IntercontinentalExchange Reports Third Quarter Earnings

05/11/2012

IntercontinentalExchange, Inc. (NYSE: ICE), a leading operator of global markets and clearing houses, today reported financial results for the third quarter of 2012. Consolidated revenues were $323 million, a decrease of 5% compared to the third quarter of 2011. Consolidated net income attributable to ICE was $131 million, down 1% versus the third quarter of 2011. Diluted earnings per share (EPS) were $1.79, down 1% from the prior third quarter.

Consolidated net income attributable to ICE of $131 million and diluted EPS of $1.79 for the third quarter of 2012 compare to adjusted consolidated net income attributable to ICE of $137 million and adjusted diluted EPS of $1.85 for the third quarter of 2011. 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 for the periods in 2011.

Said ICE Chairman and CEO Jeffrey C. Sprecher: "ICE remains at the forefront of solutions for financial reform as evidenced by our successful and timely transition from OTC energy swaps contracts to fully regulated futures on October 15th. This transition required significant planning and effort and I am proud that the ICE team achieved this significant move for our customers on schedule, while positioning ICE to pursue additional growth opportunities. We also continue to enhance our leadership in clearing and post-trade services for the OTC markets, and remain focused on delivering sector-leading growth by leveraging our global markets infrastructure, along with our drive to innovate."

ICE SVP and CFO Scott A. Hill added: "ICE's consistent outperformance is the result of financial discipline, a lean operating model, and the ability to concurrently execute on multiple strategic growth opportunities. During the past few months, we have announced several new initiatives ranging from expanding into European natural gas markets to developing CDS futures, while serving the needs of our customers by successfully transitioning our energy swaps to futures and launching our new swap data repository."

Third Quarter 2012 Results
Third quarter 2012 consolidated revenues were $323 million, down 5% from the prior third quarter. Consolidated transaction and clearing revenues decreased 7% to $279 million. The decrease in transaction and clearing revenues was driven primarily by decreased trading volume in OTC North American natural gas and power contracts, and a decline in CDS transactions.

Third quarter transaction and clearing revenues in ICE's futures segment grew 1% to $156 million. Average daily volume (ADV) in ICE's futures segment was 1.5 million contracts, down 4% from the prior third quarter.

Transaction and clearing revenues in ICE's global OTC segment were $123 million, down 16% compared to the prior third quarter. Average daily commissions (ADC) for ICE's OTC energy business decreased 9% to $1.4 million. Revenues from ICE's credit default swap (CDS) trade execution and clearing business totaled $33 million in the third quarter of 2012, including $16 million from CDS clearing.

Consolidated market data revenues in the third quarter increased 12% over the prior third quarter to $36 million. Consolidated other revenues were $8 million.

Consolidated operating expenses were $129 million in the third quarter of 2012, a decline of 6% compared to the year-ago quarter. Consolidated operating income fell 5% to $194 million in the quarter. Operating margin was 60% in the third quarter of 2012, consistent with the previous third quarter.

The effective tax rate for the third quarter of 2012 was 27%, compared to 30% in the third quarter of 2011.

First Nine Months of 2012 Results
Consolidated revenues in the first nine months of 2012 grew 4% to $1.0 billion. Futures volumes in the first three quarters of the year increased 1% to 294 million contracts, driving futures transaction and clearing revenue of $485 million, up 5% from the first three quarters of 2011. ADV in the first nine months of 2012 was 1.6 million contracts, up 1% from the first three quarters of 2011.

Global OTC segment transaction and clearing revenues were $423 million in the first nine months of 2012, down 1% from the prior year period. ADC in ICE's OTC energy markets were $1.6 million in the first nine months of 2012, up 5% from the same period of 2011. Consolidated market data revenues increased 19% to $110 million and consolidated operating margin was 61% for the first three quarters of 2012.

Cash flows from operations were $573 million in the first nine months of 2012, up 6% year-over-year. Capital expenditures during the first three quarters of 2012 were $24 million and capitalized software development costs totaled $26 million.

Unrestricted cash was $1.2 billion as of September 30, 2012. At the end of the third quarter, ICE had $850 million in outstanding debt.

Financial Guidance and Additional Information

  • ICE expects consolidated operating expenses for the full year 2012 to be flat to up 2% compared to 2011.
  • ICE's diluted share count for the fourth quarter of 2012 is expected to be in the range of 73.0 million to 74.0 million weighted average shares outstanding, and the diluted share count for fiscal year 2012 in the range of 72.9 million to 73.9 million weighted average shares outstanding.
  • ICE's share repurchase authorization was increased to $500 million in the third quarter of 2012. ICE repurchased $13 million in October 2012 and has $487 million in remaining capacity in its share repurchase program.

