Intercontinental Exchange Inc.

Good morning and welcome to the Intercontinental Exchange First Quarter 2020 Earnings Conference Call. All participants will be in a 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. Please note that this event is being recorded. I would now like to turn the conference over to Warren Gartner, Vice President of Investor Relations. Please go ahead, sir.

Good morning. ICE's second quarter 2020 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, second quarter Form 10-Q, and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, ETS, 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. Define 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-Q. 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. Throughout this presentation, unless otherwise indicated, references to revenue growth is on a constant currency basis. 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 strong second quarter results. Net revenues totaled $1.4 billion of 8%, driven by 13% growth in trading and clearing revenues and record data services revenues of $574 million. up 4% versus last year. This solid revenue performance, combined with expenses at the low end of our guidance range, helped deliver second quarter adjusted earnings per share of $1.07, up 14% over the prior year. We returned $564 million to shareholders during the quarter, including $400 million through share repurchases and a nearly 10% increase in our dividend per share. Through the first half, We have returned over $1.4 billion to shareholders through both buybacks and dividends, an increase of 31% versus last year. As I mentioned, second quarter adjusted operating expenses of $575 million were at the low end of our guidance. COVID-related impacts delayed IPOs, which reduced marketing spend at the NYSE. In addition, the high productivity of our technology team and reduced vacation due to COVID-related travel restrictions reduced drove higher capitalized labor expense during the second quarter. With a strong IPO pipeline and the reopening of many communities this summer, we expect these factors to begin to reverse in the third quarter, yielding an incremental $5 to $7 million in expense. We also anticipate a modest ramp in strategic investments during the quarter, all of which is expected to result in third quarter adjusted operating expense in the range of $580 to $590 million. Now let's move to slide five, where I'll provide an overview of the performance of our trading and clearing segment. Trading and clearing revenue totaled $710 million in the second quarter, up 13%. In our energy markets, revenues increased 9%, driven by a 26% increase in global natural gas revenues. Importantly, open interest across our energy markets is up 17% year-over-year through July. Global natural gas open interest is up 30%. And despite a double-digit percentage decline in WTI open interest, total oil open interest is 3% higher than a year ago. In our ag complex, revenues decreased, largely reflecting continued economic uncertainty associated with COVID. Within financials, equity index ADV rose 8%, including MSCI volumes, up 15%. These higher RPC products represent only around 20% of our financials volumes, but contribute nearly half the revenue. Thus, the strong performance largely mitigated the softer interest rate activity, reflective of global interest rates at or near all-time lows. At the NYSE, trading revenues increased 37%, supported by a 61% increase in cash equity ADV and a 44% increase in equity option ADV. And finally... In our fixed income and credit businesses, revenues totaled $111 million in the second quarter. Results were led by our mortgage services business, which continues to benefit from strong refinancing trends as well as continued adoption of digital mortgage solutions. Revenues from ICE Mortgage Services totaled over $90 million through the first six months of this year, up 40% on a pro forma basis versus the prior year. Turning now to slide six, I'll discuss the data and listing segment. Second quarter, data services revenues was up 4%, totaling a record $574 million. This marks the 42nd consecutive quarter of year-over-year data services revenue growth. We expect that trend to continue based upon acceleration in ASB, which enters the third quarter up 4.5% year-over-year on a constant currency basis. Growth in pricing and analytics accelerated to 5% in the second quarter from 4% in the first, driven by resilient customer demand for our pricing and reference data products, as well as continued strong contributions from our fixed income index business. Desktops and connectivity revenue grew 6%, supported by a 13% increase in capacity on our ICE global network. And finally, exchange data and fees grew 2% as growth in futures exchange data in our consolidated fees business was moderated by flat revenue at the NYSE. Looking to the second half, we expect data services revenues to accelerate sequentially to between $575 and $580 million in the third quarter, and then to increase sequentially again by an additional $7 to $10 million in the fourth quarter. Moving to our listings business, revenues totaled $111 million in the second quarter. While revenues are largely recurring in nature, results were somewhat impacted by a slower IPO calendar towards the end of the first quarter and into May. However, with the floor of the NYSE now partially reopened, issuers are returning to market, and we see a very healthy backlog heading into the remainder of the year. This should help us build on our solid performance during the first six months of 2020 and when the NYSE was the leader in U.S. IPO capital raise, including 10 of the 15 largest IPOs. The NYSE was also far and away the leader in capital raise from special purpose acquisition vehicles, or SPACs, which are increasingly being chosen as an alternative path to the public markets. The second quarter was one of the strongest in our company's history. We once again grew the top line. Our data revenues and futures open interest continue to increase. We deliver double-digit earnings per share growth. Our ROIC continues to improve, and our cost of capital continues to decline. And we have returned a record $1.4 billion to shareholders while continuing to strategically invest in our future. We're focused on a strong finish to a record year this year, and more importantly, on setting ourselves up for more success in 2021. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff.