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Intercontinental Exchange Inc  (NYSE:ICE)
Q1 2019 Earnings Call
May. 02, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Intercontinental Exchange First Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Mr. Warren Gardiner, Vice President of Investor Relations. Please go ahead, sir.

Warren Gardiner -- Vice President of Investor Relations.

Good morning. ICE's first quarter 2019 earnings release and presentation can be found in the investor 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 the forward-looking statements, please refer to our 2018 Form 10-K. In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, free cash flow and EBITDA. 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 terms in the earnings materials and an explanation of why we deem this information to be meaningful as well as how management uses these measures in our Form 10-Q. 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. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain terms. Also with us on the call are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Ben Jackson, our President. I'll now turn the call over to Scott.

Scott Hill -- Chief Financial Officer

Thanks, Warren. Good morning, everyone and thank you for joining us today. I'll begin on Slide 4 with some of the key highlights from our first quarter performance. ICE's consolidated first quarter net revenues totaled $1.3 billion, up 5% year-over-year on a constant currency basis. Trading and clearing net revenues grew 5% and data revenues increased 6%, each on a constant currency basis. This strong revenue performance helped delivered the second best quarter of earnings per share and free cash flow in our company's history. First quarter adjusted operating expenses totaled $528 million, including a roughly $7 million nonrecurring benefit in comp expense. Adjusted for that, we would have been at the low end of our guidance range at around $535 million. Second quarter adjusted expenses are expected to increase to be between $537 million and $547 million, largely driven by the full quarter impact of annual merit increases and equity grants. We didn't expect the subsequent quarter to increase sequentially by about $3 million to $5 million, reflecting increased technology investments and spend related to Bakkt.

Incorporating all of those dynamics, we are now lowering our full year adjusted expense guidance to a range of $2.15 billion to $2.18 billion. I'll pause here to note that in the first quarter, we recognized $19 million of nonoperating income related to a true-up for OCC's 2018 results. Additionally, unlike last year, we did not receive a dividend from Euroclear in the first quarter. We do, however, expect the dividend of around $20 million in the fourth quarter, a 40% increase from the dividend received in the first quarter of 2018. Shifting to capital return, we deployed over 95% of our free cash flow to dividends that once again are increasing by double digits and share repurchases. Of note, the $440 million distributed via share buybacks in the first quarter included an additional $100 million we opportunistically spent to repurchase shares at an average price of $75 during the month of March.

The nearly $600 million in total capital that we returned during the first quarter has only been surpassed by the second quarter of last year when we similarly deployed an additional $160 million to repurchase shares. We remain committed to strong capital returns, a dividend that grows as we do and opportunistic repurchases, even as we continue to make key strategic growth investments. Now let's move to Slide 5 where I'll provide additional color on the performance of our trading and clearing business. First quarter revenues were up 3% year-over-year or 5% on a constant currency basis. In our energy markets, average daily volume was down 12% versus the prior year as trading in the U.S. natural gas markets and the Henry Hub, in particular, suffered from lower levels of price volatility.

Participation in the Brent and Gasoil markets was negatively impacted by a combination of various geopolitical uncertainties and supply/demand dynamics. As you will note though, the volume declines were almost entirely offset by an 11% improvement in our average rate per contract. The improved RPC reflects strong volume growth in our European natural gas business where ADV increased 42% in the quarter as well as our emissions business where volumes were up 35%. That strong performance continued in April and more importantly, overall energy open interest continues to grow and is up 3% versus the end of 2018. In our financial futures markets, while interest volumes were impacted by Brexit and an certain European economic backdrop, MSCI volumes improved by 9% year-over-year. Importantly, while interest rate volumes have been somewhat muted April to date, open interest continues to trend higher up 11% year-over-year as of the end of April.

Moving to cash equities. Volumes increased 9% year-over-year in the first quarter and market share improved to roughly 25%. Wrapping up with our fixed income and credit business. Revenues totaled $87 million in the quarter, this compared to $56 million last year and includes the addition of TMC and MERS, both of which were acquired in the second half of 2018. Turning next to Slide 6. I'll discuss our data and listing segment. Starting with listings. Revenues of $111 million were up 2% year-over-year, while the U.S. government shutdown delayed IPO activity to the end of January, the NYSE helped raised over $2.5 billion of IPO proceeds during the quarter. In addition, the second quarter is off to a strong start with year-to-date proceeds raised now in excess of $5 billion, including the Pinterest IPO in April, both Uber and Slack have also recently announced their choice of the NYSE as their listing partner. Moving to data.

On a constant currency basis, data services revenues grew 6% year-over-year to a record $546 million. In pricing and analytics, revenues increased 6% over the prior year. The automation of fixed income workflows and the growth in passive strategy is continuing to drive increased demand for our valued pricing services, both realtime and end in the day as well as our reference data and our index offerings. Exchange data and feeds revenues grew 8% year-over-year driven by growth in the number of customers using our futures data and improve market share at the NYSE, which determines the revenue we receive from the shared take plan. And finally, desktops and connectivity revenue was up 3% versus last year. Connectivity services related to our futures exchanges generated solid growth, benefiting from the aforementioned increase in our customer base.

