Intercontinental Exchange Inc.

Good morning. Welcome to the Intercontinental Exchange First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchstone phones. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Warren Gardner, VP of Investor Relations. Go ahead.

Good morning. ICE's first quarter 2020 earnings release and presentation can be found in the investor section of the ice.com. These items will be archived and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risk, assumptions, and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2019 Form 10-K, First Quarter Form 10-Q, and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, EPS, operating income, operating margin, expenses, effective tax rate, and debt to adjusted EBITDA. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. To find a reconciliation to the equivalent GAAP term in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures in our Form 10Q. 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 earning supplement for additional details regarding the definition of certain terms. With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Ben Jackson, our President. I now turn the call over to Scott.

Thanks, Warren. Good morning, everyone, and thank you for joining us today. Before we begin, we want to offer our hope that you, your colleagues, and your families are staying safe and remain healthy during this unprecedented time. I'll begin this morning on slide four with some of the key highlights from our record first quarter results. First quarter net revenues totaled $1.6 billion, up 23% year over year, driven by record trading and clearing revenues of $883 million and record data services revenues of $564 million. It's worth noting that this quarter started with January yielding what, at the time, was the best revenue month in our history. That record was nearly equal during February. While growing uncertainty related to COVID further increased our customers' demand for price discovery and risk management in March, it is our customer focus and our investments in both sales resources and product innovation that generated the high retention rates and growth in open interest, which laid the foundation for our record performance even prior to March, and which supports our ability to continue to grow once the impacts of COVID subside. Adjusted operating expenses totaled $597 million in the quarter. Variable license fees related to energy and equity index futures were roughly $5 million higher than we expected entering the quarter, but were more than offset by significantly higher related revenues. In addition, and as we disclosed in our first quarter volume press release, first quarter adjusted expenses included $10 million of charitable giving related to COVID-19 relief and $4 million related to BAC's acquisition of Bridge to Solutions. Looking toward the rest of 2020, we expect that second quarter adjusted operating expenses will improve sequentially to be in the range of $575 to $585 million, while full-year adjusted operating expense guidance remains unchanged at $2.32 to $2.37 billion. Adjusted operating income increased 30% year-over-year to $962 million. Non-operating expense totaled $46 million, helped by a $7 million true-up of our share of OCC's final 2019 income. Capital return totaled a record $865 million and included nearly $700 million of share buybacks and an average price of roughly $92 a share. Our record share repurchase during the quarter demonstrates a disciplined use of the cash generative power of our balanced business model. Combined with our record operating performance, adjusted earnings per share totaled $1.28, up 39% from the first quarter of 2019. Now let's move to slide five, where I'll provide an overview of the performance of our trading and clearing segments. Trading and clearing revenue totaled $883 million in the first quarter, up 45% on a constant currency basis. In our energy markets, geopolitical events and building open interest throughout 2019 combined to produce January and February volumes that at the time were record levels and up 40% year over year. The March OPEC meeting, coupled with the rapid emergence of COVID-19, pushed first quarter energy volumes to new record highs, driving 1Q total energy ADV and revenue up 54% year-over-year. Strong volume trends have continued into April, with ADV up 50% year-over-year and open interest also continuing to build up 23% versus the prior year period. In our ag markets, weather-related hedging activity, as well as dynamics similar to those impacting energy, drove record first quarter volumes up 31% year-over-year. This included record sugar ADV, which is up 45% year-over-year. While volumes have come off record levels in April, open interest trends continue to be strong, including a 21% year-over-year increase in sugar, our largest ag contract. In our financial futures complex, interest rate ADV was up 28% year-over-year, while equity indices increased 47% in the first quarter. Global macro uncertainty and subsequent global central bank actions to cut interest rates in the United States, the UK, and Europe provided a boost to first quarter volumes. That said, looking further out, we expect that these central bank actions and global economic challenges will suppress hedging demand in our interest rate business. It's important to note, though, that revenues related to interest rate trading represent only about 4% of our total revenues. Finally, In our fixed income and credit businesses, revenues totaled $122 million in the first quarter. This compares to $87 million last year and includes a full quarter of SimpliFile, which we acquired in June of last year. As you would expect, broad market volatility drove increased demand for credit protection, driving record levels of CDS notional cleared, including record buy side volume. The first quarter reconfirmed the importance of CDS and CDS clearing, offering participants a way to manage their risk against cash markets that today remain largely inefficient. Lastly, our mortgage services business benefited from strong refinancing trends as well as continued adoption of digital mortgage solutions. Recent events have highlighted the urgent need for further automation in the mortgage industry, and our investments position as well to help facilitate the necessary evolutions. Turning now to slide six, I'll discuss the data and listing segment. First quarter data services revenue totaled a record $564 million, up 4% on a constant currency basis versus the prior year. This marks the 41st consecutive quarter of year over year data services revenue growth. First quarter growth in pricing and analytics was 4% on a constant currency basis, consistent with last quarter, and driven by growth in our pricing and reference data business, as well as continued strong trends in our fixed income index business. We expect growth in pricing and analytics to be stable in the second quarter and accelerate through the balance of the year. Desktops and connectivity growth was 5% year-over-year on a constant currency basis, and similar to the last few quarters, growth was driven by strong performance in our ICE global network offering, where network capacity grew 12% versus the prior year. Finally, exchange data and feeds grew 2% year-over-year on a constant currency basis. Looking to the second quarter, and based on current market share dynamics at the NYSE, we would expect total exchange data to decline sequentially, but we'll note that trading activity remains robust across both our cash equity and options exchanges, and we expect share loss to begin to recover once the NYSE floors are reopened. Looking to the second quarter, and despite the sequential decline in exchange data, we expect data services revenues to increase sequentially, landing in the range of $565 to $570 million. Based on ASB entering the quarter, continued strong customer retention, and the investments we've made in sales resources and product development, We currently expect the sequential improvement in data revenues to continue through the rest of this year led by our mission-critical pricing and analytics and connectivity offerings. And importantly, we are maintaining our original full-year data services revenue guidance. Moving to our listings business, revenue totaled $112 million in the first quarter. Despite elevated volatility, the NYSE listed 15 IPOs during the quarter. Until extreme volatility subsides, we expect that listing revenues will remain relatively stable around first quarter levels. The first quarter was the strongest quarter in our company's history. We grew revenues across each of our business lines. Our trading venues and clearinghouses handled record levels of customer activity, while our data services business provided customers with new and enhanced tools to better manage their risk across the markets and asset classes we served. More importantly, with high customer retention, strong open interest trends in our commercially oriented energy markets, and a continued commitment to provide the risk management and price discovery tools our customers need, we are well positioned to continue to deliver growth. Growth that should generate strong cash flows and enable us to continue to invest in our future while also growing our dividend and opportunistically repurchasing our shares. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff.

