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- Third quarter revenues of $1.2 billion, +5% y/y
- GAAP diluted EPS of $0.79, +25% y/y
- Adj. diluted EPS of $0.85, +16% y/y
- Operating margin of 50%; Adj. operating margin of 57%
- Through 3Q18, nearly $1.5 billion returned to stockholders, +38% y/y
Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listing services, today reported financial results for the third quarter of 2018. For the quarter ended September 30, 2018, consolidated net income attributable to ICE was $458 million on $1.2 billion of consolidated revenues less transaction-based expenses. Third quarter GAAP diluted earnings per share (EPS) were $0.79. Adjusted net income was $491 million in the third quarter and adjusted diluted EPS were $0.85, up 16% year-over-year. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on our adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS, organic data revenue and free cash flow.
“Our third quarter performance reflected strength across our futures, cash equities, listings and data services businesses, marking the 22nd consecutive quarter of year-over-year revenue growth,” said ICE Chairman & Chief Executive Officer, Jeffrey C. Sprecher. “Against an uncertain regulatory and political backdrop, we are focused on driving innovation, delivering growth and helping to serve our customers’ risk management needs.”
Scott A. Hill, ICE Chief Financial Officer, added, “Through the end of the third quarter, we have grown revenues and earnings, generated record operating cash flows and returned nearly $1.5 billion dollars to stockholders - more than any full year in our history. As we approach the end of 2018, we remain focused on our growth initiatives and value creation.”
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Third Quarter 2018 Business Highlights |
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| $ (in millions) |
Net Revenue |
Op Margin |
Adj Op Margin |
||||||||||
| Data & Listings | $ | 642 | 43 | % | 51 | % | |||||||
| Trading & Clearing | $ | 558 | 59 | % | 63 | % | |||||||
| Consolidated | $ | 1,200 | 50 | % | 57 | % | |||||||
Third quarter consolidated net revenues were $1.2 billion, up 5% year-over-year. Data and listings revenues in the third quarter were $642 million and trading and clearing net revenues were $558 million. Consolidated operating expenses were $598 million for the third quarter of 2018. On an adjusted basis, consolidated operating expenses were $521 million. Consolidated operating income for the third quarter was $602 million and the operating margin was 50%. On an adjusted basis, consolidated operating income for the third quarter was $679 million and the adjusted operating margin was 57%.
Data and Listings Segment Results
Third quarter data and listings revenues were $642 million, including data revenues of $530 million, up 2% year-over-year, negatively impacted by the divestiture of Trayport in the fourth quarter of 2017, and listings revenues of $112 million, up 7% year-over-year. On an organic, constant currency basis(1), segment revenues were up 6% with data revenues up 6% year-over-year and listings revenues up 7% year-over-year. Data and listings operating expenses were $368 million and on an adjusted basis, were $315 million in the third quarter. Segment operating income for the third quarter was $274 million and the operating margin was 43%. On an adjusted basis, operating income was $327 million and the adjusted operating margin was 51%.
| $ (in millions) | 3Q18 | 3Q17 | % Chg | Organic |
Organic Const Curr(1) |
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| Revenue: | |||||||||||||||||||||
| Pricing and Analytics | $ | 263 | $ | 242 | 9 | % | 7 | % | 7 | % | |||||||||||
| Exchange Data | 146 | 136 | 7 | % | 5 | % | 5 | % | |||||||||||||
| Desktops and Connectivity | 121 | 140 | (13 | )% | 3 | % | 3 | % | |||||||||||||
| Data Total | 530 | 518 | 2 | % | 6 | % | 6 | % | |||||||||||||
| Listings | 112 | 105 | 7 | % | 7 | % | 7 | % | |||||||||||||
| Segment Revenue | $ | 642 | $ | 623 | 3 | % | 6 | % | 6 | % | |||||||||||
| (1) | Net revenues in constant currency are calculated holding both the pound sterling and euro at the average exchange rate from 3Q17, 1.3091 and 1.1752, respectively. References to organic growth excludes businesses that have been acquired, divested or discontinued that significantly impact the comparable periods. For 3Q18 and 3Q17, $11 million and $27 million of data revenues were excluded from organic growth, respectively. | |
Trading and Clearing Segment Results
Third quarter trading and clearing net revenues were $558 million, up 7% from one year ago. Trading and clearing operating expenses were $230 million and adjusted operating expenses were $206 million in the third quarter. Segment operating income for the third quarter was $328 million and the operating margin was 59%. On an adjusted basis, operating income was $352 million and the adjusted operating margin was 63%.
