Q2 2021 Cboe Global Markets Inc Earnings Call
Good morning, everyone and welcome to this he was 1 of the markets second quarter 2021 earnings conference call.
At this time for opening introductions.
I wish I call over to Debbie Koopman, Vice President of Investor Relations.
Thanks Keith.
And thank you for joining us for our second quarter earnings conference call on the call today, Ed Tilly, our chairman President and CEO will discuss our performance for the quarter and provide an update on our strategic initiatives.
Ryan <unk>, our executive Vice President.
CFO and Treasurer will provide an overview of our financial results for the quarter as well as an update on our 2021 financial outlook. Following their comments, we will open the call to Q&A also joining us for Q&A will be our chief operating officer, Chris Isaacson.
And our Chief strategy Officer, John meters. In addition, I want to welcome Kenn Hill.
Oh like recently joined <unk> as Vice President of Investor Relations, Jim will take the lead on IR effective August 1 your nice beforehand and transition to retirement later this year.
I'd like to point out that this presentation will include the use of flight will be showing the slides and providing commentary on each a downloadable copy of the slide presentation.
So she is available on the Investor relations portion of our website during our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold on while we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.
Actual outcomes and results may differ materially from what is expressed or implied in any forward looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events.
Or otherwise after this conference call.
During the call. This morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials now I'd like to turn the call over to Ed. Thank you Debbie good.
And thank you for joining us today.
Youre doing well on remaining safe and healthy.
Our purpose is to operate a trusted.
Inclusive global marketplace supported by our guiding principles, which include active transparency.
It is in this spirit that we issued a press release this morning regarding spot volatility indices and I want to comment on that before I dive into the results for the quarter.
As outlined in the press release, we recently discovered instant.
<unk> with the spot VIX index calculation differs from the calculation described on VIX White paper, which details the formulas used for driving values related to VIX.
Specifically in certain instances and index level is not produced at the political likable integral resulting in the dissemination of the prior index value.
These instances relate only to the spot VIX index, which is not a tradable product, we believe the Vince tradable futures and options as well as the novel products that attract the daily closing prices such as volatility ETP products were not impacted in addition, the calculation of the final settlement value from expiring VIX derivatives.
Which uses an independent process was not impacted.
We are investigating the degree of impact on the number of instances with respect to which the reading semination occurred based on on an initial assessment. We believe that the vast majority of cases. The current VIX index calculation yielded the same result is provided.
And the fixed white paper.
Now turning to slide 5.
I am pleased to report on strong financial results for the second quarter of 2021 at steamboat Global markets.
We continue to deliver on our strategic growth plan expanding on the foundation, we laid over the last year as we build 1 of the worlds largest global <unk>.
<unk> and securities trading networks.
For the quarter, we reported year over year increases in both transaction and recurring non transaction revenues with net revenue up 18% to over $350 million on adjusted EPS up 5%.
Our solid results were driven by.
Continued growth in recurring non transaction revenues increased trading volumes and engagement of institutional clients trading our index options and volatility products.
We saw strong year over year growth in our proprietary products.
<unk> increased by 40% and VIX futures, 41% and VIX options.
And 8% in SPX options.
During the second quarter, we made excellent progress executing on the 4 key incremental growth drivers I outlined at the beginning of this year.
The opportunity to grow recurring non transaction revenue the.
Upcoming planned launch of CBOE Europe derivatives.
Our expansion plans for Vince trading and extending access toward products and services across geographies and market participants.
July 1 we also closed our acquisition of Chi X Asia Pacific.
We are very excited to further expand on this new region and I'll share more about our plans later in the call.
First I'll touch on the solid growth of our recurring non transaction revenue.
<unk> by our data and access solutions business.
Much of the first quarter, we exceeded our growth targets, achieving 21% growth during the second quarter.
This increase included organic growth of 19% year over year, which.
It was fueled by an equal contribution from both proprietary market data fees and access and capacity fees.
As a result of this continued strong performance, we are increasing our 2021 organic growth target for recurring non transaction revenue to a range of 12% to 13% from a range of 10% to.
11%.
The growth in non transaction revenue was driven by new subscribers to <unk> front end platforms, such as Silex live altro and trade alert as well as demand for logical ports and market data as customers look to gain global market access.
Our data and access solutions.
<unk> business provides a suite of data analytics market intelligence and execution services, allowing us to interact with and add value from market participants at every step of the trade process.
Later this year, we plan to launch a <unk> global data cloud, which will provide cloud distribution for certain data products, creating a simple efficient way.
For customers to access our data.
Our goal is to optimize the efficiency and delivery of our data on access solutions to market participants across the globe. We believe the acquisition of <unk> creates a tremendous opportunity for this business.
Turning to Europe I'm pleased to report that we received regulatory approvals.
This month to launch the simple Europe derivatives and we are on track to go live with this new market on September 6.
We have key market participants ready to support the exchange from day, 1, including banks clearing firms market makers and proprietary trading firms will help contribute to the provision of liquidity and client order flow.
I'm incredibly proud of our team and their dedication over the last 18 months, where can remotely from their homes to develop this new market designed to address the diverse needs of our customers.
We believe that market participants will find tremendous benefit in being able to access a truly pan European transparent.
<unk> and <unk>.