Thank you, Scott, and good morning to everyone on the call. Before I begin my remarks on slide seven, I want to express our sincere hope that you and your families are safe and healthy. I'd also like to take a moment to thank my colleagues at ICE for the resilience and the dedication that they've exhibited over the last few months. And importantly, thank our customers, who now more than ever, put their trust in our people and our technology to manage their risk across asset classes around the world. Business continuity planning has always been paramount at ICE. Being prepared for managing risk is our business, and it's in our DNA. A number of years ago, we started building large-scale remote capacity with a robust cyber overlay. so that our employees could work from home for extended periods of time. This meant equipping them with portable technologies, building secure virtual desktop environments, and being prepared to supply important equipment out of our own inventory. We also had encouraged the use of secure video conferencing tools, laying the foundation for a near seamless transition to ensure that our platform and our employees could continue to serve our customers during the times that they need us the most. In addition to customer service, we've always prioritized the technology that underpins our markets, clearinghouses, and data services infrastructure. As you may have heard me say in the past, technology is a core competency at ICE. And in fact, the strategic rationale for a number of our acquisitions, such as the Interactive Data Corporation, MERS, or NYSE Euronext, has been supported in part by an opportunity that we saw to improve their underlying technologies. These technologies largely go unnoticed in normal times, but are consistently upgraded and stress tested as we play out an array of business continuity scenarios. As an example, while March ushered in volume records across nearly every asset class, peak activity on our exchanges consumed only 35 to 50 percent of our built-in capacity. while average trade latency between our exchanges and clearinghouses remained consistent with less active periods. A strong foundation in both technology and customer service are critical pillars that support and enable the virtuous cycle between trading and data. The relationship between trading and data is one that we've recognized nearly two decades ago, pushed further into with acquisitions such as interactive data, and one that we continue to facilitate across the diverse set of asset classes and geographies that we serve today. This relationship is vital in our futures business, where we are the venue of choice, particularly in energy commodities, for large multinational corporations, global asset managers, and sovereign nations. These customers rely on our proprietary exchange data and our secure connectivity services to interact with our trading venues. and manage price risk across a wide variety of contracts offered on our platform. As the world's leading energy marketplace, we're home to benchmarks such as Brent Crude Oil, Gas Oil, Arbob Gasoline, and Heating Oil, which serve as the cornerstones of the global oil complex that also offers roughly 600 related spread products. In natural gas, our benchmarks and basis products span European, Asian, and North American markets, while our leading environmental portfolio includes global emissions and renewable energy contracts. The breadth and diversity of our global platform drives an important network effect, as well as capital efficiencies for our customer base. This effect is best evidenced by the robust growth in our open interest, with total oil open interest up 23% this year, year over year, and total natural gas open interest up 28% year over year. It's worth noting that while we continue to see robust growth across our European and Asian natural gas contracts, the relative price decline in West Texas intermediate crude oil, which is the benchmark for U.S. crude oil, has had a positive impact on stimulating activity in our North American natural gas business. Open interest stands at record levels, up 30% year over year. with market share increasing as commercials re-engage with Henry Hub hedging and continue to utilize our unique location basis markets. Moving now to cash equities. On March 23rd, and for the first time in its 228-year history, the New York Stock Exchange operated without a physical trading floor. When we acquired NYSE Euronext, which was shortly after Hurricane Sandy in 2012, there was no convincing remote work plan in place. We quickly moved to change that, while also embarking on a complete overhaul of NYSE's technology, a project referred to as Pillar. And while we're eager to return to normal and reinstate floor operations, the performance of the Pillar technology and our continuity plan has been exceptional. NYSE issuers have raised over $5 billion in new capital since the