Q3 2022 Cboe Global Markets Inc Earnings Call
Hello, and welcome to the Seaport Global markets third quarter 'twenty to 'twenty, two financial results conference call.
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Now I'd like to teleconference over to your house today Kenneth Hill. Mr. Hill. Please go ahead.
Good morning, and thank you for joining us for our third 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 Chandler Executive Vice President CFO and Treasurer will provide an overview of our financial results for the quarter as well as an update on our 2022 financial outlook.
Following their comments, we'll 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 our 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 website.
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, while 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 full discussion of these 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'll 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.
Thank you Ken good morning, and thanks for joining us today.
I'm pleased to report an outstanding third quarter, its IBO global markets during the quarter, we achieved a record setting revenue results growing net revenue, 20% year over year to a record $442 million and growing adjusted diluted earnings per share by 20% to a record dollars 74.
These record results were driven by strong volumes across our derivatives franchise solid growth in our data and access solutions business and increased trading activity in our cash equities businesses.
Our derivatives business delivered another strong quarter driven by robust performance in our index options franchise, specifically SPX options as well as a solid increase in multi listed options record activity across our SPX complex helped drive a 67% year over year increase in average daily volume in the Sps.
<unk> contract for the quarter, the third quarter Adv, reaching two 4 million contracts up from $1 4 million contracts one year ago.
Adv for VIX options increased 2% year over year in the third quarter and growth accelerated to start the fourth quarter with October ADB, finishing 27% above third quarter levels multi listed options trading on <unk> increased 8% year over year to an adv of $10 6 million contracts.
Our cash and spot markets business was solid during the third quarter with net revenue, increasing 5%, including organic net revenue growth of 3% year over year.
Similar to last quarter, our data and access solutions business posted strong results with the integration of our recent acquisitions continuing to fuel the durability of this business year over year net revenue increased 15% with 12% organic net revenue growth.
We remain focused on the significant opportunities we see in three core areas of our business derivatives data and access solutions and see both digital we feel these opportunities by executing against our ongoing strategy, which remains consistent.
Leverage our superior technology further strengthen our core proprietary products increased recurring revenue and expand our product line by geography and asset class.
I'll touch on derivatives and.
In data and access solutions in a moment, but first I wanted to provide an update on <unk> digital.
During the quarter, we were pleased to announce the initial group of then tend to become equity investors in the CMO digital business, which includes a diverse range of market participants.
We have finalized the material investment terms and anticipate closing partner syndication very soon we're actively onboarding partners to the <unk> digital platform and we look forward to leveraging the combined expertise of these firms to help accelerate <unk> vision of a transparent and well regulated digital asset marketplace for participants across.
The globe.
Last week, we signed a memorandum of understanding with Spi holdings, a pioneer of Internet financial services and the largest online brokerage in Japan laying the foundation for potential collaboration in the areas of traditional and digital finance the.
The Mou creates the opportunity for <unk> and its Japanese equities market Chabot, Japan to work together with Spi to leverage the expertise.
<unk> companies and mutually beneficial ways to extend the reach of our products services and customer basis.
Also we see a wide range of potential opportunities to work with Spi on the development of an institutional digital asset infrastructure.
<unk> has established a global leadership position in this area through its affiliate Spi digital asset holdings.
We saw positive momentum in our derivatives business as we continue to innovate and expand access to our core product suite.
Enhancements, we have recently made including the addition of Tuesday, and Thursday explorations for SPX and VIX options known by the ticker X SP and 110th the size of the standard SPX options contract continued to reshape trading behavior and expand the overall market too.
Two weeks ago, we hosted our global risk management conference, where traders investors strategists and academics from around the world gathered to discuss the challenges and opportunities for magic managing risk in the current dynamic market environment. It was fantastic to hear from industry participants how they are navigating todays markets.
Amid a backdrop of rising inflation interest rates and geopolitical tensions.
One of the key themes discussed at the conference was the increased usage of shorter dated options.
The strong volume in SPX options activity I noted earlier was driven by trading in our short dated SPX weekly's options as investors navigated rapidly changing market conditions. We've also seen volumes and mini SPX increased by over 50% since adding Tuesday, and 30 explorations last month.
Additionally, we've seen a surge in users opening in trading positions on the same day as contract expiry.
