Earnings Call: Q1 2019

May 2, 2019

Good day, and welcome to the InterContinental Exchange First Quarter 2019 Earnings Conference Call and Webcast. All participants will be on listen only mode. After today's presentation, there will be an opportunity to ask questions. 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 Q1 2019 earnings release and presentation can be found in the Investors section of theice.com. These items will be archived and our call will be available for replay. Today's call may contain forward looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward looking statements, please refer to our 2018 Form 10 ks. In our earnings supplement, we refer to certain non GAAP measures, including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, free cash flow and EBITDA. We believe our non GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP 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 and adjusted earnings refers to adjusted diluted earnings per share. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain terms. Also with us on the call are Jeff Sprecher, Chairman and CEO Scott Hill, Chief Financial Officer and Ben Jackson, our President. I'll now turn the call over to Scott. 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 Q1 performance. ICE's consolidated 1st quarter net revenues totaled $1,300,000,000 up 5% year over year on a constant currency basis. Trading and clearing net revenues grew 5% and data revenues increased 6% each on a constant currency basis. This strong revenue performance helped deliver the 2nd best quarter of earnings per share and free cash flow in our company's history. 1st quarter adjusted operating expenses totaled $528,000,000 including a roughly $7,000,000 non recurring benefit in comp expense. Adjusted for that, we would have been at the low end of our guidance range at around $535,000,000 2nd quarter adjusted expenses are expected to increase to be between $537,000,000 $547,000,000 largely driven by the full quarter impact of annual merit increases in equity grants. We then expect each subsequent quarter to increase sequentially by about $3,000,000 to $5,000,000 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 $2,150,000,000 to $2,180,000,000 I'll pause here to note that in the Q1, we recognized $19,000,000 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 Q1. We do, however, expect a dividend of around $20,000,000 in the 4th quarter, a 40% increase from the dividend received in the Q1 of 2018. Shifting to capital return, we deployed over 95% of our free cash flow to dividends that once again are increasing by double digit and share repurchases. Of note, the $440,000,000 distributed via share buybacks in the Q1 included an additional $100,000,000 we opportunistically spent to repurchase shares at an average price of $75 during the month of March. The nearly $600,000,000 in total capital that we returned during the Q1 has only been surpassed by the Q2 of last year when we similarly deployed an additional $160,000,000 to repurchase shares. We remain committed to strong capital returns, a dividend that grows as we do and opportunistic repurchases even as we continue to make key strategic growth investments. Now let's move to Slide 5, where I'll provide additional color on the performance of our trading and clearing business. 1st 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 markets was negatively impacted by a combination of various geopolitical uncertainties and supply demand dynamics. As you will note though, the volume declines were almost entirely offset by an 11% improvement in our average rate per contract. The improved RPC reflects strong volume growth in our European natural gas business, where ADV increased 42% in the quarter, as well as our emissions business where volumes were up 35%. That strong performance continued in April and more importantly, overall energy open interest continues to grow and is up 3% versus the end of 2018. In our financial futures 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 Q1 and market share improved to roughly 25%. Wrapping up with our fixed income and credit business, revenues totaled $87,000,000 in the quarter. This compared to $56,000,000 last year and includes the addition of TMC and MERS, both of which were acquired in the second half of twenty eighteen. Turning next to Slide 6, I'll discuss our Data and Listing segment. Starting with listings, revenues of $111,000,000 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 $2,500,000,000 of IPO proceeds during the quarter. In addition, the 2nd quarter is off to a strong start with year to date proceeds raised now in excess of $5,000,000,000 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 $546,000,000 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. And finally, desktops and connectivity revenue was up 3% versus last year. Connectivity services related to our futures exchanges generated solid growth benefiting from the aforementioned increase in our customer base. Mitigating this strength, connectivity revenues related to the NYSE were roughly flat as we continue to roll out our which we expect will improve efficiency while reducing industry costs. We believe the momentum in data revenue growth will continue in the 2nd quarter with revenues expected to increase sequentially to a range of between $550,000,000 $555,000,000 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 2nd 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 and A. But for now, we'll turn the call over to Jeff. Thank you, Scott, and good morning to everyone on the call. I'll begin on Slide 7. Our Q1 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 Q1 and as a result of this evolution, we grew revenue, earnings per share and free cash flow and we returned nearly $600,000,000 in capital to our shareholders, the 2nd 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. And as the deepest liquidity pool for equities on the planet, the NYSE provides customers with a state of