M&A Announcement

Aug 6, 2020

Good evening, everyone. Thank you for joining us on the InterContinental Exchange and Ellie Mae transaction conference call. The press release and investor presentation can be found in the Investors section of our company's website. These items will be archived and our call will be available for replay. Press release, presentation as well as today's call may contain forward looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward looking statements, please refer to our 2019 Form 10 ks, 2nd quarter Form 10 Q and other filings with the SEC. Our investor presentation, we refer to certain non GAAP measures, including adjusted EPS and adjusted EBITDA. Please see explanatory notes on the 2nd page of the investor presentation for additional details regarding the definition of certain terms. With us on the call today from InterContinental Exchange are Jeff Sprecher, Chairman and CEO Scott Hill, Chief Financial Officer and Ben Jackson, our President. Also joining us today is Jonathan Koehr, LA Mays' President and CEO Joe Terell, LA Mays' Chief Operating Officer. With that, I'll turn the call over to Jeff to discuss today's announcement. Thank you, Warren. Good afternoon, everyone, and thank you for joining us on short notice to discuss this very exciting announcement for ICE and Ellie Mae. I was asked about the prospect of conducting mergers in the current COVID-nineteen environment on our quarterly earnings call last week. And I lamented about how difficult it is to form the kind of personal relationship between managers that allow for an exchange of information that can lead to a successful business combination. In this regard, I'm thrilled to have both Jonathan Koehr and Joe Terrell with us in the room here in Atlanta as we continue to work together while of course remaining socially distanced. I also want to welcome all of LA Mae's customers and employees that are joining us on this call today and thank those of you who went the extra mile to contribute to this merger process in such a unique environment. I'll begin to walk you through our presentation starting on Slide 4. This afternoon, we announced that ICE has entered into a definitive agreement to acquire Ellie Mae from Thoma Bravo for $11,000,000,000 The consideration is expected to be in the form of a mix of 84% cash and 16% stock. And importantly, as Scott will discuss in more detail, this transaction meets or exceeds all of ICE's key acquisition criteria and is expected to be accretive to adjusted earnings per share in the 1st full year following completion. Ellie Mae is a one of a kind digital platform that serves a vast array of mortgage industry participants and is mission critical to the production of nearly one half of residential mortgages in the United States. The U. S. Mortgage workflow is in the early stages of an analog to digital conversion. Today, the fragmented and largely paper based mortgage transaction involves around 100 steps, thousands of pages of documents and can take nearly 2 months to complete. When combined with our existing network at ICE Mortgage Services, our combination with Ellie Mae will firmly establish ICE as an industry leader within a large and growing addressable market and one that is desperately seeking efficiency gains. But before I discuss the strategic rationale in more detail, I'd like to first turn the call over to Jonathan to say a few words about Ellie Mae. Thanks, Jeff, and thank you everyone for joining us on the call. On behalf of all the Ellie Mae stakeholders, I would like to say that we are thrilled to partner with ICE for what is a truly unique opportunity to accelerate Ellie Mae's mission of bringing greater automation and efficiency to the U. S. Mortgage marketplace. On Slide 5, as some of you have heard, we say in the past on everyday calls, we've always been guided by our mission to automate everything that was automatable from the 1st consumer touch point all the way through to the mortgage investor. Similar to ICE, we've made tremendous progress in our 20 plus years as a company, but the greatest opportunities lie ahead. And we think Digitry is no better partner than I to help accomplish this year's goal. And ELEVATE's core is encompass a digital platform that serves as a single system of record for our customers and as a result nearly half of the U. S. Residential mortgages. In addition, and in part because of our unique connectivity such a meaningful portion of the U. S. Mortgage market, the Elevate network also serves as a unique digital marketplace, which seamlessly connects customers to additional LME services and thousands of other third party vendors. In many ways, it is the App Store for mortgages. And as you can see on Slide 5, the unique value proposition that LEA brings to its customer base has enabled us to share these efficiency gains and to grow revenues with array of both origination and interest rate cycles. It is a value proposition that will only be further strengthened in advance upon our combination with ICE, mortgage services and the expertise that ICE brings to operating networks across the major asset classes. Thank you, Jonathan. Now moving to Slide 6, you'll find an overview of our strategic rationale and that is there for your future reference, because I'll discuss each of these points in more detail if you'll immediately turn to Slide 7. ICE's journey to help automate the mortgage workflow began back in 20 16 when we purchased a majority investment in MERS, which is an acronym for the Mortgage Electronic Resurgency System, and a database that today helps track the ownership and servicing rights of roughly 85% of outstanding mortgages in the United States. We quickly applied ICE's technology expertise to rebuild and modernize its database, a process that ultimately allowed industry participants to begin digitizing parts of their closing workflow. The impact of this transformation is evidenced in part by the explosion in electronic note adoption since we completed that rebuild, with eNotes now representing roughly 3% of the market, up from only 1% just a few quarters ago. Our 2019 acquisition of Simplifile then added a unique settlement network constructed over 2 decades and one that today connects 28,000 settlement agents to over 2,000 counties across the United States. This network and the unique data that flows through it is the backbone for digitizing the closing and post closing process. In complement, Ellie Mae's core strength is their origination network, which connects brokers, underwriters and lenders. When combined with ICE, the expanded platform will for the first time bring together all of the key stakeholders from origination to final settlement in one digital ecosystem. Similar to our approach and strategy within other asset classes, this network merger is a critical step towards driving meaningful new product creation and unique workflow efficiencies. And then it's a combination that does not exist in the mortgage market today. Turning to Slide 8, we'll have an opportunity to apply this value proposition and our unique end to end offering to an expanded addressable market. We think that there's a total addressable market that is roughly $10,000,000,000 in size as customers seek efficient ways to navigate both rising compliance costs and growing