Earnings Call Transcript - CBOE Q2 2022

Ken Hill, Vice President of Investor Relations

Good morning and thank you for joining us for our second quarter earnings conference call. On the call today, Ed Tilly, our Chairman 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; Dave Howson, our President; and our Chief Strategy Officer, John Deters. I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in the forward-looking statements. Please refer to our filings 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.

Ed Tilly, Chairman and CEO

Thanks, Ken. Good morning, and thanks for joining us today. Before I begin, I’m pleased to officially welcome Dave Howson to the U.S. He was relocated to Chicago last week from London and is overseeing Cboe's business lines globally in his new role as President. We are excited to have him here today. I’m pleased to report another strong quarter at Cboe Global Markets. During the quarter, we achieved record-setting revenue results, growing net revenue 21% year-over-year to a record $424 million, and adjusted diluted EPS grew by 21% to $1.67. Our solid second quarter results were driven by the continued diversification of our business as we continue to integrate recent acquisitions, with strong volume in our proprietary index products, increased trading activity in our cash equities businesses, and continued growth across our data and access solutions business. Our Derivatives business had another excellent quarter, driven by strong performance in our index options franchise, specifically SPX options, as well as a solid increase in our multi-listed options business. Record monthly activity in the SPX complex helped drive a 66% increase in average daily volume for the quarter, while VIX Futures were up 7% and VIX Options remained flat. Multi-listed options trading ADV increased 12% year-over-year. Our Cash and Spot Markets business performed remarkably well during the second quarter with net revenue increasing 7%, including 3% organic net revenue growth year-over-year. These results were driven by exceptionally strong performance in our European Equities segment, where average daily notional value traded was up 49% year-over-year. Additionally, Cboe European Equities market share increased nearly 6 percentage points year-over-year to 23.2%. Similar to the trends we saw last quarter, these results reflect not just a favorable market backdrop, but the implementation of an analytics-driven campaign by our sales team to help clients achieve better results on Cboe Europe than is achievable on other venues. Our Data and Access Solutions business remains strong with the integration of our recent acquisitions continuing to fuel the durability of this business. Year-over-year net revenue increased 20%, with 14% organic net revenue growth. We continue to remain focused on executing on the significant opportunities we see in three core areas of our business: Data and Access Solutions, Derivatives, and Cboe Digital. During the quarter, we made solid progress advancing each of these priorities, including closing the acquisition of ErisX on May 2. While the digital asset market environment has changed dramatically since we closed the ErisX transaction, which resulted in the accounting adjustment that Brian will discuss in more detail, our strategy has not changed. We remain excited by the compelling strategic opportunity for Cboe in the digital asset space. We believe the long-term opportunity within the digital asset space will continue to evolve. Now, more than ever, market participants want a trusted, transparent, regulated market for digital assets, which is fundamental to our strategy for this asset class. We are continuing to work closely with our partner group and expect to announce equity partners soon as we shape and define the future of Cboe Digital and the broader industry. Turning now to Derivatives, where our SPX franchise continued to flourish as we expanded access to customers to meet increased demand, both on and off the trading floor. With market uncertainty and heightened volatility continuing across the globe, market participants turn to Cboe’s derivatives and volatility products to help manage risk. Many of our newer initiatives, like the extension of trading hours for SPX and VIX Options to nearly 24 hours a day, five days a week, and the addition of Tuesday and Thursday expirations for SPX Weekly options, have outperformed our early expectations in 2022, further accelerating the strong growth across our core business. Since adding Tuesday and Thursday expirations for SPX Weekly options this spring, our initial estimates indicate we’ve added on average over 200,000 incremental SPX contracts per day, reinforcing the trend we have seen of customers embracing shorter duration trading strategies. The expansion of our SPX Weeklys complex to include expiries every trading day has helped meet this customer demand. ADV in SPX contracts with zero days to expiration increased 120% since the start of 2021 with retail brokerage platforms accounting for over 80% of the volumes. Additionally, during Global Trading Hours, average daily volume in SPX Options increased 189% year-over-year, VIX Options increased 49%, and VIX Futures volumes increased 19%. Global customers want access to tools to manage risk, and we continue to focus on expanding upon our core strength and finding new ways to deliver access to meet their needs. We continue to believe strongly in the durability of our Data and Access Solutions