Mitigating the strength connectivity revenues related to the NYSE were roughly flat as we continue to roll out our pillar technology, which we expect will improve efficiency while reducing industry costs. We believe the momentum in data revenue growth will continue in the second quarter with revenues expected to increase sequentially to a range of between $550 million and $555 million. Our confidence is supported by an annual subscription value that was 6% higher than a year ago entering the quarter. 2019 is off to a great start. The resiliency of the business model we have constructed is evident in our ability to deliver the second-best earnings and cash generation quarter in our company's history despite a challenging backdrop for industry trading volumes.

I'll be happy to take your questions during Q&A but for now, we'll turn the call over to Jeff.

Jeff Sprecher -- Chairman and Chief Executive Officer

Thank you, Scott, and good morning to everyone on the call. I'll begin on Slide 7. Our first quarter performance highlights the value of the organic and inorganic initiatives that have undertaken over the last year. We've been engaged in a deliberate evolution to add growing subscription-based revenues and to increase our addressable market by expanding our asset class coverage. Despite softer trading volumes across our industry in the first quarter, and as a result of this evolution, we grew revenue, earnings per share and free cash flow, and we returned nearly $600 million in capital to our shareholders, the second most in any quarter in our history. 10 years ago, we were largely a commodities trading venue. At the time, roughly 85% of our revenue was transaction-based.

Today, half of our business is recurring revenue in nature and spans a diverse set of asset classes. Asset classes that we think are well positioned to continue to grow. At roughly 30% of our business, commodities markets still remain an important component of our growth profile. We offer a full spectrum of risk management tools that are critical to the daily hedging and trading needs of global energy and agricultural commodity market participants. Global benchmark contract such as Brent Crude Oil, Gasoil, sugar and European natural gas to name a few, anchor what is the industry's most diverse commodity complex.

Our financial markets business is home to futures on global interest rates and equity indices such as the MSCI index complex where we recently launched a suite of new indices as we partner to expand the range of risk management tools offered to our customer base. In our cash equities business, the New York Stock Exchange stands as the leading provider of listing and trading services. We are the listing venue of choice for the world's largest and most sophisticated companies. And as the deepest liquidity pool for equities on the planet, the NYSE provides customers with a state-of-the-art technology platform, helping to reduce volatility as well as reducing their trading costs.

In our fixed-income business, an asset class that now represent about 1/4 of our revenue with the leading goal provider of our valued pricing and reference data. Our pricing and reference data business is also the foundation for our index business and for our comprehensive suite of pre-trade and post-trade analytics. This Suite of data services together with its institutional customer connectivity is highly complementary to ICE bonds. Execution venues that offer our customers' choice across execution protocols, including auction, click to trade and RFQ conventions. Demand for automation in the fixed-income markets is accelerating and whether it's through initiatives such as our ETF hub or new data products such as realtime pricing-curves, best execution analytics or indices.

Our platform of fixed-income assets is uniquely positioned to capture this growth trend. Similarly, the U.S. residential mortgage market is experiencing an analog-to-digital conversion. It's an evolution that we've seen before. And much like in other asset classes, we're providing products, services and key infrastructure aimed at facilitating that transformation. Digital mortgage solutions are gaining traction. The electronic mortgage notes or E-notes are an important step toward a fully electronic mortgage ecosystem. And in the first quarter alone, more E-notes were registered on MERS than in all quarters of 2018 combined. E-notes can bring meaningful efficiency gains to the industry by shortening closing time, improving quality control and helping to reduce friction.

And with e-notes, representing less than 1% of the outstanding mortgages today, the opportunity for future growth is substantial. Turning now to Slide 8. As you may have seen last night, we announced the acquisition of Simplifile. Simplifile is the leading provider of electronic recording services to the mortgage industry, helping to streamline the real estate transaction process. It operates one of the largest mortgage networks connecting originators, settlement agents, servicers and counties. It's a network that's been constructed over 2 decades and includes transaction recording counties that together, represent 80% of the U.S. population. With the electronification of the mortgage industry in its early innings of transformation, the number of eligible documents that could record digitally is 4x the size of what Simplifile currently handles.

When combined into ICE mortgage services, we will be better positioned to address the increasing demand for digital mortgage solutions, helping the mortgage industry reduce cost and making the closing process simpler, faster and more transparent. Turning now to Slide 9. We remain committed to balancing our growth today with ensuring that the groundwork is laid for growth tomorrow. An example of this is our effort to support the development of an institutional market for digital assets. Based on feedback from institutional investors seeking a way to participate in this nascent asset class, we're building out key infrastructure, starting with a custody platform.

Secure custody of private keys on Bakkt will feature the high level of cybersecurity oversight that protects our global markets coupled to the regulatory structure of a qualified custodian for which Bakkt has now applied. Earlier this week, Bakkt announced that it acquired the digital asset custody company to further scale its capabilities and also announced that it is working with BNY Mellon to enhance its physical security and geographic diversity of custody. Bakkt is building a strong team, including senior leadership with experience from ICE, PayPal, Vantiv WorldPay, Coinbase and Google Wallet and Bakkt remains focused on launching physical delivery futures on our ICE futures U.S. exchange to enable trusted pricing within the digital asset ecosystem and to facilitate institutional adoption.

