Intercontinental Exchange, Inc. (ICE) Q3 2020 Earnings Report, Transcript and Summary

Good morning. My name is Andrea and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Intercontinental Exchange Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Mr. Gardiner, you may begin your conference.

Thank you. Good morning. ICE's third quarter 2020 earnings release and presentation can be found in the Investors section of the ice.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 2019 Form 10-K, third quarter Form10-Q and other filings with the SEC.

Thanks, Warren. Good morning, everyone. And thank you for joining us today. I'll begin on Slide 4 with some year-to-date and third quarter highlights. Through the first nine months of 2020, we've generated record revenues, record adjusted operating income and record adjusted earnings per share, all of which have grown double-digit over a record year in 2019. This from business performance, allowed us to return $1.7 million of capital to our shareholders, 10% more than in the prior year and importantly, our solid financial position enabled us to invest $11 million to extend our mortgage network through the acquisition of Ellie Mae. For the third quarter, we generated earnings per share of $1.03 on net revenues of $1.4 billion. Data services revenue grew to a record $589 million an increase of 6% versus the prior year. Trading and Clearing revenues revenue totaled $711 million. Of note, our total mortgage revenue in the third quarter grew 62% on a pro forma basis versus third quarter a year ago, while ICE's total net revenues pro forma for Ellie Mae grew 7% year-over-year. Third quarter adjusted operating expenses totaled $611 million including $29 million related to Ellie Mae. Total expenses would have been roughly $7 million higher if not for some credits we don’t expect to repeat in subsequent quarters. As we move into the fourth quarter, we expect marketing expenses to accelerate related to a robust IPO pipeline and the launch of back mobile consumer finance app. Combined with a full quarter of Ellie, which we expect will contribute around $105 million to $110 million we expect fourth quarter adjusted operating expenses in the range of $695 million to $705 million.

Thank you, Scott and good morning to everyone on the call. As I begin, I'd like to welcome the Ellie Mae team to their first ICE earnings call. While it's been less than two months since we closed on the acquisition in early September, I've been impressed by the collaboration between our teams during this short time and I am confident that the integration of Ellie Mae is off to a very strong start. I believe this is a testament to the talent of our respected employee population and our share of entrepreneurial cultures. Similar to our exchanges in fixed income businesses, Ellie Mae integrated into Ice Mortgage Technology as a network, a network that thrives by offering a value proposition that aligns growth with the efficiency gains that we bring to our customers. As we've seen across our network in futures, equity and fixed income, these efficiency gains are best achieved through harnessing unstructured data to create admission critical information, seamlessly linking participants to that information and ensuring that the network technology underpinnings are of the highest quality and security. It is the execution of this value proposition that often propels and analog to digital conversion of an industry and it's a blue print that we've applied across all of our businesses for over two decades. Turning now to Slide 7, open interest in our global energy business is currently up 9% year-over-year and with average daily volume in our flagship Brent crude oil contracts up 4% through September, energy revenues in total are up 15%. This growth further contributed to our average annual revenue growth of over 7% since 2015, growth is a direct result of staying close to our customers, understand their evolving essential needs, and expanding the breath of the content that we offer across our energy network. In our growth of natural gas markets, revenues were up 27% through the first nine months of 2020 led by continued growth of LNG and in particular, our European TTF natural gas benchmark, which continues to emerge as the Brent of natural gas. In addition, our environmental markets continue to grow with revenues up 12% year-to-date and up 7% in the third quarter. The globalization of natural gas and the growing adoption of environmental markets are trends that we began investing in over a decade ago. With our Brent crude oil contract serving as the cornerstone of our energy network, we've expanded the range of content that we offer to our customers and today as a result of organic and inorganic investments, trading on our network is not tied to any one product or any one region.

And our first question comes from the line of Rich Repetto of Piper Sandler. Your line is now open.

Good morning, Jeff and good morning, Scott. I guess given your acquisition to Ellie Mae, you got much more diverse business as you’ve grown fixed income. And I guess on a some of the parts basis, the stock looks inexpensive to us anyway, so my questions are, why haven't you chosen to break it out? And I guess Scott did sort of address, you're still looking at how to report the segment results. But I guess more importantly, are you concerned over the valuation versus some of the parts? And how patient will you be over time? I know, you just acquired Ellie Mae, but how are you thinking about the some of the parts given your diversity here now?