Earnings Conference Call Information
ICE will hold a conference call today, November 5, at 8:30 a.m. ET to review its third quarter 2012 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 if calling from the United States, or 708-290-1370 if dialing 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 and OTC commission data can be found at:
http://ir.theice.com/supplemental.cfm

About IntercontinentalExchange
IntercontinentalExchange (NYSE: ICE) is a leading operator of regulated futures exchanges and over-the-counter markets for agricultural, credit, currency, emissions, energy and equity index contracts. ICE Futures Europe hosts trade in half of the world's crude and refined oil futures. ICE Futures U.S. and ICE Futures Canada list agricultural, currencies and Russell Index markets. ICE is also a leading operator of central clearing services for the futures and over-the-counter markets, with five regulated clearing houses across North America and Europe. ICE serves customers in more than 70 countries. www.theice.com

The following are trademarks of IntercontinentalExchange, Inc. and/or its affiliated companies: IntercontinentalExchange, IntercontinentalExchange & Design, ICE, ICE and block design, ICE Futures Canada, ICE Futures Europe, ICE Futures U.S., ICE Clear Credit, ICE Clear Europe, ICE Clear U.S., ICE Clear Canada, The Clearing Corporation, U.S. Dollar Index, ICE Link and Creditex. All other trademarks are the property of their respective owners. For more information regarding registered trademarks owned by IntercontinentalExchange, Inc. and/or its affiliated companies, see https://www.theice.com/terms.jhtml.

Forward-Looking Statements
This press release may contain "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements regarding IntercontinentalExchange's business that are not historical facts are forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. These statements are not guarantees of future performance and actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statement. The factors that might affect our performance include, but are not limited to: our business environment and industry trends; conditions in global financial markets; domestic and international economic conditions; volatility in commodity prices; changes in laws and regulations; increasing competition and consolidation in our industry; our ability to identify and effectively pursue acquisitions and strategic alliances and successfully integrate the companies we acquire on a cost-effective basis; the success of our clearing houses and our ability to minimize the risks associated with operating multiple clearing houses in multiple jurisdictions; technological developments, including ensuring that the technology we utilize is not vulnerable to security risks; the accuracy of our cost estimates and expectations, including, without limitation, those set forth in this press release under "Guidance and Additional Information"; our belief that cash flows will be sufficient to service our debt and fund our working capital needs and capital expenditures for the foreseeable future; our ability to develop new products and services on a timely and cost-effective basis; leveraging our risk management capabilities; maintaining existing market participants and attracting new ones; protecting our intellectual property rights; not violating the intellectual property rights of others; potential adverse litigation results; our belief in our electronic platform and disaster recovery system technologies; and identification of trends and how they will impact our business. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's most recent Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on February 8, 2012, and ICE's Quarterly Reports on Form 10-Q for the quarter ended June 30, 2012, as filed with the SEC on August 1, 2012, and the quarter ended September 30, 2012, as filed with the SEC on November 5, 2012. These filings are also available in the Investors & Media section of our website. You should not place undue reliance on forward-looking statements, which speak only as of the date of this press release. Except for any obligations to disclose material information under the Federal securities laws, ICE undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this press release.

 

 

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

 

               
               
 

Nine Months Ended
September 30,

 

Three Months Ended
September 30,

2012

 

2011

 

2012

 

2011

Revenues:

             

Transaction and clearing fees, net

$ 908,057

 

$ 889,060

 

$ 279,177

 

$ 301,510

Market data fees

109,504

 

92,331

 

35,947

 

32,212

Other

22,033

 

18,885

 

8,063

 

7,056

               

Total revenues

1,039,594

 

1,000,276

 

323,187

 

340,778

               

Operating expenses:

             

Compensation and benefits

194,596

 

187,951

 

61,820

 

64,137

Technology and communications

34,535

 

35,886

 

11,073

 

12,316

Professional services

25,741

 

24,970

 

7,813

 

8,743

Rent and occupancy

14,544

 

13,928

 

5,167

 

5,107

Acquisition-related transaction costs

9,994

 

14,760

 

2,285

 

5,446

Selling, general and administrative

28,580

 

25,464

 

8,114

 

7,885

Depreciation and amortization

96,955

 

99,063

 

32,864

 

33,095

               

Total operating expenses

404,945

 

402,022

 

129,136

 

136,729

               

Operating income

634,649

 

598,254

 

194,051

 

204,049

               

Other income (expense):

             

Interest and investment income

1,014

 

2,219

 

332

 

388

Interest expense

(29,112)

 

(23,623)

 

(9,445)

 

(8,128)

Other expense, net

(253)

 

(819)

 

(279)

 

(258)

               

Total other expense, net

(28,351)

 

(22,223)

 

(9,392)

 

(7,998)

               

Income before income taxes

606,298

 

576,031

 

184,659

 

196,051

Income tax expense

177,114

 

184,557

 

50,552

 

59,103

               

Net income

$ 429,184

 

$ 391,474

 

$ 134,107

 

$ 136,948

               

Net income attributable to noncontrolling interest

(7,080)

 

(8,574)

 

(3,025)

 

(4,317)

               

Net income attributable to IntercontinentalExchange, Inc

$ 422,104

 

$ 382,900

 

$ 131,082

 

$ 132,631

               

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

             

Basic

$ 5.80

 

$ 5.22

 

$ 1.80

 

$ 1.81

               

Diluted

$ 5.76

 

$ 5.17

 

$ 1.79

 

$ 1.80

               

