Q3 2023 Intercontinental Exchange Inc Earnings Call
I know, it's why couldn't do you like third quarter 2023 earnings conference call and webcast.
My name is Lauren and I'll be coordinating your call today.
There'll be opportunity for questions at the end of the presentation.
If you would like to ask a question then please press star one new telephone keypad.
So if I call you limit yourself to one question and rejoin the queue for any follow up questions.
I will now hand, you watch your host Cathy Gonzales monitor Investor Relations to begin. Please go ahead.
Good morning, I, suppose third quarter 'twenty to 'twenty three earnings release and presentation can be found in the investors section of the ISR com.
These items will be archived and our call will be available for replay.
Today's call May contain forward looking statements. These statements, which we undertake no obligation to update represent our current judgment and are subject to risks assumptions and uncertainties.
For a description of the risks that could cause our results to differ materially from those described in forward looking statements. Please refer to our 2022 Form 10-K third 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 terms in our 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 throughout this presentation, unless otherwise indicated our references to revenue growth are on a constant currency basis. Please.
Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items.
With us on the call today are Jeff Sprecher Chair and CEO, Warren Gardiner, Chief Financial Officer, Ben Jackson, President and Lynn Martin President of NYSE, I'll now turn the call over to Warren.
Thanks Scott.
Good morning, everyone and thank you for joining us today I'll begin on slide four with some of the key highlights from our third quarter results.
Third quarter adjusted earnings per share was a record $1 46.
Up 11% year over year.
Net revenues totaled a record $2 billion.
And on a pro forma basis increased 4% versus last year, driven by double digit growth in our exchange segment, which was led by 22% growth in our futures platform.
Third quarter, adjusted operating expenses totaled $812 million.
<unk> $56 million related to black Knight and $756 million related to legacy ice, which was $4 million below the low end of our original guidance range, largely driven by lower technology spend including reduced cloud exposure as we continue to optimize and drive efficiencies through our data center footprint.
As we move into the fourth quarter, we expect adjusted operating expenses to be in the range of $955 million to $965 million with the increase relative to the third quarter driven by additional rent DNA and seasonality in capitalized labor as well as a full quarter of expense related to black Knight.
Moving below the line adjusted nonoperating expense totaled $114 million, including $41 million of incremental interest expense related to our acquisition of Black Knight and.
We expect adjusted non operating expense in the fourth quarter to be between $225 million and $230 million largely driven by the full quarter impact of acquisition related interest expense.
It is also worth noting that we have reduced our term loan and CP outstanding by around $700 million since the transaction closed in early September.
Now, let's turn to slide five where I'll provide an overview of the performance of our exchange segment.
Third quarter net revenues totaled $1 1 billion up 10% year over year transaction revenues of $754 million were up 13% driven by 42% growth in our energy revenues. This strong performance included 48% growth in global natural gas driven.
By a record quarter of Tcf volumes.
In addition, we continue to see robust trends across our global oil business with Adv up 40% year over year in the third quarter and open interest is at the end of October up 26% year over year.
As we look to the fourth quarter, it's worth noting that we expect OTC and other revenue to be in the range of $70 million to $75 million.
For the third quarter benefiting from a few items that we don't anticipate will repeat in.
In addition, and in light of the strong performance in our equity options business, where revenues were up 15% year to date, we've elected for a regulatory fee holiday, which will temporarily reduce OTC and other revenues by 10% to $15 million in the fourth quarter.
Shifting away from transaction revenues recurring revenues increased by 4% year over year, including 8% growth in exchange data services, which was once again driven by double digit growth in the number of customers consuming our global energy and environmental data.
As well as the benefit of a few million dollars related to audit recoveries, which we don't expect will repeat in the fourth quarter.
This was partially offset by our listings business where growth in annual listing fees was offset by the rolling off of initial listing fees related to the strong IPO market in 2021.
Turning now to slide six I'll discuss our fixed income and data services segment.
Third quarter revenues totaled $559 million up 4% year versus a year ago.
Transaction revenues increased by 6%, including 9% growth in ice bonds and 5% growth in our Cds clearing business.
Excluding the impact of the Euronext migration, both recurring revenues and ASP grew by 4% driven by strong growth across our desktop feeds and derivative analytics offerings.
Within our desktop business revenues once again grew double digits as we continue to see strong demand from energy and environmental focus customers as well as the continued robust growth in our ice chat offering in part driven by growing adoption of large language models.
And our consolidated feeds business. We once again grew high single digits and expect to exceed $100 million of revenue for the full year as we continue to realize the benefits of past investments to enhance our platform.
In our fixed income data and analytics business, we generated a record $279 million in the third quarter with the sequential growth in revenue driven by our North American pricing and reference data business or PRD.
PRD growth may continue to be below trend in the near term, we're seeing signs of an improved sales cycle alongside strong retention.
Let's go next to slide seven where I will discuss our mortgage technology segment.
Third quarter mortgage technology revenues totaled $330 million, including $87 million related to Black Knight.
Recurring revenues totaled $235 million and on a pro forma basis $396 million.
Representing nearly 80% of total pro forma segment revenues.
