Market Overview

Intercontinental Exchange Reports Second Quarter 2018

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Intercontinental Exchange (NYSE:ICE):

                                                   
■ Record second quarter revenues of $1.2 billion, +6% y/y

Jeffrey C. Sprecher, Chairman & CEO, said,

 

"We are pleased to report our second quarter results, which
extend our track record of execution and growth. We reported
another quarter of record revenues and double-digit EPS growth, as
strong results in our data and listings segment were complemented
by double-digit revenue growth in our trading and clearing
segment. As we continue to innovate, customer demand for our
unique content, our secure distribution and our global benchmark
contracts has never been stronger."

■ GAAP Diluted EPS of $0.78, +10% y/y
 
 
■ Adj. Diluted EPS of $0.90, +18% y/y
 
 
■ Operating Margin of 53%, +1 pt. y/y; Adj. operating margin of
60%, +2 pts. y/y
 
 
■ Through 2Q18, over $1 billion returned to stockholders, +47% 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 second quarter of 2018. For the
quarter ended June 30, 2018, consolidated net income attributable to ICE
was $455 million on $1.2 billion of consolidated revenues less
transaction-based expenses. Second quarter GAAP diluted earnings per
share (EPS) were $0.78. Adjusted net income was $525 million in the
second quarter and adjusted diluted EPS were $0.90, up 18%
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.

Scott A. Hill, ICE CFO, added: "In the first half of 2018, we grew
revenues, expanded margins and generated over $1.2 billion of operating
cash flow. We returned over $1 billion of capital to stockholders in
2018 while also continuing to invest and position our business for
future growth. As we look to the second half of the year, we are excited
about the array of growth opportunities ahead and our ability to
generate value for stockholders."

     

Second Quarter 2018 Business Highlights

 
Net Op Adj Op

$ (in millions)

Revenue Margin Margin
 
Data & Listings $ 637 41 % 52 %
Trading & Clearing $ 609   64 %   68 %
Consolidated $ 1,246 53 % 60 %
 

Second quarter, consolidated net revenues were $1.2 billion, up 6%
year-over-year. Data and listings revenues in the second quarter were
$637 million and trading and clearing net revenues were $609 million.
Consolidated operating expenses were $591 million for the second quarter
of 2018. On an adjusted basis, consolidated operating expenses were $503
million. Consolidated operating income for the second quarter was $655
million and the operating margin was 53%. On an adjusted basis,
consolidated operating income for the second quarter was $743 million
and the adjusted operating margin was 60%.

Data and Listings Segment Results

Second quarter data and listings revenues were $637 million, including
data revenues of $526 million, up 1% year-over-year, negatively impacted
by the divestiture of Trayport in the fourth quarter of 2017, and
listings revenues of $111 million, up 2% year-over-year, negatively
impacted by the divestiture of NYSE Governance Services in the second
quarter of 2017. On an organic, constant currency basis(1),
segment revenues were up 4% with data revenues up 4% year-over-year and
listings revenues up 5% year-over-year. Data and listings operating
expenses were $373 million and on an adjusted basis, were $308 million
in the second quarter. Segment operating income for the second quarter
was $264 million and the operating margin was 41%. On an adjusted basis,
operating income was $329 million and the adjusted operating margin was
52%.

       
Organic
Const
$ (in millions) 2Q18 % Chg Organic

Curr(1)

Revenue:
Pricing and Analytics $ 262 8 % 8 % 7 %
Exchange Data 144 1 % % %
Desktops and Connectivity   120   (12 )%   3 %   2 %
Data Total   526   1 %   4 %   4 %
Listings   111   2 %   5 %   5 %
Segment Revenue $ 637 1 % 4 % 4 %
 
(1)   Net revenues in constant currency are calculated holding both the
pound sterling and euro at the average exchange rate from 2Q17,
1.2793 and 1.1004, respectively. References to organic growth
excludes businesses that have been acquired, divested or
discontinued that significantly impact the comparable periods. For
2Q18 and 2Q17, $10 million and $27 million of data revenues were
excluded from organic growth, respectively, and $3 million of
listings revenues were excluded from 2Q17.
 