business going forward as we continue to integrate our recently acquired businesses and strive to further unlock value and revenue opportunities. Brian will expand on this later in the call, but we are updating our 2022 organic net revenue growth expectations for this business to a range of 10% to 13%, up from our prior guidance range of 8% to 11%. The record results during the quarter were driven by continued demand for access to our global exchange network, Cboe’s front-end platforms, and proprietary market data. Since the first quarter of 2021, we have averaged 19% year-over-year growth, and as we continue to integrate and innovate, we believe there is more total addressable market to capture across trading, data, and products, and we are well-positioned to capitalize on these opportunities through our Data and Access Solutions group. Three important areas of expansion we’re excited about include: distribution as a service, which leverages Cboe’s expansive network to provide data streaming services for vendors and partners; bundled data, which allows us to package high-quality data from across markets to deliver consistent and cost-effective data solutions to customers; and Cboe’s cloud strategy, which further extends Cboe’s data to new users and geographies, an important step towards broadening investor access to our proprietary content and market data globally. The last several years have been very exciting as we’ve evolved our business, broadened our geographic reach, and extended access to our unique set of products and services around the globe. Today we are the only truly global market infrastructure provider, operating markets and delivering services around the world and around the clock, every day of the week. Around the globe, we’ve continued to see strong performance in all geographies and asset classes. Starting with our global FX business, we saw strong volumes with average daily notional volume topping $39.6 billion during the second quarter with a market share of 17%. We also saw our full amount offering, which provides clients with a solution for larger order risk transference with low market impact, reach a new record of $11.8 billion ADV in the second quarter. We are also very encouraged by our product diversification strategy, in particular our higher-margin NDF offering where we saw a 200% year-over-year increase to $785 million ADV. With continued rising inflation and interest rates, we continue to be bullish on the opportunities that exist for our FX business. Turning now to Europe, in addition to the strong results I noted earlier for our European equities business, Cboe BIDS Europe became the #1 block trading platform with a record 33% market share of the European block-trading market. Additionally, EuroCCP, our European clearing business, saw steady growth this quarter. We also continued to make progress on our European Derivatives initiative. And while early volume trends have been softer than we expected due to geopolitical events in Europe delaying customer onboarding timetables, we still believe strongly in the long-term strategy and vision for this business. Moving to Asia Pacific, Cboe Japan's market share increased to 3.5%, up from 2.5% one year ago, as the new liquidity provider program introduced earlier this year continued to attract volume. In Australia, market share grew to 17% from 16% year-over-year, and we are on track to migrate Cboe Australia to our proprietary technology in February 2023. Finally, in North America, we completed the acquisition of NEO last month, bolstering our market share in Canada and expanding our listings business globally. Our overall market share in Canada now tops 12.1%, including both NEO and MATCHNow, and we are working on integration plans that will help enable us to maximize the opportunities we see for our global equities and listings businesses. Our geographic and asset class diversification, coupled with our unique product set, enables us to meet the needs of an increasingly diverse set of customers around the world. Our global scale gives us the unmatched ability to efficiently scale and expand our business in new ways. With the closing of the acquisitions of ErisX and NEO in the second quarter, the entire Cboe team remains focused on extracting even greater value from the ecosystem we have created, integrating our platforms, and positioning Cboe for its next wave of growth in the quarters ahead. We have acquired nine companies in the last two years, and we remain laser-focused on the various stages of integration for each of these companies. Each of these companies has brought a unique offering to Cboe and helped us achieve a greater global breadth of services and products, as well as new distribution channels. As we’ve stated before, we approach the integration of technology and teams holistically, avoiding silos while maximizing synergies, both revenue and cost. This approach creates workflow efficiencies for customers, harmonizing technology and access points, creating a better experience for them. As we continue to architect our business for the future, our strategy remains focused on delivering products and services that create short, medium, and long-term opportunities, helping to enable a cadence of consistent growth. We are excited to have all announced acquisitions closed and integration efforts well underway, which is creating strong momentum for our flywheel as we head into the second half of the year. With that, I’ll turn it over to Brian.

