Intercontinental Exchange, Inc. (ICE) CEO Jeff Sprecher on Q4 2018 Results - Earnings Call Transcript

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Intercontinental Exchange, Inc. (NYSE:ICE) Q4 2018 Earnings Conference Call February 7, 2019 8:30 AM ET

Company Participants

Warren Gardiner - Vice President of Investor Relations

Jeff Sprecher - Chairman & Chief Executive Officer

Scott Hill - Chief Financial Officer

Ben Jackson - President

Conference Call Participants

Rich Repetto - Sandler O'Neill

Ken Worthington - JPMorgan

Dan Fannon - Jefferies

Alex Blostein - Goldman Sachs

Michael Carrier - Bank of America

Kyle Voigt - KBW

Ben Herbert - Citi

Brian Bedell - Deutsche Bank

Chris Allen - Compass Point


Good morning, and welcome to the Intercontinental Exchange Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

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

Warren Gardiner

Good morning. ICE's fourth quarter 2018 earnings release and presentation can be found in the Investors section of the 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-K, which we filed this morning.

In our earnings supplement, we refer to certain non-GAAP measures including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, organic data revenue, free cash flow and EBITDA. We believe our non-GAAP measures are more effective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP terms in the earnings materials and explanation of why we deem this information to be meaningful; as well as how management uses these measures in our Form 10-K.

When used on this call, net revenue refers to revenue net of transaction based expenses, and adjusted earnings refers to adjusted diluted earnings per share. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items.

Also, with us on the call today are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Ben Jackson, our President.

I'll now turn the call over to Scott.

Scott Hill

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 record fourth quarter performance. ICE's consolidated fourth quarter net revenues increased 14% year-over-year to a record $1.3 billion. Trading and clearing net revenues were a record $657 million and data and listings revenues totaled a record $651 million underpinned by organic constant currency growth of 6%.

Adjusted operating expenses totaled $553 million in the quarter. Our fourth quarter expenses included a $5 million increase in our performance-related compensation reflecting the strong end to a good year. In addition, the quarter included around $3 million related to organizational restructuring and a few million dollars of non-recurring items. These items weren't contemplated in our original guidance and aren't expected to be recurring.

Continuing with our fourth quarter highlights, adjusted operating income grew 14% year-over-year and we delivered record adjusted earnings per share of $0.94, a 25% increase versus the fourth quarter of 2017. Importantly, that strong earnings growth combined with reduced CapEx spend generated record free cash flow of $2.3 billion, up 32% versus the prior year.

I'll discuss the way we put that cash to work on slide 5. During the fourth quarter, we deployed the remaining $140 million of our 2018 $1.2 billion repurchase authorization. When combined with the $555 million in dividends we paid, the capital return to shareholders during 2018 totaled nearly $1.8 billion. That record capital return is 23% higher than last year and nearly double what we returned just a few years ago.

We did all of this while maintaining our target leverage and investing over $1 billion in strategic initiatives including fixed income, mortgages and along with our partners the launch of Bakkt.

The strong cash generation of our business model will continue to support our disciplined approach to investment and capital return once again in 2019. As we've indicated in the past, we're committed to growing our dividend as the company grows. Reflecting that commitment, our board authorized a 15% increase in our quarterly dividend to $0.275 per share. And as we noted on our third quarter call, our board has approved a $2 billion share repurchase authorization from which we've already deployed around $115 million in January.

Now, let's move to slide 6 where I'll provide an overview of the fourth quarter performance of our trading and clearing business. Trading and clearing revenue which increased 14% for the full year grew to $657 million in the fourth quarter with both energy and ag revenue up 13% and financials revenue up 28%. Fourth quarter ADV and our futures business increased 21% year-over-year as energy, ag, rate and equity index products all increased versus the prior year.

While January volumes across our Futures & Option complex are down year-over-year, they're up sequentially versus an unusually strong December. And importantly, open interest continues to build with OI at the end of January 4% higher than a year ago led by continued strength in oil and interest-rate products. At the NYSE, transaction revenues increased 35% year-over-year driven by higher industry volumes and market share gains across cash equity and options as well as the acquisition of CHX.

ADV in our cash equity's business increased 45% year-over-year in the fourth quarter and average daily volume in our options business was up 44%. This momentum carried into January with cash equity volumes up 19% year-over-year. Moving to fixed income and credit, which includes CDS clearing, our fixed income trading businesses and ICE Mortgage Services revenue totaled $83 million for the quarter. CDS clearing revenue increased 25% year-over-year and is growing at a compound growth rate of 15% since 2012. New participants, new products and the need for additional credit protection remain catalyst for that business.

Turning next to slide 7, I'll discuss the data and listings segment. Fourth quarter data services revenue grew 6% on an organic constant currency basis to a record $539 million. For the full-year, data services revenues grew 5% on an organic constant currency basis including 6% growth in products included in our ASV, which account for roughly 90% of our data services business. Within data services during the fourth quarter, revenue from an exchange data and feeds grew 7% and desktops and connectivity grew 1% each on an organic constant currency basis.

