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- Record Revenues of $136.7 MM, Up 86%; Net Income Rises 73% to $53.7 MM; Excluding Non-recurring CBOT Merger Proposal Costs, Net Income of $60.7 MM
- Diluted EPS of $0.75; Excluding Non-recurring CBOT Merger Proposal Costs, Diluted EPS of $0.85
- NYBOT to Become ICE Futures US
IntercontinentalExchange, Inc. (NYSE: ICE) reported consolidated net income for the
second quarter of 2007 of $53.7 million, a 73.4% increase in quarterly earnings compared
to $31.0 million in net income for the second quarter of 2006. Consolidated revenues in
the quarter increased 85.7% to a record $136.7 million, from $73.6 million in the second
quarter of 2006. Diluted earnings per share in the second quarter were $0.75, a 44.2%
increase compared to $0.52 in the same period in 2006.
The financial results for the
second quarter of 2007 include $10.9 million in costs related to the company’s
proposed merger with the Chicago Board of Trade (CBOT) or $7.0 million after tax.
Excluding these charges, net of tax, net income for the second quarter of 2007 was $60.7
million, an increase of 96.1% and diluted earnings per share were $0.85, a 63.5% increase
compared to the same period in 2006.
Record revenues were driven by strong volume during
the quarter at ICE Futures, the company’s U.K. futures business segment; at NYBOT,
ICE’s U.S. futures business segment; and in ICE’s global over-the-counter (OTC)
business segment; as well as growth in the market data business segment. Company-wide
average daily volume (ADV) for ICE’s global futures and OTC markets was 1.4 million
contracts in the second quarter of 2007.
ICE also announced that effective September 3,
NYBOT will be renamed ICE Futures US, reflecting the successful integration of NYBOT with
ICE’s existing businesses and reinforcing ICE’s comprehensive offering of
products and services, and its emphasis on innovation, customer focus and growth.
ICE’s London-based FSA-regulated operations will be named ICE Futures Europe.
“During
the second quarter, we expanded our range of strategic initiatives and added new business
lines to our rapidly growing global marketplace,” said ICE Chairman and CEO Jeffrey
C. Sprecher. “We continue to build on our central role in global commodities markets
by adding new products, customers and markets; by leveraging our technology platform, and
through a combination of organic growth, acquisitions and partnerships.”
Sprecher
continued: “In the second quarter, we acquired the exclusive rights to futures and
options on futures for the benchmark Russell U.S. equity indexes; we began implementation
of our comprehensive global clearing strategy; and we announced, closed on and integrated
ChemConnect’s trading business. At the same time, importantly, we increased our
trading volume at sector-leading growth rates. We also began the implementation of a new
architecture for the ICE platform, which is rapidly becoming the most sophisticated
commodities trading platform globally. Together with our core business, our new
initiatives and investments in technology and clearing offer a strong foundation for
additional growth opportunities.”
Second Quarter Results
In the second quarter
of 2007, ICE’s consolidated revenues increased 85.7% to $136.7 million compared to
$73.6 million in revenues in the second quarter of 2006. Consolidated transaction fee
revenues increased 84.4% to $117.4 million in the second quarter of 2007, from $63.7
million in the second quarter of 2006. Growth in transaction revenue was driven primarily
by strong trading volume in both the European futures and global OTC business segments
during the quarter, by new participants in ICE’s markets, and through the addition of
NYBOT’s markets.
Transaction fee revenues at ICE Futures totaled $42.6 million in the
second quarter of 2007, an increase of 44.1% over $29.6 million in the same period in
2006. In the second quarter of 2007, ADV for ICE Futures rose 56.5% to 522,294 contracts,
compared to 333,668 contracts per day in the second quarter of 2006. The increased
adoption of electronic trading in the global energy futures markets and strong performance
of ICE Futures’ global oil complex contributed to the solid growth in volume. Rate
per contract (RPC) for ICE Futures was $1.29 in the second quarter of 2007, compared to
$1.40 in the second quarter of 2006, and $1.29 in the first quarter of 2007.
Transaction
fee revenues at NYBOT totaled $28.2 million in the second quarter of 2007. ICE introduced
electronic trading of NYBOT’s soft commodity futures contracts on February 2, 2007,
which attracted new market users and produced new volume and open interest records,
including an exchange-wide monthly volume record in June, exceeding six million contracts
for the first time. NYBOT achieved record volume in the second quarter of 2007 with 15.3
million contracts. NYBOT also established a new quarterly ADV record with 241,966
contracts, a 26.3% increase compared to the second quarter of 2006. RPC in all NYBOT soft
commodity products totaled $1.85 in the second quarter of 2007, compared to $1.55 in the
second quarter of 2006, and $1.59 in the first quarter of 2007. The increase in
NYBOT’s RPC was primarily due to the adjusted exchange fee rates implemented in June
of this year.
