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Intercontinental Exchange Inc (NYSE:ICE)
Q4 2019 Earnings Call
Feb 6, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Intercontinental Exchange Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Warren Gardiner, Vice President of Investor Relations. Please go ahead, sir.

Warren Gardiner -- Vice President of Investor Relations

Good morning. ICE's fourth quarter 2019 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 and other filings with the SEC.

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 debt-to-adjusted 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 term 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 10-K.

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.

With us on the call today 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 solid fourth quarter and record 2019 results.

Fourth quarter net revenues totaled $1.3 billion, driven by trading and clearing revenues of $626 million and data and listings revenues of $672 million. Within data and listings, data services revenues totaled $559 million, up 4% on a constant currency basis. For the full year, data services revenues grew 5% on a constant currency revenues basis.

Adjusted operating expenses totaled $570 million in the fourth quarter and adjusted earnings per share increased year-over-year to $0.95. For the full year, adjusted EPS were $3.88, up 8% versus 2018. We have grown adjusted EPS every single year since we first listed on the New York Stock Exchange 14 years ago.

2019 operating cash flows of $2.7 billion were up 5% versus 2018, yielding record free cash flow of $2.3 billion. Turning to Slide 5, you can see that we returned nearly 90% of that $2.3 billion to shareholders, 19% more than in the prior year. This record $2.1 billion of capital return was more than double the amount we returned the year prior to our acquisition of IDC in 2015. And importantly, we did all of this while maintaining our target leverage and investing in key strategic initiatives across our trading, data, fixed income, mortgage and digital assets network.

As we turn to 2020, we remain committed to continuing to grow our capital return as we grow. Our Board recently authorized a 9% increase in our quarterly dividend. We have grown the dividend roughly 14% a year since 2013, while over the same period, adjusted EPS has grown around 15%. Our Board also approved a 20% increase in our share repurchase authorizations to $2.4 billion, which will allow us to increase our quarterly buyback level to around $400 million, while also providing capacity to act opportunistically.

Now let's move to Slide 6, where I will provide an overview of the performance of our trading and clearing segment. Trading and clearing revenue totaled $626 million in the fourth quarter, down 4% on a constant currency basis.

In energy, while fourth quarter revenues were down 5% versus a strong fourth quarter of last year, full year revenues grew 4% on a constant currency basis. This record performance was driven by strong growth in higher RPC products such as our Dutch natural gas contract, or TTF, in addition to other crude and refined products. Importantly, the open interest that built throughout 2019, as anticipated, translated in the strong volumes in January, with record energy ADV up 29% year-over-year, improved RPC and open interest up 12% versus the prior-year period.

In our Ag market, fourth quarter revenues increased 5% year-over-year, including strength in cocoa, coffee and cotton. 2020 is also off to a strong start with January volumes increasing 30% year-over-year, increasing RPC and open interest approaching record levels and up 14% year-over-year.

In our financial futures complex, fourth quarter revenues were down 13%, driven primarily by lower interest rate volumes. However, sterling open interest ended the year up 20%, and is up 36% at the end of January. Volumes grew 72% in January and RPC was stable.

Finally, in our fixed income and credit businesses, revenues totaled $96 million in the fourth quarter. This compares to $83 million last year and includes a full quarter of Simplifile, which we acquired in June of last year.

Next on Slide 7, I will discuss the data and listings segment. Fourth quarter data services revenue totaled a record $559 million, up 4% on a constant currency basis versus the prior year. This marks the 40th consecutive quarter of year-over-year data services revenue growth. For the full year, revenues grew 5% at constant currency and landed right in the middle of the range we provided a year ago.

Fourth quarter growth in pricing and analytics was 4% on a constant currency basis. A challenging business environment in Europe partially offset solid growth in North America, accelerating growth in Asia-Pacific and double-digit growth in our Index business. We expect the impact from the challenges in Europe to persist through the first quarter, after which we anticipate absolute revenue and growth in pricing and analytics will accelerate, yielding 5% to 6% growth for the full year.

Exchange data and feeds grew 2% year-over-year on a constant currency basis, driven by solid growth in futures data, offset by softer trends at the NYSE. Desktops and connectivity growth was 7% year-over-year on a constant currency basis, and similar to the last few quarters, was driven by strong performance in our ICE Global Network offering, where network capacity grew 14% versus the prior year.

Finally, in our listings business, revenues totaled $113 million in the fourth quarter. The NYSE listed 12 IPOs during the quarter and 58 for the full year. During 2019, the NYSE helped customers raise a total of nearly $112 billion of capital, ranking first globally in total capital raised for the ninth consecutive year.

I will conclude my remarks on Slide 8 with some 2020 guidance. We expect 2020 data revenues to be in the range of $2.29 billion to $2.33 billion. This includes revenues of $560 million to $565 million in the first quarter and assumes further sequential improvement in terms of both dollars and growth each quarter as we move through the year.

Moving to expenses, we anticipate full year adjusted operating expenses between $2.275 billion and $2.325 billion. As I noted on our third quarter call, you need to add roughly $50 million to the 2019 base to account for Simplifile, the reclass of certain licensing expenses and a few onetime items that we highlighted as we moved through the year. Off that base, and very consistent with prior years, compensation expenses will increase by $30 million to $40 million.

