Q2 2024 Intercontinental Exchange Inc Earnings Call
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I'll now turn the call over to Kathy Higgins, our manager of Investor Relations to begin. Please go ahead.
Kathy Higgins: Good morning, I said second quarter 2024 earnings release and presentation can be found in the investors section of the Izod com.
Speaker Change: These items will be archived and our call will be available for replay.
Speaker Change: Today's call may contain forward looking statements.
Speaker Change: Statements, which we undertake no obligation to update represent our current judgment and are subject to risks assumptions and uncertainties.
Speaker Change: 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 2023 Form 10-K, 2024 second quarter Form 10-Q, and other filings with the SEC.
Speaker Change: In our earnings supplement we refer to certain non-GAAP measures. We believe our non-GAAP measures are reflective of our cash operations and core business performance.
Speaker Change: Final reconciliation to the equivalent GAAP terms in the earnings materials when used on this call net revenue refers to revenue net of transaction based expenses and adjusted earnings refers to adjusted diluted earnings per share.
Speaker Change: Throughout this presentation unless otherwise indicated references to revenue growth are on a constant currency basis.
Speaker Change: Please see the exploratory notes on the second page of the earnings supplement for additional details regarding the definition of certain items.
Speaker Change: With us on the call today are Jeff Sprecher Chair and CEO.
Speaker Change: Warren Gardiner Chief Financial Officer.
Ben Jackson: Ben Jackson President Linda.
Lynn Martin President of NYSE, and Chris Edmonds preference upticks in common data services I'll now turn the call over to Warren.
Warren Gardiner: Thanks Scott.
Warren Gardiner: Good morning, everyone and thank you for joining us today I'll begin on slide four with a summary of our record quarterly results.
Warren Gardiner: Second quarter net revenues totaled a record $2 $3 billion.
Speaker Change: Pro forma for the acquisition of Black Knight total revenue increased by 7% versus last year and is up 6% through the first half of 2024.
Speaker Change: Second quarter, adjusted operating expenses totaled $947 million up 1% year over year on a pro forma basis.
Speaker Change: As a result of this strong performance adjusted pro forma operating income increased by 11% versus the prior year, reaching a record $1 4 billion.
Speaker Change: With record adjusted earnings per share totaling $1 52.
Speaker Change: Moving to the balance sheet adjusted leverage ended the second quarter at approximately three seven times pro forma EBITDA.
Speaker Change: A reduction from three nine times at the end of the first quarter and $4 three upon the completion of Black Knight in the third quarter of 2023.
Speaker Change: Before I move to our segment results I'll note, a few third quarter guidance items.
Speaker Change: We expect third quarter adjusted operating expenses to be in the range of 955 million.
Speaker Change: $965 million or at the midpoint, an increase of roughly 1% year over year on a pro forma basis with growth across our exchange and <unk> segments, largely offset by expense synergies, which we now anticipate we will exit 2024 at an annualized run rate of over $150 million up from prior.
Speaker Change: Spectation of $135 million.
Speaker Change: Relative to the second quarter, we expect a sequential increase to be driven by higher occupancy costs slightly higher compensation, including an accrual for our strong performance year to date and higher depreciation expense as revenue related data center investments continue to come online.
Speaker Change: Moving below the line adjusted Nonoperating expense is expected to be between 190 million to $195 million driven by lower interest expense as we continue direct free cash flows to reducing debt outstanding.
Speaker Change: Now, let's move to slide five where I'll provide an overview of the performance of our exchange segment.
Speaker Change: Second quarter net revenues totaled a record $1 2 billion.
Speaker Change: Up 14% year over year.
Speaker Change: Transaction revenues of $884 million were up 20% driven by a 40% increase in our interest rate business and record energy revenues, which grew 33% year over year.
Speaker Change: This strong energy performance included a 30% increase in our oil complex, 32% growth in global natural gas revenues and 64% growth in our environmental business. In addition, as of the end of July open interest is up 20% year over year, including 21% growth in global interest rates and 25.
Speaker Change: 5% growth in our energy markets.
Shifting to recurring revenues, which include our exchange data services and our NYSE listings business revenues totaled $362 million in the second quarter.
Speaker Change: Mid single digit growth in our broader exchange data services was underpinned by high single digit growth in futures data in part driven by the continued expansion of our global energy and environmental network.
Speaker Change: In our listings business back the listings and the rolling off of 2021 admission fees offset a solid quarter for new listings.
Speaker Change: Through the first half and despite only half of Ipos eligible to list. The NYSE has helped raised $12 billion in new proceeds welcoming 30, new operating companies, including seven of the top 10 Ipos.
Speaker Change: Absent a sharp recovery in Ipos in the second half, we would expect to listings revenues to trend around current levels through the balance of this year.
Speaker Change: Turning now to slide six I'll discuss our fixed income and data services segment.
Speaker Change: Second quarter revenues totaled $565 million Transat.
Speaker Change: Transaction revenues totaled $108 million.
Speaker Change: Transaction revenue growth that ice bonds was once again driven by strong growth across both corporates and unions, particularly our institutional channel, which grew double digits year over year.
Speaker Change: Record recurring revenues totaled $457 million and grew by 5% year over year slightly ahead of expectations.
Speaker Change: In our fixed income data and analytics business record second quarter revenues of $293 million increased by 6% year over year and was driven by growth in pricing and reference data another quarter of double digit growth in our index business and higher than anticipated onetime revenue.
Turning now to slide 6, I'll discuss our fixed income and data services segment.
Second quarter revenues totaled $565 million. Transaction revenues totaled $108 million.
Speaker Change: Other data and network services grew 5% in the second quarter, driven by our consolidated feeds business and continued strength in our oil and gas desktop solutions, both of which are products that we have invested in organically enhancing both content and functionality.
Speaker Change: Total ASB or annual subscription value exited the quarter up 4% year over year.
Record recurring revenues totaled $457 million and grew by 5% year-over-year, slightly ahead of expectations.
Speaker Change: Coupled with visibility into our sales pipeline for the balance of this year and assuming flat markets. We are on track to grow total fixed income and data services recurring revenue around the middle of our mid single digit guidance range, an improvement from 3% growth in 2023.
In our fixed income data and analytics business, record second quarter revenues of $293 million increased by 6% year-over-year and was driven by growth in pricing and reference data, another quarter of double-digit growth in our index business, and higher than anticipated one-time revenue.
Speaker Change: Please flip to slide seven where I'll discuss the results of our mortgage technology segment.
Other data and network services grew 5% in the second quarter, driven by our consolidated feeds business and continued strength in our oil and gas desktop solutions, both of which are products that we have invested in organically, enhancing both content and functionality.
Speaker Change: Ice mortgage technology revenues totaled $506 million in the second quarter.
Speaker Change: Recurring revenues totaled $387 million.
Speaker Change: Relative to the first quarter revenue from new customers coming online was offset by attrition within our data and document automation product or DDA and was primarily related to non encompass customer on our legacy platform. It was not utilizing DVA has full capabilities.
Total ASV, or annual subscription value, exits the quarter up 4% year-over-year.
Coupled with visibility into our sales pipeline for the balance of this year and assuming flat markets, we are on track to grow total fixed income and data services recurring revenue around the middle of our mid-single-digit guidance range, an improvement from 3% growth in 2023.
Speaker Change: Despite this attrition quarterly sales of DTA were the strongest since early 2022, including the signing of J P. Morgan Chase our current user of DVA on the origination side to utilize the platform for their servicing business. When that is a testament to past investments in synergies with MSP.
Please flip to slide 7 where I'll discuss the results of our mortgage technology segment.
Speaker Change: In addition, while the majority of customers continue to renew at higher minimums similar to the last few quarters. We also saw customers renew lower it's important to note that lower minimums are paired with a higher transaction fee or price per closed loan and that total contract value assuming normal market conditions continues to increase.
Relative to the first quarter, revenue from new customers coming online was offset by attrition within our Data and Document Automation product, or DDA, and was primarily related to non-encompassed customer on our legacy platform who was not utilizing DDA's full capabilities.
Speaker Change: Upon renewal.
Speaker Change: Transaction revenues totaled $119 million in the second quarter.
Despite this attrition, quarterly sales of DDA were the strongest since early 2022, including the signing of JPMorgan Chase, a current user of DDA on the origination side, to utilize the platform for their servicing business.
Speaker Change: While revenues related to encompass closed loans applications and Mers registrations increased in the low single digits on a year over year basis.