Second quarter 2007 transaction fee revenues in the OTC business segment
increased 36.7% to $46.6 million, compared to $34.1 million in the same period in 2006,
and average daily commissions increased 36.3% to $717,847, compared to $526,824 per day in
the second quarter of 2006. Average daily commissions reflect daily trading activity in
the company’s OTC markets. ICE’s OTC contract volume in the second quarter of
2007 increased 28.8% to 37.7 million contracts compared to 29.3 million contracts in the
second quarter of 2006. Cleared contracts accounted for 83.5% of OTC contract volume
during the second quarter of 2007 compared to 82.3% in the prior year’s second
quarter.
Consolidated market data fee revenues in the market data business segment
increased 79.7% during the second quarter of 2007 to $15.8 million compared to $8.8
million in the same period in 2006. Consolidated other revenues increased $2.3 million
during the second quarter to $3.4 million from $1.1 million in the same period in 2006.
Consolidated
operating expenses for the second quarter of 2007 were $60.1 million, an increase of
129.7% compared to $26.2 million in the same period of 2006. The primary drivers of
increased operating expenses were the inclusion of operating expenses and amortization of
the intangible assets relating to NYBOT, and $10.9 million of non-recurring CBOT merger
proposal transaction costs. Expenses relating to the establishment of ICE Clear Europe
were $0.9 million during the second quarter.
Second quarter 2007 consolidated operating
income was $76.5 million, up 61.4% compared to $47.4 million in the same period in 2006.
The operating margin was 56.0% for the second quarter of 2007, compared to 64.4% for the
same period in 2006. The operating margin decreased from the comparable prior year period
due to the $10.9 million of CBOT merger proposal transaction costs.
The effective tax rate
for the second quarter of 2007 was 28.6%, compared to 35.8% for the second quarter of
2006. The effective tax rate was reduced from prior guidance as a result of ICE’s
decision to indefinitely reinvest prior and current undistributed foreign earnings during
2007. The impact from this change includes a non-recurring benefit to net income of $3.6
million recognized in the second quarter related to the reversal of the tax liability on
prior period foreign earnings and a sustainable improvement of roughly two percentage
points in ICE’s effective tax rate.
Capital expenditures in the second quarter of
2007 were $9.5 million, compared to $2.5 million in the same period of 2006. Capital
expenditures related primarily to hardware purchases to enhance the company’s
electronic trading and clearing technology and related infrastructure, including the
completion of the first phase of the company’s relocation of its data center to a new
Chicago hosting facility. Capitalized software development costs totaled $2.8 million in
the second quarter, up from $1.8 million in the second quarter of 2006.
Unrestricted cash
and investments were $231.2 million as of June 30, 2007. At the end of the second quarter,
the company had $240.6 million in debt as a result of the NYBOT acquisition completed on
January 12, 2007.
Additional Information
- The company forecasts the diluted share count for the third quarter of 2007 to be in the
range of 71.0 million to 71.8 million weighted average shares outstanding, and the diluted
share count for fiscal year 2007 to be in the range of 70.3 million to 71.3 million
weighted average shares outstanding.
- The company’s consolidated tax rate is expected to be in the range of 34% to 36%
for the second half of 2007.
- ICE expects expenses relating to the formation of ICE Clear Europe to be in the range of
$2.5 million to $3.0 million for the second half of 2007. ICE expects clearing revenues to
be in the range of $25.0 million to $30.0 million in the second half of 2008.
- Updated guidance for capital expenditures for fiscal year 2007 is expected to be in the
range of $30 million to $33 million.
- ICE expects total year-end headcount to be in the range of 480 to 500; a slight decline from the beginning of 2007 and reflecting synergies at NYBOT offset by additions through acquisitions and investments in clearing and technology enhancements.
Earnings Conference Call Information
ICE will hold a conference call today, July 26,
at 8:30 a.m. ET to review its second quarter financial results. The call will be broadcast
live over the Internet via the Investor Relations page of ICE’s website at
www.theice.com. A slideshow will be available on the website in conjunction with the
earnings call. The call will be temporarily archived on the website. Participants may also
listen via telephone by dialing (800) 289-0572 if calling from the United States, or (913)
981-5543 if calling from outside of the United States. Please reference confirmation code
1868864. For participants on the telephone, please place your call ten minutes prior to
the start of the call.
