Good day, ladies and gentlemen. Welcome to the Nasdaq first quarter 2018 results conference call. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session, and instructions will follow at that time. If you require any assistance during today's call, you may press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ed Ditmire, Vice President of Investor Relations. Sir, you may begin.
Good morning, everyone. Thank you for joining us today to discuss Nasdaq's first quarter 2018 financial results. On the line are Adena Friedman, our CEO; Michael Ptasznik, our CFO; Ed Knight, our Global Chief Legal and Policy Officer; and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD. I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections.
Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC. I now will turn the call over to Adena.
Thank you, Ed. Good morning, everyone. Thank you for joining us. I know many of you on the line today participated in our investor day at the end of March, either in person or via webcast, and I would like to thank you for your time and focus on the Nasdaq story. If you haven't viewed the presentation, I encourage you to do so via our IR website. At the investor day, we talked about the changing world we and our customers operate in and the opportunities and challenges those changes create. We detailed our strategy and vision along with key initiatives, and we talked about how we intend to measure our progress with special focus on the medium to long-term time horizon.
For today, I want to complement that by focusing on our current business performance, our progress on the 2018 execution priorities we set for ourselves, and lastly, address the latest developments in the capital markets. I'm pleased to report Nasdaq's strong financial performance for the first quarter of 2018. We achieved record revenues and strong organic growth in the first quarter, driven by an acceleration in the growth of our subscription and recurring revenues, as well as record revenues in our trading business as we capitalized on improving industry volumes through the breadth and diversity of our leading marketplaces, in combination with strong market share and stable pricing in many of our markets. Meanwhile, our bottom line results confirm that our financial model is performing at a high level by capitalizing on our revenue growth to deliver strong record earnings and EPS growth.
We also continue to invest meaningfully while growing our dividend and delivering strong total shareholder returns. In January, we laid out three execution priorities for 2018, which were, one, to maximize our opportunities as an innovative analytics and technology partner to the capital markets industry; two, to develop and deploy our marketplace economy technology strategy; and three, to advance our competitive position in our core businesses. On the first item, we continue to make progress consistent with our strategic direction unveiled last year by completing the sale of our public relations solutions and digital media services businesses to West Corporation, which we announced early last week. Completing this divestiture allows us to shift more resources, people, and capital to areas where we have identified as growth opportunities while maintaining our investments in businesses that are core to Nasdaq.
We are now able to focus our corporate services offerings to those strategic solutions that are critical to our corporate clients in investor relations, risk management, and board and leadership. Another key element of our pivot to maximize opportunities as an analytics provider is the late 2017 acquisition of eVestment, a leading investment decision and analytics platform that has become the keystone of our broader set of offerings to the buy side. I'm pleased to report that we have maintained the revenue growth momentum at eVestment with a 19% revenue growth rate, excluding the purchase price adjustment during the first quarter of 2018. We look forward to continuing to execute on opportunities through our global distribution capabilities and to accelerate the development of new analytics capabilities for our clients that leverage eVestment's unique data.
In terms of the second objective, furthering our marketplace economy technology strategy, we have had positive and productive engagement with clients and prospective clients across a range of industries and opportunities. At our investor day, we mentioned that we have several non-financial market customers today. We serve these clients with a broad set of capabilities, including not only our central limit order matching technology but also our complex auction functionality used for parimutuel price discovery at The Hong Kong Jockey Club, and soon Racing Australia, as well as our expertise in clearing, settlement, and surveillance. On the last point, we are pleased to announce a continued expansion of our technology into non-financial markets with our SMARTS surveillance solution being adopted by the Gemini cryptocurrency market. As the cryptocurrency markets continue to mature, we believe there are further opportunities to expand our offerings into that space.
Lastly, in terms of advancing our competitive position, we are continuing our push to be as client-focused as possible, and I would like to point out a couple of areas where I'm seeing clear progress. In cash equity trading, we achieved matched market share of 19% on our U.S. exchanges, which is 100 basis points higher year to date in 2018 compared to the full year of 2017. While in the Nordic markets, our share amongst lit venues is 69%, up approximately 200 basis points over the same period. In market technology, strong new order intake of $55 million in the first quarter was encouraging and is typically a seasonally slow quarter, in part due to a multi-year high in new order intake for SMARTS surveillance products, as well as new matching engine client in Latin America.
In our corporate services segment, we welcomed two of the largest technology IPOs of the quarter, as measured by day one market capitalization with Dropbox and iQIYI. We also had our largest quarter ever in dollars transacted through the Nasdaq Private Market at $9.5 billion. I look forward to continuing to update you on our progress with our key priorities as we progress through the year. Turning to specific quarterly highlights for our businesses, I'm incredibly pleased to report that Nasdaq delivered strong and accelerated organic growth across the business. First, our market services business maintained strong market share and stable pricing while experiencing an improved volume environment throughout the quarter. This strong competitive position delivered a new quarterly record of $250 million for market services net revenues, while strong operating leverage allowed margins to rise over 400 basis points in the segment to a record 59%.
