10-QPeriod: Q1 FY2014

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 7, 2014For Securities:CME

Summary

CME Group Inc. reported solid financial results for the first quarter of 2014, demonstrating revenue growth and improved operating margins compared to the prior year. Total revenues increased by 8% to $777.4 million, driven primarily by a 10% rise in clearing and transaction fees and an 11% increase in market data and information services revenue. This growth was fueled by higher contract volumes across various asset classes, particularly interest rate and equity products, and an increase in market data fees. While operating expenses saw a modest 3% increase to $322.9 million, this was largely due to investments in product development and platforms, as well as increased licensing and compensation costs. Notably, the company benefited from a significant decrease in non-operating expenses, which more than offset a slight rise in the effective tax rate, resulting in a 13% increase in net income attributable to CME Group to $266.8 million. Diluted earnings per share also saw a positive trend, rising 11% to $0.79. The company maintained a strong balance sheet with substantial performance bonds and guaranty fund contributions, and ample liquidity, reflected in its robust operating cash flows.

Financial Highlights

48 data points
Beta

Revenue

$777.40M

Net Income

$266.80M

34.3% Net Margin

EPS (Diluted)

$0.79

Total Assets

$53.17B

Cash & Equivalents

$1.05B

Free Cash Flow

$346.50M

Financial Statements
Beta
Revenue$777.40M
Operating Expenses$322.90M
Operating Income$454.50M
Net Income$266.80M
EPS (Basic)$0.80
EPS (Diluted)$0.79
Shares Outstanding (Basic)333.90M
Shares Outstanding (Diluted)335.64M

Key Highlights

  • 1Total revenues increased 8% year-over-year to $777.4 million, driven by growth in clearing and transaction fees and market data services.
  • 2Net income attributable to CME Group grew by 13% to $266.8 million, reflecting strong revenue performance and controlled expense growth.
  • 3Diluted Earnings Per Share (EPS) increased by 11% to $0.79 compared to the prior year's first quarter.
  • 4Contract volume across all products increased by 9% on average daily volume, with notable strength in interest rate (up 19%) and equity products (up 11%).
  • 5Market data and information services revenue saw an 11% increase, partly due to a fee increase for basic real-time market data.
  • 6Operating expenses rose 3% to $322.9 million, with key drivers including licensing fees, product development, and compensation.
  • 7Non-operating expense decreased significantly by 55%, primarily due to lower interest and borrowing costs.

Frequently Asked Questions

The primary driver of revenue growth was an increase in clearing and transaction fees, which rose by 10%, and a concurrent 11% increase in market data and information services revenue. This was supported by higher contract volumes across various asset classes and an increase in market data fees.

Operating expenses increased by 3% to $322.9 million. The primary contributors to this increase were higher licensing and other fee agreements, increased spending on business enhancements and platform development, and a rise in compensation and benefits due to higher average headcount.

CME Group maintained a strong liquidity position. Cash and cash equivalents were $1.1 billion at March 31, 2014. The company had significant long-term debt of $2,107.4 million but also had substantial borrowing capacity under its credit facilities and maintained investment-grade credit ratings from major agencies, indicating sound financial health.

The company is involved in several legal and regulatory matters, including patent infringement claims and a CFTC suit concerning the disclosure of confidential customer information. While the company believes these matters are without merit and intends to defend itself vigorously, the outcomes are uncertain and difficult to quantify. The company has accrued amounts for some legal and regulatory matters, and management believes the resolution of these on an individual basis will not have a material impact on its consolidated financial position or results of operations.