Despite the headwinds facing the mortgage industry and the related near term pressure on our recurring revenues sales continued to be robust as customers look to reshape and modernize how they do business.
Through October we have already surpassed surpassed our prior full year record for new encompass sales, which was set in 2020.
And our servicing solutions business the closing of the Black Knight transaction has unlocked the pipeline with four new MSP customers signed in October alone, including a top 25 servicer fifth third bank.
This compares to a total of five signing through the first nine months of the year and has quickly put 2023 on track to be the second best year for MSP sales since 2017.
In addition, as we look to 2024 and continuing the momentum we have seen post close the current pipeline for MSP is at its highest level in five years.
While we expect the secular trend of customers seeking greater efficiency across their workflows to continue its important to note that these strong sales results will take time to implement.
And looking to the fourth quarter, we anticipate near term cyclical headwinds will persist coupled with typical seasonal pressures on origination volumes in the first and fourth quarters of each year. We expect the total fourth quarter IMT revenues will be in the range of $490 million the $500 million.
Bringing full year pro forma IMT revenues to approximately $2.06 billion.
And in the middle of the guidance range, we provided on our Black Knight closing call in late September.
In summary.
At a consolidated ice level, we once again grew revenues adjusted operating income and adjusted earnings per share and.
As we look to the end of the year and into 2024, we remain focused on meeting the needs of our customers continuing to drive growth and to create value for our shareholders.
I'd be happy to take your questions during Q&A for now hand, it over to Ben.
Thank you Lauren and thank you all for joining US. This morning, please turn to slide eight.
I would like to first welcome the Black Knight team to their first ice earnings call.
While it has been less than two months since we closed on the acquisition in early September we have been very impressed by the collaboration between our teams during this short time.
A testament to the talent of our respective employee populations and our shared entrepreneurial cultures.
Similar to our exchanges and fixed income businesses Black Knight integrated into our ice mortgage technology network.
Network that thrives by offering a value proposition that aligns growth with efficiency gains that we bring to our customers.
As we have seen across our network and futures in fixed income. These efficiency gains are best achieved through harnessing unstructured data to create mission critical information.
Seamlessly linking participants to that information and ensuring that the network technology underpinnings are of the highest quality and security.
It is the execution of this value proposition that often propels an analog to digital conversion of an industry.
And it is the blueprint that we've applied across all our businesses.
A number of years ago, we saw the importance of investing in an energy platform that is truly global.
One that better serves the needs of an evolving and growing commercial customer base.
Today as trade dynamics evolve and become increasingly complex.
Customers are not only seeking liquidity and the major global benchmarks, but also in products that provide for greater hedging precision.
Our global oil complex spans over 700 products, including locational spreads product spreads and refining spreads.
These products are built off of our benchmark contracts, such as Brent crude oil and gas oil.
Driven by the breadth of our commercial customer base, we have become the natural home for liquidity in these products with open interest in our oil complex up 26% year over year through the end of October, including a 28% increase in our other crude and refined products.
In our natural gas markets, we began investing in the globalization of these markets over a decade ago.
Today, our European TTS and Asian, GKN gas complex is continue to grow and reached important milestones as they evolve into global gas benchmarks.
In the third quarter, the number of participants in each market grew double digits year over year, and Tcf reached another quarter of record volumes.
This strong performance helped drive record revenues across our natural gas complex through the first nine months of 2023 up 37% year over year.
In addition, open interest trends for TTS Jkf remained strong through October up, 58% and 19% year over year, respectively.
This strength continues to underscore the significance of our contracts to the price formation of global natural gas.
We are well positioned to both benefit from the near term volatility and the long term secular growth trends occurring across these markets because we operate a global gas market with benchmarks across North America, Europe and Asia.
In our environmental markets, we recognize the importance of carbon price transparency over 10 years ago by acquiring the climate exchange in 2010 and building around those leading markets to develop a global environmental business.
As we look out over the longer term corporates and market participants remained committed to environmental policy to reduce carbon emissions.
This is illustrated by continued growth in active market participants up 9% year over year.
Importantly, because we offer one of the broadest suites of environmental products across the carbon cycle. We remain excited about our position to serve customers as they navigate the journey to cleaner energy and as the demand for transparent pricing and carbon growth.
In summary these.
<unk> cleaner energy sources, combined including global natural gas and environmental <unk> make up over 40% of our energy revenues today and have grown 17% on average over the past five years, including a 30% growth year to date.
As the clean energy transition continues to introduce new complexities, uncertainties and volatility to energy markets, our global environmental alongside our gas and oil complexes will provide the price transparency across the energy spectrum needed to manage these evolving risks.
Moving to our fixed income and data services business.
As fixed income markets electronic Fi in passive investing grows our comprehensive all weather platform continues to generate compounding revenue growth up 7% year to date.
Investments, we've made to enhanced content and functionality across our other data and network services business continue to pay dividends.
Year to date this part of our business is up 7% driven by strength across our desktop derivatives analytics and feed offerings as customers continued to modernize workflows.
Within our desktop business the investments we have made to reduce friction across the workflow have contributed to double digit revenue growth year to date, along with double digit growth in the number of users that connect to our ice chat platform.
