Q1 2021 Intercontinental Exchange Inc Earnings Call
[music].
Good morning, and welcome to the ice first quarter 2021 earnings conference call and webcast on.
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I would now like to turn the conference over to Mary Caroline O'neill Director of Investor Relations. Please go ahead.
Good morning, Ice's first quarter 2021 earnings release and presentation can be found in the investors section of the ice dot com. These items will be archived on 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.
<unk> 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 2020 form 10-K first quarter form 10-Q, and other filings with the SEC.
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 term in the earnings materials. 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.
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, Chairman and CEO, Scott Hill, Chief Financial Officer, Warren Gardiner incoming chief.
Officer, Ben Jackson, President and Lynn Martin President of fixed income and data services I will now turn the call over to Scott. Thanks, Maria Carolina, Congratulations on your new role truly well deserved good morning, everyone and thank you for joining us today I'll begin on slide four with some key highlights from our first quarter results first.
Quarter revenues operating income adjusted net income and adjusted earnings per share were all the best in the history of our company.
Adjusted earnings per share of $1 34.
Increased 7% compared to our previous record of $1 25.
Which we achieved in last year's first quarter.
Record total first quarter revenues of $1 $8 billion were up 4% year over year on a pro forma basis.
Total transaction revenues declined slightly versus an unprecedented backdrop a year ago importantly, though total recurring revenues, which represent about half our business increased by 9% with all three of our business segments contributing to this strong year over year growth.
First quarter, adjusted operating expenses totaled $729 million, including $30 million related to back.
Without the additional $7 million of backed investments, we would have been toward the lower end of our original guidance. We expect that backs merger with victory parks back will be completed towards the end of this quarter.
We expect second quarter adjusted operating expenses to be in the range of $742 million to $752 million, including approximately $35 million of additional expense related to back Inc.
Cooperating the additional backed expenses into our full year guidance as well as slightly higher than expected FX, which will be more than offset by higher revenue. We now expect full year adjusted expenses to be in the range of $2 88 to $2 93 billion.
First quarter free cash flow totaled over $700 million, we used the strong cash generation to grow our dividend payout by 12%, even as we reduced our leverage to three eight times EBITDA by quarter's end.
In addition during April we elected to sell our one 4% stake in coinbase, which generated over $1 $2 billion in gross proceeds and approximately $900 million net of taxes.
Assuming those proceeds have been used to reduce debt at the end of the first quarter, our pro forma leverage would have been closer to three six times compared to $4. Two times, when we acquired Ellie Mae just over six months ago.
Now, let's move to slide five where I'll provide an overview of the performance of our exchange segment.
First quarter revenues totaled $974 million, including transaction revenues of $653 million, the second best quarter in our company's history.
This strong performance was driven by our energy interest rate and cash equities businesses Importantly, open interest, which we believe is the best indicator of long term growth is up 13% versus the end of 2020, including 5% growth in our energy open interest and 26% growth across our financial futures and options complex.
Recurring revenues, which include our exchange data services and NYSE listings increased 5% year over year, driven by continued strong equity capital market trend and NYSE share of industry Sip revenues.
Looking to the second quarter, we expect recurring revenues in our exchange segment to be between 315 and $320 million.
Turning now to slide six I'll discuss our fixed income and data services segment.
First quarter revenues totaled $468 million, 6.5% growth in our recurring revenues, which account for nearly 90% of total segment revenues more than offset a year over year decline in transaction revenues fixed income data and analytics, which includes both our leading pricing and reference data and <unk>.
<unk> businesses increased by 7%.
Other data and network services grew 6% driven by continued customer demand for additional network capacity.
Looking to the second quarter, we expect recurring revenues to improve sequentially and be in a range of $401 million to $406 million. This outlook is supported by ASB entering the second quarter at $1 $6 billion up over 5% year over year.
Looking to the balance of 2021 and consistent with the guidance provided during our fourth quarter earnings call. We continue to expect recurring revenues on our fixed income and data services business to grow 5% to 6% for the full year.
