Q4 2024 Cboe Global Markets Inc Earnings Call

Speaker Change: Thank you for standing by. At this time, I would like to welcome everyone to the CBOE Global Markets fourth quarter earnings call. All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thank you.

Speaker Change: I would now like to turn the call over to Ken Hill, Head of Investor Relations and Treasurer. Ken, please go ahead.

Ken Hill: Good morning and thank you for joining us for our fourth quarter earnings conference call.

Ken Hill: On the call today, Fred Tomczyk, our CEO, and Dave Howson, our global president, will discuss our performance for the quarter and provide an update on our strategic initiatives.

Ken Hill: Then, Joe Griebenow, our Chief Financial Officer, will provide an overview of our financial results for the quarter, as well as discuss our 2025 financial outlook.

Ken Hill: Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer.

Ken Hill: I'd like to point out that this presentation will include the use of slides. We'll 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.

Ken Hill: During our remarks, we'll make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties.

Ken Hill: Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements.

Ken Hill: Please refer to our filings with the SEC for full discussion of these factors that may affect any forward-looking statements.

Ken Hill: 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.

Ken Hill: During the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings material. Now, I'd like to turn the call over to Fred.

Fred Tomczyk: Good morning and thank you for joining us today. I hope the year is off to a great start for everyone.

Fred Tomczyk: I'm pleased to report on strong fourth quarter and full year results for Cibo Global Markets.

Fred Tomczyk: During the quarter, we grew net revenue 5% year-over-year to $524.5 million and adjusted diluted earnings per share by 2% to $2.10 over a strong fourth quarter in 2023.

Fred Tomczyk: These results capped another record year, which saw us grow net revenue 8%.

Fred Tomczyk: Our results for the year were driven by a solid volumes across our derivatives business.

Fred Tomczyk: Strong volumes across our cash and spot markets, growth of our data advantage business, formerly known as Data and Access Solutions, and more disciplined expense management.

Fred Tomczyk: I'm incredibly pleased with the strong 8% net revenue growth in 2024, coming against a modest 6% increase in adjusted expenses.

Fred Tomczyk: Stabilizing our margins and driving a 10% improvement in adjusted diluted earnings per share for the year.

Fred Tomczyk: While the robust option volumes were a standout for 2024, the results were notable in that each category, derivatives markets, data vantage, and cash and spot markets contributed to the fourth quarter and full year growth.

Fred Tomczyk: Record-setting trends drove broad-based growth across business lines as every major segment and category produced year-over-year net revenue growth in 2024.

Fred Tomczyk: Our derivatives business delivered a solid year with organic net revenue increasing 8%, wrapping up another record year of option volume growth.

Fred Tomczyk: Total volume across CBOE's four options exchanges was $3.8 billion contracts traded in 2024 with an ADV of nearly $15 million contracts traded, a fifth consecutive record-breaking year.

Fred Tomczyk: For 2024, we saw record volume in SPX and VIX options as investors turn to our S&P 500 Volatility Toolkit to help navigate markets.

Fred Tomczyk: ADB and SPX Options was a record 3.1 million contracts traded, while ADB and VIX Options was a record 830,000 contracts traded.

Fred Tomczyk: Our data vantage business finished the year strong, driving a 7% increase in organic net revenue in 2024.

Fred Tomczyk: The technology investments we made to further optimize access, data, and insights for our data vantage business drove positive results for SIBO and our customers.

Fred Tomczyk: We continue to see durability in this business as we leverage our global footprint and technology enhancements to drive growth.

Fred Tomczyk: Our cash and spot markets performed well during the year as organic net revenue increased 10%, driven by healthy trading volumes and growth across all of our regional equities markets.

Fred Tomczyk: Overall, it was an excellent year for both transaction and non-transaction growth, capped by a strong fourth quarter for CBO.

Fred Tomczyk: As we entered 2025 with our sharp and strategic focus and framework, we outlined last quarter we believe that we're well positioned for the secular trends that we expect to continue shaping the markets globally.

Fred Tomczyk: the rising popularity and adoption of options trading, the continued rise of the retail investor, the globalization of markets, and the rapidly evolving area of technology and data management, including newer technologies like artificial intelligence.

Fred Tomczyk: 2024 was another record-breaking year for the options market as more investors embraced the utility and versatility of options.

Fred Tomczyk: Our derivatives business remains resilient, supported by a growing customer base.

Fred Tomczyk: Demand for access to the U.S. market and an increasing demand for options.

Fred Tomczyk: A combination of these trends means that we're well positioned as we enter 2025 to further expand and enhance our derivatives ecosystem.

Fred Tomczyk: With our diverse suite of products, we are well situated to help market participants navigate the elevated uncertainty we're witnessing across the market and geopolitical environment.

Fred Tomczyk: We believe the new administration in Washington has a markedly different tone signaling a pro-business environment with regards to deregulation and tax cuts, fostering a bullish sentiment.

Fred Tomczyk: However, significant uncertainty remains around the strange geopolitical environment combined with the record number of executive orders and the more recent tariffs coming out of the new administration.

all of which injected volatility in the market.

Fred Tomczyk: As markets evolve in response to these events, our SPX and VIX products provide an unparalleled toolkit for investors to help seize opportunities and hedge their portfolios around the clock.

Fred Tomczyk: We believe that the strong performance in the U.S. market, with the S&P 500 index notching a return of more than 20%, for two consecutive years, will continue to attract new investors, both domestically and internationally.

