Cboe Global Markets - Q1 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome everyone to the Cboe Global Markets Q1 Earnings Call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I would now like to hand the call over to Mr. Ken Hill, who is President of Investor Relations and Treasurer. You may begin your conference.

Kenneth Hill (Head of Investor Relations and Treasurer)

Good morning, and thank you for joining us for our Q1 Earnings Conference Call. On the call today, Fredric Tomczyk, our CEO, and Dave Howson, our Global President, will discuss our performance for the quarter and provide an update on our 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 up 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.

Fredric J. Tomczyk (CEO)

Thanks, Ken, and good morning, everyone, and thanks for joining us today. I'm pleased to report on strong Q1 results for Cboe Global Markets. During the quarter, we grew net revenue 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 Q1 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 Q1, 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 continued 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 was stable during the quarter as volume across global equity markets remained 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 three 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 H1 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 Q3 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 reallocating 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 Q1 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 David Howson to talk through how we are driving results within our strategy.

David Howson (Global President)

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 five years, SPX options volume remained 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 months on record through the Q1. 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 options 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 add 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/Thursday expiries for our Russell 2000 index options, completing the set of daily expiries for small-cap stocks. While still in early days, Russell 2000 index options volumes hit a five-year high ADV of 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 levels to a new record of 1.54 million contracts. 0DTE options has made up 48% of overall SPX activity in Q1, up two 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're 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 sixfold since the pandemic to now over $130 billion. Anecdotally, we're also seeing more interest from the retail and RIA 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're 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 toolkit.

For example, with the market sell-off in April, VIX options volumes surged to a six-year high, with daily volumes exceeding 2.6 million contracts on April 12th 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 of 2020. VIX options through April are on pace to report its second highest quarter on record at current levels. While Q1 was characterized by a consistent market rally 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.

While trading metrics in North America remain strong during US hours, volumes traded in US products during non-US hours continue to increase. During the Q1, SPX Global Trading Hours activity increased 41% as compared to the Q1 of 2023. 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-US customers to increase access to the US 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, besting 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. On April 1st, 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. DnA Net Revenues grew 8% compared to the Q1 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 the DnA business, during the quarter, each region and every business line outside of digital saw net revenues increase. In fact, 43% of data growth in the Q1 came from outside of the Americas.

We saw outsized contributions from Australia, where DnA net revenue grew 19%, and Europe, where net revenue increased a strong 10% on a 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, Q1 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 Q1 2023 levels.

Furthermore, Canadian market share improved by a full percentage point to 15.3% during the Q1, 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 review. Moving over to Europe, during the Q1, Cboe Europe was the region's 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 Q3 launch of our Securities Financing Transactions clearing services, subject to regulatory review. Cboe's SFT 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 customers. We have secured the backing of nine key industry participants, spanning banks, clearing firms, asset managers, and custodians, and look forward to bringing this service to market in the months ahead. Finally, turning to Asia-Pacific, we saw strong momentum in Australia and Japan. In Australia, Cboe continued its market share gains with total market share for the quarter finishing at 20.4%, up nearly two percentage points from the Q1 of 2023. In Japan, not only did market share reach 5% in the Q1, 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 Q2, with Cboe Japan market share hitting a single-day high of 6.5% on the 23rd of April. 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 revenues across the firm. This means not only leaning in on 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 derivatives 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 Futures Exchange, also known as CFE, pending 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 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 Catherine 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 Q1 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.

Chris Isaacson (COO)

Thanks, Dave. As Fred and Dave highlighted, Cboe posted a strong Q1 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 Q1 net revenue increased 7% to finish at a record $502 million. The growth was again driven by the strength in our derivatives markets and data and access solutions businesses, with steady results from our cash and spot markets categories. Specifically, derivatives markets produced 8% year-over-year organic net revenue growth in the Q1, 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%-10% targeted net revenue growth in 2024. Cash and Spot markets net revenues were roughly flat to a year-ago level 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. An adjusted EBITDA of $337 million grew a solid 9% versus the Q1 of 2023. Importantly, given our strong revenue generation and diligent expense management, we made material progress in stabilising our adjusted EBITDA margins during the Q1. Our Q1 adjusted EBITDA margin expanded by 1.4% on a year-over-year basis and by nearly three percentage points sequentially to an attractive 67.2%.

