Good morning, and welcome to the Intercontinental Exchange Fourth Quarter 2018 Earnings Conference Call. All participants will be in 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 Warren Gardiner, Vice President of Investor Relations. Please go ahead.

Good morning. ICE's fourth quarter 2018 earnings release and presentation can be found in the Investors section of the theice.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 2018 Form 10-K, which we filed this morning. In our earnings supplement, we refer to certain non-GAAP measures including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, organic data revenue, free cash flow and EBITDA. We believe our non-GAAP measures are more effective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP terms in the earnings materials and explanation of why we deem this information to be meaningful; as well as how management uses these measures in our Form 10-K. 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. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. Also, with us on the call today are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Ben Jackson, our President. I'll now turn the call over to Scott.

Thanks, Warren. Good morning, everyone, and thank you for joining us today. I'll begin on slide 4 with some of the key highlights from our record fourth quarter performance. ICE's consolidated fourth quarter net revenues increased 14% year-over-year to a record $1.3 billion. Trading and clearing net revenues were a record $657 million and data and listings revenues totaled a record $651 million underpinned by organic constant currency growth of 6%. Adjusted operating expenses totaled $553 million in the quarter. Our fourth quarter expenses included a $5 million increase in our performance-related compensation reflecting the strong end to a good year. In addition, the quarter included around $3 million related to organizational restructuring and a few million dollars of non-recurring items. These items weren't contemplated in our original guidance and aren't expected to be recurring. Continuing with our fourth quarter highlights, adjusted operating income grew 14% year-over-year and we delivered record adjusted earnings per share of $0.94, a 25% increase versus the fourth quarter of 2017. Importantly, that strong earnings growth combined with reduced CapEx spend generated record free cash flow of $2.3 billion, up 32% versus the prior year. I'll discuss the way we put that cash to work on slide 5. During the fourth quarter, we deployed the remaining $140 million of our 2018 $1.2 billion repurchase authorization. When combined with the $555 million in dividends we paid, the capital return to shareholders during 2018 totaled nearly $1.8 billion. That record capital return is 23% higher than last year and nearly double what we returned just a few years ago. We did all of this while maintaining our target leverage and investing over $1 billion in strategic initiatives including fixed income, mortgages and along with our partners the launch of Bakkt. The strong cash generation of our business…

Thank you, Scott, and good morning to everyone on the call. Let me begin on slide 9. We're pleased to report what was the best year in ICE's history and that marks our 13th consecutive year of record revenues and record adjusted earnings per share. Our track record of growth is a testament to the strategic approach that we've taken since our inception to build a globally diverse platform that enhances our customers' workflows using technology to bring efficiency, transparency and reliability to markets. In our futures markets, we're strategically positioned in major market centers around the world with six simple clearing houses across North America, the U.K., Europe and Asia. It's a footprint that gives our customers choice, helps insulate us from regulatory and political risk and provides a platform for product development that enables us to swiftly capitalize on growth opportunities as they emerge around the world. Our exchanges and clearing houses operate on common technology, providing our markets with the flexibility to move jurisdictions if desired often as quickly as over a weekend. These markets run on proprietary technology, designed to meet the comprehensive workflow needs of a wide range of market participants. On top of this technology and our global distribution are the critical benchmark contracts that traders investors and commercial participants rely upon to manage their every day risks. In our oil markets, Brent crude is the global benchmark for nearly two-thirds of the internationally traded oil that moves around the world each day. Once again, Brent generated record revenues in 2018 and it remains a cornerstone of our energy product development as well as for customer acquisition and retention in our energy business. Brent's relevance to our oil complex is complimented by our Gasoil contract. Gasoil's been one of the fastest-growing energy benchmarks with…

[Operator Instructions] The first question will come from Rich Repetto of Sandler O'Neill. Please go ahead.