Zero days to exploration contracts have become the fastest growing segment of the U S options business.
Adding Tuesday, and Thursday explorations for SPX and mini SPX has enabled market participants to trade zero days to exploration contracts any day of the week.
Volume in zero days to exploration options in that space.
It has increased steadily month over month this year, reaching a record adv of $1 2 million contracts in September which represented over 44% of total SPX options volume.
With our diverse index options product suite, we are well positioned as investors of all shapes and sizes continue to embrace shorter duration trading strategies as they navigate this volatile market environment.
Given our global footprint, we're continually looking for ways to increase access to our proprietary suite of products in every region.
Our efforts to expand trading hours in SPX and VIX options to 24 hours a day five days a week have translated to greater client adoption and incremental volumes in the third quarter Adv in global trading hours for SPX options increased 219% year over year in VIX options increased 71%.
Those trends have further accelerated in October with global trading hours, Adv up 63% in SPX options, and 36% and VIX options as compared to third quarter levels.
Next month, we plan to extend trading and mini SPX options to encompass global trading hours enable enabling global market participants who have access to this unique product with smaller contract size allows for greater accessibility and flexibility.
Our data and access solutions business continued to perform exceptionally well and we have strong conviction in this business going forward as we plan to further unlock revenue opportunities created through the integration of our recent acquisitions to that point in September we launched the <unk> one candidate feed on.
New real time market data feed that combines neo and match now data to provide a comprehensive view into the Canadian equities market further expanding our portfolio of market data solutions globally.
Additionally, we are focused on uniquely packaging and delivering data to meet the needs of our diverse customer base last month, we added Pan European equities market data to see bow global cloud our real time data streaming service that provides simple efficient access to see both robust suite of market data.
Through our bundled data offerings and cloud strategy, we are able to package high quality data from across our markets and deliberate customers globally in a consistent and cost effective manner, extending the reach of our content and the durability of our data and access solutions business and.
In each region, we operate we continue to expand our footprint and unique product set enable us to meet the needs of increasing diverse set of customers around the world in Europe , <unk> Europe equities delivered its highest quarterly market share in nearly seven years, reaching 24, 6% for the third quarter, making it Europe's largest.
Stock exchange for the quarter, our analytics driven campaign in the region continues to encourage additional order flow to our exchange and extend our leadership position with overall October market share nearly 200 basis points from the third quarter levels to an all time high of 26, 5%. Additionally.
Sabot bids Europe remained the largest block trading platform during the third quarter, reaching a record 35% market share of the European block trading market.
Moving to Asia Pacific Seaboard, Japan market share increased to four 4% up from two 4% in the third quarter of 2021, driven by existing retail partners in Japan, including record 10, as well as new liquidity provider program introduced earlier this year.
These efforts in Japan are an early demonstration of our commitment to bringing healthy competition to the vital Japanese market in.
In Australia market share grew to 16, 7% up from 15, 7% year over year and we are on track to migrate to <unk>, Australia to our proprietary technology in February 2023, as well as extend the bids network to the region with the launch of <unk> bids Australia, both subject to final regulatory review.
And approval.
Turning to North America, the power of the bids network propelled <unk>, Canada to a record quarter with 59 million shares traded with the addition of Neil our overall equities market share in Canada grew to 12, 2%. We remain focused on our integration plan to help us maximize the outstanding potential we see for our global equities.
And listing businesses.
During the quarter, we conducted our first coordinated launch of Etfs on both sides of the border with the listing of the emerge Etfs on our Canadian and U S. Stock exchanges. This dual listing was the first step towards realizing our vision to become an unparalleled global listings network that creates connections across borders and provides.
New capital formation investment opportunities for capital raisers and investors around the world.
These listings added to the strength of our ETP listings business. While we remained the second largest ETP listing venue in the U S as of quarter end.
Finally, our global FX business saw strong volumes as monetary policy divergence raddled markets with average daily notional volume topping $40 billion during the quarter with record spot market share of 17, 8%.
We saw our full amount offering which provides clients with a solution for larger order risk transference with low market impact increased 24% year over year to reach new record of $12 3 billion average daily notional volume in the third quarter. Our MDF offering also saw record volumes increasing one one.
