Intercontinental Exchange Inc.

Hello, everyone, and welcome to the ISE second quarter 2022 earnings conference call. My name is Victoria, and I will be coordinating the call today. If you'd like to ask a question during the presentation, please press star zero on your telephone keypad. When preparing to ask your question, please ensure that your line is unmuted locally. I'll now present it to Mary Caroline O'Neill, head of business and relations to begin. Please go ahead.

Good morning. ICE's second quarter 2022 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 2021 Form 10-K, second quarter form 10Q, and other filings with the SEC. In addition, as we announced in May, ICE has agreed to acquire Black Knight. The transaction is pending customary regulatory approval, and we expect to close in the first half of 2023. Please note this call does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offerings of securities shall be made except by means of prospectus, meeting the requirements of Section 10 of the Securities Act of 1933. In connection with the proposed transaction, ICE has filed with the SEC a registration statement on Form S-4 to register the shares of ICE common stock to be issued in connection with the transaction. The registration statement includes a proxy statement of Black Knight that also constitutes a prospectus of ICE. When finalized, the definitive proxy statement perspectives will be sent to the stockholders of Black Knight seeking their approval of the transaction and other related matters. Before making any voting or investment decisions, investors and security holders of ICE and Black Knight are urged to carefully read the entire registration statement and proxy statement perspectives, as well as any amendments or supplements to these documents, because they contain important information about the proposed transaction. 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, Chair and CEO, Warren Gardner, Chief Financial Officer, Ben Jackson, President, and Lynn Martin, President of the NYSE. 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 second quarter results. Second quarter adjusted earnings per share totaled $1.32, a 14% increase year over year, marking the best second quarter in our company's history, and is on top of 12% growth in the second quarter of 2021. Net revenues totaled $1.8 billion, an increase of 8% versus last year, driven by a balanced contribution from both our diversified transaction revenues and our recurring revenues, which account for over half of our business, an increase by 8% versus last year. Second quarter adjusted operating expenses totaled $740 million, and we're at the low end of our guidance range. Versus the midpoint of our guide, second quarter expenses benefited from favorable FX, various expense efficiencies, and lower variable costs, particularly customer acquisition costs in our listings business. Moving to the full year, we're lowering our expense guidance to a range of $2.97 billion to $2.99 billion. Midpoint to midpoint, this represents a reduction of $35 million versus our prior guidance and, similar to our second quarter results, is driven by expense efficiencies, lower variable costs, and favorable effects. Second quarter adjusted operating income increased by 14% to $1.1 billion, their adjusted operating margin expanding to 59%. Moving to the balance sheet. Shortly after we reported our first quarter results in May, we took the opportunity to raise $8 billion in new senior notes. We used $3 billion of these proceeds to refinance our 2022 and 2023 maturities and, along with the proceeds from our sale of Euroclear, reduce our commercial paper balances to zero. With no maturities until the middle of 2025, we enter the second half with a balance sheet that is well positioned amidst an exceptionally volatile interest rate environment. The remaining $5 billion of proceeds raised in May is earmarked to fund a portion of our announced acquisition of Black Knight. Based on the favorable rates that we've secured on these long-term notes and the current forward rate expectations for both our commercial paper and term loan, we anticipate we will be well within our targeted 4% to 4.5% cost of debt financing for the transaction. It is also worth noting that alongside the financing in May, We maintained our A- and A3 pre-acquisition ratings from both S&P and Moody's. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Second quarter exchange net revenues totaled $1 billion, an increase of 13% year-over-year. This strong performance was driven by an 80% increase in our interest rate futures and a 36% increase in our equity derivatives revenues. Importantly, total open interest which we believe to be the best indicator of long-term growth, ended July up 11% versus the end of last year, including 6% growth in energy and 21% growth across the financial futures and options complex. Second quarter cash equities and equity options revenue increased by 17% year-over-year. And in July, we successfully migrated the NYSE ARCA options platform to our new pillar technology, while continuing to seamlessly process record message volume, a testament to our team's hard work and our broader technology expertise. Exchange recurring revenues increased by 7% year over year. This growth was driven by strong demand in our energy exchange data, continued benefit from our record 2021 listings performance, and a one-time accrual in our listings business that we do not expect will reoccur in the second half. Turning now to slide six, In our fixed income and data services segment, second quarter revenue totaled a record $512 million, a 13% increase versus a year ago. Transaction revenues increased by 78%, including 85% growth in ICE bonds and 76% growth in our CDS clearing business. This strong growth was driven in part by customers reengaging and allocating more capital to CDS trading, as well as our continued efforts to build institutional connectivity to our bond platforms, where we are seeing market share gains in our municipal bond business. Recurring revenue growth, which accounted for over 80% of segment revenues, grew 5% in the quarter and was once again driven by strength in our consolidated feeds business, as well as continued growth in the ICE global network. Looking to the second half, we expect year-over-year growth in our recurring revenues to continue, supported by an ASV that enters the third quarter up over 5% year-over-year, And that second half, as reported recurring revenues, will be flat to slightly up versus our first half results, driven by Euronext data center migration, which was included in our original guidance, and $10 million of additional FX headwinds. Shifting to mortgage technology on slide seven. Second quarter revenues totaled $297 million. Recurring revenues, which accounted for over half of segment revenues, and totaled $160 million in the quarter, increased 18% year-over-year. These strong recurring revenues continue to drive outperformance versus an industry that experienced a 40% decline in origination volumes. While the current macroeconomic backdrop is challenging for a number of our customers, this also presented an opportunity to have more constructive conversations around efficiency and automation across the mortgage origination workflow. It's worth noting that second quarter unit origination volumes were similar to those in the second quarter of 2019. However, second quarter 2022 revenues in our mortgage technology business were over $100 million greater, or up almost 60% when compared to pro forma revenues in 2Q19. This is a clear testament to to the continued automation and growth in customer adoption of our solutions across the Origination workflow. I'll conclude on slide eight. Through the first half of the year, we've grown total ICE revenue by 7%, adjusted operating income by 11%, including 200 basis points of margin expansion, and adjusted earnings per share by 12%, representing the best first half in our history. In addition, we've positioned our balance sheet for the acquisition of Black Knight, while also growing our dividend and continuing to invest in future growth. As we look to the balance of the year, we're excited about the many growth opportunities in front of us, and we remain focused on creating value for our stockholders. With that, I'll hand it over to Ben.