Let's go next to slide seven where I'll discuss our mortgage technology segment.
Please note that my comments on revenue growth are on a pro forma basis.
Mortgage technology revenues grew 61% year over year on the first quarter.
First quarter transaction revenues increased 84% year over year.
Favorable financing conditions, accelerating millennial homeownership trends and demand for digital workflow tools, such as our origination technology closing solutions and analytics all contributed to our strong results.
Recurring revenues once again improved sequentially and increased 32% versus the prior year.
Increased adoption in new customers at both of our origination technology and analytics continued to expand our subscription base.
We expect recurring revenues in the second quarter to again increase sequentially to a range between 128 and $133 million representing around 30% growth versus the prior year.
As a note in an effort to improve transparency and better align our reporting with our targeted addressable markets. We are now reporting closing solutions as a single business line. These.
These revenues will include both our E close initiatives and revenues from Mers registrations.
Closing solutions today already represent over 20% of a 1 billion dollar addressable market.
In addition, we've moved our network revenues into our origination technology business line. This business today represents around 20% of the $4 billion underwriting and processing Tam that we highlighted during the Ellie Mae deal call.
In summary, 2021 is off to a strong start we once again grew revenues operating income free cash flow and adjusted earnings per share at the same time, we continued to invest in our business to meet the needs of our customers. As a result, we've set the stage for continued top and bottom line growth and enhanced.
Shareholder returns in 2021 and beyond.
Warren and the team will handle Q&A today, but before I hand, it to Ben I want to congratulate worn on his new role and wish him great success I also want to thank Jeff for the opportunity. He gave me 14 years ago to help build this great business to be started.
And finally I want to thank all my ice colleagues, it's been an honor and a privilege to work alongside you as a part of the team.
Then over to us.
Congratulations to US Scott, Thank you and good morning to everyone on the call. Please.
Please turn to slide eight.
As we begin to emerge from the COVID-19, pandemic and the highly volatile environment. We experienced in 2020, our customers continue to rely on our global energy markets to navigate uncertainty and manage risk.
And importantly, it's our network expertise and investment in technology that enables us to deliver innovative customer solutions and capture the growth opportunities provided by secular trends.
Such as the growing complexity of energy markets alongside the energy transition.
In our oil markets Brent crude serves as a cornerstone of our global network that includes key benchmarks, such as <unk> gas oil <unk> gas and most recently Mervyn crude oil.
By leveraging our global network, the launch of ice futures, Abu Dhabi, where iPad hasnt.
Has enabled for the first time participants to come together and contribute to the price formation of Mervyn an important benchmark for oil flowing through to Asia.
Adjusted his first month Mervyn along with related derivatives has traded over 150000 contracts across 49 firms with growing open interest now over 45000 lots, making it one of the most successful futures launches in our industry's history.
Yeah.
Natural gas continues to globalize a.
A trend we began investing in nearly a decade ago through our acquisition of index.
Today, our European TTS, and Asian, J Cam gas complex us continue to grow and reach important milestones as they evolve into global gas benchmarks.
In the first quarter the number of participants in each market grew double digits year over year, and Tcf futures reached record volumes.
In addition, open interest trends remained strong up 18% and 14% year over year for TTM futures and <unk>, respectively.
This strength, along with growing exchange market share and new product development continues to underscore the significance of our contracts to the price formation of global natural gas.
In our environmental markets.
This appreciation in European emissions drove the ice global carbon index to.
To record levels in the first quarter.
Market based mechanisms such as our cap and trade offering are critical to enabling the price transparency that is required to properly attribute.
Cost to pollution, and ultimately help our customers reach their emissions goals in a cost effective manner.
We recognize the importance of carbon price transparency over 10 years ago acquiring the climate exchange in 2010.
And we have seen our environmental volumes and open interest grow nearly double digits on average every year since.
