Operator:

Good morning everyone, and welcome to today's ICE Second Quarter 2024 Earnings Conference Call. My name is Drew and I'll be your operator today. During today's call, there will be a Q&A session. [Operator Instructions] I will now turn the call over to Katia Gonzalez, Manager of Investor Relations to begin. Please go ahead.

Warren Gardiner:

Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 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 FID 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 the 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 to direct free cash flows to reducing debt outstanding. Now let's move to Slide 5, 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 NYC has helped raise $12 billion in new proceeds, welcoming 30 new operating companies, including seven of the top ten IPOs. Absent a sharp recovery in IPOs in the second half, we would expect the listings revenues to trend around current levels through the balance of this year. Turning now to Slide 6, 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 fees 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, exited 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 were over $506 billion 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 DBA 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 per closed loan and net 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 origination 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 ICE 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.

Jeffrey Sprecher:

Thank you, Ben. Good morning everyone and thank you for joining us. Please turn to Slide 9. At ICE, our mission for more than 20 years has been to drive transparency and create workflow efficiencies for our customers. We do this by building and operating mission critical digital networks that leverage our technology, data and operating expertise. At the time of our IPO on the New York Stock Exchange in 2005, we were purely an energy exchange offering only a handful of products to a narrow customer base. Since then, our focus has been building a global platform that has the asset class breadth to enable us to pursue growth opportunities quickly and efficiently as they emerge around the world and deliver all weather results. While we're known for some of our larger scale acquisitions, we have also completed a wide range of smaller bolt-on transactions. We reimagine these businesses by leveraging technology and crafting significant product development to drive organic growth, further bolstering the content on our networks and accelerating our broadening into new asset classes. Operating marketplaces with strong network effects is a core expertise at ICE, and today we do so across an array of asset classes, geographies and customer types. Optimizing the operation of financial services databases helps drive market transparency and this transparency attracts additional participant, which in turn improves market liquidity. It's a virtuous cycle that continuously expands the network while strengthening the market. Starting with our commodities business in 2001, we acquired the International Petroleum Exchange, which brought us both proprietary content in the form of the Brent Crude Index, as well as connectivity to a broad network of energy traders and commercial customers. Building on that foundation, we organically developed and grew hundreds of precise hedging instruments to serve the evolving needs of this commercial customer base. Today, the original Brent crude contract trades alongside our Midland WTI, Cushing WTI, Platts Dubai and Middle East Murban grades of crude to additionally support over 800 related commodity products developed by ICE, giving participants the ability to manage the price of energy at the point of consumption or production around the world.

NYBOT's:

Starting from a simple idea, we have grown it into one of the largest clearinghouses in the world. Our experience in building, trading, clearing and settlement infrastructure highlighted for us the importance of analytics, indices and trade valuation services and in 2015, we broadened our addressable market moving into fixed income with the acquisition of Interactive Data Corporation. IDC's pricing and reference data businesses are key to transparent price formation in the fixed income markets. They laid the foundation for our expansion into the adjacent index business and the development of a comprehensive platform that today we've grown to nearly 500 unique institutional grade data products. Another example of ICE leveraging our technology and infrastructure is our June 24 announcement to apply our proven track record, our expertise in central clearing and our connectivity to the fixed income markets to launch a clearing service for U.S. treasury securities and repurchase agreements. The U.S. treasury and repo markets are critical to the global collateral management infrastructure and we are significant users of these treasury products across our six clearinghouses. A new SEC rule beginning in 2025 sheds light on the fact that no existing clearing offering is compliant with the rule, opening an opportunity for ICE. We look forward to working with our clients and the entire treasury ecosystem to deliver on this innovation. Following the proven playbook we've applied across futures and fixed income markets and by leveraging our expertise in building new technology, we've expanded into the U.S. consumer interest rate markets by developing a digital financing infrastructure for home mortgages. In 2016, we acquired a majority position in the Mortgage Electronic Registry System. We applied ICE's technology expertise to rebuild and modernize its platform and database, allowing us to buy the remaining business stake in 2018. We've since bought and built our way into further market exposure that culminated with the completion of our acquisition of Black Knight last year. Today, these assets are part of our broader ICE Mortgage Technology business that we believe is uniquely positioned at the center of an asset class that is moving from analog to digital. The breadth and depth of what we have assembled touches nearly every home mortgage in the United States and includes the largest network of partners that every day ensure that our thousands of customers can efficiently engage, originate, close, finance, value and sell consumer home loans. Our approach to overlaying organic growth on our strategic acquisitions is deliberate and comprehensive, allowing us to construct a platform that not only generates strong returns and healthy cash flows, but is also positioned to continue to leverage our core strengths to generate future growth. Our first half results are another example of strong execution of this proven strategy. We delivered record revenues, record adjusted operating income and record adjusted earnings per share. These record setting results reflect the strength of our network and the all-weather nature of our business model. As we've grown and diversified, we've broadened our opportunity set and our expertise has grown, yielding new markets to grow into and new ways to deliver innovative solutions to our customers. Our evolution has been intentional, diversifying across asset classes and geographies and increasing our mix of recurring revenues with a goal of building a business that today generates compounding earnings growth. Looking to the second half of the year and beyond, we're excited about the many growth opportunities that are in front of us, and we remain focused on delivering innovative solutions for our customers while driving compounding all-weather growth for our stockholders. Before I end my prepared remarks, I'd like to say thank you to our customers for their business and for their trust. And I'd like to thank my colleagues at ICE for their contribution to both the best single quarter and the best first half in our company's history. With that, I'll turn the call back to our moderator, Drew, and we'll conduct a question and answer session until 09:30 a.m. Eastern Time.

Craig Siegenthaler:

Thank you. Good morning, everyone. Our question is on the fixed income business. So we've seen a nice acceleration in fixed income ASV this year. What's driving this? Which channels are seeing the most growth and to what extent is the growth stemming from pricing versus cross-sell versus new clients?

Operator:

Our next question comes from Ken Worthington from JP Morgan. Please go ahead.

Jeffrey Sprecher:

Thanks, Ken. I'll start and then Warren will pick up on the second part of that question. So we're very pleased with the expansion of the relationship with JPMorgan Chase. Obviously, they're been a longtime MSP client. They've added Encompass across all channels and have added DDA for the origination side and now are leveraging DDA as that integration point to automatically onboard loans from Encompass into MSP. So that's a great win for us and it's really in line with the vision of why we put together all these assets is to provide the efficiency that these platforms provide for institutions. And in terms of the funnel behind that, we continue, as you've seen each quarter, announcing new wins. And whether it's MSP wins for clients that have historically been on Encompass, and we've had a great relationship with or the other way around, clients that have been on MSP that are signing on to Encompass, we're very pleased with the success that we've had out of the gate, and we continue to see that funnel building and it's building in a couple of different ways. It's building from clients that realize they don't need to have their own in-house bespoke systems. That's oftentimes what we're replacing in particular on the very large institutional side for this. And really the secret sauce should be how do they cross-sell to their clients and understand more about that overall relationship across the institutional enterprise that those banks have with the clients, as opposed to coming up with some unique way to run a loan origination system or a servicing system. So that funnel continues to build. We feel good about that on both sides, on both MSP and Encompass, and with a number of the wins that we've had and that you've even referenced in your question, we have a lot of those going through implementations, and as you can appreciate, we have a large backlog of those implementations. They're going very well. They just take time. They're very complex. There's a lot of compliance aspects in and around mortgage in fact in most areas that these banks work. Mortgage is probably one of the most heavily compliance -- areas of compliance they have to comply with. So those implementations take time. And I'll hand the second part of it off to Warren.

Operator:

Our next question is from Dan Fannon from Jefferies. Your line is now open. Please go ahead.

Benjamin Jackson:

Sure, Dan, this is Ben. I'll take this one. So I'll start with the second part of it on the renegotiations and Warren mentioned it in his prepared remarks as well. We continue on the Encompass side to see the majority of the clients. So the number of clients that are renewing are renewing at higher subscriptions. And when that happens, we have a lower foreclosed loan fee is typically the trade-off there, but we do have a percent that we've seen in similar the last few quarters that are choosing to renew at lower minimums, lower subscription fees. And the trade-off there is higher foreclosed loan fees. And as the market normalizes, the algorithm that we have is the total contract value going to go up and that's what we're consistently targeting and executing against. So we're seeing that trend in terms of renegotiation continue. And it's been very much in line with what we've seen in past quarters. On the attrition that Warren mentioned in his prepared remarks that was on the DDA side. So with that data and document automation platform, this is a platform that Ellie Mae acquired a number of years ago, and there are some legacy clients on that platform that don't utilize the automation capabilities that that platform has in line with Encompass or with MSP. They're using it in isolation and that's where we saw the attrition happened with one client that Warren referenced. The other opportunity that we see here though, is that we had another client that was very similarly situated to that one that we engaged with very deeply and convinced them to change their loan origination provider from where they were in the past to moving over to Encompass and couple that with the DDA platform and we were successful in doing that. And in the second quarter, that's the Citizens Bank win that I had referenced was exactly that. We renegotiated a DDA contract, brought them on to Encompass, and have a much more longer term strategic relationship with the client.

Operator:

Our next question comes from Kyle Voigt from KBW. Your line is now open. Please go ahead.

Benjamin Jackson:

Thanks, Kyle. This is Ben. So we see a number of different opportunities in this area and I'll describe a few. Some that are very near-term and I mentioned this in my script as well, is that we saw an opportunity to take a bunch of data sets that Black Knight's data business had and integrate them onto Encompass. We had that as part of our plan even before we closed as part of the integration strategy. That was one of the first things we were going to do. We executed on that. We just closed last September, got all those data sets onto Encompass for the first time. And in the first half of this year, we've had 200 cross-sells of flood data and fees, data sets that traditionally were not on Encompass to our Encompass customer base. So that's -- and there's a long runway to go on that when you think of 3000 Encompass customers and each of those data sets being cross-sell opportunities, there's a good runway ahead of us on that. The second thing that we executed on and we're very pleased with is, there's a data set within Black Knight that are AVMs, so they're valuations on homes. And with the trend right now with the amount of equity built up in homes, we've built a straight through service around home equity lines of credit that take our AVMs. So you can take the current valuation on a home, the servicer can take that information plus the data they know on the customer, present an offer for a home equity line of credit for a client and then feed that information directly into the origination platform as our Encompass platform handles home equity lines of credit seamlessly and then as those loans are originated, pass those straight through into servicing. So the AVMs are definitely a key component of that and home equity lines of credit is something that we're seeing are very popular right now. Longer term one of the things that we did strategically when we integrated these businesses, we took that Black Knight data business and we moved it into our Fixed Income and Data Services business with Chris and we just did that at the beginning of this year. The reason for that is we believe there's a lot of data sets within there, within Black Knight that traditionally have been sold to mortgage specific companies that have a lot of capital markets applicability and those are data sets like they're called McDash. There's another one called AFT, and another one EMBS. And all of them in a sense are predicting prepayments on loans or portfolio of loans or portfolios of mortgage backed securities. And obviously with our Fixed Income and Data Services business, we have a very significant business in pricing and reference data around mortgage backed securities. We have a whole community of customers with thousands of them that consume our Fixed Income and Data Services products. And that's where we're introducing the products as they are today, but also engaging with clients to get feedback on new services that we can build for more of a medium term opportunity. So those are some of the ones off the top of my head.

Chris Allen:

Good morning everyone. Thanks for taking the question. I was hoping we could dig into the growth in energy OI seemed really impressive growth since the middle of 2023. Any color, just in terms of whether it's new commercials coming on, hedging by existing market participants taking up maybe impact of macro funds. And also could you dig in a little bit on North American options OI which is up very nicely. What's been driving that? Does that have to, is that factoring into the complexity, increasing complexity, which Ben referenced earlier?

Operator:

Our next question comes from Ben Budish from Barclays. Please go ahead.

Benjamin Jackson:

Thanks, Ben. Yes, those dynamics definitely matter. When people are looking at and whether you're a power producer or a consumer, the mix of things that you need to think about in trading is not only the power, the price of power itself, but also what's producing it, whether it's coal or switching to natural gas as a much cleaner fuel. And then also the dynamic around the world of also having to put a price on carbon emissions that are also a part of that. So traders that are thinking about this, hedgers that are thinking about their exposure in the energy markets have to think about all four of those dynamics. And we for many years have thought from engaging with our clients that that's the mix of risks that need to be managed. And that's why we've built out a business that includes all of those aspects to enable traders to hedge and manage that risk in one platform. And I'll even use the U.S. as a good example. I mean, if you look at the U.S., there has been a shift towards cleaner sources in gas. It's clear if you talk to any of the analysts out there that power consumption is going to continue to grow in the U.S. And one of the underlying reasons for that is data center demand. It's analysts' estimates that U.S. power is expected to increase. Power demand is going to increase over the next decade. And data center demand alone associated to that is likely 19 gigawatts last year to growing to up to 35 gigawatts by the end of this decade. And then underneath that you have natural gas demand that's linked to power generation. That today is around 35 billion cubic feet is expected from analysts estimates to grow to 45 billion cubic feet by the end of this decade. And then obviously you have markets like our environmental markets that continue to do well. Like our Reggie markets and our California carbon emissions. So I think that's a good story to tell because we see that story developing in Europe. We see that story developing in Asia and the mix of having U.S. basis markets, power, Henry and environmental markets all in one place and enabling customers to hedge and manage this risk in an efficient basis is what enables us to do this and provide those services to clients.

RoundPoint:

These tend to ebb and flow on us and off of us. On the Mr. Cooper question that you had, we have a deep relationship with Mr. Cooper. They've been a customer of ours for a number of years on Encompass. They also use our foreclosure and bankruptcy solutions within servicing. So we have a good relationship with them and we look forward to seeing what their plans are in the future. But as it relates to customers leaving us and choosing a different platform, we're not seeing that type of impact.

Alex Kramm:

Thank you.

Alex Blostein:

Hi, good morning. Thanks for the question. So maybe just zooming out on energy for a second, revenue growth up 30% or something like that this year, OI is trending something similar to that. I think we talked a lot about some of the structural tailwinds that are supporting this growth. But as you guys sort of zoom out and you extrapolate this further out, how do you think about the energy revenue growth algorithm over the next couple of years? And is 2024 a good base in your view, to build off of? I know the market tends to mean revert some of the dynamics and the trading space, but it doesn't feel like that's exactly what's happening here. Thanks.

Operator:

That concludes today's Q&A session. I will now hand back over to Jeff Sprecher for closing remarks.

Operator:

That concludes today's call. Thank you all for your participation. You may now disconnect your line.

Operator:

Hello, everyone, and welcome to the ICE's First Quarter 2024 Earnings Conference Call and Webcast. My name is Emily, and I'll be facilitating your call today. [Operator Instructions]

Katia Gonzalez:

Good morning. ICE's first quarter 2024 earnings release and presentation can be found in the Investors section of ice.com. These items will be archived and our call will be available for replay.

Warren Gardiner:

Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with a summary of our strong first quarter results.

Kenneth Worthington:

I wanted to dig a bit more into the globalization of gas. So a couple of questions here. OI is surging in TTF. Volume growth remains very strong. How far along is this period of rapid growth for TTF? And is it really being driven by the globalization of gas? Or is there something else driving this most recent surge? And then can you address the extent to which the Biden administration pause of LNG export licenses could impact the globalization of gas? It feels like a speed bump along the way, but does a Republican president change the equation?

Benjamin Budish:

I was wondering if you could touch on the IMT revised guidance. To what extent is your view on the transaction-based opportunity dependent on -- or based on changes in the MBA forecast? Or Warren, I think you mentioned the change in the interest rate outlook over the course of the year. How much is that -- are those two pieces sort of impacting what that business could look like the supply and demand for house versus interest rates making the environment less affordable?

Warren Gardiner:

Sure, Ben. Let me start on that transaction. I'm going to turn it to Ben to give you some color more on what's going on with the customer front. So yes, you're correct. I mean when we thought about guidance last quarter and we gave you that guidance, the high end of that range really was taking in what some of the forecasters were giving you in terms of what they thought the year was going to look like. And we wanted to build in towards the lower end of that range, a little bit more of a conservative outlook.

Benjamin Jackson:

Ben, I'll follow up on the second part of your question there. We have 100% conviction on the ability for this business to grow over the long term. And we continued quarter-over-quarter to just give more and more evidence to the fact with just customer wins that are coming on board. So we feel great that even in this volume environment, that is an environment that hasn't been seen almost in a generation since 1991, that we're continuing to bring customers onto our platform into our ecosystem and continuing to gain in that area.

Operator:

Our next question comes from Patrick Moley with Piper Sandler.

Lynn Martin:

This is Lynn Martin. Thanks so much for the question. So we are incredibly excited at the opportunity to continue to build out the institutional connectivity across our Fixed Income & Data Services segment. Now part of the reason why we're so excited is because we have seen the adoption on the institutional side in our muni execution business, in particular, continued to grow with a CAGR over the last 2 years. And because of the way we have deliberately curated our data assets, we think there is still room to continue to grow given the success we've had with institutional adoption, particularly in our index business.

Christopher Edmonds:

Yes. Thanks, Lynn. And Patrick, thanks for the question. What I've seen from being in the role since January 1, is this opportunity on the execution side for us to draw closer what we're seeing in the development of SMA or separate managed accounts to the institutional trading that's going on there. There's a deep desire across the street that get closer to those 2 pools of liquidity, and we're uniquely positioned to provide that opportunity. And as Lynn mentioned, bringing the data, so everyone is looking at exactly the same marks and valuations for those transaction values has been an important way for us to step up to the plate and provide that solution that is unique across the street and available to us and our clients.

Daniel Fannon:

I wanted to follow up on mortgage. You guys obviously are having a lot of success in signing up large financial institutions over the last several quarters. How do we think about the on-ramp and the revenue contribution of some of these larger firms? And is -- and also separately on the servicing side, there was some declines both year-over-year and quarter-over-quarter. And I wanted to understand why the recurring portion of some of that business that's legacy Black Knight is also under a bit of pressure.

Operator:

Our next question comes from Chris Allen with Citi.

Christopher Edmonds:

It's Chris. I -- what I would say, I've seen since taking on the role is two really things, one macro and one, I think, related to us. Certainly, there's a focus on the client base to find the most comprehensive solution set that's available, and they're looking for opportunities around there to tie that into single or very few vendors to provide that. And we also made a change in how we have service to clients since January. And so we moved to a different structure within the team itself, and I'm very proud of the team and the results they produced from that because they're much closer to the client these days.

Lynn Martin:

And then just to follow that up, this is Lynn. On the macro side, we've seen a reengagement on the fixed income fund side of the business with the amount of fixed income funds having increased by about 7% versus the prior year, which again, makes us incredibly well positioned given the suite of assets that we have, both on the end of day pricing, the reference data, the years of history there, plus on the more modern tools that we have rolled out to the market, like CEP, where we see continued strong adoption and continued strong demand. And then obviously, the fixed income index business that I referenced earlier in my comments.

Craig Siegenthaler:

Our question is on the acceleration in ASV in the fixed income business. We're curious which channels are driving upside to wins? Has there been any noticeable changes in attrition? And how will this translate into future revenue growth?

Kyle Voigt:

Maybe just on the Exchange segment. I think the recurring revenues there were flat, and I think only 1% growth on the data and connectivity side. I guess are you still expecting low single-digit growth in recurring fees for the full year in that segment. And then if so, is that dependent on the IPO environment opening up further? Or would you expect some acceleration in the data and connectivity line into the back half of the year and that could still drive full-year growth into that low single-digit range?

Brian Bedell:

Maybe just a two-parter on mortgage for Warren and Ben, just on the guidance for the segment. Maybe just your view on the trend of recurring revenue throughout the year as we progress sequentially each quarter. Just generally the trend, given the pullback in some of the renewals, the Black Knight servicing headwinds, contrasted with, and this links into probably, Ben, but contrasted with the really good progress you're making on the new business wins. And then if you could update us on the -- I think you were at $30 million out of the $125 million revenue synergy goal at the end of fourth quarter, if you could update that number on a run rate basis.

Benjamin Jackson:

And I'll pick up on some of the comments that I made earlier around sales. So we continue to have great sales success. We're really happy with the success that we're having with our clients and the fact that even this environment, and I use the analogy, when the tides are out, we're so pleased to see that clients right now are making investments at this point in time to be able to better position that when the tide comes in and when volumes start to return that they don't have to just throw bodies to the business in a very inefficient way that they can actually leverage technology and automation that we're providing to help them grow. So we're very pleased in what we're seeing there.

Alexander Blostein:

I wanted to pivot a little bit, maybe focus on the energy markets for a couple of minutes. And specifically just zoning in on oil. Now volatility has been a little bit more conducive to the environment here. But it looks like the open interest has been growing really nicely north of 20% or so year-over-year. So a couple of questions here. I guess, what is driving, I guess, the accelerated growth in oil for you guys across the board? It's not just brand and WTI, but it seems a little bit broader. And then how do you think about the sort of the structural versus cyclical benefits in that market? Are we in a kind of higher run rate growth from here? And if so, why? And maybe you can just expand out sort of the sources of growth there.

Jeffrey Sprecher:

Well, thank you, Emily. Thanks all for joining us this morning, and I want to thank my colleagues again for a record first quarter and our customers for their continued business and trust. And we look forward to updating you again soon as we continue to try to innovate and build out this all-weather business model. Have a good day.

Operator:

Hello everyone and welcome to the ICE Fourth Quarter 2023 Earnings Conference Call and Webcast. My name is Charlie, and I will be coordinating the call today. You’ll have the opportunity to ask your question at the end of the presentation. [Operator Instructions] I will now hand you over to our host, Katia Gonzalez, Manager of Investor Relations to begin. Katia, please go ahead.

Warren Gardiner:

Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 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 to reserve September acquisition of Black Knight. These strong cash flows, as well as the full divestment of Black Knight’s stake in Dunn & 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 5 where I’ll provide an overview of the performance of our Exchange segment. Fourth quarter net revenues totaled 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, up 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 listings 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 6, 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 by23% 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 fees 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 Fees business we continue to realize the benefits of past investments to enhance our platforms with a record 2023 contributing to the high single digit revenue CAGR over the last three years. Looking to 2024, we expect to have 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 Fees to continue. Please flip to Slide 7 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. The recurring revenues of $397 million are 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 recognized 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 on our Black Knight 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 million to $10 million in the first quarter relative to the fourth quarter. We expect recurring revenues to improve sequentially thereafter sales implement with the 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 a completed back in 2021. Moving to Black Knight synergies, through the first months, five months post close, we have signed annualized revenue synergies of roughly $30 million or nearly a quarter of our $125 million five year target. It’s 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 Encompass 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 expectation of roughly $100 million by year end. I’ll conclude my remarks on Slide 8 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 runrate annualized savings by the year end 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 second quarters as we continue to pay down the outstanding commercial paper and term loan related to our Black Knight acquisitions. We anticipate the full year tax rate to be in the range of 24% to 26%, up slightly from 2023 through the impacts of a full year 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 relating to Black Knight with the vast majority expected to be delivered – directed to various technology investments that Ben will detail shortly. And $100 million relating to the new office space in 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 networks through the acquisition of Black Knight. As we kick off 2024, we are 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.

Jeffrey Sprecher:

Thank you, Ben. Good morning, everyone, and thank you for joining us. Please turn to Slide 10. 2023 was a unique year for the energy markets. The year kicked off with a European ban on the import of Russian crude oil and a $60 Russian oil price cap imposed by the US, Japan, Canada and Australia, all driven by the Ukrainian conflict and a forced realignment of the global energy supply chain. In October, painful conflict with Israel erupted that is testing relationships within the energy producing Middle East and which caused the US house of representatives to send the bill to the US senate imposing further sanctions on Iranian oil. In November, terrorists began attacking ships navigating the Red Sea, causing the world’s largest operators of crude oil tankers to modify their supply chain operations out of their region. And throughout 2023 OPEC+ met the set quotas to cut oil production attempting to drive oil prices higher for the benefit of Russia and Middle East producers. With this complex geopolitical backdrop, it would be reasonable to assume that we ended 2023 with oil prices pushing towards record highs. Well, that’s not the case. Brent crude oil actually ended the year with prices lower than where the year started marking the first annual price decline since the COVID collapse. Even the recent supply shocks in oil shipped from the Red Sea failed to rally oil prices for more than a day or two. When we acquired the former International Petroleum Exchange of London in the early 2000s its flagship product was a small futures contract on or then not well-known of oil called Brents. The Brent oil field consisted of four deepwater oil platforms built in the 1970s in the middle of the North Sea between Scotland and Norway. The waters there are deep and the working environment is hostel. So pipelines were built to move the oil to the remote Shetland Islands where Brent was then loaded directly onto seaborne oil tankers. One of the early challenges that ICE faced trying to grow the trading volumes of this Brent futures contract on our newly acquired exchange was the substantial underlying issue that the Brent oilfields were drying up and oil production was deteriorating. We began working with the oil industry and drove a consensus to allow other grades of oil from locations away from the Brent oilfields to make their way into a newly reconstituted ICE index which we continued to call Brent. Over time, we’ve evolved the index and we’ve added oil from fields of Forties, Oseberg Ekofisk, Troll and most recently, we added US Oil drilled in the Midland basis of West Texas. The pipeline rail and trucking infrastructure serving the Midland basin drives a large portion of this US oil towards the Gulf of Mexico, where it becomes available for seaborne exports. And the US Oil drillers in this region have been very sensitive to global supply and demand price signals. Their market-based responses have caused their US oil exports to set the marginal price of the ICE Brent index roughly half the time since its latest reconstitution with other global oil grades setting the marginal price for the balance. The Brent oilfield began decommissioning in 2006 and its first drilling platform seized production in 2011, followed by the second and third platforms stopping in 2014 and 2021. The fourth and final Brent platform has been repurposed to tap into another oilfield. So, today, it’s safe to say that there is no longer any Brent in ICE’s Brent index. During our index evolution ICE marketed the value of the Brent index to the energy industry at the preferred way to hedge global energy prices. US oil exporters are now leveling out the prices for global crude oil and that’s reflected in the Brent index making the difficult geopolitical shock that I just highlighted less impactful on global oil prices. The record volume that ICE sees in our Brent oil futures trading complex is a direct result of this focused evolution of our ICE Brent index. I tell this story as an example of how we think about the industries in which we operate. We invest in and constantly work with market participants to transform industries to reflect changing environments. We are following a similar roadmap with our entire energy complex given the analogous macro backdrop of industrialized economies that are attempting to move away from carbon-emitting fuels causing us to list over a 1,000 commodity contracts versus just four contracts when we acquired the IPE. You may have seen our recent announcement that ICE is working with the US Department of Energy to develop regional markets for hydrogen fuels as we continue to focus on medium to long-term cyclical trends and the next energy frontier. Similarly, by creating our ICE Data Services division nearly nine years ago, we spotted the trend that the single most important asset associated with automation was trusted, mission-critical data and digitized information. We’ve invested in information acquisition, data dissemination and index construction and you are witnessing our data services division extending the same playbook that we ran on Brent to transform global benchmarks for financial products in areas such as credit and interest rates. And these are increasingly making their way on the platforms around the globe including our own in the form of valuations, reference data, cash markets, derivative markets, ETFs, options and equities. Importantly, we are leaning into this blueprint to drive ICE’s most recent expansion with a goal to expand participation, facilitate information transparency and spot index creation in the US consumer interest rate markets as we move the industry with the SaaS model on a widely distributed network. A blueprint that captures proprietary data and information that we can organize and disseminate to help our customers make better financial decisions in a world where automation and generative models are key to enabling future efficient workflows. In that vein and shifting to our strong results, 2023 marked our 18th consecutive year of record revenues, record operating income and record adjusted earnings per share, a record every year that we’ve been a public company. This record of growth reflects the quality of our strategy to diversify the business and position the company at the center of some of the largest industries undergoing analog to digital conversions, a strategy that’s made ICE an all weather name which through an array of macroeconomic environments continues to deliver consistent and compounding growth for our stockholders. As we look to 2024 and beyond, we are in a better position than ever to capitalize on secular and cyclical trends that occur across asset classes and we’ve remained focused on investing and executing on many growth opportunities in front of us. I’d like to conclude these prepared remarks by thanking our customers for their business and for their trust in 2023 and I want to thank my colleagues for their contributions to the best year in our company’s history. And with that, I’ll now turn the call back to our operator Charlie and we’ll conduct a question and answer session until 9:30 Eastern Time.

Craig Siegenthaler:

Hey, good morning, everyone. We wanted a follow-up on the client attrition commentary at Black Knight and the flat recurring revenue target that you provided in the prepared remarks and we are curious where are the clients going and why are they leaving just given your compelling value proposition with both MSP and Encompass under the same book now?