Derivatives market.
Our overall business in Europe was exceptionally strong in the second quarter and we expect a launch of CBOE Europe derivatives to build on this momentum.
As we've said before we see a significant opportunity to grow the overall derivatives market in Europe.
Not aiming simply to take market share from income and exchanges.
We intend to reshape expand derivatives trading across Europe with a novel market structure designed to attract both new and existing participants. We're excited to get started doing just that in September.
Moving to bids trading last month, we announced plans to launch sabot layoffs powered by bids in Canada in February 2000.
2.
Based on our highly successful offering in Europe, our Canadian and us offering which is subject to regulatory approval will combine the industry, leading block trading capabilities from match now the Canadian alternative trading system Seabold acquired last year.
And bids to create an enhanced market center per block size liquidity.
2 the launch of bids in Canada will be coupled with the planned migration of nationalities Tebow technology further extending our world class trading platform.
<unk> has established itself as the Premier block trading destination in the U S and Europe and we are excited about our plans to expand the bids network to Canada and Asia Pacific.
First into Australia, and then Japan to serve even a broader base of customers.
As we broaden our global footprint by entering new markets and launching new products and services.
Further our goal of expanding access to a broader base of customers, both institutional and retail.
Last month we.
On November 21st launch for our extended global trading hours for VIX and SPX options as part of our 24 by 5 initiatives subject to regulatory review.
Length of global trading hours will complement our entry into Asia Pacific with the <unk> acquisition and are designed to help meet growing investor.
We announced the ability to manage risk more efficiently react to global macroeconomic events as they happen and adjust SPX and VIX options positions around the clock.
We've seen steady growth this year in SPX options trading on retail broker platforms as retail engagement across the market continues.
Monthly Adv in SPX.
VIX options on our retail platforms has increased more than 50% since the start of the year. We've also continued to see strong growth in multi listed options trading with Adv, increasing 11% year over year in the second quarter.
We see opportunity with a growing retail audience and remain committed to investing in education.
Demand on a development to meet their unique needs.
Product innovation remains a core focus on placebo franchise, and we continue to evaluate opportunities to expand our proprietary product offering with smaller contract sizes that appeal to both retail traders and institutional investors.
Enhancing and expanding.
<unk>, our educational offering from the options Institute remains a top priority.
Last quarter the options Institute hosted numerous web Webcasts and training sessions for market participants and also launched a new learning management system for retail and institutional investors looking to learn more about derivatives.
We are currently demo ing this system with clients and plan to make it available for on demand online education later this year.
Additionally, we've cultivated an expert team of derivative specialists to serve as adjunct faculty on structures for the options Institute and look forward to hosting classes beginning this fall.
Distinct.
English practitioners specialize on derivatives products operations and risk management decision theory, and research and we look forward to engaging with and educating investors on the benefits derivatives can provide to their investment portfolios.
And last we closed our acquisition of Chi X at the beginning of July enabling us.
As to establish a significant presence in the Asia Pacific region. This.
This acquisition marks a pivotal moment in our corporate evolution.
We are now a truly global market infrastructure provider operating markets and delivering products and services around the world every day of week and around the clock.
Plan to migrate checks to see both technology over time and the team is busy working through the integration plan and timeline.
Offering 1 unified technology platform will help provide market participants with greater access to see both diverse product set and more efficiency resiliency and functionality when trading across.
We have some markets as.
As we move forward, we see a significant opportunity to expand our ecosystem of market infrastructure and tradable products into 1 of the world's largest and most comprehensive global derivatives and securities networks.
We have proven ourselves as a nimble and efficient operators of securities markets around the globe.
Even more importantly, we see securities markets as the foundational element in creating products and services that span the equities and derivatives landscape.
Our transactional expertise allows us to create package and distribute a host of market data analytics and index products.
Having recognized.
Benchmark indices allows us in turn to develop additional tradable products and new markets for these products to trade, creating a virtuous cycle of transaction and non transaction product growth and CFO.
You only have to look at the success of CBOE, Europe, which started out as a small equity market and is now on the cusp on launching a tenure.
Pan European derivatives market to realize the power and potential of these relationships.
I'm extremely pleased with our performance this quarter.
On to thank all <unk> employees for their hard work and also welcomed <unk> placebo family, we look forward to delivering enhanced value to our customers and our shareholders as we broaden our global network.
And access to People's unique products and services with that I'll turn it over to Brian.
Thanks, Ed and good morning, everyone. Let me remind everyone that unless specifically noted my comments relate to <unk> 21, as compared to <unk> 20, and are based on our non-GAAP adjusted results.
Is that just indicated we reported strong financial results for the quarter seeing solid contributions from our proprietary trading products as well as our data and access solutions.
Earnings in the second quarter increased on a year over year basis, as we build a more balanced and diversified company.
We remain steadfast on our efforts to become 1 of the.
The world's largest global derivatives and securities in networks enhancing value to our customers as well as our shareholders now.
Now a quick review of the quarter.
Our net revenue increased 18%.
Net transaction fees were up 19% and recurring non transaction revenue was up 21 per cent.
Adjusted.
Operating expenses increased 34%.
Adjusted EBITDA of $234 million was up 11%.
And finally, our adjusted diluted earnings per share was $1.38.