By combining the network and liquidity of our global energy complex with our leading environmental complex, we are well positioned to help our customers navigate this evolution across global energy markets.
Moving to our fixed income business and fixed income markets electronic Fi in passive investing grows our comprehensive fixed income data platform continues to deliver compounding revenue growth.
Our quality end of day in real time evaluated prices provide mission critical price transparency for nearly 3 million securities per day.
Additionally, our flexible delivery solutions enable customers to consume data in a variety of ways, which they are increasingly demanding as they seek more efficient workflow solutions.
Our proprietary price evaluations, along with our broad suite of reference data services. The foundation for many innovative solutions such as our rapidly growing index franchise.
Business, we built through both organic and inorganic investment, including our acquisitions of IDC.
And the Bank of America Merrill Lynch Index platform.
In the first quarter, we not only saw multiple ETF sponsors switch their benchmark provider to ice data indices, but we also saw growth in the use of our custom index solutions across the Us Europe and Asia Pacific.
This strength once again drove double digit revenue growth in our index business and is a testament to the value of our comprehensive index and broader fixed income data and analytics offering.
Similar to the playbook, we operate across our global energy and fixed income businesses in mortgages, we are leveraging technology data and our network expertise to build innovative solutions to drive workflow efficiencies.
With the touch point to nearly every market participant we.
We have connectivity to our customer base in need of the automation that our digital solutions provide.
As customers increasingly seek these efficiencies across the very manual loan origination process, our leading origination technology known as encompass provides valuable digital solutions that can reduce both the time and cost required to originate alone.
Combined with our unique network of proprietary and third party services, we are well positioned to lead the transformation of an industry that is moving analog to digital and opportunity that we think has an addressable market of $4 billion in the origination and processing space alone.
In the second quarter, we launched our encompass E close offering.
The product, we were able to rapidly bring to market by quickly integrating simplifies closing solutions into our leading origination platform.
Our new E close offering is a leading edge solution that will provide a true end to end electronic closing for U S mortgages by decreasing operational costs for lenders, creating additional efficiencies for settlement agents streamlining the sale of loans to investors and importantly greatly.
Moving the overall borrower experience.
We are encouraged by the early demand and remain focused on building out our closing solutions within this $1 billion addressable market.
Another example of innovation that we're delivering to the mortgage industry is within our data and analytics business.
We know from our experience across futures equities and fixed income networks the data fuels automation.
And the mortgage origination process is no different.
Through our AI IQ offering customers can leverage our artificial or artificial intelligence and machine learning tools to drive significant efficiency gains.
Analytics, such as our credit analyzers and income analyzers leverage automated document recognition data extraction technology to reduce the manual staring compare work that exists across the mortgage workflow today.
And at less than $100 million in revenue in our mortgage data and analytics business is well positioned to increasingly capture share of what we believe is a $4 billion addressable market.
Importantly, the demand we're seeing for solutions like our <unk> close and our data and analytics gives us confidence that we can grow through business cycles, and us and as a result grow a business that at $1 $2 billion. Today on revenue is only a fraction of the $10 billion addressable market that is in the early days.
Of an analog to digital conversion.
And with that I'll now turn the call over to Jeff. Thank.
Thank you Ben and thank you all for joining us this morning.
Please turn now to slide nine.
In the first quarter. We once again grew revenues grew adjusted operating income and grew adjusted earnings per share delivering the best quarter in our company's history.
Remarkably we did this against last year's record breaking volumes and volatility, which was largely driven by the onset of the global COVID-19 pandemic.
Our results are a testament to the value of our data technology and the strength of our strategic business model.
The compounding growth of our subscription based services combined with our diverse transaction based businesses means that our growth is not tied to one economic cycle to one geography or to one asset class rather it means growth on top of growth through all rate environments across asset classes and around the world.
Over the past 20 years <unk> continually evolve to meet the needs of our customers and provide value for our stockholders and for the past 14 years I've had the privilege of working alongside Scott Hill as our growth story has unfolded.
