Intercontinental Exchange Inc.

Hello and welcome to DEI's third quarter 2023 earnings conference call and webcast. My name is Lauren and I'll 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. Please also kindly limit yourself to one question and rejoin the queue for any follow-up questions. I will now hand you over to your host Katia Gonzalez, Manager of Investor Relations to begin. Please go ahead.

Good morning. ICE's third quarter 2023 earnings release and presentation can be found in the investor section of the ice.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 2022 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 our reconciliation to the equivalent GAAP terms in our earnings materials. When you're 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 NYSE. 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 third quarter results. Third quarter adjusted earnings per share was a record, holding $1.46, up 11% year over year. Net revenues totaled a record $2 billion, and on a pro forma basis increased 4% versus last year, driven by double-digit growth in our exchange segment, which was led by 22% growth in our futures platform. Third quarter adjusted operating expenses totaled $812 million, including $56 million related to Black Knight and $756 million related to Legacy Ice, which was $4 million below the low end of our original guidance range, largely driven by lower technology spend including reduced cloud exposure as we continue to optimize and drive efficiency through our data center footprint. As we move into the fourth quarter, we expect adjusted operating expenses to be in the range of $955 million to $965 million, with the increase relative to the third quarter driven by additional rent, DNA, and seasonality in capitalized labor, as well as a full quarter of expense related to Black Knight. Moving below the line, Adjusted non-operating expense totaled $114 million, including $41 million of incremental interest expense related to our acquisition of Black Knight. And we expect adjusted non-operating expense in the fourth quarter to be between $225 million and $230 million, largely driven by the full quarter impact of acquisition-related interest expense. It is also worth noting that we have reduced our term loan and CP outstanding by around $700 million since transaction closed in early September. Now let's turn to slide five, where I'll provide an overview of the performance of our exchange segment. Third quarter net revenues totaled $1.1 billion, up 10% year over year. Transaction revenues of $754 million were up 13%, driven by 42% growth in our energy revenues. This strong performance included forty-eight percent growth in global natural gas, driven by a record quarter of TTF volumes. In addition, we continue to see robust trends across our global oil business, with ADV up forty percent year-over-year in the third quarter, and open interest at the end of October up twenty-six percent year-over-year. As we look to the fourth quarter, it's worth noting that we expect OTC and other revenue to be in the range of seventy million dollars to seventy-five million dollars. with the third quarter benefiting from a few items that we don't anticipate will repeat. In addition, and in light of the strong performance in our equity options business, where revenues are up 15% year-to-date, we've elected for a regulatory fee holiday, which will temporarily reduce OTC and other revenues by $10 to $15 million in the fourth quarter. Shifting away from transaction revenues, recurring revenues increased by 4% year-over-year, including 8% growth in exchange data services. which is once again driven by double-digit growth in the number of customers consuming our global energy and environmental data, as well as the benefit of a few million dollars related to audit recoveries, which we don't expect to repeat in the fourth quarter. This is partially offset by our listings business, where growth in annual listing fees was offset by the rolling off of initial listing fees related to the strong IPO market in 2021. Turning now to slide six, I'll discuss our fixed income and data services segment. Third quarter revenues totaled $559 million, up 4% versus a year ago. Transaction revenues increased by 6%, including 9% growth in ICE bonds and 5% growth in our CDS clearing business. Excluding the impact of the Euronext migration, both recurring revenues and ASV grew by 4%, driven by strong growth across our desktop, feeds, and derivative analytics offerings. Within our desktop business, Revenues once again grew double digits as we continue to see strong demand from energy and environmental focused customers, as well as a continued robust growth in our ICE chat offering, in part driven by growing adoption of large language models. In our consolidated feeds business, we once again grew high single digits and expect to exceed 100 million of revenue for the full year as we continue to realize the benefits of past investments to enhance our platform. In our fixed income data and analytics business, We generated a record $279 million in the third quarter, with a sequential growth in revenue driven by our North American Pricing and Reference Data Business, or PRD. While PRD growth may continue to be below trend in the near term, we're seeing signs of an improved sales cycle alongside strong retention. Let's go next to slide seven, where I will discuss our mortgage technology segment. Third quarter mortgage technology revenues totaled $330 million. including $87 million related to Black Knight. Recurring revenues totaled $235 million and, on a pro forma basis, $396 million, representing nearly 80% of total pro forma segment revenues. Despite the headwinds facing the mortgage industry and the related near-term pressure on our recurring revenues, sales continue to be robust as customers look to reshape and modernize how they do business. Through October, we have already surpassed our prior full-year record for new encompass sales, which was set in 2020. In our servicing solutions business, the closing of the Black Knight transaction has unlocked the pipeline, with four new MSP customers signed in October alone, including a top 25 servicer, Fifth Bird Bank. This compares to a total of five signings through the first nine months of the year and has quickly put 2023 on track to be the second best year for MSP sales since 2017. In addition, as we look to 2024 and continuing the momentum we have seen post-close, the current pipeline for MSP is at its highest level in five years. While we expect the secular trend of customers seeking greater efficiency across their workflows to continue, it's important to note that these strong sales results will take time to implement. And looking to the fourth quarter, we anticipate near-term cyclical headwinds will persist. coupled with typical seasonal pressures on origination volumes in the first and fourth quarters of each year, we expect the total fourth quarter IMT revenues will be in the range of $490 million to $500 million, bringing full-year pro forma IMT revenues to approximately $2.06 billion in the middle of the guidance range we provided on our Black Knight closing call in late September. In summary, at a consolidated ice level, we once again grew revenues, adjusted operating income, and adjusted earnings per share. And as we look to the end of the year and into 2024, we remain focused on meeting the needs of our customers, continuing to drive growth, and to create value for our shareholders. I'll be happy to take your questions during Q&A. For now, I'll hand it over to Ben.