Up 5% compared to last year's quarterly results.
Turning to the key drivers by segment on.
Our press release and the appendix of our slide deck includes information detailing the key metrics for each of our business segments.
I'll just provide summary thoughts.
The revenue increase in our options segment.
Which accounted for a majority of our total net revenue growth.
It was driven by higher trading volumes in both on proprietary multi.
Total.
It'll options Adv was up 12% as we saw double digit increases in book Index and multi listed options.
Revenue per contract also moved higher by 5% given positive mix shifts to index products and a strong increase in our multi listed options RPC up 31%.
Listed on.
And we continued to benefit from solid growth in recurring non transaction revenue, particularly access and capacity fees in this segment.
North American Equity's revenue.
Decreased 2% year over year as industry equity volumes in the U S declined by 15%.
<unk> market.
Percent trended lower primarily reflecting incremental share going off exchange.
Our overall market share has trended lower our continuous trading market share has held up relatively well and we are optimistic about the many innovations we have introduced and plan to introduce to the market, including retail priority.
Quote depletion protect.
Action earlier trading hours and periodic auctions.
Volume declines in <unk> were partially offset by a 10 million dollar contribution from bids and match now for the quarter.
Lastly, recurring non transaction revenue increased by more than $4 million or 15% with organic.
Haneke growth of 14%.
Second quarter revenue increase in futures by 31% on the back of a 49% increase in Adv.
The revenue increase in Europe, primarily reflects the addition of <unk>, which contributed $11.7 million during the quarter and the impact of favorable.
Favorable foreign currency translation.
Underlying trends are strong in the business as average daily notional value traded on placebo European equities was up 16% outpacing the broader markets, 5% increase.
Net capture also rose, 7% during the quarter and finally, the 1% net revenue growth in.
FX was a result of slightly higher trading activity.
Turning to expenses total adjusted operating expenses were approximately $128 million for the quarter up 34 per cent compared to last year, excluding the impact of acquisitions owned less than a year.
Adjusted operating expenses were up 16.
Our $16 million per the quarter on.
Most of the expense variance related to the acquisitions was compensation and benefits.
Cuba is recurring non transaction revenue momentum accelerated in the second quarter with year over year organic growth, reaching 19% again. This strong growth was largely a profit.
Percentage additional subscriptions in units as opposed to price increases.
More specifically, we are seeing both physical and logical port usage as accelerated in our equities and options businesses driven by increased demand for trading capacity.
On the market data side, we have seen equities also performed well as the strength of <unk>, 1 and top.
A book products have driven market data growth, both domestically and internationally.
We are excited to build on our strong organic growth trends with the addition of Chi X.
And its revenue basis, approximately 2 thirds recurring in nature.
We are increasing our organic growth outlook by 2 percentage points to 12% to 13%.
As we factor in the Chi X contribution on.
Total non transaction revenue growth is now expected to reach 15% to 16% for 2021 up 4 percentage points versus our prior expectation.
Overall, our recurring non transaction revenue businesses remain a critical component of the <unk> growth story and 1 that we expected.
<unk> getting to accelerate and diversify our revenue stream over time.
Moving to our expense guidance, we are reaffirming our full year range of $531 million to $539 million.
Importantly, our unchanged guidance range now includes the full impact of Chi X, an incremental $13 million.
Which is expected to be completely offset by <unk>.
Expense reductions related to COVID-19 in 2020 that have continued into 2021 longer than we initially expected.
A reduction in facilities overlap given our ability to expand space in 1 of our existing locations and lower compensation expense.
On hiring at a slower pace than we initially expected within both our core operating expenses as well as some of our strategic growth initiatives.
Note that we expect the incremental tax expense to be more than offset by incremental revenues. We expect our expense spend to increase sequentially in <unk> and <unk>.
And we expect to see positive returns for the investments we're making.
Specifically, our investments reflect our plan to increase access to our existing products and services, especially growth in our index options and futures by developing listing and distributing unique products.
Ensing, our marketing education, and content and increasing our efforts to tap into the growing.
Growing base of retail investors.
Turning now to a summary of full year guidance on the next slide we are lowering our guidance for depreciation and amortization to $34 million to $38 million.
<unk> $38 million to $42 million or Capex guidance range moves $5 million lower to $55 million to $60 million and while.
Income tax rate for the second quarter was 31% above.
Above last year's rate of $26.7 per cent and above our guided range of 27, NAFTA 2095 per cent, we are reaffirming the guidance for the full year under the current tax laws.
However, we now expect the adjusted effective tax rate from the full year to be at the.
The heritage of the guidance range, given where we are in 2021 through June.
While we are not providing full year guidance on interest expense, we don't that we drew an additional $110 million on our term loan credit agreement at the end of the second quarter to fund a portion of the Chi X deal.
Going forward absent any additional borrowings.
Barring significant changes in LIBOR, our interest expense for the third quarter of 2021 is expected to be $11.5 million to $12 million slightly below our second quarter expense of $12.3 million, reflecting more favorable rates associated with amendments to our term loan facility and you're on CCP credit.
Credit facility that were effective late June early July respectively.
In addition to the investment priorities, we outlined earlier on the call.
<unk> committed to returning excess cash to shareholders through dividends and share repurchases from.
The capital return perspective on <unk>.
