The operator introduces the Nasdaq Fourth Quarter 2023 Results Conference Call and informs participants that the call will be recorded. Ato Garrett, SVP of Investor Relations, introduces the speakers and reminds participants to refer to the website for important information. He also cautions that certain statements may be forward-looking and that actual results may differ. The operator then experiences technical difficulties and asks participants to continue holding until the call resumes.

The conference call will resume shortly and Adena Friedman, CEO of Nasdaq, discusses the company's strong performance in 2023 and positive outlook for 2024. Net revenues reached $1.1 billion in the fourth quarter, a 23% increase from the previous year. The solutions business saw 9% organic growth, while market services remained flat. For the full year, net revenues reached $3.9 billion, a 9% increase from 2022. Annualized recurring revenue and SaaS revenues also showed growth. However, the slower IPO environment and lower buying activity by corporates affected the growth of ARR in 2023.

In 2023, Nasdaq experienced a 12% growth rate and a 38% increase in total company ARR, excluding Adenza. This was achieved while maintaining a 52% operating margin. The completion of the Adenza acquisition marked a significant step in Nasdaq's evolution and demonstrated the company's ability to thrive in an unpredictable environment. The establishment of a divisional structure and several major milestones were achieved to deepen client relationships and advance the company's vision. The Capital Access Platforms division maintained its position as the premier US exchange for IPOs, welcoming 103 operating company IPOs and 18 companies switched their listings to Nasdaq. In the Index division, there were $31 billion in net inflows for the year.

Nasdaq has launched 83 new products linked to their indices in response to investor demand. They are also expanding their offerings in ESG and have introduced new solutions for corporate clients to improve governance and accelerate ESG strategies. In the FinTech division, their acquisition of Adenza has positioned them as a key risk management partner for the global financial system. Their Calypso and AxiomSL solutions help financial institutions manage risk in real time and navigate complex regulatory environments. Nasdaq is now able to provide comprehensive support to banks, brokers, and investment managers through their technology and regulatory reporting solutions.

The closure of Adenza has allowed Nasdaq to focus on engaging with clients and integrating new employees. There is excitement about the potential opportunities now that Adenza is part of Nasdaq, and the company had strong sales and upsells in the last year. Nasdaq also added new clients and expanded relationships with existing clients, including cross-sells. In 2023, Nasdaq added seven new clients and expanded relationships with four clients, with key technology signings in APAC and LATAM regions. Nasdaq is proud to forge new partnerships with nuam exchange, Chile's central securities depository, B3 in Brazil, and BMV in Mexico. These partnerships highlight the importance of Nasdaq's Financial Technology in powering resilient and liquid markets globally.

In 2023, our company made significant progress in our Anti-Financial Crime suite of solutions. We partnered with outside experts to conduct a Global Financial Crime Report and estimate that $3 trillion of illicit funds flow through the global financial system. We signed our first Tier 1 and Tier 2 banks for our fraud and AML solutions and partnered with numerous small and medium-sized financial institutions. Additionally, we developed our first proprietary Verafin GenAI Copilot and signed 27 new clients for our Surveillance solutions. Our innovations and partnerships allow our clients to invest in resilient growth and increase operational efficiency.

In the fourth quarter, Nasdaq Trade Surveillance saw a 50% adoption rate for their cloud-deployed solutions, and they continue to maintain a strong market share in cash equities markets. They have also made progress in modernizing markets and have plans to launch a new AI-powered order type in 2024. Their enterprise priorities for 2024 include integrating Adenza and leveraging their divisional structure to drive future growth opportunities.

In paragraph 8, the speaker discusses four key priorities for Nasdaq in 2024. These include institutionalizing client listening, organizing client data, leveraging AI, and updating investors on progress. The company had a successful year in 2023 and is well-positioned to serve clients and become a trusted financial system. The speaker then turns the call over to Sarah to review the financial details, with a focus on non-GAAP results and year-on-year growth on an organic basis.

In this paragraph, the speaker discusses the highlights of Adenza's financial performance for the full year 2023 and the fourth quarter. They mention solid revenue growth and strong cash flow generation, as well as an increase in non-GAAP expenses and operating margin. They also provide updates on ARR and SaaS revenue, and review the performance of different divisions within the company.

The Workflow and Insights division of the company saw a 3% increase in revenue, with strong growth in analytics and index revenue. The division's operating margin also increased due to higher revenues. The Financial Technology division also saw a revenue increase of 8%, driven by a 17% growth in regulatory technology, including the addition of 100 new clients.

