Derivatives marketplace CME Group (NASDAQ:CME) has today released its results for the third quarter of 2018 with a revenue of $904 million and operating income of $550 million.
Net income was $412 million and diluted earnings per share were $1.21, up from $0.91 in third-quarter 2017. On an adjusted basis, net income was $495 million and diluted earnings per share were $1.45, up from $1.19 in third-quarter 2017.
Financial results presented on an adjusted basis for the third quarters of 2018 and 2017 exclude certain items, which are detailed in the reconciliation of non-GAAP results.
Terry Duffy, CME Group
The third quarter improved steadily from July to September, driven by strength in our interest rate, equities and metals product lines,” said CME Group Chairman and Chief Executive Officer Terry Duffy.
Our solid expense management contributed to adjusted diluted earnings per share growth of more than 20 percent in the third quarter. Open interest has continued to rise to more than 128 million contracts, which illustrates the growing need for risk management globally. In addition, we have had an exceptional start to the fourth quarter, with growth in all six product areas and total volume up more than 40 percent compared with the same period a year ago.
Third-quarter 2018 average daily volume was 15.6 million contracts, down 1 percent compared with third-quarter 2017. Clearing and transaction fee revenue was $753 million, flat compared with third-quarter 2017. Third-quarter 2018 total average rate per contract was $0.753, compared with $0.757 in second-quarter 2018. Market data revenue was $111 million, up 14 percent compared with the third quarter last year.
As of September 30, 2018, the company had $1.5 billion of cash and marketable securities, excluding $1.6 billion held in escrow related to the potential NEX Group plc acquisition, and $3.4 billion of long-term debt. The company paid dividends during the third quarter of $237.7 million. The company has returned more than $10.3 billion to shareholders in the form of dividends since implementing the variable dividend policy in early 2012.
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CME Group Inc. and Subsidiaries |
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Consolidated Balance Sheets |
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(in millions) |
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September 30, 2018 |
December 31, 2017 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ |
1,406.3 |
$ |
1,903.6 |
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Marketable securities |
82.8 |
90.1 |
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Accounts receivable, net of allowance |
386.3 |
359.7 |
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Other current assets (includes $1,622.1 and $0 in restricted cash) |
1,795.5 |
367.8 |
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Performance bonds and guaranty fund contributions |
37,843.9 |
44,185.3 |
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Total current assets |
41,514.8 |
46,906.5 |
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Property, net of accumulated depreciation and amortization |
362.7 |
399.7 |
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Intangible assets—trading products |
17,175.3 |
17,175.3 |
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Intangible assets—other, net |
2,268.4 |
2,346.3 |
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Goodwill |
7,569.0 |
7,569.0 |
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Other assets (includes $1.3 and $2.4 in restricted cash) |
1,473.9 |
1,394.4 |
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Total Assets |
$ |
70,364.1 |
$ |
75,791.2 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Accounts payable |
$ |
53.9 |
$ |
31.3 |
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Other current liabilities |
256.3 |
1,456.3 |
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Performance bonds and guaranty fund contributions |
37,843.9 |
44,185.3 |
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Total current liabilities |
38,154.1 |
45,672.9 |
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Long-term debt |
3,419.6 |
2,233.1 |
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Deferred income tax liabilities, net |
4,882.7 |
4,857.7 |
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Other liabilities |
612.0 |
615.7 |
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Total Liabilities |
47,068.4 |
53,379.4 |
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Shareholders’ Equity |
23,295.7 |
22,411.8 |
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Total Liabilities and Equity |
$ |
70,364.1 |
$ |
75,791.2 |
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CME Group Inc. and Subsidiaries |
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Consolidated Statements of Income |
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(dollars in millions, except per share amounts; shares in thousands) |
