Q2 2021 Intercontinental Exchange Inc Earnings Call
And earning over $1.2 billion and gross proceeds, which we then use to reduce commercial paper outstanding.
With respect to our other minority investments were in the early stages of exploring a sale of our stake in Euroclear.
While the timing of any potential sale remains unclear and our strategy is consistent.
And with our goal to reduce leverage following the acquisition of Ellie Mae and our strategic approach of continuously evaluating and optimizing the allocation of capital across our business.
Now, let's move to slide 5 where I'll provide an overview of the performance of our exchange segment.
Second quarter net revenues totaled.
$909 million, including 582 million of transaction revenues. This strong performance was driven by a 6% increase and our interest rate business, and 11% increase and European natural gas revenues, and a 59% increase and revenues related to global environmental products and.
Importantly, total open.
Which we believe is the best indicator of long term growth is up 14% versus the end of last year, including 10% growth and energy open interest and 21% growth across our financial futures and options complex.
Yes.
Recurring revenues, which include our exchange data services and our NYSE listings.
And interests increased 7% year over year, the acceleration and growth was driven by 8% growth and our listings business as an increasing number of operating company ipos, particularly and the technology and consumer sectors are joining the NYSE looking.
And looking to the third quarter, and we expect recurring revenues and our exchange segment to be between 300.
And in 'twenty, 4 and $329 million.
Representing approximately 5% growth year over year and if so.
<unk> improvement and listings revenues is expected to be somewhat offset by lower data fees at the NYSE.
Turning now to slide 6 I'll discuss our fixed income and data services segment.
Second.
And quarter revenues totaled $458 million, 6% growth and our recurring revenues, which accounted for nearly 90% of total segment revenues offset a year over year decline and transaction fees.
Fixed income data and analytics, which includes our leading pricing and reference data and ice data indices increased by 5%, including.
And another quarter of double digit growth and our index franchise and other.
Their data and network services grew 7% driven by continued customer demand for additional network capacity.
Looking to the third quarter, we expect our recurring revenues to improve sequentially to a range of $409 million to $414 million and.
In addition, we now expect full year recurring revenue growth to be towards the higher end of the 5% to 6% guidance range, we provided on our fourth quarter call.
Let's go next to slide 7 where I will discuss our mortgage technology segment. Please note that my comments on revenue growth on a pro forma basis.
Mortgage technology revenues grew 17% year over year second quarter transaction revenues increased by 8%, while recurring revenues were up 36% and at $136 million exceeded the high end of our guidance range. These better than expected results were driven by a combination of new customer growth and.
Its adoption of digital workflow tools across origination technology closing solutions and data and analytics.
Shifting to the third quarter, we expect our recurring revenues were once again growth sequentially and be in the range of $137 million to $142 million, representing around 30% growth versus last year.
And in the first half of 2021 was the strongest and our company's history.
We once again grew revenues operating income and free cash flow adjusted earnings per share of $2.50 were up 9% versus the prior record set in the first half of 2020 and have increased 17% on average versus.
The first half of 2019 in addition, less than 1 year following our strategic acquisition of Ellie Mae we have reduced debt by nearly $3 billion, while also continuing to strategically invest and future growth.
I'll now turn the call over to Ben.
Some of the highlights of our exchange and mortgage businesses.
Thank you Warren and good morning to everyone on the call. Please turn to slide 8.
And the second quarter interest rate volatility global economic reopening and the continued evolution of energy markets. Once again drove customers to our deep liquid markets to manage their risk.
This.
This resulted in open interest records across the platform and through July open interest continues to build increasing 9% versus last year and reaching a new record for our total futures complex. This week.
Greenhouse gas emissions and the evolution of energy markets are becoming increasingly.
For market participants around the world as evidenced by the 40% growth and the number of customers and our global environmental markets since 2016.
Volumes in those markets also continued to grow up 27% in the second quarter and up 22% per year on.
Imports over the past 5 years.
Price transparency across the energy spectrum is critical as companies look to reduce their greenhouse gas emissions and a cost effective manner and.
And by combining the network and liquidity across our global oil and natural gas power and environmental.
On average we are well positioned to help our customers navigate this evolution.
And our natural gas markets, the globalization of gas and the rise of LNG are secular trends and we began investing in over a decade ago.
And today as market participants seek cleaner sources of energy.
And market volumes and revenue in our European TTS, and Asian, JK and complexes have grown 46% and 37% per year on average over the past 5 years, respectively.
And and our global oil markets and the breadth and depth of our offering which includes.
G.
W Ti gas oil and over 700 spread products.
Makes us the natural home for innovative new energy products and.
In March we launched Bourbon crude oil futures, which has been 1 of the most successful futures launches and our industry's history.
