Q2 2023 Intercontinental Exchange Inc Earnings Call
Go ahead.
Good morning, I said second quarter 2023 earnings release and presentation can be found in the investors section of the ISR 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 2022 Form 10-K.
Second quarter Form 10-Q, and other filings with the SEC.
In addition, as we announced last year <unk> agreed to acquire a black Knight. The transaction is still pending regulatory approval and we expect to close in the second half of this year in connection with the proposed transaction Ics filed with the SEC a registration statement on form S. Four to register the shares of our common stock to be issued in connection with <unk>.
The transaction.
The registration statement includes a proxy statement of Black Knight that also constitutes a prospectus device. Please see the form S. Four filing for additional information regarding the transaction.
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 equivalent GAAP terms in the earnings materials. When you on this call net revenue of our first two revenue net of transaction based expenses and adjusted earnings refers to it.
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, Ben Jackson precedent and Lynn Martin precedent of the NYSE I'll now turn the call over to Warren.
Thanks, Scott good.
Good morning, everyone and thank you for joining us today I'll begin on slide four with some of the key highlights from our second quarter results.
<unk>, 8% year over year, driven by total net revenues of $1 9 billion.
This marked the best second quarter in our company's history and was on top of 14% adjusted EPS growth in the second quarter of 2022.
Second quarter, adjusted operating expenses totaled $756 million $7 million below the low end of our guidance range and up 2% versus the prior year.
SG&A, including an increase in spend related to an uptick in IPO activity late in the second quarter as well as higher DNA and rent both of which were driven by a handful of lease write offs as we consolidate our real estate footprint was offset by higher capitalized labor and lower professional fees.
This strong performance helped to drive an adjusted operating margin of 60% and a 5% increase in adjusted operating income to $1 1 billion.
On top of 14% growth in the second quarter of 2022.
Looking to the third quarter, we expect adjusted operating expenses to be in the range of 760 $770 million with the year over year increase driven by additional compensation and technology expense as well as roughly $10 million of FX.
As a result, we're now we now expect full year adjusted operating expenses will be between three <unk> and $3.06 billion.
And towards the lower end of our guidance range.
Moving below the line adjusted Nonoperating expense totaled $84 million in the quarter improving sequentially due to higher cash balances as we build consideration for our acquisition of Black Knight as well as higher interest rates on those cash balances.
Shifting to the tax rate as the increase in the U K tax rate became effective in April of this year, we confirmed our ability to make certain U S tax elections, which primarily led to a second quarter adjusted tax rate of 22%.
As a result, we now expect to be around the low end of our 24% to 26% guidance range for both the second half and full year.
Now, let's turn to slide five where I'll provide an overview of the performance of our exchange segment.
Second quarter net revenues totaled $1 1 billion up 9% year over year transaction revenues of $736 million were up 12% driven by 33% growth in energy revenues.
This strong performance included 52% growth in global natural gas revenues, driven by a record quarter for both TGF volumes and participation as well as 9% growth in our environmental revenues.
In addition, we continue to see robust trends across our global oil business, particularly our crude oil benchmarks, Brent Mervyn Dubai, WTO and Midland WTO with Adv up 26% year over year in the second quarter in open interest as of the end of July up 21% year over year.
Importantly, this is helping to drive strong open interest trends across our global commodity futures and options complex, including 15% growth in global energy and 21% growth in eggs.
Recurring revenues increased by 2% year over year, including 6% growth in exchange data services, which was once again driven by double digit growth in the number of customers consuming our global energy and environmental data.
This was partially offset by our listings business, where capital markets activity through much of the first half was relatively muted.
However, the IPO market started to open up towards the end of the quarter with the NYSE acting as the backdrop for 91% of total capital raised in the second quarter.
In addition, the NYSE continues to lead the industry with a total of 12 operating companies transferring from other exchanges. So far this year, representing a combined market cap of roughly 100 billion.
Turning now to slide six I'll discuss our fixed income and data services segment.
Second quarter revenues totaled $546 million up 6% versus a year ago.
Transaction revenues increased by 23%, including 17% growth in ice bonds and 25% growth in our Cds clearing business.
Excluding the impact of Euronext migration, both recurring revenues and ASC grew by 4% driven by strong growth across our analytics desktop and feeds offerings.