Hi. Good morning, Jeff. Good morning, Scott. I guess, my question's going to be a broad question on some of the external sort of forces you're bumping into both in Europe and the U.S. And I guess, in Europe when you look at Brexit, Jeff, you mentioned some of the benefits that people are needing to hedge more, but could you overall give us a recap of where do you think you stand on Brexit? There's this issue of I know the tax on commodities potentially being forced by the EU. And then in the U.S., the external forces where these ideas of compete -- new competing exchange as well as the scrutiny on data, do you think that that -- we can move on beyond that? Or what points would you highlight to investors in those areas?

Well, welcome to my world, Rich. You basically asked me to describe my job. So let's start with Brexit. First of all, as you've mentioned, unfortunately, we benefit from Brexit because the volatility that government actions impose on companies force them to manage their risk and we're in the risk management business. So there's really an overarching positive impact on our revenues and income. That said, as you know we've long felt that we shouldn't consolidate all our businesses geographically. And we have a trading and clearing operation in the U.K. and we also have a trading and clearing operation in the EU. And we put both of them on common technologies, so that we have to move "business" around. It's really just a database move inside of our company and not a physical move. And as I mentioned in my prepared remarks that's something we can do over a weekend. That said, there's a lot of political back and forth going on including now revisiting tax issues. On the tax issues specifically, this has been going on for over a decade. It's remanded to the courts now, the EU courts. In 21 months or so, the U.K. theoretically is no longer bound by the EU courts. So I don't know that it's going -- and this is going to have any practical impact other than another negotiating ploy that's going on over a complicated relationship between the U.K. and the EU as it relates to Brexit. It's something that we -- everybody and our whole industry has lived with forever, but ICE has always maintained the optionality to move contracts and to locate business where our customers want to be. And if certain things would have to move or be relocated in order to map and minimize the impact…

The next question will come from Ken Worthington of JPMorgan. Please go ahead.

Hi, good morning. On the data side, your ASV is up 6%. Your revenue guide for 2019 is up 3.5% to a little under 6%. Can you help us bridge the gap between the two? Clearly, FX is a part, but I think some of the inflation Scott gave show that it was really a small part. So what are the other factors in the gap between ASV and the data revenue guide? And is BAML -- where is BAML in these figures now on the organic side? And where is it not?

So, Ken first of all the guidance range we gave constant currency is roughly 4% to 6% year-over-year, so just to take any concerns or questions out regarding what a constant currency guide is in those dollar terms. If you think about ASV at 6%, if you remember that's 90% of our revenue. As I said in my prepared remarks, in 2018 our overall data business grew 5%. Our ASV revenue grew 6%. And so the elements that aren't inside ASV things like NMS, session fees et cetera haven't been and we don't expect will become big growth drivers in the overall business. So I actually think, if you take the absolute value ASV and you consider it as 90% of our revenue, it gives you -- it pushes you right into the middle of our range. So I feel like we're set up very well to deliver another year of solid growth in the data business. The mix of that's going to look a little different. The Pricing & Analytics business as I mentioned is moved up from 4.5% to over 5% to 6.5% and I think it's headed to 7% this year. Connectivity on the other side capacity growth has been tremendous over the last couple of years. I think that will likely slow a little bit this year as customers consume that capacity. But again you're seeing that content coming through the additional capacity in Pricing and Analytics grow. But connectivity itself is likely to be closer to a 1% to 2% growth. And then exchange data is going to be in the middle of those two with our futures and exchange data continuing to be in strong demand, some additional value capture from oil products that we were able to add to our energy packages. And so overall I feel like 2019 sets up to be a very good year and I actually think the ASV aligns perfectly with what the guidance suggests.

The next question will come from Dan Fannon of Jefferies. Please go ahead.

Thanks. Good morning One more question on the data. Just looking back at your -- the pie chart from the investor data broke down the mid to high-single-digit growth and the components of that. Can you talk about the breakdown between pricing new customers incremental consumption kind of those -- the various buckets that you would outline and how that fits today as you look at 2019 where we're looking pretty much squarely like a mid-single-digit number versus that mid to high?