Strong cash flow generation enabled us.
So on $79 million to shareholders through dividends and share repurchases in the second quarter, we plan to continue to use our share repurchase capacity opportunistically.
Our leverage ratio increased slightly versus the quarter.
So 1.5 times at June 30, as a result of the additional term loan financing used to partially.
On the Chinese acquisition.
Overall, our balance sheet remains unencumbered as we look to put incremental capital to use and the most value enhancing way possible for shareholders.
In summary, we are pleased to report solid <unk> results. We are even more excited about the momentum we carry into the remainder of this year with an increase in guidance for.
Non transaction revenue growth rate overall, and importantly organic.
And our unchanged expense guidance range. Despite the addition of <unk> expense.
We believe we have made and expect to continue to make investments that are set to deliver in.
An increased value to our shareholders.
Now I'd like to turn on.
Back over to Ed for some closing comments before we open it up to Q&A.
Thanks, Brian before we turn to Q&A I wanted to quickly highlight a couple of important corporate developments.
As we accelerate our growth and operations on a global scale, we remain focused on our on our environmental footprint.
Print social responsibilities and opportunities to make a difference in the communities in which we live and work.
To that end last month, we announced a new community engagement program seaborne powers.
This program provides mentorship scholarships and guidance to under resorts students through their educational journey from elementary school to career.
She bolt on powers is our most ambitious philanthropic endeavored to date with <unk>.
Couldn't be more excited to help equip the next generation with the opportunity to realize the career choices available to them as they embark on building their future.
Additional information about this exciting program as well as some of the other important initiatives we are focused.
Mr on regarding environmental social and corporate governance is included in our recently published ESG report, we are committed to doing our part to help ensure we are tackling the important challenges of our global community is facing today and in the future.
I'd also like to take a minute to express my immense gratitude to Debbie koopman for her service.
Service to see bow as she will be retiring in November.
During her to 13 years with US she is build to see those investor Relations program from the ground up played a major role in our transition to a public company through our successful IPO in 2010 and has been pivotal in the execution of our acquisition strategy. She.
What shape and communicate see Bose vision and mission to investment community developing strong relationships with our shareholders potential investors and research analysts.
I have always appreciated her sharp with tough questions friendship and indelible laugh and we'll miss working with her we are thrilled to have cash.
She has held succeeding Debbie as vice President of Investor Relations, Ken joined US last month is working closely with Debbie to ensure a smooth transition is.
His experience and expertise in capital markets makes him a perfect fit for this role we wish Debbie all the best on her retirement.
I'll now pass it back to Debbie for instructions on the.
Q&A call.
Paul.
Thanks, Ed.
This point, we'd be happy to take questions. We ask that you. Please limit your questions to 1 per person to allow time to get to everyone. Please feel free to get back in the queue and if time permits.
A second question operator.
Thank you, yes, we will now begin the question and answer session.
Can I ask a question you May press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset to ensure a good sound quality withdraw. Your question. Please press Star then 2.
We will pause momentarily to assemble the roster.
And this morning's first question comes from Rich Repetto with Piper Sandler.
Yes, hi, good morning, Ed.
And Brian and I guess first I Gotta extend my God.
Jason and thanks to Debbie you've had a heck of a run let me tell Ya and it goes all the way back beyond the CBOE cbot as well.
But thank you for all the help you've given on it.
The investment community.
So he made me yet.
She said this is the last called Yugo, you better ask about growth so I will ask growth.
[laughter] Red zone.
That's a good question what would you like to know.
Yeah, well on the AR on the the organic growth going up by.
200 basis points.
And then the non transactional recurring going up by about 400 basis points. So it is it roughly the explanation he had 2% organic lift and then 2 per cent from kayaks on the recurring side and then just a little bit more deeper color on it you know is it you know whats house Kathy it seemed like.
You know Kathy clay on your reorganization. It is you know benefiting yeah, and then on the kayak side.
When you go through once again why that is so a high percentage of book or a non.
Non transactional recurring revenue.
Well, that's excellent excellent set up and thanks for the call out to Debbie you're right.
She's been an anchor for us long before the IPO. So thank you for calling that out as from growth couldn't be more excited to share with you a little bit more color there and yes kathy's business is really set up nicely for us the timing is perfect and we definitely have the right leader there, but Brian why don't you take it over yes. So.
She could do a lot of his question rich and so I'll just kind of reiterate a couple of things 1 on the access capacity, we've kind of seen that strength are all year long again, reflecting on.
Like I said accelerated demand for basically overall capacity to access our markets again, showing the quality and.
And what we're doing there.
That is across the board that is options equities youre on.
Actually the strongest on a pure growth rate is European equities.
From an overall contribution it still coming from the options business as well as North American Equity's on.
On the market data side.
I would say a couple of things I want to hit there as well is that I hinted that that growth is actually coming also internationally and domestically.
If we look at just the market rate of growth.
We're seeing that most of that in on most of it the majority of it I'll say more than 50 per cent is actually coming internationally.
Depth. So we're still seeing a really really good strength there as.
As far as what's that happening and then I would say from the incremental guidance that we're seeing is when you look at our pipeline we have assumptions around attrition debt that may or may not happen I will tell you. What we're seeing is that the things that we've been doing.