Fred Tomczyk: On the retail front, we continue to work with key retail broker partners across the globe to expand access to our products and education so more investors can leverage the numerous benefits of index options.

Fred Tomczyk: I'm pleased to report that SIBO's index options are now available to all customers at Robinhood, one of the largest options trading platforms for retail investors.

Fred Tomczyk: We believe that retail adoption of index options still has room to run, and CBOE is well positioned to meet this growing demand through education, access, and product innovation.

One of the core components of innovation is technology.

Fred Tomczyk: And over the last year, we have reallocated capital and resources to rewards investment in our exchange technology platform.

Fred Tomczyk: Last month, we unveiled a new brand identity for this platform, Simo Titanium, signaling an exciting new chapter in our ongoing evolution and commitment to delivering best-in-class trading technology for our market participants around the globe.

Fred Tomczyk: Cebo Titanium enables innovation across our markets, products, data and insights all on a unified and scalable global technology platform.

Fred Tomczyk: In every new market we have entered, our market share has improved following a migration to SIBO technology.

Speaker Change: As we enter 2025, I'm excited about how CBOE is positioned.

Speaker Change: Our strategic framework is well aligned to the secular trends we see in the capital markets we compete in and leverages our strengths.

Speaker Change: Our balance sheet is in a strong position that enables us to follow a disciplined and long-term approach to capital allocation.

Speaker Change: And we're well suited to invest in strategic organic growth opportunities that drive growth not just in 2025 but beyond. I'll now pass it over to Dave to discuss the business line results in more detail.

Dave Howson: Thanks Fred. Starting with our derivatives business, on a full year basis, net revenues were up 8%, led by another year of strong index options growth.

Dave Howson: We remain excited about the secular trends in place for our options business as SPX options volumes increased 7% year-over-year to a record ADV of 3.1 million in 2024.

Dave Howson: While VIX Options ADV hit a record high of 830,000 contracts, up 12% from 2023's record.

Dave Howson: The fourth quarter showcased the utility of our S&P volatility toolkit in helping investors quickly and effectively navigate changing market conditions.

Dave Howson: While we saw a pick-up in hedging demand going into the US election, we saw a risk-on rally that caught many investors by surprise following the results.

Dave Howson: SPX call auctions volumes jumped post-election as investors used auctions to quickly adjust their portfolio. Meanwhile, VIX put volumes surged higher as trades positioned for a normalisation in volatility.

Dave Howson: While volatility conditions and market outlooks changed, what stayed constant was the sustained growth in our zero DTE options in both SBX and RUT.

Dave Howson: In the fourth quarter, SBX0 DTE Options ADV gained 8% quarter over quarter to nearly 1.6 million contracts, now making up over half of all SBX Options ADV for the first time.

Dave Howson: Since we launched daily expirations on options on the Russell 2000 Index last January, RUT option volumes have grown 11% year-over-year, with the share of zero DTE options trading doubling from 11% in January 2024 to 23% in January 2025.

Dave Howson: As we look ahead to this year, we see a sustained need for investors to stay nimble in the face of changing monetary and fiscal policies in the US, as well as rising trade tensions globally.

Dave Howson: We believe options are a great tool in these environments as they allow investors to quickly reposition and hedge their portfolios as market conditions change.

Dave Howson: Against this macro backdrop, we're excited to work towards broadening access to our products, increasing education efforts for all investors, and showcasing the advantages of our expanding S&P volatility toolkit to help manage risk.

Dave Howson: On the access front, we are well aligned with the secular drivers of our business, including the rise of the retail investor.

Dave Howson: We are pleased with the early traction following the Robinhood launch in the fourth quarter and anticipate the increased volume from the platform will be additive to our proprietary product volumes as we expand access to more retail traders.

Dave Howson: With the expanded access on the Robinhood platform, customers are able to leverage the full advantages of index options, from the simplicity of cash settlement and the certainty of European-style exercise, to the potential 60-40 tax treatment.

Dave Howson: Turning to our international endeavours, we are excited by the import and export potential of our derivatives products.

Dave Howson: We anticipate that making investments in our sales and educational efforts around the globe will translate to greater volumes being imported back to the U.S.

Dave Howson: In the Asia-Pacific region specifically, we remain focused on expanding our presence in our six priority markets Japan, Australia, South Korea, Singapore, Taiwan and Hong Kong by building a local sales source and educational tools tailored for local customers.

Dave Howson: During the fourth quarter we saw two new brokers turn on access in our priority markets, making SIBO products available for trading during global and regular trading hours.

Dave Howson: Outside our initial priority markets, we now have two brokers providing Malaysian investors with listed options.

Dave Howson: On the export side, Senex continues to add capabilities, with over 320 single-stock company options available to trade from 14 countries and record levels of open interest to finish 2024.

Dave Howson: And on the innovation front, the fourth quarter was a busy one for our product development team as we introduced two new ways to trade S&P index volatility through Variance Futures and VIX options on futures.

Dave Howson: Given the introduction of these products, education will be a key focus in 2025 as we continue to grow the toolkit.

Dave Howson: To maximize the impact of these initiatives across our global derivatives platform, we must have the right talents in place to drive success at Sibo.

Dave Howson: In addition, we recently outlined several new hires and key promotions to further strengthen our business development, market intelligence, and sales capabilities across the U.S., Europe, and Asia Pacific.

