Cboe Global Markets, Inc. (AMEX:CBOE) Q1 2024 Earnings Call Transcript

Cboe Global Markets, Inc. (AMEX:CBOE) Q1 2024 Earnings Call Transcript May 3, 2024

Cboe Global Markets, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome everyone to the Cboe Global Markets First Quarter Earnings Call. [Operator Instructions] I would now like to hand the call over to Mr. Ken Hill, Vice President of Investor Relations and Treasurer. You may begin your conference.

Kenneth Hill: Good morning and thank you for joining us for our first quarter earnings conference call. 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 the strategic initiatives. Then Jill Griebenow, our Chief Financial Officer, will provide an overview of our financial results for the quarter, as well as discuss our 2024 financial outlook. 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. 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.

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 involve certain assumptions, risks and uncertainties. Actual performances and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, after this call. During this call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.

Now, I’d like to turn the call over to Fred.

Fred Tomczyk: Thanks, Ken and good morning, everyone and thanks for joining us today. I’m pleased to report on strong first quarter results for Cboe Global Markets. During the quarter, we grew net revenues 7% year-over-year to a record $502 million and adjusted diluted earnings per share by 13% to $2.15. These solid results were driven by strong volumes across our Derivatives franchise, specifically our proprietary index option products, continued expansion of our Data and Access Solutions business and disciplined expense management. Our Derivatives business delivered another strong quarter as organic net revenue increased 8% year-over-year. We saw strong volumes across our suite of S&P 500 Index option products with first quarter ADV and the SPX contract increasing 17% year-over-year to 3.2 million contracts.

We have also seen solid performance in our volatility product suite during the first quarter with VIX futures and options volumes further accelerating in April. Given the secular and cyclical tailwinds in place, we are well positioned as investors continue to utilize options in their portfolio and trading strategies. Our Data and Access Solutions business continued to perform well during the quarter with organic net revenue increasing 8% year-over-year. We continue to see durability in this business as we leveraged our global network and ecosystem of Data and Access Solutions to drive growth. Net revenue in our Cash and Spot Markets business were stable during the quarter as volume across global equity markets remain muted. Overall, it was a strong quarter for both, transaction and non-transaction revenue growth to start the year.

I continue to remain focused on 3 priorities that I believe will further strengthen Cboe and support our longer-term growth strategy. First, sharpening our strategic focus on areas where we see strategic growth opportunities for Cboe. Second, the effective allocation of our capital. And third, developing talent and management succession. As part of our strategic review process coupled with the lack of regulatory clarity in the digital space, last week we announced plans to refocus our digital asset business to leverage our core strengths in derivatives, technology and product innovation, while realizing operating efficiencies for both, Cboe and our clients. We plan to transition and fully integrate our digital assets derivatives, currently offered by Cboe Digital into our existing global derivatives, harnessing the power of our global derivatives franchise and global technology platform to help support and fuel growth of the exchange-traded crypto derivatives market.

We plan to migrate our cash-settled Bitcoin and Ether futures contracts trading on Cboe’s digital exchange to the Cboe futures exchange in the first half of 2025 pending regulatory review and certain corporate approvals. Additionally, we plan to wind down operations of the Cboe Digital Spot Market, our digital asset trading platform in the third quarter of 2024, subject to regulatory review. The lack of clarity on the U.S. regulatory front for the cash spot business, combined with the lack of any timeline to provide that clarity among other considerations has given us cause to change our strategic direction in the digital business to focus on where we have regulatory clarity and leverage our core strengths of derivatives, technology and product innovation.

With these changes, we are re-allocating resources to focus on where we see as the greatest opportunity for growth and profitability which is the continued expansion of our global derivatives franchise. On the clearing side, we plan to align and unify our clearing operations globally and intend to maintain Cboe Clear Digital which will continue to clear our Bitcoin and Ether futures. We believe these changes provide an opportunity to leverage our global derivatives platform, enhance efficiencies and sharpen our focus. Optimizing our business operations and product development across borders and asset classes enables us to better serve our diverse client base and sharpen our strategic focus. We continue to develop leadership in all functions across the company and optimize our organizational structure to support our global strategy.

