Q1 2023 Intercontinental Exchange Holdings, Inc. Earnings Call

<unk> to reduce the manual staring compare work that exists across the mortgage workflow today.

This automation could save lenders thousands of dollars per loan by reducing manufacturing time and complexity.

The continued growth in our recurring revenues is a testament to the demand we're seeing for these digital solutions.

As these new customers come onto our network, we benefit from new subscription revenues and have the opportunity to expand the customer relationship over time as they adopt additional solutions.

Just as we've seen in our other markets. This flywheel effect is what we believe will drive compounding growth in our recurring revenues and gives us confidence that we can grow a business that today is only a fraction of the $10 billion addressable market that is in the early days of an analog to digital conversion.

With that I'll now turn the call over to Jeff.

Thank you Ben and good morning, everyone. Thank you for joining US please turn to slide nine I'll.

I'll begin by touching on our pending acquisition of Black Knight.

Since the initial announcement in May of 2022, Ics remained unwavering in its belief and commitment to the combination of our companies.

In March we announced revised terms of our merger agreement to acquire a black Knight at $75 per share or a market value of $11 7 billion.

From our previous terms of $85 per share.

Black Knight's shareholders approve this revised deal last week.

In addition, and although I strongly believe that acquiring black Knight is entirely pro competitive we also announced an agreement to sell black Knight's empower loan origination system, plus certain related businesses to constellation software Inc.

We did this in order to remove a perceived horizontal competition concern.

The divestiture transaction is subject to the closing of <unk> acquisition of Black Knight and other customary closing conditions.

Ice and Black Knight intend to defend the pro consumer merits of our revised merger in Federal District Court.

Our scheduling hearing is scheduled to take place on May 12 to establish the timetable for this process after which time, we will have a better <unk>.

Ability to discuss the calendar for deal completion.

We're unable to answer any questions on this call relating to our transaction with Black Knight.

We remain fully confident in our position and we look forward to presenting it in court.

Importantly, we're very excited about the value and the efficiencies that the combined entities will bring to the end consumer as well as other stakeholders across the mortgage ecosystem.

Shifting to our strong results.

First quarter was highlighted by record adjusted operating results that include continued compounding recurring revenue growth across all three business segments, along with record revenues in our exchange and fixed income and data services businesses.

Remarkably we did this against last year's exceptional first quarter with its unprecedented volatility driven largely by the onset of conflict in the Ukraine.

The strong first quarter results are a testament to the value of our data and technology and the strength of our strategic business model.

Over the past 20 years <unk> continually evolve to meet the needs of our customers, resulting in value for our stockholders.

Our evolution has been intentional diversifying across asset classes and geographies and increasing our mix of recurring revenues.

Pounding growth of our subscription based services combined with our diverse transaction based businesses means that our growth is not tied to one economic cycle to one geography or to one asset class. This.

This provides upside exposure, while hedging our downside risk.

Looking to the balance of the year and beyond we're excited about the many growth opportunities that are in front of us and we remain focus on delivering innovative solutions for our customers, while driving compounding growth for our stockholders.

Before I end my prepared remarks, I would like to say, thank you to our customers for their continued business and for their trust and I'd like to say, Thank you to my colleagues at ice for their contributions to another good quarter.

And with that I'll turn the call now back to our moderator Lauren and will conduct a question and answer session until 930 eastern time.

Thank you.

I would like to ask a question Keith.

One on just kind of think he patch.

If you change your mind please prescott.

We're preparing to ask a question. Please ensure that you are fine for me.

As a reminder, please check your mute yourself to one question. If you have a follow up with peach rejoin the queue.

Our first question comes from Rich Repetto from Piper.

Rich. Please go ahead.

Yes, good morning, Jeff and Ben and Warren.

Congrats on the second best revenue and EPS quarter in the company's history. So.

I'd like to go back to the origins.

B in LNG I know Ben you spent a lot of time on it but still.

Quarter over quarter excuse me the comparisons compared to the second quarter of last year improved dramatically.

They're down 20%.

Last second quarter versus the first quarter.

I guess the question is and you just put in a price increase is what could derail that.

The strong.

Looking more out at the LNG market overall, we know what youre doing with options and the open interest but.

Whats the outlook for volumes.

What could derail that.

