All right, welcome back, everyone, to the 2024 Piper Sandler Global Exchange and Trading Conference. My name is Patrick Moley. I am Senior Research Analyst covering the exchanges, online brokers, and trading companies. Happy to welcome our next guests, the CEO and CFO of Cboe Global Markets, CEO Fred Tomczyk, CFO Jill Griebenow. Thanks so much for joining us. It's great to be here today. So- Nice to see some old friends. Yeah, a lot of them. Kicking it off, on the most recent earnings call, you sounded pretty confident about the 5%-7% revenue growth target this year, guided to the upper end of that range. Can you maybe just give us an update on the business overall, how you're feeling going into the second half, and how you think about the potential catalysts in the second half of the year that are going to help get you to that number? Well, I'll let Jill talk a little bit about the guidance range, but I mean, we felt pretty good after we started the year. I think if you look at the first five months for the year, three of the top four months we've had in our index option complex, the highest months have been this year. So January, February, as the market was coming back, and then obviously in April, when the market corrected, and the VIX popped to 19. So all... Everything we've seen, you know, you've seen April be a little softer, it may be a little softer, but that's part of being in the trading business. But so far, this one, you know, this year, we've had, you know, pretty strong volumes, and VIX right now has come back full circle. And you're seeing trading volumes there year to date are about 780,000 contracts, so we're on pace for a record year, so VIX has come back. The 0DTE continues to be strong. And all of a sudden, now, in the last month, we've started to see some of the longer-dated options also start to improve. Our Data and Access Solutions business continues to grow quite nicely, and we talked a lot about this today in each of our meetings. Once we put our technology on different parts of the world, you know, we basically are seeing a market share improvement. So like we've seen that in Japan and Australia. The second we get on our technology, and the improvements that we can make to that, our market share starts to grow in each of those markets. So all those things are good trends. But, you know, I think if you look for the rest of the year, you know, the summertime is the summertime. You know, there is a seasonality to trading volumes. However, we've got an election coming up. We've got two world wars going on. We got a market where, the sentiment between inflation, unemployment, and Fed and interest rates continues to move. And so all those things are good for our complex. And you mentioned 0DTE. We've seen, like you said, some seasonal pullback in the SPX complex. What are you seeing in terms of engagement, you know, from what you can tell, across institutional and retail investors? Has it been generally the same, or has there been any sort of mix shift there? I think on 0DTE, I think what's happened is the market started on the retail side more, and now it's actually skews more towards the institutional side as they've come into the market. So you're seeing a pretty balanced market. There's a good retail adoption, and it's all about how you define retail. You know, but if you include the professional kind of retail and the retail the rest of retail, you're gonna see probably 40%. It's a little less of, obviously, if you just go to the pure retail, and exclude the professional side. But, you know, it's still, you know, roughly, you know, a 50/50, 40/60 kind of market. And I think what institutions have seen the usefulness of the 0DTE expiry options in terms of managing risk in a very efficient way around events or intraday, and that's what I think is causing people to get into it. It's a very efficient way to sort of hedge your risk in the short term. Fred, you, you took over in the third quarter of last year. One of the things you spoke about when you took over was, kind of refocusing. You're in the midst of a strategic review. I think on the last call, you said that this summer was when you're planning to meet with the board. Can you just update us on where you are in that process? Are there any kind of takeaways you can, you can give to the audience from that process? Well, so a couple of points here. So we're in the middle of it, so it's hard to sort of be premature. I don't want to be premature or get ahead of- ... the board or whatnot. But, you know, to me, the most important thing when you're doing a strategic review is to actually make sure you do what I call a good situation assessment. So you look at various trends across various markets and geographies, to see which asset classes are attractive to you, which geographies are attractive to you, and why. Where we make money, where we have strengths, where we have weaknesses, and all that kind of stuff. So we're through that, and that, believe it or not, is a large bulk of work. Because once you have that, it's much easier to have a discussion about what you want to do and where you want to focus your time and energy. I do look at this as much more, as we look forward. We've obviously had a strategic shift already because we're not doing a lot of M&A. We've pulled that all in. We've been very disciplined about how we allocate our capital. We've stabilized our margins, and we continue to grow. And so I think that's there. What we'll talk about now is much more about where do we... I always think about these things as, how