Intercontinental Exchange, Inc. Q3 FY2025 earnings call

• Technology and innovation, particularly AI, are foundational. ICE is using AI to automate workflows, enhance analytical insights, and drive efficiency across business processes under ICE Aurora. - In the Exchange segment, energy markets had strong performance with third quarter volumes up 8% (global gas) and 18% (power) year-over-year. Open interest in futures energy was record high in October. - Fixed Income and Data Services segment saw record revenues driven by multiyear investments, with data and network technology growth. - Mortgage Technology segment re-platformed MSP from mainframe to modern tech stack, signed new clients, and saw 4% revenue growth with 12% transaction revenue growth in Q3.

Exchange Segment: Third quarter net revenues totaled $1.3 billion. Recurring revenues reached a record $389 million, up 7% year-over-year. Exchange data services saw a 9% growth, and the NYSE helped raise $20 billion in new IPO proceeds through the first 3 quarters of 2025. Fixed Income and Data Services Segment: Third quarter revenues were a record $618 million, including $123 million in transaction revenues. Recurring revenue was a record $495 million, up 7% year-over-year. Data and network technology revenues increased 10% in the quarter. Mortgage Technology Segment: Third quarter revenues totaled $528 million, up 4% year-over-year. Recurring revenues were $391 million, up year-over-year.

• Fourth quarter adjusted operating expenses expected to be in the range of $1.005 billion to $1.015 billion. - Fourth quarter adjusted nonoperating expense expected to be between $180 million and $185 million. - Full year exchange data growth expected to be towards the high end of the 4% to 5% guidance range. - Fourth quarter data and network technology revenue growth expected in the high single-digit range, and total segment recurring revenue expected to be between 5% and 6% for both fourth quarter and full year.

• Regulatory compliance risks, especially in areas like surveillance and pattern recognition. - Macroeconomic conditions affecting mortgage purchase volumes in the fourth quarter. - Competition in the mortgage technology space from other providers, including potential blockchain-based competitors.

Q: Believe it or not, my question is on the impact of AI in the mortgage origination and servicing business, then really following up in your prepared remarks. So maybe first, how easy is it to incorporate the benefits of AI in MSP and Encompass given what their tech stacks look like today? You gave some examples, but can you get AI into all the areas you need to maximize your competitiveness? And then maybe secondly, do you think AI can make it easier for perspective, ICE Mortgage Technology clients to pursue efficiency on their own? And does the hope of new technology extend the time it's taking for ICE to sign up new Encompass and MSP customers, particularly when thinking about large customers.

A: Thanks, Ken. It's Ben. I'll take this. I think the -- in my mind, the best way to summarize the impact of AI on our mortgage origination and servicing platforms is that it's enabled us to transition these platforms from what have historically been seen as systems of record to a system of intelligence. And what do I mean? So when you think about these core platforms, we are orchestrating incredibly complex and highly regulated business processes and workflows. We alluded to it in the comments multiple times, both Jeff and I did, that we also have an incredible network attached to us, thousands of customers, hundreds of network service providers, 35,000 settlement agents, tens of thousands of notaries as an example. And we're orchestrating communication not only of those clients connecting to us, but as important, if not more important, connectivity between our clients. And we have the proprietary information on how to orchestrate that workflow and how to make it more robust. We also own and maintain the most robust compliance and underwriting guideline databases in the industry, and that's the reference data that's required to really automate underwriting workflows, which we're doing through our DDA platform. We also own and maintain the most comprehensive set of closing guidelines and rules for every county in the country, which enables our electronic closing and the e-reporting of loan transactions in the business that we acquired with Simplifile. We've also have significant proprietary data, derived data off our platforms that help to inform our business intelligence models and enable our clients to find more operational efficiencies and business efficiencies that our clients can benefit from. So you take all of this together and how we're applying AI throughout each business process from a bottom-up perspective using that Aurora process that I had mentioned, going through business process by business process, understanding what the probabilistic accuracy of a pattern recognition model that AI is providing and what's the business tolerance around the regulatory rules, the compliance associated to how much automation can be applied versus when human intervention needs to take place. So we're extraordinarily well positioned to take advantage of this. And it shows up in our results. We had our highest quarter of the year in terms of sales in the third quarter. Across our ICE Mortgage Technology segment, we had 2 MSP clients, both of which are already on Encompass signed in the last quarter, and that's on top of the 2 that we had last quarter, including one of the largest lenders in the U.S. with United Wholesale Mortgage. And then we had 16 Encompass wins, 5 of which are on MSP or MSP subservicers that are really buying into our vision of the benefits of a front-to-back workflow. So we feel very well positioned, and we're looking at the funnel behind that, we feel like we're in a very strong position.

Q: Another question here on Mortgage. Warren, you gave some near-term comments around the fourth quarter given Flagstar, but could you elaborate a bit more on the shorter-term dynamics and also PennyMac, which announced in the quarter that they would also be leaving your platform over time, what that contribution is today?

A: Sure. Thanks for the question, Dan. So in terms of the third quarter, which I think is what you're referring to, yes, we were a little bit lower by a few million dollars. There were 3 real reasons for that. So first, -- and we mentioned this a little bit last quarter, was there was the roll off of -- the typical roll-off of inactive loans on MSP. That came in a little bit higher than we anticipated. But that said, active loans on MSP ticked higher for the first time in a few quarters, too. So there was a positive there on that front. And the second component of that too is, and you heard us talk a little bit this last couple of quarters, we did have some customers renew at slightly lower minimums than we had expected. But overall, we do continue to see the discount to prior minimums narrowing versus last year, and the percent of loans above the minimums are improving, which is helping our transaction fees. And then third, we did have some implementations in the fourth and the first quarter of next year, just really all based on customer needs. But as Ben noted, we just noted we had the best quarter of the year for sales across the platform. Not all of those, of course, hit in the current quarter and the fourth quarter, but certainly a good forward-looking indicator for the business as you think about next year. So all that together is nothing terribly significant on a stand-alone basis but did out to a couple of revenues coming a bit lighter. And that sort of impacts the fourth quarter from a run rate standpoint and also some of the implementations, too, that I noted have an impact on the fourth quarter as well. And then, of course, as you mentioned, Flagstar, that will roll off in the fourth quarter, which has an impact, but we had mentioned that before. In terms of PennyMac, I think the way to think about that is it's probably about 0.5 point of growth, but that won't be an impact for us until 2028. And to be clear, it's a 0.5 point on recurring revenue that, that would have an impact on. But -- and again, not until 2028, would we expect to see that.