2019 Letter to Shareholders

Our commitment to these core strengths generated another record year in 2019, which marked our 14th consecutive year of adjusted diluted earnings per share (EPS)² growth; every single year since we listed on the NYSE in November of 2005. Total revenues increased to a record $5.2 billion¹ , driven by strong contributions from both our Trading and Clearing and Data and Listings segments. Our firm-wide adjusted operating margin² was 58% and adjusted diluted EPS² grew 8% to $3.88. We also made a series of strategic investments in the future growth of our business, adding additional capabilities across our data, mortgage and digital asset platforms. We funded these investments while also returning a record $2.1 billion of capital to our stockholders, a 19% increase from 2018.

More specifically, in our Trading and Clearing segment, revenues increased 5% year-over-year to a record $2.5 billion¹. Our performance in Trading and Clearing was led by a record year in our energy business, which generated nearly $1 billion in total revenues. In our Data Services business, revenues grew 5% to a record $2.2 billion. This strong growth was driven by balanced contributions from our Pricing and Analytics, Exchange Data and Feeds and Desktops and Connectivity businesses.

As our results demonstrate, we once again generated stockholder value in 2019. We grew revenues and adjusted diluted EPS, while also investing in our business, broadening our addressable market and strengthening the foundation for future growth. Before I detail some of our newer growth initiatives, it is important to take a step back and understand our strategic approach toward creating stockholder value. Many of our long-term stockholders are familiar with this strategic approach as well as our successful track record. However, for newer or prospective stockholders that are considering entrusting their capital with us, our approach is worth reviewing.

On November 16, 2005, ICE held its initial public offering, or IPO, on the New York Stock Exchange. At the time of our IPO, our market capitalization totaled just over $1 billion. We were purely an energy exchange then and we offered only a handful of products. My prior experience was as an operator of power plants, not as a trader or a Wall Street analyst. However, as a former commercial participant, I understood the need for a level and transparent playing field. Our goal then, as it remains today, was to build a platform that operated on a global scale, and that had the asset class breadth to enable us to quickly and efficiently chase growth opportunities as they emerged around the world.

In addition to organic initiatives, strategic acquisitions have been an important tool to construct this global platform, which at the end of 2019 had a market capitalization of over $50 billion. We have supplemented our organic growth and product development efforts with acquisitions in order to further bolster the content on our networks, to accelerate our entrance into new asset classes and leverage technology to enhance the marketplaces we operate. While we are often known for some of our larger scale acquisitions, such as our acquisition of the New York Board of Trade, or NYBOT, NYSE Euronext and Interactive Data Corporation, or IDC, we have also completed a wide range of smaller, “bolt-on” transactions. However, irrespective of size, we have always employed a rigorous approach to evaluating these opportunities. This approach includes strict financial targets that require us to underwrite an internal rate of return, or IRR, of at least 10% and above our weighted average cost of capital, which in 2019 was 6%. These financial targets are critical, as they help to ensure we are creating economic value for our stockholders. From a strategic perspective, we look for assets that offer content important to market participants, deepen our customer wallet share, expand our distribution or present an opportunity to leverage our technology expertise. Essentially, we scan our current platform and ask: do we have technology or an area of expertise that we can leverage to create stockholder value?

Operating marketplaces with strong network effects is what we do well, and today we do so across an array of asset classes, jurisdictions and customertypes. Operating these marketplaces requires expertise in running databases that efficiently and securely organize massive amounts of content and enable us and the customers attached to our networks to quickly and efficiently sort, search and analyze key data sets. Optimizing the operation of these databases helps drive market transparency; transparency attracts additional participants, which, in turn, improves market liquidity. It is a virtuous cycle that continuously expands the network and strengthens the market.