origination backlogs, as evidenced by the mounting number of refinancing candidates as well as a shift towards greater millennial generation homeownership. On Slide 9, you'll see the benefit of the combined network. Ellie Mae's platform is critical to customer workflows it's best evidenced by retention rates that are above 95%. We think the combined platform will help accelerate the adoption of ICE Mortgage Services, eNotes and eRecording solutions and will increase the pull through of many of our other new and proposed digital closing products. Ultimately, we see a significant opportunity to build a more efficient and complete electronic closing offering, one that builds on our partnership with Ellie Mae that already exists today. Moving now to Slide 10, cleansing and marshaling of data in and out of databases, as well as packaging data to build robust analytics and tools has been a core competency of ICE for 2 decades. It's central to the blueprint that we've applied to our futures markets and are currently applying to the fixed income markets. As the system of record for a network that handles over half of the U. S. Mortgage production, Ellie Mae brings a unique proprietary data set. This data set will be complemented by Simplifile's distinctive reference data comprised of the terms and fees of 1,000 and 1,000 of counties. When combined with Ellie Mae's cutting edge technology, such as document recognition, data extraction tools and document quality control, we'll be positioned to better automate the key tasks across the mortgage workflow, build a more efficient electronic closing solution and ultimately improve the asset quality of any loan that moves into the secondary market. This feature can be an important selling point for many of our customers and ultimately remove friction that today is passed on to consumers. In addition with ICE Data Services and their expertise and infrastructure, we can cleanse and package unique data sets to produce real time data and analytics that can assist customers in achieving better pricing, more accurate peer benchmarking and other competitive intelligence tools. This compares to current providers that provide similar data offerings on a 90 day or more lag time. And we believe that there's an opportunity to leverage ICE Data Services' customer base to broaden the adoption of this type of content over time. Moving now to Slide 11. The importance of these efficiencies and automation is best illustrated by Ellie Mae's value proposition, which will be further enhanced once combined with ICE Mortgage Services. Over the past decade, compliance and mortgage origination costs have doubled, with over 2 thirds of these costs related to personnel. We estimate that customers will potentially be able to save nearly $3,000 in origination cost per loan once it's automated, and they'll be able to achieve these savings at a price from us that's only a fraction of this amount. Ultimately, our combined platforms will have more fuel to drive the next leg of automation across an expanded addressable market. And with that, I'll now turn the call over to Scott and he'll discuss the financial details of today's announced transaction. Thanks, Jeff, and thanks everyone for joining us today. Please turn to slide 12. As Jeff noted, this afternoon we announced that we have entered into a definitive agreement with Toma Bravo to acquire Ellie Mae for $11,000,000,000 Consideration will be in the form of $1,750,000,000 of newly issued stock and $9,250,000,000 of cash. We plan to finance the cash component through a combination of commercial paper, short term bank facilities and longer term bonds. The weighted average cost of capital for this deal is expected to be less than 3%. Of note, our leverage at close will increase to around 4.25x pro form a 2020 adjusted EBITDA. We are committed to maintaining a solid investment grade rating and currently expect to suspend share buybacks until our leverage falls below 3.25 times, which we anticipate will be sometime in the second half of twenty twenty two. Our long term leverage target will be a range of 2.75 times to 3 times EBITDA. We're confident that our strong cash flow generation will allow us to achieve this deleveraging path even as we continue to invest in our business and our people, while continuing to grow our dividend. Upon the closing of this transaction and since our 2016 investment in MERS, we will have invested roughly $11,500,000,000 constructing our mortgage business. We expect ICE mortgage services, which will include Ellie Mae, MERS and Simplifile to have pro form a 2020 revenues of $1,100,000,000 including $900,000,000 from Ellie Mae and pro form a adjusted EBITDA of $600,000,000 including $470,000,000 from Ellie Mae. And importantly, as Jeff alluded to, this strategic transaction meets all of our key financial criteria. We expect the investment to achieve a 10% return on investment, which relative to a cost of capital below 3% puts us on a clear path to significant economic value creation. Further, we expect ICE's overall return on invested capital, which was 10% in the trailing 12 months through June to remain 200 basis points above ICE's cost of capital in 2021 with sequential improvement beginning in 2022. We also expect the $50,000,000 to $65,000,000 in run rate cost synergies to be realized by the end of year 3. And finally, we believe the combined platform can deliver revenue synergies that will accelerate the growth of the legacy ICE Mortgage Services business and be accretive to ICE's overall top and bottom line. Of note, following an HSR review, we expect the transaction to close later this quarter or early in 4th. We plan to provide updated 2020 financial guidance at that time. Turning now to Slide 13, we want to highlight that beginning with our Q4 and full year 2020 results, we plan to change our segment reporting. As you can see on Slide 13, we expect to report 3 business segments: Exchanges, Fixed Income and Other and Mortgage Technology. We believe this reporting structure should give investors better visibility and insight into the core drivers of growth and value creation across ICE. With that, I'll be happy to take your questions, but we'll first turn the call back to Jeff for some closing comments. Thank you, Scott. I'll conclude my remarks on Slide 14. Through our 20 year history, ICE has rapidly innovated and evolved. While being dynamic, we're also consistent and disciplined in our approach. We target markets and asset classes where there is an analog to digital conversion taking place and where there is an opportunity to leverage our core expertise of operating networks, marketplaces and technology. We build upon these networks, creating content and workflow tools that reduce inefficiencies and friction throughout an ecosystem. It's a powerful combination and value proposition and one that Ellie Mae is uniquely positioned to help us advance within the massive U. S. Residential mortgage industry. I'll now turn our call back to our moderator, Simon, and we'll conduct a question and answer session. At this time, we will open up for call for And your first question comes from the line Rich Repetto from Piper Sandler. Your line is open. Good evening and congrats to you all on a historic transaction here. So Jeff, I guess my question