Nasdaq Reports Third Quarter 2019 Results; Delivers Broad-Based Revenue Growth and Strong Capital Returns

• Third quarter 2019 net revenues¹ were $632 million.  Revenues in the non-trading segments² increased 10% versus the prior year period, primarily driven by organic growth, while Market Services revenues increased 2%.
• The GAAP operating margin was 36% in the third quarter of 2019, compared to 41% in the prior year period, while the non-GAAP operating margin³ of 50% increased from 48% in the prior year period.
• Third quarter 2019 GAAP diluted earnings per share was $0.90 compared to $0.97 in the third quarter of 2018. Third quarter non-GAAP diluted earnings per share of $1.27 rose 12% from $1.13 in the third quarter of 2018.
• During the third quarter of 2019, the company returned $150 million to its shareholders through its share repurchase program, and paid a dividend on its common stock in the aggregate of $78 million. In the first nine months of 2019, the company returned $428 million to shareholders through share repurchases and dividends.
• The company is reducing its 2019 non-GAAP operating expense guidance to $1,285-$1,295 million versus the prior guidance of $1,295 to $1,320 million.

NEW YORK, Oct. 23, 2019 (GLOBE NEWSWIRE) -- Nasdaq, Inc. (Nasdaq: NDAQ) today reported financial results for the third quarter of 2019.

Third quarter 2019 net revenues were $632 million, up $32 million from $600 million in the prior year period. The increase in net revenues reflected a positive $37 million, or 6%, impact from organic growth and a positive $12 million impact from the inclusion of revenues from the acquisitions of Cinnober and Quandl, partially offset by a $10 million negative impact from a divestiture and a $7 million unfavorable impact from changes in foreign exchange rates.

“Our strong third quarter 2019 results reflect significant contributions from across our franchise," said Adena Friedman, President and CEO, Nasdaq. "I am especially pleased that we have been able to continue delivering strong growth in our expanded technology and analytics offerings, while simultaneously benefiting from our rising equities market share and a busy trading and IPO environment. At the same time, we are progressing on significant initiatives, such as the deployment of our next-generation market technology solutions and enhancing our offerings to the private markets, which will enable us to do more for our clients in future periods.”

GAAP operating expenses were $406 million in the third quarter of 2019, an increase of $52 million from $354 million in the third quarter of 2018. The increase primarily reflects restructuring charges, higher general, administrative and other expense and higher compensation expense, partially offset by lower depreciation and amortization expense.

Non-GAAP operating expenses were $317 million in the third quarter of 2019, an increase of $6 million, or 2%, compared to the third quarter of 2018. This reflects an $11 million organic expense increase and a $1 million increase from the net impact of acquisitions and divestitures, partially offset by a $6 million favorable impact from changes in foreign exchange rates.

"We continue to execute on our clear capital priorities, investing in the businesses central to our strategy, while continuing our track record of returning significant capital to shareholders, including $228 million in the third quarter of 2019,” said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq. "In line with our strategy, our business is becoming more scalable as we expand our technology and analytics offerings."

On a GAAP basis, net income in the third quarter of 2019 was $150 million, or diluted earnings per share of $0.90, compared to net income of $163 million, or $0.97 per diluted share, in the third quarter of 2018.

On a non-GAAP basis, net income in the third quarter of 2019 was $212 million, or $1.27 per diluted share, compared to $189 million, or $1.13 per diluted share, in the third quarter of 2018.

At September 30, 2019, the company had cash and cash equivalents of $304 million and total debt of $3,478 million, resulting in net debt of $3,174 million. This compares to total debt of $3,831 million and net debt of $3,286 million at December 31, 2018. As of September 30, 2019, there was $132 million remaining under the board authorized share repurchase program. In October 2019, the board authorized an additional $500 million under Nasdaq’s existing share repurchase program, bringing the aggregate authorized amount to $632 million as of October 22, 2019.