do you position a company that it has better prospects for inherent growth? So how do you line yourself up to be where there's secular growth? You will have cyclical factors that move it up and down, but you want to—you're gonna want to line up your business, that you're naturally in a good place in all the areas where you see long-term secular growth. Obviously, there's gonna be, you know, options are gonna be one of those, data and access is gonna be one of those. And when you put together data and access and our derivatives franchise, that's 80% of our revenue, and a large percentage of our profits. You know, I'd be surprised if that, you know, we're gonna say, "Geez, that's a bad idea," 'cause it's, it-- we've done very well with that. That's what we know. And I do look at option revenue as much more recurring than equity revenue. Equities, you, you can buy, you can sit on it forever, and when you hit a, a tough market, equity traders freeze, and option traders, if you build your complex right, can trade through any environment. So we see that as attractive. This is likely... I mean, I think people get their expectations that I'm gonna sell something or I'm gonna pare back expenses. It's much more focused on growth and positioning the company for continued growth. When you have, you know, EBITDA margins like we do, and free cash flow like we do, it's all about how you allocate that capital, and your technology resources is the most important 'cause it's a technology-driven business, so it's much more about making sure we're allocating our capital and resources towards things that we see long-term growth in. And that's really where we're focused, and this is probably everybody thinks there's gonna be a big reveal. It's not gonna be an event. This is something that will kind of fold out over time. You know, it doesn't mean we won't have a point where we all agree on what we're trying to do, and we'll give you some indications about that, but it's not gonna be an event where there's some magical reveal that we're gonna have. Maybe you mentioned the margin stabilizing. Maybe, Jill, you could just elaborate on that and talk about how you view margin expansion from here, the pace of that, how you sort of balance that with the revenue growth opportunity and the expense base. Absolutely. So the second half of 2023, we messaged that one of our priorities going forward would be to stabilize the margin. Not that we're not trying to increase it to 80%, something like that, but really stabilize it and taper in the expense growth rate that we had seen previously while we were making investments via various M&A activities. So for 2024, we rolled out our expense guidance, projected to be between 6% and 8%. I think you saw our first quarter actual results, actually saw the margin rebound to a very healthy 67%. But again, we're not driving towards the 80s, but really like that, wanted to get back to that 65% on up. From here, it will be essentially disciplined expense management, coupled with determining where and when to reinvest in the business, especially from an organic basis, to just drive that long-term, durable revenue growth. So it will be a balance, but again, there is a focus on expenses. Fred, you, you spoke about some of the international businesses in your remarks there. How do you think about the opportunity for Cboe outside of the U.S., having looked at these businesses? You know, where do you see the most opportunity for kind of the next leg of international growth? How are you thinking about that? Yeah, so, I mean, so we're starting to think more and more, and we're talking more and more about our businesses geographically. I mean, so number one is APAC. Asia Pacific is an attractive part of the world for us. It is where a lot of wealth has been created over the years. I've been going there for over 30 years. The growth in Asia is phenomenal. I don't see that changing, so it continues to be a very attractive part of the world. I think the U.S. is always gonna be an attractive and big and robust market. We're starting to think about our business in terms of export businesses and import businesses. And what I mean by that is export is where we have something we do in the U.S., and we can export that capability into another market and try to make that market, let's call it, a little bit more like the U.S. market. So CEDX and our European options launch there is... It would be a typical export business. Now, those are harder, and you have to have a long view to do those, because developing out a market, you've got to build all the infrastructure, you've got to introduce the right products, you've got to bring in all the liquidity, you've got to educate people how to use the products properly. So you have to have a long view on that. You know, it's nice, you know, that in Europe, we got IBKR to come on with us to help us out, you know, because, you know, no one's been better at growing the options business worldwide than Thomas Peterffy. So he's... That was a big agreement that he's gonna work with us on that as well. Then we think about the import businesses, and what we mean by import is everywhere I go around the world, people talk about technology to me. I'm talking about our clients. The technology, access, data, and liquidity is all flowing back to the U.S. Everybody wants, as Terry was saying, everybody wants access to the U.S. market. So from our point of view, we have that, you know, the SPX complex, if you want to trade on the U.S., that's an attractive thing if you want exposure to