UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended | ||||||||
OR | ||||||||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period | from ________ to ________ | |||||||
Commission file number: 001-38855
___________________________________
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||||||||
Registrant’s telephone number, including area code: +1 212 401 8700
| No Changes | |||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | |||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at April 26, 2022 | ||||||||||
| Common Stock, $0.01 par value per share | shares | ||||||||||
Nasdaq, Inc.
Page | ||||||||
Part I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
Part II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
i
About this Form 10-Q
Throughout this Form 10-Q, unless otherwise specified:
•“Nasdaq,” “we,” “us” and “our” refer to Nasdaq, Inc.
•“Nasdaq Baltic” refers to collectively, Nasdaq Tallinn AS, Nasdaq Riga, AS, and AB Nasdaq Vilnius.
•“Nasdaq BX” refers to the cash equity exchange operated by Nasdaq BX, Inc.
•“Nasdaq BX Options” refers to the options exchange operated by Nasdaq BX, Inc.
•“Nasdaq Clearing” refers to the clearing operations conducted by Nasdaq Clearing AB.
•“Nasdaq CXC” and “Nasdaq CX2” refer to the Canadian cash equity trading books operated by Nasdaq CXC Limited.
•“Nasdaq First North” refers to our alternative marketplaces for smaller companies and growth companies in the Nordic and Baltic regions.
•“Nasdaq GEMX” refers to the options exchange operated by Nasdaq GEMX, LLC.
•“Nasdaq ISE” refers to the options exchange operated by Nasdaq ISE, LLC.
•“Nasdaq MRX” refers to the options exchange operated by Nasdaq MRX, LLC.
•“Nasdaq Nordic” refers to collectively, Nasdaq Clearing AB, Nasdaq Stockholm AB, Nasdaq Copenhagen A/S, Nasdaq Helsinki Ltd, and Nasdaq Iceland hf.
•“Nasdaq PHLX” refers to the options exchange operated by Nasdaq PHLX LLC.
•“Nasdaq PSX” refers to the cash equity exchange operated by Nasdaq PHLX LLC.
•“The Nasdaq Options Market” refers to the options exchange operated by The Nasdaq Stock Market LLC.
•“The Nasdaq Stock Market” refers to the cash equity exchange and listing venue operated by The Nasdaq Stock Market LLC.
Nasdaq also provides as a tool for the reader the following list of abbreviations and acronyms that are used throughout this Quarterly Report on Form 10-Q.
401(k) Plan: Voluntary Defined Contribution Savings Plan
2020 Credit Facility: $1.25 billion senior unsecured revolving credit facility, which matures on December 22, 2025
2022 Notes: $600 million aggregate principal amount of 0.445% senior unsecured notes due December 21, 2022
2024 Notes: $500 million aggregate principal amount of 4.25% senior unsecured notes due June 1, 2024, repaid in full and terminated in April 2022
2026 Notes: $500 million aggregate principal amount of 3.85% senior unsecured notes due June 30, 2026
2029 Notes: €600 million aggregate principal amount of 1.75% senior unsecured notes due March 28, 2029
2030 Notes: €600 million aggregate principal amount of 0.875% senior unsecured notes due February 13, 2030
2031 Notes: $650 million aggregate principal amount of 1.650% senior unsecured notes due January 15, 2031
2033 Notes: €615 million aggregate principal amount of 0.900% senior unsecured notes due July 30, 2033
2040 Notes: $650 million aggregate principal amount of 2.500% senior unsecured notes due December 21, 2040
2050 Notes: $500 million aggregate principal amount of 3.25% senior unsecured notes due April 28, 2050
2052 Notes: $550 million aggregate principal amount of 3.95% senior unsecured notes due March 7, 2052
ARR: Annual Recurring Revenue
ASU: Accounting Standards Update
ASR: Accelerated Share Repurchase
AUM: Assets Under Management
CCP: Central Counterparty
EMIR: European Market Infrastructure Regulation
Equity Plan: Nasdaq Equity Incentive Plan
ESG: Environmental, Social and Governance
ESPP: Nasdaq Employee Stock Purchase Plan
ETF: Exchange Traded Fund
ETP: Exchange Traded Product
Exchange Act: Securities Exchange Act of 1934, as amended
FICC: Fixed Income and Commodities Trading and Clearing
FINRA: Financial Industry Regulatory Authority
IPO: Initial Public Offering
LIBOR: London Interbank Offered Rate
NFF: Nasdaq Financial Framework; Nasdaq's end-to-end technology solutions for market infrastructure operators, buy-side firms, sell-side firms and other non-financial markets
NPM: The NASDAQ Private Market, LLC
NSCC: National Securities Clearing Corporation
OCC: The Options Clearing Corporation
OTC: Over-the-Counter
PSU: Performance Share Unit
SaaS: Software as a Service
SEC: U.S. Securities and Exchange Commission
ii
SERP: Supplemental Executive Retirement Plan
SFSA: Swedish Financial Supervisory Authority
S&P: Standard & Poor’s
S&P 500: S&P 500 Stock Index
SPAC: Special Purpose Acquisition Company
TSR: Total Shareholder Return
U.S. GAAP: U.S. Generally Accepted Accounting Principles
NASDAQ, the NASDAQ logos, and other brand, service or product names or marks referred to in this report are trademarks or service marks, registered or otherwise, of Nasdaq, Inc. and/or its subsidiaries. FINRA and Trade Reporting Facility are registered trademarks of FINRA.
