The operator introduces the ICE Second Quarter 2024 Earnings Conference Call and announces a Q&A session. Katia Gonzalez, Manager of Investor Relations, then provides information about the call and cautions about forward-looking statements. She also explains the use of non-GAAP measures and defines certain terms. Finally, she introduces the executives present on the call and hands it over to Warren Gardiner, Chief Financial Officer.

The speaker begins by thanking the audience for joining the presentation and then moves on to discuss the company's record quarterly results. Revenue increased by 7% and adjusted operating expenses were up 1% year-over-year. This resulted in a record adjusted operating income of $1.4 billion and earnings per share of $1.52. The company's adjusted leverage also decreased to 3.7 times pro forma EBITDA. The speaker then provides some guidance for the third quarter, including an increase in adjusted operating expenses and a decrease in non-operating expenses. The presentation then moves on to discuss the performance of the Exchange segment on Slide 5.

In the second quarter, the company's net revenues reached a record high of $1.2 billion, a 14% increase from the previous year. The growth was driven by a 20% increase in transaction revenues, particularly in the interest rate and energy businesses. Recurring revenues, including exchange data services and NYSE listings, also saw growth, with a 5% increase from the previous year. Despite a decline in IPOs, the company has still raised $12 billion in new proceeds and welcomed 30 new operating companies. In the fixed income and Data Services segment, revenues totaled $565 million, with strong growth in transaction revenues and a 5% increase in recurring revenues.

In the Fixed Income Data and Analytics business, second quarter revenues increased by 6%, driven by growth in pricing and reference data, double-digit growth in the index business, and one-time revenue. Other Data and Network Services also grew by 5%, thanks to investments in enhancing content and functionality. In the Mortgage Technology segment, revenues were over $506 billion in the second quarter, with recurring revenues totaling $387 million. While there was some attrition in the data and document automation product, there were also strong sales and a new customer win. Additionally, some customers renewed at lower minimums.

In the second quarter, transaction revenues and revenues related to closed loans and applications increased, but were offset by DNA attrition and lower default management revenues. Despite a decrease in the mortgage origination market, there are signs of stabilization and potential for growth. ICE Mortgage Technology Data shows an increase in homes on the market and record levels of tappable home equity. The company is investing in product development and expanding their network to prepare for future growth. Overall, the company had a successful first half of the year with growth in revenue, operating income, and free cash flow.

In the paragraph, Benjamin Jackson discusses the strong performance of ICE's energy business in the second quarter and the increasing complexity of the price formation process in the global energy market. He highlights the demand for more precise risk management tools and the benefits of coming to a single place to manage risk across different energy sectors. He also mentions the acceleration of a global natural gas market, driven by factors such as the rise of liquefied natural gas and changes in Europe's gas imports.

The emergence of three key benchmarks for natural gas in North America, Europe, and Asia has led to increased global demand for cleaner fuels. The TTF in Europe and JKM in Asia are becoming increasingly interconnected and are used by global participants in the natural gas market. The JKM volumes have shifted to two thirds being composed of the JKM TTF spread, indicating the strong relationship between the two benchmarks. Coal consumption is still high in Asia, but natural gas is gradually replacing it as a cleaner energy source.

The market has confidence in using TTF as a benchmark for global gas and LNG prices due to its deep liquidity. ICE has been preparing for the liberalization of natural gas and has created electronic regional basis markets to reflect market conditions in North America. These markets are priced at a differential to Henry Hub and many market participants use ICE's Henry Hub contracts for liquidity and exposure management. The global landscape of LNG exports, geopolitical forces, and shifts to cleaner energy sources are expected to continue to drive growth in ICE's global gas complex. In the environmental markets, the number of participants has nearly doubled since 2019, leading to increased volumes and revenues. In the power markets, volumes have also increased significantly.

ICE's global energy platform is well-positioned to benefit from the expected increase in power demand driven by AI and data center build outs. With over 1000 futures and options contracts across natural gas, power, environmental, and oil markets, ICE offers a comprehensive solution for managing risk. In the Fixed Income and Data Services business, revenue in the index business is up double digits and passive ETF assets under management benchmarked to their indices have grown significantly. The company's investments in enhancing content and functionality have also contributed to double-digit revenue growth in other data and network services. With content from over 600 data sources, ICE's offering is competitive and comprehensive, making it attractive to firms seeking high-quality data from various sources in a cost-efficient manner.

