NASDAQ Announces Second Quarter 2006 Results
NEW YORK, Jul 20, 2006 (PRIMEZONE via COMTEX News Network) -- The Nasdaq Stock Market, Inc. ("NASDAQ(r)") (Nasdaq:NDAQ), today reported second quarter 2006 net income of $16.6 million, or $0.13 per diluted share versus $14.0 million or $0.13 per diluted share in the second quarter of 2005, and $18.0 million or $0.16 per diluted share in the first quarter of 2006.
Second quarter 2006 results include the following pre-tax items:
-- $20.9 million in charges related to the early extinguishment of
debt and the refinancing of a credit facility, both realized in
connection with NASDAQ's investment in the London Stock Exchange.
-- $17.9 million in charges associated with NASDAQ's cost reduction
program and INET integration.
-- An $8.2 million foreign currency gain associated with NASDAQ's
investment in the London Stock Exchange.
-- $9.2 million of dividend income related to the payment of an
ordinary dividend by the London Stock Exchange. NASDAQ's
investment in the London Stock Exchange is accounted for in
accordance with Financial Accounting Standard No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("FAS 115").
The impact of these items on net income was $13.0 million or $0.09 per diluted share.
Gross margin, representing total revenues less cost of revenues, was $171.1 million in the second quarter of 2006, an increase of 31.2% from $130.4 million in the year-ago period, and an increase of 5.6% from $162.0 million in the first quarter of 2006. Second quarter 2006 represents the seventh consecutive quarter of gross margin growth.
NASDAQ's Chief Executive Officer, Robert Greifeld commented, "Solid execution of our growth strategy throughout the organization drove NASDAQ's strong top line performance. During the quarter our trading systems continued to handle more market share and we further increased our potential for future growth through the introduction of new products and services such as the Global Select Market, the IPO Cross, and NASDAQ Market Velocity. This continued progress enhances our already strong competitive position. Looking into the second half of 2006, we are maintaining our consistent focus on innovation and execution that anticipates and responds to the needs of our customers."
Recent Highlights
-- Recently achieved a new single day high in trading NYSE-listed
stocks, with 11.8% matched market share on July 19, 2006. Matched
market share for NYSE-listed stocks increased in the second
quarter 2006 to 8.3%, up from 7.0% in the first quarter 2006.
Matched market share for AMEX-listed stocks increased to 24.8% in
the second quarter 2006, up from 22.3% in the prior quarter.
-- Made an investment in the London Stock Exchange resulting in the
ownership of 25.3% of outstanding shares.
-- Received SEC approval of NASDAQ's phased approach to Exchange
Operation. NASDAQ plans to become operational as an exchange in
NASDAQ-listed securities on August 1, 2006, and in other
exchange-listed securities after September 1, 2006.
-- Launched the NASDAQ Global Select Market, a new listing tier with
the highest initial listing standards in the world; and launched a
corresponding index to track the new tier.
-- Recorded a record in the Closing Cross on June 30th through the
calculation of the entire family of Russell indexes during its
annual reconstitution. Approximately 690.8 million shares
representing $10.5 billion were executed in 5.1 seconds.
-- Launched the IPO Cross, an automated trading facility designed to
provide a fair and transparent executions process to trade IPOs
based on supply and demand.
-- Unveiled NASDAQ Market Velocity, a proprietary, real-time data
product that detects "noise" in NASDAQ stocks and alerts traders
to events before they affect price and volume information. NASDAQ
Market Velocity is part of NASDAQ Market Analytix(tm), a package
of data products that provides new levels of transparency to
trading activity in NASDAQ systems.
-- Agreed to acquire PrimeZone Media Network, a privately held press
release newswire and multimedia services firm, enhancing NASDAQ's
investor relations and corporate communications suite.
Charges Associated with NASDAQ's Cost Reduction Program and INET Integration
As mentioned above, included in total expenses for the second quarter 2006 are pre-tax charges of $17.9 million relating to NASDAQ's continuing efforts to reduce operating expenses and improve the efficiency of its operations, as well as to integrate the INET ECN. These charges include:
-- Technology Review -- NASDAQ recorded expenses of $9.9 million
in the quarter associated with its technology review, in which
it changed the estimated useful life of some assets as it
migrates to lower cost operating platforms and processes.
