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NASDAQ Announces Third Quarter 2006 Results
- Operating Income Up 116.9 Percent From Prior Year -
NEW YORK, Oct. 19, 2006 (PRIMEZONE) -- The Nasdaq Stock Market, Inc. ("NASDAQ®"); (Nasdaq:NDAQ), today reported third quarter 2006 net income of $30.2 million, or $0.22 per diluted share, an increase of 69.7% from $17.8 million, or $0.16 per diluted share, in the third quarter of 2005, and 81.9% from $16.6 million, or $0.13 per diluted share, in the second quarter of 2006.
Gross margin, representing total revenues less cost of revenues, was $171.2 million in the third quarter of 2006, an increase of 31.1% from $130.6 million in the year-ago period, and up marginally from $171.1 million reported in the second quarter of 2006.
NASDAQ's Chief Executive Officer, Robert Greifeld commented, "Third quarter operating income grew an impressive 116.9% through the continued execution of our strategic plan. We've been able to improve profitability through successful acquisitions and gains in market share, while maintaining our expense control discipline. Significant gains in our share of trading in NYSE-listed stocks have been achieved, with our matched market sharing growing to 12.1% in the quarter, up from 4.7% in the year-ago quarter. We are on track to reach our 2006 objectives through continued innovation and consistent execution."
Recent Highlights
-- Continued success in obtaining switches from other markets, with
76 companies transferring their listing to NASDAQ during the
year.
-- Completed the acquisition of PrimeZone Media Network, enabling
NASDAQ to offer information distribution and multimedia services
as part of its Corporate Client services.
-- Began migration to our single book platform, which when
completed will provide market participants with a deeper
liquidity pool, improved system performance and greater order
interaction.
-- Announced plans to introduce the NASDAQ Options Market in third
quarter 2007, pending SEC approval.
-- Became operational as an exchange in NASDAQ-listed securities on
August 1, 2006.
-- PowerShares Capital Management LLC launched ten new exchange-
traded funds (ETFs) on NASDAQ based on FTSE RAFI fundamental
indexes. NASDAQ also has agreed to transfer its sponsorship of
the QQQs to PowerShares, significantly expanding sales
distribution of the QQQs and opportunities to further build its
investor base.
-- Secured two new TotalView Enterprise licenses allowing
distribution of TotalView data to more than 57,000 additional
non-professional subscribers, and grew professional subscribers
7% from prior quarter and more than doubled them from the
year-ago quarter.
-- Enhanced ModelView, NASDAQ's web-based historical data product,
to include NYSE- and Amex-listed data as well as INET liquidity.
Charges Associated with NASDAQ's Cost Reduction Program and INET Integration
Included in total expenses for the third quarter 2006 are pre-tax charges of $4.8 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 $3.4 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 $0.9 million
in the quarter for severance and outplacement costs.
-- Real Estate -- NASDAQ recorded charges of $0.5 million in the
quarter as part of its real estate consolidation plans.
2006 Outlook
NASDAQ is raising guidance for the full-year 2006:
-- Net income in the range of $89.0 million to $92.0 million for
the year, including the impact of charges associated with
NASDAQ's cost reduction program, INET integration, and losses on
extinguishment of debt noted below.
-- Gross margin in the range of $675.0 million to $680.0 million.
-- Total expenses in the range of $466.0 million to $471.0 million.
2006 total expense projections include approximately $55.0 million to $60.0 million of pre-tax charges associated with NASDAQ's continuing cost reduction efforts, INET integration and investment in the London Stock Exchange. These charges include:
-- Approximately $30.0 million to $33.0 million in charges
primarily related to NASDAQ's decision to migrate to less
expensive technology operating platforms.
-- Approximately $6.0 million to $7.0 million in charges related to
NASDAQ's plans to exit certain real estate facilities.
-- Approximately $6.0 million to $7.0 million in severance expenses
associated with NASDAQ's plans for workforce reductions.
-- $20.9 million in charges related to the early extinguishment of
debt and the refinancing of a credit facility, partially offset
by an $8.2 million foreign currency gain related to our
investment in the London Stock Exchange, both recorded in the
second quarter.
