Hello, everyone and welcome to the ICE Third Quarter 2024 Earnings Conference Call and Webcast. My name is Lydia and I'll be your operator today. [Operator Instructions] I'll now hand you over to Katia Gonzalez, Manager of Investor Relations, to begin. Please go ahead.

Good morning. ICE's third quarter 2024 earnings release and presentation can be found in the Investors section of ice.com. These items will be archived and our call will be available for replay. 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 2023 Form 10-K, 2024 third quarter Form 10-Q and other filings with the SEC. 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 prevailing 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; Stuart Williams, Chief Operating Officer; Lynn Martin, President of the NYSE; and Chris Edmonds, President of Fixed Income and Data Services. I'll now turn the call over to Jeff.

Thank you, Katia. Good morning, everyone and thank you for joining us. Ben Jackson is not able to join today's call as he's recovering from a successful knee surgery. Our Chief Operating Officer, Stuart Williams, is in the room with us today. Ben plans to be back in a few days' time. Let's start by turning our call over to Warren.

Thanks, Jeff. Good morning, everyone and thank you for joining us today. I'll begin on Slide 4 with a summary of our record third quarter results. Third quarter net revenues totaled a record $2.3 billion, including record transaction revenues of $1.1 billion and record recurring revenues of $1.2 billion. Pro forma for the acquisition of Black Knight, total revenue increased by 7% versus last year and is up 6% through the first 3 quarters of 2024. Third quarter adjusted operating expenses totaled $960 million, up 1% year-over-year on a pro forma basis. As a result of this strong performance, adjusted pro forma operating income increased by 12% versus the prior year, reaching a record $1.4 billion with adjusted earnings per share totaling a record $1.55. Moving to the balance sheet, we reduced debt outstanding by approximately $600 million during the quarter, ending the period with adjusted leverage of approximately 3.5x EBITDA. Before I move to our segment results, I will note a few guidance items. As we look to the fourth quarter, we expect OTC and other revenue to be in the range of $75 million to $80 million as the third quarter benefited from several items we do not anticipate will repeat. In addition and similar to last year, in light of the strong performance in our cash equities business where revenues are up 15% year-to-date, we are providing customers with a regulatory fee holiday which we expect will reduce OTC and other revenues by $15 million to $20 million in the fourth quarter. Shifting to expenses, we expect fourth quarter adjusted operating expenses to be in the range of $977 million to $987 million, including approximately $10 million to $15 million of items that we also do not expect will repeat. Lastly, full year CapEx is now expected…

Thank you, Warren and thank you all for joining us this morning. Please turn to Slide 8. For over 2 decades, we've worked closely with our customers to develop a network of diverse liquid and globally interconnected energy markets. This network provides the critical feedback loop required to solve near-term supply and demand imbalances and the long-term price signals needed to efficiently allocate capital investment to meet forward-looking demand. Today, our customers across the globe leverage our markets to help balance the demands of energy security, affordability and sustainability while allocating the capital necessary to meet rising energy demands critical to economic growth and managing the risks associated with a complex geopolitical environment. The breadth and depth of our global platform not only drove another record quarter across our energy complex but importantly, it positions us to capture secular tailwinds, including the globalization of natural gas and the clean energy transition, trends we began investing in over a decade ago. Through constant reinvention and innovation, Brent has firmly established itself as the global benchmark for crude oil, pricing roughly 3/4 of the world's internationally traded crude and from which prices are discovered in the U.S. Gulf Coast via ICE's Midland WTI Futures market and in the Middle East and Asia via ICE's Murban and Dubai futures markets. Reflecting this dynamic, volume in our global oil complex increased 17% year-over-year. This strong performance includes records across Brent, WTI, Midland WTI and Murban and contributed to record oil revenues which grew 16% in the quarter. These strong trends have continued into October with record total oil open interest up 28% and Brent options up 68 -- 86% year-over-year. These critical pricing relationships extend to refined oil products where ICE's low sulfur gas oil markets similarly anchors price discovery for refined products globally…