Trading and Clearing Segment Results

Second quarter trading and clearing net revenues were $609 million, up
11% from one year ago. Trading and clearing operating expenses were $218
million and adjusted operating expenses were $195 million in the second
quarter. Segment operating income for the second quarter was $391
million and the operating margin was 64%. On an adjusted basis,
operating income was $414 million and the adjusted operating margin was
68%.

   
$ (in millions) 2Q18 % Chg
Revenue, net:
Energy $ 250 8 %
Ags & metals 74 20 %
Financials(1) 94 7 %
Cash equities & equity options 79 6 %
OTC & other transaction(2) 57 26 %
Other revenue(3)     55   12 %
Segment Revenue $ 609 11 %
 
(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 second quarter increased 8%
    year-over-year driven by a 11% increase in rate per contract (RPC),
    partially offset by a 5% decline in average daily volume (ADV).
  • Ags and metals futures and options revenue in the second quarter
    increased 20% year-over-year driven by a 13% increase in ADV and 4%
    increase in RPC.
  • Financials futures and options revenue in the second quarter increased
    7% year-over-year driven by a 2% increase in ADV and a 5% increase in
    RPC.
  • U.S. cash equities and equity options revenue in the second quarter
    increased 6% year-over-year driven by a 35% increase in equity options
    ADV and a 5% increase in U.S. Cash Equities RPC.
  • OTC and other transaction revenues in the second quarter were up 26%
    year-over-year driven by a 19% increase in CDS clearing revenue in the
    second quarter and the addition of BondPoint.
   
ADV
(lots in thousands) RPC
2Q18   % Chg   2Q18   % Chg
Energy 2,741   (5 )% $ 1.43   11 %
Ags & metals 480 13 % $ 2.42 4 %
Financials 2,902 2 % $ 0.49 5 %
Interest Rates 2,473 8 % $ 0.39 9 %
Other Financials 429   (22 )%   $ 1.06   13 %
Total Futures & Options 6,123 $ 1.06 9 %
 
Cash Equities 1,584 (3 )% $ 0.053 5 %
Equity Options 3,095 35 % $ 0.13 (19 )%
 
The second quarter of 2018 included 64 trading days for commodities,
other financials, cash equities and equity options and 64 trading
days for interest rates. The second quarter of 2017 included 63
trading days for commodities, other financials, cash equities and
equity options and 63 trading days for interest rates.
 

Other Matters

  • The effective tax rate for the second quarter was 24%.
  • Through the second quarter, ICE repurchased approximately $759 million
    of its common stock and paid $279 million in dividends.
  • Unrestricted cash was $532 million and outstanding debt was $6.9
    billion as of June 30, 2018.
  • Operating cash flow through the second quarter was $1.24 billion
    compared to $1.10 billion one year ago. Through the second quarter,
    free cash flow was $1.05 billion, up 17% from $898 million one year
    ago.

Financial Guidance

  • ICE's third quarter 2018 data revenues are expected to be in a range
    of $530 million to $532 million.
  • ICE's fourth quarter 2018 data revenues are expected to be in a range
    of $538 million to $542 million.
  • ICE's third quarter 2018 GAAP operating expenses are expected to be in
    a range of $590 million to $600 million and adjusted
    operating expenses(1) are expected to be in a range of $520
    million to $525 million.
  • ICE's full year 2018 GAAP operating expenses are expected to be in a
    range of $2,355 million to $2,365 million and adjusted operating
    expenses(1) are expected to be in a range of $2,040 million
    to $2,050 million.
  • ICE's interest expense is expected to be $67 million in the third
    quarter and $73 million in the fourth quarter.
  • ICE's diluted share count for the third quarter is expected to be in
    the range of 575 million to 577 million weighted average shares
    outstanding and 577 million to 582 million for the full year,
    including only share repurchases completed through July 31, 2018.
(1)   The 2018 Non-GAAP adjusted operating expense excludes $73 million in
amortization of acquisition-related intangibles for the third
quarter of 2018 and $283 million for the full year. The GAAP
operating expense forecast does not reflect an estimate of
acquisition-related transaction and integration costs for the third
quarter of 2018.
 