<unk> continue enhancements that the team is making.
We've seen a decline in the attrition rate.
So we're actually seeing.
I will say better results than we do actually originally forecast as to the attrition rate is actually down from what we've experienced in the past. So we're seeing it even stickier than it was in the past so that's driving.
<unk> a lot of the I'll call it incremental.
On the growth rate in the non transaction revenue.
On the Chi X.
So yes that is a bit of a kind of a little bit more uniqueness to that market structure.
Australia, and Japan, particularly Australia.
Look at the overall mix, it's roughly a 50.50.
Between market data and access capacity fees, a little bit more leaning towards market data and it's more weighted at a higher percentage of that will go on mix within Australia.
Yeah got it thanks, guys and thanks Debbie.
Thanks, Rich I appreciate it.
Thank you.
50% comes from Alex Kramm with UBS.
Yeah, Hey, that's what I asked the same question again on Chi X, but I know you've given some revenue numbers specifically in the past they use it as a SaaS growing business. So.
Can you just update us on on current run rates and then also.
So maybe a little bit more specifically in terms of where this is all going to fall from that from a modeling perspective. This is gonna be a new segment of what is going to go somewhere if you've provided this before and then just sorry for the long winded question here, but.
Can you maybe expand on on the immediate plans here for the business in terms of regionally.
The next from Spansion or what do you think you can make the most impact quickly in terms of enhancing technology or order types are what's what's really the the plan of attack on the next 612 to 18 months. Thanks.
Let's go on reverse Chris you want to start off with the plan I think what you and Dave have outlined let's give a little bit more clarity.
<unk>, Brian you can fill in that on the first part of the question. So let's start on reverse if that's okay, Alex and I appreciate it.
Sure Yeah. Thanks for the question Alex Good morning.
Integration plan, we as we do with normally with integrations, we do plan to migrate to our technology, we plan to first spring.
Bids to the region first in.
They're then in Japan.
On that we Havent put out specific dates, but we're moving swiftly now that we have the transaction closed on working with our new colleagues there.
And then we would migrate.
Likely first Australia, and then Japan to see both technologies.
Same platform, we use to run all of our equity options.
On futures market so.
We're moving very quickly we'll have more more firm dates in the coming months.
But really pleased with the initial <unk>.
Work with our colleagues there are very excited about the growth opportunities in Asia, both for those existing.
Equity markets, but also the access.
Access and distribution it gives us for other products around the world.
Chris why don't you pick up that also on the effort.
What are your end of the year on 24, 5 as you say with existing products and are a bigger presence in the region.
Yeah sure so as Ed mentioned in his opening remarks, So November 24.
We plan to extend trading hours to nearly 24 by 5 for SPX and VIX options on a receivable options market.
That will better align with our Cfe futures, our VIX futures that are already trading 25. This is in direct.
Direct.
First fonts to customer demand because they want to trade these options products.
Around the clock and so we want to provide them that access and we're adding a curb session here in September it will be right. After the market closes U S time, and then full or nearly 24 by 5 coming in November so.
Really excited about that and being able to.
Retrospect those too.
Our APAC customers as well as those in other regions that may want to trade during those hours.
Yes.
Alex on the on the growth rate I think we've historically said that we've seen some of the growth rates on that kind of a 20% ranges and where we are.
We see that momentum continuing whether thats kind of a low.
Distributed mid teens as far as we can kind of looking forward and how we see that business continuing to grow we haven't seen any slowdown from call. It when we started.
In talking with them 2 to where we are today and John I don't know if you have any incremental color on as well. Yeah. This is John it's just a little bit to Richard's prior questioners.
2000, and the question of why non transaction revenues are substantial.
Substantial on this business when we do it into the business. It was 1 of the really interesting things we found about the platforms on the 2 countries. They're highly connected they are indispensable platforms in both countries.
And as a result, you see reflected people.
Really needing to take that access to take the data from both platforms, where you can grow from there to your question Alex.
We're in relative to the size of the <unk> businesses, we see a market opportunity just looking at the incumbents are 20 times the size of the revenue. So these businesses and our.
Our aspiration is always to grow the pie just like we talk about for European derivatives, It's not just take share from the incumbents. So we think it's pretty clear case, where we can take the business from <unk>.
<unk> today.
Alright, that's helpful I'll jump back in the queue. Thanks.
Okay.
And the.
Income from Alex <unk> with Goldman Sachs.
Hey, guys. Good morning. Thanks for thanks for taking the question I was hoping you could expand a little bit more on this increased subscription and incremental units dynamic for non transaction revenue. She described earlier so to Brian It sounds like increased demand for our if our access fees.
Fees are really kind of across the board across all your markets how much of that is coming from sort of existing customers versus new customers. If it is more of a a bit of a new dynamic would be helpful. If you consider characterize who they are and then I guess, just secondly, given a tremendous amount of volume growth in both up on equities and options will last 12 months, how much of that do you.
You guys think could be cyclical versus secular.
I will say that.
We want that don't have the answer.
Exactly where you're looking for.
High level trends on what we're seeing and it's going to be primarily I mean, youre going to have some new but the bulk of that youre going to see the existing and youre going to see.
Reflection.
2 things 1 is it.