| $ (in millions) | 3Q18 | 3Q17 | % Chg | ||||||||||
| Revenue, net: | |||||||||||||
| Energy | $ | 223 | $ | 223 | — | % | |||||||
| Ags & metals | 58 | 49 | 17 | % | |||||||||
| Financials(1) | 77 | 82 | (6 | )% | |||||||||
| Cash equities & equity options | 72 | 66 | 8 | % | |||||||||
| OTC & other transaction(2) | 67 | 49 | 40 | % | |||||||||
| Other revenue(3) | 61 | 54 | 13 | % | |||||||||
| Segment Revenue | $ | 558 | $ | 523 | 7 | % | |||||||
| (1) | Financials includes interest rates and other financial futures and options. | |
| (2) | OTC & Other transaction includes physical energy, fixed income execution and CDS execution and clearing. | |
| (3) | Other revenue includes interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, exchange member fees, and agriculture grading and certification fees. | |
- Energy futures and options revenue in the third quarter were flat year-over-year with a 7% increase in rate per contract (RPC), offset by a 6% decline in average daily volume (ADV).
- Ags and metals futures and options revenue in the third quarter increased 17% year-over-year driven by a 16% increase in ADV and 1% increase in RPC.
- Financials futures and options revenue in the third quarter decreased 6% year-over-year reflecting a 6% decline in RPC.
- U.S. cash equities and equity options revenue in the third quarter increased 8% year-over-year driven by a 31% increase in equity options ADV and a 7% increase in U.S. cash equities ADV.
- OTC and other transaction revenues in the third quarter were up 40% year-over-year driven by a 7% increase in CDS clearing revenue in the third quarter and the addition of BondPoint and TMC Bonds.
| ADV
(lots in thousands) |
RPC | |||||||||||||||
| 3Q18 | % Chg | 3Q18 | % Chg | |||||||||||||
| Energy | 2,456 | (6 | )% | $ | 1.44 | 7 | % | |||||||||
| Ags & metals | 393 | 16 | % | $ | 2.34 | 1 | % | |||||||||
| Financials | 2,336 | — | % | $ | 0.50 | (6 | )% | |||||||||
| Interest Rates | 1,957 | 4 | % | $ | 0.38 | (4 | )% | |||||||||
| Other Financials | 379 | (19 | )% | $ | 1.12 | 3 | % | |||||||||
| Total Futures & Options | 5,185 | (2 | )% | $ | 1.08 | 3 | % | |||||||||
| Cash Equities | 1,512 | 7 | % | $ | 0.048 | (6 | )% | |||||||||
| Equity Options | 3,070 | 31 | % | $ | 0.12 | (14 | )% | |||||||||
| The third quarter of 2018 included 63 trading days for commodities, other financials, cash equities and equity options and 65 trading days for interest rates. The third quarter of 2017 included 63 trading days for commodities, other financials, cash equities and equity options and 65 trading days for interest rates. |
Other Matters
- Through the third quarter, ICE repurchased nearly $1.1 billion of its common stock and paid $417 million in dividends.
- Unrestricted cash was $515 million and outstanding debt was $7.7 billion as of September 30, 2018.
- Operating cash flow through the third quarter was $1.7 billion, up 23% from $1.4 billion one year ago. Through the third quarter, free cash flow was $1.7 billion, up 33% from $1.3 billion one year ago.
- The effective tax rate for the third quarter was 16%.
