ICE, Black Knight report lower revenue in first quarter

Companies on both ends of a controversial pending deal reported lower revenue in the first quarter Thursday. Intercontinental Exchange saw revenue dip in the first quarter, but the company's recurring revenue grew by 6% compared to last year. Meanwhile, Black Knight reported a 1% decrease in revenue from the previous quarter.

The Atlanta-based ICE teased Thursday that a top-five global bank opted to replace its in-house technology with Encompass, resulting in "the best quarter for new sales in Encompass product history."

For the first quarter, revenue was $236 million, down from $249 million in the fourth quarter and a  decrease of 23% year-over-year. Of that revenue, $167 million came from ICE's origination technology, 18% lower than a year prior, while $40 million was from the company's closing technology.

Revenue for data and analytics products offered by ICE Mortgage Technology increased to $21 million in the first quarter, up from $20 million year-to-date.

Recurring revenue also grew to $165 million, up from $156 million year-over-year, which "helped to drive performance [in the midst of] an industry that experienced a nearly 60% decline in origination volume," said Warren Gardiner, chief financial officer of Intercontinental Exchange, during the company's earnings call.

ICE executives expressed confidence in its loan origination system, Encompass, noting that two thirds of their customers renewed during the first quarter and did so at higher minimums, which helped drive year-over-year and sequential growth of recurring revenue.

"While we expect to continue to outperform the industry, if current cyclical conditions persist, we would expect recurring revenues to be towards the lower end of our mid to high single digit guidance range for the year," said Gardiner. "The same similar conditions and cost pressures are also increasingly attracting customers that have not traditionally been on the Encompass platform. This is evidenced by our first signing of a top five global bank."

Mortgage technology operating expenses were $252 million and adjusted operating expenses were $151 million in the first quarter, in the previous quarter the company's operating expenses and adjusted operating expenses came in at $255 million and $151 million, respectively.

Because of the proposed ICE transaction, Black Knight did not have an earnings call to coincide with its earnings report released Thursday.

Of its $328.2 million in reported revenue for the first quarter, $336.7 million was from the company's software solutions — Empower and MSP‚ a 2% increase from the fourth quarter, while $45.5 million was from data and analytics, a decrease of 19% from the previous reporting period.

In March, Black Knight agreed to sell Empower in an attempt to win regulatory approval for the acquisition by ICE. Because of this, ICE reduced the compensation for Black Knight to $75 per share in cash and stock for a valuation of $11.7 billion. Originally, ICE was paying $85 per share in cash and stock at a $13.1 billion valuation.

Per first quarter earnings, Black Knight's operating income was $81 million, an increase of 1% from the previous quarter.

"We delivered solid first quarter results with Organic revenue growth of 2% despite the broader market headwinds, coupled with our proposed transaction with Intercontinental Exchange," said Joe Nackashi, CEO of Black Knight, in a written statement. "Our performance is a testament to the strength of our business and disciplined operational execution."

Both companies expect the ICE transaction to close in the third or fourth quarter of 2023. However, all signs point to continued obstacles for the merger. In April, the Federal Trade Commission filed an administrative complaint against the transaction, arguing the parties would dominate loan origination systems along with product and pricing engine technology.

ICE Mortgage Technology owns the No. 1 loan origination system, Encompass, while Black Knight currently owns No. 2 Empower.

And in reaction to the FTC's moves, Black Knight and Intercontinental Exchange asked a federal court judge to declare the FTC's structure as unconstitutional. On its 1Q call, ICE noted that a hearing is scheduled for May 12 to establish the timetable for the case proceedings in the federal district court.