Some of this has to do with some of the offerings. We're also providing but youre going on I think it's a little bit of macro obviously, we're seeing higher volumes, so theyre going to be pulling in and they want more access they want more capacity. So you're definitely seeing some influence from macro on it and we won't be able to say hey, it's coming from X per cent for.
And increased volumes versus as they continue to figure out with their incremental analytics.
They are doing internally.
And adding the incremental ports so we're seeing both.
And I think we're helping facilitate that with some of our in the pre trade at trade post.
<unk> trade analytics and services and what we're doing with them. So we're seeing a combination of both so.
To go back to that then is that I would say the primary.
Growth driver is the existing were still seeing some new but again. So it's I would say, it's all of the 3 I wish I had 1 particular thing I could point out net.
Mac, what would make it easier.
It makes it a really nice mix of diversity as we roll forward as we try and touch them.
Several levers to keep on moving forward on the momentum.
Got it thank you.
Thank you and the next question comes from Owen Lau with Oppenheimer.
Good morning. Thank you for taking my questions could you. Please give us an update of your product road map on a stable Europe they were terrific.
After equal it goes live on which products do you feel very strong about.
Given your initial conversation with clients and how should investors expect a pace.
So your product launch thank you.
Sure let me start with we are on time.
As I've stated on their prepared remarks, a regulatory review and approvals are coming along nicely we're operational already.
So starting with this 6 indices that we laid out over the last couple of.
Quarters is how we're starting.
And from there, we'll be looking to expand with more country specific exposure, but I think the model is what I'd like to draw your attention to if you remember our beef.
Being able to express interest across Europe and once.
Okay. Its really the capital efficiencies that we've been chasing it's the efficiency of a lid accessible market. The U S model. If you will from posting liquidity rewarding liquidity providers, who are posting that liquidity with the ability to trade the ability to cross fit ask so it really is the benefit from.
He sees tumors looking on a screen is sitting on accessible market marketmakers rewarded from liquidity that they posed from the open to the close and then the efficiency of having 1 CCP where cross European exposure can be most optimally cleared so again not a market share play.
This is really expanding what we think is the.
Opportunity for pure growth and being able to express.
On opinion and individual country in Europe on Pan European risk.
Chris anything yet.
I think you nailed it we were just super.
Caught on it about this on we realize it's a long term investment we've set it for many quarters now.
So we recognize that the bill will be somewhat slow in 'twenty..1 that's why we haven't projected massive revenues in 'twenty 1 but.
This is a start of what we think is a long term growth for us on a leader.
So Dave Howson and team in Europe.
Good demand across the ecosystem good readiness right on schedule.
With those indices first 6 indices first and then eventually and more country specific more single stock options as well on futures. So we.
Have a long term growth path here that our customers are wanting again, just like 24..5. These are this is a customer driven effort, we have customers, saying, we want this exposure and a better market structure than we have today.
Got it that's very helpful. Thank you very much.
Sure.
Thank you.
Next question comes from Brian, but on with Deutsche Bank.
Great. Thanks, good morning folks.
Maybe back on to a recurring revenue.
The updated guidance for the second half of 'twenty, 1 I guess, either Brian or Chris is that it.
Is that based on.
You know that the current subscription value do you have on the ground right now and and and what kind of ex Asia has right now.
Or are there increasing more.
More penetration of data, especially with the Chi X business factored into that guidance and then as we look into 2022.
It's probably early but given that opportunity you mentioned the incumbents are 20 times the size of Chi X, Japan in Japan, and Australia and other opportunities can you just talk about maybe the confidence of potentially also being able to generate double digit recurring revenue growth on and.
On organic basis, not including acquisitions in our 2022.
Brian.
Yes, I'll try it on.
Got him on Brian Please remind me or let us know if we can get them on so far.
As far as the non transaction revenue growth.
We will.
2 there in that growth expectation is.
We tend to be conservative as you know and while there is a pipeline and we have some visibility we do have some assumptions around it.
It's primarily going to reflect a I'll call. It a growth rate of kind of where we are today on what we see and relative to our.
Our.
Our growth last year as well right. So you've seen a consecutive quarters. This category continued to grow so we're continuously running against higher and higher comes from comps prior year, but I would say the short answer is it primarily reflects what we see today trying to factor in as I mentioned earlier.
And to Rich's original question about kind of what are we seeing some of the growth in changing that is the.
Lower attrition rates and like I said, some slightly stronger pipeline with some percentage of success rates over time and again, sometimes its hard to predict when those sites, but that's.
That's somewhat factored in.
I think on the check side I'm going to let John talk a little bit about that as far as the growth and how we're seeing that relative to incumbents and again, a little bit more of that demand a little bit more color yes.
Brian the growth rate and historically work strikes has been double digit both on the transaction side on the data.
And access side, but you will recall when we framed the strategic benefits of the deal on announcement, we talked about really 3.3 levels intrinsic to the opportunity. There is the transaction growth opportunity and that's about market share we've done that before in other markets, we look to do that it needs to.
It's about 2 it's about data distribution and this opportunity really is a 2 way opportunity so as Chris mentioned and Brian touched on being able to distribute our existing data properties into the Asia Pacific Theater, where we really.
Probably had single digits representatives in the past and now we've got all the teams and platforms.
