NASDAQ Announces First Quarter 2007 Results
Highest Ever Reported Operating Income, Apr 19, 2007 (PrimeNewswire via COMTEX News Network) -- Up 94.7 Percent From Prior Year Matched Market Share Reaches Record Levels IPO Win Rate Highest Since 2000
NEW YORK, April 19, 2007 (PRIME NEWSWIRE) -- The Nasdaq Stock Market, Inc. ("NASDAQ(r)"); (Nasdaq:NDAQ), today reported first quarter 2007 net income of $18.3 million, or $0.14 per diluted share, an increase of $0.3 million from $18.0 million, or $0.16 per diluted share, in the first quarter of 2006.
First quarter 2007 results include the following pre-tax items:
* $24.9 million charge for merger and acquisition related costs associated with NASDAQ's lapsed offer for the London Stock Exchange. * $10.6 million charge included in general, administrative and other expense related to a NASDAQ clearing contract. NASDAQ's single trading platform includes functionality that enables NASDAQ to discontinue the use of services provided under the contract. * $7.8 million loss on foreign currency option contracts purchased to hedge the foreign exchange exposure on the acquisition bid for the London Stock Exchange. A $48.4 million gain was recorded in the fourth quarter 2006 for foreign currency option contracts. As a result NASDAQ's cumulative gain on foreign currency contracts is approximately $40.6 million. * $6.5 million gain associated with NASDAQ freezing its employee pension plan and Supplemental Executive Retirement Plan (SERP), included in compensation expense.
Excluding the above items and an additional $2.1 million in other charges, net income calculated on a non-GAAP basis was $41.8 million versus $26.2 million for the first quarter 2006 and $33.0 million for the fourth quarter 2006. Non-GAAP diluted earnings per common share were $0.29 for the quarter versus $0.22 for the first quarter 2006 and $0.23 for the fourth quarter 2006.
Operating income was $81.4 million for the first quarter of 2007, an increase of $39.6 million, or 94.7%, when compared to $41.8 million for the first quarter of 2006.
Gross margin, representing total revenues less cost of revenues, was $192.1 million in the first quarter of 2007, an increase of 18.6% from $162.0 million in the year-ago period, and up 4.9% from $183.1 million reported in the fourth quarter of 2006.
NASDAQ's Chief Executive Officer, Robert Greifeld commented, "Our first quarter results demonstrate our ability to improve profitability by focusing on the execution of our business plan. Gross margin increased for the 10th consecutive quarter and operating income reached the highest level ever recorded at NASDAQ. Share volume matched in our systems reached record highs and NASDAQ had its strongest performance in IPO listings since the height of the market in 2000. We are extremely confident in our ability to continue to grow our business and remain excited about the future."
Recent Highlights
* Quarterly operating income reached the highest level ever recorded for NASDAQ, increasing 94.7% from prior year and 19.5% from prior quarter. * For the quarter NASDAQ attracted 79.2% of all IPOs, with proceeds totaling $6.3 billion, or 67% of the $9.5 billion raised across all U.S. exchanges. * Achieved new market share highs in trading of U.S. listed equities. NASDAQ matched a record high 28.8% of consolidated U.S. listed equities in March. Matched market share for NYSE-listed stocks increased to 15.9% in March 2007, up from 7.7% in March 2006. Matched market share for Amex-listed stocks increased to 31.4% in March 2007, up from 23.4% in March 2006. * Completed the transfer of sponsorship functions for the QQQ and the BLDRS ETFs to PowerShares Capital Management. This transfer expands the distribution channels for the funds and brings greater investor access to these dynamic products. * Completed the migration of trading for non-NASDAQ stocks to our trading platform, effectively completing the INET integration.
2007 Outlook
NASDAQ expects the following results for the full-year 2007:
* Net income in the range of $165.0 million to $175.0 million for the year, including the impact of all charges noted above. * Gross margin in the range of $755.0 million to $775.0 million. * Total operating expenses in the range of $390.0 million to $410.0 million.
"We're extremely proud of our first quarter operating results," commented NASDAQ's Chief Financial Officer, David Warren. "By migrating trading to a single platform we've effectively completed the INET integration and have demonstrated our disciplined approach to integrating acquisitions. I'm pleased to say that all revenue and cost objectives identified at the time of the INET acquisition have been achieved. This success is clearly illustrated in the strong growth in operating income."