the art technology platform helping to reduce volatility as well as reducing their trading costs. In our fixed income business, an asset class that now represents about a quarter of our revenue, We're the leading global provider of evaluative pricing and reference data. Our pricing 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 the trade and RFQ conventions. Demand for automation in the fixed income markets is accelerating and whether it's through initiatives such as our ETF hub or new data products such as 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 conversion. It's an evolution that we've seen before. And much like in other asset classes, we're providing products, services and key infrastructure aimed at facilitating that transformation. Digital mortgage solutions are gaining traction. Electronic mortgage notes or eNotes are an important step towards a fully electronic mortgage ecosystem. And in the Q1 alone, more eNotes were registered on MERS than in all quarters of 2018 combined. ENotes can bring meaningful efficiency gains for the industry by shortening closing time, improving quality control and helping to reduce friction. And with eNotes representing less than 1% of the outstanding mortgages today, the opportunity for future growth is substantial. Turning now to Slide 8. As you may have seen last night, we announced the acquisition of Simplifile. Simplifile is the leading provider of electronic recording services to the mortgage industry, helping to streamline the real estate transaction process. It operates 1 of the largest mortgage networks connecting originators, settlement agents, servicers and counties. It's a network that's been constructed over 2 decades and includes transaction recording counties that together represent 80% of the U. S. Population. With the electronification of the mortgage industry in its early innings of transformation, the number of eligible documents that could record digitally is 4 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 9, we remain committed to balancing our growth today with ensuring that the groundwork is laid for growth tomorrow. An example of this is our effort to support the development of an institutional market for digital assets. Based on feedback from institutional investors seeking a way to participate in this nascent asset class, we're building out key infrastructure starting with a custody platform. Secure custody of private keys on Bakkt will feature the high level of cybersecurity oversight that protects our global markets, coupled to the regulatory structure of a qualified custodian for which BACT has now applied. Earlier this week Bakkt announced that it acquired the digital asset custody company to further scale its capabilities and also announced that it is working with DNY 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, Vansive, Worldpay, Coinbase and Google Wallet. And Bakkt remains focused on launching physical delivery futures on our ICE Futures U. S. Exchange to enable trusted pricing within the digital asset ecosystem and to facilitate institutional adoption. In summary, we're excited about the addressable markets that we have in front of us. And while our business is certainly larger and more diverse than it was only 10 years ago, we're still guided by a management team that operates in sync and we are growth focused. Our integrated platform enables us to drive efficiencies across our technology and our operations, while still significantly investing for future growth, which is clear in our operating margins of nearly 60%. Our footprint provides us with unique foundation to drive growth while continuing to create value for shareholders. So I'd like to thank our customers for their business and their trust in the quarter. And I want to thank all of my colleagues for their efforts that contributed to another very strong quarter for Rice. With that, I'll now turn the call back to our moderator, Sherry, to conduct a question and answer session and that will last until 9:30 Eastern Time. Thank you, sir. We will now begin the question and answer session. The first question is from Mr. Michael Carrier of Bank of America. Please go ahead. All right. Thanks and 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. So how are you thinking or strategically how are you differentiating between the other platforms that are already in the market in order to win over the next few years? Thanks, Michael. This is Ben Jackson. And 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. And it represents now a quarter of our revenues across our entire revenue base. So think about a $1,300,000,000 business. And if you look at the cornerstone of that $1,300,000,000 business and in that is really our data businesses. The data businesses that we've established pricing, reference data, index and analytics capabilities that we've provided to customers for more than 3 decades. Data businesses and data services are very hard to establish with customers. You have to have a long track record of 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. And it's those institutional relationships that we have solidified over multiple decades that really is our differentiator that we're going to leverage as it comes into execution. For our execution platforms themselves, we've seen similar performance to what you've seen from the other platforms that have recently announced. We had strong performance in corporates, in U. S. Corporates. We've seen trade sizes increase. We have seen a little bit of relative weakness in municipals as the spread between municipals and treasuries has narrowed and treasuries have come into favor. But we have seen treasuries perform very strong on our platform. So net net, our platforms, what we've done in Q1 is we have fully integrated our ICE bonds business to now execute as one business. We've restructured the organization, rationalize and take some cost out and now have a single vision to leverage the institutional relationships that we've established