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. Mary Caroline O’Neal: Good morning. ICE’s second 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, second quarter Form 10-Q and other filings with the SEC. In addition, as we announced in May, ICE has agreed to acquire Black Knight, the transaction is pending customary regulatory approval and we expect to close in the first half of 2023. 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…

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…

Thank you, Warren. And thank you all for joining us this morning. Please turn to Slide nine. Rising inflation has created an interest rate environment, many of our customers have not navigated in over a decade. Meanwhile, the continued war in Ukraine has triggered a reshaping of the global energy supply chain, creating new risks and uncertainties for market participants. Importantly, we remain focused on connecting customers to our leading technology, mission critical data, and transparent and accessible markets to navigate these uncertain conditions. In our interest rate markets, we've seen record year-to-date volumes in our your contract as customers increasingly seek to manage risks associated with rising rates and central bank activity across Europe and the U.K. This heightened risk has also contributed to strength in our equity derivatives complex, driving an 18% increase in volumes year-to-date. Across our global energy markets, customers are navigating supply uncertainty alongside longer term Clean Energy Transition priorities. This will continue to introduce additional complexity and volatility to energy markets, which should drive greater demand for risk management. And it is our diverse global energy markets that provide the critical price transparency and risk management tools customers need to navigate both the near-term and long-term complexities. Globalization of gas and the clean energy transition are trends that have contributed to the 43% average annual volume growth in our TTF gas business over the past five years, driving TTF to emerge as a global gas benchmark. Through the first half of this year, as a result of the Russia Ukraine conflict, global gas markets have tightened significantly, increasing the demand for global liquefied natural gas in an uncertain geopolitical environment. This volatility and uncertainty has driven our global gas volumes increased 31% year-to-date, including 49% growth in our North American gas business in the…

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.

Thank you. We will now start our Q&A session. . And our first question comes from Rich Repetto at Piper Sandler. Please go ahead. Your line is open.

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.

Hi, Rich. I'm going to hand it over to Lynn to go through this.

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.

And then, Rich, its Warren on your question on the recurring revenues. You're right. That's FX, largely FX, there's also a little bit of AUM related revenue in our ETF business. So as we saw during the quarter people shifting into treasuries and out of equities, and some of the credit focused ETFs. There's lower economics on those treasury ETFs that we bent that track our benchmarks and so that was a little bit of a mix shift impact for us as well within the AUM portion of the index. The rest of the index business did really well during the quarter up double digits. Again, some of the subscription revenue, pure subscription revenue, if you will, in there. So really just kind of the macro dynamics taking hold there that why you saw that slight sequential decline.

Got it. Thanks for the update.

Thank you for your question. Our next question comes from Alex Kramm at UBS. Please go ahead.

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.

Yes, that's a lot Alex. This is Ben. I'll start and Warren will also I'm sure add in here. So in terms of, I'll start with this, just the overall challenges in the environment. If you take a step back, and you look at what we're building, we're building a business here that in mortgage whether a number of different market environments with an eye towards an 8% to 10% growth over the long-haul. And why are we confident in our ability to do that is the reasons are one we have absolutely mission critical software for these clients that we're providing. We have long-term contracts with our clients, four to five years of the high amount of retention in them. And we are heavily focused, as you've seen in our results, on shifting the revenue to more and more towards recurring. And we did it again this quarter, on the backdrop of 40% down market in terms of volumes, with 18% year-over-year recurring revenue growth in the business. The other Proofpoint, you've seen in terms of being able to weather various market environments is our data analytics line item. With that being up 36% last quarter alone. And one of the key inputs and drivers to that is our AIQ and analyzer solutions, we're seeing tremendous uptake in that we're seeing clients now more than ever just looking to adopt automation to automate as much of the workflow as possible to lower their costs. And the other proof point I put out, there was a comment Warren made in his prepared remarks, in that if you look at Q2 of 2019, very similar volume environment to what we saw in this past quarter, we generated more than $100 million of revenue on a pro forma basis. And that's, what…

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.

So you haven't seen a lot of impact from cancellations at this point, just to clarify.

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.

Very good. Thank you.

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

Hi, good morning. So last quarter, you spoke about energy traders moving away from using futures and towards options at least for oil specifically, just given the decline in oil futures open interest throughout 2Q it seemed like that trend may have continued. Just wondering if you could talk about what you're seeing from commodity trading firms right now trying to manage risk in an extremely volatile environment. Because I guess given the volatility, we've seen the market, it's a bit surprising to see energy volumes only up 3% in the second quarter and now seemingly kind of trending lower year-on-year into the third quarter. Thank you.

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…

Thank you so much.

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

Hey, good morning, everyone. So my question is on mortgage tech origination revenues were down not that surprising. But you help us with some perspective on incremental downside from current levels. And also, in terms of timing, when should we think these revenues will stabilize? And any perspective on that relative to what rates are doing would be helpful too?