In summary, we're excited about the addressable market that we have in front of us. And while our business is certainly larger and more diverse than it was only 10 years ago, we're still guided by a management team that operates in sync, and we are growth focused. Our integrated platform enables us to drive efficiencies across our technology and our operations, while still significantly investing for future growth, which is clear in our operating margins of nearly 60%. And our footprint provides us with unique foundation to drive growth, while continuing to create value for shareholders. So I'd like to thank our customers for their business and their trust in the quarter, and I want to thank all of my colleagues for their efforts that contributed to another very strong quarter for ICE. With that,

I'll now turn the call back to our moderator, Sherry, to conduct the question-and-answer session, and that will last until 9:30 Eastern Time.

Questions and Answers:

Operator

(Operator Instructions) The first question is from Mr. Michael Carrier of Bank of America.Please go ahead.

Michael Carrier -- Bank of America -- Analyst

All right, thanks and good morning. Thanks for taking the question.Just the first question, some of that fixed-income business -- you guys have done well on the data side. I think on the trading, the team's a bit more competitive with some of the incumbent platforms out there. So how are you thinking? Or strategically how are you differentiating between the other platforms that are already in the market in order to win over the next few years?

Ben Jackson -- President

Thanks, Michael. This is Ben Jackson. And I think Jeff captured it in the comments that he was making in his opening script there, and that the key differentiator that we have is the scale and size of our fixed-income business when you look at it as a vertical, and it represents now 1/4 of our revenues across our entire revenue base. So think about a $1.3 billion business. And if you look at the cornerstone of that $1.3 billion business and in that is really, our data businesses.

The data businesses that we've established pricing, reference data, index and analytics capabilities that we've provided to customers for more than 3 decades. Data businesses and data services are very hard to establish with customers. You have to have a long track record of a trust for them to trust that you as a benchmark price that they're going to reference. Takes a long time to establish the credibility in our relationship, and it's those institutional relationships that we have solidified over multiple decades that really is our differentiator that we're going to leverage as it comes into execution.

For our execution platforms themselves, we've seen similar performance to what you've seen from the other platforms that have recently announced. We had strong performance in corporates -- in U.S. corporates. We've seen trade sizes increase. We have seen a little bit of relative weakness in municipals as the spread between municipals and treasuries has narrowed, and treasuries have come into favor, but we have seen treasuries perform very strong at our platform. So net-net, our platforms, what we've done in Q1 is we have fully integrated our ICE bonds business to now execute as one business. We've restructured the organization, rationalize and take some cost out and now have a single vision to leverage the institutional relationships that we've established over multiple decades. So that's really what you see as our differentiator.

Operator

The next question is from Rich Repetto of Sandler O'Neill.

Rich Repetto -- Sandler O'Neill -- Analyst

First, thanks for Slide 7, Jeff, it's guided -- it's been an experience watching the company expand over the years. So anyway, my question is on what you've schooled us on, Scott, the annual subscriber value for market data and went up nicely. But again, you talk about this -- what we're working on right now is 2020 revenue for market data. And I guess, the questions, I know you've accelerated the growth from the low single-digits to the 4% to 6% now, but as you go forward, is there anything as you add this annual subscriber values? Is there any momentum to -- anything to point that you can grow it faster than the upgrade you have right now? And is it still coming from the same sort of buckets that you talked about when you -- a couple of years ago when you first gave some guidance on the growth there?

Scott Hill -- Chief Financial Officer

Thanks for the question, Rich. And I do think the ASC is a good metric to focus on because it is forward-looking. As I proved last year, it doesn't give perfect forecast but it's directionally very indicative. I think the key thing you see, not just in ASP but in the growth trends we've established. Our compound growth rate since 2015 through the end of 2018, was just under 6% every year on average. This quarter, we grew 6%.

That's the third quarter in a row that we put up 6%. And if you look at our guidance for the second quarter, we're again going to be kind of in that 5% to 6% range with midpoint being around -- right around 5.5%. So it's a growth trend that's been consistently delivered, and ASV indicates that it can continue, and it can continue because of some of the things that we've talked about in the script. There are a lot of tailwinds in the fixed-income space. There's a move from active to passive management.

There's a movie that Ben spent a lot of time talking about toward bond ETFs, which if you look at it well, the equity EPS is a much smaller space but one where everybody is pointing to a strong future. And so I think in the fixed-income area, and that's largely our pricing and analytics business, which we've grown 6%, 7% ever quarter for the last 4 or 5 quarters, it's really those trends that have driven it and continue to drive it. I think if you then look at the exchange data and the connectivity piece. Again, I go back to the remarks I made, we continue to see more customers wanting our data and connecting to our platform.

And so our connectivity services related to futures exchanges was up solidly again this quarter. Our futures exchange data was up again this quarter. And that goes back to the nature of the commodities business, the futures business that we offer. We offer a global set of interest rates that are subject to European economic and European Central Bank dynamics and Federal Reserve dynamic. We offer commodities and energy space that most comprehensive global oil market, the most comprehensive global natural gas market, the most comprehensive global ag market, and we continue to see commercial customers who are managing their price risk exposures in our market, and that drives a demand for connectivity and for exchange data. And so again, I would suggest to you, you've been seeing that in the growth results we put up. I think it's definitely reflected in our first quarter and second quarter guidance and I see -- I think you see in the ASV, which indicates that those trends continue.

