Nasdaq Reports Second Quarter 2019 Results; Delivers Strong Growth in Revenues From Non-Trading Businesses(1)

• Second quarter 2019 net revenues² were $623 million.  Revenues in the non-trading segments increased 10% versus the prior year period, primarily driven by organic growth.
• The GAAP operating margin was 41% in the second quarter of 2019 versus 44% in the prior year period, while the non-GAAP operating margin³ of 48% increased from 47% in the prior year period.
• Second quarter 2019 GAAP diluted earnings per share was $1.04 compared to $0.97 in the second quarter of 2018.  Second quarter non-GAAP diluted earnings per share totaled $1.22, an increase of 5% from the prior year period.
• During the second quarter of 2019, the company returned $50 million to shareholders through its share repurchase program and paid dividends on its common stock in the aggregate of $77 million. In the first six months of 2019, the company returned $200 million through share repurchases and dividends.
• The company also completed its multi-year de-leveraging initiative, and through a bond refinancing extended its debt maturities and lowered future interest expense.

NEW YORK, July 24, 2019 (GLOBE NEWSWIRE) -- Nasdaq, Inc. (Nasdaq: NDAQ) today reported financial results for the second quarter of 2019.

Second quarter 2019 net revenues were $623 million, up $8 million from $615 million in the prior year period.  The increase in net revenues reflected a positive $24 million, or 4%, impact from organic growth and a positive $11 million impact from the inclusion of revenues from the acquisitions of Cinnober and Quandl, partially offset by a $17 million negative impact from divestitures and a $10 million unfavorable impact from changes in foreign exchange rates.

“Our solid second quarter 2019 results serve as an encouraging data point as we execute against our strategy to maximize the ways we deliver to our customers both in our marketplace core, as well as through our expanding technology and analytics offering," said Adena Friedman, President and CEO, Nasdaq.  “In particular, in the second quarter our foundational U.S. and Nordic equity marketplaces each delivered market share approaching multi-year highs, while 80% of U.S. issuers executing IPOs in the first half of 2019 selected Nasdaq as their listing venue.  Meanwhile, our Market Technology, Information Services and Corporate Services segments continue delivering at or above their respective longer-term growth objectives.”

GAAP operating expenses were $367 million in the second quarter of 2019, an increase of $21 million from $346 million in the second quarter of 2018.  The increase primarily reflects higher general, administrative and other expense and higher merger and strategic initiatives expense, partially offset by lower depreciation and amortization expense, compensation and benefits expense and professional fee expense.

Non-GAAP operating expenses were $322 million in the second quarter of 2019, a decrease of $3 million, or 1%, compared to the second quarter of 2018.  This reflects an $8 million favorable impact from changes in foreign exchange rates and a $2 million decrease from the net impact of acquisitions and divestitures, partially offset by a $7 million organic expense increase.

"In the first half of 2019, we continued to execute against our capital plan, including investment in organic growth initiatives, completing the deleveraging to mid-2x EBITDA, and continuing our dividend and share repurchase activities,” said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq.  "In addition, we continue to make good progress on the integrations of our recent acquisitions of Cinnober and Quandl.” 

On a GAAP basis, net income in the second quarter of 2019 was $174 million, or diluted earnings per share of $1.04, compared to net income of $162 million, or $0.97 per diluted share, in the second quarter of 2018.

On a non-GAAP basis, net income in the second quarter of 2019 was $203 million, or $1.22 per diluted share, compared to $194 million, or $1.16 per diluted share, in the second quarter of 2018.

At June 30, 2019, the company had cash and cash equivalents of $333 million and total debt of $3,489 million, resulting in net debt of $3,156 million.  This compares to total debt of $3,831 million and net debt of $3,286 million at December 31, 2018.  As of June 30, 2019, there was $282 million remaining under the board authorized share repurchase program.

UPDATING 2019 NON-GAAP EXPENSE AND TAX GUIDANCE⁴

The company is updating its 2019 non-GAAP operating expense guidance to a range of $1,295 to $1,320 million.  Nasdaq also expects its 2019 non-GAAP tax rate to be in the range of 26% to 27%.