floor closure. Designated market makers who are distinctive to NYSE's model have been able to seamlessly participate electronically, providing critical liquidity at the market open, close, and throughout the trading day. That said, this closure period has provided unique trade data that empirically highlights the additional value that human judgment on the floor provides. Our data shows that market participants save millions of dollars a day when the floor is operating, thanks to tighter spreads, and more efficient auction price discovery. But we intend to return to a full service offering for investors and we'll reopen the floors at 11 Wall Street in close coordination with local authorities once the time is right. As market participants try to make sense of the global macro economic backdrop, our data services businesses, particularly our pricing and analytics business, is seeing a flight to quality. Over the last few weeks, customers are increasingly and in many cases, proactively engaging with us. In our fixed income pricing business, we are unique in that we couple our technology to over 200 human evaluators, the vast majority of whom are former traders or portfolio managers with years of market experience. Further supported by the technology investments that we've made since our acquisition of interactive data over four years ago, our fixed income evaluators and algorithms had ample capacity to sift through a massive influx of trade data. And they were able to quickly provide our customers with evaluated prices that reflect fair value on nearly 3 million securities around the globe. We also acted quickly to provide our existing customers, as well as potential new customers, with easily accessible tools that they needed as they shifted to work from home. We launched a BCP sales initiative, which is currently being utilized by over 100 potential customers, providing complimentary access to an array of online data and analytics. It is in times of stress that we believe our investment in quality technology and customer service is appreciated the most. These times offer an opportunity to build stronger, longer-term customer relationships. And I'm proud to say that the teams, not only at ICE Data Services, but across the entire ICE platform, are taking this approach. As we move through the balance of 2020, we remain focused on continuing to enhance our markets and the ecosystems that surround them. Important growth initiatives, such as our ETF hub, electronic mortgage services, and digital assets are on track, and in some cases, appear to be accelerating. Just last week, our ETF hub successfully processed its first two custom basket transitions and a key milestone that we believe could drive additional activity to the platform as we build a more efficient and complete fixed income ecosystem. Interest in digital mortgage solutions is also growing. Industry bottlenecks further revealed by industry social distancing and work-from-home requirements are causing mortgage market participants to rethink their workflows. And this is a transition where ICE Mortgage Services is playing a fundamental role. As an example, SimpliFile added over 2,000 new e-recording customers in March, which is over 40% of what we see in a typical year, while MERS added nearly four times the number of new e-registry users in March and April when compared to the first two months of this year. And I turn you now to slide eight. We went into this crisis knowing that history has demonstrated that our company does well and generates outsized profits during times of stress. While we take our stewardship of shareholder capital very seriously, it seemed incumbent in this situation that we share a portion of our good fortune to support those helping to battle the effects of COVID-19 in the communities that we operate in around the world. And so our global team quickly identified charitable needs in their communities that we move to rapidly assist in overcoming. ICE's success has been driven by a culture of teamwork, collaboration, and innovation to meet our customers' risk management and price discovery needs. We have a plan in place for our teams to return to their offices, but we'll be prudent and we'll do so at a pace consistent with local and national guidance. In the meantime, I believe that we've demonstrated not only over the last two months, but over the past two decades, that we'll continue to invest in and execute on many exciting opportunities that lie in front of us to continue to create value for our stockholders. And with that, I want to once again thank our customers for their business and their trust, and I want to thank my colleagues at ICE for their truly remarkable efforts in contributing to the very best quarter in our company's history. With that, I'll now turn the call back to our moderator, Kate, and we'll conduct a question and answer session until 9.30 a.m. Eastern Time.