Speaker Change: And increased well into the double digits sequentially growth was somewhat offset by transaction revenues related to the aforementioned DNA attrition as well as lower default management revenues within our servicing business.
Speaker Change: While the mortgage origination market is trending below historical levels and refinance ways can be difficult to predict we are seeing encouraging signs that fundamentals are stabilizing.
Similar to the last few quarters, we also saw customers renew lower. It's important to note that lower minimums are paired with a higher transaction fee, or price per closed loan, and that total contract value, assuming normal market conditions, continues to increase upon renewal.
Speaker Change: According to isolate mortgage technology data, while still below pre COVID-19 levels. The number of homes on the market continues to grow up nearly 40% versus this time last year.
Speaker Change: In addition capital home equity hit record levels at the end of June reaching $11 five trillion.
Speaker Change: With over 30 million homeowners with at least $100000 to draw down upon.
and increased well into the double digits sequentially, growth was somewhat offset by transaction revenues related to the aforementioned DNA attrition, as well as lower default management revenues within our servicing business.
Speaker Change: And we estimate that the number of borrowers with an incentive to refinance at current rates. This is at its highest level in two years, driven by slightly lower interest rates and a building backlog of higher rate purchase loans.
Speaker Change: And so we continue to invest in product development and enhancements and we continue to expand our existing network all of which further position our platform to realize accelerating growth when market conditions normalize.
Speaker Change: In summary, we delivered a record first half we once again delivered revenue growth operating income growth and free cash flow growth and we continue to invest across our business to meet the needs of our customers and to position our business to continue to deliver consistent and compounding growth for our stockholders into the future.
In addition, tappable home equity hit record levels at the end of June , reaching $11.5 trillion, with over 30 million homeowners with at least $100,000 to draw down upon.
Speaker Change: I'll be happy to take your questions during Q&A, but for now I'll hand, it over to Ben.
Ben Jackson: Thank you Lauren and thank you all for joining US. This morning, please turn to slide eight.
Ben Jackson: And the more than 20 years ice has been building its global energy platform, we have strategically positioned our energy business for the globalization of natural gas and the societal demand for a transition to clean energy.
And so, we continue to invest in product development and enhancement, and we continue to expand our existing network, all which further position our platform to realize accelerating growth when market conditions normalize.
Speaker Change: Our long term strategic direction and the value of our diverse deep and liquid markets contributed to record trading volumes across our energy complex in the second quarter.
Speaker Change: This was a key driver to another quarter of record energy revenues up 33% year over year and growing double digits on average over the past five years.
Speaker Change: This strong performance to a testament to our customers' continued confidence in ice as the global energy hedging venue of choice.
Speaker Change: And with open interest continuing to set records into July up 25% year over year, our energy complex appears poised for continued strength.
Speaker Change: In the more than 20 years ICE has been building its global energy platform, we have strategically positioned our energy business for the globalization of natural gas and the societal demand for a transition to clean energy.
Speaker Change: As the world evolves market participants are constantly adjusting and weighing the price impact of an array of macroeconomic geopolitical and regulatory forces as well as externalities, such as climate risk and the emergence of new renewable fuel sources.
Speaker Change: In essence, the price formation process is increasingly becoming more complex and that additional complexity is driving customer demand for more precise risk management tools.
Speaker Change: This strong performance is a testament to our customers' continued confidence in ICE as the global energy hedging venue of choice.
Speaker Change: It is also driving demand for customers to come to a single place to manage risk across oil gas power and environmental is because of the efficiency and deep liquid markets that we provide.
Speaker Change: And, with open interest continuing to set records into July , up 25% year-over-year, our energy complex appears poised for continued strength.
Speaker Change: Across natural gas the evolution of the global market is accelerating this acceleration is underpinned by the rise of liquefied natural gas market based pricing and more recently Europe's renewed openness to gas imports after the elimination of Russia as a key supplier and the emergence of <unk>.
Speaker Change: With America, as a leading natural gas export.
Speaker Change: Alongside this as an important partner fueled emitting about half as much carbon dioxide as coal to produce natural gas continues to benefit from demand for cleaner fuels as countries move to reduce their carbon emissions.
Speaker Change: Additionally, the natural gas markets, where historically regional oriented.
Speaker Change: Each characterized by distinct pricing and supply dynamics.
Speaker Change: Across natural gas, the evolution of a global market is accelerating.
Speaker Change: All of these factors underpin the emergence of three key benchmarks for natural gas across North America, Europe, and Asia with these becoming increasingly interconnected.
Speaker Change: This acceleration is underpinned by the rise of liquefied natural gas, market-based pricing, and more recently, Europe's renewed openness to gas imports after the elimination of Russia as a key supplier and the emergence of North America as a leading natural gas exporter.
Speaker Change: In Europe, our title transfer facility contract or TTS is essential trading point for natural gas just as Brent is the global benchmark for oil pricing.
Speaker Change: As a result, TTM is increasingly being used by global commercial participants traders and investors with a record number of market participants in the second quarter that has doubled since 2019.
Speaker Change: This has been accompanied by volumes and open interest increasing with both setting new highs in the second quarter and each are growing double digits on average over the past five years.
Speaker Change: In Asia, our Japan, Korea marker or J km reflects the spot market value of cargoes delivered into the region that represents a key demand center for LNG underpinned by surging economic growth and increasing focus on environmental concerns.
Speaker Change: In 2023 global coal consumption reached its highest level in history, driven by continued growth in Asia.
Speaker Change: Like Coke, while whole continues to be replaced by natural gas and other cleaner energy sources in Europe, and North America, It's still accounts for 47% of primary energy consumption in Asia.
Speaker Change: In absolute terms the coal switching opportunity in Asia alone represents more energy than the total energy consumption in North America across all primary energy sources.
Speaker Change: In Asia, our Japan-Korea marker, or JKM, reflects the spot market value of cargos delivered into the region that represents a key demand center for LNG, underpinned by surging economic growth and increasing focus on environmental concerns.
Speaker Change: Today, the relationship between our TTS at JK and benchmarks drives global price formation.
Speaker Change: Reflecting this dynamic ices jkf volumes have shifted from being roughly 50% composed of the JK on TTS spread to closer to two thirds.
Speaker Change: In 2023, global coal consumption reached its highest level in history.
Speaker Change: driven by continued growth in Asia.
Speaker Change: This dynamic also illustrates market confidence and relying on TTS as a benchmark for global gas and LNG prices as participants draw assurance from its deep liquidity, rather than relying on the Asian marker in isolation.
Speaker Change: While coal continues to be replaced by natural gas and other cleaner energy sources in Europe and North America, it still accounts for 47% of primary energy consumption in Asia.
Speaker Change: In North America, we began preparing for the liberalization of natural gas and its evolution beyond the Henry hub benchmark more than a decade ago.
Speaker Change: Through close collaboration with our customers, we created ices electronic regional basis markets.
Speaker Change: Fleet of precise risk management tools, reflecting the commercially relevant supply and demand dynamics of 70 hubs across North America.
Speaker Change: These hubs are priced at a differential to Henry hub to reflect U S regional market conditions transportation costs and transmission capacity between locations.
Speaker Change: This dynamic also illustrates market confidence in relying on TTF as a benchmark for global gas and LNG prices as participants draw assurance from its deep liquidity rather than relying on the Asian marker in isolation.
Speaker Change: Alongside this many market participants seeking to manage exposure to U S natural gas price dynamics gravitate towards ices, Henry hub contracts for liquidity and the linkage to our exclusive basis markets.
Speaker Change: In North America, we began preparing for the liberalization of natural gas and its evolution beyond the Henry Hubb benchmark more than a decade ago.
Speaker Change: As the global landscape of LNG exports geopolitical forces and shift to cleaner energy sources, all continue to evolve we see these dynamics underpinning the strong momentum for this business.
Speaker Change: Through close collaboration with our customers, we created ICE's electronic regional basis markets.
Speaker Change: A suite of precise risk management tools reflecting the commercially relevant supply and demand dynamics of 70 hubs across North America.
Speaker Change: And we see these trends continuing to favor our growing global gas complex well into the future.
Speaker Change: These hubs are priced at a differential to Henry Hub to reflect U.S. regional market conditions, transportation costs, and transmission capacity between locations.
Speaker Change: The importance of the evolution of energy markets extends to our global environmental markets, where the number of market participants has nearly doubled since 2019.
