Intercontinentalexchange Reports 3Q13 Adjusted Diluted EPS Of $1.97, +10% yty; Adjusted Net Income Attributable To ICE Of $145MM

05/11/2013

IntercontinentalExchange, Inc. (NYSE: ICE), a leading operator of global markets and clearing houses, today reported financial results for the third quarter of 2013. Consolidated revenues were $338 million, an increase of 5% from the third quarter of 2012. Consolidated net income attributable to ICE was $141 million, up 8% from the third quarter of 2012, and diluted earnings per share (EPS) increased 7% over the third quarter to $1.92 on a GAAP basis.

For the third quarter ended September 30, 2013, certain items were included in ICE's operating results that are not indicative of its core business performance, including transaction costs related to ICE's acquisition of NYSE Euronext. Excluding these items, third quarter 2013 adjusted net income attributable to ICE increased 10% over the prior third quarter to $145 million and adjusted diluted EPS rose 10% to $1.97. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on adjusted net income attributable to ICE and adjusted diluted EPS.

"ICE delivered another solid quarter with significant operational and strategic initiatives that provide for continued long-term growth. The pending completion of our acquisition of NYSE Euronext will expand our reach to serving customers in important asset classes including interest rates and equities," said Jeffrey C. Sprecher, ICE Chairman and CEO. "We have a clear set of objectives for achieving synergies along with a range of opportunities across rapidly evolving global markets. We will maintain our focus on meeting our customers' needs and on disciplined growth and industry-leading returns for shareholders."

ICE SVP and CFO Scott A. Hill added: "Throughout 2013 we have demonstrated our ability to grow our business through responsive market solutions that serve our customers' risk management needs. In October, we successfully completed a $1.4 billion offering of senior notes to help finance the NYSE Euronext acquisition. Together with our disciplined approach to capital allocation and investment, we will first focus on reducing our debt levels and instituting an annual dividend, while ensuring we maintain the flexibility to consider further investments and share repurchases over time."

Third Quarter 2013 Results

Third quarter 2013 consolidated revenues increased 5% from the prior third quarter to $338 million with consolidated transaction and clearing revenues of $280 million.

Futures average daily volume (ADV) was 3.1 million contracts, down 1% compared to the third quarter of 2012. Revenues from ICE's credit default swap (CDS) trade execution, processing and clearing business were $38 million, up 15% from the third quarter of 2012, and included $22 million in CDS clearing revenues.

Consolidated market data revenues increased 12% to $40 million in the third quarter of 2013 compared to the prior third quarter. Consolidated other revenues were $18 million in the third quarter of 2013.

Consolidated operating expenses were up 5% from the prior third quarter to $136 million, and consolidated operating income rose 4% to $202 million. Operating margin was 60%, and the effective tax rate for the quarter was 25%.

First Nine Months of 2013 Results

Consolidated revenues in the first nine months of 2013 grew 2% to $1.1 billion. Futures ADV in the nine months of the year was 3.4 million contracts down 1% from the first nine months of 2012, with consolidated transaction and clearing revenues of $898 million, down 1% from the prior year's first nine months.

Consolidated market data revenues increased 11% to $121 million and consolidated operating margin was 59% for the first nine months of 2013.

Cash flows from operations were $562 million in the nine months of 2013, down 2% year-over-year. Capital expenditures during the first nine months of 2013 were $76 million and capitalized software development costs totaled $28 million.

Unrestricted cash and short term investments were $1.6 billion as of September 30, 2013, and outstanding debt was $791 million.

Guidance

  • ICE expects 2013 adjusted consolidated expenses to increase in the range of 1% to 2% compared to 2012 adjusted consolidated expenses, versus prior guidance of an increase in the range of 2% to 3%.
  • ICE's diluted share count for the fourth quarter of 2013 is expected to be in the range of 73.2 million to 74.2 million weighted average shares outstanding.
  • The ICE Board of Directors declared a quarterly cash dividend of an aggregate $75 million for the fourth quarter of 2013, which is contingent on the closing of the NYSE Euronext acquisition, with a record date of December 16, 2013 and a payment date of December 31, 2013. The anticipated ex-dividend date will be December 12, 2013.