Results in our market technology segment showed moderate organic growth for the first quarter of 5%, which is below the longer-term trend line. As we reflect on Q1 2018 performance, we do not believe this quarter's revenue performance reflects the strong pace of progress in this unique business. As we have said before, this business is best judged over annual time periods due to relatively high variance in quarterly growth rates. Additionally, at our investor day, we raised our medium-term organic growth outlook for the segment to an annual average of 8%-11%, which is aligned with the client demands that we're experiencing in the business. Our information services segment delivered exceptionally strong organic growth at 14% and overall growth of 34% when removing the impact of the purchase price adjustment for the eVestment acquisition. Market data, index, and investment data and analytics all contributed at high levels.
I'm particularly pleased to see our end-of-period AUM in licensed ETPs at a record of $173 billion, up 25% versus the prior period, with continued strong contribution from smart beta products, which comprise 42% of licensed AUM. In our corporate services segment, significant improvement in organic growth, moving to 5% for the quarter, was due to strong performance in listing services from improved average fee rates as we completed the all-inclusive pricing program that we began in 2015, as well as in our corporate services software offerings, which recognized organic growth of 3% from strategically core businesses in our IR solutions and board and leadership product areas. Lastly, I want to spend a few final minutes on the current state of the capital markets.
The market's volatile patterns during these first few months of 2018, demonstrated by high and low swings of major averages, have resulted in elevated activity levels in our trading businesses as our clients adjust to a backdrop of higher volatility. These levels, which are well above the all-time lows that we fell into in 2017, conversely aren't very different from the longer-term cross-cycle historical averages. We have had times in the past where short-term market volatility can create a pause in the IPO activity and can have a negative impact on AUM and exchange-traded products. However, so far this year, we've been pleased to see that this higher volatility benefits in our trading segments, while ETP assets under management and our newly listed companies and listing prospect pipeline have all remained robust in the first quarter.
For example, Nasdaq had 50 prospective companies with S1s on file in preparation for an IPO at the end of the quarter, up from 44 for the same period in 2017. During the first three months of the year, 37 companies completed their IPOs on Nasdaq in the U.S., more than double the number of U.S. IPOs on Nasdaq in the first quarter of 2017. Eight of those 37 were technology companies, including Dropbox, which raised $756 million, iQIYI from China, which successfully raised $2.25 billion, very encouraging given the recent pattern of technology sector companies that have tended to remain private longer.
In aggregate, in our foundational trading and listings businesses, we are encouraged in the near term by how we've executed competitively against a backdrop featuring a combination of strong trading volume coupled with a healthy pace for new listings, while in our higher growth technology and analytics businesses, we continue seeing progress against opportunities more driven by longer-term secular dynamics. Needless to say, I'm encouraged by our strong start to the year. With that, I'll turn it over to Michael to review the financial details.
Thank you, Adena. Good morning, everyone. My commentary will primarily focus on our non-GAAP results, all comparisons will be to the prior year period unless otherwise noted. Reconciliations of U.S. GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that's available on our website at ir.nasdaq.com. I will start by reviewing first quarter revenue performance as shown on page three of the presentation and organic growth on pages four and 16.
The 15% or $85 million increase in reported net revenue of $666 million consisted of organic growth of $55 million, including 8% organic growth in the non-trading segments and 11% organic growth in market services, a $17 million favorable impact from changes in foreign exchange rates, and a $13 million impact from acquisitions, net of an $11 million purchase price adjustment on deferred revenue associated with the closing of the eVvestment acquisition. I will now review quarterly highlights within each of the reporting segments. I will start with information services, which as reflected on pages five and 16, saw a $36 million or a 26% increase in revenue, including $19 million or 14% organic growth.
Index licensing and services revenues were up 37% in the first quarter of 2018, primarily due to higher assets under management in exchange traded products linked to Nasdaq indexes and higher licensing revenues from increased futures volumes for the Nasdaq-100 Index. Data product revenues increased 23% due to the inclusion of revenues from our acquisition of eVestment, net of the $11 million deferred revenue purchase price adjustment, organic growth in tape and proprietary products, as well as favorable impact of foreign exchange rates. Market technology revenue, as shown on pages six and 16, increased $5 million or 8%, with organic growth totaling $3 million or 5%. The period end backlog finished at $735 million, an increase of 4% from the prior year quarter. In the first quarter, the operating income margin for market technology was 1%, down from 17% in the prior year period.
This is due to three factors. One, elevated volume of new deliveries, which is important because under the new revenue recognition accounting, margins from the initial deployment phase are much lower than the ongoing support phase. Two, the impact of higher variable compensation related to the company's especially strong revenue and income performance during the period. Three, as we noted at Investor Day, we are seeing the impact of investments we are making to upgrade our technology for the next generation Nasdaq Financial Framework and to enhance and grow our surveillance offering. These investments are consistent with our longer-term strategy of evolving market technology from a bespoke software vendor to a more scalable managed solution provider model. Turning to corporate services on pages seven and 16, revenues increased $12 million or 8%.
