Earnings Call: Q2 2017

Aug 3, 2017

Good morning, and welcome to the ICE Second Quarter 20 17 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, 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 Q2 2017 earnings release and presentation can be found in the Investors 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 2016 Form 10 ks. In our earnings supplement, we refer to certain non GAAP measures, including adjusted income, operating margin, expenses, EPS, EBITDA, free cash flow 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 and adjusted earnings refers to adjusted diluted earnings per share. Before I begin, I'd like to welcome Warren Gardner to ICE as Vice President of Investor Relations. And I want to thank all of you for the opportunity to work together in my Investor Relations capacity from the early days of ICE. I look forward to continuing my role as ICE's Chief Communications and Marketing Officer. Also with us on the call today are Jeff Sprecher, Chairman and CEO Scott Hill, Chief Financial Officer and Chuck Veiss, President and Chief Operating Officer. I'll now turn the call over to Scott. Thanks, Kelly. Good morning, everyone, and thank you for joining us today. I will start on slide 4 with some of the key highlights from our Q2. ICE's record revenue was driven by balanced growth across each of our business segments. Data revenues grew 6% versus the prior second quarter on a constant currency basis, driven by strong results in both pricing and analytics and desktops and connectivity. In our trading and clearing segment, average daily volume or ADV grew 28% and open interest increased 12% year to year. Our double digit volume growth and open interest trends reflect continued robust demand for our global trading and clearing services. Our record revenue results combined with continued expense discipline generated 3 points of adjusted operating margin expansion and record adjusted earnings per share, which grew 9% over the prior year. And importantly, through the first half of twenty seventeen, we have generated roughly $900,000,000 of free cash flow, which has allowed us to achieve our leverage target even as we return nearly 80% of that to investors. Now let's move to Slide 5, where I'll recap our 2nd quarter consolidated financial results. 2nd quarter revenues were a record $1,200,000,000 up 6% on a constant currency basis. Adjusted operating expenses in the second quarter were down 1 percent to $488,000,000 and adjusted operating margins expanded to 59%. Adjusted earnings per share increased 9% year over year to a record $0.75 As we look to the balance of the year, we expect 3rd and 4th quarter adjusted operating expenses in the range of $480,000,000 to $490,000,000 We also expect to refinance our October bond maturities and anticipate that interest expense will be around $47,000,000 for the 3rd quarter $49,000,000 for the Q4. Finally, we expect the tax rate to be around 31% in the 3rd quarter. Please refer to our earnings release for further guidance details. Please turn to slide 6, where I'll discuss our data and listing segment. These largely recurring revenues comprised over half of our consolidated revenues in the 2nd quarter. Segment revenues grew 5% year over year on a constant currency basis, including data revenues, which grew 6%. We expanded adjusted operating margins by 4 points year over year to 54%, which drove an 11% year over year increase in adjusted operating income. During the second quarter, we recognized a few $1,000,000 related to ongoing data audits that concluded sooner than anticipated. Entering the 3rd quarter, we also expect the ongoing integration of securities evaluation and 7 tapes to lower revenues by a couple of $1,000,000 reflecting the rationalization of duplicative business lines. Even though we now expect 3Q data revenues to be a little below heightened second quarter levels, 4th quarter revenues will reaccelerate and we remain confident that we will deliver at least 6% growth for the year. Within our data revenues, pricing and analytics revenues increased 5% year to year on an organic constant currency basis, driven by new customers and new product offerings. Our exchange data revenues grew 2% on top of last year's Q2, which was up 17%. Continued strong demand for exchange data on both our rates and commodities platforms was partially offset by muted trends in cash equities markets related to historically low volatility environment. Finally, revenue in our desktop and connectivity category grew 7% year on year on an organic constant currency basis, reflecting strength in both our connectivity and feeds businesses, which are benefiting from trends away from traditional data delivery methods such as desktops. For a little more color as to what is driving our data revenue growth, let's shift to slide 7. As I previously noted, we remain on track to grow the data business at least 6% on a constant currency basis. As highlighted at our Investor Day in June, an important contributor to our confidence in this business is the momentum we continue to see in new business signings during the first half of 2017. First half new contract signings in EMEA were up 18% and pricing and analytics signings in Asia Pacific increased 15%. Finally, as we enter the Q3, ASV or the annual subscription value is up 5% year over year. Underpinning this growth is 7% ASV growth in pricing and analytics and 8% growth in desktops and connectivity. Exchange data ASV was flat year over year against very strong growth in the prior period. Importantly, as a point in time metric, ASV does not reflect the future benefit of the cross sell opportunities that our fully integrated sales team will continue to deliver nor does it reflect any future pricing actions. Next on Slide 8, I'll highlight the strong performance of our listings business. As previously noted, we've had great success in a very robust IPO market through the first half of this year. The NYSE ranked as the number one listing venue for U. S. IPOs with 49 new listings and $19,000,000,000 of capital raised. And as you know, these wins drive listings revenue growth primarily in the subsequent year, while also generating meaningful adjacent revenues across both our trading and data segments. The NYSE continues to be the venue of choice for world class companies and entrepreneurs. Through the first half, over 88% of all capital raised by the IPOs of U. S. Operating companies