The conference operator welcomes everyone to the Cboe Global Markets' Second Quarter Earnings Call and introduces the speakers. The CEO and Global President will discuss the company's performance and strategic initiatives, followed by the CFO who will provide an overview of the financial results and outlook. The presentation will include the use of slides and may contain forward-looking statements, which are subject to risks and uncertainties.

Cboe Global Markets reported strong second quarter results, with net revenue growing 10% and adjusted diluted earnings per share increasing 21%. This was driven by growth in all areas of the company, including Cash and Spot Markets, Derivatives, Data and Access Solutions, and disciplined expense management. The company saw solid growth in global regions and in its S&P 500 index and volatility product suites. Cboe is well positioned to continue benefiting from the increasing use of options by investors.

Cboe's Data and Access Solutions business had a strong second quarter, with a 5% increase in organic net revenue and a 17% growth in adjusted diluted earnings per share. The company is optimistic about its future growth, leveraging its global network and focusing on core strengths. As part of a strategic review, Cboe has made adjustments to its strategy, including reducing M&A activities, reallocating resources, and changing its capital allocation strategy. The company plans to invest in organic growth initiatives and return capital to shareholders through dividends and share repurchases. Viewing the company as both an import and export business will help unlock its global growth potential.

Cboe has been expanding its export business in recent years, but has also found opportunities to grow its import business. There is a strong demand from global customers to invest in the US market, which is the largest and fastest growing market in the world. The S&P 500 Index is a dominant global benchmark, providing opportunities for Cboe to facilitate risk management and attract foreign investment into the US market.

Cboe sees significant opportunity in the Asia Pacific region, with growing demand for their index options products. They have expanded access to their product suite through partnerships with global brokers. Cboe believes that international participants are valuable to the US market and they will continue to facilitate access to the US markets through various initiatives. The company believes that current market trends, such as globalization and the rise of retail investors, present opportunities for growth. The strategic review process has allowed them to reposition resources and they will continue to refine their strategy. Cboe has a strong balance sheet and a disciplined approach to capital allocation.

The company's capital allocation strategy includes reinvestment in core operations, expense management, strategic investments, and returning capital to shareholders. In the second quarter, $90 million of shares were repurchased and the company remains committed to maintaining a strong balance sheet while investing in growth initiatives. The Global Derivatives category had a strong first half of the quarter due to volatility, but activity normalized in May and June. SPX ADV was up 9% year-over-year and VIX option volumes were up 18% quarter-over-quarter.

Cboe is expanding their VIX product suite by launching options on VIX futures and Cboe S&P 500 variance futures, which will provide access to a wider range of market participants and offer more options to meet customer demand. This expansion is timely, given the upcoming US election, which historically has caused significant volatility in the markets. Cboe's commitment to innovation is a key factor in their success.

The company is seeing positive results from their investments in products and markets, with increased collaboration from customers. They are confident in their ability to continue growing their derivatives business, especially in Europe where they have implemented their US model. They have also made progress in expanding their Cash and Spot businesses across regions, with strong revenue growth.

The paragraph discusses the performance of various regions in North America, Canada, Europe, and Asia Pacific for Cboe, a financial exchange company. In North America, US on-exchange net capture rates improved due to pricing changes and customer mix changes. In Canada, market share improved and the company is on track for a technology integration in 2025. In Europe, Cboe retained its leading market position during continuous trading and saw record market share in periodic auctions. The company is also launching new services in the fourth quarter. In Asia Pacific, strong momentum was seen in Australia and Japan with market share gains and increased volumes. The positive momentum has continued into the third quarter in Japan.

The APAC region is a promising market for Cboe, with potential for monetizing their ecosystem and bringing derivatives activity into the US. Data and Access Solutions saw slower growth in the second quarter due to longer sales cycles and a one-time payment, but initiatives are in place to accelerate revenue in the third and fourth quarters. The company expects to hit the low end of their guidance range for 2024. They are excited about their dedicated cores offering, which has been launched this year and is expected to improve determinism and reduce latency for market participants. The technology will be rolled out in Europe in the fall.

