Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CME Group Inc (CME, Financial) achieved record-breaking performance in Q3 2024 with the highest quarterly average daily volume (ADV) of 28.3 million contracts, marking a 27% increase year-over-year.
- The company reported all-time records for quarterly revenue, net income, and earnings per share, with revenue reaching nearly $1.6 billion, up 18% from Q3 2023.
- CME Group Inc (CME) saw significant growth in its international business, with average daily volume in EMEA and APAC regions increasing by 30% and 28%, respectively.
- The interest rate complex experienced a 36% year-over-year growth, with record volumes in SOFR futures and treasuries, despite no recent Fed rate hikes.
- The company maintained strong cost discipline, resulting in an adjusted operating margin of 69.1%, up from 66.5% in the same period last year.
Negative Points
- Despite strong performance, CME Group Inc (CME) faces a competitive landscape, particularly in the rates sector with new entrants like FMX launching SOFR futures.
- The company did not provide specific guidance on future pricing changes, leaving uncertainty about potential impacts on revenue.
- There are concerns about the potential for increased expenses related to cloud migration, which is expected to continue into 2025.
- CME Group Inc (CME) is cautious about entering new markets, such as political event contracts, which could limit growth opportunities in emerging areas.
- The company faces challenges in expanding its interest rate swap clearing business, competing with larger clearinghouses overseas.
Q & A Highlights
Q: Can you provide an update on CME's capital return policy and thoughts on potential M&A given the record performance and valuation compression?
A: Terrence Duffy, Executive Chairman and CEO, stated that CME continuously monitors its capital return policy to ensure it aligns with shareholder interests. The dividend policy has been effective in a zero-rate environment, and CME will keep evaluating it with the Board. Regarding M&A, CME is open to opportunities that make strategic sense but is currently focused on its strong global position.
Q: How is CME's new customer acquisition impacting volumes, and where are these new clients coming from?
A: Julie Winkler, Chief Commercial Officer, highlighted that new client acquisition is a core pillar of CME's commercial model. The company is seeing growth in both retail and institutional client bases, with institutional client growth up nearly 40% this year. New clients are coming from global regions, particularly outside the US, driven by CME's inside sales team and new product launches.
Q: What is the impact of Bitcoin and Ethereum ETFs on CME's futures business, and is there potential growth in the perpetual market?
A: Tim McCourt, Global Head of Equity, FX Products, Rates, Financial and OTC Products, noted that the development of Bitcoin and Ethereum ETFs has expanded the ecosystem, benefiting CME's futures complex. CME's crypto futures ADV reached a record high, and the company continues to engage with customers to provide necessary risk management tools in a regulated environment.
Q: How is CME positioned in the competitive landscape for interest rate products, particularly with the launch of FMX's SOFR futures contract?
A: Terrence Duffy emphasized CME's focus on delivering efficiencies and value to clients, which has driven growth without the need for new incentive plans. Michael Dennis, Director, added that CME's bid-ask spreads are tighter than competitors, providing cost advantages to participants. CME remains vigilant but confident in its strong market position.
Q: Can you discuss CME's approach to pricing changes and the potential for future adjustments?
A: Terrence Duffy explained that CME evaluates pricing throughout the year, focusing on delivering value to clients. While past increases were possible due to market offerings, future adjustments will depend on market conditions and client needs. Lynne Fitzpatrick, CFO, added that CME considers various levers, including fee schedules and incentive programs, when making pricing decisions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