Rich Repetto -- Sandler O'Neill -- Analyst

Okay. Thanks a lot.

Operator

The next question is from Mr. Patrick O'Shaughnessy of Raymond James. Please go ahead.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Yes. Good morning, Jeff. Good morning, Scott. To follow up on the first question on your fixed-income business. Is there any quantification you can provide regarding customer growth or average trade size, and kind of metrics that you can provide to us that would indicate that you are progressing along your goals?

Ben Jackson -- President

Thanks Patrick. I think, the -- as I mentioned, we've seen relative performance to what you've seen from the other platforms this past quarter with corporates being strong and municipals, in particular, seeing some relative weakness. If you look at our platforms, we do have a bit of a tilt in our mix toward municipals. So we did see that impact the businesses to some degree. But all that said, trends that we've seen and as we're leveraging the rest of our businesses to really move into the institutional space, some of the metrics that I've said in prior calls that we continue to see this trending very positive is the development of our RFQ capabilities to move into the institutional space, and RFQ represents close to 20% of our trading volumes on a day-in and day-out basis. We continue to see -- and continue to develop that and continue to see customers utilizing that.

We have, on our platform, on any given day, over 10,000 securities that have prices of 250 up on either side. So that is some real indicator that central limit order book trading in fixed income is starting to develop. And we look forward to continuing to provide customers choice on central order book trading options through our click-to-trade protocol in addition to our RFQ capabilities that we have built out on the back of a long-standing capability that we've had in all of our futures markets and being able to provide that protocol as well. So it's those 2 pieces and leveraging the institutional relationships that we have across our business that we believe well positions us to continue to change the mix of assets. They're trading our platforms and also increasing trade sizes.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Great. That's helpful. Thank you.

Operator

The next question is from Dan Fannon of Jefferies. Please go ahead.

Dan Fannon -- Jefferies -- Analyst

Thanks.I guess, one more on fixed income. Just to make sure that we're thinking about what your goals are. I guess, what is the kind of right way to gauge success? Is it -- because we don't really have market share, we're not getting this clean data yet. Is it aggregate revenues? Or I guess, what just kind of holds you accountable in terms of that success? What should we think about as a goal post as we think about the remainder of this year or even further?

Jeff Sprecher -- Chairman and Chief Executive Officer

It's a good question. This is Jeff. It's complicated for us because we don't run our businesses the way we recorded them on that chart, in other words, we have an integrated management team who are running all those businesses together and culminating them on common technology platforms where we can do it in common sales and marketing efforts. But if you step back, the goal post that we set internally with senior management -- I referenced in my prepared remarks that 10 years ago, we were a very different company. We were sitting here around 10 years ago thinking, wow, there's going to be an analog-to-digital conversion in fixed income. How do we participate? And we were pretty knowledgeable, we are very knowledgeable about markets.

This management team has been together a long time and our team had a lot of international cross-border experience. And we decided to go right for the high-value part of the business. The high-value part of the businesses in mature markets is not the execution. And I can tell you, a very mature New York Stock Exchange has 12 other exchange competitors and 5 more that are rumored to be signing up and some estimate as many as 50 different venues where you can execute trades on U.S. equities. The high-value part of the business is getting those institutional relationships, getting your data, your connectivity, your higher-value products onto people's systems.

It's very hard when you're running a fund to change your benchmarks, to change your underlying data as people consume information that is crippling through organizations and becomes institutionalized. So in looking at fixed-income market and the difficulty that if we all had in our industry on how to digitize that, we decided to start with where we thought the higher-value part is. So you've seen growth, Scott talked about ASV and we talked about our company as a data company and how that is performing. The reality is what you're really seeing there is those fixed-income trends against a very, very weak market for commodities and equities and other asset classes in the quarter. And so it's why we decided to try to better show you how the business operates. We'll take it away that other metrics that we can put out.

We don't run the business that way so it's hard. We don't have those metrics at our fingertips. I'll just make one other point, which is, 10 years ago, we weren't in the interest rate business, and we had very formidable exchange competitors like CME and Deutsche Borse and LSE and at that time, NYSE Euronext, that had very strong interest rate franchise. So what did we do? We looked and said, the nascent part of the market where there's no analog-to-digital conversion yet is mortgage. That's the interest rate market that we should go after. And so you're starting to see some of the decisions that we made 10 years ago play out and it's why we spent little bit of time talking about Bakkt and digital assets. I don't know where that company will go, none of us do, but we have the luxury in this company of being have an entrepreneurial team and the ability to make investments that are very strategic and still maintain our operating margins given the technology footprint that we have. So anyway, that's the overarching theme here. We'll take away specific metric interest and see if we can come up with something.

Dan Fannon -- Jefferies -- Analyst

Great. Thank you.

Operator

The next question is from Mr. Jeremy Campbell of Barclays. Please go ahead.