Dave Howson: We expect 2025 to be a transformational year as we leverage a strong bench of talent to provide customers with improved access, enhanced education, and continued innovation around our volatility toolkit.

Dave Howson: Moving to cash and spot markets, the fourth quarter produced robust results with net revenues increasing 14% on a year-over-year basis.

Dave Howson: This capped a strong year where net revenues increased 10%, giving solid contributions from all regions.

Dave Howson: 2024 was notable not only for the healthy results, but also the innovation across markets that helped drive improved market share in regions like Europe and Asia-Pacific.

Dave Howson: As we near the end of our integration efforts in Canada later this quarter, we are excited to leverage the full power of our global and cohesive trading infrastructure.

Dave Howson: In North America, a 28% increase in net transaction and clearing fees during the fourth quarter helped improve net revenue for the segment by 10% on a year-over-year basis.

Dave Howson: industry volumes were a tailwind. The 22% growth in the US on exchange ADV, 5% growth in off-exchange ADV and 11% growth in Canadian ADV on a year-over-year basis.

Dave Howson: CAPTCHA in US on exchange equities improved 42% as compared to the fourth quarter of 2023 as we continue to strike the right balance between market share and CAPTCHA to optimise revenue.

Dave Howson: In Canada, we are excited to build on the solid 2024 trend as we anticipate completing the migration of our Canadian market to SIBO technology on March the 3rd.

Dave Howson: Our Europe and Asia Pacific segment delivered impressive 17% year-over-year net revenue growth in the fourth quarter and 16% growth for the full year.

Dave Howson: The increases were driven by higher net transaction and clearing fees, up 23% in the fourth quarter and 17% for the full year.

Dave Howson: For Europe specifically, FIBA was the largest European stock exchange for the fourth quarter, with our share of continuous trading volume hitting 33%, up nearly 90 basis points versus the third quarter's record level.

Dave Howson: The results were again helped by strength in periodic auctions with a market share of 87%, with periodic auctions accounting for a record 9.6% of continuous trading during the fourth quarter.

Dave Howson: In Asia-Pacific, we saw sustained progress in both Australia and Japan market share and industry volumes, driving year-over-year net revenue growth in the region.

Dave Howson: Turning to Data Vantage, net revenue grew 8% for the fourth quarter and 7% for the full year. Results in the fourth quarter were driven by increases in all three components of our Data Vantage business, real-time market data, analytics and indices, with notable strength in our dedicated cause offering and proprietary market data.

Dave Howson: More broadly, on a full year basis, the record results were underpinned by two hallmarks of SIBO data vantage that we expect to carry through 2025 and beyond. New product development and the ability to sell products across our global network.

Dave Howson: The uptick from our U.S. dedicated cause launch in 2024 exceeded our expectations.

Dave Howson: We have built on that success by rolling the product out across Europe and Australia in the first quarter of 2025, highlighting our ability to take a product working well in one region and replicate that success across our global network.

Dave Howson: With our technology team shifting from migration work to revenue generating activities, we look forward to further product development that leverages our scaled infrastructure.

Dave Howson: Looking at our sales trends to take advantage more broadly, in 2024 we saw net new annual contract value hit record levels, increasing 33% year over year.

Dave Howson: International growth was healthy, with 40% of new sales coming from outside the U.S.

Dave Howson: I am excited to build on that global growth with the largest sales and educational resources footprint across the globe. This investment should help amplify the benefits of our global network.

Dave Howson: The fourth quarter again highlighted the power of the entire ecosystem at SIBO, with derivatives, cash and spot markets, and SIBO data vantage all delivering durable results.

Dave Howson: 2025 will be a year of focused execution for SIBO by providing more uniform access, greater education and leveraging our differentiated set of products for investors.

Dave Howson: January is off to a great start with index options ADV running at record levels, trends we look forward to building on in the year ahead. With that, I will turn the call over to Jill.

Jill: Thanks Dave. FEBO posted a solid fourth quarter with adjusted diluted earnings per share up 2% on a year-over-year basis to $2.10.

Speaker Change: The fourth quarter results continue to illustrate the strength across our segments that was on display during 2024. I will provide some high-level takeaways from this quarter's operating results before going through segment results.

Speaker Change: Our fourth quarter net revenue increased 5% versus the fourth quarter of 2023 to finish at $524.5 million.

Speaker Change: The growth was driven by strength in our cash and spot markets and data vantage categories as well as solid results from the derivatives business.

Speaker Change: Specifically, cash and spot markets organic net revenues grew 14% on a year-over-year basis, with all geographies contributing to the growth.

Speaker Change: Adjusted operating expenses increased 7% to $205 million for the quarter, with the year-over-year growth driven by higher travel and promotional expenses, as well as technology support services expenses.

Speaker Change: Adjusted EBITDA of $332 million grew 3% versus the fourth quarter of 2023.

Speaker Change: Turning to the Key Drivers by Segment, our press release and the appendix of our slide deck include information detailing the key metrics for our business segments, so I'll provide some highlights for each.

Speaker Change: The options segment produced another quarter of record net revenue with 3% year-over-year growth led by higher multi-listed options transaction fees.

Speaker Change: North American equities net revenue increased 10% on a year-over-year basis. Net transaction and clearing fees grew 28%, reflecting higher industry volumes and an improved net capture rate in on-exchange U.S. equities.