And in the second quarter.
Brent we announced and we are working to have the industry's largest participants Magellan and enterprise to launch the Midland WTS American golf Coast contract.
This new contract will enable customers to price and hedge Midland WTS quality crude delivered into Houston without being burdened.
And <unk> by the storage and logistics constraints of W. T I at Cushing.
Turning now to our mortgage business on slide 9.
Customers are increasingly seeking efficiencies across a very manual loan origination process or.
Our end to end digital solutions can not only reduce the time and cost required.
Wired to originate but can also provide a fully electronic closing and improve the quality of loans moving into the secondary market.
And with a touch point to nearly every market participant we have connectivity to a customer base and need of the efficiencies that our digital solutions provide.
We.
The continued growth and our recurring revenues is a testament to the demand we're seeing for these digital solutions and as these new customers come on to our network, we benefit from new subscription revenues and have the opportunity to expand the customer relationship over time as they adopt additional solutions.
Just as we've seen and our other markets.
And this flywheel effect is what we believe will drive compounding growth and our recurring revenues and gives us confidence that we can grow a business that at $1.2 billion and revenue today is only a fraction of the $10 billion addressable market that is and the early days of and analog to digital conversion.
And.
I will now turn the call over to Lynn to discuss our fixed income and data services business.
Thank you Ben and good morning to everyone on the call. Please turn to slide 10.
Data as a core competency at ice whether it's a byproduct of our exchanges evaluated prices for fixed income securities.
And with them to seize and front office tool or data and analytics to use across the mortgage workflow data connect.
And <unk> businesses across the platform and connects ice to participants across asset classes and around the world.
Our comprehensive fixed income data platform continues to deliver compounding revenue.
And as these markets automate and its path of investing growth.
Our quality and value added prices provide mission critical transparency for nearly 3 million security and per day.
Combined with our comprehensive reference data offering these form the building blocks to index construction and product development.
And accelerating growth of passive investing and the efforts we've made to increase the breadth of our offering and flexibility of our approach to index. Construction has contributed to the double digit annual growth and our index business. Since we acquired the Bank of America Merrill Lynch franchise in 2017.
A key driver of that growth has been an increase and the passive ETF AUM benchmark indices growing to over $300 billion from less than $100 billion and 2017.
Part of that growth is being driven by established Etfs transitioning their benchmarks to ice including.
$60 billion of Au and that has announced the transition during 2021 to date.
Ice data indices now represents just under 20% of the growing fixed income ETF and universe, including over 50% of the Muni ETF universe.
Additionally over the last year ice is.
<unk> over 250, new indices across fixed income equities and commodities, including a growing number of ESG and thematic indices as well as custom indices.
Our new index customization platform gives investors direct access to the tools they need to build and quickly back test.
Test their own index rules.
And through the first half of 2021 customers have created nearly as many custom indices as were created and all of 2020.
Our index business is an important part of our broader front office toolkit, which also includes solutions like continuous evaluated pricing best execution.
<unk> liquidity indicators and real time curves.
These front office tools have grown double digits for the past 3 years and continue to be and important part of our overall fixed income strategy.
So it flows continue to move into fixed income ETF, ESG and thematic and best in continues to grow.
Execute and fixed income markets electronic Fi will remain close to our customers and continue to deliver innovative solutions to meet their evolving needs and I'll now turn it over to Jeff.
Thank you Lynn and thank you all for joining us this morning.
Please turn to slide 11.
At the heart of our strategy at ice.
<unk>, our data technology and network expertise, which connects the different businesses across ice, enabling us to deliver innovative solutions for our customers.
And our index business as Lynn mentioned, we've seen a fair number of exchange traded funds transition their benchmarks to ice.
In addition to the quality of our underlying.
You're lying pricing and reference data another driver of these moves is the expansion of the reference date of constituents that we offer.
Assets under management transitioning to our indices not only benefits our fixed income and data services business, but we've seen the cross selling benefit to our listings business with several biotech companies.
Selecting the New York stock exchange as their listing venue.
Additionally, by combining our expertise and index construction with our leading global environmental trading markets. We've created the ice global carbon index, a benchmark for the universal price of carbon which is critical to employing market.
It forces to reduce greenhouse gas emissions and a cost effective manner.
And the ice global carbon index as part of a suite of environmental social and governance related services that ice offers to our customers, which also include green bond indices climate analytics, and our ESG reference data.
Earlier this week, we announced the integration of ice mortgage technologies transaction based mortgage rates into our mortgage prepayment model at ice data.
As a leading provider of price evaluations for mortgage backed securities. This is an important new offering and it represents the first time that we've coupled the valuable underlying.
