Global exchange operator Intercontinental Exchange (ICE +0.04%) moved up its earnings release by almost a week to Wednesday morning because it wanted to take care of all of its business at once. After announcing that it had reached a deal to buy financial market data provider Interactive Data for $5.2 billion on Monday, the company wanted to discuss that deal and its third-quarter financial results on the same conference call. What's important to note is that while that deal certainly made the headlines, those headlines were not being made to cover up any weakness in ICE's third-quarter results, which were very strong.
A look at the numbers
ICE reported $816 million in consolidated revenue, less transaction-based expenses, which is up 10% year-over-year. Revenue was up in all four of the company's segments with its data services revenue particularly strong, with revenue up 24% year over year.
ICE's profitability grew by an even faster pace with adjusted net income from continuing operations jumping 21% year over year to $323 million. Meanwhile, earnings per share were even better, up 24%, thanks in part to share buybacks. This was the fourth consecutive quarter of double digit earnings growth for the company, which was driven by ICE's ability to reduce its costs with consolidated expenses falling to $376 million, which was 9.4% less than the year-ago quarter. The big cost-saver was a $32 million year over year reduction in acquisition-related transaction and integration costs.
ICE is growing both revenue and profitability much faster than rival Nasdaq (NDAQ +0.16%) despite being almost three times its size. This past quarter Nasdaq only grew revenue 6% year over year, while earnings per share grew by just 13% from the year-ago quarter.
A look at the Interactive Data deal
It's quite likely that ICE will be able to continue to outperform Nasdaq's growth after the company announced the acquisition of Interactive Data. ICE is paying $3.65 billion in cash and $1.55 billion in ICE common stock for the company, which it calls the "cornerstone in the next phase of extending our services."
In addition to its importance as a cornerstone to future growth, the deal is expected to deliver $150 million in cost synergies within three years of closing. Further, the deal is expected to be accretive to adjusted earnings by 5% in the first year after closing, which is expected to be by the end of this year.
A look at the outlook
ICE clearly has a lot on its plate next quarter with the closing of the Interactive Data deal. However, the company also expects to continue its focus on keeping its operating costs low, with the expectation that costs will fall to $330 million to $335 million. That's well below the company's $400 million in operating costs from the fourth-quarter of last year as well as the $376 million in costs during the third-quarter.
Investor takeaway
ICE continues to operate really well, delivering another quarter of double digit revenue and earnings growth, which outperformed its smaller rival Nasdaq. It's poised to continue growing after announcing a deal to buy Interactive Data, which will not only be accretive to earnings next year, but should deliver additional cost savings over the next three years as well as being a new cornerstone upon which to grow. That puts ICE in a solid position to create value for investors.
