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    Cboe Global Markets Inc (CBOE)

    Business Description

    Cboe Global Markets, Inc. is a leading derivatives and securities exchange network that provides trading, clearing, and investment solutions across multiple asset classes, including equities, derivatives, FX, and digital assets, in North America, Europe, and Asia Pacific . The company operates six reportable business segments, each contributing to its revenue through transaction and clearing fees, data and access solutions, and derivatives markets . Cboe's offerings include trading in options, equities, futures, FX, and digital asset derivatives .

    1. Options - Facilitates trading in index options, equity options, and ETPs, with Cboe Options being the primary market .
    2. North American Equities - Involves U.S. and Canadian equities and ETP transaction services .
    3. Europe and Asia Pacific - Covers pan-European equities and derivatives, as well as trading venues in Australia and Japan .
    4. Futures - Includes trading of VIX futures and other products .
    5. Global FX - Offers institutional FX trading services .
    6. Digital - Focuses on digital asset derivatives, having previously included a spot digital asset trading market .

    Q2 2024 Summary

    Initial Price$183.05April 1, 2024
    Final Price$171.92July 1, 2024
    Price Change$-11.13
    % Change-6.08%

    What went well

    • Cboe's expansion into international markets, particularly Europe, with the launch of single stock options and increased participation from major clients like Interactive Brokers and IMC, is expected to drive long-term growth.
    • Cboe Global Cloud is experiencing significant growth, with nearly 80% of customers and revenue coming from outside the U.S., indicating strong international demand and contributing to future revenue growth.
    • Confidence in achieving revenue growth targets for Data and Access Solutions, driven by doubling new sales in Q2 versus Q1, new products, pricing strategies, and substantial investments in leading-edge technology that improve access, data, and insights for customers.

    What went wrong

    • European index options expansion is progressing slowly, with low trading volumes of only 850 contracts a day in June . Management acknowledges that building the market will take time and patience, indicating potential uncertainty in achieving growth .
    • Cboe Global Cloud's contribution is still not meaningful, being in the early stages with most growth outside the U.S. . Longer sales cycles and timing issues are potentially impacting revenue growth .
    • Data and Access Solutions revenue growth is slowing, with organic net revenue increasing only 5% in Q2, down from 7% year-to-date . Management cites timing factors, longer sales cycles, and customer consolidation impacting revenues, leading the company to expect growth at the lower end of guidance .

    Q&A Summary

    1. International Index Options Expansion
      Q: How big is the overseas index options opportunity?
      A: Cboe sees significant potential for international growth in index options, driven by secular trends like increasing global assets benchmarked to U.S. capital markets. Currently, only 2–3% of SPX trading comes from global markets, indicating substantial room for expansion. The addition of three retail brokers this year and a focus on both institutional and retail clients bolster confidence. Upcoming products like VIX options on futures, launching in 2024–2025, are expected to attract international institutional clients who cannot access U.S. security-based options.

    2. Data and Access Solutions Performance
      Q: Why did the Data and Access Solutions segment underperform in Q2?
      A: The segment grew around 7% year-to-date, but Q2 was softer due to timing factors like delayed enterprise sales, longer sales cycles, and timing of cash collections. A large back bill in Q2 2023 made comparisons harder, and customer consolidation had a slight revenue impact. Confidence in hitting the lower end of the 7–10% growth guidance comes from new sales—ADV sales doubled in Q2 versus Q1—new products, pricing adjustments, and technology enhancements.

    3. Robinhood's Index Options Launch
      Q: Will crypto ETF options be part of Robinhood's index options launch?
      A: Crypto ETF options are likely a phase two development due to regulatory and structural hurdles. The initial launch in the fourth quarter focuses on cash-settled index options, which should appeal to Robinhood's 24 million funded accounts, particularly active retail traders. Cboe plans joint marketing and educational efforts with Robinhood to capitalize on this opportunity.

