Simon Clinch

Simon Clinch asked about Upstart's model observations regarding the general consumer environment, particularly after uncertain signals in Q3 and Q4 volatility, and whether double-digit market share targets for auto lending remain achievable.

Answer

Paul Gu, Co-founder and CTO, reported that consumer health is good, with UMI showing a return to post-COVID normalization, and the Q3 temporary risk increase has faded. He affirmed that double-digit market share targets for auto are 'very much in our sight,' citing 5x growth in new products and the inevitable dominance of AI-enabled lending.

Simon Clinch asked about Upstart's models' view on the general consumer environment, specifically regarding any uncertain signals or reactions to Q4 volatility. He also questioned if long-term market share targets for auto and home lending remain achievable given the environment.

Answer

Paul Gu, Co-founder and CTO, reported that consumer health is good, with UMI showing a return to post-COVID normalization after a temporary Q3 increase in risk. He affirmed that double-digit market share targets for auto and HELOC are very much in sight, citing 5x growth in 2025 and the inevitable dominance of AI-enabled lending.

Simon Clinch sought clarification on the Q4 2025 guidance, specifically if it implies continued model conservatism despite signs of UMI improvement, and whether refinancing credit card debt remains the primary driver for personal loan demand.

Answer

Sanjay Datta, CFO of Upstart, confirmed that Q4 guidance assumes some lag in model response to UMI improvements, meaning the Q3 model impact will extend into Q4. He also stated that refinancing debt continues to be the dominant use case for personal loans, though they are broadly useful for many purposes.

Simon Clinch inquired about the implied Q4 application volume and conversion rate, questioning if model conservatism would persist despite signs of UMI improvement, and also asked if personal loan demand was still primarily driven by credit card debt refinancing or broadening to other use cases.

Answer

CFO Sanjay Datta confirmed that Q4 would still be impacted by the UMI rise from Q3, despite recent subsiding, due to Upstart's conservative approach. Sanjay Datta also noted that credit card debt refinancing remains the dominant use case for personal loans, but they are broadly useful and can compete with secured loans for various purposes.

Simon Clinch from Rothschild & Co Redburn requested a breakdown of the factors driving the significant outperformance in contribution margin and asked about the underlying macro assumptions in the company's guidance.

Answer

CFO Sanjay Datta attributed the stronger contribution margin to a favorable mix shift towards core loans, improved take rates, and unit cost efficiencies from Model 22. He stated the guidance assumes a stable macro environment, with the UMI remaining in the 1.4-1.5 range, steady interest rates, and a resilient labor market.

Simon Clinch asked for a breakdown of the drivers behind the significant contribution margin beat and questioned the macro assumptions embedded in the company's forward guidance.

Answer

CFO Sanjay Datta attributed the margin outperformance to a favorable loan mix, improved take rates, and unit cost efficiencies driven by Model 22. He stated the guidance conservatively assumes a stable macro environment, with the UMI remaining in the 1.4-1.5 range, steady interest rates, and a resilient labor market.

Simon Alistair Clinch of Redburn Atlantic asked for a breakdown of the drivers behind strong borrower demand and questioned how the company is planning for various macroeconomic scenarios, such as potential rate changes, within its annual guidance.

Answer

CFO Sanjay Datta attributed the demand growth roughly equally to model accuracy improvements and macro factors like a subsiding UMI and prior rate cuts. He explained their guidance assumes a stable macro environment, relying on the platform's resilience and quick model adjustments rather than predicting future economic shifts. CEO David Girouard added that default index changes have a much larger impact than interest rate movements.

Simon Clinch of Redburn Atlantic questioned the modest increase in conversion rates given the significant impact of 'Model 18' and asked if the historical 'optimal' conversion rate of 22% is still a relevant benchmark.

Answer

CEO Dave Girouard explained that conversion rate gains are often reinvested into growth initiatives like marketing, preventing the metric from rising indefinitely. CFO Sanjay Datta added that the metric is now more complex in a multi-product environment, as shifting a borrower to a higher-value loan doesn't increase the conversion count but improves economics.

