Good day. Welcome to the Intercontinental Exchange First Quarter 2019 Earnings Conference Call and Webcast. All participants will be on listen-only mode. Should you need assistance during the conference call, please signal a conference specialist by pressing star and 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and 1 on your touch-tone telephone. To withdraw your question, please press star and 2. 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.
Good morning. ICE's first quarter 2019 earnings release and presentation can be found in the investor section of ice.com. These items will be archived. 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 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 will 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 Form 10-Q. When used on this call, net revenue refers to revenue net of transaction-based expenses. 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 will now turn the call over to Scott.
Thanks, Warren. Good morning, everyone. Thank you for joining us today. I will begin on slide four 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%. Data revenues increased 6%, each on a constant currency basis. This strong revenue performance helped deliver 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 non-recurring benefit in comp expense. Adjusted for that, we would've 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 expect each subsequent quarter to increase sequentially by about $3 million-$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-$2.18 billion. I'll pause here to note that in the first quarter, we recognized $19 million of non-operating 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 a 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. Let's move to slide five, 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 gas oil market 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. More importantly, overall energy open interest continues to grow and is up 3% versus the end of 2018.
In our financial futures market, while interest rate volumes were impacted by Brexit and an uncertain European economic backdrop, MSCI volumes improved by 9% year-over-year. Importantly, while interest rate volume has 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 six, 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 through the end of January, the NYSE helped raise 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 strategies is continuing to drive increased demand for our evaluative pricing services, both real-time and end-of-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 improved market share at the NYSE, which determines the revenue we receive from the shared tape plan. 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 this 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 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.
Thank you, Scott, good morning to everyone on the call. I'll begin on slide seven. 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, 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 contracts such as Brent Crude Oil, gas oil, 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. 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 represents about a quarter of our revenue, we're the leading global provider of evaluative 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.
Whether it's through initiatives such as our ICE ETF Hub or new data products such as real-time 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. 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. Electronic mortgage notes, or eNotes, are an important step towards a fully electronic mortgage ecosystem. In the first quarter alone, more eNotes were registered on MERS than in all quarters of 2018 combined. eNotes can bring meaningful efficiency gains to the industry by shortening closing time, improving quality control, and helping to reduce friction.
With eNotes representing less than 1% of the outstanding mortgages today, the opportunity for future growth is substantial. Turning now to slide eight. 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 two 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 four times 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 costs, and making the closing process simpler, faster, and more transparent. Turning now to slide nine. 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, 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. 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. 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%. Our footprint provides us with a unique foundation to drive growth while continuing to create value for shareholders. I'd like to thank our customers for their business and their trust in the quarter. 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, Sheree, to conduct a question and answer session, and that will last until 9:30 A.M. Eastern Time.
Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star and one on your touch tone telephone. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and two. Please limit your questions to one per analyst before we are entering the queue. One moment for the first question, please. The first question is from Mr. Michael Carrier of Bank of America. Please go ahead.
All right. Thanks. Good morning. Thanks for taking the questions. Amy, just the first question, just on the fixed income business. You guys have done well on the data side. I think on the trading, it seems a bit more competitive with some of the incumbent platforms out there. 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?
Thanks, Michael. This is Benjamin Jackson. I think Jeff captured it in the comments that he was making in his opening script there, in 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. It represents now a quarter of our revenues across our entire revenue base. Think about a $1.3 billion business.
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 with pricing, reference data, index, and analytics capabilities that we've provided to customers for more than three decades. Data businesses and data services are very hard to establish with customers. You have to have a long track record of trust for them to trust that you as a benchmark price that they're going to reference. Takes a long time to establish that credibility and that relationship. 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. We have seen treasuries perform very strong on our platform. 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, rationalized and take some cost out, and now have a single vision to leverage the institutional relationships that we've established over multiple decades. That's really what you see as our differentiator.
Okay, thanks a lot.
The next question is from Rich Repetto of Sandler O'Neill. Please go ahead.
Yeah. Good morning, Jeff. Good morning, Scott. First, thanks for slide seven, Jeff and Scott. It's been an experience watching the company expand over the years. Anyway, my question is on what you schooled us on, Scott, the annual subscriber value for market data, and it went up nicely. Again, you talk about what we're working on right now is 2020 revenue for market data. I guess the question is, I know you've accelerated the growth from the low single digits to the four to six now. But as you go forward, as you add this annual subscriber value, is there any momentum, anything to point that you can grow it faster than the upright you have right now?