Speaker Change: On the non-transaction side, access and capacity fees increased 14% as compared to the fourth quarter of 2023.

Speaker Change: The Europe and APAC segment delivered a 17% year-over-year increase in net revenue, a result of strong growth across both transaction and non-transaction revenues.

Speaker Change: Transaction revenues across each region benefited from market share gains as well as increased volumes versus the fourth quarter of 2023.

Speaker Change: Futures net revenue decreased 7% from the fourth quarter of 2023, with lower net transaction and clearing fees reflecting a 12% decrease in ADV.

Speaker Change: And finally, the FX segment recorded 3% year-over-year net revenue growth as a product of higher net transaction and clearing fees.

Speaker Change: Turning now to Siebel's DataVantage business, net revenues were up 8% on an organic basis in the fourth quarter.

Speaker Change: International sales enhanced growth, with 40% of new sales coming from outside the U.S. over the quarter.

Speaker Change: We believe DataVantage is positioned to perform well in 2025. More specifically, we expect increased capabilities around our data, access, and insights as we reallocate technology resources from integration efforts to organic revenue generating enhancements.

Speaker Change: We anticipate growth will be aided by greater demand for access across our global markets, particularly as we increase our sales presence in new geographies and leverage the distribution capabilities of SIBO Global Cloud.

Speaker Change: Turning to expenses, total adjusted operating expenses were approximately $205 million for the quarter, up 7% compared to the fourth quarter of 2023.

Speaker Change: The increase primarily resulted from higher travel and promotional expenses as well as technology support services expenses.

Speaker Change: I would note that the fourth quarter is a seasonally high quarter for travel and promotional expenses given our annual risk management conference.

Speaker Change: This year, we also saw an increase in our marketing spend, coinciding with the launch of index options on Robinhood's platform.

Speaker Change: While we plan to continue investing behind marketing efforts as we see opportunities for returns for our business, we expect to see travel and promotional expenses move lower sequentially from fourth quarter levels.

Speaker Change: As we look ahead on Slide 16 to our 2025 Guidance,

Speaker Change: We anticipate our data vantage organic net revenue growth to be in the mid to high single-digit range.

Speaker Change: And we expect our full year Total Organic Net Revenue growth to be in the mid-single-digit range. I would note that while we tweaked our guidance framework for 2025, both our Data Vantage Organic Net Revenue guidance and our Total Organic Net Revenue guidance are in line with the ranges we provided under our previous guidance framework at this time last year.

Speaker Change: We are also introducing our full-year 2025 Adjusted Expense Guidance range of $837 to $852 million, representing 4.8% growth on the lower end and 6.7% growth on the higher end.

Speaker Change: The 2025 guidance accounts for modest growth in our core expense lines, while allowing for investment to help drive incremental revenue expansion across CBOE's businesses.

Speaker Change: A few examples of the types of investments we plan to make include incremental sales hires in the APAC region, our securities financing transaction offering in Europe, and continuing marketing efforts to improve investor education and monetize the expanding access to our index options products.

Speaker Change: Taking a step back, in 2024, CBO produced 8% net revenue growth against 6% adjusted expense growth, stabilizing our adjusted EBITDA margin and expanding it by 30 basis points for the full year.

Speaker Change: We believe the 2025 Revenue and Expense Guidance outlined today strikes the right balance between investment for long-term growth and disciplined expense management as we look to drive long-term margin stability.

Rounding out the remaining pieces of our 2025 guidance.

Speaker Change: Our full year guidance range for CAPEX is $75 to $85 million, and depreciation and amortization is expected to be in the $55 to $59 million range.

Speaker Change: The year-over-year increase in CapEx and depreciation and amortization reflect our efforts to sustainably invest in the business where we see long-term growth potential. A portion of the CapEx budget is also earmarked for our Kansas City office move, which is planned for this summer.

Speaker Change: We maintain a sizable presence with many of our technology and operations, finance, and regulatory associates in the area, and we remain committed to investing in our people and culture.

Speaker Change: We expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for the full year.

Speaker Change: And while we don't provide formal guidance on interest income or interest expense, I wanted to highlight that fourth-quarter interest income outperformed our expectations given some additional accounts that started to earn interest income in higher cash balances.

Speaker Change: We expect that interest expense, net of interest income, will be in the $5 to $6 million range for the first quarter of 2025.

Speaker Change: The last element I wanted to touch on as it relates to our 2025 guidance is the below-the-line items, earnings on investments and other income.

Speaker Change: In past years, we have provided detailed guidance on these items, but today we believe that we have reached a more mature phase in our investment cycle and anticipate a more modest impact on our earnings and investments line in 2025.

Speaker Change: We anticipate other income will continue to grow gradually in line with cash dividends received.

Speaker Change: Turning to our balance sheet, the effective allocation of capital has been a cornerstone of our strategic review process. We take a long-term view in allocating capital to areas where we see the greatest returns, whether it be organic investments or in the form of share repurchases, dividends, or inorganic investments.

Speaker Change: In the fourth quarter, we returned a total of $66 million to shareholders in the form of a $0.63 dividend, bringing the total amount of dividends paid to $249 million for 2024.

Speaker Change: Factoring in both share repurchases and dividends for 2024, CBOE returned a total of $454 million to shareholders, representing 50% of adjusted earnings for the year.

