INTERCONTINENTAL EXCHANGE, INC. In this Quarterly Report on Form 10-Q, or Quarterly Report, unless otherwise indicated, the terms "Intercontinental Exchange ," "ICE," "we," "us," "our," "our company" and "our business" refer toIntercontinental Exchange, Inc. , together with its consolidated subsidiaries. References to "ICE Products" mean products listed on one or more of our markets. All references to "options" or "options contracts" in the context of our futures products refer to options on futures contracts. Solely for convenience, references in this Quarterly Report to any trademarks, service marks and trade names owned by ICE are listed without the ®, ™ and © symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. We also include references to third-party trademarks, trade names and service marks in this Quarterly Report. Except as otherwise expressly noted, our use or display of any such trademarks, trade names or service marks is not an endorsement or sponsorship and does not indicate any relationship between us and the parties that own such marks and names. The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report. Due to rounding, figures in tables may not sum exactly. Forward-Looking Statements This Quarterly Report, including the sections entitled "Notes to Consolidated Financial Statements," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These forward-looking statements relate to future events or our future financial performance and are based on our present beliefs and assumptions as well as the information currently available to us. They involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, cash flows, financial position or achievements to differ materially from those expressed or implied by these statements. Forward-looking statements may be introduced by or contain terminology such as "may," "will," "should," "could," "would," "targets," "goal," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the antonyms of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, cash flows, financial position or achievements. Accordingly, we caution you not to place undue reliance on any forward-looking statements we may make. Factors that may affect our performance and the accuracy of any forward-looking statements include, but are not limited to, those listed below: •conditions in global financial markets and domestic and international economic and social conditions, political uncertainty and discord; •the impact of the introduction of or any changes in laws, regulations, rules or government policies with respect to financial markets, climate change, increased regulatory scrutiny or enforcement actions and our ability to comply with these requirements; •volatility in commodity prices, equity prices and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices, foreign exchange rates, and mortgage origination trends; •the business environment in which we operate and trends in our industry, including trading volumes, prevalence of clearing, demand for data services, mortgage lending activity, fees, changing regulations, competition and consolidation; •our ability to minimize the risks associated with operating clearing houses in multiple jurisdictions; •our exchanges' and clearing houses' compliance with their respective regulatory and oversight responsibilities; •the resilience of our electronic platforms and soundness of our business continuity and disaster recovery plans; •our ability to execute our growth strategy, identify and effectively pursue, implement and integrate acquisitions and strategic alliances and realize the synergies and benefits of such transactions within the expected time frame; •the performance and reliability of our trading, clearing and mortgage technologies and those of third-party service providers; •our ability to keep pace with technological developments and client preferences; •our ability to ensure that the technology we utilize is not vulnerable to cyberattacks, hacking and other cybersecurity risks or other disruptive events or to minimize the impact of any such events; 31 -------------------------------------------------------------------------------- •our ability to keep information and data relating to the customers of the users of the software and services provided by our ICE Mortgage Technology business confidential; •the impacts of the COVID-19 pandemic on our business, results of operations and financial condition as well as the broader business environment; •our ability to identify trends and adjust our business to benefit from such trends, including trends in theU.S. mortgage industry such as interest rates, new home purchases, refinancing activity, and home builder and buyer sentiment, among others; •our ability to evolve our benchmarks and indices in a manner that maintains or enhances their reliability and relevance; •the accuracy of our cost and other financial estimates and our belief that cash flows from operations will be sufficient to service our debt and to fund our operational and capital expenditure needs; •our ability to incur additional debt and pay off our existing debt in a timely manner; •our ability to maintain existing market participants and data and mortgage technology customers, and to attract new ones; •our ability to offer additional products and services, leverage our risk management capabilities and enhance our technology in a timely and cost-effective fashion; •our ability to attract and retain key talent; •our ability to protect our intellectual property rights and to operate our business without violating the intellectual property rights of others; •potential adverse results of threatened or pending litigation and regulatory actions and proceedings; •our ability to realize the expected benefits of our acquisition ofEllie Mae and our investment in Bakkt, which could result in additional unanticipated costs and risks; and •our ability to detect illegal activity such as fraud, money laundering, tax evasion and ransomware scams through digital currency transactions that are easily exploited. These risks and other factors include those set forth in Part 1, Item 1(A) under the caption "Risk Factors" in our 2020 Form 10-K, as filed with theSEC onFebruary 4, 2021 . Due to the uncertain nature of these factors, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any of these statements to reflect events or circumstances occurring after the date of this Quarterly Report. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Overview We are a provider of market infrastructure, data services and technology solutions to a broad range of customers including financial institutions, corporations and government entities. These products, which span major asset classes including futures, equities, fixed income andU.S. residential mortgages, provide our customers with access to mission critical tools that are designed to increase asset class transparency and workflow efficiency. Prior toOctober 2020 , we reported our results in two segments. We now report our results in three segments: Exchanges, Fixed Income and Data Services, and Mortgage Technology. The majority of our identifiable assets are located in theU.S. andU.K. •In our Exchanges segment, we operate regulated marketplaces for the listing, trading and clearing of a broad array of derivatives contracts and financial securities. •In our Fixed Income and Data Services segment, we provide fixed income pricing, reference data, indices and execution services, as well as global CDS clearing and multi-asset class data delivery solutions. •In our Mortgage Technology segment, we provide an end-to-end technology platform that offers customers comprehensive, digital workflow tools that aim to address the inefficiencies that exist in theU.S. residential mortgage market. 32 -------------------------------------------------------------------------------- Recent Developments Bakkt Transaction OnOctober 15, 2021 , Bakkt, a trusted digital asset marketplace we launched in 2018 enabling institutions and consumers to buy, sell, store and spend digital assets, completed its merger with VIH, a special purpose acquisition company sponsored by VPC. The business combination between Bakkt and VIH results in an enterprise value of approximately$2.1 billion , including approximately$479 million of cash on the combined company's balance sheet, reflecting a contribution of approximately$123 million of cash held in VIH's trust account, a$325 million PIPE of Class A common stock of the combined company, and$31 million of cash held in Bakkt accounts. The PIPE was priced at$10.00 per share and included a$47 million commitment from us. The newly combined company has been renamed Bakkt Holdings, Inc. and is listed on the NYSE. As part of the transaction, Bakkt's existing equity holders and management rolled 100% of their equity into the combined company and are subject to a six-month lockup period. Certain shareholders of VIH exercised their redemption rights, and at closing, Bakkt equity holders, including ICE, owned approximately 81% of the combined company, VIH's public shareholders owned approximately 5%, VPC owned 2%, and PIPE investors (a group that also includes us) owned approximately 12% of the issued and outstanding common stock of the combined company. Following the transaction, we continue to maintain an approximately 68% economic interest and a minority voting interest in the combined company. Following the closing, as a consequence of holding a minority voting interest in the combined company, during the fourth quarter of 2021 we expect to deconsolidate Bakkt and treat it as an equity method investment within our financial statements. We expect to record a pre-tax gain on the transaction of approximately$1.3 billion during the fourth quarter of 2021, which will be included in other non-operating income within our consolidated income statement. Agreement to Sell Stake inEuroclear We originally purchased our 9.8% stake inEuroclear for$631 million , and as ofSeptember 30, 2021 , the adjusted fair value of ourEuroclear investment was$701 million . OnOctober 18, 2021 , we announced that we had reached an agreement to sell our entire 9.8% stake inEuroclear for €709 million ($821 million based on the euro/U.S. dollar exchange rate of 1.1578 as ofSeptember 30, 2021 ). The sale is subject to customary closing conditions and regulatory approval. Launch of ICE Futures Abu Dhabi OnMarch 29, 2021 , we launched trading in ICE Murban crude oil futures, the world's first Murban futures contract on our new exchange,ICE Futures Abu Dhabi Limited , or IFAD. IFAD was launched with theAbu Dhabi National Oil Company , or ADNOC, and nine of the world's largest energy traders. ICE Murban crude oil futures opened for trading along with 18 Murban-related cash settled derivatives and inter-commodity spreads. Murban futures investors from jurisdictions including Abu Dhabi Global Market, or ADGM, theU.S. ,Singapore , theU.K. ,Switzerland ,the Netherlands ,France ,Norway ,Australia ,Japan andSouth Korea , are able to trade on IFAD. As ofSeptember 30, 2021 IFAD had 33 Exchange Members and 23 Clearing Members. Contracts traded on IFAD are cleared atICE Clear Europe alongside ICE's global energy futures platform, allowing customers to benefit from critical margin offsets to enhance capital efficiency. As ofSeptember 30, 2021 , open interest was 41,055 contracts and a total of 832,925 contracts had traded with 78 firms having traded on IFAD since the launch. Regulation Our activities and the markets in which we operate are subject to regulations that impact us as well as our customers, and, in turn, meaningfully influence our activities, the manner in which we operate and our strategy. We are primarily subject to the jurisdiction of regulatory agencies in theU.S. ,U.K. , EU,Canada ,Singapore and Abu Dhabi. Failure to satisfy regulatory requirements can or may give rise to sanctions by the applicable regulator. Global policy makers have undertaken reviews of their existing legal framework governing financial markets in connection with regulatory reform, and have either passed new laws and regulations, or are in the process of debating and/or enacting new laws and regulations that apply to our business and to our customers' businesses. Legislative and regulatory actions may impact the way in which we or our customers conduct business and may create uncertainty, which could affect trading volumes or demand for market data. See Part 1, Item 1 "Business - Regulation" and Part 1, Item 1(A) "Risk Factors" included in our 2020 Form 10-K for a discussion of the primary regulations applicable to our business and certain risks associated with those regulations. 33 -------------------------------------------------------------------------------- Domestic and foreign policy makers continue to review their legal frameworks governing financial markets, and periodically change the laws and regulations that apply to our business and to our customers' businesses. Our key areas of focus on these evolving efforts are: •Brexit implications. OnJanuary 1, 2021 , theU.K. completed its withdrawal from the EU, commonly referred to as Brexit. As a result, as ofJanuary 1, 2021 , EU law no longer applies in and to theU.K. In connection with the completion of theU.K.'s withdrawal, theU.K. and EU finalized a trade and cooperation agreement, which is now in force. The trade and cooperation agreement does not cover financial services.The EU andU.K. continue discussions to agree on a memorandum of understanding, or MoU, on financial services cooperation. This MoU, once signed and ratified by both parties, will establish a JointU.K. -EU Financial Regulatory forum, which will serve as a platform to facilitate dialogue on financial services issues. Although the MoU does not lead to any market access or equivalence decisions, it is a necessary condition for any future equivalence determinations by theEuropean Commission or theU.K. Accordingly, there continues to be uncertainty surrounding specific terms that may impact the financial services industry and our business operations. •Requirement that European andU.K. exchanges and CCPs offer non-discriminatory access. The non-discriminatory access provisions of theU.K.'s Markets in Financial Instruments Directive II, orU.K. MiFID II, and the EU Markets in Financial Instruments Directive II, or EU MiFID II, required both ourU.K. and European exchanges and central counterparties, or CCPs, to offer access to third parties on commercially reasonable terms. In addition, both theU.K. MiFID II and the EU MiFID II could require ourU.K. and European exchanges and CCPs to allow participants to trade and/or clear at other venues, which may encourage competing venues to offer lookalikes of our products. InMay 2021 , theU.K. Treasury concluded that the non-discriminatory access requirements for exchange-traded derivatives are not suitable in aU.K. -only context and theU.K. government therefore intends to permanently remove the open access regime forU.K. exchange-traded derivatives when parliamentary time allows. With regard to EU MiFID II, inJuly 2021 , theEuropean Securities and Markets Authority, or ESMA, issued no-action guidance to the national competent authorities until theEuropean Parliament and Council formalize a further delay in the application of these non-discriminatory access requirements for EU exchange-traded derivatives under EU MiFID II untilJuly 2023 . •Continued access by EU market participants toU.K. CCPs and exchanges. TheEuropean Commission adopted an 18-month temporary equivalence decision forU.K. CCPs, which began to apply as ofJanuary 1, 2021 .ICE Clear Europe has been recognized by ESMA as a third-country CCP in accordance with the European Markets Infrastructure Regulation, or EMIR. ESMA is conducting a comprehensive review of the systemic importance ofICE Clear Europe , currently designated as a Tier 2 U.K. CCP, under Article 25(2c) of EMIR before the expiry of the equivalence decision. Separately,ICE Futures Europe and ICE Endex will continue to be able to permit access by EU andU.K. persons to transact on their platforms. The absence of an equivalence decision by the EU forU.K. trading venues, however, may result in increased costs for certain EU market participants, which could impact trading onICE Futures Europe . InJune 2021 , ICE completed the transition of ICE EU Emission Allowance futures and options fromICE Futures Europe to ICE Endex. Additional impacts to our business and the potential for regulatory changes remain uncertain at this time. •Benchmarks Regulation. InApril 2021 , as part of theU.K.'s Financial Services Act 2021, the U.K. Parliament approved amendments to theU.K. Benchmarks Regulation, orU.K. BMR, to provide theFinancial Conduct Authority , orFCA , with new and enhanced powers to manage and direct any wind-down period prior to a cessation of critical benchmarks, such as the London Interbank Offered Rate, or LIBOR, including powers to direct a methodology change for a critical benchmark and extend its publication on a basis that is no longer representative of its original underlying market or economic reality. The exercise of these powers could result in increased risks toICE Benchmark Administration and users of LIBOR. InSeptember 2021 , theFCA announced that it would compel LIBOR's administrator,ICE Benchmark Administration , to publish 1-, 3-, and 6-month Sterling and Japanese Yen LIBOR settings under a "synthetic" change methodology until the end of 2022. InFebruary 2021 , amendments to the EU Benchmarks Regulation, or EU BMR came into force to provide theEuropean Commission the power to designate a replacement benchmark that covers all references to a widely used reference rate that is phased out, including LIBOR, when necessary to avoid disruption of the financial markets in the EU and to further extend the transition period for the use of benchmarks provided by third-country administrators until at leastDecember 31, 2023 . InApril 2021 ,New York State enacted a law designed to reduce uncertainty and economic impacts of the permanent cessation of LIBOR for specified contracts, securities, and other agreements that are economically linked to LIBOR that are governed byNew York state law. TheNew York law generally tracks the legislation proposed by the Alternative Reference Rates Committee, or ARRC, and received broad industry support. •U.S. Listing and Trading Prohibitions on Certain Foreign Companies. OnNovember 12, 2020 , the former President ofthe United States issued an Executive Order that prohibits, subject to certain exceptions, transactions by 34 --------------------------------------------------------------------------------U.S. persons in the securities of certain Chinese companies identified as having ties to the People'sLiberation Army , and in securities that are derivatives of, or any securities that are designated to provide investment exposure to, such Chinese companies. To comply with the Executive Order and guidance from theU.S. Department of the Treasury , the NYSE suspended trading in four of its listed companies and commenced delisting proceedings. All of these companies were subsequently delisted by the NYSE. OnDecember 18, 2020 , the Holding Foreign Companies Accountable Act becameU.S. law. For each company required to file periodic reports with theSEC , this Act requires theSEC to identify any company that retains a registered public accounting firm that is located in a foreign jurisdiction and that thePublic Company Accounting Oversight Board , or PCAOB, is unable to inspect or investigate because of a position taken in such foreign jurisdiction. If theSEC determines that the PCAOB has been unable to inspect or investigate such accounting firm for three consecutive years, it is required to prohibit such company from trading its securities on aU.S. securities exchange or in any "over-the-counter" market. As a consequence, the NYSE exchanges may be required to suspend trading in certain of their listed companies. OnMarch 24, 2021 , theSEC adopted rules to implement certain disclosure requirements of the Holding Foreign Companies Accountable Act for foreign registrants. OnJune 3, 2021 ,President Biden signed an Executive Order, or the June Order, that, beginning onAugust 2, 2021 , prohibitsU.S. persons from purchasing or selling the publicly traded securities of 59 companies determined to (i) operate in defense and related material sector, or the surveillance technology sector, ofChina , or (ii) to own or control, or be owned or controlled by, an individual or entity that operates in such sectors.President Biden's June Order supersedes the operative provisions ofPresident Trump's November 2020 Executive Order. There is one NYSE-listed company that is covered by the prohibitions inPresident Biden's June Order and, in the future, there may be other NYSE-listed companies covered by the prohibitions, though the impact is not expected to be material. Consolidated Financial Highlights The following summarizes our results and significant changes in our consolidated financial performance for the periods presented (dollars in millions, except per share amounts and YTD represents the nine-month periods endedSeptember 30th ). [[Image Removed: ice-20210930_g1.jpg]][[Image Removed: ice-20210930_g2.jpg]][[Image Removed: ice-20210930_g3.jpg]] [[Image Removed: ice-20210930_g4.jpg]][[Image Removed: ice-20210930_g5.jpg]][[Image Removed: ice-20210930_g6.jpg]] 35 --------------------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
2021 2020 Change 2021 2020 Change
Revenues, less transaction-based
expenses $ 5,306 $ 4,365 22 % $ 1,802 $ 1,411 28 %
Operating expenses $ 2,737 $ 2,112 30 % $ 924 $ 784 18 %
Adjusted operating expenses(1) $ 2,228 $ 1,783 25 % $ 755 $ 611 24 %
Operating income $ 2,569 $ 2,253 14 % $ 878 $ 627 40 %
Adjusted operating income(1) $ 3,078 $ 2,582 19% $ 1,047 $ 800 31%
Operating margin 48 % 52 % (4 pts) 49 % 44 % 5 pts
Adjusted operating margin(1) 58 % 59 % (1 pt) 58 % 57 % 1 pt
Other income (expense), net $ 1,020 $ (161) n/a $ (54) $ (44) 22 %
Income tax expense $ 1,049 $ 512 105 % $ 187 $ 189 (1) %
Effective tax rate 29 % 24 % 5 pts 23 % 32 % (9 pts)
Net income attributable to ICE $ 2,531 $ 1,563 62 % $ 633 $ 390 62 %
Adjusted net income attributable to
ICE(1) $ 2,150 $ 1,800 19 % $ 735 $ 533 38 %
Diluted earnings per share attributable
to ICE common stockholders $ 4.48 $ 2.83 58 % $ 1.12 $ 0.71 58 %
Adjusted diluted earnings per share
attributable to ICE common
stockholders(1) $ 3.80 $ 3.26 17 % $ 1.30 $ 0.97 34 %
Cash flows from operating activities $ 2,130 $ 1,815 17 %
(1) The adjusted figures exclude items that are not reflective of our ongoing
core operations and business performance. Adjusted net income attributable to
ICE and adjusted diluted earnings per share attributable to ICE common
stockholders are presented net of taxes. These adjusted numbers are not
calculated in accordance with U.S. GAAP. See "- Non-GAAP Financial Measures"
below.
•Revenues, less transaction-based expenses, increased $941 million and $391
million for the nine and three months ended September 30, 2021 , respectively,
from the comparable periods in 2020. See "-Exchanges Segment", "Fixed Income and
Data Services Segment" and "Mortgage Technology Segment" below for a discussion
of the significant changes in our revenues. The increase in revenues during the
nine and three months ended September 30, 2021 includes $47 million and $9
million , respectively, in favorable foreign exchange effects arising from
fluctuations in the U.S. dollar from the comparable period in 2020. See Item 3
"Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency
Exchange Rate Risk" below for additional information on the impact of currency
fluctuations.
•Operating expenses increased $625 million and $140 million for the nine and
three months ended September 30, 2021 , respectively, from the comparable periods
in 2020. See "-Consolidated Operating Expenses" below for a discussion of the
significant changes in our operating expenses. The increase in operating
expenses during the nine and three months ended September 30, 2021 includes $21
million and $5 million , respectively, in unfavorable foreign exchange effects
arising from fluctuations in the U.S. dollar from the comparable periods in
2020. See Item 3 "Quantitative and Qualitative Disclosures About Market
Risk-Foreign Currency Exchange Rate Risk" below for additional information on
the impact of currency fluctuations.
Variability in Quarterly Comparisons
Our business environment has been characterized by:
•globalization of marketplaces, customers and competitors;
•growing customer demand for workflow efficiency and automation;
•commodity, interest rate and financial markets uncertainty;
•growing demand for data to inform customers' risk management and investment
decisions;
•evolving, increasing and disparate regulation across multiple jurisdictions;
•price volatility increasing customers' demand for risk management services;
•increasing focus on capital and cost efficiencies;
•customers' preference to manage risk in markets demonstrating the greatest
depth of liquidity and product diversity;
•the evolution of existing products and new product innovation to serve emerging
customer needs and changing industry agreements;
36
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•rising demand for speed, data, data capacity and connectivity by market
participants, necessitating increased investment in technology; and
•consolidation and increasing competition among global markets for trading,
clearing and listings.
For additional information regarding the factors that affect our results of
operations, see Item 1(A) "Risk Factors" included in our 2020 Form 10-K, and
Part II, Item 1(A) "Risk Factors" below.
Segment Results
We previously operated as two reportable business segments, but effective
October 1, 2020 , we realigned our businesses as part of a review of, and changes
in, our organizational structure following our acquisition of Ellie Mae . As a
result, we changed our internal financial reporting and determined that a change
in reportable segments had occurred. Prior periods have been adjusted to reflect
this change. Our segments do not engage in intersegment transactions.
Our business is now conducted through three reportable business segments,
comprised of the following:
•Our Exchanges segment includes our trade execution and clearing within our
global futures network and NYSE businesses, various data and connectivity
services that are directly related to those exchange platforms, administration
fees and our NYSE listings business. Trade execution and clearing products
include energy, agricultural and metals, financial futures and options, cash
equities, equity options, OTC and other;
•Our Fixed Income and Data Services segment includes pricing and reference data,
analytics, indices, trade execution and clearing within our ICE Bonds and CDS
businesses, consolidated feeds and our ICE Global Network businesses; and
•Our Mortgage Technology segment includes our ICE Mortgage Technology
businesses. This segment includes origination technology, closing solutions,
data and analytics and other. In addition, beginning in the first quarter of
2021, origination technology revenues include those related to our ICE Mortgage
Technology network (previously reported in closing solutions revenues) and
closing solutions revenues now include registration revenues related to MERSCORP
Holdings, Inc. , or MERS, (previously reported in other revenues). We believe
these changes more accurately reflect how we operate the business. The prior
year periods have been adjusted to reflect these changes.
While revenues are recorded specifically in the segment in which they are earned
or to which they relate, a significant portion of our operating expenses are not
solely related to a specific segment because the expenses serve functions that
are necessary for the operation of more than one segment. We directly allocate
expenses when reasonably possible to do so. Otherwise, we use a pro-rata revenue
approach as the allocation method for the expenses that do not relate solely to
one segment and serve functions that are necessary for the operation of all
segments. Our October 1, 2020 change in business segment presentation triggered
a reallocation of our segment operating expenses. Prior periods have been
adjusted to reflect this change.