<unk>, 2% year over year to $953 million and be with our diverse product set within FX. We are excited about the opportunities that lie ahead for the FX business.
These efforts to expand our footprint through an on the ground global presence also.
The growth of our global floods flagship derivatives in DNA products, which are accessible around the world and around the clock.
Importantly, while achieving strong results, we continued to successfully execute on key initiatives to advance our corporate strategy to innovate integrate and grow our business globally.
Our strength lies in our ability to successfully combine strategic acquisitions with organic growth initiatives. We remain laser focused on the seamless integration of our recent acquisitions are making excellent progress around the globe.
As I've 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.
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.
Our global presence gives us the unmatched ability to efficiently scale and expand our business in new ways. We remained focused on creating a healthy ecosystem of products and services that create short medium and long term opportunities helping to enable a cadence of consistent growth with that I'll turn it over to Brian .
Thanks, Ed and good day to all of you, let me remind everyone that unless specifically noted my comments relate to <unk> 22, as compared to <unk> 21, and are based on our non-GAAP adjusted results.
As Ed highlighted CEVA posted an exceptionally strong third quarter adjusted diluted earnings per share was up 20% on a year over year basis to a record dollars 74.
<unk> was characterized by the outside contribution from our derivatives franchise, but our data and access solutions results were strong and cash in spot markets performed solidly for the quarter each playing a notable role and a record net revenue results.
The supported macro environment also provided us the opportunity to advance many of our initiatives across geographies and asset classes. So I'm, having an immediate impact in the quarter and others, we expect to make measured progress against over the medium and longer term.
I want to quickly touch on some of the high level takeaways from the third quarter before delving into the segment performance.
Our net revenue increase of 20% set another quarterly record at $442 million led by the strength in our derivatives markets category.
And steady performance in data and access solutions and cash in spot markets.
Specifically derivatives markets produced 31% year over year organic net revenue growth in the third quarter, given the continued strength of our index business.
Data and access solutions net revenues were up 15% up 12% on an organic basis, driven again by strong new subscription and unit growth.
And cash, which produced 5% net revenue growth for the quarter up 3% on an organic basis on the back of a strong macro backdrop and market share gains in many of our businesses.
Adjusted operating expenses increased 23% to $173 million.
Adjusted EBITDA of $287 million also another quarterly high was up 20%.
And last as noted previously our adjusted diluted earnings per share was a record $1 74 up 20% compared to last year's quarterly results.
Turning to the key drivers by segment or.
Our press release and the appendix of our slide deck include information detailing the key metrics for each of our business segments. So I will just provide summary thoughts as mentioned earlier, we saw impressive year over year growth in many of our segments during the quarter options again delivered the strongest growth with net revenue increasing 33%.
<unk> were driven by robust volume increased market share and higher revenue per contract or RPC, given the favorable mix shift trends.
Total options Adv was up 15% as our higher priced index options Adv increased 49% over <unk> 'twenty one levels.
RPC moved 21% higher given a continued positive mix shift to index products and a stronger mix of higher price SPX options in our index business and life.
We continued to benefit from another quarter of double digit growth in market data and access capacity fees up, 26% and 25%, respectively as compared to <unk> 21.
North American equities net revenue increased by 13% year over year.
Solid industry volumes up 12% as compared to <unk> 21 helped drive the segment op check.
Neo which was acquired in June of this year contributed $5 $4 million in net revenue during the quarter.
The non transaction side access capacity fees increased 10% as compared to <unk> 21, and market data was up 7%.
The Europe and APAC segment reported a year over year decline in net revenue for the third quarter up 8%, however, adjusting for a $7 $1 million FX impact given the stronger dollar during the quarter.
Net revenue grew by nearly 6% on a constant currency basis helped by a six four percentage point increase in market share on a year over year basis, making simo Europe , the largest stock exchange in Europe for the quarter.
Third quarter net revenue increased by 2% in the future segment as transaction fees declined on a year over year basis.
Volumes fell 8% during the quarter, partially offset by a 5% improvement in RPC.
Non transaction revenues continued to tick higher with access and capacity fees up 2% to.
So data up 12% as compared to <unk> 21.
And finally net revenues and the FX segment were up a robust 21% as compared to <unk> 21.
Net transaction and clearing fees benefited from a 27% increase in average daily notional value and higher levels of market share.
