Earnings Call: Q2 2015

Aug 5, 2015

And welcome to the YICE Second Quarter 2015 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kelly Loeffler. Ms. Loeffler, please go ahead. Good morning. ICE's Q2 2015 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 2014 Form 10 ks. In addition to GAAP results, we also refer to certain non GAAP measures, including adjusted income, adjusted operating margin, adjusted expenses, adjusted EPS, adjusted EBITDA and adjusted 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 and 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 Veiss, 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 by highlighting our strong performance in the first half of twenty fifteen. We grew adjusted earnings 27% year to year on 6% revenue growth with commodities, cash equities, data services and listings all contributing top line growth. Adjusted expenses declined 6% and adjusted margins expanded 6 points. The revenue growth and margin expansion generated operating cash flow of $770,000,000 in the first half, which enabled us to deploy around $300,000,000 in capital expenditures and business investments like Amex and OCC, while returning $560,000,000 to investors. Now please turn to slide 5, where we detail our 2nd quarter financial results. Adjusted earnings per share rose 27% from the prior year to $2.90 Net revenues grew 6% year over year to $797,000,000 This includes record revenues for data services and for NYSE listing and strong growth in commodities revenues. Adjusted operating expenses declined 8% from the prior second quarter and adjusted operating margin reached 59%. Our adjusted tax rate of 28% was at the lower end of our range in the quarter due to a number of discrete items. For the second half of the year, we expect our tax rate to be closer to the middle of the 28% to 31% range. Let's move on to slide 6 and I'll discuss the drivers of our 6% revenue growth. Transaction revenue accounted for 56% of net revenue during the Q2. Our net transaction and clearing revenues declined 3% year to year due primarily to continued interest rate volume weakness in Europe. Commodities revenue increased 8% year to year on strength in our oil, natural gas and ag markets and revenues also grew in our FX and cash equities markets. Non transaction revenues grew 20% and represented 44% of net revenues. This included data services revenues, which were up 29% to a record $191,000,000 driven by the addition of new users and product offerings. NYSE listings revenues grew 12% year to year to a record $101,000,000 reflecting the NYSE's continued global leadership in IPOs and capital raising. Next on slide 7, I'll detail the revenue performance across our futures exchanges for the Q2. Despite muted activity in interest rate markets, revenues from futures and options declined just 2% from the prior second quarter. Energy and ag volume and revenue growth was solid, including global oil and sugar revenues, which increased 11% 20% respectively versus the prior year. Total open interest across all of our exchanges has increased 3% from the beginning of 2015. And notably, volatility in European short term interest rates picked up during the month of July with daily volume in our rates complex up 17% over the prior July contributing to overall derivatives volumes which were up 1%. Total volumes in July actually grew 7% when you exclude European single stock equities volumes. The revenue associated with that trading activity is capped and thus there is very little correlation between volumes and revenue. To ensure our volume metrics better align with transaction revenues, we will exclude single stock equities volumes from our volume and RPC metrics beginning in August and we will provide updated historical information on that same basis on our website. Turning to slide 8, I'll expand on the performance of our energy markets. During the quarter, global oil revenue increased 11% including Brent and other oil revenues up 11% 15% respectively. Ice Brent along with hundreds of related oil products remains the global benchmark relied upon by producers and consumers. Revenues also grew in gas oil and WTI as did volume and open interest. From the beginning of the year through the end of June, open interest in our global oil complex is up 8%. Our natural gas markets also performed well in the 2nd quarter, benefiting from increased volatility resulting in revenue and volume growth of 7% year over year. Moving along to slide 9, I'll provide an update on revenues from our swaps markets. Total credit derivatives revenues for the quarter were $34,000,000 including $22,000,000 in CDS clearing revenues. The sequential decline in clearing revenues was primarily due to the $3,000,000 accounting adjustment that we noted in our Q1 results. For the full year 2015, we expect clearing revenues to increase from the prior year and to exceed $100,000,000 as we continue to add more products and see increased interest from buy side clients. Growth in European buy side participation continued in the quarter and accounted for 34% of the gross notional cleared in the first half at ICE Clear Credit, our U. S. Swaps clearinghouse. CDS clearing activity in the U. S. Remains robust due to our comprehensive product offering, portfolio margining and the relative regulatory certainty in the U. S. Please turn to Slide 10. The New York Stock Exchange continues to grow revenue and gain share reaching 24.4% share of the U. S. Cash equities market in the 2nd quarter, up from 22.7% in the prior second quarter. We've improved revenue capture and grown revenue consistently since completing the acquisition in 2013 by focusing on the needs of our customers and simplifying markets. Share in our equity options markets was stable versus the Q1. And after purchasing the remaining 16% stake in the Amex business at the end of June, we saw share increase in July. Importantly, we will retain 100 percent of the profit from the Amex options business starting in the Q3. So in our equity options business, share is stable to improving and the profit contribution from the business is increasing. We continue to focus on the evolution of our options markets as we shift from a mutualized structure to one that is focused on innovating across the NYSE Amex and ARCA options markets. We've historically focused on aggregate expense management and revenue performance by business line. That notwithstanding, I want to eliminate any misperception about the significant profit contribution we are realizing from the New York Stock Exchange. The combination of improved share and stable revenue capture in cash equities, continued listings leadership, diverse data offerings, the elimination of corporate redundancies and significant operational