Yeah, thanks for the question. So the interesting thing about that model is there are parts of the business where as you look at 2019 expectation it fits perfectly. There's a very good balance in the Pricing and Analytics business, which I just said I think is going to go around 7% for the year. New products, your reference data products, indices -- by the way Ken the answer to your question is the Bank of America Merrill Lynch indices are fully organic this year. Everything is, because there weren't data acquisitions last year. So all our growth in 2019 will be organic. But we've got new products that are driving growth, new customers; the MiFID II introduced us to a lot of small and medium-sized European customers who are now buying the breadth of our products not just things like the liquidity indicator that solved an existing need. Existing customers buying more of those MiFID II products that really drove great growth in Europe that you'll look at the back of the slide and see that our mix to Europe has actually moved back to 20% where it was 21%, 22%, back when we had trade dipped below 20% now it's back. Those new customers buying more but then those new products existing customers in the U.S. are buying, because they need liquidity indicators and best execution indicators. And so that's driving growth. And then again we are seeing a contribution from price. I'll note one thing in that model if you pull it out; it included roughly a point of growth from M&A. And we don't have that this year. If you look back over the last couple of years and exclude the businesses we divested our inorganic growth if you will was close to 7%. So I look at 2019 as a year where we're going to deliver very solid growth with the 10% element that relates to M&A not present at all and then a very strong balance across pricing, across new customers, across new products et cetera in a fairly even contribution again inside Pricing and Analytics. If you look at exchange data that really is our existing customers buying more on the future side, and growth in the number of customers consuming those products. And on the connectivity side, even though I think it will slow versus where it was, we continue to see capacity growth, which again is existing customers buying more with in fact an actual price reduction there because as they buy the larger ports, the actual price per gig comes down a little bit. So it mixes across the elements, but I think that revenue model is still very indicative other than again in 2019, we don't have the point contribution from M&A.

The next question will come from Alex Blostein of Goldman Sachs. Please go ahead.

Hey guys, good morning. Just a question around the -- I guess just thinking of the business. So maybe get an update on initiatives you guys have lined up for 2019 and credit trading on the back of the platforms that you purchased. I think on the last call maybe the call before that you talked about that being call it $100-ish million kind of trading annual run rate. Where does that stand today? And what are some things you guys are working on to get that going higher?

Let me have Ben Jackson answer that for you.

Thanks Alex. So our platforms had a very strong Q4 when you look at TMC and BondPoint. As a lot of you know, volatility came back to U.S. corporates and munis in the fourth quarter and we were a beneficiary of that where volume on BondPoint and TMC was up over 9% over the prior quarter and 20% over the prior year. And in notional terms, what was traded we were up 12% over the prior quarter and 50% over the prior year. And note that I was highlighting there that notional is greater than volume which means the average trade size is also increasing on the platform. So one of the things I've talked about on prior calls is that OddBot trading, so trades of north of 100 bonds per trade has continued to increase. And last year, we saw a BondPoint, a 50% increase on an annual basis of OddBot trading and 23% increase on TMC. The other thing I'd highlight is you've got to remember we've owned these platforms for a short period of time. So BondPoint, we've had for about a year; TMC about six months. And our integration effort is well underway. Just in the last few weeks, we've combined our business and technology teams across TMC, BondPoint, Creditex into one team, now called ICE bonds. And we're executing with a single-mission, direction, leveraging technology across the group for efficiencies and scales. So we're starting to realize some of what I have mentioned on prior calls is getting the operating income of those businesses in line with where we see our other trading businesses. The only thing I'd say is, you've got to take a step back because buying those businesses wasn't about just fixed-income execution and isolation, it's really about providing our customers a…

The next question will come from Michael Carrier of Bank of America. Please go ahead.

Thanks, good morning. Scott just on the on some of the guidance on the expenses just in terms of - like some of the buckets that you gave just anywhere like $30 million, $35 million on tech investment for new growth and then the $20 million, $25 million on Bakkt just wanted to get your sense on like what are those maybe initiatives? What are the expected returns or like revenue growth associated with some of those expenses whether it's a 2019 or further out?

