Intercontinental Exchange Inc.

Good morning and welcome to the Intercontinental Exchange Third 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 touchtone phone. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. 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 third 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 risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2018 Form 10-K and other filings with the SEC. 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 adjusted debt to EBITDA. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. To find a reconciliation to the equivalent GAAP 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 record third quarter results. Third quarter revenues grew 11% versus last year to a record $1.3 billion. Adjusted operating margins expanded two points to 59%, resulting in a record adjusted operating income, which grew 16%. This strong performance generated record adjusted earnings per share of $1.06, an increase of 25% over last year's third quarter and the best quarter in our company's history. Strong growth in our trading and clearing revenues was driven by 19% growth in energy and 23% constant currency growth in financials. Record data and listings revenues included data revenues of $553 million, which were up 5% on a constant currency basis. Adjusted operating expenses totaled $551 million, including a one-time benefit of roughly $6 million within SG&A. Expenses would otherwise have been right in the middle of our guidance. Looking to the fourth quarter, we expect adjusted operating expenses to be in the range of $562 to $572 million. This improves our full-year 2019 expense guidance to a range of $2.18 to $2.19 billion. Importantly, though, as you think about a pro forma 2019, you'll need to add to that around $50 million to reflect a full-year impact of SimpliFile the licensing reclass that started in the second quarter, and the one-time items we've mentioned through the first three quarters. I also want to provide some color on our third quarter adjusted tax rate of 17.5% and the positive implications for 2020. Based upon additional guidance published in March related to the Foreign Derived Intangible Income, or FDII, aspect of the 2017 U.S. federal tax reform, we were able to refine our 2018 return assumptions, which we just filed this month, and our 2019 provision. These prior year and year-to-date true-ups are reflected in the low rate in 3Q, and the refined assumptions are expected to contribute to an adjusted tax rate of around 22.5% in the fourth quarter. More importantly, we expect these changes, combined with a scheduled UK tax reduction in April of next year, to lower our 2020 tax range by roughly 100 basis points to a range of 21.5% to 23.5%. Moving to capital return, through the first nine months of 2019, we've generated free cash flow of over $1.7 billion. We've returned over 90% of that cash to our shareholders through dividends and share repurchases, including $340 million of buybacks during the third quarter. We continue to expect capital return to grow as we grow, balanced against the need for incremental investments or M&A. Turning to slide five, I'll discuss our trading and clearing segment. Revenues of $669 million were up 20% year over year in the third quarter. Adjusted operating margins expanded by two points to 65%, helping to drive a 24% increase in adjusted operating income. In our energy business, third quarter revenues increased 19% year over year, marking the best quarter ever for our energy revenues. ADV across our oil complex increased 15% year over year, led by 15% growth in Brent and 24% growth in our other crude and refined oil complex. Our European natural gas business also continues to deliver strong growth, including record third quarter ADV up 63%, and year-to-date volumes, which have grown nearly 50%. In addition, open interest in October across our energy business is up 8% since the end of last year, led by recent OI records in our Brent crude, North American basis markets, and TTF natural gas futures. In our financial futures business, revenues increased 23% versus last year, adjusted for FX. Volatility related to Brexit, as well as uncertainty around the direction of global interest rates, drove strong volumes in Uribor and Sterling products, with ADV of 18% and 11% respectively. Similarly, ADV across our equity index business increased 19% year over year. Higher levels of volatility and increased adoption combined to deliver 24% growth in our MSCI ADV compared to the prior year. As we close out October, open interest in our financial futures business is up 26% from the end of last year, with October registering record levels of sterling open interest, which is up 64% from the end of 2018. In fixed income and credit, revenues totaled $101 million for the quarter, including $35 million of revenue from our CDS clearing business, which was up 8% year over year and reflected record levels of buy-side clearing activity. Moving to slide six, I'll discuss our data and listing segment. Third quarter revenues totaled a record $667 million, with adjusted operating margins increasing to 52%. In our listings business, the NYSE listed 18 IPOs during the third quarter and has listed 46 IPOs year-to-date, helping our customers raise over $26 billion in proceeds. In addition, our innovative direct listing offering continues to attract interest. The NYSE's hybrid model uniquely combines the human judgment of our direct market makers with the state-of-the-art technology to reduce frictions that exist in today's IPO process. Shifting to data services, revenues totaled $553 million, an increase of 5% year-over-year on a constant currency basis. Revenue growth in pricing and analytics improved sequentially to 5% on a constant currency basis in the third quarter, driven by solid results across our pricing and reference data business, as well as our suite of index products. We expect pricing and analytics revenue and growth to improve sequentially again in the fourth quarter as the secular shift towards workflow automation and fixed income markets and from active to passive products continues. In exchange data and feeds, revenues grew 3%. Slower growth at NYSE was mitigated by 6% growth in our futures business, which continues to benefit from strong commercial interest in our global commodities platform. In desktop and connectivity, revenues grew 10% on a constant currency basis with performance driven by a sequential improvement in ICE global network revenue reflecting a strong quarter of implementation. We expect connectivity growth to continue to be supported by demand for cyber secure connectivity and vendor optimization but quarter-to-quarter results will continue to vary based on the timing of customer implementations. Finally, we expect fourth-quarter data services revenues to be in the range of $555 to $560 million, and thus, for the full year, our data revenues will be right around the middle of the guidance we provided when we entered the year. Our focus remains on serving our customers and delivering value to our shareholders. The efficacy of our diverse business model is once again reflected in open interest growth across our trading and clearing business, complemented by continued and compounding growth in our data business. Through the first nine months of 2019, we've generated record revenues, record adjusted operating income, and record adjusted earnings per share. And even as we have continued to strategically invest in our future, we have also returned a record $1.6 billion to shareholders. I'll be happy to take your questions during Q&A, but for now, I'll turn it over to Jeff.