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Nasdaq OMX Q1 net income slides

07 May 2009  |  1806 views  |  0 Source: Nasdaq OMX

The Nasdaq OMX Group ("NASDAQ OMX"; NASDAQ: NDAQ) today reported net income of $94 million, or $0.44 per diluted share, for the first quarter of 2009 compared with net income of $121 million, or $0.69 per diluted share, in the first quarter of 2008, and with net income of $35 million, or $0.17 per diluted share, in the fourth quarter of 2008.

For comparison purposes, results for the first quarter of 2009 and the fourth quarter of 2008 are presented on a non-GAAP basis and exclude merger expenses and certain other non-recurring items. Results for the first quarter of 2008 are presented on a pro forma non-GAAP basis that reflect the financial results of NASDAQ, OMX, and the Philadelphia Stock Exchange as if they were a combined company for the periods presented and exclude merger expenses, net gains from foreign currency contracts and certain other non-recurring items. A complete reconciliation of GAAP results to non-GAAP and to pro forma non-GAAP results is provided as an attachment.

For the first quarter of 2009, net income on a non-GAAP basis was $102 million, or $0.48 per diluted share, an increase of 10% when compared to pro forma non-GAAP net income of $93 million, or $0.44 per diluted share, for the first quarter of 2008, and a decrease of 7% when compared to non-GAAP net income of $110 million, or $0.52 per diluted share, for the fourth quarter of 2008.

Items excluded from first quarter 2009 non-GAAP results are:

  • $8 million in pre-tax merger-related expenses;
  • $4 million in pre-tax gains related to the early extinguishment of debt;
  • $3 million in pre-tax expenses primarily associated with workforce reductions; and
  • $2 million related to a loss on the sale of the Iceland Broker Services business.

"We are particularly proud of the results we delivered during the quarter," commented Bob Greifeld, NASDAQ OMX's Chief Executive Officer. "Despite a challenging environment we were able to achieve year-over-year profitability growth through the strength of our diversified business model and continued focus on operational efficiency. Our objective is to drive growth through investments in new opportunities and through innovation and technology advances in our core businesses."

Recent Highlights

  • Reached new market share highs in the trading of U.S. equity options contracts. The combined market share of NASDAQ OMX PHLX and The NASDAQ Options Market averaged 20% during the first quarter of 2009, up from 15% in the first quarter of 2008. Total volume traded on these markets grew 26% in the first quarter of 2009 when compared to the same period last year.
  • Launched NASDAQ Basic, a data product that provides customers essential real-time quote and trading information for all U.S. exchange-listed securities in a flexible manner that can significantly lower data costs. NASDAQ Basic, which can be used as a low cost alternative to Level 1, is based on trading on The NASDAQ Stock Market, the most liquid market for U.S.-listed equity securities. Global Data Products also launched Pathfinders, an innovative analytical product unique to NASDAQ OMX that tracks and provides indications of collective trading behavior by leading market participants in liquid U.S. equities.
  • Expanded the trade offering of NASDAQ OMX Nordic to include equities listed in Norway. This new offering is designed to provide lower trading costs and other benefits for customers seeking to trade all Nordic equities on one platform.
  • Captured a total of 20 new listings during the first quarter of 2009, including 16 on The NASDAQ Stock Market and four on the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic. Included in new listings are four companies that switched their listing to NASDAQ from NYSE Euronext.
  • Announced that NASDAQ OMX is expanding its popular suite of listed company services through a partnership with Rivel Research Group, a leading investment research group. NASDAQ OMX and Rivel plan to launch Waypoint, a product designed to give companies immediate and cumulative perception on investment community sentiment.
  • Announced that TOCOM, Japan's largest commodity futures exchange, is the first Japanese customer to go live with a new trading system from NASDAQ OMX. With more than 80 percent market share, TOCOM lists futures and options contracts for a wide range of commodities including metals, oil and rubber.

"The ability to grow operating margins in a difficult market speaks to our strength as proven integrators," said David Warren, NASDAQ OMX's Chief Financial Officer. "Due to our strong performance we were able to generate the cash flow necessary to reduce our debt obligations while investing in new initiatives to drive future growth. Looking forward, we are reducing our full year 2009 total operating expense guidance to be in the range of $830.0 million to $850.0 million, including approximately $30.0 million in merger-related costs."

