Q4 2020 Intercontinental Exchange Inc Earnings Call
Good morning, My name is Kate and I will be your conference operator today at this time I would like to welcome everyone to the Intercontinental Exchange fourth quarter Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question.
During this time simply press Star then one on your telephone keypad, if you would like to withdraw from the question queue. Please press Star then two please.
Please note this event is being recorded.
Mr. Gardiner you may begin your conference.
Good morning, Ice's fourth quarter, 2020, and earnings release and presentation can be found on the investors section on the ice dot com. These items will be archived on our call will be available for replay on today's call may contain forward looking statements. These statements, which we undertake no obligation to update or <unk>.
And 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 2000, Twenty's and form 10-K, and other filings with the SEC and our earnings up on we refer to certain non-GAAP measures, including pro forma revenue adjusted income.
EPS operating income operating margin expenses effective tax rate and debt to adjusted EBITDA and believe our non-GAAP measures are more reflective of our cash operations and core business performance and find a reconciliation to the equivalent GAAP term and net earnings materials and an explanation of why we deem this information to be meaningful as well.
Management uses these measures and our form 10-K.
When used on this call net revenue refers to revenue net of transaction based expenses and adjusted earnings refers to 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 terms.
With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Ben Jackson, Our President and I will turn the call over to Scott.
Thanks, Warren good morning, everyone and thank you for joining us today.
I'll begin on slide four with some key highlights from 2020, and a summary of our strong fourth quarter results.
Earnings per share of $4 and 51 were up 16% year over year on record revenues of over $6 billion.
Free cash flow totaled a record $2 $4 billion, and we returned nearly $2 billion to shareholders through buyback and dividend.
We also use some of that cash and our strong credit profile and make the important strategic acquisition of Ellie Mae and September and acquisition that was nearly 3% accretive to our full year 2020 earnings per share.
Our fourth quarter results were an exclamation point on a great year.
Earnings per share totaled $1 13 up 19% year over year.
Net revenues totaled approximately $1 7 billion, a 14% increase on a pro forma basis.
While we have now transitioned to new segment reporting I'll mentioned that fourth quarter data services revenues totaled $595 million, which was at the high end of our guidance range and up 6% year over year.
For the full year. Despite the challenges brought on by the pandemic our data sales teams focused on serving our customers deliver data services revenues grew 5% over the prior year and were near the top of our guidance entering the year.
Fourth quarter adjusted operating expenses totaled $712 million, we were above the high end of our guidance largely driven by lower levels of capitalized labor and our technology teams, who delivered near flawless execution, while largely working from home for most of 2020 took some well deserved vacation to recharge from an extra.
Ordinary year.
Now, let's move to slide five where I'll provide an overview of the performance of our exchange segment.
Fourth quarter revenues totaled $871 million up 6% year over year transaction revenues increased 7% driven by 6% growth and our energy business, and 21% growth and cash equities and options trading and.
Importantly through the end of January our energy open interest, which we believe is the best indicator of long term growth was up 4% versus a year ago, including 11% growth and our global natural gas business and 5% growth and our environmental complex.
Recurring revenues, which include our exchange data and listing services increased 3% year over year. These results were driven by the NYSE share a strong year over year growth and industry Sip revenues looking.
Looking to the first quarter, we expect recurring revenues and the exchange segment to be between 310 and $315 million.
Turning now to slide six I'll discuss our fixed income and data services segment.
Fourth quarter revenues for the segment grew 3% year over year.
While transaction revenues declined 16% recurring revenues, which account for nearly 90% of total segment revenues grew 6% year over year.
Fixed income data and analytics, which includes our leading pricing and reference data and index business increased by 7% and acceleration from 6% growth and the third quarter.
Other data and network services grew 5% and the fourth quarter, driven by continued growth and customer demand for both ice global network and consolidated <unk>.
Looking to 2021, we expect recurring revenues and this segment to grow 5% to 6% on a constant currency basis for the full year, including $395 million to $400 million and the first quarter.
These expectations are supported by ASP growth of five 7% exiting 2020.
Please flip to slide seven where I'll discuss the results and our mortgage technology segment.
Please note that my comments on revenue growth are on a pro forma basis.
Mortgage technology revenues grew 65% year over year, and the fourth quarter and 56% for the full year.
Fourth quarter transaction revenues increased 92% year over year favorable financing conditions, accelerating millennial homeownership trends and demand for digital workflow tools, such as our network closing solutions and analytics all contributed to our strong results.
Recurring revenues increased 29% versus the prior year as increased utilization and new customer adoption of both our origination technology and analytics continued to expand our subscription base.
We expect recurring revenues and the first quarter to range between 122 and $127 million.
Representing around 30% growth versus last year on a pro forma basis.
I'll conclude my remarks on slide eight with some additional guidance.
We expect 2021 adjusted operating expenses to be in the range of $2 83 to $2 88 billion.
We expect the spin out of back to reduce expenses versus last year by $50 million.
