Cboe Global Markets, Inc. (CBOE) Earnings Call Transcript & Summary

Good morning, and welcome to the Cboe Global Markets First Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Ken Hill, Vice President of Investor Relations. Mr. Hill, please go ahead.

Good morning, and thank you for joining us on our first quarter earnings conference call. On the call today, Ed Tilly, our Chairman, President and CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Then Brian Schell, our Executive Vice President, CFO and Treasurer, will provide an overview of our financial results for the quarter as well as an update on our 2022 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; John Deters, our Chief Strategy Officer; and Dave Howson, President of Cboe Europe and Asia Pacific. 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. Each represents 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 the forward-looking statements. Please refer to our filing with the SEC for a full discussion on 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 conference call. During the call this morning, 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 Ed.

Thank you, Ken. Good morning, and thanks for joining us today. I'm pleased to report on strong financial results for the first quarter 2022 at Cboe Global Markets, reflecting the continued strength of our business. During the quarter, year-over-year, we grew net revenue 14% to a record $418 million, and adjusted diluted earnings per share grew by 13% to a record $1.73. Our solid first quarter results were driven by the ongoing expansion and diversification of our business, with strong trading activity in our cash equity business, higher volumes in our proprietary index products and increased demand for our suite of Data and Access Solutions. Our Options business had an outstanding quarter with a strong contribution from our proprietary index products and solid results from our multi-listed Options business. Our proprietary index products resonated well with our customers as volatility continued to remain steadily elevated around the world and market participants engage with our product suite to manage risk. Average daily volume increased 42% in SPX options year-over-year with VIX options increasing slightly year-over-year and up 18% over the fourth quarter 2021. Multi-listed options trading ADV increased 2% year-over-year to a new record of 11 million contracts per day. Additionally, our European Equity segment had a very strong quarter. Net revenue increased 37% as industry average daily notional value traded increased 31% and market share rose 5 percentage points year-over-year to 21.8%, the highest since the first quarter of 2019. These results were driven by not just favorable market backdrop, but by the expansion of our data and analytics services to help clients improve the quality of their executions and enhance their overall trading experience across our lit and dark order books, periodic auctions and Cboe BIDS Europe. On the U.S. equity side, we were pleased to launch periodic auctions on our BYX Exchange earlier this month and hope to replicate the success we've had with our European periodic auctions offering. Turning to Asia Pacific. Cboe Japan market share increased considerably during the first quarter to 3.8%, up from 2.9% in the fourth quarter of 2021 as a result of new liquidity provider program designed to attract new volume to the market. We are excited to have a growing footprint in Japan, which is the fourth largest equities market in the world by volume traded. In Australia, volumes remained strong across our equities business and we are also preparing to list Asia Pacific's first crypto ETFs on Cboe Australia in the coming weeks. We're excited to be helping to bring these innovative products to market. Importantly, while achieving strong results, we continue to successfully execute on key initiatives to advance our corporate strategy to innovate, integrate and grow our business globally. In February, we completed the migration of MATCHNow, the largest equities alternative trading system in Canada, to Cboe technology, creating a unified training experience for all of our North American customers. Along with this technology migration, we launched Cboe BIDS Canada, bringing a new and enhanced block trading offering to the Canadian equities market. It's important to note that these enhancements are already benefiting from our platform with the migration of MATCHNow, improving latency and institutional activity increasing with over 10 sponsoring brokers signed on as Cboe BIDS Canada sponsors. We look forward to further expanding our footprint in Canadian equities market, with the expected close of our acquisition of NEO later this quarter, subject to regulatory approvals and customary closing conditions. We also announced plans to migrate Cboe Australia to our world-class technology platform in February 2023, pending regulatory review and approval, and released technical specifications for this migration a month ahead of schedule. We appreciate the early engagement with customers in Australia on this important initiative, and we will be working closely with them throughout the year as they make their preparations for the migration. As we continue to broaden and evolve Cboe, our global network gives us the unmatched ability to efficiently scale and expand our business in new ways, both organically and inorganically. As we architect the business for future growth, I was incredibly excited to announce several leadership changes last month, including the appointment of David Howson to President of Cboe on May 12. Many of you know Dave well, as he currently serves as President of our European and Asia Pacific segments and has done a remarkable job working with the team and our customers to successfully grow these businesses. His track record speaks volumes, and he has spearheaded the development and execution of some of Cboe's most innovative products and services. Dave is planning to relocate from London to Chicago and will oversee Cboe's business lines globally. Please welcome Dave as he joins us on the call today. I believe the enhancements to our management team showcase our deep bench of talent and position Cboe well to advance our global expansion strategy. As mentioned last quarter, we are focused on executing on the transformational opportunities we see in 