We will now begin the question and answer session. To ask a question, press star then one on your touchstone phone. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question. If you have a follow-up, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. Our first question is from Rick Rapetto from Piper Sandler. Go ahead.

Good morning, Jeff. Good morning, Scott. I guess my question, Jeff, is can we get your perspective or your views on the energy and the crude oil market right now and the issues that are going on with the pricing How do you expect Brent to price, you know, as the next contract expires and any color that you could give us to educate us more on that marketplace?

Sure. Happy to, Rich. Well, first of all, WTI, West Texas Intermediate Crude Oil, as many of you know, is crude oil delivered in pipelines at Cushing, Oklahoma, on a specific day. And there's local storage available. When there are pipeline problems or storage problems or problems on a specific day, that particular price discovery can reflect those problems. And that's what people believe happened with the negative pricing at WTI earlier this month. I will say that we are aware that there are investigations going on to satisfy the market that the price discovery that happened on that day at that moment and that place is truly representative. So we look forward to the outcome of that. Brent is slightly different, and I'll explain a little bit at a high level and then maybe ask Ben Jackson to help me augment some of the details, but there's a lot more cushioned if you will, built into the way Brent operates. First of all, it's a global contract. And so it's really looking at global capacity, global shipping capacity, global port capacity, global storage capacity, because the oil is seaborne. And as you know, I think, Rich, it is a cash settled contract that settles against an index. That is an index that ICE generates itself by looking at what is considered the physical market called the dated Brent market. And we look at cargoes that are exchanged hands between major oil companies. These tend to be trades of a full cargo, a ship cargo, or a half a ship cargo that trade around the world as the oil companies are trying to manage the delivery out of deep water derricks, the shipping availability port availability and storage around the world, those cargoes are traded to keep that whole physical infrastructure in check and balance. And those are the cargoes that we look at and create an index. If there are anomalies in trading, we have the right to question those anomalies and either ask for more information or disregard them or adjust them. So there's human judgment that goes into that. And lastly, the Brent index, the Brent crude oil contract, the futures contract that we trade, does not deliver on a day. It is a forward-looking delivery period that has more cushion in it than we have at West Texas Intermediate Crude Oil. So long story short, it's more global, it's more diversified, has more buffer, and has human judgment in it, all of which – can help alleviate some of the near-term stress that happens compared to WTI, where you have a moment in time and local infrastructure. In my mind, Rich, it's why WTI has always been a more speculative, trader-oriented contract, because people like to try to figure out those local issues and trade around them. And people with good judgment and good information can speculate around what's going on locally. Brent is a more global and more commercially used contract because it more closely reflects what's happening around the world. Ben, do you have anything you'd like to augment?

Sure, I can add a little more to that. Thanks for the question, Rich. So Jeff hit it very well around one of the core differences between the two contracts is one's global in nature, one's very local and landlocked. With WTI, as Jeff said, there's well-publicized structural issues at Cushing. Infrastructure issues that have happened in the past with pipeline and storage issues that create volatility in the delivery. And as Jeff also said, the major difference between that and Brent is that Brent's a waterborne contract where it's much easier to load crude on the vessel and bring it anywhere in the world where there's demand and the economics make sense. So you have a huge demand pool that you're servicing and with the Brent contract and you don't have those fundamental landlocked structural constraints on the contracts. The other difference is not talked about as much, and Jeff touched on this briefly, is that WTI is a spot month contract. It expires right when the delivery schedules at Cushing are being set. For example, the June contract expires on May 19th with only a couple days left of scheduling to happen on the Cushing infrastructure for deliveries. For the Brent contract, it's much more of a forward contract. So if you take that example of the June contract as well, that contract expires a full month before, and actually today is the expiration day of the Brent June contract. So you'd be a full month between that and much less, the contract's much less susceptible to issues that you'd see that can happen around infrastructure related issues or constraints that you'd see in a landlocked contract like WTI. The other big difference to just highlight quickly, Rich, is because there was some misinformation put out there recently around the concept of dated Brent. And we give customers, yes, we give customers the choice of dated Brent versus Brent to hedge. Dated Brent is a true spot month contract. So that price is cargoes all the way going up to the delivery month. Dated Brent versus Brent, they're two very different contracts, and there's a spread relationship that develops between those two contracts. It does trade because they are very different. Dated Brent, our spot contract, in that contract, we see that 85% of the open interest in that contract are professional, large commercials that are all over the delivery process that's happening in crude oil. So it's a heavily, heavily commercially oriented contract. And Brent to dated Brent traded as a spread to one another, just like WTI front month to WTI second month traded as a spread to one another. But I can say that dated Brent to Brent never blew out anywhere near to the degree that WTI did in the past week, where the spread between WTI front month to back month went from $58 to $59, and at that same period, dated Brent to Brent was around $5. It's these recent and past moves in WTI versus Brent that have shown that WTI can be a riskier contract to risk manage. And that's why customers overwhelmingly select Brent to manage their risk. They also select Brent as really the basis and pricing mechanism to price all kinds of refined products that we talk about oftentimes as one of the fastest growth areas of our business, which is our other oil complex. So these are refined products like gas oil, bunker fuels, jet fuels, gasoline, they all trade relative to Brent, and they all trade in a global nature in areas around the world, such as Europe, Asia, and North America, and it's one of the fastest growing parts of our complex. This is why, if you look at the overall oil complex, our market share in overall oil from an open interest perspective is 64%, up from 55% just a couple of years ago, and in ADV terms, our market share is 56% up from 45% in recent past. You know, we're grateful that our customers are coming to us now more than ever to help manage their risk in this turbulent time.

Our next question is from Alex Cram from UBS. Go ahead.

Yeah, hey, good morning, everyone. Just wanted to shift gears to the data side a little bit. I think you gave a decent amount of color already, but Obviously, Data Guide Unchanged, so Scott or anybody else would be very happy to hear a little bit more why you're so confident and also what you've been seeing, I guess, with sales teams displaced, working from home, and how you feel like that will change over the course of the year to still make your guidance. Then very quickly related to that, if you think going forward, the majority of that business is pricing analytics and fixed income. So with everything that we've seen here, with everyone being displaced, I would just assume that it's going to get harder to get prices by calling dealers. So just curious if you feel like this is actually an area of incremental demand coming out of this kind of crisis that nobody expected. Thank you.