over multiple decades. So that's really what you see as our differentiator. Okay. Thanks a lot. The next question is from Rich Repetto of Sandler O'Neill. Please go ahead. Yes. Good morning, Jeff. Good morning, Scott. And first, thanks for Slide 7, Jeff and Scott. It's been an experience watching the company expand over the years. So anyway, my question is on what you've schooled us on, Scott, the annual subscriber value for market data and it went up nicely. But again, you talk about this what we're working on right now is 20 20 revenue for market data. And I guess the question is I know you've accelerated the growth from the low single digits to the 4% to 6% now. But as you go forward, is there anything as you add this annual subscriber value, is there any momentum to anything to point that you can grow it faster than the upgrade you have right now? And is it still coming from the same sort of buckets that you talked about when you a couple of years ago, Yes. Yes. Thanks for the question, Rich. And I do think the ASC is a good metric to focus on because it is forward looking. As I proved last year, it doesn't give perfect forecast, but it's directionally very indicative. I think the key thing you see, not just in 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 3rd quarter in a row that we put up 6%. And if you look at our guidance for the 2nd quarter, we're again going to be in that kind of 5% 6% range at the midpoint being around right around 5.5%. So it's a growth trend that's been consistently delivered and ASV indicates that it can continue and it can continue because of some of the things that we talked about in the script. There are a lot of tailwinds in the fixed income space. There's a move from active to passive management. There's a 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. And so 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 4 or 5 quarters, really those trends that have driven it and continue to drive it. I think if you then look at the exchange data and the connectivity piece, again, I go back to the remarks I made, we continue to see more customers wanting our data and connecting to our platform. And so our connectivity services related to the futures exchanges was up solidly again this quarter. Our futures exchange data was up again this quarter. And that goes back to the nature of the commodities business, the futures business that we offer. We offer a global set of interest rates that are subject to European Economic and European Central Bank Dynamics and Federal Reserve 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 and 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. And so again, I would suggest to you, you've been seeing that in the growth results we put up. I think it's definitely reflected in our Q1 and Q2 guidance. And 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. Hey, good morning. To follow-up on the first question on your fixed income business, is there any quantification you can provide regarding customer growth or average trade size and kind of metrics that you can provide to us that would indicate that you are progressing along your goals? Thanks, Patrick. I think as I had mentioned, we've seen relative performance to what you seen from the other platforms this past quarter with corporates being strong and municipals in particular seeing some relative weakness. And 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. But 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 and RFQ represents close to 20% of our trading volumes on a day in and day out basis. We continue to see and continue to develop that and continue to see customers utilizing that. We have on our platform on any given day over 10,000 secondurities that have prices of $250 up on either side. So that's a real indicator that central limit order book trading in fixed income is starting to develop. And we look forward to continuing to provide customers choice on central order book trading options through our click to trade protocol in addition to our RFQ capabilities that we'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. So 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 our platforms and also increase in trade size. Great. That's helpful. Thank you. The next question is from Dan 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 kind of 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 kind of 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? It'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. But if you step back, the goalpost 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? And we were pretty knowledgeable. We are very knowledgeable about markets. This management team has been together a long time and our team had a lot of international cross border experience. And we decided to go right for the high value part of the business. The high value part of the businesses in mature markets is not the execution. And I can tell you a very mature New York Stock Exchange has 12 other exchange competitors and 5 more that are rumored to be signing up and some estimate as many as 50 different venues where you can execute trades on U. S. Equities. The high value part of the business is getting those institutional relationships, getting your data, your connectivity, your higher value products on the 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 and it percolates through organizations and becomes institutionalized. So in looking at fixed income market and the difficulty that we all had in our industry of how to digitize that, we decided to start with where we thought the higher value part is. So you've seen growth. Scott talked about ASV and we'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. And so it is why we decided to try to better show you how the business operates. We'll take it away that other 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 Borse and LSC and at that time NYSE Euronext that had very strong interest rate franchise. So what did we do? We looked and said the nascent part of the market where there's no analog to digital conversion yet is mortgage. That's the interest rate market that we should go after. And so you're starting to see some of the decisions that we made 10 years ago play out and that'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. But we have the luxury in this company of being have an entrepreneurial team and the ability to make investments that are very strategic and still maintain our operating margins given the technology footprint that we have. So anyway, that's the overarching theme here and we'll take away specific metric interest and see if we can come up. 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, I mean now with MERS and Simplifile, can you just provide some color how ICE Mortgage Services fits within the existing kind of mortgage technology infrastructure? So for instance, I think of like Black Knight that has something like 80% of mortgages serviced on their technology platform with also a large origination technology platform. Is somebody like that a partner for ICE mortgage services, a competitor or just an entirely different sphere of influence? It's a very good question. So when we bought MERS, MERS really was is a company that registers if you will paper based mortgages. It gives every U. S. Mortgage, mortgage identification number, all the min number, mortgage identification number. And that's all that's for basically a paper based ecosystem. What we did is over 2 years we built a digital ecosystem and we worked with Fannie and Freddie to hook that digital ecosystem to them as an endpoint. And 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 Now 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. So we're starting to build the back end of endpoints, if you will. There are a lot of companies out there that have digitized the front end. There's a very competitive market. When you or I go to get a mortgage today, we may be on a digital and those and well worn and the industry itself sort of started trying to figure out how to automate that front end. We would hope that that we're going to have an open API on this network that we're building. We're hoping that those people will plug in what they're doing onto our network, so that those essential digital documents can be codified and recorded. There are literally hundreds of documents that exist in the world that go into a mortgage. Your mortgage provider will ask for your tax returns. They want to see 10.99. 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 is there's an industry that's trying to organize that, as you mentioned, and it's in various states of play. But largely in today's world, that all gets printed out into paper documents and put in boxes and stored somewhere. And 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 people to translate that bring that whole file together. And so what we've done is we said let's start with the nugget, the essential core, which is the actual node itself and then allow 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. The next question is from Mr. Kyle Voigt of KBW. Please go ahead, sir. Hi, good morning. Maybe I'll 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 2 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 2 years? And if there's anything on the horizon that could reaccelerate those growth rates? Hi, Kyle, it's Ben. Thanks for the question. And yes, we have seen what we view as a temporary pullback in open interest in volumes in Brent. And I think what you can point to is a lot of this happened in particular in the last 2, 3 weeks. You can point to a lot of very unforeseen events that have recently happened. Things such as 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. And while you'll hear us as an exchange operator and others point to times of volatility being great for volumes, What's not great for volumes is complete uncertainty and an area where there's a complete unforeseen event that happens. What you tend to see and what we've seen over time is the 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. And we think that's what we're seeing in Brent itself. But you touched on an area that we're seeing that we are seeing growth and that's made up a significant amount of the pull of that recent temporary pullback and that's in that global oil complex. And when you think about what is that global oil complex, you've got a whole suite of products that basically hang off of Brent, Gas Oil and our WTI business. So these are products that are very precise basis locations for people to hedge risk at a point of consumption or a point of production in North America, in the Middle East, in Europe and across Asia. You see complementary spread and differential contracts between Brent and Gasoil 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. So when you combine this whole complex as one global oil business with over 500 contracts that have been developed with our commercial traders at the core, you see a complex that's priced 2 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. And that's a global complex that includes both futures, options and all of our oil products together. So 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, the revenues and expense contribution from Simplifile business that you bought. I think the press release just mentioned strong track record of revenues, revenue growth and profitability. Just trying to pencil out what that is. And then, Jeff, definitely helpful summary of kind of what MERS is and kind of what it does. But again, maybe update us on what the revenue there stands today? And I guess bigger picture, how does this business ultimately 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. So just quickly in terms of the numbers, Simplifile, we literally just signed it yesterday. Yesterday. And as we mentioned in the press release, we don't anticipate it closing until Q3. 