The operator introduces the Nasdaq Third Quarter 2023 Results Conference Call and reminds participants that it is being recorded. Ato Garrett, Senior Vice President and Investor Relations Officer, introduces the speakers and mentions that the press release and earnings presentation are available on the website. He also reminds listeners that certain statements may constitute forward-looking statements. Adena Friedman, Chair and CEO of Nasdaq, thanks everyone for joining the call and mentions that actual results may differ from projections. She then briefly addresses the situation in the Middle East.

The author expresses horror and sadness over recent acts of terrorist violence in Israel and provides updates on Nasdaq's performance and strategic objectives. The company saw overall net revenue growth of 6% and 8% organic revenue growth in its Solutions Businesses. The Capital Access Platforms division, particularly the Index business, performed well. The Anti-Financial Crime division also had strong results, with growth in the Surveillance business and new customer growth for Verafin. Despite cross currents in the market, there was modestly improving momentum in the Listings business.

Nasdaq had a successful quarter with 35 companies choosing to list on their exchange. The company remains optimistic about the upcoming year and is focused on capitalizing on three key megatrends: market modernization, environmental sustainability, and integrity solutions. They are leveraging technology, such as cloud and artificial intelligence, to drive innovation and enhance liquidity in the market. The SEC approved Nasdaq's first exchange AI-powered order type, called Dynamic M-ELO, which aims to increase trade sizes at the midpoint.

Nasdaq has developed a new order type, Dynamic M-ELO, that utilizes AI to adjust holding periods for improved trading execution. They also launched Nasdaq Metrio, a SaaS solution for sustainability reporting and Nasdaq eVestment ESG Analytics, which helps asset managers showcase their portfolio's sustainability strategies to investors. These initiatives demonstrate Nasdaq's role as a bridge between corporates and investors in the rapidly evolving field of sustainability reporting.

In the third quarter of 2023, Nasdaq reported a 6% increase in net revenues, driven by a 9% increase in revenues from their Solutions businesses. They also saw a 6% increase in total ARR and a 11% increase in SaaS revenues. In their Capital Access Platforms division, they achieved $456 million in total revenue, with a 15% growth in Index revenues and a 5% growth in Workflow and Insights revenues. This growth was attributed to strong market performance, net inflows, and demand for ESG and analytics solutions.

In the third quarter of 2023, Nasdaq saw a 5% growth in Data and Listing Services revenues. While Listings revenues remained unchanged due to a lack of IPO activity, the Data business saw strong growth from international clients. Nasdaq also maintained a high success rate in winning new operating company listings, including several notable IPOs. The launch of the new IPO and Broadcast Center at the Nasdaq MarketSite in Times Square further solidified Nasdaq as a top venue for listings. The company has a strong pipeline of potential new listings and remains well-positioned for future growth.

Nasdaq reported a 1% increase in total revenues in the third quarter, with a decline in Trading revenues offset by growth in Marketplace Technology revenues. The company also provided an update on the progress of the Adenza transaction, which is expected to close in the fourth quarter of 2023. Adenza continues to perform well, with strong growth in annual recurring revenue and new client additions. The company is also seeing a shift towards cloud-based delivery solutions.

The company has been actively working on integrating Adenza since the transaction was announced in June. They have a clear plan for successful integration and have seen growth in their Anti-Financial Crime division, specifically in their Fraud and Anti-Money Laundering solutions. They have also expanded their relationship with a Tier 2 bank client and are actively engaged in negotiations with other large banks. The Surveillance business has also seen growth with new customer acquisitions. Brendan Brothers has been named Executive Vice President of the Anti-Financial Crime division.

In the third quarter of 2023, Nasdaq's reported net revenue increased by 6%, primarily due to a 5% organic growth in the Solutions Businesses and a slight decrease in Trading Services revenue. Non-GAAP operating income increased by 4%, but the non-GAAP operating margin decreased by 90 basis points. Non-GAAP net income attributable to Nasdaq also increased to $349 million. ARR and SaaS revenue saw a 6% and 11% increase respectively, with strong bookings in the Anti-Financial Crime division contributing to this growth.