<unk> completed dozens of deals and made thousands of strategic decisions that have been rooted in the information and the quality metrics that were ingrained in our culture by Scott Scott.
Not only provided financial leadership for the company, but he has played a vital role in providing strategic vision. He has championed our unique culture and he has mentored younger generations of leaders and so I want to thank Scott for his contribution for his dedication and for his leadership and I want to wish him our best as he moves on to tackle the difficult.
Light of ranch ranching in Texas.
Scott will officially transition next month, then he'll remain an adviser and a mentor to ensure a smooth transition as Warren Gardiner assumes the duties of CFO.
Warrants worth who has worked closely with Scott over the last four years and covered our sector as a senior research analyst for many years prior to this warrants knowledge of our business and our industry will help us to continue to build on the foundation. That's been established by Scott and continue a track record of growth.
Also want to welcome <unk> as our new Investor Relations head.
Let me say, thank you to our customers for their business and their trust in the quarter and I want to thank my colleagues at ice for their contribution to delivering the best quarter in our company's history.
With that I'll now turn the call back over to our moderator Chad to conduct the question and answer session, which will run until 930 eastern time.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing on the keys to withdraw your question. Please press.
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Cash that you limit yourself to one question.
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At this time, we will pause momentarily to assemble our roster.
And the first question will come from Rich Repetto with Piper Sandler. Please go ahead.
Yes, good morning, Jeff and Scott and Scott all the praise and comments on well deserved congratulations.
My first question would be on the mortgage segment and I guess, it's been or Scott.
But you've reclassified the lines and you sort of explain that but im trying to understand how you outgrew.
Looked like down in this industry originations and when we look at those four lines now are reclassified which ones are recurring and which ones are transactional. So we can model it out and then lastly.
And when you're more dependent on refi or purchase mortgages.
Thanks Rich this is Ben.
And thanks for observing what we've seen in the marketplace in terms of a downturn in transaction volumes as I can confirm we saw a downturn in closed loans on our encompass platform. When you look at Q1 closed loan volume versus Q4 and as our results.
Our testament to we were able to grow through it.
And what I point to us what we said when we originally announced the deal back in September and that we see just like we saw on the commodities markets two decades ago, just like we've seen in the fixed income markets that the mortgage space is an industry thats going through a significant analog.
The digital transition and.
And we knew by combining the closing network that we have with the unique customer originator and Investor Network. Ellie Mae has that we can do something really special here for our customers and providing a digital future and a lot of efficiencies.
And that's how we got conviction that we can growth through long term cycles.
And Thats, how we put out a guide of 10 year guide.
Of.
Roughly doubling revenue when you look at that 8% to 10% guide over a 10 year period, that's roughly doubling revenue and what we've seen in the platform has done nothing but strengthen our conviction over the last eight months and our ability to do that.
Last quarter, I mentioned that Q3, and Q4 sales expectations well exceeded our model that we put together last summer when we did the deal.
In Q1 continued this trend.
And what we get tactically what you get when you're when you're increasing your penetration into new sales youre getting new subscription revenue.
When you implement and then as you ramp the customers up youre getting more loans that youre interacting with us you've never interacting with before.
Those loans, then interact with services on our network. So you have a flywheel effect do you have a compounding effect, but.
I think more importantly, this was trying to get through in the script is that when a customer.
Is choosing our solution set.
They are choosing to fundamentally changed their business, they're fundamentally choosing to remove manual processing and adopt digital ways to automate.
And when they select us, they're selecting us to be the heart and lungs, there to be their network. That's interconnecting them to every player that we interact with from our front to back network.
And as they realize those benefits from being part of our ecosystem enables us to cross sell our.
Our other services that I also mentioned in the script, such as our <unk> offering which is the automation of the underwrite.
As well as the close so thats what gives us conviction on the ability to grow this business sequentially quarter over quarter on subscription revenue growth.
