Bailey, the moderator of the ICE Second Quarter 2023 Earnings Conference Call and Webcast, introduces Katia Gonzalez, the Manager of Investor Relations, who explains the forward-looking statements, the proposed acquisition of Black Knight, and the non-GAAP measures that are more reflective of their cash operations and core business performance.

In the second quarter, NYSE reported record-breaking adjusted earnings per share of $1.43 and total net revenues of $1.9 billion. Operating expenses totaled $756 million, $7 million lower than the projected range, and adjusted operating income grew 5% to $1.1 billion. For the third quarter, adjusted operating expenses are expected to be between $760 million and $770 million, with the year-over-year increase attributed to additional compensation and technology expenses, as well as around $10 million in foreign exchange costs.

In the second quarter, the Exchange segment of the company saw net revenues increase by 9% year-over-year, with transaction revenues up 12%. This was driven by growth in global natural gas revenues, global oil business, and exchange data services. Recurring revenues increased by 2%, with 6% growth in exchange data services. Additionally, the quarter saw a record for TTF volumes and participation, as well as growth in open interest across their global commodity futures and options complex.

In the Fixed Income and Data Services segment, second quarter revenues totaled $546 million, up 6% year-over-year. Transaction revenues increased by 23%, and recurring revenues and ASV grew by 4% due to strong growth across analytics, desktop, and feeds offerings. ICE Chat saw 15% CAGR growth in users over the past five years and a 60% increase in energy volume this year. Consolidated feeds business saw double-digit revenue growth and a number of wins due to displacing larger multi-asset class incumbents.

In the second quarter, Data and Network Services business increased by 7% and 9%, excluding the impact of Euronext, while Fixed Income Data and Analytics business experienced an extended sales cycle. Mortgage Technology revenues totaled $249 million in the second quarter, with recurring revenues accounting for nearly 70% of segment revenues. Data and analytics recurring revenue grew double digits year-over-year, but was offset by those renewing at lower levels and reduced spend on ancillary products. While macro conditions appear to be stabilizing, current cyclical pressures are likely to drive recurring revenue growth into the low single-digit range for the full-year.

In the first half of 2023, customers have relied on ICE Mortgage Technology's leading technology, data, and markets to manage their risk. This has led to the need to reexamine legacy cost structures and attracted customers who have not traditionally utilized the platform. CrossCountry Mortgage, a top 15 lender, signed on to utilize the platform's analyzers, which was one of the largest data and analytics deals in their history. These wins will take time to implement, but ICE Mortgage Technology is well-positioned to meet the evolving needs of customers and create value for shareholders.

Across commodities markets, average daily volumes increased in the quarter due to changing weather patterns and customer demand for risk management tools. ICE's Brent benchmark has evolved with the addition of Midland WTI, leading to record volumes and open interest in July. Revenues for crude and refined products increased 17% in the first half and 33% in the second quarter, while natural gas revenues were up 32% in the first half and 52% in the second quarter.

Global gas complex open interest trends have remained strong in July, up 16% year-over-year, and environmental markets have seen growth in active market participants, up 9% year-over-year. Additionally, the Fixed Income and Data Services business has seen compounding revenue growth of 9% in the first half, due to both recurring and transaction revenue growth. This growth is attributed to the strategic diversification of the business and its ability to deliver growth in a variety of macroeconomic environments.

ICE Bonds business increased by 51% in the first half of the year due to interest rate volatility and increased institutional connectivity. Mortgage business outperformed industry trends with a 40% decline in origination volumes. Encompass customers that renewed their subscriptions increased by 60%, and CrossCountry Mortgage signed one of the largest data and analytics deals in the company's history.

In July, Intercontinental Exchange announced that they had entered into an agreement to sell Optimal Blue for total consideration of $700 million, contingent on the close of their acquisition of Black Knight. The consideration includes $200 million of upfront cash and $500 million in the form of a seller finance note. Intercontinental Exchange is targeting revenue synergies of $125 million and expense synergies of $200 million by year five, and the federal trial has been rescheduled to August 14 as they are in a dialogue with the FTC about potential resolution.

Optimal Blue and the Empower loan origination system will be kept together under a single owner, and ICE's commercial relationship with Optimal Blue will be expanded. ICE had record-setting results in the second quarter and first half of the year, thanks to their strategy of diversifying across asset classes and geographies. ICE is positioned to capitalize on the secular and cyclical trends occurring across asset classes, and they are focused on executing on the many growth opportunities in front of them. The company thanked their customers for their continued business and trust.

Ben Jackson of ICE Mortgage Technology discussed the renewal process for Encompass customers and the outlook for the mortgage industry. He reported that they are roughly halfway through the transition process and that the company has been repositioning itself to unlock long-term growth potential. He concluded by saying that they have seen a lot of success in these efforts.