Despite longer sales cycles in certain areas, the company is still performing well and is focused on bringing liquidity, transparency, and integrity to financial markets. In the Market Platforms division, revenues increased by 1% due to changes in FX rates. Trading Services organic revenue was down 2%, but Marketplace Technology saw 3% organic revenue growth. The company expects full year revenue growth for Marketplace Technology to be at the upper end of their outlook. ARR also increased by 2%. However, the operating margin for Market Platforms decreased by 370 basis points due to lower revenue and higher compensation costs.

In the third quarter, Nasdaq saw revenue growth in various segments, including Marketplace Technology and Capital Access Platforms. The company also experienced organic growth in Index, Data, and Listing Services, driven by factors such as market performance and high-profile listings. However, there were some challenges, such as elongated sales cycles and a decline in AUM due to market trends. Overall, ARR for Capital Access Platforms increased compared to the previous year.

The Capital Access Platforms division saw slower growth due to slower listings and elongated sales cycles, but the operating margin increased slightly. The Anti-Financial Crime division saw strong growth in revenue and ARR, with new customer wins and expansion into new segments. Expenses increased due to higher compensation and benefits, technology spend, and G&A expenses.

In the third quarter, Nasdaq narrowed its 2023 non-GAAP operating expense guidance and adjusted its full year non-GAAP tax rate guidance range. The company's adjusted total debt to trailing 12 months non-GAAP EBITDA ratio improved and it paid out $108 million in common stock dividends. Nasdaq's balance sheet remains strong and it is well-positioned for future growth and capital allocation. CFO Ann Dennison will be stepping down from her role at the end of the year.

Ann has been a valuable member of Nasdaq, providing guidance on financial performance and leading efforts in Investor Relations and ESG reporting. As she prepares to depart from Nasdaq, Sarah Youngwood will join as the new EVP and CFO, bringing her experience from UBS Group. The company thanks Ann for her contributions and welcomes Sarah on December 1. The operator then opens the floor for questions, with the first one coming from Michael Cho from JPMorgan. He asks about the year-to-date revenue growth for Axiom and Calypso, as well as the revenue opportunity for clients transitioning to the cloud solution for Adenza. Adena does not provide specific revenue breakdowns but mentions 17 new clients and three cross-sells for the year.

In the past year, Calypso and Axiom have both seen an increase in new clients and cross-sells. The upsells were evenly split between the two solutions, and this can be attributed to the growing demand for advanced risk management and regulatory reporting solutions. The increase in new sales can also be attributed to the regulatory obligations and Basel III end game driving demand. Additionally, more banks and brokers are adopting these solutions, and there has been a significant increase in cloud delivery solutions, with 55% of new bookings being for cloud delivery compared to 27% in the previous year. This is due to banks being more accepting of cloud solutions and some purposely moving away from data centers.

The speaker discusses the benefits of cloud-based delivery solutions and the revenue uplift it brings. They also mention the stability it creates in revenue recognition. When asked about Verafin, they state that every bank is facing challenges with fraud and AML, making the solution a good investment. Additionally, the cloud-based nature of the solution and the onboarding process make it an attractive option for clients.

Adena discusses the success of Verafin in onboarding small to medium banks quickly and integrating solutions with large scale banks. The company has seen good opportunities for expansion, particularly in the AML sector due to increasing regulatory pressure and the desire for banks to prevent money laundering. Verafin's advanced systems and use of AI have made them a preferred partner for many banks.

The speaker discusses the company's capital allocation priorities after the deal closure, including investing in organic growth, deleveraging, increasing dividends, and offsetting dilution. They also mention the strong cash flow and the potential for high growth in Adenza ARR.

Adena Friedman, CEO of Nasdaq, was asked about the progress of the Adenza business since the deal announcement in June and if there were any updates on the medium-term revenue growth target. She stated that they remain confident in achieving the low to mid-teens revenue growth target, as there is strong demand for their solutions and the ability to upsell clients. She also mentioned that there is a need for their solutions in the increasingly complex regulatory environment and that they are driving demand for their solutions. The next question was about the competitive environment for Verafin, and Friedman stated that there are big tech companies, like Google, that have introduced AML solutions.

