Bats Global Markets, Inc. (BATS), a leading global operator of exchanges and services for financial markets, today reported earnings of $30.1 million and adjusted earnings of $35.6 million for the first quarter ended March 31, 2016, an increase of 77% in adjusted earnings† from $20.1 million a year ago. Adjusted earnings, which excludes tax-adjusted amortization and one-time costs, rose to $0.37 per diluted share from $0.21.
“The first quarter was further evidence that our scale and low-cost operating model continue to successfully deliver positive financial results, all while we successfully executed our IPO on our own market,” said CEO Chris Concannon. “We set a quarterly earnings record while maintaining our leading market share positions in U.S. Equities, European Equities, U.S. Options, ETFs and FX.”
Corporate Quarterly Highlights
Achieved records for net revenue ($111.8 million), normalized EBITDA† ($75.4 million), normalized EBITDA margin† (67%) and adjusted earnings† ($35.6 million).
Reported strong market share in U.S. Equities (21.3%), European Equities (23.5%), U.S. Options (10.2%) and Global FX (11.8%). U.S. Equities market share rose to 21.3% vs 20.8% a year ago, European Equities was 23.5% vs 23.7% and U.S. Options was 10.2% vs 8.8%. Global FX market share, which has increased in each of the three quarters since the acquisition of Hotspot by Bats, reached 11.8%. Bats also remained the largest stock exchange and trade reporting facility in Europe.
Continued growth in the exchange-traded fund (ETF) trading and listings business. Bats remained the #1 market for the trading of ETFs with combined market share of 26.2% during the quarter, and has held the top position since February 2014. Bats added 14 ETF listings, including one transfer, during the quarter versus three during the first quarter of 2015, increasing its total number of listings to 70. In the 12 months ended March 31, 2016, the company added 41 ETF listings.
Acquired ETF.com and announced the launch of the SPYIX index, underscoring the company’s commitment to broadening content offerings to key constituents. ETF.com, which was acquired on April 1, 2016, is a leading provider of ETF data, news and analysis and a key resource for many market participants. SPYIX which was developed in partnership with the T3 Index group is a measure of expected 30-day volatility in the SPDR S&P 500 ETF and represents an improvement over the slower, manually-traded floor-based S&P 500 index options used to calculate other volatility benchmarks.
The Board of Directors declared a regular quarterly cash dividend of $0.08 per share on the company’s outstanding common stock, which is payable on September 28, 2016, to stockholders of record at the close of business on September 14, 2016.
Received SEC approval of the Bats Client Suspension Rule. The rule will assist the company in protecting investors by taking swifter action to prohibit manipulative behavior, such as spoofing and layering, on the Bats Exchanges.
†Adjusted earnings, normalized EBITDA, and normalized EBITDA margin are non-GAAP financial measures. Please see the reconciliations of these GAAP and non-GAAP financial measures at the end of this release.
First Quarter 2016 Results
Net revenue, which represents revenue less cost of revenue, for the first quarter of 2016 increased 35% to $111.8 million from $82.8 million one year ago. Increases were driven primarily by increased market volume and market share in U.S. Equities and U.S. Options. In addition, incremental Global FX revenue as a result of the Hotspot acquisition, as well as an increase in connectivity fee pricing in the U.S. Equities market bolstered this number. Organic net revenue increased 26% during the first quarter of 2016.
Adjusted earnings in the latest period rose 77% to $35.6 million vs. $20.1 one year ago.
Operating expenses were $49.6 million in the first quarter 2016 compared to $51.3 million in the first quarter 2015. The decrease was primarily due to Direct Edge acquisition synergies realized in 2015, offset by expenses related to Bats’ preparation for becoming a public company and the acquisition of Hotspot.
The effective tax rate for the first quarter increased slightly to 41.1% compared with 40.1% during first quarter 2015.
This press release includes certain disclosures which contain “forward-looking statements.” You can identify forward-looking statements because they contain words such as “believes” and “expects.” Forward-looking statements are based on Bats’ current expectations and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in our filings with the SEC, including our registration statement on Form S-1, as amended from time to time, under the caption “Risk Factors.”
About Bats Global Markets, Inc.
Bats Global Markets, Inc., is a leading global operator of exchanges and services for financial markets, dedicated to Making Markets Better. We are the second-largest stock exchange operator in the U.S., operate the largest stock exchange and trade reporting facility in Europe, and are the #1 market globally for ETF trading. We also operate two fast-growing U.S. options exchanges. In the global foreign exchange market, we operate Hotspot. ETF.com, a leading provider of ETF news, data and analysis, is a wholly-owned subsidiary. The company is headquartered in Kansas City with offices in New York, London, Chicago, San Francisco and Singapore. Visit bats.com and @BatsGlobal for more information.
Bats Global Markets, Inc. and Subsidiaries Reconciliation of Non-GAAP Measures
EBITDA and Normalized EBITDA do not represent, and should not be considered as, alternatives to net income or cash flows from operations, each as determined in accordance with U.S. GAAP. We have presented EBITDA and Normalized 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 Normalized EBITDA as a measure of operating performance for preparation of our forecasts, evaluating our leverage ratio for the debt to earnings covenant included in our outstanding credit facility and calculating employee and executive bonuses. Other companies may calculate EBITDA and Normalized EBITDA differently than we do. EBITDA and Normalized 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 U.S. GAAP.