Warren Gardiner:

And Craig, I will make that too on the flat guidance for recurring revenue. So on the implementation side, just to reiterate what Ben said that we do have some good visibility into some of the MSP and Encompass sales that are coming online throughout the year and those are the products that are going to really move the needle. On the erosion side, absent of course the one that I mentioned around M&A. Renewals on Encompass and customer engagement, that’s some of the stuff that pressures last year. We still expect some of that, but we’ve seen those trends start to stabilize and actually start to improve in the fourth quarter and into early this year. What I obviously don’t know it’s had visibility into is some of those things like an M&A activity related to our customers. But overall, we feel pretty good about that guide and Ben touched on this too. I think it’s important to really note, well, of course those recurring revenues are important. A lot of these products are also going to have a transaction component to it. And as he noted, we are coming off with the worst year for originations in a generation, but we’ve continue to add new customers, the current customer base is continue to add additional products and we’ve expanded that network. So that when those transactions do normalize, we are going to be really benefiting from that not only on the recurring side, but I think on the transaction side as well. And maybe to help frame that a little bit for you, I think if you were to see industry loan volumes in that $7 million to $10 million loan range, again with $10 million being the average over the last 30 years, we’d see a couple $100 million to nearly $0.5 billion of incremental transaction revenue and that would be a revenue that would be coming at really high incremental margin. So, look, we are focused on investing in the platform, expanding the network, so that we are best positioned for when this market normalizes.

Simon Clinch :

Thanks for taking my question. I was sort of interested in how you would frame, I guess, when we look at, could you give us a sense what the market origination market was like in the fourth quarter in terms of unit volume growth? And then ultimately, just how you are thinking about the potential product springloaded recovery? What are the sort of mortgage rate conditions you can – we need to see that kind of real inflection and acceleration starts compared futures with quota? Thanks.

Operator:

Thank you. Our next question comes from Ken Worthington of JPMorgan. Ken, your line is open. Please proceed.

Benjamin Jackson:

Hey, Ken. It’s Ben. Thanks for the question. So I’ll start on TTF. So, TTF, a lot of that volume is now on exchange and has transitioned over 10 plus years that we’ve seen that transition happening. I think the next step in the evolution of TTF that we see and I alluded to this in my prepared remarks is that, this is becoming and really has become the global benchmark for natural gas around the world. And it’s being more and more as a proxy for, when you are trading LNG and that’s seeing shifts around the world, which you can underestimate and you follow these markets very closely, you can underestimate the impact of the liberalization of natural gas has had to really creating a global natural gas market. It’s no longer subject to being secular pipeline infrastructure and storages. It can be freely transported around the world. And that is where we are seeing the growth in the TTF contracts and that’s why we constantly point out we are seeing new records, double-digit growth in terms of market participants, significant double-digit growth in terms of data subscriptions in TTF. TTF is up 100% in open interest year-over-year, 45% in ADV this year as more and more clients as they are looking at global issues around the movement of LNG out of the US going into Europe. They need to think about longer term implications of the White House recently announcing pauses on new LNG exports going out. US LNG heading east bound that goes through the Red Sea and Jeff alluded to it in his comments impacts that the attacks in the Red Sea it had on shipping there. US LNG going out of the Gulf going to Asia and when it’s going west bound has to go through the Panama Canal that same unbelievable drought conditions impacting that. These are all risks that people need to manage and it’s the TTF contract that we are now doing that with. So we see a lot of growth in that as that continues to evolve to be a global benchmark similar to what Brent is clearly today. On WTI, really it goes to the a lot of the investments we have made in the innovation we’ve made in the oil market around that HOU contracts which is Midland WTI basis Houston, a physically delivered contract that we launched a couple of years back that’s been growing significantly, which is pricing WTI oil basis Houston, that’s going into the Atlantic basin and a lot of that being delivered into Europe. People that hedge and trade in those markets are trading those off the cornerstone of Brent are also using our HOU contract and then as a package that also trade WTI and for the efficiencies that they get trading in those Brent markets across those three contracts. We are seeing more and more of that trading volume moving to our exchange. So that’s on the second part of your question around WTI. That’s what we see is driving a lot of that growth in market share.

Ben Budish :

Hi, good morning and thanks for taking the question. I wanted to circle back to the Mortgage segment. Just on the cost side, Warren, it sounds like you accelerated some of the cost synergies in 2024. Is there anything more we can read into that in terms of the potentially the total bucket of synergies identified or the pacing of the additional synergies beyond what you see this year? And then, one other question that’s sort of come back along the same lines in terms of not so much cost synergies but perhaps things that ICE could do. Now that you and Black note that that Black Knight was unable to do while the merger was sort of pending. Any update in terms of additional cost reductions that are not quite true M&A synergies but just other things you may be able to do there? Thank you.

Warren Gardiner:

And Ben, I’ll pick up on that on other things that we are seeing. We’ve mentioned on prior calls things like our proprietary cloud being something that’s – that we are very proud of in terms of the scalability, the architecture, the operational resiliency, the cyber capabilities that we have there. So we see an opportunity over time to move some of the core technology platforms there to our proprietary cloud and we are planning around that right now and there is a lot of benefits our clients will get from that. Other things that we see is, we are enhancing the MSP platform. So that’s SaaS-based platform that MSP has. We are continuing to enhance this. Leveraging our experience in upgrading technology. The analogy we’ve used in the past, we have to upgrade technology while the cars are driving over the bridge. We have done this time and time again and once business at NYSE and with our ICE Data Services business. So leveraging our expertise is scalable, distributed architecture is all things that we are going to apply towards the enhancements of MSP and making it as efficient of an enhancement as possible. And then the last thing I’d say is, we’ve moved our Black Knight data team. That’s come over, in particular the product team over to our ICE Data Services division and the reason we did that is we think there is going to be two benefits from that. Number one is from the technology side, are there technology capabilities within ICE Data Services or Black Knight that both sides can take advantage of and the early returns are, yes there are. And then number two is our product innovation. There is a number of data sets within Black Knight that are highly applicable to the capital markets space and we believe that with our capital markets expertise within ICE Data Services, there is a lot of new product innovation that we can put out there that will generate benefits both short and medium term.

Brian Bedell :

Great. Thanks. Good morning, folks. Thanks for taking my question. Maybe just focus on the revenue synergy side in Mortgage tech. I think you said you’ve signed $30 million of the $125 million total so far in just five months and then the $125 million is the five year target that it seems like you are tracking. You are well ahead of that and then maybe just sort of correlating that with the commentary you had a couple of calls on the $300 million of revenue synergy opportunities that you’ve identified. Just trying to see if the $30 million is part of that $300 million? And I guess the broader question is, do you feel like you are also tracking ahead maybe well ahead on the revenue synergy side as you are on the expense review?

Operator:

Thank you. Our next question comes from Dan Fannon of Jefferies. Dan, your line is open. Please go ahead.

Warren Gardiner:

Sure. Thanks, Dan. So I think, look, we don’t give sort of forward free cash flow guidance. But we certainly did just report a strong year at $3.2 billion of free cash flow with only about a quarter or so of Black Knight in there. So, that coupled with growth. I think it’s fair to assume that’ll be better than that in 2024 at the end – as we said, at the moment, our plan is to return the vast majority of that not return I should say, our plan is to use the vast majority of that to pay down the outstanding debt that’s out there today. And so, I think is we are thinking about that in the go forward here. I still think we are on track here as we’ve talked about where we thought for that paydown schedule being sometime in 2025, but depending on forms this could be a little bit earlier in that, as well. So, we are going to have to just sort of see how the year plays out ultimately, but as I said, very much on track to what we thought we’d be and where we would be in terms of our deleveraging phase.

Kyle Voigt :

Hi, good morning. So last year in May, you increased futures transaction fees for the first time in many years. Some of your competitors have announced pricing changes again for 2024. So I just wanted to circle back on how those pricing changes in May were digested by the market. And can you provide some updated thoughts on how you are thinking about pricing across the futures complex at this point and whether anything is planned for 2024?

Operator:

Thank you. This is all the time we have for questions today. So hand back over to Jeff Sprecher, Chair and CEO for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may all disconnect your lines.

Operator:

Welcome to the ICE Third Quarter 2023 Earnings Conference Call and Webcast. My name is Lauren, and I will be coordinating your call today. There will be opportunity for questions at the end of the presentation. [Operator Instructions] I will now hand you over to your host, Katia Gonzalez, Manager of Investor Relations to begin. Please go ahead.

Warren Gardiner:

Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our third quarter results. Third quarter adjusted earnings per share was a record, totaling $1.46, up 11% year-over-year. Net revenues totaled $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 - 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 expected 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, D&A and seasonality and capitalized labor as well as a full quarter of expense related to Black Knight. Moving below the line. Adjusted nonoperating expense totaled $114 million, including $41 million of incremental interest expense related to our acquisition of Black Knight. We expect adjusted nonoperating expense in the fourth quarter to between $225 million and $230 million, largely driven by the full core 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 5, 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 48% 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 40% year-over-year in the third quarter and open interest at the end of October, up 26% 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 $70 million to $75 million, 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 to a regulatory fee holiday, which will temporarily reduce OTC and other revenues by $10 million 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 a benefit of a few million dollars related to audit recoveries, which we don't expect will repeat in the fourth quarter. This was partially offset by our listings business where growth in annual listing fees was offset by the rolling off of initial listings fees related to the strong IPO market in 2021. Turning now to Slide 6, 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 the 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 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 7, 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 continued 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 October alone, including a top 25 servicer, Fifth 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 - revenues to approximately $2.06 billion and 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.

Jeffrey Sprecher:

Thank you, Ben, and good morning, everyone. Thank you for joining us. Please now turn to Slide 9. The idea to start ICE came in the late 1990s, an idea to take advantage of the move of commerce to the Internet and an idea to capitalize on changing government regulations regarding energy procurement. The subsequent dot-com crash and the collapse of Enron created a very difficult business environment, particularly the trading of energy. But it was in this challenging environment where ICE was able to gain a toehold into the market and build the foundation for a growing business in commodity trading, a business that, as you've just heard, continues to flourish more than 20 years later. Sometime around 2006, we came across a newspaper article about credit default swaps and the difficulty that this market was having settling such contracts. We became convinced that ICE could build a clearinghouse infrastructure that could solve these delivery problems. Our colleagues took up the challenge and we acquired targeted platforms and talent. Two years later, when the financial crisis of 2008 froze the CDS markets, we were in a position to offer a sustainable solution. And when the Dodd-Frank Act of 2010 and the European Market Infrastructure Act of 2012 required the use of clearinghouses in the over-the-counter swaps markets, ICE was able to expand what has now become another significant business for us. I tell you these stories not as some kind of victory lap, but to remind you of our repeated experience that the best time to lay the groundwork for a strong future is when your target customers are experiencing stress and are open to new vendors and new platforms to alleviate their problems. I also remind you that evolutions in regulation in the financial services industry typically follow periods of economic change and that standardized, open and transparent platforms, such as those that ICE operates, can benefit. A1nd ultimately, I call your attention to our history to answer a question that we've been asked, why is ICE investing in a consumer finance technology platform via the mortgage market? And why do it now? We spoke on our recent call following the closing of our acquisition of Black Knight about our aim to build financial market infrastructure across the company that can offer earnings and dividend growth in variable market conditions, all weather growth that will allow our shareholders to have confidence that they won't have to time their investments into and out of - an episodic earnings stream. There are currently many stress points across large portions of the U.S. mortgage industry and ICE is experiencing an openness from market participants and its regulators to consider new solutions delivered by our comprehensive technology platform. This is why Warren and Ben were able to tell you in specifics about the encouraging reception that we're receiving for our vision to rewire the mortgage market. And why Ben shared our success with platform clients like JPMorgan Chase, M&T Bank and Fifth Third Bank, all of whom are significant sophisticated drivers of the market. The same economic stress that exists in the current U.S. mortgage market is, in converse, fueling growth on our commodity hedging and credit protection platforms, which benefited ICE's record third quarter earnings. We're positioning ourselves to transform the U.S. mortgage market while it is under stress with a goal to create opportunities to springload our future growth and contribute to our all-weather earnings and dividend growth road map. Another topic that we're being asked about a lot is our adoption of large language models and learning algorithms. ICE has long been investing in adaptive learning tools beginning more than a decade ago when we incorporated learning tools into our growing ICE Chat system as a way of automating workflows based on unstructured trader and back-office conversations. We're also - we've been deploying learning models in our compliance effort to recognize trading and use patterns that deviate from norms. Ben mentioned, our ICE Mortgage Technology product, now called Data and Document Automation, which is an extension of the learning model that we acquired within Ellie Mae. This product recognizes a wide variety of documents that end up in a consumer file when underwriting a loan, documents such as pay stubs, tax returns, bank statements and alike, which the algorithm automatically identifies and places in appropriate digital folders. The model extracts key structured and unstructured data elements from these folders for further validation by a credit team via a workflow that detects exception cases for the compliance team. Our model is based on a transparent rules engine, which we believe will assist our customers and their regulators to comply with the President's recent private letter ruling on model fairness, integrity. And our model is being further extended by us across our expanding mortgage platform. Our experience in building and deploying these learning models also facilitates our research into the cost of computation that is associated with model queries, and it permits us to have a thoughtful understanding of the cost benefit analysis of their deployment and the model's extension. When we acquired the New York Stock Exchange, it was built on a technology stack that was overly complicated, hard to manage and unreliable. So we set off to completely rebuild the underlying architecture with modern technology. Given the importance of the New York Stock Exchange to the global economy, we had to rebuild the exchange while it was in daily use. And its extensive connectivity to the global financial services industry demanded that we not ask our customers to invest in making changes on their side of the firewall. So, we wrap the old technology with a modern front end and methodically rebuilt and replaced all of the back-end hardware and software. This process took us years to execute with our successful final software rollout just a few days ago, deprecating the last of its seven unique legacy matching engines. Our upgrade blueprint worked. And today, the New York Stock Exchange sits atop one of the most powerful, deterministic performance and resilient tech stacks in the world. This same plan to build a new bridge while the cars continue to drive across it was deployed by us when we acquired Interactive Data Corporation. There, we inherited over 100 legacy servers, many of which literally could not be shut down for fear of not being able to properly restart them. We, again, replaced this mess with a modern data superstore over a period of six years and without sacrifice from our customer base. When we made our initial investment in MERS, its technology was outsourced, and was not able to keep up with the demands placed on it during the financial crisis. Our business deal with MERS ownership consortium was to rebuild the platform within two years. If successful, we had an option to buy and run the company. We did just that. And MERS is now a cornerstone to our broad US mortgage industry platform. With our acquisition of Black Knight, we've again undertaken a blueprint to wrap its legacy technologies, tie it to our mortgage platform for near seamless integration with our customer base and rebuild its tech stack with a modern architecture over the coming years. As I've mentioned on past calls, ICE is agnostic to cloud providers, but we also operate our own proprietary cloud with ICE data centers having connectivity to a vast portion of the global financial services industry. This allows us to oversee our costs and stand behind our performance, a cloud strategy that Warren mentioned was a contributor to our record earnings in the quarter. In summary, my comments today highlight three backdrops that ICE follows to evolve our all-weather business model. We invest in environments that may have fallen out of favor and at times when customers need us the most. We embrace regulatory shifts and the workflow alterations that inevitably follow periods of economic change. And we embraced an experiment with new technologies, while enhancing technology assets that we may acquire to drive platform efficiencies and better serve our customers. Shifting now to ICE's strong results. Please turn to Slide 10. In the third quarter, we delivered the best quarter in our company's history with record revenues, record adjusted operating income and record adjusted earnings per share. We have intentionally positioned our company to provide customer solutions in numerous geographies and economic conditions to facilitate all weather results. These record-setting third quarter results against our extraordinary third quarter results of last year are another example of strong execution across our platform. And I'd like to end our prepared remarks by thanking our customers for their continued business and their trust. And I'd like to thank my colleagues at ICE for their contributions to our best ever quarterly results following up on our unsurpassed results of the first half. And with that, I'll now turn our call back to our moderator, Lauren, and we'll conduct a question-and-answer session until 9:30 Eastern Time.

Ken Worthington:

Hi. Good morning. Thanks for taking the question. I wanted to ask about ICE oil. So you mentioned last quarter that Midland was added to Brent, and we've seen trading of Brent - I'm sorry, trading at Midland take off. I'm curious how you think Midland is impacting the trading of Brent? And to what extent Midland is a contributor to ICE's increased share in WTI? And then I guess, most importantly, how much of the benefit to ICE is left as we look forward? Or has the positive impact already played out?

Ken Worthington:

Okay. Great. Thank you.

Ben Budish:

Hi. Good morning. Thanks for taking my question. I wanted to follow-up on some of the commentary around the wins in the mortgage business. Just to what degree do you think that some of the MSP wins and some of the cross-selling, is that a result of things ICE is doing differently since acquiring the asset? To what degree is it perhaps pent-up demand, things were maybe stalling while the merger was pending? And if that's the case, what do you think about the pipeline? How sustainable is that growth versus perhaps a compression of some built up - or some pent-up demand over the last many months? Thank you.

Ben Budish:

Great. Thanks for all the incremental color.

Dan Fannon:

Thanks. Good morning. Questions on the fixed income data. I think, Warren, you mentioned improved sales cycles. Was hoping you could expand upon that. And then also, as you think about next year, and pricing, how we might think about - or what has been the typical price that you've raised or the percentage increase and maybe how that might be different in this type of inflationary environment?

Lynn Martin:

Yes. And it's Lynn. I'll just chime in with some color of what we're seeing. As we said on previous calls, this segment, in particular, really shows the all-weather nature of ICE. And if you look at the execution side of the business, ICE bonds, in particular, had really strong growth over the last quarter, particularly given the muted volatility in the muni markets where we've been able to continue to increase our adoption by the retail and wealth side of the businesses as well as benefit from the increased adoption by institutional users contributing to share gains in all of our different products. Now bringing that through to the fixed income data and analytics side of the business, as we've continued to interact with the front office customers, we've seen continued increasing demand for our front office tools. So while small contributors to the overall bottom line, products like CEP, best execution that we've talked about in the past, there continues to be strong demand for those products as fixed income markets continue to electronify. You've seen that manifest itself in a shortening sales cycle, which has been a - which has really benefited us in terms of the pipeline contribution, the pipeline conversion rates in the short term. Additionally, as we've continued to see money flow into fixed income ETFs, as is evidenced by 30% growth year-on-year at the end of Q3 into our index AUM, we've continued to see that manifest itself in terms of demand for the data, demand for our indices, demand for services around our indices. So we continue to be optimistic that we're uniquely positioned to capitalize on the trend of fixed income electronification and the optimization of workflows in fixed income.

Operator:

Thank you. Our next question comes from Kyle Voigt from KBW. Kyle, please go ahead.

Benjamin Jackson:

Hi, Kyle. This is Ben. It actually - those types of trends play into our overall thesis and hypothesis in this space is that there is opportunity to create more efficiency around the transactions. For us, we're neutral in that space. We don't have a business of selling leads to real estate brokers and the like. For us, our core businesses are all in and around the origination transaction itself, making sure that we're matching the client to the ideal product that meets their needs at the lowest cost to improve access to homeownership as well as clients that have an existing home, identifying based on data and analytics the best product to cross-sell to that client, the best time for clients to have a servicing book as well as an origination book. So when we talk about that whole front-to-back offering, that's really our sweet spot. So we don't see an impact to us negative. If anything, all of the data and analytics offerings that we have that underpin this overall platform front to back, both between ICE Mortgage Technology assets that we've had historically as well as the data assets that have come with the Black Knight business, all position us very well in that space going forward.

Operator:

Thank you. Our next question comes from Alex Blostein from Goldman Sachs. Alex, please go ahead.

Lynn Martin:

Yes, Alex, this is Lynn. Thanks so much for the question. So if you look at the Fixed Income and Data Services segment as a whole, I talked about some of the all-weather nature that attributed really to the fixed income data and analytics line and the executions line in just a bit ago. But the one area that we've continued to see as a really strong contributor to the bottom line, top line is the other data services business and the acceleration of that business throughout the year. And that's really been fueled by a couple of different areas. Number one is our multiyear investment and the modernization of the tech stack associated with our distribution platforms. And on the macro side, is the continued strong demand for our products and services fueled by the broader adoption of automation across the industry in a variety of different areas, which feels like we're still in the early stages of. So we're seeing the confluence of these items benefit the top line growth in this area, and that causes us to be optimistic for continued growth in this area, in particular, for the medium term. We've been very deliberate, as Jeff mentioned on his call to be cloud agnostic and really invest in our own data centers. One of the reasons that we did that was really in response to customer demand as increased automation tends to be a data-heavy area as well as fueling demand for things such as data center space and customers asking us to grow their data center footprint. As a result, and what we've seen more recently, our connectivity sales in Q3 were the second highest in our history. Now those are going to take some time to implement, obviously, before we see the benefits of that in terms of revenue. And our desktop sales last quarter matched our historical high. So we continue to be optimistic that the trends are going to be positive for this area given the pipeline that we have in this area and given the more recent sales that we've been able to achieve. On our feeds business, which we talked a little bit about in our prepared remarks, we benefit from the automation trend as workflows continue to become more automated and customers continue to value the modernization efforts we've undertaken to streamline our technology. So we've been able to attain a variety of new [logos] more recently and then also benefit from historical Tier 1 logos and their increased adoption of our services. And then finally, the area that continues to drive growth in this area, and we think it's the early stages, is the adoption of our large language model, our proprietary large language models in our chat platform. Our chat user growth is up 13% year-to-date, and the increased usage in the models has driven not only revenue benefits here, but also activity generated within our energy markets which activity generated through large language models in our energy markets was up 90% quarter-on-quarter compared to last year and 70% year-to-date. So, there's a variety of trends that we see as tailwinds for this line, in particular, to continue to drive compound and growth for the medium to long-term.

Operator:

Thank you. Our next question comes from Brian Bedell from Deutsche Bank. Brian, please go ahead.

Warren Gardiner:

Hi Brian, it's Warren. So, I think, yes, you throw out a couple of numbers there, all correct, of course. But when we think about those revenue synergies, I think the best way to be thinking about it is - and you pointed out one point that I think is important is it takes a little bit long for these to implement. But I think about it more the OpEx of it being more hockey stick like. And so I think in the early year you probably don't have as much, but that as we obviously move to the next couple of years and through year five, you're going to see those start to build. So, - and part of that is, look, we've got to integrate the companies and we start to get going on some of the areas that we've talked to out on not only the core products, but also on some of the data products that we want to cross-sell across the platform as well. And so that takes a little bit of time in addition to some of the implementation timelines we talked about as well. So, I think about it. Certainly, we're going to have some here. Ben talked about a number of wins that we've had. But again, there's going to be an implementation time line for those. But certainly, we are off to a very strong start there, and it's really encouraging in terms of us getting to those targets ultimately.

Operator:

Thank you. Our next question comes from Simon Clinch from Redburn Atlantic. Simon, please go ahead.

Warren Gardiner:

Hi Simon. So, we generally look at the composite, the forecasters as you're aware of the NBA, Sandy and Freddie, and we're looking at those. We also have some other data around our loan volumes and, of course, MERS registrations that we all pulled together. And so that - your fair - it's a fair question to ask because, obviously, the forecasters are working with somewhat imperfect information, and you see revisions here and there at times too. So, - but that's generally what we saw. We did see in the quarter some Encompass closed loans down in the high teens. So, I think we did well versus the market. And so that's an encouraging sign, of course. There is, within those transaction revenues, which is what you might be referencing to some extent there, some other elements there. I mean, professional services fees are in there. Now, with Black Knight, we have default management revenues. You've got some MERS registrations that there's deferrals related to. So, there are some things in there that, of course, are not perfectly correlated with what's going on in the mortgage market over this current period, if you will, that will create some noise. But I think in terms of how we're performing within the closed loan component of that, it's been encouraging. And again, it's part of its adoption and new customers coming online at some of the sales we've had. And I think as you move into next year, and certainly based on what you heard from Ben, we continue to have success there. So, I think that, that will continue to drive that kind of an outcome.

Operator:

Thank you. Our next question comes from Craig Siegenthaler from Bank of America. Craig, please go ahead.

Warren Gardiner:

Thanks for the question, Craig, it's Warren. So that's something we're thinking about, I think, as I said on prior calls. And you're right, it's - the headline price changes are not something we had traditionally done. We have always gone into markets and injected market maker tiers and things - in incentive programs and things of that nature. But it's not something that we've done historically at the headline level. We did do it this year, and I think it's been relatively successful. We certainly are, as we move into our budget season here at the moment, thinking about what we might be able to do on that front. I think as we said previously, it's something that we will pick our spots on. I don't expect us to do it on the same products every year. But certainly, we have not done a lot on many other products across, not just energy, but other areas of futures. And so we'll be thoughtful about that. Again, it all comes back to us thinking about what kind of value we've created for the customer and pricing appropriately for that. And so as we think through that, you'll see some - potentially see some announces there. But I don't know that I'd expect it to be on the same products every single year. We'll - again, I think we'll pick our spots as we think through that.

Michael Cyprys:

Good morning. Thanks for taking the question. We've seen regulators - banking regulators propose new capital rules for the banks, which could make some of their bespoke off exchange-driven products a bit more capital intensive. So, just curious if you're taking that where you guys see the biggest opportunity maybe to bring derivatives from OTC to the exchange-traded market, how you might quantify that? And just bigger picture, just given the capital proposals that can make certain products and businesses more capital intensive for the banks. I guess where do you see the biggest opportunities from that?

Michael Cyprys:

Thank you.

Patrick Moley:

Good morning. I just had one last one on fixed income. I think last quarter, Lynn had mentioned that as issuance normalizes, you could see AUM reallocation, higher capture indices. I was just hoping to get an update on, from your perspective, what you're seeing there and your expectations going forward? And then just to add on to that, I'm wondering how we should think about the yield profile differences between treasuries and munis and the impact that could have on the business more broadly? Thanks.

Operator:

Thank you. That is now the end of the Q&A session. So I'll now hand back over to Jeff Sprecher for closing remarks.

Operator:

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Operator:

Hello, and welcome to today's ICE Second Quarter 2023 Earnings Conference Call and Webcast. My name is Bailey, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Katia Gonzalez, Manager of Investor Relations. Katia, please go ahead.

