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IntercontinentalExchange (NYSE: ICE), a leading operator of regulated global exchanges, clearing houses and over-the-counter (OTC) markets, today reported financial results for the third quarter of 2010. Consolidated revenues were $287 million, an increase of 12% from $256 million in the third quarter of 2009. Consolidated net income attributable to ICE was $96 million, up 10% from net income of $87 million in last year's third quarter. Diluted earnings per share (EPS) increased 9% to $1.29 compared to third quarter 2009 EPS of $1.18 per diluted share.
Adjusted consolidated net income attributable to ICE, which excludes items related to the acquisition of Climate Exchange, grew 21% in the third quarter of 2010 and adjusted diluted EPS increased 20% to $1.42. 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.
Said ICE Chairman and CEO Jeffrey C. Sprecher: "At a time of considerable change and economic uncertainty, ICE delivered another solid quarter of growth, with an increasing number of futures and OTC customers relying on our global trading and technology platform, processing and clearing infrastructure. We continue to focus on delivering industry leading solutions to satisfy new transparency and risk mitigation standards and meet the needs of our customers through innovation."
ICE SVP and CFO Scott Hill added: "Strong global demand for commodities and an increasing need among emerging economies for hedging and risk management tools continue to drive very strong results for ICE. We believe these are long term secular trends, and that they will continue to provide a solid foundation for top- and bottom-line growth and investment in innovative new products and services to help our customers navigate regulatory change and market evolution."
Third Quarter 2010 Results
Third quarter 2010 consolidated revenues grew 12% to $287 million, compared to $256 million in the third quarter of 2009. Consolidated transaction and clearing revenues increased 12% to $256 million in the third quarter of 2010, from $229 million in the same period in 2009. The increase in transaction and clearing revenues was driven primarily by increased volume in ICE Brent Crude and ICE Gas Oil futures contracts, OTC North American natural gas and global oil contracts, and an increase in credit default swap (CDS) clearing revenues.
Transaction and clearing revenues in ICE's futures segment totaled $125 million in the third quarter of 2010, up 20% from $104 million in the prior third quarter. Consolidated average daily volume (ADV) in ICE's futures exchanges was 1,274,803 contracts, an increase of 20% from the third quarter of 2009, and was driven by double-digit increases in ADV at each of ICE's futures exchanges.
Transaction and clearing revenues in ICE's global OTC segment grew 5% to $132 million in the third quarter, compared to $125 million in the same period of 2009. Average daily commissions (ADC) for ICE's OTC energy business increased 9% to $1.4 million, compared to $1.3 million in the third quarter of 2009. Cleared contracts accounted for 97% of OTC energy contract volume during the third quarter of 2010. In ICE's credit derivatives business, third quarter transaction, processing and clearing revenues were $42 million, compared to $43 million in the same period of 2009. Revenues at Creditex, our CDS trade execution business, totaled $25 million, and global CDS clearing revenues were $18 million.
Consolidated market data revenues were a record $28 million in the third quarter of 2010, an increase of 11% from $25 million in the year-ago quarter. Consolidated other revenues were $4 million, compared to $3 million in the third quarter of 2009.
Consolidated operating expenses were $136 million in the quarter, an increase of 17% from $116 million in the third quarter of 2009. The increase in operating expenses was primarily attributable to costs associated with the acquisition of Climate Exchange plc, including $7 million of acquisition expenses and $5 million in severance charges. Operating expenses also include $5 million in amortization of intangibles and $8 million in ongoing operational expenses associated with Climate Exchange during the third quarter of 2010. Operating expenses outside of merger and integration expenses declined compared to the prior year, including improved cost efficiencies at Creditex.
Consolidated operating income increased 8% to $152 million in the quarter, compared to $140 million in the third quarter of 2009. Operating margin was 53%.
The effective tax rate for the quarter was 32%, compared to 37% for the third quarter of 2009. The decrease in the effective tax rate was primarily due to favorable foreign tax rate differentials, legislative changes and tax credits during the current period.