Financial Guidance
No updated guidance.
Earnings Conference Call Information
ICE will hold a conference call today, October 31, at 8:30 a.m. ET to review its third quarter 2018 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 8238658 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 2018 earnings has been scheduled for February 7, 2019 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 |
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| Nine Months Ended September 30, |
Three Months Ended September 30, |
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| Revenues: | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Transaction and clearing, net | $ | 2,522 | $ | 2,373 | $ | 760 | $ | 758 | |||||||||||||
| Data services | 1,576 | 1,559 | 530 | 518 | |||||||||||||||||
| Listings | 332 | 322 | 112 | 105 | |||||||||||||||||
| Other revenues | 169 | 148 | 61 | 54 | |||||||||||||||||
| Total revenues | 4,599 | 4,402 | 1,463 | 1,435 | |||||||||||||||||
| Transaction-based expenses: | |||||||||||||||||||||
| Section 31 fees | 272 | 275 | 61 | 92 | |||||||||||||||||
| Cash liquidity payments, routing and clearing | 656 | 635 | 202 | 197 | |||||||||||||||||
| Total revenues, less transaction-based expenses | 3,671 | 3,492 | 1,200 | 1,146 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Compensation and benefits | 732 | 717 | 251 | 234 | |||||||||||||||||
| Professional services | 91 | 94 | 32 | 30 | |||||||||||||||||
| Acquisition-related transaction and integration costs | 33 | 27 | 6 | 4 | |||||||||||||||||
| Technology and communication | 320 | 294 | 107 | 99 | |||||||||||||||||
| Rent and occupancy | 50 | 52 | 17 | 17 | |||||||||||||||||
| Selling, general and administrative | 109 | 117 | 37 | 38 | |||||||||||||||||
| Depreciation and amortization | 429 | 404 | 148 | 128 | |||||||||||||||||
| Total operating expenses | 1,764 | 1,705 | 598 | 550 | |||||||||||||||||
| Operating income | 1,907 | 1,787 | 602 | 596 | |||||||||||||||||
| Other income (expense): | |||||||||||||||||||||
| Interest expense | (173 | ) | (137 | ) | (66 | ) | (47 | ) | |||||||||||||
| Other income, net | 48 | 205 | 18 | 14 | |||||||||||||||||
| Other income (expense), net | (125 | ) | 68 | (48 | ) | (33 | ) | ||||||||||||||
| Income before income tax expense | 1,782 | 1,855 | 554 | 563 | |||||||||||||||||
| Income tax expense | 381 | 540 | 89 | 186 | |||||||||||||||||
| Net income | $ | 1,401 | $ | 1,315 | $ | 465 | $ | 377 | |||||||||||||
| Net income attributable to non-controlling interest | (24 | ) | (22 | ) | (7 | ) | (6 | ) | |||||||||||||
| Net income attributable to Intercontinental Exchange, Inc. | $ | 1,377 | $ | 1,293 | $ | 458 | $ | 371 | |||||||||||||
| Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders: | |||||||||||||||||||||
| Basic | $ | 2.39 | $ | 2.19 | $ | 0.80 | $ | 0.63 | |||||||||||||
| Diluted | $ | 2.37 | $ | 2.17 | $ | 0.79 | $ | 0.63 | |||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||
| Basic | 577 | 591 | 572 | 588 | |||||||||||||||||
| Diluted | 581 | 595 | 576 | 592 | |||||||||||||||||
| Dividend per share | $ | 0.72 | $ | 0.60 | $ | 0.24 | $ | 0.20 | |||||||||||||
|
Consolidated Balance Sheets |
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| As of | As of | ||||||||||
| September 30, 2018 | December 31, 2017 | ||||||||||
| Assets: | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 515 | $ | 535 | |||||||
| Short-term restricted cash and cash equivalents | 817 | 769 | |||||||||
| Customer accounts receivable, net | 1,020 | 903 | |||||||||
| Margin deposits, guaranty funds, and delivery contracts receivable | 58,764 | 51,222 | |||||||||
| Prepaid expenses and other current assets | 179 | 133 | |||||||||
| Total current assets | 61,295 | 53,562 | |||||||||
