CME Group Inc. — Q2 2021 Form 10-Q
Business context and reporting period. CME Group operates futures and options exchanges, clearing services, cash markets and market-data services. This unaudited filing covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $1,179.2 million | $1,182.3 million | $2,432.5 million | $2,704.4 million |
| Operating income | $674.7 million | $637.5 million | $1,399.8 million | $1,597.4 million |
| Operating margin | 57.2% | 53.9% | 57.5% | 59.1% |
| Net income attributable to CME Group | $510.3 million | $503.3 million | $1,084.7 million | $1,269.5 million |
| Diluted EPS | $1.42 | $1.40 | $3.02 | $3.54 |
| Operating cash flow | Quarterly figure not provided | Quarterly figure not provided | $1,102.5 million | $1,743.9 million |
- Q2 clearing and transaction fees were $929.9 million, down 1%; market-data revenue rose 8% to $145.2 million, while other revenue fell 3% to $104.1 million.
- Q2 total contract volume rose 5% to 1,161.6 million, but average rate per contract declined 5% to $0.695. The six-month figures were down 10% for volume and 3% for average rate per contract.
- Q2 expenses fell 7% to $504.5 million, supporting higher operating income and margin despite essentially flat revenue. Six-month expenses also fell 7% to $1,032.7 million.
- Q2 non-operating income was $51.4 million, versus $23.8 million, including higher investment income and equity earnings from unconsolidated subsidiaries. The six-month effective tax rate was 26.6%, versus 23.0%.
Balance sheet, cash flow and liquidity
- At June 30, 2021, cash and cash equivalents were $1.081 billion, compared with $1.633 billion at year-end 2020. Long-term debt was $3.445 billion, broadly unchanged from year-end; total equity was $26.787 billion.
- Six-month operating cash flow was $1.103 billion, down 37% year over year. Management attributed the decrease primarily to timing of income-tax payments and lower trading volume. Cash dividends paid were $1.540 billion; net cash used in financing was $1.554 billion.
- CME had no borrowings under its $2.4 billion general-purpose revolving facility or its $7.0 billion clearing-house secured facility. It reported approximately $2.4 billion of excess general-purpose borrowing capacity and compliance with debt covenants.
- Cash and liabilities for performance bonds and guaranty fund contributions were each $141.3 billion at June 30. These largely reflect clearing-related collateral and are not ordinary corporate cash or debt. CME reported $130.5 billion in its Federal Reserve Bank of Chicago account.
Material changes, outlook and risks
- Trading and revenue mix: Q2 volume strengthened in interest rates and agricultural commodities, while equity-index and energy volumes declined. For the first six months, revenue and trading activity were below 2020, when pandemic-related volatility drove unusually high comparisons. Management also cited lower average rates per contract, including product-mix effects.
- Expense comparison: Lower purchased-intangible amortization, professional fees and prior-year impairment charges contributed to lower expenses. The amortization reduction partly reflects assets classified as held for sale.
- IHS Markit joint venture: CME agreed to contribute its optimization businesses, including Traiana, TriOptima and Reset, to a new post-trade services joint venture for an equity interest. The assets and liabilities were classified as held for sale; closing was expected in Q3 2021, subject to approvals and other conditions. The filing does not provide a forecast of the transaction’s financial impact.
- Guidance: The filing provides no specific financial guidance or quantified forward outlook. Management said it expected to maintain an investment-grade credit rating, citing cash generation and refinancing capacity.
- Contingencies and risk: Management said pending legal and regulatory matters were not expected to materially affect financial position or results; no accrual was recorded because no matter was both probable and estimable. CME disclosed guarantees and contingent exposures tied to clearing operations, including $310 million of letters of credit under its SGX mutual offset agreement, and estimated related guarantee liabilities to be nominal. It cited risks including trading-volume and volatility changes, competition, technology and cybersecurity, regulation, third-party dependencies, COVID-19 effects, and clearing-member and liquidity risks.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. It also reported no material changes to the risk factors disclosed in its 2020 Form 10-K.
Investor verification points
- Check subsequent results for the IHS Markit joint venture’s closing, final terms, and effects on revenue, expenses, assets and earnings.
- Assess whether trading volumes and average rate per contract recover or remain pressured, particularly given product mix and comparisons with unusually volatile 2020 periods.
- Reconcile cash-flow trends and dividend outflows with corporate cash needs and the reported revolving-facility capacity; distinguish corporate liquidity from clearing collateral.
- Review the debt maturity schedule, especially the $750 million notes due in 2022, and the terms and availability of clearing-house liquidity facilities.
- Monitor clearing-member, settlement-guarantee and SGX exposures, as well as the progress and outcomes of legal and regulatory matters.