and 28 of the past 28 initial listings above $700,000,000 have happened on the NYSE. I'd like to pause here and note that with the sale of NYSE Governance Services on June 1, we expect listings revenues and expenses to each decline by approximately $4,000,000 sequentially. I'll review our Trading and Clearing segment beginning on Slide 9. Revenues were up 6% year to year on a constant currency basis and represent our 2nd best quarter ever for futures transaction revenues. We also expanded our operating margin to 64%. As the leading global energy marketplace, continue to innovate and now, for example, offer more than 500 oil products. We've seen strong growth again this year in our energy benchmarks and our new products as well as European interest rates and MSCI equity indices. ADV for the quarter was up 28% and we set ADV records in our Brent, Sterling and MSCI contracts. Finally, as you will have seen in our volume press release this morning, the momentum continued in July with ADV up 11% and OI up 10%. And importantly, we saw a solid uptick in our energy and rate RPC in July versus June, coupled with continued volume growth. Continuing to slide 10, you can see that the growth in trading and clearing has been very balanced with contributions across our diverse global futures markets. ADV for the first half was up 15% versus a strong first half last year, including record commodity volumes of 3,300,000 contracts and record sterling volumes of 1,100,000 contracts during the Q2. Perhaps more importantly, open interest was up 12% versus the prior second quarter and up 22% versus the end of last year. Open interest is a key barometer of customer interest and engagement in our market over the longer term. Turning now to Slide 11, you can see how the operating margins in both our trading and clearing segment and our data and listing segment compared to our peers. Not only do the absolute margins distinguish ICE, but we have positioned ourselves in businesses which will generate high incremental margins on future revenue growth. This is enabled by execution of our synergy commitments and the proprietary nature of many of our product offerings. We have curated a diverse global business by organically investing in product innovation by opportunistically acquiring assets from which we are able to extract greater levels of growth and profitability and by efficiently divesting or discontinuing non core assets. I'll close my remarks on Slide 12. We generated nearly $1,100,000,000 of operating cash flow in the first half of this year, which allowed us to strategically invest in our business and delever to our target of 2x debt to EBITDA. We also returned approximately 80% of our first half free cash flow to shareholders through buybacks and dividends. And we now expect to return around $1,400,000,000 during 2017, which is 40% more than any year in our history. We are well positioned to meet our objectives in 2017 even as we lay the foundation for continued success in 2018 and beyond. I'll be happy to take your questions during Q and A, but for now, I'll hand it over to Jeff. Thank you, Scott, and good morning to everyone on the call. I'll begin on Slide 13. You've just heard the financial details on both the best quarter and the best first half in our company's history, which builds on the track record that you see here. We grew revenues, margins, earnings and capital return, while executing on our strategic agenda. Our track record demonstrates the durability of our model. We continue to grow and outperform in a range of environments. This includes our growth through the financial crisis, a time of the very high market volatility, as well as growth during the first half of this year, a time of historically low market volatility. At our Investor Day in June, we highlighted our strategic vision for delivering complementary solutions across global markets, which you can see if you move forward to Slide 14. Today, we provide more mission critical high value services than ever, and we're delivering on those across our integrated and widely distributed technology platforms. Evolving rapidly due to advances in technology and automation, coupled with the demand for efficiency, regulatory compliance, analytical decision making and real time information. Historically, we sought primarily to serve the needs for price discovery and transaction execution, But the expansion of electronic markets and our coverage of virtually all asset classes today has pushed us deeper into data and information services. This is a virtuous cycle, where providing more information to users fuels market liquidity and the ability to transact and to manage risk. Through the lens of our customers' workflows, we've identified these shifts early in their cycle and expanded our solutions into these growth areas. And while we primarily focused our attention on our new data segment in our remarks today, we're executing on meaningful opportunities across our global businesses. On Slide 15, we've detailed several of the drivers contributing to both our near term and long term growth, And I'll highlight a few of these. You could see how our core Exchange business continues to serve as a growth engine through which we deliver related services and expand our proprietary data content and distribution. Starting in the upper left quadrant, the unique technology infrastructure that we've integrated through various acquisitions such as Yellowjacket, NYSE, Interactive Data and TMX Atrium have uniquely positioned ICE to securely distribute our content. By innovating around these assets, we've developed new applications to meet risk managers' needs for their evolving workflow and cybersecurity. In the lower left quadrant, you could see the complementary growth across our lines of business. Scott highlighted our leading trading and clearing volume growth year to date, our consistent data revenue growth and the fact that we're beginning to execute on new international data sales. As our cross selling efforts continue, we also expect to see further results from integrating across our markets and information businesses. On the lower right, you could see that we're also leveraging our unique assets along with making opportunistic acquisitions to serve customers in new ways. In 2018, we expect to compete our work on developing a new digital backbone for MERS and we continue to build liquidity in our interdealer bond market