A record 17, 8% for the quarter.
Tebow data and access solutions net revenue growth has continued its strong momentum into <unk>, posting a 15% year over year increase and attract with 12% growth rate on an organic basis.
As we have seen in past quarters net revenue growth was overwhelmingly driven by additional subscriptions and units accounting for over 60% of the market data growth and 95% of the access fee growth for the quarter as opposed to the pricing changes.
Specifically, we saw robust physical and logical port usage and our options.
Businesses, driven by increased demand for trading capacity.
And on the market data side, the equities top of book and options depth of book products continued to perform well.
We anticipate trends remained healthy in the data and access solutions business into yearend as we lap more meaningful comps from the fourth quarter of last year. We are reiterating our targeted 2022, DNA organic net revenue growth rate range of 10% to 13% and remain confident in our seven.
It to 10% medium term guidance range outlined at our November 2020 Investor day.
Turning to expenses.
Total adjusted operating expenses were approximately $173 million for the quarter up 23% compared to last year excluding.
Excluding the impact of acquisitions owned less than a year adjusted operating expenses were up 18% or $25 million for the quarter, largely reflecting higher head count as compared to third quarter of last year as well as some inflationary comp adjustments and additional incentive compensation accrual in <unk> 'twenty two.
Moving to our expense guidance, we are reducing our full year 2022 expense guidance range to 651 $659 million down from our prior guidance of $659 million to $667 million. The decrease in expense guidance is a product of diligent expense management.
Agent as well as some delayed hiring for open positions as a result of the competitive labor market.
The favorable expense trends are more than offsetting some incremental build in our employee incentive compensation, given our strong year to date financial performance and <unk> expectations.
And while our operating expense guidance is moving lower for the year, we are not wavering in our commitment to invest in our business over the long term.
As reflected in our guidance, we expect to see incremental growth in our expense base in the fourth quarter as we work to fill open positions and invest behind the revenue generating and infrastructure initiatives, we outlined to start the year.
While we're taking the current inflationary environment into our planning we will continue to manage our cost base judiciously, but remain committed to investing aggressively behind high return high conviction high growth investments. This includes the completion of our integration activities as well as the organic expansion of our derivatives data in <unk>.
Access solutions and digital networks.
We look forward to sharing more about our 2023 guidance at our fourth quarter earnings.
Now turning to a summary of our full year guidance on the next slide I want to call out some updates given the year to date strength and confidence we have in the current operating environment. As noted previously we continue to anticipate DNA organic net revenue growth in 2022 will be in the 10% to 13% range.
And remain confident in our medium term guidance of 7% to 10%.
We continue to expect acquisitions helped lessen the air to contribute between 2% and three percentage points to total net revenue growth in 2022.
Most importantly, we are increasing our overall organic net revenue growth target by five percentage points at the midpoint to a 14% to 16% up from our prior guidance of 9% to 11% for 2022.
Lastly, I want to note our full year guidance on depreciation amortization and the effective tax rate on adjusted earnings under the current tax laws remained unchanged, but we are lowering our capex guidance range to $40 million to $43 million from our prior guidance of $47 million to $52 million.
Outside of our annual guidance interest expense for the third quarter of 2022 was $15 3 million moving forward, we expect interest expense to be in the range of $16 million to $17 million for <unk> 2002.
The last thing I will note as you think about your financial models moving forward is that during the third quarter, we recognized an $8 3 million unrealized gain on the company's investment in seven Rich fund on our net other income line.
This wasn't investment we announced in the fourth quarter of last year with CEVA, becoming a limited partner investing and the acquisition of trading technology.
Moving forward, we expect that this investment will be revalued on a more regular basis in 2023, we do not expect to see any material impact in <unk> 'twenty, two and we will look to provide some updated guidance on 2023, when we roll out fiscal year 2023 guidance with <unk> 22 results.
On the capital front, our focus has been and remains maximizing shareholder value through the effective use of our capital in the third quarter. We returned a total of $53 million to shareholders in the form of 50 <unk>.
Her shared quarterly dividend, 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 decreased to one seven times at the end of the third quarter down from one nine times at June 30, as we repaid 100 cars.
On our term loan facility overall, we remain committed to maintaining a flexible balance sheet and striving to put capital to work in the most value enhancing way possible for shareholders.