Please note that beginning with the fourth quarter, we have moved our feeds business out of desktops and connectivity and into exchange data. This better distinguishes the exchange related content we sell from our distribution capabilities and it provides a better comparison to our data services peers. We've provided a restatement of historical data services results to reflect this change in the Appendix.

Revenues from pricing and analytics, which represent half of our data revenues and nearly quarter 1/4 of our total revenues, were up 7% on an organic constant currency basis for the third consecutive quarter. As you can see on the slide, our pricing and analytics revenue growth has accelerated from nearly 4.5% in 2016 to more than 5% in 2017 and now to over 6.5% in 2018. This accelerating growth reflects contributions from every component of our revenue model, new customers, new products, increased consumption from existing customers, and targeted price increases. And importantly ASV for pricing and analytics entering 2019 is up 7%, giving us confidence and continued momentum.

Finally, in our listings business, revenues grew 8% in the fourth quarter and the NYSE listed 16 IPOs despite heightened market volatility. And for the year, we were once again the leading U.S. exchange in terms of capital formation, helping our customers raise $30 billion in IPO proceeds.

I'll conclude my remarks on slide 8. On the left-hand side of the slide, you can see a recap of our strong 2018 performance. Revenues grew 7%, adjusted operating income grew 8%, adjusted earnings per share grew 21%, and free cash flow grew 32%.

On the right-hand side of the slide, you'll note a few points of guidance for 2019. We expect full year data services revenues to be between $2.19 billion and $2.24 billion. This includes $540 million to $545 million in the first quarter with sequential improvement each quarter thereafter. This also reflects the impact of a stronger dollar versus both the euro and pound, which is currently expected to reduce 2019 data revenues by roughly $5 million to $10 million. And of note with no material data acquisitions in 2018, currency fluctuation is the only adjustment that should be required to calculate our 2019 data revenue growth.

Moving next to expenses. We anticipate full year adjusted operating expense to be between $2.15 billion and $2.2 billion. 2018 acquisitions in our trading and clearing segment will generate roughly $35 million to $40 million in incremental expense, net of around $15 million in actions already taken to reduce the costs of those acquired businesses.

In addition to the cost savings, the expense will be more than offset by over $100 million of incremental revenue. On top of the cost savings for the recently acquired businesses, we will deliver the final $30 million of synergies related to IDC, which means we will have achieved our original commitment of $180 million in total synergies.

Next, consistent with past years, we will once again reward our employees for their strong contribution as a part of our pay-for-performance philosophy, which will increase compensation expense by $35 million to $40 million. Investments in technology as well as expenses tied to revenue growth will add around $30 million to $35 million.

And finally, our investment in Bakkt will generate $20 million to $25 million of expense based upon the run rate in the first quarter. We will update you on progress at Bakkt and the level of investment as we move through the year. We delivered another record year in 2018 and we have momentum entering 2019.

I'll be happy to take your questions during Q&A. But for now I'll hand it to Jeff to expand on our strategic plans entering the new year.

Jeff Sprecher

Thank you, Scott, and good morning to everyone on the call.

Let me begin on slide 9. We're pleased to report what was the best year in ICE's history and that marks our 13th consecutive year of record revenues and record adjusted earnings per share.

Our track record of growth is a testament to the strategic approach that we've taken since our inception to build a globally diverse platform that enhances our customers' workflows using technology to bring efficiency, transparency and reliability to markets.

In our futures markets, we're strategically positioned in major market centers around the world with six simple clearing houses across North America, the U.K., Europe and Asia. It's a footprint that gives our customers choice, helps insulate us from regulatory and political risk and provides a platform for product development that enables us to swiftly capitalize on growth opportunities as they emerge around the world.

Our exchanges and clearing houses operate on common technology, providing our markets with the flexibility to move jurisdictions if desired often as quickly as over a weekend. These markets run on proprietary technology, designed to meet the comprehensive workflow needs of a wide range of market participants. On top of this technology and our global distribution are the critical benchmark contracts that traders investors and commercial participants rely upon to manage their every day risks.

In our oil markets, Brent crude is the global benchmark for nearly two-thirds of the internationally traded oil that moves around the world each day. Once again, Brent generated record revenues in 2018 and it remains a cornerstone of our energy product development as well as for customer acquisition and retention in our energy business. Brent's relevance to our oil complex is complimented by our Gasoil contract.

Gasoil's been one of the fastest-growing energy benchmarks with open interest up 11% per annum on average over the last five years. Gasoil has become a key benchmark for the refined barrel including diesel and jet fuel. And the upcoming IMO marine fuel regulations which are set to take hold in 2020 could provide additional risk-management tailwinds to our oil complex.

In our natural gas markets, we offer a suite of liquid, global benchmarks, a platform that is unmatched in the marketplace. In fact, roughly two-thirds of our natural gas revenue is now derived from products other than the U.S. Henry Hub, a benchmark that is losing relevance to commercial customers as other global benchmarks grow.

As natural gas globalizes, our customers' participation in these markets have accelerated with open interest across our 58 North American natural gas spaces markets, up 17% year-over-year, our European TTF natural gas contract with open interest at near-record levels, up 64% year-over-year and with our JKM contract which is the benchmark for Asian natural gas achieving record trading volumes in January.