Thanks for the question, Rich. So the first thing we're thinking as Scott mentioned, and you alluded to, we're going to do a better job now of presentation so that you and our investors have visibility into how we're thinking about and running our business. Basically, as I think, you know since you've covered us for many years, we run network businesses, and we run businesses and look for opportunities where the next customer or the next product on that network becomes additive to everyone on the network and continues to compound revenue and earnings growth across that network as a result. And so we're feeling really good right now, if you look at our commodity business, futures business, open interest is up 9% year-over-year, when the markets are in contango, that's normally a signal or a precursor to volume and revenue growth in the future. So we're very, very happy with the way that business is performing. If you look at our fixed income and data business, you see that ASP, which is the future indicator of business is accelerating and compounding and as we’ve indicated you, if you look at our new mortgage network, which we're still combining with our other assets, it's double-digit both in subscriptions and in transactions, revenue growth and earnings growth for us in those businesses. So all of the segments that we're going to be showing you beginning in the fourth quarter are well positioned for 2021. And the reason that, that I like to end my prepared remarks on this graph that shows the long-term earnings growth of the company is that that's how we're running it and as a result of that mentality, this management team has a mentality that our job is to deliver EPS growth where we normally found that the stock will catch up to that growth. And we appreciate that many of the competitors and futures are interest rate and financial oriented competitors and they're struggling due to the interest rate environment. Many people in the data space don't have the global footprint that we have to find growth around the world and many people that are in the mortgage space don't have the market share gains that we've been able to gain, including just in the two months, since we've acquired Ellie that has continued to accelerate that business. So we're all those networks are very well positioned relative their peer group. And I think that will become apparent over time as this management team delivers bottom line results.

And just interesting that price eventually catch up its value as demonstrated every share we've ever bought back in our repurchase program, a year later has been worth 20% more and two years later has been worth 40% to 50% more. And so it does catch up. I do think that the new segments will help. And as I mentioned in my prepared remarks, we intend in early December to give you all some history with regards to how those segments will look back from 2018 and 2019, and year-to-date. So that you'll have that information early December. And as Jeff said, we'll present the company that way in the fourth quarter.

Your next question comes from the line of Alex Kramm of UBS. Your line is open.

Hey, good morning, everyone. Just I guess quick one on the mortgage side. First of all, I think Ellie came in better than your initial expectations. I know it's a small number. It was only a month but also 4Q looks pretty robust. So just curious about the near-term outlook. What are you seeing but related to that? I think the Mortgage Bankers Association recently revised their forecasts for activity for next year. So just curious if you're starting to get more comfortable or bullish on the outlook for next year that you've laid out? I know it's early days, but just curious about your latest thoughts?

Hey Alex, it's Ben. I'll take that. So a couple of things I'll share with you. It's only been a couple of months since we've closed on the business. But a couple of interesting things to share with the group are number one, I'll share just on the integration front, we've made a ton of progress on pulling together our mortgage assets. So the Simplifile business, the merge business, and Ellie Mae we've been able to pull those businesses together to operate as one very, very quickly. And what enabled us to do that as we knew the Ellie Mae business very well, prior to doing this transaction, because we had a long-term partnership with them with Simplifile. So we had a good view on what we were going to do, we got to a room quickly in September, we were able to make the decisions that needed to be made to get the business organized currently, have made all those decisions announce them to all the boys and now we're executing against the single vision and single strategy. Two other evidence points I'll give you is so well publicized, that volumes are strong. Rates are low, Millennials are buying, you're seeing people purchasing new homes to get more space to get a pool transitioning out of cities into suburbs, we're seeing all that kind of mix. One of the interesting things that not many people appreciate around Ellie Mae is we also have a bit of a forward view on what's happening in that space, because we're in the origination space. And we see all the way upfront in the original application process when somebody is applying for a refinance, or for the purchase of a new home, we see that 60-plus days earlier than the rest of the market. So we see those trends, I could say from what we see on the platform, so that that volumetric aspect of the business continues to be strong. It just firms our view that we had going into this transaction, what the opportunity is with this business. The third thing I'd point to and the most important thing, and Jeff just touched on it and an answer that he just had. I think the most important thing to look at is our subscription sales results. So if you we modeled a view as to where sales of new Encompass seats would be, sales of their artificial intelligence engine called AIQ, that's going after the analytics TAM that we have identified in this space, we had a view of where subscription sales would end the year. And I can say that in the last couple of weeks, the business has already hit, the subscription sales numbers where we thought they would end the year. The reason that that's important is that as we're hitting those sales results, it helps to firm our view on what we assumed market share growth would be. So they're continuing to gain market share. They're continuing to gain more customers, more users, there's more recurring revenue coming onto the platform. It's a stronger network and all of this pulls through additional volume. So net-net is everything that we've seen in the two months of owning the business has really firmed our original views.