| Property and equipment, net | 1,206 | 1,246 | |||||||||
| Other non-current assets: | |||||||||||
| Goodwill | 12,934 | 12,216 | |||||||||
| Other intangible assets, net | 10,445 | 10,269 | |||||||||
| Long-term restricted cash and cash equivalents | 330 | 264 | |||||||||
| Other non-current assets | 1,032 | 707 | |||||||||
| Total other non-current assets | 24,741 | 23,456 | |||||||||
| Total assets | $ | 87,242 | $ | 78,264 | |||||||
| Liabilities and Equity: | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 486 | $ | 462 | |||||||
| Section 31 fees payable | 21 | 128 | |||||||||
| Accrued salaries and benefits | 217 | 227 | |||||||||
| Deferred revenue | 249 | 125 | |||||||||
| Short-term debt | 1,198 | 1,833 | |||||||||
| Margin deposits, guaranty funds, and delivery contracts payable | 58,764 | 51,222 | |||||||||
| Other current liabilities | 130 | 178 | |||||||||
| Total current liabilities | 61,065 | 54,175 | |||||||||
| Non-current liabilities: | |||||||||||
| Non-current deferred tax liability, net | 2,275 | 2,298 | |||||||||
| Long-term debt | 6,488 | 4,267 | |||||||||
| Accrued employee benefits | 235 | 243 | |||||||||
| Other non-current liabilities | 325 | 296 | |||||||||
| Total non-current liabilities | 9,323 | 7,104 | |||||||||
| Total liabilities | 70,388 | 61,279 | |||||||||
| Equity: | |||||||||||
| Intercontinental Exchange, Inc. stockholders’ equity: | |||||||||||
| Common stock | 6 | 6 | |||||||||
| Treasury stock, at cost | (2,213 | ) | (1,076 | ) | |||||||
| Additional paid-in capital | 11,495 | 11,392 | |||||||||
| Retained earnings | 7,818 | 6,858 | |||||||||
| Accumulated other comprehensive loss | (274 | ) | (223 | ) | |||||||
| Total Intercontinental Exchange, Inc. stockholders’ equity | 16,832 | 16,957 | |||||||||
| Non-controlling interest in consolidated subsidiaries | 22 | 28 | |||||||||
| Total equity | 16,854 | 16,985 | |||||||||
| Total liabilities and equity | $ | 87,242 | $ | 78,264 | |||||||
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 and additional non-GAAP information included in our Quarterly Report on Form 10-Q, including our consolidated financial statements and the notes thereto.
Adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income attributable to ICE common stockholders, adjusted diluted earnings per share, organic data revenue and free cash flow 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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Adjusted Operating Income, Operating Margin and Operating Expense Reconciliation |
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Trading and Clearing Segment |
Data and Listings Segment |
Consolidated | |||||||||||||||||||||||||||||
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Three Months Ended September 30, |
Three Months Ended September 30, |
Three Months Ended September 30, |
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| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||
| Total revenues, less transaction-based expenses | $ | 558 | $ | 523 | $ | 642 | $ | 623 | $ | 1,200 | $ | 1,146 | |||||||||||||||||||
| Total operating expenses | $ | 230 | $ | 198 | $ | 368 | $ | 352 | $ | 598 | $ | 550 | |||||||||||||||||||
| Less: Interactive Data transaction and integration costs and acquisition-related success fees | 5 | — | — | 3 | 5 | 3 | |||||||||||||||||||||||||
| Less: Amortization of acquisition-related intangibles | 19 | 13 | 53 | 51 | 72 | 64 | |||||||||||||||||||||||||
| Less: Accruals relating to investigations and inquiries | — | 4 | — | — | — | 4 | |||||||||||||||||||||||||
| Adjusted total operating expenses | $ | 206 | $ | 181 | $ | 315 | $ | 298 | $ | 521 | $ | 479 | |||||||||||||||||||