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Exchanges Segment
The following presents selected statements of income data for our Exchanges
segment (dollars in millions and YTD represents the nine-month periods ended
September 30th ):
[[Image Removed: ice-20210930_g7.jpg]]
[[Image Removed: ice-20210930_g8.jpg]][[Image Removed: ice-20210930_g9.jpg]][[Image Removed: ice-20210930_g10.jpg]][[Image Removed: ice-20210930_g11.jpg]]
(1) The adjusted numbers in the charts above are calculated by excluding items
that are not reflective of our cash operations and core business performance. As
a result, these adjusted numbers are not calculated in accordance with U.S.
GAAP. See "- Non-GAAP Financial Measures" below.
38
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Nine Months Ended September Three Months Ended September
30, 30,
2021 2020 Change 2021 2020 Change
Revenues:
Energy futures and options $ 900 $ 858 5 % $ 316 $ 229 38 %
Agricultural and metals futures and
options 177 197 (10) 56 54 5
Financial futures and options 281 275 2 93 76 24
Futures and options 1,358 1,330 2 465 359 30
Cash equities and equity options 1,800 1,934 (7) 554 593 (7)
OTC and other 239 219 9 84 73 14
Transaction and clearing, net 3,397 3,483 (2) 1,103 1,025 8
Data and connectivity services 623 589 6 208 201 3
Listings 356 334 7 123 111 10
Revenues 4,376 4,406 (1) 1,434 1,337 7
Transaction-based expenses(1) 1,534 1,646 (7) 475 519 (8)
Revenues, less transaction-based expenses 2,842 2,760 3 959 818 17 Other operating expenses 778 717 8 265 236 12 Depreciation and amortization 186 189 (2) 62 62 - Acquisition-related transaction and integration costs 13 13 6 3 (1) n/a Operating expenses 977 919 6 330 297 11 Operating income$ 1,865 $ 1,841 1 %$ 629 $ 521 21 %
(1)Transaction-based expenses are largely attributable to our cash equities and options business.
Exchanges Revenues Our Exchanges segment includes transaction and clearing revenues from our futures and NYSE exchanges, related data and connectivity services, and our listings business. Transaction and clearing revenues consist of fees collected from derivatives, cash equities and equity options trading and derivatives clearing, and are reported on a net basis, except for the NYSE transaction-based expenses discussed below. Rates per-contract, or RPC, are driven by the number of contracts or securities traded and the fees charged per contract, net of certain rebates. Our per-contract transaction and clearing revenues will depend upon many factors, including, but not limited to, market conditions, transaction and clearing volume, product mix, pricing, applicable revenue sharing and market making agreements, and new product introductions. Because transaction and clearing revenues are generally assessed on a per-contract basis, revenues and profitability fluctuate with changes in contract volume and product mix. Our data and connectivity services revenues are recurring subscription fees related to the various data and connectivity services that we provide which are directly attributable to our exchange venues. Our listings revenues are also recurring subscription fees that we earn for the provision of NYSE listings services for public companies and ETFs, and related corporate actions for listed companies. For the nine months endedSeptember 30, 2021 and 2020, 16% and 14%, respectively, of our Exchanges segment revenues, less transaction-based expenses, were billed in pounds sterling or euros. For the three months endedSeptember 30, 2021 and 2020, 18% and 14%, respectively, of our Exchanges segment revenues, less transaction-based expenses, were billed in pounds sterling or euros. Due to the fluctuations of the pound sterling and euro compared to theU.S. dollar, our Exchanges segment revenues, less transaction-based expenses, were higher by$32 million and$6 million for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. Our exchange transaction and clearing revenues are presented net of rebates. We recorded rebates of$790 million and$742 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and$264 million and$217 million for the three months endedSeptember 30, 2021 and 2020, respectively. We offer rebates in certain of our markets primarily to support market liquidity and trading volume by providing qualified participants in those markets a discount to the applicable commission rate. Such rebates are calculated based on volumes traded. The increase in rebates for the nine and three months endedSeptember 30, 2021 is primarily due to the launch of new products, including ICE Murban crude oil futures and Sterling Overnight Index Average, or SONIA. 39 -------------------------------------------------------------------------------- •Energy Futures and Options: Total energy volume decreased 3% and revenues increased 5% for the nine months endedSeptember 30, 2021 from the comparable period in 2020 and volume increased 23% and revenues increased 38% for the three months endedSeptember 30, 2021 from the comparable period in 2020. -Total oil volume decreased 3% and increased 26% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020, as the first half of 2020 benefited from a sharp increase in price volatility related to various geopolitical events as well as the emergence of COVID-19. The third quarter of 2021 benefited from price volatility related to oil supply and demand dynamics and macroeconomic uncertainty. -Our global natural gas futures and options volume decreased 7% and increased 17% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. Similar to oil volumes, the first half of 2020 benefited from elevated volatility related to COVID-19. The third quarter of 2021 benefited from continued growth in our TTF and Asian JKM gas complexes driven by price volatility related to natural gas supply and demand dynamics in theU.K. andEurope . -Our environmentals and other futures and options volume increased 13% and 29% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020, driven by an increase in the price of carbon and continued demand for market-based mechanisms to price climate risk and help enable greenhouse gas reduction goals. •Agricultural and Metals Futures and Options: Total volume in our agricultural and metals futures and options markets decreased 12% for the nine months endedSeptember 30, 2021 and increased 1% for the three months endedSeptember 30, 2021 from the comparable periods in 2020 and revenues decreased 10% for the nine months endedSeptember 30, 2021 and increased 5% for the three months endedSeptember 30, 2021 from the comparable periods in 2020. The first half of 2020 benefited from elevated volatility related to COVID-19 and a sharp decline in oil prices. Revenues increased in the third quarter of 2021 due to elevated price volatility as a result of weather-related supply and demand dynamics impacting our Coffee and Cotton markets, as well as geopolitical events impacting our Cocoa markets. -Sugar futures and options volumes decreased 23% and 6% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. -Other agricultural and metal futures and options volume decreased 2% for the nine months endedSeptember 30, 2021 from the comparable period in 2020 and increased 6% for the three months endedSeptember 30, 2021 from the comparable period in 2020. •Financial Futures and Options: Total volume decreased 2% for the nine months endedSeptember 30, 2021 from the comparable period in 2020 and increased 15% for the three months endedSeptember 30, 2021 from the comparable period in 2020, and revenues increased 2% and 24% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020 in our financial futures and options markets. -Interest rate futures and options volume increased 1% and 18% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020, and revenue increased 8% and 38% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. The increases in volume and revenue were driven by interest rate volatility from increased speculation of central bank activity due to post-pandemic global economic reopening and inflation concerns. Interest rate futures and options revenues were$163 million and$151 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and$55 million and$40 million for the three months endedSeptember 30, 2021 and 2020, respectively. -Other financial futures and options volume, which includes our MSCI®, FTSE® and NYSE FANG+ equity index products, decreased 13% for the nine months endedSeptember 30, 2021 , and increased 2% for the three months endedSeptember 30, 2021 , from the comparable periods in 2020. Financial futures and options revenue decreased 5% for the nine months endedSeptember 30, 2021 , and increased 7% for the three months endedSeptember 30, 2021 , from the comparable periods in 2020. The first half of 2020 benefited from elevated volatility across global