Q4 2022 Cboe Global Markets Inc Earnings Call
Speaker 2: Hello and welcome to the CBO Global Markets 4th Quarters 2022 Financial Results Conference
Speaker 3: Hello and welcome to the CBO Global Markets 4th quarter 2022 financial results conference call. All participants will be in the Sonoma mode.
Speaker 4: Should you need assistance, please send to a conference specialist refreshing the star key followed by zero. After today's presentation there will be an opportunity to ask questions.
Speaker 5: To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I will now turn the conference over to Kenneth Hill, Vice President of Investor Relations. Mr. Hill, please go ahead. Good morning, and thank you for joining us for our fourth quarter earnings conference call.
Speaker 6: On the call today, Ed Tilly, our chairman and CEO , will discuss our performance for the quarter and provide an update on strategic initiatives. Then, Brian Scheller, Executive Vice President, CFO and Treasurer will provide an overview of financial results for the quarter, as well as discuss our 2023 financial outlook. Following their comments, we will open the call to Q&A.
Speaker 7: Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer, Dave Howson, our President, and our Chief Strategy Officer, John Deeters.
Speaker 8: I would 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.
Speaker 9: During our remarks, we will 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 have all 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
Speaker 10: Thank you, Ken. Good morning and thanks for joining us today. I'm pleased to report on record fourth quarter and folio results for Civo Global Markets.
Speaker 11: During the quarter, we grew net revenue 17% year-over-year to a record $457 million and adjusted diluted EPS by 6% to a record $1.80.
Speaker 12: These results kept a record year. We saw us grow net revenue 18% to a record $1.7 billion and adjusted diluted EPS 15% to a record $6.93.
Speaker 13: Our outstanding results were driven by strong volumes across our global network, led by derivatives, conflicts, and continued growth in our data and access solutions business.
Speaker 14: Our derivatives business delivered another outstanding quarter driven by robust performance in our index options franchise. Where average daily volume increased 55% to your overview.
Speaker 15: year, while multi-list options trading increased 6% year over year to an ADB of 11.2 million contracts.
Speaker 16: We saw record volume across our suite of S&P 500 in X-Options products with 4th floor ADV and ASVX contract increasing 73% to your over a year to 2.7 million contracts.
Speaker 17: Our mini SVX options contract, known by the ticker XSP, and one tenth the size of the SVX options contract, increased 188% year over year.
Speaker 18: to an ADB of nearly 66,000 contracts.
Speaker 19: Additionally, ADB for big softsons increased 7% to year-over-year in the fourth quarter.
Speaker 20: During the quarter, net revenue in our cash and spot markets business decreased 5%, while we saw a 13% increase in net revenue for our data and access solutions business.
Speaker 21: including strong organic net revenue growth of 10% year over year.
Speaker 22: We continue to execute on the transformational opportunities we saw in our business.
Speaker 23: derivatives, data and access solutions, and SIBO Digital. I'll touch on derivatives and data and access solutions in a moment, but first I want to provide an update on SIBO Digital.
Speaker 24: In November , we completed the syndication of minority equity interests with a group of 13 firms announced as investor partners in the SIBO digital business.
Speaker 25: Our investor partners include many of the most sophisticated and active participants in Fiat and Digital Asset Markets globally and contribute to the momentum of other franchise.
Speaker 26: We are actively onboarding these partners to the Cebo digital platform and look forward to working together to bring trust and transparency to the digital asset marketplace. Now more than ever we believe the experience that established market operators provide with the benefits of the regulated framework.
Speaker 27: is critical to helping enable the opportunities afforded by this asset class. With the onboarding of new participants and marketplace evolution, we have seen continued volume increase and industry leading spreads on Cebo Digital to start the year. January averaged daily notional value, topping a record $71 million.
Speaker 28: Our derivatives business delivered strong results as we continue to expand access to our unique products to customers around the globe, leveraging our extended distribution network.
Speaker 29: For the year, a record 558.4 million SBX contracts were traded, with an 80D of 2.2 million contracts, a 63% increase year over year.
Speaker 30: We continue to see increased demand from our non-U.S. customers and liquidity providers for the ability to trade or hedge broad U.S. market and global equity volatility conveniently across all time zones day and night.
Speaker 31: As a result, we have seen a size increase in SPX volume during our global trading hour session, with ADV increasing 216% per year during the fourth quarter of generally 55,000 contracts, capping off a record year for global trading hours with total volumes of three times over the 2021 levels.
Speaker 32: This year's auto has been stronger as January volumes ran approximately 55% above 2022 levels.
In December , we also added XSP to our Global Trading Hour session, enabling customers to trade this product nearly 24 hours a day, 5 days a week, and providing the ability to adjust positions around the clock with even greater precision and flexibility.
With the addition of Tuesday and Thursday explorations late last year for XSP, both SBX and XSP now offer options that expire every weekday.
We continue to see increased demand for same-day trading and SVX with many market participants opening and trading positions on the same day the options expire as they engage in tactical trading strategies around market events.
ADB for SPX options opened on the same day of expiration increased 83% throughout 2022 and comprised over 43% of overall SPX volumes in the fourth quarter.
With the utility and flexibility that options provide in any market environment, as well as the varied trading strategies utilized by a diverse customer base.
We believe we will continue to see sustained momentum in options trading as customers continue to tap the benefits of this product offers.
Turning to the VIX products, ADB and VIX options increased 7% year over year to over 550,000 contracts traded in the fourth quarter.
During global training hours, we saw big options by increased with ADD up 72% to your per year and the fourth quarter.
And we have seen strong momentum to start the year as January values ran 56% above 2022 levels.
Our data and access solutions business posted strong results during the fourth quarter, with the integration of our recent acquisitions continuing to fuel the durability of this business.
Additionally, we continue to see strong customer uptake of Civo Global Cloud, a real-time data streaming service that provides simple, efficient access to Civo's robust suite of market data. We now have 25 customers connected to the service with 52% of revenue coming from the Asia-Pacific region and 38% from Europe . Additionally, many customers are subscribing to multiple data products offered via Civo Global Cloud. This diverse customer base reaffirms that our strategy of providing simple, efficient access to our market data is resonating with customers who want access to a global set of market data through a single, unified service.
Additionally, we have seen solid customer adoption of the Zivo1 Canada feed, a real-time market data feed that provides a comprehensive view of Canadian equities market data since launching last fall.
As we integrate Civo Australia and Civo Japan post technology migration, we look forward to further expanding our portfolio of market data solutions globally.
Through product innovation, thoughtful integration, and superior customer service, we continue to expand our ecosystem as we build one of the world's largest and most comprehensive derivatives and securities networks.
In our global FX business, net revenues were up 14% year over year in the fourth quarter as the business expanded spot market share to a record 18.4% with average daily spot notional value traded of nearly $41 billion. Our non-deliverable forward bias on CivoSev also groups in.
fourth quarter. While we saw increased adoption of our services in Europe , it was our lit order books that predominantly drove our market share gains with lit only market share rising from 21.9% of the start of the year to 27.3% of December 2022. Additionally, SIBO bids Europe remain the largest block trading platform during the fourth quarter with 34.5% market share of the European block trading market. At the end of 2022, the bids Europe platform had over 600 active traders across 243 buy side firms.
and 28 cell site participants, and we expect to have a strong pipeline.
and we expect to have a strong pipeline of new firms this year.
the strong foundation of participants.
utilizing CivoBids Europe will create opportunities as we continue to expand CivoBids network around the globe.
Moving to North America, the power of the bids network helped propel Civo Bids Canada to another record quarter with 65 million shares traded. Overall equities market share in Canada grew to 13.6% in the fourth quarter.
while US equity's market share was 13.1%.
Turning to Asia Pacific. Cebo Australia market shared room to 17.2% in the fourth quarter.
up from 16.1% of the previous year.
We remain on track to extend the Bids Network to the region with the launch of Seabobin's Australia this month.
Our experience bringing bids into new markets globally, including Europe and Canada, has enabled us to perfect our approach, and we are very excited about the demand we have seen from local participants.
for this distinctive block trading platform.
We also remain on track to launch SEAVO VITS Japan on the fourth quarter of this year, further extending our reach of the VITS network into another key global equity market.
Additionally, in Japan, we saw our equities market share grow to 3.6% during 2022, up from 2.7% in 2020.
We continue to be in full integration mode since announcing our last acquisition more than 14 months ago.
As mentioned, subject to regulatory approvals, we plan to migrate SIBO Australia and SIBO Japan to SIBO Technology this year, with the Australian migration happening later this month alongside the launch of SIBO Bids Australia. We've been working with our customers closely over the last year in preparation for the migrations.
and look forward to the benefits. I'm brewing both of these critical markets on toward technology, creating a seamless and consistent experience for customers and unlocking value for our global market participants.
We have also continued to make solid progress enhancing the framework of our global listings business welcoming Neo at Canadian's exchange last year.
Our goal is to provide issuers with access to an integrated and global network of capital formation and secondary liquidity while working to harmonize our processes.
and create efficiencies for our customers around the globe.
Building on a strong foundation as the second largest ETP listings venue in the U.S., we are enthusiastic about both the near and long-term opportunities to grow and expand our listing business globally and believe we have the momentum as we kick off 2023.
We are excited by the many growth opportunities we see across our ecosystem today. Brian will do a deeper dive on this in a moment. But this excitement is fueling our Tractive 2023 Revenue Growth Targets. Specifically, we anticipate total organic net revenues will increase in the range of 7 to 9 percent in 20.
above our medium term guidance range of 5 to 7%. We anticipate that our data and access solutions organic net revenues will grow at a robust 7 to 10% in the year ahead.
While we expect to invest behind the meaningful opportunities we see in the market today, we expect that the investments we make this year will help position SIBO to grow in 2023 and beyond. I'll turn it over to Brian to share more.
Thanks Ed, and good day to all of you. Let me remind everyone that unless specifically noted my comments relate to 4Q22 as compared to 4Q21 and are based on our non-GAAP adjusted results.
As Ed highlighted, Seabug posted another incredibly strong quarter to cap off a record year. Adjusted diluted earnings per share for the fourth quarter was up 6% on a year-over-year basis to a record $1.80. The strong performance was again characterized by the continued growth of our derivatives franchise.
as well as a steady contribution from our data and access solutions business.
Over the course of the year, we made meaningful progress advancing our new initiatives.
Plans that spend multiple asset classes and geography.
We see these investments as driving growth, C-Bo. As reflected in our 2022 record results, and in the healthy forward outlook, we have for our businesses.
I want to quickly touch on some of the high-level takeaways from the fourth quarter before delving into the segment performance.
Our fourth quarter net revenue increased 17%, setting another quarterly record at $457 million.
led by the strength in our derivatives markets category and robust results from our data and access solutions business.
Specifically, derivatives markets produced 33% year-over-year organic net revenue growth in the fourth quarter as innovations like Tuesday-Thursday expirations continued to resonate with customers and fuel same-day trading in our SPX complex.
In excess solutions net revenues increased 13% up 10% on an organic basis, finishing a very strong year where DNA organic revenue increased by a very healthy 12%.
Cash-to-spot markets net revenues decrease 5% during the quarter or 7% on an organic basis.
Adjusted operating expenses increased 28% to $177 million. Adjusted EBITDA of $292 million also notched a quarterly high of 11% from the fourth quarter of 2021. And as noted previously, our adjusted diluted earnings per share was a record $1.80.
up to 6% compared to last year's quarterly result.
Toning the key drivers by segment. 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.
Our oxygen segment was a standout for the quarter, again delivering the strongest growth with net revenue increasing 35%.
