Q3 2019 Earnings Call

Good morning, and welcome to the Intercontinental Exchange third quarter 2019 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signally conference specialist I pressing the star key followed by zero. After today's presentation, there will be an opportunity.

To ask questions to ask a question. He made press Star then one on your Touchtone phone to withdraw your question. Please press Star then too.

Please limit yourself to one question and one follow up. Please don't this event is being recorded.

I would now like to turn the conference over to Warren Gardiner Vice President of Investor Relations. Please go ahead.

Good morning, I, just third quarter 2019 earnings release and presentation can be found in the investor section of the ice Dot com.

As we archived on our call will be available for replay of.

Today's call May contain forward looking statements. These statements, which we undertake no obligation to update represent our current judgment and are subject to risks assumptions and uncertainties for a description of the risks that could cause our results to differ materially from those described in forward looking statements. Please refer to our 2018 Form 10-K and other filings with the FCC.

In our earnings supplement refer to certain non-GAAP measures, including adjusted income <unk> operating income operating margin expenses effective tax rate free cash flow and adjusted debt to EBITDA right. We believe our non-GAAP measures are more reflective of our cash operations in core business performance, you'll find a reconciliation.

In equipment gap term in the earnings materials and explanation of why we'd be in this information to be meaningful as well time management uses these measures in our 10-Q.

In use on this call net revenue were first revenue net of transaction based expenses and adjusted earnings refers to adjusted diluted earnings per share.

Please see the explanatory notes on the second page of the earnings up when for additional details regarding the definition of certain terms.

It's on the call today, our Jeff Sprecher, Chairman and CEO , Scott Hill, Chief Financial Officer, and then Jackson, our President I'll now turn call over to Scott.

Thanks, one good morning, everyone and thank you for joining us today I'll begin on slide four with some of the key highlights from our record third quarter results.

Third quarter revenues grew 11% versus last year to a record $1.3 billion.

Adjusted operating margins expanded two points to 59%, resulting in a record adjusted operating income which grew 16%.

This strong performance generated record adjusted earnings per share at $1.86 cents, an increase of 25% over last year's third quarter, and the best quarter and our company's history.

Strong growth in our trading and clearing revenues was driven by 19% growth in energy and 23% constant currency growth in financial.

Record date, and Liftings revenues included data revenues of $553 million, which were up 5% on a constant currency basis.

Adjusted operating expenses totaled $551 million, including a one time benefit of roughly $6 million within SDN <unk> expenses would otherwise had been right in the middle of our guidance.

Looking to the fourth quarter, we expect adjusted operating expenses to be in a range of $562 million to $572 million.

This improves our full year 2019 expense guidance to a range of $2.18 billion to $2.19 billion importantly, though do you think about a pro forma 2019, you'll need to add to that around $50 million to reflect a full year impact to simplify all the licensing reclassed. It started in the second quarter and the.

Onetime items, we've mentioned through the first three quarters.

I also want to provide some color on our third quarter adjusted tax rate of 17.5% and the positive implications for 2020.

Based upon additional guidance published in March related to the four into ride intangible income or FDI aspect of the 2017 U.S. Federal tax reform, we were able to refine our 2018 return assumption, which we just filed this month and our 2019 provision.

These prior year and year to date true ups are reflected in the low rate in Threeq, you and or find assumptions are expected to contribute to an adjusted tax rate of around 22.5% in the fourth quarter.

More importantly, we expect these changes combined with the scheduled UK tax reduction in April of next year to low where 2020 tax range by roughly 100 basis points to a range of 21 and I have to 23.5%.

Moving to capital return to the first nine months of 2019, we generated free cash flow of over $1.7 billion. We've returned over 90% of that cash to our shareholders through dividends and share repurchases, including $340 million the buybacks during the third quarter.

We continue to expect capital return to grow as we grow balanced against the need for incremental investments or M&A.

Turning to slide five I'll discuss our trading and clearing segment.

Revenues of $669 million were up 20% year over year in the third quarter adjusted operating margin expanded by two points to 65%, helping to drive a 24% increase and adjusted operating income.

And our energy business third quarter revenues increased 19% year over year, working the best quarter ever for our energy revenues.

D.V. across our oil complex increased 15% year over year led by 15% growth in Brett and 24% growth in our other crude and refined oil complex.

Our European natural gas business also continues to deliver strong growth, including record third quarter, ATP up 63% and year to date volumes would you have grown nearly 50%.

In addition open interest in October across our energy business is up 8% since the end of last year led by recent Oh I Records in our Brent crude North American basis market and T.D.F. natural gas futures.

And our financial futures business revenues increased 23% versus last year adjusted for FX.

Volatility related to Brexit as well as uncertainty around the direction of global interest rates drove strong volumes in IRI board and Sterling product with Eightv up 18, an 11% respectively.

Similarly, 80 be across our equity index business increased 19% year over year.