Is it still coming from the same sort of buckets that you talked about a couple of years ago when you first gave some guidance on the growth there?
Thanks for the question, Rich. I do think the ASV 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 ASV, 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%. If you look at our guidance for the second quarter, we're again going to be in that kind of 5%-6% range with the midpoint being right around 5.5%. It's a growth trend that's been consistently delivered, and ASV indicates that it can continue.
It can continue because of some of the things that we 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 the move that Ben spent a lot of time talking about, towards bond ETFs, which if you look at it relative to equity ETFs, is a much smaller space, but one where everybody is pointing to a strong future. I think in the fixed income area, and that's largely our pricing and analytics business, which has grown 6%, 7% every quarter for the last four or five quarters. It's really those trends that have driven it and continue to drive it. If you 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. Our connectivity services related to the futures exchanges was up solidly again this quarter. Our futures exchange data was up again this quarter. 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 dynamics. We offer commodities in the energy space, the most comprehensive global oil market, the most comprehensive global natural gas market, the most comprehensive global ag market. We continue to see commercial customers who are managing their price risk exposures in our market, and that drives demand for connectivity and for exchange data.
Again, I would suggest to you've been seeing that in the growth results we've put up. I think it's definitely reflected in our first quarter and second quarter guidance. I think you see it in the ASV, which indicates that those trends continue.
Okay. Thanks, Scott.
The next question is from Mr. Patrick O'Shaughnessy of Raymond James. Please go ahead, sir.
Good morning, follow up on the first question on the fixed income business. Is there any quantification you can provide regarding customer growth or average trade size and metrics that you can provide to us that would indicate thet you are progressing along your goals?
Thanks, Patrick. I think as I had 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 towards municipals, so we did see that impact the businesses to some degree. All that said, the 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 is trending very positive is the development of our RFQ capabilities to move into the institutional space. An RFQ represents close to 20% of our trading volumes on a day in and day out basis.
We continue to see, 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. That's a real indicator that central limit order book trading in fixed income is starting to develop. 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've built out on the back of a longstanding capability that we've had in all of our futures markets, and being able to provide that protocol as well.
It's those two 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 that are trading on our platforms and also increase in trade size.
Great. That's helpful. Thank you.
The next question is from Daniel Fannon of Jefferies. Please go ahead.
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 way to gauge success? Is it because we don't really have market share, we're not getting clean data yet. Is it aggregate revenues? Or I guess, what just holds you accountable in terms of that success? What should we think about as goalposts as we think about the remainder of this year or even further?
That's a good question. This is Jeff. It's complicated for us because we don't run our businesses the way we reported them on that chart. In other words, we have an integrated management team, and we're running all those businesses together and commingled on common technology platforms where we can do it, and common sales and marketing efforts. If you step back, the goalposts that we set internally as 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?" We were pretty knowledgeable. We are very knowledgeable about markets. This management team has been together a long time, and our team has a lot of international cross-border experience.
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. I can tell you, a very mature New York Stock Exchange has 12 other exchange competitors and five 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, it percolates through organizations and becomes institutionalized.
In looking at the fixed income market and the difficulty that we all had in our industry of how to digitize that, we decided to start where we thought the higher value part is. You've seen growth. Scott talked about ASV, and we've talked about our company as a data company and how that's 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. It's why we decided to try to better show you how the business operates. We'll take it away that are there metrics that we could put out. We don't run the business that way, so it's hard. We don't have those metrics at our fingertips.
I'd 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 Börse and LSE and, at that time, NYSE Euronext, that had very strong interest rate franchises. 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." You're starting to see some of these decisions that we made 10 years ago play out, and it's why I spent a little bit of time talking about Bakkt and digital assets. I don't know where that company will go. None of us do.
We have the luxury in this company of having 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. Anyway, that's the overarching theme here, and we'll take away specific metric interest and see if we can
Great. Thank you.
Thank you.
The next question is from Mr. Jeremy Campbell of Barclays. Please go ahead.