Speaker Change: We enter 2025 on a strong financial footing with $880 million of adjusted cash on our balance sheet, an attractive debt profile with low, medium-term fixed rates averaging below 3%, and an average leverage ratio of 1.1 times.

Speaker Change: As we move forward, we anticipate leveraging our flexible balance sheet and healthy free cash flow profile to produce durable returns for shareholders.

Fred Tomczyk: Now, I'd like to turn it back over to Fred for some closing comments before we open it up for Q&A.

Fred Tomczyk: I'd like to thank the entire CBOE team for their incredible work in 2024 that led to record results.

Speaker Change: When I moved from the board to CEO in September of 2023, my priorities were to stabilize the organization after the sudden departure of the previous CEO.

Fred Tomczyk: sharpen our strategic focus, bring a more disciplined approach to capital allocation and leadership development and succession.

Fred Tomczyk: My first priority, unexpected succession, require an experienced CEO to lead the organization through that challenging time.

The management team has been stable since.

Fred Tomczyk: Our current management team is a strong team that is more unified than ever and focused on executing our refocus strategy.

Fred Tomczyk: Over the past 18 months, we've made significant progress sharpening our strategic focus and framework leveraging the core strength of our equity derivatives franchise.

Fred Tomczyk: We're well positioned to benefit from the secular trends as we start the year.

Fred Tomczyk: We have also changed our capital allocation strategy to focus less on M&A and more on investing in organic growth opportunities and allocating resources to line up behind our strategic focus.

following the completion of the two technology migrations this year.

Fred Tomczyk: This will be the first time in 10 years that our technology resources will be fully focused on the business and driving out our strategy as opposed to focusing on migrations.

Fred Tomczyk: Redeploying our technology resources enables us to leverage one of our greatest strengths to focus on strategic organic growth opportunities.

Fred Tomczyk: The company now has a clear organic growth strategy, moderated expense growth, and stabilized margins.

Fred Tomczyk: an attractive return of capital strategy, and a strong balance sheet.

Fred Tomczyk: As we enter 2025 on solid footing with a refined strategic focus and the financial flexibility to execute that strategy, while being well positioned to take advantage of opportunities as they arise.

Fred Tomczyk: Which brings me back to my last priority, leadership development and succession.

Speaker Change: CBOE has been through a lot of change in the executive ranks over the last 18 months.

Speaker Change: But not only did we get through all that change, I believe we've come out stronger and more unified as a team. This is a credit to the strong management team I have around me.

Speaker Change: While the board and I have devoted considerable time to leadership development and succession throughout 2024, in the latter part of last year the board engaged a search firm to more formally assist with the process.

Speaker Change: We have reviewed internal candidates and are also considering external candidates with the search forms help.

Speaker Change: While the board and I are putting greater focus on my succession, I will continue to serve as CEO until a successor is appointed and will help ensure a smooth transition.

Speaker Change: Upon transitioning out of the CEO role, I plan to remain a director on the board.

Speaker Change: I will continue to work closely with the management team to execute our strategy and drive continued success for CBOE.

Speaker Change: We have many exciting initiatives underway, and I remain steadfastly committed to ensuring we stay focused on our long-term goals. With that, I'll turn the call back over to Ken for Q&A.

Speaker Change: At this point, we'll 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.

Speaker Change: Thanks, Ken. And at this time, again, if you'd like to ask a question, press star 1 on your telephone keypad. Once again, star 1.

Speaker Change: and we will pause just a moment to compile the Q&A roster.

Speaker Change: Looks like our first question today comes from the line of Patrick Moldy with Piper Sandler. Patrick, please go ahead.

Yeah, good morning. Thanks for taking the question.

Speaker Change: So, I just had one on the DNA Revenue Guide or Data Vantage that you're calling it now. Jill, you mentioned it or you touched on it a little bit in the prepared remarks, but it does seem like the mid to high.

Speaker Change: Single-digit revenue growth range is a little weaker than the seven to ten percent that you guided to the last few years So could you just maybe talk about some of the drivers that went into the decision to adjust the parameters there? And is it incorrect for us to think that the growth outlook there has softened a little bit. Thanks

Speaker Change: Yeah, you bet. Thanks for the question, Patrick. So, just to clarify, you know, historically, we provided a great deal of more granularity in our guidance, and we've just, we want to be helpful, but we believe that what we've moved to today in the refreshed guidance language reflects more of the market standard, but remains consistent with our prior ranges.

Speaker Change: So as I alluded to in my prepared remarks, again, very consistent with the guidance ranges that we provided a year ago at this time, so thank that 5-7% for net revenue and then 7-10% for the data vantage.

Speaker Change: Okay, thank you Patrick. And our next question comes from the line of Ben Budish with Barclays. Ben, please go ahead.

Speaker Change: Hi, this is Chris. I'm on for Ben. Thanks for taking the question. I actually wanted to dig into Robinhood a little bit. It sounds like it's been a healthy start for index options over there, and I know it's early days, but

Speaker Change: What is the uptake among FTX and the smaller XSP contract look like?

Speaker Change: and kind of what the mix looks like of the product adoption for this customer. And can you maybe dive into some of the initiatives that.

Speaker Change: might help increase the education and drive further adoption as they get going. Thanks.

Speaker Change: Absolutely, it's Dave here, thank you for the question there. We'll talk a little bit about how we think about attacking the retail space and we've mentioned it before, it's really across three pillars, that's access, education and product.

