IntercontinentalExchange's CEO Discusses Q4 2010 Results - Earnings Call Transcript

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IntercontinentalExchange (ICE)

Q4 2010 Earnings Call

February 09, 2011 8:30 am ET

Executives

Scott Hill - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Jeffrey Sprecher - Founder, Chairman and Chief Executive Officer

Kelly Loeffler - Vice President of Investor & Public Relations and Corporate Communications

Analysts

Faye Elliott - BofA Merrill Lynch

Niamh Alexander - Keefe, Bruyette, & Woods, Inc.

Alex Kramm - UBS Investment Bank

Jillian Miller - BMO Capital Markets

Michael Carrier - Deutsche Bank AG

Richard Repetto - Sandler O`Neill

Kenneth Worthington - JP Morgan Chase & Co

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Matthew Heinz - Jefferies & Company

Roger Freeman - Barclays Capital

Presentation

Operator

Good day, and welcome to the ICE IntercontinentalExchange Fourth Quarter Earnings Call. [Operator Instructions] At this time, I'd like to turn the conference over to Ms. Kelly Loeffler. Please go ahead.

Kelly Loeffler

Good morning. ICE's fourth quarter and year-end 2010 earnings release and presentation can be found in the Investors section of our website at theice.com. These items will be archived, and our call will be available for replay.

Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For description of risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to the company's Form 10-K, which was filed with the SEC this morning.

Please note that the numbers discussed today refer to our adjusted operating results, which we believe are more reflective of the performance of our business. You'll find the non-GAAP reconciliation in the earnings release and presentation as well as an explanation of why we deem this information to be meaningful and how management uses this measure.

With us today are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Chuck Vice, President and Chief Operating Officer. I'll now turn the call over to Scott.

Jeffrey Sprecher

Thank you, Kelly. Good morning, everyone, and thanks for joining us today. We're pleased to have closed out another record year and entered 2011 in a strong, strategic position. We have the resources to continue to invest and build to remain a leader in our industry and a global product suite and risk management offerings to continue to serve our customers in our rapidly evolving industry. ICE's performance led the industry, again, in 2010 and the growth in volumes and our financial discipline far outweighed the impact of regulatory and economic uncertainty.

I'll begin this morning on Slide 4, where I'll recap our 2010 results. ICE's consolidated revenues increased 16% to a record $1.15 billion, surpassing the $1 billion mark just 10 years after our founding. Our top line continues to be driven by rising demand for commodities and risk management.

In 2010, we significantly expanded our products, adding eight new futures, four new options contracts and nearly 100 new cleared OTC [over the counter] energy contracts. ICE's future markets rose 25% to over 300 million contracts during 2010, and that's on top of double-digit growth in 2009.

Notably, our double-digit revenue growth was achieved with expense growth of only 5%, on an adjusted basis, even including the acquisition of Climate Exchange. This top line growth, supported by a focused approach to spending and investment, enabled a four-point improvement in our adjusted operating margin to 58%.

It also delivered record net income of $398 million, up 26% versus 2009. We've noted before that our objective is to deliver double-digit top line growth with profit growing faster than revenue, and we delivered on that goal in 2010.

Let's move now to Slide 5 and discuss our fourth quarter results. Consolidated revenues grew 11% over the prior fourth quarter to $285 million. On an adjusted basis, net income attributable to ICE was $100 million, an increase of 19% over the prior fourth quarter. Adjusted diluted earnings per share in the quarter grew 21% to $1.35. This solid end to another good year reflects a strong contribution across each of our Futures businesses and continued growth from our new OTC Energy products and CDS [credit default swaps] clearing operation. And importantly, as you can see on the bottom bullet on the slide, we're off a strong start in 2011.

Turning to Slide 6, you can see the components of our revenue and expenses for the fourth quarter. Transaction and clearing revenues increased 10% to $251 million. Our OTC segment contributed $125 million and our Futures segment contributed $127 million. Our Market Data business had another record quarter, up 10% to $28 million.

Moving to the expense side. Fourth quarter adjusted operating expenses were $125 million, up 2% versus 4Q '09, supporting an 11% increase in revenue and driven by improvement in compensation and professional services spending. SG&A expenses in the fourth quarter included a provision related to prior period sales tax issue. This resulted in SG&A expense being around $3 million higher than a more normalized run rate of $24 million to $25 million. Even so, adjusted operating margin improved to 56% compared to 52% in the fourth quarter of 2009. Non-brokerage operating margins in the fourth quarter were 63%.

Let's move now to Slide 7, where I'll walk through the performance of our Futures business segment were volume was up 25% in 2010. Volumes for ICE Futures Europe grew 23% in the fourth quarter and 31% for the full year led by another strong year in our benchmark Brent Crude and Gasoil futures contracts. Brent and Gasoil volume was 26% and 42%, respectively, during the fourth quarter. In addition, ICE WTI [West Texas Intermediate] volumes continue to rise, and we set an annual volume record in WTI during 2010.

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