Warren Gardiner:

Thanks, Katia. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our second quarter results. Second quarter adjusted earnings per share totaled $1.43, up 8% year-over-year, driven by total net revenues of $1.9 billion. This marked the best second quarter on our company's history and it was on top of 14% adjusted EPS growth in the second quarter of 2022. Second quarter adjusted operating expenses totaled $756 million, $7 million below the low end of our guidance range, and up 2% versus the prior year. Higher SG&A, including an increase in spend related to an uptick in IPO activity late in the second quarter, as well as higher D&A and rent, both of which were driven by handful of lease write-offs as we consolidate our real estate footprint was offset by higher capitalized labor and lower professional fees. This strong performance helped to drive an adjusted operating margin of 60% and a 5% increase in adjusted operating income to $1.1 billion, which was on top of 14% growth in the second quarter of 2022. Looking to the third quarter, we expect adjusted operating expenses to be in the range of $760 million to $770 million with the year-over-year increase driven by additional compensation and technology expense, as well as roughly $10 million of FX. As a result, we now expect the full-year adjusted operating expenses will be between $3.04 billion and $3.06 billion, and towards the lower end of our guidance range. Moving below the line, adjusted non-operating expense totaled $84 million in the quarter, improving sequentially due to higher cash balances as we build consideration for our acquisition of Black Knight, as well as higher interest rates on those cash balances. Shifting to the tax rate. As the increase in the UK tax rate became effective in April of this year, we confirmed our ability to make certain U.S. tax elections, which primarily led to a second quarter adjusted tax rate of 22%. As a result, we now expect to be around the low end of our 24% to 26% guidance range for both the second half and full-year. Now let's turn to Slide 5, where I'll provide an overview of the performance of our Exchange segment. Second quarter net revenues totaled $1.1 billion, up 9% year-over-year. Transaction revenues of $736 million were up 12%, driven by 33% growth in energy revenues. This strong performance included 52% growth in global natural gas revenues, driven by a record quarter for both TTF volumes and participation, as well as 9% growth in our environmental revenues. In addition, we continue to see robust trends across our global oil business, particularly our crude oil benchmarks, Brent, Murban, Dubai, WTI, and Midland WTI, with ADV up 26% year-over-year in the second quarter, and open interest as of the end of July, up 21% year-over-year. Importantly, this is helping to drive strong open interest trends across our global commodity futures and options complex, including 15% growth in global energy and 21% growth in Ags. Recurring revenues increased by 2% year-over-year, including 6% growth in exchange data services, which was once again driven by double-digit growth in the number of customers consuming our global energy and environmental data. This was partially offset by our Listings business, where capital markets activity through much of the first half was relatively muted. However, the IPO markets started to open up towards the end of the quarter with the NYSE acting as the backdrop for 91% of total capital raised in the second quarter. In addition, the NYSE continues to lead the industry with a total of 12 operating companies transferring from other exchanges so far this year, representing a combined market cap of roughly $100 billion. Turning now to Slide 6, I'll discuss our Fixed Income and Data Services segment. Second quarter revenues totaled $546 million, up 6% versus a year-ago. Transaction revenues increased by 23%, including 17% growth in ICE bonds, and 25% 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 analytics, desktop and feeds offerings. Within Desktops, we continue to see strong demand from energy and environmental focused customers, as well as continued robust growth in our ICE Chat offering with the number of users has grown at a 15% CAGR over the last five years to nearly 120,000 at the end of 2Q. This growth has been driven by the investments we have made to reduce friction across the workflow, including the development and refinement of a proprietary large language model within ICE Chat. And as a result of these enhancements, through the first half of this year, we have seen a nearly 60% increase in energy volume executed through our ICE Chat platform. Lastly, within our consolidated feeds business, investments we have made to elevate and enhance our offering continues to pay dividends, evidenced by double-digit revenue growth and a number of wins both in the quarter and first half driven by displacement of larger multi-asset class incumbents. This collective performance is a key driver of our other Data and Network Services business, which increased by 7% in the second quarter and 9%, excluding the impact of Euronext. In our Fixed Income Data and Analytics business, similar to the last few quarters, we experienced an extended sales cycle within our End of Day Pricing business. Somewhat offsetting was a return to year-over-year growth in our Index business, driven by growth in ETF assets under management to record $526 billion as of the end of 2Q. Let's go next to Slide 7, where I will discuss our Mortgage Technology segment. Second quarter Mortgage Technology revenues totaled $249 million. Recurring revenues, which account for nearly 70% of segment revenues totaled $164 million and helped to drive outperformance versus an industry that experienced nearly 40% decline in origination volumes. While data and analytics recurring revenue grew double digits year-over-year, and nearly two-thirds of our Encompass customers up for renewal during the quarter did so at higher minimums, growth was offset by those electing to renew at lower levels as well as reduced spend on ancillary products such as our CRM and marketing solutions, which tend to be utilized by customers that are more refi focused. Importantly, the vast majority of these customers not only remain on the Encompass and ICE Mortgage Technology platform, but have also signed multi-year contract renewals. While macro conditions appear to be stabilizing and year-over-year pressure on forward-looking application volumes appears to be moderating, evidenced by a mid-teen decline in July applications compared to a nearly 30% decline in 2Q and a nearly 50% decline in the first quarter, current cyclical pressures are now likely to drive our recurring revenue growth into the low single-digit range for the full-year. However, these same cyclical conditions and the need to reexamine legacy cost structures continues to attract customers that have not traditionally utilized the ICE Mortgage Technology platform. As an example, the top five bank that elected to replace their in-house solution with Encompass as their system of record for the retail channel last quarter has now also signed on as an Encompass customer for their correspondent channel. In addition, CrossCountry Mortgage, a top 15 lender and Encompass user, signed on to utilize our analyzers and what was one of the largest data and analytics deals in our history, following JPMorgan's adoption of our Analyzer suite last year. While these wins will take time to implement and are therefore not expected to impact our 2023 recurring revenues, it's a clear example of the increasing need for workflow efficiencies. And we expect there to be continued momentum through the balance of this year and into 2024. Moving to Slide 8. In summary, it was a record first half. We delivered revenue, operating income, earnings per share and free cash flow growth. We continue to make strategic investments across our business and 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 your questions during Q&A, but for now, I'll hand it over to Ben.

Jeffrey Sprecher:

Thank you, Ben, and good morning, everyone. Thank you for joining us. Please turn to Slide 10. I'll begin by touching on our pending acquisition of Black Knight. While we are unable to answer any questions on this call relating to the pending litigation with the Federal Trade Commission, I'll briefly discuss our announcement to divest of Optimal Blue. On July 17, we announced that we entered into an agreement whereby contingent on the close of our acquisition of Black Knight, Constellation Software will acquire Optimal Blue for total consideration of $700 million. This consideration includes $200 million of upfront cash and $500 million in the form of a seller finance note, which we have committed to place into the market within six months following the transaction close. We intend to provide additional performance details upon the closing of Black Knight, but it's worth noting that we continue to target revenue synergies of $125 million and expense synergies of $200 million by year five. As a result of our agreeing to sell Optimal Blue, our federal trial was rescheduled to August 14. And we are in a dialogue with the FTC about potential resolution. The transaction with Constellation Software will keep Optimal Blue and the Empower loan origination system together under a single, highly credible owner. A related agreement will continue and expand our commercial relationship to facilitate Optimal Blue being made fully available to ICE's customers on our open network. As the largest distributor of Optimal Blue via our network, we remain very excited about the value and efficiencies that the combined ICE and Black Knight entities will bring to the end consumer as well as to other stakeholders across the mortgage ecosystem. Shifting to ICE's strong results, please turn to Slide 11. In the second quarter, we grew revenues. We grew adjusted operating income, and we grew adjusted earnings per share, delivering the best second quarter and the best first half in our company's history. These record-setting first half results reflect on the quality of our strategy and more importantly, on the execution of that strategy. We've deliberately positioned the company to have a mix of transaction and compounding subscription revenues, giving investors upside exposure while hedging our downside risk. We've intentionally diversified across asset classes and geographies so that we are not tied to any one cyclical trend or macroeconomic environment. We've placed the company at the center of some of the largest markets undergoing an analog to digital conversion. We believe that the combination of these factors is what makes ICE an all-weather name that generates growth on top of growth. Looking to the second half of the year and beyond, we are positioned to capitalize on the secular and cyclical trends occurring across asset classes. And we remain focused on executing on the many growth opportunities that are in front of us, extending our track record of growth. Before I end my prepared remarks, I'd like to thank our customers for their continued business and for their trust. And I'd like to thank my colleagues at ICE for their contribution to our record second quarter, making this an unsurpassed first half result for our company. With that, I'll now turn the call back to our moderator, Bailey. And we'll conduct a question-and-answer session until 9:30 Eastern Time.

Daniel Fannon:

Thanks. Good morning. My first question is on the mortgage side. So curious as to what percentage of Encompass customers have gone through the renewal process. You've given some updates on the kind of renewal and what people have been doing. But curious about where you are in that full process. And then broadly looking forward on the mortgage side, there is an outlook that we've kind of bottomed in terms of activity. Looking at your guidance implies that we're still going to have some pressures for the remainder of this year, but as you think about the overall macro backdrop, are you anticipating volumes here in the second half to start to recover?

Operator:

Thank you. The next question today comes from the line of Benjamin Budish from Barclays. Benjamin, please go ahead. Your line is now open.

Benjamin Jackson:

Thanks, Ben. This is Ben. So great name by the way. So from a cross-sell perspective, that's the beauty of this business that we've established that when you look across all of the offerings that we have across our ICE Mortgage Technology network, we touch almost every lender with some of our – with one of our services on our platform. And we have 3,000 of them that are on our Encompass platform. And we continue to have great success across the spectrum of bringing in new Encompass customers that are utilizing other services that we have on our network and getting new wins across all of the segments that we service. So think of whether it's a bank, a nonbank originator, a broker, a credit union, we continue to have success across each of those segments. And we've also leveraging the overall enterprise that ICE brings to bear. We've been able to leverage that to reposition and have some wins with large banks replacing legacy infrastructure that historically, the business wouldn't have been well positioned to win. So we feel great about that part of the business. In the environment that we're in, we have seen customers very focused on rightsizing their organizations rightfully so with the headwinds that they've seen. And they've been very focused on the core platforms that they run, and Encompass is one of the key ones. So that's why we continue to see great strength there. At the same time, innovative companies and entrepreneurs that are thinking ahead don't want to have to – as the market is going to turn, and it will turn at some point, don't want to have to chase volumes by hiring armies of people. Again, they want to try to automate and become as efficient as possible in their processing. And that's why we continue to have great success in areas such as AIQ, which we've now rebranded to our ICE data and document automation platform. And some of the examples that we talked about in the prepared remarks were JPMorgan Chase, obviously, significant bank selected us last year. They've just gone live on the platform this year. So we're starting to see some of that to come into our performance. And on the back of that, a top 15 lender and CrossCountry Mortgage has now selected us. So we see innovative companies out there looking to invest in efficiency and automation going into the future.

Alexander Kramm:

Yes. Hey, good morning everyone. Just a quick one on pricing, actually. Last quarter, you obviously made some price moves on the energy trading side. It looked like that came through pretty nicely. So just wondering any lessons learned from there, and can you extend that into other areas is really the question? I mean, you didn't touch any other Futures businesses. Maybe broadly on the Exchange side, around market data and some of the success you're having in energy data in particular, are there more opportunities for pricing that you see now versus previously since you've gone through this experience on pricing here?

Alexander Kramm:

So more of a next year opportunity is what I'm hearing from you. Sorry for the quick follow-up.

Operator:

Thank you. The next question today comes from the line of Simon Clinch from Atlantic Equities. Please go ahead, Simon. Your line is now open.

Benjamin Jackson:

Thanks, Simon. This is Ben. As you know, we've been thinking about this space for well more than a decade and investing in it. And we feel great about the positioning that we have here, and we're just continuing – continue to be one of our most significant areas of investment across our futures business because we see that the world is going to continue to have this dynamic of moving towards a cleaner energy environment. That road is going to be bumpy. And the fact that we can enable customers to have on that journey a complete suite of products across oil, gas, power and environmentals, that positions us in a very unique way to help our clients in one place be able to do all of that. On the – how the performance of the business itself, we feel good about it. You got to remember, in particular, in Europe, there were some headwinds, obviously, last year, both in energy and in the environmentals sector with the unfortunate war in Ukraine. We continue to watch the health of those markets. Obviously, our energy markets have come back very strong. And we continue to monitor both open interest trends as well as market data subscriptions within our environmental complex, which is at a record. We're looking at – we continue to look at active market participants. That continues to grow in our environmentals. So underneath the covers, it's a very strong market. We have 98% market share of the EUA market space and of what's traded at 96% in North America. So all that underneath the covers is really good. There's some natural tailwinds I mentioned last quarter as well within the European market itself, where a little less than 40% of the sectors in the European economy are required to basically price emissions. And with Fit for 55 coming in place, by 2028, there's another close to 40% that are going to be captured such as maritime roads, buildings. So this is all secular growth drivers towards our European business. Our North American business continues to grow in terms of market participants. I mentioned in my prepared remarks, we just recently launched a new Washington carbon program, and we'll be launching later this quarter an Alberta carbon trading program. So it's another area of investment. Another area that we've been thinking about and have been ahead of actually shows up in our oil business, but it's also really environmentally oriented. And that's the high demand for low-carbon fuels. We've been ahead of this, and we've launched contracts called RIN futures. And what these are is basically every year, the EPA sets standards, in other words, guidelines for the amount of renewable fuels that need to be blended into transportation fuels each year so that you can create sustainable jet fuel, renewable diesel when we're filling up our cars, putting clean unleaded fuel into our vehicles. To meet this target, there's a certain amount of production of renewable fuels that are produced, and those get renewable identification numbers. These are bought, sold and traded historically but in a very opaque market. We launched futures on this as a much more efficient way to do this and we continue to see this grow in open interest as well as ADV very rapidly. It's one of the highest growth areas in that other crude and refined reporting line that we mentioned in our prepared remarks. And today, in the last 12 months, we saw roughly 20% to 25% of the physical market under the EPA mandate trading via our futures. And as futures markets mature, they oftentimes trade a multiple of what the physical market is. So it's another area across our portfolio where we're focused on the environmental space. We're looking ahead, and we're seeing some nice growth.

Kyle Voigt:

Hi. Good morning. Just regarding the elongated sales cycle you mentioned again this quarter, we're seeing some competitors that have also experienced a similar dynamic, but other competitors, including one including one that reported this morning, noted that they're not seeing that elongated sales cycle in their enterprise data business. I guess I just want to hear whether you think there are any competitive share shifts that are occurring in that Fits business that you can see, or whether the slower growth is really entirely driven by the macro environment that we're in. And then also, if you could give some commentary as whether you're seeing any light at the end of the tunnel there in terms of inflections that you're hearing from clients that we may be getting to a better sales cycle environment as we head into 2024.

Operator:

Thank you. The next question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead, Craig. Your line is now up.

Lynn Martin:

Hi. This is Lynn again. That's a great question. So a couple of areas as you think about where the yield profile continues to lead. Obviously, the attractive yields in treasuries more recently is what has really driven some of the outsized gains that I just mentioned on the execution side of the business for the treasury execution business and the money market products that we have. The contrary to that you've seen is on the fixed income index business, where our capture rate, as we talked about on some of the previous calls, tends to be lower on our treasury index business. So AUM continues to grow, but it doesn't have a direct correlation to the revenue growth. It's not a one-to-one relationship. As you're starting to see the issuance profile start to return to normal, you will see that in a reallocation of assets under management to the higher capture indices, that being our credit indices, the muni indices and obviously, with the equity markets doing well, our equity indices. But you'll also start to see that impact our pricing and reference data end-of-day business because you will start to see new fund families emerge, new asset funds emerge, which you've not really seen over the last year. In contrast, over the last year, you've seen – where it's been particularly tough for the fixed income asset managers, you've seen the number of funds decline. We're starting to see green shoots for the reemergence of new funds being created. So I think you'll see a positive impact on a variety of our line items. But again, this is why we've set up the business in the Fixed Income and Data Services segment, in particular, to be an all-weather name to benefit from a variety of macro trends. So treasuries do well. That's going to impact the segment in one way. If munis do well, it's going to impact the segment in another way.

Brian Bedell:

Great. Thanks very much for taking my question. Maybe just to come back to the ICE Chat offering and the proprietary large language models. And particularly in energy, I think you mentioned it was helpful in stimulating volumes so far this year. Maybe if you could just talk a little bit more about what's actually driving that, how does the Chat offering add volume. Is it bringing new customers into the mix such as market makers? And then where would you think you are on this journey? It sounds like it's relatively new, but do you think you've already sort of enhanced the volumes with this or there's a lot more to come in the future?

Operator:

Thank you. Our next question today comes from the line of Patrick Moley from Piper Sandler. Please go ahead. Your line is now open.

Benjamin Jackson:

Thanks, Patrick. This is Ben. So it's clear to us that you got several underlying trends going on in the industry. You continue to have well-publicized underinvestment in legacy energy infrastructure that can cause supply shocks. You've got overall and broadly, electronification, and energy markets continues to take hold. But each of the energy markets and the new innovations that we continue to launch are at various ends of the spectrum of how mature they are in adopting electronification. The energy markets are becoming more global. As supply chains continue to evolve and change, those markets are becoming global, and natural gas is now freely transported around the world in terms of LNG. You also have a trend around precision and risk management. Customers don't just want to trade big benchmark contracts, but they want to trade those in parallel to deep liquid markets that are at the point of production and consumption of where they're concerned about and have to actually buy the product. And there's no – questionably, the last trend would be a move towards greener energy. And we've built our business with a very long lens towards helping our customers manage risk through all of these. We have a deep liquid set of contracts, hundreds of them around the world. We have a lot of different pricing points across each of those sectors, whether it's commodities, energy, cleaner fuels, environmental markets, gas, power, you name it. We built our business with that diversification and with our customers' needs in mind. And we see the setup is great for us. You look at just the results that we've had. We're at or near an average daily volume market share high in crude oil and across our global oil complex. We're adding open interest market share high in North American gas and global gas. We're at or near an all-time revenue share high in June across energy. We've had record active market participation in multiple products such as TTF gas and continuing to grow rapidly in the environmental space. And our futures markets continue to set records in terms of market data subscribers on to our platform. So overall, we feel great about all those underlying trends. And then to cap it off, you look at what's been going on with Brent, and that being from a futures and options standpoint the largest oil benchmark in the world. A lot of the products that we have are very complementary to that. And with some of the significant changes that are happening were dated Brent, our contract now has Midland TI oil coming into it. The fact that we saw that coming launched our Midland WTI, our ICE Midland WTI contract known as HOU, that contract continues to grow very well. And since Midland TI was introduced into the Brent complex this summer, we've seen that contract continue to grow rapidly. And we've had over 50 million barrels of oil that has now been delivered against that contract. So we feel great about the prospects of where we're positioned, both for the balance of this year and into the future.

Aditya Soman:

Hi. Good morning. This is actually Aditya filling in for Alex. Thanks for taking the question. Another question within fixed income on the execution side. We've seen continued progress in fixed income execution, although from a small base. You've been adding capabilities here with the recent launch of the Sweeps Protocol. Can you provide more KPIs for this business? What are your electronic markets like in IG and high yield? Where do you see it going over the next 12 months? And lastly, how does price compare to incumbent platforms and protocols that you compete in? Thanks.

Operator:

Thank you. There were no additional questions waiting at this time. So I'd like to pass the call back over to Jeff Sprecher for any closing remarks. Please go ahead.

Operator:

This concludes today's conference call. Thank you all for your participation. You may now disconnect.

Operator:

Hello, and welcome to the ICE First Quarter 2023 Earnings Conference Call and Webcast. My name is Laura and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Katia Gonzalez, Manager of Investor Relations. Please go ahead.

Warren Gardiner:

Thanks, Katya. Good morning, everyone. And thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our first quarter results. Adjusted earnings per share $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 spend. This strong performance helped to drive an adjusted operating margin of 51% and 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 million 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 5, 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 was $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 remains strong across Futures and Options as of the end of April, including 6% growth in global energy, and 17% growth and Ag. It's worth noting that on May 1, 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 the benefits of our energy RPC, beginning with the second quarter. Recurring revenues, which include our Exchange Data Services and our NYSE Listings business increased by 5% year-over-year including 8% growth in Exchange Data Services, which was in part driven by double-digit growth and a number of customers consuming or 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 the NYSE through April closing on a record year for transfers in 2022. Turning now to Slide 6, 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 a 106% growth in ICE bonds and 42% percent growth our CDS Clearing system. 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 platform. Excluding the impacts 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 in asset-based revenues and 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 Tributary ETFs. Let's go to Slide 7 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% percent decline in origination volumes. While nearly two-thirds of our Encompass customers that came up for renewal during the quarter did so at higher minimum 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 have outperform the industry, if current cyclical conditions persists 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 evidence by our first signing of a top five global banks during the quarter electing to replace their legacy in-house loan origination technology. While not expected to impact 2023, recurring revenues this 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 exists 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, and 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 I’ll now hand it over to Ben.

Jeff Sprecher :

Thank you, Ben. And good morning, everyone. Thank you for joining us. Please turn to Slide 9. I'll begin by touching on our pending acquisition of Black Knight. Since the initial announcement in May of 2022, ICE has remained unwavering in its belief and commitment to the combination of our companies. In March, we announced revised terms of our merger agreement to acquire Black Knight at $75 per share or a market value of $11.7 billion from our previous terms of $85 per share. Black Knight’s shareholders approved this revised deal last week. In addition, and although ICE strongly believes that acquiring Black Knight is entirely pro-competitive. We also announced an agreement to sell Black Knight’s Empower loan origination system, plus certain related businesses to Constellation Software Inc. We did this in order to remove a perceived horizontal competition concern. The divestiture transaction is subject to the closing of ICE’s acquisition of Black Knight and other customary closing conditions. ICE and Black Knight intend to defend the pro-consumer merits of our revised merger in Federal District Court. A scheduling hearing is scheduled to take place on May 12th to establish the timetable for this process, after which time we'll have a better ability to discuss the calendar for deal completion. We're unable to answer any questions on this call relating to our transaction with Black Knight. We remain fully confident in our position and we look forward to presenting it in court. Importantly, we're very excited about the value and the efficiencies that the combined entities will bring to the end-consumer, as well as other stakeholders across the mortgage ecosystem. Shifting to our strong results, the first quarter was highlighted by record adjusted operating results that include continued compounding recurring revenue growth across all three business segments, along with record revenues and our Exchanged and Fixed Income and Data Services businesses. Remarkably, we did this against last year's exceptional first quarter with its unprecedented volatility driven largely by the onset of conflict in the Ukraine. These strong first quarter results are a testament to the value of our data and technology and the strength of our strategic business model. Over the past 20 years, ICE has continually evolved to meet the needs of our customers, resulting in value for our stockholders. Our evolution has been intentional, diversifying across asset classes and geographies and increasing our mix of recurring revenues. The compounding growth of our subscription-based services combined with our diverse transaction- based businesses means that our growth is not tied to one economic cycle to one geography or to one asset class. This provides upside exposure while hedging our downside risk. Looking to the balance of the year and beyond, we’re excited about the many growth opportunities that are in front of us and we remain focused on delivering innovative solutions for our customers, while driving compounding growth for our stockholders. Before I end my prepared remarks, I'd like to say thank you to our customers for their continued business and for their trust. And I'd like to say thank you to my colleagues at ICE for their contributions to another good quarter. And with that, I'll turn the call now, back to our moderator Laura and will conduct a question-and-answer session until 9:30 Eastern Time.

Richard Repetto:

Yeah, good morning, Jeff and Ben and Warren. Congrats on the second best revenue quarter and EPS quarter in the company's history. So, I'd like to go back to the origin, being energy and I know Ben, you spent a lot of time on it. But still the quarter-over-quarter, or at least excuse me - the comparisons compared to the second quarter of last year improved dramatically for you, they are down 20% last second quarter versus the first quarter. So, I guess, the question is, then and you just put in a price increase is what could derail the strong - looking more out at the just energy market overall we know what you're doing with Options in the open interest, but what's the outlook for volumes and what could derail this positive setup you got to deliver for the remainder of the year here, but it looks like a positive set up?

Richard Repetto:

Okay, thank you very much, Ben and team.

Kyle Voigt:

Hi, good morning. You noted the top five global bank win replaced their in-house solutions with Encompass. I guess, is there any way to frame the revenue upside or the potential revenue upside from that contract? And then in terms of, kind of Tier one size banks, do you think getting this signing could kind of open the door to other opportunities of this size? And if you come out on the pipeline from kind of that that client segment of the larger banks? Thank you.

Kyle Voigt:

Thanks Ben.

Alex Kramm :

Yeah, hey guys. Good morning. Just going back to energy for a second and being more specific here. You mentioned the pricing increase, maybe I've missed it. Obviously, we can look at your disclosures in terms of the fee schedule. But there's a lot of mix here. So, maybe on a like-for-like basis, maybe look at 1Q volume mix, like how much would the pricing changes actually impact RPC or revenue?

Alex Kramm :

You can't put it in percentage terms, can you? Or could you?

Alex Kramm :

I was looking for exact math, but good enough. Thank you. Thank you.

Daniel Fannon :

Thanks. Good morning. So, I guess, another question for you, Warren. You talked about strategic investments and that's part of the pickup sequentially. And I was hoping you could just frame where those investments are going in this year, kind of projects and/or products. And then, if the environment isn't as constructive as we think about the back half of the year, is there some flex to maybe remove or reduce spend across the expense base?

Daniel Fannon :

Okay. Thank you.

Andrew Bond:

Hey, good morning. Just wanted to ask this is there any change to your thoughts in ICE’s strategy into digital assets base in the recent months? Are there attritional changes to come more active and given the impact of the current banking crisis in other countries, where ICE already has worked with regulators stepping up their efforts to really become crypto hub for the US bills are also behind. And additionally, do you think US Government and regulators are making a mistake by not being more proactive in providing thoughtful regulatory clarity in place? Thanks.

Andrew Bond:

Okay. Thanks.

Michael Cyprys :

Great. Thank you. Good morning. So, just a question on mortgage. I was hoping you could talk a little bit about where you guys are along the journey of digitizing the mortgage process from e-Closings to e-Notes. It seems, you have a lot of capabilities already in place. Maybe it's just about driving engagement from here. So, if you could talk about what's left? What are some of the hurdles that you're facing? What are some of the steps that you're taking to overcome those hurdles and to accelerate the push the digitize the marketplace? Thank you.

Jeff Sprecher:

I’d also – this is Jeff. I’d also tell you that, one of the things we're seeing is much like it came out of the dotcom boom, where, there were thousands of tech companies and that then really reduced down to a core group of companies that emerged as the largest companies in the United States today. And the reason is similar to the environment were in today, is that in tougher periods like we're in right now, with mortgage, within a higher interest rate environment, clients are more apt to talk to us and listen to our pitch about changing their behavior that they're looking for cost efficiencies. A couple of years ago, when the market was at its peak in terms of transaction volume and everybody's busy in making money, it's actually hard in an environment to convince people to change their behavior. But our team has been really seeing a lot more success now in this environment with people focused on the new model that we’re bringing, as Ben mentioned, a subscription, SaaS-based model that that has deep connectivity across the mortgage ecosystem that will allow them to save money and ultimately pass those lower costs on to consumers. And so, it's actually a pretty good environment for us to try to advance a different model across the industry.

Operator:

Thank you. Our next question comes from Craig Siegenthaler from Bank of America. Craig, please go ahead.

Jeff Sprecher:

That's a really good question actually. I don't want to focus on specifically our fixed income business, but let me speak broadly. And the answer is, yes. I feel like as a management team, we promise that we're going to deliver growth. And sometimes we can do that by building new technologies as we just talked about in mortgage. Sometimes we do it by acquisition and sometimes, it's better to do dispositions and reallocate the capital. And, and I think, through the history of this management team, we've not been afraid to spin businesses out. We've obviously acquired a lot of businesses and we're good at integrating businesses. It's actually pretty strong domain capability of this company. But we also are good at organizing businesses and spinning them out. Ben oversaw along with some Black Knight people, the ability to put together their loan origination platform and take it to market. So, we're not afraid to move businesses around if there's value there. The other thing I would say to you is that, if the market doesn't appreciate of the overall footprint of ICE, it's you as an investor and an investor advocate, think that some of the parts would be better organized differently. Then as a management team, we should be open to that. We like actually running smaller, flatter businesses that have entrepreneurial bents to them. And so the complexity of being a large organization actually can sometimes frustrate that. And so maybe unlike many management teams, we like being small and nimble. So, a longwinded answer of saying, yeah, we look at everything. And we do meet routinely all the people on this call. We meet routinely to go through all of our business units. And what our competitors are doing, what the landscape is and think about whether there are opportunities to organize differently.

Operator:

Thank you. [Operator Instructions] Our next question comes from Alex Kramm from UPS. Alex, please go ahead.

Warren Gardiner:

Hey, Alex. This is Warren. I think you make some really good points and I would echo those. I think right now, though, in terms of our business and the customers that were facing, they are still licking their wounds little bit from what was a pretty tough 2022. But as you're alluding to, there are some green shoots if you will I mean, we've had some good Fixed Income flows for the first couple months of the year. I don't want to predict anything. But it kind of feels like at least relatively speaking, you've got some stabilization in interest rates. And then - and as you said earlier, I mean, this all of a sudden becomes a pretty attractive asset class, broadly speaking. And so, look, I think, there are customers right now, and we've seen this, when I talk about sales cycle, things like net new fund growth and things like that. Though that's part of the slower sales cycle, that's a component of our growth. But as you know, we just said and you said it too, like it seems like things are getting or stabilizing a little bit, and you've got a potentially very attractive asset class. So we're encouraged by that. And I think as we look to the second half, we do have some easier compares to that were facing. And I think all – if you pull that all together, it's all pretty encouraging. But also I think, don't lose sight of what's going on in the rest of the Data business. So we talked about it too. I mean, other Data and Network Services, we had some really strong growth in our desktop business, up double-digits. Our strong growth in our Analytics business. Within that, in part driven by some of the commodity customers. It's also helping our Exchange Data business. And so, we've had some pretty good results and that's the benefit of having some diversity across different types of solutions in different asset classes and helping to drive what overall for the segment was another good quarter of double-digit growth and margin expansion. And again sort of a testament to the not only the old weather nature of that particular segment, but really the business overall.