Speaker Change: When we look specifically at the Robin Hood rollout from the access point of view, it's exceeded our expectations in two ways.

Speaker Change: First, that it's been quicker than we expected. And second, that the uptake has been greater than we had expected.

Speaker Change: So we stand today with the mobile device rolled out for index options, and we saw Robinhood roll out index options to the Legend platform in recent weeks, which was ahead of our expectations.

Speaker Change: and the volumes that we see coming through are, in our estimation, largely additive.

Speaker Change: Then when we go to the second pillar of education, what's been encouraging to see through time is the increased use of more complex strategies or spread trades in particular as the rollout has progressed, which means the toolkit, the index options are being used in a manner that we would expect them to be used.

Speaker Change: Thirdly, then coming to product, what's been really encouraging is that customers have used the core of our volatility toolkit.

Speaker Change: And to the profile that you asked about there, we've seen most of that flow coming through SBX, but what also is being really positive is actually all three of those products have grown in usage as the rollout has progressed.

Speaker Change: So that tells us that the customers are really accessing that simplicity of cash settlement, certainty of European exercise, and accessing the potential benefits of that 60-40 potential tax treatment there.

Speaker Change: as the key retail brokers that we have on the platform.

Speaker Change: And so as we think about international growth there as well, that's where we spend our time as well, on education, joint marketing, and increased Salesforce boots on the ground to help tell the story. So the outlook for 2025, as we continue here, is a really constructive setup, and just think about those nearly 25 million funded accounts.

Speaker Change: with what we understand to be 4% penetration for options there. That's a really solid runway for us to continue to access throughout 2025.

Speaker Change: Thanks Chris for the question and our next question comes from the line of Jeff Schmidt with William Blair. Jeff please go ahead.

Jeff Schmidt: Hi, good morning. Could you discuss some of the initiatives you have on the AI front that could help customers generate more revenue? Thanks.

Jeff Schmidt: Yeah, sure. Good morning, Jeff. Thanks for the question. As we mentioned last year, we created an AI Center of Excellence internally last year, and we've been adopting AI quite a bit internally to improve productivity. And out of that AI Center of Excellence, we've created an internal platform that we think is going to help us develop new products.

Jeff Schmidt: as well as grow productivity amongst our engineering staff and across all the functions and associates we have. We don't have any immediate revenue opportunities to talk about with the use of AI, but we are working with the platform now to...

Jeff Schmidt: to work with our sales teams and our product teams to see what insights we can get out of all the conversations we're having with our customers as well as our unified data platform internally.

Jeff Schmidt: So, nothing immediate to report, but we're investing a lot internally in AI to then hopefully bring new products to market that can serve customers.

Thank you.

Speaker Change: Great. Thank you, Jeff. And our next question comes from the line of Alex Cram with UBS. Alex, please go ahead.

Speaker Change: Hey, just maybe since the beginning of the year capital allocation is a topic we should talk about. Notice you didn't buy back any stock in the quarter but then Fred

Alex Cram: You also talked about, you know, obviously thinking about M&A a little bit differently over the last year or so since you've taken over. So maybe if you could just give us your latest updates, why you didn't buy back stock and then where you're still interested in enhancing the products with M&A.

Hello.

Speaker Change: I can start with the share repurchases and then maybe turn it back over to Fred to comment on the M&A piece, but as it relates to share repurchases, I think we've messaged before that obviously it would be an important part of our capital allocation strategy. You see the strong balance sheet that we have, but as Fred mentioned in his closing remarks, given where we were in the succession planning process in the later part of the year,

Speaker Change: and the fact that it wasn't public, we just decided that it wasn't appropriate for us to be out in the market repurchasing our shares.

Speaker Change: Again, that doesn't mean that it won't be part of our strategy in the future, it absolutely is. Like I mentioned, very, very strong balance sheet. We will continue to be opportunistic. And again, share repurchases will remain an important part of our capital allocation framework as we head into 2025 here.

Speaker Change: Thanks, Jill. With respect to M&A, I think I'll be consistent with what I've said in the past.

Speaker Change: which is, you know, any M&A that we do has to make strategic sense and financial sense and move the needle. Or, if it's a little smaller, it has to fit within an area that we prioritize strategically.

Speaker Change: And we look at any M&A and leverage the scale and technology that we have, and also make sure it lines up with the secular trends, such that it will deliver long-term value and enhance the growth profile of CIMO.

Speaker Change: But back to Joe's point, return of capital remains an important part of our capital allocation strategy.

Great. Thanks, Alex.

Speaker Change: And our next question comes from the line of Michael Cypress with Morgan Stanley. Michael, please go ahead

Thank you.

Michael Cypress: Great. Thank you. Good morning. Just a question on U.S. equities trading and your announcement to move to 24-5. Just hoping you could elaborate a bit on the opportunity set that you see here. If successful, what might we see in terms of contribution to volume? Maybe you can remind us what you see across extended day.

Michael Cypress: and just more broadly, what are some of the hurdles here that you might see to implement timeframe? You know, why not go to 24-7 all the way and why you chose to run this on EdgeX versus other exchanges that you have? Thank you.

Speaker Change: Great, thanks for the question. I'll tag-team this answer with Chris as we go through here. So, 24-5 is something that we already do at SIBO. If you look at our proprietary index complex, we operate 24-5 over our scaled infrastructure and scaled operations teams.

