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 Investor 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-K, second quarter Form 10-Q and other filings with the SEC. In our investor presentation, we refer to certain non-GAAP measures, including adjusted EPS and adjusted EBITDA.
Please see the explanatory notes on the second 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 Corr, Ellie Mae's President and CEO, Joe Tyrrell, Ellie Mae's 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-19 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 Corr and Joe Tyrrell 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 Ellie 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 four. This afternoon, we announced that ICE has entered into a definitive agreement to acquire Ellie Mae from Thoma Bravo for $11 billion. The consideration is expected to be in the form of a mix of 84% cash and 16% stock. 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 first 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 1.5 of residential mortgages in the U.S. 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 two months to complete. When combined with our existing network at ICE Mortgage Technology, 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. 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 in 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 five, as some of you have heard me say in the past on Ellie Mae calls, we've always been guided by a mission to automate everything that was automatable, from the first consumer touchpoint all the way through to the mortgage investor. Similar to ICE, we've made tremendous progress in our 20+ years as a company. The greatest opportunities lie ahead. We think we could think of no better partner than ICE to help accomplish this shared goal.
At Ellie Mae's core is a 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 with such a meaningful portion of the U.S. mortgage market, the Ellie Mae network also serves as a unique digital marketplace, which seamlessly connects customers to additional Ellie Mae services and thousands of other third-party vendors. In many ways, it is the App Store for mortgages. As you can see on Slide five, the unique value proposition that Ellie Mae brings to its customer base has enabled us to share in these efficiency gains and to grow revenues through an 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 Technology and the expertise that ICE brings to operating networks across the major asset classes.
Thank you, Jonathan. Now moving to Slide six, 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 seven. ICE's journey to help automate the mortgage workflow began back in 2016 when we purchased a majority investment in MERS, which is an acronym for the Mortgage Electronic Registration Systems, and a database that today helps track the ownership and servicing rights of roughly 85% of outstanding mortgages in the U.S. 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 two 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 with another asset classes, this network merger is a critical step towards driving meaningful new product creation and unique workflow efficiencies. That it's a combination that does not exist in the mortgage market today. Turning to Slide eight, 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 billion 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 S lide nine, you'll see the benefit of the combined network. Ellie Mae's platform is critical to customer workflows, and 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 S lide 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 two 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 thousands and thousands 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. 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. 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 Technology. Over the past decade, compliance and mortgage origination costs have doubled, with over two-thirds of these costs related to personnel. We estimate that customers will potentially be able to save nearly $3,000 in origination costs 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. 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 Thoma Bravo to acquire Ellie Mae for $11 billion. Consideration will be in the form of $1.75 billion of newly issued stock and $9.25 billion 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 forma 2020 adjusted EBITDA.
We are committed to maintaining a solid investment-grade rating and currently expect to suspend share buyback until our leverage falls below three and a quarter times, which we anticipate will be sometime in the second half of 2022. Our long-term leverage target will be a range of 2.75 x-3x 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 $11.5 billion constructing our mortgage business.
We expect ICE Mortgage Technology, which will include Ellie Mae, MERS, and Simplifile, to have pro forma 2020 revenues of $1.1 billion, including $900 million from Ellie Mae, and pro forma adjusted EBITDA of $600 million, including $470 million from Ellie Mae. 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 to $65 million in run rate cost synergies to be realized by the end of year three.
Finally, we believe the combined platform can deliver revenue synergies that will accelerate the growth of the legacy ICE Mortgage Technology 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 the fourth. We plan to provide updated 2020 financial guidance at that time. Turning now to Slide 13, we want to highlight that beginning with our fourth quarter and full-year 2020 results, we plan to change our segment reporting. As you can see on Slide 13, we expect to report three 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's an analog to digital conversion taking place, and where there's 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 questions. If you would like to ask a question, please press pound followed by the number one on your telephone keypad. Again, that is pound one. Your first question comes from the line, Rich Repetto from Piper Sandler.
Yeah. Good evening, and congrats to you all on a historic transaction here. 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 guess I'm trying to understand what's gone on in the last year with Ellie Mae, because they were acquired for $3.7 billion. Now it's tripled in value, and I see that the revenues have doubled and there's been some operating efficiencies. 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 in looks like about a year.
Yeah. It's a great question, Rich. As you know, particularly, we meet internally every two 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. We've had Ellie Mae on our board for years. When it was purchased out of the public markets by private equity, Thoma Bravo, at that time, we didn't own Simplifile. We owned MERS, but we didn't own the back-end network. 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. We've seen other companies that have gone through that transition from installation and subscription to cloud-based.
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. We were a little timid around the company two years ago. To our great surprise and pleasure, the management team of Ellie 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 Ellie Mae network.