Historical futures volume and OTC commission data can be found at: www.theice.com/marketdata/recordsAndVolumes/volumes2007.jsp
Volume
and open interest information on NYBOT can be found at:
www.theice.com/nybot_volumes.jhtml
Non-GAAP
Financial Measures
We provide adjusted net income and adjusted earnings per common
share on adjusted net income as additional information regarding our operating results. We
believe the presentation of these measures is useful for period-to-period comparison of
results because the CBOT merger-related transaction costs do not reflect historical
operating performance. We incurred incremental direct costs of $10.9 million during the
six months ended June 30, 2007 related to our proposed merger with CBOT. We did not
succeed in our proposed merger with CBOT, and the CME completed its acquisition of CBOT on
July 13, 2007. The $10.9 million in merger-related transaction costs include investment
banking advisors, legal, accounting, proxy advisor, public relation services and other
external costs directly related to the proposed transaction.
The non-GAAP measures are not
in accordance with, or an alternative to, GAAP, and may be different from non-GAAP
measures used by other companies. Investors should not rely on any single financial
measure when evaluating our business. We strongly recommend that investors review the GAAP
financial measures included in our Quarterly Report on Form 10-Q, including our
consolidated financial statements and the notes thereto, and the reconciliation provided
below. Management uses adjusted net income and adjusted earnings per share as financial
measures to evaluate operating performance. When viewed with our GAAP results and the
accompanying reconciliation, we believe adjusted net income and adjusted earnings per
share provide a more complete understanding of factors affecting our business than GAAP
measures alone.
Consolidated Unaudited Financial Statements
INTERCONTINENTALEXCHANGE, INC.
AND SUBSIDIARIES
CONSOLIDATED UNAUDITED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended June 30, | ||
| 2007 | 2006 | |
| Revenues | ||
| Transaction fees, net ................................................................ | $117,372 | $63,657 |
| Market data fees ...................................................................... | 15,846 | 8,819 |
| Other ...................................................................................... | 3,436 | 1,115 |
| Total revenues ........................................................................... | 136,654 | 73,591 |
| Operating expenses: | ||
| Compensation and benefits ....................................................... | 21,717 | 11,932 |
| Professional services ................................................................. | 6,714 | 3,235 |
| Patent royalty........................................................................... | — | 2,198 |
| CBOT merger-related transaction costs......................................... | 10,944 | — |
| Selling, general and administrative ............................................. | 13,002 | 5,501 |
| Depreciation and amortization..................................................... | 7,748 | 3,309 |
| Total operating expenses ............................................................ | 60,125 | 26,175 |
| Operating income ....................................................................... | 76,529 | 47,416 |
| Other income (expense): | ||
| Interest income ........................................................................ | 2,868 | 1,250 |
| Interest expense ...................................................................... | (4,329) | (57) |
| Other income (expense), net ..................................................... | 139 | (340) |
| Total other income, net ............................................................... | (1,322) | 853 |
| Income before income taxes ....................................................... | 75,207 | 48,269 |
| Income tax expense .................................................................. | 21,514 | 17,302 |
| Net income............................................................................... | $53,693 | $30,967 |
| Earnings per common share: | ||
| Basic ....................................................................................... | $0.78 | $0.55 |
| Diluted .................................................................................... | $0.75 | $0.52 |
| Weighted average common shares outstanding: | ||
| Basic ....................................................................................... | 69,205 | 55,871 |
| Diluted .................................................................................... | 71,228 | 59,209 |
INTERCONTINENTALEXCHANGE, INC.
AND SUBSIDIARIES
CONSOLIDATED UNAUDITED
BALANCE SHEET
(IN THOUSANDS)
| June 30, | |
| 2007 | |
| ASSETS | |
| Current assets: | |
| Cash and cash equivalents ............................................................................ | $ 120,852 |
| Restricted cash ............................................................................................. | 17,169 |
| Short-term investments ................................................................................. | 110,377 |
| Customer accounts receivable: | |
| Trade, net of allowance for doubtful accounts .................................................. | 58,017 |
| Related-parties ........................................................................................... | 260 |
| Income taxes receivable ............................................................................... | 23,559 |
| Margin deposits and guaranty funds ............................................................... | 699,431 |
| Prepaid expenses and other current assets ...................................................... | 13,215 |
| Total current assets ..................................................................................... | 1,042,880 |
| Property and equipment, net ........................................................................ | 57,199 |
| Other noncurrent assets: | |
| Goodwill, net ............................................................................................... | 1,079,420 |
| Other intangible assets, net .......................................................................... | 320,394 |
| Cost method investments .............................................................................. | 38,745 |
| Other noncurrent assets ................................................................................ | 9,607 |
| Total other noncurrent assets ......................................................................... | 1,448,166 |
| Total assets ................................................................................................. | $ 2,548,245 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| Current liabilities: | |
| Accounts payable and accrued liabilities ............................................................ | $ 39,576 |
| Accrued salaries and benefits .......................................................................... | 11,631 |
| Current portion of long-term debt .................................................................... | 59,624 |
| Current portion of long-term debt .................................................................... | 37,500 |
| Income taxes payable ................................................................................... | 17,984 |
| Margin deposits and guaranty funds ................................................................ | 699,431 |
| Other current liabilities ................................................................................... | 6,216 |
| Total current liabilities ................................................................................... | 871,962 |
| Noncurrent liabilities: | |
| Noncurrent deferred tax liability, net ................................................................ | 47,682 |
| Long-term debt ............................................................................................. | 203,125 |
| Noncurrent portion of licensing agreement ........................................................ | 90,019 |
| Unearned government grant .......................................................................... | 11,359 |
| Other noncurrent liabilities .............................................................................. | 18,136 |
| Total noncurrent liabilities .............................................................................. | 370,321 |
| Total liabilities .............................................................................................. | 1,242,283 |
| SHAREHOLDERS' EQUITY: | |
| Common stock ............................................................................................ | 705 |
| Treasury stock, at cost .................................................................................. | (25,427) |
| Additional paid-in capital ............................................................................... | 1,002,840 |
| Retained earnings ........................................................................................ | 300,375 |
| Accumulated other comprehensive income ....................................................... | 27,469 |
| Total shareholders' equity .............................................................................. | 1,305,962 |
| Total liabilities and shareholders' equity .......................................................... | $ 2,548,245 |
Non-GAAP Reconciliation
The following table reconciles consolidated net income to
adjusted net income and calculates adjusted earnings per common share on adjusted net
income.