An example of how we construct a network in support of a global marketplace is our commodities business. In 2001, we acquired the International Petroleum Exchange, which brought us both proprietary content in the form of the Brent Crude index, as well as connectivity to a broad network of oil traders and commercial customers. Building on the global significance of benchmarks like Brent and Gasoil, we have developed an array of more precise hedging instruments that serve the evolving needs of our commercial customer base. These products, which we refer to as “other crude and refined products” had open interest of over 5 million contracts and represented 45% of our total oil open interest as of the end of 2019. In 2007, we broadened our commodity footprint with the acquisition of the NYBOT, adding globally relevant benchmarks such as sugar, cocoa, cotton and coffee. The NYBOT also brought us a clearing house, which today we call ICE Clear U.S. As an example of our ability to repurpose and optimize our technology, we were able to quickly leverage NYBOT’s clearing expertise and web-based clearing technology to create ICE Clear Europe, which, at the time, was the first new U.K. clearing house in over a century and, today, is one of the largest clearing houses in the world and home to the majority of our global derivatives business.

Our experience in building trading, clearing and settlement infrastructure highlighted the importance of analytics, indices and valuation services. In 2015, we broadened our addressable market, moving into fixed income with the acquisition of Interactive Data Corporation, or IDC. IDC’s evaluative pricing and reference data business is key to price formation in fixed income markets and laid the foundation for our expansion into the index business. Today, we are the second largest provider of fixed income benchmarks globally. IDC’s core evaluative pricing and reference data also serves as the fuel for a range of pre- and post-trade analytics, which we have developed to bring efficiency to our customers’ workflows and transparency to what is otherwise an opaque market structure.

We have also created value by leveraging our expertise in building new technology, which has enabled us to expand into new markets such as the U.S. mortgage market. In 2016, we acquired a majority position in the Mortgage Electronic Registry System, or MERS, and in 2018 we acquired the remaining stake. While on the surface this acquisition was seemingly far afield for an “exchange operator”, MERS, at its core, is a database. Because we have expertise in operating this type of infrastructure, over the subsequent two years, we were able to rebuild and refurbish the underlying technology and improve the operations of the business. Today MERS, which is a part of our broader ICE Mortgage Services business, is uniquely positioned in the center of an asset class that is moving analog to digital.

Our approach to strategic acquisitions is deliberate and comprehensive. Many of the opportunities we explore do not pass the test, but over the course of two decades, we have constructed a platform that is aligned with our original vision. It is a platform that not only generates strong returns and healthy cash flows, but also one that is positioned to continue leveraging our breadth and core strengths to generate future growth.

Given the pace at which technology and business advance today, our breadth and the expertise I have detailed, are vital to our future success. It is our breadth, which spans asset classes and geographies, that enables a comprehensive, customer-driven approach to scalable product development. And, it is our technology and expertise that allows us to successfully execute on those opportunities. As I detail below, we are applying this approach to a range of initiatives across our platform to drive future growth. 

• Investing in the Energy Transition: Over the last 20 years, the way energy is produced and consumed has rapidly evolved. We have continuously invested alongside this evolution, developing one of the most diverse and liquid energy marketplaces in the world. In our oil business, Brent crude is the cornerstone of a franchise that spans key global benchmarks such as Gasoil and West Texas Intermediate, or WTI. Together these benchmarks form the foundation for a cohesive web of more than 600 related oil products, such as locational spreads, product spreads and refining spreads; these are precise risk management tools that benefit from their relationship to our global oil benchmarks. In the fourth quarter, by leveraging our position as one of the leading global energy risk management platforms, we announced the formation of ICE Futures Abu Dhabi, or IFAD. In November, the Abu Dhabi Supreme Petroleum Council announced plans to lift destination restrictions on Murban crude, allowing barrels to move freely and price against our futures contract. Murban crude is a highly fungible and sought-after grade, utilized by a wide range of global customers. As we have done in the past, we are applying our blueprint for building new markets to IFAD, and we are partnering with key industry participants such as the Abu Dhabi National Oil Company, as well as nine of the world's largest oil trading firms, including Shell, BP, Vitol and PetroChina. Leveraging ICE's current technology and infrastructure, the Murban crude contract is expected to clear alongside our global oil business at ICE Clear Europe, bringing capital efficiencies that are underpinned by our flagship Brent crude oil and low sulfur Gasoil contracts, as well as our leading Asian oil complex.

