Nasdaq, Inc. (Nasdaq:NDAQ) has just reported financial results for the second quarter of 2018.
Some of the highlights include:
- In April, the company completed the divestiture of its Public Relations Solutions and Digital Media Services businesses, a key step in our strategic repositioning to maximize opportunities as a capital markets technology and analytics provider.
- Second quarter 2018 net revenues were $615 million, a 3% increase compared to the second quarter of 2017. The year over year increase in revenues resulted from 7% organic revenue growth, a 1% positive impact from changes in FX, and a 5% revenue reduction due to the net impact of the divestiture and acquisition of businesses.
- Second quarter 2018 GAAP diluted EPS was $0.97 compared to $0.87 in the second quarter of 2017, while non-GAAP diluted EPS was $1.18, an increase of 17% compared to $1.01 in the second quarter of 2017.
- The company repurchased common shares valued at $241 million during the second quarter of 2018, bringing capital returns through dividends paid and share repurchases to $476 million through the first six months of 2018.
Second quarter 2018 net revenues were $615 million, up $19 million, or 3%, from $596 million in the prior year period. The second quarter increase in net revenues included a $40 million, or 7%, impact from organic growth, and a $6 million favorable impact from changes in foreign exchange rates, partially offset by a $27 million net negative impact from the divestiture of the Public Relations Solutions and Digital Media Services businesses and the inclusion of revenues from the acquisition of eVestment.
Adena Friedman
CEO of Nasdaq
I am pleased to see another period of strong organic growth in the second quarter of 2018, in particular the portion of that growth sourced from expanding the ways we serve our clients,” said Adena Friedman, President and CEO, Nasdaq. “Additionally, we are continuing to build for the future by strategically repositioning the company, as demonstrated by the completion of our business divestiture in April and our continued organic investments to implement the Nasdaq Financial Framework technology offering and advance our information services businesses.
Mrs. Friedman continued:
Equally critical, our core marketplace trading and corporate franchises are not only operating with the resiliency, efficiency and profitability necessary to support our strategy, but are also finding opportunities to build on their strong competitive positioning, as illustrated by efforts to broaden the offerings to our broker dealer and corporate clients.
GAAP operating expenses were $346 million in the second quarter of 2018, a decrease of $8 million from $354 million in the second quarter of 2017. The decrease primarily reflects lower merger and strategic initiatives expense and lower general and administrative expense, partially offset by higher compensation and benefits expense. Non-GAAP operating expenses were $325 million in the second quarter of 2018, an increase of $14 million, or 5%, compared to the second quarter of 2017. This reflects a $16 million organic expense increase, primarily related to compensation and benefits expense, computer operations and data communications expense, as well as depreciation expense, a $20 million increase from acquisitions, and a $4 million unfavorable impact from changes in foreign exchange rates, partially offset by a $26 million decrease due to the divestiture of the Public Relations Solutions and Digital Media Services businesses.
Michael Ptasznik
By completing the divestiture and making meaningful progress on our plan to return net proceeds to shareholders, we have continued optimizing our resources to better support our new strategic direction, a process that began with the acquisition of eVestment and the re-balancing of our organic investment spending towards higher growth opportunities,” said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq. “While second quarter results delivered both top and bottom line increases, they also reflect the temporary impacts of eVestment’s purchase price adjustment on deferred revenue and residual expenses of the divested businesses. These two items together lowered our non-GAAP operating margin by approximately 2%, and our non-GAAP EPS by approximately 5%, and thus we expect to see a more complete picture of the financial benefits of the strategic repositioning in future periods.
On a GAAP basis, net income for the second quarter of 2018 was $162 million, or $0.97 per diluted share, compared to $146 million, or $0.87 per diluted share, in the second quarter of 2017.
On a non-GAAP basis, net income for the second quarter of 2018 was $198 million, or $1.18 per diluted share, compared with $170 million, or $1.01 per diluted share, in the second quarter of 2017.
