Cboe Global Markets, Inc. (AMEX:CBOE) Q4 2024 Earnings Call Transcript

Cboe Global Markets, Inc. (AMEX:CBOE) Q4 2024 Earnings Call Transcript February 7, 2025

Cboe Global Markets, Inc. misses on earnings expectations. Reported EPS is $1.87 EPS, expectations were $2.13.

Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Cboe Global Markets Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Ken Hill, Head of Investor Relations and Treasurer. Ken, please go ahead.

Ken Hill: Good morning, and thank you for joining us for our fourth 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 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 2025 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’d like to point out that this presentation will include the use of slides. We’ll 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’ll 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 outcomes 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 these 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 conference call. During the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings material.

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

Fred Tomczyk: Good morning, and thank you for joining us today. I hope the year is off to a great start for everyone. I’m pleased to report on strong fourth quarter and full year results for Cboe Global Markets. During the quarter, we grew net revenue 5% year-over-year to $524.5 million and adjusted diluted earnings per share by 2% to $2.10 over a strong fourth quarter in 2023. These results capped another record year, which saw us grow net revenue 8% to a record $2.1 billion and adjusted diluted earnings per share 10% to a record $8.61. Our results for the year were driven by solid volumes across our Derivatives business, strong volumes across our cash and spot markets, growth of our Data Vantage business, formerly known as Data and Access Solutions, and more disciplined expense management.

I’m incredibly pleased with the strong 8% net revenue growth in 2024, coming against a modest 6% increase in adjusted expenses, stabilizing our margins and driving a 10% improvement in adjusted diluted earnings per share for the year. While the robust option volumes were a standout for 2024, the results were notable in that each category, derivatives markets, Data Vantage, and cash and spot markets contributed to the fourth quarter and full year growth. Record setting trends drove broad-based growth across business lines as every major segment and category produced year-over-year net revenue growth in 2024. Our Derivatives business delivered a solid year with organic net revenue increasing 8%, wrapping up another record year of option volume growth.

Total volume across Cboe’s four options exchanges was 3.8 billion contracts traded in 2024 with an ADV of nearly 15 million contracts traded, a fifth consecutive record breaking year. For 2024, we saw record volume in SPX and VIX options as investors turn to our S&P 500 volatility toolkit to help navigate markets. ADV and SPX options was a record 3.1 million contracts traded, while ADV and VIX options was a record 830,000 contracts traded. Our Data Vantage business finished the year strong, driving a 7% increase in organic net revenue in 2024. The technology investments we made to further optimize access, data, and insights for our Data Vantage business drove positive results for Cboe and our customers. We continue to see durability in this business as we leverage our global footprint and technology enhancements to drive growth.

Our cash and spot markets performed well during the year as organic net revenue increased 10%, driven by healthy trading volumes and growth across all of our regional equities markets. Overall, it was an excellent year for both transaction and non-transaction growth, capped by a strong fourth quarter for Cboe. As we entered 2025 with our sharpened strategic focus and framework, we outlined last quarter, we believe that we’re well-positioned for the secular trends that we expect to continue shaping the markets globally. The rising popularity and adoption of options trading, the continued rise of the retail investor, the globalization of markets, and the rapidly evolving area of technology and data management, including newer technologies like artificial intelligence.

2024 was another record breaking year for the options market as more investors embraced the utility and versatility of options. Our derivatives business remains resilient, supported by a growing customer base, demand for access to the U.S. market, and an increasing demand for options. The combination of these trends means that we’re well-positioned as we enter 2025 to further expand and enhance our derivatives ecosystem. With our diverse suite of products, we are well situated to help market participants navigate the elevated uncertainty we’re witnessing across the market and geopolitical environment. We believe the new administration in Washington has a markedly different tone signaling a pro-business environment with regards to deregulation and tax cuts, fostering a bullish settlement.

However, significant uncertainty remains around the strange geopolitical environment, combined with the record number of executive orders and the more recent tariffs coming out of the new administration, all of which injected volatility in the market. As markets evolve in response to these events, our SPX and VIX products provide an unparalleled toolkit for investors to help seize opportunities and hedge their portfolios around the clock. We believe that the strong performance in the U.S. market with the S&P 500 Index launching a return of more than 20% for two consecutive years will continue to attract new investors, both domestically and internationally. Through our SPX options complex, the ability to facilitate risk management and import foreign investment back into the U.S. market is expected to be a significant and growing opportunity that will be a top focus for us in 2025.

On the retail front, we continue to work with key retail broker partners across the globe to expand access to our products and education, so more investors can leverage the numerous benefits of index options. I’m pleased to report that Cboe’s index options are now available to all customers at Robinhood, one of the largest options trading platforms for retail investors. We believe that retail adoption of index options still has room to run and Cboe is well positioned to meet this growing demand through education, access, and product innovation. One of the core components of innovation is technology. And over the last year, we have reallocated capital and resources towards investment in our exchange technology platform. Last month, we unveiled a new brand identity for this platform, Cboe Titanium, signaling an exciting new chapter in our ongoing evolution and commitment to delivering best-in-class trading technology for our market participants around the globe.

