Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Intercontinental Exchange Inc (ICE, Financial) reported record third-quarter net revenues of $2.3 billion, driven by record transaction revenues of $1.1 billion and recurring revenues of $1.2 billion.
- The company achieved a 12% increase in adjusted pro forma operating income, reaching a record $1.4 billion, with adjusted earnings per share totaling a record $1.55.
- ICE reduced its debt by approximately $600 million during the quarter, ending with an adjusted leverage of approximately 3.5 times EBITDA.
- The exchange segment saw a 12% year-over-year increase in net revenues, with record transaction revenues driven by a 34% increase in the interest rate business and 23% growth in energy revenues.
- The fixed income and data services segment achieved record revenues of $586 million, with a 6% year-over-year growth in recurring revenues, driven by pricing and reference data and nearly 30% growth in the index business.
Negative Points
- ICE's mortgage technology segment experienced a decline in recurring revenues year-over-year, although they stabilized relative to the second quarter.
- The company anticipates a reduction in OTC and other revenues by $15 million to $20 million in the fourth quarter due to a regulatory fee holiday.
- Fourth-quarter adjusted operating expenses are expected to increase to a range of $977 million to $987 million, including $10 million to $15 million of non-recurring items.
- Full-year capital expenditures are projected to be higher, in the range of $700 million to $740 million, driven by data center investments originally planned for 2025.
- The mortgage technology segment's transaction revenues are still impacted by a significant portion of customers being under their minimums, although this is improving.
Q & A Highlights
Q: Can you separate the alpha and beta in the energy business as we head into 2025, considering the current trading environment and geopolitical factors?
A: Stuart Williams, Chief Operating Officer, explained that open interest is a good indicator of future volume, as it reflects positions by real market participants. Geopolitical events create short-term volatility and new supply chains, which drive growth in different parts of ICE's energy markets. The focus has been on creating a network of markets that provide pricing points across geographies and energy types, allowing ICE to benefit from market evolutions. Energy consumption is expected to double over the next 25 years, particularly in developing countries, which will drive demand for ICE's contracts like JKM, TTF, Brent, and Dubai.
Q: How will the partnership between ICE bonds and MarketAxess enhance liquidity and client value proposition, and could it lead to a closer relationship?
A: Christopher Edmonds, President of Fixed Income and Data Services, stated that the partnership allows access to unique liquidity pools, enhancing client value. It's early days, but both companies are happy with the progress. While they will add more instruments as the market evolves, Edmonds avoided speculating on a closer relationship or acquisition.
Q: Can you explain the fourth-quarter IMT guidance and how it relates to market activity and customer minimums?
A: Warren Gardiner, Chief Financial Officer, noted that the guidance assumes a slower purchase market due to seasonal patterns and recent interest rate hikes. Many customers are still below their minimums, but this is improving. The third quarter was the best in over two years, with more customers crossing their minimums, contributing to better transaction revenue relative to the market.
Q: What are the expense drivers for Q4, and how should we think about expenses and margins in 2025, especially in the mortgage business?
A: Warren Gardiner explained that Q4 expenses include $10-15 million of one-time costs. The core run rate is around $970 million, with increases in SG&A and marketing expected. For 2025, the focus will be on investing in people and technology. As transaction volumes improve, the mortgage business will benefit from high incremental margins, similar to ICE's futures and NYSE businesses.
Q: What are the growth opportunities in the energy sector, particularly in sustainable aviation fuel (SAF) and customer participation?
A: Stuart Williams highlighted growth in customer participation, especially in Asia, and the pivot of existing customers into new markets. The globalization of gas requires US participants to manage risks in global markets like TTF and JKM. Regarding SAF, ICE is monitoring the market structure, which is still evolving, and sees opportunities in biofuels and the correlation between sugar and energy markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