The company's consolidated fees and index businesses are expected to continue growing and capturing market share. The mortgage business is also seeing growth, with 29 new clients signing on to use the Encompass platform for modernizing their infrastructure and improving workflow efficiency. The company has also signed on a top 15 home builder and integrated tax, flood, and closing fees data into Encompass. These wins demonstrate the company's ability to execute on synergy targets and they have also signed JPMorgan Chase onto their loan onboarding service.

In the second quarter, the company had 12 new wins for their traditional DDA business and is pleased with the value their platform and solutions are providing. They have a large customer base in need of automation and as new customers come onto their network, they have the opportunity to expand the relationship over time. The company's mission has been to drive transparency and efficiency for their customers through their digital networks and they have been successful in this through acquisitions and product development, allowing them to broaden into new asset classes.

ICE is highly skilled in operating marketplaces with strong network effects, which leads to market transparency and increased liquidity. They have successfully expanded their business in commodities and acquired the International Petroleum Exchange, which allowed them to develop precise hedging instruments. They have also grown their clearinghouse business and expanded into fixed income with the acquisition of Interactive Data Corporation, which has helped them develop a comprehensive platform with nearly 500 data products. This has all been possible due to their expertise in analytics, indices, and trade valuation services.

ICE has used its technology and infrastructure to expand into the U.S. treasury and repo markets, as well as the consumer interest rate market through its acquisitions of Mortgage Electronic Registry System and Black Knight. These assets have allowed ICE to become a major player in the digital mortgage industry, with a large network of partners and customers.

The company has successfully combined organic growth with strategic acquisitions to generate strong returns and cash flows. Their first half results demonstrate the strength of their network and business model. They have intentionally diversified and expanded their expertise to tap into new markets and provide innovative solutions to customers. They are confident in their growth opportunities and remain focused on delivering for customers and stockholders. The CEO thanks customers and colleagues for their contributions to the company's success.

In 2015, ICE acquired Interactive Data Corporation, expanding their market into fixed income and allowing them to develop a platform for data products. They also announced plans to launch a clearing service for U.S. treasury securities and repurchase agreements, taking advantage of a new SEC rule. In 2016, they acquired a majority position in the Mortgage Electronic Registry System and used their technology expertise to rebuild and modernize the platform, eventually buying the remaining business stake in 2018.

ICE has expanded its market exposure through strategic acquisitions, including the recent acquisition of Black Knight. These assets are now part of ICE's Mortgage Technology business, which is well-positioned in the digital mortgage market. The company's approach to combining organic growth and acquisitions has resulted in record revenues, operating income, and earnings per share. ICE's diversification has opened up new markets and opportunities for growth, and the company remains focused on delivering innovative solutions and compounding earnings growth for its stockholders.

The speaker thanks customers for their business and colleagues for their contribution to the company's record-breaking quarter and first half. The moderator opens up the call for questions, and the first question is about the growth in the fixed income business. The speaker explains that the growth has been broad-based across the recurring revenue base, with improvements in the PRV and index businesses. This is due to a decrease in headwinds, such as rising interest rates, and an increase in fund flows into fixed income funds.

The company has seen strong growth in its Other Data Network services, especially in the desktop and fees businesses. This is due to investments made in recent years. The company expects to see further growth in the back half of the year from new sales that have not yet been implemented. They also mention expanding their relationship with JPMorgan Chase and have had success in winning larger mortgage clients over the past 18 months. The impact of these wins on transaction and recurring revenue is expected to be significant in the second half of this year and the first six months of next year.

The company has a longstanding relationship with a client who has recently added Encompass and DDA to their services. This aligns with the company's vision of providing efficiency to institutions. The company continues to see success with new client wins and is replacing bespoke systems for larger institutions. The company has a backlog of implementations for these new wins, which are complex and compliance-heavy due to the nature of the mortgage industry.