Thank you, Stuart. Please now turn to Slide 9. Operating marketplaces with strong network effects is a core expertise at ICE. Today, we do so across an array of asset classes, geographies and customer types. In the U.S. home mortgage market, we're following the proven playbook that we've applied across other asset classes. We're leveraging leading technology, mission-critical data and our network expertise to build innovative solutions that improve workflow efficiencies and connect market participants to one another. With a touch point to nearly every market participant in the U.S. mortgage space, we have connectivity to a customer base in need of the automation that our digital network provides for. September marked our 1-year anniversary since we closed on the acquisition of Black Knight. So I thought it would be appropriate to give you an update on how this company and its technologies have been integrated into our network. By adding Black Knight's servicing technology with its over 100 servicing clients and robust data and analytics to our network, ICE assembled a true life-of-loan offering that spans from the point of consumer acquisition all the way through to the secondary capital markets. We organized once-disparate assets into a unified network that communicates seamlessly from end to end. The construction of a mortgage can begin with our industry-leading customer engagement suite. We brought together Ellie Mae's Velocify and Consumer Connect platforms and married them to Black Knight's marketing automation solution called Surefire, tying together the pieces required for a complete customer engagement suite. Surefire leverages data to create effective marketing campaigns, nurtures them to the mortgage application and educates and informs borrowers throughout the funding process. Additionally, this platform provides direct channel outreach after the loan closing to help capture repeat business. Velocify is a sales automation solution that enables loan…

[Operator Instructions] Our first question today comes from Alex Kramm with UBS.

I'm just going to start with an unanswerable question, I think, as I think about the energy business. As we think about the end of the year and into 2025, obviously, a lot of detail here in terms of the structural opportunities. And clearly, that's reflected in the open interest growth that we've seen and, obviously, volumes this year, too. But look, clearly, it's been a solid environment as well from a trading perspective, in particular, in the fourth quarter with some of the volatility we've seen from the Middle East. So clearly, there's been some beta help here as well. So I'm just wondering, I know it's very difficult, if you can separate the alpha and the beta a little bit and how you think about that heading into 2025, what's repeatable and where are you a little bit worried that the trading environment may not be as good? I know it's a lengthy question.

Alex, this is Jeff. And since that's an unanswerable question, let's put the new guy on it and ask Stuart if he can handle it.

Thanks, Jeff and thanks, Alex, for the question. It is a great question. Perhaps the way to think about this and I think you picked up on a really important point there, Alex, when you referenced open interest. So as unanswerable as it might be, open interest is always a good indicator of future volume because this is -- these are positions being placed by real market participants. And those positions will need to be managed in the future as markets evolve. But the other way we think about this is that there is a linkage between the geopolitical events which you referenced in your question which do create short-term volatility but which also creates often new supply chains which then will leverage other parts of that matrix product setup that we've got which spans energy types and geography and the environmental markets. So just giving you an example of that, one of the things we saw after Europe's efforts to remove Russian hydrocarbons from its supply chain, we saw new supply routes coming from the Middle East up into Europe which we've never foreseen when we first set up ICE Futures Abu Dhabi but that's what happened. And so what we find is a lot of these geopolitical events create different supply chain opportunities which continue to drive growth in different parts of our energy markets. The focus that we've had over the last 20 years, though, has been to create that network of markets that provides a pricing point at each geography, energy type and environmental touch point so that whatever happens, whether it's geopolitical, whether it's supply chain changes, however the market evolves, we have the opportunity to provide that tool to our customers and can benefit off the back of that. The other point I would make, just in closing the answer, is we're very clearly at an inflection point where the growth we've seen over the last 20 years in absolute energy consumption is set to continue. About 80% of the world's population lives in non-OECD countries which, on average, on a per capita basis, only uses 1/3 of the energy of the equivalent people living in OECD countries. Put differently, energy consumption could well double over the next 25 years according to many economists. And a lot of that is going to be in places in the developing world where contracts like JKM and TTF and Brent and Dubai and Murban are critical in managing price risks around those areas. So we feel pretty good about the opportunity ahead of us. But as you say, it's pretty difficult to quantify that.

Our next question comes from Craig Siegenthaler with Bank of America.

We had a question on the new partnership between ICE Bonds and MarketAxess. So how will this partnership enhance your liquidity pool and client value proposition? And will we see it translate into stronger market share trends? If I could just squeeze one more in. Could this lead down the road to a closer relationship with MarketAxess ranging from a full acquisition or a strategic minority equity investment?