And as I mentioned on the last earnings call, we expect roughly $20 million of additional D&A expense and our mortgage segment. In addition, we plan to invest $25 million to $30 million to enhance our mortgage technology platform to support the significant growth and customers and volume that we've seen over the past few years and which we expect to continue.
<unk>.
With those items roughly netting out our year over year expense growth will be largely consistent with prior years, including investments and our people and tied to revenue growth.
We expect compensation expense across ice to increased by 40% to $50 million.
Expenses tied to revenue growth are expected to increase 15% to $25 million and FX based on current spot rates will add $10 million to $15 million, which will be more than offset by a positive impact to revenues.
For the first quarter, we expect adjusted operating expenses to be and the range of $720 million to $730 million, including roughly $23 million related to that.
In summary, we delivered a very strong finish to another record year. We once again grew revenues operating income free cash flow and earnings per share. We grew our dividend and returned nearly $2 billion to our shareholders at the same time, we invested in our business to meet the needs of our customers while also expanding.
Handing our mortgage technology network through the acquisition of Ellie Mae as a result, we've set the stage for continued top and bottom line growth and enhanced shareholder returns into 2021 and beyond.
And I'll be happy to take your questions during Q&A, but for now I'll hand, it to Ben to discuss some additional business highlights and key growth initiatives.
Thank you Scott and good morning to everyone on the call. Please please turn to slide nine where I'll begin with some other highlights and key initiatives across our global energy business.
While inflation economic growth and geopolitics will always influence volume trends and a particular quarter or year, we are focusing on investing in the structural growth opportunities that exist across global energy markets.
Investments that have been critical to the 7% average annual revenue growth, we have generated across our energy and environmental network over the last five years.
And our oil markets. We soon planned to launch ice futures Abu Dhabi or iPad.
This is a launch and partnership with the Abu Dhabi National oil company or add knock and nine of the world's largest energy trading firms.
For the first time this new exchange will offer futures on Mervyn crude oil and important price benchmark for crude flowing through to Asia.
And by leveraging the existing breadth of our energy network, we will launch an array of related differentials cracks and inter commodity spreads against our Brent WTO gas oil and naphtha benchmarks.
And our natural gas markets the demand centers of Europe, and Asia are increasingly at the forefront of global price formation.
We began investing and the globalization of gas markets over a decade ago at a time when exchange traded volume in our TTS contract was less than 10% of total trading activity.
Today exchange traded volume is approaching 50% with.
With open interest in TTS growing at an average annual rate of nearly 40% since 2015.
This growing network also plays an important role in the growth of our global environmental markets, where the number of market participants has grown by 40% since 2017.
And as customers increasingly seek solutions to help navigate the long tail and the complex evolution of global energy markets.
Turning to slide 10.
Mortgage technology is at the center of and analog to digital conversion.
As customers demand greater workflow automation.
In addition, and acceleration of millennial home buying and attractive refinancing conditions continue to provide a tailwind to our robust results.
Pro forma mortgage technology revenues totaled $1 $2 billion in 2020.
Ahead of the high end of the range, we expected for all of 2021, when we announced the acquisition of Ellie Mae back in August.
As we execute against this $10 billion addressable market and our approach has been and will be similar to the blueprint we apply across our other networks.
We will invest behind secular growth, both organically and through acquisition.
By adding new tools and content to enhance the value proposition of our network.
As a recent example.
During the fourth quarter, we launched our credit analyzer.
A product that leverages, our artificial intelligence engine or IQ.
To reduce the time it takes to perform a credit review by up to 80%.
In 2021, we plan to begin rolling out New E closed solutions and initiatives that we believe has a $1 billion addressable market.
And we continue to see strong customer uptake across our network and our data and analytics offerings as we execute our strategy of relieving the pain points and inefficiencies that exist across the workflow.
Turning to slide 11, our proprietary price evaluation serve as a cornerstone of a network that is uniquely positioned to capture growth opportunities across the fixed income ecosystem.
As an example, we are a leading solutions provider to the fixed income ETF industry, which as many of you know has seen assets under management grow at an average annual rate of 25% over the last five years.
Our decades long position as a leading provider of price information and reference data has served as the foundation for what is today, the second largest provider of fixed income indices globally.
While critical our price information on our indices are only a part of what we offer to this growing industry and.
And late 2019, we launched our ETF hub a network, we designed to reduce the workflow inefficiencies that exist within the ETF create redeem process.
Late last year, we integrated ice chat platform that we acquired in 2008.
And have since grown to over 100000 users.
We also linked ETF hub to our ice fixed income select platform, providing access to our fixed income data and analytics.
As well as seamless connectivity to our trading venues.
As a leading provider of these proprietary data services, we have also developed and expertise and the gathering and cleansing of unstructured data.
Essentially our skill and building the databases that serve as the foundation for developing actionable insights and identifying opportunities not only in the fixed income markets, but across many other asset classes as well.
This is and expertise we are leveraging through new product development, such as our suite of ESG data services and some early mortgage data initiatives, which will leverage our growing mortgage technology network.
