The NasdaqOMX Group, Inc. today reported results for the first quarter of 2013. First quarter net exchange revenues were $418 million, up from $414 million in the prior year period, driven by increases in our Global Technology Solutions and Global Information Services segments, partially offset by lower U.S. cash equity trading revenues.
On an organic basis (constant currency and excluding acquisitions) first quarter net exchange revenues decreased 2% year-over-year.
Operating expenses were $328 million in the first quarter of 2013, compared to $243 million in the prior year quarter. On a non-GAAP basis, first quarter 2013 operating expenses were $237 million, up 2% as compared to the prior year quarter. On an organic basis (constant currency and excluding acquisitions), first quarter non-GAAP operating expenses fell 3% year-over-year.
First quarter 2013 non-GAAP diluted earnings per share were $0.64, up $0.03 compared to the prior year quarter. Non-GAAP diluted earnings per share in the first quarter of 2013 exclude $62 million of expenses accrued for the one-time voluntary accommodation program. This program, which was approved by the SEC on March 22, 2013, expands the pool available to compensate members of the Nasdaq Stock Market for qualified losses arising directly from the system issues experienced with the Facebook IPO that occurred on May 18, 2012.
As previously disclosed, the staff of the SEC's Division of Enforcement is conducting an investigation relating to these systems issues. Although the Commission has not reached a final conclusion, Nasdaq OMX may pay $10 million in connection with the potential resolution of this matter. As a result, non-GAAP diluted earnings per share in the first quarter of 2013 also exclude $10 million of expenses accrued for this estimated liability.
Non-GAAP diluted earnings per share in the first quarter of 2013 further exclude $10 million of non-cash asset impairment charges, $9 million of restructuring charges, $8 million of merger and strategic initiatives expenses, and $2 million of special legal expenses. On a GAAP basis, net income attributable to Nasdaq OMX for the first quarter of 2013 was $42 million, or $0.25 per diluted share, compared with $85 million, or $0.49 per diluted share, in the prior year quarter.
"The successful execution of our strategy has delivered solid first quarter results," said Bob Greifeld, CEO, Nasdaq OMX. "While the volume environment remained challenging, our portfolio of corporate, trading, technology, and information businesses continue to deliver consistent revenue and earnings performance. We remain focused on helping our clients manage the growing complexity and connectivity, which is required to optimize today's global business environment, by delivering products and services that enhance efficiency and productivity in the environments in which they operate."
Mr. Greifeld continued, "Looking forward in 2013, while we are confident that a recovering economy and increasing investor confidence will eventually lead to stronger tailwinds for our businesses, our diverse client base of investors, financial institutions, exchanges, and regulators, and public and private companies, are not waiting idly by, and are actively looking for solutions that deliver a more effective means of interacting with the capital markets. As such, we continue to dedicate significant resources towards both organic initiatives, in particular our growing GIFT program, as well as strategic acquisitions, to enhance the options and opportunities inherent in our global offering."
Lee Shavel, EVP and CFO, Nasdaq OMX said: "We have realigned our business to better serve our customers and our revised business segments are intended to improve the transparency of our business model for investors. We have combined our Corporate Solutions and Market Technologies businesses to highlight the combined scale of our financial software businesses which will be further enhanced by the acquisition of the Thomson Reuters Corporate Services Business. Similarly, we have combined our Market Data and Index businesses to emphasize the strength of our information services businesses. The revenue and operating profit disclosures for these segments will facilitate comparisons to companies with similar revenue and profitability dynamics."
Mr. Shavel continued, "While we have delivered substantial value to shareholders through our share repurchases and dividends, we will be focused in the near-term on reducing the leverage associated with our recently announced acquisitions of Thomson Reuters Corporate Services and eSpeed. Utilizing our strong and consistent cash flow, we believe Nasdaq OMX will return to pre-transaction leverage ratios within a year from closing these transactions. We remain focused on delivering on the objectives we set for the eSpeed and the Thomson Reuters Corporate Services businesses and believe they represent significant strategic and financial opportunities for our shareholders."
At March 31, 2013, the company had cash and cash equivalents of $591 million and total debt of $1,966 million, resulting in net debt of $1,375 million. This compares to net debt of $1,479 million at December 31, 2012. During the first quarter of 2013, the company repurchased 0.3 million shares of outstanding common stock under a share repurchase program, for a total of $10 million. Since January 2010, Nasdaq OMX has repurchased $1,182 million of outstanding common stock, representing 53.7 million shares at an average price of $22.03.
- Market Services (43% of total net exchange revenues) - Net exchange revenues were $182 million in the first quarter of 2013, down $8 million when compared to the first quarter of 2012.
- Cash Equities (11% of total net exchange revenues) -- Total net cash equity trading revenues were $45 million in the first quarter of 2013, down $8 million compared to the first quarter of 2012. The decline was due to lower industry volumes, both in the U.S. and in Europe, as well as lower market share, in particular in the U.S.