Content from ice mortgage technology, with our expertise and identifying and creating new data offerings.
This enhancement will enable the market to more accurately price mortgage prepayments, which are a critical component for fixed income investors.
And there are only a few of the many innovative solutions that we're able to bring to our customers.
<unk> as a result of the synergistic relationships that exist across our platform, which makes the whole of ice greater than the sum of its parts.
Looking at the first half of this year amidst the backdrop of rising interest rates and rising commodity prices get lower equity market volatility and mortgage refinance volumes, we once again.
<unk> grew revenues grew adjusted operating income and grew adjusted earnings per share.
These results are a testament to the strategy that we've operated for the past 20 years the business model that we've intentionally built and the value of our strategic capital allocation.
We've deliberately positioned the company to have a mix of transaction and.
Compounding subscription revenues to give investors upside exposure, while hedging our downside risk.
We target markets, where there's an analog to digital conversion taking place we diversify our global footprint because at all times somewhere in the world. There are risks that our customers and our potential customers need to manage.
We strategically deploy our capital both into and out of opportunities to maximize shareholder value.
The combination of these factors is what makes ice and all weather name that generates growth on top of growth.
Before I end my prepared remarks, I'd like to say, thank you to our customers for their business and for their trust and.
And I'd like to thank my colleagues at ice for their contribution to both the best second quarter and the best first half and our company's history.
With that I'll now turn the call back to our moderator, Sean and will conduct a question and answer session until 930 eastern time.
Thank you we will now begin the question and.
This correlation.
Ask your question and my Press Star then 1 on your Touchtone phone you are using a speakerphone. Please pick up your handset before pressing the keys because it anytime and your question has been addressed and you would like to withdraw. Your question. Please press Star then 2 and the interest of time and we ask that you limit yourself to 1.
And answers James and 1 follow up.
You have further questions you may reenter the queue.
Your first question will come from Rich Repetto with Piper Sandler. Please go ahead.
Yes, good morning, Jeff Good morning, Warren and good morning team.
My first question is on <unk>.
On mortgage on the mortgage business.
1 question and.
Just trying to see if we can get some.
You know more clarification on how and when the interest rate environment changes, how it's going to impact.
The mortgage and especially in the back half of the.
The year. If you. If you look you know you held up pretty well versus what.
Industry forecast, but how should we think about when the when the forecasted 20 over 20% or 20 per cent down quarter to quarter.
You know, Jeff and Mark.
Hey, Richard It's Ben I'll take this 1.
So we're as we've talked about on the prior calls and what we're doing here is we're building.
The business, that's going to be resilient to cyclical volume trends.
And at the same time capitalizing on the secular trend of.
The overall analog to digital conversion.
And our long term guide of and 8% to 10% average annual growth and the business.
So what you are what you.
C and our results and as you saw if you look at our top line revenue number and you compare that to where each or try to draw a consensus to where the estimates are between Fannie and Freddie MBA, we beat those numbers and we'd beat those results of what happened sequentially quarter over quarter.
And we also as we pointed out in the script.
Ripped significantly beat our subscription revenue guide.
So the couple of things that are going on under the covers there is that 1 we are having incredible sales success and when we sell new customers that lead to new subscription revenue as we implement them.
And then number 2 we're looking at taking this unprecedented time of.
Volumes that the industry has seen last.
Last year and this year to purposely engage with our customers on opportunities to increase the amount of subscription revenue that we have and some of the services that we provide along our comprehensive network such as our loan origination system and our data and analytics platform called AI Q. So we are purposely.
<unk> Tim.
Tilting relationships with new customers as well as when customers are renewing looking at shifting more of the mix towards subscription in terms of the volume trends that we're seeing we're seeing a purchase market that strong but its tough on inventory is very well publicized.
And.
And we're seeing a refinance market where interest rates popped up in March and they've come right back down. So we're still seeing a refinance market that's decent and what's really offsetting any headwinds that refinance has seen has been a significant amount of cash out refi that is happening and the market just given the amount of home price appreciation.
Taking money off the table to do home improvements or pay off other debt.
So that's what's really happening under the covers.
Hey, Richard Let me just.
Make 1 more point too as part of the.
The strategy that we have at ice is to build a company that will grow on profit growth and so.
And people, we have really designed the company so that we have inter.
Interest rate exposure and other parts of the business that drives revenue up and so the goal here.
You saw with interest rates ticking up our interest rate futures complex and some of the products around our fixed income complex.
Did better so.
Part of the strategy with mortgage is to make sure that we bundled it with this all weather opportunity that we have across the whole business.
Yeah.
Very helpful.
And then and it's sort of segue into my follow up and that would be you know on the fixed income side you know on the.
The data.
So.
And it's clear.
