The operator introduces the Nasdaq Second Quarter 2024 Results Conference Call and hands the call over to Ato Garrett, Senior Vice President of Investor Relations. Adena Friedman, Chair and CEO of Nasdaq, and other members of the management team are present. Forward-looking statements and risks are discussed, and financial results are presented on a pro forma basis. Adena thanks everyone for joining the call.

The speaker will discuss the current economic environment, including solid but slowing GDP growth, and potential for easing monetary policy. They also mention modest improvements in the IPO landscape and a strong IPO pipeline for the first half of 2025. Europe is also seeing economic improvements, but it has not yet translated into an increase in new public issuances. Despite the dynamic market environment, there is sustained robust trading activity and strong demand for technology solutions from financial institutions.

The company's markets are experiencing strong volumes and consistent client demand for their FinTech solutions. The company's financial results demonstrate the resilience of their diversified business model and ability to succeed through economic cycles. The company delivered a strong quarter with $1.2 billion in net revenues, a 10% increase from the previous year. The company's expenses increased within their guidance and their operating income grew by 14%. The company's operating margin also increased to 53%. In the capital access platforms division, ARR growth remained at 1%, but index revenue grew 29%, resulting in overall revenue growth of 10%. The company welcomed 31 operating company IPOs and maintained a strong win rate of 72% for Nasdaq eligible listings. The company is encouraged by signs of improvement in the IPO market, as shown by their IPO Pulse Index near a three-year high.

Despite challenges in data and listings growth, the company experienced modest growth in market data and an improved IPO environment. The analytics business saw growth due to demand for actionable intelligence, but corporate solutions saw headwinds. The index business had a strong quarter with net inflows and record AUM. In the Financial Technology division, ARR grew by 13%, with strong cloud adoption. The Financial Crime Management Technology subdivision had a successful quarter, signing over 50 new clients and making progress with Tier 1 and Tier 2 banks. There is a sustained demand for Regulatory Technology as financial institutions face changing regulations globally.

The company is seeing strong demand for their services in the regulatory and capital markets technology sectors. They have also experienced growth in their Market Services division, particularly in the US index options market. The company is focused on retaining their leading position in all of their markets and is working towards their strategic priorities of integration, innovation, and acceleration.

Nasdaq has successfully integrated AxiomSL and Calypso into their Financial Technology division, with strong leadership and a One Nasdaq approach. They have also focused on cultural integration and employee engagement. They are making progress on their innovate priority, with 50% of employees using AI tools and plans to have all developers using them by the end of Q3. They have also introduced new AI capabilities in their client-facing solutions, including a feature for the Market Lens module that provides asset managers with insights on pension fund strategies.

NASDAQ has a strong pipeline of AI features set to launch in the future, with early positive feedback and increased client adoption for current capabilities. They are also focusing on innovation and expanding their index business globally. The recent acquisitions of AxiomSL and Calypso have led to successful cross-selling efforts, with 11 FinTech cross-sells executed since the transaction closed.

In the second quarter, the company had four cross-sells, two of which were for their AxiomSL solution and two for Calypso clients. This is a strong start towards their goal of exceeding $100 million in cross-sells by the end of 2027. 10% of their pipeline opportunities are now cross-sells, and they expect this to continue growing. The company is confident in their ability to drive cross-sell bookings in the coming years through strategic campaigns. They are pleased with their strong results and are delivering on the Adenza acquisition thesis, positioning themselves as a strategic partner for clients. The company also made progress in integrating Adenza and paying down debt, achieving over 70% of net expense synergies ahead of schedule and ending the quarter with a 3.9 leverage. Net revenue for the quarter was $1.2 billion, up 10%, with solutions revenue up 13%. Operating expense was within guidance at $539 million, resulting in a net income of $397 million and diluted EPS of $0.69.

In the first quarter, we saw a 8% growth in revenue from outside sources, driven by new and existing clients and product innovation. Beta factors contributed 2% to this growth, with higher valuations and market volumes. Our ARR grew by 7%, with SaaS revenue increasing by 17%. In our Capital Assets Platforms division, we saw a 10% growth in revenue, with our Index business performing exceptionally well with a 29% increase. Data and Listings revenue was up 1%, while ARR was down 1% due to one-time revenue benefits and lower amortization of listing fees. We expect this trend to continue for the next four quarters. Workflow and Insights revenue was up 4%, driven by growth in analytics products.