NASDAQ's Chief Financial Officer, David Warren, commented: "NASDAQ's third quarter results highlight our ability to quickly and efficiently integrate acquisitions, allowing them to contribute to improved margins. When coupled with revenue growth derived from our product innovations and our ability to reduce legacy operating expenses, we have created an effective business model designed to drive growth in profitability. We are now in the final steps of our INET integration and, once completed, fully expect to realize all deal synergies. Our continued ability to execute to plan allows us to improve our outlook for the remainder of 2006."
Q3 Financial Review
Total Revenues and Gross Margin -- Gross margin increased 31.1% in the third quarter to $171.2 million, up from $130.6 million in the year-ago quarter, and is up marginally from $171.1 million reported in the second quarter of 2006.
Market Services
Market Services gross margin increased to $111.3 million or 48.8% from prior year, and increased 3.3% from prior quarter.
Three Months Ended % Variance from
------------------------- ----------------
Sept 30 June 30 Sept 30 Prior Prior
2006 2006 2005 Quarter Year
------- ------- ------- ------- -------
(in millions)
NASDAQ Market Center
Execution and trade
reporting revenues $ 286.7 $ 291.4 $ 116.9 (1.6)% NM
Access services
revenues 15.6 13.1 19.8 19.1 % (21.2)%
Tape fee revenue
sharing (5.4) (5.3) (3.5) 1.9 % 54.3 %
NASDAQ General Revenue
Sharing Program -- (0.1) (0.1) NM NM
------- ------- -------
Total NASDAQ Market
Center revenues 296.9 299.1 133.1 (0.7)% NM
Cost of revenues
Liquidity rebates (153.2) (170.6) (64.8) (10.2)% NM
Brokerage, clearance
and exchange fees (78.5) (69.3) (25.0) 13.3 % NM
------- ------- -------
Total cost of revenues (231.7) (239.9) (89.8) (3.4)% NM
------- ------- -------
Gross margin from
NASDAQ Market Center 65.2 59.2 43.3 10.1 % 50.6 %
NASDAQ Market Services
Subscriptions
Proprietary revenues 18.0 17.6 9.0 2.3 % NM
Non-proprietary revenues 29.5 31.1 38.9 (5.1)% (24.2)%
NASDAQ Revenue Sharing
Programs (2.0) (2.6) (1.2) (23.1)% 66.7 %
UTP Plan revenue sharing (6.9) (6.2) (19.5) 11.3 % (64.6)%
------- ------- -------
Total NASDAQ Market
Services Subscription
revenues 38.6 39.9 27.2 (3.3)% 41.9 %
------- ------- -------
Other Market Services
revenues 7.5 8.6 4.3 (12.8)% 74.4 %
------- ------- -------
Gross Margin from Market
Services $111.3 $107.7 $74.8 3.3 % 48.8 %
======= ======= =======
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. 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 the reduction in clearing costs
for INET transactions. INET trades are now cleared through
NASDAQ's existing clearing broker, thereby reducing cost of
revenues for the quarter.
-- 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 is 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.
-- Other Market Services revenues increased from prior year due
primarily to revenues earned under a contract between NASD and
NASDAQ for the operations of the Over-the-Counter Bulletin Board
(OTCBB), which took effect on October 1, 2005.
Issuer Services
During the quarter Issuer Services revenues increased 7.2% to $59.8 million from the prior year quarter and declined 5.7% from prior quarter.
Three Months Ended % Variance from
-------------------------- -----------------
Sept 30 June 30 Sept 30 Prior Prior
2006 2006 2005 Quarter Year
------- ------- ------- ------- -------
(in millions)
Corporate Client Group
Annual renewal fees $ 27.3 $ 26.9 $ 27.3 1.5 % --
Listing of additional
shares fees 9.4 9.2 9.6 2.2 % (2.1)%
Initial listing fees 5.6 6.0 7.2 (6.7)% (22.2)%
Corporate Client
services 10.4 10.2 2.3 2.0 % NM
------- ------- -------
Total Corporate Client
Group revenues 52.7 52.3 46.4 0.8 % 13.6 %
------- ------- -------
NASDAQ Financial Products
Licensing revenues 6.0 9.7 8.3 (38.1)% (27.7)%
Other revenues 1.1 1.4 1.1 (21.4)% --
------- ------- -------
Total NASDAQ Financial
Products revenues 7.1 11.1 9.4 (36.0)% (24.5)%
------- ------- -------
Total Issuer Services
revenues $ 59.8 $ 63.4 $ 55.8 (5.7)% 7.2 %
======= ======= =======
NM - Not meaningful. Denotes variances equal to or greater than 100%
-- Corporate Client Group revenues increased from prior year driven
primarily by revenues generated from recent acquisitions, which
are included in the Corporate Client services line.
-- 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
reported in the second quarter 2006 Form 10-Q, recent court
decisions have impacted NASDAQ's ability to charge a license fee
for options that track NASDAQ ETF's.
Total Expenses -- Total expenses increased 4.0% to $103.3 million from $99.3 million in the year-ago quarter and decreased 23.4% from $134.8 million in the prior quarter. Third quarter 2006 expenses increased from last year primarily due our recent acquisitions of INET, Carpenter Moore, Shareholder.com, and PrimeZone. Expenses declined from second quarter 2006 primarily due to higher charges in the prior quarter related to our cost reduction program and INET integration, the early extinguishment of debt, and the refinancing of a credit facility. Partially offsetting second quarter 2006 charges was the realization of a foreign currency gain related to our investment in the London Stock Exchange, also recognized in the second quarter 2006.
Earnings Per Share
As stated above, third quarter earnings per diluted share was $0.22 versus $0.13 in the second quarter of 2006 and $0.16 per diluted share in the year-ago quarter. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share was 150.8 million in the quarter versus 145.2 million in the second quarter 2006 and 119.4 million in the year-ago quarter. The outstanding share count increased from the year-ago quarter and prior quarter primarily due to the issuance of approximately 26.5 million shares in equity offerings in the first and second quarters of 2006.
NASDAQ® 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
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.
Unaudited Condensed Consolidated Statements of Income
(in millions, except per share amounts and other drivers)
Three Months Ended Nine Months Ended
---------------------------- ------------------
Sept. 30, June 30, Sept. 30, September 30,
2006 2006 2005 2006 2005
------- ------- ------- -------- -------
Revenues
Market Services $ 343.0 $ 347.6 $ 164.6 $1,027.9 $ 453.4
Issuer Services 59.8 63.4 55.8 182.0 166.7
Other 0.1 -- -- 0.4 0.2
------- ------- ------- -------- -------
Total revenues 402.9 411.0 220.4 1,210.3 620.3
Cost of revenues
Liquidity rebates (153.2) (170.6) (64.8) (491.0) (169.4)
Brokerage, clearance
and exchange fees (78.5) (69.3) (25.0) (215.0) (63.6)
------- ------- ------- -------- -------
Total cost
of revenues (231.7) (239.9) (89.8) (706.0) (233.0)
------- ------- ------- -------- -------
Gross margin 171.2 171.1 130.6 504.3 387.3
------- ------- ------- -------- -------
Expenses
Compensation
and benefits 47.5 48.0 36.2 144.5 110.4
Marketing and
advertising 3.5 3.8 1.5 12.3 4.8
Depreciation
and amortization 14.3 21.5 13.6 60.3 46.8
Professional and
contract services 6.8 7.3 7.4 23.0 21.4
Computer operations
and data
communications 9.5 10.3 15.4 29.7 47.5
Provision for
bad debts (2.2) 1.8 0.1 (0.3) --
Occupancy 9.5 8.2 7.2 25.7 21.3
General and
administrative 5.8 24.8 7.4 37.3 23.4
------- ------- ------- -------- -------
Total direct
expenses 94.7 125.7 88.8 332.5 275.6
Support costs
from related
parties, net 8.6 9.1 10.5 25.8 31.3
------- ------- ------- -------- -------
Total expenses 103.3 134.8 99.3 358.3 306.9
------- ------- ------- -------- -------
Operating income 67.9 36.3 31.3 146.0 80.4
Interest income 7.6 6.3 4.0 18.3 8.5
Interest expense (25.7) (24.4) (4.7) (66.5) (12.2)
Dividend income -- 9.2 -- 9.2 --
Minority interest 0.1 0.3 0.1 0.6 0.1
------- ------- ------- -------- -------
Income before
income taxes 49.9 27.7 30.7 107.6 76.8