Positive setup for the remainder of the year here, but it looks like a positive setup.

Thanks, Rich and Hey. This is this is Ben thanks for the questions and the commentary there.

Simply said the setup couldnt be better for the balance of this year.

When we look at the health of our overall markets I mean, we've as you alluded to in your comments, we built this business with a long lens and a view towards what customers' risk management needs are across the entire energy spectrum.

Including helping to.

Help our clients navigate to a cleaner energy world.

Through our environmental markets that we've invested heavily in.

And the setup just couldnt be couldnt be better I mean, you look at right now we're at or near.

And average daily volume market share high against any of our peers and crude and oil were at or near open interest market share highs North American gas and global gas.

We're at or near revenue share highs.

In energy.

We had record energy options volume in Q1 posted an all time high for Brent versus <unk> options share versus our peers.

We had record active market participation in environment and in our environmental markets and our TTS gas as.

As well as we're at or near records in data subscribers in several markets.

Here was our EUA markets, our European Union allowance markets, because there was so much time attention and capital being put towards energy, we saw that come back strong with with average daily volume up.

18% Q1 versus Q4, and there's long term secular growth drivers for that EUA business, where there's roughly four giga tonnes of carbon emissions.

That are admitted in Europe today about one and a half giga tonnes of those carbon emissions are priced by compliance markets based on policies that are in place.

Okay. Thank you very much.

<unk>.

Thank you next question comes from <unk>.

Hi, good morning.

You've noticed the top five global bank win.

Replace their in-house solutions within compas I.

I guess there is there any way to frame the the revenue upside or the potential revenue outside from from that contract and then in terms of kind of tier one size banks.

Getting this signing could kind of open the door to other opportunities at the size and if you can comment on the pipeline from kind of that that client segment of the larger banks. Thank you.

Thanks, Kyle. This has this has been so if you if you remember last quarter I had highlighted that the fourth quarter of 2002 was the strongest sales in terms of new sales to new encompassed customers of all of 2022, and then we followed it up with Q1 of this year being the strongest new sales of encompassed.

Customers.

Two years ago bought the Ellie may business that you had a lot of banks that had aging in house infrastructure that they were trying to support and we felt that that replacement cycle was going to be coming up as that's the main competitor that we have in the encompass.

Marketplaces as in house legacy infrastructure.

And as we've seen that Funnelled develop I alluded to it on the on the first on our last call that we saw a strong funnel of these types of banks.

That we're talking to and engage with and talk to you about the benefits that encompass can provide them and.

And Lo and behold.

Brought on board one of the biggest.

Global banks onto the platform here in the first quarter.

Thanks Man.

Thank you on that.

Yeah, Hey, guys. Good morning, just going back to energy for a second and being more specific here you mentioned the pricing increase maybe I missed it obviously, if we can look at your your your disclosures in terms of the <unk> schedule, but there's a lot of mixed so maybe on a like for like basis, maybe look at one Q volume mix like how much.

What with the pricing changes actually impact RPC or revenue.

<unk>. So good question, so I I'd expect a a few pennies.

<unk> people, what we did there was we touch the handful of products within energy and so when I say, a few pennies I'm talking about the energy RPC overall course, and so we talked to a handful of contracts within the broader energy complex. This is something we haven't done in some cases decades as in other cases ever.

As you know our philosophy is related to take the approach of where we created value for for our customers and then over time go capture some of that value and so we felt like this was a good opportunity given the backdrop to to do that in some of these contracts and that that's what you're seeing there and so we've done that in the past were always looking to do that and we will continue.

To look for those opportunities not only within futures, but but really across the business and taking that that that same philosophy as we go forward here. So so.

Hopefully that's helpful in terms of thinking about the impact.

A few pennies on top of that that should help you in terms of thinking about the impact.

Looking for exact math, but good enough. Thank you. Thank you.

Thank you.

Next question comes from <unk>. Please go ahead.

Thanks, Good morning, So I guess another question for you warn you talked about strategic investments and that's part of the pick up sequentially.

Hoping you could just frame where the those investments are going in this year.

You know kind of project similar products and then if the environment isn't as constructive as we think about the back half of the year.

Is there some flex the maybe remove or reduce spin across the expense base.

Yeah. That's a good question. So in terms of some of the investments, we're making that we're making those across technology. We're also making some select hires in certain areas, particularly areas within some of our data product new datasets.

