NASDAQ Announces Fourth Quarter 2006 Results; Operating Income Up 105.1 Percent From Prior Year
NEW YORK, Feb 13, 2007 (PrimeNewswire via COMTEX News Network) -- The Nasdaq Stock Market, Inc. ("NASDAQ(r)") (Nasdaq:NDAQ) today reported fourth quarter 2006 net income of $63.0 million, or $0.43 per diluted share, an increase of $45.9 million from $17.1 million, or $0.15 per diluted share, in the fourth quarter of 2005, and an increase of $32.8 million from $30.2 million, or $0.22 per diluted share, in the third quarter of 2006.
Net income for the full year 2006 was $127.9 million, or $0.95 per diluted share, versus net income of $61.7 million, or $0.57 per diluted share, for the full year 2005. Included in fourth quarter 2006 net income is a $29.4 million gain, net of tax, on foreign currency option contracts purchased to hedge the foreign exchange exposure on the acquisition bid for the London Stock Exchange. This gain had the impact of increasing diluted earnings per share by $0.19 in the quarter.
Operating income was $68.1 million for the fourth quarter of 2006, an increase of $34.9 million, or 105.1% when compared to $33.2 million for the fourth quarter of 2005, and up slightly from $67.9 million for the third quarter 2006. Operating income for the full year was $214.1 million, an increase of 88.3% when compared to $113.7 million for the full year 2005.
Gross margin, representing total revenues less cost of revenues, was $183.1 million in the fourth quarter of 2006, an increase of 32.1% from $138.6 million in the year-ago period, and up 7.0% from $171.2 million reported in the third quarter of 2006. Gross margin for the full year 2006 was $687.4 million, an increase of 30.7% from $526.0 million in 2005.
"Our strong financial results point to the success that we achieved in 2006," commented NASDAQ's Chief Executive Officer, Robert Greifeld. "During the year we began operations as a national securities exchange, completed the migration of Nasdaq-listed stocks to a single trading platform, increased our share of U.S. equity trading and initial public offerings, and continued to increase the value proposition for listing on NASDAQ by offering more products and services."
Mr. Greifeld concluded, "We enter 2007 with a stronger core business that will support our new growth initiatives to increase revenue and profitability. We plan to achieve this by gaining market share and through new initiatives such as our planned options exchange and Portal market."
Recent Highlights
* Achieved new market share highs in trading NYSE- and Amex-listed stocks. Matched market share for NYSE-listed stocks increased in December 2006 to 14.2%, up from 5.5% in December 2005. Matched market share for AMEX-listed stocks increased to 24.6% in December 2006, up from 19.7% in December 2005. * Completed the migration to our single book platform for Nasdaq- listed securities, providing market participants with a deeper liquidity pool, improved system performance and greater order interaction. * Continued success in obtaining switches from other markets, with 94 companies transferring their listing to NASDAQ during the year. * Redeemed the Series D preferred stock that had been issued to NASD. NASD no longer maintains voting control over NASDAQ. * Fully integrated the newly acquired press release newswire service, PrimeNewswire(SM).
Charges Associated with NASDAQ's Cost Reduction Program and INET Integration
Included in total expenses for the fourth quarter 2006 are pre-tax charges of $4.6 million relating to NASDAQ's continuing efforts to reduce operating expenses and improve the efficiency of its operations, as well as to integrate INET. These charges include:
* Technology Review - NASDAQ recorded expenses of $3.3 million in the quarter associated with its technology review, in which it previously changed the estimated useful life of some assets as it migrates to lower cost operating platforms and processes.
* Workforce Reductions - NASDAQ recorded charges of $1.3 million in the quarter for severance and outplacement costs.
NASDAQ's Chief Financial Officer, David Warren, commented: "During the year we continued to demonstrate our ability to effectively integrate acquisitions while driving innovation and growth in our core businesses. The fourth quarter 2006 represents an impressive string of nine consecutive quarters of sequential top-line growth for NASDAQ. Operating margins also improved, with operating income for 2006 increasing by 88.3% when compared to the prior year. This consistent record of performance improvement highlights our ability to compete effectively in a rapidly changing marketplace."
Q4 Financial Review
Total Revenues and Gross Margin - Gross margin increased 32.1% in the fourth quarter to $183.1 million, up from $138.6 million in the year-ago quarter, and up 7.0% from $171.2 million reported in the third quarter of 2006.
Market Services
Market Services gross margin increased to $116.0 million, or 46.3%, from prior year, and increased 4.2% from prior quarter.
