CME Group Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. The interim financial statements are unaudited. CME Group operates futures and options exchanges, clearing services, cash markets, and market-data businesses.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $1,227.8 million | $1,109.9 million | $3,811.6 million | $3,542.4 million |
| Operating income | $738.8 million | $613.7 million | $2,347.6 million | $2,013.5 million |
| Operating margin | 60.2% | 55.3% | 61.6% | 56.8% |
| Net income attributable to CME Group | $679.6 million | $926.5 million | $2,053.1 million | $2,011.2 million |
| Diluted EPS attributable to common shareholders | $1.87 | $2.58 | $5.64 | $5.60 |
- Q3 revenue rose 11% year over year; nine-month revenue rose 8%. Clearing and transaction fees increased 14% in Q3 and 12% for nine months. Market-data revenue increased 6% and 5%, respectively.
- Futures and options contract volume increased 26% in Q3 and 23% for nine months. Average rate per contract declined 7% and 5%, respectively, largely due to product mix.
- Total expenses declined 1% in Q3 and 4% for nine months. Lower compensation and professional fees were partly offset by higher licensing fees, which rose 45% in Q3 and 40% for nine months.
- Operating cash flow for the first nine months was $2,074.5 million, up from $1,734.1 million. Investing activities used $464.1 million, including the $410 million additional investment in S&P/Dow Jones Indices LLC. Cash dividends were $2,270 million.
Financial position and liquidity
- At September 30, 2022, cash and cash equivalents were $2.13 billion, compared with $2.83 billion at year-end 2021. The company reported $3.44 billion of total short- and long-term debt, versus $3.45 billion at year-end.
- CME maintains a $2.3 billion revolving senior credit facility, with no borrowings outstanding and approximately $2.3 billion of general-purpose borrowing capacity. It also has a $7 billion secured clearing-house facility, with no borrowings outstanding; this facility may be increased to $10 billion. The company reported compliance with debt covenants.
- Performance bonds and guaranty fund contributions were $140.0 billion at both the asset and liability level. They are customer/clearing-related funds, not cash available for company operations. CME held $128.6 billion in its Federal Reserve Bank of Chicago cash account.
- The reported $20.3 billion of cash used in financing activities for the nine-month period was primarily affected by a $18.0 billion decrease in performance bonds and guaranty fund contributions; this movement should not be read as ordinary corporate funding use.
Material changes and management commentary
- Higher market volatility amid inflation, Federal Reserve rate increases, and Russia-Ukraine-related uncertainty contributed to higher interest-rate, equity-index, and foreign-exchange volumes. Energy volumes declined amid concerns about supply, inflation, and economic conditions; agricultural volumes fell for the nine-month period amid risk aversion and trade uncertainty.
- Q3 net income declined 27% despite higher revenue and operating income. Non-operating income was $141.2 million versus $482.2 million a year earlier. Higher investment income from reinvested clearing collateral was substantially offset by higher expenses distributing that interest to clearing firms. The prior-year quarter also included a $343.5 million gain on deconsolidating the optimization business into OSTTRA.
- The company invested an additional $410 million in S&P/DJI in June 2022; its ownership interest remained 27%, and the investment was valued at $1.4 billion at quarter-end.
Outlook, risks, and contingencies
- The filing provides no specific financial guidance or quantified outlook. Management cited market volatility, trading activity, product mix and rates, competition, regulation, technology and cybersecurity, third-party dependencies, and economic and geopolitical conditions among factors that could affect results.
- A putative class action involving CME Group and CBOT Class B shareholder rights was certified as a damages-only class in December 2021; no trial date had been set. The company said it could not estimate a reasonably possible loss range and believes it has strong defenses. No legal or regulatory accrual was recorded because losses were not considered probable and estimable.
- Management reported no material changes to the risk factors from the 2021 Form 10-K, no material changes in market-risk exposure, and effective disclosure controls. It reported no subsequent events requiring recognition or disclosure.
Important facts for investors to verify
- Whether elevated trading volumes and volatility persist, and how product mix affects average rate per contract and transaction revenue.
- How changes in interest rates affect collateral reinvestment income and the offsetting distributions to clearing firms.
- Developments in the Class B shareholder litigation and any change to management’s assessment of potential losses.
- Debt maturities, available credit capacity, and the distinction between corporate cash and restricted clearing-related funds.
- Progress and returns from the S&P/DJI investment and the OSTTRA joint venture.