Second quarter 2020 net revenues were $699 million, an increase of $76 million, or 12%, from $623 million in the prior year period. Net revenues reflected a $50 million positive impact from organic growth in the Market Services segment, a $25 million positive impact from organic growth in the non-trading segments and a $3 million increase from the inclusion of revenues from acquisitions, partially offset by a $2 million unfavorable impact from changes in exchange rates.
"I am extremely proud of the Nasdaq team and how we are serving our clients as we continue to navigate the pandemic," said Adena Friedman, President and CEO, Nasdaq. "Our foundational markets are demonstrating their resilience and the power of a distributed, electronic market model, handling record volumes through multiple periods of extreme volatility. We are also serving investors with thematic index products and data analytics that empower them to navigate through fundamental shifts caused by the pandemic's economic disruption. We continue to expand and transition our market technology clients to our cloud-based SaaS solutions, including five new clients in the second quarter, which provides for a more flexible and scalable architecture to serve them in the years ahead. While we continue to see some short-term uncertainties in the business climate due to the pandemic's impact on the economy, we remain steadfast in our conviction and our investment in our longer-term strategy to create a more inclusive, global economy through advanced capital markets technology and expert market knowledge and insights."
GAAP operating expenses were $384 million in the second quarter of 2020, an increase of $17 million from $367 million in the second quarter of 2019. The increase primarily reflects higher compensation expense and higher restructuring charges, partially offset by lower general, administrative and other costs and decreased marketing and advertising expense due to lower event costs. The lower general, administrative and other costs reflect lower debt extinguishment costs and reduced corporate travel expenses, partially offset by an increase in charitable contributions.
Non-GAAP operating expenses were $327 million in the second quarter of 2020, an increase of $5 million, or 2%, compared to the second quarter of 2019. This reflects a $7 million increase from the impact of acquisitions as well as higher compensation expense, partially offset by lower general, administrative and other costs, decreased marketing and advertising expense and a favorable impact from foreign exchange of $2 million. "During the second quarter of 2020, we further enhanced the strength of our balance sheet through our successful, 30-year $500 million bond offering," said Michael Ptasznik, Executive Vice President and Chief Financial Officer, Nasdaq. "We used the proceeds from this offering as well as the temporary cash buffer we established in the first quarter of 2020 to repay all of our commercial paper and the short-term borrowings on our revolver, thereby ending the period with lower leverage but increased available liquidity. As the pandemic continues into the latter half of the year, we continue to invest in our infrastructure to support the strong demand for our products and services as well as provide the capital and resources to deliver on our most important long-term opportunities."
On a GAAP basis, net income in the second quarter of 2020 was $241 million, or diluted EPS of $1.45, compared to $174 million, or $1.04 per diluted share, in the second quarter of 2019.
On a non-GAAP basis, net income in the second quarter of 2020 was $256 million, or $1.54 per diluted share, compared to $203 million, or $1.22 per diluted share, in the second quarter of 2019.
At June 30, 2020, the company had cash and cash equivalents of $711 million and total debt of $3,482 million, resulting in net debt of $2,771 million. This compares to total debt of $3,387 million and net debt of $3,055 million at December 31, 2019. As of June 30, 2020, there was $480 million remaining under the board authorized share repurchase program.
UPDATING 2020 NON-GAAP EXPENSE AND TAX GUIDANCE4
The company is narrowing its 2020 non-GAAP operating expense guidance to the range of $1,330 to $1,360 million, with its unchanged midpoint reflecting the depressed levels of corporate travel, lower event spending and delays in hiring, partially offset by unfavorable changes in foreign exchange rates. Nasdaq continues to expect its 2020 non-GAAP tax rate to be in the range of 25.5% to 27.5%.
BUSINESS HIGHLIGHTS
Market Services (40% of total net revenues) - Net revenues were $276 million in the second quarter of 2020, an increase of $49 million, or 22%, when compared to the second quarter of 2019.
Equity Derivative Trading and Clearing (12% of total net revenues) - Net revenues were $83 million in the second quarter of 2020, up $11 million from the second quarter of 2019. The increase reflects higher U.S. industry trading volumes, partially offset by lower overall U.S. equity option market share and net capture rate.
Cash Equity Trading (15% of total net revenues) - Net revenues were $106 million in the second quarter of 2020, up $40 million from the second quarter of 2019. The increase primarily reflects higher U.S. and European industry trading volumes and a higher U.S. capture rate, partially offset by lower overall U.S. matched market share.
Fixed Income and Commodities Trading and Clearing (2% of total net revenues) - Net revenues were $14 million in the second quarter of 2020, down $2 million from the second quarter of 2019. The decrease was driven by lower U.S. fixed income volumes and the sale of the core assets of our NFX business in 2019, partially offset by higher European products revenues.
Trade Management Services (11% of total net revenues) - Revenues were $73 million in the second quarter of 2020, unchanged from the second quarter of 2019.
Corporate Services (18% of total net revenues) - Revenues were $126 million in the second quarter of 2020, up $3 million, or 2%, compared to the second quarter of 2019.
Listing Services (11% of total net revenues) - Revenues were $74 million in the second quarter of 2020, unchanged from the second quarter of 2019. Higher U.S. Listing revenues were offset by lower event-related revenues at the Nasdaq MarketSite and lower Nasdaq Private Market program activity, both mainly due to the business impact of COVID-19.
