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- $1.1B revenues, less transaction-based expenses in the third quarter of 2016
- GAAP Third Quarter 2016 diluted EPS of $2.86, +4% year-over-year
- Adjusted Third Quarter 2016 diluted EPS of $3.21, +10% year-over-year
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses and provider of global data and listing services, today reported financial results for the third quarter of 2016. For the quarter ended September 30, 2016, consolidated net income attributable to ICE was $344 million on $1.1 billion of consolidated revenues less transaction-based expenses. On a GAAP basis, diluted earnings per share (EPS) in the third quarter were $2.86. On an adjusted basis, net income was $385 million and diluted EPS were $3.21. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on adjusted net income and adjusted diluted EPS.
"In 2016, we’ve grown revenue, margins and earnings while investing in our long term growth," said ICE Chairman and CEO Jeffrey C. Sprecher. "Our double digit earnings growth year to date is driven by serving the rising demand for risk management, data and for capital efficient solutions in the US, Europe and Asia as markets evolve, driven by regulation, automation and innovation."
Scott A. Hill, ICE CFO, said: “We generated $1.5 billion of operating cash flows through September, which enabled us to reduce our debt by $1 billion while growing our dividend compared to 2015, and we resumed our share repurchases in October of 2016. Our strategic approach to investing, ability to consistently generate operating efficiencies and disciplined allocation of capital has allowed us to generate growth in earnings and cash, diversify our business model, and deliver solid returns to our investors."
Third Quarter 2016 GAAP Results
Third quarter 2016 consolidated revenues, less transaction-based expenses, were $1.1 billion, including $261 million in revenues from Interactive Data and Trayport.
Trading and clearing segment revenues were $483 million, with trading and clearing revenues, less transaction-based expenses, of $439 million in the third quarter 2016, down 5% compared to the prior third quarter. Other revenue was $44 million.
Data and listings segment revenues were $595 million, including data services revenues of $489 million and record listings revenues of $106 million, which grew 5% compared to the prior third quarter.
Consolidated operating expenses were $604 million for the third quarter of 2016, including $33 million related to the impairment of an intangible asset for Creditex customer relationships, $7 million in Interactive Data transaction and integration expenses, and $4 million related to employee severance costs resulting from the closure of the creditex U.K. brokerage operation. Consolidated operating income for the third quarter was $474 million and operating margin was 44%. The effective tax rate for the third quarter was 21%, and was impacted by a deferred tax benefit associated with the recently approved U.K. income tax rate reduction.
Consolidated cash flows from operations were $1.5 billion for the first nine months of 2016, up 69% compared to the prior nine months. Operational capital expenditures through September were $112 million and capitalized software development costs totaled $88 million.
Unrestricted cash was $458 million and outstanding debt was $6.3 billion as of September 30, 2016.
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Financial Guidance |
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| GAAP | Non-GAAP | |||||||||
| 2016 Data Services Revenue | +125-126% y/y | +6-7% y/y on a pro forma basis(1) | ||||||||
| 2016 Operating Expenses | $2.27-$2.30 billion(2) | $1.94-$1.97 billion(2) | ||||||||
| 4Q16 Operating Expenses | $580-$590 million(3) | $500-$505 million(3) | ||||||||
| 2016 Expense Synergies | ~$115 million | |||||||||
| 2016 Weighted Average Shares Outstanding | 118 - 121 million shares (or 590-605 million shares reflected for the announced 5-for-1 stock split) for 4Q16 and 2016 | |||||||||
(1) 2015 pro forma data services revenues include $973 million in additional data services revenues for Interactive Data and Trayport for 2015 as if we acquired them at the beginning of 2015.
(2) 2016 Non-GAAP operating expenses exclude $335 million in amortization of acquisition-related intangibles and Creditex customer relationship intangible impairment, $4 million in employee severance costs related to the closure of Creditex UK brokerage operations, and $31 million in acquisition-related transaction and integration costs for the full year 2016. The GAAP forecast does not reflect an estimate of acquisition-related transaction and integration costs for the fourth quarter of 2016.
(3) 4Q16 Non-GAAP operating expense excludes $72 million in amortization of acquisition-related intangibles for the fourth quarter of 2016. The GAAP forecast does not reflect an estimate of acquisition-related transaction and integration costs for the fourth quarter of 2016.
Earnings Conference Call Information
ICE will hold a conference call today, November 1, at 8:30 a.m. ET to review its third quarter 2016 financial results. A live audio webcast of the earnings call will be available on the company's website at www.theice.com in the investor relations section. Participants may also listen via telephone by dialing 888-317-6003 from the United States, 866-284-3684 from Canada or 412-317-6061 from outside of the United States and Canada. Telephone participants are required to provide the participant entry number 1687416 and are recommended to call 10 minutes prior to the start of the call. The call will be archived on the company's website for replay.