Craig, it's Chris Edmonds. Thanks for the question. I probably will avoid the second one you asked. But look, the partnership with MarketAxess, it really gives us an opportunity where we have a very unique client base that is different than the MarketAxess traditional client base. But there are different pools of liquidity because of what they represent. And so this gives the -- this combination gives us the ability for all of our clients to make sure they have access to the liquidity they're looking for. It's still early days but it has gone very well for both of us. We're both happy with it. I spoke with them yesterday. Things continue to progress in a positive way there. And we will look to add other instruments along the way as the market continues to evolve into the future. But like I said, I'll probably avoid the last question you asked there. Thanks.

Our next question comes from Ben Budish with Barclays.

I just wanted to dig in a little deeper to the fourth quarter IMT guidance. It looks like -- at least I know you tend to be a little bit more conservative than the MBA forecast but they show sort of an expected pickup between refis and purchases together. So just curious if you could kind of comment on that. And then, maybe could you perhaps remind us how should we be thinking about your overall sensitivity to pickup in transactions given there's a minimum component? Like how would you describe the current level of activity? Are most of your customers below that minimum level such that incremental transactions don't add as much? Like how should we sort of be thinking about that in Q4 and into next year?

Yes, Ben, it's a good question and thank you for it. So in terms of the first part of that question, so the fourth quarter guidance, as I said, it does assume some -- a slower purchase market. And when we see that in every fourth quarter, generally speaking, that trends off and that generally happens in the first quarter as well for what it's worth. It just the weather, frankly, at the end of the day and to people looking at houses and buying houses. So that's a typical pattern that we see. I think in terms of how that compares to what the MBA may be expecting, I don't know that that has really captured the sharper move higher in interest rates and mortgage rates over the last few weeks. So there may be a little bit more of an aggressive assumption on what refinancing may be looking like in that particular period. And so, we base -- what we're looking at is really what we're seeing on the application front and what we're seeing on the closed loan front in terms of what we can see in the next quarter or so. So I think it's a pretty good guide in terms of what one would expect for the quarter given where we're a month through here and it generally takes sort of 30, 60 days to close a loan. So those application volumes can be pretty indicative of what this quarter will look like. On your second question, yes, look, we still have a significant portion of the customers that are under their minimums today. But each quarter, that's getting better. And in fact, the third quarter was the best in 2 years or so, over 2 years and that's been steadily improving throughout this year. So not only does an improving loan market help that but so does the fact that we have actually been renewing some of these customers towards lower minimums as well. And so the bar, if you will, is a little bit lower. And so we've seen that transaction getting better the last few quarters, albeit still small and customers are crossing over their minimums with that being a big reason why it's improving. But we are -- that is a big reason why we are actually outperforming in terms of our transaction revenue relative to the market is some of those customers crossing over that minimum, not paying transaction fees in the prior period and now paying transaction fees. And I think as that market normalizes, you're going to see that continue.

Our next question comes from Dan Fannon with Jefferies.

So Warren, another question for you, just on expenses. So curious about the step-up into 4Q, kind of what's driving that? And then I know it's early but thinking about the building blocks for '25, if you can kind of give us the framework to think about maybe versus previous years. And also in the context of the mortgage business, if we do see a pickup in activity, the incremental margin of that business as we think about volumes starting to pick up more materially with rates changing as we go into next year.

Thanks, Dan. Good question. So as I noted, in terms of the fourth quarter, there's about $10 million to $15 million of onetime expenses that you'll want to take out of that in terms of thinking about a core run rate. Those one-times were several items really across different areas of the business unrelated that kind of hit all towards -- that we incurred, if you will, or realized we were going to incur towards the end of this quarter. So I think if you take that, you're probably down to $970 million or so versus the $960 million we had this quarter. And the difference there is going to be on the SG&A side to a degree. We did have a little bit lower marketing and customer acquisition costs in the third quarter that should pick up a bit in the fourth quarter, a little bit higher professional services fees as well that will come in next quarter -- or in the fourth quarter, I should say. So I think as you're thinking about next year, the $970 million, that's probably a good jumping off point and to annualize that, of course and then think about a similar framework that we've used in the past. We're going to invest in our people, we'll invest in the business, the technology and continue to do that as you've seen us do in the last number of years. So I think it's -- that will be a fair way to be thinking about it as we move into next year. We'll, of course, give you more granular guidance when we get there. On your second question on the incremental margins, you're 100% right. As the transaction backdrop improves and the market backdrop improves for loan originations, those are -- it's somewhat similar, if not entirely similar to what you would expect and see in our futures business or the New York Stock Exchange, where the transaction revenues have pretty high incremental margins on them. So that will certainly be a benefit to the segment margin and to the overall margin as that loan market normalizes.

