Intercontinental Exchange, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. ICE operates exchanges and clearing houses, provides fixed-income and data services, and supplies mortgage technology. Financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $2.387B | $2.277B | $7.259B | $6.840B |
| Revenue less transaction-based expenses | $1.811B | $1.802B | $5.524B | $5.306B |
| Operating income | $913M | $878M | $2.774B | $2.569B |
| GAAP operating margin | 50% | 49% | 50% | 48% |
| Net income attributable to ICE | $(191)M | $633M | $1.021B | $2.531B |
| Diluted EPS | $(0.34) | $1.12 | $1.82 | $4.48 |
| Adjusted net income attributable to ICE | $733M | $711M | $2.276B | $2.102B |
| Adjusted diluted EPS | $1.31 | $1.26 | $4.06 | $3.72 |
Adjusted figures are company-defined non-GAAP measures. Q3 adjusted operating margin was 60%, compared with 58% a year earlier; nine-month adjusted margin was also 60%, versus 58%.
- Cash flow: Operating cash flow was $2.462B for the first nine months, up from $2.130B. Investing activities used $2.361B and financing activities provided $16.373B. Financing cash flow included a $13.503B increase in clearing-member cash margin deposits; those funds are not available for ICE’s operating or other liabilities.
- Debt and liquidity: Total debt was $18.120B at September 30, versus $13.918B at year-end 2021. ICE had $1.183B of cash and cash equivalents and $6.4B of restricted cash; the restricted balance included $4.9B of proceeds earmarked for the Black Knight acquisition. No commercial paper, revolving-credit-facility borrowings, or term-loan borrowings were outstanding. Of the $3.9B revolving facility, $3.7B was available for general corporate purposes.
- Capital returns and investment: ICE paid $640M in dividends and repurchased $632M of shares in the first nine months. Repurchases were suspended on May 4 in connection with the pending Black Knight deal. Capital expenditures and capitalized software costs totaled $325M.
Material changes and operating trends
- Exchanges: Nine-month revenue increased 10% to $4.824B, and operating income rose 17% to $2.185B. Q3 revenue increased 10% to $1.577B. Higher financial futures, cash equities, and OTC-related activity benefited from market volatility; Q3 energy futures revenue fell 16% amid lower volumes.
- Fixed Income and Data Services: Nine-month revenue increased 11% to $1.555B and operating income increased 34% to $526M. Growth in execution and CDS clearing, supported by volatility and market-share gains, contrasted with more modest growth in data services. Segment annual subscription value was $1.643B, up 1.1% year over year.
- Mortgage Technology: Nine-month revenue declined 17% to $880M, and operating income fell to $63M from $311M. Q3 revenue declined 25% to $276M. Management attributed the weakness mainly to reduced mortgage origination and closing activity as interest rates rose. Segment adjusted operating income also declined.
- Consolidated revenue less transaction-based expenses rose 4% for the first nine months but only 1% in Q3. Recurring revenues increased 7% and 5%, respectively; net transaction revenues increased 1% for the nine months and declined 4% in Q3. Foreign-exchange movements reduced comparable-period revenue.
Outlook, risks, and unusual items
- Black Knight acquisition: The announced transaction was valued at approximately $13.1B at announcement, with $10.5B of fixed cash consideration and stock consideration whose value varies with ICE’s share price. Black Knight shareholders approved the deal; ICE expected closing in the first half of 2023, subject to regulatory approval and customary conditions. ICE had issued $8.0B in senior notes and arranged additional financing facilities. The filing describes risks of regulatory delay or failure, integration challenges, and increased leverage; it estimated post-close consolidated debt of approximately $24B.
- Acquisition financing contingency: $4.9B of note proceeds was restricted for the deal. If the acquisition is not completed by the stated deadline, subject to specified extensions, the applicable notes must be redeemed at 101% of principal plus accrued interest.
- Unusual investment-related results: ICE recorded approximately $1.1B of equity-method losses in the first nine months, primarily related to Bakkt. Bakkt recorded a substantial goodwill and intangible-asset impairment; ICE recognized its share of the losses and a separate $40M impairment of its Bakkt investment. This was a major reason GAAP earnings fell despite higher operating income. The prior-year comparison included a $1.23B gain from selling Coinbase. ICE sold its Euroclear stake in May 2022, recording a $41M gain.
- Costs and spending outlook: Acquisition-related transaction and integration costs were $81M for the first nine months, primarily related to Black Knight and Ellie Mae. ICE expected 2022 capital expenditures and capitalized software costs together to be $490M–$520M. It announced a $0.38-per-share Q4 2022 dividend after quarter-end.
- Macro, regulatory, and operational risks: Management described a dynamic environment involving inflation, rising interest rates, geopolitical uncertainty, and currency movements. Volatility supported some exchange and fixed-income activity, while higher mortgage rates hurt mortgage volumes. ICE said its operations had not suffered a material negative impact from the Russia-Ukraine conflict as of the filing, but uncertainty remained; services in Russia were suspended except for limited offerings to non-sanctioned entities. Other risks include clearing-member defaults, cybersecurity and technology resilience, regulation, foreign exchange, and the pending acquisition. The filing reported no significant new risk factors beyond those related to Black Knight.
- ICE plans to cease CDS clearing at ICE Clear Europe and consolidate that offering at ICE Clear Credit in the U.S. The filing also states that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Progress, regulatory conditions, closing timing, and final financing needs for the Black Knight acquisition, including the restricted-note redemption terms if it does not close.
- Mortgage Technology revenue and operating performance as mortgage rates and origination activity change.
- Bakkt’s valuation and performance, future equity-method losses, and the distinction between GAAP and adjusted earnings.
- Debt levels, interest expense, available liquidity, and whether post-acquisition leverage aligns with management’s expectations.
- How exchange and fixed-income growth, recurring data revenue, foreign-exchange effects, and clearing-related risks evolve.