Dominant and so you have.
And then I guess I guess the question is will it ever.
Is it should we even focus on transaction revenue or is it.
Will it ever parlay into.
On the transaction side.
<unk>.
Decided all the data dominance that you've established there.
Yeah Rich this is lynn. Thanks, so much for that question you know now that we brought the execution and data pieces together and as the fixed income markets have increasingly electronic side given the assets that we have under the umbrella I.
And we're uniquely positioned.
Not only help the industry automate their workflows to benefit from that automation.
We last year, we lost a piece of technology with G&A and our execution protocol, but more importantly, United our data element alongside the execution.
I think recall and as a result, you're starting to see more and more activity through our portfolio trading, which leverages. Our front office data assets all of that provides a tailwind for us from a distribution perspective as well as from a demand perspective to continue.
And proteins to deliver on the double digit cash.
Compounding annual growth rate that I mentioned in my prepared remarks for our front office tool kit.
Got it.
Thanks Lynn.
And Thats all my questions. Thank you.
Okay.
Net.
Contingency will come from Alex Blaustein with Goldman Sachs. Please go ahead.
Great and good morning, guys. Thanks. Thanks, a lot. Thanks for taking the question I was hoping to start with the energy business and.
And I used to seeing significant growth and the environmental product as you mentioned and 1 of the slides on I guess emissions futures in particular.
Pretty high capture.
Next question on so I was hoping to dig in a little more here. So I guess 1 spend a few minutes on how this market is evolving and how do you expect the growth to sort of progress here and specifically I'm looking to get a sense on what the revenue contribution there is today to ice what sort of changes you're seeing at the customer composition level here, so kind of and customers versus.
<unk> product players, perhaps coming in.
How does that evolve and geographically and so right now, it's largely EU, but perhaps U K U S Asia on the Comm and then ultimately competition again high capture rate product how sustainable do you think it ultimately will be.
Thanks, Alex This is Ben I'll take this 1 says as you can appreciate and we've.
Talked about in prior calls we've been thinking about the environmental impacts and how to create a market based mechanism to price carbon for over a decade and that really came to life and we bought the climate exchange over a decade ago.
Fast forward to today for futures and options that are out creating a market based mechanisms.
And to price carbon where 95% of the futures and options marketplace. That's doing that so we have a tremendous presence around the world and it continues to be a very high growth business for us and as I see it will continue to be and some of the drivers for that.
And I'll just touch upon some parts of the portfolio. So if you look.
And our EU business, where the vast majority of trading that's happening there and we continue to see new participants coming in both financial players and commercial players because new sectors are being captured.
In government mandates around who needs to pay attention to a carbon price signal.
And there is the potential debt areas like marine and <unk>.
Roads and buildings all get captured going forward into this so that's a potential tailwind for more people needing to pay attention to our markets.
You also have and the EU the concept of free allowance thresholds, where if you're under a certain threshold you don't need and.
Net sara-lee.
Pay attention to carbon price signals, there is momentum behind lowering those free allowance thresholds, which thus could capture some of the major heavy industrial sectors that are currently not captured there. So that again leads to more commercials coming into the marketplace.
In the U S again.
Significant Scott.
Significant lead in our business, there and there the big trend as new states coming into the regional greenhouse gas initiative.
So there is potential for more and more states coming into that there's momentum behind that and some of these states and that that leads to more and more trading.
And our markets.
You have.
Sure.
Just recently I mentioned on the last call that we launched our new U K <unk>.
Missions trading scheme, so as a result of Brexit and 1 of the benefits. We got is that the UK decided to set up their own emissions trading scheme. They selected us to do that we launched it and as I mentioned in my prepared remarks that it's been a very very successful launch.
And then you have new geographies around the world. So you have a trend with <unk> and Asia Pacific where there is the potential for more and more adoption of these and given the significant lead we have in and.
Creating these markets on behalf of of governments and market participants to create that market price pricing mechanism.
That.
<unk> based pricing mechanism.
We're heavily engaged and all of those conversations.
And given that we are the most transparent way to price put a market based mechanism to price carbon. We've also developed alongside our ice data.
Fixed income and data services business our.
Our global carbon index, which is being able to using the price is coming out of our marketplaces to create a very transparent way to look at both.
Global as well as regional price trends within the carbon markets.
And then payoffs, it's Warren and just some just to answer your question on its contribution to our our revenues. It's so volumes.
Market environment for complex, it's been about 2.3% of the of the energy volumes, but to your point correctly, it's it's a higher capture rate and so so revenues there actually closer to about 10% of our energy revenues.
Got it great. Thanks.
And just as a follow up maybe a little bit of a bigger picture question for you guys, but the stock is obviously.