improvements increased NYSE's adjusted operating margin above 50% in the Q2 of 2015. That's a nearly twofold increase versus 2012. And as we continue to serve our customers, implement technology improvements and streamline NYSE's operations, we expect the profit contribution from the NYSE business to continue to increase as margins expand. Moving on to slide 11, as I just mentioned, we continue to extend our global leadership in listings in the Q2 and the first half of twenty fifteen. Listings revenue grew 12% over the prior second quarter to $101,000,000 We also led in global proceeds raising $95,000,000,000 in 2.64 transactions during the first half of the year. We have a robust IPO pipeline for the second half and we are investing in our team and resources to support our listed companies. Slide 12 reflects the continued strength of our data services business. For the quarter, data services revenues were a record $191,000,000 up 29% over the prior second quarter. This was primarily driven by the addition of new data products and growth in our customer base coupled with the addition of super derivatives and the emergence of ICE Benchmark Administration. Turning to slide 13, I'll move from a focus on revenues to a discussion of our 2nd quarter expenses. As you can see, adjusted expenses declined 8% year over year to $328,000,000 Expenses were better than guidance primarily due to accelerated synergies coupled with reduced non cash compensation expenses related to a large number of resource reductions during the quarter and a large recovery in technology expenses. Compensation, professional services and SG and A expenses continued to decline as we integrate our businesses, eliminate overlapping roles and reduce contractor levels. Technology and D and A expenses increased from the prior second quarter due to investments to improve our NYSE technology platform, to enhance our listed customer offerings and to enable our ongoing integration and the consolidation of our global real estate footprint. This continued focus on strong expense management enabled adjusted operating margins expand to 59% in the 2nd quarter, a 6 point improvement versus the prior year. We expect expenses in the 3rd and 4th quarters to be in the range of $330,000,000 to $335,000,000 which means our full year expense should be at or slightly below the low end of our prior guidance and approximately 4% lower than in 2014. If you'll move to slide 14, I'll quickly cover our cash flow and capital structure. In the first half of twenty fifteen, we generated $770,000,000 in operating cash flow. At June 30, we had $700,000,000 in unrestricted cash and short term investment including just under $200,000,000 in additional regulatory capital that will be required when ICE Clear Europe receives a MiR authorization. On June 30, we paid off our $1,000,000,000 total debt now stands at $3,300,000,000 and our adjusted debt to EBITDA is 1.6 times. I'll conclude my remarks on Slide 15 with an update on our uses of capital. As you can see, we have used all of our operating cash for capital return, opportunistic M and A and capital expenditures. In the second quarter, we returned nearly $290,000,000 to our shareholders. We repurchased $203,000,000 of shares during the Q2 and continued to opportunistically buy back our shares. We also paid $85,000,000 in dividends, representing a 15% increase in demonstrating our commitment to grow dividends as we grow. We expect to maintain around $500,000,000 in unrestricted cash and equivalents and a leverage ratio around 1.5 times. We otherwise expect to use 100 percent of cash flows to return capital to shareholders and to deploy towards growth investments that meet or exceed our return expectations. Importantly, our strong balance sheet and cash generation coupled with our access to debt markets should enable us to return significant amounts of capital without limiting in any material way our ability to act opportunistically when we identify growth opportunities. Our strong first half performance reflects the execution of our financial and strategic objectives. Revenues grew 6% and adjusted earnings grew 27% even as we integrated multiple acquisitions, invested in growth initiatives and returned $560,000,000 to shareholders. And importantly, we have established solid momentum that will carry through the remainder of this year and into 2016. I'll be happy to answer any questions during Q and A and I'll now hand the call over to Jeff. Thank you, Scott and good morning. Our 27% earnings growth in the quarter was driven by strength across our company. And our record first half revenue and record first half earnings are consistent with our objective of delivering strong top and bottom line growth. We delivered growth in our energy, agriculture and equities markets as well as in market data and in listings. We're integrating our acquired companies and advancing numerous technology and strategic initiatives to address our customers' needs. Our team is adept at managing change, consistently evolving and growing our business since its inception. We've moved from an electronic trade execution venue for over the counter markets to becoming a global network of exchanges and more recently pursuing clearing, data services and expanding our listings franchise. And we're striking a balance between high value recurring revenues and more commoditized volumetric revenues. Our progress in quickly reshaping historically low margin businesses to increase margins through improvements is evident in the NYSE and Life operations. Significant cost efficiencies remain in our sites and as our revenues continue to rise, this should amplify our earnings growth in the coming years. We've also positioned ICE alongside long term secular trends coupled with improving cyclical dynamics. And I'll walk through some of these starting on slide 16. Demand continues to rise for our products and services due to the globalization of markets and the increasing need for risk management. The significance of data services and clearing is rising with the additional collateral, treasury, benchmark and valuation services that we are developing. As such, much of the value we add today cannot be measured through trading volume. This is evident in the chart on Slide 16, where trading volume trends have become a less reliable indicator of our earnings growth. Over the last four quarters, while trading volumes have declined on a year over year basis, our earnings per share has consistently grown at a strong double digit rate. Our continued top line revenue growth, including revenues up 6% in the first half of this year is driven by our anticipation of changing customer needs. At the same time, we compete in our trading volume based