Once we owned 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 you know we enjoy trying to innovate around, we realized that the combination of the two of us together moving into the cloud with the entire industry attached to us would be very powerful. They were already on a very, I would say, a powerful revenue increase with EBITDA going from, I don't know, something like $140 into the $400s. 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. Jonathan's in the room and along with Joe, and they did this amazing transformation.
Let me at least open the mic to you.
Yes
say if you want to say some words.
Thanks, Jeff. It's been about a year and a half with the partnership with Thoma Bravo, 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, to continue to execute on the next generation of our software. That really catapulted our growth and 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 Capsilon that introduced some amazing technology around recognition and extraction and machine learning and artificial intelligence that has been a super success. That combination has really allowed us to have amazing revenue growth, expand the margin materially.
As we look to what was going on in the market and the momentum that we actually think, you've seen the beginning of this year relative to COVID, the pandemic, driving people towards e-closing and momentum with our partner, with Simplifile and partnership in 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 when we kind of saw, coming together with Jeff and the ICE team, one plus one equals three. 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.
Thank you, Rich.
As for our next question, comes from Alex Kramm from UBS. Your line is now open.
Hey, everyone. Can you discuss the growth algorithm for Ellie Mae on a standalone basis a little bit further for the next, I guess, medium term, next few years? First of all, it would be great if you have any growth targets that you could put numbers around on an holistic basis. 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?
Yeah. Hey, Alex. Let me start and just 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. 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. Just to put it out there, we think this is a business that can grow 8%-10% a year every year for the next decade. Even against what will be a tough compare in 2021 versus 2020, we think it's a business that can grow 8%-10% next year. 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 third 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 Capsilon business that they bought, and that artificial intelligence or machine learning capability that can facilitate compliance. We look at this, Alex, 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 will support growth. Then the last thing I'd say in terms of overall valuation, because frankly, what it traded for 18 months ago has nothing to do with what we think it's worth today. What we think it's worth today is all about where we think it can go. 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. 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.
Great. [Tony], please.
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 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. That was the tipping point in my mind that has really driven unbelievable recent growth. 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. If you look at the last page of our presentation and see the EPS growth of ICE 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 macroeconomic situation is. We saw that happen to these guys. They were brilliantly prepared, and we think there's tremendous momentum behind this company. We have tremendous momentum against our e-closing initiatives that we're working together on. We think putting it all together in one package is unprecedented in the industry, having an end-to-end solution. By the way, 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. 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 Ellie Mae team, can you just say quickly, 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.
Well, 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. 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, do refinances for consumers. I think it just accelerated the momentum in the industry. 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.
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. That has been a big benefit to us this year. It really has been something that has been a continuous cycle that we just keep riding. Again, in terms of the combination with MERS and Simplifile and e-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's now open.
Thanks. When we look at ICE's track record with M&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.
Yeah. 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. The first part that we've touched upon, and Jeff touched upon in the script, and we've talked about a little bit, is really coming through the combination of these two very strong networks. I can't emphasize enough that, well, one, nobody in the industry has those two unique networks that we have. One on the origination side with Ellie Mae, and the other one on the closing and post-close side with Simplifile. No one has that. Also, no one has really stitched that together as all one complete network and ecosystem.
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 the candidate for a loan meets all the qualifications to 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. That whole process, we know is going to, one, be able to increase throughput of loans, to be able to have more loans transacted in a more efficient way. Two, it's going to reduce significantly the number of errors that happen in this process.
Three, we believe that a much higher quality asset will be produced at the end of the day, that when those loans go into the 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. 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.
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's 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's being originated. Jonathan mentioned the AI platform with the Capsilon 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 ripe 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 more behind that.
Great. Thank you.
Our next question comes from Alex Blostein from Goldman Sachs. Your line's now open.
Alex, are you on mute?
Hello?
Oh, hi.
Can you guys hear me?
We can hear you, yep.
Sorry. The question is, you've given details about how these two assets benefit you guys from a mortgage business perspective, obviously. Curious to get your thoughts how this new mortgage business will interact with the rest of ICE, whether on the data, the network side or the trading side of the business. 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 re-segment ICE. The reason that we have to re-segment is really an underlying issue, which is we intend to run and manage the Mortgage Technology business as a separate vertical, if you will. In that regard, a management team that's overseeing that, the merger of all these assets, then the real acceleration of this business into the cloud. ICE's other businesses run in a private cloud. They are cloud-based businesses, they're a private cloud that we operate, particularly our data distribution network. We have been in the process, if you will, of taking historical data, let me say non-real-time data, 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 cybersecurity 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. 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. In the middle there, Ellie Mae 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. Largely, that whole universe is targeting professionals that are in the mortgage industry. As you know, our data business really targets investment professionals and people that are probably outside of the mortgage industry. 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.
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 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.