Speaker Change: Setting an all time high in the second quarter, and increasing 18% year over year.
Speaker Change: At the same time volumes increased 61% in the quarter, including growth across our regional greenhouse gas initiative allowances, California carbon allowances as well as our EU and U K allowances. This strong performance has contributed to a 43% increase in environmental revenues year to date <unk>.
Speaker Change: As the global landscape of LNG exports, geopolitical forces, and shifts to cleaner energy sources all continue to evolve, we see these dynamics underpinning the strong momentum for this business.
Speaker Change: 64% growth in the second quarter.
Speaker Change: In parallel across our power markets volumes increased 32% in the first half, including 51% growth in the second quarter.
Speaker Change: The importance of the evolution of energy markets extends to our global environmental markets, where the number of market participants has nearly doubled since 2019, setting an all-time high in the second quarter and increasing 18% year-over-year.
Speaker Change: With AI and data center build outs expected to drive meaningful power demand into the next decade. Our platform is uniquely positioned to capture this tailwind and help market participants manage this potentially volatile growth story given that ice has the most comprehensive platform that offers U S regional gas markets alongside.
Speaker Change: At the same time, volumes increased 61% in the quarter, including growth across our regional greenhouse gas initiative allowances, California carbon allowances, as well as our EU and UK allowances.
Speaker Change: Deep and liquid power and environmental markets.
Speaker Change: In summary for market participants seeking to manage their risk.
Speaker Change: <unk> Global energy platform offers over a 1000 futures and options contracts across natural gas power and environmental and oil markets supporting the growing complexity of energy markets and uniquely positioning us to benefit from both near term volatility and secular growth trends occurring across these markets.
Speaker Change: With AI and data center build-outs expected to drive meaningful power demand into the next decade, our platform is uniquely positioned to capture this tailwind and help market participants manage this potentially volatile growth story.
Speaker Change: Moving to our fixed income and data services business are.
Speaker Change: Our quality pricing and reference data combined with over 40 years of price history serve as the foundation for what is today one of the largest providers of fixed income indices globally.
Speaker Change: given that ICE is the most comprehensive platform that offers U.S. regional gas markets alongside deep and liquid power and environmental markets.
Speaker Change: Year to date revenue in our index business is up double digits with passive ETF assets under management Benchmarked to our indices growing to a record $616 billion through the end of the second quarter from less than $100 billion in 2017 and doubling since 2020.
Speaker Change: power, environmental and oil markets, supporting the growing complexity of energy markets, and uniquely positioning us to benefit from both near-term volatility and secular growth trends occurring across these markets.
Speaker Change: In addition, we continue to see returns on past investments made to enhance content and functionality across our other data and network services business.
Speaker Change: As an example, within our consolidated feeds business investments, we've made to elevate and enhance our offering have directly contributed to the double digit revenue growth in this area year to date.
Speaker Change: Our quality pricing and reference data, combined with over 40 years of price history, serve as the foundation for what is today one of the largest providers of fixed income indices globally.
Speaker Change: With content from over 600 data sources are offering gives customers access to a broad universe of low latency financial information with full depth of market data.
Speaker Change: Year to date, revenue in our index business is up double digits.
Speaker Change: with passive ETF assets under management benchmark to our indices growing to a record $616 billion through the end of the second quarter from less than $100 billion in 2017 and doubling since 2020.
Speaker Change: As firms seek more high quality data from a range of different sources in a cost efficient manner, our competitive and comprehensive offering stands to benefit.
Speaker Change: While our consolidated feeds and index businesses are smaller components of our comprehensive data platform today. They are both well positioned to continue to grow and capture market share. While also serving an important role in our broader enterprise sales strategy.
Speaker Change: In addition, we continue to see returns on past investments made to enhance content and functionality across our other data and network services business.
Speaker Change: Turning now to our mortgage business.
Speaker Change: The secular shift towards the adoption of an electronic workflow continues.
Speaker Change: With a life of loan offering that spans from point of consumer acquisition, all the way through to the secondary market. Our platform is uniquely positioned to play a fundamental role.
Speaker Change: In the second quarter, we closed on 29, new encompass clients as customers focus on modernizing their infrastructure and workflow efficiencies building.
Speaker Change: Building on wins announced last quarter, such as citizens Bank and Webster Bank. We are pleased to announce that mortgage solutions of Colorado has signed on to encompass expanding on the MSP win we announced late last year.
Speaker Change: While our consolidated feeds and index businesses are smaller components of our comprehensive data platform today, they're both well positioned to continue to grow and capture market share while also serving an important role in our broader enterprise sales strategy.
Speaker Change: We have also just signed another top 15 homebuilder in the U S to encompass and our DDA platform, making them the ninth homebuilder of the top 15 to join our community.
Speaker Change: With a life-of-loan offering that spans from point of consumer acquisition all the way through to the secondary market, our platform is uniquely positioned to play a fundamental role.
Speaker Change: In addition, as mentioned last quarter, we've been integrating our tax flood and closing fees data into encompass providing customers with more choice of service providers on our platform.
Speaker Change: In that regard we are encouraged by the early traction in our cross sell efforts across these offerings executing on 200 data cross sells to encompass clients in the first half.
Speaker Change: Building on wins announced last quarter, such as Citizens Bank and Webster Bank, we are pleased to announce that Mortgage Solutions of Colorado has signed on to Encompass.
Speaker Change: While these offerings are small components of our business today these wins give us confidence in our ability to execute on the synergy targets that we laid out at the time of the Black Knight transaction.
Speaker Change: expanding on the MSP win we announced late last year.
Speaker Change: We have also just signed another Top 15 homebuilder in the U.S. to Encompass and our DDA platform, making them the ninth homebuilder of the Top 15 to join our community.
Speaker Change: Along the same lines following the first integration of encompass to MSP by leveraging our data and document automation platform for loan Onboarding straight from origination through to servicing we are pleased to announce that we signed JP Morgan chase onto this service.
Speaker Change: In addition, as mentioned last quarter, we've been integrating our tax, flood, and closing fees data into Encompass, providing customers with more choice of service providers on our platform.
Speaker Change: For our traditional DDA business. We also had 12, new wins to new and existing encompass clients in the second quarter alone.
Speaker Change: In summary, we are pleased to see the value of our platform and solutions are providing.
Speaker Change: By our comprehensive technology platform and it's resonating in the marketplace.
Speaker Change: With a touch point to nearly every market participant we have connectivity to our customer base and need of the automation that our digital solutions provide.
Speaker Change: Along the same lines, following the first integration of Encompass to MSP by leveraging our data and document automation platform for loan onboarding, straight from origination through to servicing, we are pleased to announce that we signed JPMorgan Chase onto this service.
Speaker Change: As these new customers come onto our network, we have the opportunity to expand the customer relationship over time as they adopt additional solutions.
Jeff Sprecher: Just as we've seen in our other markets. This flywheel effect gives us confidence that we can grow a business that today is only a fraction of the $14 billion addressable market. That's in the early days of an analog to digital conversion with that I'll turn the call over to Jeff.
Jeff Sprecher: Thank you Ben good morning, everyone and thank you for joining US please turn to slide nine.
Speaker Change: In summary, we are pleased to see the value of our platform and solutions are providing.
<unk>: At <unk>, our mission for more than 20 years has been to drive transparency and create workflow efficiencies for our customers we.
Jeff Sprecher: We do this by building and operating mission critical digital networks that leverage our technology data and operating expertise.
Speaker Change: As these new customers come onto our network, we have the opportunity to expand the customer relationship over time as they adopt additional solutions.
<unk>: At the time of our IPO on the New York Stock Exchange in 2005, we were purely an energy exchange offering only a handful of products to a narrow customer base. Since then our focus has been building a global platform that has the asset class breath to enable us to pursue growth opportunities.
Speaker Change: Just as we've seen in our other markets, this flywheel effect gives us confidence that we can grow a business that today is only a fraction of the $14 billion addressable market that's in the early days of an analog to digital conversion. With that, I'll turn the call over to Jeff.
<unk>: <unk> quickly and efficiently as they emerge around the world.
<unk>: And deliver all weather results, while we're known for some of our larger scale acquisitions. We have also completed a wide range of smaller bolt on transactions.
Jeff: At ICE, our mission for more than 20 years has been to drive transparency and create workflow efficiencies for our customers.