Yes. So it's a good question. And hopefully you found the guidance pretty consistent with what we've done in prior years. And as I look at kind of the average expectation, I think they're -- in terms of 2019 expense, I think they're pretty consistent as well with two adjustments. And I think right now you guys on average are expecting us to be around 21.60, 55 or 60. We told you that we went to work on the businesses we acquired last year and I've already taken out $15 million of costs there which if you would just use the run rate would be new news. And then additionally as you point out, we did note that we would be investing based on our first quarter run rate $20 million to $25 million. And I said we'd keep you updated on that as we move through the year. Specifically with regards to the revenue and the technology investments, I think those will continue to support revenue growth that likely overall is going to be in kind of that mid-single-digit range in total. That's all subject to volatility. But I definitely think those investments just as they did in 2017 and 2018 will support continued revenue growth. I think Bakkt is really an investment and I'll hand it over to Jeff to talk a little bit about it. That's more about the future and revenue and market opportunities that we see in the future and less about 2019 topline.

Yes. Bakkt is a unique structure for us and that we've actually set it up as a separate company with a separate name, its own management team and separate capitalization. So right now ICE is the majority investor in the company, I expect that we'll do other rounds of financing. We'll make a decision as it goes forward whether we stay majority or allow it to spin three of us. We believe that what ICE has if you step back and look at us is, we have obviously trading clearing. We have settlement capabilities, warehouse and custody management capabilities, large treasury operations, banking connectivity and a global infrastructure that is in many, many jurisdictions -- regulatory distinctions around the world with a massive cyber overlay. That infrastructure has attracted a lot of very, very interesting companies that have come -- some that have invested in Bakkt, some are just working with Bakkt to try to tap into that infrastructure for some new use cases that will involve blockchain and digital assets and other things that we can provide these people. Obviously, we've announced the Starbucks -- our work with Starbucks and Microsoft. We have very, very large retail franchises global connectivity to end users that we hope will be brought into that ecosystem and could create a very, very valuable company out of that initiative if our business plan plays out. So it's a bit of a moonshot bet and it's been organized in a manner that is very different than the way ICE typically does businesses. Bakkt has its own offices, its own management team and et cetera. And then we've entered into agreements with it to provide services, as I've described over that Bakkt -- over that ICE overlay. So we'll see how it goes. They're well along in building out an infrastructure that I think you'll see launch later this year. And I'll let Bakkt talk more about how it wants to go about an what the business and use cases are its revenue model, et cetera, as it unfolds.

Yes. And then the other only thing I'd add is in addition to separate teams, separate office it's separately funded. We and our partners have put cash aside to fund this business. And so while it won't generate revenue in the current year, it also doesn't impact our leverage that's already funded. It doesn't impact our capital returns. We increased the dividend 15%. We've already bought back over $115 million of shares in the quarter. And so it is funded in a sense, even though it's incremental expense on top of what you would have anticipated it is funded by cash that we and our partners have already put aside.

The next question will come from Kyle Voigt of KBW. Please go ahead.

Hi. Good morning. Just one on M&A. Over the past few years, more of the M&A for ICE has been targeted on deals that are more bolt-on in nature. So I guess my questions really on the large-scale M&A and the exchange space. I think you've previously cited uncertainty around Brexit, uncertainty more broadly about the regulatory environment as an impediment to that occurring in the future along with the political environment, but it seems that we've gotten some clarity at least on the Brexit side for clearing, right? Can you give us an update on whether you still see the regulatory environment and this uncertainty more broadly as an impediment to large scale M&A in the sector? Thank you.

