Q2 2022 Cboe Global Markets Inc Earnings Call
Good morning, everyone and welcome to the CEVA Global markets second quarter 'twenty to 'twenty two earnings conference call.
Participants will be in listen only mode.
Should you need assistance. Please adult conference specialist by pressing the star key followed by zero on your telephone keypad. Please note. This event is being recorded.
And I would like to turn the conference over to Ken Hill, Vice President of Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining us for our second quarter earnings conference call on the call today, Ed Tilly, our chairman and CEO will discuss our performance for the quarter and provide an update on our strategic initiatives then Brian Taylor Executive Vice President CFO and Treasurer provide an overview of financial results for the quarter as well as an update on our 2012.
Two financial outlook Bob.
Knowing their comments, we will open the call to Q&A also joining us for Q&A will be Chris Isaacson, Our Chief operating officer, Dave Howson, Our President and Chief strategy Officer, John Deters I'd like to point out that this presentation will include the use of slides, we will be showing the slides and providing commentary on each a downloadable copy of the slide presentation is available on the Investor relations portion of our web.
Right.
During our remarks, we'll make some forward looking statements, which represent our current judgment on what the future may hold and 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 and 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 material now I'd like to turn the call over to Ed.
Thanks, Ken Good morning, and thanks for joining us today before I begin I am pleased to officially welcome David houses to the U S. You will relocate it to Chicago last week from London and is overseeing see Bose business lines globally in his new role as president.
We're excited to have them here today.
I'm pleased to report on another strong quarter at CBOE global markets.
During the quarter, we achieved record setting revenue results growing net revenue, 21% year over year to a record $425 million and adjusted diluted EPS grew 21% to $1 67.
Our solid second quarter results were driven by the continued diversification of our business as we continue to integrate recent acquisitions with strong volume in our proprietary index products increased trading activity on our cash equities businesses and continued growth across data and access solutions business.
Our derivatives business had another excellent quarter driven by strong performance in our index options franchise, specifically SPX options as well as a solid increase in our multi listed options business.
Record monthly activity in the SPX complex helped drive a 66% increase in average daily volume for the quarter, while VIX futures were up 7% and VIX options remained flat multi listed options trading Adv increased 12% year over year.
Our cash and spot markets business performed remarkably well during the second quarter with net revenue, increasing 7%, including 3% organic net revenue growth year over year.
These results were driven by exceptionally strong performance in our European equities segment, where average daily notional value traded was up 49% year over year.
Additionally, siebel European equities market share increased nearly six percentage points year over year to 23, 2% similar trends. We saw last quarter. These results reflect not just a favorable market backdrop, but the implementation of an analytics driven campaign by our sales team to help clients achieve better results in <unk>.
So Europe is achievable and other venues are data and access solutions business remains strong with the integration of our recent acquisitions continue to fuel the durability of this business year over year net revenue increased 20% with 14% organic net revenue growth.
We continue to remain focused on executing on the significant opportunities we see in three core areas of our business data and access solutions.
Pivoted and see both digital.
During the quarter, we made solid progress advancing advancing each of these priorities, including closing the acquisition of Arris Exxon may 2nd while the digital asset market environment has changed dramatically since we closed the <unk> transaction, which resulted in the accounting adjustment that Brian will discuss in more detail our strategy has not changed.
We remain excited by the compelling strategic opportunity placebo and the digital asset space.
We believe the long term opportunity within the digital asset space will continue to evolve now more than ever market participants want a trusted transparent regulated market for digital assets, which is foundational to our strategy for this asset class.
We are continuing to work closely with our partner group and expect to announce equity partner as soon as we shape and define the future of Cebu digital and the broader industry.
Turning now to derivatives, where our SPX franchise continued to flourish as we expanded across to customers to meet increased demand both on and off the trailing tour with market uncertainty and heightened volatility continuing across the globe market participants turned to see both derivatives and volatility products to help manage risk.
Many of our newer initiatives like the extension of trading hours for SPX and VIX options to nearly 24 hours a day five days a week and the addition of Tuesday, and Thursday explorations for SPX weekly options have outperformed our early expectations in 2022 further accelerating the strong growth of course.
Across our core business.
Since adding Tuesday, and Thursday explorations for SPX weekly options. This spring our initial estimates indicate we've added an average of over 200000 incremental SPX contracts per day reinforcing the trend we have seen our customers embracing shorter duration trading strategies there.
The expansion of our SPX Weekly's complex to include Expiries every trading day has helped to meet these customer demands.
Adv in SPX contracts zero days to exploration increased a 120% since the start of 2021 with retail brokerage platforms accounting for over 80% of the volumes. Additionally.
Additionally, during global trading hours average daily volume in SPX options increased 189% year over year, VIX options increased 49% and VIX futures volumes increased 19%.
Global customers want access to tools.
To manage risk and we continue to focus on expanding upon our core strengths and finding new ways to deliver access to meet their needs.
We continue to believe strongly in the durability of our data and access solutions business going forward as we continue to integrate our recently acquired businesses and strive to further unlock value and revenue opportunities.
Brian will expand on this later in the call, but we are updating our 2022 organic net revenue growth expectations for this business to a range of 10% to 13% up from our prior guidance range of 8% to 11%.
The record results during the quarter were driven by continued demand for access to our global Exchange Network C. Both front end platforms and proprietary market data.