is you've been a visionary and you've certainly brought automation to the exchange industry, the trading industry. I'm just trying to I guess I'm trying to understand what's gone on in the last year with Ellie Mae because they were acquired for $3,700,000,000 So now it's tripled in value and I see that the revenues have doubled and then some operating efficiencies. And I'm trying to see what you saw and how you felt that they created that much value. How that was digestible to you? The difference in pricing looks like about a year? Yes, it's a great question, Rich. We have been looking at this company for a long time. And as you know, particularly, we meet internally every 2 weeks and think about our business and where we want to take it and whether we should buy or build the technology that underpins that vision. And we've had Ellie Mae on our board for years. And when it was purchased out of the public markets by private equity, Toma Bravo, at that time we didn't own Simplifile. We owned MERS, but we didn't own the back end network. And also at that time, we had a view that was I now realize incorrect that it was going to be hard for Ellie Mae to move from an installed software base into the cloud. And we've seen other companies that have gone through that transition from installation and subscription to cloud based. And in that period when that happens, oftentimes and there's a couple of companies, I won't mention their name, but their stock prices performed poorly during that transition period. So we were a little timid around the company 2 years ago. What to our great surprise and pleasure, The management team of LA Mae have built an unbelievable cloud based system that is an open platform that, as Jonathan mentioned, is the App Store with, I don't know, hundreds of vendors that have now plugged into it that provide their services across the LA May network. And once we own Simplifile and started to talk about how we could hook the front end of the mortgage industry to the back end of the mortgage industry or the settlement part of the industry that we enjoy trying to innovate around, we realized that the combination of the 2 of us together moving into the cloud with the entire industry attached to us would be very powerful. And so they were already on a very, very, I would say, a powerful revenue increase with EBITDA going from, I don't know, something like 140 into the 400s. And so we said this is the moment that we better move if we together want to come to something that can really revolutionize the mortgage business. And let me Jonathan's in the room and along with Joe and they did this amazing transformation. Let me at least open the mic to you and say if you want to say some words. Thanks, Jeff. It's been about a year and a half with the partnership with L'Orealba, which has been an incredible partnership for us, because it really allowed us to continue to focus on the business and the momentum that we had just prior to going private, continuing to execute on the infrastructure, the transformation, we continue to execute on the next generation of our software. And that really catapulted our growth in continuing to pick up share, allowing us to continue to drive more and more value to our existing customers. We did an acquisition last year of a company called Capsulemon and introduced some amazing technology around recognition and extraction and machine learning and artificial intelligence that has been a super success. And that combination has really allowed us to have amazing revenue growth, expand the margin materially. And as we look to what was going on in the market and the momentum that we actually think we've seen the beginning of this year relative to COVID and the pandemic driving people towards e closing and momentum with our partners with Simplifile and Buckle Ship and other areas, we just thought it was a perfect alignment in that our vision was always to automate everything automatable in the industry. We had such momentum. We kind of saw coming together with Jeff and the ICE team, 1 plus 1 equals 3. And it's very exciting because I've been at this for 18 years. And I can finally see the possibility of full digitization and it's just not that far away. I think the combination is going to be fantastic. Okay. I'll let others ask questions, but thank you very much. That's very helpful. Thank you, Rich. And as for our next question comes from Alex Kramm from UBS. Your line is now open. Can you hey, everyone. Can you First of all, it would be great if you have any growth targets that you could put down numbers around on a holistic basis. But then also, how much of the growth is coming from taking more share? It looks like you have 50%. How much are ancillary services? Really what's the game plan or what was the game plan on a standalone basis? Yes. Hey, Alex. So let me start and give you a few numbers and then Jeff or Ben or Jonathan can kind of pick up on the how it's going to happen. So as we thought about the model and we looked at what Jonathan described as the momentum that they've built and established in an industry that's still in the early stages of moving to analog to digital, we see a combination of factors that are going to drive growth. And just to put it out there, we think this is a business that can grow 8% to 10% a year, every year for the next decade. And even against what will be a tough compare in 2021 versus 2020, we think it's a business that can grow 8% to 10% next year. And that growth is going to come from a combination of things. It is going to come from our confidence that Ellie Mae can continue to take share in the origination space. Jeff talked a little bit about and Jonathan mentioned their network, which effectively operates as an app store, where other third party providers who sell services into the mortgage space come and hook into the broad network that Ellie has built. We believe not only are those 3rd parties likely to grow and we along with them, but there are additional third parties that can be added to the platform. Jonathan also mentioned the Capstone business that they bought and that artificial intelligence or machine learning capability that can facilitate compliance. And so we look at this, Alice, a lot like we've looked at the energy business 20 years ago, the fixed income business a few years back as one that is poised to move analog to digital. We believe Ellie Mae is the best network in this space and one that is indispensable in the industry and that all of those factors traded for 18 months ago has nothing to do with whether we think it's worth today. What we think it's worth today is all about where we think it can go. And with that growth comes really solid incremental margins because what the Ellie Mae team has done has built a business that you know we love, which is you build it once and you sell it multiple times. And so all of those factors we believe will combine to generate a very solid return. I mentioned 10% on top of a 3% cost of capital and more than justifies the value that we're paying today. I guess I would just add that what impressed me, Alex, was and we've seen this in some of our other business and specifically in our mortgage business was the moment there's a moment in time when this management team took their business into the cloud, opened