CME Group Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. This is an annual report, not a standalone fourth-quarter results report. Unless noted, dollar amounts are in millions.
Business context
CME Group operates derivatives exchanges and clearing services across interest rates, equity indexes, foreign exchange, agriculture, energy and metals, as well as BrokerTec fixed-income and EBS foreign-exchange cash markets and market-data services. Most derivatives volume is electronic; 93% of FY2022 contract volume was executed on CME Globex. Transaction and clearing fees are the principal revenue source and are sensitive to trading volume, product mix, customer mix and pricing.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $5,019.4 | $4,689.7 | +7% |
| Operating income | $3,015.9 | $2,645.2 | +14% |
| Operating margin | 60.1% | 56.4% | +3.7 percentage points |
| Net income attributable to CME Group | $2,691.0 | $2,636.4 | +2% |
| Diluted EPS | $7.40 | $7.29 | +2% |
| Cash flow from operating activities | $3,056.0 | $2,402.4 | +27% |
| Expenses | $2,003.5 | $2,044.5 | -2% |
- Revenue mix: Clearing and transaction fees were $4,142.7 (+10%); market data and information services were $610.9 (+6%); other revenue was $265.8 (-24%). The decline in other revenue largely reflected the 2021 contribution of the optimization business to OSTTRA.
- Trading: Average daily futures and options volume increased 19% to 23.3 million contracts. Interest-rate volume rose 18%, equity-index volume 39%, and FX volume 24%; agricultural, energy and metals volumes fell 5%, 7% and 5%, respectively.
- Rate per contract: Futures and options average rate fell 4% to $0.643, mainly because equity-index products—generally lower-rate products—represented a larger share of volume. Volume growth added an estimated $580.7 to clearing and transaction fees, partly offset by a $128.5 effect from the lower average rate.
- Profit and cash flow: Lower operating expenses supported higher operating income. Operating cash flow rose primarily with transaction-fee revenue, partly offset by higher income-tax payments.
- Liquidity and debt: Cash and cash equivalents were $2,720.1 at year-end, versus $2,834.9 a year earlier. Debt was approximately $3.4 billion, primarily fixed-rate notes; no borrowings were outstanding under the $2.3 billion general-purpose revolving facility. Management reported compliance with debt covenants and investment-grade ratings.
- Capital returns: FY2022 dividends were $8.50 per common and preferred share. The company declared a $4.50 annual variable dividend, paid in January 2023, and a $1.10 regular quarterly dividend payable in March 2023.
Material changes and unusual items
- Non-operating income declined to $474.4 from $728.4 despite a sharp rise in investment income. Investment income included $2,169.5 earned on clearing-firm cash performance bonds and guaranty-fund contributions; the company recorded $1,889.7 of related interest distributions to clearing firms in other non-operating expense. These gross collateral-related amounts materially affect reported non-operating lines and should not be interpreted as ordinary operating revenue.
- FY2021 included a $400.7 gain on the contribution of the optimization business to OSTTRA, affecting the year-over-year comparison.
- Licensing and other fee-agreement expense increased 35% to $320.0, largely due to higher equity-product volumes. Compensation and benefits fell 10%, partly reflecting lower average headcount after the optimization-business contribution.
- The company invested $410.0 in S&P Dow Jones Indices LLC in 2022 to fund its portion of the acquisition of the IHS Markit indices business.
- Cash used in financing activities was $25,381.7, principally reflecting a $22,700.3 decrease in performance-bond and guaranty-fund contributions. Such customer collateral is restricted and is not equivalent to cash available for general corporate use.
Outlook, commentary and risks
- Management expects 2023 capital expenditures of approximately $100 million, primarily for technology, capacity, integration and facilities. It plans to accelerate application migration under its 10-year Google Cloud partnership and expects to launch and commercialize cloud data products in 2023.
- Management targets regular quarterly dividends of 50% to 60% of prior-year cash earnings; actual dividends remain at the board’s discretion. The annual variable dividend depends on operating results, investment needs and other capital-return decisions.
- Management attributed FY2022 volume patterns in part to higher inflation, Federal Reserve rate increases and quantitative tightening, alongside geopolitical uncertainty related to Russia’s invasion of Ukraine. It cautions that market conditions can either raise or reduce trading activity.
- Key risks include trading-volume and rate-per-contract variability; competition and customer concentration; extensive regulatory requirements and potential transaction taxes or changes to futures tax treatment; cyberattacks, system outages and third-party/cloud-provider dependence; clearing-firm or counterparty default; and the transition from Eurodollar contracts to SOFR. Eurodollar futures and options were expected to transition to SOFR in the first half of 2023; replacement trading and revenue were not assured.
- A putative class action by certain Class B shareholders and members, filed in 2014, had a certified damages-only class and no trial date set. CME Group stated that it could not estimate a reasonably possible loss range and believed it had strong defenses. No accrual was recorded for legal or regulatory matters because none were considered both probable and estimable.
- The financial statements received an unqualified audit opinion, and the auditor also issued an unqualified opinion on internal control over financial reporting. Unrecognized tax benefits were $280.3; the auditor identified uncertain tax positions as a critical audit matter.
Most important facts for investors to verify
- Whether higher trading volumes and the favorable operating-margin trend persist, and how product mix and pricing affect average rate per contract.
- How much reported investment income and related distributions to clearing firms affect non-operating results, and how those lines respond to interest rates and collateral balances.
- Cash and debt available for corporate purposes, separately from restricted clearing-firm collateral and liquidity facilities supporting clearing operations.
- Progress and costs of the Google Cloud migration, and the success of the Eurodollar-to-SOFR transition.
- Developments in the Class B shareholder litigation, uncertain tax positions, and regulatory or cyber risks.
- Actual 2023 capital expenditures and dividends, which are subject to management estimates and board discretion.