Since the first quarter 2021, we have averaged 19% year over year growth and as we continue to integrate and innovate. We believe there is more total addressable market to capture a cross trading data and products and we are well positioned to capitalize on these opportunities through our data and access solutions.
Three important areas of expansion. We're excited about include distribution as a service, which leverages <unk> expansive network provide data streaming services for vendors and partners bundled data, which allows us to package high quality data from across markets to deliver consistent and cost effective data solutions to cut.
And see both cloud strategy.
To further extend sito's data to new users and geographies and important step towards broadening investor access to our proprietary content and market data globally.
The last several years have been very exciting is we've evolved our business broadened our geographic reach and extended access to our unique set of products and services around the globe.
Today, we are the only truly global market infrastructure provider operating markets and delivering services around the world and around the clock every day of the week.
Around the globe, we've continued to see strong performance in all geographies and asset classes, starting with our global FX business. We saw strong volumes with average daily notional volume topping $39 $6 billion during the second quarter with market share of 17%. We also saw our full amount offering which.
<unk> clients with a solution for a larger order risk transference with low market impact reached a new record of $11 $8 billion ATB in the second quarter.
We're also very encouraged by our product diversification strategy in particular are higher margin MTF offering where we saw a 200% year over year increase to $785 million Adv with continued rising inflation interest rates, we continue to be bullish on the opportunities that exist for FX.
Business.
Turning now to Europe . In addition to the strong results I noted earlier.
Our European equities business see bow bids Europe became the number one block trading platform with a record 33% market share of the European block trading market. Additionally.
Additionally, euro CCP, our European clearing business saw a steady growth. This quarter. We also continued to make progress on our European derivatives initiative and while early volume trends have been softer than we expected due to geopolitical.
Geopolitical events in Europe , delaying customer Onboarding timetables, we still believe strongly in the long term strategy and the vision for this business.
Moving to Asia Pacific. So you bought Japan market share increased to three 5% up from two 5% one year ago as the new liquidity provider program introduced earlier. This year continued to attract volume in Australia market share grew to 17% from 16% year over year and we are on track.
Back to migrate to <unk>, Australia to our proprietary technology in February 2023.
Finally in North America, we completed the acquisition of Neil last month, bolstering our market share in Canada, and expanding our listings business globally.
Our overall market share in Canada, now tops 12, 1%.
Both neo and Max now and we are working on integration plans that will help enable us to maximize the opportunities we see for our global equities and listing businesses.
Our geographic and asset class diversification, coupled with our unique product set enables us to meet the needs of an increasingly diverse set of customers around the world.
Our global scale gives us the unmatched ability to efficiently scale and expand our business in new ways.
With the closing of the acquisitions of <unk> <unk> in the second quarter. The entire Shilo team remains focused on extracting even greater value from the ecosystem. We have created integrating our platforms and positioning to see both for its next wave of growth in the quarters ahead.
We've acquired nine companies in the last two years and we remain laser focused on the various stages of integration for each of these companies.
Each of these companies has brought a unique offering placebo and helped us achieve a greater global breadth of services and products as well as new distribution channels as.
As we stated before we approach the integration of technology and teams holistically, avoiding silos, while maximizing synergies both revenue and cost.
This approach creates workflow efficiencies for customers harmonizing technology and access points, creating a better experience for them.
As we continue to architect our business for the future our strategy remains focused on delivering products and services that create short medium and long term opportunities helping to enable a cadence of consistent growth.
We are excited to have announced acquisitions closed and integration efforts well underway, which is creating strong momentum for our flywheel as we head into the second half of the year 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> 22, as compared to Q2, 'twenty, one and are based on our non-GAAP adjusted results.
As Ed discussed the first half of 2022 was an exceptionally strong one placebo in the second quarter adjusted diluted earnings per share was up 21% on a year over year basis to $1 67.
A combination of continued investment across our businesses and a favorable operating environment continued to propel revenue above last quarter's record levels.
Quickly touching on some of the noteworthy takeaways from the second quarter.
Our net revenue increased 21%.
Setting yet another quarterly record at $424 million led.
Led by the strength in our derivatives markets and data and access solutions categories.
I would like to note that not only that each of our revenue categories derivatives DNA in cash.
Our year over year gain but every segment at sea boat from options to FX posted a year over year increase speaking to the diversity and truly broad based strength in the second quarter results.
Derivatives markets produced 30% year over year organic net revenue growth in the second quarter, given the continued strength of our index business data and access solutions net revenues were up 20% up 14% on an organic basis, driven again by strong new subscription and unit growth and cash in spot markets produced 7% net revenue growth.
For the quarter up 3% on organic basis on the back of strong volumes and market share in our European cash equities business.
Adjusted operating expenses increased 22% to $157 million adjusted EBITDA of $274 million was up 17% and last our adjusted diluted earnings per share was $1 67 up 21% compared to last year's quarterly results.
Before getting into the segment results I want to spend a moment walking through the accounting adjustment. We made this quarter for our sex as Ed mentioned.
We closed the Arris X transaction on May 2nd.
The environment has changed dramatically.
Given the observable publicly traded peer valuations digital asset prices and intermediary dislocations, we felt it necessary to reassess our holding value of Arris X.
As a result of our analysis along with the work of our third party auditors and consultants.
A goodwill impairment of approximately $460 million.
Actively writing goodwill and Arris extra zero.