Cboe Titanium enables innovation across our markets, products, data, and insights, all on a unified and scalable global technology platform. In every new market we have entered, our market share has improved following our migration to Cboe technology. As we enter 2025, I’m excited about how Cboe is positioned. Our strategic framework is well aligned to the secular trends we see in the capital markets we compete in and leverages our strengths. Our balance sheet is in a strong position and enables us to follow a disciplined and long-term approach to capital allocation, and we’re well suited to invest in strategic organic growth opportunities that drive growth not just in 2025 but beyond. I’ll now pass it over to Dave to discuss the business line results in more detail.

Dave Howson: Thanks, Fred. Starting with our Derivatives business, on a full year basis, net revenues were up 8%, led by another year of strong index options growth. We remain excited about the secular trends in place for our Options business as SPX options volumes increased 7% year-over-year to a record ADV of $3.1 million in 2024, while VIX options ADV hit a record high of 830,000 contracts, up 12% from 2023’s record. The fourth quarter showcased the utility of our S&P volatility toolkit in helping investors quickly and effectively navigate changing market conditions. While we saw a pickup in hedging demand going into the U.S. election, we saw a risk-on rally that caught many investors by surprise following the results. SPX core options volumes jumped post-election as investors used options to quickly adjust their portfolio.

Meanwhile, VIX put volumes surged higher as traders positioned for a normalization in volatility. While volatility conditions and market outlooks changed, VIX stayed constant with a sustained growth in our 0DTE options in both SPX and RUT. In the fourth quarter, SPX 0DTE Options ADV gained 8% quarter-over-quarter to nearly 1.6 million contracts, now making up over half of all SPX Options ADV for the first time. Since we launched daily expirations on options on the Russell 2000 Index last January, RUTs option volumes have grown 11% year-over-year with the share of 0DTE options trading doubling from 11% in January 2024 to 23% in January 2025. As we look ahead to this year, we see a sustained need for investors to stay nimble in the face of changing monetary and fiscal policies in the U.S., as well as rising trade tensions globally.

We believe options are a great tool in these environments as they allow investors to quickly reposition and hedge their portfolios as market conditions change. Against this macro backdrop, we’re excited to work towards broadening access to our products, increasing education efforts for all investors, and showcasing the advantages of our expanding S&P volatility toolkit to help manage risk. On the access front, we are well aligned with the secular drivers of our business, including the rise of the retail investor. We are pleased with the early traction following the Robinhood launch in the fourth quarter and anticipate the increased volume from the platform will be additive to our proprietary product volumes as we expand access to more retail traders.

With the expanded access on the Robinhood platform, customers are able to leverage the full advantages of index options from the simplicity of cash settlement and the certainty of European style exercise to the potential 60-40 tax treatment. Turning to our international endeavors. We are excited by the import and export potential of our derivatives products. We anticipate that making investments in our sales and educational efforts around the globe will translate to greater volumes being imported back to the U.S. In the Asia-Pacific region, specifically, we remain focused on expanding our presence in our six priority markets, Japan, Australia, South Korea, Singapore, Taiwan, and Hong Kong, by building a local salesforce and educational tools tailored for local customers.

During the fourth quarter, we saw two new brokers turn on access in our priority markets, making Cboe products available for trading during global and regular trading hours. Outside our initial priority markets, we now have two brokers providing Malaysian investors with listed options. On the export side, CEDX continues to add capabilities with over 320 single stock company options available to trade from 14 countries and record levels of open interest to finish 2024. And on the innovation front, the fourth quarter was a busy one for our product development team as we introduced two new ways to trade S&P Index Volatility through various futures and VIX options on futures. Given the introduction of these products, education will be a key focus in 2025 as we continue to grow the toolkit.

To maximize the impact of these initiatives across our global derivatives platform, we must have the right talent in place to drive success at Cboe. This week, I was incredibly excited to welcome Meaghan Dugan, who is joining the company as Head of U.S. Options. In addition, we recently outlined several new hires and key promotions to further strengthen our business development, market intelligence, and sales capabilities across the U.S., Europe, and Asia-Pacific. We expect 2025 to be a transformational year as we leverage a strong bench of talent to provide customers with improved access, enhanced education, and continued innovation around our volatility toolkits. Moving to cash and spot markets. The fourth quarter produced robust results with net revenues increasing 14% on a year-over-year basis.

This capped a strong year where net revenues increased 10% given solid contributions from all regions. 2024 was notable not only for the healthy results, but also the innovation across markets that helped drive improved market share in regions like Europe and Asia Pacific. As we near the end of our integration efforts in Canada later this quarter, we are excited to leverage the full power of our global and cohesive trading infrastructure. In North America, a 28% increase in net transaction and clearing fees during the fourth quarter helped improve net revenue for the segment by 10% on a year-over-year basis. Industry volumes were a tailwind, with 22% growth in the U.S. on-exchange ADV, 5% growth in off-exchange ADV, and 11% growth in Canadian ADV on a year-over-year basis.

