The paragraph introduces the Cboe Global Markets Third Quarter Earnings Call, moderated by Jenny, the conference operator. Ken Hill, Treasurer and Head of Investor Relations, opens the call and outlines the agenda. Key speakers, including CEO Fred Tomczyk, Global President Dave Howson, and CFO Jill Griebenow, will discuss quarterly performance, strategic initiatives, and financial results, along with an outlook for 2024. A Q&A session will follow, with Chief Operating Officer Chris Isaacson participating. The presentation includes slides available online. The call will feature forward-looking statements that involve risks and uncertainties, with no obligation to update them post-call.

In the call this morning, Fred Tomczyk reported a record quarter for Cboe Global Markets, with net revenue growing 11% year-over-year to $532 million and adjusted diluted earnings per share increasing by 8% to $2.22. This success was driven by strong volumes in their Derivatives franchise, particularly in proprietary index options and futures, growth across Cash and Spot Markets, expansion in Data and Access Solutions, and effective expense management. The Derivatives business saw a 13% increase in organic net revenue, with solid performance in S&P 500 index options and significant growth in VIX options and futures. Cash and Spot Markets revenue rose by 12%, benefiting from global growth, while Data and Access Solutions saw a 6% rise in organic net revenue. Cboe remains optimistic about future growth, supported by both secular and cyclical market trends.

The paragraph discusses the company's strategic focus and adjustments under the CEO's leadership, highlighting a successful quarter for both transaction and non-transaction revenues. Key strategies include reducing M&A activities, stabilizing margins, increasing investments in organic initiatives, and returning capital to shareholders. The company is focusing on its core strengths, particularly in Derivatives and Data and Access Solutions, while setting a strategic framework to drive growth and align with market trends. This involves expanding recurring revenue opportunities, leveraging the US capital markets, and utilizing superior technology for innovation, all while maintaining disciplined resource allocation. The Derivatives business is noted for its resilience and growing customer demand.

The paragraph discusses how Cboe's options business is thriving due to the recurring nature of options expiring and needing repurchase. Cboe's derivatives ecosystem, particularly with VIX and S&P 500 index options, is used by traders to navigate market changes, such as geopolitical events and election uncertainty. Cboe, a pioneer in listed options, sees growing retail participation and recently partnered with Robinhood to offer its index options to retail investors. Cboe focuses on education, access, and product development to support this segment.

The paragraph discusses the company's focus on product innovation and enhancing access to US markets for international investors through better accessibility, new products, and education. It highlights the success of their Data and Access Solutions business, with 40% of new sales coming from international markets. The company has invested in technology to improve efficiencies in access, data, and insights, showing positive results. They are also seeking non-organic growth opportunities, exemplified by acquiring a 14.8% stake in Japanx to strengthen their presence in Japan, an evolving capital market. The company is poised for future success with a strategic framework, advanced technology, and a strong global presence.

In the third quarter, Cboe's Derivatives franchise experienced a strong performance with a 13% year-over-year increase in net revenue, driven by growth in proprietary products such as SPX and XSP options, VIX futures, and VIX options. This trend contributed to an 11% increase in year-to-date Derivatives net revenue compared to 2023. The quarter was characterized by investors using the Cboe volatility toolkit amidst rising geopolitical uncertainties and economic fluctuations. A significant event was the August 5th yen carry trade unwind, which led to heightened demand for downside protection through VIX options. This demand persisted into September due to continued volatility. The VIX term structure indicates increased uncertainty ahead of upcoming elections, although SPX volumes have remained stable.

The paragraph discusses the evolving trading environment, highlighting a balanced put to call ratio in short-duration trades and increased interest in zero DTE volumes. The launch of new products like the Cboe S&P 500 variance futures and VIX Options on Futures is expanding trading tools, providing exchange-listed alternatives, and catering to broader market participants. The potential growth of the options market, both domestically and internationally, is significant, and the use of options in exchange-traded products offers innovative investment strategies. Additionally, the assets under management in US-listed options-based ETFs have grown substantially, showcasing the increasing popularity of these tools.

The paragraph discusses the growth potential and opportunities in options trading, highlighting that less than 10% of retail broker customers are currently enabled for it. Robinhood plans to introduce index options to enhance trading capabilities, using Cboe's products for market exposure and hedging. The emphasis is on educating customers to leverage these tools effectively. At a recent Hood summit, customer enthusiasm for new features and educational efforts was evident. The paragraph also reports strong financial performance in the cash and spot markets, with a 12% increase in third-quarter net revenues and growth in North American market volumes.

