Nasdaq, Inc. (Nasdaq:NDAQ) today reported strong revenue results for the second quarter of 2016. Second quarter net revenues were $559 million, up $41 million or 8% from $518 million in the prior year period, driven by a $24 million positive impact from acquisitions, a $14 million positive impact from operations, and a $3 million positive impact from changes in foreign exchange rates.
“Nasdaq has experienced broad-based demand for our distinctive technology, services and solutions, resulting in continued organic growth from each of our business segments,” said Bob Greifeld, CEO, Nasdaq. “Further, we are successfully integrating the recently closed acquisitions, which we expect to provide another lever of return for our shareholders as we drive operational synergies and deliver ever increasing value for our clients.”
Mr. Greifeld continued, “Material expansion in the SMARTS surveillance product’s customer base, the acquisition of the ISE, giving Nasdaq unique scale in U.S. options, exceptional growth in Nordic listings, and the accelerating migration of corporate customers onto the IR Insights platform stand out as second quarter developments which will pay meaningful dividends in future periods.”
Operating expenses were $385 million in the second quarter of 2016, up $84 million from $301 million in the second quarter of 2015. The increase primarily reflected higher merger and strategic initiatives expense of $32 million, higher restructuring charges of $31 million and $15 million in incremental expenses from the acquisitions of Nasdaq CXC, formerly Chi-X Canada (February 2016), Marketwired (February 2016), and Boardvantage (May 2016). Non-GAAP operating expenses were $300 million in the second quarter of 2016, up $19 million from $281 million in the second quarter of 2015.
This increase reflected $15 million in incremental expenses from the acquisitions closed in 2016 as well as $4 million in organic growth.
“During the quarter we were able to raise over $1 billion in acquisition financing at favorable rates while also reducing FX exposure. As I transition over the CFO responsibilities, I believe the company’s capital and financial position are in excellent condition,” said Ron Hassen, Principal Financial Officer and Senior Vice President, Nasdaq.
“I’m excited to join the Nasdaq team at an especially interesting time, and look forward to bringing new perspectives and ideas that can contribute to execution of the company’s strategy. In the near-term, this includes a particular focus on ensuring that the acquisition integrations succeed in delivering maximum benefits to clients and shareholders,” said Michael Ptasznik, Chief Financial Officer and Executive Vice President, Nasdaq.
Net income attributable to Nasdaq for the second quarter of 2016 was $70 million, or $0.42 per diluted share, compared with $133 million, or $0.77 per diluted share, in the prior year quarter. On a non-GAAP basis, net income attributable to Nasdaq for the second quarter of 2016 was $153 million, or $0.91 per diluted share, compared with $143 million or $0.83 per diluted share, in the second quarter of 2015, an increase of $10 million, or $0.08 per diluted share.
The company repurchased 256,808 shares for $16 million in the second quarter of 2016 at an average price of $62.27, and an additional 127,580 shares for $8 million in the third quarter of 2016 through July 26, 2016 at an average price of $62.19. As of July 26, 2016, there was $476 million remaining under the board authorized share repurchase program.
At June 30, 2016, the company had cash and cash equivalents of $344 million and total debt of $3,731 million, resulting in net debt of $3,387 million. This compares to net debt of $2,063 million at December 31, 2015.
1 Represents revenues less transaction-based expenses.
2 Refer to our reconciliation of U.S. GAAP to non-GAAP net income, diluted earnings per share, operating income and operating expenses included in the attached schedules.
Market Services (35% of total net revenues) - Net revenues were $194 million in the second quarter of 2016, up $5 million when compared to the second quarter of 2015. The increase primarily reflects an increase in revenues from the Nasdaq CXC acquisition.
- Equity Derivatives (8% of total net revenues) – Net equity derivative trading and clearing revenues were $46 million in the second quarter of 2016, up $2 million compared to the second quarter of 2015. The increase was primarily driven by higher U.S. industry trading volumes and higher U.S. market share.
- Cash Equities (11% of total net revenues) – Net cash equity trading revenues were $63 million in the second quarter of 2016, up $1 million compared to the second quarter of 2015. This increase reflects the inclusion of net revenues associated with our acquisition of Nasdaq CXC and the positive impact of foreign exchange, partially offset by lower U.S. and European market share and lower U.S. average net capture.
- Fixed Income, Currency and Commodities (4% of total net revenues) – Net FICC trading and clearing revenues were $21 million in the second quarter of 2016, down $3 million from the second quarter of 2015, due to the negative impact of Nasdaq Futures (NFX) trading incentives and a decline in U.S. fixed income revenues, partially offset by higher European fixed income and commodities revenues.
- Access and Broker Services (12% of total net revenues) – Access and broker services revenues were $64 million in the second quarter of 2016, up $5 million compared to the second quarter of 2015, primarily driven by an increase in customer demand for network connectivity.
