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. I'll now hand over to your host, Katia Gonzalez, Investor Relations Senior Analyst, to begin. Katia, please go ahead.

Good morning. ICE's third quarter 2022 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. 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, third 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. In connection with the proposed transaction, ICE has filed 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 includes a proxy statement of Black Knight that also constitutes a prospectus of ICE. Please see the Form S-4 filing for additional information regarding the 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 core business performance. You'll find a reconciliation to the equivalent GAAP terms in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. With us on the call today are Jeff Sprecher, Chair and CEO; Warren Gardiner, Chief Financial Officer; Ben Jackson, President; and Lynn Martin, President of the NYSE. I'll now turn the call over to Warren.

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 three 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 one-time 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 three 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.

Thank you, Warren and thank you all for joining us this morning. Please turn to Slide 9. In our financial markets, rising inflation and central bank activity across Europe and the U.K. continued to drive increased hedging activity with interest rate average daily volumes increasing 40% year-over-year in the third quarter, including record Euribor futures. In our equity derivatives complex, ADV in our MSCI complex was up 17% in the third quarter as volatility levels continue to be elevated versus the prior year. In our energy markets, the third quarter was marked by the confluence of macroeconomic and geopolitical uncertainties that, when combined with high price volatility, made for a difficult trading environment. Despite these uncertain conditions, we have seen strength in areas like our options markets, our North American gas business, and our North American environmental complex. Options contracts are a valuable tool in highly uncertain market conditions due to their ability to manage geopolitical tail risk and the lower associated capital requirements as we've seen historically. With open interest up 29% versus the end of last year, we are pleased that our customers continue to turn to our deep liquid options markets to manage their risk. The evolving energy supply chain in Europe is increasing the demand for global liquefied natural gas sourced from the United States, driving price volatility in our North American gas markets. Our commercial customers continue to rely on our markets to manage their risk, contributing to a 23% volume growth in our North American gas business year-to-date and an all-time record in North American gas open interest as we have gained 500 basis points of market share over the past year against our peers. Finally, although our European carbon markets are seeing headwinds due to the aforementioned factors, we continue to see growth in active participants in this market with participation up 7% year-over-year. At the same time, the secular trend towards cleaner energy is also driving growth in our North American environmental markets with volumes up 6% year-over-year in the third quarter. And because we offer the broadest suite of environmental products across the carbon cycle, we remain excited about our position to serve customers as they navigate the transition to cleaner energy and as the demand for transparent pricing in carbon grows. Importantly, as we look out over the longer term, we believe that the three secular drivers across our energy markets remain intact: First, increasing energy demand; second, an evolving energy supply chain; and third, the clean energy transition. And because we operate deep liquid markets across the globe with benchmarks in emerging markets across every source of energy, we feel very well positioned to benefit from these factors.

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, causing customers to allocate 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%.

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 three-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, we're excited about the many growth opportunities in front of us and remain focused on creating value for our stockholders.

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 two 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 in 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 facilitate 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.

Our growth in the U.S. mortgage industry builds on the same management tenets: trust, transparency and neutrality. Our mortgage software and network are open and impartial. ICE has been at the forefront of building a mortgage platform so that industry participants can better communicate with one another, reduce their costs, and pass these savings on to consumers in the form of better prices and appropriately implement the government's homeownership policies. And it is in this vein that we have agreed to acquire Black Knight to connect their market participants to ours, open up its platform, reduce cost per mortgage origination, overlay the safety and soundness practices that we've developed for businesses like the systemically important New York Stock Exchange and create new products and services for lenders to increase homeownership, including in underserved communities.

As a part of the budget that we previously guided you to, ICE plans a significant financial outlay to open and upgrade the Black Knight technology stack, a commitment that we believe would have been hard for Black Knight's other potential acquirers to make potentially in a contracting mortgage environment. This is the same strategy and commitment that we made when taking over the Mortgage Electronic Registrations System, which today has durable and scalable operations and technology built by ICE, systems that are prepared to manage the difficult risk environments in the U.S. housing market. And as shown on Slide 10, these MERS processes can identify and deregister failed lending firms who become zombies to borrowers and regulators.

You may have recently heard Sandra Thompson, the Federal Housing Finance Agency's Director, lamenting how stakeholders in the mortgage manufacturing process seemingly lack the will to adopt technology that changes their entrenched methods. This is precisely the challenge that ICE is focused on solving. With the explosive growth of the fintech industry over the last decade, the U.S. has seen a dramatic upsurge in the number of alternative home lenders and mortgage technology providers who, like ICE, are building solutions to benefit lenders and borrowers.