Simon Clinch asked for an update on the transition from SDKs in ICE's mortgage technology, noting it has been a lengthy process with many clients still using older methods. He questioned whether this opens opportunities for competition and how ICE is managing the situation.

Answer

Ben Jackson, President of Intercontinental Exchange, explained that the SDK transition aims to improve efficiency for client connectivity and third-party vendor integrations. He noted that clients have prioritized other innovations, such as the Encompass web transition and AI adoption, leading ICE to extend the SDK timeline. He affirmed that this has not slowed innovation, hindered sales success, or impacted attrition or the competitive landscape.

Simon Clinch asked for an update on the transition from SDKs in the mortgage business, questioning if the lengthy process creates disruption or competitive opportunities, and how ICE is managing this.

Answer

Ben Jackson, President of Intercontinental Exchange, explained that the SDK transition aims to improve client connectivity efficiency. He noted that clients have prioritized other innovations like moving Encompass to the web and adopting ICE Aurora AI technology, which offer greater savings. He stated that the SDK transition has been a lower priority for some clients, leading to extended timelines, but confirmed it has not hindered sales success, impacted attrition, or changed the competitive landscape.

Simon Clinch of Rothschild & Co Redburn inquired about the potential scale of the growth opportunity in global natural gas markets as the TTF contract establishes itself as a global benchmark, asking for a comparison to Brent crude's market position.

Answer

President Benjamin Jackson highlighted significant long-term tailwinds for natural gas, driven by global energy demand and new trade agreements. He provided metrics for scale, noting that TTF has roughly half the active market participants of Brent and that its open interest is only about 15% of Henry Hub's, indicating a substantial runway for growth.

Simon Clinch of Rothschild & Co asked about the future growth potential of ICE's global gas markets, particularly as the TTF benchmark establishes itself globally, and how its scale might compare to Brent's role in the oil market.

Answer

President Benjamin Jackson described significant long-term tailwinds for natural gas, driven by geopolitical shifts, rising energy demand from data centers, and its inclusion in recent U.S. trade agreements. To illustrate the growth potential, he noted that TTF currently has about half the number of active market participants as Brent and its open interest is only about 15% of Henry Hub's, indicating substantial room for expansion.

Simon Clinch asked for an update on the $14 billion Total Addressable Market (TAM) for the Mortgage business and whether the company's thinking on its size has evolved.

Answer

President Benjamin Jackson confirmed that the company's view on the TAM has not changed. He stated the focus remains on executing against the revenue synergies from the Black Knight acquisition by leveraging the complete end-to-end platform to cross-sell services. He cited examples like selling MSP to Encompass clients (e.g., United Wholesale Mortgage) and cross-selling proprietary data across the network as key to realizing this opportunity.

Simon Clinch asked if the application of AI to alternative data sets beyond Equifax's proprietary data could reduce the relative value of Equifax's proprietary data, increasing market competitiveness. He also questioned whether the value of a credit score is maintained in an AI environment, or if the value of underlying data increases while VantageScore's value decreases.

Answer

CEO Mark Begor strongly asserted that Equifax's scaled, proprietary data assets (credit, alternative, income/employment) are unmatched and inaccessible to external AI tools, creating a 'big and tall' moat. He emphasized that AI cannot be used without data, and Equifax controls access to its proprietary data. Begor stated that underlying data is always the linchpin, and Equifax's proprietary data only becomes more valuable, with a strategy to continuously add more data organically and through acquisitions.

Simon Clinch asked if the value extracted from alternative data sets, beyond Equifax's proprietary ones, through AI could reduce the relative value of Equifax's proprietary data, thereby increasing market competitiveness. He also inquired whether the value of a credit score would be maintained in an AI-rich environment, and if VantageScore's value could decrease while the underlying data's value increases.

