Intercontinental Exchange Inc.

Good morning and welcome to the Intercontinental Exchange third quarter 2021 earnings conference call and webcast. All participants are currently in listen-only mode. Should you need assistance during the call, do 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 and then one on your telephone keypad. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Mary Caroline O'Neill, the head of Investor Relations. Please go ahead.

Good morning. ICE's third 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, Third 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, Warren Gardner, Chief Financial Officer, Ben Jackson, President, and Lynn Martin, President of Fixed Income and Data Services. I'll now turn the call over to Warren.

Thanks, MC. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with some of the key highlights from our third quarter results. Adjusted earnings per share totaled $1.30, up 34% year-over-year, marking the best third quarter in our company's history. Net revenues totaled a record $1.8 billion and, on a pro forma basis, increased 11% versus last year, with all three of our business segments contributing to the strong year-over-year growth. Total transaction revenues grew 13%, while total recurring revenues, which accounted for nearly half of our business, increased by 10%. Third quarter adjusted operating expenses totaled $755 million, including $35 million related to BACT, which after successfully completing its merger with Victory Park, recently began trading on the NYSE. Adjusting for BACT, third quarter operating expenses would have been $720 million. In the middle of our guidance range, while our adjusted operating margin would have been 60%, up over 100 basis points year-over-year. Looking to the fourth quarter, we expect adjusted operating expenses to be between $737 million to $747 million. Relative to the full-year outlook provided on our second quarter call, the fourth quarter is now expected to include approximately $10 million related to the back stub period and $10 to $15 million of performance-related compensations. as we expect to reward our employees for their contribution to the strong results we are once again on track to achieve in 2021. Record year-to-date free cash flow has sold nearly $2 billion. These strong cash flows, along with the divestment of our $1.2 billion stake in Coinbase, has enabled us to reduce leverage 203.25 times at the end of September, nearly a full year ahead of schedule. As a result, we expect to resume share purchases, including up to $250 million in this year's fourth quarter. We anticipate updating you on our 2022 capital return plans early next year. In addition, we announced in October that we have agreed to sell our stake in Euroclear for €709 million, or approximately $820 million. We expect to determine the use of Euroclear proceeds as we approach closing, which we expect will occur in 2022. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Third quarter net revenues totaled $959 million, an increase of 16% year over year. This strong performance was driven by a 30% increase in our interest rate business and a 38% increase in our energy revenues, including 34% increase in our oil complex, a 73% increase in European natural gas revenues, and a 72% increase in revenues related to global environmental products. Importantly, total open interest, which we believe to be the best indicator of long-term growth, is up 18% versus the end of last year, including 11% growth in energy and 28% growth across our financial futures and options complex. Recurring revenues, which include our exchange data services and NYSE listings, increased 6% year-over-year, including 10% growth in our listings business. This acceleration in growth was driven by an increasing number of operating company IPOs choosing the NYSE, particularly in the technology and consumer sectors. Looking to the fourth quarter, we expect recurring revenues in our exchange segment to be between $330 and $335 million. Turning that aside, slide six, I'll discuss our fixed income and data services segments. Third quarter revenues totaled $477 million, a 6% increase versus a year ago. Recurring revenue growth, which accounted for nearly 90% of segment revenues, also grew 6% in the quarter. Within recurring revenues, our fixed income data and analytics business increased by 5% year-over-year, including another double-digit growth in our index franchise. while other data and network services grew 9%, driven by continued customer demand for additional network capacity. Looking to the fourth quarter, we expect that our recurring revenues will improve sequentially to a range of $415 to $420 million, and that full-year revenue growth will be approximately 6% at the high end of our guidance range. Let's go next to slide 7, where I will discuss our mortgage technology segments. Please note that my comments on revenue growth are on a pro forma basis. Despite a double-digit decline in industry origination volumes, our mortgage technology business grew 7% year over year and achieved record revenues of $366 million. While third quarter transaction revenues declined slightly, they were more than offset by 33% growth in our recurring revenues, which, at $143 million, once again exceeded the high end of our guidance range and accounted for nearly 40% of total segment revenues. Our outperformance relative to industry trends continues to be driven by increased customer adoption of digital tools across the workflow. While these secular growth trends have been a clear tailwind for our recurring revenues, there is also opportunity to drive accelerating adoption across our transaction-based businesses, such as our closing solutions. where revenue increased by 30% in the third quarter. Looking to the fourth quarter guidance, we expect that recurring revenues will once again grow sequentially and be in a range of $147 to $152 million. At the midpoint, this represents growth of approximately 25% year-over-year, which is on top of 20% growth achieved in last year's third quarter. In summary, we once again had strong contributions from each of our businesses and across the asset classes in which we operate. We delivered double-digit growth in revenue, operating income, and earnings per share. We also generated strong cash flows, reduced leverage to under three and a quarter times, announced the divestment of our stake in EuroClear, and successfully took back public on the NYSE. As we look to the end of the year and to 2022, we remain focused on meeting the needs of our customers continuing to drive growth and create value for our shareholders. I'll now turn the call over to Ben.