洲際交易所 (ICE) 2015 Q3 法說會逐字稿

Good morning, and welcome to the ICE third-quarter 2015 earnings and Interactive Data transaction review event.

(Operator Instructions)

Please note: This event is being recorded.

I would now like to turn the conference over to Kelly Loeffler. Please go ahead.

Good morning. ICE's third-quarter 2015 earnings release and presentation can be found in the investor section of TheICE.com. These items will be archived, and our call will be available for replay.

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 2014 Form 10-K.

In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, operating margin, expenses, EPS, EBITDA, and tax rate. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP term in the earnings materials, and an explanation of why we deem this information to be meaningful, as well as how management uses these measures.

When used on this call, net revenue refers to revenue net of transaction-based expenses. Adjusted net income refers to adjusted net income from continuing operations. Adjusted earnings refers to adjusted diluted continuing operations earnings per share.

With us on the call are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Chuck Vice, President and Chief Operating Officer. I'll now turn the call over to Scott.

Thank you, Kelly. Good morning, everyone, and thank you for joining us.

I'll begin on slide 4 with some highlights of our strong performance through the first nine months of 2015. Our overall revenues grew 7% versus the prior year. Transaction revenues were up, thanks to strength in our commodities markets, as well as in our US cash equities markets. Our data services revenues grew 22%, and listings revenues grew 11%. In addition to solid top-line growth, adjusted operating expenses declined 5% from the prior year, which enabled adjusted operating margins to expand 5 points to 59%.

All of this combined to generate 26% year-over-year growth in our adjusted earnings per share. And we generated $890 million in operating cash flow in the first nine months of this year, enabling us to return nearly $850 million to shareholders while continuing to invest in our Business.

Please turn to slide 5, where I will discuss our third-quarter performance. Our adjusted earnings per share rose 24% from the prior third quarter to $2.91. Net revenues grew 10% year over year to $816 million. This was driven by record quarterly data services and listings revenue, and solid growth across commodities and US cash equities. While revenues grew, adjusted operating expenses declined 2% year to year, to $337 million, and margins expanded 5 points to 59%.

Operating expenses were slightly above our guidance, due to a true-up in our bonus accrual for the full year, reflecting our expectation that we will exceed our challenging 2015 financial objectives, with notable strength in our commodities and, in particular, our data services business. Our pay-for-performance culture rewards our team when our results exceed the appropriately high expectations of ICE investors. Importantly though, well over 85% of that overachievement dropped straight to our bottom line. Our strong third-quarter results cemented our path to record results for the full year.

Moving now to slide 6, I will highlight our third-quarter net revenues of $816 million, which were up 10% year to year. Transaction revenues accounted for 56% of our total revenues, and increased 3% year to year. Our transaction revenues are diversified across nine asset classes, which benefit from both secular and cyclical trends, and include our energy revenues that grew 5% during the quarter. The remaining 44% of total net revenues were subscription, or what we previously referred to as non-transaction revenues. Those revenues increased 20% over the prior third quarter. Our subscription revenues encompass our data services offerings, including proprietary data, connectivity, and valuation and benchmark products from SuperDerivatives and ICE benchmark administration. These revenues also include our listings business, which continues to lead in helping our customers raise the capital they need to grow their businesses.

I will provide some additional detail on revenues on slide 7. Within transaction revenues, commodities revenues grew 5% year to year, due to strength across our energy and ag markets, supported by ongoing price volatility. In addition, US cash equities revenues were up double digits year to year. Though financial revenues declined, we continue to expand our product offering and are well positioned when the European economy begins to improve.

As you can also see, we generated record data services revenue of $209 million in the third quarter, which was up 24% year to year, as we continue to attract new users and offer new services such as those provided by SuperDerivatives and ICE benchmark administration. Finally, you'll note that listings revenues of $101 million increased 10% year to year, and remained at record levels, which is a testament to the strength of the NYSE market model, and our unrelenting focus on remaining the leading capital-raising platform for companies around the world.

Next, on slide 8, I will discuss our third-quarter adjusted operating expenses. Expenses during the quarter declined 2% to $337 million. Adjusted operating margins expanded 5 points to 59%. The 4% increase in compensation and benefits is the result of the higher bonus accrual we made during the quarter to reflect the outstanding results we believe we will deliver for the full-year 2015. Professional services expenses, as well as SG&A and rent expenses, declined double digits year to year, as we continue to integrate the NYSE. And finally, strategic investments in our Business caused technology and D&A expenses to increase modestly compared to last year's third quarter.

I will conclude my third-quarter remarks on slide 9, with a review of our solid cash generation and capital returns. At September 30, we had $708 million in unrestricted cash and short-term investments, and an adjusted debt to EBITDA of 1.6 times. During the first nine months of 2015, we generated $890 million of operating cash, which enabled us to invest in growth, and return nearly $850 million to our shareholders through dividends and buybacks. And by the end of this year, even though we have now suspended our share repurchase program pending the close of the Interactive Data deal, including the share repurchases completed in October and the dividend that we will pay during the fourth quarter, we will return nearly $1 billion to shareholders during 2015. We are on track for a record year in 2015, including solid revenue growth, operating margin expansion, double-digit earnings growth, and significant capital returns to our shareholders.