In our listings business, revenues were up $7 million or 11%, primarily due to higher U.S. listings revenue from an all-inclusive offering becoming effective for all U.S. issuers on January 1st, 2018, as well as a favorable change in foreign exchange rates. For the corporate solutions business, revenues increased $5 million or 5% due to organic growth in public relations and board and leadership products, as well as a favorable change in foreign exchange rates. The corporate services operating margin was 30% versus 27% in the prior year period, with operating income increasing 21%, reflecting increasing efficiencies and achievement of synergies. Market services net revenues on pages eight and 16 saw a $32 million or 15% increase, including a $25 million organic increase, which is due to higher net revenues across all product groups and a $7 million positive impact from changes in foreign exchange.
Market services operating income margin totaled 59%, up four percentage points from the prior year period, and operating income increased by 24%. Turning to pages nine and 16 to review expenses. Non-GAAP operating expenses increased $47 million to $353 million, with a $19 million expense increase from acquisitions, an $18 million organic increase, and a $10 million unfavorable impact from changes in foreign exchange rates. As noted during Investor Day, we will continue to be disciplined with respect to expense management. Our expenses include variable compensation, and as was the case in the first quarter, periods with especially strong organic growth will entail a higher level of these expenses. Turning to slide 10, we are reducing our 2018 non-GAAP operating expense guidance to $1,295 million-$1,335 million to primarily reflect the closing of our divestiture of the public relations solutions and digital media services businesses.
Moving to operating profit and margins, non-GAAP operating income increased 14% in the first quarter of 2018, and the non-GAAP operating margin totaled 47%, unchanged versus the prior year period. The unchanged operating margin reflects expansion in the core business being offset by the impact of the eVestment acquisition, whose profitability is temporarily impaired by the purchase price adjustment on deferred revenues, as well as compensation and other expenses associated with our acquisition. Net interest expense was $36 million, an increase of $1 million versus the prior year period, primarily due to debt issued in connection with the eVestment acquisition. The non-GAAP effective tax rate for the first quarter of 2018 was 25%. For the full year 2018, our non-GAAP tax rate guidance is a range of 24.5%-26.5%.
Non-GAAP net income attributable to Nasdaq was $209 million, or $1.24 per diluted share, compared to $162 million or $0.95 per diluted share in the prior year period. The change in the tax rate associated with the Tax Cuts and Jobs Act drove a $0.14 increase in diluted EPS year-over-year. Turning to slide 11, let me take a moment to discuss the changes we're making to our segment reporting as we previewed at our Investor Day, which will be reflected in our results beginning in the second quarter of 2018. We are moving the BWise corporate enterprise risk management business from market technology to corporate services. We are recategorizing the information services segment to show revenue for market data, index, which includes licensing and data, and investment data and analytics.
We are moving the divested public relations solutions and digital media services businesses from corporate services to the corporate item segment for historical periods, with the allocated overhead expenses that we intend to eliminate over the following 12-month period reflected in the corporate services segment results. On slide 12, we provide a recast of historical quarterly financial information as a result of the changes I just discussed. Turning to capital, debt decreased by $92 million versus 4Q 2017, primarily due to $133 million net debt repayment, partially offset by a $40 million increase in Eurobond book values caused by the stronger EUR. Share repurchases in the first quarter totaled $99 million.
Together with dividend payments, we returned $162 million to shareholders during the period, representing 78% of our non-GAAP net income in the period, and somewhat above the percentage of capital return during 2017 due to the timing of our equity buyback program. As of March 31st, 2018, there was $627 million remaining under the board-authorized share repurchase program. As we previously indicated, in addition to continuing our regular stock buyback activity with an intention of maintaining a stable share count, we anticipate using after-tax net proceeds of the sale of the divested businesses to repurchase additional shares to largely offset the EPS impact of the elimination of annualized net income associated with the divested businesses. With that, I thank you for your time, and I'll turn it back over to the operator for the Q&A.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. In the interest of time, we ask that you please limit yourself to one question and one related follow-up. Our first question comes from Rich Repetto with Sandler O'Neill. You may begin.
Yeah. Good morning, Adena. Good morning, Michael. Congrats on the strong quarter here.
Thank you.
I guess the first question is on Information Services, very strong quarter. Just trying to understand, as you model this out, the jump just from quarter-over-quarter was $18 million, and we know we had eVestment for a couple months in the prior quarter. I guess, can you walk through sort of where the increases came from? Some portion was from eVestment, but where the other increases came from, I think would be helpful here.
Sure. Well, if we look at organic growth, organic growth for our Information Services business in the quarter was 14%, which is very strong. If we break it down between our Index Business and our Data Revenues Business, the Index Business was up 37%, which really reflected higher assets in our licensed ETPs, but also reflected higher volume based on the licensing fees on the Nasdaq-100 future. We have both high volumes in the Nasdaq-100 future and really strong inflows into our ETPs. You also have to recognize that this is compared to the first quarter of last year, so you also have the market performance over the last year reflected in the AUM as well.