Benjamin Jackson:

Thanks Alex. So, while you did allude - you alluded to the slowdown in the business, you got to look at it as well though. It is up 10% against a market that’s sequentially down 20 and year-over-year down 60. So the backdrop is still tough. Historically, when you go back to when we bought the Ellie Mae business, this business was heavily transaction-oriented. So that's why if you look over time each quarter the results in this business has been a little bit volatile, because we've been just like on the origination side, we have made a concerted move to moving more and more customers towards subscription. In the fourth quarter, and then again in the first quarter, we moved some pretty substantial customers that were on heavily transaction-oriented deals more towards subscription and gave up some transaction revenue to do so. So that's some of the noise that you saw in there. But some of the tailwinds we have in this business, as well as within the spring of last year, we mentioned we won a major global bank in JPMorgan Chase coming onto our AIQ platform. And we have now implemented them. They are live and we're going to start seeing revenue contribution from that. So there's a nice tailwind there. We also - based on the interesting data sets that we have and the unique datasets that we have on our loan origination system, we've recently been engaged by the CFPB. And they've engaged us to help improve their average prime lending rate. So the lending rates that they put out to consumers, that's the average to give them a benchmark of am I getting a fair deal? When we're underwriting a loan, they've engaged us to help provide them our data to help improve that index. So we think that's just one of many examples of data offerings that we will have in the future. And the other thing I’d point to is that, were feeding a lot of our data sets into other parts of our business. Like our ICE Data Services business to improve our mortgage-backed securities pricing. And then, we also launched those rate lock Futures last year that we believe is a very interesting risk management tool to help with some of the basis risk that you have in the mortgage space when producing a mortgage, whether it's a long-term mortgage lock that you have or you have jumbo loans in your portfolio. You have pretty significant basis risk versus treasuries and the TDA market when doing that. And in April, we saw 11,000 contracts executed on those rate lock Future. So, there's a lot of green shoots there within data. And I think you'll see that feed multiple different line items in the future as those develop.

Operator:

Thank you. That is now the end of the Q&A session. We will now hand back over to Jeff Sprecher, Chair and CEO for closing remarks.

Operator:

This concludes today's call. Thank you for joining. You may now disconnect your line.

Operator:

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. [Operator Instructions] I'll now hand over to your host, Katia Gonzalez, Investor Relations and Senior Analyst. Katia, please go ahead.

Warren Gardiner:

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 we're within our guidance range, including approximately $5 million of additional severance. This strong performance helped to drive fourth quarter adjusted earnings per share $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 $0.42 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 LIBOR. Recurring revenues, which include our exchange data services, and our NYSC 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. While industry wide capital markets activity was relatively muted. It's worth noting that despite a slower year for IPOs, across the globe, we had a record year for listing transfers was 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've made in both enhance 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 with slower growth in our end-of-day pricing business, we're experiencing a slower sales cycle and pressure from asset base 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, and communities 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 it was up 5% after adjusting for Euronext. Let's go next to Slide seven, where I’ll 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 continue to drive out performance versus an industry that experienced a nearly 60% decline in origination volumes. Importantly, they've now less 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 2020 -- 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 were 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 million to $55 million of incremental noncash expense, including $25 million of D&A related to the rebuild of Ellie Mae CapEx. And lastly, we expect an FX benefit to our adjusted expenses by approximately $5 million 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.

Jeff Sprecher:

Thank you, Ben. Good morning, everyone, and thank you for joining us. Please turn to Slide 10. I want to begin by touching on our pending acquisition of Black Knight. As communicated, when making the announcement, we continued to believe that this transaction will close during the first half of this year. Our respect for the Federal Trade Commission's work on this matter, and as we cooperate with them to gain regulatory approval, we do not intend to comment further on the transaction. But importantly, we remain excited about the efficiencies that the combined entities will bring to the end consumer and to other stakeholders across the mortgage ecosystem. In that vein, and shifting to what was yet another successful year, 2022 marked our 17th consecutive year of record revenues, record operating income and record adjusted earnings per share. This track record of growth reflects on the quality of our strategy and, more importantly, on the execution of that strategy. We've intentionally diversified across asset classes and geographies, so that we're not tied to any one cyclical trend or macroeconomic environment. We've deliberately positioned the company to have a mix of transaction and compounding subscription revenues to provide upside exposure while hedging our downside risk. We've placed the company at the center of some of the largest markets undergoing an analog to digital conversion. The combination of these factors is what has made ICE an all-weather name and a business model that provides upside to volatility with less downside risk and, importantly, a business model that generates growth on top of growth. For example, in 2022, inflationary concerns and market speculation of central bank activity benefited our European and U.K. interest rate business, driving a 33% increase in revenues for the full year. These conditions also contributed to record full year revenues in our credit default swap clearing business, up 61% year-over-year, as rate volatility drove increased demand for risk management and credit protection. Across our mortgage business, even against this backdrop of rising interest rates, our business outperformed the broader market driven by strong recurring revenue growth, up 16% for the full year. Again, this is a reflection of the all-weather nature of our business model. As we look to 2023 and beyond, we're positioned to capitalize on the secular and cyclical trends occurring across asset classes, and we remain focused on executing on the many growth opportunities that are in front of us, extending our track record of growth. I'd like to conclude by thanking our customers for their business and for their trust in 2022, and I want to thank my colleagues for their contributions to the best year in our company's history. And with that, I'll turn the call back over to our operator, Alex, who will conduct a question-and-answer session until 9:30 Eastern Time.

Richard Repetto:

Yes, good morning, Jeff and Ben and Warren. I wanted to ask about energy and more specifically natural gas. Ben, you made a lot of comments about how strong the U.S. natural gas markets are. You can see it in the volumes. But one issue it seems coming up is in the European natural gas and the TTF contract want to put in the right perspective, it's only 15%, I think, of the natural gas volumes but this whole deal with price caps that have been implemented and what you're going to do about it. And I guess it ties into the bigger question of politics and regulation impacting the markets, Jeff, as well. But anyway, the question on natural gas and sort of this broader intervention of government or regulation.

Operator:

Our next question comes from Daniel Fannon of Jefferies. Daniel, your line is now open. Please go ahead.

Warren Gardiner:

Dan, it's Warren. Good question. So there's not really much change in terms of our expectations and our targets as we head into next year. A couple of years ago, we outlined the growth algorithm for the data business, and that's been pretty consistent for the last couple of years. So there'll be a little bit of price we talked about in prior years, that being around a third of the growth. There will certainly be contributions from new customers, contributions from current customers purchasing more. And so I think it's a pretty similar algorithm if you're thinking about this year versus past years. I think when we're thinking about 2023 specifically, look, the macro, those factors are a little bit difficult to predict. I mean, AUM fees, particularly the last two quarters, those have been something that have weighed on us a little bit. I don't know exactly where those are going to go next year. It does feel like certainly in areas like fixed income, we could see some stabilization. And frankly, fixed income could very quickly become a very attractive asset class. So look, we're having some really good conversations with customers. We are a data superstore, if you will, We're indices, we're end-of-day pricing. We have analytics. We have got desktops. We've got fees. It's a really diverse business. And so it's an opportunity for us to have conversations with customers in this kind of environment than we are to maybe find ways to save but spend more with us. And that's something I think you've heard us talk about the last couple of years. So there's nothing really different about our target. But again, we're certainly cognizant that it's a somewhat challenging environment for a lot of our customers at the moment.

Operator:

Our next question comes from Ken Worthington of JPMorgan. Ken, your line is now open.

Benjamin Jackson:

Thanks, Ken. It's Ben. Great question. And yes, you're right. You had the same dynamic that I highlighted before on TTF with oil as well as downstream products like gas oil as well, to some degree, getting cut off from Europe. But we have seen a similar dynamic that I mentioned in the natural gas markets where you have U.S., Norway and Middle Eastern oil now flowing in to help address some of that supply that has been lost based on Russia effectively cutting that off. So what we have seen -- since we announced in the second half of last year, that Russian molecules were no longer deliverable into the gas oil contract as an example. One of the things that we saw develop underneath the covers is that open interest in gas oil from October 1 to the end of last year grew 100% in deliveries starting in January of this year. And then since the end of the year, it's grown another 14%. So all that is showing the underlying health of the return and bolstering of market confidence coming back to products like gas oil, once that specificity was created. That said, you have a whole -- so we're seeing market confidence come back. Brent's up as well since the beginning of the year. So we feel good about that contract. Our Brent options contract has also done very well. But all of these supply chain changes around the world is why we've been making the investments we've had in a whole bunch of different areas around oil over the last few years. Two years ago, we've announced and launched ICE Futures Abu Dhabi and the Murban contract. And the interesting development we've seen with Murban is that Murban historically priced Middle Eastern barrels going out to Asia. And now, as I mentioned, Middle Eastern oil is also backfilling, to some degree, some of the supply cuts happen from Russia on oil supplies. And we're seeing Murban now being used to price Middle Eastern barrels that are going into Europe. That's one of the things that's feeding north of a 50% growth in Murban year-to-date this year. So we're off to a great start there. The Midland WTI contract that you highlighted, we launched that contract a year ago. And that contract is off to a great start. Tons of physical traders in it, prices, Midland TI that goes to Houston and hits the water and a lot of that oil is going over to Europe, it's a perfect product for people to use to hedge cargoes that are going into Europe. And again, with that supply chain dynamic of U.S. oil, backfilling a lot of the Russian oil that was cut off, we were very well positioned there. And then at the midpoint of this year, that Midland contract is perfectly positioned to be traded in parallel to Brent with those Midland TI barrels coming into the Brent index. So we feel very well positioned with all of the investments we've been making in and around oil in anticipation of potential supply chain changes, and we think we're well positioned there for growth.

Chris Allen:

Good morning, everyone. I wanted to ask about Mortgage Tech recurring revenue outlook. You noted some bright spots in your comments just in terms of some of the sales you're seeing, the conversations you're having with customers, but we're seeing this continue to somewhat -- to decline in terms of the pace of growth, albeit still at healthy levels. And coming into the mortgage slowdown, you kind of noted that the mortgage industry was have been very busy during the single upturn. Now that the downturn occurred, there was an opportunity set to improve efficiency there that it's almost going to an acceleration of recurring revenue growth. So maybe you could kind of frame out the decline in the Mortgage Tech revenue growth outlook. What's being driven just in terms of the overall dampening of the industry right now? What's kind of the opportunity set in terms of further customer penetration going forward?

Jeff Sprecher:

And I think if you step back -- this is Jeff. If you step back, what we're talking to the industry about is a fundamental shift in the way they assemble and manufacture mortgages to take costs out of the system, to move the industry to more of a SaaS model, subscription-based model instead of a model where every single mortgage is put together a la carte with services and the cost of a first-time homebuyers mortgage versus the cost of a $1 million mortgage are essentially the same in the current system. And it just makes sense to us that if we can give the industry a more predictable way of operating their businesses, they can be more responsive to their customers and allocate costs proportionately across their business, which is the way business is done in most other digital markets or markets that have moved from analog to digital.

Alex Kramm:

Good morning, everyone. Just wanted to ask about pricing holistically across the business. When you look at the data services space, some of your peers, maybe some of them in the desktop space that you're not in, but we're seeing price increases because of inflation. Your primary peer in the futures trading side also seems to have been taken a bigger price increase than usual this year. So when you put this all together and you look at your business, it seems like you're leaving some money on the table and you're a little bit afraid to kind of like turn that lever a little bit more. So just wondering if you're thinking, is it all evolving given the higher inflationary environment that's obviously driving your cost higher as well?

Jeff Sprecher:

And this is Jeff. I would just mention that we spend a tremendous amount of time focused on our own costs and the cost of delivering these products and continue to make prudent investments but underneath allocate to personnel and resources. We've been -- you may notice, of all the major exchange groups, we've been the most cautious, if you will, of moving business to the cloud because those are areas where we've seen the largest cost increases and the most unpredictable rises in cost. So we have continued to be conservative in delivering our products the way our customers want to see them but trying to do it in a way that is very, very cost efficient.

Alex Blostein:

Hi, everybody good morning. Thanks for the question. I just want to go back to some of the energy dynamics in the space. And I was hoping you guys could talk about the environmentals for a bit. It’s great to see the TTF complex kind of coming back to life here in January. What would it take to get, I guess, the environmental products going again? And kind of what are some of the dynamics in that market for '23?

Operator:

Our next question comes from Simon Clinch of Atlantic Equities. Simon, your line is now open.

Benjamin Jackson:

Sure. Simon, it's Ben. So there's a couple of different pieces to that question that I'll cover. So on transaction revenue, we have said we are willing to give up some transaction revenue that we have today. So take, for example, a "success" fee. When a loan is codified, there's a transactional fee associated to that, that where -- if we lower that to some degree for our clients but shift more of that towards recurring revenue and more predictable revenue to us, we'll do that. So there is some short-term impact to our transaction -- to existing transaction revenues. At the same time, we have a whole suite of other services that we're cross-selling to our stable of 3,000 Encompass customers, for example, around the world, some of which are recurring, some of which are transaction that, as those continue to mature because they're very early stages but are showing some great signs of success, our ability to cross-sell those, things like our data and analytics offerings, which we -- were transactions that we've tilted much more towards subscription. But then we also have services in our closing line item that we're continuing to invest in and we're continuing to add on that will be incremental transaction revenues. So there's a mix underneath the covers there. But we believe that having a more predictable business model for the longer term will enable us to continue to grow the business at 8% to 10% a year for a long period of time.

Craig Siegenthaler:

Good morning, everyone. I wanted to come back to Ben's commentary that 4Q is the strongest Mortgage Tech sales quarter since last year. What products drove the increase in 4Q versus the prior quarters? And also given several announcements of exits and downsizes in the residential mortgage world, and I'm thinking Wells Fargo is probably the biggest, which products are you seeing under the most pressure on the sales front in 4Q?

Operator:

Our next question comes from Brian Bedell of Deutsche Bank. Brian, your line is now open.

Lynn Martin:

Yes. Thanks for the question. As I mentioned, volatility certainly did help out this business, but a lot of the share gains we've achieved in the institutional side of the business has really been what's driving the growth. 26% in Q4 of our muni activity came from institutional accounts. So that's up from 13% in 2020 when we started to acquire all of these different platforms. So we've really been able to increased institutional footprint. We do see opportunities also in treasuries and CDs. Those two asset classes within the execution segment have outperformed a lot of that volatility-driven. But the toughest thing to do is to get the plumbing into the institutional accounts. And I think the deliberate decisions we took a couple of years ago to be workflow-agnostic, to work with a variety of providers to plumb our platforms into a variety of workflow solutions have really beared fruit in 2022. So when volatility came into the market, it wasn't just about your traditional retail trader that was executing the munis and corporates. It's now about the institutional trader that sees us as a diversified platform across multiple asset classes in fixed income.

Michael Cyprys:

Great. Thanks. I wanted to circle back on Mortgage Technology. With the recurring revenues up about 16% mid-teens in 2022, I was hoping you might be able to help unpack what portion of that recurring revenue growth was from unit growth, from existing -- excuse me, unit growth from new customers versus wallet share gains from existing customers where you're expanding the services they are offering to them versus what portion of the growth is coming from current versions from transactional to the recurring revenue side. And then when you look ahead to '23 with your mid- to high single-digit growth there on the recurring revenue sides and Mortgage Tech, how do you see that mix evolving in your outlook into '23? Thank you.

Operator:

Thank you. We have no further questions for today. So I will hand back to Jeff Sprecher for any further remarks.

Operator:

Thank you for joining today's call. You may now disconnect your lines.

Operator:

Hello, everyone and welcome to the ICE Third Quarter 2022 Earnings Conference Call and Webcast. My name is Charlie and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to your host, Katia Gonzalez, Investor Relations Senior Analyst, to begin. Katia, please go ahead.

Warren Gardiner:

Thanks, Katia. Good morning, everyone and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our third quarter results. Third quarter adjusted earnings per share increased 4% to $1.31 which is on top of 30% growth in the third quarter of 2021 and marked the best third quarter in our company's history. Third quarter net revenues totaled a record $1.8 billion, up 3% year-over-year. While transaction revenues were flat on a year-over-year basis, our recurring revenues which accounted for over half of our business, increased by 6% with all 3 of our business segments contributing to the strong year-over-year growth. Third quarter adjusted operating expenses totaled $727 million and were $16 million below the low end of our guidance. These better-than-expected results were driven by favorable FX trends, continued operating efficiencies and a handful of nonrecurring items within professional services, SG&A and technology. Shifting to the fourth quarter. We now expect adjusted operating expenses to be in the range of $730 million to $740 million, with the increase relative to the third quarter largely reflecting the reversal of onetime items. As you begin to think about 2023 expenses, the midpoint of our current full year guidance or roughly $2.948 billion is a reasonable base to build upon. Despite the dynamic and uncertain macroeconomic backdrop, the diversity and importantly, durability of our business has enabled us to invest through cycles. And while taking the current inflationary backdrop into consideration, we expect to once again invest in our people and the many medium- and long-term growth opportunities that exist across our expanded business. Third quarter adjusted operating income totaled $1.1 billion, up over 6% year-over-year and is on top of 13% pro forma growth in 2021, while adjusted operating margin expanded by nearly 180 basis points to approximately 60%. Through the first 3 quarters of 2022, adjusted free cash flow has totaled over $2.1 billion, up 7% year-over-year. Now, let's move to Slide 5 where I'll provide an overview of the performance of our Exchange segment. Third quarter Exchange net revenues totaled $1 billion, an increase of 8% year-over-year. In addition to higher levels of collateral at our clearinghouses and thus higher member interest revenues, this strong performance was driven by a 54% increase in our interest rate futures, a 23% increase in our equity derivatives and a 13% increase in cash equities and options revenues. Importantly, total open interest which we believe to be the best indicator of longer-term growth, ended October up 11% versus the end of last year, including 7% growth in energy and 18% growth across our financial futures and options complex. Recurring revenues increased by 5% year-over-year. This growth was driven by strong demand for our energy exchange data and a continued benefit from our record 2021 listings performance. While recent market volatility has led to a pause in new Listings business, both the backlog and our conversations with potential partners remains robust. And through the end of October, a record 19 corporations, representing a combined market cap of nearly $40 billion, have chosen to transfer to the NYSE. Turning now to Slide 6. In our Fixed Income and Data Services segment, third quarter revenues totaled a record $534 million, a 14% increase versus a year ago. Transaction revenues increased by 84%, including 122% growth in ICE bonds and 75% growth in our CDS clearing business. Similar to last quarter, this strong growth was driven by market volatility and rising interest rates, customers allocating additional capital to CDS trading and our continued efforts to build institutional connectivity to our bond platforms. Recurring revenues, excluding the Euronext migration, grew by 4% in the quarter driven by demand for additional capacity on the ICE Global Network as well as double-digit growth in both our consolidated feeds business and our derivative analytics. Somewhat offsetting the strength were asset-based revenues in our index business which declined by double digits year-over-year as investors shifted out of higher fee risk assets such as equities, munis and corporate bonds and into treasury ETFs. In addition, extended fixed income market volatility is also impacting growth in a portion of our end-of-day fixed income pricing business as reduced new issuance has driven slower growth in the number of outstanding bonds available to be priced. Absent a sharp reversal of these macro trends, we'd expect fourth quarter growth to be similar to our third quarter performance. Shifting to Mortgage Technology on Slide 7. Third quarter revenues totaled $276 million. Recurring revenues which accounted for nearly 60% of segment revenues and totaled a record $163 million in the quarter, increased 14% year-over-year. These strong recurring revenues continue to drive outperformance versus an industry that experienced a nearly 60% decline in origination volumes. Importantly, data and analytics revenue increased 22% year-over-year with underlying recurring revenue increasing by over 40%. Similar to last quarter, it's worth noting that industry unit origination volumes were similar to those in the first quarter of 2019. However, our third quarter 2022 Mortgage Technology revenues were over $100 million greater, growing at a CAGR of approximately 17% when compared to the pro forma revenues in 1Q '19. This is a clear testament to the continued automation and growth and customer adoption of our solutions across the origination workflow. I'll conclude my remarks on Slide 8. Year-to-date, we've grown ICE revenue by 6%, adjusted operating income by 10% and our adjusted earnings per share by 9%, representing the best year-to-date performance in our company's history. Despite dramatically different macroeconomic environments, over a 3-year period, you will see a similar story of compounding growth with ICE revenues increasing at a CAGR of 8%, operating income at 11% and EPS of 12%, again, a testament to the resilience and durability of our platform and the all-weather nature of our business model. As we look to the balance of this year -- of the year, we're excited about the many growth opportunities in front of us and remain focused on creating value for our stockholders. With that, I'll hand it over to Ben.

Jeff Sprecher:

Thank you, Ben. I want to start my prepared remarks by highlighting our vision of how ICE is contributing to both the U.S. home mortgage and U.S. equity markets to bring increased efficiencies to consumers in these 2 asset classes. To take you back, ICE was initially founded to build and operate digital commodity exchanges. Modern digital exchanges provide an essential service, efficiently matching buyers and sellers with operational neutrality. Our modern exchanges are regulated. But more importantly, their growth and efficacy depend on the industry's trust of our neutrality. ICE does not take a position on the price of any commodity or security. We simply provide the software and network that efficiently facilitates a buyer and seller finding one another and allows them to determine their transaction price. Today, millions of traders, investors, brokers and regulators around the world are attached to our exchange networks. And they all benefit from the transparency and standardization that we enable. We followed up our launch into the exchange business by building digital data networks to disperse information separate from our exchanges, networks that thrive on the neutrality and confidentiality of our data management. It is likely obvious to you that our data networks would contain financial information generated by our own exchanges but it may be less obvious that our growth has been accelerated by opening these networks to third parties, including most of our global exchange competitors who also access our customer base. Today, hundreds of third-party exchanges, brokers and market data generators publish their data to users across our networks. Our growth in the U.S. mortgage industry builds on the same management tenets

Richard Repetto:

First, thanks for the comparison one on the Mortgage Technology performance versus unit originations. That's helpful. But as we dig in, you outperformed again against unit origination. Can you give us a little bit more detail on which lines in the -- outperform like data analytics, we'd expect that to be 100% recurring and that's been outperforming. But like the other has been flat and we expect that to be all variable. So the question is what's getting you to outperform the unit originations and within which lines in mortgage?

Richard Repetto:

My follow-up question would be in the Exchange segment. And I don't know whether it's for Jeff or Ben but the energy complex, not just you, industry-wide continues at least to perplex a lot of us with the volume performance there. And again, it's not just you, it's industry. But Jeff or Ben, could you give us a little bit more insight into -- you're making up a good part of the volumes, growing financial futures and cash equities and options. But like the gas oil contract, I believe it's down 40% year-over-year and this idea of higher margin causing corporates and speculators to pull back. Could you give us some more color into the energy complex, specifically gas oil?

Operator:

Our next question comes from Ken Worthington of JPMorgan.

Ben Jackson:

Ken, it's Ben. I'll start here. The -- so when you look across our rates business, the way we look at it and we manage it, we manage it as a portfolio. We look at, in particular, the largest parts of our rate franchise are with our SONIA Gilts business as well as Euribor. And underneath the covers, when you look at what's been going on geopolitically and the overall environment, Continental Europe has actually done a pretty good job of signaling how they're going to handle this rates environment. And the market has responded very well to that. And that's what's led to just a very, very solid year in terms of Euribor volumes as well as open interest as that is up over 60% on a year-over-year basis. So that part of the business has done extraordinarily well. If you look at the U.K. specifically and Gilt and SONIA, there's 2 dynamics going on there. With SONIA specifically when you're comparing our performance with last year, you have to remember that last year, we had both short sterling and SONIA trading side by side. And this year -- and then those converged in December of last year. So this year, you have SONIA only. So there's a bit of an off comparison there as there was a significant amount of arbitrating going on between SONIA and short sterling as that converge into what's taking place. And now you have SONIA as a stand-alone. In the U.K., though, specifically, obviously, there's been political uncertainty there. You've had the change of Prime Ministers. You've got uncertain rate hike expectations. You had the mini budget that shocked a lot of people. You had a potential currency crisis all hitting at the same time. And that definitely weighed a little bit on SONIA and Gilt but we're already seeing signs that the market is stabilizing as the environment has stabilized there. So we feel very good about that overall rates portfolio that we have. It's definitely an area we're continuing to invest. We have our own SOFR contract that we've launched as well. And it's an area that we're going to continue to invest and we see opportunity.

Warren Gardiner:

So Ken, we'll go ahead and get you the exact number there but I think it's certainly approaching where it was years and I think the record would have been sort of '08, '09, that kind of a range in terms of the revenues. We certainly made some adjustments to RPCs in that complex, too. And there has been some pressure from FX this year. So I think we're approaching to where it was and we're around this level. But I do think that the world is a lot bigger and different than it was back then. And so I think as you think about the future, there's certainly room in what is effectively -- certainly on the Euribor, so the second largest reserve currency for that complex to grow well into the future regardless of what the prior level would have been.

Daniel Fannon:

So a couple of questions just on the Fixed Income and Data business. So the execution as well as the clearing has seen pretty strong activity this year. You mentioned higher rates. Is it -- you talked about just participation levels, customer growth, other areas or are these really more just kind of external factors kind of finally more as a tailwind?

Daniel Fannon:

Understood. And then on the data and analytics side, I think, Warren, you mentioned fourth quarter being kind of flattish with the third quarter in terms of growth and citing the, I think, lower bonds outstanding as a part -- as a factor. I guess could you remind us of the pricing model? I thought this was more of a subscription-based model, more recurring revenue associated with customers, not bonds outstanding. I guess provide a little more clarity or understanding in terms of how we think about the outstanding bond versus kind of customer growth and other things in terms of drivers of revenue.

Warren Gardiner:

And Dan, I'll just add to that, just to give you a little bit more color on the consumption of price. There is a subset of customers that do take or consume, I should say, based on the number of securities that are priced in the fund holdings that they have. It typically will be custodians and participants such as that. So there -- a lot of them honestly holding most, if not all, of the bond market, if you will. And so as the bond market in size fluctuates and this isn't necessarily related to refinancing which will be sort of canceled and replaced. It's more around new issuance and the growth of the overall bond markets whether it's corporates or munis or structured products as that fluctuates and it tends to be sort of lower single-digit growth over the years, that will help or to some extent hurt the growth in that component of our subscription business. But again, it's a part of the -- it's only a portion of the overall TRD business and the overall data business at the end of the day that, that applies to.

Kyle Voigt:

Just wondering if you could comment a bit more on the health of your customers in the Mortgage Tech segment. You mentioned earlier in the call that there were some customers that didn't renew mostly to shuttering or consolidating. But we're really in the beginning phases of what could be a long and challenging volume environment. So I guess the question is, if the current mortgage environment remains extremely challenging over the next year, do you still believe you can grow the recurring revenues year-on-year in that segment and offset client attrition? Or should we expect some slowdown on that part of the business as well?

Jeff Sprecher:

And this is Jeff. And let me just -- in the past earnings presentations, we've shown you the demographic trends that are going on in the United States. And yes, there are higher interest rates. Yes, there are supply chain issues for homebuilders, uncertainty for homebuilders but there is an unbelievably large demographic of people in this country that are starting new households, having children, getting married, moving on with their lives. And that demographic trend, one way or another, has to be satisfied with a place to live. And so I think what you're really seeing on a macro basis is us building solutions to deal in part with that population.

Warren Gardiner:

Sure. Kyle, it's Warren. So there are a couple of things there. I mean, certainly, the macro headwinds we talked about on the AUM side and some of the pricing business but also don't forget Euronext is part of that as well. But if you adjust for those, yes, I mean, look, ASP adjusted for those was around 5%. It was closer to 5% for the quarter. So we feel pretty good about that business, given what's going on within fixed income markets at the moment. And again, don't lose -- and Lynn mentioned this but don't lose sight of the overall segment results, where the segment was up 14% year-over-year from a revenue perspective. We're up 12% year-to-date in that business. Operating margins in the quarter or operating income in the quarter, I should say, was up about 30%. And margins grew by 6 points. So overall, we're very happy with the performance of that segment and a lot of the factors that are weighing on what we're seeing on the pricing side, on the index side or what's benefiting for us on the trading side. So those results this year are some of the best we've had ever and so we're pleased with the results of the business overall.

Alex Kramm:

I want to come back to Richard's question on the energy performance. Ben, in your answer, it almost sounded like you blamed Russia-Ukraine situation almost entirely for what you're seeing, the underperformance there. So that almost sounds a little bit structural. So I just wanted to make sure there are other factors that you could maybe isolate or even point to some green shoots. I don't know. Is it margins having to come down? Is it volatility maybe coming to more normal levels? Or what would you think needs to happen for maybe that business to, in its current form, perform a little bit better unless it really is structural and something has changed? And then quickly, there's more talk of price caps in Europe as well. So just wondering how you view those in terms of impacting your business? Because generally speaking, somebody interfering in market forces is usually not good for volume. So just maybe those two additional areas in energy.

Alex Kramm:

I appreciate the incremental color here. Just one quick one for Warren then. It seems like your revenue is benefiting from higher rates directly more. So I was just hoping if you can remind me what the magnitude is, I think, in the OTC and other line on the exchange side. And then on the CDS business, you got net interest income. So maybe some underlying data you can give us in terms of the balances and the rates you're getting, what rates you're mostly sensitive to in Europe and then in the U.S. because, obviously, the rate picture is fairly dynamic these days. So I just wanted to make sure we understand how to model that better.

Operator:

Due to time constraints, that was our last question today. I'll now hand back over to Jeff Sprecher for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.

Operator:

Hello, everyone and welcome to the ICE Second Quarter 2022 Earnings Conference Call. My name is Victoria, and I will be coordinating the call today. . I will now present to you, Mary Caroline O’Neal, Head of Investor Relations to begin. Please go ahead.

Warren Gardiner:

Thanks MC. Good morning, everyone and thank you for joining us today. I'll begin on Slide four with some of the key highlights from our second quarter results. Second quarter adjusted earnings per share totaled $1.32. The 14% increase year-over-year, marking the best second quarter in our company's history, and is on top of 12% growth in the second quarter of 2021. Net revenues totaled $1.8 billion, an increase of 8% versus last year, driven by a balanced contribution from both our diversified transaction revenues and our recurring revenues, which account for over half of our business and increased by 8% versus last year. Second quarter adjusted operating expenses totaled $740 million and were at the low end of our guidance range versus the midpoint of our guide, second quarter expenses benefited from favorable FX, various expense efficiencies and lower variable costs, particularly customer acquisition costs and our listings business. Moving to the full year, we're lowering our expense guidance to a range of $2.97 billion to $2.99 billion midpoint to midpoint this represents a reduction of $35 million versus our prior guidance and similar to our second quarter results is driven by expense efficiencies, lower variable costs and favorable FX. Second quarter adjusted operating income increased by 14% to $1.1 billion their adjusted operating margin expanding to 59%. Moving to the balance sheet, shortly after we reported our first quarter results in May, we took the opportunity to raise $8 billion in new SR notes. We used 3 billion of these proceeds to refinance our 2022 and 2023 maturities and along with the proceeds from our sale of Euroclear reduced our commercial paper balances to zero with no maturities until the middle of 2025, we enter the second half of the balance sheet that is well positioned and it's an exceptionally volatile interest rate environment. The remaining $5 billion of proceeds raised in May, is earmarked to fund a portion of our announced acquisition of Black Knight based on a favorable rates that we've secured on these long-term notes, and the current forward rate expectations for both our commercial paper and term loan, we anticipate we will be well within our targeted 4% to 4.5% cost of debt financing for the transaction. It is also worth noting that alongside the financing in May, we maintained our A minus and A3 pre-acquisition ratings from both S&P and Moody's. Now let's move to Slide five, to provide an overview of the performance of our exchange segment. Second quarter exchange net revenues totaling $1 billion, an increase of 13% year-over-year, this strong performance was driven by an 80% increase in our interest rate futures, and that's 36% increase in our equity derivatives revenues. Importantly, total open interest, which we believe to be the best indicator of long-term growth, and in July up 11% versus the end of last year, including 6% growth in energy and 21% growth across our financial futures and options complex. Second quarter cash equities and equity options revenue increased by 17% year-over-year, and in July, we successfully migrated the NYCE Arca Options platform to our new pillar technology, while continuing to seamlessly process record message volume, a testament to our team's hard work and our broader technology expertise. Exchange recurring revenues increased by 7% year-over-year. This growth was driven by strong demand in our energy exchange data continued benefit from our record 2021 listings performance and a one-time accrual in our listings business that we do not expect will reoccur in the second half. Turning now to Slide six. In our fixed income and data services segment, second quarter revenue totaled a record $512 million a 13% increase versus a year ago. Transaction revenues increased by 78%, including 85% growth in ICE bonds, and 76% growth in our CDS clearing business. This strong growth was driven in part by customers re-engaging and allocating more capital to CDS trading, as well as our continued efforts to build institutional connectivity through our bond platforms, where we're seeing market share gains and our municipal bond business. Recurring revenue growth, which accounted for over 80% of segment revenues grew 5% in the quarter and was once again driven by strength in our consolidated fees business as well as continued growth in the ICE global network. Looking to the second half, we expect year-over-year growth in our recurring revenues to continue supported by an ASD that interest in the third quarter up over 5% year-over-year. And in that second half as reported recurring revenues, we flat to slightly up versus our first half results driven by your Euronext data center migration which was included in our original guidance and $10 million of additional FX headwinds. Shifting to mortgage technology on Slide seven. Second quarter revenues totaled $297 million. Recurring revenues which accounted for over half of the segment revenues and totaled $160 million in the quarter increased 18% year-over-year. These strong recurring revenues continue to drive outperformance versus an industry that experienced a 40% decline in origination volumes. While the current macroeconomic backdrop is challenging for a number of our customers is also presented an opportunity to have more constructive conversations around efficiency and automation across the mortgage origination workflow. It's worth noting that second quarter unit origination volumes were similar to those in the second quarter of 2019. However, second quarter 2022 revenues in our mortgage technology business were over $100 million greater or up almost 60% when compared to pro forma revenues in 2Q ‘19. This is a clear testament to the continued automation and growth and customer adoption of our solutions across the origination workflow. I'll conclude on Slide eight. To the first half of the year, we've grown total ICE revenue by 7% adjusted operating income by 11%, including 200 basis points of margin expansion and adjusted earnings per share by 12%, representing the best first half in our history. In addition, we've positioned our balance sheet for the acquisition of Black Knight while also growing our dividend and continuing to invest in future growth. As we look to the balance of the year, we're excited about the many growth opportunities in front of us, and we remain focused on creating value for our stockholders. With that, I'll hand it over to Ben.

Jeff Sprecher:

Thank you, Ben. Good morning, everyone. And thank you for joining us. Please turn to Slide 10. The first half of the year has been marked by rising inflation, rising interest rates and continued geopolitical and macroeconomic uncertainty. Our customers are navigating evolving risks and continued to rely on our data, technology and liquid markets to manage these risks. In the second quarter, we once again grew revenues, grew adjusted operating income, and grew adjusted earnings per share these record setting second quarter results reflect the strength of our network and the all weather nature of our business model. Our strategy has always been to find unique and novel ways to apply data and technology to bring efficiencies and transparency to markets whether it was moving energy trading to the screen, clearing OTC swaps, modernizing the technology powering the U.S. equity markets, or building datasets for the opaque fixed income markets. As we've grown and diversified, we've broadened our opportunity set and our expertise has grown, providing new markets to grow into, and importantly, new ways to provide innovative solutions to customers. We've leveraged our leading pricing and reference data to build new tools for the front office. We've married our fixed income data to newly expanded climate capabilities. And more recently, we've combined our expertise in futures contract construction, with our index capabilities, and with our unique mortgage data to launch both the ICE mortgage rate lock index and its associated futures contract. These are just a few examples of the innovation that we can deliver with our expanded technology, datasets and expertise. Our evolution has been intentional, diversifying across asset classes and geographies and increasing our mix of recurring revenues with the goal of building a business that today generates compounding earnings growth. It's how we've grown our adjusted earnings per share for the past 15 years in every year that we've been a public company. The net result of our compounding earnings growth is the compounding growth in our dividend, which we've grown double digits each year on average since we initiated it in 2013 and which we also grew 15% in this quarter. Looking now to the second half of the year and beyond, we're excited about the many growth opportunities that are in front of us. And we remain focused on delivering innovative solutions for our customers while driving compounding growth for our stockholders. I'd like to thank our customers for their continued business and their trust and I'd like to thank my colleagues at ICE for their contribution to our record second quarter, following on the heels of our best first quarter, making this an unsurpassed first half result for our company. With that, I'll now turn the call back to our moderator Victoria, and will conduct a question-and-answer session until 9:30 a.m. Eastern Time.

Rich Repetto:

Good morning, Jeff and Ben and Warren. It's unfortunate, we can't get any comments on the Black Knight acquisition, because that's certainly on everybody's mind. But anyway, I'll ask about fixed income. Ben, you saw probably a nice uptick in fixed income execution, I think it's up 85% up 10 million, just quarter-over-quarter. And I would suspect that's just the retail, your retail complex picking up? And then one other question related to fixed income, the recurring revenues went down quarter-to-quarter just by a million, I suspect that's currency, but just wanted to get some clarification there as well.

Lynn Martin:

Hi, Rich. Thanks for the question. You're right that we saw strong growth in our fixed income trading business this quarter. And as mentioned in our prepared remarks that was driven off of strengthened our muni trading business. And while volatility and the return of retail has certainly been a contributor, we're seeing our institutional efforts pay off. As you are aware over the last two years, we really focused on leveraging our market leading assets in the muni ecosystem, including our data assets and our index business, which now serves as the benchmark for more than 60% of the AUM in this area to build out the infrastructure to connect the institutional market to our muni execution platforms. And in this quarter alone, we're seeing the benefits of that work manifest itself. And that institutional share within our muni execution platforms has doubled since 2020, enabling us to take share in the broader muni market. And finally, it's worth noting that our institutional business in munis has grown 250%, year-over-year, a further sign that we're gaining share in this asset class.

Rich Repetto:

Got it. Thanks for the update.

Alex Kramm:

Yes. Hey, good morning. Lots of info you gave already on the mortgage side. But we'd like to dig a little bit deeper in particular on the recurring side. So few questions here. One I don't know if you gave an update to the recurring revenue guide for that segment that would be interested if that's still unchanged, but then more importantly, I think you mentioned that even like some of the challenges in the end markets you are seeing some bankruptcies, et cetera. So maybe you could give us an update what you're seeing in terms of customer losses, and maybe remind us how the revenue model is if there's any receipts, et cetera. And then, sorry, lastly, maybe give us a little bit of the algorithm of growth that you've seen so far in the recurring revenues year-to-date between customer losses, but then also some of the upsells that you guys were talking about earlier. And then, also this continued shift to moving the contract terms to more recurring, so I know that's a mouthful, but hopefully I get out of it.

Warren Gardiner:

Alex, this is Warren, you asked about the guidance. So yes, you're correct. There's no change to the guidance that we gave to start the year. We did assume, as we said back then that there will be some headwinds from people potentially going out of business or maybe not as many new market participants, I'll say I'm highly confident that to the extent that starts to play out, that's going to be a cyclical trend, not a secular one, because I think if you think about the process for and this is reiterating what Ben just said, we think about the rest of getting a mortgage, it continues to be very costly for the consumer, it's very inefficient. And we have the tools that are -- building the tools that are really solving those problems. And so I know that probably doesn't help, solve for 2022, EPS or 2023 EPS, but it should really factor into kind of the multiple people are thinking about when you're valuing the overall enterprise at the end of the day.

Ben Jackson:

Hey, Alex. It's Ben again. So we have seen a small, small number of lenders that have had some challenges and potentially go out of business, but it's a very small number that we've seen so far.

Operator:

Perfect. Thank you for your question. Our next question comes from Kyle Voigt at KBW. Please go ahead.

Ben Jackson:

Hey, Kyle, it's Ben. So you have a -- we have a confluence of issues that are going on around the world that are really unprecedented. And against that backdrop, we're pleased that our overall, our overall futures business is up for year-over-year in terms of open interest and since the end of the year, and our energy businesses up in open interest since the end of the year, given all of these events. And what are we looking at, we're looking at an inflationary environment, we're looking at a recession, you've got in particular in Europe, governments in Europe, have to figure out the balance between sanctions against Russia, the impact of those sanctions against their civilians, in terms of near-term price impact on energy, and move towards cleaner energy. So you've got this pothole mix and then you also have in China continued COVID lockdowns that are happening, and obviously geopolitical tensions happening with China. So given all those issues, we believe that our marketplace has been set up as best as can be in the in the world to help clients navigate through all of these events, and they're utilizing us to do that. And I'll give a few examples. So first, we have one of the most deep and liquid markets across that energy spectrum. So think of oil, gas, LNG, power and environmentals. So as clients are looking to move and switch between fuels, looking towards, moving towards a cleaner environment, we are the exchange and clearing businesses that they're going to do that. Second, in managing global supply shocks, you have deep -- we have deep liquid global markets in each of those respective asset classes that I mentioned with oil, gas, LNG, power, and environmentals and enable customers because we have all these deep liquid points at the points of production and consumption, as clients need to hedge their risks using different risk management tools. We're very well positioned to do that. And a perfect example is right now with Russia, stifling gas supplies going into Europe, we are seeing U.S. step in and U.S. providing natural gas via LNG cargos going into Northern Europe. And given that we are the home to the vast majority of commercial traders, that trade our U.S. gas products, both Henry Hub and our bases markets, we're seeing clients use that to hedge those cargos. And it's one of the inputs that's led to what I mentioned in my prepared remarks of the record we've seen in market share from a Henry Hub perspective, as well as a North American gas and at a highest well in the global gas complex. The third thing I'd point out is that we're engaged as much as ever with clients and governments around the world around the sanctions and as they're taking shape. And there's no question it had some impact, as there was uncertainty as to how issues would play out in products like gas and oil, where Russian fuel oil is an input into that historically, as governments have made it clear that as of February of 23, Russian fuel oil will no longer be provided, it no longer be consumed in Europe, we've changed the specification on our gas oil contract. And now we started to see open interest in volume starting to build again in gas oil, calendar 23 and beyond. And then you pointed out, our deep liquid options market. So options is clearly one of the most efficient ways to hedge geopolitical tail risk because it helps to hedge a number of different scenarios that could play out and embrace our volume in open or volume in Brent options, year-over-year is up 25%. So when you look at me stand your lens and look at the overall energy complex. We feel really good about how we're positioned.

Operator:

Thank you for your question. Our next question comes from Craig Siegenthaler at Bank of America. Please go ahead. Your line is open.

Ben Jackson:

Hey, Craig, it's Ben, I'll start. So basically reiterate some of the things that I said before, when you widen out what our strategy is, within the mortgage and mortgage technology business, our strategy here has been to move more and more of the revenue towards recurring to take some of that cyclicality out of the business and we continue to do that. And we've been successfully doing that. In terms of predicting the rate environment and how that's going to play out just look at how the rate environments played out over the last week, it's been extraordinarily hard for to see and be able to predict when that this volume environment and stuff will settle down. But despite that, we're going to continue to make investments in the innovation that we're providing to our clients. As we mentioned, a lot of the investments that we made is what fueled that $100 million growth that we saw over the last three years in a similar environment to what we had in 2019. Those are investments -- those investments are in and around everything that we've been doing in the closing side, our simple file business continues to gain market share and do very well. And then all of the innovation that we've been introducing on the data and analytics side with our AIQ platform, as well as the automation of the underwrite platform, we see that those are all tailwinds that regardless of the rate environment and the volume environment that our growth drivers for us.

Craig Siegenthaler:

Great. Thanks for taking my question.

Brian Bedell:

Great. Thanks. Good morning, folks. Thanks for taking my question. Just a two-parter on the environmental initiatives. So maybe Ben, if you could just comment on within the energy complex, obviously, we're seeing very good strength in that gas. We did see a couple quarters now sequential declines in the environmental so the question there is, our customers substituting that gas for some of the environmental versus something else driving on the environmental side short-term? And then, the second part of the question is, if you could comment on this, maybe Lynn, but on the acquisition of Urgentem and the overall climate data strategy, whether you're seeking to get more to grow substantially in that business linking that into the data more heavily into the environmental trading side?

Lynn Martin:

And thanks, Brian, for the follow-up question. So given the strength in our fixed income data, we're uniquely positioned to add transparency around ESG, really focused on the climate risk. Given our ability to tie alternative datasets into datasets that the market knows you've seen us further position this offering. In Q4, we announced the acquisition of risQ and Level 11, which enabled us to execute on the opportunity to turn physical climate data into actionable insights starting with our muni bond service, but more recently expanding into the mortgage-backed securities market. And now we have the ability to offer a parcel level information measured by geographic coordinates in the U.S., and we plan to expand that globally. And then, finally, as you know we recently announced the purchase of our Gen10, which really expands our climate risk offering to include corporate transition risk, given its coverage of 30,000 public and private companies, which was an attractive dataset to us to add to the climate offering.

Operator:

Thank you for your question. Our next question comes from Michael Cyprys at Morgan Stanley. Please go ahead.

Ben Jackson:

Thanks, Michael. This is Ben. And the way we think about it is, we need to have as I described earlier, that breadth of offerings of global offerings across the each of the inputs into producing energy is, as the statistics that are out there point to energy consumption doubling between now and 2050. And it's just what are the inputs into the production of that energy are going to change and will change over-time. And we believe with the breadth of offerings that we have across oil, gas, LNG, power and then the significant early start that we had and thinking about the environmental markets with the acquisition of the Climate Exchange over a decade ago, we're very well positioned to help clients navigate through that. So that's one input into it. You do have a global focus on the reduction of carbon emissions around the world and as I said before, with our environmental markets, we are very well positioned to help clients navigate through that. So those are two. I think the third is that even though we have had some near-term headwinds in some of the products in Europe in particular the ones that have been at the center of this Ukraine, Russia situation we continue to see user growth. So we continue to see more and more users taking data subscriptions and coming onto the platform to get visibility into what's happening in those markets, how those markets correlate, or de-correlate at times to others around the world. So when we look at the underlying health of the market, looking at user growth, looking at open interest and looking at the global breadth of the offerings that we provide to our clients, those are all inputs into our growth outlook .

Operator:

Thank you for your question. Our final question is a follow-up from Rich Repetto of Piper Sandler. Please go ahead.

Jeff Sprecher:

Sure, that's a great question Rich, because I'm a company founder, I get asked to speak to entrepreneurs from time-to-time and I always tell them, the best time to start a business is when there's a downturn and not that having us moved into this space, you wish a downturn on anybody, but it's very, very hard to get people in finance and I say this broadly, whether it's trading, clearing, data, acquisition it is very, very hard to get people in finance to change their behavior when they're making a lot of money and when things are going well. And the best time to get people to think about making a change is when their businesses are under pressure and Ben alluded to that a number of times in why our subscription revenues are doing well in the mortgage space. Broadly speaking again, I appreciate the question. I know you've followed our company for many years, and you see us putting data and analytic tools into the mortgage market. The mortgage market that we're talking a lot about is the cash market. You've seen us and I mentioned in my prepared remarks, launch our first derivative product against in a new index that we created. And so I think this space has a lot of inefficiencies throughout the entire, not just the manufacturing the mortgage, but the way mortgages are financed and traded and retreated in the secondary market, very poor data available due to the paper based nature of the contract, difficult to regulate for regulate regulators, regulators think that there may be biases in the market, but without the right data, it's very hard to know, it's very hard to correct for the participants in the market, very expensive for consumers, banks that spend a lot of money to court a consumer, tend to lose them when there's a refinancing or a change in that client's behavior. The market is not very thoughtful about keeping connectivity between those that lend and those that borrow and all of that I think is fertile ground for us and may go for decades, honestly as we build out the infrastructure. But at the core, we need a foundation of data and information that borrowers, that lenders and that regulators can all look at and use to make it easier. I think I may have mentioned to you even that, it's odd to me that you can buy a completely consumable good, you can buy toothpaste on an online platform and when you go to checkout it'll ask you if you want to buy now and pay later, knowing that an algorithm underwrote your credit against no collateral and yet, it takes almost two months for somebody to refinance a mortgage in a house that they live in, that has a foundation that's in the ground that has an address that you can see from space that is part of the Maslow's hierarchy of need of safety and security and will be abandoned by that person, the last thing they do. And yet we, an existing mortgage talking to their bank takes two months. It just something is wrong in those equations. And we could argue that by now pay later lending maybe too generous, but certainly 60 days to do work with an existing client than an existing home just feels too long. And that's, that is the challenge that I think we will tackle successfully and put the entire industry on a better footing.

Operator:

Thank you for your question. We have received a follow up from Kyle Voigt at KBW. Please go ahead.

Warren Gardiner:

So hey, Kyle, it's Warren. So in terms of the OTC and other yes, you're correct that the performance there has been collateral driven that's largely from net interest income or earning at ICE Future or ICE Clear U.S. and ICE Clear Europe and so as collateral bounces move around and you've seen that over the course of this year. That's obviously going to benefit that particular line item. In terms of rates moving higher, we do have a benefit from that that's going to show up there more on -- will show up on the CDS clearing side because we do park some collateral funds there as a Fed. And so we do get a benefit as collateral moves up, but then also as Fed funds rates move up there and so that's part of the strong performance you've seen in CDS there. So, not in that OTC and other line but in the spirit of your question, yes, that there's a benefit from better rate hikes coming through over-time.

Operator:

Thank you for your question, Kyle. This concludes our Q&A session. And now I'd like to pass over to Chair CEO, Jeff Sprecher for any final remarks.

Operator:

Thank everyone for joining today's call. You may now disconnect.

Company Representatives:

Jeff Sprecher - Chair, Chief Executive Officer Warren Gardiner - Chief Financial Officer Ben Jackson - President Joe Tyrrell - President of ICE Mortgage Technology Mary Caroline O’Neal - Head of Investor Relations

Mary Caroline O’Neal:

Good morning. ICE’s first quarter 2022 earnings release and presentation can be found in the Investors section of the www.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 2021 Form 10-K and other filings with the SEC. In addition, the press release announcing the ICE and Black Knight transaction includes important disclosures that apply to this call. Please also note that this call does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities, nor shall there be any sale of securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the Securities Laws of any such jurisdiction. No offerings of securities shall be made except by means of prospectus, meeting the requirements of Section 10 of the Securities Act of 1933, in connection with the proposed transaction ICE will file 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 will include a proxy statement of Black Knight that also constitutes a prospectus of ICE. The definitive proxy statement prospectus will be sent to the stockholders of Black Knight seeking their approval of the transaction and other related matters. Before making any voting or investment decisions, investors and security holders of ICE and Black Knight are urged to carefully read the entire registration statement and proxy statement prospectus when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed 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 our core business performance. You’ll find a reconciliation to the equivalent GAAP term 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 Gardiner, Chief Financial Officer; Ben Jackson, President; and Joe Tyrrell, President of ICE Mortgage Technology. I’ll now turn the call over to Warren.

Jeff Sprecher :

Thank you, Warren. Good morning everyone and thank you for joining us. Today we're here to discuss the financial results of the best quarter in ICE’s history, along with our plan to continue our track record of growth with our agreement to acquire the public company Black Knight. Black Knight is an important piece of financial market infrastructure that we believe will allow us to continue to reduce the cost of home borrowing, when coupled to the other U.S. mortgage industry assets that we built and acquired. This proposed acquisition is another step in a journey that ICE has embarked on since its founding. As an early entrepreneur, I studied the exchange space and I discovered that the largest exchanges all had one asset class in common, interest rates. And what became abundantly clear during the financial crisis was that hedgers who thought they had affectively managed risk using legacy interest rate products were doing so very imperfectly. Couple that with the analog to digital conversion that's been happening to markets more broadly, and we saw a powerful opportunity to redefine our exchange business, and we've been diligently working on this thesis for more than 15 years. To compete with hedging products in the corporate borrowing area, we acquired Creditex in 2008, married it with a Board of Trade Clearing Corporation in 2009 and launched a clear credit default swap market that this quarter generated $72 million of revenue and grew 33% year-over-year. We acquired the Life Exchange in 2013 and revenue from its interest rate products grew 36% in the quarter. We acquired Interactive Data Corporation in 2015, and married it to the Bank of America/Merrill Lynch Credit and Bond Index business in 2017, to build tools and launch a powerful suite of corporate borrowing indices and reference data. We doubled the revenue growth in those businesses to an average annual rate of 6%. In the consumer lending area, because the largest amounts of consumer borrowing are tied to home mortgages, we pursued opportunities in the U.S. mortgage space, acquiring the Mortgage Electronic Registry Service in 2018, Simplifile in 2019 and Ellie Mae in 2020. When coupled together, these technologies can offer lenders the potential to shorten the time that it holds interest rate risk, market exposure, from the time of the consumer rate lock until the time of wholesale funding, fundamentally changing the risk profile for lenders. And by leveraging our data expertise across the company, we recently created the ICE Rate Lock Index and have announced that we're launching a Futures contract on it in the coming weeks, creating an even more precise interest rate risk management tool. Now, by adding Black Knight to our solutions set, we have the potential to further improve the capital market ecosystem that surrounds the funding of U.S. Home Mortgages. De-risking these markets for participants by shortening the duration when interest rate risks are held, making data more transparent to the risk holders and creating more efficient hedging markets for those involved should ultimately lower the cost for the entire market. There's no question that our thesis of producing better interest rate products and tools has been proven out, as we have transformed the way risk is managed in the markets we serve, and our thesis continues to compound on growth as we innovate new interest rate hedging tools. So let me now ask you to turn to slide six of the ICE and Black Knight transaction deck. Yesterday afternoon we announced that ICE has entered into a definitive agreement to acquire Black Knight for $85 per share or a market value of $13 billion. Consideration is expected to be in the form of a mix of 80% cash and 20% stock and the transaction is expected to be accretive to adjusted earnings per share in the first full year following its completion. Warren will discuss the financials in more detail, but first I'll discuss the strategic rationale of this very exciting transaction. Black Knight is a premier provider of Integrated, Mission Critical, Software Solutions and Data and Analytics that serve the U.S. Mortgage and Real Estate Markets. Black Knight suite of solutions span across the mortgage work-flow and are highly complementary to ICE’s existing businesses. By expanding our solution set beyond originations, we will be able to deliver a life of loan platform that reduces friction and drives transparency across the workflow. The integration of our solutions will strengthen the overall mortgage ecosystem, bringing more choice and delivering efficiencies for lenders, servicers, partners and ultimately the end consumer. This combination will also expand the addressable market in our mortgage business to $14 billion, and better positions us to penetrate our existing $10 billion TAM. Black Knight will complement our all-weather business model, with a high growth and highly recurring revenue base. And finally, we will leverage ICE’s technology expertise to modernize Black Knight’s technology stack, while tightly integrating our offerings to enable the many opportunities that are in front of us. Turning to slide seven. Much like the history and culture at ICE, Black Knight’s mission focuses on customer service and product excellence. The expansive product suite and compelling value proposition Black Knight brings to its customer base has enabled consistent revenue and EBITDA growth, a trend that we believe will only continue as a part of ICE. Moving now to slide eight, you'll find a summary overview of our strategic rationale, which I'll discuss in more detail with the subsequent slides, beginning now on slide nine. The opportunity we see in the mortgage space is much like the opportunities that we're executing against other interest rate markets and asset classes, by integrating data and technology across the entire work flow, to bring greater transparency and efficiencies to the broader ecosystem. The very manual loan origination process and its extensive regulatory oversight has driven the cost to originate a U.S. home mortgage in nearly $9,000, with approximately one quarter of that amount being related to customer acquisition costs. As a result, more lenders are beginning to retain the servicing rights of the mortgages that they originate to recapture previous customers and reduce their acquisition costs. By connecting Black Knight servicing system to the underwriting automation and consumer engagement solutions at ICE, we have an opportunity to create a life of loan platform that will enable lenders to realize a customer for life. This connection will lower the acquisition costs for lenders, enabling those savings to be passed on to the consumer. Turning now to slide 10. Data is a core competency at ICE, from our earliest days we recognize the value of leveraging data to drive transparency, and we continue to build on that expertise by broadening our datasets, connecting data across asset classes and innovating for our customers. The data sets that exists across the complementary businesses of ICE and Black Knight present an untapped opportunity to apply that same playbook within home mortgage. With access to solutions such as Black Knight’s MLS listing services and real-estate data, we’ll have a presence in the home search process. In addition, there's an opportunity to leverage Black Knight’s tax data and property valuation analytics to further enhance the underwriting process and provide our customers additional insights into rapidly changing market dynamics. We’ll also have the opportunity to expand our existing ICE Mortgage Technology Solutions set into secondary markets, increasing the transparency for servicers and investors, by enabling them to better understand their portfolio valuations, performance and risk. And by combining this rich data with ICE’s expertise in fixed income and capital markets, we’ll be able to provide even greater transparency to the fixed income markets through transaction based data for more accurate pricing and prepayment modeling. Turning now to slide 11. As we've demonstrated in our other asset classes, the integration of data and technology across the mortgage workflow should enable greater automation and in turn reduce friction to help lower the cost to originate our home mortgage for all parties, ultimately making our loan more affordable and accessible for the American home buyer. By adding content to our Consumer Engagement Solutions, we plan to provide consumers and investor’s greater clarity and insight into unique loan products, and the key metrics that impact homeownership such as interest rate levels in lending policies, ultimately improving the overall home buying experience for the consumer. Lenders will also be able to proactively underwrite current customers for future home lending opportunities, by helping consumers lower their housing payments by refinancing out of additional interest rate overlays or reducing their risk adjustments to the original mortgage. And leveraging common datasets across the entire mortgage cycle could reduce data entry errors and erroneous fees that today impact consumers directly. We also see an opportunity to develop innovative analytics, helping lenders connect with potential buyers in historically underserved markets, and identify minority bias in the home valuation process. These are just a few of the many examples, of the many opportunities that we see to leverage our data and technology to support potential homeowners, and make the dream of home ownership a reality. Moving to slide 12, the work flow efficiencies, this combination will deliver underpin and expanded addressable market of $14 billion, including $2 billion from servicing solutions and an additional $2 billion within data and analytics. Our combined businesses will bolster our point of sale and Consumer Engagement Solutions, enabling us to better serve that portion of our existing TAM. In order to provide you with additional transparency into this opportunity, we've separated this $2 billion addressable market from the application processing and underwriting segment, which here is largely made up of our Loan Origination Technology. Black Knight also brings capabilities that will allow us to access part of our existing TAM that we don't have a solution for today such as their hedging and trading platform. These capabilities combined with our deep expertise in trading and clearing unlock our longer term opportunity to improve transparency for the secondary market participants in the form of a loan exchange. And finally, we’ll be better positioned to monetize our current $10 billion TAM to opportunities to promote existing products across an expanded customer base. Moving to Slide 13. Black Knight’s highly recurring, more predictable revenues will complement ICE's existing revenue streams and increase our mix of high growth recurring revenues. Within ICE Mortgage Technology, our mix of recurring revenues will increase from roughly 50% to approximately 70% and total ICE revenues will now be over 50% recurring on a pro forma basis. Importantly, these high growth recurring revenues are underpinned by mission critical data, and technology that's embedded in our customers workflows, and by adding more stable revenue streams to our current mortgage technology revenues, we will improve the visibility and durability of our earnings and cash flow, further complementaring our all-weather business model. Let me now turn the call back over to Warren, and he'll discuss the financial details of today's transaction.