Adena Friedman explains the difference between her company's solution and Google's AI capabilities. While Google partners with specific banks for a bespoke build, Friedman's company offers an end-to-end solution that leverages AWS and is scaled across 2,500 banks. This allows them to benefit from the knowledge and experience of multiple banks and constantly improve their AI engines through weekly releases.

The company stays in touch with banks to understand their needs and bring in new clients. They believe their solution is different from what Google offers to one bank. They are winning market share and replacing competitors. They have a real-time payment solution and are working with banks to integrate it into their systems.

The speaker, Adena Friedman, is responding to a question from Craig Siegenthaler from Bank of America about the recent increase in IPO activity at Nasdaq. She acknowledges that the recent macro environment, including rising interest rates and geopolitical instability, has impacted the near-term pipeline. However, she notes that the team has a strong pipeline of companies and is proud of their performance.

In this paragraph, Adena Friedman, CEO of Nasdaq, discusses the company's efforts to work with clients and their focus on the first half of next year rather than the fourth quarter of this year. She also mentions the impact of initial listings on their revenue and the expected roll-off of some of that revenue in 2024. Approximately 10% of their overall listing revenue comes from initial listings, which is around $300 million year-to-date. The company provides data on new listings and de-listings every quarter to help understand the billing cycle for annual fees.

During a recent earnings call, Adena Friedman, CEO of Nasdaq, was asked about the company's organic growth in the Solution Businesses and its outlook for the next few quarters. Friedman stated that the organic growth has accelerated and is in line with their medium to long-term outlook, with strength in the Index and anti-fin crime businesses. She also mentioned that if the IPO market remains stable and there is a healthy trading environment, it could drive more interest and easier sales decisions in their solutions, potentially leading to increased revenue in 2025. However, Nasdaq does not provide specific guidance for individual quarters or years.

The speaker discusses the demand drivers for Market Tech and Anti-Fin Crime businesses, stating that they are stable and structural. They also mention the sales cycle for Adenza, noting that there are more gates to walk through for larger institutions, but there is a potential for increased growth with regulatory demand.

The speaker discusses the sales cycle for Axiom and how it can vary depending on regulatory demands. They mention that they have had some shorter sales cycles when there is a regulatory demand, but longer ones when there isn't. They also mention that they have experienced longer sales cycles in 2022 compared to 2023. The speaker believes that a healthy macro environment would be beneficial for Adenza in the long term. They then move on to discuss Verafin and mention that they generally see 40% of bookings occurring in the fourth quarter for their Anti-Financial Crime business. However, upselling to larger banks is not necessarily seasonal and they have less experience in this area.

Adena discusses the fourth quarter sales quarter for small and medium banks, which is a big opportunity for Adenza. The anti-fin crime business is experiencing a growth rate of 18% to 23%. Adena also updates on the status of SEC market structure proposals, expecting implementation in 2024, with the tick sizes and 605 proposals feeling more certain. The best decks and order competition rule proposals have caused more debate within the industry. Adena also mentions preparations for integrating Adenza into the business.

Adena Friedman discusses the integration plan for Adenza and how the company is focused on building a robust plan. They have been engaged with Adenza for several months and will continue to work closely with them once the acquisition is finalized. They see potential benefits in integrating Adenza's technology stack into their existing cloud infrastructure, but have not yet done detailed work on this due to not yet owning Adenza. They believe their relationship with AWS and their expertise in creating efficient cloud infrastructure will be helpful in the integration process.

Adena Friedman, CEO of Nasdaq, discusses the company's plans for the next five years, including the delivery of services, the use of single-tenant and multi-tenant capabilities, and creating an overarching environment for clients. She also addresses the rise in revenue capture for the cash equities business, which is a deliberate strategy to balance share and capture of available liquidity. In times of low volatility, more trading occurs off-exchange, so Nasdaq focuses on bringing in available liquidity and maintaining a stable share of 30%.

The speaker discusses the company's strategy for attracting volumes to their solution, which includes specialized order types and intentional avoidance of chasing fleeting share. The company is focused on becoming the trusted fabric of the world's financial system and will continue to update stakeholders on their progress.

This summary was generated with AI and may contain some inaccuracies.