To be fair, the analog to digital conversion of just getting the basic mortgage into a system where you can take thousands 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 for our next question comes from Mike Carrier of Bank of America. Your line is now open.
Mike.
You guys have multiple opportunities for growth at ICE. Whether it's the mortgages, fixed income, ETFs, market data. When you look at this deal and making a bigger bet on mortgage and that opportunity, have you gotten more visibility or confidence in the mortgage growth opportunity more recently versus other areas in the business? Is it more about, you've always had that and now there's an asset for sale and so it's the combination there? 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, where is the mortgage market at this point? How much has kind of migrated over versus that opportunity? Thanks a lot.
Sure. Let me start and then I'll ask my colleagues at Ellie to give you a little more detailed insight. Obviously, we've talked about the analog to digital conversion opportunity for quite some time. As I mentioned, we've been working together and we saw our mortgage business. It has been ICE's fastest growing business, albeit small. You may not have seen it or people may not have focused on its compounding growth. We could see that it was already growing because of this analog to digital conversion need.
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 publics couldn't get into offices and what have you. There was this acceleration that we saw. 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 one or even two quarters ahead. 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.
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. We see a very bright 2020. Regardless of the election and regardless of where interest rates may go and regardless of what industry forecasts may be, we can see a lot of potential growth that is backlogged and having a problem getting accomplished. 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 18 months. It's well short of their typical holding period, and they had an asset that was a real winner.
We had to do some real convincing that this is the moment in time when, if they want to be true and loyal 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 Tyrrell. 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. 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. 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.
They rely upon us to collect data, to securely store that data, to exchange that data, all on behalf of our customer base. Really what we're poised for now at Ellie Mae is really the next phase of growth for us as a company. 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 demands now from our lenders about e-close, 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.
With being part of the ICE Mortgage Technology 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.
Mike, just to drive that back to numbers, don't miss Slide eight. This is a billion-dollar business staring at a $10 billion addressable market. 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. Jeff and Ben, you guys talked about stitching together the front and back-end solutions. That was the sum of the parts yields this greater 8%-10% top-line growth algorithm than maybe the pieces would individually. I guess in that context, with this new end-to-end solution and the externalities 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? 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? 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. I think the way to start, 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. First, when you think about the closing and post-close place that we've talked about, we talked about on the earnings call last week, we've talked about a couple times here today. It's a $1 billion addressable market. That opportunity's right in front of us. We're executing on that, and we're seeing what are green shoots really starting to blossom across that entire offering, across that entire process. A lot of those offerings that we have, that we talked about on the earnings call last week with Simplifile, a lot of it's partnerships with Ellie Mae.
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. On the data and analytics, that $4 billion opportunity, this is all about taking all those rich data assets that I had mentioned for 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. 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.
Instead of literally doing stare and compare and trying to manually check for errors, which itself is ripe for errors, we have right in front of us the opportunity to automate that. By creating that efficiency, we believe we'll be able to monetize that by just providing this benefit to the industry as a whole. On the LOS side, so the underwriting and processing side, Ellie Mae's 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. 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.
We've talked about it a couple of times now, but 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. When you think about a company like Black Knight, where they are is deep into the servicing space in large banks and not really present in this. 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? The short answer is yes. We at ICE bought Interactive Data maybe five 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 are 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.
We've talked a lot with Ellie's team about bringing our team in, and when we get these two businesses together, really taking a hard look at what would be the best and most efficient way to package our pricing. 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 Allen from Compass Point. Your line's open.
Evening, guys. Chris Allen here. Can you hear me?
Yeah. Hi, Chris. We can hear you.
Hi, Chris. Yep.
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? From a share perspective, as I understand it, Ellie Mae's seen strong tailwinds in terms of the non-bank originators in recent years. Maybe you could talk about how the share is segmented by different originators in terms of non-bank players, large banks, and smaller banks. Just help us think about that.
Yeah, sure. Chris, this is Joe. When you look at our customer base, we support customers of all sizes and all segments and with multiple charters. 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. If you're aware of what's happened in our marketplace for the past, call it 10 years-12 years, there's been a rapid and consistent shift of volume away from the largest depository banks to the large independent mortgage banks. We have a larger percentage of those folks on our platform. 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.
We've really seen that market share on our platform grow. Because of the fact that they do such a heavy percentage of the volume, we've seen our overall market share grow for volumes on the platform.
Just who do you guys directly compete with?
Our number one competitor is in-house legacy systems that lenders have built over time, that they're starting to realize they're spending millions of dollars investing to maintain through all of these various regulatory and industry changes instead of investing in their business. 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. 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 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. 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. 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 Worthington. Your line is now open.