Financial Review
Total Revenues and Gross Margin -- Gross margin increased 18.6% in the first quarter to $192.1 million, up from $162.0 million in the year-ago quarter, and up 4.9% from $183.1 million reported in the fourth quarter of 2006.
Market Services
Market Services gross margin increased to $125.6 million, or 22.1%, from prior year, and increased 8.3% from prior quarter.
Three Months Ended % Variance
from
------------------------ --------------
Mar 31 Dec 31 Mar 31 Prior Prior
2007 2006 2006 Quarter Year
------ ------- ------ ------- ------
(in millions) (in millions)
NASDAQ Market Center
Execution and trade
reporting revenues $438.3 $322.1 $286.1 36.1% 53.2%
Access services revenues 16.7 16.5 12.3 1.2% 35.8%
Tape fee revenue sharing (6.5) (5.7) (5.3) 14.0% 22.6%
NASDAQ General Revenue
Sharing Program -- -- (0.1) NM NM
------ ------ ------
Total NASDAQ Market
Center revenues 448.5 332.9 293.0 34.7% 53.1%
Cost of revenues
Liquidity rebates (225.2) (153.8) (167.2) 46.4% 34.7%
Brokerage, clearance and
exchange fees (144.7) (110.4) (67.0) 31.1% NM
------ ------ ------
Total cost of revenues (369.9) (264.2) (234.2) 40.0% 57.9%
------ ------ ------
Gross margin from
NASDAQ Market Center 78.6 68.7 58.8 14.4% 33.7%
NASDAQ Market Services
Subscriptions
Proprietary revenues 19.8 19.2 7.7 3.1% NM
Non-proprietary revenues 32.1 31.3 44.4 2.6% (27.7)%
NASDAQ Revenue Sharing
Programs (3.1) (2.3) (2.9) 34.8% 6.9%
UTP Plan revenue sharing (9.6) (8.8) (13.7) 9.1% (29.9)%
------ ------ ------
Total NASDAQ Market
Services Subscription
revenues 39.2 39.4 35.5 (0.5)% 10.4%
------ ------ ------
Other Market Services
revenues 7.8 7.9 8.6 (1.3)% (9.3)%
------ ------ ------
Gross Margin from Market
Services $125.6 $116.0 $102.9 8.3% 22.1%
====== ====== ======
NM - Not meaningful. Denotes variances equal to or greater than 100%
* NASDAQ Market Center gross margin increases from both prior quarter
and the year-ago quarter are primarily due to increases in trade
execution market share for NYSE- and AMEX-listed equities and
increases in average daily trading volume. Higher access services
revenues from prior year and prior quarter are due to increases in
customer demand for network connectivity.
* Market Services Subscriptions revenues increased from the year-ago
quarter as less data revenue was shared under the UTP Plan.
Effective February 7, 2006, NASDAQ was no longer required to share
NQDS revenue, thereby reducing the amount of revenue shared with
UTP Plan participants. This change is also the primary driver for
the growth in proprietary revenues and the decline in
non-proprietary revenues when compared to the year-ago quarter.
Increases from prior quarter are primarily due to higher TotalView,
NQDS, and Level 1 subscriber populations, offset somewhat by higher
UTP Plan revenue sharing.
Issuer Services
During the quarter Issuer Services revenues increased 12.7% to $66.4 million from the prior year quarter and decreased 0.9% from prior quarter.
Three Months Ended % Variance
from
------------------------ --------------
Mar 31 Dec 31 Mar 31 Prior Prior
2007 2006 2006 Quarter Year
------ ------- ------ ------- ------
(in millions) (in millions)
Corporate Client Group
Annual renewal fees $ 30.7 $ 27.9 $ 25.8 10.0% 19.0%
Listing of additional
shares fees 9.7 9.5 8.9 2.1% 9.0%
Initial listing fees 5.4 5.3 6.4 1.9% (15.6)%
Corporate Client services 11.7 13.1 7.6 (10.7)% 53.9%
------ ------ ------
Total Corporate Client
Group revenues 57.5 55.8 48.7 3.0% 18.1%
------ ------ ------
NASDAQ Financial Products
Licensing revenues 7.3 9.5 9.0 (23.2)% (18.9)%
Other revenues 1.6 1.7 1.2 (5.9)% 33.3%
------ ------ ------
Total NASDAQ Financial
Products revenues 8.9 11.2 10.2 (20.5)% (12.7)%
------ ------ ------
Total Issuer Services
revenues $ 66.4 $ 67.0 $ 58.9 (0.9)% 12.7%
====== ====== ======
* Corporate Client Group revenues increases from prior year are
driven primarily by revised annual renewal fees introduced this
quarter, and by revenues generated from recent acquisitions, which
are included in the Corporate Client services line. Increases from
prior quarter are primarily driven by the revised annual fees,
offset somewhat by cyclically lower Corporate Client services.
