Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cboe Global Markets Inc (CBOE, Financial) reported a 10% year-over-year increase in net revenue to a record $514 million.
- Adjusted diluted earnings per share grew by 21% to $2.15, driven by strong performance across various business segments.
- The Derivatives business saw an 11% year-over-year increase in organic net revenue, with significant growth in S&P 500 index options and VIX products.
- The Data and Access Solutions business delivered a 5% year-over-year increase in organic net revenue, with strong international sales.
- Cboe Global Markets Inc (CBOE) repurchased $90 million in shares during the second quarter, demonstrating a commitment to returning capital to shareholders.
Negative Points
- The Data and Access Solutions business experienced slower growth in the second quarter, attributed to longer sales cycles and timing issues.
- Cboe Global Markets Inc (CBOE) recorded an $81 million non-cash impairment charge related to the wind-down of its digital spot market.
- The company also reported a $60 million impairment from a routine review of the carrying value of other minority investments.
- Adjusted operating expenses increased by 2% year-over-year, driven by higher compensation-related expenses and professional fees.
- Despite strong performance, the company anticipates hitting the lower end of its 7% to 10% targeted net revenue growth range for 2024.
Q & A Highlights
Q: Understanding that you think Data and Access Solutions will accelerate in the back half of the year, could you elaborate on why we're coming at the lower end of the range for the year? What drove some of the more moderate growth in the first half, and why do you think that will change prospectively?
A: David Howson, Executive VP & Global President: The softer results in Q2 were largely due to timing factors, including longer sales cycles and cash collection timings. Additionally, there was a significant backfill in Q2 2023, making comparisons difficult. However, we doubled ACV sales in Q2 versus Q1 and expect new sales, products, pricing changes, and technology enhancements to drive growth in the second half. Christopher Isaacson, Executive VP & COO, added that new technology improvements, such as dedicated cores and improved market data, will also contribute to growth.
Q: Could you help us size the international opportunity for index options relative to the US? How do you anticipate the mix between institutions and retail to evolve overseas?
A: David Howson, Executive VP & Global President: The international expansion is driven by secular trends, including increased assets benchmarked against the US market. We see a long runway for growth, with three retail brokers onboarded this year and increasing institutional access. The competitive differentiator is our comprehensive volatility toolkit, including SPX options and VIX futures. We plan to focus on sales, marketing, and data distribution to capitalize on these opportunities.
Q: Can you discuss the drivers behind the recent changes in the revenue capture rate for index options and how you see this evolving?
A: David Howson, Executive VP & Global President: The changes in revenue capture rate are primarily due to product mix shifts. For example, increased trading in small caps like RUT, which have different capture rates compared to SPX. There have been no pricing changes, and the mix will continue to evolve based on market conditions and customer needs.
Q: What are the specific international expansion opportunities, and how do you plan to manage the associated costs?
A: David Howson, Executive VP & Global President: The focus will be on incremental investments in sales and marketing, leveraging our existing global footprint. Key regions include Australia, Japan, South Korea, Taiwan, and Singapore. The three onboarded brokers this year were in retail, but we also see institutional growth. The costs will be manageable and incremental, building on our existing infrastructure.
Q: How do you see the mix between SPX and VIX options evolving as we approach the US election in November?
A: David Howson, Executive VP & Global President: The volatility toolkit, including SPX and VIX options, will be crucial for managing risk around the election. We expect increased activity in both products, with VIX options being particularly useful for hedging tail risks. The introduction of new products like variance futures will also provide additional tools for managing volatility.
Q: Can you discuss your capital allocation strategy, particularly regarding M&A and share repurchases?
A: Frederic Tomczyk, CEO & Director: While we have de-emphasized M&A, we are building up cash to maintain flexibility for future opportunities. Any M&A will be more selective and significant, aligned with our strategic goals. We continue to focus on returning capital to shareholders through share repurchases and dividends.
Q: How meaningful is the contribution from Cboe Global Cloud today, and what are your plans for its expansion?
A: David Howson, Executive VP & Global President: Cboe Global Cloud has been instrumental in extending our connectivity with clients, particularly outside the US. We don't break out its contribution separately, but it is a strategic priority. Christopher Isaacson, Executive VP & COO, added that investments in Cboe Global Cloud will continue to get data and products closer to customers, supporting global expansion.
Q: What feedback have you received on the planned launch of options on VIX futures, and how do you see this impacting your product lineup?
A: David Howson, Executive VP & Global President: The feedback has been positive, particularly from customers who cannot access US security-based options. This product will allow us to reach new customers and offer shorter-dated tenors, aligning with the trend towards shorter-term trading strategies. We expect it to complement our existing VIX options rather than cannibalize them.
Q: Can you provide an update on your European index options strategy and its current performance?
A: David Howson, Executive VP & Global President: We launched local index options in Europe with a long-term view. Recent milestones include the addition of single-stock options and key anchor tenants like Interactive Brokers and IMC. We are seeing improved market quality and steady ADV, and we remain confident in our strategy to grow this market over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