We see a similar dynamic in our financial futures business which includes European interest rates and equity indices. Brexit uncertainty and the shifting expectations around global economic growth, continue to drive increased hedging activities with interest-rate average daily volumes increasing 14% year-over-year and open interest up 8% through the end of January. And our alternative interest-rate complex is also benefiting from increased adoption with over $1.6 trillion of notional cleared in our SONIA products since its launch just over a year ago.

In our equities futures business, average daily volume in our MSCI index has grown at a CAGR of 34% since 2014, and was up 40% in January. In particular, as trade tensions in the U.S. and China continue to build, so too is open interest in the MSCI emerging market index. As of the end of January, open interest stood at 1.4 million contracts. And for comparison purposes, this represents over 20% of the total notional outstanding in the S&P 500 E-mini contract an amount which was less than 5% only five years ago. In addition to our futures markets we're continuously working to bring efficiencies, transparency and reliability to the U.S. cash equities markets.

At the NYSE, we've been rolling out our pillar technology, a technology that has the capacity to handle 80 billion messages a day and which should improve the customer execution and access experience to our seven distinct equities trading venues.

When combined with our hybrid designated market maker model, we provide customers with a differentiated platform that reduces volatility, provides tighter bid offer spreads and offers an all-in cost to trade that is significantly lower than the average dark pool or dark venue like the IEX exchange.

Our model of compensating designated market-makers to protect and manage stocks is a unique value proposition that shines brightest amidst market volatility such as we've seen in December as the average quoted spreads on NYSE listed and traded stocks were approximately 100 -- excuse me 180 basis points tighter and volatility was over 50% lower on the open and 60% lower on the close than our closest listing competitor.

And finally in our data services business, we continue to build on our unique platform as the leading provider of mission-critical derived data and analytics. The results of these efforts are best illustrated by the performance in our pricing and analytics business which grew nearly 7% in 2018.

Demand for our pricing and reference data analytics and indices is accelerating. Active managers continue to search for better tools and data to drive output as there's a shift towards passive investing which continues. These two trends have provided a tailwind to our business in particular to our index business.

At the end of January following the transition of the iShares preferred stock ETF, ICE had $175 billion of fixed income ETF assets tracking our indices, a whopping 80% increase from just a year ago.

Turning to slide 10 as I noted at the beginning of my prepared remarks, 2018 was yet another record year for ICE. A strong topline contribution from our transaction business was complemented by compounding growth in our data and listings business.

Coupled with strong expense management and our synergy execution, we produced double-digit EPS growth, reinforcing our conviction that we have in our long-term strategy.

And as we look to 2019 and beyond we're excited about the opportunities that lie ahead, not only for our core business but also for newer initiatives such as ICE Mortgage Services, our fixed-income businesses and Bakkt which recently raised over $180 million in its first round of funding.

I'd like to conclude by thanking our customers for their business and for their trust in 2018 and I want to thank my colleagues for their efforts that contributed to yet another very strong year for ICE. I'll now turn the call back to our operator Kerry and she'll conduct the question-and-answer session until 9:30 Eastern Time.

Question-and-Answer Session


[Operator Instructions] The first question will come from Rich Repetto of Sandler O'Neill. Please go ahead.

Rich Repetto

Hi. Good morning, Jeff. Good morning, Scott. I guess, my question's going to be a broad question on some of the external sort of forces you're bumping into both in Europe and the U.S. And I guess, in Europe when you look at Brexit, Jeff, you mentioned some of the benefits that people are needing to hedge more, but could you overall give us a recap of where do you think you stand on Brexit? There's this issue of I know the tax on commodities potentially being forced by the EU.

And then in the U.S., the external forces where these ideas of compete -- new competing exchange as well as the scrutiny on data, do you think that that -- we can move on beyond that? Or what points would you highlight to investors in those areas?

Jeff Sprecher

Well, welcome to my world, Rich. You basically asked me to describe my job. So let's start with Brexit. First of all, as you've mentioned, unfortunately, we benefit from Brexit because the volatility that government actions impose on companies force them to manage their risk and we're in the risk management business. So there's really an overarching positive impact on our revenues and income.

That said, as you know we've long felt that we shouldn't consolidate all our businesses geographically. And we have a trading and clearing operation in the U.K. and we also have a trading and clearing operation in the EU. And we put both of them on common technologies, so that we have to move "business" around. It's really just a database move inside of our company and not a physical move. And as I mentioned in my prepared remarks that's something we can do over a weekend.

That said, there's a lot of political back and forth going on including now revisiting tax issues. On the tax issues specifically, this has been going on for over a decade. It's remanded to the courts now, the EU courts. In 21 months or so, the U.K. theoretically is no longer bound by the EU courts. So I don't know that it's going -- and this is going to have any practical impact other than another negotiating ploy that's going on over a complicated relationship between the U.K. and the EU as it relates to Brexit.

It's something that we -- everybody and our whole industry has lived with forever, but ICE has always maintained the optionality to move contracts and to locate business where our customers want to be. And if certain things would have to move or be relocated in order to map and minimize the impact of that we certainly would do that. We'll take our cue from the industry.

