ICE Mortgage Technology returns to the black in the third quarter

A concerted effort toward increasing subscriptions is helping mortgage operations at Intercontinental Exchange withstand the pressures of a contracting market, its leaders said.

ICE Mortgage Technology generated operating income of $16 million in the third quarter following a loss of $6 million reported three months earlier. But the latest numbers came in more than 85% below the $110 million reported in the third quarter last year.

Company executives credited clients' willingness to subscribe to ICE Mortgage Technology products leading the segment into the black.

"The strength and resiliency that we've seen in recurring revenues has been driven by our new customers continuing to adopt our digital solutions, increased demand for our data and analytics tools and continued strong retention," said Intercontinental Exchange President Benjamin Jackson during the company's earnings call.

The year-over-year plunge in income for the provider of the Encompass loan origination system, though, represents broader troubles the home lending industry currently faces, as new mortgage applications come in almost 70% lower compared to the record volumes of a year ago. The current downturn has resulted in an ongoing stream of layoff notices at mortgage lenders and fintechs, as well as at the vendors who serve them. 

The mortgage technology division at ICE generated $276 million of total revenue in the third quarter, down 7% from $297 million reported three months earlier. The recent quarterly total was also 25% below the $366 million from a year ago. Recurring revenue accounted for $160 million out of the third quarter number.

ICE's origination technology brought in $187 million, almost 6% off the $196 million in the second quarter and 24% below the $245 million generated a year ago. 

Jackson said the mortgage technology segment had encountered success in converting clients to longer-term customers. 

"As we approach them about shifting the economic model that we have with them more towards subscription — even if it costs us some transaction revenue, they're willing to do that," Jackson said. Approximately two-thirds of ICE Mortgage Technology's customers were willing to renew, according to officials.

While making up a far smaller component of ICE's bottom line, the mortgage technology unit's data and analytics services and products saw a quarterly revenue decline of 8% to $22 million from $24 million. But the segment increased that number 22% from $19 million last year. 

Although industry leaders across the board have forecasted mortgage volumes to continue slowing well into next year, ICE leadership said they were still planning for growth going forward.

"There is an unbelievably large demographic of people in this country that are starting new households, having children, getting married, moving on with their lives," said ICE CEO Jeffrey Sprecher. "And that demographic trend one way or another has to be satisfied with a place to live. And so I think what you're really seeing on a macro basis is us building solutions to deal in part with that population."

Presently in the process of an attempted merger with servicing-technology giant Black Knight, a deal that has brought up antitrust concerns and garnered resistance from trade groups and investors, Sprecher also tried to spell out the benefit of the integration.

"ICE plans a significant financial outlay to open and upgrade the Black Knight technology stack, a commitment that we believe would have been hard for Black Knight's other potential acquirers to make potentially in a contracting mortgage environment," he said. 

The company said it still expects to receive regulatory approval and close the transaction in the first half of 2023.

Meanwhile Black Knight, which also released third-quarter numbers on Thursday, reported net earnings of $30 million, reflecting a decrease of 26% and 44%, on a three-month and annual basis from $40.3 million and $53.4 million, respectively.

"While the operating environment has created some near-term headwinds to our financial performance, we believe our third-quarter results demonstrate the resilience of our business model," said Black Knight Executive Chairman Anthony Jabbour, in a press release.

Operating income from its software-solutions unit, which includes the MSP servicing platform as well as a loan-origination system, came out to $142.3 million, dropping 8% on a quarterly basis from $154.8 million and 5% year-over-year from $150 million.

Black Knight's data and analytics division brought in $13 million in operating income, down 5% from $13.7 million in the second quarter and 24% from $17 million a year ago.