Jeff: We do this by building and operating mission-critical digital networks that leverage our technology, data, and operating expertise.
<unk>: We re imagine these businesses by leveraging technology and crafting significant product development to drive organic growth.
<unk>: Further bolstering the content on our networks and accelerating our broadening into new asset classes.
<unk>: Operating marketplaces with strong network effects is a core expertise at ice and today, we do so across an array of asset classes geographies and customer types.
<unk>: Optimizing the operation of financial services databases helps drive market transparency and this transparency attracts additional participant which in turn improves market liquidity.
<unk>: It's a virtuous cycle that continuously expands the network while strengthening the market.
Jeff: We reimagine these businesses by leveraging technology and crafting significant product development to drive organic growth.
<unk>: Starting with our commodities business in 2001, we acquired the international Petroleum exchange, which brought US both proprietary content in the form of the Brent crude index as well as connectivity to a broad network of energy traders and commercial customers.
<unk>: Building on that foundation, we organically developed and grew hundreds of precise hedging instruments to serve the evolving needs of this commercial customer base today, the original Brent crude contract trades, alongside our Midland WTS Cushing <unk>.
Jeff: Optimizing the operation of financial services databases helps drive market transparency, and this transparency attracts additional participants, which in turn improves market liquidity.
<unk>: <unk>, Dubai, and Middle East Mervyn grades of crude to additionally, support over 800 related commodity products developed by ice, giving participants the ability to manage the price of energy at the point of consumption or production around the world.
Jeff: Starting with our commodities business in 2001, we acquired the International Petroleum Exchange, which brought us both proprietary content in the form of the Brent Crude Index, as well as connectivity to a broad network of energy traders and commercial customers.
<unk>: In 2007, we've broadened our commodity footprint with the acquisition of the New York Board of trade, adding globally relevant benchmarks, such as sugar cocoa cotton and coffee. The Nighthawk also brought us a clearinghouse, which today, we call ice clear U S.
Jeff: Building on that foundation, we organically developed and grew hundreds of precise hedging instruments to serve the evolving needs of this commercial customer base.
<unk>: We were able to leverage <unk> clearing expertise and its web based clearing technology to create ice clear Europe. The Uk's first new clearinghouse approved in over a century.
<unk>: Starting from a simple idea we have grown it into one of the largest clearing houses in the world.
<unk>: Our experience in building trading clearing and settlement infrastructure highlighted for us the importance of analytics indices and trade valuation services and in 2015, we broadened our addressable market moving into fixed income with the acquisition of interactive data Corporation.
<unk>: Idc's pricing and reference data businesses are key to transparent price formation in the fixed income markets.
<unk>: They laid the foundation for our expansion into the adjacent index business and the development of a comprehensive platform that today, we have grown to nearly 500 unique institutional grade data products.
<unk>: Another example by leveraging our technology and infrastructure is our June 24th announcement to apply our proven track record our expertise in central clearing and our connectivity to the fixed income markets. The launch of clearing service for U S Treasury securities and repurchase agreements.
Jeff: Our experience in building trading, clearing, and settlement infrastructure highlighted for us the importance of analytics, indices, and trade valuation services, and in 2015, we broadened our addressable market moving into fixed income with the acquisition of Interactive Data Corporation.
<unk>: The U S Treasury in repo markets are critical to the global collateral management infrastructure and we are significant users of these treasury products across our six clearinghouses.
Jeff: IDC's pricing and reference data businesses are key to transparent price formation in the fixed income markets.
<unk>: New SEC rule, beginning in 2025 sheds light on the fact that no existing clearing offering is compliant with the rule opening an opportunity for ice we look forward to working with our clients and the entire treasury ecosystem to deliver on this innovation.
Jeff: Another example of ICE leveraging our technology and infrastructure is our June 24th announcement to apply our proven track record, our expertise in central clearing, and our connectivity to the fixed income markets to launch a clearing service for U.S. Treasury securities and repurchase agreements.
<unk>: Following the proven playbook, we've applied across futures in fixed income markets and by leveraging our expertise in building new technology, we've expanded into the U S consumer interest rate markets by developing a digital financing infrastructure for home mortgages and.
<unk>: In 2016, we acquired a majority position in the mortgage electronic registry system.
<unk>: We applied <unk> technology expertise to rebuild and modernize its platform and database, allowing us to buy the remaining business stake in 2018.
Jeff: A new SEC rule beginning in 2025 sheds light on the fact that no existing clearing offering is compliant with the rule, opening an opportunity for ICE.
<unk>: We've since bought and built our way into further market exposure that culminated with the completion of our acquisition of Black Knight last year.
Jeff: We look forward to working with our clients and the entire treasury ecosystem to deliver on this innovation.
<unk>: Today. These assets are part of our broader ice mortgage technology business that we believe is uniquely positioned at the center of an asset class that is moving from analog to digital.
Jeff: Following the proven playbook we've applied across futures and fixed income markets and by leveraging our expertise in building new technology, we've expanded into the US consumer interest rate markets by developing a digital financing infrastructure for home mortgages.
<unk>: Breadth and depth of what we have assembled touches nearly every home mortgage in the United States and includes the largest network of partners that everyday ensure that our thousands of customers can efficiently engage originate close finance value and sell consumer home loans.
Jeff: In 2016, we acquired a majority position in the Mortgage Electronic Registry System.
<unk>: Our approach to overlaying organic growth on our strategic acquisitions is deliberate and comprehensive allowing us to construct a platform that not only generate strong returns and healthy cash flows but it is also positioned to continue to leverage our core strengths to generate future growth.
Jeff: Today, these assets are part of our broader ICE mortgage technology business that we believe is uniquely positioned at the center of an asset class that is moving from analog to digital.
<unk>: Our first half results are another example of strong execution of this proven strategy we.
Jeff: The breadth and depth of what we have assembled touches nearly every home mortgage in the United States and includes the largest network of partners that, every day, ensure that our thousands of customers can efficiently engage, originate, close, finance, value, and sell consumer home loans.
<unk>: We delivered record revenues record adjusted operating income and record adjusted earnings per share. These record setting results reflect the strength of our network and the all weather nature of our business model.
<unk>: As we've grown and diversified we broadened our opportunity set and our expertise has grown yielding new markets to grow into and new ways to deliver innovative solutions to our customers.
Jeff: Our approach to overlaying organic growth on our strategic acquisitions is deliberate and comprehensive, allowing us to construct a platform that not only generates strong returns and healthy cash flows, but is also positioned to continue to leverage our core strengths to generate future growth.
<unk>: Our evolution, that's been intentional diversifying across asset classes, and geographies and increasing our mix of recurring revenues with a goal of building a business that today generates compounding earnings growth.
<unk>: Looking to the second half of the year and beyond we're excited about the many growth opportunities that are in front of us and we remain focused on delivering innovative solutions for our customers, while driving compounding all weather growth for our stockholders.
Speaker Change: Before I end my prepared remarks, I'd like to say, thank you to our customers for their business and for their trust and I would like to thank my colleagues at ice for their contribution to both the best single quarter and the best first half in our company's history.
Jeff: Our evolution has been intentional, diversifying across asset classes and geographies and increasing our mix of recurring revenues with a goal of building a business that today generates compounding earnings growth.
<unk>: With that I'll turn the call back to our moderator drew and we'll conduct a question and answer session until 930, a M eastern time.
Speaker Change: Thank you we will now start today's Q&A session to register a question. Please press star followed by one on your telephone keypad can withdraw your question. Please press star followed by as a.
Jeff: Looking to the second half of the year and beyond, we're excited about the many growth opportunities that are in front of us, and we remain focused on delivering innovative solutions for our customers while driving compounding all-weather growth for our stockholders.
Speaker Change: Kinda limit yourself to one question and if you have any follow up then re joined Mckee.
<unk>: Our first question today comes from Craig Siegenthaler from Bank of America. Your line is now open. Please go ahead.
Craig Siegenthaler: Thank you and good morning, everyone.
Craig Siegenthaler: Our question is on the fixed income business. So we've seen a nice acceleration in fixed income <unk> this year.
Craig Siegenthaler: What's driving this what channels are you seeing the most growth and to what extent is the growth stemming from pricing versus cross sell versus new clients.
Speaker Change: Okay, Craig I'll start that one office one so it's been pretty broad based across the recurring revenue base within that segment and so we've seen some improvements in the PRT business.