And to grow through downturns or outperformed downturns in terms of volumes just as we did Q1 versus Q4.
Hey, Rich. This is Warren I will just try to give you a little bit of color on subscription versus transaction breakdown. Most of the subscription revenue is going to be in that origination technology line.
And within that it's pretty balanced between subscription and transaction and the other part of subscription is going to be in data and analytics.
And then when you think about transaction side of that it's going to be the closing that's pretty probing solutions thats pretty much 100% transaction and then other is transaction as well and so.
Hopefully that helps you a little bit in terms of color, but we havent broken those out quite yet.
Got it helpful. Thanks, Scott.
And the next question will come from Mike Carrier with Bank of America. Please go ahead.
Hi, good morning, and thanks for taking the question.
Maybe just on the capital front, given the <unk> gain expected in <unk> just wanted to get an update on <unk>.
Or prioritizing debt Paydown, if you expect to get to your target leverage faster.
And then any other investment areas for growth in the business.
Yeah, Hey, Mike It's Warren again, so yes, we're definitely.
Net ahead of schedule.
Paying down debt faster than than we sort of expected when we started the deal.
I'd say, we were doing that though before the corn based sale.
You look at the quarter, we generated about 300 or $734 million of cash flow, we used that to pay down a little.
$350 million of debt raised our dividend by 10% and then also invest in the business. So I think when you think about this corn based proceeds thats really that gives us some additional flexibility as we kind of move into the rest of the year and as Scott said, we're down to about three six leverage.
The target is about three to five or we can start to think about buying back stock, but again the stock us but again. This is just giving us a little bit of flexibility in and we'll give you guys kind of more of an update as we get a bit closer to that in terms of what we'll do with buybacks.
Great Alright, thanks, a lot.
Okay.
The next question is from Ken Hill with Loop capital. Please go ahead.
Hey, good morning, everyone.
So I wanted to just start with ice futures Abu Dhabi I know you guys had a really strong start with crude.
Crude contract you talked about some other records then I think in the prepared remarks, you talked about it being one of the most successful launches. There I was hoping you could maybe outline a little bit on the broader ambitions in regions, there, whether it's middle east or Asia, how you might be leveraging that success, there and thinking about kind of.
On the land and expand type of opportunities other ice products, whether that's on the trading side or on the data side, how should we be thinking about that in those regions. There. Thanks.
Thanks for the question, Ken it's been and.
When you look at our futures markets and how we've developed them versus any of our peers.
We have stayed very close to the commercial customer base since our inception, and that's what's enabled us to develop literally hundreds of oil contracts around the world because it helps our customers not only manage the risk in our benchmark contract, but also help them.
Manage their risk at the point of consumption.
Or the point of production of where they have real risk and we are the only truly global platform that enables customers with deep liquid markets and one hundreds of hundreds of marketplaces to be able to manage that risk.
And.
With the backdrop of COVID-19 going on in the past year, we Didnt stop moving we continue to partner with our commercial customers around the world and Thats, what led to the launch of ice futures Abu Dhabi just in the last few weeks here.
And in the early days it looks like wanted it to be one of the most successful futures launches in history on what what I point to with that is not only the volume growth, but also importantly, the significant open interest growth and the fact that Theres 49 major players that are in there utilizing the contract establishing positions to manage.
Risk.
And I look at that compared to other parts of our of our oil business.
Net across the board are doing very well.
Compare our overall oil open interest right now in April versus the fourth quarter were up in almost every major product category.
Comparable April oil open interest versus April 2019 were up in almost every category.
You look at under the covers from a year over year basis. While there is some tough compares and there we have significant product sets such as our Asia refined product set gas oil and Dubai that are up year over year. So we believe we have a great Foundation, we've already been in Asia have a number of significant.
<unk> out there that enable customers to hedge and manage risk and we're going to stay very close to our commercial customer base look for more opportunities to do so.
And this is Jeff I think we get.
On a little more embellishment.
Launched I believe now it doesn't derivative contracts on that exchange so we've.