First Nine Months of 2010 Results
Consolidated revenues in the first nine months of 2010 were $865 million, an increase of 17% compared to the year-ago period. Futures volumes in the first three quarters grew 27% to 248 million contracts, driving futures transaction and clearing revenues to $377 million, an increase of 23% compared to same period of 2009. ADV in the first nine months of 2010 was 1,318,788 contracts, up 28% from the year-ago period.
ICE's global OTC transaction and clearing revenues were $395 million in the first nine months of the year, an increase of 14% from the same period in 2009, and were driven primarily by an increase in energy contract volume, as well as an increase in CDS clearing revenues. ADC in ICE's OTC energy business were $1.4 million in the first nine months of the year, up 20% from the first nine months of 2009. Consolidated market data revenues increased 7% to $82 million and consolidated operating margins were 57% for the first nine months of 2010, compared to 53% in the comparable 2009 period.
Consolidated cash flows from operations totaled $379 million in the first three quarters of 2010, up 25%, compared to $303 million in the same period of 2009. Capital expenditures were $17 million and capitalized software development costs totaled $20 million in the first three quarters of 2010.
Unrestricted cash and investments were $541 million as of September 30, 2010. The company repurchased $90 million of its common stock during the third quarter of 2010 as part of its existing stock repurchase program. At the end of the quarter, ICE had $634 million in outstanding debt.
Financial Guidance and Additional Information
- ICE had 947 employees as of September 30, 2010. Headcount is expected to increase in the range of 1% to 2% for the balance of 2010, excluding any personnel additions relating to merger and acquisition activity, and inclusive of the Climate Exchange acquisition.
- Consistent with ICE's full-year guidance for CDS clearing revenues, the company expects revenues in the range of $14 million to $16 million during the fourth quarter of 2010.
- ICE expects depreciation and amortization in the fourth quarter of 2010 in the range of $32 million to $34 million, which includes $5 million related to the amortization of Climate Exchange intangible assets.
- ICE expects its tax rate to be between 32-35% in the fourth quarter of 2010 and in fiscal year 2011.
- ICE's diluted share count for the fourth quarter of 2010 is expected to be in the range of 73.8 million to 74.4 million weighted average shares outstanding, and the diluted share count for fiscal year 2010 is expected to be in the range of 73.9 million to 74.9 million weighted average shares outstanding.
- ICE's remaining capacity in its authorized share repurchase program is $210 million.
Earnings Conference Call Information
ICE will hold a conference call today, November 1, at 8:30 a.m. ET to review its third quarter 2010 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 888-569-5033 if calling from the United States, or 719-457-2607 if dialing from outside of the United States. For participants on the telephone, please place your call ten minutes prior to the start of the call.
The call will be archived on the company's website for replay. A telephone replay of the earnings call will also be available at 888-203-1112 for callers within the United States and at 719-457-0820 for callers outside of the United States. The passcode for the replay is 4972645. Beginning with ICE's first quarter 2011 earnings call, the company will no longer offer telephone replays of its earnings calls. All earnings calls will continue to be available on the ICE website.