Similarly within our consolidated feeds business investments, we've made to elevate and enhance our offerings have led to accelerating adoption by large financial institutions.
This has directly contributed to high single digit growth in this area year to date.
In addition, we continue to see strength in our index business driven by double digit growth in ETF assets under management as of the end of the third quarter with now over a half a trillion dollars in assets selecting ice indices has deep passive benchmark.
As we move forward, we will continue to build on our track record of adding efficiencies and bringing transparency to opaque asset classes, leveraging our mission critical data assets and market leading technology.
Turning now to our mortgage business.
Like what we saw in the commodity markets 20 years ago, there's an analog to digital conversion occurring in the U S residential mortgage industry.
Critical to our ability to execute on this opportunity as our network one that in combination with Black Knight spans from consumer acquisition, all the way through to the secondary market.
In the third quarter, our mortgage business once again outperformed the broader industry that experienced nearly 20% decline in origination volumes.
This continued outperformance is the result of executing against our strategy of leveraging our mission critical technology and data expertise to accelerate the analog to digital conversion happening in the industry.
Part of that strategy is intentionally shifting more business to recurring revenue, particularly within our origination technology and data and analytics business.
And during the third quarter of the encompass customers that came up for renewal roughly 60% increase their base subscriptions importantly.
Importantly, where customers decline in subscriptions. The tradeoff is a higher per closed loan fee, which will provide an uplift in transaction revenues when the market returns.
In addition, part of our thesis has been that clients that have origination businesses combined with servicing businesses, we want to bring together a complete front to back experience for their clients through one trusted platform provider.
As mentioned last quarter J P. Morgan Chase as selected encompass for their loan origination system across all channels and has implemented or is implementing our data and document automation platform.
These wins are on top of our long standing great relationship with MSP for servicing which now positions us to provide a platform to help facilitate their front to back experience for their clients.
And since we closed on Black Knight I am pleased to share two new wins, along the same lines.
First <unk> Bank has now selected encompass to replace their existing loan origination platform and has added our data and document automation platform on top of the existing MSP relationship for servicing.
Again positioning us to provide our platform to support the front to back experience for their clients.
The second new win is with fifth third bank, we have cross sold MSP and several data and analytics products to fifth third bank, an existing IMT customer on our consumer engagement solutions and all regs product.
In summary, these are major wins for us.
And serve as a validation of our vision with.
With large clients, bringing together a complete front to back experience for their clients through one trusted platform provider.
The relationships with these great customers our models, we plan to replicate with many more.
Increased workflow efficiency through continued electronic vacation is a secular trend. We believe will continue through a variety of mortgage origination environments.
This trend gives us confidence that we can grow a business that today is only a fraction of the $14 billion addressable market that is in the early days of an analog to digital conversion.
With that I'll now turn the call over to Jeff.
Thank you Ben and good morning, everyone. Thank you for joining us.
Please now turn to slide nine.
The idea to start ice came in the late 19 nineties and idea to take advantage of the move of commerce to the Internet.
And an idea to capitalize on changing government regulations regarding energy procurement.
The subsequent dot com crash and the collapse of Enron created a very difficult business environment, particularly for the trading of energy, but it was in this challenging environment, where ice was able to gain a toehold into the market and build the foundation for our growing business and commodity trading business that as you've just heard.
<unk> to flourish more than 20 years later.
Sometime around 2006, we came across a newspaper article about credit default swaps and the difficulty that this market was having settling such contracts, we became convinced that ice could build a clearinghouse infrastructure that could solve these delivery problems.
Our colleagues took up the challenge and we acquired targeted platforms and talent.
Two years later, when the financial crisis of 2008 froze the Cvs markets, we were in a position to offer a sustainable solution.
And when the Dodd Frank Act of 2010 in the European market Infrastructure Act of 2012 required the use of clearing houses in the over the counter swaps markets ice was able to expand what has now become another significant business for us.
I would tell you these stories not as some kind of victory lap, but to remind you of our repeated experience.
The best time to lay the groundwork for a strong future is when your target customers are experiencing stress and are open to new vendors and new platforms to alleviate their problems.
Also remind you that evolutions and regulation in the financial services industry typically follow periods of economic change.
And that standardized open and transparent platforms, such as those that ice operates and benefit.
And ultimately I call your attention to our history to answer a question that we've been asked why is ice investing in our consumer finance technology platform via the mortgage market and why do it now.
We spoke on our recent call following the closing of our acquisition of Black Knight about are aimed to build financial market infrastructure across the company that can offer earnings and dividend growth in variable market conditions, all weather growth that will allow our shareholders to have confidence that they won't have to time their investments.
Into and out of an episodic earning stream.
There are currently many stress points across large portions of the U S mortgage industry and ice is experiencing an openness from market participants and its regulators to consider new solutions delivered by our comprehensive technology platform.
This is why Warren and Ben we're able to tell you in specifics about the encouraging reception that we're receiving for our vision to rewire, the mortgage market and <unk> been shared our success with platform clients like JP Morgan Chase <unk> Bank and fifth third bank all of whom are significant significant.
Sophisticated drivers of the market.