We're moving quickly if you will to build out a broader product suite.
There and one other things.
That's been alluded to on and it was inferred in your question.
Is that Theres, a large asia presence of commercial users.
That operate in and around comfortably in the middle East. So it gives us an interesting.
Launch point, if you will for additional derivative contracts. So I think you'll see us continue to build out this amazing suite that we have.
<unk> Abu Dhabi as a vehicle.
Got it thanks for the additional color there.
And the next question will come from Alex <unk> with Goldman Sachs. Please go ahead.
Great. Thanks, Good morning, everybody on to Echo everyone's comments, Scott and Warren NMC Big Congrats to all of you.
I wanted to go back to the mortgage business for US again, so clearly organic growth remains really strong been great to hear the sales momentum continues to be above projections in the first quarter, but.
But the market clearly seems to be overly concerned about the refi cliff so to speak in the market.
Which would hit your transaction revenue. So can you help us maybe unpack how much of the $230 million related to.
Transaction revenues is refi versus new purchases I think legacy <unk> was about 50 50, but that mix probably has evolved here and I guess, how would you frame the downside risk to this revenue bucket, assuming current industry refinanced expectations come through.
And secondly, I was hoping maybe we would get ahead on the expense interplay here as well so to an extent that transaction revenue has come down is there any expense offset it we could see in that segment. Thanks.
Thanks, Alex This is Ben I'll start and then I'll hand, it to warrant on the on the expense side.
So when you look at the you had a number of different questions in there. So I'll try to try to unpack a couple of different couple of different things that we're seeing.
So first.
The answer that I had for Richard's question is important to go back to suite.
We're not looking at this as a quarter over quarter business.
On.
Really worry of Fred about volumes that are changing each quarter, because we see that there's just a long term change thats happening towards Digitization, we see substantial terms that are out there that when you look at our presence in each of those teams have not only a long runway, but we have a lot of opportunity.
Growth in each of them.
Core being that encompass and the network set that we have where we have a little over 20%. If you look at the trailing 12 months roughly 20% of that Tam.
As a starting place that we have and as we continue to sign new customers as we continue to.
Onboard those customers on we're interacting with new loans, we're getting new more subscription revenue, we are getting more transaction volume and those loans are interacting with more services on our network. We believe we're very well positioned to go after that.
I can't emphasize enough is the other two <unk> are really a cross sell opportunity we are already touching at some point in our network from our.
Our our customer acquisition and the point of sale systems that we have to the loan origination network that we have that's now interconnected to our closing network. We're touching just about every player in the mortgage ecosystem. So our ability to sell these new services as a cross sell.
So we feel very very good about our position to grow.
In.
Closing against the clothing, Tam, which we have roughly a 20% of that Tam today, but we're very uniquely positioned with the new E close offering that we've launched to go after a.
A significant amount more of that.
And then on the IQ that's the automation of the actual underwrite process itself. We're seeing we continue to see record sales volumes of that product, which again is a cross sell to core encompass.
US customers when it comes to mix on our platform because.
If you look at just the loan origination side.
There is a little bit of a tilt towards.
Non bank originators and non bank originators tend to have us.
Slight tilt towards purchase market versus refi a lot of people do their refis with banks that the large banks that they have there.
Established banking relationships with.
We tend to we tend to benefit more from a market for us moving more towards purchase.
But that said it's on the on the.
On the edges, there and when you look at our entire network. We're working with just about every player in the industry is utilizing one of our services around one point of our network.
Hey, Alex It's Warren just quickly on the expense. So there are definitely some variable expenses in there.
You know what you would probably normally think about comp marketing spend things of that nature, but as Ben said this isn't about second half or this isn't about a particular quarter. This is about a 10 year.
<unk> strategy of doubling revenues from where we are today and so we're going to continue to invest in that business, we talked about 40% to $45 million I think when we gave guidance to start the year and I think that should still kind of incremental expense I should say on so that should still be kind of what you expect I think as youre looking into the second third fourth quarter and expect that to.