equity markets driven by the emergence of COVID-19. The third quarter of 2021 benefited from higher equity market volatility and record volume in our NYSE FANG+ complex. Other financial futures and options revenues were$118 million and$124 million for the nine 40 -------------------------------------------------------------------------------- months endedSeptember 30, 2021 and 2020, respectively, and$38 million and$36 million for the three months endedSeptember 30, 2021 and 2020, respectively. •Cash Equities and Equity Options: Cash equities volume decreased 7% and 6% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. The first half of 2020 benefited from elevated volatility across global equity markets driven by the emergence of COVID-19. Cash equities revenues, net of transaction-based expenses, were$184 million and$216 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and$54 million and$53 million for the three months endedSeptember 30, 2021 and 2020, respectively. Equity options volume increased 43% and 33% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020 driven by increased participation and higher market share. Equity options revenues, net of transaction-based expenses, were$81 million and$72 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and$24 million and$21 million for the three months endedSeptember 30, 2021 and 2020, respectively. •OTC and Other: OTC and other transactions include revenues from our OTC energy business and other trade confirmation services, as well as interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of ourU.S. securities exchanges, designated market maker service fees, exchange membership fees and agricultural grading and certification fees. Our OTC and other revenues increased 9% for the nine months endedSeptember 30, 2021 from the comparable period in 2020 primarily due to theFebruary 2020 acquisition of Bridge2 Solutions. Our OTC and other revenues increased 14% for the three months endedSeptember 30, 2021 from the comparable period in 2020. Following theOctober 2021 Bakkt transaction, Bakkt revenues will no longer be included within our OTC and other revenues. •Data and Connectivity Services: Our data and connectivity services revenues increased 6% and 3% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. The increase in revenue was driven by the strong retention rate of existing customers and increased purchases by existing customers. •Listings Revenues: Through NYSE, NYSE American and NYSE Arca, we generate listings revenue related to the provision of listings services for public companies and ETFs, and related corporate actions for listed companies. Listings revenues increased 7% and 10% for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020, driven by equity capital markets activity, including an increase in demand for special purpose acquisition company, or SPAC, listings. Listings revenues in our securities markets arise from fees applicable to companies listed on our cash equities exchanges- original listing fees and annual listing fees. Original listing fees consist of two components: initial listing fees and fees related to corporate actions. Initial listing fees, subject to a minimum and maximum amount, are based on the number of shares that a company initially lists. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Revenue related to the investor relations performance obligation is recognized ratably over the period these services are provided, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges. In addition, we earn corporate actions-related listing fees in connection with actions involving the issuance of new shares, such as stock splits, rights issues and sales of additional securities, as well as mergers and acquisitions. Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges. 41 -------------------------------------------------------------------------------- Selected Operating Data The following charts and tables present trading activity in our futures and options markets by commodity type based on the total number of contracts traded, as well as futures and options rate per contract (in millions, except for percentages and rate per contract amounts and YTD represents the nine-month periods endedSeptember 30th ):
Volume and Rate per Contract
[[Image Removed: ice-20210930_g12.jpg]][[Image Removed: ice-20210930_g13.jpg]][[Image Removed: ice-20210930_g14.jpg]]
Nine Months Ended September Three Months Ended
30, September 30,
2021 2020 Change 2021 2020 Change
Number of contracts traded (in
millions):
Energy futures and options 581 600 (3) % 200 163 23 %
Agricultural and metals futures and
options 76 86 (12) 24 24 1
Financial futures and options 477 487 (2) 152 133 15
Total 1,134 1,173 (3) % 376 320 18 %
Nine Months Ended September Three Months Ended
30, September 30,
2021 2020 Change 2021 2020 Change
Average Daily Volume of contracts
traded
(in thousands):
Energy futures and options 3,089 3,176 (3) % 3,126 2,545 23 %
Agricultural and metals futures and
options 404 456 (11) 379 376 1
Financial futures and options 2,495 2,531 (1) 2,320 2,024 15
Total 5,988 6,163 (3) % 5,825 4,945 18 %
Nine Months Ended September Three Months Ended
30, September 30,
2021 2020 Change 2021 2020 Change
Rate per contract:
Energy futures and options $ 1.55 $ 1.43 9 % $ 1.58 $ 1.40 12 %
Agricultural and metals futures and
options $ 2.33 $ 2.29 2 % $ 2.33 $ 2.23 4 %
Financial futures and options $ 0.58 $ 0.56 4 % $ 0.61 $ 0.56 8 %
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Open interest is the aggregate number of contracts (long or short) that clearing
members hold either for their own account or on behalf of their clients. Open
interest refers to the total number of contracts that are currently "open," - in
other words, contracts that have been entered into but not yet liquidated by
either an offsetting trade, exercise, expiration or assignment. Open interest is
also a measure of the future activity remaining to be closed out in terms of the
number of contracts that members and their clients continue to hold in the
particular contract and by the number of contracts held for each contract month
listed by the exchange. The following charts and table present our quarter-end
open interest for our futures and options contracts (in thousands, except for
percentages):
Open Interest
[[Image Removed: ice-20210930_g15.jpg]][[Image Removed: ice-20210930_g16.jpg]][[Image Removed: ice-20210930_g17.jpg]]
As
of
2021 2020 Change
Open interest - in thousands of contracts:
Energy futures and options 44,625 41,358 8 %
Agricultural and metals futures and options 4,056 3,607 12
Financial futures and options 32,318 29,109 11
Total 80,999 74,074 9 %
The following charts and table present selected cash and equity options trading
data (all trading volume below is presented as average net daily trading volume,
or ADV, and is single counted and YTD represents the nine-month periods ended
September 30th ):
43
--------------------------------------------------------------------------------[[Image Removed: ice-20210930_g18.jpg]][[Image Removed: ice-20210930_g19.jpg]][[Image Removed: ice-20210930_g20.jpg]][[Image Removed: ice-20210930_g21.jpg]]
Nine Months Ended September 30, Three Months Ended September 30,
2021 2020 Change 2021 2020 Change
NYSE cash equities (shares in
millions):
Total cash handled volume 2,375 2,552 (7) % 2,022 2,151 (6) %
Total cash market share matched 20.0 % 22.6 % (2.6 pts) 20.3 % 21.2 % (0.9 pts)
NYSE equity options (contracts in thousands): NYSE equity options volume 6,967 4,862 43 % 7,078 5,328 33 % Total equity options volume 36,684 26,701 37 % 35,546 28,085 27 % NYSE share of total equity options 19.0 % 18.2 % 0.8 pts 19.9 % 19.0 %
0.9 pts