The same economic stress that exists in the current U S. Mortgage market is in converse fueling growth on our commodity hedging and credit protection platforms, which benefited ices record third quarter earnings were.
We're positioning ourselves to transform the U S mortgage market, while it is under stress with a goal to create opportunities to spring load, our future growth and contribute to our all weather earnings and dividend growth roadmap.
Another topic that we're being asked about a lot is our adoption of large language models and learning algorithms ice has long been investing and adaptive learning tools, beginning more than a decade ago. When we incorporated learning tools into our growing ice chat system as a way of automating workflows.
Based on unstructured trader trader and back office conversations. We're also we've been deploying learning models and our compliance effort to recognized trading and use patterns that deviate from norms.
Ken mentioned, our ice mortgage technology product now called data and document automation, which is an extension of the learning model that we acquired within Ellie Mae.
This product recognizes a wide variety of documents that end up in a consumer file when underwriting alone.
Occupancy such as pay stubs tax returns bank statements and alike, which the algorithm automatically identifies and places inappropriate digital folders the <unk>.
Model extracts key structured and unstructured data elements from these folders for further validation by our credit team via a workflow that detects exception cases or the compliance team.
Our model is based on a transparent rules engine, which we believe will assist our customers and their regulators to comply with the President's recent private letter ruling on model fairness and integrity and our model is being further extended by us across our expanding mortgage platform.
Our experience in building and deploying these learning models also facilitates our research into the cost of computation that is associated with model queries and it permits us to have a thoughtful understanding of the cost benefit analysis of their deployment and the models extension.
When we acquired the New York Stock Exchange. It was built on a technology stack that was overly complicated hard to manage and unreliable.
So we set off to completely rebuild the underlying architecture with modern technology.
Given the importance of the New York stock exchange to the global economy, we had to rebuild the exchange while it was in daily use and its extensive connectivity to the global financial services industry demanded that we not ask our customers to invest in making changes on their side of the firewall.
So we wrap the old technology with a modern front end and methodically rebuilt and replaced all of the backend hardware and software.
This process took us years to execute with our successful final software rollout just a few days ago deprecating the last of it seven unique legacy matching engines.
Our upgrade blueprint worked and today, the New York Stock exchange sits at top one of the most powerful deterministic performance and resilient tech stacks in the world.
This same plan to build a new bridge, while the cars continue to drive across it was deployed by US when we acquired interactive data Corporation.
There we inherited over 100 legacy servers, many of which literally could not be shut down for fear of not being able to properly restart them. We again replace this mess with a modern data superstore over a period of six years and without sacrifice from our customer base.
When we made our initial investment in Mers, It's technology was outsourced and it was not able to keep up with the demands placed on it during the financial crisis, our business deal with Mers ownership consortium was to rebuild the platform within two years and if successful we had an option to buy and run the company we.
We did just that and Mers is now a cornerstone to our broad U S mortgage industry platform.
With our acquisition of Black Knight, we've again undertaken a blueprint to rapid legacy technologies tie it to our mortgage platform for near seamless integration with our customer base and rebuild its tech stack with a modern architecture over the coming years.
As I've mentioned on past calls Ics agnostic the cloud providers, but we also operate our own proprietary cloud with ice data centers, having connectivity to a vast portion of the global financial services industry. This allows us to oversee our costs and stand behind our performance.
<unk> strategy that Warren mentioned was a contributor to our record earnings in the quarter.
In summary, my comments today highlight three backdrops that ice follow us to evolve our all weather business model.
We invest in environments that may have fallen out of favor and at times when customers need us the most.
We embrace regulatory shifts and the workflow alterations that inevitably follow periods of economic change.
And we embrace and experiment with new technologies, while enhancing technology assets that we may inquire to drive platform efficiencies and better serve our customers.
Shifting now to Icf's strong results, please turn to slide 10.
In the third quarter, we delivered the best quarter in our company's history with record revenues record adjusted operating income and record adjusted earnings per share we have intentionally positioned our company to provide customer solutions in numerous geographies and economic conditions to facilitate all weather results.
These record setting third quarter results against our extraordinary third quarter results of last year are another example of strong execution across our platform.
And I'd like to end, our prepared remarks by thanking our customers for their continued business and their trust and I would like to thank my colleagues at ice for their contributions to our best ever quarterly results following up on our unsurpassed results for the first half.
And with that I'll now turn our call back to our moderator Lauren and we will conduct a question and answer session until 930 eastern time.
Okay.
If you would like to ask a question. Please press star followed by one when you kind of think he pad two.
Withdraw your question. Please press star two.
Please also ensure that <unk> is on mute locally.
As a reminder, please limit yourself.
One question I rejoined the Keith any follow up questions to that.
Thank you I wanted to ask a question.
Our first question comes from Ken Worthington from Jpmorgan, Ken. Please go ahead.
Hi, good morning, Thanks for taking the question I wanted to ask about.
Ice oil. So you mentioned last quarter that Midland was added to <unk> and we've seen trading of Brent I'm, sorry trading of Midland takeoff.
I'm curious how you think Midland is impacting the trading of Brent and to what extent Midland as a contributor to ice has increased share and W. Ti and then I guess, most importantly, how much of the benefit to ice is left as we look forward or has the positive impact already played out.
