IntercontinentalExchange (NYSE: ICE), a leading operator of regulated global exchanges, clearing houses and over-the-counter (OTC) markets, today reported record consolidated revenues of $250 million in the second quarter of 2009, a 27% increase over second quarter 2008 revenues of $197 million.
Consolidated GAAP net income for the second quarter was $72 million, a 15% decrease compared to $85 million for the prior second quarter. Adjusted to exclude the $9 million pre-tax, or $11 million after-tax, impairment charge related to ICE's investment in the National Commodity and Derivatives Exchange (NCDEX) of India, non-GAAP net income for the quarter was $83 million, a decrease of 2% from the second quarter of 2008. Diluted GAAP earnings per share (EPS) in the second quarter were $0.97, down 18% compared to the prior year's second quarter. Adjusted to exclude the NCDEX impairment charge, non-GAAP diluted EPS for the quarter were $1.12, down 6% compared to the prior year's second quarter.
Said ICE Chairman and CEO Jeffrey C. Sprecher: "ICE continues to deliver innovative solutions that address the risk management needs of market participants globally, including the development and launch of the leading CDS clearing solution in the U.S. and Europe. This approach has allowed us to serve our customers well during a very critical time in the evolution of the broader financial markets. We have maintained our focus on bringing greater transparency and new tools to manage risks. ICE will continue to work closely with regulators in the U.S. and abroad to ensure that they are appropriately informed of the vital role that derivatives exchanges have played in providing a secure and reliable venue for price discovery among global market participants - particularly during times of significant market dislocations."
ICE CFO Scott Hill added: "Our strategy is to consistently drive growth in revenue and profitability for the long-term, with a continued focus on disciplined investment in select growth initiatives and margin expansion opportunities that produce tangible results for our shareholders. In addition to growing our core businesses, we are advancing new OTC clearing initiatives that meet the transparency and systemic risk reduction goals of regulators and market participants alike. We will continue to apply our domain knowledge and expertise as we grow our clearing businesses."
Second Quarter 2009 Results
ICE's second quarter 2009 consolidated revenues increased 27% to $250 million compared to $197 million in the second quarter of 2008. Consolidated transaction and clearing revenues increased 34% to $223 million in the second quarter of 2009, from $167 million during the same period in 2008. The increase in transaction and clearing revenue was driven primarily by new products, strong trading volume in ICE's futures segment, the launch of ICE Clear Europe in November 2008 and the Creditex acquisition. At ICE Futures U.S., total volume and average daily volume (ADV) in the second quarter were the highest in exchange history.
Transaction and clearing revenues in ICE's consolidated futures segment totaled $106 million in the second quarter of 2009, an increase of 21% over $87 million in the same period in 2008. Second quarter 2009 volume for all ICE futures exchanges was a record 64.7 million contracts, 11% higher than second quarter 2008 volume of 58.1 million contracts. ICE Futures Europe quarterly volume was 38.2 million contracts, and ADV was 606,289 contracts, a slight decline from volume of 39.6 million contracts and ADV of 610,187 contracts in the second quarter of 2008. The rate per contract (RPC) for ICE Futures Europe in the second quarter of 2009 was $1.61.
ICE Futures U.S. and ICE Futures Canada recorded second quarter volume of 25.5 million and 1 million contracts, respectively. ADV for ICE Futures U.S. was a record 404,686 contracts, up 47% compared to the second quarter of 2008. RPC for ICE Futures U.S. agricultural futures and options contracts was $2.16, and the RPC for financial contracts averaged $0.84 in the second quarter of 2009. ADV for ICE Futures Canada was 15,925 contracts during the second quarter, an increase of 17% compared to 13,633 contracts in the year-ago period.
Second quarter 2009 transaction and clearing revenues in ICE's global OTC segment increased 47% to $117 million, compared to $80 million for the comparable period in 2008. Average daily commissions (ADC) for ICE's OTC energy business were $1.1 million, a decline of 7% from $1.2 million in the same period of 2008. Cleared contracts accounted for 96% of OTC energy contract volume during the second quarter of 2009. In ICE's credit derivative markets, second quarter transaction and clearing revenues were $45 million, up 10% versus the same period in 2008 on a pro-forma basis. ICE did not own Creditex in the second quarter of 2008.
