Thanks to a combination of active capital markets and the execution of its strategic initiatives, Intercontinental Exchange (NYSE:ICE), or ICE, continued to grow revenue and earnings during the third quarter, enabling it to generate healthy free cash flow in the process. That's giving the company the money to reinvest in its business while still sending a growing stream of excess cash to investors.

Intercontinental Exchange results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenues, less transaction-based expenses

$1.14 billion

$1.08 billion

6%

Adjusted net income

$430 million

$385 million

11.7%

Adjusted EPS

$0.73

$0.64

14.1%

Data source: Intercontinental Exchange.

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Image source: Getty Images.

What happened with Intercontinental Exchange this quarter? 

The trading and clearing segment drove growth:

  • Data and listings revenue was up 4% from the year-ago quarter to $620 million. Data revenue rose 6% to $518 million thanks to a 16% increase from pricing and analytics. That helped offset a 3% drop in listings revenue, which fell to $102 million. Meanwhile, adjusted operating expenses declined 6%, which helped increase the adjusted operating margin from 50% to 55%.
  • Trading and clearing segment revenue rose 8% to $523 million. Leading the charge was an 8% increase in commodities trading revenue, which rose to $284 million. Meanwhile, adjusted operating expenses only rose 4%, which helped improve the adjusted operating margin from 61% to 62%.
  • ICE continues to produce plenty of operating cash flow, which pushed its year-to-date total to $1.4 billion. The company has already returned $1.15 billion of that money to investors, including $792 million in share repurchases and $385 million in dividends. That's up from just $459 million in cash returned last year, and well above the peak of $991 million in 2015.
  • ICE's earnings growth and retained cash has enabled the company to reduce net debt from $5.96 billion at the start of the year to $5.64 billion as of the end of the quarter, pushing its leverage ratio down to 2.1 times debt-to-EBITDA.

What management had to say 

CEO Jeffrey Sprecher commented on the company's progress in the third quarter:

We are pleased to again deliver strong revenue and earnings growth while executing on our strategic objectives to serve our customers and shareholders. We are investing to grow our trading, data and risk management solutions across geographies and asset classes and continue to see new ways to serve our customers across their workflow, from capital efficient clearing, to new trading and data products, to supporting regulatory compliance and connectivity needs. Our recent acquisitions demonstrate this focus and we look forward to leveraging our integrated offering to serve global markets as they evolve.

ICE has been very active on the strategic front over the past few months. For example, it agreed to acquire Virtu BondPoint for $400 million in cash to improve its data and technology capabilities to serve fixed-income customers. The company also bought a 4.75% stake in Euroclear for 275 million Euros ($321 million) to expand its investments in mission-critical clearing and risk management assets. Finally, the company agreed to sell its recently acquired Trayport business for 350 million Great British Pounds ($458 million) and two energy-related trading and clearing businesses, valuing Trayport at about $723 million. ICE had to sell Trayport -- which it bought for $650 million in 2015 -- after Britain ruled that ICE's ownership would diminish competition in that country's utility derivatives trading industry.

Looking forward 

Even with all that wheeling and dealing, ICE has a strong balance sheet and continues generating excess cash. Consequently, the company authorized a $1.2 billion stock buyback for 2018, which is 20% higher than this year's authorization. One of the drivers of that increase is the company being well ahead of pace on capturing cost savings from recent acquisitions, which is giving it more cash to return to investors.

Matthew DiLallo owns shares of Intercontinental Exchange. The Motley Fool owns shares of and recommends Intercontinental Exchange. The Motley Fool has a disclosure policy.