offering. We're delivering more services through ICE Benchmark Administration. Today, we operate benchmarks for LIBOR, the gold price and the ISDA SIM among others. As announced last week, we've been awarded a mandate from the LBMA to operate their silver price benchmark. We also expect to begin offering clearing for that daily benchmark in connection with the silver futures contract, just as we expanded to clear and trade the gold price benchmark. These are just a few examples of how we are holistically serving more of our customers trading and risk management needs. Moving on to Slide 16. Our clearing infrastructure is an example of how we're continuing to build on our solutions synergistically. Clearing is widely recognized for its central role in managing risk and providing critical settlement information. Today, our global clearinghouses serve our customers not only in trading, but by helping to meet their compliance, information and capital efficiency requirements. In operating our first clearinghouse a decade ago, we saw the value of market data, which enables us to develop and clear new products. In 2007, we cleared approximately 300 products. Today, that number is over 3,000 products. And this year's launch of our gold and silver contracts is just one more example of how we're leveraging our investments in data and clearing to create opportunities for our customers to trade, make informed decisions and manage risk. Our global clearing operations are also a key strength for us in addressing the changing regulatory dynamics brought on by Brexit, MiFID II, Basel and the ever evolving regulatory environment. While we continue to advocate for a delay in those parts of MiFID II that we believe increase systemic risk or add significant cost to commercial basis, we're by this regulation. With our exchanges and clearinghouses on a common technology platform in the U. S, the U. K, Europe, Canada and Asia, we're confident in our ability to support our customers when and wherever they choose to do business. Shifting to Slide 17, I'll remind you of the growth drivers of our Data segment in the quarter, which we also expect will be key drivers in the coming years. It's worth noting that these dynamics are creating demand in our trading and clearing segment as well. Whether it's an asset manager looking to expand its passive investment business, an active manager looking to outperform the benchmarks or a quantitative manager looking to feed an increasing amount of data into its trading engines, we continue to see a long term pipeline of data demand. In June, we announced our plans to acquire the Bank of America Global Research Index family, which is the 2nd largest fixed income index provider after Barclays. We've innovated in this area allowing our customers to further benefit from our expanding fixed income evaluated pricing and reference data services. And we expect to have roughly $1,000,000,000,000 of assets under management benchmarked to our fixed income index franchise upon the acquisitions closure, spanning government bonds, munis, corporates, commodities and equity indices. Together with our suite of pricing, reference data, indexes and exchange traded fund services, we're increasing the range of solutions that are available to asset managers beyond their traditional providers, particularly as they seek new cost efficient end to end solutions. More broadly on Slide 18, we're also rapidly executing on the global demand for our data services. Scott noted the double digit growth in new contract signings in Europe and Asia during the quarter, which is not yet fully reflected in our reported metrics. We see sales in these areas as a growth opportunity and a solid tailwind. The opportunity in these regions is unique due to the demand for holistic data and information solutions. And because the markets that we serve are global and continue to automate, we're expanding both our sales team and our product sets there. In closing, on Slide 19, I want to acknowledge Kelly Loeffler's role in her track record of success. Shortly after the company's launch, we asked Kelly to organize the firm in a way that would position us to become an NYSE listed public company. Kelly decided that our company needed a budget and it needed metrics that would allow us to measure and track our performance and that we could no longer fly by the seat of our pants. She determined that we needed an investor message and an outreach program to share our message with the public. And she recognized that I could use a heck of a lot of support both on and off the court. So today, after 51 earnings calls, this is the last time you're going to hear her voice in this venue. The results shown on Slide 19 pretty much speak to how all this turned out for us and to the competencies that she laid down for us to be a public company. ICE continues to invest strategically in growth. We refine our portfolio around core assets. We expand our margins. We return more capital as a result of our strong cash flow and we deliver at or ahead of our stated integration plans. So I'd like to thank our customers for their business and their feedback in the quarter and I'd like to recognize my colleagues at ICE for delivering the best quarter in the company's history. And finally, I thank Kelly for giving us the foundation to share this success with all of you here today. I'm now going to turn the call back to our moderator, Gary, and we're going to conduct a question and answer session until 9:30 Eastern Time. We will now begin the question and answer The first question comes from Ken Worthington with JPMorgan. Please go ahead. Hi, good morning and thank you for taking my question. Jeff, what are your thoughts on the planned elimination of LIBOR? I guess maybe how does the decision impact ICE directly given your position in the process? And then I think more interestingly, there's so much tied to LIBOR, maybe from a higher level, where and how do you see the opportunities for ICE to benefit from the pending changes? Thanks. Sure. Let me take the second half of that question first. We've built this company called ICE Benchmark Administration, which we're really proud of. We stood up from scratch entrepreneurial effort to build a bespoke benchmark administrator. And where there are opportunities to administer benchmarks, ICE is pretty much at the front of the line for any new product that comes out. So while there is talk about