Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the third quarter of 2018.
Third quarter 2018 net revenues were $600 million, down $3 million from $603 million in the prior year period. The third quarter decrease in net revenues included a positive $28 million, or 5%, impact from organic growth, and a positive $22 million impact from the inclusion of revenues from the acquisition of eVestment, offset by a $46 million negative impact from the divestiture of the Public Relations Solutions and Digital Media Services businesses and a $7 million unfavorable impact from changes in foreign exchange rates.
“Third quarter revenue exhibited solid organic revenue growth across our franchise, in-line with our longer-term outlook. The continued strong growth in market technology, index and analytics, which are areas where we’ve shifted more of our resources, enhances our confidence in our new strategic direction,” said Adena Friedman, President and CEO, Nasdaq. “As we look forward, we remain focused in the near-term on the early implementation of our strategic re-alignment to maximize opportunities as a technology and analytics provider, while ensuring we continue to achieve the highest possible effectiveness in our foundational marketplace businesses.”
GAAP operating expenses were $354 million in the third quarter of 2018, an increase of $13 million from $341 million in the third quarter of 2017. The increase primarily reflects higher general, administrative and other expense and depreciation and amortization expense, partially offset by lower professional fees and compensation and benefits expense. Included in general, administrative and other expense during the period is an $8 million loss related to the default of a Nasdaq Clearing member.
Non-GAAP operating expenses were $311 million in the third quarter of 2018, a decrease of $4 million, or 1%, compared to the third quarter of 2017. This reflects a $19 million increase from the acquisition of eVestment and a $15 million organic expense increase, more than offset by a $32 million decrease due to the divestiture of the Public Relations Solutions and Digital Media Services businesses and a $6 million favorable impact from changes in foreign exchange rates.
“We continued to execute our capital plan to support our strategy, re-allocating resources to significant growth opportunities. During the third quarter of 2018, we completed the remaining share repurchases funded by the divestiture of the Public Relations Solutions and Digital Media Services businesses, and in October, announced an agreement to sell our 5% equity stake in LCH Group Holdings Limited,” said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq. “We also commenced a tender offer to the shareholders and warrant holders of Cinnober, a capital markets technology supplier, in a proposed transaction expected to achieve both our stated investment return goals and advance our strategic direction as a technology and analytics provider.”
On a GAAP basis, net income for the third quarter of 2018 was $163 million, or $0.97 per diluted share, compared to $170 million, or $1.00 per diluted share, in the third quarter of 2017.
On a non-GAAP basis, net income for the third quarter of 2018 was $193 million, or $1.15 per diluted share, compared to $172 million, or $1.01 per diluted share, in the third quarter of 2017, representing a 14% increase in non-GAAP diluted earnings per share year over year.
At September30, 2018, the company had cash and cash equivalents of $324 million and total debt of $3,880 million, resulting in net debt of $3,556 million. This compares to total debt of $4,207 million and net debt of $3,830 million at December 31, 2017.
Share repurchases totaled $54 million during the third quarter of 2018, and we have completed the return of the net proceeds of our divestiture. As of September30, 2018, there was $332 million remaining under the board authorized share repurchase program.
UPDATING 2018 NON-GAAP EXPENSE GUIDANCE3
The company is updating its 2018 non-GAAP operating expense guidance to $1,310 to $1,325 million versus prior expense guidance of $1,310 to $1,335 million.
BUSINESS HIGHLIGHTS
Market Services (37% of total net revenues) – Net revenues were $222 million in the third quarter of 2018, up $3 million, or 1%, when compared to the third quarter of 2017.
Equity Derivatives Trading and Clearing (11% of total net revenues) – Net equity derivative trading and clearing revenues were $68 million in the third quarter of 2018, up $6 million compared to the third quarter of 2017. The increase primarily reflects higher U.S. industry trading volumes and net capture rate, partially offset by lower U.S. market share.
Cash Equity Trading (11% of total net revenues) – Net cash equity trading revenues were $63 million in the third quarter of 2018, up $1 million from the third quarter of 2017. This increase primarily reflects higher U.S. industry trading volumes and higher U.S. market share, partially offset by a lower net capture rate.
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 third quarter of 2018, down $1 million from the third quarter of 2017, primarily due to a decline in revenues related to U.S. fixed income products and the unfavorable impact from changes in foreign exchange rates, partially offset by higher net revenues at NFX.
Trade Management Services (12% of total net revenues) – Trade management services revenues were
$72 million in the third quarter of 2018, down $3 million compared to the third quarter of 2017, primarily due to a decline in port connectivity and an unfavorable impact from changes in foreign exchange rates of $1 million.
Corporate Services (22% of total net revenues) – Revenues were $131 million in the third quarter of 2018, up $5 million, or 4%, compared to the third quarter of 2017.