The indices, we're expanding some of the opportunities we have within the connect connectivity business. So it's fairly broad based in terms of those investments, we're making that's all part of the plan.

If you will or the budget when we entered the year, we talk a little bit or I talked a little bit earlier about.

Looked over over time of course, and and the goal every year is to grow both in the near in the long term and and to do that we've got to make investments and the business, particularly if we're going to grow into the future and that's what we're going to that's what we're doing here and that's what you should expect us to continue to do and that's frankly, that's the benefit of that we have with the diversified <unk>.

We have not only across asset classes, but but also the the mix a subscription that tends to be a little more resilient and then and then as well as on the diversified transaction front. So.

So that's what we will do and I think look as we're thinking about how things trend through the to the balance of the year.

Look we are a company that has run pretty efficiently we had operating margins of the.

61% in the quarter.

That's been a philosophy that we've had to to operate that way and look to run the business sufficiently both in good times and bad times.

Or tough times, and so I don't think you should expect us to really be changing how are we thinking about that and so we're going to make those investments and.

To the extent, we needed to pull back we will we will think about that but I think it would have to be more of a structural change in some of the asset classes that were in it than anything cyclical because again, we want to drive long term growth in.

Next question comes from <unk>. Please go ahead.

Hey, good morning.

There's been any change to your thoughts and Isis strategy in digital asset space in recent months as other traditional exchanges become more active and given the impact of the current banking crisis in other countries, where I've already worked with regulators.

Me up their efforts truly become crypto hobbes, while the U S sales calls behind.

And Additionally, do you think the U S government and regulators are making a mistake by not being more proactive in providing thoughtful regulatory clarity on space. Thanks.

This is Jeff.

So we sort of have.

Or put in two places with respect to digital assets first of all we created back then.

At integrating businesses, it's actually pretty strong domain capability. This company, but we also are good at organizing businesses and spinning him out.

Thank you Jeff.

So the backdrop is still tough here.

In the fourth quarter, and then again in the first quarter, we move some pretty substantial customers that were heavily transaction oriented deals more towards subscription and gave up some transaction revenue to do so so that's some of the noise that you saw on there.

We mentioned, we have one of our major global Bank and J P. Morgan Chase coming onto our AI Q platform and we have now implemented them, they're alive and we're going to start seeing revenue contribution from that so there's a nice tailwind there we also based on.

The interesting datasets that we have and unique datasets that we have on our loan origination system.

We've recently been engaged by the CFPB.

And they've engaged us to help improve their average prime lending rate. So the lending rates that they put out to consumers. That's the average to give them a benchmark of getting a fair deal with one of our underwriting alone they've engaged us to help provide.

Our data to help improve that index. So we think that's just one of many examples of data offerings that will that will have in the future and the other thing I would point to as it were feeding a lot of our datasets into other parts of our business.

Like our ice data services business to improve our mortgage backed securities pricing.

And then we also launch those right locked futures.

Last year that we believe is a is a very interesting risk management tool to.

To help with some of the basis risk that you have in.

And the mortgage spaced on producing a mortgage whether it's a long term mortgage lock that you have or you have jumbo.

Loans in your portfolio, you have pretty significant basis risk versus treasuries and the TVA market when doing that in in April we saw 11000 contracts executed on those right locked future. So.

There's a lot of green shoots there within data and I think you'll see that fee multiple different line items in.

In the future as those developed.

Right great. Thanks for the follow ups.

Thank you.

19, Q and a session.

<unk> <unk> <unk> <unk>.

Well, let me thank you Lauren for B.

Today's operator, and thank you all for joining US. This morning I want to also send out a special thank you to Richard <unk> Piper Sandler.

As many of you know he dialed in very early this morning in order to open today's questioning as he's done every quarter since our initial public offering in 2005, and we understand that rich plans to move on to new opportunities. This summer. So I represent everyone in the room when I say that we will miss hearing as thoughtful questions going forward.

And rich I just wanted to say thank you for your commitment to following our company and our progress and in your absence. Please.

Please know that we're going to continue to strive to innovate for our customers and build an all weather business model that will continue to grow.

With that have a great day, everyone. Thank you.

Please complete today's call. Thank you for joining you may not disconnect your lines.

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