up their network and then we got hit with a work from home environment. And it that was the tipping point in my mind that has really driven unbelievable recent growth. But regardless of your view of interest rates, regardless of your view of refinancing or how many millennials are going to buy a house, We've seen this and you've seen this in industries. Well, if you look at the last page of our presentation and see the EPS growth device that grew through every financial crisis, every economic issue that has occurred around the world. The analog to digital conversion, once it reaches a tipping point, you can't stop it regardless of what the microeconomic situation is. And we saw that happen to these guys. They were brilliantly prepared and we think there's tremendous momentum behind this company. And we have tremendous momentum against our e closing initiatives that we're working together on. And we think putting it all together in one package is it's unprecedented in the industry having an end to end solution. By the way, we have a we talked a lot about our closing solution. In order to get into our closing solution, somebody has to take files or paper documents or something out of the front end system and get them into the back end system. And we're going to make sure that that's now seamlessly part of one system. Yes. Thank you. I don't know if I have time for a quick follow-up. But for the LME team, can you just say quickly like what COVID has done? Any sort of quantitative numbers that you can give? How much maybe the interest level has increased to move certain projects forward from the mortgage industry? Anything would be helpful. I think one of the things you've seen is incredible demand for going digital, being able to do things in a distributed fashion, whether it be the front end of the process, e closing and everything in between. And so elements of holding people back from doing it because maybe they're dipping their toe in the water kind of moved very quickly as people saw the success they were having when they had to do it by necessity. They had to embrace it to be able to close home loans for consumers to refinances for consumers. And I think that just accelerated the momentum in the industry. And we continue to see it. As Jeff said, we've got to a place of a true network effect, and it's become this virtuous cycle. And so as folks see the benefit of doing things electronically and digital and the benefit both in terms of going faster and doing it at lower cost with fewer hands touching the file, it just becomes a positive reinforcing cycle. And that has been a big benefit to us this year, but it really has been something that has been a continuous cycle that we just keep riding. And again, in terms of the combination with MERS and SIMPLE 5 0.8 closing, I just think there's just tremendous growth in front of us. All right. Thanks again. As for our next question comes from the line of Chris Harris of Wells Fargo. Your line is now open. Thanks. So when we look at ICE's track record with M and A, the acquisitions have often involved buying companies and then once the companies become part of ICE, the growth accelerates. And that certainly seems to be the playbook here. I was hoping you guys could elaborate a bit more on how putting these assets together might accelerate the growth? Yes. I'm going to bring Ben Jackson in, who's been sitting here patiently, who's been working on our e closing initiative. Thanks, Chris, for the question. Let me go through a couple of areas of where we see interesting opportunities in the growth algorithm and new areas to really accelerate the growth here. And the first part that we've touched upon and Jeff touched upon in his script that we've talked about a little bit is really coming through the combination of these two very strong networks. And I can't emphasize enough that no one in the industry has stitched together. 1, nobody in the industry has those 2 unique networks that we have. 1 on the origination side with Ellie Mae and the other one on the closing and post close side with Simplifile. No one has that. And also no one has really stitched that together as all one complete network and ecosystem. And what that enables you to do in very simple terms is enables you to connect for the first time the underwriters and the lenders and all the information that they're compiling and all the information that they're trying to gather in order to see that candidate for a loan meets all the qualifications, then go ahead and be passed into the closing process. For the first time that underwriter and lender is going to be able to seamlessly pass all that information, share documents and share information to the settlement agents on the closing side. And that whole process we know is going to 1, be able to increase throughput of loans, be able to have more loans transacted in a more efficient way. 2, it's going to reduce significantly the number of errors that happen in this process. And then 3, we believe that a much higher quality asset will be produced at the end of the day that when those loans go into secondary market for trading, there'll be a lot less issues with it. It'll be much higher quality asset and have a lot of value associated to it. The second area, let me give you another example, is on the data and analytics side. So when you think about the data sets that are within these companies, you take Ellie Mae has a ton of real time rich information around the origination process embedded in it. Ellie Mae, another example, has a business called AllRegs, which for all intents and purposes is basically the bible for all the lending guidelines and regulations that one needs to comply with when underlying the loan. But also Simplifile has a very interesting data set and unique data set in that it has all the reference data and all the closing requirements information that 2,000 counties around the United States require. What information is required, what can be electronic, what can be manual. Part of what we're going to do here is take all those data sets, combine them together, pull it much further into the front end of the process, which also will reduce the amount of errors that come through when a loan is being originated. Jonathan mentioned the AI platform, the Picassilon AIQ platform that is also there. We'll be able to take and utilize that platform to also do a lot of automated checks to check for errors in that origination process that today is very manual in nature. Jeff mentioned that the cost of doing a loan has doubled and that there's an opportunity for right savings. This is where it is applying that AI algorithm to automatically check for errors throughout that loan process to really reduce a lot of the need for manual intervention. Those are a few examples and there's many, many more behind that. Great. Thank you. Our next question comes from Alex Blostein from Goldman Sachs. Your line is now open. Alex, are you on mute? Hello? Hi. Can you guys hear me? Yes. Sorry. So the question is, you've given details about how these two assets benefit you guys from a mortgage business perspective, obviously. But curious to get your thoughts how this new mortgage business will interact with the rest of ICE, whether on the data and the network side or the trading side of