21 October 2017
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Nasdaq reports record quarterly earnings

26 April 2017  |  2607 views  |  0 Source: Nasdaq

Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the first quarter of 2017.

First quarter net revenues were $583 million, up $49 million or 9% from $534 million in the prior year period. The first quarter increase in net revenues included a $50 million positive impact from acquisitions and $15 million, or 5%, organic growth in non-trading segments, partially offset by a $12 million organic decline in Market Services net revenues driven by lower industry trading volumes, as well as an overall $4 million impact from unfavorable changes in foreign exchange rates.

"I'm pleased Nasdaq was able to set new highs in terms of operating income and EPS, and deliver continued strong organic revenue growth across the non-transactional businesses, despite a challenging trading volume environment," said Adena T. Friedman, President and CEO, Nasdaq. "Importantly, we are seeing growth in areas where we've invested materially to innovate for the benefit of our clients, bringing them new or enhanced capabilities and efficiencies, in particular in the Market Technology, Information Services and Corporate Solutions businesses."

Ms. Friedman continued, "We have made significant early progress towards our 2017 execution priorities. We have improved our competitive position, as evidenced by higher market share in several key trading markets, progressed on our acquisition integrations, and continued our efforts to commercialize key disruptive technologies, as illustrated by early sales success of the Nasdaq Financial Framework, our next generation Market Technology offering."

GAAP operating expenses were $335 million in the first quarter of 2017, up $20 million from $315 million in the first quarter of 2016. The increase primarily reflects incremental operating expenses from the acquisitions closed in 2016.
Non-GAAP operating expenses were $306 million in the first quarter of 2017, up $26 million from $280 million in the first quarter of 2016. This increase reflects $22 million of incremental operating expenses from the acquisitions closed in 2016 as well as $7 million due to organic growth, partially offset by a $3 million favorable impact from foreign exchange rate changes.

"We are making significant progress executing against our acquisition integration plans, and we remain on pace to hit our synergy target of $60 million by the end of 2017," said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq.

Mr. Ptasznik continued, "We are continuing Nasdaq's strong track record on capital returns to shareholders with the announced 19% increase in our quarterly dividend and material first quarter share repurchases, the latter expected to largely offset the dilutive impact of equity-based compensation and other commitments in 2017."

1 Represents revenues less transaction-based expenses.
2 Represents revenues from our Corporate Services, Information Services and Market Technology segments, as well as our Trade Management Services business.
3 Refer to our reconciliations of U.S. GAAP to non-GAAP net income (loss), diluted earnings (loss) per share, operating income and operating expenses, and total variance impact analysis included in the attached schedules.
4 Represents revenues from our Corporate Services, Information Services and Market Technology segments.

On a GAAP basis, net income attributable to Nasdaq for the first quarter of 2017 was $169 million, or $0.99 per diluted share, compared with net income of $132 million, or $0.78 per diluted share, in the first quarter of 2016.

On a non-GAAP basis, net income attributable to Nasdaq for the first quarter of 2017 was $187 million, or $1.10 per diluted share, compared with $153 million, or $0.91 per diluted share, in the first quarter of 2016.

As discussed on our prior quarterly call, both GAAP and non-GAAP net income and EPS comparisons to the prior year period benefited from the 2017 adoption of ASU 2016-091, which in the first quarter of 2017 reduced the effective tax rate on our income statement, adding $0.13 to diluted EPS for the first quarter of 2017. Cash tax payments were not affected by the change.

During the first quarter of 2017, the company repurchased 2.2 million shares of common stock for a total cost of $156 million. As of March 31, 2017, there was $273 million remaining under the board authorized share repurchase program.
At March 31, 2017, the company had cash and cash equivalents of $386 million and total debt of $3,621 million, resulting in net debt of $3,235 million. This compares to net debt of $3,200 million at December 31, 2016.

DEBT RESTRUCTURING - Nasdaq announced it will redeem all of its outstanding 5.25% senior notes maturing January 2018 on May 26, 2017. The notes will be redeemed using a combination of cash on hand and proceeds from the sale of commercial paper issued through Nasdaq's newly established commercial paper program. Additionally, the company entered into an agreement for a $1 billion five-year revolving credit facility, which replaces its existing $750 million revolving credit facility. Nasdaq intends to use funds available under the revolving credit facility for general corporate purposes and to provide liquidity support for the repayment of commercial paper issued through its commercial paper program.