With respect to the U.S. and the members exchange, let me just set the table if I could, because for some reason there seems to be an incredible amount of concern about this press release. You have to go back to a decade or so when we've had the automation of trading particularly in the equities world. We had the Flash Boys book in the "Flash Boys phenomenon".

And as a result of that we saw the SEC a couple of years ago order the exchanges to do what they called a tick pilot, which was essentially widen out or narrow the spreads of certain stocks to see how they would trade. And really what that is doing is affecting the behavior of the high-frequency traders that make their income by trying to capture the bid offer spread. That pilot has finished and the data's being analyzed and you next see the SEC trying to promulgate something called a fee pilot. It's not that well named in my mind, because it actually doesn't impact the fees or the capture rate of the exchanges, but it changes theoretically over a number of different buckets the amount of rebate that can be paid to high-frequency market-making firms and brokers. There are a lot of people in our industry that are looking at the retail equity market and saying the next leg of that stool.

If one follows the SEC's actions maybe to investigate and change the way retail payment for order flow operates. And Rich, I think you know that, retail order flow that comes through retail brokers is largely sold directly to high-frequency market-makers. It never goes to exchanges. And what we saw is a group of high-frequency market-makers that participate in the retail space organized up all of the retail brokers that they pay these fees to and try to quickly move to set up an exchange that we believe is to try to get in front of what may be the trend of eliminating and changing their business model.

Now for us at the New York Stock Exchange, unfortunately, we don't see any of that retail order flow. We don't believe that that the behavior impacts us at all. In fact to the extent that those orders are not executed on after they're sold to the market-makers the exhaust which are basically people consider to be toxic because these are bids and offers that are off-market are routed to an exchange that is not us. So we have very little impact with what's going on over there.

That said, we believe that – we support what they're doing and we'll not fight to what they're doing, because we think it has still over benefits to the New York Stock Exchange. First of all, we don't compete for any retail order flow. And if the idea is that they're no longer going to be able to sell order flow directly to market-makers and it's going to have to be public competition to the retail consumers for the best bid offer we would like to compete for that. And if there's going to be a new exchange they think, they can compete for. We believe we could compete for. We have amongst the lowest cost of trading all-in cost of trading anywhere cheaper than dark pools, cheaper than the newer exchanges that have formed up. And we believe that the new exchange is going to have to cover its cost.

For us this workflow will be incremental and we believe we could offer low-cost trading that would be accretive to ICE shareholders and very, very competitive to the end user for the bid offer.

Secondly, a new exchange is going to continue to fragment order flow. Even if there are even if there's no business there bids and offers that are sent there are going to have to be viewed. That's going to increase the capacity, the network capacity needed to manage that. That means, the data spend wallet of end users is going to go up not down. And we run networks and we can compete to provide that increased capacity. That's in fact a big part of the growth of this business. So we see the wallet going up.

And lastly, one of the techniques that the SEC uses to promulgate, these changes is to essentially order the exchanges to adopt rules instead of going through a large public rule-making where – which takes a long time and have a lot of comments and difficulty getting through. Oftentimes the SEC will just order the exchanges to adopt the rule given that we have rule making capability. So this is the case for example in a consolidated audit trail.

The exchanges were ordered to build a consolidated audit trail by filing individual rules at each exchange that would allow that to happen. There's a lot of complaints in the market over who got the vote on that, consolidated audit trail for example. People that were not exchanges, didn't get a vote. Now we know the reason that the buy side and the sell side would like to have a vote is they want to make sure that they don't have to pay for it or that they can at least cap the costs.

In the consolidated audit trail case, there is no budget. It is an unlimited spend. It is one of the most technically difficult projects that has ever been attempted in our industry managing billions and billions of data point that have consumer information, that can be captured time stamped on an atomic clock and can be readily searchable for trends is a daunting challenge. And it has been a huge spend on behalf of the exchanges. So we would welcome others to come in and help to fray those costs and have a vote in that matter because they also would be pregnant with the obligations of that matter.

The recent exchanges have been fighting people having votes is that they don't have the underlying obligation. So long story short, we see that we may have an opportunity to compete for retail order flow. We believe there's going to be an increase data wallet spend and we believe that this could finally align interest in the industry. And so in that regard, I don't see why in any event anyone should consider it a negative impact on our company. I think it will ultimately accrue positive. Thank you for listening to that one-winded answer but that is my role.


The next question will come from Ken Worthington of JPMorgan. Please go ahead.

Ken Worthington

Hi, good morning. On the data side, your ASV is up 6%. Your revenue guide for 2019 is up 3.5% to a little under 6%. Can you help us bridge the gap between the two? Clearly, FX is a part, but I think some of the inflation Scott gave show that it was really a small part. So what are the other factors in the gap between ASV and the data revenue guide? And is BAML -- where is BAML in these figures now on the organic side? And where is it not?

Scott Hill

So, Ken first of all the guidance range we gave constant currency is roughly 4% to 6% year-over-year, so just to take any concerns or questions out regarding what a constant currency guide is in those dollar terms. If you think about ASV at 6%, if you remember that's 90% of our revenue. As I said in my prepared remarks, in 2018 our overall data business grew 5%. Our ASV revenue grew 6%. And so the elements that aren't inside ASV things like NMS, session fees et cetera haven't been and we don't expect will become big growth drivers in the overall business.