Listing Services (12% of total net revenues) – Listing services revenues were $72 million in the third quarter of 2018, up $5 million from the third quarter of 2017. The change reflects a $6 million organic increase, resulting from client adoption of our all-inclusive annual listing fee program and an increase in the number and size of IPOs, partially offset by the run-off of revenue recognition from previously deferred listing of additional shares fees, as well as a negative impact from changes in foreign exchange rates.
Corporate Solutions (10% of total net revenues) – Corporate solutions revenues were $59 million in the third quarter of 2018, unchanged from the third quarter of 2017.
Information Services (30% of total net revenues) – Revenues were $179 million in the third quarter of 2018, up $29 million, or 19%, from the third quarter of 2017.
Market Data (16% of total net revenues) – Market data revenues were $95 million in the third quarter of 2018, down $2 million compared to the third quarter of 2017, primarily due to lower collections related to under reported usage.
Index (9% of total net revenues) – Index revenues were $52 million in the third quarter of 2018, up $9 million from the third quarter of 2017, primarily driven by organic growth from higher assets under management (AUM) in exchange traded products (ETPs) linked to Nasdaq indexes.
Investment Data and Analytics (5% of total net revenues) – Investment data and analytics revenues were $32 million in the third quarter of 2018, up $22 million from the third quarter of 2017 primarily due to a $22 million impact from the acquisition of eVestment, net of a $4 million purchase price adjustment on deferred revenue during the period.
Market Technology (11% of total net revenues) – Revenues were $68 million in the third quarter of 2018, up $6 million, or 10%, from the third quarter of 2017, driven by organic growth in delivery and support revenues and higher software as a service revenues, partially offset by lower change requests and advisory revenues and an unfavorable impact from changes in foreign exchange rates of $2 million.
CORPORATE HIGHLIGHTS
- The Nasdaq Stock Market led U.S. exchanges for IPOs in the third quarter of 2018 with a 76% win rate, while strong year over year Nordic listings growth continued. In the U.S. market, The Nasdaq Stock Market welcomed 85 new listings in the third quarter of 2018, including 52 IPOs. The U.S. IPO win rate totaled 76% during the third quarter of 2018 and 71% during the first nine months of 2018. Highlights from the third quarter included the Pinduoduo, Sonos, SurveyMonkey and Focus Financial Partners IPOs as well as listing switches to The Nasdaq Stock Market by United Continental Holdings and Intrexon Corporation. Nasdaq’s Nordic, Baltic and First North exchanges added 6 new listings including 3 IPOs, bringing total Nordic-listed companies at September 30, 2018 to 1,010, an increase of 6% from September 30, 2017.
- Market Technology order intake totaled $149 million during the first nine months of 2018. New deals signed in the third quarter include providing Hong Kong Exchanges and Clearing Limited (HKEX) with a real-time risk solution across all of HKEX’s cash and derivatives markets via the Nasdaq Financial Framework, and a new SMARTS agreement with the London Metals Exchange for market surveillance. Nasdaq also experienced continued strong growth in its SMARTS surveillance business with new customers in various customer classes including regulators, exchanges, and broker-dealers and is continuing to expand its buy side surveillance business.
- Nasdaq announces offer to acquire Cinnober. Nasdaq announced it has made an approximately $190 million equivalent all cash public offer to the shareholders and warrant holders of Cinnober, a Swedish financial technology provider to brokers, exchanges and clearinghouses worldwide. The proposed acquisition would strengthen Nasdaq’s position as one of the world’s leading market infrastructure technology providers and is expected to deliver attractive shareholder returns. Nasdaq expects the transaction to meet the company’s 10% three to five year return on invested capital objective and be accretive to non-GAAP EPS within 12-months of closing. Nasdaq plans to fund the acquisition with either cash on hand or liquidity available under existing credit facilities. The acceptance period of the public tender offer is expected to close during the fourth quarter of 2018, subject to certain conditions customary in Swedish public tender offers.
- Nasdaq saw record ETP AUM tracking Nasdaq indexes, up 34% year over year, and announced the extension of the exclusive Nasdaq-100 Futures license through 2029. Overall AUM in ETPs benchmarked to Nasdaq’s proprietary index families increased to a record $206 billion as of September30, 2018, up 34% compared to September30, 2017. The September30, 2018 total AUM included $85 billion, or 41%, tracking smart beta indexes. At September30, 2018, the number of ETPs tracking Nasdaq-licensed indexes increased 14% to 358 compared to 314 at September30, 2017. Additionally, on October 1, 2018, Nasdaq and CME Group announced a 10-year extension of CME Group’s exclusive license to offer futures (and options on these futures) based on the Nasdaq-100 and other Nasdaq Indexes.
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