Intercontinental Exchange Inc.

Hello everyone and welcome to the ICE fourth quarter 2023 earnings conference call and webcast. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask your question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. Please note that we will only be taking one question per person before moving on to the next questioner. If you wish to ask a follow-up, please return to the queue. I'll now hand over to our host, Katia Gonzalez, Manager of Investor Relations, to begin. Katia, please go ahead.

Good morning. ICE's fourth 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 2023 Form 10-K 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 cooling gap 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. 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, Katya. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with a summary of our strong fourth quarter and some key highlights from our record 2023 results. Fourth quarter net revenues totaled a record $2.2 billion. and pro forma for the acquisition of Black Knight increased 7% versus last year. For the full year, revenues totaled a record $8 billion, and on a pro forma basis increased by 4% year over year. Fourth quarter adjusted operating expenses totaled $952 million, $3 million below the low end of our original guidance range driven by lower compensation expense and acceleration of expense synergies. This strong performance helped to drive fourth quarter earnings per share of $1.33, up 6% year-over-year, and record full-year adjusted EPS of $5.62, also up 6% versus 2022. 2023 free cash flow totaled a record $3.2 billion, enabling us to return nearly $1 billion to shareholders through dividends, while also continuing to make strategic investments, such as our September acquisition of Black Knight. These strong cash flows, as well as the full divestment of Black Knight Steak and Dun & Bradstreet, enabled us to reduce debt outstanding by roughly $700 million in the fourth quarter and by $1.4 billion since we closed on our acquisition in early September. As a result, adjusted leverage ended the year at approximately 4.1 times pro forma EBITDA. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Fourth quarter net revenues followed a record $1.1 billion, up 14% year over year. Transaction revenues of $781 million were up 22%, in part driven by a 31% increase in our interest rate business and record energy revenues, which grew 46% year over year. This strong performance included a 41% increase in our oil complex, 66% growth in global natural gas revenues, driven by another record-setting quarter for TTF, and 23% growth in our environmental business. In addition, January set the tone for what we expect will be another strong year, evidenced by robust levels of total open interest in January of 20% year-over-year, including 22% growth in global energy and 23% growth in ags, as well as record average daily volumes across commodities, energy, and total options. Shifting to recurring revenues, which include our exchange data services and our NYSE listing business, revenues totaled $355 million in the fourth quarter. Similar to last quarter, growth in the number of customers consuming our global energy and environmental data was partially offset by the rolling off of initial listing fees related to the strong IPO market in 2021. It's worth noting that despite a slower year for IPOs across the globe, the NYSE led the industry in transfers for a second straight year, including a total of 32 transfers from other exchanges. Looking to 2024, we expect recurring revenues in our exchange segment to grow in the low single digits, driven by continued strong growth in futures exchange data, somewhat offset by growth in our listings business, with pressure on initial listing fees abating in the second quarter. Turning now to slide six, I'll discuss our fixed income and data services segment. Fourth quarter revenues totaled a record $563 million, up 4% versus a year ago, including transaction revenue of $116 million. For the full year, transaction revenues increased 19%, in part driven by 23% growth at ICE bonds, which, since our acquisition of BondPoint and TMC, has grown at a CAGR of 11%, driven by growing institutional adoption and higher interest rates. Recurring revenues totaled a record $447 million and grew by 5% year over year in the fourth quarter. In our fixed income data and analytics business, record fourth quarter revenues of $286 million increased by 4%, an acceleration from 2% growth in the third quarter, driven by pricing and reference data and a return to double digit growth in our index business. Other data and network services grew 7% in the fourth quarter, driven by continued growth across our desktop, feeds, and derivative analytics offerings. Within our desktops business, we continue to see strong demand from energy and environmental-focused customers, as well as continued robust growth in our ice chat offering. In our consolidated feeds business, we continue to realize the benefits of past investments to enhance our platform, with a record 2023 contributing to the high single-digit revenue taker over the last three years. Looking to 2024, we expect that recurring revenues in our fixed income and data services business will grow in the mid-single-digit range, as we expect the aforementioned trends across fixed income, data, and analytics, as well as desktops and feeds, to continue. Please flip to slide seven, where I will discuss the results in our mortgage technology segment. Please note that my comments on revenue growth are on a pro forma basis. ICE Mortgage Technology revenues totaled $502 million in the fourth quarter. slightly above the high end of our guidance range, with recurring revenues of $397 million, accounting for roughly 80% of total segment revenues. In addition, on a pro forma basis, operating income increased 7% year over year. We had a strong finish to 2023, registering one of the best quarters for new product sales, including 37 new Encompass clients and four new MSP clients. This strong finish capped off what was the best year since 2018 for Encompass and MSP sales, And while these sales will take time to implement and thus recognize the related revenue, there is clear momentum across the industry as customers seek technology and data solutions that drive greater transparency and workflow efficiencies. Shifting to 2024 guidance, consistent with the near-term outlook provided in our Black Night closing call in September, we expect total mortgage technology revenue growth on a pro forma basis to be in the low single-digit to mid single-digit range for the full year. The low end of our range assumes only a modest improvement in application and origination volumes, while the high end underwrites a more substantial improvement in the double-digit growth range. It is worth noting that seasonality tends to benefit both the second and third quarters of each year relative to the first and fourth. Recurring revenues for the year is expected to be roughly flat, including a decline of roughly $5 to $10 million in the first quarter relative to the fourth quarter. We expect recurring revenues to improve sequentially thereafter as sales implement, with year-over-year growth reemerging in the second half. The sequential pressure and attrition that we expect in the first quarter is largely driven by two customers that were acquired, one of which was completed back in 2021. Moving to Black Knight Synergies, through the first five months post-close, we have signed annualized revenue synergies of roughly $30 million, or nearly a quarter of our $125 million five-year targets. It is worth noting that these signings are not expected to have a material impact on our 2024 recurring revenues and will largely begin to be recognized in 2025 and thereafter. Synergies have largely been driven by cross-sell success across our flagship and Compass and MSP platform, as well as in data and analytics. Turning to expense synergies, we expect to realize approximately $135 million in annualized savings by the end of 2024, ahead of our original expectations of roughly $100 million by year end. I'll conclude my remarks on slide eight with some additional guidance. We expect 2024 adjusted operating expenses to be between $3.81 billion and $3.86 billion. Similar to prior years, we expect to continue to invest in our people, our technology, including the enhancement of MSP, and various growth initiatives across our business. These investments are somewhat offset by expense synergies, which I noted, are expected to reach approximately $135 million in run rate annualized savings by the year end of 2024. Moving below the line, we expect non-operating expense to be between $215 million and $220 million in the first quarter. And depending on the future path of short-term interest rates, these expenses should decline slightly in subsequent quarters as we continue to pay down the outstanding commercial paper and term loan related to our Black Knight acquisition. We anticipate the full year tax rate to be in the range of 24% to 26%, up slightly from 2023 through the impact of a full year of higher UK taxes. And finally, we expect full year CapEx to be in the range of $600 million to $650 million, including approximately $100 million related to Black Knight, with the vast majority expected to be directed to various technology investments that Ben will detail shortly. and $100 million related to the new office space and expansion and improvement across New York, London, and Jacksonville. In summary, we delivered a very strong finish to another record year of revenues, operating income, free cash flow, and earnings per share. We grew our dividend, returning nearly $1 billion to our shareholders, while at the same time continued to invest across the business to meet the needs of our customers and expand our mortgage technology network through the acquisition of Black Knight. As we kick off 2024, we're focused on once again delivering growth and creating shareholder value. I'll be happy to take your questions during Q&A, but for now, hand it over to Ben.