-- Workforce Reductions -- NASDAQ recorded charges of $2.6 million
in the quarter for severance and outplacement costs.
-- Real Estate -- NASDAQ recorded charges of $5.4 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 $68.0 million to $78.0 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 $645.0 million to $655.0 million.
-- Total expenses in the range of $475.0 million to $485.0 million.
2006 total expense projections include approximately $60.0 million to $70.0 million of pre-tax charges associated with NASDAQ's continuing cost reduction efforts and INET integration. Also included are charges realized in the second quarter related to our investment in the London Stock Exchange. These charges include:
-- Approximately $36.0 million to $42.0 million in charges primarily
related to NASDAQ's decision to migrate to less expensive
technology operating platforms.
-- Approximately $5.0 million to $7.0 million in non-cash charges
related to NASDAQ's plans to exit certain real estate facilities.
-- Approximately $6.0 million to $8.0 million in severance expenses
associated with NASDAQ's plans for workforce reductions.
-- The previously mentioned $20.9 million charge and $8.2 million
foreign currency gain related to our investment in the London
Stock Exchange.
NASDAQ's Chief Financial Officer, David Warren, commented, "As this quarter's results clearly demonstrate, our business fundamentals remain strong as we grew revenue while driving down core operating expenses. As a result our operating income has improved when compared to both prior year and the first quarter. Excluding non-recurring charges, NASDAQ's operating income improved 21% from the first quarter 2006 and 69% when compared to second quarter 2005. The INET integration and our systems migration to a single book remain on schedule and we remain confident of achieving all of our milestones. Our execution to date and our confidence leads us to increase our 2006 outlook for both gross margin and net income."
Q2 Financial Review
Total Revenues and Gross Margin-Gross margin increased 31.2% in the second quarter to $171.1 million, up from $130.4 million in the year-ago quarter, and increased 5.6% from $162.0 million in the first quarter of 2006.
Market Services
Market Services gross margin increased to $107.7 million or 45.0% from prior year.
Three Months Ended % Variance from
------------------------- ----------------
June 30 Mar. 31 June 30 Prior Prior
2006 2006 2005 quarter year
------- ------- ------- ------- -------
(in millions)
NASDAQ Market Center
Execution and trade
reporting revenues $ 291.4 $ 286.1 $ 116.2 1.9 % NM
Access services
revenues 13.1 12.3 20.3 6.5 % (35.5)%
Tape fee revenue
sharing (5.3) (5.3) (2.4) -- NM
NASDAQ General Revenue
Sharing Program (0.1) (0.1) (0.1) -- --
------- ------- -------
Total NASDAQ Market
Center revenues 299.1 293.0 134.0 2.1 % NM
Cost of revenues
Liquidity rebates (170.6) (167.2) (69.2) 2.0 % NM
Brokerage, clearance
and exchange fees (69.3) (67.0) (20.1) 3.4 % NM
------- ------- -------
Total cost of revenues (239.9) (234.2) (89.3) 2.4 % NM
------- ------- -------
Gross margin from
NASDAQ Market Center 59.2 58.8 44.7 0.7 % 32.4 %
NASDAQ Market Services
Subscriptions
Revenues 48.7 52.1 46.0 (6.5)% 5.9 %
NASDAQ General
Revenue Sharing
Program (2.6) (2.9) (1.2) (10.3)% NM
UTP Plan revenue
sharing (6.2) (13.7) (19.6) (54.7)% (68.4)%
------- ------- -------
Total NASDAQ Market
Services
Subscription
revenues 39.9 35.5 25.2 12.4 % 58.3 %
------- ------- -------
Other Market Services
revenues 8.6 8.6 4.4 -- 95.5 %
------- ------- -------
Gross Margin from
Market Services $ 107.7 $ 102.9 $ 74.3 4.7 % 45.0 %
======= ======= =======
NM -- Not meaningful. Denotes variances equal to or greater than 100%
-- NASDAQ Market Center gross margin increased from prior year
primarily due to the inclusion 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 prior year due to the retirement of legacy
products in December 2005.
-- Market Services Subscriptions revenues increased from prior year
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
contributing to the decrease in UTP shared revenue was the removal
of NQDS from the UTP Plan, which was approved in the second
quarter of 2006 but became effective February 7, 2006. NASDAQ
reclaimed shared revenues from the effective date through March
31, 2006 and recorded an adjustment of approximately $1.3 million
in the second quarter of 2006. Increases in sales of proprietary
data products also contributed to improvements of Market Services
Subscriptions revenue for the quarter.
-- Other Market Services revenues increased from the prior year due
primarily to payments made 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 13.0% to $63.4 million from prior year.
Three Months Ended % Variance from
-------------------------- -----------------
June 30 Mar. 31 June 30 Prior Prior
2006 2006 2005 quarter year
------- ------- ------- ------- -------
(in millions)
Corporate Client Group
Annual renewal fees $ 26.9 $ 25.8 $ 26.7 4.3 % 0.7 %
Listing of additional
shares fees 9.2 8.9 9.5 3.4 % (3.2)%
Initial listing fees 6.0 6.4 7.5 (6.3)% (20.0)%
Corporate Client
services 10.2 7.6 2.3 34.2 % NM
------- ------- -------
Total Corporate Client
Group revenues 52.3 48.7 46.0 7.4 % 13.7 %
------- ------- -------
NASDAQ Financial Products
Licensing revenues 9.7 9.0 9.1 7.8 % 6.6 %
Other revenues 1.4 1.2 1.0 16.7 % 40.0 %
------- ------- -------
Total NASDAQ Financial
Products revenues 11.1 10.2 10.1 8.8 % 9.9 %
------- ------- -------
Total Issuer Services
revenues $ 63.4 $ 58.9 $ 56.1 7.6 % 13.0 %
======= ======= =======
NM -- Not meaningful. Denotes variances equal to or greater than 100%
-- Corporate Client Group revenue increased from prior year driven by
revenues generated from recent acquisitions including Carpenter
Moore and Shareholder.com.
-- NASDAQ Financial Products licensing revenue increased from the
prior year due to higher volume activity for both derivative and
third party products as well as increases in third party assets
under management.
Total Expenses -- Total expenses increased 29.5% to $134.8 million from $104.1 million in the year-ago quarter and increased 12.1% from $120.2 million in the prior quarter. Second quarter 2006 expenses increased as a result of $30.6 million of pre-tax items noted above, including the early extinguishment of debt, the refinancing of a credit facility, the foreign currency gain, and costs associated with the continuing INET integration and cost reduction activities. Similar charges relating to the INET integration and cost reduction activities were included in previous quarters, including $5.9 million in the second quarter of 2005 and $13.6 million in the first quarter of 2006.
Earnings Per Share
As stated above, second quarter earnings per diluted share were $0.13 versus $0.16 in the first quarter of 2006 and $0.13 per diluted share in the year-ago quarter. During the second quarter NASDAQ completed a common stock offering in which it sold 18.5 million shares and used the proceeds to pay down debt incurred to purchase a stake in the London Stock Exchange. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share was 145.2 million in the quarter versus 109.9 million in the year ago quarter and 128.0 million in the first quarter 2006. The increase from last year is due primarily to the full quarter dilutive impact of the convertible notes and related warrants issued in April 2005 as part of the acquisition of INET ECN, and to the shares issued in NASDAQ's 2006 equity offerings.
NASDAQ(r) 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.
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. 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, 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.
NDAQF
The Nasdaq Stock Market, Inc.