In summary, the momentum in our business is evident in the strong third quarter results, we could not be happier with the progress we have made year to date and look forward to continuing to invest behind the many attractive opportunities we have to enhance shareholder value in the quarters to come.
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 in closing I would like to thank our team for the incredible progress made throughout the third quarter, we have much to be proud of as we expand our business and continue to deliver on our goals to create a more sustainable future as an operator of markets around the globe. We continue to be focused on our carbon footprint as well as make.
A positive impact in the communities around the world in which we live and work.
We have a lot of momentum going into the final quarter of the year and are well positioned for a strong finish to 2022.
At this point, we would 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 and as mentioned we will begin the question answer session now to ask a question you May Press Star then one on your Touchtone phone.
Speakerphone, please pick up your handset before pressing the keys.
Your question. Please press Star then two.
This time, we will pause momentarily to assemble the roster.
And the first question comes from Rich Repetto with Piper Sandler.
Yes, good morning, yet and team.
I guess my question is on the record volumes.
Index option.
Segment, and SPX, specifically the record.
Volumes continue right through October so the question that is the sustainability of the growth.
And could you talk about.
The combination of retail and institutional liquidity is that help volume and do you think this retail behavior is is.
Sustainable and I know you've talked about how you can sort of take the.
The SPX playbook to other products, but could you sort of delve into that a little bit too.
That's all one question.
Rich good morning. Thanks.
Terrific place to start. Thank you well. This is a continuation of that trend I think you called very very early.
That is the interest in macro hedging in an uncertain market and we reported out on this last quarter and the quarter before and this is the continuation of the build so the short answer is I do think it's sustainable I'll give you a number of reasons, but I want to distinguish between retail platforms and retail engagement.
And the volume that we've seen in SPX on the zero days to expiry are coming from retail platforms not necessarily retail.
And I think that's sustainable because once you begin using defined outcome or limited risk position.
Those strategies work in any volatility in any market environment. So I think there is a continuation once our customers.
Both.
Pro Pro and retail learn a strategy day.
They tend to continue and use that strategy in any environment. So I do think that build will continue as specifically to rolling out to new products and retail.
<unk> seen us roll out the zero days are adding Tuesday, Thursday, and in other words into excess piece, which as you know is 110th the notional size of SPX. That's our first break into retail we've seen that volume in excess P. Right go up 50% since adding Tuesday Thursday.
And that growth continues month in month out. So we're just starting I think to make the conversion of retail and embracing these super short dated positions in the most uncertain market and then ask for the macro market.
The volatility term structure and of course, the financial news has us all are watching that news.
Each and every day and every hour and I think these short dated options and the strategies that we're seeing certainly will be around for quite some time and convertible to any market environment. So hope I answered.
The question.
You did add congrats.
Congrats on a timely product.
Innovation.
Thanks Rich.
Thank you and the next question comes from Gautam Sawant with credit Suisse.
Hey, good morning, and thank you for taking my question can you. Please speak to house, the both data and access products are positioned against a recessionary backdrop of potentially slower global growth.
Yes, certainly thanks for the question.
Yes.
This year, we put our guide up to 10% to 13% growth for 2022 and maintain that 7% to 10% guide for next year and what we certainly see is continued demand for accessing capacity to our 26 platforms around the world with customers really positioning that.
To be to enable them to have capacity for any market move any market condition really not wanting to shortcut themselves in the event. The capacity is required and certainly that demand continues also for the market data products themselves as well as we see ourselves packaging and bundling that data from those 26.
<unk> platform so in terms of the market environment.
The demand we see.
Continues and specifically the packaging and bundling of data that we have.
C by one Canada added recently in the last quarter and also our ability to get to more users around the world whether that be through the <unk> cloud distribution again this quarter, we added European data to that.
Proposition really reaching people, whether they own how they want to consume that data and then finally thinking about packaging and creating data products from that data. We've got the derivative in the expense most particularly.
Coming in Vogue.
Okay.
Taking into data using our index calculation capabilities than creating products from them and then as being able to list those products back on the platform really creates net pro cyclical demand for our data products coming from our venues.
<unk>.
So next year I feel confident in the 7% to 10% guidance.
Got it thank you.
Thank you and the next question comes from Alex Kramm with UBS.
