CME GROUP INC. Q3 FY2024 earnings call

• CME Group achieved a record third quarter average daily volume of 28.3 million contracts, the highest in its history, up 27% compared to Q3 2023. This growth was broad-based across all asset classes for the second consecutive quarter.
• Financial products volume grew 28% and commodity sector volumes grew 20%. The interest rate complex had a 36% year-over-year growth to 14.9 million contracts a day, with SOFR futures and treasuries at all-time record volume levels.
• International business had a record quarter with average daily volume in EMEA up 30% to 6.2 million contracts and APAC up 28% to 1.9 million contracts a day.
• CME Group set new records for quarterly revenue, net income, and earnings per share. Adjusted operating income was approximately $1.1 billion, and the adjusted operating margin was 69.1%, up 260 basis points from Q3 2023.
• The effective tax rate is expected to be lower in Q4, with the company lowering its tax rate guidance for the year to a range of 22.5% to 23% due to strong international growth.

CME Group set all-time records for quarterly revenue, net income, and earnings per share. Quarterly revenue was nearly $1.6 billion, up 18% from Q3 2023. Clearing and transaction fee revenue increased 20% on record quarterly volume. Market data revenue was $178 million, up 6% from the same quarter last year, and other revenue increased 29% to over $109 million. The international business had an average daily volume of 8.4 million contracts in Q3, up 29% versus the prior year. Financial products volume grew by 28% and commodity sector volumes grew by 20%. The interest rate complex saw a 36% year-over-year growth to 14.9 million contracts a day, with SOFR futures and treasuries at all-time record volume levels.

• Lowered the tax rate guidance for the year to a range of 22.5% to 23% due to strong international growth.
• Continues to focus on product innovation, new customer acquisition, and maintaining deep liquid markets across six major asset classes.

• Uncertainty around the US election and geopolitical events that impact the need for risk management globally.
• Competitive landscape, such as new entrants like FMX launching SOFR futures, which may affect market share.
• Regulatory and resolution authority challenges related to clearing treasuries abroad, including concerns about resolution authority oversight by foreign regulators.

Q: Alex Kramm asks about the energy business and tax rate.

A: Derek Sammann talks about strong growth in the energy business, with volume up 21% and options up 45%, driven by international growth. Lynne Fitzpatrick mentions international growth is helping the tax rate, but tax guidance for future years will be provided as part of the outlook.

Q: Kyle Voigt asks about futures pricing and cloud migration expenses.

A: Lynne Fitzpatrick discusses futures pricing evaluation throughout the year and cloud migration expenses, stating they are on track with guidance and expect incremental costs related to migration in the coming years.

Q: Brian Bedell asks about collateral balances and rates.

A: Lynne Fitzpatrick provides details on cash and non-cash collateral balances and rates earned, stating average cash balances were $72 billion in Q3 with 36 basis points earned, and non-cash collateral was $165 billion with 10 basis points earned.

Q: Craig Siegenthaler asks about Robinhood's product launch and SPY vs SPX.

A: Julie Winkler and Tim McCourt discuss new retail client entry points, tax efficiency of CME's contracts, and the interrelated nature of S&P 500 products.

Q: Owen Lau asks about expense guidance and incentive comp.

A: Lynne Fitzpatrick explains that incentive comp true ups happen throughout the year and that the company is focused on revenue growth rather than specific margin targets.

Q: Michael Cyprys asks about treasury futures clearing abroad and interest rate swap clearing.

A: Terrence Duffy and Suzanne Sprague discuss challenges with clearing treasuries abroad and the structure of interest rate swap clearing, including margin collateral and growth in the US interest rate swap side.

Q: Bill Katz asks about expenses and retail opportunity.

A: Lynne Fitzpatrick talks about seasonal expenses in Q4 and the company's focus on revenue growth over margin targets, while Julie Winkler discusses the multifaceted approach to retail client acquisition and volume growth.