3 core areas of our business: Data and Access Solutions, Derivatives and Cboe Digital. We continue to fuel these opportunities by executing against our ongoing strategy, which remains consistent: leverage our superior technology; further strengthen our core proprietary products; increase recurring revenue; and expand our product line by geography and asset class. During the first quarter, we made solid progress advancing each of these core areas of our business. Let me begin with Data and Access Solutions, which delivered record results during the quarter with revenues increasing 18%. This growth was driven by continued demand for access to our exchanges, proprietary market data and new subscribers to Cboe's front-end platforms. Cboe Global Cloud, a cloud-based market data streaming service we launched during the fourth quarter, continues to gain traction with customers. This new service aims to increase access to our unique data set to customers globally. We plan to further expand the data set offered via Cboe Global Cloud this summer, with the addition of European Equities data, which we believe will further expand the customer base accessing our data via the cloud. We continue to believe this business is positioned incredibly well moving forward. Given our confidence, we are increasing our 2022 targeted organic growth rate for Data and Access Solutions to 8% to 11% from 7% to 10%. Our unique product set, coupled with our geographic and asset class diversification, enables us to meet the needs of customers from London to Tokyo, Chicago to Singapore and everywhere in between. As the world continues to grapple with uncertainty caused by the war in Ukraine, rising inflation and interest rates and the ongoing challenges of the pandemic, market participants have increasingly turned to Derivatives and volatility vehicles to help mitigate risk. We continue to innovate and expand our Derivatives business globally to meet this ongoing customer need by growing 24x5 trading in SPX and VIX options, expanding our popular SPX Weekly's options offering to provide expirations every trading day of the week starting in May; and launching Nanos, a new smaller-sized product designed for the retail trader. Earlier, I noted our overall strong volumes across our proprietary products franchise, as we continue to see solid momentum trading in SPX and VIX options since launching 24x5 trading in November 2021. During the first quarter, average daily volume in SPX options during global trading hours increased 164% year-over-year, more than double the volume prior to launch of 24x5. Additionally, average daily volume in VIX options during global trading hours increased 14% year-over-year, while VIX futures volumes increased 19%. Although still in its early days, the incremental volume we are seeing as a result of 24x5 enhancements has already generated an attractive return on our 2021 investment. Last week, we added Tuesday expirations to our SPX Weeklys complex and plan to add Thursday expirations beginning May 11. These new listings build on the success of our SPX Weeklys, which currently include Monday, Wednesday and Friday expiries. Since we launched SPX Weeklys in 2005, they have become one of the most actively traded products, accounting for 70% of total SPX options volume as they allow investors to manage their short-term U.S. equity market exposure and execute trading strategies with even greater frequency, precision and flexibility. We have received very positive feedback from a broad range of market participants, and we are off to a strong start. On Tuesday, we saw over 600,000 Tuesday expiry contracts traded. Last month, we were excited to launch Nanos, a first-of-its-kind options contract designed to make trading more accessible for the retail trader. We have been pleased with initial volumes, which have topped 3,500 contracts on several days, and we plan to continue to expand the network of retail brokers offering this product. We expect this market to continue to flourish over time, and we look forward to engaging with this growing retail segment. Turning now to Europe. Our European Derivatives business continues to gain momentum, and we are pleased with the progress made since launch last September. Volumes continue to grow, and we reported over 6,000 contracts traded in the first quarter, an almost fourfold increase on last quarter's volumes. Earlier this week, we launched Futures and Options on 4 additional country indices: Italy, Spain, Sweden and Norway. This second phase of products broadens our equity index product suite to cover additional key European markets, providing customers with the tools to efficiently manage their European index exposures via a single marketplace. The expansion of our global Derivatives franchise is laying a strong foundation to build upon throughout the rest of the year as we help clients around the world navigate risk. Turning now to Cboe Digital and our planned acquisition of ErisX, which remains on track to close very soon, subject to customary closing conditions. ErisX will provide Cboe with spot trading, data and clearing capabilities for digital assets and derivatives trading, clearing and data through its regulated futures exchange and clearinghouse. This is a pivotal moment for Cboe as we reenter the digital asset market, and we couldn't be more excited to apply our blueprint of success, operating trusted, transparent, regulated markets to digital assets. As we said before, we believe Cboe can play a guiding role in shaping the trajectory of this revolutionary market. We have been actively engaged with regulators as they shape policy for this emerging asset class. Additionally, the ErisX application for merchant futures is currently in review at the CFTC. We look forward to welcoming the ErisX team to Cboe and accomplishing great things together as Cboe Digital. We are focused on driving durable growth here at Cboe, and I believe the targeted investments we are making across the ecosystem today not only help us diversify our product set and strengthen our flywheel, but also allow us to enhance the robustness of our revenue growth, the ability to harvest investments over various periods of time from near-term contributors like Tuesday/Thursday expiries and 24x5 to longer-term investments in place like Nanos, position Cboe well to grow for years to come. And now I will turn over to Brian.