Yeah, Hey, actually this is a quick follow up to the prior question because you know I I feel like that business that DNA business is very diversified and has a lot of initiatives.
So if a and you just mentioned three or four again in terms of what you're focused on but if I, if I zoom out and I think about you know what the what the biggest focus area. It is there is there one or two specific things that you think will drive the most upside and can you maybe talk about where you are in terms of penetration in those areas or how are you.
What you view the Tam because again, it's a great business, it's very diversified but.
Certainly wondering if theres a couple of things that could really move the needle that we shouldn't be mostly focused on thanks.
Thanks, Alex sending when we go back to the data and access segment again, we see 60% of the growth coming from outside of the United States, but when you look at total revenues our revenues around about 20% from outside the United States today.
Big runway for data and access capabilities as we've seen that and we were able to access that through the acquisitions that we've made as you rightly mentioned that his boots on the ground as relationships as access to new customers really coming to fruition as we continue to integrate those companies ready for those all important re platform.
Next year to allow us to get to a broader customer base and really set the.
The data that we've got with that continued interest in U S data in particular.
Alex This is John just on the question of Tam I think Dave hit it really well in terms of the global opportunity set but also in terms of the segments in which we play and data and access. So we really have a complete offering now as a result of the acquisitions, we've made trade data.
Historical delayed real time.
Analytics.
And.
Also derived data. So if you think about a the attach.
Tim we're really able to access the complete Tam which is 20.
20 billion plus we've talked about this in the past.
Yes.
Thank you very much.
Thank you and the next question comes from Ron Lau with Oppenheimer.
Good morning, and thank you for taking my question. So it looks like your updated full year adjusted operating expense guidance implies you're expands will go up sequentially from Q3 to Q4 could you. Please talk about your assumptions in revenue for the fourth quarter and the drive for all of these potential sequential Inc.
Kris what expense thank you.
Sure. Thanks Alan.
I would say the.
They're not necessarily linked as far as us providing guidance for <unk> revenue, obviously, we've seen a very strong we've issued.
October volumes that you've seen already a strong October and then obviously our volumes are there for folks to see on all of our markets. So we continuously very strong momentum.
Going into the in the mid to the fourth quarter as far as the expense.
Guide, reflecting it just for example, take a look at the midpoint of the range. Yes, we are.
We're assuming that we're going to continue to grow that expense base again, driven by as we continue to add head count can continue as far as growing our initiatives as we continue to look probably pick up a little bit more of our professional services as we move some of our initiatives moving forward as.
As we look at like we do is with our integration efforts.
Things that hit the P&L like purchase hardware things like that that basically continuing our plans as we continue to ramp up investments in those activities. This is just a continuation of everything we've been doing all along throughout 'twenty. Two so really no change as we continue to grow into the profile.
Again, albeit a little bit slower than what we'd originally forecasted from the beginning of the year given some of the hiring challenges we've had as far as getting the right people in but really not slowing us down at this point.
Again, it's business as usual.
Got it thank you very much.
Thank you and the next question comes from Michael Cyprus with Morgan Stanley .
Hey, good morning, maybe just sticking with expenses there I realize a little bit early for talking about 'twenty, three but when it makes sense or maybe it wasn't but maybe you can help clarify why or why not it would make sense to kind of look at the second half run rate here in 'twenty two as a starting point for thinking about 'twenty three and then maybe you can help frame how much inflationary pressure.
If you are seeing on the expense base today, how you think about that may trend going forward and then on the pacing of investments just curious how you think about.
Sort of accelerating that or do you feel like the pacing of investments yeah, you'd love to kind of keep that at a similar pace going forward or just any help there would be that would be great. Thank you.
Great I appreciate that question.
As we in my prepared remarks, we talked about how we don't want to provide that guidance quite yet for 'twenty three as we finalize our budget working with our board and finalize those plans and really.
Which leads into the answer to your next set of questions about pace and how we're thinking about it.
As we think about our overall trajectory and we look at again our goal is to drive that long term shareholder value, which we believe are key to that is driving that long term revenue growth rate with those high conviction high growth type of opportunities of which we've been talking about more explicitly and raised that investment level over the last couple of years and we're starting.
Pay off.
