The operator introduces the ICE Fourth Quarter 2023 Earnings Conference Call and Webcast, and hands it over to Katia Gonzalez, Manager of Investor Relations. Katia provides information about the call and reminds listeners about the risks of forward-looking statements. She also mentions the use of non-GAAP measures and defines terms used in the presentation. The call will feature Jeff Sprecher, Warren Gardiner, Ben Jackson, and Lynn Martin. Warren then takes over and thanks everyone for joining.

In the fourth quarter, the company had a strong performance with record net revenues of $2.2 billion and a 7% increase in pro forma revenues. Adjusted operating expenses were lower than expected, leading to a 6% increase in earnings per share. The company also had a record free cash flow of $3.2 billion and used it to return $1 billion to shareholders and reduce debt. The Exchange segment had a record net revenue of $1.1 billion, with transaction revenues increasing by 22%, driven by a 31% increase in interest rate business and record energy revenues. The oil complex saw a 41% increase, global natural gas revenues grew by 66%, and environmental business grew by 23%.

January was a strong month for the company, with robust levels of open interest and record average daily volumes across commodities, energy, and options. Recurring revenues, which include Exchange Data Services and NYSE listings, totaled $355 million in the fourth quarter. The NYSE led the industry in transfers for a second straight year, with 32 transfers from other exchanges. In the Fixed Income and Data Services segment, fourth quarter revenues reached a record $563 million, up 4% from the previous year. Transaction revenues increased by 19% for the full year, driven by ICE bonds. Recurring revenues also reached a record high of $447 million, with 5% growth in the fourth quarter. The Fixed Income Data and Analytics business saw a 4% increase in revenues, driven by pricing and reference data and double-digit growth in the Index business.

In the fourth quarter, other data and network services grew by 7%, driven by strong demand for energy and environmental focused customers and ICE Chat. The Consolidated Fees business saw record contributions and is expected to continue growing in the mid-single-digit range in 2024. In the Mortgage Technology segment, revenues totaled $502 million, with recurring revenues accounting for 80% of total segment revenues. Operating income increased by 7% year-over-year, and there was a strong finish to 2023 with new product sales and clients. The industry is seeing momentum as customers seek technology and data solutions for transparency and workflow efficiencies.

In 2024, the company expects low to mid-single-digit growth in mortgage technology revenue, with potential for double-digit growth if there is a substantial improvement in application and origination volumes. Recurring revenues are expected to be flat for the year but improve in the second half, with some pressure in the first quarter due to customer acquisitions. The company has already signed $30 million in annualized revenue synergies, but they will not have a significant impact until 2025. Expense synergies are expected to reach $135 million by the end of 2024, exceeding the original target of $100 million. Adjusted operating expenses for 2024 are expected to be between $3.81 billion and $3.86 billion.

ICE expects to continue investing in their people and technology, with a focus on MSP and growth initiatives. They anticipate non-operating expenses to decline in the second quarter, and a slightly higher tax rate due to UK taxes. They plan to invest in technology and office space, and have had a strong year in terms of revenues, operating income, free cash flow, and earnings per share. They are focused on delivering growth and creating shareholder value in 2024.

The company's strong 2023 results were driven by a dynamic macroeconomic environment and long-term secular tailwinds. Their global platform in energy markets positions them well to capture these tailwinds and provide critical price transparency. The addition of Midland WTI into the Brent basket contributed to record volumes in 2023, and the WTI contract continues to gain share. Customers are also seeking liquidity in other crude and refined products, leading to record trading activity. In natural gas markets, the company has built a global platform expanding benchmarks across North America, Europe, and Asia.

In 2023, the energy supply chain saw significant growth and globalization, leading to record revenues for ICE's global gas business. This was driven by record volumes and participation in their TTF and Asian JKM benchmarks, which play a crucial role in providing global natural gas price signals. ICE was also early to diversify into environmentals, recognizing the increasing importance of carbon price transparency. As governments and market participants continue to prioritize environmental policies, the demand for valuing externalities such as carbon emissions and carbon sequestration will only increase. ICE's large network of environmental products puts them in a unique position to capture this growth trend.