Jeremy Campbell -- Barclays -- Analyst

Hey, Thanks. Jeff, just piggybacking on that mortgage commentary there. I mean, now with MERS and simply -- Simplifile, can you just provide some color how ICE mortgage services fits within the existing kind of mortgage technology infrastructure? So, for instance, I think of like Black Knight that has something like 80% of mortgage services on their technology platform with also a large origination technology platform. Is something like that a partner for ICE mortgage services, a competitor or just an entirely different sphere of influence?

Jeff Sprecher -- Chairman and Chief Executive Officer

It's very good question. So when we bought MERS, MERS really was -- is a company that registers, if you will, paper-based mortgages, it gives every U.S. mortgage, mortgage identification number, all the MIN number, mortgage identification number, and that's all -- that's for basic paper-based income system. What we did is over 2 years, we built the digital ecosystem, and we worked with Fannie and Freddie to hook that digital ecosystem to them as an end point. And we started with these eNotes that we mentioned, which is essentially the mortgage, it was the loan documents.

Can we get the industry to digitize the essential loan document and send that to Fannie and Freddie? Now with -- and to each other to the extent they want to. Now we are going to have Simplifile, which says, OK, I can send that same mortgage to be recorded at the closing. So we're starting to build the back end of endpoints, if you will. There are a lot of companies out there that have digitized the front end.

There's a very competitive market when you arrive, go to get a mortgage today, we may be on a digital platform, or we may be talking to somebody in an office that is actually typing into a digital platform. That's a highly competitive space, and those -- and well worn in the industry itself to sort of start the time to figure out how to automate the front end. We would hope that, that -- we're going to have an open API on this network that we're building. We're hoping that those people will plug-in what they're doing onto our network so that those essential digital documents can be codified and recorded. There are literally hundreds of documents that exist in the world that go into a mortgage.

Your mortgage provider will ask for your tax returns. They want to see 1099, they wanted you to go after various forms that are somewhat unique to them, they want past appointment history, they may do a credit search. All of that stuff is -- if there is an industry that's trying to organize that, as you mentioned, and it's in various states of way. But largely, in today's world, that all gets printed out into paper documents and put in boxes and store it somewhere. And there's so many different fields that are entered into on those forms because they're not that standardized. There are acronyms and conventions and things that are hard for people to translate to bring that whole file together. And so what we've done is said, let's start with the nugget, the essential core, which is the actual note itself, and then allow -- we'll build some of it and will have this network built where others can plug into it, and let's try to get the entire industry standardizing around our network, if you will, which will be the essential way to close the transaction.

Jeremy Campbell -- Barclays -- Analyst

Great. Thank you.

Operator

The next question is from Mr. Kyle Voigt of KBW. Please go ahead, sir.

Kyle Voigt -- KBW -- Analyst

Hi, good morning. Maybe to switch gears to the trading business. I know you're seeing some really good growth in global oil and other energy products but Brent is still in the large features product by revenue, and we've seen some soft open interest throughout the past 2 years there. Just wondering if you can talk about why you think we haven't been seeing some of the same type of more historical growth rates in Brent, at least over the past 2 years, and if there's anything in the horizon that could reaccelerate those growth rates.

Ben Jackson -- President

Kyle, it's Ben. Thanks for the question. And yes, we have seen what we view as a temporary pullback in open interest in volumes in Brent. And I think what you can point to is a lot of this happened, in particular, in the last 2, 3 weeks, you can point to a lot of very unforeseen events that have recently happened. Things such as removal of waivers against Iran oil sanctions, new bands being implemented on Venezuelan oil and now the potential for contagion in Russian oil, all of this has led to a pretty uncertain environment for traders. And while you'll hear us as an exchange operator and others point to times of volatility being great for volumes.

What's not great for volumes is complete uncertainty. And an area where there is a complete unforeseen event that happens, which tend to see, and what we've seen over time is the traders will go into a risk off mode and take a step back, assess the situation and try to form a view on directionally where the market is going, and we think that's what we're seeing in Brent itself. But you touched on an area that we're seeing -- that we are seeing growth, and that's made up of significant amount of the pull -- of that recent temporary pullback, and that's in that global oil complex. And when you think about what is that global oil complex, you've got a whole suite of products that basically hang off of Brent, the Gasoil and our WTI business.

So these are products that are very precise basis locations for people to hedge risk at a point of consumption or a point of production in North America, in the Middle East, in Europe and across Asia. You see complementary spread in differential contracts between Brent and Gasoil and these contracts. You also see refined products spreads. So a barrel of oil versus refined products that come off of it, oftentimes called crack spreads. We've seen significant growth in this part of the complex with open interest up 6%, year-over-year and volumes up 18% year-over-year. So when you combine this whole complex as one global oil business, with over 500 contracts that have been developed with our commercial traders at the core, you see a complex that's priced 2/3 of the world's oil, it has led and continues to lead in open interest market share and has gained market share over the past year, and that's a global complex that includes both futures, options and all of our oil products together. So we're going to begin to work with our commercial customers -- customer base to build that out.

Kyle Voigt -- KBW -- Analyst

Got it. Thank you.

Operator

The next question is from Alex Blostein of Goldman Sachs. Please go ahead.