If you turn over to the Data Products Revenues, it's a 7% organic increase, that really is kind of growth across both our tape and our proprietary data. About 2% of that was due to higher recognition of unreported usage from prior periods. Basically, we've got some of that catch-up from prior periods, the rest of that is just strong demand for our data products and continued growth there. If I look at it on average, we've given out our medium-term outlook of 5%-8% growth in our Information Services business on an organic basis. I think that we've continued to ascribe to that over a longer period of time. There will be periods, shorter periods, where we might be above or below that, and obviously this quarter we're above that.
Okay. I guess I was looking at it more quarter-over-quarter, but that helps, Adena.
I guess the other question, we'll call this related, but Market Technology is, we've had some restatements, some accounting restatements, the revenue recognition as well as things BWise moving out. I guess, maybe when it comes to the end, a little bit better indication of the margins, given this new twice sort of restated Market Technology revenue that we're looking at as the baseline.
Just as a reminder, BWise will come out starting in the second quarter. The first quarter results do include the BWise revenues and the margin there. I would say that the margin in Market Technology for the first quarter, really, if we look at kind of the increased cost year-over-year, on an FX neutral basis, it was about $11 million, and it's really kind of split three ways. One is just from this elevated development and delivery activity from recently signed contracts. That is a difference because the revenue recognition rules have changed now. Whereas before we wouldn't recognize any revenues or expenses associated with delivery projects until they were delivered, now we start to recognize it as we deliver.
The delivery profitability, the profitability on delivery, is much lower than the ongoing maintenance and support revenues once the client is fully delivered. We have a lot of deliveries underway right now. We are in a period of higher deliveries as we come into 2018, and that will continue through, I would say, most of 2018, just in terms of the delivery projects we have underway. The second thing is from the R&D initiatives, and that's most notably the Nasdaq Financial Framework, as well as the continued growth in our SMARTS for Buy-Side initiative that we have, where we continue to kind of grow out that business. That's a big R&D initiative for us in addition to Nasdaq Financial Framework.
The last thing is really higher comp, but that's related to kind of the overall company. As we have a particularly strong quarter or strong performance at the top line, as you know, we do have variable compensation, and what we do is we start to accrue for higher expected variable comp associated with really strong performance. That cuts across all of our employees, but obviously the Market Technology business
is impacted by that, as is everywhere else. Those are the three reasons why the expenses are up a little bit more than you've seen in prior periods. I would say also, as we said, we do believe that the Market Tech revenue will continue to progress as we go through the year. Therefore we should have stronger margins developing as we go through the year.
Understood. Thank you for the help, Adena. Thanks.
Yep. Thank you.
Thank you. Our next question comes from Michael Carrier of Bank of America Merrill Lynch. You may begin.
All right. Thanks a lot.
You're welcome.
Hi. Just maybe a first question, just on the corporate services business, similar to the comment on the information services. Like sequentially, it seemed like there was more strength, both in the listings and the corporate solutions. I don't know if you can give any color on if there is anything unusual. I know you mentioned some of the wins on the listing side. In either of those, if there was anything unusual in the quarter. On the corporate solutions, just when we think about the drop going forward with the sale of the business, just anything that has changed in terms of maybe the revenues that we should be thinking that will be going away with the new expense guides.
Sure. In terms of the corporate services business overall, there is nothing unusual in the quarter. It is good, strong organic growth. I think that the one thing that there's a little bit of help from FX, but nothing significant there. Generally speaking, it is just strong organic growth in terms of the impact of the pricing changes that we've been introducing over the last three years. It's kind of fully formed at this point. On top of that, we have had strong IPO environment as we've launched into the year, and a decent one last year as well. The Nordic markets, as we calculate listing fees on the Nordic markets, it's calculated on market cap.
The strong performance of the markets last year delivered the ability for us to have a little bit more revenue as we come into this year on the Nordic listings. I think that on corporate services, we have been executing well in the businesses that we're in. I think that we are starting to show some real momentum in the IR intelligence suite. We went through a year of transition in terms of transitioning to the new platform, we kind of had a year of burn-in on that new platform. We're getting to the point where we really feel that we have a truly excellent value proposition for our clients, that we're able to sell on that. On top of that, the board and leadership tools continue to grow nicely.
It really is good, strong performance across the segment. In terms of corporate solutions, in terms of the drop in revenue, I'm going to turn to Michael.
It was about $50 million in the quarter. It's a bit higher than the run rate of the $195 million that we disclosed when we mentioned that we were selling the business or putting the business up for sale. It's at a bit of higher run rate in Q1 than had been in the prior year.
Okay, Michael. Just on those expenses in terms of the new guidance, I think you guys mentioned the expenses were $170 million for that business, but there were some costs that were going to remain in there, it kind of looks like we can see that with the revised down, meaning it's not the kind of the full benefit this year.
Right.