I will now turn the call over to Jeff.

Thank you, Scott, and good morning. Today, I am pleased to report on one of the best quarters in our Company's history, and to share the strategic vision for the continued evolution of our Company.

Before I discuss ICE's expanded data services opportunity, I want to first highlight our diverse range of growth opportunities. I am often asked how we plan to grow revenues over the long term, so I will begin with a few of these drivers on slide 10. These are just a few of the areas that give us confidence in our ongoing double-digit earnings growth. Many of the areas listed on this slide -- energy, listings, data, and US equities -- contributed to our 10% revenue growth and our 24% earnings growth during the third quarter.

I am pleased to note that on November 17, our initiative to serve the growing demand for trading, clearing and risk management in Asia will launch, as ICE Futures Singapore and ICE Clear Singapore. Our initial products include many Brent and Gasoil futures, gold, and many RMB futures. And we expect to expand the range of tools we offer based on the needs of our customers, as market participants demand more risk management services in the Asian region.

Moving on to slide 11, I will turn to our unique growth opportunity in data services. Today, our data business includes a growing number of subscription services, ranging from trading and settlement data, to data delivery, to analytics. Trading and settlement data comes directly from our exchanges and clearinghouses, including real-time, view-only, historical, and customized data. Our data delivery services help our customers connect or receive our data using co-location, or as well as our secure connectivity known as the safety network, and the analytics tools that we have acquired and developed that make raw data more meaningful, such as index price creation, benchmarks, valuation, and forward pricing curves for the commodities and financial markets.

This area includes products from SuperDerivatives, and will include products from Interactive Data Corporation following the closing of our transaction in the coming months. What we see is more customers using data to inform their trading decisions, and increasingly, their capital allocation decisions. So we are focused on harnessing our data into more usable, value-added information that our customers can easily consume to make more educated risk management decisions, and comply with regulatory requirements.

Next, on slide 12, I would like to offer some additional insight into our recently announced Interactive Data Corporation transaction. Interactive Data is a leading provider of financial market data, analytics, and related distribution solutions. It serves virtually all of the world's major financial institutions and asset managers.

The majority of Interactive Data's revenue, approximately 70%, comes from providing evaluated pricing of hard-to-value, thinly traded fixed-income securities. The other 30% is derived from widely distributed data and technology platforms. What we see is the opportunity to leverage this valuable asset to innovate for our customers, while creating tremendous value for shareholders. ICE is a consistent earnings-per-share growth company, that has recognized industry trends early, and placed ourselves at their intersection in order to innovate around change.

Recall that in 2007, we acquired the New York Board of Trade, in order to gain access to clearing technology, believing that we could make clearing a strategic business, rather than a back-office function. We took this newly acquired clearing technology and launched one of the world's most important commodity clearinghouses in London. We then built on this technology to take $65 trillion of credit derivatives off the books of the world's largest financial institutions.

As part of the NYSE Euronext transaction, we expanded this technology to include the interest rate and equity derivatives markets. And most recently, we have adapted this platform to serve the Asian markets. This robust, sophisticated technology calculates the value of millions of clear trading positions around the world every day. NYSE Euronext also brought us an equity value calculator that is relied upon to value our 95% market share of ETF listings.

We acquired SuperDerivatives last year for its ability to value complex instruments and trading positions, particularly in the foreign exchange space. We built ICE Benchmark Administration and now calculate the LIBOR rates, the value of interest rate swaps known as the ICE swap rate, the London gold price, and in October, will calculate the SIM valuation parameters for the initial margining of bilateral swaps.

All of this brings us to Monday, when ICE announced its agreement to acquire Interactive Data, the foremost valuation provider in the global fixed-income market -- energy, agriculture, credit, interest-rate futures, interest-rate swaps, LIBOR, equities, equity derivatives, exchange-traded funds, foreign exchange, gold, and now fixed-income instruments. ICE is becoming one of the world's foremost providers of tools and information that's needed to value risk, whether that's found on exchange, off exchange, or in the cash markets.

So what is this trend that we are targeting? It's the increasing need for more information to optimize capital efficiency when you manage risk. And as bank balance sheets have become constrained, and as regulation requires collateral for all risk positions, we believe that there will be increasing demand for the data, information and solutions as to the cost of holding, hedging and managing risk. And we've demonstrated our willingness to invest to be a trusted source in this important area.

When we started working on ICE in the late 1990s, exchanges were largely regional businesses. In fact, they recognized this, and actually had the location in their name, the New York Mercantile Exchange, the Chicago Board of Trade, the New York Stock Exchange, the London Metal Exchange, the Deutsche Boerse, the Hong Kong exchange. You get my drift here.