This also applies to new partnerships such as our announcement to apply our data services expertise to Adp's unstructured workforce data to help bring additional insights into the municipal bond markets.
As we move into 2021, we're excited about the many opportunities for growth and lie ahead and opportunities that we are able to capture because of the investments. We've made in the past and the strategic investments, we will continue to make across our networks into the future.
With that I'll turn the call over to Jeff.
Thank you Ben and thank you all for joining us this morning.
Please turn to slide 12.
Over two years ago, and and collaboration with Starbucks and Microsoft among others, we seeded adventure within ice called back on.
Our vision was to leverage our collective core competencies to build a regulated ecosystem that would support the full lifecycle of a digital asset.
And through efficiency gains and greater transparency, a platform that would have strong network effects within our nascent but rapidly growing asset class.
Since launching back in 2018, we've applied our blueprint.
We've invested in organic product development by building, a consumer wallet and launching futures and options contracts.
And we've made inorganic investments by purchasing bridge to solutions and adding digital custody services.
And January backed announced that it will merge with a stack managed by victory Park capital the transaction valued back at an enterprise value of approximately $2 1 billion.
Of which we will retain a 65% economic interest.
Our decision to merge back was threefold.
First the combination will provide significant incremental capital, enabling back to maximize its future growth potential.
Second by listing as a public company on the New York Stock Exchange backed will benefit from elevated consumer brand recognition.
And third we believe this transaction will unlock value for our shareholders value that we believe was not fully recognized within the <unk> share price.
And as you've often heard us say I believe one of the most important parts of my job and the job of the management team here at ice is to leverage our infrastructure and our expertise to create value for our shareholders.
And that vein and shifting to what was another successful year 2020 marked our 15th consecutive year of record adjusted earnings per share.
Track record of growth that began with our initial public offering on the New York stock Exchange and 2005 and is compounded at an average annualized rate of 17% ever since.
Our strategic approach to delivering this growth and building shareholder value has been consistent since our inception.
Through the application of our World class technology, leading operating expertise and our unique position both as a creator and distributor of proprietary data services and we create workflow efficiencies that add transparency and that drives powerful network effects across the asset classes that we operate.
And as we've expanded into new asset classes, we have grown our addressable market broadened our expertise and further solidified our foundation for growth well into the future.
2020 was a year of incredible global challenges, our customers needed to find ways to protect their employees, while continuing to new business as they procured and access to our products.
Our ice colleagues responded with extraordinary resourcefulness to meet our customer needs.
So thank you to our customers for their business and their trust and thank you to my colleagues at ice for their remarkable contribution to the best fourth quarter and our company's history, resulting in another consecutive record year of revenues and earnings.
With that I'll now turn the call back to our moderator, Kate and we'll conduct and question and answer session until 930 eastern time.
At this time I would like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad day.
And the number of analysts on the call I'll ask that you limit yourself to one question. If you have a follow up question. Please re enter the queue.
We'll pause for just a moment to compile the Q&A roster.
The first question comes from Rich Repetto of Piper Sandler. Please go ahead.
Yes, good morning, Jeff Scott and Ben Congrats.
Congrats on on the on the great year.
The question is on the recurring revenue thanks for the breakout and transparency on that.
Scott So I get the I think the exchange you said on the Sip.
Revenues.
What I didn't understand is how.
What's recurring and the mortgage side and it looks like Youre about.
Almost half of your revenue is recurring on overall, if I have it.
Accurate.
Calculated accurately.
Yes, rich you picked up on it exactly right. We did want to continue to give transparency and our guidance on those elements of our business that are recurring and a little easier to predict and some of the.
Volume based business and you're exactly right that if you if you add up the total of the recurring guidance. It's around mid <unk> $830 million of revenue, which is just less than half of the overall business.
And you look at we've given you that detail on a pro forma basis, historically and if you do the math on the guide in the first quarter. Those recurring revenues are growing 7% and 9%. So very strong performance on a very stable part of our business right out of the gate, obviously led by a strong performance and the mortgage business, which has picked up.
Customers.
It picked up volume from existing customers, but then also the data business, which again despite the pandemic as I said in my remarks sales team did a remarkable job and put us in a position where ASB with nearly 6% entering this year. So we feel very good about those recurring businesses and we intend to continue to give you each quarter our perspective on.
And what we expect those revenues to be you asked specifically about the recurring nature of the mortgage bids and I'll, let Ben give you a little color on what's driving that great performance.
Hi, rich.
And we saw this so first thing to start with is on the mortgage side of the business.
When someone subscribes to come onto our network, they're getting our full platform and our network services as part of that so there is a base level of subscription fee that someone's paying to be a part of that and thats really what that recurring revenue pieces and when we analyzed the deal one of the exciting things that we saw under the covers.
Here and that I've talked about and in terms of the different Tam that we can go after here.
With this business out of that $10 billion Tam four of it alone is just and the origination side.
