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.

Good morning. ICE's third quarter 2022 earnings release and presentation can be found in the Investors section of the ice.com. These items will be archived and our call will be available for replay. Today's call may contain forward-looking statements. These statements which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 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 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…

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 with 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 the 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 versus our peers. Finally, although our European carbon markets are seeing headwinds due to the aforementioned factors, we continue to see growth…

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: 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…

[Operator Instructions] Our first question comes from Richard Repetto of Piper Sandler.

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?

Sure. Rich, it's Ben. So as you can appreciate, our whole hypothesis on this deal and what we've been doing in the mortgage space is all directed towards a long-term view of taking one of the most analog asset classes that there are and turning it digital. And that's what we believe over the long term, it will enable us to achieve that 8% to 10% growth. And the contributors underneath that are really -- we're very focused on product innovation and in particular, helping our lender customers, lower cost become more efficient. And as we do that, we're hoping that the savings that those lenders achieve are then brought down to their clients, the end consumer and will translate into better selection. It will help to lower cost for the end consumer. It will help enable them to get the best products at the most efficient prices to meet their needs and achieve the dream of homeownership. So that's from a long-term perspective what our focus has been and where we're making our investments. Overall, what's driving our ability to beat is the intentional shift towards subscription revenue. So if you look across each of the segments that we have, we're pushing very hard to move more and more of the revenue in each of those reporting segments more towards subscription when we can. And one of the things I'll highlight in terms of success this last quarter, even with all the headwinds that the industry has had, 2/3 of the customers that renewed in the third quarter renewed at higher subscription base levels by the end of that quarter than they were at, at the beginning of the quarter. The other thing I'd say is that it is -- it has been a difficult environment. It has been…

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?

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. And we pride ourselves in having the deepest and most liquid futures markets to enable our customers to manage risk across the energy spectrum, also in the global rates environment. We manage our business as an overall portfolio and that's the nature of that all-weather aspect of our stock. In energy specifically which is where you were going, we manage even the energy segment as a portfolio. And we're proud to say that 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. And this is in the backdrop of a confluence of all kinds of issues that the world is dealing with right now. You have this unfortunate war. You have on-and-off lockdowns in China. You have a push to move towards cleaner energy sources. You have underinvestment in energy infrastructure. You have major releases from the strategic petroleum reserve, all rearing their head at the same time. And we're proud that now more than ever, our clients are coming to us to manage their risk. And I'll touch on a couple of areas within energy. And you asked specifically about gas oil, so I'll touch on that as well. So broadly speaking, we positioned our business to help clients manage their transition towards a cleaner energy environment. That's why we have the most deep liquid markets around the globe in oil, natural gas, power, LNG and environmentals. In oil, we have seen some headwinds. You focused on gas…

Our next question comes from Ken Worthington of JPMorgan.

I'd like to spend a little 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? And then CME launched Ether futures, I think, earlier in the week which I think seems like your turf. So can you talk about the potential for investment in the rates business and product development? Do you think this is sort of an attractive use of resources? And what are you thinking from here?

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.

Okay. If you recall the size, is there a lot of opportunity to grow it versus what it was a decade ago? Or is that sort of the peak of what you think this can be?

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.

Our next question comes from Daniel Fannon of Jefferies.

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?

Dan, this is Lynn Martin. Thanks so much for the question. And absolutely, volatility has been a tailwind for the execution side of the business with record levels of CDS clearing so far in 2022. But what we're really -- we continue to be really excited about is the pickup of activity in our ICE bond platform where as a result of the continued Fed rate hikes, you've seen tremendous volatility in fixed income markets globally. And ICE bond is a beneficiary of some of that volatilities, particularly in our treasury, our muni, our corporate bond, our CD business where you've seen record levels of activity and volatility. In fact, activity measured on a volume perspective is almost 200% up in Q3 versus last Q3. A very important factor, though, is how we broaden out the participation in those platforms, particularly focused on institutional customers. And in Q3 alone, in our muni markets, you saw the levels of institutional participation grow by 192%. So that just continues on a trend that we've seen as a result of thinking about particularly the muni markets as an ecosystem and driving additional institutional participation across our platform.

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.

So Dan, this is Lynn again. I think I'll start off and then turn it over to Warren. Thanks for the follow-up question because I think what you're pointing to really illustrates how we build businesses to be all-weather businesses. We talked about the volatility in the markets being a significant tailwind for our execution side of the business but it's been a bit of a headwind for our fixed income data and analytics line, whereas Warren said in his prepared remarks, if you think about our index business, we've seen assets flow out of our higher capture indices, specifically equities, corporate bonds and munis. And assets flow into indices where we have a lower capture rate, specifically our treasury indices. In fact, if you look at the AUM benchmarked against our indices, it's actually at an all-time high. But the mix has significantly changed which impacts the revenue. And as Warren said, another headwind we're seeing that's affecting the fixed income data and analytics line is the new bond issuance which looked in fixed income this year. So that has impacted the growth rate of our legacy PRD business which has continued to grow albeit at a much slower rate. That said, volatility, again, has been a tailwind for the other part of our data services, particularly our other data services line where you see various factors increasing to what we believe is outsized growth in that line, including 22% increase in demand for capacity in our ICE Global Network as volatility continues to require customers to have reliable, resilient connectivity and higher bandwidth connectivity, double-digit growth in our consolidated feeds business, double-digit growth in our data analytics business which provides transparency to opaque asset classes and outsized growth in our desktop platform, specifically our chat platforms as ways that customers interact with our market continue to modernize.