Financial Review

Revenues

Revenues less liquidity rebates, brokerage, clearance and exchange fees ("net exchange revenues") were $369 million for the first quarter of 2009, a decrease of $50 million, or 12%, from first quarter 2008 results, and a decrease of $34 million, or 8%, from fourth quarter 2008 results.

Market Services

Market Services net exchange revenues decreased to $258 million, down 13% from the prior year quarter, and down 8% from the fourth quarter of 2008.

Transaction Services

Net exchange revenues from Transaction Services were $167 million for the first quarter of 2009, a decrease of $27 million, or 14%, when compared to the first quarter of 2008, and a decrease of $13 million, or 7%, from the fourth quarter of 2008.

 

Cash Equity Trading net exchange revenues were $80 million for the first quarter of 2009, down $26 million from the prior year quarter and down $14 million from the fourth quarter of 2008.

  • Net U.S. cash equity trading revenues decreased when compared to the prior year quarter due primarily to a decline in the average net fee per share matched on NASDAQ's trading system. The decline in net exchange revenues when compared to the fourth quarter of 2008 is due primarily to a decline in the number of shares matched by NASDAQ.
  • European cash equity trading revenues declined when compared to the prior year quarter and from the fourth quarter of 2008 due to a decline in value traded and fewer trades executed on the market. Value traded in the first quarter of 2009 was €135 billion, down 54% and 21% from the first quarter of 2008 and the fourth quarter of 2008, respectively. During the quarter, trade volume declined 9% from the prior year quarter and 14% from the fourth quarter of 2008. Also contributing to the decline in European cash equity trading revenues when compared to the first quarter of 2008 are changes in the exchange rates of various currencies as compared to the U.S. dollar.
  • Included in U.S. cash equity trading revenues in the first quarter of 2009 are $25 million in SEC Section 31 fees, compared with $91 million in the first quarter of 2008 and $37 million in the fourth quarter of 2008. Corresponding cost of revenues, reflecting the reimbursement of these fees to the SEC, is included in brokerage, clearance and exchange fees.

 

Derivative trading net exchange revenues were $55 million for the first quarter of 2009, a decrease of $2 million from the prior year quarter but an increase of $1 million when compared to the fourth quarter of 2008.

  • The decrease when compared to the prior year quarter is primarily due to lower Nordic derivative trading volumes, which were down 34% from the first quarter of 2008. Also contributing to the decline in European derivative trading revenues from the year-ago period are changes in the exchange rates of various currencies as compared to the U.S. dollar. Partially offsetting these declines is the inclusion of NASDAQ OMX Commodities revenues following the October 21, 2008 closing of NASDAQ OMX's acquisition of Nord Pool ASA's clearing, international derivatives and consulting subsidiaries.
  • The increase in revenues when compared to the fourth quarter of 2008 is primarily due to the inclusion of NASDAQ OMX Commodities revenues noted above. Partially offsetting this increase are lower revenues due to a 13% decline in Nordic derivative trading volumes.

Market Data

Market Data revenues were $81 million for the first quarter of 2009, down $3 million, or 4%, when compared to the first quarter of 2008 and down $4 million, or 5% from the fourth quarter of 2008.

 

Net U.S. Tape Plans revenues were $34 million in the first quarter of 2009, down $1 million when compared to the prior year quarter and down $3 million from the fourth quarter of 2008.

  • U.S. Tape Plans revenues reflect revenues generated by members of joint industry plans that distribute the national best bid and offer and last sale information for U.S. equities. Plan members, such as The NASDAQ Stock Market, share revenue collected from disseminating this information. The distribution of revenue to each plan member is determined using a formula, required by Regulation NMS, that calculates each participant's share of trading and quoting activity.
  • The decline in U.S. Tape Plans revenues, net of revenue sharing plans, in the first quarter of 2009 when compared to the first quarter of 2008 is primarily due to the decline in NASDAQ's trading and quoting market share of NASDAQ-listed securities and a reduction in the size of shareable tape plan revenue pools. The decline in revenue in the first quarter of 2009 when compared to the fourth quarter of 2008 is primarily due to reductions in NASDAQ's share of trading and quoting activity in U.S. equities and a reduction in the size of shareable tape plan revenue pools.