I think your -- the sort of leading aspect to your question I think is correct is that things are clearing up from a regulatory standpoint, from a market structure standpoint. People have the large exchange groups have sort of stepped their footprints and it becomes more obvious where other acquisitions should flow in my mind. In our industry, we've seen obviously the formation of large exchange groups like ICE and our peers. We've also seen a consolidation in traders particularly high-frequency trading has consolidated and we've seen a consolidation in brokers. Order flow tends to go to a more limited number. The MiFID impact of providing analysis and analytics in your space has concentrated people. So we've been seeing a concentration across the entire financial services market that we serve. You could sort of date in there as well a number of large data companies formed up. So I do think that there will be continued M&A in our space and maybe more obvious as to where these large companies will touch one another. That said M&A for us have to be disciplined. We've done a lot of M&A that's been opportunistic. Large M&A has been opportunistic when it's been obvious that we should get together with somebody. That's set into our model that -- where we target returns above our cost of capital and make sure that these deals work with shareholders. And as you know we've been very disciplined on our synergy cases and we hold ourselves to high regard to deliver the synergies that we promised. And so M&A is not easy as companies get larger. But all that said, I do believe that some of the impediments are clearing.

Yes. And just in the event -- you missed it on my first slide to validate Jeff's point on the financial discipline that we've executed on our past deals, our return on invested capital is now back to 9%. In total, it's 300 basis points above our cost of capital. And if you look at kind of outside IDC, it would've been back at 10%. And so when we say we're committed to doing deals that generate 10% returns, you see it in the results on our overall return on invested capital, which, again, as Jeff said, is that capital base has grown moving that made will continuously higher which we've done requires us to continue to grow profit which we've done.

The next question will come from Ben Herbert of Citi. Please go ahead.

Hi, good morning. Thanks for taking the question. Just wanted to go back to the data and particularly, Pricing and Analytics. Just within fixed income, how do you feel positioned to continue to accelerate growth there? I mean could we see more of that as you further integrate the ecosystem you've built? Or I know you gave the M&A guidance for 2019, but I mean is there an opportunity do you think to be a bit more acquisitive in the fixed-income side? Thanks.

Hi, Ben, it's Ben. I think one of the place I'd start with is some of the commentary that I've mentioned before in that our strategy when we've looked at fixed income is we took a different approach to it than many others where we looked at what is the comprehensive solution that people need to solve the real issues in fixed income. Issues like how do I get a fair price? How do I figure out for someone that doesn't trade all that often, what is the price of that instrument? How do I keep on top of all of the vast ocean of reference data I need to understand in trading that? How do I find people that when I identify a trade I want to do? How do I find somebody that has inventory that indeed wants to trade? And then on the execution side being able to offer a number of different protocols for someone to execute. The thing I'd highlight that really pulled -- that I think is a good sign that we're heading down the right path year is that ETF hub project that I mentioned because it really -- in order to deliver that you have to have all those pieces and we're uniquely positioned to do that. And when you think about it, for the first time later this year when we launch the ETF hub, again, one of the hottest areas of growth in the fixed income market. For the first time if you're an authorized participant or a market maker and you want to create or redeem a share of an ETF, you're going to be able to, for the first time, connect to a single portal. And in that single portal, you'll be able to connect to multiple issuers…

The next question will come from Brian Bedell of Deutsche Bank. Please go ahead.

Great. Thanks very much. Just Scott, on the data revenue guidance, on the constant currency basis from 4% to 6%, what do you see as the biggest drivers between the difference of the 4% to 6%? Is it mostly in pricing or actually new customers? And then, if I could just ask one -- a couple of timing questions. Just on Ben, I think you said launching the RFQ and ETF hub later this year, when you think that might start contributing from a revenue perspective, if that's later this year or 2020. And then just one on timing of NYMEX development Jeff, thanks for your answer. Prior on that, do you think that is -- the members exchange is something that actually gets up in running and can begin to affect the markets later this year? Or is that more of a 2020 type of event?

