Business context and reporting period
Intercontinental Exchange, Inc. (ICE) filed this Form 10-K for the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter report. ICE operates three segments: Exchanges; Fixed Income and Data Services; and Mortgage Technology. Its businesses include regulated trading and clearing venues, market data and analytics, and U.S. residential mortgage technology.
Financial performance and liquidity
Amounts are in U.S. dollars. “Revenue, less transaction-based expenses” is a company-reported measure; GAAP total revenue is shown separately.
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| GAAP total revenue | $9.636 billion | $9.168 billion | +5% |
| Revenue, less transaction-based expenses | $7.292 billion | $7.146 billion | +2% |
| Recurring revenue | $3.721 billion | $3.509 billion | +6% |
| Transaction revenue, net | $3.571 billion | $3.637 billion | -2% |
| Operating expenses | $3.654 billion | $3.697 billion | -1% |
| Operating income / margin | $3.638 billion / 50% | $3.449 billion / 48% | Income +5% |
| Adjusted operating income / margin | $4.339 billion / 59% | $4.169 billion / 58% | Income +4% |
| Net income attributable to ICE | $1.446 billion | $4.058 billion | -64% |
| Adjusted net income attributable to ICE | $2.974 billion | $2.863 billion | +4% |
| Diluted EPS / adjusted diluted EPS | $2.58 / $5.30 | $7.18 / $5.06 | GAAP -64%; adjusted +5% |
| Cash from operating activities | $3.554 billion | $3.123 billion | +14% |
Adjusted results are non-GAAP measures; ICE excludes specified items it considers non-core. GAAP net income fell sharply primarily because 2022 included about $1.4 billion in losses and impairment related principally to Bakkt, while 2021 included large gains from the Bakkt transaction and Coinbase investment sale. The 2022 effective tax rate was 17%, versus 29% in 2021, partly reflecting a deferred tax benefit from the Bakkt impairment.
Segments
- Exchanges: Revenue less transaction-based expenses was $4.071 billion, up 6%; operating income was $2.862 billion, up 13%, and operating margin was 70%. Financial futures and options revenue rose 21%, while energy futures and options revenue declined 6%.
- Fixed Income and Data Services: Revenue was $2.092 billion, up 11%; operating income was $719 million, up 36%, with a 34% operating margin. Higher CDS clearing and fixed-income execution activity benefited from market volatility. Annual Subscription Value for data services was $1.682 billion, up 2.2% year over year.
- Mortgage Technology: Revenue was $1.129 billion, down 20%; operating income was $57 million, down 86%, and operating margin was 5%. Lower mortgage origination volumes reduced transaction-based revenue; recurring revenue nevertheless increased 16% to $643 million.
Balance sheet, debt and capital
At year-end, cash and cash equivalents were $1.799 billion, while restricted cash was $6.554 billion, including approximately $4.9 billion of proceeds earmarked for the pending Black Knight acquisition. These balances should be distinguished from the $141.990 billion of clearing-member margin deposits and guaranty funds, which are matched by liabilities and are not general-purpose liquidity. Debt was $18.122 billion, up from $13.918 billion; senior notes had a weighted-average maturity of 16 years and weighted-average cost of 3.6%. No commercial paper was outstanding, and $3.7 billion of the revolving facility was available for general corporate purposes, subject to facility terms and commitments.
ICE generated $3.554 billion of operating cash flow. It paid $853 million in dividends and repurchased $632 million of stock in 2022; repurchases were suspended in May in connection with the Black Knight transaction. Capital expenditures and capitalized software development costs totaled $482 million. Total equity was $22.761 billion.
Material changes versus 2021
- Net revenue growth was modest overall, with stronger Exchanges and Fixed Income and Data Services results offset by the mortgage downturn; recurring revenue rose to $3.721 billion and represented 51% of revenue less transaction-based expenses.
- Market volatility and rising rates supported trading, CDS clearing and fixed-income execution. Conversely, higher mortgage rates materially reduced mortgage origination and closing activity.
- Interest expense increased to $616 million from $423 million, reflecting acquisition-related borrowing, refinancing costs and higher coupons. ICE issued $8.0 billion of senior notes and redeemed $2.7 billion of earlier-maturing notes.
- Operating cash flow increased, while reported GAAP earnings declined because of investment-related items rather than deterioration in adjusted earnings.
Outlook, risks and unusual items
- Management described the near-term macroeconomic environment as dynamic and said it was monitoring interest rates, inflation, geopolitical developments and their effects on markets. The filing does not provide specific earnings or revenue guidance.
- ICE expected 2023 capital expenditures and capitalized software development costs of $450 million to $500 million. It announced a first-quarter 2023 dividend of $0.42 per share.
- The proposed Black Knight acquisition was valued at approximately $13.1 billion when announced, comprising fixed cash consideration of $10.5 billion and stock consideration whose value varies with ICE’s share price. ICE expected closing in the first half of 2023, subject to regulatory approvals and other conditions. The filing highlights integration, regulatory, financing and leverage risks; it estimated post-close consolidated debt of approximately $24 billion.
- Other material risks include clearing-member defaults and collateral/investment exposures; cyberattacks and technology outages; regulatory changes affecting clearing, market-data fees, energy markets and benchmarks; competition; foreign-exchange movements; mortgage-market weakness; and climate-transition effects.
- On January 24, 2023, after the reporting period, a manual system-configuration issue prevented opening auctions in a subset of NYSE-listed securities. Some trades were reversed; claims and possible regulatory action remained possible. ICE stated that legal matters overall were not expected to materially harm consolidated financial condition, results or liquidity, while acknowledging individual-period impacts could occur.
- ICE reported effective internal control over financial reporting, and its auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified income-tax accounting as a critical audit matter, including judgment in tax positions and unrecognized tax benefits.
Important facts for investors to verify
- Reconcile GAAP and adjusted earnings, especially the Bakkt investment losses and impairment and the tax effects excluded from adjusted results.
- Track Black Knight regulatory clearance, closing timing, final stock consideration, integration costs, and post-acquisition debt and interest burden.
- Assess mortgage origination volumes and whether subscription growth can offset continued weakness in transaction-based revenues.
- Review the quality and persistence of recurring data revenue growth, including the reported 2.2% increase in Fixed Income and Data Services ASV.
- Distinguish ICE’s unrestricted cash and available borrowing capacity from restricted acquisition funds and clearing-member collateral.
- Monitor clearing-house default resources, market and counterparty exposures, regulatory changes, and any financial or regulatory consequences of the January 2023 NYSE incident.