The paragraph highlights Cboe's growth in its North American, European, and Asia Pacific equity segments. The Canadian equities business is experiencing year-over-year growth, with plans to migrate to Cboe technology in 2025. In Europe, Cboe leads as the largest stock exchange, with significant increases in trading volume and success with alternative market mechanisms. In the Asia Pacific region, both Australia and Japan show increased market shares and trading volumes. Overall, the APAC region is a primary focus for future growth opportunities.

The paragraph highlights the strong performance and growth in Cboe's Data and Access (D&A) business, with an 8% year-over-year increase in the third quarter market data and access services. Net revenues grew by 6% over the third quarter of 2023, with significant improvement in September. The company anticipates meeting the lower end of their 7% to 10% growth guidance for 2024, driven by international trends and strong sales outside the US. Additionally, redeployment of technology resources and the introduction of new data sets have positively impacted sales. The overall results in Derivatives, Cash and Spot Markets, and D&A Solutions are strong, indicating a successful year for Cboe.

In the third quarter, Cboe reported strong financial performance, with adjusted diluted earnings per share increasing by 8% to a record $2.22, and net revenue rising 11% to $532 million compared to the same period in 2023. Growth was driven by strong results in the Derivatives and Cash and Spot Markets, as well as in the Data and Access Solutions business. The Derivatives market saw a 13% increase in net revenue, while Cash and Spot Markets grew by 12%. Data and Access Solutions also experienced a 6% increase in net revenues. Despite a rise in adjusted operating expenses by 13% to $204 million due to higher compensation and travel costs, adjusted EBITDA increased by 7% to $342 million. The company remains optimistic about meeting its targeted net revenue growth for 2024 and provided additional segment-specific details in their press release and slide deck.

The options segment achieved record net revenue with a 10% year-over-year increase, driven by higher index options and transaction fees, despite modest growth in total options ADV and RPC. North American equities saw a 3% revenue rise due to increased transaction, clearing, access, and capacity fees. The Europe and APAC segment experienced a 22% revenue boost due to growth in transaction and non-transaction revenues, particularly in Australia and Japan. The futures segment reported a 17% rise in net revenue, with growth in ADV and market data revenues. The FX segment also reached record net revenue with a 9% growth, supported by higher transaction fees. Cboe's Data and Access Solutions business experienced a 6% organic revenue growth, supported by strong international sales, and expects to meet the lower end of its annual growth guidance of 7% to 10%.

The paragraph discusses the company's financial performance and future outlook. It reports an increase in demand for global market access and enhancements in equity market technology, resulting in strong revenue growth. Operating expenses rose to $204 million for the quarter, a 13% increase from the previous year, mainly due to higher compensation and benefits. This was partly offset by a $10 million benefit from executive departures in 2023. Adjusting for this, expenses would have increased by 7%, aligning with an 11% revenue growth. For 2024, the company raised its organic net revenue growth guidance to 7%-9% and adjusted expense guidance to $798 million-$808 million, reflecting strong results and a positive outlook.

The paragraph discusses financial updates and guidance for a company, highlighting a $3 million increase in short-term incentive bonuses and marketing expenses due to improved revenue forecasts. The company reports an 80-basis point expansion in adjusted EBITDA margin for the year's first three quarters and anticipates meeting the lower end of its 7-10% D&A organic net revenue growth range. Other income expectations are raised to $7-9 million due to increased dividend income, and investment earnings are expected to contribute $33-37 million. Overall, non-operating income guidance for 2024 is increased to $40-46 million. The company also raises its full-year CapEx guidance to $57-63 million, driven by accelerated technology investments, while depreciation and amortization are projected to be $43-47 million. The effective tax rate is anticipated to be between 28.5% and 30.5% for 2024.

The paragraph highlights that during the third quarter, the company benefited from a one-time interest income adjustment but expects a modest net interest expense of $7 million to $8 million in the fourth quarter. The company's leverage ratio remained stable at 1.1x, reflecting a comfortable debt profile and balance sheet flexibility. Capital allocation is a strategic priority, focusing on internal investments and shareholder returns, including $25 million in share repurchases during the third quarter and a $500 million increase in share repurchase authorization, bringing year-to-date repurchases to $204 million. Additionally, a $66 million dividend was distributed, marking a 15% increase from the previous year. Overall, $387 million has been returned to shareholders, representing 56% of adjusted earnings for the year. Strong free cash flow and a flexible balance sheet allow for balanced investments in growth and shareholder returns.