    4. July Volatility and Customer Mix
      Q: What's driving increased activity and customer mix changes in July?
      A: July saw a pickup with records across the volatility toolkit, driven by increased market volatility. The mix shift is in product usage rather than new client types. There's strong engagement from existing customers and interest from new ones, including more quantitative investment strategy desks and liquidity providers using 0DTE SPX options to hedge positions. The anticipated addition of Robinhood is also particularly exciting.

    5. Capital Allocation and M&A
      Q: Is Cboe building cash reserves for potential M&A?
      A: While not commenting on specific opportunities, Cboe acknowledges that building up cash—currently around $600 million—provides flexibility for potential acquisitions. Future M&A will be more selective and significant, focusing on strategic alignment and avoiding the complexities of smaller deals that strain technology resources.

    6. Index Options Revenue Capture Rate
      Q: What's affecting the revenue capture rate in index options?
      A: The slight pullback in the revenue capture rate is due to product mix shifts, not pricing changes. Increased trading in products like RUT options, which have different capture rates compared to SPX, affects the overall rate. The company expects this mix-driven variability to continue but has nothing specific to signal for the forward outlook.

    7. VIX Product Line Expansion
      Q: What are expectations for the new VIX products?
      A: The upcoming VIX options on futures aim to attract customers who cannot access U.S. security-based options, both internationally and domestically. This product allows extension into shorter-dated tenors, tapping into the trend toward shorter maturities. While building a new customer base takes time, Cboe is excited about the product's potential in 2024–2025.

    8. European Index Options Initiative
      Q: How confident is Cboe in European index options growth?
      A: Cboe is taking a long-term view on growing the European market by introducing U.S.-style on-exchange, on-screen options trading. Milestones include launching single stock options and onboarding major clients like Interactive Brokers and IMC. Average daily volume reached 850 contracts in June, holding steady into July. Leveraging existing infrastructure allows patience as the market develops.

    9. Cboe Global Cloud Growth
      Q: How significant is Cboe Global Cloud's contribution?
      A: While specific contributions aren't disclosed, Cboe Global Cloud is strategically important, with nearly 80% of customers and revenue coming from outside the U.S.. It enables clients to access data and services more efficiently, supporting global expansion and revenue diversification. Investments will continue to enhance the platform and bring products closer to customers.

    10. VIX and SPX Mix Ahead of Elections
      Q: How do you see the mix between SPX and VIX options ahead of elections?
      A: Investors are using Cboe's volatility toolkit to manage both upside and downside risks. During volatility spikes—like when VIX exceeded 19.5—customers monetize or roll their VIX positions. SPX options continue to play a key role in managing exposure. Upcoming products like Variance futures and VIX options on futures will further enhance offerings before the U.S. elections.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Fredric J. TomczykChief Executive OfficerSeptember 2023Fredric J. Tomczyk is the CEO and a director at Cboe Global Markets. He was previously an independent director on Cboe's Board from July 2019 to September 2023. He is the retired President and CEO of TD Ameritrade .
    Catherine R. ClayExecutive Vice President, Global Head of DerivativesOctober 2023Catherine R. Clay has been with CBOE since 2015 in various senior roles. She was previously the EVP, Global Head of Data and Access Solutions from March 2021 to October 2023 .
    Stephanie FoleyExecutive Vice President, Chief Human Resources OfficerOctober 2023Stephanie Foley joined Cboe in 2022 and served as SVP, Chief Human Resources Officer of Cboe Exchange, Inc. from June 2022 to October 2023. She was previously the CHRO, Americas, at Kearney Holdings Limited .
    Jill M. GriebenowExecutive Vice President, Chief Financial OfficerJuly 10, 2023Jill M. Griebenow has been with Cboe since 2018, previously serving as EVP, Chief Accounting Officer and Treasurer. She was the CFO of Cboe Europe from 2014 to 2018 .
    David HowsonExecutive Vice President, Global PresidentMay 2022David Howson has been with Cboe since 2013, previously serving as EVP, President Europe and Asia Pacific. He was the COO of Cboe Europe from 2013 to 2019 .
    Adam InzirilloExecutive Vice President, Global Head of Data and Access SolutionsOctober 2023Adam Inzirillo joined Cboe in 2019 and served as SVP, Head of North American Equities. He was previously Managing Director at Bank of America Merrill Lynch .
    Christopher A. IsaacsonExecutive Vice President, Chief Operating OfficerJanuary 2019Christopher A. Isaacson has been with Bats since 2005 and joined Cboe following its acquisition of Bats. He has held various senior leadership positions, including EVP and Global CIO .
    Patrick SextonExecutive Vice President, General Counsel and Corporate SecretaryMarch 2018Patrick Sexton has been with Cboe since 1997, providing legal, regulatory, and compliance counsel. He was Deputy General Counsel from July 2013 to March 2018 .
    Allen WilkinsonSenior Vice President, Chief Accounting OfficerFebruary 2024Allen Wilkinson has been with Cboe since 2018, previously serving as VP, Controller. He held various positions at PricewaterhouseCoopers LLP from 2011 to 2018 .