Kind of ramp us things like investments likely close in and things of that nature kind of continued to pick up some steam.
Okay.
Thank you.
The next question will come from Brian Bedell with Deutsche Bank. Please go ahead.
Great. Thanks, Good morning folks and also on my congrats to Scott learn in MCC as well.
Just a two parter again on the on mortgage.
Topic of the day of course.
Just in terms of that.
The strength in origination.
Then if you could just touch on the.
On the recurring revenue side, the impact of market share gains versus revenue cross sell revenue synergies into that network base and then the second part is on the closing side.
You said, 20% of a 1 billion Tam it looks like the revenue run rate. There is 280 million. So just wanted to double check so that would be 28% but on.
I'm sure I'm using different.
Different.
Denominators there so just wanted to check on that and then your optimism on the on the growth in the business versus the rest of the mortgage technology business.
Thanks, Brian I heard that last part first so on the on the roughly 20% I'm looking at the last 12 months.
12 months, and it's a rough a rough gauge.
Got it on EPS.
First first part of the question rich.
Repeat the core of what you were looking for there.
Did the quarter that is us.
On the recurring revenue gains.
Net debt.
That you mentioned in net.
The mortgage segment, especially in origination technology.
Maybe if you can characterize whats coming from market share gains from incompetence being better getting better penetration of encompass across the financial network versus ex we will cross sell into the network.
So it's similar to the cost synergies.
Sure so.
And that's what I would point us first to answer it I gave gave the risks I'm pleased with that.
The new sales results that we've seen as well as cross sell the results that we've seen on the platform and the way to think about that recurring revenue what gives us confidence in the fact that that recurring revenue.
It will grow sequentially quarter over quarter on the guiding to growth next quarter is that we continue to see and there's a mix in that recurring revenue line of customers that are expanding their footprint with us and.
And expanding their footprint with us can be can mean that they are adding new loan officers. They have more volume on their platform. So they go ahead and expand their footprint with us and when they do that that falls to the subscription line item.
Very quickly.
The second thing that Youll see us that we have cross sales of other products to our customer base. So they expanded by other other services that we have it could be are all rigs business, our maven business very.
Very importantly, our IQ services, so were seeing that as a very high cross sell into into our customer base.
Some of those services require a short implementation timeframes. So after we sell it there may be some lag before the subscription revenue comes.
But that's that's the other element and then new customers, we're seeing new customer acquisition.
As I mentioned last quarter, our record Q3, and Q4 in terms of gathering new customers.
And then Q1, well exceeded our expectations both on our original model as well as our budget.
In terms of signing new customers onto the platform and when we sign those new customers onto the platform.
Need to be implemented it's a cloud based platform implementation isn't that long, but there is some lag between when we sell it and then that drops to the subscription line and then once the customers implemented day.
Start to ramp and that's when we start to see the loan transaction volume and then those loans interacting with our network than build and then you see more transaction volume building on that.
Great. Thanks, that's great color. Thank you.
And the next question will come from Ari Ghosh with Credit Suisse. Please go ahead.
Hey, good morning, everyone, maybe just a quick follow up a ban on mortgage day, but can you just talked about.
<unk> is expanding their subscription footprint with you.
So as we think about the full billion data.
But that you highlighted can you talk about the current data and analytics usage by a captive customer base whats the level of customer penetration at present.
All of these customers utilize that compelling.
Data brought us so just maybe not leveraging on much of these analytics workflow as the president just to get a sense of.
On occasion levels.
The ease of kind of acquiring some of the services and growing that footprint subscription footprint. Thanks, so much.
Thanks for the question on it's been again so.
This this is an area when you look at just the raw numbers versus the Tam, We're obviously very.
Early stages here. So we have two 2% to 3% of the Tam is what we have if you look at our current revenues versus a $4 billion opportunity here.
