joint reply was filed on December 20, 2019 and final briefs were filed on January 10, 2020. Oral arguments were held on February 18, 2020. On June 5, 2020, the D.C. Circuit remanded the Order to the SEC for reconsideration in light of the Bellwether Case opinion, i.e., that generally applicable market data fees may not be challenged as a denial of access under Section 19(d) of the Exchange Act. On August 7, 2020, the SEC entered an Order Vacating Prior Order and Requesting Additional Briefs. By September 3, 2020, all applications that had been previously filed with the SEC for review were the subject of notices for voluntary dismissal. On September 9, 2020, the Exchanges filed a response to the SEC’s August 7, 2020 Order. On October 5, 2020, the SEC entered an Order Granting Requests to Withdraw Applications for Review and Dismissing Review Proceedings. The deadline for the SEC to file a petition for writ of certiorari to the U.S. Supreme Court as to the Bellwether Case is November 2, 2020. An adverse ruling in that matter or a subsequent appeal could adversely affect exchange market data fees. However, the Company believes that the claims are without merit and intends to litigate the matter vigorously. The Company is unable to estimate what, if any, liability may result from this litigation. VIX Litigation On March 20, 2018, a putative class action complaint captioned Tomasulo v. Cboe Exchange, Inc., et al., No. 18-cv-02025 was filed in federal district court for the Northern District of Illinois alleging that the Company intentionally designed its products, operated its platforms, and formulated the method for calculating VIX and the Special Opening Quotation, (i.e., the special VIX value designed by the Company and calculated on the settlement date of VIX derivatives prior to the opening of trading), in a manner that could be collusively manipulated by a group of entities named as John Doe defendants. A number of similar putative class actions, some of which do not name the Company as a party, were filed in federal court in Illinois and New York on behalf of investors in certain volatility-related products. On June 14, 2018, the Judicial Panel on Multidistrict Litigation centralized the putative class actions in the federal district court for the Northern District of Illinois. On September 28, 2018, plaintiffs filed a master, consolidated complaint that is a putative class action alleging various claims against the Company and John Doe defendants in the federal district court for the Northern District of Illinois. The claims asserted against the Company consist of a Securities Exchange Act fraud claim, three3 Commodity Exchange Act claims and a state law negligence claim. Plaintiffs request a judgment awarding class damages in an unspecified amount, as well as punitive or exemplary damages in an unspecified amount, prejudgment interest, costs including attorneys’ and experts’ fees and expenses and such other relief as the court may deem just and proper. On November 19, 2018, the Company filed a motion to dismiss the master consolidated complaint and the plaintiffs filed their response on January 7, 2019. The Company filed its reply on January 28, 2019. On May 29, 2019, the federal district court for the Northern District of Illinois granted the Company’s motion to dismiss plaintiffs’ entire complaint against the Company. The state law negligence claim was dismissed with prejudice and the other claims were dismissed without prejudice with leave to file an amended complaint, which plaintiffs filed on July 19, 2019. On August 28, 2019, the Company filed its second motion to dismiss the amended consolidated complaint and plaintiffs filed their response on October 8, 2019. On January 27, 2020, the federal district court for the Northern District of Illinois granted the Company’s second motion to dismiss and all counts against the Company were dismissed with prejudice. On April 21, 2020, the federal district court for the Northern District of Illinois granted plaintiffs’ motion to certify the January 27, 2020 dismissal order for an immediate appeal. On May 19, 2020, plaintiffs filed a notice of appeal with the Court of Appeals for the Seventh Circuit (“7th Circuit”), seeking to appeal the April 21, 2020 order granting the entry of partial final judgment and both orders granting the Company’s motions to dismiss entered on May 29, 2019 and January 27, 2020. On June 29, 2020, plaintiffs filed their opening brief with the 7th Circuit, on August 28, 2020 the Company filed its opposition brief with the 7th Circuit, on September 7, 2020, CME Group Inc., Intercontinental Exchange, Inc. and National Futures Association filed an amici curiae brief in support of the Company on the Bad Faith Standard with the 7th Circuit and on October 16, 2020, plaintiffs filed their reply brief with the 7thCircuit. On October 14, 2020, the 7th Circuit set oral argument for November 30, 2020. The Company currently believes that the claims are without merit and intends to litigate the matter vigorously. The Company is unable to estimate what, if any, liability may result from this litigation. Other As self-regulatory organizations under the jurisdiction of the SEC, Cboe Options, C2, BZX, BYX, EDGX and EDGA are subject to routine reviews and inspections by the SEC. As a designated contract market under the jurisdiction of the CFTC, CFE is subject to routine rule enforcement reviews and inspectionsexaminations by the CFTC. Cboe SEF, LLC is a swap execution facility registered with the CFTC and subject to routine rule enforcement reviews and inspectionsexaminations by the CFTC. Cboe Trading is subject to reviews and inspections by FINRA. The Company has from time to time received inquiries and investigative requests from the SEC’s Office of Compliance Inspections and Examinations and the CFTC’s Division of Market Oversight as well as the SEC Division of Enforcement and CFTC Division of Enforcement seeking information about the Company’s compliance with its obligations as a self-regulatory organization under the federal securities laws and Commodity Exchange Act as well as members’ compliance with the federal securities laws. laws and Commodity Exchange Act. In addition, while Cboe Europe, Limited and Cboe Chi-X Europe, EuroCCP, Cboe NL, and MATCHNow have not been the subject of any material litigation or regulatory investigation in the past, there is always the possibility of such action in the future. As both companiesCboe Europe and Cboe Chi-X Europe are domiciled in the U.K., it is likely that any action would be taken in the U.K. courts in relation to litigation or by the FCA in relation to any regulatory enforcement action. As EuroCCP is domiciled in the Netherlands, it is likely that any action would be taken in the Dutch courts in relation to litigation or by the DNB or Dutch Authority for Financial Markets in relation to any regulatory enforcement action. For Cboe NL, also domiciled in the Netherlands, it is likely that any actions would be taken in the Dutch courts in relation to litigation or Dutch Authority for Financial Markets in relation to any regulatory enforcement action. As MATCHNow is domiciled in Canada, it is likely that any action would be taken in the Canadian courts in relation to litigation or by the IIROC or Ontario Securities Commission in relation to any regulatory enforcement action. The Company is also currently a party to various other legal proceedings in addition to those already mentioned. Management does not believe that the likely outcome of any of these other reviews, inspections, investigations or other legal proceedings is expected to have a material impact on the Company’s financial position, results of operations, liquidity or capital resources. See also Note 7 (“Credit Losses”) for information on promissory notes related to the CAT. See also Note 1920 (“Income Taxes”). Contractual Obligations See Note 2213 (“Clearing Operations”) for information on EuroCCP’s clearinghouse exposure guarantee. See Note 23 (“Leases”) for information on lease obligations. 22.23. LEASES
The Company currently leases office space, data centers, remote network operations centers, and equipment under non-cancelable operating leases with third parties as of March 31,September 30, 2020. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets and the Company recognizes lease expense in facilities costs within the condensed consolidated statements of income for these leases on a straight-line basis over the lease term. Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more, and some of which include the Company’s option to terminate the leases within one year. As the implicit rate in the Company’s leases are generally not reasonably determinable, the Company applies an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. During the three months ended March 31,September 30, 2020, an additional $64.2$0.9 million of right of use assets and $84.7 million of lease liabilities were added related to new operating leases. Additionally, the Company recognized $20.4 millionleases related to leasehold improvement incentives paid by the lessor.acquisitions.
In September 2019, the Company signed a new lease to secure approximately 185,000 square feet of office space within the Old Post Office building in Chicago, Illinois, which will serve as the Company’s new global headquarters. The initial term of the lease will beis 187 months from the accounting commencement date, January 13, 2020. The Company has the option to renew the lease term for an additional 60 months. The total legally binding minimum lease payments for this lease are approximately $98.8 million. See Note 6 (“Property and Equipment, Net”) for information on the current headquarters location. Additionally, in September 2019, the Company signed a new lease to secure approximately 40,000 square feet of office space within the Chicago Board of Trade Building in Chicago, Illinois, where the Company plans to build a new trading floor and office space. The initial term of the lease will beis 150 months from the accounting commencement date, May 1, 2020. The Company has the option to renew the lease term for an additional 60 months. The total legally binding minimum lease payments for this lease are approximately $17.1 million. The following table presents the supplemental balance sheet information related to leases as of March 31,September 30, 2020 and December 31, 2019, respectively (in millions): | | | | | | | | | | March 31, | | December 31, | September 30, | | December 31, | | 2020 | | 2019 | 2020 | | 2019 | Operating lease right of use assets | $ | 114.0 | | $ | 53.4 | $ | 116.1 | | $ | 53.4 | Total leased assets | $ | 114.0 | | $ | 53.4 | $ | 116.1 | | $ | 53.4 | | | | | | | | | | | | Accrued liabilities | $ | 9.6 | | $ | 8.7 | $ | 12.0 | | $ | 8.7 | Non-current operating lease liabilities | | 128.3 | | | 46.7 | | 135.6 | | | 46.7 | Total leased liabilities | $ | 137.9 | | $ | 55.4 | $ | 147.6 | | $ | 55.4 |
The following table presents operating lease costs and other information as of and for the three and nine months ended March 31,September 30, 2020 and 2019, respectively (in millions, except as stated): | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | | 2020 | 2019 | 2020 | | 2019 | | 2020 | | 2019 | Operating lease costs (1) | $ | 4.9 | | $ | 3.5 | | $ | 4.7 | | | $ | 3.4 | | | $ | 14.5 | | $ | 8.8 | | | | | | | | | | | | | | | | | | | | | | Lease term and discount rate information: | | | | | | | | | | | | | | | | | | | | Weighted average remaining lease term (years) | | 13.2 | | | 9.5 | | | | | | | | | | | 12.6 | | 9.4 | | Weighted average discount rate | | 3.5 | % | | 3.1 | % | | | | | | | | | | 3.4 | % | | 3.5 | % | | | | | | | | | | | | | | | | | | | | | Supplemental cash flow information and non-cash activity: | | | | | | | | | | | | | | | | | | | | Cash paid for amounts included in the measurement of lease liabilities | $ | 2.8 | | $ | 2.1 | | $ | 3.2 | | | $ | 2.7 | | | $ | 8.6 | | $ | 7.5 | | Lease incentive for leasehold improvements | | 20.4 | | | — | | | — | | | — | | | | 25.2 | | — | | Right-of-use assets obtained in exchange for lease liabilities (2) | | 64.2 | | | 18.9 | | | 0.9 | | | 2.0 | | | | 71.8 | | 21.0 | |
| (1) | Includes short-term lease and variable lease costs, which are immaterial. |
| (2) | Excludes right-of-use assets and lease liabilities recognized upon adoption of the lease accounting standard in 2019 of $40.3 million and $42.8 million, respectively. |
The maturities of the lease liabilities are as follows as of March 31,September 30, 2020 (in millions): | | | | | | | | | March 31, | | September 30, | | | 2020 | | 2020 | Remainder of 2020 | | $ | 10.1 | | $ | 4.2 | 2021 | | | 16.3 | | | 16.8 | 2022 | | | 15.6 | | | 17.3 | 2023 | | | 14.3 | | | 16.0 | 2024 | | | 10.1 | | | 11.6 | After 2024 | | | 108.7 | | | 118.6 | Total lease payments (1) | | $ | 175.1 | | $ | 184.5 | Less: Interest | | | (37.2) | | | (36.9) | Present value of lease liabilities | | $ | 137.9 | | $ | 147.6 |
| (1) | Total lease payments include $20.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $17.1 million of legally binding lease payments for leases signed but will commence after March 31, 2020.exercised. |
24. SUBSEQUENT EVENTS On October 28, 2020, the Company announced that its board of directors declared a quarterly cash dividend of $0.42 per share. The dividend is payable December 15, 2020 to stockholders of record at the close of business November 30, 2020. There have been no additional subsequent events that would require disclosure in, or adjustment to, the condensed consolidated financial statements as of and for the threenine months ended March 31,September 30, 2020. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 ended December 31, 2019, 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. is one of the world’s largest exchange holding companies, offeringprovides 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 multi-asset volatility products based on the VIX Index, recognized as the world’s premier gauge of U.S. equity market volatility. Cboe’s subsidiaries include the largest options exchange and the third largest stock exchange operator in the U.S. In addition, the Company operates one of the largest equities stock exchanges by value traded in Europe, and owns EuroCCP, a leading pan-European equities clearinghouse. Cboe also is a leading market globally for ETP listings and trading. The Company is headquartered in Chicago with offices in Kansas City, New York, London, San Francisco, Sarasota Springs, Toronto, Belfast, Amsterdam, Singapore, Hong Kong, and Ecuador. Business Segments The Company reports five business segments: Options, U.S.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. Our optionsThe Options segment includes listed options on market indices (“index options”), mostly on an exclusive basis, as well as on non-exclusive “multi-listed” options, such as options on the stocks of individual corporations (“equity options”) and options on ETPs, such as exchange-traded funds (“ETFs”) and exchange-traded notes (“ETNs”). These options trade on Cboe Options, C2, BZX, and EDGX. Cboe Options is ourthe Company’s primary options market and offers trading in listed options through a single system, known as ourthe Hybrid trading model, which integrates electronic trading and traditional open outcry trading on ourthe Cboe Options trading floor in Chicago. There iswas a temporary suspension of open outcry trading between March 13, 2020 and June 14, 2020 in response to the COVID-19 pandemic. C2, BZX, and EDGX are our 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 U.S. tape plan, the sale of proprietary market data, index licensing, and access and capacity services. U.S.North American Equities. The U.S.North American Equities segment includes listed U.S. equities and ETP transaction services that occur on BZX, BYX, EDGX, and EDGA. This segment was previously referred to as the U.S. Equities segment, but has been updated as a result of the addition of MATCHNow and includes Canadian equities and other transaction services that occur on the MATCHNow 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 U.S. equities tape plans, the sale of proprietary market data, routing services, access and capacity services and advertising activity from ETF.com. Futures. OurThe Futures segment includes the business of our futures exchange, CFE, which includes offerings for trading VIX futures and other futures products, as well as revenue generated from the sale of proprietary market data and from 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 occur on MTFs operated by Cboe Europe Equities. It also includes the listings business where ETPs can be listed on RMs.RMs and clearing activities from 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 in October 2019, operates similar business functionality that is offered by Cboe Europe, other than LIS, and provides for trading only in European Economic Area symbols. Cboe Europe Equities also includes revenue generated from the sale of proprietary market data and from access and capacity services. Global FX. OurThe Global FX segment includes institutional FX trading services that occur on the Cboe FX platform, as well as non-deliverable forward FX transactions offered for execution on Cboe SEF, as well as revenue generated from the sale 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, national and local tax policies, central bank policies and changing technology, particularly in the financial services industry. OurWe 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 the U.S. and Europe, clearing volumes in listed equity securities and ETPs in Europe, volumes in listed equity options, and volumes in institutional FX trading; |
| ● | the demand for and the pricing structure of the U.S. tape plan market data 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 the United States and Europe; |
| ● | 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. On March 11, 2020, the World 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 after the close of business on March 13, 2020, temporarily suspended open outcry trading between March 13, 2020 and June 14, 2020, without any known significant disruptions to our business or control processes. We willexpect 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, 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 the remainder of fiscal year 2020 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,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 the European 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. Transaction fees are recognized across all segments. 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 the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.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 the U.S.North 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 the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to customers are based on the fee set by the SEC per notional value of the transactionU.S. Equities exchange transactions and per round turn of Options transactions executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the U.S.North American Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, 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 the European 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, and Cboe Europe Equities, as cost of revenue. BYX and EDGA offer a pricing model pursuant to which 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 that U.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. Section 31 Fees Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) are assessed fees pursuant to the Exchange Act designed to recover the costs to the U.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 not U.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 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 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, 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 Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other 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. Financial Summary The following summarizes changes in financial performance for the three and nine months ended March 31,September 30, 2020 and 2019 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. “YTD” represents the nine-month period ended September 30th.  
| (1) | These are Non-GAAP figures for which reconciliations are provided below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase/ | | Percent | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, earnings per share, and as noted below) | | | | (in millions, except percentages, earnings per share, and as noted below) | | | (in millions, except percentages, earnings per share, and as noted below) | | Total revenues | | $ | 921.5 | | $ | 602.6 | | $ | 318.9 | | 52.9 | % | | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % | Total cost of revenues | | | 563.2 | | | 322.1 | | | 241.1 | | 74.9 | % | | | | 500.7 | | | 381.4 | | | 119.3 | | 31.3 | % | | | 1,635.7 | | | 1,040.9 | | | 594.8 | | 57.1 | % | Revenues less cost of revenues | | | 358.3 | | | 280.5 | | | 77.8 | | 27.7 | % | | | | 292.0 | | | 294.0 | | | (2.0) | | (0.7) | % | | | 947.2 | | | 856.6 | | | 90.6 | | 10.6 | % | Total operating expenses | | | 131.9 | | | 134.0 | | | (2.1) | | (1.6) | % | | | | 152.7 | | | 146.6 | | | 6.1 | | 4.2 | % | | | 419.8 | | | 438.6 | | | (18.8) | | (4.3) | % | Operating income | | | 226.4 | | | 146.5 | | | 79.9 | | 54.5 | % | | | | 139.3 | | | 147.4 | | | (8.1) | | (5.5) | % | | | 527.4 | | | 418.0 | | | 109.4 | | 26.2 | % | Income before income tax provision | | | 217.5 | | | 127.8 | | | 89.7 | | 70.2 | % | | | | 163.4 | | | 140.9 | | | 22.5 | | 16.0 | % | | | 537.5 | | | 387.2 | | | 150.3 | | 38.8 | % | Income tax provision | | | 60.1 | | | 32.6 | | | 27.5 | | 84.4 | % | | | | 53.5 | | | 35.0 | | | 18.5 | | 52.9 | % | | | 156.6 | | | 102.7 | | | 53.9 | | 52.5 | % | Net income | | | 157.4 | | | 95.2 | | | 62.2 | | 65.3 | % | | | | 109.9 | | | 105.9 | | | 4.0 | | 3.8 | % | | | 380.9 | | | 284.5 | | | 96.4 | | 33.9 | % | Basic earnings per share | | $ | 1.42 | | $ | 0.85 | | $ | 0.57 | | 67.1 | % | | | $ | 1.01 | | $ | 0.95 | | $ | 0.06 | | 6.3 | % | | $ | 3.47 | | $ | 2.57 | | $ | 0.90 | | 35.0 | % | Diluted earnings per share | | | 1.42 | | | 0.85 | | | 0.57 | | 67.1 | % | | | | 1.01 | | | 0.94 | | | 0.07 | | 7.4 | % | | | 3.46 | | | 2.56 | | | 0.90 | | 35.2 | % | EBITDA(1) | | | 264.9 | | | 184.3 | | | 80.6 | | 43.7 | % | | | EBITDA margin(2) | | | 73.9 | % | | 65.7 | % | | 8.2 | % | | * | | | Adjusted EBITDA(1) | | $ | 265.7 | | $ | 186.6 | | $ | 79.1 | | 42.4 | % | | | Adjusted EBITDA margin(3) | | | 74.2 | % | | 66.5 | % | | 7.7 | % | | * | | | Adjusted earnings(4) | | $ | 182.3 | | $ | 124.5 | | $ | 57.8 | | 46.4 | % | | | Organic net revenue (1) | | | | 275.4 | | | 294.0 | | | (18.6) | | (6.3) | % | | | 923.9 | | | 856.6 | | | 67.3 | | 7.9 | % | EBITDA(2) | | | | 212.1 | | | 191.6 | | | 20.5 | | 10.7 | % | | | 678.6 | | | 551.2 | | | 127.4 | | 23.1 | % | EBITDA margin(3) | | | | 72.6 | % | | 65.2 | % | | 7.4 | % | | * | | | 71.6 | % | | 64.3 | % | | 7.3 | % | | * | Adjusted EBITDA(2) | | | $ | 192.4 | | $ | 208.3 | | $ | (15.9) | | (7.6) | % | | $ | 669.1 | | $ | 587.4 | | $ | 81.7 | | 13.9 | % | Adjusted EBITDA margin(4) | | | | 65.9 | % | | 70.9 | % | | (5.0) | % | | * | | | 70.6 | % | | 68.6 | % | | 2.0 | % | | * | Adjusted earnings(5) | | | $ | 120.5 | | $ | 144.6 | | $ | (24.1) | | (16.7) | % | | $ | 446.1 | | $ | 393.7 | | $ | 52.4 | | 13.3 | % | Adjusted earnings margin(5) | | | 50.9 | % | | 44.4 | % | | 6.5 | % | | * | | | | 41.3 | % | | 49.2 | % | | (7.9) | % | | * | | | 47.1 | % | | 46.0 | % | | 1.1 | % | | * | Diluted weighted average shares outstanding | | | 110.6 | | | 111.7 | | | (1.1) | | (1.0) | % | | | | 108.8 | | | 111.9 | | | (3.1) | | (2.8) | % | | | 109.8 | | | 112.0 | | | (2.2) | | (2.0) | % | Adjusted Diluted earnings per share(5) | | $ | 1.65 | | $ | 1.11 | | $ | 0.54 | | 48.6 | % | | | Adjusted Diluted earnings per share(6) | | | $ | 1.11 | | $ | 1.29 | | $ | (0.18) | | (14.0) | % | | $ | 4.06 | | $ | 3.52 | | $ | 0.54 | | 15.3 | % |
The following summarizes changes in certain operational and financial metrics for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019:  
The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase/ | | Percent | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, trading days, and as noted below) | | | | (in millions, except percentages, trading days, and as noted below) | | | (in millions, except percentages, trading days, and as noted below) | | Options: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average daily volume (ADV) (in millions of contracts): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total touched contracts | | | 10.7 | | | 7.1 | | | 3.6 | | 50.7 | % | | | | 9.6 | | | 7.7 | | | 1.9 | | 24.7 | % | | | 10.1 | | | 7.4 | | | 2.7 | | 36.5 | % | Market ADV | | | 28.0 | | | 19.2 | | | 8.8 | | 45.8 | % | | | | 29.5 | | | 19.8 | | | 9.7 | | 49.0 | % | | | 28.6 | | | 19.4 | | | 9.2 | | 47.4 | % | Index contract ADV | | | 2.7 | | | 1.9 | | | 0.8 | | 42.1 | % | | | | 1.4 | | | 2.0 | | | (0.6) | | (30.0) | % | | | 1.9 | | | 1.9 | | | — | | — | % | Multi-Listed contract ADV | | | 8.0 | | | 5.2 | | | 2.8 | | 53.8 | % | | | | 8.2 | | | 5.7 | | | 2.5 | | 43.9 | % | | | 8.2 | | | 5.5 | | | 2.7 | | 49.1 | % | Number of trading days | | | 62 | | | 61 | | | 1 | | 1.6 | % | | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Total Options revenue per contract (RPC) (6) | | $ | 0.234 | | $ | 0.240 | | $ | (0.006) | | (2.5) | % | | | Multi-Listed Options RPC (6) | | | 0.053 | | | 0.067 | | | (0.014) | | (20.9) | % | | | Index Options RPC (6) | | | 0.781 | | | 0.730 | | | 0.051 | | 7.0 | % | | | Market share | | | 38.3 | % | | 36.8 | % | | 1.5 | % | | * | | | Total Options revenue per contract (RPC) (7) | | | $ | 0.173 | | $ | 0.236 | | $ | (0.063) | | (26.7) | % | | $ | 0.197 | | $ | 0.238 | | $ | (0.041) | | (17.2) | % | Multi-Listed Options RPC (7) | | | | 0.056 | | | 0.056 | | | — | | — | % | | | 0.053 | | | 0.060 | | | (0.007) | | (11.7) | % | Index Options RPC (7) | | | | 0.842 | | | 0.751 | | | 0.091 | | 12.1 | % | | | 0.822 | | | 0.740 | | | 0.082 | | 11.1 | % | Total Options Market Share | | | | 32.4 | % | | 39.0 | % | | (6.6) | % | | * | | | 35.2 | % | | 37.9 | % | | (2.7) | % | | * | Multi-listed options | | | | 29.0 | % | | 32.2 | % | | (3.2) | % | | * | | | 30.7 | % | | 31.0 | % | | (0.3) | % | | * | Index options | | | | 98.9 | % | | 99.1 | % | | (0.2) | % | | * | | | 99.2 | % | | 99.2 | % | | — | % | | * | North American Equities: | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Equities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ADV: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total touched shares (in billions) | | | 2.0 | | | 1.3 | | | 0.7 | | 53.8 | % | | | | 1.6 | | | 1.2 | | | 0.4 | | 33.3 | % | | | 1.9 | | | 1.2 | | | 0.7 | | 58.3 | % | Market ADV (in billions) | | | 11.0 | | | 7.5 | | | 3.5 | | 46.7 | % | | | | 9.9 | | | 6.9 | | | 3.0 | | 43.5 | % | | | 11.1 | | | 7.1 | | | 4.0 | | 56.3 | % | Trading days | | | 62 | | | 61 | | | 1 | | 1.6 | % | | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Market share | | | 16.7 | % | | 16.0 | % | | 0.7 | % | | * | | | | 15.1 | % | | 17.2 | % | | (2.1) | % | | * | | | 16.0 | % | | 16.3 | % | | (0.3) | % | | * | U.S. Equities (net capture per one hundred touched shares)(7) | | $ | 0.026 | | $ | 0.029 | | $ | (0.003) | | (10.3) | % | | | U.S. Equities (net capture per one hundred touched shares)(8) | | | $ | 0.017 | | $ | 0.020 | | $ | (0.003) | | (15.0) | % | | $ | 0.023 | | $ | 0.026 | | $ | (0.003) | | (11.5) | % | U.S. ETPs: launches (number of launches) | | | 18 | | | 11 | | | 7 | | 63.6 | % | | | | 22 | | | 8 | | | 14 | | 175.0 | % | | | 71 | | | 38 | | | 33 | | 86.8 | % | U.S. ETPs: listings (number of listings) | | | 351 | | | 294 | | | 57 | | 19.4 | % | | | | 388 | | | 324 | | | 64 | | 19.8 | % | | | 388 | | | 324 | | | 64 | | 19.8 | % | Canadian Equities: | | | | | | | | | | | | | | | | | | | | | | | | | | ADV (matched shares, in millions) | | | | 40.0 | | | — | | | 40.0 | | — | % | | | 40.0 | | | — | | | 40.0 | | — | % | Trading days | | | | 41 | | | — | | | 41 | | — | % | | | 41 | | | — | | | 41 | | — | % | Net capture (per 10,000 touched shares, in Canadian dollars)(9) | | | | 8.200 | | | — | | | 8.200 | | — | % | | | 8.200 | | | — | | | 8.200 | | — | % | Futures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ADV (in thousands) | | | 330.9 | | | 231.3 | | | 99.6 | | 43.1 | % | | | | 171.8 | | | 279.0 | | | (107.2) | | (38.4) | % | | | 214.6 | | | 256.3 | | | (41.7) | | (16.3) | % | Trading days | | | 62 | | | 61 | | | 1 | | 1.6 | % | | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Revenue per contract | | $ | 1.750 | | $ | 1.739 | | $ | 0.011 | | 0.6 | % | | | $ | 1.527 | | $ | 1.746 | | $ | (0.219) | | (12.5) | % | | $ | 1.688 | | $ | 1.745 | | $ | (0.057) | | (3.3) | % | European Equities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ADNV: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Matched and touched ADNV (in billions) | | € | 9.1 | | € | 9.2 | | € | (0.1) | | (1.1) | % | | | € | 5.6 | | € | 6.8 | | € | (1.2) | | (17.6) | % | | € | 7.0 | | € | 8.1 | | € | (1.1) | | (13.6) | % | Market ADNV (in billions) | | | 51.5 | | | 41.7 | | | 9.8 | | 23.5 | % | | | | 31.5 | | | 34.2 | | | (2.7) | | (7.9) | % | | | 40.9 | | | 38.8 | | | 2.1 | | 5.4 | % | Trading days | | | 64 | | | 63 | | | 1 | | 1.6 | % | | | | 66 | | | 66 | | | — | | — | % | | | 193 | | | 192 | | | 1 | | 0.5 | % | Market share | | | 17.7 | % | | 22.1 | % | | (4.4) | % | | * | | | | 17.7 | % | | 19.8 | % | | (2.1) | % | | * | | | 17.1 | % | | 20.8 | % | | (3.7) | % | | * | European Equities (net capture per matched notional value in basis points)(8) | | | 0.244 | | | 0.210 | | | 0.034 | | 16.2 | % | | | Average Euro/British pound exchange rate | | £ | 0.861 | | £ | 0.872 | | £ | (0.011) | | (1.2) | % | | | European Equities (net capture per matched notional value in basis points)(10) | | | | 0.245 | | | 0.233 | | | 0.012 | | 5.2 | % | | | 0.246 | | | 0.221 | | | 0.025 | | 11.3 | % | Global FX: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ADNV (in billions) | | $ | 43.3 | | $ | 36.5 | | $ | 6.8 | | 18.6 | % | | | $ | 30.2 | | $ | 30.3 | | $ | (0.1) | | (0.3) | % | | $ | 35.0 | | $ | 33.1 | | $ | 1.9 | | 5.7 | % | Trading days | | | 64 | | | 63 | | | 1 | | 1.6 | % | | | | 66 | | | 66 | | | — | | — | % | | | 195 | | | 194 | | | 1 | | 0.5 | % | Global FX (net capture per one million dollars traded)(9) | | | 2.69 | | | 2.61 | | | 0.08 | | 3.1 | % | | | Global FX (net capture per one million dollars traded)(11) | | | | 2.70 | | | 2.80 | | | (0.10) | | (3.6) | % | | | 2.72 | | | 2.68 | | | 0.04 | | 1.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Average British pound/U.S. dollar exchange rate | | $ | 1.281 | | $ | 1.302 | | $ | (0.021) | | (1.6) | % | | | $ | 1.291 | | $ | 1.233 | | $ | 0.058 | | 4.7 | % | | $ | 1.271 | | $ | 1.273 | | $ | (0.002) | | (0.2) | % | Average Canadian dollar/U.S. dollar exchange rate | | | $ | 0.751 | | $ | — | | | 0.751 | | — | % | | $ | 0.739 | | $ | — | | | 0.739 | | — | % | Average Euro/U.S. dollar exchange rate | | | $ | 1.169 | | $ | — | | | 1.169 | | — | % | | $ | 1.124 | | $ | — | | | 1.124 | | — | % | Average Euro/British pound exchange rate | | | £ | 0.905 | | £ | 0.902 | | £ | 0.003 | | 0.3 | % | | £ | 0.884 | | £ | 0.883 | | £ | 0.001 | | 0.1 | % |
| (1) | Organic net revenue is defined as revenues less cost of revenues excluding revenues less cost of revenues of any acquisition for the quarter the business was acquired through the following year comparable quarter. 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 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. |
| | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, 2020 | | September 30, 2020 | | | 2020 | | 2019 | | 2020 | | 2019 | | Revenues less cost of revenues | $ | 292.0 | | $ | 294.0 | | $ | 947.2 | | $ | 856.6 | | Recent acquisitions: | | | | | | | | | | | | | Acquisition revenues less cost of revenues (since acquisition) | $ | (16.6) | | $ | — | | $ | (23.3) | | $ | — | | Organic net revenue | $ | 275.4 | | $ | 294.0 | | $ | 923.9 | | $ | 856.6 | |
| (2) | EBITDA is defined as income before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before acquisition-related costs.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 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. |
(2)(3) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
(3)(4) | Adjusted EBITDA margin represents adjusted EBITDA divided by revenues less cost of revenues. |
(4)(5) | 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, impairment changes attributed to noncontrolling interest, deferred tax re-measurements and net income allocated to participating securities, net |
| of the income tax effects of these adjustments. Adjusted earnings does not represent, and should not be considered as, an alternative to net income, 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 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. |
(5)(6) | Adjusted diluted earnings per share represents Adjusted earnings divided by diluted weighted average shares outstanding. |
(6)(7) | Revenue per contract represents transaction fees less liquidity payments and routing and clearing costs divided by total contracts traded during the period. |
(7)(8) | Net capture per one hundred touched shares refers to transaction fees less 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. |
(8)(9) | Net capture per 10,000 shares refers to transaction fees divided by the product of one-ten thousandth ADV of shares for MATCHNow and the number of trading days for the period. |
| (10) | Net capture per matched notional value in basis points refers to transaction fees less liquidity payments in British pounds divided by the product of ADNV in British pounds of shares matched on Cboe Europe Limited and the number of trading days for the period. |
(9)(11) | Net capture per one million dollars traded refers to net transaction fees, divided by the product of one-millionth of ADNV traded on 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. |
The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Three Months Ended September 30, | | | 2020 | | 2020 | | | Options | | U.S. Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 143.3 | | $ | 47.7 | | $ | 26.8 | | $ | 6.8 | | $ | 3.0 | | $ | (70.6) | | $ | 157.0 | | $ | 94.4 | | $ | 32.2 | | $ | 10.1 | | $ | 36.6 | | $ | 0.4 | | $ | (64.1) | | $ | 109.6 | Interest expense, net | | | — | | | — | | | — | | | (0.1) | | | — | | | 7.4 | | | 7.3 | | | — | | | — | | | — | | | 2.3 | | | — | | | 7.2 | | | 9.5 | Income tax provision | | | — | | | 1.2 | | | — | | | 2.9 | | | — | | | 56.0 | | | 60.1 | | | — | | | 0.8 | | | — | | | 2.5 | | | — | | | 50.2 | | | 53.5 | Depreciation and amortization | | | 7.7 | | | 17.8 | | | 0.8 | | | 7.2 | | | 7.0 | | | — | | | 40.5 | | | 7.7 | | | 17.0 | | | 0.8 | | | 7.5 | | | 6.5 | | | — | | | 39.5 | EBITDA | | | 151.0 | | | 66.7 | | | 27.6 | | | 16.8 | | | 10.0 | | | (7.2) | | | 264.9 | | | 102.1 | | | 50.0 | | | 10.9 | | | 48.9 | | | 6.9 | | | (6.7) | | | 212.1 | Acquisition-related costs | | | (5.5) | | | — | | | — | | | — | | | — | | | 6.3 | | | 0.8 | | | (0.2) | | | 1.1 | | | — | | | — | | | — | | | 5.3 | | | 6.2 | Provision for notes receivable | | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 145.5 | | $ | 66.7 | | $ | 27.6 | | $ | 16.8 | | $ | 10.0 | | $ | (0.9) | | $ | 265.7 | | $ | 103.6 | | $ | 56.1 | | $ | 10.9 | | $ | 16.9 | | $ | 6.9 | | $ | (2.0) | | $ | 192.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Three Months Ended September 30, | | | 2019 | | 2019 | | | Options | | U.S. Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 79.2 | | $ | 37.0 | | $ | 18.2 | | $ | 3.0 | | $ | (0.4) | | $ | (42.4) | | $ | 94.6 | | $ | 86.6 | | $ | 35.7 | | $ | 26.1 | | $ | 3.1 | | $ | (1.3) | | $ | (44.7) | | $ | 105.5 | Interest expense, net | | | — | | | — | | | — | | | (0.1) | | | — | | | 10.0 | | | 9.9 | | Interest expense (income), net | | | | — | | | — | | | — | | | (0.1) | | | — | | | 8.3 | | | 8.2 | Income tax provision | | | — | | | 0.4 | | | — | | | 2.5 | | | — | | | 29.7 | | | 32.6 | | | — | | | 0.6 | | | — | | | 2.0 | | | — | | | 32.4 | | | 35.0 | Depreciation and amortization | | | 9.9 | | | 19.9 | | | 0.4 | | | 7.5 | | | 7.8 | | | 1.7 | | | 47.2 | | | 10.7 | | | 19.9 | | | 1.0 | | | 6.9 | | | 7.6 | | | (3.2) | | | 42.9 | EBITDA | | | 89.1 | | | 57.3 | | | 18.6 | | | 12.9 | | | 7.4 | | | (1.0) | | | 184.3 | | | 97.3 | | | 56.2 | | | 27.1 | | | 11.9 | | | 6.3 | | | (7.2) | | | 191.6 | Acquisition-related costs | | | 0.8 | | | — | | | — | | | 0.3 | | | 0.3 | | | 0.9 | | | 2.3 | | | 10.5 | | | — | | | — | | | 0.6 | | | — | | | 5.6 | | | 16.7 | Adjusted EBITDA | | $ | 89.9 | | $ | 57.3 | | $ | 18.6 | | $ | 13.2 | | $ | 7.7 | | $ | (0.1) | | $ | 186.6 | | $ | 107.8 | | $ | 56.2 | | $ | 27.1 | | $ | 12.5 | | $ | 6.3 | | $ | (1.6) | | $ | 208.3 |
| | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2020 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 331.1 | | $ | 134.4 | | $ | 45.2 | | $ | 46.9 | | $ | 4.5 | | $ | (182.2) | | $ | 379.9 | Interest expense (income), net | | | — | | | — | | | — | | | 2.2 | | | — | | | 21.9 | | | 24.1 | Income tax provision | | | — | | | 3.3 | | | — | | | 7.6 | | | — | | | 145.7 | | | 156.6 | Depreciation and amortization | | | 23.0 | | | 51.2 | | | 2.4 | | | 21.4 | | | 20.0 | | | — | | | 118.0 | EBITDA | | | 354.1 | | | 188.9 | | | 47.6 | | | 78.1 | | | 24.5 | | | (14.6) | | | 678.6 | Acquisition-related costs | | | 1.8 | | | 1.1 | | | — | | | — | | | — | | | 13.5 | | | 16.4 | Provision for notes receivable | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 357.6 | | $ | 195.0 | | $ | 47.6 | | $ | 46.1 | | $ | 24.5 | | $ | (1.7) | | $ | 669.1 | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2019 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 244.8 | | $ | 108.6 | | $ | 63.6 | | $ | 10.0 | | $ | (3.3) | | $ | (137.1) | | $ | 286.6 | Interest expense (income), net | | | — | | | — | | | — | | | (0.3) | | | — | | | 28.4 | | | 28.1 | Income tax provision | | | — | | | 1.3 | | | — | | | 7.0 | | | — | | | 94.4 | | | 102.7 | Depreciation and amortization | | | 29.7 | | | 57.5 | | | 1.8 | | | 21.4 | | | 22.5 | | | 0.9 | | | 133.8 | EBITDA | | | 274.5 | | | 167.4 | | | 65.4 | | | 38.1 | | | 19.2 | | | (13.4) | | | 551.2 | Acquisition-related costs | | | 20.0 | | | — | | | — | | | 1.2 | | | 0.3 | | | 18.3 | | | 39.8 | Impairment charges attributed to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (3.6) | | | (3.6) | Adjusted EBITDA | | $ | 294.5 | | $ | 167.4 | | $ | 65.4 | | $ | 39.3 | | $ | 19.5 | | $ | 1.3 | | $ | 587.4 |
The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions): | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | Three Months Ended | | Nine Months Ended | | | March 31, | | | September 30, | | September 30, | | | 2020 | | 2019 | | | 2020 | | 2019 | | 2020 | | 2019 | | | | (in millions) | | | (in millions) | | (in millions) | Net income allocated to common stockholders | | $ | 157.0 | | $ | 94.6 | | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | Amortization | | | 32.5 | | | 37.6 | | | | 30.9 | | | 33.4 | | | 93.4 | | | 105.1 | Acquisition-related costs | | | 0.8 | | | 2.3 | | | | 6.2 | | | 16.7 | | | 16.4 | | | 39.8 | Provision for notes receivable | | | | 6.7 | | | — | | | 6.7 | | | — | Bargain purchase gain | | | | (32.6) | | | — | | | (32.6) | | | — | Change in redemption value of noncontrolling interest | | | — | | | 0.2 | | | | — | | | 0.1 | | | — | | | 0.5 | Tax effect of adjustments | | | (7.6) | | | (10.0) | | | | (8.0) | | | (11.0) | | | (24.9) | | | (34.2) | Deferred tax re-measurements | | | | 7.7 | | | — | | | 7.7 | | | — | Impairment charges attributed to noncontrolling interest | | | | — | | | — | | | — | | | (3.6) | Net income allocated to participating securities | | | (0.4) | | | (0.2) | | | | — | | | (0.1) | | | (0.5) | | | (0.5) | Adjusted earnings | | $ | 182.3 | | $ | 124.5 | | | $ | 120.5 | | $ | 144.6 | | $ | 446.1 | | $ | 393.7 |
Revenues Total revenues for the three and nine months ended March 31,September 30, 2020 increased $318.9$117.3 million, or 52.9%17.4%, and $685.4 million, or 36.1%, respectively, compared to the prior period,periods, primarily due to a $231.1increased transaction and clearing fees of $79.7 million, or 53.7% increase in transaction fees17.1%, and $503.3 million, or 38.1%, respectively, as a result of increased market volumes in Options,the U.S. Equities exchanges and Futures,Options segment, coupled with an increase in regulatory fees. The following summarizes changes in revenues for the three and nine months ended March 31,September 30, 2020 compared to the three and nine months ended March 31,September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | March 31, | | Increase/ | | Percent | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Transaction fees | | $ | 661.5 | | $ | 430.4 | | $ | 231.1 | | 53.7 | % | | | Transaction and clearing fees | | | $ | 545.5 | | $ | 465.8 | | $ | 79.7 | | 17.1 | % | | $ | 1,825.3 | | $ | 1,322.0 | | $ | 503.3 | | 38.1 | % | Access and capacity fees | | | 57.7 | | | 54.4 | | | 3.3 | | 6.1 | % | | | | 60.6 | | | 55.7 | | | 4.9 | | 8.8 | % | | | 174.0 | | | 164.6 | | | 9.4 | | 5.7 | % | Market data fees | | | 56.2 | | | 51.6 | | | 4.6 | | 8.9 | % | | | | 59.5 | | | 56.3 | | | 3.2 | | 5.7 | % | | | 174.4 | | | 159.7 | | | 14.7 | | 9.2 | % | Regulatory fees | | | 136.8 | | | 58.7 | | | 78.1 | | 133.0 | % | | | | 113.8 | | | 88.1 | | | 25.7 | | 29.2 | % | | | 379.3 | | | 226.5 | | | 152.8 | | 67.5 | % | Other revenue | | | 9.3 | | | 7.5 | | | 1.8 | | 24.0 | % | | | | 13.3 | | | 9.5 | | | 3.8 | | 40.0 | % | | | 29.9 | | | 24.7 | | | 5.2 | | 21.1 | % | Total revenues | | $ | 921.5 | | $ | 602.6 | | $ | 318.9 | | 52.9 | % | | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % |
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 20192019. For the three months ended September 30, 2020, the increase was primarily due to a 45.8%43.5% increase in overall optionsU.S. Equities exchange market ADV includingand a 42.1%43.9% increase in multi-listed options ADV, partially offset by a 30.0% decrease in index options ADV a 46.7% increase in U.S. Equities market ADV, and a 43.1% increase38.4% decrease in Futures ADV, when compared to the same period in 2019. For the nine months ended September 30, 2020, the increase was primarily due to a 56.3% increase in U.S. Equities exchange market ADV and a 47.4% increase in overall options market ADV, including a 49.1% increase in multi-listed ADV, when compared to the same period in 2019. AccessSection 31 Fees
Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and Capacity Fees Access and capacityEDGA) are assessed fees increased for the three months ended March 31, 2020 comparedpursuant to the same period in 2019 primarily dueExchange Act designed to an increase in logical port units inrecover the Options and European Equities segments.
Market Data Fees
Market data fees increased for the three months ended March 31, 2020 comparedcosts to the same periodU.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 2019 primarily duerevenues are equal to additional revenue attributed to the acquisitions of Hanweck and FT Options during the first quarter of 2020, coupled with an increase in tape plan market data revenue within the U.S. Equities segment related to audit recoveries.
Regulatory Fees
Regulatory fees increased for the three months ended March 31, 2020 compared to the same period in 2019 primarily due to an increase in Section 31 fees as a resultrecorded in cost of higher volumes in therevenues, there is no impact on our operating income. CFE, Cboe Europe Limited and Cboe FX are not U.S. Equitiesnational securities exchanges, and Options segments, coupled with increases in theaccordingly are not charged Section 31 fee rate from $13.00 per million dollarsfees.
Royalty Fees Royalty fees primarily consist of covered saleslicense fees paid by us for the three months ended March 31, 2019 to an average rateuse of $21.40 per million dollarsunderlying indices in our proprietary products usually based on contracts traded. The Company has licenses with the owners of covered sales during the three months ended March 31, 2020. Other Revenue
Other revenue increased forS&P 500 Index, S&P 100 Index and certain other S&P indices, FTSE Russell indices, the three months ended March 31, 2020 comparedDJIA, MSCI, and certain other index products. This category also includes fees related to the same period in 2019 primarily duedissemination of market data related to additional index licensingS&P indices and trade reporting services revenue in 2020.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 Costa 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 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, 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 Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other 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. Financial Summary The following summarizes changes in financial performance for the three and nine months ended September 30, 2020 and 2019 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. “YTD” represents the nine-month period ended September 30th.
| (1) | These are Non-GAAP figures for which reconciliations are provided below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, earnings per share, and as noted below) | | | (in millions, except percentages, earnings per share, and as noted below) | | Total revenues | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % | Total cost of revenues | | | 500.7 | | | 381.4 | | | 119.3 | | 31.3 | % | | | 1,635.7 | | | 1,040.9 | | | 594.8 | | 57.1 | % | Revenues less cost of revenues | | | 292.0 | | | 294.0 | | | (2.0) | | (0.7) | % | | | 947.2 | | | 856.6 | | | 90.6 | | 10.6 | % | Total operating expenses | | | 152.7 | | | 146.6 | | | 6.1 | | 4.2 | % | | | 419.8 | | | 438.6 | | | (18.8) | | (4.3) | % | Operating income | | | 139.3 | | | 147.4 | | | (8.1) | | (5.5) | % | | | 527.4 | | | 418.0 | | | 109.4 | | 26.2 | % | Income before income tax provision | | | 163.4 | | | 140.9 | | | 22.5 | | 16.0 | % | | | 537.5 | | | 387.2 | | | 150.3 | | 38.8 | % | Income tax provision | | | 53.5 | | | 35.0 | | | 18.5 | | 52.9 | % | | | 156.6 | | | 102.7 | | | 53.9 | | 52.5 | % | Net income | | | 109.9 | | | 105.9 | | | 4.0 | | 3.8 | % | | | 380.9 | | | 284.5 | | | 96.4 | | 33.9 | % | Basic earnings per share | | $ | 1.01 | | $ | 0.95 | | $ | 0.06 | | 6.3 | % | | $ | 3.47 | | $ | 2.57 | | $ | 0.90 | | 35.0 | % | Diluted earnings per share | | | 1.01 | | | 0.94 | | | 0.07 | | 7.4 | % | | | 3.46 | | | 2.56 | | | 0.90 | | 35.2 | % | Organic net revenue (1) | | | 275.4 | | | 294.0 | | | (18.6) | | (6.3) | % | | | 923.9 | | | 856.6 | | | 67.3 | | 7.9 | % | EBITDA(2) | | | 212.1 | | | 191.6 | | | 20.5 | | 10.7 | % | | | 678.6 | | | 551.2 | | | 127.4 | | 23.1 | % | EBITDA margin(3) | | | 72.6 | % | | 65.2 | % | | 7.4 | % | | * | | | 71.6 | % | | 64.3 | % | | 7.3 | % | | * | Adjusted EBITDA(2) | | $ | 192.4 | | $ | 208.3 | | $ | (15.9) | | (7.6) | % | | $ | 669.1 | | $ | 587.4 | | $ | 81.7 | | 13.9 | % | Adjusted EBITDA margin(4) | | | 65.9 | % | | 70.9 | % | | (5.0) | % | | * | | | 70.6 | % | | 68.6 | % | | 2.0 | % | | * | Adjusted earnings(5) | | $ | 120.5 | | $ | 144.6 | | $ | (24.1) | | (16.7) | % | | $ | 446.1 | | $ | 393.7 | | $ | 52.4 | | 13.3 | % | Adjusted earnings margin(5) | | | 41.3 | % | | 49.2 | % | | (7.9) | % | | * | | | 47.1 | % | | 46.0 | % | | 1.1 | % | | * | Diluted weighted average shares outstanding | | | 108.8 | | | 111.9 | | | (3.1) | | (2.8) | % | | | 109.8 | | | 112.0 | | | (2.2) | | (2.0) | % | Adjusted Diluted earnings per share(6) | | $ | 1.11 | | $ | 1.29 | | $ | (0.18) | | (14.0) | % | | $ | 4.06 | | $ | 3.52 | | $ | 0.54 | | 15.3 | % |
The following summarizes changes in certain operational and financial metrics for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:
The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, trading days, and as noted below) | | | (in millions, except percentages, trading days, and as noted below) | | Options: | | | | | | | | | | | | | | | | | | | | | | | | | Average daily volume (ADV) (in millions of contracts): | | | | | | | | | | | | | | | | | | | | | | | | | Total touched contracts | | | 9.6 | | | 7.7 | | | 1.9 | | 24.7 | % | | | 10.1 | | | 7.4 | | | 2.7 | | 36.5 | % | Market ADV | | | 29.5 | | | 19.8 | | | 9.7 | | 49.0 | % | | | 28.6 | | | 19.4 | | | 9.2 | | 47.4 | % | Index contract ADV | | | 1.4 | | | 2.0 | | | (0.6) | | (30.0) | % | | | 1.9 | | | 1.9 | | | — | | — | % | Multi-Listed contract ADV | | | 8.2 | | | 5.7 | | | 2.5 | | 43.9 | % | | | 8.2 | | | 5.5 | | | 2.7 | | 49.1 | % | Number of trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Total Options revenue per contract (RPC) (7) | | $ | 0.173 | | $ | 0.236 | | $ | (0.063) | | (26.7) | % | | $ | 0.197 | | $ | 0.238 | | $ | (0.041) | | (17.2) | % | Multi-Listed Options RPC (7) | | | 0.056 | | | 0.056 | | | — | | — | % | | | 0.053 | | | 0.060 | | | (0.007) | | (11.7) | % | Index Options RPC (7) | | | 0.842 | | | 0.751 | | | 0.091 | | 12.1 | % | | | 0.822 | | | 0.740 | | | 0.082 | | 11.1 | % | Total Options Market Share | | | 32.4 | % | | 39.0 | % | | (6.6) | % | | * | | | 35.2 | % | | 37.9 | % | | (2.7) | % | | * | Multi-listed options | | | 29.0 | % | | 32.2 | % | | (3.2) | % | | * | | | 30.7 | % | | 31.0 | % | | (0.3) | % | | * | Index options | | | 98.9 | % | | 99.1 | % | | (0.2) | % | | * | | | 99.2 | % | | 99.2 | % | | — | % | | * | North American Equities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADV: | | | | | | | | | | | | | | | | | | | | | | | | | Total touched shares (in billions) | | | 1.6 | | | 1.2 | | | 0.4 | | 33.3 | % | | | 1.9 | | | 1.2 | | | 0.7 | | 58.3 | % | Market ADV (in billions) | | | 9.9 | | | 6.9 | | | 3.0 | | 43.5 | % | | | 11.1 | | | 7.1 | | | 4.0 | | 56.3 | % | Trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Market share | | | 15.1 | % | | 17.2 | % | | (2.1) | % | | * | | | 16.0 | % | | 16.3 | % | | (0.3) | % | | * | U.S. Equities (net capture per one hundred touched shares)(8) | | $ | 0.017 | | $ | 0.020 | | $ | (0.003) | | (15.0) | % | | $ | 0.023 | | $ | 0.026 | | $ | (0.003) | | (11.5) | % | U.S. ETPs: launches (number of launches) | | | 22 | | | 8 | | | 14 | | 175.0 | % | | | 71 | | | 38 | | | 33 | | 86.8 | % | U.S. ETPs: listings (number of listings) | | | 388 | | | 324 | | | 64 | | 19.8 | % | | | 388 | | | 324 | | | 64 | | 19.8 | % | Canadian Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADV (matched shares, in millions) | | | 40.0 | | | — | | | 40.0 | | — | % | | | 40.0 | | | — | | | 40.0 | | — | % | Trading days | | | 41 | | | — | | | 41 | | — | % | | | 41 | | | — | | | 41 | | — | % | Net capture (per 10,000 touched shares, in Canadian dollars)(9) | | | 8.200 | | | — | | | 8.200 | | — | % | | | 8.200 | | | — | | | 8.200 | | — | % | Futures: | | | | | | | | | | | | | | | | | | | | | | | | | ADV (in thousands) | | | 171.8 | | | 279.0 | | | (107.2) | | (38.4) | % | | | 214.6 | | | 256.3 | | | (41.7) | | (16.3) | % | Trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Revenue per contract | | $ | 1.527 | | $ | 1.746 | | $ | (0.219) | | (12.5) | % | | $ | 1.688 | | $ | 1.745 | | $ | (0.057) | | (3.3) | % | European Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADNV: | | | | | | | | | | | | | | | | | | | | | | | | | Matched and touched ADNV (in billions) | | € | 5.6 | | € | 6.8 | | € | (1.2) | | (17.6) | % | | € | 7.0 | | € | 8.1 | | € | (1.1) | | (13.6) | % | Market ADNV (in billions) | | | 31.5 | | | 34.2 | | | (2.7) | | (7.9) | % | | | 40.9 | | | 38.8 | | | 2.1 | | 5.4 | % | Trading days | | | 66 | | | 66 | | | — | | — | % | | | 193 | | | 192 | | | 1 | | 0.5 | % | Market share | | | 17.7 | % | | 19.8 | % | | (2.1) | % | | * | | | 17.1 | % | | 20.8 | % | | (3.7) | % | | * | European Equities (net capture per matched notional value in basis points)(10) | | | 0.245 | | | 0.233 | | | 0.012 | | 5.2 | % | | | 0.246 | | | 0.221 | | | 0.025 | | 11.3 | % | Global FX: | | | | | | | | | | | | | | | | | | | | | | | | | ADNV (in billions) | | $ | 30.2 | | $ | 30.3 | | $ | (0.1) | | (0.3) | % | | $ | 35.0 | | $ | 33.1 | | $ | 1.9 | | 5.7 | % | Trading days | | | 66 | | | 66 | | | — | | — | % | | | 195 | | | 194 | | | 1 | | 0.5 | % | Global FX (net capture per one million dollars traded)(11) | | | 2.70 | | | 2.80 | | | (0.10) | | (3.6) | % | | | 2.72 | | | 2.68 | | | 0.04 | | 1.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Average British pound/U.S. dollar exchange rate | | $ | 1.291 | | $ | 1.233 | | $ | 0.058 | | 4.7 | % | | $ | 1.271 | | $ | 1.273 | | $ | (0.002) | | (0.2) | % | Average Canadian dollar/U.S. dollar exchange rate | | $ | 0.751 | | $ | — | | | 0.751 | | — | % | | $ | 0.739 | | $ | — | | | 0.739 | | — | % | Average Euro/U.S. dollar exchange rate | | $ | 1.169 | | $ | — | | | 1.169 | | — | % | | $ | 1.124 | | $ | — | | | 1.124 | | — | % | Average Euro/British pound exchange rate | | £ | 0.905 | | £ | 0.902 | | £ | 0.003 | | 0.3 | % | | £ | 0.884 | | £ | 0.883 | | £ | 0.001 | | 0.1 | % |
| (1) | Organic net revenue is defined as revenues less cost of revenues excluding revenues less cost of revenues of any acquisition for the quarter the business was acquired through the following year comparable quarter. 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 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. |
| | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, 2020 | | September 30, 2020 | | | 2020 | | 2019 | | 2020 | | 2019 | | Revenues less cost of revenues | $ | 292.0 | | $ | 294.0 | | $ | 947.2 | | $ | 856.6 | | Recent acquisitions: | | | | | | | | | | | | | Acquisition revenues less cost of revenues (since acquisition) | $ | (16.6) | | $ | — | | $ | (23.3) | | $ | — | | Organic net revenue | $ | 275.4 | | $ | 294.0 | | $ | 923.9 | | $ | 856.6 | |
| (2) | 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 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. |
| (5) | 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, impairment changes attributed to noncontrolling interest, deferred tax re-measurements and net income allocated to participating securities, net of the income tax effects of these adjustments. Adjusted earnings does not represent, and should not be considered as, an alternative to net income, 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 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. |
| (7) | Revenue per contract represents transaction fees less liquidity payments and routing and clearing costs divided by total contracts traded during the period. |
| (8) | Net capture per one hundred touched shares refers to transaction fees less 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) | Net capture per 10,000 shares refers to transaction fees divided by the product of one-ten thousandth ADV of shares for MATCHNow and the number of trading days for the period. |
| (10) | Net capture per matched notional value in basis points refers to transaction fees less liquidity payments in British pounds divided by the product of ADNV in British pounds of shares matched on Cboe Europe Limited and the number of trading days for the period. |
| (11) | Net capture per one million dollars traded refers to net transaction fees, divided by the product of one-millionth of ADNV traded on 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. |
The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions): | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | 2020 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 94.4 | | $ | 32.2 | | $ | 10.1 | | $ | 36.6 | | $ | 0.4 | | $ | (64.1) | | $ | 109.6 | Interest expense, net | | | — | | | — | | | — | | | 2.3 | | | — | | | 7.2 | | | 9.5 | Income tax provision | | | — | | | 0.8 | | | — | | | 2.5 | | | — | | | 50.2 | | | 53.5 | Depreciation and amortization | | | 7.7 | | | 17.0 | | | 0.8 | | | 7.5 | | | 6.5 | | | — | | | 39.5 | EBITDA | | | 102.1 | | | 50.0 | | | 10.9 | | | 48.9 | | | 6.9 | | | (6.7) | | | 212.1 | Acquisition-related costs | | | (0.2) | | | 1.1 | | | — | | | — | | | — | | | 5.3 | | | 6.2 | Provision for notes receivable | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 103.6 | | $ | 56.1 | | $ | 10.9 | | $ | 16.9 | | $ | 6.9 | | $ | (2.0) | | $ | 192.4 | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | 2019 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 86.6 | | $ | 35.7 | | $ | 26.1 | | $ | 3.1 | | $ | (1.3) | | $ | (44.7) | | $ | 105.5 | Interest expense (income), net | | | — | | | — | | | — | | | (0.1) | | | — | | | 8.3 | | | 8.2 | Income tax provision | | | — | | | 0.6 | | | — | | | 2.0 | | | — | | | 32.4 | | | 35.0 | Depreciation and amortization | | | 10.7 | | | 19.9 | | | 1.0 | | | 6.9 | | | 7.6 | | | (3.2) | | | 42.9 | EBITDA | | | 97.3 | | | 56.2 | | | 27.1 | | | 11.9 | | | 6.3 | | | (7.2) | | | 191.6 | Acquisition-related costs | | | 10.5 | | | — | | | — | | | 0.6 | | | — | | | 5.6 | | | 16.7 | Adjusted EBITDA | | $ | 107.8 | | $ | 56.2 | | $ | 27.1 | | $ | 12.5 | | $ | 6.3 | | $ | (1.6) | | $ | 208.3 |
| | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2020 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 331.1 | | $ | 134.4 | | $ | 45.2 | | $ | 46.9 | | $ | 4.5 | | $ | (182.2) | | $ | 379.9 | Interest expense (income), net | | | — | | | — | | | — | | | 2.2 | | | — | | | 21.9 | | | 24.1 | Income tax provision | | | — | | | 3.3 | | | — | | | 7.6 | | | — | | | 145.7 | | | 156.6 | Depreciation and amortization | | | 23.0 | | | 51.2 | | | 2.4 | | | 21.4 | | | 20.0 | | | — | | | 118.0 | EBITDA | | | 354.1 | | | 188.9 | | | 47.6 | | | 78.1 | | | 24.5 | | | (14.6) | | | 678.6 | Acquisition-related costs | | | 1.8 | | | 1.1 | | | — | | | — | | | — | | | 13.5 | | | 16.4 | Provision for notes receivable | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 357.6 | | $ | 195.0 | | $ | 47.6 | | $ | 46.1 | | $ | 24.5 | | $ | (1.7) | | $ | 669.1 | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2019 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 244.8 | | $ | 108.6 | | $ | 63.6 | | $ | 10.0 | | $ | (3.3) | | $ | (137.1) | | $ | 286.6 | Interest expense (income), net | | | — | | | — | | | — | | | (0.3) | | | — | | | 28.4 | | | 28.1 | Income tax provision | | | — | | | 1.3 | | | — | | | 7.0 | | | — | | | 94.4 | | | 102.7 | Depreciation and amortization | | | 29.7 | | | 57.5 | | | 1.8 | | | 21.4 | | | 22.5 | | | 0.9 | | | 133.8 | EBITDA | | | 274.5 | | | 167.4 | | | 65.4 | | | 38.1 | | | 19.2 | | | (13.4) | | | 551.2 | Acquisition-related costs | | | 20.0 | | | — | | | — | | | 1.2 | | | 0.3 | | | 18.3 | | | 39.8 | Impairment charges attributed to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (3.6) | | | (3.6) | Adjusted EBITDA | | $ | 294.5 | | $ | 167.4 | | $ | 65.4 | | $ | 39.3 | | $ | 19.5 | | $ | 1.3 | | $ | 587.4 |
The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions): | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, | | September 30, | | | 2020 | | 2019 | | 2020 | | 2019 | | | | (in millions) | | (in millions) | Net income allocated to common stockholders | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | Amortization | | | 30.9 | | | 33.4 | | | 93.4 | | | 105.1 | Acquisition-related costs | | | 6.2 | | | 16.7 | | | 16.4 | | | 39.8 | Provision for notes receivable | | | 6.7 | | | — | | | 6.7 | | | — | Bargain purchase gain | | | (32.6) | | | — | | | (32.6) | | | — | Change in redemption value of noncontrolling interest | | | — | | | 0.1 | | | — | | | 0.5 | Tax effect of adjustments | | | (8.0) | | | (11.0) | | | (24.9) | | | (34.2) | Deferred tax re-measurements | | | 7.7 | | | — | | | 7.7 | | | — | Impairment charges attributed to noncontrolling interest | | | — | | | — | | | — | | | (3.6) | Net income allocated to participating securities | | | — | | | (0.1) | | | (0.5) | | | (0.5) | Adjusted earnings | | $ | 120.5 | | $ | 144.6 | | $ | 446.1 | | $ | 393.7 |
