Intercontinental Exchange Inc.

Hello and welcome to the ICE First Quarter 2023 Earnings Conference Call and Webcast. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star followed by one on your telephone keypad as we kindly ask that you limit yourself to one question. I will now hand you over to host Cathy Gonzalez, Manager of Investor Relations. Please go ahead.

Good morning. ICE's first quarter 2023 earnings release and presentation can be found in the investor section of the ice.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 2023 Form 10-Q and other filings with the SEC. In addition, as we announced last year, ICES agreed to acquire Black Knight. The transaction is still pending regulatory approval, and we expect to close in the second 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 equivalent 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 the earnings supplement for additional details regarding the definition of certain items. While Lynn is not able to join today's call, as she's participating in a large IPO being conducted at the NYSE, with us on the call are Jeff Sprecher, Chair and CEO, Warren Gardner, Chief Financial Officer, and Ben Jackson, President. 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 first quarter results. Adjusted earnings per share of $1.41 was driven by net revenues of $1.9 billion, including record exchange revenues and record fixed income and data service revenues, which increased 12% year over year. First quarter adjusted operating expenses totaled $740 million, $5 million below the low end of our guidance range, driven by timing of professional services fees and technology spent. This strong performance helped to drive an adjusted operating margin of 61% and a record adjusted operating income of $1.2 billion. Looking to the second quarter, we expect adjusted operating expenses to be in the range of 763 to $773 million, with a sequential increase driven by the full quarter impact of 2023 merit increases, as well as strategic investments in technology and growth initiatives across our business. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. First quarter net revenues totaled a record $1.1 billion, transaction revenues of $739 million, were driven in part by 15% growth in agricultural commodities and a 16% increase in our global natural gas business. Importantly, open interest trends remain strong across futures and options as of the end of April, including 6% growth in global energy and 17% growth in ags. It's worth noting that on May 1st, we implemented select price increases within our energy business, capturing a portion of the substantial value we have brought to the asset class over the last decade through both continuous product innovation and technology enhancements. Depending on the mix of volumes, we would expect a benefit to our energy RPC beginning with the second quarter. Recurring revenues, which include our exchange data services and our NYC listings business, increased by 5% year over year, including 8% growth in exchange data services, which was in part driven by double-digit growth in the number of customers consuming our global energy and environmental data. This was partially offset by slower growth in our listings business, where industry-wide capital markets activity continued to be relatively muted. It's worth noting that despite the current environment, the IPO backlog continues to grow, and another eight companies elected to transfer to the NYSE through April, building on a record year for transfers in 2022. Turning now to slide six, I'll discuss our fixed income and data services segment. First quarter revenues totaled a record $563 million, up 12% versus a year ago. Transaction revenues increased by 54%, including 106% growth in ICE bonds and 42% 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. Excluding the impact of the Euronext migration, recurring revenues grew by 4%, driven by additional capacity on the ICE global network, as well as strong growth across our analytics and desktop offerings, with strong demand from energy and environmental-focused customers. This performance is a key driver of our other data and network services business, which increased by 8% in the first quarter and 10%, excluding the impact of Euronext. Similar to last quarter, we experienced an extended sales cycle within our end-of-day pricing business, as well as pressure and asset-based revenues in our index business, which declined year-over-year as investors shifted out of higher-fee risk assets in 2022, such as equities and corporate bonds, and into munis and treasurer ETFs. Let's go to slide seven, where I'll discuss our mortgage technology segment. First quarter mortgage technology revenues totaled $236 million. Recurring revenues, which accounted for nearly 70% of segment revenues, totaled $165 million and grew 6% year-over-year. These strong recurring revenues continued to help drive outperformance versus an industry that experienced a nearly 60% decline in origination volumes. While nearly two-thirds of our Encompass customers that came up for renewal during the quarter did so at higher minimums, helping to drive year-over-year and sequential growth in recurring revenues, It was somewhat offset by increased pressure from customers electing to renew at lower levels. Importantly, the vast majority of these customers remain on the Encompass and ICE Mortgage Technology platform. While we expect to continue to outperform the industry, if current cyclical conditions persist, we would expect recurring revenues to be towards the lower end of our mid- to high-single-digit guidance range for the year. These same cyclical conditions and cost pressures are also increasingly attracting customers that have not traditionally been on the Encompass platform. This is best evidenced by our first signing of a top five global bank during the quarter, electing to replace their legacy in-house loan origination technology. While not expected to impact 2023 recurring revenues, it's helped to drive the best quarter for new sales of Encompass in the product's history and is a clear testament to the increasing need for workflow efficiencies and another example of the synergy opportunities that exist for ICE across the mortgage industry. In summary, we delivered another quarter of revenue, operating income, and free cash flow growth. We continue to make strategic investments across our business in future profitable growth opportunities, and we are well positioned to meet the evolving needs of our customers 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.