Alex Blostein -- Goldman Sachs -- Analyst

Hey, guys. Good morning. And I'll follow up around the mortgage business. Can you guys update us on the, I guess, the revenues and expense contribution from the Simplifile business that you bought. I think the press release just mentioned strong track record of revenues, revenue growth and profitability, just trying to pencil out what that is. And then, Jeff, definitely helpful to summary of kind of what MERS is and kind of what it does? But again, maybe update us on what the revenue there stands today? And I guess, bigger picture, how does this business ultimately get a leverage ICE's data and trading segments? Or is that meant to be really almost kind of like a stand-alone part of what you guys do?

Scott Hill -- Chief Financial Officer

Thanks for the question. I'm going to take the numbers part, and then I'll hand it over to Jeff for the important stuff. So just quickly, just in terms of the numbers, Simplifile, we literally just signed it yesterday. And as we mentioned on the press release, we don't anticipate it closing until the third quarter. What we will do, as we typically have, is once we've closed it, we'll update our guidance and give you the expense and the revenue associated with it. What I can tell you is that when I give the expense update, particularly if it's only in the fourth quarter, I'm hoping we could contain it in our current guidance, and it'll be more than offset by revenue because it is a profitable business.

So more to come on that once we get the deal closed. And as we said in the press release that, that will be sometime in the third quarter we anticipate. In terms of the MERS revenue, we actually had a strong first quarter. The business tends to correlate a little bit or, I guess, it's a negative correlation with interest rates. And so with them having moved a little bit higher as we move through last year, is a little bit of concern, it might impact that business. But as it stabilized, the first quarter was actually relatively strong on a pro forma basis well above $20 million of revenue. We're up double digits year-over-year. And so you'll recall that we gave you guidance. I think of revenues $17 million to $19 million in the fourth quarter, and we actually did a little better than $20 million in the first quarter. And as I think I mentioned on that call is against the relatively low expense base. So high incremental margin like a lot of the other businesses that we operate. With that, I'll hand it to Jeff to talk about how it fits.

Jeff Sprecher -- Chairman and Chief Executive Officer

Well, you're somewhat foreshadowing the ideas that we have here on data and analytics. Once a mortgage has been digitized and the information around it has been standardized so that it's searchable and can be run through analytics platforms, Fannie and Freddie theoretically, ought to be able to more quickly get to an underwrite decision that would speed up that process, speed up funds flow and closing. And as Fannie and Freddie layoff risk in the market, as they do today, they will allow the third-party that are going to undertake that risk to be able to do more research on the portfolio of mortgages that would be in there. So we do view that the data component of mortgage will become more interesting and valuable and will help drive down cost and speed up closing times. MERS, when we acquired it, was essentially a consortium and a membership organization with 5,000 members. It has data policies within that the industry agreed to essentially. We've, in taking control of the business, we've asked many of the companies that have been involved on the Board of Directors to stay on the Board.

So we have representatives from the GSEs, from large banks and what-have-you. And really, the reason that we ask them to stay on is to continue to contribute exactly to the dialogue that I just mentioned, which is what is the information that the industry wants and needs. How do we deal with PII information as we digitize things and make information more accessible? What are the levels of information that the market needs versus the need to be kept proprietary. Thinking about the expansion of this business globally and into other asset classes of lending, how does it meet the European standards and what-have-you. So those are all TBD future conversations that we started honestly when we first got involved in the business, and there'll be a natural by-product that I think of digitization and standardization in this industry.

Alex Blostein -- Goldman Sachs -- Analyst

Great. Thanks very much.

Operator

The next question is from Mr. Brian Bedell of Deutsche Bank. Please go ahead, sir.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks very much. I want to stay on the MERS topic. I think Jeff you -- Jeff or Scott, you mentioned about 1% of outstanding mortgages right now are electronically documented through the eNotes system. Can you help us think about the run rate path or the revenue growth path over the long term. Is it most -- is it entirely dependent on new originations? Or is there a path to convert existing mortgage documents that don't have any activity to them electronically in terms of bringing up that mortgage? And then maybe just how many eNotes actually did you register in 1Q? I know it was more than all of '18 altogether.

Jeff Sprecher -- Chairman and Chief Executive Officer

I'm going to start with the second part of your question, 19,000 eNotes in Q1 is still a very small -- when you think of it in the context of the U.S. mortgage industry is still nascent. But you've seen -- what's going on underneath that is the early adopters, people that are anxious to become more digital have embraced this idea and are moving quickly to try to build it into their workflow. There's a broad cross-section of people in the mortgage industry that are talking to us or looking at the API or figuring out how to build it into their current workflow, and it's not unlike any analog-to-digital transition that you've witness in other asset classes. So what you see are early adaptors are getting in there quickly. As they get in there and start to experience cost savings and ability to serve their customers better, it's driving competition.