Results were driven by robust volumes in our index business and stronger revenue per contract given the favorable mix shift. Try it.
Total Options ADV was up 15% as our higher price Index Options ADV increased 55% over 4 Q21 levels.
RPC move 25% higher, given a continued positive mix shift to index products, and a stronger mix of higher price SPX options in our index business.
And lastly, we continue to benefit from another quarter of double-digit growth in market data and access and capacity fees of 34% and 15% respectively as compared to 4Q21.
North American equities net revenue increased by 5% year over year. Results benefited from NEO, which was acquired in June of 2022, contributing $5.5 million in net revenue during the quarter. In addition, access capacity fees increased 10% as compared to 4Q21, and market data was up 4%. White people tire up Gets
That transaction fees fell by 4% given a mixed volume environment across our businesses, softer market share and capture rates.
The European APEC segment reported a year-over-year decline in net revenue for the fourth quarter of a 15 percent. However, adjusting for a $5.6 million APEC impact given the stronger dollar during the quarter
Net revenue fell by a more modest 4% on a constant currency basis impacted by softer industry volumes in Europe . The lower activity levels were partially offset by a 5.1% increase in market share on a year-over-year basis making Cibo Europe the largest stock exchange in Europe , again, for the quarter.
Fourth quarter net revenue decreased 10% in the future segment as transaction fees declined 15% on a year-over-year basis.
Lower volumes with a primary driver of the decline following 16% in the fourth quarter or 22 as compared to fourth quarter of 21.
Non-trade transaction revenues continue to tick higher with access to capacity fees up 2% and market data up 25% as compared to 4Q21.
And finally, net revenues in the FX segment were up a strong 14% as compared to 4-2-21, capping a very strong year for FX where net revenues grew an impressive 18%.
Net transaction and clearing fees in the fourth quarter benefited from a 21% increase in average daily notional value and higher levels of market share, hitting another quarterly record of 18.4%.
Turning now to see both data and access solutions business. Organic net revenues were up an impressive 12% for the full year. Net revenues were up 13% year over year in the fourth quarter of 10% on an organic basis.
As we have seen in past quarters, net revenue growth continues to be driven by additional subscriptions and units.
counting for over 90% of access fee growth and 58% of market data growth.
In our data and access businesses, we saw robust physical and logical fore usage in our options and equities 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 form well.
Cibo Global End of Seats feed also benefited from some pricing enhancements during the quarter.
In 2023, we anticipate that trends will remain resilient as we are forecasting 7-10% organic net revenue growth for data and access solutions, in line with our medium-term guidance range outlined at our November 2021 Investor Day.
Turning to expenses. Total adjusted operating expenses were approximately $177 million for the quarter, up 28% compared to last year. Excluding the impact of acquisitions owed less than a year, adjusted operating expenses were up 21%, or $28 million for the quarter, largely reflecting higher headcount as compared to fourth quarter of last year.
as well as some inflationary compartments and additional incentive compensation in 4Q22.
Moving to our expense guidance, we are introducing a full year 2023 expense guidance range of $779 million.
This compares to our 2022 expense base of $652 million.
There are three basic components to the year-to-year increase outline on flight 17 of our earnings presentation that I want to walk through in detail with namely expenses from 2022 acquisitions. Revenue enhancing investments we are making in our business and core expense growth.
The first component is the normalization for the two transactions, Aris X and Neo, we completed in 2022. We anticipate these deals will add approximately $36 to $38 million in incremental expenses in 2023.
In our expense base, we are again calling out growth generating investments we are making given the numerous attractive growth opportunities we see today. These are costs we expect to drive incremental revenue to our bottom line, furthering the robust growth trends we have enjoyed over the past few years. Specifically, we are investing in global listings, DNA expansion, and more.
a more aggressive marketing campaign given our 50-year anniversary as a company, and targeted R&D efforts across our ecosystem. In 2023, we expect revenue-enhancing investments to be in the range of $28 to $30 million, accounting for roughly 4.5 percentage points of our 2023 adjusted expense growth.
The last component and the largest portion of the year-over-year increase is our core expense growth, totaling approximately $53 to $59 million, or 8 to 9% of our expense increase in 2023. I think it's important to understand the moving pieces within our core expense base. First, we continue to invest in the infrastructure of our business.
As we strengthen our footprint as a multi-asset class, global exchange and services provider, we will continue to invest behind a robust technology offering.
to deliver a best-in-class client experience. Roughly 2% of our expense growth in 2022 was related to core infrastructure and we would expect a similar contribution this year as we continue to build a cohesive offering around the globe. Facilitating expanded capacity, access and distribution of our products and services globally is important to our success and still has a per capita target of more than a 10 per 1 million dollar graduates with emergencyolan cushions and credits. We have made the same fulfilling and lasting Rider-like gear and are committed not only to poured water but to mobile services and personnel
incremental 10 to 15 million dollars to our 2023 expense base based on our initial estimates.
The remaining core piece is related to our day-to-day cost of doing business.
In 22?
We talked about some inflationary pressures impacting these expenses. And while we do still feel some of those pressures today, we expect core day-to-day expenses.
to be up a modest 4% in 23, down from the 7% growth we saw in 22. Debo has enjoyed some of the most consistent and most durable revenue growth, operating margins, and earnings generation in the industry. The expense forecast we are providing today highlights the continued investment in the industry.
we are making to sustain those trends moving forward.
to sustain those trends moving forward. To state this more directly.
It is because of the investments we have made in our business that we generated record 22 results and are able to guide to a robust 7 to 9 percentage point increase in organic total net revenue in the year ahead. We believe that the investments we make in 23 will position us well.
to generate a tract of return for years to come.
Now turning to a summary of full year guidance on the next slide, I want to call out some highlights for 23 following our record net revenue results in 22. For data and access solutions, we expect net revenue growth to be in the 7 to 10% range for 23. In line with the medium term guidance of 7 to 10%, we introduce...
at our investor day a little more than a year ago. We expect acquisitions held less than a year to contribute around half a percentage point to total net revenue growth in 23. Most importantly, we are guiding our organic total net revenue growth in the range of 7 to 9% for 2023.