Revenue capture or rate per contract: Cash equities rate per contract (per 100 shares)$0.041 $0.045 (8) %$0.042 $0.038 9 % Equity options rate per contract$0.06 $0.08 (22) %$0.05 $0.06 (15) % Handled volume represents the total number of shares of equity securities, ETFs and crossing session activity internally matched on our exchanges or routed to and executed on an external market center. Matched volume represents the total number of shares of equity securities, ETFs and crossing session activity executed on our exchanges. Transaction-Based Expenses Our equities and equity options markets pay fees to theSEC pursuant to Section 31 of the Exchange Act. Section 31 fees are recorded on a gross basis as a component of transaction and clearing fee revenue. These Section 31 fees are assessed to recover the government's costs of supervising and regulating the securities markets and professionals and are subject to change. We, in turn, collect corresponding activity assessment fees from member organizations clearing or settling trades on the equities and options exchanges, and recognize these amounts in our transaction and clearing revenues when invoiced. The activity assessment fees are designed to equal the Section 31 fees. As a result, activity assessment fees and the corresponding Section 31 fees do not have an impact on our net income, although the timing of payment by us will vary from collections. Section 31 fees were$204 million and$465 million for the nine months 44 -------------------------------------------------------------------------------- endedSeptember 30, 2021 and 2020, respectively, and$38 million and$145 million for the three months endedSeptember 30, 2021 and 2020, respectively. The decrease in Section 31 fees was primarily due to a decline in rates, which were revised in February of each year. The fees we collect are included in cash at the time of receipt and we remit the amounts to theSEC semi-annually as required. The total amount is included in accrued liabilities and was$14 million as ofSeptember 30, 2021 . We make liquidity payments to cash and options trading customers, as well as routing charges made to other exchanges which are included in transaction-based expenses. We incur routing charges when we do not have the best bid or offer in the market for a security that a customer is trying to buy or sell on one of our securities exchanges. In that case, we route the customer's order to the external market center that displays the best bid or offer. The external market center charges us a fee per share (denominated in tenths of a cent per share) for routing to its system. We record routing charges on a gross basis as a component of transaction and clearing fee revenue. Cash liquidity payments, routing and clearing fees were$1.3 billion and$1.2 billion for the nine months endedSeptember 30, 2021 and 2020, respectively, and$437 million and$374 million for the three months endedSeptember 30, 2021 and 2020, respectively. Operating Expenses, Operating Income and Operating Margin The following chart summarizes our Exchanges segment's operating expenses, operating income and operating margin (dollars in millions). See "- Consolidated Operating Expenses" below for a discussion of the significant changes in our operating expenses. Exchanges Segment: Nine Months Ended September 30, Three Months Ended September 30, 2021 2020 Change 2021 2020 Change Operating expenses $ 977$ 919 6 % $ 330$ 297 11 % Adjusted operating expenses(1) $ 909$ 856 6 % $ 309$ 279 11 % Operating income$ 1,865 $ 1,841 1 % $ 629$ 521 21 % Adjusted operating income(1)$ 1,933 $ 1,904 1 % $ 650$ 539 20 % Operating margin 66 % 67 % (1 pt) 66 % 64 % 2 pts Adjusted operating margin(1) 68 % 69 % (1 pt) 68 % 66 % 2 pts (1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. These adjusted numbers are not calculated in accordance withU.S. GAAP. See "- Non-GAAP Financial Measures" below. 45 -------------------------------------------------------------------------------- Fixed Income and Data Services Segment The following charts and table present our selected statements of income data for our Fixed Income and Data Services segment (dollars in millions and YTD represents the nine-month periods endedSeptember 30th ): [[Image Removed: ice-20210930_g22.jpg]]
[[Image Removed: ice-20210930_g23.jpg]][[Image Removed: ice-20210930_g24.jpg]][[Image Removed: ice-20210930_g25.jpg]][[Image Removed: ice-20210930_g26.jpg]]
(1) The adjusted figures in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance withU.S. GAAP. See "- Non-GAAP Financial Measures" below. 46 --------------------------------------------------------------------------------
Nine Months Ended September Three Months Ended September
30, 30,
2021 2020 Change 2021 2020 Change
Revenues:
Fixed income execution $ 39 $ 56 (29) % $ 12 $ 15 (18) %
CDS clearing 144 166 (14) 51 47 9
Fixed income data and analytics 804 756 6 272 259 5
Fixed income and credit 987 978 1 335 321 5
Other data and network services 416 382 9 142 129 10
Revenues 1,403 1,360 3 477 450 6
Other operating expenses 752 725 4 252 244 4
Depreciation and amortization 257 262 (2) 85 87 (3)
Acquisition-related transaction and
integration costs 1 - 78 1 - n/a
Operating expenses 1,010 987 2 338 331 2
Operating income $ 393 $ 373 5 % $ 139 $ 119 17 %
Our Fixed Income and Data Services segment represents fixed income and credit
trading and clearing as well as subscription-based, or recurring, revenues
related to our fixed income data and analytics offerings as well as other
multi-asset class data and network services.
For the nine months ended September 30, 2021 and 2020, 14% and 13%,
respectively, of our Fixed Income and Data Services segment revenues were billed
in pounds sterling or euros and for both the three months ended September 30,
2021 and 2020, 13% of our Fixed Income and Data Services segment revenues were
billed in pounds sterling or euros. As the pound sterling or euro exchange rate
changes, the U.S. equivalent of revenues denominated in foreign currencies
changes accordingly. Due to the fluctuations of the pound sterling and euro
compared to the U.S. dollar, our Fixed Income and Data Services revenues were
higher by $14 million and $3 million for the nine and three months ended
September 30, 2021 , respectively, from the comparable periods in 2020.
Fixed Income and Data Services Revenues
Our Fixed Income and Data Services revenues increased 3% and 6% for the nine and
three months ended September 30, 2021 , respectively, from the comparable periods
in 2020, primarily due to growth in our fixed income data and analytics products
and our other data and network services.
•Fixed Income Execution: Fixed income execution includes revenues from ICE
Bonds. Execution fees are reported net of rebates, which were nominal for both
the nine and three months ended September 30, 2021 and 2020. Our fixed income
execution revenues decreased 29% and 18% for the nine and three months ended
September 30, 2021 , respectively, from the comparable periods in 2020 as 2020
had benefited from the price volatility related to COVID-19, as well as due to
decreased retail activity, particularly in municipal and corporate bonds, in the
first half of 2021 as a result of low interest rates.
•CDS Clearing: CDS clearing revenues decreased 14% for the nine months ended
September 30, 2021 from the comparable period in 2020 and increased 9% for the
three months ended September 30, 2021 from the comparable period in 2020. The
notional value of CDS cleared was $12.6 trillion and $14.6 trillion for the nine
months ended September 30, 2021 and 2020, respectively, and $4.5 trillion and
$3.6 trillion for the three months ended September 30, 2021 and 2020,
respectively. Elevated volatility in 2020 related to COVID-19 benefited first
and second quarter 2020 revenues, with volatility and cleared volumes generally
returning to more normal levels in the second and third quarters of 2021.
•Fixed Income Data and Analytics: Our fixed income data and analytics revenues
increased 6% and 5% for the nine and three months ended September 30, 2021 ,
respectively, from the comparable periods in 2020. The increase in revenue was
due to strength in our index business and continued growth in our pricing and
reference data business driven by the strong retention rate of existing
customers, the addition of new customers and increased purchases by existing
customers.
•Other Data and Network Services: Our other data and network services revenues
increased 9% and 10% for the nine and three months ended September 30, 2021 ,
respectively, from the comparable periods in 2020. The increase in revenues was
driven primarily by growth in our ICE Global Network offering, coupled with
strength in our consolidated feeds and stronger desktop revenues.
47
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Annual Subscription Value, or ASV, represents, at a point in time, the data
services revenues, which includes fixed income data and analytics as well as
other data and network services, subscribed for the succeeding 12 months. ASV
does not include new sales, contract terminations or price changes that may
occur during that 12-month period. However, while it is an indicative
forward-looking metric, it does not provide a precise growth forecast of the
next 12 months of data services revenues.
As of September 30, 2021 , ASV was $1.624 billion , which increased 5.6% compared
to the ASV as of September 30, 2020 . ASV represents nearly 100% of total data
services revenues for this segment. This does not adjust for year-over-year
foreign exchange fluctuations.
Operating Expenses, Operating Income and Operating Margin
The following chart summarizes our Fixed Income and Data Services segment's
operating expenses, operating income and operating margin (dollars in millions).
See "- Consolidated Operating Expenses" below for a discussion of the
significant changes in our operating expenses.