Hi, Kevin It's Ben Thank you for the question.
We see all of the investments that we've been doing in our oil platform as a truly global platform. That's all complementary to one another.
As the clear trend around the world has been Theres been underinvestment in energy infrastructure. So you have a lot of volatility in energy when theres any kind of supply shocks.
You've got electronic vacation continuing to take hold.
<unk> energy markets that are truly global got supply chains that are evolving and changing.
And people are looking for more precision in risk management.
With all the investments that we've been making in our global oil platform.
We take all that into account, we're engaging with customers now more than ever and we are getting feedback that there is a need for more precise instruments pricing middle east oil that's destined for China, that's what.
Creating that Marvin contract and ice futures Abu Dhabi, and it's grown nicely.
In parallel to that Brent, which is the centerpiece of that entire complex is up both in Oi in volume year over year, So we see them as complementary.
Trading assets that run side by side.
We also continue to see <unk>.
Investments like our <unk> contract in the U S.
Which is pricing Midland barrels coming out of Midland going into Houston, and then eventually making its way into our dated Brent contract.
Seeing that contract also continued to grow so we see these all is very complementary assets to one another and even within the middle East itself, you look at our Dubai contract that contract's up in volumes, 80% year over year.
With <unk> up close to 50% year over year. So we again see them all as very complementary assets.
Traders look at both of the precision that that particular instrument provides but then also trading them in parallel to the other benchmark contracts.
Okay, great. Thank you.
Thank you.
Our next question comes from Ben <unk> from Barclays. Please go ahead.
Hi, Good morning, Thanks for taking the question I wanted to follow up on some of the commentary around the wins in the mortgage business.
To what degree do you think that some of the MSP wins and some of the cross selling is that a result of things ice is doing differently since acquiring the asset to what degree is that perhaps pent up demand things, where maybe stalling while the merger was pending.
And if thats the case, what do you think about the pipeline and how sort of how sustainable is that growth versus perhaps.
Okay, and I have a compression of some built up or pent up demand over the last many months. Thank you.
Yes. Thank you for the question as we've said on a number of calls our hypothesis is that has been that.
The combination of these businesses will create for the first time.
An opportunity for clients to have one trusted platform provider for that complete front to back experience for their clients.
And you heard a lot from them in our prepared remarks about the sales success across our platform.
And we believe that based on that success as well as the funnel. We see ahead of us that we have a platform. That's that's really spring loaded as the market normalizes as loans are growing.
And just unpacking some more detail, what's what's going on under the covers so we mentioned we had a solid Q3 and encompass sales in the third quarter and then also in October and as Lauren pointed out in his prepared remarks, we've had a record sales year and we still have a couple of months ago.
In the year, so that's playing out very well for us as we mentioned, we want <unk> bank Thats already an existing MSP customer they are adding both encompass in our DDA platform. We've won Tri Pointe that's moving to encompass and then we've also had an expansion with client called the federal savings Bank.
Adding our data and document automation platform on top of the existing encompass relationship.
There is switching to MSP theres no doubt that there was some.
Some pent up demand on MSP as there was an overhang on the deal with clients waiting to see how it was going to come through and now we're seeing a number of deals that have come through we mentioned fifth third bank, replacing their existing platform provider. They are also adding a number of data.
Products.
As part of that deal as well. We've also added Black Hills Federal credit Union, which is an existing encompass client has now added.
Relationship with MSP.
We've had mortgage solutions of Colorado.
<unk> added MSP on top of an existing ice mortgage technology relationship. We've had in several areas with them and then also city National Bank, which is another existing ice mortgage technology customer and our and our Reg solutions.
So we continue to have these wins the funnel as I look at it is incredibly strong.
And as Warren also commented in his prepared remarks. This is core infrastructure, that's going into these clients and it does take time for them to implement.
Across both MSP as well as on the loan origination side <unk> got a six to 18 month window to implement these clients, but then once implemented we're getting new loans under our platform.
And on our network.
So the final thing I would point out is we're also not losing customers, we're not losing significant customers on the platform and that's why I use the comment that we're spring loaded.
As we see the market environment is going to normalize at some point in time the loan growth that we've had in our platform positions us very well to achieve those long term objectives of the growth criteria that we've outlined.
Okay.
Great. Thanks for all the incremental color.
Thank you.
Our next question comes from Dan Fannon from Jefferies. Please go ahead.
Thanks, Good morning.
On the fixed income data I think warn you mentioned improved sales cycles.
Was hoping you could expand upon that and then also as you think about next year and pricing, how we might think about.
What has been the typical price.
You've raised or the percentage increase and maybe how that might be different in this type of inflationary environment.
Hey, Dan its warrants so al.
I'll talk a little bit about the pricing and I'm going to hand, it over to Linda to talk about some of the color around what we're seeing on the on the fixed income data analytic side, so on the pricing side.
It would've been a couple of years now that we've talked about a third or so of the growth we felt like would come from pricing.