So we don't envision having to change that we're continuing to assess that and make sure. We understand the ROI from those specific investment spend so that's a little bit at that time that we are still taking a look at which will inform the level of that investment going into 'twenty three 'twenty four so we'll take an assessment of those those investments in that.
Performance in the revenue generation.
As far as the inflation impact.
You look at kind of I'll call. It just from a pure wage standpoint, if you look at relative just to kind of a base Merit pool you look at promotions you look at just we did an inflation adjustment mid year, that's probably in a range of the highest that we've seen.
In a long time, and Thats, probably 7% to 8% factored into 'twenty two that we've seen as far as kind of those overall wages. If you look at the entire bucket, we don't necessarily see that inflationary pressure going away as we look at the labor market. So that is something we're also baking in as I referenced in our remarks, so the overall pace of inverse.
Again, we'll continue to look at our opportunities and titrate that as we see fit and as those continue to <unk>.
So more and more promising signs will continue to invest behind that.
Great. Thank you.
Thank you. Our next question comes from Kyle Voigt with VW.
Hi, good morning.
On your European exchange competitors have been saying that some of the market share losses are result of more aggressively priced players in the market and calling out <unk> specifically just wondering if you could expand upon the pricing strategy in Europe , and how youre viewing the current trade offs on pricing versus market share.
Having that 25% market share now and that record, 25% does that increase the demand or the value of the data that youre selling into that marketplace that that part of the calculus at all in your where youre, making pricing tweaks. Thank you.
Thanks very much.
Really great consoles as the question there so.
So in terms of the pricing and see both what we've got.
Is actually reasonably static trading prices over the last couple of years, the real differentiator in the last year to get to that 600 basis point increase in one year has really been around data driven analytics that we presented to our customers, which is then induce changes in behavior on the realization that you.
Can get the same or better outcomes for our customers by choosing a different place to post you on orders and in this case it's <unk>.
And so that growth that we've seen continue into tightened with market share to see 26%, making us the number one exchange for the full month in a row.
So the tradeoff there is really around any volumes that pushed people to those teams there incremental tiers. Unlike in the U S where that more cliff edge tests again, a different concept of that.
And then you mentioned data and the quality and the pricing of data that we also have on top of our exchanges in Europe is that as a trade reporting mechanism and with that trade reporting mechanism.
The 26% market share at 33% and today.
Produces is allow.
Puts us in a place where raw data feed produce.
One in every future equity trade that happens in Europe , so that in the hole.
Data product.
Value in that data continues to improve and increase and then when we talk about our value ladder.
We think about the indices that are produced off the back of those.
Equity prices that we've got in the franchise, which then leads to address this capability and then then on and then on the round.
And then of course with that data all available now in the last quarter on the cloud we can get that data.
Reduced to all of our global customers around the world.
Every country.
There is an internet connection.
Understood. Thank you.
Thank you and the next question comes from Richard <unk> with Autonomous research.
Hi, Good morning, I wanted to ask on capital allocation, you decided to prioritize the 100 million pay down of the term loan this quarter over share repurchases can you just expand a little more on that decision and how we should think about the tradeoff between those two going forward.
Yes so.
It's something that when we.
When we look at our leverage ratio nearing to weave.
We've always said, let's bring.
Bring that back down to a level that longer term, we feel more comfortable with again to create balance sheet flexibility our view on capital allocation just has not changed its been consistent.
For many years and that is obviously, it's always been our priority to make sure of that.
<unk>, providing the appropriate cash flows.
To feed the business for growth is continuing to increase the dividend on an annual basis.
And then we want to make sure we have appropriate balance sheet flexibility and which comes in the form of.
Debt reduction, which you can share it shows up more meaningfully on a on your P&L with a rising interest rate environment with some of our debt being floating rate.
And then Opportunistically buy back shares so our focus which we kind of hinted at in the last quarter is that we want to get that leverage ratio down again preparing for that longer term balance sheet flexibility. So that was the.
Necessary call to trade off that was just more of a priority as far as where we sit right now.
Great. Thank you.
Yeah.
Thank you.
And this does conclude the question and answer session I would like to return the floor to management for any closing comments.
That concludes our call for today, Thanks for your interest in the company.
Thank you.
This concludes our question and answer session.
Thank you for attending today's presentation you may now disconnect your lines.