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 Q4, I'm hoping we can contain it in our current guidance and it will be more than offset by revenue because it is a profitable business. So more to come on that once we get the deal closed and as we said in the press release that that will be sometime in the Q3 we anticipate. In terms of the MERS revenue, we actually had a strong first quarter. The business tends to correlate a little bit or I guess it's a negative correlation with interest rates. And so with them having moved a little bit higher as we move through last year, a little bit of a concern that it might impact that business. But as it stabilized, the Q1 was actually relatively strong on a pro form a basis, little above $20,000,000 of revenue were up double digits year over year. And so you'll recall that we gave you guidance, I think of revenue $17,000,000 to $19,000,000 in the 4th quarter and we actually did a little better than $20,000,000 in the first quarter. And as I think I mentioned on that call, it's against a relatively low expense base. So 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. Well, you're somewhat foreshadowing the ideas that we have here on data and analytics. Once a mortgage has been digitized the information around it has been standardized so that it's searchable and can be run through analytic platforms, Fannie and Freddie theoretically ought to be able to more quickly get to an underwrite decision that would speed up that process, speed up funds flow and closing. And as Fannie and Freddie lay off risk in the market as they do today, they will allow the 3rd 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. So 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. We've in taking control of the business, we've asked many of the companies that have been involved on the Board of Directors to stay on the Board. So we have representatives from the GSEs, from large banks and what have you. And really the reason that we ask them to stay on is to continue to contribute exactly to the dialogue that I just mentioned, which is what is information that the industry wants and needs? How do we deal with PII information? What 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 what have you. So those are all TBD future conversations that we started honestly when we first got involved in the business. And there'll be a natural byproduct I think of digitization and standardization in this industry. Great. Thanks very much. The next question is from 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 eNotes system. Can you help us think about the runway path or the revenue growth path over the long term? Is it most is it entirely dependent on new originations or is there a path to convert existing mortgage documents that don't have any activity to them electronically in terms of bringing up that market share? And then 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, is still a very small, you think of it in the context of the U. S. Mortgage industry still nascent. What you've seen, what's going on underneath that is the early adopters, people that are anxious to become more digital have embraced this idea and are moving quickly to try to build it into their workflow. There's a broad cross section of people in the mortgage industry that are talking to us, they're looking at the APIs, they're figuring out how to build it into their current workflow and it's not unlike any analog to digital transition that you've witnessed in other asset classes. So what you 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. So we are very encouraged by the early results even though it's a low number. The revenue model is simply we charge to use to list essentially an eNote on our platform and simplify charges to register an eNote. And the more that that can all be put into one workflow to make it easy for the lender and mortgage underwriters. You can imagine that the pace 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. And one of the things that Simplifile and MERS has been working on over the last decade is changing local law and what have you so that the golden record, if you will, can be digital that the original mortgage, if you may recall during the last financial crisis, people showed up with robo sign mortgages in courts and many judges projected them. And as a result, MERS was really the entity that was helping to find and produce those mortgages on behalf of the original lenders. And so 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. And like I had a meeting on 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. So did you anticipate being able to get say bulk transfers of existing mortgages without any activity, so no refi or no foreclosure or no new mortgage, just go into some record keepers and be able to do a giant bulk transfer of those existing paper documents into eNotes? Potentially, the problem is that those records are not standardized And you need essentially not just the ability to scan, but you need essentially artificial intelligence or 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. And where people have made errors in writing Social Security numbers down and all this other stuff, you can get pretty quickly into chaos. So the people that are and there are people looking at this are trying to figure out is their ability to scan those, create an indelible record that will be respected by the courts in foreclosure and store that record pointed at MERS and the eNote and allow the marketplace itself to better transfer potentially those mortgages between one another, particularly servicing rights, which happens quite often. 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. Yes. 