BUSINESS HIGHLIGHTS

Market Services (36% of total net revenues) - Net revenues were $227 million in the second quarter of 2019, down $10 million, or 4%, when compared to the second quarter of 2018.

Corporate Services (20% of total net revenues) - Revenues were $123 million in the second quarter of 2019, up $3 million, or 3%, compared to the second quarter of 2018.

Information Services (31% of total net revenues) - Revenues were $194 million in the second quarter of 2019, up $19 million, or 11%, from the second quarter of 2018.

Market Technology (13% of total net revenues) - Revenues were $79 million in the second quarter of 2019, up $13 million, or 20%, from the second quarter of 2018. The increase is primarily due to the impact of the acquisition of Cinnober, which added $10 million in revenues, or 15%, and organic growth of $6 million, or 9%, partially offset by an unfavorable impact from changes in foreign exchange rates of $3 million, or 4%. The organic growth was primarily driven by an increase in the size and number of software delivery projects and an increase in software as a service surveillance revenues.

CORPORATE HIGHLIGHTS

• Nasdaq continues to see strong client traction in its Market Technology segment.  Market technology annualized recurring revenue⁵, or ARR (a new Nasdaq metric to increase the transparency of the company’s SaaS and recurring revenues), totaled $247 million in the second quarter of 2019, an increase of 16% year over year.  New order intake totaled $46 million during the second quarter of 2019, and included new customer mandates such as a full central securities depository solution for Caja de Valores S.A., Argentina's central securities depository, and a cloud deployed matching engine for Football Index, a UK based marketplace.  Nasdaq also continued to realize strong growth in its SMARTS surveillance business.
   
• Index revenues set a new quarterly record, while ETP assets under management tracking Nasdaq indexes increased 9% year over year.  Overall AUM in ETPs benchmarked to Nasdaq's proprietary index families totaled $203 billion as of June 30, 2019, up 9% compared to June 30, 2018.  The June 30, 2019 total AUM included $88 billion, or 43%, tracking smart beta indexes.
   
• Nasdaq's Market Services segment maintains strong competitive positioning and executed a new record closing cross related to the June Russell index rebalancing.  In the second quarter of 2019, the combined U.S. equities matched market share executed on Nasdaq's exchanges totaled 20.1%⁶, while market share in the Nordic markets totaled 70.3%.  In June 2019, Nasdaq's Closing Cross set a record for number of shares traded during the 2019 Russell U.S. indexes annual reconstitution, including 1.28 billion shares representing $42.6 billion in value, all of which was executed in 1.14 seconds.
   
• The Nasdaq Stock Market led U.S. exchanges for IPOs during the first half of 2019 with an 80% win rate.  In the U.S. market, The Nasdaq Stock Market welcomed 81 new listings in the second quarter of 2019, including 60 IPOs.  The U.S. IPO win rate totaled 75% during the second quarter of 2019 and 80% during the first six months of 2019.  Highlights from the second quarter included IPOs from Tradeweb Markets, Zoom Video Communications, Change Healthcare, CrowdStrike and Adaptive Biotechnologies as well as the listing switch of Zovio to The Nasdaq Stock Market.  Nasdaq's Nordic, and Baltic exchanges and Nasdaq First North added 19 new listings, including 14 IPOs, bringing total Nordic-listed companies at June 30, 2019 to 1,029, an increase of 2% from June 30, 2018.
   
• Nasdaq continues its efforts to modernize U.S. equities capital markets.  Following on Nasdaq's publication of TotalMarkets: Blueprint for a Better Tomorrow, which proposes reforms to modernize U.S. capital markets regulations that benefit all investors and issuers, the company is proposing additional changes to help main street investors.  The proposed changes pertain to definitions of users of market data for products regulated by the Securities and Exchange Commission in order to modernize the distinction between professional and non-professional investors and also help alleviate industry compliance burdens.
   
• Nasdaq is advocating for corporate issuers and sustainability-focused investors through the launch of a new global environment, social and governance (ESG) reporting guide.  In May 2019, Nasdaq published its first "Global" ESG reporting guide to support public and private companies, which explains the most critical third-party reporting methodologies being adopted by the industry.  This resource aims to help companies navigate evolving standards on ESG disclosure practices.

