IntercontinentalExchange Earnings: Both Trading, Non-Transaction Businesses Drive Growth

IntercontinentalExchange Group (NYSE:ICE) announced its Q1 earnings on Tuesday, May 5, reporting a 9% annual growth in net revenues to $1.1 billion for the quarter. This was the first quarter in which the year-over-year comparison did not reflect the steep rise over the prior year period owing to the NYSE acquisition. A rise in trade volumes during the quarter resulted in about 6% growth in the company’s transaction-based revenues to $812 million. On the other hand, ICE’s market data services revenues were up by 19% y-o-y to $187 million, while listing revenues were up by 12% to $101 million. The company’s operating expenses declined 4% year-over-year to $336 million, due to which its adjusted operating margin rose by 4 percentage points over the year-ago period to 60%. ^[1]

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Oil Futures And Options Drive Trading Revenues

Derivative trading volumes for oil derivative products on ICE’s platform stood at over 1.5 million contracts traded per day, a 40% rise over the comparable prior year period. ^[2] Within the oil category, the average daily volume (ADV) for Brent was up by 43% y-o-y to 894,000 trades through the March quarter. As a result, revenues generated by trading of Brent crude futures and options rose by 51% y-o-y to $74 million. Similarly, Gasoil futures and options were up by 17% on a y-o-y basis since the start of the year to 270,000 trades per day and other oil futures and options were up by 51% y-o-y to 391,000 trades per day. The resulting revenues were up by 14% y-o-y to $24 million and 43% y-o-y to $33 million, respectively. Although the rate of growth has slowed down in Q2 thus far, the company still reported a 21% y-o-y growth in combined trade volumes of oil derivatives to 1.3 million contracts per day for April. ^[3]

On the other hand, natural gas derivatives witnessed a 10% volume decline through the March quarter with an ADV of 1.1 million contracts per day. Volumes could remain low during a tough period for natural gas product trading,  owing to macroeconomic uncertainty and geopolitical conditions in Europe. Despite lower volumes, revenues rose by a modest 4% to $58 million. Similarly, there was a moderate 5% y-o-y fall in combined trading volumes for agricultural commodities and metals, which stood at about 372,000 trades per day through Q1, while combined revenues fell by about 2% y-o-y to $53 million.

The total number of interest rate derivatives traded on ICE’s platforms through the March quarter were down by about 27% y-o-y to 1.5 million contracts per day primarily due to continuing low interest-rate policies in Europe and tougher year-over-year comparisons. Resulting revenues generated by ICE fell by about 30% y-o-y to $56 million for the March quarter. The trend has continued in Q2’15 thus far with April volumes also staying about 27% lower than the prior year period at 1.1 million contracts traded per day. ^[4] The company plans to introduce interest rate futures similar to the ones offered by the ERIS exchange by June this year, as a preparation for the anticipated volatility in European interest rates in the coming quarters.

Trading of equity derivatives was also sluggish during the quarter,  with an ADV of 721,000 trades compared to 885,000 trades per day in the comparable year-ago period. Volatility in currencies and speculation around the exchange rates led foreign exchange (FX) derivative trading to rise during the quarter. The ADV for FX derivatives for the quarter were up by 118% y-o-y through the March quarter at 59,000 trades, largely driven by a surge in March volumes (83,000 trades per day). Combined revenues for financial futures and options were up by about 10% y-o-y to $33 million.

Non-Transaction Businesses Sustain Growth

ICE’s market data services revenue stream witnessed 19% y-o-y growth to $187 million for the quarter. Management mentioned that the company combined ICE’s data services division with NYSE Euronext’s corresponding businesses including Liffe. Furthermore, the addition of SuperDerivatives to ICE’s data services division also contributed to the top line growth. The combined division now has a broader portfolio of information services and a larger customer base to cater to. The company’s market data revenues have grown by four times in the last two years and the company expects the solid growth rate to continue in the coming quarters.

Similarly, in line with the company’s expectations, its listing revenues were up by 12% y-o-y to $101 million. ICE plans to reduce the currently existing five trading platforms for NYSE to a unified platform called Pillar. Moreover, the company aims to invest in its listings technology systems in a way that will reduce costs and simplify business. Management expects trading, listings and related expenses to decline from 2016 onwards once it implements the unified systems.

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1. ICE Q1 Earnings Call Transcript, Seeking Alpha, May 2015 [↩]
2. ICE Europe Historic Monthly Volumes, ICE Group Investor Relations, April 2015 [↩]
3. ICE April Trade Volumes, ICE Group Investor Relations, May 2015 [↩]
4. ICE U.S. Futures Historic Monthly Volumes, ICE Group Investor Relations, April 2015 [↩]