potential new interest rate benchmarks that could evolve in the world, I wouldn't rule out the fact that ICE Benchmark Administration will have a high likelihood of being the administrator of those benchmarks given our track record. The second and a little more detail, what today LIBOR is overseen by ICE Benchmark Administration and a large group of market participants that formally meet to contribute to how LIBOR will evolve. And before the financial crisis, it was an estimate provided by the banks. Today, banks still provide IBA with estimates, but they also provide IBA with all of the underlying short term trading data that they have and the rationale and algorithms that they use to convert that into the LIBOR estimate. So what the industry has been doing around LIBOR is correlating all of the short term data information that it has through real transactions with algorithms and estimates on how LIBOR should be based on those going forward. And that work has largely been done and there is a high confidence in LIBOR as it exists today because the market knows that there is a lot of underlying data that's being looked at and correlated into the daily publication of LIBOR. Now regulators have said that they would like it to be specifically based on those short term transactions. And Ken, let me give you an example of what they're really saying. You're a very good equity analyst. You're going to listen to our call today. I suspect you'll read all the materials we put out and typically you would write a note to your clients suggesting the valuation of iStock and where you think the stock price might perform in the future. And if I ask you to do that same exercise tomorrow and then the next day and then again the following day, largely little would have changed in the world that would cause you to change your estimate unless it was some macroeconomic trend that was impacting ICE. If I did that same exercise with you and said, you must link your estimate to the stock price of ICE's stock today, every day your estimate would move because our stock price could easily move around in a given day. So you may tell your clients today that you think ICE could be a $100 a share company. And tomorrow, if the stock price moved, you'd say it was $110 and the day after that, you'd say it was $90 and then you'd say it was 80 and then it was 200 and whatever. So one of the complexities of introducing specific algorithmic tie to short term trading is that the market doesn't use LIBOR in that way. And so the complexity is not tying LIBOR to the underlying movement of rates. It is coming up with a solution that will actually work for the market in doing that. It's a throwaway statement to say things should be more transparent or based on real transaction. This has to work in the real world and as you pointed out in your question really, there are 1,000,000,000,000 of dollars of assets that are tied against that, including, as Scott mentioned, the loans that he's going to go into the market and refinance that we use ourselves. And the market is not really ready yet in the minds of the marketplace who is overseeing this to put that into full transaction based mode. The good news is that the FCA has required the banks to continue to provide that kind of underlying information for the next 4 years into IBA so that these solutions can be worked on. The regulators are in the room. They're in these meetings. They're aware of these issues. They're aware that there has to be a long transition period. I'm confident that that group is going to solve this problem and figure out a way to introduce these new metrics into the market in a way that will work for the market, because there is a lot of thought and care going into it. But again, I would reiterate in the meantime, there is a high level of confidence in the way LIBOR is operating today. Okay. And maybe just as a follow-up, do you see opportunities for ICE in this change in LIBOR in either the future side, maybe in the U. S. Or the OTC side of trading globally? And also I wanted just to thank you to Kelly for all the help over the years she's given to me and the rest of investors. Thanks. I'll give you a short answer to the second one since I gave you a long answer. The first one, the answer is yes, we do see those opportunities. And we do think there will be additional benchmarks. And just in dealing with what I suggested, which is a LIBOR that is going to be much more volatile in the future will increase the need for risk management around that. Okay, great. Thank you very much. Thank you. The next question comes from Mike Carrier with Bank of America Merrill Lynch. Please go ahead. Thanks guys. Just first question, just on the announcement related to Trayport, just wanted to get your updated thoughts on how that you expect that to play out, any potential impact? And then probably just broader, what it means in terms of M and A strategy and where are the areas that you think you still see opportunities versus the areas that apparently appear more complex? Yes. So with respect to Trayport itself, I can't get into the details of the process other than to say there's tremendously high interest in the marketplace to be an owner of that company, which is good news for us. And it's important for us that and to the regulators, but we our interests are aligned in that we want it to be owned by a good operator, so that we can continue to be a customer of potential customer of the company. And so we have that interest as well as the regulator. In terms of impact, we we'll give you guidance once we know the ultimate outcome of that process and when it might actually be spun out. But we've got nothing right now to say. And just to be crystal clear, Trayport's assumed in the guidance that we've given you. I suspect it will be an immaterial impact this year to the extent either of those changes, as Jeff said, will give you clear visibility as soon as we're able. Okay. And then, I guess just anything on the M and A front in terms of the outlook, just given that process? Yes. I would just say that M and A, particularly with in Europe right now is complicated. It's complicated by Brexit basically and what is the competitive landscape in a post Brexit Europe And what will the great repeal bill that the U. K. Is adopting ultimately mean for the relationship that the UK will have with Europe. And so in order to do anything that's sort of Pan European, a