Speaker Change: As you know last few years that fixed income ecosystem has been facing a number of headwinds given the sharp rise in interest rates and so as we've seen that taper off we've seen a reengagement from that customer base, which has helped.
Speaker Change: Thank you. Good morning everyone. Our question is on the fixed income business. So we've seen a nice acceleration in fixed income ASV this year. What's driving this? What channels are seeing the most growth? And to what extent is the growth stemming from pricing versus cross-sell versus new clients?
Speaker Change: On the new sales front and we've seen some improvements there certainly over the last couple of quarters itself. The other area. That's been helpful as well as on the index side, where the last year or so we've had some headwinds there largely just due to markets and things of that nature.
Speaker Change: We've seen that now reverse and obviously fund flows into fixed income funds as well as been a helpful component of that as well.
Speaker Change: From a growth perspective, and then I'd also say within the other data network services within our desktop business, our feeds business, which you heard us highlight we've seen some really strong trends there as well and that's really a result of some of the investments we've made over the last number of years to get those into into better position. So we've been pretty pleased with that progress I think we certainly did face some headwinds last year at a macro level and as you've seen those.
Speaker Change: The recurring revenue base within that segment. And so we've seen some improvements in the PRD business.
Speaker Change: You know, as you know, last few years, the fixed income ecosystem has been facing a number of headwinds given the sharp rise in interest rates. And so, as we've seen that...
Speaker Change: The base <unk> seen improvement in the revenue trends in the ASB trends and I think one thing that <unk>.
Speaker Change: It doesn't necessarily always pickup or doesn't pick up I mean, it's a good metric is not perfect as the sales that we've made that have not yet implemented and so as we mentioned last quarter. We do think on the connectivity side related to some of our data center investments, we will see some some of those sales start to implement in the third and the fourth quarter that will be a little bit of help a well on and so on.
Speaker Change: [inaudible]
Speaker Change: Encouraged by that as we look into the back half.
Speaker Change: Our next question comes from Ken Worthington from Jpmorgan. Please go ahead.
Ken Worthington: Hi, good morning, Thanks for taking the question.
Speaker Change: You mentioned that you expanded the chase relationship as.
Ken Worthington: Another win this quarter. So maybe first how does the institutional pipeline look for encompass in MSP.
Speaker Change: ASV
Speaker Change: It doesn't necessarily always pick up, or it doesn't pick up, I mean it's a good metric, it's not perfect, is that sales that we've made that have not yet implemented.
Ken Worthington: Is it building is it stable.
Speaker Change: Or is this just really working through that existing pipeline and then second ice has a number of larger mortgage wins that you've announced over the last 18 months what is the magnitude of the impact we should expect as these clients go live on transaction and recurring revenue over the second.
Speaker Change: As we mentioned last quarter, we do think on the connectivity side, related to some of our data center investments, we'll see some of those sales start to implement in the third and the fourth quarter. That will be a little bit of help as well. So we're encouraged by that as we look into the back half.
Speaker Change: Half of this year and maybe into the first six months of next year.
Speaker Change: These new larger relationships are launched.
Speaker Change: Hi, good morning. Thanks for taking the question.
Speaker Change: Thanks, Ken I'll start and then and then the world will pick up on the second part of that question.
Speaker Change: So we're very pleased with the expansion of the relationship with.
Speaker Change: How does the institutional pipeline look for Encompass and MSP? Is it building? Is it stable? Or is ICE just really working through that existing pipeline?
Speaker Change: JP Morgan Chase, obviously, there has been a long time MSP client they've added encompass across all channels.
Speaker Change: And have added DDA for the origination side and now.
Speaker Change: What is the magnitude of the impact we should expect as these clients go live on transaction and recurring revenue over the second half of this year or maybe into the first six months of next year as these new larger relationships are launched?
Speaker Change: Our leveraging DDA as that integration point to automatically onboard loans from encompass into MSP. So thats a great win for us and it's in it's really in line with the vision of why we put together all of these assets is to provide the efficiency that these platforms provide for institutions.
Speaker Change: Thanks, Ken. I'll start and then Warren will pick up on the second part of that question.
Speaker Change: And the in terms of the funnel behind that we continue as <unk> seen.
Speaker Change: We're very pleased with the expansion of the relationship with JPMorgan Chase, obviously. They've been a long-time MSP client. They've added Encompass across all channels.
Speaker Change: Each quarter announcing new wins, and whether its MSP wins or clients that have historically been on encompass and we've had a great relationship with <unk>.
Speaker Change: Or the other way around clients that have been on MSP that are that are signing on to encompass.
Speaker Change: We're very pleased with the success that we've had out of the gate and we continue to see that that funnel building.
Speaker Change: And it's building in a couple of different ways. It's building from clients that realize they don't need to have their own in house bespoke systems. That's oftentimes what we're replacing in particular on the very large institutional side for this.
Speaker Change: And really the secret sauce should be how do they cross sell to their clients and understand more about that overall relationship across the institutional enterprise that those banks have with the clients as opposed to.
Speaker Change: Coming up with some unique way to run our loan origination system or our servicing system. So that funnel continues to build we feel we feel good about that on both sides on both MSP and encompass.
Warren: or the other way around, clients that have been on MSP that are signing on to Encompass.
Speaker Change: With a number of the wins that we've had in that you even referenced in your in your question, we have a lot of those going through implementations.
Warren: And it's building in a couple of different ways. It's building from...
Speaker Change: Clients that realize they don't need to have their own in-house bespoke systems, that's oftentimes what we're replacing, in particular on the very large institutional side.
Speaker Change: As you can appreciate we have a large backlog of those implementations. They are going very well. They just take time could vary. They are very complex. There is a lot of compliance aspects in and around mortgage in fact in most areas that these banks work.
Speaker Change: Mortgage is probably one of the most.
Speaker Change: Heavily compliance areas of compliance they have to comply with.
Speaker Change: So those implementations take time.
Speaker Change: I'll hand, the second part of it off to Warren.
Warren Gardiner: Yes, so kind of on your question around the size of some of the wins in.
Warren Gardiner: And maybe the cadence of how those will kind of come into the run rate. So I think look back in the fourth quarter, we talked about revenue synergies around $30 million.
Speaker Change: and with a number of the wins that we've had in that you even referenced in your in your question we have a lot of those going through implementations as as you can appreciate.
Warren Gardiner: I can tell you that we've continued to add to that number and made progress against that number that's something I'll, probably give more on an annual basis in terms of the actual number but I can tell you that we have been making progress over the last couple of quarters there.
Speaker Change: We have a large backlog of those implementations, they're going very well, they just take time, they're very complex.
Speaker Change: Like I said back then as well, we wouldn't expect and we don't expect a material impact this year from those revenue synergies.
Speaker Change: There's a lot of compliance aspects.
Speaker Change: In and around mortgage, in fact, in most areas that these banks work, mortgage is probably one of the most heavily areas of compliance they have to comply with.
Warren Gardiner: The MSP products encompass they can tend to take six to 18 months, if not longer particularly for ones that are larger which is what a lot of these wins that we've talked about are and so it does take time to implement that technology and that's part of why you're seeing those kind of take some time to get into the run rate.
Speaker Change: So those implementations take time, and I'll hand the second part of it off to Warren.
Warren Gardiner: We expect those to start to comment on 2025 and 2026.
Speaker Change: Obviously, those those companies come online and that will flow into revenue recurring revenue at that one.
Speaker Change: Our next question is from Dan Fannon from Jefferies. Your line is now open. Please go ahead.
Dan Fannon: Thanks. Good morning. So another question on mortgage was hoping you could flush out a little bit of what.
Warren: MSP products and Compass, they can tend to take 6 to 18 months, if not longer, particularly for ones that are larger, which is what a lot of these WINS that we've talked about are, and so it does take time to implement that technology, and that's part of why you're seeing those kind of take some time to get into the run rate.
Dan Fannon: Transpired I think in the quarter with you talked about a client leaving so.
Speaker Change: We wanted to get a bit of an update more broadly on the kind of renegotiations and where you are or do you think in the pipe.
Speaker Change: Overall customer base for the new minimums.
Speaker Change: As you think about the recurring revenue mix.
Speaker Change: Is that.
Speaker Change: Do you anticipate more kind of flux.
Speaker Change: Fluctuations in sort of fits and starts as you kind of go through that process as we look kind of prospectively from here.
Speaker Change: Sure Dan This is Ben.
