Intercontinental Exchange Inc.

Good morning. My name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Intercontinental Exchange fourth 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 then one on your telephone keypad. If you would like to withdraw from the question queue, please press star then two. Please note this event is being recorded. Mr. Gardner, you may begin your conference.

Good morning. ICE's fourth 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 2020 Form 10-K and other filings of the SEC. In our earnings supplement, we refer to certain non-GAAP measures, including pro forma revenues, 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 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. Throughout this presentation, unless otherwise indicated, references to revenue growth are 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. And I'll 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 key highlights from 2020 and a summary of our strong fourth quarter results. Earnings per share of $4.51 were up 16% year-over-year on record revenues of over $6 billion. Free cash flow totaled a record $2.4 billion, and we returned nearly $2 billion to shareholders through buybacks and dividends. We also used some of that cash in our strong credit profile to make the important strategic acquisition of Ellie Mae in September. an acquisition that was nearly 3% accretive to our full year 2020 earnings per share. Our fourth quarter results were an exclamation point on a great year. Earnings per share totaled $1.13, up 19% year over year. Net revenues totaled approximately $1.7 billion, a 14% increase on a pro forma basis. While we've now transitioned to new segment reporting, I'll mention that fourth quarter data services revenues totaled $595 million, which was at the high end of our guidance range and up 6% year over year. For the full year, despite the challenges brought on by the pandemic, our data sales teams focused on serving our customers, delivered data services revenues that grew 5% over the prior year, and were near the top of our guidance entering the year. Fourth quarter adjusted operating expenses totaled $712 million. We were above the high end of our guidance, largely driven by lower levels of capitalized labor as our technology teams, who delivered near flawless execution while largely working from home for most of 2020, took some well-deserved vacation to recharge from an extraordinary year. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Fourth quarter revenues totaled $871 million, up 6% year over year. Transaction revenues increased 7%, driven by 6% growth in our energy business and 21% growth in cash equities and options trading. Importantly, through the end of January, our energy open interest, which we believe is the best indicator of long-term growth, was up 4% versus a year ago, including 11% growth in our global natural gas business and 5% growth in our environmental complex. Recurring revenues, which include our exchange data and listing services, increased 3% year-over-year. These results were driven by the NYSE's share of strong year-over-year growth in industry SIP revenues. Looking to the first quarter, we expect recurring revenues in the exchange segment to be between $310 and $315 million. Turning now to slide 6, I'll discuss our fixed income and data services segments. Fourth quarter revenues for the segment grew 3% year over year. While transaction revenues declined 16%, recurring revenues, which account for nearly 90% of total segment revenues, grew 6% year over year. Fixed income data and analytics, which includes our leading pricing and reference data and index business, increased by 7%, an acceleration from 6% growth in the third quarter. Other data and network services grew 5% in the fourth quarter, driven by continued growth in customer demand for both ICE global network and consolidated feeds. Looking to 2021, we expect recurring revenues in this segment to grow 5% to 6% on a constant currency basis for the full year, including $395 to $400 million in the first quarter. These expectations are supported by ASV growth of 5.7% exiting 2020. Please flip to slide 7, where I'll discuss the results in our mortgage technology segment. Please note that my comments on revenue growth are on a pro forma basis. Mortgage technology revenues grew 65% year-over-year in the fourth quarter and 56% for the full year. Fourth quarter transaction revenues increased 92% year-over-year. Favorable financing conditions, accelerating millennial homeownership trends, and demand for digital workflow tools such as our network, closing solutions, and analytics all contributed to our strong results. Recurring revenues increased 29% versus the prior year, as increased utilization and new customer adoption of both our origination technology and analytics continued to expand our subscription base. We expect recurring revenues in the first quarter to range between $122 and $127 million, representing around 30% growth versus last year on a pro forma basis. I'll conclude my remarks on slide eight with some additional guidance. We expect 2021 adjusted operating expenses to be in the range of $2.83 to $2.88 billion. We expect the spin-out of back to reduce expenses versus last year by $50 million. And as I mentioned on the last earnings call, we expect roughly $20 million of additional DNA expense in our mortgage segment. In addition, we plan to invest $25 to $30 million to enhance our mortgage technology platforms to support the significant growth in customers and volumes that we've seen over the past few years and which we expect to continue. With those items roughly netting out, our year-over-year expense growth will be largely consistent with prior years, including investments in our people and tied to revenue growth. We expect compensation expense across ICE to increase by $40 to $50 million. Expenses tied to revenue growth are expected to increase $15 to $25 million. And FX, based on current spot rates, will add $10 to $15 million, which will be more than offset by a positive impact to revenues. For the first quarter, we expect adjusted operating expenses to be in the range of $720 to $730 million, including roughly $23 million related to VAT. In summary, we delivered a very strong finish to another record year. We once again grew revenues, operating income, free cash flow, and earnings per share. We grew our dividend and returned nearly $2 billion to our shareholders. At the same time, we invested in our business to meet the needs of our customers while also expanding our mortgage technology network through the acquisition of Ellie Mae. As a result, we've set the stage for continued top and bottom line growth and enhanced shareholder returns into 2021 and beyond. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Ben to discuss some additional business highlights and key growth initiatives.