This realignment of our digital business into our derivatives and clearing business lines creates continued opportunities for development and growth within our senior leadership team. Finally, we continue to execute on a disciplined capital allocation strategy. The steps we are taking in our digital business illustrate our intent to allocate our resources and capital to the areas where we see the best returns for our firm. Also, as demonstrated during the first quarter and through April, share repurchases remain an important component of our capital allocation framework, one we plan to continue to use opportunistically in the market. Overall, we remain committed to maintaining a flexible balance sheet while investing in organic growth initiatives, our technology capabilities and operating efficiencies, thereby driving durable revenue expansion, optimized margins and earnings growth for our stakeholders.

I will now turn the call over to Dave Howson to talk through how we are driving results within our strategy.

David Howson: Thanks, Fred. Starting with the strong results in the global derivatives category. Despite the cyclical headwind of low volatility in Q1 with the VIX Index averaging just 13.7%, the lowest in over 5 years, SPX options volume remains strong. Average daily volume was up a robust 17% year-over-year to 3.2 million contracts, finishing just shy of the all-time high set in Q4 last year. In fact, January and February ranked as the second and third highest SPX volume month on record through the first quarter. We believe investors took advantage of the low levels of volatility to more cheaply hedge their portfolio with SPX puts making up a higher share of the total volume. Hedging demand was particularly strong in our VIX auction suite with VIX core volume ADV up 4% quarter-over-quarter to over 500,000 contracts as investors took advantage of the low levels of VIX to our cheap tail protection.

The resilience of our index options volume in the face of cyclical headwinds speaks to the strength of the secular drivers of our business which we outlined in detail on the last earnings call. We continue to lean into these and see further room for growth. For example, in January we launched Tuesday and Thursday expiries for our Russell 2000 index options completing the set of daily expiries to small cap stocks. While still early days, Russell 2000 index options volumes hit a 5-year high ADV at 79,000 contracts in February. And the share of 0DTE volume grew from 8.7% in Q4 to now 12%. Within our more established SPX product, volumes increased 17% year-over-year and 0DTE options increased a robust 32% year-over-year and grew 3% from Q4 level to a new record of 1.54 million contracts.

0DTE options has made up 48% of overall SPX activity in Q1, up 2 percentage points from last quarter. The rise of retail options trading is another secular trend we’re excited to build on, with more platforms coming online for index options trading later this year, giving retail investors expanded access to our products. To that end, we are thrilled to see our margin relief plan approved by the SEC recently which we believe will make it easier for investors to overwrite index options on ETFs that track the same index. This is expected to benefit not just our SPX XSP options complex but also our Russell 2000 and MSCI suite of index options as well. Overwriting funds have grown tremendously in popularity in recent years with total AUM jumping more than 6-fold since the pandemic to now over $130 billion.

Anecdotally, we’re also seeing more interest from the retail and RIA [ph] community in using these options to enhance their portfolio. We see this margin relief approval as an additional catalyst for wider adoption of options by the retail community. Even without a turn in the macro environment, we believe we are well positioned for the rest of the year as we continue to execute on our strategic initiatives. However, if we do get a shift in investor sentiment, as was the case in April, we expect to benefit as traders harness the full versatility of our S&P 500 volatility tool kit. For example, with the market set of April, VIX options volume surged to a 6-year high with daily volumes exceeding 2.6 million contracts on April 12 on the back of escalating Middle East tensions.

That’s higher volume than we saw during the 2020 COVID crisis, despite the VIX index hitting a high of just 19 last month versus 82 in March 2020. VIX options through April are on pace to report it’s second highest quarter on record at current levels. While Q1 was characterized by a consistent market running amidst low volatility, Q2 is looking a lot more precarious amidst heightened geopolitical tensions and greater macro uncertainty. As investors grapple with resurgent inflation, rising rates, not to mention the U.S. election later this year, we believe the need to use options to dynamically manage positions, hedge exposures and generate income only increases. And while trading metrics in North America remained strong during U.S. hours, volumes traded in U.S. products during non-U.S. hours continue to increase.