Brian Schell, Executive Vice President, CFO and Treasurer

Thanks, Ed, and good morning, everyone. Let me remind everyone that unless specifically noted, my comments relate to Q2 '22 as compared to Q2 '21 and are based on our non-GAAP adjusted results. As Ed discussed, the first half of 2022 was an exceptionally strong one for Cboe. In the second quarter, adjusted diluted earnings per share was up 21% on a year-over-year basis to $1.67. A combination of continued investment across our businesses and a favorable operating environment continued to propel revenue above last quarter’s record levels. Quickly touching on some of the noteworthy takeaways from the second quarter. Our net revenue increased 21%, setting yet another quarterly record at $424 million, led by the strength in our Derivatives Markets and Data and Access Solutions categories. I would like to note that not only did each of our revenue categories, Derivatives, Data and Access, and Cash post a year-over-year gain, but every segment at Cboe from Options to FX posted a year-over-year increase, speaking to the diversity and truly broad-based strength in the second quarter results. Derivatives Markets produced 30% year-over-year organic net revenue growth in the second quarter, given the continued strength of our index business. Data and Access Solutions net revenues were up 20%, up 14% on an organic basis, driven again by strong new subscription and unit growth, and Cash and Spot Markets produced 7% net revenue growth for the quarter, up 3% on an organic basis, on the back of strong volumes and market share in our European cash equities business. Adjusted operating expenses increased 22% to $157 million; adjusted EBITDA of $274 million was up 17%; and last, our adjusted diluted earnings per share was $1.67, up 21% compared to last year’s quarterly results. Before getting into the segment results, I want to spend a moment walking through the accounting adjustment we made this quarter for ErisX. As Ed mentioned, since we closed the ErisX transaction on May 2, the environment has changed dramatically. Given the observable publicly-traded peer valuations, digital asset prices, and intermediary dislocations, we felt it necessary to reassess our holding value of ErisX. As a result of our analysis, along with the work of our third-party auditors and consultants, we booked a goodwill impairment of approximately $460 million, effectively writing goodwill in ErisX to zero, and recorded a deferred tax asset of approximately $116 million. Our book carrying value at June 30, 2022 is $220 million, reflecting the sum of tangible and intangible assets of approximately $104 million and the deferred tax asset. We believe that our adjustment reflects the reality of the digital asset market environment today, but it in no way changes our commitment to the digital asset space or what we set out to do when we announced this transaction back in October. In fact, recent events only underscore the strong need for a transparent and trusted trading, clearing, and data venue for digital assets. And we believe that Cboe, along with the help of our industry partners, is best positioned to provide those solutions. Turning to the key drivers by segment. Our press release and the appendix of our slide deck include information detailing the key metrics for each of our business segments, so I'll just provide summary thoughts. As mentioned earlier, we saw impressive year-over-year growth at each of our segments during the quarter. Options delivered the strongest growth with net revenue growing by 32%, driven by higher trading volumes in both proprietary and multi-listed options, better market share, as well as higher revenue per contract in index options. Total options ADV was up 18% as our higher-priced index options ADV increased 46%. Revenue per contract moved 21% higher given a continued positive mix shift to index products, and a stronger mix of higher-priced SPX options in our index business. Lastly, we continued to benefit from another quarter of double-digit growth in market data and access and capacity fees, each up 29%, respectively. North American equities net revenue increased by 4% year-over-year. Solid industry volumes up 20% helped drive the segment uptick. On the non-transaction side, access and capacity fees increased 15% and proprietary market data was up 8%. The Europe and APAC segment reported solid growth for the quarter, with net revenue up 20%. The increase was driven by higher volumes in Europe and the inclusion of Cboe Asia Pacific revenues of $8.2 million. Net transaction fee growth was 18%. During the quarter, FX rates were a headwind for the segment, impacting reported net revenue growth by nearly $4 million or 7%. Transaction fees were led higher by Cboe Europe’s equity ADV increasing 49% year-over-year given very strong industry volume growth and a nearly 6 percentage point increase in market share. Clearing fees benefited from an increase in clearing volumes of 21%. Second quarter net revenue increased 8% in the Futures segment as both transaction and non-transaction revenues posted year-over-year gains for the quarter. Volumes and rate per contract metrics were slightly better on a year-over-year basis. On the non-transaction side, access and capacity fees were up 21% and market data grew 24% as compared to the second quarter of 2021. Finally, net revenues in the FX segment were up 20%. Net transaction and clearing fees benefited from a 22% increase in average daily notional value as well as continued favorable market share trends. As Ed noted earlier, Cboe’s Data and Access Solutions net revenue growth has continued to accelerate, posting a 20% year-over-year increase, and an attractive 14% growth rate on an organic basis. Again, this strong growth was primarily driven by additional subscriptions and units, accounting for three quarters 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 out over the remainder of 2022, we anticipate trends will remain healthy in the Data and Access Solutions business. We are raising our targeted 2022 organic net revenue growth rate to a range of 10% to 13%, up from 8% to 11%, and above the 7% to 10% medium-term guidance range we outlined at our November Investor Day. Turning to expenses, total adjusted operating expenses were approximately $157 million for the quarter, up 22% 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 increasing our full year 2022 expense guidance range to $659 to $667 million, up from our prior guidance of $647 million to $660 million, when including the acquisitions of ErisX and NEO. The increase is almost exclusively driven by higher incentive compensation as a result of our strong financial performance through the first half of this year, coupled with a positive outlook for the second half of 2022. We have long talked about Cboe’s pay-for-performance culture and our adjustments today reflect the outstanding work our entire associate base has done in driving outsized growth. And while our operating expenses are moving higher with revenues, we continue to expect $23 million to $26 million of the 2022 investment spend to directly drive incremental revenue growth and that approximately $10 million is needed for infrastructure enhancements to support and scale our business for greater levels of activity in the future. Overall, our updated 2022 expense guidance reflects our commitment to invest in high-conviction growth opportunities as well as to attract and retain best-in-class talent driving our strong results. Now turning to a summary of full year guidance on the next slide, I want to call out some of the positive updates to our revenue targets that are reflected in our expense updates. As noted previously, we now anticipate Data and Access organic net revenue growth in 2022 will be in the 10% to 13% range, up from our prior guidance of 8% to 11% and our medium-term guidance of 7% to 10%. We continue to expect acquisitions held less than a year to contribute between 2 to 3 percentage points to total net revenue growth in 2022. Lastly, but certainly not least, our overall organic net revenue growth target is moving higher to 9% to 11%, up from our prior guidance of 5% to 7% for 2022. We believe our updated revenue guidance reflects not only the strong year-to-date results we have posted, but the confidence we have in the business moving forward. We are seeing a solid contribution from all of our operating segments, strengthening the broader ecosystem here at Cboe. Our full year guidance on depreciation and amortization, capital expenditures, and our effective tax rate on adjusted earnings under the current tax laws remain unchanged. Our interest expense for the second quarter of 2022 was $14.6 million. Factoring in the incremental borrowing costs related to the financing put in place for ErisX and NEO, we expect interest expense to be in the range of $16 million to $17 million for Q3 '22. On the capital front, our focus has been, and remains maximizing shareholder value through the effective use of our capital. In the second quarter, we returned a total of $67 million to shareholders, comprised of $51 million in dividend payments and $16 million in share repurchases. We remain well-positioned to invest in the business, support our dividend, and opportunistically repurchase shares with $233 million in remaining capacity on our share repurchase authorization. Our leverage ratio increased in the second quarter to 1.9x, up from 1.6x at June 30 as our debt levels increased, related to the funding 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 reported an excellent second quarter. Our core business performed exceptionally well, and we are excited about our numerous short, medium, and long-term investments. We look forward to continuing to deliver durable growth 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.

Ed Tilly, Chairman and CEO

Thank you, Brian. Before I close, I wanted to highlight our 2022 ESG Report, which was published last month. This report covers the important progress we have made on our environmental, social, and governance initiatives, including our commitment to reach net-zero emissions by 2050, an exciting endeavor designed to help ensure Cboe does its part to help combat climate change. I want to thank the entire Cboe team and our customers for another great quarter. I couldn’t be more excited about the progress we continue to make, and I believe we are well-positioned to continue to innovate, integrate, and grow as we head into the second half of the year.

Ken Hill, Vice President of Investor Relations

At this point, we'd 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 if time permits, we'll take a second question.

Richard Repetto, Analyst

Good morning, Ed. Good morning, Brian and team. Ed, I want to focus on the SPX complex because you've reported such strong results there. I appreciate all the details you've provided. My question is about the recent pullback, which seems driven in part by retail and your own innovations with the weekly contracts and volatility. However, when looking at the year-to-date performance compared to last year, index options are up 30%. I'm curious about the resilience of this trend and whether you believe retail involvement will remain strong going forward. We've seen retail retract in other products, but it hasn't happened in index options yet. So, what are your thoughts on the index options? Thank you, Ed.

Ed Tilly, Chairman and CEO

Got you. Thanks, Rich, good setup. It's really a continuation of the entire year. And if you recall from the last quarter, we called out that options really look relatively cheap. And what we mean by that is the movements in the S&P 500, what they're realizing, the daily moves in excess of 1%. And we look at implied volatility with the price of those options are, they're relatively cheap. So there's a lot of attention, both institutional and retail platforms, looking at that complex and finding great opportunity. And you call out exactly the list that we've seen after adding Tuesdays and Thursdays, that interest is coming from retail platforms. That appears to be sustainable. What I mean by that is, even in the days where the realized movement of the S&P 500 is less than at 1%. Volume doesn't really track and doesn't fall off much. So we like what we're seeing as the daily interest is building. And we see that continuing, obviously past the quarter that we've just reported into July, for sure. So see no sign of letting up. I think we're learning a lot from adding dailies. And as I called out in the prepared remarks, to the tune of a couple of hundred thousand contracts a day additive in the complex, those are all good signs for us. So I think for now, in this environment, we look out over the volatility term structure, the market is telling us this uncertainty will continue. And we think no reason to think that the interest from retail platforms won't continue. So super short-dated options still in favor. And adding those dailies really has met the demand for that exposure. So we expect that to continue on. Thanks, Rich.

Ken Worthington, Analyst

Hi, good morning. Thanks for taking the question. In terms of the European index options business, a couple of questions maybe to set the stage, what is the level of open interest that you reached during the quarter? And then as we think about the target client and the early days of the build-out here, where do you think you might have the greatest success, and where are you focused? And then for management to consider this initiative successful, and for you to continue to invest here, what are you hoping to see in terms of the volume in open interest levels over, I don't know, the next year or pick your timeframe. But what is the ramp that you continue to expect to keep you engaged here? Thank you.

David Howson, President

Hi, Ken. This is David Howson. Thanks very much for the question there. So throughout the quarter, we had a few interesting results as we continue to execute on the plan. Those geopolitical results did impact some of the speed of the onboarding and alter our expectations a little. However, we launched eight new products across four country benchmarks. And the open interest that you mentioned there peaked at 28% higher during the quarter compared to the prior quarter. We also saw options volume at 67% for the quarter as well. In terms of the plan, we continue to execute on that. We do see the realization of what we call success there in our guide coming a year later than previously stated. However, for us, success continues to be onboarding new clients, increased pricing picture in the futures and the options contract. As we said, right at the start here, this is a journey rather than an event as we build a brand new platform, brand new trading and clearing here. So we continue to be convinced by the opportunities there and the value proposition here as we build out over the next coming years.