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. 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. Access and capacity fees were up 7%, while proprietary market data fees increased 15% versus Q1 of 2023. North American equities net revenue decreased 1% on a year-over-year basis in the Q1, 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 a stronger US off-exchange net capture rate, up 24% versus Q1 2023, given positive mixed shift seen during the quarter. On the non-transaction side, access and capacity fees increased 5% as compared to the Q1 of 2023. 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 volumes. On the non-transaction side, access and capacity fees continued to perform well, up 8% versus the Q1 of last year, and market data revenues increased by 10%.

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 Q1 of 2023. Turning now to Cboe's Data and Access Solutions business, net revenues were up a solid 8% on an organic basis in the Q1. 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 the momentum across the suite of Cboe's businesses position us well to fuel our full-year and medium-term DnA revenue growth guidance of 7%-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. 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-$805 million, from $798 million-$808 million.

The updated guidance reflects our Q1 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 one-time and annualized impacts of the announced realignment and revised digital strategy. Cboe expects a one-time estimated pre-tax charge of $39 million-$82 million, primarily related to the non-cash impairment of long-lived intangible assets, which is expected to be recorded in the Q2 of 2024. These charges are expected to be considered one-time and excluded from adjusted earnings.

We do anticipate roughly $2-$4 million of adjusted operating expense savings this year as we carefully wind down the spot digital asset trading platform in the Q3 of 2024, subject to regulatory review. Moving forward, we anticipate the closure will generate annualized savings of $11-$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%-7% expected range for 2024. We are also reaffirming our DnA organic net revenue growth range of 7%-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-$43 million in 2024. We anticipate $33 million-$37 million from positive marks on our investments to help our earnings and investments line, and $4 million-$6 million in largely dividend income to flow through our other income line. Our full-year guidance range for CapEx remains at $51 million-$57 million for 2024, and depreciation and amortization is expected to be in the range of $43 million-$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%-30.5% for 2024. Finally, outside of our annual guidance, we expect net expense to be in the range of $9 million-$10 million for the Q2 of 2024.

On the capital front, we continue to maintain a flexible and attractive capital return policy for shareholders. In the Q1, 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 Q1. 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, Q1 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 the 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.

Fredric J. Tomczyk (CEO)

In closing, I would like to thank our team for the continued progress made throughout the Q1. 2024 is off to a strong start, and we believe we are well-positioned for another strong year.

David Howson (Global President)

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, and if time permits, we'll take a second question.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star, followed by the one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Patrick Moley from Piper Sandler. Please go ahead with your question.

Patrick Moley (Senior Research Analyst)

Yes, 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%-7% range. Revenues were up 6.5% in the Q1, so it seems like the guide would imply there's an expectation that revenue growth is going to be as good or better than what we saw in the Q1. 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 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.

Chris Isaacson (COO)

Sure. You bet. Thank you for the question, Patrick. So if you saw, obviously, Q1 very strong net revenue results coming in 7% higher than Q1 2023, really fueled by the derivatives markets business as well as DnA 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%-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%-7%, that higher end there.

David Howson (Global President)

Just Patrick, a little bit more. I'm sure we'll talk a bit more about it in the call, but 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. election. So plenty of activity really in front of us there when we think about how customers are using the diverse ecosystem that we have at Cboe.

Patrick Moley (Senior Research Analyst)

All right. Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Alex Kramm from UBS. Please go ahead.

Alex Kramm (Analyst)

Yes. Hello. Just quick follow-up here, actually, on the outlook on the DnA side. I know you did 8% in the Q1, but when I look forward, I think if I look at last year, the comps are getting much tougher in the Q2. 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%-10% is eerily just your medium-term guide. So given the visibility you should have in that business, just wondering how you feel about where you may shake out in the 7%-10%, given the tough comps here starting in the Q2.

David Howson (Global President)

Yeah. Thanks for the question. We remain confident in this 7%-10% guide. And particularly, as we had in the call notes there, 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 their growth for the market data and access services was from outside of the Americas. That's a record growth percentage for us 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 the replatformed just over a year ago, resulting in 15% year-over-year growth from Cboe Australia DnA 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. Then finally, it's an exciting year for Cboe as we've been able to turn attention towards technology enhancements in the core platform. 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. Overall, confident with the 7%-10% guide where we stand today, but of course, we'll update you next quarter as well.

Alex Kramm (Analyst)

Sounds good. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Craig Siegenthaler of Bank of America. Please go ahead.