the U.S., and it's attractive from our point of view. So how do we build our presence in different parts of the world that we already have a footprint to get that flow back into the U.S.? I think in the shorter term, that's the bigger opportunity for us. Maybe just unpacking the European derivatives business, what have you seen so far? What's kind of state of the union of that business? Have you seen a big pickup in volumes? What have you learned? I think it's too early. As I said, you know, you've gotta, you've got to get it out there, and we now have, I think, 300 single stock names that we have options on. Europe is just different. When you go around the world, you've got to think that each market is slightly different. So, just trying to sell access to the US, there's some volume there for, for Europe, but I think they're gonna trade much more locally, a lot more interest in ESG. But if you go to Asia, a lot more interest in the US. So, I think it depends where you're going and how, but I think it's too early yet because we've got the, we've got the platform in place.... We brought in Interactive Brokers, but we've got to bring a lot more participants into that market to provide the liquidity to get it going. It's going to take time. Shifting gears, Data and Access Solutions, you guided to 7%-10% growth in revenues this year. Can you speak to the line of sight that you have in those revenues? What have you seen in terms of new customers versus sort of deeper penetration of wallet share among existing customers? What have you seen there? You know, I'm not sure I've got a split between existing and new, but we have some degree of that. But if you think about our Data and Access Solutions business, 43% of our growth and Data and Access Solutions revenue came from outside Canada. So that's an interesting statistic. So as we go into these markets and we build out our platform, whether it's Australia, whether it's Japan, whether it's Canada, once you get to a certain scale, your data becomes very important and access becomes very important. But again, we've rolled out something we call Dedicated Cores on some of our U.S. exchanges. We've seen good demand for that. We're trying to bring it across our other exchanges. It reduces latency for the bigger firms by 40%. So again, it keeps coming. Everywhere I go and every client I talk to, it's technology, it's data and data access, and it's access to the U.S. market. You still feel like you have a decent opportunity and, you know, the ability to take price with a lot of those products? Or how do you think about that across geographies? We're much more focused on growth and bringing in new participants in different parts of the world, and growing the number of users. We rely less on price at this point, and you should think about pricing maybe making up a third of the growth over there, but more of it is going to be just straight, raw, organic growth. So it's about... If I had to pick a spot there, I would like us to focus on shorter term, it's going to be about adding sales and marketing people in Asia. On the product development front, whether it's derivatives or data, are there any specific areas or products that have you most excited for the future? Well, as I talked about Dedicated Cores, we're seeing lots of good demand there. Again, and then, I think on data, I think that's just the trend of the world. You know, whether it's AI, it's generative AI, quantum computing, whatever you want to say, data becomes more and more important, but it's having good data and packaging it right. And the clients that I've talked to, they're paranoid that one of their competitors has a data set that they don't have. So, you know, I think we have to get more creative on sort of packaging data that's relevant to different audiences. But we, you know, that's just something I think that's just the way the world's going to go for the next foreseeable future. I wanted to ask about Robinhood. We're meeting with them next. They've said that they are going to launch index options. It was going to be middle of the year. It sounds like it's gotten pushed out further now. Yeah. How do you think about the opportunity there? I know you've spoken on it before, but is there any update on how you're thinking about that? And, you know, are you in these conversations, knowing, like, what's causing them to push this product launch out? Well, no, I'm not in the conversations- Yeah. Even though the reality is, your next two guests, you know, Steve Quirk and JJ Kinahan and I, we're all at TD Ameritrade together, so we're all very good friends. But, you know, I think Q is trying to build that out, and we will follow his lead. I think the most exciting part of all this is there's a trend. Clearly, the retail side of the market, even again, as Terry talked about, it just continues to grow, and it's growing on the back of options in many respects, but also, you know, democratizing investing. But, you know, and people are discovering options, but options require education, it requires the technology and ease of access. And so, you know, we're gonna continue to follow our clients. We're actually quite excited that Robinhood's going to different parts of the world. tastytrade's going to different parts of the world. IBKR is already there. No matter where I go, whether it's Tokyo or Singapore, I run into people from Interactive Brokers. So, you know, we'll follow our clients there, but there's growth towards retail becoming a bigger and bigger part of the market. And there's retail, and then what