This Quarterly Report on Form 10-Q includes market share and industry data that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Industry publications and surveys generally state that the information they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on the most currently available
market data. For market comparison purposes, The Nasdaq Stock Market data in this Quarterly Report on Form 10-Q for IPOs is based on data generated internally by us; therefore, the data may not be comparable to other publicly-available IPO data. Data in this Quarterly Report on Form 10-Q for new listings of equity securities on The Nasdaq Stock Market is based on data generated internally by us, which includes issuers that switched from other listing venues, closed-end funds and ETPs. Data in this Quarterly Report on Form 10-Q for IPOs and new listings of equity securities on the Nasdaq Nordic and Nasdaq Baltic exchanges and Nasdaq First North also is based on data generated internally by us. IPOs and new listings data is presented as of period end. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. We refer you to the “Risk Factors” section in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and the "Risk Factors" section in our Form 10-K for the fiscal year ended December 31, 2021 that was filed with the SEC on February 23, 2022.
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.
iii
Forward-Looking Statements
The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains these types of statements. Words such as “may,” “will,” “could,” “should,” “anticipates,” “envisions,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words or terms of similar substance used in connection with any discussion of future expectations as to industry and regulatory developments or business initiatives and strategies, future operating results or financial performance, and other future developments are intended to identify forward-looking statements. These include, among others, statements relating to:
•our strategic direction;
•the integration of acquired businesses, including accounting decisions relating thereto;
•the scope, nature or impact of acquisitions, divestitures, investments, joint ventures or other transactional activities;
•the effective dates for, and expected benefits of, ongoing initiatives, including transactional activities and other strategic, restructuring, technology, de-leveraging and capital return initiatives, including our proposed stock split;
•our products and services;
•the impact of pricing changes;
•tax matters;
•the cost and availability of liquidity and capital;
•any litigation, or any regulatory or government investigation or action, to which we are or could become a party or which may affect us; and
•the ongoing impact of the COVID-19 pandemic on our business, operations, results of operations, financial condition and workforce.
Forward-looking statements involve risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following:
•our operating results may be lower than expected;
•our ability to successfully integrate acquired businesses or divest sold businesses or assets, including the fact that any integration or transition may be more difficult, time consuming or costly than expected, and we may be unable to realize synergies from business combinations, acquisitions, divestitures or other transactional activities;
•loss of significant trading and clearing volumes or values, fees, market share, listed companies, market data customers or other customers;
•our ability to develop and grow our non-trading businesses, including our technology and analytics offerings;
•our ability to keep up with rapid technological advances and adequately address cybersecurity risks;
•economic, political and market conditions and fluctuations, including inflation, interest rate and foreign currency risk, inherent in U.S. and international operations, and geopolitical instability arising from the Russian invasion of Ukraine;
•the performance and reliability of our technology and technology of third parties on which we rely;
•any significant error in our operational processes;
•our ability to continue to generate cash and manage our indebtedness; and
•adverse changes that may occur in the litigation or regulatory areas, or in the securities markets generally, or increased regulatory oversight domestically or internationally.
