Intercontinental Exchange Inc.

Good morning. My name is Andrea and I will be your conference operator today. At this time, I would like to welcome everyone to the Intercontinental Exchange third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, Please press star followed by the number 2. Thank you. Mr. Gardner, you may begin your conference.

Thank you. Good morning. ICE's third 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 four 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 risk that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2019 Form 10-K, third quarter Form 10-Q, and other filings with the SDC. 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. 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-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 items. With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Ben Jackson, our President. 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 year-to-date and third quarter highlights. Through the first nine months of 2020, We've generated record revenues, record adjusted operating income, and record adjusted earnings per share, all of which have grown double digits over a record year in 2019. This strong business performance allowed us to return $1.7 billion of capital to our shareholders, 10% more than in the prior year. And importantly, our solid financial position enabled us to invest $11 billion to expand our mortgage network through the acquisition of Ellie Mae. For the third quarter, we generated earnings per share of $1.03 on net revenues of $1.4 billion. Data services revenues grew to a record $589 million, an increase of 6% versus the prior year. Trading and clearing revenues totaled $711 million. Of note, our total mortgage revenues in the third quarter grew 62% on a pro forma basis versus third quarter a year ago. while ICE's total net revenues pro forma for Ellie Mae grew 7% year over year. Third quarter adjusted operating expenses totaled $611 million, including $29 million related to Ellie Mae. Total expenses would have been roughly $7 million higher, if not for some credits we don't expect to repeat in subsequent quarters. As we move into the fourth quarter, we expect marketing expenses to accelerate related to a robust IPO pipeline and the launch of BAC's mobile consumer finance app. Combined with a full quarter of LE expenses, which we expect will contribute around $105 to $110 million, we expect fourth quarter adjusted operating expenses in the range of $695 to $705 million. Now let's move to slide five, where I'll provide an overview of the performance of our trading and clearing segment. In our commodity markets, lower energy revenues were largely a result of elevated volatility across our markets in the third quarter of last year, which related to the September attack on Saudi Arabian oil fields. Importantly, however, energy open interest, which we believe is the best indicator of the long-term strength of our business, is currently up 9% versus a year ago. In our active metals complex, revenues were also lower year over year, reflecting continued global trade uncertainty. Within financials, Equity index revenue, which is nearly half of our financial futures revenue, increased year over year. This strength was mitigated by lower levels of interest rate activity due to global interest rates remaining at or near all-time lows. Moving to our fixed income and credit business, revenues totaled $191 million in the third quarter. Results were led by ICE Mortgage Technology, which continues to benefit from the adoption of digital mortgage solutions, strong refinancing trends, and positive buyer and builder sentiment. Revenues from mortgage technology totaled $140 million in the third quarter, including $73 million attributable to Ellie Mae. On a pro forma basis, as I mentioned previously, mortgage technology revenues increased 62% versus the third quarter of last year. As we continue to integrate with our new colleagues from Ellie Mae, we're evaluating the metrics and guidance that will be most helpful for investors to understand our mortgage technology segment. We look forward to discussing our intentions in February and to sharing new pro forma segment information in early December. For the fourth quarter, I'll note that we currently expect LMA revenues to be in the range of $220 to $235 million, representing year-over-year growth of roughly 35% at the midpoint on a pro forma basis. In our ice bonds business, low interest rates continue to weigh heavily on retail and muni trading activity. Importantly, though, while still early days, our institutional effort is showing progress. During the third quarter, we continue to see institutional interest in our portfolio trading service with two of the largest ETF sponsors now utilizing our offering. In addition, we continue to add new participants to the ETF hub network and have completed the integration of our ICE bonds trading protocol with ICE fixed income select. Of note, Lynn Martin has now taken on the additional responsibility of the ICE bonds business, which will be led by Pete Borskelman, who also leads our ETF hub initiative. We believe that next phase of integration across our unmatched fixed income franchise will lead to greater product innovation and will better position our bond execution platforms to serve the vast institutional network of our fixed income data services business. Turning next to slide six, I'll discuss our data and listing segment. Third quarter data services revenues increased 6% year over year and totaled a record $589 million in the quarter. Growth in pricing and analytics was 5% and was once again driven by customer demand for our suite of pricing and reference data products, as well as a strong contribution from our index business, which now has over $270 billion of ETF assets tracking our indices. Desktops and connectivity revenue grew 3% in the quarter, reflecting continued growth in our ICE global network, offset by slower trends at the NYSE. In exchange data and fees, revenue increased 9%, as continued growth in our futures exchange data and our consolidated feeds business was supplemented by the NYSE share of strong year-over-year growth in industry SIP revenues. Looking to the fourth quarter, we expect data services revenues to again accelerate sequentially to between $590 and $595 million. This includes a sequential decline in exchange data offset by continued acceleration in pricing and analytics. Our expectation is supported by accelerating ASV growth, which exceeded 5% entering the fourth quarter, up from 4.5% a quarter ago, and 4% two quarters ago. As a result, full-year data services revenues are now expected to total $2.32 billion, above the midpoint of our original guidance, and roughly 5% higher than in 2019. While the quality of our data products and the breadth of our offering are important drivers of this strong performance, it would not have been possible without the resilience and commitment of our sales team. Despite the challenges of the global pandemic, our team maintained their productivity and focused on serving our customers. Their performance has been critical not only to our success in 2020, but perhaps more importantly, has established significant momentum entering 2021. Shifting to our listings business, third quarter revenues totaled $111 million. The NYSE helped raise $57 billion of total capital in the third quarter, including $35 billion in IPO proceeds. During the quarter, the NYSE welcomed Palantir and Snowflake and extended our success in the technology sector, where we've raised nearly 70% of all technology-related IPO proceeds since acquiring the New York Stock Exchange in 2013. I'll note in closing that our focus remains on serving our customers and delivering value to our shareholders. The value of our business strategy is once again reflected in open interest growth across our commodities business, the continued and compounding growth of our data offering, and the strength of our mortgage technology business. This diverse and resilient business model has delivered record revenues, operating income, adjusted EPS, and capital returns through the first nine months of 2020. It also enabled us to invest in expanding our mortgage network with the acquisition of Ellie Mae, which was accreted in its first month and should continue to add top and bottom line accretion in the fourth quarter in 2021 and beyond. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff.