CME [CME] Conference call transcript for 2022 q1
2022-04-27 12:19:11
Fiscal: 2022 q1
Operator: Good day, and welcome to the CME Group First Quarter 2022 Earnings Call. At this time, I would like to turn the conference over to John Peschier. Please go ahead.
John Peschier: Good morning, and I hope you are all doing well today. I’m going to start with the safe harbor language, then I’ll turn it over to Terry and John for brief remarks followed by your questions. Other members of our management team will also participate in the Q&A session. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. With that, I will turn the call over to Terry.
Terry Duffy: Thank you, John, and thank you all for joining us this morning. We released our executive commentary, as John said, earlier today, which provided extensive details on the first quarter of 2022. Also, as John said, I have John, Sean, Derek, Sunil and Julie Winkler on the call or in the room with us this morning. I will start, and then John will provide some comments before we open the call for your questions. Trading activity during the first quarter jumped 26% from the last quarter with average daily volume of 26 million contracts per day. Average daily volume was up 19% versus the first quarter last year driven primarily by record quarterly equity index ADV, which was up 30% year-over-year. In addition, interest rates average daily volume was up 21% for the same period. Energy and foreign exchange ADV both grew 6% compared with the first quarter of 2021. In total options, ADV increased 32% to 4.6 million contracts, including significant activity outside of the United States. In Q1, non-U.S. average daily volume grew to 7.3 million contracts. We saw 17% growth in Europe, 22% growth in Asia and 28% growth in Latin America. Contributing to the record quarterly equity index ADV, the Micro E-mini products represented 43% of the activity, growing 36% from the first quarter 2021 to a record average of 3.4 million contracts per day. Additionally, equity options increased 81% for the first quarter last year driven by record activity across E-mini S&P 500 and the NASDAQ 100 options. Within interest rates, both SOFR futures and options had record quarterly ADV, averaging a combined 1.2 million contracts per day. The growth in our SOFR franchise has been a major objective for our team, and the increased volatility in rates during the quarter did not slow the momentum in this transition. At the end of the quarter, SOFR futures share of the Eurodollar futures trading had increased for nine consecutive weeks. It surpassed Eurodollars trading just last week for the first time, averaging 1.37 million contracts above the 1.33 million Eurodollar contracts traded on the same day, a major milestone in the industry shift away – a shift to LIBOR – away from LIBOR to SOFR – excuse me. The uncertainty around the Fed will adjust the rates in terms of how much and how often can be seen in the 313% growth in the first quarter of Fed Fund futures ADV compared with the first quarter of 2021. The innovative new products we’ve launched across the entire yield curve in recent years are more important than ever. You can see this recent front-end volatility driving record quarterly ADV in the three-year treasury note futures as just one example. Additionally, we already have 60 participants trading the 20-year U.S. bond futures contract that we just listed at the end of the quarter. In terms of other new products, customer demand and the ever apparent need for risk management across our global products continues to lead new product launch opportunities. During the quarter, our micro size contract suite continued to grow with recent launch of Micro Bitcoin and Ether options as well as the planned launch of micro copper futures in early May. Micro WTI futures reached a record monthly ADV in March of more than 226,000 contracts and have traded more than 16.8 million contracts since their launch in July of last year. Our ESG offerings expanded with our launch of core global emission offset futures or as we refer to it as C-GEO. Voluntary offsets have become an increasingly popular tool for entities striving to reduce their carbon footprint and achieve carbon neutrality. Building upon the successful introductions of our GEO and NGO contracts, these contracts are intended to align with the core carbon principles overseen by the Integrity Council for the Voluntary Carbon Market. Within crypto, we launched two new reference rates for Bitcoin and Ether, providing a once-a-day reference rate of the U.S. dollar price of the two digital assets published at 4:00 p.m. New York Time, as the New York calculation window has the second most traded hours for Bitcoin futures behind the London rate. In addition, just this week, with our partner CF Benchmarks, we launched 11 new cryptocurrency reference rates in real-time indices. The digital asset market continues to expand, and there is an increasing demand for regulated cryptocurrency information. And finally, new option products continue to offer more flexibility to manage short-term price risk. As Fed policy and economic uncertainty have implications on metals markets, we announced the early May launch of Monday and Wednesday gold, silver, and copper weekly options, which complemented the existing Friday, weekly end-of-month and quarterly options on these markets. With the backdrop of ongoing geopolitical uncertainty, evolving central bank policies, inflation, supply chain constraints and other economic challenges, risk management has never been more important. Our team executed extremely well during the first quarter, resulting in many trading volume records. We were especially pleased with the record results we – in our market data business, which reached a high watermark of $152 million of revenue in Q1. Looking ahead, with the supply of critical global physical commodities fragmenting, the reference of several of our global benchmark products continues to increase, and we continue to provide our clients a secure and transparent way to significantly mitigate and manage their risk. With that, let me turn the call over to John to provide you with some financial highlights.
