10-QPeriod: Q2 FY2014

CME GROUP INC. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 4, 2014For Securities:CME

Summary

CME Group Inc. reported a decrease in total revenues for the second quarter and the first six months of 2014 compared to the prior year, primarily due to lower exchange-traded contract volumes and a decline in other revenue sources, partially offset by growth in market data fees and over-the-counter contract volumes. Operating expenses increased, driven by higher compensation and benefits, technology development, and professional fees. Despite revenue challenges, the company maintained a strong operating margin. Net income attributable to CME Group and diluted earnings per share saw a decline in both periods, reflecting the impact of lower revenues and increased expenses. Financially, CME Group demonstrated a solid liquidity position with substantial cash and cash equivalents. The company also managed its debt effectively, with a focus on reducing interest expense through debt repayment and interest rate hedging. Notably, CME Group announced a significant acquisition of Trayport and FENICS in July 2014, signaling a strategic move to expand its presence in European energy markets and over-the-counter foreign currency options, which is expected to close in early 2015.

Financial Highlights

48 data points
Beta

Revenue

$731.60M

Net Income

$263.80M

36.1% Net Margin

EPS (Diluted)

$0.79

Total Assets

$51.61B

Cash & Equivalents

$1.04B

Free Cash Flow

$130.80M

Financial Statements
Beta
Revenue$731.60M
Operating Expenses$319.60M
Operating Income$412.00M
Net Income$263.80M
EPS (Basic)$0.79
EPS (Diluted)$0.79
Shares Outstanding (Basic)334.10M
Shares Outstanding (Diluted)335.80M

Key Highlights

  • 1Total revenues decreased by 10% in Q2 2014 and 2% in the first six months of 2014 compared to the prior year, largely due to lower clearing and transaction fees.
  • 2Operating expenses increased by 4% in Q2 2014 and 3% in the first six months of 2014, driven by higher compensation and benefits and investments in technology and product development.
  • 3Net income attributable to CME Group decreased by 15% in Q2 2014 and 3% in the first six months of 2014 year-over-year.
  • 4Diluted earnings per share saw a decline of 15% in Q2 2014 and 4% in the first six months of 2014.
  • 5Cash flows from operating activities decreased by 28% in the first six months of 2014, primarily due to cash collateral movements related to interest rate swap contracts in the prior year.
  • 6The company announced its agreement to acquire Trayport and FENICS from GFI Group Inc. for approximately $580.0 million in CME Group Class A common stock, expected to close in early 2015.
  • 7Market data and information services revenue increased by 13% in Q2 2014 and 12% in the first six months of 2014, driven by higher fees for real-time market data.

Frequently Asked Questions

The primary driver for the decrease in CME Group's total revenues was lower exchange-traded contract volumes, which directly impacted clearing and transaction fees. Additionally, other revenue streams declined, partly due to the absence of business interruption insurance proceeds recognized in the prior year and reduced rental income.

CME Group managed its debt by repaying short-term debt, specifically the $750.0 million fixed rate notes due February 2014. They also continued to utilize interest rate swap agreements to effectively fix the interest rates on their long-term debt. This strategy contributed to a decrease in interest and other borrowing costs compared to the prior year.

The announced acquisition of Trayport and FENICS is a strategic move by CME Group to expand its presence in European energy markets and over-the-counter foreign currency options. This acquisition, expected to close in early 2015, diversifies CME's offerings and supports its growth initiatives.

Operating expenses increased in both Q2 and the first six months of 2014. Key drivers included higher compensation and benefits expenses due to increased headcount, increased expenses related to the development and enhancement of products and electronic platforms, and higher professional fees associated with ongoing acquisitions and other services.