CBOE's operating expenses soar 312% due to underperformance of acquired crypto firm

An impairment of ErisX's goodwill significantly hurt the company's GAAP earnings, but otherwise business results improved relative to last year.

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

“This was primarily due to the $460 million impairment of goodwill recognized in the digital reporting unit, due to negative events and trends in the broader digital asset environment. changed since the closing of the ErisX transaction on May 2, resulting in the accounting adjustment."

ErisX allows US residents to invest in crypto assets in self-directed Individual Retirement Accounts, or IRAs. This was CBOE's first venture into the digital asset industry; the company expects ErisX to be a long-term leader in the industry. Terms of the agreement were not disclosed upon the initial acquisition.

However, it seems that ErisX's fortunes have deteriorated due to the cryptocurrency bear market. CBOE says ErisX currently has a book value of $220 million. But, during the second quarter, CBOE took a goodwill impairment charge of $460.1 million directly related to ErisX. Goodwill represents the difference between the acquisition value of a company and the value of its net assets. Companies may be forced to make substantial write-downs of their goodwill if they have overpaid for acquisitions.

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