Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the second quarter of 2017. Second quarter 2017 net revenues were $602 million, up $43 million or 8% from $559 million in the prior year period.
The second quarter increase in net revenues included a $34 million positive impact from acquisitions and $15 million, or 3%, organic growth, partially offset by a $6 million unfavorable impact due to changes in foreign exchange rates.
"In addition to achieving a new quarterly net revenue record, we are making significant progress against our 2017 execution priorities, by commercializing key technologies with new products available through the Nasdaq Financial Framework and Analytics Hub, achieving our merger synergies ahead of our original timeline, and raising our market share in our largest trading categories significantly above prior year levels," said Adena T. Friedman, President and CEO, Nasdaq.
Mrs. Friedman continued, "At the same time, we have taken a leadership role supporting current and potential corporate issuers through our blueprint to revitalize the U.S. capital markets,4 which champions reforms and initiatives that we believe improve the public company experience to the benefit of stakeholders throughout and even beyond the broader investment community."
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, diluted earnings per share, operating income and operating expenses, included in the attached schedules.
4 For more information, please see http://business.nasdaq.com/revitalize
GAAP operating expenses were $358 million in the second quarter of 2017, down $27 million from $385 million in the second quarter of 2016. The decrease primarily reflects lower restructuring and merger and strategic initiatives expense, partially offset by incremental operating expenses from the acquisitions closed in the prior year period and additional costs associated with the early extinguishment of debt.
Non-GAAP operating expenses were $315 million in the second quarter of 2017, up $15 million from $300 million in the second quarter of 2016. This increase reflects $11 million of incremental operating expenses net of synergies from the acquisitions closed in the second quarter of 2016 and a $9 million organic expense increase, partially offset by a $5 million favorable impact from changes in foreign exchange rates.
"Reflecting the significant progress achieved on our integrations and identification of additional opportunities, the company is raising its total synergy target. Despite the headwinds that today's low volatility environment presents, our consistent application of the company's expense and efficiency discipline is delivering margin improvement and contributing to EPS growth consistent with our aspiration to deliver double-digit total shareholder returns," said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq.
Mr. Ptasznik continued, "On the capital front, in the second quarter of 2017 we initiated the company's first commercial paper program and began paying down borrowings consistent with our stated objectives, following significant buyback activity and a 19% dividend increase announced in the first quarter of 2017. We plan to continue deploying and returning capital in a thoughtful and balanced approach over time."
On a GAAP basis, net income attributable to Nasdaq for the second quarter of 2017 was $147 million, or $0.87 per diluted share, compared with net income of $70 million, or $0.42 per diluted share, in the second quarter of 2016.
On a non-GAAP basis, net income attributable to Nasdaq for the second quarter of 2017 was $172 million, or $1.02 per diluted share, compared with $153 million, or $0.91 per diluted share, in the second quarter of 2016.
At June 30, 2017, the company had cash and cash equivalents of $356 million and total debt of $3,552 million, resulting in net debt of $3,196 million. This compares to net debt of $3,200 million at December 31, 2016. Included in total debt of $3,552 million is $494 million outstanding from the recently established commercial paper program. As of June 30, 2017, there was $273 million remaining under the board authorized share repurchase program. There were no share repurchases during the second quarter of 2017.
2017 EXPENSE GUIDANCE1 - The company is lowering its 2017 non-GAAP operating expense guidance to $1,260 to $1,290 million, versus prior 2017 expense guidance of $1,260 to $1,300 million.
1 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.
Market Services (37% of total net revenues) - Net revenues were $222 million in the second quarter of 2017, up $28 million when compared to the second quarter of 2016.
Equity Derivatives (11% of total net revenues) - Net equity derivative trading and clearing revenues were $67 million in the second quarter of 2017, up $21 million compared to the second quarter of 2016. The increase is primarily due to the inclusion of revenues from the acquisition of ISE in June 2016.
Cash Equities (11% of total net revenues) - Net cash equity trading revenues were $64 million in the second quarter of 2017, up $1 million from the second quarter of 2016. This increase primarily reflects higher European cash equities revenues, partially offset by an unfavorable impact from changes in foreign exchange rates.
Fixed Income and Commodities Trading and Clearing (3% of total net revenues) - Net fixed income and commodities trading and clearing revenues were $19 million in the second quarter of 2017, down $2 million from the second quarter of 2016. The decrease primarily reflects lower industry volumes in our European commodities products.
Trade Management Services (12% of total net revenues) - Trade management services revenues were $72 million in the second quarter of 2017, up $8 million compared to the second quarter of 2016, due to the inclusion of revenues from the acquisition of ISE and an increase in customer demand for network connectivity.
Corporate Services (27% of total net revenues) - Revenues were $164 million in the second quarter of 2017, up $2 million compared to the second quarter of 2016.
