Cboe Global Markets, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the CBOE Global Markets first quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Ken Hill, Head of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for our first quarter earnings conference call. On the call today, Craig Donahue, our CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Scott Johnston, our Chief Operating Officer, will provide an update on the additional strategic realignment actions announced today. And Jill Greveno, our Chief Financial Officer, will provide an overview of our financial results for the quarter as well as discuss our 2026 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Prashant Bhatia, our head of enterprise strategy and corporate development, and Rob Hawking, our global head of derivatives. 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'll make some forward-looking statements, which represent current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of 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'll be referring to non-GAAP measures as identified and reconciled in our earnings materials.

Now, I'd like to turn the call over to Craig. Good morning, and thank you for joining us to review our first quarter results. SIBO delivered another quarter of record net revenue and adjusted earnings powered by continued strength across all of our core businesses. The results underscore the strong foundation we have in place as we take the next steps in advancing our strategy. I will provide some high-level comments before turning the call over to Scott Johnston to talk through the additional strategic realignment changes announced this morning, and then to Jill for a financial update. During the first quarter, CBOE grew net revenue 29% year over year to a record $729 million, and adjusted diluted EPS increased an exceptional 48% to a record $3.70. The robust results in the first quarter were, again, broad-based, driven by record net revenue in every major category at CBOE, and double-digit net revenue growth in four of our five company segments. Taking a closer look at the first quarter trends in our derivatives business, we delivered another record quarter with net revenue increasing 32% year over year. Index options net transaction and clearing fees revenue drove the upside, increasing a robust 35% as our proprietary SPX options set another quarterly record with average daily volume increasing 34% year over year to 4.9 million contracts. Interestingly, the drivers of that growth evolved as market conditions changed throughout the quarter. When things were steady, as they were in January and February, zero DTE options continued to power the growth of the overall SPX franchise on the back of deeper retail and institutional engagement. In March, as the macro outlook shifted abruptly with the Iran war, investors turned to non-zero DTE options to help manage their portfolios as longer-term risks over inflation and growth increased. Zero DTE options still grew, but at a more steady 6% rate month over month in March, while non-zero DTE options jumped over 26%, helping to drive a new monthly ADV record of 5.4 million SPX options contracts. Outside of SPX, we saw multiple quarterly ADV records across our mini SPX options, Russell 2000 index options, as well as our VIX options complex, speaking to the utility of CBOE's volatility toolkit across market environments. Overall, we see a supportive macro environment for our derivatives business while we continue to expand global access and retail engagement. Last quarter, global trading hours volumes rose more than 32% to a record high, driven by strong growth during Asian hours as we continue onboarding local brokers. We are also investing at home. Our trading floor helps traders to efficiently manage complex multi-leg risk capabilities that can't be replicated electronically and supports broader market liquidity through both direct execution and related hedging activity. On April 6th, we were pleased to be joined by our long-term partner, S&P Dow Jones Indices, for the inaugural televised bell ringing on the SIBO floor as part of our new multi-year collaboration with CNBC. Through our new partnership with CNBC, we are bringing the power and expertise of SIBO's iconic trading floor to a global audience. leveraging a differentiated asset within our market ecosystem to deliver live market insight and investor education, elevate the SIBO brand, and reinforce our leadership in global markets. Turning to event contracts, subject to regulatory approval, we plan to bring our securities-based event contracts to market. Based on our mini SPX contract and leveraging our existing options infrastructure, The product is designed to mirror the risk-reward profile of a widely used option strategy, the vertical call spread, allowing investors to take a simple yes or no view on an outcome with defined downside risk and a capped payout range. By incorporating a broader payout zone, the structure enables customers to benefit from being directionally right without requiring a binary all or nothing result. This unique spread element is also being well received by the retail brokerage community as we educate in an easy to understand way one of the primary risk defined strategies in options trading. This launch is just the first step in our broader event contract strategy. We see significant growth ahead as these products become increasingly integrated into the financial markets and we intend to expand beyond index-based outcomes by leveraging our capabilities across both securities and futures. Longer term, we see a compelling opportunity to introduce additional contracts around economic and financial indicators. This is a rapidly growing and compelling area of the market, and we believe CBOE is uniquely positioned to succeed as a trusted partner to customers and regulators with deep experience that spans securities, futures, and clearing. We have consistently designed products that meet the needs of both institutional and retail participants while creating thoughtful education on-ramps that support broader adoption. Leveraging our market infrastructure expertise, our product design capabilities, and regulatory integrity we believe SIBO is best positioned to bring differentiated event contract solutions to market across both securities and futures. Our move into event and prediction markets will bring capabilities and enhancements designed to address many of the weaknesses we see in the current event and prediction market space. Moving to cash and spot markets, Net revenue was up a strong 34% as we saw record results in each of our respective segments across the category, Europe and Asia Pacific, North American equities, and global FX. Led by another quarter of strength in our European transaction business, the Europe and Asia Pacific segment delivered a 32% year-over-year increase in net revenue. This was driven by 43% year-over-year growth in net transaction and clearing fees given stronger industry volumes, market share, and net capture dynamics as we saw the quarter and month of March set new records for average daily value traded. In fact, five of the 10 highest trading days in SIBO Europe's history occurred during the quarter, with records across key services such as periodic auctions, SIBO closing cross, and SIBO bids VWAPX. Higher non-transaction revenues in the segment also contributed to the growth, with revenue up 21% year over year. North American equities made a solid contribution, with net transaction and clearing fees revenues up 40% given strong industry equity volumes in each of our markets. And rounding out cash and spot market businesses, Global FX made another record contribution, increasing net revenue 38% year-over-year in Q1. The year-over-year growth displayed by the FX business was the strongest of any of our segments in the first quarter. Turning now to DataVantage, net revenue increased by 19% on a year-over-year basis reflecting continued momentum across the platform in the first quarter. Roughly 85% of the growth across our market data and access businesses was driven by new units and new sales as opposed to pricing. The first quarter saw a strong contribution from new product sales, complementing continued demand for access to our markets and a durable and growing international contribution. Now I'd like to introduce our COO, Scott Johnston. Scott joined us in February, and while this is his first earnings call at SIBO, he has quickly taken on a very active role in shaping our strategic framework and strengthening discipline, efficiency, and accountability as we position the company for future success. Scott brings an extensive track record in leadership roles at several key buy-side firms, And I have personally had the opportunity to work closely with Scott during our time together at CME. Scott will now cover additional strategic realignment changes announced today.