In the last several quarters, 60% of customers have renewed at higher subscription fees, while 40% have renewed at lower subscription fees with higher per-close loan fees. There have been some headwinds from M&A consolidation and going out of business, as well as ancillary products not related to Encompass that have made the refi environment tough. However, there have been signs of improvement and Q2 was the best second quarter in the last six years, with 41 new clients coming onto the Encompass platform and subscription revenue being recognized right away.

ICE Mortgage Technology has established a business in which they touch almost every lender with one of their services, and they have 3,000 of them that are on their Encompass platform. They are looking to cross-sell existing products such as AIQ, and they expect that this will have an impact on subscription revenue by 2024.

ICE has seen great success in bringing in new Encompass customers and winning across all segments they service. They have also leveraged the enterprise to win large banks replacing legacy infrastructure. Customers are focused on rightsizing their organizations and automating their processing, which is why ICE has seen success with their ICE data and document automation platform. Examples of this success include JPMorgan Chase going live on the platform and CrossCountry Mortgage selecting them.

ICE made price changes in a few oil contracts last quarter which resulted in a few cents of benefit to the RPC, as expected. ICE's approach to pricing is to capture value they have created for customers and asset classes, and they will be selective about when to do this.

ICE has invested in environmental products for more than a decade and is continuing to invest in this space. They have a complete suite of products across oil, gas, power and environmentals to enable customers to have a journey towards a cleaner energy environment. Warren Gardiner has stated that they will not expect pricing changes this year, but will take this approach into next year and beyond.

The performance of the business is good, despite some headwinds in Europe in the energy and environmental sectors caused by the war in Ukraine. The EUA market space has a 98% market share, and North America has 96%. There are natural tailwinds in the European market due to Fit for 55, and the North American business is growing in terms of market participants. Additionally, there is high demand for low-carbon fuels, and RIN futures have been launched to meet that demand.

The EPA sets standards for the amount of renewable fuels that need to be blended into transportation fuels each year. This requires the production of renewable fuels, which are bought, sold, and traded in an opaque market. ICE launched futures as a more efficient way to do this, and in the last 12 months, 20-25% of the physical market is trading via their futures. ICE is focused on the environmental space, and is seeing growth in this area. Competitors have experienced a similar elongated sales cycle in their enterprise data business, but it is unclear if there is any competitive share shifting occurring in this area or if the slower growth is due to the macro environment.

Lynn Martin discusses the abatement of the elongated sales cycle in the Fixed Income and Data Services business, due to the company's investment in modernizing the tech stack. She also speaks of the company's success in taking share in the End of Day Pricing business and the Index business, which is now benchmarked against $526 billion in AUM. Additionally, there has been good demand for the company's proprietary large language models.

ICE Data Services is uniquely positioned to capitalize on the trend of fixed income automation due to its large language models, continuous evaluated pricing, and its ability to provide transparency. This is leading to share gains in the muni, REIT, money market, and credit products, despite the elongated sales cycle in the End of Day Pricing business.

Lynn Martin explains that the attractive yields in treasuries have been driving the outsized gains in treasury execution and money market products. However, the capture rate for treasury index business is lower, so AUM growth does not directly correlate to revenue growth. As issuance profiles return to normal, there will be a reallocation of assets to higher capture indices, such as credit indices, muni indices, and equity indices. This will also positively impact pricing and reference data end-of-day businesses, as new fund families and asset funds start to emerge. The Fixed Income and Data Services segment is set up to benefit from a variety of macro trends.

ICE Chat's large language models have been refined over the last five years and are now helping to automate the workflow in energy markets across asset classes. It allows for the seamless transmission of trade ideas, and provides fair value analytics and additional metrics to help traders get a good price.

Benjamin Jackson states that there are underlying trends in the energy industry, such as underinvestment in legacy infrastructure and electronification of energy markets, which have led to strong momentum in energy. He also mentions that there is nothing currently that could derail this strong momentum.

The energy markets are becoming more global and customers are looking for precision and risk management, as well as greener energy solutions. Intercontinental Exchange has been successful in meeting these needs, as evidenced by its high market share across crude oil, North American gas, global gas, and energy. It has also seen record active market participation in multiple products and record market data subscribers.

Lynn Martin discusses the success of the Sweeps Protocol in fixed income execution, which has seen growth despite the muted activity in muni markets. He provides key performance indicators for the business, such as electronic markets in IG and high yield, and the comparison of prices to incumbent platforms and protocols.

Jeff Sprecher's company has been able to gain market share in retail and wealth, despite the quieter muni markets in Q2. This was enabled by a well-developed distribution framework and investments in technology. This allowed them to gain a bit of share in the corporate side of the business, particularly investment-grade, over the last few months. The investments made in the platform, both on the technology side and the distribution side, have been key to their success.

The speaker thanked their colleagues and customers for their support and contributions, and expressed their excitement for continuing to innovate and build on their successful business model. The call was then concluded with a wish for everyone to have a great day.

This summary was generated with AI and may contain some inaccuracies.