Speaker Change: When we look at the demand with our global footprint, we get to have those eye-level, on-the-level discussions with customers around the world, and in particular in Asia-Pacific we're seeing increased demand over time for accessing the U.S. equities market during the daylight hours of those investors, of those market participants.

Speaker Change: Also on that platform, we have some differentiated functionality which appeals to retail investors. So really, that venue very much primed to be set up for extending hours there.

Speaker Change: will be ready for us to go there and we've as we stated will be ready to go at that time.

Speaker Change: because in return for that we also see demand for our global equities data and we do when we're accessing that day-to-day as we go through and putting boots on the ground to sell our US equities data internationally so really that's a great feeder for us to be able to step into this.

Speaker Change: But with that, I'll pass over to Chris for some more comments and potentially on 24-7. Yeah, Michael, thanks for the question. Dave covered it pretty well. As you said, this is really customer-driven. Given our 27 markets around the world and our global footprint, global infrastructure, we're hearing a lot of demand from customers. They want to trade.

24 by 5, as Dave has mentioned.

Speaker Change: And we think there are global data opportunities, usually the sale of data is a precursor to them wanting to trade. And we see a lot of demand for U.S. equities data outside of the U.S., in fact, driving a lot of demand there.

Speaker Change: Dave mentioned why we're covering EDGEX. That's been a more retail-heavy equity exchange. It already has long trading hours starting at 4 a.m. going all the way to 8 p.m.

You asked about 24x7.

Again, I think that's really a market infrastructure readiness question.

Speaker Change: just the industry getting to 24 by 5 is the first big step, being able to clear and then have a consolidated tape on the weekends in U.S. equities.

Speaker Change: would require, I think, some substantial plumbing changes within the industry, which, given enough customer demand, we would work with the industry to figure out if we could meet that demand. But right now, we first need to get to 24x5 or nearly 24x5 to meet the customer demands.

Speaker Change: I will mention, as Dave also said, we already trade 24 by 5 or nearly 24 by 5 across many of our markets. And even in January, given the geopolitical events and what went on, we saw a tremendous amount of global trading hours trading in our derivatives markets.

Speaker Change: to good effect there. So just looking forward to serving customers as we deliver client-driven solutions.

Thanks, Michael.

Speaker Change: And our next question comes from Ashish Sabhadra, excuse me. Ashish is with RBC Capital Markets. Ashish, please go ahead.

Ashish Sabhadra: Thanks for taking my question. I was just wondering if you could comment on the price increases for options in 2025. And then just as we think about the adoption of greater retail adoption of options, how should we think about that influencing RPC going forward? Thanks.

Ashish Sabhadra: Thanks for the question. As we look at our options complex, I would divide that for you into two broad categories. One would be the multi-list options complex and one would be the proprietary index complex.

Ashish Sabhadra: The venues are calling to the latest market conditions and customer flows, where our objective is to balance market share.

Ashish Sabhadra: with CAPTURE to optimise our revenue, so those changes are quite dynamic.

Ashish Sabhadra: You look at the last five years and the incredible rise of retail adoption of options, going from single stock options...

Ashish Sabhadra: in the proportion and the total percentages of zero DTE trading in the SBX complex in particular. If you look at January 25 to January 24, there was nearly an 11% growth in zero DTE trading, which has been particularly attractive to retail.

and then more generally in retail.

Ashish Sabhadra: As we spoke just earlier on this call, it's about focusing on education. It's a fundamental tenet.

Ashish Sabhadra: EquityVol Liquidity Pool in the world being the SPX so we'll continue to do that as we make hires in region and I was really pleased to announce the broadening out of our team in the option space with Megan Duggan but also the addition of market intelligence

Ashish Sabhadra: hires coming in the Asia-Pacific region, so really broadening and deepening our bench of derivatives expertise to serve that customer base more acutely as we go into 2025.

Speaker Change: Thanks for the question, Ashish, and our next question comes from the line of Craig Siegenthaler with Bank of America. Craig, please go ahead.

Speaker Change: Good morning, this is Eli Aboud from Craigsteam. Thanks for taking the question. Can you elaborate on the recent decision to rebrand Cibo's technology platform as Titanium? What's the materiality of that change? And I know some of your exchange peers have been successful white labeling their technology to third-party trading venues. Should we read this as a step in that direction? How do you think about that opportunity as well?

Speaker Change: Thanks for the questions. Chris here. We decided to name Xevo Titania, our technology that runs all of our equities, options, and futures markets around the world. Because as Fred mentioned and others,

Speaker Change: The technology is a core strength of us here at CBOE, and we think it needs to have a brand in order to accentuate that strength. To your question about whether or not we plan to monetize and sell the platform itself as a software service,

Speaker Change: and other exchanges. There's no current plans for that. Our plans are just to continue to invest in SIBO titanium as it dries.

Speaker Change: our derivatives business, our data vantage business, and all the markets we operate around the world. So no plans to commercialize it specifically today, just plans to continue to invest very heavily in it as it drives and powers our business around the world.

Thank you.

Speaker Change: All right, thank you for the question, Aliyah. And our next question comes from the line of Owen Lau with Oppenheimer. Owen, please go ahead. Good morning and thank you for taking my question. So for the succession plan or search, could you please talk about the characteristic of the new CEO, why now, the timing of the search, and how will this search impact the strategy you have put out so far? Thanks.