2017 EXPENSE GUIDANCE2 - The company is lowering its 2017 non-GAAP operating expense guidance to $1,260 to $1,300 million, versus prior 2017 guidance of $1,260 to $1,310 million.
1 In the first quarter of 2017, we adopted new accounting guidance which requires us to recognize the tax effect related to the vesting of share-based awards in income tax expense in the statements of income rather than in equity.
2 U.S. GAAP operating expense guidance is not provided due to the inherent difficulty in quantifying certain amounts due to a variety of factors including the unpredictability in the movement in foreign currency rates, as well as future charges or reversals outside of the normal course of business.

BUSINESS HIGHLIGHTS
Market Services (37% of total net revenues) - Net revenues were $218 million in the first quarter of 2017, up $17 million when compared to the first quarter of 2016.
Equity Derivatives (12% of total net revenues) - Net equity derivative trading and clearing revenues were $68 million in the first quarter of 2017, up $20 million compared to the first quarter of 2016. The increase is primarily due to the inclusion of revenues from the acquisition of ISE in June 2016.

Cash Equities (10% of total net revenues) - Net cash equity trading revenues were $61 million in the first quarter of 2017, down $9 million from the first quarter of 2016. This decrease primarily reflects lower industry trading volumes, partially offset by the inclusion of net revenues associated with the acquisition of Nasdaq CXC in February 2016.

Fixed Income and Commodities Trading and Clearing (3% of total net revenues) - Net fixed income and commodities trading and clearing (FICC) revenues were $19 million in the first quarter of 2017, down $1 million from the first quarter of 2016.

Trade Management Services (12% of total net revenues) - Trade management services revenues were $70 million in the first quarter of 2017, up $7 million compared to the first quarter of 2016, due to the inclusion of revenue from the acquisition of ISE and an increase in customer demand for network connectivity.

Corporate Services (27% of total net revenues) - Revenues were $160 million in the first quarter of 2017, up $17 million compared to the first quarter of 2016.
Corporate Solutions (16% of total net revenues) - Corporate solutions revenues were $95 million in the first quarter of 2017, up $18 million from the first quarter of 2016. The increase was due to the inclusion of $16 million of revenues from the Marketwired and Boardvantage acquisitions and $2 million of organic revenue growth, primarily in public and investor relations.

Listing Services (11% of total net revenues) - Listing services revenues were $65 million in the first quarter of 2017, down $1 million from the first quarter of 2016. The revenue decrease was primarily due to a $1 million negative impact from foreign exchange rate changes.

Information Services (24% of total net revenues) - Revenues were $138 million in the first quarter of 2017, up $5 million from the first quarter of 2016.
Data Products (19% of total net revenues) - Data products revenues were $108 million in the first quarter of 2017, up $3 million compared to the first quarter of 2016 primarily due to growth in proprietary data products revenues and the inclusion of revenues from the acquisition of ISE.

Index Licensing and Services (5% of total net revenues) - Index licensing and services revenues were $30 million in the first quarter of 2017, up $2 million from the first quarter of 2016. The revenue increase is due to the inclusion of revenues from the ISE acquisition and higher assets under management in exchange traded products linked to Nasdaq indexes, partially offset by lower revenue from derivative products licensing Nasdaq indexes due to lower trading volumes.

Market Technology (12% of total net revenues) - Revenues were $67 million in the first quarter of 2017, up $10 million from the first quarter of 2016. The increase primarily reflects organic revenue growth during the period from software licensing and support, surveillance, and BWise advisory. New order intake totaled $47 million in the first quarter of 2017, up $25 million from the first quarter of 2016, while total order value was $777 million at March 31, 2017, down 1% from March 31, 2016.

