Q3 2024 Earnings Summary
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full-year organic net revenue growth | FY 2024 | 6% to 8% | 7% to 9% | raised |
DnA organic net revenue growth | FY 2024 | 7% to 10% | 7% to 10% | no change |
Full-year adjusted operating expenses | FY 2024 | $795M to $805M | $798M to $808M | raised |
Depreciation & amortization | FY 2024 | $43M to $47M | $43M to $47M | no change |
Capital expenditures (CapEx) | FY 2024 | $51M to $57M | $57M to $63M | raised |
Non-operating income | FY 2024 | $37M to $43M | $40M to $46M | raised |
Other income (prev. dividend) | FY 2024 | $4M to $6M | $7M to $9M | raised |
Earnings on investments | FY 2024 | $33M to $37M | $33M to $37M | no change |
Effective tax rate on adjusted earnings | FY 2024 | 28.5% to 30.5% | 28.5% to 30.5% | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Net Revenue Growth | Q3 2024 | 6% to 8% for full-year FY 2024 | 16% year-over-year (from 908.8In Q3 2023 to 1,055.7In Q3 2024) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
DnA Growth | Showed 5% growth in Q2 , 8% in Q1 , and 7% in Q4 2023. | Net revenues up 6% organically; focusing on lower end of 7%-10% guidance; driven by international sales (~40% new sales) and technology investments. | Recurring with more cautious tone on growth (lower-end guidance). |
International Expansion | Drove roughly 40% of DnA growth in Q2 ; highlighted Asia-Pacific expansion in Q1 and Q4 2023. | Emphasized ~40% of new sales from outside the U.S.; investment in Japan (stake in Japannext); hiring regional experts to drive growth. | Recurring and viewed as a strong future driver. |
Technology & Talent | In Q2, implemented Dedicated Cores and completed APAC migrations ; stressed developing leadership and reallocation of tech resources in Q1 , and unified platform integration in Q4 2023. | Rolled out new options access architecture, noting improved market share; continued focus on AI and data to boost productivity; investing in talent acquisition (derivatives sales). | Recurring with ongoing investment to maintain competitiveness. |
M&A & Non-core | Scaled back M&A focus in Q2 (more selective deals) ; winding down digital spot market in Q1 , comfortable with retaining FX business in Q4 2023. | Not a core strategy but open to additive deals; no current focus on divestments; cited minor investment in Japannext. | Recurring priority on organic growth, limited M&A interest. |
SPX & Retail | Q2 SPX ADV up 9% to 3M ; Q1 SPX ADV up 17% ; record 3.3M ADV in Q4 2023. Ongoing push to bring retail brokers onboard. | SPX options grew 7% YoY to 3.1M ADV in Q3; Robinhood to offer index options in late 2024; significant retail potential (only ~4% of Robinhood’s 24M accounts trade options). | Recurring growth with increasing retail participation. |
Digital Assets | Q2 noted focus on digital derivatives after winding down digital spot market ; Q1 realignment due to regulatory uncertainty ; Q4 2023 highlighted a shift to derivatives and building a robust crypto ecosystem. | No new comments on digital assets or regulatory challenges; previous spot crypto exchange shut down earlier in the year. | No mention this quarter; still impacted by prior strategic shift. |
Margin Pressures | No direct Q2 mention of margin pressure; Q2 margin stable at ~66% ; Q1 adjusted EBITDA margin up to 67.2% , Q4 2023 expense growth at ~9% but guided 6%-8% for 2024. | Slip in EBITDA margin attributed to higher investments; reaffirmed disciplined expense management and aiming to stabilize margins (2024 expense growth ~6%-8%). | Recurring concern with a focus on controlling expenses. |
New Derivatives Products | Q2 detailed VIX options on futures & S&P 500 Variance futures , Q1 saw daily expiries added to Russell 2000 , Q4 2023 included new indices (Dispersion, 1-Day Vol). | VIX Options on Futures (Oct 2024), Variance Futures (Sept 2024) launched; early adoption positive, expected to mature in 2025. | Recurring innovation to meet volatility and hedging demand. |
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Strategic Focus and Capital Allocation
Q: Has the strategic focus shifted towards inorganic growth?