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.

[Operator Instructions] Our next question comes from Kyle Voigt of KBW.

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?

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. And yet, as we approach them about shifting more of their -- the economic model that we have with them more towards subscription, even if it costs us some transaction revenue, they're willing to do that. And that's why we were able to get 2/3 of the customers to renew. And in this environment, low single-digit customers didn't renew. So I think that's a very good sign and a testament to the resiliency of the business but also the mission-critical nature of the technology that we provide. So from that standpoint, I see it all positive. The other thing that if you go back to the slide that Jeff referred to in his comments and you see what's happening with some of the churn and new lenders that are starting up, as some of these personnel are impacted, they're starting up new lending shops. And we're seeing growth in terms of new lenders this year. It's the population from that MERS graph that Jeff showed is higher than it was last year. So that is a testament that there's new startups coming up on the scene. As these folks start up, they want to adopt automation in the most efficient way to set up their businesses and we're well positioned to win that business albeit it's a competitive environment and we compete with others for that. But we have wins in that environment. So we expect some of that churn to continue. But where there's customers that potentially go out of business, there's also startups that happen on the back side of it.

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.

Understood. And in terms of follow-up, I just wanted to follow up on Dan's prior question just regarding the fixed income ASV growth decelerating to 4% in the quarter versus 5.5% last quarter. I appreciate the additional color on the index business and the headwinds that's facing. But just in terms of quantifying that, was that really the entirety of that kind of deceleration that we saw from 5.5% to 4%? Or were some of the other aspects that you mentioned also playing a role into that when we look sequentially?

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.

Our next question comes from Alex Kramm of UBS.

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.

Thank you, Alex. Yes, I think what you're seeing -- and I'll give a little more color on some of the things underneath this. But what you're seeing is that a lot of these regimes have not been put in place. So you've got -- and are put -- being put in place, for example, gas oil earlier. It's at the end of this year that those oil deliveries cannot happen. So you have some traders with comp month coming up right now and end of the year that just won't touch those contracts until this gets through. And that's why I also highlighted in the earlier question that we're starting to see open interest build '23 and beyond in the gas oil contract as an example. In natural gas, I think the things that I look at and that are encouraging to me is that when you look at our TTF business and you look at October of last year versus October of the month that just passed, the number of active market participants that we have in TTF is exactly the same. We haven't lost any market participants that are trading TTF. So that, to me, is a sign of longer-term strength in the business as the situation clears. We've also, at the same time, grown our data subscriptions in TTF double digits in that same period of time. So there's more eyeballs and more people paying attention to it. So from a longer-term perspective, we feel good about the positioning of these contracts. As I had mentioned, we're launching new contracts with those new basis gas locations in Italy, Germany and France as well as the Northwest Europe and Southwest Europe LNG contracts. Feedback from traders are all going to price relative to TTF. So we feel…

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.

Sure. So in terms of OTC and other, about -- if you look at the second quarter, about half of the increase would have been related to member interest. And I'll just say too, within -- not only just the CDS business but also within our clearinghouses, we're not trying to be a bank. The service we're providing is clearing and risk management and that's the value that we're providing to those customers. And so we're actually -- we're trying to lower collateral levels where we can. Ben mentioned pushing people or I should say, leading people towards the benefits of options. We're working on trying to expand the different types of collateral that we accepted such as with some of the emissions allowances. And so we are still -- we are starting to see a little bit of normalization in some of the collateral levels as we sit here in October but it's just difficult to predict where that's going to go. It certainly is a part of -- or a significant part of OTC and other but there are a lot of other elements to that line item as well. So it's been the driver of some of the growth we've seen but it's certainly not the vast majority, if you will, of the total line at the end of the day. And then the same would hold for the CDS business where, certainly, it's helped as we -- as collateral levels have built there. But we're also, as you would imagine, seeing really strong trading volumes across that business -- or clearing volumes across that businesses. As certainly as the headlines around recessions and interest rates continue to build, the demand for credit risk and credit protection is increasing alongside that. So that's been really a bigger driver of things over a longer period of time than anything else. And don't forget, too, that in the third quarter, that's a roll quarter as is the first quarter. So we benefit a little bit from that as well relative to maybe the second and fourth quarter in that business. The other area I would just point out to is if you go below the line, we're actually benefiting a little bit from the cash on hand in our -- the interest that we're earning on the bonds that we have -- or sorry, on the cash we have on hand. So there's a benefit of that from an interest rate perspective as well that's flowing through the income statement, in addition, of course, to the benefit we get on the future side from higher rates within Euribor and some of the U.K. interest rate businesses as well. So there's a number of different things across the platform, of course, as rates are rising that we're benefiting that may be offsetting some of the areas that tend to not do as well during higher rate environments.

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

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.