Your next question comes from the line of Mike Carrier of Bank of America. Your line is open.

Good morning, and thanks for taking the question. At least one more on Ellie Mae, given that close and doing more work in the area, can you just provide maybe an update on when you think about the growth opportunities. And more importantly, apply the different components of the revenue growth, meaning you have obviously the volume component, but also the adoption and given the ladder, you kind of get more credit, in terms of valuation over time, it's still a little bit more important. And then any other factors or opportunities that you're seeing, as you do more work in that area of the market?

Hi, Mike, it’s Ben. I'll take this one as well. Thank you for your question. There's a whole bunch of different opportunities for growth in this business, which is what gave us conviction that this business can grow really through any volume environment that we see. And we touched, when we announced the deal on our ability to capture that $1 billion TAM in the closing and post closed space. So that's where we're tying together and creating any closing room for the underwriter to digitally connect to the settlement agents on the network that we have across mortgage. So I won't go into a lot more detail on that one. But I figured because we went into a lot last time, I go into a couple of others that we’re capturing that I think are under appreciated. So first we’ve identified that there's a $4 billion TAM in front of us in just origination and processing. And we're obviously very well positioned there, the businesses is touching almost 50% of U.S. mortgages that are coming through the process, refi and purchases. And as I just mentioned, the sales results that we've just seen has just firmed our view on the ability to continue to gain market share in that space. The second thing that that is in that origination and processing TAM is really about our network. And I don't know that people really appreciate that the fact that the business, our business here has the largest mortgage network in the U.S. So we interconnect 100s and 100s of service providers to lenders. And this network is very well established, all that connectivity exists. And there's significant benefits that the lenders themselves can receive from utilizing and buying services from those third-party providers over our network, yet, it's underutilized. So the types of benefits that lenders get from ordering services off of our network is that it's a very efficient process. If you're using the Encompass system, and you order third-party services, that ordering process is automated, because we know in the workflow when you're going to order a credit report, when you're going to order a flood report, all of that is automated. And more importantly, all of the content that comes from that third-party is digitally sent to you, so that you can consume it, you can easily move it around, you can analyze it, you can actually do things with it. The other way of ordering the services outside of the network is you'd have to manually go out and select vendors, you have to manually procure the information, you're going to get back scanned documents, PDFs, with data that you can't really do anything with, you have to have extra steps of manually rekeying information. So today, vendors are really starting to see the benefits of ordering services off of our network. And for the benefit that we're providing the lenders as well as the benefit that we're providing all these third-party data providers, we receive a revenue share for that. And we're seeing this part, this opportunity in front of us that we're starting to capture it and that part is accelerating substantially. The other piece that I'll touch on is the data and analytics side. And we've had a few questions since we announced this deal on this. And one I want to focus on is really analytics, and what we're executing against today here against another what we've identified as a $4 billion TAM. So we've identified that an average origination fee costs around $8,000. Of that time studies that we've done estimate that at least $5200 of that $8,000 is just manual processing and technology costs are well less than $500. In the year 2020, you'd think that that would almost be the reverse that manual processing would be a lot less and technology somewhat more. Our time studies have showed that at least half so call it $2,600 of that manual processing could and should be automated with simple tools to be able to analyze and take away a lot of the stare and compare work that happens. Well, this isn't just a dream, we're actually executing on this. This is a TAM that we're accomplishing and capturing what we talked about that AIQ business called Capsilon that Ellie Mae acquired in the last couple of years, this business goes through for customers today and captures documents, it recognizes the data on those documents extracted. And most importantly, we apply analyzers to that data, analyzers that today for our lenders can go through and automate the process, when you're looking at a credit report to make sure that the social security numbers match, the date of birth matches. The date of the credit report is within the window that the lender was expecting that credit report to be to approve the loan, the score that the individual had on that credit report matches the qualification criteria for the products that that consumer is applying for. All of this is happening today. And we're capturing, we're capturing this opportunity. And it's a significant growth opportunity in that data and analytics space. And we see it already coming through in terms of AIQ sales that that have happened this year on the platform and just in the last two months of owning the business, we're seeing these analyzers getting picked up from our existing customer base. So those are two new areas that I'd say to focus on going forward as other areas of growth for this business.