It's a game changer and going the other direction on being able to distribute data from those markets into our existing markets, where we've got significant presence and then finally the third level is.
Is.
On bids and connectivity with bids.
And that this will drive both of those it'll drive transaction volume and it will drive the data opportunity.
And in Australia, and Japan.
And Brian I, just had 1 more 1 more thing on data real quick.
Think about we're adding.
The different datasets, we're able to offer with the transactions from last year and also more raw trends on broad datasets from our markets. So the what is and is increasing the where we're increasing where we are distributing that existing data around the globe as Brian mentioned getting a lot of growth outside the U S. For instance, and then the.
On to the Ed mentioned in his remarks around global cloud the way in which we're distributing that data is also increasing so that's why we think this is this is a secular growth path for us.
We're quite excited about it.
Yes, that's super helpful. Thank you.
Thank you Andy on next question comes from Kyle Voigt with <unk>.
Hi, good morning.
So you've done several bolt on type acquisitions or.
Over the past 18 months.
Just curious are you seeking out deals specifically in that that smaller size range and I'm just trying to get.
Looking ahead in terms of shrunk preference for bolt on sized transactions or whether you'd be open to larger type acquisitions, whether it's scale or more transformational as well.
But the answer has to be us.
We're not afraid to.
On a better said.
Larger deal we don't have the need that is not something that we wake up and say we have to go do but I think more importantly is the type of.
Action that we would look at it and if you can book size.
Aside from moment is really in our core.
We believe we've done a pretty good job.
Look in M&A with filling out the suite of products and services that help our customers.
Pre and post trade, we like that.
And we're on a full integration mode.
But we look at the asset classes and geographies that we think we have an advantage to compete.
If a country or region is open for competition, we want to look how to get in and compete.
And in a way that we operate so that our customers when they see simo, they see an asset class that simo.
Is involved in that there is trust there is knowledge.
It's reliability there is consistency so we will look across the globe.
And if a region as competitive and open for competition, we wanted to take a good hard look we're also interested in scale.
So in the regions that we operate today, we'll continue to look for opportunities to expand our presence. So I hope that gives you a sense.
Sense of how we view M&A, John feel free to jump back yeah. Thanks, Kyle I think.
The smaller scale acquisitions.
Really are something we think of it as an extension of our organic capabilities.
With with all humility, we think we're quite good at.
At it from an integration standpoint, Chris mentioned the team's focus on planning.
Around every opportunity.
It really drives the organic growth opportunity for us and.
Consider that the just just Chi X alone relative to the.
Scale of capital that had to be deployed to acquire that business. The returns that you will.
We'll garner on on an aggregate basis with these types of transactions are.
A really really meaningful.
So again, it's not to say that we favor.
1 versus the other small versus scale.
But small can have a really.
Useful role to play.
And our organic growth plans.
That's helpful. Thank you.
Thank you and the next question comes from Michael Cyprus with Morgan Stanley.
Hey, good morning, Thanks for taking the question wanted to ask.
About market data you guys have made a number of acquisitions here, maybe you could just update us on your sales strategy on the market data front. How your sales teams are organized how you're bringing them together or to what extent do you operate them separately and if you could just talk a bit about how you're using the sales teams to accelerate growth.
Yeah.
And Brian I'll give you a little bit more detail about how you should be viewing it on where you can find it I think importantly last quarter, we did announced that cathie clay will be.
Leading up a new division here with data and access services and solutions, which is very very important to us, but Brian I think how to attract debt.
Just a little guidance there would be helpful. Yes, I think there's 2 things that I would say that I think we'd say incremental momentum here with what I had mentioned as far as with caffeine and deployments. Together is 1 is what we're doing I'll call on the more analytic side.
And the computation.
Modeled on the versus the real time, and that's bringing a renewed focus on bringing it all together and making it more digestible and easier and meeting our customer.
Customer demand for that and so that's really helping to accelerate that and enabling I'll call. It the sales force and I'll say that work very broadly.
<unk> to be able to package debt offering.
On a more integrated way again more work to be done there, but we're working towards that.
I would say that.
More broadly, though what is missing sometimes oversold, but we're not going to oversell. It here is is that there is a cross sell effort across the asset classes.
That's really really important.
We are.
Seeing continue to see incremental growth coming out of our equities business and it's not just the market data sales team.
It's the team that is actually focused on growing the transaction business is continuing to talk to the clients about the quality of the market in the different offerings that depth of book tangible.
Whatever it might meet those needs from a cost standpoint, so that cross sell effort across all the asset classes Europe Asia.
We look at it with respect to options.
The team has been able to do that so it's not just a <unk>.
A market data sales team, it's actually the broader sales.
Bookings across all the businesses, even like I said those focused on the transaction business. So that rallying we're seeing a lot more momentum.
Really starting to take hold.
And frankly, we want to incent that behavior, and we do so that again, we all grow on.
On the topline basis, I think importantly, what Brian.
Sales team is hinting to allot.
Combined sales effort of real time, and enhanced market data with ft trade alert and the analytics that <unk> provides it really is an incredibly powerful expandable.
And portable platform and.
And relationships so just the beginning stages.
As I said, we just started calling this a quarter ago. So so keep watching this 1 we're excited about it.
Great. Thank you.
Thank you and last question on as a follow on from Alex Kramm with UBS.
