Intercontinental Exchange Reports Third Quarter 2018

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.”

 

Third Quarter 2018 Business Highlights

 
$ (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)

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.
 
         
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

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

 
 
 

Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)

 
      Nine Months Ended
September 30,
    Three Months Ended
September 30,
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
(In millions)
(Unaudited)

 
      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):

 
 

Adjusted Operating Income, Operating Margin and Operating Expense Reconciliation
(In millions)
(Unaudited)

 
     

Trading and Clearing

Segment

   

Data and Listings

Segment

    Consolidated

Three Months Ended

September 30,

Three Months Ended

September 30,

Three Months Ended

September 30,

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 %
 
 
 

Adjusted Net Income Attributable to ICE and EPS
(In millions)
(Unaudited)

 
     

Three Months Ended

September 30, 2018

   

Three Months Ended

September 30, 2017

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  
 

GAAP to Organic Data Revenue
(In millions)
(Unaudited)

 
                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.
 
 
 

Free Cash Flow Calculation
(In millions)
(Unaudited)

 
         

Nine months ending

September 30, 2018

   

Nine months ending

September 30, 2017

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
 
 

About Intercontinental Exchange

Intercontinental Exchange (NYSE: ICE) is a Fortune 500 and Fortune Future 50 company formed in the year 2000 to modernize markets. ICE serves customers by operating the exchanges, clearing houses and information services they rely upon to invest, trade and manage risk across global financial and commodity markets. A leader in market data, ICE Data Services serves the information and connectivity needs across virtually all asset classes. As the parent company of the New York Stock Exchange, the company raises more capital than any other exchange in the world, driving economic growth and transforming markets.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located at http://www.intercontinentalexchange.com/terms-of-use. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in Intercontinental Exchange, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on February 7, 2018. We caution you not to place undue reliance on these forward looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of an unanticipated event. New factors emerge from time to time, and it is not possible for management to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

SOURCE: Intercontinental Exchange

ICE-CORP

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or
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