Craig Siegenthaler (Analyst)

Hey. 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/DTE 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 (Global President)

Great. Thanks, Reynolds, for the question there. 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. When 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 a third is retail and just over two-thirds is non-retail. That's versus roundabout 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 that shorter end of the curve. And as we think about it now, we're eclipsing the second anniversary of adding the Tuesday and Thursday expirations, and there's a tremendous amount of data now.

That data is used by institutional and systematic funds in order to be able to train models. We're seeing some of the outcome of that in the complex as we go forward. The interesting point, as we grew 3% of 0DTE versus Q4 in Q1, is that that was across volatility regimes and market sidewalls. It grew in a lower volatility environment in Q1. As we look forward, we continue to see those shorter-term risk management strategies people are deploying are less sensitive to the broader macro trends.

Craig Siegenthaler (Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Ben Budish of Barclays. Please go ahead.

Ben Budish (Analyst)

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 recurring revenue stream, at least versus things like equities, which are sort of you trade once and can kind of sit in it because it's got a shorter timed 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 a normalization in VIX levels later in the year? Thank you.

David Howson (Global President)

So what we've got here 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've 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 two 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, we've seen a lot of funds and bank QIS desks deploying strategies that have a much shorter-dated view, coming forward in the curve from, say, a 2-6 week strategy to a zero to a five or six-day strategy that then gets deployed and redeployed. So you can see there that tightening 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 updates in recent months. And so we don't just require volatility with market sell-offs to get activity in the platform. And we've seen diverse views being expressed in this year as we've gone from Q1 throughout into Q2.

Fredric J. Tomczyk (CEO)

So just to add something to Dave's comments, I think the comment we made before is 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 re-put your position on. So to me, that applies to the whole option revenue stream, not just to 0DTE.

Ben Budish (Analyst)

Appreciate that. Thank you very much.

Operator (participant)

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Brian Bedell (Analyst)

Oh, great. Thanks. Good morning. Thanks for taking my question. Maybe just speaking of recurring revenue and back onto the data and access, just looking at slides eight and 14 and the comments on a couple of the drivers for the 7%-10%, and I think this would be for medium-term also. But can you comment on 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 or really tying 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 (Global President)

Yeah. Absolutely. The 43% growth rate from outside the Americas, though, is certainly a good lead indicator as we see that grow quarter-over-quarter. The cloud is an 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 the common platform, you've got the API access. You can then find a myriad of other data points 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 regions. So really encouraging there, in order to onboard for the platform, you need access to the data. And then when you get access to the platform, what we're seeing there is a really good beachhead for activity in the Southeast Asia-Pacific region, bringing activity back into the U.S. core complex. So in summary there, 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 (Analyst)

Got it. 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 (Global President)

Absolutely. 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 and Market Analytics options capability that we've got that we can bring to the market, our index, our derivative index capability, but also the broad data from those 27 markets and those incremental insights that we're able to produce on top of that body of data.

Chris Isaacson (COO)

Brian, this is Chris. Just my follow-up there with the pull-through that Dave's 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 seven, 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, then it moves to transactions.

Brian Bedell (Analyst)

Great. Great. Great. Thank you so much.

Operator (participant)

Thank you. Our next question comes from the line of Owen Lau from Oppenheimer. Please go ahead.

Owen Lau (Analyst)

Hi. Good morning, and thank you for taking my question. I actually have a broader question about Cboe. So over the past two years, Cboe has benefited from high growth of 0DTE, and now we have identified many smaller incremental revenue and expense opportunities. You talk about land-and-expand strategy and doing more buybacks. It just feels like the profile has changed. So if you can help me out over the next two years, what should investors focus on to gauge the investment merit for Cboe? Thanks a lot.

Fredric J. Tomczyk (CEO)

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 DnA side. And so those are the two 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 two franchises. So we're focused on growing all three, but mainly the top two. 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.

So resources inside the organization are now more focused on delivering organic growth initiatives than on integrating acquisitions that we've been doing the last couple of years. And then, of course, not only the resources internally, but then it frees up capital. Our balance sheet is in very good shape now. We're kicking off lots of free cash flow so we can do return capital to our shareholders through dividends and buybacks. So while we've had a nice lift from 0DTE, we continue to see growth as we've built this global footprint. And I think we've got a lot of what I call land-and-expand. We've got lots of opportunities to sell what we've got in different markets around the world. And then we're doing quite well in the markets that we entered, our market share.

