Intercontinental Exchange Inc.

Hello and welcome to the ICE fourth quarter 2022 earnings conference call and webcast. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. I'll now hand over to your host, Cassia Gonzalez, investor relations and senior analyst. Cassia, please go ahead.

Good morning. ISA's fourth quarter 2022 earnings release and presentation can be found in the investor section of the isa.com. These items will be archived and our code 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 2022 Form 10-K and other filings with the SEC. In addition, as we announced last year, ICES agreed to acquire Black Knight. The transaction is pending customary regulatory approval and we expect to close in the first half of this year. In connection with the proposed transaction, ICES 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. Please see the form as we're filing for additional information regarding the 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. Your final reconciliation to the fulfilling GAAP terms 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 our 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 NYC. I'll now turn the call over to Warren.

Thanks, Katya. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with some of the key highlights from our fourth quarter results. Net revenues of $1.8 billion were driven by transaction revenues of $828 million and recurring revenues of $940 million, up 4% year-over-year. For the full year, revenues totaled $7.3 billion, also up 4% versus last year. Fourth quarter adjusted operating expenses totaled $740 million and are within our guidance range, including approximately $5 million of additional severance. This strong performance helped to drive fourth quarter adjusted earnings per share of $1.25 and full year adjusted EPS of $5.30, an increase of 5% versus 2021. 2022 free cash flow totaled a record $2.9 billion, which enabled us to return nearly $1.5 billion to shareholders while also continuing to make strategic investments across our business. In addition, we have received board authorization to increase our quarterly dividend by 11% to 42 cents per share beginning in the first quarter of 2023, extending our 10-year track record of double-digit dividend growth. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Fourth quarter net revenues totaled $982 million. Transaction revenues of over $600 million were driven in part by 11% growth in agricultural commodities and 13% growth in our equity derivatives business. Importantly, open interest trends remain strong across our futures and options in January, including 14% growth in global natural gas and 24% growth in Uribor. Recurring revenues, which include our exchange data services and our NYSE listings business, increased by 5% year-over-year in the fourth quarter. Customer growth, particularly within our energy exchange data, was partially offset by slower growth in our listings business, where industry-wide capital markets activity was relatively muted. It's worth noting that despite a slower year for ITOs across the globe, we had a record year for listing transfers with 34, including more operating companies in the last three years combined. For the full year, exchange segment revenues increased by 8%, including a 33% increase in our interest rate business, a 20% increase in equity derivatives, and an 8% increase in our global natural gas revenues. Turning now to slide six, I'll discuss our fixed income and data services segment. Fourth quarter revenues totaled a record $537 million, up 13% versus a year ago. Transaction revenues increased by 89%, including 182% growth in ICE bonds and 66% growth in our CDS clearing business. Similar to last quarter, this strong growth was driven by market volatility, higher interest rates, and our continued efforts to build institutional connectivity to our bond platforms. Recurring revenue growth of 3% was driven by demand for additional capacity on ICE Global Network, as well as strong growth across our desktop, feeds, and analytics offerings. We're beginning to see a return on the investments we have made in both enhanced content and functionality. This performance is a key driver of our other data and network services business, which increased by 8% in the fourth quarter, and 10% excluding the impact of the Euronext migration. Somewhat offsetting was slower growth in our end-of-day pricing business, where we were experiencing a slower sales cycle and pressure from asset-based revenues in our index business, which declined double digits year over year as investors shifted out of higher-fee risk assets, such as equities and corporate bonds, into munis and treasury ETFs. For the full year, Total segment revenues totaled a record $2.1 billion, up 13%, while adjusted operating margins expanded by 500 basis points. As anticipated, recurring revenue grew 4% for the year and was up 5% after adjusting for Euronet. Let's go next to slide 7, where I will discuss our mortgage technology segment. Fourth quarter mortgage technology revenues totaled $249 million. Recurring revenues, which accounted for two-thirds of segment revenues, totaled $164 million and grew 10% year-over-year. These strong recurring revenues continued to drive outperformance versus an industry that experienced a nearly 60% decline in origination volumes. Importantly, data and analytics revenues increased by over 30% year-over-year. For the full year, mortgage technology revenues totaled $1.1 billion, including a 16% increase in our recurring revenues and a 24% increase in our data analytics revenues. And while industry volumes were actually below those seen three years ago in 2019, pro forma 2022 mortgage technology revenues are higher by nearly 50%, representing a CAGR of roughly 14%. I'll conclude my remarks on slide eight with some additional guidance. Recurring revenues in 2023 will once again be led by our mortgage technology segment, where we are expecting mid to high single-digit growth. a testament to the continued adoption of automation across the mortgage workflow. In our fixed income and data services segment, we expect recurring revenue growth, excluding headwinds of approximately $15 million related to FX and the Euronext data center migration, to once again be in the mid-single digits. And lastly, in our exchange segment, we expect recurring revenue growth, excluding a $20 million headwind from the cessation of LIBOR, to be in the low single digits. as continued growth in our energy exchange data services is offset by fewer IPOs and the tapering of 2021 initial listing fees. Moving to expenses, we expect 2023 adjusted operating expenses to be in the range of $3.04 to $3.09 billion. Consistent with prior years, we will reward our employees for their contributions to our strong results and therefore expect cash compensation expense to increase by approximately $20 to $40 million. Strategic investments in technology, operations, and revenue-related initiatives are expected to increase by $40 to $50 million, driven by higher licensees as well as investments across all three of our segments. In addition, we expect roughly $45 to $55 million of incremental non-cash expense, including $25 million of DNA related to the rebuild of Ellie Mae CapEx. And lastly, we expect an FX benefit to our adjusted expenses by approximately $5 to $15 million when compared to 2022. In summary, we delivered another record year of revenues, operating income, free cash flow, and earnings per share. Across our business, we made strategic investments in future growth, and as we enter 2023, we are well positioned to meet the evolving needs of our customers, once again deliver profitable growth, and create value for our shareholders. I'll be happy to take questions during Q&A. But for now, I'll hand it over to Ben.