The conference call for the fourth quarter and full year earnings has been scheduled for February 7, 2017 at 8:30 a.m. ET. Please refer to the Investor Relations website at www.ir.theice.com for additional information.
Historical futures, options and cash ADV, rate per contract, open interest data and CDS cleared information can be found at: http://ir.theice.com/investors-and-media/supplemental-volume-info/default.aspx
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Consolidated Statements of Income (In millions, except per share amounts) (Unaudited) |
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| Nine Months Ended September 30, |
Three Months Ended September 30, |
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| Revenues: | 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| Transaction and clearing, net | $ | 2,566 | $ | 2,414 | $ | 777 | $ | 831 | ||||||||||
| Data services | 1,463 | 614 | 489 | 209 | ||||||||||||||
| Listings | 314 | 303 | 106 | 101 | ||||||||||||||
| Other revenues | 131 | 132 | 44 | 46 | ||||||||||||||
| Total revenues | 4,474 | 3,463 | 1,416 | 1,187 | ||||||||||||||
| Transaction-based expenses: | ||||||||||||||||||
| Section 31 fees | 290 | 263 | 94 | 92 | ||||||||||||||
| Cash liquidity payments, routing and clearing | 823 | 737 | 244 | 279 | ||||||||||||||
| Total revenues, less transaction-based expenses | 3,361 | 2,463 | 1,078 | 816 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Compensation and benefits | 708 | 445 | 236 | 150 | ||||||||||||||
| Technology and communication | 277 | 147 | 93 | 49 | ||||||||||||||
| Professional services | 101 | 102 | 32 | 37 | ||||||||||||||
| Rent and occupancy | 52 | 45 | 17 | 14 | ||||||||||||||
| Acquisition-related transaction and integration costs | 61 | 34 | 14 | 8 | ||||||||||||||
| Selling, general and administrative | 83 | 82 | 31 | 24 | ||||||||||||||
| Depreciation and amortization | 470 | 276 | 181 | 94 | ||||||||||||||
| Total operating expenses | 1,752 | 1,131 | 604 | 376 | ||||||||||||||
| Operating income | 1,609 | 1,332 | 474 | 440 | ||||||||||||||
| Other income (expense): | ||||||||||||||||||
| Interest expense | (134 | ) | (67 | ) | (44 | ) | (21 | ) | ||||||||||
| Other income (expense), net | 24 | (3 | ) | 13 | 4 | |||||||||||||
| Other expense, net | (110 | ) | (70 | ) | (31 | ) | (17 | ) | ||||||||||
| Income before income tax expense | 1,499 | 1,262 | 443 | 423 | ||||||||||||||
| Income tax expense | 409 | 340 | 93 | 113 | ||||||||||||||
| Net income | 1,090 | 922 | 350 | 310 | ||||||||||||||
| Net income attributable to non-controlling interest | (20 | ) | (18 | ) | (6 | ) | (4 | ) | ||||||||||
| Net income attributable to Intercontinental Exchange, Inc. | $ | 1,070 | $ | 904 | $ | 344 | $ | 306 | ||||||||||
| Earnings per share attributable to Intercontinental Exchange, Inc. common shareholders: | ||||||||||||||||||
| Basic | $ | 8.99 | $ | 8.13 | $ | 2.88 | $ | 2.77 | ||||||||||
| Diluted | $ | 8.93 | $ | 8.10 | $ | 2.86 | $ | 2.76 | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||
| Basic | 119 | 111 | 119 | 110 | ||||||||||||||
| Diluted | 120 | 112 | 120 | 111 | ||||||||||||||
| Dividend per share | $ | 2.55 | $ | 2.15 | $ | 0.85 | $ | 0.75 | ||||||||||
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Consolidated Balance Sheets (In millions) (Unaudited) |
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| As of | As of | |||||||||
| September 30, 2016 | December 31, 2015 | |||||||||
| Assets: | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 458 | $ | 627 | ||||||
| Short-term investments | 24 | 29 | ||||||||
| Short-term restricted cash and investments | 629 | 657 | ||||||||
| Customer accounts receivable, net | 789 | 700 | ||||||||
| Margin deposits and guaranty funds | 49,832 | 51,169 | ||||||||
| Prepaid expenses and other current assets | 112 | 131 | ||||||||
| Total current assets | 51,844 | 53,313 | ||||||||
| Property and equipment, net | 1,080 | 1,037 | ||||||||
| Other non-current assets: | ||||||||||
| Goodwill | 12,009 | 12,079 | ||||||||
| Other intangible assets, net | 10,359 | 10,758 | ||||||||
| Long-term restricted cash and investments | 262 | 263 | ||||||||
| Long-term investments | 416 | 299 | ||||||||
| Other non-current assets | 326 | 238 | ||||||||
| Total other non-current assets | 23,372 | 23,637 | ||||||||