Thank you, Craig. Our core business delivered exceptional results and our leadership team is stronger than ever. And this next evolution in our corporate strategy is designed to ensure we are not only optimizing the business we have today, but also building the capabilities and operating discipline required to capture tomorrow's opportunities. Since beginning our strategic realignment in the second half of 2025, we have taken decisive actions across the firm. These include announcing the sale of our Canada and Australia businesses, exiting or winding down our corporate listings, European derivatives, FedEx, and Japanese equities businesses, and reducing costs in our US and European ETP listings businesses as well as several of our smaller risk and market analytics businesses. In parallel, we have significantly strengthened our leadership team, adding experienced proven talent in key roles. By eliminating some low return work and complexity, we can invest more deliberately to support our long-term strategy. This includes strengthening our core derivatives and index businesses, exploring opportunities across our spot and off exchange businesses, enhancing our clearing capabilities, broadening global access to our products, and positioning CBOE to succeed in new areas such as prediction markets and tokenization. To support those long-term ambitions, we are realigning our organization from the ground up. CBOE's workforce has doubled in size since the beginning of 2020 as we integrated acquisitions and bolstered our support potions. And while our growth brought with it enhanced opportunities, relationships, and capabilities, It also created mismatches as our strategy has shifted and the opportunity set has evolved. After a thorough review, today we announced our decision to realign our organization to build more agile teams, placing the clear ownership of outcomes with those best positioned to operate a fast-changing environment. Our earlier actions to sell, wind down, and optimize certain businesses, combined with today's additional strategic realignment changes, are expected to reduce our workforce by approximately 20%. In addition, we will also be transitioning back to in-person work to support faster decision-making, stronger collaboration, and better integration across teams as we execute the next phase of our growth strategy. Today's announcement represents a critical next step in our realignment, directing resources to the work that will drive our future success. When joining SIBO, an important consideration for me was the ability to effectuate change and drive greater levels of efficiency throughout the organization. As a management team, we have made great strides, and Jill has been a key partner in installing discipline throughout the company. I look forward to building on the steps we have taken as a firm. Now I'd like to turn the call over to Jill to walk through the financial highlights from the first quarter and our 2026 guidance.

