10-QPeriod: Q2 FY2019

CME GROUP INC. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 7, 2019For Securities:CME

Summary

CME Group Inc. reported solid financial results for the quarter and six months ending June 30, 2019, driven by an increase in clearing and transaction fees. Total revenues grew by 20% quarter-over-quarter and 13% year-to-date, reflecting strong performance in their core business. Despite an increase in operating expenses, primarily due to the integration of the NEX acquisition, the company maintained a healthy operating margin. Net income attributable to CME Group saw a decrease of 9% for the quarter and 13% for the six months compared to the prior year, largely influenced by higher operating expenses and a decrease in non-operating income. Financially, CME Group's balance sheet shows a decrease in total assets and liabilities compared to year-end 2018, largely due to a reduction in performance bonds and guaranty fund contributions. The company's liquidity remains strong, with substantial cash and cash equivalents. The company continued to manage its debt obligations, repaying short-term debt and maintaining an investment-grade credit rating.

Financial Highlights

47 data points
Beta

Revenue

$1.27B

Net Income

$513.80M

40.4% Net Margin

EPS (Diluted)

$1.43

Total Assets

$70.35B

Cash & Equivalents

$937.70M

Free Cash Flow

$401.20M

Financial Statements
Beta
Revenue$1.27B
Operating Expenses$574.10M
Operating Income$698.60M
Net Income$513.80M
EPS (Basic)$1.44
EPS (Diluted)$1.43
Shares Outstanding (Basic)357.06M
Shares Outstanding (Diluted)358.15M

Key Highlights

  • 1Total revenues increased by 20% for the quarter ($1.27B vs $1.06B) and 13% for the six months ($2.45B vs $2.17B) year-over-year.
  • 2Clearing and transaction fees, the primary revenue driver, grew 16% for the quarter ($1.05B vs $0.91B) and 7% for the six months ($2.00B vs $1.88B).
  • 3Operating expenses increased significantly by 46% for the quarter ($574.1M vs $392.7M) and 48% for the six months ($1.12B vs $0.76B), largely due to the integration of the NEX acquisition, including higher compensation, technology, and amortization expenses.
  • 4Net income attributable to CME Group decreased by 9% for the quarter ($513.8M vs $566.1M) and 13% for the six months ($1.01B vs $1.16B) compared to the prior year.
  • 5Diluted earnings per common share declined to $1.43 for the quarter (from $1.66) and $2.82 for the six months (from $3.42).
  • 6Total assets decreased from $77.5B at year-end 2018 to $70.3B at June 30, 2019, primarily due to a reduction in performance bonds and guaranty fund contributions.
  • 7The company maintained strong liquidity, with cash and cash equivalents of $937.7 million at June 30, 2019.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in clearing and transaction fees, which rose 16% for the quarter and 7% for the six-month period. This growth was supported by an increase in contract volume, particularly in interest rate and equity index products, as well as contributions from the cash markets business acquired from NEX.

The substantial increase in operating expenses (46% for the quarter, 48% for the six months) is largely attributed to the integration of the NEX acquisition completed in late 2018. Key contributors include higher compensation and benefits, increased technology expenses, and a significant rise in amortization of purchased intangibles related to the acquisition.

The NEX acquisition, completed in November 2018, has contributed to increased revenues, particularly in market data and information services, and other revenues (which include optimization services like portfolio management). However, it has also significantly driven up operating expenses, leading to a decrease in net income and earnings per share compared to the prior year's periods when excluding NEX's contribution.

CME Group maintains strong liquidity, with $937.7 million in cash and cash equivalents as of June 30, 2019. The company repaid short-term debt and has $1.7 billion in excess borrowing capacity under its revolving credit facility. They expect to maintain an investment-grade credit rating, supported by their cash flow generation and debt management strategies.