In terms of the energy complex, we manage even the energy segment as a portfolio. Despite all these headwinds, our energy business itself, open interest is up when you look across the entire business, is up 6% since the end of last year. We're proud that now more than ever, our clients are coming to us to manage their risk.

Our customers rely on our data, technology and liquid markets to navigate through this environment. In the third quarter, we once again grew revenues, grew adjusted operating income and grew adjusted earnings per share. These record-setting third quarter results against our extraordinary third quarter results of last year reflect the all-weather nature of our business model.

Our first question comes from Richard Repetto of Piper Sandler.

First, thank you for the comparison between the Mortgage Technology performance and unit originations. That's helpful. As we look closer, you have once again outperformed against unit originations. Can you provide a bit more detail on which areas are outperforming, like data analytics? We would expect that to be fully recurring, and it has been exceeding expectations. However, the others have remained flat, and we anticipate those to be completely variable. So the question is, what factors are contributing to your outperformance in unit originations, and which specific areas within mortgage are driving this?

Sure, it's Ben. As you can understand, our entire approach to this deal and our efforts in the mortgage sector are focused on a long-term vision of transforming one of the most traditional asset classes into a digital one. We believe this transformation will help us achieve an 8% to 10% growth over time. The key factors contributing to our success are our emphasis on product innovation and assisting our lender customers in reducing costs and increasing efficiency. Ultimately, our ability to excel is driven by a deliberate shift towards subscription revenue. Across all our segments, we are making significant efforts to transition a larger portion of our revenue in each reporting area towards subscriptions whenever possible.

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.

Sure. Sure, Rich. It's Ben again. And you alluded to it in the way that you asked the question around the way that we manage this business is from looking at the overall portfolio and we have a wide lens on this. In energy specifically, we've had some very positive developments. So our options contracts have done very, very well. Brent alone has seen options volume up 14% year-over-year. And part of the reason for that is that options contracts enable a trader to hedge a whole range of outcomes. It enables them an efficient way to manage geopolitical risks.

I'd like to spend some time on the old life business and the European rate complex. We've seen inflation in Europe in the highest rates in more than a decade. So maybe first, bring us back, what was the peak of revenue generation for the European rate business back when rates were much higher? And then do you think the opportunity here is bigger or smaller today for that franchise, given the underlying market?

When examining our rates business, we manage it as a portfolio. Specifically in the U.K. with Gilt and SONIA, there are two dynamics at play. Last year, both short sterling and SONIA were trading together, but this year, we are only seeing SONIA. This makes for a difficult comparison, especially since there was significant arbitrage occurring between the two. However, we are beginning to notice signs of market stabilization now that the environment has become more stable.

I have a couple of questions regarding the Fixed Income and Data business. The execution and clearing have shown strong activity this year. You mentioned higher rates. Are we seeing participation levels, customer growth, and other areas contributing, or are these primarily external factors providing a tailwind?

Dan, this is Lynn Martin. Thanks for the question. Volatility has certainly been beneficial for our execution business, with record levels of CDS clearing so far in 2022. What we're particularly excited about is the increase in activity on our ICE bond platform, driven by the ongoing Fed rate hikes, which have caused significant volatility in global fixed income markets. In fact, we’ve seen a nearly 200% increase in activity measured by volume in Q3 compared to last year’s Q3.

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.

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 due to shuttering or consolidating. But we're really in the beginning phases of what could be a long and challenging volume environment.

Thanks, Kyle. This is Ben. And we do feel confident in our ability to grow the business over the long-term horizon of that 8% to 10%. And I think this past quarter is a perfect example to point out. You had the market down year-over-year close to 60%. And sequentially, it was down north of 25%. So a very tough environment for clients. But we have wins in that environment.

In previous earnings presentations, we have discussed the demographic trends occurring in the United States. There is a significantly large group of people in this country who are starting new households, having children, getting married, and moving forward with their lives. This demographic trend, in some way, needs to be accommodated with housing.

Our next question comes from Ken Worthington of JPMorgan.

Our next question comes from Ken Worthington of JPMorgan.

Yes, what you're observing is that many of these systems haven't been implemented yet. For instance, gas oil is starting to be implemented, which is why I mentioned earlier that we are beginning to see open interest grow in the gas oil contract for 2023 and beyond.

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.

In the second quarter, approximately half of the increase in OTC and other categories was related to member interest. As we enter October, we are beginning to observe some normalization in collateral levels, but it remains challenging to predict the future trends.

Well, thank you, Charlie and thank you, everyone, for joining us this morning. I would really like to again thank my colleagues for delivering yet another record quarter and thank our customers for putting your faith in us during these very uncertain times. We appreciate your business. We look forward to updating you all again as we continue to execute on the opportunity set that we were able to talk to you about today. And with that, I hope you have a good day.

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