Weighted average common shares outstanding:

             

Basic

72,729

 

73,335

 

72,789

 

73,139

               

Diluted

73,339

 

74,057

 

73,411

 

73,836

               

 

 

 

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

       
 

September 30,
2012

 

December 31,
2011

ASSETS

     

Current assets:

     

Cash and cash equivalents

$ 1,241,176

 

$ 822,949

Short-term restricted cash

80,570

 

52,982

Customer accounts receivable

148,897

 

136,331

Margin deposits and guaranty funds

32,530,788

 

31,555,831

Prepaid expenses and other current assets

33,064

 

37,298

       

Total current assets

34,034,495

 

32,605,391

       

Property and equipment, net

140,926

 

130,962

       

Other noncurrent assets:

     

Goodwill

1,936,796

 

1,902,984

Other intangible assets, net

816,626

 

854,374

Long-term restricted cash

164,950

 

164,496

Long-term investments

414,529

 

451,136

Other noncurrent assets

31,762

 

38,521

       

Total other noncurrent assets

3,364,663

 

3,411,511

       

Total assets

$ 37,540,084

 

$ 36,147,864

       

LIABILITIES AND EQUITY

     

Current liabilities:

     

Accounts payable and accrued liabilities

$ 83,725

 

$ 65,964

Accrued salaries and benefits

47,020

 

58,248

Current portion of licensing agreement

19,249

 

19,249

Current portion of long-term debt

50,000

 

50,000

Income taxes payable

36,878

 

22,614

Margin deposits and guaranty funds

32,530,788

 

31,555,831

Other current liabilities

42,682

 

28,408

       

Total current liabilities

32,810,342

 

31,800,314

       

Noncurrent liabilities:

     

Noncurrent deferred tax liability, net

216,028

 

235,889

Long-term debt

800,000

 

837,500

Noncurrent portion of licensing agreement

67,473

 

80,084

Other noncurrent liabilities

40,282

 

31,736

       

Total noncurrent liabilities

1,123,783

 

1,185,209

       

Total liabilities

33,934,125

 

32,985,523

       
       

EQUITY

     

IntercontinentalExchange, Inc. shareholders' equity:

     
       

Common stock

798

 

792

Treasury stock, at cost

(664,389)

 

(644,291)

Additional paid-in capital

1,887,354

 

1,829,181

Retained earnings

2,379,200

 

1,957,096

Accumulated other comprehensive loss

(27,104)

 

(21,253)

       

Total IntercontinentalExchange, Inc. shareholders' equity

3,575,859

 

3,121,525

Noncontrolling interest in consolidated subsidiaries

30,100

 

40,816

       

Total equity

3,605,959

 

3,162,341

       

Total liabilities and equity

$ 37,540,084

 

$ 36,147,864

       

 

Non-GAAP Financial Measures and Reconciliation
ICE uses non-GAAP measures internally to evaluate performance and in making financial and operational decisions. When viewed in conjunction with the U.S. generally accepted accounting principles, or GAAP, results and the accompanying reconciliation, ICE believes that the presentation of these measures provides investors with greater transparency and supplemental data relating to its financial condition and results of operations. In addition, ICE believes the presentation of these measures is useful to investors for period-to-period comparison of results because the items described below are not reflective of ICE's core business performance. These financial measures are not in accordance with, or an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. ICE uses adjusted net income attributable to ICE and adjusted earnings per share attributable to ICE common shareholders because they more clearly highlight trends in its business that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from the results specific financial items that have less bearing on the operating performance. ICE strongly recommend that investors review the GAAP financial measures included in the Quarterly Report on Form 10-Q, including the consolidated financial statements and the notes thereto.

During the nine months and three months ended September 30, 2011, ICE incurred a banking success fee expense of $4.3 million relating to the closing of its stake in Cetip in July 2011. There is no tax impact related to this fee because the expense is not deductible. Adjusted net income attributable to ICE for the periods presented below is calculated by adding net income attributable to ICE and the amount described above, which is not reflective of the core business performance. For the nine and three months ended September 30, 2011, ICE previously included all acquisition-related transaction costs as non-GAAP adjustments. ICE now includes acquisition-related transaction costs as part of its core business expenses, except for those that are directly related to the closing, financing or termination of a transaction. 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 as follows for the following periods (in thousands, except per share amounts):

 

       
 

Nine Months
Ended
September 30,
2011

 

Three Months
Ended
September 30,
2011

Net income attributable to ICE

$ 382,900

 

$ 132,631

Add: Cetip investment banking success fee

4,250

 

4,250

       

Adjusted net income attributable to ICE

$ 387,150

 

$ 136,881

       

Earnings per share attributable to ICE common shareholders:

     

Basic

$ 5.22

 

$ 1.81

       

Diluted

$ 5.17

 

$ 1.80

       

Adjusted earnings per share attributable to ICE common shareholders:

     

Adjusted basic

$ 5.28

 

$ 1.87

       

Adjusted diluted

$ 5.23

 

$ 1.85

       

Weighted average common shares outstanding:

     

Basic

73,335

 

73,139

       

Diluted

74,057

 

73,836