* NASDAQ Financial Products licensing revenues decreased from the
prior year and prior quarter due to a decline in licensing fees
associated with options traded for NASDAQ-licensed ETFs. As
previously reported, the recent outcome of two court cases impacted
NASDAQ's ability to collect licensing revenue for options traded on
NASDAQ ETFs.
Total Operating Expenses
Total operating expenses decreased 7.9% to $110.7 million from $120.2 million in the year-ago quarter and decreased 3.7% from $115.0 million in the prior quarter. First quarter 2007 expenses decreased from last year primarily due to the completion of the integration of the INET acquisition, which resulted in NASDAQ migrating all trading to a single trading platform. Expenses decreased from fourth quarter 2006 primarily due to integration savings and the recording of a gain associated with freezing the employee pension plan and SERP, offset somewhat by the charge related to a NASDAQ clearing contract.
Loss on Foreign Currency Option Contracts
Included in first quarter 2007 results is a $7.8 million loss on foreign currency option contracts that NASDAQ entered into to hedge the foreign exchange exposure on the bid for the London Stock Exchange. A $48.4 million gain was recorded in the fourth quarter 2006 for foreign currency option contracts. As a result NASDAQ's cumulative gain on foreign currency contracts is approximately $40.6 million.
Strategic Initiative Costs
Included in first quarter 2007 results is a $24.9 million charge associated with NASDAQ's offer for the London Stock Exchange. These charges include $18.4 million of capitalized costs as of December 31, 2006 and subsequent expenses of approximately $6.5 million.
Earnings Per Share
First quarter earnings per diluted share were $0.14 versus $0.16 per diluted share in the year-ago quarter, and $0.43 in the fourth quarter of 2006. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share was 151.8 million in the quarter versus 128.0 million in the year-ago quarter and 152.1 million in the fourth quarter 2006. The outstanding share count increased from the year-ago quarter primarily due to the issuance of approximately 18.5 million shares in equity offerings in the second quarter of 2006.
NASDAQ(r) is the largest electronic equity securities market in the United States. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology industries. For more information about NASDAQ, visit the NASDAQ Web site at www.nasdaq.com or the NASDAQ Newsroom(sm) at www.nasdaqnews.com. NDAQF
Non-GAAP Information
In addition to disclosing results determined in accordance with U.S. generally accepted accounting principles ("GAAP"), NASDAQ also discloses certain non-GAAP results of operations, including total operating expenses, operating income, net income and diluted earnings per share, that exclude certain charges that are described further in this press release and in the reconciliation table of non-GAAP to GAAP information provided at the end of this release. Management believes that this non-GAAP information provides investors with additional information to assess NASDAQ's operating performance by excluding these costs and assists investors in comparing our operating performance to prior periods.
Management uses this non-GAAP information, along with GAAP information, in evaluating its historical operating performance.
The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. The non-GAAP information should not be viewed as a substitute for, or superior to, other data prepared in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
The matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections about our future financial results, as well as the implementation dates and benefits of certain strategic initiatives. The Nasdaq Stock Market, Inc. cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements include projections which have not been reviewed by independent auditors of NASDAQ. Forward-looking statements involve a number of risks, uncertainties or other factors beyond NASDAQ's control. These factors include, but are not limited to, NASDAQ's ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors detailed in NASDAQ's annual report on Form 10-K, quarterly reports on Form 10-Q, and periodic reports filed with the U.S. Securities and Exchange Commission. In addition, these statements are based on a number of assumptions that are subject to change. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by NASDAQ that the projections will prove to be correct. We undertake no obligation to release any revisions to any forward-looking statements.
The Nasdaq Stock Market, Inc.