And recorded a deferred tax asset of approximately $116 million.
Our book carrying value at June 30th.
$220 million, reflecting the sum of tangible and intangible assets of approximately $104 million and the deferred tax asset.
We believe that our adjustment reflects the reality of the digital asset market environment today, but in no way changes our commitment to the digital asset space or what we set out to do when we announced this transaction back in October in fact recent events only underscore the strong need for a transparent and trusted trading clearing and data.
Venue for digital assets, and we believe that see about along with the help of industry partners.
Best positioned to provide these solutions.
Turning to the key drivers by segment our.
Our press release and the appendix of our slide deck include information detailing the key metrics for each of our business segments. So I'll just provide summary thoughts.
As mentioned earlier, we saw impressive year over year growth at each of our segments during the quarter options delivered the strongest growth with net revenue growing by 32% driven.
Driven by higher trading volume in both proprietary and multi listed options.
Better market share as well as higher revenue per contract and index options.
Total options Adv was up 18% as our higher price index options Adv increased 46%.
Revenue per contract moved 21% higher given a continued positive mix shift to index products and a stronger mix of higher priced SPX options in our index business and.
And lastly, we continued to benefit from another quarter of double digit growth in market data and access and capacity fees each up 29% respectively.
North American equities net revenue increased by 4% year over year solid industry volumes up 20% helped drive the segment uptick.
On the non transaction side access capacity fees increased 15% and proprietary market data was up 8%.
The Europe and APAC segment reported solid growth for the quarter with net revenue up 20%.
The increase was driven by higher volumes in Europe , and the inclusion of <unk> Asia Pacific revenues of $8 $2 million.
Net transaction fee growth was 18%.
During the quarter FX rates were a headwind for the segment impact in reported net revenue growth by nearly $4 million or 7%.
Transaction fees were led.
Higher by CBO, Europe's equity Adv, increasing 49% year over year, given very strong industry volume growth and a nearly six percentage point increase in market share.
Clearing fees benefited from increase in clearing volumes of 21%.
Second quarter net revenue increased 8% and the future segment as both transaction and non transaction revenue posted year over year gains for the quarter.
Volume and rate per contract metrics were slightly better on a year over year basis on the non transaction side access capacity fees were up 21% and market data grew 24% as compared to the second quarter of 2021.
And finally net revenues and the FX segment were up 20% net.
Net transaction and clearing fees benefited from a 22% increase in average daily notional value as well as continued favorable market share trends.
As Ed noted earlier see both data and access solutions net revenue growth has continued to accelerate posting 20% year over year increase an attractive 14% growth rate on an organic basis again. This strong growth was primarily driven by additional subscriptions and unit accounting for three.
Quarters of the year over year revenue increase as opposed to pricing changes.
More specifically, we saw robust physical and logical port usage in our options and equities businesses driven by increased demand for trading capacity.
And then the market data side, the equities top of book and options depth of book products continued to perform well.
As we look out over the remainder of 2022, we anticipate trends will remain healthy and the data and access solutions business. We are raising our targeted 2022, DNA organic net revenue growth rate to a range of 10% to 13% up from 8% to 11%.
And above the 7% to 10% medium term guidance range, we outlined at our November Investor Day.
Turning to expenses total adjusted operating expenses were approximately $157 million for the quarter up 22% compared to last year, excluding the impact of acquisitions owned less than a year adjusted operating expenses were up 12% or $15 million for the quarter.
Moving to our expense guidance, we are increasing our full year 2022 expense guidance range to $659 million to $667 million up from our prior guidance of 647 $660 million when including the acquisition of Arris X and neo.
The increase is almost exclusively driven by higher incentive compensation as a result of our strong financial performance through the first half of this year, coupled with a positive outlook for the second half of 2022, we.
We have long talked about C. Both paper performance culture, and our adjustments today reflect the outstanding work our entire associate base has done in driving outsized growth.
And while our operating expenses are moving higher with revenues would you expect $23 million to $26 million of the 2022 investment spend to directly drive incremental revenue growth and that approximately $10 million is needed for infrastructure enhancements to support and scale our business for greater levels of activity in the future.
Overall, our updated 2022 expense guidance reflects our commitment to invest in high conviction growth opportunities as well as to attract and retain best in class talent driving our strong results.
Now turning to a summary of full year guidance on the next slide I want to call out some of the positive updates to our revenue targets that are reflected in our expense update as noted previously we now anticipate DNA organic net revenue growth in 2022 will be in the 10% to 13% range up from our prior guidance range of 8% to 11% and our medium term guidance of <unk>.
10% to 10%.
Continue to expect acquisitions held less than a year to contribute between two to three percentage points to total net revenue growth in 2022, lastly, but certainly not least our.
Our overall organic net revenue growth target is moving higher to 9% to 11% up from our prior guidance of 5% to 7% for 2022, we believe our updated revenue guidance reflects not only the strong year to date results, we have posted but the confidence we have in the business moving forward.
We are seeing a solid contribution from all of our operating segments strengthening the broader ecosystem here at Tivo.
And our full year guidance on depreciation and amortization Capex and our effective tax rate on adjusted earnings under the current tax laws remain unchanged.
Our interest expense in the second quarter of 2022 with $14 6 million factoring in the incremental borrowing costs related to the financing put in place for <unk> and Neo we expect interest expense to be in the range of $16 million to $17 million or <unk> 22.
