CME Group Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results; comparisons are with the corresponding 2020 periods. CME Group operates futures and options exchanges, clearing, cash markets, and market-data services.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,109.9 million | $1,080.7 million | $3,542.4 million | $3,785.1 million |
| Operating income | $613.7 million | $525.0 million | $2,013.5 million | $2,122.4 million |
| Operating margin | 55.3% | 48.6% | 56.8% | 56.1% |
| Net income attributable to CME Group | $926.5 million | $411.7 million | $2,011.2 million | $1,681.2 million |
| Diluted EPS | $2.58 | $1.15 | $5.60 | $4.69 |
| Operating cash flow | Not presented by quarter | $1,734.1 million | $2,055.3 million |
- Revenue mix: Q3 clearing and transaction fees were $878.9 million (+5%); market data was $145.4 million (+4%); other revenue was $85.6 million (-19%). For the nine months, clearing and transaction fees fell 8%, market data rose 7%, and other revenue fell 10%.
- Volume and pricing: Futures and options contract volume rose 14% in Q3 and fell 4% for the nine months. Average rate per contract declined 5% and 4%, respectively, partly due to product mix, including a greater share of lower-rate interest-rate contracts.
- Expenses: Operating expenses declined 11% in Q3 and 8% for the nine months, reflecting lower intangible amortization, professional fees, compensation, and other costs.
- Liquidity and debt: Cash and equivalents were $1.459 billion at September 30, 2021, versus $1.633 billion at year-end 2020; marketable securities were $110.3 million. Debt carrying value was $3.445 billion ($749.2 million short-term and $2.696 billion long-term), including $750 million due September 2022. The company reported no borrowings under its $2.4 billion general-purpose revolving facility or $7.0 billion clearing-house facility and said it was compliant with debt covenants.
- Cash distributions: Nine-month cash dividends were $1.863 billion; dividends declared were $2.70 per share for the nine-month period.
Material changes and unusual items
- Q3 net income included a $343.5 million gain from contributing and deconsolidating the optimization business in the OSTTRA joint venture with IHS Markit. CME received $112.5 million cash and a 50% equity interest; its OSTTRA investment was reported at $1.4 billion and is accounted for under the equity method. The gain was not taxable.
- Q3 and nine-month earnings also benefited from higher investment income and equity earnings from unconsolidated ventures. Accordingly, reported profit growth substantially exceeded revenue growth; the filing does not provide a separate adjusted earnings measure excluding these items.
- Nine-month revenue and operating income were below 2020 levels, despite higher net income, while operating cash flow also declined. Management attributed lower operating cash flow primarily to decreased trading volume.
- Foreign-currency translation reduced other comprehensive income by $98.9 million for the nine months.
Management commentary, outlook, and risks
- Management linked stronger Q3 interest-rate and energy volumes to increased market volatility, including changing rate expectations and crude-oil supply and demand uncertainty. Lower volatility weighed on several equity, FX, agriculture, and metals products.
- The filing gives no specific financial guidance or quantified forward outlook. Management said it expected to maintain an investment-grade rating, citing cash generation, debt repayment capacity, and refinancing access.
- Key disclosed risks include competition; technology reliability, cybersecurity, and third-party provider dependence; changes in trading activity, volatility, product mix, and rates per contract; regulatory changes; clearing-member and counterparty credit/liquidity risks; and the effects of COVID-19 and economic or market conditions.
- Performance-bond and guaranty-fund assets and liabilities were each $149.2 billion at quarter-end, principally reflecting clearing-related balances; CME reported $139.3 billion held at the Federal Reserve Bank of Chicago. These amounts are not equivalent to unrestricted corporate cash. Management estimated its clearing guarantee liability to be nominal and recorded no liability.
- Management said legal and regulatory matters were not expected to materially affect results or financial position; no accrual was recorded because no matter was both probable and estimable. The filing reported no material change in risk factors or market-risk exposure and no material change in internal control over financial reporting.
Important facts for investors to verify
- Assess earnings and valuation excluding the $343.5 million OSTTRA transaction gain and considering investment-related income.
- Review OSTTRA’s $1.4 billion carrying value, the basis for that valuation, and the joint venture’s future contribution to equity earnings and cash flows.
- Track trading volumes and average rate per contract: volume gains may not translate proportionately into revenue because of product and customer mix.
- Evaluate the September 2022 $750 million debt maturity, refinancing plans, and the distinction between unrestricted cash and clearing-related collateral.
- Monitor disclosed revenue concentrations: one clearing firm represented about 10% of nine-month clearing and transaction fees; the two largest market-data resellers represented about 33% of market-data revenue.