Higher levels of volatility and the increased adoption combined to deliver 24% growth in our MSC eightv compared to the prior year.

As we close out October open interest in our financial futures business is up 26% from the end of last year with October registering record levels of Sterling open interest, which is up 64% from the end of 2018.

In fixed income and credit revenues totaled $101 million for the quarter, including $35 million of revenue from our Cds clearing business, which was up 8% year over year and Refrac reflected record levels of Buyside clearing activity.

Moving to slide six I'll discuss our data and lifting segment.

Third quarter revenues totaled a record $667 million with adjusted operating margin increasing to 52%.

And our Liftings business. The NYSE listed 18 Ipos during the third quarter and has lifted 46 ipos year to date, helping our customers rate over $26 billion in proceeds.

In addition, our innovative direct lifting offering continues to attract interest. The NYSE is hybrid model uniquely combines the human judgment of our direct market makers with the state of New York technology to reduce friction that exist in today's IPO process.

Shifting to data services revenues totaled $553 million, an increase of 5% year over year on a constant currency basis.

Revenue growth in pricing in analytics improved sequentially to 5% on a constant currency basis in the third quarter driven by solid results across our pricing and reference data business as well as our suite of index products.

We expect pricing and analytics revenue and gross to improve sequentially again in the fourth quarter, that's a secular shift towards workflow automation and fixed income market and from active to passive products continues.

In exchange data feeds revenues grew 3%.

Lower growth in why I see was mitigated by 6% growth in our futures business, which continues to benefit from strong commercial interest in our global commodities platform.

And desktop as in connectivity revenues grew 10% on a constant currency basis, what performance driven by sequential improvement and ice global network revenue, reflecting a strong quarter of implementations.

You bet connectivity growth to continue to be supported by demand for cyber secure connectivity and vendor optimization, but quarter to quarter results will continue to vary based on the timing of customer implementations.

Finally, we expect fourth quarter data services revenues to be in the range of $555 million to $560 million and not for the full year. Our data revenues will be right around the middle of the guidance. We provided when we entered the year.

Our focus remains on serving our customers in delivering value to our shareholders. The efficacy of our diverse business model is once again reflected in open interest growth across our trading and clearing business complemented by continued and compound growth and our data business due to first nine months of 2019, we generated record revenue.

This record adjusted operating income and record adjusted earnings per share and easily even as we have continued to strategically invest in our future. We also returned a record $1.6 billion to shareholders I'll be happy to take your question during Q and age but for now I'll turn it over to Jeff.

Thank you Scott and good morning to everyone on the call.

I'll begin on slide seven.

Since our inception, we pursued growth opportunities that leverage our leading technology and operational expertise.

It's an approach that's guided our evolution into a number of adjacent markets and one that has positioned us today as one of the most diverse marketing infrastructure companies in the world.

Operating markets across major asset classes, and geographies, while serving an array of customer and industry persist participant needs.

Our experience in building trading clearing and settlement infrastructure informs us of the importance of analytics indices payments and valuation services.

These are solutions that drive efficiencies not proceeds that decline with our customers headcounts.

We made our first investments in these areas well over a decade ago and we continue to build on that foundation, helping to facilitate workflow automation enhancing pre trade decision, making and improving market transparency.

Our third quarter performance demonstrated the value of such investments trading and clearing revenues grew 20% year over year, while recurring revenues in our data business, which represents nearly half our revenues grew 5%, marking the 39th consecutive quarter of year over year growth.

A number of years ago, we saw the importance of investing in an energy platform that is truly global one that better serves the needs of an evolving and growing commercial customer base.

Today as trade dynamics evolve and become increasingly complex customers are seeking not only liquidity in the major global benchmarks, but also in products that provide for greater precision, particularly when coupled with comprehensive data and analytics.

Our global oil complex spans over 600 products, including locational spreads product spreads in refining spreads products that are built off of our benchmark contracts, such as Brent crude oil and gas oil.

And as the natural gas markets grain gain greater importance around the world our customers are increasingly turning to our global platforms for their risk management needs.

In the third quarter, we reached another record in our European TTF and Asia JK M gas contracts, helping to drive record revenues across our natural gas complex through the first nine months of 2019.

In our financial markets. The M.S.C.I. equity derivatives complex is having another strong year with average daily volume up 16% through the end of the third quarter.

And since moving to the ice platform in 2014 open interest in our MFC futures contracts has grown at an average annual rate of over 20%.

In late September we announced the extension of our existing licensing arrangement and expansion of our partnership with M. Sci following on the strong performance that we have together enjoyed.

As a part of this expansion MSC I plans to integrate ice is pricing and reference data into its growing suite of services and ice plans to launch a suite of new futures contracts based on MSC eyes, leading U.S.G. franchise and access MSC ice SG data to bring new and innovative indices to market.

So these are just a few examples of how we listen to our customers needs worked closely with key industry participants and apply our technology and operating expertise to grow the ecosystems that surround our markets.