And automating that whole origination process, and we had seen that Ellie Mae had increased market share from 38% to 44% and a pretty short period of time and we had conviction that they are going to continue to grow market share in that space and on.
I'm pleased to say that on under the covers what we've seen in terms of sales performance and I even highlighted this on the last quarterly earnings call.
Back in October that the sales results have been phenomenal in terms of selling new.
New versions of our loan origination system into new customers and then also cross sales of our products into the customer base.
And to go into that even a little bit further in Q3 and Q4. The company set all time records in terms of bookings on the encompass loan origination system. So Q3, and Q4, the two highest quarters ever and the Companys history Q4 across the entire Ellie Mae product set was the largest bookings quarter ever.
<unk> and the Companys history.
So all of that a real tailwind and Scott.
Scott gave the guide to the Q1 recurring revenue.
And for the business as well and why we feel really strong about.
<unk> ability to grow that recurring revenue base.
Regardless of volume environments.
The next question is from Alex Kramm with UBS. Please go ahead.
Hey, Thank you.
Just to follow on on the mortgage discussion just now since you gave some recurring revenue guidance et cetera can you just give us an update how you feel about your outlook for the full year in general and it's two parts one obviously.
You gave that 8% to 10% outlook that you're comfortable with for 2021, you said when you closed early but that was just slightly and now you're obviously youre running ahead. So.
One how should we be thinking about the guidance.
Going forward now and how should we really hold you accountable now let.
You're obviously talking about pro forma numbers, you're integrating the business. So how should we think about it from April on a combined ice plus early mortgage outlook for the year.
Thanks.
Thanks, Alex spent.
So obviously fourth quarter blew away all industry estimates in terms of volume.
You got to set that aside and when we did this deal we are very clear that we saw this as a long term growth trend.
And that we are convinced that.
On an annual basis, we can grow this business and this business will grow 8% to 10% per year on average over over 10 years.
And underneath the covers as I as I just.
And the answer I gave to rich.
And if you look under the covers of what's happened with that business since we've acquired it.
Sales strength has been very strong so I mentioned a couple of the encompass.
Our records that we saw over the last couple of quarters.
Also in other net.
Four of the $10 billion Tam another four that $10 billion Tam is around data and analytics and we also saw record sale.
Sales of our IQ platform, so record bookings of the analyzers that are automating that origination workflow and.
And in the fourth quarter, we continue to see strength across encompass as well as <unk> and January and we're ahead of January than where we felt we were going to be in terms of our model.
What this means is that as we're as we're hitting these types of sales results and sales records for the company, obviously means there's going to be more recurring revenue into the business.
It means there's going to be more customers on the business, there's going to be more loans that are on the platform that are now on our network loans that we did not interact with before and.
And more loans on our network interact with third parties on the network that we have and for the efficiencies that we provide to people ordering services like a flood reported and credit report offset network, we monetize that and charge a service fee for the efficiency that we're providing.
So all of these we see as significant tailwind into the business that gives us confidence.
That we can grow regardless of volume environment over a long period of time with that that 8% to 10%, 8% to 10% guidance.
The next question is from Mike Carrier Bank of America. Please go ahead.
Good morning, and thanks for taking the question.
And just wanted to get an update on.
The data outlook, and I guess and mostly on the equity side you just given some of the changes with the SEC on the day.
<unk> rules.
Wanted to see how you think about it.
If that can impact the business and how you guys are thinking about it whether it's on like a product standpoint, and a new competition coming in <unk>.
Industry and high.
Here, let's say to navigate.
Hey, Mike It's Scott I'll take this and then if Jeff wants to jump and you can I think your question did I understood. It was looking at kind of the recurring revenues and the exchange business and specifically exchange data.
What are our expectations in terms of any revenue impacts from.
Ongoing dialog with the SEC and and the answer is none.
We're in conversations about changes they discussed.
But right now we haven't seen any impact we don't anticipate and the impact I'll tell you. What I think is consistent with what we've said for probably the last two or three years, which is that's not a line we expect to generate a lot of growth with non line that we expect is going to go down much as just kind of be stable.
And again, we've given you some history on the recurring revenue and if you look <unk> the guide to <unk>, they're all kind of right and that same number.
And so there is no expectation on our end that there are any changes that are likely to impact revenue this year.
Also said in the past and I think it is still true and any changes that did come will likely come in over the course of 235 years not immediately so that the net net answer is no real impacts expected on that bucket.
Revenue for us this year.
Yes.
The next question is from Ken Hill of Loop capital. Please go ahead.
Hey, good morning, I was hoping to go back to one of the smaller portions of the mortgage business. There on data analytics I think that run rate is about $70 million annually, but the opportunity set as you mentioned is about $4 billion of addressable market. There. So I was hoping you can talk to and maybe what infrastructure you are putting in place. The processes you are putting in place to build that out and maybe.
What's the vision for that over the longer term.
Thanks, Ken This is Ben.
So this is an area that we have invested heavily in the business has invested heavily in and when we.