manager needs to have an outlook on how that's going to unfold, because it will affect the competitive dynamics of how the regulators will look at these things. Got it. Okay. Thanks. And Scott, just on the tax rate, is that mix or is there any tax changes impacting that? It's largely mix. I mean, we one of our peers mentioned the change in the Illinois state tax. That impacts us a little bit. But the increase that you saw from 1Q to 2Q and then, as I mentioned, continuing into Q3 is mix to the U. S, in particular a really strong performance by the IDC business, a combination of synergies that we're delivering and solid growth that we're seeing. We talked about the EMEA and Asia Pacific signings, which were really good. But as we showed you on Investor Day, over 70% of our business is in the U. S. And that business is doing really well. Got it. Thanks a lot. The next question comes from Dan Fannon with Jefferies. Guess, Scott, if you could remind us from a synergy expectation kind of what's left and as you think longer term kind of the growth rate of the overall kind of total expense base, how we should think about that? Sure. So we continue to execute on our synergy plan. We told you coming into the year that we had 100 to go and then we increased that by 30. I said 25 to 30, but I think most of you wrote down 30. So we're driving towards that $130,000,000 goal. We said we'd deliver 60 this year. I'm very encouraged by the results through the first half with regard to that expectation. I think more importantly, the $70,000,000 subsequent to that, 6 months later, we've really firmed up the vast majority of the actions that will deliver those synergies as well. So I'm very comfortable with the synergy performance through the first half of the year. I'm confident that we'll continue to deliver on the original 60 and possibly generate some upside to that this year. And then again, we've got a full blown roadmap to the full 130 now. So I feel good about it. And your second question, it doesn't end with just the synergies for the acquired businesses. We're constantly focused on ways to run our business more efficiently in the base as well. As you know, comps about half of our overall expense base, as demonstrated by the results. Once again, our employee population consistently earns increases on their comp, but that comp is also tied to our performance. And so it self regulates. To the extent we're not delivering, bonuses come down. To the extent we over deliver, bonuses go up. So I would expect that, that comp expense as it has over the past couple of years probably grows around 3% or 4%. I generally think the rest of it will be tied to revenue growth, because a lot of it is expense that when we're growing, it contributes like our listings performance right now that drives some marketing expense, but the revenues more than offset it. So I think over the longer term, what you've seen from us is somewhere between flat to plus 3%. And at least for the foreseeable future, I don't know why you'd have an expectation of more than that. So I think expenses will continue to be managed in a way that allow us to grow profit faster than revenue. Great. And then just a follow-up on the revenue outlook and wondering if there are any pricing changes in the quarter across either the data side of the business or within transactions and maybe thinking about that for the remainder of this year if there's anything that's kind of in the hopper to come? Yes. So through the year, there's nothing in particular from a pricing standpoint that's driving the results. Right now, what really is driving it are new products, new customers. You see it in our signings results. We mentioned at Investor Day that pricing is an element of our growth model. I think we said then that it was around 30% and then the debate ensued whether that was too much or too little. But I still think that's a reasonable expectation as you think about next year and the year after and the year subsequent. But in this year, what's driving the performance year to date is signings, new customers, new products, and we're particularly pleased with the results we're seeing in pricing and analytics, in connectivity. And we made a brief mention in our prepared remarks, but our feeds business is doing really well. Great. Thank you. The next question comes from Alex Blostein with Goldman Sachs. Please go ahead. Great. Thanks guys for taking the question. A couple of questions this morning. So maybe the first one around just some the equity market structure dynamics. So Chairman Clayton obviously suggested that the SEC is looking to revisit some of the equity market structure topics, including lower and access fee caps. Jeff, can you guys remind us, I guess, where do you stand on this issue and what this mean for NYSE if fee caps are lowered and how that should kind of play out of the business model? Well, we've suggested that we believe that there is an opportunity to lower those caps. However, it should be done in connection with a broader restructuring of the market, so that both lit markets and dark markets are operating under similar types of rules of engagement. Because what you don't want to do and you can come up with scenarios where you lower the cap, but all you're really doing is incenting people to leave the lit markets. The rules of engagement in many of the dark pools is not transparent and it's unclear what kinds of fees are being paid there and what kind of incentive programs exist and so on and so forth. And so it has to really be a holistic view, but we would certainly support a holistic review of the markets. Got it. And just a follow-up for Scott, looking at the annual subscription value metrics that you guys put out, those are helpful. I guess as we look at the different line items there, pricing analytics and desktop connectivity obviously seem to kind of carry the organic growth momentum in the bucket. How does profitability across these services vary? And I guess what I'm trying to get at really is like just thinking through the margin implications some of these areas growing a little bit faster than the others. What does it mean for the data services margin as a whole? Yes. So look, I think the opportunities for the data margin are to continue the trend of expansion. Pricing and analytics and exchange data margin dynamics are really similar. And I made a comment in my prepared remarks with regards to the fact