Unaudited Condensed Consolidated Statements of Income
(in millions, except per share amounts and other drivers)
Three Months Ended Six Months Ended
---------------------------- ------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
-------- -------- -------- -------- --------
Revenues
Market Services $ 347.6 $ 337.1 $ 163.6 $ 684.9 $ 288.7
Issuer Services 63.4 58.9 56.1 122.3 110.9
Other -- 0.2 -- 0.2 0.2
-------- -------- -------- -------- --------
Total revenues 411.0 396.2 219.7 807.4 399.8
Cost of revenues
Liquidity rebates (170.6) (167.2) (69.2) (337.8) (104.5)
Brokerage,
clearance and
exchange fees (69.3) (67.0) (20.1) (136.5) (38.6)
-------- -------- -------- -------- --------
Total cost of
revenues (239.9) (234.2) (89.3) (474.3) (143.1)
-------- -------- -------- -------- --------
Gross margin 171.1 162.0 130.4 333.1 256.7
-------- -------- -------- -------- --------
Expenses
Compensation and
benefits 48.0 48.9 36.9 96.9 74.2
Marketing and
advertising 3.8 5.0 2.0 8.9 3.4
Depreciation and
amortization 21.5 24.5 14.9 46.0 33.1
Professional and
contract services 7.3 8.9 7.0 16.2 14.0
Computer operations
and data
communications 10.3 10.0 15.9 20.2 32.1
Provision for bad
debts 1.8 -- (0.7) 1.9 (0.2)
Occupancy 8.2 8.0 7.1 16.2 14.2
General and
administrative 24.8 6.8 10.6 31.5 16.0
-------- -------- -------- -------- --------
Total direct
expenses 125.7 112.1 93.7 237.8 186.8
Support costs from
related parties,
net 9.1 8.1 10.4 17.2 20.8
-------- -------- -------- -------- --------
Total expenses 134.8 120.2 104.1 255.0 207.6
-------- -------- -------- -------- --------
Operating income 36.3 41.8 26.3 78.1 49.1
Interest income 6.3 4.5 3.1 10.8 4.5
Interest expense (24.4) (16.4) (4.6) (40.9) (7.5)
Dividend income 9.2 -- -- 9.2 --
Minority interest 0.3 0.1 -- 0.5 --
-------- -------- -------- -------- --------
Income before
income taxes 27.7 30.0 24.8 57.7 46.1
Income tax provision 11.1 12.0 10.8 23.1 19.4
-------- -------- -------- -------- --------
Net income $ 16.6 $ 18.0 $ 14.0 $ 34.6 $ 26.7
======== ======== ======== ======== ========
Net income
applicable to
common
stockholders:
Net income $ 16.6 $ 18.0 $ 14.0 $ 36.4 $ 26.7
Preferred stock:
Dividends
declared -- (0.4) (0.8) (0.4) (1.8)
Accretion of
preferred stock -- (0.3) (1.5) (0.3) (2.3)
-------- -------- -------- -------- --------
Net income
applicable to
common
stockholders $ 16.6 $ 17.3 $ 11.7 $ 33.9 $ 22.6
======== ======== ======== ======== ========
Basic and diluted
earnings per share:
Basic $ 0.16 $ 0.20 $ 0.15 $ 0.35 $ 0.28
======== ======== ======== ======== ========
Diluted $ 0.13 $ 0.16 $ 0.13 $ 0.28 $ 0.26
======== ======== ======== ======== ========
Weighted average
common shares
outstanding for
earnings per share:
Basic 105.2 87.9 79.4 96.6 79.2
Diluted 145.2 128.0 109.9 137.0 101.0
Other Drivers
Average daily share
volume in
NASDAQ-listed
securities (in
millions) 2,142 2,122 1,781 2,132 1,890
Percentage of share
volume of
NASDAQ-listed
securities
reported to The
NASDAQ Market
Center 77.8% 74.5% 55.7% 78.9% 55.3%
Percentage of share
volume of
NYSE-listed
securities
reported to The
NASDAQ Market
Center 22.7% 21.3% 15.6% 22.4% 15.3%
Percentage of share
volume of
AMEX-listed
securities
reported to The
NASDAQ Market
Center 46.1% 42.1% 32.4% 45.1% 31.9%
Initial Public
Offerings 35 30 25 65 45
Secondary Offerings 54 69 50 123 95
Number of listed
companies 3,205 3,191 3,241 3,205 3,241
The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets
(in millions)
June 30, December 31,
2006 2005
