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Electronic Exchange Reverses Last Year’s Loss

 
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Published by Medill Reports

By Christina Maria Paschyn
Feb. 7, 2007

IntercontinentalExchange Inc., the electronic trading market that bought the New York Board of Trade last year, reversed last year’s loss after posting strong fourth quarter results.

The company announced fourth quarter income of $49 million, or 81 cents per diluted share, compared with a loss of $26 million, or 48 cents per diluted share, in the same period a year earlier. Revenues for the quarter more than doubled, reaching a record $95.3 million, compared with $41.3 million a year ago.

Analysts polled by Thomson First Call predicted fourth-quarter earnings of 74 cents per share on $97.3 million in revenue.

Last year’s fourth quarter results were negatively impacted by a one-time charge of $40.7 million related to IntercontinentalExchange’s initial public offering in November of 2005. Excluding these special charges, the company would have reported net income of $14.8 million in the fourth quarter of last year.

With commodity trading increasingly moving toward electronic platforms like ICE’s, business has been booming. Average daily volume for IntercontinentalExchange (ICE)  futures in the fourth quarter rose by 145 percent to 440,557 contracts, compared with 180,171 contracts a year ago.  Likewise, OTC average daily commissions increased by 114 percent to $712,191, versus $332,045 in the year-earlier period.  Average daily commissions mirror daily trading activity in ICE’s OTC markets.Consolidated transaction fee revenues were $82.8 million, more than double the transaction fee revenues of $36.2 million in the fourth quarter of 2005.  This growth was driven by a boost in the company’s futures and over-the-counter business segments and by new participants in ICE’s markets.

“Overall, the quarter was somewhat light of our core expectations, but focus should remain on post-merger performance in 2007,” stated Fox-Pitt, Kelton Inc. analyst Edward Ditmire, in a note to clients.  He recently downgraded the company from “outperform” to in line. “ICE has been a very strong performer, so we wouldn’t be surprised by weakness on a miss of consensus expectations, but this company’s valuation is heavily anchored by its performance post-NYBOT integration, thus we believe focus on the fourth quarter will pass quickly.”

In early trading Wednesday, ICE shares briefly dropped but rebounded to close up 15 cents from yesterday’s close.

Consolidated operating expenses for the quarter reached $31.1 million, a 53 percent increase from $20.4 in the same period of 2005, mostly due to patent costs, which will expire next month.

Non-cash compensation also jumped by 406 percent due to new compliance rules regarding the accounting treatment of options..  The non-cash expense was $2.2 million during the fourth quarter of 2006, compared to $0.4 million in the same period last year.

For the year, net income reached a record high of $143.3 million, compared to last year’s loss of $20.9 million.  Diluted earnings per share were $2.40, versus a loss of 39 cents per diluted share in the prior year.

Consolidated revenues reached $313.8 million, more than double 2005’s revenues of $155.9 million.  Transaction fee revenues doubled to $273.6 million from $137 million.

Consolidated operating expenses for the year were $109.2 million, an increase of 10 percent compared with $99.7 million in 2005.  At the end of 2006, ICE had 226 employees, up from 203 employees a year earlier.  The company expects to increase its head count level by 10 to 15 percent in 2007, excluding any new hires related to the purchase of the New York Board of Trade.

ICE completed its acquisition of NYBOT on Jan. 12, 2007, for about $1 billion in cash and stock..In future statements, ICE plans to report NYBOT as a separate business segment.

“Already this year, by completing our acquisition of the New York Board of Trade and successfully launching the soft commodity contracts on the ICE platform, we are executing on the strategic opportunities before us,” said ICE Chairman and CEO Jeffrey C. Sprecher in a press release. “We are executing on the strategic opportunities before us. These include clearing opportunities, new products and partnerships, technology enhancements and other initiatives to leverage the strength of our global businesses and commodities trading platform.

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