Intercontinental Exchange, Inc. — Q1 2022 Form 10-Q
Business context and period. The filing reports unaudited results for the three months ended March 31, 2022, compared with Q1 2021. ICE operates Exchanges, Fixed Income and Data Services, and Mortgage Technology businesses. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $2,459 | $2,429 | 1% |
| Revenue less transaction-based expenses | $1,899 | $1,797 | 6% |
| Operating expenses | $907 | $905 | — |
| Operating income / margin | $992 / 52% | $892 / 50% | 11% / +2 points |
| Net income attributable to ICE | $657 | $646 | 2% |
| Diluted EPS | $1.16 | $1.14 | 2% |
| Adjusted diluted EPS (non-GAAP) | $1.43 | $1.34 | 7% |
| Cash from operating activities | $756 | $734 | 3% |
Recurring revenue increased 9% to $921 million; transaction revenue, net, rose 3% to $978 million. Adjusted operating income was $1.153 billion and adjusted operating margin was 61%, compared with $1.068 billion and 59% in Q1 2021. These adjusted measures are non-GAAP and exclude specified items.
Segment results
- Exchanges: Revenue less transaction-based expenses grew 11% to $1.083 billion; operating income increased 20% to $784 million. Higher energy, financial futures, OTC and listings revenue more than offset lower cash equities revenue. Energy volume rose 8%; the company cited geopolitical volatility as a driver of natural gas activity.
- Fixed Income and Data Services: Revenue increased 9% to $509 million and operating income rose 17% to $155 million. Data and network services and CDS clearing contributed to growth. Annual Subscription Value for data services was $1.672 billion, up 5.8% year over year.
- Mortgage Technology: Revenue fell 13% to $307 million and operating income declined 49% to $53 million. Origination technology revenue fell 20% to $203 million; management attributed the segment’s weaker results to lower mortgage transaction activity. Recurring revenue rose 24% to $156 million, while transaction revenue fell 34% to $151 million.
Cash flow, balance sheet and liquidity
- Operating cash flow was $756 million. Investing activities provided $882 million, primarily reflecting $1.7 billion of proceeds from sales of invested margin deposits, partially offset by purchases, capital expenditures of $36 million and capitalized software costs of $67 million.
- Financing activities provided $13.678 billion, including a $14.153 billion increase in cash and cash-equivalent margin deposits and guaranty funds. This movement reflects clearing-related customer funds and is not operating cash available to satisfy ICE’s own obligations.
- Cash and cash equivalents were $607 million at quarter-end, versus $638 million at December 31, 2021. ICE also reported $1.5 billion of restricted cash and $161.1 billion of cash and cash-equivalent margin deposits and guaranty funds; these balances are restricted or customer-related and should not be treated as unrestricted corporate liquidity.
- Total debt was $14.178 billion, up from $13.918 billion at year-end, including $1.268 billion of commercial paper and $12.401 billion of long-term debt. The $3.8 billion revolving facility had no borrowings; approximately $2.3 billion remained available for working capital and general corporate purposes after stated backstops and commitments.
- Short-term debt included $500 million of 2.35% senior notes due September 2022. Commercial paper had a 0.99% weighted-average interest rate and 21-day weighted-average remaining maturity at quarter-end.
Material changes, outlook and notable items
- Revenue less transaction-based expenses rose 6%, with growth in Exchanges and Fixed Income and Data Services partly offset by the mortgage business decline. Operating expenses were essentially flat.
- Other income/expense worsened to a net expense of $160 million from $59 million. Q1 2022 included $42 million of equity-method investment losses, primarily related to Bakkt, and a $9 million legal-settlement accrual. Q1 2021 included $30 million of Euroclear dividend income and $25 million of equity-method investment profits. The effective tax rate declined to 20% from 22%.
- ICE forecast 2022 capital expenditures and capitalized software development costs together of $490 million to $520 million. It stated that cash on hand and operating cash flows were expected to be sufficient to repay debt, while noting that additional debt or equity could be used for future needs.
- On May 4, 2022, after quarter-end, ICE announced an agreement to acquire Black Knight for approximately $13.1 billion, or $85 per share, with consideration of 80% cash and 20% ICE stock. Closing was expected in the first half of 2023, subject to regulatory approval and customary conditions.
- ICE reported no material operational or financial impact from the Russia-Ukraine conflict as of the filing, but said it had suspended or was in the process of suspending services in Russia and continued to monitor uncertainty and potential economic effects.
- Clearing operations carry substantial counterparty and liquidity risks. At March 31, 2022, unsettled contracts had a net notional value of $2.9 trillion; ICE estimated maximum exposure of $239.2 billion for a hypothetical one-day price movement before considering margin, guaranty funds, collateral and default insurance. Actual exposure could differ significantly.
- Legal matters include an appeal by plaintiffs after dismissal without prejudice in the City of Providence litigation; the filing says the Second Circuit’s dismissal resolved the LIBOR appeal. ICE stated that ordinary-course legal and regulatory matters were not expected to materially harm consolidated condition, results or liquidity, but outcomes and potential losses can be uncertain.
Most important facts for investors to verify
- Whether mortgage technology revenue and profitability stabilize as mortgage origination activity changes.
- The cash, debt, financing structure, regulatory approvals and integration assumptions for the proposed Black Knight acquisition.
- How much reported cash is unrestricted and available to ICE, distinguishing it from restricted and clearing-member margin balances.
- Commercial-paper refinancing exposure, the September 2022 note maturity, and sensitivity to higher short-term rates.
- Whether recurring data-services growth and Exchanges activity persist, and how geopolitical, market-volatility and foreign-exchange effects influence results.
- The development of clearing-member default exposures, liquidity requirements, legal matters and evolving financial-market regulation.