The move to electronic trading into the Internet transformed many of these regional businesses into global businesses, improving their market access. And as they lost their borders, exchanges became more competitive with one another, listing each other's products, and beginning to fragment market liquidity. Additionally, some players started to lobby government to adopt rules to even further fragment liquidity, in order to benefit broker intermediaries, high-frequency traders, as well as exchanges that are seeking regulatory solutions to their commercial challenges. This resulted in regulation NMS in the United States, and MiFID and MiFID II in Europe.

Market fragmentation means that not all buyers will find their lowest-cost sellers and vice-versa, so this fosters informational asymmetries, where certain market participants and intermediaries will benefit from arbitrage opportunities. And since many buyers and sellers can't or won't make the technology investment required to find the best price in a more complex market, they compensate brokers and intermediaries that have made the investments in the technology and the data to do so.

So, as markets fragment, the value of data increases, and the matching of buyers and sellers on exchanges decreases on a relative basis, with some execution venues actually paying users to match orders. Why would they do that? Because as exchanges unbundle their execution services, they can address the widening bid-offer spreads that fragmentation brings by providing market access and market data. What you see in our Business is now a directional shift of the mix from transaction-based revenues towards recurring subscription-based revenues, as the market evolution transfers value to these needed services.

In other words, when regulators unbundle exchange trading and clearing, exchanges have typically gone even further and unbundled the matching technology from data, access, oversight and valuation services. And as such, these fragmented markets create increased opportunities to provide valuation services, such as Interactive Data has found in the highly fragmented cash bond markets. With a 98% revenue renewal rate, one of the highest revenue renewal rates that I have ever seen in any business, the market, obviously, craves an authoritative source for consistent, reliable price discovery. And where regulatory and structural issues keep markets Balkanized or fragmented, these valuation services prosper.

Another trend that we are tapping into is the increasing sophistication of risk managers, who will value more real-time information rather than simply end-of-day marks. They also demand better analytical tools to help them consume real-time information. The growing trends towards investments in exchange-traded funds and passive index investing is also increasing the demand for real-time evaluated pricing, to support the innovation of these products. And we see markets like cash bonds and swaps moving from exclusive voice trading to hybrid voice and electronic trading, which is demanding the trusted evaluated pricing to encourage screen-based liquidity and confidence in those prices that are displayed.

Take all of these trends together, and you can see a very positive environment where ICE has risk management tools to grow. We are taking a very strategic approach to evaluating our Company and evolving it in an ever-increasing provider of value-added services. I'd like to thank our customers for their business in the last quarter, and I'm going to turn the call back over to Scott, who will close out the call with the last two slides. After that, we'll take your questions at the conclusion of his remarks.

Thanks, Jeff. Please turn to slide 13, where you will see a transaction summary. As disclosed in our press release on Monday, we agreed to buy Interactive Data Corporation for $5.2 billion. We will finance the $3.65 billion cash component with debt, and will provide ICE shares worth $1.55 billion.

In addition to the significant strategic benefits of the acquisition, which Jeff just described, we expect to realize $150 million in expense synergies. These synergies will come from the integration of corporate function, and from business efficiencies associated with reductions in technology expenses, business rationalizations, and the elimination of redundant operations in the combined companies. The expected cost synergies reflect just over 25% of Interactive Data's total expenses, and we expect that, within the first year after closing, we will realize 25% of those synergies. And as we mentioned in our release on Monday, this transaction will be more than 5% accretive in 2016. We provided a detailed schedule in the appendix of our presentation that takes you through the accretion math.

Interactive Data is a business with strong and improving profitability, as well as robust cash flows, which will contribute meaningfully to our results. It is also a business that we believe will grow faster when combined with our ICE data businesses, and which offers the opportunity for margin expansion that will generate strong profit and cash growth. Acquiring good businesses with unique competitive advantages that we can improve upon is an important part of the strategy that has enabled us to deliver consistently strong growth, year after year. Slide 14 shows that trend. The acquisition of Interactive Data Corp., combined with the diverse business we already operate, will enable us to continue this track record of growing EPS every full year since being a public company.

I will now hand the call to the operator, who will conduct the question-and-answer session.

(Operator Instructions)

Our first question comes from Alex Kramm, UBS.

Obviously, jumping right into this IDC transaction, maybe starting with the outlook that you have for IDC. I think a lot of people noted that the growth rate has been a little bit lower over there, I think 3%, 4% or so, but having spent some time with the Company recently, it sounds like they really were inward-focused recently for the last few years, and now are in a position to grow. I am wondering what you see or what you model as the organic growth rate in that business over the next few years before ICE adds their secret sauce to it?