Revenues CostTotal revenues for the three and nine months ended September 30, 2020 increased $117.3 million, or 17.4%, and $685.4 million, or 36.1%, respectively, compared to the prior periods, primarily due to increased transaction and clearing fees of $79.7 million, or 17.1%, and $503.3 million, or 38.1%, respectively, as a result of increased market volumes in the U.S. Equities exchanges and Options segment, coupled with an increase in regulatory fees. The following summarizes changes in revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Transaction and clearing fees | | $ | 545.5 | | $ | 465.8 | | $ | 79.7 | | 17.1 | % | | $ | 1,825.3 | | $ | 1,322.0 | | $ | 503.3 | | 38.1 | % | Access and capacity fees | | | 60.6 | | | 55.7 | | | 4.9 | | 8.8 | % | | | 174.0 | | | 164.6 | | | 9.4 | | 5.7 | % | Market data fees | | | 59.5 | | | 56.3 | | | 3.2 | | 5.7 | % | | | 174.4 | | | 159.7 | | | 14.7 | | 9.2 | % | Regulatory fees | | | 113.8 | | | 88.1 | | | 25.7 | | 29.2 | % | | | 379.3 | | | 226.5 | | | 152.8 | | 67.5 | % | Other revenue | | | 13.3 | | | 9.5 | | | 3.8 | | 40.0 | % | | | 29.9 | | | 24.7 | | | 5.2 | | 21.1 | % | Total revenues | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % |
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended March 31,September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily due to a 43.5% increase in U.S. Equities exchange market ADV and a 43.9% increase in multi-listed options ADV, partially offset by a 30.0% decrease in index options ADV and a 38.4% decrease in Futures ADV, when compared to the same period in 20192019. For the nine months ended September 30, 2020, the increase was primarily due to higher liquidity payments as a result of an56.3% increase in volumes traded on the U.S. Equities exchange market ADV and Options exchanges, which increased $148.7 million, coupled with ana 47.4% increase in Section 31 fees within the U.S. Equities and Options segments, which increased $70.6 million and $8.6 million, respectively. The following summarizes changesoverall options market ADV, including a 49.1% increase in cost of revenues for the three months ended March 31, 2020 compared to the three months ended March 31, 2019:
| | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | | | March 31, | | Increase/ | | Percent | | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | Liquidity payments | | $ | 392.4 | | $ | 243.7 | | $ | 148.7 | | 61.0 | % | | Routing and clearing | | | 16.0 | | | 9.2 | | | 6.8 | | 73.9 | % | | Section 31 fees | | | 127.4 | | | 48.2 | | | 79.2 | | 164.3 | % | | Royalty fees | | | 27.4 | | | 21.0 | | | 6.4 | | 30.5 | % | | Total | | $ | 563.2 | | $ | 322.1 | | $ | 241.1 | | 74.9 | % | |
Liquidity Payments
Liquidity payments increased for the three months ended March 31, 2020multi-listed ADV, when compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges.2019.
Routing and Clearing
The increase in routing and clearing fees for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to an increase in routed trades in the U.S. Equities segment.
Section 31Access 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 the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.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 the North 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 increased for the three months ended March 31, 2020 comparedcharged to the same period in 2019 primarily dueExchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to an increase in Section 31customers are based on the fee set by the SEC per notional value of U.S. Equities exchange transactions and per round turn of Options transactions executed on the Company’s U.S. securities markets. These fees as a result of higher volumesare calculated and billed monthly and are recognized in the U.S.North American Equities and Options segments, coupled with increasessegments. As the Exchanges are responsible for the ultimate payment to the SEC, 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 Section 31 fee rate from $13.00 per million dollars of covered sales for the three months ended March 31, 2019 to an average rate of $21.40 per million dollars of covered sales during the three months ended March 31, 2020. Royalty Fees
RoyaltyOptions segment, along with other miscellaneous regulatory fees, increased for the three months ended March 31, 2020 compared to the same period in 2019 primarily due to an increase in trading volume in licensed products.and
Revenues Lessneither 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 the European Equities segment, and revenue associated with advertisements through the Company’s websites. Components of Cost of Revenues Revenues lessLiquidity 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, and Cboe Europe Equities, as cost of revenues increased $77.8 million, or 27.7%,revenue. BYX and EDGA offer a pricing model pursuant to which we rebate liquidity takers for the three months ended March 31, 2020 compared to the same period in 2019 primarily due toexecuting against an order resting on our book, which is also recorded as a $75.6 million, or 42.6%, increase in transaction fees less liquidity payments and routing and clearing costs. The following tables summarize the components of revenues less cost of revenues for the three months ended March 31, 2020 compared to the three months ended March 31, 2019:
| | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | | | March 31, | | Increase/ | | Percent | | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | Transaction fees less liquidity payments and routing and clearing costs | | $ | 253.1 | | $ | 177.5 | | $ | 75.6 | | 42.6 | % | | Access and capacity fees | | | 57.7 | | | 54.4 | | | 3.3 | | 6.1 | % | | Market data fees | | | 56.2 | | | 51.6 | | | 4.6 | | 8.9 | % | | Regulatory fees, less Section 31 fees | | | 9.4 | | | 10.5 | | | (1.1) | | (10.5) | % | | Royalty fees | | | (27.4) | | | (21.0) | | | (6.4) | | 30.5 | % | | Other | | | 9.3 | | | 7.5 | | | 1.8 | | 24.0 | % | | Revenues less cost of revenues | | $ | 358.3 | | $ | 280.5 | | $ | 77.8 | | 27.7 | % | |
revenue.
Transaction Fees Less Liquidity Payments and Routing and Clearing Costs
Transaction fees less liquidity paymentsVarious rules require that U.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 clearing costs (“Net Transaction Fees”) increasedoptions 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 three months ended March 31, 2020 comparedorder provider. The service affords exchange order flow providers an opportunity to obtain the same periodbest available execution price and may also result in 2019 primarily duecost benefits to a 42.1% increase in index options ADV, coupled with a 43.1% increase in Futures ADVthose clients. Such an offering improves our competitive position and a 46.7% increase in U.S. Equities market ADV comparedprovides an opportunity to the same period in 2019.attract orders which would otherwise bypass our exchanges. We utilize third-party brokers or our broker-dealer, Cboe Trading, to facilitate such delivery.
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 the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.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 the North 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 the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to customers are based on the fee set by the SEC per notional value of U.S. Equities exchange transactions and per round turn of Options transactions executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the North American Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, 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 the European 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, and Cboe Europe Equities, as cost of revenue. BYX and EDGA offer a pricing model pursuant to which 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 that U.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. Section 31 Fees Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) are assessed fees pursuant to the Exchange Act designed to recover the costs to the U.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 not U.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 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 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, 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 Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other 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. Financial Summary The following summarizes changes in financial performance for the three and nine months ended September 30, 2020 and 2019 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. “YTD” represents the nine-month period ended September 30th.
| (1) | These are Non-GAAP figures for which reconciliations are provided below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, earnings per share, and as noted below) | | | (in millions, except percentages, earnings per share, and as noted below) | | Total revenues | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % | Total cost of revenues | | | 500.7 | | | 381.4 | | | 119.3 | | 31.3 | % | | | 1,635.7 | | | 1,040.9 | | | 594.8 | | 57.1 | % | Revenues less cost of revenues | | | 292.0 | | | 294.0 | | | (2.0) | | (0.7) | % | | | 947.2 | | | 856.6 | | | 90.6 | | 10.6 | % | Total operating expenses | | | 152.7 | | | 146.6 | | | 6.1 | | 4.2 | % | | | 419.8 | | | 438.6 | | | (18.8) | | (4.3) | % | Operating income | | | 139.3 | | | 147.4 | | | (8.1) | | (5.5) | % | | | 527.4 | | | 418.0 | | | 109.4 | | 26.2 | % | Income before income tax provision | | | 163.4 | | | 140.9 | | | 22.5 | | 16.0 | % | | | 537.5 | | | 387.2 | | | 150.3 | | 38.8 | % | Income tax provision | | | 53.5 | | | 35.0 | | | 18.5 | | 52.9 | % | | | 156.6 | | | 102.7 | | | 53.9 | | 52.5 | % | Net income | | | 109.9 | | | 105.9 | | | 4.0 | | 3.8 | % | | | 380.9 | | | 284.5 | | | 96.4 | | 33.9 | % | Basic earnings per share | | $ | 1.01 | | $ | 0.95 | | $ | 0.06 | | 6.3 | % | | $ | 3.47 | | $ | 2.57 | | $ | 0.90 | | 35.0 | % | Diluted earnings per share | | | 1.01 | | | 0.94 | | | 0.07 | | 7.4 | % | | | 3.46 | | | 2.56 | | | 0.90 | | 35.2 | % | Organic net revenue (1) | | | 275.4 | | | 294.0 | | | (18.6) | | (6.3) | % | | | 923.9 | | | 856.6 | | | 67.3 | | 7.9 | % | EBITDA(2) | | | 212.1 | | | 191.6 | | | 20.5 | | 10.7 | % | | | 678.6 | | | 551.2 | | | 127.4 | | 23.1 | % | EBITDA margin(3) | | | 72.6 | % | | 65.2 | % | | 7.4 | % | | * | | | 71.6 | % | | 64.3 | % | | 7.3 | % | | * | Adjusted EBITDA(2) | | $ | 192.4 | | $ | 208.3 | | $ | (15.9) | | (7.6) | % | | $ | 669.1 | | $ | 587.4 | | $ | 81.7 | | 13.9 | % | Adjusted EBITDA margin(4) | | | 65.9 | % | | 70.9 | % | | (5.0) | % | | * | | | 70.6 | % | | 68.6 | % | | 2.0 | % | | * | Adjusted earnings(5) | | $ | 120.5 | | $ | 144.6 | | $ | (24.1) | | (16.7) | % | | $ | 446.1 | | $ | 393.7 | | $ | 52.4 | | 13.3 | % | Adjusted earnings margin(5) | | | 41.3 | % | | 49.2 | % | | (7.9) | % | | * | | | 47.1 | % | | 46.0 | % | | 1.1 | % | | * | Diluted weighted average shares outstanding | | | 108.8 | | | 111.9 | | | (3.1) | | (2.8) | % | | | 109.8 | | | 112.0 | | | (2.2) | | (2.0) | % | Adjusted Diluted earnings per share(6) | | $ | 1.11 | | $ | 1.29 | | $ | (0.18) | | (14.0) | % | | $ | 4.06 | | $ | 3.52 | | $ | 0.54 | | 15.3 | % |
The following summarizes changes in certain operational and financial metrics for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:
The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase/ | | Percent | | | Nine Months Ended September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages, trading days, and as noted below) | | | (in millions, except percentages, trading days, and as noted below) | | Options: | | | | | | | | | | | | | | | | | | | | | | | | | Average daily volume (ADV) (in millions of contracts): | | | | | | | | | | | | | | | | | | | | | | | | | Total touched contracts | | | 9.6 | | | 7.7 | | | 1.9 | | 24.7 | % | | | 10.1 | | | 7.4 | | | 2.7 | | 36.5 | % | Market ADV | | | 29.5 | | | 19.8 | | | 9.7 | | 49.0 | % | | | 28.6 | | | 19.4 | | | 9.2 | | 47.4 | % | Index contract ADV | | | 1.4 | | | 2.0 | | | (0.6) | | (30.0) | % | | | 1.9 | | | 1.9 | | | — | | — | % | Multi-Listed contract ADV | | | 8.2 | | | 5.7 | | | 2.5 | | 43.9 | % | | | 8.2 | | | 5.5 | | | 2.7 | | 49.1 | % | Number of trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Total Options revenue per contract (RPC) (7) | | $ | 0.173 | | $ | 0.236 | | $ | (0.063) | | (26.7) | % | | $ | 0.197 | | $ | 0.238 | | $ | (0.041) | | (17.2) | % | Multi-Listed Options RPC (7) | | | 0.056 | | | 0.056 | | | — | | — | % | | | 0.053 | | | 0.060 | | | (0.007) | | (11.7) | % | Index Options RPC (7) | | | 0.842 | | | 0.751 | | | 0.091 | | 12.1 | % | | | 0.822 | | | 0.740 | | | 0.082 | | 11.1 | % | Total Options Market Share | | | 32.4 | % | | 39.0 | % | | (6.6) | % | | * | | | 35.2 | % | | 37.9 | % | | (2.7) | % | | * | Multi-listed options | | | 29.0 | % | | 32.2 | % | | (3.2) | % | | * | | | 30.7 | % | | 31.0 | % | | (0.3) | % | | * | Index options | | | 98.9 | % | | 99.1 | % | | (0.2) | % | | * | | | 99.2 | % | | 99.2 | % | | — | % | | * | North American Equities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADV: | | | | | | | | | | | | | | | | | | | | | | | | | Total touched shares (in billions) | | | 1.6 | | | 1.2 | | | 0.4 | | 33.3 | % | | | 1.9 | | | 1.2 | | | 0.7 | | 58.3 | % | Market ADV (in billions) | | | 9.9 | | | 6.9 | | | 3.0 | | 43.5 | % | | | 11.1 | | | 7.1 | | | 4.0 | | 56.3 | % | Trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Market share | | | 15.1 | % | | 17.2 | % | | (2.1) | % | | * | | | 16.0 | % | | 16.3 | % | | (0.3) | % | | * | U.S. Equities (net capture per one hundred touched shares)(8) | | $ | 0.017 | | $ | 0.020 | | $ | (0.003) | | (15.0) | % | | $ | 0.023 | | $ | 0.026 | | $ | (0.003) | | (11.5) | % | U.S. ETPs: launches (number of launches) | | | 22 | | | 8 | | | 14 | | 175.0 | % | | | 71 | | | 38 | | | 33 | | 86.8 | % | U.S. ETPs: listings (number of listings) | | | 388 | | | 324 | | | 64 | | 19.8 | % | | | 388 | | | 324 | | | 64 | | 19.8 | % | Canadian Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADV (matched shares, in millions) | | | 40.0 | | | — | | | 40.0 | | — | % | | | 40.0 | | | — | | | 40.0 | | — | % | Trading days | | | 41 | | | — | | | 41 | | — | % | | | 41 | | | — | | | 41 | | — | % | Net capture (per 10,000 touched shares, in Canadian dollars)(9) | | | 8.200 | | | — | | | 8.200 | | — | % | | | 8.200 | | | — | | | 8.200 | | — | % | Futures: | | | | | | | | | | | | | | | | | | | | | | | | | ADV (in thousands) | | | 171.8 | | | 279.0 | | | (107.2) | | (38.4) | % | | | 214.6 | | | 256.3 | | | (41.7) | | (16.3) | % | Trading days | | | 64 | | | 64 | | | — | | — | % | | | 189 | | | 188 | | | 1 | | 0.5 | % | Revenue per contract | | $ | 1.527 | | $ | 1.746 | | $ | (0.219) | | (12.5) | % | | $ | 1.688 | | $ | 1.745 | | $ | (0.057) | | (3.3) | % | European Equities: | | | | | | | | | | | | | | | | | | | | | | | | | ADNV: | | | | | | | | | | | | | | | | | | | | | | | | | Matched and touched ADNV (in billions) | | € | 5.6 | | € | 6.8 | | € | (1.2) | | (17.6) | % | | € | 7.0 | | € | 8.1 | | € | (1.1) | | (13.6) | % | Market ADNV (in billions) | | | 31.5 | | | 34.2 | | | (2.7) | | (7.9) | % | | | 40.9 | | | 38.8 | | | 2.1 | | 5.4 | % | Trading days | | | 66 | | | 66 | | | — | | — | % | | | 193 | | | 192 | | | 1 | | 0.5 | % | Market share | | | 17.7 | % | | 19.8 | % | | (2.1) | % | | * | | | 17.1 | % | | 20.8 | % | | (3.7) | % | | * | European Equities (net capture per matched notional value in basis points)(10) | | | 0.245 | | | 0.233 | | | 0.012 | | 5.2 | % | | | 0.246 | | | 0.221 | | | 0.025 | | 11.3 | % | Global FX: | | | | | | | | | | | | | | | | | | | | | | | | | ADNV (in billions) | | $ | 30.2 | | $ | 30.3 | | $ | (0.1) | | (0.3) | % | | $ | 35.0 | | $ | 33.1 | | $ | 1.9 | | 5.7 | % | Trading days | | | 66 | | | 66 | | | — | | — | % | | | 195 | | | 194 | | | 1 | | 0.5 | % | Global FX (net capture per one million dollars traded)(11) | | | 2.70 | | | 2.80 | | | (0.10) | | (3.6) | % | | | 2.72 | | | 2.68 | | | 0.04 | | 1.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Average British pound/U.S. dollar exchange rate | | $ | 1.291 | | $ | 1.233 | | $ | 0.058 | | 4.7 | % | | $ | 1.271 | | $ | 1.273 | | $ | (0.002) | | (0.2) | % | Average Canadian dollar/U.S. dollar exchange rate | | $ | 0.751 | | $ | — | | | 0.751 | | — | % | | $ | 0.739 | | $ | — | | | 0.739 | | — | % | Average Euro/U.S. dollar exchange rate | | $ | 1.169 | | $ | — | | | 1.169 | | — | % | | $ | 1.124 | | $ | — | | | 1.124 | | — | % | Average Euro/British pound exchange rate | | £ | 0.905 | | £ | 0.902 | | £ | 0.003 | | 0.3 | % | | £ | 0.884 | | £ | 0.883 | | £ | 0.001 | | 0.1 | % |
| (1) | Organic net revenue is defined as revenues less cost of revenues excluding revenues less cost of revenues of any acquisition for the quarter the business was acquired through the following year comparable quarter. 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 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. |
| | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, 2020 | | September 30, 2020 | | | 2020 | | 2019 | | 2020 | | 2019 | | Revenues less cost of revenues | $ | 292.0 | | $ | 294.0 | | $ | 947.2 | | $ | 856.6 | | Recent acquisitions: | | | | | | | | | | | | | Acquisition revenues less cost of revenues (since acquisition) | $ | (16.6) | | $ | — | | $ | (23.3) | | $ | — | | Organic net revenue | $ | 275.4 | | $ | 294.0 | | $ | 923.9 | | $ | 856.6 | |
| (2) | 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 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. |
| (5) | 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, impairment changes attributed to noncontrolling interest, deferred tax re-measurements and net income allocated to participating securities, net of the income tax effects of these adjustments. Adjusted earnings does not represent, and should not be considered as, an alternative to net income, 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 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. |
| (7) | Revenue per contract represents transaction fees less liquidity payments and routing and clearing costs divided by total contracts traded during the period. |
| (8) | Net capture per one hundred touched shares refers to transaction fees less 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) | Net capture per 10,000 shares refers to transaction fees divided by the product of one-ten thousandth ADV of shares for MATCHNow and the number of trading days for the period. |
| (10) | Net capture per matched notional value in basis points refers to transaction fees less liquidity payments in British pounds divided by the product of ADNV in British pounds of shares matched on Cboe Europe Limited and the number of trading days for the period. |
| (11) | Net capture per one million dollars traded refers to net transaction fees, divided by the product of one-millionth of ADNV traded on 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. |
The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions): | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | 2020 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 94.4 | | $ | 32.2 | | $ | 10.1 | | $ | 36.6 | | $ | 0.4 | | $ | (64.1) | | $ | 109.6 | Interest expense, net | | | — | | | — | | | — | | | 2.3 | | | — | | | 7.2 | | | 9.5 | Income tax provision | | | — | | | 0.8 | | | — | | | 2.5 | | | — | | | 50.2 | | | 53.5 | Depreciation and amortization | | | 7.7 | | | 17.0 | | | 0.8 | | | 7.5 | | | 6.5 | | | — | | | 39.5 | EBITDA | | | 102.1 | | | 50.0 | | | 10.9 | | | 48.9 | | | 6.9 | | | (6.7) | | | 212.1 | Acquisition-related costs | | | (0.2) | | | 1.1 | | | — | | | — | | | — | | | 5.3 | | | 6.2 | Provision for notes receivable | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 103.6 | | $ | 56.1 | | $ | 10.9 | | $ | 16.9 | | $ | 6.9 | | $ | (2.0) | | $ | 192.4 | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | 2019 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 86.6 | | $ | 35.7 | | $ | 26.1 | | $ | 3.1 | | $ | (1.3) | | $ | (44.7) | | $ | 105.5 | Interest expense (income), net | | | — | | | — | | | — | | | (0.1) | | | — | | | 8.3 | | | 8.2 | Income tax provision | | | — | | | 0.6 | | | — | | | 2.0 | | | — | | | 32.4 | | | 35.0 | Depreciation and amortization | | | 10.7 | | | 19.9 | | | 1.0 | | | 6.9 | | | 7.6 | | | (3.2) | | | 42.9 | EBITDA | | | 97.3 | | | 56.2 | | | 27.1 | | | 11.9 | | | 6.3 | | | (7.2) | | | 191.6 | Acquisition-related costs | | | 10.5 | | | — | | | — | | | 0.6 | | | — | | | 5.6 | | | 16.7 | Adjusted EBITDA | | $ | 107.8 | | $ | 56.2 | | $ | 27.1 | | $ | 12.5 | | $ | 6.3 | | $ | (1.6) | | $ | 208.3 |
| | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2020 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 331.1 | | $ | 134.4 | | $ | 45.2 | | $ | 46.9 | | $ | 4.5 | | $ | (182.2) | | $ | 379.9 | Interest expense (income), net | | | — | | | — | | | — | | | 2.2 | | | — | | | 21.9 | | | 24.1 | Income tax provision | | | — | | | 3.3 | | | — | | | 7.6 | | | — | | | 145.7 | | | 156.6 | Depreciation and amortization | | | 23.0 | | | 51.2 | | | 2.4 | | | 21.4 | | | 20.0 | | | — | | | 118.0 | EBITDA | | | 354.1 | | | 188.9 | | | 47.6 | | | 78.1 | | | 24.5 | | | (14.6) | | | 678.6 | Acquisition-related costs | | | 1.8 | | | 1.1 | | | — | | | — | | | — | | | 13.5 | | | 16.4 | Provision for notes receivable | | | 1.7 | | | 5.0 | | | — | | | — | | | — | | | — | | | 6.7 | Bargain purchase gain | | | — | | | — | | | — | | | (32.0) | | | — | | | (0.6) | | | (32.6) | Adjusted EBITDA | | $ | 357.6 | | $ | 195.0 | | $ | 47.6 | | $ | 46.1 | | $ | 24.5 | | $ | (1.7) | | $ | 669.1 | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | 2019 | | | Options | | North American Equities | | Futures | | European Equities | | Global FX | | Corporate | | Total | | | | (in millions) | Net income (loss) allocated to common stockholders | | $ | 244.8 | | $ | 108.6 | | $ | 63.6 | | $ | 10.0 | | $ | (3.3) | | $ | (137.1) | | $ | 286.6 | Interest expense (income), net | | | — | | | — | | | — | | | (0.3) | | | — | | | 28.4 | | | 28.1 | Income tax provision | | | — | | | 1.3 | | | — | | | 7.0 | | | — | | | 94.4 | | | 102.7 | Depreciation and amortization | | | 29.7 | | | 57.5 | | | 1.8 | | | 21.4 | | | 22.5 | | | 0.9 | | | 133.8 | EBITDA | | | 274.5 | | | 167.4 | | | 65.4 | | | 38.1 | | | 19.2 | | | (13.4) | | | 551.2 | Acquisition-related costs | | | 20.0 | | | — | | | — | | | 1.2 | | | 0.3 | | | 18.3 | | | 39.8 | Impairment charges attributed to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (3.6) | | | (3.6) | Adjusted EBITDA | | $ | 294.5 | | $ | 167.4 | | $ | 65.4 | | $ | 39.3 | | $ | 19.5 | | $ | 1.3 | | $ | 587.4 |
The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions): | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, | | September 30, | | | 2020 | | 2019 | | 2020 | | 2019 | | | | (in millions) | | (in millions) | Net income allocated to common stockholders | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | Amortization | | | 30.9 | | | 33.4 | | | 93.4 | | | 105.1 | Acquisition-related costs | | | 6.2 | | | 16.7 | | | 16.4 | | | 39.8 | Provision for notes receivable | | | 6.7 | | | — | | | 6.7 | | | — | Bargain purchase gain | | | (32.6) | | | — | | | (32.6) | | | — | Change in redemption value of noncontrolling interest | | | — | | | 0.1 | | | — | | | 0.5 | Tax effect of adjustments | | | (8.0) | | | (11.0) | | | (24.9) | | | (34.2) | Deferred tax re-measurements | | | 7.7 | | | — | | | 7.7 | | | — | Impairment charges attributed to noncontrolling interest | | | — | | | — | | | — | | | (3.6) | Net income allocated to participating securities | | | — | | | (0.1) | | | (0.5) | | | (0.5) | Adjusted earnings | | $ | 120.5 | | $ | 144.6 | | $ | 446.1 | | $ | 393.7 |
Revenues Total revenues for the three and nine months ended September 30, 2020 increased $117.3 million, or 17.4%, and $685.4 million, or 36.1%, respectively, compared to the prior periods, primarily due to increased transaction and clearing fees of $79.7 million, or 17.1%, and $503.3 million, or 38.1%, respectively, as a result of increased market volumes in the U.S. Equities exchanges and Options segment, coupled with an increase in regulatory fees. The following summarizes changes in revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Transaction and clearing fees | | $ | 545.5 | | $ | 465.8 | | $ | 79.7 | | 17.1 | % | | $ | 1,825.3 | | $ | 1,322.0 | | $ | 503.3 | | 38.1 | % | Access and capacity fees | | | 60.6 | | | 55.7 | | | 4.9 | | 8.8 | % | | | 174.0 | | | 164.6 | | | 9.4 | | 5.7 | % | Market data fees | | | 59.5 | | | 56.3 | | | 3.2 | | 5.7 | % | | | 174.4 | | | 159.7 | | | 14.7 | | 9.2 | % | Regulatory fees | | | 113.8 | | | 88.1 | | | 25.7 | | 29.2 | % | | | 379.3 | | | 226.5 | | | 152.8 | | 67.5 | % | Other revenue | | | 13.3 | | | 9.5 | | | 3.8 | | 40.0 | % | | | 29.9 | | | 24.7 | | | 5.2 | | 21.1 | % | Total revenues | | $ | 792.7 | | $ | 675.4 | | $ | 117.3 | | 17.4 | % | | $ | 2,582.9 | | $ | 1,897.5 | | $ | 685.4 | | 36.1 | % |
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily due to a 43.5% increase in U.S. Equities exchange market ADV and a 43.9% increase in multi-listed options ADV, partially offset by a 30.0% decrease in index options ADV and a 38.4% decrease in Futures ADV, when compared to the same period in 2019. For the nine months ended September 30, 2020, the increase was primarily due to a 56.3% increase in U.S. Equities exchange market ADV and a 47.4% increase in overall options market ADV, including a 49.1% increase in multi-listed ADV, when compared to the same period in 2019. Access Fees and Capacity Fees Access and capacity fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to an increase in logical port revenue in the European Equities and North American Equities segments. Market Data Fees Market data fees increased for the three and nine months ended September 30, 2020 compared to the same periods 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 the North American Equities segment resulting from a decrease in market share for the three and nine months ended September 30, 2020. Regulatory Fees Regulatory fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily due to an increase in Section 31 fees as a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from a rate of $20.70 per million dollars of covered sales for the three months ended September 30, 2019 to a rate of $22.10 per million dollars of covered sales during the three months ended September 30, 2020. For the nine months ended September 30, 2020, the increase was primarily due to an increase in Section 31 fees as a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from an average rate of $17.70 per million dollars of covered sales for the nine months ended September 30, 2019 to an average rate of $21.90 per million dollars of covered sales during the nine months ended September 30, 2020. Other Revenue Other revenue increased for the three months and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to additional net interest income from EuroCCP, which the Company acquired in the third quarter of 2020. Cost of Revenues Cost of revenues increased for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges, which increased $89.7 million, coupled with an increase in Section 31 fees within the North American Equities and Options segments, which increased $21.1 million and $4.9 million, respectively. Cost of revenues increased for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges, which increased $418.2 million, coupled with an increase in Section 31 fees within the North American Equities and Options segments, which increased $136.8 million and $17.1 million, respectively. The following summarizes changes in cost of revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Liquidity payments | | $ | 359.4 | | $ | 269.7 | | $ | 89.7 | | 33.3 | % | | $ | 1,167.4 | | $ | 749.2 | | $ | 418.2 | | 55.8 | % | Routing and clearing | | | 14.9 | | | 9.3 | | | 5.6 | | 60.2 | % | | | 48.6 | | | 27.7 | | | 20.9 | | 75.5 | % | Section 31 fees | | | 105.4 | | | 79.4 | | | 26.0 | | 32.7 | % | | | 351.8 | | | 197.9 | | | 153.9 | | 77.8 | % | Royalty fees | | | 17.6 | | | 22.9 | | | (5.3) | | (23.1) | % | | | 64.4 | | | 65.8 | | | (1.4) | | (2.1) | % | Other | | | 3.4 | | | 0.1 | | | 3.3 | | 3,300.0 | % | | | 3.5 | | | 0.3 | | | 3.2 | | 1,066.7 | % | Total | | $ | 500.7 | | $ | 381.4 | | $ | 119.3 | | 31.3 | % | | $ | 1,635.7 | | $ | 1,040.9 | | $ | 594.8 | | 57.1 | % |
Liquidity Payments Liquidity payments increased for the three and nine months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges. Routing and Clearing The increase in routing and clearing fees for the three and nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to an increase in routed trades in the North American Equities segment. Section 31 Fees Section 31 fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from a rate of $20.70 per million dollars of covered sales for the three months ended September 30, 2019 to a rate of $22.10 per million dollars of covered sales during the three months ended September 30, 2020. For the nine months ended September 30, 2020, the increase was primarily a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from an average rate of $17.70 per million dollars of covered sales for the nine months ended September 30, 2019 to an average rate of $21.90 per million dollars of covered sales during the nine months ended September 30, 2020. Royalty Fees Royalty fees decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to a decline in trading volume in licensed products. Revenues Less Cost of Revenues Revenues less cost of revenues decreased $2.0 million, or 0.7%, for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a $15.6 million, or 8.4% decrease in transaction and clearing fees less liquidity payments and routing and clearing costs, partially offset by a $5.3 million, or 23.1% decrease in royalty fees, a $4.9 million, or 8.8% increase in access and capacity fees, and a $3.2 million, or 5.7% increase in market data fees. Revenues less cost of revenues increased $90.6 million, or 10.6%, for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a $64.2 million, or 11.8%, increase in transaction and clearing fees less liquidity payments and routing and clearing costs and a $14.7 million, or 9.2% increase in market data fees. The following tables summarize the components of revenues less cost of revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Transaction and clearing fees less liquidity payments and routing and clearing costs | | $ | 171.2 | | $ | 186.8 | | $ | (15.6) | | (8.4) | % | | $ | 609.3 | | $ | 545.1 | | $ | 64.2 | | 11.8 | % | Access and capacity fees | | | 60.6 | | | 55.7 | | | 4.9 | | 8.8 | % | | | 174.0 | | | 164.6 | | | 9.4 | | 5.7 | % | Market data fees | | | 59.5 | | | 56.3 | | | 3.2 | | 5.7 | % | | | 174.4 | | | 159.7 | | | 14.7 | | 9.2 | % | Regulatory fees, less Section 31 fees | | | 8.4 | | | 8.7 | | | (0.3) | | (3.4) | % | | | 27.5 | | | 28.6 | | | (1.1) | | (3.8) | % | Royalty fees | | | (17.6) | | | (22.9) | | | 5.3 | | (23.1) | % | | | (64.4) | | | (65.8) | | | 1.4 | | (2.1) | % | Other | | | 9.9 | | | 9.4 | | | 0.5 | | 5.3 | % | | | 26.4 | | | 24.4 | | | 2.0 | | 8.2 | % | Revenues less cost of revenues | | $ | 292.0 | | $ | 294.0 | | $ | (2.0) | | (0.7) | % | | $ | 947.2 | | $ | 856.6 | | $ | 90.6 | | 10.6 | % |
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 September 30, 2020 compared to the same period in 2019 primarily due to a 30.0% decrease in index options ADV and a 38.4% decrease in Futures ADV. Net Transaction and Clearing Fees increased for the nine months ended September 30, 2020 primarily due to a 47.4% increase in overall options market ADV, including a 49.1% increase in multi-listed options ADV, and a 56.3% increase in U.S. Equities exchange market ADV, when compared to the same period in 2019. Access and Capacity Fees Access and capacity fees increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019 primarily due to an increase in logical port unitsrevenue in the OptionsEuropean Equities and EuropeanNorth American Equities segments. Market Data Fees Market data fees increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019 primarily due to additional revenue attributed to the acquisitions of Hanweck, and FT Options, and Trade Alert during the first quarter of 2020, coupled with an increasepartially offset by a decrease in tape plan market data revenue within the U.S.North American Equities segment related to audit recoveries.resulting from a decrease in market share for the three and nine months ended September 30, 2020. Regulatory Fees, less Section 31 Fees Regulatory fees, less Section 31 Fees, decreased infor the three months and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019 primarily due to a decrease in fines and assessment fees. Royalty Fees Royalty fees decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to a decline in trading volume in licensed products. Other Other revenue increased for the three months and nine months ended March 31,September 30, 2020 compared to the same periods in 2019 primarily due to additional net interest income from EuroCCP, which the Company acquired in the third quarter of 2020. Operating Expenses Total operating expenses increased $6.1 million, or 4.2%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to an increaseincreases in trading volumecompensation and benefits and technology support services related to acquisitions and other expenses, partially offset by a decrease in licensed products. Other
Other revenue increasedacquisition-related costs. Total operating expenses decreased $18.8 million, or 4.3% for the threenine months ended March 31,September 30, 2020 compared to the same period in 2019, primarily due to additional index licensing and trade reporting services revenuedeclines in 2020.
