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STOCK-BASED COMPENSATION | 9 Months Ended
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Sep. 30, 2024
Share-Based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of actual forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Vesting may be accelerated for certain officers and employees as a result of attaining certain age and service-based requirements in the Company’s long-term incentive plan and award agreements. Stock-based compensation expense relating to employee awards is included in compensation and benefits and acquisition-related costs in the condensed consolidated statements of income. The Company recognized stock-based compensation expense related to employee awards of $9.6 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and $30.9 million and $28.4 million for the nine months ended September 30, 2024 and 2023, respectively. Stock-based compensation expense relating to non-employee director awards is included in professional fees and outside services in the condensed consolidated statements of income. The Company recognized stock-based compensation expense related to non-employee director awards of $0.5 million and $0.5 million for the three months ended September 30, 2024 and 2023, respectively, and $1.2 million and $1.4 million for the nine months ended September 30, 2024 and 2023, respectively. Stock-based compensation expense relating to Restricted Common Units and Warrant Units granted to former investor members of Cboe Digital was recorded as contra-revenue in the condensed consolidated statements of income. In connection with winding down the Cboe Digital spot market, on June 12, 2024 all of the remaining Cboe Digital Restricted Common Units and Warrant Units were forfeited and no Cboe Digital Restricted Common Units or Warrant Units were outstanding as of the three months ended September 30, 2024. See below for additional information. The activity in the Company’s restricted stock, consisting of restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) for the nine months ended September 30, 2024 was as follows: RSUs The following table summarizes RSU activity during the nine months ended September 30, 2024:
| Number of Shares |  | Weighted average grant date fair value
Nonvested stock at December 31, 2023 | 638,181 |  |  | $ | 125.25 |
Granted | 224,772 |  |  | 183.16 |
Vested | (282,038) |  |  | 114.89 |
Forfeited | (35,900) |  |  | 145.50 |
Nonvested stock at September 30, 2024 | 545,015 |  |  | $ | 153.16 |
RSUs entitle the holder to one share of common stock upon vesting with the exception of certain jurisdictions where the RSUs are settled in cash, typically vest over a three-year period, and vesting accelerates upon death, disability, or the occurrence of a qualified termination following a change in control. Vesting will also accelerate upon a qualified retirement where applicable and permitted. Where applicable and permitted, qualified retirement eligibility occurs once achieving 55 years of age and 10 years of service. Starting in 2024, in connection with grants of new equity awards, the award agreements provide that in the event of a participant’s retirement, all unvested outstanding RSUs and a pro rata portion of unvested outstanding PSUs will remain outstanding and be distributed in accordance with the award’s original vesting and settlement schedule, even after the applicable retirement date. Retirement eligibility will require, in addition to attaining 55 years of age and 10 years of continuous service, submission of 6 months of advanced written notice of a retirement and submission, approval, and satisfactory completion of a transition plan. Unvested RSUs will be forfeited if the officer, or employee leaves the Company prior to the applicable vesting date, except in limited circumstances. RSUs granted to non-employee members of the Board of Directors have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the RSUs will be forfeited if the director leaves the Board of Directors prior to the applicable vesting date. The RSUs have no voting rights but entitle the holder to receive dividend equivalents. During the nine months ended September 30, 2024, to satisfy employees’ tax obligations upon the vesting of restricted stock, the Company purchased 103,466 shares of common stock totaling $19.4 million as a result of the vesting of 281,684 shares of restricted stock. PSUs The following table summarizes restricted stock units contingent upon achievement of performance conditions, also known as PSUs, activity during the nine months ended September 30, 2024:
| Number of Shares |  | Weighted average grant date fair value
Nonvested stock at December 31, 2023 | 134,484 |  |  | $ | 127.72 |
Granted | 86,996 |  |  | 145.21 |
Vested | (110,376) |  |  | 100.50 |
Forfeited | — |  |  | — |
Nonvested stock at September 30, 2024 | 111,104 |  |  | $ | 168.45 |