Just want to make sure we're getting that right. Then as we get into 2019, we should see a little bit more of that benefit as those costs roll off. I just want to make sure we have that right.
That is correct. You'll see that we expect costs to come out this year, but the full run rate really won't go into effect until a year after the close. We have some stranded costs that the organization is working to eliminate as we go through the next year. We also have a TSA agreement, things like that just have to work their way through over the next year with West Corporation.
Okay. Thanks a lot.
Sure.
Thank you. Our next question comes from Alex Kramm of UBS. You may begin.
Yeah. Hey, good morning.
Good morning.
Quick question on eVestment. Talking to some clients recently, it sounds like you're increasingly approaching them now with enterprise pricing. Just wondering if that is in fact kind of like a new way that you guys are pricing the business, and if that could be an incremental, or how much of an incremental drive of revenue that could be. I think there's been historically some password sharing and stuff like that. Obviously I think you're trying to cut down on that. Just any comment on that specifically would be helpful.
Sure. No, we do basically offer out kind of what I would call an à la carte menu, and then we allow for clients to take multiple components in an enterprise way, and we kind of discount off of the rack rate on each of the components to get to an enterprise. A lot of times that means they might take more of the services than they otherwise were taking on an à la carte basis. It gives them a more stable cost base for them to be able to manage in terms of all the services they're getting from eVestment. It allows us to kind of what I call kind of we land and then we expand into more services over time with the clients. That then culminates in that enterprise type of approach to pricing.
That has been a strategy that the company was on before we bought them, and they're just continuing down that roadmap. It is definitely helping with the revenue growth as more of our clients are realizing that there's just a lot of value in everything we have to offer. As they're facing more competition in their own industry, the data and analytics, particularly the analytics we have that help them understand how they compete, how strong is their fund versus another, how many inflows are they getting versus their competitors, what are the comparative factors, how many times are people looking at or kind of querying on their funds versus querying on others? Those things all together really create a really strong value proposition for the clients. Once they realize that, they do tend to take more of the enterprise license.
All right, great. Thank you for that. Then just a quick one for Michael. In terms of the debt and the share buybacks, can you just talk a little bit more about your plans exactly over the next couple of quarters here? On the one hand, clearly, how quickly is the repurchase program going to kick in? Then secondly, considering that you have a decent chunk of variable debt that comes due, I think, March 19 or so, and LIBOR's been moving up pretty rapidly here, any new thoughts on how quickly you want to delever relative to previously?
As we stated that when we close the transaction that we would begin the purchase program, that will begin once our trading window opens. We will start to repurchase those shares. It'll be around the $290 million-$300 million would be the range of the share buybacks that we'll be looking at. That will start the end of this week. We'll take a period of time in order to execute that. With respect to the debt, as we stated before, we will continue to target that mid-threes by mid-2019. We are looking at the different options with respect to when to pay down the debt and different types that we have. We don't have a specific schedule to lay out to you, we do feel confident that we'll be able to achieve the ratios that we're looking towards by mid-2019.
It's really a combination of both debt and EBITDA growth. We're going to look at that in order to achieve that ratio. We'll take a look at the options over time.
All right. Thank you very much.
Thank you. Our next question comes from Chris Allen with Rosenblatt. You may begin.
Morning, everyone.
Morning.
Want to touch on the market technology margin again. Maybe if you could just talk to how you're seeing the path to improvement. It sounds like delivery is really a weight a bit on this quarter. Maybe if you can give us the size of the magnitude there, so that we can parse out what's the incentive comp driven and also the R&D spend to think about the path to margin improvement, because obviously this level of margin for a Nasdaq-run business is pretty low at the end of the day.
Yeah. I would say, as we said before, we don't anticipate that this would be kind of an indicative margin for the business. We have said at Investor Day that we do anticipate to have lower margins in the market tech business as we are driving investment into that business, particularly driven by the Nasdaq Financial Framework investment and the build-out of both our banks and brokers offering on market infrastructure, as well as the buy-side surveillance offering. We have been, I think, pretty disclosive about the fact that we do have a couple of investment years, this year and next, that we're really focused on to make sure that we come away from that moving from a deployed software provider to more of a managed solution provider with more of a platform orientation to it.
We do think on the back of that, we should be able to deliver higher margins over time. This particular quarter is low, not just on that basis, but on the fact that we have an elevated delivery activity. When I mention that we have kind of an FX neutral basis, about $11 million of incremental costs year-over-year quarter, it's really split almost evenly across those three areas. It's higher delivery costs, more R&D costs, and then the variable comp costs for the quarter.
Thanks. That's helpful. Just quickly on the order backlog, was it restated because of the accounting changes? Just, it looks like the growth rate year-over-year is a little bit lower, or the growth trajectory is a little bit lower than it had been prior to the restatement.
Yeah, unfortunately it is from that. Go ahead.
