CME Group Inc. (CME) Q2 2025 Earnings Conference Call Transcript

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Overview

The earnings call highlights record performance, strong international growth, and product diversification, with positive outlooks on new offerings like FX Spot+ and BrokerTec Chicago. Despite some concerns about tariffs and expenses, management's responses indicate effective risk management and strategic investments, supporting a positive sentiment.

Key Financial Performance

Average Daily Volume (ADV) 30.2 million contracts, an increase of 16% year-over-year. Reasons: Broad-based growth across all 6 asset classes, heightened headline risk, macro uncertainties, and increased client preference for transparency and capital efficiency.

Financial Products Volume Grew by 17% year-over-year. Reasons: Increased demand for risk management products.

Commodity Sector Volume Grew by 15% year-over-year. Reasons: Increased demand for risk management products.

Open Interest Up by 7% from the end of Q2 2024 and 10% from year-end 2024. Reasons: Risk-on environment and growth in large open interest holders.

International Business Volume 9.2 million contracts per day, up 18% year-over-year. Reasons: Growth across all asset classes and customer segments, with record volumes in EMEA (up 15%) and APAC (up 30%).

New Retail Traders Over 90,000 new retail traders, a 56% increase year-over-year. Reasons: Growing focus on retail traders and partnerships with large retail broker partners.

Revenue $1.7 billion, up 10% year-over-year. Reasons: Record clearing and transaction fees and strong demand for risk management products.

Clearing and Transaction Fees $1.4 billion, up 11% year-over-year. Reasons: Record average rate per contract of $0.69.

Market Data Revenue $198 million, up 13% year-over-year. Reasons: Strong demand for market data.

Adjusted Operating Income $1.2 billion, up 14% year-over-year. Reasons: Strong cost discipline and increased revenue.

Adjusted Operating Margin 71%, up from 69.1% year-over-year. Reasons: Strong cost discipline and increased revenue.

Adjusted Net Income $1.1 billion, up 16% year-over-year. Reasons: Strong demand for risk management products.

Adjusted Diluted Earnings Per Share $2.96 per share, up 16% year-over-year. Reasons: Strong demand for risk management products.

Capital Expenditures $19 million for the quarter. Reasons: Not explicitly mentioned.

Cash $2.2 billion at the end of the quarter. Reasons: Not explicitly mentioned.

Dividends Paid $455 million in Q2 and approximately $3 billion over the first half of the year. Reasons: Not explicitly mentioned.

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Operating Highlights

Micro E-mini NASDAQ 100 futures: Achieved a record of 4.1 million contracts in Q2, with 1.7 million contracts contributed by Micro E-mini NASDAQ 100 futures. NASDAQ 100 futures and options trading volume climbed to more than 2.5 million contracts per day, up 22% year-over-year.

NASDAQ 100 and other NASDAQ indexes license extension: Secured a 10-year extension of the exclusive license to offer futures and options on NASDAQ indexes, valid through 2039.

International business growth: Achieved highest-ever quarterly volume with 9.2 million contracts per day, up 18% year-over-year. EMEA volume grew by 15% to 6.7 million contracts per day, and APAC volume grew by 30% to 2.2 million contracts per day.

Retail trader participation: Over 90,000 new retail traders joined in Q2, a 56% increase year-over-year, contributing to the growth in Micro's ADV.

Financial performance: Generated $1.7 billion in revenue, up 10% year-over-year. Achieved record clearing and transaction fees of $1.4 billion and market data revenue of $198 million, up 13%.

Cost management: Adjusted expenses were $491 million, with an adjusted operating margin of 71%, up from 69.1% last year.

Focus on risk management: Broad-based growth in all six asset classes, with financial products volume up 17% and commodity sector volume up 15%. Open interest increased by 7% from Q2 2024 and 10% from year-end 2024.

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Risk or Challenges

Market Conditions: The company operates in an environment of heightened headline risk and macro uncertainties, which could impact client behavior and demand for products.

Regulatory Risks: Forward-looking statements involve risks, uncertainties, and assumptions that are difficult to predict, potentially affecting performance.

Strategic Execution Risks: The company’s growing focus on retail traders and international markets requires effective execution to sustain growth and manage operational complexities.

Economic Uncertainties: Economic uncertainties could influence the demand for risk management products and overall market activity.

Competitive Pressures: The company faces competitive pressures in maintaining exclusive licenses and expanding its product offerings to meet diverse customer needs.

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Guidance & Outlook

Adjusted Operating Expenses: CME Group now expects total adjusted operating expenses for the year, excluding license fees, to be approximately $1.635 billion. This is $15 million below prior guidance and represents 3% growth from last year's adjusted expense levels.

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Shareholder Return Plan

Dividends Paid in Q2 2025: $455 million

Dividends Paid in H1 2025: Approximately $3 billion

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Key Q&A

Q:Could you please talk about the macro backdrop for the second half? What are the key drivers that can sustain these strong hedging activities going into the second half?

A:Terrence Duffy explained that it is difficult to predict volumes but highlighted global issues such as record levels of debt, geopolitical unrest (e.g., Russia-Ukraine, Israel-Palestine), and other political factors as key drivers for risk management needs. He emphasized the resilience of markets and the role of CME in mitigating risks.