Kenneth Worthington, Analyst

What is the level of open interest? You mention growth, but are we discussing small numbers or significant figures? What is the contract level?

David Howson, President

Ken, that's right. It's early days, just over 1,500 contracts open interest for the complex was the peak.

Gautam Sawant, Analyst

Good morning, and thank you for taking my questions. Can you please walk through where the strongest demand for Data and Access Solutions is coming from? And what is the initial feedback that you're getting from institutions in response to bundling global data and connectivity? And just to touch base a little bit further, you recently announced the partnership with Snowflake. Can you walk us through how that partnership will enhance analytics? And if you expect that to generate future expense savings by moving to the cloud from your current on-premises system?

Brian Schell, Executive Vice President, CFO and Treasurer

Thank you for the question. I’ll start by addressing the first part, and then I’ll hand it over to Chris to discuss the Snowflake question. We continue to observe a very strong trend from last year and even earlier. We're experiencing significant growth in areas like logical ports and physical connectivity as more clients seek enhanced access, driven by the ongoing development of our global network. Specifically, we're noticing strong demand for U.S. market data, primarily from international participants. Of the total growth we've seen, 60% originated from outside the U.S., with 44% coming from EMEA and 16% from APAC. This trend indicates robust demand for our data, and we expect it to remain strong. As we analyze our pipeline and future growth potential, particularly as we expand our network in these regions, we see promising opportunities. Many of our clients operate globally and appreciate the consistency of our data and technology, which opens up possibilities for bundling across different geographies and asset classes. This optimism is reflected in our current results. I believe I’ve addressed your questions, and now I’ll pass it over to Chris.

Chris Isaacson, Chief Operating Officer

Thank you for your question, Brian. Regarding our partnership with Snowflake, we recently announced our collaboration on an internal data analytics platform we developed. Over the past few years, we've gained significant insights from this initiative, which we've been able to use to enhance the value we provide to our customers. The positive outcomes can be seen in our improved market share in Europe, as well as in the insights, execution, and performance we deliver. This partnership allows us to expand our efforts globally, enabling us to integrate all our international operations and offer better insights for our clients to optimize their trading across global markets. We are very enthusiastic about this partnership with Snowflake, which complements our broader global cloud strategy and supports our efforts to scale our platforms according to our global business needs.

John Deters, Chief Strategy Officer

Gautam, this is John. Just one follow-up to both of those Brian and Chris's points. It's worth noting that as we think about the M&A we've done recently to expand globally, there are, obviously multiple layers of benefit there. First layer is intrinsic, the organic growth within each platform. Second layer is technology integration, a consistent, seamless network that we provide our global customers. And then another layer is the global cross-sell, and we've obviously been in COVID environment for 2 years. Members of our exec team, there are certain offices we're just travelling to you now. And so we're seeing the beginnings of those fruits of the cross-sell effort in the global network integration. And to be sure, given where we are in the travel cycle, that is probably in early phases.

Alex Kramm, Analyst

Hey, good morning, everyone. I just wanted to touch base on the two recent acquisitions. One, I think originally you hadn't disclosed the purchase prices, but they obviously in the queue, I think. But can you; one, actually review, kind of like the revenue contribution and where that all flows. But then also given the ErisX situation, you made this comment that you're still excited about the acquisition of the opportunity set there. But now, obviously, you spent almost $500 million on this. I know it's less than 5% of your market cap or close to it. And now you're writing this whole thing down. So just wondering how we should be thinking about returns on that acquisition relative to maybe buybacks that you could have done. So I know this is fresh and new, and it's a new asset class, but it just seems like it's somewhat material to what we've seen so far. So just wanted to make sure that as you've been very acquisitive that there's return hurdles as you approach these new opportunities. Thank you.

Brian Schell, Executive Vice President, CFO and Treasurer

Sure. Alex, I'll briefly address NEO and then move on to ErisX, bringing Chris into the conversation as well. Regarding NEO, its performance is currently exceeding our expectations, contributing positively, though the impact is relatively small at this point. The investment is already providing a positive return from day one. We remain optimistic about monitoring this positive ROI, with a target hurdle rate of about 10% when developing our business cases, assessing its organic contributions, and looking for broader revenue synergies across the organization. Turning to the ErisX transaction, fundamentally, nothing has changed in our outlook on the platform's contribution and the direction of the market. As disclosed, the external environment has shifted, but this only strengthens our confidence in our trajectory. The financial adjustment was approximately 60%, with the near-total write-off relating to intangible assets. It's essential to consider the entire net book value, which reflects what we perceive its value to be at this moment due to current market conditions. Our responsibility is to ensure our financial statements accurately represent our performance. When we first announced the acquisition of ErisX, we projected a 2 to 3-year timeframe for a positive EBITDA contribution. This remains unchanged, despite the adjustment to fair value recorded today. Now, I'll turn it over to Chris to discuss our future outlook in more detail.