Corporate Solutions (16% of total net revenues) - Corporate solutions revenues were $97 million in the second quarter of 2017, up $3 million from the second quarter of 2016. The increase is primarily due to the inclusion of revenues from the acquisition of Boardvantage completed in May 2016.
Listing Services (11% of total net revenues) - Listing services revenues were $67 million in the second quarter of 2017, down $1 million from the second quarter of 2016, as an increase in European listing services revenues were more than offset by lower U.S. revenues from the run-off of listing of additional shares fees as a result of the implementation of our all-inclusive annual fee, and an unfavorable impact due to changes in foreign exchange rates.
Information Services (24% of total net revenues) - Revenues were $144 million in the second quarter of 2017, up $10 million from the second quarter of 2016.
Data Products (18% of total net revenues) - Data products revenues were $111 million in the second quarter of 2017, up $4 million compared to the second quarter of 2016 primarily due to growth in proprietary data products revenues.
Index Licensing and Services (6% of total net revenues) - Index licensing and services revenues were $33 million in the second quarter of 2017, up $6 million from the second quarter of 2016 primarily due to higher assets under management in exchange traded products linked to Nasdaq indexes.
Market Technology (12% of total net revenues) - Revenues were $72 million in the second quarter of 2017, up $3 million from the second quarter of 2016. The increase primarily reflects organic revenue growth from software, licensing and support, software as a service, particularly growth in SMARTS surveillance subscriptions, as well as higher change request revenues.
New order intake totaled $64 million in the second quarter of 2017 while total order value was a record $799 million at June 30, 2017, up 4% from June 30, 2016.
• Nasdaq releases new report outlining call for dialogue and action in U.S. financial markets. The report, "The Promise of Market Reform: Reigniting America's Economic Engine," offers a blueprint to revitalize the U.S. capital markets to create a vibrant ecosystem that delivers enhanced capital formation opportunities, a more inviting environment for growth and innovation, and accelerated job formation and wealth creation. The initiative is designed to create a dialogue and facilitate action steps to help drive America's economic engine by modernizing market structure, reconstructing the regulatory framework and reorienting to a long-term view.
• Market Technology order intake totaled $64 million in the second quarter of 2017 and Nasdaq signed a new agreement to provide a blockchain enabled solution to SIX, the Swiss financial infrastructure provider. Order intake of $64 million in the second quarter of 2017 included new client relationships with AIFC Exchange, a new stock exchange being established in Kazakhstan, and Deposito Central de Valores, the Chilean central securities depository. Additionally, Nasdaq announced SMARTS product extensions with the Investment Industry Regulatory Organization of Canada and the Monetary Authority of Singapore. In July 2017, Nasdaq also signed an agreement with SIX Swiss Exchange to implement a distributed ledger technology based solution for the OTC structured products business from SIX, highlighting further commercialization of blockchain with the Nasdaq Financial Framework.
• Nasdaq launches the Analytics Hub platform to help augment buy side trading strategies. The Nasdaq Analytics Hub platform provides the buy side with investment signals that are derived from structured and unstructured data sets, from both proprietary sources and collaboration with third-party partners. The May 2017 debut included four initial data sets. In July, Nasdaq introduced four additional data sets to broaden and deepen the high value content, providing insights from corporate filings, fundamental and technical factors. Nasdaq intends to add new data sets, sources and analytics over time.
• Nasdaq launches Auction on Demand in the Nordics to help customers fulfill their MiFID II transparency requirements. Nasdaq launched a new periodic auction feature in the Nordics called Auction on Demand that is designed to fulfill both MiFID I and MiFID II transparency rules and help market participants execute both large and small orders. Developed with professional investors in mind, Auction on Demand addresses a broad range of execution challenges for orders and runs in parallel to Nasdaq Nordic's lit order books.
• Nasdaq's Nordic exchanges achieved a record first half of the year for new listings, and The Nasdaq Stock Market led U.S. exchanges for IPOs in the first half of 2017. Nasdaq's Nordic exchanges welcomed a record 61 new listings and 6 First North to Main market upgrades in the first and second quarter of 2017, marking the strongest first half of the year in the history of the company in terms of listings activity. In the U.S. market, The Nasdaq Stock Market welcomed 64 new listings during the second quarter of 2017, 36 of which were IPOs including Okta, Appian, NCS Multistage and Carlyle Group's BDC. During the second quarter, The Nasdaq Stock Market won 52% of IPO listings, and 62% over the twelve months ended June 30, 2017.
• 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 to a record $147 billion as of June 30, 2017, up 36% compared to June 30, 2016. The June 30, 2017 total AUM included $61 billion, or 41%, tracking smart beta indexes. Also as of June 30, 2017, the number of ETPs tracking Nasdaq-licensed indexes rose to 316, an increase of 18%, compared to June 30, 2016.