This summary is based on the third quarter fiscal 2008 earnings call conducted by NYSE Euronext Inc. (NYX) on October 31, 2008.
Management:
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CEO: Duncan Niederauer
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Group EVP and CFO: Michael Geltzeiler
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Head of IR: Stephen Davidson
Key Investors Issues
- Revenues of $1.2 billion were up 7% versus $1.1 billion in the prior year.
- Net income was $174 million or 66 cents a share, down 33% from $258 million, or 97 cents a share in 2007.
- Repurchases were 4.7 million shares for a total value of $141 million.
Year to Date Highlights:
- Revenues rose 18.9% to $3.3 billion.
- Net income was $626 million or $2.36 a share, up 18%.
Third Quarter Highlights
The firm reported revenues of $1.2 billion up 7% versus $1.1 billion in the prior year as revenues remained diverse across geographies with 56% coming from Europe and 44% in the U.S.
- Cash trading was up considerably and some of the associated increase in transaction fees was offset by the increased liquidity payments through the pricing changes.
- Derivative revenues are higher in the U.S. but lower in Europe, due somewhat to the weakness of the British pound versus the US dollar.
- Software and technology revenue growth reflects the addition of Wombat Exchange Solutions and increased capacity revenues for customer co-location.
- Regulatory revenues are considerably lower, reflecting primarily the transfer to FINRA in the third quarter of last year along with lower member fees.
After a relatively slow August compared with prior year, global trading volumes accelerated in September with U.S. cash reporting record volumes.
- European cash and U.S. option volumes were also above both last year and the sequential quarter.
- Average revenue per trade has declined this quarter in the European cash business, reflecting some changes we made to our generally European cash pricing package.
- The new tiered price offering in NYSE Arca has increased gross revenues with a corresponding increase in liquidity payments.
- Foreign currency variations negatively impacted total company revenue variances by $18 million versus the second quarter, positively impacted revenue variances by $11 million versus the prior year.
Fixed operating expenses declined $37 million, or 9% versus last year and the firm added a net $21 million of fixed costs from acquisitions and divestitures, including Exchange Solutions, Wombat, FINRA and a few others.
- The firm is incurring incremental expenses to fill customer requests for co-location services, increase capacity, and speed and is also implementing the safety network in Europe.
-Additionally, it is incurring one-time integration and redundancy costs as it executes the technology integration plans.
In June, the firm engaged in a voluntary resignation program for over 200 U.S.-based employees that will save an anticipated $6 million in 2008, $20 million in 2009 and $30 million in 2010 and a similar program has commenced in Europe.
- Euronext has $3.2 billion in debt and $1.2 billion in cash prior to the proceeds of EUR150 million received in early October from the sale of GL Trade.
- On October 1st, it closed the Amex acquisition and issued 6.8 million shares at a conversion rate of $38.33 per share.
- It commenced the share buy back, repurchasing 4.7 million shares at an average price of $29.93 per share for a total value of $141 million.
- Net income was $174 million or 66 cents a share, down 33% from $258 million, or 97 cents a share in 2007 on a higher expense mix.
Strategic Insights:
- Despite the volatility and spikes in volume, systems handled the order flow and message traffic without interruption and the strength of the market models played a critical role in ensuring high quality markets orderly opens and closes and best execution. - The firm has been very engaged in the dialogue surrounding the CDS market and are preparing for the launch of European CDS index contract and Bclear later this quarter.
- The company is shoring up its European cash markets in the face of the changing competitive landscape, while continuing efforts to improve the U.S. position.
In Europe, initiatives include the implementation of UTP, the cutting-edge technology platform, which will be rolled out in Europe later this year, and the safety network infrastructure.
- Other initiatives include the aggressive pricing programs such as Pack Epsilon for high frequency traders, and the new recently announced global pricing initiative.
- New markets being developed include the pan-European MTF; i.e. NYSE Arca, Europe; and SmartPool, a block trading MTF for pan-European stocks.
- SmartPool, which is expected to launch in November, remains subject to FSA approval.
- The firm recently signed agreements with LCH to terminate the current life clearing arrangements and to establish new clearing arrangements through a new division known as LiffeClear.
In the U.S, SEC recently approved the new NYSE market model which has specialists acting as Designated Market Makers and features new supplemental liquidity providers as well.