Ben Jackson: I'll take this one so I'll start with the second part of the renegotiations and Warren mentioned it in his prepared remarks as well we continue on the encompass side see the majority of the clients. So the number of clients that are renewing are renewing at higher subscriptions.
Warren: Our next question is from Dan Fannon from Jeffreys. Your line is now open, please go ahead.
Speaker Change: And when that happens we have a lower per closed loan fee is typically the tradeoff there, but we do have.
Speaker Change: A percent that we've seen in similar the last few quarters that are choosing to renew at lower <unk>.
Speaker Change: Minimums, lower lower subscription fees and the tradeoff there is higher.
Speaker Change: Closed loan fees and as the market normalizes the.
Speaker Change: The algorithm that we have is the total contract value going to go up and that's what we're consistently targeting and executing against.
Warren: Sure. Dan, this is Ben. I'll take this one.
Ben: So, I'll start with the second part of it on the renegotiations, and Warren mentioned it in his prepared remarks as well. We continue on the Encompass side to see the majority of the clients, the number of clients that are renewing, are renewing at higher subscriptions.
Speaker Change: So we're seeing that trend in terms of renegotiation continue.
Speaker Change: And it's been very very much in line with what we've seen in past quarters.
Speaker Change: Attrition that Warren mentioned in his prepared remarks, so that was on the DDA side, so with that data and document automation platform is the platform. The Ellie Mae acquired a number of years ago and there are some legacy clients on that platform.
Speaker Change: That don't utilize the DC the automation capabilities that that platform as in line with encompass or with MSP theyre using it in isolation and that's where we saw the attrition happen with one client.
Warren: per closed loan fees. And as the market normalizes, you know, the algorithm that we have is the total contract value going to go up. And that's what we're consistently targeting and executing against.
Speaker Change: That warrant referenced the other opportunity that we see here, though is that we have another client that was very similarly, situated to that one that we engaged with very deeply.
Speaker Change: And convince them to change their loan origination provider from where they were.
Speaker Change: In the past to moving over to encompass.
Speaker Change: And couple that with the DDA platform and we were successful in doing that and in the second quarter Thats the citizens bank.
Warren: that don't utilize the automation capabilities that that platform has in line with Encompass or with MSP. They're using it in isolation, and that's where we saw the attrition happen with one client that Warren referenced.
Speaker Change: When that I had referenced was exactly that we renegotiated a DDA contract brought them onto encompass that have a much more longer term strategic relationship with the client.
Speaker Change: And then Dan just a comment on recurring revenue I think I think that starts to stabilize around here as we move through the back half.
Speaker Change: The other opportunity that we see here, though, is that we had another client that was very similarly situated to that one.
Dan: Obviously, the market environment has weighed versus what we were thinking.
Speaker Change: Later last year, when we spoke to you guys about or early this year. When we spoke to you guys about what we thought the recurring revenue it looked like for the year.
Warren: that we engage with very deeply.
Speaker Change: I noted a few points in my script supporting that we've seen some stabilization in those fundamentals and actually more directly related to us through the first half of this year, we've seen an increase in loans originated on encompass we've seen an increase in apps on.
Warren: and couple that with the DDA platform and we were successful in doing that and in the second quarter, that's the Citizens Bank win that I had referenced was exactly that. We renegotiated a DDA contract, brought them on to Encompass and have a much more longer-term strategic relationship with the client.
Speaker Change: On encompass and Thats encouraging thats. The first time, we've seen a year over year increase since early 2021. So so assistance. Some early signs that things are stable mobilizing and I think a more stable market is going to give people a little bit more.
Speaker Change: No reason to start to think about the future plan for the future and start to invest in some of these products like a DDI warhead, which I said had its best quarter in two years for sales.
Speaker Change: versus what we were thinking later last year when we spoke to you guys about, or early this year when we spoke to you guys about what we thought the recurring revenue would look like for the year. I noted a few points in my script supporting that we've seen some stabilization in those fundamentals, and actually more directly related to us.
Dan Fannon: And so look at M&A like we had a few quarters ago or last quarter cancellations like we had this quarter on the DDA side that can be tough to predict but you know for instance that is I think as Dan said, there's still there's a small amount of customers that are that are on DDA that don't use encompass for MSP now so attrition like we saw this quarter and that way kind of seems less.
Speaker Change: Likely to be a headwind moving forward and also as I said, we don't we won't expect to see some of those revenue synergies come in until next year. So.
Speaker Change: At this point it feels like we see some stabilization with.
Speaker Change: Looking forward to 2025 as those start to hit.
Speaker Change: Our next question comes from Kyle Voigt from CBW. Your line is now open. Please go ahead.
Speaker Change: And so, look, M&A like we had a few quarters ago or last quarter, cancellations like we had this quarter on the DDA side, that can be tough to predict, but, you know, for instance, that is I think has been said, there's still, there's a small amount of customers that are
Kyle Voigt: Hey, good morning, maybe just sticking on on mortgage Tac in the past you've spoken about the significant kind of data exhaust that's generated by this combined mortgage technology business.
Kyle Voigt: With Black Knight now having been closed for I guess, roughly 10 months can you just speak a bit more about how youre thinking has evolved around the best ways to potentially monetize this mortgage data, whether that's new product launches or other areas of opportunity.
Speaker Change: At this point, it feels like we see some stabilization and looking forward to 2025 as those start to hit.
Kyle: Thanks Kyle.
Ben Jackson: This is Ben.
Speaker Change: So there is there could we see a number of different opportunities.
Speaker Change: Our next question comes from Kyle Voigt from CBW. Your line is now open, please go ahead.
Ben Jackson: In this area and I'll describe a few some that are very near term and I mentioned this in my script as well is that we saw an opportunity to take a bunch of datasets.
Speaker Change: You know, in the past, you've spoken about this significant kind of data exhaust that's generated by this combined mortgage technology business.
Ben Jackson: That black Knight's data business had and integrate them onto encompass.
Ben Jackson: We had that as part of our plan even before we closed that without as part of the integration strategy that was one of the first things we were going to do we executed on that.
Kyle Voigt: I guess with Black Knight now having been closed for I guess roughly ten months, can you just speak a bit more about how your thinking has evolved around the best ways to potentially monetize this mortgage data, whether that's new product launches or other areas of opportunity?
Ben Jackson: We just closed last September got all those datasets onto encompass for the first time and in the first half of this year. We've had 200 cross sells of flood data and fees datasets that traditionally were not on encompass to our encompass customer base.
Speaker Change: Thanks, Kyle. This has been...
Speaker Change: So, we see a number of different opportunities in this area, and I'll describe a few. Some that are very near-term, and I mentioned this in my script as well, is that we saw an opportunity to take a bunch of data sets.
Ben Jackson: So thats and there is a long runway to go on that when you think of 3000 encompass customers in each of those datasets being cross sell opportunities.
Speaker Change: Good runway ahead of us on that the second thing that we executed on it.
Speaker Change: that Black Knight's data business had and integrate them onto Encompass.
Speaker Change: And we're very pleased with is there is a data set within black Knight that our AVM so their valuations on homes.
Speaker Change: We had that as part of our plan, even before we closed, that as part of the integration strategy, that was one of the first things we were going to do. We executed on that. We just closed, you know, last September . Got all those data sets onto Encompass for the first time. And in the first half of this year, we've had 200 cross-sells of flood data and fees data sets that traditionally were not on Encompass to our Encompass customer base.
Speaker Change: With the with the trend right now with the amount of equity built up built up in homes. We've built a straight through service around home equity lines of credit that take our AVM slipped to you could take to evaluate current valuation on a home.
Kyle: Service or it could take that information plus the data they know on the customer present, an offer for a home equity line of credit for our client.
Kyle: And then feed that information directly into the origination platform as our encompass platform.
Kyle: Handles home equity lines of credit seamlessly and then as those loans are originated pass those straight through into servicing the abms are definitely a key component of that in home equity lines of credit is something that we're seeing early on.
Kyle: Our very popular right now.
Speaker Change: Longer term one of the things that we did strategically when we integrate these businesses, we took that black Knight data business and we moved it into our fixed income and data services business with Chris and we just did that at the beginning of this year. The reason for that is we believe there's a lot of datasets within there.
Speaker Change: that take our ADMs, so you can take the current valuation on a home, the servicer can take that information plus the data they know on the customer, present an offer for a home equity line of credit for a client.