Expenses related to revenue growth are expected to increase by $15 million to $25 million. And finally, we will make $20 million to $30 million in incremental investments in our technology platforms, as well as key growth initiatives such as ICE Futures Abu Dhabi and Bakkt. These investments will be largely funded by $15 million to $25 million of expense efficiencies. Finally, we expect $570 million to $580 million in the first quarter for expenses, including around $5 million of severance, which we do not expect to recur in later quarters.

In summary, we delivered a solid finish to another record year. We once again grew revenues, operating income, free cash flow and capital return. And at the same time, we invested across our business and are well-positioned to once again meet the needs of our customers, grow the top and bottom line, and deliver enhanced shareholder returns during 2020 and beyond.

I will be happy to take your questions during Q&A, but for now, I will hand it to Jeff to expand on some of our strategic initiatives as we enter the new year.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Thank you, Scott, and good morning to everyone on the call. Please turn to Slide 9. 2019 marked our 14th consecutive year of record revenues and record adjusted earnings per share. It's a track record that reflects the quality of our strategy, and more importantly, the execution of that strategy.

As growth opportunities emerge around the world, it's our technology, expertise and culture that enable us to quickly and efficiently capture these opportunities. It's an approach that empowers product innovation, and it's a proven model that's yielded both consistent growth and shareholder value creation.

In our natural gas markets, shale production in North America is surging, while legacy LNG contracts across Asia are unwinding. Similar to the evolution of crude oil markets a number of years ago, the liberalization of natural gas is driving demand for a globally recognized benchmark. And our European natural gas complex, led by our TTF contract, is quickly emerging as the Brent of natural gas with average daily volume up over 100% in 2019 and up 56% on average annually over the last five years. As liberalization takes hold, what were once regional markets such as European TTF and our Japan Korea Marker, called JKM, are becoming increasingly interconnected and global in nature. And it's this evolution that drove record natural gas revenues, up 16% year-over-year in 2019.

In our oil markets, we have invested in building a global platform. Today, our oil complex spans over 600 products, including locational spreads, product spreads, refining spreads and products that are built off our benchmark energy contracts such as Brent Crude and Gas Oil.

We continue to invest in our Energy business. During the fourth quarter, we announced the formation of ICE Futures Abu Dhabi, known as IFAD. In November, the Abu Dhabi Supreme Petroleum Council announced plans to lift designation restrictions on Murban crude, allowing barrels to move more freely and to price against our futures contract, which we plan to launch later this year, subject to regulatory approval. Murban crude is a highly fungible and sought after grade of oil, and it's utilized by a wide range of global customers, including over 60 refineries in the Asia-Pacific region. As we have done in the past, we are applying our blueprint for building new marketplaces by partnering with key industry participants such as the Abu Dhabi National Oil Company, as well as nine of the world's largest trading firms, including Shell, BP, Vitol and Petro China. Leveraging ICE's current technology and infrastructure, the Murban crude contract is expected to clear alongside of our global oil business at ICE Clear Europe, bringing capital efficiencies to customers that are underpinned by our flagship Brent crude oil and low-sulfur gas oil contracts, as well as our leading Asian oil complex.

Our performance in the global energy market is a product of the investments that we have made, some more than a decade ago, and our commitment to staying close to our customers. It's an approach that permeates this organization, creating long-term relationships and helping to drive effective and efficient product innovation. This approach is also important to our data business, where we are uniquely positioned to leverage our distribution and our infrastructure to create new content and to expand the breadth of our multi-asset class offering.

For example, in early January, we announced that we will be rolling out a suite of new ESG solutions, including climate risk analytics and ESG reference data. Leveraging our current infrastructure and reference data expertise, customers will soon have access to terms and conditions on nearly 500 ESG data points such as a company's greenhouse gas emissions or its board diversity metrics. This will not be a rating, and we will not be providing any opinion. Instead, we will provide our customers with a standardized set, consisting of the critical information they need to better assess ESG risks and to establish more precise investment parameters. In addition, our new climate analytics, fueled in part by our leading pricing and reference data, will help customers better understand and quantify key ESG investment factors such as wildfire, flood and hurricane risks.

And while we returned a record $2.1 billion of capital to shareholders in 2019, which was a nearly 20% increase from the last year, we also continued to invest in our early stage growth initiatives across mortgages, ETFs and digital assets. Starting at ICE Mortgage Services, we benefited from strong refinancing trends, as well as the continued adoption of digital mortgage solutions. While still a small part of the overall US mortgage originations at less than 1%, over 120,000 eNotes were created in 2019, nearly eight times our 2018 total. In addition, MERS saw a nearly 30% increase in the number of e-registry users in 2019. And at Simplifile, e-recording volumes also set a record, transmitting over 17 million documents through our network in 2019, up 22% year-over-year.

Also, in October, we launched our ETF Hub, and shortly thereafter, added fixed income capabilities. As we have noted on prior calls, our first phase is focused on building the network, by adding authorized participants known in the industry as APs, as well as additional ETF sponsors. Through the end of January, we were pleased to announce that we now have four APs that are actively using the platform, made up of J.P. Morgan, Bank of America, Citadel and Virtu, marking an important step toward building liquidity in primary trading, which is otherwise known as the ETF create/redeem process. In addition, over 70 of BlackRock's fixed income ETFs have utilized the platform so far, funds that now represent the vast majority of BlackRock's fixed income ETF assets under management.

And in fact, yesterday, we announced the acquisition of Bridge2 Solutions, a platform that we believe will accelerate the second phase of our digital asset strategy. A little more than a year ago, we outlined our future plans for Bakkt. Our mission was to build a broader ecosystem to support the full life cycle of a digital asset. We began by building a regulated bitcoin custody solution, as well as launching regulated futures and options on bitcoin, all to enable greater price transparency and to provide institutions with a trusted regulatory framework.