During the first quarter, SPX global trading hours activity increased 41% as compared to the first quarter of 2023. And in April, we saw SPX GTH activity increase 73% versus Q2 2023 levels and VIX GTH increased 69% over the same period. With GTH activity accounting for just 3% of April’s SPX activity and less than 1% of VIX options activity, we continue to see an attractive path forward for non-U.S. customers to increase access to the U.S. markets. Looking at the business more globally, we hit some notable milestones on our European derivatives platform CEDX. Total index derivative volumes again hit record levels in March, beating the prior record by 26% positioning us for future growth. We broadened the list of single-stock options traded on CEDX to more than 300 companies across 14 European countries at the end of March.

And on April 1, we initiated and revamped our liquidity provider programs in the region. Client feedback has been promising, and we look forward to providing greater customer efficiencies through our Pan-European approach to trading and clearing. D&A net revenues grew 8% compared to the first quarter of 2023, driven primarily by client expansion and additional unit sales of our expanding portfolio of access and data products. Speaking to the breadth of D&A business, during the quarter each region and every business line outside of digital saw net revenue increase. In fact, 43% of data growth in the first quarter came from outside of the Americas. We saw outsized contributions from Australia where D&A net revenue grew 19%, and Europe where net revenue increased a strong 10% on constant currency basis.

We believe future growth will be fueled by strengthening our distribution capabilities through areas like cloud, further expanding our index capabilities and providing greater access to our markets around the world. Taking a look at cash and spot businesses around the globe, first quarter results were solid. It’s worth noting though, our ability to expand our cash and spot reach benefits more than just our transaction revenues. The continued progress we make in these markets has the potential to add additional revenue streams in tangential areas around the globe. In North America, we saw U.S. on-exchange net capture rates rebound from December lows to finish in line with first quarter 2023 levels. Furthermore, Canadian market share improved by 4 percentage points to 15.3% during the first quarter.

And we remain on-track with our final technology integration, the migration of our Canadian market to Cboe technology in early 2025 subject to regulatory reviews. Moving over to Europe. During the first quarter, Cboe Europe was the region with the largest exchange by value traded, a testament to the strong breadth of our product offering in the region. As we look to expand our capabilities into related areas with untapped addressable markets, we remain on-track for a third quarter launch of our securities financing transactions clearing services, subject to regulatory review. Cboe’s SST business will clear stock lending activities for market participants. With the introduction of stricter capital requirements, we believe now is the right time to leverage our clearing capabilities to bring a solution to the market with the potential to meaningfully reduce risk-weighted assets for our customers.

We’ve [indiscernible] backing of 9 key industry participants spanning banks, clearing firms, asset managers and custodians, and look forward to bringing this service to market in the months ahead. And finally, turning to Asia Pacific. We saw strong momentum in Australia and Japan. In Australia, Cboe continued it’s market share gains with total market share for the quarter finishing at 20.4%, up nearly 2 percentage points from the first quarter of 2023. In Japan, not only did market share reach 5% in the first quarter, a full percentage point higher than the 2023 average but volumes grew a robust 72% as compared to year ago levels. Those trends have continued in the second quarter with Cboe Japan market share hitting a single-day high of 6.5% on April 23.

With our APAC integrations behind us, we look forward to competing more aggressively in the market to expand our transaction and non-transaction revenues. Overall, Cboe remains incredibly well positioned to consistently grow revenue across the firms. This means not only leaning in a more established product areas like our index business but allowing newer areas to leverage a robust infrastructure already in place. Earlier, Fred spoke to some of the key strategic impacts of our recently announced digital reorganization. I want to provide some additional context on how the move leverages our global derivatives and clearing capabilities. On the derivative side, the reorganization reinforces the integrated global view we take with not only our derivatives franchise but all of our businesses at Cboe.

By consolidating Cboe’s futures products onto one market, Cboe’s Futures Exchange, also known as CFE, pending a regulatory review and certain corporate approvals, we can leverage the totality of our derivatives capabilities to grow our businesses, while creating efficiencies for market participants. Specifically, that means reducing complexity for clients by allowing them to connect to one global platform for all of their U.S. futures trading needs. As part of CFE, newer products like digital asset futures can leverage tried-and-true CFE capabilities to accelerate the go-to-market timeline for products like options on futures and complex orders for digital products, expanding the toolkit of solutions available to clients. In addition, these products will be able to tap into a seasoned and global sales force, a resilient technology infrastructure and a unified management team under the leadership of Cathy Clay, our Executive Vice President of Global Derivatives.

On the clearing side, we are equally excited about the opportunities presented by unifying our clearing operations on a global basis. Vikesh Patel, currently President of Cboe Clear Europe, will also oversee U.S. clearing. Cboe Clear Europe will continue to operate as a pan-European central clearing counterparty for European equities and derivatives. Adding Cboe Clear Digital under the global clearing umbrella provides a cohesive clearing approach that spans equities and derivatives in Europe to Bitcoin and Ether futures in the U.S. The result is Cboe having great control of its product development destiny from ideation through to clearing considerations. Across the firm, we continue to leverage our core strengths and find pockets of growth in our cash, data and derivatives categories.

The first quarter of 2024 was very strong and we look forward to driving further growth in the quarters ahead. With that, I will turn the call over to Jill.

Jill Griebenow: Thanks, Dave. As Fred and Dave highlighted, Cboe posted a strong first quarter with adjusted diluted earnings per share up 13% on a year-over-year basis to a record $2.15. I will provide some high-level takeaways from the quarter before delving into an assessment of the segment results. Our first quarter net revenue increased 7% to finish at a record $502 million. The growth was again driven by the strength in our derivatives market and Data and Access Solutions businesses with steady results from our Cash and Spot Markets categories. Specifically, derivatives market produced 8% year-over-year organic net revenue growth in the first quarter as we saw sustained growth in our proprietary product franchise during the quarter.

Data and Access Solutions net revenues also increased 8% on an organic basis during the quarter. We are pleased with the revenue trends and are confident in our ability to deliver on our 7% to 10% targeted net revenue growth in 2024. Cash and Spot Markets net revenues were roughly flat to a year ago levels on an organic basis given stable results across our business segments. Adjusted operating expenses increased 4% to $193 million with the year-over-year growth driven by higher compensation-related expenses and technology support services during the quarter. And adjusted EBITDA of $337 million grew a solid 9% versus the first quarter of 2023. Importantly, given our strong revenue generation and diligent expense management, we made material progress in stabilizing our adjusted EBITDA margins during the first quarter.

Our first quarter adjusted EBITDA margin expanded by 1.4% on a year-over-year basis and by nearly 3 percentage points sequentially to an attractive 67.2%. Turning to the key drivers by segment. Our press release in the appendix of our slide deck include information detailing the key metrics for our business segments. So I’ll provide some highlights for each. The options segment delivered another robust quarter as net revenues grew 10%, led by higher index option transaction fees and growth in recurring non-transaction revenue. Total options ADV was up 1% driven by a 14% increase in index options volume. Revenue per contract moved 12% higher with index options representing a higher percentage of total options volume. And access to capacity fees were up 7%, while proprietary market data fees increased 15% versus first quarter of ’23.

North American Equities net revenue decreased 1% on a year-over-year basis in the first quarter, reflecting lower industry market data and steady net transaction and clearing fees. In net transaction and clearing fees, a decrease in Canadian equities market volumes and net capture was partially offset by stronger U.S. off-exchange to capture rate, up 24% versus first quarter ’23, given positive mix shift seen during the quarter. On the non-transaction side, access and capacity fees increased 5% as compared to the first quarter of ’23. The Europe and APAC segment reported a 10% year-over-year increase in net revenue driven by 20% non-transaction revenue growth across market data fees, access and capacity fees and other revenue. Transaction revenue in Australia and Japan benefited from another quarter of market share gains.