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Quarter Ended |
Nine Months Ended |
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2018 |
2017 |
2018 |
2017 |
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Revenues |
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Clearing and transaction fees |
$ |
752.5 |
$ |
756.2 |
$ |
2,632.2 |
$ |
2,340.2 |
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Market data and information services |
110.7 |
96.9 |
319.4 |
289.8 |
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Access and communication fees |
26.2 |
25.7 |
78.4 |
74.9 |
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Other |
14.8 |
12.0 |
42.8 |
39.8 |
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Total Revenues |
904.2 |
890.8 |
3,072.8 |
2,744.7 |
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Expenses |
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Compensation and benefits |
144.9 |
141.7 |
448.4 |
424.0 |
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Communications |
6.5 |
6.1 |
18.3 |
18.4 |
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Technology support services |
18.2 |
19.3 |
57.1 |
56.2 |
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Professional fees and outside services |
31.3 |
25.8 |
105.8 |
83.0 |
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Amortization of purchased intangibles |
23.7 |
23.8 |
71.0 |
71.8 |
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Depreciation and amortization |
30.2 |
26.9 |
85.8 |
85.1 |
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Occupancy and building operations |
21.0 |
19.8 |
61.2 |
59.1 |
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Licensing and other fee agreements |
33.4 |
41.5 |
122.8 |
108.2 |
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Other |
45.1 |
18.3 |
144.7 |
65.2 |
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Total Expenses |
354.3 |
323.2 |
1,115.1 |
971.0 |
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Operating Income |
549.9 |
567.6 |
1,957.7 |
1,773.7 |
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Non-Operating Income (Expense) |
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Investment income |
161.5 |
139.9 |
559.8 |
391.2 |
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Interest and other borrowing costs |
(45.0) |
(29.1) |
(108.2) |
(87.9) |
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Equity in net earnings of unconsolidated subsidiaries |
37.1 |
33.9 |
113.6 |
96.5 |
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Other non-operating income (expense) |
(141.7) |
(105.0) |
(415.6) |
(221.9) |
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Total Non-Operating Income (Expense) |
11.9 |
39.7 |
149.6 |
177.9 |
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Income before Income Taxes |
561.8 |
607.3 |
2,107.3 |
1,951.6 |
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Income tax provision |
150.0 |
298.7 |
530.6 |
827.4 |
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Net Income |
$ |
411.8 |
$ |
308.6 |
$ |
1,576.7 |
$ |
1,124.2 |
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Earnings per Common Share: |
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Basic |
$ |
1.21 |
$ |
0.91 |
$ |
4.64 |
$ |
3.32 |
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Diluted |
1.21 |
0.91 |
4.62 |
3.31 |
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Weighted Average Number of Common Shares: |
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Basic |
339,586 |
338,771 |
339,453 |
338,557 |
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Diluted |
341,035 |
340,329 |
340,907 |
340,114 |
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CME Group Inc. and Subsidiaries |
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Quarterly Operating Statistics |
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3Q 2017 |
4Q 2017 |
1Q 2018 |
2Q 2018 |
3Q 2018 |
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Trading Days |
63 |
63 |
61 |
64 |
63 |
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Quarterly Average Daily Volume (ADV) |
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CME Group ADV (in thousands) |
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Product Line |
3Q 2017 |
4Q 2017 |
1Q 2018 |
2Q 2018 |
3Q 2018 |
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Interest rate |
7,424 |
7,970 |
11,948 |
9,200 |
7,798 |
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Equity |
2,624 |
2,632 |
4,096 |
3,086 |
2,671 |
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Foreign exchange |
971 |
941 |
1,100 |
1,035 |
944 |
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Energy |
2,693 |
2,489 |
2,754 |
2,630 |
2,199 |
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Agricultural commodity |
1,381 |
1,278 |
1,593 |
1,734 |
1,348 |
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Metal |
611 |
616 |
713 |
674 |
623 |
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Total |
15,704 |
15,925 |
22,204 |
18,359 |
15,584 |
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Venue |