Sure, I think Alex, we will have more to say over time once we actually own the business, but most people on the call that know the fixed-income space know that there is a lot of changes going on in that market right now. The markets are becoming more transparent. The market participants are demanding more transparency. There is more movement onto some kind of transparent hybrid systems right now, and those systems increasingly, and the market participants that use those systems are increasingly going to want realtime valuations done so that people can have some confidence in the price levels that are displayed.

And so IDC has been moving on its own from providing end of day data to the ability to use technology to give more robust and more realtime interaction with their customers. They have had a huge -- for many years they have had a technology project underway to do this. They are coming to the fruition of that. We are a technology company providing other kinds of valuation services. We think when we combine all of that, we're going to have a really good robust offering that will be highly valued by the marketplace, and will continue to help serve the evolution of fixed-income and other hard to value swaps and derivatives that are going to become more transparent.

All right, fair enough. Maybe I will go on the cost idea for a minute, I guess for Scott. Can you talk a little bit about where those synergies are coming from? I think on the pricing side, the margins are actually above 60% already. Is it going to be more on the trading solutions side? Is it going to be more of moving your existing business on to their new technology? And also, do you think you're going to shed some of these assets on the trading solutions side? I think some fit well, but there might be some others that's not really core to what you're trying to build here.

Pretty much answered the question with your question. I think, really, Alex, it's across the Board. As Jeff said, we are not going to go into a ton of detail now. We will do that as we get closer to the close on the acquisition.

As I mentioned in my prepared remarks, I think there are opportunities in a number of places. There's $100 million in corporate spend at Interactive Data. They're clearly are overlaps from a corporate standpoint with what we've got at ICE. You saw our ability to execute on that type of integration and the NYX deal, and frankly everything we've done before that.

There are definitely overlaps, if you look at their trading solutions business. They've got a business, 7ticks, which is very similar to the safety network business that we've got at NYSE. They've got a desktop business, which is similar to the desktop assets that we acquired with SuperDerivatives and, frankly, our Web ICE platform. There are, I think, efficiencies we can get by combining those businesses.

Definitely, I think there is opportunity around the technology spend as we combine the two companies. I think the playbook looks a lot like the NYX deal did in terms of where the synergy opportunities exist. There is also -- it's a pretty big real estate footprint. That's another area where we think there should be opportunity. I think we've done a pretty good job of consolidating locations over time. It's better for our one team view as a Company. It's also a means of generating efficiency.

Look, it's a very well-run company where the profitability has continued to improve. But I definitely think there are multiple pockets of opportunity for synergies, which gives us the confidence that we will be able to remove about 25% of the target's operating expenses.

Great, thank you very much.

The next question is from Alex Blostein at Goldman Sachs.

Just following up on the data discussion. I was hoping you could focus a little bit on ICE's current data business. Clearly still pretty good growth there. Maybe spend a minute on, Scott, the components of the growth that you highlighted earlier in the call between new users, products, SuperDerivatives and benchmark administration. How much have they contributed on a quarter to quarter, year-over-year basis [on an organic and inorganic] state? Just trying to get a sense of what does the growth in that business could look like before we incorporate IDC? Thanks.

Sure, I would be happy to talk a little bit about that. Really haven't gone into a breakdown of the data revenues, per se. Obviously, as we integrate Interactive Data, one of the conversations we will have is how to give you some more insights into that.

I think if you look at the year-over-year growth, a large portion of it in the third quarter, similar to what we've seen in first and second quarters is we continue to see new users that want to consume the data that we are selling across our exchanges, whether it's the New York Stock Exchange or our commodity exchanges, there is significant and growing demand. We saw a big boost early in the year, and, frankly, even from that higher customer count, we saw it increase again in the second quarter, and again in the third quarter. I have mentioned each quarter, you have asked and I would expect revenues the next quarter to be similar. I have been wrong each time, and that's because we continue to see growth in the customer demand.

Clearly, the SuperDerivatives revenue through the first three quarters was a net add, because we acquired the business. I would argue there, as I have before, that beyond the acquisition of the revenue that's contributing to the growth, we are still in the process of integrating that business. I think the real growth opportunity at SuperDerivatives is as we look into 2016. ICE Benchmark Administration had a very good quarter in the third quarter, and continued a trend where the first quarter was better than the fourth quarter, the second quarter was better than the first quarter, and we had a very good quarter in the third quarter as well. Again, the largest part of the growth drivers continues to be the growth in users consuming our exchange data, our proprietary data. But there's no question that SuperDerivatives and, in particular, ICE Benchmark are also contributing to revenue that not only is growing year-over-year, but is growing quarter after quarter after quarter.

Thanks. And then, Jeff, slightly a different direction of questions, I guess. Over the course of the quarter, MiFID II came out with -- some of the final rules came out. I guess there's still some details to be ironed out, but just curious to get your perspective on things like open access and position limits. How is that coming in relative to your expectations?