Three Months Ended % Variance from
------------------------ --------------
Dec 31 Sept 30 Dec 31 Prior Prior
2006 2006 2005 Quarter Year
------ ------ ------ ------- ----
(in millions)
NASDAQ Market Center
Execution and trade
reporting revenues $322.1 $286.7 $150.3 12.3% NM
Access services revenues 16.5 15.6 19.3 5.8% (14.5)%
Tape fee revenue sharing (5.7) (5.4) (3.5) 5.6% 62.9%
NASDAQ General Revenue
Sharing Program - - (0.1) NM NM
------ ------ ------
Total NASDAQ Market Center
revenues 332.9 296.9 166.0 12.1% NM
Cost of revenues
Liquidity rebates (153.8) (153.2) (86.1) 0.4% 78.6%
Brokerage, clearance and
exchange fees (110.4) (78.5) (34.8) 40.6% NM
------ ------ ------
Total cost of revenues (264.2) (231.7) (120.9) 14.0% NM
------ ------ ------
Gross margin from NASDAQ
Market Center 68.7 65.2 45.1 5.4% 52.3%
NASDAQ Market Services
Subscriptions
Proprietary revenues 19.2 18.0 7.0 6.7% NM
Non-proprietary revenues 31.3 29.5 40.1 6.1% (21.9)%
NASDAQ Revenue Sharing
Programs (2.3) (2.0) (1.2) 15.0% 91.7%
UTP Plan revenue sharing (8.8) (6.9) (18.8) 27.5% (53.2)%
------ ------ ------
Total NASDAQ Market
Services Subscription
revenues 39.4 38.6 27.1 2.1% 45.4%
------ ------ ------
Other Market Services
revenues 7.9 7.5 7.1 5.3% 11.3%
------ ------ ------
Gross Margin from
Market Services $116.0 $111.3 $ 79.3 4.2% 46.3%
====== ====== ======
NM - Not meaningful. Denotes variances equal to or greater than 100%
* NASDAQ Market Center gross margin increased from the year-ago
quarter primarily because of INET results, increases in average
daily trading volume, and increases in trade execution market share
for NYSE- and AMEX-listed equities. INET is included in NASDAQ
results as of the date of closing, December 8, 2005. Access
services revenue declined from the year-ago quarter due to the
retirement of legacy products in December 2005. Increases from
prior quarter are primarily related to higher trading volume and
new fees for inbound orders. Beginning October 1, 2006 the SEC
permitted exchanges to charge for inbound orders that remove
liquidity via the Intermarket Trading System (ITS). Access services
increases from prior quarter are due to higher customer demand.
* Market Services Subscriptions revenues increased from the year-ago
quarter as less data revenue was shared under the UTP Plan.
NASDAQ's UTP market share increased primarily due to the INET
acquisition which resulted in INET trades being reported to NASDAQ.
Also, 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 Total View
and Level 1 subscriber populations, offset somewhat by higher UTP
Plan revenue sharing due to declines in market share of
Nasdaq-listed securities.
Issuer Services
During the quarter Issuer Services revenues increased 13.0% to $67.0 million from the prior year quarter and increased 12.0% from prior quarter.
Three Months Ended % Variance from
------------------------ --------------
Dec 31 Sept 30 Dec 31 Prior Prior
2006 2006 2005 Quarter Year
------ ------ ------ ------- ----
(in millions)
Corporate Client Group
Annual renewal fees $27.9 $27.3 $27.8 2.2% 0.4%
Listing of additional
shares fees 9.5 9.4 9.1 1.1% 4.4%
Initial listing fees 5.3 5.6 6.8 (5.4)% (22.1)%
Corporate Client services 13.1 10.4 6.3 26.0% NM
------ ------ ------
Total Corporate Client
Group revenues 55.8 52.7 50.0 5.9% 11.6%
------ ------ ------
NASDAQ Financial Products
Licensing revenues 9.5 6.0 8.2 58.3% 15.9%
Other revenues 1.7 1.1 1.1 54.5% 54.5%
------ ------ ------
Total NASDAQ Financial
Products revenues 11.2 7.1 9.3 57.7% 20.4%
------ ------ ------
Total Issuer Services
revenues $67.0 $59.8 $59.3 12.0% 13.0%
====== ====== ======
NM - Not meaningful. Denotes variances equal to or greater than 100%
* Corporate Client Group revenues increases from prior year and
prior quarter are driven primarily by revenues generated from
recent acquisitions, which are included in the Corporate Client
services line.