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the uncertainty and any risk related to forward-looking statements that we make. These risk factors are more fully described in the “Risk Factors” section in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and the "Risk Factors" section in our Form 10-K that was filed with the SEC on February 23, 2022. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should carefully read this entire Quarterly Report on Form 10-Q, including “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and the related notes. Except as required by the federal securities laws, we undertake no obligation to update any forward-looking statement, release publicly any revisions to any forward-looking statements or report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
iv
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Nasdaq, Inc.
Condensed Consolidated Balance Sheets
(in millions, except share and par value amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
| Assets | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
Default funds and margin deposits (including restricted cash and cash equivalents of $ | |||||||||||
| Financial investments | |||||||||||
| Receivables, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Section 31 fees payable to SEC | |||||||||||
| Accrued personnel costs | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Default funds and margin deposits | |||||||||||
| Short-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred tax liabilities, net | |||||||||||
| Operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity | |||||||||||
| Nasdaq stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Common stock in treasury, at cost: | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total Nasdaq stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
1
Nasdaq, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in millions, except per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues: | |||||||||||
| Market Technology | $ | $ | |||||||||
| Investment Intelligence | |||||||||||
| Corporate Platforms | |||||||||||
| Market Services | |||||||||||
| Other revenues | |||||||||||
| Total revenues | |||||||||||
| Transaction-based expenses: | |||||||||||
| Transaction rebates | ( | ( | |||||||||
| Brokerage, clearance and exchange fees | ( | ( | |||||||||
| Revenues less transaction-based expenses | |||||||||||
| Operating expenses: | |||||||||||
| Compensation and benefits | |||||||||||
| Professional and contract services | |||||||||||
| Computer operations and data communications | |||||||||||
| Occupancy | |||||||||||
| General, administrative and other | |||||||||||
| Marketing and advertising | |||||||||||
| Depreciation and amortization | |||||||||||
| Regulatory | |||||||||||
| Merger and strategic initiatives | |||||||||||
| Restructuring charges | |||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Interest income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Other (loss) income | ( | ||||||||||
| Net income from unconsolidated investees | |||||||||||
| Income before income taxes | |||||||||||
| Income tax provision | |||||||||||
| Net income | |||||||||||
| Net loss attributable to noncontrolling interests | |||||||||||
| Net income attributable to Nasdaq | $ | $ | |||||||||
| Per share information: | |||||||||||
| Basic earnings per share | $ | $ | |||||||||
| Diluted earnings per share | $ | $ | |||||||||
| Cash dividends declared per common share | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
2
Nasdaq, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive loss: | |||||||||||
| Foreign currency translation losses | ( | ( | |||||||||
Income tax expense(1) | ( | ( | |||||||||
| Foreign currency translation, net | ( | ( | |||||||||
| Comprehensive income | |||||||||||
| Comprehensive loss attributable to noncontrolling interests | |||||||||||
| Comprehensive income attributable to Nasdaq | $ | $ | |||||||||
____________
(1) Primarily relates to the tax effect of unrealized gains and losses on Euro denominated notes.
See accompanying notes to condensed consolidated financial statements.
3
Nasdaq, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(in millions)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Shares | $ | Shares | $ | ||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Additional paid-in capital | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
| Share repurchase program | ( | ( | ( | ( | |||||||||||||||||||
ASR agreement(1) | ( | ( | — | — | |||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||
| Stock option exercises, net | — | — | — | ||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Common stock in treasury, at cost | |||||||||||||||||||||||
| Beginning balance | ( | ( | |||||||||||||||||||||
| Other employee stock activity | — | ( | ( | ( | |||||||||||||||||||
| Ending balance | ( | ( | |||||||||||||||||||||
| Accumulated other comprehensive loss | |||||||||||||||||||||||
| Beginning balance | ( | ( | |||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||
| Ending balance | ( | ( | |||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
| Net income attributable to Nasdaq | |||||||||||||||||||||||
| Cash dividends declared per common share | ( | ( | |||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Total Nasdaq stockholders’ equity | |||||||||||||||||||||||
| Noncontrolling interests | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
Net activity related to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Total Equity | $ | $ | |||||||||||||||||||||
____________
(1) See “ASR Agreement,” of Note 11, “Nasdaq Stockholders’ Equity,” for further discussion .