Over the past few months, we've launched a number of exciting early stage strategic initiatives that will help establish a foundation for us to continue to evolve and grow well into the future.

For example towards the end of October in collaboration with the industry. We successfully moved the U.S. move indices from Bank of America Merrill Lynch.

Move indices will be managed by ice data indices and powered by ice data services analytics.

This complex will join in index platform with one trillion dollars of Benchmarked assets, including $200 billion of a U.M. and exchange traded funds.

The acquisition of the move indices will also allow us to launch related futures and options products, which is yet. Another example of how data and trading drive a virtuous cycle.

In October we also executed our first trade through the ice F hub as well.

While it's early days the activity across this platform and participant interest is building with a number of leading authorized participants and key market makers, joining blackrock on the platform.

Leveraging ice data services pricing data reference data index offerings, and intelligent analytics that he tee up hub will act as a central portal for F primary trading which is also known as the create redeem process. While it also places our comprehensive fixed income offering in the middle of a market.

That is undergoing an analog to digital conversion.

As the world's leading ETF sponsor Blackrocks developmental partnership in this project is an important first step towards bringing more efficiency and standardization to the industry.

And supporting its continued growth.

In addition to launching F hub, our trading protocols within ice bonds will soon connect to the Aladdin platform.

Together with our recent integration with the Charles River platform, our institutional customers will soon have better access to ice as various trading venues and trading protocols.

At ice mortgage services, you know to adoption and utilization of our E Registry continues.

This year through the end of September nearly 80000 Ie notes have been created which is almost five times that all of 2018.

Lenders servicers investors and custodians are making the decision to go digital and they're demanding efficient more comprehensive solutions across the U.S. mortgage industries workflow.

And in September back successfully launched its first ever physically settled bitcoin future.

And soon after we successfully completed the first ever physical delivery of bitcoins pursuant to this regulated environment.

These are important steps towards bringing trusted infrastructure to digital assets.

In our experienced secure and regulated infrastructure is vital to investors and consumers no matter, what the asset class and with trusted operations state of the art cyber security and end to end regulation backed hopes to establish user confidence and provide an ecosystem that can facilitate the broad adoption and secure transfer.

For a digital assets.

I'll conclude my remarks on slide eight.

Third quarter was another example of strong execution across our platform.

We delivered record revenues and record operating income.

EPS grew double digits, and we continue to invest in future growth.

All while returning a record amount of capital to our shareholders.

As we look for forward to the fourth quarter and beyond the 2020, we're excited about the growth opportunities that lie ahead.

We've built a scalable platform uniquely positioned to evolve and to grow and we will continue to work closely with our customers in key industry participants to apply our technology and operational expertise to improve markets and create value for all of our stakeholders.

So I'd like to thank our customers for their business in the third quarter and thank my colleagues that ice for their efforts that contributed to the very best quarter in our company's history.

And with that I'll turn the call back to Andrew our moderator to conduct a question and answer session until 930 eastern time.

We will now begin the question and answer session to ask a question you made press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

Just as a reminder, please limit yourself to one question and one follow up.

This time, we will pause momentarily to assemble our roster.

The first question comes from Richard Repetto Sandler O'neil. Please go ahead.

Good morning, Jeff Good morning, Scott.

A team.

So I guess the first question is on the data and listing segment.

You know the S.S., we still is growing at that 5% clip, but I would say.

When you gave the guidance earlier on line by line as far as pricing analytics exchange data in desktops et cetera that the growth is sort of varying from what you gave initially Scott and I guess, yeah can you update US you know how it has you know why that's changed I guess you could say some of the you know the desktop connectivity.

The Global network has helped you but should we you know why the differences and should we doesn't really make any difference I guess.

Yes, it's a good question rich and I think it's instructive I forget when but but just made a comment a couple of calls ago that effectively the business. We bought four years ago fold, one product at full bond prices and each year. It would raise prices a couple of percent and and it would hope that it could could have the similar retention with cut.

Dimmers, what we built is what I think Jeff referred to the data superstore, where it's not just bond prices. If it's prices. It's reference data it's fee if connectivity solutions. It's by the way feeds that a real time prices and now we've launched our database, which will give you historic prices and so more and more what were.

Able to do with customers as sell beyond just bond prices in and and to go beyond just what this year is 2% to 3% price increase will be and so I do think it the focus shouldn't necessarily be on a single line and really should look more at the collective because that's what we're selling.

Yeah, we're selling feed which is then exchange data were selling connectivity, which it is in connectivity and we're selling price in the reference data would you then PNM and just to kind of even it out year to date our growth in the data business has been 5% Pfizer and analytics has been five exchange data has been six desktops and connectivity has been six that's.

Hi, good balance in its because we have products in offerings that our customers need and each of those lines and so did I think earlier in the year that pricing and analysts there'd be a little closer to six you know I I did but I also didn't expect us to see quite the performance, we have and connectivity, but again, we're selling what the customers want to buy at.