The company has been investing in the globalization of natural gas and the energy transition for over a decade, resulting in cleaner energy sources making up over 40% of their energy revenues. This has contributed to strong revenue growth and the expansion of their energy network, which offers comprehensive risk management solutions and capital efficiencies. The company also has a large suite of energy risk management tools and a global commodity network to help customers manage risks. In addition, their Fixed Income and Data Services business saw record revenues in 2023, driven by transaction and recurring revenue growth.

ICE had a successful year in 2023, with record revenues in their bonds business and growth in their data and network services business. Their investments in reducing friction and enhancing their offerings led to double-digit revenue growth in their desktops and consolidated feeds business. They are focused on expanding and evolving their products and services to add transparency to both common and emerging risks in the fixed income and data services market. In their mortgage business, they are using technology, data, and network expertise to build innovative solutions and lead the digital transformation of the industry.

In the fourth quarter, the company closed 37 new clients for Encompass and four for MSP, resulting in a record for new sales and the highest in the last five years for both platforms combined. The company has also successfully integrated Black Knight and is focused on relieving pain points and inefficiencies in the mortgage workflow. Upcoming opportunities include integrating Black Knight datasets and data and document automation into Encompass and MSP, as well as providing compliance solutions throughout the origination and servicing process.

In 2023, the company is investing in their product and pricing engine to strengthen the mortgage ecosystem and provide more options and efficiencies to lenders, servicers, and partners. They are also continuing to advance their market-leading SaaS-based MSP servicing platform and digital document vault service. The company sees potential for growth in the $14 billion addressable market of converting from analog to digital. In 2023, there was a ban on Russian crude oil and a $60 price cap imposed on Russian oil due to the Ukrainian conflict. In October, there was a conflict with Israel that caused the US House of Representatives to send a bill to the Senate for further sanctions on Iranian oil.

In 2023, terrorist attacks in the Red Sea and OPEC+ quotas to cut oil production did not result in record high oil prices. Brent crude oil actually ended the year with prices lower than where it started. The International Petroleum Exchange of London, acquired by ICE in the early 2000s, faced challenges in growing trading volumes for the Brent futures contract due to the Brent oilfields drying up. ICE worked with the oil industry to allow other grades of oil to be included in the Brent index, including oil from Forties, Oseberg Ekofisk, Troll, and US Oil from the Midland basis of West Texas.

The pipeline, rail, and trucking infrastructure in the Midland basin transports a large portion of US oil to the Gulf of Mexico for seaborne exports. US oil drillers in this region are sensitive to global supply and demand price signals, and their market responses have caused their exports to set the marginal price for the ICE Brent index. The Brent oilfield has been decommissioned since 2006, and its absence in the index reflects the increasing influence of US oil exporters on global crude oil prices. The record volume in ICE's Brent oil futures trading complex is a result of this evolution. ICE invests in and works with market participants to transform industries in response to changing environments, and this is also reflected in their energy complex.

ICE is working with the US Department of Energy to develop regional markets for hydrogen fuels and has also invested in information acquisition, data dissemination, and index construction through their ICE Data Services division. This has allowed them to transform global benchmarks for financial products and expand their participation in various markets. As a result, ICE has seen record revenues, operating income, and adjusted earnings per share every year since becoming a public company in 2003.

The speaker discusses the company's growth and success in diversifying their business and positioning themselves in industries undergoing analog to digital conversions. They express confidence in their ability to capitalize on future trends and thank their customers and colleagues for their contributions to their success. In response to a question about client attrition at Black Knight, the speaker explains that some clients have left due to mergers and acquisitions, but they have also gained new clients through these changes.

The company experienced flat performance in the mortgage segment last year due to a decline in market volumes, but they are confident in their sales success and low attrition rates. They have gained market share against proprietary systems and third-party peers, and believe the market will revert to an average of 7-10 million loans. The company expects growth as they turn the corner, with good visibility into sales and stabilization of customer engagement and renewals.