The company is excited about the additions of larger and more complex institutions, but the contracting and implementation process is longer. They expect to start recognizing subscription revenue in 2024 and believe it will accelerate as they expand relationships with these clients. The strong performance of Verafin and growth in Surveillance led to a 17% growth in regulatory technology. They also saw growth in Capital Markets Technology due to data center connectivity demand and new market tech contract signings. The division's operating margin increased due to solid top line growth and expense control. The company is focused on improving efficiencies in Market Technology while supporting the growth of Verafin and Surveillance.

In the full year, the operating margin increased by 5 percentage points due to strong operating leverage and investments. Adenza, which was acquired in November, contributed $149 million in revenue, $458 million in ARR (with $98 million in SaaS), and had an adjusted EBITDA margin of 59%. Revenue for Adenza in 2023 was $583 million, with ARR of $458 million (excluding a bankruptcy). Around 50% of new ACV came from cloud. Going forward, Adenza's revenue growth is expected to be in the low to mid-teens. Market Services had net revenue of $247 million, with growth in US cash equities offset by decreases in US options.

In the US options market, the company is maintaining its strong market share and capturing attractive opportunities. In Europe, lower exchange volumes were offset by a one-time payment and the benefits of diversification. The company's investments in technology and data have helped clients improve execution quality and regain a 72% market share. Operating margin for the division was 57% in the fourth quarter, with higher compensation and technology costs due to investments. Non-GAAP operating expenses for the quarter were $504 million, reflecting good expense discipline and marketing and professional fees. For the full year, operating expenses were $1.83 billion, in line with guidance, with a 52% operating margin. The increase is due to investments, inflation, and higher revenue-related expenses. The company achieved efficiencies through optimizing location and realigning divisions. Including Adenza, operating expenses for the full year totaled $2.05 billion.

Nasdaq has announced its 2024 non-GAAP operating expense guidance, which reflects a 5% growth and includes the impact of Adenza and net synergies. The company expects to achieve $80 million in net synergies by the end of 2025 and has a target of 4.5% organic expense growth. The full year tax rate is expected to be slightly higher than 2023. Nasdaq's strong free cash flow continues to be a highlight, with $1.6 billion ex-Adenza and $306 million from Adenza. The company's gross leverage ratio was better than expected at 4.3 times at year-end. Nasdaq has used its free cash flow to repurchase $269 million of common stock and pay a quarterly dividend of $0.22 per share. Overall, Nasdaq has shown consistent growth, margin, and free cash flow in various environments.

Nasdaq is committed to disciplined execution and continued innovation, with a strong focus on their investment in resilience, technology, and data. This, combined with their reach and track record, positions them for sustainable growth and success for their clients. The company recently closed on the acquisition of Adenza and has been working to integrate the teams and create efficiencies. They have a clear synergy plan and will provide more details at Investor Day.

The speaker discusses the potential for revenue synergies and partnerships in the company's anti-fin crime and risk management sectors. They also mention the recent publication of a study on the size and scope of fraud and money laundering in the industry, and the company's strategy for targeting Tier 1 and Tier 2 clients in these areas.

Verafin is a unique solution that is able to detect criminal behavior by analyzing transaction data from 2,500 banks representing $6 trillion of assets. They have been successful in signing up Tier 1 and Tier 2 banks, with a focus on real-time payments and fraud detection. AML is a harder problem to solve, but they have signed on large Tier 2 banks and see potential for expansion with their current clients. They are also expanding into the UK, specifically in the area of payments fraud.

Adena Friedman, CEO of the company, discusses the changing laws that will allow for more data sharing and improve the effectiveness of their pooling efforts to provide solutions for their clients. She also mentions that Adenza, a division of the company, is expected to see mid-teens growth in ARR (annual recurring revenue) and that the company will provide more insight into the revenue dynamics of Adenza, Calypso, and Axiom at their upcoming Investor Day. She emphasizes that ARR growth is the key metric to evaluate the progress of these divisions, but revenue dynamics will also be explained.

The company recognizes half of its license fees upfront for on-prem deals and is seeing strong demand for both Axiom and Calypso. Renewal cycles and timing can impact revenue recognition, but the foundation remains strong. When looking at ARR growth, about half is attributed to upsells, while the other half comes from a combination of pricing increases and new bookings. The company adds value to its products throughout the year, leading to increases in both contractually stated annualized increases and renewal cycles.