So we are very encouraged by the early results even though it's a low number. The revenue model is simply -- we charge to you to -- it's a list essentially eNote on our platform and Simplifile charges to registered eNote and the more that, that can all be put into one workflow to make it easy for the lender and mortgage underwriters. You can imagine that the pace of increase. As for existing documents, there are a number of companies out there that are exploring how to go back and digitize existing mortgages. There's a lot of error rate in dealing with boxes of paper mortgages that exist in warehouses, when there is a change of servicing rights, when there is a foreclosure and one of the things that Simplifile and MERS has been working on over the last decade is changing local law and what-have-you so that the Golden record, if you will, can be digital, that the original mortgage, you can may recall during the last financial crisis, people showed up with global sign mortgages in courts and many judges rejected them.

And as a result, MERS the entity that was helping to find and produce those mortgages on behalf of the original lenders. And so moving to electronic system with the Golden record, which is much like what's done in many other asset classes that can be respected by the courts, will essentially be a reason that all these legacy mortgages will be scanned and put in that system. And I mean like I had of the meeting -- I actually had a meeting on this topic yesterday with a third party who wanted to talk about how they can plug in the MERS if they were to offer those kind of services.

Brian Bedell -- Deutsche Bank -- Analyst

So do you anticipate being able to get a bulk transfers of existing mortgages without any activity so no refi or no foreclosure or no new mortgage, just go into some record keepers and be able to do a giant bulk transfer of those existing paperback you meant into eNotes?

Jeff Sprecher -- Chairman and Chief Executive Officer

Potentially. The problem is that those records are not standardized. And you need, essentially, not just the ability to scan but you need essentially artificial intelligence or rules-based engine that on a document that says somebody is named Robert and another document has him down as Bobby, but that's the same person. And where people have made errors in writing social security numbers down and all this other stuff you can get pretty quickly into chaos. So the people that are -- and there are people looking at this, are trying to figure out is their ability to scan those, create an indelible record that will be respected by the courts and in foreclosures, and store that record, point it at MERS and the eNote and allow the marketplace itself to better transfer potentially those mortgages between one another, particularly servicing rights, which happens quite often.

Brian Bedell -- Deutsche Bank -- Analyst

Okay, great. Thank you so much for the color.

Operator

There's a follow-up question from Mr. Rich Repetto of Sandler O'Neill. Please, go ahead sir.

Rich Repetto -- Sandler O'Neill -- Analyst

Yes. Hi, Just a question for Ben on the fixed-income side. When you're back in to the revenue, it looks like for TMC and BondPoint, it looks like revenue went down quarter-to-quarter. And I know you mentioned, Ben, some softness in the muni market, but it did look like from trace volumes that there was a record volume in 1Q, so just trying to understand the actual revenue from the fixed income on the trading side?

Ben Jackson -- President

Yes. And Rich, I tried to hit that on the comments I made earlier where a lot of it had to do with a mix. So the municipal space and our platforms compared to the others that you see out there tend to be more tilted toward the municipal space, and the muni space has had a rough go at it lately. Again, given that spreads between treasuries and munis has narrowed and treasuries have come into favor. So what we have seen is that treasuries have picked up.

The treasuries tend to be at a lower price point -- price per transaction. So what we do see is that with the efforts that we have under way and that I've talked about on prior calls with the ETF hub initiative and the build-out of our RFQ, we are continuing to advance those efforts. And with ETF hub on schedule to be released later this year, we see that the initiatives like that as well as the connection that we're building across the institutional businesses that we have, we'll continue to change that mix as well as increase average trade size that we'll see on the platform.

Rich Repetto -- Sandler O'Neill -- Analyst

Got it. Thank you.

Operator

It's a follow-up question from Mr. Patrick O'Shaughnessy of Raymond James. Please go ahead sir.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, great. Thank you. So Bakkt has obviously had some pretty well-publicized delays since you announced the initiative. How do you think the market opportunity for Bakkt? And how that's changed since you relaunched the effort?

Jeff Sprecher -- Chairman and Chief Executive Officer

Well, to be completely transparent with you, it's really been helpful that the cryptocurrency industry sort of went into what they call a winter that took some of the heat off of the timetable to launch. There's been a -- and secondly, we've actually been looked at a number of different companies and acquired a company earlier this week that wouldn't have been available to us had this market been really hot because valuations were really hot. So I see this kind of maturation that's going on where, for example, the people -- the blockchain engineers that we acquired through our recent acquisition became really interested, if you will, in affiliating with a larger more corporate, if you will, effort to move this -- to move the industry forward. There's a lot of interest still in this market. It's not -- when we talk about institutions, the institutions have -- are regulated, banks are regulated, the regulators are trying to get their arms around this asset class and how to regulate it, that's -- and we want to be a regulated venue, which is why it's taken a while.

But that said, you can't really get into the true institutional markets that we serve without being highly regulated and highly trusted. And so the juices worth the squeeze in terms of it the way, and it's going well now. There were a lot of things that had to get sorted out over jurisdiction and custody and how these -- what will happen in a bankruptcy, and those kinds of issues that, in my mind, need to be resolved before there's going to be wide adoption of the asset class, and we've been at the forefront of solving those and building the solutions for those, and we're very, very close now to finalizing all of that. So once we're sure, this sort of downturn in the value of these assets allowed us to attract some really great people and gave legislators -- regulators the time to think about, in particular, in the United States, how to deal with this asset class.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Thank you.

Operator

The next question is from Mr. Chris Allen of Compass Point. Please go ahead.