the business. So in other words, are there any revenue synergies that you would anticipate on some of these other businesses or they're likely going to operate sort of separately? It's a great question. First of all, as Scott mentioned, we're going to resegment ICE. And the reason that we have to resegment is really an underlying issue, which is we intend to run and manage the mortgage business as a separate vertical, if you will. And in that regard, a management team that's overseeing that, the merger of all these assets and then the real acceleration of this business into the cloud. ICE's other businesses run-in a private cloud. They are cloud based businesses, but they're a private cloud that we operate, particularly our data distribution network. And we have been in the process, if you will, of taking historical data, let me say non real time data and putting it and making it increasingly available in the public cloud, so that it's easier to access. One of the things that we've learned by going through this integration planning process with Ellie Mae's management is they're going to teach us a lot and help us accelerate cloud based access and particularly cyber security overlay and other things that are really important. They deal with personal identification information and probably have one of the most rich databases of personal identification information given that in order to get a mortgage today, an individual has to basically provide all of their key details into that Ellie Mae system. So we're anxious to tap their brains and I think it will help accelerate some of our other businesses and make them more widely available, which we hope ultimately will increase the velocity of their uptake. And then in the middle there, they have LME already has a lot of data. They package and sell data and they have a lot of third party vendors that are in their app store that are basically dealing with data. But largely, that whole universe is targeting professionals that are in the mortgage industry. And as you know, our data business really targets investment professionals and people that are probably outside of the mortgage industry. So we're looking forward to talking to a lot of funds and managers and economists and regulators and other people that might be interested in having some unique information around what's going on in the U. S. Mortgage market because we will be the de facto source of information for the U. S. Mortgage market. And we think we can broaden that by taking some of that information and bringing it over the wall, if you will, into this other vertical that we're going to have where we're going to be pushing a lot of financial data out. Beyond that, I don't know that the market I don't want to promise and suggest that because we really know how things trade and how derivatives are formed and how indices are pushed into ETFs that we want to talk about that as a near term opportunity because I think those are no question opportunities and no one is better positioned than we are to deal with all of those things. But to be fair, the analog to digital conversion of just getting the basic mortgage into a a system where you can take 1,000 of dollars and all kinds of failure rates out of the current trading market is such a huge opportunity that we're going to focus on that first. Great. Thanks very much. Thank you. As far our next question comes from Mike Carrier of Bank of America. Your line is now open. You guys have multiple opportunities for growth at ICE. So whether it's the mortgages, fixed income, EPS, market data. So when you look at this deal and making a bigger bet on mortgage and that opportunity, have you gotten more like visibility or confidence in the mortgage growth opportunity more recently versus other areas in the business? Or is it more about you've always had that and now there's an asset for sale and so it's the combination there? And then just on that growth opportunity, I don't know if you guys can size, but I'm just trying to understand when you think about that migration to kind of digital, like where is the mortgage market at this point or how much has kind of migrated over versus that opportunity? Thanks a lot. Sure. So let me start and then I'll ask my colleagues at Ellie to give you a little more detailed insight. But obviously, we've talked about the analog to digital conversion opportunity for quite some time. But as I mentioned, we've been working together and we saw our mortgage business become it has been ICE's fastest growing business, albeit small. So you may not have seen it or people might have may not have focused on its compounding growth, but we could see that it was already growing because of this analog to digital conversion need. I really the combination of that and what happened in March when in the U. S. People had to work from home and mortgages that were in flight were trying to figure out how to close and settle and no one wanted to go to a law office or an escrow office to sign papers and notary republics couldn't get into offices and what have you. There was this acceleration that we saw. And one of the things that Ellie has visibility into that we did not is they can see much further into the future. They can see through their customer acquisition tools and what have you what's going on in the mortgage market, 1 or even 2 quarters ahead. And they can see and we show the graph of where we think the backlog of potential refinancing is. They saw that the market was massively capacity constrained. And people that are in this industry are wanting to refi, take advantage and people wanting to move and buy new homes that are fleeing cities and all the other societal movements that have happened around the knock on impacts of COVID, they can see well into the future that we couldn't see. And we see a very, very bright 2020. And regardless of the election and regardless of where interest rates may go and regardless of what industry forecast may be, we can see a lot of potential growth that is backlog than having a problem getting accomplished. And so it was really that, that said this has been a tipping point. And if we're going to get together and look, the private equity firm only owned these guys for like 18 months. Like it's well short of their typical holding period and they've got they had an asset that was a real winner. And so we had to do some real convincing that this is the moment in time when if they want to be true and loyal to the to Ellie's management and the employees that let's do this deal and let's let this thing go. Let me ask my colleagues at Ellie to comment. Joe? Sure. Hey, Mike, this is Joe Tyrell. So it's interesting when we look at the adoption of automation, just before we went private, we started to see a significant adoption by lenders on front end technology, typically the point of sale where the consumer interacts with the application. And we've seen exponential growth of adoption across our platform and just in the industry in general. As you look at what's happened with COVID now, you see lenders who've been preparing themselves to adopt digitization and automation through the rest of that process have now really woken up and realized this is the way that they're going to have to scale their business going forward. And so if you look at what