And this we see us a near term Tam that we are executing against and that's why we had it in the script. That's why we've highlighted in the last couple of calls.
That this AI Q offering.
Is really seeing some good pick up across our customer base, we had record sales of it.
In the third and fourth quarter and this is another area, where we have well exceeded our expectations into Q1 of really cross selling that service into our encompass.
Encompass customer base and what this enables us it's really the core of where youre able to take out a ton of the manual processing. We've we've mentioned that our estimates are that it cost $8000.
Manufacturer alone today and out of that about 5200 of that is just manual processing.
And.
By first applying our automated document recognition and extraction technology, but then also putting our mortgage expertise on top of that to say, okay. As we extract this data out of the documents as we automate it.
We are able to take that information and put it into a database and compare it to what the income qualification and credit qualifications or for a particular product set because we have that hole in our on.
All rigs business, we have the entire reference data set of depending on the product the customers applying for we know exactly what the qualification criteria are of that so we're able to take a lot of the manual steering compare work of comparing information that came in on original customer application versus what's coming in as we're getting documents that we.
Can verify and also cross referenced again what the.
Criteria are to apply for that particular that particular product.
So we feel great about it it's early but we're seeing this really as customers are starting to adopt it they're getting the benefit of it we're seeing other customers are catching from word of mouth on the industry that this is providing real benefits from their peers and we're seeing our funnel just continue to strengthen.
In this area and again for the most parts of cross sell into our existing base.
Got it thanks, so much and again, congratulations Scott Warren empty as well.
Thank you and the next question will be from Chris Harris with Wells Fargo. Please go ahead.
Thanks, guys.
On ice Abu Dhabi can you talk a little bit about.
How <unk> might be distinctive.
Or why you think it will win for some of the other benchmark alternatives that are out there targeting Asia.
Yes, it's a good question.
One on one of the.
Sort of historical roots of the commodity exchange business.
<unk> has been the commodities tend to be price.
There.
Near the source in other words.
Grain price that grain elevators that were located near the fields.
In the case of energy.
Oil natural gas or electricity price somewhere location, we near where its produced.
And then.
From a hedging standpoint, as a hedger wood wood by a contract on an exchange.
We then need to add to that.
Hedge outlook, a transportation or movement hedge on top of the commodity hedge and so.
And as we got into.
Organizing these commodities on futures exchanges.
That have clearing houses that clears.
Price the risk the credit risk of their customers and so so the commodity price that is determined on the exchange. If you will doesn't have the customer credit risk in it and it doesn't have the delivery risk in it so on a sense, it's a pure commodity near where it's produced.
And so one of the tension that's going on in the market, particularly with the growth.
Asia.
China and more broadly.
All of Asia.
Is exchanges that were forming up and and pricing their product at the point of delivery.
So that's a difference.
Paradigm, if you will for traditional commodities and so one of the reasons that.
That.
State oil company of Abu Dhabi.
Began to work with US was a recognition of the fact that.
They had a strong desire to continue to control.
Pricing of the commodity or have achieved the market control pricing of the commodity assets.
Point of production.
And that the risk of delivery not be transferred back to the producer by having.
Delivery price contract and so that was really the motivation.
Along with the continued.
Growth of the middle East and modernization of the infrastructure in the Middle East.
And so it's a really good.
Location, if you will because it because of the energy footprint there and also just the growing economies of the middle East and the interplay between the Middle East and Asia, just seem like a very good place for us to have.
On our geographic reference and.
And it's not surprising we've done a lot of work underneath.
This launch as you can imagine.
And really because of our global footprints are able to talk to commercial users around the world.
But it's not totally surprising to us that this is working.
Because of that high historical dynamic was was actually playing in our favor.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Jeff Sprecher for any closing remarks.
Chad I want to again, thank Scott Hill for US Amazing contributions to the company and for all of US success and I want to thank everyone here for joining us. This morning, we'll look forward to updating you as we continue to execute and innovate and with that we'll close the call and have a great day.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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