10-QPeriod: Q1 FY2018

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 3, 2018For Securities:CME

Summary

CME Group Inc. reported a strong first quarter for 2018, with total revenues climbing 19% year-over-year to $1.11 billion. This growth was primarily driven by a significant 23% increase in clearing and transaction fees, reaching $973.6 million, propelled by a 30% surge in overall contract volume across key asset classes like interest rate, equity, and energy products. Net income saw a substantial 50% increase, totaling $598.8 million, or $1.76 per diluted share, compared to $399.8 million in the prior year's quarter. This improved profitability reflects not only the revenue growth but also a notable decrease in the effective tax rate due to recent tax law changes and disciplined expense management, with operating expenses rising only 12%. The company's robust performance was supported by increased market volatility due to uncertainties in Federal Reserve interest rate policy and global trade policies, leading to higher trading volumes. CME Group also continues to strengthen its financial position, with significant operating cash flows and ample liquidity, including an undrawn $2.3 billion revolving credit facility. The company is also progressing with its proposed acquisition of NEX Group plc, which is expected to close in the second half of 2018, indicating a strategic move to expand its market presence.

Financial Highlights

45 data points
Beta

Revenue

$1.11B

Net Income

$598.80M

54.0% Net Margin

EPS (Diluted)

$1.76

Total Assets

$69.92B

Cash & Equivalents

$784.60M

Free Cash Flow

$806.80M

Financial Statements
Beta
Revenue$1.11B
Operating Expenses$368.10M
Operating Income$740.90M
Net Income$598.80M
EPS (Basic)$1.76
EPS (Diluted)$1.76
Shares Outstanding (Basic)339.31M
Shares Outstanding (Diluted)340.75M

Key Highlights

  • 1Total revenues increased by 19% to $1.11 billion for the quarter ended March 31, 2018.
  • 2Clearing and transaction fees, the primary revenue driver, grew by 23% to $973.6 million, supported by a 30% increase in contract volume.
  • 3Net income surged by 50% to $598.8 million, or $1.76 per diluted share, indicating strong profitability improvement.
  • 4Operating expenses increased by 12% to $368.1 million, a more moderate rise compared to revenue growth, demonstrating cost control.
  • 5The effective tax rate decreased significantly to 24.1% from 43.5% in the prior year, primarily due to the U.S. federal tax rate reduction.
  • 6The company announced a proposed acquisition of NEX Group plc, valued at approximately £5.9 billion, signaling strategic growth.
  • 7Operating cash flow increased by 59% to $825.0 million, reflecting the strong underlying business performance.

Frequently Asked Questions

The primary driver of revenue growth was the significant increase in clearing and transaction fees, which rose by 23% to $973.6 million. This was fueled by a substantial 30% increase in overall contract volume across various asset classes, driven by market volatility related to interest rate policies and global trade uncertainties.

The recent tax law changes, specifically the reduction in the U.S. federal statutory rate from 35% to 21%, significantly lowered CME Group's effective tax rate to 24.1% for the quarter, compared to 43.5% in the prior year. This reduction in tax expense contributed to the substantial 50% increase in net income.

CME Group announced an agreement to acquire NEX Group plc in March 2018. The transaction, valued at approximately £5.9 billion, was pending regulatory approvals and NEX shareholder approval, with an expected closing in the second half of 2018. The acquisition represents a significant strategic move for CME Group.

CME Group generated strong operating cash flows of $825.0 million in the quarter. It maintains a $2.3 billion multi-currency revolving senior credit facility, which was undrawn as of March 31, 2018, providing significant liquidity. The company also has a separate $7.0 billion 364-day revolving credit facility for CME Clearing. These facilities, combined with healthy cash reserves, ensure ample liquidity for operations and strategic initiatives.