In late October, we announced that we will be launching a new consumer app, serving as a wallet for a broad array of digital assets. Now, from airline miles to hotel points, to crypto currencies, users will be able to seamlessly manage, convert and transact across this platform. Aligning our historical B2B platform with these new B2C solutions will position Bakkt as an aggregator and a marketplace for a broad set of digital assets. Our acquisition of Bridge2 Solutions will be an important part of accelerating these initiatives. Bridge2 supports roughly 4,500 different loyalty, incentive and employee perk programs across a broad range of industries, including the loyalty and rewards programs of seven of the top 10 US financial institutions. Together, these initiatives will expand Bakkt's presence across an asset class that today stands at over $1 trillion in value.

Now, if you'll turn to Slide 10, 2019 was another record year at ICE. And as we move into 2020, we are focused on applying our expertise and our technology to drive transparency and efficiency for our customers and create value for our stockholders.

As I wrap up my prepared remarks, I want to thank Chuck Vice for the immense contribution he has made to ICE for the last 20 years. While not as much a presence on the calls these days, Chuck has been mission critical to setting our strategy, executing on our growth initiatives, and importantly, shaping our culture for our younger generation of managers. Chuck will officially stay on as an advisor to me into 2022, but his impact on ICE will undoubtedly extend well beyond that. I also want to thank our customers for their business and their trust in 2019, and I want to thank my colleagues for the efforts that they have contributed to yet another record year for ICE.

And finally, if you'd allow me to, I'd like to share my thoughts on how we think about shareholder value creation. ICE has a long history of creating shareholder value, and we've done so by thinking outside the box and by engaging in value-accretive transactions, building partnerships and delivering on organic growth opportunities that others have not considered or did not have the vision or ability to successfully execute. We have, for many years, held an internal bimonthly meeting with ICE senior management to kick around new ideas on how to engage with third parties or respond to third-party inquiries, which could culminate in business combinations or licenses or partnerships or even ICE divestitures.

In fact, a routine part of our quarterly meetings with our Board of Directors is to discuss the best of these ideas to gain further input. We look to be opportunistic and we hold such meetings to develop new ideas in order to exploit the talents and the technologies, the capabilities and the assets that we have already assembled for the benefit of our shareholders. One only has to look at our 2019 results and our 2020 guidance to see the power inherent in our current platform. We have and we always will take a disciplined approach to acquisitions. It's an opportunistic and proactive approach that does not preclude, but instead encourages, exploratory conversations and thought alongside of our rigorous analysis. And it is that approach that has resulted in a long track record of value creation for our shareholders, as demonstrated today here on this Slide 10.

When we started ICE, our goal was to build an online marketplace, one that would match buyers and sellers of electric power. Back then, I sought out an opportunity to visit eBay to meet with its CEO, Meg Whitman. I was in search of advice on how to build an online marketplace, something that she was uniquely positioned to offer me, given the similarities between our business models. After all, we both match buyers and sellers. We both collect an organized data. We both work with third parties to provide physical distribution. We both build useful analytics to enhance the transaction experience. And there were clear parallels between new ideas in the market for centralized clearing, which we didn't have at the time, and an Internet-based PayPal.

While our respective marketplaces serve different customer bases, they are still marketplaces, and there is much to be gleaned from similar businesses that operate in different industries, different regions and different customer verticals. In the case of our recent statement related to eBay, like many other firms that we converse with, the company, for reasons of its own, was not interested in delving into the range of ideas that we hope to engage with them on, and thus, we're not able to move forward or validate whether any of our ideas have any true merit. Ordinarily, we would just keep an open dialog in the hopes that our paths would cross at a more fortuitous time, but press leaks that suggested there was some imminent business combination has required us to clarify the current situation.

And with that now, I am going to turn the call back to our moderator, Rocco, and he will conduct the question-and-answer session for us until 9:30 a.m. Eastern Time.

Questions and Answers:

Operator

[Operator Instructions] Today's first question comes from Rich Repetto of Piper Sandler. Please go ahead.

Richard Repetto -- Piper Sandler -- Analyst

Yeah. Good morning, Jeff, Scott. So first, thank you for the remarks at the conclusion of the prepared remarks. I think, Jeff, everybody looks at you as the most innovative guy in the space, the true visionary in the exchange space. At least I do anyway. But I think most of us got caught off guard by the media reports. And I know you have made some of the connections just in the prepared remarks. But where I think this caught a little bit -- caught more attention than the normal is that the size of the transaction, the media saying it was over $30 billion, that being almost 60% of your market cap. So I guess the question is, can you say anything to that magnitude of a transaction? And then, maybe if it is true, then just go deeper into the connection that you saw. And I know you did some of that in the prepared remarks. But why -- what do you see the value here in eBay? What's the angle?

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Sure. Well, I want to be respectful to eBay because they are not engaged with us, and to a certain degree, it's kind of like a question where you ask me, we're standing out in front of my neighbor's house and you say, if you own that house, how would you redecorate their living room? And I was raised to not do that and I also want to have a good relationship with my neighbor. So I don't really want to talk about their business too much.