CORPORATE HIGHLIGHTS
• Market Services achieves market share increases in U.S. equities, U.S. options, and Nordic equities in the first quarter of 2017. Nasdaq achieved sequential market share gains in the first quarter of 2017 compared to the fourth quarter of 2016 in its largest trading businesses, including U.S. options, U.S. equities, and Nordic equities. Nasdaq's U.S. options market share increased to 42.5% in the first quarter of 2017 versus 39.2% in the fourth quarter of 20161. U.S. equities market share improved to 17.6% in the first quarter of 2017 versus 17.2% in the fourth quarter of 20162, while Nordic equities market share increased to 66.8% in the first quarter of 2017 versus 65.1% in the fourth quarter of 2016.

• Market Technology order intake totaled $47 million in the first quarter of 2017. Order intake of $47 million in the first quarter of 2017 included extending and expanding relationships across multiple clients. Nasdaq announced that Hong Kong Exchange and Clearing Limited (HKEX) will upgrade infrastructure of its main derivatives market across trading, clearing, and real-time risk management. Another notable contract win came with NEX Group, which is incorporating SMARTS Market Surveillance into its leading foreign exchange platform.

• The Nasdaq Stock Market led U.S. exchanges for IPOs. In the U.S. market, The Nasdaq Stock Market welcomed 42 new listings during the first quarter of 2017, 17 of which were IPOs including Presidio, Hamilton Lane, and Laureate Education. During the first quarter, The Nasdaq Stock Market won 52% of IPO listings, and 67% over the twelve months ending March 31, 2017. The Nasdaq Stock Market also announced 7 new ETP listings in the first quarter of 2017, bringing total ETP listings on The Nasdaq Stock Market to 332 at March 31, 2017, representing a 38% increase versus the first quarter of 2016.

• Nasdaq saw strong growth and record ETP assets under management tracking Nasdaq indexes. Overall assets under management (AUM) in ETPs benchmarked to Nasdaq's proprietary index families increased 31% to a record $138 billion as of March 31, 2017 compared to March 31, 2016, including $59 billion, or 42%, tracking smart beta indexes. Also as of March 31, 2017, the number of ETPs tracking Nasdaq-licensed indexes rose to 306, an increase of 35%, compared to 226 at March 31, 2016.

• Nasdaq Private Market completes first auction based transaction in partnership interests and expands into alternative investment fund liquidity. Nasdaq Private Market (NPM) announced the launch of NPM Alternatives, a new business line designed to address the challenge of liquidity in alternative investment funds. NPM Alternatives will bring together participants including fund managers, financial advisors, investors and secondary liquidity providers to facilitate regular, auction-based liquidity events for alternative investment funds. NPM will initially support secondary liquidity for private equity feeder funds as well as funds registered under the Investment Company Act of 1940 and plans to accommodate a variety of fund vehicles over time.

• NFX growth continues Nasdaq's commodities expansion. NFX, a U.S.-based derivatives market for key energy benchmarks, continues to expand. In April 2017, open interest in NFX products reached a daily peak of 2.3 million contracts across key product segments including natural gas and power options and futures, up from a daily peak of 800 thousand contracts in April 2016. During the first quarter of 2017, average daily volume (ADV) was 213,000 contracts, an increase of 184% from 75,000 contracts per day in the first quarter of 2016. Since its July 2015 inception, 145 firms have traded on NFX.
1 For the first quarter of 2017, the combined matched market share consisted of 17.1% at Nasdaq PHLX, 9.5% at The Nasdaq Options Market, 0.7% at Nasdaq BX, 9.5% at Nasdaq ISE, 5.6% at Nasdaq GEMX and 0.1% at Nasdaq MRX. For the fourth quarter of 2016, the combined matched market share consisted of 15.7% at Nasdaq PHLX, 8.6% at The Nasdaq Options Market, 0.7% at Nasdaq BX, 11.2% at Nasdaq ISE, 2.8% at Nasdaq GEMX and 0.2% at Nasdaq MRX.
2 For the first quarter of 2017, the combined matched market share consisted of 14.0% at The Nasdaq Stock Market, 2.7% at Nasdaq BX and 0.9% at Nasdaq PSX. For the fourth quarter of 2016, the combined matched market share consisted of 13.6% at The Nasdaq Stock Market, 2.6% at Nasdaq BX and 1.0% at Nasdaq PSX

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