Hey, thanks, Jeff. Just piggybacking on that mortgage commentary there, now with MERS and Simplifile, can you just provide some color how ICE Mortgage Services fits within the existing mortgage technology infrastructure? For instance, I think of Black Knight that has something like 80% of mortgages serviced 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?
Very good question. When we bought MERS really is a company that registers, if you will, paper-based mortgages. It gives every U.S. mortgage a mortgage identification number called a MIN number, mortgage identification number, and that's for a paper-based ecosystem. What we did is over two years, we built a digital ecosystem, and we worked with Fannie and Freddie to hook that digital ecosystem to them as an endpoint. We started with these eNotes that we mentioned, which is essentially the mortgage. It is the loan document. Can we get the industry to digitize the essential loan document and send that to Fannie and Freddie, and to each other to the extent they want to?
Now we are going to add Simplifile, which says, "Okay, I can send that same mortgage to be recorded at the closing." 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 or I 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 well worn, the industry itself sort of started trying to figure out how to automate the front end.
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 return. They want to see 1099s. They want you to fill out various forms that are somewhat unique to them. They want past employment history. They may do a credit search. All of that stuff, there's an industry that's trying to organize that, as you mentioned, it's in various states of play. Largely in today's world, that all gets printed out into paper documents and put in boxes and stored somewhere.
There are 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. What we've done is said, "Let's start with the nugget, the essential core, which is the actual note itself, and then we'll build some of it, and we'll 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.
Great. Thank you.
Thank you.
The next question is from Mr. Kyle Voigt of KBW. Please go ahead, sir.
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 the largest futures product by revenue, and we've seen some soft open interest trends really for the past two years there. Just wondering if you could 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 two years, and if there's anything on the horizon that could re-accelerate those growth rates.
Hi, Kyle. It's Ben. Thanks for the question. Yes, we have seen what we view as a temporary pullback in open interest and volumes in Brent. I think what you can point to is a lot of this happened in particular in the last two, three weeks. You can point to a lot of very unforeseen events that have recently happened. Things such as the removal of waivers against Iran oil sanctions, new bans 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. 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's a complete unforeseen event that happens.
What you tend to see and what we've seen over time is that traders will go into a risk-off mode, and they'll take a step back, assess the situation, and then try to form a view on directionally where the market's going. We think that's what we're seeing in Brent itself. You touched on an area that we are seeing growth, and that's made up a significant amount of that recent temporary pullback, and that's in that global oil complex. When you think about what is that global oil complex, you've got a whole suite of products that basically hang off of Brent, gas oil, and our WTI business.
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 and differential contracts between Brent and gas oil and these contracts. You also see refined product 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. 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 two-thirds 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. That's a global complex that includes both futures, options, and all of our oil products together. We're going to continue to work with our commercial customer base to build that out.
Got it. Thank you.
The next question is from Alex Blostein of Goldman Sachs. Please go ahead.
Hey, guys. Good morning. Just another follow-up around the mortgage business. Can you guys update us on the, I guess, revenues and expense contribution from Simplifile business that you bought? I think the press release just mentioned strong track record of revenue growth and profitability. Just trying to pencil out what that is. Then, Jeff, definitely helpful summary of kind of what MERS is and kind of what it does. Again, maybe update us on what the revenue there stands today. I guess, bigger picture, how does this business ultimately going to leverage ICE's data and trading segments? Or is that meant to be really almost kind of like a standalone part of what you guys do?
Hey, 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. Just quickly, in terms of the numbers, Simplifile, we literally just signed it yesterday. As we mentioned in 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 revenues associated with it. What I can tell you is that when I give you the expense update, particularly if it's only in the fourth quarter, I'm hoping we can contain it in our current guidance, and it'll be more than offset by revenue because it is a profitable business.
More to come on that once we get the deal closed, and as we said in the press release, that'll 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. With them having moved a little bit higher as we moved through last year, there's a little bit of a concern that it might impact that business. As it stabilized, the first quarter was actually relatively strong on a pro forma basis, a little above $20 million of revenue. We're up double digits year-over-year.
You'll recall that we gave you guidance, I think, of revenue $17 million to $19 million in the fourth quarter, and we actually did a little better than $20 million in the first quarter. As I think I mentioned on that call, it's against a relatively low expense base. High incremental margins, like a lot of the other businesses that we operate. With that, I'll hand it to Jeff to talk about how it fits.