---------- ----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 488.8 $ 165.2
Available-for-sale investments, at
fair value 1,215.5 179.4
Receivables, net 234.5 207.6
Deferred tax assets 14.3 10.0
Other current assets 35.5 34.8
---------- ----------
Total current assets 1,988.6 597.0
Property and equipment:
Assets held-for-sale 30.7 --
Land, buildings and improvements 0.9 60.9
Data processing equipment and software 180.6 180.0
Furniture, equipment and leasehold
improvements 105.0 115.6
---------- ----------
317.2 356.5
Less accumulated depreciation and
amortization (222.9) (233.9)
---------- ----------
Total property and equipment, net 94.3 122.6
Non-current deferred tax assets 124.3 133.3
Goodwill 988.3 961.9
Intangible assets, net 207.3 215.5
Other assets 12.4 16.5
---------- ----------
Total assets $ 3,415.2 $ 2,046.8
========== ==========
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 112.1 $ 118.9
Accrued personnel costs 36.2 55.3
Deferred revenue 114.9 53.6
Other accrued liabilities 56.5 61.8
Current portion of debt obligations 11.8 7.5
Payables to related parties 9.8 28.2
---------- ----------
Total current liabilities 341.3 325.3
Debt obligations 1,612.6 1,184.9
Accrued pension costs 24.6 25.8
Non-current deferred tax liabilities 89.2 95.2
Non-current deferred revenue 98.6 92.0
Other liabilities 69.6 69.6
---------- ----------
Total liabilities 2,235.9 1,792.8
Minority interest 0.5 1.0
Stockholders' equity
Common stock 1.3 1.3
Preferred stock, Series D at June 30,
2006 and December 31, 2005 and
Series C at December 31, 2005 -- 95.0
Additional paid-in capital 1,039.3 383.7
Common stock in treasury, at cost (249.6) (613.4)
Accumulated other comprehensive loss (31.9) (1.3)
Deferred stock compensation -- (4.9)
Common stock issuable -- 6.8
Retained earnings 419.7 385.8
---------- ----------
Total stockholders' equity 1,178.8 253.0
---------- ----------
Total liabilities, minority interest
and stockholders' equity $ 3,415.2 $ 2,046.8
========== ==========
The Nasdaq Stock Market, Inc.
Non-GAAP Calculation of Operating Income
(in millions)
(unaudited)
Three Months Ended
----------------------------
June 30, March 31, June 30,
2006 2006 2005
-------- -------- --------
GAAP Operating Income: $ 36.3 $ 41.8 $ 26.3
Adjustments:
Loss on early extinguishment of debt
and the refinancing of a credit
facility 20.9 -- 7.4
Cost reduction program and INET
integration charges 17.9 13.6 5.9
Foreign currency gain associated
with investment in London Stock
Exchange (8.2) -- --
-------- -------- --------
Total Adjustments 30.6 13.6 13.3
-------- -------- --------
Non-GAAP Operating Income $ 66.9 $ 55.4 $ 39.6
======== ======== ========
In addition to disclosing results in accordance with GAAP, NASDAQ
has also disclosed a Non-GAAP measure of operating income.
Management believes this Non-GAAP measure of operating income is
useful to investors because it shows a truer picture of our actual
operating performance this quarter.
The Non-GAAP information may not be comparable to other companies
and should not be viewed as a substitute for or superior to
operating income or other data prepared in accordance with GAAP.
This news release was distributed by PrimeZone, www.primezone.com
SOURCE: The Nasdaq Stock Market, Inc.
The Nasdaq Stock Market, Inc.
Media Contact:
Bethany Sherman
(212) 401-8714
Investor Contact:
Vincent Palmiere
(212) 401-8742
Lippert/Heilshorn & Associates
Jody Burfening/Carolyn Capaccio
(212) 838-3777
(C) 2006 PRIMEZONE, All rights reserved.
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