See accompanying notes to condensed consolidated financial statements.
4
Nasdaq, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Deferred income taxes | |||||||||||
| Net income from unconsolidated investees | ( | ( | |||||||||
| Other reconciling items included in net income | |||||||||||
| Net change in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
| Receivables, net | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Section 31 fees payable to SEC | ( | ( | |||||||||
| Accrued personnel costs | ( | ( | |||||||||
| Deferred revenue | |||||||||||
| Other liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of securities | ( | ( | |||||||||
| Proceeds from sales and redemptions of securities | |||||||||||
| Acquisition of businesses, net of cash and cash equivalents acquired | ( | ||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
Investments related to default funds and margin deposits, net (1) | ( | ( | |||||||||
| Other investing activities | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from (repayments of) commercial paper, net | ( | ||||||||||
| Repayments of borrowings under our credit commitment | ( | ||||||||||
| Proceeds from issuances of debt, net of issuance costs and utilization of credit commitment | |||||||||||
| Repurchases of common stock | ( | ( | |||||||||
| ASR agreement | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Payments related to employee shares withheld for taxes | ( | ( | |||||||||
| Default funds and margin deposits | |||||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | ( | ||||||||||
Cash and cash equivalents, restricted cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents at end of period | $ | $ | |||||||||
| Reconciliation of Cash, Cash Equivalents and Restricted Cash and Cash Equivalents | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
| Restricted cash and cash equivalents (default funds and margin deposits) | |||||||||||
| Total | $ | $ | |||||||||
| Supplemental Disclosure Cash Flow Information | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes, net of refund | $ | $ | |||||||||
(1) Includes purchases and proceeds from sales and redemptions related to the default funds and margin deposits of our clearing operations. For further information, see "Default Fund Contributions and Margin Deposits," within Note 14, "Clearing Operations."
See accompanying notes to condensed consolidated financial statements.
5
Nasdaq, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
Nasdaq is a global technology company serving the capital markets and other industries. Our diverse offerings of data, analytics, software and services enable clients to optimize and execute their business vision with confidence.
We manage, operate and provide our products and services in four business segments: Market Technology, Investment Intelligence, Corporate Platforms, and Market Services.
Market Technology
Our Market Technology segment is a leading global technology solutions provider and partner to exchanges, clearing organizations, central securities depositories, regulators, banks, brokers, buy-side firms and corporate businesses. Our solutions are utilized by leading markets in the U.S., Europe and Asia as well as emerging markets in the Middle East, Latin America, and Africa. The Market Technology segment includes our Anti Financial Crime Technology business and our Marketplace Infrastructure Technology business.
Our Anti Financial Crime Technology business includes Nasdaq Trade Surveillance, a SaaS solution designed for brokers and other market participants, and Market Surveillance, a solution for market infrastructure operators. Both solutions are designed to assist in complying with market rules, regulations and internal market surveillance policies. In February 2021, we completed the acquisition of Verafin, a SaaS technology provider of anti-financial crime management solutions that offers a cloud-based platform to help detect, investigate, and report money laundering and fraud. Verafin also has targeted sanctions screening solutions that help banks manage Russian sanctions and is further expanding this product to detect new means of evasion-based typologies. Additionally, beginning in the first quarter of 2022, we reclassified Nasdaq Risk Platform revenues from Anti Financial Crime Technology to Marketplace Infrastructure Technology. Total Market Technology segment revenues were unchanged.
Our Marketplace Infrastructure Technology business powers over 130 market infrastructure operators and new market clients in more than 55 countries and handles a wide array of assets, including but not limited to cash equities, equity derivatives, currencies, various interest-bearing securities, commodities, energy products and digital currencies. Our solutions can also be used in the creation of new asset classes, and non-capital markets customers, including those in insurance liabilities securitization, cryptocurrencies and sports wagering.
Investment Intelligence
Our Investment Intelligence segment includes our Market Data, Index and Analytics businesses.
Our Market Data business sells and distributes historical and real-time market data to the sell-side, the institutional investing community, retail online brokers, proprietary trading shops, other venues, internet portals and data distributors. Our market data products can enhance transparency of market activity within our exchanges and provide critical information to professional and non-professional investors globally. Additionally, our Nasdaq Cloud Data Service provided on our Data Link data dissemination platform provides a flexible and efficient method of delivery for real-time exchange data and other financial information.