Your next question comes from the line of Ken Worthington of JPMorgan, your line is open.

Hi, good morning, and thanks for taking my question. It looks like we're seeing further pressure to migrate away from LIBOR in the U.S. Maybe first, can you remind us if there's any impact on this transition away from LIBOR in terms of data revenue, benchmark service revenue? I don't think there's much. But really, can you talk about the transition to SONIA, in terms of trading in Europe? And if there's any opportunities in this transition to either grow trading or grow data? Or should we really expect this just to be a swap from your LIBOR? Thanks.

Yes, it's a good question. We're right, we're in the middle of a transition. So there's a bit of fog, if you will, as to the timing of this transition obviously, regulators are pushing. But there are a lot of underlying business issues that have to get dealt with in the transition. So it's hard to know, a final date other than the trend is there. The sale of LIBOR as an index for us is a de minimis revenue. And there is a question as to how long LIBOR may survive after the industry does move to SONIA in order to pick up legacy business that that just couldn't be transitioned over. So, LIBOR make this for some time. And it's hard to know what that time is, because it's so pervasive around the world. And there are many, there are other LIBORs by the way, where LIBOR being dollar LIBOR but there are a lot of other LIBORs made, which were the calculation agent all which have the same issues. The transition is actually trading SONIA has accelerated our market share is very strong, we're probably north of 70% market share of all the trading in SONIA and so the market is getting comfortable with simultaneously trading SONIA based futures and LIBOR based futures. And, so we feel very, very comfortable and confident with where we’ve positioned our trading activities to be able to provide a bridge and if they two survive side by side for some time, we'll be a net beneficiary of that as well.

But ultimately, it's a straight swap from one to the other. There's not anything of any way to really grow this -- grow from this transition?

Well, the one area that is really under discussion is the small and mid-sized regional banks and a whole range of products that that are not necessarily covered by is the swaps or hedged with swaps. And so what you're seeing is that having worked with the industry to come up with a common rule set on how the transition can go and you see that sort of institutional market coming up with game plans, but in the small and widely dispersed market, they're not in the swaps business and they've got, there are many people that have 30 year agreements that that have the word LIBOR in it. And so, we have been developing an alternative to LIBOR called the Bank Yield Index, which we published, we've been publishing it weekly, and people have been doing, academics have been doing white papers on it, to see how it tracks a credit based on environment. And we've now accelerated the publishing of that daily to create more data points, by the way for analysis. And it's very possible that there could be a transition away from LIBOR or for the credit space, part of the industry that is not SONIA and if so we have a very, very good benchmark that we're working on, that'll be up to regulators, and in a broad industry adoption if that happens. But there certainly is a lot of work going on underneath to try to at least have a viable alternative, should that needs or need arise.

And Ken you’ve seen historically, as you transition from one contract definition to a similar but different one, the impact tends to be as you near that transition point, you see a decline in the trading of the old and everyone's not quite moved into the new. And the good news for us is interest rates only make up about 4% of our revenue. So it's a relatively small impact regardless.

Your next question comes from the line of Jeremy Campbell of Barclays, your line is open.

Hey, thanks. Maybe just a follow-up to Mike's question little earlier around the mortgage TAM and the growth. Ben, you gave some really good color around the opportunity to capture TAM from your end-to-end suite of solutions now that Ellie's in the fold. Just wondering, as you guys look at your solutions right now, are there any additional whitespaces, you'd ideally like to fill in mortgage land either to build organically or bolt-on inorganically, that might make the holistic solution a little more compelling to the originator with whom you don't currently have a partnership or to augment the data and analytics product for LinkedIn to sell. There just seems to be some additional properties out there that could be available, but not sure if any of that fits within your vision?