Our next question comes from Chris Allen with Citi.

I wanted to circle back a little bit on energy. Kind of curious where you see pockets of opportunity from a customer perspective, whether it's customers overseas trading U.S. benchmarks or natural gas moving into the crude markets. And then I also wanted to ask about the sustainable aviation fuel market. There's been reports about energy majors investing in Brazil. And just given ICE's position in sugar and energy, it seems like a great opportunity. So wondering how you think about that from a market development opportunity set.

Chris, this is Stuart here. Thank you for the question. Starting with your question on the customer base, we're seeing, as you heard in my prepared remarks, we're seeing a significant increase and continued growth in our customer base. The participation in our markets, that's really 2 factors. We're seeing net new participants coming into our marketplace, particularly out in Asia as hedging strategies continue to mature out there. But we're also seeing participants pivot from markets they've been active in historically into new markets. So for example, people that have historically been trading a lot of Henry Hub on our very regular in our TTF market and getting involved there. In terms of how that mix evolves, more and more customers are having global exposures. One of the side effects of the globalization of gas is that gas players globally and particularly in the U.S., now that the U.S. is a major export of LNG, need to be cognizant of and have risks to manage in respect of prices, not just in the U.S. but globally. So we've got a lot of global producers in the U.S. that are now looking at both TTF numbers as well as Henry Hub numbers and indeed some of our basis numbers to figure out whether it's best to pipe that gas internally to whether it's for data center usage or other power usage in the U.S. or to export that in the form of LNG to whether it's Europe or Asia. So we're seeing a lot of our U.S. participants now actively trading and holding positions in markets like TTF and JKM. I think the other trend, just pivoting quickly to oil which has been very interesting, you'll recall that a few years ago, we set up a new market in the…

Our next question comes from Alex Blostein with Goldman Sachs.

Jeff, a little bit of a maybe bigger-picture mortgage question for you guys. Obviously, you talked a lot about the progress you're making in sort of integrating various parts of the mortgage network. It's always been an important part of the thesis for you guys, lots of work behind the team -- scenes, sorry, despite the fact that the environment obviously hasn't been particularly helpful here. So when do you expect all these efforts to show up in better revenue growth? So in other words, do we need to see a much better, broader industry volumes to sort of kind of like beta help? Or do you think some of these things could actually show up in better revenue trajectory into 2025 regardless of what industry volumes look like?

That's a good question. I tried to make a point in my prepared remarks that we really have moved to operating a network. And I made the point that every new market participant that joins the network makes the network more valuable to all the existing participants. And so that phenomenon is not really volume related. It's really helping others take costs out. And our expectation is that as we help reduce the cost of underwriting and placing a mortgage into the capital markets, that we'll participate in some of that benefit. Separately, Warren talks a lot about normalizing transaction volumes. And when we look at that, you can simply look over a decade before the COVID crisis or even back to year 2022 and you can see volumes that had they run through our platform would have contributed substantially to both the top and bottom line. So we do feel like there will be a mean reversion that will get to transactions. It's obviously hard to predict. But in the meantime, we're going to just keep driving that efficiency through the network.

The next question comes from Simon Clinch with Redburn Atlantic.

I wanted to actually ask a longer-term question just about the environmental markets, please. Perhaps you could -- could you frame the growth that we're seeing in terms of what the stages we're in, in terms of the emissions coverage of the schemes such as the European ETS? And then ultimately, how to think about the cadence of that growth as we move through the next 5 years? And then very long -- in the very long term, what -- how do we think about that market opportunity or that market existing in the point that we eventually get to net zero?