And I expect actually that the dynamics next year are gonna be fairly similar you know I as I said, I think pricing and analytics growth going to accelerate again ended the fourth quarter and I think its position to grow five 6% as we look into 2020 conductivity. You know again I I think we're looking at a business next year that could generate another four or 5% growth.

On top of it makes James date, as a little bit of a wildcard you know if you think about our fourth quarter guidance, we've got a bit of a drag particularly related to the NYSE. So setting that wildcard aside again, I think there's going to be a bit.

Contribution from each of those businesses and what we're focused on is a data business that grew 5% three years ago grew 5% last year gonna grow 5% this year and its position to deliver the 4% to 6% model range that we've given again in 2020.

Got it that's helpful. Scott.

My follow up would be I guess to Jeff and Ben but on the T.F. Bob you know we fight we got launched and from what I understand right now it's focused on equity T. absent.

The I believe is just creation redeem it may be sector will probably secondary trading too, but I guess my question is you know given what you've seen so far you know how how does that make you feel about the transfer and when you try to get you know that create redeemed in fixed income and I know you've got Blackrock and that's certainly helps but.

You know what can we have we learned in just a few weeks. So we've got it up that it can be transferred over to not only that primary create redeem but the secondary trading in fixed income ours is just too early to tell.

Thanks, Rich it's been Jackson.

Great question.

And we're very excited about the controlled launch that we've had on the on the T.F. up over the past couple of days.

Of getting that up an off the ground with our partners as as you highlighted.

And our focus right now is really about building out the network and the opportunity for both us and the customers is twofold, So and you touched on both areas. So first is the primary market.

And when you think about the primary market. This is a completely underserved market today. There is not one independent provider of services, that's providing a single marketplace, where by multiple issuers can connect to multiple banks.

Really negotiate in both equities and fixed income what is that acceptable basket of security. So for a an equity TF what does that basket a single name equities that I need to go out and procure in order to swap with an issuer that basket of equity securities for a single share of an echo.

Do you T F.

And in fixed income, it's acquiring a basket of bonds.

At one acceptable to that issue or can be swapped in our marketplace for a single share.

Have a fixed income F.

And then can consummate that swap of the basket of securities for the TF trend for the T.F. share and then settle that transaction. So this is 100% greenfield opportunity in the industry as embraces we have an advisory committee.

It's been a part of this that consists of multiple big issuers.

As well as all the big banks and APC market makers that are part of that are controlled launch was in equities as you had mentioned.

With Blackrock in several of the big.

Asian banks are mentioned in a in a press release this past week.

And we're gonna be soon launching in the coming weeks fixed income.

So we feel really good about the network there were starting to establish through the balance of 2019, it's going to be about continuing to build out that network and into 2020 around building out the functionality for multiple asset classes and that network in that primary trading environment.

The second thing you touched on in secondary trading so secondary trading. So this is downstream of the hub and this is the actual procurement of equity. So when you think of procuring equities to go into basket you can go to a venue like the New York stock exchange.

In fixed income and you all know a lot of the usual suspects in the institutional space in fixed income trading platforms like Bloomberg market access and trade web.

On a redemption process, helping to provide another choice for customers either through our central order book platform, our RF Q platform or our portfolio auction platform and again. This is a space. We haven't played in prior and the integration efforts as Jeff mentioned in his commentary around our completed integration with Charles River and our.

Coming weeks, a will be completed with our integration with Aladdin all helps us to really establish and build out. This network. So we feel great about it.

The next question comes from Michael Carrier of Bank of America. Please go ahead.

Synergy side, and then in an environment, where we're seeing pretty healthy revenue growth just wanted to get your view and some of the expense initiative. They haven't place what we should be thinking about in terms of the incremental margin in the business.

Thanks, Mike I'd say, that's a good question and it's I, it's the right time of year to be thinking about that as we get ready to take the board. Our 2020 budgeting I'm sure you all are starting to pay attention to your 2020 model. So I think look we then the expense base I think the key thing is I and I said it in my prepared remarks, as you think about.

2019, and look at where we're landing right now we're actually landing in the middle of our original guidance, even though we've added about $50 million from simplified all and the accounting change to move some of the.

Net to gross.

Revenues around our revenue share agreement, that's been mitigated by about $20 million, a onetime items that notwithstanding we're still sitting right in the middle of that original guidance. So the expense performance has been good we delivered on the last of the $30 million of synergies.

But then we've additionally, been able to mitigate another $15 million to $20 million expense on our more recent.

Acquisitions and then in addition to that just our normal expense management would which I think you know over the the years. It has been demonstrated as a core competency of ours and so as you start to think about next year I think the model for next year is going to look a lot like it has the last couple of years, where you know we're going to reward our employees with established.

Greece consistent with what we've done in the past couple of years, we're going to have some expense growth that will be in support of revenue you saw some of that if you looked at the the Tech line for example in the third quarter, that's reflective of good growth on the topline and some of the revenue share which shows up in that line. So I think our overall it's been performance. This year has been.