So I actually think, if you take the absolute value ASV and you consider it as 90% of our revenue, it gives you -- it pushes you right into the middle of our range. So I feel like we're set up very well to deliver another year of solid growth in the data business. The mix of that's going to look a little different. The Pricing & Analytics business as I mentioned is moved up from 4.5% to over 5% to 6.5% and I think it's headed to 7% this year. Connectivity on the other side capacity growth has been tremendous over the last couple of years. I think that will likely slow a little bit this year as customers consume that capacity. But again you're seeing that content coming through the additional capacity in Pricing and Analytics grow.

But connectivity itself is likely to be closer to a 1% to 2% growth. And then exchange data is going to be in the middle of those two with our futures and exchange data continuing to be in strong demand, some additional value capture from oil products that we were able to add to our energy packages. And so overall I feel like 2019 sets up to be a very good year and I actually think the ASV aligns perfectly with what the guidance suggests.


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

Dan Fannon

Thanks. Good morning One more question on the data. Just looking back at your -- the pie chart from the investor data broke down the mid to high-single-digit growth and the components of that. Can you talk about the breakdown between pricing new customers incremental consumption kind of those -- the various buckets that you would outline and how that fits today as you look at 2019 where we're looking pretty much squarely like a mid-single-digit number versus that mid to high?

Scott Hill

Yeah, thanks for the question. So the interesting thing about that model is there are parts of the business where as you look at 2019 expectation it fits perfectly. There's a very good balance in the Pricing and Analytics business, which I just said I think is going to go around 7% for the year.

New products, your reference data products, indices -- by the way Ken the answer to your question is the Bank of America Merrill Lynch indices are fully organic this year. Everything is, because there weren't data acquisitions last year. So all our growth in 2019 will be organic.

But we've got new products that are driving growth, new customers; the MiFID II introduced us to a lot of small and medium-sized European customers who are now buying the breadth of our products not just things like the liquidity indicator that solved an existing need. Existing customers buying more of those MiFID II products that really drove great growth in Europe that you'll look at the back of the slide and see that our mix to Europe has actually moved back to 20% where it was 21%, 22%, back when we had trade dipped below 20% now it's back.

Those new customers buying more but then those new products existing customers in the U.S. are buying, because they need liquidity indicators and best execution indicators. And so that's driving growth. And then again we are seeing a contribution from price.

I'll note one thing in that model if you pull it out; it included roughly a point of growth from M&A. And we don't have that this year. If you look back over the last couple of years and exclude the businesses we divested our inorganic growth if you will was close to 7%.

So I look at 2019 as a year where we're going to deliver very solid growth with the 10% element that relates to M&A not present at all and then a very strong balance across pricing, across new customers, across new products et cetera in a fairly even contribution again inside Pricing and Analytics.

If you look at exchange data that really is our existing customers buying more on the future side, and growth in the number of customers consuming those products. And on the connectivity side, even though I think it will slow versus where it was, we continue to see capacity growth, which again is existing customers buying more with in fact an actual price reduction there because as they buy the larger ports, the actual price per gig comes down a little bit.

So it mixes across the elements, but I think that revenue model is still very indicative other than again in 2019, we don't have the point contribution from M&A.


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

Q – Alex Blostein

Hey guys, good morning. Just a question around the -- I guess just thinking of the business. So maybe get an update on initiatives you guys have lined up for 2019 and credit trading on the back of the platforms that you purchased. I think on the last call maybe the call before that you talked about that being call it $100-ish million kind of trading annual run rate. Where does that stand today? And what are some things you guys are working on to get that going higher?

A – Jeff Sprecher

Let me have Ben Jackson answer that for you.

A – Ben Jackson

Thanks Alex. So our platforms had a very strong Q4 when you look at TMC and BondPoint. As a lot of you know, volatility came back to U.S. corporates and munis in the fourth quarter and we were a beneficiary of that where volume on BondPoint and TMC was up over 9% over the prior quarter and 20% over the prior year. And in notional terms, what was traded we were up 12% over the prior quarter and 50% over the prior year.

And note that I was highlighting there that notional is greater than volume which means the average trade size is also increasing on the platform. So one of the things I've talked about on prior calls is that OddBot trading, so trades of north of 100 bonds per trade has continued to increase. And last year, we saw a BondPoint, a 50% increase on an annual basis of OddBot trading and 23% increase on TMC.

The other thing I'd highlight is you've got to remember we've owned these platforms for a short period of time. So BondPoint, we've had for about a year; TMC about six months. And our integration effort is well underway. Just in the last few weeks, we've combined our business and technology teams across TMC, BondPoint, Creditex into one team, now called ICE bonds. And we're executing with a single-mission, direction, leveraging technology across the group for efficiencies and scales. So we're starting to realize some of what I have mentioned on prior calls is getting the operating income of those businesses in line with where we see our other trading businesses.

The only thing I'd say is, you've got to take a step back because buying those businesses wasn't about just fixed-income execution and isolation, it's really about providing our customers a complete integrated comprehensive solution to real challenges that there are in fixed income. When you combine real-time and end-of-day pricing, we're the market leader, providing for three million instruments around the world, not only end-of-day prices, but real-time prices.