Yeah, it's a good question, Alex. Thank you. Let me start with what I don't know. I don't know exactly when the world goes back to work. whether that's second quarter, third quarter, fourth quarter, early 2021. I don't think it'd be useful for you. I don't have an economist on staff to tell you that it could be fast or slow or anywhere in between. So I don't have great visibility into exactly when things open up, but I have a lot of visibility in the fact that they give me confidence. So one of the things I've got confidence based upon is I look at the pipeline and talk to Lynn and her sales team And the pipeline remains really robust. And so the opportunity exists to sell into that pipeline and to generate revenues that, as we sit here today, we believe are consistent with the original data guide that we provided. I look at ASV that's up 4%. And if you do just a straight math on that ASV number, it lands you right on top of where we're guiding in the second quarter and I think provides a firm foundation for as we move into the third and fourth quarter. I listened to Lynn and her team talk about phone calls we got in the middle of the crisis from customers who were thinking about or had moved away to one of the other competitors and realized that the tracking error on the prices from those peers were significantly greater than the tracking error on our prices that are coming back to us. I know we were able to close a couple of key deals, but those deals didn't sign due to the work from home, which is not a loss of revenue, it's just a delay, which I think can also help us in the back half of the year. So in the very near term, I see a lot of positives that give me confidence as we move into the back half of the year. I think more importantly, the key thing, key message I'd like to get across is there's nothing that's happened in the last month or two or three that's changed the medium to long-term prospects of this business. and our ability to generate 4% to 6% revenue growth. So no matter what happens in the third or the fourth quarter or early in the next year, this business is set up to grow well for exactly the reason that you indicated. It is a business that provides mission-critical information into the fixed income market. In fact, I've heard a number of our customers say during the crisis, price discovery in fixed income came from us. And I think that's going to be even more important as we get to the other side of this crisis. I think the demand for fixed income investment will continue to grow. I think the evolution of indices and ETFs will continue to generate demand on prices. And we're going to be there to serve it. And then the last data point that I would give you that gives me confidence is we look back after 2000 and 2001, the IDC business grew greater than 4%. We look back after 2008, 2009, the IDC business grew greater than 4%. And that was when it was just prices. Today it's prices and reference data and fixed income and a strong network. And, oh, by the way, it's supplemented by a futures exchange business that between 2009 and 2012 also grew high single digits coming out of the financial crisis. So in the near term, it's hard to call what exactly the numbers are going to be in the back half. but I'd keep that in perspective as well because even to the extent we're off a little bit, we're talking about two to three cents a share on earnings well above $4, so something less than a half a percent of earnings in the near term, and a long-term model still positioned very well to grow four to six percent.

Alex, this is Jeff. I'll give you one interesting, interesting to me at least, anecdotal piece of information that surprised me, and that was that our salespeople and data have targets and budgets, as you can imagine. And our people in Asia were hit with work from home very early in the quarter, a lot of dislocation in our customer base in Asia, and yet we could see they were meeting or exceeding their sales targets. And so while the sales call itself became very, very difficult on our people, the demand became very, very strong. And between that dislocation, our salespeople and our customers figured out how to do business with one another and get things done. So we, very early in the quarter, felt pretty good about where we were heading before the lockdowns hit Europe and the U.S. And so I feel somewhat confident that our entire market is figuring out how to adjust to this I'll call it new normal of working from home.

Our next question is from Dan Fannin from Jefferies. Go ahead.

Thanks. Good morning. I guess shifting back to the energy markets, I was wondering if you could kind of discuss the health of your customer base with oil at the current prices and talk about the commercial component in particular. And then just a point of clarification here. Because WTI is seaborne now, and just wondering if Brent, I mean, they're facing the same supply issues that WTI is and the lack of demand. So just curious, you know, you talked about the seaborne versus cash settled and some of the differences. But, you know, with WTI being now seaborne, does that alleviate some of that delta or variance between the two contracts?

Thanks, Dan. This is Ben again. So on the latter part of your question there around WTI being seaborne, the reality is when you look in the physical market, when those barrels and when that oil hits the water, it's most often priced by a Brent. That's when it becomes Brent. So that's one of the major differences, and it doesn't stop or prevent any of the issues that you see around the infrastructure-related issues around storage or or pipeline capacity to get oil actually to the coast. So that's one. On the customer base itself, a couple quick comments on that. So on every earnings call, you've either heard Jeff, Scott, or myself for many, many years talk about that since the inception of our futures business, we've really had the corporate commercial customer at the heart of our business. Those are customers that have real directional price risk in whatever commodities they're consuming or that they're producing in the physical markets. And what the futures markets are intended to do for them, as all of you know, is to hedge that risk if prices move against them and to protect them in turbulent times. And we've partnered with our customers very differently than others have and built out this suite, as Jeff mentioned in his prepared comments, of hundreds and hundreds of oil products around the world. We have many, many different natural gas products around the world, power contracts around the world that help our customers hedge. So we're grateful. What we can say right now is that we're grateful that our customers are coming to us now more than ever, the evidence is showing, to help them manage their risk in these turbulent times. We saw open interest records in March. Open interest is the best sign of customers coming to you and showing that they're putting on positions for a period of time to manage their risks. In April, we've seen it grow on a year-over-year basis as well. We're seeing open interest across natural gas, across oil, continuing to build in longer-dated positions, which basically means positions that aren't for necessarily expiry next month, but positions that are going to expire in December of this year or 2021 or 2022. And people that tend to put on those longer-dated positions are commercials that are, in fact, hedging their exposure to price risk. Commercials represent about 44% of the open interest in contracts like Brent, also our Henry Hub contract, more than double our closest peer in their benchmark products that they have. The other thing I'd say is that if you look at other evidence point I'd look at is if you look at past times of stress, So you look at times when 9-11 happened, when the financial crisis hit, when shale oil came exploding onto the scene. Brent ADV grew every single time in the 12-month period after that crisis hit compared to the 12-month period prior to that crisis, and open interest either held or grew. All that said, we're mindful that every day there's real stress in the marketplace that our customers are feeling. And the fact that they're coming to us more than ever to hedge their exposure to price risk in these volatile times is what our markets were fundamentally built for. And we're going to continue to partner and help our customers through this.