we've been doing for the last several years, we've achieved essentially a critical mass of lenders and partners and third parties on our platform. And they rely upon us to collect data, to exchange that data, all on behalf of our customer base. And so really what we're poised for now at Ellie Mae is really the next phase of growth for us as a company. And honestly, it's going to be the largest growth that we've experienced, which is now taking all that data that we have and using it to really automate out the inefficiencies. We're getting demand now from our lenders about eclose and really trying to take that same level of adoption that they're seeing willingly from consumers on the front end and give them that same touchless experience when it comes to actually closing their loan and signing their documents. So with being part of the ICE mortgage Services and their expertise in leveraging data to automate out inefficiencies, we feel like this is the opportunity that we have and it's a very unique combination of Ellie Mae and Simplifile and MERS to really be the change agent in this industry and drive the automation that really everybody from consumers to the lenders in the secondary market are asking for. And Mike, just to drive that back to numbers, don't miss Slide 8. This is a $1,000,000,000 business staring at a $10,000,000,000 addressable market. So there's a lot of opportunity for us to grow significantly as we move forward. Got it. Thanks a lot. Our next question comes from the line of Jeremy Campbell from Barclays. Your line is open. Hey, thanks. So Jeff and Ben, you guys talked about stitching together the front and back end solutions. So as a similar parts yields us greater 8% to 10% top line growth algorithm than maybe the pieces would individually. So I guess in that context, with this new end to end solution and the externality you guys discussed, do you see an opportunity to turn some of these pieces that are a bit more transactional in nature today into a more recurring SaaS based pricing model? And then I guess from a competitive standpoint, is this solution going to be running up against an already large player like Black Knight in the technology space or are you kind of running into a more fragmented market that maybe you guys can flex your muscles a little bit? Hi, Jeremy. It's Ben. I'll take this. So I think the way to start on I'll just hit on some of the areas in the addressable market that we're going after here and that there's an opportunity right in front of us. So first, when you think about the closing and post close place that we've talked about, we talked about in the earnings call last week, we've talked about it a couple of times here today, it's a $1,000,000,000 addressable market. That opportunity is right in front of us. We're executing on that and we're seeing what our green shoots really starting to blossom across that entire offering and across that entire process. And a lot of those offerings that we have that we talked about on the earnings call last week with Simplifile, a lot of its partnerships with Ellie Mae. And really going back to that touch point of the underwriter and the lender to the settlement process and automating that, we see that this combination just gives us the ability to accelerate the growth that we're already capturing. And then on the data and analytics, that $4,000,000,000 opportunity, this is all about taking all those rich data assets that I had mentioned before and applying them to and the AI engines that we have to really automate out all of the things that are done manually now in that underwriting process. So from income verification to collateral and asset verification to credit, insurance, title, that whole space is ripe to just get rid of manual intervention that's happening right now to manually assess each of those areas to understand what are the requirements that each lender or investor has for underwriting a particular loan. And instead of literally doing stare and compare and trying to manually check for errors, which itself is right for errors, we have right in front of us the opportunity to automate that and by creating that efficiency, we believe we'll be able to monetize that by just providing this benefit to the industry as a whole. Then on the LOE side, so the underwriting and processing side, LA Made is well underway in growing. Scott touched on that they're growing in market share. They went from 38% market share to 44% in just the last two years. And now you increase the amount of automation from not just the origination process, but straight through to closing. We see the ability to continue to capture market share there. And we've talked about it a couple of times now, but the whole what Ellie Mae has on the origination side and what Simplifile has in the closing and post close side, these are unique. No one else has these assets and that's where we're focused. And when you think about a company like Black Knight, where they are is deep into the servicing space in large banks and not really in present in this. So that's more of a potential for partnership opportunity with them as opposed to thinking of them as a head to head competitor. I'll take the first part of your question. This is Jeff. Is there an opportunity or is there an appetite to move from transaction based pricing to subscription based pricing? And the short answer is yes. And we at ICE bought interactive data maybe 5 years ago or so. And one of the things that we have built over top of that is a really elegant system to take a look at where our customers buying bundles from us, what interest in bundling what products and how do you segment the market to create different kinds of bundles that you can package together and essentially sell on a subscription basis with high renewals and escalating pricing because of escalating value to customers. And so we've talked a lot with Eli's team about bringing our team in and when we get these two businesses together, really taking a look, a hard look at what would be the best and most efficient way to package our pricing. But I can tell you that the early look at this is that we're going to see more opportunity for subscription. Great. Thanks a lot. Our next question comes from the line of Chris Els from Compass Point. Your line is open. Good evening, guys. Chris Allen here. Can you hear me? Yes. Hi, Chris. I can hear you. Thanks. Maybe just want to follow-up on that a little bit. Maybe for the Ellie Mae guys, can you give us some color just in terms of who actually you directly compete with? And then from a share perspective, as I understand it, Ellie Mae has seen strong tailwinds in terms of the non bank originators in recent years. Maybe you could talk about how the share of segments by different originators in terms of non bank players, large banks and smaller banks. Just help us think about that. Yes, sure. Chris, this is Joe. So when you look at our customer base, we support customers of all sizes and all segments and with multiple charters. So from large national banks, large independent mortgage bankers, down to regional banks and even brokers. If you look at our client base mix though, it's more heavily weighted towards the large independent mortgage banks. And if you're aware of what's happened in our marketplace for the