Thanks, Ed, and good morning, everyone. Let me remind everyone that, unless specifically noted, my comments relate to 1Q '22 as compared to 1Q '21 and are based on our non-GAAP adjusted results. As Ed discussed, the year is off to a very strong start, producing the second consecutive record-setting quarter for Cboe. Overall, adjusted diluted earnings per share were up 13% on a year-over-year basis to $1.73, and both the transaction and nontransaction elements of our business performed well. We believe these strong results validate our investment focus as we continue to put capital to work across our ecosystem to help us enable to take full advantage of the favorable market dynamics. Quickly touching on some of the noteworthy takeaways from the first quarter. Our net revenue increased 14%, notching another quarterly record at $418 million, led by the strength in our Derivatives Markets and Data and Access Solutions categories. I would like to note the change in our income statement to reflect cash and spot markets, Data and Access Solutions and Derivatives market categories we laid out at the November Investor Day. The update reflects how we think about the business, in addition to our segments, and how we will be reporting our results moving forward. You can find more details in our 10-Q. Noting a couple of highlights for our updated categories in the first quarter. Derivatives markets produced 18% year-over-year organic net revenue growth in the first quarter, given the strength of our index business. Data and Access Solutions net revenues were also up 18%, up 12% on an organic basis, helped by strong new subscription and unit growth. And cash and spot markets produced 5% net revenue growth for the quarter, up 2% on an organic basis on the back of strong volumes and market share in our European cash equities business. Please note that historical quarterly values for these categories covering the 2020 and 2021 time frames are available on our IR site. Adjusted operating expenses increased 17% to $146 million. Adjusted EBITDA of $281 million was up 12%. And last, our adjusted diluted earnings per share hit a record $1.73, up 13% compared to last year's quarterly results. Turning to the key drivers by segment. Our press release and the appendix of our slide deck includes information detailing the key metrics for each of our business segments. So I'll just provide some summary thoughts. We saw impressive year-over-year growth in many of our segments during the quarter. Options delivered exceptional net revenue growth of 21%, driven by higher trading volumes in both our proprietary and multi-listed options, better market share as well as higher revenue per contract, or RPC in index options. Total options ADV was up 6% as our higher-margin index options volumes increased 27% over 1Q '21 levels. RPC moved higher by 18% given the continued positive mix shift to index products and a stronger mix of higher-priced SPX options in our index business. And lastly, we continue to benefit from another quarter of double-digit growth in market data and access and capacity fees, up 26% and 22%, respectively, as compared to the first quarter of 2021. North American Equities net revenue decreased by 3% year-over-year against some difficult comparisons to the first quarter of 2021. Industry volumes were lower by 12%, and market share declined by 70 basis points versus the first quarter of 2021. On a sequential basis, market share improved by a full percentage point and industry ADV was up nearly 20%. On the nontransaction side, access capacity fees increased 11% as compared to the first quarter of 2021. The Europe and APAC segment again delivered outsized growth for the quarter, with net revenue up 37%. The increase was driven by higher volumes and the inclusion of Cboe Asia Pacific revenues of $8.4 million. Net transaction fee growth of 47% outpaced solid clearing fee growth of 10%. Transaction fees were led higher by Cboe Europe's equity ADV increasing 71% year-over-year given very strong industry volume growth and a 5-percentage-point increase in market share. Clearing fees benefited from an increase in clearing volumes of 52%. First quarter revenue increased 2% in the Futures segment as transaction and nontransaction revenues posted slight gains for the quarter. Volumes and rate for contract metrics were relatively flat year-over-year. On the nontransaction side, access and capacity fees were up 2% and market data grew 25% as compared to the first quarter of 2021. And finally, revenues in the FX segment were up 16% as compared to the first quarter of 2021. Net transaction and clearing fees benefited from a 13% increase in average daily notional value traded and a slight increase in net capture rates. As noted previously, Cboe's Data and Access Solutions' revenue growth started the year on strong footing with 18% total growth and 12% organic growth as compared to 1Q '21. Again, this strong growth was primarily driven by additional subscriptions and units, accounting for over 90% of the year-over-year revenue increase as opposed to pricing changes. More specifically, we saw robust physical and logical port usage in our Options and equities businesses, driven by increased demand for trading capacity. And on the market data side, the equities top-of-book and Options depth of book products continued to perform well. As we look to 2022, we see tremendous potential for the Data and Access Solutions business. We are raising our targeted DnA, organic net revenue growth rate to 8% to 11% from the 7% to 10% range, slightly above the medium-term guidance delivered at our November Investor Day. Turning to expenses. Total adjusted operating expenses were approximately $146 million for the quarter, up 17% compared to last year. Excluding the impact of acquisitions owned less than a year, adjusted operating expenses were up 12% or $15 million for the quarter. Moving to our expense guidance. We are reaffirming our full year expense guidance range of $617 million to $625 million for 2022. As we have previously stated, we expect our expense base to build over the course of this year as we invest behind many attractive initiatives at Cboe. We expect $23 million to $26 million of the 2022 investment spend to directly drive incremental revenue growth. We believe that approximately $10 million is needed for infrastructure enhancements to support and scale our business for greater levels of activity in the future. In the past, we have talked to investments in areas like DnA or our EuroCCP acquisition and integration as producing solid returns for Cboe. I would like to point out that a few of our more recent 2021 investments are already producing some very attractive returns as well. For instance, 24x5, which went live in November, has translated to year-to-date global trading hour volumes in the SPX options contract more than doubling 2021 levels averaging over 27,000 contracts per day in the first quarter. Tuesday expirations went live last week. In this Tuesday, we saw over 600,000 Tuesday expiry contracts traded, a very strong start. We recognize that each of the investments we made across our ecosystem is unique with different return profiles, payback periods and levels of complexity. In each case, though, we leverage the same core attributes that make Cboe, Cboe, the ability to leverage our superior technology and unmatched global footprint and a cohesive trading experience across asset classes. We invest consistently behind this framework so that we can harvest the investments across cycles from short-term initiatives like 24x5 to longer-term endeavors like the EuroCCP acquisition, the EU Derivatives launch, introduction of BIDS block trading capabilities in new equities markets and other multiyear integration and technology migration activities. Looking ahead to our pending acquisitions. We expect to close the ErisX transaction very soon, subject to customary closing conditions and anticipating midyear closing for NEO, also subject to regulatory review and other customary closing conditions. Adjusting our prior expense framework for the updated timing, we expect the acquisitions of ErisX and NEO to add an incremental $30 million to $35 million to our 2022 guided range of $617 million to $625 million. We continue to anticipate that revenues from ErisX and NEO will offset more than half of the expenses in 2022, with an expectation that the additions are EBITDA-positive on a combined basis in year 2. The company plans to further refine this guidance for 2022 after the acquisitions close. Now turning to a summary of full year guidance on the next slide. Given our early year performance and positive outlook for the businesses, we are providing incrementally positive updates for the many elements we spoke to at our Investor Day back in November. Specifically, as we have already mentioned, we now anticipate DnA organic net revenue growth will be in the 8% to 11% range, up from the previous guidance of 7% to 10%. Acquisitions held less than a year have performed well, and we are slightly increasing our guidance, calling for acquisitions held less than a year to contribute between 2 and 3 percentage points to total net revenue growth in 2022, up from our prior guidance of 1 to 3 percentage points. And our overall organic net revenue growth target remains unchanged after the first quarter at 5% to 7% for 2022. But we see potential upside to our revenue expectations given the early performance of our growth initiatives and the year-to-date macro trading environment. Depreciation and amortization is expected to be in the $40 million to $44 million range. Our CapEx guidance range is $47 million to $52 million for the full year, and we continue to anticipate our effective tax rate on adjusted earnings to be in the 27.5% to 29.5% range for 2022 under the current tax laws. Our interest expense for the first quarter of 2022 was $10.8 million. Given the incremental borrowing costs related to the financing put in place ahead of the planned acquisitions of ErisX and NEO, which includes an expanded and longer-tenured revolving credit facility, we expect interest expense to be in the range of $14 million to $15 million for 2Q '22. On the capital front. Our focus has been and remains maximizing shareholder value through the effective use of our capital. In the first quarter, we returned a total $121 million to shareholders, comprised of $51 million of dividend payments and $70 million in share repurchases. We remain well-positioned to invest in the business, support our dividend and opportunistically repurchase shares with $249 million in remaining capacity on our share repurchase authorization. Our leverage ratio increased versus the prior quarter to 1.6x at March 31, as our debt levels increased with the issuance of a 10-year note in anticipation of our NEO and ErisX transactions. Overall, we remain committed to maintaining a flexible balance sheet and putting capital to work in the most value-enhancing way possible for shareholders. In summary, Cboe kicked off 2022 on very strong footing with a record quarter, and we remain confident in the many attractive initiatives we were investing in across the Cboe ecosystem. We look forward to continuing to deliver strong and sustainable results for investors in the quarters ahead. Now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.