- Derivatives (17% of total net exchange revenues) -- Total net derivative trading and clearing revenues were $74 million in the first quarter of 2013, down $1 million compared to the first quarter of 2012. Net U.S. derivative trading and clearing revenues increased 5% year-over-year due to market share gains and positive revenue capture per traded contract. European derivative trading and clearing revenues declined $3 million on lower rate per contract in equity derivatives due to pricing incentives aimed at capturing OTC volume and lower fixed income volumes, partially offset by higher commodity revenues and a favorable impact from foreign exchange of $1 million.
- Access and Broker Services (15% of total net exchange revenues) -- Access and broker services revenues totaled $63 million in the first quarter of 2013, up $1 million compared to the first quarter of 2012. The increase was primarily driven by the uptake of new products including 40G connectivity.
- Information Services (26% of total net exchange revenues) -- Revenues were $108 million in the first quarter of 2013, up $6 million from the first quarter of 2012.
- Market Data (22% of total net exchange revenues) -- Total market data revenues were $91 million in the first quarter of 2013, up $4 million from the first quarter of 2012. U.S. market data products contributed the largest part of the increase, as a result of increased sales of proprietary products like Totalview and Nasdaq Basic, price increases to Level 2 products, and higher audit collections, partially offset by lower net U.S. tape plan revenues. Index data products also grew, while European market data products were flat.
- Index Licensing and Services (4% of total net exchange revenues) -- Index licensing and services revenues were $17 million in the first quarter of 2013, up $2 million from the first quarter of 2012. The revenue increase was split between growth in the value of assets in licensed products and from the acquisition of the index business of Mergent Inc., including Indxis.
- Technology Solutions (18% of total net exchange revenues) - Revenues were $73 million in the first quarter of 2013, up $7 million from the first quarter of 2012.
- Corporate Solutions (6% of total net exchange revenues) -- Total corporate solutions revenues were $24 million in the first quarter of 2013, up $3 million from the first quarter of 2012. Corporate solutions revenues growth was primarily due to strong performance in Shareholder.com, GlobeNewswire, and Directors Desk products.
- Market Technology (12% of total net exchange revenues) -- Market technology revenues were $49 million in the first quarter of 2013, up $4 million from the first quarter of 2012. The revenue increase is primarily due to revenues from BWise, which we acquired in the second quarter of 2012. Order intake in the first quarter of 2013 decreased, from $55 million in the first quarter of 2012 to $19 million in the first quarter of 2013, as several customer purchasing decisions were delayed. The order backlog remains higher year-over-year.
- Listing Services (13% of total net exchange revenues) -- Revenues were $55 million in the first quarter of 2013, down $1 million compared to the first quarter of 2012. The decrease was driven by a decrease in U.S. listing revenues, driven by lower initial listing fees, partially offset by an increase in European listing revenues.
- COST GUIDANCE -- For the full year of 2013, core operating expenses are expected to be in the range of $910 million to $930 million, with an additional $50 million to $60 million in incremental new initiative spending, and $12 million related to a 2013 accounting reclassification of certain Corporate Solutions expenses that were previously netted in revenue, resulting in total operating expenses in the range of $972 million to $1,002 million. This guidance excludes expenses related to our previously announced cost reduction plan, expenses for the voluntary accommodation program, the SEC matter, special legal expenses, and the expenses associated with the announced acquisitions of eSpeed and the IR, PR, and Multimedia Solutions businesses from Thomson Reuters.
- Agreement to acquire eSpeed. On April 1, 2013, Nasdaq OMX announced an agreement with BGC Partners, Inc., to acquire the eSpeed platform for trading U.S. Treasuries. Following the closing of the transaction, which is subject to regulatory approval, Nasdaq OMX intends to leverage its strong technology experience and leading distribution capabilities to further develop eSpeed's leading marketplace, while enjoying the structural tailwinds of a growing U.S. Treasury market.
- Joint venture with SharesPost announced to form Nasdaq Private Market.Nasdaq OMX and SharesPost announced a Nasdaq OMX majority owned joint venture that will establish the preeminent marketplace for private growth companies. The Nasdaq Private Market (NPM) will provide improved access to liquidity for early investors, founders, and employees, while enabling the efficient buying and selling of private company shares. NPM is expected to launch later in 2013, pending regulatory approvals.
- Combination of Market Technology and Corporate Solutions businesses.Nasdaq OMX combined the Market Technology and Corporate Solutions businesses, which are now included under the Technology Solutions segment and are led by Anna Ewing, Executive Vice President, Technology Solutions. The combination enables increased customer focus, growth across the company's technology businesses and a dedicated software and technology management structure.
- Combination of Data Products and Index Group businesses. Nasdaq OMX combined the Data Products and Index Group businesses, which are now included under the Global Information Services segment and are led by John Jacobs, Executive Vice President, Global Information Services. The combination enables greater customer focus and leverage of Nasdaq OMX's scalable technology, product innovation and robust distribution channels.