Our Index business develops and licenses Nasdaq-branded indexes and financial products. We also license cash-settled options, futures and options on futures on our indexes. As of March 31, 2022, 368 ETPs listed on 28 exchanges in over 20 countries tracked a Nasdaq index and accounted for $401 billion in AUM.
Our Analytics business provides asset managers, investment consultants and institutional asset owners with information and analytics to make data-driven investment decisions and deploy their resources more productively. We also provide liquidity solutions for private funds. Through our eVestment and Solovis solutions, we provide a suite of cloud-based solutions that help institutional investors and consultants conduct pre-investment due diligence, and monitor their portfolios post-investment. The eVestment platform also enables asset managers to efficiently distribute information about their firms and funds to asset owners and consultants worldwide. Through the Solovis platform, endowments, foundations, pensions and family offices transform how they collect and aggregate investment data, analyze portfolio performance, model and predict future outcomes, and share meaningful portfolio insights with key stakeholders. The Nasdaq Fund Network and Nasdaq Data Link are additional platforms in our suite of investment data analytics offerings and data management tools. Nasdaq Data Link strengthens our position as a leading source for financial, economic, and alternative datasets. For investment management firms, investment banks and other investors, the platform powers data-driven decision-making for users across the globe via universal application programming interfaces, and provides for highly efficient data discovery and delivery.
6
Corporate Platforms
Our Corporate Platforms segment includes our Listing Services and IR & ESG Services businesses. These businesses deliver critical capital market and ESG solutions across the lifecycle of public and private companies.
Our Listing Services business includes our U.S. and European Listing Services businesses. We operate a variety of listing platforms around the world to provide multiple global capital raising solutions for public companies. Our main listing markets are The Nasdaq Stock Market and the Nasdaq Nordic and Nasdaq Baltic exchanges. Through Nasdaq First North, our Nordic and Baltic operations also offer alternative marketplaces for smaller companies and growth companies. In July 2021, we contributed our NPM business, which was included in our Listing Services business, to a standalone, independent company, of which we own the largest minority interest, together with a consortium of third party financial institutions. The NPM business provides liquidity solutions for private companies to enable employees, investors, and companies to execute transactions.
As of March 31, 2022, there were 4,242 total listings on The Nasdaq Stock Market, including 447 ETPs. The combined market capitalization was approximately $25.7 trillion. In Europe, the Nasdaq Nordic and Nasdaq Baltic exchanges, together with Nasdaq First North, were home to 1,244 listed companies with a combined market capitalization of approximately $2.2 trillion.
We also operate a U.S. Corporate Bond exchange for the listing of corporate bonds. This exchange operates pursuant to The Nasdaq Stock Market exchange license and is powered by the NFF. As of March 31, 2022, 105 corporate bonds were listed on the Corporate Bond exchange. We continue to develop the Nasdaq Sustainable Bond Network, a platform for increased transparency in the global sustainable bond markets.
Our IR & ESG Services include our portfolio of products and services that support corporations’ investor relations and ESG functions. Our clients include both public and private companies and organizations. Our public company clients can be companies listed on our exchanges or other U.S. and global exchanges. Our private company clients include a diverse group of organizations ranging from family owned companies, government organizations, law firms, privately held entities, various non-profit organizations to hospitals and health care systems. We help organizations enhance their ability to understand and expand their global shareholder base, improve corporate governance, and navigate the evolving ESG landscape through our suite of advanced technology, analytics, reporting and consultative services.
Market Services
Our Market Services segment includes our Equity Derivative Trading and Clearing, Cash Equity Trading, FICC and Trade Management Services businesses. We operate multiple exchanges and other marketplace facilities across several asset classes, including derivatives, commodities, cash equity, debt, structured products and ETPs. In addition, in certain countries where we operate exchanges, we also provide broker services, clearing, settlement and central depository services. In January 2020, we commenced an orderly wind-down of our Nordic broker services operations business. We expect this wind-down to continue through the second quarter of 2022. In June 2021, we completed the acquisition of a majority stake in Puro.earth, a Finnish-based leading marketplace for carbon removal.
Our transaction-based platforms provide market participants with the ability to access, process, display and integrate orders and quotes. The platforms allow the routing and execution of buy and sell orders as well as the reporting of transactions, providing fee-based revenues.