A: Cboe's strategic focus remains on driving organic growth, with a return to their core Derivatives and Data and Access Solutions businesses. While they've slowed down M&A activity to concentrate on organic initiatives, they are open to inorganic opportunities that have strategic and financial rationale. Their strong balance sheet and low leverage ratios position them well to consider such opportunities, like their investment in Japannext in Japan. Additionally, they increased dividends by 15% and are focusing on share repurchases and investing in organic growth. -
DnA Revenue Growth Drivers
Q: What is driving the expected acceleration in DnA revenues?
A: The expected acceleration in Data and Access Solutions (DnA) revenue is driven by four factors: new sales, with 40% coming internationally; pricing changes implemented earlier this year; technology investments, such as the rollout of Dedicated Cores surpassing expectations; and the generation of new data sets providing value to customers. These factors give confidence in meeting the 7% to 10% revenue guidance for the year. -
Expense Growth and Margins
Q: How should we think about expense growth and margins next year?
A: While specific 2025 guidance isn't provided yet, Cboe remains focused on disciplined expense management and stabilizing margins. Third-quarter expenses were higher due to non-recurring favorable items in the prior year, but year-to-date expenses are in line with projections. The expense growth rate in 2024 is 6% to 8%, down from 15% growth from 2023 to 2024. Operating expenses are critical to margin stabilization, and Cboe is keenly aware of their impact. -
Robinhood Partnership and Retail Growth
Q: When will the Robinhood partnership drive meaningful volume?
A: The partnership with Robinhood is a long-term journey. With 24 million funded accounts and only 4% trading options, there's significant growth potential. Robinhood is rolling out a new trading platform next year, which should enhance functionality and attract more options traders. Cboe is investing in education and marketing to help retail investors understand options, and as brokers expand internationally, it aligns with Cboe's import strategy. -
Multi-Listed Options Market Share
Q: Is market share loss in multi-listed options accelerating?
A: While new entrants have focused on lower capture rate flows, Cboe is optimizing revenues through a balance of share and capture, with a 15% year-over-year increase in capture rate. They are competing on pricing, functionality, technology, and data. Investments in talent and technology enhancements, such as the new options access architecture rolled out in mid-August, are showing encouraging early results in regaining market share. -
New Product Launches Progress
Q: How are the new product launches like VIX options on futures progressing?
A: Cboe recently launched VIX options on futures and Variance Futures. Early signs are positive, with customers engaging and testing strategies. These products aim to expand the user base by offering shorter-dated trading and allow pure play between implied and realized volatility. It will take time, likely through 2025, for these products to gain significant traction as customers incorporate them into their strategies amidst market uncertainties. -
Divestitures and Strategic Review
Q: Are there plans to divest non-core assets following the strategic review?
A: The Board is currently focused on growth in areas where Cboe has core strengths and sees secular trends. While divestitures may be considered over time as the business and markets evolve, the immediate focus is on growth rather than selling non-core assets, despite having shut down the spot crypto exchange earlier this year. -
DnA Pricing Increases
Q: What are the expectations for DnA pricing increases into 2025?
A: Pricing adjustments in DnA vary across products and services. In Q3, pricing contributed about one-third of overall growth. Looking into 2025, a similar contribution from pricing is expected. This indicates that while pricing plays a role, growth is primarily driven by distribution and sales rather than relying solely on pricing strategies. -
Expansion of Dedicated Cores and Cboe Cloud
Q: What are the plans for expanding Dedicated Cores and Cboe Cloud?
A: Dedicated Cores have shown strong growth in the U.S. equity markets and will be expanded to Europe (UK) in Q4, Australia in Q1 next year, and eventually to Japan and Canada. Cboe Global Cloud is experiencing significant growth, with 79% coming from outside the U.S., driven by international demand for access to U.S. data. Further investments will be made to enhance global distribution, benefiting both DnA revenue and long-term transaction revenue. -
Additional SPX Expirations
Q: Are you considering adding intraday SPX expirations?
A: Currently, customers are not requesting intraday expirations for SPX options. The focus is on providing flexibility and precision in risk management through new products like Variance Futures and VIX options on futures. While intraday expirations are feasible with cash-settled products, there isn't a compelling demand at this time.