The paragraph is part of a Q&A session following a company’s earnings report. Fred Tomczyk shares that the company had a strong quarter, with an 8% growth in adjusted diluted earnings per share and a 9% increase in year-to-date net revenue. The company’s balance sheet is strong, and they are optimistic about future opportunities, planning to share more in 2025. Ken Hill invites questions, asking participants to limit themselves to one question each. Patrick Moley from Piper Sandler asks Jill about the projected increase in D&A revenue guidance for the fourth quarter and whether this indicates a sustainable trend or is related to timing issues. Dave Howson commends Patrick for asking the first question.

The paragraph outlines four key factors driving confidence in achieving 7% to 10% growth guidance for the year. These factors include new sales, particularly with 40% coming from international markets; pricing adjustments made earlier in the year to better extract value; technology investments that are starting to yield results, including a new access layer architecture for equities venues in the U.S. slated for expansion to other markets; and enhancements in the core platform that provide valuable new data and insights for customers. These elements collectively contribute to growth expectations for the current and following year.

In the paragraph, Ben Budish from Barclays questions Cboe's strategy for expanding opportunities with brokers like Robinhood and others globally. Dave Howson responds, indicating that Cboe is focusing on both acquiring new customers and increasing the penetration of existing retail brokerage platforms. They are targeting growth in the Asia Pacific market by hiring and enhancing regional marketing and education efforts. Additionally, Howson points out that there is significant potential for growth in options trading among retail brokerage platform users, as evidenced by Robinhood's large number of funded accounts but relatively low options trading activity.

The paragraph discusses the strategic focus of a company, particularly in relation to its growth and investment priorities. Initially, the company aimed to improve margins and return capital by narrowing its focus. Over the past year, it shifted from making frequent small acquisitions, which consumed many resources, to reevaluating its strategic direction. While inorganic growth (via mergers and acquisitions) remains an option, it is no longer the core strategy. Instead, the company is considering both organic and inorganic growth opportunities more thoughtfully.

The paragraph discusses a company's strategy focused on organic growth, while keeping options open for mergers and acquisitions (M&A) if they align with strategic and financial goals. The company has stabilized margins, reduced expense growth, and improved its balance sheet. Instead of paying down debt, the company is prioritizing dividends, share repurchases, and investments in organic growth. They are considering strategic inorganic opportunities, like their investment in Japan, which they see as a market with potential due to significant changes. The company aims to maintain flexibility in capital deployment and future planning.

The paragraph captures a discussion between Dave Howson and Alex Kramm about the recent launch of VIX options on futures and variance futures. These are new financial products designed to cater to non-securities customers and provide opportunities for trading shorter-dated contracts. The aim is to expand the user base and address customer needs for managing implied and realized volatility. While the products have been launched recently and show promising early engagement from customers, they are expected to take time to gain traction and fully integrate into trading strategies by 2025. Their introduction aims to provide traders with historical data and insights ahead of the upcoming election period.

In the article's paragraph, Anthony Corbin asks about the expected percentage increase in D&A revenue through pricing and future pricing expectations for 2025. Dave Howson responds, highlighting that pricing varies across different access and data products, making it difficult to specify a standard percentage increase. He notes that pricing contributed to about a third of Q3's overall growth and anticipates a similar contribution moving forward into 2025. Howson suggests that future growth will focus more on distribution and selling products rather than relying solely on pricing strategies. Following this discussion, Owen Lau asks about the partnership with Robinhood and when Cboe might see significant volume growth, considering Robinhood's 24 million users and 4% who trade options. He inquires about the addressable market size and possible strategies to increase volume.

The paragraph discusses the ongoing efforts and investments being made to enhance the trading experience and financial education for retail investors, particularly through partnerships with platforms like Robinhood. It emphasizes the rollout of new functionalities and increased competition among retail brokers. The focus is on educating investors on various trading strategies to improve financial literacy and independence. Joint marketing efforts aim to highlight the benefits of specific products, like cash-settled index options, while also emphasizing the potential tax advantages. Overall, these efforts are crucial to supporting the evolving needs of retail investors.