On the capital front, our focus has been and remains maximizing shareholder value through the effective use of our capital in the second quarter. We returned a total of $67 million to shareholders comprised of $51 million in dividend payments and $16 million in share repurchases, we remain well positioned to invest in the business.
Support our dividend and Opportunistically repurchase shares with $233 million in remaining capacity on our share repurchase authorization.
Our leverage ratio increased in the second quarter to one nine times up.
From one six times at June 30, as our debt levels increased related to the funding of our neo and <unk> X transactions overall, we remain committed to maintaining a flexible balance sheet and putting capital to work in the most value enhancing way possible for shareholders.
In summary, <unk> reported an excellent second quarter, our core business performed exceptionally well and we are excited about our numerous short medium and long term investments, we look forward to continuing to deliver durable growth for investors in the quarters ahead.
Now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.
Thank you Brian before I close I wanted to highlight our 2022 ESG report, which was published last month. This report covers the important progress we've made on our environmental social and governance initiatives, including our commitment to reach net zero emissions by 2050 and exciting endeavor designed to help ensure receive low dose.
Its part to help combat climate change I want to thank the entire chabot team and our customers for another great quarter I couldnt be more excited about the progress we continue to make and I believe we are well positioned to continue to innovate integrate and grow as we head into the second half of the year.
At this point, we'd be happy to take questions. We ask that you. Please limit your questions to one per person to allow time to get to everyone feel free to get back in the queue and if time permits we'll take a second question.
Yes. Thank you I have mentioned, we will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
Speakerphone, please pick up your handset before pressing the case if at any time at your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
And this morning's first question comes from retro pattern with Piper Sandler.
Good morning, Ed Good morning, Brian and team.
And I think I'll focus on the SPX complex because that would you.
You've seen such a strong results here and thanks for all the detail.
I guess the question is you know we've seen a pullback it seems like retail is driving a good portion of it as well as your own innovation with the weekly contracts.
And volatility, but I guess with the year to date run versus last year. The index options running 30% out. So I guess the question is around the resilience and weather.
The retail is you think is going to be sticky sticky enough going forward because we've seen in other products, we've seen retail retract.
We haven't seen it in index options here I guess, so comments on the index options.
Thanks.
Gotcha, Thanks, Rich set up it's really a continuation.
Higher year.
And if you'll recall from the last quarter, we called out that off.
Options really look relatively cheap what we mean by that.
The movements in the S&P 500, what theyre realizing alien.
In excess of 1%.
And we look at the implied volatility with the price of those options are relatively cheap so theres a lot of attention both institutional and retail platforms looking at the complex and finding great opportunity and you call out exactly.
That we've seen after adding Tuesdays and Thursdays.
That interest is coming from retail platforms.
Sure Sidney sustainable what I mean by that is even in the days, where we are.
The realized movement in the S&P 500 is less than that 1% volume doesn't really track it doesn't fall off in March. So we like what we're seeing as the daily interest is building and we see that continuing obviously passed in Florida that we just reported.
July for sure so see no sign of letting up I think we're learning a lot.
Adding dailies and as I called out in the prepared remarks.
I have a couple of hundred thousand contracts a day additive in the complex those are all good signs for us so.
For now in this environment, if we look out over the volatility term structure.
The market is telling us this uncertainty will continue.
And we think no reason to think that the interest from retail platforms. So super short dated options still in favor.
Adding those dailies really has.
Matt for that exposure so we.
We expect that to continue on.
Thanks, Greg.
Great. Thanks, Ed.
Thank you and the next question comes from Ken Worthington with JP Morgan.
Hi, good morning, Thanks for taking the question.
In terms of the European Index options business, a couple of questions. Maybe just set the stage what is the level of open interest that you reached during the quarter and then as we think about the target client in the early days of the build out here, where do you think you might have the greatest success and where are you focused.
<unk>.
And then for management to consider this initiative successful and for you to continue to invest here. What are you hoping to see in terms of the volume and open interest levels.
Over I don't know, what the next year or or pick your pick your time frame, but what is the ramp that you continue to expect.
To keep you engaged here.
Thank you.
Hi, Kevin as you think you'd have some thanks very much for the question.
Throughout the quarter, we had a few interesting.
Our results as we continued to execute on the plan I think geopolitical income statement impact some of the speed.
And on top.
Spectation mental however, we launched eight new products across the whole country benchmarks.
Open interest you mentioned a peak.
At 28% higher during the quarter compared to prior quarter and we also saw.
How are you.
67% up for the quarter.
The quarter as well.
In terms of the time, we continued to execute on that we do see the realization of what we call success.
It's coming a year later than previously thank you.
However for US success continues.
To be honest.
Morning of new clients increased pricing patron the futures and the options contract as we said right. So.
This is a journey rather than an event as we build a brand new platform.
Right.
So we continue to be.
Convinced by the opportunity set and the value proposition here as we build out.
The next coming years.
Okay. What what is the level of open interest you keep putting growth but is it is it are we talking small numbers or is it big numbers.
Is the contract level that's right.
1500.
Contracts open interest so the complex.
Hum.
Perfect. Thank you so much.
Thank you.
The next question comes from go out and sell lot with credit Suisse.
Good morning, and thank you for taking my questions can you. Please walk through where the strongest demand for DNA is coming from and what is the initial feedback that you're getting from institutions and response to bundling global data and connectivity and just to touch base a little bit further you recently announced the partnership with Snowflake.