Within desktops, we continue to see strong demand from energy environmental focus customers as well as continued robust growth in our ice chat offering for the number of users has grown at a 15% CAGR over the last five years to nearly 120000 at the end of <unk>.
This growth has been driven by the investments we have made to reduce friction across the workflow, including the development and refinement of our proprietary large language model within ice chat and as a result of these enhancements through the first half of this year, we have seen a nearly 60% increase in energy volume executed through our ice chat platform.
Lastly, within our consolidated feeds business investments, we have made to elevate and enhance our offering continues to pay dividends evidenced by double digit revenue growth in a number of wins both in the quarter and first half driven by displacements of larger multi asset class incumbents.
This collective performance is a key driver of our other data and network services business, which increased by 7% in the second quarter and 9%, including excluding the impact of Euronext.
In our fixed income data and analytics business similar to the last few quarters, we experienced an extended sales cycle within our end of day pricing business.
Somewhat offsetting was a return to year over year growth in our index business driven by growth in ETF assets under management to a record 526 billion.
As of the end of <unk>.
Let's go next to slide seven where I will discuss our mortgage technology segment.
Second quarter mortgage technology revenues totaled $249 million recurring.
<unk>, which accounted for nearly 70% of segment revenues totaled $164 million and helped to drive outperformance versus an industry that experienced in nearly 40% decline in origination volumes.
While data and analytics recurring revenue grew double digits year over year and nearly two thirds of our encompass customers up for renewal during the quarter did so at higher minimums growth was offset by those electing to renew at lower levels as well as reduced spend on ancillary products, such as our CRM and marketing solutions, which tend to be utilized by customer.
Is that are more refi focused.
Importantly, the vast majority of these customers not only remain on the encompass and ice mortgage technology platform, but have also signed multiyear contract renewals.
While macro conditions appear to be stabilizing and year over year pressure on forward looking application volumes appears to be moderating evidenced by a mid teen decline in July applications compared to nearly 30% decline in <unk> and a nearly 50% decline in the first quarter.
Cyclical pressures are now likely to drive our recurring revenue growth into the low single digit range for the full year.
These same cyclical conditions and the need to reexamine legacy cost structures continues to extract attract customers that have not traditionally utilized schneider's mortgage technology platform.
As an example, the top five bank that elected to replace their in house solution with encompass as their system of record for the retail channel last quarter is now also signed on as an encompass customer for their correspondent channel.
In addition, cross country mortgage a top 15 lender and encompass user signed on to utilize our analyzers in what was one of the largest data and analytics deals in our history. Following J P. Morgan's adoption of our analyzer suite last year.
While these wins will take time to implement and are therefore, not expected to impact our 2023 recurring revenues. There is a clear example of the increasing need for workflow efficiencies and we expect there to be continued momentum through the balance of this year and into 2024.
Moving to slide eight.
In summary, it was it was a record first half we delivered.
Revenue operating income earnings per share and free cash flow growth.
We continue to make strategic investments across our business and future profitable growth opportunities and we are well positioned to meet the evolving needs of our customers and create value for our shareholders.
I'll be happy to take your questions during Q&A, but for now hand, it over to Ben.
Thank you Lauren and thank you all for joining US. This morning, please turn to slide nine.
Amidst the dynamic macro environment, we've witnessed in the first half of 2023, our customers continue to rely on our leading technology mission critical data and transparent and accessible markets to manage their risk.
Across our commodities markets average daily volumes increased 17% in the quarter and were up 7% when compared with the first half of 2022.
Including a 16% growth in energy and a 27% growth in our agricultural portfolio in the second quarter as customers respond to changing weather patterns, given the el Nino conditions and its impact on commodity supplies.
In energy the globalization of natural gas and the evolution towards cleaner energy are trends that we began investing in over a decade ago.
And today cleaner energy sources, including global natural gas and environmental make up over 40% of our energy revenues and have grown double digits on average over the past five years.
This strong performance has contributed to an average annual growth rate of 8% and our energy platform over that period.
Growth that is a direct result of staying close to our customers understanding their evolving risk management needs and expanding the breadth of the content that we offer across our energy network.
In our oil markets Ice's Brent benchmark.
<unk> largest crude oil futures and options market in the world has undergone its latest evolution with the addition of Midland <unk> into the Brent basket, creating a new Midland exposure for the oil market to manage.
Reflecting this dynamic ice Midland WTS reached record volumes during the quarter along with a series of open interest records in July .