Earnings Conference Call Information

ICE will hold a conference call today, August 2, at 8:30 a.m. ET to
review its second 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 2600358 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 third quarter 2018 earnings has been
scheduled for October 31, 2018 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)
 
Six Months Ended Three Months Ended
June 30, June 30,
Revenues: 2018 2017   2018 2017
Transaction and clearing, net $ 1,762 $ 1,615 $ 864 $ 817
Data services 1,046 1,041 526 521
Listings 220 217 111 109
Other revenues 108   94     55   49  
Total revenues 3,136 2,967 1,556 1,496
Transaction-based expenses:
Section 31 fees 211 183 90 92
Cash liquidity payments, routing and clearing 454   438     220   224  
Total revenues, less transaction-based expenses 2,471   2,346     1,246   1,180  
Operating expenses:
Compensation and benefits 481 483 241 236
Professional services 59 64 29 32
Acquisition-related transaction and integration costs 27 23 15 9
Technology and communication 213 195 108 97
Rent and occupancy 33 35 16 17
Selling, general and administrative 72 79 39 38
Depreciation and amortization 281   276     143   142  
Total operating expenses 1,166   1,155     591   571  
Operating income 1,305   1,191     655   609  
Other income (expense):
Interest expense (107 ) (90 ) (55 ) (45 )
Other income, net 30   191     11   3  
Other income (expense), net (77 ) 101     (44 ) (42 )
Income before income tax expense 1,228 1,292 611 567
Income tax expense 292   354     149   140  
Net income $ 936   $ 938     $ 462   $ 427  
Net income attributable to non-controlling interest (17 ) (16 )   (7 ) (8 )
Net income attributable to Intercontinental Exchange, Inc. $ 919   $ 922     $ 455   $ 419  
 
Earnings per share attributable to Intercontinental Exchange, Inc.
common stockholders:
Basic $ 1.59   $ 1.56     $ 0.79   $ 0.71  
Diluted $ 1.58   $ 1.55     $ 0.78   $ 0.71  
Weighted average common shares outstanding:
Basic 580   593     578   591  
Diluted 583   597     581   595  
Dividend per share $ 0.48   $ 0.40     $ 0.24   $ 0.20  
 
   
Consolidated Balance Sheets
(In millions)
(Unaudited)
 
As of As of
June 30, 2018 December 31, 2017
Assets:
Current assets:
Cash and cash equivalents $ 532 $ 535
Short-term restricted cash and cash equivalents 817 769
Customer accounts receivable, net 1,049 903
Margin deposits, guaranty funds, and delivery contracts receivable 54,991 51,222
Prepaid expenses and other current assets 171     133  
Total current assets 57,560     53,562  
Property and equipment, net 1,220     1,246  
Other non-current assets:
Goodwill 12,484 12,216
Other intangible assets, net 10,223 10,269
Long-term restricted cash and cash equivalents 331 264
Other non-current assets 1,029     707  
Total other non-current assets 24,067     23,456  
Total assets $ 82,847     $ 78,264  
 
Liabilities and Equity:
Current liabilities:
Accounts payable and accrued liabilities $ 405 $ 462
Section 31 fees payable 209 128
Accrued salaries and benefits 150 227
Deferred revenue 372 125
Short-term debt 2,645 1,833
Margin deposits, guaranty funds, and delivery contracts payable 54,991 51,222
Other current liabilities 122     178  
Total current liabilities 58,894     54,175  
Non-current liabilities:
Non-current deferred tax liability, net 2,284 2,298
Long-term debt 4,271 4,267
Accrued employee benefits 235 243
Other non-current liabilities 323     296  
Total non-current liabilities 7,113     7,104  
Total liabilities 66,007     61,279  
Equity:
Intercontinental Exchange, Inc. stockholders' equity:
Common stock 6 6
Treasury stock, at cost (1,911 ) (1,076 )
Additional paid-in capital 11,477 11,392
Retained earnings 7,498 6,858
Accumulated other comprehensive loss (265 )   (223 )
Total Intercontinental Exchange, Inc. stockholders' equity 16,805 16,957
Non-controlling interest in consolidated subsidiaries 35     28  
Total equity 16,840     16,985  
Total liabilities and equity $ 82,847     $ 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 Data and Listings
Segment Segment Consolidated
Three Months Ended Three Months Ended Three Months Ended
June 30, June 30, June 30,
2018   2017 2018   2017 2018   2017
Total revenues, less transaction-based expenses $ 609     $ 550   $ 637     $ 630   $ 1,246     $ 1,180  
Total operating expenses $ 218 $ 197 $ 373 $ 374 $ 591 $ 571
Less: Interactive Data transaction and integration costs 12 8