Can you walk us through how that partnership will enhance analytics and if you expect that to generate future expense savings by moving to the cloud.
Your current on premise systems.
Yeah. Thanks for the question I'll I'll kick that off with the first half of that and then I'll.
Over to Chris.
Talk about the snowflake questions separately.
This is a continued really strong story that we've seen going back into really last year.
Even before that but again, we're continuing to see the upside of the higher volumes areas like the logical port.
That activity just overall broader access that we're continuing to see clients ramp up their access new clients wanting access as they continued to see the I'll call the global network build.
And in particular, where we're seeing is on the market data side, which is obviously part of that is you asked a specific question of where we're seeing that demand. If we look at that where is the composition of that incremental growth.
What we're seeing is increasing demand for the U S data primarily coming from international.
Participants.
The growth that we had 60% was outside the U S.
All of that growth.
Broader pool of that 60%.
45% with EMEA, 16% APAC that makes up about 60%. So we're continuing to see that strength of that demand for the data and we don't see any reason why that's going to change actually we are as we look at our pipeline and we look at our future growth prospects going out into the years is as we continue to build that network.
In those countries, we only see the opportunity for success and leveraging that network.
We're not only those organic sales of that in market data, but also against the broader network, which then leads into your next question about the opportunity to bundle.
A lot of our client base is global.
Do like that global network, and being able to leverage into the <unk> system and that consistency of data on the technology that we're building out over time so.
We see opportunities to bundle geographic we see opportunities in different asset classes that we're continuing to explore again across the entire network. So that's really driving the optimism and the actual results that we see today.
I hit your questions and with that I'll turn it over to Chris.
Yeah. Thanks, Brian . Thanks for the question. Good question. So on the Snowflake part of that question. So we announced its partnership with Snowflake. This is regarding an internal data analytics platform.
Built over the last couple of years, we'd actually mentioned on one of these calls one or two of these calls a few years ago. We've learned so much then are we starting to use that and provide better insights for our customers. The results of that are.
It can be seen in the European market share and how were providing better insights execution consulting.
This sales effort globally allows us to bring in all of our global businesses and provide better insights to our customers. So they can trade better on all of our global market.
So excited about this partnership with stuff like which is separate and distinct from seaport Global cloud part of our overall global global cloud strategy as we scale our platforms to meet the needs of our global business.
Well. This is John So just just one follow up to both of those Brian and Chris points.
It's worth noting that as we think about the M&A, we've done recently to expand globally.
There are obviously multiple layers of benefit there first layers of intrinsic to the organic growth.
Latam second layer is technology integration of consistent seamless network that we provide our global customers.
Then another layer is the global cross sell and we've obviously been in Covid environment for two years.
Members of our Exec team there are certain offices were just traveling to now and so we're seeing the beginnings of those fruits.
The cross sell effort in the global network integration and to be sure given where we are in the travel cycle that is probably in early phases.
Yeah.
Understood. Thank you very much.
Thank you and the next question comes from Alex Kramm with UBS.
Yeah, Hey, good morning, everyone. Just wanted to touch base on the two recent acquisitions are one I think originally you haven't disclosed.
The purchase price, but they're obviously in the Q I think but but can you can you can you want actually review kind of like the revenue contribution and where that all flows. But then also given the iridex situation you made the comment that you're still excited about you know the acquisition at the opportunity set there but.
Now obviously you spent almost $500 million on this I know, it's less than 5% of your market cap or close to it and now now you're writing this whole thing down. So just wondering how you we should be thinking about returns on that acquisition relative to you know maybe maybe buybacks that you could have done. So I know this is fresh and new and that's it.
It's a class, but it just seems like it's a <unk>.
It's it's it's somewhat material to our.
Have we seen so far so just wanted to make sure that as you've been very acquisitive, but there is no return hurdles as you as you approach these new opportunities. Thank you.
Sure Alex I'll take.
I'll take Niall briefly and then we will take two to the euro.
I also.
I want to bring in Chris as well on this and as well as the change in chime in but on the neo as we look at that return, which.
What you didn't highlight.
Now that isn't going better than actually plan slightly better than planned and it's already contributing although relatively small to our overall contribution. So it is accretive already day. One so again continue to be excited about continuing to measure that positive ROI.
Send it out for about a 10% hurdle rate that we have when we build our business cases looking for what it can contribute organically and then continue to add.
Revenue synergies broadly across the organization going specifically to the Arris transaction.
Fundamentally nothing has changed as far as what.
What we see the contribution of what this platform does for us and where we see this market going granted as we disclose and youll see the disclosure amount a chance to see the Q is that the external environment didn't change, but it actually just reinforces where we actually think we're going but the specifics on the financials.
The adjustment was about 60%. So when you talk about the nearer totally write off that is just the intangible part of it you got to look at the total net book value. So it's about 60% and again not that that's something to brag about but that is reflective of what we think the value is at this point in time, given the external environment again, our job is to make sure our financials.
Statements fairly represent our view of our performance and.
And what that looks like overall, so that's the overall perspective back to the press release to that.
When we initially announced the acquisition of Arris.
We put a two to three year timeframe on a positive contribution to EBITDA at the end of the day. So again nothing has changed absent, albeit not small this adjustment to fair value as far as that we've recorded today. So.