Our next question is from Michael Carrier from Bank of America. Go ahead.

All right. Good morning. Thanks for being a question. Scott, just a question on how you're looking at expense and capital management in this backdrop. So on expenses, you know, actually, you know, the range, how much of the base will flex, let's say, like a quick return, you know, to work versus a longer delay, and whether that's operationally or whether that's travel and those types of items. And then thinking on capital returns, is there any shift in the current backdrop? Thanks.

So, Michael, you were a little bit unclear in the question. I think what you were asking, the latter part was on capital return, which I'll touch on, and on the former part was expense management in the challenging environments. That's the question I'm going to answer. Hopefully it's right. So, first of all, the way we're thinking about expense is it's consistent in terms of where we thought coming into the year. And the reason for that is we think it's really important to continue to invest in our business as we move through 2020. And the strong performance across our business allows us to continue to do that. It's important that we continue to invest in ETF Hub. Jeff talked about some of the milestones that we hit in that. It's important to continue to invest in building out our mortgage solutions and You know, that's a business that when we bought it was $140 million revenue stream that now is on track to be $170 plus. And you, I'm sure, read the articles about the need for that business to automate beyond where it is today. So we're going to continue to invest in that. We're going to continue to invest in the data sales team. We talked about growth in the European sales team and challenges in the fourth quarter. That business in Europe went from a decline – in the fourth quarter to growth in the first quarter, and we continue to invest in the sales team because when customers are ready to start taking the meetings, or as Jeff alluded to, if they want to do deals over the phone, we want to make sure that we've invested in the sales team that's necessary to deliver on that. And so our expense guidance is consistent because we believe that this business is well positioned to continue to grow this year and beyond, and it's important that we continue to feed the growth engine with the investments on the expense side. Now, having said that, you'll note that in our original guidance we had $15 million to $25 million of expense efficiencies that we were counting on, and we will certainly deliver those. You know, we absolutely do have flexibility if things get significantly worse as we move through the year. You know, for a long time, a big part of our compensation system is pay for performance. And so to the extent that the business performance starts to slow, we've got a natural break that happens on comp expense, which is half of our overall expense. But as we sit here today, Jeff alluded to, our employees did a phenomenally good job from home delivering the markets, the risk management tools that our customers needed to And, again, we're very confident in the future of this business and don't want to cut off the investments that are necessary to generate future growth. In terms of capital return, you know, we mentioned in the quarter that we spent, you know, our dividend grew 9% in the first quarter. We just announced our second quarter dividend. It's similar growth. That's a dividend that's grown double digits every year since we announced it back in 2013. And in addition to kind of what I'll call the run rate $400 million of buybacks, We spent $300 million in addition. And I will tell you that that $300 million was spent in our open window and largely around the disconnect that happened around the eBay leak earlier in the quarter where, once again, we felt like the market had completely mispriced our company and we felt it was appropriate to opportunistically repurchase shares. That window ended before the COVID crisis really hit. But, you know, as we said, we bought at about $92 a share, and those shares sit around $92. As we move forward, I think you should continue to expect us to return 100% of the capital that we don't need for M&A. That extra $300 million we spent in the first quarter, we still were at our leverage target. We'll obviously continue to monitor that as we move through the year. But given the strength of our cash flows, I would anticipate you'll see our routine 400-a-quarter share buyback continue. You'll see the dividend continue at its current levels, which is growing year over year. And our overall approach is not different to capital returns. Last point I'd make on capital is I think it's important to note that within the first quarter, not only did we spend an extra $300 million on buyback, We also spent nearly $300 million helping back the choir bridge to solutions, and yet our leverage was still at 2.3 times, which is a complete testament to the strength of the cash flows of this business.

Our next question is from Brian DeBell from Deutsche Bank. Go ahead.

Thank you very much. Good morning for taking my question. Just a two-part question. One, just to go back on the data side and some of the, you know, thanks for the color on a lot of the anecdotes there. Just are you seeing any questions about price concessions as, you know, as some companies struggle to reduce costs? And then unrelated to that, on the energy side, if you can just remind us the rough portion of users that are commercial hedgers within your mix versus financial players on the energy side.