In addition, commercial customers continue to demand more additional more precise hedging tools and that we're in a unique position to provide given their correlation correlation to our benchmark contracts such as Brent.
This trend is best illustrated by the continued growth of our other crude and refined products line up 17% in the first half and up 33% in the second quarter.
In our natural gas markets, driven by a record setting quarter and our Tcf gas benchmark revenues were up 32% in the first half, including 52% growth in the second quarter.
In addition, open interest trends in our global gas complex remains strong through July up 16% year over year, including a 34% increase in our TTS complex and a 15% increase in our North American gas business.
Importantly, because we have built a global platform that spans benchmarks across North America, Europe , and Asia, we are well positioned to continue to benefit from both the near term volatility and the long term secular growth trends occurring across these markets.
And our environmental markets as we look out over the longer term corporates and market participants remained committed to environmental policy to reduce carbon emissions.
This is illustrated by continued growth in active market participants up 9% year over year.
Importantly, because we offer one of the broadest suite of environmental products across the carbon cycle. We remain excited about our position to serve customers as they navigate the journey to cleaner energy and as the demand for transparent pricing and carbon growth.
Some recent examples of customer led innovation include the launch of futures on Washington State's carbon program, along with soon to be launched futures on Alberta carbon program, which is expected to go live in the third quarter.
In summary, as the energy evolution continues to introduce new complexities, uncertainties and volatility to energy markets, our global environmental markets alongside our global oil gas and power markets provides a critical price transparency and risk management tools that will enable participants to navigate this evolution.
Moving to our fixed income and data services business.
Our comprehensive all weather platform continues to generate compounding revenue growth up 9% in the first half.
This growth was underpinned by both recurring and transaction revenue growth.
Testament to the strategic diversification of our business and our ability to deliver growth through an array of macroeconomic environments.
Interest rate volatility as well as continued efforts to build institutional connectivity across our platform contributed to a 51% increase in our ice bonds business in the first half versus last year.
In addition, we continued to see returns on past investments made in our other data and network services business, which is up 7% in the first half driven by strong growth across our analytics desktop and feeds offerings.
Turning now to our mortgage business in the second quarter, our mortgage business once again outperformed our broader industry that experienced a nearly 40% decline in origination volumes.
This continued outperformance is a result of executing against our strategy of leveraging our mission critical technology and data expertise to accelerate the analog to digital conversion happening in the industry.
Part of that strategy is intentionally shifting more business to recurring revenue, particularly within our origination technology and data and analytics business.
And during the second quarter of the encompass customers that came up for renewal over 60% increase their base subscriptions.
Importantly, our customers decline in subscriptions the trade off is a higher per closed loan fee, which will provide an uplift in transaction volumes when the market returns.
In addition, we continue to have constructive conversations with customers as they seek greater workflow efficiencies for example, the top five bank that elected to implement encompass as their system of record for the retail channel last quarter has expanded their relationship with us signing on as an encompass customer for their correspondent.
Channel.
And during the quarter, we had one of the largest data and analytics deals in our history with the signing of cross country mortgage to implement our analyzer offering.
Importantly increase workflow workflow efficiency through continued electronic vacation is a secular trend. We believe will continue through a variety of mortgage origination environments.
This trend 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.
Our ability to capture this secular trend as illustrated on slide 22 of the appendix.
While origination volumes on the encompass platform in the first half were comparable if not slightly below those seen in the first half of 2018 pro forma IMT revenues have increased over 50% with recurring revenues growing at a 14% compounded annual growth rate.
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 10.
I'll begin by touching on our pending acquisition of Black Knight.
While we are unable to answer any questions on this call relating to the pending litigation with the Federal Trade Commission.
Briefly discuss our announcement to divest of optimal blue.
On July 17th we announced that we entered into an agreement whereby contingent on the close of our acquisition of Black Knight.
Constellation software will acquire optimal blue, where total consideration of $700 million.
This consideration includes $200 million of upfront cash and $500 million in the form of a seller finance note, which we have committed to place into the market within six months following the transaction close.
We intend to provide additional performance details upon the closing of Black Knight, but it's worth noting that we continue to target revenue synergies of $125 million and expense synergies of $200 million by.
By year five.
As a result of our agreement to sell optimal blue our federal trial was rescheduled to August 14, and we are in a dialogue with the FTC about potential resolution.