Income tax provision 19.7 11.1 12.9 42.7 32.3
------- ------- ------- -------- -------
Net income $ 30.2 $ 16.6 $ 17.8 $ 64.9 $ 44.5
======= ======= ======= ======== =======
Net income
applicable to
common stockholders:
Net income $ 30.2 $ 16.6 $ 17.8 $ 64.9 $ 44.5
Preferred stock:
Dividends declared -- -- (0.7) (0.4) (2.5)
Accretion of
preferred stock -- -- (0.7) (0.3) (3.0)
------- ------- ------- -------- -------
Net income
applicable to
common stock-
holders $ 30.2 $ 16.6 $ 16.4 $ 64.2 $ 39.0
======= ======= ======= ======== =======
Basic and diluted
earnings per share:
Basic $ 0.27 $ 0.16 $ 0.20 $ 0.63 $ 0.49
======= ======= ======= ======== =======
Diluted $ 0.22 $ 0.13 $ 0.16 $ 0.51 $ 0.42
======= ======= ======= ======== =======
Weighted-average
common shares
outstanding for
earnings per share:
Basic 111.7 105.2 81.2 101.7 79.9
Diluted 150.8 145.2 119.4 141.7 107.4
Other Drivers
Average daily share
volume in NASDAQ
securities
(in millions) 1,852 2,142 1,653 2,038 1,809
Matched market
share in NASDAQ
securities (a) 48.7% 48.4% 27.2% 49.1% 26.6%
Total market share
in NASDAQ
securities (b) 76.6% 77.8% 56.0% 78.2% 55.5%
Matched market
share in NYSE
securities (a) 12.1% 8.3% 4.7% 9.1% 3.7%
Total market
share in NYSE
securities (b) 27.5% 22.7% 18.1% 24.1% 16.7%
Total market
share in AMEX
securities (b) 47.7% 46.1% 32.9% 45.9% 32.3%
Initial Public
Offerings 20 35 46 87 91
Secondary Offerings 32 54 50 152 145
Number of listed
companies (c) 3,206 3,205 3,214 3,206 3,214
(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)
September 30, December 31,
2006 2005
-------- --------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 440.6 $ 165.2
Available-for-sale investments,
at fair value 1,419.8 179.4
Receivables, net 228.5 207.6
Deferred tax assets 11.5 10.0
Other current assets 34.4 34.8
-------- --------
Total current assets 2,134.8 597.0
Property and equipment:
Land, buildings and
improvements -- 60.9
Data processing equipment
and software 185.6 180.0
Furniture, equipment and
leasehold improvements 106.7 115.6
-------- --------
292.3 356.5
Less accumulated depreciation
and amortization (229.3) (233.9)
-------- --------
Total property and
equipment, net 63.0 122.6
Non-current deferred
tax assets 125.6 133.3
Goodwill 999.6 961.9
Intangible assets, net 204.5 215.5
Other assets 14.2 16.5
-------- --------
Total assets $3,541.7 $2,046.8
======== ========
Liabilities
Current liabilities:
Accounts payable and
accrued expenses $ 118.4 $ 118.9
Accrued personnel costs 42.3 55.3
Deferred revenue 86.7 53.6
Other accrued liabilities 79.9 61.8
Current portion of debt
obligations 11.7 7.5
Payables to related parties 10.1 28.2
-------- --------
Total current liabilities 349.1 325.3
Debt obligations 1,594.5 1,184.9
Accrued pension costs 24.6 25.8
Non-current deferred tax
liabilities 88.1 95.2
Non-current deferred revenue 96.5 92.0
Other liabilities 71.0 69.6
-------- --------
Total liabilities 2,223.8 1,792.8
Minority interest 0.4 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 1,040.9 383.7
Common stock in treasury, at cost (245.9) (613.4)
Accumulated other comprehensive
income (loss) 71.2 (1.3)
Deferred stock compensation -- (4.9)
Common stock issuable -- 6.8
Retained earnings 450.0 385.8
-------- --------
Total stockholders' equity 1,317.5 253.0
-------- --------
Total liabilities, minority interest
and stockholders' equity $3,541.7 $2,046.8
======== ========
CONTACT: NASDAQ
Media Contact:
Bethany Sherman
(212) 401-8714
Investor Contact:
Vincent Palmiere
(212) 401-8742