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 analytic platforms, Fannie Mae and Freddie Mac 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. As Fannie Mae and Freddie Mac lay off risk in the market, as they do today, they will allow the third parties that are going to undertake that risk to be able to do more research on the portfolio of mortgages that would be in there. We do view that the data component of mortgage will become more interesting and valuable and will help drive down costs 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 it that the industry agreed to, essentially. 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. We have representatives from the GSEs, from large banks, and what have you. 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 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 that need to be kept proprietary?
Thinking about the expansion of this business globally and into other asset classes of lending, how does it meet European standards and Those are all TBD future conversations that we started honestly when we first got involved in the business. They'll be a natural byproduct, I think, of digitization and standardization in this industry.
Great. Thanks very much.
The next question is for Mr. Brian Bedell of Deutsche Bank. Please go ahead, sir.
Great. Thanks very much. I want to stay on the MERS topic. I think, Jeff or Scott, you mentioned about 1% of outstanding mortgages right now are electronically documented through the eNote system. Can you help us think about the runway path or the revenue growth path over the long term? 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 market share? Maybe just how many eNotes actually did you register in 1Q? I know it was more than all of 2018 altogether.
Starting with the second part of your question, 19,000 eNotes in Q1, which is still a very small, when you think of it in the context of the U.S. mortgage industry, still nascent. 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, that are looking at the APIs. They're figuring out how to build it into their current workflow, it's not unlike any analog to digital transition that you've witnessed in other asset classes. What you see are early adopters are getting in there quickly. As they get in there and start to experience cost savings and ability to service their customers better, it's driving competition.
We are very encouraged by the early results, even though it's a low number. The revenue model is simply, we charge to list essentially an eNote on our platform, Simplifile charges to register an eNote. The more that can all be put into one workflow to make it easy for the lender and mortgage underwriters, you can imagine that the pace will increase. As to 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's a foreclosure, 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 may recall during the last financial crisis, people showed up with robo-signed mortgages in courts, many judges rejected them. MERS was really the entity that was helping to find and produce those mortgages on behalf of the original lenders. Moving to an electronic system with a golden record, which is much like what's done in many other asset classes that can be respected by the courts, will potentially be a reason that all these legacy mortgages will be scanned and put into that system.
I actually had a meeting on this topic yesterday with a third party who wanted to talk about how they could plug into MERS if they were to offer this kind of service.
You do anticipate being able to get, say, bulk transfers of existing mortgages without any activity, 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 paper documents into eNotes.
Potentially. The problem is that those records are not standardized. You need essentially not just the ability to scan, but you need essentially artificial intelligence or a rules-based engine that on a document that says somebody is named Robert and another document has him down as Bobby, that that's the same person.
Right.
Where people have made errors in writing Social Security numbers down and all this other stuff, you can get pretty quickly into chaos. The people that are, and there are people looking at this, are trying to figure out is there ability to scan those, create an indelible record that will be respected by the courts and in foreclosure, and store that record, point it at MERS and the eNote, and allow the marketplace itself to better-
mortgages between one another, particularly the servicing rights, which happens quite often.
Right. That's a little bit of a longer-term endeavor. Okay, great. Thank you so much for the color.
There's a follow-up question from Mr. Rich Repetto of Sandler O'Neill. Please go ahead, sir.
Yeah. Hi. Just a question for Ben on the fixed income side. When you back into the revenue, it looks like for TMC and BondPoint, it looks like revenue went down quarter-to-quarter. I know you mentioned, Ben, some softness in the muni market. It did look like from TRACE volumes, that there was a record volume in 1Q. Just trying to understand the actual revenue from the fixed income on the trading side.
Yeah. Rich, I tried to hit that in the comments that I made earlier, where a lot of it had to do with mix. The municipal space and our platforms compared to the others that you see out there, tend to be more tilted towards the municipal space. 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. What we have seen is the Treasuries have picked up, but Treasuries tend to be at a lower price per transaction. What we do see is that with the efforts that we have underway and that I've talked about on prior calls with the ICE ETF Hub initiative and the build-out of our RFQ, we are continuing to advance those efforts.