Earnings Conference Call Information

ICE will hold a conference call today, November 5, at 8:30 a.m. ET to review its third quarter 2013 financial results. A live audio webcast of the earnings call will be available on the company's website at www.theice.com under About ICE/Investors & Media. Participants may also listen via telephone by dialing (877) 674-6420 from the United States, or (708) 290-1370 from outside of the United States. Telephone participants should call 10 minutes prior to the start of the call. The call will be archived on the company's website for replay.

Historical futures volume, rate per contract and open interest data can be found at: http://ir.theice.com/supplemental.cfm

Volume for the prior-year periods, has been adjusted to include OTC swap contracts that were transitioned to energy futures contracts on October 15, 2012.

ICE Conference Call - Strategy & Financial Update

Following the closure of the NYSE Euronext transaction, ICE will host a conference call to discuss the Company's strategy and financials.

 

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

               
 

Nine Months Ended
September 30,

 

Three Months Ended
September 30,

2013

 

2012

 

2013

 

2012

Revenues:

             

Transaction and clearing fees, net

$ 898,465

 

$ 908,057

 

$ 279,882

 

$ 279,177

Market data fees

121,246

 

109,504

 

40,213

 

35,947

Other

41,666

 

22,033

 

17,776

 

8,063

               

Total revenues

1,061,377

 

1,039,594

 

337,871

 

323,187

               

Operating expenses:

             

Compensation and benefits

192,396

 

194,596

 

59,550

 

61,820

Technology and communications

36,124

 

34,535

 

12,927

 

11,073

Professional services

22,979

 

25,741

 

7,392

 

7,813

Rent and occupancy

22,721

 

14,544

 

5,154

 

5,167

Acquisition-related transaction costs

32,387

 

9,994

 

6,073

 

2,285

Selling, general and administrative

28,229

 

28,580

 

10,238

 

8,114

Depreciation and amortization

99,625

 

96,955

 

34,391

 

32,864

               

Total operating expenses

434,461

 

404,945

 

135,725

 

129,136

               

Operating income

626,916

 

634,649

 

202,146

 

194,051

               

Other income (expense):

             

Interest and investment income

2,122

 

1,014

 

700

 

332

Interest expense

(29,751)

 

(29,112)

 

(9,902)

 

(9,445)

Other income (expense), net

1,258

 

(253)

 

(389)

 

(279)

               

Total other expense, net

(26,371)

 

(28,351)

 

(9,591)

 

(9,392)

               

Income before income taxes

600,545

 

606,298

 

192,555

 

184,659

Income tax expense

160,459

 

177,114

 

47,511

 

50,552

               

Net income

$ 440,086

 

$ 429,184

 

$ 145,044

 

$ 134,107

               

Net income attributable to non-controlling interest

(10,006)

 

(7,080)

 

(3,729)

 

(3,025)

               

Net income attributable to IntercontinentalExchange, Inc

$ 430,080

 

$ 422,104

 

$ 141,315

 

$ 131,082

               

Earnings per share attributable to IntercontinentalExchange, Inc. common shareholders:

             

Basic

$ 5.91

 

$ 5.80

 

$ 1.94

 

$ 1.80

               

Diluted

$ 5.86

 

$ 5.76

 

$ 1.92

 

$ 1.79

               

Weighted average common shares outstanding:

             

Basic

72,787

 

72,729

 

72,867

 

72,789

               

Diluted

73,370

 

73,339

 

73,525

 

73,411

 

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

       
 

September 30,
2013

 

December 31,
2012

ASSETS

     

Current assets:

     

Cash and cash equivalents

$ 1,537,266

 

$ 1,612,195

Short-term investments

36,524

 

Short-term restricted cash and investments

161,645

 

86,823

Customer accounts receivable

175,826

 

127,260

Margin deposits and guaranty funds

43,440,692

 

31,882,493

Prepaid expenses and other current assets

37,654

 

41,316

       

Total current assets

45,389,607

 

33,750,087

       

Property and equipment, net

201,673

 

143,392

       

Other noncurrent assets:

     

Goodwill

1,961,606

 

1,937,977

Other intangible assets, net

803,915

 