Jeff Sprecher :

Thank you, Warren. I'll conclude my remarks on slide 16. Since our founding, ICE has operated with a strategy to build tools and markets for institutions and consumers, which operate in the white space of the inefficiencies of legacy markets, and we seek to do this smartly, in a manner that enables us to grow our earnings in all economic and interest rate conditions, so that ICE is truly an all-weather growth story, something that does not exist in a single market or asset class alone. This vision is one that we continue to organically build out ourselves, but one only has to look at our acquisition history, including my original acquisition of the founding company to ICE, to see that its valuable assets become available to us at prices that meet our disciplined M&A criteria, than will accelerate our build out plans by our acquisition. And through thoughtful integration, leveraging the infrastructure and expertise of the acquired company, we advance our vision and accelerate our goals to fundamentally transform the markets in which we operate. Our proposed acquisition of Black Knight is another important piece of this vision. I'll now turn the call back to our moderator Betsy, and we’ll conduct the question-and-answer session.

Rich Repetto:

Yeah, good morning Jeff, and good morning Warren, and congrats on the announcement of the acquisition. So I guess probably the first reaction we get from investors in this space you know was on the regulatory risks and the anti-trust potential issues. So I guess Jeff the question is, you know how comfortable are you with this anti-trust risk? Do you think the front end, the LOS systems, do you think you'll have to divest of anything to get this deal through and what kind of impact would you expect if you do?

Ben Jackson:

Hey Rich! Good question and you know obviously it's a large deal, so we expect it to take time for regulators to understand the complementary nature of our two businesses. But at the end of the day we're confident that they'll come into the same conclusion that we did, and also we had and as well as Black Knight had legal counsel look at this in detail, and came to the conclusion that these are 100% complementary businesses that service different parts of the mortgage ecosystem. And at the end of the day, and you heard it through the prepared comments through Jeff's comments today, that bringing these businesses together is the best way to further advance innovation in the mortgage industry and bring efficiencies that are desperately needed to the servicers, to originators and then through to the end customer. And when I say that the businesses are complementary and Jeff referred to slide nine in the deck when he was going through it, which I think is a great picture of it. You can see that with Black Knight’s businesses, they start really in the front end on the real estate side where we do not have assets, and then they pick up again post the closing process where they have services and software that they provide that helps us on the servicing side of the business, to manage the relationship between the customer and the servicer through the life of the loan. Those are all services that we do not have today. Black Knight’s other core business is data assets. So they have proprietary data assets and very unique capabilities there that we do not have, that we believe are going to be very beneficial to our clients. Third, they have a complimentary loan origination system, which is one of the things that you just highlighted. But it’s important to point out that the customers that they cater to are fundamentally very different, have a completely different mindset to the customers that we service today at ICE Mortgage Technology. They provide a service that’s an installed service. It's a single instance for a single client, it's very highly customized based on the experience that that lender may want to provide for their clients. Whereas at ICE, ours is a very standardized solution and all you can do is do some basic configuration around the perimeter of it. Our plan is to support and invest in both, to really help drive the efficiencies through the industry by providing that complete front to back service. And the last thing I’d point out is you'll see in the expense synergy numbers that Warren went through. By historical standards for us they are very low, and as Warren pointed out, most of these synergies are in the areas of corporate, real estate, our location strategy as we found, Jacksonville is a low cost place in the U.S. to do business and has a great resource pool. So those are the key areas that you're going to see synergies coming out of the deal and again, a 15% of the combined expense base that’s very low.

Operator:

The next question comes from Alex Kramm with UBS. Please go ahead.

Warren Gardiner:

Yeah, thanks Alex. So I'll start with that last question first. So yeah, the short answer is yes. So I think if you think about what Black Knights outlined and this is revealed in – you know through our due diligence we revealed the same thing. They pointed to a guidance range around 7% to 9% over the long term. Largely recurring revenues too as you’ve heard us note a couple of times already in the prepared remarks. I think the first quarter too by the way is a great example of that, where I noted in my prepared remarks that mortgage volumes were down significantly, including term refi volumes down, which are very sensitive, down about 80%. In that environment they grew their revenues on an organic basis, about 9%. They released their earnings this morning if you want to go check that out. So I think it's a great example of the resilience of that revenue stream against what was a pretty challenging macroeconomic backdrop, so yes. So when you couple that with our 8% to 10% percent as you noted, so that's what we talked about over a longer period of time on average and throw in the revenue synergies that we've outlined, yeah your very much solidly in that high single digit, you know 8% to 10% call it range for the combined business. And so yeah, you've got a very high single digit grower. It's still got a lot of recurring revenue and again, we’re collectively positioned to operate with an expanded addressable market like we – unlike we are today. So I think very well positioned kind of moving forward you know for that business with a more resilient revenue stream as well, if you will. In terms of your first question, so I’ll hit these ones, these are kind of quick ones. The rates we’re assuming there, so it's a mix of commercial paper and debt. You can think about it on a blended basis kind of being in the 4%, 4.5% kind of percent range in terms of what we assumed for financing, and then on accretion year one, I think you asked if buy backs were included in the base, and so yes, we did include those as part of the base in terms of you know how consensus would be looking at that. Hopefully that helped in answering those questions.

Operator:

The next question comes from Gautam Sawant from Credit Suisse. Please go ahead.

A - Ben Jackson:

Yes, thanks for the question. This is Ben. When we think about the deal and we thought about why we should do this deal, you know we had conviction on it, because as I mentioned before, at the end of the day the combination of these two businesses provides an opportunity to create a lot of efficiencies in a market that's very inefficient. One of the marketplaces in the industry that’s the most inefficient, that's the most analog is the mortgage space and we think that this is an opportunity to take two rare sets of assets that are 100% complementary and bring them together. And you know when we see the revenue opportunities here with the business is that again, the businesses are 100% complementary to one another, where we end on the origination side into the electronic closing side. They pick up with a great servicing business. Black Knight has a tremendous set of data and proprietary data assets that we believe we’ll be able to cross sell to our clients and are going to be in high demand with our clients, even in this rising rate environment, and they have that complementary loan origination system that we fully plan to support. The other side of it is that they have a – they are going to help continue the journey we've been on since we did the deal with ICE Mortgage Technology to move more and more of the revenue towards recurring, and you saw that in our results in the first quarter, where recurring revenue grew 24%, again against that backdrop of a rising rate environment. The mix as Jeff mentioned in his prepared remarks of recurring revenue that's counter cyclical in Black Knight is substantially higher than ours, and will move our mortgage business to 70% recurring. In addition, in this rising rate environment we're going to be able to go after the expanded TAM of $10 billion going to $14 billion, and the components of that are adding a servicing TAM of $2 billion and adding an additional $2 billion towards data and analytics, and give us the ability to accelerate going after the existing TAMs that we see. So given the resiliency of that business model that Black Knight has, continuing to shift more of the business towards recurring, you have a millennial generation that's just now coming into their home ownership years, that is a very substantial population in the U.S. that's going to be entering the mortgage buying market and we see all of those as trends that will help support you know the long term goal of 8% to 10% growth for the business.

Gautam Sawant:

Got it. Thank you.

Dan Fannon:

Thanks. Good morning! I wanted to follow-up on the revenue mix of Black Knight and thinking about the servicing component, you know what is the growth algorithm of that business? Is it you know kind of just loans outstanding? I understand it’s quite recurring, but curious about pricing power in this business? And then also, when you talked about revenue synergies in the opportunity, I guess give us a – what do you think are the most logical or easiest kind of points or cross sell opportunities within the two product sets as you combine them?

Joe Tyrrell :

And this is Joe Tyrrell. I’ll talk a little bit about the revenue synergies and the opportunities that this combination provides to us. So Warren talked about the opportunity to – through these combined entities to accelerate our penetration of the original $10 billion TAM. That comes to us because of the highly complementary products sets we have available, and actually the opportunity to cross sell products into both bases. So for example, we're able to take ICE Products Solutions, like our consumer engagement suite that has lead management and lead distribution capabilities, as well as our point of sale system. Also our underwriting automation tools that are getting a lot of adoption as Warren mentioned earlier. Even Chase is now deploying our analyzer solutions, I mean to their system, as well as our market leading eRecording capability. So those are all opportunities that we can sell existing ICE Solutions into the Black Knight base. We can also take Black Knight products and sell them into the ICE space. So obviously servicing and I'll talk about the trend that we're seeing with lenders starting to retain more servicing in just a moment, but also the secondary marketing technology, things like hedging and loan trading platform that they provide. We also now will have the opportunity to recognize. I think of this as more of an MSRP versus some of the transactional fees that we've been able to generate on our network. Black Knight products are actually available today on our network. One of the things that our network does at ICE is it really enabled access to choice for lenders, and so we've had a long standing relationship with many Black Knight Solutions being available. We’ll now have the opportunity to realize kind of the list price for those fees instead of just the transactional components that we've had. And then – so that’s true for things like tax service, property valuations and obviously Optimal Blue's been on platform for many, many years. We also now have the opportunity to really expand how we've been thinking about data. Historically our data TAM has really been focused on selling data within the mortgage industry. Now as we look at these highly complementary datasets, it gives us the opportunity to think about licensing this data. So we just recently released our first kind of true data product using the mortgage data that had come from Ellie Mae through our Rate Lock Indices and we've announced that we intend to put a Futures contract against that. As we're able to compliment all of that origination data, with the secondary marketing data that we get from Black Knight, coupled with the servicing and loan performance data, we now have a really unique data set that as Jeff mentioned is going to provide a completely different level of transparency and visibility into how the secondary market thinks about pricing our mortgage backed securities and certainly modeling out prepayment. This also provides us the opportunity to enter new TAMs. So obviously servicing as Ben talked about is a $2 billion TAM that we now have access to, that previously we’ve had no offerings and didn't include in our current TAM. What we're seeing there in the servicing side is more lenders as Jeff mentioned are retaining the servicing rights. But what they've really lacked is the ability to connect everything from the point of thought of engaging a consumer, through the loan manufacturing process, into servicing and keeping that as almost a closed loop ecosystem where they are constantly monitoring loans to identify opportunities to help consumers improve cash flow, by getting out of some of those risk adjustment that were put in place at the time of origination by monitoring things like home value appreciation or changes in the economic situation of those consumers, where now those lenders can proactively go out and help them improve their cash flow which ultimately lowers default rates for consumers, but enables those lenders to recapture that, that consumer without incurring that acquisition cost. Also, it gives us the opportunity to enter into a realtor TAM and that data is really interesting too us, especially on the multiple listing service side. And so think about the opportunities of now combining data from consumer behavior to home listings, all the way through the loan performance. In the data TAM we see that as that unique opportunity from a licensing perspective, which we believe increases our previous data TAM by another $2 billion. And then lastly, I would just say that this really helps us to accelerate our shift that we've already been engaging on, to more of a recurring revenue, a focus versus the transactional. As interest rates rise, what happens in the servicing business is those loans stick in the servicing longer. So you have a more consistent recurring revenue base in servicing whenever interest rates increase. Now as interest rates decrease, we’ll be able to capitalize on the monetization opportunities in the origination side. So it really gives us now this end-to-end, somewhat counter cyclical recurring revenue stream.

Operator:

The next question comes from Ken Worthington with JPMorgan. Please go ahead.

Jeff Sprecher:

Yeah, those are a good set of questions. So well let me, you know we had a great quarter amongst all that uncertainty that existed in the energy markets and if you peel back what happened in the quarter, it actually answers a number of the questions that you postulated. First of all, we see record open interest in our energy space. So there's more engagement if you will, of managing risk in the energy space. But when you peel back, well where did that open interest come from, there's definitely some trends that are engaging on where your question is heading. First of all, we saw that a lot of price volatility obviously in Europe, that happened quickly due to war, and whenever there's high price volatility, that is an input into the margin model, since your essentially marketing for the largest one day price movement. And so margin rates go up. And so what we saw was a movement towards the use of options, away from the underlying towards the option against the underlying. Why does that happen? Well it's a little less expensive to control the risk in an option. It's also much less precise; you're hedging a range of outcomes instead of a specific outcome. So people have moved and it's probably somewhat temporary, because high prices themselves don't cause high margins, it's the price movements and the market is increasingly as you're alluding to, trying to figure out the long term ecosystem for energy in Europe and as they do that, the prices will stabilize, albeit at most likely at higher rates. Another thing that has happened is that in a number of our products, particularly in Europe, but even Brent Oil globally, people can deliver Russian energy into those indices or into those products that are physically delivered, and while many of those Russian products are not subject to sanctions, and in fact certain countries in Europe are even advocating the use of those products, the market itself due to moral and ethical issues, many companies have decided not to participate in those. So we are launching a whole new suite of products that are Ex-Russia Energy and there's been a lot of demand for those products and we've got regulatory approval and you're going to be seeing those rolling out. We have very high expectations for those products given the chat that's going on and the way we’ve worked with the industry to develop those Ex-Russia Energy projects. Then, the last thing that you polluted to is that you're seeing an increase volume in the trading up U.S. Natural Gas. Again, we see Europeans who are sensitive to hedging using European Natural Gas, because it may have Russian molecules in it, hedging their exposure somewhat in the United States. Obviously there's liquefied natural gas exports out of the U.S., those are relatively limited, but where there is capability, people are leaning into those capabilities and you've seen this increase in U.S. Natural Gas trading. So all of that amalgamation somewhat bodes well for our business and that we’ve you know, in a world where markets are in contango, high open interest foreshadows future volume and revenue growth for us in trading and we've got this new suite of products that the market is anxious to adopt, and it’s going to give us even more diversity and basis trading against our historical business. So we feel very good about the direction that the company is heading in, even though we're helping people to manage risk in a very unfortunate situation.

Operator:

The next question comes from Chris Allen with Compass Point. Please go ahead.

Joe Tyrrell :

Chris, so this is Joe. I'll give you the answers there. When we think about the customer bases, again if you go back to Ben’s comment regarding explaining the differences between Encompass and Empower, these two solutions really now give us the opportunity to address any technology philosophy that a lender might have. So if someone wants really a single tenancy highly customized solution, we will have an offering there. If they want a more kind of commercial, highly configurable, but multi-tenant solution, we’ll have an offering there. So because these products are so complementary, we believe it gives us an opportunity to really accelerate that penetration of the current TAM. There obviously are some customers that we have in common, because within ICE there is so many different products that we offer, but what we really see is the cross sell opportunity into these two bases. So even where we might have a similar customer, perhaps it's a customer that’s using Encompass and also sing MSP, the servicing platform, there is still so many other solutions we now have available jointly that we can cross sell to that individual lender. If you go back and look at slide nine, this is a high level view of kind of solution sets, but within these sets there's multiple products, and so there's so many different ways to monetize a single loan that goes through this entire work-flow, and we're really excited about the opportunities we have of looking at our combined solution sets, and being able to now make sure that we can provide efficiency that literally every step of this manufacturing and servicing workflow. And then you know lastly the data is a huge opportunity for us. Very complementary datasets between what we have on the front end and what Black Knight offers on the backend, and for us we think it's really just kind of tip of the spear when we think about how we can monetize that data.

Joe Tyrrell :

Yeah, on the competition, it really has not changed. This transaction doesn't change that. Our competition continues to be proprietary systems, legacy technologies that many lenders have had for a number of years. I think we’ve – Ben's probably mention on previous calls that we’ve really started to see that get unblocked. That is a lot of those lenders are realizing. As you go back to what Jeff pointed out on slide 34, whether a lender does one loan or a thousand loans, they have to navigate all of this highly regulatory compliance requirements. And so these lenders have realize that they've spent a significant amount of development dollars just maintaining legacy systems to remain compliant, instead of really focusing on innovation. So we're engaged in a lot of great conversations with many of those lenders who've been using proprietary technology. This combination and these two offerings that we now have, give us the opportunity to really be able to offer a solution for whatever technology philosophy those lenders have, coming off of the proprietary technology. So that continues to be the area where we’ll be chopping wood.

Operator:

The next question comes from Kyle Voigt with KBW. Please go ahead.

Ben Jackson :

Hi Kyle! It’s Ben. So we 100% see those platforms as complementary and they service a completely different client with a completely different type of mindset, and there is no part of our synergy case that assumes that both platforms would be combined, one would get sunsets. In fact it's the opposite. We have put into our model significant investment into, that we know is going to be needed to help modernize certain parts of the technology, both on MSP as well as in Empower, and we know that clients that have made decisions to go on to Empower you know for very specific reasons, for their strategy have decided to have a single instance on-prem, highly customized version of the application. So that, there's again 0% of – zero part of our business case here is around sun setting one of the technologies or about investment in the two. And as Joe articulated, it's about cross selling all of the other suites of services that we have, whether you've chosen Empower or Encompass, cross selling all those other services to be able to create that straight through, customer for life experience. From the point in time when they are searching for a home online, to when they are selecting the right product that will meet their family's needs, to automating the origination process, and the manufacturing process of the loans, to an electronic closing, to then the servicing relationship for the life of the loan, and identifying optimal products for that client as their life situation changes. So that's what this transaction is all about, and we look forward to the benefits that we can provide to the end consumer services and originators.

Operator:

The next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Ben Jackson :

Hi Brian! It's Ben. I’ll take a stab at this. So, when – and while I was articulating before in terms of the review we did, our lawyers and Black Knight's lawyers have done, you literally quickly come to the conclusion that there's, these businesses are 100% complementary, we don't compete with one another. And that what’s the driver for this deal is that is its really taking for the this first time services across the data space, services in the origination space, in the consumer engagement space, the closing space and then the servicing space, bringing them together to give that complete front to back solution. So and as you peal through it, and as we engage with the regulators, we're very confident they are going to come to the conclusion, but there is a ton of benefits that can come from this, and that also the businesses just flat out don't compete with one another. On the revenue side of it, what we see is that the pie is expanding. Because here the industry is so inefficient, it is the most analog space in asset class that we've seen, as we've been on our journey of taking businesses from analog to digital, that what's really driving this and when you think about that TAM, we are not taking market share from other people, we are taking market share from just complete inefficiency, manual processing and costs that are rising on the end consumer, costs that are rising for servicers and originators and the plan is to bring that all down. So that's you know overall the first part of your question. I know you got a question on CapEx I think as well, and I’ll ask Warren to take that one.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Sprecher, Chair and CEO. Please go ahead.

Operator:

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, and welcome to the Intercontinental Exchange Fourth Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mary Caroline O’Neal, Head of Investor Relations. Please go ahead.

Warren Gardiner:

Thanks, MC. Good morning, everyone, and thank you for joining us today. I’ll begin on Slide 4 with some of the key highlights from our fourth quarter results. Adjusted earnings per share totaled $1.34, up 17% year-over-year, marking the best quarter in our company’s history. Net revenues totaled a record $1.8 billion and increased 10% versus last year. Total transaction revenues grew 11%, while total recurring revenues, which account for nearly half of our business, increased by 10%. Fourth quarter adjusted operating expenses totaled $749 million, slightly higher than expected, driven by additional severance as well as higher performance-based compensation due to the strong results to finish the year. Adjusted operating income increased by 14%, totaling a record $1.1 billion. This strong operating performance contributed to a record full year free cash flow of over $2.8 billion, of which we returned $1 billion to shareholders through dividends and buybacks, while also reducing our gross leverage to 3x EBITDA, nearly a full year ahead of schedule. Now let’s move to Slide 5, where I’ll provide an overview of the performance of our Exchange segment. Fourth quarter net revenues totaled $1 billion, an increase of 17% year-over-year. This strong performance was driven by a 71% increase in our interest rate business and a 29% increase in our energy revenues, both driven in part by rising inflation expectations. Revenues within our global oil complex increased 29% year-over-year, while natural gas and environmental products, which represent approximately 40% of our energy revenues, increased by 36% in the quarter and were up 20% for the full year. Recurring revenues, which include our exchange data services and our NYSE listings business, increased by 8% year-over-year, including 10% growth in listings. Turning now to Slide 6. I’ll discuss our Fixed Income and Data Services segment. Fourth quarter revenues totaled a record $480 million, a 7% increase versus a year ago. Recurring revenue growth, which accounted for nearly 90% of segment revenues, also grew 7% in the quarter. Within recurring revenues, our fixed income, data and analytics business increased by 6% year-over-year, including another quarter of double-digit growth in our index franchise, while other data and network services grew 7% driven by continued demand for our ICE Global Network and consolidated fees offering. For the full year, data services revenue increased by 6%. And importantly, annual subscription value, or ASV, enters the first quarter up 5.5%, setting us up for yet another strong year of compounding revenue growth. Let’s go next to Slide 7, where I will discuss our Mortgage Technology segment. Fourth quarter Mortgage Technology revenues totaled $346 million. Recurring revenues, which accounted for over 40% of segment revenues, totaled $149 million and grew 26% year-over-year. While total Mortgage Technology revenues declined slightly, down 1% in the fourth quarter, we outperformed an industry that experienced a roughly 30% decline in origination volumes. For the full year, Mortgage Technology revenues grew 17% on a pro forma basis, reaching $1.4 billion well ahead of our initial expectations and on track to achieve our target of more than doubling revenues over a 10-year period. I’ll conclude my remarks on Slide 8 with some additional guidance. We expect full year total recurring revenues to be between $3.68 billion and $3.75 billion. This includes approximately $30 million of headwinds related to FX, the planned phase-out of sterling LIBOR and Euronext post-Brexit decision to migrate certain connectivity services away from our UK data center and on to the continent. It is worth noting that the majority of Euronext connectivity revenues are expected to be offset by a related reduction in costs. Adjusting for these items, we expect core growth in our recurring revenues, which again account for half of our business, to be approximately 6% to 8% for the full year. This strong growth, which is on top of 10% growth last year, is expected to once again be led by our Mortgage Technology business, which we expect will grow in the low to mid-teens and importantly, is on top of an exceptional 30% growth in 2021. In addition, and supported by an ASV that exits the fourth quarter up 5.5%, we anticipate another year of 5% to 6% growth in our Fixed Income and Data Services recurring revenues. Moving to expenses. We expect 2022 adjusted operating expenses to be in the range of $2.99 billion to $3.04 billion. Consistent with prior years, we will reward our employees for their contributions to our strong results and therefore, expect compensation expense, net of synergies and the resetting of 2021 performance awards, to increase by $25 million to $35 million. Expenses tied to revenues are also expected to increase by $25 million to $35 million driven by higher license fees as well as investments in business and product development across all three of our segments. In addition, we expect an incremental $40 million to $60 million in support of productivity and efficiency initiatives across our technology and operations groups, a portion of which we are electing to fund through the net operating savings we realized following the IPO of Bakkt. Lastly, and similar to last year, we expect roughly $30 million of incremental D&A expense related to purchase accounting and the rebuild of Ellie Mae CapEx. Please see Slide 12 in the appendix for a bridge reconciling our expense guidance to 2021. Moving next to capital allocation and consistent with our track record of growing our dividend as we grow, we plan to increase our quarterly dividend by 15% year-over-year from $0.33 per share to $0.38 per share. In addition, and now that we are within our targeted leverage range, we expect to deploy approximately $475 million towards share repurchases in the first quarter, representing a nearly 20% increase versus the second quarter of 2020, the last full quarter of buybacks prior to our acquisition of Ellie Mae. In summary, we delivered a record finish to another record year. We delivered double-digit growth in revenue, operating income and earnings per share. We also invested in an array of future growth initiatives, increased our dividend double digits and achieved our leverage target a year earlier than originally planned. As we kick off 2022, we’re focused on, once again, delivering growth and creating shareholder value against what is an ever evolving macro backdrop. I’ll be happy to take your questions during Q&A. But for now, I’ll hand it over to Ben.

Lynn Martin:

Thank you, Ben. With data and technology at our core, our goal is to provide solutions which add transparency to both commonly understood risks as well as emerging risks such as ESG. We continue to increase the breadth and coverage of our products and accelerate the delivery of our ESG reference data to the NYSE issuer community, providing non-opinion-based insights to market participants. And in the fourth quarter, we expanded our climate change and alternative data capabilities with the acquisition of risQ and Level 11 Analytics. Combining geospatial data technology with our financial data will bring greater transparency to ESG risks across the financial markets, including our existing muni bond and mortgage-backed security offering. Our data, technology and leading marketplaces position us well to benefit from the secular trend towards sustainability and net zero carbon commitments. Turning now to fixed income. Increased automation, flexibility of delivery and passive investing continue to drive demand for our proprietary data and rapidly growing index business. As a leading data provider to the fixed income market, we are uniquely positioned to drive automation. Leveraging our proprietary evaluated prices, analytics and our growing suite of reference data, we’ve taken a business that historically served the back and middle office and created tools and analytics for the front office. These tools are critical to the pre-trade transparency needed in the opaque, less liquid fixed income markets as is evidenced by our front-office tools continuing to grow double-digits. The growth in passive investing continues to be a tailwind for our business. The flexibility of our tools, quality of our pricing data and flexibility of our offering directly contributed to the five asset managers with funds of over $66 billion of AUM that transitioned to ICE indices during 2021 and an additional group of funds with AUM of $6.7 billion have planned transitions during Q1 2022. This strength drove double-digit revenue growth in our index business for the fourth consecutive year and positions us well for continued growth. I’ll close with some highlights from the NYSE. 2021 was a record year for NYSE listings. We help connect innovators and entrepreneurs to nearly $120 billion in capital through 297 IPOs, including three of the four largest IPOs and the three largest tech IPOs. And importantly, we continue to lead the market in ETF listings with more than 65% of new funds selecting us as their home. We also continue to prioritize our market-leading technology, which enables customers to better manage risk and provide our issuer community with significantly less volatility at the open and the close. The performance of our technology was proven as recently as last week when we processed nearly 0.5 trillion messages in a single day with median response times of less than 30 microseconds across our equities complex, further cementing our position as the leading equity exchange group. Our leading data and technology coupled with our investments in sustainable finance, the secular trends across fixed income markets and the competitive differentiators of the NYSE will continue to drive our growth well into the future. I’ll now turn the call over to Jeff.

Operator:

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] The first question comes from Rich Repetto with Piper Sandler. Please go ahead.