The Futures segment net revenue decreased 2% in the quarter, primarily due to lower volume. On the non-transaction side, access and capacity fees continue to perform well, up 8% versus the first quarter of last year and market data revenues increased by 10%. And finally, net revenue in the FX segment decreased 1%, driven by a slightly lower net capture rate. Market share was 20.3% for the quarter as compared to 19% in the first quarter of ’23. Turning now to Cboe’s Data and Access Solutions business. Net revenues were up a solid 8% on an organic basis in the first quarter. Net revenue growth continued to be driven by solid new subscription and unit growth, accounting for 57% of market Data and Access Solutions revenue growth. We are pleased with the strong start to the year and believe that momentum across the suite of Cboe’s businesses position us well to fuel our full year and medium-term D&A revenue growth guidance of 7% to 10%.

More specifically, we expect to see continued strength from demand for access across our global markets, particularly as we increase our presence in new geographies, proprietary data sales and options analytics, benefiting from the sustained growth across our derivatives complex and finally, we anticipate a continued focus on our distribution capabilities, from market data to indices, adding to the enhanced distribution capabilities of Cboe Global Cloud. Turning to expenses. Total adjusted operating expenses were approximately $193 million for the quarter, up 4% compared to last year. The increase was a product of higher compensation and benefits and technology support services and partially offset by a decline in professional fees and outside services.

As we look ahead on Slide 16 to our 2024 guidance, we are lowering our full year 2024 adjusted operating expense guidance range to $795 million to $805 million from $798 million to $808 million. The updated guidance reflects our first quarter results, some reduced cost expectations as a result of the digital realignment as well as a slightly higher bonus accrual moving forward given our expectation to be at the higher end of our total organic net revenue guidance range for the full year. On digital specifically, I want to walk through a few of the expected onetime and annualized impact of the announced realignment and revised digital strategy. Cboe expects a onetime estimated pre-tax charge of $39 million to $82 million, primarily related to the noncash impairment of long-lived intangible assets which is expected to be recorded in the second quarter of 2024.

These charges are expected to be considered onetime and excluded from adjusted earnings. We do anticipate roughly $2 million to $4 million of adjusted operating expense savings this year as we carefully wind down the spot digital asset trading platform in the third quarter of 2024, subject to regulatory review. Moving forward, we anticipate the closure will generate annualized savings of $11 million to $15 million on an annualized adjusted operating expense basis. Overall, we believe the current expense guidance range gives us flexibility to invest in high-return areas of our business. Looking at our full year guidance more broadly. We are anticipating organic total net revenue growth to finish at the higher end of our 5% to 7% expected range for 2024.

We are also reaffirming our D&A organic net revenue growth range of 7% to 10% for 2024, in line with our medium-term expectations. This quarter, we are breaking out our other income line into earnings and investments and other income. Importantly, though, the aggregate benefit we expect to realize for non-operating income is unchanged at $37 million to $43 million in 2024. We anticipate $33 million to $37 million from positive marks on our investments to help our earnings and investments line and $4 million to $6 million in largely dividend income to flow through our other income line. Our full year guidance range for CapEx remains at $51 million to $57 million for 2024 and depreciation and amortization is expected to be in the range of $43 million to $47 million for the year.

We continue to expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for 2024. And finally, outside of our annual guidance, we expect net expense to be in the range of $9 million to $10 million for the second quarter of 2024. On the capital front, we continue to maintain a flexible and attractive capital return policy for shareholders. In the first quarter, we returned a total of $58.5 million to shareholders in the form of a $0.55 per share quarterly dividend. In addition, we repurchased 89 million in shares during the first quarter. We have continued our repurchase activity in the month of April, adding an incremental $27 million in repurchases during the month. Moving forward, we will look to opportunistically repurchase shares given our continued healthy free cash flow generation.

