Intercontinental Exchange Inc.

Good day and welcome to the Intercontinental Exchange First Quarter 2019 Earnings Conference Call and Webcast. All participants will be on listen-only mode. Should you need assistance during the conference call, please signal a conference specialist by pressing star and zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your touchtone telephone. To withdraw your question, please press star and two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Warren Gardner, Vice President of Investor Relations. Please go ahead, sir.

Good morning. ICE's first quarter 2019 earnings release and presentation can be found in the investor section of the ice.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 a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2018 Form 10-K. In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, free cash flow, and EBITDA. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent gap term in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures in our Form 10Q. When used on this call, net revenue refers to revenue net of transaction-based expenses, and adjusted earnings refers to adjusted diluted earnings per share. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain terms. Also with us on the call are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Ben Jackson, our President. I'll now turn the call over to Scott.

Thanks, Warren. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with some of the key highlights from our first quarter performance. ICE's consolidated first quarter net revenues totaled $1.3 billion, up 5% year-over-year on a constant currency basis. Trading and clearing net revenues grew 5%, and data revenues increased 6%, each on a constant currency basis. This strong revenue performance helped deliver the second-best quarter of earnings per share and free cash flow in our company's history. First quarter adjusted operating expenses totaled $528 million, including a roughly $7 million non-recurring benefit in comp expense. Adjusted for that, we would have been at the low end of our guidance range at around $535 million. Second quarter adjusted expenses are expected to increase to be between $537 and $547 million, largely driven by the full quarter impact of annual merit increases and equity grants. We then expect each subsequent quarter to increase sequentially by about $3 to $5 million, reflecting increased technology investments and spend related to BACT. Incorporating all of those dynamics, we are now lowering our full-year adjusted expense guidance to a range of $2.15 to $2.18 billion. I'll pause here to note that in the first quarter, we recognized $19 million of non-operating income related to a true-up for OCC's 2018 results. Additionally, unlike last year, we did not receive a dividend from EuroClear in the first quarter. We do, however, expect a dividend of around $20 million in the fourth quarter. a 40% increase from the dividend received in the first quarter of 2018. Shifting to capital return, we deployed over 95% of our free cash flow to dividends that once again are increasing by double digits and share repurchases. Of note, the $440 million distributed via share buybacks in the first quarter included an additional $100 million we opportunistically spent to repurchase shares at an average price of $75 during the month of March. The nearly $600 million in total capital that we returned during the first quarter has only been surpassed by the second quarter of last year, when we similarly deployed an additional $160 million to repurchase shares. We remain committed to strong capital returns, a dividend that grows as we do, and opportunistic repurchases, even as we continue to make key strategic growth investments. Now let's move to slide five, where I'll provide additional color on the performance of our trading and clearing business. First quarter revenues were up 3% year-over-year or 5% on a constant currency basis. In our energy markets, average daily volume was down 12% versus the prior year as trading in the U.S. natural gas markets, and the Henry Hub in particular, suffered from lower levels of price volatility. Participation in the Brent and gas oil markets was negatively impacted by a combination of various geopolitical uncertainties and supply-demand dynamics. As you will note, though, the volume declines were almost entirely offset by an 11% improvement in our average rate per contract. The improved RPC reflects strong volume growth in our European natural gas business, where ADV increased 42% in the quarter, as well as our emissions business, where volumes were up 35%. That strong performance continued in April, and more importantly, overall energy open interest continues to grow and is up 3% versus the end of 2018. In our financial futures market, while interest rate volumes were impacted by Brexit and an uncertain European economic backdrop, MSCI volumes improved by 9% year over year. Importantly, while interest rate volume has been somewhat muted April to date, Open interest continues to trend higher, up 11% year-over-year as of the end of April. Moving to cash equities, volumes increased 9% year-over-year in the first quarter, and market share improved to roughly 25%. Wrapping up with our fixed income and credit business, revenues totaled $87 million in the quarter. This compared to $56 million last year and includes the addition of TMC and MERS, both of which were acquired in the second half of 2018. Turning next to slide six, I'll discuss our data and listing segment. Starting with listings, revenues of $111 million were up 2% year-over-year. While the U.S. government shutdown delayed IPO activity through the end of January, the NYSE helped raise over $2.5 billion of IPO proceeds during the quarter. In addition, the second quarter is off to a strong start, with year-to-date proceeds raised now in excess of $5 billion, including the Pinterest IPO in April. Both Uber and Flack have also recently announced their choice of the NYSE as their listing partner. Moving to data, on a constant currency basis, data services revenues grew 6% year-over-year to a record $546 million. In pricing and analytics, revenues increased 6% over the prior year. The automation of fixed income workflows and the growth in passive strategies is continuing to drive increased demand for our evaluative pricing services, both real-time and end-of-day, as well as our reference data and our index offerings. Exchange data and feeds revenues grew 8% year-over-year, driven by growth in the number of customers using our futures data, An improved market share at the NYSE, which determines the revenue we receive from the shared tape plan. And finally, desktops and connectivity revenue was up 3% versus last year. Connectivity services related to our futures exchanges generated solid growth, benefiting from the aforementioned increase in our customer base. Mitigating this strength, connectivity revenues related to the NYSE were roughly flat. as we continue to roll out our pillar technology, which we expect will improve efficiency while reducing industry costs. We believe the momentum in data revenue growth will continue in the second quarter, with revenues expected to increase sequentially to a range of between $550 and $555 million. Our confidence is supported by an annual subscription value that was 6% higher than a year ago entering the quarter. 2019 is off to a great start. The resiliency of the business model we have constructed is evident in our ability to deliver the second-best earnings and cash generation quarter in our company's history, despite a challenging backdrop for industry trading volumes. I'll be happy to take your questions during Q&A, but for now, we'll turn the call over to Jeff.