ICE Mortgage Technology bets on higher sales in 2023

Intercontinental Exchange (ICE) Collateral Technology Operating income of $57 million in 2022 was down from $397 million last year, the report said — reflecting headwinds facing the mortgage industry.

A silver lining for the business was strong fourth-quarter sales of its Encompass loan origination software system, executives said on Thursday’s latest earnings call.

In turn, the mortgage servicing company plans to take advantage of cross-selling products to customers, large home loan banks investing in its legacy infrastructure and increasing sales to new mortgage stores in 2023.

“Our Encompass sales were very strong,” said Ben Jackson, president and chairman of ICE Mortgage Technology, on its fourth-quarter earnings call. “In fact, the strongest quarter we’ll have in all of 2022 will be the fourth quarter.”

More than 60% of customers are renewing at a higher rate than they were at the beginning of the quarter, Jackson explained.

ICE Mortgage Technology’s subscription revenue rose 9% in the fourth quarter — in line with its strategy to shift to generating recurring revenue rather than transactional revenue. The company expects a business model focused on recurring revenue to help achieve 8-10% annual business growth.

ICE’s mortgage technology segment reported total fourth-quarter revenue of $249 million, down 9.8% from $297 million in the previous quarter. The latest quarter’s revenue was also 28% below the $346 million it generated in the fourth quarter of 2021.

In the fourth quarter, the mortgage technology segment reported adjusted operating income of $98 million. (Unlike its third-quarter earnings release, ICE does not report its operating income.)

While executives acknowledged the company has seen customers cancel subscriptions as industry consolidation creates headwinds for the business, they now see new opportunities. Affected mortgage professionals who opened mortgage shops are becoming new ICE customers, executives said.

“With the unfortunate backdrop of people laying off workers in this mortgage environment, some of the affected employees are becoming entrepreneurs, opening their own mortgage shops (…) although subscription fees may be lower to begin with, [but] We have the ability to grow with them because this mortgage market will bounce back quickly at some point in time,” Jackson told analysts.

There is also a growth opportunity for large home loan banks looking to invest in their outdated infrastructure systems as well as an opportunity to cross-sell products to existing customers.

“What we also see going forward is that there are a lot of large banks, a lot of large home loan banks, that have legacy infrastructure internal systems that have been running for years and want to upgrade and replace that,” said ICE Chairman and CEO Jeff Sprecher.

The company’s AIQ mortgage automation solutions software service, which enables customers to reduce the cost of originating loans, is strong in 2022, opening the door to more opportunities to sell to customers.

“One of the things that’s really driving recurring revenue growth is our success in continuing to sell our AIQ platform to that customer base. Efficiency is needed now more than ever,” Jackson said.

ICE still expects to close its acquisition of Black Knight in the first half of 2023, subject to regulatory approvals and satisfaction of customary closing conditions. In May 2022, ICE announced plans to acquire Black Knight for $13.1 billion, making the company the largest mortgage servicer in the United States.

While executives declined to comment further, the company submitted to Securities and Exchange Commission (SEC) said, “Regulatory approval may not be received, may take longer than expected, or may impose conditions not currently anticipated, which could adversely affect the combined ICE, or be unacceptable to ICE. other conditions.”

“Following the closing of the combination, we will be more leveraged than at present, and the financing arrangements we will enter into will contain restrictions and restrictions that, in certain circumstances, could materially and adversely affect our business and operations,” according to its 10-K Report.

This is ICE’s second major recent deal in the mortgage space, following the acquisition of Ellie Mae from Thomas Bravo in 2020. As indicated in recent filings, ICE will continue to explore opportunities to acquire other companies in 2023.

The 10-K report stated: “We expect to continue to explore and pursue a variety of potential acquisitions and other strategic opportunities to strengthen our competitive position and support our growth.”

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