10-QPeriod: Q2 FY2020

CME GROUP INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 5, 2020For Securities:CME

Summary

CME Group Inc. reported revenues of $1.18 billion for the second quarter of 2020, a 7% decrease compared to the same period in 2019. This decline was primarily driven by an 11% decrease in clearing and transaction fees, despite an increase in the average rate per contract. However, net income attributable to CME Group saw a slight decrease of 2% to $503.3 million, or $1.40 per diluted share. For the first six months of 2020, revenues increased by 10% to $2.70 billion, and net income grew by 26% to $1.27 billion, or $3.54 per diluted share, demonstrating strong performance in the first half of the year. The company's performance in the second quarter was impacted by subsiding market volatility following a turbulent first quarter driven by the COVID-19 pandemic. While interest rate product volumes decreased due to lower volatility, equity index product volumes surged significantly, driven by increased market volatility and the successful introduction of Micro E-mini contracts. Energy product volumes also increased, supported by volatility in natural gas and crude oil markets. The company maintains a strong liquidity position with $1.4 billion in cash and cash equivalents and robust credit ratings, indicating financial stability.

Financial Highlights

44 data points
Beta

Revenue

$1.18B

Net Income

$503.30M

42.6% Net Margin

EPS (Diluted)

$1.40

Total Assets

$117.21B

Cash & Equivalents

$1.41B

Free Cash Flow

$950.40M

Financial Statements
Beta
Revenue$1.18B
Operating Expenses$544.80M
Operating Income$637.50M
Net Income$503.30M
EPS (Basic)$1.41
EPS (Diluted)$1.40
Shares Outstanding (Basic)357.69M
Shares Outstanding (Diluted)358.46M

Key Highlights

  • 1Total revenues for Q2 2020 were $1.18 billion, a 7% decrease year-over-year, while H1 2020 revenues increased 10% to $2.70 billion.
  • 2Net income attributable to CME Group for Q2 2020 was $503.3 million ($1.40/share), a 2% decrease, but H1 2020 net income grew 26% to $1.27 billion ($3.54/share).
  • 3Clearing and transaction fees decreased 11% in Q2 2020 but increased 11% in H1 2020, impacted by fluctuations in contract volume and average rate per contract.
  • 4Equity index product volumes saw significant increases in both Q2 and H1 2020, driven by market volatility and the introduction of Micro E-mini contracts.
  • 5Interest rate product volumes declined in Q2 2020 due to reduced market volatility following Federal Reserve actions.
  • 6The company maintained strong liquidity, with $1.4 billion in cash and cash equivalents as of June 30, 2020.
  • 7Operating expenses decreased 5% in Q2 2020 and 1% in H1 2020, partly due to lower compensation and benefits and reduced impairment charges.

Frequently Asked Questions

The primary driver for the revenue decrease in the second quarter of 2020 was an 11% decline in clearing and transaction fees, largely due to a 16% decrease in total contract volume compared to the prior year's second quarter.

The COVID-19 pandemic caused significant market volatility, which initially boosted trading volumes in Q1 but led to subsiding volatility in Q2. This volatility, along with the company's response (e.g., closing the trading floor), impacted revenues and operational costs. While Q2 revenues decreased, H1 revenues and net income showed strong growth. The company also implemented cost-saving measures such as reduced travel and marketing expenses.

The company's revenue streams are sensitive to market volatility. While interest rate volumes decreased due to lower volatility in Q2, equity index volumes surged. Energy products also saw increased activity. The company expects its performance to remain tied to broader economic and market conditions, with a continued focus on electronic trading and product innovation like Micro E-mini contracts.

CME Group maintains a strong financial position with $1.4 billion in cash and cash equivalents as of June 30, 2020. The company also has significant borrowing capacity under its credit facilities and maintains investment-grade credit ratings from major agencies like S&P and Moody's, indicating sound liquidity and financial stability.