Say that look at it will move around each year. So it is not necessarily perfectly consistent in that way, but but certainly as you look over the last number of years that we've had the ITC asset it's been pretty pretty much in that range and so as we're thinking towards next year I think it's fair to be thinking that will continue and it's underpinned by the philosophy, you've heard us articulate a number.
So on these calls and that we really just look to to capture value when we when we bring it to our customers and that's really what we're doing when we when we think about price within the fixed income and data analytics business and really across the platform. So so we're going to continue to do that in that business similar to we haven't over the last couple of years.
Yes, and it's Linda I'll, just chime in with some color of what we're seeing.
As I've said on previous calls this segment in particular, it really shows the all weather nature of Ias now if you look at the execution side of the business ice bonds in particular had really strong growth over the last quarter.
<unk>, given the muted volatility and the Muni markets, where we have been able to continue to.
To increase our adoption by the retail and wealth side of the businesses as well as benefit from the increased adoption by institutional users contributing to share gains in all of our different products.
Now, bringing that through to the fixed income data and analytics side of the business.
We've continued to interact with the front office customers, we've seen continued increasing demand for our front office tools.
While small contributors to the overall bottom line products like CDP best execution that we've talked about in the past there continues to be strong demand for those products and fixed income markets continue to electronic side you've.
<unk> seen that manifest itself in a shortening sales cycle.
Rich has been a which has really benefited us in terms of.
The pipeline contribution that pipeline conversion rates and the short term. Additionally, as we've continued to see money flow into fixed income Etfs as evidenced by 30% growth year on year at the end of Q3 into our index.
We've continued to see that manifest itself in terms of demand for the data demand for our end to see demand for.
Services around our indices. So we continue to be optimistic that we are uniquely positioned to capitalize on the trend of fixed income electronic vacation and the optimization of workflows in fixed income.
Great. Thank you.
Thank you.
Our next question comes from Kyle Voigt from <unk>.
Please go ahead.
Hi, good morning.
So there has been some headlines over the past couple of days around the NAR lawsuit being decided in favor of the plaintiffs and Theres. Some theres some press around what that means down the road for the number of buy side real estate agents needed to serve that U S mortgage market and the percentage of home sales that will even have a buy side agent involved in a transaction.
I believe by tight agents are the largest referral pipeline of deal flow for loan officers, which are core encompass clients I guess, if we see less buy side agents being used in the market and loan officers lose their largest referral pipeline I guess do you foresee any material share shifts for who is originating loans within the mortgage ecosystem.
And if so how do you believe that could impact encompass if at all.
Hi, Kyle this is this is Ben.
Good actually.
Those types of trends play into our overall thesis and hypothesis in this space is that there is opportunity to create.
More efficiency around the transactions for us.
We're neutral in that space, we don't have a business of selling leads.
Real estate brokers and the like.
For us our core businesses are all in and around.
The origination transaction itself, making sure that we're matching the client to the ideal product that meets their needs at the lowest cost.
Improve access to homeownership as well as clients that have an existing all identifying based on data and analytics the best product to cross sell to that client at the best time for clients that have the servicing book as well as an origination book So when we talk about that whole front to back offering.
That's.
Really our sweet spot so we don't see.
Impact to us negative if anything all of the data and analytics offerings that we have that.
That underpin this overall platform front to back both between ice mortgage technology assets that we've had historically as well as the data assets that have come with the black Knight business, all position us very well in that in that space going forward.
Thank you.
Thank you.
Our next question comes from Alex <unk> from Goldman Sachs. Please go ahead.
Okay.
Hi, Good morning, and thank you for the question I was hoping we could maybe build a little bit more specificity around the fixed income data and analytics business. If you look at the revenue trends after than sort of challenge here, we know the reasons why around the sales cycle and pricing pressure on <unk>.
Fixed income assets, but if you look at <unk>, it's been kind of flat for the last couple of quarter. So maybe just kind of help contextualize what does the improving sales pipeline and shortening cycle mean for revenue growth over the near term, maybe maybe early thoughts into 'twenty four.
Yes, Alex this is Lynn. Thanks, so much for that question. So if you look at the fixed income and data services segment as a whole I talked about some of the all weather nature that attributed really to the fixed income data and analytics line on the execution side.
And just a bit ago, but the one area that we've continued to see is a really strong contributor to the bottom line top line is the other data services business and the acceleration of that business through throughout the year and Thats really been fueled by a couple of different areas number one is our multiyear <unk>.
Man the monetization of the tax back associated with our distribution platforms and on the macro side is the continued strong demand for our products and services field by the broader adoption of automation across the industry in a variety of different different areas, which feels like were stone and the.
Early stages. So we're seeing the confluence of these items benefit the top line growth in this area and that causes us to be optimistic for continued growth in this area in particular for the medium term.
We've been very deliberate as Jeff mentioned on his call to be cloud agnostic and really invest in our own data centers. One of the reasons that we did that was really in response to customer demand as increased automation tends to be a data heavy.
Yeah.
Area as well as fueling.
<unk>.
Demand for things such as data center space and customers asking us to grow their data center footprint as a result, and what we've seen more recently our connectivity sales in Q3 were the second highest in our history that those are going to take some time to implement obviously before we see the benefits of that.