Information Services (24% of total net revenues) – Revenues were $134 million in the second quarter of 2016, up $6 million from the second quarter of 2015. The increase reflects a $3 million organic increase primarily from higher audit collections and higher consolidated and proprietary data products revenue, partially offset by lower index licensing and servicing revenues.
- Data Products (19% of total net revenues) – Data products revenues were $107 million in the second quarter of 2016, up $8 million compared to the second quarter of 2015 due to increased audit collections and increased revenues from consolidated and proprietary data, as well as the inclusion of revenues associated with the Nasdaq CXC acquisition and the positive impact of changes in foreign exchange rates.
- Index Licensing and Services (5% of total net revenues) – Index licensing and services revenues were $27 million in the second quarter of 2016, down $2 million from the second quarter of 2015. The revenue decline was primarily driven by a decrease in the value of underlying assets associated with Nasdaq-licensed ETPs.
Technology Solutions (29% of total net revenues) – Revenues were $163 million in the second quarter of 2016, up $28 million from the second quarter of 2015. The increase primarily reflects the inclusion of revenue from the acquisitions of Marketwired and Boardvantage, as well as $8 million in organic revenue growth primarily from market technology contracts.
- Corporate Solutions (17% of total net revenues) – Corporate solutions revenues were $94 million in the second quarter of 2016, up $18 million from the second quarter of 2015. The increase was due to the inclusion of revenues from the Marketwired and Boardvantage acquisitions.
- Market Technology (12% of total net revenues) – Market technology revenues were $69 million in the second quarter of 2016, up $10 million from the second quarter of 2015. The increase was driven primarily by growth in revenues from software licensing and support, and surveillance products, as well as increased revenues from change requests. New order intake was $69 million for the second quarter of 2016, and the total order value at June 30, 2016 was $769 million, up 9% from the prior year period.
Listing Services (12% of total net revenues) – Revenues were $68 million in the second quarter of 2016, up $2 million compared to the second quarter of 2015, primarily due to higher revenues in the Nordics from an increase in the number of listed companies due to new listings.
• Nasdaq Futures continues to show consistent growth. NFX, a U.S.-based futures and options market for key energy benchmarks, has seen consistent growth and marketplace traction since launch in late July 2015. NFX has gained support from multiple sectors of the energy trading community, including 17 prominent global Futures Commission Merchants, and over 100 total firms have transacted on the market. In July, open interest in NFX products rose to over 1,000,000 contracts for the first time.
• Nasdaq introduces the Nasdaq Financial Framework to provide seamless technology functionality across the full trade lifecycle: Nasdaq introduced the Nasdaq Financial Framework, the company’s harmonized approach to delivering robust end-to-end solutions to financial infrastructure providers globally in an open environment. The framework is integrated across all of Nasdaq’s business units and consists of a single operational core that ties together the deep portfolio of Nasdaq technology offerings across the trade lifecycle in an open framework whereby exchange, clearinghouses, and central securities depositories can easily integrate Nasdaq’s business applications with each other, as well as other external solutions. The framework will also allow market operators to easily leverage the latest in technology developments including blockchain.
• The Nasdaq Stock Market led U.S. exchanges for IPOs in 2Q16. Nasdaq welcomed 106 new listings in the second quarter of 2016, including 50 IPOs. In the U.S. market, The Nasdaq Stock Market welcomed 73 new listings in the second quarter of 2016, including 25 IPOs, representing 69% of all U.S. IPOs during the period. Among U.S. ETPs, The Nasdaq Stock Market led all U.S. listing exchanges with 38% of new ETP listings and switches in the second quarter of 2016.
• The Nasdaq Stock Market maintains strong exchange listing transfer momentum. Nasdaq also won 37 exchange listing transfers to its U.S. market in the first half of 2016, including a record 13 companies from NYSE, and 24 exchange-traded funds. Company transfers included Scripps Networks Interactive, tronc (formerly Tribune Publishing), and OPKO Health, among others. Since 2005, over $830 billion in market value has chosen to switch to Nasdaq, including $43 billion in the first six months of 2016.
• Nasdaq completes acquisitions of Boardvantage and ISE. On May 2, 2016, Nasdaq completed the acquisition of Boardvantage, a leading board portal solution provider which also specializes in leadership collaboration and meeting productivity tools. The deal expands Nasdaq’s governance business within the Corporate Solutions segment, where it is being integrated with the Director’s Desk business. On June 30, 2016, Nasdaq completed the acquisition of ISE, an operator of three electronic U.S. options exchanges. Nasdaq plans to build on its robust offerings by providing greater breadth and depth of products and services to participants, and the acquisition is expected to allow Nasdaq to offer efficiencies for clients.