In the U.S., we operate six options exchanges and three cash equity exchanges. The Nasdaq Stock Market, the largest of our cash equities exchanges, is the largest single venue of liquidity for trading U.S.-listed cash equities.
In Canada, we operate an exchange with three independent markets for the trading of Canadian-listed securities: Nasdaq Canada CXC, Nasdaq Canada CX2 and Nasdaq Canada CXD.
In Europe, we operate exchanges in Stockholm (Sweden), Copenhagen (Denmark), Helsinki (Finland), and Reykjavik (Iceland), as well as the clearing operations of Nasdaq Clearing, as Nasdaq Nordic. We also operate exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania) as Nasdaq Baltic. Collectively, Nasdaq Nordic and Nasdaq Baltic offer trading in cash equities, depository receipts, warrants, convertibles, rights, fund units and ETFs, as well as trading and clearing of derivatives and clearing of resale and repurchase agreements.
Nasdaq Fixed Income provides a wide range of products and services, such as trading and clearing, for fixed income products in Sweden, Denmark, Finland, Iceland, Estonia, Lithuania and Latvia.
Nasdaq Commodities is the brand name for Nasdaq’s European commodity-related products and services. Nasdaq Commodities’ offerings include derivatives in power, natural gas and carbon emission markets, seafood, electricity certificates and clearing services. These products are listed on Nasdaq Oslo ASA, except for seafood, which is listed on Fishpool, a third party platform.
In June 2021, we sold our U.S. Fixed Income business, which included an electronic platform for the trading of U.S. Treasuries. See “2021 Divestiture” of Note 4, “Acquisition and Divestiture,” for further discussion.
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2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results. These adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.
As permitted under U.S. GAAP, certain footnotes or other financial information can be condensed or omitted in the interim condensed consolidated financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Nasdaq’s Form 10-K. The year-end condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP.
Certain prior year amounts have been reclassified to conform
to the current year presentation.
During the fourth quarter of 2021, we adjusted the presentation of cash and cash equivalents held within default funds and margin deposits on the condensed consolidated statement of cash flows from operating activities, to present them as restricted cash and cash equivalents with the associated changes being included within cash flows from investing and financing activities. These balances cannot be used to satisfy operating or other liabilities. See Note 14, “Clearing Operations,” for further discussion of the default funds and margin deposits.
Prior period amounts have also been adjusted to conform to current period presentation. This immaterial adjustment had no impact on our previously reported condensed consolidated balance sheets, condensed consolidated statements of income, or condensed consolidated statements of comprehensive income.
| Three Months Ended March 31, 2021 | |||||||||||
| As Reported | Adjustment | Adjusted | |||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | $ | $ | ||||||||
| Net cash used in investing activities | ( | ( | ( | ||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents | ( | ( | ( | ||||||||
| Net decrease in cash, cash equivalents, restricted cash and cash equivalents | ( | ( | ( | ||||||||
| Cash, cash equivalents, restricted cash and cash equivalents at beginning of period | |||||||||||
| Cash, cash equivalents, restricted cash and cash equivalents at end of period | $ | $ | $ | ||||||||
| Reconciliation of Cash, Cash Equivalents and Restricted Cash and Cash Equivalents | |||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||
| Restricted cash and cash equivalents | |||||||||||
| Restricted cash and cash equivalents (Default funds and margin deposits) | |||||||||||
| Total | $ | $ | $ | ||||||||
Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities in our condensed consolidated balance sheets. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
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3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following tables summarize the disaggregation of revenue by major product and service and by segment for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions) | |||||||||||
| Market Technology | |||||||||||
| Anti Financial Crime Technology | $ | $ | |||||||||
| Marketplace Infrastructure Technology | |||||||||||
| Investment Intelligence | |||||||||||
| Market data | |||||||||||
| Index | |||||||||||
| Analytics | |||||||||||
| Corporate Platforms | |||||||||||
| Listing services | |||||||||||
| IR & ESG Services | |||||||||||
| Market Services | |||||||||||
| Transaction-based trading and clearing, net | |||||||||||
| Trade management services | |||||||||||
| Other revenues | |||||||||||
| Revenues less transaction-based expenses | $ | $ | |||||||||
Substantially all revenues from the Market Technology, Investment Intelligence and Corporate Platforms segments were recognized over time for the three months ended March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021 approximately 70.5 % and 73.2 %, respectively, of Market Services revenues were recognized at a point in time and 29.5 % and 26.8 %, respectively, were recognized over time.