With our reference data business where we're providing reference data, the golden record of the terms and conditions for bonds for 13 million instruments, a leader in that space. We have index expertise and fixed income that came onboard with the ICE Bank of America Merrill Lynch index business that's growing fast as mentioned in the commentary.

We also have analytics leadership in the fixed-income space where customers trust us with $1 trillion in assets to run through our analytical platforms, to understand the return attribution, to identify the next optimal trade opportunity, to identify liquidity risks that they have in their portfolio et cetera. And last but not least, you add onto that the choice of execution protocols that we have from central order book and streaming protocols that's core to the businesses that we bought and that's the most difficult protocols to establish.

When you have to manage 100 million price updates a day on BondPoint, 77 million price updates on TMC, you have securities that you can provide customers that on 10000 securities you can provide markets that have 250 bonds up on the best bid and best offer at any given point in time. We have 23000 securities with two-way markets. You have to manage best execution, manage connectivity, manage latency, all these are real challenges in building out those streaming protocols and we have that well established in our business.

In addition I've highlighted that we're building out our cue and auction capabilities that already represents 20% of the volume on those platforms and will be instrumental as well when the ETF hub project comes to life later this year that I've also talked to this group about.

And the ETF hub project gives us an opportunity to be at one of the hottest and highest growth area in the fixed-income space which is passive investing which has had a 30% CAGR over the last 10 years. That gives you a little bit of a flavor of the initiatives that we have coming down the pipe.


The next question will come from Michael Carrier of Bank of America. Please go ahead.

Michael Carrier

Thanks, good morning. Scott just on the on some of the guidance on the expenses just in terms of - like some of the buckets that you gave just anywhere like $30 million, $35 million on tech investment for new growth and then the $20 million, $25 million on Bakkt just wanted to get your sense on like what are those maybe initiatives? What are the expected returns or like revenue growth associated with some of those expenses whether it's a 2019 or further out?

Scott Hill

Yes. So it's a good question. And hopefully you found the guidance pretty consistent with what we've done in prior years. And as I look at kind of the average expectation, I think they're -- in terms of 2019 expense, I think they're pretty consistent as well with two adjustments.

And I think right now you guys on average are expecting us to be around 21.60, 55 or 60. We told you that we went to work on the businesses we acquired last year and I've already taken out $15 million of costs there which if you would just use the run rate would be new news.

And then additionally as you point out, we did note that we would be investing based on our first quarter run rate $20 million to $25 million. And I said we'd keep you updated on that as we move through the year.

Specifically with regards to the revenue and the technology investments, I think those will continue to support revenue growth that likely overall is going to be in kind of that mid-single-digit range in total. That's all subject to volatility. But I definitely think those investments just as they did in 2017 and 2018 will support continued revenue growth.

I think Bakkt is really an investment and I'll hand it over to Jeff to talk a little bit about it. That's more about the future and revenue and market opportunities that we see in the future and less about 2019 topline.

Jeff Sprecher

Yes. Bakkt is a unique structure for us and that we've actually set it up as a separate company with a separate name, its own management team and separate capitalization. So right now ICE is the majority investor in the company, I expect that we'll do other rounds of financing. We'll make a decision as it goes forward whether we stay majority or allow it to spin three of us.

We believe that what ICE has if you step back and look at us is, we have obviously trading clearing. We have settlement capabilities, warehouse and custody management capabilities, large treasury operations, banking connectivity and a global infrastructure that is in many, many jurisdictions -- regulatory distinctions around the world with a massive cyber overlay.

That infrastructure has attracted a lot of very, very interesting companies that have come -- some that have invested in Bakkt, some are just working with Bakkt to try to tap into that infrastructure for some new use cases that will involve blockchain and digital assets and other things that we can provide these people. Obviously, we've announced the Starbucks -- our work with Starbucks and Microsoft. We have very, very large retail franchises global connectivity to end users that we hope will be brought into that ecosystem and could create a very, very valuable company out of that initiative if our business plan plays out.

So it's a bit of a moonshot bet and it's been organized in a manner that is very different than the way ICE typically does businesses. Bakkt has its own offices, its own management team and et cetera. And then we've entered into agreements with it to provide services, as I've described over that Bakkt -- over that ICE overlay.

So we'll see how it goes. They're well along in building out an infrastructure that I think you'll see launch later this year. And I'll let Bakkt talk more about how it wants to go about an what the business and use cases are its revenue model, et cetera, as it unfolds.

Ben Jackson

Yes. And then the other only thing I'd add is in addition to separate teams, separate office it's separately funded. We and our partners have put cash aside to fund this business. And so while it won't generate revenue in the current year, it also doesn't impact our leverage that's already funded.

It doesn't impact our capital returns. We increased the dividend 15%. We've already bought back over $115 million of shares in the quarter. And so it is funded in a sense, even though it's incremental expense on top of what you would have anticipated it is funded by cash that we and our partners have already put aside.


The next question will come from Kyle Voigt of KBW. Please go ahead.

