IntercontinentalExchange Q3 Profit Increases; Tops Consensus

(RTTNews) - Tuesday, IntercontinentalExchange, Inc. (ICE | Quote | Chart | News | PowerRating), an operator of regulated global exchanges and clearing houses, reported an increase in net income for the third quarter. The increase is attributable primarily to regulatory reforms, quick growth in the company's newly launched CDS clearing houses and an increase in revenue.

According to the Atlanta-based company, consolidated net income for the third quarter grew to $87.45 million or $1.18 per share, compared with $75 million or $1.04 per share in the year-ago quarter. On average, eighteen analysts polled by Thomson Reuters expected the company to earn $1.15 per share. Analysts' estimates typically exclude special items.

Total revenues for the quarter increased by 27% to $256.26 million from $201.44 million in the year-ago period. Fifteen Wall Street analysts estimated a revenue of $255.56 million for the quarter.

Segment-wise, net revenue from transaction and clearing fees increased by 34% to $228.86 million from $170.97 million year-ago. The increase in transaction and clearing fee revenues was driven primarily by new products, strong trading volume in IntercontinentalExchange's futures and OTC energy segments, continued growth since the launch of IntercontinentalExchange Clear Europe in November 2008 and the addition of OTC credit derivatives execution, processing and clearing services.

Revenue from market data fees declined by 3% to $24.89 million from $25.77 million in the prior year period, while other revenue declined to $2.50 million from $4.69 million year-ago.

The company's total operating expenses, which include compensation and benefits, professional services, selling, general and administrative expenses, and depreciation and amortization increased by 41% to $116.27 million from $82.30 million in the prior year period.

This increase is primarily attributable to a $27 million rise in expenses relating to the company's credit derivatives execution, processing and clearing initiatives, including compensation expenses and amortization of intangibles. The total other expenses incurred by the company increased to $2.58 million from $0.860 million year-ago.

The company said that it acquired Clearing Corp. or TCC in March 2009 and launched credit default swaps or CDS clearing via IntercontinentalExchange Trust and IntercontinentalExchange Clear Europe in March and July 2009, respectively. It said that though the credit business continued to require heavy investment common to start-up initiatives, the underlying operating margins improved, and the business was cash positive in the quarter.

Through October 31, IntercontinentalExchange's CDS clearing houses cleared over $3.5 trillion in notional value across 43,353 transactions.

Scott Hill, the company's chief financial officer said, "Our results in the third quarter reflect strong performance in our core business, as well as ongoing investment in and successful execution of newer initiatives, such as OTC clearing. In addition to top-line growth, our operating margins again improved sequentially, and we delivered increased earnings and cash flow."

IntercontinentalExchange Futures U.S. ADV was 375,772 contracts, which was 34% higher than third quarter 2008 ADV of 280,317 contracts. RPC for IntercontinentalExchange Futures U.S. agricultural futures and options contracts was $2.08, and RPC for financial contracts averaged $0.89 in the third quarter of 2009. ADV for IntercontinentalExchange Futures Canada was 10,637 contracts during the third quarter, an increase of 12% compared to 9,526 contracts in the year-ago period.

IntercontinentalExchange Futures U.S. and IntercontinentalExchange Futures Canada recorded third quarter volume of 24.0 million and 0.7 million contracts, respectively.

The company said that it had 821 employees as of September 30. It expects the headcount to increase 1% - 2% by the year-end as certain contractors transition to full time status at TCC. The company said that this guidance excludes any personnel additions relating to merger and acquisition activity for the remainder of the year. Additionally, IntercontinentalExchange said that it expects diluted share count for the fourth quarter to be in the range of 74.2 million - 74.8 million outstanding weighted average shares, and the diluted share count for fiscal year 2009 to range between 73.6 million - 74.6 million outstanding weighted average shares. The company's remaining capacity in its share repurchase program is $200 million.

For the nine months ended September 30, the net income attributable to Intercontinental Exchange declined to $231.73 million or $3.13 per share, compared with $252.11 million or $3.51 per share in the comparable period year-ago. Year-to-date total revenues increased to $738.23 million from $605.81 million year-ago.

ICE is currently trading on the New York Stock Exchange at $100.11, down $2.72 or 2.65%.

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