It's a good question. For those that haven't followed it specifically, some more detailed rules were published by the staff as to how this is going to work, but then above that, the Commissioner, Lord Hill, who is the Financial Services Commissioner in the EU has said, let's take a pause here and take a look at how the totality of all of this new regulation is going to work, and make sure that some of these issues on access, position limits, the segregation of research from execution and these kind of things, let's take a look at how they are going to impact liquidity and the competitiveness of Europe.

There is a back channel story going on right now, with a review of the rules that were just promulgated. Those rules still have to be voted on, and so the Commissioners, theoretically, in the EU, or the voters in the EU will ultimately have to decide whether or not these rules are going to lead to fragmentation, whether they'll lead to increased systemic risk, and whether or not they're going to make Europe less competitive, as a result of some of the studies that are going on. It's very hard to know specifically, what the outcome is going to be.

As a result of that, we prepare for a lot of different eventualities, and as I mentioned in my prepared remarks, one of the things that happens if there is fragmentation is the value of data and market participants trying to reassemble the market for their own view goes way up. That's partly been the strategic thinking around here, is to continue to build out our data services space, as we may see a value shift away from execution towards reassembling fragmentation.

Okay, thanks for your perspective.

Next question is from Rich Repetto, Sandler O'Neill.

I guess this is a follow-on for some of the other questions. You laid out, as we had expected you would do, the compelling strategic rationale for IDC and market data. But I guess, getting back to the growth question, when you look at the accretion, at least we know you took out the buyback, when you come up with a [5.7], but was it even a concern to you to balance of the growth of this, of IDC, versus the position of ICE overall as a growth company? Is it just that compelling? Or are you just that confident you will get the growth? I'm trying to get, I guess, dig a little bit further into what you were thinking and was it a concern of yours?

I agree. As we look at this business, we absolutely believe there is an opportunity to grow it, and for it to contribute to our overall growth profile, and frankly, that's true at the top and bottom line. Jeff talked about the opportunities of the combined businesses. There are a number of new products that are in very early stages at Interactive Data that we are excited about.

Clearly, the $150 million of synergies is an opportunity. I know that's not growth on the bottom line but it grows the amount of profit and the amount of cash that we generate for our investors. As you know, that's where our focus has always been, is finding ways to generate more growth and more cash flows. I'm supremely confident that this business gives us that opportunity. I don't in any way see this as detracting from our overall growth profile. I frankly think it contributes to it.

We're very confident as we look at the Company strategically in terms of what it can do for us from a growth standpoint, and, look, I understand the interest in looking at one year's worth of accretion, but when you look at a valuation model, we look at the business over the longer term. And I believe you will find, over time, that this business is absolutely another example of where we put return on invested capital at the top of the list when we evaluate the deals we do.

Okay. I'm taking that answer as the growth was just as compelling as the strategic rationale for this?

It netted out exactly that way.

So my follow-up question, I've got to do this to you, Scott. Market data, and as long as we're talking about market data, the existing market data at ICE, you did some accounting restatements, but it still looked like -- it looks like you moved about $13 million from other revenue into the market data. Even when you exclude -- and this is a positive, but even when you exclude that, if you took $13 million off of market data, you are still growing $5 million quarter to quarter. Again, just trying to get the baseline of where we are at, because you talked about being flat, remember? That $10 bet you won last quarter?

I do. I think I already fell on my sword earlier in one of my answers, but I'll fall on it again. Look, in the third quarter, we did have a large customer true-up that occurred in the data business. Otherwise, it would have been up only a little bit from where we were in the second quarter, and I would have been closer too right. Frankly, I'm $4 million happier that I was wrong.

I do think that as you look to the fourth quarter, $206 million plus or minus in that line on the new basis is probably about where we will be. I'm just going to go ahead and say, I could be wrong on that at plus or minus $1 million or $2 million. That's what I think the expectation is, as you look to the fourth quarter.

Rich, I mentioned on an earlier answer, the thing I'm really pleased with is we continue to see more customers consume the data. I'll tell you, that's the thing I keep missing in my remarks to you, is that there continues to be growth and interest in the data business that we've got. I think that feeds right back to your first question and Jeff's remarks about why we are excited about Interactive Data. There is no question that the trend in the marketplace is that customers need more information. They need some people to help them take all of the data that exists in the world, and turn it into information they can use. That feeds right into the strategy, and it's absolutely why I think that Interactive Data will contribute to and improve our growth profile, not detract from it.

Understood, and congrats on the acquisition.

Next question is from Dan Fannon at Jefferies.

Can you help us think about pricing power within IDC's business and how we should think about, or essentially how you're thinking about that going forward, in terms of raising prices for their existing offerings, and if you can also indicate when the last time they actually passed that on to their customers?