Turning to our balance sheet. First quarter leverage ratio declined to 1.1x from 1.2x in the prior quarter as a result of solid EBITDA generation. Overall, we remain comfortable with our debt profile and the balance sheet flexibility it affords, having locked in low, medium to longer-term fixed rates averaging below 3% on our outstanding debt. As always, we aspire to allocate capital and resources in the most value enhancing ways striking the right balance between investing in future revenue growth and optimizing our margins. We look forward to building on solid year-to-date trends and delivering durable shareholder returns in 2024. Now, I’d like to turn the call back over to Fred for some closing comments before we open it up to Q&A.

Fred Tomczyk: In closing, I would like to thank our team for the continued progress made throughout the first quarter. 2024 is off to a strong start and we believe we are well positioned for another strong year.

Kenneth Hill: At this point, we’d be happy to take questions. We ask you please limit your question to one per person to allow time to get to everyone. Feel free to get back in the queue; if time permits, we’ll take a second question.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Patrick Moley from Piper Sandler.

Patrick Moley: Good morning. Thanks for taking the question. So, you now expect organic total net revenue growth to be at the higher end of that 5% to 7% range. Revenues were up 6.5% in the first quarter, so it seems like the guide would imply there is an expectation that revenue growth is going to be as good or better than what we saw in the first quarter. But index option volumes did slow down, they’ve come back here a little bit in April, and you’re facing some pretty tough comps for the rest of the year. So just — can you speak to what gave you the confidence to point us toward the higher end of that range? And then just adding on to that, if you could, what are you baking into that guidance in terms of index option volume growth for the remainder of the year? Thanks.

Jill Griebenow: Sure. You bet. Thank you for the question, Patrick. So if you saw, obviously, first quarter, very strong net revenue results coming in 7% higher than first quarter 2023, really fueled by the derivatives markets business, as well as D&A, very strong contribution there. So that, coupled with, again, the very strong April we saw just — again, gave us confidence in guiding to the higher end of that 5% to 7% range. We’ll obviously keep an eye on this and get another quarter of results under our belt and come back to the group in early August with refined projections. But feel good at the moment with that 5% to 7%, that higher end there.

David Howson: And just, Patrick — a little bit more — I’m sure we’ll talk a bit more about it in the call but we — if you look at Q1 versus Q2, different volatility environments there and the complex continues to perform well through both of those. And then as we take that forward look through into the rest of the year, you can see a number of potential drivers; whether that be the geopolitical tensions, inflation, interest rates, and of course, the U.S. elections. So plenty of activity really in front of us there when we think about how customers are using the diverse ecosystem that we have in Cboe.

Operator: Thank you. Our next question comes from the line of Alex Kramm from UBS.

Alex Kramm: Just a quick follow-up here actually on the outlook on the D&A side. I know you did 8% in the first quarter but when I look forward I think — if I look at last year, the comps are getting much tougher in the second quarter. I don’t fully remember what happened there but I think there was definitely a step-up. So just wondering in terms of your confidence level given that that 7% to 10% is easily [ph] just your medium-term guide. So given the visibility you should have in that business, just wondering how you feel about where you may check out in the 7% to 10% given the tough comps here starting in the second quarter?

David Howson: Yes. Alex, thanks for the question. We remain confident in the 7% to 10% guide, and particularly as we had in the call notes [ph], the growth year-over-year in all asset classes in all regions that we saw throughout the quarter, solid growth from 57% from new subscriptions and new units. And then also encouragingly, 43% of the growth — the market data and access services was from outside of the Americas; that’s a record growth percentage was outside of the Americas. Continued strong engagement there with 79% of customers for the cloud from outside of the Americas as well. And so as we think through the rest of the year — and as you say, Q2 last year was elevated versus Q1 in terms of growth somewhat but then continued throughout the year of last year.

But when we think about this year, more data on net. We’ve got Cboe Australia with re-platformed just over a year ago resulting in 15% year-over-year growth from Cboe Australia D&A there. We’ve got more products to package and bundle from those 27 markets in different ways and be able to deliver them to our customers where they’re at over the cloud. And then finally, it’s an exciting year for Cboe as we’ve been able to turn attention towards technology enhancements in the core platform. And the access layer improvements that we’re bringing to market this year and into next year, we think will represent incremental value that customers are willing to pay for, and should also enhance our competitive position within those venues themselves, in particular, in the U.S. options and equities landscape.