With ICE ETF Hub on schedule to be released later this year, we see that initiatives like that, as well as the connection that we're building across the institutional businesses that we have, will continue to change that mix, as well as increase the average trade size that we'll see on the platform.
Got it. Thank you.
A follow-up question from Mr. Patrick O'Shaughnessy of Raymond James. Please go ahead, sir.
Hey, great. Thank you. Bakkt has obviously had some pretty well-publicized delays since you announced the initiative. How do you think about the market opportunity for Bakkt and how that's changed since you really launched the effort?
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. It took some of the heat off of the timetable to launch. Secondly, we've actually looked at a number of different companies and acquired a company earlier this week that wouldn't have been available to us had the market been really hot, because valuations were really hot. I see this kind of maturation that's gone on where, for example, 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 the industry forward. There's a lot of interest still in this market. When we talk about institutions, the institutions are regulated, the banks are regulated.
The regulators are trying to get their arms around this asset class and how to regulate it. We want to be a regulated venue, which is why it's taken a while. That said, you can't really get into the true institutional markets that we serve without being highly regulated and highly trusted. The juice is worth the squeeze in terms of the delay. It's going well now. There were a lot of things that had to get sorted out over jurisdiction and custody, and 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. We've been at the forefront of solving those and building the solutions for those. We're very close now to finalizing all of that.
Long story short, this sort of downturn in the value of these assets allowed us to attract some really great people and gave legislators and regulators the time to think about, particularly in the U.S., how to deal with this asset class.
Thank you.
The next question is from Mr. Chris Allen of Compass Point. Please go ahead.
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 on the institutional side? What are the impediments, if there are any right now, and how do you see that kind of evolving moving forward?
Thanks, Chris. Yeah, the municipal space, it is far behind where even U.S. corporates are. If you look at estimates of the U.S. corporate market in terms of how much is electronic, being 20%-25%. Clearly moving more and more electronic. The municipal space is further behind it, where estimates are call it 10%-12% of it are electronic. We are seeing that continue to move more electronic. We're a beneficiary of that obviously. The municipal space structurally has been tough for the points that I brought up before with spreads between municipals and treasuries coming down. Also if you just look at muni issuance, if you look back two years ago, it was 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. 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.
Have the banks taken any steps towards electronic trading munis?
Similar to corporates, the dialogues that we're having with banks is that they start at certain trade sizes and start at small trade sizes and looking to electronify that, then over time, as they get more and more comfortable with it, they'll 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 and pricing those trades, and municipals is just a few years behind where corporates are.
Thanks, guys.
The next question is a follow-up from Michael Carrier of Bank of America. Please go ahead.
Hey, guys. This is actually Sameer Murukutla. Mike had to jump off. A quick question related to your thought process around acquisition, especially in the fixed income space. Maybe can you give an update on how you think about the return and 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 would make up for it over the longer period?
I guess the operative part of your question for me is longer period. We try to be very disciplined about our 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. Also integrate the business so that if we look generally out three years, we want to start to see very high returns on invested capital. We tend to give ourselves three years to integrate a business. Honestly, internally, we try to drive ourselves to two. So we want to see very positive results mathematically coming out of that. I'm smiling because we built a billion-dollar revenue business in fixed income, I think, without a lot of people realizing what we were doing because we didn't really talk about it in that way.
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. That's probably why we decided to pull the curtain back a little bit on this call and give you more color on what we look like today. So I don't know now that the curtain's 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. We're always looking.
Yeah, I think the only thing I would add to that is you've heard us talk a lot about our acquisitions. 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 at the end of the day, you can financially engineer accretion. You can't financially engineer returns. If the deal doesn't fit strategically, you're not likely to be able to get those returns. 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 it's about return. Those are the things that matter.
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%. We do focus on creating economic value.
Thanks for the color.
Thank you. Well, it's 9:30 A.M., with that, I think we'll wrap up the call. I'm sorry, Sheree, were you going to wrap it up for me?
Yes, sir. I was just going to turn it back over to you. Excuse me.
Thank you. Apparently, I was more anxious to get off the call than Sheree was. Thank you all. It was a great quarter, and we'll look forward to reporting our next quarter results soon.
The conference has now concluded. Thank you for attending today's presentation. You may disconnect your telephones.