Very good as you alluded to and then I think as you think about 2020, if you look back at the way, we've modeled and guided going into the last couple of years, it's going to look very similar.

Specific to the investments I think part of the good news is MTF hub is launched that investments in our run rate you know backed we're now a year through I expect there'll be some acceleration and that investment as we move into next year, but again largely in the run rate that we've got and and so a lot of the initiatives that you hear us talk about or in the expense run rate.

That we've shown you and again, that's an expense run rate that led to us actually doing better than what we thought we would entering this year.

Okay. That's helpful. And then just as a quick follow up on there was a white paper out <unk> <unk> some of the and the clients that ucbs around your skin in the game again, just more curious on your thoughts if anything's changed or why you know this is coming up again and any.

Conversations with regulators, if anything's changed on that front.

Yeah. So that's it thanks for the question and I'll put my clearing hat on and take my CFO had off for a moment. So I think a couple of things I think first of all they're not a lot new in that paper that these are things we've been hearing for Ford.

Five years.

Number two it's a relatively small number of signatories big big important names in a lot of places important partners and customers, but a small fraction of the people that actually participate in our markets.

In terms of timing you know I think there was an industry conferences, Jeff just flew back from and so the timing is not surprising because it gives you a venue to talk about things that you've been saying for five years and are particularly sticking but up but I think then the important thing you dig into the substance of it right. So they want us to put 20 per se.

Then a of the guarantee fund as our skin in the game, which effectively is will will fund the risk that they bring to the clearing house because remember clearing out the don't create risk we manage risk we don't take a long position, we take a long and we take an offsetting short we collateralized that was I am by the way I am that's based on models that.

And probably last time for me on the job as well so I I think if you look at what's in the paper, we're very interested in a dialogue because again those are important partners and customers, but but I do think that theres, a little bit of the look over here and and and then a requested to try and mitigate some of the cap.

Total requirements on those firms versus a a true view that there is some risk that needs to be managed and so you know again, we're engaged in the dialogue we are proactively taking steps.

Alright, thanks for the color.

Hi, good morning.

Maybe first can you talk about the penetration of the credit and Muni markets and what sort of market share of those trading instruments or you do you have done or what marketshare has done since your acquisitions of Bondpoint TMC.

If shares increased by about how much and I know it's early in the implementation of your strategy is each have hub. Just you know just turned on but I'm sort of wondering about how the penetration of those markets just looking prior to some of your big initiatives getting under underway.

Hey, Ken it's Ben Thanks for the thanks for the question on the volumes front. So one of things I mentioned on I believe is the prior call.

Is that our platforms. When you look at them retroactively look at them backwards looking they were historically concentrated the municipal space and if you look at just MSR be volumes.

They've been very tough the municipal space has been a very very tough area for all comers this year.

And the good news is we're actually outperforming MSR be but again, it's it's been a tough market in the in municipal space.

The good news, though we have seen on the platform is that the volumes that while communities have been tough we have seen treasuries really gross wrong.

Now in the past year, you a little over a year that weve on both platforms. Our focus has been on integrating the businesses and getting the businesses operating together, which we've completed so they're now it out in a single business called ice bonds for us we've actually executed on a project over the past year to develop self clearing to be able to create.

A more efficient clearing platform of bonds underneath these businesses, which will help us lower the cost of running the businesses.

The third thing that we've been doing is consolidating the broker dealers and that'll be that'll be taking place in the early part of in the early part of next year again, providing more efficiency to the operation of those businesses.

In the things we've had to do is execute on building out our our Q platform, which we've done leveraging the expertise that we've had in the RF Q space in commodities for a number of years and that represents 20% of our volumes.

We've also built out our portfolio auction capabilities, which if you read any press articles you can see that that's an area. That's been involved for both the buy side and sell side as a more efficient solution for executing trades.

And to give you a sense on that portfolio auction side.

We have in a controlled launch type of manner of getting that control getting that portfolio auction off the ground, we've been partnering with asset managers as asset managers are often times benchmark to one of our indices. So one of the indexes that we bought from the Bank of America Merrill Lynch or they can be benchmark to a third party index.

When benchmark to a third party index or ours, our pricing in reference data more often than not is underpinning.

Those indices as well as those asset managers as in the asset manager space, we have well north of three quarters of the asset managers around the world utilize our data to strike there an ABS and have done that for decades.

So the ability for us to combine for an asset manager a portfolio auction to be able to trade all of their.

The entire basket that they're looking to.

And we saw in the third quarter and one of the portfolio auctions to give you. An example, it a single trade a notional size of 275 million went off on that single portfolio auction trade. So this is something that we're looking to we've had some success with and we're gonna look to further engage with our customers is another area another growth.

Again on the execution side, what we see and our focus is on really building out our network expanding our capabilities into the institutional space for execution, which is a space. We have historically not been leveraging the strength that we have in our pricing reference data and analytics businesses.