 

12 8
Less: Amortization of acquisition-related intangibles 15 16 53 51 68 67
Less: Impairment of exchange registration intangible assets on
closure of ICE Futures Canada and ICE Clear Canada
4 4
Less: Impairment on divestiture of NYSE Governance Services 6 6
Less: Employee severance costs related to ICE Futures Canada and ICE
Clear Canada operations
  4                     4        
Adjusted total operating expenses $ 195     $ 181   $ 308     $ 309   $ 503     $ 490  
Operating income $ 391     $ 353   $ 264     $ 256   $ 655     $ 609  
Adjusted operating income $ 414     $ 369   $ 329     $ 321   $ 743     $ 690  
Operating margin   64 %     64 %   41 %     41 %   53 %     52 %
Adjusted operating margin   68 %     67 %   52 %     51 %   60 %     58 %
 
   
Adjusted Net Income Attributable to ICE and EPS
(In millions)
(Unaudited)
 
Three Months Three Months
Ended June Ended June
30, 2018 30, 2017
Net income attributable to ICE $ 455 $ 419
Add: Interactive Data transaction and integration costs 12 8
Add: Amortization of acquisition-related intangibles 68 67
Add: Impairment of exchange registration intangible assets on
closure of ICE Futures Canada and ICE Clear Canada
4
Add: Employee severance costs related to ICE Futures Canada and ICE
Clear Canada operations
4
Add: Impairment on divestiture of NYSE Governance Services 6
Add: Foreign exchange loss and transaction expenses on sale of Cetip 9
(Less): Income tax effect for the above items (23 ) (60 )
Add: Deferred tax adjustment on acquisition-related intangibles 5      
Adjusted net income attributable to ICE $ 525     $ 449  
 
Diluted earnings per share attributable to ICE $ 0.78     $ 0.71  
 
Adjusted diluted earnings per share attributable to ICE $ 0.90     $ 0.76  
 
   
GAAP to Organic Data Revenue
(In millions)
(Unaudited)
 
2Q18 2Q17
Data Revenue (as reported) $ 526 $ 521
Adjusted for:
2017 Divestitures & wind down of acq. businesses(1) (27 )
Acquisitions(2)   (10 )    
Organic Data Revenue $ 516 $ 494
 
FX Impact(3)   (3 )    
Organic, constant currency revenue $ 513 $ 494
 
(1)   Includes $19 million of revenue related to the divestiture of
Trayport in the fourth quarter of 2017 and $8 million of revenue
related to the wind down of acquired business. Wind down of acquired
businesses includes the discontinuation of certain businesses
acquired as part of a 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 2Q17,
1.2793 and 1.1004, respectively. For the three months ending June
30, 2018, 6% of our data revenues were billed in pounds sterling and
4% in euros. For the three months ending June 30, 2017, 9% of our
data revenues were billed in pounds sterling and 3% in euros.
 
   
Free Cash Flow Calculation
(In millions)
(Unaudited)
 
1H18 1H17
Cash flow from operations $ 1,236 $ 1,099
Less: Capital expenditures and capitalized software development costs (108 ) (150 )
Less: Section 31 fees, net   (80 )     (51 )
Free cash flow $ 1,048 $ 898
 

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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