Q:Can you just talk about the recent take-up of retail traders? How are you measuring that? Are you seeing that from new online brokers? How do you expect them to trade different asset classes within the CME ecosystem?

A:Terrence Duffy and Julie Winkler highlighted the addition of 90,000 new retail traders, a 56% increase, and emphasized the growth in retail participation across asset classes like equities, crypto, and gold. They noted the importance of partnerships with brokers, trader education, and the diverse product suite. Retail participation saw a 16% increase, with strong growth in North America, EMEA, and APAC.

Q:How do you see the crypto ecosystem unfolding over the next several years? What would CME's role be in that? Could that include listing perpetual futures or establishing a tokenized capability?

A:Terrence Duffy stated that CME is a fast follower in crypto, offering regulated platforms that provide confidence to traders. He mentioned the growth in crypto trading and the use of CME's reference prices. Regarding perpetual futures, he noted that they are illegal in the U.S. but exist in Europe, and their adoption depends on regulatory developments. He also discussed the limitations of perpetuals for certain products like energy and rates.

Q:How are you thinking about capital deployment given the level of cash balances? How are you prioritizing buybacks versus dividends? Any thoughts on inorganic growth opportunities?

A:Lynne Fitzpatrick explained that the buyback program is opportunistic and complements the variable dividend structure. She noted that CME evaluates inorganic growth opportunities but is selective, focusing on joint ventures and commercial agreements like the recent NASDAQ extension.

Q:Can you discuss the impact of tariffs on your physical commodities business? Has the growing basis between your products and European alternatives affected trading?

A:Derek Sammann explained that tariffs and geopolitical uncertainties are leading to realignments in global supply chains, creating cost basis differentials that require risk management. This has driven record volumes and revenues in commodities, with increased participation from APAC and EMEA. He noted that tariffs create price differentials between futures and cash markets, leading to increased activity in exchange of physicals (EFPs).

Q:What drove the expense guide takedown? Is this just timing in terms of spend or other changes in the expense outlook?

A:Lynne Fitzpatrick attributed the expense guide reduction to optimized spending on the Google migration and lower use of professional services, including consulting. She noted that these refinements led to a $15 million change in guidance.

Q:Where are you spending your time on stablecoins and tokenization? What are the opportunities and risks?

A:Suzanne Sprague discussed CME's partnership with Google to develop tokenization technology for 24/7 value movement, focusing initially on cash and noncash assets. She mentioned that the initiative is in its second testing phase and aims to launch in 2026. Terrence Duffy emphasized the importance of creating efficiencies through tokenization.

Q:To what extent did the new cash collateral requirements contribute to results this quarter? Can you provide average cash and noncash collateral balances for the quarter?

A:Lynne Fitzpatrick reported that total collateral averaged $316 billion, with $133 billion in cash and $145 billion in noncash. She noted that the new soft minimum requirement of 30% cash led to higher cash balances, influenced by market volatility.

Q:How are you thinking about 24/7 trading? What are the major hurdles and roadblocks?

A:Terrence Duffy stated that 24/7 trading is likely to happen eventually but will depend on asset classes and regulatory considerations. He noted the cost implications for firms and the need for demand to justify these costs. He identified crypto as the most likely asset class to adopt 24/7 trading.

Q:Can you provide an update on FX Spot+ and its client uptake since launch?

A:Tim McCourt reported that FX Spot+ has seen strong uptake, with single-day volumes reaching $2.7 billion and nearly 50 entities participating, including new banks. He highlighted improved market quality and additive volume to CME's FX complex.

Q:Can you comment on your cash treasury trading business and market share trends?

A:Michael Dennis noted that BrokerTec had a strong Q2, with average daily notional volume up 24%. He stated that market share in on-the-run U.S. Treasury actives is flat year-over-year and highlighted the upcoming launch of BrokerTec Chicago to attract new participants.

Q:How could changes in bank capital requirements impact CME's ecosystem?

A:Terrence Duffy and Michael Dennis stated that potential changes to supplemental leverage ratio (SLR) requirements could provide balance sheet flexibility for banks, benefiting CME's ecosystem. They emphasized the importance of maintaining a safe and sound financial system.

Q:How big is the base of retail traders on the platform? Do new traders trade actively right away or gradually increase activity?

A:Terrence Duffy and Julie Winkler explained that new retail traders typically start small and gradually increase activity. They emphasized the importance of education and retention, noting that retail traders are becoming more sophisticated and are diversifying across asset classes.

Q:How are you thinking about the projection for RPC (rate per contract) given the interplay of international and retail growth?

A:Lynne Fitzpatrick stated that international growth tends to increase RPC due to nonmember activity, while retail growth in smaller contracts like Micros dampens RPC. She emphasized focusing on overall revenue growth rather than RPC.

Q:Can you provide more color on international market growth and sales efforts?

A:Julie Winkler highlighted record international volumes, with strong growth in EMEA and APAC across asset classes. She attributed this to commercial hedging, buy-side participation, and strategic investments in key markets. Terrence Duffy emphasized the importance of education and sales efforts in driving international growth.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer to the question about the ongoing trial with former floor traders, citing the inability to comment on pending litigation. They also did not provide specific details on the potential impact of 24/7 trading or the exact use case for tokenization technology to be launched in 2026.

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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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