that each additional dollar revenue historically in Exchange Data Business has driven high incremental margins because it's an incremental user of data that's already produced. It's similar in pricing analytics. To the extent I've got 10 people that buy a particular bond price and I can then sell it to an 11th, a 12th or 13th, there's not a lot of incremental expense that comes along with that. So incremental margins on pricing analytics and exchange data are very positive. Connectivity is a little lower only in a sense that that is where it requires some fixed assets because as we build out capacity to handle more customers or we build, for example, larger ports for those customers to connect to, there's a little more incremental expense that will come with that. That notwithstanding the incremental margins are still very attractive. So I don't view it as a particularly large difference among the 3 and do believe that across the 3, if we're getting growth regardless of which of the 3 or all of the 3 or 2 of the 3 it comes from, incremental margins will be solid and will contribute to expanding margins at the bottom line for that segment and for us as a company. Okay. Thanks very much. The next question comes from Alex Kramm with UBS. Please go ahead. Yes. Hey, good morning. Good morning. Wanted to just come back to Dan's question on the pricing side. I think, Scott, you answered it on the data side, which we've all been focused about on. But can you talk a little bit on the transaction side as well? I mean if you look at this quarter on a year over year perspective what stands out is on the interest rate side in particular really strong volume growth, but the revenues didn't really follow through as much. And I know there were some FX, but it seems like mix is hurting you as well. And I saw you made some changes on the gilt pricing a couple of months ago and some ag stuff here and there. Just thinking holistically, I mean, is it time that you use your market strength on the transaction side a little bit more to drive pricing upside there as well? I mean, your primary competitor has been doing that for the last few years here and there as well. So any new thoughts? Yes. So I'll give you a couple of thoughts. The first one being that we're outgrowing the competitor you referred to. But the second one is with regards to pricing, it FX is clearly affecting financials. And so there's no price action to take to address that. That will somewhat self correct as we move into the Q4. We have had some mix impacts in particularly volatile periods, and this has always been the case, whether it's volatility that's Brexit driven or European economy driven, we tend to see a mix to heavier liquidity providers or market makers, which tend to benefit more from the lower rates. The same thing is true in energy, where in oil, we've seen volatility and a mix of a bit more of the market makers. We did see in June a little bit bigger dip than we had anticipated. We went back to the drawing board and redesigned some of the market making programs in both energy and financials and saw a market improvement in July RPC versus June. You won't see it in what we reported because we report a 3 month rolling average. And so effectively June, it will take all quarter to roll the impact of June out. But I will tell you and I'll just I'll give you specifically within our energy RPC, we were up 4% or 5% in energy in the month of July versus the month of June. And so as that rolls through to the whole quarter with the volume growth that continued year to year, it's a good arbiter of what we expect in terms of an ability to continue to grow our trading revenues. All right, great. Thank you. And then on the data side, maybe on one specific area, I mean, yesterday you had the announcement with T. Rowe on the real time evaluator pricing. I think that's been an area of focus in the past. Can you just help us how to think about that opportunity going forward? Mean, I know you're not going to be specific about T. Rowe, but if you think about the addressable market, the number of asset managers or banks that really you're targeting or should be targeting and then how big the range of revenues could be for a typical asset manager or bank to so we can dreaming a little bit about that potential business here? So I'll just sort of highlight really what we are seeing and it was really written through our prepared remarks. But there is a data strategy today needs to think about these macro trends and the more you can set the sale of your boat into these wins, the better you're going to do. And that's really how we've been trying to focus the business. The first is that there's a movement away from these large multi asset class screens to data provided on feeds that are feeding bespoke applications, quantitative algorithms and other kinds of things. So there's a move from screens to feeds. There is more growth, we believe, in EMEA and Asia than in the United States. So you need a distribution system that will get you to other geographies for us as Americans. There's a fundamental change going on in high frequency trading in the United States. It is no longer the Flash Boys kind of phenomena in my mind is being arbitraged out of the market. Exchanges have been changing their policies and systems and brokers and customers have been changing their algorithms in the way they approach markets. And so the kind of high frequency trader that's demanding data today is slightly different than the one in the past. They're more quantitatively oriented and need data in ways that help them drive those kind of quantitative algorithms. There's fragmentation going on wherever there are markets where there are fragmentation customers want to reassemble the market and so the areas where you see more fragmentation you see that are really putting pressure on end that are really putting pressure on end users to take the kind of products that you mentioned, Alex, and use those in their workflow to make sure that they're getting best execution. So if you think about our strategy, the way we're thinking about our strategy is how do we get our sales in each of those wins. And we do have a solution for all of those. And it's why for the first time in the history of our company, Scott has been guiding to real substantial revenue growth that we think we can sustain over a long period of time. All right. Thank you. The next question comes