businesses from a position of strength, owning globally relevant benchmark contracts integrated with risk management and data services. We differentiated our approach by locating in the major market centers where our customers operate. As we reach for global growth, we plan to launch our Singapore based exchange and clearinghouse in the 4th quarter. And we built ICE trade vault data repositories in the U. S, Canada, Europe to serve unique reporting requirements. We believe that our geographic diversity is increasingly important as regulation and capital requirements continue to diverge across these jurisdictions. In response to customer requirements for products that are more capital efficient, we've launched our ARRIS products, which replicate the economics available in swaps within a futures contract, while we are also taking a leading role in meeting the demand for swaps clearing in the U. S. And Europe. And as you saw during July, our leading European interest rate franchise demonstrated that when volatility returned during the month, trading volumes responded with a 17% increase year to year driven by Uribor and Sterling. We are very well positioned across our global financial products franchise including our MSCI index volumes which are up more than 30% and foreign exchange volumes up more than 100% year to date through July. In our equities markets, we're focused on innovating and growing the NYSE. We're introducing new technology, reducing market complexity and promoting liquidity by developing a midday auction. As the global leader in capital raising, we're focused on all aspects of our listings business. We continue to lead in IPOs across virtually all segments including technology, REITs and ETFs. This is due to the clear advantages that we offer from our strong visibility, issuer advocacy and our unique market model, which improves the ability of our listed companies to issue new equity or buyback their shares. Turning to Slide 17, I'll highlight how our diverse global markets continue to provide near term and long term growth. Recently, we've seen growth in our European rates and U. S. Natural gas trading volumes demonstrating how quickly volatility can return to markets. Longer term as Western economies continue to move towards natural gas, we're very well positioned with over 100 listed natural gas contracts including key natural gas benchmarks across the U. S, Canada, the U. K. And Continental Europe. In our global oil complex, we continue to benefit from price volatility and the demand for energy price hedging that is coming out of Asia through ICE Futures Europe. With nearly 2 decades of record annual volumes in the ICE Brent contract, there continue to be many drivers of its long term volume growth. These include price volatility, changing supply and demand expectations, regulation, the adoption of Brent as a global oil benchmark, geopolitics and the shifts in hedging strategies. Turning to what's next, I mentioned earlier that we have a number of technology initiatives that are underway. For example, immediately after closing on the NYSE transaction, we began investing to reduce the complexity of the exchange's 5 trading platforms into one modern system. We plan to begin broad industry testing of our new NYSE pillar platform over the next couple of months. I'll now turn to ICE Benchmark Administration and the important role that we're playing to rebuild confidence in the benchmark setting process. We've been working closely with the industry and regulators since beginning our work on LIBOR and have deployed improved governance, transparency, systems and oversight that's required for this new era. With over $350,000,000,000,000 in gross notional value that is tied to LIBOR, ICE Benchmark Administration is applying significant resources to reform the rate setting process. And through a market consultation that was announced last week, we're reviewing each aspects of LIBOR's methodology and calculation including more transaction data included in the process. We received very strong feedback from the 22 banks that are now submitting rates as part of our process. In addition, the new gold price auction has proceeded very well with record volume since its launch this year and with the number of direct participants expanding from 4 to 10 in the recent months. In our data services business, we're working on building network, which is an increasingly valuable piece of market infrastructure that we acquired with the NYSE. As secure connectivity becomes increasingly vital to market participants, we've seen strong interest in access to our network. I'll conclude on slide 18, which is the same slide on which Scott opened his remarks in order to emphasize that we're delivering consistent growth by executing on our strategic plan. We're off to a great start in 2015 with record first half revenues, record operating income and record earnings. We've transitioned from generating revenues that were approximately 90% transaction based related to one asset class to an approximate 60% transaction based revenue business that is now levered to multiple asset classes, multiple geographies and multiple growth drivers. This is why we're confident in our strategy. We've uniquely delivered growth each year through all phases of a business cycle. Our margins are rising. Earnings growth is consistently strong and we're delivering the best revenue and earnings performance in our history. And as we move into the back half and the coming year, we've identified significant opportunities across revenues and expenses that are yet to be realized to ensure that our strong track record continues. So on behalf of the ICE team, I want to thank our customers for trusting us with their business in this excellent quarter for us. And I'll now ask Keith, our operator, to open up the call for a question and answer session. Yes, thank you. We will now begin the question and answer session. And the first question comes from Mike Carrier with Bank of America Merrill Lynch. Thanks guys. Maybe just an update on some of the regulatory items that are going on in the industry. And I guess most importantly probably equivalent and then just some of the EMEA points. And you mentioned with Singapore launching, you're going to have the clearinghouses markets will be going depending on how some of these regulations turn out? Sure. Why don't I move I'll move geographically across the globe. So starting with the U. S, the we've been participating in a number of panels and hearings and conversations that have been going on with the CFTC regarding the potential implementation of position limits and how those should go into markets. Particularly we're concerned about how the commodity markets operate. I think