But I guess, I was surprised that the market views just the inquiry as being so unique. This company was, for probably more than a decade, run by Devin Wenig, who many people on this call know because prior to that job, Devon ran and built a company that's now known as Refinitiv, which is a foreign exchange trading platform and a large data distribution network and a company that is now under acquisition by the London Stock Exchange, a peer of ours in the industry. And as Devon advanced above the operation of the eBay marketplace to run all of eBay, he was replaced by a fellow known as Scott Cutler. Scott Cutler, prior to that job, was the right hand of Duncan Niederauer and worked for us at the New York Stock Exchange, and now is running an exchange e-commerce platform unicorn, known as StockX.

So the idea that we would reach out to people who I know, who many of you on the phone know, to talk about whether or not there are parallels between their business and our business, I didn't think is particularly shocking and outrageous. But out of respect to the company, they have their own ideas and agendas. And their new CEO, Scott Schenkel, is dealing with a lot of activity in inbounds with activists in their stock. And so I want to be respectful of him and the decisions that they are going to make on how they are going to run their business.

But that being said, I think, Rich, in your world, you have the analysts that look at exchanges and data companies as a vertical and look at e-commerce platforms and technology companies as a vertical. And you think of those as being in two different atmospheres, in two different verticals. But for more than a decade, the Board of Directors of eBay, at least in my view as an engineer, looked at their company largely as one that had more synergies and characteristics of what comes out of the exchange world than the e-commerce world. And I am not sure that it's been fair for the market to hold eBay accountable as an e-commerce company and compare it to the likes of Amazon, and whether or not it should be viewed as a 25-year old cash market for collectible goods, which looks a lot more like the New York Stock Exchange than Amazon. And that curiosity and the fact that we know people there led us to open a dialog, and that's kind of the end of the story. So, hopefully, that helps to characterize some of the confusion out there.

Operator

Thank you. Our next question today comes from Ken Worthington of J.P. Morgan. Please go ahead.

Kenneth Worthington -- J.P. Morgan -- Analyst

Hi. Good morning and thank you for taking my question. Maybe, Scott, on the third quarter call, you said that pricing and analytics revenue and growth would improve again in 4Q on a workflow automation shift from -- or to passive in fixed income. Revenue did grow, but just $1 million, and growth fell sequentially from 3Q to 4Q from 5% constant currency to 4% constant currency. And you again in your prepared remarks said that growth would improve throughout 2020. So maybe why did we see the growth rate fall in 4Q rather than rise? And help us get confidence that the trend will kind of reverse and improve throughout this year? Thanks.

Scott Hill -- Chief Financial Officer

Yeah. That's a great question, Ken, and a fair one, because I also said on the second quarter call that I thought the pricing and analytics business would see a stronger fourth quarter than we saw. Let me start with the good news. Number one, I think, the key metric that we look at is ASV, and from an ASV standpoint, we ended [Phonetic] the year with pricing and analytics at 5%. And I will come back to why I think that's going to get better, so that's an encouraging fact.

Our growth in North America in pricing and analytics has been very solid around 5% to 6% for the last three years and we expect that will continue as we move into the year. Asia growth -- or growth in Asia, which I will admit is only 5% to 6% of the revenues, really took off last year. And it took off because as we moved through '18 and '19, we recognized that in a much more disaggregated market, an extended sales team was necessary, and so we started to make those investments in '18. They don't immediately hit the ground running. But as we moved through the back half of '19, we saw the productivity of that sales team really grow. The revenue growth really started to take-off. And so the investments in '18, the hiring in '19 and the intent to continue to hire in '20, all of which is reflected in our expense guidance, gives us a lot of confidence that Asia growth will continue to accelerate as well.

Europe is really where we saw the slowdown in 2019. And I think, there are couple of factors that are at play. One is, Europe is a fairly uncertain business environment right now, and so we saw customers who had been doing a lot of work, getting ready for various regulatory changes in '18 and '17 before it, really paused in '19, trying to figure out what is Brexit going to mean to me? What are the next decisions I am going to make? If I am in the UK, what rules and regulations I am subject to? If I am in Europe, how might this change? If I've got -- if I'm both in UK and Europe, what changes might exist as well? So, we did see a bit of a pause with customers as we moved through '19. Again, none of that was new. We were seeing it as we moved through the year.

In addition, we made some changes in Europe related to our pricing and billing to try and get to more of a global standard approach, and we saw some impact from that, some customer confusion over some of those changes. And that's really where I missed the call on the fourth quarter. We ended up having some -- again some lower consumption in the fourth quarter and even some credits that we issued that impacted revenue negatively in the fourth quarter that I just didn't see coming, not because I wasn't aware of the changes, but I just didn't anticipate the impact that we would see.

Good news is, that's behind us. And as I said in my prepared remarks, a little bit of that challenge persists into the first quarter, but from there, we think growth accelerates. And then you asked the question, why should we be confident about that? The reason you ought to be confident about that is because just like we did in Asia, we have really been making a big investment in European sales force. We added 10% to the sales team last year. We are going to add another 16% this year, again, all reflected in the expense guidance I gave you. Every one of those sales resources will immediately be positively productive, meaning they will generate more revenue than expense, and the overall sales team will generate productivity around 6%, 7% this year. And so, investments in the sales team that we started last year will continue this year. And I am confident, having been at recently the sales kick-off, that that team is very motivated to turn the growth story around. And with a lot of these customer challenges behind us, I am confident they can do it.