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. And I know you mentioned, Ben, some softness in the muni market, but it did look like from trace volumes that there was a record volume in 1Q. So just trying to understand the actual revenue from the fixed income on the trading side? Yes. And Rich, I tried to hit that in the comments that I made earlier, where a lot of it had to do with mix. So the municipal space and our platforms compared to the others that you see out there tend to be more tilted towards the municipal space and the muni space has had a rough go at it lately. Again, given that spreads between treasuries and munis has narrowed and treasuries have come into favor. So what we have seen is the treasuries have picked up, but treasuries tend to be at a lower price per point price per transaction. So what we do see is that what we do see is that with the efforts that we have underway and that I've talked about on prior calls with the ETF hub initiative and the build out of our RFQ, we are continuing to advance those efforts and with ETF hub on schedule to be released later this year, we see that 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. Great. Thank you. So 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. That took some of the heat off of the timetable to launch. There's been a and secondly, we've actually been looked at a number of different companies and acquired company earlier this week that wouldn't have been available to us had the market been really hot because valuations were really hot. So I see this kind of maturation that's gone on where, for example, the people that the blockchain engineers that we acquired through our recent acquisition became really interested, if you will, in affiliating with a larger, more corporate, if you will, effort to move this to move the industry forward. There's a lot of interest still in this market. It's not when we talk about institutions, the institutions have regulated, the banks are regulated, the regulators are trying to get their arms around this asset class and how to regulate it. That's and we want to be a regulated venue, which is why it's taken a while. But that said, you can't really get into the true institutional markets that we serve without being highly regulated and highly trusted. And so the juice is worth the squeeze in terms of the delay. And it's going well now. There were a lot of things that had to get sorted out over jurisdiction and custody and how these what will happen in a bankruptcy and those kinds of issues that in my mind need to be resolved before there's going to be wide adoption of the asset class. And we've been at the forefront of solving those and building the solutions for those and we're very, very close now to finalizing all of that. So 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 in particularly the United States 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 kind of what are the impediments if there are any right now? And then how do you see that kind of evolving moving forward? Thanks, Chris. Yes, so the municipal space, it is far behind where even U. S. Corporates are. So if you look at estimates of the U. S. Corporate market in terms of how much is electronic being 20% to 25%, but clearly moving more and more electronic. The municipal space is further behind it where estimates are call it 10% to 12% of it are electronic. We are seeing that continue to move more electronic. We're a beneficiary of that, obviously. But the municipal space structurally has been tough for the points that I brought up before with spreads between municipals and treasuries coming down. But also if just look at muni issuance, if you look back 2 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. And it takes a while to get behaviors to change from the analog type of transaction, but it's early days, but we are starting to see that move as well. Have the banks taken any steps towards electronic earnings? 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 electronicify that. And 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 in 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 Murukula. Mike had to jump off. But a quick question related to your thought process around acquisitions, especially in the fixed income space. Maybe can you give an update on how you think about the return and accretion goals? I mean, 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 business if we can put it on our platform and quickly grow it or digitize it. So that and also integrate the business so that if we look generally out 3 years, we want to start to see very high returns on invested capital. We give ourselves we tend to give ourselves 3 years to integrate a business. And honestly internally we drive try to drive ourselves to 2. And so we want to see very positive results mathematically coming out of that. We I'm smiling because we built $1,000,000,000 revenue business in fixed income, I think without a lot of people realizing what we were doing, we didn't really talk about it in that way. And we were able to acquire key parts of that business at valuations that were incredibly low relative to where people are valuing fixed income assets today. I'm not sure that the market has recognized that. It's 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. And so I don't know now that that sort of the curtains now that the wizard is visible, I'm not sure that we're going to be able to continue to find interesting assets that deliver on the metrics that I just tried to describe, but we're always looking. Yes. 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. And if the deal doesn't fit strategically, you're not likely to be able to get those returns. And so that we showed you the model a couple of summers ago and it was the case before we showed it to you. It is the case now that it's about strategic fit, it's about growth and it's about return. Those are the things that matter and it's one of the reasons you see our return on invested capital now back at 9% when our weighted average cost of capital is only 6% because we do focus on creating economic value. Thanks for the color. Thank you. Well, it's 9:30, so that I think we'll wrap up the call. I'm sorry, Sherry, 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 with Terry. But 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.