The transaction with constellation software will keep optimal blue and the empower loan origination system together under a single highly credible owner.
A related agreement will continue and expand our commercial relationship to facilitate optimal blue being made fully available to ice as customers on our open network.
As the largest distributor of optimal blue via our network. We remain very excited about the value and efficiencies that the combined ice and black Knight entities will bring to the end consumer as well as two other stakeholders across the mortgage ecosystem.
Shifting to Icf's strong results, please turn to slide 11.
In the second quarter. We grew revenues we grew adjusted operating income and we grew adjusted earnings per share delivering the best second quarter and the best first half in our company's history.
These record setting first half results reflect on the quality of our strategy and more importantly on the execution of that strategy.
930 eastern time.
Thank you.
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Each person asked one question if you do have any other lots to please we joined the queue.
First question today comes from the line of Dumbfounded from Jeffries. Please go ahead done no nine is no way.
Thanks, Good morning.
My first question is on the on the mortgage side, so curious as to what percentage of encompass customers have gone through the renewal process, you've given some updates on the kind of renewal and what people have been doing but curious about where you are in that full process and then Rob.
I'll be looking forward on the mortgage side you know there is an outlook that we've kind of bottomed in terms of activity you know looking at your guidance implies that we're still going to have some pressures for the remainder of this year, but as you think about the overall macro backdrop are you anticipating volumes here in the second half to start to recover.
Hi.
This has been and great questions. Thank you the.
In terms of the first part of your question of what what percentage of the customers have renewed. So we started this process really a coupla years ago.
We've had the the LMA business now for three years and we started talking about this just a coupla years ago. Most customers are on agreements that are around four to five years in duration. So we're roughly halfway through that.
Transition.
In terms of how the business is doing from a from a longer term perspective, we feel great as we've been talking about him any of these calls have we been repositioning.
The ice mortgage technology company to really unlock longterm growth potential.
And underneath the covers we've seen a lot of success towards that.
The evidence to that to that effect is that over the last several quarters. We've mentioned that we've had success renewing more than 60% of our customers at higher subscriptions and.
And even when we do see that 40% or so for less that are renewing at lower subscription fees. The tradeoff. There is that we're getting a higher per closed loan fee on each of those so when the market normalizes that'll be a tailwind towards our transaction revenues.
The second thing is we have we have continued to see in the second quarter, some headwinds from M&A consolidation and going out of business, although it's been relatively small.
I think the other thing that we've seen in the first half that we're in some of our prepared remarks that there are some ancillary products that roll up into our origination.
A line item that are not encompass that are more CRM and marketing oriented platforms that are very targeted towards helping our lenders identify refi opportunities with clients.
And the refi environments continues to be very tough, obviously with the right environment, where it is.
Those those contracts tend to be one year in duration.
Their user based and that is an area where the first half of this year, we saw some pretty significant headwinds towards towards subscription revenue, but we're already seeing some small signs that that's turning and when the market normalizes, we feel good about that coming back in terms of offsets we continue to have great sales success.
And the second quarter of this year on the back of Q for which we mentioned with strong Q1 was was our best ever second quarter was our best second quarter in the last six years with 41, new clients come onto the encompass platform.
Now all of those clients that come on many of them are mid sized clients that come on right away and we start recognizing subscription revenue right away on those clients.
There is also a percentage of those clients that are significant large clients such as the large top five global banks that we had mentioned as well as the wind with cross country mortgage in the DNA spaced these clients to take time to implement.
And the way to think about those is that those will start to have an impact on subscription revenue come 2024, and then once those clients are implemented there's all kinds of new loans that are coming onto our platform onto our system that we've never interacted with before.
That will start getting additional transaction fees from as well as they interact and consumed.
Consumed services off of our open third party network and we get foreclosed loan fees from those from those loans as well so from a long term perspective, we feel great about the positioning.
Thank you.
The next question today comes from the line Benjamin <unk> Benjamin. Please go ahead your line is knowing.
Hi, there good morning, and thanks, so much for taking the question.
I wanted to maybe follow up a little bit on the mortgage segment.
There's a lot of dialogue around sort of ongoing disputation and sort of similar to the question in terms of the the contract and we negotiate the renegotiations cycle. It kind of wanted to ask about the cross sell some of your existing products like a I Q in particular, just curious where you are in terms of the penetration of the current customer base and how far do you think that can go.
Thanks, Ben this has been so great name by the way.