The other thing that gives me a lot of confidence is, Brexit is behind us. And now, customers are going to have to figure out, all right, now that I know Brexit is done, I have entered the world where I need to get back to work on making our business better, and we think we have a lot of data offerings that can make our customers' businesses better. New products will play a big part of it. We've recently talked about, and Jeff did in his prepared remarks, our ESG offering. As you know, Ken, ESG is far more mature in Europe, and so customers will be looking at those products, I think, in a positive way, and I think that will generate growth in the back half of the year.

And so, if you take all those factors into consideration, I missed the fourth quarter and I missed it twice. But the challenges that resulted in the credits that lowered revenue in the fourth quarter, again, are behind us. The investments in the sales team, the new product innovation, the fact that Brexit is behind us, all that gives me confidence that Europe will rebound. And as it does, in dollars and in growth terms, overall pricing and analytics will as well. And I fully anticipate that we will see 5% to 6% growth in the pricing and analytics business in 2020, which again is consistent. That business has grown about 6% on average over the last three years and we think it will again this year.

Operator

Thank you. Our next question today comes from Alex Kramm of UBS. Please go ahead.

Alex Kramm -- UBS -- Analyst

Yeah, hey. So I'd just stay on the same topic as Ken, just now on the data. You sounds fairly optimistic, but your commentary was all about pricing and analytics. If I look about -- at your overall guidance for data, I think you also committed on the last call to 4% to 6% overall for 2020. I don't want to split hairs too much, but I think when I calculate, your guidance is -- I think 3.6 to 5.4 [Phonetic] FX is helping you I think this year. So are you essentially taking that 2020 4% to 6% off the table and it's more like, I don't know, 4% to 5%? Or where do we end up? So maybe a little bit more commentary about some of the other challenges or tough comps that you are facing in the other businesses, please.

Scott Hill -- Chief Financial Officer

Yes, it's a good question, Alex. This one, though, I am going to take credit for having said it correct last quarter. What I mentioned last quarter is that I was confident that the pricing and analytics business will grow 5% to 6%. I just reiterated that. I said I thought we would see solid connectivity growth of around 4%, which again, over the last three years, on average is about what we have seen. Capacity, as I said, was up 14% last year. We anticipate that's going to be up 8% this year. I am very confident in that business. And what I said is, I thought if you added all that together without me saying anything about the exchange data business, we would be in the 4% to 6% range, and I mentioned consistent with our model.

I think the math you did is exactly right. I think if you look at the midpoint of our guidance and where the Street is right now, it aligns perfectly. The challenge that we have got is on the exchange data side. We have seen softness related to the exchange data at NYSE. And as you know from following the company as long as you have, on the exchange data side, we don't tend to see necessarily meaningful growth every single year. Every 18 to 24 months, as we add products, as we find opportunities to capture value in our pricing, we do that. There's not a lot of price change that is coming through the exchange data side for the futures business in 2020.

And so if you roll all that together, very strong performance in pricing and analytics as it rebounds from some of the challenges in Europe I mentioned. Continued strong demand for capacity, which I have indicated to you, I believe, is the leading indicator, just like open interest is for future revenue growth out in '21 and '22 and beyond. So solid performance in the connectivity business as capacity grows, and then, challenges in the exchange data space that I don't think would surprise any of you listening to the call.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Yeah, Alex, this is Jeff. Let me just iterate on that last point because I have mentioned in prior calls, and I want to highlight again for you, that at the Securities and Exchange Commission, there is a group of people that have tried to use the rule-making process to lower the fees for equity exchange data. It's had just the opposite impact, which is, it's paralyzed the exchange data pricing debate. There are lawsuits going on, rule makings, new filings, so on and so forth. This just sort of freezes time and will, in my mind, for a very long time going forward as lawsuits are litigated and appealed and what have you.

So as Scott is putting a model together and as management is thinking about revenue opportunities there, we just basically say it kind of is going to be what it's going to be. I don't expect it to go up. I don't expect to go down. It's really pretty frozen. And I don't think that's necessarily the intent of the customers that have been trying to advocate for this because it's frozen in a sense that we couldn't even lower prices if we wanted to. And so, it's sort of is what it is, and that's why Scott has mentioned, you all that follow this space can see that.

Operator

And our next question today comes from Alex Blostein of Goldman Sachs. Please go ahead.

Alex Blostein -- Goldman Sachs -- Analyst

Thanks. Good morning, everyone. So, maybe go back to the M&A discussion for a second, so I guess, since the IDC deal, ICE is really kind of focused on more bolt-on deals to really sort of build on your core capabilities, whether it's trading, data, connectivity, etc. I guess, all deals are kind of on the smaller side. Your interest in eBay, albeit early and implied potentially a wide range of things, but including maybe something larger. So, has anything changed? And I guess, as we look forward, should we anticipate larger deals from ICE in the future, including maybe in verticals that are not as obvious to us as what we have seen in the past?

Jeffrey Sprecher -- Chairman and Chief Executive Officer

It's a good question. And I'll try to -- and you and I've spoken publicly about some of our philosophy to some of your clients, but let me just reiterate it for others. We have a great platform, and you just look at this first quarter and where we are going, it is phenomenal. The legacy businesses that we've built and the efficiencies that we've plugged into that platform are going to deliver growth. And so, I look at my job and the job of the managers that are my colleagues sitting around this table, and as we think about whether not we can create additional growth and alpha for investors, we've really landed and in two places that seem to work for this company. One is to buy smaller companies that are earlier in their life, where if we plug them into that platform that I just mentioned, we can accelerate their growth, and we have done a number of things like that.