So with that I'll turn it over to Chris to talk a little bit more about kind of where we think this is headed.
Yeah. Good morning, Alex. Good question, you said, it's Brian mentioned, our strategy is unchanged our excitement for this asset class is unchanged.
Honestly been a fundamental repricing in this asset class, but we think that actually provides a strategic tailwind for us with trusted transparent regulated market.
Just to remind you that we have with <unk>, we have a great foundation to build upon with <unk>.
Exchange clearing data and derivatives and our roadmap includes margin futures.
Settled futures in that roadmap is is the same now so we're committed to this asset class, we obviously had to recognize that.
Okay classes funded more fundamentally been repriced, which was what we've done but.
But we were committed to and excited about the future.
Fair enough.
I'm sorry.
Okay.
So briefly this is John I want to weigh in on what we're hearing from the market because it's important.
She told us.
The street that we're out there talking to.
Potential partners on this project and what we're hearing from them is.
They see the demand so we hear that from them. We trust them. These are these are largely intermediaries intermediary focused initiative and those intermediaries touch.
We estimate over 80% of the traditional asset volume from retail customers. So they have a good line of sight.
And what you see in the data in terms of volumes.
Crypto currency as a whole and you look at 2021 is a bit of an anomalous year.
We're looking at going back, 50% CAGR to 2020 and that still remains a robust growth.
So they are in this for the long haul these partners, they're asking us questions like where can I trade.
And a framework that has robust coin listing.
Risk parameters, where can I trade in a framework that is on conflicted where pricing is reliable and not manufacturing to create elevated spreads, they're asking where can I trade in a framework, where there isn't hidden dangerous leverage.
And those are things that we're offering so it's reasonable to think that.
Over the medium term, we garner our fair share of.
On the market.
Alright, Thanks again.
Great color.
Thank you and the next question comes from Brian , but now with Deutsche Bank.
Great. Thanks, Good morning folks, maybe just also on areas Africa, India, but but actually more on neo and the Canadian game plan, but.
One quick just detail neo is tracking better than expected and there is does the guidance still stands that you expect the acquisitions to which is the revenue contribution to offset more than half of the expenses in 'twenty, two the $30 million to $35 million.
And then also the outlook on the.
EBITDA positive on a combined basis does that still stand and then the second attach question is the neo strategy and Canada. If you can elaborate a little bit more of what that looks like.
If I'm calculating it right at 12% to 13% market share combined with matched now in trading volume in Canada, maybe you could just dive.
Dissect a little bit the trading strategy versus I think there is also a small listing strategy there as well.
Yeah. Thanks, Thanks, Brian .
So bottom line, we have not changed from that perspective as far as the contribution.
Short answer so with that I'll turn it to Dave as far as kind of the outlook.
The business strategy go forward look.
Yeah, Thanks, very much Brian .
Nicely as you did between trading and listings strategy because the listing strategy.
Got it.
The opportunity.
Trading with Canada.
In general we think about it combined with the match now footprint that we already have that so that's a big migration rollout that we had earlier in the year along with match now, bringing global client base, we've seen new international clients really come into the Canadian marketplace and the block space. So it's very encouraging that and then in <unk>.
Generally in terms of the order book small vanilla order book trading protocols, we see really nice opportunities. Therefore.
Feature enhancements as we as we look across our franchise globally.
Find useful estimates will be brought to.
<unk> and <unk>.
Median landscape and then also.
Waves.
With pricing, we have pricing, maybe just to pull that along with the general data and analytics that we've talked about.
Thank you.
Is it pricing and thankful estimating total estimates about what we can do that in terms of the order book qualities.
Listings than we've got really interesting opportunities, we are getting out of them today.
241 listing in Canada, and South of 168, Etp's three new Vanguard Etfs this quarter really great progress H five coal price really focused on the innovation economy, and I'll think about that as a global strategy. When we think about Australia, winning big center of ETP listing.
That same story in the U S. We can actually begin to get into the issue.
Capital rates with a global offering and really that's how we got to be thinking.
Our strategy as we go forward and really presenting that to yourselves Christmas.
Marketplace.
That sounds exciting so is there a stronger revenue growth outlook over the long term as a result of the strategy given its starting to tracking better than expected as well.
I'll chime in here a little bit is that I would say, obviously, we think there's an opportunity.
As we continue with that in place as we continue to look at the revenue synergies I think with with respect as we look at the overall CMO network I think it is becoming increasingly important component is that as far as we're seeing early wins successes, so I'll talk a little bit more about that as well.
As I mentioned earlier on the demand side, the Batesville out.
She sees any traction.
Anything to point to the addition of new customers in Europe really wants to trade U S and Canada and in fact, as we think about the rollout pace again in Australia in February next year, you've seen early onboard from the superannuation funds really coming to say Hey, do you want one onboard NASA trailing should go because we know you're coming to Australia.
Wanted to be ready for that and we see that crosses.
Right.
And to me you is that coming to us to get involved with that.
That's when we were doing in Australia in February of next year. It's worth a quick note on the coverage again to the spend that we've now got in place.
Our markets cover.
Something like 80% of global GDP and over 90% of developed market GDP.
Yes.
<unk> is a.
Really a unique way to tie together those trading opportunities across all of those markets. There is no competitor that offers that span of services, it's been trading community.
That's all great color. Thanks, so much.
Thank you and the next question comes from all along with Oppenheimer.
