Yahoo Finance CME Group Inc. (NASDAQ:CME) Q1 2024 Earnings Call Transcript
CME Group Inc. (NASDAQ:CME) Q1 2024 Earnings Call Transcript April 24, 2024
CME Group Inc. beats earnings expectations. Reported EPS is $2.5, expectations were $2.44. CME isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the CME Group first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. During the Q&A session, if you’d like to ask a question, you may press star, one on your phone. I’ll now turn the conference over to Adam Minick. Please go ahead.
Adam Minick: Good morning, and I hope you’re all doing well today. We released our executive commentary earlier this morning, which provides extensive details on the first quarter 2024, which we will be discussing on this call. I’ll start with the Safe Harbor language, and then I’ll turn it over to Terry. 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 our filings with the SEC, which are on our website.
Lastly, on the final page of the earnings release is a reconciliation between GAAP and non-GAAP measures. With that, I’ll turn the call over to Terry.
Terrence Duffy: Thanks Adam, and thank you all for joining us this morning. I’m going to make a few brief comments about the quarter and the overall environment. Following that, Lynne will provide an overview of our first quarter financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks. Our performance in the first quarter was strong evidence of the ever-growing need for risk management globally. First quarter average daily volume of 24.6 million contracts was the third highest quarterly ADV in CME Group’s history. The only higher quarters were the first quarter of 2020 at the onset of the pandemic, and the first quarter last year, which was impacted by the significant bank turmoil in March and created a much tougher comparison for March of 2024.
Despite not specific macro event or change in Federal Reserve rates occurring in Q1, we had the highest January ADV to date, up 16% year-over-year, and a February that included the highest monthly interest rate ADV in our history of 17.2 million contracts, or up 6%. We achieved quarterly ADV records for both treasuries of 7.8 million contracts and the overall options of 5.9 million contracts. Both equity index and energy options reached all-time high levels. Our non-U.S. ADV also reached a record level of 7.4 million contracts. This was driven largely by 38% growth in energy, 29% in ag products, and 7% in metals. In total, we delivered 14% ADV growth across our physical commodity products to 4.7 million average daily volume, which included 16% year-over-year growth for both energy and ag products.
This strong first quarter activity across our business lines helped generate record adjusted quarterly financial results which Lynne will detail in just a moment. Activity so far in April has continued to build on many of these trends following the strong first quarter of our physical commodity asset classes. They are up 26% to date in April as of April 22. Metals ADV specifically is up 76% and the complex reached its highest daily volume in history of 1.7 million contracts on April 12. On the financial side of the business, the CPI released on April 10 was a great example of how important every data point is for the market to adjust positions to manage risk. We reached nearly 44 million contracts traded that day and the wide range of views around the health of the global economy and the nuance related to interpreting the many different economic indicators continues.
As a result of the strong market dynamics, year-to-date through April 22, our ADV is up 4%, including year-over-year growth in all six of our asset classes. CME Group continues to provide deep, liquid markets across global benchmarks to deliver the most operational and capital efficiencies to market participants. CME Group’s multi-asset class offering is in higher demand today than ever. I’m now going to turn the call over to Lynne to review our financial results.
Lynne Fitzpatrick: Thanks Terry, and thank you for joining us this morning. During the first quarter, CME generated nearly $1.5 billion in revenue, up 30% from a very strong first quarter in 2023. Within the physical commodities asset classes, quarterly revenue was up 14% year-over-year and represented approximately one-third of clearing [indiscernible] in the quarter. Market data revenue reached a record level of 6% to $175 million. Other revenue increased 37% to $104 million, largely due to the increased non-cash collateral fee implemented in January. Continued strong cost discipline led to an adjusted expenses of $462 million for the quarter and $374 million excluding license fees. Our adjusted operating margin for the quarter was 68.9%, up from 68.2% in the same period last year.
CME Group had an adjusted effective tax rate of 23%. Driven by the strong demand for our risk management products, we delivered the highest quarterly adjusted net income and earnings per share in our history at $911 million and $2.50 respectively, both up 3% from the first quarter last year. This represents an adjusted net income margin for the quarter of over 61%. Capital expenditures for the first quarter were approximately $16 million, and cash at the end of the period [indiscernible] $1.7 billion. CME Group paid dividends during the quarter of approximately $2.3 billion or nearly $25 billion [indiscernible] form of dividends since [indiscernible] variable dividend policy in early 2012. We’re very proud to deliver [indiscernible] quarterly earnings in our history and are pleased to see this strong start [indiscernible] second quarter.
Year to date through April 22, 42 or more than half of our trading days have been over 25 million contracts, versus 28 days last [indiscernible] more consistent higher demand for our [indiscernible]. At CME Group, we continue to focus on providing the risk management products needed by our clients and driving earnings growth for our shareholders. We’d now like to open up the call to your questions.
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