Answer

Mark Begor, Chief Executive Officer, strongly asserted that Equifax's scaled, proprietary data assets (credit, alternative, income/employment) are unmatched and not publicly accessible by third-party AI tools, creating a significant 'Equifax moat' against disintermediation. He emphasized that credit and payroll data are walled gardens, inaccessible to external AI. Mr. Begor stated that underlying data is always the linchpin, as a score cannot be calculated without it. VantageScore uses Equifax's data, and third-party AI algorithms cannot calculate a score without access to this controlled data. He believes Equifax's data only becomes more valuable, and the strategy is to continuously add more data, reinforcing that AI cannot be used without data, and Equifax's proprietary data provides a long-term sustainable moat.

Simon Clinch asked about the funding side of government discussions with states, specifically how states would fund expanded use of the Twin indicator to reduce SNAP error rates. He also inquired about the impact of trigger leads on inquiry volumes and the introduction of new legislation in March.

Answer

CEO Mark Begor explained that states gain productivity from instant verification and must weigh the cost of using Equifax's solution against potentially paying billions in SNAP benefits if error rates are not reduced, especially with new OB3 requirements. CFO John Gamble stated that trigger leads have a 'relatively small' impact on Equifax's volumes, and CEO Mark Begor added that there could be a shift from pre-qual/pre-approval to hard inquiry transactions.

Simon Clinch asked about the funding aspect of discussions with states regarding expanding their use of Twin to improve SNAP error rates, and whether OB3 covers these increased expenditures. He also inquired about the impact of trigger leads on mortgage inquiry volumes and the anticipated effects of new legislation coming in March.

Answer

Mark Begor, Chief Executive Officer, clarified that OB3 generally does not cover these costs directly, but states must view it as an ROI. He explained that Twin delivers caseworker productivity (reducing adjudication time) and helps states avoid paying billions in increased SNAP benefits if error rates exceed the 6% threshold, creating a strong incentive for investment. John Gamble, Chief Financial Officer, stated that the impact of trigger leads on Equifax's volumes is relatively small. He noted that while there could be a shift from pre-qual/pre-approval towards hard inquiry transactions, the overall effect on Equifax is not significant.

Simon Clinch asked what alternative verification methods states are using amid budgetary headwinds and whether the new OBBBA bill expands the existing $5 billion TAM for the government business.

Answer

CEO Mark Begor explained that states may revert to using lagged and less complete state wage data but ultimately want to return to Twin for its accuracy and efficiency. He confirmed that the OBBBA bill does expand the $5 billion TAM, noting it's a great reminder to re-evaluate that figure, but emphasized the current TAM already represents a massive growth opportunity.

Simon Clinch inquired about Nasdaq's capital allocation strategy, given that the company has already achieved and surpassed its leverage target. He asked about the pipeline of opportunistic deals, how Nasdaq balances M&A with potential buybacks, and the general range of leverage the company is willing to operate within.

Answer

Sarah Youngwood, CFO, highlighted Nasdaq's strong free cash flow and conversion ratio, which provides ample ability for various capital allocation strategies. She stated the company is focused on supporting organic growth, maintaining a progressive dividend, continuing share and debt repurchases, and evaluating bolt-on acquisitions with a build-versus-buy approach.

Simon Clinch noted that Nasdaq had already achieved and surpassed its leverage target and asked about the company's capital allocation strategy moving forward. He inquired if transformational deals were off the table, what the pipeline for opportunistic bolt-on deals looked like, how Nasdaq balances these with potential share buybacks given significant free cash flow, and the general range of leverage the company is willing to operate within.

Answer

Sarah Youngwood, Chief Financial Officer of Nasdaq, highlighted the strong free cash flow of $2.2 billion and 109% conversion, providing ample capital allocation flexibility. She stated that Nasdaq remains focused on organic growth, maintaining a progressive dividend, and continuing share and debt repurchases. Youngwood also confirmed that the company will continue to evaluate potential bolt-on acquisitions through a 'build versus buy' lens.