I think the short answer is, we don't know because we don't own the business and we're not talking to their customers. Generally, the philosophy at ICE is not just to use, quote unquote, pricing power. Our philosophy here is to increase the value-add of whatever we provide, and then couple that with an appropriate price increase. And I think that attitude really will bode well for IDC because we do see a lot of new product opportunities that are already in progress there, that are coming through the pipeline that we'll benefit from, and our customers are going to have an opportunity for a much more enriched view of the fixed-income markets, with those products. I do note that there is a 98% revenue renewal with them, so, obviously, they are well-liked and well-respected at their current price levels, or you wouldn't see that amazing continuation. But look for us to continue to be innovative with them, and we think we will have an opportunity to do that.

Great, and following on your existing market data business and pricing, is there any expectations for next year to see a general increase within certain of those services that we should be thinking about in terms of growth or incremental growth there?

Yes, as we get onto the fourth-quarter earnings call, we'll start to talk more about what we expect for 2016 in the core business. Suffice it to say that we continue to look for ways to add incremental value to our data packages, and to the customers of our data services. As we have historically, as Jeff just alluded to, we don't look to raise prices just to raise prices. We look to make sure our prices reflect the value that we are delivering, and we will continue to evaluate that as we move, not just into 2016 but in each subsequent year.

Okay, great. Thanks.

Your next question is from Chris Harris at Wells Fargo.

Thanks. When we think about the exchanges industry, historically, your peers have grown data between 3% to 5%, going back a number of years. I think you internally have a much greater growth forecast built in. So Jeff, I know you highlighted a number of secular changes happening that should be really supportive of the data growth, but just wondering if there's anything specific or unique about ICE's data mix that would drive faster growth than many peers in the industry?

Well, I think for ICE as a company that was a start-up, what we continue to see is a richer and richer data set. We started with data that was almost irrelevant, and today are becoming quite an important data provider. And as we have gone through that transition and added more and more and more data, and more services around data, what you've seen is cross-selling opportunities, the ability to build out a sales force to penetrate markets.

And it's why Scott said we continue to find new customers. We are not thought of, I suspect, by most people as one of the historical data analytics vendors. There are some well-known, well-entrenched competitors in that space, and so what we have been able to do is try to innovate, create some niche products, some things that are interested, very highly targeted to our customers. I think because we run and come out of trading and clearing operations, we are having constant dialogue with our customers on what their strategies are, and how they are managing risk, and we just continue to evolve our product set. So it's a better, faster, cheaper kind of strategy.

On top of that is the secular trend that I am mentioning, which is just regulatory pressures, fragmentation pressures, and better and more interested ability by managers to have real-time information that is just growing the business for everybody.

Got it. It makes sense. A really quick follow-up for Scott. Can you update us on where we are on NYSE synergies? How much more needs to come out there?

Yes, we continue to make good progress towards our overall objectives from the NYSE synergies. I think we had mentioned that as we exited this year, we would be something like 90% done on those, and we are well on track to that. I think we clearly, with some additional corporate functions that will integrate next year, some real estate that we have consolidated towards the end of this year and then as [Project Filler] moves on throughout 2016, I think that will push us toward the final synergies that we had committed originally.

Okay, thank you.

The next question is from Ken Hill at Barclays.

When I look at the data business, you have been moving to, with this acquisition here as well, more of the hard to price products, some of the analytical stuff supported by the raw data. But it still looks like a good portion of your business today relates to some of that trading data from your futures exchange, from your cash equities exchange versus sources like safety, SuperDerivatives or [IBA]. When you think about the outlook for that core raw data business there, as that becomes a little more commoditized, how we think about the competitive environment? Maybe the growth prospects there?

Yes, as I mentioned, I think the markets are going to continue to fragment. I think just all of this new regulation that is going in is really Balkanizing markets. And the incumbent exchanges like ICE, we continue to challenge all of the other exchanges around the world by listing their products and looking for niches. There is just this trend that is going on right now, that I think you are going to see markets fragment. Even raw data that comes from exchanges has to be consumed by people that are trying to reassemble these markets. For a while, while we go through this transition, I think even raw data is valuable.

But what we are investing in, and what we are building is really valuation services. If you look at what Interactive Data does, it really is using technology to come up with valuations. If you look at what SuperDerivatives does, it's using technology to come up with valuations. If you look at our ETF calculator business, if you look at ICE Benchmark Administration, all of those are technological ways of trying to derive prices, related prices. And couple that with this massive clearing system that I mentioned, where we are also trying to take portfolios of positions and derive their actual risk.

That's the value-added business, and that's the business that's going to grow. It does need the raw data as inputs but the real value-add and the things that people want to pay for is the technological piece. And what we have built is a financial services technology company here that's been quite good at marshaling data around and understanding how these products all relate to one another. And I think, that's the secret sauce where we are going to continue to invest.

Okay. I know you, a couple of times, have mentioned new users as a nice tailwind for the data business. What's really driving the uptick in users? Is that something you are doing with the sales force, where you're really targeting specific groups? Is that just having a product that no one else has? And how can we think about the new user growth as you start to layer in a whole new large customer base here? And do you need to invest more in the sales force to get better integrated with some of these risk management groups or index groups over time?