Hey, Thanks again.
2 quick follow ups 1 in.
Brian I'm, sorry, if you mentioned this but on slide 12, when you talk about the non transaction revenues I noticed that the proprietary market data subscription that chart on the bottom right.
You know only 6 day that the percentage of subscriptions and incremental units has declined over last few quarters. So am I reading. This right is saying you've been able to take a little bit more pricing and if so.
So can you just discuss where you.
You think you've had incremental pricing power or if there's still a lot of upside from pricing. If the environment had pushback has changed so just an update on pricing sorry, if I missed it earlier than just 1 very quick 1 on 1 of your summary chart slides.
You had a bullet on positive traction in corporate Bond index futures.
On the futures business.
And you didn't speak to it. So just curious if you just if there's anything really going on and quite frankly, we haven't heard about that a net opportunity in a while thanks.
Yeah, So I'll take Alexander on the pricing.
I'm happy to talk a little bit about that.
It was I'll call it.
It was introduction of some pricing.
So it wasn't really a strategy shift.
As an explicit of hey, we're going to try and get some more cash on so it was little bit moving more normalization. So.
It was a it was in the equity side of the business and.
And it was kind of a little bit of new pricing. So it wasn't.
Any significant pushback honestly it was pretty minor.
Given the overall mix is just.
It showed up because so much its been there really hasn't been much pricing action that had been going on which is why it kind of had a little bit of that blip. So it really isn't a change in strategy.
As far as the.
What we expect to see.
In the near term on the futures.
Thanks for highlighting that I mean, that's been a really strong growth story as we look at the actual overall unit, we haven't made a.
On large headline out of as yet although we are incredibly proud on the success and where we are though as you look at the overall numbers relative to the rest of the scale of that.
A business, it's not a huge revenue producer yet, but as we know you have to start from somewhere so we've seen a just if you look at the whole <unk> complex.
We've seen a 90% growth rate or more from where we were before and we've.
We've seen growth not only from last year, but also from.
The first quarter.
I would call it 20 per cent range across a complex. So it's really nice momentum and we continue to see that that continues to build Alex great question Youre not the only 1 so this is how things start right.
This kind of growth starts to get it.
Pension, what we're really looking for and where the demand is as large blocks and.
And we need to satisfy that the inbound and the interest, especially in this market.
And you can see the growth in high yield in particular really looking for block trade size. It in solving that is what we'll be talking about in the quarters to come. So thank you for calling it out.
You're welcome. Thank you for taking the question.
Thank you and next question also is a follow up from Brian Bedell with Deutsche Bank.
Great.
Thanks for taking my follow up just I just wanted to ask about market structure at U S equity cash equities market structure.
Just maybe your viewpoint on.
Yes.
Issue of I'm getting more.
And on the liffe exchanges debt.
Ben mentioned, whether you think allowing exchanges to sub penny price is.
It's something that would be realistic and and.
Helpful.
For that issue to reduce the tariff on them and any update on on the view on market data and terms.
So from.
Regulatory structure.
On that.
Great question I'll, probably take this in tandem let me kick it off.
Felipe.
Any effort in that we think the FCC is looking at the right approach.
The chair has called out his desire.
Our split kind of review what role to lit markets play in price formation of course from our perspective any movement any discussions that allows for more competition more price discovery.
Equally playing field as far as regulatory review oversight, we're all for it.
No.
Interest in general these are really really healthy discussions and we're primed and ready to participate in the debate I think Chris.
From your perspective.
Another couple of comments on what we think the low hanging fruit as far as trading increments.
On transparency would.
Would be great.
Yes, Brian Good question I mean, we think now is a good time for the commission to be looking at this under share against <unk>, We think focused on the right things which is.
Better outcomes for investors, we think the market is operating quite well today, but there.
It could be some changes.
That would even improve the environment.
Changes of tick sizes refiner tick sizes on exchange that would match what is allowed to be done off exchange could help level. The playing field everyone has been watching the growth of off exchange volume Thats.
Brian mentioned in his remarks.
It's hard to ignore and so we are we are 4 displayed.
<unk> end markets and transparent markets and we think <unk> reform could could help on that effort and then greater disclosure and transparency.
As always around best execution.
No.
<unk> dramatic reforms, we're pushing forward, but we think it.
It's time to review tick sizes for sure.
That's helpful and any update on the market data.
Issues as well.
Nothing material to update on market data, we continue to track it closely but.
We frankly.
Welcome to the focus on what we think are.
Important issues for the retail investors.
Okay, great great. Thank you very much.
Okay.
Thank you.
Concludes our question and answer session I would like to return the floor to Debbie koopman for any closing comments.
Thanks, Pete appreciate it that concludes the.
And before we end I just wanted to take a minute to thank everybody for your kind words.
It's been extremely gratifying working with all of you over the years I was going to say more but I don't know them and be able to but anyway. It's it's been great. I. Appreciate your friendship and is working with all of you and a great opportunity to be part of it.
My team and I look forward on this everybody, but I do look forward to my new role I'm Gonna get in retirement and that in December I'm gonna be a grandma so that will be my new title going forward.
Thank you Debbie.
Thank you. Thank you and that does conclude today's.
Thank you so much for attending today's presentation you may now disconnect your lines.