This is above our medium-term guidance of 5 to 7 percent, introduced at our investor day a little more than a year ago, a function of our confidence and the durable growth of our business, and the progress we are seeing behind the investments we have made to increase the access and distribution of our products and markets globally.
Near this year, we are introducing an expected contribution of $27 to $33 million for minority investments benefiting
our other income line. Cebo has made.
and will look to continue to make investments in businesses that align with our strategic vision. Our 4Q21 investment in 7 Ridge, with Civo becoming a limited partner in the acquisition of trading technologies, is a great example of how we plan to utilize our network of partners to invest in strategic assets.
We look for the impact of these investments become a more regular contributor to company earnings and are providing our best estimate of the benefits we anticipate in 23. We are introducing four-year guidance on depreciation and re-deceition of $48 to $52 million and expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5.
to 30.5% in 23. Outside of our annual guidance, interest expense for the fourth quarter of 22 was $15.7 million.
Moving forward, we expect intersex beds to be in the range of $14.5 to $15.5 million for one Q-23.
on the Capitol front.
Our focus has been and remains maximizing shareholder value through the effective use of our capital.
In the fourth quarter we returned a total of $53 million to shareholders in the form of a 50 cent per share quarterly dividend and $15 million in the form of share repurchases.
Here today, 23, we've also repurchased $30 million of our shares. We remain well positioned to invest in the business, support our dividend, and opportunistically repurchase shares with $188 million in remaining capacity on our share repurchases.
authorization as of January 31, 2023.
Our leverage ratio decreased to 1.5 times at the end of the fourth quarter, down from 1.7 times at September 30th and from 1.9 times from June 30th, reflecting our significant growth in earnings as well as the repayment of $120 million of our term loan facilities in 4Q22.
And through prudent, take capro-marker transactions, we've also locked it low, medium to longer-term fixed rates averaging below 3% on over 80% of our total debt. Overall, we remain committed to maintaining a flexible balance sheet and striving to put capro to work in the most value-enhancing way possible for shareholders.
given where we are today in our capital structure.
We plan to shift slightly to prioritize opportunistic share repurchases over further debt pay down given our leverage ratio at 1.5 times at the end of 4Q22. In summary, 2022 was a tremendous year of record revenue generation and earnings growth.
We expect that moment to continue, fueled by the attractive investments we are making across our ecosystem.
We are incredibly pleased with the start to 23 and look forward to delivering attractive returns to our shareholders 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.
Thanks Brian . In summary, Cebo delivered a very strong fourth quarter to close the year. In 2022's record results give us increased confidence that if we continue to invest in high value growth initiatives that further expand the Cebo ecosystem.
We can continue to deliver strong long-term results for our investors. I'm also proud of the work we did to advance our corporate ESG initiatives in 2020.
We will continue to look for opportunities to support our communities and associates while driving for a more sustainable future.
I would like to thank our team for the incredible results achieved during the fourth quarter to cap off a fantastic year.
As we enter our 50th year of business, we are more optimistic than ever about the future. Our history of innovation, client service and good citizenship will be the foundation for building trusted markets for the next 50 years.
I am extremely proud to lead this incredible team in organization as we continue to perceive this incredible vision of Tudi Bill and its new heights.
At this point, we'd be happy to take questions. We ask that you please limit your questions to one 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.
Thank you. At this time we will begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys. To throw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. This morning's first question comes from Rich Verpeta with Piper Sandler.
Yeah, good morning Ed and Brian and team. I guess my question is going to be focused on expenses and expense growth. I guess Brian , you know, I calculate last year the overall expense and increase when you subtract the acquisitions was 13.5%.
And I thought we would expect, you know, a step down. It looks like, you know, 13% XE acquisitions again this year. So I guess when you look at, you know, just the core, everything beyond the acquisitions.
Is this the ongoing, you know, it looks like other exchanges are invested, you know, less than half of that. And just trying to understand, you know, this 13% growth rate, although each of the last two years in investments in poor expenses. Yeah, Rich, great question. I think foundational to probably a lot of folks when they're looking at the guidance. So we do want to spend
revenue and earnings profile actually is different and actually I think has been fairly strong relative to that as well over the last couple of years. So we've taken a very explicit, very transparent approach to growing that long-term growth rate. So if we look at behind the core, and this is the, I'll say this, one of the issues of having a copy, I think are relatively smaller to say some of our peers, but also I'd say...
a trail right that's going to hit us a little bit higher from a pure expense standpoint we're laying it out there there it is so we can see that as far as what's driving that expense base higher given our history with what we've seen where the that project is going with respect to infrastructure if you look at the incredible amount of volume and I'll ask Chris Isaacson to jump in later here about
what this exchange operations have been able to do as far as volumes and the ability to actually continue to facilitate that capacity and our belief that it's important for us to continue to be a trusted marketplace. So it was important for us to continue to invest, facilitate that increased capacity both in the US and the non-US markets, again, which many of those markets...
saw record peak volume to the top point during 22 and technology operations handled that with really no issues. And in the midst of all this also we're doing a re-platforming in Japan and Australia again all right now slightly incremental expense.
as we layer in as we go into 2024 moving forward. And then you look at the overall core of those other incremental I talked about is again, we're still, as I mentioned at the end of last year, we've stopped incorporating some of the inflationary pressures. We're seeing them moderate a bit, but again, it's against a lot of the...
expense cataracts not just calm. As far as the revenue growth assessment, and you made it explicit, where do you seek some of the pay off for that? I'll ask Dave to jump in here as well as some of the other team as we kind of walk this through and remind folks. You know, there was a little bit of a similar question at the beginning of last year's recalls we broke this out for everyone. So I'm going to take a walk back is...