Operating Expenses
Total operating expenses decreased $2.1 million, or 1.6%, for the three months ended March 31, 2020 primarily due to a decline inacquisition-related costs depreciation and amortization, and professional fees and outside services, partially offset by an increase in compensation and benefits expense.benefits. The following summarizes changes in operating expenses for the three and nine months ended March 31,September 30, 2020 compared to the three and nine months ended March 31,September 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | | | | March 31, | | Increase/ | | Percent | | | | September 30, | | Increase/ | | Percent | | | September 30, | | Increase/ | | Percent | | | | 2020 | | 2019 | | (Decrease) | | Change | | | | 2020 | | 2019 | | (Decrease) | | Change | | | 2020 | | 2019 | | (Decrease) | | Change | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Compensation and benefits | | $ | 53.3 | | $ | 48.1 | | $ | 5.2 | | 10.8 | % | | | $ | 59.2 | | $ | 49.7 | | $ | 9.5 | | 19.1 | % | | $ | 167.4 | | $ | 150.0 | | $ | 17.4 | | 11.6 | % | Depreciation and amortization | | | 40.5 | | | 47.2 | | | (6.7) | | (14.2) | % | | | | 39.5 | | | 42.9 | | | (3.4) | | (7.9) | % | | | 118.0 | | | 133.8 | | | (15.8) | | (11.8) | % | Technology support services | | | 11.9 | | | 11.9 | | | — | | — | % | | | | 15.1 | | | 10.6 | | | 4.5 | | 42.5 | % | | | 39.5 | | | 34.3 | | | 5.2 | | 15.2 | % | Professional fees and outside services | | | 14.9 | | | 16.2 | | | (1.3) | | (8.0) | % | | | | 15.8 | | | 17.5 | | | (1.7) | | (9.7) | % | | | 43.0 | | | 52.9 | | | (9.9) | | (18.7) | % | Travel and promotional expenses | | | 2.1 | | | 2.6 | | | (0.5) | | (19.2) | % | | | | 1.2 | | | 2.7 | | | (1.5) | | (55.6) | % | | | 4.2 | | | 8.3 | | | (4.1) | | (49.4) | % | Facilities costs | | | 4.1 | | | 2.1 | | | 2.0 | | 95.2 | % | | | | 4.5 | | | 2.7 | | | 1.8 | | 66.7 | % | | | 12.7 | | | 7.8 | | | 4.9 | | 62.8 | % | Acquisition-related costs | | | 0.8 | | | 2.3 | | | (1.5) | | (65.2) | % | | | | 6.2 | | | 16.7 | | | (10.5) | | (62.9) | % | | | 16.4 | | | 39.8 | | | (23.4) | | (58.8) | % | Other expenses | | | 4.3 | | | 3.6 | | | 0.7 | | 19.4 | % | | | | 11.2 | | | 3.8 | | | 7.4 | | 194.7 | % | | | 18.6 | | | 11.7 | | | 6.9 | | 59.0 | % | Total operating expenses | | $ | 131.9 | | $ | 134.0 | | $ | (2.1) | | (1.6) | % | | | $ | 152.7 | | $ | 146.6 | | $ | 6.1 | | 4.2 | % | | $ | 419.8 | | $ | 438.6 | | $ | (18.8) | | (4.3) | % |
Compensation and Benefits Compensation and benefits increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 20192019. For the three months ended September 30, 2020, the increase was primarily due to an increase in bonuscompensation expense related to acquisitions of $2.6$4.0 million, a decrease in capitalized wages of $2.8 million due to a decrease in software projects eligible for capitalization, and a $2.0 million increase in benefits primarily due to the adjustment of deferred compensation plan assets. For the nine months ended September 30, 2020, the increase was primarily due to an increase in equity compensation as a resultexpense related to acquisitions of forfeitures in 2019 that did not recur in 2020,$10.5 million and a decrease in capitalized wages of $2.2$7.8 million due to a decrease in software projects eligible for capitalization, offset by a $2.1$2.9 million decline in benefits primarily due to the adjustment of deferred compensation plan assets.assets and healthcare rebates received. Depreciation and Amortization Depreciation and amortization decreased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019, primarily 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 CBOECboe Command software in the fourth quarter of 2019 that resulted in a $2.1 million decline in amortization, and the change in accounting classification of the Chicago headquarters building to held for sale in the second quarter of 2019, which resulted in depreciation ceasing on the building, offset by an increase of $1.2 million of depreciation related to equipment placed into service in the fourth quarter of 2019. Technology Support Services Technology support services costs were flatincreased for the three and nine months ended March 31,September 30, 2020 compared to the same periods in 2019.2019, primarily due to increases in purchased hardware and market data support service fees related to the acquisitions in 2020. Professional Fees and Outside Services Professional fees and outside services decreased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 20192019. For the three months ended September 30, 2020, the decrease was primarily due to a decline in regulatory service fees of $0.6 million, a decline in consulting fees of $0.5$1.8 million and a decline in legal fees of $1.4 million, partially offset by an increase in contracted services of $0.2$1.1 million. For the nine months ended September 30, 2020, the decrease was primarily due to declines in regulatory service fees of $4.4 million, legal fees of $3.6 million, consulting fees of $0.7 million, and accounting fees of $1.7 million. Travel and Promotional Expenses Travel and promotional expenses decreased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019, primarily due to travel restrictions implemented in March 2020 in response to the COVID-19 pandemic.pandemic coupled with a decrease in marketing expenses. Facilities Costs Facilities costs increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 20192019. For the three months ended September 30, 2020, the increase was primarily due to additional rent expense incurred for the new headquarters location beginning in January 2020. For the nine months ended September 30, 2020, the increase was primarily due to additional rent expense incurred for the new headquarters location beginning in January 2020, coupled with a reversal of deferred rent expense of $1.3 million in the first quarter of 2019 that did not recur in 2020, coupled with additional rent expense incurred for the new headquarters location beginning in January 2020. Acquisition-Related Costs Acquisition-related costs decreased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 20192019. For the three months ended September 30, 2020, the decrease was primarily due to severance costs incurred in the third quarter of 2019. For the nine months ended September 30, 2020, the decrease was primarily due to severance costs incurred in the third quarter of 2019, coupled with the write down of goodwill attributed to a decrease2016 acquisition recorded in equity compensation-related expenses in 2020.the second quarter of 2019. Other Expenses Other expenses increased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019, primarily due to additional one-time charitable contributions made related toa $6.7 million provision for the COVID-19 relief effortsnotes receivable recorded in the third quarter of $1.0 million, offset by2020 as a write-offresult of bad debtpotential changes in 2019 of $0.3 million that did not recur in 2020.the CAT funding model. Operating Income As a result of the items above, operating income for the three and nine months ended March 31,September 30, 2020 was $226.4$139.3 million and $527.4 million compared to $146.5$147.4 million and $418.0 million, respectively, for same periodperiods in 2019, an increase of $79.9 million.2019. Interest Expense, Net Net interest expense decreasedincreased in the three and nine months ended March 31,September 30, 2020 compared to the same period in 2019 primarily due to the commitment fees related to the EuroCCP Credit Facility, partially offset by the decrease in outstanding debtthe variable interest rate on the term loan agreement from $1,216.0 million at March 31,September 30, 2019 to $868.1 million at March 31,September 30, 2020. Other Expense, Net Net other expense decreased for the three and nine months ended March 31,September 30, 2020 compared to the same periodperiods in 2019 primarily due to a $32.6 million bargain purchase gain related to the reversal ofEuroCCP acquisition recorded in the $8.8 million OCC dividend declared in 2018, which was to be paid in 2019, as a result of the SEC’s disapproval of the OCC capital plan during the firstthird quarter of 2019, partially offset by deferred compensation plan asset expense of $2.1 million.2020. Income Before Income Tax Provision As a result of the above, income before income tax provision for the three months ended March 31,September 30, 2020 was $217.5$163.4 million compared to $127.8$140.9 million for the same period in 2019, an increase of $89.7$22.5 million. TableAs a result of Contentsthe above, income before income tax provision for the nine months ended September 30, 2020 was $537.5 million compared to $387.2 million for the same period in 2019, an increase of $150.3 million.
Income Tax Provision The effective tax rate from continuing operations was 27.6%32.7% and 25.5%24.8% for the three months ended March 31,September 30, 2020 and 2019, respectively, and 29.1% and 26.5% for the nine months ended September 30, 2020 and 2019, respectively. The lowerhigher effective tax rate for the three months ended March 31, 2019 wasin 2020 is primarily due to excessthe remeasurement of deferred tax benefits related to equity awards.liabilities as a result of an increase in the statutory tax rate in the United Kingdom. Net Income As a result of the items above, net income for the three months ended March 31,September 30, 2020 was $157.4$109.9 million compared to $95.2$105.9 million for the three months ended March 31,September 30, 2019, an increase of $62.2$4.0 million. As a result of the items above, net income for the nine months ended September 30, 2020 was $380.9 million compared to $284.5 million for the nine months ended September 30, 2019, an increase of $96.4 million. Segment Operating Results We report results from our five segments: Options, U.S.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 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:  
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | Percentage | | | | | | | | | | Percentage of | | | | | | | | | | | | of Total | | | | | | | | | | | | of Total | | | | | | | | | | Total | | | | | | | | | | | | Revenues | | | | | | | | | | | | Revenues | | | | | | | | | | Revenues | | | | Three Months Ended | | | | Three Months Ended | | | | Three Months Ended | | | | Three Months Ended | | | Nine Months Ended | | | | Nine Months Ended | | | | March 31, | | Percent | | March 31, | | | | September 30, | | Percent | | September 30, | | | September 30, | | Percent | | September 30, | | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Options | | $ | 356.5 | | $ | 232.1 | | 53.6 | % | 38.7 | % | 38.5 | % | | | $ | 312.8 | | $ | 266.1 | | 17.5 | % | 39.5 | % | 39.4 | % | | $ | 986.9 | | $ | 743.2 | | 32.8 | % | 38.2 | % | 39.2 | % | U.S. Equities | | | 473.7 | | | 295.8 | | 60.1 | % | 51.4 | % | 49.1 | % | | | North American Equities | | | | 403.6 | | | 330.7 | | 22.0 | % | 50.9 | % | 49.0 | % | | | 1,367.8 | | | 925.2 | | 47.8 | % | 53.0 | % | 48.9 | % | Futures | | | 41.5 | | | 30.5 | | 36.1 | % | 4.5 | % | 5.1 | % | | | | 24.0 | | | 39.6 | | (39.4) | % | 3.0 | % | 5.9 | % | | | 87.1 | | | 103.9 | | (16.2) | % | 3.4 | % | 5.5 | % | European Equities | | | 32.9 | | | 30.3 | | 8.6 | % | 3.6 | % | 5.0 | % | | | | 39.1 | | | 25.9 | | 51.0 | % | 4.9 | % | 3.8 | % | | | 97.3 | | | 84.9 | | 14.6 | % | 3.7 | % | 4.5 | % | Global FX | | | 16.9 | | | 13.9 | | 21.6 | % | 1.8 | % | 2.3 | % | | | | 13.2 | | | 13.1 | | 0.8 | % | 1.7 | % | 1.9 | % | | 43.8 | | | 40.1 | | 9.2 | % | 1.7 | % | 2.1 | % | Corporate | | | | — | | | — | | — | % | — | % | — | % | | | — | | | 0.2 | | (100.0) | % | — | % | — | % | Total revenues | | $ | 921.5 | | $ | 602.6 | | 52.9 | % | 100.0 | % | 100.0 | % | | | $ | 792.7 | | $ | 675.4 | | 17.4 | % | 100.0 | % | 100.0 | % | | $ | 2,582.9 | | $ | 1,897.5 | | 36.1 | % | 100.0 | % | 100.0 | % |
The following summarizes our revenues less cost of revenues by segment:  
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage of | | | | | | | | | | | | Percentage of | | | | | | | | | | | Percentage of | | | | | | | | | | | | Total Revenues | | | | | | | | | | | | Total Revenues | | | | | | | | | | | Total Revenues | | | | | | | | | | | | Less Cost of Revenues | | | | | | | | | | | | Less Cost of Revenues | | | | | | | | | | | Less Cost of Revenues | | | | Three Months Ended | | | | Three Months Ended | | | | Three Months Ended | | | | Three Months Ended | | | Nine Months Ended | | | | Nine Months Ended | | | | March 31, | | Percent | | March 31, | | | | September 30, | | Percent | | September 30, | | | September 30, | | Percent | | September 30, | | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Options | | $ | 188.5 | | $ | 138.5 | | 36.1 | % | 52.6 | % | 49.4 | % | | | $ | 148.1 | | $ | 146.5 | | 1.1 | % | 50.7 | % | 49.8 | % | | $ | 487.2 | | $ | 424.7 | | 14.7 | % | 51.5 | % | 49.6 | % | U.S. Equities | | | 86.6 | | | 75.8 | | 14.2 | % | 24.2 | % | 27.0 | % | | | North American Equities | | | | 75.8 | | | 75.4 | | 0.5 | % | 26.0 | % | 25.7 | % | | | 253.0 | | | 225.3 | | 12.3 | % | 26.7 | % | 26.3 | % | Futures | | | 40.1 | | | 29.5 | | 35.9 | % | 11.2 | % | 10.5 | % | | | | 23.3 | | | 38.3 | | (39.2) | % | 8.0 | % | 13.0 | % | | | 84.3 | | | 100.4 | | (16.0) | % | 8.9 | % | 11.7 | % | European Equities | | | 26.2 | | | 22.8 | | 14.9 | % | 7.3 | % | 8.1 | % | | | | 31.6 | | | 20.7 | | 52.7 | % | 10.8 | % | 7.0 | % | | | 78.9 | | | 65.9 | | 19.7 | % | 8.3 | % | 7.7 | % | Global FX | | | 16.9 | | | 13.9 | | 21.6 | % | 4.7 | % | 5.0 | % | | | | 13.2 | | | 13.1 | | 0.8 | % | 4.5 | % | 4.5 | % | | | 43.8 | | | 40.1 | | 9.2 | % | 4.6 | % | 4.7 | % | Corporate | | | | — | | | — | | — | % | — | % | — | % | | | — | | | 0.2 | | (100.0) | % | — | % | — | % | Total revenues less cost of revenues | | $ | 358.3 | | $ | 280.5 | | 27.7 | % | 100.0 | % | 100.0 | % | | | $ | 292.0 | | $ | 294.0 | | (0.7) | % | 100.0 | % | 100.0 | % | | $ | 947.2 | | $ | 856.6 | | 10.6 | % | 100.0 | % | 100.0 | % |
Options The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Options segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | Revenues | | | | Three Months Ended | | | | | | Three Months Ended | | | | Three Months Ended | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | Nine Months Ended | | | | March 31, | | | Percent | | | March 31, | | | | September 30, | | | Percent | | | September 30, | | | September 30, | | | Percent | | | September 30, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 188.5 | | | $ | 138.5 | | | 36.1 | % | | 52.9 | % | | 59.7 | % | | | $ | 148.1 | | | $ | 146.5 | | | 1.1 | % | | 47.3 | % | | 55.1 | % | | $ | 487.2 | | | $ | 424.7 | | | 14.7 | % | | 49.4 | % | | 57.1 | % | Operating expenses | | | 45.1 | | | | 50.4 | | | (10.5) | % | | 12.7 | % | | 21.7 | % | | | | 53.7 | | | | 61.1 | | | (12.1) | % | | 17.2 | % | | 23.0 | % | | | 156.0 | | | | 172.2 | | | (9.4) | % | | 15.8 | % | | 23.2 | % | Operating income | | $ | 143.4 | | | $ | 88.1 | | | 62.8 | % | | 40.2 | % | | 38.0 | % | | | $ | 94.4 | | | $ | 85.4 | | | 10.5 | % | | 30.2 | % | | 32.1 | % | | $ | 331.2 | | | $ | 252.5 | | | 31.2 | % | | 33.6 | % | | 34.0 | % | EBITDA(1) | | $ | 151.0 | | | $ | 89.1 | | | 69.5 | % | | 42.4 | % | | 38.4 | % | | | $ | 102.1 | | | $ | 97.3 | | | 4.9 | % | | 32.6 | % | | 36.6 | % | | $ | 354.1 | | | $ | 274.5 | | | 29.0 | % | | 35.9 | % | | 36.9 | % | EBITDA margin(2) | | | 80.1 | % | | | 64.3 | % | | * | | | * | | | * | | | | | 68.9 | % | | | 66.4 | % | | * | | | * | | | * | | | | 72.7 | % | | | 64.6 | % | | * | | | * | | | * | |
| (1) | See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures. |
| (2) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
Revenues less cost of revenues increased $50.0$1.6 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019, primarily due to a 45.8%43.9% increase in overallmulti-listed options ADV, coupled with an increase in proprietary market ADV, includingdata revenue as a 42.1% increaseresult of the acquisitions of Hanweck, FT Options, and Trade Alert, offset by a 30.0% decrease in index options ADV. For the three months ended March 31,September 30, 2020, the Options segment’s operating income increased $55.3$9.0 million compared to the three months ended March 31,September 30, 2019, primarily due to a decline in operating expenses. Operating expenses decreased $7.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to decreases in acquisition-related costs, depreciation and amortization, and professional fees and outside services, partially offset by an increase in compensation and benefits and technology support services. Revenues less cost of revenues increased $62.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 49.1% increase in multi-listed options ADV, coupled with an 11.1% 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 nine months ended September 30, 2020, the Options segment’s operating income increased $78.7 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses decreased $5.3$16.2 million for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019, primarily due to decreases in acquisition-related costs, professional fees and outside services, and depreciation and amortization, partially offset by an increase in compensation and benefits, facilities costs, and facilities costs.technology support services. U.S.
North American Equities The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our North American Equities segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | Revenues | | | | Three Months Ended | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | Nine Months Ended | | | | September 30, | | | Percent | | | September 30, | | | September 30, | | | Percent | | | September 30, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 75.8 | | | $ | 75.4 | | | 0.5 | % | | 18.8 | % | | 22.8 | % | | $ | 253.0 | | | $ | 225.3 | | | 12.3 | % | | 18.5 | % | | 24.4 | % | Operating expenses | | | 42.7 | | | | 39.0 | | | 9.5 | % | | 10.6 | % | | 11.8 | % | | | 115.0 | | | | 114.9 | | | 0.1 | % | | 8.4 | % | | 12.4 | % | Operating income | | $ | 33.1 | | | $ | 36.4 | | | (9.1) | % | | 8.2 | % | | 11.0 | % | | $ | 138.0 | | | $ | 110.4 | | | 25.0 | % | | 10.1 | % | | 11.9 | % | EBITDA(1) | | $ | 50.0 | | | $ | 56.2 | | | (11.0) | % | | 12.4 | % | | 17.0 | % | | $ | 188.9 | | | $ | 167.4 | | | 12.8 | % | | 13.8 | % | | 18.1 | % | EBITDA margin(2) | | | 66.0 | % | | | 74.5 | % | | * | | | * | | | * | | | | 74.7 | % | | | 74.3 | % | | * | | | * | | | * | |
| (1) | See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures. |
| (2) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
Revenues less cost of revenues increased $0.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a 33.3% increase in volumes traded on our U.S. Equities exchanges. For the three months ended September 30, 2020, the North American Equities segment’s operating income decreased $3.3 million compared to the three months ended September 30, 2019, primarily due to an increase in operating expenses. Operating expenses increased $3.7 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to an increase in other expenses, partially offset by a decline in depreciation and amortization. Revenues less cost of revenues increased $27.7 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 58.3% increase in volumes traded on our U.S. Equities exchanges. For the nine months ended September 30, 2020, the North American Equities segment’s operating income increased $27.6 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses increased $0.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in other expenses and compensation and benefits, offset by a decline in depreciation and amortization and travel and promotional expenses. 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 | | | | Three Months Ended | | | | | | Three Months Ended | | | | March 31, | | | Percent | | | March 31, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 86.6 | | | $ | 75.8 | | | 14.2 | % | | 18.3 | % | | 25.6 | % | Operating expenses | | | 37.6 | | | | 38.2 | | | (1.6) | % | | 7.9 | % | | 12.9 | % | Operating income | | $ | 49.0 | | | $ | 37.6 | | | 30.3 | % | | 10.3 | % | | 12.7 | % | EBITDA(1) | | $ | 66.7 | | | $ | 57.3 | | | 16.4 | % | | 14.1 | % | | 19.4 | % | EBITDA margin(2) | | | 77.0 | % | | | 75.6 | % | | * | | | * | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | Revenues | | | | Three Months Ended | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | Nine Months Ended | | | | September 30, | | | Percent | | | September 30, | | | September 30, | | | Percent | | | September 30, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 23.3 | | | $ | 38.3 | | | (39.2) | % | | 97.1 | % | | 96.7 | % | | $ | 84.3 | | | $ | 100.4 | | | (16.0) | % | | 96.8 | % | | 96.6 | % | Operating expenses | | | 13.2 | | | | 12.1 | | | 9.1 | % | | 55.0 | % | | 30.6 | % | | | 39.0 | | | | 36.5 | | | 6.8 | % | | 44.8 | % | | 35.1 | % | Operating income | | $ | 10.1 | | | $ | 26.2 | | | (61.5) | % | | 42.1 | % | | 66.2 | % | | $ | 45.3 | | | $ | 63.9 | | | (29.1) | % | | 52.0 | % | | 61.5 | % | EBITDA(1) | | $ | 10.9 | | | $ | 27.1 | | | (59.8) | % | | 45.4 | % | | 68.4 | % | | $ | 47.6 | | | $ | 65.4 | | | (27.2) | % | | 54.6 | % | | 62.9 | % | EBITDA margin(2) | | | 46.8 | % | | | 70.8 | % | | * | | | * | | | * | | | | 56.5 | % | | | 65.1 | % | | * | | | * | | | * | |
| (1) | See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures. |
| (2) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
Revenues less cost of revenues increased $10.8decreased $15.0 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019, primarily due to a 46.7% increase in volumes traded on our U.S. Equities exchanges. For the three months ended March 31, 2020, the U.S. Equities segment’s operating income increased $11.4 million compared to the three months ended March 31, 2019, due to higher revenues less cost of revenue. Operating expenses decreased $0.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to decreases in depreciation and amortization and technology support services costs, partially offset by higher professional fees and outside services and compensation and benefits. 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 | | | | | Three Months Ended | | | | | | Three Months Ended | | | | | March 31, | | | Percent | | | March 31, | | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | Revenues less cost of revenues | | $ | 40.1 | | | $ | 29.5 | | | 35.9 | % | | 96.6 | % | | 96.7 | % | | Operating expenses | | | 13.2 | | | | 11.2 | | | 17.9 | % | | 31.8 | % | | 36.7 | % | | Operating income | | $ | 26.9 | | | $ | 18.3 | | | 47.0 | % | | 64.8 | % | | 60.0 | % | | EBITDA(1) | | $ | 27.6 | | | $ | 18.6 | | | 48.4 | % | | 66.5 | % | | 61.0 | % | | EBITDA margin(2) | | | 68.8 | % | | | 63.1 | % | | * | | | * | | | * | | |
(1) | See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures. |
(2) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
Revenues less cost of revenues increased $10.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to a 43.1% increase38.4% decrease in Futures ADV. For the three months ended March 31,September 30, 2020, the Futures segment’s operating income increased $8.6decreased $16.1 million compared to the three months ended March 31,September 30, 2019, due to higherlower revenues less cost of revenues. Operating expenses increased $2.0$1.1 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019, primarily due to an increase in compensation and benefits.benefits and other expenses, partially offset by a decrease in professional fees and outside services and travel and promotional expenses.