Thanks, Brian. In closing, I would like to thank our team for the incredible progress made throughout the first quarter. 2022 is off to an exceptional start. And with the help of our dedicated associates, we are well-positioned to define markets globally, delivering value to our customers and shareholders.

[Operator Instructions]

[Operator Instructions] And the first question comes from Rich Repetto with Sandler O'Neill.

Ed, Brian and Chris, so I guess my question is on the proprietary products and the VIX futures volume, you've seen a rebound since sort of the mid-quarter, first quarter slowdown. I guess that's due to the Barclays, the VXX ETF issuance issue. But I guess, could you give us an update on the recovery in the VIX futures and more broadly in the proprietary product volumes? Like you talked a lot about index options. You see great growth. And can you give us a picture of what's happening and what's in your control and what you think is volatility-driven?

Cool. Thanks, Rich. Big question there and a really good one. A lot of it, at the heart of it is really the macro trading, what's going on more macro. But Brian, why don't we start and just more to Rich's beginning of the question with Barclays and the VXX ETP.

Yes. Thanks, Rich. The -- as we look at that, and you did point that out as far as the timing, as far as mid-March goes with the Barclays announcement. And just again to make sure we're all on the same pages, that they've cited themselves that they intend to file a new automatic self-registration statement with the SEC as soon as practical. And they remain committed to infrastructure products and business in the U.S. So we've seen that. We're -- there's no reason for us to believe that, that's not going to be the case. And obviously, in the interim, we've also seen new funds come into that space as well from an ETM perspective.

