Intercontinental Exchange Inc.

Good morning and welcome to the Intercontinental Exchange second quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Warren Gardner, Vice President of Investor Relations. Please go ahead.

Good morning. ICE's second quarter 2019 earnings release and presentation can be found in the investor section of theice.com. These items will be archived and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions, and uncertainties. For a description of the risk 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 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. With us on the call today 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 second quarter performance. Earnings per share totaled 94 cents, up 4% versus the prior year, and equal to our record fourth quarter performance. During the second quarter, we generated the second highest quarterly revenues in our company's history, which yielded record adjusted operating income and record adjusted EBITDA. And importantly, first half free cash flow increased 13% year over year, enabling us to return over $1 billion to shareholders through dividends and share repurchases. Consolidated net revenues in the quarter were $1.3 billion, with trading and clearing and data and listings both increasing 5% year-over-year on a constant currency basis. Adjusted operating expenses totaled $540 million in the quarter, including a roughly $5 million non-recurring benefit, primarily in tech expense. Additionally, second quarter expenses reflect both a reclassification of certain licensing agreements from net revenues to expenses, as well as a small amount related to our acquisition of Simplifile in late June. Looking forward to the third quarter, we expect adjusted operating expenses to be in the range of $552 to $562 million. This includes $9 to $10 million related to Simplifile and roughly $10 million related to the aforementioned revenue reclassification. These expenses will be more than offset by around $25 million of revenue and thus accretive to the bottom line. On a basis comparable to our original expense guidance, we now expect full-year adjusted operating expenses to be around the low end of that range and between 2.14 and 2.16 billion. Adding in roughly $50 million for the full-year amounts related to simplified and the revenue reclass, and noting again that those expenses will be more than offset by additional revenue, adjusted operating expenses are expected to be in the range of 2.19 to 2.21 billion dollars. We've included slide 11 in the appendix to provide additional clarity on this update. Now let's move to slide 5, where I'll provide additional color on the performance of our trading and clearing segment. In the second quarter, net revenues were up 4% year-over-year, or 5% on a constant currency basis. In our energy markets, average daily volumes, or ADV, were down 2% year-over-year. However, total energy revenues increased 2% versus the prior year on a constant currency basis, resulting in the second best quarter in our history. This strong performance was driven primarily by continued growth in our European natural gas and global oil products. Average daily volume in our European natural gas business established a new record during the second quarter, and open interest is up 29% over the prior year through July. In addition, ADV and the broad suite of crude and refined oil-related contracts that make up our global oil business increased 14% year-over-year in the second quarter, with open interest up 25% at the end of July. Overall, July energy trends remain positive, with ADV up 9% and open interest up 4% on a year-over-year basis. ADV in our agriculture and metals markets also set a record in the second quarter, driven by strong performance in both our sugar and coffee products. This was mitigated somewhat by a weaker rate for contract driven by customer and product mix. ADV remained strong in July, up 7% year over year. Revenue in our financial futures business, which includes both our interest rates and equity index products, declined year over year. A difficult political and economic environment, as well as a tough compare versus the prior year, impacted interest rate volumes. However, we're off to a really good start in July with interest rate ADV increasing 29% year over year, led by a 60% increase in URIBOR volumes. Importantly, open interest across our rates business is up 10% year-over-year, including sterling open interest, which is up 40%. In our equity index business, MSCI ADV was up 16% in the second quarter and remained strong in July, with ADV up 7%. Turning next to slide 6, I'll discuss our data and listing segments. Second quarter listings revenues totaled $111 million. The NYSE raised nearly $20 billion in IPO proceeds during the quarter, ranking first globally. During the first half of 2019, the NYSE helped raise 55% of total U.S. IPO proceeds, including 75% of U.S. tech proceeds. Moving to data services, on a constant currency basis, revenues grew 6% year over year to a record $553 million. In pricing and analytics, revenues grew 4% on a constant currency basis, helped by strong growth in our index business. Entering the third quarter, pricing and analytics ASV is up 6% year-over-year on a constant currency basis, and we expect revenue growth will reaccelerate in the second half. Exchange data and feeds grew 9% on a constant currency basis. Strength in our futures business, which grew 7% in the second quarter, as well as higher tape revenue related to share increases at the NYSE drove this strong performance. While we expect demand for our futures-related exchange data products to continue to grow, lower tape revenues and continued softness in NYSE prop data will likely result in a sequential decline in total exchange data revenues in the third quarter. And finally, in desktops and connectivity, revenue increased 5% year-over-year on a constant currency basis. Growth in the ICE global network, as well as our desktop and chat platforms, was partially offset by weakness in some of our NYSE connectivity services. Moving forward, and despite currency impact, we remain on track to our original full-year data revenue guidance, and we expect data revenues to be in the range of $550 to $555 million during the third quarter. Our continued focus on serving our customers, combined with disciplined investments to support growth and profitability across our diverse business, once again delivered solid results in the first half of 2019. We grew revenues, operating income, earnings per share, and free cash flow. We returned more capital to shareholders in the first half of 2019 than in any other half year period in our history. And we are laser focused on building on this momentum to deliver a strong second half of the year and to strengthen the foundation for continued success in 2020. I'll be happy to take your questions during Q&A, but for now, I'll turn it over to Ben.