Ken This is Jeff if I could just underline what Ben said is we didnt have a natural nexus into the execution of a bond securities and so and there are some very good companies that are in that space as you're aware. So we were late if you will.

Two building out an execution venue, but as Ben mentioned when we.

Admitted and recognize that we were late and so we pivoted hard to build out all of the other thing that we know.

Tend to flow from having a good execution venue and so we build out the data platform and our the predominant fixed income data provider now and with a trillion dollars of EPS benchmarked against our indices now buying the move volatility index, which is.

One of the major indices buying the bank of America 5000 indices that are surround largely the fixed income space we.

In a way leap frog, where we would have otherwise been too.

To have the backend and the ancillary benefits that we know come from having a strong execution venue and so it Ben is working on is essentially levering off of that strong backend odd to move forward into the execution space, including as he's talked extensively about that.

He tee up hub, which is which is really at the route.

Where most of the.

Demand is created for execution.

Great great well, thank you very much.

The next question comes from Dan Fannon of Jefferies. Please go ahead.

Hi, Thanks.

Let's talk about M&A and kind of capital returns you think about next year.

Yes, it's a good question I I think this the simple short answer is our our approach hasn't changed in terms of how we think about M&A and that's how we approach. It obviously there are some interesting things that are going on in the end the landscape.

But but you kind of seen over the last couple of years, what our game plan as it and that is you know look at adjacent spaces, where we think theres a market opportunity we can serve.

Couple years ago. It was by the bond businesses and Jeff just described the logic behind that strategy more recently, we've been building a mortgage business and made some smaller acquisitions. There that's already a $140 million run rate revenue business for us if you add simple file on a full year in and with mergers.

And the good news is it just linking over to your your question about capital return is we've been able to do those deals and grow our capital return. So we're going to end up returning over $2 billion. This year, which is going to be around 20% more than we did last year, which was a record year, which was bigger than the year before that.

We returned it through share buybacks, but we've also grown the dividend consistently double digit every year since weve implemented it and effectively as I said in my prepared remarks, and as we've consistently said over the years our strategy is to grow our capital returns as we grow to return a 100% of the cash we don't need and deal and what the strength of our.

Balance sheet, we've been able to do both effectively we've been able to do deals and return capital and so we continue to monitor the environment. We look forward deals that can generate the types of returns that our shareholders expect from us that can help us grow earnings that are an appropriate strategic fit that help.

Great Okay.

Ill just.

Mentioned that.

The market.

The M&A market, the advisors and private equity firms and people that are that are.

At the core of of transactions.

Seem to like some of the deals that were done in our industry, where essentially a company that was a public company that had a low multiple can move to a company that has a high multiple and there'll be a multiple expansion and same business same company different different hands different a management team that that the market likes.

Better and and you get a multiple expansion and a and so we're being presented a lot of deals that that you know because we have a good management team here that people and a good multiple with the that that many of you have helped reward us with.

People are presenting deals that are simply multiple expansion deals those are interesting, but you know we have other metrics that we use return on invested capital being one of them our ability to to feel like as a management team, we really couldn't do something different than other management teams and.

Or that our network provides some kind of acceleration of sales.

Doing deals, but just pure multiple expansion or or pure one time.

Gain you know on.

Just isn't isn't the thing that to that that we tend to look at because I'm not sure no long run we would be rewarded and I'm not sure in the long run. This management team would leave accompany for future management teams that to that would really be strong and have efficacy.

Thank you.

Due to the number of analyst remaining.

Hey, good morning, everyone I'm just the a follow up on eat do you have a D.F. up a couple of things actually on the one hand, I I think you're talking about the you know authorized participants the market makers, they should be adding but I think the one thing that's been absent is the other issuers. So I think there maybe some on the advisory Council.

But.

We have where are you in that because I think the idea is to really drive an industry solution and standardization and then just quick one for Scott also on E.D.F. up I know, it's early but I think there's some connectivity fees and so maybe can you just talk about the near term revenue impact in particular, whether it will show up I mean is it's going to be.

Hi, Alex its its Ben.

On the on the latter point that you brought up I can I get had four for Scott, but the focus and I commented on it and Jeff comment as well in his commentary focus right now is really in building out that network.

And where ingest prepared comments you mentioned that Blackrock is a key development partner, we acknowledged in the industry acknowledged very early on that this is a pain point across the industry across multiple issuers because there is no single independent provider of services to really stitch. This all together as a single marketplace.

Where banks and Apds can very efficiently access multiple issuers through a single marketplace and through a single portal to execute their transactions. So we see this as we've seen any other marketplace as a marketplace that when part when we partner closely.

With the industry and understand what the pain points are that it's another one that we can help provide some innovation to provide some real efficiency to the marketplace and as you mentioned, Alex we do have other issuers. The other major issuers that you can think of are all on the Advisory Committee.