Fixed Income and Data Services
Segment: Nine Months Ended September 30, Three Months Ended September 30,
2021 2020 Change 2021 2020 Change
Operating expenses $ 1,010 $ 987 2 % $ 338 $ 331 2 %
Adjusted operating expenses(1) $ 874 $ 835 5 % $ 293 $ 280 5 %
Operating income $ 393 $ 373 5 % $ 139 $ 119 17 %
Adjusted operating income(1) $ 529 $ 525 1 % $ 184 $ 170 9 %
Operating margin 28 % 27 % 1 pt 29 % 26 % 3 pts
Adjusted operating margin(1) 38 % 39 % (1 pt) 39 % 38 % 1 pt
(1) The adjusted figures exclude items that are not reflective of our ongoing
core operations and business performance. These adjusted numbers are not
calculated in accordance with U.S. GAAP. See "- Non-GAAP Financial Measures"
below.
48
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Mortgage Technology Segment
The following charts and table present our selected statements of income data
for our Mortgage Technology segment (dollars in millions and YTD represents the
nine-month periods ended September 30th ):
[[Image Removed: ice-20210930_g27.jpg]]
*Data and analytics and Other revenues were
[[Image Removed: ice-20210930_g28.jpg]][[Image Removed: ice-20210930_g29.jpg]]
[[Image Removed: ice-20210930_g30.jpg]][[Image Removed: ice-20210930_g31.jpg]]
(1) The adjusted figures in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance withU.S. GAAP. See "- Non-GAAP Financial Measures" below. 49 -------------------------------------------------------------------------------- Nine Months Ended September Three Months Ended September 30, 30, 2021 2020 Change* 2021 2020 Change* Revenues: Origination technology 740 67 n/a 245 67 n/a Closing solutions 227 165 37% 88 67 31 Data and analytics 55 5 n/a 19 5 n/a Other 39 8 n/a 14 4 n/a Revenues 1,061 245 n/a 366 143 n/a Other operating expenses 406 86 n/a 140 48 n/a Depreciation and amortization 316 43 n/a 106 31 n/a Acquisition-related transaction and integration costs 28 77 (63) 10 77 (85) Operating expenses 750 206 n/a 256 156 n/a Operating income$ 311 $ 39 n/a$ 110 $ (13) n/a *Percentage changes in the table above deemed "n/a" are not meaningful due to the acquisition ofEllie Mae inSeptember 2020 . Mortgage Technology Revenues Our mortgage technology revenues are derived from our comprehensive, end-to-endU.S. residential mortgage platform. Our mortgage technology business is intended to enable greater workflow efficiency for customers focused on originatingU.S. residential mortgage loans. Mortgage technology revenues increased$816 million for the nine months endedSeptember 30, 2021 from the comparable period in 2020 and$223 million for the three months endedSeptember 30, 2021 from the comparable period in 2020. InSeptember 2020 , we acquiredEllie Mae and, as a result, our Mortgage Technology segment results for the nine months endedSeptember 30, 2020 only include a contribution from this acquisition from the acquisition date. Beginning in the first quarter of 2021, origination technology revenues include those related to our ICE Mortgage Technology network (previously reported in closing solutions revenues) and closing solutions revenues now include registration revenues related to MERS, (previously reported in other revenues) with prior periods restated to reflect these changes. •Origination technology: Our origination technology acts as a system of record for the mortgage origination, automating the gathering, reviewing, and verifying of mortgage-related information and enabling automated enforcement of rules and business practices designed to help ensure that each completed loan transaction is of high quality and adheres to secondary market standards. These revenues are based on recurring Software as a Service, or SaaS, subscription fees, with an additive Success-Based Pricing fee as lenders exceed the number of loans closed that are included with their monthly base subscription. In addition, the ICE Mortgage Technology network provides originators connectivity to the mortgage supply chain and facilitates the secure exchange of information between our customers and a broad ecosystem of third-party service providers, as well as lenders and investors that are critical to consummating the millions of loan transactions that occur on our origination network each year. Revenue from the ICE Mortgage Technology network is largely transaction-based. •Closing solutions: Our closing solutions uniquely connect key participants, such as lenders, title and settlement agents and individual county recorders, to digitize the traditionally manual and paper-based closing and recording process. Our closing solutions also include revenues from the MERS database, a leading system of record for recording and tracking changes in mortgage servicing rights and beneficial ownership interests in loans secured byU.S. residential real estate. Revenues from closing solutions are largely transaction-based. •Data and Analytics: Revenues include those related to ICE Mortgage Technology's Automation, Intelligence, Quality, or AIQ offering, which applies machine learning and artificial intelligence, or AI, to the entire loan origination process, offering customers greater efficiency by streamlining data collection and validation through our automated document recognition and data extraction capabilities. AIQ revenues can be both recurring and transaction-based in nature. In addition, our data offerings include real-time industry and peer benchmarking tools, which provide originators a granular view into the real-time trends of nearly half theU.S. residential mortgage market. We also provide a Data as a Service, or DaaS, offering through private data clouds for lenders to access their own data and origination information. Revenues related to our data products are largely subscription-based and recurring in nature. 50 -------------------------------------------------------------------------------- •Other: Other revenues include professional services fees, as well as revenues from ancillary products. Other revenues are transaction-based. The following chart summarizes our Mortgage Technology segment's operating expenses, operating income and operating margin (dollars in millions). See "- Consolidated Operating Expenses" below for a discussion of the significant changes in our operating expenses. Mortgage Technology Segment: Nine Months Ended September 30, Three Months Ended September 30, 2021 2020 Change 2021 2020 Change Operating expenses$ 750 $ 206 n/a $ 256$ 156 n/a Adjusted operating expenses(1)$ 445 $ 92 n/a $ 153$ 52 n/a Operating income$ 311 $ 39 n/a $ 110$ (13) n/a Adjusted operating income(1)$ 616 $ 153 n/a $ 213$ 91 n/a Operating margin 29 % 16 % 13 pts 30 % (9) % 39 pts Adjusted operating margin(1) 58 % 62 % (4 pts) 58 % 64 % (6 pts)
*Percentage changes in the table above deemed "n/a" are not meaningful due to
the acquisition of
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. These adjusted numbers are not calculated in accordance with GAAP. See "- Non-GAAP Financial Measures"
51
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Consolidated Operating Expenses
The following presents our consolidated operating expenses (dollars in millions
and YTD represents the nine-month periods ended September 30th ):
[[Image Removed: ice-20210930_g32.jpg]]
Nine Months Ended September Three Months Ended September
30, 30,
2021 2020 Change 2021 2020 Change
Compensation and benefits $ 1,093 $ 849 29 % $ 374 $ 298 25 %
Professional services 124 100 24 43 37 15
Acquisition-related transaction and
integration costs 42 90 (53) 14 76 (81)
Technology and communication 495 388 28 168 131 28
Rent and occupancy 61 59 4 20 19 6
Selling, general and administrative 163 132 23 52 43 22
Depreciation and amortization 759 494 54 253 180 41
Total operating expenses $ 2,737 $ 2,112 30 % $ 924 $ 784 18 %
The majority of our operating expenses do not vary directly with changes in our
volume and revenues, except for certain technology and communication expenses,
including data acquisition costs, licensing and other fee-related arrangements
and a portion of our compensation expense that is tied directly to our data
sales or overall financial performance. The results of our September 2020 Ellie
Mae acquisition are included in our consolidated operating expenses for the nine
and three months ended September 30, 2021 , but only in partial comparable
pre-acquisition prior year periods.
We expect our operating expenses to increase in absolute terms in future periods
in connection with the growth of our business, and to vary from year-to-year
based on the type and level of our acquisitions, our integrations and other
investments.
52
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For the nine months ended September 30, 2021 and 2020, 10% and 11%,
respectively, of our operating expenses were billed in pounds sterling or euros
and for both the three months ended September 30, 2021 and 2020, 10% of our
operating expenses were billed in pounds sterling or euros. Due to fluctuations
in the U.S. dollar compared to the pound sterling and euro, our consolidated
operating expenses increased $21 million and $5 million during the nine and
three months ended September 30, 2021 , respectively, from the comparable periods
in 2020. See Item 3 "- Quantitative and Qualitative Disclosures About Market
Risk - Foreign Currency Exchange Rate Risk" below for additional information.