Our big investment thesis and how we thought about growing and the approach of growing SIBO is the underlying themes of increasing our global network, increased access and distribution, providing new and existing products. And given the size, again, of those incremental investments, we called them out, we wanted to give investors transparency. Here's what we're doing and here's our expectations for growth.
So if you go back and think about what did we carve out for 2021, right? We talked about, you know, the EU derivatives, we're going to launch that again based on the backs of the success of the acquisition of then Euro CCP now Cibo clear, Cibo Europe clear, right? We talked about an investment in our US derivatives business with 24 by 5 incremental investment in sales and marketing teams.
We started beginning the dialogue around DNA, around incremental investment, around sales, products, marketing, and cloud, really leaning into the cloud as far as increasing access and distribution and enable that. And then with bids, we started rolling that out to our other geographies with respect to Canada.
As we think about how did that contribute then to the success of 2021 and 2022, it did help growth in 2021, but again it started to set the foundation for growth in 2022 as we saw it continue another record year. So we do expect to see those that continue, right, and we expect to see some of that bids and European derivatives. But—
investment in 21 more of a 24-25 continued payoff. Shift to 22, shift to the last year we had this conversation, right? So we called out DNA, sales, products, marketing, and further leaning into cloud to increase access. And like I said, David, we'll talk about some of the successes we've seen there more explicitly.
We talked about more of the US derivatives investment with respect to incremental sales, distribution and product innovation that we did around the derivatives. The continuation of the EU derivatives roll out.
Again, we pushed that to a more 24-25 contribution. And then finalizing the Canadian rollout and starting in Australia with respect to bids. Again, we saw the efforts from DNA and US derivatives initiatives add to 2022 results with the continued expectations that 24-25 are going to continue to grow driver.
Now flip to 2023, but that is a backdrop as we continue to lay this out. Continuing themes here, right? DNA, as I mentioned earlier, don't compare marks around incremental sales, products, cloud investment, and marketing. More US derivatives invested around the sales and expanded marketing. Continuation of derivatives billed out to a lesser extent this year.
looking to expand with our listings, a new listings effort around globally, you know, in bids finalizing Australia and Japan, a targeted discipline R&D effort. So we continue to expect to see some benefit in the current year, again supporting that longer term growth rate.
and support those efforts for both today and tomorrow. And you'll see a little bit more of that this year and a little bit bigger around the marketing category as we continue to create a brand awareness around SIBO again creating a foundation for that incremental growth. So first I like to turn it over to Dave to some more address these called the Revenue Growth Investment. And then Chris, I know I mentioned, we'll talk some of the course.
nations to offer differentiated offerings but also to look for white space, to look for the opportunity to move into those adjacencies with it from a position of strength. I'll probably call out the, Brian gave a great backdrop of the previous years, you'll see that continuing into this year and in particular as you look at the results of 2022 these should really all be pretty, make some good sense.
content, sales and marketing, that global trading hour is tripling volumes in 2022, really looking to lean into that as we think about broadening that access and distribution. XSP, the mini SPX being added to 24.5 in the back end of last year with the addition of Tuesday services. In reality, voices and news reaction Dip into this crypto pattern.
Really, sales and marketing are pushing into the APAC region and really capitalizing on the boots on the ground we have from the Chai Asia Pacific acquisition. DNA exceeded my expectations for 2020 to that 12% growth. They're fantastic. And so continue to lean in their sales, quantitative analyst, marketing.
as we look to move those products and services throughout the rest of the globe, think about our options, analytics capability, we're going to be bringing to Europe .
Cloud is a great theme that's been here throughout the years, 2022, so 72% of all revenue as incremental sales. That's across the nine products, five regions that we've got set up for Cloud right now. I'm really looking forward to investing this year to see both digital data to that, some great.
coming through this year from Civo Digital adding a new quality data set to the CCCY channel 24x7 data there. So leaning into expanding the distribution there. And lastly we saw themes around defined outcome and overwrite strategy benchmarks for the index business which saw great gains in 2022 as well.
is unique. We get to provide a global cohesive offering across legal frameworks, liquidity provision in conjunction with our liquidity partners and also access and help navigating global regulators as we go there. So great opportunity there. Coming off that great standpoint, number two in the US is an ETP.
number one block trading venue in Europe there. So we're leaning into that with people self-enmarketing this year as we think about Asia Pacific Canada 76 by side added within one year and when you look at the 243 connected to Europe you can see the growth potential there that we're going to be leaning into.
as we go through into the Asia-Pacific region. Then research and development, a key thing for us, we're a product company with some world-renowned products. We formed SIBO Labs this year to really focus completely on how we can develop new ways to measure and benchmark exposures and bring those to the marketplace that afford our customers.
a range of defined outcome opportunities there which we saw really come to fruition in the SPS complex in particular last year. And then finally marketing, wraps the whole thing. It's about people, technology, working with partners and suppliers from the tailwind of our 50th year anniversary here.
as we go into new regions with new products, Asia Pacific and lean into digital, about bringing that awareness to new regions and new audiences so that we can better penetrate the markets that we operate in.
Okay, thank you very much guys. Thanks for the info.
Okay, thank you very much guys. Thanks for the info.
Thank you. And the next question comes from Ken Worthington with J.P. Morgan.
Hi, good morning. Thanks for taking the question. With the syndicate in place now for CBO Digital, can you give us more details on the investments you plan to make here? And I think one of the goals is to enhance flow on the platform for 2023. If you can give us some approach on how you want to build that liquidity.
To the extent that things have changed for CBO digital since FTX is imploded. How has your strategy evolved? In the recent quarter since the environment seems to have changed quite a bit Yeah, thanks Kim, thanks for the question We're we continue to be very excited about CBO digital and I had mentioned in his opening remarks We were coming off a record month in January
after closing the syndicate of those 13 great investors that are, you know, deeply embedded within both traditional finance and in the crypto space. So we have industry leading spreads now in Bitcoin and Ethereum about one basis point is what we're seeing through the month of January .