Historical futures volume and OTC commission data can be found at:
http://ir.theice.com/supplemental.cfm
Consolidated Unaudited Financial Statements
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2010 2009 2010 2009
---- ---- ---- ----
Revenues:
Transaction and
clearing fees, net $772,024 $655,301 $256,102 $228,868
Market data fees 81,567 76,490 27,528 24,891
Other 11,330 6,443 3,516 2,505
------ ----- ----- -----
Total revenues 864,921 738,234 287,146 256,264
------- ------- ------- -------
Operating expenses:
Compensation and
benefits 179,696 166,231 62,586 55,928
Professional services 24,840 25,908 8,262 9,866
Acquisition-related
transaction costs 9,062 6,139 7,019 -
Selling, general and
administrative 69,788 68,457 25,982 22,613
Depreciation and
amortization 87,867 82,750 31,739 27,868
------ ------ ------ ------
Total operating
expenses 371,253 349,485 135,588 116,275
------- ------- ------- -------
Operating income 493,668 388,749 151,558 139,989
------- ------- ------- -------
Other income
(expense):
Interest and
investment income 1,544 1,252 478 298
Interest expense (22,123) (16,534) (7,511) (4,374)
Other income
(expense), net (13,297) (9,163) 2,716 1,493
------- ------ ----- -----
Total other expense,
net (33,876) (24,445) (4,317) (2,583)
------- ------- ------ ------
Income before income
taxes 459,792 364,304 147,241 137,406
Income tax expense 153,834 133,142 47,328 50,524
------- ------- ------ ------
Net income $305,958 $231,162 $99,913 $86,882
======== ======== ======= =======
Net (income) loss
attributable to
noncontrolling
interest (6,792) 572 (3,598) 572
------ --- ------ ---
Net income
attributable to
IntercontinentalExchange,
Inc. $299,166 $231,734 $96,315 $87,454
======== ======== ======= =======
Earnings per share
attributable to
IntercontinentalExchange,
Inc. common
shareholders:
Basic $4.06 $3.18 $1.31 $1.20
===== ===== ===== =====
Diluted $4.01 $3.13 $1.29 $1.18
===== ===== ===== =====
Weighted average
common shares
outstanding:
Basic 73,765 72,887 73,659 73,137
====== ====== ====== ======
Diluted 74,577 73,949 74,443 74,204
====== ====== ====== ======
Consolidated Balance Sheets
(In thousands)
(Unaudited)
September December
30, 31,
2010 2009
---- ----
ASSETS
Current assets:
Cash and cash equivalents $539,198 $552,465
Short-term restricted
cash 79,445 81,970
Short-term investments 1,998 2,005
Customer accounts
receivable 134,507 109,068
Margin deposits and
guaranty funds 24,330,932 18,690,238
Income tax receivable 31,925 874
Prepaid expenses and other
current assets 34,029 23,231
------ ------
Total current assets 25,152,034 19,459,851
---------- ----------
Property and equipment,
net 95,341 91,735
------ ------
Other noncurrent assets:
Goodwill 1,896,565 1,465,831
Other intangible assets,
net 916,072 702,460
Long-term restricted cash 135,219 123,823
Long-term investments - 23,492
Other noncurrent assets 22,994 17,683
------ ------
Total other noncurrent
assets 2,970,850 2,333,289
--------- ---------
Total assets $28,218,225 $21,884,875
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $74,100 $57,288
Accrued salaries and
benefits 38,877 52,185
Current portion of
licensing agreement 17,443 15,223
Current portion of long-
term debt 242,500 99,000
Income taxes payable 36,866 23,327
Margin deposits and
guaranty funds 24,330,932 18,690,238
Other current liabilities 38,927 30,571
------ ------
Total current liabilities 24,779,645 18,967,832
---------- ----------
Noncurrent liabilities:
Noncurrent deferred tax
liability, net 236,951 181,102
Long-term debt 391,500 208,500
Noncurrent portion of
licensing agreement 64,270 73,441
Other noncurrent
liabilities 24,702 20,353
------ ------
Total noncurrent
liabilities 717,423 483,396
------- -------
Total liabilities 25,497,068 19,451,228
---------- ----------
EQUITY
IntercontinentalExchange, Inc.
