Intercontinental Exchange Inc.

Good morning and welcome to the ICE first quarter 2021 earnings conference call and webcast. 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. We please ask that you limit yourself to one question, and if you have follow-up questions, you may re-enter the question queue. Please note, this event is being recorded. I would now like to turn the conference over to Mary Caroline O'Neill, Director of Investor Relations. Please go ahead.

Good morning. ICE's first quarter 2021 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, First Quarter Form 10-Q, and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures. 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. 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 items. With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, Warren Gardner, Incoming Chief Financial Officer, Ben Jackson, President, and Lynn Martin, President of Fixed Income and Data Services. I'll now turn the call over to Scott.

Thanks, Mary Caroline. Congratulations on your new role. Truly well-deserved. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with some key highlights from our first quarter results. First quarter revenues, operating income, adjusted net income, and adjusted earnings per share were all the best in the history of our company. Adjusted earnings per share of $1.34 increased 7% compared to our previous record of $1.25, which we achieved in last year's first quarter. Record total first quarter revenues of $1.8 billion were up 4% year over year on a pro forma basis. Total transaction revenues declined slightly versus an unprecedented backdrop a year ago. Importantly though, total recurring revenues, which represent about half our business, increased by 9% with all three of our business segments contributing to this strong year over year growth. First quarter adjusted operating expenses totaled $729 million including $30 million related to BACT. Without the additional $7 million of BACT investments, we would have been toward the lower end of our original guidance. We expect that BACT's merger with Victory Park SPAC will be completed toward the end of this quarter. We expect second quarter adjusted operating expenses to be in the range of $742 to $752 million, including approximately $35 million of additional expense related to BACT. Incorporating the additional backed expenses into our full-year guidance, as well as slightly higher than expected FX, which will be more than offset by higher revenues, we now expect full-year adjusted expenses to be in the range of $2.88 to $2.93 billion. First quarter free cash flow totaled over $700 million. We used this strong cash generation to grow our dividend payout by 12% even as we reduced our leverage to 3.8 times EBITDA by quarter's end. In addition, during April, we elected to sell our 1.4% stake in Coinbase, which generated over $1.2 billion in gross proceeds and approximately $900 million net of taxes. Assuming those proceeds had been used to reduce debt at the end of the first quarter, our pro forma leverage would have been closer to 3.6 times. compared to 4.2 times when we acquired Ellie Mae just over six months ago. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. First quarter revenues totaled $974 million, including transaction revenues of $653 million, the second best quarter in our company's history. This strong performance was driven by our energy, interest rate, and cash equities businesses. Importantly, open interest, which we believe is the best indicator of long-term growth, is up 13% versus the end of 2020, including 5% growth in our energy open interest and 26% growth across our financial futures and options complex. Recurring revenues, which include our exchange data services and NYSE listings, increased 5% year-over-year, driven by continued strong equity capital market trends and NYSE's share of industry SIP revenues. Looking to the second quarter, we expect recurring revenues in our exchange segment to be between $315 and $320 million. Turning now to slide six, I'll discuss our fixed income and data services segment. First quarter revenues totaled $468 million. Six and a half percent growth in our recurring revenues, which account for nearly 90% of total segment revenues, more than offset a year-over-year decline in transaction revenues. Fixed income data and analytics, which includes both our leading pricing and reference data and index businesses, increased by 7%. Other data and network services grew 6%, driven by continued customer demand for additional network capacity. Looking to the second quarter, we expect recurring revenues to improve sequentially and to be in a range of $401 to $406 million. This outlook is supported by ASB entering the second quarter at $1.6 billion, up over 5% year-over-year. Looking to the balance of 2021 and consistent with the guidance provided during our fourth quarter earnings call, we continue to expect recurring revenues in our fixed income and data services business to grow 5% to 6% for the full year. Let's go next to slide 7, where I'll discuss our mortgage technology segments. Please note that my comments on revenue growth are on a pro forma basis. Mortgage technology revenues grew 61% year-over-year in the first quarter. First quarter transaction revenues increased 84% year-over-year. Favorable financing conditions, accelerating millennial home ownership trends, and demand for digital workflow tools, such as our origination technology, closing solutions, and analytics, all contributed to our strong results. Recurring revenues once again improved sequentially and increased 32% versus the prior year. Increased adoption and new customers of both our origination technology and analytics continued to expand our subscription base. We expect recurring revenues in the second quarter to again increase sequentially to a range between $128 and $133 million, representing around 30% growth versus the prior year. As a note, in an effort to improve transparency and better align our reporting with our targeted addressable markets, we are now reporting closing solutions as a single business line. These revenues will include both our e-close initiatives and revenues from MERS registrations. Our closing solutions today already represent over 20% of a $1 billion addressable market. In addition, we've moved our network revenues into our origination technology business lines. This business today represents around 20% of the $4 billion underwriting and processing TAM that we highlighted during the Ellie Mae deal call. In summary, 2021 is off to a strong start. We once again grew revenues, operating income, free cash flow, and adjusted earnings per share. At the same time, we continue to invest in our business to meet the needs of our customers. As a result, we've set the stage for continued top and bottom line growth and enhanced shareholder returns in 2021 and beyond. Warren and the team will handle Q&A today, but before I hand it to Ben, I want to congratulate Warren on his new role and wish him great success. I also want to thank Jeff for the opportunity he gave me 14 years ago to help build this great business that he started. And finally, I want to thank all my ICE colleagues. It's been an honor and a privilege to work alongside you as a part of the ICE team. Ben, over to you.