Intercontinental Exchange Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Mary Caroline O'Neal, Director, Investor Relations
• Warren Gardiner, Chief Financial Officer
• Benjamin Jackson, President
• Lynn Martin, President, NYSE Group and Chair, ICE Fixed Income and Data Services
• Jeffrey Sprecher, Chairman and Chief Executive Officer

Analysts

• Richard Repetto, Piper Sandler Companies
• Dan Fannon, Jefferies & Company Inc.
• Alex Kramm, UBS Investment Bank
• Kenneth Worthington, J.P. Morgan
• Michael Cyprys, Morgan Stanley
• Alex Blostein, The Goldman Sachs Group, Inc.
• Brian Bedell, Deutsche Bank Aktiengesellschaft
• Owen Lau, Oppenheimer Holdings Inc.
• Kyle Voigt, Keefe, Bruyette & Woods
• Eli Molin, Bank of America Co.
• Simon Clinch, Atlantic Equities

Presentation

[Operator]

Good morning, and welcome to the Intercontinental Exchange Fourth Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Mary Caroline O'Neal, Head of Investor Relations. Please go ahead.

[Mary Caroline O'Neal, Director, Investor Relations at Intercontinental Exchange]

Good morning. ICE's fourth quarter 2021 earnings release and presentation can be found in the Investors section of theice.com. These items will be archived and our call will be available for replay.

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 2021 Form 10-K and other filings with the SEC.

In our earnings supplement, we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP term in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses, and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items.

With us on the call today are Jeff Sprecher, Chair and CEO; Warren Gardiner, Chief Financial Officer; Ben Jackson, President; and Lynn Martin, President of the NYSE and Chair of Fixed Income and Data Services.

I'll now turn the call over to Warren.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Thanks, M. C. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our fourth quarter results.

Adjusted earnings per share totaled $1.34, up 17% year-over-year, marking the best quarter in our company's history. Net revenues totaled a record $1.8 billion and increased 10% versus last year. Total transaction revenues grew 11%, while total recurring revenues, which account for nearly half of our business, increased by 10%. Fourth quarter adjusted operating expenses totaled $749 million, slightly higher than expected driven by additional severance as well as higher performance-based compensation due to the strong results to finish the year.

Adjusted operating income increased by 14% totaling a record $1.1 billion. This strong operating performance contributed to a record full year free cash flow of over $2.8 billion of which we returned $1 billion to shareholders through dividends and buybacks, while also reducing our gross leverage to 3 times EBITDA, nearly a full year ahead of schedule.

Now let's move to Slide 5, where I'll provide an overview of the performance of our Exchange segment. Fourth quarter net revenues totaled $1 billion, an increase of 17% year-over-year. This strong performance was driven by a 71% increase in our interest rate business and a 29% increase in our energy revenues, both driven in part by rising inflation expectations. Revenues within our global oil complex increased 29% year-over-year, while natural gas and environmental products, which represent approximately 40% of our energy revenues, increased by 36% in the quarter and were up 20% for the full year. Recurring revenues, which include our exchange data services and our NYSE listings business increased by 8% year-over-year, including 10% growth in listings.

Turning now to Slide 6, I'll discuss our Fixed Income and Data Services segment. Fourth quarter revenues totaled a record $480 million, a 7% increase versus a year ago. Recurring revenue growth, which accounted for nearly 90% of segment revenues also grew 7% in the quarter. Within recurring revenues, our Fixed Income Data and Analytics business increased by 6% year-over-year, including another quarter of double-digit growth in our index franchise, while other data and network services grew 7% driven by continued demand for ICE Global Network and consolidated fees offering. For the full year, data services revenue increased by 6%, and importantly, annual subscription value or ASV enters the first quarter, up 5.5% setting us up for yet another strong year of compounding revenue growth.

Let's go next to Slide 7 where I will discuss our Mortgage Technology segment. Fourth quarter Mortgage Technology revenues totaled $346 million. Recurring revenues, which accounted for over 40% of segment revenues totaled $149 million and grew 26% year-over-year. While total Mortgage Technology revenues declined slightly down 1% in the fourth quarter, we outperformed an industry that experienced a roughly 30% decline in origination volumes. For the full year, Mortgage Technology revenues grew 17% on a pro forma basis reaching $1.4 billion, well ahead of our initial expectations and on track to achieve our target of more than doubling revenues over a 10-year period.

I'll conclude my remarks on Slide 8 with some additional guidance. We expect full-year total recurring revenues to be between $3.68 billion and $3.75 billion. This includes approximately $30 million of headwinds related to FX, the planned phase-out of Sterling LIBOR, and Euronext post-Brexit decision to migrate certain connectivity services away from our UK data center and onto the continent. It's worth noting that the majority of Euronext connectivity revenues are expected to be offset by a related reduction in costs.

Adjusting for these items, we expect core growth in our recurring revenues, which again account for half of our business to be approximately 68% for the full year. This strong growth, which is on top of 10% growth last year is expected to once again be led by our Mortgage Technology business, which we expect will grow in the low to mid-teens, and importantly, is on top of an exceptional 30% growth in 2021. In addition and supported by an ASV that exits the fourth quarter, up 5.5%, we anticipate another year of 5% to 6% growth in our Fixed Income and Data Services recurring revenues.

Moving to expenses. We expect 2022 adjusted operating expenses to be in the range of $2.99 billion to $3.04 billion. Consistent with prior years, we reward our employees for their contributions to our strong results, and therefore, expect compensation expense, net of synergies, and the resetting of 2021 performance awards to increase by $25 million to $35 million. Expenses tied to revenues are also expected to increase by $25 million to $35 million, driven by higher license fees as well as investments in business and product development across all three of our segments.

In addition, we expect an incremental $40 million to $60 million in support of productivity and efficiency initiatives across our technology and operations groups, a portion of which we are electing to fund through the net operating savings we realized following the IPO of that. Lastly, and similar to last year, we expect roughly $30 million of incremental G&A expense related to purchase accounting and the rebuild of Ellie Mae capex. Please see Slide 12 and the appendix for a bridge reconciling our expense guidance for 2021.

Moving next to capital allocation and consistent with our track record of growing our dividend as we grow, we plan to increase our quarterly dividend by 15% year-over-year from $0.33 per share to $0.38 per share. In addition, and now that we are within our targeted leverage range, we expect to deploy approximately $475 million towards share repurchases in the first quarter, representing a nearly 20% increase versus the second quarter of 2020, the last full quarter of buybacks prior to our acquisition of Ellie Mae.

In summary, we delivered a record finish to another record year. We delivered double-digit growth in revenue, operating income, and earnings per share. We also invested in an array of future growth initiatives, increased our dividend double-digits, and achieved our leverage target a year earlier than originally planned. As we kick off 2022, we're focused on once again delivering growth and creating shareholder value against what is an ever-evolving macro backdrop.

I'll be happy to take your questions during Q&A but for now, I'll hand it over to Ben.

[Benjamin Jackson, President at Intercontinental Exchange]

Thank you, Warren, and thank you, all, for joining us this morning. Please turn to Slide 9. We are pleased to report another record year for ICE. Our strong financial results reflect the tremendous efforts of my colleagues across the organization, the trust and expanding relationship we have with our customers, and the ability of our business model to drive growth across a variety of macroeconomic environments. I'd like to focus on the secular trends that are driving growth across our mortgage and energy markets and we'll turn it over to Lynn to discuss our position across Fixed Income Data and Analytics and some highlights from our great year at the NYSE.

Our data, technology, and network expertise position us well to accelerate the analog to digital conversion happening across the mortgage industry. As mortgage origination costs continue to increase, electronification is a trend we believe will continue in a variety of interest rate environments and regardless of mortgage origination volumes. Our ability to capture the secular trend is evidenced by the strength and resiliency of our recurring revenues.

Part of that growth is driven by our strategy to intentionally shift more business to recurring revenue. We also continue to see strong sales and new customers coming onto the platform, and with connectivity to nearly every participant in the mortgage industry, we have the opportunity to cross-sell new products like eClose and AIQ to a captive customer base seeking efficiencies. This flywheel effect and the secular trend of electronification give us confidence in our ability to grow this business and capture the $10 billion addressable market.

Across our energy markets, we achieved record volumes in 2021 including in Brent, TTF, and environmentals. The breadth and depth of our platform not only drove strong volumes and revenues but more importantly, it positions us to capture secular tailwinds across our energy complex including the globalization of natural gas and the clean energy transition. We have built a global natural gas business, including our European marker TTF. The globalization of natural gas and the rise of LNG have driven TTF to emerge as the global gas benchmark, and in 2021, record volumes on our platform grew 45% and drove revenue growth of 36%. Our markets continue to be relied on by an increasing number of participants to manage risk and navigate volatile gas in power markets.

We were also early to diversify into environmentals acquiring the Climate Exchange in 2010 and building around those leading markets to develop a global environmental business, and in 2021, we reached record volumes across the complex including in our EU, UK renewable greenhouse gas initiatives, and California Carbon Allowances. These record volumes contributed to a 56% increase in environmental revenues versus the prior year. As customers navigate the uncertainty and volatility related to the clean energy transition, we are well-positioned as the venue of choice to manage risk and provide price transparency across the energy spectrum.

With that, I'll now turn the call over to Lynn.

[Lynn Martin, President, NYSE Group and Chair, ICE Fixed Income and Data Services at Intercontinental Exchange]

Thank you, Ben. With data and technology at our core, our goal is to provide solutions which add transparency to both commonly understood risks as well as emerging risks such as the ESG.

We continue to increase the breadth and coverage of our products and accelerate the delivery of our ESG reference data to the NYSE issuer community providing non-opinion based insights to market participants, and in the fourth quarter, we expanded our climate change and alternative data capabilities with the acquisition of risQ and Level 11 Analytics.

Combining geospatial data technology with our financial data, we'll bring greater transparency to ESG risks across the financial markets, including our existing muni bond and mortgage-backed security offering. Our data, technology, and leading marketplace has positioned us well to benefit from the secular trend towards sustainability and net-zero carbon commitment.

Turning now to Fixed Income. Increased automation, flexibility of delivery, and passive investing continue to drive demand for our proprietary data and rapidly growing index business. As a leading data provider to the Fixed Income market, we are uniquely positioned to drive automation. Leveraging our proprietary evaluated prices, analytics, and our growing suite of reference data, we've taken a business that historically served the back and middle-office and created tools and analytics for the front office. These tools are critical to the pre-trade transparency needed in the opaque, less liquid fixed income markets, as is evidenced by our front office tools continuing to grow double-digits.

The growth in passive investing continues to be a tailwind for our business. The flexibility of our tools, quality of our pricing data, and flexibility of our offering directly contributed to the five asset managers with funds of over $66 billion of AUM that transition to ICE indices during 2021, and an additional group of funds with AUM of $6.7 billion have planned transitions during Q1 2022. This strength drove double-digit revenue growth in our Index business for the fourth consecutive year and positions us well for continued growth.

I'll close with some highlights from the NYSE. 2021 was a record year for NYSE listings. We helped connect innovators and entrepreneurs to nearly $120 billion in capital through 297 IPOs, including three of the four largest IPOs and the three largest tech IPOs, and importantly, we continue to lead the market in ETF listings with more than 65% of new funds selecting us as their home.

We also continue to prioritize our market-leading technology which enables customers to better manage risk and provides our issuer community with significantly less volatility at the open and the close. The performance of our technology was proven as recently as last week when we processed nearly 0.5 trillion messages in a single day with median response times of less than 30 microseconds across our equities complex further cementing our position as the leading equity exchange group.

Our leading data and technology, coupled with our investments in sustainable finance, the secular trends across fixed income markets, and the competitive differentiators of the NYSE will continue to drive our growth well into the future.

I'll now turn the call over to Jeff.

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

Thank you Lynn, and thank you, all, for joining us this morning. Please turn now to Slide 10. 2021 marked our 16th consecutive year of record revenues and record adjusted earnings per share. This track record of growth reflects our strategy to diversify the business and position the company at the center of some of the largest markets undergoing an analog to digital conversion, a strategy that has made ICE an all-weather name, a business model that provides upside to volatility with less downside risk, and importantly, a positioning that drives growth on top of growth.

We have intentionally diversified across asset classes so that we are not tied to any one cyclical trend or one macroeconomic environment. For example, in 2021, we saw record volumes across our energy complex driven in part by inflationary concerns and market speculation of Central Bank activity. Our European and UK interest rate business also benefited from interest rate volatility driving a 15% increase in revenues in 2021 and more recently, a 34% increase in our January revenues. Our CDS Clearing business grew 14% in the fourth quarter as rate volatility increased driving demand for risk management and credit protection. And even against this backdrop of rising interest rates, our Mortgage Technology business outperformed the broader market including pro forma recurring revenue growth in 2021 of 31%, again, a reflection of the all-weather nature of our business model.

As we begin 2022, we are better positioned than ever to capitalize on the secular and cyclical trends occurring across asset classes, and we remain focused on investing and executing on the many growth opportunities in front of us. Before we end our prepared remarks, I'd like to thank our customers for their business and their trust in 2021 and I'd like to thank my colleagues at ICE for their continued efforts. Your hard work contributed to the best quarter in our company's history, combined with other excellent results, making it the best year in our company's history.

With that, I'll now turn the call back to Andrew, our operator, to conduct the question-and-answer session until 9:30 Eastern Time.

Questions and Answers

[Operator]

[Operator Instructions] The first question comes from Rich Repetto with Piper Sandler. Please go ahead.

[Richard Repetto, Analyst at Piper Sandler Companies]

Yeah. Good morning, guys. Good morning, Jeff. So my question is on the recurring revenue growth for mortgage. If it was up 31% and now, you're guiding to I think low double-digits, could you give us more color on that, is that just the large numbers, any progress on metrics to sort of -- that we can monitor that recurring revenue in mortgage.

And then, lastly, Jeff, I know you talked about the offset, but how do you think about the offset going forward? Is it simply interest rate futures offsetting what looks like a slowdown in origination volumes going forward?

[Benjamin Jackson, President at Intercontinental Exchange]

Hi, Rich, it's Ben. I'll start here. So the -- you hit on it a bit in the way you answered the question. So you do have growth compounding on top of growth there in the subscription side of the business. But also, I mean we are looking at macro headwinds I mean -- Warren brought up in his commentary that if you take a composite of where the industry analysts have volumes -- that you have volumes down 30%, and in that environment, we could see some macro headwinds, such as, are there going to be a bunch of brand new originators coming onto the scene. Potentially not. Could you see some industry consolidation? Potentially, we'll see some of that.

But despite those types of headwinds, we see an opportunity to grow this subscription business in the teens because we have great visibility to a phenomenal new business pipeline of new customers that we're looking at right now. We have the ability to cross-sell to that large stable of customers that we have solutions like our AIQ business that will provide them more efficiency as well as our industry-leading point-of-sale solutions. And then the other dynamic that we have going on is that move towards subscription as customers renew. We had a pilot program last year where we have roughly 20% of our customers renew in a given year. With a small percentage of those that renewed last year, we looked at shifting them more towards subscription. We're successful doing that, and we've codified a program of this year to hit a much larger percentage of the roughly 20% that are renewing this year. So all of those, we believe are tailwinds to offset the macroeconomic environments there and will lead to a teens grower in subscription revenue, which we feel great about.

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

And, Rich, this is Jeff. Yeah. We've really thought hard over the last few years on how to position the company to be an all-weather name that will just grow on top of growth and in all macro environments and global geographies. And so, our thinking is that inflationary pressures are what drive central banks to raise interest rates and we have a lot of asset classes that we participate in in positioning of the company that will benefit from that volatility. And we tend to see commodity businesses like energy and agricultural commodities be very volatile in inflationary environments, and therefore, there is a lot of hedging and we help people manage that risk.

Similarly, in -- obviously, in our interest rate businesses which include interest rate futures and credit default swaps and fixed income data and services in a volatile interest rate environment, those businesses do well. And even in the mortgage space, as Ben's been talking about, home inflation tends to drive people to do cash-out refinancings, which for us, refinancing a house versus buying a new house is the same transaction to our mortgage platform. So we really feel like we've positioned the company well in this environment. We also feel like we've positioned the company well if there isn't inflation, if there isn't a lot of central bank activity. The low-interest-rate environment is where we always felt vulnerable and we've really done a number of things over the last few years that augment that space.

So we hope you in thinking about our company will feel like you can safely purchase the stock or upside growth but limit your downside risk, and that's really how as managers we've tried to position our company today.

[Richard Repetto, Analyst at Piper Sandler Companies]

Thanks, Jeff. Very helpful. The color was helpful. Thank you.

[Operator]

The next question comes from Dan Fannon with Jefferies. Please go ahead.

[Dan Fannon, Analyst at Jefferies & Company Inc.]

Thanks. Good morning. My question is on the environmentals complex and wanted to think about the size of that market, and maybe if you could address the customer base there. Commercial versus financial, kind of utilization, and as we think about it versus some of your mature markets to kind of get a sense of where we are in the adoption phase of some of these products.

[Benjamin Jackson, President at Intercontinental Exchange]

Hi, Dan, this is Ben. I'll take this one. We've been spending a lot of time thinking about this in terms of the size of that marketplace, and when we look at any of our derivatives markets, we look at the underlying physical market, it's really a proxy for it. And the estimates out there are that in any given year, you have around 50 billion tons of carbon that's emitted into the atmosphere around the world. And in the geographies where we're very strong and present right now, so take North America, the EU, and the UK, those geographies alone emit about 11 billion tons of carbon.

And what we've seen in terms of the derivatives markets as they mature is that it's common to see derivatives market that would trade on top of the physical of around 10 times, if not more. So if you just used 10 times as that market matures as the proxy for how you define the TAM in the markets that we are today, that's around 110 billion tons equivalent of physical that can trade. And today in the marketplace is that were strong, we traded 18 billion tons.

So we've hit about 16% of that TAM, and obviously, with that, there is a long runway to go in the geographies where we're strong today, and what will help feed that growth is more sectors of the economy coming in and trading these products as well as voluntarily more companies that are measuring their Scope 1, 2, and 3 emissions coming in and also trading in those geographies. That adds more participants, adds more sectors to the economy, and will lead to more transactions going on in the derivatives markets.

The other obvious area of growth is just more geographies around the world and global programs if they do come in place will increase the size of that physical market. But given that we represent around 95% of the world's trading as it happen on our venues, we think we're very, very well-positioned to capture that growth opportunity in that TAM I'd just outlined.

[Dan Fannon, Analyst at Jefferies & Company Inc.]

Thank you.

[Operator]

The next question comes from Alex Kramm with UBS. Please go ahead.

[Alex Kramm, Analyst at UBS Investment Bank]

Hey. Good morning, everyone. I want to ask about inflation broadly have been a big topic obviously this earning season in the last few months for a lot of companies. It seems like on the cost side, you're managing that pretty well, but I'm more interested on the revenue side. I mean 50% of your business or so are subscription-based, so curious to what degree CTI is built into any of your subscriptions, to what degree that could help you or make pricing discussions easier, and then, of course, how much of that is baked into your recurring revenue forecast broadly. Thank you.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Hey, Alex, it's Warren. So, yeah, there is an element of that to some extent, particularly on the CTI that is in terms of building some of the data contracts. I wouldn't say it's necessarily a huge part of it, but again, that's going to be built into part of our guide there when we talk about 5% to 6% for the year. I think on the revenue side, really the more, it's what's Jeff and Ben have been talking about in terms of our exposure, if you will, to inflation and that's really going to come down to the commodities business, the interest rate business, which is off to a great start in January, the CDS business, be Ags business within that commodities business. So I think that's really more in terms of our leverage to inflation expectations, if you will, on the revenue side.

On the cost side, you're right. There -- certainly, we were seeing some pockets of it. It's third-party kind of services as you would imagine. Our pricing providers, things like -- of that nature, things like utility costs, some technology costs like cloud providers and things like that are -- that we're seeing some uptick on. But, again, that's all baked into our guidance that we provided you today.

And then, I think on the comp side, the way to be thinking about that is, look, we've always been a stay-for-performance culture, we obviously had a really good year this year, we always want to monitor and retain kind of the best talent that's out there but I think we do have -- we have built up some goodwill, if you will, both employees and potential employees from that perspective. So we're comfortable with that position on the comp side. And again, all that's baked into our expense guidance for the year as you saw.

[Alex Kramm, Analyst at UBS Investment Bank]

Fantastic. Thank you, guys.

[Operator]

The next question comes from Ken Worthington of J.P. Morgan. Please go ahead.

[Kenneth Worthington, Analyst at J.P. Morgan]

Hi. Good morning. Jeff, I wanted to pick your brain a little bit about crypto and blockchain, acknowledging that you and ICE were early in seeing the potential here with Bakkt and other investments. As we think about the mortgage process, is there a role you see for blockchain technology helping ICE digitize parts of the mortgage process or getting you closer to your vision in the mortgage area? And then, it would seem like the information is indelible there to some of your comments at ICE's conference late last year.

And then, second, the crypto trading ecosystem is developing in a much more vertically integrated way. Do you see the crypto ecosystem moving more towards specialization over time like the cash equity world or is there chance that the cash equity ecosystem might evolve to look more like the crypto ecosystem and does either of these have implications for the New York Stock Exchange?

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

Those are two really thoughtful questions. Thank you for those, Ken. First of all, when we think about the blockchain, we think about its main value. Well, it has two values in our mind. The main value is it creates an indelible record, and so to a certain extent, property rights are something that society views as an indelible record and it's why we have title insurance for example in mortgages so that we have an insurance wrapper around title to a property. And so, you can imagine that an indelible record that's accessed by many, many people that would ensure property rights for both mortgages or homes or any other asset is something that could grow and it's an area that we definitely are focused on.

The second attribute of a blockchain and the broader crypto-currency environment is that it has captured mindshare and has really been used as a marketing tool to move people from more analog brokerage houses to more digital brokerage houses and give customers direct access. So those brokerages that didn't engage their customers digitally are seeing themselves somewhat being disintermediated by new brokers that are digital.

The interesting thing about your question, the third part of your question, which is really what our regulators want to do about this. And largely speaking, our whole infrastructure for regulation in the Western world has been that there is a broker that has a customer relationship and they have the KYC and AML responsibility for their customers. They have to know their customers and they have to do anti-money laundering checks and balances, and once having done that, they can then access the broader market. And there has been a blurring in the crypto space between the obligations of a broker-dealer and the obligations of exchange and the obligations of the clearing-house.

Generally speaking, in the organized clearing markets, there are intermediaries that are providing credit amelioration to the customer and it is the collective balance sheet of all of those brokers and clearing firms that backstop the market. And in the case of some of the crypto companies, that is not the case. And so, if those -- if regulators decide to subject the -- straight through processing companies to the same terms and conditions that they have subjected historical companies, those companies have some work to do around KYC, AML, and credit amelioration. And passing the IOSCO standards of a clearing house that has to be stress testing, which essentially is banking.

If the regulators say, you know what, maybe those issues aren't as important as we had thought they were, and maybe having the consumer directly participate end-to-end is a better way than you are going to see the legacy companies in our industry move more to opening up their clearing houses to end-users and opening up their platforms, matching engines and other platforms directly to end-users and bypassing the brokerage community. I think it's too soon to predict what will happen there but you can -- to the extent that I've held -- you're thinking it all, you'll see now as you read articles about what the various regulators are doing and saying that that is the central question that they're wrestling with. Do they bring the legacy business towards the crypto space or do they bring the crypto space into the legacy business?

I'd make one last comment, which is largely speaking, in the United States, we're subject to the Securities Act of 1934. That Act has withstood a lot of change in technology and in market structures and what have you. But based in the '34 Act is the customer protection and fraud protection and I suspect that notwithstanding, there is a lot of people wanting the '34 Act to be updated. There is a lot of tools in the '34 Act for regulators to even deal with new technologies as they have done now over decades. But thank you for those questions. They're very thoughtful.

[Kenneth Worthington, Analyst at J.P. Morgan]

Thank you, Jeff.

[Operator]

The next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

[Michael Cyprys, Analyst at Morgan Stanley]

Hey. Good morning. Thanks for taking the question. I just wanted to ask about the cloud. I was hoping you might be able to remind us which parts of your business today are on the cloud, and as you look forward, how do you think about the opportunity for migrating more of your business to the cloud? What benefit could you see and which parts of the organization can make sense to do sooner versus which ones do you think would take a bit more time?

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

It's a great question. We -- first of all, we use the cloud and are active in the cloud in a lot of our businesses and the main attribute that the cloud brings us is it's just another network where customers can get access to our products. We also run our own data centers and we have our own network and we are hooked to a lot of third-party networks. So our goal -- and by the way, a lot of third-party screen providers and platform providers. So the cloud is important to us to the extent that we have clients that would prefer to receive services from us in the cloud.

Where it is not as important to us is because of our scale and size, we are better able to control our costs when we are managing our own technology and network infrastructure. We have done a lot of analysis around this and if -- I think Warren mentioned in his remarks to one of the inflationary questions, probably the highest inflation pressure that we're seeing right now is in the services that are in the cloud. We don't have good moats around our ability to control those costs notwithstanding. And so, if clients however want to bear those costs, we are happy to provide them access through the cloud. But I think you'll see it as an important but augmented service that we have, not necessarily the key service.

And last thing I would mention to you is I think we're different than some of our peers and that we have always felt that the way to control costs is to control our technology. It's not something that at its core that we license to others, it's not something at its core that we get from others, and it's not something at its core that we run in other people's infrastructures.

[Michael Cyprys, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

The next question comes from Andrew [Phonetic] Blostein with Goldman Sachs. Please go ahead.

[Alex Blostein, Analyst at The Goldman Sachs Group]

Hey, guys. It's Alex. So I wanted to go back to the mortgage question for a second. The -- you gave some color about '22 specifically, but clearly, it's a pretty meaningful slowdown in growth and recurring revenues into low to mid-teens from well north of 20% over the last 12 months. Do you think this is just a 2022 dynamic and the reasons you sort of described earlier just really kind of related to the next 12 months or for a variety of reasons, this is more of a reasonable run rate we should expect up in the medium term? Thanks.

[Benjamin Jackson, President at Intercontinental Exchange]

Hey, Alex, this is Ben. So when you look at that macro environment and again Warren used that composite estimate around a backdrop of the business being down -- sorry not the business but the overall transaction volumes being down 30%. When I look at our strategy for this business in each of the segments that we have in this business, we are executing very, very well, and what's the evidence to that? Look at each of the segments underneath there. So despite that volume decline, our Data and Analytics business grew year-over-year and we've talked on a number of these calls on how we see that playing out over time and that will continue to be a growth driver as more of our customers adopt automation.

We also have our closing line item that's grown year-over-year as we've invested a lot, did a lot of brand new innovations that the industry has not seen before over this past year, and as customers ramp on those, we're starting to see some substantial ramp-up on that and that's leading to growth in that line item year-over-year. And on the origination line item, we way outperformed what industry transaction volumes were. And underneath the covers there, it's an explicit move towards more and more subscription.

So we feel great about how the business is executing despite this near-term drop in volumes. It's hard to predict how long those -- the drop in volumes will play out, but we feel good on our ability to grow this business and to outperform the industry backdrop based on our strategy in each one of those. And remember, on the -- we just started that pilot program that was last year in terms of as every customer renews, for a small percentage of them, we were shifting the revenue more and more towards subscription and roughly 20% renew in a given year, and this year, we really codified a program to hit a much larger percentage. We have a long runway. I mean doing the math, we have a long runway to execute that over many, many years that we believe will continue to lead to growth in that subscription line item.

[Alex Blostein, Analyst at The Goldman Sachs Group]

All right. Thank you.

[Operator]

The next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thanks. Good morning, folks. Maybe, Ben, if I could just come back to the environmentals complex question and your answer to a prior question on that. Two parter. First, on the 110 billion tons of physical TAM that you mentioned. Just wanted to clarify if that is a -- sort of a current TAM, and then your expectations for that to grow over time as we move more into carbon transition.

And then secondarily, it looks like the environmentals complex is now north of 10% of your energy revenue, nat gas is also inching up as well 25% or so. What is your view on nat gas as they transition energy and weather? If we want to think about a long-term carbon transition, should we be thinking about that nat gas to grow as the portion of your total energy revenues just like the environmentals has grown?

[Benjamin Jackson, President at Intercontinental Exchange]

Yes. Okay. Thanks, Brian. So on that 110 billion tons of physical equivalent traded. Yeah, the estimate I used there, so that's again just based on the geographies where we are now. So that's North America, EU, and UK, and putting a 10x multiple on that. And as you picked up there in the way you asked the question, that's as markets are maturing, we see it can get to 10% but even an order of magnitude more than that. If you take very well-established benchmarks, it can be 2, 3x that easily.

So we see this as a market that as it matures can get bigger than that. So I see that as more of kind of a near-to-medium term TAM that can be achieved in that environmental markets. But then also as more geographies get added around the world and as more of the overall $50 billion -- $50 billion tons of carbon emissions that are happening around the world, as more of that adds more programs, adds more governments around the world, add programs. We have an opportunity to go after that as well. So there is an acceleration that could happen on that over time.

On the nat gas, you pointed out environmental's at 10% natural gas also continuing to grow. Our natural gas business is really the only global gas business around the world. Our TTF business continues to grow on top of growth, so you're seeing that continue to compound and customers coming to us around the world to manage their risk and using natural gas as the cleanest of the fossil fuels to help with this energy transition.

And with the backdrop of industry estimate saying that energy demand is likely to double between now and 2050, we see that that's going to be an important element in this transition towards a cleaner environment and that this transition is going to be bumpy and we're pleased to see that our customers are coming to as much -- coming to us as much as ever to manage the risk in that environment.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thank you.

[Operator]

The next question comes from Owen Lau with Oppenheimer. Please go ahead.

[Owen Lau, Analyst at Oppenheimer]

Good morning, and thank you for taking my question. Could you please talk about your balance sheet investment? What's your plan to like maybe deconsolidate OCC and Bakkt or you will be more opportunistic to leverage your balance sheet to make additional investments? Thank you.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Hey, Owen, it's Warren. So with respect to Bakkt, as you probably recall it, it was -- we did deconsolidate that in the fourth quarter, it went public gone October. So that is -- certainly we have a stake that's on our balance sheet. That's an investment we've been making over a number of years that we've been very happy with and have a lot of confidence in the outlook for that business. So I don't think there's anything to update there in terms of any kind of plans on that front.

With respect to OCC, that is something that's on our balance sheet. I'd -- we -- it's -- I don't recall the exact mark of it but it's a small investment that we have there. So we'll see if there is any opportunity there but I wouldn't necessarily say that's something we're thinking about at the moment. Certainly, it's part of what we do on the options and equity side to begin with, so I wouldn't be thinking about that.

So we do over time, as you know with Euroclear and some of the other investments, we do look for opportunities that are within -- that are sort of adjacent to what we do and in our business, and so we will look for those opportunities and invest in those as we see it. So I think you could expect us to continue to do that when those opportunities arise. But those 10 will -- those will be sort of minority investments -- small minority of investments for the most part as you've seen with some of the ones we've done in the past.

[Owen Lau, Analyst at Oppenheimer]

All right. Thank you.

[Operator]

The next question comes from Kyle Voigt with KBW. Please go ahead.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Hi. Good morning. I just wanted to ask question still on the energy topic, specifically on Brent and Brent open interest. We're seeing nice growth in the options OI in that complex but Brent futures open interest specifically was down 17% year-on-year as of earlier in this week. So I guess with the price volatility we've seen in the oil market over the past year, just would have expected to see a bit stronger trends there. Just wondering if you could kind of opine on whether you think this is cyclical, still related to kind of COVID normalization, or whether there is something more secular going on there that's causing the decline would be helpful. Thank you.

[Benjamin Jackson, President at Intercontinental Exchange]

Thanks, Kyle. Yes, so we do see this as temporary. If you look at Brent overall, open interest today is about 5% over last year. You got to remember, last year was also another very volatile year where we saw tremendous growth in that business. So you are looking at a compare that's difficult, but on top of that, we're still growing that business and growing that business nicely.

In addition, in oil, overall, we have had a lot of success working with many of the physical industry participants in some brand new innovations and ways for them to help manage their risk in the oil markets. The example would be ICE Futures Abu Dhabi that we launched last year to help people hedge and come up with the market price for hedging. Murban Crude Oil, that's going to Asia, and then just within two weeks ago, we launched our new HOU contract which is Midland WTI American Gulf Coast contract.

We were selected by the industry to come up with the better way to price Midland TI as it gets to the gulf and is going overseas, and both of those contracts have seen tremendous amount of pickup in physical market participants supporting it in early days and we see those as highly complementary to the overall Brent complex. So it's an area we're going to continue to invest. We do see the COVID environment and jurisdictions and geographies opening and closing, opening and closing. Unfortunately, it does create some gyrations in here, but overall, we feel great about the oil complex.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Understood. Thank you.

[Operator]

The next question comes from Craig Siegenthaler with Bank of America. Please go ahead.

[Eli Molin, Analyst at Bank of America]

Hey, guys. Good morning. This is Eli on for Craig. I had a question for you on December's leadership changes. Should we see those as a precursor to more meaningful strategy changes at NYSE or do you anticipate any changes will be more incremental? Specifically, on listings, has the new team given any thought to lowering listing standards to help make the New York Stock Exchange a little more competitive in '22 or maybe pivoting the brand to better appeal to all the new tech coming -- tech companies coming to public markets?

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

Thanks. Sure. Good question. This is Jeff. I'm surrounded by a generation that's younger than me, that's incredibly talented, that delivered the best year in our history, and those changes were an opportunity to start to put leaders in that generation. And because the company is so broad now and so geographically diverse, we're trying to give people in that leadership team opportunities to try their skills and different businesses and give them exposure to the markets. So I was thrilled to be able to ask Lynn Martin if she would lead the New York Stock Exchange, and I'll let her tell you what she's thinking.

[Lynn Martin, President, NYSE Group and Chair, ICE Fixed Income and Data Services at Intercontinental Exchange]

Yeah. Thanks, Jeff, and thanks for the question. I mean it's early days of me being in the seat of NYSE but I continue to see great opportunity to further cement NYSE as the home of global markets. We've got -- as I think about this year, we've got a healthy pipeline of IPOs, although the timing of some of the companies coming to market is shifting a bit given the macroeconomic environment. But importantly, we really see the environment change and the drivers of capital raising last year may have favored our competitors, but we see that shifting, given the strengths of our model.

The issuers that I've been talking to more recently, CEOs that are looking to come to market, they're valuing different things and they're valuing stability and trading, lower cost of capital and strong governance, and that really favors the NYSE market model. And now, our message around our market model, the differentiation and investment we've made in technology, and also the broader technology assets that we're bringing to bear through the various other ICE businesses are really resonating as differentiators for the New York Stock Exchange.

[Eli Molin, Analyst at Bank of America]

Got it. Thanks.

[Operator]

The next question comes from Simon Clinch with Atlantic Equities. Please go ahead.

[Simon Clinch, Analyst at Atlantic Equities]

Hi, guys. Thanks for taking my question. I just wanted to -- just a bit of housekeeping really on the capex guidance. I wondering if you'd give us a bit more color as to how do we think about capex going forward and particularly what's really driving that growth in -- you can tease out sort of the separate drivers for fiscal '22.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Sure. Hey, Simon, it's Warren. So, right. So we have about $450 million as you know this year. That was kind of towards at the high end of the range. Some of that is related to Bakkt recourse. We had a full year of Ellie Mae. As you're looking at the guidance for next year, as you saw, it's about $520 million to $490 million. We are planning some data center migrations and some upgrades. That's adding about $80 million or so to that 590 to 5 -- sorry, $520 million to $490 million. Those are going to result eventually in some cost savings, there is revenue related expansion product -- project within that. So all kind of good things on the back end of that investment.

Within that guidance range of this year, there's probably around $100 million of Ellie Mae too. So when you start to back -- peel off those pieces, well, you're back down to sort of the $300 million, $350 million range, which is where we'll call it legacy ICE was and has been for a number of years prior to that acquisition in some of these productivity and efficiency investments that we're going to be making around in some of the data center notes.

[Simon Clinch, Analyst at Atlantic Equities]

Great. Okay. Thank you.

[Operator]

And we have a follow-up from Alex Kramm with UBS. Please go ahead.

[Alex Kramm, Analyst at UBS Investment Bank]

Yes. Hey, again. Just a couple of quick follow-ups here. One on the mortgage side and maybe I missed it but can you give us an update in terms of where you stand with subscribers on eClose, and then also where we are in the subscription kind of like transition in terms of how many of your clients have now transitioned, I know it's about 20% a year but just maybe an update there?

And then, also on the trading side, very quick. I -- obviously, with the contract transitions here, in Euribor, obviously, the rate per contract has been moving higher. We see that in your January number. I know it's a three-months lag number and I can probably do the math but just wondering what's the good RPC to use for the quarter or where we are running in January alone? Any color would be great. Thanks, guys.

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

Hey, Alex. I'll start on the mortgage side and then give some color on the short-term interest rate transition as well. In terms of eClose, we're continuing to see that ramp. So we went to -- we were at 76 customers last quarter in the last update here. We're now at 93, so we're continuing to see that pick up and ramp up and we see as those customers ramp up, that's going to be yet another area that grows that closing line item on a year-over-year basis as that closing line item is going to be heavily transaction-oriented because a lot of the costs associated to closing fees actually go on to the end closing statement of the customers. So that is important to highlight that, and as we deliver more and more of these innovations and solutions, we are able to capture more revenue per loan, which is something that's important on that closing line item.

On the subscription line item. So last year is when we started that pilot program and we did a small percentage of what renewed. So if you take a ballpark of around 10% up to 20% that renewed, that's probably the right zip code of the number that we touched last year, and based on what we learned through that pilot program, we've now codified a program that's going to hit a much larger percentage of the 20% percent that are going to renew this year. So that gets you into the ballpark of what we have accomplished in a very small percentage, and that we do have a long runway of being able to do this over multiple years ahead of us.

Just from the overall short-term interest rate transition and what we're seeing in that marketplace, that transition went seamless for us in terms of the short sterling to SONIA transition. We've seen -- we did have some trading volumes of arb trading volume that was trading short sterling versus SONIA that obviously, when short sterling went away came off, but when you look at the overall stirs complex and this rate -- rising rate environment that we're in both the UK as well as the EU, the market overall is off to a great start in terms of both volumes as well as open interest, and I'll hand it off to Warren to talk on RPC.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Yeah. Just quickly on the rates RPC. So, yeah, you're seeing a little bit of lift there. As we kind of transition into SONIA, as you know, that's a much bigger contract than what we had on the short sterling side. So there is a proven benefit, if you will, from the RPC to kind of account for that. So the revenue -- we were looking just at a revenue basis that should be relatively neutral if you're thinking about it on a notional level.

The other impacting factor there -- and so, I think at this current level, you're probably at a good place for that interest rate RPC moving forward. Obviously, the impact can be for mix, medium-term versus short-term rates, of the rates overall, and then of course, there is a component of FX that can flow through there as well. But again, all else equal. I think it's kind of a good what we reported this month is a good run rate to be kind of thinking about for that component of our futures business.

[Alex Kramm, Analyst at UBS Investment Bank]

All right. Sounds good. I'll follow up on that. Thanks.

[Operator]

I understand there's time for one more follow-up. That is from Kyle Voigt from KBW. Please go ahead.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Hey. Thanks for squeezing in my follow-up. So just on expenses. The midpoint of the expense guidance, I think is 5% year-on-year growth comparing to the adjusted opex excluding Bakkt. Just wondering if you could talk about how committed you are to delivering operating leverage in '22 specifically, again, if we're looking at the business on an adjusted basis excluding Bakkt.

And then given the business mix change over the past five years or so, just wondering if you can update us on your view of long-term expense growth like what's the right expense growth for long term for ICE? Thanks.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

Sure. Sure. Thanks, Kyle. Good question. So you're right. At the midpoint to that 5% growth, again, as I said in my remarks. There is a portion of that that we're electing to invest related to the IPO of Bakkt. So some of the operating savings that we had from Bakkt is that if you include revenue, it's about $75 million of savings that we got from Bakkt. We're going to invest a portion of that this year in some of the tech and ops project, so that's probably about a point of that, if you will, that 5% at the midpoint, that is coming from that. And those are things that certainly we would have done and we would do over time, but just given the opportunity we had with those savings, we chose to elect to do them now. And so, look, ICE has always been conscious about cost controls and being good on expense controls and things of that nature. And so, we did take that opportunity to do that in order to kind of save that later.

But I think as you're thinking about it longer term, it's what it's been in the past, and that we've talked about compensation expense being kind of lower single-digit growth in terms of merit annually. That's about half of our expense base. I think that when you think about non-comp expense, it's probably in a similar range. So I think a lower single-digit kind of expense growth range on an organic basis is a fair place to be. And again, that's against our revenue. We don't give topline revenue growth overall for the business but I think it's safe to assume that's within the context of revenues growing faster than expenses.

I think, for instance, this year, we added $500 million of incremental revenue which yielded $380 million or so of operating income. That's about 75% incremental margin. So I think, yes, we're very much committed to that. Transaction business can certainly fluctuate here and there, but over the medium, long-term, yeah, we would certainly expect that operating leverage to flow through.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Great. Thanks, Warren.

[Warren Gardiner, Chief Financial Officer at Intercontinental Exchange]

This concludes our question-and-answer session. I would like to turn the conference back over to Jeffrey Sprecher for any closing remarks.

[Jeffrey Sprecher, Chairman and Chief Executive Officer at Intercontinental Exchange]

Well, thank you, Andrew, for running the call, and thank you, all, for joining us this morning. We look forward to soon updating you as we continue to innovate for our customers and give you the results of our all-weather business model as we continue to drive growth. And with that, I hope you have a great day.

[Operator]

[Operator Closing Remarks]