Chris Isaacson, Chief Operating Officer

Yes. Good morning, Alex. That's a great question. As Brian mentioned, our strategy remains the same, and our enthusiasm for this asset class has not diminished. There has been a fundamental repricing in this asset class, but we believe that actually gives us a strategic advantage with reliable, transparent, and regulated markets. Just to remind you, with ErisX, we have a solid foundation to build on, including exchange clearing, data, and derivatives. Our roadmap, which includes margin futures and settled futures, remains unchanged. We are committed to this asset class and recognize the fundamental repricing that has occurred, but we are excited about the future.

John Deters, Chief Strategy Officer

So briefly, this is John, and I want to share what we're hearing from the market because it's important. We’ve informed investors that we're engaging with potential partners for this project, and they recognize the demand. We trust their insights, as they are mainly intermediaries involved in this initiative. These intermediaries manage an estimated 80% of the traditional asset volume from retail customers, giving them a clear perspective. Data shows that when analyzing cryptocurrency as a whole, 2021 was an unusual year. We anticipate returning to a 50% compound annual growth rate compared to 2020, which still represents strong growth. These partners are in it for the long term and are asking us about trading settings with solid coin listing risk parameters, unconflicted pricing that avoids inflated spreads, and frameworks free of hidden, risky leverage. These are features we provide, making it reasonable to expect that we will capture a fair share of the market over the medium term.

Brian Bedell, Analyst

Great, thanks. Good morning, everyone. I would like to discuss ErisX and NEO, focusing more on NEO in Canada. First, NEO is performing better than expected, and the guidance remains that the acquisitions will cover over half of the expenses in 2022, amounting to $35 million. Additionally, does the outlook for positive EBITDA on a combined basis still hold? My second question is about the NEO strategy in Canada. It appears that you've achieved a market share of 12% to 13% in trading volume combined with MATCHNow. Could you go into more detail about your trading strategy and the smaller listing strategy as well?

Ed Tilly, Chairman and CEO

Yes, thanks. Thanks, Brian. So bottom line, we have not changed that perspective, as far as the contribution. Short answer. So with that I will turn it to Dave as far as kind of the outlook, kind of the business strategy go-forward look.

David Howson, President

Yes, thanks very much, Brian. To dissect it nicely as you did between trading and listing strategies because the listing strategy goes global as the opportunity in trading with Canada. So Canada, in general, we think about it combined with a MATCHNow footprint that we already have there, so that the big migration or rollout that we had earlier in the new year, along with MATCHNow bringing global client base, we've seen new international clients really come into the Canadian marketplace and the block space, so very encouraging there. And then in general, in terms of the order books, the more vanilla order book trading protocols, we see really nice opportunities there for further feature enhancements, as we look across our franchise globally, what we find useful for customers will be brought in time to the Canadian landscape. And then also, with pricing, we have pricing levers to pull there along with the general data and analytics that we've talked about to do the pricing, and they tried to really talk to customers about what we can do that in terms of the order book qualities. So listings, then we've got really interesting opportunities we've now got today, over 241 listings and Canada itself 168 ETPs, three new Vanguard ETFs this quarter really great progress, 55 corporates really focused on the innovation economy. And I think about that as a global strategy, when we think about Australia, winning 30% of ETP listings there, same story in the U.S. We can actually begin to go to issuers for a capital raise with a global offering, and really that's how we're going to be thinking through our strategy as we go forward and really present that to yourself customers and the marketplace.

Brian Bedell, Analyst

That sounds exciting. So is there a stronger revenue growth outlook over the long-term as a result of this strategy, given it's starting to track in better-than-expected as well?

Ed Tilly, Chairman and CEO

I'll dive in here a little bit is that I would say, obviously, we think there's an opportunity as we continue to put that in place. As we continue look at the revenue synergies, I think with respect as we look at the overall Cboe network, I think it's just becoming an increasingly important component is that as far as we're seeing early wins and successes, so Dave, if you want to talk a little bit more about that as well.

David Howson, President

Yes, as I mentioned earlier in my answer, the BIDS rollout earlier this year seems great early traction, but particularly to point to the addition of new customers in Europe, really wanted to trade US and Canada. And, in fact, as we think about the rollout BIDS again in Australia in February next year, you've seen early on boards from those superannuation funds really coming to say, hey, we want to onboard now to trade what you've got, because we know you're coming to Australia, we want to be ready for that. And we see that across the slate really with the intermediaries there coming to us early on to get involved with that re-platforming we're doing in Australia in February of next year.