Thanks, Brian. So Rich, maybe if we look at what's in our control, what's out of our control is a good way to look at the volumes. So they are solid across asset class, and we are in a sustained level of higher volatility if we use the historic level of VIX. And it's really the macro knowns being the key drivers. Interest rates rising; inflation; the war in Ukraine; supply chain as a result of the continued COVID issues, primarily in China; all not in our control. The mix of our products continue to be driven primarily by the relationship of implied versus realized volatility, very similar story to what we talked about last quarter. When implied vols are below realized, our users are buying optionality and exposure and protection cheaper than the underlying is moving. So long gamma is paying off with large inter-day moves, again, not in our control. Customers continue to be very active around short-dated options and optionality that they provide. Again, this is customer-driven. We're watching what they trade, not in our control. So what is it that we can control? Well, it's design, it's development and the extension of access to the complex. So we listen to customers. They want more access and more precision around trading. And with that access comes certainty and competency in our platform with round-the-clock access to liquidity. So we added 24x5 for SPX and VIX options. We've been sharing with you again the amount of interest in super short-dated options. So we added Tuesday options and soon to add Thursday. We added a curb session. We're almost done in launching our new design trading floor to accommodate more interest for in-person trading, giving more access to global liquidity. And we launched a contract designed for retail and the Nanos contract, which provide access to the S&P 500. So in our control is really expansion and access and listening. And that's, I guess, the punchline. Thanks for that question, Rich.

Got it. That's very helpful. I was going to ask about the expense, the conservative expense guidance, but that's a little...

And the next question comes from Don Fannon (sic) [Don Fannon] with Jefferies.

Wanted to follow up on the Access and Data strength and the improved guidance. So you talked about increased demand for capacity. But curious about the incremental customer, the type of customer and maybe what you're seeing on the retail side. If you've really tapped into what that opportunity could be in terms of incremental demand.

Sure. I'll take that, Rich. The -- sorry, Ed, but I can. The -- as we think about all the elements of the G&A growth, and I really want to touch on them all, it's not direct retail per se, but retail can be behind a lot of those trends as far as where we're seeing that data is providing information to the cash and spot markets to the Derivatives markets. So it's underlying that as a part of that, but we don't see that directly coming in per se. But it is certainly driving the -- driving some of that transaction volume certainly driving that real-time data and the real-time access. So as far as where are those customers and we look at where that new growth is and we look at that composition of that new revenue, we're actually seeing the largest part coming outside of North America. About 40%, 42% we saw was North America, and the rest was EMEA and APAC and -- which we love those numbers because it's hitting the growth of where we are today, but it's also highlighting the -- we think, more significant upside of it's still barely scratching the surface of APAC, for example. That's kind of the smallest component of the growth we see. So we look at it more geography and what we can do there. And so -- and we're really excited when we think about the incremental cloud offerings that we have coming online and we think about the incremental risk and market analytics information that we're seeing that we're putting together and where that growth is coming from, both the mix of new as well as incremental share of wallet. So again, we continue to be very excited about where that is and those offerings, again, across the globe.

And the next question comes from Gautam Sawant with Crédit Suisse.

Can you please speak to the extent that Cboe European Derivatives is easing structural challenges and market fragmentation that slowed the European Options volume growth? And also given the initial momentum of that business, is there upside to the EUR 25 million revenue growth by 2024 outlook?

Dave Howson, welcome to the call.

Thanks very much, and thanks very much for a great question. Certainly, in terms of the summary of the value proposition and the macro factors that are in place or were in place 2 years ago when our customers came to us with the idea and the opportunity you're breaking into, and really growing the European equity Derivatives market. We looked at that fragmentation, the siloing across Europe. We looked at the need for a single stop shop and also that need for an on-screen-lit liquid market, very much in line with what we enjoy, all of our customers enjoy in the U.S. And with the acquisition of EuroCCP, we're able to bring that all together out of the single trading, single-margin pool across country benchmarks and a pan-European benchmarks. So really giving that single access point now with increased efficiency through our products designed from the ground up. And those products based of indices that are based off our equities market prices. And as you heard in the prepared remarks there, the European equities market share has grown 500 basis points over the last year. So really solidifying the products that trade on those venues. So what we've seen since launch last year is a continuation of our commitment from the initial round of customers with Q1 being 4x the size in terms of trading from Q4 last year. The new products we launched this week have gone well with good support. Really crucially with those new products, now we get to access different national benchmarks across Europe and therefore, new local customers and new local expertise. So what you're going to see really from here on out is further build-out of the futures picture across the products, the price picture there, followed by the options and also, greater engagement as we look through to next year and the addition of single names. And really, with the sort of the guidance we've given on the revenues there, we're looking really on a good path there as we build out this product and this initiative. The size of the opportunity is -- it's still -- the window between European and U.S. markets is still there, and we're really looking forward to carrying on, building this out with our customers.

And the next question comes from Alex Kramm with UBS.

You may have talked about this before, but just a quick one on the new initiatives on the proprietary of products, the after-hours trading, the New Weeklys. Can you just remind us what the pricing strategy is there right now? Are there any incentives that you're providing? Or how does pricing generally compare so we can have an idea of how they might flex your RPC as these businesses hopefully grow faster than your traditional offerings?