    Questions to Ask Management

    1. Given the relatively low average daily volume of around 850 contracts per day in your European index options, what is your conviction level that this long-term investment will pay off, and what milestones are you targeting to validate this strategy?

    2. Despite returning $150 million in capital during the quarter, your cash balance has increased to about $600 million and net leverage continues to decrease. Is this buildup of cash driven by potential M&A opportunities, and how does this align with your shift away from M&A towards organic growth and returning capital to shareholders?

    3. With the significant growth of Cboe Global Cloud outside the U.S., can you elaborate on how meaningful its financial contribution is currently, and what initiatives are you undertaking to expand it further as part of your global expansion plans?

    4. As you focus on facilitating global investors' access to U.S. markets, how significant is the import business opportunity, and what challenges do you anticipate in capturing market share internationally, especially given the competitive landscape?

    5. You have stated that you are reallocating resources and changing your capital allocation strategy away from M&A towards organic growth initiatives and returning capital to shareholders. Can you provide more details on how this strategic shift will impact your expense growth, margins, and earnings growth in the near term?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval Date2011
    End Date/DurationN/A
    Total additional amount$2.3 billion
    Remaining authorization amount$679.8 million
    DetailsThe documents do not specify any additional details about the program.

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Revenue Growth: 6% to 8% .
      2. Data and Access Solutions (DnA) Revenue Growth: Lower end of 7% to 10% .
      3. Nonoperating Income: $37 million to $43 million .
      4. Capital Expenditures (CapEx): $51 million to $57 million .
      5. Depreciation and Amortization: $43 million to $47 million .
      6. Effective Tax Rate: 28.5% to 30.5% .
      7. Adjusted Operating Expenses: $795 million to $805 million .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Operating Expense Guidance: $795 million to $805 million .
      2. Organic Total Net Revenue Growth: Higher end of 5% to 7% .
      3. Data and Access Solutions (DnA) Organic Net Revenue Growth: 7% to 10% .
      4. Nonoperating Income: $37 million to $43 million .
      5. Capital Expenditures (CapEx): $51 million to $57 million .
      6. Depreciation and Amortization: $43 million to $47 million .
      7. Effective Tax Rate on Adjusted Earnings: 28.5% to 30.5% .
      8. Net Expense for Q2 2024: $9 million to $10 million .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: 5% to 7% .
      2. Data and Access Solutions (DnA) Revenue Growth: 7% to 10% .
      3. Operating Expenses: $798 million to $808 million .
      4. Other Income: $37 million to $43 million .
      5. Capital Expenditures (CapEx): $51 million to $57 million .
      6. Depreciation and Amortization: $43 million to $47 million .
      7. Effective Tax Rate: 28.5% to 30.5% .
      8. Net Interest Expense: $10 million to $11 million for Q1 2024 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the Q3 2024 earnings call for Cboe Global Markets, so the guidance metrics for that period are unavailable.