Thanks, Scott. SIBO posted its fourth record quarter in the last five quarters, with adjusted diluted earnings per share up 48% on a year-over-year basis to a record $3.70. I will provide some high level takeaways from this quarter's operating results before going through the segment results. Net revenue increased 29% versus the first quarter of 2025 to finish at a record $729 million. We saw strong double digit growth in all categories, with the strongest growth coming from our cash and spot markets business. Specifically, cash and spot markets grew net revenue 34% as industry volumes fueled revenue generation. In our derivatives category, net revenue grew 32%, as strength in our proprietary index options and multi-list products drove robust results for the category. And in data vantage, new sales growth drove a 19% year-over-year increase in net revenue. Adjusted operating expenses of $201 million were up 4% on a year-over-year basis. Adjusted operating EBITDA of $541 million grew 41% and adjusted operating EBITDA margin expanded by 6.1 percentage points to 74.2%. A result of both our exceptional revenue results and disciplined expense management. Turning to the key drivers of the quarter by segment, our press release in the appendix of our slide deck include information detailing the key metrics for our business segments. So I'll provide some highlights for each. The option segment delivered another quarter of record net revenue, increasing 33% year over year. The growth was driven by a 34% increase in net transaction and clearing fees in the first quarter. Total options ADV was up 10% with a 29% increase in index options volume and a 4% increase in multi-listed options volume. The rate per contract for our options business also increased 19% on a year over year basis, given positive contributions from our multi-list products and index complex. North American equities net revenue rose 18% versus the first quarter of 2025, with strong industry volumes driving a 40% increase in net transaction and clearing fees. On the non-transaction side, market data fees grew 5%, and access and capacity fees increased 12%. Europe and APAC produced 32% year-over-year net revenue growth. Net transaction and clearing fees were up 43%, while non-transaction revenues were up a combined 21%. Futures net revenue increased 9% from the first quarter of 2025. The increase was primarily due to a 14% uptick in total ADV, given stronger VIX activity during the quarter. And finally, Global FX produced the strongest net revenue growth of our segment, up 38% on a year-over-year basis, driven by a 36% increase in average daily notional value and a 4% increase in net capture. Looking at our SIBO DataVantage business, net revenues increased by 19% compared to the first quarter of 2025. Revenue growth was again underpinned by healthy new subscription and unit sales, representing approximately 85% of this quarter's growth, with the remainder coming from pricing changes. Exploring the growth drivers further, we saw increases in each major area of data vantage, with market data and access services, SIBO global indices, and risk and market analytics all up double digits on a year-over-year basis. The most pronounced growth occurred as a result of one-time data sales associated with some of our newly launched products. Turning to expenses, total adjusted operating expenses were $201 million for the quarter, up 4% on a year-over-year basis. This increase is largely driven by a higher compensation and benefits expense, given the strong first quarter revenue trends, which resulted in an increase to our short-term incentive compensation. Before outlining updates to our 2026 guidance, I'd like to walk through how the planned sales of our SIBO Canada and SIBO Australia businesses as well as the additional actions related to our strategic realignment announced today, are impacting our 2026 outlook. As you will recall, during the second half of 2025, we began to explore the potential sale of our SIBO Australia and SIBO Canada businesses, announced the wind down of certain businesses, and committed to reducing costs in specific listings and analytics businesses. Once complete, we continue to anticipate that these actions will lead to an approximate 3% annualized reduction in net revenue compared to 2025, primarily driven by our strategic decision to exit or scale back non-core and lower return businesses. On the expense side, we previously indicated that the strategic realignment was expected to yield an estimated 8% to 10% annualized reduction and adjusted operating expenses versus 2025. In light of the incremental strategic realignment changes announced today, we now expect our strategic realignment to deliver an even greater reduction, approximately 12 to 14% on an annualized basis compared to 2025, translating to savings in the range of $100 to $120 million. The incremental strategic realignment actions are expected to contribute $40 to $50 million in annualized expense savings. As it relates to our 2026 guidance, we anticipate realizing $20 to $25 million of the additional strategic realignment savings in 2026. Before touching on the remainder of the 2026 guidance changes, I want to make clear that although we have an agreed upon sale in place for CBO Canada and CBO Australia, We continue to operate the businesses until the transactions close, with each entity being subject to separate closing and regulatory approval processes. Until the sales are complete, the revenue and expense contribution of each will remain part of our 2026 guidance. On an annualized basis, we estimate the 2026 total net revenue contribution from CBO Canada and CBO Australia will be in the $60 to $70 million range. and we estimate adjusted operating expenses that would no longer remain in SIBO's cost base following a sale to be in the $40 to $50 million range. We will update our guidance as regulatory approvals progress and transaction timing becomes more certain. Looking at our overall 2026 guidance, we are providing the following updates. On a full year basis, we anticipate our DataVantage organic net revenue growth to be in the low double digit range. we expect our total organic net revenue growth to be in the low double-digit to mid-teens range. We are lowering our 2026 suggested operating expense guidance range from $864 to $879 million to $838 to $853 million. Compared to 2025, this represents no increase at the low end and a 2% increase at the high end. Our full-year guidance range for CapEx remains $73 to $83 million and depreciation and amortization remains in the $56 to $60 million range. We continue to expect the effective tax rate on adjusted earnings under the current tax laws to come in at 27.5% to 29.5% for the full year. And while we don't provide formal guidance on interest income or interest expense, we expect that interest income, net of interest expense, will be a $3.5 million to a $4.5 million positive contributor for the second quarter of 2026. On the capital front, following our fourth quarter earnings call on February 6th, we resumed opportunistic share repurchases, buying back a total of $45 million in SIBO shares through the first quarter. Last quarter, we also returned $76 million to shareholders in the form of a $0.72 per share dividend putting total capital returned to shareholders in the first quarter at $121 million. We retain a great deal of balance sheet flexibility, as evidenced by our adjusted cash position of $2.1 billion and a leverage ratio of 0.8 times, positioning us well to invest in organic or inorganic opportunities, as well as redeploy capital to shareholders in the form of dividends or opportunistic share repurchases. Now, I'd like to turn it back over to Craig for some closing comments.