you're aware that the we built our business around the commercial users of hedging tools and commodities. And we are trying to make sure that those kinds of reliable and diligent people have access to markets so that they can use them to hedge and continue to manage risk in their businesses. I feel like that constituency is much more engaged now in this conversation and our regulators are listening and trying to find their way through that. So honestly, we feel like there's a very good healthy dialogue going on in the United States. And we feel like as a company we've positioned ourselves with the right group of customers to continue to grow as we have been through all phases of increased regulation in the United States. In Europe, you mentioned the equivalence conversation. We're deeply involved in the conversations on both sides of that. The publicly the regulators have stated that they're moving closer to a deal. It looks like to us from basically everything we see that they're working in earnest that the deal is within sight. We think that they've done a very good job of gathering a lot of data so that the policies that they implement will be data driven, which has been important for us. And we've participated in providing data and running analytics and scenarios so that people can be educated. So we feel good about Based on our Based on our conversations, it looks like the areas that they're negotiating over would be helpful for the markets and that it will continue to allow for strong risk management and but won't necessarily impede or significantly change the way people do business. Moving to Asia, we are anxious to launch our Singapore Exchange and Clearing House. We've done all the work that we've needed to do, put the staff in place, the systems in place and are basically ready to go. But we really benefit as a company from being a global network, a global distribution. And our goal is to bring a lot of nontraditional global players to Singapore to do business. And so it's taken our customers longer to get set up than we anticipated. We don't want to launch the Exchange until major customers can have access. We think the best it was in our best interest to slow down and give our customers a chance to catch up to us. And so we're now planning that in the Q4 of this year, We think there'll be significant mind share there around the exchange that will allow us to have a successful launch. So that's kind of the lay of the land. It's all a work in progress. But broadly speaking, a lot of really good healthy dialogue going on across the world as regulators are struggling to implement a lot of new rule changes, but do it in a way that's consistent globally and also that doesn't impede people that are trying to use the markets in healthy ways. Okay. That's helpful. And then Scott, you gave an update on the second half on expenses. They continue to be well managed. But just wanted to get an update on 2016 and 2017 just on the synergy timeline, if anything's changed or more or less in line with what you've said in the past? No. I think Mike we performance in the quarter really reflects an acceleration of those synergies and the efforts around it. So I feel good about the projects we've identified. I feel good about the progress that we're making. And we continue to be very focused not just on the synergies, but on expense management generally. Okay. Thanks a lot. Thank you. And the next question comes from Ken Hill with Barclays. Hey, good morning guys. Good morning. Good morning. I just wanted to kind of follow-up there last on the Singapore Exchange. I know the timeline has been a little bit more drawn out than you guys initially expected, but you mentioned the Q4 launch here as customers get on board. I was hoping you could remind us as to what your initial goals are as we turn into like 2016, what we should be looking for there with the Singapore Exchange? Really as managers, our hope is that we have a successful launch. We have a handful of products that we have talked to a lot of customers about in Asia that they want to trade and we want to have a successful launch of the exchange, get people used to using the exchange in clearinghouse, get And the goal is to just have this nice successful launch, because we have the intention of launching a lot of new products and there's a lot of demand coming from our Asian customers for new products in the region. So what you see us doing is trying to find a couple of products that we think will have appeal that the appeal will be broad enough that it will bring global distribution to Asia. But the real intent there is not that any one of those things is necessarily a home run. It's we want to have a solid start to the business because we do intend to continue to invest in there and there really does seem to be strong demand for trading in the region. Okay. And just as a follow-up on CDS business. I know you guys on the slide deck had the target there for clearing revenues of above $100,000,000 versus where we were in 2Q? I know you had some one off adjustments. Can you give some color on what you're hearing from clients that gives you a little bit more confidence in that greater than $100,000,000 number? Yes, that's a really good question, Ken. And really our willingness to commit that we'll be over $100,000,000 for the year is based on customer feedback. We're seeing a lot of positive momentum now with buy side customers, in particular and single names. And importantly in advance of any mandate. I mean we've got mandates from the CFTC on indexes, but we don't have mandates in single name. And that notwithstanding, we're seeing growth in interest because I think there is a view that for the market to really succeed, clearing is an important element of that. And so you've seen a couple of buy side firms that have written about that. We have the most comprehensive offering of single name products, the most comprehensive offering of sovereign names. Have talked about our intention during the second half to launch the U. K, France and Germany Sovereign names. So I'm encouraged by the product launches that we have in front of us, the buy side customer feedback that we're getting and just the nature of the business that we've built, which I think provides not only a foundation for us to do well the rest of this year, but to continue to grow out into 2016 2017. Great. Thanks. That's helpful color. Thanks for taking my questions. Thank you. And the next question comes from Rich Repetto with Sandler O'Neill. Yes. Good morning, Jeff. Good morning, Scott. Good morning. Congrats on the strong quarter here. I guess my first question is on the market data. And Jeff, you spent a fair amount of time emphasizing on calls and this demand