| Operating income | $ | 328 | $ | 325 | $ | 274 | $ | 271 | $ | 602 | $ | 596 | |||||||||||||||||||
| Adjusted operating income | $ | 352 | $ | 342 | $ | 327 | $ | 325 | $ | 679 | $ | 667 | |||||||||||||||||||
| Operating margin | 59 | % | 62 | % | 43 | % | 43 | % | 50 | % | 52 | % | |||||||||||||||||||
| Adjusted operating margin | 63 | % | 65 | % | 51 | % | 52 | % | 57 | % | 58 | % | |||||||||||||||||||
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Adjusted Net Income Attributable to ICE and EPS |
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Three Months Ended September 30, 2018 |
Three Months Ended September 30, 2017 |
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| Net income attributable to ICE | $ | 458 | $ | 371 | |||||||
| Add: Interactive Data transaction and integration costs and acquisition-related success fees | 5 | 3 | |||||||||
| Add: Amortization of acquisition-related intangibles | 72 | 64 | |||||||||
| Add: Accruals relating to investigations and inquiries | — | 4 | |||||||||
| (Less): Income tax effect for the above items | (19 | ) | (22 | ) | |||||||
| (Less): Deferred tax adjustment from U.S. tax rate reduction | (12 | ) | — | ||||||||
| Add: Deferred tax adjustment on acquisition-related intangibles | — | 12 | |||||||||
| (Less): Other tax adjustments | (13 | ) | — | ||||||||
| Adjusted net income attributable to ICE | $ | 491 | $ | 432 | |||||||
| Diluted earnings per share attributable to ICE | $ | 0.79 | $ | 0.63 | |||||||
| Adjusted diluted earnings per share attributable to ICE | $ | 0.85 | $ | 0.73 | |||||||
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GAAP to Organic Data Revenue |
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| 3Q18 | 3Q17 | |||||||||||||||
| Data Revenue (as reported) | $ | 530 | $ | 518 | ||||||||||||
| Adjusted for: | ||||||||||||||||
| 2017 Divestitures & wind down of acq. businesses(1) | — | (27 | ) | |||||||||||||
| Acquisitions(2) | (11 | ) | — | |||||||||||||
| Organic Data Revenue | $ | 519 | $ | 491 | ||||||||||||
| FX Impact(3) | — | — | ||||||||||||||
| Organic, constant currency revenue | $ | 519 | $ | 491 | ||||||||||||
| (1) | Includes $20 million of revenue related to the divestiture of Trayport in the fourth quarter of 2017 and $7 million of revenue related to the wind down of acquired businesses. Wind down of acquired businesses includes the discontinuation of certain businesses acquired as part of larger acquisitions that are no longer strategic for the company. These include the anticipated 2018 erosion of legacy SPSE customers who can no longer use IDC & SPSE as their primary and secondary source of data and the impact of exiting certain non-strategic components of the legacy IDC 7-Ticks business. | |
| (2) | Includes revenues from TMX, ICE BofAML, NGX and BondPoint. | |
| (3) | Net revenues in constant currency are calculated holding both the pound sterling and euro at the average exchange rate from 3Q17, 1.3091 and 1.1752, respectively. For the three months ending September 30, 2018, 5% of our data revenues were billed in pounds sterling and 3% in euros. For the three months ending September 30, 2017, 9% of our data revenues were billed in pounds sterling and 4% in euros. |
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Free Cash Flow Calculation |
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Nine months ending September 30, 2018 |
Nine months ending September 30, 2017 |
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| Cash flow from operations | $ | 1,735 | $ | 1,410 | |||||||||
| Less: Capital expenditures and capitalized software development costs | (161 | ) | (240 | ) | |||||||||
| Add: Section 31 fees, net | 117 | 99 | |||||||||||
| Free cash flow | $ | 1,691 | $ | 1,269 | |||||||||
