Intercontinental Exchange, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless noted.
Business context
ICE provides exchange, clearing, data and technology services across three segments: Exchanges; Fixed Income and Data Services; and Mortgage Technology. In September 2023, ICE completed its approximately $11.8 billion acquisition of Black Knight, adding mortgage servicing, data and analytics capabilities. ICE divested Black Knight’s Optimal Blue and Empower loan-origination businesses under its FTC consent order.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $9.903 billion | $9.636 billion |
| Revenue less transaction-based expenses | $7.988 billion, up 10% | $7.292 billion |
| Operating income / margin | $3.694 billion / 46% | $3.638 billion / 50% |
| Net income attributable to ICE | $2.368 billion | $1.446 billion |
| Diluted EPS | $4.19 | $2.58 |
| Adjusted diluted EPS (non-GAAP) | $5.62 | $5.30 |
| Operating cash flow | $3.542 billion | $3.554 billion |
| Free cash flow (non-GAAP) | $3.053 billion | $3.072 billion |
The reported operating margin declined four percentage points, while adjusted operating margin was 59% in both years. Adjusted measures are non-GAAP and exclude items ICE considers outside ongoing core operations. The 2023 effective tax rate was 16%, versus 17% in 2022.
- Segments: Exchanges revenue less transaction expenses was $4.440 billion, up 9%, with operating income of $3.159 billion. Fixed Income and Data Services revenue was $2.231 billion, up 7%, with operating income of $811 million. Mortgage Technology revenue was $1.317 billion, up 17% including Black Knight, but the segment reported a $276 million operating loss; adjusted operating income was $508 million.
- Mortgage trends: Excluding Black Knight, Mortgage Technology revenue fell $175 million, or 15%, as higher rates reduced mortgage origination activity. Black Knight contributed $363 million of revenue and $470 million of operating expenses after acquisition.
- Cash and debt: Year-end cash and cash equivalents were $899 million. Total debt was $22.6 billion, up from $18.1 billion, including $19.0 billion of senior notes, $2.0 billion of commercial paper and $1.6 billion of term loans. Commercial paper carried a 5.70% weighted-average rate and 32-day weighted-average maturity. The $3.9 billion revolving facility had $1.8 billion remaining for general corporate purposes after backstop and subsidiary commitments.
- Capital returns: ICE paid $955 million in dividends, or $1.68 per share, and made no share repurchases in 2023. It announced a first-quarter 2024 dividend of $0.45 per share.
Material changes and unusual items
- Black Knight materially expanded Mortgage Technology and increased acquisition-related amortization and integration costs. ICE recorded $269 million of acquisition-related transaction and integration costs in 2023; total operating expenses rose 18% to $4.294 billion.
- The Black Knight divestiture promissory note was written down by $160 million in 2023. The note had a $500 million face value and was initially valued at $235 million; the FTC approved a buyer in February 2024, with proceeds expected to be paid to Black Knight.
- Net income rose partly because 2022 included approximately $1.4 billion of losses and impairment relating primarily to Bakkt. ICE reported $122 million of net losses from and impairment of unconsolidated investees in 2023, primarily related to Bakkt. Bakkt disclosed substantial doubt about its ability to continue as a going concern; ICE reported a $73 million carrying value for its investment at year-end.
- Exchanges futures and options volume increased 10%; energy revenue increased 29%. Cash equities volume declined 7%, and listings revenue declined 4% amid delayed IPOs. Data and connectivity revenue increased 6%.
- ICE settled an arbitration concerning Black Knight and PennyMac. A January 2024 final award required PennyMac to pay Black Knight $157.2 million plus accruing post-judgment interest; ICE expected payment in first-quarter 2024.
Outlook, risks and contingencies
Management described the near-term macroeconomic environment as dynamic, citing interest rates, inflation, market volatility and geopolitical conflicts. Volatility supported trading in several financial and energy products, while elevated mortgage rates weighed on mortgage-related transaction revenue. ICE expects 2024 capital expenditures and capitalized software development costs together to be approximately $600–$650 million. The filing does not provide a consolidated revenue or earnings forecast.
- Key exposures include clearing-member defaults, collateral and investment risks, cyberattacks, systems outages, regulatory changes, competition, foreign-exchange movements and sensitivity of mortgage technology revenue to housing and lending conditions.
- Potential regulatory effects include EU clearing-account proposals, proposed U.S. bank capital requirements, restrictions on market-data and connectivity fees, energy-market interventions, and evolving benchmark and ESG-data rules.
- ICE reported no material adverse business impact from 2023 cyber events, but disclosed DDoS attempts, phishing and other incidents. A January 2023 NYSE configuration error disrupted opening auctions in some securities; affected members received compensation under NYSE rules, and further claims or regulatory action remained possible.
- The FTC consent order requires ongoing compliance monitoring and certifications following the Black Knight acquisition and divestitures. ICE states integration benefits may not be achieved as expected.
- ICE said it believes operating cash flows and cash on hand will be sufficient to repay debt, while noting leverage, interest-rate and commercial-paper rollover risks. It expects to consider resuming share repurchases subject to debt leverage targets.
- Management and the auditor reported effective internal control over financial reporting, but Black Knight’s controls were excluded from the 2023 assessment. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Track Black Knight integration, realized synergies, acquisition-related costs and the final purchase-price allocation.
- Monitor debt reduction, short-term commercial-paper funding costs, maturities and progress toward any leverage targets for buybacks.
- Assess mortgage origination and servicing trends separately from the acquired Black Knight contribution.
- Review Bakkt’s financial condition and the potential for further impairment of ICE’s investment.
- Follow the PennyMac award collection, FTC consent-order compliance and any developments concerning the NYSE outage or other legal and regulatory matters.
- Evaluate clearing-member exposures and collateral, regulatory developments affecting market data and clearing, and operational and cybersecurity resilience.