And that lagged and the multiple is now at a pretty meaningful discount to a number of your peer groups and there's obviously a number of peer groups there and so across essentially all of them at.
I appreciate the point that I used is looking to sell a stake in euroclear, but there are opportunities to further kind of prune the portfolio more aggressively maybe selling businesses that are not meeting your growth.
And your growth thresholds in order to Delever faster and maybe begin a more aggressive share repurchase plan.
That's a great question.
And there's a certain degree that's what you saw US do you know our decision to.
To sell.
Coinbase stake was really.
About us being able to delever, so that we can get back to a position where we can.
And buy back shares return capital to shareholders, which as you know and it's been our historical trend.
And and so yes is the answer we're always looking at our portfolio I think on <unk>.
And our industry Theres a lot.
Lot of mergers and acquisitions that happen, but very few of our peers really thinking about dispositions and we do as you know we at 1 time on the French and Dutch Belgium, Portuguese stock exchange, we've owned and various analytic businesses, obviously, we own some minority stakes in businesses and and so we're constantly thinking about.
Our return on invested capital.
And and how to best deploy it and and.
I think you are aware, we always look at.
And our own view of the value of our shares and to the extent to the extent that the best place for us to deploy capital is and returning it to shareholders via.
Share buybacks, we aggressively do that.
Great. Thanks, so much.
Okay.
As a reminder, if you would like to ask a question. Please press Star then 1 and and the interest of time, if you would like to ask a question. Please limit yourself to 1 question and if you're on the follow ups reenter the queue.
The next question will come from Alex Kramm with UBS. Please go ahead.
Hey, good morning, everyone.
Just maybe on the index business. Thanks for the I think there are new disclosures in terms of the ASB. They are I know, it's small in the context of the company into segment and its obviously small relative to a lot of the other bigger index players, but Glenn.
Can you maybe help us with the revenue model and how that business breaks down I mean, some of your competitors, obviously help us with how much is driven by Etfs and asset based fees, how much is data, which I know and fixed income is important and then and maybe even some opportunities around derivatives trading, which maybe could materialize over time, so just help us a little bit how that business.
And then down and where you see most of the opportunities is it just a play on Etfs or are there are there bigger opportunities and that's you can monetize in multiple ways.
Yeah. Thanks for the question, Alex It's a great question.
You know I think we see the opportunity for indices and multiple areas.
Debt, particularly in fixed income.
And this breaks and the indexation opportunity could be anywhere from acquiring our data acquiring data subscriptions, allowing firms to make their own custom indices.
Giving us the opportunity to calculate the indices to provide intra day snapshots for those indices are real.
Time versions of those indices and provide analytics, but also provide a benchmark obviously the etfs that I mentioned in my prepared remarks that have selected us as their destination for transition business selected us from a benchmarking perspective.
And conflict income increasingly firms are also looking at our high quality underlying data and the fact that we're able to publish that data on a real time basis.
Which allows them to manage real time risks of the fixed income ETF market. So from our perspective, we think there's opportunities.
But across the spectrum not just on the ETF AUM side, but also on the underlying data side as well as the services around it like our custom index.
And Alex it's Warren throw in terms of sort of the revenue mix. It's similar to what you are familiar with it appears and then it's the mix of the subscription fees.
And asset based fees that are based off of those Etfs and and so I think if you think about some of the growth. We're seeing there it's been all of that but but I think the ETF side of that has been where we've been and leading in terms of the growth.
That helps you understand and the mix a little bit more.
And the next question will come from Brian.
And that was with Deutsche Bank. Please go ahead.
Great. Thanks, good morning.
2 questions.
And just back into queue for the second 1, but just wanted to touch on energy and it's sort of a longer term question for either banner, Jeff but.
And the.
The market flow.
The transition to cleaner energy and and and environmental products.
How do you see that longer term transition.
Laying out and in your overall volume versus.
And your more traditional energy products and this would be both for your Nat gas clean energy.
And but the environmental suite and I appreciate it more and that you said.
The you know the rbcs are much higher on the environmental side did that.
It sounds like it'll be a smoother transition from a revenue perspective, but just to just to get sort of your at your thoughts on you know how many years do you think it would take for.
For the environmental and clean energy suite too.
And the match.
The core energy franchise, if that's if that's possible and speculation to make.
Thanks, Brian. This is this is Ben I'll take this 1.
When you when you think about our portfolio and it was threaded through your question. There I think you appreciate the fact that we've built.
The most diversified platform that there is on.
On the planet to help customers.
Go through this energy transition, we provide products everything from coal to oil and natural gas to LNG and to the environmental markets and and all those sectors. We are the lead provider of AV services, helping.