If you look at our mortgage business, I think it's probably the fastest growing part of ICE. These were smaller, younger companies that we put together and put on a very, very efficient new platform that we've tweaked and built. And they are growing double-digits and I think will continue to do that. I think this acquisition that we announced yesterday, Bridge2 -- when we talk about thinking outside the box, I don't think any of our investors or peers have ever thought about whether or not you should be listening airline miles on an exchange. But these are the kinds of things that we're thinking about in terms of the second part of your question which is, are you looking at new verticals?

The other thing that generates good returns for our investor base is if we buy older, larger, mature companies, where we can do something, and this was like IDC, like NYSE, where we can do something with our platform and technology that would take an otherwise business that may be declining and reinvigorate it. To a certain degree -- and we really believe that, by the way. To a certain degree, we had a bit of audacity when we bought Interactive Data. We said, if we buy this company, we think we can double its growth rate, and we did. And you should ask us why would you say that? You didn't even have a sales force in ICE. You didn't even have a billing platform that could send out an invoice for somebody that wanted to buy data, and yet -- and we were not in the fixed income space, and that was a large fixed income platform. And what is the audacity of this management team at ICE to say you can buy this business and double it? And the reality is, because we really believe in the underpinnings of our platform and this network distribution that we have. And we took that company, and within a year, we had dramatically improved its top line growth, while eliminating tremendous costs by getting on this sufficient infrastructure that we've built around here.

So, those two ends of the barbells, larger companies, more complicated companies that could use invigoration, and smaller companies where we can improve their distribution, tend to be how we best create value. Typically, as you know, Alex, most people come to us to talk about companies in the middle that are fully valued and might be really attractive businesses, and they are and they're businesses we would love to own, but they are at a point where they are doing fine on themselves and there's nothing that we could do that would invigorate them to a degree that would overcome any premium that we might have to pay. And we are just not people that want to subject our investor base to those kinds of acquisitions because they tend to be red black bets in the long run, and on either end of the barbell are pretty well sure things for us. And we are in the luxurious position where we don't have to do anything, as so we can -- because our platform is so strong as designed, that we have the luxury of having these biweekly meetings that you and I've talked about in the past -- bimonthly meetings, excuse me, to think outside the box.

Operator

And our next question today comes from Kyle Voigt of KBW. Please go ahead.

Kyle Voigt -- KBW -- Analyst

Maybe just a question on Bakkt. As you mentioned, you are planning to launch its consumer app later this year. I guess, what are you looking at to evaluate the success of the consumer app and maybe Bakkt, more broadly? Is it just adoption rates at first? And then, how should investors really think about the revenue model over the medium term from kind of the consumer-facing part of that business? Thanks.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

It's a good question. And we set it up as a separate brand and we set it up as a company with separate investor pool so that -- we could have owned 100% of the company, but we elected not to because it may have a different growth metric and valuation metric than our core business. And that was intentional to give us flexibility that at some point, we could pull it all in, at some point, we could spin it all out, at some point, we could bring in other partners. And so, we have a capital markets flexibility around the way we have organized and named the company and set up the management. And in fact, we have them within our offices in a unique space that's key card controlled by them, and so it's truly allowed to operate within our ecosystem as a start-up.

And in that regard, the next big hurdle for the company will be getting that app into consumer hands, and we will be looking at consumer adoption more than revenue or expense. Fortunately, the company is not a particularly big drain on us. And with Bridge2, Scott will update you in the next quarter about how the company looks. But we have a lot of financial flexibility now with the company, given that it has a revenue stream both from trading and from operation of all these rewards programs for 4,500 companies. And so, I will be looking more toward consumer adoption.

We also are engaged with -- while we have talked about one consumer-oriented company on this call, we are engaged with a lot of consumer-oriented companies. And we have been very public about our engagement with Microsoft and how -- whether or not this platform can deal with digital game pieces and whether there is a market and a marketplace for digital gaming assets and that would fit nicely with other digital assets. And so, we are having a lot of conversations with larger consumer brands and merchants with some interesting ideas, now that we have got rewards and cryptocurrency and potentially gaming in one ecosystem, and what else could plug into that and what are the synergies between various businesses? Is it a case that an airline would like to have a different rewards relationship with certain kinds of partners, with certain kinds of consumers? Is there consumer data that can be shared across a collection of retailers that view a common customer base, that can use their rewards programs and incentives in different ways? Can more millennials be attracted to those companies by virtue of having cryptocurrency or gaming assets in that ecosystem? And so, the conversations that we are having across a broad range of industries really lead me to say, not so much revenue and bottom line, but it's broad adoption, I think, for 2020 that we'll be looking toward.

Operator

And our next question today comes from Michael Carrier of Bank of America. Please go ahead.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Good morning, and thanks for taking the question. Maybe one more on -- just more capital allocation and M&A. And Jeff, you provided a lot of commentary on strategy and how you think about new transactions, which is helpful. And I guess maybe more on the financial aspect, when you are looking at areas that are maybe newer or not as straightforward to like the core business, how do you guys think about maybe the potential opportunities, but maybe the potential risks when you are looking at things that aren't as straightforward? And then the timing of maybe like the financial returns versus like those end-market deals, if you can just put some context around it, whether it's you, Jeff, or Scott.