Capture in U.S. on exchange equities improved 42% as compared to the fourth quarter of 2023, as we continue to strike the right balance between market share and capture to optimize revenues. In Canada, we are excited to build on the solid 2024 trends as we anticipate completing the migration of our Canadian market to Cboe Technology on March 3. Our Europe and Asia-Pacific segment delivered impressive 17% year-over-year net revenue growth in the fourth quarter and 16% growth for the full year. The increases were driven by higher net transaction and clearing fees, up 23% in the fourth quarter and 17% for the full year. For Europe, specifically, Cboe was the largest European stock exchange for the fourth quarter, with our share of continuous trading volume hitting 33%, up nearly 90 basis points versus the third quarter’s record level.

The results were again helped by strength in periodic auctions with a market share of 87% with periodic auctions accounting for a record 9.6% of continuous trading during the fourth quarter. In Asia-Pacific, we saw sustained progress in both Australia and Japan market share and industry volumes, driving year-over-year net revenue growth in the region. Turning to Data Vantage, net revenue grew 8% for the fourth quarter and 7% for the full year. Results in the fourth quarter were driven by increases in all three components of our Data Vantage business, real time market data, analytics, and indices with notable strength in our dedicated course offering and proprietary market data. More broadly, on a full-year basis, the record results were underpinned by two hallmarks of Cboe Data Vantage that we expect to carry through 2025 and beyond, new product development and the ability to sell products across our global network.

The uptick from our U.S. dedicated cores launch in 2024 exceeded our expectations. We have built on that success by rolling the product out across Europe and Australia in the first quarter of 2025, highlighting our ability to take a product working well in one region and replicate that success across our global network. With our technology team shifting from migration work to revenue generating activities, we look forward to further product development that leverages our scaled infrastructure. Looking at our sales trends for Data Vantage more broadly, in 2024, we saw net new annual contract value hit record levels, increasing 33% year-over-year. International growth was healthy with 40% of new sales coming from outside the U.S. I’m excited to build on that global growth with a larger sales and educational resources footprint across the globe.

This investment should help amplify the benefits of our global network. The fourth quarter again highlighted the power of the entire ecosystem at Cboe with derivatives, cash and spot markets, and Cboe Data Vantage all delivering durable results. 2025 will be a year of focused execution for Cboe by providing more uniform access, greater education, and leveraging our differentiated set of products for investors. January is off to a great start with index options ADV running at record levels, trends we look forward to building on in the year ahead. With that, I will turn the call over to Jill.

Jill Griebenow: Thanks, Dave. Cboe posted a solid fourth quarter with adjusted diluted earnings per share up 2% on a year-over-year basis to $2.10. The fourth quarter results continue to illustrate the strength across our segments that was on display during 2024. I will provide some high level takeaways from this quarter’s operating results before going through segment results. Our fourth quarter net revenue increased 5% versus the fourth quarter of 2023 to finish at $524.5 million, the growth was driven by strength in our cash and spot Markets and Data Vantage categories, as well as solid results from the derivatives business. Specifically, cash and spot markets organic net revenues grew 14% on a year-over-year basis, with all geographies contributing to the growth.

Data Vantage net revenues increased 8% on an organic basis during the quarter and derivatives markets produced 1% net revenue growth versus a robust fourth quarter of 2023. Adjusted operating expenses increased 7% to $205 million for the quarter with the year-over-year growth driven by higher travel and promotional expenses as well as technology support services expenses. Adjusted EBITDA of $332 million grew 3% versus the fourth quarter of 2023. 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 produced another quarter of record net revenue with 3% year-over-year growth led by higher multi-listed options transaction fees, total options ADV was up 5%, driven by an 8% increase in multi-listed options volume.

Revenue per contract decreased 5% as index options represented a lower percentage of total options volume during the quarter. North American equities net revenue increased 10% on a year-over-year basis. Net transaction and clearing fees grew 28%, reflecting higher industry volumes and an improved net capture rate in on-exchange U.S. equities. On the non-transaction side, access and capacity fees increased 14% as compared to the fourth quarter of 2023. The Europe and APAC segment delivered a 17% year-over-year increase in net revenue, a result of strong growth across both transaction and non-transaction revenues. Transaction revenues across each region benefited from market share gains as well as increased volumes versus the fourth quarter of 2023.

Futures net revenue decreased 7% from the fourth quarter of 2023 with lower net transaction and clearing fees reflecting a 12% decrease in ADV. And finally, the FX segment recorded 3% year-over-year net revenue growth as a product of higher net transaction and clearing fees. Turning now to Cboe’s Data Vantage business. Net revenues were up 8% on an organic basis in the fourth quarter. International sales enhanced growth with 40% of new sales coming from outside the U.S. over the quarter. We believe Data Vantage is positioned to perform well in 2025. More specifically, we expect increased capabilities around our data, access, and insights as we reallocate technology resources from integration efforts to organic revenue generating enhancements.

