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Intercontinental Exchange (ICE 0.05%) continued its streak of double-digit earnings growth during the third quarter. Driven by the recent acquisitions of Interactive Data and Trayport, ICE was able to capture stronger-than-expected expense synergies to bolster its bottom line. That helped the company more than offset weaker trading revenue as a result of muted volatility during the quarter.
Intercontinental Exchange results: The raw numbers
|
Metric |
Q3 2016 Actuals |
Q3 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Revenues, less transaction-based expenses |
$1.1 billion |
$816 million |
32.1% |
|
Adjusted net income |
$385 million |
$323 million |
19.2% |
|
Adjusted EPS |
$3.21 |
$2.91 |
10.3% |
YOY = year over year. Data source: Intercontinental Exchange.
What happened with Intercontinental Exchange this quarter?
Acquisitions drove growth this quarter:
- Trading and clearing segment revenue slid 4% to $483 million. While commodities trading revenue rose 2% to $262 million, led by a 4% increase in energy revenue, financial revenue slumped 14% to $177 million due primarily to currency impacts and customer mix. Meanwhile, data services revenue more than doubled to $489 million thanks to a $261 million contribution from the recent acquisitions of Interactive Data and Trayport. Finally, listings revenue edged up 5% to a record $106 million.
- Adjusted expenses were down 3% year over year to $484 million, which pushed adjusted margin up to 55%. The company's cost discipline has enabled it to accelerate the expected synergies from recent acquisitions. It now sees 2016 expense synergies of $115 million, up from $75 million at the beginning of the year.
- ICE's ability to keep its costs in check is enabling the company to generate healthy cash flow. Year to date, operating cash flow is up 69% versus last year to $1.5 billion. The company used that money to boost shareholder distributions and pay down $1 billion of debt since the start of the year.
What management had to say
CEO Jeffrey Sprecher commented on the company's results, saying:
In 2016, we've grown revenue, margins and earnings while investing in our long term growth. 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.
The additions of Interactive Data and Trayport are driving results at the moment, evident by the strong growth in data services revenue. These deals allowed the company to overcome a weaker trading market during the quarter. Those market conditions also impacted rival Nasdaq (NDAQ 1.82%), which saw a "contraction in trading revenues when compared to an especially volatile trading environment in the prior-year period." However, Nasdaq was likewise able to offset that impact via acquisitions. In fact, during the third quarter, Nasdaq's recent acquisitions added $58 million to its top line, which is noteworthy given that year-over-year revenue growth was just $56 million.
Looking forward
ICE continues to do two things to drive growth. First, it makes strategic acquisitions to bolster is product offerings. In fact, it completed another deal after the quarter ended, acquiring S&P Global's (SPGI 0.93%) Standard & Poor's Security Evaluations and Credit Market Analysis businesses. Second, it pushes expenses out of those newly acquired businesses to drive earnings and cash flow growth. It has been doing an even better job at that this year, evidenced by the acceleration of its expected cost synergies. Given its string of recent deals and ample liquidity, the company's growth-by-acquisition strategy is showing no signs of slowing down.