Yes. there's no difference in pricing. I mean there's -- so you won't see any mix from these products that you're seeing that's going to have any impact other than having a call. For example, a higher mix of SPX contracts in our overall mix of options, but it's not going to be -- we're going to charge incrementally more during -- let's say, that the global trading hour session versus regular trading hour session.

Okay. And so there's never been a contemplation for like, I think other markets, when they have global access, usually, those fees are a little bit higher, but not really something that you're contemplating or doing.

No. We don't think it's that type of market build per se. You'll see that when we've launched other new products or new markets. For example, when we've done with European Derivatives, there will be some, say, certain liquidity, incentives in place or when we rolled out various, call it, iBoxx futures, we will do that with the new products. But here, it's a little bit of a different type of rollout here with the initiatives we've talked about here with SPX.

And the next question will come from the line of Owen Lau with Oppenheimer.

So on DnA, you started the year at 12% organic growth. You raised the guidance, but the growth, it's still higher than the high end of your guidance range, and you keep investing in this area. So what area may concern you that the growth may slow down for the rest of this year? And then additionally, when you continue to expand into Europe, how can DnA potentially benefit from that? I mean, if you can talk about the progress of offering your analytics products to our European clients, that would be great.

Sure. I'll start with that. And it isn't so much of a slowdown for the progress that we see this year. We've got a pretty good view into our particular pipeline on the global indices work and the contracts we see on the queue there and the various initiatives that we have going. I would say if you look at -- and it's and kind of a silly answer, but if you look at the math of the comparisons that you see, how we ramped up 2021 growth in this area, if you look at, for example, the consecutive growth rates quarter-over-quarter in '21, Q2 had a 2% growth rate over Q1. Again, I'm talking about '21 here. If you look at Q3, it actually had 7% growth rate over the 2Q. And then you look at Q4. And then it had a 4% growth rate on top of that. So you see a continuous momentum build. We started out with a run rate of an amount of $99 million per quarter, and we exited at $112 million for the fourth quarter. So you can see that really nice ramp-up. So as we see our growth, and we've been able to continue that ramp into Q1, and we do have some plans in place. So just more naturally, we're just going to see a little bit more flattening out of that higher growth rate as we move into Q2, 3 and 4, relative to the comparison last year. And as you look at how do we continue to create the wins across the globe, this goes back to the benefits of the flywheel, what we're doing, our global network. And as we build out our people, as we build out the sales force and as we continue to build out that, I'll call it, market share volumes, that continues to build off of each other, going back to the long-term benefit of our flywheel of seeing how they interrelate. But if you look at the -- particularly the risk and market analytics, the biggest growth driver I mentioned earlier to a previous question was -- is that the growth we have had so far has been more of a increased share of wallet versus new customers. So we're really excited about bringing that offering to new geographies as we continue to add more sales capacity and capability to the different geographies that we are in. Got it?

Got it.

And certainly, I can chime in there a little bit more on the European opportunity. It's multifold. Again, first principles, you've got the European market share, 21% market share for the richer, more deeper data set to look into for local customers and global customers taking the European equities data. But moreover, it's the sale of the U.S. data set, the Cboe 1 product sets that we've got, which provides a real opportunity into CSDs -- CSD providers, retail providers in Europe and EMEA and Asia Pacific. And then when you also think about the RMA product set, Cboe Europe Derivatives bases -- a lot of the theoretical options prices used off the Hanweck [ Co ] options prices that we get there. So we see a lot of opportunity in Europe for providing that value-add pre-trade, at-trade and post-trade risk management and analytics services. And then as you think further eastwards, we can look at Australia and Japan, where we see strong non-transaction revenues coming out of the core venues there with, for example, Australia's nontransaction revenue increased at over 30% compared to quarter 1 last year.

And the next question comes from Brian Bedell with Deutsche Bank.

Maybe if I can sneak a two part in here. One for Brian and one for Dave. Brian, just on the revenue guidance, you did say in your -- in the comments in the release about there being potential upside to the revised revenue growth targets. Maybe can you just sort of frame whether that's something where that would inch this guidance up every quarter potentially? And more importantly, is that more based on global macro market volatility or rather the performance of your growth initiatives? And then just one for Dave. On the European consolidated tape, just any kind of view on that. That's a project, obviously, that's been talked about for many, many years. Would think Cboe is in the best position to offer that. Maybe any kind of initial thoughts on that in creating more concentrated data solution for Europe.

Thanks. Good question. And I will just, again, continue to reiterate that if the macro environment does stay the same, there's a lot of confidence that we will exceed that 5% to 7% organic net revenue growth rate -- targeted growth rate. And what we'll see in this environment is not only due to the -- I'll call it, the comps, particularly with the strong first quarter last year in the various asset classes, is that you actually see a positive growth across all of our asset classes over the prior year, which is going to really contribute. And again, most strongly, we saw that in the index and the options. So really, the honest answer to your question is, is it kind of depends as far as the quarter, as far as the full year and how we inch that up as we continue to gain confidence. We're excited about the early numbers we're seeing around 24x5. We're excited about the very, very, very early Tuesday/Thursday and what we see going on there. That's encouraging. So as we continue to see that traction, if things continue to go well, could there be an inch up of guidance in 2Q next time we have this call? Certainly. And we'd have, obviously, a better visibility in the full year as far as the really strong traction we're seeing with those organic initiatives and then continuing views of the macro environment. And then, Dave, I think you'd pick up the second part of that.

Absolutely. You're spot on there. We are emphatic supporters of a consolidated tape and its introduction into the European environment. We strongly believe in a single investable tradable pan-European environment as well as the U.K. market now post-Brexit. We think this will give palpable and real benefit to end investors. We've seen the benefits from the SIPs in the United States and certainly think investors deserve that in the European environment. Key aspects that I could go on for an hour, but I will save you that, are that we include pre-trade as well as post-trade in this consolidated tape, and it'd be offered at a reasonable commercial basis with a good and fair revenue share model, much of the way we see things operating in the United States. We, like many others, are placed well to be a consolidated tape provider, as you point out, because we do ingest much of the data globally. And we also happen to run the largest trade reporting facility in Europe with about 85% market share there. So well placed, but we're heavily engaged in the debate as things unfold with our customers and the policymakers. So we will keep the market as we adapt and as we progress.

That's great color. Appreciate it. And welcome, looking forward to hearing more comments on Europe and the firm in the future from you.

And the next question comes from over Kyle Voigt with KBW.

So you mentioned that 90% of the growth in data and access is really driven by additional subscriptions in these incremental units. Just given there's been some heightened investor focus on retail traders maybe beginning to disengage a bit from the highs we saw last year. Just curious if we were to see a meaningful pullback in kind of industry volumes across your key markets? Do you think that would -- we'd see demand for ports or new units kind of slow meaningfully from the current levels? Or has this been driven by more secular or other trends?

Yes. I would say it's primarily for -- I'd say it's probably a mix of both, and it's hard sometimes to disentangle the 2. And I can tell you what we've seen more historically. It's -- when we continue to look at this question, and absolutely, as we put together this forecast in this guidance, we knew there are some elements of that port revenue that is a bit volume-driven. But we also know it's maintaining capacity for future periods that rarely do we see people pull back on the level of ports, particularly when we know that when investors and our -- and when our clients, when they're in these markets, how they make money. They tend to make money in those highest volumes, those highest peak, those highest volatility of times, and not having that capacity is critical to their overall P&L. So rarely, do we see them pull back on some of that. Now there's a couple of, I'll call it, pricing dynamics where some of that volume, they pull back a little bit of that. But like I said, we tend to see that as more broadly infrastructure. And the other base of, I'll call it, residence that we're building within DnA are beyond just obviously the real-time and access in the risk and marketing analytics and the overall indices that we continue to build out, which, frankly, those are actually, while the smallest parts of our overall DnA mix, they are the highest growth from a percentage standpoint. So again, we'll see that hopefully play out over time. But back to your original question, the heart of it is, it's a little bit of both, but we see it historically have been pretty sticky.

And I'll just -- Kyle, I just mention there as well. We rarely see port counts come down, our unit counts come down as the messaging traffic across our markets continues to grow regardless of retail engagement or not, as that may ebb or flow, messaging volumes continue to go -- to go north. That's the direction they've gone for decades really. I'll just mention as well here, DnA, our robustness or we think a lack of risk even as retail engagement may overflow is that they tend to use less messaging traffic, which is really where the capacity is focused. And so the marketing community, the other institutions, there's been a cycling into institutional volume with the higher volatilities. We expect to see demand very, very strong across our products and our markets for access and data. And I'll mention as well, again, Cboe Global Cloud. We're really getting after a new user there in different jurisdictions, but using the data across our network. So we think that's durable also.

And the next question comes from Michael Cyprus with Morgan Stanley.

This is Stephanie on for Mike. I just have a follow-up about the progress you've made around 24x5. Just curious if you view the next steps as moving towards 24x7. What are your thoughts around that? And what trends or data points will you be watching to give you confidence if you were to extend to 24x7?

Well, Chris, you can handle, I think, the technology aspect to that. I think really when we look to expansion on Access, this is really primarily been in the institutional side, and we know that there's growing interest for round-the-clock access as retail base grows as well. So we think we've got the right product set and then there's a readiness from our introducing brokers on whether or not to provide access to customers. So that debate going on, not just at Cboe's level. I would say that we've proven that we are ready from a technology perspective, but really accommodating our customers is key. Again, back to my opening remarks, this is about listening and delivering on demand. But Chris, as far as any further expansion on the clock?

Yes. Absolutely. Stephanie, it's a great question. We're a customer-driven company here. We -- as customers bring us demand for access to markets, we'll listen to that demand and provide it. 24x5 is a great example of that, even the curb session launched this week. I will remind you, so as we look forward to closing the transaction for ErisX, that already trades 24x7, I also mentioned that we're expanding our index platform from 24x5 to 24x7 this year. That's part of our -- one of our strategic projects under Cathy Clay in the DnA team. So as our customers and the investing community wants more access more around the clock, we'll provide that when the demand is there.

And the next question comes from Alex Blostein with Goldman Sachs.