We anticipate growth will be aided by greater demand for access across our global markets, particularly, as we increase our sales presence in new geographies and leverage the distribution capabilities of Cboe Global Cloud. Turning to expenses. Total adjusted operating expenses were approximately $205 million for the quarter, up 7% compared to the fourth quarter of 2023. The increase primarily resulted from higher travel and promotional expenses as well as technology support services expenses. I would note that the fourth quarter is a seasonally high quarter for travel and promotional expenses, given our annual risk management conference. This year, we also saw an increase in our marketing spend, coinciding with the launch of index options on Robinhood’s platform.

While we plan to continue investing behind marketing efforts as we see opportunities for returns for our business, we expect to see travel and promotional expenses move lower sequentially from fourth quarter levels. As we look ahead on Slide 16 to our 2025 guidance, we anticipate our Data Vantage organic net revenue growth to be in the mid to high-single digit range, and we expect our full year total organic net revenue growth to be in the mid-single digit range. I would note that while we tweaked our guidance framework for 2025, both our Data Vantage organic net revenue guidance and our total organic net revenue guidance are in line with the ranges we provided under our previous guidance framework at this time last year. We are also introducing our full year 2025 adjusted expense guidance range of $837 million to $852 million, representing 4.8% growth on the lower end and 6.7% growth on the higher end.

The 2025 guidance accounts for modest growth in our core expense lines, while allowing for investment to help drive incremental revenue expansion across Cboe’s businesses. A few examples of the types of investments we plan to make include incremental sales hires in the APAC region, our securities financing transaction offering in Europe, and continuing marketing efforts to improve investor education and monetize the expanding access to our index options products. Taking a step back, in 2024, Cboe produced 8% net revenue growth against 6% adjusted expense growth, stabilizing our adjusted EBITDA margin and expanding it by 30 basis points for the full year. We believe that 2025 revenue and expense guidance outlined today strikes the right balance between investment for long-term growth and disciplined expense management as we look to drive long-term margin stability.

Rounding out the remaining pieces of our 2025 guidance our full year guidance range for CapEx is $75 million to $85 million and depreciation and amortization is expected to be in the $55 million to $59 million range. The year-over-year increase in CapEx and depreciation and amortization reflect our efforts to sustainably invest in the business where we see long-term growth potential. A portion of the CapEx budget is also earmarked for our Kansas City office move, which is planned for this summer. We maintain a sizable presence with many of our technology and operations, finance, and regulatory associates in the area, and we remain committed to investing in our people and culture. We expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for the full year.

And while we don’t provide formal guidance on interest income or interest expense, I wanted to highlight that fourth quarter interest income outperformed our expectations given some additional accounts that started to earn interest income and higher cash balances. We expect that interest expense, net of interest income will be in the $5 million to $6 million range for the first quarter of 2025. The last element I wanted to touch on as it relates to our 2025 guidance is the below the line items, earnings on investments, and other income. In past years, we have provided detailed guidance on these items, but today, we believe that we have reached a more mature phase in our investment cycle and anticipate a more modest impact on our earnings and investments line in 2025.

We anticipate other income will continue to grow gradually, in line with cash dividends received. Turning to our balance sheet, the effective allocation of capital has been a cornerstone of our strategic review process. We take a long term view in allocating capital to areas where we see the greatest returns, whether it be organic investments or in the form of share repurchases, dividends, or inorganic investments. In the fourth quarter, we returned a total of $66 million to shareholders in the form of a $0.63 dividend, bringing the total amount of dividends paid to $249 million for 2024. Factoring in both share repurchases and dividends for 2024, Cboe returned a total of $454 million to shareholders, representing 50% of adjusted earnings for the year.

We enter 2025 on a strong financial footing with $880 million of adjusted cash on our balance sheet, an attractive debt profile with low medium term fixed rates averaging below 3%, and an average leverage ratio of 1.1 times. As we move forward, we anticipate leveraging our flexible balance sheet and healthy free cash flow profile to produce durable returns for shareholders. Now, I’d like to turn it back over to Fred for some closing comments before we open it up for Q&A.

Fred Tomczyk: I’d like to thank the entire Cboe team for their incredible work in 2024 that led to record results. When I moved from the Board to CEO in September of 2023, my priorities were to stabilize the organization after the sudden departure of the previous CEO, sharpen our strategic focus, bring a more disciplined approach to capital allocation and leadership development and succession. On my first priority, unexpected succession require an experienced CEO to lead the organization through that challenging time. The management team has been stable since. Our current management team is a strong team that is more unified than ever and focused on executing our refocused strategy. Over the past 18 months, we’ve made significant progress sharpening our strategic focus and framework, leveraging the core strength of our equity derivatives franchise.

We’re well-positioned to benefit from the secular trends as we start the year. We have also changed our capital allocation strategy to focus less on M&A and more on investing in organic growth opportunities and allocating resources to line up behind our strategic focus. Following the completion of the two technology migrations this year, this will be the first time in 10 years that our technology resources will be fully focused on the business and driving out our strategy as opposed to focusing on migrations. Redeploying our technology resources enables us to leverage one of our greatest strengths to focus on strategic organic growth opportunities. The company now has a clear organic growth strategy, moderated expense growth and stabilized margins, and attractive return of capital strategy and a strong balance sheet.