for more data by the customers and what you do that it isn't just price increases, but it's content increases too. So I guess, could you get into more color on what exactly you're providing this the value here? And then Scott, you said it was going to be I think the guidance was flat. It grew by $4,000,000 So where can it go for the next couple of quarters? Sure. So I think the trend that we see and that we saw and have moved towards is this demand for more and more data. We all know all of us that follow this industry saw the emergence of algorithmic traders that were consuming a lot of data and then figuring out very quickly how to place trades. Well that kind of analytics is now making its way on the desktops and into buy side firms and people now are increasingly have the capability to handle a lot of data and to analyze it and to find trends or other opportunities or to use it for risk management and hedging activities in this data set. And one of the things that has the nice luxuries of the company that we've built is that we've now moved into multiple asset classes as you've seen including over the counter products listed commodities and listed derivatives and now equities and equity options and we've done that globally. And so we have quite a package of data and are able to put things together in interesting ways to help serve the needs of our customers. And so when we were a small company, our data wasn't as rich And honestly, we didn't have as deep appreciation as how data was going to be consumed as we do today. So what you've seen us do is put Lynn Martin now in charge of a new data operation to organize across all of our businesses to gather data and it's paying dividends. Scott mentioned in his prepared remarks that revenues were up 20% in that area, which is or 20% across our fixed businesses and 29% in data, which is an interesting place for us to position the company. It's why Scott and I both mentioned in our prepared remarks, we think we're just scratching the surface. We just are integrating these businesses. We just put Lynn as an executive to oversee the integration. And so we have strong appetite we think to continue to grow these businesses. And I won $10 Rich that you called me out on my guidance being a little off. The point I'd make is it's an expansive business that Lynn is running. It's the traditional data services that ICE has had where we've sold data in the back offices that allow them to mark their books. It's the safety business in NYSE that Jeff talked about in his prepared remarks where people want to get connectivity into our exchange. It's direct connect into ICE's exchanges. And so there are a number of pieces that move around. The overall visibility is good not perfect. My expectation is the data services revenues are going to grow strongly every single quarter. Sequentially, I still think a relatively accurate projection for the year is that 3Q and 4Q look like 2Q. Could it be a couple of million higher in some of those quarters based on the more connections or greater data sales or continued customer growth or super derivatives performance, it could be. I think that's the conservative assumption. I think the more important point versus what do we think about the Q3 or the Q4 is what do we think long term. And this is a growth business for us. And it's a significant growth opportunity for us as you move into 2016 and then out into 2017. Got it. I'll rebate you that $10 Scott. My follow-up question Jeff would be every quarter you position the company as a growth company and it has been. And I guess it has to do with the NYSE and you've talked a lot about the improvement margins of 50% and the growth and now you're 100% of the Amex contribution. I'd love to understand what that is. But I guess the bigger question though is once the synergies are done and looking at the company to keep if revenue was Barnes revenue to grow mid single digits, can you still grow when you don't have the synergies? And then looking at the NYSE, again, I would assume a lot of the growth is from cost savings. And I know you've done well with market share, but the point being, you may not be getting the value for that either. So again, the question about growth after the synergies are done at the NYC and the valuation there? Well, you're right in that we've taken a lot of costs out of the business and we've been able to do that because we're a larger organization that can lever off of other businesses. So and there's more to go there. We still haven't put our technology in place. We're making large investments in the way we oversee our markets and compliance and other tools that we think will really make us a better compliance organization and more efficient. So there's still a lot to go there on the expense side, but we've really been growing revenues. This idea that we had in simplifying markets, we now want to simplify technology. We are really have a new team in place that's really pursuing a lot of listings and the top line is growing. And we think the trends are in our favor. We're going to put a midday auction in. The SEC has worked with us to on a tick pilot that's going to go into place. It's going to test various market models around the listed business and we see potential upside in all of that. The other thing that happens Rich is that that what the exhaust of the New York Stock Exchange is a pretty rich data set. And that data set is something along with the safety network that we inherited with that is something that we've now been exploiting to add to it and enrich it with other data. And so we think that we will be able to grow the top line of that business when you look at it collectively for years to come. So I guess the point is you think you could grow earnings post synergies? Yes, absolutely. We don't see right now any limitations and the levers that we're pulling seem to be working and the trends really all things being equal, we really believe markets that buyers are looking for sellers and sellers are looking for buyers and that markets don't want to be fragmented. The fragmentation comes when there's payment for order flow where intermediaries are incented to do something on their personal behalf and less so on their customer behalf where algorithmic traders benefit from the fragmentation where corporate traders may not have balance sheet attached to their the use of the balance the corporate balance sheet attached to their pay. And so they are looking for economic incentives and will actually trade slightly off market in order to lower execution costs, if you will, that they get paid against. And so you have a lot of disincentives in the markets that have caused a lot of fragmentation. And as there's more regulation, as there's