CME Group Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; selected fourth-quarter figures are included below. CME Group operates derivatives exchanges and a clearing house, alongside BrokerTec and EBS cash markets, optimization services, and market-data businesses.
Financial performance
Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $4,883.6 | $4,868.0 | Essentially flat |
| Operating income | $2,637.4 | $2,587.8 | Up 2% |
| Operating margin | 54% | 53% | Up 1 percentage point |
| Net income attributable to CME Group | $2,105.2 | $2,116.5 | Down 1% |
| Diluted EPS | $5.87 | $5.91 | Down 1% |
| Cash from operating activities | $2,715.6 | $2,672.8 | Up 2% |
| Cash dividends per share | $5.90 | $5.50 | Up 7% |
- Revenue mix: Clearing and transaction fees were $3,897.4 million, down 1%; market-data revenue was $545.4 million, up 5%; and other revenue was $440.8 million, up 9%.
- Cash and liquidity: Cash and cash equivalents were $1,633.2 million at year-end, versus $1,551.4 million a year earlier. Net cash used in investing activities was $175.5 million and net cash used in financing activities was $2,458.2 million, mainly reflecting dividends. The company had approximately $2.4 billion of unused general-purpose borrowing capacity under its revolving facility.
- Debt: Long-term debt was $3,443.8 million, compared with $3,743.2 million in 2019; there was no commercial paper outstanding at year-end. The company reported investment-grade debt ratings with stable outlooks and compliance with debt covenants.
- Balance-sheet context: Total assets rose to $124,659.6 million from $75,215.3 million, largely reflecting clearing-related performance-bond and guaranty-fund balances. These balances were accompanied by corresponding liabilities and should not be confused with unrestricted corporate liquidity.
- Trading activity: Average daily futures and options volume was 19.054 million contracts, down 1%. Equity-index volume rose 63%, while interest-rate volume fell 22%. Electronic trading was 94% of volume, up from 90%.
Fourth-quarter results
For the quarter ended December 31, 2020, revenue was $1,098.5 million, operating income was $515.0 million, and net income attributable to CME Group was $424.0 million; diluted EPS was $1.18. In fourth-quarter 2019, the respective figures were $1,138.4 million, $573.0 million, $469.5 million, and $1.31.
Material changes versus 2019
- Revenue was nearly unchanged, but its composition shifted: listed futures and options volume was slightly lower overall, and clearing and transaction fees declined by $48.7 million. Higher equity-index activity partly offset weaker interest-rate activity.
- Interest-rate average daily volume declined 22%, which management attributed mainly to near-zero Federal Reserve rates and expectations that rates would remain low. Equity-index volume increased 63%, reflecting market volatility and growth in Micro E-mini contracts.
- Cash-markets transaction fees fell to $447.4 million from $483.0 million. BrokerTec fixed-income fees declined 10% and EBS FX fees declined 7%.
- Operating expenses decreased 1% to $2,246.2 million. Lower bonuses, impairment charges, travel, and marketing were partly offset by a 42% increase in licensing and other fee-agreement costs.
- Non-operating income declined to $84.7 million from $101.8 million, primarily due to lower investment income as interest rates fell. The effective tax rate rose to 22.6% from 21.3%.
- Operating cash flow increased modestly. Financing cash use increased, principally due to higher cash dividends paid.
Outlook, management commentary, and risks
- Management expects 2021 capital expenditures of approximately $180 million to $190 million, net of leasehold-improvement allowances and one-time NEX integration costs.
- The company said it intends to continue regular quarterly dividends, targeting 50% to 60% of prior-year cash earnings, subject to board discretion. A $0.90-per-share quarterly dividend and a $2.50-per-share variable dividend were declared for payment in 2021.
- CME Group and IHS Markit agreed to combine post-trade services in a 50/50 joint venture, including CME Group’s Traiana, TriOptima, and Reset businesses. Closing was expected in mid-2021, subject to approvals; the company said it was still evaluating the financial-statement impact.
- The BrokerTec platform migrated to CME Globex in the first quarter of 2021; EBS migration was expected in the fourth quarter of 2021. Management noted potential customer attrition and execution risk around platform migrations.
- COVID-19 affected operations and markets. The trading floor was largely closed, with the Eurodollar options pit reopened in August 2020; management cited uncertainty around the pandemic’s duration and effects on trading activity, customers, employees, and technology risk.
- Key risks include sensitivity of transaction revenue to trading volume, volatility, product mix, customer mix, and pricing; intense competition; cybersecurity, system capacity, and third-party-provider risks; clearing-member and counterparty credit or liquidity events; and extensive regulatory requirements.
- Management highlighted LIBOR transition risk for Eurodollar products, regulatory changes including Basel III and EMIR 2.2, possible transaction taxes or changes to futures tax treatment, and the effect of low rates on interest-rate trading.
- The filing reports no legal or regulatory contingency accrual at year-end because no matter was considered both probable and estimable; management said it did not expect pending matters to materially affect results, while noting outcomes and timing could not be predicted.
- The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. Uncertain tax positions were identified as the critical audit matter; unrecognized tax benefits were $328.2 million.
Important facts for investors to verify
- Whether interest-rate activity and revenue recover or remain pressured under sustained low-rate conditions, and how the LIBOR transition affects Eurodollar volumes.
- Whether equity-index strength and new products can offset weakness in other product lines, considering volume, average rate per contract, member mix, and incentives.
- Actual 2021 capital spending, dividend decisions, and cash available for corporate purposes, separately from customer clearing collateral.
- Completion and financial impact of the IHS Markit joint venture, and customer retention and operating performance following the BrokerTec and EBS platform migrations.
- Developments in clearing-member concentration, clearing liquidity resources, cybersecurity and system resilience, regulatory matters, and the $328.2 million of unrecognized tax benefits.