Ben Jackson:

Hi Rich, it’s Ben. I’ll start here. So the – you hit on it a bit in the way you answered the question. So you do have growth compounding on top of growth there in the subscription side of the business. But also, I mean, we are looking at macro headwinds. I mean, Warren brought up in his commentary that if you take a composite of where the industry analysts have volumes that you have volumes down 30%. And in that environment, we could see some macro headwinds such as are there going to be a bunch of brand-new originators coming on to the scene? Potentially not. Could you see some industry consolidation? Potentially, we’ll see some of that. But despite those types of headwinds, we see an opportunity to grow this subscription business in the teens because we have great visibility to a phenomenal new business pipeline of new customers that we’re looking at right now. We have the ability to cross-sell to that large stable of customers that we have solutions like our AIQ business, that will provide them more efficiency as well as our industry-leading point-of-sale solutions. And then the other dynamic that we have going on is that move towards subscription as customers renew. We had a pilot program last year where we have roughly 20% of our customers renew in a given year. With a small percentage of those that renewed last year, we looked at shifting them more towards subscription. We’re successful doing that. And we’ve codified a program of this year to hit a much larger percentage of the roughly 20% that are renewing this year. So all of those, we believe, are tailwinds to offset the macroeconomic environments there and will lead to a teens grower in subscription revenue, which we feel great about.

Rich Repetto:

Thanks, Jeff. Very helpful. The colors helpful. Thank you.

Dan Fannon:

Thanks. Good morning. My question is on the environmentals complex. And wanted to think about the size of that market and maybe if you could address the customer base there, commercial versus financial kind of utilization and as we think about it versus some of your mature markets to kind of get a sense of where we are in the adoption phase of some of these products.

Dan Fannon:

Thank you.

Alex Kramm:

Yes. Hey, good morning, everyone. I want to ask about inflation broadly. It’s been a big topic, obviously, this earnings season in the last few months for a lot of companies. Seems like on the cost side, you’re managing that pretty well, but I’m more interested on the revenue side. I mean, 50% of your business or so is subscription-based. So curious to what degree CPI is built into any of your subscriptions, to what degree that could help you or make pricing discussions easier? And then, of course, how much of that is baked into your recurring revenue forecast broadly? Thank you.

Alex Kramm:

Fantastic. Thank you, guys.

Ken Worthington:

Hi, good morning. Jeff, I wanted to pick your brain a little bit about crypto and blockchain, acknowledging that you and ICE were early and seeing the potential here with Bakkt and other investments. As we think about the mortgage process, is there a role you see for blockchain technology helping ICE digitize parts of the mortgage process or getting you closer to your vision in the mortgage area? And then it would seem like the information is indelible there to some of your comments at Alex’s conference late last year. And then second, the crypto trading ecosystem is developing in a much more vertically integrated way. Do you see the crypto ecosystem moving more towards specialization over time like the cash equity world? Or is a chance that the cash equity ecosystem might evolve to look more like the crypto ecosystem? And does either of these have implications for the New York Stock Exchange?

Ken Worthington:

Thank you, Jeff.

Michael Cyprys:

Hey, good morning. Thanks for taking the question. I just wanted to ask about the cloud. I was hoping you might be able to remind us, which parts of your business today are on the cloud. And as you look forward, how do you think about the opportunity for migrating more of your business to the cloud? What benefits could you see, and which parts of the organization can make sense to do sooner versus which ones do you think would take a bit more time?

Michael Cyprys:

Great. Thank you.

Alex Blostein:

Hey, guys. It’s Alex. So I wanted to go back to the mortgage question for a second. The – you gave some color about 2022 specifically. But clearly, it’s a pretty meaningful slowdown in growth in recurring revenues into low to mid-teens from well north of 20% over the last 12 months. Do you think this is just a 2022 dynamic and the reasons you sort of described earlier just really kind of relate to the next 12 months? Or for a variety of reasons, this is more of a reasonable run rate we should expect over the medium term? Thanks.

Alex Blostein:

All right. Thank you.

Brian Bedell:

Great. Thanks. Good morning, folks. Maybe, Ben, if I could just come back to the environmental complex question and your answer to a prior question on that. Two-parter. First, on the 110 tons – 110 billion tons of physical TAM that you mentioned, I just wanted to clarify if that is sort of a current TAM and then your expectations for that to grow over time as we move more into carbon transition. And then secondarily, it looks like the environmentals complex is now north of 10% of your energy revenue. Nat gas is also inching up as well, 25% or so. What is your view on nat gas as a transition energy and whether if we want to think about a long-term carbon transition, should we be thinking about that nat gas to grow as a portion of your total energy revenue, just like the environmental is growing?

Brian Bedell:

Great. Thank you.

Owen Lau:

Good morning and thank you for taking my question. Could you please talk about your balance sheet investment? What’s your plan to like maybe deconsolidate OCC and Bakkt? Or you will be more opportunistic to leverage your balance sheet to make additional investments? Thank you.

Owen Lau:

All right. Thank you.

Kyle Voigt:

Hi, good morning. I just wanted to ask a question still on the energy topic, specifically on Brent and Brent open interest. We’re seeing nice growth in the options OI in that complex, but Brent futures open interest specifically was down 17% year-on-year as of earlier this week. So I guess with the price volatility we’ve seen the oil market over the past year, I just would have expected to see a bit stronger trends there. Just wondering if you could kind of opine on whether you think this is cyclical still related to kind of COVID normalization or whether there’s something more secular going on there that’s causing the decline would be helpful. Thank you.

Kyle Voigt:

Understood. Thank you.

Unidentified Analyst:

This is Ely on for Craig. I had a question for you on December’s leadership changes. Should we see those as a precursor to more meaningful strategy changes at NYSE? Or do you anticipate any changes will be more incremental? Specifically on listings, has the new team given any thought to lowering listing standards to help make the New York Stock Exchange a little more competitive in 2022 or maybe pivoting the brand to better appeal to all the new tech companies coming to public markets? Thanks.

Lynn Martin:

Yes. Thanks, Jeff, and thanks for the question. I mean, it’s early days of me being in the seat at NYSE, but I continue to see a great opportunity to further cement NYSE as the home of global markets. We’ve got – as I think about this year, we’ve got a healthy pipeline of IPOs, although the timing of some of the companies coming to market is shifting a bit, given the macroeconomic environment. But importantly, we really see the environment changing. And the drivers of capital raising last year may have favored our competitors. So we see that shifting, given the strengths of our model. The issuers that I have been talking to more recently, CEOs that are looking to come to market, they’re valuing different things. And they’re valuing stability in trading, lower cost of capital and strong governance, and that really favors the NYSE market model. And our message around our market model, the differentiation and investment we’ve made in technology and also the broader technology assets that we’re bringing to bear through the various other ICE businesses are really resonating as differentiators for the New York Stock Exchange.

Operator:

The next question comes from Simon Clinch with Atlantic Equities. Please go ahead.

Warren Gardiner:

Sure. Hey Simon, it’s Warren. So right. So we were about $450 million, as you know, this year. That was kind of towards the high end of the range. Some of that is related to Bakkt. Of course, we had a full year of Ellie Mae. As you’re looking at the guidance for next year, as you saw, it’s about $520 million to $490 million. We are planning some data center migrations and some upgrades. That’s adding about $80 million or so to that $590 million to – sorry, $520 million to $490 million. Those are going to result eventually in some cost savings. There’s revenue-related expansion product – project within that. So all kind of good things on the back end of that investment. Within that guidance range of this year, probably around $100 million of Ellie Mae, too. So when you start to back – to peel off those pieces, well, you’re back down to sort of the 300, 350 range, which is where we’ll call it legacy ICE was and has been for a number of years prior to that acquisition and some of these productivity and efficiency investments that we’re going to be making around some of the data center.

Operator:

And we have a follow-up from Alex Kramm with UBS. Please go ahead.

Ben Jackson:

Alex, I’ll start on the mortgage side. I can give some color on the short-term interest rate transition as well. In terms of eClose, we’re continuing to see that ramp. So we went to – we were at 76 customers last quarter and the last update here. We’re now at 93. So we’re continuing to see that pick up and ramp up. And we see as those customers ramp up, that’s going to be yet another area that grows that closing line item on a year-over-year basis as that closing line item is going to be heavily transaction-oriented because a lot of the costs associated to closing fees actually go on to the end closing statement of the customer. So that is important to highlight that. And as we deliver more and more of these innovations and solutions, we are able to capture more revenue per loan, which is something that’s important on that closing line item. On the subscription line item, so last year is when we started that pilot program, and we did a small percentage of what renewed. So if you take a ballpark of around 10% of the 20% that renewed, that’s probably the right ZIP code of the number that we touched last year. And based on what we learned through that pilot program, we’ve now codified a program that’s going to hit a much larger percentage of the 20% that are going to renew this year. So that gets you into the ballpark of what we have accomplished being a very small percentage and that we do have a long runway of being able to do this over multiple years ahead of us. Just from the overall short-term interest rate transition and what we’re seeing in that marketplace, that transition went seamless for us in terms of the short sterling to SONIA transition. We’ve seen – we did have some trading volumes, some ARB trading volume that was trading short sterling versus SONIA. That obviously, when short sterling went away, came off. But when you look at the overall complex and this rising rate environment that we’re in, in both the U.K. as well as the EU, the market overall is off to a great start in terms of both volumes as well as open interest. I’ll hand it off to Warren to talk about RPC.

Alex Kramm:

Sounds good. I will follow up on that. Thanks.

Kyle Voigt:

Hey, thanks for squeezing my follow-up. So just on the expenses, the midpoint of the expense guidance, I think, is 5% year-on-year growth comparing to the adjusted OpEx, excluding Bakkt. Just wondering if you could talk about how committed you are to delivering operating leverage in 2022 specifically? Again, if we’re looking at the business on an adjusted basis, excluding Bakkt. And then given the business mix change over the past five years or so, just wondering if you can update us on your view of long-term expense growth, what’s the right expense growth rate long term for ICE? Thanks.

Kyle Voigt:

Great. Thanks, Warren.

Jeff Sprecher:

Well, thank you, Andrew, for running the call, and thank you all for joining us this morning. We look forward to soon updating you as we continue to innovate for our customers and give you the results of our all-weather business model as we continue to drive growth. And with that, I hope you have a great day.

Operator:

Good morning, and welcome to the Intercontinental Exchange Third Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, participants is being recorded. I would now like to turn the conference over to Mary Caroline O'Neal, Head of Investor Relations. Please go ahead.

Warren Gardiner:

Thanks, MC. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our third quarter results. Adjusted earnings per share totaled $1.30, up 34% year-over-year, marking the best third quarter in our company's history. Net revenues totaled a record $1.8 billion, and on a pro forma basis, increased 11% versus last year, with all three of our business segments contributing to the strong year-over-year growth. Total transaction revenues grew 13%, while total recurring revenues, which accounted for nearly half of our business, increased by 10%. Third quarter adjusted operating expenses totaled $755 million, including $35 million related to Bakkt, which after successfully completing its merger with Victory Park recently began trading on the NYSE. Adjusting for Bakkt, third quarter operating expenses would have been $720 million, in the middle of our guidance range, while our adjusted operating margin would have been 60%, up over 100 basis points year-over-year. Looking to the fourth quarter, we expect adjusted operating expenses to be between $737 million to $747 million. Relative to the full year outlook provided on our second quarter call, the fourth quarter is now expected to include approximately $10 million related to the Bakkt's sub period and $10 million to $15 million of performance-related compensation as we expect to reward our employees for their contribution to the strong results we are once again on track to achieve in 2021. Record year-to-date free cash flow has totaled nearly $2 billion. These strong cash flows along with the divestment of our $1.2 billion stake in Coinbase has enabled us to reduce leverage to under 3.25 times at the end of September, nearly a full year ahead of schedule. As a result, we expect to resume share repurchases, including up to $250 million in this year's fourth quarter. We anticipate updating you on our 2022 capital return plans early next year. In addition, we announced in October that we have agreed to sell our stake in Euroclear for €709 million, or approximately $820 million. We expect to determine the use of Euroclear proceeds as we approach closing, which we expect will be -- will occur in 2022. Now let's move to Slide 5, where I'll provide an overview of the performance of our Exchange segment. Third quarter net revenues totaled $959 million, an increase of 16% year-over-year. This strong performance was driven by a 30% increase in our interest rate business and a 38% increase in our energy revenues, including 34% increase in our oil complex, a 73% increase in European natural gas revenues and a 72% increase in revenues related to global environmental products. Importantly, total open interest, which we believe to be the best indicator of long-term growth, is up 18% versus the end of last year, including 11% growth in energy and 28% growth across our financial futures and options complex. Recurring revenues, which include our exchange data services and NYSE listings increased 6% year-over-year, including 10% growth in our Listings business. This acceleration in growth was driven by an increasing number of operating company IPOs choosing the NYSE, particularly in the technology and consumer sectors. Looking to the fourth quarter, we expect recurring revenues in our Exchange segment to be between $330 million and $335 million. Turning now to Slide 6. I'll discuss our Fixed Income and Data Services segment. Third quarter revenues totaled $477 million, a 6% increase versus a year ago. Recurring revenue growth, which accounted for nearly 90% of segment revenues, also grew 6% in the quarter. Within recurring revenues, our fixed income data and analytics business increased by 5% year-over-year, including another double-digit growth in our index franchise, while other data and network services grew 9%, driven by continued customer demand for additional network capacity. Looking to the fourth quarter, we expect that our recurring revenues will improve sequentially to a range of $415 million to $420 million, and that full year revenue growth will be approximately 6%, at the high end of our guidance range. Let's go next to Slide 7, where I will discuss our Mortgage Technology segment. Please note that my comments on revenue growth are on a pro forma basis. Despite a double-digit decline in industry origination volumes, our mortgage technology business grew 7% year-over-year and achieved record revenues of $366 million. While third quarter transaction revenues declined slightly, they were more than offset by a 33% growth in our recurring revenues, which at $143 million once again exceeded the high end of our guidance range and accounted for nearly 40% of total segment revenues. Our outperformance relative to industry trends continues to be driven by increased customer adoption of digital tools across the workflow. While these secular growth trends have been a clear tailwind for our recurring revenues, there is also opportunity to drive accelerating adoption across our transaction-based businesses, such as our Closing Solutions, where revenue increased by 30% in the third quarter. Looking to the fourth quarter guidance, we expect that recurring revenues will once again grow sequentially and be in a range of $147 million to $152 million. At the midpoint, this represents growth of approximately 25% year-over-year, which is on top of 20% growth achieved in last year's third quarter. In summary, we once again had strong contributions from each of our businesses and across the asset classes in which we operate. We delivered double-digit growth in revenue, operating income and earnings per share. We also generated strong cash flows, reduced leverage to under 3.25 time, announced the divestment of our stake in Euroclear and successfully took back public on the NYSE. As we look to the end of the year into 2022, we remain focused on meeting the needs of our customers, continuing to drive growth and create value for our shareholders. I'll now turn the call over to Ben.

Jeff Sprecher:

Thank you, Ben, and thank you all for joining us this morning. Please turn to Slide 9. The third quarter extends our track record of growth. We once again grew revenues, grew adjusted operating income and grew adjusted earnings per share with strong growth from all business segments across asset classes, and amidst a dynamic macro environment. These results are a testament to the strength of our business model, positioning the company at the center of some of the largest markets undergoing an analog-to-digital conversion, and which together make ICE an all-weather name that generates growth on top of growth. The diversity of our platform positions us to benefit not only from near-term cyclical events, but also longer-term secular growth trends. We've expanded into new asset classes, growing our addressable market and broadened our expertise, making our network significant and providing the opportunity to unlock additional growth by collaborating across businesses. We recently announced another new product from the collaboration between ICE Data Services and ICE Mortgage Technology, called the ICE Rate Lock Indices. Leveraging anonymized and aggregated data from ICE Mortgage Technologies leading origination platform, this suite of indices provides a more comprehensive, accurate and timely reflection of residential mortgage rates. Building on this innovation, like we've done in other asset classes, these indices provide an opportunity to create additional products like rich analytics and better pricing tools for lenders. The opportunity to turn raw, unstructured data into actionable insights abounds across our business. By taking alternative data sets and marrying them with our proprietary data, we've built solutions that offer unique insight into the market. Our climate analytics, for example, leverage our strength in the fixed income market with third-party geospatial data to help market participants better manage climate risk as a part of their overall investing and risk management processes. As ESG is increasingly becoming a component of investment portfolios, our technology and data expertise positions us well to deliver solutions that meet these evolving customer needs. We have strategically assembled a portfolio to drive growth across asset classes and macro environments, and part of this strategy is capturing value by thoughtfully repositioning businesses. This year alone, we harvested our gain in Coinbase, announced an agreement to do the same with our stake in Euroclear, and unlocked Bakkt via our New York Stock Exchange listing. These transactions expose billions of dollars in value creation and position us well to return capital to shareholders while continuing to invest for our future growth. It's collaborative efforts, innovative solutions and strategic capital allocation like this that have driven our growth for the past 20 years and which lay the foundation for continued growth well into the future. Before I end my prepared remarks, I'd like to thank our customers for their business and their trust in the quarter. And I'd like to thank my colleagues at ICE for their contributions to the best third quarter in our company's history, topped only by our record quarter earlier this year. I'll now turn the call back to our moderator, Dania, to conduct a question-and-answer session, which will run until 9

Richard Repetto:

Good morning, Jeff. Good morning, Warren. Can you hear me?

Richard Repetto:

Sorry, So my one question, Jeff, is the Mortgage Technology business, I think, surprised a lot of people. And when you zone in the closing, and you addressed a fair amount of it in the prepared remarks. But I'm just trying to understand the Closing Solutions and what are the new tools and trying to get better insight. It looked like that segment of the mortgage tech grew 28% or $19 million in a market that, at least incrementally, gets -- seemed to get soft.

Ben Jackson:

Hi, Rich, thanks for the question. And -- in summary, when it's part of the thesis we had in doing the overall deal is that we saw a long-term secular trend here for people to want to automate and digitize the mortgage process, to continue to work on condensing the amount of time it takes to close on a real estate transaction. And if you look under the covers of that Closing Solutions business, this is a business that's going to be very transaction-oriented. A lot of the costs associated to it actually go on the actual closing statement of the client themselves. So you're going to see that this is one of the businesses that's going to be heavily transaction-oriented. And if you look at the components underneath it, they're really driving the growth. First part goes back to an acquisition we did a number of years ago, which is the Simplifile business. This is a business that electronic -- does the electronic recording at the county of all the closing documents associated to a real estate transaction. In this COVID environment we saw, a year ago, the number of documents that are being recorded in the counties moving more and more away from paper and towards digitization and using our rails to do so, and we continue to see that. So Simplifile is an input into that growth. The second component there is a business that we've talked about many times, which is a business called MERS. We have a new bundled service offering there that takes a number of bespoke services that we had within MERS. So the registration of the loan itself, the registration of an e-note, which we continue to see e-notes being adopted more and more through the industry, as well as lifetime servicing transfers, all being -- we bundled that all into one complete offering for our clients. And then the third area that we've talked about on prior calls is the launch of eClose, which was really enabled by the combination of the expertise we have with MERS, Simplifile and the Ellie Mae business. And we combined that origination network that Ellie Mae has with the settlement agent network that the Simplifile business has. We've launched our eClose offering in the second quarter. We've enhanced that offering with our own proprietary e-signing capabilities in the third quarter. And then just this month, we launched our own proprietary eNote as part of our loan origination document set, as well as eVault. And we're continuing to see customers adopt those solutions. I mentioned on the last call, we had 55 customers going through implementation. We now have 76 that are adopting it. And as that continues to ramp, I see that as another area that's going to continue to fuel growth in the closing line item, which is really enabling us to take a business that, 12 months ago, was a $200 million business to now if you look at the trailing 12 months, it's a $300 million business, continuing to go after that $1 billion TAM that we outlined.

Operator:

Thank you. The next question we have is from Ken Worthington from JPMorgan.

Jeff Sprecher:

Yes. Well, first of all, and I think -- we'd like to position ourselves where there are analog to digital conversions, and there's an analog-to-digital conversion going on in the wallet. When I was a kid, I had a carried around a leather wallet in my pocket, and children today may never own a leather wallet. And so that analog-to-digital conversion is something that we wanted to be a part of. I think we decided to create Bakkt as a separate brand and a separate entity because a lot of our investors seem to not see the coalescence of institutional and retail coming together. As access is increased through digital tools, and you can see it in the US equity markets, there's less distinction between a retail order and an institutional order, for example. And so that same convergence is happening across all businesses. And we were a little bit concerned that our investor base wouldn't appreciate that we could both be an institutional network provider and also a retail network provider. And so we decided to give the company a separate brand. And it was -- we just didn't feel like it was being appreciated inside of ICE and so we decided to give it a separate capital structure on the New York Stock Exchange. Other than that, Bakkt will be doing its own earnings calls now as a public company. I'm no longer on the board. And so I don't want to ever speak for the company, going forward. But I will tell you that we do believe there's value creation in analog-to-digital conversions, and we're trying to place value there around the business. And that's part of why I see us as being an all-weather name that can grow on top of growth. We're locked up in the company as part of the IPO. We actually invested additionally as part of the spin. And so we're very, very high on that company and want to give it every opportunity to demonstrate its value to the market.

Operator:

Thank you sir. The next question we have is from Brian Bedell from Deutsche Bank.

Ben Jackson:

Thanks, Brian. I'll try to go through some of the components of what we saw that drove that growth. And as we highlighted, the business grew double digits year-over-year -- or sorry -- so the business grew 7% year-over-year. And with the backdrop of a decline in industry volumes being up double-digit. We also grew the business 8% sequentially, if you look at it from second quarter to third quarter against a volume environment that industry estimates would have down double digits as well. And if you look at each of the line items of what's happening there, you'll see that we outperformed not only in the aggregate, but also in each line item, what that transaction -- what that overall transaction environment was. In the origination line item, what you see there that I outlined in the last quarter is that -- and it was in our prepared remarks again today, is that part of our customs doing the deal is that we could take certain parts of the revenue base here and move it more and more towards subscription and take some of the volatility out of it. And the origination line item is one in particular that we are doing that with. And we've only done that with a very small percentage of the customer base. The average client is a customer and is under contract for four to five years. And we just started this year with a small percentage of the client base. We've had a great pickup in customers being open to moving more towards subscription. So I see we have a long runway of that. The other thing that's going on in that origination line is we're continuing to add more customers we're gaining more market share And as we implement those customers, those are new loans that are running through our system that we are getting some transaction volume that we never saw before, that's offsetting some of the headwinds that you'd see in that transaction environment. The second line item, data and analytics, it's the exact same story. We're taking a business -- so this is the automation of the underwrite process through our AI tools. This is a business that was almost 100% transaction. Under the covers, we've been moving it more and more towards subscription. We're going to continue to do so, and we're having incredible success cross-selling this to clients. It does take a little bit longer to implement customers on this solution because you're automating and deeply embedding your solutions into very complicated workflow in each of these businesses as you're automating underwriting processes. But we have a number of customers that are going live on the platform that we've sold. We continue to have great sales success. And we have a number continuing to go through implementation. So that's continuing to grow and offset any transaction issues you see there. And then on the Closing Solutions side, this is where I unpacked in the first question, a lot of the new innovation that we have, a lot of the changes that we made. Simplifile continues to gain market share really versus paper. Our eClose solutions, our brand-new innovation that the industry hasn't seen before, and each time a customer is subscribing to whether it's using our e-closing room, they're using our document set, they're using our e-closing room, they're using our document set, they're using our e-note, they're using our vault, they can use either a component of those services or all of them. And each time they do that, we're getting incremental revenue on every transaction that's using that. And it's all greenfield. And there's very little competition in this space because of the unique position we've been in to build all those.

Operator:

Thank you. The next question we have is from Kyle Voigt from KBW.

Jeff Sprecher:

So thanks, Kyle. So on the -- so on move to subscription to answer the first part of how much -- how many of the customers have we done it with, it's well less than 10%. So it's a very small percentage of the customer base that we've been able to do this with. As you can imagine, now is a good time to actually be engaging with customers to make this transition towards subscription. Because you're in a high-volume environment, customers are in this high-volume environment, they want to adopt more automation. They want to be able to continue to automate and be as efficient as possible against any other competition. So they're continuing to add on more and more of our services. So when we go and engage in clients in this negotiation, we are willing to forgo some transaction revenue. But we're not foregoing all of it. We're just making it very open in our algorithm around, hey, if we're going to shift some to subscription, we are willing to give up some transaction, which is mostly the success fees on those transactions that we get. But we also remember the other transaction element that we do get is on our network. So any time a loan is coming on to our network and ordering services from third parties for the automation that we're providing there, we're collecting a fee for providing that benefit along those rails and that fee will continue as it is today.

Jeff Sprecher:

Sure. So as I mentioned earlier in the commentary, the average customers on four, five year agreements, that's not changing. So you can -- and we just started this. So we just started doing this, this year, and we only did it with a subset of the customers that were actually going through renewal to really see what we learned in going through that and testing that our hypothesis, now theory, was right, and we've proven that. So we have a long runway to do this, and continue to feed more subscription revenue growth over time. In terms of are we taking away some of the upside, the way I see it is we're taking away some of the volatility in that line item. And where our upside is, is there's still a ton of new innovation that we're introducing to the marketplace between the e-close offerings that we have, that we've launched, between the automation of the underwrite and all the analyzers that we've been talking about on prior calls that we've been introducing to the marketplace. This is all brand-new innovation that is going to continue to drive transaction revenue growth in parallel to reducing the volatility and risk in some of the line items that we have, like origination, data and analytics.

Operator:

Thank you. The next question we have is from Dan Fannon from Jefferies.

Warren Gardiner:

Yeah. Thanks, Dan. It's Warren. So right. So yeah, at the end of the third quarter, we got to under 3.25 times. That was kind of our target to resume share buybacks that we set when we announced the Ellie Mae deal back in August of last year. And so we'll start about -- up to about $250 million this quarter. I think about that kind of being more of a partial buyback, because we do still need to get to three times eventually. And I think we're well on our way there. But -- so we'll do a bit of a balance, pay down of debt alongside these repurchases over the next quarter or so. But I think once -- thinking about next year, nothing's really changed in terms of capital return philosophy. I mean, it's the same -- it's going to be the same thing as pre-Ellie Mae where it's return -- all capital to shareholders that we don't need for investment or M&A to shareholders through buybacks and dividends. So I think you should expect us to be thinking about it that way. And the only thing really that has changed here is that we've continued to grow free cash flow organically and then, of course, added Ellie Mae, which as you obviously heard today and in the last couple of quarters seen that it's performing very well. So those would be the things that I'd be thinking about as you're kind of thinking about next year and capital return at the moment. Right now, we're kind of going through the 2022 budget process. So as we start to refine that, we'll be able to kind of give you guys a bit of an update in the next couple of quarters or so.

Operator:

Thank you. The next question we have is from Chris Allen from Compass Point.

Jeff Sprecher:

Thanks, Chris. So when you look at our energy business, and we've talked about this on several calls, one of the things I think that's come to light through this is that we are very different than any of the peers that are out there and that we've developed very deep liquid markets across the energy class spectrum. So whether it's coal, oil, gas, power, environmentals, we've invested heavily across that entire spectrum to give our customers the tools they need, to manage what we saw as a secular trend more than a decade ago of people moving towards cleaner fossil fuel such as natural gas, and towards environmental markets, carbon offset markets, compliance markets and the like. We made several acquisitions, climate exchange 10 years ago. We've been building out our global natural gas suite, and we have now a business that's substantially different than any of our peers. We continue to invest, as we talked about in prior quarters, our oil business, which is doing extraordinarily well with investments that we made in the launch of our Murban contract, that ICE Futures Abu Dhabi. We have a new contract in the Gulf Coast that's launching in the beginning of next year in partnership with several big physical players. And we're in the middle of a Brent consultation where Midland WTI may be added into the Brent basket. So you have a whole bunch of dynamics going on across this, and it's because customers know they need to manage their risk through this transition. And as I mentioned in my prepared remarks, I think the environment that you've just seen, you've got to peek into what it's going to be for a long, long time. This energy transition is going to be very volatile. Everyone sees the secular trend where investments are pouring into renewable projects and projects such as coal are not getting invested in. And the fact is any energy supply source, I don't care what it is, is susceptible to supply chain events, weather events, for example. If you have wind turbines and the wind is not blowing, it's not really easy to transition back to a coal-fired plant to get power back on the grid. So I foresee that we're in for a long ride of volatility. And now more than ever, the exchanges and the risk management tools that we provide are extraordinarily valuable to our clients, and it's important to us that we continue to engage with them as much as we ever have to continue to innovate.

Operator:

Thank you. The next question we have is from Alex Blostein from Goldman Sachs.