Thanks, Jeremy. And what I can say there is that we feel good about the position that we're at, with the assets that we have, I mean we literally our network touches every single part and aspect alone all the way from you as a consumer are thinking about it, you're going out and doing your research and touching the point of sale systems to engagement between that individual customer and the lender that they've chosen to do that loan with, the digitization of all the documents, and helping to automate that origination process, now interconnecting the originator to the settlement agent, and electronifying the close. So we have all the right pieces. As I mentioned, we focused very, very early on just making sure that we got the integration of these businesses mailed and executing on that. And we did very, very quickly to get the team all operating as one. And the other thing I'd point out is that a lot of the work we're talking about of pulling the networks together, of creating a digital the closing room, that didn't just start now. It started in the partnership that we forged with Ellie Mae back when we bought, Simplifile and Simplifile also had relationships with them that predated that. So a lot of this work is already underway. All that said, as I had mentioned in an answer earlier, I think it's underappreciated a little bit about how strong that network is that we have, having the largest network in the U.S., mortgage origination space. So with that position, we also see what our well the third-party vendors doing, what are the quality of the services that they provide. And we're in a unique position that if there is bolt-on opportunities that we think we can accelerate growth for entities by having them more directly part of our business as a bolt-on opportunity for us we would evaluate those.

Your next question comes from the line of Dan Fannon of Jefferies. Please go ahead.

Hey, good morning. My question is on the data business, it came in above your guidance. You talked about some of the trends in your prepared remarks, Scott, but I was hoping you could kind of expand upon where the strength is coming from and you've historically talked about it on longer dated time periods in terms of the outlook. So maybe if you could give us a look into next year, how that business is trending?

Sure, thanks for the question, Dan. Yes. So look, the beat in the quarter was a couple of things clearly, as I mentioned in my prepared remarks, the SIP revenues related to the significant retail activity in the cash equities markets contributed to that. But the one that I've just been really happy with this year has been the pricing and analytics business, that's in a world where our sales team has been limited just like everyone else, in terms of travel ability to meet face to face, they're still crushing it, they've held productivity level versus the prior-year, they're on track to achieve I think it's like 98% or 99% of their signings objective. And that is what you'll remember I said will grow 5% to 6%, coming into the year, which is in February, before I even knew what COVID was is going to grow 5% this year, and the growth has accelerated each quarter. And it's going to grow again in the fourth quarter, and likely will be around 6% growth in the fourth quarter. So that business is doing phenomenally well. And it's a lot of factors, if people continue to consume more of our prices, as consolidation of vendors happens, we can be a one stop shop for people in their day to need, whether it's our data or feeds or network or all of that, we can sell. Our index business, I mentioned in my prepared remarks, we're now up to $270 billion worth of assets that track our largely fixed income indices. So it's that pricing and analytics business that I'm so happy within. And then you ask about 2021. And while I won't give you dollar guide, I will point you to an ASV that was 4%, two quarters ago and is above 5% now and will trend higher in the fourth quarter. And so to me, that's I mean again, as you know, today that's 90% of our future revenue as we roll into the new segment or view that ASV will tactically be 100% of the forward revenue. And so if you've got an ASV number today, that's sitting between 5% and 6%. That says you're set up very well to deliver that type of revenue growth next year. So we feel very good about the execution of that business, very good about how the sales team has performed. I also mentioned coming into the year the fact that we were hiring into the growth opportunities we saw and we've done that hiring. But in a world where people aren't in the office, getting those that part of the team up to speed has been more of a challenge. The good news, though is that means we've had a good year this year without really a lot of productivity from the new folks. And as we move into next year, they'll join us at the higher productivity levels, and I think can give us an added boost. So that business right now is hitting on all cylinders. And we feel very good about not just the fourth quarter but about 2021.

Thank you.

Your next question comes from the line of Ari Ghosh of Credit Suisse. Your line is open.

Hey, good morning, everyone. Ben, I guess just another one on the mortgage tech business (inaudible) color thus far. So the deal clearly makes a lot of sense as to growth profile, and structural tailwinds already seen really nice contributions from it from day one. But some of the larger competitors in the space have also been talking about the strength of the digital capabilities and the network effects of that basically as well. So we're just hoping you could talk a little bit about specific areas where you’re the most differentiated versus some of the larger players, is it more on structured data side? Your digitization effort from the book flow or your network effects, which is something else such just looking to see areas you most differentiate?

Sure, thank you for that. I'd say the major areas where we're different is I mean if you just look at industry assessments of market shares, and those market shares reflect the strength of the network that you have, the businesses that we have, have by far the largest network that stretches all the way from the inception of the origination, all the way through to closing. And I can't stress that enough but you need to think about that entire ecosystem from the inception of your thinking about loan, all the way through to documents get filed at a county courthouse to consummate a transaction between a buyer and the seller. So it's the strength of that network is first and foremost, one of the major differentiators that we have underneath that network, so not only on the origination side do we have by far a very big market lead in terms of the loans that we touch in the U.S. trending, getting up to a close to 50%, but also in the closing and post closed space with assets like Simplifile and MERS. Simplifile we've used the phrase that they went out and paved the road. So they went out and literally did the hard work of digitizing and digitally connecting thousands and thousands of counties around the U.S. to thousands and thousands of Attorneys that are in the middle of flash settlement agents that are in the middle of closing real estate transactions. The reason that Ellie Mae was such a strong network came and did a partnership with Simplifile, a few years ago is they acknowledged and realized that the piece of the network that Ellie Mae did not have, and the only entity that really had a digital highway, a digital network, to electronically close transactions was Simplifile. So that's a lot of the real differentiator, the other piece, I'd say is underneath the network, that's under appreciated the data sets that we have that are very unique within that business. So one of the things that Simplifile has by digitizing that network of all these settlement agents and all these counties, it is the only real repository in the U.S. that knows exactly what the settlement fees are, what the settlement requires, what the settlement requirements are for every real estate, just about every real estate transaction that happened in the U.S., with that type of information, you can use that information, pull it forward into the origination process and reduce a substantial amount of errors in the processing of loans by sharing that information very early on digitally sharing it. And then also including it with the analyzers that I was speaking about earlier, to be able to compare, what are the requirements that this county has on closing a particular transaction, versus what's getting pulled together and consummated in the origination package of that loan. So those are two of the main areas I would highlight as just substantial head starts in differentiators that we have that are very difficult for others to replicate.

This is Jeff and one of the things that we really liked about business, when we started to think about putting together our network, our existing network, and the Ellie Mae network was that we've opened that network and so many of these companies that you may view as competitors use parts of our network in order to offer their services because our network is so comprehensive. And because it's open, and you can tick-off, you can join the network at the very beginning or all along the chain that we to a certain degree benefit from the entire growth of the industry, as partners, co-op petition, if you will, with many others in the industry. So that model is very compelling and that our goal is really, as I’ve said on the final slide that we land on is to really just grow our earnings per share not necessarily to completely crush every competitor.

Your next question comes from Brian Bedell of Deutsche Bank. Your line is open.

Great, thanks. Good morning folks. Thanks for taking my questions. So just one quick cleanup on the tax rate outlook for 4Q, I don't know if I missed that one. But the bigger question is on another one on the mortgage business of course. Just I guess first of all, Scott if you can just reiterate the 8% to 10% growth on the Ellie Mae business, that you've stated in the past for 2021 even with the refi headwinds. And then I guess, more importantly and thinking about the organic growth of that business from obviously the large TAMs in the processing side, but also the organic growth from existing customers using the network? And how should we sort of think about those two different elements contributing, I do think using that organic growth data, or as you talk about this segment, and you carve it out into next year, that that would definitely be something that would be helpful for devaluation. So we could isolate that. And then the ability to scale that on that cost base that you've outlined for 4Q. So you think of 2021. What not to give expense guidance specifically right now on that but how should we think about scaling the growth of the mortgage business on that existing cost base?