| Total assets | $ | 76,296 | $ | 77,987 | ||||||
| Liabilities and Equity: | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accrued liabilities | $ | 383 | $ | 398 | ||||||
| Section 31 fees payable | 33 | 116 | ||||||||
| Accrued salaries and benefits | 182 | 215 | ||||||||
| Deferred revenue | 217 | 98 | ||||||||
| Short-term debt | 1,585 | 2,591 | ||||||||
| Margin deposits and guaranty funds | 49,832 | 51,169 | ||||||||
| Other current liabilities | 122 | 156 | ||||||||
| Total current liabilities | 52,354 | 54,743 | ||||||||
| Non-current liabilities: | ||||||||||
| Non-current deferred tax liability, net | 2,841 | 2,837 | ||||||||
| Long-term debt | 4,720 | 4,717 | ||||||||
| Accrued employee benefits | 454 | 478 | ||||||||
| Other non-current liabilities | 349 | 337 | ||||||||
| Total non-current liabilities | 8,364 | 8,369 | ||||||||
| Total liabilities | 60,718 | 63,112 | ||||||||
| Redeemable non-controlling interest | 34 | 35 | ||||||||
| Equity: | ||||||||||
| Intercontinental Exchange, Inc. shareholders’ equity: | ||||||||||
| Preferred stock | — | — | ||||||||
| Common stock | 1 | 1 | ||||||||
| Treasury stock, at cost | (1,499 | ) | (1,448 | ) | ||||||
| Additional paid-in capital | 12,415 | 12,295 | ||||||||
| Retained earnings | 4,911 | 4,148 | ||||||||
| Accumulated other comprehensive loss | (316 | ) | (188 | ) | ||||||
| Total Intercontinental Exchange, Inc. shareholders’ equity | 15,512 | 14,808 | ||||||||
| Non-controlling interest in consolidated subsidiaries | 32 | 32 | ||||||||
| Total equity | 15,544 | 14,840 | ||||||||
| Total liabilities and equity | $ | 76,296 | $ | 77,987 | ||||||
Non-GAAP Financial Measures and Reconciliation
We use non-GAAP measures internally to evaluate our performance and in making financial and operational decisions. When viewed in conjunction with our GAAP results and the accompanying reconciliation, we believe that our presentation of these measures provides investors with greater transparency and a greater understanding of factors affecting our financial condition and results of operations than GAAP measures alone. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparison of results because the items described below as adjustments to GAAP are not reflective of our core business performance. These financial measures are not in accordance with, or an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. We use these adjusted results because we believe they more clearly highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our core operating performance. We strongly recommend that investors review the GAAP financial measures included in our Quarterly Report on Form 10-Q, including our consolidated financial statements and the notes thereto.
Adjusted net income attributable to ICE common shareholders and adjusted earnings per share for the periods presented below are calculated by adding or subtracting the adjustments described below, which are not reflective of our cash operations and core business performance, and their related income tax effect and other tax adjustments (in millions, except for per share amounts):
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Three Months Ended September 30, 2016 |
Three Months Ended September 30, 2015 |
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| Net income attributable to ICE | $ | 344 | $ | 306 | ||||||
| Add: NYSE and Interactive Data transaction and integration costs | 7 | 6 | ||||||||
| Add: Employee severance costs related to Creditex U.K. brokerage operations | 4 | — | ||||||||
| Add: Creditex customer relationship intangible asset impairment | 33 | — | ||||||||
| Add: Amortization of acquisition-related intangibles | 76 | 33 | ||||||||
| Less: Litigation settlements and accrual, net of insurance proceeds | — | (4 | ) | |||||||
| Less: Income tax effect for the items above | (45 | ) | (18 | ) | ||||||
| Less: Other tax adjustments | (34 | ) | — | |||||||
| Adjusted net income attributable to ICE | $ | 385 | $ | 323 | ||||||
| Basic earnings per share attributable to ICE | $ | 2.88 | $ | 2.77 | ||||||
| Diluted earnings per share attributable to ICE | $ | 2.86 | $ | 2.76 | ||||||
| Adjusted basic earnings per share attributable to ICE | $ | 3.23 | $ | 2.93 | ||||||
| Adjusted diluted earnings per share attributable to ICE | $ | 3.21 | $ | 2.91 | ||||||
