Intercontinental Exchange, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Financial Results: First quarter earnings per share were $1.72, up 16% year-over-year. Net revenue grew 8% to a record $2.5 billion. Adjusted operating income increased 11% to a record $1.5 billion.
• Segment Performances:
  • Exchange: Record net revenues with 12% year-over-year growth, driven by 16% growth in transaction revenues (energy, interest rate, NYC cash equities/options). Recurring revenues grew 3%, with NYSE listings helping raise over $4 billion in new proceeds.
  • Fixed Income and Data Services: Record revenues, with 16% growth in ICE bonds (muni and corporate) and 27% growth in CDS clearing revenue. Recurring revenues up 5%, index business reached a record $684 billion in ETF AUM.
  • Mortgage Technology: Record revenues, recurring revenues up driven by servicing business and new customers on MSP. Transaction revenues up slightly, driven by Encompass closed loans and default management.
• Market Strengths:
  • Energy Markets: Eighth consecutive quarter of record energy revenues, up 23% year-over-year. Open interest up 8%, ADV in April up 43% year-over-year.
  • Interest Rate Markets: Highest quarterly volume in company history, up 31% year-over-year, with records in Euribor, SONIA, and Gilts markets.
  • NYSE: Cash equity and equity options volumes up, providing 21% growth in equity trading revenues. State-of-the-art technology handled high volumes efficiently.

Segment Performance

• Exchange Segment: First quarter net revenues totaled a record $1.4 billion, up 12% year-over-year. Recurring revenues (exchange data services and NYSE listings) totaled $368 million, up 3%. This segment contributed approximately 56% of the total net revenue of $2.5 billion.
• Fixed Income and Data Services Segment: First quarter revenues totaled a record $596 million, including transaction revenues of $125 million. Recurring revenues totaled $471 million, up 5%. This segment accounted for ~23.84% of the total net revenue.
• Mortgage Technology Segment: First quarter revenues totaled $510 million. Recurring revenues totaled $397 million, up sequentially and year-over-year. This segment made up ~20.4% of the total net revenue.

Guidance

• Second Quarter Expectations: Adjusted operating expenses expected to be in the range of $980 million to $990 million, driven by a weaker dollar relative to the pound and euro, offset by higher revenues. Second quarter non-operating expense expected between $175 million and $180 million, with lower interest expense from reduced leverage offset by refinancing.
• Mortgage Guidance: Unchanged from prior, with focus on executing investments in the mortgage platform. One-time revenues in the servicing business were a few million dollars, not typically recurring.

Risks

• Macroeconomic Uncertainty: Impact on customer behavior, investment decisions, and market volatility.
• Geopolitical Risks: Influence on energy and interest rate markets, affecting trading volumes and risk management needs.
• Competitive Pressures: Potential loss of business from competitors, especially in the mortgage technology segment.

Question and Answer

Q: Hi, good morning. Thanks for all the color in your prepared remarks. I was hoping you could address investor interest in the Rocket purchase of Mr. Cooper, particularly in the context of its acquisition of Flagstar. So given Rocket's prominence in the mortgage market, how do you see Rocket's business strategy comparing to what ICE is putting together in mortgage? And where does ICE compete and where does Rocket use ICE? And then maybe secondly, if we look at Flagstar and Cooper, how much business is at risk of transitioning away from ICE over time? And to what extent do your recent wins offset the potential loss of Flag and Cooper?

A: Hi, Ken. It's Ben. A lot in there, and I'll try to hit it all, and Warren may also chime in on the latter part of your question there. So, I think the headline is that it's a validation of our strategy. We have been working now for many years to build out a complete end-to-end life-of-loan platform on behalf of our clients. And remember, we are doing this on behalf of 3,000 clients that we have within our ecosystem, some utilizing parts of our end-to-end platform and some utilizing all of it. We also, as I said, have been doing this for a number of years now, and we have approximately 2,500 engineers, product experts, and AI experts that have been evolving, enhancing and innovating our platform now for many years, all within a single front to back ecosystem. And, again, it’s on behalf of our clients. And a key thing to highlight there is that we are a neutral, independent third-party. We are also leveraging our AI expertise across all of ICE to mine things, as an example, like our servicing data, to help the client that actually owns the MSR to efficiently market a refi opportunity to their client at the right time with the right product to help enhance their ability to recapture loans. Another benefit, as I mentioned, is that we are an independent neutral provider of technology, and we -- put simply, we don't compete with our customers. And evidence to this is to the success that we've in growing out this ecosystem and attracting new clients to come to it is all the successes that I've mentioned quarter-over-quarter that we've had bringing in some marquee name clients onto our ecosystem. We also, as I said in my prepared remarks, we signed 20 new Encompass clients in Q1, and we also signed a significant new MSP client in United Wholesale Mortgage. If you saw the press release that came out yesterday as well as articles that came out around that, you will see that UWM specifically selected our servicing system and our client portal to help curate homeowner and lender experiences that help improve their recapture rates and referrals. And they specifically highlight as well that another reason they came to us is not only the technology expertise, but the fact that we are a neutral independent provider. So when I look at attracting a client like that into our ecosystem, one of the largest originators in the United States mortgage business, and them coming onto our platform and then look at the funnel behind that of clients that are engaging, subservicers that are on MSP as well as us directly to move loans to us, we feel great about our overall position.

Q: Hi, good morning everyone. Just given the balance sheet deleveraging and now return to capital or return to buybacks, just wondering if we get your updated thoughts on M&A. And as we think about areas of focus for ICE, most of your inorganic capital deployment over the past 5 years has been into the mortgage tech segment. I guess, what you’ve built there and the assets that are remaining in the ecosystem, do you think there's still a sizable consolidation that's left in that set in that segment? Or should investors be thinking about maybe a return towards inorganic capital deployment in other segments of the business?

A: This is Jeff. That’s a great question. We've been really diligent about delevering after our most recent acquisitions in order to be able to return capital through share buybacks, which, as you've mentioned, we've now been able to start. And we've been pretty diligent about delevering to try to hit a target of at least 3x, or less. And we are making good headway there, which would then free up tremendous amount of cash flow, which we could use for return to shareholders. I think if you listen to our prepared remarks, what you are hearing is all three segments of our business are doing really well. And so we've been, knock on wood, particularly accretive at our share buyback policies. They've had great returns for our shareholders. And so given how well the company is doing and given how we are starting to free up cash flow, it just feels right to us to lean into those share buybacks at this point. In terms of M&A, we always look for opportunities and we judge those opportunities against the opportunity to own our own company through share buybacks. And we will continue to do that. You're right in that we've through organic and inorganic work, really built out an amazing end-to-end platform for mortgage, and the major pieces are seemingly there. We do get offered all kinds of bolt on things that could bid on that network. But again, we always run them through that same lens of, is it a better ROI to just continue to invest in our own shares with a company that is really highly performing right now.