In September 2019, Nasdaq initiated the transition of certain technology platforms to advance the company's strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas. In connection with these restructuring efforts, Nasdaq is retiring certain elements of our marketplace infrastructure and technology product offerings as we implement the Nasdaq Financial Framework internally and externally. As a result of these actions, Nasdaq expects to incur $65 million to $75 million in pre-tax charges over a two year period (including $30 million in the third quarter of 2019) related primarily to non-cash items such as asset write-downs, accelerated depreciation as well as third-party consulting costs. The impacts of the restructuring plan will be excluded from our non-GAAP reporting.

UPDATING 2019 NON-GAAP EXPENSE AND TAX GUIDANCE⁴

The company is updating its 2019 non-GAAP operating expense guidance to a range of $1,285 to $1,295 million. Nasdaq continues to expect 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 $226 million in the third quarter of 2019, up $4 million, or 2%, when compared to the third quarter of 2018.

Equity Derivative Trading and Clearing (12% of total net revenues) - Net equity derivative trading and clearing revenues were $75 million in the third quarter of 2019, up $7 million from the third quarter of 2018. The increase primarily reflects higher U.S. industry trading volumes and U.S. revenue capture, partially offset by lower U.S. market share.

Cash Equity Trading (10% of total net revenues) - Net cash equity trading revenues were $63 million in the third quarter of 2019, unchanged from the third quarter of 2018. Higher U.S. industry volumes were offset by a lower U.S. net capture rate due to higher matched market share executed on Nasdaq’s exchanges, driving customers to reach higher volume tiers.

Fixed Income and Commodities Trading and Clearing (3% of total net revenues) - Net fixed income and commodities trading and clearing revenues were $16 million in the third quarter of 2019, down $3 million from the third quarter of 2018. The decrease in revenues was primarily driven by lower volumes in U.S. fixed income and European commodities products.

Trade Management Services (11% of total net revenues) - Trade management services revenues were $72 million in the third quarter of 2019, unchanged compared to the third quarter of 2018.

Corporate Services (20% of total net revenues) - Revenues were $124 million in the third quarter of 2019, up $3 million, or 2%, compared to the third quarter of 2018.

Listing Services (12% of total net revenues) - Listing services revenues were $74 million in the third quarter of 2019, up $2 million from the third quarter of 2018. The change primarily reflects higher listing revenues due to an increase in the number of listed companies.

Corporate Solutions (8% of total net revenues) - Corporate solutions revenues were $50 million in the third quarter of 2019, an increase of $1 million from the third quarter of 2018 primarily due to an increase in IR intelligence revenues.

Information Services (31% of total net revenues) - Revenues were $198 million in the third quarter of 2019, up $19 million, or 11%, from the third quarter of 2018.

Market Data (16% of total net revenues) - Market data revenues were $102 million in the third quarter of 2019, up $7 million from the third quarter of 2018, primarily due to new proprietary data sales as well as higher U.S. tape revenues related to collections from unreported usage.

Index (9% of total net revenues) - Index revenues were $56 million in the third quarter of 2019, up $4 million from the third quarter of 2018, primarily driven by higher licensing revenue from futures trading linked to the Nasdaq 100 Index and higher average assets under management (AUM) in exchange traded products (ETPs) linked to Nasdaq indexes.

Investment Data & Analytics (6% of total net revenues) - Investment data & analytics revenues were $40 million in the third quarter of 2019, up $8 million from the third quarter of 2018. This was primarily due to an increase in eVestment revenues resulting from a $4 million purchase price adjustment on deferred revenue in the third quarter of 2018 and organic growth in eVestment, as well as a $1 million impact from the acquisition of Quandl.

Market Technology (13% of total net revenues) - Revenues were $84 million in the third quarter of 2019, up $16 million, or 24%, from the third quarter of 2018. The increase is primarily due to the impact of the acquisition of Cinnober, which added $11 million in revenues, or 16%, and organic growth of $6 million, or 9%. The organic growth was primarily driven by an increase in software as a service (SaaS) surveillance revenues and an increase in the size and number of software delivery projects.

