Intercontinental Exchange Inc.

Good morning. Welcome to the Intercontinental Exchange First Quarter 2020 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 touchstone phones. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Warren Gardner, VP of Investor Relations. Go ahead.

Good morning. ICE's first quarter 2020 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 risk, 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, First Quarter Form 10-Q, 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, and debt to adjusted 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 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 earning 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 now turn the call over to Scott.

Thanks, Warren. Good morning, everyone, and thank you for joining us today. Before we begin, we want to offer our hope that you, your colleagues, and your families are staying safe and remain healthy during this unprecedented time. I'll begin this morning on slide four with some of the key highlights from our record first quarter results. First quarter net revenues totaled $1.6 billion, up 23% year over year, driven by record trading and clearing revenues of $883 million and record data services revenues of $564 million. It's worth noting that this quarter started with January yielding what, at the time, was the best revenue month in our history. That record was nearly equal during February. While growing uncertainty related to COVID further increased our customers' demand for price discovery and risk management in March, it is our customer focus and our investments in both sales resources and product innovation that generated the high retention rates and growth in open interest, which laid the foundation for our record performance even prior to March, and which supports our ability to continue to grow once the impacts of COVID subside. Adjusted operating expenses totaled $597 million in the quarter. Variable license fees related to energy and equity index futures were roughly $5 million higher than we expected entering the quarter, but were more than offset by significantly higher related revenues. In addition, and as we disclosed in our first quarter volume press release, first quarter adjusted expenses included $10 million of charitable giving related to COVID-19 relief and $4 million related to BAC's acquisition of Bridge to Solutions. Looking toward the rest of 2020, we expect that second quarter adjusted operating expenses will improve sequentially to be in the range of $575 to $585 million, while full-year adjusted operating expense guidance remains unchanged at $2.32 to $2.37 billion. Adjusted operating income increased 30% year-over-year to $962 million. Non-operating expense totaled $46 million, helped by a $7 million true-up of our share of OCC's final 2019 income. Capital return totaled a record $865 million and included nearly $700 million of share buybacks and an average price of roughly $92 a share. Our record share repurchase during the quarter demonstrates a disciplined use of the cash generative power of our balanced business model. Combined with our record operating performance, adjusted earnings per share totaled $1.28, up 39% from the first quarter of 2019. Now let's move to slide five, where I'll provide an overview of the performance of our trading and clearing segments. Trading and clearing revenue totaled $883 million in the first quarter, up 45% on a constant currency basis. In our energy markets, geopolitical events and building open interest throughout 2019 combined to produce January and February volumes that at the time were record levels and up 40% year over year. The March OPEC meeting, coupled with the rapid emergence of COVID-19, pushed first quarter energy volumes to new record highs, driving 1Q total energy ADV and revenue up 54% year-over-year. Strong volume trends have continued into April, with ADV up 50% year-over-year and open interest also continuing to build up 23% versus the prior year period. In our ag markets, weather-related hedging activity, as well as dynamics similar to those impacting energy, drove record first quarter volumes up 31% year-over-year. This included record sugar ADV, which is up 45% year-over-year. While volumes have come off record levels in April, open interest trends continue to be strong, including a 21% year-over-year increase in sugar, our largest ag contract. In our financial futures complex, interest rate ADV was up 28% year-over-year, while equity indices increased 47% in the first quarter. Global macro uncertainty and subsequent global central bank actions to cut interest rates in the United States, the UK, and Europe provided a boost to first quarter volumes. That said, looking further out, we expect that these central bank actions and global economic challenges will suppress hedging demand in our interest rate business. It's important to note, though, that revenues related to interest rate trading represent only about 4% of our total revenues. Finally, In our fixed income and credit businesses, revenues totaled $122 million in the first quarter. This compares to $87 million last year and includes a full quarter of SimpliFile, which we acquired in June of last year. As you would expect, broad market volatility drove increased demand for credit protection, driving record levels of CDS notional cleared, including record buy side volume. The first quarter reconfirmed the importance of CDS and CDS clearing, offering participants a way to manage their risk against cash markets that today remain largely inefficient. Lastly, our mortgage services business benefited from strong refinancing trends as well as continued adoption of digital mortgage solutions. Recent events have highlighted the urgent need for further automation in the mortgage industry, and our investments position as well to help facilitate the necessary evolutions. Turning now to slide six, I'll discuss the data and listing segment. First quarter data services revenue totaled a record $564 million, up 4% on a constant currency basis versus the prior year. This marks the 41st consecutive quarter of year over year data services revenue growth. First quarter growth in pricing and analytics was 4% on a constant currency basis, consistent with last quarter, and driven by growth in our pricing and reference data business, as well as continued strong trends in our fixed income index business. We expect growth in pricing and analytics to be stable in the second quarter and accelerate through the balance of the year. Desktops and connectivity growth was 5% year-over-year on a constant currency basis, and similar to the last few quarters, growth was driven by strong performance in our ICE global network offering, where network capacity grew 12% versus the prior year. Finally, exchange data and feeds grew 2% year-over-year on a constant currency basis. Looking to the second quarter, and based on current market share dynamics at the NYSE, we would expect total exchange data to decline sequentially, but we'll note that trading activity remains robust across both our cash equity and options exchanges, and we expect share loss to begin to recover once the NYSE floors are reopened. Looking to the second quarter, and despite the sequential decline in exchange data, we expect data services revenues to increase sequentially, landing in the range of $565 to $570 million. Based on ASB entering the quarter, continued strong customer retention, and the investments we've made in sales resources and product development, We currently expect the sequential improvement in data revenues to continue through the rest of this year led by our mission-critical pricing and analytics and connectivity offerings. And importantly, we are maintaining our original full-year data services revenue guidance. Moving to our listings business, revenue totaled $112 million in the first quarter. Despite elevated volatility, the NYSE listed 15 IPOs during the quarter. Until extreme volatility subsides, we expect that listing revenues will remain relatively stable around first quarter levels. The first quarter was the strongest quarter in our company's history. We grew revenues across each of our business lines. Our trading venues and clearinghouses handled record levels of customer activity, while our data services business provided customers with new and enhanced tools to better manage their risk across the markets and asset classes we served. More importantly, with high customer retention, strong open interest trends in our commercially oriented energy markets, and a continued commitment to provide the risk management and price discovery tools our customers need, we are well positioned to continue to deliver growth. Growth that should generate strong cash flows and enable us to continue to invest in our future while also growing our dividend and opportunistically repurchasing our shares. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff.