Intercontinental Exchange, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are U.S. dollars; financial figures are in millions unless otherwise stated.
Business context and results
ICE operates regulated exchanges and clearing houses, provides fixed-income and other data services, and offers technology for the U.S. residential mortgage market. Its reportable segments are Exchanges, Fixed Income and Data Services, and Mortgage Technology.
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Total revenue | $2,413 | $2,134 | +13% |
| Revenue less transaction-based expenses | $1,814 | $1,707 | +6% |
| Operating income | $869 | $799 | +9% |
| Operating margin | 48% | 47% | +1 percentage point |
| Net income attributable to ICE | $555 | $1,252 | −56% |
| Diluted GAAP EPS | $0.99 | $2.22 | −55% |
| Adjusted net income attributable to ICE | $739 | $657 | +12% |
| Adjusted diluted EPS | $1.32 | $1.16 | +14% |
GAAP earnings comparisons are distorted by the $1.23 billion gain on the Coinbase investment sale recorded in Q2 2021. Q2 2022 included a $41 million gain on the Euroclear stake sale and $30 million of debt-refinancing costs. Adjusted results are non-GAAP measures; ICE’s reconciliation excludes selected items, including acquisition-related amortization and transaction costs.
Segments and material changes
- Exchanges: Q2 revenue less transaction-based expenses rose 11% to $1,005 million; operating income increased 20% to $701 million and operating margin improved to 70% from 64%. Revenue growth reflected stronger cash-equity activity, financial futures and options, and OTC and other revenue, partly offset by lower energy futures and options revenue.
- Fixed Income and Data Services: Q2 revenue increased 12% to $512 million; operating income rose 43% to $174 million. Higher fixed-income execution and CDS clearing activity benefited from market volatility. Annual Subscription Value was $1.682 billion, up 5% year over year.
- Mortgage Technology: Q2 revenue fell 13% to $297 million as lower mortgage origination volumes reduced origination technology revenue. The segment reported a $6 million operating loss versus $95 million income a year earlier; Q2 included $53 million of acquisition-related transaction and integration costs.
For the first half, revenue less transaction-based expenses increased 6% to $3.713 billion and operating income rose 10% to $1.861 billion. GAAP net income attributable to ICE declined 36% to $1.212 billion, while adjusted net income increased 11% to $1.543 billion. Mortgage Technology revenue was down 13% year over year for the half.
Cash flow, debt and liquidity
- First-half cash from operating activities was $1.725 billion, up from $1.607 billion. Capital expenditures were $70 million and capitalized software development costs were $134 million.
- First-half reported financing cash flow included a $16.2 billion increase in cash and cash-equivalent margin deposits and guaranty funds, as well as debt proceeds. Clearing-related margin funds are held for clearing operations and are not available for ICE’s operating or other liabilities.
- At June 30, cash and cash equivalents were $830 million; restricted cash and cash equivalents were approximately $6.5 billion, including $4.9 billion of proceeds from notes subject to mandatory redemption if the Black Knight acquisition does not close. Cash and cash-equivalent margin deposits and guaranty funds were $164.5 billion.
- Total debt was $18.1 billion, up from $13.9 billion at December 31, 2021. Senior notes had a weighted-average maturity of 17 years and weighted-average cost of 3.6%. ICE issued $8.0 billion of senior notes in May and had no commercial paper outstanding at quarter end.
- The $3.9 billion revolving credit facility had no borrowings outstanding; $3.7 billion was available for working capital and general corporate purposes after subsidiary commitments. No amounts were drawn on the $2.4 billion delayed-draw term loan or the remaining $1.2 billion bridge facility at quarter end.
Outlook, commentary and risks
- ICE expected 2022 capital expenditures and capitalized software costs of $490 million to $520 million. The filing provides no consolidated revenue or earnings guidance.
- ICE expected the approximately $13.1 billion Black Knight acquisition, announced in May 2022, to close in the first half of 2023, subject to regulatory approvals and customary conditions. The consideration included a fixed $10.5 billion cash component and a stock component. ICE had raised acquisition financing and suspended share repurchases on May 4.
- ICE announced a $0.38 per-share dividend for Q3 2022. The Board’s dividend policy is discretionary and considers business conditions, results, capital requirements and other factors.
- Management reported no material negative operational impact from the Russia-Ukraine conflict as of the filing, but noted uncertainty about its duration and economic effects. ICE was suspending services in Russia and expected to cease offerings there by year end 2022.
- Key risks include regulatory and antitrust approval and closing risks for Black Knight, integration challenges and costs, higher post-acquisition leverage, mortgage-market sensitivity to interest rates and origination activity, market volatility, cyber and technology risks, foreign-exchange exposure, and legal or regulatory actions. ICE estimated consolidated debt could reach approximately $24 billion after the acquisition.
- ICE decided to cease CDS clearing at ICE Clear Europe and consolidate that offering at ICE Clear Credit in the U.S. The filing also noted continued regulatory developments affecting clearing houses, benchmarks and energy markets.
- ICE stated that disclosure controls and procedures were effective at quarter end and that no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- Black Knight transaction status, regulatory review, final consideration value, financing needs and any effects on leverage or required note redemption if the deal fails.
- Whether mortgage origination volumes continue to pressure Mortgage Technology revenue and operating profitability, and whether integration costs persist.
- Underlying exchange and data-services growth, including trading volumes, customer retention, pricing and foreign-exchange effects.
- Debt, interest expense, available credit capacity and the distinction between ICE’s unrestricted liquidity and customer clearing margin balances.
- How reported GAAP earnings compare with adjusted results, especially the treatment of unusual gains, refinancing expenses and acquisition-related costs.