more focus on the bottom line, as people are really having a very healthy debate about the fiduciary responsibility of exchanges and brokers and intermediaries. Those trends are allowing what the natural market wants, which is for buyers to find sellers and for these things to come back to more organized listed venues. And that we've seen that trend. I'd like to say that everything we're doing has caused it, but it's not that is not the case. There is a macro trend in place that we're moving the business into. Understood. Thanks. Very helpful, Jeff. Thank you. Thank you. And the next question comes from Dan Fannon with Jefferies. Thanks. Good morning. I guess one more question on market data. You talked about growth in new users and I was wondering if there's any kind of stats or kind of color you can put around where they're coming from geographically or anything to be a little more helpful there? Yes. I mean, not a lot that we put out publicly on that. But what I can tell you is similar to what I said in the Q1, we saw a lot of growth in the energy space in particular and more narrowly interest in oil markets, which is not surprising if you look at what's happening. There's a lot of growth in the world in oil, a lot of new sources of oil, a lot of discussion around the oil markets. And so that's an area where we've seen a significant growth in the number of customers. And then the other thing I mentioned earlier is it's not just an interest in the data, but we're seeing more customers grow. I forget what the number was, but I think we were up something like 30% in terms of people who are buying access to our exchanges. And so it's growth in data consumption and energy, it's growth in connectivity and energy. And then as Jeff alluded to, there is a lot of valuable information at the New York Stock Exchange as well and we continue to see more customers who are interested in consuming that data. So it's across the business. Great. And then just on M and A and your kind of outlook today versus other periods, how much time you guys are thinking or spending on potential acquisitions and kind of how you would characterize kind of the environment today for potential activity? Well, there's definitely a lot of opportunities available for M and A in the market. We see it similarly there's a lot of private equity firms that are coming to be listed on the New York Stock Exchange and some of those companies are not really ready for listing and those private equity firms have been looking to sell them privately. So we see activity on both sides. Nothing has changed for us. We are driven by return on invested capital metrics and whether where we can place our money so that it has the highest return for shareholders. That's part of that graph that we have shown, which is we like to buy businesses where we not to own them, but where we think we can transform them because of the unique nature of the network we've put together. And so they become high value, high return on invested capital businesses for us. So we'll always look at things like that, but we weigh them against the other opportunities we have in the way we can return capital to shareholders or reinvest in organic growth. And I would say nothing has changed other than it does seem like there's a lot of private equity based companies around that are looking for new owners both in the public and private markets. And just extending that point, in the first slide in the appendix, we do put out each quarter what our return on invested capital is. And as I said, I thought we'd be by the end of the year, we're now back at 8% and it's above our cost of capital. So just to build on Jeff's point, we do focus on return on invested capital as we think about investment, as we think about synergies in the businesses we buy and the integration plan for those acquisitions. I think that's an important milestone. The ROIC for our company remains above that of our closer competitors. And more importantly, it's back above cost of capital, which means every day we come to work, we're creating value for shareholders. Great. Thank you. Thank you. And the next question comes from Alex Kramm with UBS. Hey, good morning. Just wanted to ask quickly about the I don't think you mentioned the Russell FTSE agreement that CME just struck and maybe also give a little bit of history there? I remember you've taken this over. You were very excited. I think you paid a pretty big price for it to get that over It never took off. So maybe just what happened? Why did it never become a big area for you? Why did you not get more competitive in keeping this contract? And what's the kind of like profitability or impact when that is going to CME in the future? Sure. So let me answer the second part first, which is the move away from us is immaterial to us. And the reason that that happened is really the first part of your question, which is what we found in marketing the Russell complex was that the natural hedging user, which is our always our target customer is a large institutional buy side or small or medium institutional buy side that has a midcap or smallcap U. S. Portfolio that wants to hedge that. What we found is very strong competition from our competitor who was marketing to that same asset base the use of the S and P 500 as the hedging instrument. And the Russell Indices and the S and P 500 had become very highly correlated. And so there was very robust competition. The deal we struck had the cost of that marketing borne by us. And over time, we had been putting in more and more market making programs and other incentives try to attract liquidity that was lowering our rate per contract and lowering the take that ICE got out of that deal. And so it is now moving to that competitor. It's going into a vertical. It's going to be exclusive. And basically the market is going to be carved up by the index providers and their distributor on those economics. We understand why they would want to do that. It's not material. The loss is not material to us. The thing we find incongruous however is claims that somehow that that is pro competition or somehow this is open access, when in reality it's exactly the opposite. It's a market carve up putting all those in one place and have the economics split between people. A similar thing has happened with respect to the equity side of the Russell business, which has moved exclusively recently to Cboe. Again, Cboe being a person that an equity options exchange that puts out unique content has been very successful in its unique content and a decision made to put all that together in a vertical and carve up the economics. All right. Great. And then maybe secondly for Scott, I guess, capital returns have come up a few times