Yeah, it has been restated. Again, the backlog is something that as we move more of the business towards a SaaS model, that has an impact on the backlog as well. We're still considering the different measures that we can use. Because we've now moved into this new accounting, we want to make sure that we test the measures on the new accounting revenue recognition to make sure that they are helpful and useful. We're going to spend a little more time analyzing that before we come out with something different, the backlog does reflect the new accounting rules.
Thank you very much.
Sure. Thanks.
Thank you. Our next question comes from Kyle Voigt with KBW. You may begin.
Hi. Thanks for taking my question.
Sure.
Just one on the index business. Could you remind us how much of the revenues in that line are licensing fees from exchange traded derivatives? I'm just trying to frame how much growth in that line was driven by stronger volatility in volume versus the higher AUM-based fees.
I would say, we don't totally disclose that in great detail, but we'd say about 80% of it's really coming from the AUM-related revenue if that's helpful.
That's helpful. Just one more follow-up, I guess, on the expense side. I just was looking at the slide deck and organic growth in the expense base was 6%. I'm just trying to understand what the midpoint of the updated guidance kind of implies on an organic basis, and obviously that 6% is higher than what you've kind of laid out in terms of what you think the medium-term growth will be in the expense base. Is that just because of the bonus accruals and some of the other dynamics that were happening in the first quarter, or is this year specifically going to be, I guess, a higher growth year from an organic perspective?
I think the key driver in the quarter was the higher growth and a portion of that was due to the variable compensation. That was one of the key drivers. Going forward for the remainder of the year, because of the guidance that we've reflected, it does include those stranded costs related to the divestiture. That's what's going to have an impact overall on the cost for the year above the sort of that 3% targeted rate. As we did say on Investor Day, in periods where we are growing at rates higher than the numbers that we've put towards our outlook, there may be additional expenses that are required behind that. This is a bit of a reflection of that.
Okay, great. Thank you.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank. You may begin.
Great. Thanks very much for taking my questions.
Sure.
Just to follow on that. Adena, maybe if you can just talk about the operating margin outlook for the tech segment down the road. I appreciate all the color that you've given on the different expense areas within that segment, do you think that is something you can get back to that 20% area sometime later in 2019? Also if you can dimension the stranded cost that you think you can eliminate by 2019 on the info segment.
Right. We're not giving out specific margin outlook within each of the segments because I think that it's more important for us to kind of give you, in general, where we're investing our dollars. We're going to have certain quarters where, for instance, this quarter, where we had really strong revenues in our Information Services and our market services businesses that can drive to really strong margin expansion. Recognize that we're a big company, and we're trying to make sure that we're managing our investment dollars into those things that can grow the fastest over time. Obviously, market tech is one of those areas where we are driving our investment dollars into that segment. As we mentioned before, it will have a shorter-term impact on the margins.
We don't like to give out very specific outlook by segment because we do kind of operate across the entire organization. In terms of looking at the margin out, kind of like how do we look at margin progressing in the market tech business? As I mentioned to you, I think that we would expect to have kind of a lower margin expectation for the business this year and next. As we get into 2020, we should be able to start to show the benefits of the growth and the benefits of the investments we're making, in terms of the growth of the business, but also the ability to scale the business back up on the back of the investments we're making. We're not going to be able to give you kind of very specific answers to that right now.
On the stranded costs, we would expect that, really the stranded costs should take through really April of next year, and that's what we've kind of given ourselves to do. We should be able to get the majority of them done by the end of this year. That will then reflect in the expense guidance we give you for next year.
Okay, great. Just on the cryptocurrency initiative that, or the research that you're doing on that. I think you mentioned at Investor Day that it was going to be used on the Nasdaq Futures (NFX) platform or the infrastructure on Nasdaq Futures (NFX) was going to be helpful for that. Maybe if you can just talk about that in a little bit more detail in terms of how you see the Nasdaq Futures (NFX) platform developing with that. I think on Investor Day, you mentioned you were re-segmenting some of the trading to the Nasdaq Futures (NFX) platform. I don't know if that changes the $0.01-$0.02 drag on EPS that that platform had initially.
Sure. We're still definitely in investment mode in Nasdaq Futures (NFX). I think that investment is about the same as it has been. In terms of the cryptocurrency work that we're doing, we continue to evaluate, is there a cryptocurrency future that we think will be distinguishable and distinctive from the others that are already out in the marketplace. We have been working very extensively with some clients to really evaluate that, and with the cryptocurrency exchanges to evaluate that. We are not in a position to be able to talk about what our plans are at this point.
It's definitely something we're still working on and making a determination as to whether or not we can come up with something that the clients want, that they see as both an investable asset and a tradable asset, and that we feel where the underlying pricing has really good quality to be able to base the future on. We're still working through that. It would ultimately be traded on Nasdaq Futures (NFX) if we do decide to launch something.
Okay, great. Thank you.
Thank you. Our next question comes from Benjamin Herbert with Citi. You may begin.
Hey, good morning. Thanks for taking the question.
Sure.
I just wanted to follow up on information services and maybe the margin dynamic there over the course of the year. Any update on the eVestment deferred revenue?