Chris Allen -- Compass Point -- Analyst

Good morning, guys. I wanted to ask a follow-up on the muni market, in general, where does that market stand in terms of electronification, particularly, in the institutional side? What are the impediments if there are any right now? And how do you see that kind of evolving moving forward?

Ben Jackson -- President

Thanks, Chris. Yes. So the municipal space, it is far behind where even U.S. corporates are. So if you look at estimates of the U.S. corporate market in terms of how much is electronic being 20% to 25%, but clearly moving more and more electronic. The municipal space is further behind where our estimates are, call it 10% to 12% of it are electronic. We are seeing that continue to move more electronic. We're beneficiary of that, obviously. But the municipal space structurally has been tough for the point that I brought up before with the spreads between municipals and treasuries coming down. But also if you just look at muni issuance, if you look back 2 years ago, it's significantly higher than where it is now. Now it's starting to just rebound at this point and as new issuance starts to come around, we should see some benefit in the secondary trading on that, and it takes a while to get behaviors to change from the analog type of transaction, but it's early days, but we are starting to see that move as well.

Chris Allen -- Compass Point -- Analyst

Has the banks taking any steps toward electronic through new munis?

Ben Jackson -- President

Similar to corporates, the dialogues that we're having with banks is that they start at certain trade sizes and started small trade sizes and looking to electronify that. And then over time, as they get more and more comfortable with it, they'll move up in -- move up that threshold in terms of what's the minimum size that they no longer want a phone involved in that transaction. They want to build more algorithms into pricing those trades, more electronic execution in pricing those trades, and municipals just a few years behind where corporates are.

Chris Allen -- Compass Point -- Analyst

Thanks, guys.

Operator

The next question is a follow-up from Michael Carrier of Bank of America. Please go ahead.

Sameer Murukutla -- Bank of America -- Analyst

Hey guys. This is actually Sameer Murukutla, Mike had to jump off. But a quick question related to your thought process around acquisition, especially in the fixed-income space, or maybe can you give an update on how you think about the return in accretion goals meaning historically, it's been a focus but given some of the structural growth in certain areas, would you sacrifice those goals if you think the structural growth make up for it over a longer period?

Jeff Sprecher -- Chairman and Chief Executive Officer

I guess, the operant part of your question for me is longer period. We try to be very disciplined about the return on invested capital. We feel like we can pay a premium for a business if we can put it on our platform and quickly grow it or digitize it. So -- and also integrate the business so that if we look generally out 3 years, we want to start to see very high returns on invested capital. We give ourselves -- we tend to give ourselves 3 years to integrate a business and honestly, internally, we try to drive ourselves to 2. And so we want to see very positive results mathematically coming out of that. We -- I'm smiling because we built $1 billion revenue business in fixed income.

I think without a lot of people realizing what we were doing because we really didn't talk about it in that way, and we were able to acquire key parts of that business at valuations that were incredibly low relative to where people are valuing fixed-income assets today. I'm not sure that the market has recognized that, it's partly why we decided to pull the curtain back a little on this call and give you more color on what we look like today. And so I don't know now that, that sort of the curtains now that the wizard is visible, I'm not sure that we're going to be able to continue to find interesting assets that deliver on the metrics that I just tried to describe, but we're always looking.

Scott Hill -- Chief Financial Officer

I think the only thing I would add to that, as you've heard us talk about our acquisition, how does it fit our strategy, how does it enable our growth, how quickly can we integrate it, how many synergies can we generate, what's the return on the investment. You've seldom heard us say the word accretion. Because of the end of the day, you can financially engineer accretion, you can't financially engineer returns. And if the deal done fits strategically, we are not likely to be able to get those returns. And so that -- we showed you the model a couple of summers ago, and it was the case before we showed it to you, it is the case now that it's about strategic fit, it's about growth and its about returns. Those are the things that matter, and it's one of the reasons you see our return on invested capital now back at 9% when our weighted average cost of capital is only 6% because we do focus on creating economic value.

Sameer Murukutla -- Bank of America -- Analyst

Thanks for the color.

Jeff Sprecher -- Chairman and Chief Executive Officer

Thank you.

Warren Gardiner -- Vice President of Investor Relations.

Well, it's 9:30. I think we'll wrap up. Oh I'm sorry, Sherry. Were you going to wrap it up for me?

Jeff Sprecher -- Chairman and Chief Executive Officer

Thank you. Currently I was more anxious to get off the call. But thank you all. It was a great quarter and we'll look forward to reporting our next quarter results soon.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may disconnect your telephones.

Duration: 61 minutes

Call participants:

Warren Gardiner -- Vice President of Investor Relations.

Scott Hill -- Chief Financial Officer

Jeff Sprecher -- Chairman and Chief Executive Officer

Michael Carrier -- Bank of America -- Analyst

Ben Jackson -- President

Rich Repetto -- Sandler O'Neill -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Dan Fannon -- Jefferies -- Analyst

Jeremy Campbell -- Barclays -- Analyst

Kyle Voigt -- KBW -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Chris Allen -- Compass Point -- Analyst

Sameer Murukutla -- Bank of America -- Analyst

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