Contract Balances
Substantially all of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our Condensed Consolidated Balance Sheets as receivables, which are net of allowance for doubtful accounts of $19 million as of March 31, 2022 and $17 million as of December 31, 2021. The changes in the balance between periods were immaterial. We do not have obligations for warranties, returns or refunds to customers.
For the majority of our contracts with customers, except for our marketplace infrastructure technology and listings services contracts, our performance obligations range from three months to three years and there is no significant variable consideration.
Deferred revenue is the only significant contract asset or liability as of March 31, 2022. Deferred revenue represents consideration received that is yet to be recognized as revenue for unsatisfied performance obligations. Deferred revenue primarily represents our contract liabilities related to our fees for Market Technology, Investment Intelligence, Annual and Initial Listings, and IR & ESG Services contracts. See Note 7, “Deferred Revenue,” for our discussion on deferred revenue balances, activity, and expected timing of recognition.
We do not have a material amount of revenue recognized from performance obligations that were satisfied in prior periods. We do not provide disclosures about transaction price allocated to unsatisfied performance obligations if contract durations are less than one year. For our initial listings the transaction price allocated to remaining performance obligations is included in deferred revenue. For our Market Technology, Analytics, and IR & ESG contracts, the portion of transaction price allocated to unsatisfied performance obligations is presented in the table below. To the extent consideration has been received, unsatisfied performance obligations would be included in the table below as well as deferred revenue.
The following table summarizes the amount of the transaction price allocated to performance obligations that are unsatisfied, for contract durations greater than one year, as of March 31, 2022:
| Market Technology | Analytics | IR & ESG Services | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Remainder of 2022 | $ | $ | $ | $ | |||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| 2027+ | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
4. ACQUISITION AND DIVESTITURE
We completed the following divestiture and acquisition in 2021. Financial results of each transaction are included in our condensed consolidated financial statements from the date of each acquisition.
2021 Divestiture
In June 2021, we sold our U.S. Fixed Income business, which was part of our FICC business within our Market Services segment, to Tradeweb Markets Inc. We recognized a pre-tax gain on the sale of $84 million, net of disposal costs. The pre-tax gain was included in net gain on divestiture of businesses in the Condensed Consolidated Statements of Income.
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In connection with this sale, we issued approximately 6.2 million shares of Nasdaq common stock. Nasdaq used the proceeds from the sale, available tax benefits and working and clearing capital of this business, as well as other sources of cash, to repurchase shares of Nasdaq common stock to reduce the impact on earnings per share dilution from the sale.
To facilitate these repurchases, in June 2021, the board of directors authorized an increase to the share repurchase program. See “Share Repurchase Program,” of Note 11, “Nasdaq Stockholders' Equity,” for further discussion.
2021 Acquisition
Acquisition of Verafin
In February 2021, we completed the acquisition of Verafin, a SaaS technology provider of anti-financial crime management solutions that provides a cloud-based platform to help detect, investigate, and report money laundering and fraud, for an aggregate purchase price of $2.75 billion, subject to certain adjustments. The $2.75 billion purchase price includes a cash payment of $102 million, reflected in cash from operating activities in our Condensed Consolidated Statements of Cash Flows, the release of which is subject to certain employment-related conditions over three years following the closing of the transaction. This payment was recorded as a prepaid expense and is recorded in other current and non-current assets in our Condensed Consolidated Balance Sheets and will be amortized to merger and strategic initiatives expense on a straight-line basis over a three-year period. Verafin is part of our Market Technology segment.
The amounts in the table below represent the final allocation of the purchase price. The allocation of the purchase price was subject to revision during the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values, which may include tax and other estimates, during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. In 2021, we recorded a measurement period adjustment of $9 million. This adjustment resulted in an increase to both total net liabilities acquired and goodwill. This adjustment did not result in an impact to our Condensed Consolidated Statements of Income. The allocation of the purchase price for Verafin was finalized in the first quarter of 2022.
| (in millions) | |||||
| Goodwill | $ | ||||
| Acquired Intangible Assets | |||||
| Total Net Liabilities Acquired | ( | ||||
| Purchase Consideration | $ | ||||
Intangible Assets
The following table presents the details of acquired intangible assets for Verafin at the date of acquisition. Acquired intangible assets with finite lives are amortized using the straight-line method.
