ICE Slips On High Expenses

IntercontinentalExchange Inc.’s (ICE: 99.49 0.00 0.00%) fourth quarter net income of $84.0 million or $1.13 per share swung from a net income of $49 million or 6 cents per share in the year-ago period. However, earnings per share fell short of a couple of pennies from the Zacks Consensus Estimate of $1.15. Excluding certain one-time costs, consolidated adjusted net income attributable to ICE was $84 million, up 39% year-over-year.
 
The quarterly results benefited from position limitations on speculators, sweeping regulatory reforms, lower expenses and record futures trading. The upside was also attributable to growth in the company’s core businesses, significant progress from new initiatives and stronger margins. However, this was partially offset by higher operating and amortization expenses.
 
Net revenues increased 24% year-over-year to $256.6 million. The growth was primarily attributable to 29% increase in consolidated transaction and clearing fee revenues to $229.2 million in the quarter, primarily driven by new products, strong trading volumes in ICE’s futures and OTC energy segments, continued growth since the launch of ICE Clear Europe in November, 2008 and the addition of OTC credit derivatives execution, processing and clearing services.

However, consolidated market data revenues declined 7.4% year-over-year to $25.2 million while consolidated other revenues decreased to $2.2 million as compared to $2.1 million in the year-ago quarter.
 
Average daily futures volume increased 13% year-over-year whereas, average daily commissions in ICE’s OTC energy business jumped 53% in the quarter, boosting total transaction and clearing fees by 19%.
 
Total operating expenses increased 21% year-over-year to $133 million, mainly due to a $11 million rise in expenses relating to ICE’s credit derivatives execution, processing and clearing initiatives, including additional compensation expense of $5 million. ICE also recorded a $10 million in severance and tax related expenses that are not indicative of its operating performance.
 
For full year 2009, net income was $316 million or $4.27 per share compared to a net income of $301 million or $4.17 per share in 2008. Net revenues increased 22% year-over-year to $995 million. Total operating expenses increased 51% year-over-year to $320 million. The effective tax rate was 36.4% for both 2009 and 2008.
 
As of December 31, 2009, the company recorded unrestricted cash and investments of $554 million while total outstanding debt totaled $308 million. Consolidated cash flow from operations grew 30% year-over-year to a record $487 million in 2009.
 
Guidance for 2010

For 2010, CDS clearing revenue is estimated to be in the range of $60 million−$80 million. Capital expenditures are expected to be in the range of $25 million−$30 million. As of December 31, 2009, ICE had 826 employees which it expects to increase by 4−5% in 2010.

ICE reiterated its non-cash compensation expense guidance in the range of $45 million−$49 million. ICE expects interest expense in the range of $20 million−$25 million in 2010. Depreciation and amortization expense is projected in the range of $110 million−$114 million. Consolidated tax rate is expected to be in the range of 34%−36% for 2010.
 
ICE’s diluted weighted average outstanding share count for the first quarter of 2010 is expected to be in the range of 74.6−75.2 million shares outstanding and in the range of 74.7−75.7 million shares for fiscal year 2010.
 
The Board of ICE has also approved a $300 million share repurchase program, which replaces the $200 million remaining under the existing repurchase program.