Brian Schell, Executive Vice President, CFO and Treasurer

It's worth a quick note on the coverage, again, to the span that we've now got a place. Our markets cover something like 80% of global GDP, and over 90% of developed market GDP. And this is really a unique way to tie together those trading opportunities across all those markets. There is no competitor that offers that span of services to the trading community.

Owen Lau, Analyst

Good morning, and thank you for taking my question. I actually have a broader based question. I guess the stock was resilient compared to the broader market in the first half of this year. For the second half, could you please talk about your outlook of the economy, and how investors should think about volatility, your organic growth in Data and Access, and also your international expansion, and how people can still grow in the second half of this year? Thank you.

Ed Tilly, Chairman and CEO

So let me start with a broader trading environment. And we're just informed on by volatility term structure and how our customers are pricing risk over time. The elevation in the back months still say that there is risk in the marketplace. And for us, that continues to be trading opportunity, positioning opportunity and really positioning around the broader economic drivers in not just the U.S. market, but the global market. So we are informed by that volatility service and don't see much changing in the short-term, meaning continued growth and adoption and engagement in the SPX complex. And in particular, we'll be watching and learning how we can continue to roll out contracts that meet the demand of investors. And in this case, the growth has come from retail platforms. So a lot of effort and concentration on that adoption of super short dated, the utility. And from there, hopefully, we'll be able to teach and broaden the base of users and adoption. Then I'll turn over to Brian for a little bit more color.

Brian Schell, Executive Vice President, CFO and Treasurer

Yes, I want to remind everyone that at the beginning of the year, we continued our organic investments to pave the way for future growth. This includes our efforts to enhance Data and Access through the cloud, creating a better trading environment with our 24/5 operations, launching our marketing and branding initiatives, the Nanos product, and EU derivatives, all of which we have previously discussed. These investments are starting to yield results in terms of our workforce, marketing, and sales efforts. Regarding Data and Access, we're witnessing strong engagement and quality service across all asset classes. While there is significant contribution from the derivatives sector, we are confident in our ability to sustain this growth. The forecast for the upcoming period is slightly more conservative due to challenging comparisons from last year, where we experienced exceptional growth in Data and Access. Nonetheless, we remain optimistic about our continued progress, aware that the comparisons present difficulties but ready to tackle them. We've also spoken about distribution as a service, exemplified by our recent partnership with Morningstar to utilize our existing networks. We're enthusiastic about packaging our global content across various regions and asset classes. As John noted earlier, we see substantial organic growth opportunities, particularly in Australia, Japan, and Canada. These factors contribute to our confidence in our growth trajectory for the remainder of the year and reinforce our belief in the medium to long-term potential of Data and Access.

Ed Tilly, Chairman and CEO

And if I may, just a quick chime in on another global asset class or in the Cboe FX business, had a good quarter in this environment. Activity is high, but also in terms of extensions into a new asset class we expect in the latter half of this year to see UST, U.S. Treasuries go live, we received FINRA approval, and we have onboarding of customers coming on into the latter part of this year.

Michael Cyprys, Analyst

Hey, good morning, and thanks for taking the question. So you guys have added the new Tuesday, Thursday expiries, but I was hoping you could comment on what other types of contracts you guys might be able to introduce. And then more broadly, as you look at your business and the industry, what would you say is left to convert in terms of activity from OTC to exchange traded products? And how might you size that longer-term opportunities versus more near-term? Thank you.

Ed Tilly, Chairman and CEO

I believe the insights we've gained from the recent Tuesday and Thursday developments highlight the growing trend in cash-settled derivatives. This particularly applies to our smaller contracts like SXP, which is one-tenth the size of our Nano contract. We're seeing early adoption of this contract as retail trading platforms that just launched are beginning to embrace it. This is favorable for us as we implement strategies that have typically focused on institutional investors. The Nano contract was specifically created for early retail adopters, allowing them to gain exposure to the broader market with access to the S&P 500. We are still in the initial phases of the Nano contract and see it as a way to reinvigorate access, given its size of one-tenth of SPX. We also aim to expand the Tuesday and Thursday offerings to include contracts that are more suited for retail investors. Regarding over-the-counter trading, there is significant potential in the volatility sector, where OTC volumes tend to match the size of listed trades. However, we need to carefully assess the execution costs and the risks associated with bilateral trading versus exchange clearing. There is considerable work ahead in exploring the OTC index opportunities, though I would not emphasize the same level of focus on SPX.

Kyle Voigt, Analyst

Hi, good morning. Maybe just a follow-up question on SPX. Just wondering now like, what percentage of that overall complex do you believe is being retail today? I always thought of that as being far more driven by institutional flow than retail. And if institutions are still the primary users there, also do you have any insights on like, which types of institutional users have driven this kind of recent surge and volumes we've seen over the last three quarters or so, whether that's equity asset managers or options, specific funds or other types of institutional users?