Customer Relationships | Technology | Trade Name | Total Acquired Intangible Assets | |||||||||||
| Intangible asset value (in millions) | $ | $ | $ | $ | ||||||||||
| Discount rate used | % | % | % | |||||||||||
| Estimated average useful life | ||||||||||||||
Customer Relationships
Customer relationships represent the non-contractual and contractual relationships with customers.
Methodology
Customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.
Discount Rate
The discount rate used reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted-average cost of capital for the overall business and we utilized this rate as an input when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
For our acquisition of Verafin, a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 20 years.
Estimated Useful Life
We estimate the useful life based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method.
Technology
As part of our acquisition of Verafin, we acquired developed technology.
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Methodology
The developed technology was valued using the income approach, specifically the relief-from-royalty method, or RFRM. The RFRM is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. The royalty rate is applied to the projected revenue over the expected remaining life of the intangible asset to estimate royalty savings. The net after-tax royalty savings are calculated for each year in the remaining economic life of the technology and discounted to present value.
Discount Rate
The discount rates used reflect the amount of risk associated with the hypothetical cash flows for the developed technology relative to the overall business as discussed above in “Customer Relationships.”
Estimated Useful Life
We have estimated the useful life of the Verafin technology to be 7 years.
Trade Name
As part of our acquisition of Verafin, we acquired a trade name. The trade name is recognized in the industry and carries a reputation for quality. As such, the reputation and positive recognition embodied in the trade name is a valuable asset to Nasdaq.
Methodology
The Verafin trade name was valued using the income approach, specifically the RFRM as discussed above in “Technology.”
Discount Rate
The discount rate used reflects the amount of risk associated with the hypothetical cash flows for the trade name relative to the overall business as discussed above in “Customer Relationships.”
Estimated Useful Life
We have estimated the useful life of the Verafin trade name to be 20 years and our intention is to continue to use it in the branding of products.
Pro Forma Results and Acquisition-Related Costs
The condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 include the financial results of the above acquisition from the date of the acquisition. Pro forma financial results have not been presented since this acquisition was not material to our financial results.
Acquisition-related costs for the transactions described above
were expensed as incurred and are included in merger and strategic initiatives expense in the Condensed Consolidated Statements of Income.
5. GOODWILL AND ACQUIRED INTANGIBLE ASSETS
Goodwill
The following table presents the changes in goodwill by business segment during the three months ended March 31, 2022:
| (in millions) | |||||
| Market Technology | |||||
| Balance at December 31, 2021 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at March 31, 2022 | $ | ||||
| Investment Intelligence | |||||
| Balance at December 31, 2021 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at March 31, 2022 | $ | ||||
| Corporate Platforms | |||||
| Balance at December 31, 2021 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at March 31, 2022 | $ | ||||
| Market Services | |||||
| Balance at December 31, 2021 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at March 31, 2022 | $ | ||||
| Total | |||||
| Balance at December 31, 2021 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at March 31, 2022 | $ | ||||
Goodwill represents the excess of purchase price over the value assigned to the net assets, including identifiable intangible assets, of a business acquired. Goodwill is allocated to our reporting units based on the assignment of the fair values of each reporting unit of the acquired company. We test goodwill for impairment at the reporting unit level annually, or in interim periods if certain events occur indicating that the carrying amount may be impaired, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit. There was no
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Acquired Intangible Assets
The following table presents details of our total acquired intangible assets, both finite- and indefinite-lived:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Finite-Lived Intangible Assets | (in millions) | ||||||||||
| Gross Amount | |||||||||||
| Technology | $ | $ | |||||||||
| Customer relationships | |||||||||||
| Trade names and other | |||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||
| Total gross amount | $ | $ | |||||||||
| Accumulated Amortization | |||||||||||
| Technology | $ | ( | $ | ( | |||||||
| Customer relationships | ( | ( | |||||||||
| Trade names and other | ( | ( | |||||||||
| Foreign currency translation adjustment | |||||||||||
| Total accumulated amortization | $ | ( | |||||||||