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Electronic |
14,264 |
14,265 |
19,796 |
16,644 |
14,082 |
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Open outcry |
889 |
1,066 |
1,556 |
1,066 |
938 |
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Privately negotiated |
551 |
594 |
851 |
649 |
564 |
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Total |
15,704 |
15,925 |
22,204 |
18,359 |
15,584 |
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Average Rate Per Contract (RPC) |
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CME Group RPC |
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Product Line |
3Q 2017 |
4Q 2017 |
1Q 2018 |
2Q 2018 |
3Q 2018 |
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Interest rate |
$ |
0.485 |
$ |
0.467 |
$ |
0.464 |
$ |
0.491 |
$ |
0.493 |
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Equity |
0.738 |
0.768 |
0.781 |
0.797 |
0.761 |
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Foreign exchange |
0.796 |
0.785 |
0.762 |
0.741 |
0.743 |
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Energy |
1.072 |
1.133 |
1.140 |
1.142 |
1.187 |
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Agricultural commodity |
1.251 |
1.251 |
1.246 |
1.274 |
1.258 |
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Metal |
1.376 |
1.315 |
1.367 |
1.403 |
1.379 |
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Average RPC |
$ |
0.749 |
$ |
0.736 |
$ |
0.706 |
$ |
0.757 |
$ |
0.753 |
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CME Group Inc. and Subsidiaries |
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Reconciliation of GAAP to non-GAAP Measures |
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(dollars in millions, except per share amounts; shares in thousands) |
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Quarter Ended |
Nine Months Ended |
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2018 |
2017 |
2018 |
2017 |
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Net Income |
$ |
411.8 |
$ |
308.6 |
$ |
1,576.7 |
$ |
1,124.2 |
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Restructuring and severance |
0.2 |
— |
1.9 |
3.9 |
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Amortization of purchased intangibles |
23.7 |
23.8 |
71.0 |
71.8 |
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Litigation matters |
— |
— |
10.3 |
— |
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Acquisition-related costs(1) |
6.7 |
— |
21.0 |
— |
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Foreign exchange transaction (gains) losses(2) |
15.6 |
(2.9) |
64.5 |
(10.0) |
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Acceleration of contractual commitments |
— |
— |
0.7 |
— |
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Unrealized and realized (gains) losses on CME Ventures investments |
3.4 |
— |
(85.9) |
— |
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Gains on sale of BM&FBOVESPA & Bolsa Mexicana shares |
— |
(2.0) |
— |
(88.5) |
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Intangible and fixed asset impairments |
9.5 |
— |
9.5 |
— |
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Loss on disposal of assets |
1.5 |
— |
1.5 |
0.6 |
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Loss on derivatives |
14.5 |
— |
51.4 |
— |
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Debt costs related to acquisition |
13.3 |
— |
16.8 |
— |
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Income tax effect related to above |
(17.1) |
(7.4) |
(32.6) |
(25.4) |
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Other income tax items |
11.9 |
86.1 |
13.1 |
164.0 |
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Adjusted Net Income |
$ |
495.0 |
$ |
406.2 |
$ |
1,719.9 |
$ |
1,240.6 |
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GAAP Earnings per Common Share: |
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Basic |
$ |
1.21 |
$ |
0.91 |
$ |
4.64 |
$ |
3.32 |
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Diluted |
1.21 |
0.91 |
4.62 |
3.31 |
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Adjusted Earnings per Common Share: |
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Basic |
$ |
1.46 |
$ |
1.20 |
$ |
5.07 |
$ |
3.66 |
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Diluted |
1.45 |
1.19 |
5.05 |
3.65 |
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Weighted Average Number of Common Shares: |
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Basic |
339,586 |
338,771 |
339,453 |
338,557 |
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Diluted |
341,035 |
340,329 |
340,907 |
340,114 |
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1. Acquisition-related costs include professional fees related to the proposed acquisition of NEX Group plc. |
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2. Results include foreign exchange transaction net gains and losses principally related to cash held in British pounds within entities whose functional currency is the U.S. dollar. |