Nasdaq OMX Q3 income slides

Operating expenses were $239 million, compared to $241 million in the third quarter of 2011. On a non-GAAP basis, third quarter 2012 operating expenses were $228 million, down $4 million year-over-year.

Third quarter 2012 non-GAAP diluted earnings per share was $0.62, down $0.05 compared to the prior year quarter. Non-GAAP earnings per share in the third quarter of 2012 excludes a loss on the sale of IDCG of $14 million, restructuring charges of $10 million, merger and strategic initiatives net gain of $3 million, and special legal expenses of $4 million. On a GAAP basis, net income attributable to NASDAQ OMX for the third quarter of 2012 was $89 million, or $0.52 per diluted share, compared with $110 million, or $0.61 per diluted share, in the prior year quarter.

"Our strategy to build a diversified franchise that generates substantial recurring revenues and cash flows, even against the backdrop of U.S. and Nordic equity volumes declining over 30 percent year-over-year, is clearly paying dividends," said Bob Greifeld, CEO, NASDAQ OMX.

Mr. Greifeld continued, "Despite the low level of trading activity, we remain focused on the factors that allow us to continue to win in our markets, and position us ideally for when a higher level of trading activity resumes. We continued to exercise disciplined expense control and continued to invest in our future through our "GIFT" internal investment program. This program has resulted in a variety of new initiatives this year, including our successful BX Options exchange introduction. We will continue to fund these innovative ideas, which drive organic growth and diversify our business into compelling adjacent markets."

Lee Shavel, NASDAQ OMX's EVP and Chief Financial Officer, said: "We are pleased that the cost reduction plan that we put in place in the first quarter has enabled us to deliver strong expense control, without sacrificing investment in our business. Our previously announced cost reeduction plan is on track to reduce our cost base by a $50 million run rate by the end of fiscal 2012. As a result of our ongoing efforts to manage the expense base, we are reducing our fiscal 2012 operating expense guidance to $922 to $935 million, down from the previous range of $935 to $965 million. In addition to prudently managing our cost base, we continued to generate substantial capital and to execute on our strategy to deploy that capital effectively. Year-to-date, we have returned $225 million to our shareholders through buybacks and $43 million through our dividend program. As always, we approach our capital deployment initiatives with the goal of maximizing return on invested capital to deliver substantial value for our shareholders."

At September 30, 2012, the company had cash and cash equivalents of $438 million and total debt of $1,986 million, resulting in net debt of $1,548 million. This compares to net debt of $1,611 million at December 31, 2011. During the third quarter of 2012, the company repurchased 2.2 million shares of outstanding common stock under a share repurchase program, for a total of $50 million. Since January 2009, we have repurchased $1,122 million of outstanding common stock, representing 51.3 million shares at an average price of $21.90.

BUSINESS HIGHLIGHTS
Market Services (66% of total net exchange revenues) - Net exchange revenues were $269 million in the third quarter of 2012, down $31 million when compared to the third quarter of 2011.

• Cash Equities (11% of total net exchange revenues) - Total net cash equity trading revenues were $47 million in the third quarter of 2012, down $20 million compared to the third quarter of 2011. Trading volumes declined from the prior year period when the European debt crisis and the uncertainty surrounding the U.S. debt ceiling generated substantial market volatility and volumes.
• Derivatives (18% of total net exchange revenues) - Total net derivative trading and clearing revenues were $72 million in the third quarter of 2012, down $12 million compared to the third quarter of 2011. The decline was primarily due to lower industry trading volumes in the U.S. and the Nordics, as well as an unfavorable impact from foreign exchange of $2 million. This decline was partially offset by market share and revenue capture gains in our U.S. equity options business.
• Access and Broker Services (16% of total net exchange revenues) - Access and broker services revenues totaled $66 million, up $1 million compared to the third quarter of 2011. The increase was primarily driven by the uptake of new products including 40G connectivity.
• Market Data (21% of total net exchange revenues) - Total Market Data revenues of $84 million reflect a $1 million increase compared to the year ago quarter. The increase in Market Data revenues was driven by growth in U.S. proprietary products and pricing initiatives, partially offset by lower net revenues in U.S. tape plans and European data.

Issuer Services (23% of total net exchange revenues) - Revenues were $93 million in the third quarter of 2012, up $3 million compared to the third quarter of 2011. Corporate Solutions revenues increased $6 million, driven by the acquisitions of BWise in May 2012 and Glide Technologies in October 2011 and growth in our Shareholder.com and GlobeNewswire products. The Global Index Group's revenues increased by $1 million, or 8% year-over-year, driven by increased assets under management of licensed financial products.

Market Technology (11% of total net exchange revenues) - Revenues of $47 million in the third quarter of 2012 increased $1 million compared to the third quarter of 2011.

COST GUIDANCE - For the full year of 2012, total core operating expenses are expected to be in the range of $865 million to $873 million (down from prior core expense guidance of $870 to $890 million), plus $32 million to $36 million in incremental new initiative spending, and an additional $25 million to $26 million due to the BWise and NOS acquisitions, resulting in total operating expenses in the range of $922 million to $935 million, down from previous guidance of $935 to $965 million. This guidance excludes expenses related to the cost reduction plan and expenses for the proposed voluntary accommodation program and special legal expenses.