Why are we continue to be excited about this and focused on the future is we're working with the CFTC on margin futures And we're looking forward to the approval there of bringing that to the market in a way that has not been brought to the market in the US thus far continue in the onboarding of us that syndicate as they
About half of them are now onboarding and others are in different phases of onboarding.
And our strategy relating to how has it changed if at all since the FTX The FTX Bankruptcy I would say our strategy is unchanged While the market has gone up and down as far as excuse me crypto prices our strategy has stayed the same And we're going to bring a trusted transparent regulated market
to crypto to SIBO Digital. We're gonna bring intermediary-friendly products and services and we're gonna access ultimately to end users through those intermediaries which we view as great partners and clearly as part of our syndicate.
We see growth in this nascent asset class for years to come, and that's where we're building a strong foundation right now alongside and with this syndicate. So, margin futures expand the distribution of our data as the market quality is improved dramatically as Dave mentioned.
And continuing to grow as onboard the Syndicate K. this is, this is John de. Just a couple other points to ag on there, I think. First of all, when you look at the data, it's interesting the number of active dresses for Bitcoin, for example, of a state relatively consistent.
since really the three arrows capital collapse so even through the FTX issue And what does that tell you it tells you that engagement overall Has stayed fairly consistent once the period when leverage was taken out of the system So what are our partners are seeing
and this is really one of the great benefits of having this group of partners around us. They're seeing that the remaining customers and the new customers that continue to come into the space are gravitating towards highly compliant, regulated marketplaces. You heard this from Flat Tena, for example.
his conversation in December . And so when this market ultimately begins to grow from its stabilization period today, we believe we're set to be among the winners in this space. We're investing for the long term.
Great, thank you very much.
Thank you. And the next question comes from Gautam Sallal with Credit Suisse.
Good morning and thank you for taking my question. Can you please walk us through the growth dynamics in the data and access segment? Organic growth came in at 12% in 2022 above your medium term 7 to 10% guidance. On your 2023 outlook, you kept it in the range. Can you expand on what some of the new product sale opportunities are?
And if there is a growth deceleration, or maybe some of the factors that drove the elevated growth in 2022, is that why you stick to the medium term range?
Thanks for the question Ken, so as you point out 2022 was a phenomenal year with the 12% growth there. We continue with the industry leading 7-10% guide as we really see continued opportunities to build on what we've built there. We talked about the revenue investments to really build that.
great platform for the index business to make everything scalable and also the cloud investments there. As we look forward to build on that you know on that growth rate of seven to ten after a 12% year is really solid and reflects our excitement for this particular segment. So what we're excited about is again the cloud opportunity.
So the opportunity there to continue to grow the sales and access.
as it comes through there. And then also adding new data sets, we mentioned the SIBO digital addition to the CCCY channel, the 24-7 SIBO global indices channel. So really excited about that as we go forward and then leaning in again to that defined outcome overwrite strategy.
trends we've seen as we've been in the home of those index calculations and many of the listings associated with those products from global global issuers that we've been able to attract to the platform. And then it's the options analytics. We're going to move that capability by adding European data sets and bringing that capability to Europe with our customers that take their US.
product there looking to expand that into Europe . And then the growth really is predominantly around selling what we have, it's growth of existing subscribers and units across the platform there. And when you look back on 2020 and you see 60% of new market data sales coming from outside the US you can see...
the real focus there is what you think internationally.
Thank you. Thank you. For the next question, console Alex Cram with UBS.
Yeah, hey, good morning everyone. Wanna switch gears to the SPX ecosystem and specifically the zero DTE trading? I'm curious to what degree you see a real ecosystem building there in particular on the institutional side.
I guess why I'm asking is I think people still believe 50-80% of that business is retail. And you know, institutionals I think are entering the market. But what I hear is they are trading more around certain events versus being there systematically every day. So just wondering, are you seeing that maybe changing this zero DT becoming a real ecosystem?
with DGE but I think most importantly is it's not the expensive.
You know more traditional historical third Friday. That's the good news that base remains prepared very constant So any new movement into the dailies similar to retail looks to be and you know a Cretan board new flow and new strategies and it is Very much based on the moves that we see
over the last year or so, substantial and meaningful moves in the S&P 500 on a daily basis today, yesterday, basically every day this week is a perfect example. As far as education, it's really...
You really just make the products available for institutions and institutions talk to other practitioners on the success or not of new strategies. So our focus has been on
wallet size and having products for everyone to access the 0DTE. In particular, we called out the 110 size SPX and XSP and watching that growth. I would point to that as being more retail and the SPX volume and growth that are coming from retail platforms.
are still small orders and still a mix between single leg and multi leg strategies. So you hear the theme repeated here, defined outcome investing tends to be much more sustainable and that's what we're teaching. Institutions I think will...
catch on and add to that traditional third Friday and simply just gain more exposure and short data.
catch on and add to that traditional third Friday and simply just gain more exposure
Thank you. And the next question comes from Dan Fanon, which operates.
Thanks, good morning. Brian , I want to come back to expenses. And I know you just gave a lot of color on the growth and what the initiatives are. I was hoping you could put some numbers around the ROI or the incremental revenue growth you are expecting from those investments, but also to maybe avoid some of the confusion going forward.
How do we think about normalized expense growth? Or are you in a multi-year period where we should be thinking about growth investments plus core expense growth? So this elevated expense growth isn't just for 23, it should be over a multi-year period.
Thanks, Dave. Good color. I'm happy to provide a little bit more around that. I would say part of this is as we continue to see that return and a little bit of this is we'll continue to provide the incremental contribution to the extent that we can.
the network that we have and we don't have perfect clarity given the way the clearing works as to some of the investments and the increment of every single initiative. We know that in the aggregate when you look at the broader ecosystem that as you increase access and distribution.
and let's say for the SBX complex and the things that we've done there, right? So we may see that incremental trading volume on certain initiatives and broadening 24 by 5 for example, introducing the new, you know, more expirations. The collective benefit of that is hard to separate into any one single initiative from that investment.