Blackrock was the early adopter to this and push this early on but those other issuers are in the weeds and then in detail with us pounding through the requirements I'm working through going through demos of how everything works, giving us constant feedback on it and as we expand this marketplace.

Not only in equities, where we started but in the coming weeks into fixed income fixed income is the area. The marketplace that has really the most inefficiency and as we get that functionality out and released we're optimistic that the other issuers and all the feedback they've been providing and all the time that they've been spending and helping us build this out.

Well will come onboard, but it's going to take time and this is a real.

See change for the marketplace as we're replacing a whole bunch of very analog manual types of processes.

That requires a real real business change so it's going to take time to play out in 2019 in 2020 and for that network to build but we feel great about the position right now.

And next year is really more about building out the network.

It so I think thats, where things stand with regards to 2020.

The next question comes from Brine Patel of Deutsche Bank. Please go ahead.

Great. Thanks. Thanks, Good morning, I'm, just pay me back on the data revenue and thanks, Scott for that detailed outlook on the pricing analytics and desktop.

And you know obviously the exchange side is the wildcard maybe just if you can comment on.

On the exchange data I said in my prepared remarks in the third quarter that 3% exchange data with 6% futures.

I didn't really say in NYSE number, but you can kind of do the math given their their balanced out and if you kind of roll forward into the fourth quarter and I have already seen a couple of note that are kind of looking at the revenue guidance and where that will leave the growth.

I said, we're going to accelerate growth in pricing analytics, I said that kind of activity growth is going to continue to be solid and so again in exchange data, it's going to be a story of futures, which is you know up 4% to 6% and the average it is probably close to flat given the dynamics that we're seeing it at the NYSE and.

And so when I say, it's a wildcard you know there is that issue, yes, I roll into next year I don't expect it to be down, but I think Jeff said at the right way last time, if not something that's really going to contribute to growth it wont to track, but it won't contribute.

Yeah. There is an interesting dynamic at the NYSE that that I don't think is barely covered by that by the press and I don't mean, the presses unfair I just mean I don't think they understand a nuance of the the FCC has taken a lot of action is a round exchange.

The pricing of the NYSE and its peers on competitors the.

The press tends to act.

Articles tend to suggest that the exchanges won't be able to raise prices.

I think whats failed to be understood is that the exchanges actually can't even lower prices and the exchanges can't really offer new products or bundles or do any other actions.

That things are frozen so.

We actually have an interest in lowering some prices because we think it will stimulate more demand our demand and growth of data around the NYSE is heavily driven by new products and new services and new bundles in new ways of looking at things not straight price increases.

And it's really been an expansion I think we have over 40 data products are connectivity and data products at the exchange that have been built over the last decade, or so and it's that business that causes it to grow.

So as we think about budgeting for next year, we're just looking at a market where that it's likely frozen and a and that's.

As you think about building your models I mean, it's just that and and this is now the subject of litigation.

Every single filing of the banks through SIFMA for years have been wanting to litigate. The exchanges are litigating back now both within the FCC and venues outside of the FCC. So there doesn't seem to be a quick resolution unless the industry wants to come together.

The next question comes from Alex Boasting of Goldman Sachs. Please go ahead.

Hey, guys. Good morning. Thanks.

Last year, it we're going to be up eight so so I guess, taking a step back and looking under the hood a little bit what are you seeing that slowing down their growth and looking ahead, what products do you expect to perhaps contribute more to the girl from here.

Yeah. So it's a good question. Thanks, So I think first thing I do just to put the numbers on the table because I can't help myself, we've grown our data business two years ago last year, this year or 5% and on average pricing analytics is grown closer to 5.5% on average over that same time period. So it has led the growth and.

Don't forget that is the ITC business that used to go two to three and so were growing at twice as fast and it's because of all the dynamics I mentioned earlier that I won't repeat here as we roll into next year you know in a model right. You know data revenue model range for on an organic basis of four to six I mentioned I think that business is closer to six next year I said, we think.

We can grow overall four to six that would say again pricing and analytics is going to lead the charge I think the dynamic that you're seeing.

And ASV simply refer that reflects some of the sales activity, we have where again, we've gone from a sales team that 40 years ago had one tool in the kit, which was bomb prices to a world where we have lots of tools in the kit and so we may be willing to take a short term trade off on bond prices, if you'll beimel reference data from us.

If you will let us become your feed provider, if you'll buy our historic data through our data vault and so that tends to flushed through a little bit enough specific lines ASV, but overall, it's good for the bottom line of the business in the next quarter and more importantly over the next year or two because it sustains high retention levels.

So it gives us more ability to resell it gives us pricing opportunity down the road and so that's why I answered Rich's question earlier, the way I did which is I don't think you should get too hung up on it and and I and I think last quarter can asked a similar question when I said I'm not too focused on whether ASV.