Kyle Voigt

Hi. Good morning. Just one on M&A. Over the past few years, more of the M&A for ICE has been targeted on deals that are more bolt-on in nature. So I guess my questions really on the large-scale M&A and the exchange space. I think you've previously cited uncertainty around Brexit, uncertainty more broadly about the regulatory environment as an impediment to that occurring in the future along with the political environment, but it seems that we've gotten some clarity at least on the Brexit side for clearing, right? Can you give us an update on whether you still see the regulatory environment and this uncertainty more broadly as an impediment to large scale M&A in the sector? Thank you.

Jeff Sprecher

I think your -- the sort of leading aspect to your question I think is correct is that things are clearing up from a regulatory standpoint, from a market structure standpoint. People have the large exchange groups have sort of stepped their footprints and it becomes more obvious where other acquisitions should flow in my mind.

In our industry, we've seen obviously the formation of large exchange groups like ICE and our peers. We've also seen a consolidation in traders particularly high-frequency trading has consolidated and we've seen a consolidation in brokers. Order flow tends to go to a more limited number. The MiFID impact of providing analysis and analytics in your space has concentrated people.

So we've been seeing a concentration across the entire financial services market that we serve. You could sort of date in there as well a number of large data companies formed up. So I do think that there will be continued M&A in our space and maybe more obvious as to where these large companies will touch one another.

That said M&A for us have to be disciplined. We've done a lot of M&A that's been opportunistic. Large M&A has been opportunistic when it's been obvious that we should get together with somebody. That's set into our model that -- where we target returns above our cost of capital and make sure that these deals work with shareholders.

And as you know we've been very disciplined on our synergy cases and we hold ourselves to high regard to deliver the synergies that we promised. And so M&A is not easy as companies get larger. But all that said, I do believe that some of the impediments are clearing.

Ben Jackson

Yes. And just in the event -- you missed it on my first slide to validate Jeff's point on the financial discipline that we've executed on our past deals, our return on invested capital is now back to 9%. In total, it's 300 basis points above our cost of capital.

And if you look at kind of outside IDC, it would've been back at 10%. And so when we say we're committed to doing deals that generate 10% returns, you see it in the results on our overall return on invested capital, which, again, as Jeff said, is that capital base has grown moving that made will continuously higher which we've done requires us to continue to grow profit which we've done.


The next question will come from Ben Herbert of Citi. Please go ahead.

Ben Herbert

Hi, good morning. Thanks for taking the question. Just wanted to go back to the data and particularly, Pricing and Analytics. Just within fixed income, how do you feel positioned to continue to accelerate growth there? I mean could we see more of that as you further integrate the ecosystem you've built? Or I know you gave the M&A guidance for 2019, but I mean is there an opportunity do you think to be a bit more acquisitive in the fixed-income side? Thanks.

Ben Jackson

Hi, Ben, it's Ben. I think one of the place I'd start with is some of the commentary that I've mentioned before in that our strategy when we've looked at fixed income is we took a different approach to it than many others where we looked at what is the comprehensive solution that people need to solve the real issues in fixed income. Issues like how do I get a fair price? How do I figure out for someone that doesn't trade all that often, what is the price of that instrument? How do I keep on top of all of the vast ocean of reference data I need to understand in trading that? How do I find people that when I identify a trade I want to do? How do I find somebody that has inventory that indeed wants to trade? And then on the execution side being able to offer a number of different protocols for someone to execute.

The thing I'd highlight that really pulled -- that I think is a good sign that we're heading down the right path year is that ETF hub project that I mentioned because it really -- in order to deliver that you have to have all those pieces and we're uniquely positioned to do that.

And when you think about it, for the first time later this year when we launch the ETF hub, again, one of the hottest areas of growth in the fixed income market. For the first time if you're an authorized participant or a market maker and you want to create or redeem a share of an ETF, you're going to be able to, for the first time, connect to a single portal. And in that single portal, you'll be able to connect to multiple issuers as opposed to having 12 different interfaces that you're dealing with -- interface with these -- with the issuers.

Second, you'll be able to gather the index constituents for each issuer's ETFs. So, think of all the hundreds of ETFs that they have, multiply it by the number of issuers that's all going to be able to be done in a single portal. Third, you'll be able to view that days basket constituents to be able to create or redeem a share. Every day those constituents change for each one of those funds and each one of those issuers. So you can see the problem compounds on itself as you think about it and the way that things are done today.

Fourth, you'll be able to gather market data, data from us that we're the leading price provider in the space to be able to understand what are the trading levels of the constituents and the baskets that could be created or redeemed in that day. Next, you'll be able to negotiate, what is acceptable to submit through a create or redeem. In order to do that, you have to have instant-messaging capabilities which we have a well-established instant-messaging capabilities to be able to underpin this.

And last, but not least, you'll be able to execute via our streaming protocols, our RFQ, our auctions as well as third-party venues to choose to connect through this portal. To me that's a pretty powerful sign of a place in the market that's growing very fast where market participants are pulling us into it because they see us uniquely positioned with the combination of assets that we have to solve this problem and to help the passive investing fixed-income space go to that next level of growth.


The next question will come from Brian Bedell of Deutsche Bank. Please go ahead.