And in terms of revenue and our desktop sales last quarter matched our historical high. So we continue to be optimistic that the trends are going to be positive for this area given the pipeline that we have in this area and given the more recent sales that we've been able to.
To achieve.
Our fleet business, which we talked a little bit about in our prepared remarks, we benefit from the automation trend is workforce continue to become more automated and customers continue to value. The modernization efforts, we've undertaken to streamline our technology. So we have been able to attain a variety of new logos.
More recently and then also benefit from historical tier one logos and their increased adoption.
Of our services and then finally the area that continues to drive growth in this area and we think it's the early stages is the adoption of our large language miles our proprietary large language models and our chat platform our chat user growth is up 13%.
Year to date and the increased usage and the model has driven not only revenue benefit here, but also activity generated within our energy markets, which activity energy activity generated through large language models in our energy.
<unk> was up 90% quarter on quarter compared to last year and 70% year to date. So there's a variety of trends that we see as tailwind for this line in particular to continue to drive compounding growth in the medium to long term.
Alright, thank you.
Thank you.
Next question comes from Brian Bedell from Deutsche Bank, Brian. Please go ahead.
Great. Thanks, Thanks, very much good morning folks.
Maybe just to talk about this synergy revenue synergy targets for the Black Knight, the 125 million over five years and then what.
You mentioned Ben on the on the.
Black Knight update call at the end of September.
The $300 million of opportunity.
That you can see now and then cross referencing that with some of the examples you've already cited.
If you can just reconcile the difference between those two numbers and I realize there's still six months to 18 months types of implementation timeframe. So they take a while to get into the revenue stream, but.
It would seem like you are certainly on track to easily beat that 125.
At a time, so maybe just to talk about.
Your outlook on revenue synergies over the next.
A couple of years.
Hey, Brian its warrants so I think.
Yes, you can throw in a couple of numbers, they're all correct of course, but when we think about those revenue synergies I think the best way to be thinking about it is and you pointed out.
Wanted to add one point that I think is important as it takes a little bit long produce implement but I'd think about it more the.
The opex that'd be more hockey stick like and so I think in the early days here you probably don't have as much but that is we obviously move to the next couple of years and through year five youre going to see those start to build so and then part of that is look we got to integrate the companies and we certainly we have to get going on some of the areas that we've talked to you about on not only the core products, but but also on some of the data products that.
We want to cross sell across the platform as well and so that takes a little bit of time. In addition to some of the implementation timelines, we've talked about as well so I think about it.
Certainly we're going to we're going to have some here.
And then Ben talked about a number of wins that we've had but but again. There is there is going to be an implementation timeline for those but certainly we are we are off to a very strong start there and it is really encouraging in terms of us getting to those targets ultimately.
Okay fair enough. Thank you.
Yeah.
Thank you our next.
Next question comes from Simon <unk> from Deutsche Bank.
Please go ahead.
Hi, everyone. Thanks for taking my call.
I was wondering if we could just drill down just to your comments.
About the mortgage market and the performance of the transaction side.
I was just curious as to.
I guess, how you're getting your market information on mortgage originations being down nearly 20%, we're hearing sort of different figures thrown around as well beyond that so I'm curious of how you build that number and then ultimately how youre thinking about whats going into that fourth quarter guide for.
For the IMT pro forma revenues as well.
Hey, Simon So we generally look at a composite the forecasters as you are aware of the MBA, Fannie and Freddie and we're looking at those.
We also have some other data around our loan volumes and of course, Mers registrations that we all pulled together and so.
Youre Fair, it's fair question to ask because obviously the forecasters are.
And are working with somewhat imperfect information and you see revisions here and there at times too so, but thats certainly what we saw we did see in the quarter.
Some encompass closed loans down in the high teens, So I think we did well versus versus the market.
And so that's an encouraging sign of course, there is within those transaction revenues, which is what you might be referencing to some extent there. Some other elements. There I mean professional services fees are in there now with Black Knight, we have default management revenues.
You've got some mers registrations that theres deferrals related to so there's some things in there that of course are not perfectly correlated with whats going on in the mortgage market over the this current period. If you will that will create some noise, but I think in terms of how we're performing.
Within the closed loan component of that.
It's been it's been encouraging and again its part of its adoption.
And new customers coming online some of the sales we've had and I think as you as you move into next year and certainly based on what you heard from bandwidth. We continue to have success. There. So I think that that will continue to drive that that kind of an outcome.
Okay. Thanks, Thanks, a lot.
Thank you our next.
Next question comes from Craig <unk> from Bank of America. Please go ahead.
Thanks, Good morning, everyone.
After the pricing adjustments in the energy complex earlier this year.
Wanted to see if you had an update on the ability to adjust pricing in the future both outside of the energy complex over the near term and then longer term in the energy business and we know this has not been a big focus in the past, but inflation is higher and a key competitive years has been more aggressive with pricing.
Alright, Thanks for the question Craig It's warm so that's something we're thinking about I think as I've said on prior calls in and Youre right.
The headline price changes are not something we had traditionally done we have always gone into markets and adjusted market maker tiers and things are incentive programs.