At June 30, 2018, the company had cash and cash equivalents of $322 million and total debt of $3,847 million, resulting in net debt of $3,525 million. This compares to total debt of $4,207 million and net debt of $3,830 million at December 31, 2017.
Share repurchases totaled $241 million during the second quarter of 2018, above typical quarters, due to the company’s progress in returning the net proceeds of our divestiture to shareholders. As of June 30, 2018, there was $386 million remaining under the board authorized share repurchase program.
UPDATING 2018 NON-GAAP EXPENSE GUIDANCE
The company is updating its 2018 non-GAAP operating expense guidance to $1,310 to $1,335 million versus prior expense guidance of $1,295 to $1,335 million, reflecting in part the strong organic growth in the first six months of the year, and the impact this has on performance-linked compensation plans.
BUSINESS HIGHLIGHTS
Market Services (39% of total net revenues) – Net revenues were $237 million in the second quarter of 2018, up $15 million, or 7%, when compared to the second quarter of 2017.
Equity Derivatives Trading and Clearing (12% of total net revenues) – Net equity derivative trading and clearing revenues were $72 million in the second quarter of 2018, up $5 million compared to the second quarter of 2017. The increase primarily reflects higher U.S. industry trading volumes, partially offset by lower U.S. market share.
Cash Equity Trading (12% of total net revenues) – Net cash equity trading revenues were $71 million in the second quarter of 2018, up $7 million from the second quarter of 2017. This increase primarily reflects higher U.S. market share and a higher 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 $21 million in the second quarter of 2018, up $2 million from the second quarter of 2017, due to $1 million of organic growth primarily related to higher NFX net revenues and a $1 million favorable impact from changes in foreign exchange rates.
Trade Management Services (12% of total net revenues) – Trade management services revenues were $73 million in the second quarter of 2018, up $1 million compared to the second quarter of 2017, primarily due to an increase in revenues from customer demand for third-party co-location services.
Corporate Services (21% of total net revenues) – Revenues were $131 million in the second quarter of 2018, up $9 million, or 7%, compared to the second quarter of 2017.
Listing Services (12% of total net revenues) – Listing services revenues were $72 million in the second quarter of 2018, up $7 million from the second quarter of 2017. The change primarily reflects a $6 million organic increase, resulting from client adoption of our all-inclusive annual listing fee program, partially offset by the run-off of fees earned from listing of additional shares.
Corporate Solutions (9% of total net revenues) – Corporate solutions revenues were $59 million in the second quarter of 2018, up $2 million from the second quarter of 2017 primarily due to $1 million of organic growth in board and leadership revenues.
Information Services (28% of total net revenues) – Revenues were $175 million in the second quarter of 2018, up $31 million, or 22%, from the second quarter of 2017.
Market Data (16% of total net revenues) – Market data revenues were $98 million in the second quarter of 2018, up $8 million compared to the second quarter of 2017, primarily due to $6 million of organic growth from higher revenues from proprietary market data and higher collections related to unreported usage, and a $2 million favorable impact from changes in foreign exchange rates.
Index (8% of total net revenues) – Index revenues were $50 million in the second quarter of 2018, up $7 million from the second quarter of 2017, driven by organic growth from higher assets under management (AUM) in exchange traded products (ETPs) linked to Nasdaq indexes and higher licensing revenues from futures trading volume related to the Nasdaq 100 Index.
Investment Data and Analytics (4% of total net revenues) – Investment data and analytics revenues were $27 million in the second quarter of 2018, up $16 million from the second quarter of 2017 primarily due to a $17 million impact from the acquisition of eVestment net of a $7 million purchase price adjustment on deferred revenue during the period.
Market Technology (11% of total net revenues) – Revenues were $66 million in the second quarter of 2018, up $8 million, or 14%, from the second quarter of 2017, driven by organic growth in delivery and support revenues and higher software as a service revenues.
Other Revenues (1% of total net revenues) – Other revenues include the revenues from the Public Relations Solutions and Digital Media Services businesses for the period until we closed the sale to West Corporation in April 2018. Prior to the sale date, these revenues were included in our Corporate Solutions business.