The operating margin increased by one percentage point to 56%. The company expects revenue growth for capital access platforms to exceed their medium-term outlook range, with some divisions performing better than others. In the Financial Technology division, there was a 16% increase in revenue and a 13% increase in ARR, with double-digit growth across all subdivisions. The difference between revenue and ARR growth is due to the timing of renewals and professional services fees. Trade Management Services and Market Tech saw a 2% increase in revenue, but strong subscription and ARR growth. Calypso had a 34% increase in revenue and a 13% increase in ARR, exceeding expectations due to strong sales activity.

In the second quarter of 2024, Nasdaq expects solid growth in its Capital Markets Technology division, with more normalized growth in the second half of the year. Regulatory Technology had strong revenue and ARR growth, driven by AxiomSL. The FinTech operating margin increased, and a potential accounting change for AxiomSL would not have a material impact on Nasdaq's overall performance. 2Q was a strong quarter for FinTech, with revenue growth at the top of its medium-term outlook range and AxiomSL and Calypso combined revenue growth above 20%.

In the second quarter, the combined ARR growth and net revenue retention remained unchanged at 14% and 111% respectively. Subscription revenue growth at AxiomSL is expected to remain consistent in line with the medium-term outlook. However, a decline in professional services fees led to lower total revenue growth for the quarter. Market Services saw a 3% increase in net revenue, driven by higher volumes in cash equities and US options. However, operating margin declined by one percentage point due to investments in market monetization and regulatory obligations. Non-GAAP operating expense for the quarter was $539 million, in line with guidance and reflecting the impact of annual merit adjustments and equity grants.

In the second quarter, Nasdaq saw positive operating leverage with an increase in operating and EBITDA margin by over one percentage point. This was due to the benefit of synergies and the funding of additional revenue-related expenses. The company has already achieved over 70% of its targeted net expense synergies, six months ahead of schedule. This has resulted in a one percentage point reduction in expense growth. The full impact of synergies is expected to moderate expense growth by 1.5 percentage points in 2024. For the full year, non-GAAP operating expenses are expected to be between $2.145 billion and $2.185 billion, with a tax rate of 24.5% to 26.5%. Nasdaq has also prioritized debt reduction and has paid down $174 million in commercial paper, resulting in a gross leverage ratio of 3.9 times.

The company has achieved strong financial results, including an increase in quarterly dividend and share repurchases. They remain focused on deleveraging and offsetting employee dilution. The strong growth in the Financial Crime Management segment was partly due to price increases, but the company does not provide specific details on pricing across its various businesses. Approximately half of the revenue increase comes from upgrades and upsells, while the other half comes from new sales and price changes within contracts.

The company has contracts with CPI increases and upsells clients upon contract renewal. They base the price increase on increased value to the clients or their own growth. 10% of the pipeline is made up of cross-sell opportunities, with four cross-sells in the quarter. Two of these were selling AxiomSL to Calypso clients, aided by a data API connector between the two products. The company also has a cross-sell campaign focused on their exchange clients.

Adena Friedman discusses the growth and momentum of Adenza, highlighting key performance indicators such as upsells, new client signings, and cross-selling. The best way to measure this growth is through annualized contract value, which is factored into ARR (annual recurring revenue). Overall, FinTech has seen a 13% increase in ARR.

The company has provided ARR growth figures for each of its subdivisions, which helps predict future subscription revenue. They also discuss the dynamics of professional services revenue, which grows more slowly than subscription revenue. The company is seeing growth in the international market for Verafin, particularly in the Tier 1 and Tier 2 banks, but the revenue contribution from these markets is still small due to implementation times. Most new sales in this market have focused on payments fraud.

The company has a new solution for check fraud that is in high demand, especially among international banks. The solution has been proven to reduce false positives and increase fraud detection. The company recently signed a contract with a Tier 1 bank and is prioritizing paying off their additional commercial paper before considering further share repurchases. They remain focused on their capital priorities outlined at Investor Day.