And within each of those segments, but then also as they're transitioning towards a cleaner environment and cleaner fuels, helping them along that journey manage their exposure to.
2 to price risk, we're seeing underneath each 1 of those segments were still seeing a lot of demand for new products. So you take for example, just what's happened.
We've had a ton of innovation, that's happened and oil to help.
The Middle East and Asia, and Asia Pacific commercial customers, where we were selected to launch.
And the Bourbon crude oil contract to enable.
Users to be able to have a better price mechanism for pricing middle Eastern oil go into Asia.
You have the recent development that we announced with the.
Midland <unk> American Gulf Coast crude contract is being launched with 2 huge commercial partners and Magellan and enterprise there'll be launched early next year to provide a much better way to price W. W. Ti Midland crude.
That's at Houston, and not constrained by the infrastructure constraints that are in and around Cushing. You also see you may have seen recent consultation came out in the industry.
By us and as well as our partners and S&P Platts to look at further evolution of the Brent contract and.
Adding new sources of crude such as Johan Sverdrup and very importantly, the potential for WTS Midland basis, Houston to be added into the Brent complex further solidifying that as the global index.
For oil and I went through and the prior question all of the things that we're doing and the environmental complex to grow that and we.
We have a significant lead and our global natural gas and LNG franchise as we mentioned in the prepared remarks that continues to grow.
Year over year. So we feel we're very very well positioned to help customers along this journey.
And we will continue to partner very closely with them to do so.
The next question will come from Patrick O'shaughnessy with Raymond James. Please go ahead.
Hey, good morning, so while Youre listings revenues are growing your growth rate and has lagged out of your primary competitor can you just speak to the current competitive dynamics and the listing space.
Sure.
And.
Well.
Of all the New York stock exchange floor was closed.
Significant period of time during Covid and so part part of.
The lower and the marketing.
The New York Stock exchange has the opportunity to physically be and are building and ring. The bell. So we're very very happy that.
Stacy and that team there now.
Well first on navigating very difficult conditions on Covid and 2 to run the entirety of the business and.
And we're really pleased now that.
The floor is open and I believe we're doing 17 Ipos. This week just to give you a sense of.
On how we're doing now.
<unk> is back running.
Now and it's physical form.
Beyond that.
No.
We continue to be the leader of large capital raising.
And the.
The there is a cost and looking for listings.
You can look at the revenue side that you're pointing out but there is of course, there's a marketing cost and we're very disciplined about our return on invested capital and how we deploy capital and part of the theme I think of some of the things that we've talked to you about.
On this call and and we don't pursue.
Listings.
<unk>, where where we don't see that the ROIC is therefore, our shareholders. So some of it is calculated on our part and and some of it is really that we've been a bit of a disadvantage.
Until the floor and.
And the business itself was able to be back at full occupancy.
Sure.
Thank you.
The next question will come from Kyle Voigt with <unk>. Please.
Please go ahead.
Hi, good morning.
And then if I can just touch on the credit trading market.
And there's always been some thought that maybe you could really put.
The pieces together.
And I D C. The 2 retail trade and businesses that you bought to ETF hub and kind of build something for the institutional trading market within credit.
And investors have obviously been focused on that because of the electronic patient going on that market, which is good and historically very good at doing electronic on end markets. So.
The question is really like is it too late given the success on some of those competitors to think about.
<unk> launching something more towards institutional trading.
As being on to material revenue revenue driver for you and I guess why why hasnt it been a bigger focus launch and that market.
We've seen continued really strong revenue growth from some of your peers and even some from some small players that weren't material 3 or 4 years ago and the market.
Yeah, that's that's it.
Great question. This is Lee and thanks for thanks for asking the question and we continue as I mentioned earlier.
And now.
And I guess put the execution business and the same vertical as the day to business and you have the macro forces of the market continuing to electronic data and the transparency that Ada provides particularly on a near real time basis is going to be a key driver of that electronic vacation.
Debt.
We've made investments since we acquired the 2 retail business and that we did and uniting the technology.
Associated with those businesses and we are starting to see the fruits of our labor and penetrating the institutional market is really that portfolio trading activity that you've seen more.
And hopefully pick up and.
Starting towards the end of Q4 of last year and then throughout this year that leverage is our new technology that leverages, our data assets and that's very much institutional driven and we're seeing increasing demand for those services as portfolio.
Folio auctions.
<unk> and make up a larger portion of the trace prints that go through every day. So that's really where we see the opportunity and the start of the opportunity to bring together the technology that we've built and the data assets that are continuing to deliver double digit growth.
And with around the Elektron and vacation of this asset class.
Yeah.
The next question will come from Michael Cyprus with Morgan Stanley. Please go ahead.
