Intercontinental Exchange, Inc. (ICE) Earnings Call Transcript & Summary

Yes, it's interesting. I know you know a little [ about my ] background, but just not to make this about me, but I started ICE -- well, when I was in [indiscernible], I started a company with a guy I met in school that was a renewable energy company. And I started ICE, what was called the Continental Power Exchange to build a renewable energy exchange in 1997. And over time, the name didn't fit the company. We weren't just continental, and we weren't just power. And so we became Intercontinental Exchange. But the core of the company was a renewable energy platform. And I think that DNA has been all through the company in our growth. And we have -- we are the dominant exchange for emissions and carbon and offset and renewable trading around the world. I mean, we probably have a 90-plus percent market share. And given where we started, you could kind of get your head around why that is the case. We bought -- we were early in this space, and we bought the Chicago Climate Exchange more than a decade ago. We run essentially the European carbon markets, the new U.K. carbon markets just launched in the last 2 weeks, the regional markets around the U.S. for various SOx and NOx and offsets various voluntary markets. And so it's been a big and growing part of the company, honestly, for 20 years. But in a world where we live today, when there's much more focus on ESG issues, it's starting to get more attention. And by the way, it's been a consistently good grower for us over that period of time.

Just curious, when you speak to ESG investors, I guess what's the view of ICE's role in broader energy markets, whether it's traditional carbon markets or the climate markets? And how does that impact their view of ICE's ESG ratings, whatever that actually means?

Yes. I think -- well, first of all, this whole ESG space and in terms of the way investor perception around ESG space is evolving is complex. We don't have yet good metrics or good indices that we can benchmark against. And so saying that we probably get 0 credit from investors in terms of actually building and running the environmental markets for the world. We use those markets. We offset our -- part of our carbon, and increasingly as we're auditing ourselves and doing our own internal work, we like using markets as a way of solving some of these products. It's consistent with our vision of clear, transparent and regulated markets. And I think pricing carbon and other emissions is a way that managers can get their head around how they can go about improving the world. And so I don't think we're getting a lot of credit there. I do think, over time, people will come to recognize what we're doing. Certainly, government officials recognize it because they continue to turn to us for solutions. If you think about what we're doing in Europe, I recently had a meeting with the minister in charge of finance in the EU, and part of the COVID recovery plan for Europe is a green financing plan. This is a major top-down initiative through various governments in Europe. I think it's going to be contagious and already somewhat is around the world. And we help people do that refinancing by giving them the hedging tools for major green projects, carbon and renewables and other offsets. And so we're a part of that conversation, and it's been really good and rewarding business for us, given how many years we've been at it.

Let's switch to nat gas business. That had a real [indiscernible] last year. Just nat gas broadly. So can you just speak to the long-term opportunities in nat gas? Where are we in the sort of global harmonization of nat gas prices? And kind of how do you think about that business longer term?

Yes. I think, Christian, when I first met you, I think I was -- years ago, right, when we're looking at the company, I think we started to talk to you about the fact that we thought the natural gas business would globalize, it is, it has been. We run a global natural gas trading and risk management platform. We, years ago, went and built an exchange in Amsterdam and acquired some businesses there and launched a natural gas contract called TTF, which has become the European natural gas marker and is increasingly becoming a global gas marker. We also have a contract that we trade in Asia, JKM. And what's happening is the globalization of natural gas through the provision of liquefied natural gas that can be shipped around the world. And it's a solution for many economies as they're trying to get off of legacy carbon footprints and moving as a part of the solution to a natural gas environment as the move continues to renewables and solar and other things. Natural gas is a part of that shift in that mix, and it's globalizing. And we are the global platform for gas. And you particularly see that happening outside the U.S. in some of those markets.

Good. Sticking with the non-U.S. theme here. You recently launched the [indiscernible] brand [indiscernible] into oil to be a benchmark in the Middle East, Asia. I feel like that's been [indiscernible] attacked a few times, and it's been tougher to crack. How do you -- why do you think this attempt will work? How does it play to sort of the bigger geopolitical dynamics around, I think, China's trying to create its own benchmarks for oil, obviously, the U.S. still has dominant benchmarks, but maybe to put all that together, and I love to get your views?

Yes. So we recently launched a new exchange in Abu Dhabi, along with Abu Dhabi National Oil Company and a group of industry players to create a new benchmark Murban crude, which is Middle East crude. And so while we're -- on the one hand, we're talking about ESG, carbon and a movement to natural gas, if you look at emerging economies, particularly Asia and China, and including a couple of other non-China Asia companies -- countries, they are going through tremendous growth, and they are still highly dependent on crude oil and [indiscernible] petroleum products. So there's kind of a barbell effect going on in the world right now. Western company is moving on one end of the spectrum and emerging economies on a different end of the spectrum. And so we have an end-to-end platform that allows all of that kind of risk management. And I think it's been great to partner with the ADNOC folks and the Abu Dhabi government. They -- I think it will have many more opportunities for us in the sense that they understand the trends that are going on. They have their own ESG plans for their economy. They recognize that the Middle East was largely an oil-based economy. And it's going to transform itself. Along with a lot of societal transformations, there are energy transformations going on. They're serious. And I think our partnership there will bode well for us over the long-term with that infrastructure. And lastly, I would just say to you that figuring out how an Asian footprint for a western company and navigating what's moral and ethical and where do you want to position yourself, it's been better for us to partner with people around in the Middle East and in other areas out of Europe and what have you. It's been a safer, more reasonable investment philosophy for us and still, I think, puts us in the right overall legal and ethical place with respect to growth.