PSUs include awards related to earnings per share during the performance period as well as awards related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return PSUs which incorporated the following assumptions for awards granted in February 2024: risk-free interest rate (4.41)%, 2.86-year volatility (21.56)% and 2.86-year correlation with S&P 500 Index (0.39). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive one share of the Company’s common stock. The vesting period for the PSUs contingent on the achievement of performance conditions is three years. For each of the performance awards, the PSUs will be settled in shares of the Company’s common stock following vesting of the PSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration upon death, disability, or the occurrence of a qualified termination following a change in control. Participants have no voting rights with respect to the PSUs until the issuance of the shares of common stock. Dividends are accrued by the Company and will be paid once the PSUs, contingent on the achievement of performance conditions, vest. During the nine months ended September 30, 2024, to satisfy employees’ tax obligations upon the vesting of performance stock, the Company purchased 46,867 shares of common stock totaling $8.6 million as a result of the vesting of 110,376 shares of performance stock. As of September 30, 2024, there were $62.5 million in total unrecognized compensation costs related to restricted stock, restricted stock units, and performance stock units. These costs are expected to be recognized over a weighted average period of 1.9 years. Employee Stock Purchase Plan In May 2018, the Company’s stockholders approved an Employee Stock Purchase Plan, (“ESPP”), under which a total of 750,000 shares of the Company’s common stock will be made available for purchase to employees. The ESPP is a broad-based plan that permits employees to contribute up to 10% of wages and base salary to purchase shares of the Company’s common stock at a discount, subject to applicable annual Internal Revenue Service (“IRS”) limitations. Under the ESPP, a participant may not purchase more than a maximum of 312 shares of the Company’s common stock during any single offering period. No participant may accrue options to purchase shares of the Company’s common stock at a rate that exceeds $25,000 in fair market value of the Company’s common stock (determined at the time such options are granted) for each calendar year in which such rights are outstanding at any time. The exercise price per share of common stock shall be 85% (for eligible U.S. and international employees) of the lesser of the fair value of the stock on the first day of the applicable offering period or the applicable exercise date. The Company records compensation expense over the offering period related to the discount that is given to employees, which totaled $1.1 million and $0.9 million for the three months ended September 30, 2024 and 2023, respectively, and $2.4 million and $1.8 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, 491,793 shares were reserved for future issuance under the ESPP. Cboe Digital Restricted Common Units On November 18, 2022, Cboe Digital Holdings entered into minority interest purchase agreements with certain digital asset industry participants, pursuant to which Cboe Digital Holdings agreed to issue 185 Restricted Common Units in Cboe Digital. In addition, certain former investor members and their affiliates are our customers, including trading permit holders, trading privilege holders, participants, and members. Certain former Cboe Digital investor members paid for the Restricted Common Units through the issuance of promissory notes, which were nonrecourse in nature. The issuances of Restricted Common Units for nonrecourse promissory notes are accounted for as in-substance stock options. The promissory notes generally bore interest at a rate of 5% per annum and matured upon the earlier of the sale of vested Restricted Common Units, or either November 18, 2032 or November 18, 2037. One former Cboe Digital investor member paid for the Restricted Common Units in exchange for cash. As of March 31, 2024, 185 Restricted Common Units (all unvested) were outstanding, with a weighted average exercise price of $0.3 million and a weighted average remaining contractual term of 5 years. On April 25, 2024, the Company announced plans to wind down the spot digital asset trading market currently offered by Cboe Digital and to dissolve its minority ownership structure. In connection with winding down the Cboe Digital spot market, on June 12, 2024, the Company entered into Unit Repurchase Agreements with holders of Cboe Digital Restricted Common Units to repurchase its outstanding Restricted Common Units in exchange for forgiveness of the related promissory note. Certain former investor members also received a cash payment in addition to the forgiveness of their promissory note. The former Cboe Digital investor who paid for their Restricted Common Units in cash also received an additional payment equal to the amount they paid for their Restricted Common Units. As a result, all Cboe Digital Restricted Common Units were forfeited as of June 30, 2024. The Company paid $3.3 million in total to settle the Restricted Common Units. No Cboe Digital Restricted Common Units were outstanding during the three months ended September 30, 2024. Vesting of Restricted Common Units was based on certain conditions relating to the participation and performance of the former Cboe Digital investor members on the Cboe Digital platforms, generally over a five-year period. Performance was generally measured based on participation on the Cboe Digital platforms and the former investor members maintaining certain average daily volumes on the platforms. Due to the existence of an option for former investor members to sell their shares immediately after vesting, the