We provided the deferred revenue breakdown, and I believe that we said that it was going to be $25 million this year. I think it's originally now I think it's $23 million because $2 million shifted into last year. You'll see most of that come through in the next two quarters, Q2 and Q3. There's a little bit, I think maybe $1 million in Q4. Otherwise, most of that should come through in Q2 and Q3.
In Q1 it was 11.
It was 11, yeah.
Yeah. I think you'll see the margin dynamics improve as we go through the year as we have less and less deferred revenue adjustments we're having to make.
The business continues to grow.
Yeah, then just a follow-up on specifically on eVestment and the cross-sell opportunity, how that's going and maybe geographic expansion there.
Sure. Well, we are working together. I would say that the organizations are working really well together, Bjørn Sibbern, who runs our Information Services business, has been getting other parts of our organization involved in making sure that we're optimizing the sales opportunities for instance, our surveillance solutions into the buy side for our board and leadership solutions into the buy side. In addition to coming up with new index products and other things specifically related to the eVestment data. We're not going to give out very specific metrics this year because we're really developing those plans and just starting the execution of them. We continue to be very optimistic that we can provide for cross-selling benefits with the strength of the relationships that the eVestment team has developed in the buy side.
Great. Thank you.
Thank you. Our next question comes from Chris Harris with Wells Fargo. You may begin.
Yeah, thanks guys. Your CapEx of $16 million in the quarter seems like a low number given some of the R&D projects you guys have going on. How should we be thinking about CapEx maybe for the balance of the year?
We've typically been spending around the $130 million-$140 million mark in CapEx, and that's been the range that we've been at. I would assume that until you hear from us say something differently, I would say that would be the number that I would continue to use as being sort of the general number that we would think on an annual basis.
Okay, thanks a lot.
Sure.
Thank you. Our next question comes from Vincent Hung with Autonomous. You may begin.
Hi. Just on Nasdaq Financial Framework, can you talk about your expectations around upgrades to Nasdaq Financial Framework from the existing customer base? I'm especially interested in how much of this could happen upon contract renewal or whether they could do it earlier. Just lastly, how much of the order backlog relates to Nasdaq Financial Framework?
Sure. I don't have a specific number on the order backlog as it relates to the Nasdaq Financial Framework, I can tell you that what happens is definitely when we have a situation where they're already in an upgrade cycle, they are looking at a new contract. For instance, the Singapore Exchange was kind of in a new cycle for their trading engine, rather than continuing down the road of the trading engine that we've been working with them on for a while, they chose to upgrade to the Nasdaq Financial Framework on that contract renewal. That will be the more typical way that our clients work with us, our existing clients work with us on systems for which we already provide service.
We also are finding that when we have, let's say, a trading client, they decide that they need a new clearing system, what's happening then is that we get the opportunity to go into the door with them in clearing on the Nasdaq Financial Framework so that then when they're ready to renew their trading license, they then move that also into the framework, we start to have a more complete installation with them on the framework. I would say those are the two most common ways that we're finding that the Nasdaq Financial Framework is becoming embedded in our existing clients. We started that really in the beginning of 2017.
We started to move clients onto the core platform, now as we're bringing up the application library later this year, we'll be able to offer even more services onto the Nasdaq Financial Framework for our clients.
Thanks.
Thank you. Our next question comes from Alexander Blostein with Goldman Sachs. You may begin.
Hey, guys. Good morning.
Hey, Alex.
Hey. Just one question around market services. When we look at the trade management services and kind of the growth there in the deck, you guys cited demand from third-party connectivity and colocation. Just curious, I guess, kind of where is that coming from? I was just thinking about kind of the end-user customer base for that product set. We haven't seen a ton of growth there. Maybe if there's anything new there, it would be helpful.
Yeah. I think that it's actually a combination of things. Included in the trade management services is the connectivity and colo, but also the Trade Reporting Facility. That has a volume component to it. There is some volume-related revenue growth. I would also say that we have found that there are more clients wanting to add ports or add connectivity capabilities because of the volumes as well. It's really kind of a combination of the volumes driving some of the revenue directly, but also having it come from just more demand for our connectivity services on the back of volume.
Got you. Do you think this is more of a Q1 event just given the environment, or there might be some momentum behind that?
Generally speaking, we're seeing that clients tend to connect in, and they want to be ready for the volumes that are coming. I would say that once they kind of are in the door with colocation and with connectivity, they tend to keep it there unless they see a sustained trend of not needing it. Generally speaking, they do it in anticipation of having spikes in volume or ways for them to make sure that they're managing to a generally higher volume environment. Obviously, any sort of the revenue that's specific to the Trade Reporting Facility, that will come and go with the volumes. The majority of it is connectivity related to people getting their systems up to the level that they want to have them to manage spikes in volume.
I see. Great. Thanks very much.
Sure.
Thank you. Our next question comes from Alex Kramm with UBS. You may begin.