Hey, good morning, Thanks for taking the question just wanted to ask on the mortgage side as you're digitizing mortgage workflows.
Our close maybe you could just talk a little bit about how much of that is and the cloud and some of the vendors that you're using there versus what you guys are in sourcing and then more longer term as youre looking out whats the potential to migrate the mortgage workflows over to a block chain, what sort of opportunity is that what would that entail how easy of a lift or not.
Happy to do that.
Thanks, Michael This is this has been so.
The business has even before we acquired it has had a strategy.
For the for the loan origination side of the business to move more and more cloud oriented and Thats 1 of the things that Jeff and I had mentioned.
With that I recalls and gave us conviction and doing the deals they had made some substantial investments.
And that have moved the business to the cloud if you look at other parts.
Our overall mortgage origination network everything from the point of sale to the manufacturing process and I was just talking about and all the way through.
And on putting in the secondary.
Most of the aspects of that are.
Cloud oriented we have a mix of some third party service providers that are providing some of the infrastructure and there and we also have major data centers ourselves that our hosting pieces of pieces of this.
So our strategy is definitely to.
To close more and more and that direction, we already have moved for significant parts of the business.
To that and it's an area that we're going to continue to continue to invest and quite frankly, it's 1 of the things that.
<unk> is leading to a lot of the success that we've had and sales that I've mentioned and the second half of last year and the.
And move this year exceeding our models is that if you look across our entire mortgage ecosystem, we are providing a service somewhere along our network.
And our cloud based network, we're providing at least a service to almost every single mortgage participants thats out there so the ability to engage with them.
And first time to value that you can provide on our network gives us a great platform to then go ahead and cross sell other services, which is which is really fueling a lot of the.
Additional growth that we've seen.
I'll just mention on the block chain 1 of the 1 of the debt.
Dilemmas, if you will for the mortgage industry is.
Sure that is that it's highly regulated and there is a tremendous amount of data.
Require to write a mortgage and.
And that data for regulatory purposes does need to be stored for.
And for some period of time and be accessible to third parties to audit and.
And so.
Right now probably the best and that a lot of that is still analog and paper based and is moving digital.
And we're driving much of that digital adoption, but right now probably the best use of the blockchain will just be to put our cash as too.
And where those records are located.
And to make it easier for third parties to know at all times.
Where the records lie as a as opposed to using the blockchain to store those records, which still are and the early stages of moving to the cloud has been set.
Okay.
The next question will.
Will come from Simon <unk> with Atlantic Equities. Please go ahead.
Hi, guys. Thanks for taking my question on.
Was wondering if you could just dig a little deeper and.
On the recurring lots and just the mortgage technology business overall.
Our recurring revenue streams, performing really nicely and I was wondering if you talk about the market.
Sure you have on the loan origination side and how that feeds through to that recurring stream over time, but also how how you are progressing along with your pipeline.
Additional services that you're going be layering on top to increase net revenue per zone.
And that should help us sort of model this business.
Next few years when we're looking.
Looking at on that kind of per loan basis.
Thanks for the question. Sarah This is this is Ben again.
So.
As I mentioned and the first question and that was that was asked.
And we have.
Acquiring the business and had a very concentrated effort on how do we focus on that.
Revenue stream, how do we look at that subscription base and really start to where we can and certain parts of the business shifts revenue more towards subscription, especially as you are in this high volume environment that we've been and it's a great time to do that to shifted towards more towards subscription.
And for some parts of.
And the business less towards transaction.
It's more oriented towards the loan origination side and that AI <unk> business.
So in those 2 parts of the business those are areas, where we have had a concentrated effort of moving customers that direction. Maybe give you. An example is that AI cubist.
<unk> business on the data and analytics side. It historically was 100% transaction oriented and we have moved it very significantly towards subscription revenue. Both for every new customer that comes on the platform as well as.
Renewals that are coming on.
We are seeing to the answer of market share, we're seeing record say.
Sales continue as I mentioned it multiple times that the second half of last year was a record in Q1 and Q2 has exceeded our expectations on.
All of that is continuing to gain market share.
For us and for the business as we implement customers that feeds into new subscription revenue that feeds into the part of the beat.
And this past quarter as well as shifting more of the mix.
And towards subscription.
The other side of it is there are certain parts of the business that are transaction oriented and we are continuing to innovate new solutions and new opportunities to capture do transactional revenue that has not happened before even for us or for the industry.
History.
And example of that as I mentioned last quarter, we'd be launching our hybrid close where we've gone ahead and launched that so that's a complete digital closing room that interconnects the consumer to the lender to the settlement agent. So that all documents all collaboration all communication and the entire closing process can be done digitally.
We have just launched this and we already have 55 customers out of our 2000.