Great. Jeff, I actually have quite a few questions coming up for you from the audience. So let me take a couple of those before I jump back to my questions. One of them is, can you discuss growth drivers of the Fixed Income data analytics business? And what new opportunities do you see to grow longer term?

Yes. So we've been trying again to build a fixed income network. So think of us as what are we putting together. And we want players that are in the fixed income business to be members of this network, to be using various services across the network, and sort of the foundation, if you will, of that network is data acquisition and distribution to people that are making fixed income decisions. And that's largely been a subscription-based business. And we've been able to grow the data set and create alternative data sets as the network has grown. We've built that business to try to participate in the trend of the changes that are going on in the fixed income business. One, I think many of your followers know that there's an analog-to-digital conversion going on in the execution of fixed income. But more broadly, there's a change in the way investor appetite is looking at fixed income through alternative investments, like exchange-traded funds. Bonds are hard to own. They're hard to index. And so data is key for those investors. If you think of an index for equities, which we're all used to, companies get acquired and new companies form up and the index can be rebalanced on an orderly way. And generally speaking, the market understands what the next name is coming in and out of an index will be much more difficult in bonds where bonds are redeemed or [indiscernible] or they have a tenure on them. And so -- and a 5-year bond may come and go. And so it has to be replaced with something like-for-like in the index. And so we have an amazing historical index or database of indices data that we use. And so -- and a very good business that's participating in that analog digital conversion. And we continue to put things on to that network that make the network more valuable and then continue to grow the network with more respondents on it. So another one of these analog to digital institutional network plays that we're doing well at.

Great. Have quite a few questions on blockchain and crypto. One of them is, what is your view of the impact of blockchain technology on different parts of the exchange business over the next few years?

Well, we got into that business because we wanted to learn about the blockchain. And so we were relatively early. We invested in Coinbase. They wanted to use our name as part of their capital raise as a validation, and we wanted help in understanding blockchain and digital assets more broadly. And so there was very good early partnership there. They don't need our name anymore. We understand the blockchain. So we've actually sold out of that investment. But the underpinnings were acknowledged and partnership transferred essentially. The blockchain is a distributed database. I will just tell you that we run one of the most sophisticated distributed databases in the world that underpins the U.S. equity markets. We do hundreds of billions of transactions a day that have to be widely distributed across Wall Street, banks, brokers and investors and can have no downtime with latency that defies any network built anywhere in the world for any purpose, people that are being bits and bites to us off the ionosphere. And so we really are database experts. When we look at the blockchain, you can see it's version 1.0 of database, it's rudimentary compared to what we're doing. It's interesting. It has a lot of application because of its public nature and its ability to distribute. It doesn't solve a lot of the major problems that we have. But there are -- if you look at globally, the interest in it and the investment going in various blockchains and new tokenization of things, it's interesting. So we want to be a part of that, at the forefront of it. Right now, it's somewhat consumer oriented, which is why we created the company back and gave it its own brand and ultimately its own capital structure because it's a network business, but not institutional. So probably going to have different metrics for people like you to cover it and consider it in terms of an investment thesis.

I am curious when you make up progress on Bakkt so far. I mean, you guys started this, right -- quite a while ago, you had the vision around crypto or [indiscernible] of price of what it is today. If you think about progress over that time, how the market has actually grown quite a bit, what do you make of Bakkt's progress so far? Anything you think has held it back a little bit? And how do you think that can accelerate going forward?

Yes. So it's doing well. And we're -- I can't talk too much about it because we're about to spin it into as a public company. And so that -- it's filings are out there. So I don't want to discuss the performance of the business. But the philosophy was that we were in the institutional network business, and there was a lot of institutional interest in blockchain, bitcoin and tokenization more broadly. And can we bring that group of institutions together. If you really look at the high-profile trends and investments that are going on around digital assets, crypto, what have you. They've been very consumer oriented. They haven't really yet engaged the institutions. Some of that is regulatory government influence on finance and regulated finance businesses. And -- but there's an interest in it. And so Bakkt is really positioned. We have a relationship with Starbucks and Microsoft, 2 early partners in that company with us. You can now use the Bakkt app to -- in conjunction with the Starbucks app, which is one of the most well used, well liked consumer apps for dealing with an institution of Starbucks. And so there's connectivity there now. And there are a number of other partners that have been announced and then yet to be announced that are the opportunity set for Bakkt going forward in hooking consumers and institutions together, which is a business that we -- much like the mortgage business, we're increasingly hooking institutions and consumers together. These institutional networks are being -- networks more broadly are being pulled into the consumer marketplace. So we're on one end, going one direction, and you've kind of seen the blockchain on the consumer and trying to go in the other direction. So somewhere in the middle [indiscernible], I suspect.