Consolidated market data revenues were $25 million in the second quarter of 2009, in-line with the same period in 2008. Consolidated other revenues were $2 million during the quarter of 2009, compared to $5 million in the second quarter of 2008.
Consolidated operating expenses increased 79% to $115 million for the second quarter of 2009 compared to $64 million in the same period of 2008. This increase is primarily attributable to $35 million of expenses relating to Creditex's business, including amortization of intangibles and non-cash compensation expenses, following ICE's acquisition of the business during the third quarter of 2008. Amortization expenses on acquired intangibles were $17 million for the second quarter compared to $4 million in the same period of 2008, and included $6 million related to the Creditex acquisition and $6 million related to ICE's exclusive Russell Index license. Second quarter 2009 consolidated operating income was $135 million, an increase of 2% compared to the second quarter of 2008, and operating margin was 54%.
In 2006, ICE acquired an 8% equity interest in NCDEX, a derivatives exchange located in Mumbai, India, for $37 million. In response to political pressure regarding high commodity prices, the Indian government suspended trading in several key agricultural contracts traded on NCDEX during 2007. The Indian government also announced a law that requires foreign entities, including ICE, to divest holdings above an imposed limit of 5% total ownership in Indian commodities exchanges. This will result in ICE reducing its stake in NCDEX from 8% to the 5% threshold by September 30, 2009. ICE has identified a buyer of its excess 3% interest and has entered into an agreement to sell the interest. The sales price represents the fair market value of the investment and, as a result, ICE has taken a pre-tax, non-cash impairment charge of $9 million. ICE took a $16 million impairment charge on its NCDEX stake during the fourth quarter of 2008. On a combined basis, ICE has reduced the carrying value of its equity investment to $12 million as of June 30, 2009.
The effective tax rate for the second quarter of 2009 was 38.8% compared to 35.5% for the prior second quarter. The increase in the tax rate was due to the impact of the impairment loss related to the NCDEX investment.
First Half 2009 Results
ICE's first half 2009 consolidated revenues grew to $482 million, up 19% compared to the first half of 2008. ICE's first half futures volumes increased 6% to 127.3 million contracts, driving consolidated futures transaction revenue growth of 10% over the same period in 2008. ICE's consolidated global OTC transaction revenues were $223 million in the first half of the year, an increase of 40% from the first two quarters of 2008, driven primarily by the addition of revenues related to credit derivative product offerings. ICE's OTC energy business delivered ADC of $1.1 million in the first half of the year, a decline of 11% from the same period of 2008. Consolidated market data revenues grew 3% compared to the first half of 2008 to $52 million. Consolidated operating margins were 52% in the first half of 2009, and consolidated net income was $144 million. Excluding the NCDEX impairment, net of taxes, consolidated net income for the first two quarters of 2009 would have been $155 million.
Cash flows from operations during the first half of 2009 totaled $171 million, compared to $192 million in the first six months of 2008. Capital expenditures during the first half of 2009 were $9 million, and capitalized software development costs also totaled $9 million.
Unrestricted cash and investments were $338 million as of June 30, 2009. At the end of the quarter, ICE had $353 million in outstanding debt.
Guidance and Additional Information
- ICE had 806 employees as of June 30, 2009. For the full year, headcount is expected to be roughly flat from current levels, excluding any personnel additions relating to merger and acquisition activity in the remainder of 2009.
- ICE's consolidated tax rate is expected to be in the range of 34% to 36% during the second half of 2009.
- ICE's diluted share count for the third quarter of 2009 is expected to be in the range of 74.0 million to 74.6 million weighted average shares outstanding, and the diluted share count for fiscal year 2009 in the range of 73.7 million to 74.7 million weighted average shares outstanding. ICE's remaining capacity in its share repurchase program is approximately $200 million.
- The ICE Board of Directors has authorized a program to repurchase up to $200 million in ICE common stock until February 28, 2010. Any such repurchases will be made in compliance with applicable U.S. laws. ICE expects to fund any share repurchases with a combination of cash on hand, future cash flows and its existing credit facility. The timing and extent of the repurchases, if any, will depend upon market conditions and ICE's strategic plans at that time.
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