John Pietrowicz: Thanks, Terry. During the first quarter, CME generated approximately $1.350 billion in revenue. Adjusting for the impact of the formation of OSTTRA, our joint venture with S&P Global, which we launched in September of last year, our revenue grew over 13% for the quarter. As Terry mentioned, market data revenue was a record up 5% to $152 million. We continue to see a lot of interest in our globally relevant product set. Expenses were very carefully managed and, on an adjusted basis, were $425 million for the quarter and $344 million, excluding license fees. The expenses include approximately $6 million toward our cloud migration. The operating leverage in our model is significant. Again, adjusting for the impact of the formation of OSTTRA, when you compare the first quarter 2022 to the first quarter last year, our revenue rose by approximately $158 million and adjusted expenses increased only $22 million. CME had an adjusted effective tax rate of 23%, which resulted in an adjusted net income of $766 million, up 19.5% from the first quarter last year and an adjusted EPS attributable to common shareholders of $2.11. Capital expenditures for the first quarter were approximately $22.5 million. CME paid out over $1.5 billion of dividends during Q1, and cash at the end of the quarter was approximately $2.1 billion. In addition to helping our clients manage their risk, we are making progress in our partnership with Google. We have completed the discovery phase of our analysis of our applications and have begun to build the technical foundation to move them to the Google Cloud platform. Our initial focus will be on moving trading data to the cloud and leverage Google’s excellent data management capabilities. We will also be looking to move our corporate and clearing systems as part of the first phase of the migration. In summary, the team at CME Group is focused on our clients and on executing on our strategic priorities. Please refer to the last page of our executive commentary for additional financial highlights and details. With that short summary, we’d like to open up the call for your questions. [Operator Instructions] Thank you.
Operator: Thank you. [Operator Instructions] We will take our first question from Rich Repetto from Piper Sandler. Please go ahead.
Operator: We will take our next question from Dan Fannon from Jefferies. Please go ahead.
Operator: From UBS, we will now move to Alex Kramm.
Operator: We will take our next question from Alex Blostein from Goldman Sachs.
Operator: We will take our next question from Brian Bedell from Deutsche Bank. Please go ahead.
Operator: We will take our next question from Ken Worthington from JPMorgan. Please go ahead.
Operator: We will take our next question from Owen Lau from Oppenheimer. Please go ahead.
Operator: We will take our next question from Kyle Voigt from KBW.
Operator: From Compass Point, we will now move to Chris Allen. Please go ahead.
Operator: We will take our next question from Simon Clinch from Atlantic Equity. Please go ahead.
Operator: We will take our next question from Gautam Sawant from Credit Suisse. Please go ahead.
Operator: We will take our next question from Michael Cyprys from Morgan Stanley. Please go ahead.
Operator: We will take our next question from Brian Bedell from Deutsche Bank. Please go ahead.
Operator: As we have no additional questions at this time, I will turn the call back over to management for closing remarks.
Terry Duffy: Let me thank you all again for joining us today. We appreciate it very much. We’re quite proud of our quarter. We will continue to work as we go through the balance of the year. So thank you all very much. Stay safe, stay healthy. Thank you.
Operator: This concludes today’s call. Thank you for your participation. You may now disconnect.
