ICE Mortgage Technology is betting on increased sales for 2023

By Housing News

Intercontinental Exchange (ICE) Mortgage Technology reported operating income of $57 million in 2022, down from last year’s $397 million — a reflection of the headwinds the mortgage industry is facing.

The silver lining for the business was the strong sales in its Encompass loan origination software system in the fourth quarter, executives said in its latest earnings call on Thursday.

In turn, the mortgage service company plans to capitalize on cross-selling products to clients, large home lending banks investing in their legacy infrastructure and increasing sales to new mortgage shops in 2023.

“We had a very strong quarter in Encompass sales,” Ben Jackson, president and chair of ICE Mortgage Technology, said in its fourth quarter earnings call. “In fact, the strongest quarter that we had of all 2022 was the fourth quarter.”

More than 60% of the clients renewed their subscription at a higher rate than they did at the beginning of the quarter, Jackson explained.

ICE Mortgage Technology grew subscription revenue by 9% in the fourth quarter — in line with its strategy to shift toward generating recurring revenue rather than transaction revenue. The firm expects a business model that focuses on recurring revenue will help grow the business by 8-10% per year.

The mortgage technology division at ICE posted $249 million in total revenue in the fourth quarter, down 9.8% from the previous quarter’s $297 million. The latest quarterly revenue was also 28% below the $346 million generated during the fourth quarter of 2021.

For the fourth quarter, the mortgage technology segment posted an adjusted operating income of $98 million. (ICE didn’t release its operating income, unlike its third quarter earnings.)

While executives acknowledged the company has seen clients cancel subscription due to industry consolidation creating headwinds for the business, they are now seeing new opportunities. Impacted mortgage professionals who are starting mortgage shops are becoming new ICE clients, executives said.

“With the unfortunate backdrop of people downsizing in this mortgage environment, several of those impacted employees are becoming entrepreneurs, starting up their own mortgage shops (…) Albeit, it may be at a lower subscription fee to start, [but] we have the ability to grow with them, as this mortgage market will snap back at some point in time,” Jackson told analysts.

Large home lending banks looking to invest in their outdated infrastructure systems are also an opportunity for growth as well as cross-selling products to existing customers.

“We also see, just looking out into the future, that there’s a lot of large banks, a lot of large home lending banks, that have legacy infrastructure in-house systems that they’ve been running for years that are looking to upgrade and replace that,” Jeff Sprecher, chair and CEO of ICE, said.

The firm’s AIQ mortgage automation solution software services, which enables clients to lower the cost of originating loans, was very strong for the year 2022, opening the door for more opportunity for sales to its clients.

“One of the things that’s really driving that recurring revenue growth is the success we have in continuing to sell our AIQ platform into that customer base. We have a long way to go in being able to penetrate those 3000 lenders and be able to provide them the efficiency that they need now more than ever,” Jackson said.

ICE still expects to complete the acquisition of Black Knight in the first half of 2023 following the receipt of regulatory approvals and the 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 services company in America.

While executives declined to comment further, the company’s filings with the Securities and Exchange Commission (SEC) stated that “regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, that could have an adverse effect on ICE following the merger or that are otherwise unacceptable to ICE.”

“After the completion of the merger, we will be more leveraged than we currently are, and the financing arrangements that we will enter into will contain restrictions and limitations that could, under certain circumstances, have a material adverse effect on our business and operations,” according to its 10-K report.

This is the second major recent deal for ICE in the mortgage space following the acquisition of Ellie Mae from Thomas Bravo in 2020. In 2023, ICE will continue to explore opportunities to acquire other firms, as indicated in its recent filing.

“We expect to continue to explore and pursue various potential acquisitions and other strategic opportunities to strengthen our competitive position and support our growth,” the 10-K report noted. 


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