These favorable results are primarily driven by contributions from recent acquisitions, improvements in trading market share, and ongoing efforts to improve operational efficiency.

Gross margin, representing total revenues less cost of revenues, was $162.0 million in the first quarter of 2006, an increase of 28.3% from $126.3 million in the year-ago period, and an increase of 16.9% from $138.6 million in the fourth quarter of 2005.

NASDAQ's Chief Executive Officer, Robert Greifeld commented, "NASDAQ's strong first quarter performance demonstrates our ability to simultaneously execute our integration, cost reduction, and top-line growth initiatives. During the quarter we grew gross margin for the sixth consecutive quarter and witnessed market share gains in the trading of all U.S. listed equities. We also announced the creation of the Global Select Market, a listing tier with the world's highest standards, further broadening NASDAQ's value proposition to our issuers. As the premier equity marketplace, NASDAQ is extremely well positioned to compete aggressively and to capitalize on future growth opportunities. Our strong competitive position allows us to take the necessary strategic steps to enhance shareholder value in the rapidly evolving global capital markets."

Recent Highlights

• Created the Global Select Market, a new listing tier with highest financial listing standards in the world.
• Acquired Shareholder.com, allowing NASDAQ to offer best-in-class shareholder communications and intelligence services to issuers.
• Achieved a new record in trading NYSE-listed stocks, matching a single day high of 10.03% on March 24, 2006, representing an approximate 43% percent spike in NASDAQ's matched market share.
• Agreed with First Trust Advisors to launch two new exchange traded funds (ETFs): NASDAQ-100 Equal Weighted Fund and NASDAQ-100 Technology Fund.
• Began offering options routing through the BRUT broker-dealer, providing customers connectivity and routing to the major options exchanges.
• Completed an offering of 15,979,513 shares of common stock at $40.00 per share; 8,042,142 shares were sold by NASDAQ with approximately $105 million in proceeds used to redeem our Series C cumulative preferred stock, including accrued and unpaid dividends and a make-whole premium.
• Acquired a strategic stake in the London Stock Exchange.

Charges Associated with NASDAQ's Cost Reduction Program and INET Integration

Included in total expenses for the first quarter 2006 are pre-tax charges of $13.6 million relating to NASDAQ's continuing efforts to reduce operating expenses, improve the efficiency of its operations, and integrate the INET ECN. These charges include:

• Technology Review – NASDAQ recorded depreciation and amortization expenses of $11.9 million in the quarter associated with its technology review, in which it changed the estimated useful life of some assets as it migrates to lower cost operating platforms and processes.
• Workforce Reductions - NASDAQ recorded charges of $1.7 million in the quarter for severance and outplacement costs.

Follow-on Offering

To primarily pay down debt incurred to purchase the strategic stake in the London Stock Exchange, NASDAQ intends to proceed with a common stock offering. Information about the offering will be available in a prospectus supplement to be filed shortly with the SEC.

2006 Outlook

NASDAQ is raising guidance for the full-year 2006:

• Net income in the range of $63.0 million to $73.0 million for the year, including the impact of charges associated with NASDAQ's cost reduction program, INET integration, and loss on extinguishment of debt noted below.
• Gross margin in the range of $625.0 million to $640.0 million.
• Total expenses in the range of $478.0 million to $488.0 million.

Included in 2006 total expense projections are approximately $65.0 million to $75.0 million of pre-tax charges associated with NASDAQ's continuing efforts to improve efficiencies and reduce operating expenses and to integrate the INET ECN. These charges include:

• Approximately $36.0 million to $40.0 million in depreciation and amortization primarily related to NASDAQ's decision to migrate to less expensive technology operating platforms.
• Approximately $5.0 million to $10.0 million in non-cash charges related to NASDAQ's plans to exit certain real estate facilities.
• Approximately $6.0 million to $7.0 million in severance expenses associated with NASDAQ's plans for workforce reductions.
• Approximately $18.0 million loss on extinguishment of debt related to our credit facilities, $12.1 million of which is a non-cash charge.

NASDAQ's Chief Financial Officer, David Warren, commented: "NASDAQ's integration of INET is proceeding well, allowing us to move forward as planned with the execution of our core business strategy and our cost reduction plan. Our revised 2006 outlook calls for gross margin and net income growth of approximately 20% and 10%, respectively, from prior year and reflects our confidence in attaining our operating objectives. We are targeting 2006 expenses, excluding charges associated with our debt restructuring, to be in the range of $460.0 million to $470.0 million and remain on track to reduce expenses 20.0% to 25.0% in 2007. We remain focused on continued execution as we finalize exchange status and aggressively pursue our growth strategy."

Q1 Financial Review

Total Revenues and Gross Margin – First quarter results include NASDAQ's first full quarter of INET operations. First quarter results also include the impact of NASDAQ's Limitation of Liability Rule, which became effective on April 1, 2005, and required NASDAQ to record all execution revenues from transactions executed through The NASDAQ Market Center on a gross basis in revenues and to record liquidity rebate payments from transactions executed through The NASDAQ Market Center as a cost of revenues. This change was made on a prospective basis beginning April 1, 2005.

Gross margin increased 28.3% in the first quarter to $162.0 million, up from $126.3 million in the year-ago quarter, and increased 16.9% from $138.6 million in the fourth quarter of 2005.Download the document now 20.4 kb (Adobe Acrobat Document)