So overall, confident with the 7% to 10% guide where we stand today but of course, we’ll update you next quarter as well.

Alex Kramm: Sounds good. Thank you.

Operator: Thank you. Our next question comes from the line of Craig Siegenthaler of Bank of America.

Craig Siegenthaler: Good morning, everyone. Hope you’re doing well. My question is on 0DTE SPX. Volumes are up a lot over the last year but it looks like the mix has sort of stabilized in the 50% zone. So we wanted to get your updated thoughts on where the 0DTE mix maybe heading over the next 12 months? Also if the Robinhood launch could move it significantly higher; and what other factors you think are most sensitive to adoption?

David Howson: Great. Thanks very much for the question. You’re right, 48% of SPX was 0DTE in Q1 and April was 50%. We see those variations as we go through the months, depending on what’s actually happening in the environment there. But we think about the breakdown that we normally give you of retail to non-retail and where non-retail does include professional retail, we saw a continued increase year-over-year, whereas now just under 1/3 is retail and just over 2/3 is non-retail as versus round about 59% of non-retail in Q1 of last year. So what we see there is more funds, more strategies, more PMs coming to the marketplace, and more systematic strategies coming towards the shorter end of the curve. And as we think about it now, we’re eclipsing second anniversary of adding the Tuesday and Thursday expirations and there is a tremendous amount of data now, and that data is used by institutional and systematic funds in order to be able to train models.

And we’re seeing some of the outcome of that in the complex as we go forward. And the interesting point as we grew 3% of 0DTE versus Q4 and Q1 is that that was across volatility ratings and market cycle; so it grew in a lower volatility environment in Q1. So as we look forward, we continue to see a shorter-term risk management strategies. People have been deploying less sensitive to the broader macro trends.

Operator: Our next question comes from the line of Ben Budish of Barclays.

Ben Budish: Hi, good morning and thanks for taking the question. I wanted to follow-up on the outlook. You mentioned that there are some kind of volatility related events coming up later in the year that could be drivers for the SPX complex. I also recall not too long ago, you were talking about 0DTE as being a more like recurring revenue stream, at least versus things like equities which are sort of you trade once and you can kind of settle it because it’s got a shorter-time expiration, you tend to enter into a new contract. So, I guess what are your thoughts on sort of the recurring nature of the 0DTE complex? How much growth are you sort of seeing from that sort of user or users that are becoming more regular users versus how much do you perhaps expect will come from a pickup in volatility or normalization in VIX levels later in the year? Thank you.

David Howson: So what we’ve got is in terms of the mechanics of options that we’ve talked about before is the fact that options do expire. So any position or exposure or view that you’ve expressed in the market needs to be refreshed at the expiry of that option. And indeed, also, if you put on a spread in the market, you may need to manage that position as the regime or pricing or your view changes over time. So those 2 factors really do result in a much higher engagement rate from customers as they utilize options to manage risk, to generate income, to take views, or to deploy systematic strategies. And as I mentioned just now, you see a lot of funds and bank QIS deploying strategies that have a much shorter-dated view coming forward in the curve from, say, 2-week to 6-week strategy to 0-day to a 5-day or 6-day strategy that they can deploy and redeploy.

So you can see there that timing of the frequency of deploying those strategies really creating a more durable engagement in the platform. And then as you see volatility coming through, we’ve seen higher-volume days, interestingly, on volume of days in recent months. And so we don’t just require volatility in the market itself to get activity in the platform. And we’ve seen diverse use being expressed in this year as we’ve gone from Q1 throughout into Q2.

Fred Tomczyk: Just to add something to Dave’s comments is, I think the comment we made before that we do see option trading revenue much more recurring than equity trading revenue. And the reason is, as Dave said, it’s because they expire. You have to reput your position on. So to me, that applies to the whole option revenue stream, not just to 0DTE.

