Intercontinental Exchange Inc.

Good morning. ICE's second quarter 2024 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, 2024 Second 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 reflective of our cash operations and core business performance. You'll find our reconciliation to the equivalent GAAP terms in our 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. Lynn Martin, President of the NYSE. And Chris Edmonds, President of Fixed Income and Data Services. 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 record quarterly results. Second quarter net revenues totaled a record $2.3 billion. Pro forma for the acquisition of Black Knight, Total revenue increased by 7% versus last year and is up 6% through the first half of 2024. Second quarter adjusted operating expenses totaled $947 million, up 1% year-over-year on a pro forma basis. As a result of this strong performance, adjusted pro forma operating income increased by 11% versus the prior year, reaching a record $1.4 billion, with record adjusted earnings per share totaling $1.52. Moving to the balance sheet, adjusted leverage ended the second quarter at approximately 3.7 times pro forma EBITDA, a reduction from 3.9 times at the end of the first quarter and 4.3 upon the completion of Black Knight in the third quarter of 2023. Before I move to our segment results, I will note a few third quarter guidance items. We expect third quarter adjusted operating expenses to be in the range of $955 million to $965 million. or at the midpoint, an increase of roughly 1% year-over-year on a pro forma basis, with growth across our exchange and FIDS segments largely offset by expense synergies, which we now anticipate will exit 2024 at an annualized run rate of over $150 million, up from prior expectations of $135 million. Relative to the second quarter, we expect a sequential increase to be driven by higher occupancy costs slightly higher compensation, including an accrual for our strong performance year to date, and higher depreciation expense as revenue-related data center investments continue to come online. Moving below the line, adjusted non-operating expense is expected to be between $190 million to $195 million, driven by lower interest expense as we continue direct free cash flows to reducing debt outstanding. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segment. Second quarter net revenues totaled a record $1.2 billion, up 14% year over year. Record transaction revenues of $884 million were up 20%, driven by a 40% increase in our interest rate business and record energy revenues, which grew 33% year over year. This strong energy performance included a 30% increase in our oil complex, 32% growth in global natural gas revenues, and 64% growth in our environmental business. In addition, as of the end of July, open interest is up 20% year over year, including 21% growth in global interest rates and 25% growth in our energy markets. Shifting to recurring revenues, which include our exchange data services and our NYSE listings business, revenues totaled $362 million in the second quarter. Mid single-digit growth in our broader exchange data services was underpinned by high single-digit growth in futures data, in part driven by the continued expansion of our global energy and environmental network. In our listings business, SPAC delistings and the rolling off of 2021 admission fees offset a solid quarter for new listings. Through the first half, and despite only half of IPOs eligible to list, the NYSE has helped raise $12 billion in new proceeds, welcoming 30 new operating companies, including seven of the top 10 IPOs. Absent a sharp recovery in ITOs in the second half, we would expect listings revenues to trend around current levels through the balance of this year. Turning now to slide six, I'll discuss our fixed income and data services segment. Second quarter revenues totaled $565 million. Transaction revenues totaled $108 million. Transaction revenue growth at ICE bonds was once again driven by strong growth across both corporates and munis. particularly our institutional channel, which grew double digits year over year. Record recurring revenues totaled $457 million and grew by 5% year over year, slightly ahead of expectations. In our fixed income data and analytics business, record second quarter revenues of $293 million increased by 6% year over year and was driven by growth in pricing and reference data, another quarter of double digit growth in our index business, and higher than anticipated one-time revenue. Other data and network services grew 5% in the second quarter, driven by our consolidated feeds business and continued strength in our oil and gas desktop solutions, both of which are products that we have invested in organically, enhancing both content and functionality. Total ASV, or annual subscription value, exits the quarter up 4% year-over-year. coupled with visibility into our sales pipeline for the balance of this year and assuming flat markets, we are on track to grow total fixed income and data services recurring revenue around the middle of our mid-single-digit guidance range, an improvement from 3% growth in 2023. Please flip to slide 7, where I'll discuss the results of our Mortgage Technology segment. ICE Mortgage Technology revenues total $506 million in the second quarter. Recurring revenues totaled $387 million. Relative to the first quarter, revenue from new customers coming online was offset by attrition within our data and document automation product, or DDA, and was primarily related to non-encompassed customer on our legacy platform who was not utilizing DDA's full capabilities. Despite this attrition, quarterly sales of DDA were the strongest since early 2022, including the signing of JPMorgan Chase, a current user of DDA on the origination side, to utilize the platform for their servicing business, a win that is a testament to past investments and synergies with MSP. In addition, while the majority of customers continue to renew at higher minimums, similar to the last few quarters, we also saw customers renew lower. It's important to note that lower minimums are paired with a higher transaction fee, or price for closed loan, and that total contract value, assuming normal market conditions, continues to increase upon renewal. Transaction revenues totaled $119 million in the second quarter. While revenues related to Encompass closed loans, applications, and MERS registrations increased in the low single digits on a year-over-year basis and increased well into the double digits sequentially, growth was somewhat offset by transaction revenues related to the aforementioned DNA attrition, as well as lower default management revenues within our servicing business. While the mortgage resignation market is trending below historical levels and refinance ways can be difficult to predict, we are seeing encouraging signs that fundamentals are stabilizing. According to IceMate Mortgage Technology data, while still below pre-COVID levels, the number of homes on the market continues to grow, up nearly 40% versus this time last year. In addition, tappable home equity hit record levels at the end of June, reaching $11.5 trillion. with over 30 million homeowners with at least $100,000 to draw down upon. And we estimate that the number of borrowers with an incentive to refinance at current rates is at its highest level in two years, driven by slightly lower interest rates and a building backlog of higher rate purchase loans. And so, we continue to invest in product development and enhancement, and we continue to expand our existing network, all which further position our platform to realize accelerating growth when market conditions normalize. In summary, we delivered a record first half. We once again delivered revenue growth, operating income growth, and free cash flow growth. We continue to invest across our business to meet the needs of our customers and to position our business to continue to deliver consistent and compounding growth for our stockholders into the future. I'll be happy to take your questions during Q&A, but for now, I'll hand it over to Ben.

Thank you, Warren, and thank you all for joining us this morning. Please turn to slide eight. In the more than 20 years ICE has been building its global energy platform, we have strategically positioned our energy business for the globalization of natural gas and the societal demand for a transition to clean energy. Our long-term strategic direction and the value of our diverse, deep, and liquid markets contributed to record trading volumes across our energy complex in the second quarter. This was a key driver to another quarter of record energy revenues, up 33% year over year, and growing double digits on average over the past five years. This strong performance is a testament to our customers' continued confidence in ICE as the global energy hedging venue of choice. And with open interest continuing to set records into July, up 25% year over year, our energy complex appears poised for continued strength. As the world evolves, market participants are constantly adjusting and weighing the price impact of an array of macroeconomic, geopolitical, and regulatory forces, as well as externalities such as climate risk and the emergence of new renewable fuel sources. In essence, the price formation process is increasingly becoming more complex, and that additional complexity is driving customer demand for more precise risk management tools. It is also driving demand for customers to come to a single place to manage risk across oil, gas, power, and environmentals because of the efficiency and deep liquid markets that we provide. Across natural gas, the evolution of a global market is accelerating. This acceleration is underpinned by the rise of liquefied natural gas, market-based pricing, and more recently, Europe's renewed openness to gas imports after the elimination of Russia as a key supplier and the emergence of North America as a leading natural gas exporter. Alongside this, as an important partner fuel, emitting about half as much carbon dioxide as coal to produce, natural gas continues to benefit from demand for cleaner fuels as countries move to reduce their carbon emissions. Additionally, the natural gas markets were historically regional oriented. each characterized by distinct pricing and supply dynamics. All these factors underpin the emergence of three key benchmarks for natural gas across North America, Europe, and Asia, with these becoming increasingly interconnected. In Europe, our Title Transfer Facility Contract, or TTF, is a central trading point for natural gas, just as Brent is the global benchmark for oil pricing. As a result, TTF is increasingly being used by global commercial participants, traders, and investors with a record number of market participants in the second quarter that has doubled since 2019. This has been accompanied by volumes and open interest increasing with both setting new highs in the second quarter and each are growing double digits on average over the past five years. In Asia, our Japan-Korea marker, or JKM, reflects the spot market value of cargoes delivered into the region that represents a key demand center for LNG underpinned by surging economic growth and increasing focus on environmental concerns. In 2023, global coal consumption reached its highest level in history, driven by continued growth in Asia. While coal continues to be replaced by natural gas and other cleaner energy sources in Europe and North America, it still accounts for 47% of primary energy consumption in Asia. In absolute terms, the coal switching opportunity in Asia alone represents more energy than the total energy consumption in North America across all primary energy sources. Today, the relationship between our TTF and JKM benchmarks drives the global price formation. Reflecting this dynamic, ICE's JKM volumes have shifted from being roughly 50% composed of the JKM-TTF spread to closer to two-thirds. This dynamic also illustrates market confidence in relying on TTF as a benchmark for global gas and LNG prices as participants draw assurance from its deep liquidity rather than relying on the Asian marker in isolation. In North America, we began preparing for the liberalization of natural gas and its evolution beyond the Henry Hub benchmark more than a decade ago. Through close collaboration with our customers, we created ICE's electronic regional basis markets, a suite of precise risk