Ed Tilly, Chairman and CEO

Yes, it's a great question. And I want to be really careful when we choose our words. You'll note that I say retail platform and don't necessarily mean that that's a retail trader on a retail platform. There are pros coming through retail platforms, many times in algorithms. I would expect the great many of the daily expiry growth is algos loving the short-dated exposure. And in a market that's moving, as I say, the implied move of roughly 1% a day, terrific opportunity. So the growth from retail platforms in the single day and the participation is in the 80s. So really, really high concentration retail platform in those weekly options. Third Friday continues to be traditionally more broad market, greater position hedging as similar as what we see in the VIX complex. So really adoption in those weekly is that big growth coming from retail platform.

Ken Hill, Vice President of Investor Relations

Thank you. And the next question is a follow-up from Rich Repetto with Piper Sandler.

Richard Repetto, Analyst

Yes, hi, guys. I’ve been sort of looking at the expense side of it in more detail. And I know you had $12 million this quarter for increased for the incentive comp. And I guess the question is, when you add all, I think the base is 5.53 from last year, and that's incorporating the 2021 expenses. But if you look at everything, except for the acquisitions this year, it looks like about a 14% increase between the core enhancements, revenue enhancements, infrastructure, and incentive. So we had 14% ex acquisitions, and I’m just trying to see if that's right. It looks like the consensus revenue estimate right now is up 13%. So do you think the analysts are picking up the revenue enhancements? Or that you got 23 to, I think $26 million built in for that?

Brian Schell, Executive Vice President, CFO and Treasurer

I'm not entirely sure I follow the details of the expenses, but we can discuss that further to clarify the percentages. The key point is that when we integrate some acquisitions into our revenue and expense items, the financial statements may reflect different margins. This contributes to a slightly higher growth rate in expenses year-over-year, given their size. We are managing this. We also plan to grow our top line significantly in the near term, which isn't unexpected. Regarding expenses, we aim to provide guidance and transparency throughout the process. If you analyze the second quarter run rate without including the acquisitions, it's clear that there isn't a substantial growth rate that we haven't already included in our projections. To clarify, that $12 million increase is based on a full year, not just the first half. This provides a comprehensive view of our expectations for the entire forecast.

Rich Repetto, Analyst

To simplify, if you take your expense guidance of 6.59 to 6.67 and subtract Neo at 30 to 35, the increases excluding Neo and ErisX are about 14%. The expense increase excluding acquisitions seems to be around 14%, if my math is correct.

Brian Schell, Executive Vice President, CFO and Treasurer

Sure. Sorry, yes. So part of that growth also includes the run rate of the transactions from the prior year as well, which is, I will call it making that number higher than, say a pure organic expense growth rate.

Gautam Sawant, Analyst

Hey, just two quick questions here. One follow-up is just on the revenue outlook for the acquisitions this year. I think you had previously talked about the 50%. I don't know if you provided an update or I missed it. Just what are the expectations for the revenue contribution this year relative to expenses?

Brian Schell, Executive Vice President, CFO and Treasurer

We didn't actually frame it relative to expenses, it was more of transaction. So we have said that we expected a 2% to 3% incremental revenue growth.

Gautam Sawant, Analyst

Okay, got it. And then just one more on the European business. As we look at the market share in cash equities there, it has a very positive trajectory. Can you please expand on some of the key factors that are helping the platform compete with some of the incumbent exchanges in that region? And then where you think the market share could potentially settle out in the future? And then also what data points is the sales team going out with to these institutions to get them to choose Cboe and route their trading volume to the platform? Thank you.

Brian Schell, Executive Vice President, CFO and Treasurer

Thank you for the question. The 60 basis point increase year-over-year can be attributed to a couple of key factors. First, the liquidity provision scheme introduced in 2020 led to a significant improvement in market share and market quality. This allowed us to leverage our data and analytics platform, using Snowflake to demonstrate to our customers that the effective market share, which reflects the best bidding offer at any given time, justifies a higher proportion of order flow directed to Cboe. We received a strong response from major top 10 customers in the latter half of last year, and there are still others poised to make changes. The outlook for lit order books remains positive. Although it is a competitive environment, we are well-positioned to respond and provide data, as evidenced by the quality of our platform. The second factor is a data analytics campaign focused on our BIDS offering in Europe, which has helped us onboard new customers and clients. It also underscores the advantages of trading on the Cboe BIDS Europe platform, which has led to a 32% market share in block trading, placing us about 6 percentage points ahead of our nearest competitor in Europe, with strong quarter-over-quarter gains. Both the BIDS and lit platforms are performing well for us. Finally, periodic auctions have gained market share, reflecting their utility in the overall market and locally. We've also launched these auctions in the United States and are seeing early success with some margin trades on the platform. Did I address all your questions?

Gautam Sawant, Analyst

Yes. Got it. Thank you.

Ken Hill, Vice President of Investor Relations

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Ken Hill for any closing comments. Like to thank you for your interest in our company and have a great weekend, everyone.

Operator, Operator

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