If you look at Japan, Australia, Canada, once they get on our technology, our market share seems to expand. So we're feeling good about that. So we have lots of things that we're looking forward to. Do we have another 0DTE up our sleeve? I'd like to think we do, but I'm not sure we do. But that franchise and the SPX complex, you ought to just the way we look at it is it has high demand around the world, not just in the U.S. Capital and liquidity continues to flow to the U.S. And a lot of times, people that want to invest and trade in the U.S. are looking to the SPX complex.

Owen Lau (Analyst)

Got it. Thanks a lot.

Operator (participant)

Thank you. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Please go ahead.

Michael Cyprys (Analyst)

Hey. Good morning. Thanks for taking the question. Just wanted to circle back on the DnA revenue growth target, 7%-10%, as you look out over the next couple of years. Just curious where you see the biggest opportunity within there to drive growth ahead. Which product specifically do you think can be the biggest driver or contributor there? And is this new what portion would be coming from new products versus from existing products that you're going to drive greater penetration of the existing customer set versus new customers? Thank you.

David Howson (Global President)

Certainly for us, the growth in the short term and the medium term continues to be, as Fred said, to sell what we've got. We see a great runway for selling the data products that we have internationally in particular. And then the second and third sleeve of the DnA business outside of the data and access is the index business. It's a smaller portion of the overall, but it's growing at a very good rate with our specialization in derivative index derivative strategy benchmarks and bringing those to the marketplace. We've got what we think in the risk market analytics sleeve, the world-class global options analytics capabilities, which we find greater adoption internationally for those there as well.

And then when we think back to the core and the basics, the access, that access to our markets continues to be high in demand and only going in one way, one direction seemingly, in particular as we broaden out that access globally. As Chris mentioned, 2%-3% of SPX options trading those global trading hours. We see a solid runway to be able to expand access during those time zones and during those parts of the trading day there. So we see good ability to push out new data there. And then when we think about new data products, it's really about packaging and bundling what we have. The great example from the 0DTE inception was the uptake of the open and closed data sets, which shows positions opening and closing throughout the day in the SPX options contracts.

That was a particularly insightful pivot on the data, which we were able to provide to customers from the existing activity in the franchise. As the franchise grows and that liquidity ecosystem grows, the demand for data and the opportunity to create innovative insights and products from that data really comes into its own. Of course, we'll be thinking about new technologies that we can deploy to help us generate those insights on a go-forward basis.

Chris Isaacson (COO)

Michael, this is Chris. I just might add here, as Dave mentioned, we're just very, very focused on increasing access and distribution of all of our data. The Cboe Global Cloud growth has been great, especially driven outside of the U.S. We will be pushing to use distribution mechanisms like that to get our data closer to customers where it can be win-win for them as they want more data, not just in real time, but they want data at the time of doing quant research, etc., so that they can better trade on our markets. Then the access improvements that Dave spoke about, as now we can unlock this global network because all the platform migrations are done except for Canada, which is coming in March of next year, we'll be rolling out those access improvements first in the U.S. and then around the world.

These are material upgrades in our technology platform, which speaks to the power of a global network and a global platform. We can build something once and then roll it out all over the world to the benefit of our customers.

Michael Cyprys (Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Alex Blostein of Goldman Sachs. Please go ahead.

Alex Blostein (Analyst)

Hey. Good morning. Thank you for the question. Fred, one for you. Just want to get your mark-to-market on where we are in this sort of strategic review journey you guys have been on. After the decision on Cboe Digital, are there other areas where you think you guys are looking to sort of pivot away from? And if so, what could that look like? And just one follow-up for Jill, the $11 million-$15 million in annualized savings that you highlighted, is there a revenue offsetting impact as well, or are you really speaking to the operating income effect from these changes? Thanks.

Kenneth Hill (Head of Investor Relations and Treasurer)

I want to check the second one first.

Chris Isaacson (COO)

You bet. So the $11 million-$15 million in contemplated savings on an annualized basis is really the expense portion. So not expecting anything material from a revenue impact perspective in 2024, very consistent with what we messaged last week.