The company's use of a new technology has led to an increase in revenue, and this trend is expected to continue. However, the company anticipates a challenging year for listings in 2024 due to the roll-off of initial fees from prior years. Despite this, the data and listings business is expected to achieve low to mid-single digit growth.

In response to a question about sales cycles, Adena Friedman, CEO of the company, discusses the early signs of normalization for their IR and asset owner solutions. She notes that the improved environment in the fourth quarter has led to more conversations and signings with corporate clients, but it will take time for this to translate into revenue growth. She also mentions that the overall analytics growth was strong in the fourth quarter, driven by demand for their data from the buy side.

The asset owner solutions software saw an uptick in demand and signings in the fourth quarter, but overall it was a difficult year. This may create a headwind in 2024, but there is hope for a pick-up throughout the year. The Adenza cloud adoption is currently at 14% of revenue and 21% of ARR, with a lot of potential for growth as clients renew and sign on for new modules. The flexibility of the platform allows for easy integration of cloud capabilities in renewals and new signings, with different timelines for each client. More information will be provided at the upcoming Investor Day.

The speaker discusses the progress of banks transitioning to cloud and the potential impact on their business. They mention that while some banks are moving quickly, others are moving slowly. They expect this to be a multi-year transition and anticipate an opportunity for revenue growth and margin improvement. They also mention that they do not disclose specific contract values, but typically see a "land and expand" approach with clients, starting with a smaller contract and then expanding over time.

The speaker discusses the retention ratios for Adenza and notes that there was some decline in the latter part of the year, mainly due to a bankruptcy and some challenges in specific areas. However, there were no systemic concerns or trends and the decline was more of a result of various events that occurred during the year.

Sarah and Adena discuss the company's recent retention rates and overall solid long-term trends. They also touch on their balanced approach to capital allocation, including dividends, share repurchases, and deleveraging. The pause on buybacks will continue in the first quarter, but the overall strategy remains unchanged. They plan to address this topic further at Investor Day and mention that their current leverage is ahead of their initial expectations.

The company's strength lies in its ability to pay down its term loan and focus on a balanced approach to deleveraging. The expense outlook for this year includes a 5% pro forma growth, driven by efficiency, investments in products and automation, and synergy achievement from the Adenza deal. The midpoint reflects all of these factors, but higher growth could lead to increased expenses. The company provides a range for its long-term outlook on solutions business growth, revenue growth, and expense growth to calibrate expectations.

Nasdaq has found success in balancing expense discipline, Adenza synergies, and targeted investments in their business. They have partnered with BlackRock and Valkyrie to offer Bitcoin ETFs, making it more accessible for retail investors. Nasdaq also continues to provide technology to cryptocurrency exchanges and is future-proofing their systems to support digital assets.

Adena Friedman, the CEO of Nasdaq, explains that the company has built a crypto custody solution and is ready to offer it to exchanges and providers globally. However, they have chosen not to launch a custody solution themselves, as it is a capital-intensive business. Instead, they will focus on being a market operator for ETFs and other instruments, as well as a technology provider to the industry. The company has made significant investments in their technology stack, particularly with AxiomSL and Calypso, and they feel confident in their current capabilities. However, there may be ongoing investments needed in the future, but they are flexible and modular. In terms of overall capital expenditures, the company expects to continue investing in their technology, but did not provide specific guidance for 2024.

The company is pleased with the technology foundation of the acquired business, which allows for quick iteration and module additions. They plan to focus on optimizing the cloud implementation and investing in R&D, but there is no significant capital investment required. The company will continue to invest in the business and provide more details at Investor Day.

During a Q&A session, the speaker thanks the person for their questions and clarifies that Verafin's growth in the quarter was 25%, while the legacy regulatory tech segment saw 17% growth. They mention a 6% impact on surveillance due to timing of bookings in the previous year. The speaker also discusses their expectations for future growth and operating leverage, taking into account the integration of AxiomSL with reg tech.

The speaker asks if they are still managing operating leverage against reported revenue or if they would look at ARR as a better guide. The other speaker responds that they will continue to focus on operating margin and leverage on a GAAP basis, but will also provide details on an ARR basis. The operator then announces that the Q&A session is over and the CEO gives closing remarks, reminding everyone about the upcoming Investor Day on March 5th.

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