It's a combination of both. We do have a lot of proprietary products, things that we have created around here that are not unlike IDC, where we are getting data out of cash markets, and markets that don't trade on exchanges, and coupling those with the more commoditized data, and selling it as a package, which is part of what we have been able to do.

In terms of the sales force, we now have, with Interactive Data Corporation, there's going to be an amazing sales force footprint that comes with that company, that we will be able to blend together with our sales force and really, I think, be able to touch a lot of customers. We mentioned in the prepared remarks that IDC's customer base is literally every significant asset manager, every significant bank and fund around the world. In that group are people that we don't touch, and some of them won't have any particular interest in some of the things we do, but some will, just because of their breadth and size and scale of some of these companies, that I think are going to want to see a lot of things.

The other trend that is going on is the passive investment trend is just people creating more and more unique portfolios that need realtime valuation. And that business for us is partly what leads to our 95% listings market share of ETFs in the United States, and how we have been able to approach that business. We are going to get better and better and better at that with the addition of Interactive Data's valuation skills.

Thanks for taking my questions.

The next question is from Ken Worthington, JPMorgan.

First, maybe for Scott, balance sheet and leverage. With so much recurring revenue now, why is 1.5 times levers the right number? What are your thoughts about pushing the balance sheets more, given the revenue mix with IDC?

And then in terms of deleveraging, I think in the prepared remarks you talked about doing it over two years. It seems like in my model, I could get you to delever much more quickly. Is there a lot of CapEx you would expect with this deal? Would you continue to be buying back stock as you delever? What is the thought there?

Our target remains to operate around 1.5 times. That is the expectation that the ratings agencies have for company that is a solid single A, which we believe is appropriate for the Company. In terms of why that's their view, I agree with you, it is a much stronger recurring revenue base, but that is the view the ratings agencies take. We think that rating's important as the operator of the largest clearing operation in the world. We're going to continue to target getting back to around that number.

In terms of the time it takes to deleverage, I think we have conservatively said it would take two years. I think the point is that, while we will continue to pay our dividends, our cash flows will go to deleveraging. You will likely recall from the NYX deal, that we were able to do leverage faster than we had originally anticipated. I am hopeful that will be the case here as well. As we sit here today, as I look at the models that we put together, I think the two-year deleveraging path is a reasonable expectation, with a continuation in dividend and not doing share repurchases.

Okay, great. And then, Jeff, the deal's being pitched as a way to accelerate IDC's growth, but does it work the other way around as well? Does IDC help ICE's core business? Some of my thoughts, but they could all be bogus, but does it help move business on-screen? Does it help risk management or margining on the clearing side? Does it drive volumes maybe to a greater level? How does IDC help ICE's business?

You nailed it. That's exactly how we are thinking about it. The operation of clearinghouses used to be a back-office function that was not thought about. Today, it's a real business, and in fact, it's a business that is being mandated by regulation, and it's going to become more and more regulated, and the opportunity to grow it is going to be because we become more and more sophisticated.

And valuation is what we do. That's what a clearing platform is. So when we decided to try to help the large financial institutions get the credit default swaps off their balance sheets after the Lehman collapse, we had to develop all-new models, and we had to hire large staffs of quantitative analysts that could figure out how to value a product that had been mis-valued prior to that. And we really have developed a skill set there, and we just saw that opportunity, as like the light bulb went on, and said, we should just continue to build out those valuation systems, and we should be the best in the world, because that will be our competitive advantage over the long haul for clearing.

Increasingly, because of capital constraints on banks and others, the market's going to want to have sophisticated valuation of their collateral, and wider and broader types of collateral that can be accepted. And that's only going to be allowed by regulators if they have confidence in the people that are operating these things, that collateral can be stress tested and properly valued. It's a holistic view of where the market is changing.

As I mentioned, we started the Company by creating an electronic matching engine. Today, we have competitors that will actually pay market participants to use their matching engine. So the matching engine itself, which was the thing that was so valuable that started this Company at the height of the dot-com boom, today, others are not only giving it away for free, but will pay people to use it. There has been a transition and where the market is perceiving the value of these market places, and it's really in the risk management capabilities, and that's where we have been investing since 2007.

Okay, thank you.

Next question is from Brian Bedell, Deutsche Bank.

Good morning, folks. Let me just ask a question for Scott and switch to the cost side. The $25 million in cost saves going to $150 million by the end of year three, can you just touch on the run rate of that, if that's a linear growth rate into the $150 million, or if there are other step functions in that? And if can also refresh us on what you think the NYSE cost save run rate will be in 4Q this year? And then just refresh us on the incremental cost saves for 2017 from the NYSE?