already. But if I just look at your buybacks here around 200,000,000 per quarter over the last three quarters. Absent any other things, I think that is that a good range to think about for now? And then in general, how do you feel about, again, absent any sort of M and A adding more leverage to the balance sheet? Any recent discussions with the ratings agencies? I know you're just getting to know them still, but how do you feel about leverage in general? As I mentioned in my prepared remarks, our leverage target is still 1.5 times. I think that's where we'll need to be around that in order to maintain the current rating we have, which is important to us as clearinghouse operators. I also mentioned that we will maintain about a $500,000,000 cash balance. After that, it's our intention as I said in my prepared remarks is to continue to return cash to shareholders as we have been doing. If you look at I think it was slide 15 in the deck, we've already returned almost $600,000,000 this year versus around $900,000,000 for the full year last year. We've, as you mentioned, been very consistent in buying back our shares because it clearly expresses a view that we think that is the best investment and the best use of our capital and we've grown our dividend. So I think what you should continue to expect is other than CapEx and to the extent we find M and A that generates high return on invested capital, we're going to continue to deploy our cash strongly towards share repurchases and dividends. All right. Very good. Thank you. Thank you. And the next question comes from Ryan Bedell with Deutsche Bank. Hi. Good morning folks. Scott, maybe if you could just talk a little bit more about the expense outlook trajectory as we move into the Q4? I think you said last quarter that expenses could trend that trajectory could trend down into the Q4. And then as we move into Q1 2016. I think a couple of quarters ago you gave guidance on the expense synergy realization roadmap. And obviously I think you're tracking ahead of that. So just maybe an update on, I think, the $450,000,000 of annualized expense synergies that you thought you'd be at a run rate basis in 1Q 2016, if you think you might be ahead of that? And maybe what is that number as of 2Q as of this quarter? Yes. I think what's really important is to focus on our overall expense trajectory and the margin expansion that you're seeing. We're 3 years removed almost from announcing the deal, almost 2 years removed from closing the deal. In the intervening period of time, we bought 4 new businesses. We've invested in growing organically our internal businesses. So we're really very focused on our overall expense trajectory. Inside that, we are well on track towards our synergy objectives. As I said in the quarter, you mentioned that it was going to decelerate over the course of the year, but synergies actually accelerated into the 2nd quarter. And so if you look at the guidance relatively, we're now at or likely slightly below our full year guidance. If you've taken the midpoint of our original guidance, it was down 3%, we're now down 4% and that's against the backdrop of growing revenues. And the other thing I think that's important is we just don't manage expenses through synergies. We manage expenses across all of our businesses. And so as we move forward, we're going to be really focused on what is the net trajectory of our overall expenses. We expect those expenses to continue to improve, which will allow margins to continue to expand. And I think the real visibility to our progress is going to be found in the margin expansion, which as I mentioned in the quarter 6 points up year to year to 59%, right on track frankly to where we thought we'd be a couple of years ago. Yes. It sounds like that trajectory would have you at a lower overall expense rate as we get into the Q4 and particularly given the projects that you're working on for NYSE with the margins over 50% for the NYSE business. Is that fairly accurate? Yes. Again, I think we gave pretty clear guidance on where we thought 3rd Q4 would be. I definitely think the trends are positive because embedded in that guidance frankly are investments to enable as Jeff said earlier improvements in our compliance functions and the efficiency of that organization. It's investments that are necessary to integrate Super Derivatives acquisition, our Holland Clearing House acquisition. So despite those investments, which are reflected in the 3rd Q4 guidance, the expenses will be down year to year. And then once those investments are made, we realize the benefit of them as we move into 2016. Okay, great. Thanks. And then just maybe just back on the market data. It sounds like you've got great traction in the core businesses. Maybe you can comment about super derivatives a little bit and the ICE benchmark administration from a revenue contribution. Is that were they not as bigger growth contributors in the Q2? And then as we move into 2016, do you expect them both of them to become much more meaningful in that growth trajectory? Yes. So we gave guidance of the gain a year that I think was we expected our acquisition to be $50,000,000 to 55,000,000 dollars in revenues. And that was largely super derivatives and that was incremental revenue. And I think we're largely right on track to that. And what I would suggest to you is that's not inconsistent with their prior year performance. I do expect as we move into 2016 that that business can grow for us. Because what we're doing right now is we're really integrating it. We're leveraging their resources to help us build out our clearing offerings. And so I think as we get that business more integrated, invest in resources to expand it, it will certainly contribute to growth as it moves into 2016. So I'd characterize super derivatives as pretty much on track to what we thought it would be this year and definitely a growth opportunity into next year. And look, ICE Benchmark Administration is still a relatively new business. We've just recently kicked off the gold fix. The ICE swap rate is still relatively new. And so I definitely do think that business it's certainly already contributing this year, but I do think it's a business that can grow next year and we're making significant investments in that business to help it grow as we move into the future. Okay, great. Thanks very much. Thank you. And the next question comes from Alex Blostein with Goldman Sachs. Thanks. Greg, good morning everybody. The question for you guys on just what's been kind of going on in the oil markets more recently. Specifically curious if you could give us a little more color on any changes in kind of participation or climate behavior we saw kind of this time around with the