We're looking at and analyzing due and the acquisition of Ellie Mae. It's one of the areas. We were absolutely most excited about.
And the area of this business under data and analytics is really that AI and <unk> business.
That is an acquisition that Ellie Mae and done a few years ago and.
And.
If you look at the heart and what that business is all about and investments that have been made it's all about automating the very manual part of the origination workflow.
And we've used statistics and the past of the costing around $8000 to per mortgage to manufacturer.
And out of that 8000 5200 of it is just associated to manual processing and at a minimum we believe through our AI offerings. There is a great opportunity to chip away at a minimum half of that so $2600 and savings is ripe for automation.
And this is things like I mentioned and the script around credit analyzers and last quarter I talked about our income analyzers. This is taking all the stair and compare work that happens and when you are and you get a credit report and see what was the date of it what was the score you compare the score on the credit report to the information that we have and are all rigs business around what are the.
Requirements for the particular product with this customer has applied for and were able to automate a ton of the process right. Now that is that is done manually and it's one of the highest.
Growth sales items, we've seen and as I said and answered to a prior question that we hit a record in Q4 of new sales of this product.
And in terms of the.
And $1 billion Tam, it's a pretty easy number to get to and if you look at the efficiencies that we provide and assumed conservatively its $2600 and savings per loan that.
At that we can provide to customers if we monetize a part of that say some subset of that and you use a round number of around 10 billion loans being done per year, which is way down from what it was last year you do the math on 10 million loans, we roughly have almost 50% market share and loans flow thats going through time.
And one subset of that sales and you get to a very big number very quickly.
And our guys.
And as our customers are seeing that benefit, we're obviously monetizing it for providing that to them.
The next question is from Brian Bedell of Deutsche Bank. Please go ahead.
Great. Thanks, and good morning, folks, maybe just to dig a little bit deeper on the mortgage recurring revenue the guidance the $1 22 to $1 27%.
A bit of a wide range, maybe if you.
And then if you could talk about the variables.
That youre seeing that sort of impact the low versus the high end of that range.
And then if you can I think you gave guidance for the recurring revenue and fixed income for.
For the full year I'm not sure if I missed the recurring revenue guide for mortgage technology for the full year or do you have.
Our view on that and.
And then if I could just layer on the.
And the synergy on the data side and <unk>.
Terms.
Coming up with real time more real time.
Mortgage production data I know youre working on that maybe just.
Date on our progress report on that.
Wow, Okay. So that one question and I think had three parts, but let me let me see if I can first of all I don't know that five wide on and over $100 million guide is that wide.
And it's simply a matter of customers that we've on boarded and that we expect to continue to onboard and that's the thing again, if you look at the history that we've provided on that line on a recurring mortgage technology revenue in fourth quarter of 19% or 92, they were <unk> 95.
100 to 108 to 119, so we've seen that consistent growth on a sequential quarterly basis, because if everything been talked about more customers customers that had a certain number of seat signing up for more C. And so we expect growth to go through the quarter and exactly whether or not that growth is going to add $1 million and 3 million.
Again on and over $120 million guide plus or minus a little bit does it seem like that way to guy because not <unk>, plus and minus two and a half.
But so we feel good about it.
And what I said on the data business and to be specific the fixed income recurring revenues with it based on a five 7% ASD, we fully expect the business to again grow right around that 5% to 6% per year.
As you know that ASB bigger now is effectively 100% of the revenue in that segment.
And so we're able to to tell you that plus or minus a little bit given the day sbe that $5 seven and we think 5% to 6% growth.
And as the right view in terms of thinking about the full year for that fixed income recurring revenue.
With regards to the data piece on mortgages and how they're working with the sales day or sorry, the lids team to do that and that event, if you've got any thoughts.
Yeah, as I mentioned and descriptor, we have identified some some early opportunities on the data side.
As you can imagine there is an absolute.
Trove of information and data sets that are within the mortgage technology business segment across all the businesses that are in there. So you have the merged business and there you have simple file.
And.
You have the encompass system and the Ellie Mae business and they're.
Some of the areas that we're looking to leverage the data sets and the power of the datasets and there are simple things like when you're going through.
Okay.
Mortgage origination process, one of the most common areas, where youll see errors.
Is very late in the process when you get to the closing.
And what happens at the closing is that you have to compare the original estimates of what Youre closing fees, we're going to be at the closing table from what the original estimates were that were provided 60 plus days ago.
And if those numbers are off by any amount and to not even a material amount it could be zero tolerance to 10% tolerance you have to go back through the entire origination process again.
And we found is it simple file has all of that information they know exactly what the closing requirements are what the fees are in every jurisdiction around the U S. As we manage all of that reference data for our clients and the closing process pulling that type of information all the way upfront to the origination process and.
And then combining that with our artificial intelligence expertise and automation expertise that we have and our AI tools is able to create a significant amount more efficiency and a higher quality loan asset that's going to be less subject to errors as you get to the closing table and a lot of these capabilities and the artificial intelligence area and <unk>.