During the earnings call, the executives discussed the company's plans for organic growth and deleveraging, as well as their strategy for share repurchases. They mentioned a $3 million headwind in the Listings business starting in the third quarter, and clarified that this was a year-over-year impact. They also provided updates on Verafin, mentioning that there have been successful proof-of-concepts with Tier 1 and Tier 2 clients, and that there is a strong pipeline for additional proof-of-concepts.

Adena Friedman, CEO of Nasdaq, discusses the pace of new client additions for their Tier 1 and Tier 2 clients. Currently, there is a healthy number of clients evaluating their solution through proof-of-concepts, but over time, they hope to have a more regular pace of client signings without the need for proof-of-concepts. This has been the experience of Verafin, a company that Nasdaq recently acquired, as they entered new segments of the banking industry. However, Friedman cannot give a specific timeline for when this will happen.

The speaker discusses the company's focus on long-term growth and gaining more momentum in the coming years. They also mention positive revenue trends in their Capital Markets Tech division, with several new clients and upsells. However, they caution that growth may be more normalized in the second half of the year compared to the strong first half. They also clarify that their comments are specific to the Capital Markets subdivision, not the entire company. The speaker then responds to a question about the IPO environment, stating that it is currently favorable and they are seeing strong demand for IPOs.

Adena Friedman discusses the current state of the IPO market and predicts a modest improvement for the rest of the year, with more companies potentially going public in the first half of 2025. She also mentions the strong performance of index options and the potential for increased revenues due to price increases.

Adena Friedman, CEO of Nasdaq, is excited about the development of the index options business and the benefits it offers for hedging exposure. They have seen strong growth in both futures and options volumes for the NASDAQ 100 index. The fees for the options are considered premium due to the strong demand and the company has invested in education and data capabilities to help clients understand how to use the options effectively. Nasdaq is also considering adding more indexes to their options franchise and sees a positive impact on their overall index business.

The speaker responds to a question about a potential sale of the company's Solovis business. They state that they do a thorough review of their capital allocation and evaluate each business strategically and financially to ensure they are the right owner. They have previously divested of businesses where they were not seen as a strategic owner by their clients.

The speaker discusses the strategic importance of their Nordic business to Nasdaq and how it contributes to their broader technology business. They also mention their desire to expand the NASDAQ 100 Index with zero DT options and potentially launch other indexes to capitalize on the rising retail engagement and interest in technology. They make decisions based on long-term strategic fit to Nasdaq.

Adena Friedman discusses the company's approach to creating index products that appeal to both retail and institutional investors. She mentions a range of index products they offer, such as thematic indexes and different investment strategies. The company will consider building a trading ecosystem around these products if there is enough interest. Friedman also addresses an early renewal in their Capital Markets segment and explains that early renewals are not uncommon. She does not provide specific details on the size of the renewal or its impact on ARR.

In the paragraph, the speaker discusses the early renewal and extension of a contract with a strategic client, which the company is proud of. They also mention that ARR is a better reflection of the overall health and growth of the business over time, rather than just looking at it in a single quarter. The speaker also mentions that the strong revenue in the quarter was due to a combination of factors, such as new clients and upsells. The topic of IR solutions and delistings is also briefly mentioned.

The speaker explains that they are still seeing conversions of clients to paying clients at the end of the free period, but there are other headwinds affecting their upsells. These include new clients gained through IPOs and upselling during the IPO process, but there are also delistings and budget constraints that are impacting their overall conversion rates.

The speaker discusses a specialized order type called Dynamic M-ELO that has resulted in a 20% increase in volumes and improved fill rate. This is a premium product that provides revenue opportunities rather than market share opportunities. It took several years for the company to fine-tune the product with their AI and data science teams, making it difficult for competitors to replicate. The company is constantly fine-tuning the data points and weightings to ensure the best outcomes.

The speaker discusses the difficulty in replicating their technology formula and the robustness of their business in different macro environments. They highlight their mission to provide critical technology for managing risk and regulatory obligations, which they believe to be durable demand drivers. They also mention the growth potential from changes in regulations.

Nasdaq is experiencing growth due to their expansion into new countries and the high demand for their unique solution for anti-financial crime. They believe their focus on providing solutions for the most complex challenges faced by banks will lead to sustainable growth. Nasdaq's three key priorities of integrate, innovate, and accelerate are driving their evolution as a trusted technology provider to the financial services industry. They look forward to updating investors on their strategic progress in the future.

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