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.

And this is Jeff, let me just mention that a lot of our mortgage strategy is driven by the fact that we're trying to really position the company to be an all weather named that in all interest rate and macroeconomic environments that I can continue to end my prepared remarks on the same page that shows a graph of compounding earnings growth, for shareholders. And having a U.S. mortgage strategy gives us exposure we own LIBOR, which is the London Interbank index we trade U.K. and EU interest rate futures. We have a credit default swap business that is completely global that includes Russian sovereign, hedging and companies across the globe. We have a fixed income business that is truly global, we provide pricing data in almost every single country that has bond issuance. And we were relatively thin on having exposure to U.S. interest rates, and moving into mortgage gives us that. I also think, when we step back and look at the mortgage complex, the U.S. mortgage complex, and the way we're building the business, is that there is a demographic of millennials, that is huge, that are underserved by homeownership. And there's been supply chain issues during COVID to meet housing. And we generally believe that that any house that gets built will be sold and that there will be a mortgage on it, and that the supply chain issues are getting better and that the underperformance of building is increasing. We also have seen from our limited ownership of having mortgage assets that cash out refinancings happen when the value of homes go up, and which is an inflationary input. And the one that I think a lot of people and maybe is at the root of your question focus on is the absolute interest rate, which leads to people refinancing in a declining interest rate market. Long story short is there are a number of inputs into the housing market. We want to have exposure to the U.S. interest rate environment. It's going to help plus built in all weather name. And even with a downturn in the number of U.S. mortgages, we've had the best second quarter in our company's history.

Great. Thanks for taking my question.

Thank you for your question. Our next question comes from Brian Bedell at Deutsche Bank. Please go ahead.

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?

Got it. Thanks, Brian. Yes, I'll start and then I’ll hand it to Lynn for the second part of that. So as I mentioned before, there's this confluences issues going on, in particular in Europe and where we have seen some impacts, so the balance between Russia and sanctions and the impact on the civilians and the move to cleaner energy. In Europe in specifically, we have seen some time and attention from traders that would trade things like our EUA markets, our European Union Allowances, moving and shifting more towards just the acute energy issues that everyone's faced with right now. So we have seen some headwinds in that part. But the flip side of it is in North America, we've had a very strong business continuing to do very, very well. North America is doing well and our Regional Greenhouse Gas Initiatives, our California Carbon Allowances, our renewable fuels, our REC markets, each of these are doing very, very well and we're continuing to invest. So we recently launched Biofuel Contracts they're doing well, we recently launched a global index, a Global Carbon Index Future, as well and we're getting more and more on the index itself we're getting more ETS to license and on futures are starting to develop there. We recently launched Texas Wind and Solar contracts, we recently launched nature-based offset contracts for the voluntary markets. So we see a lot of tailwinds coming in the foreseeable future, and you also have other developments like State of Pennsylvania likely to join Reggie and Washington State likely to put in their Cap and Trade Program for the first time. So we have a lot of good tailwinds there in North America. And I think what you're seeing in the overall complex is just a wait little bit on the EUA market in Europe.

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.

That's great color. Thank you.

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

Great, thanks so much. Wanted to ask about the commodities franchise, just curious how you guys are thinking about the longer-term growth drivers there, what factors ultimately drive volumes higher in your commodities franchise, is it production of the underlying commodities, for example, some more oil and gas rigs, producing more oil and gas are going to drive volumes higher over the long-term? Just curious how you think about those growth drivers and the algorithm and how is that evolving? Thank you.

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 .

Great. Thank you.

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

Yes. Thanks for taking the question. Just one last question on mortgage, and this I think is more for Jeff. In the prepared remarks, it was mentioned about efficiency and automation and how the downturn is maybe emphasizing that more in the mortgage segment. But I guess the question, Jeff is, I think people are really looking for the connection between mortgage and how that can automate overtime as you've done so in other markets. So the question is, how is it comparing given that mortgage has a longer workflow process, but what you are seeing so far in regards to the automation of the market longer term versus the other asset classes you've dealt with?

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…

Got it. Thank you. That's helpful.

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

Thanks for taking my follow up. So a question on the OTC and other revenue line in the exchange segment was quite strong in the quarter. I just want to confirm that the increase that we saw there was really driven by collateral fees that ICE is clearing house or is there something else that was driving that? And can you remind us if those collateral fees are entirely fixed basis point fees, or if there is or will be any benefit from rate hikes we've seen in the U.S. and EU?

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.

Understood. Thanks.

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.

Thank you, Victoria. Thank you all for joining us this morning. Let me again thank my colleagues for delivering yet another record quarter and we very much appreciate and want to say thank you to our customers for putting your faith in us during the quarter. We'll look forward to updating you again soon as we continue to execute on these exciting growth opportunities that we mentioned on the call. And with that, I hope you'll have a great day.

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