How to leverage this type of information and data is directly coming from the expertise that we have on the data side other business.
Let me let me this is Jeff let me just bridge.
Rider.
Point, which is.
We've been building a technology base and the mortgage space and it's obviously, a very hot space and we've got a really great platform and commodity and the <unk> business that we acquired was it really turns out has been a really great business since we've owned it.
But.
Don't underestimate that a lot of the acceleration of the growth that we've seen comes from the vision.
That we're articulating of and end to end platform.
And managed by ice we live and <unk>.
Society today, where.
Many of the platforms that we interact with.
You'd have to ask yourself on my actually their customer.
They are providing a service to me, but I'm I actually the customer.
Because.
As the customer the person who is buying the data off of that platform or is the customer of the person that giving up the data and exchange for free usage and.
And we're seeing a lot of examples right now and our society of people that believe that.
Free services.
And that they are actually customers and.
And in reality, they are not providing any revenue to them. The revenue is coming from a different source and so as we're out selling our vision, we're having that conversation with people and the mortgage industry and it is resonating very data that you have been about and the way that artificial intelligence will interact.
With that data is an area that <unk> built decades of trust and the financial services industry about how we manage that data who owns that where it's going to go and how we're going to protective and and.
And I think that that bodes well for us as we continue to have a broader conversation in our society about data privacy and data rights.
The next question is from Alex Blaustein of Goldman Sachs. Please go ahead.
Great Good morning, everybody.
Question for you.
Around maybe some other regulatory things potentially might be on the combo, but really was hoping to get your perspective on everything that's going on.
And the retail trading side of the equation.
And it feels like concept of payment for order flow has come up a bunch of times and the past I don't know if this time is going to be any different but curious to kind of get your perspective on how things might evolve and whether or not with 50% of volumes now trading off exchange could there be and opportunity for the lit venues to grab some of that market share back.
It's a great questions. One obviously, we've been thinking about over the last week or so.
I guess I'll remind you that when we bought the New York stock exchange.
We were pretty vocal about the fact that we thought that the market structure and the U S equity space was flawed and that it needed a holistic review.
And in fact, we tried to come up with a grand bargain.
And that we talk to many many people across the industry about that.
And that would have resulted in some major change.
We were unsuccessful and and the last FCC.
Seem to spend an inordinate amount of time on governance of.
<unk>.
Industry consortium basically that manage infrastructure.
And didn't really step back and look at the totality of the infrastructure and whether or not it.
Operating properly and I think as you've heard.
The guidance that Scott gave on.
Fortunately or unfortunately that that infrastructure paralyzes, the industry somewhat and.
And stifles innovation and my view and so we were going to have a new FCC chair and.
And if.
Chairman Gensler is confirmed and actually takes that seat he is a person that.
Net works in the derivative space and part of his career worked and the regulated.
Commodities and derivatives.
<unk> for part of his career and has has a deep interest in and knowledge of market structure.
The FCC has got a dual role and two a sense, it's and enforcement agency and a consumer protection agency.
And as well as a market structure agents.
Agency and historically the people that have have chaired the agency have been.
Lawyers by training, who are much more comfortable on the on the enforcement and compliance side of things and I think.
There is an opportunity and we will see results, but there is an opportunity with a new share and a new vision.
The SEC to potentially talk about a grand bargain, again, which which we would welcome and.
And by that I mean, we would give up some unique.
Positioning that we have and others did the same thing and try to get back to a more innovative transparent regulated.
<unk>.
Where we could.
See innovation and that's unique to the United States continue to grow our capital markets.
The next question is from Ari Ghosh of Credit Suisse. Please go ahead.
Hey, good morning, everyone and then just a quick one on mortgage debt.
And then on the origination and tech revenue piece.
Curious, how we should think about the sensitivity to market conditions there'll be hill.
Backlog or do you have any visibility for a portion of these transaction based revenues again, just curious because I think you were embedding pretty conservative industry.
Industry and replay assumptions for the year and the outlook, perhaps just a little more favorable than it did three months ago. Thanks.
Right.
Thanks, Alright.
Yeah I'll go I'll go through it.
And how we see the businesses ability to grow through various <unk>.
Volume cycles, and then I'll answer your direct question around and around volumes.
So if you think about this business this business and what really excited about us and interest the results that we've seen in the few months that we've owned it now.
And just further confirmed.
The business and ability to grow through volume environments are that one it is continuing to gain market share.
And I've chaired the sales results. So you can see that number to more customers equals more loan flow.
And when you have more loans flow going on to that network on average alone and that's going through our network with.
Customers of ours on the platform, we see that that loan interacts around seven times with various third parties on the network. So each new loan that comes on to that network. There are several different times that it's interacting with third party service providers and services that we provide on that network and for third.
Party service providers.
And we get a fee for the efficiency.
That we provide for somebody interacting with that loan.
The third area is just it's a process that's ripe for automation and I touched upon the opportunity there.
Around $10 million loans, and at least 2600, and inefficiency and some subset of that and do the math and it's.