from Ben Herbert with Citi. Please go ahead. Hi. Good morning. Thanks for taking the question. Just wanted to ask, we've been hearing a little bit more from ETF sponsors around self indexing and wanted to get your perspective on conversations or how you think that might impact your business there? We are actively involved with a lot of people in those kinds of conversations. So I would affirm that what you are hearing is what we are hearing. We have announced pretty publicly major transactions with BlackRock on fixed income ETFs. We're in a very good position because we're we as a company, I don't really care whether we license you an index that's tied to AUM or whether you create an index or we create an index for you, but underlying is our data which you'll acquire. In other words, whether you acquire the index from us, which we can calculate and use our data or you acquire the data and do it yourself, we're agnostic. And so it puts us in a unique position visavis many of the indexers to have these kinds of conversations with end users. We have the calculation engines. We have the data. We have the reference data that underlies that. We have a very good brand in the name of New York Stock Exchange. We have the listings venue. And so all of that can go into a conversation on how we can help you. And those are conversations that we're having across the industry. Thanks. And then just maybe a follow-up on fixed income ETFs specifically and how you might or how you might size or think about the listings opportunity off that? I think ETFs for fixed income are popular and on the rise and it's simply because it's hard for you and I as individual investors to acquire and own bonds. And to the want some diversity of types of bonds. And what we are seeing is wealth managers are preferring to allow professionals to put those portfolios of bonds together and offer them to the market in a low cost manner through an ETF. And so I really do think that that's an area on the rise. It's an area that if you're an ETF provider, you can differentiate yourselves. It's somewhat hard to differentiate yourself if you're simply using a broad market based equity index, because most of your competitors will offer those. In fixed income, with so many SKUs that exist in the world, you can put together different kinds of portfolios, different kinds of metrics that can differentiate you from your peers. And so we see a lot of work going on there. We're providing a lot of underlying data and analytics to ETF providers as they think about how to find niches in the market. Thank you. The next question comes from Kyle Voigt with KBW. Please go ahead. Hi, good morning. Thanks for taking my questions. This first one, it's really on the core bond business. I know at the Investor Day, you pretty clearly laid out the fact that ICE is focusing on the institutional dealer to dealer corporate bond market. But just given some of the recent press around a retail bond trading platform for sale, I'm just wondering, given the collection of assets you have, including NYSE bonds, could you just give us an update on how you view or how core you view the retail space for you? Or is it focused right now on growing the institutional side? It's a good question. We're really looking at the fact that we've kind of had this core fixed income data and distribution infrastructure. And then we think about are there other products or services that we could add to that network that would be accretive. And to the extent that we were to acquire something, will it have returns above our cost of capital that would outperform other uses of our capital such as share buybacks. So I think long story short, we're opportunistic. We look at anything that is available as a buy versus build. But in the background, we're also considering how we use capital and what we can build ourselves. Okay. Thank you. And then just a follow-up, just more of a cleanup question for Scott. The $480,000,000 to $490,000,000 adjusted expense guide for 3Q, so I want to confirm, does that already reflect the sale of NYSE Government Services or should we model that on top of the guidance? It already reflects it. Okay. Thank you. The next question comes from Brian Bedell with Deutsche Bank. Please go ahead. Hi. Good morning, folks. Vijay, maybe just to go back to the LIBOR, I guess the debate about the benchmark. How do you view, as you mentioned, 100 of 1,000,000,000,000 of dollars of loans and securities are linked to the rate. I guess over the I guess how do you view the process of untangling that in the loans and securities and benchmarking that to a different rate? Is that something that's going to be sort of prohibitive and therefore keep LIBOR going well beyond 2021? Or is that something that's easier to fix? And then if you could just sort of comment how you think it's going to impact your EIBOR franchise on the prepaid side? So I think one misunderstanding is that we published 35 LIBOR rates. The alternatives that both the U. S. Fed and the Bank of England have proposed have a single overnight rate. The single overnight rate is the in other words, the overnight LIBOR is the least used of the 35 rates that we put out. The market is the market can't use those as a substitute as they exist today. What really needs to happen is confidence in the entire 35 rate portfolio of LIBOR across its entire pricing curve with underlying transactions that are much broader than overnight rates. And so I don't think it can be continue to build confidence in LIBOR than it will be to build 35 new rates that over a period of years that the market is prepared to substitute. Some of the efforts of the central banks are already feeding into the work that the LIBOR Oversight Committee is doing. And so it's helpful in that sense. But one should understand that if there was a good substitute, the market would have already substituted it. We wouldn't need to have the debate. But there is not a good substitute. Something needs to transition and improve in order to continue to build confidence. And I think ICE Benchmark Administration has the infrastructure to do that. And so we'll see how that plays out. But we but that we didn't start this work today. We've been doing this now for the last few years. So there's a very, very deep rooted effort going on and a head of steam on how to do these replacements. The point that I made earlier is that even any transaction based substitute