Thank you, Jill. The first quarter results were truly exceptional, but the market continues to evolve at an unprecedented pace. To continue to lead, we must move faster, sharpen our focus, and deploy our resources with even greater discipline. As I reflect on my first 12 months here at CBOE, it is clear that the decisive steps we have taken are moving the company closer to realizing its full potential. In October, following a thorough strategic review and adopting a more rigorous financial and strategic framework, we announced a strategic realignment designed to increase focus and investment in our core businesses that drive our earnings. Index options, multi-list options, futures, U.S. equities, European equities, and FX We took quick and decisive action to reorient the business, including winding down Japanese equities, exiting corporate listings, winding down our European derivatives business, optimizing our resource allocation and our risk and market analytics businesses, and initiating the sale of our Canadian and Australian businesses. Last week, we achieved a significant milestone by reaching a definitive agreement to sell SIBO Canada and SIBO Australia. These actions have not only improved performance in our core businesses, they have allowed us to focus on new areas of growth amid a rapidly transforming industry. Going forward, we are positioned to allocate resources more effectively, including adding talent, in emerging areas as we make greater investments in financial and economic event markets, tokenizing products, and further expanding our clearing services in Europe and the US. As a result, we will strengthen our regional sales, marketing, and investor education to bring our most in-demand products, emerging innovations, and deep market expertise closer to our customers. all driving long-term value for shareholders. I've been in this industry for many years, and I have never been as excited about the road ahead as I am now. We have everything to play for, but it's going to require us to work smarter and be incredibly focused with our decision making and use of capital. I will now turn the call back over to Ken for questions and answers. 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.

Ladies and gentlemen, we will now begin the question and answer session. As a reminder, to ask a question, please press the start button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Patrick Moley of Piper Sandler. Please go ahead.

Yes, good morning. Thanks for taking the question. So I had one on data advantage revenues, very strong growth this quarter of 19%. And you mentioned the 85% coming from new unit sales. It's obviously, I think, been elevated for the last couple quarters, how much of it's coming from new unit sales. So I just wanted to get an update on how sustainable You know, you think the growth here is especially, you know, given some of your comments on reinvesting in the sales force. And then as we look forward, given the guidance update and increase this quarter for the full year, should investors look at, you know, low single or low double digits as kind of a new baseline in terms of growth and data advantage? Thanks.