Condensed Consolidated Statements of Income
(in millions, except per share amounts and other drivers)
Three Months Ended (Unaudited)
----------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
Revenues
Market Services $ 495.5 $ 380.2 $ 337.1
Issuer Services 66.4 67.0 58.9
Other 0.1 0.1 0.2
------- ------- -------
Total revenues 562.0 447.3 396.2
Cost of revenues
Liquidity rebates (225.2) (153.8) (167.2)
Brokerage, clearance and
exchange fees (144.7) (110.4) (67.0)
------- ------- -------
Total cost of revenues (369.9) (264.2) (234.2)
------- ------- -------
Gross margin 192.1 183.1 162.0
------- ------- -------
Expenses
Compensation and benefits 44.3 51.2 48.9
Marketing and advertising 4.9 8.2 5.0
Depreciation and amortization 9.8 10.6 24.5
Professional and contract
services 8.4 9.0 8.9
Computer operations and
data communications 8.2 11.8 10.0
Provision for bad debts 3.5 0.7 --
Occupancy 8.9 8.5 8.0
Regulatory 6.7 -- --
General, administrative and other 16.0 7.0 6.8
------- ------- -------
Total direct expenses 110.7 107.0 112.1
Support costs from related
parties, net -- 8.0 8.1
------- ------- -------
Total operating expenses 110.7 115.0 120.2
------- ------- -------
Operating income 81.4 68.1 41.8
Interest income 5.5 6.3 4.5
Interest expense (23.5) (24.6) (16.4)
Dividend income -- 7.0 --
Gain (loss) on foreign currency
option contracts (7.8) 48.4 --
Strategic initiative costs (24.9) -- --
Minority interest 0.1 0.3 0.1
------- ------- -------
Income before income taxes 30.8 105.5 30.0
Income tax provision 12.5 42.5 12.0
------- ------- -------
Net income $ 18.3 $ 63.0 $ 18.0
======= ======= =======
Net income applicable to
common stockholders:
Net income $ 18.3 $ 63.0 $ 18.0
Preferred stock:
Dividends declared -- -- (0.4)
Accretion of preferred
stock -- -- (0.3)
------- ------- -------
Net income applicable to common
stockholders $ 18.3 $ 63.0 $ 17.3
======= ======= =======
Basic and diluted earnings per
share:
Basic $ 0.16 $ 0.56 $ 0.20
======= ======= =======
Diluted $ 0.14 $ 0.43 $ 0.16
======= ======= =======
Weighted average common shares
outstanding for earnings per
share:
Basic 112.4 112.1 87.9
Diluted 151.8 152.1 128.0
Other Drivers
Average daily share volume
in NASDAQ-listed
securities (mn) 2,152 1,930 2,122
Matched market share in NASDAQ
securities (a) 45.5% 46.5% 50.4%
Total market share in NASDAQ
securities (b) 74.5% 74.0% 80.0%
Matched market share in NYSE
securities (a) 15.1% 13.9% 7.0%
Total market share in NYSE
securities (b) 33.6% 30.6% 22.0%
Matched market share in AMEX
securities (a) 29.4% 25.3% 22.3%
Total market share in AMEX
securities (b) 52.0% 48.0% 43.8%
Listings
Initial public offerings 37 51 30
Secondary offerings 50 62 69
Number of listed companies (c) 3,181 3,193 3,191
(a) Transactions executed on NASDAQ's systems.
(b) Transactions executed on NASDAQ's systems and internal trades
reported to NASDAQ.
(c) At March 31, 2007 and December 31, 2006 number of listed
companies also includes separately listed ETFs.
The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets
(in millions)
March 31, December 31,
2007 2006
--------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 493.2 $ 322.0
Available-for-sale investments,
at fair value 1,531.8 1,628.2
Receivables, net 299.2 233.3
Deferred tax assets 18.1 11.1
Other current assets 26.5 118.0
--------- ---------
Total current assets 2,368.8 2,312.6
Property and equipment, net 61.9 65.3
Non-current deferred tax assets 100.3 97.0
Goodwill 1,028.9 1,028.7
Intangible assets, net 194.7 199.6
Other assets 12.6 13.3
--------- ---------
Total assets $ 3,767.2 $ 3,716.5
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 200.9 $ 170.7
Accrued personnel costs 25.3 55.6
Deferred revenue 161.6 56.4
Other accrued liabilities 73.3 72.1
Deferred tax liabilities 69.7 95.0
Current portion of debt obligations 10.7 10.7
--------- ---------
Total current liabilities 541.5 460.5
Debt obligations 1,490.4 1,493.0
Non-current deferred tax liabilities 96.5 115.8
Non-current deferred revenue 96.6 90.6
Other liabilities 100.5 99.1
--------- ---------
Total liabilities 2,325.5 2,259.0
Minority interest -- 0.1
Stockholders' equity
Common stock 1.3 1.3
Additional paid-in capital 1,051.2 1,046.6
Common stock in treasury, at cost (236.7) (239.7)
Accumulated other comprehensive income 95.6 136.2
Retained earnings 530.3 513.0
--------- ---------
Total stockholders' equity 1,441.7 1,457.4
--------- ---------
Total liabilities, minority interest
and stockholders' equity $ 3,767.2 $ 3,716.5
========= =========
The Nasdaq Stock Market, Inc.