The paragraph discusses the growth and international expansion strategies of a company, particularly through education, marketing, and product platform development. It highlights the increasing use of their products internationally and mentions the significance of defined outcome ETPs, which allow for indirect usage of their index options. The company sees these trends as long-term growth opportunities. Chris Isaacson notes excitement about launching index options and a new active trader platform, expected to boost trading and options over time. The conversation then shifts to Craig Siegenthaler from Bank of America, who inquires about the board's approach to divestment following a strategic review, referencing the closure of a spot crypto exchange and potential for divesting non-core assets to improve margins and profits.

In the paragraph, Fred Tomczyk emphasizes that the board is focused on growth, particularly in areas where Cboe can leverage its core strengths, rather than divesting. Dave Howson outlines the expansion plans for Cboe, mentioning the rollout of dedicated cores in US equity markets, with future expansions to Europe, the UK, Australia, Japan, and Canada. He also highlights the successful growth of the Cboe Global Cloud, with a significant portion of growth coming from outside the US.

The paragraph discusses Cboe's plans to expand its Global Cloud by increasing data distribution worldwide as demand for US market access grows. This expansion is expected to boost both data and long-term transaction revenue. Ashish Sabadra acknowledges the strategy, and Kyle Voigt inquires about the success of introducing daily SPX expirations and the possibility of adding more frequent expirations. Dave Howson responds by highlighting Cboe's focus on simplifying complex products, increasing transparency, and offering diverse trading options. He mentions recent product additions like fixed options on futures and variance futures and emphasizes that future developments will be driven by customer needs.

The paragraph discusses the current demand and management strategies for financial products, such as variance futures and VIX options, highlighting that customers are not requesting additional daily expirations but rather prefer flexibility in risk management over time. The text also notes that cash-settled products could more easily accommodate intraday expirations than physically settled ones. Following this, Bill Katz from TD Cowen asks about the company's expenses and EBITDA margin decline, noting investment spending and top line growth themes. Jill Griebenow responds, explaining the rise in third-quarter expenses was due to non-recurring favorable comparisons from the previous year and that overall expenses are in line with projections.

The paragraph outlines a discussion about expense management and challenges in the multi-listed options market. The speaker emphasizes their focus on disciplined expense management and margin stabilization, projecting a slowed expense growth rate of 6% to 8% in 2024 compared to 15% from 2023 to 2024. In response to a question about market share loss in the multi-listed options space due to increasing competition, Dave Howson explains their strategy of optimizing revenues by balancing market share and capture rate, noting a 15% year-over-year increase in the latter. The strategy includes competitive pricing adjustments and the introduction of new functionalities and order types to attract specific types of flows to their exchanges.

The focus this year has been on technology, specifically a new options access architecture that was implemented earlier in the quarter. This technology has improved the platforms and enabled new data and insights, allowing customers to optimize their strategies. Additionally, the company is investing in talent, particularly quantitative analysts, to enhance competitiveness in the market. Chris Isaacson highlighted improvements in market share and system efficiency following the rollout of the new options access architecture on one exchange in mid-August. The company is focusing on data in this competitive space and is confident in its current position. Chris Allen from Citi then proceeds with a question.

The paragraph discusses the strategic investment focus of a company as described by Dave Howson. The company is investing in three main areas: derivatives, data and access, and technology, as part of their growth strategy. For derivatives, investments are directed towards retail growth, educational initiatives, marketing, and talent acquisition. The company is also focused on expanding its presence in the US market through an import strategy, which includes hiring knowledgeable salespeople who understand the local market and can communicate effectively with international clients. Additionally, they are addressing potential barriers to market entry, such as data access and legal approvals. Investments are also being made in data analytics and talent, as well as in product innovation for derivatives.

The paragraph discusses the company's focus on continuous product innovation and upcoming launches, such as dispersion futures and analytics capabilities. It highlights their strong presence in the defined outcome ETF space, owning 80-90% of these ETFs with Cboe. Chris Isaacson mentions the completion of the Canadian migration to the Cboe technology platform by March, which will allow resources to focus on high-growth areas like Derivatives and D&A. The company is heavily investing in data analytics and AI to enhance productivity and revenue opportunities. Jill Griebenow concludes by mentioning the company's strong balance sheet, providing strategic flexibility.

In the paragraph, the speaker outlines the company's strategy of allocating capital and resources to enhance value by balancing future revenue growth and margin optimization. The management emphasizes a shift in focus from migration efforts to investing in organic growth, leveraging Cboe's strengths and long-term trends. They highlight the firm's strong balance sheet, enabling them to seize opportunities, and conclude with a promise to provide updates in the next quarter.

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