And things of that nature, but it's not something that we've done historically at a headline level. We did do it this year and I think it's been relatively successful and so we certainly are as we move into our budget season here at the moment.
Thinking about what we might be able to do on that front I think.
As we've said previously it's something that we will pick our spots on I don't expect us to do it on a same products every year.
But certainly we have not done a lot on the money and other products across not just energy, but other areas of futures and so we'll be thoughtful about that.
Again, it all comes back to us thinking about what kind of value we have created for the customer and pricing appropriately for that and so as we think through that.
Youll see some.
You'll see some announcements there, but I don't know that I would expect it to be on the same products every single year, We'll we'll again I think we'll pick our spots as we think through that.
Good morning.
Thank you our next.
Next question comes from Michael Stipe, Chris from Morgan Stanley Michael <unk>. Please go ahead.
Good morning, Thanks for taking the question, we've seen regulators banking regulators proposed new capital rules for the bags, which could make some moves there.
<unk> off exchange derivative products a bit more capital intensive. So just curious your take on that where you guys see the biggest opportunity maybe to bring.
<unk> from OTC to the exchange traded market, how you might quantify that and just bigger picture just given the capital proposals that can make certain products business is more capital intensive for the banks I guess, where do you see the biggest opportunities from that.
This is Jeff thanks for the question.
I think it's a complicated environment because.
While the.
The Basel rules are being discussed every country that we do business in seems to be.
Thinking about implementing them slightly differently, which.
Which sort of begs the question will will the market.
Coalesce around a single standard.
And who in that.
Coalescing process has the influence.
Two.
To drive the consensus and we don't really know yet.
But youre right in that.
Some of the proposals.
In the most draconian.
Cases.
It could be significant on banks.
And.
If you step back and you just look at our business.
Macro level and I mentioned it even in the prepared remarks that I wrote that.
The ice believes and standardized transparent widely distributed.
Regulated.
Businesses and.
And any any.
Regulatory or government action that pushes the market towards more transparency and more standardization is good for us in some cases.
I made the point I tried to make the point in my prepared remarks that that.
It's been my experience that whenever theres been a economic change either either.
Economic downturn Ethernet economic upturn.
As there is a transition to a different economic environment.
Like regulators take a look in.
Try to.
Figure out whats different and and we have tended to benefit.
Over the history of this company from those changes Thats, partly why.
I say that.
<unk>.
Not anti regulation.
Are willing to adapt to regulation, because I think the kind of way we do business.
Is what ultimately regulators are looking for transparency and.
The.
Wide distribution and standardization.
But yes. Thank you for the question, we're thinking about it I think the same way you phrased your question.
Thank you.
Thank you.
Final question comes from Patrick mainly from Piper Sandler Patrick. Please go ahead.
Yes. Good morning, I just had one last one on fixed income I think last quarter Lynn had mentioned that as an issue. It's more margins you could see.
<unk> into higher capture indices. So was just hoping to get an update on from your perspective, what you're seeing there and your expectations.
Going forward and then just to add on to that I'm wondering how we should think about the yield profile differences between treasuries and munis and the impact that could have on the business more broadly.
Yes, Glenn Thanks.
Thanks for the question.
In terms of the allocation of AUM, we have definitely seen an improvement kind of variety of equity indices. For example, although they are relatively small compared to our core fixed income indices.
<unk> seen an uptick in the amount of AUM that has moved into them.
That's being our biotech semiconductor and some of our other more bespoke indices.
In terms of the fixed income allocation.
Government have continued to grow in terms of AUM, but you've also seen higher cap share classes, such as high yield which are really well known for our investment grade.
And our.
Muni indices and gain some share as well so it's a bit of everything growing in terms of AUM, but that has definitely slowed into some of our higher capture products, which has resulted in our index revenues growing nicely.
Protect that literally as compared with last year.
At this time.
In terms of the yield profile Thats a really good question. You know you saw our core products such as Muni have needed volatility Gary.
<unk>.
During the summer months not overly unexpected you've seen volatility in those products start to spike up again as we entered the fall and Thats really a trend that has continued through October in particular treasury have also been a nice grower for us in terms of transactions.
We've also seen growth in things like CD or money market product Cds and non agencies.
As well so as I mentioned earlier, we've really seen good growth across each of our different products. If you look at the amount of transactions on our platform in Q3 as compared with last year Q3, and in fact, the amount of transactions are up 53%. So I think that really positions us nicely.
Because of all the hard work the team has done to penetrate.
Wealth side of the business, obviously retail has been a good grower for us traditionally and all the hard work that the team has done over the last few years to really build our institutional footprint, which we continue to see expanding both in terms of activity and number of participants on our platform. So I think we're really positioned nicely.
Going into the.
The more volatile time that we're that we're in right now.
Thank you.
It is now at the end of the Q&A session. So now comes back over to Jeff Parker for closing remarks.
Well, thank you Laurent for managing the call and thank you all for joining US this morning, let.
Let me again, thank my colleagues for delivering a record third quarter end.
Definitely want to thank our customers for their continued business and their trust, we will be updating you again soon.
We continue to innovate around our all weather business model and build solutions for our customers and generate growth on top of growth.
So with that I hope you all have a great day.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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