TableRevenues less cost of Contentsrevenues decreased $16.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 16.3% decrease in Futures ADV. For the nine months ended September 30, 2020, the Futures segment’s operating income decreased $18.6 million compared to the nine months ended September 30, 2019, primarily due to lower revenues less cost of revenues. Operating expenses increased $2.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in compensation and benefits, offset by a decrease in professional fees and outside services and travel and promotional expenses.
European Equities The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our European Equities segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | Revenues | | | | Three Months Ended | | | | | | Three Months Ended | | | | Three Months Ended | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | Nine months ended | | | | March 31, | | | Percent | | | March 31, | | | | September 30, | | | Percent | | | September 30, | | | September 30, | | | Percent | | | September 30, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 26.2 | | | $ | 22.8 | | | 14.9 | % | | 79.6 | % | | 75.2 | % | | | $ | 31.6 | | | $ | 20.7 | | | 52.7 | % | | 80.8 | % | | 79.9 | % | | $ | 78.9 | | | $ | 65.9 | | | 19.7 | % | | 81.1 | % | | 77.6 | % | Operating expenses | | | 16.7 | | | | 17.0 | | | (1.8) | % | | 50.8 | % | | 56.1 | % | | | | 22.3 | | | | 15.9 | | | 40.3 | % | | 57.0 | % | | 61.4 | % | | | 54.7 | | | | 49.6 | | | 10.3 | % | | 56.2 | % | | 58.4 | % | Operating income | | $ | 9.5 | | | $ | 5.8 | | | 63.8 | % | | 28.9 | % | | 19.1 | % | | | $ | 9.3 | | | $ | 4.8 | | | 93.8 | % | | 23.8 | % | | 18.5 | % | | $ | 24.2 | | | $ | 16.3 | | | 48.5 | % | | 24.9 | % | | 19.2 | % | EBITDA(1) | | $ | 16.8 | | | $ | 12.9 | | | 30.2 | % | | 51.1 | % | | 42.6 | % | | | $ | 48.9 | | | $ | 11.9 | | | 310.9 | % | | 125.1 | % | | 45.9 | % | | $ | 78.1 | | | $ | 38.1 | | | 105.0 | % | | 80.3 | % | | 44.9 | % | EBITDA margin(2) | | | 64.1 | % | | | 56.6 | % | | * | | | * | | | * | | | | | 154.7 | % | | | 57.5 | % | | * | | | * | | | * | | | | 99.0 | % | | | 57.8 | % | | * | | | * | | | * | |
*Not meaningful | (1) | See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures. |
| (2) | EBITDA margin represents EBITDA divided by revenues less cost of revenues. |
Revenues less cost of revenues increased $3.4$10.9 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019, primarily due to a 23.5% increase in European Equities ADNV.additional revenue attributable to the acquisition of EuroCCP. For the three months ended March 31,September 30, 2020, the European Equities segment’s operating income increased $3.7$4.5 million compared to the three months ended March 31,September 30, 2019, due to higher revenues less cost of revenues. Operating expenses decreased $0.3increased $6.4 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019, primarily due to decreasesan increase in acquisition-related costs, depreciationcompensation and amortization andbenefits, professional fees and outside services, and technology support services as a result of the EuroCCP acquisition, partially offset by a decrease in other expenses and acquisition-related costs. Revenues less cost of revenues increased $13.0 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due primarily due to additional revenue attributable to the acquisition of EuroCCP. For the nine months ended September 30, 2020, the European Equities segment’s operating income increased $7.9 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses increased $5.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in compensation and benefits.benefits, professional fees and outside services, and technology support services as a result of the EuroCCP acquisition, partially offset by a decrease in other expenses and acquisition-related costs. Global FX The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Global FX segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | Percentage | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | of Total | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | Revenues | | | | Three Months Ended | | | | | | Three Months Ended | | | | Three Months Ended | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | Nine months ended | | | | March 31, | | | Percent | | | March 31, | | | | September 30, | | | Percent | | | September 30, | | | September 30, | | | Percent | | | September 30, | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | | (in millions, except percentages) | | Revenues less cost of revenues | | $ | 16.9 | | | $ | 13.9 | | | 21.6 | % | | 100.0 | % | | 100.0 | % | | | $ | 13.2 | | | $ | 13.1 | | | 0.8 | % | | 33.8 | % | | 50.6 | % | | $ | 43.8 | | | $ | 40.1 | | | 9.2 | % | | 45.0 | % | | 47.2 | % | Operating expenses | | | 13.9 | | | | 14.3 | | | (2.8) | % | | 82.2 | % | | 102.9 | % | | | | 12.6 | | | | 14.4 | | | (12.5) | % | | 32.2 | % | | 55.6 | % | | | 39.1 | | | | 43.4 | | | (9.9) | % | | 40.2 | % | | 51.1 | % | Operating income (loss) | | $ | 3.0 | | | $ | (0.4) | | | 850.0 | % | | 17.8 | % | | (2.9) | % | | | $ | 0.6 | | | $ | (1.3) | | | 146.2 | % | | 1.5 | % | | (5.0) | % | | $ | 4.7 | | | $ | (3.3) | | | 242.4 | % | | 4.8 | % | | (3.9) | % | EBITDA(1) | | $ | 10.0 | | | $ | 7.4 | | | 35.1 | % | | 59.2 | % | | 53.2 | % | | | $ | 6.9 | | | $ | 6.3 | | | 9.5 | % | | 17.6 | % | | 24.3 | % | | $ | 24.5 | | | $ | 19.2 | | | 27.6 | % | | 25.2 | % | | 22.6 | % | EBITDA margin(2) | | | 59.2 | % | | | 53.2 | % | | * | | | * | | | * | | | | | 52.3 | % | | | 48.1 | % | | * | | | * | | | * | | | | 55.9 | % | | | 47.9 | % | | * | | | * | | | * | |
| (1) | See footnote (1) to the table under “Financial Summary” above for a 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 remained relatively flat for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. For the three months ended September 30, 2020, the Global FX segment’s operating income increased $1.9 million compared to the three months ended September 30, 2019, primarily due to a decline in operating expenses. Operating expenses decreased $1.8 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a decrease in depreciation and amortization, compensation and benefits, and professional fees and outside services. Revenues less cost of revenues increased $3.7 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 5.7% increase in Global FX market ADNV. For the nine months ended September 30, 2020, the Global FX segment’s operating income increased $8.0 million compared to the nine months ended September 30, 2019, due to a decline in operating expenses, coupled with higher revenues less costs of revenues. Operating expenses decreased $4.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a decrease in depreciation and amortization, professional fees and outside services, and travel and promotional expenses, partially offset by an increase in compensation and benefits. Revenues less cost of revenues increased $3.0 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to an 18.6% increase in Global FX ADNV. For the three months ended March 31, 2020, the Global FX segment’s operating income increased $3.4 million compared to the three months ended March 31, 2019, due to higher revenues less costs of revenues. Operating expenses decreased $0.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to decreases in depreciation and amortization and acquisition-related costs, partially offset by an increase in compensation and benefits.
Liquidity and Capital Resources Below are charts that reflect elements of our capital allocation:  
We expect our cash on hand at March 31,September 30, 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 our revolving credit facilitythe 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 11 (“Debt”) and Note 13 (“Clearing Operations”) 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 Euro 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 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. 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 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,September 30, 2020 decreased $64.1$16.6 million from December 31, 2019, primarily due to share repurchases under the share repurchase program, acquisitions, andpurchases of available-for-sale financial investments, cash dividends paid on common stock.stock, and acquisitions, partially offset by our results from operations. See “Cash Flow” below for further discussion. Our cash and cash equivalents held outside of the United States in various foreign subsidiaries totaled $77.0$116.8 million as of March 31,September 30, 2020. The remaining balance was held in the United States and totaled $88.2$95.9 million as of March 31,September 30, 2020. Our cash and cash equivalents held outside of the United States as of December 31, 2019 totaled $85.8 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,September 30, 2020 and December 31, 2019, 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 threenine months ended March 31,September 30, 2020 and 2019, respectively: | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | March 31, | | September 30, | | | 2020 | | 2019 | | 2020 | | 2019 | | | | (in millions) | | (in millions) | Net cash provided by operating activities | | $ | 163.3 | | $ | 118.0 | | $ | 1,189.4 | | $ | 395.1 | Net cash (used in) provided by investing activities | | | (51.0) | | | 22.0 | | | (104.6) | | | 31.3 | Net cash used in financing activities | | | (175.7) | | | (71.7) | | | (332.6) | | | (549.0) | Effect of foreign currency exchange rate changes on cash and cash equivalents | | | (0.7) | | | 2.8 | | (Decrease) increase in cash and cash equivalents | | $ | (64.1) | | $ | 71.1 | | Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | | | | 3.1 | | | (2.5) | Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | | | $ | 755.3 | | $ | (125.1) | | | | | | | | | As of September 30, | | | | 2020 | | 2019 | | | | | (in millions) | Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents: | | | | | | | | Cash and cash equivalents | | | $ | 212.7 | | $ | 150.0 | Restricted cash and cash equivalents (margin deposits and clearing funds) | | | | 771.9 | | | — | Total | | | $ | 984.6 | | $ | 150.0 |
Net Cash Flows Provided by Operating Activities During the threenine months ended March 31,September 30, 2020, net cash provided by operating activities was $5.9$808.5 million higher than net income. The variance is primarily attributed to the change in income taxes receivableaddition of $45.3$771.9 million of restricted cash and cash equivalents (margin deposits and clearing funds) resulting from the EuroCCP acquisition, the adjustment for depreciation expense of $40.5$118.0 million, the change for accounts payable and accrued liabilities of $37.4$21.4 million, the change in unrecognized tax benefits of $21.4 million, and the stock-based compensation expense of $17.3 million, partially offset by the change in Section 31 fees payable of $30.1$59.4 million, partially offset by the change in accounts receivable of $164.1$43.3 million, and the bargain purchase gain of $32.6 million for the threenine months ended March 31,September 30, 2020. Net cash flows provided by operating activities were $163.3$1,189.4 million and $118.0$395.1 million for the threenine months ended March 31,September 30, 2020 and 2019, respectively. The change in net cash flows provided by operating activities was primarily due to the addition of clearing funds resulting from the EuroCCP acquisition and the increase in net income as well as changes in accounts receivable, accounts payable, and Section 31 fees payable balances for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. Net Cash Flows (Used in) Provided by Investing Activities Net cash flows (used in) provided by investing activities were $(51.0)$(104.6) million and $22.0$31.3 million for the threenine months ended March 31,September 30, 2020 and 2019, respectively. The variance is primarily due to additional purchases of available-for-sale financial investments, net of proceeds from maturities, and acquisitions, net of cash acquired and purchases of property and equipment for the threenine months ended March 31,September 30, 2020. Net Cash Flows Used in Financing Activities Net cash flows used in financing activities for the threenine months ended March 31,September 30, 2020 and 2019 were $175.7$332.6 million and $71.7$549.0 million, respectively. The variance is primarily attributed to the $350.0 million principal payment of long-term debt during the nine months ended September 30, 2019, partially offset by share repurchases, which were $119.5$261.1 million and $35.0$87.4 million for the threenine months ended March 31,September 30, 2020 and 2019, respectively, borrowings under the Revolving Credit Facility of $70.0 million in the nine months ended September 30, 2020, and cash dividends, which were $125.3 million and $110.0 million for the nine months ended September 30, 2020 and 2019, respectively. Financial Assets The following summarizes our financial assets, excluding margin deposits and clearing funds, as of March 31,September 30, 2020 and December 31, 2019 (in millions): | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | Cash and cash equivalents | | $ | 165.2 | | $ | 229.3 | | $ | 212.7 | | $ | 229.3 | Financial investments | | | 43.6 | | | 71.0 | | | 22.8 | | | 71.0 | Less deferred compensation plan assets | | | (18.4) | | | (23.4) | | | (22.3) | | | (23.4) | Less cash collected for Section 31 Fees | | | (53.1) | | | (69.0) | | | — | | | (69.0) | Adjusted Cash (1) | | $ | 137.3 | | $ | 207.9 | | $ | 213.2 | | $ | 207.9 |
| (1) | Adjusted cash is a non-GAAP measure and represents cash and cash equivalents plus financial investments, minus deferred compensation plan assets and cash 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,September 30, 2020 and December 31, 2019 (in millions): | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | Term Loan Agreement | | $ | 225.0 | | $ | 225.0 | | $ | 225.0 | | $ | 225.0 | 3.650% Senior Notes | | | 650.0 | | | 650.0 | | | 650.0 | | | 650.0 | Revolving Credit Agreement | | | — | | | — | | | 70.0 | | | — | EuroCCP Credit Facility | | | | — | | | — | Less unamortized discount and debt issuance costs | | | (6.9) | | | (7.4) | | | (5.9) | | | (7.4) | Total debt | | $ | 868.1 | | $ | 867.6 | | $ | 939.1 | | $ | 867.6 |
As of March 31,September 30, 2020 and December 31, 2019, we were in compliance with the covenants of our debt agreements. In addition to the debt outstanding, as of March 31,September 30, 2020, we had an additional $150.0$80.0 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 $287.3$293.2 million available to fund our operations, capital expenditures, potential acquisitions, debt repayments and any dividends as of March 31,September 30, 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 in February 2018, $100 million in August 2018, and $250 million in October 2019, and $250 million in June 2020, for a total authorization of $1.1$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 three months ended March 31,September 30, 2020, the Company repurchased 1,062,881465,366 shares of common stock at an average cost per share of $112.46,$89.92, totaling $119.5$41.8 million. Since inception of the program through March 31,September 30, 2020, the Company has repurchased 14,778,89016,236,415 shares of common stock at an average cost per share of $62.27,$65.40, totaling $920.3 million.$1.1 billion. As of March 31,September 30, 2020, the Company had $179.7$288.1 million of availability remaining under its existing share repurchase authorizations. OCC Capital Plan The Company’s contributed capital to OCC has been recorded under investments in the condensed consolidated balance sheets as of March 31,September 30, 2020 and December 31, 2019. Under OCC’s current capital management policy, which was approved by the SEC on January 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 2018, which was to be paid in 2019, in other expense, net in the condensed consolidated statement of income for the threenine months ended March 31,September 30, 2019. Commercial Commitments and Contractual Obligations As of March 31,September 30, 2020, our commercial commitments and contractual obligations included operating leases, data and telecommunications agreements, equipment leases, our long-term debt outstanding, contingent considerationconsiderations and other obligations. See Note 2122 (“Commitments, Contingencies, and Guarantees”) to the condensed consolidated financial statements for a discussion of commitments and contingencies, Note 11 (“Debt”) for a discussion of the outstanding long-term debt, Note 13 (“Clearing Operations”) for information on EuroCCP’s clearinghouse exposure guarantee, and Note 2223 (“Leases”) for discussion on operating leases and equipment leases. Off Balance Sheet Arrangements AsSee Note 13 (“Clearing Operations”) for discussion on contingent assets and liabilities related to clearing operations in connection with the Company’s acquisition of March 31, 2020, we did not have any off-balance sheet arrangements.EuroCCP.