Yeah, hi, Patrick. So in terms of data advantage, you're right. We had a very strong quarter here, and the growth was pretty broad-based across all of our businesses. About half of the growth year over year was driven by higher access-related revenue, and the driver of that was really client demand for increased connectivity to our options exchanges. You saw our options volumes grew double digits, and our index options volumes grew about 30%. So that was a pretty strong backdrop there. About 40% of the growth came from increased market data sales. And we continue to see very robust demand for both our European and US prop data. And we also continue to see strong demand from local brokers in Asia. And again, those brokers want the data to provide US access to their clients. So we're seeing some pretty strong sales there. As we've said in the past, some of these sales can be unevenly spread throughout the year. We launched two new products related to options data sets this quarter. And while we started off strong on subscription sales, those two new launches also triggered quite a bit of one-time revenue related to historic data sets to combine with those new products. So that's where you see some of the relative outperformance in that 19%. year-over-year growth rate. The rest of the growth was driven by both our index business and some of our risk and market analytics businesses. So as you heard Jill say, we are taking our guidance up this quarter to low double digits for the year. I wouldn't say that's a new baseline, but we continue to see some pretty strong growth. So we'll continue to update as the quarters go on.

Your next question comes from the line of Brian de Dahl, Deutsche Bank. Please go ahead.

Great. Thanks. Thanks. Good morning, folks. Thanks for taking my question. Maybe just to zone in on the prediction markets, Craig, I think you talked about that earlier in terms of the strategy there. What is the – it's clear what you're launching in the near term here on the vertical binary options. But how do you envision this industry playing out over the long term and how SIBO would participate in that? And what I particularly like to focus on is the potential to launch company-specific financial KPI contracts, realizing they most likely have to be regulated by the SEC. But what is your view on the potential demand for those types of contracts? And would those be need to be done in an option structure or is, you know, could you create a different platform, you know, say like how, how she runs their platform now in terms of that, that type of market structure to, to do those or maybe both. But anyway, that's a long winded question, but if you could comment on that.

Yeah. Thank you, Brian. I'm happy to do that. And I'm sure Rob's going to want to get into that as well, but this is still extremely early stages. What we've said is we're focused on taking advantage of that opportunity and what we view as the long-term growth potential in the market, but with a focus on contracts that are well-designed, that are really oriented toward financial instruments and economic indicators and things like that. So you mentioned Being in both the securities and the future space, but being particularly strong in the equity and equity derivative space, you know, we're super keen on CFTC-regulated futures or swaps that are also event contracts. So at a high level, I see it as a really large market opportunity, one that's going to continue to develop over the next decade. I think there's lots of opportunity for us specifically given we've got a really strong reputation for market integrity, market supervision and oversight, contract design, distribution, and

It's where our customers are. It's where the infrastructure exists. It's where investor protections are the strongest. Retail broker platforms are already built for OCC cleared index-based products. That means when we lead with our XSP bindings, And it avoids forcing securities like risks into futures wrappers that customers don't naturally use today. And so phase one, as we've talked about, we lead with the binary options to find spreads and XSP. We want to expand that to other core proprietary products. fall into more of a futures category, but really leading more on the security side as we feel a lot of these outcome-based contracts tied to things like earnings and corporate KPIs are directly tied to the financial performance of the individual company and therefore land in that security bucket. And by moving forward and developing these, we're really focused on designing these products with kind of disclosure-based settlement that people can count on, that they understand exactly what that settlement number is, and there's very low likelihood of revisions and restatements. And then, obviously, within the securities framework,

Great color. Thank you.

Your next question comes from the line of Eli Abu, the Bank of America. Please go ahead.

Good morning. Thanks for taking the question. Given the discussion lately about other exchanges looking to compete for the SPX contract in 2032, can you talk about what capabilities SIBO brings to the SPX complex that you feel other options exchanges cannot replicate? And in particular, can you share any data points to help us better appreciate the depth of the network you've built out in SPX? How many introducing brokers offer SPX today? And does the vast majority of volume come from just a few brokers, or is participation broad-based?