So from across sell perspective, that's that's the beauty of this this business that we've established that when.
When you look across all of the offerings that we have across our mortgage technology network, we touch almost every lender with some of our with one of our services on our on our platform.
And we have 3000 of them that are on are are encompassed platform and we continue to have great success.
Across the spectrum of bringing in new encompass customers.
That are utilizing other services that we have on our network.
And getting new wins across all of the segments that we service so think of whether it's a bank non-bank originator of broker a credit Union. We continue to have success across each of those segments and we've also leveraging the overall enterprise that ice springs to bear we've been able to leverage that to reposition in half.
Some wins with large banks, replacing legacy infrastructure that historically the business wouldn't have been.
Well positioned to win so we feel great about that part of the business.
In the in the environment that we're in we have seen customers very focused on.
Right sizing their organizations rightfully, so with the with the headwinds that they've seen.
And they've been very focused on the core Platt.
Platforms that they that they run and encompass as one of the key one so that's why we continue to see great strength there at.
At the same time innovative companies and entrepreneurs that are thinking ahead.
Don't want to have to as the market is going to turn it will turn at some point don't Wanna have to chase volumes by hiring.
Armies of people again, they Wanna try to automate become as efficient as possible in their processing and that's why we continue to have great success in areas.
Such as AI, Q, which we've now rebranded to our ice data and document automation platform.
And some of the examples we've talked about in the prepared remarks were J P. Morgan Chase.
Obviously significant bank <unk>.
Selected us last year, they've just gone live on the platform. This year. So we're starting to see some of that come into to come into our performance and on the back of that a top 15 lender in cross country mortgage is now selected us we see innovative companies out there looking to invest invest in efficiency and automation going into the future.
Thank you.
Next question today comes from the line of Alex Cramped from ETS. Please go ahead, Alex <unk> is now a <unk>.
Yeah. He has hey, good morning, everyone just a quick.
Quick one on pricing actually last quarter, you, obviously made some price moves on the on the energy trading sites.
<unk> looked like that came through pretty nicely. So just wondering any any lessons learned from they are and and can you extend that into other areas is really the question I mean, you didn't touch any other futures.
This is maybe broadly on the exchange sites around market data and and some of the success, you're having an energy data in particular are there more opportunities and for pricing that you see now versus previously since you've gone through this experience on pricing.
Yeah. It's it's Warren is a great question and so in terms of the pricing changes we made within the energy complex as we said last four of those are a handful of oil oil contracts. So we didn't touch everything within an energy, but certainly decided at that moment of time. It was it was a good moment in time to to capture some of the value we brought to the <unk>.
A class over the last number of decades Franklin so.
We spoke to the last quarter mentioned that it would probably be a few a few pennies a benefit to the <unk> I would say it's about it was about three to four cents. If you also so in line with what we were expecting on that front in terms of the benefit from those price changes all else equal.
As we look across the rest of the features platform and frankly, the rest of the ice platform the philosophy as.
Re approach and applied here is going to be the same and has been the same since the beginning and that's when we see opportunity to capture value that we've created for people in our customers and ask the classes that we operate we will think about doing that and and and frankly be selective about it and pick our spots and so I think as you were thinking about that.
As we move into the next year in future years, as well will will be taking that same approach and so we did have some success with this on the energy side again, I think it's recognition of again the value of credit cause we certainly seem very strong volumes and very strong open interest continue.
And I think you'll just see us take a similar approach across the rest of the guys businesses, we move into our budget season. This year, and then think about it into the future.
So more of a next year opportunity is what I'm hearing from Ya sorry for the quick follow up.
So I I wouldn't expect pricing changes this year. So yeah. So it will be next year and beyond.
Thank you.
The next question today comes from the line of Simon clinched from Atlantic Equities. Please go ahead, Simon you're <unk>.
Hi, Thanks for taking my question I was wondering if you could just took a bit more about the environmental products business and just how it is progressing right now and see what it's gonna take when we should start to expect to see the growth rates. We received the kind of attractive patient we saw previous used <unk>.
Last year [noise].
Thanks, Simon this is Ben.
As as you know, we've we've been thinking about this space for well more than a decade and investing in it.
We feel great about the positioning that we have here and we're just continuing continues to be one of our most significant areas of investment.
Across our futures business, because we see that the world is going to continue to have this dynamic of moving towards a cleaner energy environment.
