Rate volatility leads ICE to lower 2024 expectations

Current interest rate conditions are leading ICE Mortgage Technology to lower growth expectations, as the company started the year with a first-quarter loss.

The mortgage technology unit of Intercontinental Exchange reported improved results, though, from the previous quarter, as it ended the first three months of the year with an operating loss of $48 million. ICE narrowed losses by 35.1% from $74 million three months earlier. But the latest quarterly figure was 71% below the $28 million year-over-year loss on a pro forma basis, after factoring in the results from a pre-merger Black Knight.

A sluggish mortgage lending environment, punctuated by volatile interest rates and consolidation, continues to plague many in the business and impacted ICE's results, its leaders said. The average 30-year fixed rate crossed over the 7% threshold this spring, running counter to early-year predictions. 

"What's unknown, and what we're just watching closely is that just given how fast rate expectations changed, a lot of our market participants want market stability and want a view as to when they're going to get return on investments," said Intercontinental Exchange President Ben Jackson during the company's earnings call. 

"So we're watching closely to see our sales cycles go in to potentially lengthen," Jackson also serves as chairman of ICE Mortgage Technology.

The outlook for mortgage rates in 2024 had the company adjust some of its guidance for the year. 

"After factoring in the dramatic shift in interest rate expectations for 2024 relative to just three months ago, we now expect total revenue growth in our mortgage technology business to be flat to down in the low single-digit range with revenues unlikely to improve materially from the first-quarter levels until the second half," said Chief Financial Officer Warren Gardiner. 

ICE Mortgage Technology's latest results were based off of $499 million in revenue, just off $502 million in the fourth quarter, but up 111% on an annual basis from $236 million.

Recurring revenue edged down to $390 million compared to $397 million at the close of the previous quarter. Transaction-backed revenues totaled $109 million, nudging up from $105 million. 

"Recurring revenues were impacted by both industry consolidation and continued pressure on renewals within our origination technology business," Gardiner said. 

Indicative of the financial pressures companies are facing, "some percentage" of customers were opting to renew with lower minimums and subscriptions, but they tended to be made up for in other costs, Jackson said. 

"The trade-off there is consistently a higher per-close loan fee," he noted. 

By segment, origination technology accounted for $174 million worth of the incoming revenue during the first quarter and servicing software $214 million. ICE Mortgage's data and analytics solution garnered $67 million, while closing solutions $44 million.  

Although the business forecast may remain subdued in the short term, company leadership celebrated several of its recent tech advancements, such as the first integration from its Encompass loan origination system to the MSP mortgage servicing platform acquired through the Black Knight merger. ICE also introduced other new technology initiatives, including its MSP digital experience, or MSP DX. 

"This service is an intuitive and conversational new interface, leveraging natural language processing for our servicing system designed to streamline workflows, increase efficiencies, and expedite training of new servicing personnel," Jackson said. 

The company also said it was pleased with the growth of new clients and the success it found in bringing on existing customers of one product to another platform, allowing it to provide front-to-back origination-to-servicing technology. Among new Encompass users coming from the existing MSP client base were Citizens Bank and Webster Bank. ICE added 20 new Encompass clients during the quarter, company officials said. 

"On MSP, we have a record number of clients that are on MSP with 94 clients, and we have 13 clients that are going through implementation. Many of these are ones that we've announced since we closed on Black Knight," Jackson also said, adding that the full financial impact from some of the new customers would not be felt until later in the year.

On a company-wide basis, Intercontinental Exchange, which also operates a fixed income and data services business, as well as the New York Stock Exchange and related trading units, posted a net quarterly profit of $767 million.