Brian Bedell

Great. Thanks very much. Just Scott, on the data revenue guidance, on the constant currency basis from 4% to 6%, what do you see as the biggest drivers between the difference of the 4% to 6%? Is it mostly in pricing or actually new customers? And then, if I could just ask one -- a couple of timing questions. Just on Ben, I think you said launching the RFQ and ETF hub later this year, when you think that might start contributing from a revenue perspective, if that's later this year or 2020. And then just one on timing of NYMEX development Jeff, thanks for your answer. Prior on that, do you think that is -- the members exchange is something that actually gets up in running and can begin to affect the markets later this year? Or is that more of a 2020 type of event?

Scott Hill

Yes. So I'll start. I think there were three questions embedded in there. The 4% to 6% look I went into last year and I gave you guys a fairly tight data guidance and said we have good visibility into it, which I still believe is the case. But I think that got interpreted to something like 99.5% certainty in February. And so the range is a little wider this year just acknowledging what happened in 2018. There were some places where we had some erosion that we didn't expect on the downside in the desktop business some audits that we didn't anticipate in certain quarters as we move through the year.

And so the reality is that all of those things worked out to a year where we grew the business 5%. And as I mentioned, ASV revenues actually grew 6%. But there were some churn that ran through the stock because the $2 million or $3 million difference in any given quarter and a $15 million or $20 million difference on $2 billion of revenue for the year. And so I thought it was prudent to try and take some of the volatility out around people who are trying to guess that $1 million on $500 million in the quarter.

As I said on the call, I feel very confident that if you look at the ASV number that's going to point you right to the middle of our range. And then inside that, it's going to be driven by growth in Pricing & Analytics. So Ben's laid out a very compelling case for our overall fixed-income investment. But that's a bit -- that is effectively the IDC business that used to grow 2% to 3%. And I'm telling you it's going to grow two-and-a-half times faster than that just a few years later.

And the ASV supports that and there's a lot of momentum in the products that we've got. So I feel very good about the business. I think the only thing you should interpret in the widening of the range is, just a little bit more, hey, yes, it could be plus or minus 1% versus plus or minus 0.5% last year.

Ben Jackson

And, Brian, I'll pick up on the RFQ, ETF hub questions that you had. So on RFQ, we have that capability now. So in your question you said, is that going to be coming later this year? You have to remember, from being a long-time exchange, clearinghouse market operator in a number of different asset classes, we have expertise in the RFQ auction space in many of our markets. So we leverage a lot of that expertise and we're able to get those RFQ capabilities established on both BondPoint and TMC very rapidly.

So that capability and functionality is there now. And now it's about leveraging our network and our distribution capabilities to get that out, which we're very well able to do as we have brought those businesses together with our Creditex business, that I've mentioned, and also leveraging all of the touch points we have in the fixed-income community through our ICE Data Services business.

For the ETF hub, that will launch later this year. That's our targeted time frame with our steering committee. We have completed the requirements definition around that. We have the design well underway. We have most of the major issuers that are onboard, helping us with this, as well as the major APs and market-makers that are helping and assisting with that design. And that has enabled us to really lock that down and now we're looking at later this year. So you'll see contribution on this. We're targeting 2020.

Jeff Sprecher

And lastly, on the members exchange. I guess, I'm not aware that there's management or anybody working on anything, but that's really not their obligation to discuss it with us. But that said, if I was in their position, if I wanted to get the market fast, I'd probably just copy verbatim somebody else's rule book. And probably there's a one year-ish process, one maybe two.

Of course, if I copy somebody else's rule book, it doesn't give you anything that's unique that exists. And I would suspect that there's going to be a lot of scrutiny around the very issue that many pundits are talking about which is -- are the members going to try to bias their business towards the exchange, rather than seek the best price for their customers in the marketplace.

And that come along way in the last few years in terms of disclosure and audit ability of that behavior. But it's not completely done yet. So I suspect there'll be a fair amount of conversation and review of just how is order flow intended to be routed. All that said, nothing moves fast in the regulatory world. And I can tell you that I'm watching Bakkt try to stand up its regulatory footprint. And things are not moving necessarily fast right now in the United States.


The last question for today will come from Chris Allen of Compass Point. Please go ahead.

Chris Allen

Good morning, guys. I think most of my questions have gone answered. I just had a quick numbers question. Just on the other revenues, which are boosted by $5 million in fines in 3Q, up sequentially again in 4Q. I'm just kind of wondering what's been driving that over the course of the year and kind of the outlook there?

Scott Hill

So the other revenue Chris is where we've got the revenues associated actually with the interest we earned on our clearing house deposit. And so as the fed has moved rates up and the balances have grown and they tend to grow at year-end people like to part cash at our clearing houses at year-end. That's what drove it up.

And so depending on what the rate environment is as we move through 2019, you could see a similar dynamic. If rates were constant, it will all correlate to the actual levels of collateral, cash collateral specifically that to some that's held at our clearing house. Nothing, more than that.


This concludes our question-and-answer session. I would now like to turn the conference back over to Jeff Sprecher for any closing remarks.

Jeff Sprecher

Thank you, Kerry. Thank you all for joining us on the call and we look forward to really a guided up-year again for 2019, and we'll talk to you in the next quarter.


The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.

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