Compensation and Benefits Expenses
Compensation and benefits expense is our most significant operating expense and
includes non-capitalized employee wages, bonuses, non-cash or stock
compensation, certain severance costs, benefits and employer taxes. The bonus
component of our compensation and benefits expense is based on both our
financial performance and individual employee performance. The performance-based
restricted stock compensation expense is also based on our financial
performance. Therefore, our compensation and benefits expense will vary
year-to-year based on our financial performance and fluctuations in our number
of employees. The below chart summarizes the significant drivers of our
compensation and benefits expense results for the periods presented (dollars in
millions, except employee headcount).
Nine Months Ended September Three Months Ended September
30, 30,
2021 2020 Change 2021 2020 Change
Employee headcount 9,381 8,445 11 %
Stock-based compensation expenses $ 112 $ 95 18 % $ 39 $ 32 22 %
Headcount increases were primarily driven by 538 new employees at Ellie Mae and
288 new employees at Bakkt. Ellie Mae compensation and benefits expenses
increased $169 million and $46 million for the nine and three months ended
September 30, 2021 , respectively, from the comparable periods in the prior year,
following our September 2020 acquisition. Bakkt compensation and benefits costs
increased $23 million and $8 million for the nine and three months ended
September 30, 2021 , respectively, from the comparable periods in 2020, due to
the acquisition of Bridge2 Solutions in February 2020 and other increases in
employee headcount.
In addition, compensation and benefits expense increased for the nine and three
months ended September 30, 2021 , due to merit pay increases, above target
performance-based compensation and higher employee insurance costs than in 2020
due to the impact of COVID-19. The stock-based compensation expenses in the
table above relate to employee stock option and restricted stock awards and
exclude stock-based compensation related to acquisition-related transaction and
integration costs.
Professional Services Expenses
Professional services expense includes fees for consulting services received on
strategic and technology initiatives, temporary labor, as well as regulatory,
legal and accounting fees, and may fluctuate as a result of changes in the use
of these services in our business.
Professional services expenses increased due to the inclusion of Ellie Mae
expenses, which were $25 million and $8 million higher for the nine and three
months ended September 30, 2021 , respectively, than the comparable periods in
2020. In addition, professional service expenses related to Bakkt increased
$6 million and $2 million during the nine and three months ended September 30,
2021 . These increases were offset by lower legal expenses for 2021.
Acquisition-Related Transaction and Integration Costs
Acquisition-related transaction and integration costs during the nine and three
months ended September 30, 2021 were primarily related to our integration of
Ellie Mae and the Bakkt transaction. Acquisition-related transaction costs for
the nine and three months ended September 30, 2020 were primarily related to our
acquisition of Ellie Mae in September 2020 . Acquisition-related transaction and
integration costs for the nine months ended September 30, 2020 were also related
to the February 2020 Bakkt acquisition of Bridge2 Solutions. The Bridge2
Solutions acquisition costs include $10 million of expenses resulting from a
Bakkt incentive award market condition estimation adjustment that was directly
related to the March 2020 capital call to fund the acquisition of Bridge2
Solutions.
We expect to continue to explore and pursue various potential acquisitions and
other strategic opportunities to strengthen our competitive position and support
our growth. As a result, we may incur acquisition-related transaction costs in
future periods.
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Technology and Communication Expenses
Technology support services consist of costs for running our wholly-owned data
centers, hosting costs paid to third-party data centers and maintenance of our
computer hardware and software required to support our technology and
cybersecurity. These costs are driven by system capacity, functionality and
redundancy requirements. Communication expenses consist of costs of network
connections for our electronic platforms and telecommunications costs.
Technology and communications expense also includes fees paid for access to
external market data, licensing and other fee agreement expenses. Technology and
communications expenses may be impacted by growth in electronic contract volume,
our capacity requirements, changes in the number of telecommunications hubs and
connections with customers to access our electronic platforms directly.
Technology and communications expenses increased due to the inclusion of Ellie
Mae expenses, which were $81 million and $23 million higher for the nine and
three months ended September 30, 2021 , respectively, from the comparable periods
in 2020. In addition, technology and communication expenses increased
$20 million and $10 million for the nine and three months ended September 30,
2021 , respectively, from the comparable periods in 2020, due to increased
license fees and data acquisition costs.
Rent and Occupancy Expenses
Rent and occupancy expense relates to leased and owned property and includes
rent, maintenance, real estate taxes, utilities and other related costs. We have
significant operations located in and around Atlanta, New York , Pleasanton,
London and Hyderabad with smaller offices located throughout the world.
Rent and occupancy expenses include the expenses of Ellie Mae , which increased
$7 million and $2 million for the nine and three months ended September 30,
2021 , respectively, from the comparable periods in 2020. These expenses were
partially offset by a decrease due to the early termination expense of our NYSE
Chicago office lease during the nine months ended September 30, 2020 , as well as
a reduction in other occupancy expenses during the nine months ended
September 30, 2021 .
Selling, General and Administrative Expenses
Selling, general and administrative expenses include marketing, advertising,
public relations, insurance, bank service charges, dues and subscriptions,
travel and entertainment, non-income taxes and other general and administrative
costs.
Selling, general and administrative expenses increased, due to the inclusion of
Ellie Mae expenses, which were $12 million and $3 million higher for the nine
and three months ended September 30, 2021 from the comparable periods in 2020.
Bakkt related expenses were $15 million and $3 million higher for the nine and
three months ended September 30, 2021 from the comparable periods in 2020 due to
increased marketing expenses related to the launch of Bakkt's digital wallet,
Bakkt App.
In addition, marketing expenses increased $13 million and $3 million for the
nine and three months ended September 30, 2021 from the comparable periods in
2020 primarily due to higher NYSE initial public offering, or IPO, marketing
expenses, which were partially offset by a charitable contribution in support of
COVID-19 relief efforts of $10 million during the nine months ended September
30, 2020 .
Depreciation and Amortization Expenses
Depreciation and amortization expense results from depreciation of long-lived
assets such as buildings, leasehold improvements, aircraft, hardware and
networking equipment, software, furniture, fixtures and equipment over their
estimated useful lives. This expense includes amortization of intangible assets
obtained in our acquisitions of businesses, as well as on various licensing
agreements, over their estimated useful lives. Intangible assets subject to
amortization consist primarily of customer relationships, trading products with
finite lives and technology. This expense also includes amortization of
internally-developed and purchased software over its estimated useful life.
We recorded amortization expenses on intangible assets acquired as part of our
acquisitions, as well as on other intangible assets, of $470 million and
$236 million for the nine months ended September 30, 2021 and 2020, respectively
and $156 million and $95 million for the three months ended September 30, 2021
and 2020, respectively. The increase in amortization expense was primarily due
to amortization of Ellie Mae intangible assets of $240 million and $64 million
for the nine and three months ended September 30, 2021 , respectively, from the
comparable periods in 2020.
We recorded depreciation expenses on our fixed assets of $289 million and
$258 million for the nine months ended September 30, 2021 and 2020,
respectively, and $97 million and $85 million for the three months ended
September 30, 2021 and 2020, respectively. The increase in depreciation expense
was primarily due to depreciation of Ellie Mae fixed
54--------------------------------------------------------------------------------
assets of$26 million and$9 million for the nine and three months endedSeptember 30, 2021 , respectively, from the comparable periods in 2020. Consolidated Non-Operating Income (Expense) Income and expenses incurred through activities outside of our core operations are considered non-operating. The following tables present our non-operating income (expenses) (dollars in millions):
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