Corporate Solutions (7% of total net revenues) - Revenues were $52 million in the second quarter of 2020, an increase of $3 million from the second quarter of 2019, due to increases in both IR intelligence revenues and governance solutions revenues.
Information Services (30% of total net revenues) - Revenues were $213 million in the second quarter of 2020, up $19 million, or 10%, from the second quarter of 2019.
Market Data (14% of total net revenues) - Revenues were $101 million in the second quarter of 2020, up $1 million from the second quarter of 2019, with organic growth in U.S. proprietary products from new sales, including continued expansion geographically, partially offset by lower shared tape plan revenue.
Index (10% of total net revenues) - Revenues were $68 million in the second quarter of 2020, up $13 million from the second quarter of 2019, primarily driven by higher licensing revenue from higher average assets under management (AUM) in exchange traded products (ETPs) linked to Nasdaq indexes, higher licensing revenue from futures trading linked to the Nasdaq 100 Index and higher index data revenues.
Investment Data & Analytics (6% of total net revenues) - Revenues were $44 million in the second quarter of 2020, up $5 million from the second quarter of 2019, primarily due to the acquisition of Solovis and growth in eVestment.
Market Technology (12% of total net revenues) - Revenues were $84 million in the second quarter of 2020, up $5 million, or 6%, from the second quarter of 2019. The increase is primarily due to higher SaaS surveillance revenues. Annualized recurring revenue5, or ARR, totaled $268 million in the second quarter of 2020, an increase of 9% year over year.
CORPORATE HIGHLIGHTS
Nasdaq's exchanges delivered continued resilient performance during period of record investor engagement. Nasdaq's electronically operated equities, options and fixed income markets operated at high performance levels during the surge of trading volume related to the COVID-19 pandemic and the rise in investor engagement. Nasdaq's combined U.S. equities and options markets set quarterly company records for trading volumes in the second quarter of 2020.
Nasdaq's Index business is benefiting from favorable thematic exposure to the digital economy as assets under management tracking the Nasdaq-100 index and Nasdaq indexes overall reach new quarterly records. Overall AUM in ETPs benchmarked to Nasdaq's proprietary indexes totaled $272 billion as of June 30, 2020, an increase of 34% compared to June 30, 2019. The increase in AUM was led by a 54% rise year over year in the assets linked to the Nasdaq-100 index. The June 30, 2020 total AUM included $96 billion, or 35% of overall AUM, tracking smart beta indexes.
Nasdaq continues to see strong client traction in its Market Technology segment with five new SaaS marketplace clients and launches the Marketplace Services Platform. New order intake totaled $38 million during the second quarter of 2020, driven by strong new order intake in our market and trade surveillance business and the signing of five new SaaS marketplace customers, including surveillance deals with Tradeweb and the National Futures Association. Robinhood, the U.S. retail brokerage, has also selected Nasdaq for its Nasdaq Trade Surveillance technology to monitor their markets. Nasdaq also announced the launch of the Marketplace Services Platform, a SaaS platform which provides next-generation capabilities spanning the transaction lifecycle to facilitate exchange of assets, services and information across various types of market ecosystems. LEX, a commercial real estate securities marketplace, announced they will collaborate with Nasdaq to use the Marketplace Services Platform as the underlying technology for LEX's alternative trading system.
Corporate Services sees success in facilitating primary capital formation, as well as helping established issuers adapt to a very dynamic investor landscape, and rising demand for sustainable practices. In the second quarter of 2020, The Nasdaq Stock Market welcomed 55 new U.S. listings, including 42 IPOs. Nasdaq's IPO win rate totaled 67%, with an 88% IPO win rate among operating companies6, during the second quarter of 2020. During the period, three of the largest IPOs by proceeds listed on The Nasdaq Stock Market, including Royalty Pharma PLC, Warner Music Group and ZoomInfo Technologies. In Corporate Solutions, accelerating organic growth was driven mainly by increases in demand for IR Intelligence products, which helps issuers track changes in their shareholder base and understand changing investor priorities, and include the company's ESG advisory and reporting solutions.
Nasdaq pledges continued commitment to communities around us. Nasdaq announced further steps in its continued commitment to diversity and inclusion, which includes increased investment in the company's internal programs, which allows us to attract, retain, and develop top talent. In addition to our previous philanthropic donations to COVID-19-related charities, Nasdaq has pledged $3 million to organizations providing critical assistance to communities disproportionately impacted by the global health, economic, and social justice crises. Nasdaq also plans to commit $10 million to the Nasdaq Foundation later this year, which will be a core component of our philanthropic efforts.
ABOUT NASDAQ
Nasdaq (Nasdaq: NDAQ) is a global technology company serving the capital markets and other industries. Our diverse offering of data, analytics, software and services enables clients to optimize and execute their business vision with confidence. To learn more about the company, technology solutions and career opportunities, visit us on LinkedIn, on Twitter @Nasdaq, or at www.nasdaq.com.
MEDIA RELATIONS CONTACT:
Allan Schoenberg+1.212.231.5534allan.schoenberg@nasdaq.com
INVESTOR RELATIONS CONTACT:
Ed Ditmire, CFA+1.212.401.8737ed.ditmire@nasdaq.com
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