 

U.S. market data products revenues were $28 million in the first quarter of 2009, an increase of $3 million when compared to the year ago quarter, and up $1 million when compared to the fourth quarter of 2008. U.S. market data products revenues reflect revenues generated from the sale of NASDAQ OMX proprietary data products. Revenue growth when compared to prior periods is driven primarily by the introduction of new products such as NASDAQ Last Sale and the NASDAQ Global Index Data Service, as well as growth of other proprietary data products.

European market data products revenues were $19 million in the first quarter of 2009, a decrease of $5 million when compared to the prior year quarter and $2 million when compared to the fourth quarter of 2008. The decrease when compared to the first quarter of 2008 is primarily due to changes in the exchange rate of the Euro as compared to the U.S. dollar and to declines in subscriber populations. Declines in revenue when compared to the fourth quarter of 2008 are due primarily to declines in subscriber populations.

Issuer Services

During the first quarter of 2009, Issuer Services revenues declined $10 million, or 11%, to $79 million from the first quarter of 2008 and declined $6 million, or 7%, from the prior quarter.

Global Listing Services

Global Listing Services revenues were $70 million for the first quarter of 2009, down $8 million when compared to the first quarter of 2008 and down $5 million from the fourth quarter of 2008. Decreases in revenues from prior periods are due primarily to lower U.S. annual renewal fees resulting from fewer listed companies, and to lower market capitalization values for European listed equities, which in turn result in lower European listing fees. Also contributing to the decline in revenues from the first quarter of 2008 are changes in the exchange rates of various currencies as compared to the U.S. dollar. Contributing to the decline in revenues when compared to the fourth quarter of 2008 are seasonally lower corporate services revenues.

Global Index Group

Global Index Group revenues were $9 million for the first quarter of 2009, down $2 million when compared to the first quarter of 2008 and $1 million when compared to the fourth quarter of 2008. Driving the decline in revenues are lower license fees associated with NASDAQ OMX-licensed products, including lower volumes and declines in assets under management in ETFs and structured products.

Market Technology

Market Technology revenues were $29 million for the first quarter of 2009, down $4 million, or 12%, when compared to the first quarter of 2008, and down $6 million, or 17%, when compared to the fourth quarter of 2008. The revenue decline when compared to the prior year quarter is primarily due to changes in exchange rates of various currencies as compared to the U.S. dollar. Also contributing to the decline is the loss of contract revenues following NASDAQ OMX's acquisition of Nord Pool ASA's clearing, international derivatives and consulting subsidiaries, noted above. Nord Pool ASA was previously a customer of NASDAQ OMX Market Technology. The decline in revenues when compared to the fourth quarter of 2008 is primarily due to seasonally higher revenues for the prior period, the partial loss of contract revenues from the Nord Pool ASA transaction noted above, and to changes in exchange rates of various currencies as compared to the U.S. dollar.

Operating Expenses

Total operating expenses decreased $55 million, or 22%, to $194 million from $249 million in the prior year quarter and $19 million, or 9%, from $213 million in the fourth quarter of 2008. The decrease in expenses was realized through a reduction in compensation expense, lower depreciation expense, reduced expenses for computer operations and data transmission, and lower general, administrative and other expense. The decline in expenses is driven by successful integration efforts associated with NASDAQ's business combination with OMX and the acquisition of the Philadelphia Stock Exchange.

Net Interest Expense

Net interest expense was $22 million for the first quarter of 2009, compared with $29 million for the first quarter of 2008 and $28 million for the fourth quarter of 2008. The decline in net interest expense when compared to the prior periods is primarily due to lower interest rates on outstanding debt obligations.

Earnings Per Share

On a non-GAAP basis, first quarter 2009 earnings per diluted share were $0.48 as compared to pro forma non-GAAP earnings per diluted share of $0.44 in the prior year quarter, and non-GAAP earnings per diluted share of $0.52 in the fourth quarter of 2008. NASDAQ OMX's weighted average shares outstanding used to calculate diluted earnings per share were 214.3 million in the first quarter of 2009 versus 214.1 million for both the year-ago quarter and the fourth quarter of 2008.

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