In the implementation process as those get implemented that will be new transaction revenue that'll be coming through.
Coming coming through to us.
So thats. Another example, and and then another example that Jeff had mentioned in his prepared remarks.
Is the interconnectivity between that we see between data on the mortgage side of the business flowing through to our fixed income and data services business, where we're taking transactional data out of the mortgage side of our business to help enhance and improve.
Our mortgage backed securities prepayment and valuation models, where we are a leader and.
Providing that and further enhancing those models with real transactional data that hasn't happened before.
Before.
And the next question will come from Alex Kramm with UBS. Please go ahead.
Hey, Thanks for letting me squeeze and a couple of follow up Scott just on the mortgage.
Good sites 2 things actually.
1.
On the cost side and I appreciate that obviously youre building a business for the long term and India and shifting.
2 more recurring as you just mentioned, but clearly youll see the transactional side turned a little bit. So just wondering to what degree day.
Actually potential.
Offsets that you're thinking about as maybe those those transactional revenue has come down because there is something to go on the on the expense side or is that going to continue to grow and as you invest and then for Jeff since you just talked.
<unk> talked about this interconnectivity between the different businesses on the mortgage side Joe at Euro.
Mortgage industry conference a few months ago made this off the cuff remarks debt.
And to be working together closely and maybe there is room for mortgage trading down the line with you exchange business. So just wondering to what degree is this just the long term dream or if there's actually something behind the scenes that you're already working on and and what the.
And that could be there. Thank you.
Thanks, Alex It's Warren So I'll hit on your expense question quickly first.
There is there is a degree of variable expenses within that within that business, but I think the way you want to be thinking about this is look this is a.
This isn't about a second half.
Refi environment. This is about a 10 year growth.
Unity for us and so.
We think we can double revenues over the next 10 years or so so we're going to invest through however that cycle plays out if it does play out we're going to be investing through it that was part of the guidance. We gave at the beginning of the year, where we said about 45 to $40 million to $45 million of incremental investment I think youll see that start.
And just sort of a sort of step up as we move through the year.
And that's going as planned and that's all part of the planned investments that we've made and we've communicated to you guys but.
I think 1 point to just to make there on that as well is that 1 of the benefits here that Ellie Mae and ice mortgage technology has as being part of the larger.
The ice platform is just the diversity that brings to that and so.
As Jeff said in his prepared remarks, and all weather stock and so as maybe a mortgage mortgage cycle plays out you have got other things and other areas of the business doing well and so it really gives us the ability to invest through those cycles and and.
<unk> were a standalone competitor or a peer wouldn't be able to do that so I think and and ultimately that puts us on a on a better place to the other end of things so again.
Again, it's about a 10 year opportunity against the 10 year, a $10 billion Tam, where we're only about 10% of that today. So you.
And you should expect us to continue to invest and that and that business as we.
And we've kind of move through the next couple of quarters.
And regarding future ideas. So Joe who you mentioned has joined our management Committee, which also contains all the people that you've heard from on this call and we run the business collaboratively.
So that we can work on the.
And maybe on activity, what you've heard them talk about on this call is really hooking up what we would consider the cash market and.
And a traditional market and see origination market of actually producing a mortgage for consumer and for the first time now we've announced that we're booking.
Looking that to the secondary market through lens business.
And of taking that data to help with mortgage backed securities.
Our sense is that.
The mortgage market. While it is regulated is likely to continue to get more government attention as it becomes more transparent.
It's largely for many people and government a mechanism for <unk>.
Wealth creation in and the sense of awe.
People are building equity in our home.
It's also interest rate sensitive as the number of the questions have alluded to here and there.
On the opportunities for government too.
To influence or touch interest rates for certain segments of our society.
And.
As the data and and the transparency.
Where warehouses are being bought and refinanced and where wealth is being created as that becomes more transparent.
We really believe.
And maybe led to that the business is going to continue to evolve around government policy and.
And that is going to make its way trickle its way into the secondary trading market and we will be uniquely positioned with data and information about the changes that are going on in the cash market to help help influence.
Please that secondary market and.
It doesn't mean, we will host 1 of those or use other assets potentially thats part of why we wanted to get into this ecosystem.
And it's part of our goal to build and all weather.
Company that will perform and in every environment.
Fluent and this will conclude today's question and answer session I would now like to turn the conference back over to Jeff Sprecher for any closing remarks.
Well, thank you Sean and thank you all for joining us this morning.
We look forward to updating you again soon as we continue to execute on these are really interesting and exciting growth opportunities that we laid out for you today, so otherwise I hope.
They'll have a great day.
Okay.
The conference has now concluded.
Thank you for attending today's presentation and you may now disconnect.