Good morning, and thank you for taking my question.
I actually have a broader base question.
I guess the stock was we certainly compared to the broader market in the first half of this year for the second half could you. Please talk about your outlook of the economy and how investors should think about volatility you organic growth in DNA and also your international expansion and how people can still grow in the second.
Half of this year. Thank you.
So let me, let me start with a broader.
Trading environment, and we're just informed.
Oh and by the volatility term structure and how our customers are pricing risk over time the elevation in the back months still saying that there is risk in the marketplace and for us.
That continues to be trading opportunity positioning opportunity and really positioning around the broader economic drivers and not just the U S market, but the global market. So we are informed by that volatility surface and don't see much changing.
The short term, meaning continued growth and adoption and engagement in the SPX complex.
There won't be watching and learning.
How we can continue to rollout contracts that meet the demand.
Investors and in this case the growth has come from retail platform. So a lot of effort and concentration on that adoption of Super short dated utility and from there hopefully we will be able to teach.
<unk> broadened the base of users and adoption.
And then I'll turn it over to Brian for a little bit more color, yeah, and I would.
To remind folks that when we kind of came into the year.
<unk> of last year is the organic investments that we're making to set up.
The.
Potential for this organic growth with respect to the incremental investments, we're making around the bill.
To deliver DNA and data through the cloud what we've done around.
Enabling greater.
Trading environment with 24 by $5 Tuesday Thursday launch.
The incremental marketing and branding.
The nanos launched new derivatives and lot of those we've talked about and that investment is again, you're starting to see that pay off both in terms of people on the marketing and the sales and what we're doing specifically about.
DNA element in what you asked about right.
Again, we're continuing to see that stickiness the quality of the access the quality of the market data that we're getting and being able to offer again across all asset classes not just in one obviously there is higher contribution within the derivatives franchise, given the size and our placement there, but again the confidence in continuing to deliver that.
Growth.
Youll see in the forecast is slightly lower as far as the outlook than in the first half we are going against higher comps from last year, We had great third fourth third quarter and fourth quarter growth rates and DNA last year again, we're still confident in our continued growth again.
So the comparison going to be a little bit higher but for the challenge, but as far as those initiatives right and you talked about distribution as a service you saw the recent announcement around Morningstar and being able to leverage our existing network.
We're excited about packaging our global content.
Again across.
Geographies and asset classes and then John had mentioned earlier again is that organic opportunity just within say for example, within Australia, and Japan and our recent entry there and it was in Canada. So those items.
Really continued again give us confidence about the growth rate as we head into the rest of this year and then obviously.
Our conviction around the medium to longer term growth opportunity of DNA.
And if I may.
Quick chime in on.
Global asset class with the CMO FX business had a good quarter in this environment.
<unk> is high and also intensive extensions into a new asset class, we expect in the latter half of this year.
To see USP U S. Treasuries go live we received FINRA approval and we have onboarding of customers coming on into the latter part of this year.
Got it thank you very much.
Thank you and the next question comes from Michael Cyprus Morgan Stanley .
Hey, good morning, Thanks for taking the question. So you guys have added the the new Tuesday, Thursday expertise, but I was hoping you could comment on what other types of contracts you guys might be able to introduce and then more broadly as you look at your business in the industry. What would you say is left to convert in terms of activity from ATC to exchange traded.
Products and how might you size that longer term opportunity set versus more near term. Thank you.
I think what we're learning from Tuesday, Thursday, and what we should be contemplating as cash settled derivatives, which are really in vogue in the short dated.
The possible expansion of our smaller contracts like X X SP, which is one to add that our nano contract, which just getting early adoption as retail further further adoption from retail platforms per dollar. For example, just came online which is a good move for us as we roll out strategies that have historically.
Frankly, Ben.
Institutional based and of course now for retail platforms interest in the 500, the nano was really designed.
For the early retail adopter and retail platforms for exposure in the broader market and giving them. The same access to the S&P 500. So we're in early days on the nano contract and I think a re.
<unk> of an excess piece, which as I said, one SPX so unlike that and I like continuing to look at how to expand Tuesday, Thursday and contracts that are more retail focused so I think that's what you should see us as far as the OTC.
Really the opportunity would be in the volatility complex, where OTC tends to be notionally roughly the same size, we say roughly the same size as what you see trading listed that conversion we have to look at sensitivities around that.
The execution costs trading listed versus the risk of trading bilaterally or clearing bilaterally off exchange. So a lot of work to do and the opportunity set around OTC in VIX, but I wouldn't say as much.
And SPX.
Great. Thank you.
Thank you and the next question comes from Kyle Voigt with Keyw.
Hi, good morning, maybe.
Maybe just a follow up question on SPX, just wondering now like what percentage of that overall complex do you believe is being a retail today.
I always thought of that as being far more driven by institutional flow then reach out.
And if institutions are still the primary users. They're also do you have any insights on which types of institutional users have driven this kind of recent surge in volumes, we've seen over the last three quarters or so whether that's equity asset managers or option specific funds or other types of.
Institutional users.
It's a great question and I wanted to be really careful when we choose our words, you'll note that I say retail platforms.
I don't necessarily mean that that's a retail trade around a retail platform there are.
It was coming through retail platforms. Many times in the algorithms I would expect a great. Many of the daily expiry growth is aldose.
Loving the short dated exposure.