As we enter 2025 on solid footing with a refined strategic focus and the financial flexibility to execute that strategy while being well positioned to take advantage of opportunities as they arise, which brings me back to my last priority, leadership development and succession. Cboe has been through a lot of change in the executive ranks over the last 18 months. But not only did we get through all that change, I believe we’ve come out stronger and more unified as a team. This is a credit to the strong management team I have around me. While the Board and I have devoted considerable time to leadership development and succession throughout 2024, in the latter part of last year, the Board engaged a search firm to more formally assist with the process.

We have reviewed internal candidates and are also considering external candidates with the search firm’s help. While the Board and I are putting greater focus on my succession, I will continue to serve as CEO until a successor is appointed and will help ensure a smooth transition. Upon transitioning out of the CEO role, I plan to remain a Director on the Board. I will continue to work closely with the management team to execute our strategy and drive continued success for Cboe. We have many exciting initiatives underway and I remain steadfastly committed to ensuring we stay focused on our long term goals. With that, I’ll turn the call back over to Ken for Q&A.

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

Operator: Thanks, Ken. [Operator Instructions] Looks like our first question today comes from the line of Patrick Moley with Piper Sandler. Patrick, please go ahead.

Q&A Session

Patrick Moley: Yeah. Good morning. Thanks for taking the question. So I just had one on the D&A revenue guide or Data Vantage that you’re calling it now. Jill, you mentioned it — you touched on it a little bit in the prepared remarks, but it does seem like the mid to high-single digit revenue growth range is a little weaker than the 7% to 10% that you guided to the last few years. So could you just maybe talk about some of the drivers that went into the decision to adjust the parameters there, and is it incorrect for us to think that the growth outlook there has softened a little bit? Thanks.

Jill Griebenow: Yeah. You bet. Thanks for the question, Patrick. So just to clarify, historically, we provided a great deal of more granularity in our guidance and we’ve just — we want to be helpful, but we believe that what we’ve moved to today in the refreshed guidance language reflects more of the market standards, but remains consistent with our prior ranges. So as I alluded to in my prepared remarks, again, very consistent with the guidance ranges that we provided a year ago at this time, so think that 5% to 7% for net revenue and then 7% to 10% for the Data Vantage.

Operator: Okay. Thank you, Patrick. And our next question comes from the line of Ben Budish with Barclays. Ben, please go ahead.

Unidentified Participant: Hi. This is Chris, (ph) I’m on for Ben. Thanks for taking the question. I actually wanted to dig into Robinhood a little bit. It sounds like it’s been a healthy start for Index Options over there. And I know it’s early days, but what is the uptake among SPX and the smaller XSP contract look like, and kind of what the mix looks like of the product adoption for this customer? And can you maybe dive into some of the initiatives that might help increase the education and drive further adoption as I think it’s going? Thanks.

Dave Howson: Absolutely. It’s Dave here. Thank you for the question there. We’ll talk a little bit about how we think about attacking the retail space and we’ve mentioned it before, it’s really across three pillars, that’s access, education, and product. When we look specifically at the Robinhood rollout, from the access point of view, it’s exceeded our expectations in two ways. First, it has been quicker than we expected, and second, that the uptake has been greater than we had expected. So we stand today with the mobile device rolled out index options and we had — we saw Robinhood roll out index options to the Legend platform in recent weeks, which was ahead of our expectations. And the volumes that we see coming through are in our estimation, largely additive.

Then when we go to the second pillar of education, what’s been encouraging to see through time is the increased use of more complex strategies or spread trades in particular as the rollout has progressed, which means the toolkit, the index options are being used in a manner that we would expect them to be used. Thirdly, then coming to product, what’s been really encouraging is that customers have used the core of our volatility toolkit. So what do I mean by that? That means that we’ve seen them use SPX options, VIX options and the smaller XSP options throughout that rollout. And to the profile that you asked about there, we’ve seen most of that flow coming through SPX, but what also is being really positive is actually all three of those products have grown in usage as the rollout has progressed.

So that tells us that the customers are really accessing that simplicity of cash settlement, certainty of European exercise, and accessing the potential benefits of that 60-40 potential tax treatment there. And our expectation has been met that these products are resonating with Robinhood’s target audience of the active trader universe. And so then as we think forward, what are we going to do more of, we’re going to do more joint marketing, more joint education as we continue to roll out here. And we do that with all of the key retail brokers that we have on the platform. And so as we think about international growth there as well, that’s where we spend our time as well on education, joint marketing, and increased sales force boots on the ground to help tell the story.

So the outlook for 2025 as we continue here is a really constructive setup. And just think about those nearly 25 million funded accounts with what we understand to be 4% penetration for options there, that’s a really solid runway for us to continue to access throughout 2025.

Operator: Thanks, Chris for the question. And our next question comes from the line of Jeff Schmitt with William Blair. Jeff, please go ahead.

Jeff Schmitt: Hi. Good morning. Could you discuss some of the initiatives you have on the AI front that could help customers generate more revenue? Thanks.