A big number and on the fourth area is the electronic vacation to close that we are and a very unique position with the mers and simple file assets and the network that we have on the closing side thats extremely unique integrating that with our origination network.
Through encompass by connecting that into and he closed the room and we have several.
Big deliveries this year, one and Q2 of our hybrid close offering and then followed shortly after and the second half of the year a full E close offering we see that's going to be and area of growth for 2022.
And beyond.
And when it comes to volume itself, we do have a bit of a unique insight because we are and origination platform. We see almost 50% of of loans that are originated and the U S. We do see that the loans very early on and the process. So we see them on there the original applications coming through for a refinance and or a purchase.
Which gives us <unk>.
60 to 90 day preview of what the market is going to look like.
You also when you look at industry analysts. So you see the estimates that are out there if you go beyond a quarter or two.
And anyone that follows these estimates and know that they are subject to revision and significant revision, it's very hard to predict.
Mortgage origination volumes.
And a couple of quarters, just like it's hard to predict U S equity market volumes and oil volumes.
Going out a few quarters to two two a year.
And I would say is based on the data that we see and our platform. If you take the estimates like Fannie and Freddie for the next quarter to maximum two quarters those are.
As close to what we see and the data on our platform as being indicative of what we expect volumes to be but beyond that it's difficult to.
To forecast, but underneath the covers with all the other growth areas that we have regardless of volume environment. We are up we are very optimistic this business can grow.
The next question is from Chris Allen of Compass point. Please go ahead.
Hey, good morning, guys and just wanted to follow on the mortgage beat.
And I just wanted to ask and just in terms of the share gains that youre seeing.
And how much is coming from.
Existing customers versus new customers and.
Any update in terms of penetration of the independent mortgage banks, which is.
And as I've talked about in the past.
Essentially 20, and 25% share opportunity over the longer term.
Sure. So we're actually seeing thanks, Chris for the question. So we're seeing growth.
Literally across every segment of customer.
And our platform so yes.
Yes, independent mortgage bankers, we are seeing their share of the market.
It would be very strong and in particular on the purchase side of the market.
And with Refinances, you do tend to see some refinance volume to go to some of the some of the large banks just because thats, where you have a lot of your banking relationship with people tend to go there, but on the purchase market.
We are seeing that independent banks.
Our continuing to grow.
That said, we're growing and each segment. So we service the large banks, we service the independent mortgage banks, we service correspondent banks wholesale banks you name it and.
And we look at at that sales strength that I referenced earlier, we're seeing we're seeing that strength across the across the entire portfolio and.
And I'm wondering if I would just highlight on the on the volume front and we we tend to if you look at our our share and our strengths a lot of it is is balanced in the purchase market, albeit we do interact a lot with the refinance market as well when we look at the trends of what happened in 2020 and going into this year, we're seeing in application volume.
<unk> up.
Significantly and refi they are up as well as significantly and purchase but not as much as refi.
And on the refinance side, if you look at estimates that Fannie and Freddie have for example for 30 year mortgages of two 7% to 9% right now for calendar year 2021 that puts up to 20 million units significantly and the money for refinancing which is a higher number.
And what we said when we actually announced this deal. So we still see a tail and refinance volumes, we're seeing underneath the covers one of the things on purchase we are seeing and pent up demand on the purchase side, there's just not a lot of inventory out there. So as vaccines rollout as the economy starts roll on as people are willing to move and actually sell.
And do you have a decent amount of purchase demand pent up there as well, which given that our market share is tend to be a little bit more tilted towards purchase and refi is another tailwind for us.
The next question is from Owen Lau of Oppenheimer. Please go ahead.
Good morning, and thank you for taking my question. So on Slide 20, you disclosed that you will have a one 4% ownership and coinbase could you. Please talk about the cost basis why did you make that investment and is there any synergy with how you saw back all back. Thank you.
Okay.
Yes, that's a good question.
First of all.
Company, we never.
Thought that we were a private equity firm or venture firm and that debt.
That we should be stewards of our shareholders' money in that regard we've always thought that.
Excess capital should be returned.
But we have made investments in a number of businesses that are adjacent to us where we thought there was some strategic advantage.
And by having a relationship with the company.
Either by.
By partnering with them or buy.
And knowledge transfer.
And what have you and so.
We invested and coinbase and it's early.
Rounds because.
We were trying to understand the blockchain and the significance of digital currencies and payments.
And obviously the company has been phenomenally successful.
And and I am sure the value of our stake has increased.
<unk>.
And and our investment was just almost insignificant honestly so.
In terms of a monetary number.
And I would also say we have obviously, a similar kind of investment and back.
Which again was.
Driven by us trying to understand blockchain and as you may recall.
Three years ago, two and three years ago, a lot of people were asking us whether blockchain was going to be used for clearing whether it was going to disrupt the traditional financial services industry and we wanted to be.
On top of that technology and have that knowledge and so we also invested and help standup back.