Got it. This is Jeff. You know, on data, what we're seeing is the sale of the NYSE U.S. equities tape is a very mature business. And not so much that there's pricing pressure, there's just consolidation, I think, in the way, at least historically before this crisis, there had been ongoing consolidation in asset managers, and there really wasn't as much price as it was number of customers. But the rest of our business, we're seeing this huge demand, and it has really no price pressure on it in the sense that there's a rotation away from desktop terminals, fixed terminals, as you can imagine, when you work from home. People are looking for lightweight, portable, easy to access, secure information, and that's really a technology delivery issue that we are very good at. Because of our investment in technology, because we're prepared to give you information in any form you want it, we've been able to move quickly to fill kind of this new need. I think we're demonstrating to a lot of people that because we had so much capacity in our systems, that on these extremely volatile days, our data was able to keep up and our analytics were able to deliver results where we heard anecdotally that a number of our competitors that may have had lower prices or people that had moved to them for other reasons wished that they hadn't done that and we saw people come back to re-engage with us, which was a very you know, warming feeling for our sales team. So long story short, no, not a lot of price pressure, much more about can I get the right information at the right place at the right time and can I rely on it? And that's what we're good at.

Before Ben picks up on that question, the only other thing I would add, as I mentioned earlier, is we're not just selling prices anymore. Now with customers that need the prices and and the reference data, and indices, and as Jeff alluded to, the connectivity, it's a full-sale solution that we have. And so it tends not to be as much about the price of any one element, but how well we can bundle that package together to meet their needs.

And on the second part of the question that Brian had asked around mix, so In the comments that I made on the past couple of questions, I dropped in a couple of statistics there. But I think the key thing to really frame in your mind is that we are heavily commercially oriented, much more so than our closest peer. Both Brent as well as our Henry Hub are two perfect examples, where about 44% of the open interest is commercials. And when you do that same analysis on WTI and Henry Hub at one of our peers, you're going to see that that's more than double what they have. So it's heavily commercially oriented. It's the commercial traders that we cater to and have really built our markets around. The second biggest segment of the marketplace would be swap dealers, banks that are selling structured products and commercials. So you'll see that that is a lot of the trading activity and hedging activity that we see. I think one other interesting data point for you is just Henry Hub alone. So one of the things that we've seen is with shale oil production coming down in the U.S., oftentimes when shale oil is being drilled, a byproduct of that is natural gas coming out of the ground in the U.S. And producers, customers, have acknowledged and seen that gas production is starting to slow, and it's introduced some volatility into the basis markets in the U.S., What we've seen is that customers are coming very significantly to our basis markets, as much as they ever have, where they manage 100% of their risk in the basis markets that we manage. And secondly, they oftentimes trade not only in the basis markets, but they put on longer-dated Henry Hub positions, which is much more the longer-dated positions, longer expiries, is much more where the commercials play. and manage their risk, and that has historically, since the inception of the company and us starting our Henry Hub contract, has been the part of the market that we've serviced. Because of those trends, we've seen Henry Hub market share in open interest terms at a 10-year high right now with 46% market share in Henry Hub. So we're seeing customers more than ever come to manage their exposure to price risk in our markets, which is what futures markets were built for.

Our next question is from Ken Worthington from JP Morgan. Go ahead.

Hi. Thank you for taking my question. I'd love to continue the discussion on gas. You know, the Dutch gas business continues to do particularly well. Open interest has doubled year over year. What is the addressable market here? Because that business continues to do exceptionally well, and it's a high-fee product. And in the resurgence of U.S. nat gas, again, to follow up on your comments there, we've seen nat gas OI continue to build both in the futures and options side. Options activity got killed last year. That's rebounded. And you mentioned gas OI was at 10-year highs today. why is that happening now? The shale issue has been – or opportunity has been going on for quite a while, and gas had sort of suffered while that business was growing. But we've seen a real resurgence. So anyway, could you further flesh out your comments on the rebound we're seeing on the U.S. gas side?

Sure. Thanks, Ken. This is Ben again. So one of the things we've been watching is with this pandemic – will that impact people's transition, in particular in Europe and Asia, to cleaner fuels, and will that slow it down? And what we've seen is that it hasn't. As we've engaged with all of our commercials and commercial customers, and also the fact that the price of natural gas and LNG, for example, is low, we're seeing that that transition to cleaner fuels is still really in vogue in Europe and in Asia, and that's what led to the growth that you just referenced in TTF, and we continue to see tremendous growth in our JKM contract. There still is a decent amount of that market that trades in the OTC space, so there's a lot of runway to go still in bringing more of that business to futures. And more and more customers each month as we look at the volume that's trading the OTC market versus futures, customers are continuing to see the benefit of trading in the futures markets, and we're seeing that continue to shift and move more and more towards the future side of the business. In terms of on the natural gas side, you know, what we're seeing there is very similar to what I said in a comment that I had just made. With natural gas, we're seeing with those shale oil wells starting to shut in and starting to slow production, you are seeing what was a massive glut of natural gas across the U.S. that depressed prices and really had no volatility in the natural gas market, all of a sudden introduced some real volatility. And I know from talking with a lot of our commercial customers there, they're looking at trading more than ever further out the curve, longer-dated type positions. The natural gas basis markets continuing to grow and grow nicely in open interest terms. And the complementary to trading in the basis markets is oftentimes people trade that as a spread to Henry and trade them in a longer-dated way. And, you know, historically that has been the area of the market that we've played in. And, you know, that's why we're seeing the growth that we have, the robust growth that we have in Henry as well as basis.

