New York, NY The Nasdaq Stock Market, Inc. ("NASDAQ®"; NASDAQ: NDAQ), today reported net income of $7.4 million or $0.02 per common share for the fourth quarter versus a net loss of $21.0 million or $(0.30) per common share for the fourth quarter of 2003 and a net loss of $5.5 million or $(0.08) per common share in the third quarter of 2004.(1)
Total revenues in fourth quarter 2004 were $168.1 million. Gross margin for the fourth quarter 2004 was $121.4 million versus $138.0 million in the year ago period and $114.8 million in third quarter 2004.
Included in fourth quarter 2004 results are:
Excluding the above items, net income calculated on a non-GAAP basis was $13.4 million versus $8.1 million for the third quarter of 2004. Non-GAAP earnings per common share were $0.15 for the quarter versus $0.09 for the third quarter 2004.
NASDAQ's Chief Executive Officer, Robert Greifeld, commented, "The fourth quarter capped off a year of solid progress in transforming NASDAQ into a lean, efficient, and profitable company. During 2004 we made significant achievements that solidify NASDAQ's standing as a formidable competitor. We won the Google IPO, reached an agreement to increase our investment in the NASDAQ Insurance Agency, expanded services for our NASDAQ listed companies, and furthered our global expansion of the NASDAQ QQQ. Additionally, in Market Services we took pricing leadership, increased our market share, successfully integrated Brut into our operations, and launched the innovative opening and closing auctions. And we accomplished all of this while continuing to make dramatic reductions in our operating expenses."
Greifeld continued, "Our 2005 strategy centers upon continuing product innovation, price leadership, and providing preeminent market performance and service quality to our listed companies. We plan to continue to reduce expenses and implement a long-term revenue growth plan that leverages our diverse revenue streams and unparalleled market position. This strategy is designed to continue to grow the top line, increase operating leverage, and improve our profitability."
Charges Associated with Cost Reduction Program
Included in total expenses for the fourth quarter and full year 2004 are pre-tax charges of $25.5 million and $62.6 million, respectively, as part of NASDAQ's continuing efforts to reduce operating expenses and improve the efficiency of its operations:
As previously reported, NASDAQ continues to expect the following results for 2005:
Included in the 2005 total expense projections are approximately $22 million to $25 million of pre-tax charges associated with NASDAQ's continuing efforts to improve efficiencies and reduce operating expenses. These charges include:
NASDAQ's Chief Financial Officer, David Warren, commented: "During the fourth quarter, we achieved our cost-cutting objectives, reducing our total expenses by 19.4% from the fourth quarter 2003. NASDAQ remains committed to its continuing program to remove costs, streamline processes, and improve productivity to increase earnings potential. All actions under this comprehensive expense reduction plan have been identified. We are executing on this plan which is designed to drive increases in profitability, operating leverage and cash flow over the next three years."
Q4 Financial Review
Following the transfer of NASDAQ's interest in NASDAQ Europe and the sale of IndigoMarkets in 2003, results from these subsidiaries have been reclassified as discontinued operations. The remainder of this discussion reflects results from continuing operations, unless otherwise noted.
Year-to-Date Financial Review
Total revenues for the full year 2004 were $540.4 million versus $589.8 million in 2003. Gross margin, which represents total revenues less the cost of revenues related to Brut, was $484.6 million as compared to $589.8 million in 2003. Net income for 2004, including results from discontinued operations, was $11.4 million versus net loss of $105.4 million in 2003. Net loss applicable to common shareholders for 2004 was $1.8 million, or $(0.02) per common share versus net loss of $113.7 million, or $(1.45) per common share for 2003. Excluding the $62.6 million in charges associated with NASDAQ's cost reduction program, the one-time charge to retained earnings of $3.9 million related to the exchange of preferred stock, and $9.6 million from discontinued operations, net income calculated on a non-GAAP basis was $39.8 million, or $0.39 per common share.
NASDAQ® is the largest electronic screen-based equity securities market in the United States. With approximately 3,300 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks. For more information about NASDAQ, visit the NASDAQ Web site at www.nasdaq.com or the NASDAQ Newsroom at www.nasdaq.com/newsroom/.
In addition to disclosing results determined in accordance with generally accepted accounting principles ("GAAP"), NASDAQ also discloses certain Non-GAAP results of operations that exclude certain charges. Management believes that the Non-GAAP information provides investors with additional information to access NASDAQ's operating performance by excluding these costs, which are non-operational items. The Non-GAAP information may not be comparable to other companies and should not be viewed as a substitute for or superior to net loss or other data prepared in accordance with GAAP. A reconciliation table is provided at the end of this release.
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. The NASDAQ Stock market, Inc. ("NASDAQ") 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. Such 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, 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.
(1) On November 29, 2004 NASDAQ exchanged 1,338,402 shares (representing all of the outstanding shares) of its Series A Cumulative Preferred Stock (which carried a 10.6% dividend rate for periods after March 2004) for 1,338,402 shares of newly issued shares of Series C Cumulative Preferred Stock. The NASD is entitled to receive cash dividends when, as and if declared by NASDAQ's Board of Directors out of the funds legally available. The Series C Cumulative Preferred Stock carries a 3.0% annual dividend rate for periods ending June 30, 2006 and a 10.6% annual dividend rate thereafter. In certain circumstances NASD is entitled to an additional amount on the Series C Cumulative Preferred Stock which may not exceed approximately $16.3 million in aggregate depending on the amount of time the Series C is outstanding and the market price of NASDAQ's Common Stock when the Series C is redeemed. On September 30, 2004 NASD agreed to a waiver of a portion of the dividend for the third quarter of 2004 on the Series A Preferred Stock and accepted $1.0 million (calculated based on an annual rate of 3.0%) as payment in full of the dividend for this period.
NASDAQ recorded a one-time loss to retained earnings of $3.9 million in the fourth quarter 2004 associated with the exchange of Series A for Series C. This loss was due to the difference between the combined fair market value of the Series C and additional dividend ($137.7 million) versus the redemption value ($133.8 million).
Bethany Sherman, NASDAQ
Vincent Palmiere, NASDAQ
Jody Burfening/Carolyn Capaccio
Lippert/Heilshorn & Associates