That road is going to be bumpy and the fact that we can enable customers to have on that journey, a complete suite of products across oil gas power and environmental that positions us in a very unique way to help our clients in one place be able to do all of that.
On the how the performance of the of the business itself.
We feel good about it you've got to remember in particular in Europe . There were some headwinds obviously last year, both and energy and the environmental sector with the unfortunate war in Ukraine, We continue to watch the health of those markets, obviously, our energy markets have come back very strong and.
We continue to monitor both open interest trends as well as market data subscriptions within our environmental.
Complex, which is at a record.
We looking at we continue to look at active market participants that continues to grow and our environmental so underneath the covers it's a very strong market, we have 98% <unk>.
Market share of the EUA market space and of what's traded in 96%.
In North America, So all all that underneath the covers is really good there's.
There is some natural Tailwinds I mentioned last quarter as well within the European market itself, where a little less than 40%.
Of the sectors in the European economy are required to basically price submissions and with fit for 55 coming coming in place by 2020 acres. Another post to 40% that are going to be captured such as maritime roads buildings. So this is all secular growth drivers towards our European business.
Our North American business continues to grow in terms of market participants I mentioned in my prepared remarks, we just recently launched a new Washington.
Carbon program and will be launching later this quarter in Alberta carbon trading program. So it's another area of investment.
Another area that we've been thinking about and have been ahead of.
Actually shows up in our oil business, but it's also really environmentally oriented and that's a high demand for low carbon fuels.
We've been ahead of this and we've launched contracts called <unk> futures.
And what these are is basically every year the EPA set standards.
Or in other words guidelines for the amount of renewable fuels that need to be blended into transportation fuels each year.
So that you can create sustainable jet fuel renewable diesel when they're pulling up our cars.
Pudding clean unleaded fuel into into our vehicles.
To meet this target, there's a certain amount of production of renewable fuels.
That are produced and those get renewable identification numbers. These are bought sold and traded historically, but in a very opaque market.
We launched futures on this is a much more efficient way to do this and we continue to see this grow and open interest as well as Adv very rapidly. It's one of the highest growth areas and that other crude and refined reporting line. If we mentioned in our prepared remarks.
And today in the last 12 months, we saw roughly 20% to 25% of the physical market under the EPA mandate trading by our futures and as futures markets mature they oftentimes trade a multiple of what the physical market is so it's ah another another.
Another area across our portfolio over focused on the environmental space. We're looking ahead and we're seeing some nice growth.
Thank you.
The next question today comes from the line of <unk> from K B W. Please go ahead Kyle Your line is now open.
Hi, good morning, disregarding the alarm gated sales cycle, you mentioned again this quarter, we're seeing some competitors that have also experienced a similar dynamic but other competitors, including one that reported this morning noted that they're not seeing that elongated sounds cycle and your enterprise data business I guess I just wanted to hear whether you think there are any.
Competitive share shifts that are occurring that fits business that you can see or whether the slower growth is really entirely driven by the macro environment that we're in.
And then also if you could give some commentary whether you're seeing any light at the end of the tunnel. There in terms of inflections that you're hearing from clients that we may be getting to a better sales cycle environment as we head into 2024.
Hi, This is Lynn Martin Thanks for thanks for the question. So on the elongated sales cycle. If you look at the fixed income and data services business, we're definitely seeing abate when you look at other data services.
Line as wiring mentioned and his prepared remarks, we've actually been able to take sure from some of the larger incumbents.
As a result, the significant amount of investment that we've made over the past few years.
In the delivery and Modernising the tech stack associated with that business, So you're definitely seeing the elongated sales cycle.
They're given a shareware taking.
On the fixed income data and analytics side of the business.
Still see some of the effects of the elongate it sounds cycle, but importantly, what you're saying is we are taking sure in our end of day pricing business, we're continuing to take share their we're continuing to see.
Good growth in some of the smaller line items that make up that overall line item, including the index business, which as Warren said in his prepared remarks.
Is now about 526 billion in AUN benchmarked against that and.
Ah.
Product that really.
Go along with the trend of automation. So let me just unpack that a little bit if you look at the big Buzz word of the year in the industry, it's really been around the development and implementation of large language models.
We are seeing.
Demand for and that's why I mentioned in his prepared remarks, the adoption of our proprietary large language models and you are seeing the effects of that.
