Strong operating cash flows

Intercontinental Exchange (ICE) generated total operating cash flows of $1.3 billion in 2015. This included $109 million for operational capital expenditure and $87 million for capitalized software development costs. As of December 31, 2015, the company had $627 million in net unrestricted cash and short-term investments.

Intercontinental Increased Leverage to Fund Acquisitions

ICE expects to maintain ~$500 million in operational cash and a leverage ratio of around 2.0x. It intends to use the remaining cash flows for investment in its business and to return capital to shareholders. The company anticipates a more normalized level of capital expenditures between $150 million and $200 million in 2016. Intercontinental Exchange has a net debt-to-equity ratio of 35% compared to its peers with the following ratios:

  • NASDAQ OMX Group (NDAQ) – 12%
  • CME Group (CME) – 40%
  • CBOE Holdings (CBOE) – 10%

Together, these companies form 24.6% of the iShares US Broker-Dealers (IAI).

ICE’s leverage

In the fourth quarter of 4Q15, Intercontinental Exchange’s debt stood at $7.5 billion compared to $3.5 billion in the prior quarter. The debt includes $2.6 billion in commercial paper and has increased to fund acquisitions.

Its adjusted debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) was 2.8x compared to 1.6x in the previous quarter. The company’s acquisition of Interactive Data for $5.2 billion led to an increase in debt, as a majority of the transaction value was paid in cash. The company has agreed to issue shares worth $1.6 billion for the consideration.

ICE plans to reduce its leverage in order to maintain investment-grade credit ratings. The company’s return on invested capital stood at 8.4% compared to a cost of capital of 7%. Its major competitors, CME and Nasdaq OMX Group, generated returns on invested capital of 5.8% and 7.6%, respectively.

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