Thanks, Simon. Good question. The -- I think the way we're thinking about this from a macro perspective and I'll drill down into your specific question on the European ETS, carbon pricing, well, our view as market operators is that carbon pricing is going to be the most effective way to help channel investments that are needed in order to drive the complete reduction of carbon. And we've seen this very effectively play out in the U.K. as the U.K. drove coal out of its merit order using carbon pricing, the European Union on a similar kind of trajectory. So what we're seeing over the last couple of years is the dialogue around the importance of pricing carbon and more broadly environmental externalities is evolving. More governments, more policymakers are engaging with the subject and seeing the benefits of cap-and-trade systems which have been so successful in Europe and the U.K. and also in certain areas of the U.S. And so we are seeing more discussions around more coverage of carbon markets. And then within existing carbon markets, touching on your question on the European ETS, we're seeing the broadening of the coverage of those carbon markets. So only about 40% of the European emissions was covered under the EU ETS. That is now being extended to 80% as the ETS extends to other parts of the industry like shipping and that sort of thing. So the underlying market, if you like, is expanding which is also driving additional volume there. And then, of course, the other nascent market in the space, if you think of the compliance markets as the one end of the spectrum, on the other end, the so-called voluntary carbon markets or the carbon credit markets is another area where we continue to see discussions. Market structure there, again, is still very nascent. But what we've been working on in the meantime is putting in place a number of the building blocks that will be required for that market to scale, if it is ever going to scale, things like reference data. So we've got a product called ICE CRED which normalizes and standardizes all of the reference data that's available across the carbon credit landscape. That reference data is now available in ICE Chat where we're seeing a lot of the transaction activity, really OTC bilateral trading activity of carbon credits, referencing that reference data. And we've also got a futures -- a number of futures contracts, including the CORSIA futures contract which we launched recently which is really the credit market used by the aviation industry. So again, that's the second part of the market which is much less mature but we are seeing increasing interest as participants start to engage with our reference data and with ICE Chat transactions on that front.

Our next question comes from Ken Worthington with JPMorgan.

Stuart, more for you, trial by fire. If we think about the globalization of gas driving your TTF and JKM contracts, we're seeing the growth of TTF far exceed the LNG capacity that has come online in recent years. There's some sort of multiplier or maybe it's speculators following hedgers. So how do you think about this relationship between molecules in motion, the need to hedge and what ends up ultimately is, I guess, I'll call it, normalized volume? And if LNG capacity is going to double over the next 3 years, what is reasonable to expect for this LNG relationship with TTF and JKM which you called out as sort of a nonlinear relationship?

Yes. Thanks for the question, Ken. I think the other dynamic to keep in mind when you're thinking about the volume on a futures contract versus the underlying market is the length of the curve. So we've got liquid pricing in TTF now going out 10 years. And so that's 10 years' worth of supply is the thing you need to be thinking about as you think about the hedging volumes on the exchange. But look, it's -- the thing that we -- the dynamic we're seeing is, as you said in your question, the demand for LNG is growing significantly and we see that as being a significant part of both the Asian growth story but also the Asian move to cleaner energies. So there's no question in our mind that LNG supply is going to need to increase significantly. The other dynamic here is because there is more liquid pricing in the marketplace, looking at the likes of TTF and JKM, more and more buyers and sellers are referencing TTF and JKM in the physical contracts. And so what that means is you're seeing less fixed price and more indexed transactions in the physical market which provides the optionality not just of taking LNG from point of production to point of demand but also you can, as you see in the oil market, have ships on route changing direction because odds have opened up. So what we're seeing in the gas market as part of this globalization story is a real modernization of the market structure where physical molecules are going to the best price. And as those prices evolve with greater transparency, those physical movements move with them. So net-net, what that means is there are more participants needing to hedge more molecules along more supply chain routes and we see that overall growing. And then again, to my earlier comments, liquidity down the curve is getting really strong. So we're seeing longer-dated hedging coming into the TTF contract as well.

We're out of time for further questions. So I'll now hand you back to Jeff Sprecher, Chair and CEO, for any closing comments.

Well, thank you, Lydia and thank you all for joining us this morning. We look forward to updating you again soon as we continue to innovate for our customers and continue our momentum to drive growth with an all-weather business model. And I hope that today, you avoid the witches and zombies and have a safe Halloween.

This concludes our call. Thank you for joining. You may now disconnect your lines.