Simon Clinch of Rothschild & Co Redburn requested more color on the dynamics within the Index business, focusing on the drivers behind the strong ETP flows and the perceived durability of this trend.

Answer

Chair & CEO Adena Friedman attributed the success to a focus on 'alpha' factors within their control, such as new product innovation (33 launched in Q2) and a three-pillar growth strategy targeting institutional adoption, international expansion, and new products. She noted record net inflows of $88 billion over the last twelve months were supported by a strong partnership approach with investment managers.

Simon Alistair Clinch asked about the resilience of Nasdaq's Index business, questioning how its current structural drivers differ from the 2022 market downturn.

Answer

CEO Adena Friedman explained that the Index business has become more resilient since 2022 due to a defined strategy of product diversification beyond the Nasdaq 100, international expansion, and institutional client growth. Friedman noted that 50% of Q1 inflows were into non-Nasdaq 100 products and highlighted multiple growth vectors, including new products, derivatives volumes, and data revenue, which provide stability even when market values fluctuate.

Simon Clinch followed up on the competitive environment, specifically asking if, beyond portfolio trading's reduced revenue pool due to competition, other incremental changes are affecting revenue pools in different protocols or market segments.

Answer

CEO Chris Concannon explained that the lower fee per million is largely a result of protocol mix, with growth in lower-fee areas like portfolio trading and the dealer-to-dealer segment (MIDEX) contributing incremental revenue. He highlighted strong competitive positioning and growth in international markets, particularly EM, where MarketAxess has made significant investments, established a leadership position, and introduced EM portfolio trading and MIDEX for EM.

Simon Clinch asked about the mix of credit volumes, the reasons and sustainability behind the surge in block trade sizes and the shrinking of smaller trade sizes, and whether the squeezing of the dealer-to-client portion of the market is a persistent trend or cyclical.

Answer

CEO Chris Concannon explained that smaller trades are driven by portfolio trading (large notionally, small line items) and the growth of SMA accounts, where automation tools are heavily used. He expects smaller tickets to continue growing, partly due to larger trades being broken down by credit algos. For larger block trades, he attributed their growth to historically low volatility and tight spreads, making blocks an attractive risk exchange tool for dealers and clients. He anticipates that with a return to normal volatility, larger blocks will also be broken into smaller tickets, aligning with electronic transformation trends.

Simon Clinch from Rothschild & Co Redburn challenged the notion that portfolio trading (PT) only thrives in low-volatility environments, noting its continued growth through volatile periods, and asked if PT could become a larger part of the market than previously thought.

Answer

CEO Christopher Concannon acknowledged that while PT is typically easier to price in low-volatility, clients have increasingly used it during volatile times to move large notional sums, especially in high yield. He affirmed PT is an important market share driver but reiterated that the overall revenue opportunity remains relatively small due to very low fee rates, estimating it at around $50 million in U.S. IG.

Simon Clinch asked about the relationship between fee per million and duration, wanting to know what macro conditions could cause duration to fall below recent lows.

Answer

CFO Ilene Bieler explained that calling a bottom is difficult as duration is driven by trading behavior tied to central bank policy and rate expectations. She noted that as rate cut expectations get pushed out, traders shorten duration, which negatively impacts fee capture. She reiterated the sensitivity, with a one-year change in duration worth about $15 in high-grade fee per million. CEO Christopher Concannon added that clients are focused on functionality and execution quality, and fees are not a primary competitive tool.

Simon Clinch inquired about the specific assumptions built into FICO's FY2026 guidance regarding the direct licensing model, including the cadence throughout the year and sensitivity to the mix of historical versus performance-based pricing models.

Answer

CFO Steve Weber explained that the guidance is conservative due to macro uncertainties and timing complexities, especially with the performance model's potential payment lag. He noted that the mix of models chosen by customers is still unknown, and more information will be available in a couple of quarters.

Simon Clinch inquired about the assumptions built into the guidance for the direct licensing model, its cadence throughout the year, and its sensitivity to the mix of historic versus performance pricing models.