We tend to look at it in totality to try and measure it, again, because we don't have the clarity of the back end to see exactly who traded what. But we can see the broader volumes and so we have some limited view of that. But we will look at it, like I said, in the aggregate and continue to make an assessment every year as to did that exceed our, you know, our overall quality of life.
at a minimum that invested return on invested capital and Because that is our primary I'll call it preference as far as capital allocation goes those organic initiatives To generate incremental returns So as we think about that we'll continue to evaluate that on a some of that might be a multi-year basis to understand the traction behind that
I would say that, and we said this last year again, I think the moderation maybe was a little bit less than maybe what folks were expecting. But we would expect in 24 and 25 as we continue to expand the network and as we start seeing some of the initiatives take off, we would expect to see a little bit of margin expansion in some of those new initiatives from the, particularly from the acquisitions that are coming on board, right? Yes.
The wonderful thing, I actually love our margins, we love the scale of our core business, and as we continue to expand, when we bring some of those operations on, you're going to get a bit of a mixed dilution as far as margin goes, but you're having some really strong revenue, future revenue opportunities.
And you're going to start seeing that in 24 and 25. And so we would expect to see more margin expansion. And you'd see a moderation of that adjusted operating expense growth kind of beyond 23. So I want to say we're going to back off of the growth investments. Again, we've called that out.
I'll call it, because of our efficiency and what we've done historically. And we don't want to just blur that and say we're just, you know, the way that we're spending. So we want to call it out, continue to measure those returns. We have a return on invested capital expectation of greater than 10% on everything that we do. Again, some of those are going to be multi-year periods to wait, to measure, and some of those will be current year. So …
That's the framework with how we're thinking about it. And I would say, without giving explicit guidance for 24 and 25, we would expect to see that growth rate moderating.
That's helpful. Thank you.
Thank you. And then I ask question from Brian , but I will throw it you back. Great. Thanks for being my question. You're just building on Dan's question. How do you think about that long-term sort of trajectory of a past? Obviously, there's so many different growth opportunities in your...
you start to shorten some of those time frames for profitability or is it sort of a, you of the sky is a limit on the potential for investment. And then just maybe real specifically, are we still looking at 25 million an annual revenue for European derivatives in year three, which I believe will be 2025.
the timing to get to profitability in SIBO Digital. So, I'll try to make sure I got all those. Okay, so on the first one, on the following up on Dan's question, the one thing I realize, and thank you for kind of actually asking to expand on that, is the time to get to the next level, which is the time to get to the next level, which is the time to get to the next level. So, I'll try to make sure I get all those. Okay, so on the following up on the following up on Dan's question,
The point that I didn't make as clearly as I would like to is with these investments and say we have the, you know, we might see an increase in transactional activity, say it's the S-to-X complex or the other prior trade index complex, what we see with that also is incremental DNA. We see the incremental non-transaction piece of this because of...
the need for incremental access. You'll see that in incremental access fees. You'll see that in incremental market data feeds. Dave touched on that as far as we've seen that growth and then by enhancing the distribution or ability then to deliver that we're seeing that growth.
of not only share of wallet in the access, but also that more new client and I'll pass over to Dave here in a second as we continue to round that out. So we'll see it across the entire flywheel as far as maybe some of the underlying, but also the transaction and non-transaction side as that entire ecosystem continues to build.
And Dave do you want to expand on that a little bit and then maybe talk about the EU derivatives and then we'll come back to and then maybe follow up with you and Chris on the digital. Sure yeah, so I guess I'll start with the European Derivatives PC. I like this one.
The value proposition, the opportunity set remained the same, the customer feedback remained the same and the gap between the volumes of training and index options between the two regions remained the same. Q4 we saw good growth, it was a record quarter in terms of volumes on the platform with…
new customers coming on, particularly in futures. And as we laid out in the past last time, it's about getting that stable price picture in the futures. Then it will be the options that...
follow suit from there and then for us this year the single stock options launching Q4 completely round out the offering in order for us to bring together the full ecosystem and offer the bulk benefits of a single margin pool and a single lit on screen market there in Europe . So for us the three-year guide which we moved about a year last quarter, we'll report it last quarter so the end of the year.
when we'll have break-even there, but a lot of this is dependent upon our derivatives growth, margin futures, and as we said, onboarding the syndicate as we bring them on. So I haven't put out exact break-even timing, but we are very bullish on the long-term growth trajectory for that business.
And the next question comes from Owen Lau with Oppenheimer.
Okay, great. Thanks for all the color. Thank you. And then next question, oh, allow with Oppenheimer. Good morning and thank you for taking my question.
Going back to Civo Digital, I think you guys are planning to list more tokens beyond the five tokens you have. Could you please talk about what other tokens you feel comfortable to list, and what is the process and timing of getting approval so that you can list these tokens.
back to Ciro Digital. I think you guys are planning to list more tokens beyond the five tokens you have. Could you please talk about what other tokens you feel comfortable to list and watch the process and timing of getting approval so that you can list these tokens. Thank you.
Chris, let me start and then he can give a view of the board and the direction. But you know, really what we're most sensitive to is regulation. We went gone into this eyes wide open and you've been following along with the rest of us that there's uncertainty over regulation and oversight.
We're embracing that regulation, so we need clarity around securities versus non-securities. But our customers, our syndication partners, are interested with us in broadening beyond the current coin offering. But we are patient. We have said this is a long-term play, a long-term move for us.
So we will be participating in and helping to form what the future looks like for oversight regulation. But we are very much.
We're very sensitive to where the SEC and the CFTC come out on classification. Crystal, a bit more.