Item 3. Quantitative and Qualitative Disclosures about Market Risk As a result of our operating activities, we are exposed to market risks such as foreign currency exchange rate risk, equity risk, credit risk, and interest rate risk, and liquidity risk. We have implemented policies and procedures to measure, manage and monitor and report risk exposures, which are reviewed regularly by management and our board of directors. Foreign Currency Exchange Rate Risk Our operations in Europe, Canada and Asia are subject to increased currency translation risk as revenues and expenses are denominated in foreign currencies, primarily the British pound, Canadian dollar, Singapore dollar, Hong Kong dollar, and the Euro. We also have de minimis exposure to other foreign currencies, including the Swiss Franc, Norwegian Kroner, Swedish Krona and Danish Kroner. For the three and nine months ended March 31,September 30, 2020, our exposure to foreign-denominated revenues and expenses is presented by primary foreign currency in the following table: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | Three Months Ended | | Nine Months Ended | | | March 31, 2020 | | | September 30, 2020 | | September 30, 2020 | | | | | | British | | | British | | | | Canadian | | British | | | | Canadian | | | Euro (1) | | | Pound (1) | | | Pound (1) | | Euro (1) | | Dollar (1) | | Pound (1) | | Euro (1) | | Dollar (1) | | | (in millions, except | | | | | | percentages) | | | | (in millions, except percentages) | | | | (in millions, except percentages) | | Foreign denominated % of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues | | 0.1 | % | | 3.5 | % | | | 0.2 | % | | | 1.8 | % | | | 0.1 | % | | | 2.3 | % | | | 0.6 | % | | | 0.1 | % | Cost of revenues | | 0.0 | % | | 1.1 | % | | | 0.8 | % | | | 0.7 | % | | | — | % | | | 0.8 | % | | | 0.2 | % | | | — | % | Operating expenses | | 0.4 | % | | 7.8 | % | | | 4.2 | % | | | 5.2 | % | | | 0.7 | % | | | 5.7 | % | | | 2.2 | % | | | 0.7 | % | Impact of 10% adverse currency fluctuation on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues | $ | 0.1 | | $ | 3.2 | | | $ | 0.2 | | | $ | 1.4 | | | $ | 0.1 | | | $ | 5.5 | | | $ | 2.1 | | | $ | 0.1 | | Cost of revenues | | 0.0 | | | 0.6 | | | | 0.4 | | | | 0.3 | | | | — | | | | 1.4 | | | | 0.5 | | | | — | | Operating expenses | | 0.0 | | | 1.0 | | | | 0.6 | | | | 0.8 | | | | 0.1 | | | | 2.4 | | | | 1.2 | | | | 0.1 | |
| (1) | An average foreign exchange rate to the U.S. dollar for the period was used. |
Equity Risk Our investment in European and Canadian operations is exposed to volatility in currency exchange rates through translation of our net assets or equity to U.S. dollars. The assets and liabilities of our European business are denominated in British pounds or Euros. The assets and liabilities of our Canadian business are denominated in Canadian dollars. Fluctuations in currency exchange rates may create volatility in our reported results as we are required to translate foreign currency reported statements of financial condition and operational results into U.S. dollars for consolidated reporting. The translation of these non-U.S. dollar statements of financial condition into U.S. dollars for consolidated reporting results in a cumulative translation adjustment, which is recorded in accumulated other comprehensive income (loss) within stockholders’ equity on our condensed consolidated balance sheet. Our primary exposure to this equity risk as of March 31,September 30, 2020 is presented by foreign currency in the following table: | | | | | | | | | | | | | British | | British | | | | Canadian | | | Pounds (1) | | Pounds (1) | | Euro (1) | | Dollars (1) | | | (in millions) | | (in millions) | | (in millions) | | (in millions) | Net equity investment in Cboe Europe Limited | | $ | 726.6 | | Net equity investment in Cboe Europe Limited, EuroCCP, and MATCHNow | | | $ | 662.3 | | $ | 84.6 | | $ | 78.4 | Impact on consolidated equity of a 10% adverse currency fluctuation | | $ | 72.7 | | | 66.2 | | | 8.5 | | 7.8 |
| (1) | Converted to U.S. dollars using the foreign exchange rate of British pounds per U.S. dollar, Euros per U.S. dollar, and Canadian dollars per U.S. dollar, respectively, as of March 31,September 30, 2020. |
Credit Risk We are exposed to credit risk from third parties, including customers, counterparties and clearing agents. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. We limit our exposure to credit risk by considering such risk when selecting the counterparties with which we make investments and execute agreements. We do not have counterparty credit risk with respect to trades matched on our exchanges in the U.S., Canada, and Europe. With respect to listed equities, we deliver matched trades of our customers to the National Security Clearing Corporation (“NSCC”) without taking on counterparty risk for those trades. NSCC acts as a central counterparty on all equity transactions occurring on BZX, BYX, EDGX and EDGA and, as such, guarantees clearance and settlement of all of our matched equity trades. Similarly, with respect to U.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 orders Cboe Trading routes to other markets for execution on behalf of our customers, Cboe Trading is exposed to some counterparty credit risk in the case of failure to perform on the part of our clearing firms, Morgan Stanley & Co. LLC (“Morgan Stanley”) or Wedbush Securities, Inc. (“Wedbush”). Morgan Stanley and Wedbush guarantee trades until one day after the trade date, after which time NSCC provides a guarantee. Thus, Cboe Trading is potentially exposed to credit risk to the counterparty to a trade routed to another market center between the trade date and one day after the trade date in the event that Morgan Stanley or Wedbush fails. We believe that any potential requirement for us to make payments under these guarantees is remote and accordingly, have not recorded any liability in the condensed consolidated financial statements for these guarantees. Historically, we have not incurred any liability due to a customer’s failure to satisfy its contractual obligations as counterparty to a system trade. Credit difficulties or insolvency, or the perceived possibility of credit difficulties or insolvency, of one or more larger or more visible market participants could also result in market-wide credit difficulties or other market disruptions. We do not have counterparty credit risk with respect to institutional spot FX trades occurring on our platform because Cboe FX is not a counterparty to any FX transactions. All transactions occurring on our platform occur bilaterally between two banks or prime brokers as counterparties to the trade. While Cboe FX does not have direct counterparty risk, Cboe FX may suffer a decrease in transaction volume if a bank or prime broker experiences an event that causes other prime brokers to decrease or revoke the credit available to the prime broker experiencing the event. Therefore, Cboe FX may have risk that is related to the credit of the banks and prime brokers that trade FX on the Cboe FX platform. We also have credit risk related to transaction fees that are billed in arrears to customers on a monthly basis. Our potential exposure to credit losses on these transactions is represented by the receivable balances in our balance sheet. Our customers are financial institutions whose ability to satisfy their contractual obligations may be impacted by volatile securities markets. As a result of the acquisition of EuroCCP on July 1, 2020, the Company is exposed to further credit risk through our clearing operations. EuroCCP holds material amounts of clearing participant collateral, both cash and non-cash deposits, which are held or invested primarily to provide security of capital while minimizing credit risk as well as liquidity and market risks. The following is a summary of the risks associated with these deposits and how these risks are mitigated: | ● | Credit Risk -The credit risk is predominantly in the event a clearing participant fails to meet a financial or contractual obligation. EuroCCP attempts to mitigate this risk through minimum participant requirements for clearing participants and monitoring their financial health. To cover potential loss to EuroCCP in the event of a clearing participant default, collateral is required from clearing participants. Besides potential defaults of clearing participants, the main credit risk faced by the clearinghouse is exposure to clearing participants when a trade fails to settle. To help mitigate this risk, a fail fee is charged to discourage late settlements. This fee covers EuroCCP’s costs but also acts as a deterrent as required by Regulation (EU) No 236/2012 on short selling, together with certain aspects of credit default swaps. |
| ● | Liquidity Risk -Liquidity risk is the risk EuroCCP may not be able to meet its payment obligations in the right currency, in the right place and at the right time. To help mitigate this risk, EuroCCP monitors its liquidity requirements closely and maintains funds and assets in a manner which attempt to minimize the risk of loss or delay in the access by the clearinghouse to such funds and assets. For example, holding funds with a central bank where possible or making only short-term investments serves to help reduce liquidity risks. Liquidity is mainly required for securities settlement. The payment and settlement obligations generally stem from the function of EuroCCP as a cash equity clearinghouse: shares are bought and sold by clearing participants on a trading platform or OTC, and netted to settle two days later. During the settlement the actual payment for and delivery of the shares take place, this process requires intraday liquidity. If counterparties, which receive shares against payment, are unable to settle, an overnight liquidity need arises. The overnight liquidity is typically very short term, and is usually limited to a few days. |
| ● | Market Risk - EuroCCP is also exposed to market risk in the event that a clearing participant defaults and the market prices of the securities in its open positions have moved adversely so the clearinghouse can only close out the participant’s obligations at a loss. To help mitigate market risk, EuroCCP collects collateral from clearing participants to cover for the probable loss during normal market conditions, together with contributions to the clearing fund to cover losses if a default occurred during extreme but plausible market conditions. Adverse movements in exchange rates affecting the value of obligations and collateral are factored into the calculation of the amount of collateral to be collected. |
On a regular basis, we review and evaluate changes in the status of our counterparties’ creditworthiness. Credit losses such as those described above could adversely affect our condensed consolidated financial position and results of operations. Any such effects to date have been minimal. Interest Rate Risk We have exposure to market risk for changes in interest rates relating to our cash and cash equivalents, financial investments, and indebtedness. As of March 31,September 30, 2020 and 2019, our cash and cash equivalents and financial investments on the condensed consolidated balance sheets, were $208.8$235.5 million and $346.6$150.5 million, respectively, of which $85.8$116.8 million and $74.3$54.8 million is held outside of the United States in various foreign subsidiaries inas of September 30, 2020 and 2019, respectively. The remaining cash and cash equivalents and financial investments are denominated in U.S. dollars. We do not use our investment portfolio for trading or other speculative purposes. Due to the nature of these investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates, assuming no change in the amount or composition of our cash and cash equivalents and financial investments. As of March 31,September 30, 2020, we had $868.1$939.1 million in outstanding debt, of which $645.4$645.7 million relates to our 3.650% Senior Notes, which bear interest at fixed interest rates. Changes in interest rates will have no impact on the interest we pay on fixed-rate obligations. The remaining amountamounts outstanding of $222.7$223.4 million and $70.0 million relates to the Term Loan Agreement and Revolving Credit Agreement, respectively, which bears interest at fluctuating rates and, therefore, subjects us to interest rate risk. A hypothetical 100 basis point increase in interest rates relating to the amounts outstanding under the Term Loan Agreement and Revolving Credit Agreement as of March 31,September 30, 2020 would decrease annual pre-tax earnings by $2.3$2.2 million and $0.7, respectively, assuming no change in the composition of our outstanding indebtedness. We are also exposed to changes in interest rates as a result of borrowings under our Revolving Credit Agreement and the EuroCCP Credit Facility, as this facility bearsthese facilities bear interest at fluctuating rates. AsWe currently have $70 million of March 31, 2020, there wereoutstanding borrowings under the Revolving Credit agreement and no outstanding borrowings under ourthe EuroCCP Credit Facility. See Note 11 (“Debt”) to the condensed consolidated financial statements for a discussion of debt agreements. Liquidity Risk We are exposed to liquidity risk in relation to the cross-acceleration and cross-default provisions within the Term Loan Agreement and the Revolving Credit Agreement.Agreement as a result of the Company, as guarantor, entering into the EuroCCP Credit Facility. A default of the Facility may allow lenders 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. See Note 11 (“Debt”) to the condensed consolidated financial statements for a discussion of debt agreements. Item 4. Controls and Procedures a)Disclosure controls and procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. b)Internal controls over financial reporting. No changes occurred in the Company’s internal control over financial reporting during firstthird quarter 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II—OTHER INFORMATION Item 1. Legal Proceedings. Cboe Global Markets, Inc. incorporates herein by reference the discussion set forth in Note 1920 (“Income Taxes”) and Note 2122 (“Commitments, Contingencies, and Guarantees”) of the condensed consolidated financial statements included herein. ThereOther than the legal proceedings below, there have been no material updates during the period covered by this Form 10-Q to the Legal Proceedings as set forth in Item 3. of our Annual Report on Form 10-K for the year ended December 31, 2019.
Consolidated Data Plans On May 6, 2020, the SEC issued a final order (the “Order”) that would require U.S. equities exchanges and FINRA to develop and file a new consolidated data plan (the “Plan”) that would replace the three current U.S. equities tape data plans and require certain governance provisions, such as changes to the voting structure. Pursuant to the Order, the Company and the other U.S. equities exchanges and FINRA are required to file the proposed Plan for public comment before the SEC takes any definitive action on such new plan. Until and if the SEC approves a new plan, the current data plans will continue to govern. On June 29, 2020, the Company filed a Petition for Review in the Court of Appeals for the D.C. Circuit (the “D.C. Circuit”) asserting the Order is unlawful. On October 14, 2020, the D.C. Circuit issued an order setting forth a briefing schedule and briefing will conclude on March 12, 2021. The Order may cause the Company’s equities exchanges, BZX, BYX, EDGX, and EDGA, to require additional resources to comply with or challenge the Order and it may have a material impact on our business, financial condition and operating results if, for example, there is a negative impact on the market data fees the Company’s equities exchanges are able to charge. The Company intends to litigate the matter vigorously. Item 1A. Risk Factors. Other than the risk factor listed below, thereThere have been no material updates during the period covered by this Form 10-Q to the Risk Factors as set forth in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019.2019 and subsequent Quarterly Reports on Form 10-Q. These risks and uncertainties, however, are not the only risks and uncertainties that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also significantly impact us. Any of these risks and uncertainties may materially and adversely affect our business, financial condition or results of operations, liquidity and cash flows.
The COVID-19 pandemic and its effects could have a material adverse effect on our business, financial condition, operating results and cash flows.
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. 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. Governments, public institutions, and other organizations in countries and localities where cases of COVID-19 have been detected have taken, and may take additional, emergency measures to combat its spread, including implementation of travel bans and closures of offices, factories, schools, public buildings and businesses. These measures may interfere with the ability of our employees, vendors, technology equipment suppliers, data and disaster recovery centers, and other service providers to perform their respective responsibilities and obligations relative to the conduct of our business. In particular, after the close of business on March 13, 2020, we temporarily suspended open outcry trading in response to COVID-19. Further, changes in trading behavior, 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.
General economic conditions and other factors beyond our control could significantly reduce demand for our products and services and harm our business.
The volume of exchange transactions and the demand for our products and services are directly affected by economic, political and market conditions in the U.S., Europe and elsewhere in the world that are beyond our control, including:
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| economic, political and geopolitical market conditions;
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| broad trends in business and finance;
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| concerns over inflation and wavering institutional or retail confidence levels;
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| government or central bank actions, such as changes in government fiscal and monetary policy and foreign currency exchange rates;
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| other legislative and regulatory changes;
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| the availability of short-term and long-term funding and capital;
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| the perceived attractiveness of the U.S. or European capital markets;
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| the availability of alternative investment opportunities;
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| changes in the level of trading activity in underlying instruments;
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| changes and volatility in the prices of securities;
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| changes in the volume of foreign currency transactions;
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| changes in supply and demand for currencies;
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| movements in currency exchange rates;
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| the level and volatility of interest rates;
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| changes in the financial strength of market participants;
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| consolidation among market participants and market data subscribers;
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| unforeseen market closures, suspensions of open outcry trading or other disruptions in trading; and
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| disruptions due to terrorism, war, extreme weather events, pandemics or other catastrophes.
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Any of these factors, individually or collectively, could have a material adverse effect on our business, financial condition and operating results by causing a substantial decline in the financial services markets and reducing trading volumes and demand for market data.
A significant portion of our operating revenues is generated by our transaction-based business. If the amount of trading volume on our exchanges decreases, or the product mix shifts to lower revenue products, our revenues from transaction fees will most likely decrease.
In 2019, approximately 62.9% of our net revenues were generated by our transaction-based business. This business is dependent on our ability to attract and maintain order flow, both in absolute terms and relative to other market centers. If the amount of trading volume on our exchanges, CFE or notional value traded on Cboe FX, Cboe SEF and Cboe Europe Equities exchanges decreases, we are likely to see a decrease in transaction fees.
Our total trading volumes could decline if our market participants reduce their trading activity for any reason, such as:
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| heightened capital requirements;
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| regulatory or legislative actions;
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| reduced need to trade due to changes in volatility and/or passive investment trends;
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| reduced access to capital required to fund trading activities;
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| consolidation among market participants;
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| suspensions of open outcry trading; or
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| significant market disruptions.
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Over the past few years, a number of legislative actions have been taken, both domestically and internationally, that may cause market participants to be subject to increased capital requirements and additional compliance burdens. These actions, including the Collins Amendment to Dodd-Frank, MiFID II and MiFIR, may cause market participants to reduce trading activity on our exchanges.
In addition, the transaction fees generated are different based on type of product and other factors, including the type of customer and certain volume discounts. If the amount of our trading volume decreases, the mix traded shifts to our lower revenue per contract products or the transaction fee pilot is implemented, our revenues from transaction fees will most likely decrease. We can offer no assurance that we would be able to reduce our costs to match the amount of any such decrease.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 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 in February 2018, and $100 million in August 2018, and $250 million in October 2019, and $250 million in June 2020 for a total authorization of $1.1$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. The table below shows the purchases of equity securities by the Company which settled during the three months ended March 31,September 30, 2020, reflecting the purchase of common stock under the Company's share repurchase program: | | | | | | | | | | | | | | | | | | | | | | | | | Total Number of | | Approximate Dollar | | | | | | Total Number of | | Approximate Dollar | | | | | | | Shares Purchased | | Value of Shares that May | | | | | | Shares Purchased | | Value of Shares that May | | | | | | | as Part of Publicly | | Yet Be Purchased Under | | | | | | as Part of Publicly | | Yet Be Purchased Under | | | Total Number of | | Average Price | | Announced Plans | | the Plans or Programs | | Total Number of | | Average Price | | Announced Plans | | the Plans or Programs | Period | | Shares Purchased | | Paid per Share | | or Programs | | (in millions) | | Shares Purchased | | Paid per Share | | or Programs | | (in millions) | January 1 to January 31, 2020 | | 226,863 | | $ | 117.20 | | 226,863 | | $ | 272.6 | | February 1 to February 29, 2020 | | 770 | | 119.99 | | 770 | | | 272.5 | | March 1 to March 31, 2020 | | 835,248 | | | 111.17 | | 835,248 | | | 179.7 | | July 1 to July 31, 2020 | | | — | | $ | — | | — | | $ | 329.9 | August 1 to August 31, 2020 | | | 170,141 | | 90.46 | | 170,141 | | | 314.5 | September 1 to September 30, 2020 | | | 295,225 | | | 89.60 | | 295,225 | | | 288.1 | Total | | 1,062,881 | | $ | 112.46 | | 1,062,881 | | | | | 465,366 | | $ | 89.92 | | 465,366 | | | |
Purchase of common stock from employees The table below reflects the acquisition of common stock by the Company in the three months ended March 31,September 30, 2020 that were not part of the publicly announced share repurchase authorization. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised. | | | | | | | | | | | Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased | | Average Price Paid per Share | January 1 to January 31, 2020 | | 26,727 | | $ | 118.49 | | February 1 to February 29, 2020 | | 88,138 | | 121.93 | | March 1 to March 31, 2020 | | 1,912 | | | 116.15 | | July 1 to July 31, 2020 | | | 490 | | $ | 92.97 | August 1 to August 31, 2020 | | | 296 | | 88.01 | September 1 to September 30, 2020 | | | — | | | — | Total | | 116,777 | | | | 786 | | |
Use of Proceeds None. Item 3. Defaults upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits. | | | | | | Exhibit No. | | Description | 10.13.1
| | Employment Agreement, bySixth Amended and between Cboe Global Markets, Inc. and Edward Tilly, dated February 11, 2020,Restated Bylaws, incorporated by reference to Exhibit 10.13.1 to the Company’s Current Report on Form 8-K (File No. 001-34774) filed on February 14,October 7, 2020.*
| | | | 10.210.1
| | Form of 2020 Edward Tilly Restricted Stock Unit Award Agreement (relative total shareholder return), incorporated by reference to Exhibit 10.2Amendment No. 17 to the Company’s Current Report on Form 8-K (file No. 001-34774) filed on February 14, 2020.*
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| 10.3
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| FormRestated License Agreement, dated November 1, 1994, by and between Standard & Poor’s Financial Services LLC (as successor-in-interest to Standard & Poor’s, a division of McGraw-Hill, Inc.) and Cboe Exchange, Inc. (f/k/a Chicago Board Options Exchange, Incorporated), made as of August 1, 2020 Edward Tilly Restricted Stock Unit Award Agreement (earnings per share), incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-34774) filed on February 14, 2020.*(filed herewith). +
| | | | 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14 (Filed herewith). | | | | 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a-14 (Filed herewith). | | | | 32.1 | | Certificate of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (Filed herewith). | | | | 32.2 | | Certificate of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (Filed herewith). | | | | 101.INS | | XBRL Instance Document (Filed herewith). — The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | 101.SCH | | XBRL Taxonomy Extension Schema Document (Filed herewith). | | | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (Filed herewith). | | | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase (Filed herewith). | | | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document (Filed herewith). | | | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (Filed herewith). | | | | 104 | | Cover Page Interactive Data File (embedded as Inline XBRL document). |
*Indicates Management Compensatory Plan, Contract or Arrangement.+Certain confidential portions (as indicated therein) of this exhibit have been omitted.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | CBOE GLOBAL MARKETS, INC. | | Registrant | | | | | By: | /s/ Edward T. Tilly | | | Edward T. Tilly | | | President and Chief Executive Officer | | | (Principal Executive Officer) | Date: May 1,October 30, 2020 | | | | | | By: | /s/ Brian N. Schell | | | Brian N. Schell | | | Executive Vice President and Chief Financial Officer | | | (Principal Financial Officer) | Date: May 1,October 30, 2020 | |
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