Yeah. Hey. Hello again. Just one quick one, more bigger picture on market structure. I think a couple of quarters ago, a lot of us were all worried about the market data or equity exchange market data and some of the increased scrutiny there. Just wondering if you can give an update in particular, as the SEC said a couple of weeks ago at this STA event that they're going to have a roundtable later on market data. I'm also hearing that customers increasingly are getting asked for more detail by the SEC on how this data is used and why maybe it is really required to have not as much of a free market as you say it is. Anyways, any updated thoughts would be great there.
Sure. Well, I think that we have had an ongoing discussion and dialogue with the SEC and with our clients on this topic for many years, so we certainly welcome a roundtable discussion of it. I think that we're very pleased with the fact that the SEC, in general, is using this kind of structure of a roundtable, where they invite relevant parties to have specific conversations around topics that are important to them. They did one earlier this week on small stock market structure, we were really pleased to have an opportunity to participate in that. We like that structure. We like the fact that they're bringing in and having active debates on key topics.
We obviously continue to feel very strongly about our position that proprietary products are subject to competitive forces. We have a strong body of evidence that we've been providing to them for years on that topic. We'll continue to be able to convey our messages and convey the value that we create with our market data, and those roundtables will be a new forum for us to do that.
Fair enough. Thank you very much.
Yep. Thanks, Alex.
Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. You may begin.
Hey, good morning.
Good morning.
Curious if you have any thoughts on how CME's pending acquisition of NEX Group might impact your fixed income business. Is there any potential for disruption that you guys could take advantage of?
Well, we certainly see it as an interesting opportunity because anytime you have a change in ownership of a business, it creates some level of I don't want to call it disruption, but obviously a change in an evaluation that the clients have around the business, and their activities there, as well as just that integration and all of the internal activity that comes from integration. The fact is that the U.S. Treasuries business is highly competitive. We are in the process of upgrading our technology materially to the Nasdaq Financial Framework to support our Treasuries business, and we're very excited about that because we do think that that'll deliver much stronger performance throughput, lower latency, et cetera, and it gets us into a more competitive position in that market.
The fact we're doing that right as they're going to be trying to integrate the BrokerTec business, I do believe that could be an opportunity for us. It is highly competitive, and I think that's going to be the biggest shift for CME. They don't tend to operate in highly competitive spaces. That'll be a transition for them to be managing into businesses that are in a more competitive field. We'll see how that goes for us, but we certainly are having very productive conversations with clients as they're thinking through the impact of that combination.
Great. Thank you very much.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank. You may begin.
Great. Thanks for taking my follow-up.
Sure.
Maybe just back into the trading business. Maybe, Adena, if you can comment, your cash equities market share has been moving up pretty nicely across all the tapes. Looks like they're on the highest since 2015, early 2016. Maybe if you can talk about what you are doing to grow that. In contrast, the options and market share slipped a little bit. Looks like it's mostly on Philly and ISE. If you can talk about the competitive dynamic there, and how you see, of course, Bats has created a complex order capability. Just touch on the competitive environment and the complex order side there.
Sure. Okay. On cash equities, we are really pleased with the fact that we are hitting that 19% market share. I think that it's really on the back of several things. I think the performance of our systems is excellent, and we definitely were able to prove that out in the high volume days that we experienced in the first quarter. I think that the second thing is that we have been continuing to enhance our offering with the Midpoint Extended Life Order that we implemented in February. We've definitely seen some really nice growth in volume coming into that, and we're really pleased with the progress there.
I think on top of that, we really do work hard to listen to the clients, understand how they want to interact with our markets, make sure that both the pricing and the functionality kind of match their needs, and we do believe that that's accruing to our benefit right now in terms of being a client-oriented exchange provider. In terms of the options market, the market share, we're not at all concerned about where we're landing right now in market share because we really do look at the optimization between share and capture and then in the high volume environment. When you have really high volumes, you tend to want to just get as much done as you possibly can, and that does accrue to the benefit, tends to accrue more to the price-time markets.
In addition to what you know well, what you know how to do really well. We are seeing some shifts towards some of the price-time markets. The PHLX market also, there's certain kind of order types and order interaction that we have seen move to other markets, but we're not at all worried about it because of the, I would say, the capture dynamics of that flow. If you look at the total picture, we're very comfortable and confident in the share that we're experiencing against the high volume environment and the capture that we're able to maintain during that period.
Okay. Just any update on the Market on Close initiative that Bats has come out? I know you guys, along with ISE, debated against that on behalf of your issuers. Any update on the timing of when you think that will get decided?
No, we really actually don't have an update. We've submitted our briefs on the topic. I think that the SEC is now deliberating how to manage that. We don't have an update on any timing there.
Okay, fair enough. Thank you.
Okay, great. Thank you.
Thank you. I'm showing no further questions at this time. I'll turn the call back over to Adena Friedman for closing remarks.
Okay, great. Thank you very much for your time. Obviously, we're very pleased with the results for the quarter. We definitely see some really good momentum across our businesses this year, and we're excited to continue to drive the business forward. Thanks very much, and we look forward to speaking with all of you soon.
Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.