Which which again I think as a company that we have a small basis or a basis.
That has dramatically increased say it that way.
We also made an investment in Euroclear.
Which is European custody solution.
And that that again were have adjacency too.
Company is doing very very well.
And so we.
We do have.
Your question I think is trying to allude to a number of very very interesting assets that have value.
And that I think over time, we will try to unlock for our shareholders as ass.
And those partnerships and knowledge transfer.
Come to some fruition.
Okay.
The next question is from Kyle Voigt of <unk>. Please go ahead.
Hi, good morning.
So on the fourth quarter, S&P global and launched its acquisition by Jeff.
Last week, we had the LSE roofing and the deal close on.
And just given the size of these transactions can you just talk about what kind of a broad competitive environment and landscape and your fixed income and data segment and maybe how you would expect the environment to evolve and some of these competitors gained scale and product breadth.
Okay.
Sure well.
Glad to say that we recognized early the adjacency.
Adjacency of data and information and.
Analytics around risk management and.
And move relatively quickly.
Too.
Formalize, our internal offerings and also make acquisitions similar large acquisitions for us.
That is really.
Now probably half of our business.
And in serving data and analytics.
And I use that number roughly but somewhat how we think of the business. They're intertwined a virtuous circle of risk management, along with the data and information and that it takes to manage a portfolio of risk.
And so it's not surprising to us that others.
Are making moves in that space.
And with respect to.
To all the companies actually that you mentioned, we have some relationships with them.
And both at times, we use some of their platforms and at times, they use some of our platforms and data and indices.
And so you've seen.
Movement of large exchange and data information groups.
Advancing their own businesses, but also somewhat collaborating across across the industry where.
Where necessary. So we have a good relationship with the managers of all of those companies, even though even though in some areas.
We are fierce competitors and and other areas, we cooperate for the betterment and the industry.
The next question is from Simon Kwanza that lag equities. Please go ahead.
Hi, Thanks for taking my question.
I was wondering if we jump back to the mortgage tech side again, and just to your comments about.
Just under 50% market share on the origination side I was wondering if you could talk about the.
And how do you see the future competitive environment developing and origination.
And what you're seeing and what are you seeing that market share can go is there a natural cash to that market share.
Thanks, Simon and whats.
What's amazing when we.
And over the last decade and looked at the mortgage space.
You have got on.
Area of the marketplace and you can't emphasize enough how analog it is when you look at.
That market share that I had mentioned and you say well, what's what's second behind that what second behind that is a lot of either homegrown systems and excel spreadsheets spreadsheets for stitch together systems.
And that's what gave us a ton of confidence.
And do and this transaction that there is a long way to go in terms of market share just on the origination side.
But the other piece that.
And I can't emphasize enough is that we are and a very unique position where not only do we have this very strong origination network, that's helping to write a ton of benefit to our customers and automating this manual workflow.
We're in a unique position where we also have.
These significant network and the electronic vacation of the close.
And that closing process.
And where the magic, we see is really going to happen and this deal is not only and the automation of the origination front.
But by standing up which we have done and E closing room that for the first time, we will link your underwriter of your loans.
Bank or independent mortgage company and the underwriter and its underwriting your loan to your attorney your settlement agent your title insurance provider et cetera, all into a digital closing room to be able to codify that transaction closes electronically register and <unk>, often note as well as well.
<unk> alone be able to electronically vault, all the documentation associated to it and file it and the local county courthouse electronically by a simple trial.
That is incredible.
Capability that we're introducing to the market we already have several key strategic pieces of it launched because we had a partnership with Ellie Mae prior to doing the transaction.
And as I mentioned earlier, we have some very key pieces of functionality that are and the pilot phase and rolling out in Q2 on our <unk> solution and then we have another big set of functionality coming out and the second half of this year and Thats all going to lead to long term 2022 2023 additional tailwind.
For this business.
Yes.
Just to.
Focus on how we're thinking about.
Mortgage right now the real opportunity for us is to take the loan origination customers that were on Ellie Mae and get them to use the other services on our network that we find that the customers that use the entire network.
Have a multiple of revenues for us beyond those that are simply using the loan origination platform.
The market share. If you are that we're looking at internally is the bigger Tam.
And to and services.
And then just described.
And.
And we have seen and I've been involved and Benjamin involved and.
Scott has been involved in actually all of the three of US here have have all been involved in helping la closed some.
POS deals, where we've been able to articulate the end to end vision and Thats brought.
The new customer to the platform for the loan origination system, but.
But is that full vision and I think that is that is helping to increase them.
The market share if you solely look at loan origination.
But the bigger addressable market for us is taking those already loan origination customers and getting them to use the NDA and network.
This concludes our question and answer session I would like to turn the conference back over to Mr. Sprecher at this time.
Kate Thank all of you for joining us this morning and.
And we'll look forward to speaking to you again soon but in the meantime, I hope that you stay safe and that you and your loved ones stay healthy and with that we'll conclude the call and have a great day.
This concludes today's conference you may now disconnect.