shareholders' equity:
Common stock 783 776
Treasury stock, at cost (448,735) (349,646)
Additional paid-in
capital 1,729,940 1,674,919
Retained earnings 1,348,291 1,049,125
Accumulated other
comprehensive income 54,340 24,558
------ ------
Total
IntercontinentalExchange,
Inc. shareholders' equity 2,684,619 2,399,732
Noncontrolling interest in
consolidated subsidiaries 36,538 33,915
------ ------
Total equity 2,721,157 2,433,647
--------- ---------
Total liabilities and
equity $28,218,225 $21,884,875
=========== ===========
Non-GAAP Financial Measures and Reconciliation
ICE presents adjusted net income attributable to ICE and adjusted earnings per share attributable to ICE as additional information regarding its operating results. These measures are not in accordance with, or an alternative to, U.S. generally accepted accounting principles, or GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating ICE's business. ICE strongly recommends that investors review the GAAP financial measures included in this press release and its Quarterly Report on Form 10-Q, for the quarter ended September 30, 2010, including ICE's consolidated financial statements and the notes thereto.
When viewed in conjunction with ICE's GAAP results and the accompanying reconciliation, ICE believes the presentation of these adjusted measures provide investors with greater transparency and a more complete understanding of factors affecting our business than GAAP measures alone. ICE management uses these measures to evaluate operating performance and management decisions made during the reporting period by excluding certain items that the company believes have less significance on, or do not impact, the day-to-day performance of the business.
Adjusted net income attributable to ICE for the periods presented below is calculated by adding net income attributable to ICE and various non-recurring, infrequent or other charges that are not routine operating expenses, and their related income tax effects. ICE does not believe these items are representative of its future operating performance because these charges were not consistent with historical and normal operating performance. The adjustments for the periods in 2010 related to the exclusion of charges associated with the acquisition of Climate Exchange, including the currency hedge implemented at the time of the transaction announcement, acquisition transaction costs and employee severance costs. The adjustments for the period in 2009 related to the exclusion of acquisition transaction costs, an impairment charge related to ICE's investment in India's NCDEX, and various other nonrecurring charges. The NCDEX impairment loss tax effect was additional tax expense of $1.8 million due to the rounding of a valuation allowance, related to the deferred tax benefit recorded in three months ended December 31, 2008, which was in excess of the tax benefit recorded in the nine months ended September 30, 2009. The remaining tax effects of these items were calculated by applying jurisdictional specific marginal tax rates.
ICE uses these non-GAAP measures internally to evaluate its performance and to make financial and operational decisions. ICE believes that its 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 for period-to-period comparison of results because the items described below do not reflect historical operating performance. ICE uses adjusted net income attributable to ICE and adjusted earnings per share because they more clearly highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our operating performance.
The following table reconciles our net income attributable to ICE to adjusted net income attributable to ICE and calculates adjusted earnings per common share attributable to ICE for the periods presented below.
Nine Months Nine Months Three Months
Ended Ended Ended
September 30, September 30, September 30,
2010 2009 2010
-------------- -------------- --------------
(In thousands, except per share amounts)
Net income
attributable to
ICE $299,166 $231,734 $96,315
Add: Hedge for CLE
acquisition 15,080 - 802
Add: Acquisition-
related
transaction costs 9,062 6,139 7,019
Add: Severance
costs relating to
acquisitions 5,716 2,902 5,196
Add: NCDEX
impairment charge - 9,276 -
Add: Costs incurred
to vacate office
space - 2,980 -
Less: Net gain on
existing 4.8%
ownership of CLE (1,825) - (1,825)
Less: Income tax
expense effect
related to the
items above (6,149) (1,978) (1,579)
------ ------ ------
Adjusted net income
attributable to
ICE $321,050 $251,053 $105,928
======== ======== ========
Earnings per share
attributable to
ICE common
shareholders:
Basic $4.06 $3.18 $1.31
===== ===== =====
Diluted $4.01 $3.13 $1.29
===== ===== =====
Adjusted earnings
per share
attributable to
ICE common
shareholders:
Adjusted basic $4.35 $3.44 $1.44
===== ===== =====
Adjusted diluted $4.30 $3.39 $1.42
===== ===== =====
Weighted average
common shares
outstanding:
Basic 73,765 72,887 73,659
====== ====== ======
Diluted 74,577 73,949 74,443
====== ====== ======