Come through and not just our other data services line and the revenue attributed to that line. They are also starting to see that in other parts of our segments, including the energy trading side of our segment.
Additionally, those large language models.
Are what feed things around fixed income automation, which is a trend that we continue to be uniquely positioned to capitalize on so products like continuous evaluate pricing smaller line item, but it continues to see outsized growth relative to.
The other portions of the fixed income data and analytics side of the business and because of the strength in that part of the business.
You are seeing that bleed into the ice bonds execution side of the business, which outpaced the industry in spite of muted volatility and our core muni market because of share gains due to that automation the transparency provided by our day.
Data as well as.
The adoption of institutional customers for these services across not just army any products, but also our rates are money market products and importantly, starting to see it in our credit products. So overall, we feel really good about how we're positioned.
We're not saying.
Anything in terms of share erosion on the contrary, we're continuing to see share gains in our core business, but we still are seeing the effects of dialogue AD sales cycle really in the end of day pricing business, which is causing slightly slower growth.
The next question comes from the line of <unk> from Bank of America. Please go ahead, Craig Your line is now it.
Good morning, everyone. My question is on a fixed income business. So given the higher interest rate backdrop. Many are predicting large bond reallocations over the next few years. So I wanted to see if you could walk us through your fixed income and data services business and provide your perspective on how this reallocate.
<unk> could impact.
Trajectories of the verticals inside.
Hi, This is lyn again.
That's a that's a great question, so a couple of areas.
As you think about where the yield profile continues to lead obviously the attracted yields in treasuries more recently is what has really driven some of the outsized gains that I just mentioned on the execution side of the business for the treasury execution business in the money market <unk>.
On the contrary to that that you've seen is on a fixed income index business, where our capture right as we talked about on some of the previous call tends to be lower on our Treasury index business. So AUN continues to grow but it doesn't have a direct correlation to the <unk>.
New growth that is not a one to one relationship as you're starting to see the issuance profile.
Start to return to normal.
Assets under management to the higher capture indices that being <unk>.
Credit indices, the Muni indices, and obviously with the equity markets doing while our equity indices, but you will also start to see that impact on our pricing in reference data end of day business, because you will start to see newfound families emerge.
To asset funds.
Bridge, which you have not really seen over the last year. In contrast over the last year, you've seen where it's been particularly tougher the fixed income asset managers between the number of funds decline, we're starting to see green shoots for the reemergence of new funds being created so I think you'll.
I'll see a positive impact on a variety of on line items, but again. This is why we have set up the business in the fixed income and data services segment in particular to be all by their name to benefit from a variety.
Macro trends, so treasuries do Wow that's.
That's going to impact the segment in one way if Nancy while it's going to impact a segment in another way.
Thank you.
The next question today comes from the line of Brian <unk> Deutsche Bank. Please go ahead, Brian New lines noise.
Oh, great. Thanks, Thanks, very much for taking my question, maybe just to come back to the ice shed offering in the proprietary allergic to merge language models.
And particularly in energy I think you mentioned it was.
It was helpful and stimulating volume so far this year, maybe if you could just talk a little bit more.
More about what's what's actually driving that how does the chat offering.
Add volume is it bringing new customers.
Into the mix get makers, and then where would you think you are on this on this journey.
It sounds like it's relatively new but do you do you think you've already sort of enhanced.
Enhance the volumes with this where there's a lot more to come in the future.
This is Lin again, that's a that's a great question actually a topic, we will have talking about so we've had.
To the energy markets across asset class across oil across gas and across starting to to impact utilities.
As well effectively what it does is it allows for automation it.
Those if you and I are talking about the fact that today is Thursday or knows if we're talking about a trade idea through those models if it detects a trade idea.
Well allow for the seamless.
Transmission of that trade two are clearing houses in our trading platforms. Additionally, I'll give you some fair value analytics, an additional metrics around it to allow you to perform that trade with with confidence that you're getting at that price. So it's really.
Helping the trader to automate the workflow it's why it's gained.
Popularity, particularly over the last couple of years as those models have gotten smarter at the technology has improved quite honestly, but I think we're still in the early stages of the essence still a small contributor to our volumes, but it's something we're in.
Thank you.
Next question today comes from the line of Patrick Molly from <unk>. Please go ahead. Your line is now open.
Yeah. Good morning Thanksgiving My question. So I just wanted to go back to energy.
Mentioned earlier.