And in a market that's moving as I say implied move a roughly 1% a day terrific opportunity. So the growth from each of our platforms in a single day.
And the participations in the eighties.
So really really high concentration retail platform in those weekly options third Friday continues to be traditionally.
More broad market.
Uh huh.
Greater position hedging.
Similar to what we see in the VIX complex, so really adoption in those weekly it's that big growth.
Coming from retail platform.
Okay. Thank you and the next question is a follow up from rich Repetto with Piper Sandler.
Yeah, Hi, guys.
<unk> been a sort of looking at the expense side of it in more detail and I know you had 12 million this quarter Brian .
<unk> increased our incentive comp.
I guess the question is when you add all you know I think the basis by 53.
Last year and that's incorporated in the 2021 expenses.
Expenses, but if you look at everything.
For the.
The acquisitions this year it looks like about a 14% increase between the core enhancements revenue enhancements infrastructure and incent them.
So we had 14% ex acquisitions.
And I'm just trying to see if that's right and it looks like the consensus revenue estimate right now is up 13%. So do you think analysts are picking up the revenue enhancements or.
You got $23 million to $26 million built in for that.
Yes, so I would I'm not sure I completely followed the.
The expense, Matt, but we can kind of take that offline to make sure as far as the percentages go up.
I think the thing to focus on this is that.
At least when we are pulling in some of the.
Acquisitions onto the.
The revenue and the expense line items, obviously some of the.
The financial.
Our financial statements don't quite have the same margin, so theres going to be a little bit of a slightly.
Higher growth rate on the expenses again, just year over year given that that size.
So again, we're managing that.
And then obviously with plans to continue to grow that top line, obviously fasteners shortly no no great surprise there.
But as far as picking up the expenses, we tried to provide that guidance.
And that visibility along the way.
If you look at for example, if you just look at excluding the acquisitions and you look at kind of that Q2 run rate and you annualize that <unk> run rate relative to what we forecasted at the end of the day.
Theres really not a significant growth rate that we haven't already factored in into that into that projection and again just to make sure we're clear on that $12 million.
As far as the increment that's a full years not just this first half of the year again, Thats a full year perspective as far as what we've done in some of the expectations built into that entire forecast.
Yes, I guess to make it simpler if you just take your expense.
Guidance is $6 59 to 667, subtract neo that 30% to 35.
The increases ex neo and terrorists are about 14% I guess, that's the expense increases ex acquisitions appear to be a 14% if I'm doing my math right sorry, yes. So part of that growth also includes the run rate of the.
Chi X transactions from the prior year, as well, which is I'll call. It maybe.
Making that number higher than say, a pure organic expense growth rate.
But I thought the 553 base included the normalized 2021 for expenses for the acquisition I could be wrong on that.
Okay.
We can talk offline on this.
Hi.
That way, we can just get on the same the same page there. Thanks rich.
Thank you and we also have a follow up from God I'm Sad with credit Suisse.
Hey, just two quick questions here one follow up was just on the revenue outlook for the.
<unk>. This year I think you had previously talked about the 50% I didn't I didn't know if you provided an update or I missed it.
Just what expectations are for the revenue contribution this year relative to expenses.
We didn't actually frame it relative to the expenses, where it was more of a if that transaction. So we have said that we expected to add 2% to 3% incremental revenue growth.
Okay got it and then just one more on the European business as we look at the market share in cash equities. There. It has a very positive trajectory can you. Please expand on some of the key factors that are helping the platform compete with some of the incumbent exchanges in that region and then.
Where you think the market share could potentially settle out in the future and then also what data points is the sales team going out with to these institutions to get them to choose the bow and route there.
Trading volume to the platform. Thank you.
Great. Thanks, very much for the question so yes.
We see that.
Two basis point increase year over year, a couple of drivers.
Linked to that one is the liquidity provision scheme, we introduced in 2020 that many.
Stocks at an inflection point in market share, which improved the market quality.
To an extent, where we were able to use data and analytics platform and one that we'll be leveraging snowflake.
To provide data and analytics to show to our customers that actually what we call the effective market share to share that with you.
You should be providing placebo based on its best spin it off at any point in time warrants a higher proportion of waterflood to be because we saw a great response to that from major top 10 customers are responding to that in the back half of last year, and we know there's still yet to make changes in the trajectory on the left on our books.
A very positive that it is a competitive environment. So there will be responsive to what we're very well positioned in order to continue to respond to provide.
Evidence is the quality of the platform.
Second driver.
To that another data and analytics campaign around the bids offering in Europe , but increasing that network of new customers Onboarding, new clients, but also once again evidenced through data and analytics.
And the advantage of trading on the <unk> Europe .
Our platform when we see uniquely liquidity opportunities for all.
<unk> and intermediary customers really resulting in a 32% market share for block trading from the midst platform in Europe really leaving is that about six.
Points ahead of the nearest competitor in Europe .
Good gain at quarter over quarter.
It's in the mid platform works well for us that we have as a final point really being on periodic auctions, which have seen increased market share of the overall market given that utility, but also in the local market and also just to mention we've launched that in the United States thing and some early.
<unk> be some march trying to cutting off out within the platform.
Okay.
Okay.
Got to all your questions.
Yep got it thank you.
Thank you.
And this concludes our question and answer session I would like to turn the conference back over to Ken Hill for any closing comments.
Thank you. Thank you for your interest in our company and have a great weekend everyone.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.