slide in July versus the what was happening at the end of last year, producers versus consumers versus kind of financial folks, who's been more or less active on that front? Thanks. It's interesting. Well, I think the major trend that you'll see is that open interest has moved higher and is up at record levels. And so there is a lot of interest in those markets. I think a lot of lay people think, oh, if the price is going down then nobody is interested in using it for hedging. But the reality is people that buy oil want to try to buy it at a low price and lock in low prices. And so these are 2 sided markets and there's always one side that's interested in whatever the trend is up or down that and that's how ultimately we make a market. So we still are very focused on commercial users. You'll see in the commitment of trader reports that we filed publicly that we continue to see very, very strong commercial interest in the oil markets. We have a large portfolio we talk a lot about Brent because it's our flagship and it's now become a regulated benchmark and has become a global benchmark. But we have many, many other oil products including gas oil. Gas oil you may recall, we changed the specification to make it closer to diesel fuel. And we also changed the settlement date from on that. And so we had a lot of movement around gas oil. And what and that happened over the last 18 months or so. That's all in place now. And what you're seeing is volumes of gas oil trading have also been rising now that that contract has landed on its ultimate design. So we feel pretty good about that business from all of long term from all of those trends that we're seeing. Got you. And then Scott, just one for you on the 100 percent retention of NYSEAM X. I'm not sure if I missed it, but what does that mean for the kind of operating results of the company on a kind of whole pre tax basis? We haven't disclosed what the dollar amounts are. And I don't want to be trite and tell you it means we get to keep 100% of it. But that's really effectively we move from getting 84% to 100 It's not in the scheme of things, it's not a huge amount for that business. It's important because we've seen you've seen us walk away from volumes that aren't helping to deliver profit to the bottom line. There has been some impact around some of those volumes as we've worked our way through that Amex partnership. I think now what you saw in the Q1 and in the Q2, you see it even more clearly. Share seems to have stabilized. It was actually a little bit better in July versus what we saw in the Q2. So generally with that business what we're seeing is stable share, relatively stable rate capture. And as we've bought back that profit an improving profitability of the business overall. Got it. Thanks so much. Thank you. And the next question comes from Ken Worthington with JPMorgan. Hi. Okay. I think this is question 6 on data, so I apologize. But as we think about growing data revenue and earnings going forward, how are you thinking about the opportunity of growing the business that goes beyond ICE's proprietary data? So you've got LIBOR, Goldfix, I guess super derivatives is in there as well. What are really the next steps for growth beyond ICE's own data? Well, first of all, I think maybe implicit in your question the notion that our data is the data that is the obvious data, which is the output of trading. But the other thing that we believe that we have that is unique content that has yet to been developed. Because of our broad relationship with a lot of companies and the way we touch them, there is a lot of, let's say, non trade data that we collect through the various ways we touch our customers that can be organized up and potentially have value back into the market. And we are building through the team that we have at Super Derivatives more predictive capabilities and analytical capabilities to take all of that rich data set and put it into context. And we think that will sort of be the next leg up. You couple that with the fact that we made a decision, we didn't talk a lot about it at the time, but we made a decision when we spun off a lot of the NYSE Technology businesses to actually keep the network that's called safety, so that we have better distribution into our client base. And more importantly in a world where people are concerned about security and we are hyper concerned about security, we think that the trends on the way data is delivered are going to move towards very, very highly secured relationships between us and our customers and we've got this great infrastructure to do that. So all of those are more than just selling the trade data, the exhaust that comes out of exchanges and all of the things that I mentioned as growth opportunities are quite high value and there are things that when we talk to customers increasingly they are telling us that they're willing to pay for those. Perfect. And just lastly, China is topical today. I think both CME and Virtu had some sort of disclosure or announcement. Updated thoughts in terms of tapping China. You've got Singapore launching next quarter. I think initially you were going to do look alike contracts. Have you kind of circled back on the China strategy? And if so, what are your thoughts today? Well, first of all, we do have an FX franchise and we have the dollar index. And I would just mention that RMB is not a part of the dollar index. It's been a conversation we've had for a couple of years. But so with respect to FX, it's had no real impact on us. China FX, it had no real impact on us. Our China strategy is we want to open an exchange and clearinghouse in Singapore, honestly. We don't have it is a very hard nut to crack in financial services. The government there has made it very clear that they're going to control access to markets in and out. And so what we want to do is be positioned in the region. And we are in constant dialogues over there. We have an office in China and colleagues that are working on improving our position every day. But it is a difficult area to penetrate in the financial services space. And personally, I understand why that is and don't begrudge their government for wanting to have controls over that as they move their population into the middle class. So in any event, long story short, this Singapore launch for us is strategic and important. Thank you very much. Thank you. And that concludes the question and answer session. So at this time, I would like to turn the call back over to management for any closing comments. Thank you, Keith, and thank you all for joining us on the call. We'll continue to report on our future results on future calls like this and have a good day. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.