CBOE’s operating expenses spiked 312% due to underperformance of acquired crypto firm

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On Fri­day, Chica­go Board Options Exchange (CBOE), the largest options exchange in the Unit­ed States, announced its sec­ond-quar­ter earn­ings results. Of par­tic­u­lar inter­est was its total oper­at­ing expens­es, which soared 685% year-over-year from $160.6 mil­lion. CBOE explained:

“This was pri­mar­i­ly due to the $460 mil­lion impair­ment of good­will rec­og­nized in the Dig­i­tal report­ing unit, dri­ven by neg­a­tive events and trends in the broad­er dig­i­tal asset envi­ron­ment. The said envi­ron­ment has changed dra­mat­i­cal­ly since we closed the ErisX trans­ac­tion on May 2, which result­ed in the account­ing adjustment.”

ErisX enables self-direct­ed indi­vid­ual retire­ment accounts, or IRAs, for U.S. res­i­dents to invest in cryp­to assets. This was CBOE’s first ven­ture into the dig­i­tal assets sec­tor; the com­pa­ny expects ErisX to be a long-term leader in the indus­try. The terms of the deal were not dis­closed in the orig­i­nal acquisition.

How­ev­er, it appears that ErisX’s for­tunes wors­ened due to the cryp­tocur­ren­cy bear mar­ket. CBOE says that ErisX cur­rent­ly has a book val­ue of $220 mil­lion. But, dur­ing Q2, CBOE took a good­will impair­ment charge of $460.1 mil­lion linked direct­ly to ErisX. Good­will rep­re­sents the dif­fer­ence between a fir­m’s acqui­si­tion val­ue and the val­ue of its net assets. Com­pa­nies can be forced to take sub­stan­tial good­will write-offs if they over­paid for acquisitions.

Relat­ed: SEC extends win­dow to decide on ARK 21Shares spot Bit­coin ETF to August

Nev­er­the­less, the woes of CBOE’s dig­i­tal seg­ment were coun­ter­bal­anced by core oper­a­tions. On an over­all basis, the deriv­a­tives exchange’s sales grew by 21% year-over-year to $424 mil­lion. Simul­ta­ne­ous­ly, after remov­ing the one-time, non-cash, good­will impair­ment, its adjust­ed earn­ings increased by 21% year-over-year to $1.67 per share.

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