Ben Budish: Appreciate that. Thank you very much.

Operator: Our next question comes from the line of Brian Bedell from Deutsche Bank.

Brian Bedell: Great. Thanks. Good morning. Thanks for taking my question. Maybe just speaking of recurring revenue and back on to the data and access. Just looking at Slides 8 and 14 and the comments on a couple of the drivers for 7% to 10% and I think this would be for medium term also. But can you comment on the — one of the first ones there, the global access. What portion of your, say, data and access revenue or at least your customer base is asking for global access, really trying everything that you do globally together? I know, Dave, you talked about the portion that was coming from outside the U.S. But I know global access is a big initiative of yours. So can you talk about what portion of people are using that now and what you see as the opportunity going forward for that?

David Howson: Yes. Absolutely. The 43% growth rate from outside the Americas, that is certainly a good lead indicator as we see that grow quarter-over-quarter. A example for us where we have customers around the world taking one data set being drawn in by, for example, the access to the U.S. equity market data as, let’s say, a CFD provider out in Australia. But once you’re in, you’ve got a common platform, you’ve got the API access, you can then find a myriad of other data puts that you can find useful to yourself and your user base. And we do see users taking one data item from us from the cloud and then expanding laterally across interest across those 27 markets. And then we think about access to the derivatives complex, we’ve seen some really good onboarding this year from retail brokers out in the Asia Pacific region.

So really encouraging that in order to onboard for the platform, you need access to data. And then when you get access to the platform, what we’re seeing there is a really good beachhead for activity in the SEF, Southeast Asia Pacific region, bringing activity back into the U.S. core complex. So in summary there, we see — we do see people taking data units from us on the cloud and then expanding laterally in that. And the benefits of having that single technology platform and that single consistent access point are really bringing great utility for our customers as they don’t have to deploy technology resources for multiple APIs and multiple data sets. They can easily take new data sets that interest them with a very low to no incremental technology effort to do that.

Brian Bedell: Got you. It’s a land-and-expand strategy, whereby you get the customer and then you cross-sell multiple other data sets and analytics?

David Howson: Absolutely. And we certainly take a one-firm approach to our sales here at Cboe, where we’re training all of our salespeople globally on all of the data and assets that we have within Cboe. So if you’re in Australia, you know to talk about the risk market and analytics options capability that we’ve got that we can bring to the market, our index, our derivative index capability but also the raw data from those 27 markets and those incremental insights that we’re able to produce on top of that body of data.

Christopher Isaacson: Brian, this is Chris. Just my follow-up there, the pull-through that Dave is talking about, we land and expand and get them raw equity data and then we get them derivatives data and they start trading in GTH on Slide 7, as you can see that we’re having really good pull-through with the expanded access with — GTH increased 41% year-over-year and 73% quarter-to-date. So really excited about that growth that starts with data that moves to transactions.

Brian Bedell: Great. Thank you so much.

Operator: Our next question comes from the line of Owen Lau from Oppenheimer.

Owen Lau: Hi, good morning and thank you for taking my question. I actually have a broader question about Cboe. So over the past 2 years, Cboe has benefited from high growth of 0DTE. And now we have identified many small incremental revenue and expense opportunities. You talked about land-and-expand strategy and doing more buybacks. It just feels like the profile has changed. So if you can help me over the next 2 years, what should investors focus on to gauge the investment there for Cboe?

Fred Tomczyk: Well, I, mean I think you’re going to look at the same things that you’ve always looked at which is our revenue growth. And we’re clearly sending the message about our view on our derivatives franchise and the globalization of that and that gives us lots of opportunities. And we continue to see lots of opportunities on the D&A side. And so those are the 2 growth platforms for Cboe. The equities markets, we continue to like that business. It has good margins, kicks off lots of free cash flow but it’s harder to grow than the other 2 franchises. So we’re focused on growing all 3 but mainly the top 2. We’re going to have a more disciplined expense management process. And if you went back over the last couple of years, you would have seen us doing lots of, what I’ll call smaller M&A that consumes resources.