* NASDAQ Financial Products licensing revenues increased from the
prior year and prior quarter due to the collection of licensing
revenue for options on ETFs that track NASDAQ indexes. As
previously reported, the recent outcome of two court cases has
impacted NASDAQ's ability to collect licensing revenue for options
traded on NASDAQ ETFs. However a portion of the licensing revenue
was recognized during the fourth quarter of 2006.
Total Expenses
Total expenses increased 9.1% to $115.0 million from $105.4 million in the year-ago quarter and increased 11.3% from $103.3 million in the prior quarter. Fourth quarter 2006 expenses increased from last year primarily due to the recent acquisitions of INET, Shareholder.com, and PrimeNewswire. Expenses increased from third quarter 2006 primarily due to the integration of PrimeNewswire, higher marketing and advertising spending, and higher professional services costs, offset somewhat by lower depreciation expenses.
Gain on Foreign Currency Option Contracts
Included in non-operating income in the fourth quarter 2006 is an unrealized pre-tax gain of $48.4 million ($29.4 million net of tax) on foreign currency option contracts purchased to hedge the foreign exchange exposure on the acquisition bid for The London Stock Exchange. This gain had the effect of increasing diluted earnings per share by $0.19 in the quarter and $0.20 for the year. In conjunction with the lapse of our final offer for The London Stock Exchange, NASDAQ traded out of these foreign exchange contracts. Due to the improving exchange rate of the dollar whencompared to the pound sterling, NASDAQ will be recording a pre-tax loss of approximately $7.8 million on these foreign currency option contracts in first quarter 2007 results. The cumulative realized pre-tax gain on the foreign currency option contracts is approximately $40.6 million.
Dividend Income
Included in non-operating income in the fourth quarter and full year 2006 is dividend income of $7.0 million and $16.2 million, respectively, representing ordinary dividends declared by the London Stock Exchange during 2006.
Earnings Per Share
As stated above, fourth quarter earnings per diluted share was $0.43 versus $0.15 per diluted share in the year-ago quarter and $0.22 in the third quarter of 2006. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share was 152.1 million in the quarter versus 122.5 million in the year-ago quarter and 150.8 million in the third quarter 2006. The outstanding share count increased from the year-ago quarter primarily due to the issuance of approximately 26.5 million shares in equity offerings in the first and second quarters 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.
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) Year Ended
---------------------------- ------------------
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2006 2006 2005 2006 2005
-------- -------- -------- -------- --------
(Unaudited)
Revenues
Market Services $ 380.2 $ 343.0 $ 200.2 $1,408.3 $ 653.6
Issuer Services 67.0 59.8 59.3 249.0 226.1
Other 0.1 0.1 - 0.5 0.2
-------- -------- -------- -------- --------
Total revenues 447.3 402.9 259.5 1,657.8 879.9
Cost of revenues
Liquidity rebates (153.8) (153.2) (86.1) (644.9) (255.5)
Brokerage, clearance
and exchange fees (110.4) (78.5) (34.8) (325.5) (98.4)
-------- -------- -------- -------- --------
Total cost of
revenues (264.2) (231.7) (120.9) (970.4) (353.9)
-------- -------- -------- -------- --------
Gross margin 183.1 171.2 138.6 687.4 526.0
-------- -------- -------- -------- --------
Expenses
Compensation and
benefits 51.2 47.5 41.7 195.7 152.1
Marketing and
advertising 8.2 3.5 4.2 20.5 9.0
Depreciation and
amortization 10.6 14.3 20.2 70.9 67.0
Professional and
contract services 9.0 6.8 7.7 32.0 29.1
Computer operations and
data communications 11.8 9.5 14.9 41.5 62.4
Provision for bad debts 0.7 (2.2) 3.0 0.5 3.0
Occupancy 8.5 9.5 7.1 34.1 28.4
General, administrative
and other 7.0 5.8 (3.9) 44.3 19.5
-------- -------- -------- -------- --------
Total direct
expenses 107.0 94.7 94.9 439.5 370.5
Support costs from
related parties, net 8.0 8.6 10.5 33.8 41.8
-------- -------- -------- -------- --------
Total expenses 115.0 103.3 105.4 473.3 412.3
-------- -------- -------- -------- --------
Operating income 68.1 67.9 33.2 214.1 113.7