798,960

Long-term restricted cash

160,751

 

162,867

Long-term investments

329,962

 

391,345

Other noncurrent assets

37,396

 

30,214

       

Total other noncurrent assets

3,293,630

 

3,321,363

       

Total assets

$ 48,884,910

 

$ 37,214,842

       

LIABILITIES AND EQUITY

     

Current liabilities:

     

Accounts payable and accrued liabilities

$ 94,530

 

$ 70,206

Accrued salaries and benefits

42,638

 

55,008

Current portion of licensing agreement

19,249

 

19,249

Current portion of long-term debt

448,824

 

163,000

Income taxes payable

61,294

 

29,284

Margin deposits and guaranty funds

43,440,692

 

31,882,493

Other current liabilities

38,582

 

26,457

       

Total current liabilities

44,145,809

 

32,245,697

       

Noncurrent liabilities:

     

Noncurrent deferred tax liability, net

192,398

 

216,141

Long-term debt

341,765

 

969,500

Noncurrent portion of licensing agreement

52,189

 

63,739

Other noncurrent liabilities

66,691

 

43,207

       

Total noncurrent liabilities

653,043

 

1,292,587

       

Total liabilities

44,798,852

 

33,538,284

       

Redeemable non-controlling interest

15,388

 

       

EQUITY

     

IntercontinentalExchange, Inc. shareholders' equity:

     

Common stock

804

 

799

Treasury stock, at cost

(740,365)

 

(716,815)

Additional paid-in capital

1,960,130

 

1,903,312

Retained earnings

2,938,752

 

2,508,672

Accumulated other comprehensive loss

(117,452)

 

(52,591)

       

Total IntercontinentalExchange, Inc. shareholders' equity

4,041,869

 

3,643,377

Non-controlling interest in consolidated subsidiaries

28,801

 

33,181

       

Total equity

4,070,670

 

3,676,558

       

Total liabilities and equity

$ 48,884,910

 

$ 37,214,842

 

Non-GAAP Financial Measures

We use non-GAAP measures internally to evaluate our performance and in making financial and operational decisions. When viewed in conjunction with our U.S. generally accepted accounting principles, or GAAP, results and the accompanying reconciliation, we believe that our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. We strongly recommend that investors review the GAAP financial measures included in this press release and in our Quarterly Report on Form 10-Q, including our consolidated financial statements and the notes thereto.

Adjusted net income attributable to ICE for the nine and three months ended September 30, 2013 presented below is calculated by adding net income attributable to ICE, the adjustments described below, which are not reflective of our core business performance, and the related income tax effect. We are including all of the acquisition-related transaction costs incurred relating to our acquisition of NYSE Euronext as a non-GAAP adjustment given the size of the deal. We also include as non-GAAP adjustments the banker success fee relating to the ICE Endex acquisition and the duplicate rent expenses and lease termination costs in New York City, as we consolidated multiple existing locations into a combined location. The tax effects of these items are calculated by applying specific legal entity and jurisdictional marginal tax rates. The following table reconciles net income attributable to ICE to adjusted net income attributable to ICE and calculates adjusted earnings per share attributable to ICE common shareholders for the period presented below (in thousands, except per share amounts):

 

Nine Months Ended
September 30, 2013

 

Three Months Ended
September 30, 2013

Net income attributable to ICE

$ 430,080

 

$ 141,315

Add: NYSE Euronext transaction costs

and banker fee relating to ICE Endex acquisition

 

30,794

 

 

5,353

Add: Duplicate rent expenses and lease termination costs

7,262

 

Less: Income tax benefit effect related to the items above

(13,843)

 

(2,041)

       

Adjusted net income attributable to ICE

$ 454,293

 

$ 144,627

       

Earnings per share attributable to ICE common shareholders:

     

Basic

$ 5.91

 

$ 1.94

       

Diluted

$ 5.86

 

$ 1.92

       

Adjusted earnings per share attributable to ICE common shareholders:

     

Adjusted basic

$ 6.24

 

$ 1.98

       

Adjusted diluted

$ 6.19

 

$ 1.97

       

Weighted average common shares outstanding:

     

Basic

72,787

 

72,867

       

Diluted

73,370

 

73,525