options were liability classified. The options were due to expire upon the maturity of the promissory notes, which was either November 18, 2032 or November 18, 2037, unless the options were exercised. The cost associated with the options was recognized as contra-revenue, net of actual forfeitures and based on the continued probability of the satisfaction of performance conditions ratably over the vesting period. The wind down of the Cboe Digital spot market resulted in a forfeiture of all Cboe Digital Restricted Common Units and a reversal of contra-revenue previously recorded. Cash payments to former investor members attributable to the Restricted Common Units (other than payments to the former investor member to refund their cash payment for the Restricted Common Units) were recorded as contra-revenue. As a result, $2.4 million of contra-revenue was reversed in the three months ended June 30, 2024. All amounts previously recorded within other assets, net relating to the Restricted Common Units were reversed. Any impact to other income (expense), net for changes in the fair value of the Cboe Digital Restricted Common Units was reversed. Changes in the fair value of the options, subsequent to the grant date, were recognized in other income (expense), net in the condensed consolidated statements of income in the period in which the fair value of the options changed. The Company used a Black Scholes pricing model to estimate the fair value of the in-substance stock options which incorporated the following assumptions as of December 31, 2023: risk-free interest rate range (3.81 to 3.90)%, expected dividend rate (0)%, expected volatility (60 to 65)%, and expected term of 3.9 to 5.9 years. For the three months ended June 30, 2024, there was $(0.3) million recognized in other income (expense), net in the condensed consolidated statements of income related to a reversal of previously recognized fair value adjustments of the options. Prior to the execution of Unit Repurchase Agreements, certain former Cboe Digital investor members were able to earn additional Incentive Program Units. The Incentive Program Units were subject to the same terms and conditions as the other Restricted Common Units and were similarly liability-classified awards. Cboe Digital authorized a maximum of 20 Common Units to be distributed over the two-year life of the incentive program. The wind down of the Cboe Digital spot market resulted in a forfeiture of all earned Incentive Program Units and a reversal of contra-revenue previously recorded. Cash payments to former investor members attributable to the Incentive Program Units were recorded as contra-revenue. The Company paid $2.3 million in total to settle the Incentive Program Units. As a result, $1.4 million of contra-revenue was recorded in the three months ended June 30, 2024, due to the cash payments exceeding the amount of contra-revenue previously recorded for Incentive Program Units. All amounts previously recorded within other assets, net and other income (expense), net for changes in the fair value relating to the Restricted Common Units were reversed. Cboe Digital Warrants Units On November 18, 2022, Cboe Digital Holdings entered into a Warrant Agreement with a former investor member to acquire up to 80 Common Units of Cboe Digital, subject to certain vesting events. The former investor member is a customer of Cboe Digital. The vesting of the Warrant Units was based upon the achievement of certain conditions relating to the service provided by the former investor member over a two-year period, of which some conditions represented conditions that are not service, performance, or market conditions and, therefore, the Warrant Units were liability classified. As of March 31, 2024, 40 Warrant Units (with a weighted average exercise price of $0.2 million) had vested, but no Warrant Units were exercised. In connection with winding down the spot digital asset trading market, this former investor member agreed to settle their outstanding Warrant Units for a one-time cash payment as a part of their Unit Repurchase Agreement. Unvested Warrant Units were forfeited. The Company paid $0.4 million in total to settle the Warrant Units. No Cboe Digital Warrant Units were outstanding during the three months ended September 30, 2024. The cost associated with the Warrant Units was recognized as contra-revenue ratably throughout the expected life of the Warrant before exercise. Changes in the fair value of the Warrant Units, subsequent to the grant date, were recognized in other income (expense), net in the condensed consolidated statements of income in the period in which the fair value of the Warrant Units changed. The Company used a Black Scholes pricing model to estimate the fair value of the Warrant Units which incorporated the following assumptions as of December 31, 2023: risk-free interest rate (3.89)%, expected dividend rate (0)%, expected volatility (65)%, and expected term of 4.0 years. Given the cash payment to the Warrant Units holder relates to a settlement of a vested instrument, the difference between the liability previously recorded for the vested Warrant Units and the amount of the Unit Repurchase Agreement was recorded as $1.3 million recognized in other income (expense), net in the condensed consolidated statements of income in the three months ended June 30, 2024.

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