CME Group Inc. (CME) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A session reveal several positive aspects: a strategic partnership with FanDuel, stable energy volumes, and significant proceeds from the OSTTRA sale. Although there are some uncertainties regarding sports-related contracts and parlays, the overall sentiment remains positive due to strong market data revenue growth and plans for 24/7 crypto trading. The slight reduction in operating expense guidance further supports a positive outlook. Despite some vague responses, the overall market strategy and shareholder return plans suggest a positive stock price movement.

Key Financial Performance

Revenue $1.5 billion, down 3% from the very strong third quarter in 2024. The decline was not elaborated upon in the transcript.

Average Rate Per Contract $0.702, resulting in clearing and transaction fees of $1.2 billion. No year-over-year change or reasons were mentioned.

Market Data Revenue $203 million, up 14% year-over-year. The increase was attributed to strong market data demand.

Adjusted Expenses $487 million for the quarter and $405 million excluding license fees. No year-over-year change or reasons were mentioned.

Adjusted Operating Income $1.1 billion or 68.4% operating margin for the quarter. No year-over-year change or reasons were mentioned.

Adjusted Effective Tax Rate 22.6%. No year-over-year change or reasons were mentioned.

Adjusted Net Income $978 million, slightly above the extraordinarily strong third quarter last year. No specific reasons for the increase were mentioned.

Adjusted Diluted Earnings Per Share $2.68 per share, slightly above the extraordinarily strong third quarter last year. No specific reasons for the increase were mentioned.

Capital Expenditures Approximately $19 million. No year-over-year change or reasons were mentioned.

Cash Approximately $2.6 billion at the end of the quarter. No year-over-year change or reasons were mentioned.

Dividends Paid $455 million in the third quarter and approximately $3.5 billion over the first 9 months of the year. No year-over-year change or reasons were mentioned.

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Operating Highlights

Crypto Complex: Traded a record 340,000 contracts per day in Q3, up over 225% from last year. Growth driven by Solana and XRP futures launched earlier this year.

New Products: Record volume in credit futures, 1-ounce gold futures, and agricultural weekly options.

FX Spot+: Set new volume records every month in Q3, offering futures capital efficiencies to spot market participants.

BrokerTec Chicago: Launched recently, enabling trading of futures and cash products side-by-side.

FTSE Russell Index derivatives license: Extended through 2037, ensuring continuity and value for clients.

Partnership with FanDuel: To develop and distribute event-based contracts later this year.

Revenue: Generated $1.5 billion in Q3, down 3% from Q3 2024.

Market Data Revenue: Reached a record $203 million, up 14%.

Cost Discipline: Adjusted expenses were $487 million, with $405 million excluding license fees.

Operating Margin: Achieved 68.4% adjusted operating margin.

Cross-Margin Agreement with DTCC: Announced extension to enable increased margin savings for end-user clients.

24/7 Cryptocurrency Trading: Plan to offer 24/7 trading of cryptocurrency futures and options starting early next year.

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Risk or Challenges

Market Volatility: Despite record growth in certain areas, there was a general pullback in volatility across asset classes during the quarter, which could impact trading volumes and revenue.

Revenue Decline: Revenue for the third quarter was down 3% compared to the same period in 2024, indicating potential challenges in maintaining growth momentum.

Regulatory and Compliance Risks: Forward-looking statements highlight uncertainties and risks that could materially affect performance, including regulatory hurdles.

Economic Uncertainty: The global market's increasing complexity and volatility could pose challenges to strategic execution and client service.

Operational Costs: While cost discipline was strong, adjusted operating expenses remain significant, and any increase could pressure margins.

Cryptocurrency Market Risks: The expansion into cryptocurrency futures and options, including 24/7 trading, exposes the company to the volatile and unpredictable nature of the crypto market.

Dependence on Innovation: Future performance heavily relies on innovation and the successful launch of new products, which carries inherent risks if market adoption is slower than expected.

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Guidance & Outlook

Future Operating Expenses: Total adjusted operating expenses for the year, excluding license fees, are expected to be approximately $1.625 billion, which is $10 million below prior guidance and $25 million below the initial expectation for the year.

Cryptocurrency Futures and Options: CME Group plans to offer 24/7 trading of cryptocurrency futures and options beginning early next year.

Partnership with FanDuel: A partnership with FanDuel to develop and distribute event-based contracts is set to begin later this year.