Kyle: Within Black Knight that traditionally have been sold to mortgage specific companies that have a lot of <unk> capital markets.
Kyle: <unk>.
Kyle: <unk> and those are datasets like that are called <unk>.
Speaker Change: handles home equity lines of credit seamlessly, and then as those loans are originated, pass those straight through into servicing. So the AVMs are definitely a key component of that and home equity lines of credit is something that we're seeing are very popular right now.
Kyle: There's another one called <unk>, another one MBS and all of them in a sense are.
Kyle: Predicting prepayments.
Kyle: Loans or portfolio of loans or portfolios of mortgage backed mortgage backed securities.
Speaker Change: Longer term, one of the things that we did strategically when we integrated these businesses is we took that Black Knight data business and we moved it into our fixed income and data services business with Chris.
Speaker Change: And obviously with our fixed income and data services business, we have a very significant business in the pricing and reference data around mortgage backed securities. We have a whole community of customers with thousands of them that that consume our fixed income and data services products and that's where we're introducing the products as they are today, but also.
Kyle: Aging with clients to get feedback on new services that we can build for more of a medium term opportunity. So those are some of the ones off the top my head.
Kyle: Our next question comes from Chris Allen from Citi. Your line is now open. Please go ahead.
Chris Allen: Good morning, everyone. Thanks for taking the call.
Chris Allen: Question, Sorry, I was hoping we could dig into the growth in energy.
Speaker Change: Some really impressive growth is middle of 2023.
Chris Allen: Any color just in terms of whether it's new commercials coming on.
Speaker Change: Aging by existing market participants, taking maybe impact of macro funds and also can be digging a little bit on north American options.
Speaker Change: And that's where we're introducing the products as they are today, but also engaging with clients to get feedback on new services that we can build for more of a medium-term opportunity. So those are some of the ones off the top of my head.
Speaker Change: Which is up very nicely, what's been driving that does not have to.
Chris Allen: Factoring into the complexity, increasing complexity, what's been referenced earlier.
Chris Allen: Okay.
Speaker Change: Thanks for the question.
Speaker Change: Our next question comes from Chris Allen from Citi. Your line is now open, please go ahead.
Speaker Change: So you've heard us over the over a number of different calls on a number of different years.
Chris Allen: Good morning, everyone. Thanks for taking the call.
Chris Allen: Two the fact that the major difference that you see in the way that we've developed.
Kyle: Our energy markets, whether youre talking to oil gas and also the products like power and environmental we are focused on the commercial customer at at the core.
Speaker Change: I've seen really impressive growth since the middle of 2023.
Chris Allen: Any color, just in terms of whether it's new commercials coming on, hedging by existing market participants, ticking off maybe impact of macro funds.
Kyle: And that's why we've built out and not dependent on just one benchmark for the growth of our business, we built out thousands of hedging products around the world across oil gas power.
Kyle: Emissions.
Kyle: Is that our customers want to be able to hedge.
Speaker Change: Thanks for the question.
Kyle: <unk> at the point of production or consumption as Jeff referred to even in his prepared remarks today.
Speaker Change: So, you've heard us over a number of different calls in a number of different years.
Jeff Sprecher: And it's those customers that we've really been building.
Speaker Change: Open interest around our platform and obviously as open interest builds as liquidity builds a platform. That's when you start to get.
Kyle: So people that are taking more of a directional view on the market start to start to come in as well, but the leading people or the commercials.
Chris Allen: And when we talk about even the success that we've had in our in our natural gas markets that started with a heavy heavy commercial base.
Chris Allen: Our sweet spot in the U S has been the regional basis markets customers utilize those and when they are trading that as a package with Henry hub. That's what's helped to build out our Henry hub market because they want to do both of those trades in in the same location. The same is true with the development of TTS and now with.
Speaker Change: is that
Speaker Change: Hedge at the point of production or consumption, as Jeff referred to even in his prepared remarks.
Chris Allen: U S natural gas.
Kyle: Moving around the world in the form of LNG in Europe consuming.
Kyle: More U S LNG that from any other any other source and then also that coal switching opportunity that I mentioned in my prepared remarks across Asia being the size of North America itself.
Chris Allen: All of this is pointed at.
Chris Allen: The commercial market participants that started in <unk> and Tcf has built up open interest in those products and then we have obviously a directional traders following behind that so thats.
Speaker Change: Color on that front.
Speaker Change: And on on the options front, we're pleased with our options growth across the entire portfolio today, there's a lot of risks that people need to manage.
Kyle: You have geopolitical risk with multiple wars going on you've got political risks with elections pending and what's that what that's going to mean for energy policy and financial risks around what's going to happen with interest rates and all of these have an impact and options can be a very efficient way to.
Speaker Change: more US LNG than from any other any other source and then also that coal switching opportunity that I mentioned in in my prepared remarks across Asia being the size of North America itself.
Speaker Change: Hedge and manage risk in those situations.
Ben <unk>: Our next question comes from Ben <unk> from Barclays. Please go ahead.
Kyle: Yeah.
Kyle: Hi, good morning, and thanks for taking the question Ben I was wondering if you could unpack the Asia opportunity a little bit more and maybe talk about the historical correlation between consumption of electricity and energy.
Speaker Change: And on the options front, we're pleased with our options growth across the entire portfolio. You know, today there's a lot of...
Speaker Change: You've got geopolitical risk with multiple wars going on, you've got political risks with elections pending and what that's going to mean for energy policy, and you have financial risks around what's going to happen with interest rates and all of these have an impact.
Speaker Change: And trading volumes, when we look at sort of the European data it looks like consumption.
Speaker Change: Natural gas is pretty flat over a long period of time, but your volumes are up very meaningfully over similar period of time.
Speaker Change: And so presumably a pickup in consumption really anywhere it would be quite positive, but how do you think about the correlation how much does that could that drive volumes versus things like price volatility.
Speaker Change: How much of those relative factors matter. Thank you.
Speaker Change: Okay.
Kyle: Yeah.
Speaker Change: Okay. Thanks, Ben Yes.
Speaker Change: Our next question comes from Ben Budish from Barclays. Please go ahead.
Speaker Change: Those those dynamics.
Speaker Change: <unk> matter when people are looking at and whether your power producer or a consumer.
Ben Budish: Ben, I was wondering if you could unpack the Asia opportunity a little bit more and maybe talk about the historical correlation between consumption of electricity and energy and trading volumes. When we look at the European data, it looks like consumption of natural gas is pretty flat over a long period of time, but your volumes are up very meaningfully over a similar period of time. Presumably, a pickup in consumption really anywhere would be quite positive, but how do you think about the correlation? How much could that drive volumes versus things like price volatility? How much do those relative factors matter? Thank you.
Speaker Change: The mix of things that you need to think about in trading at is not only the power of the price of power itself, but also what's producing it whether its coal or switching to switching to natural gas is a much much cleaner fuel and then also the dynamic around the world have wanted of also having to put a price on carve.
Speaker Change: <unk> emissions that are that are also a part of that so traders that are thinking about those hedges that are thinking about their exposure in the energy markets have to think about all four of those dynamics.
Kyle: And we for many years have thought and then from engaging with our clients that that's the mix of risks that need to be managed and that's why we've built out.
Kyle: A business that includes all of those aspects.
Kyle: To enable traders to hedge and manage that risk in one platform.
Speaker Change: The power itself, but also what's producing it, whether it's coal or switching to natural gas as a much cleaner fuel.
Speaker Change: I will even use the U S is a good example.
Speaker Change: The if you look at the U S. There has been a shift towards cleaner sources and gas it's clear if you've talked to any of the analysts out there the power consumption is going to continue.
Speaker Change: and then also the dynamic around the world of also having to put a price on carbon emissions that are also a part of that.
Speaker Change: To grow in the U S.
Speaker Change: One of the underlying reasons for that in data center demand.
Speaker Change: Analysts estimate that U S power is expected to increase.
Speaker Change: Power demand is going to increase over the next decade and data center demand alone.
Speaker Change: Associated to that is likely 19, gigawatts last year, two growing to up to 35 Gigawatts.
Speaker Change: By the end of this decade.
Kyle: And then underneath that you have natural gas demand that's linked to power generation.
Kyle: That today is around 35 billion cubic feet is expected from analyst estimates to grow to 45 billion cubic feet by the end of by the end of this decade, and then obviously you have.
Kyle: Markets like our environmental markets that continue to do well like our <unk> markets and our California carbon emissions. So I think that's a.