is going to have more volatility in it. And the market has to figure out how to work around that. And Jeff noted it earlier, but again, I've got a bank facility that's a 5 year facility that as we start to think about our refinancing, it will include LIBOR as the base. So while the people who trade LIBOR at the banks may be talking about what they'd like to see as replacements, the people who are out helping firms like ours raise capital are still embedding LIBOR in their agreements for long periods of time. Right. So this whole thing was going play out a lot longer than 2021, it sounds like? Absolutely. I can't imagine that the amount the number of corporate deals that have been struck around LIBOR that will have to be renegotiated. And I can't imagine how I'm going to feel when if a bank comes to me and suggest that I need to go hire lawyers and pay them to help me renegotiate just around that fact. Great point. Okay. And then just as a follow-up, maybe just go back to the data business. Jeff, you really outlined well, I think some of the long term growth drivers just in the response to a couple of questions ago. As we think about, I guess, the organic data revenue growth was 4% year over year. How do you think about that accelerating? I think you were talking, of course, at the Investor Day of more longer term mid to high single digit potential. Do you think we'll begin to sort of see that in 2018 with some of the themes that you mentioned, Jeff, including MiFID II? So let me start and then Jeff can jump in. I wouldn't get too hung up on the 4, given that as we noted, pricing analytics was up 5, desktops and connectivity was up 7. And if you peel back the exchange data, that was largely a phenomena for the NYSE, which was down 5 percent year to year, while our commodities part was up 7%. So I would argue that embedded in the 4% is, if you will, a very narrow issue around NYSE data and the rest of the business is performing right in the middle of the mid to high single digits that we it. And so we delivered it last year. As I mentioned in my prepared remarks, we're going to deliver it again this year at 6%. And I do think particularly with the strength of the signings that we will deliver it again in 2018 and are positioned based upon the model we showed you at Investor Day to do it continuing. And again, it's based on new products and all the dynamics that Jeff talked about in Europe around MiFID and best execution. It's growing presence in Asia Pacific, which is the fastest growing region. And it's really a single sales team selling across the breadth of the products we have in the Americas. So we feel good about the rest of this year. We felt good about the quarter. And I think we are well positioned to hit that mid to high single digits growth into the future. And the NYSE phenomenon and the data phenomena is that during periods of very low volatility, more business during the day goes into the dark pools because the market isn't that volatile, which then affects how the data revenues are and messaging and messages to the exchange and the way data revenues are allocated. It's a phenomenon that isn't specific to NYSE, it's specific to all exchanges. The next question comes from Chris Harris with Wells Fargo. Please go ahead. Thanks, guys. Another one on data. Europe is tends to be a little bit more of a mature market. You guys showed that the industry overall, the growth is about 1%. But you guys are seeing 18% growth there in contract signings, which is really just obviously very strong. Can you comment a little bit on what's why your growth is so strong there in EMEA versus the industry on average? Yes, I would say at the end of the day, there's specific requirements under MiFID that are driving end users to change their workflow. So as we pointed out with the press release that we had with Key Roe, we have products that allow people to assure that they're getting best execution in the fixed income space that's popular. Secondly, people are bracing for more fragmentation as a result of MiFID. When fragmentation happens, the wallet increases as people try to put the market back together. I mean, in fairness, we advocate that there shouldn't be fragmentation. We think it's bad for risk management, but it's good for revenues. And I we're talking out of both sides of our mouths honestly, But I tend to think that the more we can do to help customers, the better we'll be in the long term, which is why we're advocating against fragmentation. But we're doing well as a result of it. I think this trend is going to continue. There's a lot of people that are unprepared for MiFID. We're going on sales calls and cold calling people to talk about these things and they look at us like we have 3 eyes and don't understand what it is we're talking about. I think there's going to be quite a lagging impact and given the uncertainty around MiFID that's going to be caused by Brexit, I think that that trend is going to be in the market for many years. The next question comes from Vincent Hung with Autonomous. Please go ahead. Hi, good morning. So I'll give this a shot. How much revenue do you generate from indices now pro form a for the recent index acquisition? So how much revenue do we generate? Vincent, say the last part of your question again? From indices now, pro form a for the recent acquisition? I assume you are referring to the Bank of America Merrill Lynch. That deal hasn't closed yet. So that hasn't impacted our revenues at all. And we haven't, to this point, broken out indices as a separate line item in revenue. But to be clear, the reason that we're interested in the Bank of America indices is that we would want to fuel them with underlying ICE data. So Bank of America has been making that transition while they own them so that when those indices come to us that they'll be potentially all on ICE data. So we license the index or sell the data, we're kind of agnostic honestly. This concludes the question and answer session. I would like to turn the conference back over to Jeff Sprecher for any closing remarks. Well, thank you, operator, and thank you all for joining us today. And so we'll look forward to updating you as we work to close out the year and hope that we can continue to talk to you about building on this record performance that we had in this quarter and in the half. Thank you and have a good day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.