Strong volumes.
Wrong open interest groups.
Even though you had some you've had to meet your time. So he was the strongest QQ.
In your history. So just when we look at the macro landscape.
Was hoping you could maybe give us your outlook for the back half of this year and energy.
And I think my predecessor Ashes on the last call, but is there anything out there right now that maybe you're keeping an eye on that could derail strong momentum your scene and energy.
Thanks, Patrick this is bad.
So it's it's clear to us that you got <unk>.
Several.
Underlying trends going on in the in the industry.
Continue to have well publicized under investment and legacy energy infrastructure.
That can cause supply shocks.
<unk> God overall, and broadly electronic vacation and energy markets continues to take hold.
But each of the energy markets and the new innovations that we continue to launch various ends of the spectrum of how mature they are in adopting electronic vacation.
The energy markets are becoming more global.
Is supply chains continue to evolve and change those markets are becoming global.
Natural gas is now freely transported around the world in terms of LNG.
You also have a trend around precision and risk management customers don't just Wanna trade big benchmark contracts that they want to <unk>.
Trade those in parallel to deep liquid.
<unk> they are at the points of production and consumption of where they are concerned about and have to actually buy the product.
And there's no question question I believe the last trend would be a move towards greener energy.
And we built our business with a very long lens.
Towards helping our customers manage risks through all of these we have a deep liquid set of contracts hundreds of them around the world.
We have a lot of different pricing points across each of those sectors, whether it's commodities energy cleaner fuels environmental markets gas hour you name. It we built our business with that diversification and with our customers needs.
And mine.
We see the setup is great for US you look at just the the results that we've had were at or near.
An average daily volume market share high and crude oil and to cross our global oil complex.
We're adding open interest market share high and North American gas.
And global gas.
Or at or near an all time revenue share high.
We've had record active market participation in multiple products.
Such as Tcf gas and continuing to grow rapidly and the environmental space.
And our futures markets continue to set records in terms of market data subscribers onto our platform.
So overall, we feel great about all those underlying all those underlying trends and then.
To cap it off you look at what's been going on with Brent.
That contract continues to grow very well and since.
Midland Ti was introduced into the Brent complex. This summer we've seen that contract continue to grow rapidly and we've had over 50 million barrels of oil that has now been delivered against that contract. So we feel great about the prospects of where we are positioned.
Both for the balance of this year and into the future.
Thank you. The next question today comes from the line of Alexander Blow steam from Goldman Sachs. Please go ahead Alexander Your line is no way.
Hi, Good morning. This is actually filling in for Alex. Thanks for taking the question. Another question within fixed income on the execution site. We've seen continued progress in fixed income execution, although from a small base you've been adding capabilities held with the recent launch of speeds protocol can.
Provide more kpis for this business electronic markets like in in high yield where do you see it going over the next 12 months and lastly, how does price compared to incumbent platforms and protocols that to compete in thanks.
Our core market has really been the muni market now I think what's really encouraging about this quarter is you saw a strong growth from us even though the meaning markets have had muted volatility muted activity this quarter and I think that's really been attributable to the fact that we really have spent.
The last couple of years building out our distribution framework and focusing on building our distribution framework and getting access to the institutional users, but also continuing to gain share in retailing wealth. So despite the fact that they mean any markets have been quieter and cute.
Two then over the last year, we were able to gain share continue to gain share it.
In the retail and wealth side of the business now importantly, because we had done the development efforts and the integration efforts into the institutional side of the business that.
The treasury markets, which had a much more attractive yield profile, we're able to have outsized results, which drove the growth in this quarter, which you saw that coming from not just retail and wealth segments, but offsetting institutional side of the bed.
Business and as you noted we have made significant investments in the technology because the distribution has been there into.
Particularly investment grade.
Over the over the last few months now that's still very early days, but we're optimistic because of the investments that we have made on the platform.
Thank you.
There were no additional questions wasting. It this time, so I'd like to <unk> or any closing remarks. Please go ahead.
Oh well. Thank you Bailey. Thank you all for joining US this morning, and I would also like to again. Thank my colleagues for delivering the best first half on our company's history.
I would also like to thank our customers for their continued business for their trust.
Look forward to updating you again soon as we continue to innovate and build on this all weather business model that generates growth on top of growth.
And with that I hope you all have a great day.
This concludes today's conference cool. Thank you for your participation you may now disconnect.
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