Chris Isaacson: Yeah. Sure. Good morning, Jeff. Thanks for the question. As I mentioned, last year, we created an AI center of excellence internally last year and we’ve been adopting AI quite a bit internally to improve productivity and AI center of excellence will create an internal platform that we think is going to help us develop new products, as well as grow productivity amongst our engineering staff and across all the functions and associates we have. Don’t have any immediate revenue opportunities to talk about with the use of AI, but we are working with the platform now to work with our sales teams and our product teams to see what insights we can get out of all the conversations we’re having with our customers as well as our unified data platform internally we’ve been using. So nothing immediate to report, but we’re investing a lot internally in AI to then hopefully bring new products to market that can serve customers.

Operator: Great. Thank you, Jeff. And our next question comes from the line of Alex Kramm with UBS. Alex, please go ahead.

Alex Kramm: Yeah. Hey. Just maybe since the beginning of the year, capital allocation is a topic we should talk about. Noticed you didn’t buy back any stock in the quarter, but then Fred, you also talked about obviously thinking about M&A a little bit differently over the last year or so since you’ve taken over. So maybe you could just give us your latest update why; A, why you didn’t buy back stock and then where are you still interested in enhancing the products with M&A?

Jill Griebenow: I can start with the share repurchases. And then maybe turn it back over to Fred to comment on the M&A piece. But as it relates to share repurchases, I think we messaged before that obviously it would be an important part of our capital allocation strategy. You see the strong balance sheet that we have. But as Fred mentioned in his closing remarks, given where we were in the succession planning process in the later part of the year and the fact that it wasn’t public, we just decided that it wasn’t appropriate for us to be out in the market repurchasing our shares. Again, that doesn’t mean that it won’t be part of our strategy in the future, it absolutely is. Like I mentioned, very, very strong balance sheet. We will continue to be opportunistic. And again, share repurchases will remain an important part of our capital allocation framework as we head into 2025 here.

Fred Tomczyk: Great. Thanks, Jill, With respect to M&A, I think I’ll be consistent with what I’ve said in the past, which is any M&A that we do, it has to make strategic sense and financial sense and moves the needle. Or if it’s a little smaller, it has to fit within an area that we prioritize strategically. And we look at any M&A to leverage the scale and technology that we have and also make sure it lines up with the secular trends since that will deliver long-term value and it has the growth profile of Cboe. But back to Jill’s point note, return of capital remains an important part of our capital allocation strategy here.

Operator: Great. Thanks, Alex. And our next question comes from the line of Michael Cyprys with Morgan Stanley. Michael, please go ahead.

Michael Cyprys: Great. Thank you. Good morning. Just a question on U.S. equities trading and your announcement to move 24/5. Just hoping you could elaborate a bit on the opportunity set that you see here, if successful, what might we see in terms of contribution to volumes? Maybe you can remind us what you see across extended day? And just more broadly, what are some of the hurdles here that you might see to implement time frame? Why not go to 24/7 all the way and why you chose to run this on EDGX versus other exchanges that you have? Thank you.

Dave Howson: Great. Thanks for the question. I’ll tag team this answer with Chris as we go through here. So 24/5 is something that we already do at Cboe. If you look at our proprietary index complex, we operate 24/5 over our scaled infrastructure and scaled operations teams. And when we look at the demand with our global footprint, we get to have those high level on the level discussions with customers around the world and in particular in Asia-Pacific, we’re seeing increased demand over time for accessing the U.S. equities market during the daylight hours of those investors, of those market participants. And we see good differentiation available to Cboe when we look at EDGX, when you see the 4 a.m. to 7:00 am. market share on EDGX being in excess of 35%.

Also on that platform, we have some differentiated functionality, which appeals to retail investors. So really that venue very much primed to be set up for extending hours there. In terms of readiness and timing, the key piece will be regulatory approvals from the SEC, which is yet to be forthcoming and the SIP, the consolidated tape there for publishing trades performed in those securities. We expect that with the SIP needing to implement those final rule and filings that came out of the SEC. But this is likely to be end of this year, early next year in our estimation when the infrastructure will be ready for us to go there. And we’ve — as we stated, we’ll be ready to go at that time. Because in return for that, we also see demand for our global equities data and we do — we’re accessing that day to day as we go through and putting boots on the ground to sell our US equity data internationally.

So really that’s a great feeder for us to be able to step into this. But without — pass over to Chris for some more comments and potentially on 24/7.

Chris Isaacson: Yeah, Michael. Thanks for the question. Dave covered it pretty well. As you said, this is really customer-driven given our 27 markets around the world and our global footprint, global infrastructure, we’re hearing a lot of demand from customers. They want to trade 24×5, as Dave has mentioned. And we think our global data opportunities, usually the sale of data free is a precursor to them wanting to trade and we see a lot of demand for US equities data outside of the U.S., in fact, driving a lot of demand there. Dave mentioned why we’re covering EDGX, that’s been a more retail heavy equity exchange and already has long trading hours starting at 4:00 a.m. going all the way to 8:00 p.m. And so extending those hours to 24 hours a day or nearly 24 hours a day would be relatively easy for us.