Fredric J. Tomczyk (CEO)

Okay. And then back to your first question, Alex. So I'd say in terms of the strategic review, we're in what I call the heart of the process now. We've done all of our analysis of the trends we see in the markets around the world. We've taken a look at our SWOT analysis, our competitors, and where we have strengths on a relative basis. And so we're now starting to really get down-focused. Okay. So now that we know all that, we've taken an outside-in view of Cboe and the market. Okay. So what do we do now? So we're getting right into the heart of the discussion in the management team. But we still have to debate that out and conclude on areas where we want to focus our time and attention.

Then we have to review it with the board, obviously, which will the first round will be this summer, but there'll probably be a second round in October because there'll be some questions. As I said the last time, we're probably being in a position to talk about it further later this year. Just want to remind everybody that the strategy review is all about finding which areas that we want to focus our resources on to drive revenue and earnings growth, which over the longer term drives shareholder value. That combined with a disciplined capital allocation strategy should deliver good value for our shareholders. As I said, in an exchange like ours, you have high margins. It's a capital-light business model. And it's all about how you allocate your resources, particularly technology and capital, to drive value for the shareholders over the longer term.

Alex Blostein (Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Kyle Voigt of KBW. Please go ahead.

Kyle Voigt (Analyst)

Hi. Good morning. Maybe I could just ask a question on CEDX. Sounds like you realized record activity levels there in March, which is good to see. I guess, can you just elaborate whether you still have incentives in place there for trading? And I'm assuming it may still be a bit of a drag on group profitability while the business ramps and you try to gain further momentum there. I guess, any color on when we should start to see revenues and profitability ramp for CEDX?

David Howson (Global President)

Thanks very much, Kyle. You rightly point out the record month in March for index derivatives and Q1 being up 30% year-over-year. We did revamp the liquidity provider program starting in Q2 to really refine those and focus on the type of liquidity, the concentration that we are looking for, that along with the extension of the number of single-stock options coverage in Q1. We now cover over 90% of OI and ADV on the European landscape. So what that gives us is a full unit of offering now with single-stock options and futures and options on our index products. We've got more market makers coming on board as we go through the rest of the year, and we're eagerly anticipating the launch of a major global retail brokerage platform in the coming months.

All that will then begin to form the core liquidity ecosystem that we'll be able to build on, produce more sales and marketing efforts in conjunction with our customers, and talk to those retail brokers that are looking to expand internationally as well as those funds that are looking to deploy capital into Europe. And so what we'll do throughout the rest of the year is monitor that as those volumes and that activity in the platform progresses. And as you speak to profitability and revenues and such, it's worth reflecting on the fact that this is all built on top of a scaled infrastructure, a scaled infrastructure in Europe that lies on top of the largest pan-European equities exchange, which is profitable, the largest cash equity clearinghouse as well. So we've got scale.

The incremental investment here for us is relatively small and affords us the opportunity to be patient and continue to work with our customers to onboard to what is a brand new exchange, product set, and clearinghouse, which does take time. It will be a journey. We'll be continuing to review that as we go throughout this year and into next and keep you updated with that.

Kyle Voigt (Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Patrick Moley of Piper Sandler. Please go ahead.

Patrick Moley (Senior Research Analyst)

Yes. Thanks for taking the follow-up. Just a modeling question on the buyback. Appreciate that you're being opportunistic, but it was rather large in the Q1 relative to what you've done recently, and it seems like it was pretty strong in April. So can you help us just kind of frame and understand the size and pace of that buyback from here? Anything you can give us would be great. Thanks.

Chris Isaacson (COO)

You bet. So really in a very comfortable position from a balance sheet perspective, paid off the last of our floating-rate debt in Q4 of 2023, leverage ratio down to 1.1x here at the end of the Q1. So the Q1, as we've always or historically mentioned, has typically been heavier in share repurchases. So again, the Q1 this year was heavy. And then also tacked on with that were some opportunistic share repurchases. So we generate a lot of free cash flow. We deploy the capital via various valves. So had a history of paying a quarterly dividend in the past, we'd increase that in the Q3. We'll take a look at that again this year.

And then again, anytime we sense perceived weakness in the share price, we'll get behind it and back it from a repurchase perspective, especially given the comfortable balance sheet perspective we're in right now. So that's why you're seeing an elevated level. We stand behind the stock. We have the free cash flow there to back it. We're also mindful of organic growth initiatives. We want to keep a bit of dry powder to invest in the business to drive that long-term growth. So it's really a balance between those areas.

Patrick Moley (Senior Research Analyst)

All right. Great. Thanks, Jill.

Operator (participant)

Thank you. We have a follow-up question from Owen Lau of Oppenheimer. Please go ahead.