A couple of questions on mortgage. One is a network effect, how do you benefit from the network? What are the -- where are we in the integration of the businesses? And how would that influence growth? I'll tuck another one to that as well because it's [indiscernible] as well. And the question is, what are the biggest challenges you face in developing our mortgage business?

Yes, those are very linked in the sense that the opportunity is to have an end-to-end network with one set of documents and datasets that is -- that ticks all boxes from a regulatory standpoint, which that alone will massively streamline the workflow and massively reduce the error rate that exists today in mortgage. And so the network effect is having all of the people that participate in mortgage, people that write flood insurance, people that do home appraises. Increasingly, with digital closing, we're talking about law firms, notaries, clerks that are involved right now in the paper-based mortgage business, that network, if we're successful in expanding this really scales become very large. Very quickly, it moves well outside of the lender footprint across broad -- broadly across the mortgage and institutional space quickly, we think. And the opportunity set there, if you really want to look out 5 years or 10 years or what other -- now that you have that massive network of consumers, lenders, title companies, lawyers, notaries, counties and capital markets all on one network, what are the other opportunities? And one of the things we're finding, just to show you a little leg is a lot of people coming to us saying, are you aware that my business benefits from a new homeowner. I have a landscape company. I'm [indiscernible] company. I have a big box store and sell trash cans and draperies. Their -- the event of buying a home stimulates a lot of consumer behavior. And we are at the center of that. We have the best dataset, knowledge base bar none of what's going on, if we have that end-to-end transaction. Similarly, if you are a lender, you'd like to have a customer for life. You'd like to have [indiscernible] do business with that lender and come back to them if we're going to refinance or if we're going to do a home addition or if we're going to buy an automobile or whatever consumer needs are, you'd like to have a consumer for life. One way of doing that is if you can have better information and connectivity to that customer so that you can anticipate when they might refinance or when they got a new job and they may be moving to a new city, that data is available in the world today. And so part of the long-term network impact is having that organized in a way that can have a better consumer experience that meets all regulatory requirements. And those are areas that we understand and are excited about building out.

Great. Well, actually, we're out of time here. So let me ask one more for myself here. As you mentioned Jeff, [indiscernible] come over 20 years, built an incredible company, seen a lot of success. But in terms of [indiscernible], if I look at all people around you, they're all mostly gone, right? Chuck Vice, even Scott Hill just left now, obviously, Kelly is doing other things. So the question is what about Jeff, right? How do you think about your role in the company? What do you think makes good succession planning? Can this company survive without, obviously, what is an outsize personality and obviously a visionary leader? Maybe just talk about those sort of points?

Well, first of all, thank you. There's a complement in there, I appreciate that. I'm not sure it's fully deserved in the sense that the people that have left here have basically retired. We have an incredibly loyal compatible management team. And Scott Hill left after 14 years as the CFO and Chuck Vice left after 22 years as the COO. And so -- and Kelly was called to public service. So people don't leave here to go to other companies. And that is part of the culture that we're creating. And what I hope you're seeing is that as the company has grown, we have a group of managers that are running businesses today that we're increasingly trying to expose to you and the market, my colleague, Ben Jackson, who's our President is doing some of the one-on-one today. We want to give people access to these very talented people. And that's intentional on our part because it's not a one-person company. My job today is helping to curate and keep organized really highly talented people. And we run the business together as a group, we're not siloed. We're very flat. We're very communicative. Just to give you a sense, last week, I went to a baseball game with our large former CFO, Scott Hill, our former Chief Technology Officer; Edwin Marcial, and our former Chief Operating Officer, Chuck Vice. Yesterday, Kelly Loeffler went to lunch with Scott Hill, and Jonathan Short, our former General Counsel. I mean we're all still -- and they're all still here helping and contributing, and there's a tremendous amount of loyalty to the company. So that's a culture that we've tried to ingrain and that I specifically wanted here so that the company can have long term, whether I'm here or not. But I would just tell you today that I'm fortunate that I'm just helping to keep organized and curated a group of really talented people that many of you are coming to get to know and deserve much of the credit. I started -- I probably had the idea for mortgage, maybe 2005. So was that 16 years ago, we started working on mortgage. Today, I can talk about it. I'm [indiscernible] because other people are really affecting the vision that we came with years ago. So -- and I feel great about the company. And this -- it's just -- as you said in your introduction, by the way, Christian, had the best year in our history and the best quarter in our history last quarter. And it's an incredibly talented team here that's doing that. And the legacy people that have retired that are hanging around and helping out are so proud of this group. I couldn't be more high on the people that are here doing these businesses.

Great. I think we've a little run out of time here. So as always, Jeff, really appreciate the time. Thank you, everyone, for joining as well. Thank you.

Thank you, Christian.