Scott Hill -- Chief Financial Officer

Yeah, that's a great question, and I really appreciate you're asking it, because I think it's important -- Jeff, I think, very clearly stated that everything that's been discussed is very consistent with the same structure that we followed for 15 years, the biweekly meetings, the way we've thought strategically about the deal, the thoughts on how we use our platform, our management expertise to think about combinations. The financial approach is exactly the same. It's very -- in the summer of 2017, we walked you through precisely how we think about M&A, that we expect deals to generate returns on investment above 10%, that we expect synergies to largely be realized in the first three years, that we look for deals that deliver accretion, and that's intentionally kind of third down the list, because it's really that return on investment and the importance of it being above our cost of capital and above our hurdle rate, that's really important. And that financial model, that financial discipline, it's how we approach every single deal. Whether it's a bolt-on deal or a big deal, it's an obvious deal or a less obvious deal, the financial approach is exactly the same.

Now, clearly, to the extent that it's deal that's a little bit off the beaten path, it's really important to be able to get in a due diligence. And yes, we expect we can get synergies, but where might those synergies be. And so the important elements of the model with deals that are, again, a little more off the beaten path really are, we need to go in and validate where we think the cost can come out, where we think the platform synergies will exist. But again, the approach to it is no different; the same financial discipline, the same financial model. And frankly, the same financial hurdles that we have told you guide our capital allocation are exactly the ones we apply to every single deal, regardless of the nature of that deal.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

And let me just give you -- that was a quantitative answer. Let me give you a qualitative point that I hope doesn't get lost on our investor pool. This is a founder-led company, and I am surrounded by a management team that -- we have worked together for a very long time, and we really know, and I definitely know, what this company is and isn't. To a certain degree, we stitched it together. I really know what we do well, but more importantly, I know what we don't do well. I know areas that we are really poor at. And there is no illusion that somehow, we are going to magically get better at something, and by the way, unless we decide we want to get that expertise. But generally speaking, we know the lane that creates value for us, and we have used that same model over and over and over again, and there is no reason to deviate from that model.

And so, when we think about, is there a marketplace for airline miles or swords and sickles that are on a video game, we are not crazy, we didn't lose our minds. We know what our platform does and we know how to lever it, and we feel really good about our ability to continue to find new asset classes, and maybe more importantly for this investor group, like mortgages, like fixed income create/redeem, things that other management teams haven't touched but that bolt-on well to our platform. And so, I just want to reassure everybody that the founder is still here and the management team that I am a part of is still together. And we know who we are, we know what we do and we didn't lose our minds over the weekend.

Operator

Our next question today comes from Dan Fannon of Jefferies. Please go ahead.

Dan Fannon -- Jefferies -- Analyst

Thanks. And I guess just one more on M&A, and I appreciate all the commentary thus far. But, I guess, just the current context of what you guys are looking at today and how different that might be than, say, a year ago in terms of your outlook and outreach toward M&A, the number and size of deals, and I guess just based on what you have said today and outlined in terms of your track record, I guess, it was [Phonetic] point like why wouldn't eBay engage with you, given the success you have had previously.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Well, it's easy to answer the second part first, which is, I don't know. And I also mentioned that the first outreach to eBay was roughly 20 years ago. So, it's not one-touch, OK? So we think about things in the long run. By the way, when we bought the New York Stock Exchange, people were shocked and it came as a big surprise, my gosh, we have been talking to the New York Stock Exchange since we were a start-up. So, to a certain degree, opportunity has to present itself. Timing has to present itself that both management teams feel like it's the right move at the right time. And you have to respect other people. As a public company CEO, I am totally respectful that different managements have different agendas, and they have different struggles and different opportunity sets, and we can't see them and we don't know them, what they are. And so I would never be critical of somebody who wants to rebuff us because I take -- we rebuff people all the time, but we try to stay nice and close because you live long lives and you never know. And here we are 20 years after I sat with Meg Whitman. And in fact, I asked Meg Whitman to be on my Board of Directors, honestly, and I asked for a lot of guidance from her, and she is lovely and helpful and provided a real incentive and goal for us as a start-up.

And so anyway, I think you should assume that we have -- that we are not unique with this one leak, that there are dozens and dozens of companies that we have had longtime touches with that we could talk to and share ideas with, that have gone on and will continue to go on.

Operator

And our next question today comes from Ken Hill of Rosenblatt. Please go ahead.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Hi, good morning. I wanted to come back to Bakkt for a minute. You guys have talked about -- a lot about M&A, but I was wondering if you are considering any partnerships in that space with some of the traditional payment players because loyalty program seems like a hot area. And I asked because a lot of the payment firms I cover, when they roll out new products, they are doing it over tens of millions or hundreds of millions of customers. So could a partnership in that area help jump-start some customer adoption for Bakkt?

Jeffrey Sprecher -- Chairman and Chief Executive Officer

It's a very good question. If you look at the employee pool and the talent that we have recruited to Bakkt, there's a lot of people that have come from various payment companies, and now, people that have [Phonetic] come from rewards companies once we close with Bridge2. And so, we have a pretty good canvas in terms of having private dialogs with various companies. And there is a lot of conversation going on at that level, a lot of conversation with traditional banking and Wall Street, who are thinking about what does [Phonetic] the fintech will look like for banking when we go to a zero commission stock trading environment for retail consumers? What --- how is fintech going to change the broad financial services landscape? And gee, here's Bakkt, and it has a digital wallet with a lot of connectivity right now, and what else can be done with it?