Kyle: A good story to tell because we see that story developing in Europe, we see that story developing in Asia, and the mix of having U S basis.
Kyle: Markets power, Henry and environmental markets, all in one place and enabling customers to hedge and manage this risk and efficient basis is what enables us to do this and provide those services to clients.
Speaker Change: is expected, from analyst estimates, to grow to 45 billion cubic feet by the end of this decade. And then obviously you have markets like our environmental markets that continue to do well, like our Reggie markets and our California carbon emissions.
Speaker Change: Our next question comes from Alex Kramm from UBS. Please go ahead.
Kyle: Sure.
Alex Kramm: Yes, Hey, good morning, everyone just wanted to come back to mortgage and attrition.
Alex Kramm: So sometimes when there is M&A in this space you win some you lose some not sure. If you can go into details of the Mr. Cooper Flagstar acquisition that was announced I think last week.
Speaker Change: I think our I think flagstar as a top 10 servicer in top 25 originator I think on servicing their clients and I think Mr. Cooper has kind of gone in another direction. So maybe from you guys. So just maybe talk about that one given that its a sizeable deal in the industry and obviously, we saw the sport.
Ben Budish: is what enables us to do this and provide those services to clients.
Speaker Change: These deals can have an impact on your numbers. Thanks.
Speaker Change: Thanks, Alex.
Speaker Change: I'll start so in the <unk>.
Speaker Change: In particular in the in the servicing business you do have.
Speaker Change: Mortgage servicing rights that that trade and move between clients and we're a beneficiary if those mortgage servicing rights move two servicers that are on MSP.
Speaker Change: It's the opposite if they're if they're not.
Speaker Change: Yes.
Speaker Change: And I think I've mentioned this on the last the last call. The first half of this year, we did see some impact on the servicing side of the business, where there was a major bank had been very public about the fact that they were exiting the correspondent business and selling those msr's. So that had some headwinds to us that it is the <unk>.
Alex: Thanks, Alex. I'll start.
Alex Kramm: First half of this year, it's really an uncontrollable risks for us, but it was a temporary phenomenon that we think is as.
Alex Kramm: As played out we're also a beneficiary these when when they happen and examples that I brought up are.
Alex Kramm: When when two harbors around point came together.
Alex Kramm: Bunch of loans that came on to MSP associated to that and then when J P. Morgan bought first Republic, JP Morgans, obviously on MSP and those loans came to us.
Speaker Change: We, and I think I've mentioned this on the last call, the first half of this year, we did see some impact on the servicing side of the business.
Alex Kramm: These tend to ebb and flow.
Alex Kramm: On us and off of us on the Mr. Cooper.
Speaker Change: where there was a major bank had been very public about the fact that they were exiting their correspondent business and selling those MSRs. So that had some headwinds to us. That hit us the first half of this year. It's really an uncontrollable risk for us, but it was a temporary phenomenon that we think is...
Alex Kramm: A question that you had we have a deep relationship with Mr. Cooper.
Alex Kramm: We've been they've been a customer of ours for a number of years on encompass.
Alex Kramm: They also use our foreclosure and bankruptcy solutions within servicing so we have a good relationship with them and we look forward to seeing what what.
Alex Kramm: What their plans are in the future, but as it relates to customers, leaving us in choosing a different platform. We're not we're not seeing that type of impact.
Alex Kramm: And then Alex just to give you on flagstone.
Alex Kramm: Sure.
Speaker Change: Total ice mortgage technology revenues.
Alex Kramm: Thanks.
Alex Kramm: Our next question comes from Alex Blaustein from Goldman Sachs. Your line is now open. Please go ahead.
Speaker Change: They also use our foreclosure and bankruptcy solutions within servicing.
Alex Blaustein: Hey, good morning. Thanks for the question. So maybe just zooming out on energy for a second revenue growth up 30% or something like that this year.
Speaker Change: So we have a good relationship with them, and we look forward to seeing what their plans are in the future. But as it relates to customers leaving us and choosing a different platform, we're not seeing that type of impact.
Alex Kramm: <unk> trending something similar to that.
Alex Blaustein: I think we talked a lot about some of the structural tailwind that are supporting its growth, but as you guys sort of zoom out and you extrapolate. This further out how do you think about the energy revenue growth algorithm over the next couple of years and is 2020 for the good base in your view to build off of I know the market tends to mean revert some of the dynamics in the training space, but.
Speaker Change: A total, uh, ice mortars technology revenants.
Speaker Change: It doesn't feel like that's exactly what's happened here.
Alex Kramm: Hi, Alex spend thanks for thanks for the question.
Speaker Change: Well, what we always look at is the health of of open interest across our markets as the barometer for and really the predictor for.
Speaker Change: Future volumes and future volume potential for.
Speaker Change: For our markets and if you look across our marketplace now overall across all of our futures business open interest versus last year's up 20%.
Speaker Change: In energy, it's up 25%.
Speaker Change: So to us those are great indicators.
Speaker Change: That we're doing the right thing is partnering with our customers developing.
Speaker Change: Developing out all of these very.
Speaker Change: New innovations and new products and more precision in the way.
Speaker Change: That customers can manage and hedge their risk around the world the development of new products and oil.
Speaker Change: as the barometer for, and really the predictor for, future volumes and future volume potential for our markets. And if you look across our marketplace now, overall across all of our futures business,
Speaker Change: Been really exciting for us with what we've innovated with our HOA contract pricing Midland WTS basis, Houston, which is now flowing into dated Brent.
Alex Kramm: And that market is growing phenomenally.
Alex Kramm: For us up 400%.
Alex Kramm: <unk>.
Speaker Change: Open interest versus last year's up 20%.
Alex Kramm: Open interest.
Alex Kramm: You look at the development of our Mervyn contract that we innovated three years ago pricing.
Speaker Change: In energy, it's up 25%.
Speaker Change: So, to us, those are great indicators that we're doing the right things, partnering with our customers, developing out all of these very, you know, new innovations and new products and more precision in the way.
Alicia: Alicia crew going to Asia Atvs in that contract are up 160%.
Alex Kramm: All of our swaps to futures markets. These are all refined products in basis markets continue to grow really nice for us.
Speaker Change: that customers can manage and hedge their risk around the world. The development of new products in oil have been really exciting for us with what we've innovated with our HOU contract pricing Midland WTI basis Houston, which is now flowing into dated Brent.
Alicia: And oil.
Alex Kramm: In natural gas, we continue to innovate and continue to introduce new contracts, new LNG contracts, we've talked about the development of <unk> the development of our TTS contract.
Alex Kramm: All of these.
Alex Kramm: Our minds create to create a flywheel effect because anybody that's trading in these energy markets wants to put a price on oil power gas emissions and it's so much more efficient for them to do that all in one place. So I'd point to the innovation that we've had open interest growth. There is also fed into the growth of our bench.
Speaker Change: And that market is growing phenomenally for us, up 400% in open interest.
Speaker Change: You look at the development of our MIRBIN contract that we innovated three years ago pricing Middle Eastern crew going to Asia. ADVs in that contract are up 160%.
Alex Kramm: Our contracts as well.
Speaker Change: All of our Swaps to Futures markets, these are all refined products and basis markets continue to grow, really nice for us.
Alex Kramm: That concludes today's Q&A session I will now hand back over to Jeff Sprecher for closing remarks.
Speaker Change: and Oil. In natural gas, we continue to innovate and continue to introduce new contracts, new LNG contracts. We've talked about the development of JKM, the development of our TTF contract.
Jeff Sprecher: Well. Thank you drew for managing the call and I want to thank you all for joining us this morning.
Jeff Sprecher: And we look forward to updating you again very soon as we continue to innovate for our customers and build our all weather business model to continue to drive growth with that I hope you'll have a great day.
Speaker Change: All of these...
Speaker Change: It, in our minds, create a flywheel effect because anybody that's trading in these energy markets wants to put a price on oil, power, gas, emissions, and it's so much more efficient for them to do that all in one place.
Speaker Change: That concludes today's call. Thank you all for your participation you may now disconnect your lines.
Speaker Change: So I point to the innovation that we've had, the open interest growth there has also fed into the growth of our benchmark contracts as well.
Speaker Change: That concludes today's Q&A session. I will now hand back over to Jeff Sprecher for closing remarks.
Jeff Sprecher: That concludes today's call. Thank you all for your participation. You may now disconnect your line.