FTSE Russell Index Derivatives License: The FTSE Russell Index derivatives license has been extended through 2037, ensuring continuity and value for clients.

Cross-Margin Agreement with DTCC: An upcoming extension of the cross-margin agreement with DTCC is planned to enable increased margin savings for end-user clients.

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Shareholder Return Plan

Dividends Paid in Q3 2025: $455 million

Dividends Paid in First 9 Months of 2025: Approximately $3.5 billion

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Key Q&A

Q:Can you talk about your long-term retail strategy, including the partnership with FanDuel and potential for M&A?

A:Terrence Duffy explained that the retail strategy is evolving and focuses on distribution and efficiencies. The partnership with FanDuel provides access to 13 million potential accounts. He emphasized CME's credibility and its ability to grow the retail business globally without necessarily relying on M&A, though it remains an option.

Q:Are you considering offering sports-related event contracts, and what are the considerations?

A:Terrence Duffy clarified that CME is prepared to offer sports-related event contracts in partnership with FanDuel, pending U.S. government approval. He highlighted the importance of distinguishing between prediction markets on sports and other events, and noted that the decision will depend on regulatory clarity and FanDuel's readiness.

Q:Do you think it's feasible to offer parlays on a large scale in prediction markets, and what are the considerations?

A:Terrence Duffy expressed uncertainty about the feasibility of offering parlays on a large scale due to regulatory and operational challenges. He noted that parlays might cross the line into sports gambling, which could complicate their classification as swaps. The government has not yet opined on this matter.

Q:What are the operational aspects and cost implications of offering event contracts?

A:Tim McCourt explained that CME has the operational and technological scale to list event contracts intraday, leveraging its existing infrastructure. Julie Winkler added that cooperative marketing agreements with retail partners help manage costs, and there is no significant change in spending expected for offering these products.

Q:Can you clarify the structure and accessibility of prediction markets for financial contracts?

A:Terrence Duffy and Lynne Fitzpatrick confirmed that prediction markets for financial contracts will be accessible to all retail platforms, not just FanDuel. The economics of these markets are still being finalized, and fees will be consistent across all participants.

Q:What is the outlook for energy volumes and factors driving share shifts in oil and gas markets?

A:Derek Sammann noted that energy volumes have stabilized after strong growth, with WTI futures gaining market share. Growth is driven by innovations like short-dated options and increased participation in Europe and Asia. Natural gas is expected to grow due to rising LNG exports.

Q:What are the proceeds from the OSTTRA sale, and how will they be used?

A:Lynne Fitzpatrick stated that the sale generated approximately $1.5 billion in proceeds. The Board will review potential uses for the capital, with a focus on maintaining CME's low debt-to-EBITDA ratio and returning capital to shareholders.

Q:What are the plans for 24/7 trading, and how does tokenization play a role?

A:Terrence Duffy outlined plans to enable 24/7 trading for crypto markets by 2026, with tokenized cash being a key component. Suzanne Sprague and Sunil Cutinho discussed the operational and risk management aspects, emphasizing the importance of collateralization and technological readiness.

Q:What is the impact of the 30% cash minimum on collateral balances?

A:Lynne Fitzpatrick reported that cash balances averaged $135 billion in Q3, with a 46% allocation to cash. The 30% minimum has led to a higher proportion of cash, but optimization is expected over time.

Q:What is the progress and outlook for BrokerTec Chicago?

A:Michael Dennis highlighted the successful launch of BrokerTec Chicago, with over $1 billion in notional traded and participation from 25 firms. The initiative aims to enhance efficiency by integrating cash fixed income markets with futures and options.

Q:What drove the 14% growth in market data revenues, and are there plans for price increases?

A:Julie Winkler attributed the growth to increased demand across professional and nonprofessional segments, particularly in APAC and EMEA. A 3.5% price increase for market data products will take effect on January 1, 2026.

Q:What is the progress and strategy for credit futures?

A:Michael Dennis reported record open interest in credit futures, driven by tight bid-ask spreads and margin offsets with treasury and S&P 500 futures. CME is engaging with a diverse client base and has 300 sales opportunities in the pipeline.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers to questions about the feasibility of offering parlays on a large scale in prediction markets and the specific financial arrangements with FanDuel for prediction markets. Responses were vague and lacked detailed data or timelines.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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CME Report

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