Yes, so with regards to the Interactive Data synergies, the $150 million, we noted that we expected that we would be able to realize roughly 25% of those synergies in the first year, post close, so effectively 2016. My expectation is from there, you will see us likely, about 65% done give or take a little bit as we move through 2017, and then the large majority completed in 2018, with some then subsequently delivered in 2019. That's how I am thinking of the run rate right now. Clearly, as Jeff alluded to, and I mentioned a couple of times, we've got work to do, once we are able and have closed the deal to refine some of those assumptions. Obviously, we will be back to talk to you about it.

With regards to the NYSE synergies as I mentioned, we are two years post close of that deal now. We've bought businesses, we've invested in businesses. Trying to show you where inside our expenses you see an exact number, I think, is difficult to do. What I'd point you to is a quarter that despite significant adjustment in our bonus accrual, was nearly 60% margins. Margins that are right on track to where we said they would be two years ago. And then I would refer right back to the remarks I made earlier which is, we are exactly on pace to where we thought we would be at this point, and we've got the actions that are necessary to help us complete those synergies as we move through 2016. Again, where you are going to see that is going to be in our margins, it will not be easily seen embedded in what is a highly evolved and different expense base than existed two years ago.

Okay, great. Question for Jeff, just big picture on the data business, as you put everything together? Clearly, the revenue synergies from IDC seem compelling longer-term. As you think about, when you have IDC in the run rate fully and as SuperD is fully-integrated, how do you view the longer-term growth in the data business for ICE, inclusive of the synergies over time? And if you also want to layer in the potential pricing model for the ICE Benchmark Administration, which also sounds a lot like it has a good hockey stick upside to it?

Yes, it's hard to know. I view my job as really trying to identify the trends and behaviors in the industry and get our boat oriented toward those wins, and get the sail put out there. You can see right now, and we can see it in our own data, that in our own customer usage data and the conversations anecdotally we're having with customers, as this change is going on in the markets.

I know, I just re-upped my cell phone plan and I bought more data. As an individual, somehow, I'm consuming more data, and the tools for me to do that get better and better and I've got them on a phone I keep in my pocket. That is a microcosm of what is going at a bigger scale in the risk management business. We've got the sail and the wind here. I think it's going to have legs. I really do think underneath it, in addition to regulatory pressures, which are not going to go away, fragmentation pressures, which I don't think you're going to go away, even though end-users don't love that. But the powers of Balkanization are pretty big right now. I think this trend is going to last for a while.

And it just on the benchmark administration business in terms of the pricing model, where are you in that stage of evolution? Is there a lot more to come down the road?

It's an immature company. We just announced another new product that we are going to here in October. But when we stepped back and looked at our portfolio, I mean, what's amazing is ICE, as an owner of key benchmarks now with LIBOR, with Brent crude oil and [Gasoil], with many of our major natural gas indices, with the dollar index, we've, on our own, acquired and own a very interesting portfolio of indices. And the move towards passive investing is coming also into the commodity and derivatives space. It's following what you see in the equity space. Those key assets become more and more valuable, and people are -- there is more interest in them. We are at a very immature state.

The next question is from Chris Allen at Evercore.

Jeff, you harped on the fragmentation [pieces] moving forward. For IDC, their continuous evaluative pricing in fixed-income, the realtime data product seems very compelling. Just wondering if you have given any thoughts in terms of what the market opportunity is there in terms of revenue and whether that can be leveraged into trading platforms for some of the cash bonds, cash bond markets that are out there? Which markets, if any, you think are primed to take the step towards electronic trading?

I think we will have more to say on that over time as we own the business and are able to talk deeper with market participants. Clearly, there is a trend going on for more transparency around the fixed-income markets. And as people are increasingly concerned about what is liquidity available in those markets, there's going to be more and more pressure to be able to see that liquidity, and have it displayed in some manner.

Interactive Data is already pretty active in that area, supporting others, third-party platforms, and some of the new generation of entrepreneurs that are trying to solve that problem. We have a number of initiatives going on that are actually doing well in the fixed-income space, that are derivative of our credit default swap business, that we may be able to help supercharge. I'm cautiously optimistic that nut will get cracked. It would be nice if it was us, but if it's not, we're going to certainly support other entrepreneurs, because this realtime data is incredibly valuable and helpful to somebody trying to solve that problem.

Got it. And just a quick one, on the financing for the deal, the debt being raised is 2.75%. If I recall, I think you have about $2 billion you can tap for commercial paper, and I'm assuming that would be tapped, and the rest would be raised in the public markets? Is that the correct way to think about it?

I don't think we will likely exhaust all of the CP capacity. I think the bond of markets right now are attractive for a company that is a solid grade investment company like ours. I think its likely you will see us work to take advantage of that attractive market, in terms of our ability to fix some of that debt structure over time.

Thanks.

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

Thank you, Amy. Thank you all for joining us this morning. We are excited about what we are doing, and we will continue to refine our analysis and comments and be prepared on our next quarter call to give you further insight into our strategy, and how it's going to evolve for shareholders. Thank you very much. Have a great day.

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