The speaker discusses the heavy compliance requirements in the mortgage industry and how this affects the implementation of new technology. They also mention that revenue synergies have been added and progress has been made in this area, but it will take time for these to impact the run rate. In regards to a specific client leaving, the speaker does not provide further details but mentions ongoing renegotiations with clients regarding new minimums.

Ben Jackson, speaking on behalf of Ellie Mae, addresses the question about the company's recurring revenue mix. He mentions that while some clients are renewing at higher subscription fees, others are choosing lower fees with higher foreclosed loan fees. This is in line with past trends and the company's goal is to increase total contract value. Warren also mentioned attrition on the DDA side, with one client leaving due to not utilizing the automation capabilities of the platform. However, the company was successful in convincing another client to switch to Encompass and utilize the DDA platform.

The paragraph discusses the company's recent win with Citizens Bank, where they renegotiated a DDA contract and brought them onto Encompass, resulting in a longer-term strategic relationship. The company also notes that recurring revenue is expected to stabilize in the back half of the year, as market conditions improve and customers start to invest in products like DDA. The company has seen an increase in loans originated and apps on Encompass, indicating a potential turnaround in the market. The company also mentions that M&A and cancellations may be less likely in the future, and revenue synergies are expected to come in next year. The company is optimistic about the future and expects stabilization and growth in the coming years.

Benjamin Jackson, CEO of Black Knight, discusses the opportunities for monetizing the mortgage data generated by the combined Mortgage Technology business. He mentions that they have already integrated data sets onto Encompass and have had 200 cross-sells of flood data and fees to their Encompass customer base. They have also built a straight through service for home equity lines of credit using their AVMs. There is a long runway for growth in this area.

The speaker discusses the use of AVMs in determining home equity lines of credit and how Black Knight's data business has been integrated into their Fixed Income and Data Services business. They mention data sets like McDash, AFT, and EMBS that predict prepayments on loans and mortgage-backed securities, and how they are introducing these products to their community of customers and seeking feedback for future services. A question is then asked by Chris Allen from Citi.

Benjamin Jackson, in response to a question about the growth in energy open interest, explains that CME Group has focused on building out thousands of hedging products for commercial customers in the oil, gas, power, and environmental markets. This has resulted in increased liquidity and attracted more participants, including those with directional views. The success of their natural gas markets has been driven by a heavy commercial base, particularly in regional basis markets. This has also helped to build out their Henry Hub market.

The speaker discusses the growth of TTF and U.S. natural gas being exported as LNG, with Europe being the biggest consumer. They also mention the increase in coal switching in Asia and the growth of options trading. The question asks about the correlation between consumption and trading volumes, and the speaker acknowledges that it is an important factor, but also mentions other factors such as price volatility and geopolitical risks.

The mix of risks that need to be managed in energy trading includes power prices, the source of energy production, the shift towards cleaner fuels, and the need to put a price on carbon emissions. This is why a business that encompasses all of these aspects is important for traders to effectively hedge and manage their risk. In the US, there has been a shift towards cleaner sources of energy, driven by data center demand, which is expected to continue growing over the next decade. This has also led to an increase in natural gas demand for power generation and the success of environmental markets such as Reggie and California carbon emissions. This trend is also seen in Europe and Asia, making the US a good example of the evolving energy market.

The company offers a range of services to clients, including managing risk in basis markets, power, Henry, and environmental markets. They have seen some impact on their servicing business due to a major bank exiting their correspondent business and selling their mortgage servicing rights. However, they have a strong relationship with Mr. Cooper and are not seeing customers leaving for other platforms. In regards to energy, revenue and operating income are both trending positively.

Benjamin Jackson discusses the factors driving revenue growth in the energy sector and predicts future growth based on the health of open interest in their markets. He highlights the success of new products, such as the HOU contract and the Murban contract, which have seen significant increases in open interest and average daily volumes. He also mentions the development of new contracts in natural gas, such as JKM and TTF, as contributing to their overall growth.

The speaker discusses the flywheel effect created by trading in energy markets and the efficiency of having all energy markets in one place. They also mention the growth of their benchmark contracts and the innovation in their business model. The call concludes with the speaker thanking participants and looking forward to future updates.

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