Owen Lau (Analyst)

Yeah. Thank you for taking my follow-up. On the digital side, could you please remind us on why you think Cboe can be competitive on Bitcoin and Ether futures trading without the spot offering? And then what does this realignment mean to Cboe's broader strategy on how to tackle the digital assets ecosystem longer term? Thanks a lot.

David Howson (Global President)

I'm sorry, Owen. Could you repeat the H2 of that question, please? We've got the competitive element for the H1. The H2, the line broke a little.

Owen Lau (Analyst)

Oh, sorry about that. So I was just asking, how does this realignment, the digital assets realignment, mean to Cboe's broader strategy on how to tackle the whole digital assets ecosystem longer term?

David Howson (Global President)

Great. Thanks for the clarification there. So what we looked at when we looked at the overall landscape here is we took into account our own assets, capabilities, and strengths here at Cboe, and we looked at where we saw the greatest opportunity set, which was in the crypto derivative space. Once again, we looked to lean on our scaled infrastructure and the existing global resources. What we think makes this move attractive for us is that we get to bring those crypto digital futures onto a single venue, a single venue with an existing broad distribution and customer base. It gets brought onto a single technology stack, which runs all of our global equities, futures, and options market, the familiar set of functionality, which leapfrogs the functionality we have today on Cboe Digital Exchange to add a range of versatile functionalities that futures customers want.

We also get to have a clearinghouse that clears these products and potential other new product innovations in the crypto derivative space, which then allows us to define our own destiny. It allows us to have autonomy around that product curation and that timeline to market. And then there's the global derivatives team that scale and expertise around the world for derivatives, but also that scale and expertise around the world for clearing brought to bear in unison onto the digital assets space. So we think derivatives is where it's at for us. We think we're good at that. We've got the technology and the people to be able to give us an edge and create an alternative liquidity pool for people to express and manage exposure to crypto assets at Cboe.

Fredric J. Tomczyk (CEO)

Maybe I'll just add a few comments here on why we moved on the digital strategy at this time. So first off, it wasn't lost on us that we were losing money on this, so it creates a greater sense of urgency to come to a strategic conclusion. We also realized that we do not have regulatory clarity in the spot and cash spot market, and we do not see when we're going to have regulatory clarity. And so when we went into all this, we wanted to build a trusted, liquid, efficient market. Everybody wants that. But if you don't have regulatory clarity, it's very hard to do that because you can't bring all the various participants into the market. So as Dave said, we've gone to where our strengths are, and we've gone to where we have regulatory clarity.

Basically, we see that as the best opportunity for us looking forward.

Owen Lau (Analyst)

Thanks a lot.

Operator (participant)

Thank you. Our final follow-up question comes from Michael Cyprys of Morgan Stanley. Please go ahead.

Michael Cyprys (Analyst)

Great. Thanks for taking the follow-up. Just wanted to ask about credit index products. Understanding you have a few that you're launching, hope you could update us on that. More broadly, if you could speak to the opportunity set within credit index products and new partnership opportunities that can make sense over time. Just how are you thinking about that, particularly as credit markets continue to electronify with new investor types entering the marketplace? What's your vision for Cboe in credit?

David Howson (Global President)

So for us today, we have two iBoxx futures contracts, and we have options on those futures contracts as well available to customers. For us, having a futures product is particularly useful for those fixed income funds who can't trade securities, and so the ETFs are locked off to them. So having the ability to manage and hedge exposure is particularly useful there, but also for international customers to get that access to an aligned future, which tracks very closely to the two key benchmarks here, the LQD and HYG ETFs of the underlying to allow access and exposure there to manage those exposures is particularly useful. The international aspect also comes into play as a future to be able to access that from international participants as well. So for us, it's the first toe into credit as we go through.

But that alignment to the core underlying exposure is the key differentiator for Cboe's credit offering because it does align to the HYG and LQD products very, very, very closely and allows tighter exposure there.

Michael Cyprys (Analyst)

Great. Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I will now turn the call back over to the Cboe Global Markets Team for closing remarks.

Fredric J. Tomczyk (CEO)

Okay. Well, thanks, everyone. Thanks for your questions today, and thanks for calling in. We're off to a great start to 2024, and we look to continue the momentum for the rest of the year.

Operator (participant)

Thank you. This concludes today's conference call. We thank you for participating, and you may now disconnect.