In a particular quarter six or five or seven as long as the overall ASV is kinda in that 4% to 6% range, which it is again this quarter as you can see in the appendix slide so yeah, I think the dynamic and pricing analytics is actually a healthy one because while we may not see the yield directly in that line, we're seeing it in the other.

Lines, and and importantly on the bottom line and one other point I'd like to reiterate I made it.

That's why I think over time, because we do see consolidation in the space. I mean, we we were an early consolidator of exchanges and execution venues, but.

What we've seen brokers consolidate high frequency traders consolidate asset managers consolidate we've seen a broad consolidation across.

The the financial services landscape as scale matters as as capital is looking for global Alpha and so and so we have redesign the way we go to market and it seems to be working for us.

Yes fair enough. Thanks.

The next question comes from Olin Lau of Oppenheimer. Please go ahead.

Good morning, and thank you for taking my questions I'm questions related to back one of your competitors launch I'll be clear futures in December 2017, and it will probably take them over two years. After the launch will be calling futures to launch bitcoin options what type of feed back did you can't from your customers.

To facilitate your potential launch off I'll be calling futures I was just two months off that you'll launch all floppy can futures and also it seems that up back with also entered into the consumer payment space.

Other key characteristics off a digital assets that would be most likely become the digital currency <unk> not in this space. Thank you.

Those are those are good question sorry.

You've obviously been following along Oh, what we're doing there and looking between the margins. So so you know really coming up with a regulated footprint for digital assets is something that is designed to attract traditional financial services players you know retail global.

Retail customers have been very comfortable for whatever reason being early adopters on unregulated platforms that call themselves exchanges, but really have no.

Particular regulatory oversight and it's not and lack transparency as to how consumer capitals being handled and so we think theres an opportunity. It's what we're building out with back to bring that whole thing into a more transparent regulatory footprint and Len hour.

Expertise and of regulation and and trust. If you will to these digital assets the kind of institutions that are so first of all all of financial institutions are talking to us and looking at this and trying to figure out.

Where this fits and and what the what the global regulators are going to think about this and so and so forth. So theres a tremendous around a dialogue around it but what you're seeing is the the kinds of institutions that are coming into the space quickly that our institutional investors are new kinds of crypto huh.

[noise] funds crypto market makers. There. These many of these are players who we know who have started an offshoot of their business.

To deal with digital assets and.

You know the major banks are working with us the major brokers are working with us, but still trying to figure out how this fits into their own ecosystem and they know that when they do move into this space. It's got to be it's got to be regulated and approved by their own regulators as we've been dealing with that backdrop.

Very quickly people said that that theres, an active options market for bitcoin out there that is that is even less transparent.

In most cases than than than the cash market and a lot of it is done otcs roce brokers and what have you, but theres there was a strong interest in having options. It just so happens at the way we've launched our our bitcoin futures contract is that.

We are source of price price discovery because were physically delivered.

We're not dependent on the prices that come out of these unregulated cash markets, we develop our own settlement price and so that it lends itself very nicely to an options market, where people that trade options and hedge with the underlying can have perfect hedging in one venue that they know a is transparent.

So so that was the pressure to get the options are quickly.

On the payment side, we think that you know that the digital asset space has largely been a speculative space that with speculators speculating on the future value the future efficacy the future use cases of many of the digital tokens that exists.

And Ah and we don't think that that whole space will be a relevant and grow unless there are real use cases, and we do as you pointed out think that they use case is going to be the digital transfer of value through payments and.

A big coined which is where we have most of our focus is one digital token that could potentially be used for payments, but but has also because of its mining capabilities and the way. It's been developed is really a store a value now I argue I'm, an old guy and I are.

You through the younger people that work it back than its very much a younger.

Workforce, that's there of of engineers that we've hired from many of the payment companies around the world.

They they view bitcoin as a digital goal what I say because I'm all I think of gold became a store a value because at one point it was the currency.

We had gold coins.

It was it was in circulation and over time because of the nature of its its ability to spend that overtime. It got ordered and became a store value in today you know in a crisis, we all except gold as a form of payment and in fact, the very first product that we launch.

That Intercontinental exchange in year 2000 was an overnight gold contract that was used inter bank to settle differences between trading.

By sending actual gold receipts as opposed to currency. So I do think big coin will have an element of payments and ER and as well as a store a value because you know it may well be that rather than convert bitcoin to fill out currency and then use be out currency.

Two to buy goods and services that merchants and users will accept big coin directly and you avoid the foreign exchange. If you will the FX costs of converting back and forth.

To fee and so we are building out that digital platform. One of the we have probably 50 people are dedicated to building out the infrastructure and and it's quite a quite an exotic and unique thing that I think you'll see us.

Rollout as we move into 2020, and and will test the old guys thesis here.

This concludes our question and answer session I would like to turn the conference back over to Jeff Sprecher for any closing remarks.

Well. Thank you Andrew I appreciate a you moderating the panel and thanks for everybody on the call. We'll look forward to updating you about our year end results on the next one.

Have a good day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[noise].

Mm Hmm.