Right, and so I think that was three questions. So the tax rate will be in the 22% to 24% guide. So that's been consistent for the year other than the third quarter as we had to revert the U.K. back to 19%. So we would expect the fourth quarter will go back to kind of where we started the year. Obviously, as we roll Ellie and that's a U.S. based business, that'll put upward pressure on the tax rate, and be subject to whatever happens in the Election. But even that, I think you're modeling, I don't see a reason right now to move away from the 22% to 24%. I'm going to do the expense first, I think one of the things we like about this mortgage business is similar to our other businesses, it is scalable in the sense of the incremental dollars generate good incremental margins that notwithstanding, we’re in a place where we’re making a number of investments. As Ben alluded to in his answers with regards to be building on an closing room as one really good example. And so if you're looking at the fourth quarter, I think you need to take a couple of things into account, if you want to use that as run rate. Number one, for purchase accounting, we have to rebuild the CapEx and cap labor. And so with that run rate, you should probably another 20 on top of that. And then I would throw the 20 to 25 of investments, we're going to be making to not only grow the business next year, but more importantly, two months ago on the deal call, we said we thought it was a business that could grow 8% to 10% per decade. And so we'll make some investments again, that notwithstanding you do that math, and you'll see that it will still be very accretive to the bottom line, I think in the fourth quarter alone, it's going to be 7% accretive. So that's kind of on the expense side. I don't know that today is the day we'd say a whole lot more in terms of our guide on the revenue line. I still feel good about the 8% to 10%, we do for all the reasons Ben alluded to, as we move forward. We mentioned going in that we expected the refi to go back someone in an earlier questions said that the industry assessments were improving, but they're really just improving closer to where we already were, that those estimates tend to be a little bit pessimistic. So, again, we're only two months away from closing the deal. And having the call with you all, Ben has given a lot of color on why we love this business and why we believe it absolutely was the right investment. And so as I sit here today, two months later, I'm absolutely 100% still confident that it can grow the way we've talked about.

Your next question comes from Alex Blostein of Goldman Sachs. Your line is open.

Great, thanks. Good morning, everybody. Maybe shifting gears a little bit. I was hoping we can touch on your guys's credit trading business. I believe towards the end of the year, you guys talked about maybe some sort of a full integration between ETF Hub, and some of the training venues you've acquired? So maybe talk a little bit about what's the kind of overall revenue contribution from those businesses today? How do you think about that evolving over the next 12 months or so because I think you guys made some investments there over the last 12 months?

Thanks, Alex. It's Ben. And as Scott had mentioned in the question earlier around the re-segmentation of the business that will comment in the first half of December, that's when we're going to start giving more color on the revenue aspect of this. One part of your question, on the other side of it, just to give you some flavor of continued strides that we're making on the institutional space, the strategy really has three legs to it. So first, is the automation of extremely complicated manual workflows in a space that's growing like crazy, which we've talked about a lot, which is that primary trading area of ETFs creation redemption, that's our ETF Hub project. The second leg of the strategy I talked about on our last earnings call was the launch of ICE Select and what ICE Select is, it's an aggregation engine that we've created to pull together all of our protocols. So the click to trade protocols, our auction protocols, and our RFQ protocols all into one and more importantly, it also added all of our institutional analytics and pricing content that on the buy side, all the sell side customers utilize today for understanding what the fair evaluation of the instruments are, that they're trading. And Scott had mentioned that as part of this realignment, we're really pulling together our execution venues in fixed income, very closely aligned to our fixed income data business under this. The last piece is we also, I also mentioned on the last earnings call that we've now connected ICE Select to ETF Hub and we've also connected ICE Select to third-party OMS systems, such as (inaudible). The progress that we've made since that last earnings call has been significant. So we've added another AP in Citigroup onto our ETF Hub network. We've added four more market makers, significant market makers, we now have a total of seven market makers in there that we just announced in the last couple of days. We now have six issuers that are part of our advisory committee on ETF Hub, so that the number of issuers are expanding that are helping to give us their requirements that we would need to cover to be able to add them onto the ETF Hub in addition to BlackRock. Hence we've had market makers not only testing, but now they're executing, going into the secondary market to procure bonds via ICE Select. In the last couple of weeks, we've had some market makers going and using our secondary platforms and ICE Select and go out and procure bonds, procure the baskets, then they negotiate in our primary trading menu being ETF Hub to swap that basket of bonds for share of an ETF. And the last bit of progress that we've made is that we have had multiple portfolio auctions executed on our platform by two of the largest issuers, two of the largest asset managers in the space in just past couple of weeks. So a lot of the last you've heard me talk on a number of these earnings calls, a lot of it's been putting all the infrastructure in place, laying a lot of all the rails and groundwork that needed to be done to pull this together is together and we're starting to see signs that some green shoots are starting to develop here.

There are no further questions at this time. Mr. Sprecher, I turn the call back over to you.

Thank you, Andrea, for moderating and thank all of you for joining us this morning. We look forward to speaking to you again soon. And in the meantime, I guess I hope that you and your loved one stay safe and stay healthy. And with that, I hope to have a great day. Thank you.

This concludes today’s conference call. You may now disconnect.