past, call it, 10 to 12 years, there's been a rapid and consistent shift of volume away from the largest depository banks to the large independent mortgage banks. And so we have a larger percentage of those folks on our platform. And again, with them, they tend to really focus on adopting technology because they're not as encumbered by some of the legacy technology that might be intertwined with other internal depository systems. So we've really seen that market share on our platform grow. And because of the fact that they do such a heavy percentage of the volume, we've seen our overall market share grow of volumes on the platform. And just who you guys directly compete with? So our number one competitor is in house legacy systems that lenders have built over time that they're starting to realize they're spending 1,000,000 of dollars investing to maintain through all of these various regulatory and industry changes instead of investing in their business. So we've got a really great pipeline where even these largest entities are starting to realize that it's time to look at a commercial application like ours. After that, it's pretty fragmented. We'll run-in occasionally to folks like a Black Knight that you mentioned. And beyond there, it's just a myriad of small little companies with very small share. I'd also like to mention that one of the things that we really like about this company is that we're going to run the network itself as an open platform, which means people who have their own systems will be able to hook theirs. If they want to keep their own proprietary front ends, they'll be able to hook to our platform and take our regulatory tools or take our database or acquire data or use our closing processes. And so we're going to be somewhat agnostic now because we're going to have literally almost every touch point in the mortgage process and we're not going to turn down the opportunity to work with everybody. And so in that regard, maybe it's the exchange philosophy that ICE has, which is just to be a neutral utility like player and support people where they need support. That's the way we're going to run this network. We're already both kind of doing that, but we'll reinforce that as we come together. That was it for me. Thanks. Thanks. Our next question comes from Ken Chen from Worthington. Your line is now open. Hi. Thank you for squeezing me in. Maybe a little history lesson. If you look at Ellie Mae's growth over time, you called out in the slide deck about 30% revenue growth since 'eight, I believe. The growth in EBITDA to the $470,000,000 level, how much of that growth was organic, call it, driven by sort of the operations? And how much of that growth from, I don't know, say, like the $150,000,000 level was driven by inorganic means? Is it mostly operational improvements or yes? Yes. So can I I'll take the question? If you think about it, Joe and Jonathan have talked about Capsulon, which is a business that was acquired by Toma Bravo, subsequent to them being taken private after 2018. Subject to Jill or Jonathan, correct me, I think that's about $50,000,000 of revenue. So a relatively small part of the significant growth that you've seen. And so really the revenue growth has been driven by the things we talked about. Ben mentioned earlier that we've seen share go from 38% to 44%. We've seen more customers joining the network and all of those factors have driven the revenue. And the point Jeff keeps hitting on is this is a business that's now in the cloud, it's built once, it's sold multiple times. And so the incremental margins to that are significant. And so both Joe and Jonathan have focused over the last 18 months in improving the organizational efficiency at Ellie Mae, But to a large extent, the growth in their EBITDA is driven directly by the share they've taken, the new products they've added, the new customers they put on the network. And again, that's the model we see going forward as well because 44% will go higher than 44%, more customers will join the network. Joe talked about taking out the legacy systems in many as being our main competitor, not another company, but the customers themselves. And as we do that, it's rolling out the same solution again and again and again and the incremental margins on that are very solid, which generates the strong cash flow that supported the value that we came to. So I'll mention one fact that surprised me was that their headcount during this period has been going up. We saw this rise in looking at financial statements and said, oh, I'll bet private equity just went in there and took down the headcount and made things fall to the bottom line as a sort of a one time improvement. And we saw just the opposite, increased investment, increased headcount, movement to the cloud, which suddenly accelerated top line growth. Great. And then maybe following up on the subscription part. You mentioned the deal is accretive to revenue growth. Not a mortgage guy, but I know enough to see that we're sort of at record levels of mortgage volumes. How sensitive and I know you mentioned that there's a subscription part of the business here. How sensitive is Ellie Mae to mortgage volume levels? And like how if we start to see mortgage volumes drop, how concerned should we be with certain levels of decline? Like does the accretion disappear if there's a 5% drop in mortgage volumes? Does it take a 50% drop? If you can just help us with the sensitivities, that'd be great. Yes. So that obviously, Ken, is a question that we spent a lot of time looking at as we went through diligence. And I forget who it was in one of the meetings who said it. Ultimately, the mortgage volumes can be a headwind or a tailwind, but it's just that. It doesn't make the difference between the business will grow or not grow. Because again, this is a business that's taking share, that's adding customers, that's adding product and that's what's really driving the growth. And so I mentioned that we expect next year can grow 8% to 10% off a tough compare, But that's assuming refi volumes come down significantly. And so that top line growth is coming despite the fact that we fully expect that refi volumes will come down and frankly that purchase volumes are only modestly up. We do see a trend towards millennials buying more homes. We think that is a long lasting tailwind, but it's still modest. And so the 8% to 10% growth I'm talking about for next year is against a headwind of volume coming down. We also see by the way that and you can see the graph that we put in there that shows the backlog of potential refis that we have seen and Elias is trying to alleviate that there is a capacity constraint in the system that's preventing that elephant from moving through the snake. And so we suspect that that volume as long as interest rates stay low and you can come up with your own conclusions about the Fed's ability to raise rates right now, it's likely to have a bit of a backlog for quite a while, just because of the inability to satisfy customer demand right now. So while that isn't in our model, as Scott said, he's modeled an actual downturn, we have some confidence that we may be able to beat the industry's projections over the long term. Great. Well, thank you very much. Our next question comes from the line of Brian Bedell