We’ll be ready when the infrastructure of the industry is ready with the consolidated tapes and the clearing facility as well. You asked about 24/7. Again, I think that’s really a market infrastructure readiness question, just the industry getting to 24/5 is the first big step, being able to clear and then have a consolidated tape on the weekends in U.S. equities would require, I think, some substantial plumbing changes within the industry, which given enough customer demand, we would work with the industry to figure out if we can meet that demand. But right now, we first need to get to 24/5 or nearly 24/5 to meet the customer demands. I will mention, as Dave also said, we already trade 24/5 or nearly 24/5 across many of our markets, and even in January, given the geopolitical events and what went on, we saw a tremendous amount of global trading hours trading in our derivatives markets to good effect there.

So just looking forward to serving customers as we deliver client-driven solutions.

Operator: Thanks, Michael. And our next question comes from Ashish Sabadra — excuse me, Ashish is with RBC Capital Markets. Ashish, please go ahead.

Ashish Sabadra: Thanks for taking my question. I was just wondering if you could comment on the price increases for options in 2025. And then just as we think about adoption of greater — retail adoption of options, how should we think about that influencing RPC going forward? Thanks.

Chris Isaacson: Thanks for the question. As we look at our options complex, I would divide that for you into two broad categories. One would be the multi-list options complex and one would be the proprietary index complex. In the form of that, the multi-list options pricing changes on a regular basis often each month to really retune and tune, and calibrate the venues according to the latest market conditions and customer flows where our objective is to balance market share with capture to optimize our revenue. So those changes are quite dynamic. When you look over to the index side of the street there, the pricing changes are much less frequent and much more targeted to very specific things such as trying to open up the doors to allow a more diverse range of participants to get an edge and begin to participate in the platform.

So I think that’s the landscape and options for pricing on those two broad categories. And then retail, retail is one of our large strategic focuses. If you look at the last five years and the incredible rise of retail adoption of options going from single stock options to index and ETF options and moving to that shorter end of the curve, and what we’ve seen interestingly, I would say, driven by a range of market participants is that we’ve seen an increase in the proportion and the total percentages of 0DTE trading in the SPX complex in particular. If you look at January ’25 to January ’24, there was nearly an 11% growth in 0DTE trading, which has been particularly attractive to retail. And then more generally in retail, as we spoke just earlier on this call, it’s about focusing on education.

It’s fundamental tenet of gaining access and building out that retail capability. It’s about global distribution. It’s about those brokers and retail brokers in the Asia Pacific region where customers want to interact with the largest equity pool, liquidity pool in the world being the SPX. So we’ll continue to do that as we make hires in region. I was really pleased to announce the broadening out of our team in the option space with Meaghan Dugan, but also the addition of Market Intelligence hires coming in the Asia Pacific region. So really broadening and deepening our bench of derivatives expertise to serve that customer base more acutely as we go into 2025.

Operator: Thanks for the question, Ashish. And our next question comes from the line of Craig Siegenthaler with Bank of America. Craig, please go ahead.

Unidentified Participant: Good morning. This is [indiscernible] from Craig’s team. Thanks for taking the question. Can you elaborate on the recent decision to rebrand Cboe’s technology platform as Titanium? What’s the materiality of that change? And I know some of your exchange peers have been successful white labeling their technology to third-party trading venues, should we read this as a step in that direction? How do you think about that opportunity as well?

Chris Isaacson: Yeah. Thanks for the questions, Chris here. Yeah. We decided to re — to name Cboe Titanium, our technology that runs all of our equities options in futures markets around the world, as Fred mentioned in others, the technology is a core strength of us here at Cboe and we think it needs to have a brand in order to accentuate that strength. Now to your question about whether or not we plan to monetize and sell the platform itself as software as a service as other exchanges, there’s no current plans for that. Our plans are just to continue to invest in Cboe Titanium as it drives our Derivatives business, our Data Vantage business, and all the markets we operate around the world. So no plans to commercialize it specifically today. Just plans to continue to invest very heavily in it as it drives and powers our business around the world.

Operator: All right. Thank you for the question, [indiscernible]. And our next question comes from the line of Owen Lau with Oppenheimer. Owen, please go ahead.

Owen Lau: Good morning, and thank you for taking my question. So for the succession plan or search, could you please talk about the characteristic of the new CEO, why now, the timing of the search, and how will the search impact the strategy you have put out so far? Thanks.

Fred Tomczyk: Okay. Well, let me start with a why now. When I stepped into the job, I had the three or four objectives that I mentioned earlier to stabilize the organization, to sharpen the strategic focus and then work on leadership development and succession. If you look back at what I’ve done since I’ve taken over as a CEO, the situation has been stabilized. The strategy has been sharp. The strategic focus has been sharpened. The management team, which is a strong team is now focused on executing that strategy and the balance sheet is in great shape. So with all that completed, the last part was obviously our leadership development and succession, and the Board and I felt this was the right time for a whole variety of reasons to move on that and get the organization on more stability for a longer period of time.

With respect to what we’re looking for in the CEO, I mean, the Board does have a list of qualities and characteristics looking for. I’m not going to get into each one of those. But they’re very clear on what they’re looking for and why. And I would repeat, we have a very strong team here. So that’s really the logic and the reasoning. And basically, from my point of view, I’ve completed what I set out to do when I stepped into the role in an unusual situation and it’s now time for me to go back to the Board.

Operator: All right. Thanks for the question, Owen. And our next question comes from the line of Alex Blostein with Goldman Sachs, excuse me. Alex, please go ahead.

Anthony Corbin: Hey, everybody. This is Anthony on for Alex. Maybe just one on the SPX franchise. What are you seeing in terms of customer trends that can maybe reaccelerate growth from here? And maybe I missed it from earlier on the call, but what would you expect the volume contribution from Hood to be throughout the year given early traction? Thanks.

Dave Howson: Thanks very much. I think it’s probably worth referring you to the earlier answer on Robinhood, which was reasonably detailed, but the just briefly there to say that the rollout was quicker than expected, had better results than expected and we estimate that the volume is largely additive and it’s a great setup for the rest of the year as we continue to partner around education and marketing there. It’s a really positive setup. Think about those almost 25 million funded accounts with only — as we understand it, around about 4% of them trading options. So great runway there, really excited about the setup and frame there. More broadly on the SPX complex, it’s been a great start to the year when you look at the volatility toolkit at large coming into its own.

You see resetting Fed expectations, inflation risk, fiscal outlook, uncertainty, markets whipsawed by headlines coming through on tariffs rolled out, and then walked back. So what we saw in January is a lot of what we would likely expect to see throughout the rest of the year with that continued uncertainty was gravitation towards SPX options as the demand for hedges increased and we saw the second-highest month on record for SPX options higher than the record average for 2024 there. Also, Global training analyst for SPX hit a record in January. So really encouraged by that as customers manage risk and take the opportunity to be dynamic and nimble using options 24/5, and Chris spoke eloquently about having capabilities to support flow there.

Then the volatility toolkit moves into VIX options and we need to think about the toolkit together, not just one product or the other, and fixed options also provide a great utility for that. The hedge potential for the tail risk that exist in the market and we saw 925,000 contracts on a daily basis — on average daily basis in January, which is 12% higher than the record in 2024. So when you take that together, the volatility toolkit coming into its own, when we take into account the growth, that nearly 11% growth actually of 0DTE trading in SPX between January ’24 and January ’25 into account, we see a really great setup with cyclical trends combining with a long-term secular trend. So really excited about international flows coming in and us leaning into that with hiring, marketing, education, really excited about the retail setup, increasing sophistication, the broadening of access to products is really encouraging.

Then you’ve got the direct and indirect access to options coming through options-based funds and ETFs where customers maybe not quite confident yet to trade options directly can access that through derivative income fund. So also pulling volumes there. And then the product torque just to bring it home is really neatly coming together, as I said, that volatility toolkit really providing great utilities for a very wide spectrum of customer types as we see a really encouraging setup for ’25.

Operator: Thanks for the question, Anthony. And our final question today comes from the line of Dan Fannon with Jefferies. Dan, please go ahead.

Dan Fannon: Thanks. Good morning. Just to clarify a couple of the guidance comments. So for the new segment Data Vantage, just to clarify, you’re saying the old way that you used to — you guided to or talked about 2024 is still consistent and in that range. And then on the below-the-line items, can you tell us what the actual dividends and interest was in ’24 to understand if that’s the go-forward versus some of the one, I guess other things that markups that you were expecting or you booked this year, just so we understand kind of the run rate?

Jill Griebenow: Sure. I’ll start with the Data Vantage question. So to answer your question there, correct, again, just we have been very, very granular from a numerical perspective in the past with our former guidance approach. So again, just looking at kind of market standards move to this mid to high-single digits, think of it though exactly where we were at this time a year ago in that 7% to 10% range. And then for the below the line items, I think we’ll provide more clarity on that. Our Form 10-K will be issued on February 21, somewhere later there in February, and we’ll see more granularity there. I will say though there — the components that comprise the below the line items. We do have minority investments, make up one portion of it and then dividends from investments are another portion of it.

So you do see the income from the minority investments drop a bit compared to what it had been previously. So, much of that relates to our minority investments in Trading Technologies via 7RIDGE fund. So that minority investment under equity-method accounting three years ago when we made that investment in 2021, it’s typical. You take quarterly marks based upon P&L pickups, a variety of market factors. But over time, that investment cycle starts to mature and that’s where we are three years later, which is why you’re starting to see that taper off a bit. The dividend income though from other investments, that continues to pick up. So again, more granularity will be provided later in February in the form of that 10-K.

Operator: All right. Thank you, Dan, for the question. And that appears to be all the questions we have. So I will now turn the call back over to management for closing remarks.

Ken Hill: So, thank you for joining us today. And I wish everyone a great 2025. We’ll see you in April.

Operator: Thank you. And ladies and gentlemen, that concludes today’s call. Again, thank you for joining and you may now disconnect. Have a great day, everyone.