Cboe is leveraging its strong global technology infrastructure to provide scaled solutions to customers, with 40% of growth coming from outside the US. The company's global footprint and Cboe Global Cloud have been instrumental in expanding connectivity with clients. Moving forward, they plan to shift resources towards developing data and access solutions, particularly in the US options market. The company's second quarter results demonstrate the success of their ecosystem, and the third quarter is off to a great start. They aim to leverage their global infrastructure to enhance revenue across cash, data, and derivatives. The company's adjusted diluted earnings per share increased by 21% year-over-year to equal their previous quarterly record.

The second quarter results show a focus on margin stabilization through revenue growth and expense management, as well as strong capital returns. Net revenue increased by 10%, driven by growth in Cash and Spot Markets, Derivatives, and Data and Access Solutions. Adjusted operating expenses increased by 2%, while adjusted EBITDA grew by 16%. The company is confident in hitting their targeted net revenue growth range for 2024 and has made progress in stabilizing EBITDA margins.

In the second quarter, Cboe's adjusted EBITDA margin increased by 3.5 percentage points to 66.3%. The Options segment saw an 8% growth in net revenue, driven by higher index options transaction fees. North American Equities also saw an 8% increase in net revenue, with record levels due to higher transaction clearing fees and access and capacity fees. The Europe and APAC segment had a 15% increase in net revenue, while the Futures segment saw a 19% growth. The FX segment also had a record quarter with an 11% increase in net revenue. Cboe's Data and Access Solutions business had a 5% organic growth in net revenue.

In the second quarter, net revenue growth was driven by international sales, particularly in Canada. This helped double overall sales annual contract value and is a leading indicator of future revenue growth. The company expects continued strength in demand for access across global markets and anticipates an acceleration in trends in the third and fourth quarters. Total adjusted operating expenses increased by 2% due to higher compensation and benefits, professional fees, and outside services, but were partially offset by a decline in travel and promotional expenses. The company is reaffirming their full year 2024 adjusted expense guidance.

The company's guidance for the year remains unchanged, but there is potential for increased investment in the business due to strong revenue trends. The company also recorded some one-time accounting adjustments, which are excluded from their adjusted operating expenses. The company has increased their organic net revenue growth range for 2024 due to strong results in the first half of the year and a positive outlook for the second half. They anticipate hitting their D&A organic net revenue guidance range, but at the lower end, and expect an increase in D&A revenue growth in the second half of the year.

The company's expectation for non-operating income in 2024 remains unchanged at $37 million to $43 million. They anticipate positive marks on investments and dividend income to contribute to this income. Their guidance for CapEx and depreciation and amortization also remains unchanged. The company's leverage ratio is at 1.1 times and they have locked in low fixed rates on their debt. They have decreased M&A activity and are focusing on allocating capital to internal projects and shareholder returns through share repurchases and dividends. In the second quarter, they repurchased $90 million in shares and plan to continue to do so in the future. They also returned $58.2 million to shareholders through dividends.

Cboe had a successful first half of 2024, with strong growth in earnings per share and net revenue. They returned a significant portion of their adjusted earnings to shareholders through dividends and share repurchases. The company is focused on balancing investments in future growth with optimizing margins. They are well positioned to continue returning capital to shareholders and taking advantage of opportunities. One question per person is requested during the Q&A session.

The speaker explains that the Data and Access Solutions business has seen moderate growth in the first half of the year due to timing differences, longer sales cycles, and a large backfill in 2023. However, the company is confident in hitting the lower end of their 7% to 10% growth target for the year due to new sales, products, pricing, and a focus on core strengths.

The company has seen significant growth in sales and data solutions internationally. They have also made investments in technology which will provide durability throughout the year and into the next. The company has doubled their ACV sales and plans to continue this growth throughout the year. They have also made pricing changes and will continue to invest in technology to provide new data insights. The company has completed most of their migrations and will focus on organic efforts going forward.

In the second half of the year, improvements in technology will enhance access to data and insights in US equities and options markets. The company also plans to roll out new access architecture and market data services. As the election season brings uncertainty, the demand for access and capacity is expected to grow, and the company will continue to invest in meeting this demand. In terms of international opportunities for index options, the company sees potential for growth and a mix of institutions and retail investors, with a competitive advantage due to the large amount of assets benchmarked to the index.