from Dutchpac. Your line is now open. Can you hear me? I can now, yes. Okay. Sorry about that. Okay, just to follow-up on the revenue growth side of the equation. So the just to verify this 8% to 10%, you said, Scott, is for your expectations for next year even with if refi volumes turn down. And then you also said 8% to 10% over a long term timeframe, I believe. So just correlating that with that market share of 44% and then going back to Slide 8 where we've got the $10,000,000,000 addressable market, can you just help me think about that 44% share within that pie? Is that mostly in the application processing and underwriting section of that pie? And then your longer term 8% to 10 percent growth rate. Maybe you don't have exact numbers here, of course, but what type of growth in market share are you anticipating, say, over the next 5 years plus to get to that? And then in that addressable market pie, where is Ellie Mae not really that large and you see more exponential sort of growth from Ellie Mae's base? Yes, there was a lot embedded in that question. I'll let Ben start and then I'll wait in later. Yes, I'll try to unpack that just by going through the addressable markets as you went through it. I think the way to think about it is that the near term opportunity on the revenue growth side that meaningfully moving the needle is just continuing that underwriting lender processing the LOS side, continuing to gain market share, continuing to add customers, continuing to grow the network that we have with our partners that increasingly see the efficiency that the App Store that Ellie Mae has, enabling them to distribute their content across the vast majorities that are mortgage mortgages that are originated that are going across that network. They see the efficiency there. So there's a tremendous opportunity for continued growth there. The call it near to medium term is probably the data and analytics side, that business, the Brilliant acquisition that they did about a year ago of that AI platform and that data extraction platform. It's already a high growth business for Ellie Mae and we see an immediate application to not only continue the growth that they have with the existing customer base, but to apply it to that whole process now all the way through to the closing and post close. And then the $1,000,000,000 opportunity that we had mentioned and we spent a lot of time on our earnings call talking about this. This is high growth, but it's coming off of a very low base. And we see as we've shared that market shares in the registry of eNotes went from 1% to 3%. A brand new business that we're getting off the ground in the collaboration and post close space went from completely greenfield brand new innovation to 3% market share. That we see that the growth rate of that's going to accelerate, but it's off a small base. But we have clear line of sight that that is one that's going to grow, call it medium and medium to long term. And then Scott, you were going to comment on that? No, I don't have frankly anything to add. Ben covered all of that. We're not going to roll out line by line items. But one of the reasons that we're choosing to resegment the business is because as Jeff said, this is going to be run as a business segment. And so as we go through just as we did with the data business, we will highlight different aspects of the mortgage business and the revenue growth drivers that have been alluded to as we get into the Q4 and more importantly as we roll through 2021. Okay. That's helpful. And the 3% cost of capital, was that your expectation for your interest rate on the new debt or is that embedding the stock? It's less than 3% and it embeds the stock. My cost of debt in the 1st year is going to be about 1.6% on $9,000,000,000 Yes. And over the life of the deal, maybe 2.2%, 2.3%. Great. That's very helpful. Great. Thanks very much. Thank you. Our next question comes from the line of Owen Lau from Oppenheimer. Your line is open. Yes, good afternoon. Thank you for taking my question. I only have a couple of housekeeping questions. So the first one, Scott, you mentioned the 8% to 10% growth rate. Can you please further quantify the growth math, which is like how much of that came from pricing, how much of that came from new customer? And then on Slide 20, 40% recurring revenue, Could you please disclose the renewal rate for that? And then finally, you mentioned the refi sensitivity, but my question is more on the mortgage rate and interest rate and or maybe inflation expectation. How does inflation expectation and mortgage rate impact the business? Thank you. Okay. So I think that was a 3 part question. I'll try and hit each one. So with regards to the 8% to 10% revenue growth, what I can tell you is what we've already said. It's share growth, it's new customers, it's new content and those are the things that are driving that growth. And we haven't broken them down. Whether or not ultimately we will expose a pricing model similar to what we did with the data business, we'll determine as we get ready to report the segments. But it's all of those factors that are driving the growth. And I would argue that none more so than the other. They're all contributors to the growth. And that's why I think this is not a 1 year 8 to 10, it's a decade 8 to 10. With regards to the renewal rates, high 90s. I think Jeff mentioned that in his it's remarkable in terms of the retention rates that we see in this business. And again, I think it goes back to a little bit of what Joe was saying. If you can come in and provide tools to an inefficient analog process, it becomes really sticky. And so with that stickiness comes really high retention. And I think that high retention then becomes even more sticky when in your network you are sending through content and customers that are then readily able to get to those originators. And so I think all of that is what drives the very high renewal rates that we see in our business. And then with regards to the refi volume, as I mentioned, we actually have modeled that going down next year and just to be even further transparent down the year after that. And then hovering back towards what historically has been kind of low to mid-40s percentage of refis relative to total volume. And as Jeff alluded to, that doesn't count on any of the large backlog we showed you on Slide 8 necessarily pushing through over the next 2 years. I think that could be a good opportunity for us. And it only assumes a little bit of a purchase volume growth coming from millennials buying more homes. So hopefully that will give you a little bit of flavor as to why we're confident that again this isn't a 1 or a 2 or a 3 year growth story. It's a 10 year growth story at high incremental margins that will create a lot of value for our shareholders. Okay. Thank you. I would like to turn the meeting over to Jeff Sprecher for closing remarks. Well, thank you, Simon, and thanks for moderating this call. I want to thank you all for joining us today, and I certainly hope that you and your loved ones stay safe and stay positive about the opportunities that lie ahead for all of us. Have a great remainder of the day. Thank you all. And this concludes today's conference. Thank you for participating. You may now disconnect and have a great day.