Intercontinental Exchange (ICE) Collateral Technology Recorded operating income of $57 million in 2022, down from last year’s $397 million – a reflection of the constraints facing the mortgage industry.
Thank you for reading this post, don't forget to subscribe!The silver lining for the business was strong sales in its Encampus loan origination software system in the fourth quarter, executives said in its latest earnings call on Thursday.
In return, the mortgage service company plans to capitalize on cross-selling products to customers, large home lending banks investing in their legacy infrastructure and increasing sales to new mortgage outlets in 2023.
“We had a very strong quarter in sales,” Ben Jackson, president and chairman of ICE Mortgage Technology, said in its fourth-quarter earnings call. “In fact, the strongest quarter we had in 2022 was the fourth quarter.”
Jackson explained that more than 60% of customers renewed their subscriptions at a higher rate than at the beginning of the quarter.
ICE Mortgage Technology grew subscription revenue 9% in the fourth quarter — in line with its strategy to generate recurring revenue rather than transactional revenue. The firm expects a business model that focuses on recurring revenue will help the business grow by 8-10% per annum.
The Mortgage Technology division at ICE posted $249 million in total revenue in the fourth quarter, down 9.8% from $297 million in the previous quarter. The latest quarterly revenue was also down 28% from the $346 million generated during the fourth quarter of 2021.
For the fourth quarter, the Mortgage Technology segment posted adjusted operating income of $98 million. (ICE did not release its operating earnings, unlike its third-quarter earnings.)
While executives acknowledged that the company has seen customers canceling subscriptions due to industry consolidation creating headwinds for the business, they are now looking at new opportunities. Officials said affected mortgage professionals who started pawn shops are becoming new ICE customers.
“With the unfortunate backdrop of people dwindling in this mortgage environment, many of those affected employees are becoming entrepreneurs, starting their own mortgage shops (…) However, at low membership fees to start Maybe, [but] We have the ability to grow with them, because this mortgage market will come back at some point,” Jackson told analysts.
Large home lending banks that want to invest in their legacy infrastructure systems are developing as well as cross-selling products to existing customers.
“We also see, just looking into the future, that there are a lot of large banks, a lot of large home lending banks, that have legacy infrastructure of in-house systems that they’ve been running for years that they’re going to have to upgrade want and change it,” said Jeff Sprecher, President and CEO of ICE.
The firm’s AIQ mortgage automation solution software services, which enable customers to lower the cost of originating loans, was very strong for the year 2022, opening the door for more sales opportunities for its customers.
“One of the things that is really driving that recurring revenue growth is the success that we’re continuing to have selling our AIQ platform into that customer base. We have a long way to go in being able to penetrate those 3000 lenders and provide them with the efficiencies they need now more than ever,” Jackson said.
ICE still expects to complete the acquisition of Black Knight in the first half of 2023, subject to receipt of regulatory approval and satisfaction of customary closing conditions. In May 2022, ICE announced plans to acquire Black Knight in a $13.1 billion deal, making the firm the largest mortgage servicing company in the US.
While officials declined to comment further, the company’s filing with Securities and Exchange Commission (SEC) stated that “regulatory approval may not be obtained, may take longer than expected or impose conditions that are not currently anticipated, that could adversely affect ICE following the merger or that would otherwise are unacceptable to ICE.”
“Following completion of the merger, we will have higher leverage than we currently have, and the financing arrangements we enter into will have restrictions and limitations that, in certain circumstances, could have an adverse effect on our business and operations,” its 10 According to the report of
This is the second major recent deal for ICE in the mortgage space, following the acquisition of Eli Mae from Thomas Bravo in 2020. In 2023, ICE will continue to explore opportunities to acquire other firms, as indicated in its most recent filing.
“We expect to pursue and explore various potential acquisitions and other strategic opportunities to strengthen our competitive position and support our growth,” the 10-K report noted.