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Six Months Ended June 30, 2007 | Three Months Ended June 30, 2007 | |
| Net income | $ 109,279 | $ 53,693 |
| Add: CBOT merger-related transaction costs ............................... | 10,944 | 10,944 |
| Less: Effective tax rate benefit of CBOT merger-related transaction costs...................................................................................... | (3,906) | (3,906) |
| Adjusted net income .................................................................. | $ 116,317 | $ 60,731 |
| Earnings per common share on net income: | ||
| Basic ...................................................................................... | $ 1.60 | $ 0.78 |
| Diluted ................................................................................... | $ 1.55 | $ 0.75 |
| Adjusted earnings per common share on adjusted net income: | ||
| Adjusted basic ......................................................................... | $ 1.70 | $ 0.88 |
| Adjusted diluted ...................................................................... | $ 1.65 | $ 0.85 |
| Weighted average common shares outstanding: | ||
| Basic ....................................................................................... | 68,372 | 69,205 |
| Diluted .................................................................................... | 70,496 | 71,228 |
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
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; increasing competition; our ability to keep pace
with rapid technological developments, including clearing developments; the accuracy of
our expectations of various costs; the synergies and benefits from the merger with NYBOT;
our belief that cash flows will be sufficient to fund our working capital needs and
capital expenditures, at least through the end of 2008; our ability to increase the
connectivity to our marketplace, expand our market data business, develop new products and
services, and pursue strategic acquisitions and alliances, all on a timely, cost-effective
basis; our ability to maintain existing market participants and attract new ones; our
ability to protect our intellectual property rights and our ability to operate our
business without violating the intellectual property rights of others; the impact of any
changes in domestic and foreign regulations or government policy, including any changes or
reviews of previously issued regulations and policies; potential adverse litigation
results; our belief that our electronic trade confirmation service could attract new
market participants; and our belief in our electronic platform and disaster recovery
system technologies. For a discussion of certain risks and uncertainties that could cause
actual results to differ from those contained in the forward-looking statements, see
ICE’s Securities and Exchange Commission filings, including, but not limited to, the
risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2006 and
ICE’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, as filed
with the Securities and Exchange Commission. These filings are also available in the
Investor Resources 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.
About
IntercontinentalExchange
IntercontinentalExchange® (NYSE: ICE) operates the leading
global, electronic marketplace for trading both futures and OTC energy contracts and the
leading soft commodity exchange. ICE’s markets offer access to a range of contracts
based on crude oil and refined products, natural gas, power and emissions, as well as soft
commodities including cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar,
in addition to currency and index futures and options. ICE® conducts its energy futures
markets through its U.K. regulated London-based subsidiary, ICE Futures, Europe’s
leading energy exchange. ICE Futures offers liquid markets in the world’s leading oil
benchmarks, Brent Crude futures and West Texas Intermediate (WTI) Crude futures, trading
nearly half of the world’s global crude futures by volume of commodity traded. ICE
conducts its soft commodity futures and options markets through its U.S. regulated
subsidiary, the New York Board of Trade®. For more than a century, the NYBOT® has
provided global markets for food, fiber and financial products. ICE was added to the
Russell 1000® Index on June 30, 2006. Headquartered in Atlanta, ICE also has offices in
Calgary, Chicago, Houston, London, New York and Singapore. For more information, please
visit www.theice.com and www.nybot.com.
