10-QPeriod: Q1 FY2019

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 8, 2019For Securities:CME

Summary

CME Group Inc. reported solid financial results for the first quarter of 2019, with total revenues increasing by 6% year-over-year to $1.18 billion. This growth was primarily driven by a substantial 37% increase in Market Data and Information Services revenue and a 139% surge in "Other" revenue, largely attributable to the integration of the NEX Group acquisition completed in late 2018. Despite the revenue growth, Net Income attributable to CME Group declined by 17% to $496.9 million, resulting in a diluted EPS of $1.39, down from $1.76 in the prior year's quarter. This decline in profitability is mainly due to a significant 49% increase in total expenses, driven by higher compensation and benefits, technology costs, and amortization of purchased intangibles related to the NEX acquisition. Operating income saw a decrease, impacted by these increased expenses. However, the company's balance sheet remains robust, with significant "Performance bonds and guaranty fund contributions" totaling $33.6 billion. Cash flow from operations, while lower than the prior year, remained strong, providing adequate liquidity. The company also highlighted its strong liquidity position and credit ratings, reaffirming its commitment to returning capital to shareholders through dividends.

Financial Highlights

46 data points
Beta

Revenue

$1.18B

Net Income

$496.90M

42.1% Net Margin

EPS (Diluted)

$1.39

Total Assets

$71.61B

Cash & Equivalents

$997.40M

Free Cash Flow

$620.10M

Financial Statements
Beta
Revenue$1.18B
Operating Expenses$548.60M
Operating Income$631.00M
Net Income$496.90M
EPS (Basic)$1.39
EPS (Diluted)$1.39
Shares Outstanding (Basic)356.89M
Shares Outstanding (Diluted)358.05M

Key Highlights

  • 1Total revenues increased by 6% to $1.18 billion, driven by Market Data and Other revenue growth, boosted by the NEX acquisition.
  • 2Net income attributable to CME Group decreased by 17% to $496.9 million, and diluted EPS fell to $1.39 from $1.76, primarily due to higher operating expenses.
  • 3Total expenses rose significantly by 49% to $548.6 million, largely due to costs associated with the NEX acquisition (compensation, technology, amortization).
  • 4Clearing and transaction fees saw a modest 2% decline to $952.6 million, attributed to a 16% decrease in total contract volume, partially offset by a slight increase in the average rate per contract.
  • 5Market Data and Information Services revenue surged by 37% to $130.1 million, benefiting from the NEX integration and increased pricing.
  • 6The company declared a regular quarterly dividend of $0.75 per share, indicating continued confidence in its financial health and commitment to shareholder returns.
  • 7Liquidity remains strong, with $997.4 million in cash and cash equivalents and ample credit facilities available.

Frequently Asked Questions

Revenue growth was primarily driven by the Market Data and Information Services segment, which saw a 37% increase, and the 'Other' revenue category, which grew by 139%. These increases are substantially attributed to the integration of NEX Group, acquired in late 2018, as well as increased pricing for market data services.

Net income attributable to CME Group decreased by 17% primarily due to a significant 49% increase in total operating expenses. This rise in expenses was largely driven by costs associated with the integration of the NEX acquisition, including higher compensation and benefits, technology expenditures, and amortization of acquired intangible assets.

Total contract volume for futures and options decreased by 16% year-over-year, influenced by a general decline in market volatility. However, the average rate per contract saw a slight increase of 1%, driven by lower tier-based incentives and a shift in product mix, which helped to partially offset the volume decline.

CME Group maintains a strong liquidity position with $997.4 million in cash and cash equivalents as of March 31, 2019. The company has significant borrowing capacity through its revolving credit facilities. In March 2019, it repaid two short-term debt instruments totaling approximately $574 million, demonstrating active debt management.