ABOUT NASDAQ

Nasdaq (Nasdaq: NDAQ) is a leading global provider of trading, clearing, exchange technology, listing, information and public company services. Through its diverse portfolio of solutions, Nasdaq enables customers to plan, optimize and execute their business vision with confidence, using proven technologies that provide transparency and insight for navigating today's global capital markets. As the creator of the world's first electronic stock market, its technology powers more than 100 marketplaces in 50 countries. Nasdaq is home to approximately 4,000 total listings with a market value of approximately $14 trillion. To learn more, visit: https://new.nasdaq.com.

NON-GAAP INFORMATION

In addition to disclosing results determined in accordance with U.S. GAAP, Nasdaq also discloses certain non-GAAP results of operations, including, but not limited to, net income attributable to Nasdaq, diluted earnings per share, operating income, and operating expenses, that include certain adjustments or exclude certain charges and gains that are described in the reconciliation table of U.S. GAAP to non-GAAP information provided at the end of this release. Management uses this non-GAAP information internally, along with U.S. GAAP information, in evaluating our performance and in making financial and operational decisions. We believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparisons of results as the items described below in the reconciliation tables do not reflect ongoing operating performance.

These measures are not in accordance with, or an alternative to, U.S. GAAP, and may be different from non-GAAP measures used by other companies. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as a comparative measure. Investors should not rely on any single financial measure when evaluating our business. This information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with U.S. GAAP. We recommend investors review the U.S. GAAP financial measures included in this earnings release. When viewed in conjunction with our U.S. GAAP results and the accompanying reconciliations, we believe these non-GAAP measures provide greater transparency and a more complete understanding of factors affecting our business than U.S. GAAP measures alone.

We understand that analysts and investors regularly rely on non-GAAP financial measures, such as non-GAAP net income attributable to Nasdaq, non-GAAP diluted earnings per share, non-GAAP operating income and non-GAAP operating expenses to assess operating performance. We use these measures because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on U.S. GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance.

Foreign exchange impact: In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates. Certain discussions in this release isolate the impact of year-over-year foreign currency fluctuations to better measure the comparability of operating results between periods. Operating results excluding the impact of foreign currency fluctuations are calculated by translating the current period’s results by the prior period’s exchange rates.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
                       
Information set forth in this communication contains forward-looking statements that involve a number of risks and uncertainties.  Nasdaq cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information.  Such forward-looking statements include, but are not limited to (i) projections relating to our future financial results, total shareholder returns, growth, trading volumes, products and services, order backlog, taxes and achievement of synergy targets, (ii) statements about the closing or implementation dates and benefits of certain acquisitions and other strategic, restructuring, technology, de-leveraging and capital allocation initiatives, (iii) statements about our integrations of our recent acquisitions, (iv) statements relating to any litigation or regulatory or government investigation or action to which we are or could become a party, and (v) other statements that are not historical facts.  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 filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 10-K and quarterly reports on Form 10-Q which are available on Nasdaq’s investor relations website at http://ir.nasdaq.com and the SEC’s website at www.sec.gov.  Nasdaq undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

WEBSITE DISCLOSURE

Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying with SEC Regulation FD and other disclosure obligations.

-NDAQF-

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¹ Constitutes revenues from Market Technology, Information Services and Corporate Services segments.
² Represents revenues less transaction-based expenses.
³ Refer to our reconciliations of U.S. GAAP to non-GAAP net income, diluted earnings per share, operating income and operating expenses, included in the attached schedules.
⁴ U.S. GAAP operating expense is not provided due to the inherent difficulty in quantifying certain amounts due to a variety of factors including the unpredictability in the movement in foreign currency rates, as well as future charges or reversals outside of the normal course of business.
⁵ Annualized Recurring Revenue (ARR) for a given quarter is the annualized revenue of Market Technology support and SaaS subscription contracts. ARR is currently one of our key performance metrics to assess the health and trajectory of our business. ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts during the reporting period used in calculating ARR may or may not be extended or renewed by our customers.
⁶ In the second quarter of 2019, the combined U.S. cash equities matched market share executed on Nasdaq's exchanges consisted of 17.5% at The Nasdaq Stock Market, 1.8% at Nasdaq BX and 0.8% at Nasdaq PSX.

Source: Nasdaq, Inc.