10-QPeriod: Q3 FY2020

CME GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 4, 2020For Securities:CME

Summary

CME Group Inc. reported total revenues of $1,080.7 million for the third quarter of 2020, a decrease of 15% compared to $1,277.3 million in the prior year's third quarter. This decline was primarily driven by a 20% decrease in clearing and transaction fees, influenced by lower contract volumes in interest rate and energy products, which were down 51% and 25% respectively. While overall contract volumes decreased year-over-year, there was a notable increase in equity index futures and options volume (up 38% on average daily volume), benefiting from market volatility related to the COVID-19 pandemic. Despite the revenue dip, the company demonstrated strong expense management, with total expenses decreasing by 6% year-over-year due to lower bonus expenses, reduced travel and entertainment costs, and a significant reduction in impairment charges compared to the prior year. Net income attributable to CME Group was $411.7 million for the quarter, a 35% decrease from $636.3 million in the third quarter of 2019, leading to diluted earnings per share of $1.15, down from $1.78. For the first nine months of 2020, revenues grew slightly by 1% to $3,785.1 million, while net income saw a modest 2% increase to $1,681.2 million.

Financial Highlights

44 data points
Beta

Revenue

$1.08B

Net Income

$411.70M

38.1% Net Margin

EPS (Diluted)

$1.15

Total Assets

$125.76B

Cash & Equivalents

$1.33B

Free Cash Flow

$263.10M

Financial Statements
Beta
Revenue$1.08B
Operating Expenses$555.70M
Operating Income$525.00M
Net Income$411.70M
EPS (Basic)$1.15
EPS (Diluted)$1.15
Shares Outstanding (Basic)357.79M
Shares Outstanding (Diluted)358.59M

Key Highlights

  • 1Total revenues for Q3 2020 decreased by 15% to $1,080.7 million, primarily due to a 20% drop in clearing and transaction fees.
  • 2Despite a revenue decline, operating expenses were managed effectively, falling 6% to $555.7 million, aided by lower bonus expenses and reduced impairment charges.
  • 3Net income attributable to CME Group for Q3 2020 decreased by 35% to $411.7 million, resulting in diluted EPS of $1.15.
  • 4Equity index futures and options volume saw significant growth (38% average daily volume increase), driven by market volatility.
  • 5Interest rate and energy product volumes experienced declines of 51% and 25% respectively, impacting overall transaction fees.
  • 6For the nine months ended September 30, 2020, revenues increased slightly by 1% to $3,785.1 million, and net income grew 2% to $1,681.2 million.
  • 7The company maintained strong liquidity with $1.3 billion in cash and cash equivalents at September 30, 2020.

Frequently Asked Questions

The primary driver of the revenue decline in Q3 2020 was a 20% decrease in clearing and transaction fees. This was largely due to lower contract volumes in interest rate (down 51%) and energy (down 25%) products, which were themselves affected by reduced market volatility following the significant swings experienced earlier in the year related to the COVID-19 pandemic.

CME Group effectively managed expenses, which decreased by 6% in Q3 2020. Key factors contributing to this reduction included lower bonus expenses (partially due to headcount reduction), reduced travel and entertainment expenses as employees worked remotely, and a significant decrease in intangible and fixed asset impairment charges compared to the prior year's quarter.

The results indicate a mixed outlook. While interest rate and energy volumes declined due to subsiding volatility, equity index volumes showed strong growth, driven by continued market uncertainty. The company's performance is highly sensitive to market volatility across various asset classes, suggesting that future performance will depend on ongoing economic and geopolitical events.

Despite a lower net income in Q3 2020 compared to the prior year, the company maintained a healthy financial position. Revenues for the first nine months of 2020 showed a slight increase, and operating expenses were well-controlled. The company also maintained substantial liquidity, with $1.3 billion in cash and cash equivalents and significant capacity under its credit facilities, ensuring operational and financial flexibility.