CORPORATE HIGHLIGHTS

• Nasdaq continues to see strong client traction in its Market Technology segment.  Annualized recurring revenue¹, or ARR, totaled $255 million in the third quarter of 2019, an increase of 17% year over year. New order intake totaled $62 million during the third quarter of 2019, and included a new exchange and surveillance customer in South East Asia, contract extensions with Bolsa Mexicana de Valores and a European exchange for market surveillance and a contract extension for trading and surveillance solutions with the New Zealand Exchange. Nasdaq also continued to realize strong growth in Nasdaq Surveillance Services.
   
• Index revenues and ETP assets under management tracking Nasdaq indexes each set a new quarterly record.  Overall AUM in ETPs benchmarked to Nasdaq's proprietary index products totaled $207 billion as of September 30, 2019, an increase of $1 billion compared to September 30, 2018. The September 30, 2019 total AUM included $92 billion, or 44%, tracking smart beta indexes. Additionally, the Nasdaq-100 futures complex licensed to CME continues to see improved market volumes with 32 million contracts traded in the third quarter of 2019 compared to 25 million in the prior year period.
   
• The Nasdaq Stock Market led U.S. exchanges for IPOs during the first nine months of 2019 with a 76% win rate.  In the U.S. market, The Nasdaq Stock Market welcomed 66 new listings in the third quarter of 2019, including 41 IPOs.  The U.S. IPO win rate totaled 69% during the third quarter of 2019 and 76% during the first nine months of 2019.  Highlights from the third quarter included IPOs from 10x Genomics Inc., Peloton Interactive, Afya Limited and Datadog, as well as the exchange listing transfers of Interactive Brokers Group and Exelon Corporation to The Nasdaq Stock Market. Nasdaq's European exchanges added 8 new listings, including 4 IPOs, bringing total Nordic and Baltic listed companies at September 30, 2019 to 1,028, an increase of 2% from September 30, 2018.
   
• Nasdaq acquired the Center for Board Excellence.  Nasdaq acquired the Center for Board Excellence (CBE), a privately-held provider of corporate governance and compliance solutions for boards of directors, CEOs, corporate secretaries and general counsels. Nasdaq plans to combine CBE with its Nasdaq Governance Solutions business, which includes board portal and collaboration technology solutions. The combination establishes a leading provider of technology, research, insights and consultative services designed to advance governance excellence and collaboration at organizations worldwide.
   
• Nasdaq Private Market and PJT Partners to deliver enhanced execution for general partner (GP) sponsored secondary transactions.  Nasdaq Private Market announced an agreement with PJT Partners to provide enhanced execution capabilities for GP-sponsored secondary transactions using the Nasdaq Private Market technology platform. The market for GP-sponsored secondary transactions has seen significant transaction volume growth over the last six years, and Nasdaq believes that the combined offering can bring greater standardization and efficiency to this market while appealing to an even broader universe of general partners, limited partners and secondary investors.

ABOUT NASDAQ

Nasdaq (Nasdaq: NDAQ) is a global technology company serving the capital markets and other industries. Our diverse offering of data, analytics, software and services enables clients to optimize and execute their business vision with confidence. To learn more about the company, technology solutions and career opportunities, visit us on LinkedIn, on Twitter @Nasdaq, or at www.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 its 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.

Restructuring charges: In September 2019, we initiated the transition of certain technology platforms to advance the company's strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas.  In connection with these restructuring efforts, we are retiring certain elements of our marketplace infrastructure and technology product offerings as we implement the Nasdaq Financial Framework internally and externally. Charges associated with this program represent a fundamental shift in our strategy and technology as well as executive re-alignment. We will exclude charges associated with this program for purposes of calculating non-GAAP measures as they are not reflective of ongoing operating performance or comparisons in Nasdaq's performance between periods.

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 Represents revenues less transaction-based expenses.
² Constitutes revenues from Market Technology, Information Services and Corporate Services segments.
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.

Source: Nasdaq, Inc.