The speaker discusses the company's financial guide and how they feel good about it despite not having visibility into things like customer M&A activity. They mention the importance of recurring revenues and how they will benefit from transaction revenue when industry loan volumes normalize. They also mention their focus on investing in the platform and expanding their network for when the market recovers. A question is then asked about the market origination volume in the fourth quarter and the potential for a product springloaded recovery.

The company's modeling shows that the market was down 11%, but their share is increasing against both proprietary and third-party platforms. The benefits from recurring revenues will take time as clients are in the implementation phase, but they will also receive transaction fees from new loans on their platform and interactions with third-party service providers. Closed loans on their platform were ahead of composite estimates, indicating a gain in share. The business is "springloaded" for when market volumes stabilize, with potential for a couple hundred million to half a billion in revenues. The next question is about energy.

TTF (Title Transfer Facility) has seen a significant increase in volume over the past 10 years, making it the global benchmark for natural gas trading. This is due to the liberalization of the natural gas market and the ability to transport it freely around the world. TTF has seen double-digit growth in market participants, data subscriptions, open interest, and average daily volume. This is driven by the movement of LNG from the US to Europe and the need for clients to consider longer-term implications.

The speaker discussed the impact of US LNG heading east and west bound on shipping in the Red Sea and through the Panama Canal. They also mentioned the growth of the TTF contract as a global benchmark and the success of their HOU contract for WTI pricing in the Atlantic basin. The speaker attributed the growth in market share to the efficiencies of trading in Brent markets across these contracts. The next question asked about the Mortgage segment and the speaker mentioned accelerating cost synergies in 2024 and the potential for additional synergies beyond this year.

Ben Jackson, CEO of ICE, discusses the progress of the Black Knight merger and the potential for additional cost reductions beyond the initial synergies. He notes that the organization was well-prepared for the deal and has shown strong integration skills. While they are currently on track to meet their target of $200 million in synergies by year five, they will continue to assess and potentially increase these targets as they move forward. Warren Gardiner adds that they are also proud of their proprietary cloud and its capabilities.

The company plans to move some of its technology platforms to its proprietary cloud and enhance the MSP platform. They have also moved their Black Knight data team to their ICE Data Services division in order to take advantage of technology capabilities and product innovation. They believe this will generate benefits in the short and medium term. A question was asked about revenue synergy in the Mortgage tech sector.

Warren Gardiner, the CFO of Intercontinental Exchange (ICE), stated that they have already signed $30 million of the $125 million total in just five months, which is well ahead of their five-year target. This is related to the $300 million of revenue synergy opportunities that they have identified. Gardiner believes that their efficient technology infrastructure and strong relationships with clients have helped them achieve these revenue synergy targets quickly. They have already had success in cross-selling Encompass to top MSP clients, such as JPMorgan Chase and M&T Bank, and are also working on cross-selling MSP to their ICE Mortgage Technology clients.

The paragraph discusses the success that ICE Mortgage Technology has had in expanding their network and cross-selling their technology products to clients. They have secured deals with big banks like Fifth Third Bank and M&T Bank, as well as credit unions like Black Hills Federal Credit Union and CapEd Credit Union. They have also integrated their Simplifile platform into their servicing platform, allowing for more efficient and effective lean releases, and have integrated their data and document automation platform into MSP.

The speaker discusses the progress of integrating Encompass and MSP, including automating loan onboarding and the ability to cross-sell data sets. They also mention a $700 million debt paydown and the potential for stock buybacks in the future.

The speaker believes that they are on track to meet their paydown schedule in 2025, but it could happen earlier depending on market conditions. They also discuss their pricing changes from last year and their philosophy of creating and capturing value in their business. They made adjustments to exchange data fees this year.

The speaker discusses recent price adjustments made to energy contracts and collateral fees at the clearing house, which have had a similar impact as changes made to oil contracts last year. They also mention the opportunity for future pricing strategies in the futures business with ICE. The speaker then acknowledges the recent passing of a long-time shareholder named Jack Willins and expresses their commitment to continue building the business in his honor. The call concludes.

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