Answer

CFO Steve Weber explained that FICO's guidance is conservative due to macro uncertainties and the timing complexities of the performance model, where payment might spill into the next fiscal year. He noted that the mix of models is still unknown, and more information will be available in a couple of quarters.

Simon Clinch from Rothschild & Co Redburn inquired about FICO's approach to engaging with regulators and whether the company might increase pricing more in non-mortgage categories if mortgage pricing growth slows.

Answer

CEO Will Lansing explained that FICO maintains close relationships with the FHFA and GSEs and expects significant industry input on recent proposals. Regarding pricing, he stated that FICO reviews its entire portfolio annually and that this comprehensive approach to identifying growth opportunities remains unchanged.

Simon Clinch asked about BrokerTec Chicago, its strategy to change BrokerTec's fortunes in U.S. Treasuries, and its competitive impact on different trading protocols like club versus streaming.

Answer

Mike Dennis, Global Head of Fixed Income, reported that BrokerTec Chicago, launched October 6th, had a successful start with over $1 billion notional traded and 25+ firms connected. He noted that 66% of volume traded at price points not available on BrokerTec New York, attracting new clients. Terry Duffy, Chairman and CEO, emphasized that dealer demand was a key driver for co-locating cash fixed income with futures, which is expected to grow the cash and futures franchises.

Simon Clinch asked about BrokerTec Chicago, its strategy to change the fortunes of BrokerTec in U.S. Treasuries, and its competitive implications for different trading protocols.

Answer

Mike Dennis, Global Head of Fixed Income, CME Group, reported that BrokerTec Chicago, launched on October 6th, had a successful market open with over $1 billion notional traded and 25+ firms connected. He noted that 66% of volume traded at price points not available on BrokerTec New York, attracting new clients. Terry Duffy, Chairman and CEO, CME Group, emphasized that dealer demand was a key driver for co-locating cash fixed income with futures and options, which is expected to attract more participants and grow both cash and futures franchises.

Simon Clinch of Rothschild & Co Redburn asked about the size of CME's retail trader base and the typical activity pattern of new traders, questioning if they are active immediately or mature over time.

Answer

Terrence Duffy (Chairman & CEO) and Julie Winkler (Chief Commercial Officer) responded. Duffy emphasized that traders evolve and that education is key to ensuring longevity rather than immediate high activity. Winkler added that modern retail traders are more sophisticated and that CME focuses on retention by educating them and cross-selling into new products over time, helping them mature along their trading journey.

Simon Clinch from Rothschild & Co Redburn asked about the size of CME's retail trader base and their activity patterns, specifically whether new traders are active immediately or if there is a maturation period.

Answer

Chairman & CEO Terrence Duffy explained that it's a gradual process, emphasizing the importance of education for client longevity rather than immediate high activity. Chief Commercial Officer Julie Winkler added that new traders are increasingly sophisticated and that CME focuses on client retention and cross-selling them into new products over time, helping them mature from micro equities to other asset classes like crypto and metals.

Simon Clinch of Redburn Atlantic asked for details on the strong expense control in the quarter, the expected expense ramp through the year, and a breakout of the spending related to the Google partnership.

Answer

Lynne Fitzpatrick, CFO, attributed the strong result to expense discipline but expects costs to ramp up. She cited growing technology spend on the Google Cloud migration, a likely increase in professional fees tied to projects, and typical Q4 marketing spend. She noted the Google spend in Q1 was just under $20 million.

Simon Clinch of Redburn Atlantic asked about the long-term competitive environment in the core credit business, questioning if increased product bundling and innovation by all bureaus would change the intensity of competition.

Answer

President and CEO Christopher Cartwright stated his perspective that the market is not zero-sum. He sees each bureau pursuing differentiated strategies to expand the services offered to clients, effectively growing the overall market by taking over work done internally by clients and gaining wallet share. He believes TransUnion is well-positioned to grow with and above the market due to its constant stream of proven, value-adding innovation.