Jeff Sprecher:

Yes, it's a great question. And I think the one takeaway you should have is that, that has been an intentional evolution on behalf of the management team. We have been -- we started the company really being highly transaction-oriented, and have always wanted to have a bigger recurring growing base that we can rely on. Part of our thinking of becoming an all-weather name is finding these analog to digital market conversions, but also creating a portfolio of businesses that we operate that are durable in different environments. We really wanted to get into the mortgage space, and really worked for over 10 years to put ourselves in that space because it benefits from a low interest rate environment, generally speaking. We have other businesses like our interest rate futures and, to a certain degree, inflation-oriented products like commodities that tend to do better in high interest rate environments. And so, from a transaction standpoint, we wanted to be durable. We want to grow on top of growth and not be a name where people pile in when interest rates are going up and pile out when interest rates are going down. And so, the more that we feel like we can lock into growing and recurring revenue, it gives investors a basis to know that we're going to continue to pay a dividend, that we're going to have capital to reinvest in the business. And then, if we can have transaction businesses that, regardless of macro environment, can do well. It just feels like a company that an investor should own. And that has been the strategy that we've deployed here for -- I mean years now. And it's finally coming to fruition. And the mortgage business, as Ben has mentioned, we've passed our colleagues with let's try to -- to really build a durable subscription underpinning to a business that also has really interesting transaction opportunities because of changes in technology. And the same thing in emissions and in liquefied natural gas. I know you and I have talked for years about our thesis that the natural gas market would globalize and that there would be global benchmarks, not regional benchmarks. And so, a lot of these metrics that you see in your economic model have been incredibly intentional on our part over a long period of time. And it's great that in this quarter, as was mentioned earlier, everything came together at one time.

Alex Kramm:

Yeah. Hey, good morning, everyone. Just one quick follow-up on the mortgage side again. A lot of good qualitative detail, but I think what's missing a little bit is some more quantitative updates here. And I guess I know you don't give us any sort of numbers of mortgages that go in through your system a quarter, and I know a lot of investors are asking for that. But in absence of that, given that you're talking about a kind of like upsell, revenue upsell, sorry, maybe you can at least help us how much your revenue per mortgage has been changing over the last year or two? I mean, again, like if you're upselling, I guess, that revenue per mortgage should go up. So maybe some numbers you can put around that. And if you can decompose a little bit between pricing and certain new services that would be very helpful, too. So hopefully, you can give us a little something here.

Alex Kramm:

Okay. But on a historical basis, the revenue per mortgage going through your system should be up, right? I mean just thematically or not? So to come back to the question.

Alex Kramm:

Sorry. But to come back to my original question, if I look at a historical basis, the revenue per mortgage growing the system should have gone up over the last year or so. I mean -- I assume, again, if you don't have any quantitative right, but like directionally, given that you're adding services should be up, correct? We're not looking at it like that.

Alex Kramm:

Okay. All right. Thanks again.

Jeff Sprecher:

Thank you, Danae. And thank you all for joining us this morning. We look forward to continuing to discuss our all-weather strategies with you as our world economy continues to evolve. And with that, I hope you have a great day.

Operator:

Good day and welcome to the ICE second quarter 2021 earnings quarter conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two.

Warren Gardiner:

Thanks MC. Good morning everyone and thank you for joining us today. I’ll begin on Slide 4 with some of the key highlights from our second quarter results. Adjusted earnings per share totaled $1.16, up 12% year-over-year. Net revenues totaled $1.7 billion and on a pro forma basis were up 4% versus last year. While total transaction revenues declined slightly, our recurring revenues which now represent over half of our business, increased by 10% with all three of our business segments contributing to the strong year-over-year growth. Adjusted operating expense totaled $744 million. Our investment in Bakkt contributed approximately $36 million to second quarter expenses and were offset by approximately $9 million of net revenues. We now anticipate that Bakkt’s announced transaction with Victory Park will close in the third quarter. Looking to the second half, we expect third quarter adjusted operating expense to be in the range of $770 million to $780 million, including $55 million related to Bakkt which we expect will be offset by $12 million of net revenue. Incorporating third quarter Bakkt expense into our full year guide, we now expect 2021 adjusted operating expenses to be in the range of $2.95 billion to $2.98 billion.

Lynn Martin:

Thank you Ben, and good morning to everyone on the call. Please turn to Slide 10. Data is a core competency at ICE. Whether it’s by-product of our exchanges, evaluated prices for fixed income securities, indices and front office tools, or data and analytics used across the mortgage workflow, data connects the different businesses across the ICE platform and connects ICE to participants across asset classes and around the world. Our comprehensive fixed income data platform continues to deliver compounding revenue growth as these markets automate and as passive investing grows. Our quality evaluated prices provide mission critical transparency for nearly 3 million securities per day. Combined with our comprehensive reference data offering, these form the building blocks to index construction and product development. The accelerating growth of passive investing and the efforts we’ve made to increase the breadth of our offerings and flexibility of our approach to index construction has contributed to the double digit annual growth in our index business since we acquired the Bank of America Merrill Lynch franchise in 2017. A key driver of that growth has been an increase in the passive ETF AUM benchmark to our indices, growing to over $300 billion from less than $100 billion in 2017. Part of that growth is being driven by established ETFs transitioning their benchmarks to ICE, including $60 billion of AUM that has announced the transition during 2021 to date. ICE data indices now represents just under 20% of the growing fixed income ETF universe, including over 50% of the muni ETF universe. Additionally, over the last year ICE has launched over 250 new indices across fixed income, equities and commodities, including a growing number of ESG and thematic indices as well as custom indices. Our new index customization platform gives investors direct access to the tools they need to build and quickly back test their own index rules, and through the first half of 2021 customers have created nearly as many custom indices as were created in all of 2020. Our index business is an important part of our broader front office toolkit which also includes solutions like continuous evaluated pricing, best execution, liquidity indicators, and real time curves. These front office tools have grown double digits for the past three year and continue to be an important part of our overall fixed income strategy.

Operator:

The first question today will come from Rich Repeto with Piper Sandler. Please go ahead.

Benjamin Jackson:

Hey Rich, it’s Ben. I’ll take this one. As we’ve talked about on the prior calls, what we’re doing here is we’re building a business that’s going to be resilient to cyclical volume trends, and at the same time capitalizing on the secular trend of the overall analog to digital conversion and a long term guide of an 8% to 10% average annual growth in the business. What you see in our results is you saw--if you look at our top line revenue number and you compare that to where--you try to draw a consensus to where the estimates are between Fannie, Freddie, MBA, we beat those numbers and we beat those results of what happened sequentially quarter-over-quarter, and we also, as we pointed out in the script, significantly beat our subscription revenue guide. The couple things that are going on under the covers there is that, one, we’re having incredible sales success, and when we sell new customers, that leads to new subscription revenue as we implement them; and then number two, we’re looking at taking this unprecedented time of volumes that the industry’s seen last year and this year to purposefully engage with our customers on opportunities to increase the amount of subscription revenue that we have and some of the services that we provide along our comprehensive network, such as our loan origination system and our data and analytics platform called AIQ. We are purposefully tilting relationships with new customers as well as when customers are renewing, looking at shifting more of the mix towards subscription. In terms of the volume trend that we’re seeing, we’re seeing a purchase market that’s strong but it’s tough on inventory, as is very well publicized, and we’re seeing a refinance market where interest rates popped up in March and they’ve come right back down, so we’re still seeing a refinance market that’s decent. What’s really offsetting any headwinds that refinance has seen has been a significant amount of cash-out refi that is happening in the market, just given the amount of home price appreciation and people taking money off the table to do home improvements or pay off other debt. That’s what’s really happening under the covers.

Rich Repeto:

Very helpful, Jeff and Ben. It sort of segues into my follow-up, and that would be on the fixed income side, on the data side it’s clear the dominance you have, and then I guess the question is, will it ever--should we even focus on transaction revenue or is it--will it ever parlay on the transaction side all the data dominance that you’ve established there?

Rich Repeto:

Got it, thanks Lynn. That’s all my questions, thank you.

Alex Blostein:

Great, good morning guys. Thanks for taking the question. I was hoping to start with the energy business. ICE is seeing significant growth in the environmental product, as you mentioned in one of the slides, I guess emissions futures in particular. It’s a pretty high capture rate product, so I was hoping to dig in a little more here. One, spend a few minutes on how this market is evolving and how do you expect the growth to progress here, and specifically I’m looking to get a sense of what the revenue contribution there is today to ICE, what sort of changes you’re seeing at the customer composition level here, so end customers versus financial players perhaps coming in, how is that evolving geographically, so right it’s largely EU but perhaps U.K., U.S., Asia on the com, and then ultimately competition - again, high capture rate product, how sustainable do you think it ultimately will be?

Warren Gardiner:

Hey Alex, it’s Warren. Just to answer your question on this contribution to our revenues, volumes in that environmental complex, it’s been about 2%, 3% of the energy volumes, but to your point, correctly, it’s a higher capture rate, so revenues there are actually closer to about 10% of our energy revenues.

Benjamin Jackson:

That’s a great question. To a certain degree, that’s what you saw us do. Our decision to sell our Coinbase stake was really about us being able to de-lever so that we could get back to a position where we can buy back shares, return capital to shareholders, which has you know has been our historical trend, so yes is the answer. We’re always looking at our portfolio. I think in our industry, there’s a lot of mergers and acquisitions that happen but very few of our peers really think about dispositions, and we do, as you know. We’ve at one time owned the French, Dutch, Belgian, Portuguese stock exchange, we’ve owned various analytic businesses, obviously we own some minority stakes in businesses, and so we’re constantly thinking about our return on invested capital and how to best deploy it. As I think you are aware, we always look at our own view of the value of our shares, and to the extent that the best place for us to deploy capital is in returning it to shareholders via share buybacks, we aggressively do that.

Operator:

As a reminder, if you would like to ask a question, please press star then one, and in the interests of time, if you would like to ask a question, please limit yourself to one question and if you have a follow-up, re-enter the queue. The next question will come from Alex Kramm with UBS. Please go ahead.

Lynn Martin:

Yes, thanks for the question, Alex. It’s a great question. I think we see the opportunity for indices in multiple areas, particularly in fixed income. The indexation opportunity could be anywhere from acquiring our data, acquiring data subscriptions, allowing firms to make their own custom indices, giving us the opportunity to calculate those indices to provide intra-day snapshots for those indices or real-time versions of those indices, provide analytics, but also provide benchmarks. Obviously the ETFs that I mentioned in my prepared remarks that has selected us as their destination for transition business, selected us from a benchmarking perspective. But in fixed income, increasingly firms are also looking at our high quality underlying data, the fact that we’re able to publish that data on a real-time basis which allows them to manage the real-time risks of the fixed income ETF market, so from our perspective we think there’s opportunity across the spectrum, not just on the ETF AUM side but also on the underlying data side, as well as the services around it like our custom index tool.

Operator:

The next question will come from Brian Bedell with Deutsch Bank. Please go ahead.

Benjamin Jackson:

Thanks Brian, this is Ben. I’ll take this one. When you think about our portfolio, and it was threaded through your question there, I think you appreciate the fact that we’ve built the most diversified platform that there is on the planet to help customers really go through this energy transition. We provide products, everything from coal to oil to natural gas to LNG and to the environmental markets, and in all those sectors we are the lead provider of services, helping customers within each of those segments but then also as they’re transitioning towards a cleaner environment and cleaner fuels, helping them along that journey to manage their exposure to price risk. We’re seeing underneath--you know, each one of those segments, we’re still seeing a lot of demand for new products. You take, for example, just what’s happened in oil - we’ve had a ton of innovation that’s happened in oil to help the Middle East and Asia Pacific commercial customers, where we were selected to launch the Murban Crude Oil Contract to enable users to be able to have a better price mechanism for pricing Middle Eastern oil going to Asia. You have the recent development that we announced with the Midland WTI American Gulf Coast Crude Contract that’s being launched with two huge commercial partners in Magellan and Enterprise. It’ll be launched early next year to provide a much better way to price WTI Midland crude that’s at Houston and not constrained by the infrastructure constraints that are in and around Cushing. You also see--you may have seen a recent consultation came out in the industry by us as well as our partners in S&P Platts to look at further evolution of the Brent contract and adding new sources of crude, such as Johan Sverdrup, and very importantly the potential for WTI Midland-basis Houston to be added into the Brent complex, further solidifying that as the global index for oil. I went through it in the prior question, all of the things that we’re doing in the environmental complex to grow that, and we have a significant lead in our global natural gas and LNG franchise, as we mentioned in the prepared remarks, that continues to grow year-over-year, so we feel we’re very, very well positioned to help customers along this journey, and we’ll continue to partner very closely with them to do so.

Patrick O’Shaughnessy:

Hey, good morning. While your listings revenues are growing, your growth rate has lagged that of your primary competitor. Can you speak to the current competitive dynamics in the listing space?

Patrick O’Shaughnessy:

Thank you.

Kyle Voigt:

Hi, good morning. Maybe if I can just touch on the credit trading market, there’s been some thoughts that maybe you could really put the pieces together from IDC to the two retail trading businesses that you bought to ETF hub, and kind of build something for the institutional trading market within credit. Investors have obviously been focused on that because of electronification going in the market, which you’ve been historically very good at doing electronifying markets. I guess the question is really, is it too late, given the success of some of those competitors, to think about eventually launching something more towards institutional trading as being a material revenue driver for you, and why hasn’t it been a bigger focus to launch in that market? We’ve seen continued really strong revenue growth from some of your peers and even from some small players that weren’t material three or four years ago in the market.

Operator:

The next question will come from Michael Cyprys with Morgan Stanley. Please go ahead.

Benjamin Jackson:

Thanks Michael, this is Ben. The business has, even before we acquired it, has had a strategy for the loan origination side of the business to move more and more cloud-oriented, and that’s one of the things that Jeff and I have mentioned on prior calls gave us conviction in doing the deal, is they had made some substantial investments that have moved the business to the cloud. If you look at other parts of our overall mortgage origination network, everything from the point of sale to the manufacturing process that I was just talking about, then all the way through to closing in the secondary, most of the aspects of that are cloud-oriented. We have a mix of some third party service providers that are providing some of the infrastructure in there, and we also have major data centers ourselves that are hosting pieces of this. Our strategy is definitely to move more and more in that direction. We already have moved for significant parts of the business to that, and it’s an area that we’re going to continue to invest. Quite frankly, it’s one of the things that is leading to a lot of the success that we’ve had in sales that I’ve mentioned in the second half of last year and the first half of this year, exceeding our models, is that if you look across our entire mortgage ecosystem, we’re providing a service somewhere along our network and our cloud-based network, we’re providing at least a service to almost every single mortgage participant that’s out there, so the ability to engage with them, show them the value we can provide on our network gives us a great platform to then go ahead and cross-sell other services, which is really fueling a lot of the additional growth that we’ve seen.

Operator:

The next question will come from Simon Clinch with Atlantic Equities. Please go ahead.

Benjamin Jackson:

Thanks for the question, Simon. This is Ben again. As I mentioned in the first question that was asked, we have--since acquiring the business have had a very concentrated effort on how do we focus on that recurring revenue stream, how do we look at that subscription base, and really start to, where we can in certain parts of the business, shift revenue more towards subscription, especially as you’re in this high volume environment that we’ve been in and it’s a great time to do that, to shift it more towards subscription, and for some parts of the business less towards transaction. That’s more oriented towards the loan origination side and that AIQ business, so in those two parts of the business, those are areas where we have had a concentrated effort of moving customers in that direction. To give you an example, at that AIQ business on the data and analytics side, it historically was 100% transaction oriented, and we have moved it very significantly towards subscription revenue, both for every new customer that comes on the platform as well as renewals that are coming on. We are seeing--you know, to the answer of market share, we’re seeing record sales continue. As I mentioned multiple times, the second half of last year was a record and Q1 and Q2 have exceeded our expectations - all that is continuing to gain market share for us and for the business. As we implement customers, that feeds into new subscription revenue, that feeds into part of the beat that we had this past quarter as well as shifting more of the mix towards subscription. The other side of it is there are certain parts of the business that are transaction oriented and we are continuing to innovate new solutions and new opportunities to capture new transactional revenue that’s not happened before, even for us or for the industry. An example of that is I mentioned last quarter we’d be launching our hybrid eClose - well, we’ve gone ahead and launched that, so that’s a complete digital closing room that interconnects the consumer to the lender to the settlement agent, so that all documents, all collaboration, all communication and the entire closing process can be done digitally. We just launched this, and we already have 55 customers out of our 2,000 in the implementation process. As those get implemented, that will be new transaction revenue that will be coming through to us, so that’s another example. Another example that Jeff had mentioned in his prepared remarks is the interconnectivity that we see between data on the mortgage side of the business flowing through to our fixed income and data services business, where we’re taking transaction data out of the mortgage side of our business to help enhance and improve our mortgage-backed securities prepayment and valuation models, where we are a leader in providing that and further enhancing those models with real transactional data that hasn’t happened before.

Alex Kramm:

Yes, thanks for letting me squeeze in a couple follow-ups here. Just on the mortgage side, two things, actually. One, on the cost side, appreciate that obviously you’re building a business for the long term and you’re shifting to more recurring, as you just mentioned, but clearly you’ve seen the transactional side turn a little bit, so just wondering to what degree there are actually potential offsets that you’re thinking about as maybe those transactional revenues come down. Is there something you can do on the expense side, or is that going to continue to grow as you invest? Then for Jeff, since you just--we talked about this interconnectivity between the different businesses, on the mortgage side, Joe at your mortgage industry conference a few months ago made an off-the-cuff remark that you’re going to be working together closely and maybe there’s room for mortgage trading down the line with your exchange business. Just wondering to what degree is this just a long term dream, or if there’s actually something behind the scenes that you’re already working on and what the opportunity set could be there. Thank you.

Jeffrey Sprecher:

And regarding future ideas, Joe, who you mentioned, has joined our management committee, which also contains all the people that you’ve heard from on this call, and we run the business collaboratively so that we can work on this interconnectivity. What you’ve heard Ben talk about on this call is really hooking up what we would consider the cash market in a traditional market - you know, it’s the origination market of actually producing a mortgage for a consumer, and for the first time now we’ve announced that we’re hooking that to the secondary market through Lynn’s business of taking that data to help with mortgage-backed securities. Our sense is that the mortgage market, while it is regulated, is likely to continue to get more government attention as it becomes more transparent. It’s largely for many people in government a mechanism for wealth creation in the sense of people building equity in a home. It’s also interest rate sensitive, as a number of the questions have alluded to here, and there are maybe opportunities for government to influence or touch interest rates for certain segments of our society, and as the data and the transparency of where houses are being bought and refinanced and where wealth is being created, as that becomes more transparent, we really believe that the business is going to continue to evolve around government policy, and that is going to make its way, trickle its way into the secondary trading market. We will be uniquely positioned with data and information about the changes that are going on in the cash market to help influence that secondary market, and it does it mean we’ll host one of those or use other assets? Potentially, that’s part of why we wanted to get into this ecosystem, and it’s part of our goal to build an all-weather company that will perform in every environment.

Jeffrey Sprecher:

Well thank you, Shawn, and thank you all for joining us this morning. We’ll look forward to updating you again soon as we continue to execute on these really interesting and exciting growth opportunities that we laid out for you today. Otherwise, I hope you’ll have a great day.

Operator:

Good morning, and welcome to the ICE First Quarter 2021 Earnings Conference Call and Webcast. Please note, this event is being recorded. I would now like to turn the conference over to Mary Caroline O'Neal, Director of Investor Relations. Please go ahead.

Scott Hill:

Thanks, Mary Caroline. Congratulations on your new role, truly well deserved. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some key highlights from our first quarter results. First quarter revenues, operating income, adjusted net income and adjusted earnings per share were all the best in the history of our company. Adjusted earnings per share of $1.34 increased 7% compared to our previous record of $1.25, which we achieved in last year's first quarter. Record total first quarter revenues of $1.8 billion were up 4% year-over-year on a pro forma basis. Total transaction revenues declined slightly versus an unprecedented backdrop a year ago. Importantly though, total recurring revenues, which represent about half our business, increased by 9% with all three of our business segments contributing to the strong year-over-year growth. First quarter adjusted operating expenses totaled $729 million, including $30 million related to Bakkt. Without the additional $7 million of Bakkt investments, we would have been toward the lower end of our original guidance. We expect that Bakkt's merger with Victory Park Spac will be completed toward the end of this quarter. We expect second quarter adjusted operating expenses to be in the range of $742 million to $752 million, including approximately $35 million of additional expense related to Bakkt. Incorporating the additional Bakkt expenses into our full year guidance as well as slightly higher-than-expected FX, which will be more than offset by higher revenues, we now expect full year adjusted expenses to be in the range of $2.88 billion to $2.93 billion.

Jeff Sprecher:

Thank you, Ben, and thank you all for joining us this morning. Please turn now to Slide 9. In the first quarter, we once again grew revenues, grew adjusted operating income and grew adjusted earnings per share, delivering the best quarter in our company's history. And remarkably, we did this against last year's record-breaking volumes and volatility, which was largely driven by the onset of the global COVID-19 pandemic. Our results are a testament to the value of our data, technology and the strength of our strategic business model. The compounding growth of our subscription based services, combined with our diverse transaction-based businesses means that our growth is not tied to one economic cycle to one geography or to one asset class. Rather, it means growth on top of growth through all rate environments, across asset classes and around the world. Over the past 20 years, ICE has continually evolved to meet the needs of our customers and provide value for our stockholders. And for the past 14 years, I've had the privilege of working alongside Scott Hill as our growth story has unfolded. ICE has completed dozens of deals and made thousands of strategic decisions that have been rooted in the information and the quality metrics that were ingrained in our culture by Scott. Scott not only provided financial leadership for the company but he's played a vital role in providing strategic vision. He championed our unique culture, and he's mentored younger generations of leaders. And so I want to thank Scott for his contribution, for his dedication and for his leadership. And I want to wish him our best as he moves on to tackle the difficult life of branching in Texas. Scott will officially transition next month, and he'll remain an adviser and a mentor to ensure a smooth transition as Warren Gardner assumes the duties of CFO. Warren's has worked closely with Scott over the last 4 years and covered our sector as a senior research analyst for many years prior to this. Warren's knowledge of our business and our industry will help us to continue to build on the foundation that's been established by Scott, and continue a track record of growth. I also want to welcome MC as our new Investor Relations Head. Let me say thank you to our customers for their business and their trust in the quarter. And I want to thank my colleagues at ICE for their contribution to delivering the best quarter in our company's history. With that, I'll now turn the call back over to our moderator, Chad, to conduct the question-and-answer session, which will run until 9:30 Eastern time.

Rich Repetto:

Good morning, Jeff and Scott, and Scott, all the praise and comments are well deserved, so congratulations. My first question will be on the Mortgage segment. And I guess it's been on spot but you reclassified the line and you sort of explained that. But I'm trying to understand how you outgrew what looked like Dodd industry originations and when we look at those four lines now that are reclassified, which ones are recurring and which ones are transactional, so we can model it out. And then lastly, which will be more dependent on refi or purchase mortgages?

Warren Gardiner:

And – hey Rich, this is Warren. I'll just try to give you a little bit of color on the subscription versus transaction breakdown. Most of the subscription revenue is going to be in that origination technology line. And within that, it’s pretty balanced between subscription and transaction. The other part of subscription is going to be in data and analytics. And then when you think about transaction side of that, it’s going to be the closing – that’s pretty closing solutions, that’s pretty much 100% transaction and then others transaction as well. And so hopefully, that helps you a little bit in terms of color, but we haven’t broken those out quite yet, so...

Operator:

And the next question will come from Mike Carrier with Bank of America. Please go ahead.

Warren Gardiner:

Yes. Mike, it’s Warren again. So yes, we are definitely a bit ahead of schedule, been paying down debt faster than we sort of expected when we started the deal. I mean I would say we were doing that, though, before the Coinbase sale. You look at the quarter, we generated about 300 and – $734 million of cash flow. We used that to pay down a little – or close to $350 million of debt, raised our dividend by 10%, and then also invest in the business. So, I think when you think about this Coinbase proceeds, that’s really – that gives us some additional flexibility as we kind of move into the rest of the year. And as Scott said, we are down to about 3.6 leverage, the target is about 3.25, where we can start to think about buying back stock, but again, as Scott said – but again, this is just giving us a little bit of flexibility, and we will give you guys kind of more of an update as we get a bit closer to that in terms of what we will do with buybacks.

Operator:

The next question is from Ken Hill with Loop Capital. Please go ahead.

Ben Jackson:

Thanks for the question, Ken. It’s Ben. And when you look at our futures markets and how we have developed them versus any of our peers, we have been stayed very close to the commercial customer base since our inception. And that’s what’s enabled us to develop literally hundreds of oil contracts around the world because it helps our customers not only manage the risk in a benchmark contract, but also help them manage their risk at the point of consumption or the point of production of where they have real risk. And we are the only truly global platform that enables customers with deep liquid markets in hundreds of marketplaces to be able to manage that risk. And with the backdrop of COVID going on the past year, we didn’t stop moving. We continued to partner with our commercial customers around the world, and that’s what led to the launch of ICE Futures Abu Dhabi, just in the last few weeks here. And in the early days, it looks like one of it to be – one of the most successful futures launches in history. And what I would point to with that is not only the volume growth, but also the – importantly, the significant open interest growth and the fact that there is 49 major players that are in there utilizing the contracts, establishing positions to manage risk. And I look at that compared to other parts of our oil business, that across the board are doing very well. If you compare our overall oil open interest right now in April versus the fourth quarter, we are up in almost every major product category. You compare April oil open interest versus April 2019, we are up in almost every category. If you look at under the covers from a year-over-year basis, while there is some tough compares, in there. We have significant product sets, such as our Asia Refined products set, gas oil in Dubai that are up year-over-year. So, we believe we have a great foundation. We have already been in Asia, have a number of significant products out there that enabled customers to hedge and manage risk. And we are going to stay very close to our commercial customer base to look for more opportunities to do so.

Ken Hill:

Got it. Thanks for the additional color there.

Alex Blostein:

Great. Thanks. Good morning everybody and to echo everyone’s comments, Scott, Warren, MC, big congrats to all of you. I wanted to go back to the mortgage business for a second. So clearly, organic growth remains really strong. Ben, great to hear that the sales momentum continues to be above projections in the first quarter. But the market clearly seems to be overly concerned about the refi cliff, so to speak, in the market, which would hit your transaction revenue. So, can you help us maybe unpack how much of the $230 million is related to transaction revenues, is refi versus new purchases? I think legacy LMA was about 50-50, but that mix probably has evolved here. And I guess, how would you frame the downside risk to this revenue bucket, assuming current industry refinance expectations come through? And then secondly, I was hoping maybe we could hit on the expense interplay here as well to an extent that transaction revenues come down. Is there any expense offset we could see in that segment? Thanks.

Warren Gardiner:

And Alex, it’s Warren. Just quickly on the expenses. So, there are definitely some variable expenses in there. What you would probably normally think about comp, marketing spend, things of that nature. But as Ben said, this isn’t about second half or this isn’t about a particular quarter. This is about a 10-year plan or strategy of doubling revenues from where we are today. And so we are going to continue to invest in that business. We talked about $40 million to $45 million, I think, when we gave guidance at the start of the year. And I think that should still kind of incremental expense, I should say. And so that’s just still be kind of what you expect, I think, as you are looking into the second quarter, third quarter, fourth quarter and expect that to kind of ramp as things like investments like eClose and things of that nature, kind of continue to pick up some steam.

Brian Bedell:

Great. Thanks. Good morning folks. And also my congrats to Scott, Warren and MC as well. Just a two parter, again on Mortgage Tech. It’s the topic of today, of course. Just in terms of that – of the strength in origination, Ben, if you can just touch on the recurring revenue side, the impact of market share gains versus revenues – cross-sell revenue synergies into that network base? And then the second part is on the closing side. I think you said 20% of $1 billion TAM. It looks like the revenue run rate there is $280 million. So, just want to double check. So that would be 28%, but I am sure I am using different denominators there. So, I just wanted to check on that and then your optimism on the growth in the closed business versus the rest of the Mortgage Technology business?

Brian Bedell:

The core of that is from the recurring revenue gains that you have mentioned in the Mortgage Tech segment, especially in origination technology. Maybe if you can characterize what’s coming from market share gains, from Encompass being better – getting better penetration of Encompass across the banks and financial network versus actual cross-sell into the network on – so it’s more like a synergy basis?

Brian Bedell:

Great. Thanks. That’s great color. Thank you.

Ari Ghosh:

Hi, good morning everyone. Maybe just a quick follow-up, so Ben on Mortgage Tech. Maybe you just talked about customers expanding their subscription footprint with you, so as we think about that $4 billion data TAM that you highlighted, can you talk about the current data and analytics usage by a captive customer base, what’s the level of customer penetration at present? Are these customers utilized a competitor data products or just maybe not leveraging much of these analytics in their workflows at present? Just to get a sense of penetration levels and the ease of kind of acquiring some of these services and growing that footprint, subscription footprint? Thanks so much.