Yeah, yeah, happy to go through all of that. Why don't I just outline kind of the breadth of what makes up the proprietary platform replicate. First, you know, it starts with foundational product in the SPX, and then you add in a generational relationship with a great partner in S&P, and then that allows us to be able to deliver, call it, all of this record growth quarter after quarter after quarter. And so the SPX averaged just under 5 million contracts per day for the first quarter, and then almost 5.4 million contracts per day for March, both were all-time record highs. And what I like to point out is this is more than a 300% increase in the past five years for a product that is approaching its 43rd anniversary. And so you think of the established base, and yet these returns and how we're growing the product is phenomenal. And so volume in the first quarter was made up of, call it, about 84% electronic, 16% open outcry, And what's important to note on this is that 58% of the notional value traded in SPX options is trading on the floor. And really only 40%, or call it 42%, is being traded electronically. And that just goes to show that while the number of contracts traded on the floor is a small or absolute On the trading floor, we have roughly 11 different floor broker groups, with the largest representing only around 23% of the volume. Not to mention the 20 market-making groups servicing the flow of those 11 floor broker groups that they bring to the platform. Now, on the electronic side, we have 34 different retail broker platforms connected. Of that volume, 50% is complex or multi-leg spreads, and 50% is simple or single-option trades. As we've talked about, roughly 60% of the volume is showing up in zero DTE. And if I break down how that flow is showing up each week and kind of looking at how it hits the contracts, Fridays tend to be the biggest volume day at around 28%. With the other days, Really, what I think these numbers show is an entire ecosystem with balanced flow, balanced risk, balanced participation on the broker side, the market maker side, and the customer side. And now I want to point out that this was intentional. This is what we set out to build when we went to build the ecosystem and the product toolkits and how they're all intertwined. And I think given our success, we really see little reason to upset it.

Great. Thank you.

Your next question comes from the line of Dan Fannin of Jefferies. Please go ahead.

Thanks. Good morning. Jill, just wanted to follow up on all the guidance you gave. Appreciate the additional details, but just a few clarifications. So the $100 million to $120 million is the total expense saves, I guess, across everything that you've announced, including today. So just want to confirm what's in the guidance for this year and then what's remaining to still kind of be in guidance and or be realized as we think about 2026 into next year. Just want to clarify a few of the timing and also what's in guidance and what's not.

You bet. So happy to walk through that. As mentioned, once all of the strategic realignment actions are fully implemented and realized, we expect the aggregate annualized benefit from an expense perspective to be in that $100 to $120 million range. But as you rightly alluded to, there is going to be a timing component to this. So the way I would break it down is, you know, taking some of the midpoints of the figures that we shared today. So we did share that we expect to save approximately $40 to $50 million in expenses once both the Canada and Australia transactions are fully complete and transitioned. So, you know, taking that on an annualized basis, I would say given that those haven't occurred and in my remarks earlier, none of that has been baked into our 2026 guidance or none of that has been savings has been built into the 2026 guidance. All of that expense remains to be realized at a later date. Then if you take a look at the, you know, additional actions related to the strategic realignment that we did later on today, That piece is also expected to be $40 to $50 million in annualized savings once everything is fully recognized. We do expect the majority of that to hit in 2026, but there will be a component that does extend into 2027. So as shared earlier, we expect the 2026 savings from the additional strategic realignment efforts to be in that $20 to $25 million range. So then backing out the other, I would say, We do have about 20 million then of the previously actioned strategic realignment pieces that have already been reflected in our 2026 guidance. So you're seeing that, you know, that fully encompassed package reflected in the numbers then that we came out with today in our revision.

Thank you.

Your next question comes from the line of Ben Budish of Barclays.

Please go ahead. hi good morning and thanks for taking the question um maybe one for jill just on capital priorities it looks like there's you should have some proceeds coming in from the um the australian and canadian properties um you know your net debt position is is quite strong i think your cash levels are maybe up double year over year uh and there seems to be no you know limits to your ability to invest, I would think, at least organically in the business. So how should we think about, you know, use of cash, you know, OpEx versus M&A versus CapEx, just any color there as you're thinking through, you know, the impact coming out of this realignment and anything else would be helpful. Thank you.