Hi. Thank you for squeezing me in. Maybe a little history lesson. If we look at Ellie Mae's growth over time, you called out in the slide deck about 30% revenue growth since 2008, I believe. The growth in EBITDA to the $470 million level, how much of that growth was organic, call it driven by sort of the operations? How much of that growth from, I don't know, say, like the $150 million level was driven by inorganic means?
Yeah. Ken.
operational improvements. Yeah. Thanks.
Yeah. Ken, I'll take the question. If you think about it, Joe and Jonathan have talked about Capsilon, which is a business that was acquired by Thoma Bravo, subsequent to them being taken private after 2018. Subject to Joe or Jonathan correcting me, I think that's about $50 million of revenue. A relatively small part of the significant growth that you've seen. 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. All of those factors have driven the revenue. 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. The incremental margins to that are significant.
Both Joe and Jonathan have focused over the last 18 months in improving the organizational efficiency at Ellie Mae. 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've put on the network. 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 as being our main competitor. Not another company, but the customers themselves. As we do that, it's rolling out the same solution again and again and again. The incremental margins on that are very solid, which generates the strong cash flows that supported the value that we came to.
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." We saw just the opposite. Increased investment, increased headcount, movement to the cloud, which suddenly accelerated top-line growth.
Great. 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? If we start to see mortgage volumes drop, how concerned should we be with certain levels of decline? 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.
Yeah. That obviously, Ken, is a question that we spent a lot of time looking at as we went through diligence. 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. 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. I mentioned that we expect next year can grow 8%-10% off a tough compare. That's assuming refi volumes come down significantly. 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. The 8%-10% growth I'm talking about for next year is against a headwind of volumes coming down. We also see, by the way, and you can see the graph that we put in there that shows the backlog of potential refis that we have seen, and Ellie is trying to alleviate, that there is a capacity constraint in the system that's preventing that elephant from moving through the snake. We suspect 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, is likely to have a bit of a backlog for quite a while, just because of the inability to satisfy customer demand right now.
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 Deutsche Bank. Your line's now open.
Hey, Brian?
Yep.
You there?
Can you hear me?
I can now. Yep.
Okay. Sorry. Sorry about that. Just to follow up on the revenue growth side of the equation. Just to verify this, 8%-10%, you said, Scott, is for your expectations for next year, even if refi volumes turn down? You also said 8%-10% over a long-term timeframe, I believe. Just correlating that with that market share of 44%, and going back to Slide eight where we've got the $10 billion 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? Your longer-term 8%-10% 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 five years plus to get to that?
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?
Yeah, there was a lot embedded in that question.
Well, I mean.
I'll let Ben start, and then I'll weigh in later.
Yeah. 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's 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 of mortgages that are originated that are going across that network. They see the efficiency there. 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 one 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. The $1 billion 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. We see, as we've shared, that market shares in the registry of eNotes went from 1%-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 the growth rate of that's going to accelerate, but it's off a small base. We have clear line of sight that is one that's going to grow, call it medium and medium to long term.
Yeah. Scott, you were going to comment on the.
No, I don't have, frankly, anything to add. I think Ben covered all of that. We're not going to roll out line-by-line items.
Yep
One of the reasons that we're choosing to re-segment the business is because, as Jeff said, this is going to be run as a business segment. 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 fourth quarter, and more importantly, as we roll through 2021.
Okay. No, that's helpful. The 3% cost of capital, is that your expectation for your interest rates on the new debt? Or is that embedding the stock?
It's less than three, and it embeds the stock. My cost of debt in the first year is going to be about 1.6% on $9 billion.
Yeah. Okay.
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.
Good afternoon. Thank you for taking my question. I only have a couple of housekeeping questions. The first one, which Scott, you mentioned the 8%-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? On Slide 20, 40% recurring revenue, could you please disclose the renewal rate for that? 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. I think that was a three-part question. I'll try and hit each one. With regards to the 8%-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. Those are the things that are driving that growth. 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. It's all of those factors that are driving the growth. 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 one-year 8%-10%, it's a decade 8%-10%. With regards to the renewal rates, high 90s.
I think Jeff mentioned that. It's remarkable in terms of the retention rates that we see in this business. 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. With that stickiness comes really high retention. I think that high retention becomes even more sticky when in your network you are sending through content and customers that are readily able to get to those originators. I think all of that is what drives the very high renewal rates that we see in our business. With regards to the refi volume, as I mentioned, we actually have modeled that going down next year, just to be even further transparent, down the year after that.
Then hovering back towards what historically has been kind of low to mid-40s% of refis relative to total volumes. As Jeff alluded to, that doesn't count on any of the large backlog we showed you on Slide eight necessarily pushing through over the next two years. I think that could be a good opportunity for us. It only assumes a little bit of a purchase volume growth coming from millennials buying more homes. Hopefully that'll give you a little bit of flavor as to why we're confident that, again, this isn't a one- or a two- or a three-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.