Yes. So I'll start. I think there were three questions embedded in there. The 4% to 6% look I went into last year and I gave you guys a fairly tight data guidance and said we have good visibility into it, which I still believe is the case. But I think that got interpreted to something like 99.5% certainty in February. And so the range is a little wider this year just acknowledging what happened in 2018. There were some places where we had some erosion that we didn't expect on the downside in the desktop business some audits that we didn't anticipate in certain quarters as we move through the year. And so the reality is that all of those things worked out to a year where we grew the business 5%. And as I mentioned, ASV revenues actually grew 6%. But there were some churn that ran through the stock because the $2 million or $3 million difference in any given quarter and a $15 million or $20 million difference on $2 billion of revenue for the year. And so I thought it was prudent to try and take some of the volatility out around people who are trying to guess that $1 million on $500 million in the quarter. As I said on the call, I feel very confident that if you look at the ASV number that's going to point you right to the middle of our range. And then inside that, it's going to be driven by growth in Pricing & Analytics. So Ben's laid out a very compelling case for our overall fixed-income investment. But that's a bit -- that is effectively the IDC business that used to grow 2% to 3%. And I'm telling you it's going to grow two-and-a-half times faster than that just a few years later. And the ASV supports that and there's a lot of momentum in the products that we've got. So I feel very good about the business. I think the only thing you should interpret in the widening of the range is, just a little bit more, hey, yes, it could be plus or minus 1% versus plus or minus 0.5% last year.

And, Brian, I'll pick up on the RFQ, ETF hub questions that you had. So on RFQ, we have that capability now. So in your question you said, is that going to be coming later this year? You have to remember, from being a long-time exchange, clearinghouse market operator in a number of different asset classes, we have expertise in the RFQ auction space in many of our markets. So we leverage a lot of that expertise and we're able to get those RFQ capabilities established on both BondPoint and TMC very rapidly. So that capability and functionality is there now. And now it's about leveraging our network and our distribution capabilities to get that out, which we're very well able to do as we have brought those businesses together with our Creditex business, that I've mentioned, and also leveraging all of the touch points we have in the fixed-income community through our ICE Data Services business. For the ETF hub, that will launch later this year. That's our targeted time frame with our steering committee. We have completed the requirements definition around that. We have the design well underway. We have most of the major issuers that are onboard, helping us with this, as well as the major APs and market-makers that are helping and assisting with that design. And that has enabled us to really lock that down and now we're looking at later this year. So you'll see contribution on this. We're targeting 2020.

And lastly, on the members exchange. I guess, I'm not aware that there's management or anybody working on anything, but that's really not their obligation to discuss it with us. But that said, if I was in their position, if I wanted to get the market fast, I'd probably just copy verbatim somebody else's rule book. And probably there's a one year-ish process, one maybe two. Of course, if I copy somebody else's rule book, it doesn't give you anything that's unique that exists. And I would suspect that there's going to be a lot of scrutiny around the very issue that many pundits are talking about which is -- are the members going to try to bias their business towards the exchange, rather than seek the best price for their customers in the marketplace. And that come along way in the last few years in terms of disclosure and audit ability of that behavior. But it's not completely done yet. So I suspect there'll be a fair amount of conversation and review of just how is order flow intended to be routed. All that said, nothing moves fast in the regulatory world. And I can tell you that I'm watching Bakkt try to stand up its regulatory footprint. And things are not moving necessarily fast right now in the United States.

The last question for today will come from Chris Allen of Compass Point. Please go ahead.

Good morning, guys. I think most of my questions have gone answered. I just had a quick numbers question. Just on the other revenues, which are boosted by $5 million in fines in 3Q, up sequentially again in 4Q. I'm just kind of wondering what's been driving that over the course of the year and kind of the outlook there?

So the other revenue Chris is where we've got the revenues associated actually with the interest we earned on our clearing house deposit. And so as the fed has moved rates up and the balances have grown and they tend to grow at year-end people like to part cash at our clearing houses at year-end. That's what drove it up. And so depending on what the rate environment is as we move through 2019, you could see a similar dynamic. If rates were constant, it will all correlate to the actual levels of collateral, cash collateral specifically that to some that's held at our clearing house. Nothing, more than that.

This concludes our question-and-answer session. I would now like to turn the conference back over to Jeff Sprecher for any closing remarks.

Thank you, Kerry. Thank you all for joining us on the call and we look forward to really a guided up-year again for 2019, and we'll talk to you in the next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.