management tools reflecting the commercially relevant supply and demand dynamics of 70 hubs across North America. These hubs are priced at a differential to Henry Hub to reflect US regional market conditions, transportation costs, and transmission capacity between locations. Alongside this, many market participants seeking to manage exposure to US natural gas price dynamics gravitate towards ICE's Henry Hub contracts for liquidity and the linkage to our exclusive basis markets. As the global landscape of LNG exports, geopolitical forces, and shifts to cleaner energy sources all continue to evolve, we see these dynamics underpinning the strong momentum for this business. And we see these trends continuing to favor our growing global gas complex well into the future. The importance of the evolution of energy markets extends to our global environmental markets, where the number of market participants has nearly doubled since 2019, setting an all-time high in the second quarter and increasing 18% year over year. At the same time, volumes increased 61% in the quarter, including growth across our regional greenhouse gas initiative allowances, California carbon allowances, as well as our EU and UK allowances. This strong performance has contributed to a 43% increase in environmental revenues year to date, including 64% growth in the second quarter. In parallel, across our power markets, volumes increased 32% in the first half, including 51% growth in the second quarter. With AI and data center build-outs expected to drive meaningful power demand into the next decade, our platform is uniquely positioned to capture this tailwind and help market participants manage this potentially volatile growth story, given that ICE is the most comprehensive platform that offers U.S. regional gas markets alongside deep and liquid power and environmental markets. In summary, for market participants seeking to manage their risk, ICE's global energy platform offers over 1,000 futures and options contracts across natural gas, power, environmental, and oil markets, supporting the growing complexity of energy markets and uniquely positioning us to benefit from both near-term volatility and secular growth trends occurring across these markets. Moving to our fixed income and data services business, our quality pricing and reference data combined with over 40 years of price history serve as the foundation for what is today one of the largest providers of fixed income indices globally. Year to date, revenue in our index business is up double digits with passive ETF assets under management benchmark to our indices growing to a record $616 billion through the end of the second quarter from less than $100 billion in 2017 and doubling since 2020. In addition, we continue to see returns on past investments made to enhance content and functionality across our other data and network services business. As an example, within our consolidated feeds business, investments we've made to elevate and enhance our offering have directly contributed to the double-digit revenue growth in this area year to date. With content from over 600 data sources, our offering gives customers access to a broad universe of low-latency financial information with full depth of market data. As firms seek more high-quality data from a range of different sources in a cost-efficient manner, our competitive and comprehensive offering stands to benefit. While our consolidated feeds and indexed businesses are smaller components of our comprehensive data platform today, they're both well positioned to continue to grow and capture market share while also serving an important role in our broader enterprise sales strategy. Turning now to our mortgage business, the secular shift towards the adoption of an electronic workflow continues. With a life of loan offering that spans from point of consumer acquisition all the way through to the secondary market, our platform is uniquely positioned to play a fundamental role. In the second quarter, we closed on 29 new Encompass clients, as customers focus on modernizing their infrastructure and on workflow efficiencies. Building on wins announced last quarter, such as Citizens Bank and Webster Bank, we are pleased to announce that Mortgage Solutions of Colorado has signed on to Encompass, expanding on the MSP win we announced late last year. We have also just signed another top 15 home builder in the U.S. to Encompass and our DDA platform making them the ninth home builder of the top 15 to join our community. In addition, as mentioned last quarter, we've been integrating our tax, flood, and closing fees data into Encompass, providing customers with more choice of service providers on our platform. In that regard, we're encouraged by the early traction in our cross-sell efforts across these offerings, executing on 200 data cross-sells to Encompass clients in the first half. While these offerings are small components of our business today, these wins give us confidence in our ability to execute on the synergy targets that we laid out at the time of the Black Knight transaction. Along the same lines, following the first integration of Encompass to MSP by leveraging our data and document automation platform for loan onboarding straight from origination through to servicing, we are pleased to announce that we signed JPMorgan Chase onto this service. For our traditional DDA business, we also had 12 new wins to new and existing Encompass clients in the second quarter alone. In summary, we are pleased to see the value of our platform and solutions are providing by our comprehensive technology platform, and it's resonating in the marketplace. With a touch point to nearly every market participant, we have connectivity to a customer base in need of the automation that our digital solutions provide. As these new customers come onto our network, we have the opportunity to expand the customer relationship over time as they adopt additional solutions. Just as we've seen in our other markets, this flywheel effect gives us confidence that we can grow a business that today is only a fraction of the $14 billion addressable market that's in the early days of an analog to digital conversion. With that, I'll turn the call over to Jeff.