we call professional retail, and then there's institutional. Those lines, as I think Terry was talking about, are getting blurred, and because people continue to migrate out. When you start out in options, you're going to start out with very simple stuff, whether it's selling a covered call, a cash secured put, protecting a position, buying a put or whatever, and then they're gonna migrate you up over time as you get comfortable into spread trading, which is, in their view, the right way to trade options, that you always know your defined risk. You're seeing this happen also in the ETF space. Something like 40% of all ETFs introduced in this year or in the last year are using option overlays. So you're continuing to see the use of these tools, but it has to be done in a smart way. It can't just be about speculative bets, 'cause that, that will just run its course and people blow up. It has to be much more robust and thoughtful in terms of income generation, risk management, which is the roots of options are risk management. And then basically, people will move to income generation with natural strategies, like, like I said, covered calls and, and, and selling a put. But if you're going to trade options, you have to be on it. You can't— It's not one of those things you buy and, and go away on vacation. You have to be on it at all times. But I continue to see that, and— but they're doing it in a smart way. There's great success. So, you know, we're gonna continue to follow those clients as they try to bring that to different parts of the world. Maybe a question for Jill on capital allocation. Cboe has historically increased its dividend sometime around the third quarter. Last year, you increased it by double digits. How are you thinking about the dividend heading into the third quarter, and how do you think about just the pros and cons overall of buybacks versus dividend increases? It's really a balance. So I would say the various valves that we have to return, you know, redeploy capital, is share buybacks, as you mentioned. So typically, we have a history during the first quarter to be more active from a repurchase perspective. You saw our actual first quarter results. We also messaged that we were active with repurchases throughout the month of April. We will look at a potential dividend increase. As you mentioned, we do have a history of increasing that during the third quarter of the year. And then the third and fourth, what I'll call valves for deployment, would be organic reinvestment in the business. So if there is an organic growth initiative that's very close to one of the products, geographies we're already in, if it will take, let's say, $20-$25 million, and we see something that's high conviction, highly likely to reward, would we invest those dollars? Absolutely. And then also M&A, we've messaged that it's you won't see us continue at the pace that you'd seen the past few years, but it is nice to have dry powder. If there is an opportunity that emerges, either in a geography, in an asset class that is very strategic for us, would we consider it? Absolutely. So it really is liking that optionality. Our leverage ratio right now is extremely low, so 1.1 times as of the end of the first quarter. We generate a lot of free cash flow. We don't have any floating rate debt remaining, so that does give us quite a bit of cash to deploy. So again, share repurchases have been heavier at the start of this year. We'll continue to update the Street on that as we progress towards our second quarter earnings, you know, announcement, but it is nice to have that balance sheet flexibility that we have. Nice problem to have. Yeah. Definitely. Another thing, Fred, that you've spoken about when you took over was succession planning. I don't know if there's any update there or anything you'd be willing to share about, you know, how you're feeling in the role. We're coming up on a year now. Anything you can share now? Almost a year. I guess it's September, so it's not quite- September, yeah. But you're almost at a year. Any thoughts there? Well, I'm not gonna get ahead of my board. This is a board decision. It's not my decision. Obviously, I'm a director, and I have a role in it, but, you know, my job-- If you go back to it all, one of the reasons I stepped in, well, probably the primary reason I stepped in, 'cause I'd been around this space for quite a while, I was on the board. I care about the company, and I've always had a relationship with Cboe. And I'd say, you know, we lost 4 of our top 8 executives in a period of about 3 months, so I felt compelled as somebody who's been around this space quite a while. The investor base know, knows me, the analyst base knows me, and that covers the Cboe. And so it was to stabilize it and then, you know, sort of build out the strategy, also build out the team, develop the team. So that's what I'm focused on right now. As we go through the rest of the year on succession and whatnot, as we go through strategy, you know, I'm gonna turn. So obviously, so far, the board has had a lot of time with me, just my impressions and my views. But it's gonna be more now to start to, you know, sort of show them more of the executive group, so they can, you know, start to form their views. But there's no timeline per se. It's about when the right time is, and getting the right, right people in the right place, so they're ready to do something. So, as opposed to, in my situation, where you have an emergency situation and succession, you want something that's quite orderly and thoughtful.