Ken, this is Jeff. One comment that I think you'll appreciate is in Europe you have the EMIR legislation, which is similar in scope to what the United States adopted after the financial crisis in our Dodd-Frank legislation. As you may know, those US and European legislators wanted more strength in the over-the-counter markets and pushed many market participants more towards clearing of swaps and derivative positions. In Europe, there was a carve-out that the utility business, if you will, and utilities did not have to clear OTC positions. positions they didn't have to margin each other. And so to a certain degree, when Ben says the over-the-counter market is active in Europe, it's partly because the futures market has to really earn its way, the trust of the market, because people do have to post margin in the futures business. So for many, it can be more expensive. The reality is your counterparty is the clearinghouse, which has a lot of transparency and safeguards around it, regulatory oversight, as opposed to bilateral deals where you have less knowledge, potentially, of your counterparty. In times of stress like this, people pay attention to their counterparties. And so we, again, see this as another opportunity. We saw a similar kind of outcome after Enron's collapse, after The financial crisis collapsed in 2008 and 2009, and I suspect that you will see us working hard to convince customers that we're a better, European customers, that we're a better place for them to keep their positions. So there is opportunity always in times of change.

Our next question is from Alex Blostein from Goldman Sachs. Go ahead.

Hey, good morning, everyone. Thanks for taking the question. I wanted to chat about your credit business for a second. So I saw a couple days ago you guys launched iSelect to consolidate access to a variety of liquidity platforms, obviously, you guys purchased over the years. Can you talk a little bit about how that integration process is going? How are you guys marketing that to clients? maybe give us an updated sense of what sort of the credit trading revenue for that whole business looks like and whether or not this is a point in time for ICE where we could see more material acceleration in credit trading revenue. Thanks.

Thanks, Alex. It's Ben. On the latter point around revenue, I think the way to think about our platforms, and I said this on an earnings call a couple of calls ago, is that the performance in terms of revenue that you'll see will be still very similar to what you'd see in the ATS volumes that are reported from the consolidated tapes, less than 250, because the execution venues historically have been retail-oriented. And where we've been focused is on building out our network and getting established and getting as many touch points as we can into the institutional trading space to really start to penetrate that market. So let me hit the first part of your question then. Our strategy has been to help industry participants solve real strains in that secondary market, secondary trading market of just sourcing liquidity for bonds. It's been very difficult, especially at times of stress, and we saw this in the last couple of months, to procure bonds, individual bonds, because it's still mostly analog. It's still a lot done heavily over the phone. So our strategy has been to pull together bonds our pricing, our analytics capabilities, and our execution technologies to create new innovations. And the first innovation, which we've talked about many times on this call, is ETF Hub. And Jeff gave some statistics in his commentary. But we launched that platform with equities in the beginning of Q4 last year, fixed income in late Q4. And we've already had, in a short period of time, $200 billion in notional trade on that platform. In March alone, that accelerated to $87 billion. And out of that $87 billion, $63 billion of it was fixed income. When you think about $63 billion in fixed income in a month in primary trading, that's a pretty good starting place of the market that trades electronically and on the phone in the secondary market where people are going to procure the bonds, they gather the basket, and then they go to our primary trading platform offering to go ahead and swap that basket for a particular ETF share. So we're seeing nice growth in the primary trading space. Jeff also mentioned that we have a new innovation that just came out with the ability to customize the basket of securities that are swapped for an ETF share. We believe this is an important fundamental building block for us to further grow our community of APs and issuers that are on the platform. In parallel to that, so you saw the announcement yesterday that you referenced. So we're very happy that with the announcement we were able to make yesterday, because what that in fact is, is that for the first time we've pulled together all of the liquidity on our various venues. So acquisitions like TMC, BondPoint, and CreditX, we've pulled all that liquidity into one easy-to-use portal for customers to access. We've also combined the multiple protocols that we have, so everything from RFQ to auctions to click-to-trade, all into one interface. And last but not least, we've added on our institutional analytics as part of our data services business that serves the vast majority of the institutional investment community with tools like Best Execution and our real-time pricing service called CEP. So now a customer can access in one portal a deep set of liquidity, you have choice of all of these different protocols, and you have institutional analytics to tell you what's the quality of my execution that I would get in these electronic liquidity pools. So where this starts to come together now and what our vision has been is that between the primary trading order flow, so that 63 billion that I had mentioned that we did in March, and our fully integrated businesses across ICE data services as well as our ICE bonds businesses through the ICE Select portal that we announced yesterday, that now positions us for the first time to really compete for institutional flow that is traditionally done either in electronic form or still predominantly over the phone for the first time. Because we're now in that position, in the second half of this year is when we're going to start publishing for all of you relevant metrics on the development of our network on the hub, as well as the development of our execution venues as they continue to mature.

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

Thank you, Kate. Well, we look forward to speaking to you about the company's current quarter on our next call, and I hope that in the meantime that you and your loved ones stay safe and stay very positive about the opportunities that lie ahead for all of us. And with that, I hope you have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.