Yeah, I think Ed covered it well there. We are going to be very conservative in our listing. We do desire to list new coins as there's clarity around regulation and as we see genuine customer demand from our customers and intermediaries. But we'll make sure that there's clarity there before we start listing new coins.
This is John , an additional thought there. We mentioned that we see real stability in the market and that doesn't mean that the market won't be unchanged in this new environment. Among the things that we see going forward is that there will be an increased concentration of orders so that people learn've all the skills needed to help out. That's one thing to keep in mind if it's about building additional
on the tokens people feel comfortable with from a regulatory standpoint, from a compliance standpoint. So that I think that's just a reality we see going forward. And we're fine with that. We recently had to reach out from a significant asset manager who wasn't prepared to join us in our first iteration. Really interested.
in considering offering exposures to their clients. And they're not talking about the long tail of smaller assets. They're really focused on the most embedded, the most comfortable and understood exposures.
That's the opportunity for us.
That's the opportunity for us. Thank you very much.
Thank you and the N pres restaurantferenil Michael Cyprus, as portan Stanley.
All right, good morning. Thanks for taking the question. I want to circle back to your revenue outlook. Your total revenue guide is 7 to 9% organic, total firmwide. That includes the DNA ripe, but also I imagine also captures transactional revenues in there as well. So just the question on that, what areas do you anticipate being most meaningful and contributing on the transactional side to your 7 to 9%.
In the I&R Derivatives Complex forms a good portion of the driver for the continued revenues growth of 7-9% into next year. As you say that's total so it does include the Data and Access Solutions as well which is also a compelling driver as part of that growth guide that we've given there.
As we see the growth of the utility in the customers of finding in deploying option strategies, we see that continuing throughout the year and really one of the catalysts there last year, of course, was the other addition of the Tuesday and Thursday weekly contract explorations that opened up the opportunities to end talked about earlier on.
I think in the quarter's patch what we called out is when investors move from the binary outcome of being long or short in Delta 1 and employ option strategies that allow them to define their outcome, that is an incredibly sustainable, sticky if you will, strategy. So we continue to teach that here at our institute.
We can continue to bring new products to the market through Cebo Labs and we engage with our customers globally at the demand in particular for US derivatives. But if you follow along like we do, listening to and observing what retail platform operators are saying, that derivatives demand is global. We see that and of course our concentration while primarily leading to 23...
bit of a mix shift in customer hedging to SPX and zero DT option contracts with implied volatility underperforming Realize Ball. Outside of changes to some of these dynamics and more unknown unknowns, what could CBOE on the innovation front and perhaps education front to boost the growing growth of VIX futures?
Let's start with just from a exchange perspective, we've recognized the power of this stack, the interplay and the rotation. We've talked about that for years. That our customers are very rational in the way they deploy their hedges or exposure. You've called this out. If in the over the last year, the observations of incredibly large moves interday, like
market may have run too far. They do grab the optionality and the hedge that's afforded by fixed exposure. So again, indifferent from basically and different from the economics there, what we are always said is the rotation makes sense. The hedges are rational.
So we continue to teach the differences and the expected payout and just want to make sure that we're bringing those exposures to customers with every size wallet. And teaching that through many contracts, many VIX futures for example and of course I mentioned earlier, XSP is the mini 500.
That's the approach, but we do see derivatives as sticky and sustainable. Thanks. Thank you. And the next question comes to Carl Voigt with KVW.
Hey, good morning. Maybe just one more on expenses. I apologize, Brian . But I'm wondering if you talked about the potential expense flex and how dependent it is on the revenue environment. So for example, if revenues came in below the low end.
that 7 to 9 percent organic guidance range should we expect a similar outcome in terms of coming in below the expense guidance range and would there be any pause on investments and then likewise if revenues come in above the guidance range does that cause expense growth to move higher than the range and should or should we expect the incremental growth to fall at the bottom line.
Any kind of framework you could help us with understanding the really the expense flex on either end of that range would be helpful.
Thanks Kyle, I think you choose to have another career as a CFO as part of that, that would be awesome. So I think you think about exactly the way we frame that and what we've talked about it right is that we've laid out this guidance, we've laid out our plans, we have certain expectations around how these investments are going to contribute to the revenue and some of the traction we...
we think we will gain. So there's definitely opportunity to flex. There's obviously our natural flex that isn't part of our short-term incentive plan that will flex based on how we're doing relative to, I would say, these very strong growth targets that we've set aside so set for ourselves.
So there's definitely an inherent part of that is that we are not achieving that. We will titrate the various levers there to say, how does this pull back to make sure we get to those earnings expectations of what we're trying to deliver for shareholders and continue to measure that. And then on a go forward basis outside of, call it that incentive structure as far as
you know, exceeding expectations, we're a little bit more cautious on the upside. We'll be faster to move on the downside as far as pulling that back if we don't see the results that we're expecting. But we'd be more cautious to actually raise it as you've probably seen historically with some of that kind of expense growth going forward. So...
That's the way I would frame a cow.
I would frame the cow. Great, thank you very much.
Thank you. And the next question comes from Rick Fellinger with Autonomous. Hi, good morning. I was hoping you could speak to the competitive environment and SPX options.
Your competitors now announced their intention to launch daily explorations for their micro S&P futures. Do you expect this to have any direct impact on the success you've been seeing?
I don't, just a reminder to everyone on the call, the amount of retail futures accounts is dwarfed by the amount of retail securities accounts. It's quite a bit more difficult to open futures accounts for retail. I hope that it starts to take anything.
day, we try to make an experience better. I think feeding the system and growing the pie if there are investors who prefer futures, we all think that's a good thing. So the daily exposures and what our competitors might be doing in the space daily futures, we just think the opportunity to pie in the awareness is growing. And we're...
we're confident that we will continue to be the leader in the space. Thank you. And this concludes the question and answer session. And now we'll turn it over to the management for any closing comments. Yes, so that completes our call for today. Thanks everyone for the time.