  The globalization of natural gas is a trend we have invested in for a number of years. With Asia as the largest buyer of global Liquefied Natural Gas, or LNG, the relationship between our European benchmarks, such as the Title Transfer Facility in the Netherlands, or TTF, and our Asian benchmark, such as the Platts Japan-Korea Marker, or JKM, is driving global price formation. Alongside a global focus on de-carbonization, globalization of natural gas is critical to the environmental markets. In Europe and the U.S., regulators are increasing their focus on incentivizing the use of renewables and cleaner fossil fuels, such as natural gas over coal. Incentives include introducing cap and trade programs and renewable energy standards. Built off of our acquisition of the Climate Exchange nearly a decade ago, we operate the world’s largest emissions markets. And, as demand for transparent pricing in carbon grows, we believe our markets are well positioned to capture these trends.

  Economies around the globe are demanding and consuming more energy. Sources such as renewables will continue to be introduced into the mix, and these energy sources are unpredictable by nature. Their interplay with fossil fuels and energy production has the potential to drive additional volatility in global energy markets, require traders to consume more data and present opportunities for new product development. This is an evolution that we have long envisioned, and we are excited about the future opportunities that lie ahead.

• Bringing Transparency to ESG: In addition to advancing our own Environmental, Social and Governance, or ESG, efforts, we are working to develop unique customer solutions across our platform. ESG is rapidly evolving and becoming a key investment parameter. Through our close relationship with the over 2,000 public companies listed on the New York Stock Exchange, we are keenly aware of the issues with ESG reporting and compliance standards. To address this, and similar to how we have approached industry issues in the past, we are applying our existing infrastructure and core expertise, while also working with key industry participants. For a number of years, ICE Data Services has offered reference data on millions of securities spanning hundreds of markets. Soon, we will leverage that expertise and add nearly 500 ESG reference data points, such as company greenhouse gas emissions and board diversity metrics. We think this offering will help elevate the quality of data and increase transparency for investors and companies as they seek to enhance their approach to ESG matters. In addition, we are offering new climate analytics, which are fueled in part by our leading evaluative fixed income pricing and reference data. These analytics will help our customers better understand and quantify key ESG investment factors such as wildfire, flood and hurricane risks. And finally, in September 2019, we announced an agreement to license MSCI’s leading ESG data for new index construction, while also launching a suite of futures products based on MSCI’s leading ESG equity indices. These are just a few examples of how our existing breadth and expertise is enabling us to quickly develop new products to address customer needs within an evolving addressable market.

• Facilitating Efficiency & Growth of Passive Investing: Over the past decade, exchange traded fund, or ETF, assets under management have expanded nearly four-fold. As the second largest provider of fixed income indices, with over $1 trillion of assets under management, or AUM, benchmarked, including $200 billion of ETF AUM, ICE Data Indices is well positioned to benefit from the continued robust growth of this asset class. In addition to providing indices for passive management, we are also developing unique solutions to address inefficiencies within the ETF ecosystem. In October, we launched our ETF Hub, which leverages our pricing and reference data, analytics, chat functionality and technology expertise to standardize and simplify the ETF create/redeem process. In consultation with the advisory committee, which includes a range of industry participants, our first phase is focused on building the network. While still in the early stages of development, BlackRock, as well as five of the largest authorized participants are now active on the platform. In the coming quarters, we expect to layer in additional functionality, such as linking our secondary trading venues and adding additional analytics to improve workflow functionality.

• Building a Regulated Ecosystem for Digital Assets: At Bakkt, we continue to support the development of a regulated ecosystem for digital assets. We began by building a regulated bitcoin custody solution, as well as launching regulated futures and options on bitcoin to enable greater price transparency and to provide institutions with a trusted regulatory framework. In late October, we announced that we would be launching a new consumer app, and, in February of 2020, we announced the acquisition of Bridge2 Solutions, a platform that supports roughly 4,500 loyalty, incentive and employee perk programs across a broad range of industries. This combination will position Bakkt and its consumer app as an aggregator and a marketplace for a broader set of digital assets such as airline miles and loyalty points, and will expand Bakkt’s presence across this $1 trillion dollar asset class.

2020 will be a year of executing on the array of opportunities I have just outlined while also continuing to survey the landscape for additional areas of potential future growth. Applying the same approach we have for two decades, we will continue to capitalize on our leading technology, innovative culture and operating expertise to better serve our customers. Thank you for your investment in ICE, and I look forward to reporting on our progress in the coming year.