Okay, well, let me start with the why now

Speaker Change: When I stepped into the job, I had the three or four objectives that I mentioned earlier to stabilize the organization, to sharpen the strategic focus, and then work on leadership development and succession.

Speaker Change: If you look back at what I've done since I've taken over as a CEO, the situation has been stabilized.

Speaker Change: The strategy has been sharpened, the strategic focus has been sharpened.

the management team, which is a strong team.

is now focused on executing that strategy.

and the balance sheet is in great shape.

Speaker Change: So with all that, you know, completed, the last part was obviously on leadership, development, and succession. And the board and I felt this was the right time.

Speaker Change: for a whole variety of reasons to move on that and get the organization more stability for a longer period of time.

Speaker Change: With respect to what we're looking for in the CEO, I mean the board does have a list of qualities and characteristics they're looking for. I'm not going to get into each one of those But you know, they're very clear on what they're looking for and why And I would repeat, you know, we have a very strong team here

Speaker Change: So that's really the logic and the reasoning and, you know, basically from my point of view I've completed what I set out to do when I stepped into the role in an unusual situation and it's now time for me to go back to the board.

Speaker Change: All right, thanks for the question, Owen. And our next question comes from the line of Alex Blostom with Goldman Sachs, excuse me. Alex, please go ahead.

Speaker Change: Hey, everybody. This is Anthony on for Alex. Maybe just one on the SBX franchise. What are you seeing in terms of customer trends that can maybe re-accelerate growth from here? And maybe I've missed it from earlier on the call, but what do you expect the volume contribution from HUD to be throughout the year given the early traction? Thanks.

Speaker Change: Thanks very much I think it's probably worth referring you to the earlier answer on Robin Hood which was a reasonably detailed but the just briefly there to say that the rollout was

quicker than expected.

Speaker Change: Funded accounts with only as we understand it around about 4% of them trading options a great runway They're really excited about the setup and frame that

Speaker Change: More broadly on the SBX complex, it's been a great start to the year when you look at the volatility toolkit at large coming into its own.

Speaker Change: You see resetting Fed expectations, inflation risk, fiscal outlook, uncertainty, markets whipsawed by headlines coming through on tariffs.

rolled out and then walked back.

Speaker Change: So what we saw in January is a lot of what we would likely expect to see.

Speaker Change: as the demand for hedges increased and we saw the second highest month on record for SPX options, higher than the record average for 2024 there.

Speaker Change: Also, Global Training Awards for SBX hit a record in January, so we're really encouraged by that as customers manage risks and take the opportunity to be dynamic and nimble using options 24-5, and Chris spoke eloquently about our capabilities to support flow there.

Speaker Change: then the Volatility Toolkit moves into VIX Options and we need to think about the toolkit together, not just one product or the other, and VIX Options also.

Speaker Change: provided great utility for that, the hedge potential for the tail risk that exists in the market. And we saw 925,000 contracts on a daily basis, average daily basis in January, which is 12% higher than the record in 2024.

So when you take that together...

Speaker Change: The volatility toolkit coming into its own, when we take into account the growth, that nearly 11% growth actually of zero DTE trading in SBX between January 24 and January 25, into account, we see a really great setup with cyclical trends.

The broadening of access to products is really encouraging.

Speaker Change: then you've got the direct and indirect access to options coming through options-based funds and ETS.

Speaker Change: where customers may be not quite confident yet to trade options directly can access that through derivative income funds, so also bullying volumes there. And then the product toolkit, just to bring it home, is really...

Speaker Change: Neatly coming together, as I said, that volatility toolkit really providing great utility for a very wide spectrum of customer types as we see a really encouraging setup for 2025.

Speaker Change: Thanks for the question, Anthony. And our final question today comes from the line of Dan Fannin with Jeffries. Dan, please go ahead.

Dan Fannin: Thanks. Good morning. Just to clarify a couple of the guidance comments. So for the new segment, Data Vantage,

Dan Fannin: Just to clarify, you're saying the old way that you guided to and talked about 2024 is still consistent and in that range?

Dan Fannin: And then on the below-the-line items, can you tell us what the actual dividends and interest was in 2024 to understand that that's to go forward versus some of the one, I guess, other things that markups that you were expecting or you booked this year just so we understand kind of the the run rate.

Dan Fannin: Sure, I'll start with the data manage question. So to answer your question there, correct, again, just we have been very, very granular from a numerical perspective in the past with our former guidance approach. So again,

Dan Fannin: range and then for the below the line items, I think we'll

Dan Fannin: We do have minority investments make up one portion of it, and then dividends from investments are another portion of it. So you do see the income from the minority investments drop a bit compared to what it had been previously.

Dan Fannin: Three years ago, when we made that investment in 2021, it's typical. You take quarterly marks based upon P&L pickups, a variety of market factors.

Dan Fannin: But over time, that investment cycle starts to mature, and that's where we are three years later, which is why you're starting to see that taper off a bit. The dividend income, though, from other investments, that continues to tick up. So, again, more granularity will be provided later in February in the form of that $10K.

All right. Thank you, Dan, for the question.

Dan Fannin: And that appears to be all the questions we have, so I will now turn the call back over to management for closing remarks.

Speaker Change: Thank you for joining us today, and I wish everyone a great 2025. We'll see you in April.

Dan Fannin: Thank you. And ladies and gentlemen, that concludes today's call. Again, thank you for joining and you may now disconnect. Have a great day, everyone.

Somewhere over the rainbow