You bet. So, again, you know, we do generate a lot of free cash flow, especially given the record results that we continue to put up quarter after quarter. Balance sheet is in a phenomenal position. What I will say is, you know, we continue to be focused on organic investments. We've obviously, you know, taken quite a few actions and, you know, even announced more today on the strategic realignment front. But really what that's doing is better positioning us for, you know, future focus areas. So I'll just, you know, hit on a couple of those that Craig mentioned earlier that we're really looking to lean into, whether they be, you know, financial and economic event markets tokenizing products, further extending our clearing services in Europe and the U.S. Those are potential uses of the nice capital that we have available to us. We're taking a look at everything opportunistically. You can expect share repurchases, again, opportunistically as I've hit on. The quarterly dividend, we do have a history of increasing that during the third quarter, so we'll take another look at that. But effectively, you know, really feel we're well positioned right now to be able to lean into some of these areas as the opportunities are emerging.

Okay, great. Thank you, John.

Your next question comes from the line of RBC Capital Markets.

Please go ahead. Thanks for taking my question. I just wanted to follow up on Brian's question. So the prediction markets have also launched these binary options on S&P 500. How does that change the competitive dynamic, particularly given you have the exclusivity for the SPX option? And then how are you thinking about pricing those event contracts going forward? Thanks.

Thanks. Thank you very much. You know, I'll just comment briefly and then let Rob answer your question on pricing. regulators on, it is clear that binary options that are based on a broad-based stock index what the clearing fee will be, the exchange fee.

There's things like ORF regulatory fees that fall under security options today that we'll have to take into account. And I think we're working through those now. The good news is we have a fair amount of flexibility in being competitive with pricing to various, I would say, event contracts that are out there today on other platforms. And even... As I mentioned, ORF, and I know it's a fun topic for the industry, but even as we now look to, you know, potential ORF reforms coming in this summer, very public with that when we do. The fees on the existing contracts, so XSP, those will be very much in line with the way fees are charged today. So we don't see a big change. We just see launching the binary vehicle as just an add-on to the existing XSP mini SPX franchise. But when I'm more referring to the KPI style event contracts, those will be very new. How the risk transfer happens and how the pricing works on that We'll be back with more details, but are working very close with all the industry participants to ensure, you know, the best chance and the best value add for the end user.

That's very helpful, and congrats on such a strong result. Thank you.

Thank you.

Your next question comes from the line of Michael Cypress of Morgan Stanley. Please go ahead.

Hey, good morning. Thanks so much for taking the question. One of the areas of focus you mentioned is enhancing clearing capabilities. So I was hoping you could elaborate on how you might go about that and the opportunity set that you see there with clearing. And then more broadly, as the industry may shift over time toward more tokenized rails. So just curious how you see the economics evolving for clearing, but also settlement and execution in the tokenized world. Where is your scope for compression versus opportunities for new revenue tools and adjacencies?

Yeah, I'll take that. We see tremendous benefits in expanding our clearing capabilities. We've got a very strong position with our European clearinghouse. We're expanding that to include clearing and settlement. I think as we look at tokenization and blockchain applications and atomic settlement, we view that as kind of where we're going in terms of opportunities for us to deploy those kinds of capabilities, especially in areas of emerging markets melding that is going to keep happening between the traditional market infrastructure part of the market and the DeFi sort of emerging area.

And just to that point around economics evolving, just any views on how you see economics evolving for clearing settlement execution and tokenized landscape? that there is demand for that.

We clearly see people using on-chain tokenization as a way to overcome the inherent limitations of traditional market infrastructure, particularly in the post-trade area. So there's value there to be created, but I can't comment on pricing and economics at the moment.

Okay, thank you.

Your next question comes from the line of Simon Quinch of Rothschild & Co. Redburn. Please go ahead.

Hi, thanks for taking my question. I was wondering if we could jump back to the event contract strategy you have. And Craig, I was wondering if you could talk to us about how you see the size of the relative opportunities for just the prediction market opportunity on its own, CBRE, and then sizing that against the opportunity of it treating it as a funnel to fuel activity and growth within your traditional futures and options franchise.

Thanks. Yeah, thank you very much. The VET contracts at this point is actually really a stepping stone to basic options trading strategies, and Rob's talked about that. Rob and JJ, I think, have been super innovative in developing this sort of payout zone concept or the vertical spread concept. that would effectively allow people to express an opinion about breaking down more granularly

Great.

Thanks a lot. Thank you. There are no further questions at this time. And with that, I will now turn the call over to the management team for closing remarks. Please go ahead.

I just want to say thank you for joining us. We are very excited here. This has been a tremendous amount.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.