Cboe's expansion into international markets is driven by secular trends, such as the increase in assets benchmarked against the S&P 500 Index and the need to manage equity volatility risk. This appeals to both institutional and retail customers, with three new retail brokers coming on board this year. The company's global presence allows them to cater to the needs of customers worldwide and they see a long runway for growth. While the percentage of trading of SPX in global trading houses is currently low, the company is focused on expanding their product offerings, including VIX futures and variance futures, which will attract institutional players. Additionally, VIX options on futures allows for access to volatility as an asset class for customers who cannot trade in the US options market. This broadening of product set is appealing to both institutional and retail customers.

The company's focus is on increasing sales and marketing efforts in the international market, with 40% of data and access sales happening outside of the United States. The revenue capture rate for index options has been volatile due to changes in product mix, but there are no pricing changes planned. The company sees potential for further growth in international markets.

The speaker discusses the potential for sales and marketing growth in the company's international markets, particularly in the Asia Pacific region. They mention the existing global infrastructure and how it will support this growth, as well as the potential for increased sales and marketing headcount in certain countries. They also mention the focus on breaking down access barriers for customers in different countries.

The speaker discusses the potential impact of Robinhood's upcoming launch of index options to its 24 million clients. They also mention the possibility of future offerings, such as ETF options and crypto index options, but clarify that these will likely be part of a later phase. The speaker also mentions the current availability of ETF and Bitcoin listings on the platform.

The speaker discusses the appeal of the cash settled index options to customers and their excitement for joint marketing efforts with Robinhood. In response to a question about July, they mention record numbers in the volatility toolkit and increased engagement from existing and new customers. They also note an increase in QIS desks using the products, liquidity providers hedging their positions, and new liquidity providers from other asset classes showing interest in the complex.

The paragraph discusses the strong performance of VIX options and futures during the second quarter, with record pace and increased volatility in July. The company attributes this to customers utilizing their volatility suite and rotating into small caps. The upcoming election and geopolitical events are also mentioned as potential drivers of volatility. The company sees continued demand for their volatility toolkit to manage risk.

VIX options and futures are popular during times of high volatility, with customers often monetizing or rolling their positions. These products are useful for managing tail risks, such as geopolitical events, elections, and economic data releases. The utility of each product, used in conjunction or in isolation, is important. Cboe continues to innovate with products like variance futures, which are transparent and efficient for trading strategies. These developments are particularly relevant in the lead-up to the US election.

Stephanie Ma, from Morgan Stanley, asks about Cboe Global Cloud and its contribution so far. She wants to know how much it has contributed and how it will progress in the future.

Cboe Global Cloud has been a successful addition for the company, with 80% of customers and revenue coming from outside the US. This aligns with the company's strategy of putting data closer to customers and expanding globally. The company sees Cboe Global Cloud as a key part of their global expansion plans and revenue diversification. They do not disclose the specific contribution of Cboe Global Cloud to their overall revenue, but it is a strategic priority for the company. They plan to continue investing in Cboe Global Cloud and getting their data and products closer to customers to drive growth.

During a recent earnings call, Alex Blostein asked about the expansion of the VIX product lineup, specifically the options on VIX futures. Dave Howson, the CEO of Cboe, responded by saying that they are excited about the potential for this product to attract new customers who cannot access US security-based options, as well as the ability to access the shorter end of the curve. He also mentioned that they plan to expand this product to 24/5 trading. Another analyst, Ken Worthington, asked about the continued investment in European index options, to which Howson stated that they launched local index options in Europe at an unspecified time.

Cboe has a long-term vision to grow the European markets and bring the utility of options to the region. They have hit important milestones, such as launching single-stock options, and have attracted major customers like Interactive Brokers and IMC. The market quality has improved and they are focused on education through the Options Institute. This is all built on a scaled infrastructure in Europe.

The management team is pleased with the strong quarter and first half results. They have several initiatives in progress and feel confident about the rest of the year despite potential market fluctuations. The company's balance sheet is strong and they are well-positioned to take advantage of opportunities. The call has ended.

This summary was generated with AI and may contain some inaccuracies.