Reconciliation of GAAP Earnings
(in millions, except per share amounts)
Three Months Ended
----------------------------------------
Mar 31, Dec 31, Sept 30, June 30, Mar 31,
2007 2006 2006 2006 2006
------- ------- -------- -------- ------
GAAP Total Operating
Expenses: $110.7 $115.0 $103.3 $134.8 $120.2
Adjustments:
Technology Review 0.7 3.3 3.4 9.9 11.9
Real Estate Consolidation -- -- 0.5 5.4 --
Workforce Reductions 1.4 1.3 0.9 2.6 1.7
Extinguishment of Credit
Facility -- -- -- 20.9 --
Foreign Currency Gain -- -- -- (8.2) --
Pension Plan and SERP
Freeze (6.5) -- -- -- --
Clearing Contract 10.6 -- -- -- --
Debt Issuance Costs -- 1.1 -- -- --
------ ------ ------ ------ ------
Non-GAAP Total Operating
Expenses $104.5 $109.3 $ 98.5 $104.2 $106.6
====== ====== ====== ====== ======
GAAP Operating Income: $ 81.4 $ 68.1 $ 67.9 $ 36.3 $ 41.8
Adjustments:
Technology Review 0.7 3.3 3.4 9.9 11.9
Real Estate Consolidation -- -- 0.5 5.4 --
Workforce Reductions 1.4 1.3 0.9 2.6 1.7
Extinguishment of Credit
Facility -- -- -- 20.9 --
Foreign Currency Gain -- -- -- (8.2) --
Pension Plan and SERP
Freeze (6.5) -- -- -- --
Clearing Contract 10.6 -- -- -- --
Debt Issuance Costs -- 1.1 -- -- --
------ ------ ------ ------ ------
Non-GAAP Operating Income $ 87.6 $ 73.8 $ 72.7 $ 66.9 $ 55.4
====== ====== ====== ====== ======
GAAP Net Income: $ 18.3 $ 63.0 $ 30.2 $ 16.6 $ 18.0
Adjustments:
Technology Review 0.4 2.0 2.1 6.0 7.2
Real Estate Consolidation -- -- 0.3 3.3 --
Workforce Reductions 0.8 0.8 0.5 1.6 1.0
Extinguishment of Credit
Facility -- -- -- 12.6 --
Foreign Currency Gain -- -- -- (5.0) --
Pension Plan and SERP
Freeze (3.9) -- -- -- --
Clearing Contract 6.4 -- -- -- --
Debt Issuance Costs -- 0.7 -- -- --
Dividend Income (4.2) (5.6)
(Gain) Loss on Foreign
Currency Option Contracts 4.7 (29.3) -- -- --
Strategic Initiative Costs 15.1 -- -- -- --
------ ------ ------ ------ ------
Total Adjustments 23.5 (30.0) 2.9 12.9 8.2
------ ------ ------ ------ ------
Non-GAAP Net Income $ 41.8 $ 33.0 $ 33.1 $ 29.5 $ 26.2
====== ====== ====== ====== ======
GAAP Earnings per
Common Share:
Diluted Earnings Per Share $ 0.14 $ 0.43 $ 0.22 $ 0.13 $ 0.16
Adjustments:
Total Adjustments from
GAAP Net Income Above: 0.15 (0.20) 0.02 0.09 0.06
------ ------ ------ ------ ------
Non-GAAP Diluted Earnings
per Common Share $ 0.29 $ 0.23 $ 0.24 $ 0.22 $ 0.22
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SOURCE: The Nasdaq Stock Market, Inc.
NASDAQ
Media Contact:
Bethany Sherman
212.401.8714
Investor Contact:
Vincent Palmiere
212.401.8742
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