ICE Mortgage Expertise sees 4Q loss, however recurring income beneficial properties
Intercontinental Exchange’s mortgage technology unit posted a fourth-quarter loss, but reported strength in sales of its Encompass loan-origination software and its pivot toward subscription-based revenues.
The mortgage arm of Atlanta-based ICE saw a $6 million operating loss in a quarter characterized by ongoing contraction in originations. The total represented a 138% decrease from third-quarter profits of $16 million, while coming in 107% lower than the $86 million garnered in the final three months of 2021.
For the full year 2022, though, ICE Mortgage technology recorded operating profit of $57 million. That number reflected an 86.6% decline from $397 million in 2021.
But company officials said investments made in marketing its various subscription-based services put it in a strong position for an eventual normalization of a still-turbulent mortgage market.
“Our view has been that when you have this significant stable of customers — the 3,000 lenders that are on our platform and utilizing our services — there’s a tremendous opportunity to cross-sell,” said Benjamin Jackson, president of the parent company and chair at ICE Mortgage Technology, in an earnings call.
“A lot of the banks, credit unions, nonbank originators — they’re using this time to invest in infrastructure.”
ICE leaders said a predictable business model would help steer the company toward longer-term growth, noting the particular increase of Encompass customers turning to its AIQ [Automation, Insights, Quality] underwriting system.
“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,” Jackson said.
Although overall revenues at ICE Mortgage Technology came in lower on both a quarterly and annual basis, the recurring share increased to $164 million in the fourth quarter, up 0.6% and 10% from $163 million three months earlier and $149 million a year ago. For the full year, recurring revenue jumped 16.3% to $643 million from $553 million.
Full quarterly mortgage-segment revenue decreased to $249 million, down 9.8% and 28% from $276 million in the third quarter and $346 million in the final three months of 2021. Meanwhile, for all of 2022, revenue fell almost 19.8% to $1.13 billion from $1.4 billion in 2021.
Mortgage technology operating expenses came in at $255 million for the quarter and $1.1 billion for the year.
The company also noted positive signals in sales of Encompass in the fourth quarter across all types of its lending clients: banks, nonbank originators, brokers and credit unions. Jackson said it was 2022’s strongest quarter in terms of sales to new customers.
“We also saw a lot of new startup companies coming to us. With the unfortunate backdrop of people getting downsized in this mortgage environment, several of those impacted employees are becoming entrepreneurs, starting up their own mortgage shops and we’re very well positioned to win that business,” he said.
But the severity of last year’s sudden market shifts didn’t leave ICE unscathed either.
“We’ve seen some clients consolidate, gone through M&A,” Jackson said. “We’ve seen some cancellations due to those factors, so that has created some headwinds into the business.”
With ICE in the midst of trying to execute a merger with fellow technology provider, Black Knight, company officials offered no status updates on negotiations. They also did not address any of the recent pushback the deal has received from Congress or other industry leaders. Black Knight is scheduled to release its fourth-quarter and full-year earnings on Feb. 28.