Intercontinental Exchange Inc.

Good morning, and welcome to the Intercontinental Exchange Fourth 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 touch-tone phone. To withdraw your question, please press star then two. And due to the amount to the number of analysts on today's call, we ask that you please limit yourself to one question. If you do have a follow-up, we ask that you please re-cue. Please also note, today's event is being recorded. I'd now like to turn the conference over to Warren Gardner, Vice President of Investor Relations. Please go ahead, sir.

Good morning. ICE's fourth 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 2019 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 debt to adjusted EBITDA. Both of our non-GAAP measures are more reflective of our cash operations and core business performance. You'll 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 Form 10-K. 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 are present. 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 solid fourth quarter and record 2019 results. Fourth quarter net revenues totaled $1.3 billion, driven by trading and clearing revenues of $626 million and data and listings revenues of $672 million. Within data and listings, data services revenues totaled $559 million, up 4% on a constant currency basis. For the full year, data services revenues grew 5% on a constant currency basis. Adjusted operating expenses totaled $570 million in the fourth quarter, and adjusted earnings per share increased year-over-year to 95 cents. For the full year, adjusted EPS were $3.88, up 8% versus 2018. We've grown adjusted EPS every single year since we first listed on the New York Stock Exchange 14 years ago. 2019 operating cash flows of $2.7 billion were up 5% versus 2018, yielding record free cash flow of $2.3 billion. Turning to slide five, you can see that we returned nearly 90% of that $2.3 billion to shareholders, 19% more than in the prior year. This record $2.1 billion of capital return was more than double the amount we returned the year prior to our acquisition of IDC in 2015. And importantly, we did all of this while maintaining our target leverage and investing in key strategic initiatives across our trading, data, fixed income, mortgage, and digital asset networks. As we turn to 2020, we remain committed to continuing to grow our capital return as we grow. Our board recently authorized a 9% increase in our quarterly dividend. We've grown the dividend roughly 14% a year since 2013, while over the same period, adjusted EPS have grown around 15%. Our board also approved a 20% increase in our share repurchase authorization to $2.4 billion, which will allow us to increase our quarterly buyback level to around $400 million, while also providing capacity to act opportunistically. Now let's move to slide six, where I'll provide an overview of the performance of our trading and clearing segment. Trading and clearing revenue totaled $626 million in the fourth quarter, down 4% on a constant currency basis. In energy, while fourth quarter revenues were down 5% versus a strong fourth quarter of last year, full year revenues grew 4% on a constant currency basis. This record performance was driven by strong growth in higher RPC products, such as our Dutch natural gas contract, or TTF, in addition to other crude and refined products. Importantly, the open interest that built throughout 2019, as anticipated, translated into strong volumes in January, with record energy ADV up 29% year-over-year, improved RPC, and open interest up 12% versus the prior year period. In our ag markets, fourth quarter revenues increased 5% year-over-year, including strength in cocoa, coffee, and cotton. 2020 is also off to a strong start with January volumes increasing 30% year-over-year, increasing RPC, and open interest approaching record levels and up 14% year-over-year. In our financial futures complex, fourth quarter revenues were down 13%, driven primarily by lower interest rate volumes. However... Sterling open interest ended the year up 20% and is up 36% at the end of January. Volumes grew 72% in January, and RPC was stable. Finally, in our fixed income and credit businesses, revenues totaled $96 million in the fourth quarter. This compares to $83 million last year and includes a full quarter of Simplifile, which we acquired in June of last year. Next on slide seven, I'll discuss the data and listing segments. Fourth quarter data services revenue totaled a record $559 million, up 4% on a constant currency basis versus the prior year. This marks the 40th consecutive quarter of year-over-year data services revenue growth. For the full year, revenues grew 5% at constant currency and landed right in the middle of the range we provided a year ago. Fourth quarter growth in pricing and analytics was 4% on a constant currency basis. A challenging business environment in Europe partially offset solid growth in North America, accelerating growth in Asia Pacific, and double-digit growth in our index business. We expect the impact from the challenges in Europe to persist through the first quarter, after which we anticipate absolute revenue and growth in pricing and analytics will accelerate, yielding 5% to 6% growth for the full year. Exchange data and feeds grew 2% year-over-year on a constant currency basis, driven by solid growth in futures data, offset by softer trends at the NYSE. Desktops and connectivity growth was 7% year-over-year on a constant currency basis, and, similar to the last few quarters, was driven by strong performance in our ICE global network offerings, where network capacity grew 14% versus the prior year. Finally, in our listings business, revenues totaled $113 million in the fourth quarter. the NYSE listed 12 IPOs during the quarter and 58 for the full year. During 2019, the NYSE helped customers raise a total of nearly $112 billion of capital, ranking first globally in total capital raised for the ninth consecutive year. I'll conclude my remarks on slide eight with some 2020 guidance. We expect 2020 data revenues to be in the range of $2.29 to $2.33 billion. This includes revenues of $560 to $565 million in the first quarter and assumes further sequential improvement in terms of both dollars and growth each quarter as we move through the year. Moving to expenses, we anticipate full-year adjusted operating expenses between $2.275 and $2.325 billion. As I noted on our third quarter call, you need to add roughly $50 million to the 2019 base to account for simplified the reclass of certain licensing expenses, and a few one-time items that we highlighted as we moved through the year. Off that base, and very consistent with prior years, compensation expenses will increase by $30 to $40 million. Expenses related to revenue growth are expected to increase by $15 to $25 million. And finally, we will make $20 to $30 million in incremental investments in our technology platforms as well as key growth initiatives such as ICE Futures Abu Dhabi and BACT. These investments will be largely funded by $15 to $25 million of expense efficiencies. Finally, we expect $570 to $580 million in the first quarter for expenses, including around $5 million of severance, which we do not expect to recur in later quarters. In summary, we delivered a solid finish to another record year. We once again grew revenues, operating income, free cash flow, and capital returns. And at the same time, we invested across our business and are well positioned to once again meet the needs of our customers, grow the top and bottom line, and deliver enhanced shareholder returns during 2020 and beyond. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff to expand on some of our strategic initiatives as we enter the new year.