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    Intercontinental Exchange Inc (ICE)

    Q2 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$151.56Last close (Jul 31, 2024)
    Post-Earnings Price$150.28Open (Aug 1, 2024)
    Price Change
    $-1.28(-0.84%)

    What went well

    • ICE's Fixed Income & Data Services segment is experiencing broad-based growth across the recurring revenue base, with improvements in the PRB business and index side. This growth is driven by customer re-engagement as interest rate headwinds taper off, and strong trends in the desktop and feeds businesses resulting from strategic investments.
    • Open interest across ICE's futures business is up 20% year-over-year, with Energy open interest up 25%, indicating strong future volume potential. Innovations like the HOU contract (open interest up 400%) and the Murban contract (ATVs up 160%) demonstrate ICE's ability to meet customer needs and drive significant growth in its Energy segment.
    • Continuous innovation in natural gas markets, including new LNG contracts and the development of the JKM and TTF contracts, is creating a flywheel effect. This attracts traders seeking to efficiently manage risk across oil, power, gas, and emissions in one place, enhancing ICE's platform and contributing to the growth of its benchmark contracts.

    Q&A Summary

    1. Energy Revenue Growth Outlook
      Q: How sustainable is recent energy revenue growth?
      A: Management attributes the strong energy revenue growth, up 30% this year, to structural factors like growth in open interest, which is up 25% in energy markets. They believe innovation and increasing demand for hedging across oil, gas, power, and emissions will continue to drive growth, making 2024 a solid base to build upon.

    2. Mortgage Technology Revenue Growth and Impact of Large Wins
      Q: What is the expected impact of large mortgage wins on revenue?
      A: Significant mortgage wins, such as the expanded relationship with JPMorgan Chase and other institutions, are expected to start contributing to recurring revenue in 2025 and 2026. Implementations of MSP and Encompass are complex and take 6 to 18 months or longer, especially for larger clients. Management is pleased with the pipeline and expects revenue synergies to grow, but doesn't anticipate a material impact in 2024.

    3. Mortgage Business Attrition and Client Losses
      Q: Can you discuss recent client attrition in mortgage technology?
      A: There was attrition in the Data and Document Automation (DDA) platform, with one client leaving. This platform was acquired by Ellie Mae and had legacy clients not fully utilizing integration with Encompass or MSP. However, management also successfully transitioned another similar client, Citizens Bank, to Encompass and DDA, strengthening the relationship. They expect recurring revenue to stabilize in the back half of the year.

    4. Monetization of Mortgage Data
      Q: How are you monetizing mortgage data from the combined business?
      A: ICE is integrating Black Knight's data assets into its platforms. They've cross-sold data sets like flood and fees data to over 200 Encompass customers in the first half of the year. They're also leveraging Black Knight's Automated Valuation Models (AVMs) to offer home equity line of credit services, integrating data directly into Encompass and MSP. Longer term, they see opportunities to sell data sets like McDash and EMBS to capital markets clients through their Fixed Income & Data Services business.

    5. Fixed Income Business Growth Drivers
      Q: What's driving the acceleration in fixed income ASV?
      A: Growth is broad-based across recurring revenue, including improvements in the PRB business and index side. Reengagement from customers amid stabilizing interest rates has boosted new sales. Investments in data network services and feeds business have led to strong trends. Sales that have not yet implemented will start contributing in the third and fourth quarters.

    6. Growth in Energy Open Interest and Options
      Q: What's driving the growth in energy open interest and options trading?
      A: The growth is driven by commercial customers hedging risks across oil, gas, power, and emissions. Open interest is up due to robust participation from commercial hedgers, with subsequent involvement from directional traders. Increased geopolitical, political, and financial risks have led to higher demand for options as an efficient hedging tool.

    7. Asia Opportunity and Trading Volumes Correlation
      Q: How does energy consumption in Asia relate to trading volumes?
      A: As power demand and natural gas consumption grow in Asia, ICE expects increased hedging activity. The correlation between energy consumption and trading volumes is influenced by factors like fuel sources and carbon pricing. ICE provides a platform for hedging across power, gas, emissions, and coal, anticipating that increased consumption will lead to higher trading volumes.

    8. Impact of Mr. Cooper-Flagstar Acquisition
      Q: How will the Mr. Cooper-Flagstar deal affect your business?
      A: Management acknowledges that mortgage servicing rights (MSRs) transfer between clients and can impact revenues. While they have a strong relationship with Mr. Cooper, who uses Encompass and other services, it's unclear how the acquisition will affect ICE. They have not observed clients leaving for different platforms and note that such MSR movements can be both headwinds and tailwinds.

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