Intercontinental Exchange, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter ended June 30, 2020. Financial amounts are in millions of dollars, except per-share data. ICE operates regulated exchanges and clearing houses, securities listings venues, and data and mortgage technology businesses. Its reportable segments are Trading and Clearing and Data and Listings.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $1,966 | $1,634 | $4,081 | $3,217 |
| Revenue less transaction-based expenses | $1,395 | $1,298 | $2,954 | $2,568 |
| Operating income | $744 | $680 | $1,626 | $1,345 |
| Operating margin | 53% | 52% | 55% | 52% |
| Net income attributable to ICE | $523 | $472 | $1,173 | $956 |
| Diluted EPS | $0.95 | $0.84 | $2.13 | $1.68 |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $1,378 | $1,382 |
- Q2 year-over-year changes: revenue +20%, revenue less transaction-based expenses +8%, operating income +10%, ICE-attributable net income +11%, and diluted EPS +13%.
- First-half changes: revenue +27%, revenue less transaction-based expenses +15%, operating income +21%, ICE-attributable net income +23%, and diluted EPS +27%.
- Data and Listings revenue rose 3% in both Q2 and the first half; data services revenue rose 4%, while listings revenue was flat. Trading and Clearing revenue less transaction-based expenses rose 12% in Q2 and 28% in the first half.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $880; restricted cash and cash equivalents totaled approximately $1.4 billion. The balance sheet also includes $94.0 billion of margin deposits, guaranty funds and delivery-contract receivables, matched by corresponding payables; these customer-related balances are not ordinary corporate liquidity.
- Total debt was $8.408 billion, versus $7.819 billion at year-end 2019. ICE issued $2.5 billion of notes in May, including $1.25 billion of 2.10% notes due 2030 and $1.25 billion of 3.00% notes due 2050, and redeemed $1.25 billion of 2.75% notes due December 2020. The early redemption resulted in a $14 million extinguishment expense.
- Commercial paper outstanding was $700 million, at a weighted-average rate of 0.37%. ICE had a $3.4 billion revolving facility; $700 million backed commercial paper and $171 million supported subsidiary commitments, leaving approximately $2.5 billion available for general corporate purposes.
- First-half financing cash use was $889 million, including $1.1 billion of share repurchases and $330 million of dividends. First-half operating cash flow was nearly unchanged year over year; management cited slower receivable collections and higher income tax payments.
Material changes, outlook and risks
- Market volatility associated with COVID-19 contributed to higher trading activity in several products. First-half futures and options volume increased 22%; Q2 cash equities handled volume increased 61% and equity options volume increased 54%. Management said it could not estimate the pandemic’s ultimate impact. Operations remained open, with most employees working remotely.
- Bridge2 Solutions was acquired in February 2020 for the Bakkt ecosystem. The acquisition and related funding contributed to goodwill, additional employees and $14 million of first-half acquisition-related costs, including a $10 million incentive-award charge.
- Management expected 2020 capital expenditures and capitalized software development costs, combined, of $350–$370 million. No full-year revenue or earnings guidance is provided in the supplied filing text. ICE announced a Q3 dividend of $0.30 per share, payable September 30, 2020.
- COVID-19 risks include a prolonged downturn, reduced demand for some data products or listings, operational and cybersecurity strain, vendor disruption, and potential liquidity or funding constraints. Other disclosed uncertainties include regulation, Brexit and EU access to UK clearing houses, market-data rules, competition, clearing-member defaults, and litigation.
- The LIBOR litigation appeal was scheduled for briefing from August through December 2020; the possible loss range was not reasonably estimable. ICE said it did not expect the legal matters to materially affect consolidated condition, results or liquidity, while noting future developments could affect results.
- Unusual items include a $2 million impairment of CAT promissory notes, a $10 million first-half CECL adoption adjustment to retained earnings (net of tax), and a lower effective tax rate partly due to a UK tax-rate reduction subsequently reversed in July 2020; ICE expected to account for that reversal in Q3. No goodwill or intangible-asset impairment was recorded.
Key facts for investors to verify
- How much of the first-half earnings and trading growth persists as market volatility and COVID-related conditions change.
- The mix and sustainability of Trading and Clearing growth versus recurring Data and Listings revenue, including data-service retention and subscription trends.
- Debt, commercial-paper rollover exposure, remaining revolver availability, and capital allocation after substantial buybacks and dividends.
- Potential consequences of COVID-19, Brexit and evolving market-data and clearing regulations, as well as clearing-house and cybersecurity risks.
- Updates on LIBOR litigation, CAT note recoverability, the UK tax-rate reversal, and Bridge2/Bakkt integration and costs.