Interest income 6.3 7.6 4.2 24.6 12.7
Interest expense (24.6) (25.7) (8.1) (91.1) (20.3)
Dividend income 7.0 - - 16.2 -
Gain on foreign
currency option
contracts 48.4 - - 48.4 -
Minority interest 0.3 0.1 0.1 0.9 0.2
-------- -------- -------- -------- --------
Income before income
taxes 105.5 49.9 29.4 213.1 106.3
Income tax provision 42.5 19.7 12.3 85.2 44.6
-------- -------- -------- -------- --------
Net income $ 63.0 $ 30.2 $ 17.1 $ 127.9 $ 61.7
======== ======== ======== ======== ========
Net income applicable
to common stockholders:
Net income $ 63.0 $ 30.2 $ 17.1 $ 127.9 $ 61.7
Preferred stock:
Dividends declared - - (0.7) (0.4) (3.2)
Accretion of
preferred
stock - - (0.3) (0.3) (3.4)
-------- -------- -------- -------- --------
Net income applicable
to common
stockholders $ 63.0 $ 30.2 $ 16.1 $ 127.2 $ 55.1
======== ======== ======== ======== ========
Basic and diluted
earnings per share:
Basic $ 0.56 $ 0.27 $ 0.20 $ 1.22 $ 0.68
======== ======== ======== ======== ========
Diluted $ 0.43 $ 0.22 $ 0.15 $ 0.95 $ 0.57
======== ======== ======== ======== ========
Weighted-average common
shares outstanding
for earnings per share:
Basic 112.1 111.7 82.5 104.3 80.5
Diluted 152.1 150.8 122.5 144.2 111.9
Other Drivers
-------------
Average daily share
volume in NASDAQ
securities
(in millions) 1,930 1,852 1,768 2,011 1,799
Matched market share in
NASDAQ securities (a) 46.5% 48.7% 32.9% 48.5% 28.1%
Total market share in
NASDAQ securities (b) 74.0% 76.6% 61.5% 77.2% 57.0%
Matched market share in
NYSE securities (a) 13.9% 12.1% 5.7% 10.4% 4.2%
Total market share in
NYSE securities (b) 30.6% 27.5% 19.9% 25.8% 17.6%
Total market share in
AMEX securities (b) 48.0% 47.7% 45.3% 46.4% 32.4%
Initial public offerings 51 20 35 137 126
Secondary offerings 62 32 77 214 222
Number of listed
companies (c) 3,193 3,206 3,208 3,193 3,208
(a) Transactions executed on NASDAQ's systems.
(b) Transactions executed on NASDAQ's systems and internal trades
reported to NASDAQ.
(c) Beginning September 30, 2006 number of listed companies also
includes separately listed ETFs.
The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets
(in millions)
December 31,
---------------------
2006 2005
-------- --------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 322.0 $ 165.2
Available-for-sale investments,
at fair value 1,628.2 179.4
Receivables, net 233.3 207.6
Deferred tax assets 11.1 10.0
Other current assets 118.0 34.8
-------- --------
Total current assets 2,312.6 597.0
Property and equipment:
Land, buildings and improvements - 60.9
Data processing equipment and software 114.9 180.0
Furniture, equipment and
leasehold improvements 109.5 115.6
-------- --------
224.4 356.5
Less accumulated depreciation
and amortization (159.1) (233.9)
-------- --------
Total property and equipment, net 65.3 122.6
Non-current deferred tax assets 97.0 133.3
Goodwill 1,028.7 961.9
Intangible assets, net 199.6 215.5
Other assets 13.3 16.5
-------- --------
Total assets $3,716.5 $2,046.8
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 170.7 $ 118.9
Accrued personnel costs 55.6 55.3
Deferred revenue 56.4 53.6
Other accrued liabilities 72.1 59.7
Deferred tax liabilities 95.0 2.1
Current portion of debt obligations 10.7 7.5
Payables to related parties - 28.2
-------- --------
Total current liabilities 460.5 325.3
Debt obligations 1,493.0 1,184.9
Non-current deferred tax liabilities 115.8 95.2
Non-current deferred revenue 90.6 92.0
Other liabilities 99.1 95.4
-------- --------
Total liabilities 2,259.0 1,792.8
Minority interest 0.1 1.0
Stockholders' equity
Common stock 1.3 1.3
Preferred stock, Series D and Series C at
December 31, 2005 - 95.0
Additional paid-in capital 1,046.6 383.7
Common stock in treasury, at cost (239.7) (613.4)
Accumulated other comprehensive income (loss) 136.2 (1.3)
Deferred stock compensation - (4.9)
Common stock issuable - 6.8
Retained earnings 513.0 385.8
-------- --------
Total stockholders' equity 1,457.4 253.0
-------- --------
Total liabilities, minority interest
and stockholders' equity $3,716.5 $2,046.8
======== ========
NDAQF
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SOURCE: The Nasdaq Stock Market, Inc.
NASDAQ
Media:
Bethany Sherman
212.401.8714
Investor:
Vincent Palmiere
212.401.8742
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