So there is a tremendous number of conversations going on. But importantly, we have built really an industrial-scale platform there that we have been working on now for well over a year with dozens and dozens and dozens of engineers that have built something that we know will scale, because we are in a scale business, that can hopefully look right out of the box as a company that doesn't look and feel like a traditional start-up in terms of its ability to deal with some traditional payments, people or banks or merchants because -- I have talked to a lot of fintech entrepreneurs, and one of the things that a lot of people don't understand, and rightly so and not to be critical, but financial services has a lot of rules and regulations around the world, and we exist in that ecosystem and understand how we are going to be judged and monitored. And successful businesses need to scale, and that's not easy to do. And a lot of younger entrepreneurs building fintech don't fully recognize that when you are handling other people's money, you really need a very powerful ecosystem with internal audits and checks and balances and surrounded by a cybersecurity overlay. So, I think that's getting built n, which gives us flexibility to talk to some of the kinds of companies that you are thinking of because I think it's going to be an attractive platform.

Operator

And our next question today comes from Brian Bedell of Deutsche Bank. Please go ahead.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks. Thanks very much. Maybe just continuing along that, again, Jeff these -- your answers are really insightful here, so really appreciate it. Just assuming, given your conversation for eBay, you are really talking about the marketplace component of eBay. But maybe more broadly, what is it that your -- the ICE platform, why is that uniquely positioned to leverage a consumer marketplace? And then, maybe just talk about what are your ambitions longer term to move more into the consumer space versus the B2B space that ICE has always been in, especially on the financial customers. And then just a quick one for Scott. How much do you think you could raise the debt-to-EBITDA capacity if you are bringing on a more recurring revenue business versus just the ICE legacy business right now?

Jeffrey Sprecher -- Chairman and Chief Executive Officer

So let me just say -- again, I don't want to comment on eBay and how they run their company or how we would help them run their company. Those are conversations that, at some point, we would love to have with eBay management if they are open to it, but I don't really want to do that in public. But let me just say that -- I will tell you that a large platform that we have, which is largely a database management platform, doesn't really know whether or not the top high-frequency trading firm that's using a liquid cooled computer and blasting bits and bytes off the ionosphere in order to interface with us. That bit and byte is no different than a retiree sitting in their kitchen clicking on a mouse. Our ability to handle massive amounts of data securely, efficiently, put it in a database, sort it, search it, manipulate it, cleanse it and give it back out to people, is a core talent that we have here. That is what ICE is.

Just as an aside, I started the company by buying a little failing firm from MidAmerican Energy, which is Warren Buffett's electric utility -- and by the way, I bought it right before he acquired MidAmerican. So he is a smarter investor than most of us on the call. But I bought this company, it was called the Continental Power Exchange. I changed the name. I decided to call it Intercontinental because I thought being continental was too limiting. And I took the word power out of it because I thought just focusing on power was too limiting. And so, we end up with the name Intercontinental Exchange. I swear, if I were starting this company today, I would probably call it the Intercontinental Massively Scalable Network and Database Company because that's what we are. That's what airline miles and gaming swords and credit default swaps and delivering barges that we manage in Rotterdam for fuel oil, that's what happens. Those endpoints are ubiquitous to that network in my mind.

Scott Hill -- Chief Financial Officer

And just to pick up on that for the more boring part of the question about financial capacity, not bits and bytes, or swords and sickles. I think the key thing I would tell you is, our capacity for any deal really rests on, I think, three key factors. Number one, our commitment to [Indecipherable] our investors, so the deal has the right return and to be able to present a good deal to the ratings agencies and the bondholders to borrow. And so we have to be able to do that. If we can tell the right story and demonstrate how it meets the needs of all of our important constituents, that will generate capacity for us.

The second thing is, the deal that we are talking about has to generate the cash to allow us to delever and to do so in a meaningfully fast way. And we have done that historically. All of the times that we have decided to lever up, we have committed to lever back down within three years. And in most cases, it's taken 18 months and not much more. And so that's the second thing. Do you have a plan to delever, and by the way, do you have a track record of being able to delever? And so the relationships with our investors, with bondholders are important. The ability and the track record of deleveraging is important.

But then the third thing, we've spent an hour not talking about a volume business that's crushing it right now. We had some good questions earlier about a data business that is growing at twice the level of the large company we acquired a few years ago at over 50% margins. The combination of that business generates $3.3 billion of EBITDA. It generated last year $2.3 billion of free cash flow. That's where capacity comes from. That's the starting point. It's the strength of the existing business. The fact that all of our colleagues aren't listening to this call, but they are running our exchanges and our clearing houses and selling data and building ETF Hub and building the mortgage business, that's the foundation of capacity because if we don't have that $3 billion of EBITDA, if that EBITDA hadn't grown every single year for 14 years, we wouldn't be able to enter into a conversation about going and levering up. So it's those three things that drive it, with the last one being the fundamentally most important one.

Operator

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Jeff Sprecher for any closing remarks.

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Thank you, Rocco. Well, this was an interesting call, and this management team will go away and think big thoughts and we will be back to share those with you next quarter. But meanwhile, as Scott said, please take a look at our volume and open interest and refine your models and see what's going on here, because we are very, very proud of where we are year-to-date. And we look forward to talking next quarter.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Warren Gardiner -- Vice President of Investor Relations

Scott Hill -- Chief Financial Officer

Jeffrey Sprecher -- Chairman and Chief Executive Officer

Richard Repetto -- Piper Sandler -- Analyst

Kenneth Worthington -- J.P. Morgan -- Analyst

Alex Kramm -- UBS -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Kyle Voigt -- KBW -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Dan Fannon -- Jefferies -- Analyst

Kenneth Hill -- Rosenblatt Securities -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

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