So I was hoping to dig into ErisX and NEO a little bit more. I guess, first, an easy one, maybe just kind of walk us through the sources of lower expenses that you guys expect from both of those for the rest of the year. And then more importantly, bigger picture. As you're thinking about integrating these assets over the next 2 years. Can you provide us with the road map of sort of sources of revenues to getting these kind of products into profitability? So sort of like what's kind of the low-hanging fruit over the near-term? And what needs to go really well for you guys to potentially meet or exceed expectations?

A great question. Why don't we start, Brian, the ErisX and NEO effect on expenses. Chris, the ErisX likely closing before NEO in the very soon category, and then we can move on to NEO.

Yes. All the good questions as far as when we could -- to use one of Dave's earlier lines, we could go on hours as far as what our plans are for growth for these. But I'll try to be brief here is we've laid out in our guidance as far as what we expect the expense impact to be to, obviously, our P&L for this year. And then, I'll call it that kind of an EBITDA contribution when you roll that in. And so that's -- it's been more about -- it's not so much an expense story, it's that continuing to grow the revenues. And particularly around the digital side, and I'll let Chris talk a little bit more about that, about our growth plans there specifically. And then around NEO and with respect to that has a wonderful growth trajectory in what we're seeing year-over-year growth similar to what Dave mentioned, in the Cboe Japan, Cboe Australia and what that has done for us organically even post acquisition, as far as you know, there's no comp to last year that's been our own P&L. So we see NEO playing a very important role as far as growing the revenue synergies within what we're doing around our existing Canadian operations, our broaden the North American operations around that listings franchise. And with that, I think I'll turn it back to Chris for Eris.

Yes. Alex, we're really excited about closing this transaction very soon. I'll remind you that we -- with the 1 transaction, we get spot trading platform, data, derivatives and clearing. And as you think about the opportunities for revenue there, as we scale it and worked for the syndication with industry partners, spot trading. We're looking to add new coin listings as soon as we can. If we talk about data, if we build the spot platform and there can be data that comes off of that. Margin futures. We have a margin futures application before the CFTC. That's focused on FCMs. So we look to look forward to growing that Derivatives business. I think clearing is maybe something that's not as focused on, but a real key asset that we get with ErisX as we think, there may be some bilateral relationships that maybe some of those trades can be cleared over time. It's a real asset for us to grow there. So there could be clearing revenues also. So very excited about this transaction and deeply engaged also in the digital asset regulation conversation right now that's very active. We want to help lead that discussion with many others and help this new asset class grow and mature in a great way. So we can operate these markets in trusted, regulated transparent way as we do the rest of our markets. And with that, I think I'll hand it to Dave to cover NEO.

Yes. Great. Thanks, Chris. And as a reminder, of course, we already have a foothold in Canada with MATCHNow and enjoyed the migration in February to Cboe Technology and the introduction of Cboe BIDS Canada really opening up the BIDS network there to Canadian investors and to investors around the world to invest in Canada and vice versa. So with NEO, super excited about a number of things. The different trading mechanisms that NEO brings to the party as we consolidate our place in the Canadian competitive landscape. Those different trading protocols really bring a new diverse customer set to the existing set we welcome to MATCHNow today. So there's the trading mechanisms. Then there's listings. Listings, NEO has 121 ETFs and 56 corporates, a couple of debentures and those Canadian depository receipts. So a great level of innovation already there. And really, that gives us a great blueprint to think about how we can expand our listings offerings around the world. We've got over 640 ECPs already, but then how do we think about our listing strategy on top of that global securities network that we've been able to build out. Low-hanging fruit, Cboe One Canada is the data product we'll be bringing out. So the additional -- the additive effect of Canadian data, including those unique listings that NEO enjoys onto our data products and then later on, those data products into the cloud. So you see the repeating patterns here to really looking forward to getting going with the NEO team as we progress towards a close, which is going according to plan.

And the last question is a follow-up with Alex Kramm with UBS.

Just one quick follow-up on all the Data and Access questions earlier. You don't disclose, I don't think, retention rates like many of the other data companies in the space. So can you maybe just give us an update where retention is and how that's been trending? And when it comes to cancellations, maybe what customer types or products you're seeing the biggest cancellations and why?

Alex, we don't -- I think we can look to potentially enhance that disclosure as far as looking at as far as where we are. But right now, I will tell you, just at a very, very high level, is that some of the growth that we've seen, and we indicated this last year on our call and when we saw some of the higher growth rate is that we've actually seen fewer cancellations than what we had traditionally model. So we have to think it's a fairly positive story, and we've been more focused on the continued, I would call it, new and adds. And we've seen fewer cancellations than we've seen historically, call it, pre-pandemic. So positive trends there. But again, we'll look that disclosures. Again, we'd like to evaluate metrics and items that can enhance, I'll call it, the investor information.

And do you know where you're seeing the biggest cancels just so we have an idea? I know it seems to be very small, but just curious where there's the most turnover in the book of business, I guess.

Yes. No, I think we'll just -- I'll defer and wait until I have the firm data there from the team.

And that was the last question. I would like to return the floor to management for any closing comments.

Great. So that completes our call for today. Thank you so much for your time and interest in the company. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.